Sunnya Pty Ltd v FPA Group Ltd

The application for indemnity costs 4 The respondents' application is supported by a 709 page affidavit affirmed by Yu Chen, a solicitor with Juris Cor Legal, and the solicitor on the record for the respondents. The respondents also tendered several paragraphs from affidavits affirmed by Yanxia Lu, also known as Daisy Lu (Ms Lu), a former director of Sunnya. Sunnya relied on Ms Lu's affidavits as a whole. By consent, however, Ms Lu's evidence was received only as evidence of the representations she made and as to her state of mind, not as evidence of the truth of the representations. 5 The application is made on two bases. The first is that, "properly advised", Sunnya should have known - either when the proceeding was commenced or at various times thereafter - that it had no reasonable prospects of success. The second is put additionally or in the alternative. It is that, "in light of the positions put and evidence led" by Sunnya's related entities and directors in a proceeding in the Supreme Court of NSW (see the judgment of Stevenson J in Ferngrove Pharmaceuticals Australia Pty Ltd v HLW Investments Pty Ltd [2020] NSWSC 1137) (Supreme Court proceeding) and/or a proceeding in the People's Republic of China (PRC proceeding), the maintenance of this proceeding was an abuse of process. 6 Many of the factual issues were in dispute. During the hearing of the respondents' application, I requested the parties to prepare a joint chronology of the relevant events, which counsel agreed to supply. The parties sought, and were granted, multiple extensions of time to provide the chronology. The last extension was until 9 February 2024, 12 weeks after the chronology was originally due. No chronology was provided. On 10 May 2024, my associate sent an email to the parties' solicitors requesting an explanation. No response was received from either party. It goes without saying that that is unacceptable and, on the face of things, inexcusable.

Background facts 7 The marks in question consisted of the word mark "slaite" and two composite or device marks, one in English, the other in Chinese characters (together, the Slaite marks). 8 Sunnya was registered on 21 August 2014. At the time of its incorporation, Ms Lu was its sole director. Ms Lu's husband, Yinghan He (Mr He), was appointed an additional director on 10 April 2017. 9 In an affidavit filed on 4 June 2021, Ms Lu deposed that she incorporated Sunnya as part of a business venture with Haihua Song (Mr Song) concerning the sale in China by a Chinese company of health food products to be made in Australia by a third-party. The Chinese company was Au Slaite Xiamen Limited (later renamed Au Slaite (Xiamen) Technology Co. Ltd and later still Aoxinliduo (Xiamen) Technology Co. Ltd) (Au Slaite), in which Ms Lu owned 55% of the shares and Mr Song the remaining 45%. Ms Lu deposed that her role in the venture was to procure the manufacture of the products in Australia and sell and export them to Au Slaite in China and Mr Song's role was to distribute the goods in China. In April 2015 Ms Lu identified the second respondent in this proceeding, Ferngrove Pharmaceuticals Australia Pty Ltd (Ferngrove), as a company with potential capacity to manufacture the products. 10 Ms Lu deposed that she used three companies to carry out her responsibilities in the business venture: HLW Investments Pty Ltd (HLW) to order and purchase the goods from Ferngrove; Sunnya to export the goods; and Guangzhou Aotewa Biotech Co Ltd (Aotewa), a company apparently associated with Mr Lu's brother and sister, to import the goods into China. HLW was registered on 28 April 2015. Ms Lu was its only director until 1 January 2021 when Mr He was appointed an additional director. 11 Ms Lu also deposed that in April 2015 a licence was granted to Sunnya to export dairy products from Australia and on 13 July 2015 HLW placed the first order for "Slaite" goods to be manufactured by Ferngrove. 12 Notices of filing issued by IP Australia show that applications for registration of the Slaite marks were made in Sunnya's name on 12 November 2015. According to Ms Lu, manufacture of the first order was completed, sold by HLW to Au Slaite and shipped by Sunnya to China the following month. 13 On 31 March 2016 Sunnya issued an invoice to Au Slaite for the registration of the trade marks. 14 In May and July 2016 Ms Lu sent Ferngrove eight orders for Slaite products using the Slaite name. 15 On 22 September 2016 each of the Slaite marks was registered in Sunnya's name in respect of goods in classes 5 and 29. 16 By 2018 the business relationship between Ms Lu and Mr Song apparently broke down. 17 On 4 January 2019, Ms Lu and Mr Song entered into a Chinese-language agreement entitled "Agreement on Share Equity Transfer" (Transfer Agreement). The parties agree that the Transfer Agreement provided for Mr Song to purchase Ms Lu's shares in Au Slaite for RMB 3 million yuan. Clause 2 of "schedule 1" to the Transfer Agreement provides: The two parties agreed: After [Ms Lu] received 100% the full amount of share value transfer and Auslaite made payment of the full amount owing to HLW Investment Pty Ltd and Sunnya Pty Ltd, and within 7 days of clearance of these payments made, [Ms Lu] will bring a motion about transferring the 3 Trademarks registered in Australia by Sunnya Pty Ltd to Auslaite (Xiamen) Technology Co., Ltd for the approval of the Sunnya board … 18 In the proceeding in this Court, Sunnya alleged that the obligation to present a motion to the board for the transfer of the trade marks was contingent upon the occurrence of two events it referred to in its pleadings as "the required events": the payment of RMB 3 million yuan for the purchase of Ms Lu's shares in Au Slaite and the payment of all monies Au Slaite owed to Sunnya and HLW. 19 Sunya also alleges that, on 20 February 2019, in anticipation of the making of these payments, Ms Lu agreed to execute a document (a letter of assignment) assigning the Au Slaite marks to FPA Group which would be submitted to IP Australia after the occurrence of the required events. 20 On 1 March 2019 FPA Group (or its agent) submitted the letter of assignment to IP Australia and on 4 March 2019 the Registrar of Trade Marks made and/or amended entries in the Register of Trade Marks recording an assignment of the Slaite marks from Sunnya to FPA Group and FPA Group as the new owner. 21 Sunnya commenced this proceeding on 31 July 2020, claiming that the transfer was ineffective because, although the letter of assignment bears Ms Lu's name and carries a signature "purporting" to be hers, she did not in fact sign the letter. A defence was filed on 27 October 2020. 