FEDERAL COURT OF AUSTRALIA

S.P.I. Spirits (Cyprus) Ltd v Diageo Australia Ltd (No. 2) [2006] FCA 931

PROCEDURE – Discovery and interrogatories – where discovery sought against non-party foreign State – where inter partes discovery yet to take place – whether discovery available pursuant to rules or otherwise – whether Sabre order appropriate

Federal Court of Australia Act (1976) (Cth) s 23

Federal Court Rules O 15A r 8

 Sabre Corp Pty Ltd v Russ Calvin’s Hair Care Co (1993) 46 FCR 428 referred to

Willis & Co v Baddeley [1892] 2 QB 324 applied

Abu Dhabi National Tanker Co v Product Star Shipping Ltd [1992] 2 All E.R. 20 applied

James Nelson & Sons Ltd v Nelson Line (Liverpool) Ltd [1906] 2 KB 217 referred to

Commonwealth v Northern Land Council (1991) 30 FCR 1 cited

Gambro Pty Ltd v Fresenius Medical Care Australia Pty Ltd [2002] FCA 581 cited

Hunter v Leahy (1999) 91 FCR 214 cited

CSR Ltd v CIGNA Insurance Australia Ltd (1997) 189 CLR 345 cited

Cardile v LED Builders Pty Ltd (1999) 198 CLR 380 cited

Stemcor (Australasia) Pty Ltd v Oceanwave Line SA [2004] FCA 391 referred to

Arhill Pty Ltd v General Percival Company (1991) 23 NSWLR 454 referred to

Aetna Pacific Securities v Hong Kong Bank of Australia Ltd (20 April 1993, Supreme Court of New South Wales, Giles J, unreported) referred to

S.P.I. SPIRITS (CYPRUS) LIMITED AND SPIRITS INTERNATIONAL N.V. v DIAGEO AUSTRALIA LIMITED, FEDERAL TREASURY ENTERPRISE (FKP) SOJUZPLODOIMPORT, FEDERAL TREASURY ENTERPRISE (FKP) SOJUZPLODOIMPORT, STATE FEDERAL UNITARY ENTERPRISE EXTERNAL ECONOMIC UNION SOJUZPLODOIMPORT (FGUP) (VO) v SPIRITS INTERNATIONAL N.V. AND DIAGEO AUSTRALIA LIMITED

NSD 1816 OF 2004

EDMONDS  J

25 july 2006

SYDNEY

THE COURT ORDERS THAT:

1.                  The motion be stood over to a date to be fixed to hear the parties on the categories of discovery that might be given by the Russian Federation and how the orders to give effect to these reasons for judgment might be formulated.

2.                  The costs of the motion be reserved.

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

REASONS FOR JUDGMENT (NO. 2)

Edmonds J:

1                     By its amended notice of motion, the first cross-respondent (‘Spirits’) seeks orders in effect for the provision of discovery by the Russian Federation.  These orders are opposed by the first and second cross-claimants (‘FKP’ and ‘FGUP’, respectively).

2                     Specifically, the orders sought are as follows:

(a)                Paragraph 4 seeks an order ‘pursuant to Order 15A rule 8 of the Federal Court Rules or otherwise, that the Russian Federation provide discovery’ of documents within listed categories in the schedule to the amended notice or as otherwise ordered by the Court;

(b)               paragraph 5 seeks an order, in the nature of a Sabre order (Sabre Corp Pty Ltd v Russ Calvin’s Hair Care Co (1993) 46 FCR 428), requiring FKP and FGUP to take steps to obtain such documents in the possession, custody or control of the Russian Federation, and par 6 seeks an order for the provision of such documents to Spirits together with verifying affidavits;

(c)                paragraph 6A seeks an order that the amended notice of motion be stood over for consideration, if necessary, of a stay of the cross-claim in the event of non-compliance with any order in terms of par 4 or pars 5 and 6.

3                     The ‘otherwise’ alternative basis to O 15A r 8 of the Federal Court Rules of the order sought in [2(a)] above, is that the Russian Federation is the ‘true’ or ‘real’ applicant/plaintiff on the cross-claim, not FKP and FGUP, which are but ‘nominal’ applicants/plaintiffs.

