The Thai Silk Company Ltd v Aser Nominees Pty Ltd

Re: THE THAI SILK COMPANY LIMITED and ARKITEX FABRICS PTY LIMITED
And: ASER NOMINEES PTY LIMITED and PAK-POY KUMAGI PTY LIMITED
No. G115 of 1989
FED No. 601
Trade Practices - Contract
(1991) 13 ATPR 41-146

COURT

IN THE FEDERAL COURT OF AUSTRALIA

NEW SOUTH WALES DISTRICT REGISTRY
GENERAL DIVISION
Hill J.(1)

CATCHWORDS

Trade Practices - misleading or deceptive conduct - supply of applicants' silk fabric for bedspread in mock-up room in hotel - substantial reproduction on cotton ultimately used for bedspreads in hotel - cotton cheaper and more serviceable - first respondent purchaser of both silk and cotton fabrics - second respondent involved in purchase of cotton fabric and makeup of bedspreads - whether misrepresentation as to origin of fabric - whether conduct misleading or deceptive or likely to mislead persons in interior design industry - never any intention to use applicants' fabric - measure of damages if conduct misleading or deceptive.

Contract - implied term - circumstances in which a term may be implied - business efficacy test.

Trade Practices Act 1974 (Cth): ss.52, 53(c), 82

HEARING

SYDNEY

#DATE 2:10:1991

Counsel and Solicitors M.S. Willmott instructed by
for Applicant: Parish Patience

Counsel and Solicitors D.M. Yates instructed by
for Respondent: Thomson Simmons and Co

ORDER

The application be dismissed.

The applicants pay the respondents' costs.
NOTE: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

JUDGE1

The present case, which was heard at the same time as proceedings brought by the same applicants against F.F. and E. Services and Procurement Pty Limited, gives a glimpse into the seamier world of commercial interior design.

