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

Federal Court of Australia|2008-05-22|Before: Edmonds J

Introduction 1 On 1 April 2008, I heard a motion by notice dated and filed 21 February 2008 for orders including an order that the first and second cross-claimants (collectively 'FKP') have leave to file and serve a Second Further Amended Cross-Claim ('SFACC') in the form identified in the affidavit of Paul Gerard O'Shanassy sworn 21 February 2008 (Ex. 1 - 'the draft SFACC'). If granted, this would have the effect of inserting paras [60] to [77] into the substantive pleading in the Further Amended Cross-Claim ('FACC') and of inserting paras 4A to 4C into the prayers for relief in the FACC. In summary, FKP seeks leave to amend the FACC so as to essentially incorporate a constructive trust claim in respect of the trade mark applications referred to in [7] below.

Background 2 The trade marks that are the subject of this proceeding are set out in Annexure A to the FACC. They include trade marks (registered in the name of Spirits) comprising or incorporating the words STOLICHNAYA, STOLI or MOSKOVSKAYA, referred to in the pleadings as the Stolichnaya Label Mark, the Stolichnaya Word Mark, the Stoli Word Mark, the Ohranj Label Mark, the Ohranj Word Mark, the Blue Salyt Mark, the Moskovskaya Label Mark and the Moskovskaya Word Mark ('the currently disputed marks'). 3 The primary relief sought in respect of the currently disputed marks is a declaration that one or the other of FKP is the owner of such marks and the recordal of that cross-claimant as the registered owner of those trade marks: prayers 2 and 3 of the FACC. 4 In general terms, the claim to ownership by one or the other of FKP rests upon proving the falsity of the claim made by the second applicant's ('Spirits'') predecessor in title, referred to in the pleadings as VAO-SPI, that it was the successor in title to the entity referred to in the pleadings as Sojuzplodoimport: paras [13], [14], [21] - [27] and [32] - [39] of the FACC. 5 Spirits, in its Defence to the FACC dated 16 September 2005, supports the claim made by VAO-SPI that it was the successor in title to Sojuzplodoimport. Spirits also alleges, further or in the alternative, that it took the relevant trade marks as a bona fide purchaser for value without notice of any wrongdoing by VAO-SPI: [63], [64] and [65] of the FACC. 6 The latter allegation is traversed generally by para [18] of FKP's Reply dated 12 August 2005. 7 Between 7 August 2002 and 22 September 2006, Spirits made trade mark applications, or via its related company, Spirits Intellectual Property BV, requests for extension to Australia of the protection resulting from the international registration of trade marks, as set out in Annexure B to the SFACC, numbering eighteen in total ('trade mark applications'). All the trade mark applications incorporate the words STOLI, STOLICHNAYA or MOSKOVSKAYA and are presently proceeding in the name of Spirits. Fifteen of the trade mark applications (Nos. 932465, 932471, 934031, 1111247, 1122391, 1122393, 1122394, 1122406, 1122410, 1122496, 1122497, 1137290, 1137291, 1137285 and 1137288) have been examined and accepted by the Registrar of Trade Marks and subsequently opposed by FKP. Three are still under examination (Nos. 1074353, 1164631 and 1078834). 8 FKP intends to oppose each of the remaining trade mark applications once they are accepted. FKP's grounds of objection include: (a) an objection under s 58 of the Trade Marks Act 1995 (Cth) ('the Act') that Spirits is not the owner of the trade marks that are the subject of its trade mark applications; and (b) an objection under s 44 of the Act to the effect that Spirits' trade marks that are the subject of its trade mark applications are deceptively similar to the currently disputed marks. 9 In relation to three of the 18 trade mark applications that are at the opposition stage (Nos. 932465, 932471 and 934031), the Registrar (by her delegate) made a decision on 15 February 2007 to suspend the hearing of the opposition proceedings at the stage prior to FKP being required to file its evidence, and on 16 April 2007 made a related decision to refuse a request by Spirits to lift that suspension. Accordingly, the opposition proceedings in relation to those three trade mark applications are presently suspended pending the outcome of this proceeding. 10 On 4 July 2007, Spirits commenced proceeding NSD 1261 of 2007 in this Court pursuant to the Administrative Decisions (Judicial Review) Act 1977 (Cth) ('the ADJR proceeding') for judicial review of the Registrar's decisions of 15 February 2007 and 16 April 2007 and the Registrar's associated conduct. 11 The Registrar has further suspended the oppositions to applications Nos. 1122406, 1127290 and 1111247, pending determination of the ADJR proceeding.

The Requirements for Leave to Amend 12 It is common ground that the requirements for the Court to grant leave to amend are accurately set out in a passage from SPI Spirits (Cyprus) Ltd v Diageo Australia Ltd (No. 4) [2007] FCA 1035 at [14] - [18] in relation to an application by Spirits to amend: '[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.'

