Ladakh Pty Ltd v Cao & Anor [2010] FMCA 799 (3 November 2010)

Last Updated: 3 December 2010

FEDERAL MAGISTRATES COURT OF AUSTRALIA

LADAKH PTY LTD v CAO & ANOR

[2010] FMCA 799

COPYRIGHT – Applicant’s garment and design clearly unlawfully copied and reproduced – whether Applicant had created copyright in the design – whether Respondents caused or effected the breach of copyright – consideration of damages, damage to reputation and pursuant s.115 of the Copyright Act 1968.

Copyright Act 1968, ss.115, 115(4)

Interlego AG v Croner Trading Pty Ltd [1992] FCA 624; (1992) 39 FCR 348 Adidas-Salomon AT v Turner [2003] FCA 421; (2003) 58 IPR 66 Review Australia Pty Ltd v New Cover Group Pty Ltd [2008] FCA 1589; (2008) 79 IPR 236 Review Australia Pty Ltd v Innovative Lifestyle Investments Pty Ltd [2008] FCA 74; (2008) 166 FCR 358 Walker v European Electronics Pty Ltd (in liq) (1990) 23 NSWLR 1 Jones v Dunkel [1959] HCA 8; (1959) 101 CLR 298

Applicant:

LADAKH PTY LTD (A.C.N. 079 120 595)

First Respondent:

JING CAO

Second Respondent:

JIANFENG LI

File Number:

MLG 158 of 2010

Judgment of:

Burchardt FM

Hearing dates:

16 & 17 September 2010

Date of Last Submission:

17 September 2010

Delivered at:

Melbourne (by video link to Sydney)

Delivered on:

3 November 2010

REPRESENTATION

Counsel for the Applicant:

Mr E. Heerey

Solicitors for the Applicant:

Middletons

Counsel for the Respondents:

Mr A. Lang

Solicitors for the Respondents:

Austin Haworth & Lexon Legal

ORDERS

(1) The Respondents pay the Applicant:

• (a) Damages of $350 for loss of sales;
• (b) Damages of $10,000 for damage to reputation;
• (c) Additional damages of $30,000 pursuant to s.115 of the Copyright Act 1968.

(2) The Respondents pay the Applicant’s costs, to be taxed in default of agreement pursuant to the Federal Court Rules.

FEDERAL MAGISTRATES COURT OF AUSTRALIA AT MELBOURNE

MLG 158 of 2010

LADAKH PTY LTD (A.C.N. 079 120 595)

Applicant

And

JING CAO

First Respondent

JIANFENG LI

Second Respondent

REASONS FOR JUDGMENT

Introductory

1. Jane Kidston is the general manager of the applicant. On 20 September 2009, she attended a retail store named Funky Femme and purchased a Boho Australia branded garment. That garment was an identical copy of a garment manufactured by the applicant.
2. The respondents carry on business as a partnership and own the registered name Boho Australia. They admit that they caused the offending garment to be manufactured in China and that they caused it to be on-sold to Funky Femme. They also admit that it is an identical copy of the applicant’s garment. They say, however, that it was not them who copied it.
3. In the circumstances of this case, the following matters arise for consideration:
   1. did the applicant in fact create a copyright when it created the design used in its own garment?;
   2. has the applicant proved that it was the respondents who copied it and/or caused it to be copied?;
   100. did the first respondent know, or ought she have known, that the garment was a copy?;
   4. if the answer to the preceding question is yes, what damages should the applicant receive for this conduct?;
   5. is the second respondent to be held liable in addition to the first respondent?
4. For the reasons that follow, I think that the applicant did create copyright in the garment, that the first respondent caused it to be copied, that the first respondent well knew it was a copy when she imported it into Australia, that the applicant should receive damages in sums set out in these Reasons for Judgment, and that the second respondent is indeed liable for his partner’s conduct.

The copyright issue

5. Here in my view, the evidence of Laura Nagy is clearly decisive.
   Ms Nagy, who no longer works with the applicant, commenced employment in October 2008. It was part of her role as a fashion designer to design garments which were on trend (P–35). She would see trends when shopping (P–36). In early 2009, she became aware of a number of skeleton designs in the marketplace, including one by Sass & Bide (P–38). She was aware that there was “a trend for this morbid reference to skeletons” (P–40).
6. She decided to create her own original design:
   • “I did see a rib cage elsewhere, but I wanted to do something that was a bit more medical, and looked a little bit like an X-ray; had kind of a grainy effect to it. Like the – this sounds really silly, but almost like it was kind of a magical T-shirt, where you could X-ray your rib cage. So I wanted to apply an effect, or draw the rib cage in a way that would give that effect, and I do think that was my original idea, to have that kind of grainy look to it
     (P–41).”
7. Ms Nagy sketched a ribcage from a photograph of human ribcages she saw on the internet. Over that, she applied dots using a ruler and felt pen to create the impression of the design. This was not easy (P–45).
8. Ms Nagy did not retain the original sketch of the dots out of laziness (P–46), and she had to scan it in to make it work (P–47).
9. In response to a question from me as to whether the trend for skeleton-type garments was still extant, she said “especially with prints, once they go into the marketplace and, I mean, my experience with customers is once they’ve seen something they generally don’t want to repeat it again, when it’s that specific. So they might want to work within the trend but no so specifically within something so tight as a print or, you know, a garment shape, or something like that” (P–48).
10. The question of degree of originality required to establish the subsistence of a copyright, in circumstances where one drawing may be based on another was considered in authoritative terms by the Full Court of the Federal Court in Interlego AG v Croner Trading Pty Ltd [1992] FCA 624; (1992) 39 FCR 348. Gummow J, with whom Black CJ and Lockhart J agreed, said at P-379:
    • “There is no doubt that the test of whether one drawing based on another attracts a separate copyright is a visual one. The question for the court is whether the later drawing is merely a copy of the earlier, or is a new artistic work.”
11. Applying that test here, in the light of Ms Nagy’s evidence, it is quite clear that Ms Nagy produced something radically different from what had been produced before. I note that Ms Nagy did not solely rely upon the Sass & Bide skeleton document she had seen, and her design is materially different both from that and from any actual ribcage in any event.
12. In my view, there can be no doubt that the applicant has succeeded in establishing a subsistence of copyright in the design which Ms Nagy created. Indeed, submissions to the contrary were only perhaps in the ultimate somewhat faintly expressed.

