Prince Manufacturing Inc v ABAC Corporation Australia Pty Ltd
[1984] FCA 398
•22 NOVEMBER 1984
Re: PRINCE MANUFACTURING INC. and TENNISPORT PTY. LIMITED
And: ABAC CORPORATION AUSTRALIA PTY. LIMITED and THE LIQUIDATOR MANAGEMENT
AUSTRALIA PTY. LIMITED trading as THE LIQUIDATOR
No. G110 of 1983
Trade Practices
(1985) ATPR para 40 - 506 / 4 IPR 104 / 57 ALR 159 / 4 FCR 288
COURT
THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY
GENERAL DIVISION
Beaumont J.(1)
CATCHWORDS
Trade Practices - misleading conduct - s.52 Trade Practices Act - identical tennis racquets - passing off - measure of damages under s.82
Spalding v. Gamage (1918) 35 R.P.C. 101 - con
Draper v. Trist (1939) 3 All E.R. 513 - con.
Prince Manufacturing Inc. and Tennisport Pty. Limited v ABAC
Corporation Australia Pty. Limited and The Liquidator Management
Australia Pty. Limited trading as The Liquidator
Trade Practices - Misleading and deceptive conduct - Measure of damages - General damages.
HEADNOTE
Held, that in a claim under s 52 in the nature of passing-off, general damages may be awarded under s 82 similar to damages awarded under the general law of passing-off. General damages not capable of precise proof or calculation may be awarded notwithstanding the lack of evidence of particular losses from particular transactions.
HEARING
1984, October 15, 16; November 22. #DATE 22:11:1984
APPLICATION
Application for injunction and damages for contravention of s 52 of the Trade Practices Act 1974 (Cth).
C S Leahy, for the applicants.
J F Boultbee, for the respondents.
Cur adv vult
Solicitors for the applicants: Sly & Russell.
Solicitors for the respondents: Stuart Thom & Co.
GFV
ORDER
I note the undertaking to the Court given on behalf of the respondents on l5 October l984.
I order that the respondents pay the applicants damages in the sum of $5,000.00 and that there be judgment accordingly.
I reserve costs.
Orders accordingly
JUDGE1
The first applicant, a New Jersey corporation and the manufacturer and marketer internationally of tennis racquets and the second applicant, its Australian distributor, seek injunctions and damages against the respondents as retailers in Melbourne of consumer goods including tennis racquets. The applicants market a racquet under the name "Prince Pro". The first applicant is, and at all material times has been, the registered proprietor under the Trade Marks Act, l955 of the following trade mark and device, registered in Part B of the Register in respect of, inter alia, tennis racquets:
(Artwork omitted) "PRINCE"
The applicants allege that the respondents offered for sale and sold in their five Melbourne retail stores under the name "Prince Pro" racquets not of the first applicant's manufacture. The applicants allege that the conduct of the respondents was misleading and deceptive or at least likely to be so. Contraventions of s.52 and s.53(a)(c) and (d) of the Trade Practices Act, l974 are alleged. They claim injunctive relief and damages pursuant to ss.80 and 82 respectively of that Act. They also claim that the respondents have infringed the first applicant's trade mark. Injunctions and damages under the Trade Marks Act are also sought. Passing off is alleged. Injunctions and damages are claimed on this account.
The sales by the respondents of the racquets said to be not of the first applicant's manufacture took place in Melbourne in l983. It is not suggested by the applicants that any such sales are currently being effected by the respondents.
Early in the litigation, the respondents indicated that, although the claim for damages was resisted, they did not propose to contest the claims for injunctive relief. Undertakings were foreshadowed. Ultimately, on the commencement of the hearing, the respondents proferred a permanent undertaking to the Court that they would not sell or offer for sale under the name "Prince Pro" racquets not of the first applicant's manufacture. Since the applicants accept this undertaking in lieu of injunctive relief, only the claim for damages remains for determination.
There is unchallenged evidence that the first applicant has a worldwide reputation as the manufacturer and marketer of a range of racquets including the "Prince Pro". Mr. L.E.D. McCabe, the managing director of the second applicant and a former tennis professional, said that the name of the first applicant, which has engaged in the manufacture and sale of "Prince" racquets for about l0 years, is well known in the tennis industry. He said that the first applicant sponsors a number of professional tennis players throughout the world; that sales of the range of "Prince" racquets in the United States account for about one-third of all tennis racquets sold in that country; and that the "Prince" range of racquets is recognized in the tennis industry as including some of the most expensive racquets available.
