FEDERAL COURT OF AUSTRALIA

Bathox Australia Pty Ltd v P J SAS Trading Pty Ltd [2004] FCA 1082

PRACTICE AND PROCEDURE – Federal Court Rules – application for order that the question of liability be determined separately from the question of damages – principles that govern the circumstances in which an order will be made under O 29 r 2 – whether ‘just and convenient’ to make an order under O 29 r 2 – factors that govern whether ‘just and convenient’ to make an order

Trade Practices Act 1974 (Cth)

O 29 r 2 of the Federal Court Rules

Clarkel Holdings Pty Ltd (in liq) v Kelly [1999] FCA 1266  referred to

Digi International Inc v Stallion Technologies Pty Ltd [2001] QSC 442,(2001) 53 IPR 529  discussed

Dr Martens Australia Pty Ltd v BATA Shoe Company of Australia Pty Ltd (1997) 75 FCR 230  referred to

Energy Australia v Australian Energy Limited [2001] FCA 1049  followed

Highlands Pacific Ltd v Orogen Minerals Ltd [2002] FCA 1104  referred to

Idoport Pty ltd v National Australia Bank Ltd [2000] NSWSC 1215  referred to

Island Records Ltd v Tring International Plc [1996] 1 WLR 1256  referred to

Novartis Crop Protection Australasia Pty Limited v Orica Australia Pty Limited [2001] FCA 1013  referred to

Reading Australia Pty Ltd v Australian Mutual Provident Society [1999] FCA 718  followed

Tallglen Pty Ltd v Pay TV Holdings Pty Ltd (1996) 22 ACSR 130  referred to

Tepko Pty Ltd v Water Board (2001) 206 CLR 1  followed

BATHOX AUSTRALIA PTY LIMITED v P J SAS TRADING PTY LIMITED & ORS

N 910 OF 2003

STONE J

24 AUGUST 2004

SYDNEY

THE COURT ORDERS THAT:

1.                  The notice of motion be dismissed.

2.                  The matter be stood over for further mention at 9.30am on 3 September 2004.

Note:    Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

REASONS FOR JUDGMENT

1                     The application in this proceeding is brought under the Trade Practices Act 1974 (Cth) (‘TPA’) as well as under equivalent State fair trading legislation.  The applicant alleges that the respondents have manufactured, promoted, sold and distributed a range of bath and shower gel products under and by reference to get up which is substantially the same as that of the applicant’s products.  On this basis the applicant claims that the respondents have wrongly attempted to pass off their goods as having a connection in trade with the applicant or its business and that they have engaged in conduct that is misleading or deceptive (or likely to mislead or deceive).  The applicant also claims that the respondents have breached terms of a distribution agreement by selling its products to budget retail outlets. 

2                     On 22 July 2004, the applicant filed a notice of motion moving for an order under O 29 r 2 of the Federal Court Rules that all issues of the quantum of pecuniary relief be determined separately from and after all other issues in this proceeding (‘separate determination order’).  Order 29 rules 1 and 2 provide: 

 ‘1.      In this Order, “question” includes any question or issue in any proceeding, whether of fact or law or partly of fact and partly of law, and whether raised by pleadings, agreement of parties or otherwise.

2.                  The Court may make orders for -

(a)               the decision of any question separately from any other question, whether before, at or after any trial or further trial in the proceedings; and

(b)               the statement of a case and the question for decision.’ 

3                     The applicant submitted that two principal benefits would flow from a separate determination order:

(a)    it would result in considerable cost savings and more efficient management of the proceeding; and

(b)   it would enable the applicant to defer electing between the alternate remedies of damages and account of profits until the election could be made on an informed basis. 

In support of its claim in (a), the applicant submitted affidavit evidence of Mr Wayne Lonergan, who has considerable experience as a financial advisor in cases such as this, and Mr Peter Banki, a solicitor and partner in the firm that acts for the applicant.  It was not disputed that Mr Banki has considerable experience in proceedings in this Court involving the protection of intellectual property rights.  In addition the applicant submitted that separate hearings would not cause any prejudice to the respondents as there would be little if any overlap between the witnesses required and the nature of the evidence to be adduced at the separate stages. 

