Keller v LED Technologies Pty Ltd
[2010] FCAFC 55
•9 June 2010
FEDERAL COURT OF AUSTRALIA
Keller v LED Technologies Pty Ltd [2010] FCAFC 55
Citation: Keller v LED Technologies Pty Ltd [2010] FCAFC 55 Appeal from: LED Technologies Pty Ltd v Elecspess Pty Ltd
[2008] FCA 1941Parties: ANTHONY JAMES KELLER, LAWRENCE ALFRED ARMSTRONG and PETER OWEN MORRISON v LED TECHNOLOGIES PTY LTD (ACN 100 887 474)
and
ELECSPESS PTY LTD (ACN 104 535 597), ADVANCED AUTOMOTIVE AUSTRALIA PTY LTD (ACN 005 955 948), REN INTERNATIONAL PTY LTD (ACN 115 026 438), OLSEN INDUSTRIES PTY LTD (ACN 098 385 730) v LED TECHNOLOGIES PTY LTD (ACN 100 887 474)File numbers: VID 167 of 2009; VID 168 of 2009 Judges: EMMETT, BESANKO AND JESSUP JJ Date of judgment: 9 June 2010 Catchwords: INTELLECTUAL PROPERTY – Registered designs – Validity of – Whether designs reasonably clear and succinct – Whether designs new and distinctive when compared with prior art base.
INTELLECTUAL PROPERTY – Registered designs – Infringement of – Whether alleged infringing products embodied designs that were substantially similar in overall impression to registered designs.
INTELLECTUAL PROPERTY – Registered designs – Infringement of – Joint liability for – Personal liability of director of infringing company.
TRADE PRACTICES – Prescribed consumer product safety standard – Goods supplied in trade or commerce – Whether goods complied with standard – Sufficiency of proof.
DAMAGES – Conduct amounting to infringement of design and contravention of trade practices legislation – Whether damages available under both heads – Where damages not awarded under trade practices legislation – Costs consequences.
TRADE PRACTICES – Contraventions by companies of legislative norms – Directors – Accessorial liability – Whether knowingly involved.
PRACTICE AND PROCEDURE – Costs – Whether appropriate to deny successful respondent his costs with respect to period before he swore to his non-involvement in conduct by company of which he had been director – Offer of compromise – Whether party entitled to costs incurred after service of offer of compromise on an indemnity basis.
Legislation: Copyright Act 1968 (Cth) s 37, 101
Designs Act 1906 (Cth) s 17
Designs Act 2003 (Cth) ss 5, 8, 10, 15, 16, 19, 21, 39, 71, 73, 75, 111 and 112
Federal Court Rules, O 23, 11
Motor Vehicle Standards Act 1989 (Cth)
Trade Practices Act 1974 (Cth) ss 52, 53, 65C, 75B, 80 and 82
Vehicle Standard (Australian Design Rules) 2005 (Cth) rr1/00, 6/00, 49/00
Design Regulations 2004 (Cth) reg 3.01 and 4.04Cases cited: Allen Manufacturing Co Pty Ltd v McCallum & Co Pty Ltd (2001) 53 IPR 400
Australian Competition and Consumer Commission v Kokos International Pty Ltd (No 2) (2008) 30 ATPR 42-212
British Thompson-Houston Co., Ltd v Sterling Accessories, Ltd. (1924) 41 RPC 311
Brooke v Bool [1928] 2 KB 578
Brunskill v Sovereign Marine and General Insurance Co Pty Ltd (1985) 59 ALJR 842Calderbank v Calderbank [1976] FAM 93
CBS Songs Ltd v Amstrad Consumer Electronics Plc [1988] AC 1013
CGU Insurance Ltd v Corrections Corp of Australia Staff Superannuation Pty Ltd [2008] FCAFC 173
Chambers v Jelling (1986) 7 NSWLR 1 at 10
Chiropedic Bedding Pty Ltd v Radburg Pty Ltd (2009) 83 IPR 275
Cooper v Universal Music Australia Pty Ltd (2006) 156 FCR 380Dart Industries Inc v Décor Corporation Pty Ltd (1989) 15 IPR 403
D Sebel & Co Ltd v National Art Metal Co Pty Ltd (1965) 10 FLR 224
Enzed Holdings Ltd v Wynthea Pty Ltd (1984) 4 FCR 450Evans Limited v Spritebrand (1985) 1 WLR 317
Fencott v Muller (1983) 152 CLR 570Firmagroup Australia Pty Ltd v Byrne & Davidson Doors (Vic) Pty Ltd (1986) 6 IPR 377
Fox v Percy (2003) 214 CLR 118
Hamod v New South Wales (2002) 188 ALR 659
House v The King (1936) 55 CLR 499
Household Articles Ltd’s Registered Design [1998] FSR 676
King v Milpurrurru (1996) 66 FCR 474
LED Technologies Pty Ltd v Elecspess Pty Ltd [2008] FCA 1941
LED Technologies Pty Ltd v Elecspess Pty Ltd (No 2) [2009] FCA 141
LJ Fisher & Company Ltd v Fabtile Industries Pty Ltd (1978) 1A IPR 565
McCallum & Co Pty Ltd v Allen Manufacturing Co Pty Ltd (2001) 52 IPR 550
Malleys Ltd v JW Tomlin Pty Ltd (1961) 180 CLR 120
MCA Records Inc v Charly Records Ltd [2002] FSR 26;[2003] 1 BCLC 93
Mentmore Manufacturing Co Ltd v National Merchandising Manufacturing (1978) 89 DLR (3d) 195
Microsoft Corporation v Auschina Polaris Pty Ltd (1996) 71 FCR 231
Oakley Inc v Oslu Import & Export Pty Ltd
(2000) 48 IPR 32
Oakley Inc v Oslu Import & Export Pty Ltd
[2001] FCA 385
O’Brien v Dawson (1942) 66 CLR 18
Performing Right Society Ltd v Ciryl Theatrical Syndicate Ltd [1924] 1 KB 1
Pioneer Electronics Australia Pty Ltd v Lee (2000) 108 FCR 216
Prichard & Constance (wholesale), Ltd v Amata, Ltd (1924) 42 RPC 63
Quinlivan v Australian Competition and Consumer Commission (2004) 160 FCR 1
Rainham Chemical Works Ltd (in liquidation) v Belvedere Fish Guano Company Ltd [1921] 2 AC 465
Review 2 Pty Ltd v Redberry Enterprise Pty Ltd (2008) 173 FCR 450
Review Australia Pty Ltd v Innovative Lifestyle Investments Pty Ltd (2008) 166 FCR 358
Root Quality Pty Ltd v Root Control Technologies Pty Ltd (2000) 177 ALR 231
Rural Press Ltd v Australian Competition and Consumer Commission (2002) 118 FCR 236
Rylands v Fletcher (1868) LR 3 HL 330
Said v Butt [1920] 3 KB 497
SW Hart & Co Pty Ltd v Edwards Hot Water Systems (1985) 159 CLR 466
The Koursk [1924] p140
Tobacco Institute of Australia Limited v Australian Federation of Consumer Organisations Inc (No 2) (1993) 41 FCR 89
TS & B Retail Systems Pty Ltd v 3Fold Resources Pty Ltd and Others (No 3) (2007) 158 FCR 444
Turbo Tek Enterprises Inc v Sperling Enterprises Pty Ltd (1989) 23 FCR 331
Ullrich Aluminium Pty Ltd v Dias Aluminium Products Pty Ltd (2006) 153 FCR 437
Unilever Plc v Gilette (UK) Ltd [1989] RPC 583
Wardley Australia Limited v The State of Western Australia (1992) 175 CLR 514
WEA International Inc v Hanimex Corporation Ltd (1987) 17 FCR 274
White Horse Distillers Ltd v Gregson Associates Ltd [1984] RPC 61
Yorke v Lucas (1985) 158 CLR 661 referred toAustralian Law Reform Commission Report No 74, Designs (1995)
R P Balkin and J L R Davis, Law of Torts (4th ed LexisNexis Butterworths, Australia, 2009)Date of hearing: 24 and 25 August 2009 Date of last submissions: 25 August 2009 Place: Melbourne Division: GENERAL DIVISION Category: Catchwords Number of paragraphs: 450 Counsel for the Appellants in VID 167 of 2009: Mr R.J. Webb SC and Mr G.J. Fitzgerald Solicitor for the Appellants in VID 167 of 2009: Deacons Counsel for the Respondent: Mr B.N. Caine SC and Ms H Rofe Solicitor for the Respondent: Griffith Hack Lawyers Counsel for the Appellants in VID 168 of 2009 Mr G. Scott Solicitor for the Appellants in VID 168 of 2009 Cornwall Stodart
IN THE FEDERAL COURT OF AUSTRALIA
VICTORIA DISTRICT REGISTRY
GENERAL DIVISION
VID 167 of 2009
ON APPEAL FROM THE FEDERAL COURT OF AUSTRALIA
BETWEEN: ANTHONY JAMES KELLER
First Appellant/First Cross-RespondentLAWRENCE ALFRED ARMSTRONG
Second Appellant/Second Cross-RespondentPETER OWEN MORRISON
Third AppellantAND: LED TECHNOLOGIES PTY LTD (ACN 100 887 474)
Respondent/Cross-Appellant
JUDGES:
EMMETT, BESANKO AND JESSUP JJ
DATE OF ORDER:
9 June 2010
WHERE MADE:
MELBOURNE
THE COURT ORDERS THAT:
1.Within 14 days, the appellants/cross-respondents file and serve a memorandum setting out the terms of the orders required to give effect to the reasons of the Full Court given this day, and including therein such brief submissions as they desire to make on the question of costs both at the first instance and on appeal.
2.Within a further 14 days, the respondent/cross-appellant file and serve a memorandum setting out its response to the memorandum of the appellants/cross-respondents, including therein such brief submissions as are necessary to explain why, if at all, the orders (including any order as to costs at first instance or on appeal) which it proposes differ from the orders proposed by the appellants/cross respondents.
3.The appellants/cross respondents have leave, within a further 7 days, to file and serve a memorandum in reply to the memorandum of the respondent/cross-appellant.
Note:Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.
The text of entered orders can be located using Federal Law Search on the Court’s website.
IN THE FEDERAL COURT OF AUSTRALIA
VICTORIA DISTRICT REGISTRY
GENERAL DIVISION
VID 168 of 2009
ON APPEAL FROM THE FEDERAL COURT OF AUSTRALIA
BETWEEN: ELECSPESS PTY LTD (ACN 104 535 597)
First Appellant/First Cross-RespondentADVANCED AUTOMOTIVE AUSTRALIA PTY LTD
(ACN 005 955 948)
Second Appellant/Second Cross-RespondentREN INTERNATIONAL PTY LTD (ACN 115 026 438)
Third Appellant/Third Cross-RespondentOLSEN INDUSTRIES PTY LTD (ACN 098 385 730)
Fourth Appellant/Fourth Cross-RespondentAND: LED TECHNOLOGIES PTY LTD (ACN 100 887 474)
Respondent/Cross Appellant
JUDGES:
EMMETT, BESANKO AND JESSUP JJ
DATE OF ORDER:
9 june 2010
WHERE MADE:
MELBOURNE
THE COURT ORDERS THAT:
1.Within 14 days, the appellants/cross-respondents file and serve a memorandum setting out the terms of the orders required to give effect to the reasons of the Full Court given this day, and including therein such brief submissions as they desire to make on the question of costs both at the first instance and on appeal.