22 On 23 December 2020 Sunnya filed its Amended Statement of Claim (ASOC), which maintained the claim that the transfer was ineffective but abandoned its foundation (that the signature was not Ms Lu's). Instead, it propounded an entirely different foundation, namely, that the required events had not occurred when the letter of assignment was submitted to IP Australia and have never occurred. In her first affidavit, filed on 4 June 2021, Ms Lu deposed that she signed the letter of assignment on or about 20 February 2019 and sent a photograph of it on WeChat to Ferngrove's representative, Haixuan (Terry) Zhou, but urged Mr Zhou not to submit it. She said she then sent the completed assignment form to Mr Zhou by express post and the following day told him on WeChat not to "take it out and give to them". She said that she met with Mr Zhou on 1 March 2019, told him she had not received any funds for the outstanding invoices or for the redemption of her shares in Au Slaite, and retrieved "the signed trade mark assignment document" from him. A copy of that document, which includes the letter of assignment, bearing her signature, is annexed to the affidavit (at YL-38). Her account appears to be corroborated by contemporaneous WeChat messages translated into English by a certified translator (YL-36, YL-37). 23 On 6 March 2021 the respondents filed an amended defence. On 9 March 2021 I made a number of orders including orders for the filing of the parties' evidence. The timetable was repeatedly revised, thrice by consent. In March 2022 the matter was referred to mediation. Orders in relation to discovery and inspection of documents were made on 7 July 2022, 10 November 2022, and 3 February 2023. On 25 November 2022 I made orders by consent vacating the case management hearing scheduled for 28 November 2022, and listed the matter for case management on 6 February 2023. By consent, on 3 February 2023 that case management hearing was vacated and I made a number of orders including orders for the respondents to serve an affidavit verifying their list of documents and to produce for inspection unredacted copies of certain documents and fixing the matter for case management on 20 March 2023. On 17 March 2023 I made orders by consent vacating the 20 March case management hearing and required the parties to file and serve an agreed statement of facts and issues by 7 April 2023. On 5 April 2023 the case management hearing was again postponed and the time for compliance with the order was extended to 31 May 2023. 24 In the meantime, in November 2022, unbeknown to the Court, Sunnya and one of its shareholders, Jatcorp Limited, had brought a derivative action against Ms Lu and Mr He in the Supreme Court. In March 2023 Black J granted interim leave nunc pro tunc to allow Jatcorp to commence and continue the proceeding and made an interim freezing order against Ms Lu and Mr He, who were then residing in China and who did not reply to an inquiry about when they would return: Re Sunnya Pty Limited [2023] NSWSC 225. The allegations made against Ms Lu and Mr He in that proceeding are summarised at [23] of his Honour's judgment. 25 Mr Chen became aware of the derivative action in April 2023 and became concerned about Sunnya's capacity to meet any adverse costs order, so on 12 April 2023 he wrote to the lawyers on the record for Sunnya (Tahota Law Firm) requesting evidence of the company's financial circumstances. No such evidence was forthcoming. Instead, on 29 May 2023 he received an email from Rachel Zhang of Tahota claiming that the parties had agreed to the discontinuance of the proceeding. He deposed that on his instructions there was no such agreement. Accordingly, the next day Mr Chen wrote to Ms Zhang seeking information about the identity of the person who was giving her instructions and evidence of the alleged agreement. No such information was provided.

The proceedings in other jurisdictions 26 The Supreme Court proceeding was instituted in June 2019. It was a suit brought by Ferngrove against HLW for breach of contract in relation to goods sold and delivered for which it did not pay and in which Ferngrove also sought to recover the amount owing under the contract from HLW's directors, Ms Lu and Mr He, pursuant to a deed of guarantee and indemnity. The defendants claimed that they were not liable because HLW entered into the contract as agent for Au Slaite, which at all material times was disclosed to Ferngrove as HLW's principal. 27 The parties were ordered to attend a mediation on 31 July 2020. The mediation failed and the case was heard over three days in mid-August 2020. 28 Stevenson J, who heard the case, rejected the defendants' claim. In the course of his reasons, his Honour accepted that HLW may have been acting as Slaite's Australian agent (at [24]), observing, amongst other things, that "the orders Ferngrove received from HLW were expressed to be on behalf of Slaite and that Ferngrove packaged the goods using Slaite's logo" (at [25]). Nevertheless, his Honour held that HLW did not enter the contract as agent for Slaite and therefore the defendants were liable to pay Ferngrove for the goods it had ordered. 29 The PRC proceeding concerned a contractual dispute over a commission. It was a suit brought by Aotewa against Au Slaite, Mr Song and another company - Au Slaite (Xiamen) Nutrition Co Ltd. An English translation of the judgment was annexed to Mr Chen's affidavit. It is difficult to follow. In his affidavit in this Court, Mr Chen submitted: As noted in the judgment, Aotewa was used by Sunnya to receive on behalf of Au Slaite the goods exported by Sunnya from Australia bearing the trademarks and manufactured by FPA on orders from HLW on behalf of Au Slaite. Consequently, it sought and obtained indemnity against its liability, passed on by HLW to Sunnya and on to Aotewa, for the cost of the goods bought from FPA on behalf of Au Slaite. It is noted in the judgment, that it had also sued for the cost of registration of the trademarks in Australia, but withdrew that claim only at the hearing … 30 Sunnya was not a party to either the Supreme Court proceeding or the PRC proceeding. Mr Chen's narrative is not borne out by the English translation of the PRC judgment. Notwithstanding the multiple references to Sunnya in Mr Chen's summary, the only reference to Sunnya in the judgment is to a Hotmail address to which an email, tendered by Aotewa in evidence, was copied; the context does not suggest that the email or the reference is relevant to an issue in the proceeding in this Court. The only reference to trademarks relates to Aotewa not seeking payment from Au Slaite. Sunnya was mentioned only once in the Supreme Court judgment (at [64]). There, Stevenson J merely observed that tax invoices issued by HLW directed to Slaite (describing Slaite as the "buyer" and HLW as the "seller") were sent by email from Sunnya to Slaite on 2 August 2016. 31 After judgment was published in the Supreme Court proceeding, the respondents' solicitors, Juris Cor Legal, wrote to Sunnya's then solicitors, WB Legal, pointing to an alleged inconsistency between evidence given by Ms Lu and her husband in that proceeding and the claim made in the proceeding in this Court. Juris Cor Legal proceeded to challenge Sunnya's retainer and, in the event it was maintained, to seek particulars of the allegations in the statement of claim.