The copying of Ms Nagy’s design and who did it – Some introductory facts

13. The following facts are not controversial. They have been asserted by the parties either in affidavit evidence or in their viva voce evidence without any relevant challenge.
14. The applicant is a company that designs, manufactures, distributes and wholesales women’s clothing. It has produced products under the Ladakh brand since 1993, which are primarily aimed at fashion conscious women in their 20s and 30s.
15. The applicant sells its garments to over 640 independent retailers throughout Australia, and to independent retailers in New Zealand. The applicant selects the retailers to whom it sells its Ladakh branded garments and does not supply to each person who may seek to stock its garments.
16. The applicant advertises and promotes the Ladakh brand in a number of ways and has spent substantial amounts of money doing so.
17. The applicant has been successful in selling a substantial quantity of Ladakh branded products in Australia, and I accept that all of these activities taken together have, to quote paragraph 13 of Ms Kidston’s affidavit sworn on 25 June 2010:
    • “...generated and cultivated a reputation as being an innovative brand that prides itself on its garment designs which are of good quality and which appeal to a range of fashion conscious women in their 20s and 30s. Since launching, the applicant has built up a substantial reputation in the Ladakh brand.”
18. In 2000 or thereabouts, the applicant bought a factory in China. This predated the employment of Ms Kidston in 2002, but I accept that she is in a position to give that evidence, given the company’s records available to her.
19. The applicant still continues, however, notwithstanding the purchase of its factory in Shanghai, to use third party manufacturers on occasion (P–77).
20. The applicant employs designers, one of whom was Ms Nagy. Designs, once prepared, are sent to the factory in Shanghai, as is the relevant artwork (P–59). They are sent both electronically and in hard copy.
21. The applicant’s processes of advertising and promoting their material to wholesalers include the creation of look-books, which are made available to wholesalers who visit the applicant’s premises, as well as substantial advertising in magazines. Ms Kidston has exhibited very substantial amounts of such advertising.
22. Following the creation of the Skeletor tank design by Ms Nagy, it was sent to China and the garments were made for the applicant. Copies of the garment were offered for sale in about late May 2009, and the vast majority of the sales that eventuated took place in May and June
    (P–74).
23. There were no specific paid advertisements for the Skeletor, but all 1153 of the applicant’s Skeletor garments were sold (subject possibly to a small number being returned as deficient or the like).
24. Ms Cao, who was the only witness cross-examined on behalf of the respondents, has deposed in her affidavit (exhibit R2) affirmed on
    12 August 2010 that she started her own business of importing shoes from China in about 2004. At the end of 2008, the Global Economic Crisis took a big hit on her business, and she had just given birth to her first child. As a result of the concomitant stresses, she decided she would branch out into other areas of wholesale and at about the same time, her husband, the second respondent, agreed to quit his job and they decided to start a clothing business together.
25. In December 2008, they registered the New South Wales business name Boho Australia in their names. Before doing so, Ms Cao flew to Guangzhou “in the end of 2008” to search for factories from which she could buy garments. She eventually picked a factory named Keni Clothing Industry Factory “as it is not a very big factory and is perfect for a small entrepreneur like myself.”
26. She dealt, at that factory, with Suyan Xiao. At the beginning of 2009, Ms Cao also hired Bilian Xiao, for the latter to be responsible for quality assurance and accounting. Ms Cao deposed that Bilian Xiao checks quality of clothing and otherwise assists her in her business in China.
27. Ms Cao deposed that she imports about two to three hundred pieces of fashion garments into Australia every week which usually arrive on Thursdays and Fridays, and quite a few of her retailer customers come in on Mondays and Tuesdays to look at the new shipments. The target customers range from women in their 30s to 60s.
28. Despite a difficult start, business improved in 2009.
29. At some time “in the beginning of mid-2009” Ms Cao “realised that ribcage designs had become very popular.” She said, “I gained this knowledge because Sass & Bide has a metallic rib cage design that sold very well.”
30. What happened thereafter is a matter of controversy.
31. What is not the subject of controversy is that by late August, or at least September 2009, Ms Cao’s supplier in China had manufactured not less than about 150 of the Skeletor tank design garments. The garments appear to have been very similar to the applicant’s Skeletor tank-top designed by Ms Nagy, and the design itself is conceded to be, to all effects and purposes, identical.
32. It should be noted that when I say identical, this means that it is identical in the sense that each or almost every one of the various little dots placed by Ms Nagy to produce the design has been exactly reproduced in the Boho garment ultimately sold.
33. On 20 September 2009, Ms Kidston, who was shopping with her family, bought a Boho Skeletor tank-top at the Funky Femme shop in Coogee (see exhibit JK-21).
34. It was for sale at a substantially lesser retail price than the applicant’s retailers would have sold it for.
35. The applicant, in fact, sold 282 Skeletor garments in Sydney, which
    Ms Kidston says was an average sale, and I accept that evidence.
36. I also accept Ms Kidston’s evidence that the Funky Femme shops are in high profile locations and are well presented. I further accept her evidence that Funky Femme would not sell that garment, simply because it would cost too much for the sort of clientele that Funky Femme attracts. It should be noted that Ms Kidston is, clearly from the evidence she gave and the way she gave it, very experienced in matters to do with the clothing industry.
37. In order to understand the controversy between the parties, which was essentially whether or not it was Ms Cao who caused the fake reproductions of the Skeletor tank-top to be made or some other party, it is important, at this point, to address the evidence of the parties. I have already addressed the evidence of Ms Nagy, whom I should make it clear was an excellent witness who was obviously telling the truth.

