Graham's Factree Pty Ltd v Oak Enterprises

Federal Court of Australia|2012-09-14|Before: Streeton J

Introduction 1 On 14 September 2012, I made the orders set out above, for the reasons that follow. 2 By an interlocutory application dated 29 August 2012, the applicant, Graham's Factree Pty Ltd, seeks, pursuant to r 30.01 of the Federal Court Rules 2011 (Cth) ("the Rules"), an order that all issues of liability be determined prior to any trial, if necessary, in relation to issues of quantum of damages and/or account of profits (a "split trial"). 3 The application was supported by the affidavit of Philip Andrew Goatcher sworn on 29 August 2012 and written submissions dated 5 September 2012. 4 The application was opposed by the respondent, Oak Enterprises. The affidavits of John Paton sworn on 11 September 2012 and Christopher Schlicht sworn on 11 September 2012, together with written submissions dated 11 September 2012, were filed in opposition. 5 Rule 30.01 of the Rules relevantly provides: 30.01 Application for separate trials (1) A party may apply to the Court for an order that a question arising in the proceeding be heard separately from any other questions.

Background 6 The applicant, which conducts a nursery selling, inter alia, fruit trees, owns exclusive rights conferred by the Plant Breeder's Rights Act 1994 (Cth) ("the Act") in relation to an apple plant variety called "Rosy Glow". The applicant alleges the respondent (which conducts an orchard business growing and selling fruit) infringed its plant breeder's rights in Rosy Glow by, in relation to "propagating material of the variety", producing, selling and stocking the material and licensing such acts without its authority, in contravention of s 53 of the Act. The respondent's alleged infringing apple plant variety was called "Ruby Pink". 7 Section 56(3) of the Act provides that the Court may grant an injunction in a proceeding for infringement of plant breeder's rights and "at the option of the plaintiff, either damages or an account of profits". As with a number of other intellectual property proceedings, the applicant must make an election between damages or an account of profits, but cannot be compelled to do so before all the evidence is in. In consequence, unless a split trial is ordered, the parties will have to call evidence on both damages and an account of profits. (See also s 122(1) Patents Act 1990 (Cth) and s 126(b) Trade Marks Act 1995 (Cth)).

Legal principles 8 The principles governing the Court's exercise of its discretion to order a split trial were not disputed. They were summarised by Branson J in Reading Australia Pty Ltd v Australian Mutual Provident Society (1999) 217 ALR 495 ("Reading") at [8]. Her Honour observed, inter alia, (in relation to O 29 r 2 of the Federal Court Rules 1979 (Cth) (the predecessor of r 30.01)) that: (f) factors which tend to support the making of an order under O 29 r 2 include that the separate determination of the question may: (i) contribute to the saving of time and cost by substantially narrowing the issues for trial, or even lead to disposal of the action; or (ii) contribute to the settlement of the litigation (CBS Productions Pty Ltd v O'Neill per Kirby P at 607); (g) factors which tell against the making of an order under O 29 r 2 include that the separate determination of the question may: (i) give rise to significant contested factual issues both at the time of the hearing of the preliminary question and at the time of trial (GMB Research & Development Pty Ltd v Commonwealth [1997] FCA 934); (ii) result in significant overlap between the evidence adduced on the hearing of the separate question and at trial - possibly involving the calling of the same witnesses at both stages of the hearing of the proceeding: GMB Research & Development Pty Ltd v Commonwealth; Arnold v Attorney-General (Vic) (unreported, Fed C of A, Sundberg J, Nos VG629-37 of 1995, 8 September 1995, BC9502745). This factor will be of particular significance if the court may be required to form a view as to the credibility of witnesses who may give evidence at both stages of the hearing of the proceeding; or (iii) prolong rather than shorten the litigation (GMB Research & Development Pty Ltd v Commonwealth). 9 It was common ground that in intellectual property cases involving patents, trade marks or plant breeder's rights, it is customary to hear and determine issues of liability prior to issues of pecuniary relief. As Kenny J recognised in Fleming's Nurseries v Hannaford [2008] FCA 591 ("Fleming's Nurseries"), this is principally because the need which would otherwise arise to lead evidence on both damages and an account of profits is avoided. Kenny J stated at [18]: It is customary in intellectual property cases, however, to hear and determine issues of liability separately and before issues of pecuniary relief. This is largely because it is generally thought just and convenient to so order on account of the fact that an applicant in such a case is not compelled to make an election as between damages and an account of profits at least before the evidence on liability has been received … Under s 56(3) of the PBRA, in an action for infringement, Canada is entitled to make an election for damages or an account of profits. That is, the nature of Canada's case attracts the same considerations as other intellectual property cases requiring an election between the remedies in the event that liability is established. (emphasis added) 10 In Reading, Branson J made a like acknowledgement at [9] where her Honour concluded: Ultimately the issue for the Court to determine when consideration is being given to the making of an order under O 29 r 2 is whether it is "just and convenient" for the order to be made (Arnold v Attorney-General for the State of Victoria). There are classes of proceedings in which it is commonly recognised that it is just and convenient for an order under O 29 r 2 to be made. One such class is proceedings concerning intellectual property rights where an applicant can not be compelled to make an election as between damages and an account of profits at least until all of the evidence has been received so that, if an order has not been made separating the determination of the issues of liability and relief, the parties will have to call evidence to deal with both damages and an account of profits (Dr Martens Australia Pty Ltd v Bata Shoe Company of Australia Pty Ltd (1997) 75 FCR 230)… (emphasis added)

