FEDERAL COURT OF AUSTRALIA

DRH Holdings (Australia) Limited v David Reid Homes Australia Pty Ltd [2012] FCA 1336

THE COURT DECLARES THAT:

1.    The second respondent infringed registered trade marks numbers 1026582 and 1026671 on and from 17 September 2009 and until and including 23 September 2009.

THE COURT ORDERS THAT:

2.    The second respondent pay nominal damages of $1 to the applicant.

3.    The second respondent be permanently restrained whether by himself, his servants, agents or any of them or otherwise howsoever, from:

(a)    infringing registered trade marks numbers 1026582 and 1026671; and

(b)    establishing, maintaining, accessing, redirecting or interfering in any manner with the following domain names or with the data published at the domain names www.davidreidhomes.com.au and www.davidreidhomes.com.

4.    The second respondent pay the applicant’s costs of this proceeding, so far as were incurred in respect of its claims against him, on an indemnity basis, to be assessed if not otherwise agreed.

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

REASONS FOR JUDGMENT

1    This is, in many ways, an unfortunate proceeding. It arose from a franchising dispute involving alleged infringements of trade marks, between the applicant on the one hand, and on the other hand David Reid Homes Australia Pty Ltd (“David Reid Homes”), and Mr Stephens and Mr Michael Baker who were directors of David Reid Homes. Proceedings against Mr Baker were discontinued by the applicant in August 2011 with no order as to costs. I understand that David Reid Homes entered liquidation on 4 June 2010 and that, accordingly, proceedings against that respondent have been stayed. It follows that the only remaining respondent to this proceeding is Mr Stephens, who was at one stage legally represented but by the final hearing on 14 March 2012 was acting in person.

2    It is apparent that the applicant has wished to discontinue the proceedings against Mr Stephens for some time. For that reason the parties attended mediation on or about 16 June 2011. However it is also apparent that the applicant and Mr Stephens could not agree upon the terms of discontinuance of the proceeding on that date. On 7 February 2012 the solicitor for the applicant, Mr Moriarty, informed the Court that his instructions were to consent to orders discontinuing the proceedings with no order as to costs. There was no appearance by Mr Stephens at that hearing. The key issue in dispute in relation to discontinuance has been, and, I understand, continues to be, liability for costs.

3    In the circumstances where the proceeding remains on foot, the applicant has not sought the leave of the Court to discontinue the proceedings against Mr Stephens, but rather has pressed for substantive, although minimal, relief, in the form of declaratory and injunctive orders, and nominal damages. Each party seeks payment of their own costs by the other, on an indemnity basis.

4    The proceeding before the Court bears some similarity to an application for judgment in the absence of the respondent, although Mr Stephens appeared at the final hearing and the applicant has not made an application in those terms. The similarity arises from the fact that although Mr Stephens has filed a Defence, he has made no submissions of any substance in defence of his position nor filed supportive evidence to contradict the submissions and extensive affidavit material filed by the applicant.

5    It is against this background that the Court is called upon to determine the application on its merits, as well as liability for costs.

6    Before turning to consider the orders sought by each party, it is necessary to consider the facts.

Background facts

7    The applicant is an international company currently incorporated in New Zealand, and registered in Australia as a foreign company. At all material times Mr David Reid was the sole director and local agent of the applicant.

8    The applicant developed and owns a business system for the supply, design and construction of houses (“the Business”). It is the registered owner of trade marks numbers 1026582 “David Reid Homes Raising the Standard” and 1026671 “David Reid Homes”, which are used in connection with its business.

9    On 1 April 2004 the applicant and David Reid Homes entered into a Master Franchise Agreement (“the Agreement”) pursuant to which the applicant granted David Reid Homes the right to operate the Business in Australia. Clause 8.1 of the Agreement provides:

The Master Franchisee shall at all times during the Term strictly comply with the Business System, the Image and the Manual and will carry on the Master Franchised Business in accordance with the Master Franchisee Standards.

10    In the Agreement, David Reid Homes was defined (in Schedule 1) as the “Master Franchisee”, and the business carried on by David Reid Homes in accordance with the Agreement was defined (in clause 1.1) as the “Master Franchised Business”.

11    Further key provisions of the Agreement for the purpose of this proceeding are clauses 9, 20, 21, 22, 27 and 28. Materially, they provide as follows:

9.    Master Franchisee’s General Duties and Obligations

…

9.2    Use of the Business System

(a)    The Master Franchisees shall use the Business System solely in the conduct of its activities pursuant to this Agreement.

(b)    the Master Franchisee acknowledges that the Master Franchisor is the owner of the Business System and that the Master Franchisee’s right to use the Business System is derived from this Agreement.

…

9.5    Unauthorised Representation

The Master Franchisee shall not make and the Master Franchisee shall procure that no member of the Master Franchisee’s staff makes any representations, statements or warranties about or concerning the Business System, the Network, the Products or Services other than those that are expressly permitted by this Agreement.