The Constructive trust claim 13 FKP's constructive trust claim is pleaded in the following terms. 14 First, the trade mark applications are derivative of the currently disputed marks in that they incorporate the words STOLICHNAYA, STOLI or MOSKOVSKAYA, and are sought to be registered in respect of 'similar goods', within the meaning of s 44 of the Act, as the goods in respect of which those trade marks are registered. 15 That is to say, the trade mark applications would, in the absence of the consent of the owner of the trade marks that are the subject of the present proceeding, be required to be rejected pursuant to s 44 of the Act. These matters are pleaded in paras [68] - [75] of the draft SFACC. 16 Second, Spirits, by reason of the wrongful conduct of VAO-SPI that is already pleaded (see [4] above), is wrongfully registered as the owner of the currently disputed marks. Furthermore, it is alleged that no later than the date of lodgement of each of the trade mark applications, Spirits was or ought to have been aware of the wrongful conduct of VAO-SPI. 17 FKP submitted that, in substance, these matters are already the subject of this proceeding by reason of Spirits' claim to be a bona fide purchaser for value without notice of the currently disputed marks. They are pleaded and particularised for the purposes of the constructive trust claim at para [67] of the draft SFACC. Amongst other things, that pleading identifies that FKP relies on the involvement of Yuri Schefler in both VAO-SPI and Spirits. 18 Third, by reason of these matters, it is against good conscience for Spirits to assert ownership of the trade mark applications, including as against FKP. Accordingly, Spirits holds the trade mark applications on constructive trust for one or the other of FKP. These matters are pleaded in paras [76] and [77] of the draft SFACC. 19 Essentially, it is FKP's position that Spirits, in the face of this proceeding and in knowledge of FKP's rights, is continuing to use its registered trade mark rights to expand its portfolio of STOLICHNAYA and MOSKOVSKAYA marks. 20 It follows, so it is submitted by FKP, that the constructive trust claim is inextricably linked to this proceeding between the parties as to the currently disputed marks. The constructive trust claim cannot be decided without deciding central issues in this proceeding. Furthermore, it is submitted by FKP that the outcome of the constructive trust claim will flow inevitably from the matters presently to be decided in the extant dispute as to the currently disputed marks.

FKP'S Submissions 21 FKP submitted that the creation of intellectual property rights in contravention of the legal or equitable rights of a person can give rise to a constructive trust in favour of that person. Reference was made to what was said by Gummow and Hayne JJ in Australian Broadcasting Corporation v Lenah Game Meats (2001) 208 CLR 199 at 246. In an appropriate case, so much may be conceded. Reference was also made to what was said by Williams J in dissent in Federal Commissioner of Taxation v United Aircraft Corporation (1943) 68 CLR 525 at 546. 22 FKP submitted that the constructive trust claim, as elaborated in [13] to [20] above, is pleaded, as a matter of fact and law, in accordance with these principles.

