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

Background 7 This proceeding was commenced by Spirits against Diageo by way of application and statement of claim filed on 7 December 2004. 8 On 2 December 2005 Spirits filed an Amended Application and Amended Statement of Claim ('ASC') with the leave of the Court. Diageo consented to the grant of leave in that instance. 9 On 1 March 2006 Diageo made a request for further and better particulars of the ASC. On 7 April 2006 Spirits filed a response to Diageo's request for further particulars of the ASC. 10 In April 2006 Spirits and Diageo exchanged proposed categories of documents for discovery in relation to the claims made in the ASC. 11 Between April 2006 and September 2006 legal representatives for Spirits and Diageo exchanged correspondence and engaged in lengthy negotiations in relation to the proposed discovery categories and the relevance of documents falling within those categories to the case pleaded in the ASC. 12 On 3 October 2006 Spirits served a draft FASC on Diageo, intended to address the concern raised by Diageo that it did not fully understand the case against it (Ex. 1, page 1 of MCG3). 13 Between October 2006 and December 2006, the parties' legal representatives exchanged further lengthy correspondence in relation to the draft FASC (Ex. 1, pages 60, 67, 241 and 255 of MCG3). Diageo indicated that it would consent to a large number of the amendments (Ex. 1, pages 241 - 254 of MCG3). Spirits made further changes to the draft FASC in an effort to address the concerns raised by Diageo in that correspondence.

General principles 14 The starting point is that all of such amendments should be made as are necessary to enable the real questions in controversy between the parties to be decided: Queensland v J L Holdings Pty Ltd (1997) 189 CLR 146; Dresna Pty Ltd v Misu Nominees Pty Ltd [2003] FCA 1537. Although O 13 r 2 of the Federal Court Rules ('the Rules') confers a discretion on the Court as to whether to allow the amendments, it is well-established that an amendment will ordinarily be allowed provided it can be done without harm to the other party which cannot be compensated by an award of costs or an adjournment: The Commonwealth v Verwayen (1990) 170 CLR 394; Londish v Gulf Pacific Pty Ltd (1993) 45 FCR 128. 15 The overriding concerns should be to ensure that all matters in issue upon which the parties seek adjudication are determined in the proceeding and to avoid a multiplicity of proceedings: Caruso Australia Pty Ltd v Portec Australia Pty Ltd [1986] FCA 40. 16 Order 13 rule 2(2) of the Rules makes explicit reference to this principle: 'All necessary amendments shall be made for the purpose of determining the real questions raised by or otherwise depending on the proceeding, or of correcting any defect or error in any proceeding, or of avoiding multiplicity of proceedings.' 17 The general approach is that where a party satisfies the Court that he or she generally desires to amend the pleadings so as to alter an existing claim or to introduce a new claim, leave should be granted unless the proposed amendment is so obviously futile that it would be struck out if it had appeared in the original pleading or would cause substantial injustice which cannot be compensated for in the manner indicated in [14] above: Abela v Giew (1964) 81 WN (Pt 1) (NSW) 344 at 345. 18 It is recognised that the allowance of an amendment before a trial begins (when there is time for a proper defence to be filed) stands in a very different position from amendment towards the end of a trial: Ketteman v Hansel Properties Ltd [1987] AC 189 at 220 per Lord Griffiths.

Paragraphs 5A, 13, 33, 34 and 37 19 The proposed amendments in or to paras 5A, 13, 33, 34 and 37 relate to Spirits' claim against Diageo based on alleged misleading and deceptive conduct in relation to a beverage referred to as the Ruski RTD. 20 Diageo opposes Spirits' amendments to paras 13 and 33 (and related paras 34 and 37) of the proposed FASC on the basis that Spirits have not pleaded material facts in support of the allegations in paras 13 and 33 (and related paras 34 and 37).

