Tubemakers of Australia Ltd v Welded Tube Mills of Australia Pty Ltd

Case •

[1999] FCA 216

•

12 MARCH 1999

FEDERAL COURT OF AUSTRALIA

Tubemakers of Australia Ltd v Welded Tube Mills of Australia Pty Ltd [1999] FCA 216

TUBEMAKERS OF AUSTRALIA LTD T/AS BHP STRUCTURAL AND PIPELINE PRODUCTS v WELDED TUBE MILLS OF AUSTRALIA PTY LTD

N 99 of 1999

HELY J
12 MARCH 1999
SYDNEY


IN THE FEDERAL COURT OF AUSTRALIA

NEW SOUTH WALES DISTRICT REGISTRY

N 99 OF 1999

BETWEEN:

TUBEMAKERS OF AUSTRALIA LTD
ACN 007 519 646
T/AS BHP STRUCTURAL AND PIPELINE PRODUCTS
Applicant

AND:

WELDED TUBE MILLS OF AUSTRALIA PTY LTD
ACN 010 853 817
Respondent

JUDGE:

HELY J

DATE OF ORDER:

12 MARCH 1999

WHERE MADE:

SYDNEY

THE COURT ORDERS THAT:

1.The parties prepare and submit Short Minutes of Order in accordance with these reasons for judgment.

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


IN THE FEDERAL COURT OF AUSTRALIA

NEW SOUTH WALES DISTRICT REGISTRY

N 99 OF 1999

BETWEEN:

TUBEMAKERS OF AUSTRALIA LTD
ACN 007 519 646
T/AS BHP STRUCTURAL AND PIPELINE PRODUCTS
Applicant

AND:

WELDED TUBE MILLS OF AUSTRALIA PTY LTD
ACN 010 853 817
Respondent

JUDGE:

HELY J

DATE:

12 MARCH 1999

PLACE:

SYDNEY

REASONS FOR JUDGMENT

  1. The parties are in competition in relation to the manufacture and supply of zinc coated steel tube products.  For many years the applicant manufactured hot-dipped galvanised steel products using the traditional batch dipping process.  This process involves immersion of the steel in a molten zinc bath for varying periods, but usually, for at least several minutes.  Typically this produces a zinc coating mass of up to 300g/m2 on each surface.

  2. The respondent began manufacturing galvanised welded steel products in 1990.  Its product was called “ALLGAL”.  It was produced by the same process as the applicant’s product “Galvabond”.  The manufacture of each product involved the use of steel strip which has been hot-dipped galvanised with a thin zinc coating before further processing.  Galvabond has internally and externally galvanised surfaces with a typical zinc coating mass of 100g/m2 on each surface.  ALLGAL had a typical zinc coating mass of 137g/m2 on each surface.

  3. In the late 1970’s, the applicant began to produce thin galvanised steel tube by a continuous in-line process.  In 1990 the applicant introduced the “Duragal” range of welded steel products.  These products represented a development of the in-line galvanising process.  A continuous length of steel tube is passed through a container of molten zinc at high speed.  The tube is in contact with the zinc for a matter of seconds only.  Typically, this results in a thin zinc coating of the external surface only of 100g/m2.

  4. Between 1994 and 1996 the respondent spent about $1 million on research and development.  That resulted in the development of a new process for the production of zinc coated steel coil by electroplating the steel coil with zinc.  Patent protection has been sought for this process.

  5. In 1996 the respondent launched a new product, “ALLGAL 15+”, manufactured by the electroplating process.  Initially, the respondent did not disclose in its promotional materials that ALLGAL 15+ was electroplated, rather than hot-dipped.  The respondent promoted the product simply as “galvanised”, rather than as “hot dipped galvanised” – as it had promoted the ALLGAL product.  ALLGAL 15+ is priced to compete with Duragal.  The zinc coating mass of ALLGAL 15+ is typically 100g/m2 each side.

  6. Since 1996, the respondent has produced in excess of 19,000 tonnes of ALLGAL 15+ and sold it to almost every major steel distributor, without complaint as to the description of the product as being galvanised, or as to its performance.

  7. AS 1650 is an Australian Standard published by Standards Australia, with respect to “Hot-dipped galvanised coatings on ferrous articles”.  It is probably fair to say that the Standard proceeds upon the basis that the expression “galvanised” is a description of a coating obtained by dipping prepared ferrous articles in molten zinc, either by the batch, or continuous in-line process.

  8. “Duragal” does not comply with the standard, because it does not satisfy the minimum coating mass for which the standard provides.  ALLGAL 15+ does not satisfy the standard because the zinc is deposited on the steel by a process of electroplating, rather than hot-dipping.