In each case the applicants seek relief against what is apparently referred to in that trade as the "knock off" of fabrics designed and manufactured by the first applicant, The Thai Silk Company Limited, and distributed in Australia under an exclusive distributorship agreement by the second applicant, Arkitex Fabrics Pty Limited.
By "knock off" is meant the practice, not uncommon, so the evidence would suggest, of first choosing a suitable fabric for some part of the interior design of commercial premises (in each of the two cases before the court, newly constructed city hotels) and thereafter arranging for a substantial reproduction of that fabric to be produced at a fraction of the cost for use in substitution for the original fabric. In the present cases the original fabric was a handwoven Thai silk, the reproduction (not wholly identical to the original it must be observed) was cotton, overprinted with a substantially similar pattern, but in such a way as to make it appear, to a casual observer, that it was silk.
In the present case the first respondent, Aser Nominees Pty Limited, is the lessee of the land upon which is constructed in Adelaide the Hyatt Regency Hotel and the purchaser of the cotton fabric which was made up into king size bed spreads which now adorn some 230 bedrooms in that hotel. The hotel itself is apparently operated as part of the Hyatt chain of companies, probably pursuant to a management agreement. The terms of such an arrangement, if it exists, are not in evidence and the case has proceeded on the basis that the hotel was operated by the first respondent.
The first respondent engaged Aser Constructions Pty Ltd to design and construct the Hyatt Regency Project. By an agreement dated 13 April 1985, Aser Constructions Pty Ltd contracted with the second respondent, Pak-Poy Kumagi Pty Ltd, to manage, supervise and administer the Hyatt Regency Project and for the design and construction of certain works comprised therein. Nothing turns upon the precise terms of that engagement. The agreement provided for a project team to be involved, which relevantly included, as interior designers responsible for design work on the hotel, a firm of interior designers from Hong Kong, Hirsch Bedner and Associates Limited ("Hirsch Bedner"). An Australian firm, Geoffrey Ashton and Associates was appointed to supply co-ordination support to Hirsch Bedner. For its services, the second respondent was paid on a fee basis.
The events leading up to the production of the cotton fabric.
The responsibility for preparing an initial design concept for the bedrooms of the hotel (including relevant to the present case those incorporating king size beds) fell upon Mrs Simpson from Hirsch Bedner in Hong Kong. It was she who prepared specifications for furnishings and selected initially, as the material to be used for bedspreads in those rooms, a plain gold silk material woven by the first applicant with a heavy silk patterned fabric known as K409 as the base valance. At some time, the date is immaterial, a suggestion of Mrs Woods, an employee of Geoffrey Ashton and Associates, was adopted by Mrs Simpson, whereby the bedspreads were to be made from the K409 fabric with a plain silk base valance.
Mrs Simpson and a Mr Stephens of Hirsch Bedner gave an initial presentation in Adelaide of their suggested furnishings for the hotel. That presentation included material boards, photos, colour perspectives and the like. It was, as I understand it, an overall presentation and was preparatory to the next step, the preparation of furnished prototype "mock-up" rooms for the hotel prior to the final selection and ordering of furnishings. Prior, however, to the furnishing of the mock-up rooms, which were scheduled to be completed by 16 December 1985, it became apparent that the acquisition of fabrics of the first applicant for use as bedspreads on king sized beds was a problem for the hotel furnishing budget. However, as Mrs Simpson noted in a memorandum of 11 October 1985 sent by facsimile transmission inter alia to Mrs Woods, a bedspread of a solid colour (the initial proposal) "obviously can be duplicated in large quantities"; she had already received quotes for this from between $11.50 to $23. Although not relevant to the bedspreads, it is interesting to note that, for example, quotes had also been obtained for the "duplication" of the fabric intended to be used for the "Flounce and Pillow Sham" for A$11.50 on 100% cotton sateen.
By the beginning of December 1985, Mrs Woods was ready to order fabrics for the mock-up room. She confirmed in a fax dated 3 December Mrs Simpson's verbal instructions to alternate the bedspread and flounce fabrics. As Mrs Woods observed in a fax sent on 9 December 1985, after the order for the fabrics of the mock-up bedroom had been placed, the use of the patterned fabric for the bedspread, rather than the plain fabric, made it "easier to `knock-off' than the plain silk."
However, the mock-up room was to be furnished with original fabrics, not reproductions. According to the evidence of Mrs Hay, formerly Patricia O'Neill, a director of the second applicant, whose evidence I accept in its entirety as I was most impressed with her as a witness of truth, a meeting was held some time around 10 December 1985, at which, inter alia, Mrs Woods attended, when Mrs Hay was advised of the intention that there be a considerable use of the first applicant's products in the hotel. Mrs Woods indicated that there would be a need to acquire fabric for the bedspreads being prepared for the mock-up room and advised that the fabric would be K409 fabric. Mrs Hay asked whether the specifications were firm and was advised by Mrs Woods that there would be no changes. The actual order was dated 3 December, so that it can be deduced either that it was not in fact sent until a date later than it bore, or alternatively Mrs Hay had her dates wrong. Nothing turns upon this. I am satisfied that shortly after the meeting to which Mrs Hay deposed, the second applicant received an order placed by the first respondent for 14 metres of the K409 fabric. This was invoiced to the first respondent at a unit price of $61.00 per metre. Notwithstanding the order, it seems to have been the clear intention of all concerned, specifically those at Hirsch Bedner with whom Mrs Woods worked in concert, that, to use the words of Mr Stephens, in a facsimile sent in October 1985:

"...our intention is that the `mock-up' room

fabric must be purchased as specified (the

actual fabrics)...

As long as we know that they can be knocked-off within budget for the 350 rooms"

Mrs Simpson, in her evidence stressed that it was always her intention to use the original silk fabric, although the possibility of using a reproduction of local manufacture on alternative fabric was, she said, an option. I do not accept this evidence. The contemporaneous facsimiles which passed between Hong Kong and Australia show that the idea of reproduction was clearly in place at the time the mock-up room was prepared.
In due course the fabric was delivered and made up into a bedspread for the mock-up room. Having regard to later evidence that showed that something less than 10 metres was in fact required to make a bedspread, it is interesting to speculate as to the need to order 14 metres. The inference is that the surplus material would provide a source for the copying of the design in due course. Be that as it may, the design concept as incorporated in the mock-up room was approved. Indeed a bedroom containing a kingsize bedspread appears to have been photographed at some time and appeared in advertising literature for the hotel.
Once the concept of the mock-up room was approved by the first respondent and those representing the Hyatt chain, the specification for the bedspread was settled. It was, as shown on a document prepared by Mrs Woods, to be:

"Copy of Jim Thompson's Silk K-409 on selected Sateen."