Factual Background

4                     It is not in dispute that FKP and FGUP are Russian State-owned enterprises; that they are separate legal entities which are distinct from the Russian Federation.  FKP is a ‘federal treasury enterprise’, being a commercial organisation which holds property settled on it by the Russian Federation ‘by right of operational management’.  FGUP is a ‘federal State unitary enterprise’, being a commercial organisation which holds property settled on it by the Russian Federation ‘by right of economic management’.  In her affidavit Ms Mozgonenko confirms the foregoing (at [11] and [12]) and explains what is meant by the terms ‘by right of operational management’ and ‘by right of economic management’ (at [13] – [19]) and Mr Tsyplakov, in his affidavit, confirms that he ‘substantially agrees’ with Ms Mozgonenko on all these matters (at [23]).

5                     It is also common ground that FKP did not exist at the time of the centrally disputed events in this case, which took place in 1990 – 1992.  FKP was created by Order of the Government of the Russian Federation in 2001 and, according to Ms Mozgonenko, was first registered as a legal entity in the Russian Federation on 9 April 2002.  It also seems to be common ground that FGUP was first registered as a legal entity in the Russian Federation on 18 April 2001 but that is where the common ground ends.  FGUP contends, according to the further amended cross-claim, that it did exist at the relevant time, albeit in the form of Sojuzplodoimport, and that it (FGUP) is the legal successor to that entity.  Spirits disputes this contention and contends that following the lawful transformation of Sojuzplodoimport into VAO-SPI around 1991 and 1992, VAO-SPI became the legal successor to Sojuzplodoimport, including its assets and liabilities which vested in VAO-SPI, and Sojuzplodoimport ceased to exist from approximately 20 January 2002.

6                     Common ground aside, Spirits contends that the factual background should also be understood in the context of what is set out in [7] to [12] below.

7                     The basis for the claims made in the cross-claim – for cancellation of certain Australian trade mark registrations (‘Australian Trade Marks’) or for rectification of the Trade Marks Register in relation to the Australian Trade Marks – lies in events which occurred around the time of the dissolution of the Soviet Union in 1991, a decade prior to the creation of FKP.  FKP and FGUP’s claims concern, in particular, challenging the validity of Spirit’s reliance on the transformation of a State-owned corporation (Sojuzplodoimport) into a private corporation (‘VAO-SPI’) between 1990 and 1992 and the succession of assets (including trade marks) from Sojuzplodoimport to VAO-SPI.

8                     Notwithstanding that (on Spirit’s case) the transformation of Sojuzplodoimport into VAO-SPI occurred over a decade ago, it seems that the dispute which precipitated the present proceedings in Australia did not originate until 2000, when the President of the Russian Federation issued an instruction to senior officers of the Russian Federation ‘to take urgent measures to reinstate and protect the State’s rights over the intellectual property in the area of production and circulation of vodka products, and to identify and bring legal action against the persons involved in the infringement of those rights’: Tzyplakov [44], Exhibit MT7.  Spirits contends that the present case, in effect, is but a manifestation of that ukase; and FKP and FGUP are but amanuenses of its implementation.

9                     Since 2000, the Russian Federation, acting through its appointed representative FKP, has taken procedural steps in several countries with the aim of wresting ownership of foreign registrations for trade marks from their present owner, Spirits: Tzyplakov [22], Exhibit MT4.  The claims in relation to the Australian Trade Marks were commenced in November 2004.  The other international cases are also still pending.  All are strongly contested by Spirits.

10                  FKP has represented on several occasions that the claims brought in the Australian proceedings and in related overseas proceedings are brought on behalf of the Russian Federation.  Examples are referred to in the affidavits of Mr Swinson [11], Tzyplakov [18] – [20], [22], Annexure D, Exhibits MT2 and MT4.  It is also manifest in the pleadings in the further amended cross-claim:

‘5.        [FKP]:

(a)               was created by Order of the Government of the Russian Federation in 2001;

(b)               is the registered owner of a number of trade marks for alcoholic products in the Russian Federation, including the trade marks STOLICHNAYA, MOSKOVSKAYA and RUSSKAYA, for the benefit of the Government of the Russian Federation.

…

6.                  [FKP] has been appointed by the Government of the Russian Federation to recover and protect the rights of the Russian Federation in relation to trade marks for alcoholic products outside the Russian Federation, including by conducting court proceedings.

…

7.                  [FKP] is authorised by Sojuzplodoimport to act on its behalf in proceedings commenced outside the Russian Federation, and particularly in relation to the protection of Sojuzplodoimport’s rights in trade marks.

…

52A.  [FKP] was established and appointed by the Government of the Russian Federation to hold and to use certain trade marks for the benefit of that Government, including the trade marks STOLOCHNAYA and MOSKOVSKAYA, the Stolichnaya Label Mark, the Moskovskaya Label Mark and the House Mark, in connection with the export of Russian vodka.’

