Sealed Air Australia Pty Ltd v Aus-lid Enterprises Pty Ltd
[2020] FCA 29
•24 January 2020
FEDERAL COURT OF AUSTRALIA
Sealed Air Australia Pty Limited v Aus-Lid Enterprises Pty Ltd [2020] FCA 29
File number: NSD 6 of 2015 Judge: KENNY J Date of judgment: 24 January 2020 Catchwords: TORTS – economic torts – tort of inducement or procurement of breach of contract – whether intention to induce or procure breach of contract – actual knowledge – wilful blindness or reckless indifference – when honest belief sufficient defence to the tort – relevance of failure to make reasonable inquiries – supposed possible repudiation of contract – whether payments in consideration of inconsistent dealing amounted to inducement of breach
CONSUMER LAW – misleading or deceptive conduct – statements of opinion – whether statement of willingness and ability to supply patented product misleading and deceptive – effect of statement on commercial parties – nature of interest represented – whether loss or damage suffered “because of” misleading and deceptive conduct – whether third party relied on relevant statements
PATENTS – interest granted under patent licensing agreement – whether later-in-time licensee might have an effective licence, the giving of which by the licensor was a breach of contract with another party
DAMAGES – damages for inducement or procurement of breach of contract – damages following default judgment against first respondent for breach of contract
Legislation: Consumer and Competition Act 2010 (Cth) Sch 2, Australian Consumer Law, ss 18, 236
Corporations Act 2001 (Cth) ss 126, 127
Patents Act 1990 (Cth) Sch 1
Trade Practices Act 1974 (Cth) ss 52, 82
Federal Court Rules 2011 (Cth) rr 5.22, 5.23
Cases cited: Allied Pastoral Holdings Pty Ltd v Commissioner of Taxation [1983] 1 NSWLR 1
Allstate Life Insurance Company v Australia and New Zealand Banking Group Ltd [1995] FCA 1368; 58 FCR 26
Andar Transport Pty Ltd v Brambles Ltd [2004] HCA 28; 217 CLR 424
Ankar Proprietary Limited v National Westminster Finance (Australia) Limited [1987] HCA 15; 162 CLR 549
Australian Competition and Consumer Commission v TPG Internet Pty Ltd [2013] HCA 54; 250 CLR 640
Bristol-Myers Squibb Company v Apotex Pty Ltd [2015] FCAFC 2; 228 FCR 1
British Industrial Plastics Ltd v Ferguson [1940] 1 All ER 479; 58 RPC 1
British Motor Trade Association v Salvadori [1949] Ch 556
Browne v Dunn (1893) 6 R 67
Butcher v Lachlan Elder Realty Pty Limited [2004] HCA 60; 218 CLR 592
Carey v Freehills [2013] FCA 954; 303 ALR 445
Carlton & United Breweries Ltd v Tooth & Co Ltd (1986) 7 IPR 581
Commonwealth v Amann Aviation Pty Ltd [1991] HCA 54; 174 CLR 64
Cryovac Australia Pty Ltd v Aus-Lid Enterprises Pty Ltd [2017] FCA 1027
Daebo Shipping Co Ltd v The Ship Go Star [2012] FCAFC 156; 207 FCR 220
DC Thomson & Company Ltd v Deakin [1952] Ch 646
De Francesco v Barnum (1890) 63 LT 514
Delphic Wholesalers Pty Ltd v Elco Food Co Pty Ltd (1987) 8 IPR 545
Donaldson v Natural Springs Australia Limited [2015] FCA 498
Emerald Construction Co Ltd v Lowthian [1966] 1 WLR 691; 1 All ER 1013
Emory University v Biochem Pharma Inc (1998) 86 FCR 1
Eric Preston Pty Ltd v Euroz Securities Limited [2011] FCAFC 11; 274 ALR 705
Fightvision Pty Ltd v Onisforou [1999] NSWCA 323; 47 NSWLR 473
General Newspapers Pty Limited v Telstra Corporation (1993) 45 FCR 164
Global Sportsman Pty Ltd v Mirror Newspapers Pty Ltd (1984) 2 FCR 82
Google Inc v Australian Competition and Consumer Commission [2013] HCA 1; 249 CLR 435
Greig v Insole [1978] 1 WLR 302
Jaddcal Pty Ltd v Minson[No 3] [2011] WASC 362
Hadley v Baxendale (1854) 9 Ex 341
Heap v Hartley (1889) 42 Ch D 461
Heydon v NRMA Ltd [2000] NSWCA 374; 51 NSWLR 1
Inn Leisure Industries Pty Ltd (Provisional liquidator appointed) v D F McCloy Pty Ltd (No 1) (1991) 28 FCR 151
LED Technologies Pty Ltd v Roadvision Pty Ltd [2012] FCAFC 3; 199 FCR 204
LMI Australasia Pty Ltd v Baulderstone Hornibrook Pty Ltd [2003] NSWCA 74
Macquarie Bank Ltd v Seagle [2005] FCA 1239; 146 FCR 400
Macquarie Bank Ltd v Seagle [2008] FCA 1417; 79 IPR 72
Manson v Ponninghaus [1911] VLR 239
Maylord Equity Management Pty Ltd v Parazelsus Ltd [2014] FCA 979
MWJ v The Queen [2005] HCA 74; 80 ALJR 329
National Foods v McMahon Milk Pty Ltd(No 2) [2009] VSC 150
Northern Territory of Australia v Mengel [1995] HCA 65; 185 CLR 307
OBG Ltd v Allan [2007] UKHL 21; [2008] 1 AC 1
Parkdale Custom Built Furniture Proprietary Limited v Puxu Proprietary Limited [1982] HCA 44; 149 CLR 191
Polyaire Pty Ltd v K-Aire Pty Ltd [2003] SASC 41
Pritchard v Briggs [1978] 2 WLR 217
RRG Nominees Pty Ltd v Visible Temporary Fencing Australia Pty Ltd(No 4) [2019] FCA 686
Rutherford v Poole [1953] VLR 130
Sai Teys McMahon Real Estate Pty Ltd v Queen Street Apartments Pty Ltd [2007] QSC 264
Sanders v Snell [1998] HCA 64; 196 CLR 329
Sealed Air Australia Pty Limited v Aus-Lid Enterprises Pty Ltd [2018] FCA 31
Sealed Air Australia Pty Limited v Aus-Lid Enterprises Pty Ltd [2018] FCA 716
Short v City Bank (1912) 12 SR (NSW) 186
Short v City Bank of Sydney [1912] HCA 54; 15 CLR 148
Sidameneo(No 456) Pty Ltd v Alexander [2011] NSWCA 418
Smith v Morrison [1974] 1 WLR 659
Speedo Holdings BV v Evans(No 2) [2011] FCA 1227
Swiss Bank Corporation v Lloyds Bank Ltd [1979] Ch 548
Toll (FGCT) Pty Limited v Alphapharm Pty Limited [2004] HCA 52; 219 CLR 165
Uprising Dragon Ltd v Benedict Trading & Shipping Pty Ltd (1987) 16 FCR 93
Wardley Australia Ltd v The State of Western Australia [1992] HCA 55; 175 CLR 514
World of Technologies (Aust) Pty Ltd v Tempo (Aust) Pty Ltd [2007] FCA 114; 71 IPR 307
Yorke v Lucas [1985] HCA 65; 158 CLR 661
Date of hearing: 4, 5, 6, 7 June and 30 October 2018 Date of last submissions: 30 October 2018 Registry: Victoria Division: General Division National Practice Area: Intellectual Property Sub-area: Patents and associated Statutes Category: Catchwords Number of paragraphs: 350 Counsel for the Applicant: Mr G Drew Solicitor for the Applicant: Thomson Geer First Respondent: There was no appearance by the First Respondent Second Respondent: There was no appearance by the Second Respondent Third Respondent: The Third Respondent appeared in person Counsel for the Fourth Respondent: Ms C Cunliffe Solicitor for the Fourth Respondent: Wrays Lawyers
Table of Corrections 6 February 2020 In paragraph 284, line 4, “September 2018” has been replaced with “September 2014”. ORDERS
NSD 6 of 2015 BETWEEN: SEALED AIR AUSTRALIA PTY LIMITED (ACN 004 207 532)
Applicant
AND: AUS-LID ENTERPRISES PTY LTD (ACN 082 053 316)
First Respondent
AUSLID OPERATIONS PTY LTD (ACN 123 957 531)
Second Respondent
ASHLYN GRAEME DE SOUZA (and another named in the Schedule)
Third Respondent
JUDGE:
KENNY J
DATE OF ORDER:
24 JANUARY 2020
THE COURT ORDERS THAT:
1. On or before 6 February 2020 the applicant file and serve:
(a) a proposed minute of orders giving effect to these reasons for judgment; and
(b) written submissions on costs and/or interest (not exceeding 5 pages).
