Goodwill

Meaning of Goodwill

Goodwill is commonly an important partnership asset. It is usually earned over time in the course of the business and represents the propensity of customers to return to deal with the firm.

The value of goodwill is represented by the difference between the total value of the component assets and the total value of the business as a going concern. It usually reflects the accumulated business reputation. In one sense, it represents the present value of the future prospective repeat business.

The Partnership Act does not refer to goodwill as such and makes no particular provision for it. The partnership agreement may make provision in relation to the ownership and sale of goodwill. There may be provisions for its valuation. In practice, goodwill may only be capable of realisation in the sale of the partnership as a going concern.


Ownership of Goodwill

The goodwill will usually belong to the partners/ firm. It is not usually regarded as part of the capital of the firm. Depending on the particular circumstances, it may be treated as an asset of the firm,  owned presumptively equally or a profit of the firm owned presumptively in the partners’ sharing ratios.

Goodwill which is brought into the firm at the outset may be treated as capital returnable as such on a winding up to the partner(s) who introduced it. An apportionment may be required between the goodwill as originally introduced and the goodwill as enhanced in the course of the business.  The latter is presumed to accrue in the partners’ in their profit sharing ratio.

A partnership agreement might provide that goodwill is to be partnership property or that it is the property of one or more partners.  It may provide that a new partner is not be entitled to payment for goodwill unless he has been a partner for certain minimum period of years.  He may become entitled to goodwill progressively.


Protection of Goodwill

A partner may not damage or undermine the partnership’s goodwill. There may be restrictions in a written partnership agreement, giving further effect to this principle. There may be restrictions on competing with the partnership, while the party is a partner and for a period after retirement.

The general principle is that on the sale of the goodwill of a business by the partners, the buyer is entitled to the benefit of his bargain. Therefore, the sellers may not carry on the business under the name of the sold firm, solicit customers of the business or represent themselves as carrying out the business of the firm.

Where an outgoing partner has received money for a share of the goodwill, he is treated as if he had sold the goodwill.  Therefore, he may not carry on the business or solicit the firm’s customers.  He may, however, carry on business in competition with the firm and deal with customers who chose to deal with him. However, the sale of or partnership agreement is likely to provide restrictive covenants, which broaden the obligation.


Dissolution

In the case of a general dissolution with a winding up, a partner may not compete with the firm during the course of winding up. His duty to account to the firm for profits arising from the partnership remains during this period.  He may not use the goodwill or partnership property for his own benefit.

Each partner is entitled to insist that the partnership property is sold for the benefit of all partners. If the right is not exercised or is waived, any partner may use the firm name provided he does not hold himself out as carrying on the new business in partnership with former partners.

Upon a technical dissolution, a departing partner is entitled to a share of goodwill, subject to what is provided for in the partnership agreement.  Where the firm continues to use the goodwill, he may be entitled to interest or a share of profits on this above basis.

The partnership agreement may provide as to whether on a general dissolution, some or all of the partners are to be entitled to a share of goodwill in the distribution, assuming sufficient proceeds are available. In some agreements, it is provided that if the partner leaves within an initial period, he is not entitled to a share of the goodwill or is entitled to reduced share only.


Outgoing Partner

A partnership agreement might provide as to whether or not goodwill is to have a value between the parties. It may provide whether an outgoing partner is to receive payment for his share of goodwill from the continuing partners.

Where a partner transfers his goodwill for value, he cannot claim that the use of the firm name has the effect of holding him out as a partner. This may occur on a sale or transfer of the partnership interest or on his departure from the partnership.

Where, however, the outgoing partner has not transferred his interest in the firm’s goodwill, he may in the absence of an agreement otherwise, use the firm name. He must not give the impression that he is carrying on the business of the old firm.

Partnership agreements may provide that goodwill is deemed of no value.  The agreements may provide for a calculation of goodwill by reference to annual profits or gross fees or another appropriate basis. In the absence of a valuation mechanism, a valuation must be made by reference to the accounts.


References and Sources

 

Irish Sources

Partnership Act, 1890

Partnership Law 2000 Twomey M. Butterworths

 

UK Sources

Lindley & Banks on Partnership: (19th Revised edition) 2016  Banks, Roderick I’Anson

Partnership & Llp Law (8th edition) 2015  Morse, G.

Partnership Law (5th Revised edition) 2015  Blackett-Ord, Mark; Haren, Sarah;


Partnership Act

Accountability of partners for private profits.