11                  Further, the Russian certificates of registration in respect of the trade marks indicate that the Russian Federation is recorded as the registered owner of the trade marks in Russia and that FKP has the right only to ‘use and dispose of (exclusive of the right to assign) [the trade marks] in the name and on behalf of the Russian Federation …’:Tzyplakov [13], Exhibit MT1.  The phrase ‘use and dispose of (exclusive of the right to assign)’ is probably better rendered in English as ‘make use of, at discretion, but not surrender, relinquish or transfer’.

12                  Russian State bodies have also adopted the position that the Russian Federation is the owner of the trade marks in Russia and has rights in respect of the trade marks outside Russia: Tzyplakov [21], Exhibit MT3.

13                  In response, FKP and FGUP say that the relevant context needs to be understood by reference to the common ground referred to in [4] and [5] supra, but also by reference to the matters set out in [14] to [17] below.

14                  Although no precise analogy can be drawn, FKP and FGUP submit that they are not unlike State-owned corporations of the kind regularly established by governments in Australia, which hold particular assets for the benefit of the State or carry out particular functions or activities which might otherwise be carried out by the State, a practice which has been developed in part for reasons of commercial efficacy.  Such State-owned corporations operate independently of the State, but, in a general sense, are subject to the overall direction and control of the State.

15                  Little weight should be given to the statements relied on by Spirits and referred to in [10] supra having regard to the particular context in which they are made.  In substance, they are no higher than the matters pleaded by FKP and FGUP in the further amended cross-claim.

16                  Ms Mozgovenko’s evidence, which is unchallenged in this respect, also established that FKP and FGUP do not hold, and generally do not have, the capacity under Russian law to compel production of documents held by the various ministries, agencies and instrumentalities of the Russian Federation which were previously identified in Spirits’ proposed categories (save, of course, to the extent that copies of such documents are actually held in the files of FKP or FGUP).

17                  In effect, the orders now sought by Spirits would require every ministry, agency and instrumentality of the Russian Federation, not just FKP and FGUP, to undertake searches for documents in numerous, broadly defined categories, for the purposes of giving discovery in these proceedings.  Even aside from questions of power, a lack of evidentiary support and the inappropriateness of granting such orders against an entity outside the jurisdiction, the orders are inappropriate because of their sheer scope.  Further, the application is premature, in circumstances in which FKP and FGUP – the entities charged with dealing in and conducting proceedings in relation to the trade marks in question – have yet to give inter partes discovery.

reasoning

18                  After careful consideration, I have come to the conclusion, not without some hesitation, that the Russian Federation is the ‘real,’ applicant/plaintiff in the cross-claim because the claims made therein are brought and made on behalf of the Russian Federation by FKP and FGUP, and not in their own right:  see Willis & Co v Baddeley [1892] 2 QB 324; Abu Dhabi National Tanker Co v Product Star Shipping Ltd [1992] 2 All E.R. 20, [1991] 2 Lloyd’s Rep. 508, cf James Nelson & Sons Ltd v Nelson Line (Liverpool) Ltd [1906] 2 KB 217.

19                  In coming to this conclusion, I have been persuaded by the following matters:

(i)                  The Russian Federation, represented by the Ministry of Agriculture of the Russian Federation, is recorded, and has since 26 October 2001 been recorded, as the owner of the Stolichnaya and Moskovskaya trade mark registrations in the Russian Federation (‘the Russian Trade Marks’).

(ii)                By Decree No 494 of the Government of the Russian Federation dated 4 July 2002 the right to use and dispose (without the right to assign) the Russian Trade Marks in the name and on behalf of the Russian Federation was granted to FKP.

(iii)               Pursuant to Order No. 6 of the Government of the Russian Federation dated 6 January 2005, FKP was appointed by the Government of the Russian Federation:

‘… to represent the interests of the Russian Federation in the courts on matters of recovery and protection of the rights of the Russian Federation to the trademarks for alcoholic products abroad;

to realize registration of the rights of the Russian Federation to the mentioned trademarks abroad … .’ 

(Emphasis added)

(iv)              Order No 6 was originally expressed to apply until 1 January 2006, but was extended for a further twelve months pursuant to Resolution No. 860 of the Government of the Russian Federation dated 30 December 2005.  FKP’s authority to represent the Russian Federation in these proceedings is presently due to expire on 1 January 2007.

(v)                The representations and pleadings in respect of FKP referred to in [10] supra.

