Fast Future Brands Pty Limited (Formerly Valleygirl Fashions Pty Limited) v Valleygirl New Zealand Limited (Formerly Hanama Collection (NZ) Limited)
[2012] NZHC 3554
•19 December 2012
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
CIV 2011-404-1283 [2012] NZHC 3554
BETWEEN FAST FUTURE BRANDS PTY LIMITED (FORMERLY VALLEYGIRL FASHIONS PTY LIMITED)
First Plaintiff
ANDJIM MARR Second Plaintiff
ANDHESTER MARR Third Plaintiff
ANDVALLEYGIRL NEW ZEALAND LIMITED (FORMERLY HANAMA COLLECTION (NZ) LIMITED) First Defendant
ANDHKUK SANG MA (ALSO KNOWN AS MICHAEL MA)
Second Defendant
ANDHANAMA COLLECTION PTY LIMITED Third Defendant
Hearing: 12 - 16 September 2011, 28 February - 5 March 2012
Appearances: G C Williams & J Q Wilson for Plaintiffs
J O Upton QC, K J Duckworth & T A Huthwaite for Defendants
Judgment: 19 December 2012
JUDGMENT OF KEANE J
This judgment was delivered by on 19 December 2012 at 4pm pursuant to Rule 11.5 of the High Court Rules.
Registrar/ Deputy Registrar
Solicitors:
Date:
Bell Gully, Auckland; [email protected], [email protected]
Baldwins, Auckland; [email protected]; [email protected]
Counsel:
FAST FUTURE BRANDS PTY LIMITED (FORMERLY VALLEYGIRL FASHIONS PTY LIMITED) V VALLEYGIRL NEW ZEALAND LIMITED (FORMERLY HANAMA COLLECTION (NZ) LIMITED) HC AK CIV 2011-404-1283 [19 December 2012]
[1] Since 2006 VGNZ has sold throughout New Zealand clothing and accessories for teenage girls and young women aged between 15 - 25 years. VGNZ now has 16 Valleygirl outlets and 12 Temt outlets, and until 2008 its product carried those labels. Since 2008 it has sold product at its 28 New Zealand outlets under the labels Chicabooti and Paper Scissors.
[2] Until 2010 VGNZ's owner, Michael Ma, an Australian of Korean ethnicity, who lives in Sydney, owned the New Zealand trade marks, Valleygirl and Temt, which he had acquired in 2005, after successfully opposing in 2003 an earlier application for the marks by a New Zealand interloper. For product carrying those labels, however, VGNZ was reliant from the outset on Michael Ma’s Australian company, Hanama, which until 2008 had in New South Wales 15 outlets named either Valleygirl or Temt. In September 2008 Hanama ceased to be able to sustain supply.
[3] Until September 2008 Hanama obtained its own labelled product, and that of VGNZ, from suppliers it then shared with FFB, the holder of the Australian trade marks, as to Valleygirl as owner and as to Temt as licensee. FFB, which belongs to Michael Ma’s uncle, Jim Marr, also an Australian of Korean ethnicity, who now lives principally in South Korea, has 76 Valleygirl outlets and 73 Temt outlets in Australia. It has none in New Zealand and in 2003 had authorised Michael Ma to oppose the New Zealand interloper's application on its behalf.
[4] In late 2008 FFB and Hanama ceased altogether their relationship in Australia, under which since 1993, and at first at a family level, they had retailed independently but shared purchasing and marketing, and offices and warehousing and staff. Hanama renamed its 15 outlets Chicabooti or Paper Scissors and began to sell product under those new labels. VGNZ continued to call its New Zealand outlets Valleygirl and Temt but as to product followed suit, as it says because it could not afford by itself limited Valleygirl and Temt product runs.
[5] FFB’s case is that under the 2008 agreement (an agreement to be gathered from two written agreements in Australia that year, and letters and emails beforehand and afterwards and evidence), VGNZ had also to cease any use of the Valleygirl and
Temt marks, and to rebrand completely by no later than 1 January 2010. VGNZ’s case is that it retains to this day full right to those trade marks in New Zealand; a right that FFB, in reality Jim Marr, agreed to it says in 2003 or earlier.
[6] In December 2009 FFB applied in New Zealand to have the Valleygirl and
Tempt trade marks registered to it. In February 2010 it applied to have Michael Ma's
2005 trade marks declared invalid on the ground that he obtained them in bad faith, knowing they belonged in Australia to FFB or its shareholders and that he was merely a franchisee. When that application was granted on 30 April 2010 FFB pursued its own application. On 7 October 2010 FFB became the holder of the trade marks in New Zealand as well as in Australia; and, that day, its New Zealand solicitors wrote a cease and desist letter to Michael Ma at his Sydney home address.
[7] That letter was the first actual notice Michael Ma had of FFB’s two applications. The Commissioner of Trade Marks had, as required, sent the first application to Michael Ma's address for service but by then that address was stale. The Commissioner had, as also required, advertised the second application once more without evoking any response. Faced with a fait accompli, Michael Ma and VGNZ applied to the Commissioner in October 2010 to have FFB's New Zealand trade marks declared invalid, an application FFB opposes.
[8] VGNZ's application has lain fallow since FFB brought this case in March
2011 to vindicate its status as registered owner of the New Zealand trade marks and to have VGNZ enjoined from continuing to use the related trade names. FFB seeks an inquiry into damages.
[9] VGNZ counterclaims. It contends that FFB's trade marks are invalid, because FFB had ceded the right to those trade marks to Michael Ma and wrongfully had them revoked and applied to have its own trade marks registered. It seeks to have those trade marks removed from the Register and under its related causes of action FFB enjoined from relying on them. By way of affirmative defence, as well as relying on the fact that its marks were valid and subsisting when FFB's trade marks were registered, it relies on estoppel and laches.
TWO QUESTIONS OF RELATIONSHIP
[10] Since 2008 FFB and Hanama may have ceased their relationship in Australia and may now trade under distinct brands. But until 2008 they intentionally retailed identically under the same brands and they are still in the same market niche and their products are likely still to be very much the same.
[11] That VGNZ is able to sell successfully in New Zealand Chicabooti and Paper Scissors product at Valleygirl and Temt outlets illustrates just how close in the market place all three entities still are and how easily in the public mind one could be associated with, even confused with, another. All that is capable of distinguishing them decisively is branding.
[12] FFB has always held the trade marks Valleygirl and Temt in Australia and there Hanama finally ceded those marks to FFB in 2008 by agreeing to rebrand under the Chicabooti and Paper Scissors trade marks. But in Australia the benefit of the trade marks was shared by Hanama until 2008 in a relationship that was partly independent and partly interdependent.
[13] Michael Ma registered the New Zealand trade marks in his own name in
2005 and between 2006 - 2010 VGNZ relied on them increasingly as it expanded its outlets. Until 2008 VGNZ was reliant on FFB and Hanama for labelled product but otherwise appears to have traded independently. FFB only became registered owner of the New Zealand trade marks unopposed because Michael Ma was unaware of FFB's two applications.
[14] To what extent FFB's and Hanama's rights to the benefit of the trade marks in a proprietary sense, and as a source of goodwill in a business sense, coincide cannot therefore be answered solely by reference to FFB's proprietary rights. It can only be answered by looking first at FFB's relationship with Hanama in Australia and then FFB's relationship with VGNZ in New Zealand, how they interrelated and how they treated the trade marks in their shared enterprise.
[15] Was the relationship in Australia between FFB and Hanama, initially and
perhaps always in reality one between Jim Marr and Michael Ma, as FFB contends, merely that of franchisor and franchisee? Or was it, as Michael Ma and Hanama contend, a traditional Korean joint family enterprise, inconsistent with a conventional franchise, integrated from the outset at the level of purchasing, marketing and administration, under which Michael Ma and Hanama enjoyed, if not a proprietary right in the trade marks and any goodwill insofar as that is a proprietary right, then a rightful share in any related goodwill in an accounting sense?
