L.A. Gear, Inc v Zahl, a trading as Quality & Fashion Trade Co.

[1993] FCA 237

JUDGMENT NO. .amman 131 .a. 1 qq3 em. .m .a.

IN THE FEDERAL COURT OF AUSTRALIA	) )
NEW' SOUTH WALES DISTRICT REGISTRY )	NO NG 1003 of 1992

)

GENERAL DIVISION )

L.A. GEAR, INC

Applicant

ALI ZAHL, tradlna as OUALITY &

FASHION TRADE COMPANY

First Respondent

THE COMPTROLLER-GENERAL OF

CUSTOMS

Second Respondent

CORAM :	HILL J
PLACE :	SYDNEY

DATED : 10 FEBRUARY 1993

EX TEMPORE REASONS FOR JUDGMENT

By its application filed in the Court on 30 December 1992, the applicant seeks, inter alia, injunctive relief restraining Mr Ali Zahr, the first respondent, from infringing its registered trademark "L.A. Gear" (registration number B497082) and an order for the del~vering up of shoes bearing that mark to it as well as damages or an account of profits.

milllon. Its shoes have been extenslvely sold under the

The applicant is a corporation incorporated in the United States which commenced manufacturing and selling athletic footwear in early 1985. Its shoes are sold under the trade name "L.A. Gear" in over 100 countries, including Australia. The value of the total world wide sales of the applicant in the 1992 calendar year was approximately $500

trademark in Australia since early 1989 and extensively
advertised in this country.

In 1990, the applicant appointed Veruti Pty Limited ("Veruti") the exclusive distributor in Australia of footwear bearing the name "L.A. Gear". Mr Baldock is the managing director of that company and Mr Salmons its divisional sales manager.

On 3 October 1992, there arrived in Sydney from Korea the "Hakuba Maru". It would seem that this was its 91st voyage. On that vessel was a container, the contents of which wholly or in part belonged to Mr Zahr, the first respondent, who purchased and sold shoes under the registered business name "Quality and Fashion Trade Company" in Sydney.

Mr Zahr also had an interest in another business,

"Jordan Sports", which apparently also trades in shoes in

Sydney. The evidence about this business is somewhat	confusing. It is clear that the proprietor of the business
name is Mr Ali Zahr's brother, Ahamd Zahr. The business is managed by Mr Ali Zahr whose evidence, at various times, was that he was either the owner of the business or a partner sharing profits in it.
The applicant applied to the Comptroller-General of Customs on 17 July 1992, pursuant to the provisions of s.l03(3)(b) of the Trade Marks Act 1955 ("the Act"), objecting to the importation of shoes bearing its trademark. Ultimately, by letter dated 26 August 1992 addressed to the
solicitors for the applicant, the Australian Customs Service
("ACS") accepted the notice and security lodged by the solicitors under s.103 of the Act.
Accordingly, the goods in question were seized by the Comptroller-General pursuant to the provisions of s.103(3). Notice of that seizure was given to the applicant as objector, pursuant to s.l03(7)(b) of the Act, on 30 November 1992. Pursuant to the provisions of the Act, unless within 30 days of notice to the objector under s.l03(7)(b) the objector has instituted proceedings for infringement of the relevant trade mark, given notice that such proceedings have been instituted and there is no court order from such proceedings restraining release, the goods in questlon must be released to the owner of them.
In the present case, the applicant did institute proceedings in this Court within the relevant time and notice was given to the Comptroller-General of that. Accordingly,
application was made to this Court, pursuant to s.103(14), for
an order restraining the release of the goods. That application came before me in January and I made an order accordingly.
When the proceedings came before me, Mr Zahr alleged that an agreement had been reached between Veruti and him, giving him the right to sell the goods in Australia, he havlng paid to Veruti the sum of $1600 by way of royalty. Accordingly I made orders for the filing of evidence to allow there to be determined the issue of fact whether Verutl had, as Mr Zahr alleged, granted to him a licence to sell the goods, such that the goods should be released to him pursuant to the provisions of the Act and the application accordingly dismissed.
No evidence was filed by Mr Zahr pursuant to the directions I gave, although evidence was filed on behalf of the applicant. When the matter came before me for hearing today, Mr Zahr sought leave to adduce evidence orally from his brother and himself. As Mr Zahr had not been represented, I gave leave for him to give oral evidence in his case. Mr Baldock and Mr Salmons in their affidavits gave evldence of a
conversation which had taken place at the office of Veruti on 13 October 1992 at about 10.30am. At that meeting were
present Mr Ali Zahr, his brother, Mr Baldock and Mr Salmons.

