Dream Doors (NZ) Ltd v Mike Fatches Designs Ltd
[2014] NZHC 3280
•17 December 2014
IN THE HIGH COURT OF NEW ZEALAND NEW PLYMOUTH REGISTRY
CIV-2013-443-307 [2014] NZHC 3280
BETWEEN DREAM DOORS (NZ) LTD
First Plaintiff
AND
DEREK LILLY and PHILLIP JAY Second Plaintiffs
AND
MIKE FATCHES DESIGNS LTD First Defendant
AND
MICHAEL ERNEST FATCHES Second Defendant
AND
DREAM DOORS KITCHENS LTD Third Defendant
Hearing: 15 December 2014 Appearances:
P Dalkie for the Plaintiffs
Mr Fatches in personJudgment:
17 December 2014
JUDGMENT OF THOMAS J [FORMAL PROOF]
This judgment was delivered by me on 17 December 2014 at 12.00 pm pursuant to Rule 11.5 of the High Court Rules.
Registrar/Deputy Registrar
Date:………………………….
Counsel:
P Dalkie, Auckland.
DREAM DOORS (NZ) LTD v MIKE FATCHES DESIGNS LTD & ORS [2014] NZHC 3280 [17 December
2014]
[1] On 25 February 2014, Toogood J issued a judgment concerning an application for interim orders in this proceeding in which the plaintiffs seek injunctive relief and damages for alleged breaches by the defendants of a contract protecting the plaintiffs’ trademark rights; passing off; and breaches of the Fair Trading Act 1986 and Trade Marks Act 2002.1 The judgment followed a hearing in the course of which the parties agreed on the terms of a consent order for interim injunction.
[2] The hearing involved formal proof of the plaintiffs’ substantive claim.
Factual background
[3] The Dream Doors franchise system, which provides for the renovation and installation of kitchens and joinery, was established in New Zealand in 2007.
[4] A franchise agreement was entered into between the first plaintiff and the first defendant, allowing the first defendant to use the Dream Doors concept and operate a Dream Doors business within Taranaki. The second plaintiffs are trustees of the Dream Trust which is owner of the Dream Doors trademark. The second defendant, Mr Michael Fatches, personally guaranteed the obligations of the first defendant under the agreement.
[5] During the term of the franchise agreement, the franchisee had the use of certain intellectual property comprising:
(a) a distinctive Dream Doors trademark registered in July 2007;
(b) a red and white colour scheme used in conjunction with the name
Dream Doors;
(c) manuals explaining the methodology to be used in the operation of the franchise; and
1 Dream Doors (NZ) Ltd v Mike Fatches Design Ltd [2014] NZHC 290.
(d)printed stationery and uniforms containing the trademark and colour scheme.
[6] The franchise agreement contained provisions protecting the plaintiffs’ intellectual property both during and after the term of the agreement. Intellectual property was defined broadly to include the system itself as well as brand names, trademarks, telephone numbers, know-how and other items. The agreement was terminated by consent on 31 May 2012, but on 1 June 2012, Mr Fatches was granted a one-year agency to carry on a Dream Doors business containing intellectual property-protection provisions similar to those in the franchise agreement. The first plaintiff took steps to terminate the agency agreement on 6 June 2013.
The substantive pleadings
[7] The plaintiffs allege that the defendants have committed breaches of their contractual and trademark obligations by:
(a) incorporating a company, Dream Doors Kitchens Limited (the third defendant), in order to carry on a kitchen-installation business;
(b) continuing to promote the business as “Dream Doors”;
(c) using the first plaintiff ’s trademark and colour scheme; and
(d)refusing to return the plaintiffs’ intellectual property, including transferring telephone numbers and uniforms used under the agency agreement.
[8] In addition to allegations of breach of s 89 of the Trade Marks Act, the plaintiffs allege breaches of s 9 of the Fair Trading Act and passing off.
[9] The defences asserted before Toogood J were:
(a) the third defendant was within its rights to use the name Dream Doors because it had been incorporated with that name; and
(b)the defendants were not in breach of the trademark and had not engaged in passing off or committed any breach of the Fair Trading Act because of differences between the emblem or mark used by the defendants in the conduct of their business and the plaintiffs’ mark.
The interlocutory proceeding
[10] To restrain the defendants from what the plaintiffs alleged to be continuing breaches pending a substantive judgment, the plaintiffs applied for interim orders.
[11] The defendants did not file a notice of opposition or any affidavits and the Court set the interlocutory application down for hearing on 25 February 2014. Mr Fatches wrote to the Court on 11 February 2014, a fortnight prior to the hearing, announcing that he was closing the business of Dream Doors Kitchens Limited and saying that all advertising bearing the name Dream Doors Kitchens would cease.
[12] At the hearing Mr Fatches agreed to the making of an interlocutory order which preserved his entitlement to the phone numbers but prohibited their use in conjunction with a business using the name “Dream Doors”.
Orders
[13] On that basis, Toogood J ordered:2
That an injunction shall issue pending further order of the Court to restrain the defendants from today from using the name Dream Doors or the Dream Doors trademark or any similar name in the operation and marketing of the defendants’ business, including the operation of any website and in connection with the phone numbers 027 444 2860 and 0800 645 333.
