Larach v Urriola

District Court of NSW|2009-03-27|Before: Channel Nine P

These proceedings for defamation were commenced on 13 April 2007. Mr Larach's application for the US patent for his modular rain tank was lodged on 13 July 2007 (PB-122) and Atlantis' trade mark in the United States lapsed later that same month (PB-151). A notice of abandonment of the EcoRain trade mark application in the United States was later lodged by the Atlantis company group.

On 18 September 2008 Atlantis wrote a letter to Hanes Geocomponents ("Hanes") repeating allegations that the plaintiff, Mr Larach had copied the Atlantis tank module and produced the EcoRain tank module as a result. The letter stated that Atlantis "is presently in Court in Australia against Stormwater" and that as part of the evidence an expert opinion had been obtained from a US patent attorney on the infringement of the EcoRain tank modules to the effect that this was an infringement. The letter went on to claim that: "This document has been presented in Court in Australia. We are awaiting the outcome of the Court case, which will be heard in February 2009, before we decide what action we take in the USA and other countries. For your reference we enclose herewith a copy of the expert opinion." (PB-153)

In fact, Atlantis had abandoned the proceedings it brought in the United States against Stormwater. The proceedings in Court in Australia which were to be heard in February 2009 were these defamation proceedings in which Atlantis was the one of the defendants. Although it was open to Atlantis to lead evidence that imputations about infringement were true, it elected not to do so.

This brings me to a consideration of the matters complained of and in particular the imputations pleaded by the plaintiffs which, it must be said, similarly avoid any imputation that Stormwater infringed the second defendant's product or copied Atlantis products with a Chinese imitation branded with a copy of the Atlantis trade mark, or any other imputation in relation to the main dispute between the plaintiffs and the defendants, namely the originality of the products being sold by the plaintiffs.

The defendants have explained that the expense of proving whether or not the plaintiffs' products are copies and thereby infringe the defendant's trade marks and designs is too expensive an issue to litigate, and they do not want a decision which may amount to issue estoppel. Thus the issues about which the parties have joined issue are whether or not Stormwater committed fraud by placing certain pictures of project sites on its website, whether Stormwater knowingly and blatantly overstated the experience of its consultants, contextual imputations about "copying" ((a), (c), (g) and (h)), which fall short of asserting infringement, and a complaint that the website stated the products were patented when the patent was merely pending.

I shall consider each publication and the imputations conveyed separately.

The relevant test is whether an ordinary reasonable reader would derive from the words of which complaint is made any imputation or imputations pleaded. In answering this enquiry any strained or unreasonable interpretation is to be rejected. The Court is entitled, and required, to take into account the mode or manner of publication. Some forms of publication, such as a letter or book (as distinct from a newspaper) require more assiduous attention than others: Holmes v Fraser [2008] NSWSC 570 at [24] per Simpson J.

I shall consider each of the publications in turn.

Imputation 6(a): That Stormwater had committed fraud by placing certain pictures of project sites on their website.

The defendants admit that this imputation is conveyed by the first matter complained of and is defamatory of the second plaintiff. No ruling by me is required.

Imputation 6(b): That Stormwater had knowingly and blatantly overstated the experience of its consultants on its website.

The defendants challenge that this imputation is conveyed. The plaintiffs draw my attention to the portion of the first matter complained of commencing at line 35 under the subheading "Website, misleading and deceptive conduct": "Additionally on the Home Page, it states that "Our consultants have over 25 years of experience in over 30 countries worldwide. You would be led to believe that Stormwater Solutions LLC or their employees have been in the water management business for 25 years, and have sold products in 30 countries. This is false.

That is a blatant misrepresentation. Oscar Larach worked for Atlantis Corporation for 12 years. Prior to that he sold women's stockings and before that used cars.

Manuel Arriagada, a friend of Oscar Larach has only been in the Stormwater industry for five years after becoming an Atlantis distributor in California, before that he was a truck driver. Hence the claim 25 years experience is a gross misrepresentation."

The terms of the publication are quite scathing in their denunciation of the first plaintiff and his fellow director, not only in relation to the length of time they actually spent in the form but also the menial nature of their previous employment. The clear inference is that the company consists of these two persons whose qualifications in terms of length of time and skills fall so far short of their claims that their exaggerations must be deliberate. This imputation is conveyed.

The test for defamatory meaning in relation to damage to business reputation has been substantially revised by the High Court in Radio 2UE Sydney Pty Ltd v Chesterton [2009] HCA 16, in which the Court held that the Court of Appeal's decision in Radio 2UE v Chesterton [2008] NSWCA 66 and Gacic v John Fairfax Publications Pty Ltd (2006) 66 NSWLR 675 were in error in requiring a jury to be directed that the general test as to defamatory meaning should not be applied in business libel cases (at [60]).

In anticipation of the successful High Court challenge to Chesterton, the second plaintiff submits that the imputation would still be defamatory under the orthodox community standards test of whether it is likely to cause ordinary reasonable persons to think less of the plaintiff or to shun or avoid the plaintiff. On the orthodox test, this is clearly an imputation which would cause ordinary right-thinking members of the community to think less of the second plaintiff.

That a company would knowingly and blatantly overstate its experience on its website, (which the ordinary reasonable reader knows is there to advertise its business) must cause damage to the reputation of the second plaintiff in the mind of ordinary right-thinking persons. Accordingly, I find this imputation defamatory.

Imputation 8(a): That Stormwater had committed fraud by placing certain pictures of project sites on their website.

The defendants admit that this imputation is conveyed by the second matter complained of and is defamatory of the second plaintiff.

Imputation 8(b): That Stormwater had knowingly and blatantly overstated the experience of its consultants on its website.

Imputation 10(a) - That Stormwater had behaved in such an underhanded and devious way, that one needed to be extremely cautious in dealing with it.

Imputation 10(b) - That Mr Larach had behaved in such an underhanded and devious way, that one needed to be extremely cautious in dealing with him.

The defendants admit that these imputations are conveyed by the third matter complained of and are defamatory of the plaintiffs.

This brings me to a consideration of the defences. The defences of truth and contextual truth have been pleaded.

The test for establishing this defence was set out by the Court of Appeal in Cross v Queensland Newspapers Pty Ltd [2008] NSWCA 80 where the Court confirmed (at [71]) the test for determining whether an imputation is substantially true, citing Dixon J in Howden v Truth and Sportsman Ltd (1937) 58 CLR 416 at 420: "The defence depends upon the substantial truth of the defamatory meaning conveyed by a libel. Every material part of the imputations upon the plaintiff contained in the words complained of must be true; otherwise the justification fails as an answer to the action."

Imputations 6(a) and 8(a) - That Stormwater had committed fraud by placing certain pictures of project sites on its website.

What is "fraud"? Both parties relied upon dictionary definitions. I note that "fraud" is defined by the Macquarie Dictionary as "1. deceit, trickery, sharp practice or breach of confidence by which it is sought to gain some unfair or dishonest advantage. 2. One who makes deceitful pretensions; imposter". Both parties agreed that the burden of proof, which rests upon the defendants, must be discharged in accordance with s 140 Evidence Act 1995 (NSW).

