Windsurfing International Incorporated v Sailboards Australia Pty Ltd
[1986] FCA 534
•11 NOVEMBER 1986
Re: WINDSURFING INTERNATIONAL INC.
And: SAILBOARDS AUSTRALIA PTY LIMITED and ROGER DULHUNTY
No. NSW G248 of 1985
Contempt
COURT
IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY
GENERAL DIVISION
Burchett J.
CATCHWORDS
Contempt - breach of undertakings to the Court - Copy of undertakings not served but knowledge proved - Whether in the case of a positive undertaking as distinct from a negative service is essential - Whether Rules with respect to injunctions apply to undertakings - Discretion of Court - Whether undertakings in form positive were in substance negative - Onus of proof - Whether breaches were merely "casual, accidental or unintentional" - Meaning of "to be distributed to the public" - Whether clients of a particular insurance company are a section of the public vis-a-vis a quite separate commercial enterprise - Considerations relevant to fine for contempt and order for costs as between solicitor and client - Knowing participation in breach.
Federal Court Rules Order 37 Rule 2, Order 40 Rule 13 (now repealed)
Sunibrite Products (Aust) Pty Ltd v. Jabuna Pty Ltd (1980) 47 FLR 73
Biba Ltd v. Stratford Investments Ltd (1973) 1 Ch 281
Williams v. Fawcett (1986) QB 604
D. v. A. & Co. (1900) 1 Ch 484
Ronson Products Ltd v. Ronson Furniture Ltd (1966) 1 Ch 603
Trade Practices Commission v. C.G. Smith Pty Ltd (1978) 30 FLR 368
Australasian Meat Industry Employees' Union v. Mudginberri Station Pty Ltd (1986) 60 ALJR 608
In Re Mileage Conference Group of the Tyre Manufacturers' Conference Ltd's Agreement (1966) 1 WLR 1137
Rejfek v. McElroy (1965) 112 CLR 517
Jendell Australia Pty Ltd v. Kesby (1983) 1 NSWLR 127
Flamingo Park Pty Ltd v. Dolly Dolly Creations Pty Ltd (1985) 59 ALR 247
Re Garage Equipment Associations' Agreement (1964) LR 4RP 491
Re Galvanized Tank Manufacturers' Association's Agreement (1965) 2 All ER 1003
Borrie & Lowe, Law of Contempt 2nd ed p 408
Ernest Turner Electrical Instruments Limited v. Performing Right Society, Limited (1943) 1 Ch 167
Australasian Performing Right Association Ltd v. Tolbush Pty Ltd (1985) 62 ALR 521
Corporate Affairs Commission (South Australia) v. Australian Central Credit Union (1985) 59 ALJR 785
Stancomb v. Trowbridge Urban District Council (1910) 2 Ch 190
Z Ltd. v. A-Z and AA-LL (1982) 1 QB 558
HEARING
SYDNEY
#DATE 11:11:1986
JUDGE1
This is a motion to deal with the respondents for contempt. The Statement of Charge is as follows:
"1. On 1 October, 1985 the first Respondent undertook to the Court:
(a) At the joint expense of the first Respondent and the Applicant to affix or cause to be affixed to the front cover of each catalogue of the first Respondent (being Exhibit GK12 to the Affidavit of Gregory Charles Kelly sworn herein on 5th September 1985) hereafter to be distributed to the public or retail agents of the first Respondent otherwise than in envelopes, the following notation by way of adhesive sticker:
'The following trade mark appearing herein is the property of Windsurfing International Inc. The 1985 Windsurfer One Design is marketed by Barlow Sailboards Pty. Limited under licence.' (The trade mark is shown as a stylized representation of a board with a triangular sail over the word in block letters 'Windsurfer'.)
(b) To print or cause to be printed on all envelopes containing catalogues of the kind and edition referred to in paragraph (a) above to be hereafter distributed to the public or retail agents of the First Respondent, the notation set out in
(a) above in black on the front face thereof in the same size as the notation referred to in (a) above and with 'herein' altered to read 'in the catalogue inside'.
(c) The first Respondent shall, prior to the sale of its existing stocks of 'freestyle', 'fun' and 'one-design' products place thereon the following legend:
'Sailboards Australia Pty. Limited, an independent Australian owned Company, has proudly manufactured this product and is not associated in any way with Windsurfing International Inc., an American Company'.
(d) In respect of the Applicant's registered trade marks Nos. B282815 and B282816, the first Respondent will not use the said trade marks at any time in the future or procure or assist any other person or corporation so to do, except as compelled by operation of law.
2. On 1 October 1985 the first and second Respondents and each of them undertook to the Court not to use in any way the words
(sic) 'Windsurfer' or the word 'Windsurfing' as a distinctive trade or brand name or to procure or assist any other person or corporation so to do otherwise than under compulsion of law.
3. Since 1 October 1985 the first Respondent, in breach of undertaking 1(a) set out above, has distributed to the public and/or to retail agents of the first Respondent otherwise than in envelopes 'Windsurfing 86' catalogues (being identical to Exhibit GK-12 to the Affidavit of Gregory Charles Kelly sworn 5 September 1985) bound with the first Respondent's Sales Training Manual (c) Copyright 1985 without any notation by way of adhesive sticker.
4. Since 1 October 1985, the first Respondent in breach of undertaking 1(b) set out above, has distributed to the public envelopes containing 'Windsurfing 86' catalogues (being identical to Exhibit GK-12 to the Affidavit of Gregory Charles Kelly sworn 5 September 1985) without the notation referred to in undertaking 1(b) set out above.
