FEDERAL COURT OF AUSTRALIA

Geneva Laboratories Limited v Prestige Premium Deals Pty Ltd (No 5) [2017] FCA 63

ORDERS

THE COURT ORDERS THAT:

1.    The applicants are to provide draft orders, accompanied by interest calculations, to reflect the conclusions reached in these reasons, including as to whether each of the damages (and interest) and costs awards should be in favour of both applicants jointly and severally, or just the second applicant (Union-Swiss), within 7 days of these reasons or such later period as may be directed.

2.    The respondents make any response to the form of orders and interest calculations proposed by the applicants within 7 days of service of a draft by the applicants.

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

REASONS FOR JUDGMENT

BROMWICH J:

1    The applicants seek compensatory damages (including reputational damages) and additional/exemplary damages and following default judgment given on 2 August 2016 in Geneva Laboratories Limited v Prestige Premium Deals Pty Ltd (No 4) [2016] FCA 867. The respondents did not specifically deny that the applicants had suffered loss. Pursuant to r 16.07(2) of the Federal Court Rules 2011 (Cth) any allegation that is not specifically denied is taken to be admitted. Moreover, the respondents did not deny that there was loss suffered in either written or oral submissions, but rather put the applicants to proof on quantum without adducing any evidence themselves.

2    Costs were awarded to the applicants against the respondents as a part of the 2 August 2016 default judgment. By an interlocutory application dated and filed 18 August 2016, the applicants seek a lump sum costs order in lieu of taxation pursuant to r 40.02(b) of the Federal Court Rules 2011.

3    These reasons are therefore concerned with the nature and quantum of damages and costs that should be awarded to the applicants. For the reasons below, pursuant to formal orders to be made in accordance with these reasons, the respondents are to pay, by way of joint and several liability:

(1)    compensatory damages in the sum of $475,000, comprising:

(a)    $425,000 for direct compensatory damages; and

(b)    $50,000 for reputational damages;

(2)    additional damages for trade mark and copyright infringement in the case of the first and fourth respondents and exemplary damages for passing off in the case of the second and third respondents in the sum of $212,500 (being half of the direct compensatory damages);

(3)    pre-judgment interest on the above damages; and

(4)    lump sum costs in the sum of $540,000 (excluding GST).

4    The applicants are directed to provide within seven days a calculation of simple interest on the above damages to the date of these reasons, and a daily dollar rate of simple interest to be applied thereafter until the final orders are made, to accompany a draft of the orders to be made in accordance with these reasons. Two sensible approaches could be that the applicants calculate prejudgment interest upon the same basis as calculated for the damages and costs hearing, or upon the above damages figures from 4 November 2013, being the midpoint of the ascertainable date range of infringing conduct derived from the importations of counterfeit Bio-Oil, the first importation on 4 March 2013 and the 19th importation on 5 July 2014, until the date on which final orders are made. However, the applicants may include interest calculations accompanying the draft orders upon any other basis that they wish to rely upon and justify. The respondents will then have seven days in which to respond to the proposed orders and interest calculations. The final orders will be made in Chambers without any further hearing or submissions unless either party satisfies the Court that this is necessary.

The orders giving rise to liability

5    The default judgment concerned importing and selling a counterfeit version of a skin care product known as “Bio-Oil”. On 9 September 2016, declarations and orders were made following delivery of the default judgment on 2 August 2016. It is convenient to reproduce the definitions (which are also adopted for this judgment) and declarations of 9 September 2016 because they frame the basis for the damages and costs orders now sought:

In these orders the following defined terms are used:

Andrew Christopher means the Fourth Respondent.

Bio-Oil means the skincare product to which the Bio-Oil Marks are applied with the knowledge, authority and licence of the First Applicant.

Bio-Oil Marks means each or any of the following registered trade marks:

(a)    registered Trade Mark No. 1540111 of the word “Bio-Oil”;

(b)    registered Trade Mark No. 1503757 of the word “Bio-Oil” and an image of horizontal stripes which form a drop; and

(c)    registered Trade Mark No. 1222258 which is a mark of the words “PurCellin Oil”.

Bio-Oil Works means:

(a)    the word “Bio-Oil” and an image of horizontal stripes which form a drop (being the composite image of Registered Trade Mark No. 1503757); and

(b)    the product insert that forms part of the Bio-Oil product and to which the Bio-Oil Marks are applied and which sets out information about Bio-Oil including its ingredients and application.

Counterfeit Bio-Oil has the same meaning as defined in the Statement of Claim.

Counterfeit Imports has the same meaning as defined in the Statement of Claim.

Notice of Seizure means the Notice of Seizure dated 17 March 2013 issued by the Australian Customs and Border Protection Service with Customs File Number: 2014/009397.

Prestige Premium Deals means the First Respondent.

Statement of Claim means the statement of claim filed by the Applicants on 1 June 2015.

United Prestige Clearance means the Second Respondent.

United Prestige Group means the Third Respondent.

THE COURT DECLARES THAT:

1.    Upon admissions which Prestige Premium Deals and Andrew Christopher are taken to have made, consequent upon non-compliance with orders of the Court, Prestige Premium Deals and Andrew Christopher have infringed the Bio-Oil Marks in contravention of section 120 of the Trade Marks Act 1995 (Cth) by importing and selling goods bearing trade marks as signs which were identical, substantially identical or deceptively similar to the Bio-Oil Marks in relation to goods in respect of which the Bio-Oil Marks are registered.

2.    Upon admissions which Prestige Premium Deals and Andrew Christopher are taken to have made, consequent upon non-compliance with orders of the Court, Prestige Premium Deals and Andrew Christopher have infringed the Bio-Oil Works in contravention of sections 36, 37 and 38 of the Copyright Act 1968 (Cth):

(a)    by reproducing or substantially reproducing or authorising the reproduction or substantial reproduction of the Bio-Oil Works;

(b)    by importing copies of the Bio-Oil Works into Australia for the purposes of, at least, sale or by way of trade offering or exposing for sale;

(c)    by reason that Prestige Premium Deals knew, or ought reasonably to have known at the time of the importation or sale, that if the copies of the Bio-Oil Works had been made in Australia that would constitute infringement of the First Applicant’s copyright.

3.    Upon admissions which Prestige Premium Deals, United Prestige Clearance, United Prestige Group and Andrew Christopher are taken to have made, consequent upon non-compliance with orders of the Court:

(a)    Prestige Premium Deals;

(b)    United Prestige Clearance; and

(c)    United Prestige Group,

have engaged in misleading or deceptive conduct in contravention of sections 18 and 29 of Schedule 2 to the Consumer and Competition Act 2010 (Cth); and

(d)    Andrew Christopher

has engaged in misleading or deceptive conduct in contravention of sections 18 and 29 of the Australian Consumer Law (NSW),

by making the following misrepresentations:

(i)    the Bio-Oil Marks were applied to the Counterfeit Bio-Oil and/or the Counterfeit Imports with the First Applicant’s licence or authority;

(ii)    the Counterfeit Bio-Oil and/or the Counterfeit Imports were of the same composition, quality and standard as genuine Bio-Oil;

(iii)    Prestige Premium Deals, United Prestige Clearance, United Prestige Group and Andrew Christopher were entitled to import into Australia and/or sell the Counterfeit Bio-Oil and/or the Counterfeit Imports;

(iv)    the Bio-Oil Marks were applied to the Counterfeit Bio-Oil and/or Counterfeit Imports with the knowledge, authority or licence of the First Applicant;

(v)    the First Applicant authorised Prestige Premium Deals, United Prestige Clearance, United Prestige Group and Andrew Christopher to sell or offer for sale the Counterfeit Bio-Oil and/or Counterfeit Imports;

(vi)    the Counterfeit Bio-Oil and/or Counterfeit Imports are genuine and not counterfeit Bio-Oil; and

(vii)    the Counterfeit Bio-Oil and/or Counterfeit Imports that Prestige Premium Deals, United Prestige Clearance, United Prestige Group and Andrew Christopher were importing, offering for sale and/or selling was genuine, parallel imported Bio-Oil.

4.    Upon admissions which Prestige Premium Deals, United Prestige Clearance, United Prestige Group and Andrew Christopher are taken to have made, consequent upon non-compliance with orders of the Court:

(a)    Prestige Premium Deals;

(b)    United Prestige Clearance;

(c)    United Prestige Group; and

(d)    Andrew Christopher,

have engaged in the tort of passing off by making the misrepresentations referred to in paragraph 3 above.

5.    Upon admissions which Andrew Christopher is taken to have made, consequent upon non-compliance with orders of the Court, Andrew Christopher:

(a)    aided, abetted, counselled or procured; or

(b)    induced, whether by threats or promises or otherwise; or

(c)    was directly or indirectly, knowingly concerned in or party to,

the contraventions by Prestige Premium Deals, United Prestige Clearance and United Prestige Group set out at paragraphs 1, 2 and 4 above.

6    The applicants submit, and I accept, that there is no basis or reason for assessing compensatory damages differently for the various causes of action. As the declarations reproduced above make clear, those causes of action are for misleading or deceptive conduct and passing off in relation to all four respondents, and trade mark and copyright infringement in the case of Prestige Premium Deals and Mr Christopher, with Mr Christopher also having been an accessory to the contraventions by all three corporate respondents in respect of trade mark infringement, copyright infringement and passing off.

