Fahey, M. v Stephens Publishing Pty Ltd
[1991] FCA 715
•15 NOVEMBER 1991
Re: MARYANNE FAHEY, MEDIA ARTS CORPORATION PTY LTD and TREVOR YOUNG
And: STEPHENS PUBLISHING PTY LTD and FILM AND BOOK PUBLISHING PTY LTD
No. V G459 of 1988
FED No. 715
Damages - Federal Court Practices Notes
COURT
IN THE FEDERAL COURT OF AUSTRALIA
VICTORIA DISTRICT REGISTRY
GENERAL DIVISION
Sweeney J.(1)
CATCHWORDS
Damages - Application containing allegations of misrepresentation as to sponsorship or approval - contract to produce a book - whether book as produced was with approval of originator/licencee of character depicted therein - capacity of agent to give approval - interlocutory motion for injunction - interlocutory orders granted upon usual undertaking as to damages - application dismissed - compensation payable to respondents.
Federal Court Practices Notes - "Usual Undertaking as to Damages"
Air Express Ltd v Ansett Transport Industries Corporations) Pty Ltd (1981) 146 CLR 249
Graham v Campbell (1878) 7 Ch D 490
HEARING
MELBOURNE
#DATE 15:11:1991
Counsel for the Applicants: Mr C. Golvan
Solicitors for the Applicants: Slater and Gordon
Counsel for the Respondents: Mr R. Kendall
Solicitors for the Respondents: Stephens Solicitors
ORDER
The applicants pay to the respondents the sum of $201,637.86 plus interest in the total sum of $77,511.22.
The applicants pay the respondents' costs of the application filed by the respondents on 23 April 1990, including all reserved costs.
The amount of $10,000 paid into court on 9 May 1991 be paid out to the respondents' solicitors for the respondents in part satisfaction of the judgment.
The amount of costs payable to the applicants under the order of 13 May 1991 be set off against the amount payable under paragraph 2 of this order.
There be a stay on execution of judgment for 21 days from 15 November 1991 in relation to paragraphs 1, 2 and 4 of these orders.
Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.
JUDGE1
By application filed on 23 December 1988 the applicants Maryanne Fahey, Media Arts Corporation Pty Ltd and Trevor Young sought, amongst other relief, injunctions restraining the respondents Stephens Publishing Pty Ltd ("Stephens Publishing") and Film and Book Publishing Pty Ltd ("Film and Book") from distributing or selling the book referred to in paragraph 8 of the Statement of Claim (or any modification thereof containing a drawing or photograph of Kylie Mole or words attributed to her) without the consent of the applicants, and associated relief.
The book referred to in the Statement of Claim was to be called "Kylie Mole's Official School Planner". Kylie Mole was described as "a distinctive character" "created and developed" by Fahey for the series of television programs known as "The Comedy Company".
Media was described as the "exclusive licensee of the right to manufacture and to commission to be manufactured clothing, stationery, food stuffs, toys, household goods and other goods bearing the name and image of Kylie Mole".
Young was said to be "the exclusive sub-licensee of the right to produce or cause to be produced merchandise bearing the name visual image or other distinctive characteristics of Kylie Mole".
The Statement of Claim alleged that the applicants had since early 1988 extensively publicised and promoted Kylie Mole, so that "the distinctive appearance and sayings of Kylie Mole have become identified with the applicants" who have "accordingly acquired a substantial and valuable reputation and goodwill associated with the Kylie Mole character".
It was alleged that "by an agreement dated 20 September 1988 ('the publishing agreement') made between Young on behalf of the applicants and the respondents, the parties agreed that the respondents would produce, publish distribute and offer for public sale a book to be called 'Kylie Mole's Official School Planner'. ..."
The Statement of Claim continued:
"9. There were terms of the publishing agreement that:
(a) the respondents would design and produce the book to a format having the full consent and approval of the applicants (such approval not to be withheld unreasonably);
(b) all words and copy lines used in the book would be provided by the applicants to be placed as indicated within the respondents' design.
10. The book produced by the respondents -
(a) contained poor quality and demeaning caricature representations of Kylie Mole;
(b) contained words purportedly spoken by Kylie Mole which were not supplied by the applicants and were out of character with Kylie Mole.
11. On or about 30 November 1988 the respondents presented the book for the approval of the applicants.
12. By reason of the matters referred to in paragraph 10 the applicants declined to consent to publication of the book in the form presented by the respondents but on or about 6 December 1988 provided photographs of Kylie Mole and words suitable for attribution to her for substitution for the caricatures and words contained in the book produced by the respondents.
13. The respondents have nevertheless, without the consent of the applicants, distributed and sold from on or about 15 December 1988 copies of the book in the form originally produced by them.
14. The respondents have thereby -
(a) passed off and are continuing to pass off the book as a book produced by or for or with the approval of or otherwise connected in the course of trade with the applicants or one or more of them;
(b) passed off and are continuing to pass off their business as and for a business approved by or connected with the business or businesses of the applicant or one or more of them;
(c) enabled and are continuing to enable the book and the respondents' business to be passed off as a book and business of or connected with the applicants or one or more of them.
15. Further, the respondents have thereby in the courses of trade and commerce and in connection with the supply or possible supply of the book -
(a) represented that the book has the sponsorship or approval of the applicants or one or other of them whereas the book in its present form does not have such sponsorship or approval;
(b) represented that the respondents have the sponsorship or approval or an affiliation with the applicants or one or other of them whereas the respondents do not have any such sponsorship or approval or affiliation as represented.
PARTICULARS
The applicants refer to Section 53(c) and (d) of the Trade Practices Act (Cth.).
16. Further the respondents have thereby in the course of trade and commerce -
(a) engaged in conduct which is misleading or deceptive;
(b) have engaged in conduct which is likely to mislead or deceive.
PARTICULARS
The applicants refer to Section 52 of the Trade Practices Act (Cth.).
17. Further, the respondents have thereby breached the terms of the publishing agreement referred to in paragraph 9 hereof.
