FEDERAL COURT OF AUSTRALIA

Paul’s Retail Pty Ltd v Lonsdale Australia Limited [2012] FCA 724

THE COURT ORDERS THAT:

1.    The applicants have leave to appeal from the judgment of Justice Gordon of the Federal Court of Australia given on 8 June 2012 in Federal Court of Australia proceeding no VID 364 of 2012.

2.    The matter to be listed in the August 2012 Full Court sittings if practicable, or be otherwise expedited to the earliest date available thereafter.

3.    The parties to comply forthwith with Practice Note APP 2 (1 August 2011).

4.    Costs reserved.

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

REASONS FOR JUDGMENT

Introduction

1    On 4 July 2012, I made the orders set out above for the reasons that follow.

2    By an application dated 22 June 2012, the applicants, Paul's Retail Pty Ltd and PW Inventory Pty Ltd (collectively “Paul’s”) sought:

i.    leave to appeal pursuant to s 24(1A) of the Federal Court of Australia Act 1976 (Cth) (“the Federal Court Act”) from the judgment of Justice Gordon given on 8 June 2012 in Federal Court proceeding VID 364 of 2012: Lonsdale Australia Ltd v Paul's Retail Pty Ltd [2012] FCA 584;

ii.    (alternatively) the application for leave to appeal to be heard by a Full Court of this court pursuant to s 25(2)(e) of the Federal Court Act;

iii.    subject to any contrary direction by the Full Court, the application for leave to appeal to be heard concurrently with, or alternatively, immediately before any appeal; and

iv.    the matter be listed for the July-August 2012 Full Court sittings, or be otherwise expedited to the earliest date available thereafter.

3    The application was supported by:

(1)    the affidavit of Paul Dwyer sworn on 22 May 2012;

(2)    the affidavit of Krystal Vanyi sworn on 22 June 2012;

(3)    the applicant’s written submissions dated 29 June 2012; and

(4)    the applicant’s outline of reply and supplementary submissions dated 3 July 2012.

4    The respondent (“Lonsdale Australia”) did not oppose the grant of leave to appeal or expedition of appeal, provided that agreed security were put in place and its counsel’s availability were taken into account. The respondent relied on written submissions dated 2 July 2012.

bACKGROUND

5    By a judgment given on 5 June 2012, the primary judge held that clothing and footwear bearing various Lonsdale trade marks (“the Lonsdale Goods”) infringed the registered trade marks of which the respondent was (pursuant to an assignment dated 11 June 2011 from Lonsdale Sports Ltd) the registered owner in Australia. Lonsdale Sports Ltd, a UK company, was the registered owner of the Australian Lonsdale registered trade marks until 11 June 2011.

6    After the seizure of a number of shipments of the Lonsdale Goods by Customs pursuant to s 133 of the Trade Marks Act 1995 (Cth) (“the Act”) during April and May 2012, Lonsdale Australia on 15 May 2012, brought proceedings against Paul’s for trade mark infringement and on 23 May 2012 sought an interlocutory injunction.

7    Paul’s claimed that the ultimate source of the goods was a licensee of Lonsdale Sports Ltd, a related company of Lonsdale Australia which owned the Lonsdale trade marks overseas. Paul’s submitted that the Lonsdale branded goods were genuine and their sale did not constitute use by Paul’s of the Lonsdale marks as trade marks within the terms of s 120 of the Act. Alternatively, Paul’s asserted a defence under s 123(1) of the Act, based on the circumstances of the manufacture of the Lonsdale Goods and the relationship between Lonsdale Sports and Lonsdale Australia.

8    Paul’s also filed evidence on the adverse impact of an injunction on the first applicant’s business, which indicated that if Paul’s could not sell the Lonsdale Goods (which cost approximately $4.2 million and accounted for 80% of the winter range for April to August 2012) it could not capitalise on its investment, and would be forced to scale down its business and close stores.

9    An injunction was granted on 23 May 2012 and an early trial on liability was fixed for 31 May 2012 and 1 June 2012. Evidence and submissions were filed within that time frame. It was not disputed that discovery was very limited.

10    The trial was concluded on 31 May 2011, reasons for judgment were published on 5 June 2012 and final orders were made on 8 June 2012.

