FEDERAL COURT OF AUSTRALIA
Unilin Beeher BV v Huili Building Materials Pty Ltd (No 2) [2007] FCA 1615
Federal Court of Australia Act 1976 (Cth) s 31A, s 51A
Patents Act 1990 (Cth) s 122, s 123
Sale of Goods Act 1923 (NSW) s 30
Colbeam Palmer v Stock Affiliates Pty Ltd (1968) 122 CLR 25 applied
Dart Industries Inc v Décor Corporation Pty Ltd (1993) 179 CLR 101 referred to
NSD 2329 OF 2005
ALLSOP J
24 OCTOBER 2007
SYDNEY
| IN THE FEDERAL COURT OF AUSTRALIA |
|
| NEW SOUTH WALES DISTRICT REGISTRY | NSD 2329 OF 2005 |
| BETWEEN: | UNILIN BEEHER BV Applicant
|
| AND: | HUILI BUILDING MATERIALS PTY LTD First Respondent
BAO JIA SUN T/AS HUILI AUSTRALIA TRADING Second Respondent
GONG DAO ZHANG T/AS HUILI AUSTRALIA TRADING Third Respondent
HUILI AUSTRALIA TRADING PTY LTD Fourth Respondent
GREMOS HOLDINGS PTY LTD Fifth Respondent
HUILI FLOORING PTY LTD Sixth Respondent
|
| ALLSOP J | |
| DATE OF ORDER: | 24 OCTOBER 2007 |
| WHERE MADE: | SYDNEY |
THE COURT ORDERS THAT:
1. Judgment be entered for the applicant against the first respondent in the sum of $99,447.15 including interest pursuant to s 51A of the Federal Court of Australia Act.
2. Judgment be entered for the applicant against the second and third respondents in the sum of $317,270.22 including interest pursuant to s 51A of the Federal Court of Australia Act.
3. Judgment be entered for the applicant against the fourth respondent in the sum of $47,279.58 including interest pursuant to s 51A of the Federal Court of Australia Act.
4. Judgment be entered for the applicant against the sixth respondent in the sum of $61.31 including interest pursuant to s 51A of the Federal Court of Australia Act.
5. The first, second, third, fourth and sixth respondents pay the applicant’s costs.
6. The proceedings (including the cross-claims amongst the respondents) be stood over to 2 November 2007 at 9:30 am for any application.
Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.
| IN THE FEDERAL COURT OF AUSTRALIA |
|
| NEW SOUTH WALES DISTRICT REGISTRY | NSD 2329 OF 2005 |
| BETWEEN: | UNILIN BEEHER BV Applicant
|
| AND: | HUILI BUILDING MATERIALS PTY LTD First Respondent
BAO JIA SUN T/AS HUILI AUSTRALIA TRADING Second Respondent
GONG DAO ZHANG T/AS HUILI AUSTRALIA TRADING Third Respondent
HUILI AUSTRALIA TRADING PTY LTD Fourth Respondent
GREMOS HOLDINGS PTY LTD Fifth Respondent
HUILI FLOORING PTY LTD Sixth Respondent
|
| JUDGE: | ALLSOP J |
| DATE: | 24 OCTOBER 2007 |
| PLACE: | SYDNEY |
REASONS FOR JUDGMENT
1 On 25 November 2005, the applicant commenced proceedings against the first to fifth respondents for infringement of Australian Patent No 713628. The application was accompanied by a clear statement of claim and a five page statement of particulars of infringement.
2 The matter came before me for first directions on 13 December 2005. Counsel appeared for the applicant and the fifth respondent. A Mr Zhang, solicitor, appeared for the first to fourth respondents. Orders were made that all respondents file and serve fully particularised defences and any cross-claims by 24 February 2006. The proceeding was listed for directions on 7 March 2006.
3 On the previous day, 12 December 2005, Mr Michael Soulos of Spanko Soulos & Co caused a notice of appearance to be filed on behalf of the fifth respondent.
4 No notice of appearance was ever filed by Mr Zhang, though he and/or his firm proceeded to act for the other respondents as described below.
5 On 23 February 2006, a defence of the fifth respondent was filed. The defence, in effect, confessed and avoided. The fifth respondent had been supplied (by wholesale sale) with what I will call offending goods by one or more of the first to fourth respondents (for retail sale). The defence expressed a lack of desire to litigate any issue against the applicant, but, inferentially, sought to take advantage of any issue pressed by the other respondents. As to the account of profits, the fifth respondent said that it was not aware, prior to certain dates, of the fact of infringement. Section 123 of the Patents Act 1990 (Cth) was relied upon.
6 On 24 February 2006, the applicant filed a reply to the fifth respondent’s defence, raising s 123(2) of the Patents Act.
7 There were no further pleadings as between the applicant and the fifth respondent.
8 The first to fourth respondents did not file any defence within the time that had been ordered on 13 December 2005. A defence of the first to fourth respondents was filed, however, on 3 March 2006 by Mr Zhang’s firm, Zhang Shijing Lawyers of Suite 13, Level 1, 30 Castlereagh Street. The defence was an unilluminating collection of non-admissions and denials. It is to be noted, however, that Mr Terry Zhang of Zhang Shijing Lawyers sent a letter to the Court by facsimile dated 1 March 2006, headed “Re NSD 2329/2005”, which stated the following:
We apologize for the delay to lodge the defence because we received the report from Patent Attorney a few days ago. We will file the defence soon.
9 Thus, it appears that, from 1 March 2006, the first to fourth respondents were in receipt of advice from a patent attorney.
10 On 7 March 2006, the proceeding came before me for directions. There was a related matter travelling with the proceedings, in which the applicant sued a company called Shun Li De Pty Limited (which I will refer to as “the Shun Li proceeding”). Ms Howard appeared for the applicant, Mr Burley for the first to fourth respondents and Ms Champion for the fifth respondent. By the identity of those appearing and what was said by Mr Burley, it appeared that there would be a contest on infringement and validity issues. Though no cross-claim had been filed rasing invalidity, Mr Burley said that one may be filed. He said: “Some matters need to be explored further than they have been.” He said that his clients required a further two weeks to clarify their position.
11 The position as at 7 March 2006 was:
(a) The first to fourth respondents needed some time to clarify their position.
(b) The fifth respondent who, as Ms Champion stated, “simply played the part of the Australian distributor in the saga” was, as I said to Ms Champion “just going to coat tail Mr Burley” (that is the first to fourth respondents).
(c) The position of the respondent in the Shun Li proceedings was stated by Mr Belmer, who appeared for it, as, “My latest instructions last night through the principal solicitor were that our client doesn’t wish to expend large sums of money defending this matter and we are investigating the possibility of him being able to settle the matter”.
(d) The question of security for costs was raised.
12 I ordered that the proceeding be stood over to 4 April 2006, excusing the fifth respondent from attending. I ordered the first to fourth respondents to pay the applicant’s costs of the day since they had been in default.
13 On 4 April 2006, the matter came before me once again for directions. Mr Jamison appeared for the first to fourth respondents and Ms Howard for the applicant. Mr Jamison stated that there was no cross claim to be filed. This news was conveyed on this day to the applicant. It can be inferred from what I have earlier stated that this was a considered decision on advice. There was some intimation from the bar table that the matter might settle. The possibility of mediation was discussed.
14 Meanwhile, on 21 March 2006, the applicant had served notices to admit facts on the first to fourth respondents. At the directions hearing on 4 April 2006 (being the last day to answer them), Ms Howard indicated that the first and fourth respondents had said they needed more time. From discussion at this directions hearing, it appeared that all practitioners understood the need to resolve the matter as quickly as possible and that the possibility of mediation would be explored. To allow the parties to explore issues between them and to resolve the matter, if possible, I adjourned the proceeding to 9 May 2006. The applicant was to inform the fifth respondent and the respondent in the Shun Li proceeding.
15 On 8 May 2006, the applicant filed by e-filing a notice of motion without a return date seeking declarations of infringement and injunctions against the first to fifth respondents, an order for delivering up, discovery on the question of pecuniary relief and, as against the first to fourth respondents, costs. The notice of motion sought these orders under Order 18 rule 4 (judgment on admissions) and Order 20 r 1 (summary judgment) of the Federal Court Rules. On the same day, an affidavit of Mr Christopher Jordan of the applicant’s solicitors was filed by facsimile in support of the motion, annexing the notices to admit and stating that the extra two weeks sought by counsel for the respondent on 4 April 2006 to answer them had expired with no answer.
16 The proceeding came before me on 9 May 2006, in conjunction with the Shun Li proceeding. Counsel appeared for all parties in both matters. What occurred on that day is best expressed by repeating the reasons for judgment delivered on that day, which were as follows:
1. These two matters were filed in November 2005 and involve claims for the infringement of a mechanical patent of no vast complexity. The respondents were given in the early stage of preparation of the matters an opportunity to attack the validity of the patent by a cross-claim. No respondent has taken that opportunity, therefore the matter will proceed on infringement only.
2. There was some indication early that the matter may resolve itself by recognition of the respondents that the applicant had a case. That has apparently evaporated. The applicant, in an attempt to bring the matter forward promptly served notices to admit on the relevant respondents.
3. No respondent has complied with the rules in answers to the notice to produce. There are some assertions from the bar table that there has been an informal answer. That may or may not under the rules qualify admissions that have been made.