Legal principles 32 The Court's power to award costs is found in s 43 of the Federal Court of Australia Act 1976 (Cth). The section confers a broad discretion. That discretion is limited only by the need to act judicially and by the obligations imposed by Pt VB of the Act. 33 One of those obligations is contained in s 37M(3), which relevantly provides that the Court must exercise any power conferred on it by the civil practice and procedure provisions of the Act and the Rules in the way that best promotes their overarching purpose. That purpose is described in s 37M(1). It is to facilitate the just resolution of disputes according to law and as quickly, inexpensively and efficiently as possible. Section 37N relevantly imposes obligations on the parties to conduct the proceeding in a way that is consistent with that purpose and on their lawyers to assist them to do so. In exercising the discretion to award costs in a proceeding such as this, a failure to comply with either of those duties is a mandatory consideration. 34 Ordinarily, costs are payable on a party and party basis. The ordinary principle is reflected in r 40.01 of the Federal Court Rules 2011 (Cth). The power to award costs on an indemnity basis is expressly conferred by s 43(3)(g). 35 In spite of the breadth of the discretion, an order for indemnity costs will not be made unless the case has some "special or unusual feature" which would justify a departure from the ordinary course: see, for example, Cirillo v Consolidated Press Property Ltd (formerly known as Citicorp Australia Ltd) (No 2) [2007] FCA 179 at [3] (Finn J). 36 It was common ground that indemnity costs may be awarded where, for example, a proceeding is brought on the basis of an allegation of fraud or other facts known to be untrue; where the proceeding constitutes an abuse of process because it was brought for a collateral purpose; or where the applicant, properly advised, should have known there were no reasonable prospects of success, in which case the proceeding can be presumed to have been brought for an ulterior purpose or in wilful disregard for the known facts or established law. 37 An indemnity costs order, however, is intended to be compensatory, not punitive. As Gray J remarked in Hamod v New South Wales [2002] FCA 424; 188 ALR 659 at [20] (Carr and Goldberg JJ agreeing): Indemnity costs are not designed to punish a party for persisting with a case that turns out to fail. They are not awarded as a means of deterring litigants from putting forward arguments that might be attended by uncertainty. Rather, they serve the purpose of compensating a party fully for costs incurred, as a normal costs order could not be expected to do, when the court takes the view that it was unreasonable for the party against whom the order is made to have subjected the innocent party to the expenditure of costs. See also Melbourne City Investments Pty Ltd v Treasury Wine Estates Ltd (No 2) [2017] FCAFC 116 at [3]-[5] (Jagot, Yates and Murphy JJ). 38 In Re Minister for Immigration and Ethnic Affairs; ex parte Lai Qin (1997) 186 CLR 622 at 624 McHugh J observed: In most jurisdictions today, the power to order costs is a discretionary power. Ordinarily, the power is exercised after a hearing on the merits and as a general rule the successful party is entitled to his or her costs. Success in the action or on particular issues is the fact that usually controls the exercise of the discretion. A successful party is prima facie entitled to a costs order. When there has been no hearing on the merits, however, a court is necessarily deprived of the factor that usually determines whether or how it will make a costs order. In an appropriate case, a court will make an order for costs even when there has been no hearing on the merits and the moving party no longer wishes to proceed with the action. The court cannot try a hypothetical action between the parties. To do so would burden the parties with the costs of a litigated action which by settlement or extra-curial action they had avoided. In some cases, however, the court may be able to conclude that one of the parties has acted so unreasonably that the other party should obtain the costs of the action … 39 His Honour also observed (at 625) that, even where there is no question of unreasonable conduct, in some cases a judge might feel confident that one party was almost certain to succeed if the matter had been fully tried. 40 These observations are not directly relevant as Sunnya agreed to pay the respondents' costs. The respondents did not submit that, in doing so, Sunnya should be taken to have accepted that the respondents were almost certain to succeed.

The forgery allegation 41 In its original Statement of Claim (SOC) filed on 31 July 2020, Sunnya pleaded, in effect, that Ms Lu's signature had been forged and that the assignment was ineffective on that account (at [8]-[9]). Paragraph 8 read: The Letter of Assignment was not signed by the Applicant, or by any person authorised by the Applicant to execute an assignment of the Applicant's Trade Marks. Particulars (i) The Letter of Assignment bears the name of Ms Yanxia Lu, and a signature purporting to be Ms Lu's signature. (ii) Ms Lu is a director of the Applicant. (iii) Ms Lu did not sign the Letter of Assignment. 42 A claim was made for additional damages on the ground that the respondents' infringement of the marks had been "flagrant and deliberate" ([31]-[32]). 43 In the ASOC, filed some six months later, however, para 8 of the SOC was deleted, the allegation of forgery withdrawn, and instead Sunnya made the following allegations: 6A. On or about 4 January 2019, Ms Yanxia Lu (Ms Lu) entered into an agreement with Mr Haihua Song (Mr Song) whereby, inter alia: (a) Mr Song agreed to purchase Ms Lu's shares in Auslaite (Xiamen) Technology Co., Ltd (Auslaite) for RMB 3 million Yuan; and (b) Ms Lu agreed that, upon receipt of the RMB 3 million Yuan payment for the purchase of her shares in Auslaite and payment of all money owing by Auslaite to the Applicant and HLW Investment Pty Ltd, a motion would be presented to the shareholders of the Applicant to decide whether the Applicant's Trade Marks would be transferred to Auslaite. Particulars (i) Written agreement titled "Agreement on Share Equity Transfer" (translated). (ii) A copy of the agreement is available for inspection upon request to the solicitors for the Applicant. 6B. The obligation to present a motion to the shareholders of the Applicant as to whether to assign the Applicant's Trade Marks was contingent upon the occurrence of each of the following events: (a) payment of RMB 3 million Yuan for the purchase of Ms Lu's shares in Auslaite; and (b) payment of all money owing by Auslaite to the Applicant and HLW Investment Pty Ltd, (the Required Events). Particulars (i) "Agreement on Share Equity Transfer", Schedule 1, clause 2. 6C. On or about 20 February 2019, in anticipation of the Required Events Ms Lu and Mr Song agreed that: (a) Ms Lu would execute and provide to the First Respondent a letter of assignment assigning the Applicant's Trade Marks to the First Respondent; (b) the Letter of Assignment would be held by the First Respondent and would not be submitted to IP Australia until after the Required Events had occurred. Particulars (i) The agreement was a verbal agreement made between Ms Lu and Mr Song during a telephone conversation on or about 20 February 2019. 6D. On or about 20 February 2019, pursuant to the agreement in paragraph 6C above Ms Lu: (a) signed a letter of assignment in respect of the Applicant's Trade Marks (Letter of Assignment); (b) posted the Letter of Assignment to the First Respondent; and (c) instructed the First Respondent not to submit the Letter of Assignment to IP Australia. Particulars (i) The instructions referred to in paragraph (c) above were provided to Terry Zhou of the First Respondent by WeChat message on or about 20February 2020. (ii) Copies of the WeChat messages referred to in paragraph (i) above are available for inspection upon request to the solicitors for the Applicant. … 7A. The Required Events have not occurred, and had not occurred when the copy of the Letter of Assignment was submitted to IP Australia. 44 No evidence was adduced to explain the change in the pleading. 45 In its submissions, Sunnya suggested that Ms Lu "may have believed that IP Australia required original signed forms". But that is implausible. In para 8 of the SOC Sunnya pleaded that neither Ms Lu nor any person it authorised had signed the letter of assignment. The ASOC and Ms Lu's affidavit of 4 June 2021 completely contradict the allegation of forgery in para 8 of the SOC. In the ASOC Sunnya pleaded that Ms Lu signed and posted the letter of assignment and in her affidavit Ms Lu deposed that she signed the letter of assignment. The inescapable inference is that Ms Lu (and therefore Sunnya) must have known that the allegation in para 8 of the SOC was untrue when it was made. 46 In these circumstances I am satisfied that costs incurred as a result of the forgery allegation should be paid on an indemnity basis.

