Calico Global Pty Ltd (in liquidation) v Calico LLC

RARES J: 1 This is an interlocutory application for an order that three non-parties to the proceeding, namely, Jeffery Leach, Kevin Owens and Jack Owens (the non-parties) be made jointly and severally liable to pay the costs of the respondent, Calico LLC, and that the costs be fixed in a lump sum determined by the Court. Calico LLC seeks two separate amounts for fixed costs or such other amount in each case as the Court determines: first, $575,117 in respect of the proceeding; and secondly, $94,521, in respect of the costs of this interlocutory application. Background 2 On 21 December 2018, I delivered my reasons for judgment dismissing Calico Global Pty Limited's appeal from a decision of a delegate of the Commissioner of Trademarks to remove its registered trademark 1005184 (the 184 mark) from the Register of Trade Marks in relation to services in class 44: Calico Global Pty Ltd v Calico LLC (2018) 140 IPR 72. I ordered that Global pay Calico LLC's costs of the proceeding. In the course of my reasons, I made a number of adverse credit findings as to both Kevin Owens and his son Jack Owens, none of which are the subject of any issue in the present application. 3 In essence, it is common ground that each of the non-parties was a director of Global at all relevant times from its incorporation on 16 May 2011 until 1 February 2019, when Mr Leach resigned as a director. However, Mr Leach has continued since Global's incorporation to maintain a shareholding in Global, through his company, Brookvalley Pty Ltd, but that shareholding came to be augmented in the circumstances that I described in my principal reasons. 4 When Global was incorporated, Brookvalley held 350,000 shares, about 22.4 per cent of its issued capital. Another company with which Kevin Owens and his wife, Lyn, were associated, Calico Pty Limited, held about 64.8 per cent of the issued capital. Kevin Owens was the managing director of Global and Jack Owens, Mr Leach and another man, who is not the subject of a present application, David Carlson, were its other directors (see Calico 140 IPR at 77 [17]). 5 The proceeding that I determined was one of two appeals that Global had brought from decisions of the delegate. In its closing written submissions, Global abandoned its appeal against the other decision of the Registrar in respect of what I described as the 486 mark (see Calico 140 IPR at 73 [6]). 6 The trademark in issue in the proceeding was for the wordmark "Calico", relevantly in class 44. As the names of the parties indicated, the wordmark was clearly relevant to the business aspirations of each. Calico LLC was incorporated in the United States of America in 2013. As I found, Calico LLC launched its business based on the CALICO mark as a wordmark in a worldwide launch, relying on an application for registration relevantly in class 44 in Australia that it made on 18 September 2013. 7 I found that Global sought to block that registration by engaging in disingenuous and, indeed, dishonest behaviour that continued during the hearing of the appeal by seeking to generate confusion between the two marks. I found that Global had been claiming or feigning the provision of services that Global did not actually provide in order to create what it hoped would be a situation in which Calico LLC would be forced to come to terms with Global (see Calico 140 IPR at 98 [124], 99 [128]-[129]). 8 During the course of the hearing, the evolution of the relationship between each of Kevin Owens, Jack Owens and Mr Leach in the bringing of the appeals in this Court was the subject of evidence given by Kevin Owens and his son, Jack Owens, and in documents that were tendered. I found that there was a lack of integrity in Kevin Owens and Jack Owens in their dealings with the 184 mark after the launch of Calico LLC and in their evidence. By the time of the hearing, Mr Leach had become the controlling shareholder of Global, owning 60 per cent of its shares. I found that there was no evidence from Mr Leach about his intentions, beyond his funding of the appeal, but I inferred that he had control of Global's appeal, and that had he given evidence, he would not have assisted Global's case on any issue: see Calico 140 IPR at 99 [129]. 9 Those findings arose in the following circumstances. From the time that Calico LLC launched its wordmark, Global sought to engage with it and Google Inc in negotiations to come to "a business arrangement suitable to both the parties", prior to finalising arrangements with a person, whom Global characterised in its communications with Google as "an equity partner", as to Global's activities. Events revealed that the "equity partner" was Mr Leach. Google was one of the promoters of Calico LLC: see Calico 140 IPR at 85 [56]-[57]. Both Google and Calico LLC rebuffed those attempts of Global to leverage off its registration of its Calico wordmark in class 44 in order to block the registration of Calico LLC's mark in that class. Eventually, the dispute led to the hearing of the opposition before the delegate on 26 July 2016, as I set out in Calico 140 IPR at 87-88 [63] - [71] in more detail. 10 On 28 September 2016, Kevin Owens entered into a deed of acknowledgment and forbearance with Global. The deed proposed a business arrangement that, in the event of Global suffering an insolvency event, Kevin Owens had the right to require it to transfer the 184 mark and trademark rights to him. 11 Two days later, on 30 September 2016, Global resolved to place itself in a creditors' voluntary liquidation. That ultimately revealed that Global had literally no assets apart from its ownership of the relevant mark and had very considerable liabilities. 12 The delegate upheld both removal applications that Calico LLC had made, first, on 19 October 2016 for the 184 mark, and secondly, on 4 November 2016 for the 486 mark. 13 I made the following findings about Kevin Owens' entry into a funding agreement with Mr Leach (Calico 140 IPR 86-87 [67]-[71]): 67 On 9 November 2016, Kevin Owens entered into a funding agreement with Mr Leach. The agreement recited that: • Global was in voluntary liquidation and was "current owner" of the intellectual property and trademarks (including the 184 mark); • the liquidators were raising $240,000 for Global to mount an appeal, in respect of revocation of class 44 services from the 184 mark and to seek an injunction against Calico LLC and Google; and • should the liquidators fail to raise that capital by April 2017, Global's directors could extend their appointment or dismiss them. 68 Mr Leach was to fund the proceeding by instalments. Kevin Owens promised that if Mr Leach funded the proceeding and if Global were wound up so that the intellectual property reverted to Kevin Owens, he would transfer all of it to a new entity to be owned 60% by Mr Leach and 40% by him, with existing shareholder loans being "transferred" to the new entity. Kevin Owens promised to provide "control to [Mr Leach] to deal directly with Google or others regarding the sale of IP rights". If the liquidators obtained full funding for the proceeding, so that Global remained under their control, any payments by Mr Leach would be refunded. 