11    In his affidavit, which was sworn on 22 May 2012 in opposition to the respondent’s application for interlocutory relief, Paul Dwyer, a director of Paul’s Retail Pty Ltd deposed, inter alia, that should an injunction be granted, Paul’s would be denied access to its winter stock (which could not be sold during summer months) during the winter season. Paul’s winter stock levels were extremely low and its sales figures were 24% below those of the same time last year. Paul’s had invested heavily in advertising the Lonsdale Goods on television, radio and by catalogue.

12    Mr Dwyer deposed that Paul’s investment in the Lonsdale Goods cost $4.2 million and was its largest ever single outlay. The Lonsdale stock represented 40% of Paul’s overall stock.

13    Mr Dwyer deposed that should Paul’s be injoined from selling the Lonsdale Goods stock on hand, the business would not survive, as it could not afford to substitute other products, which would not, in any event, arrive in time. The process of removing the goods would also be onerous, inconvenient and costly.

14    Further, customers would be disappointed by the uneven range and Paul’s reputation would suffer. Paul’s retail strategy had been displaced, as premature discounting was required to meet its expenses.

15    Mr Dwyer deposed:

29    I anticipate that the immediate impact if the Application were allowed would be that Paul’s Retail would have to close up to 6 of its Paul’s Warehouse stores. It would be forced to retrench approximately 160 employees immediately. Also, the future viability of the business and the remaining employees would be at risk if the proposed injunction is granted.

16    Mr Dwyer also deposed to his concern that the respondent, as a foreign company with share capital of 100 and no apparent assets, would be unable to meet the usual undertaking as to damages.

17    By her affidavit sworn on 22 June 2012, Krystal Vanyi, of the solicitors for Paul’s, deposed that Mr Dwyer’s original concerns remained. Paul’s, which employed over 300 people, was unable to substitute in time any other stock for the Lonsdale Goods.

18    Paul’s was not meeting its benchmark budgeted sales for inventory purposes, had expenses such as marketing, advertising and stock purchases and its earnings were insufficient to meet its usual business expenses incurred prior to the proceedings.

19    Paul’s had also incurred additional expenses for storage and unpacking for examination due to Customs’ extended seizure of the Lonsdale Goods (amounting to $63,633 for a three month period) which were an expensive, burdensome and ongoing outlay.

20    Ms Vanyi deposed that although the judgment was interlocutory, the orders made on 8 June 2012 were in the nature of final relief and would affect Paul’s substantive rights.

21    Ms Vanyi deposed:

19    If leave to appeal is refused, then this matter would be required to proceed to trial on the issues of quantum before the applicants could file a notice of appeal to the matter as a whole. I estimate that the determination of the issues of quantum will take at least 4 month to 6 months.

20    I am instructed by Mr Paul Dwyer that the first applicant should be able to maintain adequate finances to fund an appeal on the issues of liability and to continue to operate its business without closing stores if the Application and the appeal proceeded on an expedited basis.

21    However, if leave to appeal were to be refused and any appeal delayed until next year, I am informed the first applicant would certainly have to close a number of its stores in order to fund its continued trading.

22    The applicants’ supplementary submissions updated the evidence, noting that the unsold stock was very substantial although it had been reduced by supplier reclamation. A reduced rate had been negotiated for warehouse storage, but costs remained substantial. Further, the loss of value of the winter stock depended on the expedition and speed of final disposition of the appeal.

Leave to appeal

23    Section 24(1A) of the Federal Court Act provides:

An appeal shall not be brought from a judgment referred to in subsection (1) that is an interlocutory judgment unless the Court or a Judge gives leave to appeal.

24    Although in this case the application was not opposed, leave to appeal must not be granted unless the court is independently satisfied that the necessary conditions are met. (Luck v University of Southern Queensland (2009) 176 FCR 268 (“Luck”) at 292).

25    The principles governing the grant of leave to appeal were not disputed. The test set out in Decor Corporation Industries Inc v Dart Industries Inc [1991] FCA 655; (1991) 33 FCR 397 (“Decor v Dart”), requires that:

i.    in all the circumstances, the decision at first instance is attended by sufficient doubt to warrant its reconsideration by a Full Court; and

ii.    substantial injustice would result if leave were refused, supposing the decision to be wrong.