Should Sunnya have known there were no reasonable prospects of success? 47 In its originating application Sunnya sought a number of declarations relating to ownership of the marks and the validity of the assignment as well as an order under s 88(1)(b) of the TM Act for the rectification of the Register to record that Sunnya is the owner of the Slaite marks and to expunge from the Register any reference to the assignment to, and ownership of, FPA Group. It also sought a declaration that the manufacture and sale of products by the respondents, which carried the Slaite marks, infringed those marks; an order under s 126(1)(a) of the Act restraining the respondents from infringing the marks; and damages or an account of profits, as well as additional damages under s 126(2). 48 Sunnya's case (as reformulated in the ASOC) was that it had been the registered owner of the Slaite marks since November 2015 (when it submitted the applications for registration); that the legal title to the marks had not been effectively assigned to Ferngrove, because a condition precedent (that Ms Lu be paid a sum of money) had not been met; and that the first respondent's submission of the letter of assignment to IP Australia was therefore misleading or false. 49 In their amended defence, the respondents pleaded that Sunnya filed the trade mark registration applications as an agent of Au Slaite pursuant to an agreement between Sunnya and Au Slaite, for Au Slaite's "sole benefit and at its cost", and that Sunnya was never the owner or beneficial owner of the trade marks. They also pleaded that the only use in Australia of the Slaite marks was by Au Slaite. 50 On the present application the respondents' case, in a nutshell, is that Sunnya never had any genuine entitlement to apply for registration of the Slaite marks because an entitlement to apply for registration of a trade mark is established by authorship and prior use and Sunnya was not an author and had only ever used the marks on the authority of Au Slaite as its agent. They allege that "under Ms Lu" Sunnya conducted the proceeding in this Court without any genuine claim to own the Slaite marks but for a collateral purpose, namely, to benefit Ms Lu by preventing Au Slaite from procuring its formula milk products from Ferngrove without using her companies as intermediaries. They rely on statements made by Ms Lu in affidavits filed in this proceeding and in the Supreme Court proceeding and the defence she and her husband ran in the Supreme Court proceeding. They refer to the following statements of principle by Emmett J in Mediaquest Communications LLC v Registrar of Trade Marks (2012) 205 FCR 205 at [56]: [T]he scheme of the Act is not proprietorship by registration but registration of proprietorship. Registration under the Act is only prima facie evidence of ownership, as is provided by s 210. The registered owner is always susceptible to action being taken under Pt 8 to revoke a trade mark that should never have been registered, or to substitute the true owner of the trade mark for that of a wrongful claimant. True ownership of a trade mark is a defence to infringement proceedings brought under the Act. To that extent, it is already open to third parties to ignore invalid entries in the Register … 51 In some cases, it may be simple to decide that an applicant who has discontinued a proceeding before trial never had reasonable prospects of success. This is not such a case. No doubt there is much fodder for cross-examining Ms Lu and her evidence may well have been discredited if the matter went to trial. Even if I were to form the view that Sunnya would probably have failed to make out its ownership of the Slaite marks, this is not a case in which I feel confident that the respondents would have been almost certain to succeed if the matter had been fully tried. To say that a party had no reasonable prospects of success is not the same as predicting that one side would likely have won if the matter had proceeded to trial: see Lai Qin at 626 (McHugh J). If the respondents really thought that Sunnya had no reasonable prospects of success, why did they not move for summary judgment in the two and a half years from the commencement of the proceeding to its discontinuance? 52 The respondents submitted that no aspect of Sunnya's claim could have succeeded if it was not able to demonstrate ownership of the trade marks and that Sunnya's lack of entitlement to registration was "a complete defence" to the relief it sought. 53 I cannot accept that submission. 54 Section 27 of the TM Act relevantly provides that: Application - how made (1) A person may apply for the registration of a trade mark in respect of goods … if: (a) the person claims to be the owner of the trade mark; and (b) one of the following applies: (i) the person is using or intends to use the trade mark in relation to the goods; (ii) the person has authorised or intends to authorise another person to use the trade mark in relation to the goods and/or services; (iii) the person intends to assign the trade mark to a body corporate that is about to be constituted with a view to the use by the body corporate of the trade mark in relation to the goods and/or services. Note: For use see section 7. (Emphasis added.) 55 A trade mark is "a sign used, or intended to be used, to distinguish goods or services dealt with or provided in the course of trade by a person from goods or services so dealt with or provided by any other person": TM Act, s 17. 56 The registered owner of a trade mark has the exclusive right to use, or authorise other persons to use, the trade mark and the right to obtain relief under the TM Act if the trade mark has been infringed; those rights are taken to have accrued to the registered owner from the date of registration: TM Act, s 20. 57 An authorised use of a trade mark is taken, for the purposes of the TM Act, to be a use of the trade mark by its owner: TM Act, s 7(3). 58 Section 6(1) defines the "registered owner" of a registered trade mark as the person in whose name the trade mark is registered and a "registered trade mark" as a trade mark the particulars of which are entered in the Register of Trade Marks. 