Federal Court of Australia

A Nelson & Co Ltd v Martin & Pleasance Pty Ltd (Stay Application) [2021] FCA 754

ORDERS

THE COURT ORDERS THAT:

1.    The parties bring in short minutes of order giving effect to these reasons within 7 days.

2.    The matter be listed for a case management hearing at 9.30 am on 20 July 2021.

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

REASONS FOR JUDGMENT

PERRAM J:

Introduction

1    The First Applicant (‘Nelsons’) sues the First Respondent (‘M&P’) for breach of contract. Nelsons and its subsidiary, the Second Applicant (‘BFR’), also sue the three Respondents for infringing, in various ways, their intellectual property in the word ‘RESCUE’ (another product named ‘BACH’ is also involved but it adds nothing to the present debate and further reference to it may be omitted). The Respondents now seek a stay of the Applicants’ proceeding on the basis of an exclusive jurisdiction clause contained in a distribution agreement between Nelsons and M&P. The exclusive jurisdiction clause is cl 32 which is in these terms:

GOVERNING LAW AND JURISDICTION

This Agreement is subject to English law and the parties irrevocably agree that any disputes will be subject to the exclusive jurisdiction of the English courts and that either party will be entitled to enforce any such judgment in any such jurisdiction as appropriate.

2    The issue which divides the parties emerges from the fact that Nelsons’ breach of contract case is subject to cl 32 whilst the intellectual property allegations made by it and BFR are not. The Respondents have conceded their liability to Nelsons and BFR on the intellectual property allegations but the question of damages remains to be determined. The Respondents contend that Nelsons’ contractual claim should be stayed and pursued before the English courts. Such a course would result in a fragmented proceeding in which the English courts determined the contractual dispute (including contractual damages) and this Court would determine the Applicants’ entitlement to damages for breach of their intellectual property rights.

3    The law of exclusive jurisdiction clauses requires cl 32 to be enforced unless the Applicants show strong reasons why it should not be. However, the same law also shows that where the grant of a stay would result in the fragmentation of proceedings into more than one jurisdiction this can but does not necessarily provide a strong reason not to stay the local proceeding. In my view, for the reasons which follow, a strong reason is shown by the Applicants in this case and the stay application should be refused.

The Intellectual Property Case

4    Nelsons manufactures complimentary medicines based on the system of plant and flower-based essences developed by the late Dr Edward Bach. It distributes these products under the name ‘RESCUE’ which are sleep remedies. In Australia, its subsidiary BFR is the registered proprietor of three trade marks featuring the word ‘RESCUE’. The RESCUE products were distributed in Australia by M&P under the distribution agreement until 31 December 2020 when it expired under its own terms. Late last year M&P together with its wholly-owned subsidiary (the Third Respondent, ‘M&P Wholesale’) and another closely related entity (the Second Respondent, ‘Aloe Vera’) began to develop its own flower-based sleep remedy under the name ‘RESTQ’ which was launched in early 2021. On 2 March 2021 Nelsons and BFR commenced this proceeding against M&P, Aloe Vera and M&P Wholesale. They allege trade mark infringement, passing off and misleading or deceptive conduct. They successfully obtained an interlocutory injunction from this Court restraining the Respondents from using RESTQ pending trial: A Nelson & Co Ltd v Martin & Pleasance Pty Ltd [2021] FCA 228. An appeal by the Respondents to the Full Court was dismissed: Martin & Pleasance Pty Ltd v A Nelson & Co Ltd [2021] FCAFC 80.

5    The Respondents submitted that the practical effect of the interlocutory injunction was to force them to abandon the launch of RESTQ and rebrand. On 25 May 2021, the day before the present application was originally to be heard, the Respondents indicated to the Court that they no longer contested the right of the Applicants to relief for intellectual property infringement. What remains to be determined in this part of the case is (a) whether the Respondents’ infringement of the trade marks was flagrant therefore entitling the Applicants to additional damages and (b) the quantum of compensatory damages and additional damages if awarded.

The Contractual Dispute

6    Under the distribution agreement M&P was to distribute Nelsons’ RESCUE sleep remedy products in Australia. The distribution agreement had a number of provisions which are relevant to the parties’ dispute, four of which bear mentioning:

(a)    M&P would pay Nelsons’ invoices within 80 days: cl 7;

(b)    M&P would act as Nelsons’ fiduciary and hold the registrations for the RESCUE products for Nelsons with any applicable regulator on trust for Nelsons and would not assign, transfer, sublicense, modify, cancel or vary them: cl 12(b);

(c)    M&P would not during the life of the agreement distribute, supply or otherwise be involved with products that competed with the RESCUE sleep products: cl 17(a).

