Crimson SRL & Anor v Claudia Shoes Pty Ltd & Ors (No 6)
[2008] FMCA 108
•8 February 2008
FEDERAL MAGISTRATES COURT OF AUSTRALIA
| CRIMSON SRL & ANOR v CLAUDIA SHOES PTY LTD & ORS (No.6) | [2008] FMCA 108 |
| TRADE PRACTICES – Passing off – application to set aside orders – whether orders irregular – whether orders made in the absence of a party – assessment of damages set aside. |
| Copyright Act 1968, ss.115(4), 116 Federal Court Rules 1979, O.1 r.5 Federal Magistrates Court Rules 2001, rr.1.03, 1.05(1), 1.05(2), 16.05(2)(a) |
| Brown v Jam Factory Pty Ltd (1981) 53 FLR 340 Bullmore v Zurich Australian Life Insurance Ltd, (unreported, Supreme Court of Victoria, Fullagar J, 24 January 1991) Collins Book Depot Pty Ltd v Bretherton [1938] VLR 40 Conagra Inc v McCain Foods (Aust) Pty Ltd (1992) 33 FCR 302 Eschenberg v Ellerton [2004] SASC 327 Equity Access Pty Ltd v Westpac Banking Corp (1989) 16 IPR 431 Flamingo Park Pty Ltd v Dolly Dolly Creation Pty Ltd (1986) 65 ALR 500 Grimshaw v Dunbar [1953] 1 QB 408 Kostokanellis v Allen [1974] VR 596 Kotrlik v Eisner [1958] VR 55 Manzo v 555/255 Pitt Street Pty Ltd (1990) 21 NSWLR 1 Morrison v Judd (unreported, NSW Court of Appeal, Kirby P, Meagher & Powell JJA,10 October 1995) Rosing v Ben Shemesh [1960] VR 173 Shocked v Goldschmidt [1998] 1 All ER 372 Vacuum Oil Pty Co Ltd v Stockdale (1942) 42 SR (NSW) 239 Vimplane Pty Ltd v Cirss [2005] VSC 45 |
| First Applicant: | CRIMSON SRL |
| Second Applicant: | LYNCH FASHION MARKETING PTY LTD (ACN 010 466 485) |
| First Respondent: | CLAUDIA SHOES PTY LTD (ACN 050 235 491) |
| Second Respondent: | CLAUDIA ASSERAF |
| Third Respondent: | SOLOMON ASSERAF (AKA SALAMON ASSERAF) |
| Fourth Respondent: | YL IMAGE HOUSE PTY LTD (ACN 113 824 230) |
| Fifth Respondent: | XIAO LIN DONG |
| Sixth Respondent: | YI LI QIAN |
| File number: | MLG 1432 of 2006 |
| Judgment of: | Riley FM |
| Hearing date: | 11 December 2007 |
| Date of last submission: | 11 December 2007 |
| Delivered at: | Melbourne |
| Delivered on: | 8 February 2008 |
REPRESENTATION
| Counsel for the Applicants: | Mr Wise |
| Solicitors for the Applicants: | Middletons |
| Advocate for the First, Second & Third Respondents: | My Hoyne |
| Solicitors for the First, Second & Third Respondents: | Kliger Partners |
ORDERS
The application to set aside the orders made on 20 June 2007 is dismissed.
The orders made on 30 October 2007 are set aside pursuant to r.16.05(2)(a) of the Federal Magistrates Court Rules 2001.
| FEDERAL MAGISTRATES COURT OF AUSTRALIA AT MELBOURNE |
MLG 1432 of 2006
| CRIMSON SRL |
First Applicant
And
| LYNCH FASHION MARKETING PTY LTD (ACN 010 466 485) |
Second Applicant
And
| CLAUDIA SHOES PTY LTD (ACN 050 235 491) |
First Respondent
And
| CLAUDIA ASSERAF |
Second Respondent
And
| SOLOMON ASSERAF (AKA SALAMON ASSERAF) |
Third Respondent
And
| YL IMAGE HOUSE PTY LTD (ACN 113 824 230) |
Fourth Respondent
And
| XIAO LIN DONG |
Fifth Respondent
And
| YI LI QIAN |
Sixth Respondent
REASONS FOR JUDGMENT
Background
This is an application to set aside the orders made on 20 June 2007 and 30 October 2007 against the first, second and third respondents (“the respondents”). The orders of 20 June 2007, in essence, established the liability of the respondents for misleading and deceptive conduct and the tort of passing off in relation to PianuraStudio garments. The orders of 30 October 2007, in essence, determined the quantum of damages payable by the respondents. The respondents argued that some of the orders were irregular and should be set aside as of right and some should be set aside pursuant to r.16.05(2)(a) of the Federal Magistrates Court Rules 2001.Rule 16.05(2)(a) permits the court to set aside an order made in the absence of party.
The third respondent swore affidavits on 4 and 10 December 2007 on behalf of the respondents. The third respondent was not cross-examined. For the purposes of the setting aside application, I accept his evidence as set out below, except as otherwise stated.