29.—(1) Every partner must account to the firm for any benefit derived by him without the consent of the other partners from any transaction concerning the partnership, or from any use by him of the partnership property name or business connexion.
(2) This section applies also to transactions undertaken after a partnership has been dissolved by the death of a partner, and before the affairs thereof have been completely wound up, either by any surviving partner or by the representatives of the deceased partner.

Duty not to compete with the Firm

30. If a partner, without the consent of the other partners, carries on any business of the same nature as and competing with that of the firm, he must account for and pay over to the firm all profits made by him in that business.

Cases

Trego v Hunt

[1896] AC 7

Lord Herschell and Lord Macnaghten

 ‘What ‘goodwill’ means must depend on the character and nature of the business to which it is attached. Generally speaking, it means much more than what Lord Eldon took it to mean in the particular case actually before him in Cruttwell v Lye where he says: ‘the goodwill which has been the subject of sale is nothing more than the probability that the old customers will resort to the old place.’ Often it happens that the goodwill is the very sap and life of the business, without which the business would yield little or no fruit. It is the whole advantage, whatever it may be, of the reputation and connection of the firm, which may have been built up by years of honest work or gained by lavish expenditure of money.’


Gargan v. Ruttle 

[1931]  I.R. 158

Meredith J.        

“Now since the decision of the House of Lords in the case of Trego v. Hunt (1) there is no doubt as to the general proposition which, however, “has never been extended to any case except that of a sale or of some contract equivalent to a sale,”per Warrington J. in  Green & Sons (Northampton), Ltd., v.Morris (2)that when a man sells the goodwill of his business he cannot afterwards destroy the value of what he has sold by soliciting his old customers. Subject, however, to this restriction, the vendor is not precluded from setting up a rival business with which the old customers may deal on their own initiative. A monopoly of custom, or of the custom of any particular class of customers, is not a constituent element of the proprietary rights that go to make up that peculiar kind of property that consists in the ownership of the goodwill of a business. The obligation not to solicit the old customers is only a protection in further assurance of the ownership given on the strength of the particular relation existing between a vendor and a purchaser, or of some equivalent relation, and flows only from that relationship.

 ……………….

If the defendant were to be restrained from soliciting any of the old customers, not alone personally but by travellers or agents, he would in effect be precluded from setting up business, even under a different name, as a manufacturer. Yet, in such a case, if he only dealt with retailers through some wholesale dealer, such as J. M. Gargan & Co., his appeal through his agents to the retail dealers could not possibly, to use the words of Lord Herschell in  Trego v. Hunt (2), “be a direct and intentional dealing with the goodwill and an endeavour to destroy it.” It would be Lord Herschell’s description of what falls on the other side of the line that would apply. He would only be conducting “his business in precisely the same way as he would if he had never been a member of the firm to which he previously belonged (3),” and without taking any advantage of his previous position. But any injunction which I might see fit to make on the basis that the defendant is in the position of a vendor would have to restrain him from soliciting the old customers in the way he has been doing.

 But it follows at once from the fact that this restriction, as to soliciting, is not a constituent element of the proprietary rights that go to make up ownership of the goodwill of a business, that the rule only applies where there is some particular personal relation, contractual or fiduciary, from which the obligation can be derived, so the obligation will not arise on an assignment pure and simple of the goodwill. That was firmly established in the case of  Walker v. Mottram (4), in which it was held that the purchaser of the goodwill of a business from a trustee in bankruptcy or liquidation has no right to restrain the bankrupt or liquidating debtor from bona fide commencing a fresh business and from seeking assistance in it from his old friends and customers. The mere assignment will confer on the  assignee such rights as the exclusive right to carry on the business itself which is assigned, and “the exclusive right to represent himself as carrying on that business, and consequently the right, not only to sue the assignor for damages if he has infringed these rights, but also to restrain him from infringing them if he manifests an intention to infringe them” (1). In contradistinction to these rights, the obligation on the part of the assignee not to solicit “is, however, a purely personal obligation, and not a mere incident to the transfer of property” (2). The net result of the decision was given in the words: “An assignment of a business and its goodwill, without more, appears to us to pass now just as much as and no more than in the days of Lord Eldon” (3). The distinction so clearly drawn in  Walkerv. Mottram (4) was also taken in  Dawson v. Beeson (5), where a partner had been expelled under a provision in the articles which only entitled the expelled partner to be paid the amount of his capital for the time being. There Jessel M.R. held that the expelled partner was only entitled to receive the value of his share as if dead. But in  Trego v. Hunt (6), where the partnership agreement was for a term of seven years, and it was part of the agreement that the goodwill should belong exclusively to one of the partners, it was held that the partner retiring on the expiration of the partnership was under the same obligations as in the case of a sale.


