Fast Future Brands Proprietary Limited (formerly Valleygirl Fashions Proprietary Limited) v Valleygirl New Zealand Limited (formerly Hanama Collection (NZ) Limited)
[2013] NZCA 615
•5 December 2013 at 12:30 pm
| IN THE COURT OF APPEAL OF NEW ZEALAND |
| CA74/2013 [2013] NZCA 615 |
| BETWEEN | FAST FUTURE BRANDS PROPRIETARY LIMITED (FORMERLY VALLEYGIRL FASHIONS PROPRIETARY LIMITED) |
| JIM MARR Second Appellant | |
| HESTER MARR Third Appellant | |
| AND | VALLEYGIRL NEW ZEALAND LIMITED (FORMERLY HANAMA COLLECTION (NZ) LIMITED |
| HYUK SANG MA (ALSO KNOWN AS MICHAEL MA) Second Respondent | |
| HANAMA COLLECTION PROPRIETARY LIMITED Third Respondent |
| Hearing: | 27 and 28 August 2013 |
Court: | Ellen France, Randerson and Wild JJ |
Counsel: | J G Miles QC, G C Williams and J Q Wilson for Appellants |
Judgment: | 5 December 2013 at 12:30 pm |
JUDGMENT OF THE COURT
AThe appeal is dismissed.
B The appellants, jointly and severally, must pay the respondents costs for a standard appeal on a band A basis and usual disbursements.
CLeave is reserved to apply further should there be any consequential matters arising from the pleadings that cannot be resolved in the High Court.
____________________________________________________________________
REASONS OF THE COURT
(Given by Randerson J)
Table of Contents
| Para No | |
| Introduction The meeting on 16 August 2007 Conclusions | [1] [56] [62] |
Introduction
The central issue in this appeal is whether the respondents are entitled to the ownership and use in New Zealand of certain trade marks associated with women’s clothing and accessories.
The second appellant, Mr Jim Marr, is the uncle of the second respondent, Mr Michael Ma. Both have been engaged in the retail sale of women’s clothing in Australia since the early 1990s after they emigrated from Korea. In 1996, Jim incorporated the first appellant in Australia under the name Valleygirl Fashions Pty Ltd. He also registered the trade mark Valleygirl. Jim’s company was later renamed Fast Future Brands Pty Ltd (FFB). We will refer to Jim and FFB collectively as “Jim” except where stated otherwise.
Jim began trading through his company selling garments in stores under the Valleygirl label. In 1999, Jim registered in Australia the Valleygirl logo as a trade mark and, in 2002, he and his wife Hester Marr registered the trade mark TEMT. There is no dispute that all marks registered in Australia belong to Jim.[1]
[1]The TEMT mark was assigned to FFB by Jim and his wife on 1 May 2011.
With Jim’s agreement, Michael began selling Valleygirl branded products through his own stores in Sydney from 1996. Jim and Michael agreed that Michael’s stores would be confined to the eastern suburbs of the city. Michael sold product through his stores under both the Valleygirl and TEMT labels. Initially, the product was purchased by Jim and supplied to Michael. From 1998, Jim charged Michael a margin over the costs of the product. The precise nature and significance of the margin and other expenses paid for by Michael is a matter of dispute.
In 2001, Michael incorporated in Australia the third respondent, Hanama Collection Pty Ltd (Hanama). We will refer to Michael and Hanama collectively as Michael except where stated otherwise. The following year, Jim ceased purchasing stock for Michael who then purchased directly from Jim’s suppliers. Jim continued to charge Michael a margin above the purchase price for the stock Michael purchased.
Issues relating to the use of the Valleygirl name in New Zealand first arose in 2003 when an unrelated third party applied to register the trade mark Valleygirl in
New Zealand in relation to retail clothing. Jim and Michael successfully opposed the application. The decision of the Assistant Commissioner of Trade Marks[2] was later upheld by the High Court.[3] Neither Jim nor Michael had sold product in New Zealand at that time but it was accepted that the Valleygirl brand had acquired some spillover reputation in New Zealand.
[2]Valleygirl Co Ltd v Hanama Collection Pty Ltd and Valleygirl Fashions Pty Ltd IPO T18/2004, 30 August 2004.
[3]Valley Girl Co Ltd v Hanama Collection Pty Ltd (2005) 66 IPR 214 (HC).
In September 2003, Michael incorporated the first respondent Valleygirl New Zealand Ltd (VGNZ)[4] in New Zealand and applied in his own name for New Zealand registration of the Valleygirl and TEMT trade marks in a form substantially identical to the marks owned by Jim in Australia. The marks were registered in Michael’s own name on 8 September 2005 and 29 March 2004 respectively. Michael met the costs of opposing the third party’s application and the costs of his own application for registration without contribution from Jim.
[4]Initially under the name Hanama Collection (NZ) Ltd but later changed to Valleygirl New Zealand Ltd on 13 October 2005.
There is some dispute about when precisely Jim first became aware of the steps taken by Michael. Jim accepts that he encouraged Michael to establish a business in New Zealand and that he assisted him with leasing arrangements for Valleygirl and TEMT stores in New Zealand in mid-October 2005 and in 2006. Michael opened his first store in New Zealand on 1 May 2006 under the Valleygirl name. The circumstances and terms upon which Jim encouraged Michael to develop his business in New Zealand lie at the heart of this appeal.
To complete the general narrative, there was evidence that the business interests of Jim and Michael were beginning to diverge from 2003 onwards and the relationship between the two deteriorated in 2007 and 2008. Jim maintains that Michael has owed him a substantial debt for a number of years. It is evident that this was a significant factor in the deterioration of their relationship. Jim’s claim to recover the alleged debt is the subject of separate proceedings between the parties in the Supreme Court of New South Wales.
Negotiations between the parties occurred during 2008 and were the subject of two written agreements in April and December of that year. The interpretation of these agreements and other documentary evidence during this period is disputed. In substance, Michael was to repay the debt over time and there was to be a severing of the business relationship between the two after a phasing out period.
Thereafter, Michael ceased trading in Australia under the Valleygirl and TEMT labels. He rebranded his 15 Australian stores as Chicabooti or Paper Scissors and sold product under those labels. But, in New Zealand, Michael has continued to trade from 16 outlets under the Valleygirl name and 12 under the TEMT name. While his New Zealand stores carry those names, stock is now sold under the Chicabooti and Paper Scissors labels. Michael says it was uneconomic to stock product under the Valleygirl and TEMT labels after he rebranded in Australia and lost the benefit of bulk purchases.
On 4 December 2009, Jim applied to register the trade marks Valleygirl and TEMT in New Zealand. He also applied on 17 February 2010 to revoke the registration of Michael’s trade marks in New Zealand. Both applications were successful. Michael’s trade marks were revoked on 30 April 2010 and the trade marks sought by Jim were registered in New Zealand on 7 October 2010. On the same day, Jim’s lawyers wrote to Michael demanding that he cease the use of the marks in New Zealand.
Michael says he never received either of Jim’s applications which explains why neither application was opposed. As soon as he learned what had happened, Michael responded immediately by applying on 8 and 11 October 2010 to register the marks in his name. He also sought a declaration that the registration of the marks in Jim’s name in New Zealand was invalid.
Michael’s applications were put on hold after Jim issued proceedings in the High Court against Michael on 7 March 2011 for trade mark infringement, passing off and breach of the Fair Trading Act 1986. Michael counterclaimed for an order removing Jim’s trade marks from the register in New Zealand and for an injunction restraining him from selling clothing and accessories in New Zealand bearing the Valleygirl and TEMT marks.