Spirits' Submissions 23 Spirits submitted that FKP's motion for leave to amend its FACC by filing a pleading in the form of the draft SFACC should be refused for the following three reasons: (a) FKP's proposed amendment is so obviously futile that it would be struck out had it appeared in the original pleading; there were at least two elements to this - an alleged mistaken reliance on s 44 of the Act and the absence of any pleading that, by making the trade mark applications, Spirits has invaded any presently existing legal or equitable right of FKP, or has breached any alleged obligation owed to FKP, such as would be necessary to attract any principle in the terms stated in Lenah Game Meats; (b) to allow the amendment would lead to substantial prejudice being suffered by Spirits which could not be cured by an order for costs, because registration of the trade mark applications would be held up indefinitely, pending the outcome of this (already lengthy and complicated) proceeding; and (c) there are powerful considerations militating against an exercise of the Court's discretion in favour of allowing the amendment. 24 Each of these reasons was elaborated on in Spirits' written and oral submissions, but it is the reliance on s 44 of the Act in the pleadings which are at the forefront of Spirits' argument which is put in the following way. 25 Paragraphs [68] - [70] of the draft SFACC, which lead up to para [71] plead that: (a) the Stolichnaya trade mark applications are substantially identical with or deceptively similar to each of the Stolichnaya Label Mark, the Stolichnaya Word Mark, the Stoli Word Mark, the Ohranj Label Mark, the Ohranj Word Mark and the Blue Salyt Mark ('the Stolichnaya currently disputed marks') (para [68] of the draft SFACC); (b) the Stolichnaya trade mark applications are in relation to similar goods to the Stolichnaya currently disputed marks (para [69] of the draft SFACC); and (c) each of the Stolichnaya trade mark applications has a priority date which is not earlier than the priority date for the Stolichnaya currently disputed marks (para [70] of the draft SFACC). 26 Paragraph [71] of the draft SFACC (and its parallel in respect of the Moskovskaya trade mark applications, para [75]) then pleads a legal conclusion which depends on s 44 of the Act: 'By reason of the matters pleaded in paragraphs 68 to 70, the Stolichnaya Trade Mark Applications would, in the absence of the consent of the registered owner of the Stolichnaya Label Mark, the Stolichnaya Word Mark, the Stoli Word Mark, the Ohranj Word Mark, and the Blue Salyt Mark be required to be rejected pursuant to s 44 of the act.' (Emphasis added) 27 However, Spirits submitted that this conclusion simply does not follow from s 44 of the Act. Section 44 only applies in circumstances where the applicant for a trade mark is not the registered owner of the conflicting mark. That is because s 44 refers to a trade mark registered by 'another person', that is, a person other than the applicant, as follows: '(1) Subject to subsections (3) and (4), an application for the registration of a trade mark (applicant's trade mark) in respect of goods (applicant's goods) must be rejected if: (a) the applicant's trade mark is substantially identical with, or deceptively similar to: (i) a trade mark registered by another person in respect of similar goods or closely related services; or (ii) a trade mark whose registration in respect of similar goods or closely related services is being sought by another person; and (b) the priority date for the registration of the applicant's trade mark in respect of the applicant's goods is not earlier than the priority date for the registration of the other trade mark in respect of the similar goods or closely related services.' (Emphasis added) 28 In the present case, it is common ground that Spirits is the registered owner of all of the currently disputed marks. Therefore, none of the currently disputed marks is a 'trade mark registered by another person' within the meaning of s 44 - they are all owned by the applicant of the trade mark applications. Accordingly, Spirits submitted that s 44 does not and cannot apply to any of the trade mark applications; and it is simply incorrect to assert, as does para [71] (and para [75]) of the draft SFACC, that 'in the absence of the consent of the registered owners', those applications would 'be required to be rejected pursuant to s 44 of the Trade Marks Act'. 29 Spirits submitted that the fundamental error evident in the pleading of para [71] (and para [75]) of the draft SFACC is not merely a matter of drafting. It is a substantive, and fatal, flaw in the case that FKP wishes to propound in the draft SFACC. 30 It follows, according to Spirits, that para [71] (and the corresponding para [75]) of the draft SFACC is wrong as a matter of law and should be struck out. Paragraph [76] of the draft SFACC relies on para [71] as a necessary element, and it should also be struck out. It follows that para [77] of the draft SFACC, which depends on para [76], should also be struck out. As FKP's entire pleaded case on its amendments depends on the constructive trust pleaded in para [77] of the draft SFACC, Spirits submitted that all the amendments are futile and therefore should not be allowed.

Analysis 31 There is, in my view, a fundamental flaw in the way in which FKP seeks to plead its constructive trust claim. Even if one accepts what is pleaded at paras [68] to [71] and paras [72] to [75]of the draft SFACC, the conclusions pleaded at para [76], insofar as it relies on paras [71] and [75], and at para [77], which exclusively relies on para [76], do not follow. Subsection 44(1) of the Act which mandates the rejection of an application for the registration of a trade mark in respect of goods in the circumstance of paras (a) and (b) of that subsection, has nothing to say with respect, and in no way contributes, to any claim by FKP that Spirits holds the trade mark applications on constructive trust for FKP. 32 That, in my view, would be sufficient to reject the amendment - no other basis of the constructive trust claim is relied on - and dismiss the motion; there is a further difficulty with the amended pleading, which, on its own, would not persuade me to reject it, but which reinforces the view I have reached. It is strongly arguable there is no property in the trade mark applications, as distinct from the trade marks the subject of the applications, and the amended pleadings (claiming a constructive trust in the trade mark applications) and prayers for relief (seeking a declaration of constructive trust in respect of, and orders for the assignment of right title and interest in, the trade mark applications) are predicated on the subsistence of property in the trade mark applications. So much is implicit in the declaration sought in proposed prayer 4A and the orders sought in proposed prayers 4B and 4C. Indeed, arguably, prayer 4B is incapable of performance because while subs 106(1) of the Act provides that 'a trade mark whose registration is being sought may be assigned with or without the goodwill associated with that trade mark' (compare the position at common law); the Act does not contemplate the assignment of trade mark applications. The fact that a s 106 assignment may permit the assignee to prosecute the application for registration begs the point.

Conclusion 33 As already indicated, there were at least two other grounds upon which the proposed amended pleading was opposed. On the view I take, it is not necessary to consider these. 34 The motion must be dismissed with costs. I certify that the preceding thirty-four (34) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Edmonds.

Associate: Dated: 22 May 2008 Counsel for the Applicants in the proceeding and the Respondents on the Motion: Mr R Cobden SC and Mr P W Flynn

Solicitor for the Applicants in the proceeding and the Respondents on the Motion: Mallesons Stephen Jaques

Counsel for the First Respondent: Mr J Gray

Solicitor for the First Respondent: Freehills

Counsel for the Second Respondent in the proceeding and the Applicant on the Motion and the Cross-Claim: Mr M Green and Mr A R Lang

Solicitor for the Second Respondent in the proceeding and the Applicant on the Motion and the Cross-Claim: Sagacious Legal

Trade Marks Act 1995(Cth)ss 44, 58, 106

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