Geneva Laboratories Ltd v Pharmacy Depot Hurstville Pty Ltd

(REVISED FROM THE TRANSCRIPT) RARES J: 1 On 17 April 2018, Mina Attia, the seventh respondent, applied for orders dismissing the proceeding as against him under r 26.01 of the Federal Court Rules 2011 or, alternatively, summarily under s 31A of the Federal Court of Australia Act 1976 (Cth). Because I was then engaged in a long trial, that originally was scheduled to continue until the end of May 2018, I was unable to deal with that interlocutory application promptly. When I became available after that trial settled, the parties negotiated and agreed consent orders on 7 June 2018 provided that this interlocutory application be fixed for hearing today, together with an interlocutory application of the thirteenth respondent, Krunal Mehta, seeking similar relief. The consent orders required that Geneva Laboratories Limited and Union-Swiss (Proprietary) Limited (the applicants) on or before 7 June 2018, file and serve any evidence in response to Mr Attia's and Mr Mehta's interlocutory applications, that Mr Attia and Mr Mehta each file and serve any evidence in reply on or before 14 June 2018, and that the parties file and serve a written outline of submissions not exceeding three pages on or before 18 June 2018.

The applicants' application to adjourn the hearing today 2 Both Mr Attia and Mr Mehta complied with the orders. The applicants did not. On 18 June 2018, the applicants served nearly 500 pages of material on which they wish to rely against Mr Mehta. As a result, I adjourned Mr Mehta's interlocutory application and ordered the applicants to pay his costs on an indemnity basis. The applicants conceded that they had no explanation for their default, but that they needed to rely on the further evidence and material they had just served. I stood that interlocutory application over for hearing on 12 July 2018, being the only practicable date available for me to hear it this year. 3 When Mr Attia sought to proceed with his interlocutory application, the applicants applied for it to be adjourned too. The applicants also wished to rely on similar material to that served on Mr Mehta on 18 June 2018, namely, some allegedly confidential pricing material that the applicants asserted was necessary for the purposes of disposing of Mr Attia's interlocutory application. 4 On 19 June 2018, at about 9.29am, the applicants' solicitors first gave notice to Mr Attia's solicitors that they wished to rely on that confidential material and at 12.17pm, supplied a draft order seeking to establish a confidentiality regime by which he and his solicitors could have access to it. Following an exchange of correspondence between the solicitors, Mr Attia's solicitors proposed that the applicants' draft affidavit relating to the allegedly confidential information be supplied, redacting the four paragraphs said to contain the information for which confidentiality protection was maintained. The applicants supplied nothing in response. 5 The context for the two interlocutory applications is that on 9 March 2018, I refused the applicants' interlocutory application to join Nayere Naghipoor, a director of one of the purchasers (U-Care Pty Limited, which subsequently has gone into liquidation) alleged to have been engaged in infringements of its intellectual property rights in its Bio-Oil products: Geneva Laboratories Limited v Pharmacy Depot Hurstville Pty Limited [2018] FCA 516. 6 One of the aspects upon which the applicants relied in that application was that Ms Naghipoor had caused U-Care to purchase counterfeit Bio-Oil at a price of around $16.95 excluding GST. The applicants had relied against Ms Naghipoor on an affidavit of Tracy Murdoch, brand manager of Aspen Pharmacare Australia Pty Limited, Geneva's exclusive Australian authorised distributor that it had used when obtaining search orders in May 2017. Aspen distributes the Bio-Oil products and has authorised three other companies to sell them to wholesale and retail outlets. There Ms Murdoch deposed that in about May 2017 she was "aware" that the average wholesale price of 200ml bottles of Bio-Oil in Australia at May 2017 was "roughly $22" and that that price had remained at that amount over the previous 12 months: see Geneva [2018] FCA 516 at [6]-[7]. 7 Mr Attia argues, on his interlocutory application, that there is no material distinction between the circumstances of Ms Naghipoor, who was the subject of the applicants' unsuccessful application for joinder and himself.