In a judgment delivered on 19 September 2012, Keane J dismissed Jim’s claims and granted Michael’s counterclaims.[5] From that judgment, Jim appeals.
[5]Fast Future Brands Pty Ltd (formerly Valleygirl Fashions Pty Ltd) v Valleygirl New Zealand Ltd (formerly Hanama Collection (NZ) Ltd) [2012] NZHC 3554 [High Court judgment].
Counsel are agreed that the determination of this appeal turns on an issue of fact. Was the High Court right to conclude that Jim consented to Michael’s use of the trade marks in New Zealand? If so, Michael is entitled to ownership of the marks in New Zealand and Jim’s claims were rightly rejected. If not, then Jim is entitled to the determination of his claims for relief in the High Court.
Jim’s case is that he agreed to Michael using the marks in New Zealand from 2006 onwards but he says this was to be on the same basis as the parties had operated in Australia. That is, that Jim owned the marks and granted Michael a licence to use them under an informal franchise arrangement. Jim further contends that the licence was terminated from 1 January 2010 when he says the phasing out period under the 2008 agreements came to an end.
Michael denies that his relationship with Jim in Australia was that of a licensee or franchisee, submitting that there was a close family relationship to which they each contributed as some form of joint enterprise. In any event, Michael says that Jim agreed to him setting up business in New Zealand on his own account and that he could effectively have a free hand in the ownership and use of the marks in this country. As such, he regards himself as entitled to ownership and registration of the marks in New Zealand.
The High Court judgment
Keane J set out the rival contentions of the parties in some detail along with a chronology of events. He recognised that it was important, although not necessarily determinative, to identify the true nature of the relationship between Jim and Michael in Australia. He considered that the starting point must be that in Australia Jim had always been the registered owner of the marks.[6] He found that:[7]
[Jim] must be taken in Australia to have the exclusive right to those trade marks, including goodwill insofar as it is a proprietary right relating to the marks, and the right to obtain relief if they are infringed.[8] Only an Australian Court could hold otherwise.[9]
[6]At [83].
[7]At [83].
[8]Trade Marks Act 1995 (Cth), ss 20 and 22.
[9]British South Africa Co v Companhia de Mocambique [1893] AC 602 (HL); Coin Controls Ltd v Suzo International (UK) Ltd [1999] Ch 33 (Ch).
The Judge went on to discuss Jim’s contention that Michael’s right to the use of the marks in Australia could only be by way of franchise and nothing more, that is a conventional franchise relationship defined in Australia by the Trade Practices (Industry Codes — Franchising) Regulations 1998 (Cth). In contrast, Michael’s contention was that there was a form of joint venture founded on the family relationship between himself and Michael under which each retailed independently. While they did not share profits and losses, Michael argued, they were integrated in such a way that goodwill in the marks and trade names was a shared asset “in a conventional accounting sense”.[10]
[10]High Court judgment, above n 5, at [86].
Keane J analysed the diverse forms in which a joint venture may be established and the distinction between a franchise and a simple licence.
Referring again to the concept of goodwill in an accounting sense, the Judge continued:
[94] It may well be that in the relationship between [Jim] and [Michael] the goodwill in the trade marks, like the trade marks themselves, remained with [Jim] as a proprietary right.[11] But that did not rule out [Michael] sharing in the goodwill in the trade marks and in their reputation in the Australian market, in an accounting sense. That too was a matter for agreement.
[95] As a matter of law, then, it seems to me, the relationship between [Jim] and [Michael] may be a franchise in the limited conventional sense that [Jim] contends for, or it may be a joint venture in which the trade mark may be [Jim’s] asset, to which [Michael] had a licence in which [Michael] did enjoy some interest in the goodwill in an accounting sense. What it is has to be resolved as a matter of fact.
[11]Dominion Rent A Car v Budget Rent A Car Systems (1970) Ltd [1987] 2 NZLR 395 (CA) at 420 per Somers J.
Referring to a declaration signed by Michael dated 26 March 2004 opposing the third party’s application to register the marks in New Zealand (an important document relied upon by Jim in which Michael said he was a franchisee), the Judge concluded:
[102] Plainly, as Michael Ma said in his declaration, he knew that [Jim] owned the two trade marks in Australia and that [Michael] only enjoyed their benefit with [Jim’s] consent. He did not then assert any independent proprietary right. [Michael] must then be taken to have conceded that in Australia [Michael] had the benefit of the trade marks only with [Jim’s] licence. But that does not mean that he conceded that their relationship was merely a franchise.
The Judge found that in the balance of declaration, Michael:[12]
clearly claimed that [his] relationship with [Jim] in Australia was in the nature of a joint venture and was not merely a franchise, and asserted his right to the New Zealand trade marks. None of this assists [Jim]. Unless dismissed as duplicitous, what [Michael] claims is consistent with the joint venture that [he] contends for.
[12]At [104].
Keane J then discussed the nature and significance of the mark-up which Jim charged Michael on the purchase of labelled product. On that issue, he found:
[110] In the absence of better evidence I am unable to conclude that the mark up charged was in any part a franchise fee, in the sense of an economic rent for use of the trade marks. The mark up is more easily understood as a fee charged for a service, ordering and supply of labelled stock, and then or later as a contribution to the cost of developing the brands they then retailed under.
In the next part of his judgment the Judge found the following:[13]
[13]At [111]–[116].
·Although the relationship between Jim and Michael only evolved as it did because they were related, their relationship made commercial sense for them both from the outset.
·They saw sense in purchasing stock together and in assisting each other with skills that were broadly complementary.
·Jim had access to bank and supplier credit but, by combining with Michael, their joint purchasing power was amplified.
·Until 2003–2004, Michael played a significant role in the development of the brands which were retailed by each indistinguishably.
·Michael was influential until then with the brand concept and in the layout and design of outlets and he met some related costs.
·By 2003, Michael’s relationship with Jim had begun to founder. By then, Jim had a very large retail chain throughout Australia and by 2005 he was living increasingly in South Korea and had delegated management of the business to others. In contrast, in 2003, Michael’s business remained relatively small and was confined mostly, if not entirely, to Sydney’s eastern suburbs.
·Jim no longer needed Michael and Michael had become a liability. In 2002, Michael’s debt stood at AUD 1.7 million and Michael was required from that point to purchase the product directly from the suppliers.
·Jim had accepted that, from 2004, he encouraged Michael to begin opening outlets in New Zealand to increase his turnover and profit.
·The businesses operated by the two had ceased to be complementary; they differed on issues of brand concept and outlet standards and, effectively, they had begun to trade as competitors.
The Judge’s conclusions on the relationship in Australia between the two were expressed in the following terms:
[117] Until 2008, I consider, [Jim] and [Michael] were joint venturers, on terms that can only be inferred. In that venture, it is clear however, [Jim] held the brands, the trade marks, Valleygirl and Temt, and [Michael] enjoyed their benefit only as a licensee. [Michael] did not hold them merely as a franchisee. But [Michael] could only, as [he] claims, have shared in the related goodwill in an accounting, if not proprietary sense, if that had been agreed.
[118] Leaving aside the issue of jurisdiction, there is no evidence that [Jim] ever did accord [Michael] any such proprietary or wider interest. [Michael] gained nothing on that account when the relationship ceased in 2008. But I do not see that as decisive on the issue that finally counts, whether in 2003 [Michael] had the right to register the New Zealand trademarks in his own name. No less relevant to that issue is the breadth of the relationship in Australia, certainly as it still was in 2003, and the family relationship.
