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

Federal Court of Australia|2019-10-31|Before: Batt J, Perram J

Any further proceeding on the third further amended cross-claim be permanently stayed.
The Cross-Claimants be granted leave to appeal from Order 1.
The Cross-Claimants pay the Cross-Respondent's costs of prayer 1 of the Cross-Respondent's interlocutory application of 7 December 2018.
Prayers 2, 3, 4, 6, 7 and 8 of the Cross-Respondent's interlocutory application of 7 December 2018 be stood over to a case management hearing on Friday 22 November 2019 at 9.30 am. Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

Introduction 1 These reasons should be read alongside the Court's reasons for judgment in Federal Treasury Enterprise (FKP) Sojuzplodimport v Spirits International B.V. (Permanent Stay) [2019] FCA 802 ('the Permanent Stay Decision') and in Federal Treasury Enterprise (FKP) Sojuzplodimport v Spirits International B.V. (No 4) [2017] FCA 1345 ('the Interim Stay Decision') and assume a familiarity with both. In the Permanent Stay Decision I concluded that, in principle, Spirits International B.V. ('Spirits') was entitled to a permanent stay of the proceeding brought on the third further amended cross-claim by two Russian entities. Federal Treasury Enterprise (FKP) Sojuzplodimport ('FKP') and Federal State Unitary Enterprise ('FGUP'). There is no reason to distinguish FKP from FGUP for the purposes of these reasons and I will use 'FKP' to refer to both. Apart from the cross-claim, no other part of the proceeding remains extant, the balance of the proceedings having settled many years ago. 2 The basis of both decisions was that the Russian Federation, which stands behind FKP, had failed to comply with an invitation to give discovery over an unreasonably extensive period of time. I also concluded that FKP had itself failed to give complete discovery despite having been afforded a reasonable opportunity to do so. However, as I noted at [152] and [160] in the Permanent Stay Decision, there were potentially some issues which arose on the cross-claim to which the documents which ought to have been discovered by FKP and the Russian Federation might not have been relevant. In relation to any such issue, a permanent stay did not in principle appear appropriate since Spirits could not be prejudiced. 3 Accordingly, the parties were invited to agree upon the scope of the permanent stay and, in the event that they could not, a further hearing was scheduled to resolve its form. That hearing took place on Monday 14 October 2019. Now for determination therefore is that question. Spirits has taken the position that all further proceedings on the cross-claim should be permanently stayed since the documents which would have been discovered (if the stay had not been granted) would have been potentially relevant to every issue on the cross-claim. FKP, however, submits that it should be entitled to pursue its contention that Spirits is bound by adverse issue estoppels or res judicata arising from certain proceedings before the Dutch Courts. It says that none of the documents which would have been discovered but for the stay could have been relevant to that contention.

Background 4 The debate between the parties concerns the ownership of a number of trade marks including the famous STOLICHNAYA trade mark ('the Trade Marks'). The Trade Marks were certainly owned by a state-owned Russian entity conveniently referred to as VVO until 20 January 1992. There is a dispute about what happened on that day with Spirits contending that VVO was transformed into a new entity conveniently called VAO which became its successor in title. If it was the successor in title VAO became the owner of the Trade Marks. At later times it disposed of (or perhaps purported to dispose of) the Trade Marks which, through subsequent assignments, have now found their way to Spirits. On the other hand, FKP contends that no such transformation occurred so that the Trade Marks were, in effect, illicitly taken from VVO and siphoned away through VAO, that is to say, VAO was not VVO's true successor in title. FKP contends that it is the rightful successor to VVO and hence claims to be the true owner of the Trade Marks. The Trade Marks include Australian trade marks ('the Australian Marks'). FKP consequently alleges that they are true owners of the Australian Marks and that the register of trade marks should be rectified to remove Spirits as their registered owner and to replace it instead with FKP. 5 As mentioned above, this issue has been resolved by Dutch Courts. There has been litigation between FKP and Spirits in the Netherlands since 2003 concerning the ownership of what are referred to as the Benelux Trade Marks which correspond to the Australian Marks in the Benelux nations of Belgium, the Netherlands and Luxembourg. As in this proceeding, the ownership of these marks depends on the same events which occurred in Moscow on 20 January 1992, that is to say, on whether or not VVO was transformed into VAO. In 2006 the District Court of Rotterdam held that VVO had not been transformed into VAO, that VVO continued to own the Benelux marks and that VAO had never had a valid title to the Benelux Marks. This did not resolve all of the issues between the parties. There remained some questions about FKP's standing to bring the action and Spirits was required to provide greater clarity as to the identity of the entities from which it acquired the marks. Despite that, the District Court of Rotterdam granted Spirits leave to appeal. 6 In 2012 the Court of Appeal of The Hague affirmed the District Court's conclusion and also found that Spirits knew or ought to have known that VAO had no power to assign the Benelux Trade Marks. This ruling was upheld in 2013 by the Supreme Court of the Netherlands. In 2013 the remaining issues about FKP's standing were resolved by the District Court of Rotterdam. At that time, Spirits raised a contention that many of VAO's documents had been seized by the Russian Federation and that the Court's earlier 2006 decision should be revisited on that basis. The District Court did not accept this since it thought that this was known to Spirits before the 2006 hearing and consequently it should have been raised at that time. The Court concluded that FKP did have standing. FKP was granted substantive relief. These conclusions - FKP's standing and the significance of the documents seized from VAO by the Russian Federation - were upheld by the Court of Appeal of The Hague in 2018. A further appeal by Spirits to the Supreme Court of the Netherlands was lodged in 2018 but this has not yet been determined by the Court. The Court has, however, announced that it will deliver judgment on the appeal on 24 January 2020.