Consideration of adjournment application 8 It is difficult to understand, and senior counsel for the applicants has not been able to explain, the basis of the confidentiality orders sought in respect of the pricing information. I have assumed that the applicants seek to deploy that material for the purposes of negativing any bona fide belief in a purchaser in Mr Attia's position, as they appeared to do in respect of Ms Naghipoor, that, whatever price such a purchaser might have been able to secure as a wholesale price for a bulk purchase, it could not have been the price for genuine Bio-Oil products. It appears that this alleged wholesale pricing differential between the genuine and counterfeit goods is an essential ingredient of the applicants' case in this proceeding. 9 It must have been obvious from the time, at least when I dismissed the applicants' interlocutory application to join Ms Naghipoor, that evidence of this pricing for wholesale Bio-Oil would be relevant and, indeed, material on both Mr Attia's and Mr Mehta's interlocutory applications that sought dismissal of the applicants' proceedings against each. 10 The applicants' reason for seeking the adjournment of Mr Attia's interlocutory application today is that they wish to rely upon this unspecified and unserved allegedly confidential pricing information and they are not in a position to deal with the interlocutory application today without it. 11 The proceeding has an unfortunately lengthy procedural history which is not necessarily attributable to the fault of any of the parties. The applicants claim that they are the victims of a significant degree of counterfeiting of their products that has obviously deleterious commercial consequences for them. The possibility that the applicants have suffered substantial damage from this activity cannot be gainsaid. 12 On the other hand, the applicants commenced this proceeding against numerous corporations and individuals, including Mr Attia, many months ago. They obtained search orders against his company, the tenth respondent, Hillmear Trading Pty Ltd, that disclosed a deal of information that they have used to make out aspects of their various claims. 13 The Court explained in Aon Risk Services Australia Limited v Australian National University (2009) 239 CLR 175 and Expense Reduction Analysts Group Pty Ltd v Armstrong Strategic Management and Marketing Pty Limited (2013) 250 CLR 303, that legislative provisions, such as the overarching purpose of the civil practice and procedure provisions in Pt VB of the Federal Court of Australia Act 1976 (Cth), serve numerous purposes, including the efficient management of the overall business of the Court. In the latter case their Honours made clear that the conduct of litigation is now firmly in the hands of the Court. 14 In particular, s 37M(2) includes objectives that the Parliament identified to which the civil practice and procedure provisions are directed. These include the efficient use of judicial and administrative resources available for the purposes of the Court, the efficient disposal of the Court's overall case load and the disposal of all proceedings in a timely manner. In both cases the High Court emphasised that granting adjournments of proceedings or entertaining applications to amend a pleading can be, and are, productive of delay that has impacts, potentially, not only on the parties to the immediate dispute, but also on other litigants who also have entitlements to have their cases heard using the Court's resources and hearing times that have, instead, been devoted to the immediate case. 15 I set the interlocutory applications down for hearing today in accordance with consent orders for their preparation that the applicants had agreed with Mr Attia and Mr Mehta. The applicants have not adhered to those orders and have offered no explanation for failing to do so. Their senior counsel candidly acknowledged that the applicants need to rely on the new and unrevealed material against Mr Attia's interlocutory application. 16 In my opinion, there is no proper basis on which I should refuse to deal with Mr Attia's interlocutory application that has been pending for some time in the context of a proceeding that commenced against him many months ago. 17 The applicants have been on notice for over three months about the crucial nature of any pricing differential between the wholesale prices of Bio-Oil that they assert that Aspen (its distributor) and its sub-distributors were or may have been offering to the wholesale market. That pricing information is material and important for the applicants' case as to what may or may not have been the pricing at which persons in Mr Attia's position, as with Ms Naghipoor, may have been able to source Bio-Oil product that they believed to be genuine, but that turned out be counterfeit, in lieu of purchasing through Aspen or its sub-distributors. Since this evidence was critical and its absence would require an adjournment today, the applicants have failed to explain why they did not take steps well before noon two days ago to seek to adduce it, and why they failed even to provide redacted versions of the material sought to be relied on to the solicitors for Mr Attia when that was sought. 18 The applicants suggested that any injustice to Mr Attia can be cured by an order for costs. I do not agree. First, he is an individual and the strain of litigation on him is not compensable by costs. Secondly, he has not been in default in this respect. Thirdly, I have set aside this morning to deal with these interlocutory applications and consequently, have not been able to offer that time to other litigants who have pressing cases, where my own commitments prevent me from dealing with as many matters as quickly as I would wish.