18. The applicants have requested the respondents to discontinue the publication and distribution of the book but the respondents have refused to do so and threaten and intend and will unless restrained by this Honourable Court continue to do such acts.
19. The respondents have made profits by reason of the acts complained of.
20. The applicants have and each of them has sustained substantial loss and damage by reason of the wrongful acts of the respondent alleged herein and, unless such acts are restrained will continue to sustain loss and damage".
The claim for an interlocutory injunction came on for hearing at 11 a.m. on 23 December, the day on which the application was filed. It was presented on behalf of the applicants by Mr Macaw QC and Mr Cosgrave. Mr Harrison, of counsel, appeared for the respondents. The claim was supported by an affidavit of Ian McFadyen who deposed:
"I am a director of the secondnamed Plaintiff ('Media'). I am authorised to make this affidavit on behalf of the firstnamed Plaintiff ('Fahey') who is my wife and the other director of Media".
In his affidavit he went on to say that Media had since 1987 produced a television programme known as "The Comedy Company", which has been marketed as a one hour weekly television comedy consisting of a series of short sketches. Each week, one sketch was based upon a character known as "Kylie Mole". The affidavit dealt with the creation and recognition of that character and later detailed the steps which he took after he saw the proofs of the book, and the instructions he gave that an interlocutory injunction be sought.
The claim for interlocutory injunctions was further supported by an affidavit of Mr Young, also sworn on 23 December, which included the following paragraphs:
"2. I operate a business under the name 'Young Communications' which business is engaged in marketing the products, inter alia, of Media Arts Corporation Pty Ltd, Mr Ian McFadyen and Miss Maryanne Fahey.
3. In or about September, 1988 I was approached by Mr Ron Stephens of Stephens Publishing regarding his desire to publish a book to be called 'Kylie Mole's Official School Planner'. By an agreement made on 20th September, 1988 I, on behalf of Media, Ian McFadyen and Maryanne Fahey, authorised the Defendants to publish, distribute and offer for public sale the said book. ...
4. Approximately two to three weeks before 30 November, 1988 Stephens sent me by facsimile some pages from the proposed book. These included some pages from the proposed book. These included some of the caricatures and some of the text. I explained to Stephens that no book could be published until it had been approved by Fahey and McFadyen on behalf of Media. I otherwise said little about the caricatures and text provided. I certainly did not state anything in the form of approval for any of the caricatures or text. Towards the end of November, 1988 I contacted Stephens and told him that there was little point in him sending me the proofs of the book in bits and pieces. I said that McFadyen was a difficult man to catch and that I was meeting him on 30th November, 1988. I said that Stephens should ensure that I had a full copy of the proposed book so I could submit it to him at that meeting.
5. Stephens provided me with a full proof of the proposed book for my meeting with McFadyen on 30th November, 1988. ...
6. On 1 December, 1988 I rang Stephens and advised him that the proposed book was totally unacceptable and could not be published in its existing form. Later that day, Stephens sent me a letter by facsimile."
"December 1st, 1988 FAX TO: Trevor Young
898 6427
FROM: Ron Stephens
REPLY FAX: 509 5243
Trevor,
I cannot make changes now in the book without losing my contracts. We committed to supply Coles, Myer and the trade, all the mechanism is in place and if I don't keep faith, I'll not only lose the contracts but I'll not be accepted for future publications.
I understand your position but our agreement says clearly you accept responsibility and also, we had to deliver by December. We're committed to do that and I'm afraid any changes would have to be considered in a second print run.
I'm afraid you'll have to explain this to Ian. I can't believe its such a big issue, and, if it was, you have seen those illustrations before and I think that would have been the time to raise the matter.
I'll have to rely on you to compose the matter." The affidavit continued:
"7. On 2 December, 1988 I had conversation with Stephens about the book. Stephens told me how he had used camera ready art which is the last stage before printing. It is expensive to alter and he said he might lose $30,000-00 worth of art work. Stephens suggested that we might try changing the caricatured faces by etching on to the film. I later discussed this with McFadyen. Subsequently I had more telephone calls from Stephens in which he expressed concern about his commitment of the books to Coles Myer Limited. He wanted to give that company a small order. Because I informed Stephens and he knew that I could not give such approval myself, he asked if he could speak to McFadyen. I told him he could.
8. ... I say further that on 6th December, I organised the photographer to make new photographs for inclusion in the booklet and couriered the photographs to Stephens the same day.
9. Later on 6th December, 1988 after the morning meeting, Stephens returned to my office and said that if I read in the paper the following day of a body found face down in the river it would be his. Stephens then explained his partner in Stephens Publishing Company, Jeremy Maxwell had gone ahead with the printing of the book by Quadricolour Industries Pty Ltd without effecting any of the changes required by Fahey and McFadyen. Stephens said that when he discovered this he stopped the printing completely. I said that that was good. I asked him whether any of the printed copies of the book had been distributed. He said he didn't know but he believed not. I asked him to speak to me again on the following morning with more advice on this point.
10. On 7th December, 1988 Stephens came to my home and told me he didn't know for certain what the position was with regard to distribution of the printed books. He said that he had strong words on the previous night with Maxwell. On the 7th and 8th December, 1988 I had a number of conversations with Stephens. He advised me that some of the printed books had been distributed. He said however that he believed that they were sent to distant areas of Australia first. He was sorry that some had 'slipped the net' which he had endeavoured to place over the distributed books. Stephens said he would still produce the book in the form required by Fahey and McFadyen and I told him to give me the amended version of the book so I could fax it to McFadyen in Queensland for his approval.
11. On or about 9th December, 1988 Stephens provided me with details of the numbers of books printed. He explained that approximately 1280 cartons of 20 book each had been printed. Of these, 216 were sent to Western Australia, 56 to Tasmania, 342 to Queensland, 204 to New South Wales, 242 to Myer in Victoria and 220 to the Coles depot in Victoria. He told me that he had been able to stop Coles Myer Ltd from distributing their copies and he said that the company had agreed to hold the books for replacement with the new books on 9th January, 1989. Stephens said that he could deliver the new books by that time and in fact he had allowed himself 2 days extra in which to complete delivery. Stephens also told me that the book had been distributed through three distributors one of which was Newsagents Direct Distribution Pty Ltd a company based in New South Wales."