[16] Does the Australian relationship, whatever it was or became, circumscribe let alone define any rights Michael Ma and VGNZ had and may have still to the trade marks Valleygirl and Temt in New Zealand? VGNZ contends that in 2003, if not earlier, Jim Marr, and thus FFB, agreed that Michael Ma should have the exclusive right to the trade marks in New Zealand, accepting it to be a distinct and severable market, but now seeks very belatedly to take advantage of VGNZ’s resulting investment in the New Zealand market, and market share.
[17] Complicating these conflicting claims is that the relationships, such as they have been in both countries, have only ever been expressed formally in Australia, and then only at the end of relations between FFB and Hanama and then incompletely. Any agreement as to the position in New Zealand can only be gleaned by inference.
[18] FFB contends that this lack of formality was a deficiency in two otherwise conventional franchise relationships. VGNZ contends that this apparent lack was a definitive hallmark of each relationship. Underpinning each, VGNZ contends, was Michael Ma's relationship with Jim Marr, a traditional Korean family relationship in which fathers and uncles enjoy authority over sons and nephews and which rest on trust.
FFB'S CASE
[19] FFB's case is that, when in 2003 Michael Ma applied to have the New Zealand trade marks Valleygirl and Temt registered in his own name, and the trade marks became his as a result of registration in 2005, he acted without any right.
[20] The right to those trade marks, FFB contends, lay with it as the holder of the Australian trade marks. It had been registered owner of the Valleygirl trade mark since September 1996. It had held the Temt trade mark as licensee from Jim Marr and his wife since June 2002. As registered owner, or as licensee, FFB contends, it enjoyed an absolute right to the Valleygirl trade mark and an exclusive right to the Temt trade mark. In this Court, FFB contends, Michael Ma and Hanama are unable to assert any inconsistent proprietary right. Only the Australian Courts have jurisdiction.
[21] In 2003 and earlier, FFB contends, the only rights to the Australian trade marks that Michael Ma and Hanama enjoyed were by way of a franchise; a licence to use the trade marks contingent on paying a commission fee (FFB's price for the use, of the marks and for the benefit of FFB's systems, and to contribute to the continuing cost of the development of the marks) and on complying with FFB's product selections and standards. Any goodwill, in the sense of reputation, in the trade marks in Australia resulting from their exercise of their rights as franchisees, FFB says, accrued to it as franchisor. It retained the right to terminate the Australian franchises on reasonable notice.
[22] In this FFB relies on Michael Ma's 2004 declaration opposing the New Zealand interloper's application. There he described Hanama's relationship with FFB as a franchise. He confirmed that FFB owned the Australian trade marks and that Hanama paid commission on the cost of product acquired from FFB through its proprietary ordering system and that FFB controlled product selection and style.
[23] FFB accepts that it authorised Michael Ma to oppose the New Zealand interloper's application on its behalf. It did not, it says, authorise him to register the trade marks Valleygirl and Temt in his own name. He never ceased to be a franchisee. Any reputation the trade marks enjoyed in New Zealand in 2003 could only have been by spill over from Australia and that accrued only to it. Any labelled product sold in New Zealand before 2003, even if that were unauthorised, constituted its own use of the marks in New Zealand. Any reputation in the marks since VGNZ began to trade in 2006, necessarily as a franchisee, it says also, must equally accrue to it. In New Zealand, as in Australia, it says, it retained the ability to
terminate the franchise on reasonable notice.
[24] On 16 August 2007, FFB contends, Jim Marr gave Michael Ma notice that the franchises in both countries were to cease within a time to be agreed to enable Hanama and VGNZ to rebrand completely. Under the agreements then reached Hanama's franchise ceased on 30 June 2009 and VGNZ's franchise ceased in New Zealand on 1 January 2010. Despite VGNZ's prior use of the trade marks in New Zealand to that point, FFB says, it was entitled to apply, as it did in December 2009, to register the trade marks in its own name, once Michael Ma's status as registered owner had been declared invalid.
[25] Since September 2010, when FFB became the registered owner of the marks in New Zealand, FFB contends, VGNZ has persisted in calling its New Zealand outlets Valleygirl and Temt, even though since 2008 VGNZ has been selling inconsistently labelled Chicabooti and Paper Scissors product. That can only be, it says, because VGNZ wishes to avoid in New Zealand the loss Hanama suffered in Australia when it rebranded completely. To avoid such a loss, it says, VGNZ is trading off FFB's reputation in the two marks. VGNZ is trading deceptively. It is passing off its product as directly or indirectly connected with FFB's brands.
[26] In its first cause of action FFB contends that VGNZ has infringed its New Zealand trade marks, since they were registered on 7 October 2010, by continuing to give its outlets those trade names, and by selling product in the classes those trade marks cover, in these ways diluting and damaging FFB's trade marks.
[27] FFB's second cause of action under the Fair Trading Act 1986 is that since 1
January 2010, when VGNZ's franchise ceased, its unauthorised use of the trade marks has been misleading and deceptive, primarily because VGNZ has held out that it remains authorised to use those marks and that its business and goods are associated with those of FFB. FFB contends, though it does not have to, that it has suffered damage. The distinctiveness of its trade marks has been eroded in New Zealand. Its goodwill has been diluted.
[28] FFB's third cause of action lies in passing off. FFB contends that since
VGNZ has ceased to be a franchisee, it has continued to trade as if it were. It has taken advantage of FFB's reputation in the trade marks or trade names, a reputation accruing to FFB from VGNZ's use of the marks in New Zealand as franchisee, and FFB has suffered loss. FFB has been deprived of the franchise fees it might otherwise have derived. The goods or services VGNZ offers have been confused with FFB's own.
[29] In seeking a declaration as to the fact of these breaches, an injunction to bring VGNZ's use of its trade marks or trade names to a halt, and an inquiry into damages, FFB looks to Michael Ma and Hanama as joint tort feasors.
VGNZ'S CASE
[30] VGNZ accepts that FFB held the Australian trade marks, either as registered owner or as licensee. It does not accept that FFB held those trade marks exclusively. Michael Ma and Hanama assert they shared equally with FFB in the goodwill in those trade marks and trade names in Australia, and that they were not franchisees.
[31] The trade marks or trade names, VGNZ contends, were assets in their shared Australian enterprise, an enterprise in which they developed those brands together and purchased and marketed product together; and, though they retailed independently, set out to do so identically. In that shared enterprise, VGNZ contends, Michael Ma played the part of a principal. He attended FFB management meetings. He sometimes represented FFB's interests, most notably in 2003, when opposing the New Zealand interloper's application on FFB's behalf as well as that of Hanama.
[32] Michael Ma applied to register the trade marks in New Zealand in his own name, even though FFB held the Australian marks, VGNZ contends, because Jim Marr had agreed that New Zealand should be his separate territory and that he should have the exclusive benefit of the trade marks in New Zealand. It was in exercise of Michael Ma's rights as registered owner, and not as a franchisee of FFB, that VGNZ opened its Valleygirl and Temt outlets in New Zealand, initially with FFB's help.
[33] VGNZ denies that Michael Ma in his 2003 declaration opposing the New
Zealand interloper's application knowingly said that in Australia Hanama was a franchisee of FFB. He denies then knowing what 'franchise' meant. He says that the formal Korean word for franchise, 'dae re geom', did not then figure. How Michael Ma understood the relationship in Australia between FFB and Hanama, VGNZ says, must be taken from his declaration as a whole.
[34] VGNZ accepts that between 2006 - 2008 it paid a 10 per cent mark up on the cost price of labelled product, identical to that Hanama then paid FFB. It denies that this was a franchise fee. It contends that the mark up was to pay for the cost of purchasing shared labelled product and its share of head office expenses for marketing, merchandising, brand development and the like.
[35] FFB and Hanama agreed to sever their relationship in Australia in 2008, VGNZ contends, once it had deteriorated to the point where it ceased to be viable. FFB had ceased to buy stock for Hanama in 2002 and Hanama had enjoyed better terms buying from their shared suppliers direct. Moreover, Hanama had fallen behind in repaying FFB its debt for product purchased before 2002 and how that debt was calculated remained in issue, as it does still. VGNZ does not concede that, when in 2008 Hanama agreed to rebrand in Australia, it relinquished a franchise right. Nor does it concede that Michael Ma relinquished any right to the trade marks in New Zealand. He only agreed to relinquish Hanama's Australian right, it says, because he retained the ownership of the New Zealand trade marks.