Evidence

7    A number of the affidavits read and exhibits tendered provided evidence of the facts upon which the expert evidence as to damages and costs relied as a factual substratum. As none of those underlying facts were ultimately challenged, it is not necessary to detail that evidence in these reasons. The ultimate key evidence upon which the findings now made rely was:

(1)    affidavit of David Letschert, a director and senior executive office holder with the applicants, together with exhibits produced by him providing financial information (some of it the subject of confidentiality orders), general background and evidence as to the regard in which Bio-Oil is held in the market;

(2)    an expert report of John Temple-Cole on damages, together with oral evidence;

(3)    an expert report of Alyson Ashe on costs, together with oral evidence and some amendments provided after the damages and costs hearing;

(4)    affidavits of Nathan Mattock, the applicants’ principal solicitor, going to issues such as the lack of assets apparently held by the respondents, the history of aspects of the proceedings and costs;

(5)    a number of pages of what would have been the liability hearing court book but for the default judgment obviating the need for a liability hearing;

(6)    Customs documentation relating to importations of counterfeit Bio-Oil; and

(7)    samples of genuine and counterfeit 60 ml and 200 ml Bio-Oil, permitting a visual inspection and confirmation of the very high quality appearance of the counterfeit Bio-Oil.

8    The evidence of Mr Letschert, Mr Temple-Cole and Ms Ashe is given more detailed consideration below, as is parts of Mr Mattock’s evidence in relation to the lump sum costs application.

9    The respondents did not adduce any evidence in relation to damages or costs or anything else. There was limited cross-examination of Mr Temple-Cole and Ms Ashe, with most of their evidence not being challenged in any way. That cross-examination, apart from producing some relatively minor adjustments to the costs calculations, did not ultimately make any difference to the substance of the conclusions reached.

Evidence of David Letschert – affidavit sworn 14 October 2016

10    Mr Letschert has been a director of both applicant companies since about 2000. His role as a director of the first applicant (Geneva) since about 2000 has been to oversee and manage Geneva’s affairs and business interests, including in respect of Bio-Oil. He is also the chief operating officer and head of production at the second applicant (Union-Swiss). As head of production, he has full knowledge of all matters relating to ingredients, packaging material and production processes of Bio-Oil.

11    Mr Letschert deposes to the nature of the Bio-Oil trade marks consistently with the findings in the reasons for awarding default judgment which were drawn from the applicants’ pleadings. Geneva, as the registered owner of the trade marks, has exclusive licence arrangements with Union-Swiss for the use of Geneva’s trade marks for the purposes of manufacturing, distributing and selling Bio-Oil worldwide (except for certain African countries including South Africa), pursuant to which royalties are paid to Geneva in respect of sales.

12    Pursuant to the licence arrangements, Union-Swiss is responsible for manufacturing Bio-Oil for Geneva. Geneva requires Union-Swiss to comply with a range of controls and processes in relation to the manufacture of Bio-Oil, including the ordering of bottles and packaging from certain companies and various aspects of quality control as to packaging and shipping. Bio-Oil is only manufactured in South Africa and only under Union-Swiss’ control. Union-Swiss engages another company to perform the mixing and packaging of Bio-Oil as a contract filler and packer.

13    On 18 December 2008, Union-Swiss entered into an exclusive distribution agreement with Aspen Pharmacare Australia Pty Ltd (Aspen) for the distribution of Bio-Oil in Australia. Under that agreement, Union-Swiss manufactures Bio-Oil for sale in Australia and sells it exclusively to Aspen. Union-Swiss and Geneva do not sell Bio-Oil to any other entity for the purpose of distribution in Australia.

14    Union-Swiss operates a global extranet which is accessed by all authorised Bio-Oil distributors, including Aspen. All distributors are required to submit sales information, including the number of units sold, the sales value, the discounts given to purchasers and the amount spent on advertising and promotion on a monthly basis. As a result, Mr Letschert was able to produce detailed records of authorised Bio-Oil sales in Australia and related advertising and promotion expenditure. That information was provided to Mr Temple-Cole for the purposes of his damages calculations.

15    Bio-Oil has been sold as a skincare product since 1987, and has been sold in Australia since 2003. Bio-Oil is sold in three different sizes, being 60 ml, 125 ml and 200 ml. Mr Letschert produced sale volume figures for each of the calendar years from 2009 to 2014 and for 2015 up to August for each size of Bio-Oil sold to Aspen, and sold by Aspen in Australia, by reason of the entries made by Aspen via the Union-Swiss extranet. Again, that information was provided to Mr Temple-Cole for the purposes of his damages calculations. The damages claims by the applicants related only to 60 ml and 200 ml Bio-Oil.

16    Bio-Oil is sold in over 90 countries worldwide and has become the number one selling scar and stretch mark product in 20 countries since its global launch in 2002, including Australia, the United Kingdom, Italy, Malaysia, the Netherlands and New Zealand.

17    Data purchased from market research companies by Union-Swiss indicates that Bio-Oil was the number one selling skincare product across all categories in Australia for the years in which this data was obtained, being the years ending 31 December 2009 and 2010, the 12 months prior to 16 December 2012, the 12 months prior to 30 June 2013 and the 12 months prior to 29 June 2014.

18    A survey conducted in 2014 with pharmacists and a survey conducted in 2015 with doctors, dermatologists and gynaecologists named Bio-Oil as the product most recommended by doctors and pharmacists for scars and stretch marks. The 2015 survey indicates that of 120 doctors who were surveyed, 57% recommend Bio-Oil for stretch marks, 46% recommend Bio-Oil over other products which are intended to improve the appearance of stretch marks, 61% recommend Bio-Oil for scars and 38% recommend Bio-Oil over other products which are intended to improve the appearance of scars.

19    Mr Letschert’s affidavit deposes that as at 14 October 2016, Bio-Oil had received 13 awards in Australia since 2009, including awards such as the ‘Priceline Pinky Award’ which is awarded based on online votes cast by customers of the Priceline pharmacy chain.

20    The undisputed effect of Mr Letschert’s evidence is to establish a real and substantial reputation for Bio-Oil in Australia, as well as providing a sound factual substratum for the damages calculations made by Mr Temple-Cole.

21    Mr Letschert deposes to the introduction of new text and artwork for Bio-Oil bottles and packaging in about 2000, which remained in place at all relevant times. He also deposes in some detail to the differences in text and packaging between genuine and counterfeit Bio-Oil. It is not necessary to detail what those differences are, save to observe that they would not be readily apparent to a consumer or a pharmacist with reasonable attention to detail who compared a genuine and counterfeit product, let alone to any consumer or pharmacist who saw only the counterfeit product.

Direct compensatory damages

22    The counterfeit Bio-Oil supplied by or on behalf of the respondents was the product of a sophisticated counterfeiting operation, at least targeting Australia, if not other parts of the world. That is a circumstance that significantly distinguishes this case from many other intellectual property cases in terms of scale and sophistication. This was a serious, planned and protracted attack on the applicants’ intellectual property rights, inflicting real and measurable damage upon them, as well as a sound basis to infer damage beyond that which was readily measurable. In a practical sense, the applicants had no alternative but to litigate this case and related cases against retail pharmacies who dealt with the respondents with some vigour. The alternative would have been effectively to surrender their intellectual property rights, perhaps permanently.

23    In Paramount Pictures Corporation v Hasluck [2006] FCA 1431; (2006) 70 IPR 293, an assessment of damages was carried out for trade mark infringement. While the case resulted in nothing more than nominal damages, the judgment at 300 [34] endorsed in summary form a list of principles for the infringement of patents set out in Gerber Garment Technology Inc v Lectra Systems Ltd [1995] RPC 383 at 393, which included that damages are compensatory only and that the burden of proof lies on the plaintiff (here applicants), but damages are to be assessed liberally. These principles were apparently originally sourced from General Tire & Rubber Co v Firestone Tyre & Rubber Co Ltd [1975] 2 All ER 173 at 177.

24    In Paramount Pictures there was an insufficiency of evidence in circumstances in which the basis for quantification of loss was within the knowledge of the applicant. This was expressly contrasted with the situation which prevails in this case of lack of cooperation and even obstruction on the part of the respondents. On that topic it was observed in Paramount Pictures at 302 [42]:

… Speculation and even guesswork may have a role to play where the relevant evidence is inaccessible to the applicant. That is particularly so where the inadequacy of the evidence is caused by a recalcitrant or uncooperative respondent or one who has kept no adequate records of dealings. …

25    The reference in the above quote to speculation and guesswork was drawn from the prior Full Court decision in Enzed Holdings Ltd v Wynthea Pty Ltd (1984) 4 FCR 450 (as reported more fully in (1984) 57 ALR 167 at 183.6).

