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

The Court 1 The appellants appeal by leave granted by the learned primary judge from orders made by his Honour on 5 September 2006, including an order that: Unless the Russian Federation provides discovery of all documents falling within the categories to be agreed or failing agreement determined by the Court, by filing and serving a verified list by such date as the Court may order, the Cross-Claim be stayed on that date until further order. This order gave effect to his Honour's reasons delivered on 25 July 2006 dealing with a notice of motion of the first respondent to this appeal, Spirits International N.V. ('Spirits'), seeking the provision of discovery by the Russian Federation. 2 The proceedings were commenced by Spirits and a related company on 7 December 2004, initially naming the second respondent to this appeal, Diageo Australia Limited ('Diageo'), as the sole respondent. Spirits' claim raised issues relating to the ownership of certain registered trademarks, including marks incorporating the words STOLICHNAYA and MOSKOVSKAYA. On 17 December 2004, on application of Federal Treasury Enterprise (FKP) Sojuzplodoimport ('FKP'), an order was made joining FKP as a respondent to Spirits' claim. On 10 February 2005, FKP filed a cross-claim against Spirits and Diageo in effect seeking the transfer or cancellation of registration of the disputed trademarks. Federal Public Unitary Enterprise External Economic Union Sojuzplodoimport (FGUP VO) ('FGUP') was subsequently added as a second cross-claimant. 3 The following claims are pleaded in the cross-claim (as amended). FKP and FGUP are economic entities organised and existing under the laws of the Russian Federation. FGUP is the current legal emanation of an entity known as Sojuzplodoimport which was organised and has existed under the laws of the former Soviet Union (and subsequently the Russian Federation) since 1966 and which held and exercised certain trade mark rights at least until the dissolution of the Soviet Union in 1992. Sojuzplodoimport was the registered owner of those of the disputed trademarks which existed on the register in Australia before 1992. FKP was created by order of the Government of the Russian Federation in 2001 and holds certain appointments and authorisations issued by that Government and FGUP, and itself applied for registration of certain of the disputed trademarks and claims an intention to license the use of the disputed trademarks upon rectification of the Register. 4 FKP and FGUP allege that, upon the dissolution of the former Soviet Union in 1992, the rights of Sojuzplodoimport were wrongfully appropriated by certain individuals and that, following a series of transactions, in Australia the disputed trademarks ultimately came to be held by Spirits. 5 As the matter was argued before the learned primary judge, it became necessary for him to consider the relationship between the Russian Federation, FKP and FGUP. His Honour came to the following conclusion: After careful consideration, I have come to the conclusion, not without some hesitation, that the Russian Federation is the 'real', applicant/plaintiff in the cross-claim because the claims made therein are brought and made on behalf of the Russian Federation by FKP and FGUP, and not in their own right: see Willis & Co v Baddeley [1892] 2 QB 324; Abu Dhabi National Tanker Co v Product Star Shipping Ltd [1992] 2 A11 E.R. 20, [1991] 2 Lloyd's Rep. 508, cf James Nelson & Sons Ltd v Nelson Line (Liverpool) Ltd [1906] 2 KB 217. 6 On that basis, his Honour considered the appellants' submission that the orders sought in relation to the Russian Federation should not be made against a foreign entity that was not a party to the proceeding and was not otherwise subject to the jurisdiction of the Court. It was submitted that there was no power to so order and that in any event it was inappropriate to do so as a matter of discretion. The learned primary judge said: While these submissions may well have considerable force where the non-party person sought to be subject to an order under O 15A r 8 of the Federal Court Rules is a foreign entity, particularly a foreign State, that force is undermined in the face of a finding that the foreign entity is the 'real' applicant/plaintiff and the party or parties of record are but 'nominal' applicants/plaintiffs. None of the cases to which I was referred by FKP and FGUP had this particular feature. 7 The proceedings before his Honour have been case-managed, and after carefully considering the position, his Honour came to the view that he had power to so order and that discovery from the Russian Federation was appropriate and necessary. The learned primary judge was mindful of the comprehensive nature of the order made, but nevertheless made the order the subject of this appeal. 8 There were essentially two grounds of appeal. In the first, which was abandoned during the hearing, it was contended that his Honour's decision to require, in effect, a foreign state, which was not a party to the proceedings, to provide discovery was beyond power. Secondly it was said that the order, even if within power, was inappropriate in the circumstances. 