FEDERAL COURT OF AUSTRALIA

Facton Ltd v Rifai Fashions Pty Ltd [2012] FCAFC 9

Facton Ltd v Rifai Fashions Pty Ltd [2012] FCAFC 9

CORRIGENDUM

1.    In paragraph [114] of the Reasons for Judgment of Gilmour J, the words in the last line “… Autodesk at 479 by Wilcox J.” should be amended to read: “… Autodesk Australia Pty Ltd v Cheung (1990) 94 ALR 472 at 479 by Wilcox J.”

Associate:

Dated:    24 May 2012

THE COURT ORDERS THAT:

1.    Paragraphs 1 and 2 of the orders made by Bromberg J on 30 March 2011 be set aside.

2.    In lieu thereof there be orders that:

2.1    The first and second respondents pay the appellants’ damages in the sum of $14,213;

2.2    The first and second respondents pay the second appellant’s additional damages in the sum of $25,000.

3.    The respondents pay the appellants’ costs of the appeal.

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

REASONS FOR JUDGMENT

LANDER AND GORDON JJ:

1        We have had the advantage of reading in draft the reasons of Gilmour J, which relieves us from discussing the facts in any detail. We largely agree with his Honour’s conclusions, but in some respects we do so for the following different reasons.

The Claim before the Primary Judge

2        The appellants’ claim was brought under s 120 of the Trade Marks Act 1995 (Cth), s 115 of the Copyright Act 1968 (Cth) (Copyright Act), certain provisions of the Fair Trading Act 1987 (NSW) (Fair Trading Act) and the Trade Practices Act 1974 (Cth) (Trade Practices Act), and in the tort of passing off.

3        The primary judge made declarations that both respondents had infringed the appellants’ trade marks; infringed the appellants’ copyright works; contravened the Fair Trading Act; contravened the Trade Practices Act; and engaged in conduct which constituted the tort of passing off. The primary judge ordered the respondents to pay to the appellants the sum of $9,213 by way of damages, which was said to reflect the damages suffered by the appellants by reason of the sale of 140 counterfeit items by the respondents. That award was made under s 115(2) of the Copyright Act.

4        The primary judge also ordered that the respondents pay the second appellant the sum of $11,000 in additional damages under s 115(4) of the Copyright Act, which sum was said to reflect the profits made by the respondents in the sale of the counterfeit items. The respondents were ordered to pay the appellants’ costs.

5        The appellants in their notice of appeal and in their written submissions identified three issues for consideration on the appeal:

1.    The issues are whether, in the circumstances of this case, the trial judge erred in principle or gave improper or insufficient emphasis to a fact in deciding:

(a)    not to award exemplary damages for passing off;

(b)    not to award general damages for loss of reputation to the Appellants pursuant to s 115(2) of the Copyright Act 1968 (Cth) (CA); and

(c)    to limit the Appellants’ additional damages award under s 115(4) CA to $11,000.

6        There is no cross appeal. Indeed the respondents did not appear on the appeal. Their absence means that this Court did not have the benefit of a contradictor. In particular, it means that the Court did not have the assistance of argument on the order made by his Honour that the respondents pay the second appellant the sum of $11,000 by way of additional damages pursuant to s 115(4).

7        The separate causes of action advanced by the appellants and their separate claims for damages caused some confusion, we think, at the hearing before the primary judge.

8        The appellants sought compensatory damages, including reputational damages and additional damages under s 115 of the Copyright Act. They also sought damages, including exemplary damages, in the tortious claim for passing off.

9        Although the tort of passing off is quite distinct from the statutory remedies that are given under the Copyright Act, in this case and often where a claim is made both in tort and under the Copyright Act, the same facts support both the tort and the statutory cause of action, and any damages which flow in respect of both causes of action.

10        Therefore, it seems that, and we do not understand the appellants to contend otherwise, if the appellants receive both compensatory damages and additional damages under s 115 of the Copyright Act, they should not receive any further damages, including exemplary damages, for the tort of passing off.

11        Because we think the appellants should receive an award of damages under s 115(2) and s 115(4), there is no need to consider further the tortious claim or the appellants’ claim for exemplary damages. It is only necessary to address the appellants’ claim under s 115 of the Copyright Act.

Section 115 of the Copyright Act

12        Section 115 of the Copyright Act relevantly provides:

115    Actions for infringement

(1)    Subject to this Act, the owner of a copyright may bring an action for an infringement of the copyright.

(2)    Subject to this Act, the relief that a court may grant in an action for an infringement of copyright includes an injunction (subject to such terms, if any, as the court thinks fit) and either damages or an account of profits.

. . .

(4)    Where, in an action under this section:

(a)    an infringement of copyright is established; and

(b)    the court is satisfied that it is proper to do so, having regard to:

(i)    the flagrancy of the infringement; and

(ia)    the need to deter similar infringements of copyright; and

(ib)    the conduct of the defendant after the act constituting the infringement or, if relevant, after the defendant was informed that the defendant had allegedly infringed the plaintiff's copyright; and

(ii)     whether the infringement involved the conversion of a work or other subject-matter from hardcopy or analog form into a digital or other electronic machine-readable form; and

(iii)    any benefit shown to have accrued to the defendant by reason of the infringement; and

(iv)    all other relevant matters;

the court may, in assessing damages for the infringement, award such additional damages as it considers appropriate in the circumstances.

13        Division 2 of Part V of the Copyright Act provides for “Actions by owner of Copyright”. Section 115 provides the owner of a copyright (the owner) with a statutory cause of action for any infringement of that copyright. A separate and additional cause of action in conversion or detention is given to an owner in s 116.

Section 115(2) of the Copyright Act

14        Section 115(2) gives the owner three separate remedies as a consequence of the infringement of that copyright: an injunction to prevent further infringement; damages to compensate for any loss or damage caused by the infringement; and an account of profits if the owner can establish that the infringer profited by his or her conduct. Nothing further need be said about the remedy of an injunction, which is designed to prevent continuing infringements, the grant of which is at the discretion of the Court: LED Builders Pty Ltd v Masterton Homes (NSW) Pty Ltd (1994) 54 FCR 196.

15        In Colbeam Palmer Ltd v Stock Affiliates Pty Ltd (1968) 122 CLR 25 at 32, Windeyer J said:

The distinction between an account of profits and damages is that by the former the infringer is required to give up his ill-gotten gains to the party whose rights he has infringed: by the latter he is required to compensate the party wronged for the loss he has suffered. The two computations can obviously yield different results, for a plaintiff’s loss is not to be measured by the defendant’s gain, nor a defendant’s gain by the plaintiff’s loss. Either may be greater, or less, than the other.

16        Damages are a common law remedy. An account of profits is an equitable remedy. Whilst the two remedies are quite different in their provenance and application, s 115(2) does not allow the owner to obtain both damages and an account of profits. The owner must seek one or the other, not both: Dr Martens Australia Pty Ltd v Bata Shoe Co. of Australia Pty Ltd (1997) 75 FCR 230. The owner has to make an election as to which remedy the owner seeks. The question when the election needs to be made by the owner will depend in part upon the infringement complained of and the parties’ respective cases: Robert J Zupanovich Pty Ltd v B & N Beale Nominees Pty Ltd (1995) 59 FCR 49 at 64-65 per Carr J.