…

9.7    Computer System

At the commencement of the Master Franchise, and thereafter if reasonably required by Master Franchisor, the Master Franchisee shall, at the expense of the Master Franchisee:

(a)    install and operate in the conduct of the Master Franchised Business a computer system approved by the Master Franchisor; and

(b)    ensure that there is a communication link (approved by Master Franchisor) between the Master Franchisee and the Master Franchisor.

20.    Confidential Information

20.1    Confidential Information

(a)    Each party shall hold the Confidential Information of the other party in strict confidence and shall not disclose any of the Confidential Information of the other party to any person, except in accordance with clause 20.2 or, in any other case, on receiving the prior written consent of the other party.

(b)    Each party shall not make any use of the Confidential Information of the other party or any part of it except for the Permitted Purpose and, in any event, shall not make any use of the Confidential Information of the other party or any part of it to the competitive disadvantage or detriment of the other party.

(c)    Each party shall not without the prior written consent of the other party copy or duplicate the Confidential Information of the other party or any part of it except for the Permitted Purpose or otherwise in accordance with this Agreement.

…

20.2    Permitted disclosure

Each party may disclose the Confidential Information of the other party to its Permitted Third Parties if:

(a)    the disclosure is necessary solely for the Permitted Purpose; and

(b)    each party discloses to its Permitted Third parties that party’s confidentiality obligations under this Agreement and its Permitted Third Parties agree to keep the Confidential Information disclosed to them confidential.

20.3    Return and destruction of information

Subject to this Agreement, each party shall, immediately on termination of this agreement or on demand by the other party:

(a)    return to the other party all documents, reports, notes, memoranda, computer media and other material which record, contain or relate in any way to the Confidential Information of the other party (including all copies of them) and which were provided to or obtained by the party or prepared or made by or for or on behalf of the party as a result of or in connection with the Permitted Purpose;

(b)    delete entirely and permanently all of the Confidential Information of the other party from every computer disk or electronic storage facility of any type owned or used by the party or its Permitted Third Parties; and

(c)    notwithstanding any other provision of this Agreement, cease to make use of the Confidential Information of the master Franchisor or any part of it (other than for the Permitted Purpose),

and shall confirm in writing promptly when it has complied with these obligations.

20.4    Survival after Termination

The obligations and restrictions imposed under this clause continue after the termination of this Agreement.

21.    Intellectual Property

21.1    Ownership

The parties acknowledge that the Master Franchisor is the owner of the Intellectual Property, the Image and the Business System.

21.2    Use of Intellectual Property by Master Franchisee

The Master Franchisee shall use the Intellectual Property in relation to the Business System and the Network and only in a manner prescribed by the Master Franchisor from time to time.

…

22.    Use of Trade Marks

22.1    Rights in Trade Marks

(a)    The Master Franchisee acknowledges that the Master Franchisor owns all rights in the Trade Marks and has authorised the use of the Trade Marks by the Master Franchisee.

(b)    The Master Franchisor consents to the Master Franchisee granting to the Sub-Franchisees and Franchisees a right to use the Trade marks in accordance with the terms of the Sub-Franchise Agreement and Franchise Agreement.

(c)    Any and all goodwill which accrues from the use of the Trade Marks by the Master Franchisee shall accrue for the benefit of the Master Franchisor.

(d)    The Master Franchisee shall not:

(i)    breach, or encourage any breach of, the Master Franchisor’s rights in the Trade Marks;

(ii)    challenge the Master Franchisor’s rights in, or ownership of the Trade Marks; or

(iii)    use the Trade Marks for purposes outside the scope of this Agreement.

22.2    Master Franchisee’s Obligations

The Master Franchisee shall use the Trade Marks in accordance with the terms and conditions of this Agreement and shall comply with all reasonable directions issued by the Master Franchisor from time to time regarding the manner of use of the Trade Marks.

22.3    Infringement of Trade Mark

(a)    The Master Franchisor, Master Franchisee, Sub-Franchisee and Franchisee shall immediately give written notice to the other of any infringement or threatened infringement of the Trade Marks which may come to either party’s knowledge.

…

27.    Default and Termination

27.1    Immediate termination by the Master Franchisor

The Master Franchisor may terminate this Agreement and the Master Franchise immediately by giving written notice to the Master Franchisee upon the occurrence of any of the following:

(a)    fraudulent conduct by the Master Franchisee in connection with the Master Franchised Business including, without limitation:

(i)    a wilful and material falsification or error by the Master Franchisee of any report, statement or other written data furnished to the Master Franchisor; or

(ii)    a wilful deception of customers of the Master Franchisee or any Sub-Franchisees or Franchisees in connection with the operation of the Master Franchised Business;

…

(f)    the Master Franchisee voluntarily abandoning the Master Franchised Business; or

(g)    the Master Franchisee agreeing to terminate this Agreement.