9 There was much argument before us as to whether the Russian Federation was the 'real' applicant/plaintiff in the cross-claim. Further argument centred upon the applicability of the authorities relied upon by his Honour, in relation to which it was contended by Spirits that there was a principle that discovery should be required from a person not named as a party if that person was the 'real' plaintiff: Willis & Co v Baddeley [1892] 2 QB 324 and Abu Dhabi National Tanker Co v Product Star Shipping Ltd [1991] 2 Lloyd's Rep 508. 10 However, the issue of the appropriateness of the order complained of does not depend upon a resolution of these arguments, but upon different and broader considerations. Even assuming, in favour of the appellants, that both FKP and FGUP are legal entities separate and distinct from the Russian Federation, this would not prevent the Court having power to make an order of the kind complained of in this appeal. This is particularly so where relevant and potentially significant documents are held by the Russian Federation or its various instrumentalities which FKP and FGUP do not themselves hold or have power to obtain, and where FKP, at least, is acting in the interests of the Russian Federation and ultimately for its benefit (as is accepted by the appellants). 11 The question of power no longer being in question, the only remaining issue is that of discretion. In ordering discovery, the Court has a broad discretion and will balance considerations such as cost, time and possible oppression of the party required to produce the documents, against the importance of the documents and the likely benefits of their being produced. Normally an appellate court will not interfere with the exercise of discretion in a matter of practice and procedure unless an error of principle is demonstrated: see Australian Broadcasting Corporation v O'Neill (2006) 229 ALR 457 per Gummow and Hayne JJ. Moreover, an appellate court should be very hesitant about interfering with decisions made in the course of a judge's management of a case in his or her docket. 12 Before the learned primary judge, a significant factor for consideration was the potential impact of the proposed order upon the Russian Federation which is not a party to the proceedings and is also, of course, a foreign state. 13 It is true that the order is not specifically directed against the Russian Federation, and that there is no element of legal compulsion against that entity - see Gambro Pty Ltd & Anor v Fresenius Medical Care Australia Pty Limited (2002) 124 FCR 491 at 494, [10] per Tamberlin J. In considering, however, whether there was an error of principle in making the order, its effect must be looked at to see whether appropriate regard has been paid to international comity and to whether the order involves an inappropriate intrusion upon the sovereignty of a foreign state. 14 It is in these respects that we are persuaded that his Honour made an error of principle. His Honour was undoubtedly concerned about the invasion of the sovereignty of a foreign state. He considered the principles referred to in Stemcor (Australasia) Pty Ltd v Oceanwave Line SA [2004] FCA 391 at [12] per Allsop J; Arhill Pty Ltd v General Percival Company (1990) 23 NSWLR 545 and Aetna Pacific Securities Ltd v Hong Kong Bank of Australia Ltd (unreported, Supreme Court of New South Wales, Giles J, 29 April 1993) in respect of applications for leave to serve subpoenas outside the jurisdiction upon a non-party foreign entity. Nevertheless, his Honour did not, we consider, act with the caution that the principled exercise of the discretion requires where there is an intrusion upon the sovereignty of a foreign state. 15 The nature of the required caution was explained by Rogers CJ Comm D in Arhill 23 NSWLR 545. His Honour there emphasised the need for restraint upon subjecting a foreign entity (not, of course, in that case a foreign state) to local jurisdiction and the need to construe any powers conferred upon the court "consistently with the established criteria of international law with regard to comity" (at 553). It is important to note that, as in this case, the third party affected by the order in Arhill 23 NSWLR 545 was regarded by the judge as a 'real' party to the action (at 555). Despite this, the subpoenas were set aside. The approach in Arhill 23 NSWLR 545 was adopted by Allsop J in Stemcor [2004] FCA 391 at [12] where his Honour said that "the service of an order upon a German company demanding that it do something in Australia on pain of punishment in proceedings to which it has not submitted is such an invasion of German sovereignty as not to be contemplated except in the most exceptional circumstances". His Honour there was discussing service in Germany of a subpoena issued by an Australian court, in circumstances where there was no sanction for non-compliance. Whilst the only sanction for non-compliance in this case would have been a stay of the main proceedings, which would have operated only indirectly on the Russian Federation, we are of the view that the approach adopted in Arhill 23 NSWLR 545 and Stemcor [2004] FCA 391 ought to have guided the exercise of the discretion in the present case. 16 The observations to which we have referred may be made a fortiori when the foreign entity is a foreign state. In our view, consideration of these matters requires that the order for discovery be set aside. 