2.Within a further 14 days, the respondent/cross-appellant file and serve a memorandum setting out its response to the memorandum of the appellants/cross-respondents, including therein such brief submissions as are necessary to explain why, if at all, the orders (including any order as to costs at first instance or on appeal) which it proposes differ from the orders proposed by the appellants/cross respondents.
3.The appellants/cross respondents have leave, within a further 7 days, to file and serve a memorandum in reply to the memorandum of the respondent/cross-appellant.
Note:Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.
The text of entered orders can be located using Federal Law Search on the Court’s website.
IN THE FEDERAL COURT OF AUSTRALIA
VICTORIA DISTRICT REGISTRY
GENERAL DIVISION
ON APPEAL FROM THE FEDERAL COURT OF AUSTRALIA VID 167 OF 2009
BETWEEN: ANTHONY JAMES KELLER
First Appellant/First Cross-RespondentLAWRENCE ALFRED ARMSTRONG
Second Appellant/Second Cross-RespondentPETER OWEN MORRISON
Third AppellantAND: LED TECHNOLOGIES PTY LTD (ACN 100 887 474)
Respondent/Cross-AppellantVID 168 OF 2009
BETWEEN: ELECSPESS PTY LTD (ACN 104 535 597)
First Appellant/First Cross-RespondentADVANCED AUTOMOTIVE AUSTRALIA PTY LTD
(ACN 005 955 948)
Second Appellant/Second Cross-RespondentREN INTERNATIONAL PTY LTD (ACN 115 026 438)
Third Appellant/Third Cross-RespondentOLSEN INDUSTRIES PTY LTD (ACN 098 385 730)
Fourth Appellant/Fourth Cross-RespondentAND: LED TECHNOLOGIES PTY LTD (ACN 100 887 474)
Respondent/Cross Appellant
JUDGES:
EMMETT, BESANKO AND JESSUP JJ
DATE:
9 June 2010
PLACE:
MELBOURNE
REASONS FOR JUDGMENT
EMMETT J:
INTRODUCTION........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ .......
[1]
The Designs Claims........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ .
[3]
The Trade Practices Claims........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ...
[5]
Claims against the Individuals........ ........ ........ ........ ........ ........ ........ ........ ........ ........ .......
[8]
The Conclusions of the Primary Judge........ ........ ........ ........ ........ ........ ........ ........ ........ .
[10]
THE ISSUES IN THE APPEALS AND CROSS APPEALS........ ........ ........ ........ ........ ..
[14]
THE ISSUES UNDER THE DESIGNS ACT........ ........ ........ ........ ........ ........ ........ ........ ...
[16]
Relevant Provisions of the Designs Act........ ........ ........ ........ ........ ........ ........ ........ ........ .
[19]
The Designs........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ......
[29]
Clarity of the Designs........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ......
[35]
Distinctiveness of the Designs........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........
[44]
Infringement........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ....
[56]
Conclusion as to the Designs Act Issues........ ........ ........ ........ ........ ........ ........ ........ ........
[65]
LIABILITY OF THE DIRECTORS AS JOINT TORTFEASORS........ ........ ........ .......
[66]
MR MORRISON’S COSTS........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ .......
[89]
CONTRAVENTION OF SECTION 65C OF THE TRADE PRACTICES ACT........ .
[101]
RELIEF AGAINST CORPORATE RESPONDENTS FOR CONTRAVENTION OF THE TRADE PRACTICES ACT........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ......
[118]
Loss........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ...
[119]
Declarations........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ .....
[129]
Costs........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ .
[132]
INVOLVEMENT OF DIRECTORS IN TRADE PRACTICES CONTRAVENTIONS........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........
[133]
CONCLUSION........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ....
[144]
INTRODUCTION
These two appeals were heard together. The appeals are concerned with the importation, sale and distribution in Australia of combination rear lights for motor vehicles, known as the Condor range or Condor products. The lenses of the combination lights in the Condor products are light emitting diodes (LEDs). LEDs do not use a filament that can burn out or break and, if of good quality, last for many thousands of hours of continuous use.
LED Technologies Pty Ltd (LED Technologies) claimed that importation, sale or distribution of certain of the Condor products contravened its monopoly in certain registered designs. LED Technologies also claimed that certain of the lights were sold and distributed in packaging that contained misleading and deceptive captions and that certain of the lights did not comply with a prescribed consumer product safety standard. It was common ground that each of Elecspess Pty Ltd (Elecspess), Advanced Automotive Australia Pty Ltd (AAA), Ren International Pty Ltd (Ren) and Olsen Industries Pty Ltd (Olsen) offered for sale and sold Condor products.
The Designs Claims
LED Technologies is registered under the Designs Act 2003 (Cth) (the Designs Act) as the owner of Design No. 302359 (the Dual Lens Design) and Design No. 302360 (the Triple Lens Design). Representations of the Dual Lens Design and the Triple Lens Design (together the Designs) are set out in the Schedule to these reasons.
LED Technologies claimed injunctions and damages against Elecspess, AAA, Ren and Olsen (together the Corporate Respondents) for infringement of its monopoly in the Designs. The Corporate Respondents denied that the importation, sale or distribution of the Condor products infringes the Designs. Further, they cross-claimed for orders revoking the registration of the Designs.
The Trade Practices Claims
Section 7(1) of the Motor Vehicle Standards Act 1989 (Cth) (the Standards Act) provides for the determination of vehicle standards. The title of each vehicle standard determined under s 7 includes a reference to an Australian Design Rule (ADR). The Condor products were marketed in packaging that bore one or more of a number of captions as follows:
·Complies with ADR1.
·Complies with ADR6.
·Complies with ADR49.
·ADR Approved.
LED Technologies says that to market the Condor products with such captions involves the making of representations that the Condor products comply with one or other of the vehicle standards and that it was misleading or deceptive to do so, in contravention of s 52 and s 53 of the Trade Practices Act 1974 (Cth) (the Trade Practices Act), because the Condor products do not comply with the relevant vehicle standard.
Section 65C(1)(a) of the Trade Practices Act provides that a corporation must not supply goods that are intended to be used, or are of a kind likely to be used, by a consumer if the goods are of a kind in respect of which there is a prescribed consumer product safety standard and which do not comply with that standard. Section 41 of the Standards Act provides that, for the purposes of s 65C of the Trade Practices Act, a vehicle standard determined under the Standards Act is to be taken to be a prescribed consumer product safety standard. LED Technologies alleged that the supply of certain of the Condor products contravened s 65C, because they do not comply with the relevant vehicle standard.
LED Technologies claimed declarations that conduct of the Corporate Respondents contravened ss 52, 53 and 65C of the Trade Practices Act. It also claimed damages pursuant to s 82 of the Trade Practices Act for the loss that it says it has suffered by that conduct of the Corporate Respondents.
Claims against the Individuals
LED Technologies also alleged that Messrs Peter Morrison, Anthony Keller and Lawrence Armstrong, who were directors of Ren and Olsen, were personally liable, as joint tortfeasors, for the infringement of its monopoly in the Designs. LED Technologies also claimed damages against Messrs Morrison, Keller and Armstrong, on the basis that they were involved in the contraventions of the Trade Practices Act by the Corporate Respondents. That claim was based on s 75B of the Trade Practices Act.
While LED Technologies pressed its claims against Messrs Keller and Armstrong (together the Directors), it subsequently abandoned its claims for relief against Mr Morrison. However, a question arises as to Mr Morrison’s costs.
The Conclusions of the Primary Judge
The primary judge concluded as follows:
·There is no basis for revocation of either of the Designs.
·The Corporate Respondents infringed LED Technologies’ monopoly in the Designs.
·The Corporate Respondents contravened ss 52 and 53 of the Trade Practices Act.
·The Corporate Respondents did not contravene s 65C of the Trade Practices Act.
·The Directors authorised, directed and procured the conduct of Ren and Olsen in relation to the infringement of LED Technologies’ monopoly so as to be liable as joint tortfeasors for the infringement.
·The Directors were not knowingly concerned in the contraventions of ss 52 and 53 of the Trade Practices Act.
·LED Technologies is entitled to recover damages for the infringement.
·LED Technologies is not entitled to additional damages for contravention of ss 52 and 53 of the Trade Practices Act.
·Declarations that the Corporate Respondents had contravened ss 52 and 53 of the Trade Practices Act should not be made.
On 24 February 2009, the primary judge made orders in accordance with those conclusions. Her Honour also made orders for costs as follows:
·LED Technologies pay Mr Morrison’s costs of its claims against him incurred after 10 April 2008.
·The Corporate Respondents and the Directors pay LED Technologies’ costs of the claims in relation to the Designs.
·LED Technologies pay the costs of the Trade Practices Act claims against the Corporate Respondents and the Directors.
On 16 March 2009, Messrs Keller, Armstrong and Morrison filed a notice of appeal from some of her Honour’s orders. LED Technologies filed a notice of cross-appeal in that proceeding. Messrs Keller, Armstrong and Morrison filed a notice of contention in relation to the cross-appeal.
On 17 March 2009, the Corporate Respondents filed a notice of appeal from other orders made by the primary judge. LED Technologies filed a notice of cross-appeal in that proceeding. The Corporate Respondents filed a notice of contention in relation to that cross-appeal.
Proceeding VID 167 of 2009 is the Appeal by Messrs Morrison, Keller and Armstrong and the cross-appeal by LED Technologies. Proceeding VID 168 of 2009 is the appeal by the Corporate Respondents and the cross appeal by LED Technologies. The Corporate Respondents, on the one hand, and the directors, on the other, were separately represented on the hearing of the appeals and cross-appeals. However, both groups put the same submissions and counsel for the Corporate Respondents adopted the submissions made by counsel for the Directors.
THE ISSUES IN THE APPEALS AND CROSS APPEALS
Several issues arise in the appeals, the cross-appeals and the notices of contention and some issues are common. The issues that arise for the Full Court relate to the following:
·Validity of the Designs:
·Infringement of the Designs.
·Secondary liability of the Directors for infringement as joint tortfeasors:
·Mr Morrison’s costs.
·Contravention of s 65C of the Trade Practices Act.
·Relief against the Corporate Respondents for contravention of the Trade Practices Act:
a.Whether loss established;
b.Whether declarations should be made;
c.Costs; and
d.Quantum of damages under s 82 of Trade Practices Act.
·Involvement of the Directors in contraventions of the Trade Practices Act.
It is convenient to deal with those issues separately. However, there may be some factual overlap in their treatment.
I have read in draft the reasons of Besanko J and of Jessup J. In relation to the issues under the Designs Act, other than the question of the liability of the Directors as joint tortfeasors, I agree with the conclusions of Besanko J. In relation to the issues concerning Mr Morrison’s costs and liability under s 65C of the Trade Practices Act, I agree with the conclusions of Jessup J. In preparing these reasons I have drawn heavily on their Honours’ full and complete treatment of those issues.
THE ISSUES UNDER THE DESIGNS ACT
On 24 February 2009 the primary judge made declarations as follows:
1.The Condor product with the code number TL80RA offered for sale and sold by each of the [Corporate] Respondents infringes the [Dual Lens Design].
