Hartland Investments Pty Ltd v Coles KMA Ltd

Re: HARTLAND INVESTMENTS PTY. LIMITED
And: COLES KMA LIMITED and CRYSTAL CLOTHING INTERNATIONAL PTY. LIMITED
No. QLD G116 of 1983
Trade Practices
(1985) ATPR para 40 - 575

COURT

IN THE FEDERAL COURT OF AUSTRALIA
QUEENSLAND DISTRICT REGISTRY
GENERAL DIVISION
Spender J.

CATCHWORDS

Trade Practices - misleading or deceptive conduct - clothing from different manufacturers labelled with same name - whether secondary meaning acquired in the name by manufacturer first in the market - relevant class of purchaseers - nature of misleading conduct - injunctive relief.

Trade Practices Act 1975; s.52

Business Names Act 1962

McWilliams Wines Pty.Ltd. v. McDonald's System of Australia Pty.Ltd. (1980) 33 ALR 394

Parkdale Custom Built Furniture Pty.Ltd. v. Puxu Pty.Ltd. (1982) 42 ALR 1

Taco Co. v.Taco Bell (1982) 42 ALR 177

Weitman v. Katies Ltd. (1977) 29 FLR 336

HEARING

BRISBANE
#DATE 5:6:1985

ORDER

An injunction be granted.
Note: Settlement and entry of orders is dealt with in Order 36

of the Federal Court Rules

JUDGE1

This is an application pursuant to s.52 of the Trade Practices Act 1975 ("the Act") for an injunction, directed to restraining each of the respondents from using the name "Shapes" or any deceptively similar name in or in connection with the advertising or sale of articles of female clothing, as well as other relief.

