Enviro Pak Pty Ltd v New Horticulture Pty Ltd

AND: NEW HORTICULTURE PTY LTD T/AS GREEN PACK ABN 0865 979 437

JUDGE: GRIFFITHS J DATE: 25 JUNE 2013 PLACE: SYDNEY

REASONS FOR JUDGMENT 1 This judgement relates to two interlocutory applications, dated 1 and 20 May 2013 respectively, in which the first respondent seeks certain orders which, if granted, would have the effect of transferring certain aspects of the current proceedings in the Court to IP Australia (the transfer application) and also staying the current proceedings in the Court (the stay application). There are several other interlocutory applications which have been filed in the proceedings and are yet to be heard and determined. They include an interlocutory application filed by the respondents on 11 March 2013 seeking summary judgment. The first respondent has also filed another interlocutory application relating to the production of documents. The hearing of these interlocutory applications has been deferred pending the outcome of this interlocutory judgment. The applicant also recently filed an application for security for costs in respect of the respondents' cross-claim. It was also agreed that the giving of directions in respect of that interlocutory application should be deferred pending determination of the transfer and stay applications. 2 It is convenient to set out briefly the background to the matter.

Summary of background matters 3 On 2 April 2013, an interlocutory judgement was handed down granting leave to the second respondent to appear on behalf of the first respondent notwithstanding that he is not a legal practitioner (see Enviro Pack Pty Ltd v New Horticulture Pty Ltd T/as Green Pack [2013] FCA 306 (Enviro Pak (No 1)). The broad background to the proceedings is set out in paragraphs 4 to 10 of that judgment. It is unnecessary to repeat those matters, but the following key points should be noted. 4 After an exchange of correspondence between the parties in mid-2012, the applicant commenced proceedings in the Court on 9 August 2012 alleging an infringement of its registered design No 304960, which relates to corrugated coffee cups. 5 Unbeknown to the applicant, on 8 August 2012 (i.e. the day before the applicant commenced the Court proceedings), the second respondent had lodged with IP Australia an application under s 51 of the Designs Act 2003 (the Act) seeking a revocation of the applicant's registered design on the basis that it was not an "entitled person". As will emerge further below, on 6 December 2012, the first respondent made an additional application under s 51 of the Act requesting IP Australia to conduct an examination of the applicant's registered design. 6 Since the proceedings were commenced on 9 August 2012, there has been a series of directions hearings. Directions were made inter alia for the filing of a defence and the filing of affidavit evidence in support of the applicant's originating application and statement of claim, as well as the respondents' cross-claim. A defence and cross-claim was filed on behalf of the respondents in October 2012. Various affidavits in chief have been filed by the respective parties. To date, however, the applicant has not filed any evidence in reply and it complains that it has not done so because of the various interlocutory applications which have been filed on behalf of the respondents. 7 In their defence and cross-claim, the respondents deny any infringement of the applicant's statutory rights under the Act. They also claim that the applicant is not entitled to those rights under the Act because it is not an "entitled person" and also because the registered design is not new and distinctive when compared with the prior art base. They seek an order under s 93 of the Act that the applicant's registered design be revoked. 8 After the Court proceedings were commenced and also after the respondents had previously failed to provide an undertaking acceptable to the applicant, on 21 August 2012 the first respondent provided a written undertaking, which is in the following terms: New Horticulture Pty Ltd t/as Green Pack ACN 086 979 437 hereby undertakes that it and any of its employees, agents, offices (sic) and subsidiaries or related bodies will: 1. Not engage in importation, manufacture, distribution or sales of the vertically corrugated coffee cups being a registered design of Enviro Pak Pty Ltd, as referred to in correspondence to the company and/or Gold IP Lawyers between 25 June 2012 and 31 July 2012; without the authority or license of Enviro Pak Pty Ltd. 2. Will not sell any existing stock of the vertical corrugated coffee cups; 3. Will not advertise or promote in any way the vertically corrugated coffee cups; 4. Will direct any future sales enquiries in respect of the vertically corrugated coffee cups to Enviro Pak Pty Ltd; and 5. Will preserve and retain any records of sales of the vertically corrugated coffee cups and details of the manufacturer, importation or purchase by New Horticulture Pty Ltd t/as Green Pack of those cups.

