Lumley Life Ltd v IOOF of Victoria Friendly Society

[1989] FCA 433

JUDGMENT No. ..!&.33..%&2

NOT FOR DISTRIBUTION

IN THE FEDERAL COURT OF AUSTRALIA )

1

NEW SOUTH WALES DISTRICT REGISTRY ) NO. NG354 of 1989

1

GENERAL DIVISION 1

BETWEEN:  LUMLEY LIFE LIMITED

Applicant

AND :  IOOF OF VICTORIA
FRIENDLY SOCIETY

Respondent

JUDGE MAKING ORDER: LOCKHART J,

DATE ORDER MADE:	10 JULY 1989
WHERE ORDER MADE:	SYDNEY

MINUTES OF ORDER

THE COURT ORDERS THAT:

Upon the applicant, by its counsel, giving to the Court an undertaking to pay to the respondent or to investors or potential investors who on or before 10 July 1989 have received the respondent's brochure, exhibit RGH 2 to the affidavit of Ross Sinclaire Greenwood of 7 July 1989, such compensation (if any) as the Court thinks lust, in such manner as the Court directs, the Court orders that:

I ""'""A'

1. Until the final determination of this proceeding or

further order, the respondent be restrained from, in trade or publicising, promoting or offering any investment product under or in association with the name

1 0	AUG 1989
PRINCIPAL

i

Flexibond or any name which is substantially identical with or deceptively similar to Flexibond;

(b)	accepting or receiving or processing any application for investment or any investment in any such investment product;
(C	representing in any way whatsoever that any of the respondent's investment products have any association or affiliation with the applicant or the applicant's products; or
(a)	representing in any way whatsoever that any of the respondent's investment products have performance characteristics or benefits they do not have.

2. The costs of the motion for interlocutory injunctive relief to be costs in the proceeding.

The Court gives the following directions:

1. The applicant flle and serve a statment of clalm on or before 17 July 1989.

2.    The respondent flle its defence on or before 24 July

3.    Parties give mutual verified discovery on or before 24

~ u l y 1989 and inspection to take place forthwith.

4 . The applicant file and serve any remaining affidavits on or before 27 July 1989.

5. The respondent flle and serve any remaining affidavits on or before 3 August 1989.

6. The applicant file and serve all affidavits in reply on or before 10 August 1989.

7. Matters are listed for directions on 4 August 1989 and

the matter specially fixed for final hearing on 14 August
1989.

8.    Either party is at liberty to apply on two days' notice.

NOTE:  Settlement and entry of orders is dealt with in Order
36 of the Federal Court Rules.

NOT FOR DISTRIBUTION

IN THE FEDERAL COURT OF AUSTRALIA	)
1
NEW SOUTH WALES DISTRICT REGISTRY )	NO. NG354 of 1989

1

GENERAL DIVISION 1

BETWEEN:  LUMLEY LIFE LIMITED

Applicant

AND :  IOOF OF VICTORIA
FRIENDLY SOCIETY

Respondent

10 July 1989

REASONS FOR JUDGMENT

LOCKHART J.

This is a motion for interlocutory injunctive relief based on alleged contravention of S. 52 of the Trade Practices Act 1974 and passing off. The applicant, Lumley Life Limited, is a life company which markets 25 investment