5. Since 1 October 1985 the first Respondent in breach of undertaking 1(c) above has sold stocks of 'freestyle', 'fun' and/or of 'one-design' products being existing stocks at 1 October 1985 without any legend.
6. Since 1 October 1985 the first Respondent in breach of undertaking 1(d) above has used the Applicant's registered Trade Mark No. B282816 in relation to goods, inter alia, in advertising appearing in the first Respondent's 'Windsurfing 86' catalogue, and in the publication 'Windsurfing in Australia - One with the Wind'.
7. The second Respondent as Managing Director and Chief Executive of the first Respondent has procured the first Respondent to contravene the undertakings referred to above.
8. Since 1 October 1985 the first and second Respondents and each of them, in contravention of the undertaking set out in paragraph 2 above, have used the word 'Windsurfer' as a distinctive trade or brand name and the second Respondent has procured and assisted the first Respondent so to do,
(a) in the first Respondent's catalogue 'Windsurfing 86' and/or
(b) in the first Respondent's Sales Training Manual, 1985; and/or
(c) in the first Respondent's Owner's Manual 'fun', 'freestyle' and 'one-design'; and/or
(d) in the first Respondent's publication 'Windsurfing in Australia - One with the Wind'."
The undertakings referred to in the Statement of Charge were undertakings to the Court given by senior counsel for the respondents on 1 October 1985 in proceedings between the same parties. Those undertakings to the Court were embodied in a document entitled "Short Minutes of Order", the principal order being that the application and a cross-claim be dismissed and each party pay its and his own costs. Apparently as a result of a too hasty transcription from the short minutes, the formal order, which was entered on 28 October 1985, commenced:
"THE COURT ORDERS THAT:
1. The first respondent undertakes to the Court as follows:
.... ".
There followed (inter alia) the undertakings referred to in the Statement of Charge.
The action thus disposed of had its origin in a license agreement, later terminated, between the applicant and the first respondent. The applicant manufactures sailboards in the United States, and has appointed licensees in various parts of the world. The first respondent, of which the second respondent is Managing Director, since the termination of its contractual arrangements with the applicant, has continued to manufacture sailboards on its own account. It has a large share of the Australian market, and is in competition with the applicant's current licensee.
On the occasion when the undertakings were given to the Court and the orders were made, the second respondent, who had recently returned from overseas, was not in Court. The undertakings were served on each of the respondents on 29 October 1985, but had not been served on either of the respondents at the time of most of the occurrences the subject of the Statement of Charge, which is dated 8 November 1985. However it is to be noted that, since the repeal of Order 40 Rule 13 in 1982, there has no longer been a rule in terms requiring a party, who commences a proceeding for the failure of a person to observe an undertaking to the Court, to serve on the accused person a document containing the terms of the undertaking, or a statement of his liability to be punished for contempt of court. (For the terms of the repealed rule see Sunibrite Products (Aust.) Pty Ltd v. Jabuna Pty Ltd (1980) 47 FLR 73 at 75-6.) It is conceded that Order 37 Rule 2 is not applicable, as it does not refer to undertakings but to orders. In any case, Order 37 Rule 2 places an embargo only upon enforcement by committal or sequestration; it does not affect the power of the Court to impose a fine for contempt in an appropriate case.
In the present matter, I have not found it necessary to consider whether Order 37 Rule 2 would apply to enforcement of an undertaking to the Court by committal or by sequestration of property. There is no doubt that an undertaking to the Court is enforceable as involving an obligation just like that imposed by an order of the Court. In Biba Ltd v. Stratford Investments Ltd (1973) 1 Ch 281 at 286 Brightman J. cited an earlier statement of Warrington J.:
"The practice of the Court of Chancery was not to treat an undertaking as distinct from an injunction with regard to a breach, and for the purpose of enforcing an undertaking that undertaking is equivalent to an order - that is to say, an undertaking, if broken, would involve the same consequences on the persons breaking that undertaking as would their disobedience to an order for an injunction."
Both Judges drew the conclusion that a rule directed to the enforcement of an order of the Court could be availed of in proceedings to enforce an undertaking to the Court. In the recent case Williams v. Fawcett (1986) QB 604 at 607 Sir John Donaldson M.R. applied, to a committal order for breach of an undertaking to the Court, rules concerned with committals for breaches of injunctions. The Biba Ltd Case having been cited, he said at 607:
"Although in this case the complaint was of a breach of an undertaking, an undertaking is of course always treated as being the equivalent of an injunction in the like terms."
However, any attempt to apply these authorities in the context of proceedings for contempt in the Federal Court of Australia would involve the difficulty that Order 37 Rule 2 was adopted as part of a coherent set of rules which included the then Order 40 Rule 13, covering the very question of punishment for contempt consisting of failure to observe an undertaking to the Court, and referring (inter alia) to imprisonment and sequestration as possible punishments. The repeal of that rule did not in my opinion enlarge Order 37 Rule 2.
But in the present matter, a different argument is presented on behalf of the respondents. It is submitted that the undertakings referred to in paragraphs 1(a), 1(b) and 1(c) of the Statement of Charge are positive undertakings, not negative undertakings, and that, in the absence of service of the undertaking, the Court has no jurisdiction to find contempt in relation to a positive undertaking. I do not think this proposition is correct, but in any case I do not think the undertakings in question are properly categorised as positive. There is no obligation imposed by the undertakings to distribute a single catalogue, or to sell any part of the existing stock; it is only in relation to any distribution or sale which may occur that an obligation is accepted. It seems to me that such an obligation, though cast in a positive form, is in substance negative - it denies the right to distribute or sell unless the requirement be fulfilled. The drafting of the undertakings is a curious reversal of the well-known practice in the last century of drafting positive obligations in a negative form, because of the now exploded doctrine that there was no jurisdiction to grant a mandatory injunction.