What do the defendants point to as the conduct amounting to fraud? The defendants' contention is that the second plaintiff (through Mr Larach) admits to these photographs remaining on the website "long after its distributorship ended", the justification being that some sites "are sites where it had been involved and hence are merely portraying its experience" (defendants' written submissions, paragraph 5). The defendants do not accept this explanation because, they contend, a fair reading of the website shows that the plaintiffs' intention was to "pass off the sites as sites where EcoRain product was used" (paragraph 5, written submissions). The defendants particularly complain that three of the sites depicted never used Stormwater at all.

Even if everything the defendants say is true, is keeping a former partner's product on the website so that readers may think these are someone else's "straight out fraud"? To establish fraud it is necessary to establish mens rea (albeit to a s 140 Evidence Act standard rather than to the criminal standard) and the elements of the fraudulent act. It is necessary to examine Mr Larach's explanation for leaving these previously permissible photographs on the website between 1 April 2006 (when the plaintiffs' connection with the defendants ended) and 18 September 2006 (when the defendants first complained to the plaintiffs about the photographs still being on the website).

What is the factual background? It is not in dispute that from 7 May 2002 until 31 December 2005, Stormwater was an authorised distributor of Atlantis products (Agreement at PB-35, Larach T-29.30) and that Mr Larach supplied the material, including photographs to place on their website. There was express authority from Atlantis during the period Stormwater was a distributor, for photographs depicting projects which utilised Atlantis products, to be placed or remain on the website of Stormwater (Larach T-30.41).

This permission ended when the relationship between the parties was terminated. However, although the notice period expired on 31 December 2005, Stormwater was able, by agreement, to continue selling Atlantis products under the agreement for a further three months ending on 31 March 2006. I find that permission to keep the information on the site continued until that date (PB-98, advice from Taylor to Urriola 1 May 2006).

As set out above, the plaintiffs added a note to the website that from 1 April, Stormwater would start its association with EcoRain. Very few consequential changes were made and photographs, which were already on the same website before 31 March 2006, remained on the website.

Atlantis made no objection to the plaintiffs about the photographs of its product remaining on the website after 31 March 2005 until its letter of 18 September 2006 to Trojan Law Offices (PB-117). This letter was triggered by the Trojan letter of 13 September 2006 (PB-115) complaining about alleged infringement of trade mark. The only complaint made by Atlantis was to the web hosting service of Stormwater, Doteasy, when on 2 February 2006 Rebirth invited Doteasy to close down the website of Stormwater (the Web Bundle ("WB") 32). There is no evidence that Stormwater was given any notice of this letter by Doteasy (or Atlantis).

The first the plaintiffs knew of the objection was when they received Atlantis' lawyers' letter of 18 September 2006. However, Mr Larach must have known that the photographs used on the site depicted Atlantis' products and that people reading the website material could have wrongly assumed that these were jobs using Stormwater products rather than Atlantis' products.

The reasons given by Mr Larach for the continued use of photographs which depicted Atlantis products after 31 March 2006 (and before the complaint on 18 September 2006) are summarised in Mr Potter's very helpful submission as follows: (i) after starting with the new product they had little time to overhaul the website and so it remained to a great extent in its original form (T-39.33); and (ii) he believed that the note on the home page would alert visitors to the site that after 1 April, new products would be supplied (which included tank modules) i.e. EcoRain instead of Atlantis products (T-39.33 and T-41.1).

It was the plaintiffs who fired the first shot in this war, because it was the plaintiffs' solicitors who first wrote complaining about the use of the EcoRain trade mark by the defendants. This was a complaint with some merit. However, the defendants' letter pointed out that it was the pot calling the kettle black, because the plaintiffs were using the defendants' photographs and that the patent for the plaintiffs' product had not been granted.

When Mr Larach received this letter he took a number of steps. He obtained legal advice that even though he had a 'PCT', (PB-147) there was no patent granted yet in the US for the EcoRain module and the website should not therefore say 'patented'. This change was made in September 2006 (T-42.12).

In addition, Mr Larach gave evidence that he removed from the website all photographs which he believed depicted sites which were not projects undertaken by Stormwater, namely, sites outside California which for historic reasons had remained on the website (T-41.30). While the defendants submit that he did not do so, Mr Larach's evidence was that this was his intention.

Mr Larach said in his evidence he considered it was legitimate to maintain photographs of Stormwater projects, even though they contained images of Atlantis modules. These were Stormwater projects and went to the overall commercial experience of this company in this market. The project at Hermosa Beach California remained on the website after September 2006 (T-44.15). This was because Stormwater won the tender, provided technical support and onsite training and invoiced for the job.

In addition, the plaintiffs draw my attention to the following: (i) Under clauses 3.1 and 3.3 of the distribution agreement (PB-37), the distributor must sell products in its own name and for its own account and could not use the name of Atlantis or Rebirth; (ii) Stormwater also supplied other (i.e. non-Atlantis) products to the project such as geotech fabric and filter pumps (T-41.40 and T-338.36).
The plaintiffs submit there was nothing on the website prior to the dates of the first two matters complained of (and the third publication did not have the references to misleading photographs on the website) which could be construed as passing off the products in the photographs as EcoRain or Stormwater products (the BMP project is addressed specifically below). They were photographs of Stormwater projects. Whether or not this is the case needs to be considered in relation to each project site.

A significant problem in this case was that the only way the content of the plaintiffs' website could be viewed was to read the printouts which were tendered. For reasons which were later explained as being printing difficulties, the dates on which the website pages were copied did not come through on some of the pages of the website that were printed off.

Unfortunately, as a result, everyone was confused. Not only the lawyers made errors, but so apparently did the parties. This only became apparent when Mr McHugh addressed on the basis of the web page details as they were given to him by his clients after the hearing, which were factually different to the evidence in the trial.

Mr Potter commenced his oral submissions at T-464, by addressing that evidence when Mr Potter said: "I thought I'd start, your Honour, with that blistering point that my friend raised about how incorrect my submissions were on the factual point, to deal with that up front. Now, it floored me when he said this, because I prepared my submission on the basis of the transcript, and at all times, Mr Larach was cross-examined both in relation to the unknown site and the BMP matter, in relation to the website material on 24 January. They put to him "Go before they [sic] look at this website in September, and why did you put EcoRain then?" So there's a Brown v Dunn point there, but I thought that I'd looked at these websites in September and I couldn't find it, and over lunch I've had another look at it, and I'd just like to take your Honour to this bundle, because there's something very wrong with it."

At T-465ff, Mr Potter took me through the bundle to demonstrate what was wrong. Mr McHugh told me, at T-467, that while some of the entries had dates at the bottom, others did not.

There then came the question of whether the dates on the document were the dates when the material had been cached, or whether that was the date that they had been created into a PDF file or the date of printing. Mr McHugh said, at T-438.11, that a particular document dated 31 January 2006 was showing the date on which it was printed.

Further complications arose when it transpired that copies of the document given to me as part of a tender, which did not have any dates at the bottom were different to the dates on the copies that counsel had (T-469). However, a fundamental problem was that none of the documents behind Tab 5 of the computer generated material contained the line reflecting either the date of printing or the date of creation as a PDF document. Such was the state of confusion that the proceedings were adjourned to 27 March so that Mr McHugh could seek leave to re-open his case to lead evidence from Mr Taylor, a consultant retained by the defendants, as to the manner in which the folder was put together by him and how it came about that these pages went into the wrong folder.