There were two reasons for the need to reproduce the design on the cotton fabric. The first was cost; the second was that the "selected silk (was) not practical for laundering".
The evidence was not completely clear precisely how the reproduction fabric came to be ordered. Perhaps, not surprisingly, there was a reluctance among the witnesses to say openly that they gave instructions to copy the Jim Thompson design, albeit with some differences. One thing that is abundantly clear is that the similarities in the fabrics did not come about by chance.
It seems that Mrs Simpson flew to Sydney with Mr Palmer who at the time was employed by the second respondent as a procurement officer responsible for the acquisition of all furniture and fittings for the hotel. According to his evidence, the "final approval" to order fabrics for the hotel was given some time early in 1987. Mr Palmer's affidavit evidence, remarkable for its brevity on the matter said:

"...we visited three or four fabric manufactures (sic) and importers, one of which was John Peoples from Gazal Industries. Ms Simpson did not, to the best of my knowledge, take with her samples of any Jim Thompson Thai Silks but explained to Mr Peoples and to each of the other prospective suppliers visited by us the style and colour of the fabric she required...."

In cross-examination, Mr Palmer suggested that Mrs Simpson asked for "slight variations" on existing fabrics. He asserted, however, that he had had little to do with the matter, his function being merely to introduce Mrs Simpson to the manufacturers. Mrs Simpson's evidence was slightly different. She had chosen the K409 fabric because it was important to the total design concept of the room she wished to decorate; its "design integrity". She suggested that the visit occurred on the day she was told, implicitly for the first time, that the cost of the original fabric was too high. Thereafter, in the company of Mr Palmer, she visited a number of manufacturers and came to Mr Peoples. She says that Mr Peoples had already been given a copy of all the specifications of fabrics for the hotel as she was ordering from him fabric for the whole hotel, not merely the bedspread. She says that he was given "swatches" of fabric, in size, about one inch by one inch, by Mr Palmer, although not actual samples of materials. She says that there was no discussion concerning the patterns to be printed on the materials she inspected. She agreed that from one square inch it would be impossible to determine the pattern to be adopted, since the pattern was very large. In her affidavit she had suggested that Mr Peoples had made sketches of a design, but in cross-examination, that was not a matter she remembered. I formed the view that Mrs Simpson was reluctant indeed to tell at least the whole truth about this incident, perhaps because she was thinking of her professional reputation.
It is not necessary for the purposes of this case to make findings of the precise means whereby the instructions to Mr Peoples were conveyed. What is clear is that representatives of both the first and second respondents were aware of, approved and arranged the making of the cotton material ultimately produced and that either or both of Mr Palmer or Mrs Simpson, probably the latter, negotiated with a manufacturer for that reproduction. It may be inferred that the instructions were to produce a material which had the design characteristics, in the sense of colour and pattern of the original, which gave the appearance of silk but which was slightly modified so that it could not be said to be an exact copy.
Thereafter, samples of material were on a number of occasions forwarded by the manufacturer to Mrs Simpson for her approval until, when ultimately approved, a formal order was placed on Gazal Industries Pty Limited by Mr Palmer for 3100 metres at $4.20 per metre, a total of $13,020 for material described as:

"AUTUMN REPLACING K409 SANFORISED PREVIOUS NO 1.A2.020."

