S.P.I. Spirits (Cyprus) Ltd v Diageo Australia Ltd

Federal Court of Australia|1985-03-28|Before: Toohey J, Edmonds J

Edmonds J: 1 Pursuant to a notice of motion filed on 25 November 2005 ('the Notice of Motion') the first respondent/second cross-respondent, Diageo Australia Limited ('Diageo'), moved the Court for orders (1) that pursuant to O 29 r 2(a) of the Federal Court Rules, all issues under the Further Amended Cross-Claim filed on 12 September 2005 ('the Cross-Claim') be determined separately from, and prior to, the issues in the main proceeding; and (2) that the main proceeding be stayed until determination of the Cross-Claim, subject to any conditions imposed by the Court. It is not clear whether these orders are sought in the alternative. I shall assume they are, but make it clear that if I do not think it appropriate to make an order in terms of that sought pursuant to O 29 r 2(a), I would not be prepared to make an order in terms of that in (2) above. 2 The applicants, S.P.I. Spirits (Cyprus) Limited and Spirits International N.V. (respectively 'SPI Spirits' and 'Spirits International') oppose the making of such orders. 3 Diageo submits that those orders should be made because the issue raised by the Cross-Claim, the ownership of Stolichnaya and other registered trade marks, is a threshold issue in the main proceeding and should be determined before the other issues raised in the main proceeding. The relief sought in the Cross-Claim is a declaration that one or other of the cross-claimants, Federal Treasury Enterprise (FKP) Sojuzplodoimport and Federal Public Unitary Enterprise External Economic Union Sojuzplodoimport (FGUP VO) ('FKP' and 'FGUP VO' respectively, 'the Russian Entities' collectively) own certain trade marks ('the Cross-Claim Trade Marks'), including the following: (i) No. 298659 (the Moskovskaya Label Mark) (ii) No. 298660 (the Stolichnaya Label Mark) (iii) No. 590304 (the Stoli Word Mark) (iv) No. 590305 (the Stolichnaya Word Mark) (v) No. 665684 (the Stolichnaya Ohranj Label Mark); and (vi) No. 719317 (the Stolichnaya Ohranj Word Mark). 4 SPI Spirits and Spirits International also seek a declaration that Spirits International owns those marks (par 9 of an Amended Application to be filed and served by 2 December 2005). Spirits International is currently the registered owner of the marks, having been assigned them by Diageo pursuant to consent orders made on 8 September 2005, subject to any order that the Court may make in determining the Cross-Claim. FKP and FGUP VO also seek rectification of the Register of Trade Marks to record one or other of them as owners of the trade marks. 5 Diageo submits that the issues arising in the main proceeding other than the issue of ownership of the marks are quite different from those arising under the Cross-Claim. This is demonstrated, it is said, by the fact that Diageo, although a respondent to the Cross-Claim has no relief sought against it and FKP has no interest in the main proceeding once the issue of ownership of the marks is determined.