Mr Taylor gave evidence, at T-503ff. His evidence was that there was a hand-written note on the top right-hand side of the first document in Tab 5 showing that those documents were dated 1 September 2006. As to Tab 9, all of those documents should have been dated 15 November 2006 but because some of the documents were printed in landscape rather than portrait format, not all of them were dated on this day. However, as Mr Taylor looked through the documents, he became hesitant. He said, at T-505, that some of the pages were "numbered with that date on them and the others aren't". When asked if the answer was that he did not know what the date was, he said: "Well there appears - well I don't know whether they are or not".

At T-506 he gave evidence that some of the pages had been transposed. Pages 161-186 should be in the November website bundle (T-509). In other words they had to be placed behind Tab 9.

Mr Potter, who objected to the calling of the additional evidence on the basis that he could not cross-examine the defendant about it, asked some very pertinent questions in cross-examination. First of all, he was able to elicit from Mr Taylor that he did not know whose handwriting it was concerning the handwritten entry of "1 September 2006" on page 120. Despite having no idea who made this handwritten entry, Mr Taylor still insisted that he had recalled seeing the web page "as at that time", and he was unable to explain why it is that none of the documents under Tab 5 bore any imprinted date. He was also able to point out to Mr Taylor that contrary to Mr Taylor's assertion that pages printed in landscape did not show a date, page 97, which was in landscape, showed a date of 15 May 2006. Mr Potter put to Mr Taylor that it was not correct to say that a page printed in landscape did not have the date printed on it for some related reason but Mr Taylor replied "No, it depends on how the web page has been set up" (T-517). He agreed, however, it was not a universal rule.

Finally, and most crucially, Mr Potter asked him: "Q: Now could you go to page 139? Do you have that? A: Yes.

Q: Could you keep a mark open in that page and then turn to page 169? A: Correct.

Q: Now these are the two pages which originally appeared in September, and they both can't be right, can they? A: That's correct.

Q: When did you first discover this mistake, that they were both in September and they were wrong? A: When the bundle was given - sent out to you, I noticed that one of the sections after it had been sent out appeared to be thicker.

Q: So you knew before the trial had commenced there was a problem? A: Correct.

Q: Did you raise that problem with the solicitor for the defendant? A: Yes.

Q: Was anything done, to your knowledge, as a result of your report? A: No I was told it was too late.

Q: You were told it was too late? A: Yes." (T-517)

Mr Potter went on to point out that the only reason for saying the photographs that appear in the bundle in September should be in November was by virtue of a letter that Mr Taylor had written in November. He then asked: "Q: So therefore, what you're saying is that you don't recognise these documents by any date, they bear, or any specific recollection on your part as to the date that you printed them, or copied them, you only relate your answer to where they should be by virtue of an order that you put pieces of paper in another file? A: Correct."

In NAB v Rusu (1999) 47 NSWLR 309, Bryson J notes, at paragraph 17ff: "[17] Before a business record or any other document is admitted in evidence it is obviously necessary that there should be an evidentiary basis for finding it is what it purports to be. …

[18] In equity and commercial litigation proof of the authenticity of business documents does not often claim attention because practices are followed which limit the occasions when it needs attention.

[26] Section 51 does not abolish or in any way affect the need to prove that a document tendered is the document which it purports to be and subsection 48(1) does not authorise the adduction of evidence merely by tendering a document in the absence of any evidence establishing what the document is."

Bryson J noted that procedures open to the parties in those proceedings would have included discovery or notices to admit facts. The difficulty in the present case is that documents have been prepared and tendered, a case particularised and pleaded, and evidence led, on a basis which is now asserted to be incorrect.

Where a party seeks leave to re-open its case, it is relevant to enquire why the evidence was not called at the hearing. In Smith v The New South Wales Bar Association (1992) 176 CLR 256 at 266, a majority of the High Court held that: "If there was a deliberate decision not to call it, ordinarily that will tell decisively against the application."

In ASIC v Rich (2006) 235 ALR 587, Austin J, at [18] listed the factors relevant to the exercise of the discretion. One of these is the need for finality in litigation, a point made in a number of Court of Appeal decisions concerning amendments to pleadings such as Dennis v Australian Broadcasting Corporation [2008] NSWCA 37 at [23]-[29]. The issue was considered recently in The Movie Network Channels Pty Ltd v Optus Vision Pty Ltd [2009] NSWSC 132 by Einstein J. Einstein J noted, at [27]-[29] that the party seeking the indulgence of being permitted to lead further evidence after the defendant had made forensic decision as to cross-examination and affidavit evidence, completed its documentary tender, closed its case and made closing submissions. That is factually very similar here. It is a further complication that by reason of the admission of Mr Taylor, it is clear that the defendants' solicitors knew of this change but told Mr Taylor that it was "too late" to do anything.

Finally, there is real doubt that the documents say what Mr Taylor claims they say. Even if I were to grant leave and permit the tendering of the documentary material, the concessions made by Mr Taylor to Mr Potter in cross-examination are such that the documents should meet the fate of the documents in NAB v Rusu.

While I granted the defendant leave to bring the application to re-open its case, and both parties have addressed me in relation to the evidence, I am of the view that the application to re-open the case should not be granted and that if it were, the documents in question should not be permitted to be tendered, both for the reasons explained by Bryson J in NAB v Rusu and pursuant to the provisions of s 135 Evidence Act 1995. My reasons for rejection of the tender pursuant to s 135 are factually the same as my reasons for holding that the documentation does not satisfy the threshold test of relevance.

Finally, in the event that I have erred in rejecting the tender of these documents, I should formally note that I would in any event reject Mr Taylor's explanation for the date of the documents. As he conceded in cross-examination, he does not know who wrote the handwritten date and the real reason he assumes these documents were dated in accordance with that handwritten note is because this fits in with information he has in another file. His explanation for some documents not having other dates is frankly unconvincing, but even if his explanation for the documents not having any date is correct, there is still no evidence that can satisfy me that Mr Taylor's belated explanation as to the correct date should be accepted.

Accordingly, I now turn to a consideration of the issues of truth by having regard only to the evidence as it was led at trial. I shall consider each of the construction sites on the Internet one by one.

The Wendy's restaurant site is one of three construction sites (the others being the Eastern Distributor and BMP) where the second plaintiff had no involvement. It is asserted that the Wendy's restaurant site remained on the website until December 2007, which was after these proceedings were commenced (see WB-234). The defendants submitted that this is referred to in the letter of 18 September 2006 but I am satisfied that it is not referred to until the letter of 15 November. However, nothing turns on this.

The plaintiffs' submission is that the first mention of this photograph was at paragraph 4 of the Atlantis letter of 15 November 2006 (PB-125). No copy of the photograph was sent with that letter to identify the offending image. There was just a general description of a photograph in the 'modular tank section' of the website concerning a project of another distributor, ACF. At T-103.20, Mr Larach conceded that he did not go back and look at the website to see if this was still there after he made the changes in September. However, in re-examination at T-206.35 he clarified the issue by looking at WB-124, being the website as at 1 September 2006. At the 'modular tanks' section there were two photographs. Mr Larach gave evidence that he believed the ACF reference was to the first photograph and so removed this photograph (T-208.30). This error was consistent with the answer to interrogatory 14, sworn 11 July 2008 (T-209.35). Mr Larach said at all times that he did not know where the real Wendy's photograph was taken and thought it was a Stormwater project (T-103.9).