The third respondent said that the second and third respondents are directors of the first respondent. He said that they purchased and imported garments with the PianuraStudio label from an Asian distributor by the name of Lingfeng Trading Company and were given receipts. He said the garments were purchased with the belief that the garments were genuine and with the belief that they had been purchased from an authorised distributor. The claims contained in the last two sentences are contentious and I address them further below.
The third respondent also said that the first, second and third respondents were contacted by a representative of the second applicant in late 2005. The representative said that the second applicant was a local distributor of PianuraStudio garments. The respondents bought genuine PianuraStudio garments from the second applicant for about two or three seasons. Later, a representative of the second applicant attended the first respondent's shop to ascertain whether all of the PianuraStudio garments offered for sale by the first respondent were genuine. However, she was unable to differentiate between genuine garments and those that were alleged to be fakes.
The third respondent appeared for the respondents at the initial directions hearing on 6 December 2006. However, it was ordered on that occasion that the first respondent, a corporation, be represented by a solicitor. The third respondent then engaged David Denby of MW Law, Barristers and Solicitors, of Mitcham, to represent the respondents.
The third respondent said that he told Mr Denby that his objective was to negotiate a resolution. On 16 February 2007, the respondents filed a defence. It made various admissions, denials and non-admissions and otherwise said that the first respondent had bought the subject goods innocently and in good faith believing them to be genuine and had at all times been prepared to comply with the undertakings sought by the applicant. The third respondent said that he understood that Mr Denby would contact him if instructions or attendance were required.
In about May 2007, the third respondent's wife, the second respondent, was diagnosed with metastatic squamous cell carcinoma of the neck with the primary tumour in her right tonsil. She had a tonsillectomy on 29 May 2007 and a right modified radical neck dissection on 16 June 2007.
The liability orders
In the meantime, on 24 May 2007, the applicants filed a notice of motion seeking summary judgment on liability against the respondents. The motion was returnable on 30 May 2007. On that day, Mr Denby appeared for the respondents. He sought an adjournment for two weeks on the basis that he had only seen the material on 28 May 2007, the application having been served on 24 May 2007 and the affidavits in support at various times thereafter. The summary judgment application was adjourned to 15 June 2007.
No one appeared for the respondents on 15 June 2007. The matter proceeded on an undefended basis. Judgment on liability against the respondents was handed down on 20 June 2007. No one appeared for the respondents at the handing down of the judgment.
The third respondent said that the respondents:
a)were unaware that any summary judgment application had been made;
b)
were unaware that Mr Denby had appeared on their behalf on
30 May 2007;
c)
were unaware that the application had been adjourned until
15 June 2007; and
d)were unaware that summary judgment on liability was given against them on 20 June 2007.
It appears that the respondents did not become aware that judgement on liability had been given against them until a creditor’s statutory demand was served on them on about 21 November 2007.
The third respondent said that his present solicitor had been told by Mr Denby on 10 December 2007 that:
a)he had no recollection of the summary judgment application, the adjournment of it or the judgment on liability given against the respondents;
b)he had no recollection of advising the respondents about the summary judgment application or the adjournment of it or the judgment given on 20 June 2007; and
c)he could not locate his file relating to the respondents.
The applicants objected to this evidence on the grounds that it was hearsay. They said that the form in which the evidence was given meant that they were unable to cross examine Mr Denby on the statements that he was said to have made. As this is an interlocutory application, hearsay is admissible. Moreover, the statements allegedly made by Mr Denby were in the nature of admissions. However, because the alleged statements concern critical issues in this proceeding, and there was no opportunity to cross-examine Mr Denby, I consider that it is appropriate to give minimal weight to the matters set out in the previous paragraph. Instead, I rely on the evidence given by the third respondent about his own state of knowledge.
The authorities
The respondents conceded that the orders of 20 June 2007 were regular and applied under r.16.05(2)(a) of the Federal Magistrates Court Rules 2001 for them to be set aside. The discretion given by that rule is unfettered. Nevertheless, various courts over the years have given guidance on the circumstances in which a judgment given in the absence of a party might appropriately be set aside.
The applicants relied particularly on Shocked v Goldschmidt [1998] 1 All ER 372, a decision of the English Court of Appeal. It held that, in considering whether to set aside as judgment given after trial in the absence of a party, the predominant consideration is not whether there was a defence on the merits but the adequacy of the reason for the absence. The Court of Appeal also said that, where the absence was not due to accident or mistake, the court would be unlikely to set aside the orders.
However, the Australian cases do not seem to have stipulated which considerations should predominate. For example, in the Supreme Court of Victoria, Habersberger J in Vimplane Pty Ltd v Cirss [2005] VSC 45 relied on the decision of the Full Court of the Supreme Court of Victoria in Rosing v Ben Shemesh [1960] VR 173, and, at [34], said simply that the relevant considerations are:
a.the reason why the party failed to appear when the case was heard;
b.whether there has been any delay by the absent party in making the application;
c.whether the other party would be prejudiced by a new trial in any respect which could not be adequately compensated by a suitable award of costs and the giving of security; and
d.a prima facie case on the merits.