26    As the summary of the evidence below makes clear, the applicants’ case for damages is advanced upon the basis of lost profits by reason of sales lost to counterfeit product substitution. In some cases, that can be a very difficult basis for the injured party to succeed, because of the inherent difficulties in establishing with sufficient clarity the counterfactual of what would have occurred had the contravening conduct not taken place. Elwood Clothing Pty Ltd v Cotton On Clothing Pty Ltd [2009] FCA 633; (2009) 81 IPR 378 was such a case where certain parts of the damages case brought only succeeded to a nominal extent because of such difficulties as showing true substitution of the infringing product. The result was success as to about a quarter of the damages claimed.

27    In Norm Engineering v Digga Australia [2007] FCA 761; (2007) 162 FCR 1 at 70-1 [266]-[271], five steps were identified for a loss of profits assessment, being to:

(1)    examine the number of sales by the infringer;

(2)    assume that the infringer was trying to capture sales from the injured party/market leader;

(3)    assume the number of sales actually made by the infringer is equal to the number of sales lost by the injured party/market leader;

(4)    discount that number to reflect the fact that not all sales can be considered sales lost by the injured party; and

(5)    apply any further discount necessary to reflect the particular circumstances of the conduct.

The final mathematical step is to multiply the discounted figure for lost sales by the injured party/market leader’s profit margin.

28    In this case some of the above limitations or discounting that may be necessary properly to arrive at a fair and not excessive loss of profit assessment has limited application in this case. That is because of the high quality of the counterfeit Bio-Oil and the fact that it was sold in retail pharmacies. Genuine Bio-Oil was sold through retail pharmacies pursuant to the sole distributor arrangement with Aspen. Apart from some significant price discounting for the counterfeit product there was nothing to alert any consumer that they were buying anything other than the genuine product.

29    Even the applicants relied upon laboratory testing to be sure that what they were dealing with was counterfeit product as opposed to genuine product sourced from somewhere else in the world with counterfeit packaging, contrary to the exclusive licensing arrangements with Aspen (although the applicants probably still would have relied on chemical testing because that proved the product itself was counterfeit, not just its packaging).

30    For the preceding reasons, an expert evidence assumption for damages purposes of unit-for-unit substitution between counterfeit product sales and forgone genuine product sales was sound and reasonable. That assumption was not challenged by the respondents. In the language of tort, the sale of counterfeit product was almost certain to have been completely successful in being passed off as genuine product, with the difference only being truly knowable at the level of chemical testing. That circumstance, along with the quality of the evidence relied upon by the applicants, made the compensatory damages evidence and assessment for loss of profit considerably easier than might otherwise have been the case.

31    Elwood and Norm Engineering reveal that the degree of success or failure on a damages claim involving intellectual property infringements or related contraventions turns more on questions of sufficiency of evidence than issues of principle, which are well-established and largely uncontroversial. As the analysis of the evidence led by the applicants below makes clear, they have led sufficient evidence to permit a reasonably reliable assessment of loss of profits.

Evidence of John Temple-Cole, forensic accountant, on compensatory damages quantum – report dated 30 October 2015

32    Mr Temple-Cole is a chartered accountant and Partner of KordaMentha, chartered accountants. He has considerable accounting experience, including in forensic accounting. He was retained by the solicitors for the applicants and prepared a detailed report, including tables and schedules in both the body of the report and in appendices. No objection was taken to the tender of his report. Nor was any issue taken with the factual substratum upon which it was based. The challenges to his report by way of cross-examination and submissions were in a very limited compass and did not assert that there was any substantial basis upon which this Court could or should decline to accept the veracity of the calculations and numerical conclusions reached, as opposed to the sufficiency of that evidence to prove the extent of loss, which was the substance of the respondents’ case.

33    There were a small number of adjustments to Mr Temple-Cole’s evidence, which had a marginal effect on the dollar amounts. I nonetheless consider that I must independently satisfy myself of the soundness of his approach in order to rely upon his calculations (there being no issue raised of an arithmetic nature beyond the adjustments already referred to).

34    Mr Temple-Cole’s overall approach was to use financial data supplied by the applicants to ascertain gross (profit) margins and fixed and variable costs associated with the supply of Bio-Oil to Aspen for on sale in Australia, in order to arrive at a percentage figure for profitability for Union-Swiss in relation to the sale of legitimate Bio-Oil to Aspen. He then carried out calculations in two different ways concerning the volumes of counterfeit Bio-Oil obtained by the respondents, or at least obtained by the first respondent (Prestige Premium Deals) for the benefit of all four respondents. The first method was to use data as to the importation of counterfeit Bio-Oil as a measure of sales forgone by Union-Swiss to Aspen.

35    The second method was to use payments made by Prestige Premium Deals for the importations it received and apply the profitability figure for Union-Swiss to that amount. Before turning to those calculations, it is necessary to give consideration to the appropriate measure of profitability for Union-Swiss in relation to Bio-Oil as that applies to both methods of calculation.

Union-Swiss profitability in relation to Bio-Oil

36    Mr Temple-Cole, in calculating Union-Swiss’ profitability, did not bring to account any fixed costs upon the basis that he considered that for “companies operating with a set of fixed costs, the volume of sales … has no impact on those fixed costs, so in other words the fixed costs remain as is …”. That is, his evidence was that the appropriate methodology for the calculation of loss in the application of his accounting expertise was to deal only with marginal revenue and marginal cost.

37    Mr Temple-Cole’s instructions were that there was no saving on fixed costs by reason of the respondents’ conduct. That is, any reduction in sales to Australia did not produce any corresponding reduction in fixed costs. Counsel for the respondents did not take any substantial issue with this approach, although he endeavoured to take some advantage of questions from the Court on this topic to suggest that disregarding the totality of fixed costs was not appropriate.

38    On the evidence before the Court it was appropriate in this case not to bring to account any fixed costs. The lack of any reduction in fixed costs arising from lost sales in Australia is reinforced by having regard to the list of 90 countries to which Bio-Oil was exported, including major markets such as Canada, China, France, Germany, Hong Kong, India, Indonesia, Japan, Mexico, the Netherlands, the Philippines, the Russian Federation, South Korea, Spain, Sweden, Switzerland, the United Kingdom, and the USA. The Australian market represented a relatively small proportion of the total volume of Bio-Oil produced and sold by Union-Swiss, involving only additional marginal cost, or at least only insignificant additional fixed costs. Even if that conclusion is wrong, there was no injustice to the respondents in failing to adjust the profitability figures to account for what at most would have been a very small share of total fixed costs attributable to substituted sales by way of counterfeit sales, to the point of being de minimus.

39    The soundness of not bringing to account any share of fixed costs in the damages calculations is confirmed by an examination of the sales and fixed costs figures set out in appendix C.1 to Mr Temple-Cole’s report in Australian dollars. Applying the figures for 2013, the first year in which contraventions occurred, the Australian share of Union-Swiss’ worldwide sales was about 10%, dropping to 6% in 2014 before starting to rise again to about 8% in the first eight months of 2015. While not directly shown to be causally related, as would be unlikely, the recovery in sales took place after proceedings had commenced against the respondents in April 2014, following the March 2014 detection and seizure of counterfeit Bio-Oil. Three further importations of counterfeit Bio-Oil took place in April, May and July 2014. The applicants filed their initial statement of claim in June 2015.

40    The drop in the Australian share of worldwide sales from about 10% in 2013 to about 6% in 2014 was likely to have been at least contributed to by the counterfeit importations and sales, a factor which I take into account on the more speculative question of additional damages. Union-Swiss’ fixed costs were about 7% of worldwide sales in 2013. Prestige Premium Deals’ purchases of counterfeit Bio-Oil were something approaching, but below, 10% of legitimate sales of Bio-Oil to Aspen. In dollar terms, the fixed cost component of counterfeit purchases, treated as though they had been legitimate purchases, becomes a very small figure overall, in the order of $5,000 spread across the totality of counterfeit importations. These figures support the conclusion that it was reasonable and acceptable for Mr Temple-Cole to disregard fixed costs in his loss calculations.

First damages calculation method: volume of counterfeit Bio-Oil importations as a measure of sales forgone

41    In relation to the volumes of Bio-Oil imported by Prestige Premium Deals for its benefit and the benefit of the other three respondents, Mr Temple-Cole identified 21 individual importations from Customs records in the period from 4 March 2013 to 5 July 2014. Each importation had a dollar value. As a result of an examination of those importations, he concluded that there were two instances of duplication where there was a corresponding importation of the same value (in US currency), reducing the number of importations under consideration to 19.

42    Of those 19 importations, only four disclosed known quantities of “Bio-Oil” (in fact counterfeit) being imported, being importations which took place on 4 March 2013, 4 May 2013, 7 August 2013 and 9 March 2014. Out of the remaining 15 importations, there was only a dollar value for the importation without any indication of volume. In four of those 15 importations the imported product was described as “Bio-Oil”. In the remaining 11 importations, three had a product description of “skincare products”; three had a product description of “skincare”; and five had disparate descriptions of “skincare preps”, “other skincare preparations”, “body lotion”, “skincare/cosmetic” and “skincare lotion”.

43    The applicants submitted that I should infer that the 11 importations by Prestige Premium Deals not expressly marked as being that of “Bio-Oil” (in fact counterfeit), in common with the eight importations that were so described, were also in fact importations of counterfeit Bio-Oil. The proven factual basis for such an inference is not especially strong, being prima facie reasonable, but not a great deal more. However it was something easily able to be rebutted by the respondents, or at least on behalf of Prestige Premium Deals, if that was not the correct inference to draw. The question is whether that is an inference that can safely be drawn in all the circumstances.

