Friday, 6 March 2009

Guest Analysis: THE DISTELL DECISION (Kenya)

By John Syekei, LLB, Partner and Head of Intellectual Property, Muriu Mungai & Company Advocates.

In a recent decision the High Court of Kenya has reinforced rights of foreign proprietors over their Trade Marks from adverse claims by local distributors of their products bearing the disputed Trade Marks in the case of Distell Limited Vs Southern Brandy Liquor Company Limited Vs Distell Kenya Limited, the plaintiffs filed suit against the defendant seeking a permanent injunction to restrain them from continuing to carry on business in the name “DISTELL” which was the 1st Plaintiff’s registered service mark.

The facts of this case were that the 1st Plaintiff was registered as a foreign company in 1996 as Distillers Limited. In 2002, the name was changed to Distell (pty) Ltd. It was again changed in 2005 to Distell Limited. Since 1996 it had been using the service mark “DISTELL” and registered the “DISTELL” mark as a service mark in 2006. According to the Plaintiff’s, and rightly so, it had been granted exclusive use of the name DISTELL in the sale and marketing of alcoholic and non-alcoholic beverages, wines and spirits.

In 2006, the defendant was registered as a company under the name Distell Kenya Limited by a fellow who was previously the Managing Director of Kenya Wine Agencies Limited, a distribution agent of the 1st Plaintiff and who was therefore aware of the existence of the company and its use of the “DISTELL” name.

The judge noted that the Plaintiffs were producers and marketers of alcoholic drinks that have established a market in Kenya through local distributors. It did not trade in its name in the retail market of alcoholic drinks in Kenya. The problem with this is reasoning that he does not say how he reached his conclusion that a market had been established by the Plaintiffs as such a conclusion can only be drawn from evidence supplied. What evidence establishing existence of goodwill did he review?

The judge was erroneously of the view that correspondence exchanged by way of email between the managing Director of the Defendant and the East African representative of the Plaintiff was not official communication between the parties. This is to my mind a very strange position as emails can form a contract in law and what is official communication? It is not a defined term of art. What makes up official communication? He stated that it was clear that the Managing Director of the Defendant company set up the company for speculative purposes with a view to entering the Plaintiffs into a business relationship. There is no way one can read such a position without hearing oral testimony. It is surprising that the judge could reach this conclusion based on affidavit evidence. His reasoning that the 2 shareholders of the defendant were relatives and therefore could not be contemplated that the company would be a joint venture between the parties on that basis alone is not sound. It is common for a company to be set up and a joint venture agreement entered into afterwards, a position that can be regularized by a change in shareholders structure.

An interesting and useful observation by the Judge was on the ownership of the trade names. He correctly in our view held that the Registrar of Companies was right to recall the registration of the Defendant company by the name DISTELL as there was already in existence in the register of company registered as “DISTELL Limited” in line with the provisions of Section 20 of the Companies Act.

The position taken by the Judge was that as the Plaintiff was first in time in registering the name it had the exclusive right to use the name DISTELL as a trade name to the exclusion of the Defendant. The Judge further noted that the court is required to accept the fact of registration of trade mark as prima facie evidence of the validity of the original registration. The fact that the Plaintiff had obtained a trade mark registration over the DISTELL mark was crucial. The Judge was of the opinion that the promoter and director of the Defendant incorporated the Defendant with a view to pressurizing the Plaitiffs into having a business relationship with him. When it appears that the Plaintiffs were not interested in any dealings with him, he used the fact of incorporation and registration of the Defendant company to obtain a substantial sum of money from the Plaintiffs. This was in our view a remarkable twist in the case as this fact played against the Defendant in this matter.

The Judge correctly found no merit in the Defendants claim that it would be put out of business if he granted the Plaintiffs an injunction as it could conduct its business under any name other than DISTELL. This decision while fraught with some illogical reasoning and assumptions was overall solid in its recognition of the prima facie validity of a trade mark registration and it emphasized the principle in law that in Trade Name registration priority rights ought to be accorded to the first registrant.

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