As regards the respondents' general proposition, the judgment of Cozens-Hardy J. (as he then was) in D. v. A. & Co. (1900) 1 Ch 484 is directly to the contrary. There, the same point was taken on behalf of a solicitor who was in breach of an undertaking incorporated in an order which had not been served on him. It was said, at p.485, that the undertaking was "of an affirmative character", it being to "deposit... upon oath (certain) papers". Cozens-Hardy J. dismissed this objection at pp.486-7:
"I think it is not well founded. It is settled law that an order granting an injunction may be enforced by committal, although the order has not been served. It is sufficient if it be shewn that the defendant had notice of the order. Service of the order is a convenient mode of giving notice, but that is all.... If this holds good where a hostile order has been made, it must equally hold good where the defendant has voluntarily given an undertaking. Indeed in such a case I think no notice at all is requisite, for, in the words of Chitty J. in Callow v. Young 55 LT 544, 'it is not necessary to shew that the person sought to be attached had knowledge of his undertaking. He must be presumed to have known that he had given his undertaking.' Having regard to the settled practice of giving an undertaking in the terms of a notice of motion, it would be highly dangerous to hold that a defendant who had given an undertaking could disregard it unless and until the order was served."
It is true that this decision was cited in Ronson Products Ltd v. Ronson Furniture Ltd (1966) 1 Ch 603 at 616 as authority for the proposition that "an undertaking not to do an act need not be personally served upon him who gave the undertaking, for he must be aware of its contents", but that was a case in which the undertaking was in fact clearly negative. I have difficulty in understanding how it can be thought that a person who has given an undertaking must be aware of its negative terms, but not of its positive terms.
In Trade Practices Commission v. C.G. Smith Pty Ltd (1978) 30 FLR 368 Bowen C.J. dealt with a motion which sought only an order for imprisonment as the remedy for a breach of undertakings. The undertakings were clearly positive in form, requiring the refunding of money to certain persons (though in the event it was held that the requirement was ambiguously expressed), and the undertakings were not served prior to the motion for committal. At p.375 Bowen C.J. said:
"It is, in my opinion, a wise practice that when it is proposed to apply to commit a person to prison for breach of an order of the court or of an undertaking given to the court, the order or undertaking in question should first be personally served upon that person preferably with some form of notice calling his attention to the consequences which may flow from disobedience. ...
It has been said that an undertaking is to be treated as equivalent to a court order, and the rules should also be considered applicable to undertakings... . While this indicates what is the advisable course, if it is to be the invariable practice it seems the rules should be amended to say so. In the case of an injunction where there is no doubt the person concerned has notice of it, the court may commit for contempt in respect of a breach notwithstanding the order has not been personally served, at all events where it is of a negative character..."
His Honour then said:
"In the present case, where the undertakings referring back to the letter ordered to be sent out were of some complexity, it would, in my view, have been advisable that they should be served upon each of the respondents. Particularly is this so in the case of Mr. Fairweather, who was absent from the court when the undertaking was given on his behalf. I consider the fact that it was not served, while not an absolute bar to the making of an order on the present motion, is a factor to be taken into account in deciding what should be done."
Bowen C.J. at pp.378-9 considered questions bearing on the appropriateness of an order against Mr. Fairweather for contempt in the circumstances of that case and declined to make such an order.
A case raising this problem was again dealt with by Bowen C.J. in Sunibrite Products (Aust.) Pty Ltd v. Jabuna Pty Ltd (supra), which involved an undertaking quite similar to the undertakings referred to in paragraphs 1(a) and 1(b) of the Statement of Charge in the present matter. The now repealed Order 40 Rule 13 was referred to, and the Court's jurisdiction was disputed on the basis that the breaches of undertaking had occurred prior to service of a document containing the terms of the undertaking together with the notice required by the rule. It was further argued that, as a matter of discretion, the Court would not punish for a contempt in that situation. Bowen C.J. at pp.76-7 said:
"In my opinion, O.40, r.13(3) does not go to jurisdiction. That this is so I conclude from its wording and from the fact that the court has power to dispense with compliance with its rules (O.1, r.8). However, I agree with the submission that the question of compliance with O.40, r.13(3) and the question whether any alleged breach relied upon occurred before or after service of the documents required by O.40, r.13(3) goes to discretion. The reason behind the rule is plain enough. Where the undertaking has not been given personally, particularly where it requires positive acts of compliance, it is most desirable that there should have been brought to the attention of the person sought to be punished for contempt, the precise terms of the undertaking and notice of the consequences of noncompliance (Ronson Products Ltd. v. Ronson Furniture Ltd. (1966) Ch 603; Trade Practices Commission v. C.G. Smith Pty. Ltd. (1978) 30 FLR 368). Where this has not been done the court, depending on the circumstances of the particular case, will be reluctant to exercise its power to punish for contempt."
Contempt was found proved.
If a proceeding for contempt, in the case of a breach, before service had been effected, of an undertaking to the Court in terms similar to the undertakings with which I am presently concerned, was within jurisdiction and could succeed in the Sunibrite Case, at a time when Order 40 Rule 13 had not been repealed, it seems to me the respondents' submission must be rejected in the present case. But the failure of the applicant to serve the order setting out the undertakings is a factor which I shall take into account in reaching my decision.
