Rapala v Twin Peaks Leisure [2002] FCA 1299 (23 October 2002)

Last Updated: 23 October 2002

FEDERAL COURT OF AUSTRALIA

Rapala v Twin Peaks Leisure [2002] FCA 1299

COSTS - application for costs - agreement between the parties as to substance of proceedings - whether the Court should exercise its discretion to award costs - whether the applicants' conduct was reasonable - delay by applicants in approaching respondents - whether reasonable of applicants to demand undertakings from respondents at short notice - sale of counterfeit fishing lures

Federal Court of Australia Act 1976 (Cth) s 43

Trade Practices Commission v Nicholas Enterprises Pty Ltd (No 3) (1979) 42 FLR 213 cited

Colgate-Palmolive Company v Cussons Pty Limited (1993) 46 FCR 225 cited

Australian Securities Commission v Aust-Home Investments Ltd (1993) 44 FCR 194 cited

Re Minister for Immigration and Ethnic Affairs; Ex parte Lai Qin [1997] HCA 6; (1997) 186 CLR 622 cited

One-Tel Ltd v Deputy Commissioner of Taxation [2000] FCA 270; 101 FCR 548 cited

Sunday Times Newspaper Co Ltd v McIntosh (1933) 33 SR (NSW) 371 cited

Reddy v Hughes (1996) 37 IPR 413 cited

RAPALA VMC OY AND DUNPHY SPORTS/FISHING IMPORTS PTY LIMITED (ACN 002 102 392) v TWIN PEAKS LEISURE PTY LTD T/A AUSTRALIAN FISHING DISCOUNTERS (ACN 093 053 671) AND ZEAD HOUCHAR

N 776 OF 2002

BRANSON J

23 OCTOBER 2002

SYDNEY

IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY	N 776 of 2002

BETWEEN:	RAPALA VMC OY FIRST APPLICANT DUNPHY SPORTS/FISHING IMPORTS PTY LIMITED (ACN 002 102 392) SECOND APPLICANT
AND:	TWIN PEAKS LEISURE PTY LTD T/A AUSTRALIAN FISHING DISCOUNTERS (ACN 093 053 671) FIRST RESPONDENT ZEAD HOUCHAR SECOND RESPONDENT
JUDGE:	BRANSON J
DATE OF ORDER:	23 OCTOBER 2002
WHERE MADE:	SYDNEY

THE COURT ORDERS THAT there be no order as to the costs of this proceeding.

IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY	N 776 of 2002

BETWEEN:	RAPALA VMC OY FIRST APPLICANT DUNPHY SPORTS/FISHING IMPORTS PTY LIMITED (ACN 002 102 392) SECOND APPLICANT
AND:	TWIN PEAKS LEISURE PTY LTD T/A AUSTRALIAN FISHING DISCOUNTERS (ACN 093 053 671) FIRST RESPONDENT ZEAD HOUCHAR SECOND RESPONDENT

JUDGE:	BRANSON J
DATE:	23 OCTOBER 2002
PLACE:	SYDNEY

REASONS FOR JUDGMENT

INTRODUCTION

1 The first applicant is the registered trade mark owner of an Australian Registered Trade Mark ("the Trade Mark"). The second applicant is an authorised user of the Trade Mark. On 31 July 2002 the applicants commenced this proceeding for the principal purpose of protecting their respective rights with respect to the Trade Mark. This purpose has been achieved by agreement between the parties. The only outstanding issue relates to the applicants' legal costs.

2 The applicants seek an order that the respondents pay the applicants' costs of the proceeding. The respondents contend that, in the circumstances of this case, they ought not to be required to pay the applicants' costs.

FACTUAL BACKGROUND

3 The first applicant is a Finnish company that manufactures lures ("Rapala lures") and fishing accessories. By an agreement in writing dated 19 January 1998 the first applicant granted the second applicant the exclusive right to purchase, sell and market in Australia Rapala lures.

4 John Maurice Dunphy ("Mr Dunphy"), Chairman of the second applicant, became aware in about early July 2002 that suspected counterfeit Rapala lures had been displayed at the Melbourne Boat Show. In or about the second week of July 2002 Mr Dunphy received confirmation from the first applicant that the suspected counterfeit Rapala lures were in fact counterfeit. That is, that they were not Rapala lures.