(d)    At the end of the distribution agreement M&P would transfer to Nelsons’ nominee the registration for the RESCUE products: cl 12(g).

(I interpolate that Australian law required the RESCUE sleep products to be registered in the name of an Australian entity with the Therapeutic Goods Administration (‘the TGA’)).

7    Nelsons alleges that M&P has not paid invoices totalling $1,290,797.36 and that it has breached cl 17 by taking preparatory steps for the launch of its RESTQ products while the distribution agreement remained on foot. It also alleges that M&P failed to transfer the TGA registrations of the RESCUE sleep products to its nominee, Juno Labs, in breach of cl 12(g). This is also alleged to have been a breach both of fiduciary duty and of an implied duty to act in good faith.

Relationship between the Two Cases

8    These two cases are intertwined in at least two ways. First, the failure to transfer the TGA registrations of the RESCUE products to Juno Labs prevented Nelsons from distributing RESCUE products in Australia. In its contract case it may be entitled to recover the consequent lost sales from M&P. On the other hand, the damages it may be entitled to for trade mark infringement will, in part, devolve into an examination of what sales Nelsons lost by reason of the launch of the RESTQ product. It is clear that these may overlap.

9    Secondly, the conduct which the Applicants allege makes the use of RESTQ a flagrant infringement of the trade marks is inevitably intertwined in the story of the launch of RESTQ. The Applicants’ case is that its exclusive distributor M&P set upon a course of giving its RESTQ brand the best possible head start by thwarting the transfer of the registration with the TGA, by developing its product whilst still the Applicants’ fiduciary and by deliberately selecting a brand name RESTQ which was designed to resemble RESCUE. On this view, the whole of the circumstances of the contract case bear directly upon the issue of flagrancy in the intellectual property case.

Strong Cause and Fragmentation

10    There is no dispute that an exclusive jurisdiction clause like cl 32 should be enforced unless strong reasons are shown why it should not: Huddart Parker Ltd v Ship ‘Mill Hill’ (1950) 81 CLR 502 at 508-509 per Dixon J; The Eleftheria [1970] P 94 at 99 per Brandon J; Akai Pty Ltd v People’s Insurance Co Ltd (1996) 188 CLR 418 at 427-429 per Dawson and McHugh JJ, at 445 per Toohey, Gaudron and Gummow JJ; Global Partners Fund Ltd v Babcock & Brown Ltd (in liq) [2010] NSWCA 196 at [88]-[89] per Spigelman CJ, Giles JA agreeing at [101], Tobias JA agreeing at [102].

11    However, it is equally well established that a procedure which permits of the possibility of different conclusions by different courts made perhaps on different evidence usually supplies a strong reason for not granting a stay under an exclusive jurisdiction clause. Allsop J reviewed the authorities in this area in Incitec Ltd v Alkimos Shipping Corporation [2004] FCA 698; 138 FCR 496 (‘Incitec’) and said this at [62]:

The very existence of the possibility, if not probability, of duplicated litigation is, on modern authority of the highest persuasive stature a cogent consideration in assessing the effect of an exclusive jurisdiction clause. This is for good and powerful reasons based on the cost and inconvenience of litigation and the desire not to foster the circumstances of courts coming to different conclusions about the same facts on perhaps different, or even the same, evidence. If I may be permitted to say, respectfully, the views of judges of such eminence and experience as McNair J, Lord Denning, Lord Brandon, Colman J, Rix J and the Law Lords in Donohue v Armco are overwhelmingly persuasive of the great importance of this consideration. Related to it, but a distinct and equally powerful consideration in the administration of justice, is the inability to be certain that third parties, whether as witnesses or as parties, will not become involved in the London proceedings as well as the Australian proceedings at duplicated inconvenience and cost. …

12    Ordinarily therefore applications for a stay such as the present require attention to be given to the practical desirability of avoiding fragmentation of one dispute into several courts: Australian Health & Nutrition Association Ltd v Hive Marketing Group Pty Ltd [2019] NSWCA 61; 99 NSWLR 419 (‘Australian Health’) at [81] per Bell P, Bathurst CJ and Leeming JA agreeing at [1].

The Present Case

13    Mr Flynn SC in his able argument accepted that the risk of the proceeding being fragmented into two courts in different countries was a legitimate matter to be taken into account. Fragmentation, however, was not a slogan or mere rubric consideration and one needed to examine each case on its own merits. The problem with fragmentation was really two distinct problems. One was the inconvenience attendant upon having to litigate in two different legal systems. The other was the risk that the two courts might arrive at different conclusions on the facts. So far as inconvenience was concerned this ought be given little weight because any inconvenience which arose for Nelsons was a product of its own agreement to cl 32 and it sat ill in its mouth to complain about the practical consequences of its own bargain. So far as the problem of inconsistent findings was concerned, Mr Flynn submitted that this could readily be managed. If the case in this Court were temporarily stayed pursuant to the Court’s case management powers, it could await the outcome of the English proceeding. Once judgment was given by that court this would give rise to issue estoppels which would then apply in the balance of this case which would then be revived. To the extent that Aloe Vera and M&P Wholesale would not be parties to the English litigation since they were not parties to the distribution agreement Mr Flynn indicated that they would proffer an undertaking to be bound in this proceeding by any issue estoppels arising from the English proceeding.

