ABB Ltd v New Zealand Insulators Ltd no.2 HC Auckland CIV-2004-404-4829

[2007] NZHC 2055

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

CIV-2004-404-4829

BETWEEN  ABB LIMITED First Plaintiffs

ANDABB INDUSTRY PTE LIMITED Second Plaintiffs

ANDABB STOTZ-KONTAKT-GMBH Third Plaintiffs

ANDNEW ZEALAND INSULATORS LIMITED

Defendant

Hearing:         7-8 May 2007

Appearances: A H Brown QC and A Paterson for Plaintiffs

J E Hodder and N Wood for Defendant

Judgment:      28 August 2007 at 4:00 pm

RESERVED JUDGMENT OF COURTNEY J (NO. 2)

This judgment was delivered by Justice Courtney on 28 August 2007 at 4:00 pm

pursuant to Rule 540(4) of the High Court Rules

Registrar / Deputy Registrar

Date……………………….

Solicitors:           Markitlaw, P O Box 25203, St Heliers Fax: [phone] - A Paterson Chapman Tripp, P O Box 993, Wellington Fax: [phone] - J Hodder

Counsel:            A H Brown QC, P O Box 2815, Shortland Street, Auckland

Fax: [phone]

ABB LTD & ORS V NZ INSULATORS LTD HC AK CIV-2004-404-4829  28 August 2007

Tableof Contents

Para No.

Introduction  [1] Issues  [5] Assessment of loss under s 43 Fair Trading Act 1986

The nature of NZI’s contravening conduct  [9]

Relevant principles  [13]

Should NZI’s breaches be considered cumulatively in determining the causative influence of the contravening conduct?  [16]

Use of a counter-factual test in assessing causation under FTA     [21]

First FTA cause of action: given that NZI owned the goodwill

in the S91, could the misrepresentation as to commercial

origin cause any loss?  [40]

Second FTA cause of action: was there evidence of customers being misled as a result of misrepresentations as to

suitability for purpose?  [48] What is ABB’s loss?  [56] Non-S91 losses  [64] Should ABB, as a rival trader, be awarded monetary relief            [73]

Defence of illegality  [76] Was ABB obliged to comply with Regulation 101A?  [77] The nature of the defence of illegality  [79] Should NZI be permitted to rely on the defence of illegality?          [83]

Copyright cause of action – account of profits

Should NZI be required to account for all profits from the BM?      [88]

To what extent should NZI account for its profit?  [99] Method of calculating profit from sale of BMs?  [109] Avoiding “double recovery”  [111] Who should take the account?  [114]

Interest

Fair Trading Act causes of action  [119]

Breach of copyright cause of action  [122]

Result  [123]

Introduction

[1]      In this judgment I deal with the causation and quantum issues arising as a result of my judgment 20 September 2006. The plaintiffs (referred to collectively as ABB) had sued the defendant (NZI) for losses allegedly sustained as a result of the distribution of NZI’s miniature circuit breaker (mcb) sold under the brand name

‘BM’.  They alleged breaches of the Fair Trading Act 1986 (FTA), passing-off and breach of copyright. I found in favour of all the plaintiffs on the FTA causes of action and for the third plaintiff on its claim for breach of copyright.  The passing-off claim failed. I also granted injunctive relief  (since stayed by the Court of Appeal) preventing NZI from manufacturing and selling the BM in its then current form.

[2]      An mcb is used to replace rewireable fuses in switchboards and protects the switchboard against faults in the electrical circuitry.   Until 2004 the New Zealand market for mcbs was dominated by an ABB product, the S91, which was designed by the third plaintiff, Desto, and manufactured by the second plaintiff, SGIND.  Prior to  January  2004  NZI  had  distributed  the  S91  under  a  contract  with  SGIND. However, the first plaintiff, ABB NZ, wished to increase sales of its other low- voltage products and believed that if it took over the distribution rights for the S91 it would have a platform on which to build up this aspect of its business.

[3]      NZI had made a sizeable profit out of the S91 during the 14 years it had been distributing it and had a solid distribution network based on longstanding and congenial relations with wholesalers throughout New Zealand.  It was not about to give up its market without a fight.  It engaged a Chinese manufacturer to produce a copy of the S91, branded it “Base Mount” (BM) and, immediately after its distribution rights to the S91 expired in January 2004, began distributing it.

[4]      My first judgment included the following findings:

•The appearance of the BM coupled with the manner in which it was distributed amounted to a misrepresentation as to the commercial origin of the product and a breach of ss 9 and 10 FTA;

•In both the labelling and in communications with its customers NZI had misrepresented that the BM was the equivalent to the S91 in terms of safety and suitability for use in New Zealand and in terms of its short circuit capacity;

•In  copying  the  S91  NZI had  breached  Desto’s  copyright  in  three technical drawings which showed modifications to the S91.

Issues

[5]      In  relation  to  the  FTA  causes  of  action  ABB  approached  the  issues  of causation and quantum by assuming that, had the BM not entered the market, the S91 would have continued to dominate.   It says that it has been deprived of the opportunity to market the S91 unimpeded and measures its loss by reference to the sales of the BM after January 2004.  In addition, ABB seeks to recover the profit that it expected to make on the sales of non-S91 products on the basis that had it been able to market the S91 freely it would have built up its share of the market in those products.  NZI’s general response is that any loss that ABB sustained was the result of legitimate competition, not as a result of customers being misled by its misrepresentations about the BM.

[6]      The issues that arise in relation to the FTA causes of action are:

a)       Has ABB shown that its losses were caused by NZI’s contravening conduct?

b)In determining the causative influence of NZI’s contravening conduct should the breaches found in relation to each of the FTA causes of action be considered cumulatively or separtately?

c)       Should damages under the FTA reflect the hypothetical possibility that NZI could have come into the market with a legitimate product?

d)Should ABB be entitled to recover in respect of misrepresentations arising from  the  appearance  of the  BM  when  it  did  not  own  the goodwill in the S91?

e)      Are the losses claimed in respect of non-S91 sales a foreseeable consequence of NZI’s breach?

f)        Is it appropriate for ABB, as a rival trader, to receive a large monetary award, which might have the effect of stifling competition under legislation designed primarily to promote the interests of consumers?

[7]      Also in relation to the FTA cause of action, NZI asserts that ABB should be precluded from recovering losses resulting from its lost opportunity to market the S91 because the S91 was itself in the market illegally as a result of ABB’s failure to give a supplier declaration as required by the Electricity Regulations 1997.

[8]      Desto, the only plaintiff to succeed on the breach of copyright cause of action, has elected an  account of profit, which it is entitled to do under s 120

Copyright Act 1994.  The issues arising in respect of the breach of copyright claim are:

a)       Should NZI be required to account for all the profits it made from the BM or only part of them, on the basis that the copyright infringement related to only a small number of the components making up the BM?

b)If the profit is to be apportioned, what is the proper method of determining the extent to which NZI should account for its profit?

c)       How can the risk of a “double recovery” by Desto as a result of the damages awarded under the FTA be avoided?

d)Should the account be undertaken by the Court or by an accountant acting in accordance with directions from the Court?

Assessment of loss under s 43 Fair Trading Act 1986

The nature of NZI’s contravening conduct

[9]      ABB brought two separate causes of action under the FTA.   In the first it alleged that NZI had engaged in misleading and deceptive conduct by representing that the BM:

a)        Had the same commercial origin, nature and characteristics as the S91 previously distributed by NZI; and

b)       Was the same as the S91.

[10]     My finding in relation to this cause of action was summarised at [52] of my liability judgment:

I am satisfied that the appearance of the BM coupled with the manner in which it  was  distributed  made  it highly likely that  individuals  (whether electricians or home handypersons) purchasing mcbs would be misled into thinking that the BM was the same product as the S91.  I have no doubt that in many instances that likelihood was realised.    I also think that, notwithstanding NZI’s fax and oral advice, it was likely that many wholesalers and retailers were similarly misled.

[11]     In the second cause of action ABB alleged misrepresentations by NZI that the

BM:

a)        Was equivalent in nature, characteristics and suitability for purpose to the S91; and

b)       Was suitable for use as a plug-in circuit breaker in New Zealand; and c)       Had a short circuit capacity of 3kA.

[12]     In relation to this cause of action I found that NZI had made the alleged misrepresentations and that none of the representations was true.

Relevant principles

[13]    Section 43 confers on the Court the power to order a person guilty of contravening conduct to pay the amount of loss or damage that the plaintiff has suffered “by” the contravening conduct.  This power is a broad, discretionary one. There must, however, be a causal link between the loss claimed and the contravening conduct.  In the joint judgment of Henry and Blanchard JJ in Cox & Coxon Limited v Leipst [1999] 2 NZLR 15, Henry J observed at 26 that:

It is fundamental that the remedy must be directed to the consequences of the breach of the imposed duty, and not to consequences which are attributable to some other cause which is not the subject of an actionable duty.

[14]     The requisite link was described by Tipping J in that case at 38 as follows:

It is always necessary for the plaintiff to show a sufficient nexus between the loss or damage claimed and the contravening conduct.   Section 43(1) speaks of a person having suffered, or being likely to suffer loss or damage “by”  contravening  conduct.    Questions  of  causation  can  become  over- refined.  The policy of the Act suggests a broad and pragmatic approach to whether the required nexus has been shown.   In short, there must be a sufficient relationship between the impugned conduct and the loss or damage to make it reasonable to say that the loss or damage is the consequence of the conduct.  Has the loss been caused by the conduct; has the loss resulted from the conduct; has the loss been brought about by reason of the conduct? – all these are possible formulations capturing the same essential idea.

[15]     In considering the loss caused by the contravening conduct the Court will look at all the causative factors impacting on the loss.  The flexibility of approach was specifically considered in Foseco New Zealand Limited v Cumberworld Contracting Limited (1997) 6 NZBLC 102,033 (CA) where Blanchard J said at

102,037:

The Court is able to take account of all the circumstances contributing to the loss  including  the  actions  of  third  parties  who  are  not  wrongdoers  and actions  of  the  plaintiff  which  do  not  amount  to  contributory  neglect  or default.

and later concluded at 102,038:

We agree with the Judge [at first instance] that recovery should be proportionate to the causative influence of [the contravening conduct].