4. The applicant has filed a notice of motion in both proceedings on 8 May 2006, seeking various orders including judgments on admission and summary judgment. The parties should be aware and familiarise themselves with a change in a regime of summary judgment which may be seen to be brought about by s 31A of the Federal Court of Australia Act 1976 (Cth) which removes from the parties the need to demonstrate that part of a proceeding or a defence be hopeless or bound to fail before one can conclude that it has no reasonable prospects of success.
5. The explanations given to the Court by the respondents as to why the rules of court were not followed to deal with the notice to admit are not, with respect, satisfactory. I am told that there will be applications to set aside the admissions. The best course in my view is to simply set this matter down for hearing and adjourn the applicant's motions to that hearing day and adjourn any further application that the respondents might make to set aside the notice to admit or the admissions to that day also.
6. This will enable me to examine the matter in the light of such evidence that the parties wish to bring as to infringement which I understand will not be broad ranging. If I think at the hearing of the matter that summary disposal or judgment on admission is a convenient way to deal with the matter, I will deal with the matter on that basis. I will also deal with the question of costs of what has occurred to date.
7. At least one of the motions seeks orders by way of amended particulars. Any amendment should be taken up inter partes between solicitors. If there is any serious opposition to any amendment the matter can be listed for directions at short notice by contacting my associate through an agreed communication. If the parties can agree on an amendment a consent minute or order should be filed with the registry.
8. Also today, the fifth respondent in matter NSD 2329 of 2005 sought, as indicated that a cross-claim will be filed against the first to fourth respondents. Short minutes of order were handed up in support of this. The first order seeks leave to file and serve a cross-claim on the first to fourth respondents but the form and a cross-claim is not present before the Court. I will make the orders sought by the fifth respondent against the first to fourth respondents. However, if there is any debate about the form of the cross-claim the matter should be relisted and I will deal with the matter on the basis that the fifth respondent needs leave to file the document.
…
17 On that day I made the following orders were made in this proceeding:
1. Adjourn the matter to a date to be fixed for hearing in August 2006.
2. The applicant file and serve all its evidence on the motions and on the hearing on or before 16 June 2006.
3. Any notice of motion of any respondent to set aside admissions is to be filed and served on or before 14 July 2006.
4. All evidence of any respondent in support of those motions be filed and on the hearing of the appeal be filed and served on or before 14 July 2006.
5. Any evidence of the applicant in reply on either the main hearing or the applications for summary judgment be filed on or before 28 of July 2006.
6. The parties are to consult promptly about any proposed amendments. If the parties cannot agree the matter is to be relisted. If they can agree a minute of order as to the amended pleadings is to be filed and served on or before 26 May 2006.
7. To the extent that any amendment throws up the need for consequential amended pleadings those pleadings may be filed on or before 30 June 2006
8. Stand the matter over for directions to Tuesday 25 July 2006. That date may be vacated if it is unnecessary.
9. Orders in accordance with short minutes initialled by Allsop J dated today in 2329/05 as between the respondents:
(a) Leave be granted to the Fifth Respondent to file and serve a cross-claim on the First, Second, Third and Fourth Respondents on or before 15 May 2006.
(b) The First, Second, Third and Fourth Respondents/Respondents file and serve their respective defences on or before 29 May 2006.
(c) The Fifth Respondent/Cross-Claimant file and serve a Reply, if any, to the Defences to the Cross-Claim on or before 5 June 2006.
(d) Discovery proceed by way of service of Notices to Produce on or before 12 June 2006.
(e) The Cross-Claimant and the Cross-Respondents produce documents in answer to Notices to Produce on or before 23 June 2006.
(f) The cross claim only in NSD 2329/2005 be listed for directions on 27 June 2006 at 9:30 am.
10. Liberty to apply on 3 days’ notice.
18 As can be seen from order 9, the respondents were considering the position between themselves, though only the fifth respondent indicated that it wished to pursue a cross-claim.
19 On 15 May 2006, the fifth respondent filed a cross-claim against the first to fourth respondents. The cross-claim pleaded contractual, tortious and trade practices claims based on the sale to the fifth respondent (for on-sale by it) of goods that infringed the applicant’s patent.
20 On 9 June 2006, the first to fourth respondents, as cross-respondents, filed a document entitled “Defence to Cross-Claim and Cross-Claim of First Cross-Respondent against Cross-Claimant”. The defence was unilluminating, stating in a number of places that the cross-respondents would put the cross-claimant “to strict proof”. The document included, at paragraph 26, the allegation that the fifth respondent (cross-claimant) had not paid for the goods supplied to the amount of $164,520.72. A claim was made that the fifth respondent had breached its duty under the Sale of Goods Act 1923 (NSW), s 30 to pay the price of the goods, and judgment was sought in this sum.
21 On 27 July 2006, the fifth respondent, as cross-claimant, filed a reply to the defence to cross-claim and a defence to the cross-claim of the first respondent. In answer to the claim for $164,520.72, the fifth respondent pleaded the following:
1. In answer to the allegations made in paragraph 26 of the Defence, the Cross-Claimant admits that it owes the Cross-Respondents the sum of $164,520.72 but says that :
a) the Cross-Respondents and each of them owe the Cross-Claimant the sum of $20,903.19 for laminated flooring returned to them on or about 12 September 2005;
b) the Cross-Claimant currently holds laminated flooring worth $57,255.67 which it is unable to sell as a result of the claims made by the Applicant; and
c) the Cross-Respondents and each of them are estopped from demanding payment of any monies owing to them in respect of laminated flooring supplied by them and the subject to the claims made by the Applicant until such time as the Court determines that the said laminated flooring does not infringe Standard Patent No 713628.
2. In answer to the allegations made in paragraph 27 of the Defence, the Cross-Claimant says that the Cross-Respondents are estopped from relying on the breach asserted in this paragraph as a result of the breaches and misrepresentations by the Cross-Respondents and each of them referred to in paragraphs 23, 24, 25, 36, 37 and 38 of the Cross-Claim.
22 Meanwhile, on 9 and 13 June 2006, the first to fourth respondents, through Zhang Shijing Lawyers, filed various documents:
(a) (on 9 June 2006) a notice on behalf of the first to fourth respondents disputing some and admitting other facts in the applicant’s notice to admit facts;
(b) (on 13 June 2006) three notices of motion by the first, second and third, and fourth respondents for leave to withdraw admissions and leave to file a notice disputing facts;
(c) (on 13 June 2006) a notice of motion by the first to fourth respondents seeking security for costs in the sum of $100,000;
(d) an affidavit by Mr Terry Zhang (who swore that he was the solicitor for the first to fourth respondents) in support of the application for security for costs;
(e) three affidavits of Mr Bao Jia Sun (the second respondent) in substantially the same form in support of the motions to withdraw admissions. The three affidavits were as a director of the first and fourth respondents (two affidavits) and on behalf of himself and the third respondent (one affidavit). In each affidavit the following paragraphs were affirmed:
I say that the failure to respond was due to the technical and complicated nature of the facts sought to be admitted, and we were unable to obtain the appropriate advice within the said time.
I say now appropriate advice have been obtained and the [first, second and third and fourth respondents, respectively] is able to respond appropriately to the said Notice.
23 The cross-claims as between the respondents came before me for directions on 27 June 2006. Notwithstanding order 9(f) made on 9 May 2006, Ms Howard also appeared for the applicant. Her appearance was necessary because the notices of motion referred to at [22(b)] above had been given 27 June 2006 as a date for directions. Mr Thompson appeared for the first to fourth respondents; Ms Champion appeared for the fifth respondent. On this occasion, security for costs was mentioned and Ms Howard, for the applicant, said some would need to be provided, but that a large, undifferentiated sum had been sought. After some discussion, the following directions were made:
1. The Fifth Respondent/Cross-claimant file and serve a Reply, if any, to the defences to the cross-claim and its defence to the cross-respondents’ cross-claim on or before 11 July 2006.
2. Discovery proceed informally by way of specific requests for documents on or before 18 July 2006.
3. The Cross-claimant and the cross-respondents produce documents in answer to such requests on or before 28 July 2006.
4. Products said to infringe and also any letters documents referred to on the pleadings, be made available by the applicant in Sydney at a mutually convenient place and time and in any event on or before 5 July 2006.
5. On the motion for withdrawal of admissions by the first to fourth respondents, the first to fourth respondents file and serve on or before 11 August 2006 all evidence upon which they would seek to rely in resisting infringement together with full written submissions of counsel or the person running proceedings as to why there is no infringement.
6. The notice of motion to withdraw admissions and the application for security for costs stand over to 15 August 2006 for directions.
7. The directions hearing on 25 July 2006 be vacated.
8. Liberty to apply on 3 days’ notice.
24 By 15 August 2006, no affidavits or submissions had been filed on behalf of the first to fourth respondents. On that day, Mr Dimitriadis appeared for the applicant, Mr Zhang for the first to fourth respondents and Ms Champion for the fifth respondent. The matter was adjourned to 29 August 2006.
25 On 15 August 2006, the Shun Li proceeding were also mentioned. The respondent appeared by counsel, Ms Chrysanthou. Consent orders were made in favour of the applicant on liability, and the hearing for pecuniary relief was stood over to 1 December 2006, with interlocutory steps to be undertaken in the meantime. At around this time, the solicitor for the respondent in the Shun Li proceeding ceased to act.
