Holdfast New Zealand Limited v Mechanical Plastics Corp
[2013] NZCA 335
•30 July 2013 at 11.30 am
| IN THE COURT OF APPEAL OF NEW ZEALAND |
| CA240/2012 [2013] NZCA 335 |
| BETWEEN | HOLDFAST NEW ZEALAND LIMITED |
| AND | MECHANICAL PLASTICS CORP |
| Hearing: | 23 May 2013 |
Court: | Ellen France, Wild and Ronald Young JJ |
Counsel: | B P Henry and P J Knapp for Appellant |
Judgment: | 30 July 2013 at 11.30 am |
JUDGMENT OF THE COURT
AThe appeal is dismissed.
BThe appellant is to pay the respondent’s costs for a standard appeal on a band A basis with usual disbursements.
____________________________________________________________________
REASONS OF THE COURT
(Given by Wild J)
Introduction
The appellant Holdfast NZ Ltd (Holdfast) appeals from a judgment delivered by Andrews J in the High Court at Hamilton on 30 March 2012.[1]
[1]Mechanical Plastics Corp v Holdfast NZ Ltd [2012] NZHC 592.
The Judge found Holdfast liable both for the tort of passing off and for misleading and deceptive conduct in trade, in breach of s 9 of the Fair Trading Act 1986. She granted injunctive relief and ordered an inquiry into damages.
Holdfast challenges both those findings. However, by the end of oral argument, Holdfast’s grounds of challenge had considerably narrowed. We set these out below at [12], but first we give the background to the claims by the respondent, Mechanical Plastics Corp (MPC) against Holdfast.
At the start of the hearing Mr Henry sought an adjournment of the appeal. This application took both the Court and the respondent by surprise. After hearing from counsel for both parties, we declined Mr Henry’s application on the basis that the appeal could proceed in advance of the inquiry into damages ordered by Andrews J.
Background
MPC is a corporation based in Connecticut in the United States of America. MPC designed and patented an innovative range of TOGGLER brand wall anchors, which it has manufactured, largely in the United States, since 1968. These are moulded plastic devices used to provide anchor points to which fastenings such as screws or hooks can be attached. Some of the devices are designed for use in hollow walls or ceilings (for example, those made of plasterboard or the like), but there are also anchors designed for fastening into solid substrates such as concrete. For use in solid substrates MPC manufactures ALLIGATOR anchors, so called because the fastener opens like an alligator’s jaws when a screw is driven into it. By the date of trial, MPC had sold around USD200 million of TOGGLER products in over 20 different countries.
MPC’s anchors have been sold in New Zealand since about 1973. Until 1994 they were sold through a succession of different distributors.
On 20 October 1994 the parties entered into a written Distributor Agreement under which Holdfast agreed to purchase MPC’s TOGGLER and ALLIGATOR anchors for resale in New Zealand. The Agreement was for an initial term of one year, its renewal dependent on Holdfast’s performance.
Although the Agreement was not renewed, MPC continued to supply Holdfast. New Zealand hardware retail chains such as Placemakers, Mitre 10 and Bunnings ordered MPC’s products from Holdfast. Several inquiries from New Zealand companies seeking direct supply were referred by MPC to Holdfast, as “our New Zealand distributor”.
In August 2005 MPC became aware that Holdfast was supplying its own BULLDOG brand anchors to customers who had ordered TOGGLER products. Holdfast was continuing to order from MPC, but at a much reduced level.
On 22 November 2006 MPC appointed Ray Staiger Ltd (RSL) exclusive distributor of its TOGGLER range of anchors in New Zealand.
MPC issued its proceeding against Holdfast on 21 June 2007. MPC amended its statement of claim several times. Its causes of action in the fourth amended statement of claim on which it went to trial were the two claims on which it succeeded: conduct breaching s 9 of the Fair Trading Act and passing off. Holdfast denied both those claims.
Issues on appeal
As narrowed in oral argument, the questions we need to decide are whether Andrews J erred in finding that:
(a)Bunnings was not told that Holdfast was substituting its own BULLDOG product for MPC’s TOGGLER products;
(b)other retailers were also not told of the substitution;
(c)Holdfast was liable for passing off, in packaging up and selling MPC’s TOGGLER products in Holdfast packaging as Holdfast’s BULLDOG products; and
(d)Holdfast’s advertising material constituted conduct breaching s 9 and/or passing off.
Error in finding that Bunnings was not told Holdfast was substituting its own BULLDOG product for MCP’s TOGGLER products
The Judge’s finding was this:[2]
… I find that no request was made to Bunnings to substitute BULLDOG products for TOGGLER products, and that Bunnings was not told of the substitution. Again, where Mr McMurchy’s evidence is contrary to that given for Holdfast, I accept Mr McMurchy’s.