14    Next, Mr Flynn submitted that the problem of fragmentation was in any event to be laid at the feet of the Applicants. The intellectual property part of the case could have been brought in the English courts along with the contract case (or at least, the Applicants did not demonstrate that this could not have been done). If that had been done, the present situation would not have arisen. Finally, he submitted that the gravitational centre or substance of the proceedings now concerned the contract claim and that what the Respondents proposed would not materially delay the proceedings.

15    There is no doubt that fragmentation gives rise to inconvenience to the party against whom the exclusive jurisdiction clause is sought to be enforced. I accept the submission that its inconvenience is not relevant to the inquiry since it cannot complain of the consequences of its own bargain: Incitec at [49]; Australian Health at [103]. However, I part company with Mr Flynn’s submission to the extent that it suggests that the only problem with fragmentation is the risk of inconsistent fact finding. No doubt inconsistent fact finding is a substantial concern in this area, however, there are others. There is the problem that the two trials might be conducted on different evidence. In particular, there is the problem that witnesses might be cross-examined twice and that their answers might not be the same on the second occasion. There is also the problem noted by Allsop J in Incitec that witnesses might be required to make arrangements for international travel to two different countries.

16    Whilst I accept Mr Flynn’s submission that this occurs in other areas such as where there is a separate trial on liability and on quantum, the problem is somewhat more acute in this case. There is likely to be a substantial overlap between the question in this case of whether the Respondents’ actions in getting RESTQ ready for launch (including by allegedly thwarting the transfer of the TGA registrations) justify the award of additional damages and the question in the English proceeding of whether they acted in breach of fiduciary duty and a duty of good faith. In effect, two judges will be tilling the same soil. When there is superimposed on top of that problem the likelihood that the cross-examination of the Respondents’ witnesses in both cases is likely to involve to some extent an attack upon the propriety of their conduct there is an obvious disadvantage in the second cross-examination when the witnesses will know what is to come.

17    Mr Flynn’s answer to this problem was in substance the same as his answer to the problem of inconsistent findings of fact to which it is now convenient to turn. The first step in the argument is that the English proceedings would give rise to issue estoppels which would bind Nelsons and M&P. The second step was that the related entities of both would not be permitted to dispute any such findings in this Court because to do so would be an abuse of process.

18    I accept the first step so far as it goes, however, in this case it does not go very far. As Mr Murray SC correctly submitted an issue estoppel will only arise on an issue of fact or law which is indispensable or fundamental to the ultimate decision in the case for as Dixon J explained in Blair v Curran (1939) 62 CLR 464 at 532:

But matters of law or fact which are subsidiary or collateral are not covered by the estoppel. Findings, however deliberate and formal, which concern only evidentiary facts and not ultimate facts forming the very title to rights give rise to no preclusion.

19    The authoritative nature of this statement is not open to doubt: Gujarat NRE Coke Limited v Coeclerici Asia (Pte) Ltd [2013] FCAFC 109; 304 ALR 468 at [60] per Allsop CJ, Besanko and Middleton JJ; Cassegrain v Gerard Cassegrain & Co Pty Ltd [2013] NSWCA 454; 305 ALR 648 at [77]-[79] per Beazley P, at [173] per Basten JA, at [198] per Macfarlan JA.

20    The issues in the English proceeding will include: (a) whether the distribution agreement was breached; (b) whether a fiduciary duty was breached; and, (c) whether a duty of good faith was breached. None of those issues in terms arise in the Applicants’ claim for additional damages in this Court. It would be possible for the English court to conclude that the Respondents had not sought to thwart the assignment of the TGA registrations so that there had been no breach of fiduciary duty and for this Court to conclude that the Respondents had done so as part of a composite plan to launch RESTQ deliberately to get a march on the Applicants. The findings of the English court on the issue of whether there had been such a thwarting would be a finding on a collateral fact covered by the statement in Blair v Curran. No issue estoppel would arise.

21    I therefore do not accept that the principle of issue estoppel can avoid the problem of inconsistent findings referred to in cases such as Incitec. In that circumstance, it is not necessary to consider Mr Flynn’s submission that the Court should exercise its case management powers to postpone hearing the damages case so that the outcome of the English proceeding can be known. The only reason to do so would be if one could be confident that it would give rise to issue estoppels which would temper the risk of inconsistent fact finding. Since I do not accept that the risk of inconsistent fact finding can be so tempered, there is no reason to postpone this Court’s proceeding.