Applicant's submissions 11 The applicant submitted that ordering a split trial would be "just and convenient" as it would "facilitate the just resolution of [the dispute] … as quickly, inexpensively and efficiently as possible", in accordance with the "overarching purpose" stated in s 37M(1) of the Federal Court of Australia Act 1976 (Cth). A split trial would avoid the need for further discovery, interrogation, preparation of evidence and submissions directed to issues of pecuniary relief, thus saving the parties' time and expense and the Court's resources. A split trial would also accord with orthodox practice in intellectual property proceedings where an election is to be made about pecuniary relief. (See Dr Martens Australia Pty Ltd v Bata Shoe Company of Australia Pty Ltd (1997) 38 IPR 163 ("Dr Martens") at 165-167). 12 The applicant also submitted that: should it fail to establish liability, no evidence would be needed in relation to pecuniary relief; should it be successful in establishing liability, there was a strong prospect the parties would settle on issues of pecuniary relief; and should it succeed on the issue of liability, it would be entitled to injunctive relief, which would operate as an "end point" to the respondent's alleged infringing conduct.

Affidavit of Philip Goatcher 13 The applicant relied on the affidavit of Philip Goatcher, a partner of its solicitors, sworn on 29 August 2012. Mr Goatcher deposed to correspondence about a split trial. A letter from the respondent's solicitors dated 28 February 2012 stated that the respondent reserved its right to seek a prior separate trial of liability from issues of quantum, pursuant to r 30.01 of the Rules. The applicant's solicitors' letter dated 21 August 2012 proposed a "split trial" on the basis that it would achieve a significant saving of the Court's and the parties' time and resources. By a letter dated 27 August 2012, the respondent's solicitors rejected the proposal, stating that it would be prejudicial to the respondent, particularly given its effort and expense in providing discovery. The letter complained that the applicant's discovery was deficient and suggested that the proposal for a split trial was made to avoid discovery obligations. The letter also stated that a split trial would make settlement difficult, as the applicant was an assignee of the right after the alleged infringing conduct, and if damages were claimed based on lost royalty payments to the assignor, the preparation of evidence would not be particularly onerous.