There are several other submissions, made by counsel for the respondents, with which it is convenient to deal before proceeding to examine the circumstances of the alleged breaches. It was submitted that the Federal Court of Australia lacks power to fine for civil contempt in the circumstances of this case, which were argued to amount, at most, to "casual, accidental or unintentional" breaches. After the conclusion of argument, the High Court delivered judgment in Australasian Meat Industry Employees' Union v. Mudginberri Station Pty Ltd (1986) 60 ALJR 608. The joint majority judgment in that case (at p 613) confirms the power of this Court to impose a fine for disobedience to an order, or non-observance of an undertaking, which is "wilful". The Court accepted the view that "it is no answer to proceedings for contempt 'to say that the act was not contumacious in the sense that, in doing it, there was no direct intention to disobey the order'." The joint majority judgment continued:
"Thus, it would suffice that the relevant act or omission was wilful even if, in a case where the breach was constituted by an act or failure to act by a servant or agent, the act or omission of the servant or agent was 'through carelessness, neglect, or even in dereliction of his duty' (per Warrington J. in Stancomb at 194 (Stancomb v. Trowbridge Urban District Council (1910) 2 Ch 190 at 194)). In Mileage Conference itself (In Re Mileage Conference Group of the Tyre Manufacturers' Conference Ltd's Agreement
(1966) 1 W.L.R. 1137), substantial fines were imposed on companies for contempt by breach of undertaking which was not merely non-contumacious but was committed reasonably on legal advice. ... (A) deliberate commission or omission which is in breach of an injunctive order or an undertaking will constitute such wilful disobedience unless it be casual, accidental or unintentional."
The joint judgment also referred (at p.613) to "the very substantial purpose of disciplining the defendant and vindicating the authority of the court." I shall examine the circumstances in the light of these principles.
It was submitted for the respondents that, though the contempt alleged is civil and not criminal, the standard of proof cannot be described as merely upon the balance of probabilities. It must have regard to the consequences. I understand the submission to be that the proof "should be clear and cogent such as to induce, on a balance of probabilities, an actual persuasion of the mind as to the existence" of facts of the gravity which is involved in a finding of wilful contempt (see Rejfek v. McElroy (1965) 112 CLR 517 at 521). Understood in this sense, the submission is in accordance with the Sunibrite Products Case (supra), Jendell Australia Pty Ltd v. Kesby (1983) 1 NSWLR 127, and Flamingo Park Pty Ltd v. Dolly Dolly Creations Pty Ltd (1985) 59 ALR 247 at 262, and I agree with it. I shall make my findings in this case having regard to the principle as expounded in those decisions.
Questions much disputed were the extent of the respondents' awareness of the undertakings, and when they became aware of those undertakings. As I have said, the second respondent was not in Court when the undertakings were given, and it was not proved that any other officer of the first respondent was then in Court. However, it was conceded by the second respondent in cross-examination that he, the Managing Director of the first respondent, was consulted by telephone by his and the company's legal advisers before the undertakings were given, and that it was he who gave instructions in respect of them on behalf of the first respondent, as well, of course, as on his own behalf. The litigation had then been in progress for some time, and it is clear from all of the evidence that the matter was one of some moment to both parties. There had been previous undertakings, entered into between the parties, on the basis of which interlocutory proceedings had been settled, and the undertakings to the Court on 1 October 1985 differed in various respects from the previous arrangements. I find it impossible to accept the suggestion that an experienced businessman, who gave instructions in respect of the undertakings, though by telephone, could have been in any doubt that the terms of the undertakings did differ in some respects from what had previously been agreed. Even if the matter had rested there, it seems to me the company could not have pleaded ignorance of the precise terms of its own undertakings, for it would have been its clear duty to see to it that those by whom it acted were aware of its obligations pursuant to the undertakings to the Court: Re Garage Equipment Associations' Agreement (1964) LR 4RP 491 at 494; Re Galvanized Tank Manufacturers' Association's Agreement (1965) 2 All ER 1003 at 1009, cited in Borrie & Lowe, Law of Contempt 2nd ed. p.408.
But in any case, the second respondent admitted in cross-examination, though not without some prevarication, that he received a copy of the short minutes which embodied the undertakings within a few days of 1 October, and that when he received the document he read it. He did not take steps to distribute copies to the employees of the company, whose duties required them to take steps which might involve breaches, but he said that he did inform them verbally of the company's undertakings. In view of the detailed nature of the undertakings, it is difficult to reconcile this evidence with any serious intention of ensuring strict compliance; but if he had such an intention, the verbal communication would have had to have been so detailed and explicit as to have made him become himself, in the process, thoroughly familiar with his and his company's obligations. It was proved that when he received the document from his solicitors it was accompanied by a letter, but objection was taken to a call for the production of the letter on the ground of self-incrimination. The second respondent said that, when the document was received, it was not date-stamped by his receptionist "because of its urgency" - an answer which suggests a consciousness at the time of the importance of obtaining promptly the precise terms of the undertakings. He was asked the following question:
"So you agree with me that since 1 October 1985 you, yourself, had personal knowledge of the substance of all the undertakings given to the Court on that day?"
to which he replied:
"Yes, I have heard the undertakings."
I understood this answer to refer to his evidence that he had been consulted by telephone by the company's and his legal advisers, when he had given the instructions in respect of the undertakings, and I take the answer to mean that the undertakings, which he agreed were the subject of extensive negotiations, were read out to him over the telephone.