According to Mr Salmons the following conversation

took place.

Mr Salmons:

"Do you have a company by the name of
Quality Fashions which imports shoes?"

Mr Zahr:

"Yes, I do."

Mr Salmons:

"We've had a t i p - o f f from an anonymous source that your company i s importing a

shipment o f L.A. Gear shoes. "

Mr Zahr:

"There are L.A.	Gear shoes i n the shipment
but I	d i d n ' t know that when I bought the
shoes.	They are genuine L.A. Gear shoes
though".

Mr Salmons:

"Are they counter fe i t shoes?"

M r Zahr:

"No, they are d e f i n i t e l y are not

counter fe i t shoes. I bought them through an agent i n Korea whom I ' v e purchased shoes from i n the p a s t . This i s the f irst

time I ' v e received L.A. Gear brand

products. "

Mr Salmons:

"Well, we're having a meeting with the customs people on Friday. A s f a r as I

know i t i s i l l e g a l t o import counter fe i t

products and parallel imported products."

Mr Zahr :

" I bel ieve the product	i s not	counter fe i t .
I ' v e never brought	i n L.A.	Gear brand

products before . I was unaware that L.A. Gear brand products w a s i n the shipment un t i l the shlpment arrived here i n

A u s t r a l i a . My agent i n Korea organises

these shipments. I s there any way that we

can work out t h i s problem?"

Mr Salmons:

"Well, i f they are genulne parallel imported products there may be some way o f allowing you t o pay a royalty t o bring the product i n . I f they' re counter fe i t however, I ' d have t o w a i t and see what our legal position i s . We'd have t o check

w l t h L.A Gear Inc i n the USA and get legal

advlce. "

Mr Zahr:

"The products are d e f i n i t e l y genuine and

not counter fe i t . I ' v e never brought

counter fe i t products i n t o t h i s country.

I s there some other way we can get around

the problem without gett ing t o a legal

s i tuat ion?"

Mr Salmons:

" A s I s a i d , i t depends. How much does it

cost you per p a i r t o bring the shoes in?"

Mr Zahr:

"About $5 t o $6."

Mr Baldock then said:

" I f we can do a deal , a royal ty o f somewhere around $4 a pair would probably

be r ight ."

Mr Salmons:

"How many shoes have you imported?"

Mr Z ahr :

"About 400 p a i r s . "

Mr Salmons:

" I t would also be o f bene f i t t o you i f you

gave u s a l l the information that you have concerning the person that you imported the shoes from. "

Mr Zahr:

"The person who I imported the shoes from i s n ' t my normal agent. I ' l l gladly give

you h i s de ta i l s a s h e ' s done the wrong

thing by me."

Mr Salmons:

"I think you'd better leave the matter

with me. I'll be discussing it wlth Cyril
Baldock and will get back to you."

This version of the conversation was confirmed by Mr Baldock. Mr Salmons was not cross-examined on his affidavit, but counsel for the applicant does not seek to submit that Mr Zahr should have put an alternative verslon of the conversation to him. Nothing in the cross-examination of Mr Baldock cast doubt in any way upon Mr Salmon's version of the conversation. He gave his evidence confidently and I accept him as a witness of truth.

Mr Ali Zahr had a quite different version of the conversation. According to my note of his evidence and assuming that on the part of Veruti the conversation was solely with Mr Salmons, the relevant part of the conversation proceeded as follows:

Mr Salmons: 

"Are you importing?"