General principles

4                     In the ordinary course, all issues of fact and law should be determined at the one time; Tallglen Pty Ltd v Pay TV Holdings Pty Ltd (1996) 22 ACSR 130 at 141-42.  For the Court to depart from this position the party seeking the separate determination of issues must satisfy the Court that it would be ‘just and convenient’ for the order to be made; Reading Australia Pty Ltd v Australian Mutual Provident Society [1999] FCA 718 (‘Reading’) at [8]-[9], see also EnergyAustralia v Australian Energy Limited [2001] FCA 1049 (‘EnergyAustralia’). 

5                     In Reading at [7]Branson J gave an account of the circumstances in which O 29 r 2 has been relied on to support a modification of the general rule including by requiring that liability be determined separately from the determination of the quantum of any damages or the taking of any account of profits.  Her Honour then summarised the relevant principles in terms quoted with approval by Sackville J in Clarkel Holdings Pty Ltd (in liq) v Kelly [1999] FCA 1266.  It is not necessary for present purposes to quote all the principles identified by Branson J.  It is pertinent, however, to note her Honour’s formulation of the factors, at [8], that tend to support or to tell against making an order under O 29 r 2:

‘(f)       factors which tend to support the making of an order under O 29 r 2 include that the separate determination of the question may –

(i)         contribute to the saving of time and cost by substantially narrowing the issues for trial, or even lead to disposal of the action; or

(ii)        contribute to the settlement of the litigation (CBS Productions Pty Ltd v O’Neill (1985) 1 NSWLR 601 per Kirby P at 607);

(g)       factors which tell against the making of an order under O 29 r 2 include that the separate determination of the question may -

(i)         give rise to significant contested factual issues both at the time of the hearing of the preliminary question and at the time of trial (GMB Research & Development Pty Ltd v The Commonwealth [1997] FCA 934);

(ii)        result in significant overlap between the evidence adduced on the hearing of the separate question and at trial - possibly involving the calling of the same witnesses at both stages of the hearing of the proceeding (GMB Research & Development Pty Ltd v The Commonwealth; Arnold v Attorney-General for Victoria [1995] FCA 727).  This factor will be of particular significance if the Court may be required to form a view as to the credibility of witnesses who may give evidence at both stages of the hearing of the proceeding; or

(iii)       prolong rather than shorten the litigation (GMB Research & Development Pty Ltd v The Commonwealth).’

6                     With these principles in mind I shall consider the factors that the applicant and respondent have raised in support of and in opposition to a separate determination order.

Efficient and cost-effective disposition of the proceedings

7                     The applicant submits that separate determination of liability would likely result in substantial savings in costs as well as time.  Clearly if the respondent is found not to be liable a hearing on quantum would be unnecessary.  If the respondent is found liable it may also be that a negotiated settlement on quantum is more likely with consequent savings.  However, it is by no means certain that this would ensue and one must bear in mind the frequent cautions against too ready separation of issues; Idoport Pty ltd v National Australia Bank Ltd [2000] NSWSC 1215; Highlands Pacific Ltd v Orogen Minerals Ltd [2002] FCA 1104 (‘Highlands Pacific’) at [11].  In Tepko Pty Ltd v Water Board (2001) 206 CLR 1, Kirby and Callinan JJ in a joint judgment commented at 55:  ‘The attractions of trials of issues rather than of cases in their totality, are often more chimerical than real.’  Their Honours added that single-issue trials should only be embarked upon ‘when their utility, economy, and fairness to the parties are beyond question.’ 

8                     In this case, as in Reading and in EnergyAustralia, the applicant makes claims under the TPA as well as under the common law of passing off.  In determining claims under the TPA it is often difficult to separate liability and damage completely.  Passing off claims raise similar difficulties.  These difficulties are much less likely to arise in claims of breach of patent.  Determining if a patent is invalid or, if valid, whether it has been infringed does not require any determination of loss.  In such cases the issues of liability and damage can be separated much more successfully and an order for separate determination is more likely to be just and convenient; Novartis Crop Protection Australasia Pty Limited v Orica Australia Pty Limited [2001] FCA 1013. 

9                     This may also be true of TPA claims that are ancillary to other claims.  For example in Digi International Inc v Stallion Technologies Pty Ltd [2001] QSC 442, (2001) 53 IPR 529 Ambrose J, in making a separate determination order, observed at [33]:

‘Digi’s claim for damages under the Trade Practices Act will depend entirely on its success in its patent infringement action and in Stallion’s cross-claim for a declaration that the patent is invalid and its revocation on that ground.’