Hartland Investments Pty.Limited ("Hartland Investments") carries on business as the trustee of a discretionary trust, the beneficiaries of which are members of the family of Mr. Barry William Ferguson. Mr. Ferguson is the Managing Director of the applicant which carries on the business of manufacturing, wholesaling and retailing articles of men's and women's clothing. The business has been carried on by the applicant since 1981; prior to that, and commencing in 1974, the business had been carried on by Mr. & Mrs. Ferguson in partnership.
In 1976 a label "Shapes" was introduced and in 1977 a label "Airborne" was used, particularly for men's clothing. On 9 February, 1979 "Shapes" was registered as a business name pursuant to the provisions of the Business Names Act 1962-1979 (Qld), the registration of which name has been maintained. There is no registered trademark.
In about May, 1983, Hartland Investments opened a factory at 24 Activity Drive, Southport, for the purpose of manufacturing the clothing which it sells. Prior to 1983 it manufactured its clothing in another factory in Southport. "Airborne" and "Shapes" are the only labels applied to clothing now manufactured by the applicant. Approximately 75% of production of the applicant is labelled with the "Shapes" label and 25% with the "Airborne" label. The "Shapes" label is applied generally to women's clothing and "Airborne" to men's clothing. In addition to manufacturing clothes, T-shirts are purchased, which are screen printed and labelled with the name "Shapes", and resold. Generally, wholesale sales of clothes by the applicant to retailers is by direct selling; in addition, some fashion or trade displays by models have been arranged, as well as distribution of brochures. There have been approaches by retailers direct to the applicant.
The factory at Activity Drive, Southport has a large sign "Shapes" at the front. The clothes manufactured by the applicant are identified with the label which is sewn onto the garment and there is also a swing tag attached to the garment. Some 15% of the tops manufactured by the applicant would have the word "Shapes" either screen-printed or air-brushed onto the garment itself. The word "Shapes" on the sewn-on labels is depicted in various styles of printing, as is the word "Shapes" on the different swing tags which are attached to the garment. Every garment manufactured by the applicant bears a sewn-on label and a swing tag carrying the brand name. Each screen printed T-shirt has a sewn-on label with the word "Shapes" but they do not carry swing tags.
Hartland Investments has sold garments under the label "Shapes" through a considerable number of selected "boutiques". Most of these boutiques are in the south-east corner of Queensland and northern New South Wales, although there are some sales to a shop "Driftwood Beachwear" in the Northern Territory and "Siggins" in Perth, Western Australia, "Newhaven" in Victoria and a shop in Burnie in Tasmania. The sales to the Darwin outlet have continued although the sales to the other interstate outlets seem to have lasted no longer than 1980, save for sales for "Smith and Hickman" of West Perth in 1983.
In addition to wholesaling to quite a number of boutiques, Hartland Investments has a number of retail outlets of its own. Under the name "Shapes", Hartland Investments conducts retail outlets in Cairns, Townsville, Centre Arcade Surfers Paradise, Sundale Arcade, Cavill Avenue Surfers Paradise, Stafford, and Mackay. Hartland Investments conducts under the name "Le Shapes" retail outlets at Kawana Waters and Redcliffe. In addition, Hartland Investments has wholesaled its garments through Myers, David Jones and stores called "Tom Brown Stores". Hartland Investments is a medium-sized business; its production has varied since October, 1981, from some 2,500 garments to some 7,000 garments per month. In addition to this production are the screen-printed and relabelled T-shirts, the volume of which would total some 20,000-30,000 items.
Each of the retail outlets of Hartland Investments is a smallish store devoted exclusively to the sale of garments. Some stores were previously called "Flashez". The names of the stores were changed to "Shapes" to obviate difficulties that arose when a nightclub called "Flashez Nightclub" commenced operations.
Hartland Investments has engaged in advertising but not on an extensive scale. Advertising has been by newspapers, radio and shopping centre promotions. The advertising in evidence reflects the promotion and reliance upon the trade name "Shapes".
In October, 1983, after a conversation with one of his employees, Mr. Ferguson went to the store operated by K-Mart at Pacific Fair, which is a large drive-in shopping centre on the Gold Coast. There he saw garments with sewn-on labels containing the word "Shapes". The garments were tops, skirts and some children's wear. These garments had not been manufactured by Hartland Investments. In addition to a sewn-on label with the word "Shapes" and a white swing tag with "Shapes" on it, there was a K-Mart price tag on each of the garments which Mr. Ferguson purchased from the K-Mart store at Pacific Fair. A ladies summer top was purchased at a price of $8.76 which is considerably cheaper than a garment of similar style manufactured by Hartland Investments and sold through a boutique. At the time of the purchase from the K-Mart store of the ladies summer top, a similar garment manufactured by Hartland Investments would be priced at $19.95.
According to Mr. Ferguson, to the untrained eye, there is no easy way of distinguishing between those garments and, in the absence of labels, prospective purchasers would experience difficulty in sorting out those of other manufacturers. So far as the comparison between the garment sold in the K-Mart store and a garment made by Hartland Investments, the main difference would be the price. Mr. Ferguson claimed that higher quality material was used in the Hartland Investment garment compared with the garments marketed by K-Mart and many of the Hartland Investment garments are screen-printed and air-brushed by hand.
Approximately 2 weeks after purchasing the garments at the K-Mart store at Pacific Fair, Mr. Ferguson saw similar clothing at the K-Mart store at Kippa-Ring which is a large suburban shopping centre near Brisbane. The K-Mart store at Kippa-Ring is approximately 50 metres from the "Shapes" shop operated at Kippa-Ring.
On 21 October, 1983, solicitors for Hartland Investments wrote to K-Mart Australia Limited indicating the extent to which the company had used the label "Shapes" and pointing out that it had owned the registered business name "Shapes" since 1979 and had 6 retail outlets in Queensland, most of which traded under the business name "Shapes". The solicitors sought an undertaking that K-Mart Australia Limited would cease the sale of goods and cease utilising the name "Shapes" otherwise injunctions would be sought.
On 28 October, 1983, Messrs. Bruce and Stewart Turton McInnes wrote to the solicitors for Hartland Investments stating

"Your letter ... has been referred to us for attention as the subject goods were supplied by our client Crystal Clothing International Pty.Limited ..."

