LED Technologies Pty Ltd v Roadvision Pty Ltd [2012] FCAFC 3 | Case summary

The Appellant's Claim against the Respondents for Inducing or Procuring a Breach of Contract by Valens 17 It is important to note at the outset that in the context of this claim the trial judge said that the evidence of the witnesses "apart from one or two" was unsatisfactory in many respects. He found that for the most part each witness was willing to exaggerate to support his side. 18 The trial judge found that Mr Ottobre met Mr Hsu at an automotive trade show in Taiwan in April 2002. Mr Ottobre noticed the use of LEDs in automotive lamps. In June 2002 he discussed with Mr Hsu the possibility of Valens producing LED lamps for the appellant. Mr Ottobre obtained a quote for the production of the lens and base moulds from Valens but he thought it was uncompetitive and did not proceed. 19 At the meeting in Taipei in July 2003 referred to above (at [13]) Mr Ottobre had with him a proposed business plan and drawings of the proposed light. The lens size was proposed to be 80 mm by 80 mm. The trial judge made findings about what occurred at the meeting based on the evidence of Mr Ottobre and Mr Chiang. Although Mr Hsu was also present at the meeting he was no longer with Valens and he was not called as a witness at the trial. 20 The trial judge set out what the appellant contended were the terms of the agreement reached at the meeting as follows: (1) The appellant would own the moulds from which the lamps would be made. (2) Valens and the appellant would share the costs of producing the moulds. (3) Valens would not sell or manufacture for sale in Australia or New Zealand 80 mm and 100 mm square LED lamps made from the moulds. (4) Valens could, however, sell or manufacture for sale in countries other than Australia or New Zealand 80 mm and 100 mm square LED lamps made from the moulds. (5) The appellant had the exclusive right to sell 80 mm and 100 mm square LED lamps in Australia and New Zealand. 21 The trial judge said that the two key allegations were those in paragraphs (1) and (4) above. I think it is clear from his reasons that he meant to say paragraph (3) rather than paragraph (4). He found that the parties did not agree that the appellant would own the moulds. They did agree that part of the cost of the moulds would be paid by the appellant, being the sum of $4,000 of an approximate cost of $12,000. They also agreed that Valens would not sell or manufacture for sale in Australia or New Zealand lamps made from the moulds and that this term would continue to operate even after the commercial relationship between the appellant and Valens ended. The trial judge said that it was agreed that only the appellant would distribute the lamps in Australia. 22 During 2004 Mr Ottobre discovered that someone from Valens had offered for sale to a company in New Zealand lamps similar to those being made by Valens for the appellant. This led to correspondence between Mr Ottobre and Mr Hsu. 23 In the period leading up to the termination of the commercial relationship between Valens and the appellant in February 2006, Mr Ottobre became concerned about the quality of the products that were being manufactured by Valens. In particular, he suspected that Valens was using cheap components, especially the resin used to seal the circuit board in the lens, and exercising less quality control over workmanship. The appellant found a new supplier and when Valens, in July 2006, discovered what the appellant had done there was heated correspondence between Valens and the appellant. Mr Ottobre published on his website photographs of allegedly defective Valens lamps with a commentary stating that Valens' products were of inferior quality. In addition, he published a "Copyright Infringement Notice" contending that Valens was infringing the appellant's copyright in its lights. 24 On 19 July 2006 Griffith Hack wrote a letter of demand to Valens. In that letter they asserted, among other things, that Valens could not sell the appellant's lamp designs into Australia. On 22 January 2007 Griffith Hack sent an email to Valens' lawyers in New Zealand, Don Hopkins and Associates. In that email, Griffith Hack asserted, among other things, that the appellant owned the moulds and had authorised Valens to use the moulds to manufacture lamps on its own behalf for sale anywhere in the world other than in Australia and New Zealand. 25 In April 2006 Mr Baxter met with Mr Chiang in Taiwan. Mr Chiang asked Mr Baxter whether he wanted to purchase a square-lamp series from Valens. Mr Baxter declined because he "was uncomfortable with the similarity to LED Tech's lights" and he preferred to develop his own lamp. At about this time, Mr Baxter learnt of the dispute between Valens and the appellant and he saw copies of the notices that had been published by Mr Ottobre and which were critical of Valens. 26 Nevertheless, Mr Baxter remained interested in engaging Valens to manufacture its square lamps and he asked Mr Mitchell to speak to Ms Chang and see what he could discover about Valens' relationship with the appellant. The trial judge said that he was sure that Mr Baxter wanted to find out whether there was some restriction on Valens making square lamps for the respondents. 27 On 5 October 2006 Ms Chang sent an email to Mr Mitchell stating that Valens supplied hexagon-pattern lenses only to the appellant in Australia and that Valens had not supplied any hexagon-pattern lenses in Australia since its relationship with the appellant ended. 28 In August 2006 Mr Baxter met with Mr Ottobre to discuss the possibility of Baxters acquiring square lamps from the appellant. Baxters' national sales manager, Mr Briggs, also attended the meeting. The appellant's LED square-series lamps were discussed. The trial judge found that at the meeting Mr Ottobre threatened action against anyone in Australia who sold the square lamps. The trial judge did not accept Mr Ottobre's evidence that he told Mr Baxter that the appellant owned the moulds (or the tooling) for the LED lamps. 