Should NZI’s breaches be considered cumulatively  in  determining  the  causative influence of the contravening conduct?

[16]     Mr  Brown,  for  ABB,  submitted  that  ABB’s  loss  was  caused  by  the cumulative effect of the contravening conduct that was proven in both causes of action i.e. it was the combination of the misrepresentations as to commercial origin and the misrepresentation as to suitability and capacity.   He said that anyone who was  misled  into  buying  a  BM  rather  than  an  S91  would  inevitably  have  been

influenced by the combination of the various acts of contravening conduct and the loss should, therefore, be assessed by reference to the contravening conduct overall.

[17]     Mr Hodder, for NZI, submitted that I should assess ABB’s loss in respect of each FTA cause of action separately, identifying the actual loss sustained as a result of the particular contravening conduct that was the subject of each cause of action. NZI maintains that no loss could have resulted from the misrepresentations as to commercial origin because those misrepresentations were based on the appearance of the S91 and ABB did not own the goodwill associated with the appearance of the S91.  In relation to the second cause of action, Mr Hodder submitted that ABB had failed to show that any or a significant number of customers relied on the misrepresentations as to suitability and capacity.   As a result, ABB had failed to prove any loss resulting from this conduct.

[18]     NZI was guilty of a number of different acts of contravening conduct; for example, it caused to be manufactured a product that bore a striking similarity to the S91 in terms of its labelling; it packaged the BM in the same way as the S91 had been packaged; it distributed it using the same part numbers and, initially, price; it misrepresented that it was equivalent to the S91, and it misrepresented its rated short circuit capacity.   All of these acts were separate and identifiable aspects of the contravening conduct but it is unlikely that any single one of them alone would have been sufficient to amount to misleading and deceptive conduct for the purposes of s

9 or a misrepresentation for the purposes of s 10.

[19]     However, in its pleading ABB asserted two distinct types of contravening conduct and my findings on each cause of action were, necessarily, directed towards the cumulative effect of relevant acts pleaded in respect of each.   That being the basis of the liability finding, it is possible, and indeed necessary, to make a broad assessment of the causative influence of the two types of conduct.  Whilst customers are very likely to have been misled by the cumulative effect of the conduct, I must nevertheless enquire into the relative causative influence of each type of conduct as it was pleaded.

[20]     Before doing this, however, I deal with Mr Hodder’s submission as to the method that should be used in assessing causative influence.

Use of a counter-factual test in assessing causation under the FTA

[21]     Mr Hodder submitted that the cause and extent of ABB’s loss should be determined by comparing what actually happened (NZI’s distribution of the infringing BM) with what would have happened had NZI re-entered the market with a legitimate product (the counter-factual or “no liability scenario”).  NZI maintains that it could have competed legally with the S91 from January 2004 by acquiring the distribution rights to the General Electric (GE) mcb, which was not then available in New Zealand.  It therefore argues that ABB’s loss should not be determined on the basis that the S91 would have been the only mcb in the market.

[22]     Mr  Hodder  relied  on  the  decision  of  the  Supreme  Court  of  Canada  in Cadbury Schweppes v FBI Foods [1991] 1 SCR 142 where the former licensee of a tomato juice/clam broth had used confidential information to produce a competing product. The licensor’s complaint was essentially the lost opportunity to continue marketing its product unimpeded. The trial Judge had found that the use of the confidential information had simply enabled the former licensee to enter the market place with a competing product a year earlier than it otherwise would have. The Supreme Court rejected the appellant’s complaint about this approach:

The respondents complain that the trial Judge’s analysis was hypothetical, because the appellants had never in fact produced Clamato using non- confidential technology.  However, the Court is free to draw inferences from the evidence as to what would likely have happened “but for” the breach. (p186)

[23]     The appellant had adduced evidence of a 5.3% decline in its market share in the 12 months following the termination of the licence and the corresponding 7.1% share captured by the former licensee.   While the Court accepted that there was a loss of sales due to the unfair competition, it cautioned that not all loss due to competition would be recoverable:

The respondents were not entitled to be free of competition from the appellants.  Apart from the clam juice limitation, they were only entitled to be free of the appellants’ competition which used the respondents’ confidential information. (p181)

[24]     Mr Brown argued that this approach should not be adopted because it was contrary to the orthodox approach of assessing damages based on the consequences of the contravening conduct as it sought to remove that unlawful conduct from consideration.  He relied on the House of Lords’ decision in The United Horse-shoe and Nail Company Limited v Stewart & Company Limited (1888) 5 RPC 260 where, in the context of a claim for infringement of patent, Lord Macnaghten observed at

268 that:

It appears to be beside the mark to say that the Respondents might have arrived at the same result by lawful means, and that, without infringing the Appellants’  rights,  they  might  have  produced  a  nail  which  would  have proved an equally dangerous rival of the Globe nail.  The sole question is, what was the loss sustained by the Appellants by reason of the unlawful sale of the Respondents’ nails?   The loss must be the natural and direct consequence of the Respondents’ acts.

[25]     In Gallagher Electronics Limited v Donaghys  Electronics Limited (1991)

3 NZBLC 102,210 at 102,218 Anderson J took the same approach (also in relation to a breach of patent) when confronted with an invitation to take into account the hypothesis of the defendant being in the market with an alternative but not infringing device:

It is self-evident that if the defendant had not infringed the plaintiff could not recover damages.  The fact of the matter is that the defendant has infringed and it does not avail defendants to suggest that they might infringe with impunity because if they so wished they might compete lawfully.

[26]     Mr  Hodder  suggests  that  the  authorities  relied  on  by  ABB  are  to  be distinguished on the ground that they deal with patents, for which the law provides a higher level of protection. I accept that this is possible explanation for the difference in approach.  I do not consider that the approach taken in Cadbury Schweppes was wrong  in  principle.  Significantly,  it  is  consistent  with  the  restatement  of  the principles that apply to the measure of loss under the FTA by Henry and Blanchard JJ in Cox v Coxon at 26:

Section 9 creates a duty not to mislead. If the duty has been breached money may be awarded to make good, or compensate for, loss or damage which has been caused by the breach. Where there has been an actionable wrong, it is a general and basic principle of law that the remedy by way of monetary award is to put the wronged party in the same position as he or she would have been but for the wrong.

[27]     I therefore accept that the enquiry into what the plaintiff’s position would have been but for the breach may require consideration of what the outcome would have been had the defendant acted lawfully. The enquiry into what the plaintiff’s position would have been is, of course, a hypothetical one.  But although the focus is on what the plaintiff’s actions or position would have been, it necessarily involves attributing to the defendant the most likely lawful course of action that it could have taken.  In the context of a claim between competitors where the complaint is that the actions of one have deprived the other of the opportunity to market its product unfettered by the defendant’s unlawful competition then the probable existence of other legitimate competition must be relevant.  That other competition may be either by a third party or the defendant itself.

[28]     I accept that NZI was determined to compete against the S91 after January

2004 and had 14 months in which to source an alternative product.  However, I do not accept that the most likely scenario would have been that it would have re- entered the market at that time with the GE product.  That would disregard what NZI actually did in the period up to January 2004.   It deliberately did not attempt to obtain the rights to the GE product.  It chose to copy the S91.  That, in itself, was not a breach of the FTA (it being the appearance and method of distribution of the BM that constituted breaches).  There is no reason to ignore this aspect of NZI’s conduct and attribute some other course of action to it in the period prior to January 2004.

[29]     A very similar issue arose in Cadbury Schweppes where the former licensee argued that the compensable period should run from the termination of the licence rather than a point in the future because it could have developed a legitimate competing product from the earlier date. The Court’s response at 196 was:

The fact is, however, that on April 15 1983, the date when the licence expired, the appellants did not have a formulation for Caesar Cocktail that complied with their legal obligations to the respondents.  They had in fact taken no steps to produce a product that complied.  I see no reason to “back

date” the fiction of their hypothetical research to the notice period.   The appellants did not begin to sell a product in breach of the confidence until April 15, 1983.  Thus began the period of unfair competition which turned the  respondents’  “opportunity”  into  a  “lost  opportunity”.    I  therefore believe that the Court of Appeal was correct to start the compensable period on April 15, 1983.  The trial judge found that the competition would have ceased to be unfair once the appellants could reasonably have been expected to come up with a tomato juice product independently of the confidential information.  The trial judge fixed that period at 12 months.  Accordingly, the respondents’ argument to extend the compensation period beyond April

14, 1984 should also be rejected.  As the market advantage created by the

“nothing very special” information lapsed at the end of the 12 month period an award that continued the compensable period beyond that date would benefit the respondents to an extent which the courts below found would be unjust.

(emphasis added)

[30]     The question is, therefore, when is it most likely that NZI could have entered the market with a product that did not breach the FTA, assuming NZI’s  actual conduct up until January 2004?  The misrepresentations that constituted breaches of the  FTA  were  made  through  the  appearance  of  the  BM  in  its  labelling  and packaging, the way in which it was distributed and what NZI said and wrote about it. In attributing to NZI a course of action that did not breach the FTA the most likely scenario must be that it copied the S91 but did not make these misrepresentations about the BM’s characteristics.

[31]     As it happens, one of NZI’s solutions to the situation it found itself in when injuncted from selling the BM in its original form was to re-brand it and offer it as having a short circuit capacity of  1.5kA.    According  to  NZI’s  Chief  Executive Officer, Mr Heron, in the period 29 January – 9 March 2007 it has sold just over

10,000 of the newly branded mcbs.  NZI expects to eventually regain 60-70% of the market although he was not specific as to the time frame.  So one option would have been for NZI to re-brand the BM and offer it for sale in a form that did not breach the FTA.  This would, however, have required the various problems that were being experienced with the development of the BM to have been resolved (as presumably they now have been with the newly branded product).

