CNIP Pty Ltd v Chan & Naylor Norwest Pty Ltd

IN THE FEDERAL COURT OF AUSTRALIA NEW SOUTH WALES DISTRICT REGISTRY GENERAL DIVISION NSD 1766 of 2010

AND: CHAN & NAYLOR NORWEST PTY LIMITED ACN 126 573 475

JUDGE: PERRAM J DATE: 7 OCTOBER 2011 PLACE: SYDNEY

REASONS FOR JUDGMENT 1 This is an application for judgment against the respondents: Chan & Naylor Norwest Pty Ltd and Salvatore Arcuri. The basis for the application is that there has been such an extensive disregard for the Court's directions over such a prolonged period of time that the point has now been reached that the respondents' defences should be struck out and relief given to the applicants on their application. In order to understand the context in which that application arises, it is necessary first to say something of the procedural history of the matter. 2 The proceedings were commenced on 16 December 2010. Very shortly, the proceedings are ones in which injunctions are sought to restrain the use of a registered trademark and acts said to constitute passing off, together with ancillary claims of the kind usually associated with allegations of that type. The matter came before the Court for its first directions hearing on 8 February 2011 at which time orders were made for the filing of defences, as well as the provision by the respondents of verified lists of documents. The timetable was extensive in that it went beyond those matters and also provided for service of affidavits. A tentative fixing of the matter for hearing on 22 July 2011, with an estimate of two to three days, was also discussed during the directions hearing. That course was taken because proceedings of the present kind, to restrain trademark use and passing off, are a sufficiently straightforward kind of case that the issues which arise can be dealt with relatively promptly. 3 Those directions were, in substance, not complied with. On 28 February 2011, a document entitled 'Defence And Cross-Claim Against A Party' was forwarded to the solicitors for the applicants by the second respondent, Mr Arcuri. Under the title 'Defence of First and Second Respondents' the same document was also provided, on the same day, to the applicants' solicitors by the respondents' former solicitors. There were procedural difficulties with that defence which were then dealt with at the next directions hearing on 7 April 2011. On that day, the defence which had been filed by the former solicitors was struck out but the respondents were granted leave to put on a fresh defence. Given the procedural default which had occurred, the respondents were ordered to pay the applicants' costs of that day on an indemnity basis. A fresh timetable was then put in place under which defences were to be filed by 20 April 2011 with the applicants to file and serve their reply by 27 April 2011. Provision was again made for the service by the respondents of verified lists of documents, together with a regime both for inspection and thereafter for the provision of evidence. The matter was stood over for further directions on 22 July 2011. 4 After that directions hearing, there was a change in the identity of the solicitors who were acting for the respondents. Before the directions hearing which was scheduled to occur on 22 July 2011 could take place, the applicants filed a notice of motion (returnable on 20 June 2011) seeking an order that the respondents file and serve the amended defence within seven days and that the respondents make available for inspection within seven days certain documents from their list of documents. That motion was heard on 20 June 2011. By that time, the position had been reached where no proper defence had been filed and it appeared that there was a dragging of the chain with respect to the provision of the applicants' right to inspect documents. Following the hearing of the applicants' notice of motion with respect to the defence, orders were made striking out the amended defence which had by then been filed and granting to the respondents, again, a further right to file an amended defence within seven days. Further orders were made that the documents which had not been made available by the respondents for inspection be forthwith made available. 5 When the motion had originally been filed it had sought, in the alternative, orders in default which, had they been made, would have had the consequence that non-compliance with the timetable then fixed would have resulted in entry of judgment automatically against the respondents. During the hearing on 20 June 2011, I indicated a disinclination to make orders of that kind and instead, whilst accepting the sentiment underlying the notice of motion, indicated that a more useful course would be simply to make orders in accordance with the proposed timetable but to stand over the application for summary relief to the following occasion. 6 During the course of that hearing, it was made very clear that the end of the line had been reached so far as procedural default in the respondents' camp was concerned. For example, this interchange took place between myself and Mr Foley, who is the solicitor acting for the respondents. I said: It [the failure to comply with previous orders] was definitely in the territory of about as much procedural default as can be tolerated, Mr Foley. I will bring [the matter] back on 5 July because having seen what has happened in this case, I am going to keep it on a very, very tight leash indeed. And you avoided a self executing order today, but I think I said this on the last occasion, but things have to improve on your side of the table, and the time of consequences is close at hand. (Emphasis added.) Subsequently I said this: This is the application for a self-executing order. I should say, just to put people on notice, that if there has been more default on 5 July then I may move independently under the rules to dismiss the proceedings or to enter some form of summary judgment. Obviously that can be argued at the time… 7 On 5 July 2011 the matter came back before me for directions and the respondents were ordered to provide particulars which had been sought by the applicants' solicitors. The applicants were, themselves, ordered to serve affidavits upon which they proposed to rely by 19 August 2011 and the respondents were to serve any affidavits upon which they intended to rely by 16 September 2011. Further, other procedural orders were made including an order that the original application for summary relief filed by the applicants be stood over for directions to 7 October 2011; that is to say, today. 