(vi)              The pleadings in respect of FGUP referred to in [4] of the further amended cross-claim, in particular that it is the legal successor to Sojuzplodoimport, an instrumentality forming part of the former Union of Soviet Socialist Republics (USSR).

(vii)             FKP only came into existence in 2001 and only became a legal entity separate from the Russian Federation on 9 April 2002.

(viii)           FGUP only became a legal entity separate from the Russian Federation on 18 April 2002 and if it did exist back in 1990 – 1992 in the form of Sojuzplodoimport, it did so as part of the USSR and subsequently as part of the Russian Federation, at least until 18 April 2002.

20                  Moreover, I have also reached this conclusion by reason that I do not accept the submissions made on behalf of FKP and FGUP at [14] supra namely, that they are analogous to State-owned corporations of the kind regularly established by governments in Australia.  Such State-owned corporations do not hold their assets for the benefit of the State, rather they hold them in their own right albeit that such corporations may be majority, or even wholly, owned and controlled by the State.  It is only upon the dissolution of such wholly owned corporations that ownership of their assets would revert to the State.  In the case of FKP and FGUP, they held no assets other than assets they hold on behalf of, or for the benefit of, the Russian Federation.

21                  Furthermore, I reject the submission on behalf of the FKP and FGUP that:

‘it cannot be said that [they] have no real interest in the outcome of the present proceedings, because:

(i)           FKP … stands to derive a benefit for itself from the action, by means of being in a position to hold, use and licence the trade marks and to extract licence fees and royalties as a result; and

(ii)    FGUP has an interest, on its case, as the true owner of the trade marks in question.’

I reject this submission because, on my finding, the Russian Federation, as the owner of the trade marks, would be entitled to have FKP account to it in respect of such fees and royalties and FGUP, even if it had an earlier manifestation, was not an entity discrete and separate from the political state which created it, namely the USSR nor, at least until 18 April 2002, the relevant successor to that political state namely, the Russian Federation. 

22                  As I have indicated at [2(a)], Spirits seeks an order for discovery ‘pursuant to O 15A r 8 or otherwise’.  I do not regard this alternative basis as, in substance and effect, a request for third party discovery pursuant to O 15A r 8 of the Federal Court Rules.  It is a totally discrete basis founded on s 23 of the Federal Court Act; wide enough to cover orders requiring the discovery, production and inspection of documents: Commonwealth v Northern Land Council (1991) 30 FCR 1 per Black CJ, Gummow and French JJ; see also Gambro Pty Ltd v Fresenius Medical Care Australia Pty Ltd [2002] FCA 581; at the same time, accepting that the Court has a general power under s 23 to prevent the abuse or frustration of its processes in relation to matters coming within its jurisdiction (Hunter v Leahy (1999) 91 FCR 214) or where it is otherwise necessary to protect the integrity of the processes of the Court: CSR Ltd v CIGNA Insurance Australia Ltd (1997) 189 CLR 345 at 391 – 392; Cardile v LED Builders Pty Ltd (1999) 198 CLR 380.

23                  On the view I take, it is unnecessary to address the order sought in par 4 of the Notice of Motion on the basis of O 15A r 8 of the Federal Court Rules, but in deference to the submissions that were made, I think I should.  That rule enables the Court to ‘order that a person who is not a party and in respect of whom it appears that the person has or is likely to have or has had or is likely to have had in the person’s possession any document which relates to any question in the proceeding shall make discovery to the applicant of any such document’.

24                  The reference to ‘a person who is not a party’ is undoubtedly a reference to a person who is not a party of record and that could include not only a person who/which is the ‘real’ applicant/plaintiff, but any person who is not a party of record.  Of course, the Court would need to be satisfied that the other requirements of the rule are met before acting upon it.

25                  FKP and FGUP submitted that an order for third party discovery ought not to be granted against a foreign entity which is not a party to the proceeding and is not otherwise subject to the jurisdiction of the Court.  They point out that there is ample authority in the context of applications for leave to serve subpoenas outside the jurisdiction for the proposition that such leave should not be granted in respect of a non-party foreign entity ‘except in the most exceptional circumstances’: Stemcor (Australasia) Pty Ltd v Oceanwave Line SA [2004] FCA 391 at [12] per Allsop J.  See also Arhill Pty Ltd v General Percival Company (1991) 23 NSWLR 454; Aetna Pacific Securities v Hong Kong Bank of Australia Ltd (20 April 1993, Supreme Court of New South Wales, Giles J, unreported).  The cases suggest, they submit, that this will particularly be the case where (as here) the foreign jurisdiction in question is a civil law jurisdiction: Arhill.

