Key takeaways
Hypothetical losses can and will be considered
Courts may award damages based on reasonable assumptions supported by evidence.
Courts may ‘join the dots’ in order to reach a sensible conclusion on losses
Inferences can be drawn where a clear causal link is established.
Early consideration of potential losses is essential
Assessing recoverable losses early helps inform dispute strategy and proportionality.
The Intellectual Property Enterprise Court (IPEC) has provided an interesting reminder of some of the key considerations in respect of inquiries as to damages in passing off claims where tangible losses cannot immediately be identified, in the judgment of His Honour Judge Hacon in Duadata Limited v Tian Cha Le Limited [2026] EWHC 1055 (IPEC).
The claim
In the underlying claim, Duadata Limited (Duadata), a chain of 14 own and 96 franchise stores selling ‘bubble tea’ under the trading name MOOBOO, had raised allegations of passing off against Tian Cha Le Limited (TCL). The allegations were centred around the opening of a MOOBOO franchise outlet in Gateshead in April 2021 (with a Ms Lin acting as manager) and the subsequent termination of the franchise agreement in January 2024. Before termination, Ms Lin incorporated TCL and began to offer bubble tea from an outlet in Gateshead.
On 24 May 2024, Duadata issued a claim, alleging that TCL was passing off its business as being connected with Duadata, having adopted the same menu design, products and signature drinks, recipes and prices. Judgment in default was granted and included an order for an injunction restraining TCL from passing off, including from the similarities in drink names and menu presentation.
TCL was not suggested to have, at any point, breached the injunction, but Duadata nonetheless proceeded to advance a claim for damages based on an assumed period of passing off between the date of incorporation of TCL and the date of the order giving default judgment.
Duadata’s quantification of losses
Duadata based its damages calculations on the fact that it could not offer a licence to a franchisee in South Shields (around 12km from Gateshead) as a result of TCL’s actions, alleging that potential franchisees would be deterred by the fact that TCL was offering the same drinks at the same prices.
When quantifying the losses, Duadata relied upon a hypothetical franchise agreement for the period from the date of incorporation of TCL and the date of the default judgment, being 315 days. Duadata argued that the following heads of loss equated to sums that would have been paid by a hypothetical franchisee:
an initial fee of £8,000
a management services fee of £3,935.34
a fee to support marketing of £3,413.77 calculated by reference to the gross revenue of the store (here assumed to be the same as the equivalent gross revenue for the MOOBOO Gateshead store) and
VAT on the above elements.
TCL argued, amongst other things, that its business was small and unprofitable, and that there was no evidence of loss or of a causal link between the actions of TCL and the loss claimed.
The Court’s decision
The Court determined as follows:
Although it is unlikely that TCL started trading on the date of its incorporation, it’s also unlikely that it stopped passing off on the day the injunction was granted. As such, the approximation adopted by Duadata was considered sufficient.
The state of TCL’s finances was ’not relevant’.
In inquiries as to damages, losses are frequently inferred from the facts with necessary assumptions being made. The question is then whether those assumptions are reasonable, and here there was no reason to doubt that it was incorrect to say that potential franchisees would have been deferred, nor that it would be unreasonable to assume that this was connected with TCL’s conduct.
As a result, the Court upheld Duadata’s claim for damages, save for confirming that VAT would not normally be recovered from HMRC on an award of damages, and so it is appropriate to deduct it from the sum claimed.
Comment
This case is an interesting, recent reminder of the difficulties often faced when quantifying damages in intellectual property claims, particularly passing off claims. Equally, however, the judgment does emphasise that the Court will be cognisant of these difficulties and will be willing to consider appropriate hypothetical scenarios in circumstances where those scenarios are supported by evidence to suggest that the hypothesis is reasonable.
We would always recommend that careful consideration be given to potential losses at the outset of any intellectual property dispute, in order to avoid situations where – as may well have been the case here – the losses that can sensibly recovered are outweighed by the cost of proceeding to achieve that potential recovery.
For more information on our Intellectual Property expertise, Commercial Disputes practice or information on how we can support on IP disputes, contact us today or reach out to Laura Scott.