2.On or before 18 February 2020 the fourth respondent file and serve any submissions (not exceeding 5 pages) in response to:
(a) the applicant’s proposed minute of orders; and
(b) the applicant’s written submissions on costs and/or interest.
3.On or before 18 February 2020 the first respondent file and serve any submissions (not exceeding 5 pages) in response to:
(a) the applicant’s proposed minute of orders; and
(b) the applicant’s written submissions on costs and/or interest.
4.On or before 10 February 2020 the applicant file and serve on the first respondent:
(a) a copy of these orders; and
(b) a copy of the reasons for judgment delivered today.
Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.
INTRODUCTION
[1]
THE PARTIES
[4]
THE CIRCUMSTANCES IN WHICH THE PROCEEDING AROSE
[9]
The Patent Licence Agreement
[9]
Circumstances of the apprehended breach of the Patent Licence Agreement
[15]
THE APPLICANT’S CLAIMS AGAINST THE FIRST TO THIRD RESPONDENTS
[22]
THE PARTIES’ SUBMISSIONS
[27]
The applicant’s submissions
[27]
Aus-Lid’s breach of the Patent Licence Agreement
[28]
Visy’s knowledge
[29]
Visy’s interference with the applicant’s contractual rights
[41]
Visy’s alleged misleading and deceptive conduct
[43]
Applicant’s loss and damage
[48]
Visy’s submissions
[54]
Procuring a breach of contract
[54]
No inducement
[61]
No knowledge
[63]
Evidence as to Mr Stein’s state of mind
[67]
No loss and damage
[69]
The applicant’s witnesses
[81]
The evidence of Mr Yii
[82]
The evidence of Ms McKeith
[83]
The evidence of Mr Stewart
[84]
The evidence of Mr Taylor
[95]
The evidence of Mr Morris
[100]
Visy’s witnesses
[108]
The evidence of Mr Stein
[108]
The evidence of Mr Meek
[139]
The evidence of Mr Shale
[152]
The evidence of Mr Smithells
[172]
The evidence of Mr de Souza
[177]
CONSIDERATION
[183]
Tortious inducement of breach of contract
[183]
Relevant principles concerning the tort
[183]
Aus-Lid’s breach of contract
[186]
Inducement or procurement of breach
[190]
........ ... When will wilful blindness or reckless indifference ground a finding of intention?
[196]
........ ... A bona fide belief reasonably entertained?
[209]
........ ... An issue of sufficiency of causation
[218]
Visy’s knowledge of the contract and of the relevant terms
[224]
What was the inducement?
[232]
A bona fide belief reasonably entertained?
[237]
Wilful blindness or reckless indifference
[249]
The rule in Browne v Dunn
[264]
Damages for tortious inducement of contract
[265]
Misleading and deceptive conduct
[296]
Relevant principles concerning misleading and deceptive conduct
[296]
The representations made by Visy to Chobani
[300]
The nature of any interest granted to Visy
[314]
Loss or damage under s 236 of the ACL
[321]
ASSESSMENT OF DAMAGES AS AGAINST AUS-LID ENTERPRISES
[330]
DISPOSITION
[349]
REASONS FOR JUDGMENT
KENNY J:
INTRODUCTION
The applicant, Sealed Air Australia Pty Ltd (formerly Cryovac Australia Pty Ltd) seeks damages in tort against the fourth respondent, Visy Packaging Pty Ltd, for procuring or inducing a breach of contract by the first and second respondents, Aus-Lid Enterprises Pty Ltd and Auslid Operations Pty Ltd. Sealed Air also seeks damages against Visy for misleading or deceptive conduct under s 236 of the Australian Consumer Law (in Schedule 2 of the Competition and Consumer Act 2010 (Cth) (ACL)). It does not now pursue the other relief sought in its Further Amended Originating Application filed on 16 October 2015 (Further Amended Application). Visy denies the allegations against it.
For the reasons stated below, I find that Visy induced a breach of contract by Aus-Lid Enterprises and Auslid Operations and would fix damages in the amount of $1,635,417. Also for the reasons stated below, I find that damages against Aus-Lid Enterprises are to be assessed in the sum of $1,316,971.
The proceeding was instituted by Cryovac and has subsequently been carried on in the name of Sealed Air. Much of the evidence, especially concerning earlier events, referred to Cryovac by name, although some of it referred to Sealed Air. Nothing is said to turn on this and, in these reasons, a reference to “the applicant” is a reference to either Cryovac or Sealed Air (as appropriate at the relevant time). Further, as explained below, although there were originally numerous respondents, the claims considered in these reasons are almost entirely those made against the fourth respondent, Visy. There is also the matter of damages to be awarded against Aus-Lid Enterprises following an order on 21 May 2018 that there be judgment in default against it.
THE PARTIES
At all material times, the first respondent, Aus-Lid Enterprises, was the registered owner of the Patent AU754978 for an invention entitled ‘Container Lid and implement’ (Aus-Lid’s Patent). Briefly, the Patent was for a lid (for a container), which had an integral implement (such as a spoon) for removing the container’s contents (for example, yoghurt). Mr Simon Shale, former General Manager of Visy’s Plastics Division, explained in evidence that the “intelligent bit” of the patented product was the fact that it was made in one piece with a spoon hinged on a mechanism that folded under and then clipped on the inner side of the lid.
The second respondent, Auslid Operations, was the exclusive licensee of Aus-Lid’s Patent. The third respondent, Ashlyn Graeme de Souza, was the sole director of Auslid Operations prior to its liquidation, and a director of Aus-Lid Enterprises when the proceeding was instituted.
At all material times, the applicant carried on a business of manufacturing and selling containers, including lids for tubs for pre-packaged food containing dairy products. Until March 2015, one such product was a ‘spoon-in-lid’ made from a single piece of plastic. This product was called the Combo-Lid and fell within the claims of Aus-Lid’s Patent. The applicant’s Combo-Lid comprised a circular lid designed for a 160g tub containing yoghurt (or another dairy product). The applicant manufactured and sold Combo-Lids under licence from Aus-Lid Enterprises and Auslid Operations.
At all material times, Visy was also in the business of manufacturing and selling containers, including containers for dairy products. (I note that the parties mostly used the word ‘Visy’ to refer to the fourth respondent but occasionally ‘Visy’ referred to another Visy-related entity. Nothing turns on this.)
Visy’s interest in the patented product stemmed from the fact that it could be manufactured as a single unit, with the consequence that it was easier to assemble and the spoon could not be lost during assembly or distribution. This kind of spoon-in-lid product also offered ‘on-the-run’ convenience to the end user.
THE CIRCUMSTANCES IN WHICH THE PROCEEDING AROSE
The Patent Licence Agreement
In January 2011, Aus-Lid Enterprises and Auslid Operations (collectively Aus-Lid) entered into a Patent Licence Agreement with the applicant. The evidence discloses that Mr de Souza, on behalf of Aus-Lid, told Visy that this agreement did not prevent Aus-Lid from granting Visy the right to exploit Aus-Lid’s Patent by manufacturing and selling the patented product to Chobani Pty Ltd and Chobani Australia Pty Ltd (collectively, Chobani). Mr de Souza, for Aus-Lid, purported to give Visy the right to do so and, in so doing, breached the Patent Licence Agreement.
The applicant had acquired a valid sublicence under the Patent Licence Agreement, which was enforceable according to its terms. In their Amended Defence, Aus-Lid and Mr de Souza admitted the applicant’s claim to this effect: see Amended Defence at [9]; Third Further Amended Statement of Claim at [9]; also Further Amended Statement of Claim at [9]. The Patent Licence Agreement was contained in a document, which it is not disputed bore the seals of Aus-Lid Enterprises and Auslid Operations. The unchallenged evidence of Mr Martin Yii, a director of the applicant at the relevant time, was that he signed the Patent Licence Agreement on 29 January 2011 in conformity with his authority to execute the Agreement on the applicant’s behalf. Mr Yii also authorised the payment to Aus-Lid of the licence fee of $125,000.