On or about 10 October 1985, 55,000 catalogues were sent by the first respondent to the premises of a company Victorian Sailboard Centre Pty. Ltd. (Victorian Sailboard Centre), which had business relations with the first respondent, for transmission to a company Club Marine Australia Limited (Club Marine), with a view to their distribution. The arrangement to do this was made shortly after the beginning of October, and it was that the catalogues would be sent out as what was called an "insert" in a magazine to be distributed by Club Marine, which was to be paid by the first respondent for the insertion of them for advertising purposes. It was common ground that they were to be posted out in envelopes, and that in fact 42,000 of them were so distributed with the Spring edition of the magazine. The second respondent said that the main promotional and selling season for sailboards is in Spring and early Summer. Neither the envelopes nor the catalogues bore either of the statements referred to in sub-paragraphs 1(a) and (b) of the Statement of Charge, though it was not disputed that the catalogues fell within the terms of those sub-paragraphs.
The second respondent gave to the Court an elaborate explanation in regard to this matter. He said that on the occasion of the interlocutory settlement of 12 September 1985, he had a conversation in the Court building with Mr. Kelly, the Managing Director of the applicant's current licensee. That conversation dealt with a corresponding undertaking involved in the interlocutory settlement. According to the second respondent, he referred to his practice of inserting the catalogue into magazines, and said:
"It would be very difficult and expensive for us to place the legend on them. Would it be satisfactory if we just placed an appropriate one-quarter page advertisement in the magazine in which the catalogue is being inserted containing the words in the legend?"
Mr. Kelly agreed. Thereafter approximately 4,000 catalogues were distributed as an insertion in the November edition of a magazine called "Freesail", together with an advertisement as arranged. But the placement of the advertisement in respect of the Spring edition of the magazine "Club Marine" was inadvertently made outside that magazine's advertising deadline. It was, he said, to be placed in the Summer edition of the same magazine. He explained that the magazine is posted in accordance with a mailing list used by Club Marine and that the same people who had received the Spring edition of the magazine containing the catalogue would also receive the Summer edition containing the advertisement.
Mr. Kelly denied the alleged verbal arrangement. He agreed that he had made such a concession in respect of the magazine "Freesail", but his evidence was that he was never asked for it except in relation to "Freesail". He said he only assented to the variation of the first respondent's obligation in respect of the next edition of "Freesail" because the second respondent claimed there would be difficulty in complying with the undertaking as the production of the magazine "was allegedly under way", and the next edition was imminent, though in fact it did not appear until November. I have heard both Mr. Kelly and the second respondent cross-examined on their respective versions, and I have no hesitation in accepting Mr. Kelly's evidence on this point. Furthermore, the second respondent admitted in cross-examination that the 55,000 catalogues represented more than half the total number of catalogues printed for distribution. Had such a large proportion of the catalogues been intended to be excepted from the undertakings, I think that plainly the exception would have found its way into the undertakings to the Court given less than three weeks later.
In any case, the explanation is disingenuous in the extreme. For it was conceded in cross-examination by the second respondent that, at the time he decided to proceed with the insertion of the catalogue in the Spring issue of the Club Marine magazine, he knew that the alleged agreement with Mr. Kelly would not be carried out because the advertising deadline had already been missed. At that stage, he also conceded, he knew that the undertakings which had been given to the Court "did not contain any provision enabling the Club Marine mailing to take place". He also expressly conceded that by 10 October (the relevance of this date is that he said that shortly after it the catalogues were sent to Club Marine), he already knew that the advertising deadline had been missed and he had arranged for the advertisement to go in the next issue, that is the Summer issue of the magazine. It is apparent that this was a mere token gesture since, as he also admitted, the best promotional time was at the beginning of the season, and persons influenced by the catalogue might well have bought their windsurfers before the next quarterly issue of the magazine could be received by them; in other words, the procedure adopted gave the respondents the full benefit of the advertising and denied the applicant the benefit of the corrective statement stipulated for in the settlement between the parties and in the undertakings to the Court.
I am satisfied beyond reasonable doubt that the distribution of the 42,000 catalogues concededly effected by the arrangement that they would be posted with the Club Marine magazine was a deliberate action, taken with knowledge of the undertakings, and in intentional disregard of them.
But it is submitted for the respondents that nevertheless, whatever the second respondent's state of mind may have been at the time, no contempt was committed, because the distribution with the magazine was not, in the terms of the undertakings, "to the public or retail agents of the first respondent". The contention is based on an affidavit of Paul William Wilson, a director of Club Marine. That affidavit shows that the magazine "Club Marine" is a quarterly publication, distributed to some 55,000 addresses throughout Australia by direct mail according to a mailing list which "has been compiled largely from persons who have taken or are currently taking out insurance policies with the Marine Hull Liability Insurance Company Limited, which is an associated company of Club Marine Australia Limited." On the basis of this evidence, it was submitted that the 55,000 addressees were not a section of the public, so as to fall within the expression used in the undertakings. I do not accept this contention. The undertakings used language which has reference to the public vis-a-vis the first respondent, not vis-a-vis the publisher of the magazine or any other person or body. That it is necessary to take the standpoint of a relevant relationship, and not any relationship, in order to determine whether a group of persons constitutes a section of the public for a particular purpose, is exemplified by Ernest Turner Electrical Instruments Limited v. Performing Right Society, Limited (1943) 1 Ch 167, where the Court of Appeal considered whether the broadcast of music to the employees of a factory, whilst they worked, constituted a performance in public for copyright purposes. Lord Greene M.R. said at p.172:
"The primary matter to consider was the relationship of the audience to the owner of the copyright rather than the relationship of the audience to the performers."
Goddard L.J. at pp.175-6 put as the decisive question:
"Is the audience one which the owner of the copyright could fairly consider a part of his public?"