  9. On 30 September 1998 the respondent wrote to the Standards Committee in relation to a new standard intended to replace AS 1650.  The respondent contended that it and its customers would be disadvantaged if the Standard proceeded without recognition of products made from electroplated strip.  Representations were made that references to “galvanising” in the Standard should be replaced by references to “zinc coating”.  This suggests, so the applicant submits, an appreciation on the part of the respondent that the term “galvanising” is not an appropriate description of the application of zinc by the electroplating method.

  10. This letter came to the applicant’s attention.  It was the first time that the applicants learnt that ALLGAL products were made from electroplated strip.

  11. On 25 November 1998 the respondent announced that from December 1998 it would commence the release of an expanded range of ALLGAL pipe and tube products.  They were described as “galvanised products”.  The announcement stated:

    “The ALLGAL family of products is produced from strip electrogalvanised on both sides ...”

  12. In December 1998 advertisements were published in Engineering Australia, and Manufacturers Monthly.  The advertisements described the respondent’s product as “galvanised”, without reference to the fact that the zinc coating was produced by a process of electroplating.

  13. On 24 November 1998 the applicant’s solicitors sent a letter of complaint, both in relation to the use of the term “galvanised”, and other matters appearing in the advertisement.  Corrective advertising was placed in the next issue of those magazines, but not in relation to the method of manufacture.  The corrective advertisement referred to ALLGAL products as having a “special galvanised coating system” and did not disclose that they were manufactured by a process of electroplating.

  14. On 12 January 1999 the respondent produced a document styled “ALLGAL(R) Technical Note Series”.  That disclosed that there are two major methods of applying a zinc coating to steel – hot-dipping and electroplating (also called electrogalvanising or electro-deposition).  It also disclosed that ALLGAL is an electroplated product, and described the steps associated with the galvanising of steel by either method.

  15. At the same time the respondent prepared a circular which stated that ALLGAL consists of a high quality “electronically applied” galvanised coating.

  16. These proceedings were instituted by an application filed on 10 February 1999.  Although the Court indicated a preparedness to hear the matter on a final basis, the parties (understandably) were not able to get ready in time for that to occur.  Accordingly, the hearing proceeded on an interlocutory basis.

  17. The interlocutory relief which the applicant seeks is:

    “10.     An injunction until further Order to restrain the Respondent whether by itself, its Directors, officers, servants or agents or otherwise from making representations in public (including but not limited to advertisements, circulars, letters or other means of communication) that:

    (a)the Respondent’s range of products is galvanised;

    ...

    (g)the Respondent’s range of products is manufactured using electrogalvanising technology;

    (h)the Respondent’s Allgal and Allgal 15+ products have a zinc coating mass the thickness of which on any surface is respectively 100 grams per square metre and 200 grams per square metre.”

    Claims (g) and (h) were not included in the original application, nor referred to in the correspondence prior to action.  They were introduced into the proceedings by an amended application filed on 5 March 1999.

    Is “Galvanise” misleading?

  18. Whether the respondent’s use of the word “galvanise” and its derivatives is misleading depends upon what the expression conveys to the class of persons at whom, or to whom, the respondent’s promotional material is directed: Siddons Pty Ltd v The Stanley Works Pty Ltd (1991) 29 FCR 14 at 17. It was common ground that the class comprises engineers, architects, builders and fabricators of steel products.

  19. The applicant contends that “galvanise” refers to the process by which steel articles are protected against corrosion by being immersed in a bath of molten zinc, which causes an alloy layer to form and zinc to be deposited outside it.  An article is “galvanised” if it has been subjected to this process.  It has not been “galvanised” if zinc has been deposited on the steel by some other process, such as electroplating.

  20. The terms “galvanise” and “galvanised” refer both to the process, and to certain qualities of the finished article.  The alloy layer comprises a substantial part of the coating of a galvanised article, and has properties which make it superior.  No such layer is present when zinc coating is applied by other means, such as electroplating.

  21. The applicant relies on affidavits from apparently suitably qualified people.  Those affidavits, if accepted, establish that:

    ·    As a matter of industry practice in Australia “galvanised” means only hot-dipping in molten zinc, whether by the batch or the continuous process.  All other processes (including electroplating) would not be regarded as galvanising.  Electroplating products are not regarded by the industry as galvanised products.

    ·    Unlike other methods of applying zinc, the hot-dip process creates an alloy layer which provides hardness and durability to the coating.  A galvanised coating has superior qualities compared to those of electroplated zinc.