17 The error in his Honour's approach can be explained by the concentration in the parties' submissions on the authorities as to who was the 'real' party to the cross-claim. Whether or not the Russian Federation was the 'real' party on the basis found by the learned primary judge, the order made clearly intrudes upon the sovereignty of a foreign state, albeit indirectly and possibly only as a matter of perception. 18 Comity, relevantly, was explained by the Supreme Court of the United States in Hilton v Guyot (1895) 159 U.S. 113 at 163-4: 'Comity', in the legal sense, is neither a matter of absolute obligation, on the one hand, nor of mere courtesy and good will, upon the other. But it is the recognition which one nation allows within its territory to the legislative, executive or judicial acts of another nation, having due regard both to international duty and convenience, and to the rights of its own citizens or of other persons who are under the protection of its laws. 19 In CSR Ltd v Cigna Insurance Australia Ltd (1997) 189 CLR 345 at 395-6, the High Court of Australia (Dawson, Toohey, Gaudron, McHugh, Gummow and Kirby JJ) in dealing with injunctions in restraint of foreign proceedings adopted this explanation and then stated: For this reason, the cases also emphasise that the power to grant injunctions in restraint of foreign proceedings should be exercised with caution. And that is so whether the injunction is sought in the exercise of the inherent or equitable jurisdiction. 20 Injunctions in restraint of foreign proceedings operate in personam, preventing the plaintiff from commencing or continuing foreign proceedings. Orders restraining a plaintiff do not in form or legal theory directly operate to interfere with the foreign court. Such orders do, however, interfere with the processes of a foreign court and may be perceived, by that court, as a breach of comity. In making the order of restraint the local court effectively determines that the foreign court should not exercise jurisdiction over the case before it. It is clear, therefore, that it is not only orders that directly operate against foreign states that raise issues about international comity. An order that indirectly interferes with another state's sovereignty similarly raises such concerns. 21 Whilst the order complained of here may be seen not to intrude to the extent contemplated by the High Court in CSR v Cigna 189 CLR 345, or to affect a foreign court, it may nevertheless be seen to affect a sovereign state. Thus comity dictated that caution be exercised before making the order. Whilst some may dispute the role of comity in the field of commercial litigation, it is our view that in this instance the learned primary judge did not exercise the caution necessary before making an order effectively requiring the Russian Federation to undertake the process of discovery. 22 In all the circumstances of this case, it was not necessary for the fair conduct of the proceedings for the learned primary judge to make the order of which the appellants complain without first giving the Russian Federation the opportunity to provide the discovery sought voluntarily and in cooperation with the appellants. It does not appear that any disadvantage to the parties would have resulted from such an opportunity other than, perhaps, some delay (which of course has occurred in any event). It was not suggested that cooperation would have been refused if the opportunity for it had been given. To have given this opportunity would not have denied the respondents any substantive rights and would have minimised any intrusion upon the sovereignty of the Russian Federation. In our view, caution required this opportunity to be given. In this way the Court could, without injustice to the parties, have respected the requirements of comity and have been appropriately sensitive to the sovereignty of the foreign state. 23 The Court would expect the parties and the Russian Federation to cooperate in undertaking the necessary discovery process. Of course, if such an expectation is not met, then the Court has power to ensure that justice is done between the parties: see, e.g. the comments of Rogers CJ Comm D in Arhill 23 NSWLR at 554-5. 24 We should indicate that we see no other error. If it were not for the error of principle that we have identified there would be no question of disturbing the orders made. These proceedings call for careful case-management, and the process of discovery is a matter about which a trial judge has a broad discretion. 25 It follows, however, that the appeal must be allowed and Orders 1 and 2 made on 5 September 2006 must be set aside. The motion of the first respondent to the cross-claim, as amended, notice of which was filed on 23 November 2005 must be dismissed. The parties must file written submissions within 14 days as to costs of the appeal and of the said motion.