17        The damages which are awarded under s 115(2) are compensatory: Aristocrat Technologies Australia Pty Ltd v DAP Services (Kempsey) Pty Ltd (2007) 157 FCR 564 at 568 per Black CJ and Jacobson J. The purpose of an award of damages under s 115(2) “is to compensate the plaintiff for the loss which he has suffered as a result of the defendant’s breach”: see Bailey v Namol Pty Ltd (1994) 53 FCR 102 at 111. The principles that guide the assessment of those damages are similar to those that apply for an award of damages in tort: see Bailey v Namol Pty Ltd at 110. The damages award should endeavour to put the owner back in the position the owner would have been in if the infringement had not occurred. If an owner makes a claim for damages and proves damage there is no room for the exercise of discretion: Robert J Zupanovich Pty Ltd v B & N Beale Nominees Pty Ltd at 65 per Carr J.

18        The purpose of an account of profits is to allow the owner to recover the net gain made by the infringer of the copyright. The remedy of an account of profits is discretionary: LED Builders Pty Ltd v Masterton Homes (NSW) Pty Ltd. An account of profits “will be defeated by equitable defences such as estoppel, laches, acquiescence and delay”: Warman International Ltd v Dwyer (1995) 182 CLR 544 at 559. There is no element of punishment in an account of profits. The purpose is to prevent the infringer becoming unjustly enriched: Dart Industries Inc v The Décor Corporation Pty Ltd (1993) 179 CLR 101 at 114-115 per Mason CJ, Deane, Dawson and Toohey JJ.

19        The remedies in s 115(2) are not given to an owner for the punishment of the infringer. Section 115(2) is designed insofar as it allows for damages and an account of profits to compensate the owner for the loss suffered or for the profit made.

20        An owner who has obtained an award under s 115(2) will have been fully compensated by way of damages or by an account of profits, and would therefore not be entitled to any further compensation.

21        In this case it seems that the appellants advanced a case in which they sought both damages and an account of profits. They did so by claiming the profits made by the respondents as additional damages. That course was in our opinion impermissible, and led to the error made by the primary judge in awarding $11,000 by way of additional damages pursuant to s 115(4).

22        If the sum of $9,213 compensated the appellants for their loss or damage they were not entitled to the further sum of $11,000 on account of the respondents’ profits. It might be, and probably is the case, that the sum of $9,213 does not accurately reflect the damage suffered by the appellants. The real damage suffered by the appellants probably included the loss of the profits that the respondents made on the various counterfeit items: Colbeam Palmer Ltd v Stock Affiliates Pty Ltd at 32 per Windeyer J. However, there was a lack of clarity about the way in which the appellants put their case in relation to damages, and it is not possible to go behind the award of damages under s 115(2).

The Appellants’ Other Claims

23        The appellants also claim they are entitled to two other heads of damage under the Copyright Act. First, they claim they are entitled to reputational damages. Secondly, they claim they are entitled to additional damages under s 115(4) apart from those already awarded.

24        The primary judge declined to award the appellants reputational damages on the basis that they had not made out their case on the evidence because they should have identified the value of the appellants’ reputation as an “evidentiary starting point”.

25        An owner’s loss of reputation sounds in compensatory damages and may be awarded under s 115(2) of the Copyright Act if the evidence justifies such an award. Damages would flow if the owner establishes that the infringement has caused a depreciation in the copyright as a chose in action: Sutherland Publishing Co. Ltd v Caxton Publishing Co. Ltd [1936] Ch 323 at 336 per Lord Wright MR; Elwood Clothing Pty Ltd v Cotton On Clothing Pty Ltd (2009) 81 IPR 378 at [31]-[34] per Gordon J. The evidence in this case did justify an award of reputational damages under s 115(2). On the primary judge’s own findings the appellants established a substantial, exclusive and valuable reputation in Australia in relation to their trademarks, brand and goods. He also found that the brand would be diminished by the sale of counterfeit items, and that customers would be lost because the goods are no longer considered exclusive.

26        However, his Honour declined to include in the award of compensatory damages a sum to reflect reputational damage because, as we have said, he found that the appellants had failed to adduce evidence to demonstrate the value of the goodwill or reputation, and in those circumstances he was not prepared to speculate as to that value.

27        We cannot agree with that conclusion because we cannot think of any further evidence that the appellants could have adduced in relation to the damage to their reputation.

28        It is not easy in any given case to establish a reputation and to identify in monetary terms the value of the loss of that reputation. However, in our opinion the appellants established the former, and the Court was obliged to consider the latter: Enzed Holdings Ltd v Wynthea Pty Ltd (1984) 4 FCR 450. In The Commonwealth of Australia v Amann Aviation Pty Ltd (1991) 174 CLR 64 at 83, Mason CJ and Dawson J said:

The settled rule, both here and in England, is that mere difficulty in estimating damages does not relieve a court from the responsibility of estimating them as best it can. Indeed, in Jones v. Schiffmann Menzies J. went so far as to say that the “assessment of damages … does sometimes, of necessity involve what is guess work rather than estimation”. Where precise evidence is not available the court must do the best it can. And uncertainty as to the profits to be derived from a business by reason of contingencies is not a reason for a court refusing to assess damages.

(Footnotes omitted.)

29        It is a matter of judgment as to the loss of value in a party’s reputation. Although at first blush we would have thought the damages would have been higher than that arrived at by Gilmour J, we do not disagree with his Honour’s award of $5,000.

Section 115(4) Damages

30        Section 115(4) talks of additional damages. Justice Besanko in Futuretronics.com.au Pty Ltd v Graphix Labels Pty Ltd (No 2) (2008) 76 IPR 763 at [17] did not feel it necessary to determine whether an owner of a copyright could be entitled to additional damages without first proving an entitlement to either damages or an account of profits under s 115(2).

31        The point does not need to be decided on this appeal because there will be an award of damages under s 115(2) in the sum of $14,213 (being the $9,213 awarded by the primary judge and the $5,000 awarded for reputational damage), but nevertheless we make the following observations. Section 115(4) speaks of additional damages. It must mean additional to some other damages. The only other damages to which it could refer are damages awarded under s 115(2). Whilst an award can be made under s 115(2) which does not reflect damages but reflects an account of profits, that would not allow an owner to seek additional damages under s 115(4) because a claim for additional damages does not lie where an owner has sought an account of profits: Redrow Homes Ltd v Bett Brothers Plc [1999] 1 AC 197 at 209 per Lord Clyde; Aristocrat Technologies Australia Pty Ltd v DAP Services (Kempsey) Pty Ltd at 568 per Black CJ and Jacobson J.