26 The proceeding (and the Shun Li proceeding) came before me on 29 August 2006. Mr Dimitriadis appeared for the applicant, Mr H Wang for the first to fourth respondents, and Ms Champion for the fifth respondent. On this day, leave was granted to the applicant to join the sixth respondent. By this time (29 August 2006), the applicant had filed some, but not all, of its evidence. I then made further directions for service on the sixth respondent, for the filing of evidence, for further directions and for the referral of the matter to mediation. I also set the matter down for hearing on liability on 29 November 2006.
27 On 15 September 2006, the applicant filed a number of affidavits in support of the anticipated hearing.
28 On 29 September 2006, an affidavit of Mr Bill Gremos, the managing director of the fifth respondent, was filed on behalf of the fifth respondent in support of its cross-claim.
29 Meanwhile, pursuant to the orders made on 29 August 2006, a directions hearing was called on on 3 October 2006for the applicant and the sixth respondent only. This had been scheduled to bring the sixth respondent into the trial preparation. The first to fifth respondents had been excused from attendance. There was no appearance for the sixth respondent. Mr Dimitriadis appeared for the applicant and filed in court and read an affidavit of service upon the sixth respondent of the amended application, amended statement of claim, amended statement of particulars of patent infringement, the short minutes of order of 29 August 2006, and a letter of the applicant’s solicitors stating (conformably with the earlier short minutes) that the matter was listed for directions on 3 October 2006. I then made the following orders:
Noting the absence of the 6th respondent and noting the affidavit of service on 30 August 2006 of Alan Raynor Cole the Court:
1. Orders that the 6th respondent file and serve its defence on or before 16 October 2006.
2. Orders that the 6th respondent file and serve a verified list of documents on or before 13 November 2006.
3. Confirms the directions hearing on 24 October 2006 and the orders for mediation made in prior orders, both to include the 6th respondent.
4. Orders that the applicant to inform the 6th respondent of these orders.
5. Orders that there be liberty to apply on 3 days’ notice.
30 On 3 October 2006, an affidavit of the third respondent was filed. It was filed by Zhang Shijing Lawyers, on behalf of the first to fourth respondents. The affidavit set out some settlement negotiations and asserted, in entirely inadmissible form, the lack of validity of the claim. The affidavit annexed an otherwise confidential and privileged report of Shelston IP, dated 21 February 2006. The view was expressed that some of the claims of the patent may have been infringed and the balance were not.
31 A mediation took place on 17 October 2006: legal representatives of all parties attended before a Deputy District Registrar for 7 hours. The mediation was unsuccessful.
32 Shortly prior to the directions hearing on 24 October 2006, it became apparent to the solicitors for the applicant that no one was likely to appear on behalf of the sixth respondent. Also, on 23 October 2006, Zhang Shijing Lawyers wrote to the applicant’s solicitors refusing access to certain documents relevant to primary relief and stating that they did not have instructions to appear on the following day, 24 October 2006.
33 On 24 October 2006, the directions hearing was called. Ms Howard appeared for the applicant and Ms Champion for the fifth respondent. There was no appearance for the first to fourth or sixth respondents. On that day, I made the following orders:
1. Leave be granted to the applicant and the 5th respondent as cross-claimant to file notices of motion seeking orders in default of appearance or default of orders of the Court and if thought appropriate for summary judgment, returnable before Justice Allsop for hearing at 2.15 pm on Friday, 3 November 2006.
2. Such notices of motion, together with affidavits in support, be filed and served on or before Thursday 26 October 2006.
3. The notice of motion against the 6th respondent filed in Court on 24 October 2006 be stood over to Friday 3 November 2006 at 2.15 pm for hearing.
4. Matter 2329 of 2005 and matters dealt with today are stood over to 2.15 pm on Friday, 3 November 2006.
34 The notice of motion that was filed in Court on 24 October 2006 by the applicant against the sixth respondent sought declarations, injunctive relief, an order for delivering up and directions for a further hearing on pecuniary relief.
35 On 27 October 2006, the applicant filed a notice of motion seeking the same kind of relief as claimed in the notice of motion filed in Court on 24 October 2006 against all respondents, including the fifth respondent, under Order 35A r 3(2) or Order 20 r 1 of the Federal Court Rules or s 31A of the Federal Court of Australia Act 1976 (Cth).
36 On 26 October 2006, the fifth respondent filed a notice of motion seeking, in effect, judgment and orders on the cross-claim under Order 35A r 3(2)(c) and (d) of the Federal Court Rules.
37 On 25 and 26 October 2006, the fifth respondent filed affidavits in respect of its motion to be heard on 3 November 2006. That evidence included an affidavit of Mr Soulos, proving that orders made by the Court on 29 August 2006 had not been complied with.
38 On 27 October 2006, the applicant filed an affidavit of service proving the service of affidavits sworn on 13 and 15 September 2006 on Zhang Shijing Lawyers, on behalf of the first to fourth respondents, on the fifth respondents’ solicitors and on the sixth respondent. It should be noted at this point that there is no evidence that Zhang Shijing Lawyers had ceased to act for the first to fourth respondents. On the same day, 27 October 2006, the applicant filed an affidavit of Mr Ryan, the principal solicitor for the applicant, proving the history of the proceedings and various defaults of the respondent, and attached the Shelston IP report referred to above, annexed to the third respondent’s affidavit filed on 3 October 2006.
39 On 3 November 2006, the various motions were heard. The fifth respondent sought to file an amended cross-claim in court. It widened the relief sought but did not amend the substantive allegations. Having heard the evidence led by both the applicant and the fifth respondent, I made orders for the service of the first to fourth respondents (as cross-respondents) of the Amended cross-claim, as follows:
1. Subject to the matter being listed pursuant to order 2 below, the hearing of the motion brought by the fifth respondent as cross-claimant filed 26 October 2006 against the first to fourth respondents as cross-respondents be adjourned to a date to be fixed for judgment.
2. The fifth respondent as cross-claimant serve on Mr Wang at the firm on the record for the first to fourth respondents a letter doing the following:
i. serving the amended cross-claim;
ii. informing the first to fourth respondents that the hearing of the motion for relief has been heard;
iii. informing the first to fourth respondents that the amended cross-claim has been filed in Court;
iv. informing the first to fourth respondents of the evidence led on the motion;
v. stating that the judge has indicated that given that the amended cross-claim had not been served, the first to fourth cross-respondents have an opportunity on Friday 17 November 2006 to contest the notice of motion;
vi. if they are to contest the notice of motion, a letter to that effect should be sent to the solicitor for the fifth respondent cross-claimant and the associate of Justice Allsop, in which case the matter will be listed. If that does not occur then the matter will not be listed on the 17th.
40 It is to be noted that I used the expression “the firm on the record”. Zhang Shijing Lawyers had at all times, at least until October 2006, acted for the first to fourth respondents. No notice of appearance had been filed. I had overlooked that. There was no evidence, however, that Zhang Shijing had ceased to act, though it was apparent that they were not present to represent the first to fourth respondents.
41 At the hearing on 3 November 2006, affidavits were read on behalf of the applicant and the fifth respondent/cross-claimant proving service of the notice of motion and evidence led on 3 November 2006.
42 On 29 November 2006, I delivered judgment on the notices of motion brought by the applicant against the first to sixth respondents and by the fifth respondent (as cross-claimant) against the first to fourth respondents (as cross-respondents): see [2006] FCA 1634.
43 The orders made on that day were as follows:
ON THE APPLICATION AND STATEMENT OF CLAIM THE COURT:
(a) the DELAY FLOOR floor panels referred to in paragraph 2(a) of the Amended Particulars of Patent Infringement, an example of which is identified as sample HBM-1 in the affidavits of Kendall Waller sworn 15 June 2006 and Hugh Mansfield-Williams sworn 12 June 2006;
(b) the STRAUSS, PRIMA and AUSLOCK floor panels referred to in paragraph 2(b) of the Amended Particulars of Patent Infringement, examples of which are identified as samples HBM-2, HBM-3 and HBM-4, respectively, in the affidavits of Kendall Waller sworn 15 June 2006 and Hugh Mansfield-Williams sworn 12 June 2006;
(c) the floor panels referred to in paragraph 2(c) of the Amended Particulars of Patent Infringement, an example of which is identified as sample GHP-4 in the affidavit of Kendall Waller sworn 15 June 2006 and as “HUILI URBAN” in the affidavit Hugh Mansfield-Williams sworn 12 June 2006; and
(d) the DIY floor panels referred to in paragraph 2(d) of the Amended Particulars of Patent Infringement, an example of which is identified as sample KW-10 and “DIY” in the affidavits of Kendall Waller sworn 13 September 2006 and Anthony Richard Smeeton sworn 13 September 2006.
2. DECLARES that the second and third respondents and each of them have infringed the Patent by:
(a) importing, selling and offering for sale the DELAY FLOOR floor panels referred to in paragraph 4 of the Amended Particulars of Patent Infringement, an example of which is identified as “DELAY FLOOR” in the affidavit of Hugh Mansfield-Williams sworn 12 June 2006; and
(b) participating in, inducing, directing and procuring the infringements of the First, Fourth and Sixth Respondents referred to in paragraph 1 above and paragraphs 3 and 5 below.
