Facton Ltd v HADIA El-Sayadi
[2011] FMCA 617
•4 August 2011
FEDERAL MAGISTRATES COURT OF AUSTRALIA
| FACTON LTD & ORS v HADIA EL-SAYADI | [2011] FMCA 617 |
| COPYRIGHT – Sale of counterfeit clothing items – where respondent claimed to be unaware of counterfeit status of goods and lack of money to pay compensation – whether respondent was aware of status of goods – default judgment – where no defence filed – quantum of damages – general damages, damages for loss of reputation, damages for flagrant infringement – tort of passing off – infringement of trademark – contravention of the Fair Trading Act. PRACTICE AND PROCEDURE – Costs – assessment of costs. |
| Trade Marks Act 1995 (Cth), s.120 Fair Trading Act 1987 (NSW), ss.42, 44 Copyright Act 1968 (Cth), ss.115(2), (4) Federal Magistrates Court Rules 2001 |
| Adidas-Salomon AT v Turner (2003) 58 IPR 66 Facton Ltd & Ors v Chung Lim Sports Cap Pty Ltd Limited & Ors [2010] FMCA 584 Review Australia Pty Ltd v New Cover Group Pty Ltd [2008] FCA 1589 Review Australia v Innovative Lifestyle Investments Pty Ltd & Anor [2008] FCA 74 Elwood Clothing Pty Ltd v Cotton On Clothing Pty Ltd [2009] FCA 633 Universal Music v Hendy Petroleum [2003] FMCA 373 Phonographic Performance & Ors v Adelaide City Entertainment (No.2) [2005] FMCA 1075 Fraserside Holdings & Anor v Venus Adult Shops & Ors [2005] FMCA 997 Microsoft Corporation v Wordsworth [2007] FMCA 2071 Australasian Performing Right Association v Cougars Tavern & Ors [2008] FMCA 369 Top Plus Pty Ltd & Ors v K Square Pty Ltd & Ors (No.4) [2010] FMCA 671 Phonographic Performance Company of Australia Limited v All Girls Entertainment Pty Ltd & Ors [2010] FMCA 593 Facton Ltd & Ors v Yuan [2011] FMCA 266 Facton Ltd & Ors v Dash Industries Pty Ltd & Anor [2010] FMCA 709 Commonwealth of Australia v Kelly [2004] FCA 654 |
| First Applicant: | FACTON LTD |
| Second Applicant: | G-STAR RAW C.V |
| Third Applicant: | G-STAR AUSTRALIA PTY LTD ACN 084 011 852 |
| Respondent: | HADIA EL-SAYADI |
| File Number: | MLG 1462 of 2010 |
| Judgment of: | Raphael FM |
| Hearing date: | 4 August 2011 |
| Date of Last Submission: | 4 August 2011 |
| Delivered at: | Sydney |
| Delivered on: | 4 August 2011 |
REPRESENTATION
| Solicitors for the Applicants: | Middletons |
| For the Respondent: | In person |
ORDERS
The Court declares that in the sale of the goods described in the affidavits of Morrie Michael Fahd sworn 28 July 2011, Melissa Kylie Range sworn 29 July 2011 and Leanne Gai Smith sworn 28 July 2011:
(a)The Respondent has infringed the G-Star Trade Marks (as defined in paragraph 5 of the Statement of Claim) in breach of s.120 of the Trade Marks Act 1995 (Cth) (“TMA”);
(b)The Respondent has contravened ss.42 and 44 of the Fair Trading Act 1987 (NSW) (“FTA”);
(c)The Respondent has engaged in conduct which constitutes the tort of passing off.
The Court orders that the Respondent, whether by herself, her servants, employees, agents or otherwise howsoever, deliver up to the Applicants within 21 days of the date of this Order:
(a)All the Collectable Garments as defined in the Amended Statement of Claim in her possession, custody or control;
(b)All the garments or accessories in her possession, custody or control which feature the Trade Marks or the Copyright Works as defined in the Amended Statement of Claim which have been applied without the consent or licence of the Applicants or any of them;
(c)Any and all brochures, pamphlets, advertising, labels, swing tags, promotional or marketing material and the like in her power, possession, custody or control which bear the G-Star Trade Marks or the Copyright Works; and
(d)Any materials, products or things in the Respondent’s power, possession or control, the exploitation of which by the Respondent would be an infringement of the foregoing injunctions.