The material was made up into bedspreads for 230 rooms with a substantial quantity remaining thereafter. The evidence was that the figure of 3,100 was arrived at as the minimum economic order in discussions with the manufacturer, rather than as the quantity actually required for the bedspreads, after taking account of wastage. Surplus fabric was handed over to the first respondent for the purposes of repairs and maintenance. A stocktake in 1988 revealed that 38 rolls were still in storage. The bedspreads are presently used on king size beds in the hotel.
A comparison between the two fabrics
As earlier observed, the K409 fabric was a hand woven fabric, which all witnesses agreed was of high quality. The background colouring is taupe (a grey, green colouring) and there are present also cream and apricot. The pattern on the material was referred to by counsel for the respondents as "hook and rhomb", a phrase that was not readily understood by some witnesses, but which conveyed the underlying theme of the pattern, which was somewhat in the shape of a large rhomboid with two hooks at the intersection of the acute angle of two of the sides of the rhombus. This so called hook and rhomb design is a traditional element in Ikat design in Indonesia and Thailand.
The Ikat method produces what may be described as a variegated yarn which is then woven to a prearranged design. The correct term is that the silk strands are "space dyed". As I understand it the yarn is bound with a dye resistant binding at regular intervals and dipped, the dye then permeating the non-bound parts. These are then unbound and there is a further dyeing the effect of which is that the dyeing has a tendency to bleed into the areas of the yarn which have been tied with the resist binding.
Despite attempts on the part of counsel for the respondents to suggest a lack of uniqueness of the material, there was relative agreement among the witnesses from the trade that the applicants' "Jim Thompson" silks were indeed quite unique, not in the individual elements of a pattern, or a particular colour pathway, but as a combination of material, weave, colour and pattern. The so called "hook and rhomb" design is highly stylised.
The cotton material is a printed fabric. Its fibres are, for cotton, reasonably even in texture. Its basic colour way is the same, taupe, apricot and cream. The pattern is also capable of description of rhomb and hook, although the pattern size is different. The areas of cream and apricot are picked out by a line in the base colour taupe. From a distance this line disappears, but does give some dimension to the pattern. The design is overprinted with a silver line, which gives the cotton material somewhat more of a sheen than it would otherwise have, and from a distance, helps produce the effect of silk. Of course close up, the cotton material is obviously not silk and a mere touch of the material would confirm that.
Considerable time was taken with witnesses knowledgeable in interior decorating expressing their opinions on the differences and similarities of the fabrics and expressing opinions on the likelihood of people in the trade being misled or confused. For example Mr Hardwick, a fashion and textile designer and lecturer in the Faculty of Design at the University of Technology in Sydney, expressed the view that as a professional textile designer he found it difficult to see more than a passing similarity of colour directions. He did not believe that any qualified interior designer or textile designer would mistake the one for the other. He referred to a text book which was said to contain a photo of a similar design, to prove the traditional character of the rhomb and hook design. I should say that the photograph bore some passing resemblance to the design on the fabric, but the two could not be said to be identical.
By way of contrast, Ms Gyngell, an interior designer called by the applicants, said that when she first saw the cotton fabric at a distance it looked like silk, although she conceded that up close, it did not. Hence any confusion that she might have had was momentary. Somewhat telling from the point of view opposed to Mr Hardwick was an incident that occurred during the evidence of Mrs Woods. Mrs Woods was referring to the large pattern of the K409 silk fabric and was asked whether she wanted it to be shown to her. She replied that she did not as she could see it. She then identified the cotton material as being the K409 silk. To be fair to the witness she was at a distance of about six metres from the material and could see only the top of a roll, partly unfolded, that is to say no more than a metre of material. Nevertheless the incident demonstrates what is visible to the eye in any event, that the degree of similarity is so great that the overall effect at a distance of the two fabrics is the same. I would find that the cotton fabric is a substantial reproduction of the silk fabric, deliberately so, and further that the cotton fabric has been printed so that as far as possible it reproduces some of the characteristic lustre of silk to the eye. It does not, of course, do so to the touch. The one fabric is likely, in my view, to be mistaken for the other at a distance, although a close comparison of the two fabrics will show differences in the pattern, colouring and general design of the two materials. Essentially, at the end of the day, the cotton is a cheap quasi imitation of the original silk.
The case as pleaded
The applicants' case was put on three bases. First, it was said that there was an implied term in the contract to purchase the initial 14 metres of material for the mock-up room, entered into between the second applicant and the first respondent which term was pleaded as follows:

"that the First Respondent would not use any of the designs on the fabric supplied to it by the Second Applicant for any purpose other than for the purpose for which it was supplied by the Second Applicant except in accordance with the prior instructions of the Second Applicant."

It was said that the copying of the fabric or the arranging for the K409 silk fabric to be copied was a breach of this implied term, for which the first respondent was liable in damages to the second applicant.

