Facton Ltd v Dawood (No.2) - [2011] FMCA 933

FEDERAL MAGISTRATES COURT OF AUSTRALIA

FACTON LTD & ORS v DAWOOD (No.2)

[2011] FMCA 933

COPYRIGHT – Alleged multiple breaches of statutes and common law by respondent’s sale of counterfeit clothing – defence that conduct was that of third party – findings as to respondent’s credit – consideration of relief to which applicants are entitled.

Copyright Act 1968, ss.114, 115(4)
Fair Trading Act 1987 (NSW)

Adidas-Salomon AG v Turner (2003) 58 IPR 66
G-Star Raw Denim KFT and Anor v Urban Culture Proprietary Limited and Anor [2010] FMCA 17
Facton Ltd (formerly known as G-Star Raw Denim KFT) & Ors v Chung Lim Sports Cap Pty Ltd [2010] FMCA 584

First Applicant:

FACTON LTD

Second Applicant:

G-STAR RAW C.V.

Third Applicant:

G-STAR AUSTRALIA PTY LTD
(A.C.N. 096 765 123)

Respondent:

AMIR DAWOOD

File Number:

MLG 1061 of 2010

Judgment of:

Burchardt FM

Hearing date:

24 October 2011

Date of Last Submission:

24 October 2011

Delivered at:

Melbourne

Delivered on:

7 December 2011

REPRESENTATION

Counsel for the Applicants:

Mr M. Rivette

Solicitors for the Applicants:

Middletons

The Respondent:

In person

ORDERS

G-Star Raw C.V. be substituted as the second applicant in the proceeding.
The respondent pay the applicants $3,000 for loss of sales.
The respondent pay the applicants $20,000 for damage to reputation.
The respondent pay the applicants $40,000 additional damages pursuant to s115(4) of the Copyright Act.
The respondent pay the applicants costs.

FEDERAL MAGISTRATES
COURT OF AUSTRALIA
AT MELBOURNE

MLG 1061 of 2010

FACTON LTD

First Applicant

G-STAR RAW C.V.

Second Applicant

G-STAR AUSTRALIA PTY LTD A.C.N. 096 765 123

First Applicant

And

AMIR DAWOOD

Respondent

REASONS FOR JUDGMENT

Introduction

The applicants seek relief against the respondent under a variety of statutes and at common law as a result of the sale by the respondent of counterfeit goods. As ultimately pressed before the Court, the applicants seek $3,000 for compensation for lost sales, $30,000 for loss of reputation and additional damages of $50,000 pursuant to s. 115(4) of the Copyright Act 1968 (“the Copyright Act”).
Mr Dawood, the respondent, admits that counterfeit goods were sold at his premises but says that the same was entirely an innocent mistake.
For the reasons that follow I do not accept Mr Dawood’s defence and there will be orders that Mr Dawood pay $3,000 for loss of sales, $20,000 for damage to reputation and $40,000 pursuant to s. 114 of the Copyright Act.