59 The relief to which the registered owner of a trade mark is entitled by reason of s 20 of the TM Act is relevantly contained in ss 120 and 126. Section 120 provides for the circumstances in which a registered trade mark is infringed. Section 126(1) provides that the relief a court may grant in an action for infringement of a registered trade mark includes an injunction, damages or an account of profits. 60 A person who was, but has since ceased to be, the registered owner of a trade mark may bring a claim for infringement where that infringement is alleged to have occurred when the person was the registered owner. 61 In Pham Global Pty Ltd v Insight Clinical Imaging Pty Ltd (2017) 251 FCR 379 (Greenwood, Jagot and Beach JJ) at [37] observed that, while s 20 of the TM Act vests exclusive rights to use a trade mark in the registered owner: [N]othing in s 120 or s 126 identifies that the only possible plaintiff on an action for infringement and consequential relief is the registered owner at the time the action for infringement is commenced or otherwise. This reflects the legislative scheme which permits assignment of a trade mark, including one subject to a pending application for registration, and gives rights on registration back to the filing date of the application. 62 Their Honours sent on to say at [40]: While there may be only one or joint registered owners at any one time, infringements may and usually will occur over time. The plaintiff entitled to relief within the meaning of s 126(1)(b) by way of an account of profits or damages necessarily will be the registered owner of the mark at the time of the infringement. 63 Here, Sunnya alleges, amongst other things, that the respondents infringed its marks in the period between May 2018 (when it is uncontroversial that it was the registered owner of the Slaite marks) and February 2019 (when the assignment, purported or otherwise, took effect). I am not satisfied that Sunnya should have known that this part of its case enjoyed no reasonable prospects of success. For the period during which there is no dispute that Sunnya was the registered owner of the marks, Sunnya did not need to prove that it was beneficial owner of the marks or that the assignment was ineffective. 64 In contrast to s 58(1) of the former Act, the Trade Marks Act 1955 (Cth), the right under s 20 of the TM Act to exclusive use of a trade mark in relation to goods in respect of which the trade mark is registered does not depend on the validity of the registration. The onus is no longer on the applicant to establish registrability: Registrar of Trade Marks v Woolworths Ltd (1999) 93 FCR 365 at [24] (French J), (Tamberlin J agreeing at [104]). In Shanahan's Australian Law of Trade Marks and Passing Off (7th ed, Thomson Reuters, 2022) at [85.15] and [85.2815] the learned authors note: Section 20(2) of the Trade Marks Act 1995 (Cth) does not provide that the trade mark owner's rights to relief are conditional upon the validity of registration, and any order for rectification of the register pursuant to s 88 or removal for non-use will only be prospective. Consequently, relief may be obtained in respect of infringements that occurred prior to any court order for cancellation or removal. … Because the right of exclusive use provided by s 20 is not expressed to be contingent upon the validity of the registration, it appears that a defendant may technically no longer rely on invalidity as a defence. 65 Section 88 of the TM Act gives the Court the power, on the application of an aggrieved person or the Registrar and on certain specified grounds, to cancel the registration of a trade mark or remove or amend an entry wrongly made or remaining. The grounds, set out in sub-s (2), include: (a) any of the grounds on which the registration of the trade mark could have been opposed under the Act; … (e) if the application is in respect of an entry in the Register - the entry was made … as a result of fraud, false suggestion or misrepresentation. 66 One of the grounds upon which registration could have been opposed is that the applicant (Sunnya) is not the owner of the mark (s 58). 67 Here, the respondents did not file a cross-claim seeking rectification of the Register. In the absence of a cross-claim for rectification of the Register, it was not enough for the respondents to deny liability for infringement on the basis that Sunnya was never the owner of the Slaite trade marks. The respondents submitted that it was unnecessary for them to make out a ground on which the registration could have been opposed because they were not seeking to put the marks back into Au Slaite's hands, as they maintained that the assignment by Sunnya to FPA Group was effective. The difficulty with that submission is that, if Sunnya was never the owner of the marks, then the assignment to FPA Group would have been ineffective anyway, as Sunnya could not assign that which it did not own (Pham at [45]) and "the existence of an effective assignment or transmission is a necessary precondition to the making of a valid application" to assign or transmit ownership of a registered trademark and to the entry of the details of the new owner in the Register (Mediaquest at [53]). 68 Moreover, taking Ms Lu's evidence at its highest, as the respondents accepted was necessary on an application of this nature, I am not satisfied that, properly advised, Sunnya should have known that it had no reasonable prospects of proving that the assignment to FPA Group was ineffective for the reason propounded in the ASOC. 69 If I am wrong, and Sunnya were required to prove that it was the beneficial owner of the trade marks when it registered them, Sunnya would need to prove either prior use or "the combination of authorship, the filing of the application and an intention to use": Pham at [19]. 