27.2    Breach – 21 days Notice by the Master Franchisor

If the Master Franchisee:

(a)    fails to make any payment of money due to the Master Franchisor under this Agreement;

(b)    fails to submit when due any of the reports required under this Agreement; or

(c)    breaches its obligations under clauses 20 and 29 (including, but not limited to, the obligations not to disclose the Master Franchisor’s Confidential Information and other information and not to conduct another similar or identical business); and

such breach is not remedied within 21 days after the Master Franchisor serves a written notice on the Master Franchisee containing the following:

(d)    notice of such breach to the Master Franchisee;

(e)    advice of the action required to be taken by the Master Franchisee to remedy the breach (if the breach is capable of remedy); and

(f)    notice of the Master Franchisor’s intention to terminate the Agreement unless the breach is remedied within 21 days of the date of such notice,

the Master Franchisor may terminate this Agreement and the Master Franchised Business by giving written notice of such termination to the Master Franchisee immediately upon the expiration of such period of 21 days.

27.3    Breach – 30 days notice by the Master Franchisor

If the Master Franchisee commits a breach of this Agreement other than a breach referred to in clause 27.2, and such breach is not remedied within 30 days after the Master Franchisor serves a written notice on the Master Franchisee containing the following:

(a)    notice of such breach to the Master Franchisee;

(b)    advice of the action required to be taken by the Master Franchisee to remedy the breach (if the breach is capable of remedy); and

(c)    notice of the Master Franchisor’s intention to terminate the Agreement unless the breach is remedied within 30 days of the date of such notice,

the Master Franchisor may terminate this Agreement and the Master Franchised Business by giving written notice of such termination to the Master Franchisee immediately upon the expiration of such period of 30 days.

…

28.    Consequences of Termination

28.1    Cease to Operate the Master Franchised Business

(a)    Immediately upon termination of this Agreement the Master Franchisee shall cease to operate the Master Franchised Business and to use the Intellectual Property, the Patents, the Designs and the Trade Marks.

(b)    After termination the Master Franchisee shall not directly or indirectly represent to the public or hold itself out as a Master Franchisee or as being in any way associated with or related in any way to the Master Franchisor.

(c)    The Master Franchisee shall upon termination immediately cease to participate in the Network and cease to use the Business System and shall immediately take such action and make such modifications or alterations to the Master Franchised Business as directed by the Master Franchisor.

…

28.3    Return of Manuals and Confidential Information

On the termination of this Agreement the Master Franchisee shall return to the Master Franchisor all copies of the Manuals, any customer listings or other Confidential Information and all stationery or other materials.

12    “Confidential Information” is defined in clause 1.1 of the Agreement to mean:

(a)    all trade secrets, financial, accounting, marketing and technical information, customer supplier lists, ideas, concepts, know-how, technology, computer systems, processes and data bases, operating procedures, processes, knowledge (whether in material form or otherwise), any application or right to apply for registration of any of those rights and other information belonging to, used by, or relating to the party and their transactions, operations or affairs, including but not limited to;

(b)    all notes and reports incorporating or derived from information referred to in paragraph (a);

(c)    all copies of the information, notes and reports referred to in paragraphs (a) and (b);

(d)    all information treated or designated by the party as being confidential;

(e)    the right to have Confidential Information kept confidential; and

(f)    rights in relation to the Confidential Information.

13    “Network” is defined in clause 1.1 as meaning “collectively the Master Franchisor and all the Master Franchisees, Sub-Franchisees and Franchisees, and other agents or representatives of the Master Franchisor who are operating or supplying Franchised Businesses”.

14    “Permitted Third Parties” is defined in clause 1.1 to mean:

(a)    in the case of the Master Franchisee, the directors, officers and staff of the Master Franchised Business and the Master Franchisee’s legal, financial and accounting advisers; and

(b)    in the case of the Master Franchisor, the directors, officers and employees of the Master Franchisor and the Master Franchisor’s legal, financial and accounting advisers.

15    “Permitted Purpose is defined in clause 1.1 to mean “the operation of the Master Franchised Business in accordance with the terms of this Agreement”.

16    Mr David Reid, the sole director of the applicant, deposed in his affidavit sworn 28 September 2009 that from April 2004 he and Mr Baker acted to establish the infrastructure (including websites) of “David Reid Homes”, and that Mr Baker was responsible for setting up domain names for the entity. Mr Reid deposed further that in or about 2004 the website http://davidreidhomes.com was established and published, and in or about early 2008 the website www.davidreidhomes.com.au was established and published. It is not in dispute that those websites used the registered trade marks owned by the applicant. The registrant of both websites was the first respondent, David Reid Homes, although Mr Reid deposes that he had always understood that the websites were to have been registered to the applicant.