5 On 25 July 2002 an employee of the second applicant purchased some lures from the first respondent's Campelltown store and provided them to Mr Dunphy. Mr Dunphy concluded that the lures were counterfeit Rapala lures and, unlike genuine Rapala lures, of poor quality. On 24 July 2002 the employee had been unable to purchase counterfeit Rapala lures at the first respondent's Blacktown store. Mr Dunphy feared that counterfeit Rapala lures would be sold at the Sydney Boat Show and that damage would be done to the reputation of Rapala lures and to the business of the second applicant.

6 By letter dated 29 July 2002, sent by facsimile transmission at 6.25pm and marked "urgent", the solicitors for the second applicant wrote to the respondents with respect to the counterfeit Rapala lures, asserting flagrant disregard of their client's rights. A demand was made for undertakings to be given, in terms which were specified in a document annexed to the letter, by the close of business on the following day (i.e. 30 July 2002). A copy of the document setting out the terms of the undertaking demanded is annexed to these reasons. Further the letter required that by the close of business on 31 July 2002 the respondents provide a statutory declaration providing full details of the respondents' dealings with products bearing the Trade Mark which had not been sourced from or with the authority of one of the applicants.

7 On 30 July 2002 a copy of the letter dated 29 July 2002 was sent by facsimile transmission to the respective managers of the first respondent's stores at Campbelltown, Blacktown and Tuggerah. On 31 July 2002 at approximately 10.00am the second respondent replied to the letter from the second applicant's solicitors. The letter advised, amongst other things, that:

"... I have taken note of your claims and have taken steps to ensure that the stock in concern has been removed from our shop in Campbelltown until further investigation. I have taken this action in good faith, as I am yet to determine whether in fact your claims are bonafied [sic] as it is physically impossible for me to attend to this matter in the short time you have provided. I can assure that there is no stock of the goods in question in any of our other retail outlets or warehouse and initial investigations shows [sic] that we have never imported such goods. ...

Furthermore your letter infers that my company will be selling the lures in question at the SYDNEY BOAT SHOW. I hereby declare that the lures in question will not be sold, displayed or promoted at the show."

8 Shortly before 1.00pm on 31 July 2002 the applicants obtained orders from a judge of the Court granting leave to file in Court the application in this matter and the affidavits relied upon in support of the application and abridging the time for service of the application, affidavits and the orders made that day.

9 At about the same time as the applicants were obtaining the orders referred to above, Mark Dunphy, an employee of the second applicant, went to the first respondent's store at Blacktown. He was unable to find counterfeit Rapala lures on the shelves of the store but found some counterfeit Rapala lures in a box on the floor below the shelves. He purchased two of the counterfeit lures.

10 By letter dated 2 August 2002 addressed to the applicants' solicitors, Sprusons, solicitors, confirmed earlier telephone advice given that day that they acted for the first respondent. They further confirmed their instructions that their client was prepared to give a "without admission interim undertaking" to cease dealing in any way with the products the subject of this proceeding. The letter included the following paragraph:

"For the record, it is our client's view that the launch of proceedings for interlocutory relief within the time frame which has been afforded by [sic] our client to consider the allegations contained in your letter was unreasonable, particularly in light of our client's letter of 31 July 2002. This is the case notwithstanding that it is asserted that shortly after our client's letter, your client was able to purchase from one of our client's stores the so-called offending products. In our view, this would have been a matter more appropriately dealt with by direct contact with our client."

11 The applicants' solicitors replied by letter on the same day suggesting that because of the sale made at the Blacktown store on 31 July 2002 it was appropriate that the respondents' undertaking be given to the Court. By the same letter a demand was made for an affidavit to be filed in this proceeding explaining the respondents' dealings with the counterfeit lures. The letter concluded:

"Finally, we note your comments that you client views our actions as unreasonable. This is rejected. Your client's attitude to date, explicit in the writer's conversation with Mr Houchar this morning in which he stated that the issue was of minor significance and implicit in the fact that it was only after the writer's conversation with Mr Houchar that legal advice was sought, is in contradistinction to the way our clients view the infringement of their rights."

12 Further correspondence passed between the solicitors for the respective parties. The contents of this correspondence has little significance on the present application. A possible exception is complaints made on behalf of the respondents concerning the applicants' failure to provide them with sample genuine Rapala products for the purpose of allowing them to make a comparison with the allegedly counterfeit products.

13 On 6 August 2002 this matter was listed before the Court on the applicants' claim for interlocutory relief. After a brief adjournment the respondents, without admissions, gave certain undertakings to the Court and consented to orders requiring affidavits to be sworn as to the source of the relevant lures and details of their dealings in the lures. On 13 August 2002 affidavits were sworn in compliance with the order of the Court. The General Manager of the first respondent deposed in his affidavit to obtaining approximately eighty of the counterfeit Rapala lures as free samples from a store located in an area known as the Russian Market in Beijing.