4. DECLARES that the fifth respondent has infringed the Patent by selling and offering for sale:
(a) the URBAN FLOORING floor panels referred to in paragraph 8(a) of the Amended Particulars of Patent Infringement, an example of which is identified as sample GHP-1 in the affidavits of Kendall Waller sworn 15 June 2006 and Hugh Mansfield-Williams sworn 12 June 2006; and
(b) the AVANTI FLOORING and BODEN FLOOR floor panels referred to in paragraph 8(b) of the Amended Particulars of Patent Infringement, examples of which are identified as samples GHP-3 and GHP-2, respectively, in the affidavits of Kendall Waller sworn 15 June 2006 and Hugh Mansfield-Williams sworn 12 June 2006.
6. ORDERS that, in Australia and during the term of the Patent, the first to fourth and sixth Respondents and each of them, whether by themselves, their directors, officers, servants or agents or otherwise, be restrained from infringing the Patent, and in particular from, without the licence of the applicant:
(a) making, hiring, selling or otherwise disposing of, offering to make, hire, sell or otherwise dispose of, using or importing, or keeping for the purpose of doing any of the foregoing, the floor panels referred to in paragraphs 1, 2, 3 and 5 above;
(b) authorising, inducing, procuring or participating with any person to do any of the acts referred to in sub-paragraph (a) above.
7. ORDERS that, in Australia and during the term of the Patent, the fifth respondent, whether by itself, its directors, officers, servants or agents or otherwise, be restrained from infringing the Patent, and in particular from, without the licence of the applicant:
(a) making, hiring, selling or otherwise disposing of, offering to make, hire, sell or otherwise dispose of, using or importing, or keeping for the purpose of doing any of the foregoing, the floor panels referred to in paragraph 4 above;
(b) authorising, inducing, procuring or participating with any person to do any of the acts referred to in sub-paragraph (a) above.
8. ORDERS that, within 28 days of the date of these orders, each of the first to sixth respondents deliver up on oath to the Applicant or its nominated agent for destruction all floor panels referred to in paragraphs 1, 2, 3, 4 and 5 above in its possession, custody or power.
9. ORDERS that:
(a) the first to fourth and sixth respondents pay the applicant’s costs of the proceedings to date (including the costs of the applicant’s motion heard on 3 November 2006) on an indemnity basis;
(b) the fifth respondent pay the applicant’s costs of the proceedings to date (including the costs of the applicant’s motion heard on 3 November 2006) on a party-party basis, provided that this shall not include such costs (if any) of the case against the other respondents as may be separable on taxation from the costs of the case against the fifth respondent.
10. DIRECTS that the matter be listed on 12 December 2006 at 9.30 am for further directions for the further conduct of the proceedings.
ON THE AMENDED CROSS-CLAIM OF THE FIFTH RESPONDENT AS CROSS-CLAIMANT THE COURT:
11. ORDERS That the cross-respondents and each of them pay the cross-claimant an amount equal to the total of all damages, costs and other sums of money the cross-claimant may be ordered by the Court to pay the applicant in these proceedings.
12. DECLARES that the cross-respondents and each of them have by the making of the first representation referred to in paragraph 15 of the amended cross-claim contravened s 52 of the Trade Practices Act 1974 (Cth) and s 42 of the Fair Trading Act 1987 (NSW).
13. DECLARES that the fourth cross-respondent has by the making of the second representation referred to in paragraph 28 of the amended cross-claim contravened s 52 of the Trade Practices Act 1974 and s 42 of the Fair Trading Act 1987 (NSW).
14. DECLARES that in the period January 2004 to September 2005 the third cross-respondent was knowingly concerned in the contravention of s 52 of the Trade Practices Act 1974 (Cth) and s 42 of the Fair Trading Act 1987 (NSW) by the first cross-respondent and the fourth cross-respondent.
15. DECLARES that the cross-respondents are jointly and severally liable to indemnify and keep the cross claimant indemnified in respect of any and all damages, costs and other sums of money the cross-claimant may be ordered by the Court to pay the applicant in these proceedings.
16. ORDERS that the cross-respondents pay the costs to date of the cross-claimant on an indemnity basis.
17. DIRECTS that the matter be relisted on 12 December 2006 at 9.30 am for directions as to the further conduct of the cross-claim.
44 My reasons published on that day were as follows. (I set them out in full to enable the parties to understand, in one document, all relevant facts.)
1. These are my brief reasons for orders made pursuant to notices of motion upon which the applicant and fifth respondent, as cross-claimant, move. There was no appearances by the first to fourth and sixth respondents. I will deal with each motion in turn.
The applicant’s motion
2. The applicant seeks orders pursuant to Order 35A r 3(1) of the Federal Court Rules (orders based on the default of the relevant respondents) and pursuant to s 31A(1) of the Federal Court of Australia Act 1976 (Cth) and Order 20 rule 1 of the Rules (summary judgment).
3. The notice of motion seeks declarations and orders against all respondents.
4. The fifth respondent does not oppose the making of the orders and, in turn, seeks to pass on its liability to the first to fourth respondents.
5. There were a number of affidavits relied on in support of the notice of motion of the applicant. They are set out in the document marked A and which is annexed hereto. The affidavits were read and the exhibits tendered.
6. I have also been helpfully supplied with a table of evidence directing me to the various parts of the evidence and supporting the submissions as to infringement, I have marked that document “Administrative Exhibit ‘A1’” and the document will remain with the file. I do not propose to set out the detail of it in these reasons.
7. The proceedings arise out of what the evidence discloses as the clear infringement of Australian Patent no 713628 being an invention relating to floor covering consisting of hard floor panels as well as a method for manufacturing such floor panels.
8. The various bases for the making of the orders sought against the parties are as follows:
(a) as against the first to fourth respondents pursuant to Order 35A rule 3(2) by reason of the defaults listed in the affidavits marked 10 and 11 in Annexure A;
(b) additionally as against the first to fourth respondents pursuant to Order 21 rule 1 and s 31A(1) by reason of the evidence of infringements and admissions (though such admissions are not essential) given in the affidavits marked 1, 2, 3, 4 and 7 in Annexure A;
(c) additionally, as against the second and third respondents pursuant to Order 20 rule 1 and s 31A(1) by their involvement in the infringements of the first, fourth and sixth respondents as set out in the affidavit numbered 5 in Annexure A (this additional involvement as accessories is in addition to the infringements engaged in directly by the second and third respondents trading as Huili Australia Trading) which are covered by paragraphs (a) and (b) above;
(d) as against the sixth respondent pursuant to Order 35A rule 3(2) by reason of the defaults detailed in affidavits 9 and 10 in Annexure A; and
(e) additionally as against the sixth respondent pursuant to Order 20 rule 1 and s 31A(1) by reason of the infringements detailed in affidavits 6, 7 and 8 of Annexure A.
9. I have carefully examined the written submissions and evidence, I am satisfied that the applicant is entitled to relief claimed based on the outline set out in [8] above.
10. Annexed to the supplementary submission filed pursuant to leave I granted at the hearing the appropriate form of order has been revised and after consideration of that amendment I am prepared to make those orders. Therefore, on the notice of motion of the applicant against the first to sixth respondents by reason of various defaults, admissions and otherwise based on the clear evidence satisfying s 31A(1) and Order 20 rule 1 I will make orders in the form suggested in the supplementary submissions.
11. The applicant seeks indemnity costs against the first to fourth and sixth respondent. I think the clarity of the evidence supports that order. There can have been little doubt that there was an awareness of the patents from an early date, in particular taking into account Mr Gremos’ evidence on the cross-claims. The evidence reveals a clear basis, in my view, for indemnity costs against the first to fourth and sixth respondents.
12. There was debate about the position of the fifth respondent. In my view, though the fifth respondent has taken the responsible view it has not provided unequivocal undertakings and in my view the proffered order against it is appropriate.
The fifth respondent/cross claimant’s motion
13. The fifth respondent was involved in the infringements. However, the basis for its claim is that it was an innocent party relying on the assurances of the first to fourth respondents. It has submitted to all the orders against it in so far as they were supported by the evidence. They are so supported.
14. The fifth respondent was a purchaser from all of the cross-respondents at various times of the allegedly infringing products.
15. An amended cross-claim was filed on the day of the hearing before me. I made orders and directions that the amended document be served on the first to fourth and sixth respondents with an indication that the fifth respondent cross-claimant should make clear upon service that if the various respondents wish to come in and defend the cross claim they could. The fifth respondent did so. No attempt to defend the proceedings of the applicant or the cross-claim has been made by the first to fourth respondents on the sixth respondent.
16. I am satisfied that the various respondents to the cross-claim have been served with notice that the cross-claimant will seek orders and declarations against them in support of the cross claim filed against them and in support of the amended cross-claim filed in Court.
17. The notice of motion for the orders was supported by an affidavit of Mr Bill Gremos sworn 26 September 2006 together with the exhibits thereto. Mr Gremos is the managing director of the fifth respondent. The evidence underlying the infringement from the applicant’s motion is of course before me in this motion by the cross-claimant.
18. The affidavit of Mr Gremos recounts that he began dealing with the second and third respondents in 2003. He was rung by them in relation to the purchasing of laminated flooring. The second and third respondents indicated that this product could be obtained from China. The substantive conversations in this early period were carried on with the third respondent. During the period March 2004 to February 2005 the fifth respondent purchased quantities of laminated flooring from the second and third respondents. Various invoices were provided in the exhibits to Mr Gremos’ affidavit.
19. In February 2005 Mr Gremos became aware that the fifth respondent was now dealing with the fourth respondent as orders placed by the fifth respondent with the second and third respondents were being invoiced by the fourth respondent. Invoices supporting this change were exhibited to Mr Gremos’ affidavit.