17    On or about 1 July 2007 Mr Stephens replaced Mr Reid as a director of David Reid Homes. On 20 September 2007 the parties to the Agreement entered into a Deed of Variation which varied the terms of the Agreement to, inter alia, increase the term of the Agreement and to reduce the royalty payments.

18    In or about October 2007 Mr Stephens and a company under his control (Stephen Luxury Homes) agreed to purchase from Mr David Reid and his wife 50% of the shares allotted in David Reid Homes. The parties executed a Share Sale Agreement to this effect. Mr Stephens subsequently executed a guarantee and indemnity in respect of the obligations of Stephen Luxury Homes under the Share Sale Agreement.

19    In or about November 2007 the applicant issued a document entitled “Procedure Manual for Master Franchisee” detailing procedures to be followed when carrying out the master franchise business. Materially, paragraph 3 of the Procedure Manual provided:

All financial or other data stored on the Master Franchisee’s computer system is to be accessible by the Master Franchisor or nominated parties.

20    On 23 October 2008 the parties to the Share Sale Agreement entered into a Deed of Variation which altered the payment structure and gave Stephen Luxury Homes more time to pay the amounts owing to Mr and Mrs Reid.

21    On 11 August 2009 Mr and Mrs Reid commenced proceedings in the Supreme Court of Queensland against Mr Stephens and Stephen Luxury Homes for money owing under the Share Sale Agreement.

22    On 17 August 2009 the applicant requested, and gave 30 days’ notice, that David Reid Homes provide information and access to the franchise systems relating to the Business.

23    On 15 September 2009 the applicant sent a letter entitled ‘Notices of Breach’ setting out breaches of the Agreement, to David Reid Homes. A Notice of Termination of the Agreement was subsequently sent to David Reid Homes on 17 September 2009. A copy of the Notice of Termination dated 17 September 2009, from the solicitors for the applicant and addressed to Mr Stephens and Mr Baker, is exhibited to the affidavit of Ms Emily Jane Anderson sworn 29 September 2009. This Notice provided as follows:

Dear Russell and Roy

NOTICE OF TERMINATION – ACCESS TO COMPUTER SYSTEMS

We refer to our letters of 12 August 2009 and 17 August 2009.

Our letter of 17 August 2009 clearly stipulated the requirement by you to provide access to the computer system as specified in our letter of 12 August 2009 as:

1.    Salesforce – access to view all of the office KPI’s, Opportunities, Construction and Reporting;

2.    Databuild – access numbers to all offices;

3.    Email account; and

4.    The Box – full access

within 30 days of the date of receipt of our letter dated 17 August 2009.

The time period for compliance with our notice of 17 August 2009 ended at 5pm (Australian time) Wednesday the 16th of September. Notwithstanding you have granted access to the Databuild System and Salesforce you have failed to provide access to the Email account and The Box as requested.

The Master Franchisor thereby gives you notice of termination of the Master Franchise Agreement in accordance with its rights to do so pursuant to clause 27.3 of the Master Franchise Agreement.

We refer you to the provisions of 28.1, 28.3, 28.4, 29.1, 29.2, 29.3, 29.4 of the Master Franchise Agreement relating to your requirements on termination.

Our client shall today be issuing a notice to all Sub-Franchisees and Franchisees advising them of the termination of your Master Franchise Agreement, effective from today the 17th day of September 2009.

24    Further notices of termination were sent by the solicitors for the applicant to the respondents on 18 September 2009 and 21 September 2009 (affidavit of Ms Emily Anderson).

25    There does not appear to be any dispute that both the applicant and Mr Stephens treated the Agreement as at an end on or from 17 September 2009, and that David Reid Homes ceased operating the Business on or about the same date.

26    There then followed events whereby it is clear that the applicant and participants in the franchise business in Australia were denied access to the business systems of the franchise. Mr David Reid in his affidavit sworn 28 September 2009, and Ms Donna Armstrong (the General Manager of the applicant) in her affidavit sworn 25 September 2009 depose as to what can only be described as frantic attempts on the part of the applicants to regain access to the DRH international website and the DRH Australian website from 17 September 2009 to on or about 25 September 2009 after websites integral to the Business had been redirected at the direction of the respondents, and business systems maintained by the Business redirected and access denied to franchisees, sub-franchisees and the applicant. Ms Armstrong deposed that neither she nor sub-franchisees, who were lawfully entitled to access the franchise’s email network and Databuild and Sales Force IT systems, were able to do so during this period (paragraphs 18, 20 and 21). Ms Armstrong also deposed that sub-franchisees lost all of their emails during this period because relevant information on the system server had been erased (paragraph 21).