Conclusion on adjournment application 19 For these reasons, I am not satisfied that the applicants have made any proper application for an adjournment. I refuse it.

Mr Attia's application - background 20 Mr Attia seeks an order dismissing the proceeding as against him. Much of the presently relevant background facts are set out in my reasons in Geneva [2018] FCA 516. This includes the way in which Geneva, the owner of the registered trade mark "Bio-Oil" and other associated marks and its exclusive licensee, Union-Swiss, seek to make Mr Attia accessorily liable for alleged contraventions by his company, Hillmear, of the Trade Marks Act 1995 (Cth), Copyright Act 1968 (Cth), the second schedule of the Competition and Consumer Act 2010 (Cth), containing the Australian Consumer Law, and other legislation in respect of their total claim for compensatory damages against Mr Attia and Hillmear of $7,296. The applicants also seek against Mr Attia and Hillmear additional damages and costs in respect of Hillmear's sale of 960 units of 200ml Bio-Oil that Mr Attia arranged for Hillmear to purchase from U-Care on 23 November 2016. The compensatory damages represent an incongruously small sum in light of the very substantial expense that the applicants must have undertaken in the prosecution of the proceeding to date against Mr Attia and Hillmear. 21 The applicants pleaded in their statement of claim that Mr Attia was accessorily for Hillmear's alleged wrongdoing liable as follows: 97. At all relevant times, Mr Attia was the sole director and shareholder of Hillmear and knew or ought to have known that the U-Care Bio-Oil was counterfeit. Particulars ASIC search of Hillmear Paragraphs 2, 4, 6, 9, 10 of the Attia Affidavit Paragraphs 20 and 21 of the Mattock March Affidavit Mr Attia was personally involved in the infringing acts of Hillmear The Hillmear Bio-Oil was not purchased through Aspen and/or the Authorised Sellers and there existed a significant price differential between genuine Bio-Oil purchased through Aspen and/or the Authorised Sellers and that purchased from U-Care. Further particulars will be provided after discovery. 98. Mr Attia authorised, directed and procured the conduct that constituted the TMA Contravention and/or 1st CA Contravention and/or 2nd CA Contravention and/or the Passing Off. 99. By reason of Mr Attia's conduct, Mr Attia is liable for the TMA Contravention and/or 1st CA Contravention and/or 2nd CA Contravention and/or the Passing Off as a joint wrongdoer. (emphasis added) 22 The way in which Hillmear's purchase of Bio-Oil came about appears in text messages recovered from Mr Attia's phone. On 22 November 2016, he received an unsolicited text from Ms Naghipoor which displayed a photograph of what appeared to be a carton of 200 ml Bio-Oil that had, so far as the text message may have conveyed it, all the appearance of being genuine product. She wrote that she had some on special and asked if he was interested. His response was, "Who is this?". After she replied "Nina" and that "You forgot about me" he responded that her number had not been stored and asked the price she was offering. She replied with $17 excluding GST. He replied that that was too high. They then haggled about quantity and prices. She said that she had sold most of what she had available but had about 30 cartons of 24 bottles each. Mr Attia then responded that he would take all of them at $17 including GST. She asked for $17.40 and he responded, "Come on. This is our first ice breaker and you are negotiating very hard!" She replied, "Ok, ok. Plz send me company detail for invoice. Thanks" and he asked for her email address, which she sent. She then sent an invoice issued by her company, U-Care, the next day. Mr Attia arranged for Hillmear to pay the invoice which occurred on 24 November 2016. 23 Once the product was delivered to Hillmear by about 30 November 2016, Mr Attia sent an invoice to each of the five pharmacies in the buying group for which he purchased products, selling each an equal quantity of 192 bottles at the price of $17 inclusive of GST. Thereafter, very little happened in relation to this Bio-Oil except that, I assume, the five pharmacies sold much of it in the ordinary course of business. 24 In the meantime, Mr Attia had been the subject of a proceeding on which the applicants wish to rely in order to found cross-examination of him at trial and as tendency evidence. The Healthcare Complaints Commission had sought to have his registration as a pharmacist cancelled by the New South Wales Civil and Administrative Tribunal. On 23 December 2016, the Tribunal made such an order on the basis that Mr Attia, as a pharmacist, had sold counterfeit Viagra, a prescription medication. It is not necessary to go into the details of that matter save to say that both parties rely on it as relevant to his state of mind, the applicants to say that he was a person who had traded in counterfeit goods and Mr Attia to say that the pendency and seriousness of those proceedings would have made him all the more sensitive to his being involved in any such questionable conduct. 