32        An owner of a copyright would not be entitled to additional damages under s 115(4) without first making out an entitlement to damages under s 115(2). That is so because of the use of the words “additional damages” in s 115(4), and also because s 115(4) speaks of non-compensatory damages. If a defendant has infringed an owner’s copyright but not caused the owner any damage it is unlikely that the Court would think there was any need for any pecuniary damages. However, the authorities appear to recognise that s 115(4) may be engaged when the owner is entitled only to nominal damages under s 115(2): Aristocrat Technologies Australia Pty Ltd v DAP Services (Kempsey) Pty Ltd. This is not a case of that kind so no further consideration needs to be given to that circumstance.

33        As we have already said, s 115(2) damages are designed to be purely compensatory. Section 115(4) damages must be damages other than compensatory damages. The damages contemplated in s 115(4) are of a punitive kind. Damages are only awarded under s 115(4) where, after an infringement of copyright is established, the Court is satisfied of the relevant matters in s 115(4)(b). Those matters are of a kind which are taken into account in determining whether a party is entitled to aggravated or exemplary damages at common law.

34        The distinction between aggravated damages and exemplary damages was identified by Windeyer J in Uren v John Fairfax & Sons Pty Ltd (1966) 117 CLR 118 at 149:

The formal distinction is, I take it, that aggravated damages are given to compensate the plaintiff when the harm done to him by a wrongful act was aggravated by the manner in which the act was done: exemplary damages, on the other hand, are intended to punish the defendant, and presumably to serve one or more of the objects of punishment – moral retribution or deterrence.

35        We think s 115(4) is directed to both aggravated and exemplary damages because it addresses the manner in which the infringement occurred and the conduct of the defendant after the infringement (s 115(4)(b)(ib)), together with aspects of punishment (s 115(4)(b)(i) and (ia)).

36        However, the distinction between aggravated and exemplary damages does not need to be considered when considering additional damages under s 115(4) because s 115(4) provides a non-exclusive guide to the matters that are relevant in assessing those damages. Additional damages will be awarded under s 115(4) when the conduct of the defendant is such that an award of punitive damages should be made to mark the Court’s recognition of the opprobrium attached to the defendant’s conduct. The circumstances which are relevant to an assessment of aggravated damages and exemplary damages will be relevant in some cases in considering additional damages under this section, but in the end result the damages to be awarded are not aggravated or exemplary damages but additional damages, being of a type sui generis: Autodesk Inc v Yee (1996) 68 FCR 391.

37        Section 115(4)(b)(iii) allows the Court to have regard to any benefit shown to have accrued to the defendant by reason of the infringement in making an award of additional damages under s 115(4). However, that placitum does not empower the Court to embark upon an account of profits when damages have been awarded under s 115(2). As already noted an owner seeking a remedy under s 115(2) must elect whether the owner wants damages or an account of profits. Section 115(4)(b)(iii) does not allow an owner who has elected to be compensated in damages to seek an account of profits in addition to the award of damages. Section 115(4) only comes to be considered after the owner has elected for damages and has no part to play if the owner has elected for an account of profits. An owner cannot under the guise of s 115(4) damages seek an account of profits in addition to the compensatory damages already awarded under s 115(2). Section 115(4)(b)(iii) is addressing the conduct of the defendant which may or may not have led to financial gain, but which is such that it calls for punishment.

The Assessment by the Primary Judge

38        In this case the primary judge concluded that the respondents probably made a profit in the order of $20,000 by selling the counterfeit goods. He said that because he had awarded the figure of $9,213 by way of compensatory damages, a further sum of $11,000 should be awarded by way of additional damages in order to strip the infringer of the pecuniary benefits received from the infringement.

39        In proceeding in that way, in our opinion, his Honour effectively carried out an account of profits for the purpose of considering the additional damages under s 115(4). In our opinion, to reason that way involved error.

40        Although s 115(4) may be engaged where it is established that a defendant has accrued a benefit by reason of the infringement, the purpose of s 115(4) is not simply to strip the defendant of any pecuniary benefit which has accrued to the defendant. It may be that the benefit which has accrued is not pecuniary, but that does not mean that s 115(4) is not engaged: Polygram Pty Ltd v Golden Editions Pty Ltd (1997) 76 FCR 565 at 577 per Lockhart J. The more particular purpose of s 115(4) is punishment.

41        The pecuniary benefits which flowed to the respondents in this case were relevant in assessing the additional damages which were to be awarded, but there were other factors to be taken into account, all of which have been referred to by Gilmour J, and all of which in our respectful opinion are relevant.

42        If the primary judge was of the opinion that a pecuniary benefit of $11,000 had accrued to the respondents or either of them, he was wrong in our respectful opinion to limit the additional damages to that amount. To do so meant that there was no recognition of punishment in the award and no element of punitive damages at all.

The Award

43        We think the factors which have been identified by Gilmour J cause s 115(4) to be engaged in this case. We think the respondents acted in flagrant disregard of the appellants’ rights in infringing the copyright. We think the respondents’ breach of the respondents’ own undertakings demonstrates the flagrancy of that conduct. The respondents need to be deterred from similar conduct. There is a need for general deterrence to deter like-minded people who would act in the same way as the respondents and infringe other owners’ copyrights.

44        We think the respondents’ conduct after the proceeding was brought, and during the proceeding, ought to be taken into account, much like it would for an award of aggravated damages in a defamation case. It was only at the last minute that the respondents acknowledged their wrongful conduct, and they denied the infringement until that last minute.

45        The amount which ought to be awarded for exemplary damages is not easy to fix. The appellants sought an award of $500,000 at trial and $200,000 on appeal. We think both of these sums are significant overstatements of the award that ought to be made. Although there need not be any proportionality between the amount of compensatory damages awarded under s 115(2) and the amount of additional damages awarded under s 115(4) (Aristocrat Technologies Australia Pty Ltd v DAP Services (Kempsey) Pty Ltd at 571 per Black CJ and Jacobson J), the sums sought by the appellants both at trial and on appeal are so disproportionate to the damage suffered that the claims must be rejected.

46        Because this aspect of the award is meant to act as a punishment, the individual circumstances of the respondents must be taken into account, and the award must be tailored to reflect those circumstances: Amalgamated Mining Services Pty Ltd v Warman International Ltd (1992) 24 IPR 461 at 479 per Wilcox J.

47        As we have explained earlier, we do not think the sum of $11,000, which the primary judge ordered for additional damages, was in fact additional damages. However, because there is no cross appeal this Court cannot ignore that assessment, although the Court can take into account the fact that that sum is payable by the respondents in assessing the overall amount to be awarded under s 115(4).

48        In our opinion an appropriate award of additional damages under s 115(4) would be in the order of $25,000. Such an amount would reflect the purpose of s 115(4) and would include the figure of $11,000.

49        In the end, the total figure that we fix is only marginally higher than the figure Gilmour J would fix, but we have reached that conclusion for different reasons.