The Pleaded Issues 7 In this Court, the procedural form of the issues between the parties is as follows. By the cross-claim FKP alleges that the transformation of VVO into VAO on 20 January 1992 did not occur and that FKP is the successor entity to VVO. Consequently, they allege that FKP is the true owner of the Australian Marks and as such is entitled to relief under s 88 of the Trade Marks Act 1995 (Cth) ('the Act') in the form of orders rectifying the register of trade marks so as to remove Spirits as the owner of the Australian Marks and instead to record FKP as their owner. 8 In its defence to the cross-claim, Spirits says that the transformation of VVO into VAO did occur but that even if it did not the register should not be rectified for three reasons. First, it says that FKP has dallied in bringing its claim forward and Spirits is entitled to rely upon a defence of laches; secondly, it says VAO was long held out as the successor entity to VVO by the Russian Federation so that its emanation, FKP, cannot now be heard to say otherwise, that is to say, there is an estoppel; and, thirdly, it says that relief should be refused under s 88 as a matter of discretion for various reasons not dissimilar to those upon which the laches and estoppel defences rest. It is convenient to refer to these defences as the Discretionary Defences. There are some other very minor defences (such as FKP's standing) but these have no relevance for present purposes and may be disregarded. 9 In its reply to Spirits' defence, FKP joins issue on the question of VVO's transformation into VAO but it is also says that that issue has been resolved by the Dutch Courts where its contentions on the issue were accepted by the District Court of Rotterdam in 2006, the Court of Appeal of The Hague in 2012 and by the Supreme Court of the Netherlands in 2013. All three Courts had concluded that the transformation VVO into VAO had not occurred. FKP's reply does not presently refer to the fact that the Court of Appeal's decision was upheld by the Supreme Court of the Netherlands but this was not in dispute in the present hearing and I will assume in FKP's favour that minor pleading issues of that kind can be readily be resolved and ought form no part of any consideration of a substantive question. It is convenient to refer to these decisions as the Dutch Decisions. 10 FKP says that it is entitled to rely on issue estoppels arising from the Dutch Decisions on both the issue of VVO's non-transformation into VAO but also in answer to the 'whole' of the defence (the word used in para 7A of the reply). Necessarily, this includes the Discretionary Defences. 11 Spirits subsequently filed a rejoinder to FKP's reply. In this rejoinder Spirits alleges that the decisions of the Dutch Courts are not final in the requisite sense and cannot therefore give rise to an issue estoppel. Although this was not developed in any detail at the hearing, the basis of this contention is most likely that the outcome of Dutch Decisions cannot be known with certainty until 24 January 2020 when the Supreme Court of the Netherlands gives judgment on Spirits' appeal to it. Only then will it be known what will be the ultimate fate of Spirits' attempts to have the District Court of Rotterdam revisit its 2006 decision on the basis that the Russian Federation had seized relevant documents from VAO. 12 In addition to its contention that the Dutch Decisions are not final, Spirits also alleges in its rejoinder to the reply that because the decisions of the Dutch Courts are about the operation of Russian or Soviet law, this Court 'as a matter of caution and in the exercise of discretion' should not recognise the decisions. 13 The parties agreed that on a hearing such as the present it was not possible to determine whether FKP's plea in its reply of issue estoppel was, or was not, a complete answer to Spirits' defence (it being recalled that, relevantly, the defence consisted of a contention that the transformation of VVO into VAO had occurred as well as the three Discretionary Defences).