The evidence of Ms Kidston

38. Ms Kidston has been working in the fashion industry since 1999 and in Sydney since 2000. As earlier indicated, she started working for the applicant in 2002, and was promoted to her current role of general manager in 2009. I have already referred to the extensive production of garments and advertising deposed to by Ms Kidston.
39. Ms Nagy created the Skeletor graphic work in February 2009 and on or about 2 April 2009, the applicant sent the orders to China for the production of the garment. Two samples of that garment featuring the graphic were sent from China to Australia for approval, and the order went ahead in due course.
40. On or about 8 May 2009, the applicant’s factory shipped 1153 units of the Skeletor garment to Australia, and they were part of the applicant’s April range.
41. 1141 units of the garment were sold to wholesale customers but as I have said, it was Ms Kidston’s oral evidence that all of the run was sold.
42. As indicated, on 20 September 2009 Ms Kidston bought the Boho Australia garment from the retail store Funky Femme. On 5 October 2009, she instructed Middletons to send letters of demand to Funky Femme who, through their solicitors, identified Boho Fashion as the party from whom they had bought the garment. Funky Femme immediately withdrew the remaining 20 garments it had in its possession from sale, and returned them to Boho Fashion.
43. Also on or about 5 October 2009, Ms Kidston instructed Messrs Middletons to send letters of demand to the respondents, which were the subject of a response from solicitors Roderick B Harris & Co to Middletons claiming that approximately 150 garments were manufactured in China and were sold at $5 profit.
44. A letter was sent to Middletons from the first respondent dated
    11 November 2009 but sent on 12 November 2009. The terms of that letter speak for themselves. In summary, Ms Cao asserted that she did not mean to copy the applicant’s design and that “the rib cage was in fashion and we wanted to use this idea only. We did 148 pieces which arrived here in late August. We have sold out of this design ... and we take full responsibility for our actions.” (exhibit M to Ms Cao’s affidavit).
45. Ms Kidston asserted that Ladakh only sells its branded garments to select boutiques within Australia and New Zealand. She asserted that when these designs are copied by other businesses and targeted to a similar market to the applicant’s market, the claim of originality in the garments is lost. She asserted that such circumstances give rise to a diminution in the Ladakh brand as a whole. She went on to say, at paragraph 34 of her affidavit (the above is all a paraphrase of the affidavit):
    • “... consumers will be unlikely to purchase “Ladakh” branded garments and they will be more unlikely to pay the prices charged by the Applicant for its garments as they will no longer see the value in paying higher prices as the “Ladakh” branded garments are no longer exclusive.
      • The Applicant’s continued success is heavily dependent on the Applicant maintaining exclusivity and originality of its designs as the Applicant credits its success to the talent and skill of its design team and the effort and resources that go into creating its products which have popular appeal with its target market of fashion conscious women. The applicant takes all possible steps to protect its designs and exclusivity of these designs. The Applicant has taken action against numerous fashion houses that have copied its original designs.”
46. She went on to give evidence as to the applicant’s reputation in the Ladakh brand, and that the Boho garment was sold in retail stores in close proximity to retail stores to which the applicant sells. She gave uncontradicted evidence that the Ladakh garment was sold for a recommended retail price of $44.95, and that she purchased the Boho garment for $33.
47. In oral evidence-in-chief, Ms Kidston gave evidence that the applicant’s office is in Surry Hills which was said to be, and indeed clearly is, a kind of centre of the fashion industry in Sydney. She said that wholesalers and retailers come to look around, and look at the applicant’s look-books.
48. Tellingly, she said that the applicant would know if anybody else was using the Skeletor tank design in Australia. She said no other wholesaler was using this design in Australia (P–56). What she said was:
    • “Apart from Boho would you know if someone else in Australia was using this particular design, that we’re talking about in this case? ...Yes. I think so. We look very hard at the Australian retail market. You know, what our competitors are doing, you know, what we need to do differently. ...we have offices in Queensland and Melbourne. So, you know, not just Sydney-based. We have girls who look at the retail market, you know, on a weekly basis. Shop our competitors, see what they’re doing. And quite often it is brought to my attention, you know, similar product that may be out there. And, you know, we have had other such cases where, you know, we have found copied product in the market.
      • And have you found any other people using this particular design, in Australia?... No. No.”
49. I would interpolate at this point and repeat, if I have not already made it clear, that Ms Kidston was an impressive witness. The nature of her answers and the way that she gave them inspired every confidence in her as a witness both of truth and expertise. When she did not know something, she was candid in her admissions, and her answers were generally given with an extremely authoritative mien of a person talking about a subject in respect of which she was in full command.
50. She was a witness of truth and I accept all of her evidence in that sense. There is, however, one minor aspect of it, to which I shall come, that I am unable to accept.
51. Based on Ms Kidston’s evidence, I accept that no other wholesaler has used this particular design.
52. Ms Kidston gave evidence under cross-examination as to what are called repeats. These are further orders for particular garments. These are conducted at the request of customers, and most involve one or two repeats. The average turnaround time for repeat orders is about four to five weeks (P–70). Ms Kidston described Funky Femme as being towards the lower end of the fashion market with nothing expensive (P–75). She did, however, confirm that Funky Femme stores look good, but would not sell the applicant’s products as they would be too expensive (P–76).
53. Ms Kidston expressed the view that it was very improbable that Boho’s importation of garments was limited, as was asserted, to only about 150. She said that China was a mass market where it was difficult to get a small run and that, indeed, that is one of the reasons why the applicant has its own factory (P–77.)
54. She went on to say that her knowledge of production in China was based, as it were, not on being directly involved, but from her experience in the industry generally. She said, however, and I accept, that it is an industry concerned with big orders, and that often the applicant has to order 1000 metres of garment at a time. She said, and I accept, that it is hard to order under 300 units, and that it was difficult to get “those small runs” out of China (P–79).
55. I have no doubt that Ms Kidston was telling the truth when she gave this evidence. What I think, however, is more probable is that Ms Cao may have been able to get smaller runs on occasion. Ladakh is an upmarket brand dealing in substantial numbers of sales.
56. It may well be possible for smaller operators using inferior quality products to accommodate smaller runs.
57. That is not to say that Ms Kidston’s evidence is incorrect. Rather, in this respect at least, while I accept Ms Kidston’s evidence as far as it goes, I am not satisfied that it has been established that it is more probable than otherwise that more than 150 garments were imported by Boho.