2 At [15].
Next steps
[14] A telephone conference was held with Sargisson AJ on 19 August 2014. On that date Mr Fatches advised the Court that he did not agree that the interim injunction should become permanent. He had filed a statement of defence described by the Associate Judge as discursive and failing to deal with the substance of the allegations. Furthermore, it failed to comply with High Court Rule 5.48. No affidavit evidence had been filed in respect of the interim injunction application which might have disclosed a defence. The Associate Judge gave the first and second defendants until 11 September 2014 to file and serve a statement of defence which complied with r 5.48 (the third defendant having been struck off the Companies Register). She directed that, if a complying statement of defence was not filed within the time allowed, a formal proof hearing would be allocated. No statement of defence was filed in accordance with the direction.
[15] Mr Fatches had raised an issue as to the correct name of the first defendant. The plaintiffs have filed an affidavit attaching a copy of the certificate of incorporation. I note the correct name is Mike Fatches Designs Ltd. I give leave to the plaintiff to amend the proceedings accordingly.
[16] There is on the Court file some correspondence from Mr Fatches raising concerns about the costs decision of Toogood J dated 19 June 2014 and it seems the judgment of 25 February 2014 wherein by consent the interim orders were granted. If I understand Mr Fatches’ correspondence correctly, he was under the impression that Toogood J considered the first defendant had nothing to do with the case. That cannot be right, however, because the first defendant was the franchise holder. Mr Fatches personally guaranteed the obligation of the company. It may well be that the confusion arose from a discussion as to the representation of the first defendant.
[17] In any event, I am satisfied that the claim is properly brought against the first defendant.
[18] On 12 December 2014 Mr Fatches filed what he described as a document “in
defence of the hearing on Monday 15 December 2014”. In that document he
repeated his complaints about the prior conduct in these proceedings. The only point of relevance to the formal proof hearing was the following:
Mike Fatches Designs Limited and Michael Fatches, Managing Director find it hard to offer a defence simply because Mike Fatches Designs Limited a duly register [sic] Company with the Companies office has done nothing wrong and confused [sic] as to why the hearing is called.
[19] Even putting that at its highest, it does not reveal any defence other than a simple denial. It does not answer the allegations. Furthermore, the document was not filed within the time required by the direction of the Associate Judge.
[20] Mr Fatches faced further problems in relation to the hearing. Mr Fatches was adjudicated bankrupt on 19 November 2014. As a consequence, Mr Fatches’ shares in the first defendant vested in the Official Assignee. As a bankrupt he cannot hold the office of director. The Official Assignee has been advised of these proceedings. He is satisfied the matter does not involve any debt provable in the bankruptcy, it does not fall within s 76(1) Insolvency Act 2006 and is not halted as a result of Mr Fatches’ adjudication. The Official Assignee confirmed that the plaintiffs were entitled to proceed with the formal proof hearing without requiring leave.
[21] These matters were discussed with Mr Fatches at the hearing. He remained somewhat confused about the procedural history of the matter. His dissatisfaction was exacerbated it seems by the submissions filed on behalf of the plaintiffs, causing him to repeat his position that the defendants had not done anything wrong and that the plaintiff had to prove damages.
[22] Once it was explained to Mr Fatches that the formal proof hearing was for the sole purpose of making final the interim orders to which he had consented in February, his resistance appeared to fall away. He specifically agreed that he had no objection to the orders being made permanent.
Consideration
[23] Having perused the affidavit evidence filed on behalf of the plaintiff and having considered the second amended statement of claim, I am satisfied on the balance of probabilities that:
(1)The first and second defendants have breached the franchise agreement, the deed of termination and the agency agreement in the ways identified in the statement of claim.
(2)The first and second defendants have infringed the second plaintiff ’s trademark in breach of s 89 of the Trademarks Act in the ways set out in the statement of claim.
(3)The first and second defendants have engaged in misleading and deceptive conduct in breach of s 9 of the Fair Trading Act 1986 in undertaking the activities described in the statement of claim.
(4)The first and second defendants are passing off their services as those provided by the plaintiffs as alleged in the statement of claim.
[24] I am satisfied that the plaintiffs have a legal proprietary right which is threatened and the defendants’ infringements are likely to be repeated unless the defendants are restrained. Damages are not an adequate remedy because of the loss of good will and the other matters referred to by the plaintiffs. I am satisfied that the orders sought by the plaintiffs are narrow in their scope.
[25] I am satisfied that it is in the interests of justice that the interim orders are made permanent.
[26] Judgment is given for the plaintiffs against the first and second defendants. I grant a permanent injunction restraining the first and second defendants themselves, or by their servants or agents, from using the name Dream Doors or the Dream Doors trademark or any similar name in the operation and marketing of the defendants’ business including the operation of any website and in connection of the phone numbers 027 444 2860 and 0800 645 333.
[27] Given the financial position of the first defendant and the bankruptcy of Mr
Fatches, at the plaintiffs’ request, costs are reserved
Thomas J
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