50        The orders of the Court are:

1.    Paragraphs 1 and 2 of the orders made by Bromberg J on 30 March 2011 be set aside.

2.    In lieu thereof there be orders that:

2.1    The first and second respondents pay the appellants’ damages in the sum of $14,213;

2.2    The first and second respondents pay the second appellant’s additional damages in the sum of $25,000.

3.    The respondents pay the appellants’ costs of the appeal.

Associate:

Dated:    20 February 2012

REASONS FOR JUDGMENT

GILMOUR J:

51        The appeal arose out of the importation by the first respondent (Rifai Fashions) of counterfeit fashion clothing under the “G-Star” brand into Australia from Thailand and China for subsequent sale by that company. Mr Rifai, the second respondent, is the Director of Rifai Fashions which is a relatively small family business operating a retail outlet at Paddy’s Market in Flemington, Sydney.

52        The first appellant (Facton) is the registered owner of various Australian G-Star trade marks (the G-Star Trade Marks). The second appellant (G-Star International) designs, distributes and sells “G-Star” branded clothing and accessories (G-Star Products) throughout the world. G-Star International has an exclusive licence to use the G-Star Trade Marks and is the owner of copyright in logos depicted in two of the G-Star Trade Marks (the G Logos). The third appellant (G-Star Australia) is a company incorporated in Australia and is the exclusive Australian distributor of the G-Star Products pursuant to a licence agreement with G-Star International.

53        Ultimately, but only after the commencement of the trial, the respondents admitted liability and accordingly only damages were at issue below.

54        There was no appearance at the hearing of the appeal by the respondents.

55        The primary judge made declarations to the effect that the respondents in the appeal had breached s 120 of the Trade Marks Act 1995 (Cth); infringed certain copyright works in contravention of the Copyright Act 1968 (Cth); breached certain provisions of the Fair Trading Act 1987 (NSW) and the Trade Practices Act 1974 (Cth) and had engaged in conduct constituting the tort of passing off.

56        General damages of $9,213 were awarded to the appellants jointly. This was said to reflect the retail value of some 140 items sold by the respondents. Additional damages of $11,000 were ordered pursuant to s 115(4) of the Copyright Act in favour of G-Star International. The primary judge declined to award exemplary damages for passing off or damages for loss of reputation under s 115(2) of the Copyright Act.

57        The issues on the appeal are whether, in the circumstances of this case, the primary judge erred in principle or gave improper or insufficient emphasis to a fact in deciding:

4.    not to award exemplary damages for passing off;

5.    not to award general damages for loss of reputation to the appellants pursuant to s 115(2) of the Copyright Act; and

6.    to limit the appellants' additional damages award under s 115(4) of the Copyright Act to $11,000.

Relevant findings of the primary judge

58        The primary judge found that, while Mr Rifai was slow to concede it, he well knew that he was being supplied with counterfeit G-Star products in September 2009 and that later in Bangkok in October 2009 he was purchasing 2,857 items of counterfeit “G-Star” branded apparel. That apparel was subsequently intercepted and seized by Australian Customs, and on 5 November 2009 Mr Rifai signed a document headed “Notice of Consent to Forfeit Goods”, which consented to the forfeiture of the seized goods to the Commonwealth. These goods it appears were purchased for $35,000 or else that was the cost to Rifai Fashions of the trip to Bangkok to obtain the goods as well as their cost. The position is not entirely clear.

59        The appellants’ solicitors communicated with Rifai Fashions by letter of 10 November 2009, advising it of the appellants’ interest in the G-Star Trade Marks and G-Logos, asserted various infringements by Rifai Fashions and made various demands, including for the provision of an undertaking to the effect that Rifai Fashions would cease from manufacturing, importing, marketing, promoting, exhibiting in public, offering for sale and selling or supplying the infringing products. Mr Rifai signed the undertaking sought on behalf of Rifai Fashions on 12 November 2009 (the first undertaking).

60        Despite the first undertaking, Rifai Fashions continued selling counterfeit G-Star apparel, as observed by investigators visiting their market stall on 15 and 22 November 2009, at which time the stall was “well stocked with “G-Star” branded items” including jeans, shorts and tops. The evidence included a surveillance video taken at that market stall on 22 November 2009, which showed “G-Star” branded jeans and shirts prominently displayed as feature items at the front of the clothing racks, indicating what was contained in those racks.

61        When they did not receive a response to their earlier letter, the appellants’ solicitors wrote again to Rifai Fashions on 20 November 2009 referring to the earlier correspondence and again enclosing a copy of an undertaking in the same terms as previously sought. On 23 November 2009, Mr Rifai on behalf of Rifai fashions signed the further undertaking (the second undertaking).

62        Relying on evidence of these investigations, on 21 December 2009 the appellants applied for and obtained a search order from Marshall J to search premises at 95 Wattle Street, Punchbowl in New South Wales and Stall No 519, Sydney’s Paddy’s Market, Parramatta Road, Flemington, New South Wales for infringing “G-Star” apparel. Those searches were executed on 22 December 2009, and 340 “G-Star” branded products were found and removed.

Exemplary damages

63        Exemplary damages are claimed by the appellants in the passing-off action.

64        It is apparent from the reasons of the primary judge that the elements of proved reputation, misrepresentation and damage identified by the Full Court in Vieright Pty Ltd v Myer Stores Ltd (1995) 31 IPR 361 at 369 were made out on the evidence. There is a very helpful analysis of the law of passing-off with the leading cases set out by Tracey J in Deckers Outdoor Corporation Inc v Farley (No 5) (2009) 262 ALR 53 at [37]-[40].

65        Brennan J described the proper approach to exemplary damages as follows in XL Petroleum (NSW) Proprietary Limited v Caltex Oil (Australia) Proprietary Limited (1985) 155 CLR 448 at 471:

As an award of exemplary damages is intended to punish the defendant for conduct showing a conscious and contumelious disregard for the plaintiff's rights and to deter him from committing like conduct again, the considerations that enter into the assessment of exemplary damages are quite different from the considerations that govern the assessment of compensatory damages. There is no necessary proportionality between the assessment of the two categories. In Merest v. Harvey (79) substantial exemplary damages were awarded for a trespass of a high-handed kind which occasioned minimal damage, Gibbs C.J. saying:

I wish to know, in a case where a man disregards every principle which actuates the conduct of gentlemen, what is to restrain him except large damages?

The social purpose to be served by an award of exemplary damages is, as Lord Diplock said in Broome v. Cassell & Co. (80), "to teach a wrong-doer that tort does not pay".

66        The appellants’ case below and on appeal is that the respondents acted in a “conscious and contumelious disregard” for the appellants’ respective rights by continuing to sell counterfeit “G-Star” products after Mr Rifai on behalf of Rifai Fashions signed the Notice of Consent to Forfeit Goods on 5 November 2009 and signed the First and Second Undertakings on 12 and 23 November 2009. Rifai Fashions and Mr Raifai were sued as joint tortfeasors. No issue emerges from that characterisation.