The answer was given in the affirmative, and I think that likewise here the persons on the mailing list must fairly be considered part of the first respondent's public. A similar view was taken by de Jersey J. in Australasian Performing Right Association Ltd. v. Tolbush Pty Ltd (1985) 62 ALR 521. I think this approach is entirely consistent with the decision of the High Court in Corporate Affairs Commission (South Australia) v. Australian Central Credit Union (1985) 59 ALJR 785, which was concerned with whether an offer to the members of a credit union was an offer to "the public". In the joint judgment of Mason A.C.J., Wilson, Deane and Dawson JJ. at 787 it is stated:
"For some purposes and in some circumstances, each citizen is a member of the public and any group of persons can constitute a section of the public. For other purposes and in other circumstances, the same person or the same group can be seen as identified by some special characteristic which isolates him or them in a private capacity and places him or them in a position of contrast with a member or section of the public. In a case where an offer is made by a stranger and there is no rational connection between the characteristic which sets the members of a group apart and the nature of the offer made to them, the group will, at least ordinarily, constitute a section of the public for the purposes of the offer."
Applying this passage to the present case, the first respondent was a stranger to the recipients of the magazine, and there was no relevant rational connection between any characteristic which might be said to set the members of that group of persons apart and the communication to them of the contents of the catalogues. The case is analogous to the proposition put at p.788 of the joint judgment:
"Thus, if the proposed offer in the present case would be by a stranger to the members of ACCU and it was not possible to discern any rational connection between membership of ACCU and such an offer, the members of ACCU would plainly enough constitute a section of the public for the purposes of that offer."
Likewise, I think the persons on the mailing list plainly enough constituted a section of the public for the purposes of the distribution of the catalogues.
The respondents' submissions drew attention to the fact that the magazine was distributed in envelopes and therefore its distribution could not support a charge under paragraph 1(a) of the Statement of Charge, but it seems to me that, for that very reason, it falls squarely within paragraph 1(b).
Finally, it was submitted for the respondents that the distribution was by Automail (a company Automail Pty. Limited, the mailing agency employed by Club Marine), or by Club Marine, and not by the first respondent. It was suggested the Statement of Charge did not embrace the posting of the catalogues in envelopes with the magazine by Automail. This contention cannot be sustained. The catalogues were distributed by the first respondent, which caused them to be delivered to Club Marine, pursuant to the contractual arrangements it made for that purpose.
Four thousand of the fifty-five thousand catalogues intended to be inserted in the Club Marine magazine were diverted and posted separately, on or about 29 October 1985, by Automail in envelopes which had been printed for the first respondent. The envelopes did not bear the statement required by the undertaking referred to in paragraph 1(b) of the Statement of Charge, but bore the following endorsement:
"THE FREESTYLE, FUN AND ONE-DESIGN WINDSURFERS ARE PROUDLY MANUFACTURED BY SAILBOARDS AUSTRALIA PTY LTD AN INDEPENDENT AUSTRALIAN OWNED COMPANY WHICH IS NOT ASSOCIATED IN ANY WAY WITH THE AMERICAN COMPANY WINDSURFING INTERNATIONAL INC."
Although, for the respondents, it was submitted that the evidence did not clearly show that the first respondent was responsible for the instruction to Automail to post out the four thousand catalogues, the circumstances overwhelmingly support that conclusion. The second respondent in cross-examination said that it had been intended that the four thousand catalogues would be posted from the Sydney office of Automail, but, because of a strike, it was arranged that they would be sent from the Victorian office. He also said:
"We asked them to check that there was a legend on the envelope but we did not actually read the legend, the wording of the legend out, basically because we had forgotten that we had ordered the previous envelopes back in August. By the time that these other ones went out we had assumed that the second set of envelopes had been printed and people in the organisation had forgotten that we had had actually two sets of envelopes printed."
While this evidence raises a question whether the breach was wilful, it clearly accepts that the posting was arranged by the first respondent. The Victorian sales manager of Automail swore an affidavit which was read in the applicant's case. He referred to the mailing of the four thousand catalogues, but not to the alleged confusion as to the correct envelopes. He was not cross-examined, nor was any other evidence tendered on behalf of the respondents to support the second respondent's claim. There is no evidence that there were in fact four thousand envelopes bearing the correct endorsement at the time the four thousand catalogues were sent out. In all the circumstances, it is clearly established that the catalogues were intentionally distributed in envelopes, but there was a lamentable and admitted failure to take care to ensure that the envelopes complied with the first respondent's undertaking. I do not think the breach can properly be characterized as "casual, accidental or unintentional", but was rather the result of deliberate action performed in careless neglect of the obligation binding the respondents.
A further alleged breach of the undertaking referred to in paragraph 1(a) of the Statement of Charge relates to the distribution of approximately two hundred copies of the first respondent's sales training manual during training sessions conducted by the sales manager of the first respondent, a Mr. Luedecke, in November 1985 at the first respondent's premises at Dee Why. Mr. Luedecke, who swore an affidavit, described these occasions as "training seminars... for retailers in New South Wales". After the applicant took out the motion for contempt, the first respondent sent to its retail agents a circular enclosing stickers containing the statement required by the undertaking, and requested attachment "to the front of your Sales Training Manual" and "to the front of your catalogue which is bound into the Manual". This breach is admitted, but it was argued that "in the totality of the overall undertakings, the distribution of two hundred unstickered catalogues, not to the public but to retailers in the industry attending a seminar at the first respondent's premises, is a minor offence." It was suggested the undertaking was really directed to the prevention of distribution to the public, and that the reference in it to retail agents was designed simply to forestall possible circumvention by distribution through the medium of agents. Mr. Luedecke swore that, at each seminar, he made a statement to those present to the effect:
"As you are all aware, Sailboards is now no longer associated with Windsurfing International Inc. which has appointed a new licensee in Australia".