[32]     It  is  apparent  that  efforts  were  made  throughout  2003  and  into  2004  to address these problems; for example in June 2004 NZI’s witness, Mr Phillips, prepared a paper on the test results being obtained for the BM.  In it he commented

that NZI was faced with either getting the Chinese manufacturer to improve the product or re-rating it to 2 or 2.5kA but noted that it was questionable if the re-rated breakers would be accepted by the market.   I therefore think that the most likely scenario is that NZI could not have had the BM ready in a form that did not breach the FTA until at least late 2004 and possibly early 2005.

[33]     This course would still have had problems, however, because, even if not a breach of the FTA, the copy BM would still, on my finding, have been in breach of ABB’s copyright.  I therefore consider what the position would have been had NZI acquired the rights to distribute the GE product after January 2004.   Because NZI had rejected the idea of approaching GE in order to retain control over its supply there is no basis on which I could find that it was more likely to approach GE than to produce its own brand, at least until early 2004 when it was clear that there were real difficulties in having the BM manufactured to an acceptable standard.

[34]     NZI argues that because of its superior distribution network the GE product would soon have dominated the market in the same way as the S91 had when NZI was the distributor.   To underscore the likelihood of this scenario, NZI relied on recent evidence from Mr Heron, that it has now established a relationship with GE and was expecting to begin distributing the GE mcb in May 2007.  However, it took NZI some eight months of negotiating with GE to reach the point where NZI could begin distributing its product.  It is most unlikely that NZI would have regarded this delay as acceptable, compared with the alternative of trying to resolve the problems it was experiencing with the manufacturing of the BM (given the obvious level of optimism that existed within NZI as to that being done).

[35]     The fact that NZI has now reached an agreement with GE does not change my view because the circumstances that existed when NZI finally did approach GE were so different to those that existed in 2002-03 that later events are not a reliable indicator of what might have occurred then.   In 2002-03 NZI had both time and options.  But in September 2006 it had no real options, having been injuncted from distributing the BM in its original form and not having the resources to develop an entirely new product.

[36]     At  best,  once  NZI  realised  that  it  would  have  difficulty  producing  a complying product it may have revisited that decision but I do not put the likelihood at any higher than that.   This is because, by late 2003 NZI had already made a substantial financial commitment to the production of the BM and the evidence showed  a  reasonable  level  of  optimism  that  the  problems  that  were  being experienced with the BM would be resolved.  I think it very unlikely that NZI would have approached GE until some time during 2004 when it became clear that it was having real difficulty resolving the problems with the BM.  I find that this scenario would not have seen NZI enter the market with the GE product until late 2004 or early 2005.

[37]     I am therefore satisfied that on either scenario NZI would not have been in a position to begin selling the BM until late 2004/early 2005.  For the purposes of the quantum exercise I put this at 1 January 2005 i.e. 12 months from the date on which it actually entered the market with the BM.  During the period 1 January 2004 – 1

January 2005 there can be no doubt that ABB would have had the market to itself. NZI would not have been present in the market and there was no other product in the market to compete with the S91.

[38]     The next question is how long it would have taken for NZI to recapture the market once it was in a position to compete lawfully.  It was clear from the evidence that NZI, which knew that market well, was very concerned at the prospect of being out of the market for any time at all and viewed the wholesalers as being potentially fickle, notwithstanding the good relations between them.  This was the reason that it was so determined to have the BM ready for distribution by 1 January 2004 and also the reason that it went to so much trouble to assure the wholesalers that the BM was virtually the same as the S91 and there would be hardly any change in terms of administration.  I find that there was a real risk that once wholesalers were forced, through lack of alternative, to purchase the S91 from ABB a degree of inertia would develop that would make recapturing them difficult.   There was no marketing evidence  addressed  specifically to  how  long  it  might  take  for  NZI to  secure  a significant share of the market if it were out of it for some time.  My impression is that if ABB had a head-start of twelve months it might well take that amount of time for NZI to regain a significant portion of it.

[39]     I therefore approach the assessment of loss on the assumption that, had NZI not breached the FTA, the S91 would have dominated the market throughout 2004 but would have faced competition from an NZI product from early 2005.  NZI would face some difficulty in recapturing its previous customers who, in the intervening year would  have  established  a  pattern  of purchasing  from  ABB.    Nevertheless, because  of  its  commitment  to  the  task  and  previous  good  relations  it  would eventually recapture a significant portion of the market.  My impression is that, as a result of its strong support among the wholesalers this portion would be slightly larger than that enjoyed by ABB and I put that figure for present purposes at 60%.

First FTA cause of action: given that NZI owned the goodwill in the S91, could the misrepresentation as to commercial origin cause any loss?

[40]     I have already referred to my finding in relation to the first FTA cause of action that the appearance of the S91, its packaging and manner of distribution, all combined to constitute a misrepresentation by NZI as to the commercial origin of the product.  However, NZI points to my finding in the unsuccessful passing-off claim that the goodwill in the S91 lay with NZI, not ABB.  Mr Hodder submitted that ABB could not have suffered any loss from NZI’s use of the S91 get-up when they had no goodwill attaching to that get-up.

[41]     Mr   Hodder   submitted   that   the   possible   losses   arising   from   the misrepresentation  as  to  commercial  origin  were  analogous  to  those arising in  a passing-off claim, namely diversion of trade, damage to reputation and diminishing the distinctiveness of the relevant get-up.  However, he said, none of these types of losses  arose  in  this  case.    If  the  plaintiffs  had  no  goodwill  in  the  name  and appearance of the S91 product, there cannot have been any diversion of trade from the plaintiffs to NZI as a result of NZI copying the get-up.  Nor could NZI’s use of the same get-up have damaged ABB’s reputation in the S91 product because they had no such reputation prior to 1 January 2004.

[42]     Mr Hodder further argued that, to the extent that the plaintiffs claimed to have developed an independent goodwill in the get-up of the S91 product after

1 January 2004 that argument could not be advanced on the existing pleadings,

which alleged goodwill and reputation attaching to the S91 “by 1 January 2004”.  In any event, Mr Hodder submitted that the plaintiffs could not have built up an independent goodwill in the S91 after 1 January 2004 given that NZI had retained over 80% of the market during that period.

[43]     While it is apt and helpful to have regard to aspects of the tort of passing-off in considering a claim for misrepresentation as to commercial origin, it is important not to lose sight of the fact that the FTA created an entirely separate cause of action which is not precisely aligned to similar torts.   This is made plain in the earliest “rival trader” claim under the FTA, Taylor Bros Limited v Taylors Group Limited [1988] 2 NZLR 1 (HC) (CA), in which McGechan J at 30-31 made the following observations in his judgment (affirmed by the Court of Appeal):

There can be no objection to proceedings being taken by the plaintiff as a rival trader, although not motivated I am sure by some altruistic concern for those involved in the linen hire market as such.   Lack of intention to transgress the Act is not important.  Availability of traditional remedies by way of passing-off is irrelevant.   Lack of proven damage or likelihood of damage to the plaintiff’s goodwill does not prevent proceedings.  Indeed, to the contrary, the present situation and the present proceeding is of a type which the legislature must have known from previous Australian experience would be likely to come before this Court.  One trader for his own benefit alleges another is deceiving or misleading a section of the public.   That trader seeks an injunction to prevent such activity.  Benefit to the public, if such conduct is established, arises only incidentally through the resulting cessation in deception.  It is not for the Court to pass judgment on whether or not that legislative scheme is the best or even appropriate approach to such situations. The law, for better or worse, must be applied.

[44]     I do not consider that I am constrained by the limitations imposed on a plaintiff in a passing-off action when assessing the loss caused by misleading and deceptive conduct under the FTA.  Goodwill is not required to prove a breach of the FTA and it would be illogical if the absence of goodwill were to be a barrier to proving causation and loss.   Whilst it is true that the loss claimed is effectively diversion of sales, the causal nexus required to prove that loss must reflect the elements of the cause of action under the FTA.   If sales have been lost because potential customers believed, erroneously, that they were purchasing the product they had been accustomed to purchasing because of similarity in appearance and packaging, then the requisite causal nexus will have been proven.

[45]     Because of the widespread recognition of the S91 in terms of its appearance (both labelling and packaging) it is undeniable that ABB would have benefited from having the sole right of distribution to the product had its marketing been unaffected by the presence of  the misleadingly similar  BM.    The  evidence  was  clear  that wholesalers  and  individual  electricians  alike  were  familiar  with  only  one  mcb, namely the product that looked like the S91 in terms of its pre-2004 labelling and packaging.  The likelihood of customers purchasing an mcb thinking that it was the product they had always bought was very high.  Where ownership of the goodwill in the product is not a factor to consider, any sale to someone who believed that the BM was either the same or emanated from the same commercial origin is a sale diverted from the party entitled to sell that product.

[46]     Had there been a third product competing in the market it might have been difficult to measure ABB’s loss by reference to sales of the BM.   However, there was no other product in the market.  The BM should not have been in the market in the form that it was.   In the circumstances, the misrepresentations as to the BM’s commercial origin were a strong causative factor in purchasers being misled.

[47]     The question remains whether I should make some apportionment to reflect the strength of NZI’s distribution network, which had supported the sale of the S91 and subsequently the BM.  However, a distribution network is only relevant if there is a legitimate product to distribute.  It would have significance in a market where there were two legitimate competing products but where one product had no right to be in the market the distribution network could not have had any causative impact. As a result of my overall approach to causation discussed above I have allowed for the effect of the distribution network only from 1 January 2005.

Second FTA cause of action: was there evidence of customers being misled as a result of misrepresentations as to suitability for purpose?

[48]     Mr Hodder submitted that there was no or insufficient evidence that any of the buyers of the BM were misled by NZI’s misrepresentations into buying the BM rather than the S91 and thereby diverting sales from ABB.   He submitted that the only relevant misrepresentation in relation to the second FTA cause of action was

that the BM had a rated short-circuit capacity of 3kA because the other misrepresentations (that the BM was electrically safe within the meaning of the Electricity Regulations 1997 and suitable for use as a plug-in circuit breaker in New Zealand) both derived from the misrepresentation relating to the BM’s short-circuit capacity.   Further, the only representation to this effect was in the printing of the expression “3kA” on the BM itself.