At one point, as discussed below, Visy’s in-house lawyer raised doubts about the due execution of the Patent Licence Agreement. These doubts were ill-founded. A company’s power to make a contract may be exercised by an individual acting with the company’s authority: Corporations Act 2001 (Cth), ss 126 and 127(4). There was no suggestion that the signed document was not intended (in the relevant sense) to create legal relations: cf Toll (FGCT) Pty Limited v Alphapharm Pty Limited [2004] HCA 52; 219 CLR 165 at [38], [40].
Under cl 3.1 of the Patent Licence Agreement, Auslid Operations (defined as ‘Auslid’) granted the applicant “an irrevocable, exclusive sublicence” to exploit Aus-Lid’s Patent (see cl 1) “in the Field in the Territory”. Under cl 3.2, Aus-Lid Enterprises (defined as “The Patentee”) consented to the grant. As defined in cl 1, the “Field” relevantly covered “the manufacture and supply of containers for pre-packaged food containing dairy products”, and the “Territory” covered Australia and New Zealand. Also as defined, the word “exploit” in the Agreement had the same meaning as in the Patents Act 1990 (Cth) and therefore included the manufacture, sale and supply of the patented product.
Clause 4.1 of the Patent Licence Agreement provided that:
The sublicence granted in clause 3.1 is an exclusive sublicence in the Field and the Patentee and Auslid must not together or separately undertake any commercial activity in the Field or grant any rights in favour of or to any third party in that Field.
Clause 7.1(c) of the Patent Licence Agreement further provided that:
Each of the Patentee and Auslid agrees and acknowledges that:
…
(c)it shall not interfere with Cryovac’s enjoyment of the sublicence granted under the terms of this Agreement; …
In these proceedings, the applicant claimed that each of Aus-Lid Enterprises and Auslid Operations breached clauses 4.1 and 7.1(c) of the Patent Licence Agreement. As explained below, this claim is accepted, because, through Mr de Souza, these two companies granted Visy the right to manufacture and sell the patented spoon-in-lid product to Chobani and knowingly permitted and encouraged Visy to continue to manufacture and supply that product to Chobani.
Circumstances of the apprehended breach of the Patent Licence Agreement
Visy admitted, in its Further Amended Defence, that in about June 2014 it began to manufacture and sell a spoon-in-lid product that fell within the scope of Aus-Lid’s Patent to Chobani in Australia and continues to do so.
The evidence of Mr Stewart, who held senior sales positions with the applicant at the relevant time, was (and I accept) that, in about August/September 2012, the applicant began supplying the patented Combo-Lids and associated tubs to Chobani for Chobani’s “Gippsland Dairy” brand of yoghurt. The applicant remained the exclusive supplier of these products until about mid-2014. In about May 2014, the applicant became aware that Visy was supplying a virtually identical spoon-in-lid product to Chobani. Further, from about June-July 2014, there was a noticeable reduction in the number of Combo-Lids supplied by the applicant to Chobani and from March 2015 the supply ceased completely.
On 31 July 2014, the applicant’s lawyers, Spruson & Ferguson, wrote to Mr de Souza and Auslid Operations requiring them to undertake immediately to “revoke the rights granted to Visy to exploit the Patent in Australia, including any patent licence agreement entered into with Visy”. Mr de Souza responded by email, also dated 31 July 2014, stating that the applicant was the “first to breach the agreement, by working outside [the] agreed territory”. Mr de Souza indicated that Aus-Lid intended to continue with Visy on the basis that Visy was able to supply what Chobani required.
Spruson & Ferguson wrote to Visy on 4 September 2014, informing Visy that: (1) Aus-Lid had granted the applicant “an irrevocable, exclusive sub-licence” to exploit the Patent by the manufacture and supply of Combo-Lids for pre-packaged food containing dairy products in Australia; and (2) Aus-Lid had no right to grant Visy the right to manufacture and supply the patented spoon-in-lid product to Chobani. Visy responded by letter dated 12 September 2014 confirming that it manufactured the “Gippsland Container” referred to in Spruson’s 4 September letter (including the patented spoon-in-lid product). Visy stated that it had in place a licence agreement with Auslid enabling it to “utilise certain patent rights held by Auslid” and had been “assured that the rights of the Visy group to manufacture the Gippsland Container are not compromised”.
Further correspondence between Spruson & Ferguson and Visy ensued, in the course of which Visy was supplied with a copy of the Patent Licence Agreement. As Mr Stein’s evidence (see [108]-[138]) shows, Visy has continued to manufacture and supply its version of the patented spoon-in-lid product to Chobani.
Also in the period from September to December 2014, unknown to the applicant, Visy was engaged in negotiations with Aus-Lid regarding the terms of another licence to exploit Aus-Lid’s Patent. On 29 December 2014, Aus-Lid granted Visy a non-exclusive licence to exploit the Patent and provided Visy with an indemnity against loss or damage resulting from, among other things, any claim against Visy that its use of Aus-Lid’s Patent contravened the rights of any third party. This was also the subject of Mr Stein’s evidence.
On 6 January 2015, the applicant commenced this proceeding against Aus-Lid, Mr de Souza and Visy.
THE APPLICANT’S CLAIMS AGAINST THE FIRST TO THIRD RESPONDENTS
The applicant’s claims against Aus-Lid Enterprises centred on the breaches of the Patent Licence Agreement, although there were also claims for misleading or deceptive conduct and unconscionable conduct. The Court addressed these claims in its orders of 21 May 2018 that there be default judgment against Aus-Lid Enterprises, with damages to be assessed and costs awarded at the trial of the matter. On that day too, the Court further ordered that the cross-claim filed by Aus-Lid Enterprises on 14 April 2015 be dismissed: see Sealed Air Australia Pty Limited v Aus-Lid Enterprises Pty Ltd [2018] FCA 716.
At the hearing of this matter, the applicant made written submissions (see below at [338]) regarding the assessment of damages against Aus-Lid Enterprises. The third respondent, Mr de Souza, had earlier applied for leave to represent Aus-Lid Enterprises under r 1.34 of the Federal Court Rules 2011 (Cth). That leave was refused: see Sealed Air Australia Pty Limited v Aus-Lid Enterprises Pty Ltd [2018] FCA 31. Aus-Lid Enterprises made no appearance at the subsequent hearing and filed no written submissions.
The applicant also claimed against Auslid Operations as the exclusive licensee of the Patent. As already indicated, however, Auslid Operations was wound up on 7 June 2017. On 30 August 2017, the Court gave the applicant leave to proceed against it up to and including 20 October 2017: see Cryovac Australia Pty Ltd v Aus-Lid Enterprises Pty Ltd [2017] FCA 1027. The applicant made no further application for leave to proceed against that company. The applicant’s claims against Auslid Operations do not therefore arise for consideration in these reasons.
When the hearing began on the morning of 4 June 2018, the applicant continued to press its claims against Mr de Souza, who appeared on that day without legal representation. Later the same morning, counsel for the applicant, Mr Drew, advised the Court that the applicant would discontinue the proceeding against Mr de Souza, with no order as to costs. The applicant subsequently filed a notice of discontinuance against Mr de Souza.
In these circumstances, only the applicant’s claims against Visy were the subject of the hearing over the five days from 4 to 7 June 2018 and on 30 October 2018.
THE PARTIES’ SUBMISSIONS
The applicant’s submissions
Aside from its written and oral opening submissions, the applicant relied on its written closing submissions dated 15 June 2018, its submissions in reply dated 21 June 2018, and written and oral submissions presented on 30 October 2018.
Aus-Lid’s breach of the Patent Licence Agreement
In its closing written submissions, the applicant submitted that Aus-Lid had breached clauses 4.1 and 7.1(c) of the Patent Licence Agreement by:
(a)in or about August 2013, offering Visy the opportunity to tender to Chobani for the supply of the patented spoon-in-lid product for Chobani’s Gippsland Dairy product;
(b)in or about late December 2013 or early January 2014, offering Visy the right to manufacture the patented spoon-in-lid product for Chobani and others in dairy in Australia;
(c)in about January 2014, informing Visy that Aus-Lid was able to license Visy to supply the patented spoon-in-lid product to Chobani;
(d)agreeing with Visy to receive royalty payments in relation to Visy's manufacture and supply of the patented spoon-in-lid product to Chobani;
(e)thereafter, knowingly permitting Visy to manufacture and supply the patented spoon-in-lid product to Chobani;
(f)in September 2014, informing Visy that Aus-Lid had the right to allow Visy to manufacture the patented spoon-in-lid product for Chobani;
(g)on 29 December 2014, entering into the Intellectual Property Agreement with Visy with respect to the patented spoon-in-lid product; and
(h)since 29 December 2014, permitting Visy to continue to manufacture and supply the patented spoon-in-lid product to Chobani.
