FEDERAL COURT OF AUSTRALIA

Bugatti GmbH v Shine Forever Men Pty Ltd (No 2) [2014] FCA 171

THE COURT ORDERS THAT:

1.    The Respondent pay the Applicant AU$551,159.39 as an account of profits for the Respondent’s infringement of the Applicant’s trade mark registrations nos. 503207, 1054553 and 1151896.

2.    The Respondent pay the Applicant’s costs of and incidental to this proceeding since 20 November 2013, including costs reserved on 20 November 2013, on an indemnity basis.

Note:    Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

REASONS FOR JUDGMENT

1    Before the trial of this proceeding I ordered that issues of liability be determined prior to and separately from issues relating to relief. On 31 October 2013 I delivered reasons, finding that the respondent (“Shine Forever”) had infringed the applicant’s registered trademarks by marketing clothing and accessories using the marks BUGATCHI or BUGATCHI UOMO, thereby contravening s 120(1) of the Trade Marks Act 1995 (Cth) (“the Act”).

2    On 15 and 20 November 2013 I made certain consequential orders. Those orders included orders that:

    Shine Forever, acting by an officer with sufficient personal knowledge of the affairs of the company, depose to the total number of goods bearing any of the infringing marks sold and otherwise disposed of by the company in Australia on and from 11 October 2011, the price at which each of the items was sold or otherwise disposed of, the cost to Shine Forever in producing and marketing the goods and an estimate of the profits made by it in respect of the sale of the goods.

    Shine Forever deliver up all infringing goods in its possession and to file and serve an affidavit, made by a director, confirming compliance with the order.

3    Additional orders were made restraining Shine Forever from using the infringing mark, requiring it to take steps to cancel the Victorian business name registered by it (“BUGATCHI”) and orders dealing with costs.

4    There remained the question of financial relief for the applicant. This depended on it being advised of the financial information which Shine Forever had been ordered to provide and the applicant’s election as to the basis on which relief was to be calculated.

5    Shine Forever failed to comply with the Court’s orders in a timely way and the affidavits which it filed were incomplete and inadequate.

6    On 19 December 2013 Shine Forever served an affidavit in belated compliance with my earlier orders. The affidavit failed to comply with the Federal Court Rules 2011 (Cth). On 23 December 2013 Shine Forever served a re-affirmed version of the 19 December 2013 affidavit in substantially the same terms. This affidavit was not filed until 31 January 2014. This affidavit was affirmed by Mr Isaac Mizrahi who identified himself as the “owner” of Shine Forever. Mr Mizrahi expressed the opinion that Shine Forever had not made any profit from sales of product under the BUGATCHI UOMO trademark. He claimed that, since 16 November 2011, Shine Forever had sold $198,407.39 worth of goods “through the BUGATCHI UOMO branded store.” During the same period outgoings were said to have been approximately $157,680. When the difference between wholesale and retail prices were brought into account no profit had been achieved.

7    The applicant correctly identified numerous deficiencies in the affidavit. These included the failure to deal with goods marketed under the BUGATCHI trademark, the failure to identify the total number of goods bearing the relevant trademarks which had been sold during the relevant period and the price at which each item had been sold and the failure to provide documentation to support claims made in the affidavit.

8    Despite the deficiencies in the material filed by Shine Forever the applicant elected to be provided with an account of profits and calculated the quantum of that entitlement on the basis of a conservative estimate of the profits derived by Shine Forever by reason of its misconduct. The estimates were based on figures supplied by Shine Forever.

9    The applicant filed and served written submissions in advance of a scheduled hearing on 7 February 2014. Those submissions sought an account of profits in the sum of $551,159.39. Detailed submissions were made as to how that figure had been calculated.

10    Counsel then appearing for Shine Forever acknowledged receipt of the submissions shortly before the hearing but sought more time to respond because it was necessary for him to obtain instructions from representatives of Shine Forever who were overseas. An adjournment was granted for this purpose.

11    When the matter was called on on 17 February 2014 there was no appearance on behalf of Shine Forever. Counsel had previously advised my Chambers that he had still not obtained necessary instructions and that, without them, he would not be in a position to make any response to the applicant’s submissions.

12    In these circumstances counsel for the applicant pressed for orders sought in its written submissions.

13    An account of profits is a remedy available to the applicant under s 126(b) of the Act. Such an account is intended to prevent the unjust enrichment of an infringer by reason of its contravention of the Act: cf Dart Industries Inc v Décor Corporation Pty Ltd (1993) 179 CLR 101 at 110-1. The question of present concern is how that account should, on the evidence, be calculated.

14    The applicable principles were summarised by Allsop J in Unilin Beeher BV v Huili Building Materials Pty Ltd (No 2) (2007) 74 IPR 345 at 366 as follows:

“The infringers should account for the actual profit that they have gained from the infringement. In calculating those profits, it is appropriate to deduct costs directly attributable to selling and delivering infringing articles from the revenue made from such sales and deliveries. It may be appropriate to deduct a proportion of general overhead costs such as plant, equipment and managerial costs. The deduction of such costs depends upon their being shown to have been attributable to the sales, the onus for which demonstration is upon the infringers.”

15    The applicant disputed the accuracy of Mr Mizrahi’s claim that total sales in the period between 16 November 2011 and 20 November 2013 was $198,407.39. It directed attention to a profit and loss statement which had been exhibited to an affidavit of Mr Marco Revah which had been sworn in the proceeding on 21 September 2012. Mr Revah identified himself at the time as being the general manager of Shine Forever. The purpose of the affidavit was to support an application that Mr Revah be granted leave to appear on behalf of the company because it could not afford to engage lawyers. Exhibited to the affidavit was a profit and loss statement for Shine Forever for the 2011/2012 financial year. It showed total sales for the year of $370,440.10. The statement had been prepared by the company’s external accountants and certified to be a true and accurate record of its income and expenses for the financial year. The company’s store did not open until November 2011. The sales had therefore occurred over an eight month period and averaged out at about $46,000 per month.