25 In Geneva [2018] FCA 516 at [8]-[10] I made the following findings which also arise on the evidence before me now: 8 Importantly, the applicants did not contend that there was any wrongful conduct in a person making a parallel import of genuine Bio-Oil from another country, including South Africa, and selling that product here. 9 On 6 March 2017 at about 9.45am, Mr Attia received an email from Pharmacy Daily attaching the Pharmacy Daily newsletter of that date. The newsletter contained an article headed "Bio-Oil counterfeiter fined". The article reported that this Court had awarded the applicants damages and costs amounting to more than $1 million, including additional or exemplary damages of over $200,000, against United Prestige Group, Prestige Premium Deals, United Prestige Clearance and Andrew Christopher. The article said that the Court had found that those persons had conducted a "serious, planned and protracted attack" on the intellectual property rights of the applicants. It noted that the applicants had an exclusive distribution agreement with Aspen for the distribution of Bio-Oil in Australia. 10 Within half an hour of receiving that email on 6 March 2017, Mr Attia exchanged the following text messages with Ms Naghipoor over seven minutes from 10.15am: Mr Attia: Apparently you need to take the Bio oil back?! Ms Naghipoor: Why? How many you got left? Mr Attia: There is a court ruling and a fine if anyone has stock?! Ms Naghipoor: Hm. How many you got left? In cartons? I have buyers plz advise asap. 26 The applicants had Mr Attia's mobile phone forensically examined. That examination revealed that, at about 4pm on 6 March 2017, he had an eight-minute telephone conversation with Ms Naghipoor. Mr Attia said, in his affidavit, that he did not remember the content of the conversation, unsurprisingly, in my opinion. It is common ground that no Bio-Oil came to be returned to U-Care following that conversation. 27 The applicants also noted that Mr Attia had said in his affidavit of 17 July 2017, made in response to the search order against him personally (rather than against Hillmear) that, save for the single purchase transaction with U-Care, neither he nor Hillmear or any company controlled by him had purchased any Bio-Oil from any supplier other than the three large recognised pharmacy wholesalers, namely, Sigma Pharmaceuticals Limited, Symbion Pty Limited and Australian Pharmaceutical Industries Limited (API). Those three companies were Aspen's sub-distributors and the applicants do not suggest that Aspen sold direct to retailers. 28 In addition to the vague and general evidence from Ms Murdoch to which I referred in Geneva [2018] FCA 516 at [7], the applicants rely on evidence that is hearsay upon hearsay upon hearsay. Their solicitor, Nathan Mattock, deposed that he had been informed by the general counsel of Aspen that, in the last three years before 18 June 2018, Aspen had never sold Bio-Oil products to Mr Attia or Hillmear. The applicants also relied on the fact that in contrast to its less than direct evidence, Mr Attia had said that Hillmear had dealt with an excess of 50 short-line wholesalers and suppliers, one of which was Aspen. 29 Mr Attia said that in transactions in which Hillmear had purchased Bio-Oil for its buying group it had done so through Aspen "hundreds of times" and that in those transactions Aspen would provide a discount off its standard wholesale price. That would vary from time to time but usually would be around 7.5%. He also gave evidence that, in his experience, the price of $16.99 (including GST) per unit charged by U-Care represented a better than usual discount, but that was proportionate to the larger than usual quantity Hillmear purchased. 30 As I explained in my reasons above for refusing the applicants an adjournment today, despite all their resources, the applicants have not produced any additional evidence as to the contemporaneous prices at which Aspen (or its sub-distributors Sigma, Symbion and API) sold Bio-Oil to anyone, let alone to Hillmear. That is despite the findings that I made on 9 March 2018 in Geneva [2018] FCA 516 at [6]-[8], [20] about the paucity of the applicants' evidence as to the actual wholesale prices at which purchasers in the position of Hillmear could, or did, acquire Bio-Oil including in quantities such as those the subject of Hillmear's November 2016 purchase.