Second, the applicants pleaded a case based upon s.52 of the Trade Practices Act 1974 (Cth) ("the Act"). It was pleaded that the first and second respondents and each of them had:

"acquired, displayed and/or otherwise used the offending fabrics in a manner which amounts to a representation that the offending fabrics are the fabrics of/or (sic) are connected with the fabrics of the Applicants which in fact they are not."

In consequence, it was alleged there was a likelihood that traders and members of the interior decorating industry would be deceived or misled into believing that the cotton fabric was in fact the fabric sold, marketed or distributed by and or with the licence of the applicants. The applicants also relied upon the law of passing off. However, at the hearing it was conceded that in the present circumstances the applicants would not succeed on the passing off count if they were to fail on the claim based upon s.52 of the Act and, equally, if they were to succeed under s.52 there would be no greater relief available to them under the passing off action. Accordingly, it is not necessary to consider the passing off claim in this judgment.
There was also a claim relying on s.53(c) of the Act, (it was not the subject of submissions) that the manner in which the cotton fabric was alternatively supplied, acquired, displayed and or otherwise used amounted to a representation that it had the sponsorship, approval or affiliation by or with the applicants contrary to the fact.
In respect of each alternative claim damages were claimed for the loss of profits that the applicants would otherwise have been entitled to had the respondents purchased the applicants' silk, as well as damages for injury to the reputation of the applicants in the interior decorating industry and the market place.
The claim based upon an implied term
The law as to the circumstances in which a term may be implied into a contract has been authoritatively stated by the High Court in Codelfa Construction Pty Limited v State Rail Authority of New South Wales (1982) 149 CLR 337 at 346-7, and see BP Refinery (Westernport) Pty Limited v Shire of Hastings (1977) 52 ALJR 20 at 26; Hospital Products Ltd v United States Surgical Corporation (1984) 156 CLR 41 at 65-6 per Gibbs C.J., 121 per Deane J and 139 per Dawson J.
In Codelfa, in the passage referred to above, the present Chief Justice said:

"For obvious reasons the courts are slow to imply a term. In many cases, what the parties have actually agreed upon represents the totality of their willingness to agree; each may be prepared to take his chance in relation to an eventuality for which no provision is made. The more detailed and comprehensive the contract the less ground there is for supposing that the parties have failed to address their minds to the question at issue. And then there is the difficulty of identifying with any degree of certainty the term which the parties would have settled upon had they considered the question.

Accordingly, the courts have been at pains to emphasize that it is not enough that it is reasonable to imply a term; it must be necessary to do so to give business efficacy to the contract. So in Heimann v The Commonwealth (1938) 38 SR (NSW) 691 at 695, Jordan C.J., citing Bell v Lever Brothers Ltd (1932) AC 161 at 226, stressed that in order to justify the importation of an implied term it is `not sufficient that it would be reasonable to imply the term ... It must be clearly necessary'. To the same effect are the comments of Bowen L.J. in The Moorcock (1889) 14 PD 64 at 68; Lord Esher MR in Hamlyn and Co v Wood and Co (1891) 2QB 488 at 491-492; Lord Wilberforce in Irwin (1977) AC at 256; Scrutton L.J. in Reigate v Union Manufacturing Co (Ramsbottom) (1918) 1 KB 592 at 605-606.

The basis on which the courts act in implying a term was expressed by MacKinnon L.J. in Shirlaw v Southern Foundries (1926) Ltd (1939) 2 KB 206 at 227, in terms that have been universally accepted: `Prima facie that which in any contract is left to be implied and need not be expressed is something so obvious that it goes without saying...' The conditions necessary to ground the implication of a term were summarized by the majority in B.P. Refinery (Westernport) Pty Ltd v Hastings Shire Council (1977) 52 ALJR 20 at 26: `(1) it must be reasonable and equitable; (2) it must be necessary to give business efficacy to the contract, so that no term will be implied if the contract is effective without it; (3) it must be so obvious that `it goes without saying'; (4) it must be capable of clear expression;

(5) it must not contradict any express term of the contract."