However, Mr Larach did say that he believed that the Wendy's site was a project of Stormwater (T-107), even after receiving the letter of 15 November 2006, which categorically stated to the contrary. The defendants complain that Mr Larach's evidence that he failed to recognise the Wendy's photograph and therefore did not remove it (T-203) is implausible.

Mr Larach did make attempts to remove the photographs from the website. The question is whether it is an honest mistake or, to use the words of the imputation, he committed fraud by placing the pictures of the Wendy's project site on the website.

The defendants' written submissions (paragraph 8) complain that this inconsistency in Mr Larach's evidence, in that he removed one photograph and not another is "not explained". The evidence, in my view, falls short of actual fraud. The plaintiffs did remove a number of photographs from the website promptly, such as the residential site in Madrid. On the balance of probabilities, I am inclined to accept the evidence of Mr Larach that he intended to remove all the offending photographs and that this was a photograph he overlooked. No convincing reason (for example, the high desirability of having a project site like Wendy's restaurant on the website, or the degree of engineering difficulty) was put forward to show the advantage of this photograph, or how keeping this photograph on the site was actual fraud.

This photograph was removed after the September (first) letter of complaint. It does not appear in the 15 November copy of the website.

As I have indicated elsewhere, I accept Mr Larach's explanation in relation to this and other photographs which were removed as soon as the request from the defendants was brought to his attention.

The plaintiffs submit that this is not a situation under Maisel v Financial Times Ltd [1915] 3 KB 336 where the plaintiffs' imputations were sufficiently general to allow evidence of acts subsequent to the time of publication to be used to prove the truth of the pleaded imputations. The imputation is that Stormwater committed acts of fraud by placing certain pictures of project sites on its website. As at the date of publication those acts of fraud had either been committed or not committed and changes to the website after that date is not evidence of any act before that date. The charge in the imputation was not therefore general but specific.

I do not accept this submission. The terms of this imputation are such that the placing of pictures on the website at any time within a reasonable parameter of the imputation ought to be evidence concerning which particulars of justification can be led. The charge in the imputation is a general one of fraud. It is significant that the word "certain" is used, and certainly the matter complained of, with its reference to "pictures of project sites" is equally general.

The allegation made in the matter complained of is that "only" pictures of Atlantis project sites are featured. It was never put to Mr Larach that every single project site on the website used only Atlantis products.

The allegation of fraud made in the matter complained of identifies as misleading and deceptive conduct, the placing of these photographs on the website; what is fraudulent is that although "some of these" were "belatedly" removed, they were forced to write again, pointing out that only pictures of project sites where Atlantis products were used were being shown.

It was not suggested to Mr Larach that this was not a Stormwater project and the same reasons are applicable that this photograph was not removed from the website after 31 March 2006. The wording at WB-244 (where Mr Larach was cross-examined at T-99.5), which referred to EcoRain modular tank system appeared for the first time after the first two matters complained of in 29 January 2007. Before that there was simply no change to the website from prior to 31 March 2006 and this was not removed as it was a Stormwater project. The third matter complained of did not contain references to misleading photographs on the website and conveyed different imputations.

The plaintiffs' conduct in leaving the photograph of this unknown site on the website until some time in early 2007 may be foolish or incompetent, but on the balance of probabilities, having regard to s 140 Evidence Act 1995 I am not satisfied that this conduct amounted to fraud.

The Eastern Distributor / Woolloomooloo site is another site where the first plaintiff had no involvement of any kind. The defendants, in written submissions, assert that this publication remained on the website until 2007 and was certainly there after 15 November 2006.

Mr Larach said in his evidence that this was removed after the September letter. The next Atlantis letter (15 November) stated that it was still there (paragraph 10, PB-126). However it is not depicted in the 15 November copy of the website (Tab 9 WB).

At T-166.24 Mr Larach was asked in cross-examination: "Q. And it was there right through until September, wasn't it? A. Correct."
There was no suggestion in cross-examination that it stayed on the website despite the letter of 15 November. As I have noted in the introductory section to the defence of truth, despite Mr Taylor's insistence that it must have been there for him to mention it in his letter, that is no explanation if his letter was in error. It makes no sense for other non Stormwater sites to be removed and to leave what is obviously a Sydney project on the website. I find that this site was removed after the first complaint by Atlantis in September. This is insufficient evidence, having regard to the standard under s 140, to amount to fraud, even on the terms put forward in the matter complained of (which restricted its fraud allegations to photographs not removed after the September letter).

Although this is relied on at item 5 on page 2 of the defendants' Outline of Submissions, there are no references to the WB or any submission about being put to Mr Larach in cross-examination. There is no reference in the submissions to when this photograph was on the website, or removed. I do not regard this as sufficient evidence to establish fraud.

This was a Stormwater site. At T-97.11, Mr Larach was asked about these pictures: "Q. There's no acknowledgment on that page, or anywhere on the website, as at 29 January 2007, that there are pictures of Atlantis products, is there? A. No.

Q. And yet there are pictures of Atlantis products, aren't there? A. The aim of the Stormwater Solution website is to show projects that Stormwater Solutions has been involved, and the expertise which Stormwater Solution has in these products or systems."

Again this was kept on the website as it was a Stormwater project and was illustrative of projects carried out by Stormwater. There is nothing on the relevant pages to suggest that the boxes depicted were made by EcoRain or Stormwater and the pictures were retained on the website for that reason.

This was also a Stormwater site. It was not fraud for the company that had supplied everything except the product to allow a photograph to remain on the website showing its installation, for the same reasons as set out above.

As with the 'unknown' site, the wording which was put to Mr Larach in cross-examination appeared on the website after publication of the first two matters complained of. The third matter complained of did not address any issue of misleading photographs on the website (the only reference to the website was an allegation that 'Additionally they blatantly copied our website' (line 23 PB-16). This was not a reference to any of these photographs.

Mr Larach explained the chronology of the BMP study in re-examination at T-210.40. Firstly it is necessary to look at the web page as at 15 May 2006 (WB-97) and from that it is clear that the photographs were historically left on the website along with the old words under 'the problem' and 'the solution'. These photographs were of a Stormwater project so Mr Larach left them on the website. Of the three photographs, only one contains a discernible picture of a rain tank box partially covered in sand. When one then looks at the same web page in January 2007, it is clear that Mr Larach has added new wording but not removed the photographs.

Mr Larach gave evidence (T-212.10) that he added the references to EcoRain on the website as they had carried out projects with EcoRain boxes by January 2007. The relevance of this is that there was no need to hold out to anyone that the photographs were something they were not, as it would have been just as easy to photograph EcoRain jobs. The existing photographs were to all indiscernible from those which would be present for an EcoRain installation. There was therefore no dishonesty involved as this was a "historic" retention of these photographs, where the writing on the web page later changed in 2007.

I reject the plaintiffs' submissions concerning Maisel. However, there is insufficient evidence to amount to fraud. At its highest, this conduct might be misleading or even deceptive but it cannot amount to fraud, and the defendants' statement of "straight out fraud", in bold letters, cannot make it so.

I accept the explanation of Mr Larach that he was busy setting up a new business and that he left photographs on the website, which had been legitimately there until 1 April 2006, showing sites where Stormwater expertise (using Atlantis products) had been used. This particular group of photographs did not depict a Stormwater project site. How, then, did the plaintiffs obtain it? As I understand the evidence, these photographs were either taken by Stormwater during installation or, in the case of the three non-Stormwater sites, supplied by the defendants for promotional purposes. I have also accepted Mr Larach's evidence that as soon as the defendants notified him of their objections he removed photographs of the Atlantis products, including those installed by Stormwater. Again, this may have been foolish of him, or even misleading or deceptive, but it is not fraud.