While reaching these conclusions as to the relationship between the parties in Australia, the Judge clearly recognised that his conclusions were not decisive and that the outcome hinged on whether Jim had agreed that Michael was at liberty to use the marks in New Zealand without interference from Jim. The Judge noted that the parties agreed that Jim had encouraged Michael to enter the New Zealand market but that there was disagreement as to when this accord was reached.[14] The Judge recorded that Jim said it was in 2004 while Michael said it was earlier, between 2000–2003.
[14]At [130].
The Judge was alert to the fact that it was necessary to examine the objective evidence since there was no contemporary record of what was agreed about the relationship in New Zealand. Noting that in his declaration of 26 March 2004 Michael had disclosed that he had registered the Valleygirl trade marks in his own name in New Zealand in September 2003, the Judge considered that Michael had “staked out his claim” to the New Zealand trade marks and to the New Zealand market, a claim which the Judge said was inconsistent with his status as a licensee of the Australian marks in that market.[15]
[15]At [137].
Keane J then went on to address four questions which he considered had not been adequately answered by Jim. In summary these were:[16]
·Why did Jim leave it to Michael to fund the costs of opposing the third party’s claim to the marks in New Zealand in 2003–2005?
·If by 2006, Jim had become aware that Michael had registered the marks in his own name in New Zealand, why did he not then act to have the registration revoked?
·If, as Jim had asserted, he had told Michael in August 2007 that their relationship had to cease completely in both Australia and New Zealand, why, if he regarded Michael as merely a licensee, did he not make that assertion until his solicitors wrote to Michael demanding that he cease the use of the marks in New Zealand?[17] This was associated with other inferences the Judge considered could be drawn from the agreements of April and December 2008.
·If Jim was confident as to his right to the New Zealand marks, why did he not also directly send Michael copies of the applications he had made for revocation of Michael’s registered marks in New Zealand and of his own application to have the marks registered in New Zealand?
[16]At [139]–[144].
[17]The Judge asserted that this had occurred in September but it appears from the record that it was in fact by letter of 7 October 2010.
In answering these questions, the Judge concluded:[18]
·Jim’s lack of action (or delayed action) was consistent with the view that he was not interested in the New Zealand market. Rather, his focus was on the business in Australia and Korea. It was implausible that Michael had conceded at a meeting in September 2008 that he would give up all the trade marks in New Zealand. If that was so, why was this not included in the December 2008 agreement, which was confined to Australia?
·As to why Jim decided in late 2009 to pursue his ultimately successful application in New Zealand, the Judge observed that the only undertaking Michael had given was that Valleygirl would cease selling labelled stock by that date. There was no wider undertaking by Michael not to use the marks in New Zealand.
·Jim might have decided to apply in New Zealand for the registration of the marks because Michael was selling Chicabooti and Paper Scissors product at Valleygirl and TEMT outlets which Jim said was eroding the brand. But the Judge rejected this on the basis that there was no suggestion from Jim that his business in Australia had been affected. More probably, the Judge considered, Jim might have repented not entering the New Zealand market in 2003. By 2010 Michael had 28 outlets in New Zealand which might well have demonstrated to Jim that the New Zealand market had greater worth than he had supposed.
·As to service of Jim’s New Zealand applications, the Judge accepted that Michael had a positive duty to keep his address for service current at the Commissioner’s office. But Jim had given evidence that he was surprised Michael had not responded by opposing the application. The Judge considered this was telling since Jim must then have known, at least potentially, the contest that he was now facing in the litigation. Jim might have decided not to alert Michael to the fact of the applications until he had secured the registration of the marks unopposed.
[18]At [145]–[153].
The Judge then expressed his final conclusions in these terms:
[154] I conclude that in 2003 [Michael] applied to register the New Zealand trade marks in his own name, relying on [Jim’s] consent, and since then has acted consistently. Conversely, I conclude, [Jim] and [Michael] have not acted consistently.[[19]] Between 2003 - 2008 they acted as if [Michael] was entitled to the trade marks or did not dispute that to be so. Only in 2008, when the Australian relationship ceased, did they begin to press [Michael] hard. But even then they stopped short of asserting he had no right to the trade marks. They only asserted that when they applied to have his trade marks revoked.
[155] In obtaining the New Zealand trade marks and now seeking to enter the New Zealand market, whether directly or through licensees, [Jim], I consider, seeks to take advantage of [Michael’s] increasing presence in the New Zealand market, despite the fact that it sells only Chicabooti and Paper Scissors product; a market in which [Jim] has negligible spill over reputation. In effect, therefore, [Jim] seeks to take advantage of [Michael’s] investment in the New Zealand market. Conversely, if [Michael] were forced to rebrand, he would lose his investment, and suffer losses like those that [Michael] suffered in Australia. In this wider sense too, I consider, the merit lies with [Michael].
RESULT
[156] In the result, I find, to the balance of probabilities, contrary to [Jim’s] claim, that in 2003 [Michael] registered the trade marks in his own name because Jim Marr, and thus FFB, consented to him doing so and that [Michael] has traded consistently on the basis of that accorded right ever since.
[157] I conclude that at the date when [Jim] applied to have [Michael’s] trade marks revoked they were valid and subsisting, as it then knew, that [Jim’s] applications were therefore to that extent made in bad faith, and that [Michael’s] trade marks were revoked invalidly. [Michael], I conclude, is entitled to have [Jim’s] invalidly registered trade marks removed from the Register. To the extent that it is necessary, I conclude also that [Michael] succeeds under his two related causes of action under the Fair Trading Act and in passing off and is entitled to the injunctive relief he seeks.
The appellants’ submissions
[19]We think the Judge probably meant that Jim and FFB had not acted consistently.
The appellants’ submissions may be summarised in broad terms:
(a)The factual findings made by the Judge were erroneous because the Judge had failed to take into account contemporaneous evidence which demonstrated that the parties intended that Michael would use the marks in New Zealand as Jim’s licensee.
(b)The Judge had misinterpreted important documentary evidence; had made factual findings on propositions that were not put to Jim; and had failed to draw appropriate adverse inferences from Michael’s failure to call key witnesses.
(c)The Judge had erred in fact and law by holding that the parties’ relationship was in the nature of a joint venture; by finding that Michael had undefined rights in the marks “in an accounting sense” which was a notion inconsistent with the concept of a trade mark; by overlooking the agreement by Michael to change company names and to cease to sell product branded with the marks; and wrongly applying the Supreme Court’s decision in Chirnside v Fay which, it was said, had not been cited in argument.[20]
(d)The Judge also erred in failing separately to consider whether if there were a licensing agreement for New Zealand, it had been terminated by notice.
[20]Chirnside v Fay [2006] NZSC 68, [2007] 1 NZLR 433.
On Jim’s behalf, Mr Miles QC observed that it was common ground that Jim had agreed to Michael entering the New Zealand market but the critical question was, on what basis? Given the conflicting mass of oral evidence and the absence of any formal agreements as to the arrangements between the parties in Australia and in New Zealand, it was particularly important that any relevant contemporaneous written material be fully considered. Michael had acknowledged that Jim was the registered proprietor of the Australian marks and that his use of the marks, at least in Australia, was dependent upon Jim’s consent. Effectively, Jim had licensed Michael to use the marks in Australia under a form of franchise arrangement that Michael had acknowledged in his 2004 declaration. It was natural, counsel submitted, that the same basis for operations in New Zealand would apply and the contemporaneous evidence supported that. By the agreements reached in 2008, Michael had accepted that the licence would terminate by 1 January 2010 at the end of the phasing out period. There was, counsel submitted, no evidential foundation for the finding of a joint venture which, counsel submitted, had never been advanced in that form in the High Court.
