Crafted Furniture Pty Ltd v Echo Furniture Pty Ltd

1. Upon the applicants giving the usual undertaking as to damages, the respondent return all material referred to in Schedule B to the applicants' originating application under the headings "Order Number 10504", "Order Number 10589" and "Order Number 10601" to the applicants by 5 pm on 16 March 2023.
2. The respondent pay one third of the applicants' costs. Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

JACKMAN J 1 This is an application for interlocutory injunctions brought by the applicants (together, Crafted Furniture), which operate a retail furniture business offering customised furniture. The respondent (Echo Furniture) is a furniture manufacturer which has manufactured products for the applicants during the period 2017 to 2023. The applicants seek injunctions to restrain the respondent from producing, manufacturing or offering for sale certain products which it has itemised in a schedule to the originating application, together with any other product "created or derived from the technical designs and property of the applicants". The applicants also seek the return of materials provided to the respondent by the applicants for particular orders of furniture and removal of images of the applicants' property from the respondent's website. 2 The dispute arose in mid-February 2023, when the applicants discovered that the respondent had ceased placing orders for Dunlop foam, which is used in the manufacture of furniture, in about July 2021. In terms of the issue of whether there is a serious question to be tried, the applicants rely upon a breach of contract, namely a breach of what was said to be a term by Mr Raja in his affidavit of 9 March at paragraph 33, in which Mr Raja asserts that the terms of Crafted Furniture and Echo Furniture's agreement was that Echo Furniture would never offer any of Crafted Furniture's products to any of its other wholesale customers. There is no admissible evidence as to the formation of a contract containing any such term and I do not think on the evidence available to me that there is a serious question to be tried as to whether the term exists, let alone whether it has been breached. 3 The applicants then claim that the respondent has contravened its intellectual property. There is no admissible evidence before me that the applicants themselves created any original artistic work or design as distinct from using artistic works or designs which had been created by others. The evidence of Mr Chen, the sole director of the respondent, has proved that in relation to each of the products sought to be the subject of this injunction the product was jointly developed by the applicants and the respondent, the applicants' contribution including the provision of a picture of a piece of furniture which was being sold by a rival retailer. The respondent would then manufacture the product to look like the picture provided by the applicants, but using the inner structure and construction methodology developed by the respondent. Mr Chen gives details of the applicants' initial instructions, including the link or image to the third-party retailer's product. 4 In my view, the evidence taken as a whole does not give rise to a serious question to be tried as to any infringement by the respondent of any intellectual property claimed by the applicants, and the obstacles in the path of the applicants in this claim are the same in relation to any claim based on misleading conduct. There appears to be a claim for passing off which is based on the use of an image on the respondent's website in relation to a product known as the "Harbour Lounge". Mr Chen's evidence is that the Harbour Lounge was based on a lounge called the "Apollo Lounge" sold by another furniture manufacturer known as Space Furniture. 5 Oddly, the Harbour Lounge is not among the products listed in schedule A in the originating process. Further problems in the path of the applicants in relation to passing off are that, in my view, the use of the image on the website conveys no more than that it is an example of the respondent's manufacturing capability and track record for its wholesale purposes. It does not represent that the respondent's business is that of the applicants and it does not represent that the respondent's goods are those of the applicants. The image on the website does not show any mark referable to the applicants. Further problems are that there is no cogent evidence of the applicants' business, goodwill, or reputation that could be damaged by the use of a photo of the Harbour Lounge on the respondent's website and there is no evidence in relation to this particular product that there is anything distinctive about that product. On the contrary, Mr Chen proves that the design for the Harbour Lounge, along with the designs for the other products in the schedule which are actually included in schedule A, are taken from other retailers. 