44    As was pointed out in Weissensteiner v The Queen (1993) 178 CLR 217 at 227.7 (per Mason CJ, Deane and Dawson JJ):

… when a party to litigation fails to accept an opportunity to place before the court evidence of facts within his or her knowledge which, if they exist at all, would explain or contradict the evidence against that party, the court may more readily accept that evidence. It is not just because uncontradicted evidence is easier or safer to accept than contradicted evidence. That is almost a truism. It is because doubts about the reliability of witnesses or about the inferences to be drawn from the evidence may be more readily discounted in the absence of contradictory evidence from a party who might be expected to give or call it.

45    Weissensteiner has been somewhat confined in its operation in criminal proceedings by the subsequent High Court cases of RPS v The Queen [2000] HCA 3; (2000) 199 CLR 620 and Azzopardi v The Queen [2001] HCA 25; (2001) 205 CLR 50. Both Azzopardi and RPS were New South Wales cases in which s 20 of the Evidence Act 1995 (NSW) applied and was material, being in identical terms as s 20 of the Evidence Act 1995 (Cth). The principle emerging from those cases was that Jones v Dunkel (1959) 101 CLR 298 does not apply in criminal cases without taking into account the right to silence. However those limitations have no application to civil cases. The underlying principles in Weissensteiner have recently received renewed currency even in criminal cases, at least in non-Uniform Evidence Act jurisdictions: see R v Baden-Clay [2016] HCA 35; (2016) 334 ALR 234 at 242-3 [50].

46    In Azzopardi, Gleeson CJ observed at 61 [18], albeit in dissent, that there were reasons why it may be dangerous to treat a criminal accused’s silence “in the same way as one would treat the silence of a party to civil litigation”. The majority in Azzopardi observed at 64-5 [34] that the accusatorial process for a criminal trial differs radically from a civil proceeding in that the general rule that an accused cannot be expected to give evidence has no application to civil proceedings, and in civil proceedings there will very often be an expectation that a party would give or call evidence (citing RPS).

47    In this case, the respondents had ample notice that an inference would be sought to be drawn that importations by Prestige Premium Deals which were not expressly identified as being of Bio-Oil were in fact counterfeit Bio-Oil importations. They had more than sufficient opportunity to adduce rebutting evidence, if such evidence existed. It follows that there is no reason to limit the full effect of the quote from Weissensteiner above. That is, it is appropriate to apply Weissensteiner reasoning to the failure of the respondents either to give evidence pertinent to the damages issues or otherwise to explain any part of their conduct (except for the limited explanation advanced for failure to comply with the Court’s orders in the default judgment hearing).

48    In those circumstances and having regard to other features of the importations, such as common suppliers for some of the importations expressly identified as being counterfeit Bio-Oil and importations not so expressly identified, and also having regard to evidence as to the scale of sales of counterfeit Bio-Oil being carried out by the respondents, it is a safe and proper inference to draw that the unnamed 11 importations were also importations of counterfeit Bio-Oil. That conclusion is fortified by there being no evidence before this Court to suggest that the respondents were importing any other brand or type of skincare product, whether genuine or counterfeit.

49    Mr Temple-Cole used the information available from the four importations with known quantities and consignment costs to calculate a price per millilitre of counterfeit Bio-Oil for each importation. That price varied for each of those four importations. The supplier for the first two importations out of the four quantified importations was Cats Media Inc. The 4 March 2013 Cats Media Inc importation calculations produced a price per millilitre of $0.107. The 4 May 2013 Cats Media Inc importation calculations produced a price per millilitre of $0.110. The calculations for the 7 August 2013 importation supplied by Sian Trading Company produced a price per millilitre of $0.043. The calculations for the 9 March 2014 importation supplied by Primo Deals Limited produced a price per millilitre of $0.021.

50    Mr Temple-Cole reasoned that because:

(1)    there were no further supplies by Cats Media Inc after a third supply on 4 May 2013;

(2)    there were no further supplies by Primo Deals Limited at all;

(3)    the respondents would be unlikely to have imported at a higher price than they had to; and

(4)    Sian Trading Company was the supplier for six out of the 15 consignments without known quantities,

it was reasonable to use the price per millilitre derived from the known quantity supplied by Sian Trading Company on 7 August 2013 of $0.043 per millilitre, being a little under half of the highest cost and a little over double the lowest cost.

51    Mr Temple-Cole’s reasoning in this regard was sound and reasonable. This was an appropriate course to take in estimating the volumes of Bio-Oil importations for the 15 consignments where no quantity information was supplied in the documentation supplied to the Australian Customs Service (however it was described at the time). No argument was advanced on behalf of the respondents to the contrary, quite possibly because such an argument was difficult to muster.

52    Mr Temple-Cole then applied the price per millilitre of $0.043 to the consignment amounts for the 15 consignments that did not have a quantity, but did have a total cost, in order to arrive at an estimate of the quantity of Bio-Oil imported at that time. That enabled Mr Temple-Cole to estimate the volume of sales forgone by Union-Swiss to Aspen.

53    It was reasonable in all the circumstances for Mr Temple-Cole to operate upon the assumption that unit-for-unit substitution between counterfeit Bio-Oil sold to Prestige Premium Deals for the benefit of all of the respondents and then on sold to pharmacies, and genuine Bio-Oil that could or would otherwise have been sold or supplied by Aspen to the same pharmacies, was very likely. The popularity of Bio-Oil and the quality of the counterfeit product in terms of appearance, both identified above, also makes that a tolerably safe assumption upon which to proceed. The fact that the evidence also indicates steep discounts for the counterfeit Bio-Oil as against the recommended retail price for the genuine Bio-Oil does not provide any sufficient basis to doubt that conclusion because the pharmacies had to meet demand for a popular product.

54    The kindest way to view the conduct of the participating pharmacies in the conduct by the respondents or at least Prestige Premium Deals was opportunistic, if not wholly complicit. The cheaper price able to be offered for the counterfeit product simply made dealing with Prestige Premium Deals (or the respondents) even more profitable. It did not detract from the reasonableness of an assumption of unit-for-unit substitution.

55    Once Mr Temple-Cole was able to arrive at a total volume of genuine Bio-Oil sales forgone by Union-Swiss to Aspen, he was similarly able to arrive at a loss of profit from the forgone sales. It is not necessary for me to detail here the profit margin calculations. It suffices to say that I have considered those calculations and in the absence of any criticism of them by counsel for the respondents (acknowledging that any such criticism was difficult to sustain), and being unable to discern any error in reasoning (noting also the issue of fixed costs dealt with above), I am satisfied that the approach taken is sound and the conclusions arrived at are a reliable basis upon which to proceed to a finding as to loss on this method of calculation. This method produced a net loss to Union-Swiss of $521,136, before other deductions discussed below.

56    This figure of $521,136 was arrived at by calculating a net profit per millilitre of [xxx] for importations in 2013 and a net profit per millilitre of [xxx] for importations in 2014, based on the profitability at that time of sales from Union-Swiss to Aspen. Those figures were then applied to quantities estimated for the 15 importations where the quantities were not known. Mr Temple-Cole’s calculations produce a loss for importations with known quantities of Bio-Oil of $121,163 and a loss for importations with unknown quantities of Bio-Oil of $399,973 producing a total loss of $521,136.

Second damages calculation method: Union-Swiss profitability applied to payments made for the importations of counterfeit Bio-Oil

57    The second method used by Mr Temple-Cole not only represents an alternative way of arriving at a loss figure, but also provides a measure of reassurance as to the soundness of the first method. This second method did not have any direct regard to the volumes imported, but rather worked off the gross figure paid to suppliers by Prestige Premium Deals (a total of $681,309) and made the reasonable assumption (of the kind referred to above in relation to unit-for-unit substitution) that had that same amount of money instead been paid to Aspen, the profit to Union-Swiss could readily be calculated. I am similarly satisfied that those calculations are sound and are a safe basis upon which to proceed. This method produced a gross loss to Union-Swiss, before other deductions discussed below, of $504,168.

58    This figure of $504,168 was arrived at by applying an average gross (profit) margin for 2013 and 2014 of [xxx] to produce a gross profit of [xxx], less operating expenses (marginal cost) estimated as being [xxx] of sales value [xxx] based on data from Union-Swiss supplied to Mr Temple-Cole.

59    Submissions made on behalf of the respondents were to the effect that, if the Court was satisfied some loss had occurred, the lower figure should be awarded. I am satisfied loss has occurred. In relation to which figure should be adopted, I note that in the overall scheme of things, the difference between the first method figure of $521,136 and the second method figure of $504,168 is not substantial. Rather, the substantial similarity between the two figures operates as something of a check and reassurance on the general soundness of the calculation process.

Other calculations to be taken into account

60    Independently of calculations based upon the total identified importations by Prestige Premium Deals referred to above, Mr Temple-Cole also carried out two further sets of calculations. The first of these additional calculations related to losses arising from counterfeit Bio-Oil seized as a result of Anton Piller orders executed against individual pharmacy retailer respondents in other proceedings by which a total of 634 units of 60 ml Bio-Oil and 7,269 units of 200 ml Bio-Oil were seized.