Visy’s knowledge
Citing numerous authorities, the applicant contended that the central question was whether Visy had sufficient knowledge of the contract between it and Aus-Lid to ground an intention to interfere with the applicant’s contractual rights. It submitted that, as a result of Spruson’s 4 September 2014 letter and the communications between Visy’s in-house lawyer (Mr Stein) and Mr de Souza, Mr Stein (and therefore Visy):
(a)had actual knowledge of the applicant’s sublicence (including that it was an exclusive licence) and that Aus-Lid was probably in breach of that licence by having granted another licence to Visy and permitting it to manufacture and supply the patented spoon-in-lid product to Chobani; and/or
(b)exhibited wilful blindness in the nature of a conscious decision not to inquire into the existence of the facts in case Visy discovered that what Mr de Souza was telling Visy could not reasonably be relied upon to refute the substance of what was contained in Spruson’s letter; and/or
(c)exhibited reckless indifference in so far as Visy, faced with knowledge of at least a substantial prospect of breach, proceeded not caring whether or not a breach would occur;
and, on all or any of those bases, Visy therefore had the necessary intention or knowledge to ground an intention to interfere with the applicant’s contractual rights.
The applicant submitted that, if Visy were to rely successfully on the statements made by Mr de Souza to the effect that Aus-Lid was not prevented by its previous exclusive sublicence agreement with the applicant from granting a sublicence to Visy, then Visy “must not only show that it honestly believed that the contract was not made or was invalid &c. [sic], as the case may be, but that such belief was reasonably held” (emphasis original).
The applicant submitted that, objectively, there was no basis upon which Mr Stein “could reasonably have relied upon the mere verbal assurances given by Mr de Souza and dismissed the warnings from [the applicant’s] solicitors”. The applicant added:
… Mr Stein was well aware (being admitted as a legal practitioner in Victoria) that Cryovac's solicitors were under a professional obligation to ensure that the 4 September letter did not contain any representations which they did not reasonably believe to be true (eg., Professional Conduct and Practice Rules, rule 28.1) … In contrast, not being a solicitor, Mr de Souza was not subject to any such professional obligation.
The applicant submitted that that the Court should infer that Mr Stein did not, in fact, believe Mr de Souza’s claims; and that he never actually formed or held any belief either way about these claims.
The applicant submitted, in the alternative, that if Mr Stein did have a bona fide belief that whatever rights Aus-Lid had granted the applicant had come to an end, then that belief was not reasonably based. In any case, Mr Stein’s alleged belief was “not a sufficient defence” to the applicant’s claim of “actual knowledge, wilful blindness or reckless indifference”. The applicant submitted that an experienced commercial lawyer in the position of Mr Stein could not have reasonably entertained such a belief, based upon what he knew, “but rather, contrived to do so because that aligned with Visy's obvious commercial interest in maintaining its supply of [the patented spoon-in-lids] to Chobani without disruption”.
In his closing oral submissions, Mr Drew, for the applicant, argued that Visy made “no serious efforts [to ascertain its position] … beyond accepting Mr de Souza’s statements”. He submitted that:
What they should have done is got some proper advice, and what they should have done is ceased what they are doing until it was sorted out. …
This was a serious commercial dispute which, in fact, Mr Stein said were serious allegations, and no external advice. They didn’t want to know. … And the reason they didn’t want to know is because it would have been against their commercial interests to disrupt their new relationship with Chobani which they placed great value on.
The applicant submitted, in substance, that Mr Stein’s rejection of the proposal in Spruson’s subsequent 15 October 2014 letter strengthened its case. It further submitted that Mr de Souza’s response to this letter (sent to him by Mr Stein) would have led a lawyer with Mr Stein’s experience to recognise that, amongst other things, there would have been no purpose in Aus-Lid providing Visy with the proffered “indemnity for the Gippsland Dairy production” unless there was a genuine and substantial underlying dispute with the applicant concerning Visy's purported rights to manufacture and supply the patented spoon-in-lid product.
The applicant submitted that Mr Stein’s responses in cross-examination were dissembling and evasive, and that they “smack[ed] of self-serving reconstruction and ought not to be accepted”. It submitted that these responses showed that Mr Stein did not, in truth, hold a genuine and reasonable belief about any of these things. The applicant also submitted that Mr Stein’s conduct after receipt of the 15 October 2014 letter showed such a lack of diligence that it was “explicable only on the footing that Mr Stein did not want to ascertain the true facts in case they proved to be inconsistent with Visy’s commercial interests in ensuring that its supply to Chobani was not disturbed”.
The applicant contended, in substance, that Mr Stein’s conduct after Spruson’s 27 November 2014 letter was indicative of the fact that Visy “had determined unequivocally that it would continue to manufacture and supply” the patented spoon-in-lid products for Chobani, in spite of the information contained in the formal correspondence from the applicant’s solicitors and the fact that Mr de Souza’s communications were clearly premised on the existence of an agreement with the applicant (although one that Mr de Souza alleged the applicant had breached).
The applicant argued that, after its lawyers had given a redacted copy of the Patent Licence Agreement to Mr Stein and having regard to Mr Stein’s contemporary correspondence with Mr de Souza, Mr Stein was fixed unequivocally with the knowledge that Aus-Lid regarded the sublicence with the applicant as valid and effective, albeit subject to the purported amendment as to exclusivity. In the circumstances disclosed by the evidence, Mr Stein’s email to the applicant’s solicitors the following morning was, so the applicant said, deliberately non-responsive and evasive, and manifestly contrived. The applicant submitted that Mr Stein’s “persistent equivocation and evasion” under cross-examination substantially undermined the credibility of his evidence on these matters, and the Court should not accept it.
To the extent that Visy claimed that it thought the applicant’s sublicence with Aus-Lid was invalid, had been terminated, or that it did not contain the term allegedly breached, the applicant contended that the Court should be satisfied that Visy did not, in fact, hold any such belief, and even if it did, that that belief was not reasonably held. Citing Swiss BankCorporation v Lloyds Bank Ltd [1979] Ch 548 and Fightvision Pty Ltd v Onisforou [1999] NSWCA 323; 47 NSWLR 473, the applicant maintained that a qualified and experienced solicitor in Mr Stein’s position, and armed with the knowledge he had, could be expected to have obtained proper advice so as to resolve any doubts about the legal position, and not to restrict himself to what Mr de Souza told him as the alleged contract breaker.
In so far as Visy relied on the rule in Browne v Dunn (1893) 6 R 67 in support of the proposition that the Court should not entertain the applicant’s submission that Mr Stein did not believe Mr de Souza, and like submissions, Mr Drew submitted that the rule:
… rests upon notions of fairness and it’s designed to give the witness, that is, Mr Stein and the party calling that witness, Visy, an opportunity to meet the evidence or submissions that form part of the case of the opposing party, Cryovac, and thus facilitate the court’s assessment of the reliability and accuracy of the witness. …
In many cases, and we would say such as the present, the witness must know that … it will be contended that his or her evidence ought not to be accepted by the manner of the pleadings, by the matters in issue and by the conduct of cross-examination. It is not a correct application of the rule to say that counsel cannot argue or the court find that the evidence of a witness warrants such characterisation unless the witness has been asked some such question as, “I put it to you that your evidence is not true”.
Mr Drew submitted that it would have been clear to Mr Stein and Visy from the pleadings, the applicant’s opening address, and the contradicting evidence put to Mr Stein in cross-examination that his evidence was being challenged, and that it was open to the Court to characterise his evidence in the way the applicant invited the Court to do. Mr Drew emphasised that the applicant was not alleging that Mr de Souza was dishonest in his communications to Mr Stein, but was focussing on Mr Stein’s state of mind on receiving Mr de Souza’s communications. In this regard, Mr Drew maintained that:
We don’t need to determine or quiz anybody on whether or not what Mr de Souza said was true or whether he believed it. This is all about Mr Stein’s evidence.
…
We’re not testing the truth of the representations by Mr de Souza. What we’re saying is, “What did you believe, Mr Stein”, and he didn’t give any evidence much on that at all. He just said, “Well, that’s what Mr de Souza believed. I read it and I thought that’s what Mr – that was Mr – Ashlyn’s view”, as he sometimes described it. What he never did and what he was pressed on was, “What did you believe?” “I never formed a view”, he said.