Submissions 14 Spirits submitted that the Dutch Decisions were not final and could not give rise to an issue estoppel. If they were final, there were no issues in them which corresponded with the Discretionary Defences. Assuming that the Dutch Decisions gave rise to an issue estoppel binding Spirits to the outcome that the transformation had not occurred, it could not give rise to any issue estoppels on the Discretionary Defences. Alternatively, if the Dutch Decisions did give rise to issue estoppels on all issues arising from its defence, it was nevertheless entitled to call in aid of the principle expounded by the House of Lords in Arnold v National Westminster Bank plc [1991] 2 AC 93 ('Arnold'). There it was accepted that in special circumstances an issue estoppel might not arise from a determination of the same issue in another proceeding. One such special circumstance was where material became available to a party in the subsequent proceeding bearing on an issue determined in the first proceeding which could not by reasonable diligence have been obtained at that time. I will return to the principle in Arnold shortly. 15 Spirits submitted that access to the discovered material might well have shown that the Dutch Decisions were wrong in concluding that the transformation had not occurred and that, making the assumption that those decisions dealt with issues the same as those raised by the Discretionary Defences, that they were wrong about those issues too. This was said to be particularly pertinent where the proceedings before the Dutch Courts had not involved any discovery. Consequently, it could not be said that the material which would have been discovered was irrelevant to the issue estoppel defence. It went to the Arnold point. 16 For its part, FKP submitted that the documents which would have been discovered could not have assisted Spirits in relation to the Discretionary Defences. Assuming that to be wrong, it then submitted that the Dutch Decisions were final and decided not only the transformation issues but also arguably issues which were the same as those raised by the Discretionary Defences. Consequently, there was an issue estoppel in relation to those matters, too. FKP did not submit that this should be finally determined to be so in the present hearing but it did submit that it was arguably the case so that it should not now be locked out of a hearing merely because it was not inevitably guaranteed of victory on that submission. In relation to the contention that Spirits should be entitled to argue that the Dutch Decisions were wrong because of the principle in Arnold, FKP noted that the principle in Arnold was not uncontroversial, that Spirits could not point to any material at the moment which would enliven the principle and that discovery could have been sought in the Dutch proceedings so that it could not be said that the material was not available in those proceedings by the exercise of reasonable diligence (a requirement of Arnold).