The first applicant's "Prince Pro" racquet was first marketed in Australia about four years ago. It has a large head and short shaft. The frame is made from anodised aluminium and is black in colour. There are fine gold lines on the shaft and frame. The word "Prince" appears in gold letters on both sides of the throat. The letter "P" appears in gold on the butt and in black on the strings. The word "Pro" appears on one side of the shaft. On the other side of the shaft, there appears a label bearing, inter alia, the size of the grip and patent and copyright information. For reasons which will appear, the following significant statement there appears:
" c l979 Prince Manufacturing Inc."
Mr. McCabe also gave evidence that in the period now in question, l983, the first applicant's "Pro" racquet was sold by retail in Melbourne at prices ranging from $l50.00 to $200.00.
In January l983, the respondents received enquiries from customers as to the availability of "Prince Pro" tennis racquets. At about this time, one of the respondents' directors, Mrs. J.I. McFarlane, approached in this connection Victorian Sporting Distributors Pty. Limited, one of the respondents' suppliers and, until l982, the Victorian agent of the second applicant. As a result of this approach, Victorian Sporting Distributors Pty. Limited supplied the respondents with 6l tennis racquets, purporting to be "Prince Pro" racquets, at a wholesale price of $ll5.20 each. Shortly after this, Mrs. McFarlane received a visit, apparently unsolicited, from Mr. D. Waters in circumstances described by Mrs. McFarlane in her affidavit as follows:
"... Mr. Dave Waters of Asian Pacific Commodities Pty. Ltd. ... called on me and offered me among many other products, Prince Pro tennis racquets at $44.00 each. I asked Mr. Waters how he could supply the tennis racquets so cheaply and stated there must be something wrong with them. Mr. Waters' reply was that there was nothing wrong with them and that they were genuine Prince Pro tennis racquets. He advised me that he could obtain the Prince Pro tennis racquets at a cheap price because he had been buying from Hong Kong and Taiwan for many years and was very friendly with the Manager of the factory that made Prince Pro tennis racquets (which I believe is the firstnamed Applicant) and that through this friendly Manager Mr. Waters could get as many tennis racquets as he wanted and that Mr Waters was happy to work at a very small margin whereas the Applicants or either of them put a very high profit on every tennis racquet sold by them. I was convinced by these statements from Mr Waters and I included l00 Prince Pro tennis racquets in my order. When the racquets I ordered hadn't arrived after a while, I rang Asian Pacific Commodities Pty. Ltd. and was told by Mr. Col Hardy ... that he did not think he would go ahead with it because he thought it would be too risky trying to get the tennis racquets through customs and even if he did decide to do so it would be at least 3 to 4 months before they could be delivered ... Mr. Dave Waters rang about one or two weeks after my conversation with Mr. Col Hardy to advise that he had brought l00 Prince Pro tennis racquets in for us himself. Mr. Waters further went on to say that they would cost $55.00 per piece. I then asked Mr. Waters why there was such a dramatic increase in price. To which he replied that he had miscalculated his costs. I then advised that the Respondents would not be prepared to pay more than $50.00 each. He agreed to this, but said at that price he would want payment on delivery. I said I would give him a cheque when the racquets arrived. Mr. Waters then told me that he was sending Mr. Jack Purcell to Melbourne to clear the racquets and asked me if I could give him cash as he would only be in Melbourne long enough to clear the racquets and not have time to clear a cheque. I agreed to give him cash on delivery. ... on the l7th March, l983 Mr. Jack Purcell called at my office and said that he had delivered the l00 Prince Pro tennis racquets and asked me for $5,000.00 cash. I telephoned the Respondents' warehouse manager who confirmed that he had received the tennis racquets and then asked Mr. Purcell to receipt his invoice while I got the cash for him. When I returned to my office with the $5,000.00 cash Mr. Purcell apologised and said that he had left Queensland in such a rush that he had left the invoice behind. Mr. Purcell gave me his undertaking that he would send a receipted invoice immediately on getting back to his office and I gave him the $5,000.00 cash." (The invoice was never received.)