[49]     Mr Hodder then argued that ABB’s claim depended on the assumption that NZI’s customers had bought the BMs on the strength of the representation as to capacity and that had they not been so misled they would have bought the S91 instead of the BM.   In support of this argument Mr Hodder pointed to the recent evidence of Mr Heron as to the success of a new version of the BM, branded as “Tempro” which is rated at only 1500A.  Notwithstanding the lower rating, sales are substantial and NZI is confident of regaining 60-70% of the market.   Mr Hodder suggests  that  I  can  infer  from  this  evidence  that  the  relevant  sections  of  the purchasing public were not, in fact, concerned about whether the BM was rated 3kA and would have bought the BM even if it had been labelled 1.5kA.

[50]      Mr Hodder points out, quite rightly, that an mcb does not have to be rated

3kA in order to comply with the Electricity Regulations 1997.   The device must simply be “electrically safe” as that is defined in the Regulations.   However, my finding in relation to the second cause of action was that, not only could the BM not be relied on to interrupt a 3kA current, but it was also unreliable even at much lower currents, including 500kA and 1.5kA.   Its general unreliability to perform to any particular rating was what prevented it from complying with the Regulations, not merely because it failed to meet the 3kA rating.  Its general unreliability extended to the complete failure to latch, which the plaintiffs’ expert witnesses, Mr Carstedt and Mr Dix, both regarded as a safety issue.

[51]     Further,  the representations  were not  made solely on  the  label.    I  made specific findings that both the fax that NZI circulated in January 2004 and the advice from its area managers were to the effect that the BM was equivalent to the S91.  It was clear from the evidence of the sample purchases that wholesalers and retailers believed this to be the case.  The offering of a BM in response to a request for an S91

shows that.  The wholesalers and retailers would have formed their view from the combination of the label and the advice they received.

[52]     There was evidence from both electricians and wholesalers that the safety of an electrical product was important to them.  This is hardly surprising and it goes beyond the mere fact of what the label shows the short circuit capacity to be.  I am satisfied from the evidence that had customers been told that the BM did not comply with Regulation 69 because it could not perform reliably at either 3kA or even at the lower 1.5kA they would not have purchased the product.  The success of the Tempro does not detract from this because that product is no doubt being offered as one that does comply with Regulation 69 and there is no evidence that it does not.

[53]     Mr Hodder also submitted that there were some groups of buyers that were not misled and gave as an example individual buyers buying an mcb for the first time who would come with no preconception as to what an S91 was and would be simply buying  whatever  mcb  happened  to  be  provided  by  the  retailer.    However,  the situation of the individual buyer is problematic for that reason; their belief depended on the belief of the retailer selling the product.  If that retailer believed that the BM complied with Regulation 69 then that is the message that would be conveyed to the customer.  If the true position were known it is more likely that the customer would request a product that did comply and since the only alternative to the BM was the S91 then it is the S91 that would have been sold.

[54]      Mr Hodder also pointed to the fact that, while some wholesalers elected to return their BM stock to NZI, many did not, suggesting that they were satisfied with what they had bought.   This, Mr Hodder argued, supported an inference that wholesaler  customers  would  not  have  behaved  any  differently  had  the  correct position been put to them.  He submitted that it was inherently unlikely that large numbers of wholesalers and retailers laboured for the entire period between January

2004 and September 2006 under the misapprehension that NZI’s BM product was the same as the S91.   In fact, that is exactly what the evidence suggested; sample purchases made by loss adjusters in late 2004 and visits in September 2005 showed that there were still staff who were not distinguishing between the S91 and the BM. I take this as reflecting a belief that there was no difference between them.

[55]     However, I do accept that the fact some wholesalers did not return their BM stock indicates that there are some who would still have bought the BM even if the true position had been advised and an apportionment should be made to reflect that fact.   The level of the apportionment cannot be a precise calculation and must be made on the basis of impression.  Having regard to the evidence overall I think that a reduction of 10% would be a reasonable allowance for the fact that some people may have purchased the BM anyway, out of preference for dealing with NZI.

What is ABB’s loss?

[56]     ABB claims that, but for the BM, it could reasonably have expected to sell the same number of S91s as are represented by the actual sales of S91 and BM combined in the period after 1 January 2004.   ABB’s expert witness, Mr Downs, calculated the loss of sales by comparing the actual S91 sales after 1 January 2004 with the total sales of BM and S91s after that date.   However, the plaintiffs each suffered a slightly different type of loss.  For each lost sale ABB NZ lost the gross profit it would have made, SGIND also lost the gross profit it would have made on the sale to ABB NZ, and Desto lost the royalty revenue payable by SGIND.   Mr Downs therefore calculated the respective losses in the following way:

•ABB NZ (the first plaintiff): the shortfall in number of S91 products sold multiplied by ABB NZ’s gross profit per unit.

•SGIND (the second plaintiff): the shortfall in number of S91 units sold multiplied by SGIND’s gross profit per unit multiplied by the gross profit per unit;

•Desto (the third plaintiff): the shortfall in value between the S91 sales by SGIND to ABB NZ multiplied by the royalty rate;

[57]     Based on information provided in Mr Cable’s brief, Mr Downs used the figure of 300,184 sales as being the applicable loss of sales for the 22-month period

1 January 2004 – 31 October 2005.   This would produce a monthly average sales figure of 13,644, which is the figure that Mr Brown submitted should also apply for

the period 1 November 2005 – 20 September 2006.  Mr Hodder did not raise any objection to these figures in submissions.

[58]     Mr Downs had used a sale price of $14.62 per unit in calculating the loss. This was the price at which ABB NZ first offered the S91 for sale in January 2004. Subsequently, it reduced that price in an attempt to make the S91 more attractive than the BM.  Despite Mr Cable’s view that a lower price should be used, this issue was not taken up in submissions either.  I accept that the original price at which the S91 came on to the market is an appropriate one to use.  Had ABB not been facing competition from the non-compliant BM, there would have been no reason to reduce the price.

[59]     Mr  Downs’  calculation  of  the  plaintiffs’  respective  losses  for  the  period

1 January 2004 - 20 September 2006 were:

a)        ABB NZ: loss of gross profit - $3,641,978 b)   SGIND: loss of gross profit - $1,303, 306 c) Desto: loss of royalty revenue - $86,723

[60]     From  these  figures ABB makes a  reduction to  reflect  the  fact  that  after

20 September 2006 NZI received 16,424 BMs back for credit.   The final figures claimed for lost S91 sales are therefore:

a)        ABB NZ: loss of gross profit - $3,507,719 b)   SGIND: loss of gross profit - $966,316

c)        Desto: loss of royalty revenue - $83,521

[61]     These figures are based on the assumption that over the period 1 January

2004 – 20 September 2006 the S91 would have dominated the market.   However, because I have rejected both this scenario and NZI’s assumption that NZI would have been present in the market with a legitimate competing product from 1 January

2004 I need to further adjust the figures to reflect my conclusion that NZI would probably have been back in the market with a legitimate product by early 2005.

[62]     On the available evidence the only practical method of determining a loss based on my view of the likely market position is to divide the final figures claimed by 993 days (the number of days in the period 1 January 2004 – 20 September 2006). For the first 12 months I allow the full amount claimed because I am satisfied that the S91 would have dominated the market during that period.   For the next 12 months I allow 50% of the amount of time it would take NZI to recapture the market share lost as a result of being out of the market.  For the final eight months I allow

40% of the amount claimed because I am satisfied that, eventually, NZI’s better distribution network would have resulted in a slightly greater market share.

[63]     I therefore find that the recoverable losses over the relevant period are:

a)        1 January 2004 – 1 January 2005

•         ABB NZ: $1,289,342.83

•         SGIND: $355,191.68

•         Desto: $30,700

b)        1 January 2005 – 1 January 2006

•         ABB NZ: $644,671.42

•         SGIND: $177,595.84

•         Desto: $15,350

c)        1  January 2006 – 20 September 2006

•         ABB NZ: $371,613.33

•         SGIND: $102,373

•         Desto: $8,848.35.00

Non-S91 losses

[64]     In addition to the losses claimed in respect of sales of S91 units ABB has also sought compensation for the lost sales it expected to achieve on other low-voltage products.  NZI had held a non-exclusive distributorship of non-S91 products.  ABB NZ’s chief executive officer, Mr Gobbie, had given evidence that ABB had been dissatisfied with NZI’s commitment to increasing its other low-voltage business.  He was, at that time, sales manager for low-voltage products for ABB Australia and perceived an opportunity to use the additional distribution profit margin and market presence of the S91 to leverage sales of other ABB low-voltage products.   NZI’s distributorship of the other low-voltage products was terminated effective 30 June

2003,  six  months  before  the  distribution  rights  to  the  S91  were  terminated. However, sales of the non-S91 products did not increase in the way ABB NZ hoped and it claims that this was due to the unfair competition from the BM.

[65]     No authority was cited to support this type of claim under the Fair Trading Act.   Mr Brown relied on patent infringement cases, particularly Gerber Garment Technology Inc v Lectra Systems Limited [1995] RPC 383; [1997] RPC 443 (CA) in which the plaintiff recovered losses not only in respect of the patented product but also profit that the patentee would have made in respect of spare parts and servicing for the infringing machines. In Gerber the first instance Judge, Jacob J, whose judgment was affirmed on appeal, held at 402 that:

…infringement of patent is another case where a secondary loss can be recovered, provided that secondary loss is a foreseeable consequence of the infringement.  The secondary loss may consist of sales of unpatented items which go with the patented item as a commercial matter (here the CAD, service and spares) and such loss as the patentee can establish results from the infringer establishing a business pre-expiry.  In all these cases it remains critical that the patentee can establish the factual basis: that his loss is caused by the infringement and foreseeably so.

and commenting on the question of foreseeability at 403:

The general policy of the law of tort in modern times is to provide compensation for damage which is foreseeably caused by the wrong.  I think that is the right test here.  Indeed it is a particularly appropriate test because,

as a business matter, the defendant himself cannot only foresee the consequence of the wrong to the plaintiff but also foresee (and so include as part of his business plans) the corresponding benefit to himself.