There are obvious difficulties for the applicants in the present case to face before the suggested term can be implied. The first is that the term to be implied as pleaded is so wide that it obviously does not go without saying. It would, on any view of the matter go too far, since it would require the respondents to agree never to use the "designs" on the fabric, notwithstanding that the "designs" in the sense of the pattern of the fabric were traditional designs, albeit stylized. When this was pointed out to counsel for the applicants, he sought leave, which was granted, to reformulate the implied term more narrowly. The reformulation was in the following terms:

"It was implied or, alternatively, an express

term and condition of the said agreement that

the First Respondent would not use any of the

designs by reproducing or substantially

reproducing the colours and pattern appearing on the fabric supplied to it by the Second

Applicant except in accordance with the prior

instructions of the Second Applicant."

However, even this reformulation suffers from difficulties. The contract formed by the order for material and its supply was a simple sale of goods, albeit that the respondents made clear the surrounding circumstances of the order, so far as they related to the use of the material for the mock-up room. The agreement reached was efficacious without the implication of any further term; it was unnecessary to imply any other term to give the agreement business efficacy or, in other words, to make it work. Further, if both parties were to be asked whether the term was self-evident the answers to be given would most likely diverge. The applicants would no doubt have said that it was; the respondents, who had at the time of order the intention to "knock off" the design so that it could be reproduced on a cheaper and more serviceable fabric would no doubt have strenuously disagreed with the insertion of such a term. Indeed the probabilities are that in the ensuing negotiations, no contract for the sale of goods would have been concluded at all.
While as Deane J observed in Hospital Products (supra at 121), a rigid approach should not be adopted to the business efficacy test, particularly in the case of a contract at least partly oral, the present is simply not a case where, if the matter had been raised, both parties would have `testily' replied "of course".
A manufacturer or distributor of high quality fabric, seeking to ensure that his fabric will not be the subject of copying and wishing to rely on a contractual term, should clearly ensure that a term appropriately drafted, is incorporated into the contract of sale itself, rather than seek to rely upon an implied term.
The Trade Practices Claim
Sections 52 and 53 of the Act prescribe what may be called standards of conduct, the observance of which will foster the efficient working of the market place in trade and commerce. It may readily be conceded that the efficient working of the market place in the trade in high quality designer fabrics will not be promoted by permitting conduct constituted by flagrant copying of designs onto cheaper fabric designed to give the overall appearance of the original. However, not all conduct which may denigrate the free operation of a market or which may be described as unethical or worse, falls within the ambit of s.52, or for that matter, s.53(c).
It has been said, in a number of cases including Taco Company of Australia Inc v Taco Bell Pty Ltd (1982) 42 ALR 177 at 202, that for conduct to be misleading or deceptive (or for that matter likely to mislead or deceive) it must convey in all the circumstances of the case a misrepresentation. It has been suggested by French J in State Government Insurance Corporation v Government Insurance Office of New South Wales (1991) 101 ALR 259 at 311 that the need for a misrepresentation is not a universal requirement of s.52. In support of this proposition, his Honour drew upon the illustration of cases where the silence of the respondent has been held to be conduct which contravened the section. His Honour said:

"In my opinion it is not logically a necessary condition for the characterisation of conduct as misleading or deceptive or likely to mislead or deceive that it convey some representation. To so require is to impose a gloss on the words of the statute, although it is fair to say that the applicants' case is based on alleged representations. But it is sufficient for conduct to be misleading or deceptive that it has the tendency to lead members of the public into error: Keehn v Medical Benefits Fund of Australia Ltd (1977) 14 ALR 77."