Paragraph 13 21 In para 13, Spirits rely on 'the matters alleged in paras 7, 9, 10, 10A, 10B, 11 and 12C' to establish the alleged 'association in the minds of consumers and traders in Australia' between elements of the Stolichnaya Livery and the overseas supplier or source of vodka sold in Australia from 1985 to date pleaded in sub-paragraph 13(ii). 22 Diageo submits that none of the matters pleaded in paras 7, 9, 10, 10A, 10B, 11 and 12C refer to any matters which support any knowledge by consumers and traders in Australia of an overseas supplier or source of vodka as pleaded in the proposed sub-para 13(ii). 23 For these reasons, Diageo submits that the pleaded association in sub-para 13(ii) is not supported by any material facts and the paragraph is embarrassing; no leave to amend should be granted. 24 I think there is considerable force in Diageo's submission that none of the matters pleaded in paras 7, 9, 10, 10A, 10B, 11 and 12C refer to any matters which support any knowledge by consumers and traders in Australia of an overseas supplier or source of vodka as pleaded in the proposed sub-para 13(ii). On the other hand, I do not think the pleading is so futile that it would have been struck out if it had appeared in the original pleading or is so prejudicial to Diageo that leave should be withheld.

Paragraph 33 25 In para 33, SPI and Spirits rely on the 'matters pleaded in paras 9 to 32ZD' to establish the alleged representations pleaded in sub-paras 33(a), (aa), (b) and (c) in respect of the Third Ruski Livery and the liveries referred to in paras 32C to 32ZD (together referred to as the 'Impugned Ruski Liveries'). 26 For the reasons set out below, Diageo submits that paras 9 to 32ZD do not set out material facts in support of the alleged representations in paras 33(a) to (c): (1) Paras 15 to 24 of the proposed FASC plead the sale and promotion by Diageo of the Ruski RTD in the First and Second Ruski Liveries. (2) Para 25 alleges an association between the Ruski RTD in the First and Second Ruski Liveries and Stolichnaya Vodka (as that term is defined in para 5A - see further below). Para 26 alleges that by reason of the matters pleaded in paras 12A, 12B, 13, 22, 23 and 24 (i.e. the sale and promotion by Diageo of the Ruski RTD in the First and Second Ruski Liveries), Australian consumers and traders identify the Ruski RTD, the Hammer Sickle Star Device and the 'Ruski' name with a beverage containing Stolichnaya Vodka. (3) Paras 28 to 31 describe the elements of the Third Ruski Livery. Paras 32C to 32ZD describe the elements of the 2006 Ruski Liveries. (4) Spirits have not pleaded material facts which link the allegations in para 13 (discussed in [21] to [24] above) with the representations in para 33. None of the representations deal with the link between the Stolichnaya Livery and the overseas supplier of Stolichnaya Vodka. (5) Spirits have not pleaded material facts which support an alleged association in the minds of Australian consumers and traders between Stolichnaya Vodka and the Ruski RTD in the Impugned Ruski Liveries. However, this is the gravamen of the alleged misleading conduct of Diageo pleaded in the proposed para 33. (6) It is not apparent from the proposed amended pleading that the alleged association between Stolichnaya Vodka and the Ruski RTD in the First and Second Ruski Liveries (pleaded in paras 25 and 26) is relevant to the misleading conduct alleged in para 33 which Diageo claims does not refer at all to the First and Second Ruski Liveries, but see paras 33(b) and 33(c). (7) Furthermore, the amendments to para 26 introduce new allegations that, by reason of the matters alleged in paras 12A, 12B, 13, 22, 23, 24 and 25, Australian consumers and traders identify the Hammer Sickle Star Device and the 'Ruski' name with a beverage containing Stolichnaya Vodka. (8) Paras 12A, 12B, 13, 22, 23, 24 and 25 refer to the sale and promotion of the Ruski RTD in the First and Second Ruski Liveries. However, Spirits seek to rely on the matters alleged in para 26 in support of the alleged representations in sub­-paras 33(a) to (c) which relate to Diageo's application of the Impugned Ruski Liveries to the Ruski RTD. (9) Again, it is not apparent that the allegations summarised in the preceding paragraph have anything to do with the alleged