The evidence of Ms Tovey

58. Ms Tovey’s evidence was given orally. She attended only on subpoena. She was a former employee of Boho who started in November 2009 as a sort of office administrator or manager. She was not the only employee. Her employment ceased in March 2010 (P–81).
59. She described how a letter was received from Middletons and Ms Cao asking her to ring Middletons on her behalf. At P–83 of evidence-in-chief, she said:

“A letter came by post and Jing had opened it and asked me to ring Middletons and explain to them how I – what I knew, more or less explain what she – how she came into this garment, and because she – well, there was a bit of a language barrier there, and I was Australian, she got me to ring up Middletons...

What did she ask you to say? ... She asked me to say that the – that she saw a customer coming to her showroom with a garment that had a sequins style rib cage shirt or top, and that’s how she became – that’s how she got the design, that she actually took a photo of the garment that the person had on and she sent it over to her manufacturers in China and – to see if they could copy the design without the sequins.”

60. She then spoke to Mr Feder of Middletons in those terms.
61. In cross-examination, there was something of a suggestion or inference that Ms Tovey had prepared her evidence in conjunction with Middletons or had otherwise had access to Mr Feder’s notes. Ms Tovey denied these assertions, and in my view, convincingly. She said at
    P–84:
    • “No, I remember what I had spoken to Mr Feder about on that date about that letter.”
62. I would interpolate again, as I did earlier with Ms Kidston, and say that I thought Ms Tovey was an excellent witness. Subject to one stumble, to which I shall come, her evidence was given responsively and directly. She impressed me as being a witness of truth. No suggestion was put to her that her evidence was given out of malice towards Ms Cao or her husband, and there is no reason to suspect that she was not giving her evidence honestly.
63. In any event, having seen and heard her give her evidence, I accept that what she was saying was said truthfully. I further accept that she was a woman with a clear and good memory of the events that she described, subject as I have said to the exception to which I have referred.
64. It was put to Ms Tovey that Ms Cao’s English was not always clear because of the language barrier. Ms Tovey was clear as to this at P–86:
    • “She can get a point across, if that’s what you’re saying, but it’s not as clear as you and I.
      • No, no. In fact sometimes it can be quite unclear, can’t it? ... No. Not at all. I could always understand what she was saying.
      • You always understood exactly what she was saying? ... That’s right.
      • Never a misunderstanding between you and Ms Cao? ... No, not at all.”
65. Ms Tovey went on to say that Ms Cao was annoyed rather than distressed by the receipt of the letter from Middletons (P–86) and, at
    P–87, the following exchange took place:
    • “And did she explain to you what happened? ... She had explained to me in past conversations what had happened.
      • Yes. So you didn’t have any direct experience of what had happened? ... No.
      • And can I suggest to you that she said words to this effect, “All I did was call the Chinese factory and tell them I want something with a rib cage design as it was very popular at the time. I knew about Sass & Bide’s rib cage design, then the factory sent me a sample and I approved it. I have looked up my records. I received 148 pieces after ordering and sold all of them at $15 a piece. I asked for a recall from other retailers but they have been sold out. I did not make any further order”. Can I suggest to you that she said words to that effect? ... No. She told me that there – a customer had come in to her showroom with a rib cage top on with sequins on it.”
66. She went on to identify a photograph that Ms Cao showed to her before the letter from Middletons was seen. She confirmed that from the start of her employment, she knew there was a copyright issue going on
    (P–88).
67. It is clear that the date of the photograph to which reference was made was 13 September 2010, and it is also clear that that photograph was annexure P to Ms Cao’s second affidavit (Court Book 0987S). It is clear that that garment is a different garment and not a copy of the applicant’s Skeletor tank-top.
68. At P–88, the following exchange took place:
    • “Can I suggest to you that she – Ms Cao showed you that photograph and said words to the effect, “Look at this. I took a photograph of our customer last month, and her shirt has a rib cage design on it. Rib cage designs are everywhere. I don’t know why they think I knew about their design”?... No.
      • I suggest to you that there is a possibility that you may have misunderstood the explanation of events provided by Ms Cao? ... No, not at all.”
69. At P–89, Ms Tovey confirmed that the photograph had been taken and would have been sent to China as she understood it. She said:
    • “...but that was your understanding, that this photo depicted the garment that she said she had sent? ... That’s correct, yes.”
70. She confirmed that the question as to the background of the matter came up on an almost daily basis:
    • “And at that time, did she ever say to you words to the effect, “All I did was call the Chinese factory and tell them I want something with a rib cage design as it was popular at the time?” ... No.”
71. Counsel for Ms Cao then pressed Ms Tovey as to whether she had assisted in writing a letter to Mr Harris, Ms Cao’s then solicitor. Initially, Ms Tovey said she remembered writing a few letters and that she was sure some were to Mr Harris, but could not otherwise remember. She was in due course shown the letter written to
    Mr Harris which gave a different explanation as to the events, consistent with the position articulated by Ms Cao and put to Ms Tovey and denied by her. It is fair to say that Ms Tovey had obviously forgotten about that letter. The substance of her response was that she was effectively requested by her boss to write the letter in those terms. She was somewhat defensive and self-exculpatory when it was brought to her attention that the terms of the letter to Mr Harris were clearly inconsistent with what Ms Tovey had said to Mr Feder, and indeed what Ms Tovey said Ms Cao had said to her.
72. She said at P–91:
    • “Personally, I thought there might have been something, you know, a little bit dodgy. But, you know, I’m only going to do what Jing has asked of me. I was her customer service manager, she has asked me to do something as a boss, so I have written this letter in her words.”
73. In my view, what should be made of the evidence on this point is this. It is clear that Ms Cao caused Ms Tovey to write a letter to Mr Harris consistent with the version of events that she has put before the Court. It is equally clear that Ms Tovey knew, at the time, that this was inconsistent with what she told Mr Feder, albeit that she had clearly forgotten the terms of the correspondence before it was put to her.
74. I accept that as an employee at the time, Ms Tovey felt that she had no option but to write whatever it was that Ms Cao was telling her, even though she felt a measure of unease about it. The fact of this having occurred does not, however, detract, in my view, from both the accuracy of Ms Tovey’s memory as a whole, and her truthfulness.