Visy’s interference with the applicant’s contractual rights
The applicant accepted that Visy was already manufacturing and supplying Chobani with the patented spoon-in-lids before its applicant’s lawyers sent their 4 September 2014 letter. It maintained that its claim against Visy arose from the fact that Visy continued to manufacture and supply Chobani with the lids, despite knowing, or there being a reasonable basis to believe, that Aus-Lid was in breach of the applicant’s sublicence with Aus-Lid in so doing. The applicant further submitted that:
Even more egregiously, after obtaining that knowledge, Visy further compounded its interference with [the applicant’s] rights by actively engaging in subversive negotiations with the Auslid parties that culminated, on 29 December 2014, with Visy entering into several written agreements, including a patent licence agreement by which Auslid purported to grant to Visy a non-exclusive licence to exploit the Patent.
The applicant submitted that the Court should be satisfied that the Intellectual Property Licence executed by Visy and Aus-Lid on 29 December 2014 was, in both fact and law, an “entirely fresh agreement, albeit with an effective date purportedly backdated to 1 September 2012”. The applicant contended that, having regard to what Visy knew by 29 December 2014, the only available inference was that Visy did so with deliberate or reckless disregard that this fresh agreement was inherently inconsistent with the applicant’s exclusive contractual rights. The applicant asserted that:
The motivation for this was to protect its own position, as Visy was concerned that changing the design of the lid for the 160g product “would have involved considerable technical work, significant cost and also customer interruption”.
…
Visy's intransigence despite multiple further warnings from Cryovac's solicitors, its receipt of a copy of the [applicant’s] sublicence, and the commencement and prosecution of legal proceedings makes it clear that, in truth, there was little more, if anything, that [the applicant] could have done to persuade Visy to cease its supply of the Combo-lid to Chobani. Visy's primary concern was always to protect its commercial interests with total disregard for and at the expense of [the applicant’s] contractual rights.
(Emphasis original)
Visy’s alleged misleading and deceptive conduct
The applicant also claimed that, from at least about January 2014 (and on the evidence, from about August 2013):
(a)Visy engaged in misleading or deceptive conduct by representing to Chobani that it had a valid licence or sublicence to exploit Aus-Lid’s Patent and the right to produce, distribute and supply the patented spoon-in-lid to Chobani; and
(b)Chobani relied upon such representations in requesting, accepting and paying for supply of the patented spoon-in-lid from Visy instead of the applicant.
Mr Drew, for the applicant, submitted that these representations did not merely convey Visy’s untutored opinion; rather, they were a representation of fact. After noting that the patented spoon-in-lid supplied to Chobani was patent stamped with “AUSLID”, he submitted that in holding out to Chobani that Visy was able to supply the lids, Visy represented that it had the intellectual property rights that permitted it to do so.
The applicant submitted that the evidence for the representations was the Supply Contract Proposal given by Visy to Chobani on 16 September 2013, the evidence given by Visy’s Mr Smithells about his conversation with Chobani’s Mr Joris Dorsman in or about January 2014, Mr Smithells’ evidence as to the provision of technical drawings to Mr Dorsman, the evidence of Mr Smithells and Chobani’s Mr Meek that the final spoon-in-lid design was settled on the basis of those drawings in January 2014 and, finally, Mr Meek’s evidence about Visy’s representations to Chobani during the design process and his evidence that Visy was providing Chobani with around 6,000 prototype Combo-Lids for testing on the filling lines between September and December 2013. The applicant also relied on the “Extension of IML Lids Packaging Supply Agreement” made on 18 July 2017 (July 2017 Extension), and a notation within it that read:
Note: Visy has licensed the rights to manufacture the product from a third party patent holder who has continued to confirm Visy’s licence is valid.
The applicant contended that the representations were not true, because Visy did not have a valid licence from Aus-Lid (or any other right) to manufacture and supply the patented spoon-in-lid. The applicant submitted that the previous grant of exclusive rights by Aus-Lid to it under its sublicence had the effect of incapacitating Aus-Lid from making a valid grant to Visy of another licence. Citing Yorke v Lucas [1985] HCA 65; 158 CLR 661 and Google Inc v Australian Competition and Consumer Commission [2013] HCA 1; 249 CLR 435, the applicant submitted that it was immaterial whether Visy knew that the representations were false when made or that it had every reason to believe that its representations were true.
In so far as Visy relied on the fact that the applicant notified Chobani of its claim, Mr Drew said in reply on 30 October 2018 that the notice was not given at the relevant time. In so far as Visy said it may have had a valid licence, Mr Drew said:
They may have a valid agreement with de Souza, but to say that they have a valid licence referable to – and in support of their rights to use that intellectual property, that just simply cannot be the case. They would have a licence without content, and certainly couldn’t use it in the manner that they did.
Applicant’s loss and damage
The applicant submitted that Visy was liable to compensate the applicant for loss and damage insofar as it was suffered:
(a)after about June 2014 as a result of Visy’s misleading or deceptive conduct; and
(b)after about 8 September 2014, when Visy was informed about Aus-Lid’s breach of contract but nevertheless continued to manufacture and supply the patented spoon-in-lids to Chobani.
The applicant contended that, by reason of Visy’s misleading and deceptive conduct, it lost the profits that it would otherwise have made by supplying the Combo-Lids to Chobani from at least June 2014 for the duration of the Patent Licence Agreement and for a period of time after the expiration of that Agreement (until at least 2021). Relying on the evidence of Mr Morris, the applicant claimed compensation under s 236 of the ACL for loss and damage in the sum of $1,923,150 for the period of loss from June 2014 to 18 September 2018; and $1,966,253 for the period of loss from 18 September 2018 to August 2021 (being three years at 1% growth).
The applicant contended that, in respect of the claim in tort, a finding of inducing breach of contract carried with it a finding that Visy’s actions caused the breach of contract and the consequential loss. Referring to Australian Competition and Consumer Commission v TPG Internet Pty Ltd [2013] HCA 54; 250 CLR 640, the applicant contended, in respect of the claim for misleading and deceptive conduct, that it was to be inferred by Chobani’s acceptance of the Visy September Proposal, approval of the final design for the patented spoon-in-lid (which included the “AUSLID” patented imprint) and by agreement to the July 2017 Extension that Chobani relied upon the relevant misrepresentations to obtain supplies of the patented spoon-in-lids from Visy, by reason of which the applicant suffered lost sales and the loss of opportunity to retain and/or recapture Chobani as a customer.
The applicant contended that, notwithstanding Mr Meek’s evidence that Chobani did not require that the spoon-in-lid product be supplied in accordance with Aus-Lid’s design, the only spoon-in-lid product presented to Chobani under either of the two proposals that Chobani received was Aus-Lid’s patented spoon-in-lid. According to the applicant, Mr Meek accepted that, if Visy had been unable to provide the lids to Chobani, Chobani would have maintained the supply of the existing lids from the applicant for the foreseeable future, until such time as it could obtain a matte black in-mould labelling (IML) spoon-in-lid. The applicant submitted that Mr Meek accepted that the contention that Chobani could have gone back to market and found an appropriate solution was speculative. In his closing address, Mr Drew said:
We say [Chobani is] not going to disrupt their product lines when they don’t have an alternative. They’re going to stay with what they’ve got. They might want to change. … But there is no evidence that, even if they had gone back to market – accepting that they would have done – that there was any other – alternative proposal, because – the only two proposal[s] that came out when they last went to the market was Cryovac and Visy. There was no one else.
…
[T]here’s no evidence that Chobani would have contracted Visy, even if Visy had offered a differen[t] spoon in lid or even if an alternative spoon in lid had been identified, which – it was not – on the evidence – that it would have met Chobani’s requirements … Mr Meek gives evidence that he would have gone out to the market. He wouldn’t have known what was out there until he saw the proposals.
…
Visy did not present what might have been the alternative. It’s really out there in – as a cloud of smoke somewhere. It has no dimensions and no substance. Indeed, the only available inference on the evidence is that Chobani accepted the Visy offering because it included the patented functionality of the combo lid, albeit – with the enhancements that it was looking for.
The applicant contended that, upon becoming aware by no later than 8 September 2014 of the applicant’s contractual rights and Aus-Lid’s contravening conduct, Visy should have forthwith (or as soon as practically possible) ceased to manufacture and supply Aus-Lid’s patented spoon-in-lids and that Visy wrongfully refused to do so. The applicant argued that the Court should be satisfied that, had Visy ceased to manufacture and supply the patented products on or about 8 September 2014, then Chobani would have re-established its supply of Combo-Lids from the applicant, initially in the existing non-IML format and, by at least January 2016, if not even earlier, in a matte-black IML format.
