Need Pty Ltd v Looselabel Limited & Ors

[2024] VCC 56

IN THE COUNTY COURT OF VICTORIA

AT MELBOURNE

COMMERCIAL DIVISION

Revised
Not Restricted
Suitable for Publication

GENERAL LIST

No. CI-23-01419

NEED PTY LTD (ACN 601 065 105)	Plaintiff
V
LOOSELABEL LIMITED (United Kingdom Company Number 09682410) (and others according to the Schedule)	Defendants

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JUDGE:	HER HONOUR JUDGE A RYAN
WHERE HELD:	Melbourne
DATE OF HEARING:	18 December 2023
DATE OF RULING:	12 February 2024
CASE MAY BE CITED AS:	Need Pty Ltd v Looselabel Limited & Ors
MEDIUM NEUTRAL CITATION:	[2024] VCC 56

RULING
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Subject:INJUNCTIONS, INTELLECTUAL PROPERTY

Catchwords:              Application for interlocutory prohibitory injunction to restrain the first defendant from using the plaintiff’s intellectual property in breach of a disputed distribution agreement - whether prima facie case of infringement of the plaintiff’s trademarks and copyright made out – where balance of convenience lies – whether damages an adequate remedy

Legislation Cited:      Copyright Designs and Patents Act 1988 (UK); Trade Marks Act 1994 (UK); Trade Marks Act 1995 (Cth); Copyright Act 1968 (Cth)

Cases Cited:Australian Broadcasting Corporation v O’Neill (2006) 227 CLR 57; Beecham Group v Bristol Laboratories Pty Ltd (1968) 118 CLR 61; Bradto Pty Ltd v Victoria [2006] 15 VR 65; Dalgety Wine Estates Pty Ltd v Rizzon (1979) 141 CLR 552; JC Williamson Limited v Lukey and Mulholland (1931) 45 CLR 282; Samsung Electronics Company Ltd v Apple [2019] 217 FCR 238; Siemens Gamesa Renewable Energy Pty Ltd v Bulgana Wind Farm Pty Ltd [2019] VSCA 318;

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APPEARANCES:	Counsel	Solicitors
For the Plaintiff	Mr G Dalton KC with Mr P Annabell	Arnold Bloch Leibler
For the First Defendant	Ms C Cunliffe with Ms A Surkis	McCullogh Robertson Lawyers

HER HONOUR:

1The plaintiff (“Need”) is based in Torquay, Victoria and sells high quality wetsuits and surfing products.

2The defendant (“Looselabel”) was Need’s exclusive distributor in the United Kingdom and Europe from 1 October 2015. On 30 March 2023, Need issued Looselabel with a termination notice, which expired either on 29 June 2023 or 29 September 2023.

3Looselabel is continuing to sell Need’s products post termination. In doing so, Looselabel is using trademarks and copyright website content owned by Need, including promotional films created by Need. Need claims that Looselabel is in breach of a contractual restraint which prohibits Looselabel from continuing to use its intellectual property after termination. Need brings an alternative claim against Looselabel for infringement of its trademarks and copyright.

4On 18 December 2023, Need sought an interlocutory injunction to restrain  Looselabel from using its intellectual property. The application was made by summons dated 19 October 2023. In support of the application, Need relied upon the following affidavits:

(a)   Ryan Scanlon, founder and director of Need, dated 3 October, 4 December and 13 December 2023;

(b)   Justin Vaatstra, Need’s solicitor, dated 6 December 2023.

5Looselabel relied upon the following affidavits:

(a)   Steven Hay, a director of the defendant, dated 1 and 10 December 2023;

(b)   Arathi Rajendra, a UK solicitor, giving independent expert evidence on UK and EU law, dated 1 December 2023;

(c)   David Wilton, solicitor for Looselabel, dated 5 and 15 December 2023.

6Both Need and Looselabel filed submissions dated 4 and 15 December 2023.

7Although the amended writ sought to join additional defendants, being the second to the sixth defendants named, the Court was informed that none of those persons had yet been served. Consequently, the application proceeded only as between Need and Looselabel.