products and has more than $193 million in funds under	management. I shall refer to it as "Lumley".
Lumley distributes its products through agents including investment advisers, financial planners and financial advisers. Brochures, reports and other promotional material are sent to the agents who inform and advise their investor clients of the range of Lumley products. Lumley also sends promotional material direct to potential investors.
In March of 1987 Lumley launched what are described in the evidence as single premium life insurance products under the name "Flexibond" in association with Drake & Eades Pty. Limited to whom I shall refer as "Drake & Eades". Drake & Eades act as agents for various insurance companies, transacting various types of life, superannuation and disability insurance. Drake & Eades has a special arrangement with Lumley in the marketing and promotion of the Lumley Life range of Flexibond products.
The evidence is that there are some twelve distinct Flexibond products offered on the market by Lumley. All the Flexibond products are single premium or lump sum life insurance policies. Investors may chose between different categories of products such as ordinary, superannuation or rollover deferred annuities products. Within each category investors may invest in a capital secure or managed Flexibond. Sums invested under life insurance policies are usually controlled by one fund manager. Funds invested under
the Lumley Flexibond are divided equally between four separate managed bond re-insurers; Lumley, ACC Life Limited,
Friends Provident and Inlife. The evidence indicates that investors are able to shift thelr funds between capital secure and managed Flexibonds.
There is evidence from an officer of Lumley that the division of funds between four separate re-insurers is the most important element of Lumley's Flexibond products and that in a time of economic and financial uncertainty such a
division of funds is designed to give investors a better prospect of a safe investment than that offered by investments controlled by one fund manager.
~t is also said that the combined financial expertise of ACC Life Limited, Lumley, Friends Provident and Inlife offers investors the prospect of high returns on their investments.
A total of some $16,530,097.16 is currently on deposit in
Flexibond products representing the investment of over 2,000 investors. Lumley has spent over $400,000 in promoting Flexibond products. Its agents have also spent considerable sums of money in promoting those products.
Drake & Eades have promoted and marketed the Lumley Flexibond range of products as agents for Lumley since March of 1987 and they continue to do so. The promotional activities of Drake & Eades varies but includes promotional documents circulated by it to sub-agents and campaigns which are conducted with agents to encourage the sale of the new
business in Flexibond products.
In April of 1988, Lumley launched a new series of Flexibond products in conjunction with Insurance Finance Managers of Australia Pty. Limited, "IFMA". IFMA acted as agents for Lumley in promoting and marketing the Flexibond range of products. Their brochures were distributed by IFNA throughout its network of 750 multi-agencies located in all States and Territories of Australia.

There are plans for Lumley and Drake and Eades to launch new Flexibond products and to conduct a new campaign promoting the Flexibond range of products. The evidence contains details of certain of those plans which it is unnecessary to recite.

There is evidence that as a result of the promotions and advertising Lumley has built up a considerable reputation in the name Flexibond and there is also evidence that among agents, investors and potential investors, the name Flexibond has come to be associated with an investment product possessing certain characteristics, in particular the spread of the client's investment over separately managed funds.

The respondent is a friendly society incorporated pursuant to the provisions of the Friendly Societies Act 1986 (Vic), I will refer to it as "IOOF". IOOF forms part of the IOOF financial group which is a financial services organisation offering a wide range of financial products and

services to its members throughout Victoria, New South Wlaes
and other States of Australia. IOOF is an old friendly

society, having been established in 1846, it is Australia's largest friendly society and the IOOF group presently has assets in excess of $2.6 billion and approximately 174,000 members. IOOF has financial products and services which include single and multiple premium Investment insurances, superannuation, an approved deposit fund, a managed bond and loans and savings through IOOF Security Permanent Building

Society. Also, it provides its members with health, general, life and disability insurance together with financial planning, travel and retirement village facilities.

There is evidence that there are what are called flexible insurance bonds which form the bulk of IOOF1s financial products, including single premium products known as "Super Saver" and multiple premium products, for example, "Target Saver". It is the marketing policy of IOOF that the brochures advertising its financial products, should all bear the same appearance. IOOF also asserts that it is required under Victorian law to have a disclosure statement accompanying all application forms for investment in its financial products, and that each of the disclosure statements, together with the application forms, in fact, clearly identify what is required by law; namely, that the funds concerned are to be managed by IOOF. Funds can only be invested by members of the public completing application forms of this kind.

In late March or early April 1989, it appears that IOOF decided to develop a new product which was launched in June of this year and is known as the "IOOF Flexi Bond". The IOOF Flexi Bond is a single premium life insurance investment policy which offers the investor the choice of allocating his or her investment funds to one or more of three different investment portfolio funds which constitute the policy, and they are described in the evidence as a managed option, a capital stable option, and a mortgage option. I need not deal with the details.