The Course of the Proceeding

The original application and statement of claim were filed in the Court as long ago as July 2010. The applicants had the greatest difficulty in serving the respondent. In the end service was achieved by text message to the respondent’s mobile phone.
The statement of claim pleaded the ownership by the applicants of the copyrights and trademarks in G-Star products identified in the statement of claim, pleaded the sale by the respondent at his retail store, Gazoz Jeans at Ware Street in Fairfield in New South Wales of counterfeit G-Star product and went on to plead infringements, as a result, of copyright and trademarks, breaches of the Fair Trading Act 1987 (NSW) and passing off.
The defence filed on 18 January 2011 largely consists of non-admissions or denials. The respondent did, however, admit being the owner of the registered business name, Gazoz Jeans, in New South Wales (paragraph 9 of the defence). The defence also admitted receipt of a letter dated 2 February 2010 from the applicants’ solicitors being a letter of demand and further admitted sending an undated reply thereafter (paragraphs 4 and 5 of the defence).
The defence also says in respect of the undated letter that the respondent, “later withdrew the abovementioned letter and documents as they were invalid and provided without any legal advice”.
Orders were made on 27 May 2011 for the filing of affidavit materials and the matter remained fixed for trial as ordered in 2010 for 1 August 2011.
On 7 July 2011 the applicants filed a Notice to Admit facts and authenticity of documents. That Notice to Admit, if not the subject of objection, would have the effect of proving not only the incorporation of the various applicants and their ownership of the copyright and trademarks asserted in the statement of claim, but the establishment by the applicants of a substantial exclusive and valuable reputation and goodwill in Australia by reference to G-Star product, and that the garments sold at the Gazoz premises were counterfeit.
No notice of dispute was filed.
On 27 July 2011 the applicants filed a notice of motion seeking to substitute G-Star Raw C.V. as the second applicant in the proceeding. That application was supported by an affidavit of Anthony Brooke Watson which sets out the way in which G-Star Raw C.V. effectively bought all the assets of the original second applicant. I would note in passing that no objection was taken to the substitution of the second applicant by G-Star Raw C.V. and I will make an order to that effect in any event.
On 1 August 2011 the respondent appeared at the hearing in person. He applied for, and was ultimately successful in obtaining, an adjournment. The respondent had not complied with the orders made for the filing of the materials nor had he complied with other orders relating to discovery. During the currency of the adjournment application hearing the Court inquired whether the respondent challenged anything in the Notice to Admit. No direct response to that inquiry emerged, but what did emerge was that the respondent’s real defence was that:
“I told them that I had few items from you, about 20 or 21. I didn’t sell them. The worker who works at my shop have sold them, and also this is not me who bought these items. The worker who works at the – the worker who works at the shop have bought them – or has bought them – without my permission.”
(at Transcript P-6).
The respondent went on, “In the first month of the year at this particular time, I was in China, and they know that”. (P6 – 7).
He went on to say that he did not know the items were ever in his shop and that he would try to call as a witness the worker who he said had bought these items without authority.
Although there was a hint of this defence in paragraph 8 of the defence filed, as the Court then found, the respondent was quite reasonably not in a position to proceed to trial in view of the defence articulated on the day. The matter was accordingly adjourned with a costs order in favour of the applicants.
The orders made on 1 August 2011 listed the matter for 24 October 2011 and limited the trial to matters not set out in the applicants’ Notice to Admit. There were orders for the filing of further materials.
The respondent did not file any affidavits but rather filed two statutory declarations. Neither of these statutory declarations attests to any translation before Mr Dawood declared them. Given that he does not speak English and certainly cannot read it either, that omission is somewhat striking. It was explained during trial that Mr Dawood had had these documents read out to him by his brother, who was the author of them, before he signed them.

The Trial on 24 October 2011

The applicants relied upon the affidavits of Jonathon Ariel Feder filed 25 July 2011, Leanne Gai Smith filed 25 July 2011, Piet Poelmann filed 25 July 2011 and Justin Jordan Nio also filed on 25 July 2011. None of the deponents was required for cross-examination. It is not necessary to deal with the affidavits of Mr Feder or Mr Poelmann because arguably they do no more than repeat matters already the subject of the Notice to Admit.
Annexures to Mr Feder’s affidavit are, however, of relevance. Exhibit JAF3 to Mr Feder’s affidavit is a letter dated 2 February 2010 to Mr Dawood from Middletons, the solicitors for the applicants. This is the letter that the defence admits was received. Having set out the ownership of the trademarks and copyrights of G-Star product, the letter demanded that Mr Dawood acknowledge his infractions of the law, deliver up any G-Star-branded products, provide a written undertaking not to further sell G-Star product and other matters.
Exhibit JAF4 is a letter signed by Mr Dawood to Mr Watson being clearly the undated letter admitted to have been sent in the defence. That says:
“I would like to mention that I was totally unaware that it was illegal to sell these item and I am complying with your demands.” Further:
“1 I did not realise that it was illegal to sell copy brands as they are accessible any market and in many stores.
2I only had 15 items which read g-star or g-stra which I have already sold.
3Undertaking attached.
4Statutory declaration attached.
5Unfortunately it is unknown as an asian lady came to me, her name is Lyn, she told me to try these garments and that she would be back with more. She did mention she sold at Fairfield and Flemington markets. She did not provide a contact number.
6The garments were sold through the shop to walk in client no details are available.”
The statutory declaration that was attached asserts that 15 items were bought. Also attached was an undertaking not to sell further G-Star product. That undertaking was signed by Mr Dawood on 6 February 2010.
The affidavit of Mr Nio relevantly deposes that on 4 January 2010 he visited the Gazoz Jeans premises and noted that there were G-Star-branded denim jeans and jackets on display for sale prices over $100. He went on to say that, “I spoke to the male shopkeeper who told me that “G-Star” stock was his biggest seller,”
The affidavit of Ms Smith deposes that on 9 January 2010 she visited the Gazoz Jeans premises and noticed 28 items of G-Star-branded products at prices varying from $35 for T-shirts up to $150 for jeans. She, in fact, bought one G-Star-branded belt and one G-Star-branded jeans and one G-Star branded shorts. Ms Smith also deposed that on 28 January 2010 she revisited Gazoz Jeans and purchased a G-Star-branded jacket for $50.
The first statutory declaration filed by Mr Dawood on 26 August 2011 commences relevantly:
“I swear by name of God that I had no idea about G-Star brand which was bought and sold by my shop assistant because I left Sydney for Melbourne on 28/12/2009 and returned to Sydney on 12/1/2010. On 18/1/2010 I left Australia for China and returned to Australia on 3/02/2010.
When I came back to Australia I received a letter a few days after 03/02/2010 stating that G-Star brand was sold in my shop. I was rudely shocked by the above letter because I was absent when this happened. Moreover, the person appearing on the photos, taken by the mysterious shopper(s), who sold the G-Star brand is the shop assistant (Empolee). Therefore, I am not responsible for buying and selling G-Star brand. In May 2010, I closed down my business because I could not make enough money to afford rent fees.”
The statutory declaration went on to plead impecuniosity on