However, in an analogous situation, the possibility of suing a solicitor in negligence has been held to be a matter warranting little weight. In Morrison v Judd (unreported, NSW Court of Appeal, Kirby P, Meagher & Powell JJA,10 October 1995), Kirby P, with whom Meagher and Powell JJA agreed, held that, in an application for an extension of time to amend a statement of claim, the possibility of recovering against a negligent solicitor is a factor that should be given little weight. That was because:
a)it is difficult to assess the prospects of succeeding against the negligent solicitor;
b)the applicant in effect would have to prove his original case as well as his negligence case; and
c)there is a real risk that he would not recover an appropriate amount.
I accept the respondents’ submission that, for the reasons given in Morrison v Judd, the possibility of the respondents successfully taking action against Mr Denby should be given little weight. I also consider that I am not bound by Shocked and that, in accordance with Australian authority, I should give such weight to the various factors mentioned in Vimplane as seems to me to be appropriate.
a. Reason for failure to appear
I am satisfied on the evidence that the respondents were not aware that the proceedings were listed for a summary judgment application on
30 May 2007or 15 June 2007. However, Mr Denby was clearly aware that the matter was listed for hearing on those dates as he was in court on 30 May 2007 when the matter was adjourned to 15 June 2007. The applicants argued that it was not clear why Mr Denby had not appeared and said he may have chosen not to appear for tactical reasons. The applicants argued that unless Mr Denby were subpoenaed to give evidence and explain why he had not appeared, the court could not be satisfied that the respondents had an adequate reason for their non-appearance on 15 June 2007.
The applicants relied on Vacuum Oil Pty Co Ltd v Stockdale (1942) 42 SR (NSW) 239 at 243. However, in that case, the defendant was found to have deliberately withdrawn his solicitor’s retainer when he knew the matter was likely to be heard in the very near future, and had gone away for four days after being told the matter might be heard in a few days. The defendant also made no attempt to communicate with the court. The present case is very different. The respondents were unaware that the matter was listed for hearing and in any event had a solicitor retained to conduct the proceedings for them.
In Collins Book Depot Pty Ltd v Bretherton [1938] VLR 40 at 44, Martin J held that:
In general, where default is due to the carelessness of a party’s solicitor, the party is not penalised to the extent of being shut out from litigating his claim or defence.
That passage was cited with approval by the Full Court of the Supreme Court of Victoria in Kostokanellis v Allen [1974] VR 596 at 607. In that case, the court considered that the solicitor had deliberately chosen not to appear at the hearing of a summons for final judgment in circumstances where he had expected the defendant to swear an affidavit in opposition on the morning of the hearing. However, the solicitor had been unable to contact the defendant as he was out of Melbourne on the relevant day. Even so, the court considered in the circumstances of that case that the solicitor had at worst made an error of judgment and it was not appropriate to deprive the defendant of his right to put forward a defence.
In the present case, it may well be that Mr Denby's failure to appear on 15 June 2007 was deliberate or a misguided tactic. However, I do not consider that Mr Denby's reasons or lack of them for his non-appearance should be sheeted home to the respondents. On the evidence as it stands, they were unaware of the summary judgement application. By retaining a solicitor, they had done as much as could have been expected of them to properly manage their defence. While ideally the respondents would have enquired of their solicitor from time to time about the progress of the matter, I accept that in the present case they were at the relevant time concentrating on the much more pressing matter of the second respondent's cancer. In all the circumstances, I consider that the respondents have shown a good reason for their failure to appear on 15 June 2007.
b. Delay
The respondents were unaware that the quantum orders were made on 30 October 2007 until they received the statutory demand on about
21 November 2007. The respondents filed an application on 4 December 2007 to set aside the orders of 30 October 2007. It appears that, at that stage, they were unaware that there had been separate orders made in relation to liability on 20 June 2007. When the set aside application was heard on 11 December 2007, the respondents were given leave to amend the application to include an application to set aside the orders made on 20 June 2007.
Accordingly, there was a delay of about six months between the time the liability orders were made and the time the application was made to set them aside. In the meantime, the applicants had incurred the cost and inconvenience of conducting undefended proceedings in relation to quantum, filing written submissions on costs and issuing a statutory demand. From the respondents’ point of view, however, the delay between discovering the existence of the liability orders and launching the application to set them aside was only a matter of weeks.
In Grimshaw v Dunbar [1953] 1 QB 408 at 415, Jenkins LJ said:
… I venture to think that delay in itself would not be important, but delay prejudicing the other party, or delay enabling rights of third parties to intervene, would be most material.
There was no suggestion in this case that the rights of third parties had intervened. The prejudice to the applicants was in the form of costs and inconvenience. The applicants argued that even an indemnity costs order would not completely compensate them for the cost and inconvenience of having to re-litigate the matter. I accept that.