IOOF Flexi Bond holders have the ability to choose the mix of funds associated with their individual policies. The minimum investment is $500 and the maximum $250,000. The investor can, it is said, switch between options throughout the term of the policy. The IOOF Flexi Bond was launched on 31 May 1989 when a document headed "News Flash", together with an accompanying brochure was forwarded by IOOF to its agents throughout Australia of which it has about 3,000. The brochure was also sent to IOOF members throughout Australia at the beginning of June 1989.

The IOOF Flexi Bond has been marketed in Victoria, New South Wales and Queensland. There is evidence by witnesses on behalf of IOOF that its Flexi Bond and the Lumley Flexibond are two distinct financial products and the differences between the two products are set out in the affidavits. There is also evidence on behalf of Lumley that, although there are differences between the products, there is substantial overlap between them.

IOOF has engaged in a substantial newspaper campaign to

advertise its Flexi Bond product although it is said from the

bar table and not disputed that the newspaper campaign that

has been engaged it has, for all practical purposes, ceased

and is not likely to be resumed, at least in the immediate	, .
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! ..
future.	!-; . .I
In response to IOOF1s newspaper advertisements and direct mail campaign to its existing members launching the IOOF Flexi Bond product, IOOF has received about 5,800 responses from its existing members and 150 responses from members of the public. Of the 5,800 responses received by IOOF from existing members about 3,000 responses requested more information concerning the IOOF Flexi Bond product, the remaining responses seeking more information about other IOOF financial products.
~t appears that about 90 per cent of all new business written by IOOF is written via its agents. To date, IOOF has received about 58 applications in respect of the IOOF Flexi Bond totalling in monetary terms approximately $730,000. Lumley first knew of the IOOf Flexi Bond product in the middle of June 1989, thereafter legal advice was sought by Lumley, letters were exchanged between the solicitors for the parties which led to the institution of this proceeding on 3 July this year.
The matter proceeded today upon a motion for interlocutory injunctive relief. Shortly after the matter commenced this morning, the legal advisers for the parties, at my suggestion briefly discussed the possibility of arriving at an arrangement which would remove any urgency from the matter and allow final hearing to take place in about mid August of this year, those discussions however were not fruitful.

I have not reached firm or final views on the critical issues in the case. Reference to the evidence must, of course, be understood as being solely for interlocutory purposes. I have simply looked at the issues sufficiently to enable me to form impressions for the purpose of dealing with the motion for interlocutory injunctive relief. Indeed, I should say at this stage that the case raises a number of issues which will not be easy to resolve at the final hearing of the case.

The principles upon which motions for interlocutory injunctive relief are to be decided are well established and I need not refer to the decided cases. The first question is whether there is a serious question to be tried. Sometimes that test is stated in different terms including the proposition that a prima facie case must be established but, basically, the test is as I have first indicated.

I mentioned earlier that the motion is brought pursuant

to S. 52 of the Trade Practices Act 1974 and the tort of

passing off. I shall deal with the matter first of all on

the footing of S. 52 although, ultimately, for interlocutory purposes I think little, if anything, turns on the fact that there are two distinct causes of action. I have not reached any final conclusion on the evidence but I have taken it all into account. Any views that I express are, of course, tentative.

In addition to the evidence to which I have referred and submissions of counsel for the parties I have taken into account the following, namely: that the advertisements and marketing material for the IOOF Flexi Bond contain the letters "IOOF" and the submission that having regard to the prominent industry profile of IOOF the letters "IOOF" when appearing in IOOF advertisements usually appear with considerable prominence.

I should say at this stage that the applicant's product when advertised and marketed also seems to me to usually appear near or in conjunction with words which indicate an association with Lumley.

I have taken into account the evidence on behalf of the respondent that flexibility is an important aspect of various investment products which are offered to the public, that financial institutions often advertise their funds using the word, flexi or flexible, as part of what is said to be the descriptive name of their product.

I note that IFMA Financial Services is said to market

the Flexibond products of Lumley but under its own name.

I have also taken Into account the material adduced on behalf of the respondent, that the use of the word "Flexi" in the financial services industry may be part of the general and common use of the word "flexi" as a word finding its place in the English language exemplified by words such as "flexi-time", to the extent that that word has found its way into the English language.