Mr Macaw QC opened the application for interlocutory relief, making it clear that the agreement relied upon by the applicants was in writing and was entered into by Young on behalf of the applicants with the respondents. He further said:
"The respondents began the production of this book. From time to time in October and November they provided in draft the form which was proposed for various pages of it. There is a conflict on the evidence as to whether Mr Young who was acting as the agents of the applicants for this purpose approved the contents supplied in draft or not.
The respondents' version of events is that he did and he led the respondents to believe that the format of the book as proposed was appropriate. Mr Young's version of events is that he did not; that he always made it plain that the consent of Miss Fahey and Mr McFadyen were essential to the final book and that until such consent was obtained then publication could not occur".
Mr Harrison stated that he was in some difficulty as he did not have copies of all the exhibits, including the book which was the subject of the dispute. It was, he said, "the contention of the respondents that via the agency of Mr Young, the applicants did approve the book and that is detailed in the affidavit of Mr Stephens".
Mr Harrison said that the respondents had been served with a copy of the affidavit of Mr Young, but not with that of Mr McFadyen, which had been handed to Mr Harrison "about ten minutes ago". At that time Mr Stephens was not present in court and Mr Harrison stated that he had no instructions in relation to paragraphs 9 and 10 of Mr Young's affidavit. The hearing was then adjourned until 1.15 p.m. to enable Mr Stephens to come to court. At the end of the day the parties were able to agree on a solution of most of the problems to which the interlocutory application gave rise.
The respondents by their counsel undertook that they would not without the consent of the applicants distribute or sell the book and the applicants by their counsel gave the usual undertaking as to damages.
The applicants had sought an order that "the respondents forthwith take all steps open to them to recover all copies of the book already distributed by them in which property has not passed from them to any third party". I refused to make this order.
The relevant Practice Note of the Court at that time read as follows:
"Where, in relation to an interlocutory injunction or undertaking to the Court, an undertaking as to damages is to be given, a 'usual undertaking as to damages' will be an undertaking to pay to any party adversely affected by the interlocutory injunction or undertaking such compensation (if any) as the Court thinks just, in such manner as the Court directs.'"
On 22 February 1989 the respondents' motion seeking release from their undertaking and further orders relating to the distribution and sale of remaining copies of the book came before the Court. Each party had filed affidavits which revealed a clash as to the facts. Counsel for the respondents said that since 23 December they had suffered substantial financial loss which was continuing and which was "of such significance as to threaten their financial viability," adding that "in those circumstances - and in the ordinary course an action of this kind would not come on for many months, then it may prove academic for these respondents to wait". Rather than deal with an opposed motion which would have involved the parties in further costs, the court fixed the trial for hearing on 6 March 1989.
On that day the matter came on for trial and was heard over a total of ten days, concluding on 8 May 1989.
On 27 July 1989 the following orders were made:
"1. The Court orders that the application be dismissed with costs, including the costs of the claims for interlocutory orders and that the respondents be released from their undertaking of 23 December 1988;
2. The Court declares that the applicants are liable to pay to the respondents the damages suffered by them by reason of giving that undertaking and directs that the amount which the applicants shall be ordered to pay shall be ascertained by the Registrar in accordance with order 38;
3. The Court orders that Trevor Young pay the respondents' costs of and incidental to the cross claim; and
4. In case there should be any matter of machinery which either party wishes to mention, liberty is reserved to apply on seven days notice to the other parties."
On 23 April 1990 an application was filed by the respondents (as I shall continue to call Stephens and Film and Book Publishing Pty Ltd) claiming damages, as it had not proved practicable to resolve the question of damages before the Registrar, despite a number of hearings before him.
It will be helpful to consider the principles which apply to claims for damages in such circumstances as those in the present case.
Air Express Limited v Ansett Transport Industries (Operations) Proprietary Limited (1981) 146 CLR 249 was a case in which a defendant applied for damages pursuant to an undertaking in the usual terms given to the Court by the plaintiff on the grant of an interlocutory injunction to restrain the Commonwealth of Australia and the Secretary of the Department of Transport from issuing permission to the defendant and another company under customs regulations to import freighter aircraft into Australia.
After the action had been determined in favour of the defendants an application for damages was made to AickinJ., who considered that once the action was commenced the Secretary would not have issued the permission and concluded that the defendant had not established that the loss it had incurred from its inability to import the aircraft flowed from the grant of the injunction.
On appeal, it was held by Barwick C.J., Gibbs and Stephen JJ., Mason J. dissenting, that there was no ground for interfering with the decision.
Aickin J., at first instance, cited (at p 264) the observation of Cotton L.J.:
"I think that the damages must be confined to loss which is the natural consequence of the injunction under the circumstances of which the party obtaining the injunction has notice." His Honour said (at p 268):
"It is important in all cases, and particularly in the present case, to bear in mind the distinction adverted to in so many of the cases ... between damages flowing from the injunction and damages flowing from the litigation itself. There may not in every case be any difference between the two but, where there is a difference, it is essential that the damage flowing from the litigation should not be confused with the damage flowing from the interlocutory injunction. This is necessarily required by the form of the undertaking itself."
Gibbs J. said (at pp 312-313)
"The generally accepted view is that the damages must be confined to loss which is the natural consequence of the injunction under the circumstances of which the party obtaining the injunction has notice: see Smith v Day (19) and the cases cited in Kerr on Injunctions, 6th ed. (1927), p 667, and Halsbury, 4th ed., vol. 24, par 1077. However, in the present case the question is not whether loss caused by an injunction was a natural consequence of making it, but whether any loss which the appellant suffered was caused by the making of the injunction. In the circumstances I do not find it necessary to discuss the dictum of Cussen J. in Victorian Onion and Potato Growers' Association v Finnigan (No. 2)
(20), that 'the word "damages" in that undertaking is to be given a very general meaning, and is not necessarily to be given the same meaning as the word "damages" when used in connection with breaches of contracts', which, although its meaning is not altogether clear, appears to be inconsistent with the statement of Lord Diplock in Hoffman-La Roche v Trade Secretary (21), that the assessment of damages for breach of an undertaking 'is made upon the same basis as that upon which damages for breach of contract would be assessed if the undertaking had been a contract between the plaintiff and the defendant that the plaintiff would not prevent the defendant from doing that which he was restrained from doing by the terms of the injunction'.