Respondent's Submissions 14 The respondent submitted that an order for a split trial would not be "just and convenient" for a number of reasons. 15 First, while acknowledging that a split trial would ordinarily save costs, the respondent submitted that it had already incurred a majority of its costs through discovery and preparation of an expert report in relation to quantum. The respondent submitted that a split trial would be "prejudicial and procedurally unfair", as it has already provided full discovery, and the applicant had inspected confidential documents while failing, despite repeated requests, to comply with its discovery obligations in relation to quantum. The respondent alleged that the applicant sought a split trial to avoid its discovery obligations. 16 Secondly, the respondent submitted that if the applicant succeeded on liability, settlement on issues of pecuniary relief was highly unlikely, as the applicant had refused to discover documents which would identify its customers or enable the respondent to calculate the profit per sale of the "Rosy Glow" variety. Accordingly, a split trial would prolong the proceeding and deprive the respondent of an understanding of how the applicant would put its case in relation to quantum, thus reducing the prospects of settlement before liability was determined. 17 Thirdly, the respondent submitted that as it had ceased to engage in the impugned conduct, an "end point" had already been reached, from which the parties could determine the quantum of any pecuniary relief. 18 Fourthly, the respondent submitted that there would probably be an overlap between the evidence on liability and quantum. The respondent anticipated that there would be cross-examination of at least one of the applicant's witnesses (its director, Mr Fleming) on both issues. 19 Fifthly, the respondent submitted that both parties anticipated the use of expert evidence, and the proceeding had and would continue to be protracted in any event. A split trial would not shorten the matter in any real sense.

Affidavit of Christopher Schlicht 20 Christopher Schlicht, a partner of the respondent's solicitors, deposed that the respondent reserved the right to apply for a split trial in February 2012, prior to a first directions hearing or the making of any orders. At that stage, the respondent was seeking details of how the applicant put its case. Mr Schlicht deposed that the proposal for a split trial was not raised again until the applicant's letter dated 21 August 2012. 21 Mr Schlicht deposed that standard discovery was ordered by 20 April 2012. The respondent made discovery on the basis that there would be no split trial. The applicant, however, did not discover any documents relevant to quantum in its list of documents dated 20 April 2012. Mr Schlicht deposed that despite many requests for further discovery of documents relevant to quantum, the applicant's discovery remained inadequate. 22 Mr Schlicht also deposed to his complaints about the adequacy of a summary document provided by the applicant, which set out sales and royalty payments information. The complaint was first outlined in a letter dated 23 July 2012 and repeated in a letter dated 7 August 2012, following a letter from the applicant's solicitors dated 31 July 2012 denying that the requested information was relevant. Mr Schlicht further deposed that unless the applicant's position on quantum were clarified, the parties were highly unlikely to settle on that issue should a split trial be ordered. 23 Mr Schlicht also deposed that Mr Fleming, a director of the applicant, would likely be called by the respondent for cross-examination on both quantum and liability. 24 Mr Schlicht referred to transcript of a directions hearing in the matter on 5 March 2012, where counsel for the applicant indicated that the parties were likely to rely on expert evidence. On that basis, he deposed that the evidentiary stages in the proceeding would probably be complete in early 2013, providing sufficient time for the applicant to frame and put forward its case in relation to quantum.

Affidavit of John Paton 25 The respondent also relied on the affidavit of John Paton, its Chief Executive Officer, sworn on 11 September 2012. Mr Paton deposed that the respondent, as a non-for-profit organisation, tried to minimise any potential exposure by ceasing to engage in the alleged infringing conduct. It had ceased, and requested its licensees to cease, budding and propagation of the "Ruby Pink" variety and had ceased to sell "Ruby Pink" trees. 26 Mr Paton deposed that the respondent had discovered its documents on the basis that both liability and quantum were in issue.