Background 6 These proceedings were initially commenced by SPI Spirits and Spirits International against Diageo (then the sole respondent) by way of application and statement of claim filed on 7 December 2004. The relief sought by SPI Spirits and Spirits International in the application was founded on two primary claims made against Diageo, characterised in the affidavit of Kathryn Cecilia Everett, sworn 28 November 2005 and filed by Diageo in support of its notice of motion, as the Ruski Claims and the SPI Trade Mark Claims. 7 In her affidavit, Ms Everett indicates that the Ruski Claims are founded on ss 52, 53 and 55 of the Trade Practices Act 1974 (Cth) ('the TPA') and concern the distribution of a ready-to-drink, low alcohol beverage distributed by Diageo in Australia under the name 'Lemon Ruski' ('Ruski'). For the reasons set out in pars 5 - 37 of the Statement of Claim, SPI Spirits and Spirits International plead that the distribution by Diageo of Ruski in Australia in its current packaging constitutes misleading or deceptive conduct. The distribution is said to continue; on SPI Spirits and Spirits International's case it continues to mislead. 8 The SPI Trade Mark Claims concern the construction of the Distribution Agreement (as defined in Ms Everett's affidavit). SPI Spirits and Spirits International plead that on a correct construction of this agreement, Diageo was obliged to assign certain trade marks (which include some of the Cross-Claim Trade Marks) to Spirits International upon expiry of the agreement on 4 September 2005 (or upon earlier termination of the agreement). In September 2005 Diageo assigned these trade marks to Spirits International pursuant to interlocutory orders made by consent in these proceedings in May 2005. However, Diageo continues to defend the SPI Trade Mark Claims. 9 SPI Spirits and Spirits International have sought and been granted leave to file and serve an Amended Statement of Claim by 2 December 2005 which adds a cause of action relating to alleged further breaches by Diageo of the Distribution Agreement (breach of which is already pleaded by SPI Spirits and Spirits International in the SPI Trade Mark Claims). These claims are referred to in Ms Everett's affidavit as the 'New Contractual Claims'. The New Contractual Claims are only made by SPI Spirits, which is not a party to the Cross-Claim. 10 On 14 December 2004 the Russian Entities (against whom no facts were, or are, pleaded by SPI Spirits and Spirits International and against whom no relief was, or is, claimed) filed a notice of motion in the proceedings seeking orders that they be joined as parties. SPI Spirits and SPI International opposed this motion but on 17 December 2004 Gyles J delivered an ex tempore judgment and ordered that FKP be added as the second respondent to the proceedings to enable it to file a cross-claim. FGUP VO was joined as second cross-claimant by consent of all parties in May 2005. 11 The Cross-Claim filed by the Russian Entities seeks rectification of the Trade Marks Register under s 88 of the Trade Marks Act 1995 (Cth) so that: (1) FKP, or alternatively FGUP VO, is recorded as the registered owner of the Cross-Claim Trade Marks; or (2) in the alternative, the Cross-Claim Trade Marks are cancelled. The Russian Entities also seek a declaration that FKP, or alternatively FGUP VO, is the owner of the Cross-Claim Trade Marks. 12 SPI Spirits is not a party to the Cross-Claim. Spirits International is defending the Cross-Claim on several grounds outlined in its Defence to the Cross-Claim filed on 16 September 2005. The Russian Entities' claim for relief in relation to the Cross-Claim Trade Marks is apparently founded on events which occurred around the time of the disintegration of the Soviet Union in December 1991. In the intervening fourteen years, SPI Spirits and Spirits International and their predecessors in title have continuously and actively used the Cross-Claim Trade Marks in Australia, by promoting and selling an extensive and substantial volume of vodka products under those trade marks, either directly or through local distributors. During this fourteen year period, SPI Spirits and Spirits International and their predecessors in title have also registered (or authorised their distributors to register) the Cross-Claim Trade Marks in Australia and in many countries around the world. 13 Having regard to the aforementioned matters, SPI Spirits and Spirits International submit that these proceedings comprise several distinct claims, the outcome of each of which is unlikely to have a significant impact upon the outcome of the others. The claims made by the Russian Entities in their Cross-Claim, while part of these proceedings as presently constituted, arise out of a substantially different and unrelated set of facts from those which underpin the Amended Statement of Claim. SPI Spirits and Spirits International submit that determination of the Russian Entities' application for rectification of the Trade Marks Register will have no bearing on the outcome of the claims set out in the Amended Statement of Claim. They further submit that the questions in the Amended Statement of Claim do not turn upon the issue of ownership of the Cross-Claim Trade Marks but are founded either in contract (the SPI Trade Mark Claims and the New Contractual Claims) or under ss 52, 53 and 55 of the TPA (the Ruski Claims); SPI Spirits and Spirits International do not rely upon their ownership of the Cross-Claim Trade Marks in support of any of these claims; and irrespective of the outcome of the Cross-Claim, SPI Spirits and Spirits International will be entitled to pursue and intend to pursue these claims against Diageo.

claims in the Main Proceeding 14 There are three separate causes of action pleaded in the Amended Statement of Claim, which can be described as characterised above: (1) The Ruski Claims (pars 5 - 37); (2) The SPI Trade Mark Claims (pars 38 - 51); (3) The New Contractual Claims (pars 51A - 51AL). 15 Not surprisingly, the relevant parties, Diageo on the one hand, and SPI Spirit and Spirits International on the other, attach very different standing and importance to the determination of the ownership of the Cross-Claim Trade Marks in the Court's consideration of these claims. Diageo asserts that ownership of the marks is a threshold and underlying issue, the determination of which, to a greater or lesser extent, will impact upon the outcome of all three claims in the main proceeding. SPI Spirits and Spirits International, on the other hand, assert that even if the Cross-Claim is determined adversely to Spirits International, SPI Spirits and Spirits International will be entitled to pursue their claims against Diageo in contract and under ss 52, 53 and 55 of the TPA.