In a number of authorities the court has distinguished between loss which was caused by the injunction and loss which arose from the litigation: see Bingley v Marshall (22); Gault v Murray
(23); Douglas v Bullen (24) and Newman Bros. Ltd. v Allum, S.O.S. Motors Ltd. (In Liq.) (No. 2) (25). There is no reason to doubt that it is correct in principle to draw such a distinction if the facts warrant it. If the pendency of the litigation, rather than the making of the order, was the cause of the plaintiff's loss, the terms of the undertaking have no application, since the plaintiff has not sustained loss by reason of the order. Moreover, except in certain cases analogous to malicious prosecution, a defendant is not entitled to recover damages for loss resulting from legal proceedings brought against him - the only liability of the unsuccessful plaintiff is to pay costs. The court should no doubt scrutinize with care an assertion by a plaintiff that loss which has been suffered by a defendant has resulted from the litigation rather than from the making of the interlocutory order, since a plaintiff should not be allowed to evade payment of the price which he has agreed to pay for the grant of the injunction. In the end however the question becomes one of fact: did the making of the order cause the loss? The onus of proof must, in accordance with general principles, lie on the defendant who asserts that he sustained damage by reason of the order.
It was submitted on behalf of the appellant that it is enough that the making of the order should have been a cause of the damage, so that if both the making of the order and the continuance of the litigation are concurrent causes the undertaking will be applicable. However, in almost every case in which an injunction is granted the injunction will play some part in causing the party bound by it to act in accordance with its terms. To order a plaintiff to pay damages where it appears that the party bound by the injunction would have acted as he did even if the injunction had not been granted, would be to give the undertaking an effect obviously not intended. The party seeking to enforce the undertaking must show that the making of the order was a cause without which the damage would not have been suffered. It was further submitted that the onus lies on the plaintiff, against whom the undertaking is sought to be enforced, to disentangle any damage arising from the litigation from that which was caused by the making of the order. However, the onus of proof does not shift in this way; the defendant, who seeks to enforce the undertaking, must prove that the damage he has sustained was caused by the making of the order."
Stephen J. (at p 320) said:
"From this it can be seen that it will only be if damage is suffered because of the grant of the injunction, and would not have been suffered but for it, that the court should compensate a defendant who claims damages under the undertaking. Its grant must be shown to be the causa sine qua non of the damage complained of before the defendant can be entitled to be compensated for what turns out to be the erroneous grant by the court of the injunction against it. Only then will the defendant have suffered, from the grant of the injunction, such 'real harm' as Cussen J. spoke of in Finnigan's Case what North J., in Attorney-General v Albany Hotel Co. (35) described as 'the damages which were really sustained'.
It follows that it is for the claimant under an undertaking to establish by evidence, or by inference from evidence, a prima facie case both that the grant of the injunction was a cause of his damage and that but for it he would not have suffered that damage."
Mason J. said (at p 325):
"It is no part of the purpose of the undertaking to protect the defendant against loss or damage which he would have sustained otherwise, as for example, detriment which flows from the commencement of the litigation itself. That is loss or damage which the defendant must bear himself, as he does when no interim injunction is sought or granted. Consequently, it is for the party seeking to force the undertaking to show that the damage he has sustained would not have been sustained but for the injunction." and (at p 332):
"Air Express must show that it has sustained damage 'by reason of' the injunction. Air Express bears the onus of showing the necessary causal connexion in the sense already explained between the damage and the injunction, that is, that the damage would not have been sustained but for the injunction. The crucial question is whether by establishing the sequence of events it has done enough to discharge that onus by making out a prima facie case. Unless the circumstances indicate otherwise, when it appears that damage flows from the non-performance of an act and the performance of that act has been restrained by an interim injunction, the inference will generally be drawn that the damage has been occasioned by the injunction."
In the present case, neither counsel has sought to base any argument upon the differences in language between the undertaking in Air Express to "abide by any order which the Court or a Justice may make as to damage in case the Court or a Justice shall hereafter be of the opinion that the defendants shall have sustained any, by reason of this Order, which the plaintiff ought to pay" and that in the present case to pay to any party adversely affected by the undertaking "such compensation (if any) as the Court thinks just".
Both counsel have relied upon the principles laid down in Air Express. Mr Kendall has cited the observation of Aickin J. (at pp 266-7):
"In a proceeding of an equitable nature it is generally proper to adopt a view which is just and equitable, or fair and reasonable, in all the circumstances rather than to apply a rigid rule. However the view that the damages should be those which flow directly from the injunction and which could have been foreseen when the injunction was granted, is one which will be just and equitable in the circumstances of most cases and certainly in the present case. No doubt the view as expressed in the two decision of the Court of Appeal does not constitute a rigid rule and circumstances may sometimes require a different approach. However it will in my opinion be seldom that it will be just or equitable that the unsuccessful plaintiff should bear the burden of damages which were not foreseeable from circumstances known to him at the time."
It has not been submitted that the present case is in that rare category. On the contrary, Mr Kendall has accepted the burden of showing that the damage which he contends that his clients have suffered was foreseeable by the applicants from circumstances known to them at the time when the undertaking was given.