Imputations 6(b) and 8(b): That Stormwater had knowingly and blatantly overstated the experience of its consultants on its website.

The defendants submit that as a matter of substantial truth Stormwater Solutions had not been in business for 25 years or sold products in 30 countries. That, however, is not the imputation. The imputation related to the experience of its consultants on the website and in particular made disparaging remarks about Mr Larach and Mr Arriagada.

The defendants submit at paragraph 18 of the defendants' Outline of Submissions, that the reference at lines 45-56 is limited to the experience of Mr Larach and Mr Arriagada, which is less than 25 years. It is the imputation which must be justified and the imputation cannot be justified by limiting 'its consultants' to two. As a matter of practical fact, the defendants simply assumed that there were only two consultants and published the defamatory imputation on this basis.

The evidence at T-51.30 from Mr Larach was: "Q. As at the date of this letter, being 5 December 2006 that you had consultants with over 25 years experience in over 30 countries worldwide? A. Yeah, we've had it over 25 years as a matter of fact …

POTTER Q. Just to expand on that, how much experience have you got? A. Up to that day I probably had 14 years myself.

Q. And who else, Mr Arriagada? A. I had Mr Arriagada, which had four years, say four years. Then we had one of our consultants, Mr Montgomery, which had over 30 years in the water industry and we had Mr David Ruth which had another two/three years, I would say, or four.

Q. Anybody else? A. Maybe even more than four years, I would say, maybe Ruth.

Q. Any other consultants? A. And Mary Angle, which had at least another three to four years.

Q. In between all those consultants, did they have experience in the water management business in 30 countries? A. Yes.

Q. I won't ask you about details of the specific countries. MCHUGH: I'd like the details.

HER HONOUR Q. What were some of the 30 countries? Just give us as many as you can think of off the top of your head? A. Sure. While I was with Atlantis at the time, we had most of the Asian countries, including Singapore, Malaysia, Korea.

Q. No, that will do. Most of the Asian countries while you were with defendant? A. Yeah, most of the Asian countries. A number of European countries, you know, we were selling at the time, countries in South America as well."

Mr Montgomery confirmed his long (and impressive) experience in the field of 'water management business' at T-177.15. He was not cross-examined as to anything which could cast doubt as to his evidence of length of experience and as to the many countries in which he had worked.

The defendants submit (paragraph 19, written submissions) that Stormwater had not been in business for 25 years. The closest entry to 31 March is the copy of the web page of 20 April 2006 where the entry on page 2 states "We offer the most advanced range of water management systems in the world today, bringing together over 25 years of experience in over 30 countries around the world". I accept the plaintiffs' submission that this is a reference to the people within the organisation. In the matter complained of, this same interpretation is given by the defendants (only limited to two people).

The defendants must not only establish that the second plaintiff over-stated the experience of its consultants on its website but that it did so knowingly and blatantly. The imputation requires the defendants to establish prior knowledge on the part of the second plaintiff that the experience of its consultants was overstated on its website. Mr Larach said in his evidence he was referring to the experience of both himself and his consultants.

The defence of truth to this imputation fails.

Imputations 10(a) and 10(b) - That Stormwater (Mr Larach) behaved in such an underhanded and devious way that one needed to be extremely cautious in dealing with it (him).

The particulars of truth supplied during the trial on 10 February 2009, duplicate the particulars for the truth of imputations in the first and second matters complained of. That is the complained behaviour relates to the depiction of photographs on the website of Stormwater, not to any fact or matter referred to in the third matter complained of.

There is no attempt to justify the facts of the letter to Denver Plastics but upon evidence of extraneous facts to justify these imputations. The defendants are entitled to do so. However, the truth or falsity of the imputation requires an examination of the whole of the conduct of the plaintiffs.

The plaintiffs submit that there was no underhanded or devious conduct in adding new wording to the BMP material in January 2007 as Mr Larach said there had been plenty of experience of EcoRain undertaking this work as at that date and so no one was mislead by the experience that was described in the words set out on that page in January. The photographs remaining were illustrative of the type of job undertaken and not a misleading statement that Stormwater had experience of this work, when in fact it did not.

The defendants, in written submissions, refer to the copying of the Atlantis modular tank system and the Copycat system and that such is substantially identical to the patented system which is substantially true. It is asserted that Mr Larach actually agreed with this (T-168).

The evidence in these proceedings, essentially by reason of the forensic decision of the parties not to lead expert evidence of copying or trade mark infringement, falls short of establishing that the plaintiffs' product is a copy (let alone a blatant copy) of the defendants' product. Nor is it true that the defendants "blatantly copied our website" and in particular it is not true that the defendants were the proprietor of the trade mark EcoRain in the United States. This is a defamation case, not an action for damages for breach of trade mark rights. Although the letter asserts that the "Copycat" system is an infringement, no proceedings were ever brought in any country, nor have I been asked to determine this issue. Pursuant to s 136 Evidence Act, the experts' reports tendered by the defendants were specifically restricted to the qualified privilege defence. Those experts were not made available for cross-examination and I do not propose to embark on the complex and difficult task of determining whether the plaintiffs' products are copies of the defendants' products without such assistance.

I have set out below in the section on contextual truth my reasons for rejecting all of the contextual imputations. The failure of these imputations means that there is no evidence upon which this imputation can be sustained.

The amended defence at paragraphs 16.5 and 17.4 seeks to plead back those of the plaintiffs' imputations which have been successfully justified in order to combine these with the contextual imputations for the purpose of balancing the true contextual imputations against the plaintiffs' imputations not successfully proved true.

Section 26 of the 2005 Act is worded quite differently to s 16 Defamation Act 1974 (NSW). The contextual imputations are defined as those in addition to the plaintiffs' imputations. The balancing test is then between the contextual imputations and the plaintiffs' imputations (not between the contextual imputations plus the plaintiff's justified imputations against the plaintiffs' unjustified imputations). The form of pleading in the amended defence appears to have been copied from a 1974 Act precedent. However, the defendants do not intend to argue that the effect of s 26 of the 2005 Act is the same as s 16 of the 1974 Act in this respect.

The questions to be asked on a defence of contextual truth were succinctly set out by Simpson J in Zunter v John Fairfax Publications Pty Ltd [2005] NSWSC 759 at [45] (although Zunter was a 1974 Act case, the questions will still be the same, save for the requirement of public interest or qualified privilege): "[45] The questions which arise where a defence of contextual truth is pleaded are the following:

(i) does any one (or do any more) of the imputations pleaded by the plaintiff relate to a matter of public interest?; alternatively, was any one (or were any more) of those imputations published under qualified privilege?; (ii) if so, was any one (or were any more) of the imputations pleaded by the defendant as having been published contextually to the imputations pleaded by the plaintiff conveyed by the matter complained of?; (iii) if so, was any one (or were any more) of such imputations defamatory of the plaintiff?; (iv) in respect of any contextual imputation found to have been conveyed and to be defamatory of the plaintiff, did any one (or any more) of those imputations relate to a matter of public interest?; alternatively, was any one (or were any more) of such imputations published under qualified privilege?; (v) if so, was any such imputation a matter of substantial truth?; (vi) if so, does the substantial truth of any such contextual imputation have the consequence that publication of the imputation complained of by the plaintiff does not further injure his/her/its reputation?"