[66]     Mr  Brown  submitted  that  it  was  a  foreseeable  consequence  of  NZI’s misleading conduct that sales of other ABB low-voltage products by ABB NZ would be  adversely affected.    At  a  meeting  in  August  2003  between  Mr  Gobbie  and Mr Heron, Mr Heron commented that if ABB NZ was not interested in dealing with the defendant then it would have no difficulty sourcing competing low-voltage products elsewhere.   Immediately after that meeting Mr Heron met with another supplier of low-voltage products, NHP.

[67]     Mr Brown submitted that these facts show that, as early as October 2002, NZI knew that ABB NZ was planning to set up its own local sales unit covering all low-voltage  products.  ABB  also  points  to  correspondence  from  a  potential distributor, Electrex, with which it held negotiations in 2002.  Those negotiations did not culminate in a distribution agreement but Electrex did write to ABB NZ in August 2002 commenting that profit on sales of the S91 could be used to develop further business expansion and also provide a boost to current Electrex activities. Mr Brown suggested that this indicated that ABB NZ’s plan was an obvious one to anyone in the industry.

[68]     However, Mr Hodder resisted any suggestion that ABB NZ’s business plan was one that NZI either did or should have recognised, noting that ABB NZ had said nothing to NZI that would have suggested that building up its low-voltage business was the reason for terminating NZI’s distributorship of the S91.  To the contrary, it was presented as being an internal policy decision within the ABB group, which was quite untrue.

[69]     Had  ABB  NZ  ever  expressed  to  NZI  its  dissatisfaction  with  NZI’s performance or its desire to increase sales of other low-voltage products then there may have  been  some  foundation  for  asserting  that  NZI  should  have  known  or foreseen that this is what ABB NZ intended.   But to say nothing, and then present the change as one required by internal policy, meant that NZI was very unlikely to detect what ABB’s real plan was.  Nor do I see anything significant in the meeting held in August 2003.  The evidence did not suggest that this discussion about non-

S91 products was the main focus of the meeting.  The fact that NZI may have been looking for an alternative source of low-voltage products can hardly be viewed as a recognition by it that ABB NZ was hoping to increase that part of the market, much less that it intended to do so on the back of the S91 sales.

[70]     Further, I am not at all convinced that ABB’s lack of increased sales of low- voltage products was caused by NZI’s conduct.  ABB NZ had taken control of the sales and marketing of non-S91 products from early 2003 and NZI’s distribution rights to them ceased in June 2003.  Unlike the mcb market there was competition from  other  products.    Mr  Heron’s  view  was  that  the  other  products  dominated because ABB’s products were considered to be over-priced.   So NZI could easily have stocked other products in legitimate competition with ABB NZ.  There can be no question on the evidence that wholesalers preferred dealing with NZI.  There is no evidential basis on which to conclude that,  even  if  wholesalers  were forced through lack of choice to purchase S91s from ABB, that they would have forsaken NZI in respect of other products.

[71]     There was simply no evidence on which I could conclude that ABB would have had a better chance of expanding its low-voltage product market if the S91 had not faced competition from the BM.  The situation was not at all similar to that in Gerber. Rather, it falls more into the category described by Staughton LJ in the Court of Appeal at 456 of that case:

It  does  not follow  that, if customers  were  in  the  habit  of  purchasing  a patented article at the patentee’s supermarket, for example, he could claim against an infringer in respect of loss of profits on all the other items which the customers would buy in the supermarket but no longer bought.  The limit there would be one of causation, or remoteness, or both…

[72]     I therefore conclude that any losses ABB sustained in respect of the non-S91 products were not a foreseeable consequence of NZI’s conduct and, indeed, probably not a consequence at all.

Should ABB, as a rival trader, be awarded monetary relief?

[73]     Mr Hodder raised the question whether a substantial monetary award to ABB would be consistent with the promotion of competition in the market for mcbs to the long-term benefit of consumers in New Zealand.  He pointed to the fact that ABB had raised the price of the S91 by about 30% following my issuing of the injunction against NZI, submitting that, whilst unfair competition is not to be condoned, rival traders should not be able to obtain the benefit of a statutory provision designed for consumers and thereby stifle competition.   I did not understand Mr Hodder’s submission  to  be  that  a  rival  trader  should  never  be  entitled  to  monetary compensation but that, in granting such relief, the potential effect on competition in the market should be a consideration and that this was such a case.

[74]     Mr  Hodder’s  submission  drew  on  Thomas  J’s  dissenting  judgment  in

Neumegen v Neumegen & Co [1998] 3 NZLR 310 at 323-324:

Parliament enacted the Commerce Act to promote competition in the economy but, at the same time, passed the Fair Trading Act in order to enforce the basic concept of fair dealing in the conduct of commercial and other transactions.  See Livingstone v Roskilly [1992] 3 NZLR 230 at p 239. But notwithstanding the possibility of a tension between these two objectives, it must be recognised that the Commerce Act was also passed in the public interest for the benefit of consumers. It, too, is consumer oriented legislation. Hence the two Acts should be seen as complementary and, as far as possible, be read and construed in harmony. Accepting that this is so, it is to be accepted that s 9 falls to be interpreted and applied in a competitive environment and is to be construed and applied in a manner which is consistent with the object of promoting competition. Unfair competition would not be condoned, but where there is nothing adverse or unfair to the relevant group of consumers, the courts should hesitate before intervening under s 9 to protect one trader from another.   Rival traders may bring proceedings under s 9, but that does not mean that a rival trader should be able to obtain the benefit of a statutory provision designed for consumers and thereby to stifle legitimate competition.   It is the interests of the consumers which are in issue and those interests should clearly be adversely or unfairly affected before the section is applied for their protection.

(emphasis added)

[75]     These sentiments do not appear to have been adopted in any subsequent case. They are inconsistent with the plain wording of s 43 which clearly allows for loss sustained by one trader at the hands of another to be compensated.  While the FTA is unquestionably consumer-oriented  legislation  and  injunctive  relief  under  s  41  is

probably the most commonly sought relief in “rival trader” cases, if Parliament had wished to limit monetary compensation being paid by a competitor, s 43 would, I am sure, have given that indication.  Further, compensating for such loss is, ultimately, likely to benefit consumers by providing a financial disincentive for unethical traders to act in a misleading and deceptive manner.

Defence of illegality

[76]     Under Regulation 101A Electricity Regulations 1997 certain types of goods (including circuit breakers) must not be  sold  in  New  Zealand  unless  there  is  a supplier declaration available in respect of them.  The evidence was that ABB NZ had never provided a supplier declaration in respect of the S91s it distributed after January 2004.

Was ABB obliged to comply with Regulation 101A?

[77]     In my judgment on liability I expressed the preliminary view that it was implicit in Mr Gobbie’s evidence that the S91 was sold in Australia and complied with the requirements there and therefore ABB was relieved of the obligation to comply with New Zealand requirements by virtue of s 10(1) Trans Tasman Mutual Recognition Act 1997.  NZI accepted, for the purposes of this hearing, my statement of the law that if the S91 was sold in Australia then it was not required to comply with New Zealand requirements.  However, Mr Hodder submitted that the S91 that was sold in Australia was not in fact the same product as the S91 sold in New Zealand.

[78]     Mr Hodder referred me to Mr Gobbie’s evidence in which he referred to the Australian S91 as the “ring grip” model, which had different legs.  Mr Huber had given evidence that the legs had to be designed and tested in combination with the mcb to ensure that it operated safely when plugged into the base it was likely to be used with.   I accept that this is the effect of the evidence.   The S91 is invariably marketed with the legs already attached.  That is the form in which it is supplied to wholesalers.   I accept that the effect of the evidence is that the S91 being sold in

New Zealand was a different product from that being sold in Australia.  As a result, ABB should have complied with Regulation 101A and, clearly, it did not.

The nature of the defence of illegality

[79]     NZI says that as a result of the failure to comply with Regulation 101A the S91 was in the market illegally and the Court should exercise its discretion against compensating ABB because it was not, in fact, entitled to have made any profit. ABB says that this argument is one that should have been signalled on the pleadings and should not be permitted now.

[80]     The defence of illegality is a defence not often used, based on the maxim ex turpi causa non oritur actio – no right of action arises from a shameful cause.   It serves the public policy purpose of withholding recovery from a plaintiff which has, itself, acted wrongly.  In New Zealand there is no statement by the Court of Appeal as to the circumstances in which it might apply in this country.  It was considered and applied in a claim for trespass in Brown v Dunsmuir [1994] 3 NZLR 485 by Penlington J, who adopted the following summary of relevant principles from the judgment of Kerr LJ in Euro-Diam Limited v Bathhurst [1990] 1 QB 1 (CA):

(1)The ex turpi causa defence ultimately rests on the principle of public policy that the courts will not assist a plaintiff who has been guilty of illegal (or immoral) conduct of which the courts should take notice. It applies if in all the circumstances it would be an affront to the public conscience to grant the plaintiff the relief which he seeks because the Court would thereby appear to assist or encourage the plaintiff in his illegal conduct or to encourage others in similar acts: see (2)(iii) below.

The problem is not only to apply this principle, but also to respect its limits, in relation to the facts of particular cases in the light of the authorities.

(2)The authorities show that in a number of situations the ex turpi causa defence will prima facie succeed. The main ones are: (i) where    the plaintiff seeks to, or  is  forced  to,  found  his  claim on  an  illegal contract or to plead its illegality in order to support his claim; see eg. Bowmakers Limited v Barnet Instruments Limited [1945] KB 65, 71. For that purpose it makes no difference whether the illegality is raised in the plaintiff’s claim or by way of reply to a ground of defence: Taylor v Chester (1869) LR 4 QB 309, as there cited. Other illustrations are Gascoigne v Gascoigne [1918] 1 KB 223 and

In re Emery’s Investments Trusts [1959] CH 410, approved by the

Court of Appeal in Tinker v Tinker [1970] p136.