29 Mr Baxter did not enter into a distribution arrangement with the appellant. Nevertheless, he still wanted to sell the square series because they had become very popular. He made further inquiries of Valens to ascertain what he could regarding the extent of the appellant's rights in respect of the lights. On 2 July 2007 Mr Baxter sent an email to Valens seeking certain information and he received a response from Valens on 3 July 2007. That response included copies of correspondence passing between Valens and the appellant and their respective lawyers including the letters of demand from Griffith Hack. 30 The trial judge found that both Mr Baxter and Mr Mitchell were aware of the appellant's claim that there was an agreement which prohibited Valens from using the moulds to manufacture lamps for a third party. He said that they would have discovered this from reading the letters from Griffith Hack. He found that even if he was wrong about Mr Baxter's actual state of mind, he considered that Mr Baxter was recklessly indifferent to discovering what the true position was. The trial judge said: The assertion that LED Tech paid for the moulds would not have come as a surprise to Mr Baxter given his knowledge of the trade. The contention that the payment gave LED Tech exclusive rights in respect of the moulds was not far removed from how Mr Baxter understood the industry to work. He could easily have made further inquiries on this topic (including making inquiries of Mr Ottobre) but did not do so. That indifference as to what were the actual facts is sufficient to put the respondents on notice of them: Emerald Construction Co v Lowthian [1966] 1 WLR 691 700-1. 31 Mr Baxter decided to order 80 mm, 100 mm and 125 mm square lamps from Valens. He said that before placing the orders Valens required Baxters to pay tooling costs of USD10,000. Following brief negotiations the cost was reduced to USD2,500 with the remaining USD7,500 to be absorbed into the unit cost charged by Valens. 32 The trial judge found that the moulds used to make lenses were injection moulds and that such moulds consisted of three parts, being an inner mould which determined the size, shape and surface detail of the internal surfaces other than the top surface, an external mould which determined the size, shape and surface detail of the external surfaces, and an insert which was placed into the inner mould to imprint a pattern on the underside of the top surface of the lens. There was no dispute before the trial judge that the insert used to make the lights supplied to Baxters was different from the insert used to make the appellant's lights because the pattern was different. The trial judge said that the crux of the dispute was whether the same inner and outer moulds had been used by Valens to manufacture the lights it supplied to the respondents. He found that they had been. 33 To this point the trial judge had made the following important findings. First, he had found that it was a term of the agreement between Valens and the appellant that Valens would not sell or manufacture for sale in Australia or New Zealand lamps made from the moulds and that this contractual term continued to operate even after the commercial relationship between the appellant and Valens had ended. He had rejected other aspects of the appellant's case on the terms of the agreement reached in July 2003 but his rejection of those claims is not challenged on appeal. Secondly, he had found that Mr Baxter and Mr Mitchell were aware of the appellant's claim that there was an agreement which prohibited Valens from using the moulds to manufacture lights for a third party or, in the alternative, Mr Baxter was "recklessly indifferent to discovering what the true position was". Thirdly, he had found that Valens had used the same inner and outer moulds (that is, the moulds partly paid for by the appellant) to manufacture lights for the respondents and had thereby breached the contractual term. 34 The trial judge said that this left for consideration the question of whether the respondents knew the moulds were used to manufacture the lights Valens supplied to them. He found that they did not and his reasoning is contained in the following two paragraphs: 78 The more difficult question is whether the respondents knew the moulds were used to make Baxters' lamps. To resolve this question one must go back to when Baxters placed its orders. At that point Valens had a choice: it could make the lamps from new moulds (which is what it told Baxters it would do) or it could use existing moulds in its possession. The respondents did not request Valens to use existing moulds. If Mr Baxter's evidence is to be believed, Baxters thought it was paying for new moulds to be manufactured. And it was open to Valens to satisfy Baxters' orders without infringing its agreement with LED Tech. The choice it made (ie the decision to use moulds partly paid for by LED Tech) was not procured by the respondents. It was Valens that decided to breach its agreement. 79 I acknowledge, consistently with what was said by Jenkins LJ in D C Thompson & Co Ltd v Deakin [1952] Ch 646, 694, that if the respondents knew that Valens was making its (the respondents') lamps from the moulds which LED Tech had partly paid for, they would have been committing an actionable wrong if they had continued to purchase those lamps. I do not accept, however, that the respondents knew this was occurring. Nor do I think that they were turning a blind eye to that possibility. Rather, Baxters had been asked to pay for the tooling and did make an upfront payment of US$2,500, with the remainder to be absorbed into the unit price. Baxters was entitled to assume that Valens had manufactured new moulds. I do not accept that the respondent knew, or turned a blind eye towards the possibility, that the money it had paid may not have been used to acquire new moulds for lenses and that Valens may have used existing moulds to make the lenses. 35 The fact that this element of knowledge was not satisfied led the trial judge to dismiss the appellant's claim for inducing or procuring a breach of contract. The appellant challenged the trial judge's conclusion with respect to knowledge. 36 For their part, the respondents not only sought to support the trial judge's reasoning, but they also raised a number of other points by notice of contention. First, they contend that the trial judge erred in finding a breach by Valens of the contractual term he identified. They contend that at the very best for the appellant the trial judge could have found a contractual breach by Valens of its contract with the appellant only if the term was that Valens would not use the moulds as varied so as to produce a different lens pattern. That was not the contractual term which he found. Secondly, they contend that the trial judge erred in failing to find that the contractual term found by him was an unreasonable restraint of trade and therefore unenforceable. Thirdly, they contend that the trial judge erred in concluding that Valens had used the moulds to produce the respondents' lights and therefore acted in breach of its contract with the appellant. Fourthly, they contend that the trial judge erred in finding that Mr Baxter and Mr Mitchell had knowledge of the contractual term between Valens and the appellant. He had applied an incorrect legal test in saying that they had the relevant knowledge where they were recklessly indifferent to discovering what the true position was. Finally, they contend the trial judge's decision could be upheld on the alternative ground that damage is an essential element of the tort and the appellant had not established any damage. 