61    The second of these additional calculations related to losses arising from counterfeit Bio-Oil purchased by the same individual respondent pharmacy retailers, who were respondents in other proceedings, being a total of 6,600 units of 60 ml Bio-Oil and 16,032 units of 200 ml Bio-Oil. Mr Temple-Cole properly acknowledged that the Anton Piller seizures in the first of these additional calculations were necessarily a subset of the purchases by the pharmacies in the second of these additional calculations. He also subtracted the sum of $87,500 recovered from pharmacy respondents from the losses in this category.

62    Mr Temple-Cole also properly acknowledged that his instructions were that the units of Bio-Oil obtained by the individual pharmacies may already be included in the importations that form the imported counterfeit Bio-Oil referred to earlier in these reasons, but that there was insufficient information to confirm this. However the final position is that there was no evidence or any other proper basis by which to exclude the more than reasonable possibility that the counterfeit Bio-Oil purchased by individual pharmacy retailers, including the subset that was seized from them by way of Anton Piller orders, was part of the importations paid for by Prestige Premium Deals and therefore forming part of the above calculations. Indeed, in the absence of any evidence as to any other source, such as additional importations, for the counterfeit Bio-Oil obtained by the individual pharmacies from any of the respondents, it is highly likely that the Bio-Oil purchased by the individual pharmacies did indeed come from the importations made by Prestige Premium Deals detailed above.

63    In all the circumstances, the only proper course was to exclude both of these additional sets of calculations from the compensatory damages award in order to be confident that there has been no double-counting on compensatory damages. This course was not able to be strenuously opposed by senior counsel for the applicants, entirely proper concessions having been made in this regard. The recovery of damages from the pharmacies in the sum of $87,500 must therefore be brought to account and deducted from the compensatory loss award.

64    A separate and relatively minor additional claim for damages was for royalties lost by Geneva by reason of payments not received by Union-Swiss. However the only way in which such royalties can be allowed is by deducting them from the award in favour of Union-Swiss because in its hands that was an additional expense, ordinarily coming out of the proceeds of sale to Aspen. I consider that the preferable course is to award damages excluding the royalties amount (which in any event was less than $4,000) and leave Union-Swiss to account to Geneva from the damages award in relation to any lost royalties.

65    It remained legitimate and proper for Geneva to be a party to the proceedings as one of the applicants, and this conclusion does not disentitle Geneva to the benefit of a joint and several costs order with Union-Swiss, unless the preference of the applicants is that costs be similarly aligned and only made in favour of Union-Swiss. This issue is also addressed in relation to reputational and additional damages.

66    A further issue that emerged during the course of the hearing on damages and on costs was that storage costs for seized counterfeit Bio-Oil was inadvertently brought to account both as a head of loss on damages and as a disbursement on costs. The amount involved was between $4,000 and $5,000. This was a legitimate additional cost to the applicants. While it might be better characterised as a disbursement in the course of litigation rather than a damages loss, in all the circumstances, it is more convenient to deduct that sum from the lump sum costs order and consequently is dealt with in that section below.

Conclusion on direct compensatory damages

67    Rather than choose between the two damages calculation methods, there being no particularly rational reason to prefer one over the other, I consider it appropriate to proceed by way of an average of the two. The average of $521,136 and $504,168 is $512,652. Subtraction of the amount recovered from respondent pharmacies in related proceedings of $87,500 produces a figure of $425,152. Rounded down, that produces a compensatory damage figure of $425,000. The respondents should be ordered to pay that amount to Union-Swiss, unless the applicants are able to advance a compelling reason for the award to be in favour of both of them.

Compensation for reputational damage or loss

68    The applicants claim damages for loss of reputation. This head of damages is to compensate for the harm of devaluing the injured party’s reputation by reason of the adverse reflection on its products arising from the trade mark, copyright and passing off contraventions. Reputational damages can also be seen as being an element of loss attributable to the misleading or deceptive conduct contraventions. The relatively modest sum of $50,000 was sought by the applicants for reputational damage, noting that the reported cases reveal that there have been a number of awards of $20,000 for significantly less serious instances of infringing.

69    Counsel for the respondents submitted that for this head of damages to succeed the Court would need to be satisfied that there was indeed damage to the applicants’ reputation, but pointed out that there was no such evidence other than from the applicants themselves as to their reputation and that being adversely affected. It was asserted that there was no evidence from any customer or client of the applicants as to any such damage caused by the respondents, let alone evidence which permitted any such loss to be measurable such as a decline in sales able to be attributed to that conduct. Expressed in this way, reputational damages would be no more than a shadow of compensatory damages. The approach suggested by counsel for the respondents is also contrary to the view expressed by the majority in Facton Ltd v Rifai Fashions Pty Ltd [2012] FCAFC 9; (2012) 199 FCR 569: see Lander and Gordon JJ at 576 [25] and Gilmour J at 589-91 [117]-[128].

70    While there was no separate evidence dealing specifically with the topic of damage to reputation, there was evidence as to Bio-Oil having a significant positive reputation, akin to what was described by the trial judge in Facton, as noted on appeal, as “substantial, exclusive and valuable”: Lander and Gordon JJ at 575-6 [23]-[29] and Gilmour J at 591 [125]. As in Facton, there was no evidence that there was loss or damage arising from any issue to do with the counterfeit Bio-Oil being inferior to genuine Bio-Oil.

71    In relation to damage to reputation, counsel for the applicants submitted that the Court could properly draw an inference from the fact that a large number of professional pharmacists were sued by the applicants in relation to their infringing conduct which emanated from the respondents, it was not a “leap of faith” to draw an inference that there would be widespread knowledge within the pharmacy industry of the presence of counterfeit Bio-Oil in the marketplace.

72    I accept that the inescapable inference is that the presence of a significant problem with Bio-Oil counterfeiting must be known to many pharmacists. Damage to reputation was aggravated by the widespread email advertising of the counterfeit Bio-Oil by or on behalf of the respondents, which was in evidence, indicating steep discounting for what turned out to be counterfeit product. Importantly and in context, this was in relation to a product recommended by doctors and used by patients such as pregnant women in relation to scarring and stretch marks. It is a healthcare product for which concerns not just as to efficacy, but also safety will often be, as a matter of logic, paramount for consumers. In those circumstances the very fact of reasonably widespread counterfeiting was inherently damaging to reputation and individual evidence in support of that inescapable conclusion would not significantly advance the applicants’ case in this regard.

73    This is not a head of damages which is amenable to precise calculation any more than are damages for individual reputational loss such as in defamation. Nonetheless the Court must do the best that it can on the available evidence. The reasonably widespread counterfeiting operation which the respondents participated in can fairly be regarded as having a real if not readily measurable impact on the good reputation of Bio-Oil. I consider that the reputational damages sum sought by the applicants was both modest and reasonable in the context of the scale of the illegal conduct and should be recognised in some real way by the Court. Damage to reputation should be recognised and compensated for by the award of reputational damages in the sum of $50,000 as sought by the applicants. The respondents should be ordered to pay that amount to Union-Swiss, unless the applicants are able to advance a compelling reason for the award to be in favour of both of them.

Additional/exemplary damages

74    The applicants claim additional damages under s 115(4) of the Copyright Act 1968 (Cth) and under s 126(2) of the Trade Marks Act 1995 (Cth) as against Prestige Premium Deals and Mr Christopher and parallel exemplary damages as against the remaining two respondents.

75    Section 115(4) of the Copyright Act provides:

(4)    Where, in an action under this section:

(a)    an infringement of copyright is established; and

(b)    the court is satisfied that it is proper to do so, having regard to:

(i)    the flagrancy of the infringement; and

(ia)    the need to deter similar infringements of copyright; and

(ib)    the conduct of the defendant after the act constituting the infringement or, if relevant, after the defendant was informed that the defendant had allegedly infringed the plaintiff’s copyright; and

(ii)    whether the infringement involved the conversion of a work or other subject-matter from hardcopy or analog form into a digital or other electronic machine-readable form; and

(iii)    any benefit shown to have accrued to the defendant by reason of the infringement; and

(iv)    all other relevant matters;

the court may, in assessing damages for the infringement, award such additional damages as it considers appropriate in the circumstances.

76    Section 126(2) of the Trade Marks Act provides:

(2)    A court may include an additional amount in an assessment of damages for an infringement of a registered trade mark, if the court considers it appropriate to do so having regard to:

(a)    the flagrancy of the infringement; and

(b)    the need to deter similar infringements of registered trade marks; and

(c)    the conduct of the party that infringed the registered trade mark that occurred:

(i)    after the act constituting the infringement; or

(ii)    after that party was informed that it had allegedly infringed the registered trade mark; and

(d)    any benefit shown to have accrued to that party because of the infringement; and

(e)    all other relevant matters.

77    In order to be eligible for an award of additional (and by some degree of parity of reasoning, probably exemplary damages) at least some entitlement to compensatory damages seems necessary: Facton at 577 [32].