67        The respondents knew since September 2009 that the “G-Star” branded products they were dealing in were counterfeit, well before Mr Rifai signed the Notice of Consent to Forfeit Goods on 5 November 2009. He confirmed in cross-examination that from 5 November 2009 he understood that Rifai Fashions should not import or sell any more such G-star products. That understanding was underlined by him signing on behalf of Rifai Fashions the first undertaking on 12 November 2009. Mr Rifai was personally manning the market stall on 15 November 2009, when G-Star branded items were displayed for sale. On 22 November 2009, the market stall remained “well stocked” with “G-Star” branded clothing. The very next day, 23 November 2009, Mr Rifai signed the second undertaking.

68        The respondents admitted breach of both the first and second undertakings.

69        Conduct by the respondents during the litigation may also be a relevant factor for exemplary damages. Kenny J, by analogy, in Review Australia Pty Ltd v New Cover Group Pty Ltd (2008) 79 IPR 236 at [53]-[58] awarded additional damages under s 115(4) of the Copyright Act for design infringement (having noted that similar principles governed additional damages and exemplary damages at common law) on the basis of the respondents’ deficiencies in making discovery, responding to a notice to produce and attending for cross-examination.

70        The proceeding below was commenced on 21 December 2009. The appellants filed a Statement of Claim on 26 February 2010. The respondents’ Amended Defence dated 28 April 2010 denied selling any “G-Star” branded clothing, denied all liability and effectively put the appellants to their proof. The appellants prepared and filed affidavit evidence to meet that case.

71        The respondents filed two affidavits of Mr Rifai dated 9 February 2010 and 29 April 2010, but did not rely upon either at trial. By order made by the primary judge on 21 July 2010, the respondents were required to file their evidence in chief by 30 July 2010. On 23 July 2010, the trial was fixed to commence on 8 September 2010. The respondents filed no further evidence by the 30 July deadline, and did not seek any extension of that deadline. On application by the appellants, on 18 August 2010 the Court extended the deadline for the respondents’ evidence to 25 August 2011, with costs against the respondents. The respondents did not file any further evidence by 25 August 2010.

72        By order made on 16 April 2010, the parties were ordered to exchange outlines of submissions 7 days before trial, that is, by 1 September 2010. The appellants filed a detailed outline by that date, but the respondents did not file any outline.

73        On the day before trial, the respondents served an affidavit of Mr Rifai sworn 6 September 2010. In that affidavit, Mr Rifai swore falsely that he was unaware that any of the goods he purchased in October 2009 in Thailand or in September 2009 from Chinese suppliers were counterfeit. The trial judge rejected this evidence and found that, in fact, Mr Rifai knew that he was being supplied with counterfeit G-Star products at those times.

74        Shortly after the trial commenced, the respondents formally admitted liability. The trial was thus confined to the question of damages against Rifai Fashions and Mr Rifai, yet the appellants had been required to prepare for a trial also on liability.

75        As a witness, Mr Rifai gave less than candid sworn evidence: the trial judge found that he was “at times slow to concede wrongdoing and at other times, it seems to me, his evidence was exaggerated” and, referring to Mr Rifai’s evidence of the total number of sales:

I accept, based on my view of Mr Rifai as a witness, that the number of items said to have been sold is likely to be a significant underestimate and that it is likely that the number of items actually sold was significantly greater.

76        The appellants submit that such conduct by the respondents during the litigation provides further support for exemplary damages, consistent with the approach of Kenny J in Review v New Cover.

77        The trial judge declined to award exemplary damages. The critical finding of the primary judge at [37] of his reasons was that whilst the respondents’ conduct was knowing and deliberate it was not wanton, malicious, insolent or the like and was not therefore “contumelious”. The primary judge referred to a passage from Mayne & McGregor on Damages (12th ed, 1961) as cited by the Full Court in Sanders v Snell (1997) 73 FCR 569 at 597 that exemplary damages:

... can apply only where the conduct of the defendant merits punishment, which is only considered to be so where his conduct is wanton, as where it discloses fraud, malice, violence, cruelty, insolence or the like; or as it is sometimes put, where he acts in contumelious disregard of the plaintiff's rights.

78        The primary judge considered that before offending conduct could be contumelious, there required to be established an element of “malice or spite or the like often, manifested in insult or humiliation”. I would respectfully disagree with the primary judge for a number of reasons. First, contumelious conduct need not be malicious or spiteful. It includes, for example, contemptuous conduct: Macquarie Dictionary On-line or reproachful conduct: Oxford English Dictionary On-Line. Lamb v Cotogno (1987) 164 CLR 1, as was noted by the Full Court in Sanders v Snell at 598-599 was a case where there was an express finding by the Court at first instance that the defendant had acted without malice. However, this was held not to be a barrier to the award of exemplary damages. It sufficed that the defendant’s conduct was “callous” with the defendant acting in a humiliating manner and in wanton disregard of the plaintiff’s welfare.

79        Second, in my opinion, the conduct of the respondents, contrary to the finding of the primary judge at reasons [37] was “wanton”. I do not understand their Honours in Sanders v Snell at 597 when they cited the above passage from Mayne & McGregor on Damages (12th ed 1961) as somehow limiting the meaning of the word “wanton” in the present context. It seems to us to describe the deliberate and flagrant disregard for another’s legal rights. Whether the conduct in question in a particular case falls within that description will be a matter of degree and judgment in the context of that case.

80        Here, the primary judge found, with substantial justification on the evidence, that the respondents conduct was not only knowing and deliberate but also “involved wilfulness” and a “conscious disregard for the (appellants’) rights”.

81        In my opinion these findings warrant the description of a “conscious and contumelious disregard for the plaintiffs’ rights” stated by Brennan J in XL Petroleum and as discussed by the Full Court in Sanders v Snell.

82        I agree with the submissions of the appellants that it would convey the wrong message to infringers that they will suffer nothing more than compensatory damages and party-party legal costs when they engage in conduct of the following kind which occurred here:

(a)    acquiring and selling goods known to be counterfeit;

(b)    giving false undertakings;

(c)    continuing to trade in goods knowing them to be counterfeit after giving such undertakings;

(d)    denying liability in subsequent legal proceedings, putting the plaintiffs to proof and ignoring numerous Court orders to file evidence and submissions; and

(e)    giving false sworn evidence that it was not known that the goods were counterfeit.

83        This list is illustrative only and is not intended to confine the circumstances in other cases which may attract an award of exemplary damages.

84        It only remains to consider what award should be made in this respect. At trial the appellants sought $500,000. This aspect of the matter was not dealt with by the primary judge in light of his finding that no such damages ought be awarded. The respondents are not before us. The appellants in their written submissions seek the reduced amount of $200,000. I think that in these circumstances the issue of quantum is not required to be remitted to the primary judge.

85        The assessment of exemplary damages, containing as it does a significant element of penalty or punishment is by no means a precise science. In my opinion, the facts of this case are such that an award of $50,000 against the respondents jointly is appropriate subject to what follows.