The evidence of Ms Cao

75. I have already set out some of the non-controversial aspects of
    Ms Cao’s evidence. As indicated, she branched out into wholesale clothing towards the end of 2008. She said that she seldom sells clothes with prints on them, and that they are not the focus of her business or expertise. She said that she has travelled to China a number of times since visiting Keni for the first time but that she does not visit graphic design shops. She said at paragraph 16 of her first affidavit, exhibit R2, “I don’t visit graphic designs shops. When it comes to graphic designs, I simply rely on the range of designs which the factory offers. From time to time Keni would send me photos or actual garment samples to my shop.”
76. At some point “in the beginning of mid-2009”, Ms Cao realised that ribcage designs had become very popular. “I gained this knowledge because Sass & Bide has a metallic rib cage design that sold very well”.
77. Ms Cao deposed that she then called Bilian Xiao and said “metallic rib cage designs are very popular lately, can you send me some samples from the factory?” to which Ms Xiao replied “Okay I will send some over”.
78. She went on to depose that in early August 2009, she received another shipment of samples from Keni, one of which was a white tank-top with a metallic ribcage print on the chest area. She deposed that as usual, she hung out the samples on the sample rack and mannequins for her retail customers to peruse.
79. From this, she gathered there was enough interest in the piece, so she called the factory and ordered the design in a roll of white fabric and a roll of black fabric anticipating a total of about 120 tops as a result.
80. The shipment arrived on 7 September 2009, and it seems common cause that the total actually sent was 148.
81. The first customer to purchase the garment was Funky Femme, and that representative bought 80 pieces for their shops to which they were sold by Boho for $15. Various other sales followed.
82. Leaving aside any items that may have been faulty, the vast majority of the 148 garments was sold. It was ultimately agreed that 123 were sold.
83. Ms Cao’s first affidavit went on to say that she was surprised and concerned by the letter from Middletons and that she had not seen that particular rib cage design, including on any other garment, prior to receiving the samples from Keni. In short, she put it that the whole thing came as a complete and very disturbing surprise.
84. There were four to five such garments still left, and she told Middletons this at a later time.
85. Her inquiries suggested that all other copies had been sold.
86. Leaving aside hearsay evidence from Bilian Xiao and Suyan Xiao which I have not permitted either party to rely on as it is so clearly hearsay, it is nonetheless the case that in March 2010, Ms Cao received from Keni a letter and some plastic films. One of those plastic films is exhibit R3, and it is a very precise reproduction of the Skeletor tank design produced by Ms Nagy. In her second affidavit, exhibit R4,
    Ms Cao expanded upon a number of matters. She said, amongst other things, “I had noticed that Sass & Bide had a rib-cage design garment and I could see that the rib-cage design was becoming very popular.”
87. She went to say:
    • “Prior to receiving this letter (the Middletons letter) I was not, to my recollection, aware of the brand Ladakh. I have, as a result of this proceeding, been made aware that Ladakh’s office is on Kippax Street, Surry Hills, and is very close to my shop. I was not previously aware of this.”
88. Ms Cao went on to say:
    • “On 6 October 2009, a customer came in to the Boho Australia premises wearing a black shirt with a sequined ribcage design on the front of the shirt. I immediately thought about the letter of demand I had just received. I took a photograph of the customer in this shirt. I thought that it may be useful to help explain to Middletons that:
      • (a) there were a number of rib-cage designs in the marketplace at that time, such as the one worn by that customer;
      • (b) I was aware of one in particular by Sass & Bide; and
      • (c) I did not get the idea to purchase a rib cage design from their garment.”
89. Her affidavit went on to set out the conversations she had had with
    Ms Tovey in the terms in which they were put to Ms Tovey by counsel as I have described previously. At paragraph 16 of exhibit R4, Ms Cao deposed:
    • “It was not the case that a customer came into Boho Australia’s premises wearing a rib-cage design with sequins and requested such a garment without the sequins; I did not take such a garment from a customer or send such a garment to Keni or anyone else. I did not ever tell Ms Tovey that I did, and I did not ask Ms Tovey to tell Middletons such things.”
90. It should be noted that the denial related to sending garments to China and does not traverse, in terms, Ms Tovey’s evidence that Ms Cao told her that she had sent a photograph to China.
91. In cross-examination, Ms Cao confirmed, as I suspect would be only commonsense, that items come in and out very quickly. She confirmed that she makes sure she is aware what competitors’ garments are. She confirmed that the Chinese supplier makes suggestions to her and that she makes suggestions to them. She described this arrangement as mutual (P–103). She said that she searches a lot on the internet. She has confirmed that her customers are usually retailers, and she said it was very rare for them to tell her what was selling well (P–104).
92. Some aspects of Ms Cao’s evidence under cross examination were, in my view, less than satisfactory.
93. I make full allowance for the fact that Ms Cao was giving her evidence through an interpreter in proceedings conducted in a language not her own. I make further allowance for the natural nervousness of a person in Ms Cao’s position, being a small businesswoman well knowing or inferring that she was being sued for substantial amounts of money in a legal system with which she is unfamiliar.
94. Notwithstanding that I make every proper allowance for these factors, it does have to be said that Ms Cao was not a convincing witness.
    A number of her answers seemed to me to be unresponsive and unhelpful.
95. She gave a series of answers between P–107 and P–109 about her knowledge of Sass & Bide. At one stage, she said that she did not know if the products of Sass & Bide were selling well or not (P–107). She went on to say, at P–108, that she was not interested in what products her competitors were selling. She then went on to say that she never paid any attention to fashion magazines, save to the extent that she might read them for her own entertainment (P-111).
96. She said at P–110 that it was her business to know which clothing items were selling well on the market, but that the internet was enough for her to conduct her research.
97. I do not propose to set out each of the various transcript references, but she ultimately confirmed that she had been to the Sass & Bide retail premises at Bondi Junction Westfield Mall to see how the product was presented (P–119).
98. What I take from these passages, which are purely by way of illustration, is that Ms Cao’s evidence seems to me to wax and wane. It did not have the steadfast quality attributable to the other three witnesses who gave oral evidence. Her answers, in part, were by no means believable.
99. Given that Ms Cao reads fashion magazines, it would appear, on occasion for her own interest, it seems extraordinary that she would not at least look at them as part of her general research. After all, Australian magazines would indicate what is happening in Australia. The internet, even making allowance for the fact that Ms Cao says that she follows world trends as well, would not necessarily do so to the same extent.
100. Similarly, although Ms Cao admitted (P–120) that she visits Bondi junction every two weeks (P–120) and goes to fashion shops to have a look, she rapidly resiled from that (P–121 – “it depends, not always every two weeks”) when the extent of her visits was pressed. Although
     Ms Cao confirmed that the comparison between the Boho garment and the applicant’s garment involved “a remarkable similarity,” she went on at P–128 in a sense to seek to qualify that answer. She said (and this was volunteered and not in response to any question) at P–128:
     • “To me, this is just a human’s ribs pattern. I didn’t know this would be so similar to something else. And also, I’ve seen other patterns on the Internet which are very similar to this. That’s why I didn’t think this would be so similar to other products or there would be some issues...this is like a normal image of a human organ. And it contains some popular elements from Sass & Bide, but it’s different to Sass & Bide. That was why I didn’t think there would be some problems.”
101. She went on to confirm at the same page that she was concerned not to copy Sass & Bide because copying from them, or indeed anyone else, would be likely to create legal difficulties.
102. Ms Cao denied in terms that she supplied the design to China. She repeated that the design was not printed in the factory but was bought from a design shop around the factory (this being a repetition of the inadmissible hearsay evidence previously referred to).
103. At P–131 Ms Cao said, once again not responsively to the question put:
     • “First of all, there are many design shops around the factory. It’s like a congregation of factory sites, so it might have appeared in the shops. It’s not only one shop – there are many shops. There are also many factories congregated at the same place, and there are many other places which provided, like accessories or photos or fabric servicing them those factories. On the other hand, the print is not produced by that factory. There are many customers of the factory which prints that. The printing factory has many customers and normally, factories only go to the print factory when there are demands of prints, so the printing factory has a relationship with the design shops, because design shops may get the demands to get the orders for the printing company, and I don’t know who infringed who in this case.”
104. It should be noted that the basis of knowledge upon which Ms Cao gave this relatively extensive answer is not by any means clear. I understood her to say she had visited China to see factories and chosen Keni only in late 2008. Although she has returned a number of times since, it does not by any means follow that she in fact has the knowledge to which she has deposed in cross-examination as set out above.
105. The part of the narration she gave, however, which seems to me to be particularly telling is as follows:
     • “The printing factory has many customers and normally, factories only go to the print factory when there are demands of prints.”
106. This much is commonsense, it seems to me. Even assuming for the moment, as is not in fact proved by admissible evidence, that the Keni factory was not in the practice of producing any designs itself, Keni would only ask for a particular design when demand had already been made for it.