[36] VGNZ accepts that when Michael Ma obtained the New Zealand trade marks in 2005 and when in 2006 it began to open outlets, FFB did enjoy some spill over reputation in New Zealand. Michael Ma said as much in his 2004 declaration. But Michael Ma and Hanama had contributed. FFB cannot claim the sole credit. Nor could FFB claim to have used the trade marks in New Zealand before 2003. Any such product came from their shared enterprise. Since 2006, VGNZ says, any Australian reputation spill over must have been negligible. FFB has never traded in New Zealand. The reputation the two marks now enjoy in New Zealand can only have resulted from VGNZ's increasing presence in the market.
[37] In its first cause of action VGNZ crystallises all of these aspects of its
position, contending that FFB's 2010 New Zealand trade marks are invalid because:
(a) On 15 October 2010, the date on which FFB applied to have those trade marks registered in its name, Michael Ma had valid and subsisting trade marks, on which VGNZ had relied since 2006, and they remained valid and subsisting until revoked, as VGNZ says wrongfully, on 6 February 2010.
(b)FFB's trade marks are deceptive or likely to cause confusion, because at the date on which they were registered VGNZ had been trading in the classes of product to which those new trade marks relate for at least four and a half years, the trade names have had become distinctive of VGNZ, and FFB's product might be considered by consumers to carry the stamp of VGNZ.
(c) FFB's trade marks are contrary to law: their use could only be deceptive or misleading under the Fair Trading Act 1986 or would amount to passing off.
(d)FFB acted in bad faith in setting out to revoke Michael Ma's trade mark, and in registering those marks in its own name, Jim Marr, having earlier agreed that he should own the marks, knowing that VGNZ had used them extensively, and having never before asserted any right to them.
(e) FFB, if it used the marks, would be disentitled from relying on them because their use would be contrary to law; they were not registerable because Michael Ma's marks then remained valid and subsisting; and they are identical, and apply to the same or similar product, suggesting that VGNZ and FFB were connected, to VGNZ's prejudice.
[38] In two further causes of action VGNZ contends that, in relying on its registered trade marks, FFB is or will be in breach of the Fair Trading Act 1986 and
will be culpable of passing off.
[39] By affirmative defence, VGNZ contends that FFB's trade marks were not capable of being registered validly because when FFB applied for registration on 4
December 2009, VGNZ's marks were valid and subsisting, and remained so until revoked on 16 February 2010, and they are identical or similar. It advances affirmative defences in estoppel and laches.
[40] Finally, by way of counterclaim VGNZ seeks declarations that the two agreements between Hanama and FFB in Australia in 2008 under which they severed their relationship, are void for lack of consideration and because Michael Ma entered into them subject to undue influence.
RELATIONSHIP IN AUSTRALIA
[41] In 1991, when Jim Marr, then aged 34, emigrated to Sydney, Australia, from South Korea, he was able to purchase an outlet from his older brother Steve Ma, who then had a number of women's clothing outlets in Sydney named Grace Mars. Steve Ma permitted him to trade under the name 'Grace' and sold him stock at cost price subject to a mark up. Shortly after, Jim Marr purchased another outlet on the same basis.
[42] In 1992 Michael Ma, then aged 22, and his mother and sister emigrated to Sydney from South Korea, after his father died, and in 1993 he and his mother purchased another of Steve Ma's outlets, and a little later another, also named 'Grace' and 'Grace Mars'. Like Jim Marr they too purchased their stock from Steve Ma at a margin above cost.
[43] In 1993 - 1994 Jim Marr, and Michael Ma and his mother, agreed to purchase their stock together, to cease having to pay Steve Ma's margin, and to take advantage of their shared buying power. When they began in 1993 they stored product in Jim Marr's garage. Then or later, they agreed that Jim Ma should have the western suburbs of Sydney and Michael Ma the eastern suburbs.
[44] According to Michael Ma they recognised also that they had complementary
abilities and experience. Jim Marr, who had retailing experience in South Korea, was better placed to focus on clothing design and the ordering of stock. Michael Ma, whose background was in architecture, was better placed to focus on interior design, shop fitting and information technology.
[45] Yet, Michael Ma contends also, in their embryonic relationship, Jim Marr retained seniority as his 'little father', and this placed him at a disadvantage even as late as 2008. Jim Marr's position is that their relationship was dictated by commercial reality and that he was pivotal to their viability in those early days and later. In 1993 he, in contrast to Michael Ma, had secure immigrant status in Australia and he was able to obtain supplier and bank credit. It was he who began to purchase their shared product.
[46] In June 1995 Jim Marr opened two new outlets, which he named 'Fashion Portfolio', a name he gave to his other outlets. Portfolio proved to be a registered mark. In August 1996 Jim Marr incorporated FFB under the name Valleygirl Fashions Pty Limited. In September 1996 he applied to register the trade mark
'Valleygirl', and he renamed all his outlets 'Valleygirl' and began to sell product under that label.
[47] In 1996 Michael Ma was still retailing under the name 'Grace Mars'. But as he and Jim Marr continued to purchase stock together, and Jim Marr began to source and sell Valleygirl labelled product, it was to their joint benefit that he sold Valleygirl labelled product as well and he first did so at his Grace Mars outlets. In August 1998, with Jim Marr's agreement, he opened his first Valleygirl outlet.
[48] In 1996 or earlier Jim Marr, or perhaps by then FFB, and Michael Ma ceased storing product in Jim Marr’s garage and leased the first of a series of warehouses. FFB was the lessee but they divided the space between them and Michael Ma shared the cost without, it seems, ever becoming formally a sub lessee or tenant. Then, or soon after, they began to employ buyers and marketing and administrative staff, and shared also the wage bill and other costs.
[49] Jim Marr, it is undisputed, found 'valleygirl' in a dictionary, and indeed the
Oxford English Dictionary defines 'valleygirl' as 'a teenage girl from San Fernando Valley in Southern California'. Michael Ma's evidence is that this was one of several possible names they together identified and that, using his computer skills, he assisted in choosing the logos and fonts. The choice of Valleygirl, Michael Ma says, illustrates the extent to which he and Jim Marr then relied on each other.
[50] In 1998, when Jim Marr began to supply labelled product, he required Michael Ma to pay a margin over cost, then fixed at five per cent; the percentage, I understand, that Steve Ma had charged. Over the next four years, FFB, in reality Jim Marr, increased that mark up to 10 per cent, then to 15 per cent. In 2001, when Michael Ma's debt to FFB had become unsustainable, the margin reverted to 10 per cent.
[51] This mark up, FFB contends, was principally Hanama's franchise or licence fee for the right to use the Valleygirl trade marks and then the Temt marks, once Jim Marr and his wife registered them in June 2002 and granted them to FFB under licence. It was also the price Hanama paid to share FFB’s facilities, and a contribution to the continuing cost of developing the brands.
[52] VGNZ contests that. It contends that this mark up was, in 1998, a contribution to Jim Marr's costs of purchase, and extended later to the costs of administration and marketing and other services. It was never in any part a fee that Hanama paid for the use of the trade marks.
[53] Michael Ma also says that, because in 1998 he continued to be reliant on Jim Marr for product, and could only pay from sales made, he became FFB’s constant debtor and on terms set by Jim Marr that he considers were unfair and oppressive. Jim Marr, later FFB, Michael Ma says, had two - six months to pay suppliers but charged him, and later Hanama, compound interest on any payment due one month after supply at a higher than commercial rate, then or later 12.5 per cent.
[54] Moreover, Michael Ma says, his debt increased because he had to spend time and money opening concept stores and promoting their shared brands. In 1998, he says, he was responsible for the first Valleygirl concept design outlet. He says that he
paid the designer, 360 Creative, and liaised with the designer in the design and that
FFB used this concept at two outlets soon after.
[55] In June 2001, when Michael Ma incorporated Hanama, he owed FFB AU
$1.7M and in January 2002 FFB refused any longer to purchase Hanama's stock. Hanama had then to purchase directly from their shared suppliers, though still using the purchasing process they shared and still subject to the 10 per cent margin, but Michael Ma says on better terms from suppliers than from Jim Marr.