However, I note that there was no suggestion that the applicants’ position had changed in some way since obtaining judgment, for example, because a necessary witness had become unavailable. I do not consider that the delay in all the circumstances of this case would warrant the respondents being shut out from presenting a reasonably arguable defence.
c. Adequacy of costs and security
The applicants argued that, if the orders of 20 June 2007 were set aside, they could not be fully compensated for the costs and inconvenience of having to re-litigate the matter. However, in view of my conclusions on the liability orders, I do not need to consider this question further.
d. Merits
In Kostokanellis, the Full Court of the Supreme Court said at 605 that a defendant needed to show a prima facie defence on the merits. However, at 604, the Full Court cited, apparently with approval, Jenkins LJ in Grimshaw v Dunbar at 416 where it was said that an applicant for an order setting aside a judgment made in his absence needed to have a bona fide intention to defend the action and there needed to be “some possibility” of him succeeding. His Lordship went on to say that:
… a new trial should seldom, if ever, be refused merely on the ground that the applicant's case appears to be a weak one …. … a party to an action is prima facie entitled to have it heard in his presence …. … if by some mischance or accident a party is shut out from that right and an order is made in his absence, then common justice demands, so far as it can be given effect to without injustice to other parties, that the litigant who is accidentally absent should be allowed to come to the court and present his case - no doubt on suitable terms as to costs.
Clearly, the liability judgment should not be set aside if the respondents have no prospect of success. However, as far as the merits are concerned, a weak but arguable case would suffice.
The respondents maintain that they purchased the impugned garments from Lingfeng Trading Company in Asia who they believed to be an authorised distributor in Asia of PianuraStudio garments. The respondents say they were given receipts for the garments that they purchased and they believed them to be genuine. However, they have provided no documentary evidence to support their claimed belief that Lingfeng Trading Company was an authorised distributor of PianuraStudio garments. Moreover, they have produced no receipts from Lingfeng Trading Company.
On the contrary, in their discovery, the respondents discovered one receipt from Dragon and Pheonix, one from Gioia Fashion Ltd and one that was completely illegible. The legible receipts have Asian writing on them. Geoffrey Lynch, a director of the second applicant, has sworn that the style numbers mentioned on the legible receipts are not PianuraStudio style numbers. For the purposes of the setting aside application, I accept his evidence.
In these circumstances, I am not satisfied that the respondents have an arguable case that they bought the garments from an authorised distributor. The third respondent did not make a clear statement on oath that Lingfeng Trading Company was an authorised distributor. He simply asserted his belief. Moreover, the respondents have produced no documentary evidence that Lingfeng Trading Company was an authorised distributor of PianuraStudio garments. Even if it had been an authorised distributor, the documents discovered by the respondents do not support the claim that the respondents bought garments from Lingfeng Trading Company. They indicate that the respondents in fact bought the garments from other entities entirely.
Even if the respondents did believe that the garments they purchased in Asia were genuine PianuraStudio garments, and at this stage I make no finding either way on that question, that belief would not afford a defence to the claims of misleading and deceptive conduct or passing off. Intention is not a necessary ingredient in breaches of s.52, and honest and reasonable conduct can nevertheless be likely to mislead or deceive: Brown v Jam Factory Pty Ltd (1981) 53 FLR 340 at 348; Equity Access Pty Ltd v Westpac Banking Corp (1989) 16 IPR 431 at 50,950. In relation to passing off, Lockhart J noted in Conagra Inc v McCain Foods (Aust) Pty Ltd (1992) 33 FCR 302 at 308 that:
It has been clear since 1838 … that equity does not require proof of an intention to deceive as a necessary ingredient in the cause of action.
The respondents also argued that it should not have been inferred that the second respondent was involved in any conduct that was likely to mislead or deceive or in any passing off as she was unwell at the relevant times. However, the impugned conduct occurred largely in 2006 and the evidence does not suggest that the second respondent became ill before about May 2007. It was also said that, if the orders were set aside, evidence could be given of the respective roles of the parties in the running of the company. However, that evidence should have been put before the court for the setting aside application. It was not. In these circumstances, I am not satisfied that the second respondent has an arguable case that inferences against her should not have been drawn.
e. Conclusion on liability orders
Accordingly, I do not consider that the respondents have an arguable case on the merits as far as liability is concerned. In such circumstances, I do not consider that it is appropriate to set aside the liability orders made on 20 June 2007.
The quantum orders
a. whether any of the orders of 30 October 2007 were irregular
The respondents argued that order 4 of the orders made on 30 October 2007 was irregular because it required the respondents to pay the applicants the sum of $30,000 by way of exemplary damages in circumstances where the applicants had not sought exemplary damages in their application and the respondents were not otherwise put on notice that exemplary damages would be sought. This was said to have resulted in a denial of natural justice which in itself was sufficient to require the orders to be set aside.