2. Each of the Condor products with the code numbers:
(a) TL80RRA / TL80ARR;
(b) TL80ARW;
(c) TL100ARR;
(d) TL100RAA;
(e) TL100ARW;
(f) TL125AAR / TL125RRA; and
(g) TL125ARW,offered for sale and sold by each of the [Corporate] Respondents infringes the [Triple Lens Design].
Her Honour also made orders that the Corporate Respondents and the Directors be restrained from infringing LED Technologies’ monopoly in the Designs and ordered that the Corporate Respondents and the Directors pay to LED Technologies damages in the sum of $200,000 for infringement of LED Technologies’ monopoly in the Designs.
The figures in the descriptions of the Condor products mentioned to in the orders refer to the three sizes offered for sale and sold by the Corporate Respondent, being 80 mm, 100 mm and 125 mm. The letters at the end of the description of the Condor products denote the colour of the lights, being red, amber or white.
There are three issues arising under the Designs Act as follows:
·Whether the Designs were invalid on the ground that the representations in the Register were unclear and the monopoly lacked certainty.
·Whether the Designs were invalid on the ground that they were not new and distinctive but were substantially similar in overall impression to a design that formed part of the prior art base.
·Whether the Condor Products infringed the Designs.
Before dealing with those issues it is desirable to say something about the relevant provisions of the Designs Act and the applications made for the Designs.
Relevant Provisions of the Designs Act
Under s 5 of the Designs Act, design, in relation to a product, means the overall appearance of the product resulting from one or more visual features of the product and representation means a drawing, tracing or specimen of a product embodying a design or a photograph of such a drawing, tracing or specimen. Section 7 provides that visual feature, in relation to a product, includes the shape, configuration, pattern and ornamentation of the product. Section 8 provides that a reference to a design is a reference to a design in relation to a product.
Section 10 of the Designs Act sets out the exclusive rights that the registered owner of a registered design has during the term of registration of the design. Those rights include the exclusive right to make, or offer to make, a product, in relation to which the design is registered, which embodies the design. Sections 15, 16 and 19 of the Designs Act deal with the features that a design must exhibit before it can be registered.
Under s 15(1), a design is a registrable design if the design is new and distinctive when compared with the prior art base for the design as it existed before the priority date of the design. Under s 15(2), the prior art base for a design (the designated design) consists of:
(a)designs publicly used in Australia; and
(b)designs published in a document within or outside Australia; and
(c)designs in relation to which each of the following criteria is satisfied:
(i)the design is disclosed in a design application;
(ii)the design has an earlier priority date than the designated design;
(iii)the first time documents disclosing the design are made available for public inspection under section 60 is on or after the priority date of the designated design.
Section 16 provides that a design is new unless it is identical to a design that forms part of the prior art base for the design. A design is distinctive unless it is substantially similar in overall impression to a design that forms part of the prior art base for the design. The newness or distinctiveness of a design is not affected by the mere publication or public use of the design in Australia on or after the priority date of the design, or by the registration of another design with the same or a later priority date.
Section 19 deals with factors to be considered in assessing substantial similarity in overall impression. Under s 19, if the Court is required to decide whether a design is substantially similar in overall impression to another design, the Court is to give more weight to similarities between the designs than to differences between them. The Court must also:
(a) have regard to the state of development of the prior art base for the design; and
(b)if the design application in which the design was disclosed included a statement (a statement of newness and distinctiveness) identifying particular visual features of the design as new and distinctive:
(i) have particular regard to those features; and
(ii)if those features relate to only part of the design—have particular regard to that part of the design, but in the context of the design as a whole; and
(c)if only part of the design is substantially similar to another design, have regard to the amount, quality and importance of that part in the context of the design as a whole; and
(d) have regard to the freedom of the creator of the design to innovate.
If the design application in which the design was disclosed did not include a statement of newness and distinctiveness in respect of particular visual features of the design, the Court must have regard to the appearance of the design as a whole. The Court must apply the standard of a person who is familiar with the product to which the design relates, or products similar to the product to which the design relates (the standard of the informed user).
Section 71 defines the acts that constitute infringement of a registered design. It relevantly provides that a person infringes a registered design if, during the term of registration of the design, and without the licence or authority of the registered owner of the design, the person makes or offers to make a product, in relation to which the design is registered, which embodies a design that is identical to, or substantially similar in overall impression to, the registered design. In determining whether an allegedly infringing design is substantially similar in overall impression to the registered design, the Court is to consider the factors specified in section 19.
Several sections of the Designs Act are potentially relevant to the issue of whether the Designs are invalid because the representations are unclear and the monopoly lacks certainty. Under s 111 of the Designs Act, the Registrar must keep at the Designs Office a Register of Designs. Various particulars must be entered in the Register in respect of a registered design and those particulars include representations of the design. Under s 112, the Register may be kept wholly or partly by use of a computer.
Under s 21 of the Designs Act, a person may file an application in respect of a design. The application must comply with what are defined in s 21(2) as minimum filing requirements. The minimum filing requirements relate, inter alia, to the representations of the designs. Regulation 3.01 of the Design Regulations 2004 (Cth) (the Regulations) provides that, as part of the minimum filing requirements, the application must include a representation, or information that appears to be a representation, of each design. Under s 39 of the Designs Act, the Registrar must register the design if the Registrar is satisfied, inter alia, that the design application satisfies the formalities check specified in the Regulations. Regulation 4.04 provides that part of the formalities check is confirmation by the Registrar that the design application includes five copies of each representation of the design.
Section 93 of the Designs Act relevantly provides that a person may apply to the Federal Court for an order revoking the registration of a design. The grounds on which the Court may revoke the registration of the design include the ground that the design is not a registrable design. That refers to s 15. In s 93, original registered owner, in relation to a design, means each person entered in the Register as the registered owner at the time the design was first registered.
The Designs Act also contains provision for the rectification of the Register. Section 120 of the Designs Act relevantly provides that a person aggrieved by:
·the omission of an entry from the Register; or
·an entry wrongly made in the Register; or
·an error or defect in an entry in the Register; or
·an entry wrongly existing in the Register;
may apply to the Federal Court for an order to rectify the Register. On hearing such an application, the Court may decide any question that it is necessary or expedient to decide in connection with the rectification of the Register and make any order it thinks fit for the rectification of the Register.
The Designs
In June 2004, LED Technologies lodged applications in respect of the Designs. With each application there was a set of drawings (the Greyscale Drawings). The Greyscale Drawings were prepared using dark ink and various parts of the product were shown in dark ink. The Greyscale Drawings were kept on physical files maintained by IP Australia in an envelope endorsed with the word “Informals”.
LED Technologies’ applications did not satisfy the formalities check specified in the Designs Act and the Regulations because each application did not include five copies of each representation of each design, as required by s 39 and reg 4.04. In November 2004, LED Technologies received a notice from IP Australia stating that the applications for registration did not satisfy the formal requirements for registration because only one set of drawings had been provided with each application. The notice said that, if the deficiency was not remedied within two months, the applications might lapse. When Mr Ottobre, a director of LED Technologies, came to attend to the matter, he had only pink ink available to him and further copies of the drawings were printed using pink ink (the Pink Drawings). The Pink Drawings show representations of the products in pink ink, which is quite faint. The Greyscale Drawings were not faint. LED Technologies provided the Pink Drawings to IP Australia. The representations attached to the certificates of registration for each design are the Pink Drawings.
As contemplated by the Designs Act, the Registrar keeps the Register, or part of the Register, by use of a computer. IP Australia operates a website and part of the Register can be accessed through the website. The Pink Drawings are the representations of the Designs on the website. The representations set out in the Schedule to these reasons are paper copies of what is shown on the website.
The product in respect of which the Dual Lens Design is registered is described in the relevant certificate of registration as “rear combination lights”. The priority date is 22 June 2004. The certificate of registration refers to a statement of newness and distinctiveness (the Newness Statement) in the following terms:
Seperate (sic) clip in lenses. Base to take a variety of 2, 3 or 4 combination lenses for stop, tail, indicator, reverse LED lenses, no visible screws.
Five pages of representations are attached to the certificate of registration, as set out in the Schedule to these reasons. The product shown in the representation consists of two combination lenses and a base. The products are attached to vehicles to indicate when the vehicle is stopping, turning or reversing, as the case may be.
The certificate of registration for the Triple Lens Design records much the same information as the certificate of registration for the Dual Lens Design. Five relevant pages of representations are attached to the certificate of registration. The Triple Lens Design is for a product consisting of three combination lenses and a base.
Clarity of the Designs
In order to be valid, a registered design must be reasonably clear and succinct. That is to say, the design must appear with reasonable clarity, and without necessity for unreasonably prolonged or complicated series of deductions, from the registered representation. A design may be valid for any form that is new, subject to the requirement that it be distinct and present an appearance that strikes the eye as being different from any previously existing shape. The design is addressed to a person of some skill, who might be called a person skilled in the art. However, a person skilled in the art is not necessarily familiar with particular methods of manufacture per se. Such a person knows the prior art articles and the prior art registered designs and knows as much about manufacture as such a person would reasonably be expected to deduce from a study of those designs and articles, but not necessarily any more. If a design, depicted by reference to an article to which it has been applied, appears difficult to construe, evidence is admissible from persons familiar with such articles and with methods of applying designs to them, at all events where the design is confined to configuration (see LJ Fisher & Company Ltd v Fabtile Industries Pty Ltd (1978) 1A IPR 565, 571-72 (LJ Fisher & Company Case)).
It is for the Court to determine the meaning of a design in a proceeding under the Designs Act, whether the central question be the meaning of the design, novelty or infringement. While some designs are simple, such that the Court needs no expert evidence to interpret them, other designs are complex, such that the Court may require technical assistance in order to understand them. Such evidence is plainly admissible. However, ultimately, it is for the Court to rule on the meaning of a design. Similarly, prior art may be a fairly simple matter in a particular case, requiring little or no technical evidence. On the other hand, the understanding and interpretation of prior art may call for expert assistance to be provided to the Court for similar reasons. There is no objection in an appropriate case to evidence being received from persons in the relevant trade or industry or members of the public directed to the question of infringement. Nevertheless, it is for the Court to determine that question, with or without such evidence (see Firmagroup Australia Pty Ltd v Byrne & Davidson Doors (Vic) Pty Ltd (1986) 6 IPR 377 at 385-6).
Section 19 of the Designs Act introduced the standard of the informed user. It is clear that it is for the Court to make up its own mind as to the meaning of the Designs, applying the standard of the informed user. The issue is the clarity of the Designs. It was not suggested that the Designs are so complex that the Court requires technical assistance in order to understand them.
The Corporate Respondents and the Directors contended that, in the case of the Dual Lens Design, it is unclear whether the lenses are square or rectangular. In that respect, the Court was referred to the first page of the relevant representations. However, the representations must be considered as a whole and, when that is done, it is quite clear that the lenses are square. The Corporate Respondents and the Directors also contended that the representations are unclear as to the cut-out on the left hand side of the base, as shown on the first page of both sets of representations. There is no uncertainty about the fact that the designs show a cut-out on the two short sides of the base. Next, they contended that the representations of the rear or underside of the product in both sets of representations are unclear because it is unclear as to what is represented by the pink colouring. Clearly enough, the pink area is the back of the lenses, with a gap between each lens. The pink area indicates a cavity or void and is to be contrasted with the open back plate. The feature of the design to which those matters are relevant is the shape and configuration of the open back plate. That feature is shown sufficiently clearly in the representations.