27    Ms Armstrong deposed further that:

    on 19 September 2009 her administration rights to the website www.davidreidhomes were reactivated by Telstra, and the redirection to the website www.davidreidhomes.au cancelled; and

    on 21 September 2009 Mr Reid personally was registered as the owner of the website www.davidreidhomes.au.

Claim of the applicant

28    In its application filed 29 September 2009 the applicant sought the following relief:

1.    A declaration that the Master Franchise Agreement dated 1 April 2004 (“Master Franchise Agreement”) between the Applicant and the Respondent was duly terminated by the Applicant by letter dated 17 September 2009, or further or in the alternative by letter dated 18 September 2009;

2.    Damages for breach of the Master Franchise Agreement, to be assessed;

Trade mark relief

3.    An order that the first respondent, whether by itself, its servants, agents or otherwise howsoever, be restrained from the following acts, or any of them, that is to say:-

(a)    infringing registered trade mark nos. 1026582 and 1026671; or

(b)    subject to paragraph 8, establishing, maintaining, accessing, redirecting or interfering in any way with the following domain names or with the data published at the domain names:-

(i)    www.davidreidhomes.com.au;

(ii)    www.davidreidhomes.com.

4.    An order that the second and third respondents be restrained from aiding, abetting, counselling or procuring or in any way being directly or indirectly knowingly concerned in any conduct of the first respondent as described in paragraph 1 above.

5.    An order that the first respondent pay to the applicant damages in an amount to be assessed together with interest thereon pursuant to s 51A of the Federal Court of Australia Act 1976.

6.    An order that an inquiry be held to determine the nature and extent of the applicant’s loss and damage by reason of the respondent’s infringement of letters patent nos. 1026582 and 1026671 and to assess the quantum thereof.

7.    An order that the respondents pay the damages so assessed under pargraph 4. (sic)

8.    An order that the first respondent must, within 7 days of the date of this order, apply to the ASIC to change its company name to a name that is neither identical with nor deceptively similar to David Reid Homes Australia, pursuant to section 126 of the Trade Marks Act 1995 (Cwth).

9.    An order that the first respondent must, within 7 days of the date of this order and at its own expense, execute and lodge a duly completed Form 4 with the Queensland Office of Fair Trading transferring the Queensland registered business name, David Reid Homes Australia, BN19000315, to the Applicant or its nominee, pursuant to section 126 of the Trade Marks Act 1995 (Cwth).

10.    An order that the first respondent must, within 7 days of the date of this order and at its own expense, do all things necessary including executing all forms required to transfer ownership and registration of the internet domain names, www.davidreidhomes.com and www.davidreidhomes.com.au, to the Applicant or its nominee, pursuant to section 126 of the Trade Marks Act 1995 (Cwth).

Relief pursuant to the Master Franchise Agreement

The terms used in these orders have the meaning used on the Master Franchise Agreement.

11.    An order that the first respondent shall cease to operate the Master Franchised Business and to use the Intellectual Property, the Patents, the Designs and the Trade Marks.

12.    An order that the first respondent shall not directly or indirectly represent to the public or hold itself out as a Master Franchisee or as being in any way associated with or related in any way to the applicant.

13.    An order that the first respondent shall cease to participate in the Network and cease to use the Business System.

14.    Such further or other orders or relief as to the court seems fit.

15.    Costs.

B. CLAIM FOR INTERLOCUTORY RELIEF

…

29    On 1 October 2009 Logan J made interlocutory injunctive orders in the terms sought by the applicant, as well as timetabling directions to take the matter to final hearing.

30    The applicant filed a Statement of Claim on 6 November 2009. In summary, the applicant claimed that:

    The respondents breached provisions of the Agreement, in particular:

o    clauses 9.2 and 9.5, which (inter alia) require Master Franchisees to use Business Systems solely in the conduct of their activities pursuant to the Agreement, and to refrain from making unauthorised representations;

o    clause 21, which (inter alia) requires the Master Franchisee to use relevant intellectual property only in the manner prescribed by the applicant, and prohibits unauthorised alteration of relevant intellectual property;

o    clause 22, which (inter alia) prohibits the Master Franchisee from breaching the applicant’s rights in relevant trade marks; and

o    clause 28, which (inter alia) requires the Master Franchisee to return manuals, stationery, customer listings and other confidential information to the applicant upon termination.

    On or about 16 September 2009 David Reid Homes, by its directors Messrs Stephens and Baker, impeded the access of the applicant and its general manager (Ms Donna Armstrong) to the vital business systems of the franchise, and sabotaged the Business by (inter alia):

o    redirecting the applicant’s international website address (www.davidreidhomes.com) to its Australian website address (www.davidreidhomes.com.au);

o    redirecting the applicant’s international and Australian website addresses to a blog site http://bluemaumau.org/david_reid_homes, which contained defamatory remarks about the applicant and the business;

o    removing Ms Armstrong’s administration rights to the international and Australian websites, and changing the website host, to prevent correction of the misdirection;

o    emailing the provider of the franchise’s “Box.net” IT system seeking to close the account and alleging that Ms Armstrong was an ex-employee unlawfully seeking access to the account;

o    on Ms Armstrong’s evidence, preventing her and sub-franchisees from accessing the email network and Databuild and Sales Force IT systems from 18 September 2009 to on or about 25 September 2009, and wiping the system server such that all emails during that period were lost.