[2]At [40].
At trial MPC contended Holdfast had fulfilled orders from Bunnings for MPC’s TOGGLER products by supplying its own BULLDOG products, and had done so without informing Bunnings, and certainly without its consent.
The primary witness for MPC on this aspect of its case was Mr McMurchy, who had been a product manager for Bunnings from 2001 until August 2011. During his first seven years as a product manager, Mr McMurchy’s responsibilities included the TOGGLER range of products supplied to Bunnings by Holdfast. During the last year or two that Mr McMurchy had responsibility for TOGGLER products, he received calls from various Bunnings stores complaining that Holdfast had fulfilled orders for TOGGLER products with a product that was not TOGGLER, though Holdfast was still branding it as TOGGLER. He said the TOGGLER SKU numbers were still being used for this different product. He explained that the SKU number was a product code allocated by Bunnings to each product supplied to it by a distributor or manufacturer. When a store needed to order more of the product it used the SKU number to ensure it received the correct product. Mr McMurchy said he allocated the SKU numbers for TOGGLER products.
At the time he got these calls complaining about substitution for TOGGLER products, Mr McMurchy was busy helping set up a new Bunnings store. He said he spoke to the Holdfast representative who happened to be in this new store. This representative admitted Holdfast was no longer the agent for TOGGLER. Mr McMurchy said he straight away telephoned Holdfast which confirmed that. Mr McMurchy was adamant Holdfast had not told him of the substitution: “I was never told by Holdfast that they were no longer supplying TOGGLER”.
At trial Holdfast maintained that it had informed Bunnings that it was substituting its own product for TOGGLER. Holdfast’s director, Mr Brett Henderson, claimed in his evidence–in–chief he told a Mr Rob Eyre of Bunnings of the substitution before it was made. He explained he had known Mr Eyre since about 1982, had rung Mr Eyre and explained the position, and that Mr Eyre had said “great, send it up to me and I’ll deal with it”. Mr Henderson added “and that’s all there was”.
Mr Henderson repeated that in the course of cross-examination. When asked whether Mr Eyre was giving evidence he told the Court he was not because – like Mr McMurchy – he did not work for Bunnings any longer. There followed this exchange:
QRight. You accept that whatever you told [Mr Eyre] about the fact that you were introducing a new range of wall anchor, the message clearly didn’t get through –
AAbsolutely.
Q– to Bunnings.
ACorrect.
QYou accept that?
AMhm. It’s what obviously happened. And unfortunately that was [Mr Eyre]. That’s why he’s no longer with Bunnings.
Mr Henry sought to impugn the Judge’s finding about Bunnings on the basis that a price change had accompanied the substitution. The steps in Mr Henry’s argument were these:
(a)simultaneously with the substitution of BULLDOG for TOGGLER Bunnings increased the price;
(b)the prices at which products are sold in Bunnings stores were set from its Head Office;
(c)consequently, the Court can infer that the price increase upon substitution was set by Bunnings’ Head Office; and thus
(d)the Court can also infer that Holdfast informed Bunnings’ Head Office of the substitution – and of the higher price for the substituted product.
The evidence does not support this argument. As Mr Marriott pointed out, the proposition that the price increased simultaneously with the substitution of the BULLDOG anchors was first put to Mr McMurchy, on the basis that evidence would be led of the price increase. None was. In particular, Mr Henderson did not claim in evidence that Holdfast had increased the price of the BULLDOG products it substituted for TOGGLER products.
Mr Henry advanced step (a) of his argument solely on the basis of one paragraph in the evidence–in–chief of Mr Martin Van den Broek, a witness called by MPC. Mr Van den Broek was a director of MT Installations Ltd, which installed blinds and curtains. MT Installations had been using TOGGLER products for about 20 years. Mr Van den Broek described his attempts to purchase TOGGLER products from Bunnings in Albany, then ringing Holdfast to inquire what the position was with TOGGLER products. He recalled that Holdfast told him “this is the way [they] are made now” and “that is now the ALLIGATOR product”. He stated:
13.I also noticed that during the time that Holdfast’s equivalent of the TOGGLER product was on Bunning’s shelves it was sold for a higher price than the MPC’s TOGGLER. Since Ray Staiger has taken over the distributorship for MPC’s TOGGLER in New Zealand, the prices have gone down.
