FEDERAL COURT OF AUSTRALIA

Federal Treasury Enterprise (FKP) Sojuzplodoimport v Spirits International B.V. (No 4) [2017] FCA 1345

ORDERS

IN THE INTERLOCUTORY APPLICATION:

THE COURT ORDERS THAT:

1.    The proceeding be stayed until further order.

2.    The Cross-Claimants pay the Cross-Respondent’s costs of the application for the stay.

3.    The stay in Order 1 does not prevent the Cross-Claimants from applying to lift the stay on the basis that they have caused proper discovery to be given by the Russian Federation.

4.    In the event that proper discovery has not been given by 30 November 2018, the Cross-Respondent be granted leave to file an interlocutory application seeking the dismissal of the Cross-Claim.

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

REASONS FOR JUDGMENT

PERRAM J:

1. Introduction

1    This proceeding, which concerns, inter alia, the ownership of the STOLICHNAYA and MOSCOVSKAYA trade marks is a remnant cross-claim in a larger overall proceeding commenced in 2004. Most of the overall proceeding settled a number of years ago, but one cross-claim remains extant; that brought by two Russian entities, Federal Treasury Enterprise Sojuzplodoimport and Federal Public Unitary Enterprise External Economic Union Sojuzplodoimport. It is convenient to call these FKP and FGUP respectively (and together, ‘FKP/FGUP’). By their Third Further Amended Cross-Claim, FKP/FGUP sue Spirits International B.V. (‘Spirits’), a Dutch entity, to rectify the register of trade marks in Australia to record FKP or FGUP as the registered owner of a number of trade marks relating to alcoholic beverages, including vodka, and including the famous STOLICHNAYA trade mark. The cross-claim is a complex document, but the underlying allegation is that these various trade marks were stolen from the Russian Federation in nefarious circumstances taking place shortly after the collapse of the former Union of Soviet Socialist Republics (‘the Soviet Union’).

2    On 13 March 2000, then Acting President Vladimir Putin of the Russian Federation issued this instruction to various senior Russian officials:

‘I request urgently to take measures directed to restoration and protection of the rights of the state concerning intellectual property in the sphere of production and turnover of vodka products, and also for detection and bringing to account of the persons involved in violation of these rights.

Report on the results monthly.’

3    The officials who received this instruction included the Prime Minister and the Minister of the Interior. It is a reasonable inference that the present cross-claim has some relationship with this direction from Acting President Putin. The direction demonstrates that the retrieval of the trade marks is a matter which has exercised the Russian Federation at its highest levels.

4    Spirits now applies by an interlocutory application filed on 19 August 2016 to stay any further proceedings on the cross-claim on the basis that the Russian Federation has failed adequately to comply with an invitation from this Court to give discovery. The invitation was not an order in light of the Russian Federation’s status as a sovereign state. Indeed, the Russian Federation is not a party to the proceeding.

5    To understand the role of the Russian Federation in this proceeding, it is necessary to say a little more about the nature of the claims made by FKP/FGUP. The former Soviet Union collapsed towards the end of 1991. There is no dispute that, at that time, there was an entity called VVO which was organised under the laws of the Soviet Union and which was exporting vodka to other nations including Australia under, inter alia, the STOLICHNAYA trademark. VVO was the registered owner of that, and other related, trade marks in this country.

6    The central issue between the parties concerns legal events which occurred on or around 20 January 1992. Spirits says that, on that day, VVO was transformed into a new entity, VAO, which then acceded to all of VVO’s property. Subsequently, in 1998, Spirits says that the Australian trade marks were transferred from VAO to another entity, ZAO, which ultimately assigned them to Spirits in 1999. FKP/FGUP say, by contrast, that VVO was not transformed into VAO on 20 January 1992 but retained its own independent existence until it was ultimately renamed and re-organised as FGUP in 2001. Consequently, if that be correct, it is FGUP which is now the rightful owner of the trade marks and not Spirits. For completeness, FKP is an entity created under Russian law in 2001 to make and sell vodka. In 2005, it was given the additional function, inter alia, of recovering the rights to the trade marks relating to Russian alcoholic products.

7    So the critical question in the case is whether VVO was transformed on 20 January 1992 into VAO, as Spirits contends, or not, as FKP/FGUP contends. There are some other issues too, such as the effect for res judicata purposes of some related proceedings before the Dutch courts and other issues such as estoppel and laches. But these are not relevant to the disposition of Spirits’ application for a stay.