70 A convenient summary of the law appears in Accor Australia & New Zealand Hospitality Pty Ltd v Liv Pty Ltd [2017] FCAFC 56; 345 ALR 205 at [168]-[170] (Greenwood, Besanko and Katzmann JJ): [168] An "existing intention to offer or supply goods (or services) bearing the mark in trade" is sufficient to establish use of the mark: Winton Shire Council v Lomas (2002) 119 FCR 416; 56 IPR 72; [2002] FCA 288 (Winton), per Spender J at [36]. So too are "preparatory steps coupled with an existing intention to offer or supply goods [or services] in trade": Winton at [38]. Although the use must be use "as a trade mark", this need only be one purpose or aspect of the use: Woolworths Ltd v BP Plc (No 2) (2006) 154 FCR 97; 235 ALR 698; 70 IPR 25; [2006] FCAFC 132 (Woolworths (No 2)) at [77] per Heerey, Allsop and Young JJ. [169] Where actual use is relied upon as establishing first use, a very small amount of use will suffice (Winton at [37]) … Jacobs J in Thunderbird Products Corporation v Thunderbird Marine Products Pty Ltd (1974) 131 CLR 592 at 600; 4 ALR 687 at 693; 1A IPR 511 at 516 observed that "any use at all on the Australian market will suffice" to establish first user. [170] Although at least some of these principles have been developed in cases concerned with establishing that evidence of de minimis or "but slight use" in Australia will be sufficient to protect a foreign owner and user of a mark from conduct by which another trader is seeking to appropriate the mark in Australia, by registration, there is no good reason to believe that the same qualitative evidence of first user would not be sufficient to establish prior user in a contest between two Australian based (or entirely local) claimants to ownership based on first use. There is either first use in one of them or not. The Act is not "a Torrens-title" system. It provides for registration of ownership not ownership by registration: P B Foods v Malanda Dairyfoods Ltd (1999) 47 IPR 47; [1999] FCA 1602 at [78]-[80], per Carr J. 71 The evidence apparently intended to establish Sunnya's ownership of the trade marks is not always easy to follow, particularly without a detailed chronology. 72 On the question of prior use, Mr Hallahan, counsel for Sunnya, submitted that an order placed with Ferngrove on 13 July 2015 for various "Slaite brand[ed]" goods, annexed to Ms Lu's first affidavit at YL-08, "would certainly be a candidate for first use". Ms Lu's evidence was that this was the first use of the trade mark(s) in Australia. Assuming that the order for the manufacture of Slaite branded goods is the order that was placed by Ms Lu from the email address aotea.lyx@163.com, it contains no reference to Sunnya and Ms Lu deposed that it was HLW who first used the mark on that day. "Aotea" is Ms Lu's spelling of Aotewa, which was the importer in China with an agency agreement with Au Slaite. An order confirmation for the same quantity of Slaite branded products was sent by Ferngrove to HLW on 17 July 2015 (annexure YL-09). 73 As Mr Hallahan candidly acknowledged, this evidence raises a question about the identity of the first user. He informed the Court that, if the proceeding had gone to trial, this question would have been "a hotly contested issue". He argued that, even if the first posited use was by HLW, it would not matter because the "unity of purpose" which plainly existed between HLW and Sunnya meant that HLW's use was authorised use and therefore taken to be use by Sunnya, citing Trident Seafoods Corporation v Trident Foods Pty Ltd [2019] FCAFC 100; 143 IPR 1 at [45] (Reeves, Jagot and Rangiah JJ). In Trident at [45], the Full Court inferred a unity of purpose between two companies with common directors where one held the trade mark "TRIDENT" and the other sold products under the TRIDENT brand, thereby using the trade mark. Their Honours went on to observe (at [46]) that it was unsurprising, given the relationship between the companies, "the commonality of directors" and "the shared processes between the owner and user of the marks", that there was "no particular illustration of actual control" by the owner of the marks. They said that was "redundant" where "the natural and ordinary inference given the relationship between the companies would be of unity of purpose". 74 There is force in Mr Hallahan's argument. 75 In Spencer v the Commonwealth (2010) 241 CLR 118 at [25] French CJ and Gummow J said that determining whether an applicant has reasonable prospects of success calls for the exercise of "a practical judgment … as to whether the applicant has more than a 'fanciful' prospect of success" and, "[w]here there are factual issues capable of being disputed and in dispute, summary dismissal should not be awarded to the respondent simply because the Court has formed the view that the applicant is unlikely to succeed on the factual issue …". The same principle should inform the question at hand. 76 In order to determine whether HLW's role in the purchase of Slaite-branded goods in July 2015 was as an authorised user of Sunnya or as the owner of the marks it would be necessary to assess the relationship between Sunnya and HLW and the dual positions held by Ms Lu in both companies: see Rodney Jane v Monster Energy Company [2019] FCA 923; 142 IPR 275 (O'Bryan J). In the absence of full argument, let alone all the evidence that would be led at a trial, I am not in a position to say that the case for first use as formulated on the present application has no reasonable prospects of success. 77 In any case, the very act of applying for registration is prima facie evidence of an intention to use the mark: Aston v Harlee Manufacturing Co (1960) 103 CLR 391 at 401 (Fullagar J); Food Channel Network Pty Ltd v Television Food Network GP (2010) 185 FCR 9 at [67] (Keane CJ, Stone and Jagot JJ). Moreover, Ms Lu deposed in her first affidavit that "Sunnya filed the trade mark applications for its own benefit, for use of those trade marks in Australia by it and HLW". That, in effect if not in terms, is evidence that Sunnya intended to use the trade marks in Australia and to authorise HLW to use it in Australia and, read in context, it is evidence that Sunnya (and HLW with Sunnya's authority) intended to use the trade marks in Australia in relation to the goods manufactured by Ferngrove which it was planning to export for sale in China. 78 On the question of authorship, Ms Lu deposed that some six days before Sunya was incorporated she was involved in the design of at least one of the Slaite marks by providing suggestions on the colour and font of the device mark and suggesting to Mr Song that they "should include on top of the letter 'i' in the word 'Slaite' three dots that increased slightly in size to represent the growth of the baby's footsteps". 