31    It is clear from both the applicant’s Application and the Statement of Claim that the primary relief sought by the applicant was against the first respondent, David Reid Homes. Relief sought against Mr Stephens and Mr Baker was in relation to claimed accessorial conduct.

Defence of Mr Stephens

32    Mr Stephens filed a defence on 11 December 2009. Materially, Mr Stephens pleaded:

    the applicant attempted or purported to terminate the Agreement on 17 September 2009 (pursuant to clause 27.3 of the Agreement) and 18 September 2009 (pursuant to clause 27.4(c) of the Agreement), however these attempts were ineffective. In particular, the attempt of the applicant to terminate the Agreement on 18 September 2009 was ineffective because the applicant failed to give David Reid Homes “reasonable written notice” for the purposes of clause 27.4(c) of the Agreement (paragraph 7(a)).

    Nonetheless, from on or about 17 September 2009 the applicant and David Reid Homes treated the Agreement as at an end (paragraphs 7(a)(viii) and 8(a)), and to that effect the Agreement was terminated by mutual consent of the parties and abandoned (paragraph 7(a)(ix)).

    on or about 13 September 2009 David Reid Homes changed the website host of the DRH Australia Website to WebCentral, in furtherance of the Master Franchised Business (paragraph 9). On 22 September 2009 the account with WebCentral was closed pursuant to clauses 20.3 and 28.1 of the Master Franchise Agreement (paragraph 14(b)).

    on or about 17 September 2009 before David Reid Homes accepted that the Master Franchised Agreement had come to an end, it caused the DRH international website to redirect to the DRH Australian website. This was done in order to enhance the image of the Master Franchised Business and in furtherance of the Master Franchised Business (paragraph 10).

    David Reid Homes closed the email account used to conduct the Master Franchised Business pursuant to clauses 20.3 and 28.1 of the Agreement (paragraph 11(b)).

    David Reid Homes ceased accessing data concerning the Master Franchised Business on various computer systems, namely Databuild, Sales Force and “the Box” after on or about 17 September 2009 (paragraph 11(c), (d), (e)). The Box.net account was closed on or about 22 September 2009 pursuant to clauses 20.3 and 28.1 of the Master Franchise Agreement (paragraph 14(a)).

Material before the Court

33    Although Mr Stephens’ Defence is before the court, no evidence was filed by Mr Stephens in support of his position, notwithstanding the order of the Court of 18 August 2011 that he do so by 9 December 2011. Further particulars of his Defence were filed by Mr Stephens on 3 June 2011, however they added little to Mr Stephens’ Defence and were in many respects vexatious, vague and argumentative. I note, simply by way of example, Mr Stephens’ first five responses to the applicant’s request for further and better particulars of his Defence, which were as follows:

1.    How do I find that out?

2.    This relates to ASIC

3.    (a)    How would I know this?

(b)    I suggest you ask the Applicant

4.    Ask the Applicant

5.    (a)    How Would I know?

(b)    Look it up in a dictionary

34    I also note that a number of Mr Stephens’ other responses of 3 June 2011 constituted allegations against Mr Reid which were potentially defamatory.

35    Further and more detailed particulars were filed by Mr Stephens on 16 August 2011. While they appear to represent an attempt by Mr Stephens to be less frivolous than on 3 June 2011 in responding the applicant’s request for further and better particulars, his answers are, nonetheless, argumentative, again potentially defamatory of Mr Reid, and (in my view) of little assistance in explaining his Defence.

36    At the hearing Mr Stephens’ oral submissions were brief, and, as I have already noted, he filed no written submissions. In summary, at the hearing Mr Stephens submitted as follows:

    He and the other respondents were subjected to bullying and intimidation by the applicant, and this conduct continues in the form of this litigation as a means of distraction from Supreme Court proceedings commenced by Mr Stephens against Mr Reid in the Supreme Court.

    Ms Donna Armstrong’s evidence should not be accepted, because although she was an employee of the respondents she was dismissed after it became clear that she was, in fact, working for Mr David Reid and passing information to him. Further, her affidavit is “full of lies and untrue”.

    He seeks “full reimbursement of the costs that I have endured as a result of this case” (transcript 14 March 2012 p 23 ll 43-44).

Consideration

37    In the circumstances, where the respondent before me has filed neither affidavit evidence (as previously ordered) nor submissions to support his Defence, I will endeavour to consider issues of substance which appear to be in dispute before turning to the orders sought by both parties.