The amended application filed on 28 February 2007 relevantly sought:
5.An order for damages, including damages under section 115(4) and section 116 of the Copyright Act 1968 (Cth)… in respect of the Claudia skirt or alternatively an order for account of profits.
6.At the election of the applicants an enquiry as to damages and payment of all sums found to be due upon such enquiry or the taking of such account.
Section 115(4) and s.116 of the Copyright Act 1968 provide for additional damages which are a statutory analogue of exemplary damages. However, the applicants did not proceed with their copyright claims. Instead, they confined their claims to misleading and deceptive conduct and passing off.
The original application did not include an equivalent of paragraph 5 of the amended application filed on 28 February 2007. It seems likely that the amended application was served on the respondents at Mr Denby’s office as he had filed the respondents’ defence on 16 February 2007. However, there is nothing in the third respondent's affidavits to suggest that the respondents were not alerted by Mr Denby to the contents of the amended application. In the circumstances, I proceed on the basis that the respondents were aware of the contents of the amended application.
The applicants argued that, to the extent that it was not known by the respondents that the applicants would not proceed with the copyright claim, it cannot lie in the respondents’ mouths to now say that they did not know that exemplary damages would be sought. The respondents would have known that the applicants had not proceeded with their copyright claim if they had read the reasons for decision and orders of 20 June 2007. However, their case is that they had no knowledge of those orders or reasons until after the quantum orders were made. In the circumstances, it is entirely artificial for the respondents to claim that they had no notice that additional or exemplary damages might be sought.
The respondents argued that they might have taken the view that the applicants could not succeed in their copyright claim and therefore they might have decided not to defend the claim confident that exemplary or additional damages would not be awarded against them. However, despite filing two affidavits, the respondents have not given any evidence that they actually took such a view. Accordingly, I do not accept that the respondents did in fact proceed on the basis outlined.
In any event, the applicants argued that their application in paragraph 6 sought an enquiry as to damages. They submitted that paragraph 6 was broad enough to include exemplary damages. Wilcox J said in Flamingo Park Pty Ltd v Dolly Dolly Creation Pty Ltd (1986) 65 ALR 500 at 526 that, “Passing off is a tort and it is not difficult to think of circumstances in which a passing off may be in contumelious disregard of a plaintiffs rights” such as to warrant an award of exemplary damages. That case was decided more than 20 years ago and represents established law. In the circumstances, I consider that the respondents were adequately on notice that, as the action included a passing off claim, and as the claim sought an enquiry into damages, exemplary damages might be ordered against them.
The respondents also argued that exemplary damages were not available under the Trade Marks Act 1995. They argued that the applicants could not be in a better position where they did not have a trade mark. Nevertheless, the respondents conceded that exemplary damages were available in cases of passing off. The concession was undoubtedly correct: Flamingo Park at 525-6. As this case involved passing off, there is no doubt that exemplary damages could be awarded if appropriate. I do not consider that order 4 of the orders made on 30 October 2007 is irregular for the reason advanced.
Alternatively, the respondents submitted that both orders 3 and 4 of the orders made on 30 October 2007 were irregular. It was said that the orders were not precise or certain because they did not specify whether either or both of the applicants were to be paid the damages assessed. Orders 3 and 4 were as follows:
3.The first, second and third respondents pay the applicants the sum of $60,000 by way of general damages for loss of reputation and goodwill.
4.The first, second and third respondents pay the applicants the sum of $30,000 by way of exemplary damages.
The respondents relied on the decision of Eschenberg v Ellerton [2004] SASC 327 which considered orders made by a magistrate in the following terms:
Judgment for the plaintiff and order that the goods identified in the claim herein be returned to the plaintiff 7 days after today's date. In the alternative there is to be a financial judgment in the sum of $3073.85 together with filing fees of $140 and costs of attendance today of $40 together with costs for attendance on 6 July and 8 June each $40 and interest of $51.25 making a total of $3385.10
White J considered that these orders were irregular because the order was expressed to be in the alternative. His Honour said that, while the plaintiff was entitled to make claims in the alternative, he was required to make an election as to the form of relief for the purposes of the judgment. Additionally, his Honour said that the judgment was irregular because, being expressed in the alternative, it was not certain.
The respondents argued that orders 3 and 4 were not certain because it was not clear whether the respondents had the choice of paying either the first or the second applicant and it was not clear whether the applicants were joint or several creditors.
The applicants submitted that orders 3 and 4 were abundantly clear and certain. They submitted that the rule under the common law is that a payment to one of a number of joint creditors discharges a joint debt: Manzo v 555/255 Pitt Street Pty Ltd (1990) 21 NSWLR 1 at 7.