Summary of IP Australia proceedings 9 It is appropriate if I now set out briefly the proceedings in IP Australia. As noted above, the respondents have filed two separate applications. The first was filed the day before the Court proceedings were commenced and was filed in circumstances where the respondents were on notice that the applicant was threatening to commence proceedings if an acceptable undertaking was not provided. The second application to IP Australia was made on 6 December 2012. 10 By letter dated 29 November 2012, IP Australia indicated that it considered that there was a "plausible case" for revocation arising from the second respondent's application dated 8 August 2012 and that its inquiry would continue. 11 By a letter dated 31 January 2013, the applicant's solicitor wrote to IP Australia and enclosed copies of various documents filed in the Court proceedings. By a letter dated 5 March 2013, IP Australia advised the solicitors for the applicant that IP Australia was not in a position to conduct an examination because of the constraints imposed by s 63(3) of the Act. The effect of that provision is to prevent IP Australia from conducting an examination where Court proceedings are on foot unless an order is made by the Court that such an examination be conducted. That is one of the orders sought by the first respondent in the interlocutory application dated 1 May 2013. 12 IP Australia indicated that it had a different view in respect of the application to have the registered design revoked. It said that, having regard to s 52 of the Act, while it was unable to revoke such a registration while the Court proceedings were on foot, it would proceed to consider the submissions of the parties to the dispute and determine whether or not the registration should be revoked.

Summary of relevant interlocutory applications 13 In the transfer application, the first respondent seeks orders which would have the following effect: (a) the Court would direct IP Australia to determine those parts of the current Court proceedings involving the applicant's infringement claims as well as the respondents' cross-claim; (b) the Court would order IP Australia to conduct the examination of the registered design under s 63(1) of the Act as sought by the first respondent in its application dated 6 December 2012 to IP Australia; (c) the Court would order IP Australia to conduct the proceedings concerning the second respondent's application dated 8 August 2012 for the revocation of the registered design on the basis of grounds relating to "entitled persons"; and (d) the Court would order that the design registration be revoked if the Registrar is satisfied that a ground for revocation exists. 14 The stay application seeks an order to the effect that the Court proceedings be stayed until the conclusion of both: (a) the examination of the registered design by IP Australia as sought by the first respondent on 6 December 2012; and (b) IP Australia's inquiry into the second respondent's application dated 8 August 2012 to have the registered design revoked.

Summary of relevant legal principles relating to the stay of proceedings 15 It is convenient to now outline the relevant principles applicable to an application, such as that here, to stay Court proceedings where related administrative proceedings are on foot. 16 The relevant legal principles applying to these circumstances are helpfully discussed in Bennett J's judgment in Apotex Pty Ltd v Les Laboratoires Servier (No 6) [2012] FCA 745. That decision concerned an application to stay Court proceedings seeking revocation of a patent until the Patent Office granted or refused a separate patent application and any appeals therefrom. The Court proceeding had been fixed for a three week hearing to commence approximately three months after the application for a stay was determined. 17 The relevant principles may be summarised as follows. First, it is well established that the Court has an extensive jurisdiction to stay proceedings in the interests of justice and that the matter is one of judicial discretion (see Websyte Corporation Pty Limited v Alexander (No 2) [2012] FCA 562 at [53] per Dodds-Streeton J). 18 Secondly, it is important in any such application to take into account s 37M of the Federal Court of Australia Act 1976 (the FCA Act), which provides: General principles applicable to a stay of proceedings 37M The overarching purpose of civil practice and procedure provisions (1) The overarching purpose of the civil practice and procedure provisions is to facilitate the just resolution of disputes: (a) according to law; and (b) as quickly, inexpensively and efficiently as possible. (2) Without limiting the generality of subsection (1), the overarching purpose includes the following objectives: (a) the just determination of all proceedings before the Court; (b) the efficient use of the judicial and administrative resources available for the purposes of the Court; (c) the efficient disposal of the Court's overall caseload; (d) the disposal of all proceedings in a timely manner; (e) the resolution of disputes at a cost that is proportionate to the importance and complexity of the matters in dispute. (3) The civil practice and procedure provisions must be interpreted and applied, and any power conferred or duty imposed by them (including the power to make Rules of Court) must be exercised or carried out, in the way that best promotes the overarching purpose. (4) The civil practice and procedure provisions are the following, so far as they apply in relation to civil proceedings: (a) the Rules of Court made under this Act; (b) any other provision made by or under this Act or any other Act with respect to the practice and procedure of the Court (emphasis in original). 