Another director of the respondents, Mr. S.P. Ingamells, was called. He said that he was present at the conversation between Mrs. McFarlane and Mr. Waters which occurred in about February l983. In his evidence in chief, Mr. Ingamells recalled the conversation as follows:
"Jan McFarlane brought Mr Waters in and said to me that he had offered a range of products which she thought was very cheap and she asked my opinion as to whether I thought it was too much up market. I said, 'Well, the margin seems to be there' and I asked Dave Waters why it was so cheap. He said - he had also on one occasion previously brought into our office a person whom he said was his wife, who was a Taiwanese girl, and he said that his wife as a friend of the manager of the factory, manufacturing for Prince Pro in the States, in Taiwan, and through his wife's friend, the manager of the factory, he was able to get them, as he put it, out the back door. He was supplying at a very cheap price, and after all they only cost Prince Pro $ll and he paid more than that. I said, 'You know we have to be satisfied they are genuine?' He said, 'I will show you', and he produced a tennis racquet and he said, 'They are no different from these. We get them from the same factory. They would not like it, the fact that we can bring them in'. I said, 'That is no different from the National TV, video TV cassette recorders brought in the back door, and the Hanimex Roadstar car sound'; and he said 'No, it is all because it is the back door and small importers do not have the high overheads', so I suggested to Jan that it was not really my area and she was responsible for the buying and advertising and it was her decision. With that she took him away and I was satisfied that they were genuine."
Mr. Ingamells was briefly cross-examined. His evidence in chief was not challenged. He said that he made no inquiries to ascertain who was the "authorised" distributor of "Prince Pro" racquets in Victoria.
In April and May l983, the respondents advertised widely in Melbourne newspapers the sale of the "Prince Pro Jumbo Head Tennis Racquet" at a price of $ll8.00. The advertisement, aimed at the market for "Mother's Day" was headed as follows:
" MUM'S THE WORD Your Mum's the greatest] Tell her anytime, but show her on Mother's Day. The Liquidator has the gift for you. Your Mum can have the best gift - you can have the best price. Our stores are stacked with stock. Listed below are just some of the items from which to choose. There are hundreds more. Be quick. Some stocks are limited and so is time. Make this week a great bargain week for yourself. Make Sunday May 8 a great day for your Mum. Remember we are the original and only liquidators. We do not advertise shopsoiled, marked or old model stocks like some stores. All stocks are brand new and carry full manufacturers' guarantees."
The "Prince Pro" racquet was described with a "retail price" of $225.00 and "Liquidator Price" of $ll8.00. There is evidence from Melbourne sporting goods retailers (Messrs. B.A. Boys, B.E. Reynolds and R.A. Flower) that, at the time, they were purchasing "Prince Pro" racquets from the second applicant at a wholesale price of approximately $l20.00. Each of such retailers saw the respondents' advertisement. As a result, two of them ceased to purchase "Prince Pro" racquets from the second applicant. Whether they have resumed a trading relationship does not clearly emerge. The third retailer did not stop buying from the second applicant but kept his orders for "Prince Pro" racquets to a minimum for as long as possible.
It now appears that at least some of the racquets offered for sale by the respondents in this period were not manufactured by the first applicant although, superficially at least, they appeared to be identical. The only external indication of any difference between the genuine product and the spurious article is that on the shaft of the latter type reference to the year of copyright is l982 rather than l979 as has been mentioned. Although not obvious to a consumer, there are other differences: the internal construction of the handle differs and the underside of the label bearing the patent and copyright information differs in colour. In all other respects, the products are identical in name, shape and get-up. A clear contravention of s.52 of the Trade Practices Act is established (see Taco Company of Australia Inc. v. Taco Bell Pty. Limited (l982) 42 ALR l77; cf. Parkdale Custom Built Furniture Pty. Limited v. Puxu Pty. Limited (l982) l49 CLR l9l). The first applicant has also established an infringement of its trade mark and a passing off of its goods under the general law.
The applicants first seek damages under s.82 of the Trade Practices Act in respect of the contravention of s.52. Damages are claimed under a number of heads. The applicants say that they are entitled to be compensated for the loss of the profits suffered by them as a consequence of the respondents' dealings in the copy racquets. Damages are also claimed for loss of sales to the three retailers mentioned and for "loss of reputation with retailers generally".