(ii)       Where the grant of relief to the plaintiff would enable him to benefit from his criminal conduct: see eg. Cleaver v Mutual Reserve Fund Life Association Limited [1892] 1 QB 147,

156 per Fry LJ, In the Estate of Crippen [1911] P 108;

Beresford v Royal Insurance Co Limited [1938] AC 586 and Geismar v Sun Alliance and London Insurance Limited [1978] QB 383…

(iii)      Where, even though neither (i) nor (ii) is applicable to the plaintiff’s claim, the situation is nevertheless residually covered by the general principle summarised in (i) above. This is most recently illustrated by the judgment of Hutchison J in  Thackwell  v  Barclays  Bank  plc  [1986]  1

All ER 676, in particular at pp 687, 689, as approved by this

Court in Saunders v Edwards [1987] 1 WLR 1116, 1127 and 1134, and in particular per Nicholls LJ at p1132.

(3)However,   the   ex   turpi   causa   defence   must   be   approached pragmatically and with caution, depending on the circumstances: see eg. per Bingham LJ in Saunders v Edwards at p1134.

[81]     I also adopt these principles.  However, it is not entirely clear what the nature and seriousness of the conduct must be to justify the defence succeeding.  In Brown v Dunsmuir, Penlington J adopted the Euro-Diam formulation of whether it would be “an affront to the public conscience” to grant the plaintiff relief without attempting to identify what type of conduct would be so regarded.   Given the public policy objective  it  is  probably  undesirable  to  try  and  do  so;  what  is  regarded  as unacceptable by the  community is  liable  to  change  over  time.    It  seems  clear, however, that the test is not to be confined to purely criminal acts.   In Brown v Dunsmuir for example, the plaintiff sued his neighbour for trespass for having placed soil on his property to prevent subsidence but was deprived of his judgment for nominal damages for the trespass because it had been prompted by his own excavation in breach of the relevant by-law.

[82]     Although the defence has been applied in claims for both breach of contract and tort, as far as I am aware, it has not been raised in a claim under the FTA.  It is well established that a plaintiff’s conduct can be taken into account in assessing causation and loss under the FTA: Goldsbro v Walker [1993] 1 NZLR 394 at 399,

404, 406.  If ABB’s breach of Regulation 101A had contributed to its loss that fact would be taken into account in the usual way.   However, the defence of illegality

does not depend on any element of causation.  It is a policy response to unworthy conduct by a plaintiff whose loss would otherwise be compensated.  Nevertheless, there is no reason that the defence ought not be available to a claim under the FTA. The public policy concerns raised through unworthy conduct by a plaintiff claiming under the FTA are no less than those raised in relation to a claim for breach of contract or tort.  Indeed, because the interests of consumers can usually be secured through injunctive or declaratory relief, the application of the defence to a monetary claim under the FTA could be an effective tool in appropriate circumstances.

Should NZI be permitted to rely on the defence of illegality?

[83]     The possibility that the S91 has been in the market unlawfully since January

2004 was not raised on the pleadings.  Cross-examination on the point was limited to Mr Gobbie being asked whether he had given a supplier declaration in respect of the S91.  It was never put to him that the S91 was unlawfully in the market as a result of ABB’s  failure  to  do  so.    The  first  time  the  issue  was  raised  was  in  closing submissions on behalf of NZI at the conclusion of the trial.  Mr Brown submitted that NZI should not be permitted to raise an affirmative defence at this late stage without having pleaded it and without having explicitly put the proposition to any ABB witness in cross-examination.

[84]     The defence is clearly an affirmative one that should have been pleaded or at least explicitly signalled to ABB during the course of the trial.   Other aspects of ABB’s conduct was put in issue on the pleadings, namely in relation to an alleged representation as to the copyright status of the S91 and in relation to the design of the legs for the S91.  There is no reason that NZI could not have explicitly signalled its reliance on this aspect of ABB’s conduct as well.

[85]     Because the trial proceeded on the basis that the safety and suitability of the S91 was not in issue  I was not required to make any finding as to whether it complied with the  Electricity Regulations  1997.  This  is  relevant  to  the  defence because mere non-compliance with Regulation 101A could not, in itself, justify depriving ABB of its compensation. It is the seriousness of ABB’s conduct that would determine that.

[86]     Regulation 101A provides:

(1)      The Secretary may, from time to time -

(a)  Specify fittings or electrical appliances that must not be sold, or offered for sale, before a declaration of compliance by the supplier is given; and

(b) Prescribe the form of declaration of compliance that must be used by a supplier.

[87]     Under  Regulation  107  selling  or  offering  for  sale  electrical  appliances specified under Regulation 101A(1)(a) for which there is no declaration of compliance is an offence attracting a fine not exceeding $10,000.   The prescribed declaration of compliance must include a statement by the supplier that the electrical appliance complies with Regulation 69.   Regulation 69 requires all electrical installations, fittings, appliances and associated equipment to be designed, constructed, maintained, installed and used so that they are electrically safe.

[88]     While the failure to provide a supplier declaration as required by Regulation

101A is undoubtedly an offence under the Electricity Regulations 1997, it could hardly be described as a serious one where the product in question would, in fact, comply with the  relevant  standards.  If the  product  was  electrically safe for  the purposes  of  Regulation  69  a  failure  to  provide  a  supplier  certificate  would  be unlikely to justify precluding ABB from recovering in  respect of NZI’s  proven breaches. However, NZI’s failure to put this aspect in issue from the outset means there this issue was not dealt with.

[89]     NZI did apply earlier this year for orders that that the trial be re-opened so that it could adduce further evidence, including evidence in relation to compliance of the S91 of the relevant Standard. At that stage, the reason given that that it wished to assert, belatedly, that the S91 was not in the market legally and ABB had therefore not lost any opportunity to market it. There was no mention of compliance with Regulation 101A nor of the defence of illegality. In these circumstances there is insufficient evidence on which to properly determine the seriousness of any breach by ABB of Regulation 101A and therefore insufficient evidence on which to determine the defence of illegality. I therefore decline to allow NZI to raise the defence now.

Copyright cause of action - account of profits

Should NZI be required to account for all profits from the BM?

[90]     An account of profit is equitable in nature.  Its purpose is not to punish an infringer but to prevent unjust enrichment by stripping it of profits obtained through the infringement.   The difference was expressed by Laddie J in Celanese International Corp v BP Chemicals Limited [1999] RPC 203 at [36]:

Instead of looking to the harm inflicted on the plaintiff it considers the profit made by the infringer.   The defendant is treated as if he conducted his business and made profits on behalf of the plaintiff.

[91]     A party guilty of infringing another’s copyright is, however, only liable to account for the profits attributable to that infringement.  The general principle was stated by Windeyer J in Colbeam Palmer Limited v Stock Affiliates Pty Limited (1968) 122 CLR 25 at 42:

The true rule, I consider, is that a person who wrongly uses another man’s industrial property-patent, copyright, trademark - is accountable for any profits which he makes which are attributable to his use of the property which was not his.

[92]     The issue in the present case is whether there should be an apportionment of the profit to be accounted for, given that the BM comprises both infringing and non- infringing parts.   The S91 as it existed in 2004 was the culmination of many modifications carried out to the original design between 1989 - 1994.  Fourteen of these, undertaken in the early to mid-1990s, were detailed by Mr  Huber in his evidence.   Copyright was claimed in the drawings relating to four of these modifications but I found that only three were the subject of infringement by NZI. All of the other parts of the S91 could have been copied lawfully.  In addition, the legs that were attached to the S91 were designed and made by NZI itself.

[93]     Mr  Brown  referred  to  my  earlier  finding  that  those  three  parts  were functionally significant to the S91, submitting that the BM could not have been manufactured without them.  He relied on the decisions in Peter Pan Manufacturing Corporation v Corsets Silhouette Limited [1963] 3 All ER 402 and Dart Industries Inc v Décor Corporation Pty Limited (1993) 26 IPR 193, in which the infringers

were required to account for all the profits because the products in those cases would not have been made at all without the use of the confidential information (Peter Pan) or without the patented part (Dart Industries).

[94]     Mr Hodder submitted that, even if functionally significant, the infringing features of the BM still only represented three of the modifications made to the original S91 design and apportionment was needed to achieve an equitable result. He relied on Robert J Zupanovich Pty Limited v B & N Beale Nominees Pty Limited (1995) 32 IPR 339 in which home units had been built using substantial parts of the applicant’s copyrighted plans. Carr J ordered that there be apportionment, distinguishing the case from Peter Pan on the ground that the buildings could still have been constructed without the use of the applicant’s drawings.

[95]     However, none of these cases deals with the difficult issue of a composite article in which both the infringing parts and non-infringing parts are essential to the overall functioning of the whole product, which is the position in this case.   In Colbeam Palmer Windeyer J did consider this problem, referring to the decision in The United Horse-nail Co v Stewart & Co (1886) 3 RPC 139:

Lord Kinnear in the Court of Session in Scotland sufficiently summarised the course of earlier decisions when he said “..and there is certainly a great deal of authority for saying that where only a part of a complex machine is protected by a patent, the infringer cannot be made liable for the aggregate profit derived from the entire machine, as if that were the profit he had made by the use of the patent”…  And in the same case on appeal, Lord Watson said that in a patent action, if the patentee elects to have profits instead of damages, “…it becomes material to ascertain how much of his invention was actually  appropriated,  in  order  to  determine  what  proportion  of  the  net profits realised by the infringer was attributable to its use.   It would be unreasonable to give the patentee profits which were not earned by the use of his invention…

[96]     Windeyer J also considered the decision of the United States Supreme Court in Sheldon v Metro Goldwyn Pictures Corp (1940) 309 US 390 [84 Law Ed 825], where the defendant had infringed the plaintiff’s copyright in a play when producing a motion picture. However, the evidence showed that a substantial part of the picture’s success was the use of popular actors and the skill used in the actual production process. The defendant argued for an apportionment to recognise these aspects. The Supreme Court concluded at 405 that:

…We perceive no ground for saying that in awarding profits to the copyright proprietor as a means of compensation, the Court may make an award of profits which have been shown not to be due to the infringement.   That would be not to do equity but to inflict an unauthorised penalty.  To call the infringer a trustee ex maleficio merely indicates “a mode of approach and an imperfect analogy by which the wrongdoer will be made to hand over the proceeds of his wrong”: Larsen Co v Wrigley Co, 277 US 97, 99, 100. He is in the position of one who has confused his own gains with those which belong to another: Westinghouse v Wagner Co, supra p 618……Where there is a commingling of gains, he must abide the consequences, unless he can make a separation of the profits so as to assure to the injured party all that justly belongs to him.  When such an apportionment has been fairly made, the copyright proprietor receives all the profits which have been gained through the use of the infringing material and that is all that the statute authorises and equity sanctions.