86        The personal circumstances of the appellant may be taken into account: Amalgamated Mining Services Pty Ltd v Warman International Ltd (1992) 24 IPR 461 at 479. The relative weight to be given to them will depend on the particular case. To the extent that Mr Rifai is personally liable there is unchallenged evidence that his financial position is perilous. I would, for that reason, without in any way detracting from the very strong statement of disapproval by this Court concerning the offending conduct and the manner of it’s exercise, fix the amount of exemplary damages at $10,000.

Additional damages

87        Additional damages were claimed by the appellant under s 115(4) in the alternative to exemplary damages for passing off.

88        Section 115(1), (2) and (4) provide as follows:

115    Actions for infringement

(1)    Subject to this Act, the owner of a copyright may bring an action for an infringement of the copyright.

(2)    Subject to this Act, the relief that a court may grant in an action for an infringement of copyright includes an injunction (subject to such terms, if any, as the court thinks fit) and either damages or an account of profits.

. . .

(4)    Where, in an action under this section:

(a)    an infringement of copyright is established; and

(b)    the court is satisfied that it is proper to do so, having regard to:

(i)    the flagrancy of the infringement; and

(ia)    the need to deter similar infringements of copyright; and

(ib)    the conduct of the defendant after the act constituting the infringement or, if relevant, after the defendant was informed that the defendant had allegedly infringed the plaintiff's copyright; and

(ii)     whether the infringement involved the conversion of a work or other subject-matter from hardcopy or analog form into a digital or other electronic machine-readable form; and

(iii)    any benefit shown to have accrued to the defendant by reason of the infringement; and

(iv)    all other relevant matters;

the court may, in assessing damages for the infringement, award such additional damages as it considers appropriate in the circumstances.

89        Section 115(4) which confers a broad general discretionary power to award additional damages was introduced into the copyright landscape in the 1968 Act upon the recommendation of the Spicer Committee in its Report of the Copyright Law Review Committee 1959, para 309. It pointed to the need for the courts to have power to grant “something equivalent to exemplary damages” where relief in the nature of general damages and account of profits was thought to be inadequate. The discretion is not fettered in any arithmetical or mechanical way.

90        The principles so far developed in relation to awards of additional damages under s 115(4) were summarised in Norm Engineering v Digga Australia (2007) 162 FCR 1 at [302] by Greenwood J and further in Futuretronics.com.au Pty Ltd v Graphix Labels Pty Ltd (No 2) (2008) 76 IPR 763 at [17].

91        To the extent that damages are awarded under s 115(4) they cannot, by reliance on the same facts, be recovered, in addition, by way of exemplary damages. The converse is the same. Indeed, an award under s 115(4) can encompass damages which, at common law, would be aggravated damages and exemplary damages: Futuretronics at [17]; Bailey v Namol Pty Limited (1994) 53 FCR 102 at 113-114.

92        I have concluded that the conduct of the respondents demonstrated, in the context of exemplary damages, a contumelious disregard for the appellants’ rights. It was, in terms of s 115(4), flagrant conduct. It manifested a calculated disregard for the appellants’ rights: Prior v Lansdowne Press Pty Ltd (1975) 29 FLR 59 at 65; Ravenscroft v Herbert at New English Library Ltd [1980] RPC 193 at 208. It has been otherwise described as “glaring, notorious, scandalous” or “blatant”: Raben Footwear Pty Ltd v Polygram Records Inc (1997) 75 FCR 88 at 103.

93        Section 115(4) speaks in terms of “additional” damages. There is a question whether there must be an award of damages under s 115(2) before additional damages are available under s 115(4). Besanko J declined in Futuretronics at [17] to answer that question as his Honour had awarded nominal damages under s 115(2).

94        Again, although only nominal damages were awarded under s 115(2) Black CJ and Jacobson J in Aristocrat Technologies Australia Pty Ltd v DAP Services (Kempsey) Pty Ltd (2007) 157 FCR 564 observed at [54] that this did not preclude an award of additional damages under s 115(4) in an amount of $200,000. Their Honours referred with apparent approval to Microsoft Corporation v PC Club Australia Pty Ltd (2005) 148 FCR 310 where Conti J said that in an appropriate case an award of additional damages may well exceed the amount of compensatory damages under s 115(2).

95        Lockhart J in Polygram Pty Ltd v Golden Editions Pty Ltd (1997) 76 FCR 565 confronted by a submission that the power to award additional damages under s 115(4) depended upon there first being an award made under s 115(2) considered that, the better view was that the word “additional” in conjunction with the word “damages” in subs (4) is descriptive of the “kind” of damages that may be awarded, namely additional in the sense of aggravated or exemplary damages which may contain a punitive element.

96        As his Honour said at p 575:

Therefore, although I recognise some attraction in counsel's argument, I do not think it is sound. The owner of a copyright may bring an action for infringement of copyright (s 115(1)). The Court may grant various forms of relief including those mentioned in subs (2), namely, an injunction and either damages or an account of profits. The relief mentioned in subs (2) is by way of inclusion and is not exhaustive of the Court's powers. The Court may also grant declaratory relief.

97        Moreover, as Black CJ and Jacobson J observed in Aristocrat at [39] damages are not the gist of an action under s 115(1) but are merely one form of relief that the Court may grant under s 115(2).

98        It is unnecessary in the present case to determine this question. There was no contradictor on the hearing of the appeal and the Court did not have the benefit of argument on this point.

99        There is, it seems, nonetheless a relationship between the two damages provisions in s 115. Black CJ and Jacobson J in Aristocrat at [52] said:

The very nature of “additional” damages and the considerations enumerated in s 115(4)(b) of the Copyright Act suggest that the amount awarded may depend on the sufficiency or otherwise of the compensatory damages awarded under s 115(2). The setting aside of the judge’s award of compensatory damages is a “relevant matter”: s 115(4)(b)(iv).

100        Damages under s 115(2) for lost profits fixed at $9,213 were sought by the appellants and conceded by the respondents below. While there is some confusion in the judgment as to how this sum was characterised it was, as run at trial, the full extent of the appellants’ claim for lost profits. I have treated it as such.

101        Additional damages of $11,000 were awarded under s 115(4) representing, as counsel for the appellants conceded, in effect an account of profits. Such damages will ordinarily be claimed under s 115(2) and not s 115(4).

102        In fact additional damages under s 115(4) representing lost profits were not claimed by the appellants below. Rather, they claimed additional damages of $500,000 based upon the same facts as supported the passing-off claim for exemplary damages.

103        However, evidence of the extent of infringements, the amount of sales and some measure of the profits gained will be relevant in assessing the flagrancy of the contraventions. Such evidence may also go to the “benefit accrued” provision under s 115(4)(b)(iii), not for the purpose of awarding compensatory damages for loss of profits or upon an account of profits but rather to inform the appropriate penal and deterrent elements in an award of additional damages. This, it appears, is what the Court in Aristocrat intended. Rares J at [106] and [116] observed:

[106] While an accounting for profit approach, which was adopted by his Honour, was inappropriate for the award of compensatory damages, the methodology which his Honour adopted for the calculation is apposite in considering an award of additional damages.