6 There is a separate claim in relation to the return of materials. Mr Raja, in his affidavit, explains that from time to time the applicants would send specialty material to the respondent for unique custom client orders. This is known in the industry as "customers own material (COM) supply". In 2022, the applicants placed an order with Echo Furniture for a long-standing premium client that required delivery of the products in early 2023. As a COM order, the customer provided the applicants with a number of fabrics to be used for the order which were delivered to Echo Furniture in anticipation of the production process commencing. The order was cancelled earlier this year and the applicants have requested that their client's materials be returned so that the order for their client can be completed. Echo Furniture has refused to return the materials, and takes the position that it is holding those materials under a general common law lien and that they will not be released until a payment of about $118,000 for an outstanding debt is made to the respondent. 7 Mr Chen, in his affidavit, proves the outstanding indebtedness of $118,430.94 in relation to specified invoices which in turn relate to specified order numbers of the applicants. Mr Chen proves that order numbers 10616 and 10582 have been completed by Echo Furniture and the raw materials have been used, but the applicants no longer press this aspect of their claim in relation to those two order numbers. In relation to the other order numbers, Mr Chen's evidence is that the raw materials are still in the condition they were in when they were originally delivered to the respondent. The applicants claim the return of raw materials relating to only three of those remaining four order numbers, namely 10504, 10589, and 10601. 8 The question thus arises whether the respondent is entitled to a general lien or to a particular or special lien. The authorities on this point were usefully collected by Palmer J in Stapley v Towing Masters Proprietary Limited [2009] NSWSC 139 at [7] to [11]. Palmer J explained that a general lien entitles the holder to retain goods as security for payment of the full indebtedness of the owner no matter on what account the indebtedness may be due. However, only specified occupations are entitled to such a lien, being solicitors, bankers, factors, stock brokers, insurance brokers, and calico printers. The respondent falls outside those categories. Palmer J recognised that apart from those recognised categories, a right to a general lien may be proved as arising by custom or usage in a particular trade or industry, but there is no evidence before me of any such custom or usage in the furniture manufacturing industry. Accordingly, there is no basis, in my opinion, for the respondent's assertion of a general lien. 9 A particular or special lien enables the holder to retain the particular property until payment of the holder's claims relating solely to that property. At common law a particular lien may be created relevantly by imposition of law in favour of those who in their trade improve the goods of others by the expenditure on those goods of money, skill or labour. That category of special lien applies to the present case. However, the material which is sought to be returned relating to orders 10504, 10589, and 10601 is not material in relation to which there is any outstanding indebtedness owed by the applicants to the respondent. Accordingly, in my opinion, the applicants are entitled to the return of the raw material referred to in the originating application under the headings of those three order numbers. 10 Accordingly, upon the applicants giving the usual undertaking as to damages, I order that the respondent return the material listed in schedule B to the originating application under order number 10504, 10589, and 10601 by 5 pm on 16 March 2023. 11 The applicants seek an order for costs, as does the respondent. The respondent has relied upon an offer made by way of email on 13 March 2023, in which it proposed consent orders whereby injunctions would be granted of a considerably greater scope than the order which I have made this afternoon. Taken alone, that would indicate that the respondent has achieved a greater measure of success at today's hearing than their offer of yesterday. 12 However, the offer also required the applicants to pay the full amount of the debt of $118,430.94 into the respondent's solicitor's trust account, which is a proposition reflective of the submission that the respondent was entitled to a general lien over the raw materials in respect of all indebtedness, rather than the particular or special lien which I have decided could potentially have been available to the respondent. In those circumstances, I don't think it can be said that the offer is unequivocally superior to the outcome of today's hearing and I decline to order the applicants to pay the respondent's costs on that basis. 13 The applicants have enjoyed a measure of success for which they had to approach the court and ordinarily that would entitle them to at least some of their costs. The majority of the evidence and submissions for this afternoon's hearing, however, has concerned the issues on which the applicants have failed and those issues are, in my opinion, clearly separate from the one issue on which the applicants have succeeded. In my opinion, a fair reflection of the fact that the applicants had to approach the court for the success they have enjoyed as against the fact that they have lost on most of their claim and most of the evidence was directed towards the claims on which they have failed, is an order that the respondent pay one third of the applicants' costs. I certify that the preceding thirteen (13) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justice Jackman.