The Ruski Claims 16 Diageo submitted that: (1) These claims seek relief for alleged misleading and deceptive conduct by Diageo pursuant to ss 52, 53 and 55 of the TPA relating to Diageo's sale of its Ruski RTD product. The misleading representations are said to arise, in essence, from the fact that Diageo, having distributed Ruski in a get-up that included the mark Stolichnaya, SPI Spirits and Spirits International acquired substantial reputation and goodwill in the brands Stolichnaya and Stoli and then from 16 April 2004, having distributed without the mark Stolichnaya, Diageo is representing that, by its continued use of the other features of the get-up, the product is still in the minds of the public associated with Stolichnaya. (2) A consideration of the Ruski Claims makes it clear that the underlying premise of the claims is that SPI Spirits and Spirits International have a reputation in the mark Stolichnaya. Diageo submits that, if the cross-claimants owned the mark, then even if SPI Spirits and Spirits International had acquired reputation and goodwill, that would be held on trust for the cross-claimants. (3) The issue of ownership is clearly a threshold issue and there does not appear to be any other overlap between the Ruski Claims and the Cross-Claim. (4) Diageo distributed Diageo Stolichnaya Vodka in Australia for nine years between September 1996 and September 2005 and has sold Ruski in Australia continuously since 1997. Ms Everett, in her affidavit, has said that, based on her experience and her knowledge of the matter, extensive evidence is likely to be required in relation to these claims and has expressed the view that discovery in relation to the claims is also likely to be considerable and onerous given the length of time during which Diageo sold Diageo Stolichnaya Vodka and has sold Ruski. (5) There would be no prejudice to SPI Spirits and Spirits International if the Ruski Claims were not heard until after the determination of the Cross-Claim for the following reasons: (a) Diageo commenced sale of Ruski in the current Ruski get-up in April 2004. The proceedings were not commenced until 7 December 2004 and no interlocutory relief has been sought in relation to the Ruski Claims. (b) No steps have been taken other than the filing of a defence and no steps have been taken by SPI Spirits and Spirits International to progress the Ruski Claims. (c) SPI Spirits and Spirits International now seek to file an Amended Statement of Claim which adds significant new claims to the proceedings. (d) SPI Spirits and Spirits International will be entitled to interest on any damages it might be awarded in relation to the Ruski Claims and therefore would be compensated for any delay in payment. 17 SPI Spirits and Spirits International submitted that: (1) These claims are founded on ss 52, 53 and 55 of the TPA and concern allegations of misleading and deceptive conduct. SPI Spirits and Spirits International's standing to bring the Ruski Claims is not in any way contingent upon Spirits International's past or present ownership of, or rights in, the Cross-Claim Trade Marks. (2) It is admitted by Diageo in its defence, inter alia, that from 1996, Diageo distributed vodka in Australia under the Stolichnaya trade mark pursuant to the terms of the Distribution Agreement with SPI Spirits and its predecessors. It is further admitted by Diageo in its defence that between 8 July 1997 and 1 September 2004 this vodka was used as an ingredient in the manufacture of Ruski. (3) In relation to these claims, the primary issue for determination by the Court is whether Australian consumers and traders are likely to be misled, by reason of the past and present labelling and get-up of Ruski, into believing that: (a) Ruski presently distributed by Diageo contains Stolichnaya vodka; or (b) there exists some other form of connection between Ruski and Stolichnaya vodka or the makers of that vodka. (4) Neither of these primary issues concerns, or is materially connected to, the question of continuing ownership of the registered trade mark for Stolichnaya in Australia under the Trade Marks Act. Regardless of the outcome of the Cross-Claim, the fact remains that for at least fourteen years, vodka sold under the Stolichnaya brand in Australia is vodka that has been manufactured by SPI Spirits and Spirits International and their immediate predecessors. (5) If these claims were to be stayed or heard separately and after the Cross-Claim, SPI Spirits and Spirits International are likely to suffer substantial prejudice given the nature of these claims. In particular, on SPI Spirits and Spirits International's case, Diageo is continuing to engage in the allegedly misleading and deceptive conduct, through its continuing distribution of Ruski in Australia in the livery which is the subject of the Ruski Claims. (6) Given the nature of these claims, it can be anticipated that both parties will wish to adduce consumer and/or survey evidence relating to the matters in issue in the Ruski Claims. The substance of this evidence will naturally change over time and while some such evidence has already been prepared, SPI Spirits and Spirits International are likely to wish to prepare further consumer and/or survey evidence in preparation for trial. As a consequence, SPI Spirits and Spirits International are likely to suffer substantial prejudice if the Ruski Claims are not to be heard until after the determination of the Cross-Claim. If any alternative course is to be adopted, SPI Spirits and Spirits International submit that the Ruski Claims should proceed to a final hearing as soon as possible, and possibly prior to the hearing of the Cross-Claim.