8 In the intervening period there has been no compliance by the respondents with the directions which were made on 5 July 2011 - that is to say, they have not filed or served the affidavits upon which they intend to rely by 16 September 2011. When the matter was called on for hearing this morning Mr Lever SC appeared for the applicants and signalled his intention to seek summary relief. Mr Foley sought to parry that thrust by the tender of an unsigned medical certificate issued by a Dr Michael Tay on 2 August 2011. That certificate says as follows: THIS IS TO CERTIFY THAT Salvatore Arcuri has a medical condition. He has suffered a TIA [transient ischemic attack], as well as a suspected Pulmonary Embolus and spent the following dates in hospital: 24/4/11-25/4/11 20/7/11-22/7/11 He has started warfarin after his most recent discharge from hospital. He was unfit to work from 02/07/2011 to 20/08/2011 inclusive. 9 One thing will be immediately apparent about this medical certificate and it is that, on its own terms, it does not suggest that Mr Arcuri was unfit for work for the period between 20 August 2011 and 6 October 2011. On its face, it does not provide an explanation for not complying with the timetable, it being kept in mind that the obligation under the timetable was to serve affidavits by 16 September 2011. 10 Mr Arcuri was called to give evidence as to the circumstances which have brought us here this morning. His explanation as to why nothing had been done between 20 August 2011 and the present is that the effect of taking the warfarin has been that he is not fully well and he is not - to use a colloquial expression - firing on all cylinders. I do not accept this evidence for reasons to which I shall come. I should note that notwithstanding that I have doubts as to whether the medical certificate is indeed a valid medical certificate, given that it is unsigned, I proceed upon the basis that it is genuine. 11 Mr Arcuri caused to be produced this week a notice to produce issued to the applicants. The chronology of its production was first, it was handed this morning by Mr Foley to Mr Lever SC at the bar table without any anterior notice. Secondly, it appears to have been prepared by Mr Arcuri, either yesterday or, at the earliest, the day before and provided to Mr Foley at some date during that period. The notice to produce formed the basis of the submission made by Mr Foley that the provision of the documents sought under it were necessary in order for Mr Arcuri to prepare his affidavits. I reject that submission. 12 The notice to produce seeks materials which, so far as I can see, have very little bearing on the proceedings and indeed in some parts verge on the fantastical. For example, item 14 on the notice to produce seeks to have the applicants produce: All Organisational charts and relevant descriptions authored by Hubbard founder of the Church of Scientology. 13 Mr Lever SC pressed Mr Arcuri as to the significance of that matter, but I did not think that Mr Arcuri's responses to those questions were coherent. Mr Lever SC also pressed Mr Arcuri about item 16 on the notice to produce which is, 'the video clip broadcast on "This Day Tonight" in July 2009'. As I understood the evidence, Mr Arcuri said that it was necessary for him to have access to this because, in some way, it bore upon perceptions or realities as to the quality of his performance as an accountant. I have been unable to understand how such a matter relates to the subject matter of the applicants' proceedings, which are about trademarks. More is this so where the applicants' allegations have been upon the table now for nearly a year and where the respondents have been repeatedly ordered to put on proper defences. In my opinion the raising of matters of that kind, at the eleventh hour and in the witness box on the morning when summary dismissal is sought, is implausible. I did not believe Mr Arcuri about these matters and I did not believe his evidence about his affectation by warfarin. 14 Accordingly, I do not accept that the respondents have put before the Court any real explanation as to why it is that the orders have not been complied with. The procedural history of the matter in the context of the remarks which took place on the last occasion provide a proper basis for the exercise of the power in Rule 5.23(2)(c) of the Federal Court Rules 2011. That rule provides that if a respondent is in default an applicant may apply to the Court for an order giving judgment against the respondent for the relief claimed in the statement of claim to which the Court is satisfied that the applicant is entitled. 15 There are two preconditions to the power in that rule being enlivened. The first is that the Court must be satisfied that there has been a default by the respondent. In this case, the Court directed on 5 July 2011 that affidavits be served by 16 September 2011. That order has not been complied with. It will follow from my description of the prior procedural history of the matter that there are a number of other procedural defaults by the respondents which are capable of enlivening that first limb of Rule 5.23(2)(c). 16 The second requirement is that the Court be satisfied and that the applicant be entitled to the relief sought in the statement of claim. 17 In the notice of motion which was stood over to today, the applicants sought only two of the orders in the originating application: an injunction permanently restraining the respondents from using the registered trademark; and a similar permanent injunction arising in relation to the allegations of passing off. These corresponded to prayers 4 and 5 of the originating application. 