10                  In my view this case is significantly different.  Claims that the respondent sold and distributed goods that are deceptively similar to those of the applicant and passed its goods off as having some connection with those of the applicant involve issues of both liability and damage that it is not possible to separate.  The difficulty is compounded where, as here, the parties have not reached an agreement on the facts.

11                  These factors create a real risk that a separate determination order would prolong the proceedings and render them more expensive because of overlapping evidence and because the parties’ witnesses would be required at the hearings for liability and for quantum.  In this regard, I note that counsel for the applicant admitted that the two main witnesses for the applicant are, effectively, the principals of the applicant company.  One of the issues in the case relates to the nature of the agreements between the parties.  If witnesses on either side give contradictory accounts of these agreements it may well be that the Court finds itself in the position of accepting one view and rejecting another.  That may not reflect on the witness but if the credit of any of the witnesses should be impugned the difficulties would be compounded.  Another concern in these circumstances is the potential for the proliferation of interlocutory disputes and appeals; Highlands Pacific at [13]-[17]. 

12                  In making the above comments about delay and costs that might result from a separate determination order I have taken into account the evidence of Mr Lonergan and Mr Banki.  Both gentlemen have expressed their expert opinion as to the advantages of a separate determination order in terms of containing costs.  I have considered their views carefully.  Ultimately their views are necessarily speculative and, however cogent their analyses, I find that the disadvantages they identify as flowing from a determination of all issues at trial are outweighed by the other factors that I have considered. 

Election between damages and account of profits

13                  Damages and an account of profits are alternative remedies; an applicant cannot have judgment for both but must elect between them.  It is well settled, however, that an applicant is not required to make that election until he is able to make an informed choice; Island Records Ltd v Tring International Plc [1996] 1 WLR 1256 at 1258; Dr Martens Australia Pty Ltd v BATA Shoe Company of Australia Pty Ltd (1997) 75 FCR 230.  The applicant further contends that a separate hearing on liability is the best way to ensure that it can make an informed election.  However, the fact that issues of liability and quantum are heard together does not preclude the applicant deferring its choice at least until all the evidence is in and submissions have been made.  Indeed it may well be that the applicant could be permitted to defer its election until liability has been determined.  While this would not relieve the applicant from putting on evidence relevant to both forms of relief, it would ensure that the election between them would be fully informed. 

discretionary nature of relief

14                  The applicant seeks declaratory relief and permanent injunctions which are forms of discretionary relief.  In Reading where the applicant sought relief in part by way of declarations, Branson J made the following comment at [11]: 

‘Declarations are a form of discretionary relief.  Ordinarily a court will wish to be able to consider all relevant matters before determining whether any particular declaration should be made.  For example, a factor commonly taken into account by a court asked to make a declaration that a corporation engaged in conduct that contravened s 52 of the TP Act is whether the applicant for the declaration suffered any loss by the conduct found to be misleading or deceptive.  In the circumstances of this case, I do not consider that it would be appropriate for the Court to give consideration to the making of at least the first two declarations sought by the applicant without having before it the evidence of the parties concerning the relevant loss or damage, if any, suffered by the applicant.’

I agree with her Honour’s views; they are applicable here. 

Delay

15                  The applicant makes the point that this matter is not ready to proceed to a hearing on all issues and that to refuse the order for separate determination would lead to unnecessary delay.  The applicant was ordered to finalise its evidence in chief by 21 November 2003.  That deadline was subsequently extended to 10 February 2004.  Those orders did not distinguish between quantum and liability and no application to narrow the terms of the order was made.  Now, however, the applicant says that it has not filed any evidence as to quantum and seeks to rely on that default in support of its motion.  By way of excuse, counsel for the applicant said that the present motion was foreshadowed some time ago although he accepts the undoubted fact that the present motion was not filed until 22 July 2004.  At the hearing of this motion there was some discussion about difficulties in discovery that had contributed to the delay.  It is not necessary for me to explore those issues here.  Irrespective of fault it will not assist either party to make an order for separate determination when the other factors I have discussed militate against it. 

16                  For these reasons the applicant’s notice of motion should be dismissed and the matter stood over for further mention at 9.30am on 3 September 2004. 

Associate:        

Dated:              24 August 2004