dISCUSSION 27 As the respondent submitted, the "norm" in litigation is that all facts and issues in a proceeding be determined at the one time. Intellectual property cases involving patents, trade marks and plant breeder's rights nevertheless constitute a distinct group, as an order for split trials is much more usual than not, principally because (as recognised in authorities including Dr Martens, LED Builders Pty Ltd v Eagle Homes Pty Ltd (No 3) (1996) 36 IPR 293 and Fleming's Nurseries) it avoids the need to lead evidence on both damages and an account of profits. 28 In addition to the above advantage, a separate trial on liability would, if the applicant in this case were unsuccessful, avoid the need for a trial on quantum altogether, and thus dispose of the entire matter. The parties would otherwise have to prepare and lead evidence in relation to the assessment and calculation of both damages and profits, all or much of which may ultimately be unnecessary. 29 The respondent's principal objection to a split trial was that it had already, in effect, given discovery and prepared an expert evidence report on quantum in circumstances where the applicant took the benefit without reciprocating, as it made no sufficient discovery relevant to quantum, and refused to clarify its position on loss. The applicant had failed to state whether it claimed loss confined to that assigned to it, or whether it would seek only lost royalties from the respondent to the registered owner, rather than lost sales as a result of the respondent's conduct. 30 The respondent submitted that in the circumstances, it had nothing to gain from a split trial, and, given the timing and context of its application, the applicant would secure an unfair advantage. 31 While an order for a split trial would be likely to obviate disputes about the adequacy of the applicant's discovery or its particulars of loss and damage, it would confer no other obvious forensic advantage. Further, the assessment of whether it was appropriate to order a split trial could not be conflated with the respondent's related, but distinct, complaints about the adequacy of the applicant's discovery on quantum and its alleged failure to clarify how it put its case thereon. The respondent had not sought relief in relation to such complaints, although it was open to it to do so. The respondent acknowledged that since 20 April 2012, while the parties attempted to resolve outstanding discovery issues, the applicant provided a number of documents relevant to quantum of alleged loss and damage and a summary document setting out sales of Rosy Glow and royalty payments. The respondent alleged that the applicant's discovery was inadequate because it did not permit the respondent to calculate the applicant's profit per sale or to identify its customers. Nevertheless, the respondent conceded that such matters would be relevant only if the applicant sought damages for profits it lost prior to the assignment or for sales lost to the respondent. 32 The respondent, by correspondence in July 2012, sought clarification on those issues, which the applicant refused to provide, on the basis that it had not yet made an election as to damages or an account of profits. 33 In the context of the present application, it was not possible to determine the respondent's complaints about discovery, which were, in a sense, merely contingent, and were disputed by the applicant. 34 Further, it was clear that a separate trial on liability could eliminate any need for a trial on quantum. Although the respondent had already given discovery and prepared some relevant evidence, the further preparation, time and costs consumed by a trial on quantum was, even from the respondent's perspective, likely to be considerable. The respondent's argument that the issue of quantum was unlikely to be complex or involve significant preparation and time was inherently weakened by the complaint that the respondent was not, at this stage, aware of how the applicant would put its quantum case. Experience indicated, however, that the hearing and determination of quantum issues relevant to both damages and an account of profits would greatly expand the effort, time and costs of the parties and the court. (See, in that context, Digi International v Stallion Technologies (2001) 53 IPR 529 at [34]-[35]). 35 As mediation had already been attempted without success, I accepted that an order for a split trial was unlikely to promote settlement prior to the conclusion of a trial on liability. 36 While some overlap of issues could not be excluded, the applicant denied that its chief executive officer would, as the respondent suggested, give evidence on both liability and quantum. No other person was identified as likely to give evidence on both liability and quantum. Some degree of overlap was not, in any event, decisive. Further, while the respondent contended that its cessation of the alleged infringing conduct constituted an end point, the applicant did not accept that cessation was established. 37 While the matter was likely to be protracted and complex, a separate trial on liability would ameliorate, rather than aggravate, the difficulties. The potential avoidance of the need for any trial on quantum and further preparation for trial on the assessment and calculation of damages and an account of profits was, in my view, a compelling advantage of a split trial. Accordingly, I considered it just and convenient to make the order sought. I certify that the preceding thirty-seven (37) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Dodds-Streeton.

Federal Court Rules 1979(Cth)

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