Decision 17 The reason the permanent stay was considered appropriate in the Permanent Stay Decision was because the Russian Federation and FKP had failed unreasonably to give discovery and their continuing inaction or delay had reached a point where the proceeding had become an abuse of process. The discovery categories included categories which were directly relevant not only to the issue of transformation but also to the Discretionary Defences. Indeed, Category 29(d) called for FKP (and by extension the Russian Federation) to produce documents which supported Spirits' case on the Discretionary Defences. That category was determined by consent so it is far too late now to submit, as FKP sought at the heel of the hunt to do, that there was some infirmity in the drawing of Category 29(d). 18 The only way therefore that one can say that the discovered documents could not have been relevant to what is left of the proceeding is if one can say that Spirits cannot succeed on the Discretionary Defences. I reject the submission that the material which would have been discovered could not assist on the Discretionary Defences. Category 29(d) is an immediate obstacle to that contention. But in any event, the scale of the discovery categories goes to the entire history of the transformation and what the Russian Federation knew about it at various times. The contention that such material could have no conceivable bearing on the Discretionary Defences needs only to be stated to be rejected. 19 I also reject FKP's submission that the Dutch Decisions are a complete answer to the Discretionary Defences because they give rise to issue estoppels barring the whole of Spirits' defence. Here, I assume in FKP's favour that the Dutch Decisions are relevantly final and that the decision of the Supreme Court of the Netherlands due on 24 January 2020 is that the appeal be dismissed. Despite that, given that neither party sought to have any definitive determination of what issue estoppels the Dutch Decisions give rise to, it is difficult presently to say that the documents which would have been discovered must be irrelevant to FKP's claim that it is entitled to rely on issue estoppel to defeat the Discretionary Defences. For example, one possible outcome is that the Dutch Decisions are held to determine the transformation issues but not the Discretionary Defences. In that scenario, the Discretionary Defences would remain live. Precisely this outcome was countenanced by the Full Court of this Court in its distant determination that a separate question procedure should be adopted in this proceeding (a conclusion abandoned by the parties at a subsequent time): Spirits International BV v Federal Treasury Enterprise (FKP) Sojuzplodimport [2011] 2011 FCAFC 69; 91 IPR 438 at 471 [130] per Buchanan J and 455 [70], 457 [76], 458 [78] and [79] per Rares J. That decision was concerned with the effect of certain Russian proceedings (not relied on by FKP for the purposes of this application although pleaded in its reply). They are therefore not strictly applicable but they do illustrate that it is conceptually possible for the Discretionary Defences to survive even if Spirits does not prevail on the transformation issue (either substantively on the facts or by reason of an issue estoppel arising from the Dutch Decisions). 20 In any event, even if the Dutch Decisions were ultimately held to determine issues the same as those raised by the Discretionary Defences, I accept Spirits' submissions based on Arnold. That case concerned consecutive rent review proceedings between a landlord and its tenant, a firm of accountants. In the first review proceeding, a particular construction of the lease had been adopted. Subsequently, unrelated appellate decisions established that this construction was wrong. In a second rent review, the accountants sought to rely upon these appellate decisions but were met with a plea of issue estoppel arising from the first rent review proceeding. It was held that special circumstances existed and that the plea was not available. Lord Keith of Kinkel (with whom the rest of the Judicial Committee agreed) put it this way at 109: … In my opinion your Lordships should affirm it to be the law that there may be an exception to issue estoppel in the special circumstance that there has become available to a party further material relevant to the correct determination of a point involved in the earlier proceedings, whether or not that point was specifically raised and decided, being material which could not by reasonable diligence have been adduced in those proceedings. One of the purposes of estoppel being to work justice between the parties, it is open to courts to recognise that in special circumstances inflexible application of it may have the opposite result … 21 Although Arnold itself was concerned with a subsequent change in the law, its reasoning extends to changed factual circumstances. The principle has been referred to with apparent approval in a number of Australian decisions: The Airtourer Co-operative Ltd v Millicer Aircraft Industries Pty Ltd (subject to a Deed of Company Arrangement) [2004] FCA 393 at [19]-[20]; Saba v Plumb [2017] NSWSC 622 at [117]; Kingston City Council v Monash City Council [2001] VSC 41 at [82], [107]-[108] and [137]; GE Mortgages Solutions Ltd v Whild [2013] VSC 503 at [76]; Briggs v Hall & Anor (unreported, Sup Ct, Vic, Batt J, 8 November 1994). It is true that in Commonwealth v Cockatoo Dockyard Pty Ltd [2006] NSWCA 322 at [487] the Court of Appeal reserved the question of whether Arnold formed part of the law of NSW. For completeness, the principle in Arnold had been recognised before that decision in Mills v Cooper [1967] 2 QB 459 which itself was referred to in Bollen v Hickson [1981] Qd R 249 at 253. For present purposes, I do not see how I can proceed on the basis that Spirits' invocation of the Arnold principle cannot succeed because the principle does not exist. It is not entirely self-evident that this was FKP's submission, although it certainly flirted with it. 22 Nor do I accept FKP's submission that the Arnold principle is not engaged because Spirits does not presently point to any document that could enliven it. In the counterfactual where FKP and the Russian Federation gave proper and timely discovery, Spirits would have had access to the full range of discovered documents. They may, or may not have, included documents which would assist it in invoking the Arnold principle. Of course, Spirits does not have access to those documents at the moment (or at least not to the full range of them). But this inability on Spirits' part is to be laid at the feet of FKP, so it seems to me, and not Spirits. It is FKP and the Russian Federation which have not given proper discovery. It would be surprising if it were open to FKP to submit that it should be entitled to proceed to a trial of part of the case to which its discovered documents might be relevant to a submission which Spirits wishes to make because no such documents had been produced by Spirits when Spirits' inability to do so is a direct function of the failure of FKP and the Russian Federation to give discovery. It would be circular. 23 I also do not accept FKP's submission that the Arnold principle cannot be invoked because Spirits could have sought the documents in the Dutch proceedings. That seems to be an issue suitable for trial. To embrace it for present purposes would be tantamount to concluding that FKP must inevitably succeed on this issue and Spirits fail. But I do not see how such an inquiry could be conducted without considering much more closely the course of Spirits' attempt to reopen the 2006 judgment of the District Court of Rotterdam. 24 In particular, making the assumption in FKP's favour that the Supreme Court of the Netherlands will dismiss Spirits' appeal on 24 January 2020, the following questions would then arise: (a) are the documents which are the subject of Spirits' reopening application before the District Court of Rotterdam the same documents the subject of the agreed discovery categories in this proceeding; (b) in the Dutch proceedings was Spirits entitled to seek discovery from the Russian Federation (as it has done here); (c) what is the precise nature of the juridical entitlement under Dutch law to seek discovery, and when precisely can it be granted; (d) does the fact that Spirits applied to reopen the 2006 District Court of Rotterdam decision and has pursued it all the way to the Supreme Court of the Netherlands mean that it has taken reasonable steps to obtain the documents in the Dutch proceedings under Arnold; (e) as a matter of Dutch law, did (or will) Spirits fail on its reopening because of the unreasonableness of its conduct or because of the asperity of Dutch civil procedure on the topic of discovery; (f) if Spirits' conduct for the purposes of Dutch civil procedure was unreasonable does that entail that it was unreasonable for the purposes of Arnold; (g) are the reasons the District Court of Rotterdam gave for concluding that Spirits knew in 2006 about the documents seized from VAO by the Russian Federation applicable to all of the documents which are the subject of the agreed discovery regime in this case; and (h) where the hearing in this Court concerns what the consequences for FKP should be for failing to comply with a consensual discovery regime, is there something incongruous in FKP submitting that Spirits should fail because it failed to seek discovery in a jurisdiction which does not generally order discovery? 25 These issues are trial questions and cannot sensibly be embarked on in the present hearing. The parties did not attempt to wrestle with them other than in a superficial way (and I do not say that by way of criticism - the superficiality is driven by the nature of the debate as one about the form of orders). For example, as to the Dutch legal issues inherent to varying extents in questions (b), (c), (e), (f) and (g) the material on the present hearing did not come close to providing the answers. There was evidence from Spirits' Dutch attorney, Mr van Woortman, that discovery is not 'generally permitted' in Dutch civil proceedings. There was also evidence from FKP's Dutch attorney, Mr van Manen, that Spirits had been unsuccessful in an application to reopen the Dutch proceedings on the basis of the material seized by the Russian Federation. But it will be apparent that evidence of that kind does not approach the level of detail necessary to enter this fray. 26 Accordingly, I do not accept that I can determine at this hearing the contention that Arnold will not apply because Spirits did not seek the documents in the Dutch proceedings. 27 Inevitably this must mean that I cannot say that the trial of the issue estoppel arguments would not involve the documents which would have been discovered by FKP and the Russian Federation. If the Arnold principle is in play the discovered documents might well have been relevant. The appropriate order is therefore that any further proceeding on the third amended cross-claim be permanently stayed.