37 For reasons set out below, I reject the appellant's challenge to the trial judge's conclusion that the respondents did not know that the moulds were used by Valens to manufacture the lights supplied to them. In those circumstances, it is not necessary for me to deal with the points raised in the notice of contention. 38 It seems that in the two paragraphs in the trial judge's reasons set out above his Honour drew a distinction between inducing or procuring a breach at the time the orders were placed and knowledge of a breach during the commercial relationship between the respondents and Valens. 39 The appellant's principal submission was that the trial judge overlooked evidence of the respondents which, when properly considered, leads to the conclusion that the respondents knew that Valens would use or were using the moulds partly paid for by the appellant to manufacture the lights supplied to them. That evidence was evidence of Mr Wells, who the trial judge did not mention in his reasons. The evidence was also evidence of Mr Mitchell, who the trial judge mentioned in the context of the respondents' knowledge of the contractual term, but not in the context of knowledge of a breach of the contractual term. There is no challenge by the appellant to the trial judge's finding that the respondents did not know of the breach by reason of the matters known to Mr Baxter. It was assumed in submissions that the knowledge of Mr Wells or Mr Mitchell could be attributed to the respondents. The appellant referred to Fightvision Pty Ltd v Onisforou; Tszyu v Fightvision Pty Ltd (1999) 47 NSWLR 473 ("Fightvision Pty Ltd") at 527 [244] 528-529 [249] [251]. Furthermore, the Court was asked to consider their knowledge separately and it was not suggested that this was a case where the knowledge of various corporate officers could be aggregated and attributed to the corporation. 40 The Court was taken to the authorities which deal with the mental element of the tort of inducing or procuring a breach of contract and it is necessary to examine those authorities. That issue is relevant because the appellant contends that as to knowledge of breach it is sufficient to establish that Mr Wells was "on alert" of a breach and that Mr Mitchell was "indifferent" to the possibility of a breach. For their part, the respondents contend by their notice of contention that the trial judge erred in applying a test of reckless indifference to the knowledge of the contractual term, and furthermore, this Court would err in applying a similar test in the context of the evidence of Messrs Wells and Mitchell and knowledge of breach. 41 The seminal case in this area is Lumley v Gye (1853) 2 El&Bl 216; 118 ER 749. The learned judges of the Queen's Bench spoke in that case of maliciously procuring a breach of contract. In Short v City Bank of Sydney (1912) 15 CLR 148 Isaacs J spoke of inducing or procuring a breach of contract and of the need, in order to establish the cause of action, of proving knowledge. In a well-known passage his Honour said (at 160): But to constitute that cause of action, the defendant must have induced or procured the doing of what he knew would be a breach of contract. A bonâ fide belief reasonably entertained that it was not a breach of contract would be fatal to the claim. If the defendant did not know of the existence of the contract, he could not induce its breach; if he reasonably believed it did not require a certain act to be performed, his inducing a party to the contract to do something inconsistent with it could not be regarded as an inducement or procurement knowingly to break the contract; if he believed on reasonable grounds that the contract had been rescinded, or performance waived, when in fact it had not, he could not be said to knowingly procure its breach. If this were not so, no man would be safe in the ordinary transactions of life, because he might find contrary to his knowledge or belief and expectation that some contract or enterprise he entered into was inconsistent with the contractual or other obligation of the party with whom he was agreeing or dealing. No doubt every man must be understood to intend the natural consequences of his acts; but that means having regard to the circumstances with which he is or is assumed to be acquainted. And the terms of an agreement and its true construction, for it may be very complicated, and the acts of the parties in relation to it are circumstances without knowledge of which reasonably brought home to the mind no man can be said to intend consequences regarding the breach of the agreement. 42 In Allstate Life Insurance Company v Australia and New Zealand Banking Group Ltd (1995) 58 FCR 26 Lindgren J (with whom Lockhart and Tamberlin JJ agreed) analysed the relevant authorities and identified a number of aspects of the tort of knowingly inducing or procuring a breach of contract. His Honour said (at 43) that the gravamen of the tort was intention and that knowledge was an aspect of intention rather than a separate ingredient of the tort. He said (at 43) that the knowledge supporting the intention to interfere with contractual rights was the "actual" or "subjective" state of mind of the alleged tortfeasor. His Honour referred to cases where the precise term breached was not known to the alleged tortfeasor and he discussed the decision of the Court of Appeal in Emerald Construction Co Ltd v Lowthian [1966] 1 WLR 691 ("Emerald Construction Co v Lowthian"). His Honour said that the case before him was not that type of case and he did not need to express a view about whether recklessness or indifference or reckless indifference would be sufficient to establish the mental element of the tort. I discussed the question of whether reckless indifference was sufficient in Polyaire Pty Ltd v K-Aire Pty Ltd [2003] SASC 41 at [198]-[209] as did Jessup J in World of Technologies (Aust) Pty Ltd v Tempo (Aust) Pty Ltd (2007) 71 IPR 307 at 336-337 [109]-[110]. 43 In Fightvision Pty Ltd (at 529 [251]) the New South Wales Court of Appeal agreed with Lindgren J's observation that a person's knowledge that what he is inducing will lead to a breach of contract and his intention to induce a breach of contract by what he is doing refer to one and the same thing. 