[56] In 2001 and later, FFB says, it had three concerns about Hanama, each a symptom of Hanama's lack of means. Hanama, FFB considered, was not investing enough in outlet fit outs and was devaluing the Valleygirl image; it was selling product that was not to the Valleygirl label, and was inconsistent in style; and it was holding sales on dates completely at odds with their shared marketing strategy. Hanama was trading to FFB's disadvantage.
[57] Despite that, when in 2002 FFB began to open Temt outlets in Australia, Hanama was invited to follow suit. Indeed, Michael Ma contends, he had a hand on the Temt brand concept and shared the internal but not external concept design costs. When in April 2004 FFB opened outlets called 'Buss', selling mainly men's clothing, only to close them in October 2005 after they proved unprofitable, Hanama was invited to follow suit.
[58] In 2003 - 2004 Michael Ma, on behalf of FFB as well as Hanama, opposed successfully the New Zealand interloper's application. In September 2003 he incorporated VGNZ, then under the name Hanama (NZ) Limited. In September 2003 also, he applied in New Zealand to register the two marks in his own name. Temt was registered to him in April 2005 and Valleygirl in September 2005. VGNZ opened its first outlet in 2006.
[59] In opposing the interloper's application Michael Ma described Hanama's relationship with FFB in Australia as a franchise. He denies that this was what he understood or meant. He says that it was only in the first half of 2007, when Jim Marr was spending most of his time in South Korea, and he had to deal with FFB's
officers, that this possibility was first advanced.
[60] By July 2007 the relationship between FFB and Hanama had begun to founder. Michael Ma was then dissatisfied, he says, because FFB wanted Hanama to pay for services, for which he considered Hanama was already sharing the cost, like leasing, marketing and visual merchandising. To survive, he says, Hanama did contribute but by the end of 2007 had ceased to benefit from any of those services.
[61] According to FFB the larger issue in August 2007 was that Hanama still owed it AU $1.4M. At a meeting on 16 August 2007, it is FFB's case, Jim Marr told Michael Ma their relationship had to cease and that Hanama and VGNZ had to cease using in any way the Valleygirl and Temt trade marks. Michael Ma, FFB contends, asked to have until the end of 2009 to rebrand and to repay what FFB was owed.
[62] Michael Ma accepts that Jim Marr did raise this issue, but not, he says, conclusively. In ensuing emails, he contends, various options were spoken of: that Jim Marr have Valleygirl in Australia and New Zealand and that he have Temt in both countries; that they redivide Sydney. But on the day following the meeting, 17
August 2007, Michael Ma did say in an email to FFB's Joe Ha:
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/accounting reasons. The change will take time as it will progress with our restructuring.
[63] In that exchange, Michael Ma says, they spoke of changing company names, not trade marks or brand names. Then topical was whether there was a tax benefit or detriment in having a company name that was the same as or differed from any related trade name or brand name. Hanama and VGNZ eventually saw no advantage in any change of name.
[64] It was in November 2007, Michael Ma says, that FFB and Hanama agreed to go their separate ways and he then relied on Jim Marr's assurance that FFB would assist Hanama to detach itself. FFB's officers then and later wanted him, he says, to accept that they were severing a franchise. He rejected that, he says, because he always believed that the goodwill in the trade marks and trade names was a shared
asset.
[65] In January 2008 Hanama and FFB stopped sharing their offices and warehouse. In April 2008 Michael Ma and Hanama signed an agreement which FFB had prepared but did not then sign, agreeing to sever their relationship completely, not just in Australia, but in New Zealand.
[66] Under this agreement Hanama was to be allowed to use the two 'trade names' in Australia until 31 December 2008, and to reduce its labelled stock by fixed percentages, by 25 per cent by 31 December 2008, and by 30 June 2010 completely. In New Zealand VGNZ was to reduce labelled product by 33 per cent by 30 June
2010 and completely by 31 December 2010. Purchases were still to be subject to a
10 per cent 'service fee' for 'production, development and design' services. Hanama was to clear its debt to FFB by 31 December 2010.
[67] Michael Ma contends that he only signed this agreement because FFB's Joe Ha had said that otherwise FFB would withdraw its head office support. But under this agreement, he contends, he retained the undisturbed right to the Valleygirl and Temt trade marks in New Zealand.
[68] On 2 June 2008 FFB's Terry Kim pressed Michael Ma to cease using the two trade marks in Australia; and to cease linking VGNZ's websites, carrying the trade names as domain names, to FFB's Australian website. He was not asked, Michael Ma says, to rename VGNZ's outlets or its domain names or delete the trade names from its websites.
[69] In July 2008 FFB's officers continued to press Hanama to comply with the April 2008 agreement, and also complained that Hanama was selling FFB's product unlabelled. Hanama denied doing so. Michael Ma said that the styles and designs belonged to their common suppliers.
[70] In an email, dated 29 July 2008, Michael Ma said that, as a result of Hanama's then financial state, VGNZ's name change was on hold. He continued to say, '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'. He accepted that FFB and Hanama should separate completely but did not commit himself to a date.
[71] On 1 September 2008 FFB stopped Hanama's access to their shared purchasing process, an FFB asset, and on 9 October 2008 FFB's solicitor told Michael Ma and their suppliers that Hanama was not to be supplied independently. FFB says that it blocked Hanama's access because Michael Ma had, in an email dated 19 August 2008, denied that Hanama was FFB's franchisee. Michael Ma says that FFB blocked access to put pressure on him and on Hanama.
[72] Hanama was then denied, VGNZ says, and as it says FFB knew and intended, the ability to obtain secure supply in the most critical months of the year, September
- December. It had to buy in finished product at a greater cost and suffered a downturn in sales. In a larger sense, Michael Ma says, Hanama lost its investment in the development of the Valleygirl and Temt trade marks and goodwill. It suffered a
20 - 30 per cent sales downturn, which still stands at 10 - 15 per cent. Rebranding, he says, cost Hanama AU $1.2M in the first two years.
[73] On 5 September 2008, at a meeting between Michael Ma and two or three FFB officers, Terry Kim and Jay Lim certainly (Jo Ha may or may not have been present), FFB presented Michael Ma with a further agreement, which Michael Ma says he refused to sign, though told that otherwise FFB would withhold product and head office services.
[74] Under this agreement Hanama was to be entitled to labelled stock at all but three Australian outlets until 31 December 2008 and at those three outlets until 28
February 2009, as long as it sold only labelled stock. It was to reduce its debt to FFB by fixed monthly payments, subject to 17.5 per cent default interest, and Michael Ma was to give a guarantee.
[75] FFB's Terry Kim's evidence is that at that meeting, though Michael Ma may have refused to sign the agreement, he did make critical concessions. He accepted that his NSW outlets would be completely rebranded by 28 February 2009, that FFB
had the right to the Valleygirl and Temt trade marks in New Zealand and that VGNZ
would also rebrand completely by 31 December 2009.
[76] Michael Ma accepts that he did agree to rebrand completely in Australia, as long as FFB helped Hanama to make that transition gradually. He denies that they discussed, or that he gave any undertaking on VGNZ's behalf, to relinquish any claim to the marks in New Zealand, let alone to rebrand completely.
[77] In November 2008 FFB complained that Hanama was selling Chicabooti and Paper Scissors products at its New South Wales and Temt outlets, and threatened to sue. Hanama contested that it was and that issue, and Hanama's then debt to FFB, led to another meeting on 1 December 2008, at which Jim Marr as well as FFB officers was present at which they did enter into the agreement under which FFB and Hanama severed their Australian relationship between the two companies.
[78] Under this agreement Hanama accepted that FFB owned the trade marks Valleygirl, Temt and Buss in Australia and FFB agreed that Hanama might use the Valleygirl and Temt marks at nine of ten named outlets until 31 March 2009 and the trade name 'Valleygirl' at one outlet until 30 June 2009. Hanama also agreed to clear its debt to FFB by 31 March 2011 subject to a personal guarantee from Michael Ma, which he appears not to have given. In case of breach, FFB reserved the right to bring proceedings against both immediately and without notice.