20. In March 2005 by the same process of invoicing Mr Gremos became aware that he was now dealing with the first respondent. Orders that had been placed with the fourth respondent were now being invoiced by the first respondent. Again invoices were exhibited by Mr Gremos’ affidavit to support this change.
21. By letter dated 20 May 2005 from an officer of the applicant, the fifth respondent became aware that the applicant claimed that its patent was being infringed by flooring purchased from the first, second, third and fourth respondents. Mr Gremos then took immediate steps to inform the third respondent of this, to instruct his stores to cease selling the product and to recall all stocks and return all stocks to the fourth respondent.
22. He then had a number of conversations with the third respondent in which he was assured that there would be no infringement in the future. For instance, the third respondent said to Mr Gremos that he had spoken with the manufacturers in China and they had said that there was no problem and that they will address the issue with new product of the same quality as was previously supplied but with a different locking profile. Mr Gremos made it clear that he did not want to buy a product which was in breach of any patent. The third respondent reassured him that this would be all right. From all the evidence before me it can be safely concluded that the assurances were baseless.
23. During the period June to August 2005 the third respondent came to Mr Gremos’ office and showed him samples of the new product. Following this reassurance Mr Gremos committed the fifth respondent to further purchases from the other respondents. These further purchases came from the first respondent. In November 2005, upon being served with the applicant’s process in these proceedings, Mr Gremos caused all stock to be removed from sale.
24. At no time does it appear that the sixth respondent was involved in selling to Mr Gremos.
25. The amended cross-claim pleads the course of dealing, pleads various misleading representations that the flooring supplied to them would be capable of being offered for sale, pleads a condition implied by s 17(1) of the Sale of Goods Act 1923 (NSW) and a warranty implied by s 17(2) of the Sale of Goods Act. The pleading then seeks an order under s 5(1) of the Law Reform (Miscellaneous Provisions) Act 1946 (NSW) dealing with joint tortfeasors. Relief is sought under the Trade Practices Act 1974 (Cth) and the Fair Trading Act 1987 (NSW) both directly for the false and misleading representations by the respondents and under s 75B of the Trade Practices Act.
26. I am satisfied from the evidence put forward by Mr Gremos that the fifth respondent is entitled to such damages as it can prove by reason of the various breaches of contract by the first, second, third and fourth cross respondents arising from the breaches of the condition and warranty implied by s 17(1) and (2) of the Sale of Goods Act and pursuant to the misleading and deceptive conduct in contravention of s 52 of the Trade Practices Act 1974 (Cth) and s 42 of the Fair Trading Act 1987 (NSW), substantially as pleaded.
27. I am satisfied that the cross-claimant is entitled to the declarations and orders accordingly in substance sought in the amended cross-claim.
28. The clarity of the infringements and the circumstances of the misleading of Mr Gremos entitle the cross-claimant to its costs on an indemnity basis.
45 It should not be thought from the nature of the application that careful consideration was not given to the question of infringement. I was assisted by detailed and careful, integer-by-integer analysis of the patent, and by expert evidence in relation to each integer, and infringement generally. The terms of [9] of my reasons should be read in that context.
46 On 29 November 2006, my associate sent a copy of the judgment to the legal representatives of the applicant and the fifth respondent/cross-claimant under cover of a letter that contained the following:
I have enclosed a fresh copy of the judgment handed down today the 29 November 2006.
This copy is as per the electronic version of the judgment and contains the amended listing date for the proceeding and the cross-claim on 12 December 2006.
Justice Allsop also requests that you serve a copy of this judgment on the other respondents and the cross-claimants. Proof of service that the judgment has been served will be of assistance to the Court and will be expected when next before the Court on 12 December 2006.
[emphasis added]
47 The matter came back before me on 12 December 2006. Mr Dimitriadis appeared for the applicant. Ms Champion appeared for the fifth respondent. Mr Sun, the second respondent, appeared. There had been filed, on 11 December 2006, an affidavit of service on behalf of the applicant. The affidavit was confused as to what had been served. On 12 December 2006, there was filed in court an affidavit of service proving that the fifth respondent had served Zhang Shijing Lawyers on 6 November (sic: 6 December) 2006 with my orders and reasons made and published on 29 November 2006.
48 On 12 December 2006, I asked Mr Sun what he wanted to do and he said “going on to the next step”. I asked him whether he understood what was happening, and he said he did. It was apparent that he had knowledge of the orders and reasons made and published on 29 November 2006. (It was also apparent that he was an intelligent man with a good (though not perfect) grasp of English). When I asked Mr Sun what he wanted to be paid for the product sold to the fifth respondent, he mentioned suing suppliers in China. Mr Sun indicated that he was present representing the first, third, fourth and sixth respondent. Discussion first took place on discovery of documents from the first to fourth respondents’ business to the applicants, to permit the applicants to prove the primary claim. After discussion with the parties, I refused to order that the respondents file a verified list of documents. It seemed to me a pointless exercise without a lawyer. Rather, I stood the matter over to 20 December 2006. I suggested that the parties agree upon a day on which they might attend the relevant business and inspect documents. I said the following to Mr Sun:
Mr Sun, this is not, and I say this respectfully, I appreciate that you are businessman and you probably understand this, but you're without a lawyer, so I just want to make sure you understand. None of this is optional. They are not entitled to anything that they are not entitled to, that is, if they are asking for too much or it is not relevant. But if it is relevant, none of this is optional; but the more co-operation there is between the parties about the documentation, (I appreciate they're not your friends in this litigation) but the more co-operation between opponents in litigation reduces the cost, ultimately reduces the costs for everyone.
Now, having said that, I will leave it to some co-operation between the two of you to see if you can sort it out.
49 After a break, Mr Dimitriadis expressed the view that he thought that the parties could co-operate over documents.
50 Turning to the cross-claim of the first respondent, the following exchange took place:
HIS HONOUR:All right, also Mr Sun, have you got your cross-claim, your defence and cross-claim that concerns the fifth respondent in your papers, not necessarily with you now, but in your papers back at your office?
MR SUN: I will check with my solicitors, your Honour.
HIS HONOUR:Because you need to decide what you want to do about that. It may be that it needs more precise articulation as to what the basis of that claim is. Is it simply for products supplied and unpaid for? It may be that there's no debate that that amount hasn't been paid for, but that it should be set off against any liability that the fifth respondent has to the applicant because it was infringing material.
Now, if any of it was not infringing material, then that perhaps ought be accounted for separately, but to the extent that you've delivered $148,000 worth of goods to the fifth respondent that they haven't paid for, that was directly related to these infringements. No doubt the fifth respondent will say we don't have to pay for them or we have to set them off against what we're liable to the plaintiffs for. So I think - who is your solicitor, Ms Champion?
MS CHAMPION:Mr Soulos, Michael Soulos and he has actually been in touch with the cross-respondent's solicitor, Mr Wong and obviously there have been discussions about ‑ ‑ ‑
HIS HONOUR:Well I think you both need to - I mean if any of that $148,000 is for material that you can identify that is not - it was not infringing product, was not infringing product.
MR SUN: I think that is a separate, sir. They needed a pay rise first for the ..... then we, you know, by judge's order if any damages we will pay that. I don't think that is the same thing.
HIS HONOUR:Well, that may be, but they may say that they are entitled to set off the damages against what they owe you, in other words, net it off rather than give you the money and then get the money back from you. Anyway, I'm not here to broker a deal for you. What I'm saying is I think - what I propose to do is stand this over to next week. You and Mr Ryan, whether through Mr Wong as well, try and reach an agreement about when they come to the head office to look at the documents in January and you need to consider what you want to do in relation to the fifth respondent.
If you want to have that cross-claim tried, then I will set a time down next year and we'll have a hearing about that cross-claim, but I suspect it really ought be caught up in all the damages hearings that are going to take place.
MR SUN: Well, I will check with the solicitor if we can find the documents.
HIS HONOUR:Is he still acting for you?
MR SUN: Because that $148,000 is not 100 per cent the products was the infringement, only, I think only 50 per cent, because, you know, the correct system, we supply to the ..... the fifth respondents, it's not all same, you know, the panel. I go to 50 per cent is the ‑ ‑ ‑
HIS HONOUR:Well, if you can separate those out, they may conceivably be in a different category. It might depend and Ms Champion, nothing I've said expresses a view at the moment.
[emphasis added]
51 As can be seen from this exchange: (a) Mr Sun was still in contact with his solicitors; and (b) Mr Sun was put on notice that if he wished to agitate his (that is the first respondent’s) cross-claim, he needed to take steps to do so. The matter was stood over to 20 December 2006. On 12 December 2006, I gave Mr Sun leave to represent the first and fourth defendants on that day and on the following week, 20 December 2006.
52 The matter came back before me on 20 December 2006. Agreement had been reached between the applicant and the fifth respondent as to production of documents in relation to the claims for pecuniary relief. No such agreement had been reached between the applicant and Mr Sun, on behalf of the first to fourth and, possibly, the sixth respondents. In the light of what was put to me, it appeared that a co-operative arrangement was not possible. I therefore made orders for discovery against all respondents by reference to identified categories of documents that had been already shown to the respondents, and which were annexed to the form of the order. The fifth respondent consented to this course. I did not think it useful to make any orders other than for discovery. A further directions hearing was set for 13 March 2007, which date was later rescheduled to 22 March 2007, by reason of my court commitments. The letter (so informing him of that change) was sent to Mr Sun, at the address on the Court documents filed by the applicant (including the original application), about which no complaint had ever been made as to accuracy.