I consider that the common law rule referred to by the applicants applies in the present case. I do not accept that orders 3 and 4 are uncertain or are irregular for any other reason. The decision in Eschenberg v Ellerton concerned a very different situation, where the defendant was required to return certain goods and alternatively pay a certain sum of money. In the present case, the orders clearly required the respondents to pay a certain sum of money to the applicants and the common law provides that payment to one of the applicants would discharge the debt to both.
b. whether the orders of 30 October 2007 were made in the absence of the respondents
The applicants argued that r.16.05(2)(a) of the Federal Magistrates Court Rules 2001 was not engaged in relation to the orders of
30 October 2007 on the basis that Mr Denby in fact appeared for the respondents on that date.
The chronology of events is as follows. The liability orders made on 20 June 2007 included orders that the respondents file affidavits in relation to quantum on or before 3 August 2007 and listed the hearing on quantum for 23 August 2007. The respondents filed no affidavits. On 22 August 2007, the applicants sought an adjournment by consent due to the ill health of their counsel. On 23 August 2007, the applicants filed minutes of proposed orders signed by the solicitors for the applicants and the solicitors for the respondents. The minutes consented to orders for the quantum hearing to be adjourned to
16 October 2007at 9:30 a.m. and for the respondents to file any affidavits relating to quantum on or before 15 September 2007. The respondents did not file any such affidavits.
The third respondent said that Mr Denby had obtained his instructions to consent to an adjournment of the hearing listed for 23 August 2007 but had otherwise not communicated any other matters relating to the adjournment. The third respondent said that, until he received the creditor’s statutory demand, he did not know that a hearing had been conducted on 16 October 2007 or that the respondents had been unrepresented at a hearing. The third respondent said that Mr Denby told him that he had made a mistake and would contact his professional indemnity insurer. The third respondent exhibited a letter from Mr Denby to the third respondent which confirmed that Mr Denby had not advised the third respondent of the hearing date on 16 October 2007. The applicants objected to the evidence contained in Mr Denby’s letter. Even if that letter were excluded from evidence, there is sufficient in the third respondent’s own evidence to satisfy me, for the purposes of the setting aside application, that the respondents were unaware of the hearing on 16 October 2007 due to the default of their solicitor.
On Friday 12 October 2007, my deputy associate telephoned Mr Denby's office to say that the matter would commence at 10am, rather than 9:30am, on 16 October 2007. Mr Denby was out of the office. However, he telephoned my associate on Monday 15 October 2007 to say that he had been unaware that the matter was listed for hearing on 16 October 2007, notwithstanding the minute of proposed orders that had been signed by his firm.
When the matter began on 16 October 2007, Mr Denby announced his appearance for the respondents and immediately made an application for an adjournment. He said that he was unprepared as he was unaware that the matter had been listed for hearing on 16 October 2007. That adjournment was refused for reasons given orally at the time. Those reasons in summary were that:
a)Mr Denby ought to have been aware that the matter had been listed for hearing on 16 October 2007 because his firm had signed a minute of proposed consent orders to that effect;
b)a letter confirming the date of the adjournment had been sent by the court to MW Law’s street address;
c)the respondents had filed no affidavit material despite two orders that they do so by particular dates;
d)the respondents had sought an adjournment of the liability hearing but had then not appeared on the adjourned date; and
e)in all circumstances, the respondents did not seem to have a genuine intention to defend the action.
Immediately after the adjournment was refused, Mr Denby sought and was granted leave to withdraw. The applicants did not oppose Mr Denby's withdrawal.
The applicants relied upon the decision in Shocked v Goldschmidt [1998] 1 All ER 372. In that case, the court distinguished between judgments in default and judgments given after a trial. In Shocked, the defendant was aware of the hearing date but was unable to obtain legal representation. She did not appear herself at the four day hearing or seek an adjournment. The court refused her application to set aside judgment.
In my view, the present case is different because:
a)the respondents personally were unaware of the hearing date;
b)their legal representative made an adjournment application and when that was unsuccessful withdrew from the substantive proceeding; and, incidentally,
c)the judgment in the present case was not given after a four day hearing, as in Shocked, but after a two hour hearing.
The applicants also relied upon the decision of Kotrlik v Eisner [1958] VR 55 where counsel announced his appearance for the defendant and remained in court throughout the proceeding but took no part in the hearing. I consider the present case to be different because Mr Denby was not in attendance for the substantive proceeding.
In the case of Bullmore v Zurich Australian Life Insurance Ltd, (unreported, Supreme Court of Victoria, Fullagar J, 24 January 1991) an adjournment application had previously been made and granted on strict terms. However, those terms were not complied with. On the date appointed for the hearing, counsel for the defendant announced his appearance. Fullagar J found that the appearance was general and absolute and not limited to the adjournment application that was later made orally. His Honour said at pages 12 to 13:
The question is whether the appellants should be treated as having appeared only upon an interlocutory application for adjournment of the trial, or whether they should be treated as having appeared “ in the proceeding” so as to deprive the trial of the character of an ex parte proceeding. In my opinion the latter position is the correct one. If a party appears by Counsel at the trial but takes no further part in the trial, the party has appeared in the proceeding for the purposes of this section – see Kotrlik v Eisner [1958] VR 55. Once a general appearance has been announced in the proceeding at the commencement of the trial when it is called on, the party has appeared in the proceeding.
