Geneva Laboratories Ltd v Pharmacy Depot Hurstville Pty Ltd [2018] FCA 516 | Case summary

Background 4 Relevantly, the search orders revealed that a purchaser from U-Care was Hillmear Trading Pty Limited, the tenth respondent, whose sole director and shareholder, Mina Attia, the seventh respondent, dealt with Ms Naghipoor in purchasing some of the allegedly infringing products in about November 2016. Other evidence showed that U-Care's supplier was GBW Australia Pty Limited, the sole director of which was Krunal (also known as Kevin) Mehta, being the 12th and 13th respondents respectively. 5 As a result of the search orders that I granted when I joined U-Care as a respondent, Ms Naghipoor affirmed an affidavit on 21 July 2017. She disclosed, on behalf of U-Care, that, in the two years prior to 7 July 2017, she had caused it to purchase various goods that appeared to be the Bio-Oil branded products. She said that when she inquired as to whether the product was genuine Bio-Oil, GBW, through Mr Mehta, provided her with a letter dated 9 August 2016 from "Sian Trading Company" to GBW, which she annexed to her affidavit. The letter was on the letterhead of Sian Trading Limited, signed by its managing director and appeared to display an address in England. The letter stated that the Bio-Oil that Sian Trading was supplying was of South African origin, authentic and had been produced for the South African market. It gave relevant batch numbers for the product and concluded: Should any question of authenticity be raised then we will provide paperwork back to Brand Owner or Distributor in South Africa through confidential legal representatives. 6 The applicants noted that Ms Naghipoor had said in her affidavit of 21 July 2017, that in about mid-2015, she had purchased a small quantity of goods from Aspen Pharmacare Australia Pty Limited. The applicants argued that Aspen was then and still is their only authorised Australian distributor. Ms Naghipoor annexed to her affidavit copies of U-Care's sales invoices to its own purchasers in respect of that transaction. Those revealed that U-Care's selling price in a sale invoice dated 22 June 2015 for a 200ml bottle of Bio-Oil was $16.95 (excluding GST). U-Care's invoices revealed that it sold similar 200ml bottles of Bio-Oil for around $17.90 in the two year period complained of as involving infringing conduct. 7 The applicants relied on an affidavit that Tracy Murdoch, a brand manager of Aspen, affirmed on 31 May 2017. She asserted that she was "aware" that the average wholesale price of 200ml bottles of Bio-Oil in Australia at May 2017 was "roughly $22" and that the price had remained at that amount over the previous 12 months. The applicants allege that Aspen on-sold Bio-Oil to Sigma Pharmaceuticals Limited, Symbion Pty Limited and Australian Pharmaceutical Industries Limited and authorised those entities to resell Bio-Oil so purchased in Australia. 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 11 It is common ground that (although there is no evidence of this before me) no goods were returned to U-Care by Mr Attia or anyone else following this exchange, and that Hillmear made no further purchases from Ms Naghipoor. 12 In the third week of May 2017, GBW delivered about 30 cartons each containing 72 bottles of Bio-Oil to U-Care. There is no dispute for the purposes of this application that those products were, in fact, counterfeit. 13 On 8 March 2018, Ms Naghipoor affirmed an affidavit, for the purposes of this application, on which she has not been cross-examined. In it she said that, prior to U-Care purchasing any goods, she had a conversation with a person whom she knew as Kevin, being Mr Mehta, in which he told her that the Bio-Oil that he (meaning GBW) was offering was genuine and came from a company in the United Kingdom that only sold genuine Bio-Oil. She said that Mr Mehta told her that he could send her a certificate of authenticity to show that the product came from a factory in South Africa and was 100% genuine. She said that she inquired whether he could be sure that the product was genuine and asked him about previous cases concerning counterfeit Bio-Oil. Ms Naghipoor said that he responded that he was sure it was genuine and could provide the shipping documents from South Africa if necessary. 14 I infer that that was the conversation that led to the letter of 9 August 2016 that Ms Naghipoor had annexed to her affidavit of 21 July 2017. She said in her 8 March 2018 affidavit that, based on that conversation, she formed the view that the goods offered by GBW were genuine and that she then caused the purchase by U-Care to proceed. She also asserted that she would not have purchased or sold goods that she did not believe were genuine.