44 In Sanders v Snell (1998) 196 CLR 329 the Minister for Tourism for Norfolk Island gave a direction to the Norfolk Island Government Tourist Bureau under subsection 15(1) of the Norfolk Island Government Tourist Bureau Act 1980 (NI) to terminate, at the earliest practicable date, the employment of the chief executive officer. The Bureau did so in a way which constituted a breach of the chief executive officer's contract in that it terminated the contract summarily rather than after notice. The plaintiff sued the Minister for Tourism for knowingly inducing or procuring a breach of her contract. Her cause of action failed. The High Court said that even if it was assumed that the Minister had a subjective intention that the contract be breached, that alone was not sufficient to establish an inducing or procuring of breach. The Court said that to persuade or direct a contracting party to terminate the contract lawfully is not to procure a breach of contract. Consistent with the Minister's direction the Bureau could have terminated the contract lawfully. The Minister did not induce or procure a breach because he did not ask or even suggest the Bureau act in the way it did (per Gleeson CJ, Gaudron, Kirby and Hayne JJ at 339-340 [22]-[26]). 45 I turn now to consider three English cases. 46 In DC Thomson & Co Ltd v Deakin [1952] 1 Ch 646 the plaintiffs were printers and publishers of various periodicals. A third party supplied paper to the plaintiffs pursuant to a contractual relationship. The defendants were representatives of various unions who encouraged the third party's employees not to deliver supplies to the plaintiffs. Jenkins LJ said that a breach of contract may be induced or procured by a third party by direct means or, in a case where a party to a contract is a willing contract breaker, by a third party who knowingly engages in inconsistent dealings with the contract breaker. His Lordship said (at 694): Direct persuasion or procurement or inducement applied by the third party to the contract breaker, with knowledge of the contract and the intention of bringing about its breach, is clearly to be regarded as a wrongful act in itself, and where this is shown a case of actionable interference in its primary form is made out: Lumley v. Gye. But the contract breaker may himself be a willing party to the breach, without any persuasion by the third party, and there seems to be no doubt that if a third party, with knowledge of a contract between the contract breaker and another, has dealings with the contract breaker which the third party knows to be inconsistent with the contract, he has committed an actionable interference: see, for example, British Industrial Plastics Ld. v Ferguson, where the necessary knowledge was held not to have been brought home to the third party; and British Motor Trade Association v. Salvadori. The inconsistent dealing between the third party and the contract breaker may, indeed, be commenced without knowledge by the third party of the contract thus broken; but, if it is continued after the third party has notice of the contract, an actionable interference has been committed by him: see, for example, De Francesco v. Barnum. (Citations omitted.) 47 In Emerald Construction Co Ltd v Lowthian a head contractor on a project had a labour-only contract with a subcontractor. Various unions objected to labour-only contracts and brought pressure to bear on the head contractor. On the facts, the head contractor could have pulled out of the contract without breaching it. One of the questions before the Court of Appeal was whether the representatives of the unions were liable for knowingly inducing or procuring a breach of contract by the head contractor. Lord Denning said that the union representatives did not need to know that there would be a breach. His Lordship said (at 700-701): If the officers of the trade union, knowing of the contract, deliberately sought to procure a breach of it, they would do wrong: see Lumley v. Gye. Even if they did not know of the actual terms of the contract, but had the means of knowledge - which they deliberately disregarded - that would be enough. Like the man who turns a blind eye. So here, if the officers deliberately sought to get this contract terminated, heedless of its terms, regardless whether it was terminated by breach or not, they would do wrong. For it is unlawful for a third person to procure a breach of contract knowingly, or recklessly, indifferent whether it is a breach or not. 48 Diplock LJ took a different approach. His Lordship said (at 703-704). The only issue on this part of the case is one of fact as to the defendants' intent. At all relevant times they knew of the existence of a 'labour only' subcontract for brickwork between the main contractors and the plaintiffs, but until it was disclosed to them on the interlocutory application to the judge in chambers for an injunction, they did not know its precise terms. They say in somewhat equivocal language that they assumed that it could be lawfully terminated by the main contractors on short notice and that such lawful termination was all that they insisted on. But ignorance of the precise terms of the contract is not enough to show absence of intent to procure its breach. The element of intent needed to constitute the tort of unlawful procurement of a breach of contract, is, in my view, sufficiently established if it be proved that the defendants intended the party procured to bring the contract to an end by breach of it if there were no way of bringing it to an end lawfully. A defendant who acts with such intent runs the risk that if the contract is broken as a result of the party acting in the manner in which he is procured to act by the defendant, the defendant will be liable in damages to the other party to the contract. 49 In OBG Ltd v Allan; Douglas v Hello! Ltd; Mainstream Properties v Young [2007] 2 WLR 920 the House of Lords examined the ingredients of the tort of knowingly inducing or procuring a breach of contract in detail. The leading speeches were delivered by Lord Hoffman and Lord Nicholls of Birkenhead. Lord Hoffman emphasised the importance to the tort of knowledge, that is, the requirement that the defendant be shown to have knowingly induced or procured the breach. He referred to Emerald Construction Co Ltd v Lowthian and the passage from the judgment of Lord Denning at 700-701 (set out above) and then said (at 30 [41]): This statement of the law has since been followed in many cases and, so far as I am aware, has not given rise to any difficulty. It is in accordance with the general principle of law that a conscious decision not to inquire into the existence of a fact is in many cases treated as equivalent to knowledge of that fact: see Manifest Shipping Co Ltd v Uni-Polaris Insurance Co Ltd [2003] 1 AC 469. It is not the same as negligence or even gross negligence: in British Industrial Plastics Ltd v Ferguson [1940] 1 All ER 479, for example, Mr Ferguson did not deliberately abstain from inquiry