  22. The respondent relies on affidavits from apparently suitably qualified people.  Those affidavits, if accepted, establish that:

    ·    In technical and popular dictionaries and in textbooks in use around the world, “galvanising” is a term which simply describes a process by which iron or steel is coated with zinc, or, alternatively in terms which are consistent with the application of zinc by a process which includes electroplating.

    ·    Whilst the traditional batch dipping process produced an alloy layer, that is not a product of the continuous in-line process, and in any event it is not a feature which is relevant to the corrosion resistant properties of the products concerned.  The alloy layers have some characteristics which may make them undesirable in continuous in-line products.

    ·    Testing of the ALLGAL 15+ product in December 1998 showed that it possessed performance characteristics equal to or better than the applicant’s product.

    ·    The hot-dip galvanising process has been referred to simply as “galvanising” in Australia because other galvanising processes have not existed here for long enough to become well-known.

  23. Whilst this is necessarily a brief summary of the evidence so far filed, (and, in any event, I am informed by counsel that the evidence is incomplete), it is sufficient to establish that there is a serious issue to be tried as to whether the use in isolation of the term “galvanise” or its derivatives in relation to products where the zinc coating is produced by a process of electroplating involves a contravention of s 52 and/or s 55 of the Trade Practices Act 1974 (“TPA”). It is also sufficient to indicate that the respondent may have substantial grounds for defence. The resolution of the competing positions requires a trial.

    Is “Electrogalvanising” misleading?

  24. The respondent’s products were described as “Electrogalvanised” in the circular of 25 November 1998, a copy of which is annexed to Mr Downing’s affidavit of 8 February 1989.  As earlier indicated, the first complaint expressly levied in relation to the use of this term was in the amended application.

  25. The applicant contends that the term implies the use of a galvanising process - ie hot-dipping.

  26. The applicant’s evidence, in relation to “electrogalvanising”, does not extend beyond the proposition that the term is not commonly used in Australian industry.  Because the term does not have any established meaning in Australia it is submitted that there is a serious question as to whether a product made by that method is made by a version of the galvanising process.

  27. The respondent’s evidence is that the term “electrogalvanisation” is not widely used in Australia.  However, the term has been fairly widely used overseas.  The following appears in a 1941 publication:

    “Electrogalvanising:

    Electrogalvanising is the name applied to the process of covering any metal with a coating of zinc by means of an electric current.  It is sometimes termed ‘cold’ or ‘wet’ galvanising to distinguish it from the more common method of hot galvanising.”

    At least in the view of one expert, “electrogalvanising” is a more accurate description of the respondent’s process and products than “electroplating”.

  28. It has to be borne in mind that the target audience consists of engineers, architects, builders and fabricators of steel products.  In the absence of evidence (and there is none) I would not be prepared to infer that to such an audience “electrogalvanising” would signify the use of a hot-dipping process.  I would have thought that the probabilities are that “electrogalvanising” would signify that some different process had been employed.

  29. It may be that “electrogalvanising” might convey to the target audience that the same properties as are possessed by a galvanised product are to be found in products produced by the electrogalvanising method of manufacture.  Again, there is no direct evidence to this effect; and absent evidence I would not be prepared to infer that this is so, particularly having regard to the different properties possessed by products which are galvanised by the batch hot-dipped method, and those produced by the continuous in-line process.

  30. I am reinforced in that conclusion by the fact that it was not until the amended application that complaint was made of a breach of s 52 of TPA by use of the term “electrogalvanising”. Delay of itself is unimportant, but if there was a perception in the applicant’s camp that use of this term was likely to mislead, one would have expected that a complaint would have been articulated earlier.

  31. I am not satisfied that the applicant has made out a sufficiently arguable case to justify an interlocutory restraint on the respondent against describing its range of products as manufactured using electrogalvanising technology.

    The zinc coating mass

  32. A brochure published by the respondent in relation to ALLGAL 15+ described it as “galvanised inside and out”.  Under the heading “Surface Finish” it was said that the Average Coating Thickness is 200gms/m2 (equivalent to 15 micron coating each side).

  33. A circular issued by the respondent on 12 January 1999 included the following:

    “ALLGAL(R) has a total zinc coating weight of 100g/m2 ... ALLGAL 15+ (R) has a total zinc coating weight of 200g/m2 ... Both are galvanised inside and out.”

    The respondent manufactures ALLGAL with a zinc coating mass on the exterior surface of 50g/m2, and, in the case of ALLGAL 15+, 100g/m2 on the exterior surface.  The quoted figures measure coating thickness by reference to coverage on two surfaces.  Duragal is coated on the exterior side only with an average coating thickness of 100g/m2.