8The orders sought in the summons are that Looselabel be restrained until the hearing and determination of the proceeding, or further order, from using in any manner in the United Kingdom, Europe or elsewhere:

(a)   the Need trademarks identified in Schedule A to the summons;

(b)   the Need films identified in Schedule B to the summons;

(c)   the Need website content identified in Schedule C to the summons.

Background

9Need carries on business as a designer and supplier of premium, world-class wetsuits and surf accessories.  It was founded in 2013 with the aim of ethically producing and supplying the best quality surfing products at the best possible price. Need has spent millions of dollars over a number of years developing its consistent brand story. Need’s wetsuits and products are predominantly sold online. Apart from the UK and Europe, customers can use Need’s global website to buy products. Need markets its products by making high quality surf films, partnering with globally recognised ambassadors.

10In October 2015, Need engaged Looselabel to act as Need’s exclusive distributor in the United Kingdom and Europe. Although there were extensive negotiations between the parties about the terms of a proposed written distribution agreement provided on 8 December 2015, the parties accept no formal distribution agreement was ever executed. Need argues that a contract arose either by way of offer and acceptance or by an implied contract, which was governed by the terms set out in the proposed written distribution agreement. The term was fixed and expired on 1 October 2021. However, Need says the relationship continued thereafter on the terms of the written agreement which the parties had adopted.

11Need claims the terms of the written distribution agreement applied by reason of the following:

(a)   from October 2015 onwards, Looselabel acted as the exclusive distributor of Need’s products in the United Kingdom and Europe;

(b)   Looselabel placed orders in accordance with the terms of the distribution agreement;

(c)   Looselabel complied with the requirements in the distribution agreement with respect to payment of deposits and balances;

(d)   the parties applied a royalty rate of 12 per cent consistent with the terms of the distribution agreement;

(e)   Looselabel used Need’s intellectual property (including registered trademarks and copyright material) pursuant to a licence in the distribution agreement. There is a separate licence document contained in the distribution agreement, which was signed by Need.

12Need also points to correspondence from Looselabel indicating it was bound by the terms of the distribution agreement. For example, on 6 January 2022, Steven Hay of Looselabel sent an email to Ryan Scanlon of Need stating, amongst other things:

“We are not sure why the terms have changed. We have never defaulted on a payment and request the existing terms are carried forward. This is seen as essential by the bank who originally wanted us/you to engage specialist consignment checkers as a prerequisite to ILOC payment. When we explained Royalties are paid after stock arrival they have classified the consignment checking security requirement as recommendation and not prerequisite.”

13Need specifically relies upon the following written terms of the distribution agreement relating to the use of its intellectual property:

(a)   Looselabel would not use or duplicate Need’s intellectual property rights of the Need trademarks other than with materials provided or authorised by Need, and then only for the purpose specifically authorised by Need (clause 2.4);

(b)   following termination of the distribution agreement for any reason, Looselabel would cease using all intellectual property of Need (clauses 7.3, 7.4, 7.5);

(c)   Looselabel acknowledged that all intellectual property rights in and to the Need trademarks and products were the sole and absolute property of Need, and that nothing contained in or implied by the distribution agreement or the performance of its terms by the distributor was to be construed as granting or giving rise to any proprietary interest in favour of the distributor (clause 9.1(a));

(d)   Looselabel agreed not to apply for registration of, nor in any way do anything to infringe upon, harm or contest the rights of Need, with respect to any intellectual rights (clause 9.1(b));

(e)    Looselabel agreed not to use any intellectual property rights other than as expressly permitted in the distribution agreement in connection with the sale of products (clause 9.1(c));

(f)     pursuant to clause 7.5, clauses 7.3 and 9.1 continue to apply following termination or expiration of the distribution agreement, for whatever reason.

14Looselabel denies the existence of the terms alleged by Need and says a number of the terms relied upon by Need were not agreed. It says the parties’ relationship was substantially ad hoc and agreed on a consignment by consignment basis.