The respondents' Statement of Claim for damages dated 23 April 1989 was superseded by that of 7 June 1991, in which they described themselves as the applicants, and expressed their claim as follows:
"1. Damages for loss of profits on
sale of 'Kylie Mole's School
Survival Planner:
Anticipated profit: given credit for royalties. 1st edition $125,961.15 Reprint edition $ 67,556.00 Less Net income from sales $ 18,273.29 TOTAL LOSS: $175,243.86
2. Damages for loss of profits
anticipated on publishing
projects which the Applicant
expected to undertake in 1989
but which were withdrawn by
other parties as a result of
the giving of the undertaking:
Cecil Cripps 'Towards 250 Kph $65,000.00 Black and Decker $33,000.00 $98,000.00
3. Damage for loss of reputation
and loss of goodwill. As a
result of the undertaking, the
reputation of each of the
Applicants in the publishing
and advertising industries as
reliable and responsible
publishers was severely
damaged, and many persons
refused to deal with the
Applicants whilst the
undertaking operated and
also during the period when
the discharge of the
undertaking was subject to appeal.
Estimated loss $100,000.00 The following persons declined
to deal with the Respondents
during the period when the
undertaking applied:
Cecil Cripps
Black and Decker
Tupperware
San Remo
McCormick Foods Co.
Deeko
B.H.P.
Aerospace and Technologies
C.J. Publishing
4. The Applicants seek interest
upon such sum as the Respondents
are found liable to the
Applicants under paragraphs
1 to 3 hereof."
Pursuant to a direction given on 5 February 1991 the applicants stated their contentions as follows:
"1. The Respondents are not entitled to any further damages arising from the giving of the undertaking as to damages by the Applicants on 23rd December 1988, as follows: 'That they give the usual undertaking as to any damages suffered by the Respondents by reason of their giving that undertaking.'
2. The Respondents have failed to establish that they were unable to sell any copies of the first printing of the book the subject of the proceedings ('the book') by reason of the giving by the Respondents of the undertaking on 23rd. December 1988 ...
3. The Respondents had distributed almost the whole of the first printing of the book, being 78,900 of 80,000 books printed prior to the giving of undertakings by the Respondents on 23rd December 1988.
4. The first printing of the book sold as well as could be reasonably expected given:
(a) the competition at the time with other merchandise featuring the 'Kylie Mole' character featured in the book (including another book);
(b) the seasonal nature of sales of the book, being principally a Xmas or back-to-school item; ...
5. The Respondents have failed to establish that they were unable to sell a second printing of the book by reason of the giving of the undertakings by the Respondents.
6. Alternatively, the Applicants have paid to the Respondents, without any admission of liability, the sum of $23,000 and say that no further or additional sum is due to the Respondents.
7. Furthermore, the Applicants were entitled to royalties from the Respondents on sales of the book in the sum of $18,797.62, which have remained unpaid, and which by way of offset against the claim of the Respondents brings the amount paid by the Applicants to the Respondents and due to be paid by the Respondents to the Applicants to $41,797.62.
8. To the extent that the Applicants are liable to pay to the Respondents any damages, same of which is denied, the Applicants have paid sufficient damages to the Respondents.
9. Alternatively, the Respondents have failed to establish that they have made any profits or were entitled to any profits on the sale of the books. To the contrary, Decon Australia Pty. Ltd. incurred all expenditure but for $759.80 with respect to the publication and distribution of the book and received all income from the publication and distribution of the book. No undertakings were given by the Applicants to Decon Australia Pty. Ltd. and the Applicants are not liable to compensate Decon Australia Pty. Ltd. for any damages suffered by Decon Australia Pty. Ltd..
10. Alternatively, the Respondents have failed to establish that the Applicants had notice of or were aware of an intended reprinting of the book at the time of the giving by the Respondents of the undertakings.
11. The Respondents have failed to establish that they are entitled to loss of profits on anticipated publishing projects.
12. In each case of an anticipated publishing project referred to by the Respondents, the Respondents' anticipation of securing a publishing project with third-named parties was unfounded, and/or loss of a project was not occasioned by the giving of the undertakings by the Respondents.
13. Furthermore or alternatively, the Applicants did not have notice of and were not aware of any of the publishing projects referred to by the Respondents at the time of the giving of the undertakings by the Respondents.
14. Furthermore or alternatively, any losses in relation to anticipated publishing projects with third parties were not a natural consequence of the giving of the undertakings by the Respondents and could not have been reasonably foreseen by the Applicants at the time the Respondents gave the undertakings.
15. Furthermore or alternatively, the Respondents have failed to establish any fair and proper basis for the calculation of net profits said by the Respondents to have been foregone arising from the loss of anticipated publishing projects.
16. Alternatively, to the extent that any losses were suffered by the Respondents arising from publicity surrounding the litigation, same of which is denied, such losses were not damages which flowed from the giving of the undertakings by the Respondents, but rather losses occasioned by the litigation.
17. The Respondents are not entitled to any damages for compensation for loss of goodwill as these are not damages occasioned by the giving of the undertakings by the Respondents."
To these contentions the respondents replied as follows:
"1. The Respondents claim they are entitled to further damages arising from the undertaking given by the Applicants on 23 December 1988.
2. The Respondents did suffer a loss of sales on the first printing of the book as a result of the undertaking given by them.
3. Having given the undertaking the Respondents refrained from a publicity campaign which had been proposed, or such publicity was part of the process of distribution of the book.
4. The first printing of the book was selling well prior to Christmas and before the giving of the undertakings in this proceeding, but by reason of the undertakings the book failed to capture the 'back to school' market and sales were therefore affected.
5. The Respondents had plans for a second printing of the book, and contend that sales prior to Christmas would have justified such a reprinting.
6. The Respondents acknowledge that they have not paid royalties to the Applicants in respect of the books sold but contend that the loss of profit figure claimed by them in the Application is the profit they would have earned after payment of royalties.
7. Decon Australia Pty. Ltd. did not incur all of the expenditure or all of the expenditure but for $759.80 in respect of publication of the book. The Respondents were obligated to reimburse Decon for any accounts incurred in its name relating to the publication and the Respondents have paid all accounts which have been paid in relation to the publication.
8. The Applicants would, by implication, have been aware of the intended reprinting of the book if sales of the first printing justified such a reprinting. Further a reprinting of the book was contemplated in the contract between the parties dated 20 September 1988.