26                  Underlying this principle is the view that service of an order upon a foreign entity demanding that it do something in Australia on pain of punishment in proceedings to which it has not submitted is an invasion of the foreign territory’s sovereignty: Stemcor.  In addition, such a subpoena, even if it is served, is not capable of enforcement: Stemcor.  The position, they submit, is no different in principle in the case of an order for third party discovery pursuant to O 15A r 8; the order compels production of documents, disobedience of it would give rise to contempt, and leave is required in order to serve it outside the jurisdiction: See O 8 r 3.  Compare Arhill.  None of the cases included in Spirits’ list of authorities, they observe, involved the making of an order for third party discovery against a foreign entity.

27                  Finally, it was submitted that these considerations, and particularly the concerns about the invasion of sovereignty, are heightened given the particular nature of the order sought in the present case: discovery by the Russian Federation, a foreign State.

28                  While these submissions may well have considerable force where the non-party person sought to be subject to an order under O 15A r 8 of the Federal Court Rules is a foreign entity, particularly a foreign State, that force is undermined in the face of a finding that the foreign entity is the ‘real’ applicant/plaintiff and the party or parties of record are but ‘nominal’ applicants/plaintiffs.  None of the cases to which I was referred by FKP and FGUP had this particular feature.

29                  As I am satisfied that the other requirements of O 15A r 8 are met in the present case, it is supportive of the order sought in the present case.  However, this should not be read as indicating the form of the order I think should be made.  There are other matters which need to be considered before formulating the final terms of the order and I refer to these at [36] below.

30                  On the conclusion I have reached, it is not necessary that I deal with the motion insofar as it seeks an order in terms of par 5 of the amended notice – a Sabre order – requiring FKP and FGUP to take steps to obtain the documents, within the listed categories or as otherwise ordered by the Court, in the possession, custody or control of the Russian Federation, and an order in terms of par 6 thereof for the provision of such documents to Spirits together with verifying affidavits.  Nevertheless, again in deference to the submissions that were made, I should indicate why, had it been necessary to consider this aspect of the motion, I would have been minded to dismiss it.

31                  First, there must be a real likelihood that the party, in this case FKP and FGUP, who is to take steps to obtain access to and discover the documents which are in the possession, power or control of a third party, would be given access to the documents upon request: See Sabre at432 – 433.  This likelihood must be established by evidence: Gambro at [8], [17] – [19].  In the present case, Spirits has made no attempt to establish this.  There is nothing in the evidence from which the inference could be drawn that any documents within the very broad categories requested by Spirits would be provided by the Russian Federation or its ministries, agencies and instrumentalities.

32                  Second, there must be a likelihood that the documents sought are in fact in existence in the possession of the third party.  It may be accepted for the purpose of argument that at least some documents sought by Spirits are held somewhere within the many ministries, agencies and instrumentalities of the Russian Federation; and that some such documents may be so held.  But the form of order does not identify the relevant ministries, agencies and instrumentalities which are thought to be likely to hold such documents.  It ought to do so, by reference to the particular kinds of documents in each instance.

33                  Third, the form of order in par 5 is otherwise inappropriate.  In particular, the word ‘reasonable’ in the phrase ‘take all reasonable steps’ has been omitted from the usual form of order.  Further, I agree with the submissions of FKP and FGUP that it would be preferable for any such order to set out explicitly the steps which, if taken, would satisfy the order.  This is particularly so given the potentially broad range of documents the subject of the order and the broad range of ministries, agencies and instrumentalities that may be subject to it.

34                  Finally, such an order should be considered, if at all, only after inter partes discovery has taken place, based on appropriate evidence as to the likelihood of existence and provision of documents, and by reference to far more targeted and specific requests for documents, consistent with the authorities on such orders.

35                  For these reasons, if it had become necessary, I would have dismissed this part of the motion.

36                  At this stage, I am not convinced that the discovery that might be given by the Russian Federation needs to be as comprehensive as ‘… all documents falling within the categories set out in the schedule to the Notice of Motion’.  It may be that I can be persuaded, in the interests of doing justice between the parties, that discovery by the Russian Federation needs to be that comprehensive but I would first want to hear the parties on the matter.  It may be that the parties can agree more confined categories, but if not, I will hear the parties prior to formulating the precise terms of the order.

37                  I propose to stand the motion over to a date to be fixed to hear the parties on the categories of discovery that might be given by the Russian Federation and how the orders to give effect to these reasons might be formulated.

Associate:

Dated:         25 July 2006