Relying on the evidence of Mr Morris, the applicant claimed damages in the sum of $1,871,712 for the period of loss from September 2014 to 18 September 2018; and in the sum of $1,966,253 for the period of loss from 18 September 2018 to August 2021 (being three years at 1% growth). This was on the basis that:
(c)Visy had actual knowledge that supplying the patented lids to Chobani would interfere with the applicant’s contractual rights under its sublicence with Aus-Lid;
(d)had Visy ceased supply on or around 8 September 2014, the applicant would have been restored as the supplier to Chobani of the Combo-Lid and would have continued as such until the expiry of its sublicence (being 18 September 2018); and
(e)this did not occur because Visy refused to cease manufacturing and supplying the lids to Chobani and, as a result, the applicant lost the profits that it would otherwise have made by supplying the Combo-Lid to Chobani: from about 8 September 2014 for the duration of the Patent Licence Agreement, and for a period of time after the expiration of that Agreement (until at least 2021).
Visy’s submissions
Procuring a breach of contract
As aside from its written and oral opening submissions, Visy relied on its written closing submissions dated 15 June 2018, its closing submissions in answer dated 3 July 2018, and its oral submissions on 30 October 2018.
In closing written submissions, Visy did not dispute that there was a contract between the applicant and Aus-Lid, nor that it knew that such a contract existed. Rather, it disputed that:
a.Visy knew that if the Aus-Lid Parties authorised Visy to make the Combo-Lid, that conduct would be a breach of the contract;
b.Visy intended to induce or procure the Aus-Lid Parties to breach the contract by authorising Visy; and
c.In any event, Visy’s actions in offering the Combo-Lid caused loss or damage to Cryovac.
Visy submitted that, in order to establish that it intended the Aus-Lid parties to breach their contract with the applicant, the applicant had to establish facts showing “affirmatively that … Visy, faced with knowledge of at least a substantial prospect of a breach, proceeded not caring whether or not a breach, would occur”. It further submitted that the authorities, including Short v City Bank of Sydney [1912] HCA 54; 15 CLR 148, established that an honest (or bona fide) belief that there would be no breach, even if a credulous one, was a good defence.
In closing address, Ms Cunliffe, for Visy, accepted that the bona fides of a belief may be evaluated by reference to the status of the person alleged to hold the belief, the person’s knowledge and experience, and whether given their expertise, the person might be expected to know better. Ms Cunliffe submitted that:
Mr Stein’s evidence on this point … was that Mr de Souza was not a lawyer, but from the facts that Mr de Souza gave him it said to him that it may well have been the case that the contract was repudiated, and he was not in a position to tell one way or another. …
We say that if … the facts which were evident to Mr Stein were enough to give rise to an honest [doubt] as to whether there had been a breach of contract or whether the contract was repudiated, the relevant state of mind cannot be made out. And that’s not a question of it being a defence; it is whether the elements of the tort are made out. …
We say that Mr Stein’s evidence is to the effect that he had an honest [doubt] as to what the situation was. …
Visy submitted, first, that it did nothing after September 2014 that could have given rise to the tort of inducing a breach of contract. Secondly, it submitted that, even by December 2014, it did not have the requisite knowledge because Aus-Lid had repeatedly said that the applicant had breached its agreement, that Visy had the right to supply Chobani, and that Visy should stay out of the dispute with the applicant. Visy said further that, as a consequence of its enquiries, it believed that there were good grounds to think that the contract between the applicant and Aus-Lid had been repudiated.
Visy submitted that the effect of the authorities was that “mere passivity is not enough to constitute inconsistent dealing”. Visy argued that:
[F]ollowing the reliance by the Full Court in [LED Technologies Pty Ltd v Roadvision Pty Ltd [2012] FCAFC 3; 199 FCR 204] on [OBG Ltd v Allan [2007] UKHL 21; [2008] 1 AC 1], this Court should treat OBG as a correct articulation of the law in relation to inducing breach of contract. The tort requires that the actions of the respondent cause the breach of contract – that is, that the breach is procured or induced by the respondent.
Visy contended that this was fatal to the claims against it “since Visy did not cause the relevant breaches”. Visy submitted that “it is clear on the evidence that the Auslid entities encouraged Visy to continue dealings with them, and not the other way around”; that most of the dealings allegedly inconsistent with the applicant’s sublicence were with Chobani, not Aus-Lid; and that the authorities indicated that the relevant inducement must consist of inconsistent dealings between the contract breaker and the alleged tortfeasor.
No inducement
Visy submitted that, from September 2014 to December 2014, it was not in a position to induce a breach of contract, because the only breach that could have caused the applicant loss (Aus-Lid’s giving permission to Visy in January 2014 to manufacture the patented lids for Chobani) had already occurred. It submitted that the sale of products by Visy to Chobani did not directly involve Aus-Lid.
Visy argued that the licence agreement it entered into with Aus-Lid on 29 December 2014 merely formalised the rights of Visy to utilise Aus-Lid’s Patent in Australia, including in respect of the supply to Chobani. Visy submitted that “[t]he licence granted orally … in January 2014 did not have an expiry date, nor was there any threat of it ceasing if the December 2014 documents were not signed”.
No knowledge
Relying on the evidence of Mr Shale and Mr Stein ([152]-[171] and [108]-[138]), Visy denied that it acted either “with an intention to cause a breach [or] with wilful blindness or reckless indifference as to whether or not there was a breach”. Visy submitted that it did not consider that it was “in a position to be the ‘umpire’ in the dispute between Aus-Lid and [the applicant]” and that “[i]t accepted Aus-Lid’s assurances, and did not alter its existing course of conduct of supplying Chobani”.
Visy’s explanation was in substance as follows:
… Visy had one version of the relevant facts which was firmly and consistently put ([that the applicant] had breached its agreement by working outside the territory and by failing to invest (and thereby, Visy inferred, repudiated the agreement) and the Visy licence was valid) and another version of the relevant facts from [the applicant’s] lawyers. Each party’s position was clear, and it was clear that there was a bona fide dispute between them (which was reflected by the litigation between the parties between 2015 and May 2018). There was no way for Visy to verify either version of events.
… [T]here also appeared to be certain issues with the execution of the sub-licence … Visy was also concerned that the documents may be incomplete.
…
Mr Stein rejected the assertion that he made a conscious decision not to enquire into the validity of the execution in case he was confronted with a disagreeable truth.
But in any event, Mr Stein explained that the question of whether the agreement was validly executed would not have resolved the question of whether AusLid was in breach of a valid enforceable agreement [.]
(Citations omitted)
In substance, Visy asserted that at no time was it able to answer the threshold question, namely, whether or not the applicant had an exclusive sublicence, and that it could not therefore assess whether or not Aus-Lid was in breach of contract. Visy relied on Mr Stein’s correspondence with Mr de Souza in support of the proposition that it had no intention of facilitating Aus-Lid in breaching its agreement with the applicant.
Visy submitted that its discussions with Aus-Lid and its engagement with the applicant were “sufficient to discharge any allegation that it acted with wilful blindness or reckless indifference, or that it had actual knowledge”. It affirmed that:
Visy made enquiries of the Auslid Parties, and … it was assured that the Auslid Parties had power to grant the licence. It is undisputed that the Aus-Lid entities assured Visy that [the applicant] was in breach, that Visy was licensed, and that the Aus-Lid entities would negotiate with Cryovac on multiple occasions.
In making enquiries of the Aus-Lid entities, Visy acted quickly, and with diligence. It was caught in the invidious position of being in the middle of a dispute between the Aus-Lid [Entities] and [the applicant], and it was called upon, effectively, to adjudicate that dispute, which appeared to turn on complex factual allegations as to whether [the applicant] had complied with the terms of its licence. Given the level of Visy’s investment in the Combo-Lids, and its commitment to Chobani to provide a spoon-in-lid product, it is understandable that Visy was cautious to accept [the applicant’s] advice that the Aus-Lid entities were in breach, when the Aus-Lid entities repeatedly provided contrary advice. It certainly cannot be said to have been wilfully blind, or recklessly indifferent, to [the applicant’s] interests, simply because it did not accept [the applicant’s] position uncritically.
(Citations omitted)
Evidence as to Mr Stein’s state of mind
In closing submissions in answer to the applicant, Visy submitted that it was not open to the applicant to contend that Mr Stein did not believe Mr de Souza because the applicant had not complied with the rule in Browne v Dunn. Further, and for the same reason, Visy submitted it was not open to the applicant to assert that Mr Stein was dissembling and evasive; or that his evidence was a self-serving reconstruction; or that Mr Stein had no real interest in finding the facts; or that he (and therefore Visy) did not believe that the sublicence had been terminated.