Our assessment of the evidence
In terms of the Supreme Court’s decision in Austin, Nichols & Co Inc v Stichting Lodestar the appellant bears the onus of satisfying us that we should differ from the decision under appeal.[21] We accept, however, that it is necessary for us to come to our own view on the merits where factual conclusions reached in the High Court are challenged. The parties are entitled to judgment in accordance with the opinion of this Court.[22] Where credibility is at issue, an appellate court does not have the advantages available to the trial judge.
[21]Austin, Nichols & Co Inc v Stichting Lodestar [2007] NZSC 103, [2008] 2 NZLR 141.
[22]Appleton v Tauranga Law [2013] NZCA 420, [2013] 3 NZLR 777 at [29].
We approach the evidence under three broad headings:
(a)The relationship of the parties in Australia.
(b)The basis on which Michael commenced business in New Zealand.
(c)The effect of the negotiations in 2007 and 2008 including the agreements signed in April and December 2008.
The relationship of the parties in Australia
We are satisfied that the Judge was right to conclude that Michael was only entitled to use Jim’s marks in Australia with his consent as registered proprietor. However, we do not share the Judge’s view that Jim and Michael may have been joint venturers in anything other than the very broadest sense that they had worked cooperatively together and both had an interest in ensuring that the Valleygirl and TEMT brands were developed and marketed successfully. The Judge did not explain his reference to a sharing of the goodwill in the marks “in an accounting sense” but it appears he viewed this as something different from a proprietary interest in the marks or the associated goodwill. Whatever may have been meant, we accept Mr Miles’ submission that there is no evidence to support the proposition that Michael had any entitlement to some form of ownership of the marks or the associated goodwill.
Although Michael’s pleadings referred to his investment in goodwill, there was no suggestion in them of any claim to some form of ownership interest in the marks or the associated goodwill. Mr Upton QC’s submissions on Michael’s behalf in the High Court referred to both parties being the owners of the goodwill and reputation in Australia but, in this Court, he clarified that Michael did not claim an equitable or economic interest in the marks in Australia.
As the Judge recognised, the starting point under s 20 of the Trade Marks Act 1995 (Cth) is that Jim, as the registered proprietor of the marks, has the exclusive right to use the marks and to obtain relief for any infringement of them. In terms of s 22 of the Australian legislation, the registered proprietor has the right to deal with the marks as the absolute owner.[23] No third party may use the marks in the way that infringes the registered proprietor’s rights to the marks without the consent or licence of the registered proprietor.
[23]Subject only to any rights appearing in the register to be vested in another person.
The most compelling evidence of the nature of the relationship is provided by Michael’s declaration in 26 March 2004 in opposing the third party’s application for registration of the marks in New Zealand. It is not in dispute that Jim authorised Michael to oppose the application on behalf of their respective companies. Indeed, it is clear that Michael had access to accounting records and information from Jim and that this material was incorporated into the declaration.
The declaration was prepared by Baldwin Shelston Waters in Wellington but in close liaison with their Sydney office. In the declaration Michael said his company had been “franchised to operate stores under the Valleygirl trade mark … [h]owever Valleygirl Fashions Pty Ltd is the owner of the Valleygirl trade mark.” Later, Michael described his company as the licensee of Jim’s company. While expressing the relationship in these terms, we accept that Michael also spoke of the involvement of both himself and Jim in the development of the Valleygirl brand and emphasised their shared involvement in matters such as using the same warehouse premises for some purposes and his involvement in most decisions relating to the supply of the product and other business decisions. We discuss the significance of this material below.
The declaration contained material relevant to the New Zealand market. Michael confirmed that, in September 2003, he had applied for registration in New Zealand of the Valleygirl mark and that this application had been made in his own name. He also said:
[44] Hanama Collection Pty Ltd and Valleygirl Fashions Pty Ltd have been contemplating entering the New Zealand market for a few years now. We wish to operate our stores in a similar manner in New Zealand to the way we do in Australia, i.e. we want to set up our own stores rather than sell product through other people’s stores.
In summary, Michael’s declaration was explicit in acknowledging his business relationship with Jim in Australia as being that of franchisor and franchisee respectively while at the same time asserting a shared involvement with Jim in the development and marketing of the brands in Australia. Significantly too, Jim must be taken to be aware from that time of Michael’s interest in pursuing opportunities for marketing the brands in Australia including seeking registration in New Zealand of the relevant marks in his own name. Mr Miles placed reliance on the reference at [44] of the declaration to the operation of the stores in New Zealand in a similar manner to the way the parties operated in Australia. We do not attach much significance to this point for two reasons. First, the context was the way the stores were set up to sell product rather than the nature of the legal relationship between the parties. Second, the fact that Michael had applied for registration of the marks in New Zealand in his name and at his own cost was in stark contrast to the way the parties had conducted their business in Australia.
There was some evidence at trial that Michael did not understand the term “franchise” but the Judge did not accept that proposition. Nor do we. We note particularly that Michael’s wife, Jackie Ma, was involved in the preparation of the declaration. She raised several detailed points about the accuracy of the declaration but did not question the use of the term “franchise”. She was not called to give evidence.
While we do not need to resolve the precise nature of the parties’ legal relationship in Australia, we consider the better view is that it was in the nature of a franchise. However that may be, it is clear that Jim effectively licensed Michael to use Jim’s marks in Australia as part of the overall arrangement between them.[24] We accept the appellants’ submission that, in the absence of agreement to the contrary, a licensee acquires no interest in the trade mark.[25] In exchange for the right to use the trade mark free from threat of infringement, and subject to the exercise of quality control, proprietorship of the mark belongs to the licensor. While there has been some qualification to this general approach in the United Kingdom with respect to the use of a trade mark by a bare licensee,[26] there is no assertion in the present case that Michael was a bare licensee.
[24]Under the Trade Marks Act, a licensee is described as an authorised user (s 8). Subject to any agreement otherwise, a licensee may use the mark in the same way as the registered proprietor and may bring proceedings for infringement (s 26). There is no requirement that a licence be in writing.
[25]Christopher Wadlow The Law of Passing-Off (4th ed, Sweet & Maxwell, London, 2011) at [3–147]; Neil J Wilkof and Daniel Burkitt Trademark Licensing (2nd ed, Sweet & Maxwell, London, 2005) at [7–35]; Mark Davison, Kate Johnston and Patricia Kennedy Shanahan’s Australian Law of Trade Marks & Passing Off (3rd ed, Law Book Co, Sydney, 2003) at [17.120].
[26]See Scandecor Development AB v Scandecor Marketing AB [2001] UKHL 22, [2001] 2 CMLR 30.
While the Judge referred to the parties as “joint venturers”,[27] he appears to have accepted there was no evidence that Jim ever accorded Michael any wider or proprietary interest.[28] We agree. There is no evidence of any agreement between Jim and Michael that the marks or the reputation in them was to be the subject of some form of joint ownership. Indeed, the evidence was to the contrary. Michael’s evidence was that their respective businesses were operated separately but, as he put it, in a collaborative manner. Importantly, Michael’s own expert witness, Mr K T Price, an audit partner of Grant Thornton, said the sharing of costs through the payment by Michael of commission did not indicate a partnership or joint venture as there was no evidence that the risks and rewards of the separate businesses were shared. As Mr Price put it, the profits and losses ultimately made from operating the retail stores were confined to the owners of those stores and were not shared between Jim and Michael.