The relevant test is whether the Designs are reasonably clear and succinct. The Designs Act requires representations embodying the relevant design. A design is the overall appearance of a product resulting from one or more visual features of a product. No assessment of distinctiveness for the purposes of validity, or for the purposes of infringement, can be made without knowledge of the overall appearance of a product resulting from one or more visual features of the product. In the present case, there is no written description of the overall appearance and visual features of the relevant product, other than the brief statement of newness and distinctiveness.
At the hearing before the primary judge, the parties called witnesses who gave evidence on the issues of the clarity of the Designs and distinctiveness for the purposes of validity and infringement. Each witness was put forward as a person who could give evidence relevant to the standard of the informed user referred to in s 19 of the Designs Act. The Corporate Respondents and the Directors called Mr Trevor Garrard, who was a consultant to the automotive electrical industry. LED Technologies called Mr Glenn Ransom, who operated an auto electrical wholesale business.
Mr Garrard looked at the Pink Drawings. He said that he had difficulty in understanding features of the Designs such as the side profile of the base and the degree of rounding of the lens. However, in cross-examination, he acknowledged that he was able to discern features of the Designs except for the curved ends. Other witnesses gave evidence about the Pink Drawings and what they could and could not discern from them. The primary judge conducted her own examination of the representations and concluded that it was possible to discern from the Pink Drawings the visual features of the Designs, including the two matters to which Mr Garrard had drawn special attention.
The primary judge went on to note that it was possible, within limits, to reproduce the representations at greater magnification than may first be displayed on the computer screen. Her Honour considered that, when the five different views of each of the Designs were displayed at high magnifications, the details and specifications of each of the Designs appear not just with reasonable clarity, but with great clarity. The Corporate Respondents and the Directors pointed out that there was no evidence that the representations on the IP Australia website could be or were in fact magnified by any witness, and contended that a member of the public seeking information as to a registered design would not be expected to magnify the online representations electronically. Her Honour concluded that, since there was a presumption implicit in the Designs Act, which was accepted by the parties, that a person will be able to access an image on the website, it must be expected that such a person could and would magnify the image without prompting. Her Honour considered that that provided separate support for her conclusion that the visual features of the Designs are sufficiently clear.
The primary judge considered that the Pink Drawings are not perfect and that they could be better or clearer. Nevertheless, her Honour concluded that they were reasonably clear and succinct. Her Honour made no error in concluding that the representations were reasonably clear and succinct.
Distinctiveness of the Designs
Not every shape is a design. There must be sufficient individuality of appearance to distinguish it from the fundamental form of an article. The existence of that sort of individuality is to be determined by the eye and not by measuring dimensions. It follows that a design need not have the precision of a working drawing. Rather, it concerns the shape or configuration of an article, as it appears to the eye. If a design applied by another has the features that are characteristic of the registered design and are so arranged that to the eye the resulting shape is substantially the same, there is infringement. However, if the same features are arranged so that to the eye the resulting shape is different, there is, in the absence of fraudulent imitation, no infringement. In deciding one way or the other, the proportions of common features may be of the utmost importance (see Malleys Ltd v JW Tomlin Pty Ltd (Malleys Case) (1961) 1a IPR 559 at 560).
Nevertheless, that does not involve deciding that, to be registrable, the representation of the design must be such that its proportions can be accurately calculated. It is sufficient if the representation of the design shows a shape with enough individuality of appearance to distinguish it and to enable one to determine, by visual comparison, whether the shape of an article is either the same as, or nothing more than an imitation of, that disclosed by the registered design (see Malleys Case at 560).
Questions of infringement and novelty or originality are connected. One may be able to take into account the state of knowledge at the time of registration, and in what respects the design was new or original, when considering whether any variations from the registered design that appear in the alleged infringement are substantial or immaterial. Where novelty or originality is discovered in slight variations, there cannot be infringement without a very close resemblance between the registered design and the article alleged to be an infringement of the design. The Court should have regard to what was known at the priority date and if the particular features that provide a novel conception have not been reproduced in the alleged infringement, the similarity of appearance between the article complained of and the registered design, if present, must necessarily reside in the common possession of characteristics that are free to everybody to employ. Small differences between the registered design and the prior art will generally lead to a finding of no infringement, if there are equally small differences between the registered design and the alleged infringing article. On the other hand, the greater the advance in the registered design over the prior art, the more likely that the Court will find common features between the design and the alleged infringing article to support a finding of infringement (see Dart Industries Incv Décor Corporation Pty Ltd (1989) 15 IPR 403 at 409):
The Corporate Respondents and the Directors contended that the Designs were not registrable designs because they were not distinctive when compared with the prior art base. It was accepted that the Designs were not identical to a particular design that formed part of the prior art base for the design. Rather, the Corporate Respondents and the Directors placed specific reliance upon several prior art base products. However, they accepted that several distinctions existed between the prior art base and the Designs. The distinctions were as follows:
· the absence of visible screws in the case of the Designs;
· the different visual features of the rear or base views of the Designs;
· the “cut-out” or “recess” at the end of a lamp; and
· the sloping, rounded mounting brackets surrounding the lenses.
Those four features were of considerable significance to the primary judge’s consideration of the issue of distinctiveness and of infringement. Her Honour formulated the question as being whether an informed user would consider a design with those distinct features was substantially similar in overall impression to a design that forms part of the prior art base for the design. Her Honour considered that an informed user would not consider either of the Designs to be substantially similar in overall impression to any design that forms part of the prior art base.
The primary judge then had regard to the state of development of the prior art base. Her Honour considered that each of the Designs and features described in the statement of newness and distinctiveness was a distinct advance over the prior art base, in the sense that it combined various existing features in a way that had not been done before. She considered that the advances recorded in the Designs over the prior art base were substantial. In particular, her Honour referred to Mr Garrard’s acknowledgement that each of the four features described above was quite arbitrary, from a design point of view. That is to say, the features were the product of a conscious design choice, rather than compelled by industry-wide standards or technological constraints.
The primary judge found that the designs and products that comprised the prior art base had some of the features found in each of the Designs. However, her Honour concluded that no product in the prior art base incorporated all, or most, of the four features in one product. Her Honour said that she did not consider that a person familiar with the product to which the Designs relate, or products similar to the product to which the Designs relate, would consider either of the Designs as substantially similar in overall impression to any of the designs that formed part of the prior art base.
The Corporate Respondents and the Directors contended that, in determining the question of distinctiveness, the primary judge made two errors as follows:
· First, her Honour did not have regard to the state of development of the prior art base for the Designs, as she was required to do by s 19(2)(a) of the Designs Act. Alternatively, her Honour erred because she treated that matter as a secondary consideration.
· Secondly, her Honour did not place any weight, or any sufficient weight, on the statement of newness and distinctiveness in the design applications, as she was required to do so by s 19 of the Designs Act.
In relation to the first contention, they said that one of the purposes of the test of newness and distinctiveness under the Designs Act was to make it harder to obtain registration, not easier to obtain registration. To confine the provisions of the Designs Act to a design by design comparison would, they contended, make it easier to qualify for registration. In those circumstances, the Designs Act should be read as requiring a close examination of the prior art base as a whole.
By reason of s 19(2)(b)(i), the Court is required to have particular regard to the visual features identified in the statement of newness and distinctiveness. The Corporate Respondents and the Directors say that the only visual feature of the Designs identified as new and distinctive is the absence of visible screws. They say that consideration should be confined to that matter and that there are other designs forming part of the prior art base that have no visible screws.
The task of the Court is to compare each of the Designs with each relevant piece of prior art. Section 19 does not refer simply to the prior art base, but to the state of development of the prior art base. The primary judge observed, albeit in the context of infringement, that the extent of difference required to make a design distinctive will depend on the state of development of the relevant prior art base. A more developed prior art base will mean that smaller differences will be sufficient to result in a finding that there is no substantial similarity (see par 5.23 of Australian Law Reform Commission Report No 74, Designs (1995)).
Section 19(1) is a mandatory direction to the Court. Under s 19(2), the state of development of the prior art base is a mandatory consideration but the direction is different from that in s 19(1), in that the Court is to have regard, or particular regard, to the various matters mentioned. There is no reason to think that the primary judge did not have regard to the state of development of the prior art base, or that her Honour in some way relegated it to a secondary consideration. The first contention of the Corporate Respondents and the Directors must be rejected.
The second contention of the Corporate Respondents and the Directors must also be rejected. The primary judge did not err in the weight that her Honour placed on the statement of newness and distinctiveness. Her Honour was aware of the need to have particular regard to the particular visual features of the design identified in the statement of newness and distinctiveness as new and distinctive. Her Honour was correct to conclude that each of the Designs was new and distinctive.
Infringement
The trial was conducted on the basis that the result on infringement should be the same with respect to each of the Condor products. That is to say, the Corporate Respondents and the Directors did not seek to distinguish between the various Condor products.
The primary judge compared with the Triple Lens Design a three lens Condor product. Her Honour first considered the top view of the three lens Condor product and compared it with the first, second, third and fourth pages of the representations of the Triple Lens Design. She noted that the Condor product had a continuous base and a flat strip or landing between each lens. Her Honour also noted that the sides of the base of each of the Designs and of the Condor product comprised a sloping, rounded mounting bracket surrounding the lenses.
The primary judge then considered the question of the presence or absence of visible screws. Her Honour noted that the Condor product contained visible screws, while the statement of newness and distinctiveness accompanying the Designs emphasised that the Designs had no visible screws. However, Her Honour concluded that the two screws in each flat strip or landing between each lens in the case of the Condor product, was not a feature that substantially distinguished the Condor product from the Triple Lens Design. Her Honour said that the presence of the screws did not create a different visual appeal, observing that the screws in the Condor product were the same colour as the flat strip or landing between each lens and sat low in the socket. She observed that they were not “visual” screws, as one would describe the screws in some of the prior art, where the screws are chrome in colour and protruding.
The primary judge then turned to the rear or underside view of the Condor product and the fifth and sixth pages of the representations of the Triple Lens Design. Her Honour considered that a visual comparison led to the conclusion that the Condor product was “substantially similar in overall impression” to the Triple Lens Design. She noted that there was one base with rounded corners, an opening for each lens of similar shapes, with the shapes in the same configuration and the same number of mounting holes for the screws. Her Honour also noted that the holes were in the same position. Her Honour observed that Mr Garrard had properly conceded in cross-examination that the Condor products were much closer to the Designs than they were to LED Technologies’ own single-lens LED lamp, which formed part of the prior art base.
The primary judge stated the relevant principles correctly and referred in detail to the various matters in s 19 of the Designs Act. Her Honour referred to the fact that a more developed prior art base will mean that smaller differences will be sufficient to result in a finding that there is no substantial similarity. Her Honour also referred to the need to consider, through the eyes of an informed user, the state of development of the relevant prior art base. In that context, her Honour observed that one measure was whether the difference in distinctiveness between the registered design and any previously known design was greater than the difference between the registered design and the design of the alleged infringing article.