78    Both sides sought to gain some support for their respective arguments from the summary of the applicable principles in relation to additional damages by Wigney J in Truong Giang Corporation v Quach [2015] FCA 1097; (2015) 114 IPR 498 at 519-521 [129]-[140]:

[129]    Section 126(2) was inserted into the TM Act by the Intellectual Property Laws Amendment (Raising the Bar) Act 2012 (Cth) (the Amending Act). It is in very similar terms to s 115(4) of the Copyright Act 1968 (Cth), s 122(1A) of the Patents Act 1990 (Cth) and s 75(3) of the Designs Act 2003 (Cth). The apparent purpose of the insertion of s 126(2) was to bring the TM Act into line with those other intellectual property laws. That purpose was specifically adverted to in the second reading speech in relation to the Amending Act.

[130]    The explanatory memorandum that accompanied the Amending Act indicated, among other things, that s 126(2) was intended to provide a means by which the court could provide an effective deterrent. The explanatory memorandum included the following passage:

Additionally, stakeholders have submitted that many counterfeiters do not maintain sufficient business records to enable a satisfactory calculation of ordinary damages or an account of profits: purely nominal damages may be regarded by counterfeiters as merely the “cost of doing business”, rather than an effective deterrent. The absence of additional damages under the Trade Marks Act limits the ability of a court to provide an effective deterrent to intentional counterfeiting. [Footnotes omitted.]

[131]    That passage is particularly apposite to the circumstances of this case.

[132]    While there is little authority concerning s 126(2) of the TM Act, given its similarity to s 115(4) of the Copyright Act, it is relevant to consider the following principles that have been applied to that section.

[133]    First, it is not necessary that any amount of additional damages be proportionate to any award of compensatory damages: Futuretronics.com.au Pty Ltd v Graphix Labels Pty Ltd (No 2) (2008) 76 IPR 763; [2008] FCA 746 (Futuretronics) at [17].

[134]    Second, an award of additional damages involves an element of penalty: Facton Ltd v Rifai Fashions Pty Ltd (2012) 199 FCR 569; 287 ALR 199; 95 IPR 95; [2012] FCAFC 9 (Facton) at [33], [89].

[135]    Third, part of the function of an award of additional damages is to mark the court’s disapproval or opprobrium of the infringing conduct: Facton at [36].

[136]    Fourth, the matters set out in s 126(2)(a)–(d) of the TM Act are not preconditions to an award of additional damages: Futuretronics at [17].

[137]    Fifth, conduct which may properly be seen as flagrant includes conduct which involves a deliberate and calculated infringement, a calculated disregard of the applicant’s rights, or a cynical pursuit of benefit: Futuretronics at [19]; Facton at [92].

[138]    Sixth, post-infringement conduct within s 126(2)(c) of the TM Act is unlikely to include the respondent’s conduct of the infringement proceedings. Such conduct is more relevant to the appropriate order as to costs: Futuretronics at [17]; Flags 2000 Pty Ltd v Smith (2003) 59 IPR 191; [2003] FCA 1067 at [31]–[34]. That said, it is difficult to see why some aspects of the conduct, by a respondent, in defence of infringement proceedings, might not be relevant to the award of additional damages: compare Facton at [44], [69]. Conduct of the proceedings which involved high-handedness, dishonesty, recalcitrance, or flagrant disregard of, or deficiencies in compliance with, discovery orders or notices to produce, might, at the very least, suggest a greater need for an award of additional damages that would deter future infringing conduct by the respondent.

[139]    Seventh, an award of additional damages can encompass damages which, at common law, would be aggravated or exemplary damages: Futuretronics at [17]. The matters specified in s 126(2) of the TM Act are of a kind which are taken into account in determining whether a party is entitled to aggravated or exemplary damages at common law, but in the end result the damages to be awarded are not aggravated or exemplary damages, but additional damages, being of a type sui generis: Facton at [33]–[36], [91].

[140]    In Halal Certification Authority Pty Ltd v Scadilone Pty Ltd (2014) 107 IPR 23; [2014] FCA 614 at [111], Perram J considered that if additional damages are appropriate, the damages to be awarded must operate as a sufficient deterrent to ensure that the conduct will not occur again.

79    For completeness, it should be observed:

(1)    that neither exemplary nor aggravated damages can be awarded in relation to the misleading or deceptive conduct statutory contraventions because those provisions are confined to compensatory damages for proven loss: Musca v Astle Corporation Pty Ltd (1988) 80 ALR 251 at 262; and

(2)    that exemplary damages for passing off should not be awarded on top of additional damages for copyright and/or trade mark contraventions: Facton at 573 [9]-[11]),

such that the award of additional damages is as against Prestige Premium Deals and Mr Christopher for trade mark and copyright infringement, while an award so far as it applies to the second and third respondents (respectively United Prestige Clearance and United Prestige Group) it is an award of exemplary damages for passing off only.

80    The quoted passages from Truong Giang reproduced above indicate that the key features of an additional damages assessment are that:

(1)    there is no need for proportionality to compensatory damages (although as noted below there is nothing to indicate that that is a forbidden consideration or benchmark);

(2)    an award involves an element of penalty;

(3)    judicial disapproval has a part to play;

(4)    the terms of the statutory provision as to the non-exhaustive matters that can be taken into account in considering an award of additional damages do not constitute a precondition for them to be awarded;

(5)    flagrant conduct includes that which is deliberate and calculated in disregard of the injured party’s rights, or a cynical pursuit of benefit;

(6)    post-infringement conduct such as in the conduct of the proceedings is relevant more to costs than to additional damages but not irrelevant;

(7)    additional damages encompass but are not the same as aggravated or exemplary damages at common law; and

(8)    specific deterrence has a part to play, including general deterrence.

Similar reasoning can be applied to the assessment of exemplary damages (except as to statutory provisions and construction).

81    Although it is not perhaps ideal conceptually, the different pathways of additional damages or exemplary damages for the first and fourth respondents, and exemplary damages only for the second and third respondents can be used to produce a single additional/exemplary damages figure, awarded jointly and severally.

82    Additional damages and exemplary damages may be seen as encompassing broad concepts not always readily amendable to precise measurement or quantification. This includes having regard to capturing aspects of loss that have not been able to be ascertained because of the imperfect nature of litigation and evidence gathering in reflecting all aspects of wrongdoing and the total damaging effect of infringing or contravening conduct. It also entails giving a dollar figure to otherwise intangible considerations of punishment, giving effect to judicial disapproval and sanction and future-looking considerations of specific and general deterrence.

83    Having regard to the statutory set of criteria in s 115(4) of the Copyright Act and in s 126(2) of the Trade Marks Act, and applying parity of reasoning in relation to exemplary damages, the following points can be made about these overlapping considerations:

(1)    the copyright infringements, trade mark infringements and passing off were on any view flagrant and highly deceptive, taking place over a substantial period of time and with a virtual certainty of the counterfeit Bio-Oil being taken to be genuine Bio-Oil by both consumers and retail pharmacists;

(2)    there is a substantial need to punish and to deter, both in respect of the respondents specifically and any other would be contravener generally – indeed, to borrow from the civil penalty jurisprudence, it might be said that it is important to make sure that it is seen to be simply “not worth the candle” for anyone else to engage in such conduct in the future: see Australian Securities and Investments Commission v Vizard [2005] FCA 1037; (2005) 145 FCR 57 at 68 [48];

(3)    the conduct of the respondents after what they had done was detected and indeed litigated was uncooperative and obstructive, including defying orders made by three separate Judges of this Court over several years, as detailed in the default judgment reasons, and wrongdoing has never been acknowledged, let alone admitted – as Wigney J observed in Truong Giang at [138], reproduced above, conduct of the proceedings which involved “high-handedness, dishonesty, recalcitrance, or flagrant disregard of, or deficiencies in compliance with, discovery orders or notices to produce, might, at the very least, suggest a greater need for an award of additional damages that would deter future infringing conduct by the respondent”;

(4)    although not precisely quantified, it is clear that there was a substantial financial gain made by the respondents or at least one or more of them by selling to pharmacies counterfeit Bio-Oil in place of genuine Bio-Oil, a premium and premium-priced product – as noted at [57] above, a gross figure of $681,309 was paid to overseas suppliers by Prestige Premium Deals, so it is reasonable to infer that a substantial profit was made or intended to be made to recoup that cost and make a substantial profit on top of that;

(5)    genuine Bio-Oil is a healthcare product for which a premium price is paid by consumers, who are entitled to trust that they are getting what they paid for, a factor that feeds back into the need for deterrence, but also as a matter of public confidence that such behaviour is taken seriously by the Courts.

84    Additional damages and exemplary damages, even with the particular features identified above, are not amenable to precise mathematical calculation and there is no single right or wrong figure. It is very much in the nature of judicial discretion involving a measure of what might be described as instinctive synthesis (borrowing that term from criminal law sentencing principles to explain a complex and multi-factorial discretionary decision-making process of a non-mathematical nature used to produce a numerical outcome).