26    In Johnston v Cameron [2002] FCAFC 251, Branson J observed, at [8];

This is not a case in which the exercise by the primary judge of discretion with respect to a point of practice and procedure is sought to be challenged. Rather, his Honour's decision, if allowed to stand, will have the practical effect of determining the claim of the Applicant to be entitled to an order under s 50 of the Federal Court Act. Leave to appeal is more readily granted in a case of this kind than in a case concerning practice and procedure only: Decor Corp v Dart Industries at FCR 400; Minogue v Williams (2000) 60 ALD 366 at [19] (FC)

27    In Welsh v Digilin Pty Ltd [2008] FCA 78 at [8], Collier J stated:

Previous decisions of this Court indicate that issues that are relevant as to whether a decision is attended by sufficient doubt to warrant reconsideration include the following:

— a decision may be of “sufficient doubt” where a contrary position is reasonably arguable (Tamberlin J in Johnston v Cameron [2002] FCAFC 251 at [65]) or the view taken by the trial judge is debatable (Davidson v Fesl [2005] FCAFC 183 at [22])

— leave to appeal is not necessarily granted simply because the reviewing court does not agree with every aspect of the trial judge’s reasons (Energex Ltd v Alstom Australia Ltd [2005] FCAFC 215 at [65]) and

— leave is more readily granted where substantive issues, rather than points of practice, are at issue (Rivera v United States of America [2004] FCAFC 154 at [13], M111 of 2003 v Minister for Immigration & Multicultural & Indigenous Affairs [2004] FCAFC 97 at [8]).

28    In Construction, Forestry, Mining and Energy Union v Radisich [2010] FCA 1004, McKerracher J stated that the tests for leave of sufficient doubt and whether substantial injustice would result “bear upon each other, so that the degree of doubt which is sufficient in one case may be different from that required in another. Ultimately, a discretion must be exercised on balancing of considerations” (at [17]).

29    In Luck, Rares J stated at [292] “[o]f course, each case [where leave is sought] must depend upon its own circumstances. Moreover, when the Court considers the question of the grant of leave to appeal, it will be attentive to the substantive context in which the primary judge determined the matter.”

Whether sufficient doubt

30    As reflected in the grounds in the draft notice of appeal, Paul’s challenges the trial judge’s decision on the following principal grounds:

1    The primary judge erred in finding on the evidence that the signs applied to the alleged infringing goods imported by the Second Appellant which were found to be substantially identical with or deceptively similar to certain of the Respondent’s Australian registered trade marks (Respondent’s Australian Trade Marks), were applied to those goods without the consent of the Respondent within the meaning of s 123 of the Trade Marks Act 1995 (TM Act).

2    The primary judge erred in holding that Punch GmbH was not licensed to apply the “Lonsdale London” and “The Original Lonsdale London” marks (reproduced in Annexure D to the reasons).

3    The primary judge erred in applying s 123 of the TM Act on the basis that the signs applied to the alleged infringing goods must be the Respondent’s Australian Registered Trade Marks, exactly as registered.

4    The primary judge erred in holding that the Champagne Heidsieck principle did not have the same application under the TM Act as it did in predecessor trade mark legislation.

31    Paul’s summarised its proposed case on appeal as follows:

1    Paul’s seeks a reversal of her Honour’s finding that the Lonsdale marks that had been applied to the goods imported by Paul’s were applied to the goods without the consent of Lonsdale Australia, which was the registered owner of the marks as at the date of importation and offering for sale. A number of bases for that ground are advanced. First, there was a concession by the respondent at trial that there was no relevant distinction between Lonsdale Sports and Lonsdale Australia. Secondly, it was plain on the evidence that Lonsdale Sports had granted a licence for a considerable term (which embraced the time at which the goods were made and the marks applied to them) to its European licensee, Punch GmbH, before assigning the marks for nominal consideration to Lonsdale Australia. Paul's submission will be that Lonsdale Australia took the marks subject to those previously granted licences; and that in any event-in circumstances where Lonsdale Sports and Lonsdale Australia are ultimately 100% commonly owned; their parents have common officers; they operate from precisely the same business address; the companies operate as a group; and the companies operate in such a way as to create shared international goodwill-that Lonsdale Sports continuing consent to the application of the marks by Punch GmbH should be taken as consent given by Lonsdale Australia.