8    There may be a question as to whether the accession issue is to be resolved by reference to the law of the former Soviet Union or under Russian law. But regardless of which legal system governed the events of 20 January 1992, the legal issue which arises in this proceeding appears very similar and turns on the requirements under either legal system for a valid privatisation of a State entity (i.e. the transformation of VVO into VAO). Both Russian and Soviet law appeared in 1992 to have required as one of the necessary steps leading to a privatisation, the carrying out of an assessment of the value of the pre-existing State entity’s property. This was to be performed by a commission consisting of various identified officials. The main factual debate between the parties is whether such an assessment ever took place in the case of VVO.

9    There is, it would seem, presently no direct documentary evidence that such an assessment was carried out. The legal experts whom the parties propose to call at trial draw different conclusions about the significance of this. Mr Muranov, for FKP/FGUP, thinks it means that an assessment of VVO’s property was never done. Mr Newcity, for Spirits, thinks that there are documents available from which it may be inferred that such an assessment must have been carried out.

10    The trial of this issue is therefore going to involve, at least, a close examination of the documents held by VVO at, or around, 20 January 1992.

11    It is at this juncture that matters become more complex. Away from the legal niceties of whether the privatisation had been legally effected under Soviet or Russian law, the reality appears to have been that by 1999 the vodka business, howsoever described, was being conducted by ZAO (the entity from which it will be recalled Spirits says it took an assignment of the trade marks). This is known because during the period between 1999 to 2002, and again in 2007, Russian law enforcement officials conducted around 25 raids at ZAO’s premises in Moscow. During these raids an extensive range of documentation was taken away.

12    Spirits seeks to have access to this material. Although some of the material has recently been produced by the Russian Federation, Spirits says the produced material consists of only a small selection of the documents which were taken from ZAO’s premises. Broadly, its point is that the raids on ZAO’s premises were part of an investigation by Russian state actors into the legality of VVO’s privatisation, so that it is very likely that the material relating to that topic was amongst the material seized. A second set of materials that Spirits would like to see now produced are identified individual documents which Spirits says it can prove must exist but which have, nevertheless, not been produced. For example, it will be recalled from above at [2] that Acting President Putin’s direction had called for the production of monthly reports. Not every such report has been produced. Spirits says that if Acting President Putin called for monthly reports it is highly likely that such reports exist.

13    Spirits has been seeking these documents, with some interruptions, for more than a decade. On 5 September 2006, following the filing of a motion by Spirits on 23 November 2005, and responding to similar arguments to those now put to me, Edmonds J ordered that unless the Russian Federation provided categories of discovery to be agreed or determined, the proceedings would be stayed pending further order: SPI Spirits (Cyprus) Ltd v Diageo Australia Ltd (No 2) [2006] FCA 931; (2006) FCR 150 (‘SPI Spirits (No 2)’).

14    His Honour found that even though it was not a party to the cross-claim, the reality was that the Russian Federation was the true plaintiff in the proceeding and that it should, in that circumstance, provide discovery. The Full Court allowed an appeal from the orders that Edmonds J made, but only on the very limited basis that, as a sovereign state, the Russian Federation should first have been given the opportunity to provide discovery voluntarily in co-operation with FKP/FGUP rather than being threatened with a stay.

15    The present application for a stay represents the end-point of the drawn-out process commenced by the Full Court’s decision. On 4 December 2013, the parties were able to agree what the relevant categories for this discovery process should be and, on that day, Edmonds J made further orders giving effect to that agreement. As I understood it, there was no substantive complaint about FKP/FGUP’s own compliance with those orders. The difficulty instead lay in FKP/FGUP’s efforts to have the Russian Federation give discovery of the same matters.

16    Those efforts were as follows. In the second half of 2014, the solicitors for FKP/FGUP wrote in similar terms to 11 entities of the Russian Federation. Some of these entities produced small numbers of documents but some produced no documents at all. In all, approximately 110 documents were obtained as a result of these requests.

17    For the reasons which now follow, I do not think the Russian Federation has made a reasonable attempt to give discovery in terms of the categories specified by Edmonds J on 4 December 2013. The cross-claim will be stayed until further order. If proper discovery is not given by 30 November 2018, I will entertain an application, at that time, to dismiss the cross-claim as an abuse of process and/or for want of prosecution.

18    It is useful to begin with Sprits’ claims in relation to the documents which it says were seized by Russian officials from ZAO’s premises during multiple raids.