15The parties engaged in further negotiations regarding the preparation of a formal written agreement after 2015. These negotiations resumed in 2017 and again from May 2020 to 2021 but were not concluded.

16From late 2015 to April 2021, Looselabel sold Need products to UK and EU customers. Since early April 2021, Looselabel has only sold Need products to UK customers.

17Looselabel has not ordered any new products from Need since around 15 March 2022. Need claims that Looselabel stopping paying for products it had ordered and royalties which were due, from about June 2022.

18On 17 February 2023, Need issued a default notice for non-payment of amounts due and payable by Looselabel. This was then followed up by the termination notice issued on 30 March 2023. 

19By this proceeding, Need seeks, inter alia, to recover a debt from Looselabel in the sum of USD 455,612.38. Looselabel disputes this figure but has offered to pay into Court the sum of USD 73,762.10 representing royalties which it concedes are owed to Need.

20Looselabel had served a proposed amended defence and counterclaim dated 4 December 2023. At the hearing, Need objected to the filing of the document in its current form. The dispute regarding the pleading was not part of the application before the Court. The matter was left on the basis that that counsel for the parties would attempt to resolve any pleading issues between themselves.

Relevant principles

21The principles applicable to interlocutory injunctive relief are well known. An applicant must establish that:

(a)   it has a prima facie case for the relief it seeks; and

(b)   the balance of convenience favours the granting of an injunction.[1]

[1]Australian Broadcasting Corporation v O’Neill (2006) 27 CLR 57 at 65 and Siemens Gamesa Renewable Energy Pty Ltd v Bulgana Wind Farm Pty Ltd [2019] VSCA 318, [106]-[107]

22The principles are interdependent. The requisite strength of the parties’ substantive cases may be relevant to the evaluation of the balance of convenience. The issue of whether damages are an adequate remedy can be considered as part of the assessment of the balance of convenience.[2]

[2]Samsung Electronics Company Ltd v Apple [2019] 217 FCR 238 at 61-62; Bradto Pty Ltd v Victoria [2006] 15 VR 65 at 39; Need v Need Essentials U.S.A LLC [2023] VSC 184, [162 – 163]

Prima facie case

23Need has to make out a prima facie case in the sense of sufficient likelihood of success to justify in the circumstances the preservation of the status quo until trial.[3]  The strength of the probability of success depends upon the nature of the rights Need asserts and the practical consequences likely to flow from the orders it seeks.[4]

[3]Australian Broadcasting Corporation v O’Neill (2006) 27 CLR 57 at 65

[4]Ibid; Beecham Group v Bristol Laboratories Pty Ltd (1968) 118 CLR 618 at 622

(1) Breach of contract

24Need relies upon three causes of action against Looselabel. The first is a claim for a breach of contract. Need brings its claim under the distribution agreement. It contends that it is well-established that a court may grant an injunction in aid of contractual rights. Where a defendant has breached a negative covenant, then a plaintiff is ordinarily entitled to an injunction restraining the breach of covenant.[5]

[5]JC Williamson Limited v Lukey and Mulholland (1931) 45 CLR 282 at 299; Dalgety Wine Estates Pty Ltd v Rizzon (1979) 141 CLR 552 at 560

25Need argues that the parties conducted themselves in accordance with the terms of the distribution agreement albeit accepting it was never signed. Such terms included exclusivity, payments terms, royalty rate and the use of intellectual property. In those circumstances, the agreement was plainly accepted by the conduct of the parties.

26Need claims that Looselabel has, despite the termination of the distribution agreement, continued to use Need’s intellectual property in the United Kingdom and Europe and has done so by:

(a)   selling goods online using Need’s trademarks;

(b)   using copyright works owned by Need on its website;

(c)   using copyright works owned by Need on its Facebook page;

(d)   using copyright works owned by Need on its Pinterest page.

27Need notes that Looselabel does not deny it has continued to use, and intends to continue to use, Need’s intellectual property following termination of the distribution agreement.  Need claims that Looselabel does not have any legal defence to its claims.