On 3 November, 1983, Messrs. Bruce and Stewart Turton McInnes wrote advising that Crystal Clothing International Pty.Limited "is not prepared to withdraw the garments bearing its distinctive trademark SHAPES from the market place".
Prior to the trial of this action, an interlocutory injunction on the usual undertaking of damages was granted by Fitzgerald J., restraining Coles KMA Limited and Crystal Clothing International Pty.Limited until trial or earlier order from using the name "Shapes" or any deceptively similar name in or in connection with the advertising or in connection with the sale of articles of female clothing.
Mr. Ferguson expressed concern that the sale by K-Mart of garments bearing the label "Shapes" would have the consequence that the retailers, on learning that stores such as K-Mart were selling goods marketed under the label "Shapes", would not buy from Hartland Investments and further, purchasers who had previously obtained garments labelled "Shapes" from the various retail outlets and boutiques would believe that the same manufacturer had been supplying garments to K-Mart. The articles of the applicant are priced in the medium bracket although the applicant does also put out cheaper garments.
The second respondent, Crystal Clothing International Pty.Limited ("Crystal") also manufactures women's clothing. Mr. Clarke, the sales and marketing executive of the second respondent gave evidence that Crystal manufactured approximately 50,000 ladies' and children's garments per week, the price of each of which would average about $6.50 in summer and $8.50 in winter. Since June, 1982, Crystal sold to the first respondent, Coles KMA Limited ("Coles") garments bearing the label "Shapes". No sales were made to anybody but Coles of garments with that label. Crystal have numerous labels but, at the time immediately prior to the introduction of clothing with the "Shapes" label, the major label of Crystal was "Crystal Curves" and, in discussions with Coles, Mr. Clarke came up with the idea of "Shapes" as a label for Coles clothing. He then proceeded to arrange for artwork for various labels with the word "Shapes" on the label. At the time of the choice and at the time of preparation of the label "Shapes" for the garments to be sold by Crystal, neither Mr. Clarke nor Crystal was aware of a somewhat similar sort of label with the same word being used by Hartland Investments.
Crystal first started to use "Shapes" labels and tags for Coles inter-store deliveries on 1 June, 1982. From 1 June, 1982 to 30 November, 1982 a total of 73,233 garments at a cost price of $492,267.30 was supplied; from 1 January to 30 April 31,405 garments at a cost price of $314,934.30 were supplied; from 1 May to 21 December, 1983 a total of 133,760 garments at a cost price of $896,525.99 were delivered. The total deliveries from June, 1982 to December, 1983 was 238,398 garments at a total cost price of $1,703,727.59.
There is a K-Mart at Kippa-Ring, Cairns, Townsville, Maroochydore on the Sunshine Coast, South Tweed, Pacific Fair at Broadbeach on the Gold Coast, Mackay, and in Brisbane at Chermside, Arana Hills, and Toombul.
According to Mr. Clarke, the first consideration of women purchasers at the lower end of the market is the styling of the garment including colouration, fabrication and design of the article. The second aspect of attraction is price. The third aspect is quality. In Mr. Clarke's opinion the name of the label is irrelevant. Having expressed this attitude, he was asked:

Q. "It is a matter of indifference to Crystal clothing whether or not the "Shapes" label is used?" A. "That is right."

In the course of his evidence, Mr. Clarke said: "I would like to state now that whatever the outcome in this court case, we will not be using the label "Shapes" with G.J. Coles ... and probably no one else."
He said that Coles specifically required clothing sold by Crystal to them to have a label, with a name on that label, which was confirmed by Lucy Graham, a merchandiser with Coles.
Prior to the use by Crystal of the label "Shapes", a trademarks search had been conducted. Mr. Clarke was not informed that there was a registered business name "Shapes" nor was he told whether a business names search had been conducted.
Had Mr. Clarke been aware of the existence of a small manufacturer using the label "Shapes", selling not to the budget/volume market but to the higher-priced boutique market, he would have chosen something other than "Shapes".
Direct evidence concerning the capacity to mislead or deceive inherent in the concurrent availability of female clothing having the same brand name but coming from different sources was given by a number of witnesses.
Meegan Kenneally is a thirteen year old schoolgirl and is the daughter of a dressmaker who is employed at the "Shapes" factory. On occasions Mrs. Kenneally makes clothes and sews the "Shapes" label on the garments she manufactures at her home. Meegan Kenneally has seen garments that her mother has helped to make being sold at the "Shapes" shops in Surfers Paradise and at "Beaujangles", a boutique in Tweed Heads. Towards the end of 1983, when shopping in the K-Mart store at Cannon Hill, Brisbane, with her mother one Saturday morning, Meegan Kenneally saw a "Shapes" swing tag on the clothes and drew the garment to her mother's attention. She believed that the garments were garments manufactured by Mr. Barry Ferguson. She wasn't able to tell any difference between the "Shapes" garment manufactured by Mr. Ferguson's company and the garment she saw in K-Mart. The garments there included shirts, blouses, skirts and dresses. She thought the garments she saw in the K-Mart store were "Barry's clothes because of the label".
Margaret Rita Roach was the manager of the applicant's company at the Kippa-Ring store of "Shapes". In May, 1983, a customer came into the store of which Mrs. Roach was manageress, bringing with her a garment bearing a label with the word "Shapes" on it. She sought to exchange the dress, claiming to have purchased it there. The garment had not been stocked by Mrs. Roach. The label, while containing the word "Shapes", was not a "Shapes" label from Hartland Investments. She did not exchange the dress for the lady customer. According to Mrs. Roach, the dress was of the same quality of dress as stocked by the Kippa-Ring store but had not in fact been stocked by that store.
Jutta Huffacker in 1983 was living at Kawana Waters at Mooloolaba in Queensland and was a frequent shopper at the "Le Shapes" shop at Kawana Waters. On an occasion in spring of 1983 at the K-Mart store at Maroochydore, she saw a blouse with a "Shapes" label on it and, on seeing that blouse, she said she was unhappy in seeing garments that she had purchased at the "Le Shapes" shop also being available in the K-Mart store. She said, in evidence, that she didn't look at the quality of the blouse. She saw the label, saw the blouse and "I thought how they came to be selling this label. Usually always I buy that in 'Le Shapes'. It confused me to see this label in K-Mart." After she saw the garment in K-Mart she went to the Kawana Waters "Le Shapes" store and saw Mrs. Barbara Lyck, the manageress of that store, and complained to her that she was selling clothing to K-Mart. Mrs. Lyck denied any such sales. Mrs. Huffacker said she had seen clothes in K-Mart with the ticket "Shapes". After speaking with Mrs. Lyck, she returned to the store and bought a blouse. The price she thinks was $9.99 which would have been some $3-$4 cheaper than the price paid at "Le Shapes" store. She took the blouse she had purchased from K-Mart to Mrs. Lyck at "Le Shapes" at Kawana Waters. Mrs. Lyck said that, when she first saw it, she was not able to say whether or not it was a "Shapes" shirt manufactured by Hartland Investments. This garment purchased by Mrs. Huffacker and given to Mrs. Lyck was identified by Mr. Clarke as a garment manufactured by Crystal.
Mrs. Lyck gave evidence that, shortly before her dealings with Mrs. Huffacker, she overheard a conversation between two customers in the "Shapes" shop at Kawana Waters. In the course of discussing a garment, one said to the other "It is cheaper in K-Mart than 'Shapes'."
On the other hand, Marcia Connelly is employed by the applicant as a dressmaker and in 1983 with her daughter was at the K-Mart store at Cannon Hill when her daughter indicated a number of garments each bearing the label with the word "Shapes" on it. According to Mrs. Connellym, those garments had not been made at the "Shapes" factory and the quality and style of the garments were different. Miss Connelly said that the material used in the Hartland Investments garments was more expensive. In her opinion they were clearly not manufactured by Hartland Investments.
Underlining the commercial consequences to the applicant of such concurrent availability was the evidence of Mr. Lokerse. Augustine Lokerse is a clothing retailer in a shop in the Mall at Tweed Heads. The shop is called "Beaujangles" and sells ladies and men's clothing. The shop has stocks from about a dozen manufacturers and does not carry chain-store lines.
Mr. Lokerse said that he could not afford to carry chain-store lines in his boutique because, if he did, he would soon be out of business. The shop is oriented towards the merchandising of "designer garments". His purchasers shop by reference to the labels on the garments. The shop caters mainly for the younger age group from 14 years to 30 years. The label "Shapes" is well known and is a good seller. He was asked -

Q. "What impact would it have on your business for example if the Target store near you should start retailing a line of clothing not made by Mr. Ferguson's company with the label "Shapes" but made by someone else but bearing the label "Shapes"? What impact would that have on your business?"

A. "Well it would be I would say disastrous to that extent that we would not carry on the same label. We cannot afford to just carry on along those lines. We cannot compete with them because the price would be half the price if sold in Target or K-Mart or whatever."