2. Seized Documents

19    These documents were apparently seized from the premises of VAO commencing in 1999 and from ZAO in 2007. The documents were seized under warrant in three criminal investigations. The first of these was Criminal Case No. 142035 which was concerned, inter alia, with the lawfulness of the acquisition by ZAO of the trade marks. This case was eventually discontinued in November 1999. The orders of 26 November 1999 discontinuing the case record that a number of searches had been conducted looking for documents relating to the process by which ownership of the trade marks had been transferred to ZAO and also, importantly, that documents had been taken from the offices of ZAO. The order also required the material to be sent to the Ministry of the Interior.

20    On 17 March 2000, another criminal case (No. 9219) was commenced. This case was brought against the managers of VAO for their role in the allegedly illegal use of VVO’s trade marks. A letter dated 11 September 2002 from FKP to the Moscow Prosecutor’s Office said, in relation to case 9219, that the case file for it contained the original trade mark registration ‘as well as the facts of unlawful transfer of the State property’. The letter went on to request ‘assistance in getting copies of the seized originals of the trademarks, documents and data on the facts of unlawful transfer of the State property, which are contained in criminal case No. 9219’. A letter of 27 May 2003 from FKP to the Moscow Prosecutor’s Office records the view of FKP that documents which could assist in case 9219 were obtained in the course of criminal investigation 142035. I reject the argument that these investigations can throw no light on the events of 1992. The opposite seems to me to be the case.

21    On 31 July 2007, a further criminal case was commenced against the majority shareholder in Spirits’ ultimate holding company alleging offences in relation to, inter alia, the STOLICHNAYA trade marks. This was case No. 18/432808-07. It appears likely that this case resulted from combining what had been case 9219 with another case (No. 7017).

22    A number of warrants were executed in the course of these investigations. Minutes of the execution of these warrants were kept. It would be a mistake to get carried away in the voluminous detail of these searches, but the minutes, for example, record as having been seized on various dates:

    business and financial documents of ZAO;

    documents on the financial and economic operations at the offices of ZAO;

    documents ‘confirming the legitimate acquisition and use by Sojusplodimport CJSC of the rights to Russian vodka and bitter trademarks’; and

    documents relating to the transfer of rights to the trade marks owned at one time by VVO.

23    Mr Swinson, one of the solicitors for Spirits, has gone through the painstaking process of reviewing all of these minutes. He says that it is difficult to tell from them precisely what was seized. However, based on his review of the minutes he thinks that the following categories of documents were searched for and seized during the raids:

    charters;

    accounting documents;

    finance and operational documents;

    contracts;

    minutes of meetings;

    trade mark registration certificates;

    correspondence;

    reports;

    notebooks;

    HR documents;

    computers and computer disks; and

    folders containing unidentified documents.

24    I accept this evidence. I also accept that given the subject matter of the criminal cases these documents were seized with a view to investigating the legality of VAO’s ownership of the marks.

25    At first blush, the materials seized would appear broad in scope and therefore large in number. Mr Swinson gave evidence that, on one of raids, some 13,000 pages of documents were removed from ZAO’s premises. One might expect that the seizure of such quantities of material from ZAO would be likely to have caused it considerable inconvenience and, indeed, this appears to have been the case. ZAO filed a complaint about one of the searches in 2000 saying ‘virtually all charter and accounting documents were confiscated, as well as all documents relating to the registration of the trademarks of a number of Russian vodkas’.

26    For completeness, it should be noted that VAO inherited, or at least took possession of, VVO’s documents and that ZAO took over from VAO. Unsurprisingly in that circumstance, VVO and ZAO operated from the same office in Moscow. FKP/FGUP submitted that I should not accept that they had operated from the same office because there was no document proving that this was so. There is a degree of irony involved in this submission when the gist of Spirits’ complaint is that large swathes of documents have not been produced. In any event, the fact that the successor entity operated from the same premises seems to me to be unexceptional. More unusual would it be for a successor entity to move offices on its succession. It is appropriate to proceed on the basis that there was no change of office unless the contrary is proven. Viewed from that perspective, FKP/FGUP’s submission that there is no document proving there was no change in office is not only ironic but, in substance, a submission against itself.

27    I have little difficulty in concluding that the large quantity of material seized is likely to include amongst it documents relating to, or bearing upon, the core issue in this case.

28    The next question is where have these documents gone? It is true that some 3,628 pages of documents were returned to Spirits in 2016 following contact made with Spirits by an entity called the Investigative Committee of the Russian Federation. But these 3,628 pages of documents have amongst them very few which seem to relate to the issues at hand. What has become of the rest of the materials no-one seems to know.