When applying the principles to the facts, the primary judge considered three of the four features that distinguished the Designs from the prior art base. Her Honour also considered a fifth feature, namely, the continuous base and the flat strip or landing between each lens. Her Honour did not err in doing so. However, her Honour appears to have failed to consider one of the four features, namely, the “cut-out” or “recess” at the end of a lamp, which distinguished the Triple Lens Design from the prior art base. In the present circumstances, it is open to the Full Court to determine the issue of whether the Condor products embody a design that is substantially similar in overall impression to the Designs. The issue does not turn on questions of credit or findings of fact that have been found to be erroneous. The question is one for the Court.
The Corporate Respondents and Directors contended that the relevant Condor product is not substantially similar in overall impression to the Triple Lens Designs because two of the four features that distinguished the Designs from the prior art base, the absence of visible screws (a feature emphasised in the statement of newness and distinctiveness) and the “cut-out” or “recess” at the end of a lamp, are not present in the Condor product. Furthermore, they said, the shape of the backing plate (that is, the visual features of the rear or underside views of the Designs) is different as between the Condor product and the Designs.
The screws in the Condor product are the same colour as the flat strip or landing between each lens and sit low in the socket. They do not create a different “visual appeal” from that created by the Designs. The cut-out or recess at the end of a lamp is a visual feature present in the Designs but not in the Condor products. It is not a prominent or particularly significant feature. As to the visual features of the rear or underside views of the Designs, the conclusions of the primary judge, which are set out above, are unexceptionable.
I agree with Besanko J that, on balance, the Condor products embody a design that is substantially similar in overall impression to each of the Designs. In the circumstances, the challenge to the primary judge’s conclusion that the Condor products infringe the monopoly in the Designs must be rejected.
Conclusion as to the Designs Act Issues
It follows that there was no error on the part of the primary judge in the conclusions that her Honour reached in relation to the issues arising under the Designs Act. That is to say, the Designs are valid and there was infringement of the monopoly of LED Technologies in the Designs. Her Honour’s order that the Corporate Respondents pay damages to LED Technologies for the infringement must stand. However, it is necessary to consider the question of the liability of the Directors for the infringement.
LIABILITY OF THE DIRECTORS AS JOINT TORTFEASORS
LED Technologies contended that Messrs Keller and Armstrong authorised, directed and procured the conduct of Ren and Olsen that constituted infringement of LED Technologies’ monopoly in the Designs, such that each should be held liable for the infringement by Ren and Olsen. The primary judge accepted that contention.
At the time of the relevant conduct, Messrs Keller and Armstrong were directors of Ren and Olsen. Mr Keller accepted that he was the moving spirit in Ren and that he was the person principally concerned with the day to day operations of Olsen. Mr Keller said in cross-examination that he and Mr Armstrong, were “the boss” of Ren in 2006.
Mr Keller became aware of the Designs by an online search of the Register. He noticed that the application for registration of the Designs included the Newness Statement. Mr Keller knew that the concept of separate lenses was not new in 2004 and that it was commonplace for rear lamps to be configured in a combination of two, three or four lenses. Mr Keller was struck by the claim in the Statement that there were no visible screws. He therefore conceived the design of a new single lens lamp and also two and three lens rear lamps.
In conceiving the design of the proposed new rear lamps, Mr Keller gave careful consideration to the features of a number of lamps in the market, including lamps marketed by LED Technologies. He believed that LED lenses were popular to would-be thieves intending to steal lenses from large vehicles parked in open spaces at night. Mr Keller considered that it would be very difficult to make a light that was totally theft proof. However, he considered that the task of stealing a lens would be more difficult if some further effort were to be required to remove the lens, as distinct from merely prising a lens out with a screwdriver. He therefore conceived the design of a light that included a lens with a lug on opposing edges, which fits into a recessed base and is restrained by a crossover strip fastened with screws. While the screws were not regarded by him as aesthetic, they served the purpose of holding the lenses in place.
Mr Armstrong was retiring as a stockbroker about the time that Mr Keller was proposing to commence a new business of importing and distributing a range of products from China. In mid 2005, Mr Keller invited Mr Armstrong to contribute capital to the new business, which became Ren. Mr Armstrong invested on the basis of his confidence in Mr Keller’s business and commercial abilities, of which he had become aware over the years during which he knew Mr Keller.
Mr Armstrong became a director of Olsen in November 2006, together with Mr Morrison. Olsen had been a separate operation from Ren, trading as a wholesaler and distributor of trailer products. The shareholders and directors had been Mr Keller and Mr Oelefsen and, after Mr Oelefsen resigned, Mr Keller invited Mr Armstrong to become an equity partner in Olsen as well.
From November 2006 until Mr Morrison’s resignation in April 2007, the directors of Ren and Olsen were Messrs Keller, Morrison and Armstrong. Mr Armstrong’s role, during the time he was a director of Ren and Olsen, was that of Chairman. In that role, he had little to do with the day to day running of the businesses. As Chairman, he attended board meetings and focussed on the direction of the companies. Although he was generally aware of the business activities of Ren and Olsen, and the products that they import and distribute, he generally had no role in the selection, acquisition or design of specific products.
Mr Armstrong had no involvement in Olsen prior to becoming a director, although he was generally aware of its business activities from his discussions with Mr Keller. Mr Armstrong understood that Olsen carries on the business of importing and distributing, amongst other things, trailers and trailer accessories, including couplings and jockey wheels.
From time to time, Mr Armstrong met representatives of Ren’s and Olsen’s clients. Usually, they were the larger and more important clients of Ren and Olsen and he met them in his capacity as Chairman, accompanied by sales representatives and employees who dealt with the accounts of the clients. Mr Armstrong’s dealings with suppliers or manufacturers were limited. He met with visiting manufacturers or suppliers when they visited Australia, but his presence at such meetings was for the purpose of entertaining and welcoming the manufacturers or suppliers when they visited, rather than participation in active involvement in product acquisition or design.
Mr Armstrong was told by Mr Keller that the source of the Condor products was Asian Access in China. Asian Access was one of Ren’s suppliers of a range of various products, including automotive lamps. Mr Keller told Mr Armstrong that he was interested in importing lamps from Asian Access. A sample lamp was delivered to Ren’s patent attorney. Mr Armstrong attended meetings with the patent attorney with Mr Keller. As a result of that process, Mr Armstrong became aware that LED Technologies was the registered owner of the Designs.
Mr Armstrong was aware of the general need for automotive lamps to comply with the ADRs. He intended that Ren and Olsen should comply with all relevant regulations and standards for their products. Mr Keller told Mr Armstrong that, when contacting suppliers and manufacturers in China, Mr Keller insisted that products that were to be imported by Ren must comply with the ADRs. Mr Armstrong said that his involvement in that area of the business was limited and that he was not involved in any of the day to day work relating to the compliance of Ren’s and Olsen’s products with the ADRs.
It appears that Mr Armstrong was the individual named on behalf of Ren and Olsen in communications with the Department of Infrastructure, Transport and Regional Services (the Department), which maintains a register of components that are commonly used in new vehicles. However, Mr Armstrong said that he had no recollection of ever signing an application in that regard.
Mr Armstrong did not have any doubt that the Condor lamps met the ADRs. He was satisfied that appropriate steps were being taken by Mr Keller to confirm compliance, although he was aware that China Trailer was taking some time to respond to Mr Keller’s request for a certificate.
In December 2006, Mr Keller told Mr Armstrong that a representative of Elecspess had telephoned him requesting component registration numbers for Condor products to show to his customers. Mr Keller told Mr Armstrong that he sent to Elecspess a letter from Asian Access, then called China Trailer, confirming compliance with the ADRs.
When a complaint was received in relation to the quality of the Condor products and China Trailer did not respond to a request to confirm compliance with the ADRs, Mr Armstrong became suspicious. Mr Armstrong and Mr Keller requested an employee of Ren to make enquiries of the Department as to whether it had received appropriate test reports. Mr Armstrong felt frustration that Ren was unable to confirm whether test reports that purported to show compliance were accurate.
In April 2007, the Australian Competition and Consumer Commission (the Commission) approached Elecspess in relation to the question of compliance of the Condor products with the ADRs. Mr Keller and Mr Armstrong, together with Ren’s patent attorney, attended a meeting with Elecspess and the Commission in May 2007. Mr Keller informed the Commission representatives that Olsen and Ren would cooperate fully. Subsequently, some Condor products were recalled. Following the recall, Ren obtained its supply of Condor products from a new manufacturer. Mr Armstrong was aware of steps that Mr Keller took to ensure that the new lamps were being tested for compliance with the ADRs.
The primary judge found that Messrs Keller and Armstrong did not act only as directors of Olsen and Ren. Her Honour found that each had personal knowledge of the existence of the Designs. In the light of the evidence summarised above, her Honour concluded that each of Messrs Keller and Armstrong was personally an actor in invading the rights of LED Technologies by creating the Condor products and taking the other steps summarised above. Her Honour characterised those sequences of actions as the deliberate, wilful and knowing pursuit of a course of conduct that was likely to constitute infringement, or at least, reflected a conscious indifference to the risk of infringement. Her Honour concluded, therefore, that each of Messrs Keller and Armstrong had engaged in infringement of LED Technologies’ monopoly in the Designs and that each was a tortfeasor in the infringement since each had a common design, with Ren and Olsen, to infringe LED Technologies’ monopoly. Accordingly, her Honour found that each of Messrs Keller and Armstrong was jointly and severally liable to LED Technologies for the damage suffered by it as a consequence of the infringement.
A company cannot act other than through a natural person. In considering whether a natural person is a joint tortfeasor with a company, it is necessary to show something more than that the company acted through that person. Where a person is acting in the capacity of a director, the person will not be liable for the act of the company unless it can be shown that, in so acting, the director was doing something more than acting as a director. The person must do something that makes him or her, in addition to the company, an invader of the victim’s rights (see O’Brien v Dawson (1942) 66 CLR 18 at 32-3). The mere fact that a company is small and that the director has control over its affairs is not, of itself, sufficient to make the director a joint tortfeasor with the company (see Evans Limited v Spritebrand (1985) 1 WLR 317 at 329).
Infringement by a principal actor, of course, is an objective matter. For a director of a company to be held to be invading the rights of a victim of the company, by reason of the actions committed in the capacity of a director, there must be some mental element involved. Thus, in circumstances where a director can be shown to be making use of a corporation or company as an instrument whereby infringement is perpetrated, such that the director can be seen to be hiding behind the corporate veil, it may be thought that that director is going beyond actions performed merely in the capacity as director. If a company is merely the alter ego of a director, such that there is no real difference between the mind of the officer and the mind of the company, there may well be circumstances where it will be appropriate to conclude that the officer is invading the rights of a victim of the company.
Mr Armstrong had no involvement in the day to day running and operation of Ren and Olsen and he did not act otherwise than as a director of Olsen and Ren. Certainly, the primary judge found that he was aware of the Designs. However, her Honour made no finding that Mr Armstrong was aware that there was infringement or that he set out to infringe LED Technologies’ monopoly. Indeed, the evidence would not support such a conclusion.
It is difficult to see the justification for her Honour’s conclusion that the conduct of Mr Armstrong reflected a conscious indifference to the risk of infringement. No such suggestion was put to him in cross-examination. It was not suggested in cross-examination that he knew or had any reason to believe that the sale of the Condor products constituted infringement. Whether the appropriate test is that a director has directed or procured the company’s infringement or that the director had engaged in the deliberate, wilful and knowing pursuit of a course of conduct that was likely to constitute infringement or reflected an indifference to the risk of it, the evidence summarised above and the manner in which the case has been conducted does not support her Honour’s conclusion that Mr Armstrong was a joint tortfeasor with Ren and Olsen in the infringement of LED Technologies’ monopoly.