~t is, in my view, a real question, whether Lumley will establish that in the market place the word Flexibond is distinctive of the Lumley Flexibond product. There is a real issue as to whether the word Flexibond, so far as relevant in this case, is a descriptive word or an invented word or if descriptive, whether it has become distinctive of the Lumley product.

There is a real issue as to whether Flexi Bond as used by IOOF would be likely to mislead or deceive people into believing that it is the Lumley product or into associating it with the Lumley product. These are matters to be determined at a final hearing.

There is also a real question whether the use by IOOF of
the words Flexi Bond in relation to its product is a

representation that IOOF is associated or connected with

Lumley or its product, Flexibond. In this connection, it is

relevant that the Flexibond product of Lumley is marketed in

conjunction with other companies, including those that provide financial services. An issue arises ass to whether potential investors or indeed agents are llkely to be misled or deceived into thinking that there is some such association or conjunction with Lumley when they see a similar product marketed as Flexi Bond, whether preceded by IOOF or not. That may, in due course, turn out to be the critical issue in the case.

There is also a real question whether intermediaries, that is agents, or potential investors are likely to be misled or deceived into thinking that there is an association between the Flexibond products of Lumley and IOOF by the use of the names Flexi Bond in each case, notwithstanding that it is used as one word by Lumley and as two words by IOOF.

I am satisfied that there is a serious question to be tried at the final hearing of the proceeding. I see no purpose in this case in going further and saying whether I regard the applicant's case as being at the low or high end of the scale. So far as passing off is concerned I reach the same conclusion, namely, that there is a serious question to be tried although the issues in cases concerning S. 52 and passing off are of course, quite different notwithstanding a degree of overlap.

I turn to the question of balance of convenience which

seems to me to be the critical question in the case that I

have to decide today. It is useful to not only rely on the

evidence to which I have referred thus far but to further evidence. There is evidence from Peter James Meehan, the General Manager, Finance and Administration of IOOF that the lead time necessarily involved in develop~ng and launching a new financial product is approximately three months; that the IOOF Flexi Bond product has been especially designed to suit the present economic climate of what is described as uncertainty and designed to provide investors with the

flexibility of switching their funds so as to follow trends
in share prices, property prices and interest rates.

Mr. Meehan says in the event that IOOF is prevented from continuing to promote the product, the product, may within a few months, cease to be of the same relevance and attractiveness in the market that it is today. Mr. Meehan also says that in the event that IOOF is prevented from using the word Flexi as part of its product name, its standing with its agents of whom there are some 3,000 will be adversely affected. Further, he says a change in the name of the IOOF product would, given the fact that the product has already been launched and each of the IOOF agents given copies of advertising brochures concerning the product, be extremely difficult to implement, particularly having regard to the quantity of advertising material which is already in the market place and beyond the control of IOOF. Moreover, it would be extremely difficult to prove the nature and extent of the damage that IOOF would suffer. Mr. Meehan goes on in his affidavit to say that based on his experience:

"If (IOOF) were ordered to stop using the words

"Flexi Bond" in relation to its products even for a short period of time pending the hearing and determination of this proceeding, the detriment to the eyes of its agents, licensed investment adveriser and members of the lnvestlng publlc would be such that it would be commercially impossible for (IOOF) to agaln launch a product which would utilise the words "flexi bond."

He says that:

"A financial organisation's success is directly

linked to its perceived stability. This is particularly so in the case of financial institutions such as IOOF ..."

The course adopted by counsel which I fully endorsed was not to proceed with cross-exaimination and I must therefore assess the case on the evidence but also, on my impressions on the probability of the reliability of the evidence. Whilst I have no doubt that Mr. Meehan has stated what he has in all good faith and holds the views that he has expressed, I am not persuaded that the consequences of granting interlocutory relief would be as drastic as he has deposed. However, the granting of interlocutory injunctions would. no doubt, cause upset and some degree of disruption to IOOF, to its agents and indeed, perhaps to potential investors.

It must be remembered, and I regard this as an important matter, that Lumley has been marketing its product Flexibond

for over two years and has built up a very substantial

business under that name. It has some 2,000 investors and a total value of funds of approximately $16,000,000 in relation to this product. Lumley was well and truly first in the relevant field. That is not an overwhelrnlng consideration but it is one of some importance.