18 A question arises as to whether there needs to be evidence satisfying the Court that such relief ought to be granted or whether, instead, it suffices only that the Court is satisfied on the basis of the pleadings that the relief is of a kind which could be granted. Prior to the current form of the Federal Court Rules, the prevailing view had been that evidence was required. However, since the introduction of Order 35A of the former Federal Court Rules 1979, it has been clear that the present default rule will be satisfied simply on the Court being satisfied that relief could be granted on the face of the pleading. In Australian Competition and Consumer Commission v Dataline.net.au Pty Ltd (2006) 236 ALR 665 that question was considered by Kiefel J who said at 677 [45]: Arthur v Vaupotic Investments Pty Ltd [2005] FCA 433 and Luna Park Sydney Pty Ltd v Bose [2006] FCA 94 confirm that the rule permits regard to be had to the face of the statement of claim in order to determine whether the relief sought is made out. Those decisions and a number of others of this Court confirm that no evidence needs to be adduced 19 Accordingly, the requirements of present Rule 5.23(2)(c) will be met if upon an inspection of the applicants' pleading I am satisfied that the applicants would be entitled to the two permanent injunctions that are now sought. 20 The proceedings disclosed in the statement of claim are, in substance, as follows. The two applicants are in the business of providing accountancy services. In the course of providing those accountancy services they have acquired a goodwill in the words 'Chan & Naylor'. They have also caused to be registered trademark number 1094360 which includes within it the words 'Chan & Naylor'. 21 The applicants say that at a former time they entered into an arrangement with the second respondent to provide accountancy services under the name 'Chan & Naylor' at Bella Vista in New South Wales in what was essentially a joint venture arrangement. They allege that that arrangement has now come to an end but the first respondent continues to use the words 'Chan & Naylor'. They say that this infringes the registered trademark and constitutes passing off. It seems to me that those allegations if accepted would be sufficient to justify the grant of the final injunctions which are sought. 22 Relief was also pursued orally by Mr Lever SC in the form of prayer 6 of the originating application which relates to delivery up of goods and stationery relating to the trademark use. That prayer for relief corresponds with paragraph 32 of the statement of claim which alleges against the respondents their continued use of the trademark both outside and inside its offices at Bella Vista, also causing a telephone to be answered using that name and using stationery and other promotional materials bearing the name 'Chan & Naylor'. I accept that the requirements of Rule 5.23C(2)(c) are satisfied in relation to those allegations and the applicants should therefore have an order in that form. 23 The applicants also seek an order that the costs of the various applications which have brought matters to where they are today should be on an indemnity basis. It is clear from Sheppard J's judgment in Colgate-Palmolive Company v Cussons Pty Ltd (1993) 46 FCR 225 that an indemnity costs order is not to be made unless there has taken place some species of what might be called litigation misconduct; that is to say, a departure by a litigant from what might be regarded as reasonable norms of litigation behaviour. In this case, I am satisfied that such a departure has taken place. It would be fair to say that the respondents have regarded this litigation with very little seriousness since its inception and have embarked upon a course of disobeying court orders and dragging the proceedings out as long as possible. That is conduct which requires condign sanction. In those circumstances, it is appropriate to make an order that the costs be paid on an indemnity basis. 24 The applicants also seek an order that those costs be taxed forthwith and I think that is, in light of the circumstances, an appropriate order to make as well. 25 Mr Lever SC also applies for the costs of the proceedings to date on an ordinary basis. It seems to me, in circumstances where the proceedings have been largely terminated against the respondents completely, that that is an appropriate order to make. 26 Mr Foley has sought a stay of all of the orders which I have just made in order to allow the testing of those conclusions on appeal. The decision to give judgment is an interlocutory one so that any appeal will require the bringing of a leave application. Accordingly, under Rule 35.13 of the Federal Court Rules, that will need to be done within 14 days. Given the serious consequences to the respondents of the orders which have been made, it is appropriate to allow them some opportunity to test these conclusions on appeal if they be so advised. In those circumstances, I will grant a stay of these orders for a period of seven days. 27 I make the following orders: 1. The respondents' defences of 27 June 2011 and 5 July 2011 be struck out. 2. Judgment be given for the applicants on their claim against the respondents, with damages to be assessed, pursuant to rule 5.23(2)(c) of the Federal Court Rules 2011. 3. The respondents be permanently restrained, whether by themselves or by their servants, agents or otherwise howsoever from using Registered Trade Mark Number 1094360 or any substantially identical or deceptively similar sign as a trade mark in relation to any services the subject of the registration or services of the same description. 4. The respondents be permanently restrained, whether by themselves or by their servants, agents or otherwise howsoever from: (a) passing off or falsely representing in trade or commerce that the services of the first respondent, namely accounting and financial services, are those of, or are associated with the services of or supplied by the second applicant; and (b) passing off or falsely representing in trade or commerce that the business of the first respondent is, or is associated with the business of the second applicant. 5. There be delivery up on oath by a responsible officer of the first respondent and by the second respondent to the applicants' solicitors of all goods and stationery in the possession, custody or control of each of them which infringes the second applicant's rights. 6. The respondents pay the costs of the applicants of their notice of motion dated 2 June 2011 on an indemnity basis. 7. The applicants be granted leave to have the costs of their notice of motion dated 2 June 2011 taxed forthwith. 8. The respondents pay the applicants' costs of the proceedings to date, other than those covered by the indemnity costs order in Order 6. 9. These orders be stayed for a period of 7 days. I certify that the preceding twenty-seven (27) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Perram.