38    It is clear that the primary issues in relation to which the applicant originally sought relief have been superseded by events, in particular the insolvency of the first respondent David Reid Homes. Placing to one side for the moment the issue of costs, the remaining contentious questions before the Court so far as concerns the applicant and Mr Stephens appear to be:

    whether the Agreement was validly terminated by the applicant, which then required compliance with obligations under the Agreement by the respondents including an orderly return to the applicant of property identified in the Agreement; and

    whether the applicant’s trade marks were infringed so as to warrant the relief sought by the applicant.

Was the Agreement validly terminated?

39    Mr Stephens admits at paragraph 7(a)(ix) of the Defence that the Agreement was terminated by mutual consent of the parties and abandoned on or about 17 September 2009. At paragraph 18 of his Defence however Mr Stephens denies as untrue the allegation in paragraph 17 of the applicant’s Statement of Claim, namely that the first respondent David Reid Homes breached the provisions of the Master Franchise Agreement and in particular clauses 9, 21, 22 and 28.

40    It is clear from such evidence as is before the Court that there was a dispute as to compliance with relevant obligations by David Reid Homes in the period prior to 17 September 2009. There is also evidence before the Court that the applicant had served a notice upon the respondents in accordance with clause 27.3 of the Agreement on 17 August 2009, and was entitled to terminate the Agreement in accordance with that clause in light of the failure of the respondents to comply with the notice.

41    Indeed there is evidence before the Court that Mr Stephens admitted that the Agreement had been terminated pursuant to the letter of 17 September 2009. I note in particular the copy of an email sent on 30 September 2009 at 2.54 pm from Mr Stephens to Mr Tony Glenn, the solicitor for Mr Darryl Ellis, the director of a franchise in New South Wales. This email is annexed to the second affidavit of Mr David Reid sworn 1 October 2009. In that email Mr Stephens states, so far as material:

… I am not sure if you are aware but David Reid Homes Australia Pty Ltd was terminated on Thursday 17th September 2009. As part of the MFA we are obliged to cease involvement in the network and allow the Master Franchisor to provide all services …

42    Further, and in any event, it does not appear to be in dispute that the first respondent abandoned the Business on or about 17 September 2009, which were further grounds for immediate termination pursuant to clause 27.1(f).

43    Accordingly, I am satisfied that grounds for immediate termination of the Agreement were substantiated, and that the applicant so terminated the Agreement on or about 17 September 2009.

44    It is clear from clause 28 of the Agreement that, upon termination, the Master Franchisee is subject to express obligations including the cessation of the Business, return of all property including intellectual property, and no further participation in the Network. Plainly, the first respondent did not comply with these obligations. There is evidence before the Court, in particular in the affidavits of Mr Reid and Ms Armstrong, that after the Agreement was abandoned, the deliberate actions of the respondents resulted in:

    redirection of the website www.davidreidhomes.com to the website www.davidreidhomes.com.au on or about 17 September 2009, which meant that all website enquiries directed to www.davidreidhomes.com were redirected to the Australian website under the control of the respondents;

    disconnection of the email network used by franchisees in Australia on or about 18 September 2009 by transfer of the account maintained by Web Central;

    denial of access to Databuild, the building estimating computer system used by all Australian franchisees;

    denial of access to Sales Force, the customer relations computer system used by all Australian franchisees; and

    denial of access to “The Box”, the David Reid Homes intellectual property storage facility maintained on a server in the United States.

45    Indeed there is no real denial of this by Mr Stephens – rather he claims in his Defence that he was entitled to engage in these activities pursuant (inter alia) to clauses 20.3 and 28.1 of the Agreement. In my view this claim is insupportable – once the Agreement terminated, which in my view it did on or around 17 September 2009, the respondents were not entitled to interfere with the systems which supported the Master Franchise and which were in fact the property of the applicant. The evidence supports findings that the respondents did so interfere.

Were the relevant Trade Marks infringed?

46    In his affidavit sworn 28 September 2009 Mr Reid deposes that the following trade marks were registered on or about 25 October 2004 to the applicant:

    registered trade mark “David Reid Homes” registration No. 1026671 in Australia; and

    registered trade mark “David Reid Homes Raising the Standard” registration No. 1026582 in Australia.

47    Copies of the trade marks are exhibited to Mr Reid’s affidavit. It is not in dispute that they were used on the websites www.davidreidhomes.com and www.davidreidhomes.com.au.

48    There is evidence before the Court in the affidavit of Mr Reid sworn 28 September 2009 and the affidavit of Ms Donna Armstrong sworn 29 September 2009 that over the course of several days following 17 September 2009 the respondents (either the first respondent through its directors Mr Stephens and Mr Baker, or Mr Stephens and Mr Baker individually) caused the websites with those trade marks to be redirected to prevent their use by the applicant or anyone else associated with the Business, and also to enable the respondents to make disparaging comments concerning the applicant on those websites, all of which was contrary to the terms of the Agreement. While it appears that the registrant of both websites was the first respondent, it is also clear that the website www.davidreidhomes.com related to the international activities of the applicant. Further, both websites used the trade marks of the applicant, and there is evidence that the ownership of both domain names was subsequently transferred to the applicant or Mr Reid personally.