In pleading contextual truth a defendant cannot be heard to say that he "almost got it right". A contextual imputation pleading an imputation of a lesser nature cannot outweigh a more serious imputation pleaded by the plaintiff.

Section 16 of the 1974 Act provides as follows: " 16 Truth: contextual imputations

(1) Where an imputation complained of is made by the publication of any report, article, letter, note, picture, oral utterance or other thing and another imputation is made by the same publication, the latter imputation is, for the purposes of this section, contextual to the imputation complained of.

(2) It is a defence to any imputation complained of that: (a) the imputation relates to a matter of public interest or is published under qualified privilege, (b) one or more imputations contextual to the imputation complained of: (i) relate to a matter of public interest or are published under qualified privilege, and (ii) are matters of substantial truth, and

(c) by reason that those contextual imputations are matters of substantial truth, the imputation complained of does not further injure the reputation of the plaintiff."

Under the 1974 Act, imputations pleaded by the plaintiff could be "pleaded back" by the defendant, in addition to imputations the defendant pleaded and which had not been pleaded by the plaintiff. Both kinds of imputation, if pleaded contextually and established to be true, were capable of defeating those imputations pleaded by the plaintiff which had not been established to be true. In other words, the plaintiff's imputations, if "pleaded back" by the defendant, had the same result (i.e. the plaintiff lost the action) as imputations pleaded only by the defendant, providing the "swamping" exercise was successful.

However, it is possible that this is no longer the case under the new Act. There was some opposition from the other States, during the discussion of the provisions of the 2005 Act, to a wholesale adoption of the 1974 Act contextual provisions. The terms of the 2005 Act differ slightly from the 1974 Act, perhaps as a result.

Section 26 of the 2005 Act provides: " 26 Defence of contextual truth

It is a defence to the publication of defamatory matter if the defendant proves that: (a) the matter carried, in addition to the defamatory imputations of which the plaintiff complains, one or more other imputations ("contextual imputations") that are substantially true, and

(b) the defamatory imputations do not further harm the reputation of the plaintiff because of the substantial truth of the contextual imputations."

The new Act (which refers to imputations "in addition" to the plaintiff's imputations) may result in a situation similar to the role of imputations under s 5 Defamation Act 1952 (UK) ("the UK Act"). The use of these words may have the result (whether intended or not) that the pleading back of one of the plaintiff's imputations may be relevant as to mitigation, but cannot defeat the action in the same way as was possible under the 1974 Act.

Section 5 of the UK Act provides as follows: " Justification

In an action for libel or slander in respect of words containing two or more distinct charges against the plaintiff, a defence of justification shall not fail by reason only that the truth of every charge is not proved if the words not proved to be true do not materially injure the plaintiff ' s reputation having regard to the truth of the remaining charges."

Thus, if a publication asserts that the plaintiff is a swindler, a liar and entered the country illegally (to use the well-known example cited in Hepburn v TCN Channel Nine P/L [1984] 1 NSWLR 386 at 397), a plaintiff may now be obliged to plead all three imputations in order to avoid the loss of the action through "swamping". If a plaintiff pleads only the imputations of illegal entry, the imputation of swindling and lying can be pleaded by the defendant to defeat the action. However, if a plaintiff pleads all three imputations and the defendant successfully proves the truth of one or both of the others (swindling and lying), the argument would be that the truth of these imputations would only go to mitigation of damages.

The language of s 26 has not yet been the subject of consideration by other courts. The pleadings in this case, however, give a good example of imputations which the plaintiffs could have pleaded but failed to do so. If one or more of the defendants' imputations were to succeed (assuming they could outweigh the plaintiffs' imputations) the plaintiffs may lose the action. Would that occur if the defence of one of the plaintiff's imputations succeeded? This is a question of statutory interpretation which, by reason of my findings of fact in this case, is not necessary for me to determine, but it is an argument that has been raised in submissions and I must accordingly refer to it. Although it is not necessary for me to determine the issue, I note my view that "another" (the 1974 Act) and "additional" (the 2005 Act) mean the same thing, and that the regime under the 1974 Act applies to the 2005 Act defence.

Are the contextual imputations conveyed from the matters complained of and are they defamatory of the plaintiffs?

In the amended defence filed on 18 March 2008 the contextual imputations for both the first and second matters complained of are as follows: (a) the second plaintiff was selling or purporting to sell copies of Atlantis products without permission of Atlantis and was thereby acting dishonestly; (b) the second plaintiff may have been selling or purporting to sell products branded with a copy of an Atlantis trade mark and was thereby acting dishonestly; (c) such products were being produced in China from plans copied by the second plaintiff and the second plaintiff was thereby acting dishonestly; (d) [This imputation was not pressed] (e) the second plaintiff's website falsely stated its products were patented and the second plaintiff was thereby acting dishonestly; (f) one of the second plaintiff's employees had been a used car salesman and the second plaintiff was untrustworthy; (g) the second plaintiffs made products in such a way as they could be substituted for project specification which specified Atlantis products and the second plaintiff was thereby acting underhandedly; and, (h) the second plaintiff was not a company to do business with.

Contextual Imputation (a) - Is this conveyed by the first matter complained of and defamatory of the second plaintiff?

Proof of the contextual imputation comprises three elements; firstly an act that the second plaintiff was selling or purporting to sell copies of Atlantis products, secondly, that those copies were being sold without the permission of Atlantis, and thirdly that such conduct was dishonest. It would clearly be defamatory to say of a person or company that they were selling copies of other products dishonestly. The reference to "copy" is at line 15: " However it appears that another company is attempting to replace our Atlantis products with a copied product and even [sic] may even have been branded with a copy of our new trademark. It is our understanding that a [sic] Chinese copied products are being offered for sale through Stormwater Solutions LLC or Eco-rain Systems Inc ."

Is contextual imputation (b) conveyed by the first matter complained of and defamatory of the second plaintiff?

Although not pleaded as a "fall back" (or lesser) imputation, the imputation that the second plaintiff "may have" been selling copies is clearly intended as an alternative if (a) is not made out. I am satisfied (a) is made out and therefore (b) is not conveyed. Any imputation conveying dishonesty is capable of causing ordinary right-thinking members of the community to think less of a person. I note, however, from the point of view of "contextual" imputations, that dishonesty falls well short of fraud.

Is contextual imputation (c) conveyed by the first matter complained of and defamatory of the second plaintiff?

No challenge has been taken on grounds of form although there is considerable overlap. This imputation is clearly conveyed by the reference to "Chinese copied products being offered for sale". The imputation of dishonesty is conveyed and defamatory.

Is contextual imputation (e) conveyed by the first matter complained of and defamatory of the second plaintiff?

Line 37 of the first matter complained of states that the second plaintiff's website stated that on 15 May 2006 that the products were patented and a search of the US patent records demonstrated that they were not patented.

The ordinary reasonable reader would be aware of some very basic concepts of patent law as being a law designed to enable people to register their original designs and ideas. The ordinary reasonable reader would find such an imputation conveyed because of such knowledge. It is not disputed by the plaintiffs that this contextual imputation is defamatory.

Is contextual imputation (f) conveyed by the first matter complained of and defamatory of the second plaintiff?