19 Thirdly, as Bennett J identified in Apotex at [9], the following guidelines may be relevant to an application to stay civil proceedings generally, including in circumstances where there are related administrative proceedings on foot: prima facie a plaintiff is entitled to have his or her action tried in the ordinary course of the procedure and business of the Court; it is a grave matter to interfere with this entitlement by a stay of proceedings, which requires justification of proper grounds; the burden is on the defendant in a civil action to show that it is just and convenient that the plaintiff's ordinary rights should be interfered with; the Court's task is one of "the balancing of justice between the parties", taking account of all relevant factors; and each case must be judged on its own merits, and it would be wrong and undesirable to attempt to define in the abstract what are the relevant factors. 20 Fourthly, as Bennett J emphasised in Apotex at [16]: … It is quite clear that in exercising the available discretion, each case turns on its own facts. Accordingly, little direct assistance is gained other than to observe that some general principles apply when two proceedings form the bases for an application for a stay of one of them, including the right of an applicant to have its proceedings determined. The Court has a general power to control its own proceedings, which extends to an order that proceedings be stayed. In exercising a discretion and looking to the factors that, generally, balance the advantages and disadvantages to each party and to the Court, I do not accept Apotex's submission that it is necessary for Servier to demonstrate exceptional circumstances in order to succeed in its application. In Hughes Motor Services Pty Ltd v Wang Computer Pty Ltd (1978) 35 FLR 346 at 351-353, Bowen CJ said that the Court can usefully look for assistance to the principles discussed in relation to lis alibi pendens: broadly speaking, the Court would balance any advantage to the plaintiff against any disadvantage to the defendant in exercising its discretion, although other matters as relevant to the case should be taken into consideration including: • whether different jurisdictions were involved; • whether issues of fact and relief were the same; • the work necessarily done in preparing two separate matters or saved if only one matter were to be determined; • circumstances relating to witnesses; and • the public interest. 21 Fifthly, I do not accept the applicant's submission that the interlocutory application for a stay should be considered on the basis of the principle of forum non conveniens and the associated test of whether the Court is a "clearly inappropriate forum" as discussed in cases such as Oceanic Sun Line Special Shipping Co Inc v Fay (1988) 165 CLR 197; Voth v Manildra Flour Mills Pty Ltd (1990) 171 CLR 538 and Henry v Henry (1996) 185 CLR 571. In particular, I do not accept the applicant's submission that, in a case such as this, the party moving for a stay has to demonstrate that the Court proceedings are oppressive, vexatious or an abuse of process. In my view, somewhat different principles arise where a stay of court proceedings is sought by reference to parallel administrative proceedings, as opposed to other court proceedings. All the more so in circumstances where the relevant Act, as here, contemplates the possibility of parallel proceedings in a court and in IP Australia and, while giving primacy to the court proceedings, acknowledges that the court may in an appropriate case make orders which have the effect of modifying or adjusting that primacy. A good example is the prohibition imposed by s 63(3) of the Act on the Registrar examining a registered design if relevant proceedings in relation to the design are pending in a court, unless the court orders the Registrar to examine the registered design. 22 Finally, as noted above, the first respondent has sought orders which would have the effect of transferring part of the Court proceedings to IP Australia and has also sought a stay of the Court proceedings. Although both sets of orders involve the exercise of judicial discretion and there may be some overlap in the considerations which are relevant to those matters, the principles are not necessarily the same. 23 It is convenient now briefly to outline the parties' respective arguments in respect of the interlocutory applications for transfer and a stay.