22    In that circumstance, it is also not necessary to consider Mr Flynn’s submission that the Second and Third Respondents (and the Second Applicant) would be bound by any issue estoppel by reason of the doctrine of abuse of process or to consider, in the alternative, the efficacy of the Second and Third Respondents’ proposed undertakings to be bound by any estoppels binding M&P.

23    Nor do I accept Mr Flynn’s submission that the Applicants are the authors of any problem of fragmentation because they could have commenced the contract and intellectual property cases together in the English courts. The Applicants sought urgent interlocutory injunctions to restrain the Respondents from using RESTQ. Assuming in their favour that the English court would have had jurisdiction to grant an injunction to enforce an Australian trade mark, it would have been impractical to do so in the English courts. It would have required the Applicants to seek leave to serve out of the jurisdiction. This would have created avenues of potential delay relating not only to the complexity of that procedure but also to the possibility that the Respondents would then have appeared to challenge jurisdiction. This would have been inconsistent with the need for urgent relief. Further, since the Respondents are not resident in the United Kingdom it would have been impossible to secure compliance with any injunction with a contempt remedy. Any fine imposed in England for contempt would not have been enforceable in Australia under the Foreign Judgments Act 1991 (Cth) since the definition of ‘enforceable money judgment’ excludes a fine or other penalty: s 3.

24    I am prepared to assume in the Respondents’ favour that the gravitational centre of the litigation is primarily located in the contract claim. However, this does not detract from the problem of fragmentation. Moreover, I do not accept their submission that granting the stay would not cause more delay than was already going to be occasioned. I think this is quite unrealistic.

25    In those circumstances, I accept Mr Murray’s submission that the risk of fragmentation in this case provides a strong reason not to grant the stay sought by the Respondents. That being so I do not need to consider his submission that the Respondents unduly delayed in bringing the stay application.

Conclusions and Orders

26    The application is refused. Mr Flynn submitted that if the stay was refused, I should not order the Respondents to pay the costs of the application. It is true in Incitec Allsop J said this at [67]:

I am mindful that my conclusion is one which permits the owner to undertake a course contrary to its contract. In particular in the light of those circumstances, and the entirely legitimate and reasonable approach adopted by Mr Nell in argument on behalf of Hyundai, I will hear the parties on costs.

27    His Honour subsequently ordered that the costs be costs in the proceedings: Incitec Ltd v Alkimos Shipping Corporation [2004] FCA 839. At [5] his Honour said this:

There are sufficient circumstances here which warrant the order that I propose. Alkimos was not entirely successful in its opposition to Hyundai’s position. In particular, I rejected some of the important submissions put by Alkimos regarding the nature of the claim and whether or not it fell within the dispute resolution clause. Further, the judgment as to the exercise of discretion in these matters is often a difficult one to predict. I indicated that the balance was a “fine one”, see [66] of my earlier reasons. Further, Hyundai did not act unreasonably in seeking to enforce its contractual bargain.

28    This case is not the same. I do not think that the case was finely balanced and the Respondents have not been in any way successful. They will need to bear the costs of the stay application.

29    There remains an unrelated issue between the parties. Although the Respondents have accepted they are liable on the intellectual property case, the parties remain at loggerheads about the terms in which this Court should record that fact. The difference between them relates to whether the declarations and injunctions which they otherwise agree should be made should be prefaced with this rider, as the Respondents seek:

Solely on the basis of the admissions made and matters pleaded in the Defence to the Further Amended Statement of Claim dated 25 May 2021 (Defence to FASOC) in the form shown at Annexure 1 to this order, the Court [declares/orders] that:

30    I see no reason why these words should be added. As Mr Murray submitted, it is unclear what they do. They either have no effect on the meaning of the orders in which case they are otiose or they do have some effect but one which is unclear, in which case they are apt to create ambiguity in the orders. I apprehend that the point of the rider may have been to limit the effect of any estoppel in any English proceedings. Since there will be no English proceedings this purpose lacks utility.

31    There was another debate as to whether an agreed order that the Respondents pay the Applicants’ costs in the intellectual property proceeding be prefaced by a rider permitting the Applicants to seek further costs in the proceedings. Presumably, the Applicants wish to reserve to themselves the right to seek indemnity costs if the hearing on the additional damages claim goes their way. In my view, they should have that liberty.

32    The parties are to bring in short minutes of order giving effect to these reasons within 7 days. There will be a case management hearing on 20 July 2021 at 9.30 am.

Associate:

Dated:    5 July 2021