Conclusions about the creation of the false Skeletor tank-top

107. Counsel for the respondents is correct to submit that there is no direct proof that Ms Cao, or anyone on her behalf, sent to China either an original of the applicant’s top, or a photograph, or a scanned design of it. It would be unusual in the extreme for such evidence to be available in a case of this sort.
108. Counsel for the respondents is also correct to submit that it is not a matter, as it were, of simply weighing up the various possibilities.
109. It is, of course, for the applicant to prove its case on the balance of probabilities.
110. Nonetheless, in the ultimate, I am persuaded that the applicant has indeed proved its case. The following matters lead me to that conclusion. This is a case in which the applicant’s design and garment only came into any kind of public domain in late May 2009. It is expressly accepted by the respondents through their counsel that the design had not been leaked while it was in China. All parties accept, and indeed it is the only probable explanation, that somebody in Australia sent either a copy of the garment and/or a copy of the design in copy-able form to whoever copied it in China.
111. The only persons who have used the copied design are the respondents. I accept, as I said earlier, the evidence of Ms Kidston on this point. Further, the only parties’ having any interest in having a copy of the design are the respondents.
112. The reality is that if one were to accept Ms Cao’s account, there has been an extraordinary series of coincidences. It involves Ms Cao seeing the Skeletor design of Sass & Bide and asking, in a completely unfocused way, for some similar garments.
113. This request made of one amongst very many factories (according to Ms Cao’s account) in Canton happened to go to a factory which happened to seek a design, apparently without any indication of what sort of design was sought in any detail, from a designer which happened to be in possession of the pirated design of the applicant’s garment.
114. It ultimately, in my view, beggars commonsense to presuppose that this very precise copy, the design of which was ultimately returned to
     Ms Cao in Australia by the factory (note not the designer itself) is just altogether too much of a coincidence.
115. I am further fortified in this conclusion by the fact that Ms Cao undoubtedly was untruthful when she denied Ms Tovey’s account of having sent a photograph to China.
116. Whether or not the photograph sent to China was the one that
     Ms Tovey identified in Court will not be known. As indicated previously, that photograph was plainly not the design of the applicant’s Skeletor tank-top.
117. What is telling is the credit point upon which it was agreed Ms Tovey’s evidence was admissible. I do not accept that Ms Cao had difficulties in communicating with Ms Tovey. Ms Tovey always understood her.
118. The version of the conversations between Ms Cao and Ms Tovey contended for by Ms Cao is radically different to that which Ms Tovey described. Ms Tovey stuck convincingly to her denials of Ms Cao’s version of events.
119. I completely reject the submission of counsel for the respondents that the most likely explanation for Ms Tovey’s evidence is a misunderstanding. Ms Tovey did not misunderstand Ms Cao, and
     Ms Cao, I regret to say, was untruthful when she denied Ms Tovey’s account of the events. I have no doubt that Ms Cao had sent a photograph to China and asked for a garment to be produced. That is the version of the events that she told Ms Tovey, and I accept that it is true.
120. Whether Ms Cao actually saw a copy of the applicant’s Skeletor tank-top (as indeed she had every opportunity to do at Bondi Beach Shopping Mall or elsewhere) or whether it was brought to her attention by a customer or otherwise, I will never know.
121. Nonetheless, I am quite satisfied on the evidence as a whole and the inherent probabilities to which the evidence gives rise, that the explanation for the production of the counterfeit garment in China is that Ms Cao obtained a copy of it, whether in garment form and/or in photographic form and/or in the form of some document that was scannable, and forwarded it to China with a request for a counterfeit to be prepared.
122. I do not know and it is not material whether or not this resulted in a sample or a small number of samples being sent and evaluated by
     Ms Cao hanging them up for customers to look at (which she says was her practice in part, at least) or whether the success of the skeleton, the Sass & Bide garment, impelled Ms Cao directly to order the material she did. It is of no moment.
123. What matters is that the counterfeit garments were produced at the behest of Ms Cao in an intentional copying of the applicant’s work.