28Looselabel considers itself entitled to the benefit of an exclusive licence to sell the stock.[6]  Need argues that the only possible source of such a licence would be the distribution agreement. If the parties were not bound by the terms of the distribution agreement, then Need could have immediately sold Need branded products to Looselabel’s competitors from October 2015 onwards and Looselabel could have done nothing about it. Additionally, there is no legal precedent for the type of implied licence that Looselabel asserts, which appears to be a perpetual and exclusive licence to use all of Need’s intellectual property without payment.

[6]First affidavit of Mr Scanlon, Exhibit RJS1 at pages 104 and 111

29Need also refers to the expert evidence of Ms Rajendra, who describes the as yet unpleaded doctrine of exhaustion of rights. This doctrine is to the effect once goods have been put on the market by the trademark owner with its consent, the owner’s rights are exhausted. Need argues this is not an answer to Need’s contractual claim under the distribution agreement, which required Looselabel to cease using Need’s intellectual property upon termination.  In any event, Need contends that the doctrine of exhaustion does not apply to products in this case which have not yet been sold in the UK market. Additionally, the doctrine does not permit Looselabel to use Need’s website content, films or other copyright materials. 

30In answer to Need’s breach of contract claim, Looselabel says that it fails at the first hurdle. The reason for this is that the parties did not execute any written agreement. Given the parties never formalised their arrangement in a written contract, Need cannot establish a prima facie case that Looselabel is in breach of contract. Looselabel’s position is that it seeks to sell down its remaining stock on the same basis on which it was received and can use Need’s intellectual property for that purpose.

(2) Infringement of copyright

31In the alternative to the contractual claim, Need alleges a cause of action against Looselabel for infringement of copyright comprising two elements:

(a)   copyright subsisting in 16 short films (“the Need films”);

(b)   copyright subsisting in the content displayed on Looselabel’s webpage (“the Need website content”).

32Need says it is the owner of copyright subsisting in the Need website content which was created by employees of Need or persons contracted by Need. This content includes photographs, text, three-dimensional renderings, size charts and temperature charts, each of which is an original literary and/or artistic work. By publishing the Need website content without licence, Need alleges that Looselabel has infringed, and continues to infringe Need’s copyright in the Need website in contravention of s16 of the Copyright Designs and Patents Act 1988 (UK) (“the UK Copyright Act”).

33Looselabel agreed to remove the Need films from its website on 1 December 2023. It has offered an undertaking not to publish the Need films on a non-admission basis and not to put them back up until after the determination of the proceeding.[7] Despite this, Need still wishes to press for the orders sought in paragraph 1(b) of its summons as the undertaking proffered by Mr Hay is unsatisfactory because it limited to specific uses, being use on the website and Facebook page rather than general use.

[7]Affidavit of Mr Hay dated 1 December 2023 at paragraph 81

34In paragraphs 30-31 of its written submissions dated 4 December 2023, Need sets out the basis upon which it asserts that this Court has jurisdiction to hear the cause of action pleaded again Looselabel for infringement of copyright.  This is in answer to a submission made on behalf of Looselabel that the County Court cannot hear a claim for foreign copyright infringement under the UK Copyright Act.

35As for the defence to this claim, Needs notes that Mr Hay, although he contends that Looselabel performed work in developing its UK website, he does not appear to dispute Need’s ownership of the Need website content or that Looselabel has used, and continues to use, Need’s copyright images, product titles and description.  There is no question that the reproduction of Need’s copyright content is not authorised by Need.  The only basis was the licence to use that content in the distribution agreement, which Looselabel denies being bound by in any event, and which has since been terminated.

36Looselabel claims that the elements for a copyright infringement have not been made out.  The amended statement of claim does not precisely identify the works in which copyright is said to subsist. No evidence has been provided to establish originality of the work or to establish that Need is the owner of each of the identified works in which copyright subsist.  Looselabel says there is a lack of evidence on this issue. Further, Mr Hay has shown that a significant proportion of the content of the website was prepared by Looselabel. 