53 On 20 March 2007, the applicant filed an affidavit of Mr Ryan setting out the failure of the first to fourth and sixth respondents to comply with the orders of the Court on 20 December 2006. The affidavit also revealed that some correspondence was returned, the balance ignored. In the affidavit, Mr Ryan then attempted to assess the profits of the respondents, based on such documents as had been previously provided by the first to fourth respondents.
54 On 22 March 2007, when the directions hearing was originally called on, Mr Dimitriadis appeared for the applicant, Ms Champion for fifth respondent and no one appeared for the first to fourth and sixth respondents. Mr Dimitriadis and Ms Champion announced a settlement between their respective clients. I made orders finalising that matter in the following terms:
BY CONSENT AS BETWEEN THE APPLICANT AND THE FIFTH RESPONDENT, THE COURT ORDERS THAT:
1. There be judgment for the Applicant against the Fifth Respondent in an amount equal to US$77,500.00, representing an agreed amount in respect of an account of profits made by the Fifth Respondent from sales of panels falling within the scope of the Patent.
2. The Fifth Respondent pay to the Applicant an amount equal to US$25,000.00 representing an agreed amount in respect of costs pursuant to order 9(b) made on 29 November 2006.
3. There be no further order as to costs as between the Applicant and the Fifth Respondent.
55 Given the form of order 11 made on 29 November 2006, the first to fourth respondents, as cross-respondents to the fifth respondent’s cross-claim, may be seen to have had an interest in these orders. I took the view, though I did not express it at the time, that I should permit these parties to resolve their differences. If any challenge was to be made to the legitimacy or reasonableness of the sums in the settlement, that challenge could take place in the context of an application, if ever made, under Order 35 r 7(2)(a) in respect of Order 11 made on 29 November 2006 (it having been made in the absence of the first to fourth respondents).
56 Later in the morning, Mr Sun appeared. A directions hearing then took place between the applicants and him and the respondents for whom he appeared. The discussion that occurred concerned his (and the first, third, fourth and sixth respondents’) failure to comply with the order for discovery made on 20 December 2006. I said the following to the parties before adjourning to allow the parties to discuss the matter:
The parties should understand that the Court has a particular interest in today's proceedings. Orders of the Court are not made to be ignored. If there is good reason and a good explanation as to why orders of the Court have not been followed, then of course, the Court will hear that explanation and if it's a proper explanation, we'll excuse parties from failing to comply with the orders of the Court. If there is no good explanation as to why orders of the Court have not been complied with, the Court has ample power to ensure that that does not happen again, to punish people for failing to comply with orders of the Court and to ensure that any party in the exercise of Federal jurisdiction is not prejudiced by another party's refusal to comply with orders of the Court.
Now, I am assuming that there may well be a very good explanation why the orders of the Court have not been complied with, but parties should understand that the range of remedies that the Court has available to it is wide and ranges from punishing persons for contempt to appointing receivers to organisations to search for and obtain documents. Now, I don't want to cause the costs of this case to increase unnecessarily if parties can, sensibly, with due regard to their obligations, sort out their differences, but the parties should understand that the Court's orders are not made to be ignored and the Court has an interest in ensuring that that does not occur.
I will now adjourn and I will come back at 10 o'clock and if the parties are able to reach agreement about what should happen, be it procedurally or otherwise, then well and good and I will hear - the first thing I will want to understand is why the orders of the Court have not been complied with.
57 No satisfactory explanation was given by Mr Sun. I then made the following orders:
1. On or before Friday 30 March 2007 the first to fourth and sixth respondents explain, by affidavit sworn by the second respondent, why they have failed to comply with the order 1 made by the Court on 20 December 2006, that affidavit is to be filed in Court and served on the solicitor for the applicant on or before close of business Friday, 30 March 2007.
2. The matter be stood over for directions to 9:30 am on Thursday 5 April 2007 on which day the applicant, if it desires the Court to make any orders, is to bring to Court a notice of motion which can be filed in Court and directions for which motion will be dealt with on that day.
58 On 27 April 2007, a “joint affidavit of Baojia Sun and Gong Dao Zhang” was filed. It addressed the calculations of gross profit of Mr Ryan in his affidavit of 20 March 2007. It annexed various documents, including accounts. It addressed what the deponents said was the debt owing by the fifth respondent. The affidavit also contained the following recognition of the commercial and legal position of the parties:
Effect of Lawsuit on First to Fourth Respondents
Ø The lawsuit have such affected the financial outcome of the First to Fourth Respondent from September 2003 to the year ending 30 June 2006 that we have no alternative but for liquidation. Early profits made from sale of infringing floor panels and other sales, i.e. in 2004-2005, have been completely overwritten by the expenses outlined in (a) and (b) above.
Ø As a consequence of the lawsuit operational activities have commanded huge losses due to dramatic decline in sales and inventory, evidenced in the Exhibit -4 and Exhibit-5 for Statement of Financial Performance 2004-05 for both First and Fourth Respondents. This was because we have terminated our imports from Huili Shanghai Group. As a result we were forced to resort to unstable sources to inventory with differences in quality of floor panels. This ahs caused many problems in inventory flow and incurs invaluable loss of consumer confidence and trust in the delivery and quality of inventory.
8. Although we acknowledge our accountability in relation to the infringement, the fault also lies with our supplier Huili Shanghai Group which did not disclose any information of patent infringement to us. We too are victims of deceit and manipulation and are pursuing a very difficult campaign against Huili Shanghai Group in Shanghai to recover our own financial damages incurred by this lawsuit.
9. As small business retailers, we had forfeited our lawsuit because we had exhausted all our assets, in legal costs and have no alternative means of any income with business operations terminated indefinitely. We did not have the ideal legal representation to present our case in the most complete manner as befits the technical aspect of this lawsuit simply because we cannot finance it. This is particularly the case with Shelston IP which had valuable evidence and arguments in support of our case, as evidenced in Exhibit -7. Shelston IP had stated reasonable doubt of infringement in all claims by the Applicant. But upon further costs in undertaking technical investigations as stated in Exhibit-7 we were forced to terminate our legal representation due to inability to pay their fees.
In the spirit of legal equality concerning the uneven status quo of the financial positions Applicant and Respondent affecting the quality of their trial, we hope that the law does its fundamental purpose not only to find the most fitting and just punishment in context to let us substantially indemnify our infringement but allow us the means to survive and reform.
59 On 14 April 2007, another affidavit of Mr Ryan was filed which dealt with the joint affidavit. In particular, Mr Ryan said that some of the documents annexed to the joint affidavit were new and had not been provided in September 2006, when some documentation had been provided. He reviewed his gross profit calculation accordingly.
60 The matter then came before me again on 5 April 2007. Mr Dimitriadis and Mr Sun appeared. Once again, Mr Sun sought to appear for the other respondents (except, of course, the fifth respondent).
61 On 5 April 2007, it was evident from the joint affidavit and what was said that there was a degree of preparedness in the respondents to bring the pecuniary relief hearing on to finalisation. Discussion took place about the most efficient way of doing this. The applicant had now retained an accountant. The applicant elected on this day for an account of profits. After discussion, I made the following orders to bring the matter to a hearing:
2. The First to Fourth and Sixth Respondents provide to the Applicant by no later than 27 April 2007:
(a) copies of all tax and customs invoices relating to the import invoices provided by the First to Fourth Respondents by way of discovery on 26 September, 2006;
(b) un-redacted copies of all sales invoices relating to sales by the First to Fourth and Sixth Respondents of floor panels falling within the scope of any of Orders 1, 2, 3, 5 or 6 made on 29 November 2006;
(c) copies of all other documents (if any) in their possession, custody or control on which they intend to rely at the hearing on quantum and which have not already been provided to or made available for inspection by the Applicant.
(d) any further documents said by the respondents to be relevant to the calculation of profits flowing from the declared infringements.
4. In respect of any expert accounting evidence to be relied on by the applicant, prior to filing and serving any such finalised evidence, the applicant must serve a draft of such evidence on the respondents inviting them to provide further documentation or comment at a meeting or otherwise on the accuracy and reliability of the evidence.
5. The First to Fourth and Sixth Respondents not be permitted to rely at the hearing on any documents in their possession, custody or control which are not provided to or made available for inspection by the Applicant on or before 27 April 2007 pursuant to order 2, or not made available during any consultation provided for by order 4, without the prior leave of the Court.
6. The Applicant file and serve its affidavit evidence in chief on or before 30 May 2007, with the intention that consultation of the kind referred to in 4 take place in May 2007. By the same time the applicant file and serve a list of the evidence upon which it will seek to rely, including filing and serving a paginated, indexed bundle of documents.
7. The First to Fourth and Sixth Respondents file and serve any affidavit evidence in answer on or before 15 June 2007.
8. The Applicant file and serve any affidavit evidence in reply on or before 29 June 2007.
9. The parties have liberty to apply on 2 days’ notice.
62 No further affidavits were filed for the respondents. Other affidavits, including from an accountant, were filed by the applicant and the matter came on for hearing on 4 July 2007.