(e)The Respondent to pay the Applicants the sum of $22,854.06 in damages for breach of s.115(2) of the Copyright Act 1968 and $30,000.00 for breach of s.115(4) of the Copyright Act 1968.
(f)The Respondent to pay the Applicants’ costs assessed in the sum of $19,723.94.
| FEDERAL MAGISTRATES COURT OF AUSTRALIA AT SYDNEY |
MLG 1462 of 2010
| FACTON LTD |
First Applicant
| G-STAR RAW C.V |
Second Applicant
| G-STAR AUSTRALIA PTY LTD ACN 084 011 852 |
Third Applicant
And
| HADIA EL-SAYADI |
Respondent
REASONS FOR JUDGMENT
There comes before me today an application based upon an Amended Statement of Claim filed in court this morning by three applicants who I shall collectively call “the G-star applicants” against the respondent, who is a sole trader in Bankstown, New South Wales. The Amended Statement of Claim seeks declarations, injunctions and damages against the respondent for the sale of counterfeit clothing items in respect of which they say they have the copyright and trademark protection. They also say that by selling these counterfeit goods the respondent was in breach of the New South Wales Fair Trading Act 1987 (NSW) and committed the tort of passing off.
The proceedings were commenced on 21 October 2010. They were served on the respondent on 30 October 2010 and there was a first directions hearing in Melbourne on 24 November 2010. The proceedings were commenced in Melbourne, although the respondent is in Sydney, because it would appear that the applicants’ solicitors, and possibly the applicants themselves, are based in Melbourne. The respondent appeared by telephone at the directions hearing and certain orders were made which included an order requiring her to file a defence by 24 December 2010. The respondent did not file that defence and the matter proceeded to a mediation conference in February 2011. Perhaps regrettably, that mediation conference being ordered from Melbourne was conducted with the respondent at the telephone. The respondent is a 65 year old woman of Middle Eastern extraction whose knowledge of English is not good and, without being critical of those responsible for continuing the matter in Melbourne, I believe it would have been preferable for the mediation to have taken place in Sydney with the respondent appearing in person. In any event the mediation failed.
At the directions hearing in Melbourne there were a number of other orders made, in particular an order relating to discovery. As I understand it no discovery was given. After the failure of the mediation Burchardt FM in Melbourne ordered that the matter be sent to trial in Sydney and the trial date of 3 August was fixed. The matter was to proceed by way of affidavit evidence. No orders were made about the dates or times upon which such affidavits should be filed. The applicants did, however, file a series of affidavits dealing with their ownership of copyright and the facts found when they made visits to the respondent’s premises which were the cause of the current proceedings. By 26 July 2011 these documents were all that were on the file, the respondent not having taken any steps whatsoever. The matter came before me on that day when I suggested that it be referred again to mediation before a New South Wales Registrar where both the applicant and the respondents could appear in person. But after a lengthy directions hearing, at which I heard from the respondent, I came to the conclusion that there would be little value in making such an order and did not do so.
The respondent did not indicate any intention to file a defence. Her attitude was that she was unaware that the goods that she was selling were counterfeit and that she had no money to make any compensatory payments to the applicants. In those circumstances I made orders that the applicants could seek default judgment for non-compliance on the issue of liability and that I would hear them on quantum alone on 3 August.
The case was set down for two days, 3 and 4 August. By agreement it was put over to 4 August. The applicants then served a notice of motion, the amended statement of claim, some affidavits, and very helpful written submissions from which document much of the information in this judgment has been obtained. I should say, that to the extent the document makes reference to cases, I have had the opportunity of considering them. The decisions which I make in these reasons concerning the quantum of damages that should be awarded is based on a consideration, not only of those authorities, which seem to me to be confined to the State of Victoria, but also authorities previously considered by me in matters of this nature in New South Wales and elsewhere.
At the hearing this morning the respondent was not represented but she was assisted by an interpreter. This is the second time Ms E-Sayadi has come before me and I am satisfied that she does have more than a working knowledge of English having lived in this country for at least 20 years. She was assisted by the interpreter in relation to some of the complexities which were required to be explained to her. As the transcript will show I took the respondent through the applicants’ outline of submissions attempting in my own way to simplify the concepts which have been so carefully set out.