Consideration 16 Hayne, Crennan, Kiefel and Bell JJ distilled Barwick CJ's test in Spencer v Commonwealth (2010) 241 CLR 118 at 140 [55] as requiring a conclusion that: "… the case of the plaintiff is so clearly untenable that it cannot possibly succeed" (emphasis added). As that formulation shows, the test to be applied was one of demonstrated certainty of outcome. (Their Honours' emphasis) 17 Their Honours were dealing there with the difference between that test and the test prescribed for summary judgment or summary dismissal in s 31A of the Federal Court of Australia Act 1976 (Cth). That test requires an evaluation of whether a claim or defence has "no reasonable prospect" of succeeding. Their Honours said (241 CLR at 141 [59]-[60]): In many cases where a plaintiff has no reasonable prospect of prosecuting a proceeding, the proceeding could be described (with or without the addition of intensifying epithets like "clearly", "manifestly" or "obviously") as "frivolous", "untenable", "groundless" or "faulty". But none of those expressions (alone or in combination) should be understood as providing a sufficient chart of the metes and bounds of the power given by s 31A. Nor can the content of the word "reasonable", in the phrase "no reasonable prospect", be sufficiently, let alone completely, illuminated by drawing some contrast with what would be a "frivolous", "untenable", "groundless" or "faulty" claim. Rather, full weight must be given to the expression as a whole. The Federal Court may exercise power under s 31A if, and only if, satisfied that there is "no reasonable prospect" of success. Of course, it may readily be accepted that the power to dismiss an action summarily is not to be exercised lightly. …it is sufficient, but important, to emphasise that the evident legislative purpose revealed by the text of the provision will be defeated if its application is read as confined to cases of a kind which fell within earlier, different, procedural regimes. (emphasis added) 18 On an application such as this, of course, Ms Naghipoor's evidence as to her state of mind and conversation with Mr Metha (referred to in [13] above) is untested and, for the purposes of forming the view to which I have come, I have not placed much weight on it. Rather, I have sought to assess the objective evidence of the dealings and communications as a whole, including the exchange of text messages on 6 March 2017, to ascertain whether, objectively, the allegations that the applicants seek to make that Ms Naghipoor was an accessory, knowingly involved or a joint tortfeasor in U-Care's alleged statutory contraventions or tortious conduct are such that there is a reasonable prospect of the applicants successfully prosecuting those claims at trial, or that they are not so clearly untenable that they cannot possibly succeed. 19 The circumstance that Ms Naghipoor inquired about the provenance and genuineness of the goods before she caused U-Care to buy from GBW in August 2016, revealed that she took some steps to satisfy herself that what she was causing U-Care to contract for was genuine Bio-Oil. This conduct revealed that she was aware that the product did not come from an Australian distributor, including directly from Aspen or any of its sub-sellers, but from overseas. She took steps by which she ascertained from her supplier, GBW, that their source was Sian Trading and its letter informed her that the product came directly from the manufacturer in South Africa. 20 In my opinion, to all intents and purposes there is no arguable basis to suggest that Ms Naghipoor, at that point, acted as an accessory or joint tortfeasor in causing U-Care to buy any products complained from GBW. There is no evidence to suggest that Ms Naghipoor had any cause to act other than on the basis that this was a genuine transaction involving a legitimate parallel import of product at a better price than she may have been able to obtain from Aspen or its sub-seller. Moreover, at least on the U-Care invoices in evidence, U-Care's selling prices for the Bio-Oil products that U-Care had purchased from Aspen (of about $17.90) were much lower than the price (of about "roughly" $22) that Aspen's Ms Murdoch suggested it charged a year later. The rough price that Ms Murdoch suggested was about 20% higher than U-Care's earlier selling price of the goods that it had purchased from Aspen. I infer that U-Care did not sell those goods at a loss and that Aspen's price to it had been less than U-Care's sale price. 21 The applicants placed great reliance on the 6 March 2017 exchange of text messages as supporting an arguable or reasonable case against Ms Naghipoor. They asserted that these revealed that Mr Attia must have been aware that the oil U-Care had sold Hillmear was counterfeit. 22 I reject that argument. Mr Attia's understanding, at the time that he read of the Court's decision in the Pharmacy Daily publication was: There is a court ruling and a fine if anyone has stock. 