Outline of respondents' arguments 24 The respondents rely on the following matters in support of their submission that it is in the interests of justice for the transfer orders and stay to be made. First, they point to the fact that the first application to IP Australia was made the day before the Court proceedings were commenced by the applicant. In other words, they place some emphasis on the fact that the administrative proceedings were initiated before the Court proceedings. 25 Secondly, they point to the cost and resources required to conduct the litigation, as opposed to the administrative proceedings taking place in IP Australia. The respondents emphasise that they are experiencing severe financial difficulties. The total assets of the first respondent are in the amount of approximately $18,000, representing stock on hand. Mr Koesterke also draws attention to his own personal financial situation, a matter which was also raised and relied upon by him in Enviro Pak (No 1). He says that if the respondents were not to succeed in the Court proceedings, there would be a real question whether the applicant would recover any of its costs from the respondents. He further says that he is also concerned about the capacity of the applicant to meet any costs order made in favour of the respondents. He submits that he has great difficulty understanding the commercial sense of allowing the Court proceedings to continue, noting the significant expenses which have been incurred to date and would continue to be incurred. The Court proceedings are not yet ready for trial and there remain outstanding various interlocutory applications.

Outline of applicant's arguments 26 It is convenient to now summarise in broad terms the applicant's objections to the two relevant interlocutory applications. They may be summarised as follows. 27 The applicant contends that the Court lacks power to make orders 1, 3 or 4 in the transfer application (see [13] above). As to order 2 (which effectively involves an order that IP Australia conduct an examination), the applicant does not contend that the Court lacks power to make such an order, but rather submits that there are discretionary considerations which weigh against making such an order. Those discretionary considerations are said to include the first respondent's delay until 1 May 2013 in filing the transfer application against a background of the application for an examination having been lodged with IP Australia on 6 December 2012. The applicant also describes the respondents' attempt to obtain an order under s 63(3) as an abuse or process because it says that involves appropriating the Court's jurisdiction to IP Australia. It also contends that the interlocutory application is vexatious and oppressive in seeking to deny the applicant its right to prosecute its originating application in the Court. In this context, the applicant draws attention to the fact that the respondents did not give any notice to it prior to making the second application to IP Australia on 6 December 2012. It also draws attention to the fact that the respondents did not give it notice of the first application which was made to IP Australia on 8 August 2012. Furthermore, the applicant draws attention to the fact that it was only after it commenced its proceedings in the Court that an undertaking was proffered which was acceptable to the applicant. 28 As to the interlocutory application seeking a stay, the applicant's submissions may be summarised as follows: the correct test to apply is that which applies to forum non conveniens and it relies on cases such as Oceanic and Voth. It says that the appropriate test requires the respondents to demonstrate that the Court is "a clearly inappropriate forum" when compared with IP Australia; the applicant has a prima facie right to have its statutory rights under the Act enforced in the Court; the respondents have failed to adduce any evidence that the Court is an inappropriate forum and, in particular, they have not claimed or demonstrated that the Court proceedings are an abuse of process, oppressive, seriously burdensome or vexatious; it draws attention again to the fact that the undertaking was only proffered by the respondents on 21 August 2012, i.e. after the Court proceedings were commenced; it urges the Court not to be influenced by the multiple interlocutory applications filed by the respondents which they say are self-serving and tactical to support the applications for transfer or a stay; it says that the history of the matter suggests that the respondents have never intended to prosecute their cross-claim to a conclusion and that they have been simply engaging in tactics to maximise the prospects of their interlocutory applications succeeding; the applicant also seeks to capitalise on the statements made from the Bar table by Mr Koesterke as to the unlikelihood of the respondents being able to meet any order for costs in the applicant's favour; the applicant places particular weight on the injustice which it says it would suffer if the Court proceedings were stayed and the IP Australia proceedings were to progress. Reliance was placed upon a passage from Mason P's judgment in James Hardie & Co Pty Limited v Barry (2000) 50 NSWLR 357 regarding the meaning of the phrase "interests of justice", and the need to take into account adjectival matters such as the availability of particular evidence and the procedures to be adopted. The applicant emphasises that it has a distinct evidentiary advantage in having its infringement action prosecuted in the Court because the Court's procedures are superior to those of IP Australia in dealing with matters of particular concern to the applicant, including the need to test evidence filed on behalf of the respondents. The applicant indicates that it regards some of that evidence to be highly questionable and of doubtful authenticity. It wishes to have the opportunity to cross-examine one of the respondents' primary witnesses, a Mr William Ke, an opportunity which it says would be denied to it in IP Australia; and the applicant submits that the conduct of the proceedings is in substance being taken by the respondents on behalf of Mr Ke, rather than themselves. This argument was not developed.