While the logic of his Honour's comments may be conceded, it is hard to imagine cases under s.52 which will not involve misrepresentation. Indeed, the silence cases are capable of categorisation as involving a misrepresentation because the representations in fact made, without more, become representations constituting a half truth, and thus misrepresentations. Be that as it may, the applicants in the present case conceded that in a case such as the present, the conduct complained of had to amount to a misrepresentation as to the origin of the cotton fabric, before s.52 could be relied upon. Hence it becomes unnecessary to consider whether there may be cases falling within s.52 where no misrepresentation may be involved.
The evidence in the present case clearly establishes a substantial reputation among interior designers in the applicants' silk fabric. There was some evidence which suggested that there could be in Australia in excess of one thousand interior designers and that the applicants' sample book containing swatches of its designs had a distribution in Australia limited to only 263 architectural and interior design firms, but this evidence does not negate the fact that the applicants' fabrics, including the K409 fabric, are well known among those responsible for commercial design. Nor does the fact that the evidence as to actual sales of K409 fabric is somewhat vague militate against the applicants' case. Mrs Hay deposed that she estimated that somewhere between 500m and 2000m had been sold, she was unable to be more precise. The applicants have established a reputation and a class of persons who are capable of being misled if otherwise the cotton fabric use is capable of misleading or deceiving that class.
The applicants did not seek to argue that the public as a whole was an appropriate class to consider and the evidence clearly did not suggest that the K409 fabric was so identified with the applicants in the mind of the general public that mere use of it would be capable of being misleading or deceiving the public at large.
There was no evidence before the court that any person had in fact been deceived or misled. The applicants relied upon the alternative contained in s.52, namely that the respondents conduct was likely to deceive or mislead. Conduct will be likely to mislead or deceive if there is a "real or not remote chance or possibility" of persons being mislead or deceived, regardless or whether it is less or more than 50%: Global Sportsman Pty Ltd v Mirror Newspapers Ltd (1984) 2 FCR 82 at 87. This is an objective question for the court itself. However, as is pointed out by Gibbs C.J. in Parkdale Custom Built Furniture Pty Ltd v Puxu Pty Ltd (1981-2) 149 CLR 191 at 198-9, and see also Bridge Stock Brokers v Bridges (1984) 4 FCR 460 at 473, per Lockhart J, conduct which causes in the mind of the relevant class of persons mere confusion or uncertainty, in the sense that they may be caused to wonder whether two products may have come from the same source will not necessarily be co-extensive with misleading or deceptive conduct.
Finally, it must be said that s.52 is not confined to conduct which is intended to mislead or deceive: Puxu (supra) per Gibbs CJ at 197. Hence a corporation which acts honestly and reasonably may nonetheless engage in conduct contravening the section. However, the presence of the element of intention will not necessarily be irrelevant, certainly to the remedy which may be granted for breach of the section. In the present case, the evidence is overwhelming that the respondents set about to do precisely what they in fact did, that is to produce a fabric on cotton that would give the same impression as the silk fabric of the applicants and would, with minor alterations, be a substantial copy of it. The question, however, is whether the conduct which they in fact engaged in deliberately, constitutes a contravention of s.52.
The problem which the applicants face in the present case is that the class of persons to whom any representation as to the origins of the fabric could be meaningful, is a class of persons so sophisticated that they would, on the evidence know immediately, or at least after a moment's reflection, that the cotton fabric was not the product of the first applicant. First and foremost, they would recognise that the design was printed on cotton and not on silk. At the time the bedspreads were made up, the first applicant did not make and the second applicant did not distribute any Jim Thompson fabric printed on cotton. While it is true that later in point of time Jim Thompson designs did come to be printed on cotton, they were printed on heavy quality cotton and were of very high quality, unlike the cotton fabric used by the respondents.
It is no doubt possible that a client might have requested that a particular design be printed on cotton, and that that request might have been acceded to, but the evidence suggested that the class of interior designers would then have expected a higher quality of fabric than was actually produced. Put simply, the only relevant class that could have been deceived or misled was not likely to be. In the result, it cannot be said that the conduct in which the respondents engaged was in contravention of s.52, however deliberate and unethical it might be.
In the above comments I have not sought to differentiate between the first and second respondents. The representation as to the origin of the fabric was made by the first respondent, and was brought about by displaying that fabric in the made up form of bedspreads. The second respondent did not use the fabric at all, nor did it make any representation about it. Rather it was instrumental in bringing about the reproduction of the Jim Thompson design on cotton and in facilitating the ordering of the fabric by the first respondent. Had the conduct of the first respondent infringed s.52, it would no doubt have been correct to say that the second respondent had procured the commission of that offence, or otherwise was liable as an accessory under s.79 (1) of the Act, and in the result also liable to the applicants for any damage arising out of the contravention. However, that was not the case pleaded in any event against the second respondent.