85    The applicants sought additional damages of $300,000. Taking all of these considerations into account and attempting to arrive at an outcome that is just and proportionate, I consider that an award of additional damages of $212,500 is fair, reasonable and appropriate, being half the award of compensatory damages. While there is no principle that requires any linkage between the two, nor is taking that into account proscribed. In this case, the compensatory damages sum provides a useful yardstick and provides a coherent rationale for the figure arrived at. It meets any suggestion that the award is either arbitrary or impressionistic. The respondents should be ordered to pay that amount to Union-Swiss, unless the applicants are able to advance a compelling reason for the award to be in favour of both.

Lump sum costs

86    Rule 40.02(b) of the Federal Court Rules provides that a party entitled to costs may apply to the Court for an order that costs be awarded in a lump sum instead of or in addition to any taxed costs. As noted above, the applicants filed an interlocutory application seeking the award of lump sum costs. The applicants’ case for a lump sum costs order may be summarised as follows:

(1)    the power is expressed in general terms and applies to simple as well as complex cases: Playcorp Group of Companies Pty Ltd v Bodum A/S (No 2) [2010] FCA 455 at [3] and Byrnes v Brisconnections Management Co Ltd (No 2) [2009] FCA 1432 at [51] (cases referring to the previous form of the rule in O 62 r 4(2)(c) of the Federal Court Rules (1979 version) in substantially the same terms); see also Soden v Croker (No 3) [2016] FCA 249 at [8];

(2)    the orders should be made to “save the parties the time, trouble, delay, expense and aggravation in having a taxation proceed on a matter”: Keen v Telstra Corp Ltd (No 2) [2006] FCA 930 at [4] and Beach Petroleum NL v Johnson (No 2) (1995) 57 FCR 119 at 120F;

(3)    the applicants have already incurred significant costs in the litigation (which I note was necessitated by the conduct of the respondents and could not be ignored by the applicants);

(4)    the evidence reveals that the three corporate respondents have limited paid up capital and own no real property, and the fourth respondent, Mr Christopher, does not own any real property (Mattock 19 October 2016 affidavit), while the additional cost of taxation is likely to impose a further significant financial burden on the applicants without any certainty of recovery from the respondents: Julien v Secretary, Department of Employment and Workplace Relations (No 2) [2009] FCA 1259 at [10];

(5)    Ms Ashe’s report properly sets out the relevant legal principles for assessing costs on a lump sum basis, including the following approaches:

(a)    having regard to an applicable scale of costs;

(b)    applying a discount to the actual fees charged by the solicitors; and

(c)    the Court sitting with a registrar or seeking advice from a registrar when the application of the scale of costs has been considered;

(6)    when considering making a lump sum costs order the Court should be confident that the approach taken to estimate costs is logical, fair and reasonable: Beach Petroleum at 123C;

(7)    while it is appropriate to take a “broad brush” approach, the Court should be conscious not to cause injustice to the applicants by adopting an arbitrary failsafe discount across-the-board on the costs claimed, but at the same time be careful not to prejudice the respondents by over estimating the costs: Leary v Leary [1987] 1 WLR 72; [1987] 1 All ER 261 at 76; 265 as applied in Beach Petroleum at 120F and 123C; and

(8)    the Court is not bound to apply strictly any applicable scale of costs which regulates the recoverable amount on a party/party basis, although these scales may provide assistance and will usually be influential: see Seven Network Limited v News Limited [2007] FCA 2059 at [25(v)]; Charlick Trading Pty Ltd v Australian National Railways Commission [2001] FCA 629 at [10].

87    The respondents accepted the legal principles relied upon by the applicants and relevantly summarised above. However, reliance was placed on Saizeriya Co Ltd v Peregrine Management Group Pty Ltd [2005] FCA 1174 in which an application for a lump sum costs order was refused, stating at [31]:

The court has power to make a gross sum order pursuant to O 62 r 4(2)(c) of the Rules notwithstanding that the making of an earlier costs order that contemplated taxation in the ordinary way:  see Beach Petroleum NL v Johnson (No 2) (1995) 57 FCR 119 (“Beach Petroleum”) at 120 per von Doussa J.  In Beach Petroleum, von Doussa J held, at 123, it was appropriate to make such an order in that case because “the preparation of a bill in taxable form [was] an unrealistic demand which would require quite unreasonable time and expense”.  The circumstances that were before his Honour were different from those presently before me.  It does not seem to me unreasonable to require that, in default of agreement, there be required a bill in taxable form. Further, I am not persuaded that it is appropriate for any other reason that I should depart from the usual course in the case of these orders for costs: compare Australasian Performing Rights Association Ltd v Marlin [1999] FCA 1006; Sony Entertainment (Australia) Ltd v Smith [2005] FCA 228; (2005) 64 IPR 18; 215 ALR 788 at [188] and following per Jacobson J; Hadid v Lenfest Communications Inc [2000] FCA 628 at [25] per Lehane J; and Harrison v Schipp (2000) 54 NSWLR 738 at [21] per Giles JA.  I was not persuaded of the utility of such a course, which also required the expenditure of time and expense, in this instance, in respect of two interlocutory costs orders arising from applications of no particular complexity or other notable feature.  As the first and second respondents acknowledged, they “would still need to satisfy the Court as to the costs they have incurred, and provide a proper basis for their submissions about the amount of costs that ought to be awarded”.

88    In my opinion, the circumstances in this case more closely reflect those in Beach Petroleum than in Saizeriya. The arguments the applicants advance in favour of a lump sum costs order, and in particular the apparent impecuniosity of the respondents, and in any event the absence of any evidence from them to establish the means to meet the additional costs associated with taxation make this a suitable case for a lump sum costs order. Accordingly, in my opinion the only live question is what the quantum of the lump sum costs order should be.

Evidence of Alyson Ashe, costs consultant, on lump sum costs – report dated 28 September 2016 and amendments schedule provided to the Court on 26 October 2016

89    Ms Ashe, an expert costs consultant, applied two methodologies derived from the Federal Court scale of costs. Ms Ashe’s first method examined the applicants’ lawyers’ time records having regard to the applicable scale of costs. Ms Ashe’s second method was based on the actual costs incurred, having regard to the fixed fee costs agreement between the applicants and their solicitors and the applicable scale of costs. The applicants submitted, and I accept, that Ms Ashe has strived to be logical, fair and reasonable. Her report is detailed and considered and she willingly conceded and addressed a number of relatively minor errors by way of post-hearing corrections made without objection.

Principles and framework of the costs assessment process

90    Ms Ashe observed that, in her experience, the usual range of recoverable costs on an inter partes party/party estimate process and the resultant taxation of costs if not resolved, or on a lump sum application, is often anecdotally referred to as a likely percentage of the whole bill or claim. However, in her opinion such an approach is susceptible to error because the claim could be made on high and unreasonable hourly rates or upon work done that is not reasonable (both in terms of the nature of the work and the time spent), or alternatively the work could be cheap and efficient. It follows that the result must be tailored to the circumstances and not arrived at by way of an arbitrary discount.

91    The nature and circumstances of the case are also very important in arriving at the correct outcome, with Ms Ashe giving the example of a complex commercial case conducted at high hourly rates and employing a large litigation team still achieving a high outcome on assessment whereas a simple matter conducted inefficiently and at high rates may produce a low outcome. Ms Ashe therefore usually refrains from generally applying a “likely percentage” rule of thumb because each matter differs in the spread of rates as between counsel and solicitors and the deployment of tasks between them and other variables such as the number and expense of witnesses, the extent of travel and accommodation claims and so on.

92    Ms Ashe’s considered, cautious and reasoned approach enables the Court to have some confidence in the soundness of the approach that she took and, perhaps more importantly, how the task was carried out, including as to necessary value judgments in the application of expertise and experience in arriving at necessary intermediate conclusions. It also reflected the exercise of a taxing officer’s discretion as provided in r 40.31 of the Federal Court Rules, which permits regard to be had to the nature and importance of the proceedings, the amount of the claim, any damages awarded, any particular points of principle involved, the conduct and cost of the proceedings, other fees and allowances claimed by the party’s lawyers and any other relevant circumstances.

93    Ms Ashe had regard to the predominantly time-based Federal Court scale and had particular regard to the Court’s guidelines, including the National Guide to Counsel’s Fees and Registrar’s Discretionary Pronouncements. In particular, item 1.1 of the scale for work done on and from 1 January 2014 makes particular reference to the lawyer’s skill and experience and to having regard to the complexity of the matter or the difficulty or novelty of the questions involved. Ms Ashe also had regard to the Court’s further revised Guide to Discretionary Items in Bills of Costs issued on 23 September 2014 and taking effect on 1 October 2014, which addresses the general care and conduct under Schedule 3 of the Federal Court Rules, but specifically does not limit the taxing officer’s discretion to allow higher or lower fees or disbursements. As Ms Ashe understood it, the only limitation to which the Federal Court estimates and taxation must operate concerns the costs indemnity principle so that a party cannot recover more than it is liable to pay its solicitors.

94    All of the above forms the backdrop for the assessment of costs in circumstances where the solicitors for the applicants adopted fixed fee charging rather than time costing, which is expressly contemplated by item 12 introduced into the Federal Court scale in 2011. In these proceedings, the applicants’ solicitors charged fees on a fixed fee basis as provided for in their costs agreement, but still kept a time record by fee earners, being mindful of the potential need to demonstrate comparability of the costs incurred even where fixed fees and other alternative costing methods form the basis of the retainer. In this way, time costing operated as a check on the fees charged rather than the basis for which they were charged. It also enabled a bill to be prepared in accordance with the scale if that became necessary. This meant that all of the scale items 1 to 12 were relevant for the present lump sum application and were informative for the broad brush approach able to be adopted by the Court in accordance with the case law referred to above.