misleading conduct of Diageo in paragraph 33. However, by referring to 'paras 9 to 32ZD', para 33 purports to include these allegations in support of the representations pleaded in that paragraph. (10) In summary: (a) the representations pleaded in paras 33(a) to (c) relate to the Ruski RTD in each of the Impugned Ruski Liveries; (b) the Impugned Ruski Liveries do not include the First and Second Ruski Liveries; (c) no facts are pleaded prior to para 33 in support of an alleged association between the Impugned Ruski Liveries and Stolichnaya Vodka or between the Ruski RTD in the Impugned Ruski Liveries and Stolichnaya Vodka; (d) the only pleaded association between Stolichnaya Vodka and the Ruski RTD relates to the Ruski RTD in the First and Second Ruski Liveries which are not included in the definition of the Impugned Ruski Liveries; and (e) by reason of paras (a) to (d) (above), the pleaded representations in para 33 are not supported by any material facts and the paragraph is embarrassing. 27 Diageo further submits that the matters pleaded in paras 9 to 32ZD do not support Spirits' allegation in para 33(b) that Diageo has represented to Australian consumers, wholesalers, retailers and other traders that the Ruski RTD in the Impugned Ruski Liveries contains 'the very same vodka' as was contained in the Ruski RTD in the First and Second Ruski Liveries; namely, Stolichnaya Vodka. 28 'Stolichnaya Vodka' is not defined in paras 9 to 32ZD. Rather, 'Stolichnaya Vodka is defined in para 5A as Russian vodka which has been manufactured, exported to, and sold in, Australia continuously since 1985 under the STOLICHNAYA trade mark. 29 Mallesons' letter (incorrectly) dated 14 November 2006 to Freehills stated that Spirits 'do not intend to press a case based on a representation as to the composition of the vodka in the Ruski RTD compared with the composition of Stolichnaya Vodka' (Ex. 1, p 256 of MCG3). 30 However, the allegation in para 33(b) depends on the related allegation in para 34(c) that the Ruski RTD in the Impugned Ruski Liveries 'has different vodka ingredients' to the Ruski RTD in the First and Second Ruski Liveries. 31 Particulars (i) and (ii) to para 34(c) allege that unlike the Ruski RTD in the First and Second Ruski Liveries, the vodka ingredient in the Ruski RTD in the Impugned Ruski Liveries is not Stolichnaya Vodka. 32 Particulars (iii) and (iv) to para 34(c) then allege that Stolichnaya Vodka is made according to a different recipe from the vodka in the Ruski RTD in the Impugned Ruski Liveries. 33 In so alleging, Spirits have put the ingredients or recipe of Stolichnaya Vodka (compared to the vodka in the Impugned Ruski Liveries) in issue in the proceedings. 34 Furthermore, Spirits have not pleaded in para 5A or in paras 9 to 32ZD whether the ingredients or recipe of Stolichnaya Vodka referred to in para 34(c) have been the same (or at least consistently different from the vodka in the Ruski RTD in the Impugned Ruski Liveries) since 1985. 35 It is not clear from the proposed amended pleading what the relevance of the matters alleged in paras 9 to 32ZD are to the allegation in para 33(b). As a result, according to Diageo, the amendments to para 33(b) are embarrassing and are not capable of being understood or properly defended by Diageo. 36 Furthermore, to the extent that para 5A is reflected in the paragraphs referred to above it is embarrassing and not capable of being understood or properly defended by Diageo. No leave to amend should be granted. 37 By reason of these matters, Diageo submits that the proposed paras 5A, 13, 33 (and related paras 34 and 37) are embarrassing and leave to amend should not be granted. 38 Finally, under this head, in supplementary submissions filed with the Court subsequent to the hearing of the motion, Spirits indicated that they no longer pressed the alternative pleading of a threat in para 37(d) or in the words including and following the words 'or in the alternative' in paras 32H(b), 32U(b) or 32Z(b). 39 Again, I can see some force in Diageo's submission that none of the matters pleaded in paras 9 to 32ZD set out material facts in support of the alleged representations in paras 33(a) and 33(aa) but again I do not think it creates any prejudice for Diageo in pleading a response; leave to amend should not be withheld.