29    Some of the material relating to the criminal files suggests that the missing documents may be now with the Ministry for Internal Affairs. The information emerging from the Russian Federation is, with respect, largely unhelpful. It is thus not, without more, very enlightening to be told, as a letter from the Investigative Committee of the Russian Federation dated 26 March 2015 does tell, that the criminal files cannot be located in the records of the Investigative Department.

30    Apart from an unsatisfactory information and belief affidavit of FKP/FGUP’s solicitor, no reasonable effort has been made before this Court to have someone with authority explain what has happened to the material which was seized. That affidavit shows in relation to the position of the Russian Federation that requests were sent to various government entities which requests have not produced much (see above at [16]). No-one from the Russian Federation has been called to say that the material has been lost and I can see no rational way of proceeding on the basis that it has. Indeed, ultimately FKP/FGUP did not submit that the material seized under warrant had been lost. In fact, it made only seven somewhat anaemic submissions about this material.

31    First, it was submitted that it was not shown that the seized materials were in the possession, custody or control of the Russian Federation. The submission was that the persons having possession of the seized documents were the individual Russian law enforcement officers who had seized them and hence the documents were not in the possession of any particular department within the Russian Federation. I reject this argument. It seems plain that the documents were last certainly in the possession of the Interior Ministry, and that perhaps more recently some of them came into the possession of the Investigative Committee of the Russian Federation. It is therefore shown that the seized materials are in the possession of the Russian Federation. The real question is what has the Russian Federation done with the documents and why has it not produced them?

32    Secondly, it was submitted that Spirits needed to identify the particular officers who had seized the material. This was said to be because if the documents were critical to Spirits’ defence then it would have identified the officers involved in the seizure. I scarcely know whether to call this an argument. If it is, I reject it.

33    The third argument was that, under Russian law, ZAO could have requested copies of the documents at the time that they were seized. No doubt, it is a shame that this appears not to have been done, but that is hardly to the point which is why should the Russian Federation not now discover this material in 2017. A related submission was that ZAO had only asked for its documents in 2016. That submission is difficult to square with ZAO’s complaint in 2000 that all of its documents had been taken. Then it was said that the fact that it had asked in 2016 for its documents and had received some showed that the intervention of the Australian Courts was unnecessary. If all of the documents had been returned this might be so, but they were not. The vast bulk of them are lingering somewhere in the apparatus of the Russian State, inexplicably not produced.

34    The fourth submission was that Spirits should have asked for the materials earlier. This is really the same submission as the third.

35    Fifthly, it was submitted that Spirits had not shown that it did not have the documents. It was accepted by FKP/FGUP that Spirits did, in fact, say that the seized documents have not been returned to it but this was submitted to be inadequate. It did not exclude the possibility, for example, that Spirits might have taken copies of the documents. This submission perhaps sits a little uncomfortably with FKP/FGUP’s submission at [53] of its written outline of submissions that ZAO had failed to take copies of the material at the time it was seized. But leaving that aside, where Spirits has proved that the documents were seized, it does not seem to me to bear a further burden to show that it did not somehow otherwise get them back. I reject the argument.

36    Sixthly, it was submitted that Spirits had not established that the documents were critical to its case. The reasons I have already given show that the material seized was sufficiently relevant from the perspective of a discovery debate to require production. In any event, the categories of discovery were agreed long ago.

37    Seventhly, FKP/FGUP submitted that it was circular for Spirits to argue that because its expert, Mr Newcity, had concluded that a valuation of the assets must have occurred (on the basis of indirect material) that such a valuation must exist and should therefore be discovered. This was not, however, Spirits’ argument which was that relevant documents had been seized and were not accounted for.

38    Accordingly, I conclude in relation to the documents which were seized that:

(a)    they are likely to include material relevant to the central issue in the case;

(b)    only a very small portion of the material has ever been produced;

(c)    the documents seem last to have been in the possession of the Russian Federation; and

(d)    the Russian Federation has not adequately explained what has happened to them.