[27]At [117].
[28]At [118].
Mr Price’s evidence (not mentioned by the Judge) was helpful in explaining the key elements and purposes of a franchise arrangement:
7.Franchise arrangements are a very popular method for an entrepreneur to rapidly expand a successful business model without the need to raise significant funding for investment and manage their exposure to legal and liability issues e.g. operating in foreign jurisdictions, as well as be rewarded from franchisees who are incentivised to do well.
8.A franchise arrangement would involve payment for the use of this successful business model that likely includes licensing of a trademark or brand often requiring an upfront investment by the franchisee and some form of ongoing regular payments and/or exclusive buying arrangements. Strict supplier arrangements, branding and marketing are usually enforced upon the franchisee to ensure the future value of the brand and interests of the franchisor are protected.
After examining detailed accounting records for the respective companies, Mr Price’s summary was:
(a)From July 2000 to September 2002 payments of commission were made by Hanama to FFB on a weekly basis initially at 15 per cent upon purchase volumes and later at 10 per cent.
(b)From October 2002 to June 2006, the payments were made on a monthly invoice basis at 10 per cent on purchase volume.
(c)From July 2006 onwards, payments were based on invoices that provided greater detail on the nature of payments, charges including rent, lease costs, utilities and consulting. In this period, volume based payments to FFB were called “principle” (sic) charged at 10 per cent on purchases for the period March 2008 to February 2009.
(d)No reference was made to franchise fees as such.
However, Mr Price confirmed:
18.It is a common method of business to recover a pool of indirect costs by allocating a cost based upon some fixed % of volume, particularly common in the manufacturing sector. This is seen as an efficient way to capture and allocate costs rather than track and recharge each individual cost item.
He concluded that the evidence of regular systematic payments made by Hanama to FFB based on a set volume of purchases was an indicator of the existence of a franchise arrangement but was not conclusive.
Viewing the evidence as a whole, we are satisfied there was nothing to support the proposition that Michael had established any entitlement to any form of proprietary interest in Jim’s trade marks or in any associated goodwill. Although never recorded in writing and lacking formality, we consider the relationship between them was more likely to have been that of franchisor and franchisee.
This view is supported by Michael’s own acceptance in his 2004 declaration that he was a franchisee; the evidence of his own expert witness; the importance Jim attached to controlling the way in which the products were designed and marketed (as evidenced by his later disagreements with Michael in that respect); the agreement confining Michael’s territory to the eastern suburbs of Sydney; and the charging of a margin based on the volume of sales. The fact that the margin was described as commission rather than franchise fees, or the fact that at some stages there were charges paid by Michael in addition to the percentage commission, are not determinative. Nor does it matter that the arrangement may not have complied with the relevant Australian regulations later introduced.[29] What matters for present purposes is the substance and effect of the arrangements.[30]
[29]The Trade Practices (Industry Codes — Franchising) Regulations 1998 (Cth) do not require a franchise agreement to be in writing but have disclosure and other requirements. We note the regulations commenced on 1 July 1998 which post-dated the time Michael opened his own stores in Sydney in 1996.
[30]See Master Education Services Pty Ltd v Ketchell [2008] HCA 38, (2008) 236 CLR 101.
However, it is not essential we reach a firm conclusion on this. The crucial point is that, whatever the true nature of the overall relationship, Jim licensed Michael to use the marks in Australia until the licence was terminated on reasonable notice.[31]
[31]Minister of Education v De Luxe Motor Services (1972) Ltd [1990] 1 NZLR 27 (CA); Australian Blue Metal Ltd v Hughes [1963] AC 74 (PC); Anchor Butter Co Ltd v Tui Foods Ltd [1997] 3 NZLR 107 (HC); and Paper Reclaim Ltd v Aotearoa International Ltd [2006] 3 NZLR 188 (CA) at [78]; aff’d [2007] NZSC 26, [2007] 3 NZLR 169.
Having said that, it is evident that from an early stage, Michael asserted that he had an important role in the development and marketing of the products in Australia. Jim accepted that, at least in the early stages, there was a close family relationship between the two and that they trusted each other. Michael had assisted in various ways although Jim’s view was that Michael had exaggerated the extent of his input. Nevertheless, the closeness of the relationship was demonstrated by matters such as the sharing of warehouse facilities and Michael’s access to Jim’s SCM computer system for the purchase of product.
The fact that Michael asserted a common interest in the Valleygirl and TEMT products in his 2004 declaration is consistent with his evidence that he would not have agreed to relinquish his use of the marks in Australia if Jim had not agreed to give him a free hand to use and develop the brands in New Zealand. As Michael said, the cost of rebranding in Australia after the negotiations in 2007 and 2008 represented a substantial loss to him.
The basis on which Michael commenced business in New Zealand
Counsel agreed that the critical question is whether Jim consented to Michael establishing a business in New Zealand and to ownership of the trade marks in this country. We do not see any basis to interfere with the conclusion reached by the Judge that Jim agreed to Michael owning the trade marks in New Zealand and to his carrying on business using the marks in New Zealand.
Jim must have known that Michael had applied in 2003 for the registration of the marks in New Zealand in his own name. Michael’s declaration of 26 March 2004 said so explicitly. On Michael’s evidence, he discussed his wish to enter the New Zealand market with Jim at the time. Jim told him to “go for it”. Jim must be taken to have been aware at the time that Michael had applied for registration since he had authorised Michael to oppose the attempt by the third party to register the marks in New Zealand and it is clear that the Sydney solicitors involved were taking instructions from FFB. Michael’s application to register the marks in his own name was completely inconsistent with Jim’s later assertion that the business Michael intended to develop in New Zealand was to be conducted as a franchise as it had been in Australia.
There is no evidence that Jim raised any objection to Michael commencing business in New Zealand other than some meetings in 2004 in which Jim said Michael agreed that his New Zealand operations would be conducted as a franchise. But there is no documentary evidence to support that proposition and it is inconsistent with what happened afterwards.
Jim accepts he encouraged and supported Michael to commence business in New Zealand and that FFB assisted Michael with leasing arrangements for that purpose in late 2005 and 2006. By that time, Jim must have known, as the Judge found, that Michael’s application for registration of the marks in New Zealand had been successful. Jim’s general manager, Mr Joe Ha, had visited New Zealand around this time to assist in establishing Michael’s stores under the Valleygirl brand. Jim also accepted in cross-examination that he was aware Michael had registered marks in his own name and that he did not interfere or seek to control what Michael was doing in New Zealand. The following passage from Jim’s evidence is significant:
CROSS-EXAMINATION CONTINUES: MR UPTON
Q.I want to go to the topic of New Zealand –
A.– yes.
Q.At some stage you suggested that Michael should set up business in New Zealand?
A.Yes.
Q.And of course he registered some trademarks over here?
A.Yes.
Q.And you’re aware that he’s registered the marks?
A.Yes.
Q.And it’s fair to say, isn’t it, that you actually encouraged him to come to New Zealand?
A.Yes I did.
Q.And so you had a leasing team who could help with finding appropriate shop sites in New Zealand?