CONSIDERATION

14 The principles which govern the present question are not in dispute. They may be summarised as follows:

(a) except as provided by any other Act, s 43 of the Federal Court of Australia Act 1976 (Cth) gives the Court a very wide discretion to award costs in a proceeding;

(b) the discretion is to be exercised judicially and according to the circumstances of the particular case (Trade Practices Commission v Nicholas Enterprises Pty Ltd (No 3) (1979) 42 FLR 213 at 219; Colgate-Palmolive Company v Cussons Pty Limited (1993) 46 FCR 225);

(c) ordinarily any order is for payment of costs on the party and party basis (Colgate -Palmolive Company v Cussons Pty Limited at 232);

(d) where a case terminates before there has been a hearing, the Court should not resolve the issue of costs by engaging in something in the nature of a hypothetical trial (Australian Securities Commission v Aust-Home Investments Ltd (1993) 44 FCR 194 at 201; Re Minister for Immigration and Ethnic Affairs; Ex parte Lai Qin [1997] HCA 6; (1997) 186 CLR 622 at 624);

(e) however, where one party, after litigating for some time, effectively surrenders to the other the Court will commonly exercise its discretion by awarding costs to the successful party;

(f) frequently the determining factor will be the reasonableness of the conduct of the parties (One-Tel Ltd v Deputy Commissioner of Taxation [2000] FCA 270; 101 FCR 548 at [5] and the cases there referred to);

(g) if it appears that both parties have acted reasonably in commencing and defending the proceeding and the conduct of the parties continued to be reasonable until the litigation was settled or its further prosecution became futile the usual, but not invariable, rule is that the Court will make no order as to costs (Re Minister for Immigration and Ethnic Affairs; Ex parte Lai Qin at 625; One-Tel Ltd v Deputy Commissioner of Taxation at [5]); and

(h) in an appropriate case the Court will consider the conduct of the parties before the commencement of the proceeding; the conduct of one party might have precipitated the litigation (Sunday Times Newspaper Co Ltd v McIntosh (1933) 33 SR (NSW) 371) or, alternatively, a respondent might have offered the applicant a substantially complete remedy before the institution of the proceeding (Reddy v Hughes (1996) 37 IPR 413).

15 In this case the applicants have obtained much, although not all, of the relief sought by their application to the Court. While the respondents have not completely surrendered to the applicants, they have come close to doing so. This consideration, standing alone would suggest that it is appropriate for the respondents to be ordered to pay the applicants' costs. However, the respondents have argued that, in the circumstances of this case, the applicants acted precipitately, and for this reason unreasonably, in commencing the proceedings within two days of their initial letter to the respondents.

16 I consider that this is an appropriate case for consideration to be given to the conduct of the parties before the commencement of the proceeding. It is significant, in my view, that the applicants maintain that the counterfeit nature of the lures sold by the first respondent is "clearly apparent". Yet the Chairman of the second applicant, who came into possession of the counterfeit lures in early July, delayed taking any step towards stopping the sale of the lures until he had received telephone confirmation from the first applicant that the lures were counterfeit. He received this confirmation in or about the second week of July 2002 (i.e. apparently between approximately 7-15 July 2002). It appears that he then determined that the respondents should not be approached until he had determined the extent to which the first respondent was distributing the counterfeit lures. It further appears that he took no steps to achieve this end until 24 July 2002. He learned on 25 July 2002 that counterfeit lures had been purchased from the first respondent's Campbelltown store.

17 In my view, no significance attaches to the delay between 25 July and 29 July 2002, the date of the first letter received by the respondents; only one clear business day fell between those two dates. However, I have formed the view that, having regard to the significance which the applicants attached to the opening of the Sydney Boat Show on 1 August 2002, it was unreasonable of the Chairman of the second applicant to adopt the course that he did.

18 If the applicants were unable reasonably to approach the respondents earlier than 6.25pm on 29 July 2002, fairness to the respondents required that the demands made of them at that time be suitably tailored to allow a prompt response. The letter of 29 July 2002 alleged breaches of three separate enactments and demanded that extensive and permanent undertakings, in terms which implied admissions of liability, be given within a period of less than twenty-four hours. This demand was not reasonable in the circumstances. The respondents could not reasonably have been expected to give the undertaking sought without taking legal advice. The concerns of the applicants with respect to the Sydney Boat Show could have been alleviated by a lesser undertaking. Indeed, by the time of the commencement of this proceeding, the applicants had received an assurance from the respondents that the lures would not be sold, displayed or promoted at the Sydney Boat Show.