3. Particular Documents

39    I turn then to the individual documents or classes of documents identified by Spirits as not having been produced.

40    The first class of documents was referred to as ‘the secret archive’. Spirits submitted that the evidence established that such an archive about VVO existed and that it related to the Russian Federation’s attempt to reinstate the trade marks. This evidence included a letter dated 14 July 2003 from the Director-General of FKP to the State Secretary – First Deputy Minister for Agriculture. This letter (translated) was as follows:

‘To execute the Order of the President of the Russian Federation V.V. Putin No. Pr-426 of 13/03/2000, FKP Sojuzplodoimport is currently performing activities intended to reinstate and protect the rights of the Russian Federation to trademarks for traditional Russian vodka and bitters abroad, which made it necessary to review the documents concerning VVO Sojuzplodoimport, which are kept in the archives of the former Ministry of Foreign Trade of the USSR.

Due to the fact that the work underway to execute the Order of the Head of the state admits of no delay, and the secret part of FKP Sojuzplodoimport is currently being organized, I am asking your permission for the First Department of the Ministry, as an exception to issue a permit to work on the secret materials of VVO Sojuzplodoimport’s archive of the former Ministry of Foreign Trade of the USSR, which are kept in the archive of the Ministry of Economic Development of Russia, for the Legal Counselor of the General Director Galina Andreyevna MOZGOVENKO.’

41    This was not an isolated reference. There was another letter, for example, of 28 April 2004 from the same Director-General to the Chairman of the Accounting Chamber of the Russian Federation. Relevantly it said:

‘Nowadays, the FKP Sojuzplodoimport performs the work on the restoration and protection of the rights of the Russian Federation for the world-wide trademarks for alcohol and alcohol-containing products, such as “Stolichnaya” and “Moskovskaya”, which earlier were under the authority of the government enterprise VVO Sojuzplodoimport.

In the course of studying of the secret records of the VVO Sojuzplodoimport the facts were established, which indirectly testified to the presence of government property under the enterprise’s authority, particularly the shares in the authorized capitals of legal entities, immovable property located both within the territory of the Russian Federation and abroad. The specified property was unlawfully transferred to the ownership of the VAO Sojuzplodoimport at the beginning of 90s together with the state trademarks for alcohol products. The information about the cost and list of property being under the authority of the VVO Sojuzplodoimport as of the date of its transfer to the VAO Sojuzplodoimport is not available today.

In view of the above, please make the documentary inspection of the VVO Sojuzplodoimport, VAO Sojuzplodoimport and ZAO Sojuzplodoimport aimed at the establishment of the list and cost of government property, which was earlier under the authority of the VVO Sojuzplodoimport in order to restore the rights for it.’

42    Finally, there was a further letter from the Director-General to the Ministry of Economic Development and Trade of the Russian Federation dated 2 June 2005 which was in these terms:

‘FKP Sojuzplodoimport was established by the Order of the Government of the Russian Federation NO. 1741-r of December 29, 2001.

According to the Resolution of the Government of the Russian Federation No. 494 of July 4, 2002, FKP Sojuzplodoimport exercises the rights to use and dispose of Trademarks for traditional Russian vodka, including “Stolichnaya”, “Moskovskaya”, and “Russkaya” (hereinafter – The Trademarks).

Currently, FKP Sojuzplodoimport, according to the Order of the President of the Russian Federation No. Pr-426 of March 13, 2000, and the Resolution of the Government of the Russian Federation No. 6 of 06/01/05 On Reinstatement and Protection of the Rights of the Russian Federation to Trademarks Abroad, is engaged in activities intended to reinstate and protect the rights of the Russian Federation to the Trademarks abroad, which previously were owned by the state enterprise VVO Sojuzplodoimport and were illegally appropriated by a commercial organization in the early 1990s.

As part of these activities FKP Sojuzplodoimport initiated court proceedings in a number of foreign countries to reinstate the rights of the Russian Federation to the Trademarks.

The documents concerning the activity of VVO Sojuzplodoimport are currently kept in the archive of the Ministry of Economic Development of Russia.

For the purposes of preparation to the court proceedings aimed at reinstatement of the rights of the Russian Federation to the Trademarks I am kindly asking you to send FKP Sojuzplodoimport copies of the following documents which are kept in the archive of the Ministry of Economic Development of Russia:

1.    Contract No. 589/1860306/04270-03 of 24.05.1990 concluded between VVO Sojuzplodoimport and Chiquita Banana Company B.V., and addendums thereto.

2.    Three-party agreement between participants of the compensation and freight transaction of 24/04/1989.

3.    Invoices issued to VVO Sojuzplodoimport by foreign companies under the above mentioned contracts, and shipping and other documents related to these contracts.’

43    This certainly appears to suggest that the documents of VVO relating to the ownership of the trade marks were with the Ministry of Economic Development and Trade in 2005.