[97]     The Supreme Court went on to hold at 408 that the evidence did justify the apportionment made by the Court below, commenting that:

Equity is concerned with making a fair apportionment so that neither party will have what justly belongs to the other.

[98]     This issue was considered more recently in Celanese International which concerned a chemical manufactured using, in part, a patented process.   Laddie J considered that to refuse an apportionment when a significant part of the profits owed nothing to the infringement would be unjust to the defendant, agreeing with the views expressed by the Canadian Federal Court of Appeal in Imperial Oil v Lubrizol [1996] 71 C.P.R. (3d) 26:

The remedy of an account of profits is an equitable one. Its purpose is not to punish the defendant but simply to have him surrender the actual profits he had made at the plaintiff’s expense.  But if some part of Imperial’s profit on the infringing sales can be shown to have been due not to the appropriation of the Lubrizol invention but to some other factor where is the equity?  We were told that Lubrizol contends that Imperial’s motor oil infringes another of its patents and has sued in respect thereof.   May the same profits be claimed a second time?   And if not by Lubrizol what of some third party patentee who likewise claims infringement?   And even if no other patents were involved, to allow Lubrizol to take profits which Imperial succeeds in showing were solely attributable to some non-infringing feature of its motor oil would be to judicially sanction Lubrizol’s unjust enrichment at Imperial’s expense.

[99]      I think it is clear that where both infringing and non-infringing parts play an essential part in the function of the product in question then apportionment is appropriate provided, of course, that there is some evidence on which to make an

assessment of the relative contributions of the infringing and non-infringing parts of the product.  Not to do so risks the copyright owner being unjustly enriched and the infringer punished which is not the purpose of the remedy.

[100]   In this case I am satisfied that an equitable result requires apportionment and that there is evidence on which I can make an assessment as to what that apportionment should be, bearing in mind Slade J’s comments in My Kinda Town Limited v Soll [1983] RPC 15 at 58 that:

What will be required on the inquiry…will not be mathematical exactness but only a reasonable approximation.

To what extent should NZI account for its profit?

[101]   As far as I am aware there is no New Zealand case that deals with the method to be used in determining the extent to which the infringer must account for its profit where the product in question comprises both infringing and non-infringing components.  The English and Canadian cases vary in their approaches.  In Potton Limited v Yorkclose Limited [1990] FSR 11, a case involving infringement of copyright in house plans, Millet J said at [19]:

Generally speaking, however, in a case like the present the profits ought not in my view to be apportioned by reference to evidence of or speculation about  the  motives  of  real  or  hypothetical  purchasers  or  the  relative attractions to such purchasers of different aspects of the work.   A better guide is likely to be provided by ordinary accounting principles whereby, in the absence of some special reason to the contrary, the profits of a single project are attributed to different parts or aspects of the project in the same proportions as the costs and expenses are attributed to them.   It should, however, also be borne in mind, that, as Slade J said in My Kinda Town Limited v Soll at p58, what is required on an enquiry of this kind is not mathematical exactness but a reasonable approximation.

[102]   However, the difficulties inherent in a product comprising both infringing and non-infringing parts means that this approach will often be impractical, a point recognised by Laddie J in Celanese International, who made the following observation about the decision in Potton:

[54]     By this method the whole project “cake”, the size of which is determined by its costs and expenses, is divided into slices. It is only the profit  icing  on  the  infringing  slice  (the  relative  size  of  which  is  also

measured by reference to its relevant costs and expenses) for which the defendant has to account…

[55]     In Potton the profits icing was evenly spread over the total project cake and Millett J counselled against taking into account imprecise factors such as customer motives and the relative attractions of different parts of a project, at least as a general matter. I do not read this as laying down a rule requiring the Court to ignore in all cases the relative importance of different parts of a composite article or process.  In some cases the Court may feel that, as a matter of fairness, more of the profit must be attributed notionally to some parts than to others. It may feel that the costs or expenses may not be an accurate reflection of the contribution made by any particular part of the whole.

(emphasis added)

[103]   Laddie J referred to the process of notionally attributing more of the profit to some parts than others as “weighting” and used as an example the Canadian case of Wellcome Foundation Limited v Apotex Inc (1998) 82 CPR (3d) 466; (1998) 151

FTR 250, affirmed on appeal in Wellcome Foundation Limited  v Apotex Inc [2001]

2 FCR 618, in which an apportionment was made based on the relative importance or value of the infringing feature to the product as a whole.

[104]   In Wellcome Foundation the defendant had manufactured a drug containing two active ingredients, trimethoprim (TMP) and sulfamethoxazole (SMX).  Some of the TMP sourced by the defendant had been manufactured through a process that infringed the plaintiff’s patent.  The defendant’s drug contained a TMP/SMX weight ratio of 1:5 but SMX was half the cost of TMP.  The defendant argued methods of apportionment that depended either on the profits being split in accordance with the weight ratio of the drugs or alternatively in accordance with the relative costs of the ingredients.   MacKay J rejected these methods saying that they underplayed the significance of TMP as the major potentiating ingredient in the combination drug:

[58]     In my opinion in this case the proper apportionment is 60% of the profits earned by Apotex from use of infringing TMP with SMX, both active ingredients, in Apo-Sulfatrim.  That ratio recognises, albeit in a simplified calculation, that there are  two active  ingredients, that TMP is the  more significant of the two in combination, and that the profit does result at least in part from Apotex’s efforts to successfully develop the generic product and its market.  I am satisfied that Apotex has shown that a portion of the profits may be attributable to SMX in formulation as an active ingredient and to its successful efforts in developing and marketing Apo-Sulfatrim.  Recognition of that warrants apportionment of total profits to be accounted and in my view, fair recognition of that is provided by reserving 40% of Apotex’s

profits and apportioning 60% to the accounting of profits to be paid to the plaintiffs.

[105]   Laddie J recognised the advantages of the approach in Wellcome Foundation

but also warned of its dangers:

[57]     The  attractions  of  following  MacKay  J’s  path  are  obvious.    It releases the Judge from mathematical constraints and allows him a wide discretion to pick whatever figure he thinks is fair.   Nevertheless Millet J warned against taking relative value into consideration in the absence of compelling evidence.   That warning appears to me, with respect, to have much force.   Adjusting the apportionment up or down in response to imprecise feelings that one part of a product or process is more or less important or valuable than another will add another layer of unpredictability to an exercise which is already difficult enough.  It is also likely to result in the   account   being  burdened   with   evidence   directed   to   flattering   or denigrating the relative merits of different parts when, as a matter of commercial reality, the customer does not really distinguish one part from another.   All he wants is the whole product or service.   The concept of “value” is ill-suited to apportionment.   It treats each step or part of the process or product as if it had an existence or value of its own.  But if the product or process makes a profit, it does it as a whole.  In most cases it is not realistic to say that one part is more important than another.  Where the part cannot be severed from the rest and sold or exploited on its own it acquires its value by reason of its co-operation and interaction with the other parts. (emphasis added).

[106] It seems to me that the approaches exemplified by Potton, Wellcome Foundation and Celanese International are not mutually exclusive and nor would it be right to identify any one of them as being the only appropriate approach. Attributing revenue and cost to different parts of a building project will usually be a far simpler task than doing so in relation to a small product designed to function as a single unit.  In the case of a composite article, however, there is no doubt that the approaches   taken   in   Wellcome   Foundation   and   Celanese   International   are preferable.  Where, as in this case, the product comprises many components, none of which is especially expensive and all of which operate in unison, the relevant parts are best viewed in the manner described by Laddie J in Celanese International i.e. the value of the infringed parts lies in co-operation and interaction with the other parts.

[107]   The S91 in its current form was the result of modifications made to the previous  design  so  as  to  make  it  comply  with  the  new  international  standard

IEC60898 introduced in 1989.  This new standard replaced individual standards in Australia, England, Belgium and France and there was a transitional period allowed for the modification of products in order to comply with it.  I consider that I must assess the value of the infringed drawings in terms of their functionality in the context of all the other components that made up the S91 i.e. the other modifications that were not the subject of copyright and the unmodified parts of the S91.

[108]   Mr Huber provided a schedule of fourteen significant changes made to the S91 (there were others that he did not detail) and described the process by which the S91 was modified to comply with the new international standard.   He said that, because of the complexity of the process, it was not possible to determine what all the necessary changes would be and make them all at the same time.  It was inherent in the design and development process that each change had to be made and tested before another change could be made.   Otherwise one would not know what the effect of an individual change was:

[89]      Each of these modifications took considerable work and testing.  All the listed modifications affected the thermal and magnet tripping as well as the short circuit behaviour of the product.   By this I mean both and of themselves, and collectively, they were crucial to the effective working of the device.

[90]     For each modification, Desto had to make samples for testing and confirming if the products were still meeting the requirements according to the Standard.  As one modification was made one after another, I estimate it took two persons at least half a year working fulltime until everything was tested, confirmed and released for production.

Later in his evidence he said:

These [the modifications to which copyright was claimed] were four of the many changes Desto made to the S91.  They cannot be viewed in isolation. As I have already stated in my brief (paragraph 90) each change was crucial to the working of the S91.   But it was only the combination of all these changes which made it possible for the product to fulfil all the requirements of the IEC standard.