Visy submitted that Mr Stein’s evidence was that he did not have reason to believe Mr de Souza would lie and that Visy was interested in the true facts but was getting two versions, one from a competitor who was interested in Visy stopping supply and one from the licensor of the relevant patent. Mr Stein’s evidence was, so Visy said, consistent with the contemporaneous documents and should be accepted. Referring to Hunt J’s description of the rule in Allied Pastoral Holdings Pty Ltd v Commissioner of Taxation [1983] 1 NSWLR 1 at 16 and MWJ v The Queen [2005] HCA 74; 80 ALJR 329, Visy submitted that the applicant did not put to Mr Stein that he did not believe Mr de Souza and that the Court should therefore abstain from making adverse findings about Mr Stein and Visy. Visy added that some of the circumstances cited by the applicant to support the proposition that Mr Stein should not have believed Mr de Souza ignored the evidence.
No loss and damage
Referring to statements in Fightvision at [281], Visy submitted that the applicant was unable to prove that Visy’s actions after September 2014 or after December 2014 caused its loss, and that on this account the applicant was not entitled to an award of damages. Visy submitted that the applicant’s refusal to invest in IML technology on the basis of its cost was fatal to its damages case. Visy submitted that:
Chobani required a matte black, IML product which Cryovac was unwilling to provide. It is apparent from those facts alone that Cryovac had no prospect of winning a long term supply contract from Chobani for the Gippsland Dairy lids. The only possible relationship which it could have had with Chobani was as a short term, stop gap, supplier.
…
Chobani accepted Visy’s proposal because Visy offered a product which was matte black, IML, and cheaper. Chobani accepted the proposal before the design for the lid (including the spoon) was finalised.
(Citations omitted)
Visy emphasised Mr Meek’s evidence that he would not have accepted the applicant’s proposal even if Visy had been unable to supply under its proposal. Visy also submitted that, having regard to Mr Meek’s evidence, it was “apparent that Chobani gave Visy its business before Visy had the right to [the patented spoon-in-lid product], and Chobani would have contracted with Visy even if Visy had offered a different spoon-in-lid, because Visy met Chobani’s requirements, and Cryovac did not”. Visy maintained that the applicant’s case on loss and damage mistakenly assumed that Chobani would only have accepted the patented spoon-in-lid. In closing address, Ms Cunliffe submitted that:
… Visy could have provided another spoon in lid. My friend said there was no evidence. I infer from that he means that there were no drawings put before your Honour. There was, certainly, evidence that other designs were shown to Chobani.
In the alternative, Visy submitted that:
Even if, against the evidence, it could be said that Chobani gave its business to Visy on the basis that Visy was offering the Combo-lid, to the extent that any loss was suffered by reason of any purported breach of Cryovac’s sub-licence, it was Auslid’s acts before September 2014 which caused loss to Cryovac. By September 2014, Chobani’s business was lost to Visy, and Visy was producing the ComboLid product.
Visy went on to say that, even if Visy caused the applicant loss after September or December 2014 because it did not cease its supply of the patented spoon-in-lid product to Chobani, the loss would have been very confined, since Chobani would have only taken the existing (cheaper gloss black unlabelled) Combo-Lid from the applicant for a very limited period while it went to market to find another supplier. Visy submitted that “at its highest”, on Mr Meek’s evidence, the applicant lost six months of sales from either September 2014 or December 2014 because Visy did not cease supply upon receiving the applicant’s lawyers’ correspondence. Visy submitted that Mr Meek’s evidence (that he would have gone with another supplier (or another Visy design) in matte black IML as soon as he could) should be given significant weight.
Also in closing submissions in answer, Visy submitted that:
Based on actual volumes, the loss to [the applicant] would amount to no more than 2,800,440 units at [the applicant’s] gross margin of $31.62 per thousand units (Sales price of 78.20 less cost price of 46.58, which applied from June 2014 to January 2015). This amount ($88,549,91) is very significantly smaller than any estimate of loss that has been put forward by the Applicant.
For that reason, the court cannot be satisfied of the proposition that if Visy had ceased to manufacture the Combo Lid, Chobani would have re-established supply. [The applicant] would have needed to invest in IML equipment, something it was unwilling to do given the expense … .
(Citations omitted)
Visy submitted too that the applicant had made no provision in its proposed damages assessment for the cost to it of new IML moulds, which would have affected the applicant’s profits (although Visy said it was unclear “how they would be affected, or by how much”). Visy also submitted that “the costs of producing a product for Chobani that would have been acceptable to Chobani (because it was matte black and not gloss) would be higher than the costs of providing the existing product, although it is not clear by how much”. Furthermore, so Visy submitted, after Aus-Lid’s Patent ceased for non-payment of fees in September 2017, Visy “could supply to Chobani without requiring any licence from Aus-Lid”. There was, so Visy affirmed, no basis in the evidence to support the claim for profit for two, three, five or ten years after the period of exclusivity.
It is important also to bear in mind the nature of the power exercised on 21 May 2018 when the Court ordered that there be default judgment against Aus-Lid Enterprises. As the relevant reasons for judgment disclosed, this power was an exercise of the power conferred by r 5.23 of the Federal Court Rules 2011 (Cth): see Sealed Air Australia Pty Limited v Aus-Lid Enterprises Pty Ltd [2018] FCA 716 at [1]. The power in r 5.23 was enlivened because Aus-Lid Enterprises was a party “in default” under r 5.22, in that it had failed to “prosecute or defend the proceeding with due diligence”: see Sealed Air Australia Pty Limited v Aus-Lid Enterprises Pty Ltd [2018] FCA 716 at [18]-[25]. As I there said (at [29]), “[a]n applicant for default judgment need go no further than the face of the statement of claim to determine whether the relief sought is made out”.
In Speedo Holdings BV v Evans (No 2) [2011] FCA 1227, Flick J helpfully explained (at [23]) that:
… the requirement imposed [by r 5.23(2)(c)] is not that an applicant prove by way of evidence the claim sought to be advanced; the requirement is that the Court needs to be “satisfied” on the face of the statement of claim that the applicant is entitled to the “relief” claimed: Arthur v Vaupotic Investments Pty Ltd [2005] FCA 433 at [3] per Heerey J; Australian Competition and Consumer Commission v 1Cellnet LLC [2005] FCA 856 at [14] per Nicholson J; Bucketts Road Business Services Pty Ltd v Phalona Pty Ltd [2008] FCA 57 at [12] per Sackville J; Microsoft Corporation v Short [2011] FCA 247 at [7] per Stone J; Australian Building and Construction Commissioner v Abbott (No 3) [2011] FCA 340 at [11] per Gilmour J; Rathner v Bendigo Skyrider Pty Ltd [2011] FCA 626 at [9] per Gordon J. The facts as alleged in the statement of claim are deemed to have been admitted by a respondent: Australian Competition and Consumer Commission v Dataline.net.au Pty Ltd [2007] FCAFC 146 at [42], 161 FCR 513 at 523 per Moore, Dowsett and Greenwood JJ. …
His Honour added at [24] that:
… to be satisfied that an applicant “is entitled” to the relief claimed in the statement of claim, the Court needs to be satisfied that “each element of the relevant civil wrong involved is properly and discretely pleaded in the statement of claim”: Macquarie Bank Ltd v Seagle [2005] FCA 1239 at [24], 146 FCR 400 at 406 to 407 per Conti J; Macquarie Bank Ltd v Seagle [2008] FCA 1417 at [20] per Jagot J.
Given the evident disadvantage to the respondent, the rules governing default judgment in favour of an applicant are strictly construed and the discretion is exercised cautiously: Maylord Equity Management Pty Ltd v Parazelsus Ltd [2014] FCA 979 at [14]. As I said in ordering that there be default judgment against Aus-Lid Enterprises, “the giving of default judgment is a significant matter and … there should be a serious default before the power should be exercised”: see Sealed Air Australia Pty Limited v Aus-Lid Enterprises Pty Ltd [2018] FCA 716 at [26].
In the present case, the applicant satisfied the Court as to the sufficiency of the pleadings: see Sealed Air Australia Pty Limited v Aus-Lid Enterprises Pty Ltd [2018] FCA 716 at [27], citing Macquarie Bank Ltd v Seagle [2005] FCA 1239; 146 FCR 400 at 406 [24] and Macquarie Bank Ltd v Seagle [2008] FCA 1417; 79 IPR 72 at 76 [20]. For the purposes of the application for default judgment under r 5.23, the facts as alleged in the statement of claim are deemed to have been admitted by a respondent, even where a defence has been filed: Speedo Holdings at [23] and Sealed Air Australia Pty Limited v Aus-Lid Enterprises Pty Ltd [2018] FCA 716 at [30].