Paragraphs 47C to 49 40 The proposed amendments in or to paras 47C to 49 relate to Spirits' claim against Diageo based on alleged breaches of terms implied into an agreement referred to as the First Agreement. 41 The amendment to para 48 alleges that by reason of new paras 47C and 47D, there are certain implied terms in the First Agreement (when read together with or amended by documents referred to as the Supplementary Agreements, First SPI Assignment and Second SPI Assignment). 42 The amendment to para 49 alleges that by reason of new paras 48A, 48B and 48C, there are certain implied terms in the First Agreement (when read together with or amended by the Supplementary Agreements, First SPI Assignment and Second SPI Assignment). 43 Diageo claims that paras 47C, 47D and 48A to 48C plead the law relating to the implication of terms to give business efficacy to a contract in support of the allegation that there are certain implied terms in the First Agreement (when read together with or amended by the Supplementary Agreements, First SPI Assignment and Second SPI Assignment). However, Diageo submits that it is trite that a statement of claim must only plead material facts and not evidence or legal propositions: O 11 r 2; North-Western Salt Company Ltd v Electrolytic Alkali Company Ltd [1913] 3 KB 422 at 425. 44 Accordingly, Diageo submitted that leave should not be granted with respect to the amendments in paras 47C, 47D and 48A to 48C. They amount to statements of legal propositions and are embarrassing. For this reason, no leave should be given to amend paras 48 and 49 because Spirits have not pleaded any material facts in support of the amendments. 45 When pressed, Senior Counsel for Spirits submitted that the opening words of para 48: 'By reason of the matters pleaded above …', is a reference to paras 38 to 47D of the proposed FASC, and that para 47D is a pleading of fact. I tend to agree with the latter submission although it might be more accurate to describe para 47D as a pleading of mixed fact and law, as it would be to describe a number of the other pleadings from para 38 onwards. 46 My disposition is to grant leave to the proposed amendments in or to paras 47C to 49.

Paragraphs 51Q, 51QA, 51AA, 51AF and 51AH to 51AJ 47 The proposed amendments in or to paras 51Q, 51QA, 51AA, 51AF and 51AH to 51AJ related to Spirits' claim against Diageo based on alleged breaches of express terms of the First Agreement. Spirits' case against Diageo for alleged breaches of the express terms of the First Agreement was pleaded in the ASC on the basis of Diageo's alleged conduct in Australia. The ASC does not refer to any conduct of Diageo in countries other than Australia. 48 The effect of the proposed amendments in or to paras 51Q, 51QA, 51AA, 51AF and 51AH to 51AJ is to broaden the ambit of Spirits' claim against Diageo to include Diageo's alleged conduct in the 'Territory'. The 'Territory' is defined in the First Agreement as the Commonwealth of Australia and the Pacific region (including Papua New Guinea and New Zealand), as it is in para 8 of the proposed FASC. 49 Spirits' proposed amendments to the ASC included an allegation in new para 51UA that the sales of Ruski RTDs declined in New Zealand from 1998 to 2004 while New Zealand RTD vodka sales as a whole during this period more than doubled. However, Diageo again objects to these proposed amendments on the ground that they do not plead material facts in support of any allegation that Diageo has breached the First Agreement in a country other than Australia. 50 However, I do not think that leave to make these proposed amendments should be withheld when it is common ground that the obligations of Diageo under the First Agreement extended to the Territory (as defined) and Australia is part of that Territory. I certify that the preceding fifty (50) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Edmonds.

Associate: Dated: 11 July 2007 Counsel for the Applicants: Mr R Cobden SC

Solicitor for the Applicants: Mallesons Stephen Jaques