There is no doubt that the first matter complained of states at line 51, that Mr Larach was a former employee of the second plaintiff and prior to that he sold used cars. The inference is that in not revealing that one of its two employees is only a used car salesman, the second plaintiff is untrustworthy. This imputation is conveyed and untrustworthiness would cause ordinary right-thinking persons to think less of the plaintiff.

Is contextual imputation (g) conveyed by the first matter complained of and defamatory of the second plaintiff?

Lines 88-91 of the first matter complained of are relied upon to convey this contextual imputation. The imputation states in effect that the second plaintiff made plates the same size as Atlantis plates so it could substitute them in connection with an "already prepared" project specification which uses Atlantis plates. "Underhandedly" connotes conduct of a dishonest kind. This imputation is conveyed and would be considered defamatory by ordinary right-thinking members of the community.

Is contextual imputation (h) conveyed by the first matter complained of and defamatory of the second plaintiff?

This is a rhetorical imputation which catches up all the other imputations and does not convey any meaning which differs from the other imputations. It could mean anything from dishonesty to incompetence. If it has a meaning which differs from the other imputations, that needs to be specified. As a matter of common sense, most prudent business persons are unlikely to want to do business with companies selling copy products and/or using dishonest or underhand business practices, but the imputation needs to specify which of these kinds of conduct is referred to. The failure of this imputation to specify the conduct of the company means that the information is mere surplusage, to use the description given by the Court of Appeal in McPhersons Ltd v Hickie (1995) Aust Torts Reports 81-348. I accordingly hold that this imputation is incapable of being conveyed and I strike it out.

The contextual imputations are identical for the second matter complained of and I make the same findings in relation to this publication, including striking out imputation (h).

It is assumed that paragraph 17 of the defence is intended to plead contextual truth to the third matter complained of as against both plaintiffs.

The contextual imputations are as follows: (a) the plaintiffs and each of them were selling or purporting to sell copies of Atlantis products without permission and were thereby acting dishonestly; (b) the plaintiffs and each of them may have been selling or purporting to sell products branded with a copy of an Atlantis trade mark without permission and were thereby acting dishonestly; (c) [This imputation was not pressed.] (d) the plaintiffs and each of them had copied the, or part of the, Atlantis website and were thereby acting dishonestly.

Are contextual imputations 17(a), (b) and (d) conveyed by the third matter complained of?

Although this publication differs in tone and substance, each of these imputations is clearly capable of being conveyed to the ordinary reasonable reader and is defamatory of each of the plaintiffs.

Have the defendants succeeded in establishing the substantial truth of the contextual imputations?

Contextual imputation (a) - The second plaintiff was selling or purporting to sell copies of Atlantis products without permission of Atlantis and was thereby acting dishonestly.

A fundamental error concerning this imputation is the failure of the defendants to commence proceedings and obtaining a judgment in any jurisdiction against the plaintiffs for infringement of patent, trade mark, design or copyright or to lead expert evidence in these proceedings. Although Mr Urriola was at pains to paint a picture that such litigation was expensive and unpredictable and that he promised his wife he would not commence such proceedings, the fact remains that the defendants have never availed themselves of their right to a remedy through legal process against the plaintiffs. Their only action has been to write letters to those associated with the business of the plaintiffs alleging such infringement and threatening the addressees with litigation for contributory conduct.

While Mr Urriola and Atlantis may have their reasons for failing to enforce legal rights, this is insufficient reason for failing to justify a contextual imputation that the EcoRain/Stormwater product infringed Atlantis' US patent or trade mark. Such a step would not involve protracted litigation and could have been contested in this court as part of this trial. Further, although that imputation was withdrawn, imputations that copies were sold without permission which constituted dishonesty remain.

On that basis alone, even if the imputation is found to be conveyed and defamatory, it cannot succeed as a matter of substantial truth as it is not an act of dishonesty to produce a product which, to the untrained eye may look very similar but which does not infringe any known legal right of the defendants. There is no wrongful or unlawful act contained in the imputation which could render the conduct dishonest.

In a series of decisions, the Court of Appeal has warned trial judges that, even with comparatively simple exhibits such as photographs, the judge should be careful to be guided by expert evidence, and should not attempt to read or construe photographic evidence or maps so as to determine "which of the explanations given by the witnesses appears to be the most worthy of acceptance": Short v Barrett [1990] NSWCA 164, referred to with approval by Tobias JA in Angel v Hawkesbury City Council [2008] NSWCA 130 at [71]; see also Blacktown City Council v Hocking (2008) Aust Torts Rep, 81-956.

The exercise the defendants ask me to embark upon goes far beyond mere examination of photographs or even of the items in question. In circumstances where the defendants have neither tendered an expert report in accordance with the rules, nor provided the expert for cross-examination, I am being invited to make findings of fact that the second plaintiff was selling or purporting to sell "copies" of Atlantis products, that these were produced in China from plans copied by the second plaintiff and that the products were made in such a way that they could be substituted for Atlantis products.

The defendants' explanation in submissions for not calling this evidence and for not seeking to prove by way of expert evidence, that the second plaintiff's products are indeed infringements, or that the tort of passing off has been committed, is that to do so would result in "issue estoppel" (T-431-2). Counsel for the defendants also submits that the Court of Appeal has indicated in a number of decisions that actions for defamation cannot be defended by cross-claims, and that the defendants are reluctant to ask this Court to rule on issues of intellectual property in those circumstances.

This is not correct. Where defences and/or causes of action raise matters of this kind, it is open to the parties to have them transferred to the Federal Court; or, for that matter, to call appropriate expert evidence in this Court. What is not possible is for a party to tender a bundle of designs and untested assertions in letters from patent attorneys and leave it to the trial judge to assess, notwithstanding the restricted basis upon which those documents were tendered and notwithstanding the absence of cross-examination, issues such as whether the plaintiffs' product is a copy of the defendants' product.

In any event, the product designed by Mr Larach was not an identical copy, according to the advices he received from Mr Taylor and Trojan Law Offices. There were material differences. Dishonesty requires the notion of conscious wrongdoing in the sense of knowledge of a dishonest act.

Mr Larach took a number of steps along the way to ensure that his design did not contravene any legal right of the defendants including: (a) seeking the advice of Mr Paul Taylor as to whether his product (which at that stage was in a sample form) infringed patent 549. He was advised by Mr Taylor that it did not infringe because of its design and because of the existence of prior art (PB-78 and T-396.46 and T-400.30). Although Mr Taylor said his view later changed, he did not convey anything to that effect to Mr Larach (T-401.29);

(b) seeking advice from US patent agents, Trojan Law Offices who confirmed the oral advice given in March 2006, in their letter of 4 April 2006 (PB-81). This ten page advice is an impressive and careful review (in fact, more so than the advice of Mr Taylor). Mr Larach gave evidence that he considered the oral and written advice carefully at the time (T-37.36);

(c) he instructed Trojan to send a letter on 5 June 2006 (PB-111) to the defendants (in response to the defendants' letter at PB-102) outlining the reasons for non infringement of patent 549, a copy of which was seen at the time by Mr Urriola (T-296.38) and effectively putting the defendants on notice of the precise reasons why there was no infringement of patent;

(d) causing trade mark attorneys in Australia and the US to write to the defendants in order to inform them that Stormwater/EcoRain had prior commercial use of the mark EcoRain and that attempts by the defendants to have them registered in Australia and the US were without foundation (PB-112 and 115);

(e) registering the design in Australia of the plaintiffs' plans (T-114.37) and applying for a patent in Australia and the US for the plaintiffs product (PB-147 and 122).