…
It must be largely a question of fact, ultimately, whether a person has appeared in the proceeding. (Emphasis added)
… In the present case the defendants well knew that the matter had earlier been ordered after a full investigation to proceed on the date of the actual appearance and that this order would not be varied unless new facts were shown.
In Bullmore, the defendants were personally aware of the date for hearing. They had in fact been granted an adjournment of the hearing provided that they complied with certain conditions. However, they did not comply with those conditions and, accordingly, the hearing proceeded. Notwithstanding that the defendant had not complied with the conditions on which the adjournment was granted, the defendant who was able to give instructions for the trial had chosen to go overseas.
The circumstances of the present case are very different. The respondents were personally unaware of the hearing date. They did not fail to comply with the conditions of an adjournment. There is no suggestion that any of them left the jurisdiction, knowing the hearing to be proceeding.
Following Bullmore, it is necessary to determine, as a question of fact, whether Mr Denby appeared on 16 October 2007 only for the purposes of an adjournment application or whether he appeared for the purposes of the proceeding generally. Having examined the transcript of the proceeding on 16 October 2007, it is clear in my view that Mr Denby’s appearance was confined to the adjournment application and he did not make a general appearance in relation to the substantive proceeding. As a result, in my view, r.16.05(2)(a) of the Federal Magistrates Court Rules 2001 was engaged.
I should add that I very much doubt that taking this view of the matter would in any way open the floodgates. It would require a rare confluence of circumstances for a litigant who was represented on the day of a hearing for the purposes of making an adjournment application to succeed in having the subsequent substantive judgment set aside on the basis that the judgment was made in his absence. However, for the reasons which follow, I consider that there has been the required rare confluence of circumstances in the present case.
c. Reason for failure to appear
I accept that the respondents were not present personally on 16 October 2007 because they were unaware that the matter was listed for hearing on that day. I consider that Mr Denby did not appear to represent the respondents at the substantive hearing on 16 October 2007 due to his poor handling of the matter. I do not consider that Mr Denby's conduct should be visited upon his clients. In these circumstances, I consider that the respondents had an adequate reason for not being present on
16 October 2007.
d. Delay
The respondents filed the application to set aside the quantum orders within about two weeks of becoming aware of them. No third parties have been affected by the delay and the applicants did not point to any prejudice to them occasioned by the delay in bringing the application to set aside the quantum orders. I consider that the respondents have acted promptly in bringing the application.
e. Adequacy of costs and security
The applicants argued that, if the orders of 30 October 2007 were set aside, they could not be fully compensated for the costs and inconvenience of having to re-litigate the matter. The respondents conceded that they would be liable for costs on a party/party basis and submitted that it may be appropriate for Mr Denby to show cause why he should not pay the applicants’ costs on an indemnity basis to the extent that they exceeded party/party costs.
I accept that it would be both costly and inconvenient for the applicants to be required to re-litigate the assessment of damages in this matter. However, it is necessary for the court to balance the competing interests of the parties, to ensure that justice is done. If appropriate, orders may be made for costs and security.
The applicants made an oral application for security for the future costs of the proceeding on a party/party basis and for security for the full amount of the damages already quantified. The applicants relied on Order 1 rule 5 of the Federal Court Rules 1979. That rule provides for orders to be set aside on terms. The respondents argued that r.16.05(2)(a) of the Federal Magistrates Court Rules 2001 dealt with the question of setting aside judgment and did not allow for the incorporation of the Federal Court rule. The respondents argued further that the court had no power to give security for judgment and to order it would produce a grave injustice. In relation to security for costs, the respondents argued that there was no evidence of the amount sought and such orders were rare, particularly against individuals.
Subrule 1.05(1) of the Federal Magistrates Court Rules 2001 states that it is intended that the practice and procedure of this court is to be governed principally by those rules. However, sub-r.1.05(2) provides that if in a particular case the rules of this court are insufficient or inappropriate, the court may apply the Federal Court Rules 1979. Rule 1.03 of the Federal Magistrates Court Rules 2001 states that the object of the rules is to assist the just, efficient and economic resolution of proceedings and to help the court operate as informally as possible, use streamlined processes and encourage the use of appropriate dispute resolution procedures. I consider that Order 1 rule 5 of the Federal Court Rules 1979 is consistent with those objectives and in an appropriate case should be applied in the interests of justice.
However, it would clearly not be appropriate to order the respondents to give security for the amount of the damages quantified in the orders of 30 October 2007 if those orders are set aside. The consequence of setting aside those orders would be that the amount of the damages would be presently unknown. This question is addressed further below.
Further, I do not consider that it would be appropriate to order the respondents to give security for the costs of the future proceedings in this matter. With the understandable exception of not enquiring of their solicitors about the progress of the matter, the respondents have been blameless in relation to the giving of judgment against them in their absence.