79 The respondents contended that this evidence was of no consequence because Ms Lu did not say that she was doing so on Sunnya's behalf and she was a director of, and majority shareholder in, Au Slaite. That is true. Even so, the TM Act does not require that the applicant be the designer or inventor of the sign. All that is required for an applicant to be an author is that the applicant either originated or first adopted the sign "as and for a trade mark". A trader who sees another's mark, as yet unused in Australia or unused for particular goods or services, can adopt it and claim to be its author: Aston at 399-400 (Fullagar J). In Aston at 400 Fullagar J said that "an applicant may be the 'author' of a trade mark, although he has deliberately copied or adopted a mark registered in a foreign country in respect of the same description of goods", unless the foreign proprietor used the mark in Australia before the applicant . But "where there has clearly been no user at all in Australia, an applicant for a trade mark identical with a mark registered in a foreign country is entitled to be regarded, so far as Australia is concerned, as the 'author' of the mark". His Honour added that, absent fraud, he could not see any reason why that should not be so. 80 On the premise that use of the Slaite mark(s) on 13 July 2015 was use by Sunnya or authorised by Sunnya, it seems to me that there is at least prima facie evidence that Sunnya was the "author" of the Slaite marks in Australia. I was not taken to any evidence to indicate that Au Slaite had previously used the Slaite marks in this country. 81 The fact that the trade marks were, or were intended to be, applied to goods for export does not mean that there has been no use of the marks in Australia. To the contrary, as Beach J observed in Southcorp Brands Pty Ltd v Australia Rush Rich Winery Pty Ltd [2019] FCA 720; 369 ALR 299; 141 IPR 238 (a case concerned with the application in Australia of Penfold marks to wine bottle labels where the bottles were to be exported for sale in China) s 228 of the TM Act deems the application of a trade mark in Australia to or in relation to goods that are to be exported from Australia "to constitute use of the trade mark in relation to the export goods" for the purposes of the Act (at [55]). See, too PKT Technologies Pty Ltd (formerly known as Fairlight.Au Pty Ltd) v Peter Vogel Instruments Pty Ltd [2019] FCAFC 216; 376 ALR 55 at [191]-[195] (Stewart J). 82 The evidence upon which the respondents relied on this application to support their contention that Sunnya registered the Slaite marks as Slaite's agent is weak at best and their submissions unpersuasive. 83 First, the respondents submitted that Au Slaite was "capable" of being the owner of the trade marks, and authorising the use of the trade marks by Sunnya and HLW, as an overseas purchaser of the goods bearing the trade marks in circumstances where Au Slaite authorised and controlled Sunnya's and HLW's activities in Australia. They referred to E&J Gallo Winery v Lion Nathan (2010) 241 CLR 144 (albeit in a non-use context) where the plurality (French CJ, Gummow, Crennan and Bell JJ) held at [52]: An overseas manufacturer who has registered a trade mark in Australia and who himself (or through an authorised user) places the trade mark on goods which are then sold to a trader overseas can be said to be a user of the trade mark when those same goods, to which the trade mark is affixed, are in the course of trade, that is, are offered for sale and sold in Australia. 84 But Au Slaite did not register the Slaite marks in Australia. Sunnya did. And Au Slaite was not (at least for relevant purposes) an overseas manufacturer and the goods on which the trade marks were applied or to be applied were not offered for sale and sold in Australia. Nor is it apparent that Au Slaite controlled the activities of Sunnya and HLW in Australia. 85 Second, the respondents submitted that the Partnership Agreement between Au Slaite and Ferngrove, made in February 2016, supported the conclusion that Au Slaite was the owner of the marks and Sunnya merely an authorised user. They relied on two clauses: cll 3 and 5. 86 I disagree. 87 Clause 3 of the Partnership Agreement provides: Apart from current products made by Auslaite, there are other products from FPA, i.e OZ Good Diary, and after negotiation, we decided: Products brand names come side by side in Chinese: [Chinese characters] (Slaite), in English: OZ Good Diary + Slaite. FPA cannot use any forms to sell products owned by Slaite and English OZ Good Diary + Slaite, either in the Chinese or English versions to other agents. Chinese and English versions are only for sales to Auslaite (Xiamen) Technology Co. Ltd, and goods in the production lines are milk formulas and health products. 88 Clause 5 of the Partnership Agreement provides that: Slaite is responsible for products designs and FPA assess and print the designs. Specific times is set as follows: before 22 January, Slaite finishes design; FPA finishes assessment and confirmation before 5 February and starts printing; tin prints finishes by 1 April; goods send off on 1 May. 89 The respondents argued that these clauses of the Partnership Agreement give "a rather detailed and practical indication of the control that [Au] Slaite has over the use of the design, that is, the marks themselves". I fail to see, however, how anything in an agreement between Au Slaite and FPA Group, to which Sunnya was not a party, can be of any assistance in determining the identity of the author or first user in Australia of the Slaite marks or, for that matter, anything about the relationship between Au Slaite and Sunnya. 90 Ms Lu deposed that she did not register the Slaite marks in Australia as agent for Au Slaite. Mr Song disputes that. As Mr Hallahan submitted, however, there is no evidence of any contract between Au Slaite and Sunnya or HLW other than an agreement for the sale of products by Sunnya to Au Slaite. The evidence to which the Court was taken does not establish that Au Slaite exercised control over Sunnya or HLW to such a degree that Sunnya can only be taken to have been acting as Au Slaite's agent in registering the marks. 91 While Ms Lu deposed that she invoiced Au Slaite for the costs of registering the Slaite marks, she said that there was no agreement between Sunnya and Au Slaite (or even between her and Mr Song) that payment of the invoice by Au Slaite would entitle Au Slaite to ownership of the marks in Australia and, in any event, Au Slaite never paid the invoice. 92 It follows that I am not satisfied that, properly advised, Sunnya should have known that the proceeding had no reasonable prospects of success.