37Even assuming Need could establish those matters, Looselabel argues that Need cannot establish infringement under the Australian Copyright Act 1968 (Cth) because its conduct is limited to the UK and Europe. Section 36 of the Australian Copyright Act provides that the infringement must be done within Australia, or is authorised as doing in Australia, of any act comprised in the copyright.  Therefore, it said that Looselabel’s conduct does not substantiate any use in Australia.

(3) Trademark infringement

38Need also claims against Looselabel for infringement of trademark. Need is the owner or authorised licensee user of the trademark “needessentials” and certain Australian and UK registered trademarks (“the Need trademarks”). In contravention of s10 of the Trade Marks Act 1994 (UK) (“the UK Trade Marks Act”) Looselabel has used, and is continuing to use, Need’s trademarks without licence on its website, Facebook page and Pinterest page. The extent of use can be seen by reviewing images of those pages.[8]

[8]First affidavit of Mr Scanlon at page 80-84

39Looselabel notes that the case put against it is of trademark infringement under the UK Trade Marks Act.  This is in addition to the copyright infringement under the UK Copyright Act.  For reasons outlined in paragraph in 29-32 of its outline dated 4 December 2023, Looselabel argues that this Court is not permitted to consider Need’s claims under the UK Trade Marks Act and the UK Copyright Act.

40Even if the Court could apply the UK Trade Marks Act, that claim would fail for the same reasons as the contract claim due to the operation of the doctrine of exhaustion.  This is referred to by Ms Rajendra in paragraphs 45-52 of her affidavit.  Additionally, it was said there is an argument that Looselabel’s first use of the Need trademarks in the UK may render them invalid on the basis that Looselabel is the proper owner of those trademarks.  Looselabel says that the County Court has no jurisdiction to determine a contest about the validity of trademarks. Looselabel also argues that there is no prima facie case of infringement under the Trade Marks Act 1995 (Cth) (“TMA”) because there has been no relevant use within Australia as is required under s120(1) of the TMA.

Balance of convenience

41The court is required to balance the detriment that the applicant is likely to suffer if the interlocutory relief is not granted against the detriment the respondent is likely to suffer if the interlocutory relief is granted.[9] Need submits that the manifest strength of its case must be taken into account when considering the balance of convenience.

[9]Beecham Group Limited v Bristol Laboratories Pty Ltd (1968) 118 CLR 618 at 623

42In Bradto Pty Ltd v Victoria, the Court of Appeal noted that whether the injunctions were mandatory or prohibitory, the same test applies, namely:

“the court should take whichever course appears to carry the lower risk of injustice if it should turn out to have been ‘wrong,’ in the sense of granting an injunction to a party who fails to establish his right at the trial, or in failing to grant an injunction to a party who succeeds at trial.[10]

[10][2006] 15 VR 65 at 35

43In terms of detriment, Need says that the harm caused to it if the injunction is not granted is clear. It relies upon the following five matters:

(i)unless Looselabel is restrained from using the Need trademarks, there is a real risk of damage to Need’s brand and goodwill for which damages are not an adequate remedy. In a trademark context, there is a close alignment between the use of the trademark and the owner’s reputation. The directors of Looselabel are in the process of establishing a competing business called Simpel and are likely to promote that business ahead of Need’s. Looselabel’s interests lie in promoting its new business rather than selling Need’s remaining stock. Additionally, by continuing to offer goods for sale at substantial discounts and having only a limited range of stock left, Looselabel’s conduct threatens to damage Need’s reputation for selling high quality premium products sold at the best possible prices.

(ii)equity recognises that damages are not ordinarily an adequate remedy for infringement of copyright.

(iii)unless Looselabel is restrained, Need will be unable to sell or distribute products under the Need trademarks within the United Kingdom or Europe without causing confusion in the market. The harm to Need arising from delayed entry into the market cannot be readily quantified. Though Looselabel says the presence of two identical businesses in the territory would not cause confusion, Need’s response is that there is no evidentiary basis for that submission. Further, the position now adopted by Looselabel, that there is nothing preventing Need from selling in the territory is contrary to Looselabel’s own solicitor’s correspondence, which asserts that Looselabel has the benefit of an exclusive licence to sell stock in the territory.

