Federal Treasury Enterprise (FKP) Sojuzplodoimport v Spirits International B.V. [2017] FCA 1345 | Case summary

Introduction 1 This proceeding, which concerns, inter alia, the ownership of the STOLICHNAYA and MOSCOVSKAYA trade marks is a remnant cross-claim in a larger overall proceeding commenced in 2004. Most of the overall proceeding settled a number of years ago, but one cross-claim remains extant; that brought by two Russian entities, Federal Treasury Enterprise Sojuzplodoimport and Federal Public Unitary Enterprise External Economic Union Sojuzplodoimport. It is convenient to call these FKP and FGUP respectively (and together, 'FKP/FGUP'). By their Third Further Amended Cross-Claim, FKP/FGUP sue Spirits International B.V. ('Spirits'), a Dutch entity, to rectify the register of trade marks in Australia to record FKP or FGUP as the registered owner of a number of trade marks relating to alcoholic beverages, including vodka, and including the famous STOLICHNAYA trade mark. The cross-claim is a complex document, but the underlying allegation is that these various trade marks were stolen from the Russian Federation in nefarious circumstances taking place shortly after the collapse of the former Union of Soviet Socialist Republics ('the Soviet Union'). 2 On 13 March 2000, then Acting President Vladimir Putin of the Russian Federation issued this instruction to various senior Russian officials: 'I request urgently to take measures directed to restoration and protection of the rights of the state concerning intellectual property in the sphere of production and turnover of vodka products, and also for detection and bringing to account of the persons involved in violation of these rights. Report on the results monthly.' 3 The officials who received this instruction included the Prime Minister and the Minister of the Interior. It is a reasonable inference that the present cross-claim has some relationship with this direction from Acting President Putin. The direction demonstrates that the retrieval of the trade marks is a matter which has exercised the Russian Federation at its highest levels. 4 Spirits now applies by an interlocutory application filed on 19 August 2016 to stay any further proceedings on the cross-claim on the basis that the Russian Federation has failed adequately to comply with an invitation from this Court to give discovery. The invitation was not an order in light of the Russian Federation's status as a sovereign state. Indeed, the Russian Federation is not a party to the proceeding. 5 To understand the role of the Russian Federation in this proceeding, it is necessary to say a little more about the nature of the claims made by FKP/FGUP. The former Soviet Union collapsed towards the end of 1991. There is no dispute that, at that time, there was an entity called VVO which was organised under the laws of the Soviet Union and which was exporting vodka to other nations including Australia under, inter alia, the STOLICHNAYA trademark. VVO was the registered owner of that, and other related, trade marks in this country. 6 The central issue between the parties concerns legal events which occurred on or around 20 January 1992. Spirits says that, on that day, VVO was transformed into a new entity, VAO, which then acceded to all of VVO's property. Subsequently, in 1998, Spirits says that the Australian trade marks were transferred from VAO to another entity, ZAO, which ultimately assigned them to Spirits in 1999. FKP/FGUP say, by contrast, that VVO was not transformed into VAO on 20 January 1992 but retained its own independent existence until it was ultimately renamed and re-organised as FGUP in 2001. Consequently, if that be correct, it is FGUP which is now the rightful owner of the trade marks and not Spirits. For completeness, FKP is an entity created under Russian law in 2001 to make and sell vodka. In 2005, it was given the additional function, inter alia, of recovering the rights to the trade marks relating to Russian alcoholic products. 7 So the critical question in the case is whether VVO was transformed on 20 January 1992 into VAO, as Spirits contends, or not, as FKP/FGUP contends. There are some other issues too, such as the effect for res judicata purposes of some related proceedings before the Dutch courts and other issues such as estoppel and laches. But these are not relevant to the disposition of Spirits' application for a stay. 8 There may be a question as to whether the accession issue is to be resolved by reference to the law of the former Soviet Union or under Russian law. But regardless of which legal system governed the events of 20 January 1992, the legal issue which arises in this proceeding appears very similar and turns on the requirements under either legal system for a valid privatisation of a State entity (i.e. the transformation of VVO into VAO). Both Russian and Soviet law appeared in 1992 to have required as one of the necessary steps leading to a privatisation, the carrying out of an assessment of the value of the pre-existing State entity's property. This was