Mr Zahr :

"Yes. "

Mr Salmon:

"Are you importing L.A. Gear shoes?"

Mr Zahr:

"Yes. "

Mr Salmons:

"How many shoes have you imported?"

Mr Zahr:

"465. "

According to Mr Zahr's evidence, this figure was then written down by Mr Salmons who then asked what the shoes were. The conversation continued:

Mr Zahr:

"L.A. Gear shoes, black and brown like

your stock. They have a sticker on them

from L.A. Gear company in Korea."

Mr Salmons:

"You know you're not allowed to do that. I'm surprised what customs done to you for the name L.A. Gear was not in the Customs manual. "

Mr Zahr:

"Look, I'm happy to pay whatever it will

cost me to release the goods."

A calculation was then made considering the difference between what it cost Veruti and what it cost Mr Zahr for the goods to land in Australia and then someone, either Mr Salmons or Mr Baldock, said:

"It's going to be $4 by 465."

Mr Zahr then said:

"I don't mind paying $4 by 464 but if you can make it $1600 all up it does not matter what the difference is."

Mr Salmons:

"Yes. Everything is okay. There's no trouble from our side. We'll meet the Customs tomorrow and discuss it wlth the

Customs. "

A slightly different version of the conversation was given by Mr Zahr's brother who, to the extent that it really matters in this case, was present while Mr Baldock was cross- examined. Two significant respects in which Mr Zahr's brother's evidence conflicts with that of Mr Zahr are, first, that according to Mr Ahamd Zahr, one of either Mr Ali Zahr or Mr Ahamd Zahr said that the shoes imported were "original". Mr Ahamd Zahr ultimately resiled from that evidence in cross- examination, saying that he did not know whether the imported shoes were or were not original or genuine. He denied, in cross-examination, that Mr Salmons had ever used the word

the first respondent were not genuine L.A. Gear shoes.	"counterfeit", or words suggesting that the shoes imported by
The second matter in which Mr Ahamd Zahr's evidence conflicted with that of his brother was that he said that the suggestion to pay $1600 came from Mr Ahamd Zahr and not from Mr Ali Zahr. Mr Ali Zahr's credit was tested in cross- examination. That cross-examination produced a number of discrepancies, each not important in itself, but which cumulatively cast doubt upon the evidence given by Mr Ali Zahr.
In addition to the two matters to which I have referred relating to the testimony of Mr Ahamd Zahr, Mr Ali Zahr gave evldence that he had earlier, and it would seem prior to the importation, checked with the ACS to see whether the name "L.A. Gear" was contained in a book kept by the ACS notifying trademarks, where goods bearing those trademarks were to be seized. Mr Zahr had previously had difficulties with the ACS involving import of shoes bearing the marks "Reebok", "Adidas" and "Nike".
The problem with this evidence is that if Mr Ali Zahr is to be believed, in other evidence he said that he did not know that L.A. Gear brand shoes were in the shipment destined for him. If this is so, it is difficult to see why, before that shipment arrived in Australia, he would have
ACS book. Also in his evidence, Mr Ali Zahr said that he had checked to see whether the name "L.A. Gear" appeared in the
told Mr Salmons, while describing the shoes in question, about the serial number which appears in the shoes and about the sticker on the shoes purporting to come from the Korean manufacturer.
The serial number is an important ingredient in identifying whether or not the shoes are genuine and it seems quite likely that Mr Ali Zahr was, inter alia, seeking to make the point that the shoes the subject of the present proceedings and the subject of the arrangement which was sought to be made were in fact genuine. Having seen Mr Ali Zahr in the witness box and even allowing for the fact that English is not his first language, I do not accept his evidence but prefer that of the witnesses for the applicant.
After the meeting on 13 October there was a telephone call that afternoon between Mr Salmons and Mr Ali Zahr. According to Mr Salmon's evidence, which is not accepted by Mr Zahr, it was at this meeting that Mr Salmons raised the possibility of a royalty of $4 per shoe and at which Mr Zahr suggested the rounding off to $1600. Of itself nothing turns upon whether this conversation took place on the telephone, as Mr Salmons deposes to, or at the earlier meeting, as Mr Zahr says. Whatever happened in that telephone discussion the parties are in agreement that Mr Zahr asked Mr
concurred in that course. Salmons whether he could bring in the $1600 and Mr Salmons
However, according to Mr Salmons evidence, which is denied by Mr Zahr but which I accept, Mr Salmons said:

"We can only hold it until we find out what our legal position is. If nothing can be done, we can at least credit your

account with that amount. "

According to Mr Salmons, Mr Zahr acquiesced in this course. Both parties are agreed that Mr Zahr subsequently attended at the office of Veruti the next day and produced notes totalling $1600. According to Mr Zahr, this was paid for the royalty on condition that proceedings would not be brought against him. According to Mr Salmons, the money was accepted, but with the reservation previously mentioned, dependent upon whether the goods were genulne.

It seems that on 22 December 1992, Mr Salmons received from the ACS a boxed sample of the goods. That box sample was forwarded by courier to the United States on 4 January 1993 so that the applicant might determine whether or not the goods were in fact manufactured by L.A. Gear or with ~ t s licence, or were counterfeit. The evidence does not disclose precisely when the applicant formed the view that the goods were in fact counterfeit and communicated that fact to Mr Salmons or Mr Baldock. However, it can be assumed that

that would have been some time early in January (subject to

the Christmas vacation).

The money paid by Mr Zahr was not banked upon its receipt but was put into a safe until the result of the inqulry as to whether the shoes were counterfelt was known. Mr Baldock was on holidays in early January and returned on 11 January 1993. Certainly by this stage it was known that the shoes were counterfeit. As a result the money was banked into the account of Veruti with its bankers and a credit was posted that day to the trading account of Jordan Sports with Veruti in the sum of $1600. That credit appears on the statement of Jordan Sports for the month ended 30 January 1993, showing the credit having been made on 11 January 1993.

In these circumstances I am of the view that no agreement, enforceable in law, was made between Mr Zahr, on the one hand, and the applicant, or any person on behalf of the applicant, in the conversations of 13 October 1992 or thereafter, on the other. Rather, Veruti reserved its position, pending determination of the question whether the shoes were or were not counterfeit and the money was accepted by it on this basis and not, as Mr Zahr alleges, in settlement of any proceedings and by way of royalty to permit the sale of the counterfeit items.

It is possible that it is unnecessary for me to decide the question whether the evidentiary dispute between Mr Zahr, Mr Baldock and Mr Salmons is a product of Mr Zahr's

English expression. I have little doubt that he would have difficulty in comprehending words such as "counterfeit", "parallel importation" and the like, and it may well be the case that he understood that he had paid the $1600 as consideration for a binding agreement that proceedings not be taken against him and that he be permitted to sell the goods. However, such a finding would not avail Mr Zahr in the present proceedings, as it would still have left the situation that no binding contract had been reached between him and Mr Salmons and/or Mr Baldock.

Having regard to the facts as found by me, I have no need to determine what would otherwise be another difficulty in the path of Mr Zahr, namely, the authority of either Mr Salmons or Mr Baldock to reach an agreement with Mr Zahr that would bind the applicant.

I would, therefore, grant an injunction restraining the first respondent from infringing the registered trademark, registration number B497082, and I direct the applicant to bring in draft short minutes of order on Wednesday, 17 February 1993 at 9.30am. Among the matters which should be the subject of discussion between the parties before that date is the question whether, by consent or otherwise, the goods in questlon might be donated to an appropriate charity, assuming

that the relevant trademarks can be obliterated or defaced so that the goods are not available for sale on the Australian

market, rather than that they be destroyed.

I certify that this and the

preceding thirteen (13) pages
are a true copy of the Reasons
for Judgment herein of his Honour
Mr Justice Hill.

Associate: l,([-h- L

Date : 23 APRIL 1943

Counsel and Solicitors	Mr D M Yates instructed by
for Applicant:	Williams Niblett

Mr A Zahr appeared for himself

Date of Hearing:  10 February 1993