(iv)until Need is able to sell in the United Kingdom the branded products which Looselabel failed to pay for, Need is required to incur ongoing interest in leasing costs in respect of those products and will not be able to sell the products unless an injunction is granted.

(v)even if damages are an appropriate remedy, which Need says is not the case, the risk that damages would not be recoverable is a factor in favour of an injunction being granted. Given the history of Looselabel’s default in payment, and an absence of evidence of assets within the jurisdiction, there is a real risk that any damages awarded to Need would not be recoverable. Need notes that Looselabel does not provide any documents relating to its financial position despite request. Further, Mr Hay admitted that Looselabel was on the brink of insolvency and was only able to ameliorate that risk by continuing to leverage Need’s intellectual property without licence or payment. In these circumstances, Need says there is no realistic suggestion that damages would be an adequate remedy.

44Need says there would be no prejudice to Looselabel if the injunction is granted. Although Looselabel would be prevented from using Need’s intellectual property, it would not suffer any losses as it had no legal entitlement to use Need’s trademarks or copyright. Neither Mr Hay’s affidavit nor Looselabel’s submissions point to a source of entitlement for Looselabel to use Need’s intellectual property. Any loss suffered by Looselabel may be addressed by Need’s undertakings to damages. Any loss of sales is limited in value and readily quantifiable. The available evidence suggests that Looselabel only has limited stock remaining of Need’s products. There is also an issue as to whether Looselabel has title to some or all of the goods in its possession when it has not made full payment, in breach of clause 3.3 of the distribution agreement.

45Another matter raised by Need is that Looselabel could sell the products without reference to the trademarks by removing or covering the trademarks from the goods and ceasing to use the Need website content. Need says the trademarks can be removed through the application of black heat-treated elastic nylon-backed tape, which has been successfully implemented in the United States, following the termination of a similar distribution arrangement. This process would permanently cover up the branding on the inside of the wetsuits without damaging or altering their appearance. In the event that such goods would be worth less if unbranded, then this matter could be addressed by the undertaking as to damages. Looselabel’s response is that the proposed heat treatment method to remove the trademark would not be a satisfactory solution and would damage the stock.

46Looselabel submits Need has not pointed to any appreciable damage arising from Looselabel’s use of Need’s intellectual property, far less irreparable harm for which damages would not be an adequate remedy.  Matters such as the use of gift cards, discounting, damages and the possibility of confusion are insufficient. Nor is it clear how the interest and leasing costs claimed for over stocking would be relevant to the granting of an injunction.

47Looselabel says there is no barrier to Need for selling stock in the UK market. An option open to Need would be to simply buy back the stock currently held by Looselabel which would allay any potential harm. On that point, Need says that it does not wish to buy back the stock as that would cost in the region of GBP 750,000 and it already holds enough stock, including the stock ordered by Looselabel for which it has not paid. Clause 7.4 of the distribution agreement provides that Need may but is not obliged to purchase products from the distributor following termination.

48In terms of detriment to Looselabel, Looselabel says if it is not able to sell the stock it holds without the use of Need’s intellectual property, it would become insolvent by May 2024, if not earlier.  Further, if Looselabel is restrained it will cause damage to Looselabel’s reputation in the UK and EU.  Looselabel would have to lay off its staff in the UK and Portugal. If Looselabel is later permitted to re-enter the market, the wetsuits that it has in stock will be rendered effectively unsaleable owing to the degradation of wetsuits over time.

49Counsel for Looselabel conceded at the hearing that her client no longer raised any challenge to Need’s financial ability to satisfy any award of damages that might be made in Looselabel’s favour, pursuant to Need’s undertaking.