Having regard to the conclusion which I have reached as to liability, there is little need to consider in detail whether the applicants have proved any damage arising from the alleged contravention. However, I am of the view that they did not.
With some difficulty it is possible to calculate the profit which the second applicants would have derived had the respondents ordered the Jim Thompson silk rather than the cotton fabric. The evidence finally established, and it was accepted by the applicants, that it would have been necessary, having regard to the pattern repeat of the K409 fabric and its different width to that of the cotton fabric, that the respondents order 2479.4 metres of silk. Allowance was made in this figure for 10% additional fabric to be ordered to cover wastage and repairs. I would find that the second applicant would have calculated a sale price commencing with its standard charge of $61 per metre, have given a quantity discount of 12.5% and an additional discount for deposit at 5%, that being calculated after giving the discount for quantity. The second applicant's purchase cost of the fabric would have been $25.15 per metre less a 10% quantity discount on the purchase. Freight handling would have cost $1.08 per metre; forwarding agents costs, cartage, international terminal fee and repacking costs would have added an additional $298 thereby allowing a net profit to be calculated.
The premise upon which this calculation was made was that but for the deceptive conduct the respondents would have ordered the applicants' silk. However, the evidence was that at no time would the respondents have ordered the applicants' silk. First it was too expensive and thus outside the respondents' furnishing budget. Second it was thought to be unserviceable for general use, notwithstanding that the evidence showed that silk fabrics were used for bedspreads in individual rooms in hotels. Unpalatable though the argument is, the inevitable conclusion from the evidence is that the respondents never intended to use the original fabric at all, and thus the applicants cannot show that they had lost the opportunity for profit on the sale of K409 fabric to the respondents, which profit would have been earned but for any breach of s.52 complained of.
The applicants claimed additionally or alternatively that they had suffered loss or damage to their reputation because the Jim Thompson fabric had been cheapened by the inferior reproduction. However witness after witness for the applicants conceded that given that use of Jim Thompson fabrics was appropriate in a particular design circumstance, there would be no hesitation at all in using it. On the balance of probabilities the applicants suffered no damage to their reputation by the acts of the respondents.
Another basis upon which the applicants sought to allege damage was that once a particular fabric had been used for a major project it was suggested that thereafter interior designers choosing fabrics for another major project would steer away from use of K409. Upon this basis the applicant claimed to be able to recover the loss of profit to it of an order of comparable size to that which the respondents would have placed had they placed an order for the applicants' silk. As an abstract proposition this appears to have appeal, however, the evidence did not really support it and indeed was to the contrary.
I reach the conclusion that the applicants must fail in these proceedings. I do so with some regret. The law allows protection to original artistic works through copyright law and for original designs through registration under the Designs Act 1906 (Cth). It does not appear to grant protection to a design not registered, or perhaps capable of being registered under that Act against an unethical trader who copies the design for his own use, unless in so doing the trader infringes s.52 of the Trade Practices Act or otherwise seeks to pass off the fabric as that of another. Whether such protection should be given is no doubt a matter for the legislature. However, it is hardly conducive to the promotion of an honest market in Australia, for one manufacturer to "knock off" the designs of another, particularly when the initial design may have been the product of considerable endeavour and expense. The continued pursuit of such conduct may well lead to Australians being denied access to high quality fabrics from abroad to the detriment of aesthetic standards here.

Another aspect of this case has caused me considerable difficulty. There is no doubt that the hearing of this and its companion case should easily have been completed in one week. The evidence in both should not really have been in dispute. The respondents were concerned to omit in their affidavits any suggestion that the copying was deliberate; to read the affidavits was to come to the conclusion, contrary to the fact that the obvious similarities between the materials arose by pure coincidence. Evidence as to the quantity of the applicants' silk which would have needed to be ordered, and as to the profit which it would have made on a sale, was such that it should have been capable of agreement. Yet the case proceeded as if there could be no agreement on matters between the parties, in circumstances where, at the end of the day, there was really no dispute as to the relevant facts.
What is more, a great deal of the evidence adduced by the applicants was irrelevant and led to the undue prolongation of the hearing. Litigation is already very expensive. The legal representatives of all parties should do their utmost to restrict the issues to those truly relevant and to agree on those matters not really in dispute. It is only if this be done that the costs associated with litigation can be contained within a reasonable compass.
I would dismiss the application and order the applicants to pay the respondents' costs of it.

[1991] FCA 601

02 OCTOBER 1991