63 Before coming to that hearing and the resolution of the matters debated, something further needs to be said about the conduct of this matter. The respondents have, as can be seen, failed to adequately address their responsibilities of co-operation in this litigation. None appeared at the hearing on 29 November 2006. There has never been the slightest suggestion that they did not know about that date. They had lawyers acting for them up to a time not long before the hearing. They have had advice from patent attorneys and at least one skilled member of the Sydney intellectual property bar, Mr Burley. The respondents have accepted the judgment on liability and have not sought to appeal from it, or to have it set aside as made in their absence. Indeed, a contested hearing on pecuniary relief at considerable expense has occurred since then. It would be a most unlikely and extraordinary step, given all that has occurred, for any application to be made about the orders of 29 November 2006 obtained by the applicant.
64 In the joint affidavit and at the hearing on 4 July 2007, Mr Sun stated a desire to agitate the cross-claim of the first respondent against the fifth respondent. That cross-claim has not yet been heard. The ability to propound it may be affected by the orders obtained by the fifth respondent on its cross-claim on 29 November 2006. They were obtained in the absence of the first to fourth respondents as cross-respondents.
65 If the first to fourth respondents wish to agitate any aspect of the position against the fifth respondent, whether in relation to the orders made on 29 November 2006 or 22 March 2007 (as between the applicant and the fifth respondent), or in relation to the first respondents’ cross claim, this should be done promptly.
66 Any such application would need to be properly brought by motion and with evidence. It should not be thought that, in the light of the conduct of this mater to date by the respondents, I would necessarily permit any company to appear otherwise than by a solicitor. It should be noted that Order 35 r 7(2)(a) is in the following terms:
The Court… may, if it thinks fit, vary or set aside a judgment or order after the order has been entered where –
(a) the order has been made in the absence of a party, whether or not the absent party is in default of appearance or otherwise in default and whether or not the absent party had notice of the motion for the order.
The applicant’s claim for an account of profits
67 The hearing took place on 4 July. Mr Sun said that he appeared not only for himself but also for the first, fourth and sixth respondents. He was given leave to appear for these corporate respondents. On this occasion (being the first time he had done so) he eschewed any capacity as appearing for the third respondent.
68 The applicant elected for an account of profits by those who infringed. In my judgment of 29 November 2006 ([2006] FCA 1634), I found that the first, second, third, fourth and sixth respondents had infringed the patent in suit. The infringement of the second and third respondents involved conduct in their own right as well as participation in inducing, directing and procuring the infringements of the first, fourth and sixth respondents.
69 The interlocutory directions that I made were intended to procure full co-operation from the respondents in the production of all relevant documents. It is clear from the evidence of the accountant called by the applicant, Mr Dunstan, and from the evidence of Mr Ryan (the applicant’s solicitor) that the applicant has not been supplied with documents of all sales and with documents revealing all relevant activity of the respondents. This is a factor to be considered when making choices about approaches to assessment of the profits and the assessment of any contingencies in respect thereof. For instance, though I accept that an attempt has been made to do so, it has not been easy for Mr Dunstan or the applicant to distinguish between the various entities. Mr Dunstan’s report indicated that there was no apparent consistency in the recognition of income and the incurring of costs between the various respondents. This led to one approach being adopted by Mr Dunstan as treating all the “Huili respondents” as one entity. For the reasons which I set out later, I do not propose to follow this approach, but the reasons for Mr Dunstan expressing it reveal the lack of completeness of the information, which can only come from the respondents themselves.
Applicable principles
70 An account of profits is an alternative remedy to damages: see Patents Act 1990, s 122(1). Its purpose is not to compensate the patentee, nor to punish the infringer, but rather to prevent the unjust enrichment of the infringer at the expense of the patentee: Dart Industries Inc v Décor Corporation Pty Ltd (1993) 179 CLR 101 at 110-111. By reference to the judgment in Dart v Décor 179 CLR 101 and the cases there cited, I have approached the calculation of the account of profits in this case on the following basis. The infringers should account for the actual profit that they have gained from the infringement. In calculating those profits, it is appropriate to deduct costs directly attributable to selling and delivering infringing articles from the revenue made from such sales and deliveries. It may be appropriate to deduct a proportion of general overhead costs such as plant, equipment and managerial costs. The deduction of such costs depends upon their being shown to have been attributable to the sales, the onus for which demonstration is upon the infringers. The account of profits is a discretionary remedy and the Court may decline to grant the remedy in respect of profits made by the infringer during the period in which it was unaware of the applicant’s rights. In this latter respect, see in particular Colbeam Palmer v Stock Affiliates Pty Ltd (1968) 122 CLR 25 at 33-36 and the Patents Act 1990, s 123 which is in the following terms:
(1) A court may refuse to award damages, or to make an order for an account of profits, in respect of an infringement of a patent if the defendant satisfies the court that, at the date of the infringement, the defendant was not aware, and had no reason to believe, that a patent for the invention existed.
(2) If patented products, marked so as to indicate that they are patented in Australia, were sold or used in the patent area to a substantial extent before the date of the infringement, the defendant is to be taken to have been aware of the existence of the patent unless the contrary is established.
(3) Nothing in this section affects a court's power to grant relief by way of an injunction.
Profits made by the respondents
71 I accept the unchallenged evidence of Mr Dunstan generally. He said that the total amount of profits made by the first, second, third, fourth and sixth respondents (to whom I will refer as the “Huili respondents”) by reason of the infringements was $254,114. This figure was based on total infringing sales revenue of $852,531 and total costs of $598,417. The costs were made up of $476,686 for purchases, $106,587 for customs duty and $15,144 for direct costs comprising freight and advertising.
72 Mr Dunstan made no allowance for general overheads. He had no documentation and information which would be necessary to enable such a calculation to be made. In this respect, it is to be noted that the directions made in April required a draft of Mr Dunstan’s report to be given to the Huili respondents. This was done. No attempt was made by any of the Huili respondents to identify and quantify a relevant general overhead. Such a straightforward business concept can be taken to have been well understood by them. In the absence of any attempt whatsoever by the Huili respondents to attribute a general overhead to this product, I do not propose to take any general overhead into account. In this respect, there was evidence that the sale of the infringing floor panels appeared to represent only part of the business conducted by the Huili respondents, which extended to the sale of several types of flooring as well as an electrical business.
73 Also relevant to a decision not to attribute anything to overheads is the state of documentation provided by the Huili respondents. I accept from the evidence that it is, on its face, incomplete. The documents that have been produced reveal inconsistencies and anomalies. In the circumstances, I accept the submission of the applicant that there is no cause for confidence that the infringements revealed in the documents represent all the infringements which have in fact occurred. There has been no accounting for cash sales, though there was some evidence of a trap sale for cash. There has been no delivery up of infringing products in accordance with the orders that I made on 29 November 2006. The figures regarding sales and imports were not able to be reconciled by Mr Dunstan. There was also evidence to suggest that other sales of infringing panels may have been made by entities associated with the Huili respondents. In all the circumstances, and taking all these matters into account, and weighing them in relation to the calculation of profit, I am not prepared to make a calculation and a discount for general overheads in these circumstances and where the onus lies upon the respondents to identify and quantify such overheads.
The question of apportionment
74 On the findings that I have made, the second and third respondents should be held liable for all the infringements committed by the three corporate Huili respondents as well as the infringements committed by themselves. The question then becomes one of apportionment of the profits between the other companies. As I indicated earlier, Mr Dunstan’s opinion was that the Huili respondents were best treated as a single entity from an accounting perspective. I am not prepared to approach the matter on that basis. I do not see it as a question for accounting policy. Each company should be liable for such profits as can be reasonably attributable to it.
75 One starts with the evidence of timing. The evidence discloses that the second and third respondents were responsible for sales invoices from September 2003 to February 2005; that from February 2005 to March 2005 the fourth respondent was responsible for the sales; that thereafter the first respondent was responsible from April 2005 to November 2005; and that the sixth respondent was responsible for sales in June 2006. Mr Dunstan was asked to attempt to apportion the profits as between the Huili respondents. His calculations were included in a schedule to his supplementary report and produced what were, in effect, anomalous results. In particular, two of the corporate respondents (the fourth and sixth) were recorded as having made a net loss and the other (the first) had made a very great profit. These calculations can be seen to be due to the inconsistency of recognition of income and incurring of costs that was referred to by Mr Dunstan and/or the lack of documentation provided as to transactions. I am not prepared to accept these conclusions as the most appropriate attribution of profit to the relevant companies.
76 Given the lack of proper documentation, I propose to adopt a method whereby the profit is attributed to the respective corporate respondents by reference to the sales each made, and then to apportion costs proportionally according to those sales. This would make the fourth, first and sixth respondents responsible for attributed sales of $125,221, $278,757 and $182, respectively and for apportioned profits of $37,325, $83,089 and $54, respectively. In addition to this, the second and third respondents individually were liable for attributed sales of $448,371 and apportioned profits of $133,646 (although the second and third respondents were liable for the total as I have earlier identified).
77 Thus, subject to any further possible basis for of reduction, the second and third respondents would be jointly and severally liable for the sum of $254,114, the fourth respondent would be liable for the sum of $37,325, the first respondent would be liable for the sum of $83,089 and the sixth respondent would be liable for $54. Each would be liable for interest.