This view, which perhaps underlines the obvious, was echoed in the evidence of Mr. Jarvis Edward Smith called on behalf of the respondents. Mr. Smith is a director of buying for ten retail outlets of ladies apparel in Queensland, directed particularly at the cheaper end of the market. His outlets are known as "Miser Stores" which, in addition to selling women's clothing, also sell men's, children's and manchester; it is a discount operation selling merchandise at low cost. He said he had never heard of the label "Shapes" owned by Hartland Investments or the Ferguson company. He was not aware of the label "Shapes".
Mr. Smith acknowledged that it would be difficult for Miser Stores as a discounter to get permission from companies to advertise a brand name, because companies do not like to sell to discounters; he frankly stated that in their eyes it gave their product a bad name if it became known that it was sold through discounters.

The question is whether the respondents or either of them have in trade or commerce engaged in conduct that is misleading or deceptive, or which is likely to mislead or deceive; if so, whether as a matter of discretion, an injunction should issue.
The evidence establishes that the applicant has a business sustantially based upon the brand name "Shapes". The prices at which its garments are sold are considerably higher than the prices at which Coles would sell the Crystal's garments labelled "Shapes"; its outlets are more upmarket than the budget price, high volume operation of the first respondent. It has been using the label since 1976 and I accept that this use has been an important part of its business.
The volume of the manufacturing business of the second respondent and the volume of the sales by the first respondent of "Shapes" garments has been much greater than the volume of the applicant in the period where there has been concurrent use of the name "Shapes".
I acknowledge that "Shapes" is a descriptive word, inherently non-distinctive and so incapable of monopolisation as a trade mark.
The evidence establishes that the choice and subsequent use by the respondents of the label "Shapes" was quite innocent, and made in ignorance of its existence and use by the applicant in respect of women's clothing. However, I am satisfied that at least along the coast of Queensland, in south-eastern Queensland and northern New South Wales, when the respondents commenced to use the name "Shapes", a not insignificant number of the public concerned with the purchase of women's clothing, associated the products of the applicant with the name "Shapes".
This is not a case, like Weitman v. Katies Ltd. (1977) 29 FLR 336, where Franki J. found that the words "Saint German" could be used on T-shirts without contravening s.52, as the words had not acquired a secondary meaning of indicating to the appropriate class of purchasers that the goods came from the applicant, a wholesaler of women's clothing.
In Taco Co. v. Taco Bell (1982) 42 ALR 177, Deane and Fitzgerald JJ. observed at 202,

"Irrespective of whether conduct produces or is likely to produce confusion or misconception, it cannot, for the purposes of s.52, be categorized as misleading or deceptive unless it contains or conveys, in all the circumstances of the case, a misrepresentation."

By way of guidance, they drew attention to four considerations:

"First, it is necessary to identify the relevant section (or sections) of the public (which may be the public at large) by reference to whom the question of whether conduct is, or is likely to be, misleading or deceptive falls to be tested (Weitmann v. Katies Ltd. (1977) 29 FLR 336, per Franki J at 339-40, cited with approval by Bowen CJ and Franki J in Brock v. Terrace Times Pty.Ltd.

(1982) 40 ALR 97 at 99; (1982) ATPR 40-267 at 43,412).

Second, once the relevant section of the public is established, the matter is to be considered by reference to all who come within it, "including the astute and the gullible, the intelligent and the not so intelligent, the well educated as well as the poorly educated, men and women of various ages pursuing a variety of vocations": Puxu Pty.Ltd. v. Parkdale Custom Built Furniture Pty.Ltd. (1980) 31 ALR 73, per Lockhart J at 93; see also World Seeries Cricket v. Parish, supra, per Brennan J (16 ALR at 203).

Thirdly, evidence that some person has in fact formed an erroneous conclusion is admissible and may be persuasive but is not essential. Such evidence does not itself conclusively establish that conduct is misleading or deceptive or likely to mislead or deceive. The court must determine that question for itself. The test is objective (see, generally, Annand & Thompson Pty.Ltd. v. Trade Practices Commission (1979) 25 ALR 91, per Franki J at 102; Sterling v. Trade Practices Commission (1981) 35 ALR 59, per Franki J (with whom Northop J agreed) at 66 and per Keely J at 69; Snoid v. Handley (1981) 38 ALR 383 per the court (Bowen CJ, Northrop and Morling JJ); and Brock v. Terrace Times, supra, per Bowen CJ and Frank J).