23 A reasonable person in Ms Naghipoor's position would have understood him to be referring to counterfeit stock. Ms Naghipoor inquired about whether he had any cartons left and said that she still had buyers. Again, the applicants argued that her response revealed at least that she was aware that, first, there was counterfeit Bio-Oil around and, secondly, that what U-Care, through her, had bought and sold fell within that description, or at least that there was an arguable case that this was so. 24 In Complete Technology [2011] FCA 1319, Kenny J ordered summary judgment against two directors on the basis that they were joint tortfeasors of the company of which they were directors. She found that the inference was "almost irresistible" that each director ([2011] FCA 1319 at [97]): knew that Green Energy's use of CTI's Registered Trade Marks was, or was likely to be, an infringing use. 25 Her Honour found that (Complete Technology [2011] FCA 1319 at [94]-[96]): The individual respondents were Green Energy's only directors and shareholders. The law concerning the liability of directors for corporate wrongdoing has been debated. Broadly speaking, there is: 1. the test in Performing Right Society Ltd v Ciryl Theatrical Syndicate Ltd [1924] 1 KB 1 ("Performing Right Society") at 15; 2. the Canadian test propounded in Mentmore Manufacturing Co Ltd v National Merchandising Manufacturing Co Inc (1978) 89 DLR (3d) 195 ('Mentmore'); and 3. the test advocated by Finkelstein J in Root Quality Pty Ltd v Root Control Technologies Pty Ltd (2000) 177 ALR 231 ("Root Quality") at 268 [146] Full Courts of this Court have considered the tests: see Allen Manufacturing Co Pty Ltd v McCallum & Co Pty Ltd (2001) 53 IPR 400, Cooper v Universal Music Australia Pty Ltd (2006) 156 FCR 380 ("Cooper") and Keller v LED Technologies Pty Ltd (2010) 185 FCR 449 ("Keller"). In Cooper, Kenny J, with whom French J agreed, indicated agreement with the Root Quality approach. More recently, in Keller Emmett J said (at 469 [83]) that "[w]here a person is acting in the capacity of a director, the person will not be liable for the act of the company unless it can be shown that, in so acting, the director was doing something more than acting as a director". Also in Keller Besanko J said (at 513 [291]) that "[a] close personal involvement in the infringing acts by the director must be shown before he or she will be held liable". In the same case, Jessup J (at 542 [405]) favoured the test in Mentmore in so far as it made it a requirement of liability that the director should make the tort his own. See also GM Holden Ltd v Paine 420-421 [52]-[59]. (emphasis added) 26 One of the tests that her Honour applied was set out by Finkelstein J in Root Quality Pty Ltd v Root Quality Technologies Pty Ltd (2000) 177 ALR 231 at 268 [146]: The director's conduct must be such that it can be said of him that he was so personally involved in the commission of the unlawful act that it is just that he should be rendered liable. If a director deliberately takes steps to procure the commission of an act which the director knows is unlawful and procures that act for the purpose of causing injury to a third party, then plainly it is just that liability should be imposed upon him. Lesser conduct may suffice. For example, if the director is recklessly indifferent as regards whether his company's act was unlawful and would cause harm, that may also suffice. In the end it will depend upon the facts of each particular case. Where the boundary lies, between the non-tortious conduct of a director who acts bona fide within the course of his authority and the tortious conduct of a director who acts deliberately and maliciously to cause harm, cannot be stated with any precision. (emphasis added) 27 In Keller v LED Technologies Pty Ltd (2010) 185 FCR 449 each of Emmett, Besanko and Jessup JJ separately analysed the circumstances in which an individual director might be found liable as a joint tortfeasor with the company and described the level of involvement necessary for the director to be found liable. Emmett J said (185 FCR at 469 [84]): Infringement by a principal actor, of course, is an objective matter. For a director of a company to be held to be invading the rights of a victim of the company, by reason of the actions committed in the capacity of a director, there must be some mental element involved. Thus, in circumstances where a director can be shown to be making use of a corporation or company as an instrument whereby infringement is perpetrated, such that the director can be seen to be hiding behind the corporate veil, it may be thought that that director is going beyond actions performed merely in the capacity as director. If a company is merely the alter ego of a director, such that there is no real difference between the mind of the officer and the mind of the company, there may well be circumstances where it will be appropriate to conclude that the officer is invading the rights of a victim of the company. (emphasis added) 28 However, his Honour went on to uphold an appeal against the primary judge's finding that one director's conduct had "reflected a conscious indifference to the risk of infringement" (185 FCR at 470 [87]-[88]). He held that the director neither knew nor had any reason to believe that the sale of the relevant product constituted infringement or that he was using the company "as the instrument of his own conduct" as opposed to acting in the service of the company or in discharge of his office. 