9. The Respondents are entitled to loss of profits on anticipated publishing projects. The Applicants were aware of the majority of the anticipated projects.
10. The Applicants should have been aware of the effect of the giving of the undertaking and the publicity surrounding it on the business of a publisher and further should have been aware that any publisher would have more than one project in progress at any one time.
11. The Respondents contend that as a result of the publicity flowing from the giving of the undertaking in December 1988 their business was damaged. This was a loss attributable to the undertaking of the Respondents and not to the general litigation.
12. The effect of the publicity of the undertaking was so devastating as to force both Respondents out of the publishing business, and the goodwill of both companies was totally destroyed.
13. The damage suffered by the Respondents was exacerbated by the Applicants Solicitors writing to Newsagents Direct Distribution Pty. Ltd. dated 10 January 1989 advising that company that 'orders were obtained by consent' restraining the Respondents from distributing or selling the book and requesting that company to refrain from sale or distribution of the book. This letter both affected the sale of the books and the reputation of both Respondents."
I do not accept the applicants' contention that the undertaking related only to the sale and distribution of the first edition. The written agreement referred to royalties being payable "for each edition printed or reprinted" and provided that "the first edition shall be a minimum of 50,000 copies, any subsequent edition being based on the experience of sales demand for the first edition". The undertaking obliged the applicants to pay to the respondents, as persons adversely affected by it, such compensation (if any) in such manner as the Court directs. If the tests for the award of such compensation be established, then, in my opinion, the compensation should not be limited to the first edition.
The applicants submitted that the respondents had failed to show that they had made or were entitled to any profits in respect of the sale of the books, all expenditure on which had been incurred by another company, in what may be described as the respondents' stable, Decon Australia Pty Ltd ("Decon").
The former solicitor for the respondents gave evidence of a deed between the respondents whereby the publication of the book was to be a joint venture by them and any expenses incurred in the name of Decon would be met by the respondents out of the proceeds of sale of the book and all proceeds of the sale of the book would be received by the respondents. The solicitor set up a trust account in the names of the respondents through which all receipts and payments passed, with one exception. That exception related to a cash payment made from a sum received from Target "over that Christmas break" and the nett amount after payment of an account was paid into the trust account. I am satisfied that the applicants' Decon submission should be rejected.
The first head of damage claimed by the respondents included the anticipated profit of $125,961.15 on the first edition of the sale of the planner. The respondents submit that all of the first print run would have sold "but for" the undertaking.
The applicants submitted that the first print run did as well as could have been expected, undertaking or no undertaking. They relied upon the evidence of Mr Krummel, the then national book buyer for the G.J. Coles group, and Mr McDougall, a buyer with Target Australia Pty Ltd.
Mr Krummel deposed that he placed an order to purchase 19,000 copies of the planner without first having seen it, but that the Coles Group sold only about 10,000 copies of the planner. He described the sales as satisfactory and said that the whole of the order was not sold due to factors such as an over abundance of Kylie Mole material on the market and wrong placement of the planner in Coles group stores, namely in the book section rather than in the stationery section.
Mr McDougall stated that Target purchased 7,000 copies of the planner, of which it sold 1,000 in December and 1,500 to 2,000 in the January-February period 1989. The planner did not sell as well as he expected during the Christmas period because it was, he considered, not as good in quality as expected, although "it was sort of reasonable value for what it was". He was also of the view that the "character was dying at the time" and that the hype for Kylie Mole merchandise had died by the time the 1989 back to school period began.
Both Mr Krummel and Mr MacDougall in early December 1988 anticipated strong sales, and were confident of the planner's success and backed their opinions by outright purchases.
I accept the evidence of Mr Philip Allen, the managing director of Sagamore Industries Pty Ltd, ("Sagamore") who spoke of that company's production and sale of a ring binder featuring Kylie Mole on the cover. The binders contained no text or illustrations. Sagamore distributed 10,000 binders to stores in December 1988 which were sold by Christmas 1988. The company had been asked to supply a further 60,000 after the first run of 10,000 but because of a shortage of raw materials and time constraints it could supply only 30,000, all of which were sold between Christmas 1988 and February 1989.
Mr Allen expressed the opinion that, with appropriate promotion and advertising, sales of 80,000 copies of the respondents' planner could have been achieved and the first edition would have sold out. I found his evidence to be impressive and his opinion persuasive. I prefer it to that of Mr Krummel and Mr McDougall.
Mr Les Jabara a director of Film and Book Publishing Pty Ltd, the second respondent, gave evidence of the steps which had been taken to promote the book before the hearing on 23 December 1988 and those which had been planned. I am satisfied that he was an expert in promotion and that the steps which he detailed in his evidence would have considerably assisted the marketing of the book, subject to one qualification. He had included in his promotion schedule promotions by Ms Fahey by radio interviews and in-store promotions. I am satisfied by Mr McFadyen's evidence that, despite Trevor Young's statement to Mr Jabara on the subject, his wife was strongly opposed to the idea of engaging in such promotions and she would not have done so.
The promotion schedule was, for all practical purposes, dropped after the court hearing. Mr Jabara stated that the respondents did not continue with the promotion because they had been advised by their solicitor that, in the light of their undertaking not to sell or distribute the book, they should not take any further steps to promote its sale. In the end, the applicants conceded that the solicitors advice "was fair advice in the circumstances". They included a letter dated 10 January 1989, which was sent by the applicants' solicitors to Newsagent Direct Distributors Pty Ltd, which read as follows:
"We act on behalf of Ms Fahey and others in an action issued out of the Federal Court of Australia in the Victorian Registry. On the 23rd of December 1988 orders were obtained by consent restraining Stephens Publishing Pty. Ltd. and Film and Book Publishing Pty. Ltd. from distributing or selling a booklet called 'Kylie Mole's School Survival Planner'.
We are advised by Mr Stephens of Stephens Publishing that your firm is the distributor of this booklet.
No orders were obtained against your company nor would they be as no application was made however we do point out that our client's contention is that the booklet in its current form is unauthorised and being sold without their consent or authority. We therefore request that any further booklets you have in your possession not be distributed or sold or in any way dealt with whether it be for promotional or other reasons to any third party or otherwise.