Finally, it is necessary to inquire why proven misconception has arisen: Hornsby Building Information Centre v. Sydney Building Information Centre (18 ALR at 647; 140 CLR at 228). The fundamental importance of this principle is that it is only by this investigation that the evidence of those who are shown to have been led into error can be evaluated and it can be determined whether they are confused because of misleading or deceptive conduct on the part of the respondent."

The conduct that has the quality of being misleading or deceptive is the offering for retail sale by Coles of women's clothing labelled "Shapes".
An injunction may properly enjoin Crystal, as the manufacturer, labeller, wholesaler and distributor of that clothing, pursuant to the provisions of s.80(c) and (e) of the Act.
It was submitted for the respondents that the relevant class to whom attention should be directed was the customers of Coles stores. Coles, it was said, sells at the bottom end of the market and sells a cheap product. The purchasers of that product were not label conscious and, it was submitted, would not be misled or deceived by the label "Shapes" on those garments.
I do not accept that submission. I accept the relevant section of the public includes the retail purchasers of women's clothing who shop at Coles, or indeed any other retailer to whom Crystal would wholesale "Shapes"-labelled women's garments; but also, in my view, it includes the customers and potential customers of boutiques, as well as the owners, managers and staff of those boutiques, and the customers and potential customers at the "Shapes" and "Le Shapes" shops. I accept that there is a considerable overlapping of those categories. Indeed, it is precisely because those categories are not rigidly separate that the risk of deception is pronounced.
On the evidence, I am satisfied that a real possibility of deception exists in the concurrent use of the word "Shapes" or items of women's clothing manufactured by different companies. It is precisely the same name, used in relation to the same articles. I am not dealing with hamburgers and wine: see McWilliams Wines Pty.Ltd.v. McDonald's System of Australia Pty.Ltd. (1980) 33 ALR 394.
In Parkdale Custom Built Furniture Pty.Ltd. v. Puxu Pty.Ltd., (1982) 42 ALR 1, the function and value of a label as a means of distinguishing similar products was referred to by Gibbs C.J. at 7:-

"Speaking generally, the sale by one manufacturer of goods which closely resemble those of another manufacturer is not a breach of s.52 if the goods are properly labelled. There are hundreds of ordinary articles of consumption which, although made by different manufacturers and of different quality, closely resemble one another. In some cases this is because the design of a particular article has traditionally, or over a considerable period of time, been accepted as the most suitable for the purpose which the article serves. In some cases, indeed, no other design would be practicable. In other cases, although the article in question is the product of the invention of a person who is currently trading, the suitability of the design or appearance of the article is such that a market has become established which other manufacturers endeavour to satisfy, as they are entitled to do if no property exists in the design or appearance of the article. In all of these cases, the normal and reasonable way to distinguish one product from another is by marks, brands or labels. If an article is properly labelled so as to show the name of the manufacturer or the source of the article its close resemblance to another article will not mislead an ordinary reasonable member of the public. If the label is removed by some person for whose acts the defendant is not responsible, and in consequence the purchaser is misled, the misleading effect will have been produced, not by the conduct of the defendant, but by the conduct of the person who removed the label."

It is possible, indeed quite likely, that persons will believe that the "Shapes" garments sold by the first respondent are the applicant's products, which are available at higher prices from boutiques and other outlets, or, alternatively, are a cheaper and perhaps lower quality, version of those products. There is no association between the applicant and the goods sold by the first respondent, yet the use of the same name is likely to mislead or deceive purchasers of women's apparel that there was. I accept the evidence that there has already been such deception.
As to whether an injunction should go, the use of the name "Shapes" is said to be a matter of indifference to the respondents, save as to the cost of re-labelling garments in stock. On the other hand, I accept that the continued use by the respondents of the label "Shapes" on women's clothing would cause significant damage to the business of the applicant, including goodwill and loss of wholesale sales.
I am clearly of the view that this is a case where I should grant an injunction. I am conscious of stock that may have to be re-labelled before it can be sold. I propose to hear the parties as to the terms and geographical scope of the injunction.

[1985] FCA 239

05 JUNE 1985