The SPI Trade Mark Claims 18 Diageo submitted that: (1) These claims are essentially a claim that Diageo was required to assign eight trade marks to Spirits International at the expiry of the Distribution Agreement and that Diageo failed to take certain steps in advance of that assignment. (2) The underlying basis of the agreements between Diageo (previously United Distillers (Aust) Pty Ltd) and SPI Spirits and Spirits International or their predecessors was that the vodka supplied to Diageo for distribution in Australia was brand name vodka labelled with the various trade marks. (3) The Cross-Claim relates to only six of those marks and not to the marks known as the Pertsovka Label Mark and the Limonnaya Label Mark. All of the eight trade marks have been assigned to Spirits International pursuant to the consent orders referred to above. As Spirits International now has full use of the marks, it is unlikely that SPI Spirits and Spirits International would suffer any prejudice if these claims were not determined until after the determination of the Cross-Claim. (4) If SPI Spirits and Spirits International and their predecessors did not have any rights in the marks at the time the Distribution Agreement was entered into or when the trade marks were assigned to Diageo, then they are not entitled to any relief in relation to the marks or any conduct related to the Agreement. 19 SPI Spirits and Spirits International submitted that: (1) These claims are founded in contract. They relate specifically to the construction of certain written contractual terms and whether certain terms can be implied in the Distribution Agreement (when read together or as amended by a number of subsequent agreements). In particular, SPI Spirits and Spirits International allege that the effect of the written terms was to require Diageo to assign to Spirits International on 4 September 2004 a number of trade marks, including some of the Cross-Claim Trade Marks which were registered during the term of the Distribution Agreement in the name of Diageo with the authority of SPI Spirits and Spirits International. SPI Spirits and Spirits International also allege that there was a breach of certain implied terms as a result of Diageo's failure to confirm that it would assign the relevant trade marks to Spirits International on 4 September 2005. (2) These claims involve questions of contractual construction which do not turn upon, or which cannot be materially affected by, any determination of the issues in the Cross-Claim. Whether or not the Court determines that the Cross-Claim Trade Marks should be cancelled or that either of the Russian Entities be recorded as the owner of those trade marks (each, of course, being a proposition that SPI Spirits and Spirits International strongly resist), this will not affect the Court's decision on whether, as a matter of contractual construction, the relevant terms of the agreements between SPI Spirits and Spirits International on the one hand and Diageo on the other have the meaning and effect which is alleged by SPI Spirits and SPI International. (3) From a procedural perspective, in providing discovery both in relation to the Cross-Claim and the Amended Statement of Claim, SPI Spirits and Spirits International will be required to conduct a thorough review of documents in their possession, custody or power relating to the Cross-Claim Trade Marks. It would create a substantial and unjust burden if SPI Spirits and Spirits International were required to conduct discovery of documents twice; first, in relation to the Cross-Claim and then subsequently in relation to the statement of claim. This is a further reason that it is both in the interests of the parties and the efficient conduct of the proceedings that the claims in the Amended Statement of Claim and Cross-Claim be heard together.