The applicants' submissions 31 The applicants argued that, for the purposes of refusing summary dismissal of the proceeding or, alternatively, summary judgment, there is a sufficient factual contest open on the evidence as to the genuineness of Mr Attia's state of mind both when he caused Hillmear to purchase the product in late November 2016 and when he had his exchanges with Ms Naghipoor on 6 March 2017. 32 The applicants argued that Hillmear had not yet produced or discovered records of its transactions in Bio-Oil for any period at all, other than in relation to the purchase and sale of the 960 bottles through U-Care. They contended that discovery may throw up evidence as to a significant price differential. They submitted that I could not be satisfied that there was no reasonable prospect of them succeeding in demonstrating that Mr Attia must have known that, or was reckless as to whether, the product Hillmear or he was purchasing was not genuine. The applicants argued that the purchase from U-Care was the one and only time Mr Attia himself, or as a director of Hillmear, engaged in commerce with U-Care. They contended that his reaction to the publication in Pharmacy Daily on 6 March 2017 betrayed a consciousness of guilt in that, according to the applicants, he must have realised that the product that U-Care had sold him was counterfeit. They argued that this explained why Mr Attia commenced his text exchange within half an hour of receiving the email containing the Pharmacy Daily article saying, "Apparently you need to take the Bio-Oil back". 33 The applicants argued that the circumstances in which Mr Attia's registration as a pharmacist came to be cancelled are also relevant for the purposes of providing them with a firm foundation to cross-examine him at a trial as to his credit and as to his alleged tendency to deal in counterfeit products, albeit that the applicants have not given any notice to date under s 79 of the Evidence Act 1995 (Cth). They contended that Mr Attia's past conduct and reaction to the Pharmacy Daily article supported their entitlement to have the claim against him go to trial. The applicants submitted that these showed that Mr Attia had an appreciation that the goods were not genuine when he arranged their purchase in late November 2016. 34 The applicants also drew attention to further decisions on accessorial liability in addition to those to which counsel had referred in Geneva [2018] FCA 516 at [24]-[31], namely Clipsal Australia Pty Limited v Clipso Electrical Pty Limited (No 3) [2017] FCA 60 per Perram J and JR Consulting & Drafting Pty Ltd v Cummings (2016) 329 ALR 625.

Consideration 35 In JR Consulting 329 ALR at 689 [350]-[351], Bennett, Greenwood and Besanko JJ said: the director must be shown to have directed or procured the tort and the conduct must, clearly enough, go beyond causing the company to take a commercial or business course of action or directing the company's decision-making where both steps are the good faith and reasonable expression of the discharge of the duties and obligations of the director, as a director. The additional component required is a "close personal involvement" in the infringing conduct of the company and inevitably the quality or degree of that closeness will require careful examination on a case by case basis. That examination might show engagement by the director of the kind or at the threshold described by Finkelstein J in Root Quality [Pty Ltd v Root Control Technologies Pty Ltd (2000) 177 ALR 231at [146]] (as earlier discussed) which would undoubtedly establish personal liability in the director or a less stringent degree of closeness (perhaps described as "reckless indifference" to the company's unlawful civil wrong causing harm), yet sufficiently close to demonstrate conduct of the director going beyond simply guiding or directing a commercial course and engaging in (perhaps vigorously) decision-making within the company as a director. Ultimately, the question, on the facts, is what was the conduct of the director said to go beyond the proper role of director so as to descend into the realm of "close personal involvement"? (bold emphasis added, italic emphasis in original) 36 In my opinion, the exchange of text messages between Mr Attia and Ms Naghipoor leading to Hillmear's purchase of the Bio-Oil on 22 and 23 November 2013 show nothing out of the ordinary course of business from which there is any reasonable prospect that an inference could be drawn that he was aware that, or was reckless as to whether, the product was other than genuine. He bargained the price down, caused Hillmear to purchase the goods