into whether disclosure of the secret process would be a breach of contract. He negligently made the wrong inquiry, but that is an altogether different state of mind. 50 The fact that negligence or even gross negligence is not sufficient is established by the decision in British Industrial Plastics Ltd v Ferguson [1940] 1 All ER 479. The circumstances of that case and the decision were described by Lord Hoffman in OBG Ltd v Allan; Douglas v Hello! Ltd; Mainstream Properties v Young (at 939 [39]): … This proposition is most strikingly illustrated by the decision of this House in British Industrial Plastics Ltd v Ferguson [1940] 1 All ER 479, in which the plaintiff's former employee offered the defendant information about one of the plaintiff's secret processes which he, as an employee, had invented. The defendant knew that the employee had a contractual obligation not to reveal trade secrets but held the eccentric opinion that if the process was patentable, it would be the exclusive property of the employee. He took the information in the honest belief that the employee would not be in breach of contract. In the Court of Appeal [1938] 4 All ER 504, 513, MacKinnon LJ observed tartly that in accepting this evidence the judge had 'vindicated his honesty … at the expense of his intelligence' but he and the House of Lords agreed that he could not be held liable for inducing a breach of contract. 51 His Lordship applied that decision in the course of dealing with the third appeal before the House of Lords (Mainstream Properties Ltd v Young) (at 947 [69]): In my opinion this case comes squarely within British Industrial Plastics Ltd v Ferguson [1940] 1 All ER 479. On the finding of the judge, Mr De Winter honestly believed that assisting Mr Young and Mr Broad with the joint venture would not involve them in the commission of breaches of contract. Nor can Mr De Winter be said to have been indifferent to whether there was a breach of contract or not, as in Emerald Construction Co Ltd v Lowthian [1966] 1 WLR 691, or made a conscious decision not to inquire in case he discovered a disagreeable truth. He therefore did not intend to cause a breach of contract and the conditions for accessory liability under the Lumley v Gye tort are not satisfied. 52 Lord Hoffman also said that in determining what constitutes intention one needed to distinguish between ends, means and consequences and that simply because a breach of contract is a foreseeable consequence of conduct does not of itself constitute intention (at 30 [42]-[43]). 53 Lord Nicholls of Birkenhead said that the tort of inducing or procuring a breach of contract was a form of accessorial liability (at 969 [172]). He described the necessary mental element for the tort in the following terms (at 972 [191]-[192]): I turn next to the mental ingredient of the Lumley v Gye tort. The mental ingredient is an intention by the defendant to procure or persuade ('induce') the third party to break his contract with the claimant. The defendant is made responsible for the third party's breach because of his intentional causative participation in that breach. Causative participation is not enough. A stranger to a contract may know nothing of the contract. Quite unknowingly and unintentionally he may procure a breach of the contract by offering an inconsistent deal to a contracting party which persuades the latter to default on his contractual obligations. The stranger is not liable in such a case. Nor is he liable if he acts carelessly. He owes no duty of care to the victim of the breach of contract. Negligent interference is not actionable. The additional, necessary factor is the defendant's intent. He is liable if he intended to persuade the contracting party to breach the contract. Intentional interference presupposes knowledge of the contract. With that knowledge the defendant proceeded to induce the other contracting party to act in a way the defendant knew was a breach of that party's obligations under the contract. If the defendant deliberately turned a blind eye and proceeded regardless he may be treated as having intended the consequence he brought about. A desire to injure the claimant is not an essential ingredient of this tort. 54 The evidence in this case would not support a finding that either Mr Wells or Mr Mitchell knew that Valens would or were using the moulds partly paid for by the appellant to manufacture the lights supplied to the respondents. The question is whether either of them turned a blind eye to the possibility. That means whether they made a conscious decision not to inquire into the existence of a fact in case they "discovered a disagreeable truth". The third possible category of knowledge, namely, reckless indifference, is more difficult to describe in terms of content. I think that there is such a category, but bearing in mind that the tort under consideration is an intentional tort and gross negligence is insufficient it seems to me that reckless indifference is something quite close to wilful blindness. It will be negated by an honest belief, even one exhibiting a high degree of credulity. It will be established only if the facts show affirmatively that the alleged tortfeasor, faced with knowledge of at least a substantial prospect of a breach, proceeded not caring whether or not a breach, would occur. 55 With these authorities and principles in mind I turn to examine the evidence of Messrs Wells and Mitchell. 56 Mr Wells was the purchasing manager of the second respondent and had been in that position for approximately 23 years. The Court was taken to various passages in the cross-examination of Mr Wells. It seems that at some stage it did occur to Mr Wells to ask Valens whether it was going to use the moulds partly paid for by the appellant. Ms Chang told him that Valens was not using the moulds and Mr Wells accepted that and made no further inquiries. He said he regarded it as "very important" that Ms Chang had told him this. He agreed that he did not seek to have Ms Chang confirm in writing what she had said. He agreed that there were other inquiries he could have made to determine if Valens was using the moulds partly paid for by the appellant, such as comparing the products supplied to the respondents by Valens with the appellant's products to see if there were any common imperfections caused by using the same moulds. Mr Wells could not remember the date upon which he had his conversation with Ms Chang. 