New Contractual Claims 20 Diageo submitted that: (1) These claims add an entirely new cause of action for damages in relation to alleged breaches by Diageo of the Distribution Agreement. They relate to the sales and promotion by Diageo of Diageo Stolichnaya Vodka. Although, like the SPI Trade Mark Claims, these claims relate to alleged obligations of Diageo under the Distribution Agreement, these claims have a different basis than the SPI Trade Mark Claims. (2) Ms Everett has identified each of the eight terms alleged to have been breached, the evidence and discovery required in respect of each allegation and the lack of prejudice to SPI Spirits and Spirits International if the determination of the allegations is deferred. 21 SPI Spirits and Spirits International submitted that: (1) These claims relate to various alleged breaches of the Distribution Agreement. The Distribution Agreement, in substance, is a product distribution agreement under which SPI Spirits (and its predecessors in title) appointed Diageo as the exclusive distributor of a range of vodka products in Australia. In particular, SPI Spirits and its predecessors agreed to supply Diageo and Diageo agreed to acquire from them vodka in certain minimum quantities. Under the Distribution Agreement, Diageo was subject to certain obligations, the terms of which were expressly set out in the Distribution Agreement. (2) The obligations which Diageo is alleged by SPI Spirits to have breached include obligations of Diageo to: (a) purchase certain minimum quantities of the Goods from SPI Spirits; (b) use reasonable commercial endeavours and diligence to promote the sale of the Goods in Australia; (c) not denigrate or diminish the reputation and goodwill of the Goods or SPI Spirits (and its predecessors); (d) inform SPI Sprits and its predecessors of all facts or opinions likely to be relevant in relation to the manufacture, sale, use or development of the Goods in Australia ; (e) submit to SPI Spirits (and its predecessors) quarterly sales reports and annual budget forecasts for sales of the Goods in Australia; and (f) submit an annual marketing budget plan indicating all actions which Diageo considered necessary to properly support and increase distribution and sales in Australia. (3) SPI Spirits submits that none of these obligations, which are standard obligations applying to the distribution of goods, concerns or turns upon Spirits International's ownership of the Cross-Claim Trade Marks. Further, determining the questions raised in the Cross-Claim in relation to the ownership of the Cross-Claim Trade Marks is not likely to have any bearing on the question of whether Diageo breached the above obligations.