and then onsold them. The five pharmacies in the buying group then advertised the product during the Christmas 2016 sale period at a selling price of $19.98, while a competitor, Chemist Warehouse, was selling it at $22.99. There was no suggestion that Chemist Warehouse was selling counterfeit product, albeit it that there was a $3 difference in the selling prices. Chemist Warehouse's advertising promised a saving of $11.96 while ShopSmart's retail brochure (being that of the buying group for which Mr Attia acted) suggested that the Bio-Oil product had a recommended retail price of $29.99 each. 37 Moreover, Mr Attia's reaction when he read the Pharmacy Daily article, in light of his very recent and, no doubt, painful experience in the Tribunal proceeding, demonstrates that there is no reasonable prospect that his text messages with Ms Naghipoor on 6 March 2017 betrayed any form of consciousness of guilt. He reacted by saying, effectively, that she needed to take the product U-Care had sold Hillmear back because of a court ruling that there was a "fine" if anyone had stock. Ms Naghipoor's response was to offer to take it back and ask how much he had left, because she had buyers. 38 At the end of the day, Mr Attia did not send any product back to U-Care following his eight minute telephone conversation about which, unsurprisingly, sometime later there is no evidence. The clear inference is that whatever Ms Naghipoor said persuaded him that her supplier was not the same one as the subject of the court case and there is no suggestion in the evidence before me that it was. Given that she had offered to take back any product that Hillmear had purchased and that after the phone call none was returned to U-Care, it defies common sense to think that Mr Attia had any doubts as to the genuineness of the product he had caused Hillmear to purchase in November 2016. 39 I am of opinion that the applicants have had more than a fair and adequate opportunity to put forward a basis to establish that they have a case against Mr Attia that has any reasonable prospect of succeeding. 40 In all the circumstances, and having regard to the very small sum of $7,296 involved in this proceeding (before any additional or exemplary damages) and the applicants' failure in the three months since I refused their application to join Ms Naghipoor to lead any further evidence to distinguish Mr Attia's position from hers, I am satisfied that the applicants do not have any reasonable prospect of succeeding in their claim against Mr Attia in relation to the same commercial transaction. 41 There is nothing in the material on which the applicants relied that suggested that Mr Attia was knowingly involved in, or recklessly indifferent in respect of, the goods he caused Hillmear to buy thinking that they were genuine. Mr Attia may or may not have been involved in transactions in respect of a counterfeit pharmaceutical product the subject of the proceeding in which the Tribunal appears to have reserved its decision at the time of his dealing with Ms Naghipoor, that later turned out adversely for him. However, there is a high unlikelihood of there being any such case able to be made against him since he is unlikely to have engaged in the very conduct for which he was then facing disciplinary proceedings and his subsequent spontaneous reaction on 6 March 2017 only reinforces this. The transaction with U-Care appears to be one in which Hillmear was offered a relatively large amount of product at a discounted price that does not appear to be unreasonable or uncommercial, and which the applicants have not been able to demonstrate, despite having ample opportunity to do so, even on a hearsay basis, was outside the range of possible reasonable or commercial prices for such a quantity. 42 In reaching this conclusion, I have applied the test in Spencer v Commonwealth (2010) 241 CLR 118 at 141 [59]-[60] to which I referred in Geneva [2018] FCA 516 at [17]-[18].

Conclusion 43 I am satisfied that, on the evidence before me, there is no reasonable prospect that the applicants can succeed in demonstrating that Mr Attia was knowingly involved, or recklessly indifferent, in the purchase and sale of the 960 bottles of what turned out to be counterfeit Bio-Oil. For these reasons, I will order that the proceeding against Mr Attia be dismissed with costs. I certify that the preceding forty-three (43) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Rares.

SCHEDULE OF PARTIES NSD 867 of 2017 Respondents Fourth Respondent: U-CARE PTY LTD (ACN 132 696 336) Fifth Respondent: GBW AUSTRALIA PTY LTD (ACN 1156 604 116) Sixth Respondent: KRUNAL MEHTA