2    Additionally, and contrary to her Honour's finding that on its proper construction the Punch GmbH licence did not extend to applying the "Lonsdale London" and the "original Lonsdale London" marks, the Lonsdale Sports/Punch GmbH licence included a licence of the LONSDALE word mark, which is the form that conventionally embraces all uses in all forms of the word mark. Moreover, her Honour found that the Lonsdale marks with the addition of “London” and “the original ... London" meant that they were different marks. Paul's will submit that only differences substantially affecting the identity of the mark should be taken into account, even assuming Her Honour's test is correct; and those difference [sic] do not meet that test. Moreover, design variations on the clothing were permitted by the Lonsdale Sports/Punch GmbH licence. Thus Paul's will submit that her Honour's finding that the Punch goods were, in effect, "counterfeit goods" is wrong; Paul's will also submit that Her Honour should not have made a finding of that sort without Punch being joined, and that if Punch was to be joined it fell to the respondent to do so (News Ltd v Australian Rugby Football League Ltd (1996) 64 FCR 410 at 523-527).

3    Paul’s will also submit that her Honour misconstrued s 123 of the TM Act, and (a matter that is also a subject of a pending special leave application to the High Court) that the principle found in the line of cases commencing with Champagne Heidsieck continues to apply in Australia.

(emphasis in original)

32    While Lonsdale Australia did not concede that the above factors cast doubt on the trial judge’s decision, it acknowledged that leave is more readily granted when the decision is akin to final relief.

33    In assessing whether there is sufficient doubt in the relevant sense, “the substantive context” of the primary decision (Luck) is relevant and the application should be considered “in all the circumstances” as required by Decor v Dart. In this case, there was an extremely expedited trial, it was not disputed that discovery was “very limited” and liability was determined separately from quantum. The need for a hearing on damages or the taking of an account (following which Paul's could appeal as of right) will be avoided if Paul’s succeed on appeal and the time and expense of the parties and the court's will be saved. It was also appropriate to weigh the degree of doubt against the substantial injustice that may result. Paul’s proposed case on appeal appeared on a preliminary assessment to be reasonably arguable. As (for the reasons set out below) I considered that substantial injustice would result if leave were refused but the primary decision were wrong, the necessary degree of doubt was reduced. In all the circumstances, I was satisfied there was sufficient doubt, in the relevant sense, to warrant reconsideration by a Full Court.

Substantial injustice

34    I was persuaded that there would be substantial injustice to Paul’s should leave to appeal be refused, as although the judgment is interlocutory (thus falling within the ambit of s 24(1E) of the Federal Court Act) the permanent injunction, declaration and delivery up orders made on 8 June 2012 were in the nature of final relief.

35    It was not disputed that the Lonsdale Goods represent an investment of millions of dollars by Paul’s. There was no challenge to Paul’s assertion that the interlocutory injunction, now permanent, all but wiped out the first applicant’s winter trade for 2012 and significantly diminished its income, causing it to operate on a diminished scale.

Expedited hearing of appeal

36    Further, in my opinion, expedition of the appeal was appropriate. Rule 36.11 of the Federal Court Rules 2011 (Cth) (“the 2011 Rules”) under which a party may apply for directions in relation to the management, conduct and hearing of an appeal, and s 25(2B)(c) of the Federal Court Act (conferring power to give directions about the conduct of an appeal) are a sufficient basis for an order for expedition, although the 2011 Rules contain no specific rule corresponding to O 52 r 37(1) of the former Federal Court Rules (Federal Court Rules 1979 (Cth)).

37    The matters giving rise to urgency were set out in the affidavits of Ms Vanyi and Mr Dwyer, which were updated by the supplementary submissions. Paul’s has incurred significant financial costs and burdens for the purchase of the goods and ongoing expenses which would not be recoverable even were the judgment below overturned. Further, as Lonsdale Australia is no longer subject to an undertaking as to damages Paul’s is without an avenue for compensation.

38    Lonsdale Australia asserted no prejudice should the appeal be expedited and did not oppose expedition. As North J observed in British American Tobacco Australia v Secretary, Department of Health & Ageing [2011] FCA 718 (at [7]), it is also necessary “to balance the consequences of refusing an order for expedition against the effect on other litigants waiting in the appeal list”. If not expedited, the appeal was, in the ordinary course, unlikely to be heard prior to the November 2012 sittings, while the financial impact on Paul’s would continue. I considered that the appeal should be expedited to the extent practicable in order to minimise the likelihood of the closure of stores, retrenchment of employees and jeopardy to the viability of the business.

Associate:

Dated:    6 July 2012