Mr Dawood’s part, and annexed extracts from his passport proving his dates of travel and other documents designed to establish his lack of funds.
The second statutory declaration filed at the hearing before the Court simply sets out material designed to prove that Mr Dawood could not afford to pay the costs order previously made against him. In large part it repeats his earlier materials.
Mr Dawood was required for cross-examination. In evidence-in-chief he simply said, “These things I had no knowledge, I didn’t buy and I didn’t sell them.”
Mr Dawood was extensively cross-examined. It should be noted that his evidence, and indeed his submissions, were all given with the assistance of an interpreter. I accept that Mr Dawood has a very limited command of English and that he cannot read it. I accept his explanation that his statutory declarations, and indeed the letter originally sent back to Middletons, were drafted by a family member in consultation with him. No other explanation makes any sense.
Notwithstanding the difficulties of interpretation and the problems that inevitably afflict someone appearing in a legal system with which they are unfamiliar, Mr Dawood was not an impressive witness. His demeanour was unconvincing. He said inter alia that the letter written to Middletons was based upon what he had told his brother. He was very upset at the time and under a lot of stress. Indeed, he went on to describe the family meeting that had occurred upon receipt of the Middletons letter as being “hysterical”.
Mr Dawood was adamant that the vast majority of his clients were Lebanese or Syrian and he spoke to them in Arabic. He made very limited sales to English speakers as it is an Arabic area. He said that some companies come to him to sell product and that either he or an assistant buys. He said he had trust in the assistant. He identified the assistant who bought the offending G-Star product as Farid Yelda.
He said that the reason why Mr Yelda was not mentioned in exhibit JAF4 was that he had not spoken to him at that time but spoke to him later. He said it was not normal for Mr Yelda to purchase goods.

He said that Mr Yelda had told him that he bought these items from a girl who had the wrong size and that they had been changed for something else. When pressed as to why his statutory declaration did not mention that an employee had purchased the goods, he responded with words to the effect that he did not know it would be a big story and a big case.
Re-examination produced nothing of any assistance to the Court.
Farid Yelda was called to give evidence. He said in evidence-in-chief that he was unemployed and that he bought the product while the respondent was overseas and without his knowledge.
In cross-examination it emerged that Mr Yelda had worked, it would appear, for Mr Dawood for about one year. He likewise said that there were few English customers and that the vast majority were Arabic. He said that he had no understanding of G-Star and did not even know what it was. He said the girl came and said she bought items for children from overseas which were not the right size. Then he says he gave her items which were the right size and she gave him $10 by way, as it were, of a top up price. He said he exchanged one small for one large item. He said he wanted to help the woman who had an invoice for her materials which he had taken but lost. His account of how many items there were in total seemed to vary but at one point he said there were 10 to 15 pieces of which he had sold at most two to three. The rest he put away. He said some had been given to friends. He said that when Mr Dawood came back from overseas he told him to put the remaining items away.
He confirmed that the only time that Mr Dawood had been out of the shop for a long time was one the occasion when he went overseas.
He said that it was not normal for him to buy goods and that this had never happened before. He said he was sorry for the woman. He did not know her name. She had said it but he did not now remember it. He then went on to say there were only some three to four pieces which were sold for about $30 - $40.
Once again, although Mr Yelda gave his evidence with the assistance of the interpreter, his demeanour, making the same allowances in his favour as those made for Mr Dawood, was not impressive. As is apparent even from the synopsis of his evidence I have set out above, the figures for garments appear to be a moving target.