[79] Michael Ma's evidence is that he only agreed to sign this agreement, because Jim Marr pressed him to do so. He made clear, he says, that he could do no more than comply as best he could. According to FFB, Hanama's debt then stood at AU$1.9M. Michael Ma did not accept that calculation and does not now. It does not take account, he contends, of cash payments made. It is still a contested issue in Australia.
[80] The agreement makes no reference to VGNZ's outlets in New Zealand or its domain names. Jim Marr's evidence is that they had taken the day to agree the position in Australia and he did not want to prejudice that aspect of their agreement by attempting to extend it to New Zealand. He says that Michael had already agreed
in September 2008 to rebrand completely in New Zealand by 1 January 2010 and he assumed he would do so.
[81] Michael Ma says that he did not agree in September 2008, or at any time, to cease using the trade marks in New Zealand and, indeed, it was agreed at this last meeting in December 2008 that there should be a further meeting relating to New Zealand. No such meeting was held. Since then FFB and, more recently VGNZ, have set out to assert and vindicate their contesting claims.
Australian relationship in law
[82] The nature of the relationship between FFB and Hanama in Australia, reflecting that between Jim Marr and Michael Ma, is difficult to identify because the only agreements entered into, those under which FFB and Hanama severed their relationship, are silent as to its nature; and ostensibly incompatible forms of relationship are contended for.
[83] The starting point must be, I consider, that in Australia FFB has always been the registered owner of the Valleygirl trade marks, and has always held the Temt trade marks as a licensee and perhaps now as a registered owner. As a registered owner certainly, but also as a licensee, FFB 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.1 Only
an Australian Court could hold otherwise.2
[84] The issue in law then becomes whether, as FFB contends, Hanama's right to use those trade marks in Australia could only be by way of franchise and nothing more; a conventional franchise relationship defined in Australia by the Trade Practices (Industry Codes - Franchising) Regulations 1998.
[85] Under those regulations, a franchise relationship may arise from an agreement made in writing or orally, or from an implied agreement, but it must have
1 Trade Marks Act 1995 (Aust), ss 20, 22.
2 British South Africa Co v Companhia de Mocambique [1893] AC 602 HL; Coin Controls Ltd v
Suzo International (UK) Ltd [1997] 3 All ER 45.
three indispensable features. It must be an agreement under which:3
a person (the franchisor) grants to another person (the franchisee) the right to carry on the business of offering, supplying or distributing goods or services in Australia under a system or marketing plan substantially determined, controlled or suggested by the franchisor or an associate of the franchisor.
And:4
under which the operation of the business will be substantially or materially associated with a trade mark, advertising or a commercial symbol ... owned, used or licensed by the franchisor or an associate or specified by the franchisor or associate.
And:5
the franchisee must pay or agree to pay to the franchisor or an associate of the franchisor an amount.
[86] VGNZ contends, by contrast, for a form of joint venture, founded on the family relationship between Jim Marr and Michael Ma, under which FFB and Hanama retailed independently and did not share profits and losses, but were otherwise integrated, under which goodwill in the trade marks and trade names in a conventional accounting sense was a shared asset.
[87] A joint venture is certainly capable in law of arising in many diverse forms. In United Dominions Corporation Ltd v Brian Pty Ltd, the majority of the High Court of Australia defined a joint venture in this way:6
The term 'joint venture' is not a technical one with a settled common law meaning. As a matter of ordinary language, it connotes an association of persons for the purposes of a particular trading, commercial, mining or other financial undertaking or endeavour with a view to mutual profit, with each participant usually (but not necessarily) contributing money, property or skill.
A joint venture, the majority went on to say, will often be a partnership but can be any joint undertaking or activity and can involve any legal form, a company, or a
trust, or an agency or some species of joint ownership.
3 Regulation 4(1)(a).
4 Regulation 4(1)(c).
5 Regulation 4(1)(d).
6 United Dominions Corporation Ltd v Brian Pty Ltd (1985) 60 ALR 741 HCA, 746 - 747, per
Mason, Brennan & Deane JJ; Curtis v Gibson [2011] NZCA 373, at [75].
[88] Just how elastic the notion of a joint venture is appears also from a decision of our Supreme Court, Chirnside v Fay, where Elias CJ said:7
The label 'joint venture' may sometimes be used to describe what are in fact separate businesses operating at arm's length, with profits taken separately and directly by the participants instead of being realised by the venture itself.
[89] Nor is it fatal that the joint venture evolves organically and is not defined formally. As Blanchard and Tipping JJ said:8
A joint venture will come into being once the parties have proceeded to the point where, pursuant to their arrangement or understanding, they are depending on each other to make progress towards the common objective. Each party is then proceeding on the basis that he or she is acting in the interests of all or both parties involved ... A relationship of trust and confidence thereby arises: each party is entitled to expect from the others loyalty to the joint cause, loose as the formalities of the joint venture may still be.
[90] Even though the joint venture concept is as elastic as it is, the issue remains whether Hanama's right to the marks, dependent as it was on a licence from FFB and involving as it did a payment for labelled stock supplied, was ever more, as FFB contends, than a contingent and terminable right incompatible with any sharing of goodwill on any basis.
[91] The starting point has to be, I think, that as Lord Steyn said in Williams v Natural Life Health Foods Ltd, a franchise is a 'contractual licence' with two defining features. It is a licence under which:9
the franchisor permits a franchisee to carry on business under a trade name belonging to the franchisor. The franchisor provides advice and assistance to the franchisee about the manner in which the franchisee does business and exercises some control over it. In return the franchisee pays stipulated fees to the franchisor.
[92] As long as the licence granted has those interrelated features, features the Australian regulations also more explicitly require, it will be a franchise. But a franchise, like a joint venture, can then take more than one form. A franchise is also
one form of licence only. A licence to use a trade mark can take forms other than a
7 Chirnside v Fay [2006] NZSC 68, [2007] 1 NZLR 433 at 14.
8 At [91].
9 Williams v Natural Life Health Foods Ltd [1998] 1 W.L.R. 830 at 832 (HL).
franchise. A licence, as Latham CJ said in Federal Commissioner of Taxation v
United Aircraft Corporation is simply:10
an excuse for an act which would otherwise be unlawful as, for example ... the infringement of a patent or copyright. It is an authority to do something which would otherwise be wrongful or illegal or inoperative.
[93] Under the Trade Marks Act 1995 (Australia), moreover, a licensee in that simple sense is an 'authorised user'; one who 'uses the trade mark in relation to goods or services under the control of the owner of the trade mark'.11 Control may be
'quality control over goods or services', the subject of the trade mark.12 Or it may be
'financial control over the ... relevant trading activities'.13 It may take other forms. But control is the defining feature. A fee is not. That and any other features of the relationship will be a matter of agreement.
[94] It may well be that in the relationship between FFB and Hanama the goodwill in the trade marks, like the trade marks themselves, remained with FFB as a proprietary right.14 But that did not rule out Hanama 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 FFB and Hanama may be a franchise in the limited conventional sense that FFB contends for, or it may be a joint venture in which the trade mark may be FFB's asset, to which Hanama had a licence in which Hanama did enjoy some interest in the goodwill in an accounting sense. What it is has to be resolved as a matter of fact.
Franchise concession
[96] In his declaration, dated 26 March 2004, opposing the interloper's application to register the marks in New Zealand, FFB contends, Michael Ma put the matter
beyond doubt. He frankly said that the relationship was a franchise:
10 Federal Commissioner of Taxation v United Aircraft Corporation (1943) 68 CLR 525 (HCA).
11 Trade Marks Act 1995, s 8(1).
12 Section 8(3).
13 Section 8(4).
14 Dominion Rent-A-Car v Budget Rent-A-Car Systems (1970) Ltd [1987] 2 NZLR 385 (CA) at
420, Somers J.
My former business and Hanama Collection Pty Ltd has been franchised to operate stores under the Valleygirl trade mark, which are run in the same way and with the same stock as the stores of Valleygirl Fashions Pty Limited. However Valleygirl Fashions Pty Limited is the owner of the Valleygirl trade mark.