Mr Keller’s position is not quite so clear. The primary judge found that Mr Keller had personal knowledge of the Designs and of the following facts and matters:
·The fact that at the time of the conception and design of the infringing Condor products, Mr Keller was a director of Ren and Olsen and he and Mr Armstrong were “the boss” of Ren and Olsen.
·Discussions with manufacturers about the manufacture of the Condor products.
·The subsequent importation and sale of Condor products in Australia.
·The fact that Mr Keller designed and conceived versions of the Condor products and arranged for their manufacture and importation into Australia.
Her Honour concluded that Mr Keller was personally an actor invading the rights of LED Technologies by creating the Condor products and arranging for their manufacture and importation into Australia. Her Honour considered that the actions of Mr Keller were the deliberate, wilful and knowing pursuit of a course of conduct that was likely to constitute infringement or, at least, reflected a conscious indifference to the risk of infringement.
However, while Mr Keller’s involvement was greater than that of Mr Armstrong, the findings do not support the conclusion that Mr Keller intended and procured that infringement would take place or shared a common design that infringement should take place. Mr Keller was not effectively standing apart from Ren and Olsen, directing or procuring them as separate entities. The findings would not support the conclusion that Mr Keller was using Ren and Olsen as the instrument of his own conduct. What he did was done in the service of Ren and Olsen and not in his own personal capacity. There is no dimension to the role of Mr Keller that was separate from the good faith discharge of his duties to the service of Ren and Olsen. In those circumstances, he should not be held to be personally liable for the infringements of Ren and Olsen.
MR MORRISON’S COSTS
In its Statement of Claim, LED Technologies alleged that, at all material times until 5 April 2007, Mr Morrison was:
·a director, and the company secretary, of each of Ren and Olsen;
·the sole shareholder of Ren;
·the owner of 25% of the shares in Olsen;
·acting as servant or agent of Ren and Olsen;
·in effective control of Ren’s conduct;
·together with Messrs Keller and Armstrong, in absolute control of the conduct of Ren and Olsen;
·acting with Ren and Olsen in furtherance of a common design;
·directing or procuring the conduct of Ren and Olsen;
·making the conduct of Ren and Olsen his own; and
·authorising the conduct of Ren and Olsen.
Mr Morrison admitted that he was a director and company secretary of Ren between 29 June 2005 and 5 April 2007, that he was a director of Olsen between 15 November 2006 and 5 April 2007, and that he was a former shareholder of both companies. Otherwise, he denied each of those allegations.
LED Technologies also alleged that, at least until 5 April 2007, Mr Morrison:
· acted in concert with each of Ren and Olsen in the infringement of LED Technologies’ monopoly in the Designs, or wrongfully procured and/or induced Ren and Olsen to infringe that monopoly, thereby becoming a joint tortfeasor with them;
· aided and/or abetted and/or was, directly or indirectly, knowingly concerned in, or party to, the contraventions by Ren and Olsen of ss 52, 53(a), 53(c) and 65C of the Trade Practices Act, thereby becoming liable under ss 75B, 80 and 82(1) of that Act.
Mr Morrison denied those allegations.
Further and better particulars of LED Technologies’ allegations provided on 25 February 2008 set out a number of instances in which Mr Morrison participated in meetings and other events that related to the Condor products. It was said that, by reason of those matters, Mr Morrison had knowledge of the proposed importation, promotion, sale and distribution of Condor products by Ren and he acquiesced in, approved and/or took no steps to stop or prevent the same when he was in a position to do so.
By a letter from LED Technologies’ solicitor to Mr Morrison’s solicitors of 7 February 2008, LED Technologies offered to withdraw its claims against Mr Morrison if he provided a statement regarding his involvement with Ren and Olsen and confirming that he was not involved in the decision to import and sell the infringing products. That offer was not accepted.
On 18 February 2008, Mr Morrison made an offer of compromise to LED Technologies under Order 23 of the Federal Court Rules. He proposed that LED Technologies discontinue its proceeding against him, that he discontinue his cross-claim against LED Technologies, and that LED Technologies pay 90% of his party/party costs of the proceeding. The offer was open for acceptance within 14 days. It was not accepted.
On 2 April 2008, Mr Morrison made a further offer of compromise to LED Technologies under Order 23. He proposed that LED Technologies’ proceeding against him, and that his cross-claim against LED Technologies, be dismissed, with no order as to costs. Again, the offer was open for fourteen days. Again, it was not accepted.
On 10 April 2008, Mr Morrison filed an affidavit in which he swore that he was never involved in the acquisition of Condor products, their design or their development. In the orders made on 24 February 2009, the primary judge ordered that the claims by LED Technologies against Mr Morrison be dismissed and that LED Technologies pay Mr Morrison’s costs of those claims incurred after 10 April 2008. In the course of her reasons of 18 December 2008, her Honour said that, during the course of the hearing, LED Technologies stated that it no longer sought relief against Mr Morrison. The reasons said that Mr Morrison was not given costs on an indemnity basis because the application was not actively pursued at the hearing and her Honour did not consider that Mr Morrison had established any basis for costs to be awarded on an indemnity basis. Her Honour said that the costs orders that she proposed to make, which included the order relating to Mr Morrison’s costs, dealt with the issues of the costs of the claim and the costs of the cross claims in the most appropriate manner. No other reasons were given.
Mr Morrison appealed against the costs order made in relation to him on two bases. The first was that, since he was successful, he ought to have received his costs generally, not only those incurred after 10 April 2008. The second was that, since he had secured a result more favourable to him than that proposed in each of his offers of compromise, he should have been awarded his costs, to the extent that they were incurred subsequently, on an indemnity basis.
An award of costs involves the exercise of a judicial discretion, which will only be disturbed on appeal in limited circumstances. In the present case, the absence of full reasons by the primary judge for her decision to deny Mr Morrison a part of the costs to which, as a successful party, he would normally be entitled, creates some difficulty.
There may be circumstances in which it would be appropriate to deny costs to a party who, although ultimately successful, declined to reveal facts not reasonably available to the other party that would demonstrate such success was likely. Mr Morrison admitted his former shareholding, the offices that he had held, and the dates between which those offices had been held in the companies. Otherwise he denied the allegations made against him. His defence stated the position to which he swore on 10 April 2008, in that he denied any involvement in the infringing and unlawful conduct about which LED Technologies complained.
The effect of the orders made by the primary judge was to deny Mr Morrison his costs of instructing legal representatives and preparing and filing a defence. That cannot be justified by the circumstance that it was only on 10 April 2008 that Mr Morrison, for the first time, went on oath as to his lack of involvement in the matters about which LED Technologies complained. LED Technologies was squarely on notice that Mr Morrison denied any involvement in those matters. There is no evidence as to why Mr Morrison chose not to respond to the invitation given to him by LED Technologies to indicate his involvement with Ren and Olsen, and confirm that he was not involved in the decision to import and sell the Condor products. However, his failure to do so was not a sufficient basis to modify the costs order that would otherwise be made in his favour.
Mr Morrison should be regarded as a successful party to whom costs should be awarded in the normal course. However, in the result, he did not achieve a result more favourable to him than the one he proposed in his offer. The only compromise that he proposed was in relation to costs. In those circumstances, he is not entitled to his costs other than on the party/party basis. There is no reason to interfere with the orders made by the primary judge in relation to the cross-claim filed by Mr Morrison.
CONTRAVENTION OF SECTION 65C OF THE TRADE PRACTICES ACT
Section 65C(1)(a) of the Trade Practices Act relevantly provides that a corporation must not, in trade or commerce, supply goods that are intended to be used, or are of a kind likely to be used, by a consumer, if the goods are of a kind in respect of which there is a prescribed consumer product safety standard and which do not comply with that standard. The question of whether the Condor products complied with the relevant ADRs was an issue before the primary judge. Her Honour found that LED Technologies had failed to connect particular lamps, having been supplied at particular times, to particular tests demonstrating non-compliance of those lamps with the ADRs.
LED Technologies contended that the primary judge had overlooked an affidavit sworn by Mr Ottobre on 15 July 2008 that, together with the other evidence before her Honour, justified the following findings:
(a)In about November 2006, Elecspess supplied to Mr Ottobre a Condor two-lens combination light unit and a three-lens combination light unit. In each case, they were, 80 mm square. On 5 December 2006, Mr Ottobre sent the three-lens combination light to Queensland University of Technology (QUT) for testing. Tests conducted under the supervision of Assoc Prof Ian Cowling showed that the white reverse lamp did not comply with ADR-1, that the amber direction indicator did not comply with ADR-6 and that the red stop lamp did not comply with ADR-49.
(b)In October 2007, Mr Geoff Lance, at the request of Mr Ottobre, purchased two Condor 80 mm three-lens light units from Olsen. Mr Ottobre forthwith sent one of them to QUT for testing. Tests conducted under the supervision of Assoc Prof Cowling showed that the white reverse lamp did not comply with ADR-1. The other two lamps complied with the ADRs that were applicable to them.
(c)In February 2008, Elecspess supplied to a business called “Down Under Trailers” three three-lens combination Condor light units, sized 80 mm, 100 mm and 125 mm. They were passed on to Mr Ottobre, who forthwith arranged for them to be sent to the University of New South Wales (UNSW) for testing. Tests conducted under the supervision of Prof Stephen Dain showed that the white reverse lamp did not comply with ADR-1 in the case both of the 80 mm and of the 100 mm unit. For that reason, no further test was conducted with respect to those units. The 125 mm unit complied with the ADRs that were applicable to it.
I now return to ADR-1, and to the provisions of para 4.1 thereof. By the “exemptions” set out in para 5.1, it is provided that many of the provisions of Reg 23 are not applicable. Those provisions are:
5.1 Section 2 Application for approval
Section 3 Markings
Section 4 Approval
Section 9 Conformity of production – partial (for particular deletions to the section refer to paragraphs 5.1.2 and 5.1.3)
Section 10 Penalties for non-conformity of production
Section 11 Production definitely discontinued
Section 12 Names and addresses of technical services responsible for conducting approval tests and of administrative departments
Annex 1 communication concerning the approval or extension or refusal or withdrawal of approval or production definitely discontinued of a type of reversing lamp pursuant to Regulation No.23
Annex 2 Examples of arrangements of approval marks
5.1.1 The opening paragraph in Section 9, paragraph 9.4 and
5.1.2 Paragraphs 2.3 and 3.3 in Annex 6
5.2 The opening paragraph in Section 9, paragraph 9.4 and
5.3 Paragraphs 2.3 and 3.3 in Annex 6Additionally, ADR-1 provides as follows, by way of supplement to the applicable provisions of Reg 23 (para 6.1}:
The requirements and procedures set out in Annexes 5 and 6 of Appendix A are acceptable for the purposes of demonstrating compliance with the technical requirements of this rule.