78 There are two possible reasons why these money sums should be varied. The first is one recognised by Colbeam v Palmer 122 CLR 25and the Patents Act, s 123. The applicant’s solicitors first wrote to the respondents on 23 February 2005, informing them of the patent and requiring undertakings. If one took 23 February 2005 as the date from which to calculate the profits, there would be no claim against the second and third respondents, the claim against the fourth respondent would be $25,051, the claim against the first respondent would be the same $83,089 and the claim against the sixth respondent would be the same $54.
79 It is important to note that in Colbeam v Palmer 122 CLR 25, it was stated that it was for the moving party to prove the unconscionability of the profits, and therefore for the moving party that the defendant knew of the moving party’s rights. The Patents Act 1990, s 123 clearly involves discretion as to the question of refusing or discounting the award for the matters there identified. Also, s 123(2) makes plain that the defendant is to be taken to have been aware of the existence of the patent unless the contrary is shown, if patented products marked so as to indicate they are patented in Australia were sold or used in the patent area to a substantial extent before the date of the infringement.
80 The evidence discloses that the applicant’s floor materials embodying the invention the subject of the patent had been distributed in Australia since late 1997. The evidence discloses that the introduction of those panels revolutionised the trade in laminated flooring and greatly expanded the market for such flooring. The evidence discloses that by 2003, when the relevant infringements commenced, the applicant’s floor panels, or imitations of them, commanded over 75% of the Australian market for laminated panels. The evidence discloses that in 2003, the applicant’s Australian agent and distributor sold about 312,000 packs of the floor panels, amounting to over 560,000 square metres of flooring. The evidence discloses that the panels were described as the “industry standard” in the October 2004 issue of a publication called “Flooring Australia and New Zealand”. The evidence discloses that the packs of the applicant’s panels were, and have been since prior to 2003, clearly marked with the words “patented technology”, with the individual panels bearing the number of the applicant’s European and United States patents. The evidence discloses that since the grant of the Australian patent on 23 November 2003, the relevant promotional material has also carried the number of the Australian patent. The evidence discloses that the fact that the applicant’s floor panels are patented has always been a prominent and important feature of promotions of the panels through sales representatives, exhibitions and distribution of catalogues and brochures. The evidence discloses that the website of the applicant’s Australian agent and distributor has promoted the applicant’s relevant patent rights since at least early 2003.
81 The Huili respondents have not adduced any evidence in respect of the above matters. They have not established that they were not aware of the applicant’s rights prior to the receipt of the letter of demand of 23 February 2005. A general assertion was made in a letter in March 2005, sent in response to the letter of demand, but that statement has not been supported in these proceedings by any direct evidence. Further, the first to fourth respondents did not plead any such lack of knowledge in their defence, which was prepared when they were represented in the proceeding by solicitors and, for a time, by experienced patent counsel. This was to be contrasted with the defence of the fifth respondent, which was prepared earlier and which was available to the first to fourth respondents and which did raise the issue.
82 In all the above circumstances, I am satisfied that under s 123 I should not make any discount by reason of innocent infringement. Indeed, if the matter were to be judged by Colbeam v Palmer 122 CLR 25, I would be prepared to conclude, based on inferences from all the above matters, that the first to fourth and sixth respondents were aware of the patent of the applicant during the course of infringement. My willingness to draw these inferences is in part based on the lack of any evidence brought forward on behalf of any of the first to fourth and sixth respondents of their ignorance prior to February 2005.
83 Also, given the state of the documentation provided by the respondents to which I have earlier referred, to the extent that there is a discretion within s 123 to deal with innocent infringement and to reduce the account of profits by the reason thereby, I am not able to be confident that the respondents have so approached the conduct of this case that they should be entitled to any discount under s 123. This last consideration is a separate consideration from the matters of proof and evidence to which I have earlier referred.
84 The second possible basis for reduction of the profits is the claim made by Mr Sun that the fifth respondent owes him or the first respondent sums of money as reflected in the cross-claim. During the course of the hearing, Mr Sun made no attempt to contest any aspect of the report of Mr Dunstan. He concentrated his submissions on what he said was the injustice of being held liable for an account of profits in circumstances where he has not been paid for a significant amount of the supplies which he or his associated entities gave to the fifth respondent. In this respect, Mr Sun made reference to the detailed material and identified a series of invoices totalling $138,901. They were as follows:
| Invoice | Amount (ex GST) |
| S134 | $20,505 |
| S136 | $23,275 |
| S163 | $22,959 |
| S166 | $25,362 |
| 4094 | $23,396 |
| S190 | $23,404 |
| TOTAL | $138,901 |
85 This total differs from the $158,000 referred to by Mr Sun in the hearing and also differs from the sum alleged in the cross claim.
86 The Huili respondents are liable to account for the profits made at the wholesale level of sales. The fifth respondent was liable to account for its profit at the next level of sale, retail sale. The fifth respondent has accounted for those profits in the order which it submitted to by consent on 22 March 2007. There is no reason in principle why the applicant should not be entitled to both the wholesale profit and the retail profit if attributable, as they are, to the infringement.
87 Mr Sun argued that the unpaid invoices should be attributed to a reduction in profit to which the applicant is entitled. I do not agree. If that were the case, the applicant would pay for the liability of the fifth respondent. That would leave the fifth respondent having accounted for a profit (based on a cost not in fact paid), and not paying the wholesaler and thereby reducing the wholesaler’s profit. By not paying its debt, the fifth respondent would reduce the entitlement of the applicant. That cannot be right.
88 Mr Sun, or the relevant respondent (in fact it is the first respondent who claims under the cross-claim), should seek, as he or it does, to recover moneys lawfully due to it. The fifth respondent in its defence seeks to set off the sums that it has paid to the applicant. Indeed it presently has an order to that effect in the orders made on 29 November 2006. As the chronology makes clear, this order was made in the absence of the Huili respondents.
89 As a matter of principle, the fifth respondent cannot necessarily expect the Huili respondents to give up their purchase price of the goods. The fifth respondent has had to account for its profits. That does not mean that it should not account to the Huili respondents for its costs of sales, so that the Huili respondents can properly fund the account of profits to the applicant at the wholesale level. However, if the Huili respondents in all the circumstances have, as I have found, engaged in misleading or deceptive conduct and led the fifth respondent to believe that it was free to sell these products, it may be that the fifth respondent has suffered damage in that it has lost an opportunity to sell product which it would otherwise have sold in which it would have been legally entitled to trade. In these circumstances, the sums, including legal costs, that the fifth respondent has had to pay the applicant may be seen as damages caused by the misleading or deceptive conduct of the Huili respondents. As I have said, the conclusions that I have already reached about this were made in the absence of the first to fourth respondents.
90 It may well be that these issues have to be resolved between the Huili respondents and the fifth respondent in any residual hearing on the cross-claim. I will put the matter in the list for directions to ascertain whether the parties still wish to agitate these matters.
91 As to the rights of the applicant, in my view, the applicant is entitled to judgment for the sums that I have identified, together with interest. That interest should be calculated at the rate of 10.5%, being the prescribed rate in relation to judgment debts pursuant to Order 35 r 8 of the Federal Court Rules. Subject to the applicant providing me with alternative calculations on a more sophisticated basis, I propose to make a calculation for interest attributable to the full amount for which I have found each respondent liable from the last date of that liability. Hence, I have concluded that interest on the second and third respondents’ liability should be for $133,646 from 28 February 2005, $37,325 from 30 March 2005, $83,089 from 30 November 2005 and $54 from 30 June 2006; for the fourth respondent $37,325 from 30 March 2005; for the first respondent $83,089 from 30 November 2005; and for the sixth respondent, $54 from 30 June 2006.
92 Making those calculations involves the following sub-calcualtions:
| Second & Third Respondent: | $133,646 + $36,836.18 = $170,482.18 $37,325 + $9,954.58 = $47,279.58 $83,089 + $16,358.15 = $99,477.15
$317,270.22 |
| Fourth Respondent: | $47,279.58 |
| First Respondent: | $99,447.15 |
| Sixth Respondent: | $61.31 |
93 Therefore, the orders against the Huili respondents will be that there be judgment be for the applicant:
(a) against the second and third respondents in the sum of $317,270.22 including interest pursuant to s 51A of the Federal Court of Australia Act;
(b) against the fourth respondent in the sum of $47,279.58 including interest pursuant to s 51A of the Federal Court of Australia Act;
(c) against the first respondent in the sum of $99,447.15 including interest pursuant to s 51A of the Federal Court of Australia Act;
(d) against the sixth respondent in the sum of $61.31 including interest pursuant to s 51A of the Federal Court of Australia Act;
94 In my view, all the respondents should be jointly and severally liable for the costs of the applicant. I include the sixth respondent in this, notwithstanding the small amount involved. It has not paid money into Court. It is not assisted with the conduct of the litigation as it should have in relation to discovery. It has equally put the applicant to proof and should pay for that.
95 I have set the matter down for directions on 2 November 2007. On that day, any of the Huili respondents or the fifth respondent who have an application in relation to the further conduct of this matter may raise what steps they wish to take.
| I certify that the preceding ninety-five (95) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Allsop. |
Associate:
Dated: 24 October 2007
| Counsel for the Applicant: | Mr C Dimitriadis |
|
|
|
| Solicitor for the Applicant: | Davies Collison Cave |
|
|
|
| The Second Respondent appeared in person for himself, and with leave for the First, Fourth and Sixth Respondents | |
|
|
|
| Date of Hearing: | 4 July 2007 |
|
|
|
| Date of Judgment: | 24 October 2007 |