As the applicant’s submissions illustrate, some complexities may arise when the Court is called on subsequently to assess the damages upon an order for default judgment against one party after there has been a lengthy contested hearing involving another party. The applicant’s brief submissions as to the assessment of damages against Aus-Lid Enterprises were as follows:
[153]On 21 May 2018 Cryovac obtained judgment against Auslid Enterprises in respect of its claim for breach of contract and misleading and deceptive conduct.
[154]The relevant orders made by the Court included an order for damages to be assessed at the trial of this matter.
[155] The evidence adduced at the trial in this matter shows that:
(a)On or about January 2014, Mr Ashlyn de Souza purported to grant Visy a licence to manufacture and supply the Combo-Lid in respect of a Field and Territory that were the subject of Cryovac’s sub-licence.
(b)On 31 July 2014, Cryovac wrote to Mr de Souza asking that he revoke any rights purportedly granted to Visy in respect of the Combo-Lid.
(c)On 31 July 2014 and despite having received the letter referred to in paragraph b above, Ashlyn de Souza refused to ask Visy to cease manufacture and supply of the Combo-Lid to Chobani (or at all).
(d)On multiple occasions between July 2014 and December 2014 Mr de Souza was provided with copies of correspondence sent to Visy notifying it that it ought to cease and desist manufacture and supply of the Combo-Lid. Mr de Souza, on behalf of Auslid Enterprises continued to assert to Visy that it could grant a sublicence to Visy (albeit in breach of Cryovac's sublicence).
(e)On 24 [sic] December 2014, Auslid Enterprises executed the Intellectual Property Licence with Visy purporting to grant to Visy a sublicence in respect of the Combo- Lid.
[156]By reason of the above conduct Auslid Enterprises breached its sublicence with Cryovac.
[157]Damages should be assessed from June 2014 to 18 September 2018 in accordance with paragraph 2 of the Morris memo dated 13 June 2018 … .
Aus-Lid Enterprises did not appear at the hearing in June or October 2018 and no submissions on the assessment of damages were made on its behalf.
Two things may be observed: first, as regards paragraph 29 of the applicant’s Third Further Amended Statement of Claim (see [332] above), the applicant’s submissions are, it seems, directed only to support point (iii) and/or (iv) of paragraph 29 of its Third Further Amended Statement of Claim. There is nothing said in these submissions regarding points (i) and (ii) (or (v)). Secondly, the applicant’s submissions do not refer to matters relevant to an assessment of damages for misleading or deceptive conduct beyond the matters also relevant to an assessment for contractual damages, and I infer from this that the applicant seeks in substance only an assessment of contractual damages.
It is well accepted that the ordinary measure of damages in contract is a monetary sum that represents fair and adequate compensation for the loss or injury sustained by reason of the breach: Commonwealth v Amann Aviation Pty Ltd [1991] HCA 54; 174 CLR 64 at 116. This includes loss arising naturally from the breach of contract itself, as well as loss that can reasonably be supposed to be in the contemplation of both parties: Hadley v Baxendale (1854) 9 Ex 341.
As has been set out at [188]-[189], the relevant breaches of contract were: first, the offer made in late December 2013 or early January 2014, by Mr de Souza, for Aus-Lid, to Visy of the right to manufacture the patented spoon-in-lid and supply that lid to Chobani and others within the field of pre-packaged dairy foods in Australia; second, the agreement with Visy that Visy would make royalty payments in return for granting Visy the right to manufacture and supply the patented spoon-in-lids to Chobani, in January or February of 2014; third, Mr de Souza’s advice to Visy, in September 2014, that Aus-Lid had the right to allow Visy to manufacture and supply the patented spoon-in-lid product for Chobani, and Aus-Lid’s knowingly permitting and encouraging Visy to manufacture and supply the patented spoon-in-lid product to Chobani; and fourth, the entry by Aus-Lid (including Aus-Lid Enterprises) into the Intellectual Property Agreement with Visy on 29 December 2014.
In respect of an assessment of damages, as [338] above indicates, the applicant relied on paragraph 2 of the Morris memorandum of 13 June 2018, in which Mr Morris set out the calculations of Visy’s gross profits between June 2014 and 18 September 2018. It can be inferred that the applicant’s claim was that Visy’s total gross profits over that period on an assumption of 0% growth ($1,923,150) was equivalent to the monetary loss arising naturally from the breach of contract, as well as what was within the reasonable contemplation of the parties at the time.
For present purposes, the applicant has, presumably, identified June 2014 as the relevant commencement date from which damages should be assessed because this was the date on which Visy commenced to manufacture the patented spoon-in-lid and supply it to Chobani; and, on the evidence, from about June 2014, when Visy began to supply the patented spoon-in-lid to Chobani, the volumes of the applicant’s relevantly identical Combo-Lids supplied to Chobani diminished until they completely ceased from March 2015.
The applicant has, presumably, identified 18 September 2018 as the end-point for the assessment of damages because, but for the non-payment of the licence fees, the Patent would have expired on that date. I have, however, rejected Mr Drew’s submission that I should disregard the fact that the Patent expired for non-payment of fees on 18 September 2017 and should treat it as on foot until 18 September 2018, when it would have expired had the fees been paid: see [287] above. As I have already said, there was no evidence to support his submission that Aus-Lid’s failure to pay was due to the distractions caused by the dispute with which this proceeding is concerned. Under the Patent Licence Agreement between the applicant and Aus-Lid, the applicant was granted an exclusive licence for manufacturing and supplying the patented spoon-in-lids for pre-packaged food containing dairy products in Australia until the expiry of “the last of the Patents to expire”: see clause 9.1. This was a reference to the fact that the Agreement concerned not only the Patent with which this proceeding was concerned but also New Zealand Patent 503331. The only evidence as to any Patent expiry date was that Aus-Lid’s Patent expired on 18 September 2017. Damages should therefore be assessed up to this date, rather than the later date put forward by the applicant.
Doing the best I can on the limited material before me, I would fix the sum of $1,316,971 as representing fair and adequate compensation for the loss sustained by reason of Aus-Lid Enterprises’ breach of the Patent Licence Agreement. I have arrived at this amount having regard to paragraph 2 and paragraph 6 of Mr Morris’s memorandum of 13 June 2018.
There are difficulties with assessing damages in this way. Where the Court is concerned with an assessment of damages for breach of contract and an assessment of damages for tortious inducement of that breach of contract, in general the analysis and measure of damages for the one will be relevant to the other: see Fightvision at [286]; National Foods v McMahon Milk Pty Ltd (No 2) [2009] VSC 150 at [26]. In these two cases, the assessment proceeded on the basis that the same damages were recoverable against both the contract breaker and the tortfeasor, subject to the limitation on double recovery. In the present case, however, this assumption would be mistaken. For one thing, unlike in these cases, the earliest breaches of contract occurred before the commission of the tort, and in any event the applicant did not submit that the assessment of damages for breach of contract should be made on this assumed basis. Furthermore, the applicant did not submit that there was any other loss or damage that might have fallen within the reasonable contemplation of the parties, and did not identify any evidence that might have been relevant on this issue.
It may have been possible for the applicant or Aus-Lid Enterprises to have put forward some other basis for damages to have been assessed but neither party has done so.
DISPOSITION
For the reasons set out above, the applicant has succeeded in establishing that Visy induced a breach of contract by Aus-Lid and the applicant is accordingly entitled to an award of damages in the amount of $1,635,417. The applicant has also succeeded in establishing that damages should be assessed against Aus-Lid Enterprises in the sum of $1,316,971.
There will be an order that on or before 4:30 pm on 6 February 2020 the applicant file and serve a proposed minute of orders to give effect to these reasons for judgment, together with any submissions on costs and/or interest. There will also be orders that, on or before 18 February 2020, the fourth respondent, Visy, and the first respondent, Aus-Lid Enterprises, file and serve any submissions in response to the applicant’s proposed minute of orders and submissions on costs and/or interest; and that, on or before 10 February 2020, the applicant file and serve on the first respondent a copy of these reasons and a copy of the orders made.
I certify that the preceding three hundred and fifty (350) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Kenny. Associate:
Dated: 24 January 2020
SCHEDULE OF PARTIES
NSD 6 of 2015 Respondents
Fourth Respondent:
VISY PACKAGING PTY LTD (ACN 095 313 723)
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