A.Yes we have.
Q.And you’re aware that it is because of their help that Michael was entering into long-term leases over here?
A.Yes.
Q.And it’s fair to say, isn’t it, that Michael’s business in New Zealand expanded at a rapid rate, after he set up his first shop in New Zealand in May 2006?
A.Yes.
Q.And you let him to get on with his business in New Zealand?
A.Yes.
Q.I mean you didn’t interfere with what he was doing?
A.No.
Q.You didn’t supervise what he was doing over here, you just let him develop his business?
A.Yes.
Q.You didn’t control what he was doing?
A.He, sometimes he’ll report in.
Q.Yes sometimes he would report to you so that you’re aware, but you didn’t control, in any way, what he was doing?
A.No.
Q.And he didn’t need your permission on locations or shops?
A.No.
Mr Miles pointed out that Jim was not asked when he became aware of the registration of Michael’s marks but the context was clearly around the time Michael was opening his first shop in New Zealand in May 2006.
By 2005 or 2006, Jim had decided to spend most of his time in Seoul and to further his business interests there. He left his company’s business in Australia in the hands of the managing director, Mr Terry Kim and Joe Ha but he visited Sydney periodically and continued to discuss business matters with Michael on those visits.
The effect of the negotiations in 2007 and 2008 including the agreements signed in April and December 2008
The meeting on 16 August 2007
Relations between Jim and Michael deteriorated in 2007. A meeting took place on 16 August 2007 between the two. Mr Kim was also present. Jim’s evidence was that Michael agreed at this meeting to stop using the trade marks both in Australia and New Zealand. He said there was discussion about how long Michael would need to cease using the brand and how long would be needed to repay the debt of approximately AUD 1.4 million Michael then owed. Mr Kim gave evidence supporting Jim’s version of events. However, Michael’s evidence about what happened at the meeting was quite different. He said there was no mention of his ceasing to use the marks in New Zealand and the first he knew that there was any objection by Jim to his carrying on business in New Zealand using the trade marks was in October 2010 when Jim’s solicitors wrote to him.
Mr Miles submitted that Jim had not been cross-examined about what was discussed at this meeting and that appears to be so. However, there was an email exchange the day after the meeting between Joe Ha and Michael which makes no specific reference to trade marks. Rather, the points raised related to the “boundary line” for the location of the stores operated by Jim and Michael in New South Wales and to a change in company names for Hanama and VGNZ. In his initial email, Joe Ha asked for Michael’s confirmation of points discussed.[32] On the name change issue, Joe Ha asked for confirmation that:
Hanama Collection will change its company name along with its name in which it operates under in NZ (Valleygirl NZ limited) to name(s) which is(are) not/does/do not include the words “Valleygirl, TEMT or Buss”.[[33]]
[32]We note that Jim said he was concerned to have matters put in writing during this period since he said Michael did not always confirm points verbally agreed.
[33]The Buss label was also used by Jim but is no longer at issue.
Michael responded on the point about the name change in these terms:
Hanama Collection and Valleygirl NZ already have plans to change their company names to remove any reference to “Valleygirl, Temt or Buss” for restructuring and finance/accouting [sic] reasons. The change will take time as it will progress with our restructuring.
In a further email, Joe Ha asked Michael to provide a schedule on the timing of the name change. That did not eventuate. Joe Ha took the matter up again by email in November 2007 requesting Michael to provide a date when VGNZ would change its name to take out the word “Valleygirl”. Michael’s response was that he would like to do that in January–February. Michael also responded to a complaint about Hanama answering phones using the Valleygirl name. Michael explained how this had come about and responded:
Once we have a new Company name for both VGNZ and Hanama Collection, these problems will disappear.
Michael’s contention is that the references to changing the company name in the email did not extend to relinquishing his rights to use the marks in New Zealand. There is no doubt that he intended to rebrand to Chicabooti and Paper Scissors in Australia but the trade marks for New Zealand were registered in his name at that time. If it had been agreed that Michael would relinquish ownership of the trade marks in New Zealand, we would have expected something more explicit than that which is recorded in these emails. Given Michael’s concerns about the cost to him of rebranding in Australia and his need to repay the outstanding debt, and his evidence that he would never have agreed to relinquish the New Zealand trade marks, this construction is the more plausible account of what occurred.
The agreement of 2 April 2008
The changes of company name signalled by Michael did not eventuate. Rather, negotiations between the parties continued and led to the preparation of an agreement dated 2 April 2008. The agreement was prepared by FFB with no legal assistance. It was signed by Michael on behalf of Hanama but was never signed by FFB. Four topics were covered:
(a)The ownership of the trade marks in Australia.
(b)The cost to be paid by Hanama for FFB’s “merchandise, production and design” costs.
(c)A staged programme for the repayment of the debt owed by Hanama to FFB.
(d)The reduction over time of Hanama’s “buying portion” of Valleygirl- and TEMT-labelled products using Jim’s SCM purchasing system.
Significantly, the agreement referred (in the first recital) only to the ownership and use of the trade marks in Australia. This was a change from an earlier draft dated 1 February 2008 where the corresponding recital in the preamble was not confined to Australia. In the operative part of the agreement (cl 1) Hanama was to be allowed to use the trading names Valleygirl and TEMT until 31 December 2008 in Australia. No reference was made to New Zealand.
Clause 2 of the eventual 2 April 2008 agreement provided that Hanama would be charged “merchandise, production, developing and design service” fees provided by FFB on the basis of “10% of the total cost of goods purchased through [FFB]”.
Under cl 3, Hanama was obliged to endeavour to clear its debt by 31 December 2010 by monthly payments of principal and interest set out in an appendix.
Clause 4 provided:
Hanama will make their best endeavours to keep increasing own buying portion of the merchandise products between 2008 – 2011 as below;
Australian Portion
Buying Period
Hanama’s Buying Portion
FFB’s Sourced Buying Portion
Present
–
30-Jun-08
0%
100%
1-Jul-08
–
31-Dec-08
25%
75%
1-Jan-09
–
30-Jun-09
50%
50%
1-Jul-09
–
31-Dec-09
75%
25%
1-Jan-10
–
30-Jun-10
100%
0%
New Zealand Portion
Buying Period
Hanama’s Buying Portion
FFB’s Sourced Buying Portion
1-Jul-09
–
31-Dec-09
0%
100%
1-Jan-10
–
30-Jun-08
33%
66%
1-Jul-10
–
31-Dec-10
66%
33%
1-Jan-11
–
100%
0%
In his brief of evidence, Jim stated that cl 4 required Michael to gradually decrease the amount of Valleygirl or TEMT product sold in New Zealand over the period 1 July 2009 to 31 December 2010. However, in cross-examination, he accepted that cl 4 related to the source of the product, that is where Michael would buy the product from. That was consistent with Michael’s evidence on the topic. Jim also accepted that the agreement only covered the Australian trade marks. He said it did not (but should have) covered the use of trade marks in New Zealand. He explained that he had thought, as a result of discussions with Michael, that he was not going to do any further business in New Zealand with Valleygirl or TEMT products or with his trade marks. Mr Kim was more forthcoming. He agreed Michael had made it clear in the period leading up to the 2 April 2008 agreement that he would only sign a document that related to trade marks and brands in Australia.