Baldwins (Ashby) Ltd v Maidstone

[2011] EWHC B12

JUDGE SIMON BROWN QC

‘Agreements in restraint of trade, like other agreements, must be construed with reference to the object sought to be attained by them.’ Per Sir Nathaniel Lindley MR in Haynes v Doman [1899] 2 Ch 13, at p.25, quoted with approval by Lord Denning MR in Littlewoods Organisation Ltd v Harris [1977] 1 WLR 1472, 1481.

The ‘objective’ is essentially to “protect the value of the goodwill’ sold in the bargain struck.

There are two classic definitions of ‘goodwill’ that have stood the test of time: Lord Eldon in Cruttwell v Lye (1810) 7 Ves Jr 335:

‘The goodwill which has been the subject of sale is nothing more than the probability that the old customers will resort to the old place’; and

Lord Macnaghten in Trego v Hunt [1896] AC 7:

‘It is the whole advantage, whatever it may be, of the reputation and connection of the firm, which may have been built up by years of honest work or gained by lavish expenditure of money’.

Since that time, courts around the world have grappled with defining the elusive concept of ‘goodwill’. In Commissioner of Income-tax v. Setty [1981] 128 ITR 294 (SC) the Supreme Court of India illuminatingly did so:

“Goodwill denotes the benefit arising from connection and reputation. The original definition by Lord Eldon in Cruttwell v Lye [1810] 17 Ves 335 that goodwill was nothing more than “the probability that the old customers would resort to the old places” was expanded by Wood V.C. in Churton v. Douglas [1859] John 174 to encompass every positive advantage “that has been acquired by the old firm in carrying on its business, whether connected with the premises in which the business was previously carried on or with the name of the old firm, or with any other matter carrying with it the benefit of the business”. In Trego v. Hunt [1896] AC 7 (HL) Lord Herschell described goodwill as a connection which tended to become permanent because of habit or otherwise. The benefit to the business varies with the nature of the business and also from one business to another. No business commenced for the first time possesses goodwill from the start. It is generated as the business is carried on and may be augmented with the passage of time. Lawson in his Introduction to the Law of the Property describes it as property of a highly peculiar kind. In CIT v. Chunilal Prabhudas & Co. [1970] 76 ITR 566 the Calcutta High Court reviewed the different approaches to the concept (pp. 577, 578):

It has been horticulturally and botanically viewed as ‘a seed sprouting’ or an ‘acorn growing into the mighty oak of goodwill’. It has been geographically described by locality. It has been historically explained as growing and crystallising traditions in the business. It has been described in terms of a magnet as the ‘attracting force’. In terms of comparative dynamics, goodwill has been described as the ‘differential return of profit’. Philosophically it has been held to be intangible. Though immaterial, it is materially valued. Physically and psychologically, it is a ‘habit’ and sociologically it is a ‘custom’. Biologically, it has been described by Lord Macnaghten in Trego v. Hunt [1896] AC 7 (HL) as the ‘sap and life’ of the business. Architecturally, it has been described as the ‘cement’ binding together the business and its assets as a whole and a going and developing concern.”

In the instant case, the ‘goodwill’ is the substantial tax accounting business the Defendant and his wife built up over 10 years in Leicestershire with strongly bonds developed with both personal and SME clients.

The clause was not, however, a strict “non-dealing” one that has a clear dividing line and is easier to police and adjudicate upon; it is an express “non-solicitation” of the type often described as a “Trego v. Hunt type clause”.

As stated by Lord Herschell in Trego v. Hunt [supra] on page 20: ” it must be treated as settled that whenever the goodwill of a business is sold the vendor does not, by reason only of that sale, come under a restriction not to carry on a competing business”. Hence, in the instant case the Defendant was perfectly entitled to compete for business with the claimants in the area and to undertake work for his previous clients if they solicited him to do so without his importuning them.