29 Jessup J held (185 FCR at 543 [407]): The point should not be whether the individual sought to be made liable can, or did, determine how the company might act, but whether there was a dimension to his or her role which was separate from the good faith discharge of his or her duties in the service of the company. If so, there will be a basis, in accordance with general principles, for making the individual liable because he or she was involved in a joint, wrongful, enterprise with the company. (emphasis added) 30 Besanko J, took a different view from the other members of the Full Court and said (185 FCR at 512 [286]) that: The cases suggest that it requires a direct and active involvement by the director in the particular acts which constitute the infringement. In the case of a one-person company, the test will invariably lead to the conclusion that the sole director/employee will be held jointly liable with the company. It means that, despite the fact that the law recognises the company as a separate legal person, a sole director may be held to have directed or procured acts carried out by him but attributed to the company. (emphasis added) 31 However, neither Emmett J nor Jessup J expressed the view that it was an invariable conclusion that a sole director was jointly liable with the company. In my opinion, there is no arguable basis, or reasonable prospect, in the material before me to suggest that the applicants could establish their pleaded allegations that Ms Naghipoor had knowledge of the essential ingredients of any alleged statutory contravention by U-Care, and in particular, knowledge that the Bio-Oil was counterfeit or that she was, at the very, least recklessly indifferent as to its genuineness (that is, that she was aware of circumstances that it was probable that the product was not genuine and went ahead to order and sell it, not caring about that matter): Yorke v Lucas (1985) 158 CLR 661 at 666-669, per Mason ACJ, Wilson, Deane and Dawson JJ; Gore v Australian Securities Investments Commission (2017) 249 FCR 167 at 171 [7], per Dowsett and Gleeson JJ and 206-208 [164]-[176], per Rares J. 32 There is no arguable basis on which Ms Naghipoor could be said to have had knowledge that the Bio-Oil sourced from GBW was counterfeit or fake. On the material in evidence, she made reasonable inquiries before buying it from GBW and there was nothing in the circumstances that would have suggested to her that it was other than genuine. Moreover, while Mr Attia no doubt had an understandable concern and reaction after he read the Pharmacy Daily article, there is nothing to suggest that he pursued that concern with Ms Naghipoor or demanded that she or U-Care accept return of the products afterwards. The article provided no information that linked GBW or Sian Trading to the persons it named as being liable for the infringements that the Court had found. 33 In effect, Ms Naghipoor had made her inquiries beforehand as to whom she was dealing with and its source of supply, and then she formed a belief that the product GBW was offering was genuine. On the evidence, that belief appears to me to be one that cannot be suggested involved her having any knowledge, or being recklessly indifferent, about the nature of that product being other than genuine or that after the initial inquiry anything had changed as to the source of GBW's products. 34 The applicants argued that, even if I found this to be so, they should still be allowed to pursue the litigation with her as a respondent because the proceedings were at a preliminary stage, despite the significant amount of evidence that they had obtained under the benefit of the search orders and her own affidavit evidence. They concluded that they should be able to obtain the benefit of discovery against her before it could be said that their case could be summarily dismissed. 35 There is nothing on the material on which the applicants relied that suggests that Ms Naghipoor was knowingly involved in (or recklessly indifferent in respect of) the sale of counterfeit goods. There is no doubt that she was involved in the sale of the goods which U-Care bought and sold. But that is not the same as her having knowledge that they were counterfeit or being recklessly indifferent as to that matter. The allegations in respect of the passing off claim fall into the same category. There is nothing to suggest that Ms Naghipoor was using U-Care to pursue, for her own ends, a course of conduct to cause the company to deal in counterfeit goods or that she was acting otherwise than in good faith in the discharge of her role as a director of U-Care engaged in its trade, having made reasonable inquiries as to the provenance of the goods.

Geneva Laboratories Ltd v Pharmacy Depot Hurstville Pty Ltd

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Judgment (18 paragraphs)

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