This statement neither identifies the applicant's new licensee nor acknowledges that the trade mark appearing in the catalogue is the property of the applicant. Nor does such a verbal statement provide either the opportunity for verification, or the means of conveying the message to subsequent users of the catalogue, which the undertaking assured to the applicant. The vital commercial significance of retailers is, in this case, attested by the very circular proffered in mitigation, which confirms their importance in the selling of the product, and I cannot accept the contention put on behalf of the respondents. The admitted breach must in my view be regarded seriously. It occurred at seminars conducted by the first respondent's sales manager, at its premises, at a time some weeks after it had received a copy of the undertakings.
As in the case of the four thousand catalogues, I think this distribution was a deliberate act, which cannot be brought within the expression "casual, accidental or unintentional", as used in the cases in this area of the law.
The applicant also submitted that a breach of the undertaking referred to in paragraph 1(a) of the Statement of Charge was established in respect of the distribution of a reprinted catalogue bound in with the publication "One With The Wind". But the reprinted copies omitted certain Windsurfer trade marks contained in the catalogues referred to in sub-paragraphs 1(a) and (b). These catalogues were therefore not identical with the catalogues referred to in the undertakings. The undertakings do not themselves use precisely the same words to describe the catalogues they comprehend; the first refers to "each catalogue... being Exhibit GK-12" (to a particular affidavit), while the second refers to "catalogues of the kind and edition referred to in" (the previous undertaking). It seems to me, reading the two undertakings together, that identity is requisite to their application; the protection to be conferred by the undertakings upon the applicant, as regards subsequent catalogues containing modified information or even only slight variations, must be found in the further undertakings, such as those in paragraphs 1(d) and 2, or elsewhere.
The applicant also alleged breaches of the undertaking referred to in paragraph 1(c) of the Statement of Charge by deliveries of twenty-five "freestyle" sailboards to Victorian Sailboard Centre on 25 October 1985, and ten "freestyle" sailboards to Tradewind Sailboats Australia Pty Limited (Tradewind) on 8 November 1985, in each case without the legend required by the undertaking being placed thereon. The respondents say that in the latter case, and in respect of at least some of the boards included in the former, the required legend was placed on the clear plastic packing in which the boards were contained. There was, however, evidence from Mr. Simon McCartney, the General Manager of Barlow Sailboards Pty Limited, which I accept, that boards in retail premises are usually displayed for sale without the plastic wrapping.
The evidence of Mr. McCartney was clear that each of the twenty-five sailboards delivered to Victorian Sailboard Centre was examined by him and found to bear the trade mark B282816 and the "Windsurfer" logo. The evidence of Mr. John Caldwell, a director of Tradewind, also shows that each of the ten sailboards delivered to his company bore the "Windsurfer" trade mark and logo. It is clear these deliveries were sales by the first respondent to retailers. The second respondent swore an affidavit which included the categorical statement that, since the Court orders, there had been no affixation of the trade mark by the first respondent onto any windsurfers sold or manufactured by it. It follows that the stock the subject of the two deliveries in question must have been existing stock as at 1 October 1985, and indeed the second respondent also stated in his affidavit that the "freestyle" windsurfers in question were 1984 stock.
So far as the delivery of the twenty-five sailboards is concerned, the second respondent's affidavit also provides clear confirmation that they did not bear the stipulated legend, for he says that the stickers to be placed on the sailboards were only received by the first respondent on 31 October 1985, and that until then his instructions were that the appropriate legend was to be affixed to the exterior packaging on a sheet of paper. Other evidence, however, includes an affidavit of an employee of the first respondent, described as a "dispatcher", which was tendered in the respondents' case, stating that "some of the sailboards were inadvertently taken from a pallet where the modifications (to the external packaging) were in process", and "approximately one-half of these windsurfers may not have had the legend affixed to the exterior packing material." However there is no evidence which positively satisfies me, to the requisite degree of satisfaction, that any of the sailboards in question was delivered without the legend being affixed even to the packaging material.
In relation to the twenty-five sailboards, delivery documents are in evidence referring to an order of 21 October 1985, and a consignment of 22 October in fulfilment of the order. The order date of the ten sailboards was late in October 1985, pursuant to a contract note number 157017/5. One of them was sold by Tradewind, on the same day they were received, by way of ordinary retail sale. It was expressly stated in evidence, tendered on behalf of the respondents, that the ten sailboards had a sheet of paper affixed to their exterior packaging containing the legend referred to in the undertaking. Although evidence was tendered by the respondents concerning the exterior packaging, and concerning the instructions given in relation thereto, no evidence was tendered suggesting that any of the twenty-five sailboards or of the ten sailboards themselves bore the required legend, nor was it suggested that they had not been sold after 1 October 1985. It was expressly agreed at the hearing that the board, being one of the ten boards, sold by the retailer Tradewind on 8 November 1985 did not have, on the board, the legend provided for in the undertaking, but would have had the legend on its packaging.