However, the express terms of the clause prohibit him from “soliciting” them. The reason for this (and implied in Trego v. Hunt) is explained by Lord Macnaughten in Trego v. Hunt [supra] on page 25:

‘The principle on which Labouchere v. Dawson rests has been presented in various ways. A man may not derogate from his own grant; the vendor is not at liberty to destroy or depreciate the thing which he has sold; there is an implied covenant, on the sale of goodwill, that the vendor does not solicit the custom which he has parted with: it would be a fraud on the contract to do so. These, as it seems to me, are only different turns and glimpses of a proposition which I take to be elementary. It is not right to profess and to purport to sell that which you do not mean the purchaser to have; it is not an honest thing to pocket the price and then to recapture the subject of sale, to decoy it away or call it back before the purchaser has had time to attach it to himself and make it his very own.’

Lord Herschell explains on pages 20-21 the ‘dividing line’ between what is acceptable and what is not:

‘This is really the strong point in the position of those who maintain that Labouchere v. Dawson was wrongly decided. Cotton L.J. says:

“It is admitted that a person who has sold the goodwill of his business may set up a similar business next door and say that he is the person who carried on the old business. Yet such proceedings manifestly tend to prevent the old customers from going to the old place. I cannot see where to draw the line. If he may, by his acts, invite the old customers to deal with him and not with the purchaser, why may he not apply to them and ask them to do so?”

I quite feel the force of this argument, but it does not strike me as conclusive. It is often impossible to draw the line and yet possible to be perfectly certain that particular acts are on one side of it or the other. It does not seem to me to follow that because a man may, by his acts, invite all men to deal with him, and so, amongst the rest of mankind, invite the former customers of the firm, he may use the knowledge which he has acquired of what persons were customers of the old firm in order, by an appeal to them, to seek to weaken their habit of dealing where they have dealt before, or whatever else binds them to the old business, and so to secure their custom for himself.

This seems to me to be a direct and intentional dealing with the goodwill and an endeavour to destroy it. If a person who has previously been a partner in a firm sets up in business on his own account and appeals generally for custom, he only does that which any member of the public may do, and which those carrying on the same trade are already doing. It is true that those who were former customers of the firm to which he belonged may of their own accord transfer their custom to him; but this incidental advantage is unavoidable, and does not result from any act of his. He only conducts his business in precisely the same way as he would if he had never been a member of the firm to which he previously belonged.

But when he specifically and directly appeals to those who were customers of the previous firm he seeks to take advantage of the connection previously formed by his old firm, and of the knowledge of that connection which he has previously acquired, to take that which constitutes the goodwill away from the persons to whom it has been sold and to restore it to himself. It is said, indeed, that he may not represent himself as a successor of the old firm, or as carrying on a continuation of their business, but this in many cases appears to me of little importance, and of small practical advantage, if canvassing the customers of the old firm were allowed without restraint.’ [emphasis added]

The Black’s Law Dictionary (9th edition) definition of “solicitation” includes “The act or an instance of requesting or seeking to obtain something” and “An attempt or effort to gain business…”.

In Austin Knight (UK) Limited v. Hinds [1994] FSR 52, Vinelott J. held that the act of contacting former clients had to be with the intent to entice away to be in breach of a non solicitation clause. Hence if, as upon the facts in that caswe it was to explain the reasons for dismissal (i.e. redundancy rather than misconduct or incompetence) then such would not be in breach of the clause even if subsequently clients did approach and follow to give their custom.

In Sweeney v. Astle [1923] NZLR 1198 (as referred to in Employee Competition (2nd Edition), Stout J. noted that ‘solicit’ was a common English word, and in its simplified form, meant ‘to ask’ and that its other meanings included ‘to call for’, ‘to make request’, ‘to petition’, ‘to entreat’, ‘to persuade.

In Equico Equipment Finance Ltd v. Enright Employment Relations Authority, Auckland, NZ (17th July 2009), the Member of the Authority usefully rehearsed Sweeney and English law about the meaning of “solicitation” (and ‘enticement away’) in this context up to that point:

‘[26] ‘MMs Enright’s counsel refers the Authority to Black’s Law Dictionary definition of a non-solicitation agreement as this:-

“A promise in a contract for the sale of a business, a partnership agreement, or an employment contract, to refrain, for a specified time, from either (1) enticing employees to leave the company or (2) trying to lure customers away”.

[27] It is also submitted that if solicit means to entice, then appropriate synonymous for ‘entice’ include “tempt”, “lure”, “persuade”, and “inveigle”. I accept that solicit should be interpreted similarly.