[97] Michael Ma contends that he and Jackie Ma, who translated for him, relied on the lawyer, and as to that FFB says there are four possibilities: (i) Michael Ma, understanding what he was saying, used 'franchise' deliberately; (ii) he did not understand 'franchise', but did understand the Korean equivalent 'dae re geom', and
'franchise' is a fair translation of what he said; (iii) 'franchise' was used by the lawyer, relying on the relationship Michael Ma described, at a time when there was no dispute with FFB; (iv) the declaration is incorrect.
[98] The first possibility, FFB contends, is fatal to VGNZ's case, the second is highly damaging, the third does not assist VGNZ and even the fourth turns on the extent of any mistranslation. Furthermore, FFB contends, VGNZ elected not to call the lawyer involved, or Jackie Ma, as to what actually was said and invites an adverse inference. VGNZ concedes, at most, the third possibility.
[99] So far as I can see 'franchise' first appears in the record in August 2008, in emails exchanged when FFB cut off Hanama's access to the shared purchasing system. FFB's Terry Kim then said to Michael Ma that he was responsible for the rift between FFB and Hanama, because he refused to accept Hanama was a franchisee. To that Michael Ma replied:
FFB and Hanama started its relationship without clear definition and the relationship continued for a long time without clarification. However, Hanama has never been FFB's franchisee.
[100] In 2004, FFB contends, Michael Ma must have known what a franchise was, in this relying on a 2003 - 2004 Korean brochure or power point presentation. But that was prepared for marketing in Korea and has no obvious bearing on Australia or New Zealand. FFB's reliance on dictionaries and contemporary newspaper cuttings to establish the fact that the franchise concept 'dae re geom' was then in every day use in Korea is no more than suggestive.
[101] Michael Ma, in late evidence not put to Jim Marr to which FFB objects, did
say that in 2005 he and Jim Marr discussed their relationship and Jim Marr identified but rejected any notion of franchise. Leaving aside whether Michael Ma is able to give that evidence, I do not find it persuasive, set against their relationship as it then was. They were already moving to arms length. But on his own evidence Michael Ma was aware of the franchise concept in 2005. What he meant in his 2004 declaration is, I consider, more safely established from the declaration itself.
[102] Plainly, as Michael Ma said in his declaration, he knew that FFB owned the two trade marks in Australia and that Hanama only enjoyed their benefit with FFB's consent. He did not then assert any independent proprietary right. Michael Ma must then be taken to have conceded that in Australia Hanama had the benefit of the trade marks only with FFB's licence. But that does not mean that he conceded that their relationship was merely a franchise.
[103] In the balance of his declaration Michael Ma:
(a) explained how he helped to establish and run the retailing chain that
Hanama and FFB then shared in Australia. He said that Jim Marr
'wished to invest in and run a retail clothing operation with my assistance, and we chose the name Valleygirl'.
(b)said that, apart from exercising control over Hanama, he took part in FFBs' decision making, and explained that FFB and Hanama shared the same premises and systems and that he attended FFB board meetings.
(c) spoke of 'our brand and positioning strategy' and how that enabled 'us to carefully control and promote our brand image' and of 'our marks' and of the decision to enter the New Zealand market, 'we wish to operate our stores in a similar manner in New Zealand to the way we do in Australia'.
(d) assumed, when he said that neither FFB nor Hanama had authorised
Valleygirl goods to be imported to New Zealand, that the sole ability
to authorise this lay with Hanama as well as FFB.
(e) disclosed that he had applied himself for the three trade marks in New
Zealand that he had also disclosed belonged in Australia to FFB.
[104] In those five ways in the balance of his declaration, Michael Ma clearly claimed that Hanama’s relationship with FFB 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 FFB. Unless dismissed as duplicitous, what Michael Ma claims is consistent with the joint venture that VGNZ contends for.
Commission payments
[105] No less germane is the issue as to the nature of the mark-up that FFB first charged Michael Ma in 1998 and then Hanama for labelled product.
[106] FFB contends that the mark up was a franchise fee, which Hanama paid for head office 'store environment and project' costs, for brand development, 'marketing and creative costs', and was, furthermore, an economic rent for Hanama's right to use the trade marks; a fee quite distinct from the lease and utility costs that were also shared like Hanama's 25 per cent charge for warehouse space.
[107] VGNZ disagrees. It says that the five per cent mark up Jim Marr imposed on Michael Ma in 1998 for stock purchased was to compensate FFB for ordering Hanama's share of labelled product, not for Hanama's use of the trade marks. Later, and as it increased, it may have extended to the further shared expenses FFB speaks of. It never included an economic rent.
[108] There are two related difficulties, I find, with FFB's analysis. One is that FFB never, on the evidence, appears to have attempted to calculate the mark up on the basis of head office and brand development costs, or to identify what portion was for Hanama’s use of the trade marks. The other is that the shifts in the mark up from five to 10 per cent, to 15 per cent, then back to 10 per cent, are incremental shifts only one of which was accounted for explicitly. The last was dictated by the fact that
Hanama had found 15 per cent unsustainable.
[109] FFB's analysis is also eroded by the inconsistent ways in which the mark up was described in invoices - as a commission, a consulting service charge, a design and buying service charge, and a professional service and offshore PO commission. It was never described as a franchise or licensing fee. The payee also varied. It is explicable that FFB should have replaced Jim Marr. It is less explicable that in the last phase of the relationship, the invoices were issued by two Hong Kong companies associated with FFB or Jim Marr.
[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.
Related conclusions
[111] The relationship between FFB and Hanama in Australia only came about and may well only have evolved as it did, because Jim Marr and Michael Ma were uncle and nephew. But their relationship, right from the outset, made commercial sense for them both.
[112] Their relationship began not long after they arrived in Sydney. Each had acquired retail outlets from Steve Ma, Jim Marr’s older brother and Michael Ma’s uncle. Each wished to retail without being reliant on Steve Ma for product, because of the mark up he charged, and perhaps because they wished to be free of his control more generally. They saw sense in purchasing stock together. They also saw sense in assisting each other. Their skills were broadly complementary.
[113] Then, certainly, Michael Ma benefited more. His status in Australia was then insecure and he lacked Jim Marr’s access to bank and supplier credit. But in those early years Jim Marr also benefited. He was not just altruistic. By combining Michael Ma’s purchases with his own, he amplified his own buying power. By
extending to Michael Ma credit on more stringent terms than those from his own suppliers (assuming as I do those terms were as Michael Ma describes), he reduced his cost of purchase still further.
[114] Until 2003 - 2004, I accept, Michael Ma did play a significant role in the development of the brands under which FFB and Hanama, once incorporated, retailed indistinguishably. He was, I accept, influential until then in brand concept and in the layout and design of outlets, and he met some related costs. He made trips overseas, for instance, to assess trends, in the first instance at his own expense. But by 2003 his relationship with Jim Marr, and Hanama’s relationship with FFB, had begun to founder.
[115] By 2003 FFB had become a large retail chain, in its own right, throughout Australia. Jim Marr had delegated to managers many of the issues he and Michael Ma must once have discussed. By 2005 Jim Marr was living increasingly in South Korea. In 2003, by contrast, Hanama remained relatively small and was confined mostly, if not entirely, to Sydney’s eastern suburbs. FFB no longer needed Hanama and in a literal and wider sense Hanama had become a liability.
[116] In 2002 FFB began to unwind their relationship, when Hanama’s debt stood at $AU 1.7M, and required Hanama to buy from their suppliers direct. The debt was not reducing, it may well have been increasing, and Hanama disliked and may have disputed, how FFB imposed and calculated it. In 2004, Jim Marr says, he encouraged Michael Ma to begin opening outlets in New Zealand to increase his turnover and profit. Michael Ma says that he had already set about doing so in 2003. Hanama and FFB had ceased to be complementary. They had begun to differ on issues of brand concept and outlet standard. Effectively, they had begun to trade as competitors.
[117] Until 2008, I consider, FFB and Hanama were joint venturers, on terms that can only be inferred. In that venture, it is clear however, FFB held the brands, the trade marks, Valleygirl and Temt, and Hanama enjoyed their benefit only as a licensee. Hanama did not hold them merely as a franchisee. But Hanama could only, as it 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 FFB ever did accord Hanama any such proprietary or wider interest. Hanama 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 Ma 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.