[109]   On the basis of Mr Huber’s evidence the only conclusion I can come to is that all of the modifications were necessary and all were of roughly equal importance. My finding that some of the modifications were functionally significant for the purposes of establishing copyright does not mean that those modifications were the only ones essential to the functioning of the BM.  Nor does the fact that a particular

modification (e.g. drawing GHS 090 3201) did not attract copyright mean that it did not contribute equally to the operation of the mcb.  I therefore attribute equal value to all of the modifications for the purpose of assessing the extent to which the infringing parts contributed to the profit that NZI made.

[110]   However, while the modifications were highly significant (without them the S91   would   not   comply  with   the   international   standard   and   could   not   be manufactured in its current form) the components that remained the same also need to  be  taken  into  account.    As  between  the  fourteen  significant  modifications identified by Mr Huber and the other parts of the mcb I ascribe the greater value to those modifications on the basis of 70:30.  However, of the fourteen modifications only three (or 21%) were the subject of copyright.  This means that the significant modifications comprised about 15% of the overall components.  I conclude that it is this proportion of the profit that NZI is liable to account for over the relevant period.

Method of calculating profit from sale of BMs

[111]   There was evidence given by Mr Downs and Mr Cable as to the gross profit per BM sold, Mr Downs assessing that figure at $8.67 and Mr Cable at $8.66.  For the purposes of the account ABB accepts Mr Cable’s gross profit figure of $8.66. They also accept the actual number of BMs sold during the period 1 January 2004 –

31 October 2005 as being 300,184 (this figure provided by NZI).

[112]   Neither gave evidence regarding the deductions applied to reach the gross profit figure and I assume that the absorption method was used.  However, since the parties are agreed as to the gross profit figure I am prepared to accept those figures as the basis on which profit should be accounted.

Avoiding “double recovery”

[113]   Mr Brown and Mr Hodder both addressed me on the need to avoid double recovery in respect of the damages awarded under the FTA and any profit obtained through the election for an account of profit.  Desto accepts that, in order to avoid

recovering twice over, it can only receive either its loss under the FTA causes of action or the profits under the copyright cause of action.   Mr  Brown drew my attention to the approach taken in House of Spring Gardens Limited v Point Blank Limited [1985] FSR 327 in which the plaintiff was held to be entitled to both damages for breach of contract and an account of profit for breach of copyright, save that the account of profit was to be subject to a deduction to the extent of the damages for breach of contract.

[114]   In this case there is the added complication that the basis on which Desto seeks an account of profit is, of course, the same as the basis of the claims by all the plaintiffs in the FTA causes of action i.e. the total number of BMs sold.  Mr Brown submitted that this complication was best dealt with by deducting the full damages figure for all the plaintiffs from the profit to be accounted for.  Mr Hodder similarly submitted that double recovery should be avoided by treating any damages awarded on the FTA causes of action (including in favour of SGIND and ABB NZ) as NZI costs in the accounting.

[115]  However, neither counsel raised the possibility that, in the event of an apportionment, this approach might unfairly disadvantage Desto.  The apportionment that I have found to be appropriate means that NZI retains most of the profit made from the BM.  In comparison, the damages awarded under the FTA have only been slightly reduced to recognise the likelihood that ABB would have faced legitimate competition  from  NZI.    This  means  that,  rather  than  the  possibility  of  double recovery by Desto, the risk is actually unjust enrichment of NZI.  I think that counsel should have the opportunity to consider this issue before I provide directions as to the basis on which the account is to be taken.

Who should take the account?

[116]   Desto seeks an order pursuant to R 388(b)(1) that one of the accountants it has nominated take the account of profit, subject to directions from the Court and that in doing so the accountant may proceed on the basis that the gross profit earned by NZI in the relevant period was $2,599,593.40, being 300,184 BMs at $8.66 each.

[117]   In contrast, Mr Hodder submitted that the Court should take the account, with any party who wishes to call further evidence being free to so do so.

[118]   There was some debate as to whether the Court was entitled to undertake the account, given the terms of R 388:

Before whom account may be taken -

1)Accounts may be ordered or taken before - (a)  The Registrar; or

(b) An accountant; or

(c)  The Registrar and an accountant

2)Unless otherwise  ordered,  any  accountant  who  takes  an  account shall be a member of the Institute of Chartered Accountants of New Zealand  who  is  classified  as  a  chartered  accountant  in  public practice.

[119]   The  question  whether  an  account  may  be  taken  before  a  judge  was specifically considered in Aitchison v The Kaitangata Railway & Coal Company Limited (No 2) (1900) 21 NZLR 149, in which Williams J pointed out that neither the Registrar nor any other person conducting an inquiry forms a separate tribunal. They are appointed by the Court in order that the Court may exercise its judicial function. If the Court can do that without such assistance, it may proceed to undertake the account itself. An obvious example where it might be appropriate, as was the case in Aitchison, is where the Judge has already heard the relevant evidence and it would be more convenient and efficient for the Judge to then undertake the account.

[120]   In this case, however, I do not think that it is either necessary or appropriate that I take the account myself.  Provided that I give adequate directions as to what approach is to be taken the actual account is best taken by an accountant.  Mr Hodder did not express any objection to the accountants nominated by ABB (save for the overriding objection to having an accountant undertake the task at all).   I consider that Mr Malcolm Innes-Jones would be an appropriate choice and therefore direct that he be appointed at the rate of remuneration and on the terms contained in the

draft order attached to Mr Brown’s submissions, subject to directions that I will give following consultation with counsel on the issue of double recovery discussed above.

Interest

Fair Trading Act causes of action

[121]   The plaintiffs seek interest on the various losses at 7.02%, being the average

90-day bill rate over the period January 2004 – April 2007.  This is an appropriate rate, the current maximum rate permitted by s 87 Judicature Act 1908 being 7.5%.

[122]   Mr Brown submitted that the causes of action accrued in January 2004 and that ABB’s losses were sustained progressively over the period January 2004 – September 2006.  ABB seeks to have interest run from January 2004 calculated, for fairness and  convenience on the periods 1 January 2004 – 31 October 2005, 1

November 2005 – 20 September 2006 and 21 September 2006 – 7 May 2007.

[123]   Mr Hodder did not suggest that interest calculated on this basis was unfair or suggest any alternative basis and I accept that interest should be awarded on this basis.

Breach of copyright cause of action

[124]   Recognising that an award of interest is intended to recompense a party for being kept out of money that rightfully belonged to it, I consider that it is proper that the profit that is the subject of the account attract interest at the same rate as that agreed to by the parties in relation to the FTA causes of action.

Result

[125]   In respect of the FTA causes of action I have held that:

a)        In determining the cause of ABB’s losses allowance must be made to recognise  the  likelihood  of  legitimate  competition  from  NZI from

1 January 2005;

b)ABB has proven losses caused by NZI’s contravening conduct that was the subject of the first FTA cause of action.   Its losses can be determined by reference to the total sales of BM units subject to the adjustment referred to above;

c)       ABB has also proven losses as a result of customers being misled by NZI’s misrepresentations as to suitability for purpose.   These losses are also to be determined by reference to the total sales of the BM units but are subject to a 10% reduction to reflect the likelihood of some people deciding to buy the BM regardless of the true position out of a preference for dealing with NZI.  However, having regard to my finding on the first cause of action, this reduction has no practical effect on the plaintiffs’ overall recoveries under the FTA;

d)ABB cannot recover in respect of non-S91 losses.   Its inability to build its low-voltage business on the back of S91 sales was not a foreseeable consequence of NZI’s conduct;

e)       NZI is not entitled to rely on the defence of illegality. It failed either to plead it or to raise the issue at an appropriate stage during the trial and it would be unfair to ABB to allow the defence to be raised now. Further, because the issue was not raised at trial there is insufficient evidence on which to determine the defence.

[126]   There will be judgment under the FTA as follows:

a)        For ABB NZ for $2,305,627.58;

b)       For SGIND for $635,160.52;

c)        Desto for $54,898.35

[127]   The plaintiffs will be entitled to interest on these sums at the rate of 7.02%, calculated for the following periods:

a)        1 January 2004 – 31 October 2005;

b)       1 November 2005 – 20 September  2006;

c)         21 September 2006 – 7 May 2007.

[128]   In relation to the breach of copyright cause of action I have found:

a)       Because the BM comprises infringing and non-infringing parts which are all essential to its functionality apportionment is appropriate.  The appropriate basis for apportionment is to treat the infringing parts as acquiring their value by reason of their co-operation and interaction with the other parts;

b)Mr Huber’s evidence provides an adequate basis for assessing the respective   value   of   the   infringing   and   non-infringing   parts, recognising that only a reasonable approximation is required.  On the basis of this evidence I consider that the infringing parts and the other modifications which were not infringed are all equally important in the functioning of the BM.   However, these modifications do not account for the whole of the functionality of the BM.   Unmodified parts including the legs must be taken into account.   I assess the infringing parts as representing about 15% of the overall functionality of the BM and NZI is liable to account for that proportion of profit made on the BM over the relevant period;

c)       It is unnecessary for me to take the account.  I appoint Mr Malcolm Innes-Jones on the terms contained in ABB’s draft order and subject to directions which I will give following further consultation with counsel;

d)The amount of profit to be accounted for will attract interest at the rate of 7.02% to be calculated over the same periods as are to apply to the FTA cause of action.

[129]   Counsel are to file memoranda on the directions to be provided to Mr Innes- Jones,  addressing  particularly  the  question  of  how  to  avoid  allowing  an  unfair

recovery to Desto without unjustly enriching NZI.  If agreement can be reached as to an appropriate approach a consent memorandum can be file by 5pm 7 September

2007. Otherwise, memoranda are to be filed as follows:

a)        On behalf of ABB by 5 pm 7 September 2007. b)       On behalf of NZI by 5 pm 21 September 2007.

c)        On behalf of ABB in reply by 5 pm 28 September 2007.

P Courtney J