When I had finished that process I offered Ms El-Sayadi the opportunity to go into the witness box and explain to the court what had occurred and gave the opportunity to Mr Feder, who appeared for the applicants, to cross-examine her. The essence of Ms Sayadi’s evidence was that she had indeed been in business for 20 years but had not always sold fashion goods. Her store was a collectibles store. She said that it was only in recent times that she had turned to fashion and that she purchased goods in the market and then sold them. She began purchasing goods such as those of the G-star parties and sold them at prices, which I now know to be considerably less than those of genuine articles, and found that they were popular.
She claims that she did not know that the goods were not genuine. She did not really understand why they were popular, only that they were. In cross-examination she admitted that it was not only the G-star goods that she was selling, she was also selling goods of other manufacturers whose labels would be known universally. Reference was made to goods bearing labels of Chanel and Louis Vuitton. I find it difficult to accept that the respondent would not realise that goods of this type, if they were genuine, would not be offered for sale to retailers such as her in markets, and I think that knowledge can be inferred so far as the G-star goods are concerned as well.
Ms Sayadi told the court in evidence that she had no money. Her only asset was her shop and, that while she would pay whatever the court told her she should have to pay, she could only put that promise into effect if the amount was very small. I have no better evidence of Ms Sayadi’s financial position. Whilst I shall take into account that she will be unlikely to be able to satisfy a substantial order for damages and costs, this is only one of the matters I would have to consider and it is to a very large extent outweighed by the obligations that I would have under the Act to the applicants and, in respect of damages under s.115(4) of the Copyright Act 1968 (the “Act”), to the community generally.
The claim for default judgment is one made under Order 13.03B Sub Rule (2) of the Federal Magistrates Court Rules 2001 (the “Rules”). This provides:
“If a respondent is in default, the Court may:
(a) order that a step in the proceeding be taken within the time limited in the order; or
(b) if the claim against the respondent is for a debt or liquidated damages -- grant leave to the applicant to enter judgment against the respondent for:
(i) the debt or liquidated damages; and
(ii) if appropriate -- costs; or
(c) if the proceeding was commenced by an application supported by a statement of claim or the Court has ordered that the proceeding continue on pleadings -- give judgment against the respondent for the relief that:
(i) the applicant appears entitled to on the statement of claim; and
(ii) the Court is satisfied it has power to grant; or
(d) give judgment or make any other order against the respondent; or
(e) make an order mentioned in paragraph (b), (c) or (d) to take effect if the respondent does not take a step ordered by the Court in the proceeding in the time limited in the order.”
Order 13.03A Sub Rule (2) defines when a respondent is in default and that includes failing to file and serve a document required under the Rules or comply with an order of the court in the proceedings. It also includes failure to defend proceedings with due diligence. I am quite satisfied that the respondent has failed to defend the proceedings with due diligence. She has also failed to comply with the order to file a defence and for that reason I am satisfied that she is in default and that the court can proceed under Order 13.03B(2) to judgment. As Mr Feder says in his helpful submissions:
“The condition under sub-rule 13.03B(2)(c)(i) of the FMR that the applicants appeared to be entitled to relief on the statement of claim does not require proof by way of evidence of the applicants’ claims. Rather it requires that on the face of the statement of claim there is a claim for relief sought and that the court has jurisdiction to grant that relief. Authorities for this approach in the Federal Magistrates Court of Australia and the Federal Court of Australia under the equivalent Federal Court Rule 35A(3)(2c), where judgment has been entered pursuant to a default application without evidence supporting the applicant’s claim include:
(a) Arthur v Vaupotc Investments Proprietary Limited [FCA 433] of [3] per Heerey J;
(b) Australian Competition and Consumer Commission v Albert [2005] FCA 1311 at [6 to 7] per Jacobson J;
(c) Virgin Enterprise Limited v Australian Paper and Disposables Proprietary Limited [2006] FCA 1852 per Edmonds J at [27 to 33];
(d) Luna Park Sydney Proprietary Limited v Bowes [2006] FCA 94 per Jacobson J at [19] to [22].”