44    Both the Accounting Chamber and the Ministry of Economic Development and Trade were contacted by FKP/FGUP’s solicitors and requested to produce documents. Neither produced any documents and neither gave any explanation of whether they had held such materials.

45    On the face of it, this is puzzling. FKP/FGUP’s explanation for this was at paragraph 52 of their solicitor’s affidavit on the present application. She had spoken with Ms Natalia Semenova, the Head of the International Division of the Law and Intellectual Property Department at FKP, who had told her that:

‘a)    in about the 1970s to 1980s, there was a State monopoly on foreign trade in the USSR. Only certain legal entities, such as VVO, were authorised to conduct foreign trade activities. Most of these entities were supervised by and reported to the Ministry of Foreign Trade of the USSR;

b)    all documents and information that related to this foreign trade were considered secret;

c)    from about 1985, there was a move towards democratisation of the USSR and the State’s monopoly on foreign trade was cancelled (Decree of the Council of Ministers of the USSR of 2 December 1988 no. 1405);

d)    as a result, supervision of the entities authorised to conduct foreign trade activities was transferred from the Ministry of Foreign Trade of the USSR to other State bodies. In about 1987, supervision of VVO was transferred from the Ministry of Foreign Trade of the USSR to the State Committee of the Agroindustrial Complex;

e)    the archive of the Ministry of Foreign Trade of the USSR, which was stored in the Ministry of Economic Development of the Russian Federation, could only contain documents relating to VVO prior to 1987.’

46    This does not make any sense. The suggestion is that the archive can only relate to the period before 1987. However, all three of the letters set out above explain that the archive is being accessed specifically for the purposes of assessing the lawfulness of the transfer in 1992. In the third letter above, the Director-General of FKP himself asks for a document from the archive dated 24 May 1990. Quite apart from that, Ms Semenova’s explanation of the word ‘secret’ is difficult to accept.

47    I conclude that the archive exists and is relevant for the reasons given by the Director-General in his letter of 2 June 2005. I reject Ms Semenova’s explanation.

48    The second individual document is dated 28 June 1999 and is a letter from the First Deputy of the Ministry of Internal Affairs to the First Deputy of the Ministry of Agriculture and Supplies. It said relevantly:

‘At present we have the situation when the state has lost its ownership rights on traditional Russian vodka and all the profit from its use by alcohol products manufacturers is going to profit of private joint-stock company (ZAO ‘Soyuzplodimport”) one of the cofounder of which is American company.

Therefore it is viable to prepare and to introduce to the Government of the Russian Federation the well-grounded proposals to restitute state’s ownership right on traditional Russian vodkas which in future will serve as one of the sources to refill profit part of the budget.’

49    Spirits came into possession of this by other means. Spirits says that the letter is an admission that title to the trade marks was lost, that it is plainly relevant and that it has not been produced. FKP/FGUP submits that it had not been identified why the document was relevant or which discovery category it fell within. A review of those categories suggests that this letter falls at least within categories 23 and/or 29.

50    The third was a set of monthly reports referred to in Acting President Putin’s order. Here the idea was that if Acting President Putin had asked for monthly reports it is likely that he received them. In fact, 10 such reports have been obtained by Spirits by other means. Spirits contended that these reports were discoverable under nominated categories 10, 14(j), 23(a) and 28.

51    Category 10 is as follows:

‘10    Documents:

(a) evidencing or relating to the ownership of or title to the Vodka Trade Marks [meaning the trade marks STOLICHNAYA, MOSKOVSKAYA and RUSSKAYA in any jurisdiction, whether or not registered as a trade mark] in Russia by FGUP, FKPS or Sojuzplodoimport during the period 20 January 1992 to February 2001; or

(b) evidencing or relating to the acquisition of ownership of or title to or any other interest in the Vodka Trade Marks in Russia by FGUP, FKPS or Sojuzplodoimport during the period February 2001 to November 2004.’

52    I am not going to set out all of the 10 reports which have already been obtained. The report from the Attorney-General to the Chairman of the Government of the Russian Federation dated 31 October 2000 will suffice. Relevantly, it says:

‘The Office of the Attorney General will ask the court to reinstate the rights of VVO “Sojuzplodoimport’s government-determined successor to the trademarks. However, to date, no such successor has been determined, therefore I ask you to consider the possibility of transferring the rights of VVO “Sojuzplodoimport”, including the trademark rights, to the federal state unitary enterprise “Rosspirtprom” and to instruct the Russian Patent Office to reinstate the registration of the trademarks rights, having assigned them on a lawful basis to the successor, without waiting for a court decision…In this case, the state may independently, without a court decision, reinstate its trademark rights, by determining the successor to VVO “Sojuzplodoimport” and registering those trademarks in its name through the Russian Patent Office.’