Counsel for the respondents did not contest the proposition that the twenty-five boards and the ten boards were existing stocks of freestyle products sold by the first respondent within the meaning of the undertaking, and that the first respondent had not, prior to the sales, placed on the boards themselves the required legend. But it was argued the breach alleged was not made out since the boards were sold in packaging which bore the legend, and it was submitted this sufficed. Reference was made to a letter written in August 1985, in which the respondents' solicitor had suggested the affixing of a legend on "all future packaging". As the settlement which took place, and the undertakings which were given, subsequently to the letter expressly referred to placing the legend on the products, it seems to me that this is rather against, than for, the respondents. The change from an undertaking to place on the packaging to an undertaking to place on the product seems likely to have been deliberate - at any rate it is clear the distinction was in the minds of those advising the respondents at the time. The evidence is that the respondents' "One Design" sailboards are made from moulds originally supplied by the applicant, when the first respondent was its licensee, and are very similar to the applicant's boards. Bearing in mind that the boards would be taken out of the exterior packaging, on the evidence, usually before sale, and in any case upon sale, it seems to me there was good reason for the undertaking to be framed in the way it was framed, and not so as to permit mere affixation to the plastic of which the packaging consisted.
Even when the stickers were obtained on 31 October 1985, which the second respondent instructed should thereafter be affixed to the sailboards, they did not precisely comply with the undertaking. Instead of referring to "this product", they read as follows:
"THE FREESTYLE, FUN AND ONE DESIGN WINDSURFERS ARE PROUDLY MANUFACTURED BY........ " etc.
This wording suited the respondents' purposes since it appropriated the name "Windsurfers", with which the applicant has been associated over a substantial period, but which the respondents wish to use, not as a trade mark, but as a generic expression. It is perfectly clear, on all the evidence, that the applicant would not have accepted an undertaking using that word in that way, and that the expression "this product" was quite deliberately inserted in the undertaking. However, the breaches with which I am now concerned do not relate to the use of that sticker.
The particular breaches in relation to the twenty-five sailboards and the ten sailboards are, I think, mitigated to some extent by the evidence about the fixing of the required legend to the exterior packaging, and by evidence of efforts to remove other marks associating the sailboards with the applicant, which had been on the packaging. Nevertheless, the sailboards were despatched at times when the respondents were well aware of their obligations, and an attitude was again demonstrated which was far from a careful concern to comply with the undertakings. There were breaches in respect of all of the twenty-five and at least one of the ten sailboards. The failure of compliance could not be characterized as merely "casual, accidental or unintentional".
The applicant further submits that the respondents have committed breaches of the undertakings referred to in paragraphs 1(d) and 2 of the Statement of Charge in the reprinted catalogue "Windsurfing 86", in the Owner's Manual, in the first respondent's Sales Training Manual, and in the first respondent's publication "Windsurfing in Australia - One With The Wind". I do not think it is necessary to discuss these documents, some of which are quite lengthy, in detail. The evidence establishes to my satisfaction that considerable efforts were made to remove from reprinted material falling within these documents anything which might contravene these undertakings. There were a few lapses, but I think in the context of this case they must be regarded as comparatively minor. There were also some claimed lapses which were not only quite minor, but were also, in my opinion, very debatable as breaches. So far as paragraph 2 of the Statement of Charge is concerned, it is important to note that it is only use of the forbidden words "as a distinctive trade or brand name" to which the undertaking relates. If there is ambiguity about a particular usage, it is necessarily difficult for the applicant to satisfy the requirements of establishment of its case in a motion for contempt. At the same time, if a party bound by an undertaking or an injunction deliberately steers as close to the wind as he thinks possible, a court which finds he has in fact misjudged and contravened his obligation in some respect may be justified in refusing to treat his breach as a mere mischance: cf. Mileage Conference Case (supra, at 1169-1170).
The remaining questions concern what orders are required by my findings. I have found a number of serious breaches of the undertakings. I have found them, applying the principles, as to proof in such a matter, to which I referred earlier in these reasons. As I understood their submissions, both parties accepted that those principles applied. To my mind, the evidence concerning the breaches, including the evidence of the second respondent himself, compels the conclusion that the respondents preferred their own convenience and commercial interests, on a number of occasions, when these conflicted with the requirements of the undertakings. As regards the Club Marine mailing, the breach was wholly intentional, and was sought to be justified by reference to a concession Mr. Kelly had granted for a different matter which, I am satisfied, the second respondent well knew he would not be prepared to extend to the Club Marine mailing. But the second respondent's tortuous attempt at justification did not end there; for examination of the circumstances shows that he decided to ignore his obligation under the undertaking, at a time when he knew that he could not fulfil the conditions of the concession, even if it had been applicable. This whole chapter of evidence is reminiscent of C.S. Lewis's brilliant mixed metaphor about chasing a red herring all the way into a mare's nest]
Another serious feature of the breaches is the admitted fact that the undertakings were not circulated in writing among any of the second respondent's subordinates whose duties, on the face of things, were likely to involve them in causing the first respondent to contravene the undertakings unless they were made aware of the precise terms required to be observed. The second respondent's conduct was not consistent with a resolve to ensure scrupulous compliance. In all the circumstances, I cannot avoid the conclusion that the case is one involving the very substantial purpose to which the High Court referred in the Mudginberri Case of "disciplining the defendant and vindicating the authority of the Court". Although the undertakings in paragraph 1 were given by the first respondent alone, the second respondent, as its managing director, was in control of its activities, and his evidence demonstrates his personal role in, particularly, the distribution of the 42,000 catalogues. It was by his decision that the distribution took place. In that situation, he is personally liable for contempt, as a knowing participant in the breach: Z Ltd. v. A-Z and AA-LL (1982) 1 QB 558. I think the appropriate orders should provide for fines to be paid by the respondents of $2,500-00 each, together with an order that they pay the applicant's costs as between solicitor and client. In assessing the amount of the fine, I have had regard to that costs order as a factor to be taken into account, as well as to the other circumstances of the case: cf. the remarks of Warrington J. in Stancomb's Case (supra, at 196-7).
I direct the applicant to bring in short minutes of orders, pursuant to these reasons, upon a date to be fixed.
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