[116] There is a need to deter and punish those who act or seek to act as Vidtech and Mr Parry were proved to have done. … One of the important purposes served by the power to award additional damages granted in s 115(4)(b) is that market practices of the kind engaged in by Vidtech and Mr Parry can be firmly discouraged. In a case like the present where precision of assessment of damage or profit is impossible but substantial, deliberate and flagrant infringement has been proved, a substantial sum of additional damages should be awarded. (Emphasis added)

104        Black CJ and Jacobson J said at [53]:

[53] We agree with Rares J that the evidence before the primary judge demonstrated a cynical and flagrant exploitation of Aristocrat’s copyright by Vidtech and Mr Parry. We also agree with Rares J that $40,000, the amount awarded by the primary judge as additional damages, is not an appropriate figure to reflect the flagrancy of the infringements, the need to deter similar infringements and the need to mark the court’s disapproval of the conduct. The starting point, to reflect in a broad way the benefit obtained is, as we have said, $105,000. There should be added to this sum a substantial amount for the other factors we have identified. (Emphasis added)

105        The approach of the trial judge, fairly read, followed the same approach as the Full Court in Aristocrat.

106        The primary judge found that it was proper to award additional damages to strip the respondents of the pecuniary benefit likely to have been obtained as a result of their infringement, as well as “to punish and deter”. I take the latter observation to be referring not only to the respondents but to others generally. To the extent that the reasons of the primary judge are capable of being read such that the amount of $11,000 is compensation for lost profits then I agree with the majority that this would disclose error. Where, as here, an award of damages has been made under s 115(2) there can be no entitlement to further compensation for lost profits under s 115(4).

107        His Honour then, however, identified “militating factors” which “significantly diminish the amount that might otherwise have been awarded.” These militating factors included that Mr Rifai accepted his wrongdoing and that of his company, that the respondents admitted liability and otherwise cooperated and apologised. However, formal admissions were not made by the respondents as I mentioned earlier until after the trial commenced, and the appellants were put to the task of filing evidence and preparing for trial on all issues. The respondents repeatedly ignored orders to file evidence and an outline of submissions. No apology was forthcoming until the affidavit served the day before trial. That affidavit contained false sworn evidence on the key issue of whether the respondents knew that they were acquiring counterfeit goods, and other parts of Mr Rifai’s evidence were exaggerated. I do not regard these matters as having a militating effect on the extent of additional damages. Rather I regard the respondents contravening conduct which I have described to have been flagrant. To that extent the conduct was co-extensive with the contumelious conduct apt to an award for exemplary damages for passing-off. The principles applicable to an award of damages under s 115(4) correspond or are akin to those that apply to an award of exemplary damages at common law: Aristocrat per Black CJ and Jacobson J at [42]; per Rares J at [113]; Autodesk Inc v Yee (1996) 68 FCR 391 at 394.

108        The primary judge took the approach that a costs award against the respondents was a factor requiring a reduction of additional damages. This in my view was erroneous. The purposes to be achieved by a costs order under s 43 of the Federal Court of Australia Act 1976 (Cth) and an award of additional damages under s 115 of the Copyright Act are separate and different. Additional damages under s 115(4) have a punitive role to play. A costs order does not: Latoudis v Casey (1990) 170 CLR 534 at 543 per Mason J.

109        Moreover, the conduct of the litigation by the respondents is another factor. The language of s 115(4)(b)(ib) is sufficiently wide to encompass such a consideration. It was a distinct and relevant factor that the respondents continued to infringe copyright after being put on notice that they were infringing. This is a significant factor in awarding substantial additional damages: see, for example Milpurrurru v Indofurn Pty Ltd (1994) 54 FCR 240; Aristocrat; and Elwood Clothing Pty Ltd v Cotton On Clothing Pty Ltd [2009] FCA 633. The primary judge it appears had no or insufficient regard for this.

110        I earlier referred to the decision of Kenny J in Review Australia v New Cover where her Honour in a case under the Designs Act 2003 (Cth) awarded additional damages where the defendant discovered no relevant documents concerning the manufacture, importation and sale of the relevant products. The defendant’s explanation in this respect was rejected on not being credible. Likewise there was an inadequate response to a notice to produce which was also unsatisfactorily explained and was not credible. Finally the personal respondent failed to attend Court in answer to a notice for cross-examination. These constituted deliberate attempts by the defendant to frustrate the prosecution of the plaintiff’s case for design infringement.

111        Besanko J considered this point in Futuretronics at [17] in discussion of observations made by Goldberg J in Flags 2000 Pty Ltd v Smith (2003) 59 IPR 191. It arose in the context of a consideration of the reach of s 115(4)(b)(ib) which concerns the conduct of the defendant after the act constituting the infringement or, if relevant after the defendant was informed of its alleged infringement of the copyright.

112        Besanko J said:

Fourth, in the recent case of Flags 2000, Goldberg J suggested that there is a distinction between conduct of a defendant after an infringement (or after being informed that he has allegedly infringed the plaintiff’s copyright) and relevant to the substantive allegations against him on the one hand, and the defendant’s conduct of his defence to an action for an infringement of copyright in relation to procedural matters on the other. The former matter is within the terms of s 115(4)(b)(ib) of the Act, whereas it has been suggested that the latter matter is a matter to be taken into account in determining the appropriate order as to costs. In Flags 2000 Goldberg J said (at [45]–[46]):

[45] The applicants submitted that the insertion of subparas (ia) and (ib) was declaratory of the position which had existed prior to the amendments. There is substance in that submission as can be seen from cases such as Carson v John Fairfax & Sons (1992) 178 CLR 44 at 71; 113 ALR 577 at 597 and Microsoft Corp v Goodview Electronics Pty Ltd (2000) 49 IPR 578. However, the conduct taken into account in those cases was conduct which was relevant to the substantive allegations made against the respondents. For example, in the Microsoft case the respondent filed a defence which proved to be false. Branson J took that fact into account in conjunction with other evidence which showed an intention on behalf of the respondent to conceal the identity of their suppliers to find “a deliberate pattern of conduct by the respondents in which they recognised the illegality of the enterprise they are engaged in and actively sought to conceal it”.

[46] I do not consider that the conduct of the respondent contemplated by subpara (ib) of s 115(4)(b) is referable to conduct of the defence in so far as it relates to procedural matters and matters whereby the applicants are put to the proof of their case, albeit unreasonably. I consider that these are matters more appropriately dealt with by an appropriate order for costs.

In certain circumstances, the distinction may be a difficult one to apply and there is an obvious need to avoid double-counting. Nevertheless, I agree with the distinction identified by Goldberg J in Flags 2000.

113        I too respectfully agree with the observations of Goldberg J.

114        The post infringement conduct of the respondents in the litigation complained of by the appellants falls, in my view, into the former category of conduct going not merely to procedural matters but going directly to the substantive allegations and rendering more difficult, without excuse, the appellants attempts to pursue their legal entitlements. If it was once thought that respondents are entitled to put applicants to the proof (Warman International Ltd v Envirotech Australia Pty Ltd (1986) 67 ALR 253 at 262-5) then that is now subject to s 37M of the Federal Court of Australia Act 1976 (Cth). It must, in any event, if it be a privilege, nonetheless be a relevant factor in assessing the difficulties of enforcing copyright cases as was recognised in Autodesk at 479 by Wilcox J.