Consideration 29 In my view, this is a case where it is in the interests of justice to make appropriate orders which will have the effect of permitting the proceedings in IP Australia to take their course. My reasons are as follows. 30 First, there is a plain overlap between the proceedings in the Court and the applications which have been made to IP Australia. The Court proceedings involve an action for infringement of a registered design which is itself the subject to a cross-claim. The cross-claim seeks a Court order revoking the registered design on grounds relating to both "entitled persons" as well as a claim that the design should not have been registered because it was not new and distinctive in comparison with the prior art base. 31 Similar issues are raised in the applications to IP Australia by the first and second respondents. Although IP Australia has indicated that it cannot conduct an examination of the design because of the bar imposed by s 63(3) of the Act, its investigation of the revocation request is ongoing and is relatively well advanced. Based on information supplied by the second respondent, IP Australia reached a preliminary view in November 2012, that the request for revocation on grounds relating to "entitled persons" was "plausible". Then, in March 2013, IP Australia received further detailed submissions and material from the second respondent in support of his request for revocation. I was informed from the Bar table that IP Australia recently granted the applicant an extension of time for it to provide its evidence and submissions in response. 32 As noted above, the examination sought by the first respondent on 6 December 2012 has not progressed in the light of s 63(3), but that bar can be removed by an order of the Court. In my view, such an order should be made to enable IP Australia to consider and determine both the applications which have been made to it. The two applications are plainly related. 33 Secondly, while acknowledging the significance of the prima facie right of a plaintiff to have its case heard and determined in the ordinary course of the procedure and business of the Court, I do not regard that right as absolute. The Court has clear power to modify that right in appropriate circumstances. For example, under s 53A of the FCA Act, the Court may order that proceedings in the Court, or any part thereof, be referred to arbitration, mediation or to a suitable person for resolution by alternative dispute resolution. I am not suggesting that those particular powers ought to be exercised in the current case, but they simply highlight options which are available to the Court in an appropriate case which do not involve the Court hearing and determining proceedings brought in its jurisdiction. It is also clear that the Court has power under s 63(3) of the Designs Act to order the Registrar to examine a design in an appropriate case notwithstanding that relevant Court proceedings are on foot. In addition, the Court's general power to grant a stay of proceedings is capable of being used in an appropriate case to allow the Registrar to consider and determine an application made under s 51 of the Act for revocation of a registered design under s 52. The bar imposed by s 52(6) of the Act can be lifted in an appropriate case by the Court ordering a stay of legal proceedings which will then have the effect that those proceedings are no longer "pending" for the purposes of s 52(6). 34 Thirdly, I consider that a stay of the legal proceedings in the circumstances here is consistent with and best promotes the overarching purpose of civil practice and procedure provisions set out in s 37M of the FCA Act. In particular: (a) substantial costs are being incurred by the parties in conducting the legal proceedings, in circumstances where it is clear that the businesses involved are relatively modest. Moreover, as noted above, both the first and second respondents have serious financial difficulties. The costs of the litigation will inevitably grow for all the parties preparing for, and conducting, a final hearing which, on current indications, will be hotly contested and occupy several hearing days. To date numerous interlocutory applications have been filed on behalf of both the applicant and the respondents, several of which are yet to be heard. They too will generate significant costs for the parties. Of course the parties will have incurred and will continue to incur costs in participating in the IP Australia proceedings, but it is highly likely that those costs will be of a lesser magnitude than their litigation costs; (b) there is some prospect that the parties' dispute may be finalised if the IP Australia proceedings are allowed to take their course. In any event, those processes may lead to some narrowing of the issues in dispute between the parties in the legal proceedings; (c) if any of the parties does not accept a decision of the Registrar under s 52 of the