Mr Feder also provided me with some Federal Magistrates Court decisions of the same nature. I am satisfied that the court has the power to order judgment and that it is not necessary to have a hearing of the type required when judgment on an ex parte basis is sought. However, I would also note that the applicant’s filed evidence indicates quite clearly both the legal justification for the claims in copyright and trademarks and the fact of the infringements.
In regard to the copyright infringements the applicants note that they are entitled to general damages pursuant to s.115(2) of the Act and that those damages should include damages for a loss of reputation. The applicants also submit that they would be entitled in this case to damages under s.115(4), which are known as additional damages. This relief was placed into the Copyright Act in order to provide some deterrence against flagrant infringement of the type that is evidenced in this case. Mr Feder’s submissions make reference to the manner in which the court should calculate the general damages, noting that in many cases this is not an easy task; Adidas-Salomon AT v Turner (2003) 58 IPR 66 per Goldberg J. But very fairly they have assisted me in doing this by restricting their first claim for actual loss to the value of the goods which were identified as being those of the G-Star parties when the shop belonging to the respondent was visited by their agents, less the value of the goods delivered up by the respondent in answer to a request for delivery. Calculation of this amount is found between [35] and [38] of Mr Feder’s submissions in the total sum of $15,354.06. As Mr Feder’s submissions will be kept with the papers I see no reason why I need to go into any further detail. Having described how the calculation has been made I propose to award that sum.
The second constituent of damages under s.115(2) is what is described as the “reputational damage” to the G-Star parties from the activities of the respondent. The G-Star goods have an exclusivity value in the market and a brand value. It is said that when counterfeits are sold that brand value suffers a loss. Mr Feder has provided me with a series of cases, seven in all, of which four would appear to be those in which his clients were the applicants. They are again listed in his helpful submissions so I mention only Facton Ltd & Ors v Chung Lim Sports Cap Pty Ltd Limited & Ors [2010] FMCA 584, which was a decision of Burchardt FM. That decision was appealed but the general damages awarded in the sum of $15,000.00 for damage to reputation were not interfered with by Gordon J in the Federal Court. The other three cases referred to by Mr Feder are Review Australia Pty Ltd v New Cover Group Pty Ltd [2008] FCA 1589; Review Australia v Innovative Lifestyle Investments Pty Ltd & Anor [2008] FCA 74 and Elwood Clothing Pty Ltd v Cotton On Clothing Pty Ltd [2009] FCA 633. Those Federal Court cases awarded reputational damages of $35,000, $7,500.00 and $10,000.00 respectively.
I note that it is submitted that the G-Star brand has a very strong recognition in Australia and that it is a high end and innovative one. Considerable sums are spent on the advertising. The G-Star parties suffer whenever someone sells counterfeit goods at low prices both from loss of income and also from the cheapening of the value of the goods in the market generally. It is fair to say in regard to counterfeiting that it is now done to such a high standard it is difficult for the average person to distinguish between a counterfeit good and a genuine one, particularly on the casual inspection given to an item of clothing being worn by a passer by. But the effect is quite significant because if two out of every ten passers by are wearing the same item of clothing the non-wearer may be put off from purchasing the item if their motive for purchase of such items is exclusivity.
Whilst I am sympathetic to the claims being made for loss of reputation I do feel that some of the awards, particularly those cited from this court, appear to be at the high end. I prefer to give more consideration to the awards made in the Federal Court, noting that in Elwood 28,000 units of garments had been sold and only $10,000.00 was awarded for damage to reputation. In Review Australia v New Cover Group, where $35,000.00 in damages for loss of reputation was awarded, 700 infringing garments had been sold. I accept the submission made by Mr Feder that in all probability this respondent did sell more goods than those that were accounted for in the general damages award but I have no evidence it was anything like the numbers referred to in those Federal Court cases. Perhaps the award in Elwood was low and the reward in New Cover Group high. Having taken all these matters into consideration I will award $7,500.00 by way of damages for loss of reputation. This makes a total of general damages under s.115(2) of $22,854.06.