Analysis

50Having regard to the relevant principles, Need has to establish a prima facie case that Looselabel’s conduct in continuing to sell its products in the UK and the EU using its intellectual property after the termination of their distribution arrangements is in breach of their agreement. Further, the balance of convenience must favour the grant of interlocutory injunctive relief.

51The first cause of action relied upon was for breach of contract.  It is not in dispute that no written agreement was ever signed.  Need’s case is that nevertheless a contract came into existence between the parties whether by reason of offer and acceptance or by an implied contract arising from the conduct of the parties. If the contract is found to exist on the terms which Need alleges, then Looselabel has acted in breach of a negative stipulation which constitutes a strong foundation for relief by way of injunction, at least in cases where the court is concerned only with private rights.[11]

[11]Dalgety Wine Estates Pty Ltd v Rizzon (1979) 141 CLR 552 at 560

52Whatever the precise nature of their contractual dealings, Looselabel ceased acting as Need’s distributor following the notice of termination. Despite their relationship coming to an end, Looselabel has continued to sell Need’s products using Need’s intellectual property.

53Even assuming that the clauses relied upon by Need, in particular clauses 7.3 and 9.1 of the distribution agreement are not found to be terms of the agreement when the matter is determined at trial, the fact remains that Looselabel was permitted to use Need’s intellectual property by way of a licence. There was a licence document signed by Need and attached to the distribution agreement.  Even if that document does not form part of a formal distribution agreement, nevertheless, Need gave its authority or permission for Looselabel to use its intellectual property which has now been revoked. 

54I am satisfied Need has demonstrated a prima facie case that Looselabel is in breach of contract by continuing to sell Need’s products using its intellectual property without authority, whether it be under the terms of the distribution agreement as alleged, an implied contract or breach of licence.  

55Weighing up the competing arguments, in my view, the strength of Need’s case in respect of breach of contract appears stronger than Looselabel’s claim that it is entitled to use Need’s intellectual property and sell its products without Need’s licence or authority for the next two years.

56I am also satisfied on the evidence as it currently stands, that Need has demonstrated there is a prima facie case to be tried relating to infringement by Looselabel of Need’s trademarks and copyright by continuing to sell Need’s products.

57Although Looselabel raises detailed and complex arguments in respect of the infringement of copyright and trademarks claims, including jurisdictional issues, these are matters which need not be resolved in this application. I am not satisfied that the matters raised by Looselabel by way of defence are sufficient to displace a finding that Need has established a prima facie case on each of three causes of actions it seeks to rely upon. In my view, Need has demonstrated a prima facie case, being the first element required for an interlocutory injunction.

58This then leads to the second element, being the balance of convenience.

59The prejudice occasioned to Looselabel, if the injunction is granted, is that it will be deprived of the loss of opportunity to sell the remaining Need products in its possession.  Even if that means the products cannot be sold, or for a lower amount, assuming it is possible to remove the Need trademark by applying heat treatment, Looselabel can still claim damages for loss of profit on sales by way of counterclaim. Such sum would be readily quantified. Any resultant losses could be pursued against Need relying upon the undertaking given.

60As noted earlier, Looselabel accepts that Need’s undertaking is of value.  The loss of sales identified by Looselabel is in the order of GBP 1.5 million (AUD 3,000,000) This figure is disputed by Need. Mr Scanlon assesses the losses in the order of GBP 750,000 (AUD1,500,000).

61The evidence given by Mr Hay in paragraphs 108 and 109 of his first affidavit about other potential detriment such as damage to Looselabel’s reputation and the laying off of staff was somewhat scant and lacking in detail. Looselabel also claimed that it expected it would become insolvent by May 2024 if not earlier, if it were not permitted to sell off the remaining stock. The evidence shows that Looselabel stopped ordering Need’s products in 2022. It has also stopped ordering other products so the fact that it only has Need’s remaining stock left to sell is by choice. Under the terms of the distribution agreement, the relationship could be terminated without cause on six months’ notice. On Looselabel’s case, the dealings were only ever done on ad hoc basis. Given these circumstances, Looselabel knew that the relationship could end at any time.  It was served with a notice of default in February 2023 and the termination notice in March 2023. Looselabel’s directors then went about setting up a similar business selling wetsuits under the name of Simpel. I accept Need’s submission that in these circumstances, Looselabel should not cry poor when it had known for some time that the distribution agreement was coming to an end and could get ready for its new phase of business life.