95    Ms Ashe made the observation that in this case, where a lump sum application was made instead of proceeding to the drafting of a bill with recourse to the file and then estimate process, there was every opportunity for the Court to make a broad brush determination less constrained by the scale items relating to time costing and more reliant on the fairness and reasonableness of the overall costs incurred.

96    Ms Ashe specifically had regard to various of the items listed in item 12, and particularly relating to complexity, difficulty or novelty, skill, specialised knowledge and responsibility, the period during which the work was done, the number and importance of the documents prepared and read and the amount or value of money or property involved, as well as the work actually done, the extent to which it was reasonably necessary, the quality of the work and the time spent performing it and the terms of the costs agreement.

First method: assessment based on time records – past costs

97    Ms Ashe observed that the time records kept by the solicitors for the applicants were not particularly detailed, but noted that in her experience this was not unusual as time-based claims for legal costs are records of the time spent, recorded by persons in a generic fashion without regard to costs orders made well after the event. The record of work done for billing purposes will rarely have ultimate costs orders in mind, or be made by persons with specific costing knowledge. However, the tax invoices, although supported by details of the work done and also by that degree of time reporting, were billed on the basis of fixed charges. Ms Ashe regarded the utility of the time records being to demonstrate the fairness and reasonableness of the fixed fee charging and the logical basis for applying a broad brush approach to the actual incurred costs. Comparing the totals of the actual billing and the time records demonstrated there was considerable consistency and accuracy in the fixed fee charged.

98    The fixed fee billing total was $327,250 while the corrected time recorded total was $334,803, on any view a relatively small difference. While Ms Ashe was not provided with the solicitors’ files, she did not consider this was necessary. She had been provided with unredacted tax invoices, computer time records and counsel’s fee notes, which enabled her to have an overview of the work done and to perform an analysis of the way in which the work was done.

99    It is apparent from the description given in her report that Ms Ashe has carried out a careful and thorough analysis of the costs that have been incurred. She considered the information provided to her was sufficient to enable her to make a high-level conversion of the past costs incurred into a claim consistent with the scale. For example, she excluded costs associated with joining the fifth respondent (at the time referred to as the Chief Executive Officer of Customs), although those costs were negligible, by way of a 2% reduction of overall interlocutory costs and other contingencies. Overall threshold omissions reduced 5% from all work billed up to and including 2 August 2016.

100    The next step was to quantify the work as invoiced so as to create a party/party claim that approximates the dollar value in a bill of costs at scale or the amount properly claimable by the reduction in rates as charged to a fair and reasonable range and thereafter considering what relative proportions of the work are time-based under the scale or non-time based (e.g., document preparation such as for pleading and evidence drafting and amending and correspondence) and applying a scale reduction, but thereafter adding a compensating skill care loading to account for the complexity and importance of the work.

101    Ms Ashe observed that most of the rates charged compared favourably with the scale because they were below the cap provided although the article clerk/graduate and paralegal rates exceeded the scale rates. Overall, Ms Ashe was of the view that the level and spread of fee earners below the scale cap were, in her experience, fair and reasonable and recoverable on a party/party basis. The comparison of time records converted to scale rates produced a 97.1% reduction, whereby the majority of fees were claimable.

102    Ms Ashe then reduced the non-time-based claims by 20% but then applied a 15% skill care loading to take into account the complexity of the matter.

103    The first two steps of exclusions (omissions) and discounts described above provided Ms Ashe with a claim as would a bill of costs filed in the Court. She then turned to the nature of the work done, the reasonableness of the way it was done and the reasonableness of the cost of that work.

104    As to the spread of the work between the fee earners, Ms Ashe considered this to be fair and reasonable and that there was no overall “top-heaviness” of the applicants’ legal team such that no broad brush discount was required from that perspective. The other factors that Ms Ashe had regard to included:

(1)    tasks which were clearly administrative, yet performed by lawyers;

(2)    time spent that appeared on its face to be excessive and/or indicative of inefficiency;

(3)    the duplication of tasks between fee earners;

(4)    the extent of self-educative research;

(5)    internal conferences and correspondence;

(6)    any lack of appropriate delegation;

(7)    time spent by new practitioners becoming acquainted with the file;

(8)    attendances on counsel by a junior solicitors in addition to a senior solicitor; and

(9)    cross-over between the types of work done by counsel and solicitors (especially senior associates).

Each of those factors had to be seen against the backdrop of the proceedings themselves and any difficulties that the respondents may have caused the applicants. Ms Ashe considered that these various factors justified a discount for work done of 15%. The opinion that Ms Ashe expressed was that based on the figures calculated from the above process, the likely recoverable past costs were 72% of the time costs starting point and 71% of the actual billed costs.

105    In relation to disbursements, in Ms Ashe’s opinion it was fair and reasonable to brief a senior junior counsel in this litigation and indeed that the matter was in fact fit for both a senior and junior counsel. Ms Ashe considered the National Guide to Counsel Fees which had effect from 1 July 2013. Ms Ashe considered the various fee notes rendered by counsel (I note, now senior counsel) and had regard to his background, experience and expertise. She concluded that his daily fee was fair and reasonable in circumstances where he was unled and not assisted by a more junior counsel. I can find no fault on that reasoning. Ms Ashe was similarly approving of the division of labour between solicitors and counsel. Nor was any fault found in relation to any other disbursements (noting that, unrelated to Ms Ashe’s report, there was an inadvertent double claim for storage expenses which has been taken into account).

106    Combining all these considerations, Ms Ashe arrived at an outcome in the order of 82% of overall combined fees and disbursements, being indicative of the more generous reasonableness test and having regard to the manner in which the proceedings were conducted, the deployment of the team in the range of rates applied, as well as the use of single counsel.

Second method: assessment based on actual costs incurred – past costs

107    Ms Ashe’s second method was based on a “broad brush” approach allowing a percentage recovery of actual costs in the order of 80%.

Future costs

108    Ms Ashe’s approach to future costs closely followed her approach to past costs although she did not have the benefit of a fee note from counsel for the default judgment hearing (which was also relevant to the past costs aspect). She applied similar steps to the future costs claim as she did to the past costs claim, which does not need to be repeated. She considered the estimated time provided by Mr Mattock to be fair and reasonable.

Ms Ashe’s conclusion on lump sum costs

109    Applying those two different approaches, after some post-hearing adjustments and re-calculations which were provided to the Court, Ms Ashe concluded that a reasonable lump sum costs order would be an award of past costs of $490,319.01, being 94% attributable to the substantive claim and 6% attributable to the cross-claim and total future costs of $54,026.95 from about 2 August 2016 up to and including the damages hearing. This provides a total lump sum costs figure of $544,345.96. It should be noted in that regard that GST was not included because it is not chargeable as the applicants are not resident corporations and are not registered for GST purposes.

Mattock Affidavit of 28 September 2016

110    Mr Mattock, the principal solicitor for the applicants and an experienced litigator, expressed an opinion based on his experience of the taxation of costs as to the applicants’ likely recoverable costs. In his opinion:

(1)    the applicants would be likely to recover at least 75% of their costs on any taxation and 100% of their disbursements, including counsel’s fees;

(2)    based on the abovementioned recovery percentages, it is likely that the applicants would recover past costs of a least $504,595 from the commencement of proceedings up to about 2 August 2016 if the matter was to proceed to taxation (i.e. costs for the liability / default judgment component of the proceedings); and

(3)    based on the abovementioned recovery percentages, it is likely that the applicants would recover past costs of at least $55,700 from the making of the costs orders on 2 August 2016 up to and including the hearing on damages on 25 October 2016 (i.e. costs for the damages component of proceedings).

Conclusion on lump sum costs application

111    The applicants submitted that it would be logical, fair and reasonable for the Court to award them lump sum costs somewhere between the opinions of Ms Ashe and Mr Mattock.

112    Weighing up all of the evidence and all the competing considerations, I am of the view that I should accept the evidence of Ms Ashe without any substantial qualification, treating Mr Mattock’s evidence more as a check than a direct basis for the decision required to be made. Her evidence produces a total lump sum costs order of $544,345.96 (excluding GST). In my opinion it is appropriate to round that figure down to $540,000 (excluding GST) to take account of the double claiming of the storage costs. The respondents will therefore be ordered to pay the applicants’ costs on a lump sum figure of $540,000, unless the applicants satisfy me that the costs order should not be made in favour of both of them.

Conclusion

113    The applicants are to provide draft orders to reflect the conclusions reached in these reasons, including as to whether each of the damages (and interest) and costs awards should be in favour of both applicants jointly and severally, or just Union-Swiss, within seven days of these reasons. The draft orders are to be accompanied by interest calculations in accordance with the comments made in paragraph [4] above. The respondents will then have a further seven days from receipt of a draft to make any comments or submissions they wish. Either party can seek additional time if needed.

Associate:

Dated:    3 February 2017