53    This appears to fall squarely into category 10. Spirits submitted that these kinds of material are relevant to its defence of estoppel and laches as well as to the discretionary issues which may attend the rectification of the register of trademarks. FKP/FGUP disputed that the reports fell within category 10 because they were not ‘evidencing or relating to the ownership’ of the marks. This is true, but that is a reference only to subparagraph (a) of category 10. The documents in fact appear to fall within subparagraph (b): ‘evidencing or relating to acquisition of ownership,’ by FKP, FGUP or VVO (emphasis added).

54    I therefore accept that there is at least one instance of a report which should have been discovered not being discovered.

55    The next category was a set of documents consisting of correspondence and documents created or received by an interdepartmental working group. A resolution was issued on 6 July 2001 in these terms:

‘… On emergency measure for protecting, restituting and exercising the exclusive rights of the Russian Federation to trade marks for alcoholic and spirituous drinks.’

56    Paragraph 4 of the resolution erected an interdepartmental working group to pursue that purpose. Nothing has been produced in relation to it. Spirits submits that its activities are relevant to its laches, estoppel and discretionary arguments. For the reasons already given, the documents would appear to fall into category 10(b). FKP/FGUP say that this interdepartmental working group was abolished by decree on 4 July 2002. This does not appear to provide any reason why its documents to the extent that they fall within the categories ought not to be discovered.

57    The next category about which complaint was made was documents concerning the process leading to the creation of FGUP. It will be recalled that it is FKP/FGUP’s position that VVO eventually became FGUP whereas Spirits says that VVO ceased to exist when it was privatised and that its assets were transferred to VAO. FKP/FGUP’s pleaded case is that VVO continued to exist after the privatisation. Paragraph 4 of the Third Further Amended Cross-Claim pleads that, between 1990 to 2001, VVO was ‘named and organised under the laws of the former [Soviet Union] and subsequently the Russian Federation” and from 2001 as FGUP. Spirits, obviously enough, wishes to dispute that assertion. It now points to internal Russian correspondence which suggests – I put it no higher than that – that within the Russian government between 2000-2001 active consideration was being given to the creation of a successor entity to VVO, and further, that consideration was being given to the selection of a successor entity which would be accompanied by the insertion of a succession clause into that entity’s charter. On that view of things, the argument might run, FGUP should be seen as a synthetic and non-genuine successor.

58    FKP/FGUP made two responses to this argument but neither was really responsive to the point. The first was that the contents of a letter to which I have not found it necessary to refer, were unsurprising in the context of the Russian Federation’s allegedly mistaken belief until the late 1990s that VAO had been created through a valid transformation of VVO. The second was that the fact that Spirits’ solicitors’ letters of request (to which I have also not referred) went entirely unanswered proved nothing. The main point, however, about the existence of documents casting doubt upon the origins of FGUP went unanswered. Accordingly, I accept that Spirits has proved the existence of yet another class of document not produced.

59    The final category related to the fact that from 1992-2000 there appear to have been steps taken by entities within the Russian Federation to assert the title of VAO to the trade marks, i.e., in ordinary prosecutions for piracy of the STOLICHNAYA mark. Spirits says that there must be material relating to the decision to provide this support. It submits that documents of this kind fall within categories 20, 21(c) and 24. FKP/FGUP did not dispute this but they did submit that Spirits had failed to prove that any such documents existed. I do not accept that submission. Mr Swinson attached to his affidavit a number of declarations and certificates concerning VAO’s rights to the trade marks. I accept that it is proven that such documents exist, are discoverable and have not been discovered. FKP/FGUP then submitted that they were not relevant. But that argument again ignores the fact that the agreed categories of discovery have been in place for many years.

4. What should now happen?

60    It follows from what I have set out above that Sprits has proved that:

    there has been a failure by the Russian Federation to produce documents which fall within the discovery categories;

    the inquiries which have been made on the Russian Federation's behalf to find the documents are insufficient; and

    no proper explanation has been provided as to how it is approaching the task.