19 However, if the counterfeit nature of the lures sold by the first respondent was clearly apparent, as the applicants assert, it is not clear why an approach could not have been made to the respondents in early July. Had an approach been made in early July, the respondents could have been allowed a longer time within which to offer the applicants the undertakings sought by them.

20 There is material before the Court which tends to support the contentions of the applicant that the respondents ought to have been aware of the possibility that the counterfeit lures were not genuine Rapala lures. The strongest material is the evidence that approximately eighty of the lures were obtained as free samples from an unidentified source located in the area known as the Russian Market in Beijing. I accept the argument advanced by the applicants that an experienced retailer would consider that this was an unlikely way and place to obtain genuine and high quality products originating from a Finnish company. I also accept that the establishment by the first respondent of electronic stock codes in respect of the counterfeit lures tends to suggest that the first respondent envisaged selling significant numbers of the lures. However, on the present application I am principally concerned to assess the reasonableness of the conduct of the parties with respect to the proceeding; not to assess the reasonableness of their conduct in respect of the lures generally.

21 I conclude that the applicants did not act reasonably in all of the circumstances with respect to the commencement of this proceeding. I consider it to be a fair inference that had the applicants approached the respondents earlier, or alternatively, had they made less extensive demands by the letter of 29 July 2002, the institution of this proceeding might well have proved unnecessary.

22 The institution of the proceeding has resulted in both the applicants and the respondents incurring legal costs. It is appropriate in the circumstances, in my view, for there to be no order as to the costs of the proceeding leaving the respective parties to bear their own costs.

I certify that the preceding twenty-two (22) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Branson.

Associate:

Dated: 23 October 2002

Counsel for the First and Second Applicants:	Ms J Baird
Solicitor for the First and Second Applicants:	Griffith Hack
Counsel for the First and Second Respondent:	Mr S Burley
Solicitor for the First and Second Respondent:	Sprusons Solicitors
Date of Hearing:	25 September 2002
Date of Judgment:	23 October 2002

Undertakings by Twin Peaks Leisure Pty Ltd, Khador Houchar and Zead

Houchar to Dunphy Sports/Fishing Imports Pty Ltd ("Dunphy Sports")

Twin Peaks Leisure Pty Ltd ACN 093 053 671, Khador Houchar and Zead Houchar, whether by their directors, employees, agents or otherwise undertake to Dunphy Sports to:

1. Immediately remove from display, sale and distribution, including at any of its stores located at Campbelltown, Blacktown or Penrith, or any other place at which they trade as "Australian Fishing Discounters".

a) all fishing or sporting products bearing the trade mark RAPALA, or any substantially identical or deceptively similar sign, not sourced from Dunphy Sports or Rapala Oy;

b) all products referred to as Infringing Products in the letter of Griffith Hack Lawyers to Twin Peaks Leisure Pty Ltd dated 29 July 2002.

c) all promotional and advertising material concerning the products described in (a) and (b),

collectively "Infringing Products".

2. Immediately cease and forever desist from importing, advertising, promoting for sale, offering for sale, displaying for sale, distributing, selling, or supplying, including by display at the Sydney Boat Show commencing 1 August 2002, any Infringing Products.

3. Immediately cease and forever refrain from making representations that:

a) it is a distributor or licensee of Rapaly Oy or Dunphy Sports;

b) the Infringing Products are genuine Rapala Oy products or material.

4. Immediately notify all its distributors and resellers that it is no longer to sell or distribute any of the Infringing Products and procure the return of all Infringing Products from any of its distributors and resellers.

5. Within two (2) days of the date of these undertakings (ie by 1 August 2002) deliver up to Griffith Hack Layers at Level 8, 168 Walker Street, North Sydney 2060 or such other location as may be agreed upon, all Infringing Products in its possession, custody or control, including that returned from any distributor and resellers.

DATED:..................................2002.

The Common Seal of )

Twin Peaks Leisure Pty Ltd )

was affixed to this document )

in accordance with its constitution )

.....................................................

Director

.....................................................

Director/Secretary

Signed by )

Zead Houchar )

In the presence of: ) .................................................

Signature of Zead Houchar

.....................................................

Signature of Witness

.....................................................

Name of Witness

Signed by )

Khador Houchar )

In the presence of ) .................................................

Signature of Khador Houchar

.....................................................

Signature of Witness

.....................................................

Name of Witness