16    Using this average sales figure as a base, the applicant calculated that a similar monthly figure could be assumed for the ensuing 16 and a half months to 20 November 2013. On this assumption the total sales for the period would have been $1,129,440.10.

17    The applicant disputed Mr Mizrahi’s estimate that only 75 to 80 per cent of the goods sold at the store would have been branded with the BUGATCHI UOMO mark. It was, nonetheless, in order to resolve the litigation quickly, prepared to accept the 75 per cent figure. Seventy-five per cent of $1,129,440.10 was $847,080.08.

18    The applicant then focussed on Mr Mizrahi’s evidence that the total wholesale price of goods purchased for sale at Shine Forever’s store was US$134,006.12. Under cover of an objection to this assertion because of the absence of any supporting evidence, the applicant was prepared to accept this figure and apply to it the 75 per cent estimate made by Mr Mizrahi in relation to the proportion of goods sold that bore the BUGATCHI UOMO mark. This reduced the figure to US$100,504.59. Applying an exchange rate of 85 US cents to the Australian dollar, this produced a figure of AUS$118,240.69. When this amount was deducted from the gross sales figure of AUS$847,080.08 it left an amount of AUS$728,839.39.

19    Under cover of a further objection, the applicant was prepared, in order to avoid prolonging the litigation, to accept Mr Mizrahi’s assertion that Shine Forever’s business incurred additional overheads totalling AUS$177,680.00 in the relevant period. When deducted from the AUS$728.839.39 this produced a net profit of AUS$551,159.39. It was this sum which was sought by way of an account of profits.

20    This process of calculation is far from ideal. It is beset by many difficulties. These include the need to make assumptions because business records which should have been produced by Shine Forever, pursuant to Court order, were not provided. Of particular concern is that the applicant’s calculation of sales revenue between November 2011 to November 2013 is based on the profit and loss statement for Shine Forever for the financial year 2011/2012. That same statement shows that the cost of sales during the financial year was $576,388.59. Of this $188,206.11 was attributed to the purchase cost of clothing. The rest was attributed to “Accessory - Purchase”. What is comprehended by this line item is not explained. While preferring the total sales figure derived from this profit and loss statement in preference to the figure proffered by Mr Mizrahi, the applicant has chosen to disregard the offsets disclosed by the statement in favour of the costs of product and sales which are to be found in Mr Mizrahi’s affidavit. These sums are lower than the figure for costs offsets which would have been produced had a monthly average calculated on the basis of the profit and loss statement been applied to the whole of the period between November 2011 and November 2013. This concern is alleviated, to some extent, by the applicant’s willingness to make a number of allowances in Shine Forever’s favour in other aspects of the calculations. It has, for example, assumed an exchange rate of 85 US cents to the Australian dollar throughout the period when, for most of it, there was parity or better in the exchange rate. It has also been prepared to accept Mr Mizrahi’s unsupported assertion that up to 25 per cent of the items for sale in Shine Forever’s shop did not bear the infringing marks.

21    The evidence before the Court does not enable me to determine, with precision, the actual profit which Shine Forever derived from its infringement of the applicant’s marks. It is to be borne in mind that the difficulties to which I have adverted have, in large measure, been created by the failure of Shine Forever to comply with the Court’s orders and its failure to appear and make submissions on the amount to be awarded as an account of profits. The applicant should not be prejudiced by these failures.

22    The applicant has proposed a plausible method of calculating sales revenue during the relevant period by assuming that the average monthly sales figure in the first eight months of the period continued for the next 16 and a half months. In the absence of audited figures for the latter period this approach is not unreasonable and may be regarded as the best available option. Once the sales revenue figure was established, Shine Forever bore the burden of persuading the Court, by evidence, what costs should properly be deducted in order to determine the profit which it made from selling clothing and accessories bearing the infringing marks. This, Shine Forever has manifestly failed to do. The applicant has done its best, on the limited and unsubstantiated material supplied by Shine Forever, to make an estimate of costs attributable to the sale of the relevant goods. It has, generally speaking, adopted a benign approach. By that I mean it has been prepared to make assumptions and allowances which operated in Shine Forever’s favour. The figure reached is, as I have said, a conservative one. I also have regard to the fact that the applicant had forborne to seek an order for the payment of interest to which it would otherwise have been entitled under s 51A of the Federal Court of Australia Act 1976 (Cth).

23    The applicant has adopted this approach in an effort to avoid further expense and bring this litigation to an earlier close than might otherwise have been possible. In doing so it has acted consistently with the principles enshrined in ss 37M and 37N of the Federal Court of Australia Act. In particular, it has sought to bring the proceeding to a conclusion “as quickly, inexpensively and efficiently as possible”: see s 37M(1)(b).

24    I am, therefore, prepared to accept the calculations proposed by the applicant.

25    The applicant also sought an order that Shine Forever pay its costs on an indemnity basis in the period on and following 20 November 2013. In this period the applicant was forced to engage in extensive correspondence with Shine Forever’s solicitors because of the failure of the company to comply with the orders made by the Court on 20 November 2013. As has been noted, when Shine Forever made a belated attempt at compliance, it failed dismally to meet its obligations. The hearing on 7 February 2014 was adjourned to provide Shine Forever with the opportunity of making submissions on the questions of pecuniary remedies. Despite this indulgence it failed to appear on the adjourned date.

26    In these circumstances the applicant is entitled to its costs on an indemnity basis.

Associate:

Dated:    7 March 2014