Did the respondents know or ought they to have known that this was a counterfeit garment?

124. In the face of the findings I have already made, it is perfectly clear that Ms Cao knew well that the garments were counterfeit. She caused them to be copied.
125. I will return to the responsibility of the second respondent when I deal with his respondency generally, but would note that he was not cross-examined, and that he has deposed that he had no running in the day-to-day affairs of the business so far as this aspect of the matter is concerned.

Damages

126. It seems to be common cause that 123 of the counterfeit garments were sold. As is so commonly the case, there is no direct evidence that any particular person who would have otherwise purchased the applicant’s garment did not do so because of the presence of the respondents’ garment on the marketplace.
127. It is relevant to note that according to Ms Kidston, Boho garments were being sold in the sort of stores which would not normally attract Ladakh customers. That is because the Ladakh garments would simply be too expensive for those sorts of stores.
128. I accept the submissions of counsel for the applicant that these sorts of circumstances give rise to an exercise which of its nature must be imprecise.
129. In Adidas-Salomon AT v Turner [2003] FCA 421; (2003) 58 IPR 66, Goldberg J said at [5]:
     • “Nevertheless, notwithstanding the difficulties facing me on the assessment of damages, the task of the court is to do the best it can on the available material. The principle was stated succinctly by the Full Court in Enzed Holdings Ltd v Wynthea Pty Ltd [1984] FCA 373; (1984) 57 ALR 167; 3 IPR 619 where the Full Court, comprising Sheppard, Morling and Wilcox JJ, said at ALR 183; IPR 637:
       • The principle is clear. If the court finds damage has occurred it must do its best to quantify the loss even if a degree of speculation and guess work is involved. Furthermore, if actual damage is suffered, the award must be for more than nominal damages. We should add that we can see no reason why this principle should not apply in cases under the Trade Practices Act as well as in cases at common law. We emphasise, however, that the principle applies only when the court finds that loss or damage has occurred. It is not enough for a plaintiff merely to show wrongful conduct by the defendant.
     • This principle was recently restated by Emmet J in Song Computer Entertainment Australia Pty Ltd v Stirling [2001] FCA 1852; BC200108544, particularly at [7] where his Honour said:
       • If a court finds damage has occurred as a result of wrongful conduct that gives rise to a cause of action, it must do its best to quantify the loss, even if a degree of speculation and guesswork is involved.”
130. The applicant has sought compensatory damages of $1,587.30, calculated as 143 garments multiplied by the applicant’s admitted wholesale profits of $11.10.
131. That is not a satisfactory outcome. There is no evidence that would support such a conclusion.
132. Each case must necessarily turn on its own facts. In this case, I am particularly influenced by the fact that the applicant’s target market is different to that of the respondents. It is different both in the sense that the applicant offers a more expensive upmarket product and because they tend to try to sell to a younger woman. The crossover is necessarily, therefore, going to be less, especially when it is borne in mind that the preceding factors also suggest that the products are sold in completely different sorts of shops.
133. Nonetheless, it is more probable than otherwise to me that given that the number of garments sold was described by Ms Kidston as substantial in Sydney terms, it is proper to give the applicant some measure of damages in this regard. I will order that the applicant receive $350 being the loss of sales on approximately 30 garments, as being approximately one fifth of those sold by the respondents. It is a completely unsatisfactorily imprecise way of proceeding, but represents the best that I am able to do.