Orders 28 The parties agreed that the Court should order FKP and FGUP to pay Spirits' costs in relation to prayer 1 of the interlocutory application dated 7 December 2018. Both parties also agreed that regardless of the outcome both should be granted leave to appeal. I indicated in the Permanent Stay Decision, when I contemplated that the permanent stay might not apply to the whole of the proceedings on the cross-claim, that I would grant both parties leave to appeal. At that time, there was reason to think that Spirits might be dissatisfied that the permanent stay was less than total. As a result of the conclusion I have now reached, however, the permanent stay will apply to the whole of any further proceeding on the cross-claim. A grant of leave to appeal to Spirits therefore seems to be pointless. Spirits also sought in its interlocutory application of 7 December 2018 a number of other prayers for relief. These included matters such as the release of security, the costs of the proceedings and other ancillary matters. These will now need to be dealt with. The relevant prayers were prayers 2, 3, 4 , 6, 7 and 8. I will stand these over for a case management hearing on Friday 22 November 2019. 29 I make the following orders:

Any further proceeding on the third further amended cross-claim be permanently stayed.
The Cross-Claimants be granted leave to appeal from Order 1.
The Cross-Claimants pay the Cross-Respondents' costs of prayer 1 of the Cross-Respondent's interlocutory application of 7 December 2018.
Prayers 2, 3, 4, 6, 7 and 8 of the Cross-Respondent's interlocutory application of 7 December 2018 be stood over to a case management hearing on Friday 22 November 2019 at 9.30 am. I certify that the preceding twenty-nine (29) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Perram.

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