The basis upon which our claim is made pursuant to our client's instructions is to be litigated in the Federal Court early this year and it is our submission that further sale of these booklets will exacerbate and increase the claim that our client has for damages.
We therefore take this opportunity of writing to you expressing our views regarding this booklet and requesting that no further distribution take place. Please acknowledge receipt of this letter." (The emphasis is added.)
In the course of his evidence Mr McFadyen said that he was aware that the letter had been sent and that his "intention was to suppress this publication absolutely".
Having regard to the undertaking, the attitude of the applicants, the risk of contempt proceedings and the advice of their solicitor I consider that the respondents were justified in the course they took and that the applicants should be held liable for the damaging effect which I am satisfied that it had on the marketing of the book.
I am satisfied on the balance of probabilities that, but for the undertaking, the first edition of the book would have been sold out. Its prime target was the back to school market, especially through newsagencies, in respect of which its promotion was killed by the undertaking and its direct consequences.
The anticipated profit claimed on the first edition, after giving credit to the applicants for the royalties to which they were entitled, was $125,961.15 and I am satisfied that this claim has been substantiated.
When the undertaking was given it was too early for the respondents to have made a decision on the contemplated reprint edition. In the light of my conclusions in respect of the first edition, of the evidence which I have already reviewed and of the evidence of the intentions of the respondents, which I accept, I conclude that a reprint edition, probably of 40,000 copies, would have been produced. In his final address Mr Kendall was content to seek a finding of sales of 20,000 copies which, is in my opinion, justified on the evidence.
In their Statement of Claim of 7 June 1991 the respondents had sought $67,556.00 in respect of a reprint edition of 40,000 copies. This claim was based upon paragraph 19 of Maxwell's affidavit, which read as follows:
"Had a second print run of the Kylie Mole Book been produced I would have expected that we would have printed 40,000 copies, being half the quantity of the first print run. I can only estimate the costs of the reprint and the sale price of the Kylie Mole Books, but would estimate that the profit derived from sales of the reprint edition would have been as follows: 40,000 books at $3.50 $140,000.00 Less:
Printing Cost (estimate) $ 23,450.00 Packing $ 900.00 Distribution $ 11,700.00 Royalties $ 17,440.00 NET PROFIT: $ 86,510.00 The costs of production of the reprint edition are significantly lower than the production cost of a first edition as there is no need to re-do the artwork or for the printer to re-set the Kylie Mole Book. It would not be likely that we would have sold the whole of the second print run of the Kylie Mole Book. We would normally budget for 15.8% returns of a second print run and for 100% sales of the first print. Allowing 15.8% for returns of the second print the revenue from sales of the second print would be reduced to $118,300.00 and the net profit reduced to $67,566.00."
Taking a figure of 20,000 sales of the reprint edition and accepting Maxwell's estimates, which appear to be reasonable, the figures would become:
Sales of 20,000 books at $3.50 - $70,000.00 Less Printing cost $23,450.00 Packing 900.00 Distribution $11,700.00 Royalties (at 10%) $ 7,000.00 NET PROFIT $26,950.00
Accordingly, damages under the first head become -
First Edition $125,961.15 Reprint Edition $ 26,950.00 $152,911.15 Less net income from sales $ 18,273.29 $134,637.86
The second heading under which damages were claimed was described as damages for loss of profits anticipated on publishing projects which the respondents expected to undertake in 1989 but which were withdrawn by other parties as a result of the giving of the undertaking which were listed as follows:
"Cecil Cripps 'Towards 250 KPH 65,000 Black and Decker 33,000 $98,000"
The third heading read as follows, the respondents describing themselves therein as the applicants:
"3. Damage for loss of reputation and loss of good will. As a result of the undertaking, the reputation of each of the Applicants in the publishing and advertising industries as reliable and responsible publishers was severely damaged, and many persons refused to deal with the Applicants whilst the undertaking operated and also during the period when the discharge of the undertaking was subject to appeal. Estimated loss $100,000.00
The following persons declined to deal with the Respondents during the period when the undertaking applied: Cecil Cripps
Black and Decker
Tupperware
San Remo
McCormick Foods Co.
Deeko
B.H.P.
Aerospace and Technologies
C.J. Publishing"
Finally, the respondents sought interest upon such sums as the applicants should be found liable to pay.
Throughout the course of the case the claims by the respondents in respect of projects said to have been lost as a result of the undertaking varied widely. The Statement of Claim dated 23 April 1990, read as follows:
"2. Damages for loss of profits anticipated on publishing projects which the Applicant expected to undertake in 1989 but which were withdrawn by other parties as a result of the giving of the undertaking:
Tupperware $ 26,250.00 San Remo $ 9,000.00 McCormick Foods Co. $ 80,000.00 Deeko $ 32,750.00 B.H.P. $ 50,000.00 Aerospace and Technologies $ 23,000.00 C.J. Publishing $100,000.00 TOTAL LOSS: $321,000.00"
In the Statement of Claim of 7 June 1991 this paragraph had become:
"2. Damages for loss of profits anticipated on publishing projects which the Applicant expected to undertake in 1989 but which were withdrawn by other parties as a result of the giving of the undertaking:
Cecil Cripps 'Towards 250 Kph $65,000.00 Black and Decker $33,000.00 $98,000.00"
It will be seen that Cecil Cripps and Black and Decker thus made their first appearance under this heading while the original seven companies disappeared from it. However they re-appeared under the third heading as having declined to deal with the respondents, but without any estimates of loss against their names. In his final address Mr Kendall acknowledged that San Remo and McCormick Foods Co. should be deleted from the list.
These fluctuations and the nature of the evidence in respect of the respondents' dealing with other possible customers led me to suggest and Mr Kendall to agree that it was more a matter of general damages rather than special damages. I propose to treat it as such.