Damages for actual loss and for damage to reputation

134. As I have earlier indicated, there is no doubt that the applicant has indeed created a brand in the Ladakh name. I reject the criticisms to the extent that they were pressed by the respondents.
135. I also accept that the applicant does suffer damage to reputation by the respondents’ conduct.
136. Ms Kidston’s evidence, which I have accepted, is that there is a substantial reputation in Australia for its designs in the Ladakh brand, that it sells only to select boutiques, that the Boho garment was sold in retail stores which, in at least some instances, were close to the retail stores to which Ladakh sells, and that it was sold for a substantially lesser price.
137. The presence of the Boho garment more probably than otherwise would have some diminishing effect upon the reputation of the applicant’s graphic design which would equally diminish the exclusivity of the applicant’s design and its reputation generally.
138. While it may be the case that the Boho garment’s existence, in theory, prevents a repeat of the Ladakh garment in future ranges, I give no weight to this matter. The reality is that sales of the garment had fallen away, that trends change quickly, and I am not satisfied that the applicant has lost or will lose anything in that regard.
139. In Review Australia Pty Ltd v New Cover Group Pty Ltd [2008] FCA 1589; (2008) 79 IPR 236 and Review Australia Pty Ltd v Innovative Lifestyle Investments Pty Ltd [2008] FCA 74; (2008) 166 FCR 358, Kenny and Jessup JJ awarded damages for damage to reputation because in each case, they found that there was some probable diminution in the commercial value of the design in respect to future use and would have an adverse effect upon the applicant’s reputation in exclusivity of design. Kenny J awarded damages of $35,000 where the respondent had sold 730 units and Jessup J awarded damages in the sum of $7,500 in respect to the sale of approximately 157 units.
140. The applicant has set out in its written submissions a number of other cases in which damages for damage to reputation have been awarded, and it will instantly be obvious that each case turns upon its own facts.
141. Here, in all the circumstances of the case, in my opinion it is proper to quantify those damages at a figure of $10,000.
142. It should be noted again that at P-78, Ms Kidston said that the 120 to 150 Boho garments sold inside Sydney would be a significant number of garments. It would be enough to see a presence in the stores. She herself found it easily.
143. Given the diminution in price, the more down-market stores in which the respondents’ garment was sold and the damage to exclusivity and the like that the case shows on the evidence, an award of the amount I have indicated is in my view entirely appropriate.

Additional damages

144. Both parties concede that the Court has power to award additional damages pursuant to s.115 of the Copyright Act 1968 (“the Act”). Section 115(4) sets out a number of non-exhaustive considerations that can be considered.
145. Here, it is clearly relevant that the infringement was so flagrant. As I have indicated previously, regrettably it is not possible to avoid the conclusion that Ms Cao has not only done what she is accused by the applicant of doing, but has lied about it. She set out on a course of action designed to achieve a commercial advantage in circumstances where she well knew, on her own evidence, that such action might be unlawful. P-128 – “Whatever, what brand it is, direct copying something else would create problem”).
146. It is equally important to deter similar infringements of copyright. Such a proposition is important but requires no further elaboration.
147. It is also relevant to consider the benefits obtained by the respondents in this course of conduct. The profit made by the respondents was relatively small assuming a run of about 150 garments, and would not have been colossal even with a rather larger one.
148. The behaviour of the respondents following the revelation of their conduct was in part to their credit and in part not. The letter written to Messrs Middletons was disingenuous, as I find, but at least the respondents took appropriate steps to stop any further sales and to recall garments as soon as practicable.
149. The respondents’ endeavours to conceal their conduct, including the denials in Court by Ms Cao, do not stand to their credit, but in my view it is inappropriate to punish the respondents, so to speak, twice. The conduct was part and parcel of the proceeding and I have already granted damages for loss to reputation.
150. In all the circumstances, it seems to me that I should make an additional award in the amount of $30,000 under this heading. This was a flagrant breach of the applicant’s copyright. Such breaches should be discouraged.

The responsibility of the second respondent

151. It was pressed by the applicant that the second respondent was equally responsible for the conduct of Ms Cao because they were in partnership. No other basis for this outcome was contended for.
152. In my opinion, there is no question in this case but that the first and second respondents were in partnership, that is to say they were carrying on a business in common with a view for profit (Section 1 New South Wales Partnership Act 1892).
153. In my view, both respondent partners are equally responsible for each other’s conduct. The net effect of sections 10 and 12 of the Partnership Act provides for joint and several liabilities for wrongs committed by a partner acting in the ordinary course of the business of the firm. The scope of the phrase ‘the ordinary business of the firm’ was in my respectful view authoritatively considered by the NSW Court of Appeal in Walker v European Electronics Pty Ltd (in liq) (1990) 23 NSWLR 1. The leading judgment given by Gleeson CJ with whom Mahoney and Meagher JJA agreed traversed the authorities in this area and it is clear in the light of Gleeson CJ’s judgment that I should find that the second respondent should also be liable for the misconduct of Ms Cao, notwithstanding that there is no proof that he was aware of it.

Jones v Dunkel points

154. I gave a clear indication during the running of the trial about most of the Jones v Dunkel [1959] HCA 8; (1959) 101 CLR 298 (“Jones v Dunkel”) points that the parties sought to raise.
155. Putting the matter shortly, I was against the applicant’s attempt to create a Jones v Dunkel point from the failure of the respondents to call Ms Suyan Xiao and Ms Bilian Xiao. The effect of calling them would have been to embroil them in proceedings in which they were seeking to exonerate the respondents but where they could only do so, in large part, by incriminating themselves. In these circumstances, their failure to be called is scarcely unexplained. I have no doubt they would both have refused to take part.
156. Likewise, I refuse to draw a Jones v Dunkel point against the respondents for failing to call former employees to buttress their case. Former employees are always a difficult problem for employers. It stands to reason that any sense of obligation that those former employees may have had to their employer, more commonly than otherwise, dissipates to the point of extinction when the employment ceases. I do not regard the failure to call them as giving rise to any adverse inference.
157. Finally, I take an even dimmer view of the respondents’ effort to create a Jones v Dunkel point over the alleged failure of the applicant to conduct its own investigations in China. If ever there was an evidentiary bridge too far, this is it.

The order to be made

158. I do not think it is appropriate to make declarations in this case. They will add nothing to the outcome. The reasons for the Court’s orders will be clear from the orders themselves and from these Reasons for Judgment.
159. I do not think it is appropriate to make the injunctive orders sought because the respondents have already returned all infringing garments to the applicant. Injunctions made in these terms would amount in substance to doing no more than requiring the respondents to obey the law and that is not a proper purpose for injunctive relief.
160. Accordingly, there will be orders requiring the respondents to pay the applicant damages for damage to reputation and additional damages pursuant to s.115 of the Act.
161. The respondents will pay the applicant’s costs of the proceeding. In the circumstances of this case and the particular complexities it gave rise to, in my view, these should be taxed in default of agreement on the Federal Court Scale.

I certify that the preceding one hundred and sixty-one (161) paragraphs are a true copy of the reasons for judgment of Burchardt FM

Date: 3 November 2010