62In terms of the detriment to Need, I accept that it will be effectively locked out of the UK and EU markets and be unable to sell its products if Looselabel continues to sell its products in the territory. At the very least, if Need did sell its products, this would likely cause confusion in the marketplace.

63Mr Scanlon gave evidence that Need has lost approximately AUD 1,062,862 from June to December 2023 because it has been shut out of selling its products in the subject territory.  He estimates further losses in the sum of approximately AUD 2,562,017 from June 2023 to December 2024 if Need is not granted an injunction and unable to sell in the territory.[12]

[12] Paragraph 61 of Mr Scanlon’s affidavit dated 3 December 2023

64If the injunction is not granted, then Need will be delayed in entering the UK and EU markets, which are the largest markets for wetsuits and surf wear in the world. The potential harm to Need arising from any delayed entry into the market is difficult to quantify but delays its growth trajectory in a new market.[13]  There is also  Need’s inability to sell the products which were ordered by Looselabel but not paid for. This overstocking of products is causing Need to incur ongoing interest and various other costs. 

[13] Paragraph 62 of Mr Scanlon’s affidavit dated 3 December 2023

65Looselabel argues that damages would be an adequate remedy for Need and that it could meet a damages award. I am not persuaded that damages would be an appropriate remedy, in particular, having regard to Looselabel’s failure to make payments when due. Further, Looselabel’s 2022 “Unaudited filleted financial statements” obtained by Need’s lawyers reveal it has net assets of GBP 183,230 and owes a debt of GBP 1,566,711 to a company called Tregarland Ltd.[14] Looselabel also refused to provide Need with any further information about its financial position despite request. Consequently, I am not satisfied that damages would be an adequate remedy for Need having regard to all these matters.

[14] See paragraphs 113 to 117 and page 279 of Exhibit RJS-1 to Mr Scanlon’s affidavit dated 3 October 2023

66In the exercise of my discretion, I consider the potential detriment to Need if the interlocutory injunction is not granted, exceeds any harm that might be caused to Looselabel. This is so, particularly in circumstances where Looselabel has the benefit of a valuable undertaking as to damages provided by Need should Looselabel ultimately recover any losses. In my view, the granting of an interlocutory injunction carries a lower risk of injustice rather than its refusal. Overall, I am satisfied that the balance of convenience favours the granting of interlocutory injunctive relief to preserve the status quo pending trial. 

67As a further discretionary matter, Looselabel argued that relief should be denied because of delay on the part of Need in making its application, which demonstrated it was not concerned about suffering any irreparable damage. In response, Need said the summons was filed promptly after the expiry of the termination notice, the latest date for which was 29 September 2023. The summons was filed on 19 October 2023, shortly after Need became aware that Looselabel had continued to use Need’s intellectual property without authorisation allegedly in breach of the distribution agreement. Looselabel had sought an earlier hearing date of 3 October 2023, being the date of Mr Scanlon’s first affidavit which was not available. Orders were made regarding the filing and serving of further materials and the application was relisted on 6 December 2023. The  application was adjourned to 18 December 2023 to allow the parties to file additional submissions and any further affidavits.

68Given this sequence of events, I am not persuaded there was any real or sufficient delay on the part of Need which would warrant refusal of the equitable relief now sought.

Conclusion

69For the reasons given above, I will grant an interlocutory injunction restraining Looselabel from using Need’s intellectual property in the form sought in Need’s summons.

70I will hear from counsel as to the precise form of orders to be made consequent upon these reasons, including costs.

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Certificate

I certify that these 19 pages are a true copy of the Reasons for Ruling of Her Honour Judge A Ryan delivered on 12 February 2024.

Dated:   12 February 2024

Associate to Her Honour Judge A Ryan