It appears as though it was intended, in the drafting of ADR-1, to adopt the substantive requirements of Reg 23 without the procedural aspects relating to the approval of lamps and the like. Unlike the position which apparently obtains in jurisdictions in which Reg 23 applies directly, in Australia it is not necessary for combination lights to be “approved” before being placed on the market. Thus, withdrawal of approval is not available as an administrative penalty for non-compliance. Rather, by omitting the opening paragraph of section 9 of Reg 23, ADR-1 has in effect turned what was a regime for conformity of production into a statement of the minimum requirements of lights as such. However, ADR‑1 also makes clear, in the passage last quoted above, that compliance with Annexes 5 and 6 of Reg 23 shall be treated as sufficient. That is to say, even if, considered as an individual item, a light would fail to meet the standard set by para 9.1, if it has been manufactured in accordance with the kind of regime for which Annexes 5 and 6 provide, it shall be treated as compliant.
In the facts of the present case, LED Technologies caused lights to be supplied, ad hoc, by Elecspess and Olsen. On the first occasion Elecspess supplied a light to Mr Ottobre at his request. On the second and third occasions, Olsen and Elecspess supplied lights ostensibly in the normal course of their trade. The lights – or at least some of them – did not comply with the substantive requirements of para 6.1 of Reg 23. In the case of LED Technologies, this meant that they did not comply with the applicable ADR and that there had, therefore, been a contravention of s 65C(1)(a) of the Trade Practices Act. Elecspess and Olsen resisted that conclusion at two levels. First, they submitted that Reg 23, and therefore (by incorporation) the ADRs, did not set up any absolute requirement of compliance for every light bought off the shelf in the course of trade, or individually supplied howsoever else. They submitted that the norms established by Reg 23 were mandated, and enforced, by a procedure of testing. LED Technologies had not availed itself of any such procedure. Since the regime of testing for which Reg 23 provides allows for some degree of non-conformity, it cannot be open, so Elecspess and Olsen submitted, for a competitor such as LED Technologies to establish a breach of s 65C by obtaining a single supply on an isolated occasion and proving only that the light so obtained did not comply. Secondly, they submitted that Reg 23, and therefore ADR-1, allowed for a tolerance of 20% in any event. A contravention of s 65C could not be established without at least demonstrating a deviation from standard of more than 20%.
Although the terminology employed is not altogether felicitous, I consider that the sense of para 4.1 of ADR-1 is that, subject to the variations, exceptions and supplements later provided for, compliance with Reg 23 is required. As pointed out above, in Australia, lamps must be manufactured so as to meet the requirements of Sections 6 and 8. Annexes 5 and 6 of Reg 23 (as applied in Australia) provide a means by which the manufacturer may establish conformity with Reg 23, and thus with the ADRs. Any lamp made in accordance with a manufacturing process which complies with Annexes 5 and 6 is to be deemed compliant with the ADRs, whether or not, considered as an individual item, it does in fact comply with Sections 6 and 8 of Reg 23.
In the present case, it would have been open to Elecspess and Olsen to show that the light combinations supplied by them had been manufactured under a regime that was compliant with Annexes 5 and 6 of Reg 23. They did not so proceed. Rather, they submitted that the ADRs simply did not impose any standards save by reference to the testing and sampling procedures for which those annexes provide. They contended, in effect, that it lay upon LED Technologies to prove that the relevant manufacturing process was non-compliant with the requirements of those annexes. I would not accept that contention. For reasons set out above, I consider that the ADRs operate by setting up primary quantitative standards, and then by allowing the manufacturer to bring himself or herself within those standards by reference to Annexes 5 and 6. In other words, it lies upon the manufacturer, or upon the person in whose interests it is to establish compliance with the annexes, to lead the evidence necessary for that purpose.
It is only in the context of conforming manufacturing processes for which Annex 5 of Reg 23 provides that a deviation of up to 20% from standard is permissible. In circumstances where Elecspess and Olsen have chosen not to establish that the lights supplied to the representatives of LED Technologies were manufactured in accordance with Annex 5, this provision has no operation.
Thus I take the view that, in relation to the supplies referred to in para 410 above, the combination lights which were found by QUT and UNSW to fail the tests carried out by those organisations did not comply with the applicable ADRs. There was, in each case, a contravention of s 65C(1)(a) of the Trade Practices Act. LED Technologies’ cross-appeal should be allowed to this extent, and appropriate declarations made. I agree with Besanko J, however, that no case has been made for an award of damages over and above those to which LED Technologies would be entitled for design infringement. In addition to the avoidance of double-counting, I note that it was only with respect to the specific supplies referred to in para 410 that LED Technologies has established a contravention of s 65C. It is not in the least apparent – and it was not suggested in LED Technologies’ arguments on appeal – how any loss or damage in fact occurred as a result only of those supplies.
Mr Morrison’s costs
It is convenient to commence consideration of Mr Morrison’s appeal against the costs order made by the primary Judge with a brief review of the relevant pleadings. At this stage I refer to the pleadings as they stood at the time of the trial. LED Technologies alleged that, at all material times until 5 April 2007, Mr Morrison was a director, and the company secretary, of each of Ren and Olsen; the sole shareholder of Ren; the owner of 25% of the shares in Olsen; acting as servant or agent of Ren and Olsen; in effective control of Ren’s conduct; together with Messrs Keller and Armstrong, in absolute control of the conduct of Ren and Olsen; acting with Ren and Olsen in furtherance of a common design; directing or procuring the conduct of Ren and Olsen; making the conduct of Ren and Olsen his own; and authorising the conduct of Ren and Olsen. In his Defence, Mr Morrison admitted that he was a director and company secretary of Ren between 29 June 2005 and 5 April 2007, that he was a director of Olsen between 15 November 2006 and 5 April 2007, and that he was a former shareholder of both companies. Otherwise, he denied all these allegations.
In its Statement of Claim, LED Technologies alleged that, until at least 5 April 2007, Mr Morrison acted in concert with each of Ren and Olsen in the infringement of LED Technologies’ monopoly in its registered designs, or wrongfully procured and/or induced Ren and Olsen to infringe that monopoly, thereby becoming a joint tortfeasor with them. Mr Morrison denied these allegations, adding that, in the absence of proper particulars, they were embarrassing and should be struck out. LED Technologies also alleged that, until at least 5 April 2007, Mr Morrison aided and/or abetted and/or was, directly or indirectly, knowingly concerned in, or party to, the contraventions by Ren and Olsen of ss 52, 53(a), 53(c) and 65C of the Trade Practices Act. Mr Morrison’s liability was said to arise under ss 75B, 80 and 82(1) of that Act. Mr Morrison denied these allegations and, in the case of those which were tied to alleged infringements by Ren and Olsen of ss 52, 53(a) and 53(c) of the Trade Practices Act, added that, in the absence of any proper particulars, the allegations were embarrassing and should be struck out.
I note that further and better particulars of LED Technologies’ Statement of Claim were provided on 25 February 2008. The request for those particulars was not included in the appeal papers, but the nature of it may be inferred from the terms of the particulars provided. Relevantly to the present question, the particulars set out a number of instances in which Mr Morrison participated in meetings and other events which related to the Condor Products with respect to which LED Technologies sued. It was said that, by reason of those matters, “Morrison had knowledge of the promotion, sale and distribution of the Condor Products by Ren and Morrison acquiesced in, approved and/or took no steps to stop or prevent the same when he was in a position to do so”. The particulars referred to a meeting on or about 22 June 2006 in which Mr Morrison participated, and at which the distribution of the Condor products by Ren to Olsen, and the promotion and sale of the Condor Products by way of a brochure to be prepared for Olsen, was reported on or discussed. As a result of this, it was said that Mr Morrison “had knowledge of the promotion and sale of the Condor products by Olsen and acquiesced in, approved and/or took no steps to stop or prevent the same when he was in a position to do so”.
In an affidavit sworn on 9 February 2009, LED Technologies’ solicitor referred to a letter sent on behalf of his client to Mr Morrison’s solicitors on 7 February 2008. Although exhibited to that affidavit, the letter did not form part of the appeal papers (a cross-reference to what was apparently intended to be another copy of that letter in a memorandum handed up by counsel for LED Technologies on the hearing of the appeal was erroneous). However, the solicitor’s affidavit summarises the presently relevant contents of the letter of 7 February 2008. In the letter, LED Technologies offered to withdraw its claims against Mr Morrison “if he provided a statement regarding his involvement with Ren and Olsen and confirming that he was not involved in the decision to import and sell the Infringing Products”. That offer was not accepted.
On 18 February 2008, Mr Morrison made an offer of compromise to LED Technologies under O 23 of the Federal Court Rules. He proposed that LED Technologies would discontinue its proceeding against him, that he would discontinue his cross-claim against LED Technologies, and that LED Technologies would pay 90% of his party/party costs of the proceeding. The offer was open for acceptance within 14 days. It was not accepted.
On 2 April 2008, Mr Morrison made a further offer of compromise to LED Technologies under O 23. He proposed that LED Technologies’ proceeding against him, and that his cross-claim against LED Technologies, both be dismissed, with no order as to costs. Again, the offer was open for fourteen days. Again, it was not accepted. On the same day, the individual appellants sent a letter to LED Technologies, which was “without prejudice save as to costs” and which was said to be made in accordance with the “principles” enunciated in Calderbank v Calderbank [1976] Fam 93. It proposed that the proceeding as against those appellants (then respondents) should be dismissed, that those appellants’ cross-claims should be dismissed and that there be no order as to costs.
On 10 April 2008, Mr Morrison caused an affidavit by himself to be filed in which, according to LED Technologies’ solicitor in his affidavit sworn on 9 February 2009, he swore for the first time that he was “never involved in the acquisition of products, their design or development”. Mr Morrison’s affidavit of 10 April 2008 is not in the appeal papers, but what LED Technologies’ solicitor said about it appears to be uncontroversial.
In the course of her reasons for judgment delivered on 18 December 2008, the primary Judge said that, during the course of the hearing before her, LED Technologies stated that it no longer sought relief against Mr Morrison. In final orders made on 24 February 2009, her Honour ordered that LED Technologies’ claims against Mr Morrison be dismissed, and that it pay Mr Morrison’s costs of those claims incurred after 10 April 2008. In her Honour’s reasons given that day, the only reference to Mr Morrison’s costs was the following:
In relation to para 5 of the Orders, I have not awarded costs to the Fifth Respondent on an indemnity basis. Not only was the application not actively pursued at the hearing, I do not consider that the Fifth Respondent has established any basis for costs to be awarded on an indemnity basis: see Colgate-Palmolive Company and Another v Cussons Pty Limited (1993) 46 FCR 225 at 232-234 per Sheppard J; Bagshaw v Scott [2005] FCA 104 at [39]-[43] per Bennett J; Cirillo v Consolidated Press Property Ltd(formerly known as Citicorp Australia Ltd) (No 2) [2007] FCA 179 at [4] per Finn J; Ruaro v Ferrari [2008] FCA 307 at [17] per Emmett J; Tadros v J & R Investment Services Pty Ltd (No 2) [2008] FCA 832 [13]-[16] per Buchanan J.
Otherwise, her Honour contented herself with saying that the costs orders which she proposed to make (which included the order relating to Mr Morrison’s costs) “deal with the issues of costs on the claim, the cross claims and the costs of those cross claims in the most appropriate manner”.
Mr Morrison appealed against the costs order made in relation to him by the primary Judge. He had two points: first, that, as a successful party, he ought to have received his costs generally, not only those incurred after 10 April 2008; and secondly, since he had secured a result more favourable to him than that proposed in both, or either, of his offers of compromise, he should have been awarded his costs, to the extent that they were incurred subsequently, on an indemnity basis.