115        As with exemplary damages the assessment of the amount to be awarded is, of necessity, an imprecise exercise: Bailey at 114; Aristocrat per Black CJ and Jacobson J at [52].

116        The appellants stressed the importance of an award of exemplary damages for passing-off. I have dealt with that. The claim for additional damages rests essentially on the same facts although it includes the further element of benefit accrued to the respondents. There is no cross-appeal. There is no reason to interfere with the discretion of the primary judge in that respect and the award of $11,000 should stand.

Damages for loss of reputation

117        Gordon J explained in GM Holden Ltd v Paine (2011) 281 ALR 406 at [90] that where “reputational damages are sought, evidence is usually led to establish: (a) the importance of singularity, distinctiveness, quality or some other commercially valuable aspect of reputation to the victim; and (b) how, and to what extent, the infringing product or conduct damaged that aspect of the victim’s reputation”. Her Honour noted that the mere difficulty in assessing damages does not relieve the Court of its responsibility of estimating them as best it can, and although damage to reputation may be difficult to quantify, it is compensable nonetheless.

118        The primary judge noted the respondents’ admission that the appellants had established a substantial, exclusive and valuable reputation and goodwill in Australia by reference to the G-Star Trade Marks and G Logos and that the G-Star Trade Marks and G Logos are, and have been at all material times, known to be distinctive of and signify exclusively the business and goods of the applicants.

119        The primary judge further inferred that, as the exclusive distributor of G-Star Products in Australia and given the evidence as to its very substantial turnover, G-Star Australia has a valuable reputation or goodwill which is, to a significant degree, generated by and reliant on the reputation of the “G-Star” brand. His Honour therefore agreed that the value of the goodwill attached to the business of G-Star Australia will be affected by damage sustained to the “G-Star” brand, including because G-Star Australia:

(a)    loses some sales of G-Star Products, because counterfeit products are available at cheaper prices; and

(b)    loses customers because some customers no longer purchase G-Star Products, as that apparel is no longer considered exclusive.

120        His Honour further accepted that, as a chose in action, the G Logos are likely to hold significant value.

121        Notwithstanding these findings, the primary judge refused to award damages for loss of reputation. Central to his Honour’s reasoning was that the appellants should have identified the value of the reputation or goodwill concerned as an “evidentiary starting point”.

122        Damages for loss of reputation were awarded without the requirement of any such “evidentiary starting point” by:

(a)    Jessup J in Review Australia Pty Ltd v Innovative Lifestyle Investments Pty Ltd (2008) 166 FCR 358 at [30] where his Honour proceeded on the basis of evidence from the applicant’s director that the applicant “put considerable value by the perceived originality of its garments. It was an important aspect of the applicant’s image in the market”;

(b)    Kenny J in Review Australia v New Cover, where her Honour proceeded on the basis that the applicant ‘put substantial value on its image as “very feminine, girly, sort of romantic” – an image achieved through its designs’ and that ‘it was plain enough that “exclusivity” (and design “freshness”) was of commercial value since . . . Review did not sell through other branded stores because it was not seen as “part of its business strategy”’;

(c)    Gordon J in Elwood v Cotton On, where her Honour noted that the applicant had adduced no evidence of the damage it allegedly suffered to its reputation by reason of the infringement of its copyright, but proceeded to speculate as to what was the commercially valuable aspect of the applicant’s reputation and how, and to what extent was it damaged by the conduct of the respondent;

(d)    Gordon J in GM Holden Ltd v Paine, where her Honour proceeded on the basis of the applicant’s evidence as to the reputation established in the Holden brand as a result of longstanding investment in creating exclusive designs, by which “the applicants have developed a substantial reputation in Australia for its innovative and exclusive wheel designs”.

123        I accept the appellants’ submissions that on this issue, the trial judge had received as much if not more evidence from the appellants as was adduced by the applicants in any of Review v Innovative, Review v New Cover, Elwood v Cotton On or GM Holden v Paine. His Honour noted evidence, which I mentioned earlier, that G-Star Australia sells G-Star Products to its franchisees that own and operate ten “G-Star Concept Stores” throughout Australia, and also to over 40 independent retailers throughout Australia including major department stores. G-Star Australia advertises and promotes the “G-Star” brand in Australia in a number of ways including through billboards, signage on public transport, in-store advertising, advertorials and advertisements placed in various magazines. Substantial amounts of money are expended by G-Star Australia on advertising and promoting the “G-Star” brand in Australia.

124        His Honour further noted the uncontradicted evidence led by the appellants that through its marketing and promotional activities, G-Star International has generated and cultivated a reputation as being an innovative brand with cutting edge style that appeals to a wide range of customers. It is said that the rough, rudimentary and raw characteristics of G-Star Products give them a distinct, urban and unorthodox style. Based on those facets, G-Star Australia has built up a substantial reputation in the “G-Star” brand in Australia. Large quantities of G-Star Products are sold in Australia. A confidential exhibit identified the annual turnover of G-Star Australia and verified that the turnover is very substantial. Retail customers of G-Star Australia sell a pair of “G-Star” jeans for an average recommended retail price of $280 and a “G-Star” t-shirt for an average recommended retail price of $40.

125        Moreover, his Honour noted that the respondents had admitted that the appellants had established a substantial, exclusive and valuable reputation and goodwill in Australia by reference to the G-Star Trade Marks and the Copyright Works, that the business and goods of the applicants have become widely and favourably known and identified by the general public in Australia by reference to the G-Star Trade Marks and the Copyright Works.

126        There was, however, no evidence that the appellants’ reputation had suffered because the counterfeit products were inferior in quality to the genuine articles.

127        The primary judge erred by requiring, as a precondition to damages for loss of reputation, that the appellants must provide further, unspecified, evidence as to the value of their reputation and goodwill. The authorities I have mentioned do not support such an approach.

128        The appellants seek reputational damages in the sum of $35,000. I consider that to be excessive. The appellants are part of a multi-global group of companies with some 4,600 retail outlets in forty countries. Rifai Fashions is on any view a minnow by comparison. The loss of reputation suffered is likewise likely to have been minimal even if confined to the Australian context. I consider an award of $5,000 to be adequate. This will be in addition to the existing award of general damages of $9,213.

Conclusion

129        It follows for these reasons that the appeal should be allowed in part. There should be additional orders to those made by the primary judge as follows:

1.    The first and second respondents pay the applicant’s exemplary damages for passing-off in the sum of $10,000.

2.    The first and second respondents pay the third applicant $5,000 for loss of reputation.

130        The respondents did not contest the appeal. The need for it arose from errors by the trial judge. There will be no order as to costs of the appeal.

Associate:

Dated:    20 February 2012