57 Mr Wells' evidence establishes that the respondents originally agreed with Valens that they would pay tooling costs of USD10,000 by way of a deposit of USD2,500 with the balance to be amortised in the unit costs of each product. Mr Wells said that the agreement was subsequently changed after the deposit had been paid when, as an incentive for the respondents to proceed with the purchase of the lights, Ms Chang told him that Mr Chiang agreed to forgo the balance of the tooling costs. It is not clear from the evidence whether this change to the agreement occurred before or after Mr Wells made his inquiry of Ms Chang. 58 As I have said the trial judge did not refer to Mr Wells' evidence and the finding he made about the costs of the tooling to make the Baxter lamps was as follows (at [79]): Rather, Baxters had been asked to pay for the tooling and did make an upfront payment of US $2,500 with the remainder to be absorbed into the unit price. 59 As I have said, Mr Mitchell was the general manager of both respondents. The Court was taken to various passages in his cross-examination. Mr Mitchell said that he recalled that Valens initially sought a payment of around USD15,000 as a contribution to the development costs of the BTL Lights. He discussed the matter with Mr Wells and asked him to negotiate with Valens to amortise the cost into the unit price of the lights "in line with our normal practice". Mr Mitchell's recollection was that the second respondent did not pay a lump sum contribution to the development costs, but he did not recall the outcome of Mr Wells' negotiations. The cross-examination of Mr Mitchell was largely directed to his knowledge of the alleged contractual term. He agreed with Mr Wells' evidence about tooling costs and he denied that Valens' approach to the costs of the tooling suggested that Valens was going to use the moulds it had produced in connection with the appellant's products. He denied that he was indifferent to whether the making of lights for the respondents breached Valens' contract with another party. 60 The trial judge's finding referred to in [58] above seems to have been based on the evidence of Mr Baxter and it is convenient to refer to that evidence. 61 Mr Baxter was told by Mr Ottobre in August 2006 that the appellant was no longer purchasing its square series lamps from Valens. The design of Baxters' BTL combination lights was finalised in early 2007. By July 2007 the respondents were keen to proceed with the Baxter lights. Mr Baxter said that Ms Chang told him that Mr Chiang had said that the tooling costs for the respondents' lights would be USD10,000. Mr Baxter said that during a telephone conversation involving Ms Chang, Mr Chiang and Mr Wells he asked Mr Chiang if the balance of the tooling costs after the payment of the deposit of USD2,500 could be absorbed in the unit cost charged by Valens if Baxters ordered 1,000 sets of lights. Mr Chiang agreed to this proposal and Mr Baxter agreed that the respondents would achieve "certain minimum order quantities". Mr Baxter said that he recalled Mr Chiang saying: … that "Provided Baxters continues to meet its minimum order quantities, supply of the BTL Combination Lights into Australia and New Zealand will be exclusive to Baxters. Should Baxters fail to meet the minimum order quantities, Valens could sell to any other distributor in Australia" or words to that effect. 62 Mr Baxter was cross-examined about his knowledge of the conversation between Mr Wells and Ms Chang referred to above (at [57]). He accepted that Mr Wells may have told him about the conversation although he did not recall it. He said that he was under the impression that the balance of the costs would be "amortised over the total cost of the lot". He denied the suggestion that he understood that the USD2,500 would be used to insert the dot pattern in place of the hexagon pattern and that the rest of the cost was waived by Valens because it was not going "to bother making new moulds". 63 It is not clear whether the trial judge did not refer to Mr Wells' evidence because he did not consider it relevant or because he overlooked it. I think it was relevant and that the trial judge erred in not dealing with it. Nevertheless, accepting the evidence at face value I do not think it establishes a case of wilful blindness or reckless indifference in the sense I have described. Mr Wells made an inquiry of Ms Chang and I do not think the fact that he did not ask her to confirm her response in writing meant that he had made a conscious decision not to discover "a disagreeable truth" or simply did not care whether Valens was going to use the moulds partly paid for by the appellant. As far as Valens' waiver of the balance of the costs of making the moulds is concerned, I do not think that that indicates wilful blindness or reckless indifference to a suggestion that Valens had changed its mind and was now going to use the moulds partly paid for by the appellant. Even accepting that Valens had actually waived the balance of the costs (as distinct from deciding to amortise the costs over future supplies) Mr Wells was given an "innocent" and plausible reason as to why Valens would do so, namely, that it wanted to secure the business. In fact, the respondents' first order had a value to Valens of approximately $100,000. In the circumstances, I do not need to address submissions by the respondents to the effect that there was no evidence that the appellant's lights would have been available to Mr Wells to enable him to carry out a comparison with the respondents' lights and to the effect that it was not uncommon for potential suppliers to negotiate tooling costs down to nothing. 64 The trial judge referred to Mr Mitchell's evidence in the context of the respondents' knowledge of the contractual term, but not in the context of their knowledge of Valens' breach of that term. Again it is unclear whether he did not consider it relevant or he overlooked it. It is more arguable that he did not consider it relevant because, even accepting the evidence at face value, it does not advance the appellant's case of the respondents' knowledge of a breach of the contractual term. Mr Mitchell was aware that Valens wanted the respondents to pay the costs of manufacturing the moulds to make the lights for the respondents. He asked Mr Wells to negotiate an arrangement whereby the tooling costs were absorbed into unit costs. Thereafter, he does not appear to have kept track of what happened. Mr Mitchell's knowledge does not rise to the level of wilful blindness or reckless indifference. 65 In summary, it may well be said that Mr Wells and Mr Mitchell did not make reasonable inquiries about whether Valens would or were using the moulds partly paid for by the appellant to manufacture lights for the respondents. However, their knowledge did not rise to the level of wilful blindness or reckless indifference and the trial judge was correct to reject the appellant's claim against the respondents based on the tort of inducing or procuring a breach of contract.