In my view, the applicants could be adequately compensated in this case, for the purposes of the setting aside of the damages assessment, by an order for costs against the respondents. They conceded that an order for party/party costs against them would be appropriate. I will hear the parties on the amount of costs. I venture no opinion at this stage on whether any application brought against Mr Denby for costs on an indemnity basis might be successful.
f. Merits
The respondents argued that the damages awarded for loss of profits was based on the evidence of Ms Blomquist to the effect that she had seen between 20 and 30 counterfeit PianuraStudio garments on the shelves of the first respondent’s shop. In the reasons for decision given on 30 October 2007, there was in fact also reference to the evidence of Mr Paul Asseraf, the first respondent's purchasing officer, to the effect that he had bought 10 to 15 PianuraStudio labelled garments in February 2006 in Hong Kong and seven PianuraStudio labelled garments in June 2006 in Hong Kong. From this evidence, it was inferred that the first respondent had purchased at least 30 counterfeit PianuraStudio garments. Damages for loss of profit were calculated on the basis that the purchase of 30 counterfeit garments represented 30 lost sales to the applicants.
However, the respondents argued that, even if they had purchased 30 counterfeit garments, that fact did not translate into 30 lost sales to the applicants. They pointed out that, in the third respondent’s affidavit sworn on 10 December 2007, he swore that the respondents removed approximately 20 to 30 allegedly counterfeit PianuraStudio garments from the shop immediately upon receiving a letter of demand in September 2006. That is, the respondents say that, while they might have bought 30 counterfeit garments, they did not sell 30 counterfeit garments.
In my view, I consider that there is a reasonable prospect that the respondents will be able to give persuasive evidence that they sold substantially less than 30 counterfeit PianuraStudio garments. If that evidence were accepted, it would have a significant effect on the quantum of damages awarded for loss of profits.
The respondents argued that the evidence relied upon in paragraph 15 of the reasons for decision given on 30 October 2007 was inadmissible, though for obvious reasons there was no objection to it. The respondents argued that the evidence in paragraph 15 concerned the position of the fourth respondent which was irrelevant to the position of the first, second and third respondents. The respondents also argued that it was unfair to them to rely on evidence emanating from the fourth respondent. The case against the fourth, fifth and sixth respondents was dealt with in a separate trial, the proceedings having been separated by orders made on 22 February 2007.
Paragraph 15 of the reasons for decision given on 30 October 2007 concerned whether the garments sold by the first respondent were of inferior quality to genuine PianuraStudio garments. The evidence of inferior quality went to the issue of whether the applicants’ reputations were damaged by the presence of inferior quality counterfeit PianuraStudio garments on the market.
The summary of that evidence began in paragraph 14 with the evidence of Geoffrey Lynch, a director of the second applicant. He said he had examined some counterfeit PianuraStudio garments on display in the fourth respondent’s shop and had formed the opinion that they were of inferior quality. Paragraph 15 of the reasons for decision given on
30 October 2007concerned a comparison between the labelling on the first respondent's garments and the labelling on the fourth respondent’s garments. The comparison led to a finding in paragraph 16 that garments sold by the first and the fourth respondents emanated from the same source and an inference that they were of the same inferior quality.
Mr Lynch did not exhibit to his affidavit the fourth respondent’s garments on which his opinion as to their quality was based. Accordingly, it would not have been possible for the respondents to independently verify the facts on which Mr Lynch’s opinion was based. In these circumstances, I consider that it is reasonably arguable that Mr Lynch’s opinion of the inferior quality of the fourth respondent’s garments would be excluded from evidence or would be given minimal weight. This could well have a significant effect on the quantum of damages for loss of reputation and goodwill.
As to order 4 of the orders made on 30 October 2007, the respondents argued that their belief as to the authenticity of the garments would be a good reason not to award exemplary damages or to award them at a lower figure than in the existing orders. I accept that submission.
The evidence advanced by the respondents does not tend to substantiate their assertion that they bought the garments from an authorised distributor. However, the third respondent has given clear evidence on oath that the respondents believed the garments to be genuine. That claim is supported to an extent by the evidence of Ms Blomquist, on behalf of the applicants, that she examined some allegedly counterfeit PianuraStudio garments at the first respondent's shop and was unable to determine whether or not they were genuine. Accordingly, I consider that there is a reasonable prospect that the respondents will be able to give persuasive evidence that they believed the PianuraStudio label garments that they bought in Asia were genuine, with the result that any award for exemplary damages would be lower than the existing award.
g. Conclusion on quantum orders
I consider that, in all the circumstances, including the circumstances set out in paragraphs 64 to 72 above, the arguments and evidence that the respondents wish to advance are sufficiently arguable to warrant setting aside orders 1 to 4 inclusive of the orders made on 30 October 2007. As the remaining orders made on 30 October 2007 were of a consequential and procedural nature, I consider that it is also appropriate to set aside those orders. I will hear the parties on the terms of the orders for costs, and for the further hearing of the matter.
I certify that the preceding eighty-three (83) paragraphs are a true copy of the reasons for judgment of Riley FM
Associate: Melissa Gangemi
Date: 8 February 2008
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