61    The question then is whether this Court should permit the cross-claimants to pursue proceedings in this Court whilst the sovereign State standing behind them makes little effort to ensure that the proceedings are fairly conducted by providing relevant documents in its possession. There is no doubt that a jurisdiction to stay proceedings in such circumstances exists although it lies at the extreme end of the sanctions which might be imposed: Aetna Pacific Securities Ltd v Hong Kong Bank of Australia Ltd (Unreported, Supreme Court of New South Wales, Giles J, 29 April 1993) at 14. It is, in my opinion, an aspect of the Court’s jurisdiction to prevent its own processes from being abused. Nor, for the reasons given by Edmonds J in SPI Spirits (No 2) do I doubt that a stay may be granted in the current circumstances even where a Sabre order is involved.

62    If this was an ordinary case, I would not have had any hesitation in ordering the proceedings to be stayed until the non-complying party gave proper discovery. To permit the cross-claim to be pursued whilst this unfair posture continued would be unjust. Indeed, the pursuit of the cross-claim would, in that circumstance, be an abuse of process. I accept, therefore, that the Court has the jurisdiction to stay the cross-claim and that, ordinarily, the current circumstances would be such that that power should be exercised.

63    The situation is made more complex, however, because the entity standing behind the cross-claimants is a sovereign State. The Full Court has explained the significance of that fact in this very litigation: Federal Treasury Enterprise (FKP) Sojuzplodoimport v Spirits International N.V. [2007] FCAFC 43; (2007) 157 FCR 558 at 562-563 [21]-[23]:

‘21     Whilst the order complained of here may be seen not to intrude to the extent contemplated by the High Court in CSR v Cigna 189 CLR 345, or to affect a foreign court, it may nevertheless be seen to affect a sovereign state. Thus comity dictated that caution be exercised before making the order. Whilst some may dispute the role of comity in the field of commercial litigation, it is our view that in this instance the learned primary judge did not exercise the caution necessary before making an order effectively requiring the Russian Federation to undertake the process of discovery.

22     In all the circumstances of this case, it was not necessary for the fair conduct of the proceedings for the learned primary judge to make the order of which the appellants complain without first giving the Russian Federation the opportunity to provide the discovery sought voluntarily and in cooperation with the appellants. It does not appear that any disadvantage to the parties would have resulted from such an opportunity other than, perhaps, some delay (which of course has occurred in any event). It was not suggested that cooperation would have been refused if the opportunity for it had been given. To have given this opportunity would not have denied the respondents any substantive rights and would have minimised any intrusion upon the sovereignty of the Russian Federation. In our view, caution required this opportunity to be given. In this way the Court could, without injustice to the parties, have respected the requirements of comity and have been appropriately sensitive to the sovereignty of the foreign state.

23    The Court would expect the parties and the Russian Federation to cooperate in undertaking the necessary discovery process. Of course, if such an expectation is not met, then the Court has power to ensure that justice is done between the parties: see, eg the comments of Rogers CJ Comm D in Arhill 23 NSWLR at 554-555.’

64    It is a very serious thing to do to seek to persuade a foreign state, not otherwise amenable to this Court’s processes, by the imposition of pressure on the parties before it, to produce documents. The circumstances in which this might occur are, most likely, vanishingly rare. Yet, the Russian Federation has been invited to give the discovery sought on a voluntary basis and it has, in my view, failed adequately to respond to that invitation.

65    What should the Court do? One option would be for the Court now to make the order originally made by Edmonds J on 5 September 2006. That would involve requiring the cross-claimants to give proper discovery, including by the Russian Federation, by a given date in default of which the proceeding would then be stayed. However, it seems to me that this has, in effect, already happened once. The invitation has been sent but not really responded to. It is difficult to justify putting Sprits to the inconvenience and expense of making this application a second time. In the extraordinary circumstances which this case throws up, I propose to stay the cross-claim until further order. I am fully cognisant of the gravity of that exceptional step. However, I can see no other way of ensuring that these proceedings are conducted fairly. To whet the appetite of the cross-claimants for the process, I will indicate that I will entertain an application by the cross-respondent after 30 November 2018 to dismiss the entire proceeding if proper discovery has not been given by then.

66    In the circumstances, the Court will make these orders:

1.    The proceeding be stayed until further order.

2.    The Cross-Claimants pay the Cross-Respondent's costs of the application for the stay.

3.    The stay in Order 1 does not prevent the Cross-Claimants from applying to lift the stay on the basis that they have caused proper discovery to be given by the Russian Federation.

4.    In the event that proper discovery has not been given by 30 November 2018, the Cross-Respondent be granted leave to file an interlocutory application seeking the dismissal of the cross-claim.

Associate:

Dated:    20 November 2017