THE NEW ZEALAND RELATIONSHIP
[119] The causes of action on which this case hinges are those in the claim and counterclaim, the first in each instance, in which the right to the trade marks in New Zealand is contested. The other causes of action are second order.
[120] If FFB can establish to the balance of probabilities that Michael Ma registered his trade marks, when he was no more than a licensee, knowing that FFB reserved to itself any right to secure the trade marks in New Zealand, it will vindicate its trade marks. It will establish that VGNZ has infringed them and be entitled on the three bases relied on to the declaratory and injunctive relief it seeks and an inquiry into damages.
[121] If, conversely, VGNZ is able to establish to the balance of probabilities that Michael Ma registered the trade marks in New Zealand with FFB's consent, in reality that of Jim Marr, then VGNZ will be entitled to a declaration that FFB's 2010 trade marks are invalid and must be removed from the Register, because Michael Ma's valid and subsisting trade marks were wrongfully revoked. It will succeed in its two related causes of action. Those impugning the 2008 contract will become otiose.
[122] In question is a confined issue of fact to be resolved on the evidence of Jim Marr and Michael Ma, principally, set against what Michael Ma did in 2003, and what he said in 2004, as a matter of public record; and how those two contestants, as they had become, and their three companies, then interacted as to the New Zealand market; and as to the effect of the agreements severing their relationship.
[123] As I said at the outset of this decision, there is such a close similarity in the
retailing activities of FFB and Hanama in Australia, and VGNZ in New Zealand, that the only way in which they are likely to be able to be distinguished in the public mind is by branding. What matters is where the right to those brands, or rather the underlying trade marks, lies.
Concurrent separate market rights
[124] In principle, it was open to FFB in 2003 to retain the trade marks in Australia and to secure the same proprietary rights in New Zealand, or to hold to the Australian marks but to permit Michael Ma to secure the New Zealand trade marks for himself. In Dominion Rent-A-Car v Budget Rent-A-Car Systems (1970) Ltd, a passing off case, Cooke P said:15
Concurrent rights to use proprietary, as opposed to descriptive, names or marks can arise by division between different persons of the goodwill of a business which was initially a single business, by attainment of independence by a subsidiary or associated company ...
Then, after identifying other such sources of distinct concurrent rights, Cooke P went on to say this:
A claimant's acquiescence in a defendant's use of a name or mark can result in the defendant's acquiring goodwill of his own in the name or mark so that it becomes unconscionable to allow the claimant to bar the defendant's continued use of that name or mark in an action for passing off.
In ending this aspect of his decision, Cooke P emphasised 'the interest of the public in not being deceived about the origin of goods,' saying:
a concurrent right of use does not ... justify the use, whether intentionally or not, of a name or mark with attributes which increase the risk of confusion.
[125] Everything depends on the agreed nature of the relationship, so far as that can be inferred and one such instance is JH Coles Proprietary Ltd v Need,16 on which FFB relies. There the Privy Council upheld Coles' exclusive right to its trade names in the grocery store sector in Australia, holding that Need traded under the Coles
brand, in answer to a Coles advertisement, only as a licensee. That was a classic
15 Dominion Rent-A-Car v Budget Rent-A-Car Systems at 405 - 409.
16 JH Coles Proprietary Ltd v Need (1933) 1 A IPR 388.
franchise within Australia. It is not this case.
[126] In Habib Bank Ltd v Habib Bank AG Zurich,17 on which VGNZ relies, the issue was which of two banks emanating from a Bombay bank, which had ceased to be linked, its international arm, HBO, and a further offshoot, HBZ, was entitled to trade under the Habib name in England. The English Court of Appeal held that they shared concurrent rights. As the Court said:18
Where you find that two traders have been concurrently using in the United Kingdom the same or similar names for their goods or businesses, you may well find a factual situation in which neither of them can be said to be guilty of any misrepresentation. Each represents nothing but the truth, that a particular name or mark is associated with his goods or business.
[127] That case is closer to this, but closer still is a third passing off case on which VGNZ relies, Patience & Nicholson (NZ) Ltd v Cyclone Hardware.19 There the right in New Zealand to the trade name P & N was held to lie with Patience (NZ), even though Cyclone held the original trade name in Australia. Patience (NZ) was held to have consolidated its goodwill in the name in New Zealand over a number of years. If Cyclone had used the name in New Zealand it would have passed off its product as
that of Patience (NZ).
[128] This case is more pointed than any of these cases. Here there is no issue that the right to the New Zealand trade marks can only lie with FFB, consistent with the present state of the Register, or with Michael Ma or VGNZ with FFB's consent given before Michael Ma registered his now revoked trade marks. It depends on what was agreed, not on the use of those marks in Australia or New Zealand.
Confined issue of fact
[129] Jim Marr accepts that in 2003 he authorised Michael Ma to oppose the interloper's application to register the Valleygirl trade mark in New Zealand, and that Michael Ma carried the cost before the Commissioner and on the appeal in the High
Court. He contends that he authorised Michael Ma only to do that as a franchisee and
17 Habib Bank Ltd v Habib Bank AG Zurich [1981] 1 WLR 1265 (CA).
18 At 1275.
19 Patience & Nicholson (NZ) Ltd v Cyclone Hardware (2001) 3 NZLR 490.
says that, strictly, FFB as franchisor should have met the cost. Michael Ma says that he only acted as he did in 2003 because Jim Marr had agreed that he should have the right to the two trade marks in New Zealand.
[130] Jim Marr accepts that he encouraged Michael Ma to enter the New Zealand market, because Michael Ma was unable to expand further in New South Wales, or Australia, and to become profitable needed to expand. With that Michael Ma agrees, also saying that FFB had expanded throughout Australia and that in New South Wales they were then differing as to retailing strategy. They disagree as to when they reached this accord. Jim Marr says that it was in 2004. Michael Ma says that it was between 2000 - 2003.
[131] The evidence of each is no more specific and there is no contemporary record and so, standing alone, what each says amounts to no more than assertion. To assess which is the more credible and reliable, the evidence of each must be set against such objective evidence as there is, beginning with what happened in 2003 - 2004.
Michael Ma's claim of right
[132] Until 26 March 2003, when the New Zealand interloper, Valleygirl Co Ltd, a company owned by a former supplier to FFB and Hanama of Korean ethnicity, made the New Zealand application through The Accounting House Limited, neither FFB nor Hanama had set foot in the New Zealand market, or even exported to New Zealand. Any Valleygirl or Temt product that had arrived in New Zealand had been brought in by others.
[133] In their notice of opposition, dated 25 September 2003, FFB and Hanama contended that the New Zealand application was deceiving or confusing, relying on the spill over of their reputation from Australia. As to their relationship in Australia and their trading activity there, and as to what they intended in New Zealand, they relied on Michael Ma's declaration, dated 26 March 2004.
[134] On 30 August 2004, the Assistant Commissioner of Trade Marks accepted that FFB and Hanama did have spill over reputation in New Zealand, and that it
would be deceiving or confusing for the interloper's trade mark to be registered. He declined the application. On 6 April 2005 Miller J upheld that decision. In neither decision was there any issue as to the relationship between FFB and Hanama in Australia, or as to Michael Ma's authority to speak for both in opposing the application.
[135] In the two days before their notice of opposition was filed, 25 September
2003, Michael Ma had already taken the two critical steps on which he now relies. On 23 September he had incorporated VGNZ, under the name Hanama (NZ) Limited. On 23 - 24 September he had applied to register three Valleygirl marks in his own name.
[136] In his declaration, dated 26 March 2004, Michael Ma disclosed that FFB held the Australian trade marks, and that in Australia Hanama was a licensee. He also disclosed that he had registered the Valleygirl trade marks in his own name in New Zealand in September 2003. He did not disclose that he had incorporated VGNZ. He did say that he had discovered the interloper's application in September 2003 when he approached The Accounting House Limited to incorporate a New Zealand company to trade on behalf of FFB and Hanama.
[137] In his declaration, in short, Michael Ma staked out his claim to the New Zealand trade marks and to the New Zealand market, a claim inconsistent with his status as a licensee of the Australian trade marks in that market. He also held out, implicitly but necessarily, that FFB had ceded the New Zealand trade marks, and market, to him.