Conclusions on the Evidence

The evidence of Ms Smith and Mr Nio has not been the subject of any challenge and is eminently conformable with common sense. They have no reason to be untruthful.
The evidence of Mr Dawood and Mr Yelda is wholly inconsistent with the documents constituting exhibit JAF4. The statutory declaration executed by Mr Dawood expressly acknowledges purchasing 15 items from a lady named Lyn who walked into his store and who, “did mention she sells at various markets”.
The undated letter addressed to Mr Watson at Middletons relevantly states:
“Unfortunately it is unknown as an asian lady came to me, her name is Lyn, she told me to try these garments and that she would be back with more. She did mention she sold at Fairfield and Flemington markets.”
The letter to Mr Watson also confirmed that the goods were sold through the shop in any event.
That account is radically inconsistent with the evidence given at trial by both Mr Dawood and Mr Yelda. Their evidence was that not all the items were sold and that there were far fewer than 15. In any event, they recalled substantially fewer than those observed by Ms Smith.
I do not accept Mr Dawood’s retraction of his letter and statutory declaration constituting exhibit JAF4. However much of a bombshell the letter from Middletons may have been, the fact is that there was a confabulation following which, on Mr Dawood’s instructions, his brother wrote the correspondence that was returned. There is no reason to assume, even accepting that Mr Dawood was keen just to make the whole controversy go away, that he would have deliberately invented a sales woman who did not exist.
Furthermore, the account given by Mr Yelda of the actual interaction with the Asian lady is inherently very improbable. That this is so is immediately apparent given that according to Mr Yelda, he is extremely lacking in proficiency in English. Quite how he would have been able to communicate at the level of sophistication he asserts is beyond me.
There is no obvious reason why he would have sought to take a number of G-Star products from somebody he had never met before, exchanging one and apparently storing the others for sale or distribution to friends. The story has all the hallmarks of ex post facto construction and I am quite satisfied that it is untrue.

The Authorisation Issue

In view of my findings that the material sent to Middletons reflects what occurred far more accurately than the later stories advanced by Mr Dawood and Mr Yelda, it is not necessary for me to consider in any further way the authorisation issue which Mr Dawood’s defence raises. I accept that Mr Dawood, as he initially asserted, bought the relevant goods from an Asian supplier himself. He was well aware that they were being sold in his shop.
I accept that Mr Dawood was overseas for a period of time and that he may even have been absent in Melbourne but the fact is that he bought the product and sold it.
Even if I were wrong in this regard, however, I would indicate just for the sake of completeness that the submissions made by the applicants as to the applicability of the vicarious liability provision of the Copyright Act and, indeed, at common law would be sufficient to make Mr Dawood responsible for Mr Yelda’s conduct in any event.
It is clear from the affidavit materials filed by the applicants and from the matters asserted in the Notice to Admit that the applicants have proved their incorporation, their ownership of the relevant copyright and trademarks, the counterfeit nature of the goods sold by the respondent and the reputation they assert in their goods. I am also satisfied on the basis of Mr Poelmann’s affidavit that the applicants spent substantial amounts of time and money promoting and maintaining the reputation of their brand.
Accordingly, the issues that stand to be considered are the quantum of counterfeit goods sold, the resultant damages that should be paid, if any, in respect of loss of sales to the applicants, the quantification of damages for loss of reputation and the quantification of damages pursuant to s. 114 of the Copyright Act.

The Loss of Sales

I accept the submissions of the applicants that the evidence of

Ms Smith, untested and unchallenged, appears to suggest that something of the order of 30 items were on sale at the Gazoz premises. That, of course, was only when she visited and there were obviously other items on sale at other times.