Order 29 rule 2(a) of the Federal Court Rules: General Principles 22 There is substantial, perhaps even total, common ground between the parties as to the general principles to be applied by the Court in deciding whether or not to make an order in terms of that sought by Diageo on its notice of motion pursuant to O 29 r 2(a) of the Federal Court Rules. 23 The starting point is that, in the ordinary course, all issues of fact and law should be determined at the one time: Tallglen Pty Ltd v Pay TV Holdings Pty Ltd(1996)22 ACSR 130; Bathox Australia Pty Ltd v PJ SAS Trading Pty Ltd [2004] FCA 1082; Reading Australia Pty Ltd v Australian Mutual Provident Society(1999) 217 ALR 495. 24 The Court's discretion under O 29 r 2 should be exercised with caution: Chippendale Printing Co Pty Ltd v Commonwealth (1995) 17 ACSR 328. For the Court to depart from the ordinary course, the party seeking the separate determination of the issues must satisfy the Court that it would be 'just and convenient' for the order to be made: Reading Australia, supra. The test is 'the practical one of utility, efficiency and convenience in the administration of justice': Chippendale Printing, supra. 25 The Court has found that it may be appropriate to hear a preliminary issue where there is a 'crisp and clear demurrer point': Novartis AG v FH Faulding and Co Ltd [2004] FCAFC 254. Alternatively, the Court may decide to hear a question separately if there is a narrow point raised on the preliminary issue, and it has the potential to dispose of a significant part of the litigation if decided in one way: TVW Enterprises Ltd v Duffy (Toohey J, 28 March 1985, unreported) ; see also Orison Pty Ltd v Strategic Minerals Corporation NL (1987) 77 ALR 141. In CBS Productions Pty Ltd v O'Neill(1985) 1 NSWLR 601 at 606, Kirby P expressed the view: 'A matter is "ripe" for separate and preliminary determination where it is a central issue in contention between the parties, the resolution of which will either obviate the necessity of litigation altogether or substantially narrow the field of controversy.' 26 In Reading Australia supra, Branson J summarised the relevant principles governing the exercise of the Court's discretion under O 29 r 2, identifying the following factors as being relevant to that discretion: '(a) [T]he term "question" in O 29 r 1 includes any question or issue of fact or law in a proceeding. The distinction in the rule between an "issue" and a "question" is the distinction between that which, when resolved, will result in an adjudication in favour of one party or the other, being an "issue", and less decisive matters of dispute being "questions" (Landsal Pty Ltd (in liq) v REI Building Society (1993) 41 FCR 421 at 425; 113 ALR 643 at 647); (b) a question can be the subject of an order for a separate decision under O 29 r 2 even though a decision on such a question will not determine any of the parties' rights (Landsal Pty Ltd (in liq) v REI Building Society at FCR 425; ALR 647); (c) however, the judicial determination of a question under O 29 r 2 must involve a conclusive or final decision based on concrete and established or agreed facts for the purpose of quelling a controversy between the parties (Bass v Permanent Trustee Co Ltd (1999) 198 CLR 334; 161 ALR 399; [1999] HCA 9 at [45]); (d) where the preliminary question is one of mixed fact and law, it is necessary that the question can be precisely formulated and that all of the facts that are on any fairly arguable view relevant to the determination of the question are ascertainable either as facts assumed to be correct for the purposes of the preliminary determination, or as agreed facts or as facts to be judicially determined (Jacobson v Ross [1995] 1 VR 337 at 341, referring to Nissan v Attorney-General [1970] AC 179 at 242-3; [1969] 1 All ER 629 at 663-4 per Lord Pearson; Bass v Perpetual Trustee at [53]); (e) care must be taken in utilising the procedure provided for in O 29 r 1 to avoid the determination of issues not "ripe" for separate and preliminary determination. An issue may not be "ripe" for separate and preliminary determination in this sense where it is simply one of two or more alternative ways in which an applicant frames its case and determination of the issue would leave significant other issues unresolved (CBS Productions Pty Ltd v O'Neill (1985) 1 NSWLR 601 per Kirby P at 606); (f) factors which tend to support the making of an order under O 29 r 2 include that the separate determination of the question may: (i) contribute to the saving of time and cost by substantially narrowing the issues for trial, or even lead to disposal of the action; or (ii) contribute to the settlement of the litigation (CBS Productions Pty Ltd v O'Neill per Kirby P at 607); (g) factors which tell against the making of an order under O 29 r 2 include that the separate determination of the question may - (ii) give rise to significant contested factual issues both at the time of the hearing of the preliminary question and at the time of trial (GMB Research & Development Pty Ltd v The Commonwealth [1997] FCA 934); (iii) result in significant overlap between the evidence adduced on the hearing of the separate question and at trial - possibly involving the calling of the same witnesses at both stages of the hearing of the proceeding (GMB Research & Development Pty Ltd v The Commonwealth; Arnold v Attorney-General (Vic) (unreported, Fed C of A, Sundberg J, Nos VG629-37 of 1995, 8 September 1995, BC9502745). This factor will be of particular significance if the Court may be required to form a view as to the credibility of witnesses who may give evidence at both stages of the hearing of the proceeding; or (iv) prolong rather than shorten the litigation (GMB Research & Development Pty Ltd v The Commonwealth).' 27 In Novartis Crop Protection Australasia Pty Ltd v Orica Australia Pty Ltd [2001] FCA 1013, Stone J said at [7]: 'In particular circumstances the separate decision of a question may be appropriate even if it will not bring the proceedings to an end. Examples are where there is a strong prospect that once the core of their dispute is decided, the parties will settle the remaining issues or where the decision will obviate an unnecessary and expensive hearing of other questions. Such situations must, however, be carefully controlled lest fragmentation of the proceedings should bring delay, expense and hardship, which the making of the order was intended to avoid.'