  34. The applicant’s evidence includes the following observation by an apparently suitably qualified expert:

    “The g/m2 designation has a long history of usage to designate the single side coating mass of hot-dip galvanised tubular steel products.  The use of the term to connote the total or combined coating thickness on non-galvanised products and on non-sheet products is in my view likely to be misleading to a substantial number of potential users as specifiers of the products.”

  35. The thrust of the applicant’s evidence is that except in respect of galvanised sheet,   “g/m2”, when used in relation to coating thickness of galvanised products, signifies the mass of zinc per unit of surface area.  For some unexplained reason, in respect of galvanised steel sheet, the practice is to refer to coating mass in terms of a combination of both sides, expressed in g/m2.

  36. It would be misleading and deceptive for the respondent to convey that the coating thickness of its product is 200gms/m2, in the case of ALLGAL 15+, or 100 gms/m2, in the case of ALLGAL, on the exterior surface.  The issue is whether there is a serious question to be tried as to whether the literature to which I have referred conveys this impression, against the backdrop of the industry usage which, for the purposes of this application, I have to accept.

  37. Exhibit 1 is a brochure produced by the applicant with respect to Galvabond.  It includes the statement:

    “The Coating Class used is 2275 which gives a coating mass of 295 grams per square metre, as the total amount for both sides.”

  38. The evidence referred to in para 34 above, if accepted at the trial, would tend to indicate that it might be misleading or deceptive to describe the respondent’s product by its total coating mass unless it is clear from the context that what is being described is the coating which has been applied to both sides.

  39. Whilst it is clear in the case of the respondent’s product that coating has been applied to both sides, there is a case that purchasers of steel tubular products would recognise g/m2 as a measure of zinc mass on a single surface, and that the context in which the statements complained of were made would not be sufficient to dispel that impression.

  40. Accordingly, I am satisfied that there is a serious question to be tried on this issue.

    Balance of convenience

  41. The interlocutory relief sought does not restrain the respondent from carrying on its business, or selling its products by their trade names.  But the respondent has spent time, effort and money in developing its electroplating process, and the products derived from it.  There is evidence that the ALLGAL range of products are important to the respondent’s business.  It would be difficult to assess the harm that may be suffered by the respondent if it was denied the right to call its products “galvanised” pending the trial, in the event that the applicant was ultimately found not to be entitled to that relief.

  42. On the other hand, it is submitted that the balance of convenience favours maintaining the status quo as to the signification or meaning of “galvanised” within the industry, and that the respondent has derived an advantage by securing a seamless change to a new method of manufacture by use of an inappropriate description of the process by which its products are manufactured, with a resultant misrepresentation of the qualities of the finished article.

  43. There are problems in determining to what extent the description of the process – galvanising – conveys a representation as to the properties of the product produced by the application of the process, because “galvanising” describes both the traditional batch method of hot-dipping, and the continuous in-line process, yet the products of each may have different properties.

  44. The applicant does not seek an injunction in aid of a proprietary right, hence the focus is on whether the relevant section of the public is likely to be misled, and where the “balance of the risk of doing an injustice” lies.

  45. In a case such as the present, that is a difficult balance to strike.  However, in my view that balance is best secured by restraining the respondent from describing its products as “galvanised” in promotional material  unless that description is accompanied by a disclosure that the product has been coated with zinc by an electroplating process.

  46. As earlier indicated, I do not think that the applicant has made out a case which would justify an interlocutory restraint on the use of the term “electrogalvanising”.  That is to say, a comparison of the strength of its case compared to the risk of doing an injustice to the respondent, does not warrant the grant of interlocutory relief to restrain use of a term which conveys that zinc has been applied to the substrate by the use of electricity.

  1. There are no particular balance of convenience factors which require attention so far as the “thickness issue” is concerned.  Having regard to my conclusion that there is a serious question to be tried on this issue, an interlocutory injunction should be granted.

  2. I propose to stand the matter over so that the parties can bring in short minutes of order to give effect to my conclusions.

I certify that the preceding forty-eight (48) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Hely.

Associate:

Dated:             12 March 1999

Counsel for the Applicant: P M Jacobson QC and A I Tonking
Solicitor for the Applicant: Michell Sillar
Counsel for the Respondent: J V Nicholas
Solicitor for the Respondent: Phillips Fox
Date of Hearing: 8, 9 March 1999
Date of Judgment: 12 March 1999
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