There is some uncertainty as to the respective numbers of genuine racquets and the imitated version purchased and sold by the respondents. On 28 April l983, Mr. B. Southgate, an executive of the second applicant, went to the respondents' Lonsdale Street store and purchased a racquet said to be a "Prince Pro". In fact, it was a copy. Other racquets were displayed but, it seems, were not inspected closely by Mr. Southgate. On the same day, Mr. Southgate also visited the respondents' Footscray and Keysborough stores where he saw two and five racquets respectively on display. In his opinion, one and four of those racquets respectively were copies.
On 5 May l983, Lockhart, J. made "Anton Piller" orders against the respondents. On 6 May l983, pursuant to this order, legal representatives of the applicant searched each of the respondents' stores. Ten racquets, subsequently found to be copies of the first applicant's product, were seized from the Lonsdale Street store. Subsequently, the respondents made available to the applicants, for their inspection, a further ten racquets. Of these, 9 were found to be not of the first applicant's manufacture. No other racquets were seized from or surrendered by the respondents.
In my opinion, it is probable that the 6l racquets purchased by the respondents from Victorian Sporting Distributors Pty. Limited were genuine. True it is, as the applicants say, that that company's agency relationship with the second applicant had been terminated by l983. However, it was the agent of the second applicant up to l982 and it is likely that, by l983, it still held stocks consigned to it by the second respondent. In any event, it is possible that Victorian Sporting Distributors Pty. Limited could have obtained supplies of the first applicant's product from sources other than the second applicant. Further, the wholesale price of $ll5.20 paid by the respondents to Victorian Sporting Distributors Pty. Limited is consistent with the purchase of the genuine article.
On the other hand, it is highly likely that racquets purchased from Asian Pacific Commodities Pty. Limited ("Asian Pacific") were imitations. So much emerges from the circumstances surrounding their sale to the respondents, including, of course, the relatively low price at which they were offered. Although l00 copy racquets were acquired by the respondents from Asian Pacific, 20 were seized or surrendered under the "Anton Piller" order. It would seem from answers by the respondents to interrogatories that the remaining 80 copy racquets were sold by the respondents.
In support of the claim for loss of profits, no evidence was adduced as to the profit margin earned by the first applicant on its sale by wholesale of a "Prince Pro" to its distributors, in this case, the second applicant. However, some attempt was made to establish the profit margin of the second applicant in its wholesale dealings in the racquets. As at June l983, the second applicant purchased strung "Prince Pro" racquets from the first applicant for the price of $48.00. The second applicant was liable for freight from the United States and Australian customs duty in the sums of $3.60 and $l4.40 respectively. Total acquisition cost was thus $66.00 per racquet. Volume discounts apart, the second applicant sold the subject racquets to retailers at a price of $l20.00 each, including sales tax of $20.00. Its gross profit margin was thus $34.00 ($l00.00 - $66.00) per racquet or 34% per centum.
From l June l982 to 30 November l982, the second applicant sold 6,592 "Prince Pro" racquets in Australia. Its gross sales figures for that racquet in this period were $483,l80.00. The second applicant's sales of "Prince Pro" racquets significantly decreased after l December l982. Its sales of these racquets to 3l May l983 were 2,6l6 units. Its gross sales figures during that period for this racquet were $220,758.00. As a percentage, its sales of the racquet were reduced by 60.3% on a unit basis as compared to the previous 6 months.
It is difficult to attribute any particular cause to the downturn in the turnover of the applicants' product. The applicants submit that an inference is open that the imitation version diverted sales away from them. But, even if this were so, (and, apart from the general evidence of the downturn itself, no serious attempt was made on behalf of the applicants to establish any such causal connection), there is no reason to visit the whole of these consequences upon the respondents. There was no reliable evidence as to the number of "fake" racquets introduced into the market. In cross-examination, Mr. McCabe guessed at a figure of 5,000. If this were even an approximation of the actual position, it can be seen that the respondents' role, limited as it was to l00 or so racquets, could have had only minimal impact upon the overall fall in the second applicant's turnover. At the same time, the respondents' advertising may well have had an influence which extended beyond their own retail activities. The evidence of the other Melbourne retailers is in point.
