having no local situation. What is goodwill? It is a thing very easy to describe, very difficult to define. It is the benefit and
advantage of the good name, reputation, and connection of a business. It is the attractive force which brings in custom. It is
the one thing which distinguishes an oldestablished business from a new business at its first start. The goodwill of a
business must emanate from a particular centre or source. However widely extended or diffused its influence may be,
goodwill is worth nothing unless it has power of attraction sufficient to bring customers home to the source from which it
emanates. Goodwill is composed of a variety of elements. It differs in its composition in different trades and in different
businesses in the same
Page 183 of [1998] 3 All SA 175 (A)
trade. One element may preponderate here and another element there. To analyze goodwill and split it up into its
component parts, to pare it down as the Commissioners desire to do until nothing is left but a dry residuum ingrained in the
actual place where the business is carried on
View Parallel Citation
while everything else is in the air, seems to me to be as useful for practical purposes as it would be to resolve the human
body into the various substances of which it is said to be composed. The goodwill of a business is one whole, and in a case
like this it must be dealt with as such.
For my part, I think that if there is one attribute common to all cases of goodwill it is the attribute of locality. For goodwill has
no independent existence. It cannot subsist by itself. It must be attached to a business. Destroy the business, and the
goodwill perishes with it, though elements remain which may perhaps be gathered up and be revived again. No doubt, where
the reputation of a business is very widely spread or where it is the article produced rather that the producer of the article
that has won popular favour, it may be difficult to localise goodwill. But here, I think, there is no difficulty . We have it in
evidence that the firm of Muller & Co had no customers out of Germany, and it is a significant fact that the protected area
the limit within which the vendor is prohibited from setting up in business is the limit of fifty miles from Gildehaus.
Moreover, under the Stamp Act of 1891 we are not required to define the local situation of the goodwill. We have only to
determine whether it is or is not situate out of the United Kingdom. Surely, if there were an agreement made in England for
the sale of a local German newspaper, the circulation of which did not extend beyond a limited district in Germany, no one
would doubt that the goodwill of that business was locally situate out of the United Kingdom; and so it must be, I think, in the
present case."
[18] The conclusion arrived at was an inevitable consequence of the question posed. As the underlined passages
illustrate, the answer was neither directed at passingoff nor intended to give an allembracing definition or analysis
of the concept of "goodwill" irrespective of the context in which it appears. The fact that, under certain
circumstances, the locality of a business might be a component of goodwill, does not mean that goodwill can only
exist where the business is located. This Lord Macnaghten appreciated. One wonders what the drawing power of
the place of business is if the business is conducted solely by post or over the Internet. There is therefore merit in
the view of Lockhart J, namely that the law of passingoff should not be trammelled by definitions of goodwill
developed in the field of revenue laws (ConAgra Inc at 232 in IPR).
[19] My earlier conclusion that reputation is pivotal to passingoff is fortified by Lockhart J's findings in an
encyclopaedic dissertation that "reputation is the key business facet that passing off protects" and that "the
requirement of 'goodwill' was not meant to have [in this context] a different meaning from reputation and [that] its
inclusion only serves to complicate the matter" (at 231 in fine). The decisions of our courts to the opposite effect can
no longer be considered to be good law. They are based upon a misunderstanding of Lord Macnaghten's dictum,
they are inconsistent with general principles and incompatible with the world we live in and modern foreign
jurisprudential trends. I would in any event venture to suggest that most of those cases, if not all, would have had
the same result had the correct question been asked. A case such as
Page 184 of [1998] 3 All SA 175 (A)
Victoria's Secret Inc v Edgars Stores Ltd 1994 (3) SA 739 (A) is not in conflict with what
View Parallel Citation
I have stated simply because it was concerned with the interpretation of the repealed Trade Marks Act 62 of 1963
and not with passingoff.
[20] The correct question can be distilled from the judgments on passingoff of this Court mentioned earlier in
paragraphs [15] and [16] and from ConAgra Inc (esp at 234, 237 and 269). In general terms, it appears to me to be
whether the plaintiff has, in a practical and business sense, a sufficient reputation amongst a substantial number of
persons who are either clients or potential clients of his business. As far as the "location" of reputation is
concerned, it must subsist where the misrepresentation complained of causes actual or potential damage to the
drawing power of the plaintiff's business. Otherwise the misrepresentation would be made in the air and be without
any consequences. The locality of the plaintiff's business is not hereby rendered irrelevant. Obviously, it must be an
important consideration in determining whether the plaintiff has potential clients and whether the alleged
misrepresentation causes his business any harm. Likewise, the extent of a business's reputation and the scope of
its activities are relevant to the probability of deception and to damages the smaller the reputation, the smaller
the likelihood of deception and of damage, and vice versa.
[21] The nature of the reputation that a plaintiff has to establish was well stated by Lord Oliver in a judgment
referred to at the outset of this judgment, namely Reckitt & Colman Products Ltd v Borden Inc and others [1990] RPC
341 (HL) 406 lines 2631:
"First, he must establish a goodwill or reputation attached to the goods or services which he supplies in the mind of the