69 On 16 June 2017, Global's shareholders, Kevin Owens, Jack Owens, Mr Leach and Mr Carlson, agreed that they could remove the liquidators because they had failed to raise funding. The shareholders agreement provided that, in return for Mr Leach agreeing to fund this appeal (and actually doing so), the other shareholders agreed to dilute their shareholdings so that Mr Leach would hold 60% of the issued shares in Global. 70 On 30 August 2017, Kevin Owens executed a deed poll relating to Global. That recited his entry, on 28 September 2016, into the deed. Under the deed poll, Kevin Owens promised not to exercise his rights that would accrue to him if the winding up were terminated (cl 2.1). He acknowledged that part of his deal with Mr Leach was that, if Mr Leach injected the money needed to fund this appeal and Global came out of liquidation, in order to pursue the appeal, he (Kevin Owens) would leave the ownership of, among other rights, the 184 mark in Global. That would leave Mr Leach in control of Global, as I find he was at the hearing of the appeal. Although available to give evidence, Mr Leach did not do so. 71 On 31 August 2017, the Supreme Court of Western Australia ordered the termination of the winding up, which the liquidators did not oppose. 14 Kevin Owens said, in his evidence, that, in the meantime, the earlier "business plan" in the funding agreement remained in place when the 16 June 2017 shareholders agreement was made. Under it Mr Leach was to control Global "so that he could deal directly with Google or others regarding the sale of IP rights". Kevin Owens said in cross-examination that the purpose of Mr Leach providing funding for the appeal "was for us to be able to go forward, but he wouldn't put that money in unless it was quite clear he could do whatever he wanted". 15 In the meantime, on 24 July 2017, after negotiations between lawyers for Global and Calico LLC had occurred in the appeal, Global provided $150,000 in security for costs of the appeal. That security was provided by Mr Leach personally giving a bank guarantee for that sum on 24 July 2017. 16 On 30 August 2017, Kevin Owens swore an affidavit in the Supreme Court of Western Australia in support of Global's application to have its winding up terminated. He said that he had been informed by the lawyers in the United States of America from whom: I and other shareholders of Global have sought advice regarding the proceedings that could be brought by Global against Google in the United States for which [Mr Leach] has met all payments for. Should this Honourable Court terminate the winding up of the defendants herein I (and I am informed by all the other directors of the respondents herein and verily believe intend to do so) will instruct those lawyers to institute proceedings against Google. 17 He also said that Mr Leach had paid the debt due to Global's lawyers and all other accounts that had been incurred since his two companies had been wound up. In his earlier affidavit of 21 August 2017, Kevin Owens had told the Supreme Court that the purpose of seeking litigation funding through, initially, the liquidation, was so that the companies could assert whatever rights they had to recover damages and otherwise protect the trademarks of the "Calico" name around the world, and that included in the United States of America and Australia, which he told the Court, understandably, "was going to be an expensive exercise". He said that Global had secured investment from an existing shareholder, namely Mr Leach, whom he said "is also going to provide funds for the company for it to prosecute its claim to preserve its intellectual property rights to the name if alternative funding is not otherwise available." Kevin Owens said that the liquidators had told him that proceedings needed to be instituted in the United States no later than 13 September 2017. 18 Global commenced opposition proceedings to Calico LLC's registration, in classes 41 and 44, of the Calico wordmark in the United States. Those opposition proceedings were still current when the solicitor for Calico LLC, Siabon Seet, made her affidavit of 14 February 2020. She said that Global had sought to extend the deadline for its discovery until 18 May 2020 on the basis that, it had asserted on 13 February 2020, it and Calico LLC were engaged in settlement discussions. Ms Seet said that counsel acting for Calico LLC in the opposition in the United States proceeding, Joseph Gratz, had told her that assertion was not the position and that there were no current settlement discussions for the purposes of resolving the opposition proceedings or otherwise. 19 There is no dispute that, at the present time, Global has no assets of any substance and owes more than $1 million to its creditors. Neither Kevin Owens nor Jack Owens has any assets of any substance, other than his shares in Global, and Mr Leach is a very wealthy man who, among other property, owns a large number of real properties in Western Australia. This application 20 The parties both filed evidence from experts in cost assessment. Calico LLC relied on the two affidavits of Paul Taylor, and Global on the affidavit of Michael Dudman. 21 In Mr Taylor's first affidavit and assessment, he had arrived at an estimate of $833,370.43 for recoverable party-party costs in the appeal for the purposes of the lump sum costs application, before deducting the value of the security which I had ordered on 29 April 2019 be paid out to Calico LLC. 22 Mr Dudman made a number of observations about Mr Taylor's methodology and estimations that led Mr Taylor to revise his evidence in his second affidavit, the substantive differences being shown in the following table that Mr Taylor prepared: Amount % reduction Total Mr Dudman's estimate Professional Fees: $743,613.00 38.5% $457,322.00 $374,167.00 Counsel's Fees: $258,712.50 5% $245,776.00 $199,920.00 Disbursements: $31,456.64 30% $22,019.00 $18,873.00 Total: $1,033,782.14 $725,117.00 $592,960.00 Less Security -$150,000.00 -$150,000.00 Total Amount to be paid $575,117.00 $442,960.00 Variation between the estimates: $132,157.00

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