We are satisfied the 2 April 2008 agreement did not deal with the use by Michael of the trade marks in New Zealand and was limited to their use in Australia. We also consider that cl 4 related to the source from which Michael was to purchase product. At that time, Michael was purchasing product through FFB’s suppliers using its SCM purchasing system. Clause 4 provided that Michael was to reduce the purchase of product through that source over time but did not prevent him from sourcing Valleygirl and TEMT product from other suppliers for sale in New Zealand.
Events after the agreement of 2 April 2008
Although Jim asserted that the parties acted on the 2 April agreement as if it were signed by both parties, Mr Kim acknowledged that it was overtaken by events and was not signed by FFB for that reason. He said Michael had been using garments designed by Jim and selling them under the Chicabooti brand name. Michael had also asked that the repayment schedule for the debt be altered. As well, the timetable for the rebranding of Michael’s Australian stores had not gone according to plan.
By letter of 2 June 2008, Mr Kim wrote to Hanama raising two issues. The first related to the timetable for the rebranding of Michael’s stores in Australia and the second was a request that Hanama cease linking Michael’s New Zealand websites to the Australian websites of FFB.
Joe Ha also emailed Michael on 25 July 2008 raising several issues including when VGNZ was going to change its name to one not associated with “Valleygirl”.
Michael responded to these matters in an email to Messrs Kim and Ha on 29 July 2008. For present purposes, the only relevant part of his response is that he had put on hold the change proposed to the New Zealand company name due to Hanama’s current financial situation. Michael added:
We believe the right time to change New Zealand company name would be when we complete our opening of Valleygirl and Temt stores throughout New Zealand.
Plainly, in Michael’s mind, he did not see a connection between a change in the company name and the use of the Valleygirl and TEMT brands, a distinction he maintained in evidence. We agree with Mr Miles that the explanation Michael gave for changing the company name (he said it was for tax reasons) does not hold water. Nevertheless, we do not see any necessary connection between changing the name of the company in New Zealand and the issue of the ownership of the marks in New Zealand.
The meeting of 5 September 2008
Mr Kim said that continuing concerns by FFB led him to stop Michael accessing FFB’s SCM system to order product. Both Mr Kim and Jim acknowledged this put pressure on Michael to come to an agreement because he would be unable to source product through FFB’s suppliers without the use of the SCM system. A further meeting was held on 5 September 2008 attended by Michael, Mr Kim and a Mr Jay Lim (who left FFB’s employment prior to the trial). Jim did not attend this meeting. Mr Kim’s evidence was that Michael accepted at the meeting that the trade marks in both Australia and New Zealand belonged to Jim. There was discussion about the rebranding of the Australian stores and he said Michael agreed to rebrand all the New Zealand stores, removing all reference to Valleygirl and TEMT branding and fixtures. Michael denied any such agreement and maintained that denial in cross-examination. Mr Lin was not called.
A file note dated 9 September 2008 prepared by FFB’s lawyer, Mr David Geddes, was produced. This was said to record the outcome of the meeting of 5 September 2008 as relayed to Mr Geddes by Mr Lim. It was a relatively brief note. Relevantly, it records:
Agreed
1M. Ma will sign a personal guarantee.
DHG draft
$2m Repay by 31/12/08
2Major issue
I/P rights
M. agrees all rights belong to FFB
(i) “V/G”
(ii) “TEMT”
(iii)+ all designs supplied by FFB to Hanama in Australia and NZ
There are obvious evidential difficulties with this note. First, neither Mr Lim nor Mr Geddes were called to give evidence. Secondly, it is unspecific in dealing with the ownership of the trade marks in New Zealand. The only reference to New Zealand is in relation to designs supplied by FFB to Hanama in Australia and New Zealand. The Judge ruled that the file note was hearsay and could not constitute direct proof of the truth of the matters contained in it.[34]
[34]At [149].
We agree with the Judge’s conclusion that Michael did not make the concession Mr Kim said he did at the 5 September 2008 meeting:
[150] I find it implausible that Michael Ma at the September meeting would have made such a critical concession. If he had done so, one might have expected that to appear in the December 2008 agreement, which was confined to Australia. Jim Marr would have had no reason to be reticent in asking Michael Ma to confirm his concession as to New Zealand. The fact that Jim Marr held back is consistent only with the conclusion that in September 2008 Michael Ma had made no such concession.
The agreement of 1 December 2008
Matters proceeded on an unresolved basis until there was a further meeting on 1 December 2008 attended by Jim, Michael and Mr Kim. That resulted in a further agreement of the same date being signed between FFB and Hanama. It was a simple agreement, again prepared by FFB without legal input. Clause 1 provided:
1.FFB has ownership of Trademarks “Valleygirl”, “TEMT” and “BUSS” and have the authority to allow the use of these trademarks.
Clauses 2 and 3 provided that FFB agreed to allow Hanama to use the trading names “Valleygirl” and “TEMT” until 31 March 2009 at specified addresses and, in one case, until 30 June 2009. It is common ground that the addresses specified in these clauses all related to Michael’s stores in Australia.
Clause 4 recorded that Hanama agreed to clear all liabilities to FFB before 31 March 2011 with a personal guarantee from Michael. The remaining clause, cl 5, is not material for present purposes.
In evidence, Jim said that after the agreement was signed, he raised with Michael the fact that there was no provision in the agreement scheduling times for the changeover of the New Zealand stores to a new brand. He said it was decided that they would have another meeting to discuss this. He explained that he was not concerned because he said Michael had previously agreed verbally he would change over the signage of the New Zealand stores by 1 January 2010. He added:
Accordingly, in the absence of agreement to revise the changeover date for the New Zealand stores, Terry [Kim] and I simply assumed that by 2010 Michael would have changed over the signage of the New Zealand VALLEYGIRL and TEMT stores and that his new brand CHICA BOOTI would be used for them.
In his reply brief, Jim said Michael had asked for permission to use the Valleygirl and TEMT business names in New Zealand. Jim said he rejected that request. He remained “comfortable” that the use of the business names in New Zealand would cease when FFB stopped supplying Valleygirl and TEMT products after 31 December 2009. He considered it important that Hanama cease to use the marks because it would be “bad” for FFB if Hanama traded under Valleygirl or TEMT in New Zealand while stocking its products under the Chicabooti and Paper Scissors brands.
Jim was cross-examined about the 1 December 2008 agreement and the meeting at which it was signed. He agreed it had been a long meeting and that he had checked the agreement before it was signed to make sure it covered everything. He readily agreed that the agreement referred only to the shops in Australia. He was then questioned about his evidence that a further meeting was planned to discuss a schedule of times for the changeover in New Zealand to a new brand:
Q.And you said you are not concerned because Michael had previously verbally agreed that the changeover would occur by the 1st of January 2010?.
A.Yes.
Q.Now this was an important issue for [you] wasn’t it? An important issue.
A.I couldn’t catch that, what point are you talking about?
Q.The use of the trademarks and brands in New Zealand.
A.Yes. Yes.
Q.On what you’re telling the Court was a very important issue.
A.Yes it is.
Q.And you were determined to have Michael stop using those brands in New Zealand?
A.Yes.
Q.And yet you miss them completely out of your agreement that is signed from the 1st of December.
A.Yes.
Q.And you say you will rely on Michael’s verbal assurance.
A.Yes.
Q.That the changeover will take place by the 1st of January 2010?
A.In July one or –
Q.This is in the July statement at paragraph 68.
A.Yes I read now.
Q.And you also say, that you agree that you’d have another meeting to sort out the New Zealand schedule relating to the changeover of the New Zealand brands.
A.Let me read it again please.
Q.Please do.