Act, the party may avail itself of the right of appeal under s 52(7). If this occurs, consideration could be given to joining any such appeal to the current proceedings if and when the temporary stay is lifted; (d) seeking to resolve the parties' dispute by allowing the applications before IP Australia to progress to finalisation is also commensurate with the importance and complexity of the matters in dispute; and (e) it appears that IP Australia's consideration of the revocation request is at least as well advanced - if not more advanced - than that aspect of the Court proceedings. The examination process is not as far advanced because of the bar imposed by s 63(3), but it is significant to note that if that bar were lifted the examination by IP Australia would be subject to the time periods stipulated in reg 5.04 of the Designs Regulations 2004 (the Regulations). 35 Fourthly, I have taken into account the various matters raised by the applicant in opposition to the relevant interlocutory applications. One matter which is particularly significant and has troubled me relates to the different procedures available in Court proceedings compared with those in IP Australia. As the applicant points out, the rules of evidence do not apply in IP Australia and there is a risk that hearsay evidence (such as an alleged Skype communication involving Mr William Ke, a witness for the respondents who is based in China) may be relied upon in any administrative determination by the Registrar. As noted above, the applicant alleges that the probity of some of the respondents' evidence is questionable and that it will not have an opportunity in IP Australia properly to test that evidence, including by cross-examining Mr Ke. The applicant says that these procedural differences create a "grave injustice" for it. This submission is not without some force, but I believe it is outweighed by the other considerations set out above. Moreover, while it is true that the applicant will not have an opportunity to cross-examine Mr Ke in the IP Australia proceedings, it should be noted that the Registrar is subject to an express statutory obligation under s 52(6) of the Act to provide procedural fairness. The Registrar is also statutorily obliged to conduct an examination in accordance with the procedures set out in the Regulations (see s 65(3) of the Act and reg 5.03 of the Regulations). There is no reason to believe that the applicant will not have an opportunity to put to the Registrar whatever it wishes to say about the probative value of any of the information supplied to IP Australia by the respondents in support of either of their applications. The weight to be given to that evidence will be a matter for the Registrar to determine. As noted above, the applicant also has a right of appeal under s 52(7) of the Act. 36 Finally, I should state that I do not accept the applicant's submission that the applications made to IP Australia by the respondents constitute an abuse of process or are oppressive or vexatious. It is understandable that the respondents would prefer to avoid if they can costly litigation in seeking to resolve their dispute with the applicant. The Act itself expressly contemplates the possibility of parallel proceedings in a court and in IP Australia and, while giving general primacy to court proceedings, provision is made for the court to adjust that primacy in an appropriate case. That is what I believe should occur here. 37 For all these reasons I consider that this is an appropriate case in which: (a) an order should be made under s 63(3) of the Act that the Registrar of Designs should examine the design as requested by the first respondent in its application dated 6 December 2012. In my view, however, it is inappropriate to make any of the other transfer orders sought by the first respondent in its interlocutory application filed on 1 May 2013 (see [13] above). I accept the applicant's submission that there is a real doubt as to whether the Court has the power to in effect transfer all or a substantial part of the proceedings for determination by IP Australia. But for reasons given above, I consider that this is an appropriate case in which to make an order as is expressly contemplated by s 63(3) of the Act; and (b) the Court proceedings should be stayed pending finalisation by the Registrar of Designs of both the application dated 8 August 2012 requesting revocation on grounds relating to "entitled persons" and the application dated 6 December 2012 requesting an examination of the relevant registered design. 38 As the first respondent has not sought costs in respect of either of its two relevant interlocutory applications, I will make no order as to costs. It is appropriate, however, that the parties have liberty to apply on the giving of 72 hours notice. Orders will be made accordingly. I certify that the preceding thirty-eight (38) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Griffiths.