The aPPELLANT'S Claim aGAINST THE rESPONDENTS FOR iNFRINGING THEIR rEGISTERED dESIGNS 66 The appellant claimed that the respondents' lights infringed its registered designs because they embodied a design that was "substantially similar in overall impression" to its registered designs within s 71(1) of the Act. Section 71(3) provides that in determining an issue of that nature a court is to consider the factors specified in section 19. 67 Section 19 is in the following terms: (1) If a person is required by this Act to decide whether a design is substantially similar in overall impression to another design, the person making the decision is to give more weight to similarities between the designs than to differences between them. (2) The person must also: (a) have regard to the state of development of the prior art base for the design; and (b) if the design application in which the design was disclosed included a statement (a statement of newness and distinctiveness) identifying particular visual features of the design as new and distinctive: (i) have particular regard to those features; and (ii) if those features relate to only part of the design - have particular regard to that part of the design, but in the context of the design as a whole; and (c) if only part of the design is substantially similar to another design, have regard to the amount, quality and importance of that part in the context of the design as a whole; and (d) have regard to the freedom of the creator of the design to innovate. (3) If the design application in which the design was disclosed did not include a statement of newness and distinctiveness in respect of particular visual features of the design, the person must have regard to the appearance of the design as a whole. (4) In applying subsections (1), (2) and (3), the person must apply the standard of a person who is familiar with the product to which the design relates, or products similar to the product to which the design relates (the standard of the informed user). (5) In this section, a reference to a person includes a reference to a court. 68 The matters in s 19 are also relevant to the issue of whether a design is a registrable design within s 15. A design is registrable if it is distinctive when compared with the prior art base for the design. It is distinctive unless it is substantially similar in overall impression to a design that forms part of the prior art base for the design and that issue involves a consideration of the matters in s 19. 69 The word "design" is defined in s 5 of the Act to mean: … in relation to a product, means the overall appearance of the product resulting from one or more visual features of the product. 70 Section 7 provides that a visual feature in relation to a product includes the shape, configuration, pattern and ornamentation of the product and that a visual feature may, but need not, serve a functional purpose. 71 In determining whether the respondents' lights were substantially similar in overall impression to the appellant's registered designs, the trial judge was required to apply the standard of the informed user, being a person who is familiar with the product to which design relates, or products similar to the product to which the design relates. The trial judge was also required, if only part of the respondents' design was substantially similar to the appellant's designs, to have regard to "the amount, quality and importance of that part in the context of the design as a whole" (s 19(2)(c)). 72 The attributes of the informed user were considered by Kenny J in Review 2 Pty Ltd (In Liq) v Redberry Enterprise Pty Ltd [2008] FCA 1588; (2008) 173 FCR 450 ("Review 2 Pty Ltd") at 455-457 [19]-[27]. Her Honour said (at 457 [26]-]27]): 26 In summary, the standard of the informed user is an objective one. … The informed user is not an expert, but must be more than barely informed. The focus for consideration is on eye appeal and not on internal or less visible manufacturing features. 27 …Thus, whilst there will be some women who subscribe to fashion magazines (such as Vogue or Collezioni that illustrated the prior art in this case) and have particular knowledge of, and familiarity with, fashion trends, there will be many other women who lack such knowledge and familiarity. Precedent and the text of s 19(4) indicate that it is from the perspective of someone closer to the former group that the newness and distinctiveness of the Review Design and the similarity of the Redberry garments in terms of overall impression must be judged: compare Architectural Lighting at [50]. 73 In England it has been held that the characteristics of the informed user may mean that more emphasis is placed on the appearance of the product in situ. In Woodhouse UK Plc v Architectural Lighting Systems [2006] RPC 1 the design was for a street light fixture and the Court found that an informed user was a regular member of an urban development team who was primarily interested in the appearance of street furniture, but who also had a basic grasp of a product's technical underlay, and perhaps, cost. His Honour, Judge Fysh QC, sitting in the Patents County Court, said (at 18 [52]): An unusual question arose in this case because in street lighting, the lantern and bracket are located some 8-10 meters above ground level. Having identified the 'interested user', from what position does he view the alleged infringement, Registered Design as it were, in his notional hand? And does he view it by day or by night? The evidence was that the lanterns for street lighting are assessed and sold with physical specimens present on a table - as indeed they were inspected in Court. This enables detailed evaluation to be made of their appearance, technical features, durability, ease of maintenance and so forth, all this being carried out by the lighting engineer who will be present. If complementary brackets are also under discussion, these are not physically examined at the same time as the lanterns - though photographs, brochures, etc showing bracket options may it seems, be discussed at the same time. As Mr Harding says: 'Lighting products that are installed high in the air are sold by close inspection on the table'. Nonetheless, in my judgment, this process of customer persuasion as a result of close inspection is not the proper situs for the relevant comparison to be made by the 'informed user'. In addition to a table inspection, the informed user must have in his mind's eye the visual impact of the lantern in situ - during the daytime moreover and from a little distance from the base of the pole upon which the ensemble is suspended. After all, these products must not only work reliably and be convenient to service, but most importantly, they must have outdoor eye appeal. When that comparison is made, details which are quite visible on the borough surveyor's table (or whatever) may become much less so in situ. … 74 The respondent submitted that the English legislation is in different terms from the Act and that this Court should not adopt the approach taken by Judge Fysh. It is true that the English legislation is in different terms from the Act, but not in a way which suggests that the approach of Judge Fysh should not be adopted in appropriate circumstances (see Review 2 Pty Ltd at 456 [21] per Kenny J; LED Technologies at 105 [58] per Gordon J). 75 Each party called a witness who claimed to give evidence from the perspective of the informed user. Mr Ransom was the expert called by the appellant. He operates a company which deals in automotive products including the square series lights. He was described by the trial judge as not being a true "independent" expert because his company purchases products from the appellant including the appellant's square series lamps. Mr Funnell was the expert called by the respondents. He is an automotive electrician with many years experience. The trial judge noted that he also was not an "independent" expert as he spent time in the employ of the respondents, including at the time it was placing its orders for lamps with Valens, and he was involved in that project. 