I have found the evidence of Mr Connors, based on his long experience of publishing and book retailing, to be impressive and helpful. In paragraph 13 of his affidavit of 4 July 1991, he said:
"... The publishing industry in Australia is relatively small and persons in managerial positions are generally well informed about the general range of books and 'character' publications which are proposed for release on the market. In my experience publishers have frequent contact with other publishers. The publishing industry in Australia may be described as 'tightly knit'. In my experience it does not take long for information adverse to the reputation of a publisher to become widely known within the publishing industry. If, it becomes known in the publishing industry that a publisher (whether large or small) has printed and distributed a book for sale to the public without the consent of the author or of the owner of the character which is the subject of the book, other publishers and book sellers will have nothing to do with that person and generally will not deal with him. ..."
Although Mr Conners stated that he remains receptive to approaches from Stephens, this was not always the case. In referring to his initial reaction to the court proceedings, Mr Conners stated at paragraph 6 of his affidavit:
"... Upon becoming aware that sale and distribution of the planner was to cease because of what I understood to be the effect of the Court Order I decided to delay any further business involvement with Ron Stephens and Stephens publishing, until the matter had been resolved. I formed the belief that the applicants had published a book without the authority of the author and that the Court was requiring sale and distribution to cease."
Mr Conners described Stephens Publishing as "more a packager than a publisher". The way the respondents operated was to get an idea for a suitable publication, sell it to a firm such as Black and Decker or BHP and prepare a budget which would include a fee for their services. The normal fee charged for a book similar to the planner would be between $25,000 to $30,000. After a budget had been prepared, the respondents would seek firm contracts so as to lock up sales before, in the words of Mr Jabara, "you ... push the button."
The success of this type of business is highly dependent upon the perception by their potential customers of their standing and reputation. The respondents should receive an award for general damages. In reaching my conclusions, I have borne in mind the words of James L.J. in Graham v Campbell (1878) 7 Ch D 490 at p 494:
"The undertaking as to damages which ought to be given on every interlocutory injunction is one to which (unless under special circumstances) effect ought to be given. If any damage has been occasioned by an interlocutory injunction, which, on the hearing, is found to have been wrongly asked for, justice requires that such damage should fall on the voluntary litigant who fails, not on the litigant who has been without just cause made so."
In his final address Mr Kendall reduced the claim in respect of loss of goodwill from $100,000 and submitted that $25,000 should be awarded to each respondent.
In my opinion, the claims of the respondents under both the second and third heads should be treated as being in respect of general damages. From the beginning of these proceedings on 23 December 1988, the possibility of ongoing damage to the respondents in their publishing activities was present to the minds of the parties. It was discussed between counsel for the applicant and me on that day (see transcript p 57). The damage which the respondents have suffered has been shown to be foreseeable from circumstances known to the applicants when the undertaking was given.
In awarding general damages, the court must have regard, amongst other things, to the obligation resting on the respondents to take all reasonable steps to mitigate their losses. The fact that on 27 July 1989 judgment was given in favour of the respondents and they were released from their undertaking is also relevant. On 18 August 1989 the applicants filed notice of appeal which was discontinued on 18 October 1989. It seems to me to be reasonable to fix the end of December 1989 as the date by which the damage to the respondents should be regarded as spent.
Counsel for the applicants submitted that the court should draw inferences adverse to the respondents from the fact that Mr Stephens was not called as a witness. He had borne the heat and the burden of the application on 23 December 1988 and the trial itself. It was clear then that he was under great stress. As I said in my reasons for judgment on 27 July 1989:
"Stephens gave evidence on 23 December under considerable difficulties when he was called to the court at short notice to respond to the claim for an interlocutory injunction. He was then, and remained at the trial, a voluble witness, who displayed a lively sense of injustice and a disposition to argue his case rather than content himself with the role of witness".
While no medical evidence was called in support of the declining health of Mr Stephens, I accept Mr Maxwell's evidence when he said that, arising out of these proceedings, his health deteriorated rapidly. Mr Maxwell who came from an accounting background was in a position to speak in detail of the business history of Stephens Publishing. The failure to call Mr Stephens, whose contribution lay in conceiving ideas, did not, in my opinion, justify the conclusion that the comprehensive case presented on behalf of the respondents should be discounted by reason of his absence from the witness box.
Neither Mr Maxwell nor Mr Jabara was made aware of the 23 December 1988 application until after the event. Indeed, the then counsel for the respondents, Mr Harrison, had not had an opportunity to read the relevant affidavits or the book in question relied upon by the applicants until during the course of the injunction application. Matters moved swiftly that day; improvisation and generalisation were evident.
The task of assessing the appropriate amount of general damages has not been easy. I approach it on the basis that, but for the undertaking, the publication of the planner would have been successful. It would have enhanced the reputation of the respondents and increased their chances of successfully launching their future projects. The planner would have been a tide in their affairs leading on to fortune. As it was, if their affairs were not bound in shallows and in miseries, their ability to attract publishing business was crippled. There is a striking contrast between the degree of success which they enjoyed up to 23 December 1988 and the unhappy business experience which, despite their best efforts they had in the ensuing year, as set out in their evidence which I accept. This contrast may be fairly attributed to the undertaking, which gave rise to the real sting of the reports of the litigation.
It is not possible in a case such as this to arrive at a precise figure by mathematical steps. The best that one can do is to form an opinion on balance as to the probable extent of the loss of the respondents. Bearing in mind the profits which I consider they would have made on the planner, the contrast between their reputation as enhanced by that success and as damaged by the undertaking, and the evidence which I have accepted, I am satisfied on the balance of probabilities that the amount which should be awarded to the respondents by way of general damages is $90,000. The compensation which I now award to the respondents is therefore $224,637.86, reduced by the amount of $23,000 already paid to the respondents under the order of 17 October 1990, leaving a net figure of $201,637.86.
The fourth head of the claim relates to interest sought by the respondents upon such sums as the applicants should be found liable to pay. In Mr Kendall's final submission he stated that upon reading these reasons he will prepare short minutes of judgment to which the parties will speak. The case will be listed for 2.15 pm today for this purpose, as the parties have already been advised. The question of costs may also be discussed then.
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