A.Yes.
Jim went on to agree that there was no further meeting and he had not discussed the matter again with Michael thereafter.
Events after the agreement of 1 December 2008
The Judge considered it to be significant that although Michael’s solicitor wrote several letters in 2009 complaining about Michael’s alleged non-compliance with the 1 December 2008 agreement and about Michael’s New Zealand based websites, there was no follow up of the issue relating to the ownership of the New Zealand trade marks. Jim did not produce any correspondence on that subject until the letter of 7 October 2010 immediately after the revocation of the registration of Michael’s trade marks. By that time, nearly two years had gone by since the 1 December 2008 agreement.
Our review of the correspondence between lawyers representing the parties in the period May to July 2009 confirms there was no complaint about Michael’s ownership of the New Zealand trade marks despite Michael’s lawyer confirming explicitly in a letter on 29 June 2009 that Michael (or VGNZ) was the registered owner of the marks in New Zealand.
As already noted, in late 2009 and early February 2010, Jim applied to revoke the registration of Michael’s marks in New Zealand and to seek registration of the marks in his (Jim’s) name. Michael’s evidence that he knew nothing of this was not challenged.
Conclusions
In summary, we are satisfied that under the informal arrangements between Jim and Michael in Australia, Jim had control of the purchase, design and marketing of the goods. Whether or not the arrangement was a franchise, Jim held the trade marks and licensed Michael to sell the goods. Michael paid commission based on a percentage of sales. Initially, Jim purchased the goods and supplied them to Michael but this later changed with Michael buying the goods from Jim’s suppliers and using FFB’s SCM purchasing system.
The position was different for New Zealand. Until 2003 neither Jim nor Michael had traded in New Zealand and neither held any registered marks in this country. Michael’s stores in Australia were confined to the eastern suburbs of Sydney and he was considering commencing a separate business in New Zealand. Matters came to a head with the advice in 2003 that a third party had applied for registration of the marks in New Zealand. Jim and Michael agreed to oppose the registration jointly and were successful in doing so. Michael registered a company in New Zealand at that time and applied for registration of the marks in his own name in New Zealand.
We are satisfied that Jim knew about this from the outset and had no concerns about the steps Michael was taking. Indeed, he encouraged him to do so.
Having secured registration of the marks in New Zealand in March 2004 and September 2005, Michael opened his first store under the Valleygirl brand in May 2006, again with Jim’s knowledge and encouragement. Michael expanded the business in New Zealand substantially thereafter to some 28 outlets, trading under both the Valleygirl and TEMT banners. At the same time, he continued to operate his Sydney stores utilising Jim’s marks under licence.
By 2007, the relationship between the parties had deteriorated. Negotiations began towards the severance of their business relationship. A significant factor in this was the large debt Michael was said to owe to Jim. Negotiations continued until the end of 2008 but the issues were confined to Michael rebranding his Sydney stores to his Chicabooti and Paper Scissors labels; arrangements for the repayment of the debt; Michael changing the VGNZ company name; and the reduction during a phasing out period of Michael’s purchases of Valleygirl and TEMT product from Jim’s suppliers (which we have found did not preclude Michael from acquiring Valleygirl and TEMT product from other suppliers for sale in New Zealand).
We are satisfied, as was the Judge, that none of these arrangements involved Michael being required to relinquish his trade marks in New Zealand despite Jim’s knowledge that they had been registered in Michael’s name.
In brief summary, the following matters support our conclusions:
·The failure by Jim at any stage before the letter of 7 October 2010 to object to Michael owning the marks in New Zealand despite his knowledge from 2003 onwards that Michael had applied for the registration of the marks in his own name.
·The registration of the marks in Michael’s name would be inimical to any suggestion of a franchise or licence arrangement in New Zealand in which Jim continued to own the marks, yet Jim positively encouraged Michael to establish his business in New Zealand on his own account.
·The absence of any documentary evidence that Jim was challenging Michael’s ownership of the marks in New Zealand until shortly before the letter of 7 October 2010 was sent, nearly two years after the end of negotiations over the separation of their business connections.
·The acknowledgements by both Jim and Mr Kim that the April and December 2008 agreements did not cover New Zealand and related only to the severance of the parties’ affairs in Australia.
·Mr Kim’s acceptance that Michael had made it clear he would not sign any agreement that required him to relinquish ownership of the marks in New Zealand.
·Jim’s lack of interest in establishing a business in New Zealand for himself and his focus from 2005–2006 on business opportunities in Korea.
·All steps taken by Michael in New Zealand from 2003 onwards have been at his own expense.
·The interest both parties had in Michael being in a position to generate sufficient income to enable him to repay the debt to Jim.
There are two final matters that require mention. The first is the question raised by the Judge about why Jim filed the court proceedings if he was not interested in the New Zealand market. The Judge said that Jim had received an email in February 2009 from a real estate agent indicating that Michael was still opening Valleygirl and TEMT outlets in New Zealand. Plainly Jim saw this as inconsistent with the rebranding arrangements Michael had given. But, as we have found, Michael did not give an undertaking to rebrand in New Zealand and Jim’s view of this is mistaken.
The second matter is Mr Miles’ point that it is an odd outcome and potentially misleading to customers that Michael’s stores in New Zealand have Valleygirl and TEMT signage on the outside but do not at this stage sell product under those labels inside. We agree this is unusual but the answer is that if Michael owns the trade marks, he is free to use them as he sees fit so long as he does not mislead the public. Whether that is likely to occur is not before us. Michael may choose to stock product under the Valleygirl and TEMT labels in New Zealand if he can obtain them from an alternative source other than Jim’s suppliers as we have discussed above.
Disposition
In summary, the formal orders in the High Court were:
(a)FFB’s claims for trade mark infringement, breach of the Fair Trading Act and for passing off were dismissed;
(b)it was declared that Michael’s New Zealand trade marks were invalidly revoked and that VGNZ was entitled to have FFB’s invalidly registered marks removed from the register of trade marks; and
(c)VGNZ was entitled to an injunction restraining the appellants from trading in New Zealand under those marks (or similar words).
As we understood it, Mr Miles accepted that if we were to conclude Jim had consented to Michael having ownership of the marks in New Zealand, that would resolve all issues. As we apprehend it, that would mean that the orders made in the High Court should be upheld.
Counsel had raised the possibility that Michael might not have been entitled to registration of the Valleygirl mark in 2003 since there was some very brief evidence that product labelled Valleygirl had made its way onto the New Zealand market prior to 2003. This issue was not developed in argument and we do not view it as an issue arising from the pleadings.
Similarly with the good faith issue, we share the Judge’s concerns about why Jim did not advise Michael of the applications he filed on 4 December 2009 and 17 February 2010 (which vitally affected Michael). The Judge concluded that there was a lack of good faith on Jim’s part in terms of s 17(2) of the Trade Marks Act 2002 in respect of his application to register the marks. It does not appear to be essential for us to reach a view on this but we record that we agree with the Judge on this issue for the reasons he gave. We note that a lack of good faith on Jim’s part could also arise from his knowledge that he had consented to Michael owning the marks in New Zealand.
Result
The appeal is dismissed.
The appellants, jointly and severally, must pay the respondents costs for a standard appeal on a band A basis and usual disbursements.
Leave is reserved to apply further should there be any consequential matters arising from the pleadings that cannot be resolved in the High Court.
Solicitors:
Bell Gully, Auckland for Appellants
Baldwins Law Ltd, Auckland for Respondents
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