76 The experts prepared a joint report which set areas of agreement between them and areas where they differed. That report was put before the trial judge. 77 The trial judge said the prior art base in evidence before him was "extensive". He said that the respondents placed most of their case on invalidity on a lamp called the Rubbolite lamp and that if that lamp did not anticipate the registered designs then no other piece of prior art would. He set out both the features which were similar in the prior art base and the registered designs and the features which were different. 78 By reference to the expert evidence, the trial judge also set out the features of the registered designs and the respondents' lights which were the same or similar, and those features which were different. He did the same exercise in relation to the Rubbolite lamps and the registered designs. 79 The trial judge said that many of the features of similarity between the registered designs and the respondents' lights were features that were common in the prior art and he gave as examples the rectangular base, the square lens with rounded corners and edges and a slightly tapering base. 80 The trial judge said that there were several important features which led him to conclude that the respondents' lights were not substantially similar in overall impression to the registered designs. The trial judge described the "key" features as follows: 1. The prominent cut-out pattern on the underside of the registered designs which was to be contrasted with the flat closed backs of the respondents' lights; and 2. The square lenses of the registered designs had a wide landing between them while the respondents' lights had no landing. The trial judge said "of less significance" were the following features: 3. The long sides of the frames of the registered designs have raised edges resulting in a counter-sunk appearance which was not present on the respondents' lights; and 4. The short sides of the frames of the registered designs were raised at their outer portions and dip down in the central portion and this was not a feature of the respondents' lights. 81 The trial judge said that these four features distinguished the registered designs from the prior art "such as to admit of the conclusion that the registered designs were new and distinctive". He rejected the respondents' challenge to validity on this basis. 82 The appellant's principal submission on the appeal was that the trial judge erred in placing the weight he did on the difference between the back of the base of the respondents' lights and the back of the base of the registered designs. It submitted that, far from being a "key" feature as found by the trial judge, the difference was in fact a matter of low importance. The informed user would concentrate on the appearance of the lights in situ, that is to say, on the back of various types of vehicles and in that position the back of the lights would not be visible. Furthermore, the appellant pointed to evidence in the case which established that the respondents sold their lights in, among other things, blister packs where the back of the base of the lights was not exposed and the respondents' promotional catalogues, where the front of the lights was photographed generally at an angle of about 45 degrees and the back of the base of the light was not shown unless there was something special about it. I note that the respondents responded by pointing to evidence in the case to the effect that they also sold their lights in boxes, that at points of sale there were often unpackaged display samples and that the back of the lights was shown in the appellant's catalogues. As to the latter circumstance the appellant contended that that was done only for the purpose of showing users how the lights were fitted to the back of vehicles. The trial judge did not make any findings about these matters. It appears that he considered it unnecessary to do so. The appellant referred to s 19(1) of the Act and the requirement that the Court give more weight to similarities between designs than to differences between them. The appellant also drew the Court's attention to s 19(2)(c) and said that that was a particularly important direction in this case. It contended that there was a substantial similarity between the front of the registered designs and the respondents' lights. It was the amount and quality of that similarity which should have been accorded primary importance in view of the very limited opportunity a person would have to view the back of the base of the lights. 83 There is force in the appellant's submissions but it does not lead me to conclude that the respondents' lights embodied a design that was substantially similar in overall impression to the appellants' registered designs. The trial judge did not identify a particular class of persons as constituting the informed user, and the informed user may be taken to include the wholesaler who buys for the purpose of on-selling the lights, the person who fits the lights and the ultimate consumer who uses the vehicles to which the lights are fitted. I did not understand the appellant to submit that the trial judge had erred in his identification of the informed user. The difference in the back of the lights is a significantly different visual feature. I did not suggest in Keller that the rear or underside view of combination lights was not significant. What was not of great significance in that case was the difference between the registered designs and the Condor light (at 505 [255] and 506-507 [263]). The trial judge noted that Mr Ottobre acknowledged in his evidence that the design of the base was important and that two of the representations in the case of the three combination lights were of the underside of the base. He also noted evidence of Mr Ransom that the cut-out appearance of the underside of the base of the registered designs was a "marked difference" from the underside of the base of the respondents' lights. The fact that the experts said that the difference in the underside of the base was not significant "from the point of view of performance or function of the lamp" might bear on how much attention the informed user pays to it, but is not otherwise of particular significance. There was evidence that the open base affected matters such as access to wiring and cost in terms of the amount of plastic used. 84 It seems to me that in terms of infringement, one of the most significant matters is that the registered designs appeared in a crowded field of prior art. As the trial judge noted, many of the features of similarity between the registered designs and the respondents' lights were features that were common in the prior art. Even if less weight is placed on the difference in the underside of the base it is still a relevant visual feature and, with the other features identified by the trial judge, leads me to conclude that the trial judge did not err in deciding that the design embodied in the respondents' lights was not substantially similar in overall impression to the registered designs. 85 The trial judge was correct to reject the appellant's claim against the respondents based on the alleged infringement of its registered designs.

LED Technologies Pty Ltd v Roadvision Pty Ltd

At a glance

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Judgment (31 paragraphs)

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Legislation Cited (2)

Cases Cited (14)

Cited By (7)