The present claim is made under s.82 of the Trade Practices Act. It empowers the Court to award damages to a person who suffers loss or damage "by conduct of another person that was done in contravention of", inter alia, s.52. The general principles relating to the assessment of damages under s.82 are now well established. In Brown v. Jam Factory Pty. Limited (l98l) 35 ALR 79 Fox, J. said at p 88:
"The correct way to approach the assessment of damages in this case, in my view, is to compare the position in which the applicants might have been expected to be if the misleading conduct had not occurred with the situation they were in as a result of acting in reliance on that conduct (see Esso Petroleum Co Ltd v Mardon (l976) l QB 80l;
(l976) 2 All ER 5). This is the same (as), or analogous to, the general principle respecting the measure of damages in tort. There was not anything promissory in the statements relied upon, and no basis exists for adopting the measure of damages applicable in contract. As an action based on s 52 is more appropriately classified as one of tort, it is possible that the measure of damages will always, fundamentally, be based on principles affecting torts."
This approach was endorsed by Northrop, J. in Mister Figgins Pty. Limited v. Centrepoint Freeholds Pty. Limited (l98l) 36 ALR 23 at p 59, and by Lockhart, J. in Hubbards Pty. Limited v. Simpson Limited (l982) 4l ALR 509 at p 5l7. In Frith v. Gold Coast Mineral Springs Pty. Limited (l983) 47 ALR 547, Fitzgerald, J., after referring to the tendency of the Court to speak of the appropriate measure of damages as that applicable at common law in actions for deceit and, less frequently, as that applicable in actions for negligent misstatements, observed (at p.565) that, whilst common law rules as to the measure of damages in tort may, in appropriate circumstances, provide a useful guide, no justification exists for confining the damages which are recoverable under ss.82 and 87 of the Trade Practices Act by reference to common law tests.
In my opinion, where the conduct which constitutes a contravention of s.52 also constitutes the tort of passing off and a claim is made under s.82 for damages, it is appropriate to apply a measure of damages similar to that applied under the general law of passing off (see Hornsby Building Information Centre Pty. Limited v. Sydney Building Information Centre (l978) l40 CLR 2l6 at p 227). In particular, in my view, general damages for loss of business profits may, in a proper case, be recovered under s.82. By general damages is meant damages which are not capable of precise proof and calculation but which could be expected to result in the normal course of things from a particular type of conduct. Damages of this kind may be awarded even though a claimant does not produce evidence of particular losses from particular transactions (see Taperell, Vermeesch and Harland, Trade Practices and Consumer Protection, 3rd Ed. at p l27; Spalding v. Gamage (l9l8) 35 RPC l0l; Draper v. Trist (l939) 3 All ER 5l3; Procea Products Limited v. Evans & Sons Limited (l95l) 68 RPC 2l0; Wilson v. Smith (l902) 2 SR (NSW) l74; cf. The Magnolia Metal Company v. The Atlas Metal Company (l897) l4 RPC 389; Simpson Limited v. Hubbards Pty. Limited (l982) 44 ALR 695; Locklin v. Day-Glo Color Corporation (l970) Trade Cases 73-24l).
Further, although the applicants were unable to adduce any specific material demonstrating a nexus between the respondents' actions and the decline in their Australian turnover in l983, there was evidence from the three Melbourne retailers from which it could be inferred that some sales were lost. There was also evidence from Mr. McCabe that the imitation racquet is very much inferior in quality to the genuine product. He was not cross-examined on this aspect. It is proper to infer some damage to the applicants' goodwill on this account.
On the other hand, the respondents are only retailers of the offending product. Whilst the circum stances of their dealings with Asian Pacific put them on notice that the product under offer was probably an imitation, it cannot be suggested that the respondents had any role in the affair other than that of a retail outlet. Thus, whilst the respondents were not totally innocent in the matter, it would be wrong to hold them responsible for any more than a fraction of the loss that the applicants may well have suffered.
In the absence of a specific case being made for special damages, the applicants must be confined to a case for general damages. In my opinion, an appropriate compensatory award in all the circumstances is the sum of $5,000.00.
I propose to make the following orders:
1. I note the undertaking to the Court given on behalf
of the respondents on l5 October l984.
2. I order that the respondents pay the applicants
damages in the sum of $5,000.00 and that there be judgment accordingly.
3. I reserve costs.
It should be noted that the applicants accepted at the hearing that if the Court were disposed to grant relief under s.82 by reason of a contravention of s.52, the applicants could do no better under any of their other claims.
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