Submissions 28 Diageo submits that the order sought should be made for the following reasons: (a) It is clear that the issues in the main proceeding will require voluminous discovery and extensive evidence. (b) There is nothing at this stage which indicates that there will be any commonality of evidence or witnesses (other than in relation to the issues of ownership of the Cross-Claim Trade Marks) that would make it convenient to hear both the Cross-Claim and the Amended Statement of Claim together. Diageo submits that the determining of the Cross-Claim prior to the Amended Statement of Claim may in fact avoid the costs and inconvenience of a hearing on the Amended Statement of Claim, if the Cross-Claim is determined in the cross-claimants' favour. Diageo is unlikely to recover all of its costs in this case and will have expended a considerable amount of time as well as money. (c) There is no prejudice to the cross-claimants if the orders are made and it may assist the cross-claimants in having their claims heard earlier. (d) There does not appear to be any prejudice to SPI Spirits and Spirits International other than a delay in payment of any damages that might be awarded, a prejudice that will be compensated by payment of interest. The Distribution Agreement has come to an end, Diageo is no longer distributing Diageo Stolichnaya Vodka, and SPI Spirits has entered into an agreement with another company for the distribution of its vodka in Australia. (e) The determination of such a decisive issue is likely to be a major factor to both SPI Spirits and Diageo in considering settlement. (f) As stated above, the main proceeding has not progressed at all beyond a defence and reply and is now back to the beginning with the proposed filing of an Amended Application and Amended Statement of Claim which significantly alter the overall case against Diageo. The conduct which is the subject of the main proceeding has either concluded or, in the case of the Ruski Claims, commenced in April 2004 and no interlocutory injunction has been sought. (g) Resolution of the issue of ownership of the marks is likely to contribute to settlement. 29 Finally, Diageo submits that there is an important issue of case management to be considered, not merely in relation to the inconvenience to Diageo if all claims in the proceeding are heard together. There is also the convenience of the Court. Not only might hearing time be reduced, both for the trial and any interlocutory disputes, but there would be considerable benefits for the trial judge. If all claims are heard together, the trial judge, in writing his or her judgment, may consider it necessary to determine the ownership issue first. If the ownership issue is determined in favour of the cross-claimants, the trial judge is likely to feel obliged to determine all the remaining issues on the Amended Statement of Claim. If the issue of ownership of the Cross-Claim Trade Marks is fundamental to the Amended Statement of Claim, then both the Court's and the parties' resources may have been unnecessarily wasted. 30 In order to minimise any prejudice to SPI Spirits and Spirits International, Diageo offered to make the following undertakings if the orders are made:

(a) Not to destroy any documents relevant to the issues raised by the Amended Statement of Claim (yet to be filed);

(b) to maintain comprehensive sales records relating to Ruski;

(c) to agree to be bound by the final determination of the Court of the Amended Cross-Claim. 31 SPI Spirits and Spirits International submitted that determination of the Cross-Claim will not, for the reasons outlined above, likely dispose of or substantially narrow the issues arising in the Amended Statement of Claim. Even if the Cross-Claim is determined adversely to Spirits International, SPI Spirits and Spirits International will be entitled to pursue their claims against Diageo in contract and under ss 52, 53 and 55 of the TPA. 32 Given the complexity of the issues raised in the Cross-Claim and the fact that the Cross-Claim relates primarily to events which occurred in the Soviet Union and Russia almost fourteen years ago, SPI Spirits and Spirits International estimate that discovery and evidence in relation to the Cross-Claim are likely to consume most of 2006. In the view of SPI Spirits and Spirits International, the Cross-Claim is highly unlikely to proceed to a final hearing until at least 2007. If the Court was to defer the hearing of the claims in the Amended Statement of Claim until after determination of the Cross-Claim, the likely consequence will be that the claims in the Amended Statement of Claim will not proceed to trial until at least 2008, three or four years after SPI Spirits and Spirits International filed their Statement of Claim against Diageo. The substantial prejudice likely to be suffered by SPI Spirits and Spirits International as a consequence of this delay is a further reason to refuse the orders sought by Diageo in its notice of motion.