49    Once the Agreement had been lawfully terminated, which it had, in my view, as from 17 September 2009, none of the respondents was entitled to use the applicant’s trade marks without authority. The conduct in which they engaged was clearly infringement of the applicant’s trade marks as contemplated by s 120 of the Trade Marks Act 1995 (Cth).

Relief

50    The applicant seeks only nominal damages against Mr Stephens by reason of his conduct in infringing the applicant’s trade mark, and permanent injunctions to restrain him from infringing the applicant’s trade marks and (inter alia) interfering with the websites www.davidreidhomes and www.davidreidhomes.au. In my view the applicant has substantiated its case for the grant of this relief.

Costs

51    So far as material in this proceeding, s 43 of the Federal Court of Australia Act 1976 (Cth) provides as follows:

Costs

…

(2)     Except as provided by any other Act, the award of costs is in the discretion of the Court or Judge.

(3)     Without limiting the discretion of the Court or a Judge in relation to costs, the Court or Judge may do any of the following:

…

…

(g)    order that costs awarded against a party are to be assessed on an indemnity basis or otherwise

52    The applicant in this case has been wholly successful against Mr Stephens. No grounds have been put forward which would warrant a departure from the usual approach of the Court in such circumstances, namely that costs follow the event: Hughes v Western Australian Cricket Association (Inc) (1986) ATPR 40-748.

53    In the usual case where costs follow the event, the Court generally awards costs to the successful litigant on a party and party basis although the Court has a wide and unfettered discretion to award costs on an indemnity basis: Colgate-Palmolive Company v Cussons Pty Limited (1993) 46 FCR 225 at 230-234; InterTAN Inc v DSE (Holdings) Pty Limited [2005] FCAFC 54 at [11]; De Alwis v Minister for Immigration and Multicultural and Indigenous Affairs [2004] FCAFC 77 at [6]. Before the Court orders indemnity costs against a party however, the case must exhibit special or unusual features to justify the Court exercising its discretion in this way: InterTAN Inc at [11].

54    Situations where the Court may be inclined to order indemnity costs against an unsuccessful party include where the proceeding continues in circumstances where the party properly advised should have known there was no chance of success (De Alwis at [7]; InterTAN Inc at [11]).

55    In this case I am satisfied that Mr Stephens ought to have known that his Defence had no chance of success. I take this view in light of the following:

    Mr Stephens conceded in his Defence that the Business had been abandoned by the respondents on 17 September 2009, and the Agreement effectively terminated. Further, there is evidence that Mr Stephens had communicated to third parties that the Agreement had terminated on 17 September 2009. It follows that there was no real dispute by Mr Stephens that the obligations of the first respondent on termination had arisen on that date.

    Mr Stephens’ claims in his Defence that the applicant’s websites were redirected, and that the Franchise’s email network and systems were closed down, pursuant to clauses 20.3 and 28.1 of the Agreement and “in furtherance of the Master Franchised Business”, are not supported by evidence or submissions, and do not withstand scrutiny.

    Mr Stephens’ Further and Better Particulars of Defence filed on 3 June 2011 contained irrelevant and potentially defamatory allegations against Mr Reid, and were otherwise, in my view, vague and argumentative.

    Mr Stephens did not file any affidavit evidence in accordance with orders of this Court of 18 August 2011.

56    Further, there is ample evidence before the Court that the applicant sought to discontinue its proceeding against Mr Stephens with no orders as to costs, that it had sought the consent of Mr Stephens to do so, and that Mr Stephens had refused to consent. While Mr Stephens is perfectly entitled to refuse to consent to discontinuance of proceedings against him in accordance with r 26.12 of the Federal Court Rules 2011 (Cth), the practical consequence of this approach has been the prolongation of litigation to which Mr Stephens had no real defence.

57    I have already noted that the primary claims of the applicant were against the first respondent, which litigation is now stayed. The claims against Mr Baker have been discontinued. Clearly, while the applicant is entitled to costs against Mr Stephens, those costs should not represent costs incurred by the applicant unless they relate to its claims against Mr Stephens. However in the circumstances I am also of the view that this case exhibits special or unusual features which justify the Court exercising its discretion to award costs on an indemnity basis.

58    In my view the appropriate order is that Mr Stephens pay the applicant’s costs of this proceeding, so far as were incurred in respect of its claims against him, on an indemnity basis, to be assessed if not otherwise agreed.

Associate:

Dated:    27 November 2012