There is evidence from Mr. Frank Smith, an officer of Lumley, that from his experience the commitment made to the IOOF Flexi Bond by many investors in investing their funds will be a long-lasting commitment. He says that the tendency of many investors is to make a large investment in the one fund and if they make any further investments at all, to make them with the same fund. He says the damage caused to Lumley by the use of the IOOF Flexi Bond name may therefore be long-term and perhaps irrevocable and underlines the need for prompt action to stop the use of the name by IOOF.

He has also given evidence of a number of employees, some of them key employees, who have within the last six months left the staff of Lumley and joined the staff of IOOF. Certain matters were raised in the evidence relevant to that question but I propose to say nothing about it as I have reached no conclusions whatever with respect to it.

I have also taken into account the position of

potential, or possible investors and of agents. People who

may be seeking to invest funds with IOOF through its Flexi	Bond scheme may suffer inconvenience and possbly loss in the
event of the grant of interlocutory relief. However, nothing is perfect on the grant or refusal of interlocutory injunctive relief and I am satisfied that in large measure, any loss that may be sustained by them can be made good by an appropriately worded underaking as to damages by the applicant which has been proffered.
In all the circumstances, I have come to the conclusion that the balance of convenience favours the grant of interlocutory relief until the final hearing or further order and I propose to grant that relief.
In my opinion the undertaking as to damages to be proferred if the interlocutory relief is to go should be in the usual form with the addltion of investors and potential investors who have received the relevant brochure of the respondent and suffered loss accordingly being protected. So far as intermediaries or agents are concerned they should not at this stage be the subject of an undertaking as to damages. If that position should change the matter can always be brought back.
So far as costs are concerned this is a case where the costs of this motion should follow the event hence costs in the proceeding.

Accordingly, the Court makes the following orders:

Upon the applicant, by its counsel, giving to the Court an undertaking to pay to the respondent or to investors or potential investors who on or before 10 July 1989 have received the respondent's brochure, exhlbit RGH 2 to the affidavit of Ross Slnclaire Greenwood of 7 July 1989, such compensation (if any) as the Court thinks just, in such manner as the Court directs, the Court orders that:

1. until the final determination of this proceeding or further order, the respondent be restrained from, in trade or commerce :

(a)	publicising, promoting or offering any investment product under or in association with the name Flexibond or any name which is substantially identical with or deceptively similar to Flexibond;
(b)	accepting or receiving or processing any application for investment or any investment in any such investment product;
(C)	representing in any way whatsoever that any of the respondent's investment products have any association or affiliation with the applicant or the applicant's products; or
(d)	representing in any way whatsoever that any of
performance characteristics or benefits they do the respondent's investments products have

not have.

The costs of the motlon for interlocutory injunctive

relief to be costs in the proceeding.

The Court will give the following directions:

1. The applicant file and serve a statment of claim on or before 17 July 1989.

2 .    The respondent to file its defence on or before 24 July

1989.  

3 . Parties to give mutual verified discovery on or before 24 July 1989 and inspection to take place forthwith.

4. The applicant to file and serve any remaining affidavits on or before 27 July 1989.

5. The respondent to file and serve any remaining

affidavits on or before 3 August 1989.

6. The applicant to file and serve all affidavits in reply on or before 10 August 1989.

7 . Matters to be listed for directions on 4 August 1989 and the matter specially fixed for final hearing on 14 ~ugust

8.    Either party is at liberty to apply on two days1 notice.

I certify that this and the preceding

sixteen (16) pages are a true copy of the reasons for judgment herein of the Honourable Mr. Justice Lockhart.

~ssociete

Date:  10 ~ u l y 1989

Counsel for the Applicant:	Mr. A.J.L. Bannon
Solicitors for the Applicant:	Phillips Fox
Counsel for the Respondent:	Mr. A. Archibald Q.C., Mr. L.M.F. Watts
Solicitors for the Applicant:	Higgins Teale
Date of Hearing:	10 July 1989
Date of Judgment:	10 July 1989