to be performed by a commission consisting of various identified officials. The main factual debate between the parties is whether such an assessment ever took place in the case of VVO. 9 There is, it would seem, presently no direct documentary evidence that such an assessment was carried out. The legal experts whom the parties propose to call at trial draw different conclusions about the significance of this. Mr Muranov, for FKP/FGUP, thinks it means that an assessment of VVO's property was never done. Mr Newcity, for Spirits, thinks that there are documents available from which it may be inferred that such an assessment must have been carried out. 10 The trial of this issue is therefore going to involve, at least, a close examination of the documents held by VVO at, or around, 20 January 1992. 11 It is at this juncture that matters become more complex. Away from the legal niceties of whether the privatisation had been legally effected under Soviet or Russian law, the reality appears to have been that by 1999 the vodka business, howsoever described, was being conducted by ZAO (the entity from which it will be recalled Spirits says it took an assignment of the trade marks). This is known because during the period between 1999 to 2002, and again in 2007, Russian law enforcement officials conducted around 25 raids at ZAO's premises in Moscow. During these raids an extensive range of documentation was taken away. 12 Spirits seeks to have access to this material. Although some of the material has recently been produced by the Russian Federation, Spirits says the produced material consists of only a small selection of the documents which were taken from ZAO's premises. Broadly, its point is that the raids on ZAO's premises were part of an investigation by Russian state actors into the legality of VVO's privatisation, so that it is very likely that the material relating to that topic was amongst the material seized. A second set of materials that Spirits would like to see now produced are identified individual documents which Spirits says it can prove must exist but which have, nevertheless, not been produced. For example, it will be recalled from above at [2] that Acting President Putin's direction had called for the production of monthly reports. Not every such report has been produced. Spirits says that if Acting President Putin called for monthly reports it is highly likely that such reports exist. 13 Spirits has been seeking these documents, with some interruptions, for more than a decade. On 5 September 2006, following the filing of a motion by Spirits on 23 November 2005, and responding to similar arguments to those now put to me, Edmonds J ordered that unless the Russian Federation provided categories of discovery to be agreed or determined, the proceedings would be stayed pending further order: SPI Spirits (Cyprus) Ltd v Diageo Australia Ltd (No 2) [2006] FCA 931; (2006) FCR 150 ('SPI Spirits (No 2)'). 14 His Honour found that even though it was not a party to the cross-claim, the reality was that the Russian Federation was the true plaintiff in the proceeding and that it should, in that circumstance, provide discovery. The Full Court allowed an appeal from the orders that Edmonds J made, but only on the very limited basis that, as a sovereign state, the Russian Federation should first have been given the opportunity to provide discovery voluntarily in co-operation with FKP/FGUP rather than being threatened with a stay. 15 The present application for a stay represents the end-point of the drawn-out process commenced by the Full Court's decision. On 4 December 2013, the parties were able to agree what the relevant categories for this discovery process should be and, on that day, Edmonds J made further orders giving effect to that agreement. As I understood it, there was no substantive complaint about FKP/FGUP's own compliance with those orders. The difficulty instead lay in FKP/FGUP's efforts to have the Russian Federation give discovery of the same matters. 16 Those efforts were as follows. In the second half of 2014, the solicitors for FKP/FGUP wrote in similar terms to 11 entities of the Russian Federation. Some of these entities produced small numbers of documents but some produced no documents at all. In all, approximately 110 documents were obtained as a result of these requests. 17 For the reasons which now follow, I do not think the Russian Federation has made a reasonable attempt to give discovery in terms of the categories specified by Edmonds J on 4 December 2013. The cross-claim will be stayed until further order. If proper discovery is not given by 30 November 2018, I will entertain an application, at that time, to dismiss the cross-claim as an abuse of process and/or for want of prosecution. 18 It is useful to begin with Sprits' claims in relation to the documents which it says were seized by Russian officials from ZAO's premises during multiple raids.

Federal Treasury Enterprise (FKP) Sojuzplodoimport v Spirits International B.V.

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