[28] In Sweeney v Astle Stout J noted that ‘solicit’ was a common English word, and in its simplified form meant ‘to ask’ and that its other meanings included ‘to call for’, ‘to make request’, ‘to petition’, ‘to entreat’, ‘to persuade’.

[29] The Employment Court in Deloitte & Touche Group-ICS Ltd v Halsall referred to Sweeney and also the Shorter Oxford Dictionary definition “to seek assiduously to obtain”, “to ask earnestly or persistently for” and ‘request’ or ‘invite’. More recently,

the High Court in TAP (New Zealand) Pty Ltd v Origin Energy Resources NZ Ltd considered that solicit in its ordinary use “has connotations of impropriety or persistence” and then cited the definition from the Shorter Oxford Dictionary that had

also been referred to in Deloitte.

[31] It matters not who initiates the contact. The question of whether solicitation occurs depends upon the substance of what passes between parties once they are in contact with each other. There is solicitation of a client by a former employee if the former employee in substance conveys the message that the former employee is willing to deal with the client and, by whatever means, encourages the client to do so.

[32] In my view, “canvass” is synonymous with soliciting. Both words involve an approach to customers with a view to appropriating the customer’s business or custom. I consider a degree of “influence” is required. There must be an active component and a positive intention’.

In my judgment, this is an excellent dissertation on the meaning of the words “canvassing, soliciting and enticing away” in the context of the “non– solicitation clause” in this case and the high authority of Trego v. Hunt. It provides helpful guidance as to where boundaries are to be drawn between acceptable and non acceptable acts.

As described in Employee Competition (2nd Edition), para. 5.255, questions posed such as these are instructive: “Does the conduct evidence a specific purpose and intention to obtain orders from customers? Where it is his contact initiative with a customer, does he do something more than merely inform the customer of his departure?”

Restrictive Covenants under Common and Competition Law (6th edition), paragraph 3.4.1, the customer approach “must involve some direct or targeted behaviour”.

These different wordings chime with the authoritative specific and direct appeal test in Trego v. Hunt.

Therefore a general advertisement to the world about availability for custom at a new firm or a specific notification to a client of departure from one firm to another does not cross the borderline; any activity or behaviour beyond would.

The question to be determined is whether the Defendant crossed that threshold in respect of any of the seven identified former clients with the intention of “soliciting” their custom.


Byford v Oliver & Anor

[2003] EWHC 295

Mr Justice Laddie:

“Introduction

In my view, Mr Foley’s views as to ownership of the name SAXON and the goodwill associated with it are not correct. There is no dispute that the group was a partnership at will in the 1980’s. The name and goodwill were assets of the partnership. All the partners have or had an interest in those and all other assets of the partnership, but that does not mean that they owned the assets themselves. Absent a special provision in the partnership agreement, the partners had an interest in the realised value of the partnership assets. On dissolution of the original partnership, which is what happened when Mr Dawson departed in 1985, he and all the other partners were entitled to ask for the partnership assets to be realised and divided between them in accordance with their respective partnership shares. But none of them “owned” the partnership assets. In particular, none of them owned the name SAXON or the goodwill built up under it. The position would be very different if all the members of the original group had been performing together, not as partners, but as independent traders. In such a case, each may well have acquired a discreet interest in the name and reputation which he could use against third parties but not against the other owners. An example of this is Dent v Turpin(1861)2 J&H 139. Similarly, when Mr Oliver left in 1995, the then partnership dissolved. He had an interest in the realisation of that partnership’s assets, but he did not own in whole or in part the partnership name and goodwill.

On this analysis, Mr Foley was wrong to conclude, as he did in paragraph 49 of the decision, that it made no difference whether the musicians were performing as sole traders or as a partnership because in either case the name and accrued goodwill “would be owned by each individual member of the group”.

Mr Saunders argues that Mr Foley was right. He relies for this on the following passage in “The Law of Passing Off” by Wadlow in a passage bearing the rubric “Severance of Goodwill”:

“The common law accommodated transactions which resulted in the goodwill of a business being split. It was even impossible for the goodwill to be divided between the new owners to the extent that each of them was entitled to use the old name, in the same field of business, in the same place and at the same time. Dent v Turpin and Southern v Reynolds are examples of plaintiffs being successful in passing-off actions, although in each case the goodwill of the founder of the business and being divided after his death. An extreme illustration is provided by Burchell v Wilde. The Court of Appeal held that on the expiry of a partnership, in the absence of agreement to the contrary, each partner was entitled to enjoy his severed share of the goodwill previously held in common. Each, therefore, was entitled to carry on business in his own right under the old firm name, although the Court expressed the hope that the defendant would voluntarily distinguish himself. The Court undoubtedly understood this as sharing the goodwill fairly, rather than destroying it altogether.” (Emphasis added)

Mr Saunders relied in particular upon the underlined passage and Burchell v Wilde [1900] 1 Ch 551.