[138] In April 2010 FFB succeeded in having Michael Ma's trade marks revoked, and in September 2010 in having those trade marks registered in its own name, on the basis that the right to those trade marks had always lain with it as the Australian registered owner and that Michael Ma had never had any greater right than as a licensee. But that involved four unanswered questions.
Four unanswered questions
[139] First, when the interloper applied in New Zealand in 2003, that had to be opposed because, if it had not been, FFB, the holder of the Australian trade marks, would have been denied the right to the trade marks in New Zealand, whether to use itself or as a licensor. FFB should have opposed the application, not left it to Michael Ma to do so at his own cost. It should have then, as he did, registered the trade marks in New Zealand in its own name and incorporated a New Zealand trading entity. Why did it not do so?
[140] Second, Jim Marr agreed, when cross examined, that he was aware that Michael Ma had registered the trade marks in his own name. He was not asked to say when that was but he, and thus FFB, must have known by 2006, when FFB helped VGNZ to negotiate outlet leases, that Michael Ma would scarcely have embarked on that venture without the New Zealand trade marks. He would not have done so relying only on his status as the Australian licensee. Why, if Jim Marr and thus FFB considered he had taken to himself rights he did not have, did they not act then?
[141] Third, on 16 August 2007 Jim Marr says that he told Michael Ma that their relationship had to cease completely and that VGNZ as well as Hanama had to cease using the Valleygirl and Temt trade marks. Why, if he regarded Michael Ma and his companies merely as licensees, did he not then say so formally, as he did eventually in his solicitor's cease and desist letter in September 2010? Why, in FFB's email demand on 17 August was Michael Ma asked only to change his New Zealand company and outlet names? Why, when Michael Ma responded only as to the company names, did FFB not immediately press the outlet name issue?
[142] Why, in April 2008, after FFB and Hanama had stopped sharing premises in January, did FFB's then draft agreement, which Michael Ma and Hanama signed, only require that they reduce selling labelled product in New Zealand? Why, in December 2008, after Hanama, and thus VGNZ, was denied access to the shared purchasing process and the Australian agreement was struck, did it not also relate to the New Zealand market?
[143] Fourth, in December 2009, FFB applied to have Michael Ma's trade marks revoked, and having succeeded in April 2010, then pursued its then extant application to be registered as owner of the trade marks itself. It then relied, as it was entitled to, on the Commissioner serving the first application and advertising the second, as the law requires.
[144] FFB had Michael Ma's address. That was on the December 2008 agreement. It was the address to which FFB's solicitors wrote the cease and desist letter, the day FFB got the New Zealand trade marks. Why, if and Jim Marr and FFB were so confident as to their right to the New Zealand trade marks, did they not also send copies to Michael Ma, especially when he failed to respond to service or advertising?
Related conclusions
[145] I find unconvincing Jim Marr's response to the first question, that in retrospect as franchisor, FFB should have carried the cost of opposing the interloper's application in New Zealand. That does not begin to explain why FFB did not then assert its right to the New Zealand trade marks as it ultimately did in 2009 -
2010. The more reasonable inference to be taken from that failure to act, I consider, is that in 2003 Jim Marr was not interested in the New Zealand market. His focus was on Australia and Korea.
[146] Jim Marr did not, as I recall, begin to answer the second question why he and FFB tolerated in 2006 or earlier, the fact that the New Zealand trade marks were registered to Michael Ma. In evidence was an undated FFB schedule of trade marks and applications, world wide. In all instances, except one, the trade marks were registered to or the applications were made by FFB or Jim Marr and his wife. Only the New Zealand trade marks were exceptional.
[147] In answer to the third question, Jim Marr and FFB officers rightly say that the agreements Michael Ma and Hanama were asked to enter into in 2008 must be set against emails between those officers and Michael Ma, and between solicitors. In those exchanges Michael Ma was pressed to cease using the Valleygirl name as his company name in New Zealand. He was pressed to have VGNZ cease using
Valleygirl and Temt as domain names, and to cease to link its websites to FFB's Australian site. By then, also, VGNZ was to be increasingly denied access to labelled product.
[148] Michael Ma conceded that he was pressed by FFB officers, independently of those emails, to relinquish the trade names altogether and he did agree to give up Valleygirl as a company name. But this was the end game when the heat was on and FFB can only rely finally on the critical concession Michael Ma is said to have made at the September 2008 meeting, when he refused to sign any agreement. He is said then to have given up all right to the trade marks in New Zealand.
[149] Michael Ma denies that he made any such concession and FFB's evidence as to the meeting is problematic. In part FFB relies on a file note taken by its Sydney solicitor as to what one of the participants, Jay Lim, who did not give evidence, said to him; a hearsay statement, as I ruled, that could not constitute direct proof. In part FFB relies on Terry Kim, which proved remarkably similar to the file note.
[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.
[151] Why then did Jim Marr, and thus FFB, decide in late 2009 to pursue their ultimately successful applications? Jim Marr contends that in February 2009 FFB received an email from a real estate agent in New Zealand indicating that Michael Ma was still opening Valleygirl and Temt outlets. He saw that as inconsistent with Michael Ma's undertaking to rebrand on 1 January 2010. But the only undertaking Michael Ma had given was that Valleygirl would cease selling labelled stock by that date. He had not given, as I have found, any wider undertaking.
[152] One reason that FFB might have decided to apply in New Zealand was that
VGNZ was selling Chicabooti and Paper Scissors product at Valleygirl and Temt outlets and eroding the brand. But there is no suggestion that FFB had ever been affected by this in Australia. More probably, I consider, Jim Marr might have repented not entering the New Zealand market in 2003. By 2010 VGNZ had become in New Zealand, so far as I can see, larger than Hanama in Australia. By opening 28 outlets, VGNZ might well have demonstrated to Jim Marr that the New Zealand market had greater depth and worth than he had supposed.
[153] As to the fourth question, why Jim Marr or FFB did not serve Michael Ma directly with the two applications in 2009 - 2010, again the evidence is silent. FFB was entitled to rely on the Commissioner serving and advertising the two applications. Michael Ma had a positive duty to keep his address for service current. But Jim Marr says he was surprised when Michael Ma did not respond by opposing the applications and that in itself is telling. He must have known that he faced then potentially the contest he faces now. He might have decided not to alert Michael Ma to the fact of the applications until he had secured the trade marks unopposed and with that the strategic advantage.
[154] I conclude that in 2003 Michael Ma applied to register the New Zealand trade marks in his own name, relying on Jim Marr's consent, and since then has acted consistently. Conversely, I conclude, Jim Marr and Michael Ma have not acted consistently. Between 2003 - 2008 they acted as if Michael Ma 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 Ma 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, FFB, I consider, seeks to take advantage of VGNZ's increasing presence in the New Zealand market, despite the fact that it sells only Chicabooti and Paper Scissors product; a market in which FFB has negligible spill over reputation. In effect, therefore, FFB seeks to take advantage of VGNZ's investment in the New Zealand market. Conversely, if VGNZ were forced to rebrand, it would lose its investment, and suffer losses like those that
Hanama suffered in Australia. In this wider sense too, I consider, the merit lies with
VGNZ.
RESULT
[156] In the result, I find, to the balance of probabilities, contrary to FFB's claim, that in 2003 Michael Ma registered the trade marks in his own name because Jim Marr, and thus FFB, consented to him doing so and that VGNZ has traded consistently on the basis of that accorded right ever since.
[157] I conclude that at the date when FFB applied to have Michael Ma's trade marks revoked they were valid and subsisting, as it then knew, that FFB's applications were therefore to that extent made in bad faith, and that Michael Ma's trade marks were revoked invalidly. VGNZ, I conclude, is entitled to have FFB's invalidly registered trade marks removed from the Register. To the extent that it is necessary, I conclude also that VGNZ succeeds under its two related causes of action under the Fair Trading Act and in passing off and is entitled to the injunctive relief it seeks.
[158] I conclude, it follows finally, that FFB must fail in each of its three causes of action and that VGNZ is entitled to costs at scale 2B and disbursements as fixed by the Registrar. If there is any issue as to how they are to be calculated, counsel are to
file memoranda, FFB by 1 February 2013 and VGNZ ten working days later.
P.J. Keane J
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