Was the proceeding an abuse of process? 93 The respondents submitted that the proceeding was an abuse of process "in light of the positions put and evidence led by [Sunnya's] related entities and director(s) and the findings made in the NSW Supreme Court proceedings and/or the proceedings in the PRC", citing the following passage in the judgment of French CJ, Bell Gageler and Keane JJ in Tomlinson v Ramsey Food Processing Pty Ltd (2015) 256 CLR 507 at [24]: [T]he assertion of a right or obligation, or the raising of an issue of fact or law, in a subsequent proceeding can be simultaneously: (1) the subject of an estoppel which has resulted from a final judgment in an earlier proceeding; and (2) conduct which constitutes an abuse of process in the subsequent proceeding. 94 The respondents argued that Ms Lu's evidence in the Supreme Court proceeding, including her statements that she "acted as agent" for Au Slaite, demonstrated that she "acted on the instructions of Slaite to obtain the manufacture, export and import of goods for it" and that Sunnya merely provided export services for HLW. The respondents submitted that Ms Lu's evidence was inconsistent with Sunnya's position before this Court that it was the owner of the trade marks. They emphasised a paragraph in Ms Lu's affidavit in the Supreme Court proceeding in which she deposed: At all material times, [HLW] was the agent of Slaite. I engaged with the Plaintiff under the instruction of Slaite. Slaite formed the agreement with the Plaintiff and I handled the import and export of the goods and the First Defendant paid monies to the Plaintiff in payment of the goods when funds were received from Slaite. 95 The respondents also argued that the findings in the Supreme Court proceeding, including the finding that Sunnya sent tax invoices issued by HLW to Au Slaite, supported the conclusion that Sunnya acted on the instructions of Au Slaite. They submitted that there was no suggestion in the Supreme Court proceeding that Sunnya had any beneficial interest in the trade marks. 96 As Sunnya submitted, however, the respondents' arguments are based on the conflation of two issues: whether HLW entered into a written "Supply Agreement" with Ferngrove on 20 September 2016 as agent for Au Slaite (as HLW contended in the Supreme Court proceeding, and which Ferngrove disputed) and whether Sunnya submitted applications to register the trade marks on 13 November 2015 as agent for Au Slaite (as the respondents contend in this proceeding, and which Sunnya contests). 97 Even if HLW acted as an agent for Au Slaite in relation to some transactions, it does necessarily not follow that Sunnya acted as Au Slaite's agent in registering the Slaite marks in Australia. In any case, Stevenson J found that HLW did not act as an agent for Au Slaite: (at para [6] of the reasons for judgment in the Supreme Court proceeding). Whether or not Sunnya had a beneficial interest in the trade marks was irrelevant to the issues in those proceeding, so the absence of a suggestion to that effect is neither here nor there. Sunnya's ownership of the Slaite marks was not an issue in the Supreme Court proceeding, so it is unremarkable that there was no suggestion in that proceeding of Sunnya's interest in the marks. 98 Furthermore, as Sunnya also submitted, even if HLW were considered to be Sunnya's privy, it is unclear how it would be "unjustifiably oppressive" to the respondents or "would bring the administration of justice into disrepute" for Sunnya to contend in this proceeding that it was not acting as agent for Au Slaite when the Supreme Court had found that HLW was not Au Slaite's agent. 99 The respondents' submission in relation to the PRC proceeding is difficult to follow. A translation of the judgment of the Chinese court was annexed to Mr Chen's affidavit. The submission was put in writing in the following terms: Aotewa brought proceedings against Slaite in the PRC and obtained a judgment… which described it and HLW as "affiliated enterprises...founded by the plaintiff's shareholder and actual controller in Australia and the actual controllers of the two companies are the same one." The Court's discussion of the claims starts at the second paragraph of Chen p449, reciting the terms of the agency agreement and it is noted at the second paragraph of Chen p454, that only "during the trial" Aotewa withdrew its claim to recover the fees for registration of the trademarks (previously invoiced to Slaite by Sunnya). The Court awarded Aotewa indemnity against the liability of HLW to FPA on the NSWSC judgment based on its agency agreement for Slaite (now renamed) and the chain of agencies for the supply of trademarked goods of Slaite from HLW to Sunnya to Aotewa. 100 In their written submissions in reply, they wrote: The Applicant ignores the proceeding and recovery of judgment in the PRC by its further privy, Aotewa, on the basis, that it too acted as agent of Slaite in the chain of its supply agents, starting with HLW (claiming indemnity against its liabilities passed down from Sunnya as well as HLW, including until abandoned on the hearing date, the TM registration fees most significantly invoiced to Slaite). 101 Sunnya did not respond to either submission. 102 Notwithstanding Sunnya's failure to address the PRC proceeding, I am not satisfied that Sunnya's commencement or maintenance of this proceeding was an abuse of process in light of the PRC proceeding. The PRC proceeding was commenced by Aotewa, which is a separate legal entity. Further, without a trial on the merits, it is difficult to come to a conclusion as to the significance of the invoicing of trade mark registration fees or whether Sunnya was an agent of Au Slaite. 103 In these circumstances, I am not satisfied that Sunnya's commencement or maintenance of this proceeding was an abuse of process in light of the evidence adduced by the respondents about the Supreme Court proceeding and the PRC proceeding. 104 The respondents also submitted that the timing of the filing of the SOC - one day before the mediation of the Supreme Court proceeding - "suggests a collateral benefit was sought at that mediation from the threat of these proceedings" and that "[n]o explanation has been proffered by [Sunnya] for the delay of a year and 3 months" in bringing this proceeding. 105 While the timing is suspicious, these matters are by no means sufficient to justify the conclusion the respondents invited. As Sunnya submitted, it is not improper to use a mediation as a forum for the resolution of all disputes the parties might have. The contemporaneous WeChat conversations between Ms Lu and Mr Zhou show that Ms Lu was concerned about the lodgement of the transfer at the time it occurred and she was well within the limitation period to institute proceedings. 106 The respondents further submitted that Sunnya's purpose in registering the trade marks and bringing this proceeding was for the collateral purpose of benefitting Ms Lu by using the trade marks to "impugn transactions in which Au Slaite engaged without using her companies as intermediaries". They argued that the following paragraph of Ms Lu's affidavit of 23 May 2022 demonstrated that Sunnya's purpose in commencing the proceeding was to protect her commercial interests, rather than to register a genuine claim of right to the trade marks: [I]t was important to me, and to the business of Sunnya and HLW, that I did not lose my role in relation to importing and exporting Slaite branded goods as Auslaite and Ferngrove began to have more direct involvement with one another. 107 The respondents submitted that the following paragraph of that same affidavit provided "inescapable context" because Ms Lu said "absolutely nothing" about Sunnya authoring the mark or being the first user of it" and that she knew that Sunnya did not own the trade marks: I believed that Sunnya's ownership of the Australian trade marks secured my rights in relation to the export of Slaite branded products from Australia. That is why a transfer of the trade marks was part of the negotiations described in paragraphs 63 to 68 of my first affidavit, and why I refused to transfer ownership of the trade marks until all of the money owed to HLW and Sunnya had been paid. 108 True it is that in this paragraph Ms Lu says nothing about authorship or first use of the Slaite marks. It may provide an insight into her thinking during the negotiations. But it is insufficient to support the proposition that this proceeding was an abuse of process. Whether it reflected her state of mind in commencing this proceeding is a matter which could properly be explored in cross-examination. Absent cross-examination, however, having regard to the gravity of the finding the respondents seek, I am not prepared to draw such an inference: Briginshaw v Briginshaw (1938) 60 CLR 336 at 361-362 (Dixon J). 109 The respondents also argued that Sunnya's commencement of the proceeding "so departed from a genuine claim of right over the trademarks" as to constitute a "plain abuse" of the process. But that was merely another way of putting the respondents' submission that Sunnya had no reasonable prospects of success, which I have already rejected. 110 It follows that I am not satisfied that Sunnya's proceeding was an abuse of process.

Who should pay the costs of the respondents' application for indemnity costs? 111 In the circumstances, each party should pay its own costs of the application. I certify that the preceding one hundred and eleven (111) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justice Katzmann.