Mr Larach was cross-examined on this at length. He denied that he was dishonest in his design. He said it was not a 'copycat' product.

The defendants have grouped their submissions in respect of what they term to be the 'copying' contextual imputations (namely (a), (c) (g) and (h)). The following submissions are responded to for imputation (a): (a) The defendants rely on a statement by the then lawyer for Stormwater in the statement of claim in California civil proceedings at DB-52, to the effect that anticipated sales for the following two years (after October 2005) were in the order of $10 million as evidence that this figure could only be so high by including all potential revenue from the LAX tender. It is submitted that this invites the conclusion that Stormwater must have started copying the Atlantis box whilst still an Atlantis distributor. The foundation for this is by inference only. The figure is a future estimate based on marketing potential for the next two years in California and the airport tender did not occur until the following year (T-124). This is not an evidential basis for proving that Stormwater copied Atlantis products.

(b) The defendants rely on the Heng letter (DB-65) as evidence that Mr Larach tried to persuade Mr Heng to manufacture exact copies of Atlantis products. Mr Heng, who was called to give evidence by telephone, was not an impressive witness. This document could have been prepared at any time. It is undated and unsigned and it was not produced until just before the trial, although the reference to "Chinese" copies must have meant that the defendants had some kind of information at that time, in which case the failure to particularise this letter is surprising.

(c) In cross-examination, Mr Larach was given a drawing "test" in the hope of catching him out as unable to reproduce his sketch plan which he sent to China. Notwithstanding the difficulty of drawing a complicated design in the witness box, he was able to reproduce a sketch of the EcoRain panel. I am satisfied by his ability to do so that he prepared sketches of this design as he claims.

Contextual imputation (b) - The second plaintiff may have been selling or purporting to sell products branded with a copy of an Atlantis trade mark and was thereby acting dishonestly.

The defendants provide no written submissions in support of the truth of this contextual imputation.

Mr Urriola made the following admission at T-276.25: "Q. You admitted in evidence, did you not, that when you made applications for trade marks for EcoRain in both Australia and in America, you were aware that Stormwater Solutions were commercially using that name? A. Yes.

Q. Now I repeat my second question to you. Therefore, your application for a trade mark was dishonest? A. That's your judgment.

Q. You only made the application to stop Stormwater Solutions business in Australia and in America using the name EcoRain, didn't you? A. Correct."

On the basis of those answers, Stormwater was not selling any product branded with a copy of an Atlantis trade mark. The attempt by Atlantis to secure a registered trade mark was not bona fide (for example, under s 58A of the Trade Marks Act 1995 (Cth), an application may be successfully opposed on the ground of first use before the applicant and first use by Stormwater was admitted).

Another entity (Rocla Pty Ltd) owned the Australian trade mark for EcoRain (PB-109). Atlantis failed to pursue its US application which was treated as abandoned by the US Patent and Trade Mark office (PB-151). At no time therefore did Atlantis have the benefit of the EcoRain trade mark and this contextual imputation is not therefore true.

Contextual imputation (c) - Such products were being produced in China from plans copied by the second plaintiff and the second plaintiff was thereby acting dishonestly.

There was no evidence of any plan of an Atlantis module being taken by Mr Larach to China for the purpose of manufacturing a module which was a copy of the Atlantis module. Mr Larach produced copies of the plans sent to China and they appear at DB-92-106. They are not a copy of the Atlantis plans, but plans for the Stormwater module.

Exhibit 5 was tendered by the defendants (T-140.11) which is a plan of an Atlantis injection moulding. It is not clear whether it was suggested that this plan was the one used by Mr Larach, but at T-139.4 Mr Larach referred to the Stormwater injection moulding plan at DB-92, which is different to the Atlantis plan.

The plan in DB-67 was shown to Mr Urriola (T-246.46), but was not put to Mr Larach during cross-examination about his activities in China. The lines look similar to the Larach plates, but it is not clear what this document is intended to prove, other than that Mr Larach had his initial products made in China.

There was no evidence from Mr Urriola that he found any evidence that any Atlantis "copy" was being produced for Stormwater in China. He simply found evidence that a product was being manufactured in China for Stormwater, which has at all times been admitted. It was also suggested that Mr Larach took Atlantis plates to China as the EcoRain plates were the same size. This was denied and there was no evidence that this happened. Mr Larach had his own drawings and sent those to China. There is no evidence that any Atlantis plans were copied by Stormwater.

Contextual imputation (e) - The second plaintiff's website falsely stated its products were patented and the second plaintiff was thereby acting dishonestly.

The plaintiffs admitted that the Stormwater website should not have said that "all products are patented". On receipt of the first complaint in September 2006 from Atlantis, Mr Larach said that he took advice and that the website should say "patent pending" as no grant had been made besides registering under the Patent Cooperation Treaty ("PCT"). At T-42.5, Mr Larach said: "Q. What did Mr Trojan advice you? A. Well I was told that we have, in fact, a PCT, you know which is a provisional patent, if you want to put it, a worldwide patent for whatever countries belong to that treaty, and that we had a US patent application and we did not, in fact, have a patent in the US. He advised us that we should change that and put instead "Patent pending."

Q. What steps did you take after that? A. We done just that."

The defendants knew about this entry on the website since at least May 2006 (the first appearance in the Web Bundle is at 78) yet raised no complaint until September, when it was removed forthwith. The plaintiffs submit there was no dishonesty, but an honest mistake, which was rectified immediately after it was pointed out by Atlantis. There was no denial or dispute after the complaint, it was simply removed and later replaced with "patent pending".

On the balance of probabilities (this not being an imputation connoting criminal conduct) I am satisfied that the second plaintiff's explanation should be accepted. However, if I were not satisfied, and considered that the plaintiffs dishonestly said they had a patent when they knew their application had not yet been granted, the truth of this imputation could never outweigh any of the plaintiffs' imputations in any of the three matters complained of. To the ordinary reasonable reader this would be regarded as, at worst, an unfortunate example of puffery. If the patent had already been refused, or never applied for, that might make a difference.

Contextual imputation (f) - One of the second plaintiff's employees had been a used car salesman and the second plaintiff was untrustworthy.

No particulars were provided and no submissions are made in respect of this imputation. Many people start out their careers in menial jobs; a former Australian Prime Minister left school at the age of 15 to work in a department store. The fact that a person has been a used car salesman is not, without more, capable of conveying dishonesty or untrustworthiness. There is no evidence to support this imputation in any event.

Contextual imputation (g) - The second plaintiff's made products in such a way as they could be substituted for project specification which specified Atlantis products and the second plaintiff was thereby acting underhandedly.

At T-193.29 Mr Larach answered in cross-examination: "Q. All right. You agree that Stormwater Solutions, the website featured products in such a way which those products could be substituted for project specifications which specified Atlantis products. Correct? A. Well we left the projects that were Stormwater Solution products, yes. And they did have Atlantis products, yes.

Q. So they could be substituted one for the other, couldn't they? A. No. You mean in what respects?

At a glance

Court

Decision date

Before

Source

Judgment (489 paragraphs)

Annexures

============================ A - First matter complained of

============================ B - Second matter complained of

============================ C - Third matter complained of

Parties

Legislation Cited (4)

Cases Cited (43)

Cited By (2)