As will be apparent from what I have written above, the primary Judge did not indicate, in her reasons of 24 February 2009, why she limited her award in favour of Mr Morrison to the costs which he had incurred after 10 April 2008. It may be inferred, however, that her Honour’s decision was based on the service of Mr Morrison’s affidavit on that day in which, apparently for the first time, he went on his oath as to his lack of involvement in the affairs of which LED Technologies complained. No other basis for the identification of that date was suggested by any party on appeal. It was submitted on behalf of Mr Morrison that the timing of his affidavit was no legitimate basis upon which to deny him a portion of the costs to which, as a successful respondent to a proceeding in the court, he would have the usual expectation. On the other hand, it was implicit in the case advanced on behalf of LED Technologies that the ostensible indications, arising from the offices which Mr Morrison held at least until 5 April 2007, justified the inference that he was likely to have been a joint tortfeasor with respect to such design infringements as were established and to have had the kind of involvement that is the concern of s 75B of the Trade Practices Act, with respect to such contraventions of that Act as were established. It was submitted that her Honour’s costs order was justified because Mr Morrison in effect remained silent about his own involvement until 10 April 2008.
An award of costs does, of course, involve the exercise of a judicial discretion which will be disturbed on appeal only in the limited circumstances referred to in House v The King (1936) 55 CLR 499. We are, however, at something of a disadvantage in the present case because of the absence of any reasons by the primary Judge for her decision to deny Mr Morrison a part of the costs to which, as a successful party, he would normally be entitled. There may be circumstances in which it would be appropriate to penalise a party who, although ultimately successful, had uncooperatively declined to reveal the facts, not reasonably available to the other party, which would sustain his or her success. However, for reasons which follow, I do not think that this case was in that category.
LED Technologies did not originally make any claims against Mr Morrison. Those claims were introduced, in relation to Ren, on 18 September 2007 and, in relation to Olsen, on 27 November 2007. In response to them, Mr Morrison admitted his former shareholding, and the offices which he had held (and the dates between which those offices had been held) in those companies, but otherwise denied the allegations made against him. Broadly speaking, Mr Morrison’s Defence (filed on 7 December 2007) stated the position to which he swore on 10 April 2008, that is, one which involved a denial of any involvement in the infringing and unlawful conduct of which LED Technologies complained. The effect of the orders made by the primary Judge was to deny Mr Morrison his costs of instructing his legal representatives, and of preparing and filing a Defence. With respect to her Honour, I cannot appreciate how that result might be justified by the circumstance that it was only on 10 April 2008 that Mr Morrison, for the first time, went on oath as to his involvement in the affairs of which LED Technologies complained.
From the filing of Mr Morrison’s Defence, LED Technologies was squarely on notice that he denied any involvement in those affairs. By a Reply dated 7 January 2008, it joined issue. It was not until 7 February 2008, apparently, that it sought an indication from Mr Morrison as to his involvement with Ren and Olsen, and a confirmation that he was not involved in the decision to import and sell the Condor lights. It is not apparent why Mr Morrison chose not to respond to that invitation, but I do not think that his failure to do so was a sufficient basis to modify the costs order that would otherwise be made in his favour. LED Technologies’ letter of 7 February 2008 seems to bespeak an ignorance on its part of the facts surrounding Mr Morrison’s involvement in the importation and sale of the Condor lights, notwithstanding that both versions of the Statement of Claim, and the Reply, carried the professional endorsement required by O 11 r 1B of the Federal Court Rules. It is not for me to canvass the options which might then have been available to LED Technologies, but it was, in my view, in the position of a litigant who, seeing smoke, pursued its claims against another party who had denied that there was fire. Such a litigant presses on at the risk of suffering the usual consequences of its ultimate failure, that is, that it will be obliged to pay the costs of the party who succeeds.
I wish to emphasise that we have been obliged to consider this question for ourselves because of the absence of any reasons on the point given by the primary Judge on 24 February 2009. On my view of the matter, Mr Morrison should be regarded as a successful party to whom costs should have been awarded in the normal course.
On appeal, it was also contended on behalf of Mr Morrison that he should have been awarded his costs on an indemnity basis to the extent that they post-dated the expiration of the offers of compromise which he made on 18 February and 2 April 2008 and/or the Calderbank offer which his solicitors made on behalf of him and the other individual respondents on 2 April 2008. These contentions were, however, the subject of little or no elaboration in Mr Morrison’s submissions on appeal. We were not taken to the provisions of O 23 of the Federal Court Rules under which an entitlement to indemnity costs was said to be available. How O 23 r 11 operates in the context of a respondent/cross-claimant who proposes a single composite basis for the settlement of the whole proceeding against, and by, him may be a matter of some complexity, but we were not addressed upon it.
Neither was any attempt made by Counsel for Mr Morrison to persuade us that their client achieved a result at trial not less favourable than that proposed in one or other, or both, of his offers of compromise. On LED Technologies’ claim against him, Mr Morrison succeeded, and I have concluded that he ought to have secured an order for his costs. On his cross-claim against LED Technologies, however, Mr Morrison failed, and a conventional costs order was made against him. Taken together, these outcomes do not self-evidently amount to the disposition of the proceeding as a whole in a way that was more favourable to Mr Morrison than proposed in his offers of compromise. As noted above, in his offer dated 18 February 2008, Mr Morrison proposed that LED Technologies should pay 90% of his costs. In the result, he failed to achieve a result as favourable as that proposed in the offer. In his offer dated 2 April 2008, Mr Morrison proposed that there be no order as to costs. On the appeal, no attempt was made by counsel for Mr Morrison to demonstrate that such an outcome would have been less favourable to him, or more favourable to LED Technologies, than that ultimately achieved by both (where LED Technologies paid Mr Morrison’s costs of the claim, and Mr Morrison paid LED Technologies’ costs of the cross-claim). We were not asked to assume that LED Technologies’ costs of defending Mr Morrison’s cross-claim would necessarily be no more than Mr Morrison’s costs of defending the claim.
For the above reasons, I am not persuaded that Mr Morrison ought to have been regarded by the primary judge as entitled to have his costs taxed on an indemnity basis, to the extent that they were incurred after the expiration of one, or of both, of his offers of compromise. There is no basis upon which I would hold that the primary judge erred by not awarding Mr Morrison his costs on an indemnity basis under O 23 r 11 of the Federal Court Rules.
As it happens, it appears that, before the primary Judge, counsel for Mr Morrison may have relied not upon O 23 r 11 in their application for indemnity costs, but upon the individual appellants’ Calderbank letter of 2 April 2009. In her Honour’s reasons given on 24 February 2009, the primary judge made no reference to the Federal Court Rules, and, on appeal, it was not submitted that her Honour was in error in this respect. Her Honour approached the matter as though the only question was whether Mr Morrison was entitled to have his costs taxed on an indemnity basis in accordance with general principles. As noted above, her Honour held that Mr Morrison had not “established any basis for costs to be awarded on an indemnity basis”. She referred to a number of first instance judgments, some of which rely upon the judgment of the Full Court in Hamod v New South Wales (2002) 188 ALR 659. In that case, Gray J said (with the assent of Carr and Goldberg JJ) (188 ALR at 665 [20]):
Indemnity costs are not designed to punish a party for persisting with a case that turns out to fail. They are not awarded as a means of deterring litigants from putting forward arguments that might be attended by uncertainty. Rather, they serve the purpose of compensating a party fully for costs incurred, as a normal costs order could not be expected to do, when the court takes the view that it was unreasonable for the party against whom the order is made to have subjected the innocent party to the expenditure of costs.
Her Honour appears not have been referred to the judgment of the Full Court in CGU Insurance Ltd v Corrections Corp of Australia Staff Superannuation Pty Ltd [2008] FCAFC 173. With respect to the entitlement of the maker of a rejected Calderbank offer to his or her costs on an indemnity basis, the Full Court said (at [75]):
From the tenor of claims which have come before the court in recent years, there appears to be a view abroad that the failure of a party who has rejected a Calderbank offer ultimately to achieve a better outcome than provided for in the offer leads to a presumptive entitlement to indemnity costs with respect to the period subsequent to the offer. Such a view would be mistaken. Where a moving party (including a cross-claimant) offers to settle for a sum which is less than he or she eventually achieves at trial, there is a presumptive entitlement to indemnity costs under O 23 r 11(4) of the Federal Court Rules. However, where recourse is not had to the O 23, but reliance is placed upon the court’s general discretion, it is necessary for the party seeking indemnity costs to demonstrate that the other party’s refusal of the Calderbank offer was unreasonable: Black v Lipovac (1998) 217 ALR 386 at 432; Maniotis v JH Lever & Co Pty Ltd (No 2) [2006] FCAFC 28. It is not sufficient that the offer was a reasonable one: Alpine Hardwoods (Aust) Pty Ltd v Hardys Pty Ltd (No 2) (2002) 190 ALR 121 at 128 [35]; Dais Studio Pty Ltd v Bullet Creative Pty Ltd [2008] FCA 42, [11]. In considering this question in a particular case, the matter of unreasonableness will be judged by reference to the circumstances facing the offeree at the time of the offer. While the eventual outcome in the case may go part of the way in this regard, there is no presumption that ultimate success in the proceeding for the offeror necessarily renders the offeree’s rejection unreasonable.
In the present case, the primary judge observed that Mr Morrison’s application for indemnity costs was “not actively pursued at the hearing”. On appeal, no criticism was ventured of this observation. No attempt was made to demonstrate that the exercise of her Honour’s discretion miscarried in relevant respects. For my part, I am quite unable to see how the rejection of the Calderbank offer made on 2 April 2008 by the individual appellants might have been regarded as any kind of a basis for a special costs order in favour of Mr Morrison. That offer did not propose a settlement as between LED Technologies and Mr Morrison alone. It was a single, undifferentiated, offer which would have required LED Technologies to agree to have its claim against Messrs Keller and Armstrong dismissed. On no view was it unreasonable for LED Technologies to have rejected that offer.
Likewise, to the extent that it might be thought that the offers of compromise under O 23 r 11 also performed service for the purposes of the court’s general discretion to award indemnity costs, because of the costs provisions proposed in those offers LED Technologies’ rejection of them could not be regarded as unreasonable. It was not, for example, unreasonable of LED Technologies to have rejected a proposal that would have required it to abandon any claim for the costs which it presumptively had in relation to the preparation of its defence to Mr Morrison’s cross-claim, simply because Mr Morrison elected not to pursue his own costs of defending LED Technologies’ action. No attempt was made to demonstrate that, at the time when the offers were made, LED Technologies would have been acting unreasonably by refusing to take the view that its own costs on the cross-claim would be no more than Mr Morrison’s costs on the claim.
In the result, I would vary the orders made by the primary Judge to the extent only of giving Mr Morrison his costs of defending the applicant’s claim in the proceeding generally, but I would reject his application to have those costs taxed on an indemnity basis. There has, of course, been no challenge to so much of the orders made by the primary Judge as required Mr Morrison to pay LED Technologies’ costs of his unsuccessful cross-claim.
I certify that the preceding ninety-four (94) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Jessup. Associate:
Dated: 9 June 2010
THE SCHEDULE
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