Conclusion 33 The determination of the ownership of the Cross-Claim Trade Marks, as between Spirits International on the one hand and one or other of the Russian Entities on the other, is certainly not, having regard to the claims in the main proceeding, a 'crisp and clear demurrer point'. Moreover, I am not convinced that its determination has the potential to dispose of a significant part of the main proceeding if it is decided in favour of one or other of the Russian Entities. 34 It would, in my view, be fair to say that resolution of the ownership of the Cross-Claim Trade Marks in favour of one or other of the Russian Entities may well promote the prospect of settlement between SPI Spirits and Diageo in the main proceeding, if only because such a resolution may adversely impact the measure of damages SPI Spirits and Spirits International might otherwise be expected to retain for themselves, if they are successful in their claims in the main proceeding. But I am not persuaded this is sufficient to warrant the making of an order pursuant to O 29 r 2(a) of the kind sought by Diageo. 35 Nor do I think Diageo's submission that the interests of the cross-claimants are a relevant consideration - that there is no prejudice to them if the orders are made; and that it may assist them in having their claims heard earlier. In my opinion, the only relevant interests are those of the parties in the main proceeding. It is true that FKP was joined as a second respondent in the main proceeding, but that was only to enable it to bring the Cross-Claim. FKP is, effectively, a dormant party in the main proceeding and Diageo is a dormant party in the Cross-Claim. 36 I am also of the view that the following matters are, inter alia, relevant considerations: (1) The main proceeding, as originally pleaded, raised no issue of the ownership of any of the relevant trade marks. (2) That issue only arises by virtue of the Cross-Claim, and then only with respect to the Cross-Claim Trade Marks; and that was only facilitated by order of this Court joining FKP as second respondent. (3) This background context stands in stark contrast to the background of the authorities to which I have been referred by both sides; invariably, the issue the subject of the O 29 r 2 order has been latent in the proceeding from the outset, either from a claim made in the original pleadings, or in the defence filed in response; not, as it were, in a Cross-Claim brought by a non-party to the original proceedings from 'left field'. (4) What I consider to be a very relevant question is: Why should SPI Spirits and Spirits International have the hearing of their claim against Diageo deferred for more than a year, perhaps longer, until the determination of the ownership claim by the Russian Entities against SPI Spirits International? I do not know that this question can be satisfactorily answered, but if it can, it is certainly not irrelevant to its answer that only Spirits International is a respondent to the Cross-Claim whereas SPI Spirits is the principal applicant in the main proceeding. (5) It is against this background, and not the background of other cases, that the general principles referred to above need to be applied. (6) I think it is fair to conclude that the issue of ownership of the relevant trade marks as pleaded in the Cross-Claim involves matters of fact and law which have little, if anything, to do with the claims brought against Diageo in the main proceeding. But that, of itself, is no basis to defer a hearing of the latter until a determination of the former. (7) As I have already indicated at [34] supra, I think it fair to conclude that if one or other of the Russian Entities were to succeed in their Cross-Claim against SPI Spirits and Spirits International on the ownership issue, this would likely promote settlement prospects in the main proceeding by SPI Spirits and Spirits International against Diageo. I have already indicated one possible reason for this but there may be others. Even if there are, one thing can be said with certainty - such a determination of ownership rights would not extinguish the basis of the claims brought in the main proceeding. (8) A number of the submissions made by Diageo as to why an order should be made in the terms sought pursuant to O 29 r 2 are predicated on the basis that if the Cross-Claim is determined in the cross-claimants' favour, there will be savings in terms of time, cost and other matters relevant to efficient case management. In many cases, it may be possible to make an informed judgment about the prospects of success on the issue which is sought to be determined on a preliminary basis, however, in the present case the complexity of the issues involved and the lack of evidence, at least at this stage, make this an impossible call. In my considered view, the issue before me has to be determined without regard to the respective prospects of success of one or other of the Russian Entities and Spirits International on the Cross-Claim. 37 In the face of all these matters ([33] - [36] inclusive), I have come to the conclusion that an order in the terms sought by Diageo pursuant to O 29 r 2(a) should be refused and that the issue of ownership of the relevant trade marks raised by the Cross-Claim should not be bifurcated from the main proceeding.

I certify that the preceding thirty-eight (38) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Edmonds.

Associate: Dated: 25 January 2006 Counsel for the Applicants: Mr R Cobden SC

Solicitor for the Applicants: Mallesons Stephen Jaques

Counsel for the First Respondent: Ms A Bowne SC

Solicitor for the First Respondent: Freehills

Counsel for the Second Respondent/Second Cross-Claimant: Mr C Dimitriadis

Solicitor for the Second Respondent/Second Cross-Claimant: Allens Arthur Robinson

Date of Hearing: 1 December 2005

Date of Judgment: 25 January 2006

Trade Practices Act 1974(Cth)

At a glance

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Judgment (21 paragraphs)

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Legislation Cited (2)

Cases Cited (10)

Cited By (16)