I accept that the quantification of an issue like this is not attended by any great degree of certainty and the Court has to do the best it can in the circumstances. On the material before me I find that the respondent sold 30 items of counterfeit G-Star product. I note that while that is greater than the 15 that he, himself, originally admitted, I refer again to my lack of belief in the evidence that Mr Dawood presented before the Court.
In Adidas-Salomon AG v Turner (2003) 58 IPR 66, Goldberg J referred to the problems of quantifying damages in the circumstances as follows at [67]:
“Notwithstanding the difficulty facing me on the assessment of damages the task of the court is to do the best it can on the available material.”
His Honour quoted from the Full Court judgment in NZ Holdings v Wynthea as follows:
“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 guesswork 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.”
Here I have evidence from Mr Nio that the G-Star product being sold by the respondent was amongst his best sellers. It was selling for premium prices. It is more probable than otherwise, although of course it is not susceptible of definite proof, that the provision by the respondent to the public of G-Star counterfeit items for sale has indeed cost the applicants loss of sales. I am satisfied that it is more probable than otherwise that this is so. In all the circumstances, and doing the best I can in an imperfect field, I think that the applicants should have damages of $3,000, being $100 per item not sold. That figure is plainly justified by the figures contained in the applicants’ affidavit material.
While it might seem counter-intuitive that the applicants are obtaining, as it were, damages for each item identified in the respondent’s premises, it is far more probable than otherwise that in fact the respondent sold more product than Ms Smith and Mr Nio happened to see. That this is so emerges from the remark that this was their best-selling brand advanced to Mr Nio by the salesperson.

Damages for Damage to Reputation

It is not necessary to set out or refer to in any detail the evidence of the reputation the applicants have established in their brands. I should also note that I accept the submission set out at paragraphs 89 to 93 of the applicants’ initial written submissions as to actual and likely damage caused by the respondent’s conduct to the applicants.
In the circumstances of this case, the compensatory damages under s.115(2) of the Copyright Act for loss of reputation should be assessed at $20,000.
I note that in G-Star Raw Denim KFT and Anor v Urban Culture Proprietary Limited and Anor [2010] FMCA 17, O’Dwyer FM awarded a larger figure under this heading and set out a number of relevant matters detailed in paragraph 133 of the applicants’ written submissions.
I note that in the Seo case (Facton Ltd (formerly known as G-Star Raw Denim KFT) & Ors v Chung Lim Sports Cap Pty Ltd [2010] FMCA 584), I awarded $15,000 for the loss of reputation, a figure not disturbed on appeal although Gordon J found that there were 20 additional infringing items rather than the five I had determined.
While I accept that the respondent in this instance operates retail stores whereas in the Seo case it was only a market stall, and I accept also that the applicants have not been able to access any documents by way of discovery through failure by the respondent to comply with Court orders requiring it, nonetheless each case requires to be considered on its own facts. In my view, the figure of $20,000 is appropriate compensation for conduct of the nature and scale engaged in by the respondent.

Damages Pursuant to Section 115(4) of the Copyright Act

I accept, as the applicants submit, that considerations giving rise to an award of additional damages under s.115(4) in this case include:
(a)the varying, incomplete and unsatisfactory participation by the respondent in the proceedings including his failure to comply with orders as to discovery which may well have assisted the applicants;
(b)the flagrant nature of the conduct selling counterfeit product which in all the circumstances Mr Dawood must have or ought reasonably to have known was counterfeit;
(c)the need to deter other similar infringements of copyright;
(d)the importance of protecting copyright;
(e)the importance of protecting copyright owners in the market-place from destructive conduct or from those who infringe;
(f)the commercial advantage that the respondent obtained by selling the counterfeit product trading on the status established by the applicants’ own endeavours; and
(g)the flagrant lies told by Mr Dawood to try to justify his conduct.
Once again, there are many cases where this Court and the Federal Court have made orders under s.115(4) and each case requires to be considered in the light of its own facts. In all the circumstances in my view the applicants’ claim for $50,000 is somewhat overstated.

A proper measure placing particular emphasis on the need for deterrence is, in my view, $40,000.

Other Relief

The applicants have pressed for the declarations and orders set out in the application. They have also sought injunctive relief to restrain the respondent from any future infringing conduct.
In the context of this case, and the orders that I will make, I do not think that declarations will serve any additional or useful purpose and I therefore decline to make the declarations sought.
Similarly, I do not think it is appropriate to grant the applicants injunctive relief, the net effect of which will be to require Mr Dawood to obey the law. That is not in my opinion an appropriate function of the injunction power. Mr Dawood will be visited with significant financial penalties and in my view that is the appropriate means of ensuring that he complies with his legal obligations in the future.

I certify that the preceding sixty-five (65) paragraphs are a true copy of the reasons for judgment of Burchardt FM

Date: 7 December 2011