The relevant matters to be taken into consideration in respect of an award for damages under s.115(4) are set out in a non-exhaustive way in that subsection where reference is made to (a) the flagrancy of the infringement; (b) the need to deter similar infringements; (c) the conduct of the defendant after the act constituting the infringement; and (d) any benefit shown to have accrued to the defendant by any reason of the infringement. I have discussed these matters myself in Universal Music v Hendy Petroleum [2003] FMCA 373; Phonographic Performance & Ors v Adelaide City Entertainment (No 2) [2005] FMCA 1075; Fraserside Holdings & Anor v Venus Adult Shops & Ors [2005] FMCA 997; Microsoft Corporation v Wordsworth [2007] FMCA 2071; Australasian Performing Right Association v Cougars Tavern & Ors [2008] FMCA 369; Top Plus Pty Ltd & Ors v K Square Pty Ltd & Ors (No 4) [2010] FMCA 671; Phonographic Performance Company of Australia Limited v All Girls Entertainment Pty Ltd & Ors [2010] FMCA 593 at which time I reviewed the authorities from the Federal Court and the views which I expressed there have not changed.
I note in regard to the instant case that the respondent both failed to comply with the court’s orders and also consistently denied the extent of the infringement. I am not privy to what occurred at the mediation so I cannot hold the failure of that mediation against the respondent. But I have found from her evidence that I could draw an inference that she was well aware that these goods were counterfeit notwithstanding her protestations of innocence. The collecting together of the goods of various high end and well known manufacturers in a shop where they are sold at prices that bear little resemblance to the prices charged for genuine articles constitutes, to my mind, a flagrant infringement.
It goes almost without saying that this type of infringement should be deterred. The awards that have been made in the Federal Court to which I have referred in my own cases make it clear that deterrence is a very important constituent. The respondent did deliver up some goods to the applicants after the warning, but they came nowhere near the number of goods that were found in the shop when the applicant’s agent attended. I do not believe that any particular benefit has accrued to this respondent by reason of the infringement outside the sales of the goods themselves for which the applicants have been compensated under s.115(2).
I have taken into account what Ms El-Sayadi has told me about her financial circumstances. I think there is little point in making the award under s.115(4) so high that she merely throws up her hands, declares bankruptcy and possibly departs the country. The award should make it clear that she has earned the ire of the court and that this conduct should not occur again. I believe that in all the circumstances the award of $50,000.00 which is sought by the respondents is near the mark, but in this case I would lean more towards the views expressed in Facton Ltd & Ors v Yuan [2011] FMCA 266 and Facton Ltd & Ors v Dash Industries Pty Ltd & Anor [2010] FMCA 709 by Burchardt and Riley FMs and award the sum of $30,000.00.
Mr Feder quite rightly points out that the law does not permit applicants to “double dip” so that there is no need to make any award in this case for the trademark or breach of consumer protection law infringements nor that of passing off and I do not do so. Mr Feder has provided the court with an assessment of costs pursuant to Schedule 1 of the Rules. I am of the view that he has been generous to the respondent in this regard because it is clear from the affidavits filed and the submissions made that a considerable amount of work has gone into the preparation of this case and he would have been entitled, had he asked, to an order for taxation. But he has not asked for that. He has asked for a figure of $12,619.00 by way of profit costs and $7,104.94 by way of disbursements. He has produced a schedule showing how those sums are made up. I am happy to make that award.
In the originating application the applicants seek other relief to which I believe they are entitled. In Mr Feder’s submissions he has provided as annexure A, some proposed forms of order. These deal with declarations of infringement, with orders for delivery up, damages and costs. It is not the practice of this court to make declarations where there is a judgment for damages for breach, it being considered that the declaration is otiose in those circumstances; Commonwealth of Australia v Kelly [2004] FCA 654 per Branson J. However, as no damages have been awarded in respect of the infringements of trademark or the contravention of the Fair Trading Act or the tort of passing off, I am prepared to make the declarations requested in respect of those breaches. I also believe that the respondent should deliver up any other goods in her possession which infringe the applicants’ copyright and trademark. I believe that the delivery up should be made within 14 days. In the circumstances, the court will adjust the proposed forms of order to reflect these reasons when I have had an opportunity to consider the transcript. Those final orders and final form of reasons will be dispatched to the parties.
I certify that the preceding twenty-two (22) paragraphs are a true copy of the reasons for judgment of Raphael FM
Date: 11 August 2011
0
19
4