If, in the above-quoted passage, the author was suggesting that the Court of Appeal had laid down a rule of general application, in my view he is wrong. Burchell was a case concerning the dissolution of a solicitors’ practice. The decision of the court is encapsulated in the following passage from the judgment of Lindley MR:

“Unfortunately differences arose between the partners which led to a memorandum of dissolution being signed on September 15, 1899. The heads of that memorandum were of a very sketchy character, but there was a clause to the effect that all disputes should be referred to an arbitrator, under which the arbitrator has made an award upon some points, and, taking the memorandum and the award together, it is pretty plain what the arrangement was. Nothing was said either in the memorandum or in the award about the continued use of the firm name. Nor was anything said in terms about the goodwill of the business. But the agreement, as expounded by the award, amounts to this – that the clients and their documents were to be divided, some of them going to the Burchells and some to W.G. Wilde. There were also provisions for the books of the firm being handed over to a Mr Gardiner, with liberty to either of the partners to inspect them. Some of the older books were to be left with the Burchells, they being under an obligation to give extracts to Wilde if he should want them. What does that arrangement mean? It involves this – that the goodwill of the business was not to be sold for the benefit of the partners. The goodwill was to be divided between them in so far as it was incident to the possession of the clients’ papers. That is a most important factor. It was left entirely undecided what was to be done about the use of the name of the firm. But if you come to the conclusion (about which there can be no doubt) that the goodwill apart from the benefit of the firm name, as to which nothing is said, was not to be sold, but was to be divided between the partners, what is the result? It appears to me to follow that each partner could use the name of the old firm. They had become tenants in common of that assets, and each partner was entitled to enjoy that assets, subject only to a limitation, which I will mention presently….”

It seems tolerably clear that, absent the special circumstances in that case, the goodwill and name of the partnership would have been an asset of the partnership which, on dissolution, would have had to have been sold so that its value could be realised for distribution among the former partners. None would have owned the goodwill or name. What prevented that from happening in Burchell was the existence of the award which had the effect of creating an agreement between the partners to the effect that they would not sell the goodwill and distribute the proceeds on dissolution but would share it as tenants in common. Once that term existed, it followed that the name of the firm under which the goodwill had been generated had to be owned by the former partners as tenants in common also. This case does not provide support for the wider proposition advanced by Mr Saunders.

Absent special facts such as existed in Burchell, the rights and obligations which arise when a group of musicians, performing in a band as a partnership, split up can be explained as follows. It is convenient to start by considering the position when two, entirely unrelated bands perform under the same name. The first performs from, say, 1990 to 1995 and the second performs from 2000 onwards. Each will generate its own goodwill in the name under which it performs. If, at the time that the second band starts to perform, the reputation and goodwill of the first band still exists and has not evaporated with the passage of time (see Ad-Lib Club v Granville [1972] RPC 673) or been abandoned (see Star Industrial Co  v Yap Kwee Kor [1976] FSR 256) it is likely to be able to sue in passing off to prevent the second group from performing under the same name (see Sutherland v V2 Music [2002] EWHC 14 (Ch), [2002] EMLR 28). On the other hand, if the goodwill has disappeared or been abandoned or if the first band acquiesces in the second band’s activities, the latter band will be able to continue to perform without interference. Furthermore, whatever the relationship between the first and second bands, the latter will acquire separate rights in the goodwill it generates which can be used against third parties (see Dent v Turpin and Parker & Son (Reading) Ltd v Parker [1965] RPC 323). If the first band is a partnership, the goodwill and rights in the name are owned by the partnership, not the individual members, and if the second band were to be sued, such proceedings would have to be brought by or on behalf of the partnership.

The position is no different if the two bands contain common members. If, as here, they are partnerships at will which are dissolved when one or more partners leave, they are two separate legal entities. This is not affected by the fact that some, even a majority, of the partners in the first band become members of the second. A properly advised band could avoid the problem that this might cause by entering into a partnership agreement which expressly provides for the partnership to continue on the departure of one or more members and which expressly confirms the rights of the continuing and expressly limits the rights of departing partners to make use of the partnership name and goodwill. This is now commonplace in the partnership deed for solicitors’ practices.

How do these principles apply here? Consider the position of Mr Dawson first. By the time of the application to register, his claims to any share or interest in the original partnership assets was 12 years old. During that period he had never performed in a band which used the name SAXON alone. When Mr Oliver made a claim for an account in his High Court proceedings, Mr Dawson did not. Indeed, it is not suggested that Mr Dawson had claimed to own any interest in the use of SAXON alone at any time prior to the application to register the mark. As far as his own connection with the name is concerned, Mr Foley said:

“50.      Having established that Mr Byford, Mr Oliver and Mr Dawson had rights originating from [before the original group was dissolved], what is the position at the relevant date. Mr Dawson departed from the group in 1985 and did not have any active involvement with the name SAXON for over a decade. That he was a founder-member of the original group would be a fact known to long term fans, and may have become known to those who supported the group even after his departure, but so would the fact that he had left the group have been common knowledge. Re-issues and back-catalogue issues of recordings on which Mr Dawson performed may have contributed to the maintenance of some of his goodwill, but the evidence relating to such events is scant. I would therefore conclude that by the time he became involved with Mr Oliver, a decade later, Mr Dawson’s rights to the goodwill in the name SAXON are likely to have diminished, but not dissipated.”

This starts from the premise that Mr Dawson owned some rights generated by the first band in the name SAXON from the 1980’s. For reasons already given, I do not accept that. Furthermore, Mr Norris for Mr Byford argues that Mr Foley was overstating the position when he referred to the evidence as “scant”. In truth there was no evidence showing that any significant part of the public associated Mr Dawson with the name SAXON alone. I agree. Not only did Mr Dawson not own the name or the goodwill, but on the evidence, he had abandoned any interest in the original partnership’s trading style SAXON alone and the goodwill generated in it. But, as I have said, even had he not abandoned his interest, he is not an owner of the name and goodwill generated by the first band. Furthermore, whatever may have been the position in the 1980’s, the recent reputation and goodwill in the name SAXON has been built up by the other partnerships which had performed under that name up to the present time. Mr Dawson had no interest in that.

As far as Mr Oliver is concerned, Mr Foley summarised the evidence relating to his continued interest in SAXON as follows:

“51.      The position with Mr Oliver is somewhat different. He was involved with SAXON until 1995, and approaching only three years prior to 6 November 1997, the relevant date in these proceedings. Between 1995 and November 1997, Mr Oliver performed with a group by the name of “Son of a Bitch”, but promoting itself as, or by reference to SAXON, including Oliver/Dawson SAXON, SAXON-Son of a Bitch tour, SAXON-the early years, and even attempted to do so under the name SAXON solus, but was prevented by threat of legal action. As I have previously mentioned, the applicant refers to the style of script used by Mr Oliver’s group, namely a form of Gothic font with a stylised letter S which is identical to that used by the “original” group, a fact that cannot have escaped the public and heightened the association, which was no doubt the intention.

“52. On these facts I do not consider that Mr Oliver could be considered to have severed his contact with his rights in the name and goodwill of the “original” SAXON, and accordingly, at the time that he made the application, he had every right to claim to be, if not “the”, then certainly “a” proprietor of the mark. The position would not be any different if considered at an earlier date. That Mr Oliver’s group sought to differentiate themselves from the “original” SAXON appears to have been on advice whilst matters were being determined. I do not consider that in doing so he relinquished his rights, nor that I can infer from this that he was acknowledging the weakness of his claim. The fact that Mr Byford’s group may be considered as the “original” band or have been using the name on its own for a longer period of time does not take away this right. Likewise there was no reason why other members of the group could not have made an application to register the name, but if challenged their right to do so would have subject (sic) to the same scrutiny as Mr Oliver’s has been.”

In my view, Mr Oliver’s position is much the same as Mr Dawson’s, save that it is less easy to say that he abandoned his interest in SAXON alone in the three years between his departure from the group and his application to register SAXON as his trade mark. For reasons given above, Mr Foley was in error to conclude that Mr Oliver had every right to claim to be a proprietor of the mark. The only connection he had with the use of SAXON alone was through his membership of the original partnership. Furthermore, on the proprietors’ evidence, there is no suggestion that Mr Oliver has, since his departure from the band, used or asserted a right to be entitled to use SAXON alone.”

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