Mr Van den Broek was not asked to elucidate this statement. Mr Marriott is correct in submitting that it is not a statement that the price increase coincided with the substitution by Holdfast of its own BULLDOG product for TOGGLER. The highest Holdfast can put this evidence is that Mr Van den Broek at some unspecified time noticed there was a price increase. Ms Staiger’s evidence appears to confirm that, because she complained that TOGGLER product had “suffered by being perceived as low quality and overpriced as a result of confusion with the inferior quality BULLDOG product because of Holdfast’s actions”.
A further difficulty with Mr Henry’s argument is that Bunnings continued to use the same SKU numbers (those it had allocated to the TOGGLER products) following the substitution. Mr McMurchy explained the process he would have followed had Holdfast told Bunnings it was substituting its own BULLDOG product range for the TOGGLER products. It involved raising new SKU numbers with new product descriptions, and advising those along with the new pricing to Bunnings stores.
Cross-examined as to whether he had requested Bunnings to change their SKU numbers when Holdfast began substituting its BULLDOG anchors when filling orders for TOGGLER products, Mr Henderson repeated his claim that he had advised Mr Rob Eyre of the substitution. We note that Andrews J did not find Mr Henderson’s evidence “either credible or reliable”, and described him as “an unimpressive witness who appeared to have a selective memory”.[3] We have already noted that Mr Eyre was not called as a witness.
[3]At [36] and [38] respectively.
Mr Henderson also accepted that Holdfast was still using on its website the SKU codes that it had allocated to MPC’s TOGGLER products. There was this exchange:
QNow, a person who had ordered, or a customer who had previously ordered Toggler product according to stock code 21030 for example who now ordered some more 21030s from you would get Bulldog product, wouldn’t they?
ACorrect.
QAnd nobody would contact them and say, “Do you realise that 21030 is no longer a Toggler product?” –
ACorrect.
The sum of all the evidence amply supported the finding by Andrews J that Holdfast did not tell Bunnings that it had substituted its own BULLDOG products for TOGGLER, and was filling orders for TOGGLER by supplying BULLDOG products.
Error in finding that Holdfast also did not tell the other retail hardware chains that it was substituting its own BULLDOG products for TOGGLER
Having made the finding in relation to Bunnings which we have set out at [13], Andrews J then made these findings in relation to the hardware retail chains generally:
[44] I am, therefore, satisfied as to the following:
(a)Holdfast supplied BULLDOG anchors when fulfilling orders placed for MPC’s products by name.
(b)Holdfast supplied BULLDOG anchors in response to orders placed for MPC’s products according to retailers’ SKU numbers corresponding to MPC’s products.
(c)Holdfast utilised product codes for products in the BULLDOG range which were confusingly similar to those used for the corresponding products in MPC’s product range (for example the MPC AF6 anchor and the BULLDOG BF6 anchor).
(d)Holdfast sold MPC products in BULLDOG packaging.
(e)Holdfast told Mr van den Broek, a customer, the anchors supplied to him were “the way they are made now”.
…
Mr Henry submitted that the evidence did not support these findings. We do not accept this.
The first point is that Mr Henderson claimed only to have advised Bunnings that Holdfast was substituting BULLDOG for TOGGLER products. Mr Henry is of course correct in submitting that MPC carried the burden of proving that other retail hardware chains were not advised of, and did not consent to, the substitution. He is also correct in pointing out that MPC did not call a witness from any of the other retail hardware chains. But the inference from Mr Henderson’s evidence is obvious: the other retail hardware chains were not advised of the substitution.
Secondly, Mr Henderson was asked whether Holdfast had told the other retail hardware chains that it was making the substitution. He claimed that his staff had shown him a plan for that to happen. Asked if he had okayed the plan he answered “I gave it my opinion, yeah”. He was asked whether the plan had been implemented. There was this exchange:
QBut you don’t know whether it actually happened or not?
ANo, I don’t know.
QYou’ve heard Mr Garfield’s evidence and Ms Staiger’s evidence. Do you accept that it looks like it didn’t happen?
AUm, it looks like there’s been some confusion, but I also have got some incredibly trusting staff and I’m accepting that they did their best. But I just don’t know everything, I’m sorry.
Thirdly, Mr Henderson was cross-examined as to whether Holdfast had requested the other retail hardware chains to change their SKU numbers when Holdfast began substituting its BULLDOG anchors. Mr Henderson initially stated “something was sent to them all”. The ensuing cross-examination included these exchanges:
QNow, the remaining retail – none of the other retail chains allocated a new SKU number to your range either, did they?
AI wasn’t involved for the others, I just didn’t do it. Sorry, I just don’t know. I can’t tell you because I don’t know.
QBut you can’t contradict that. You can’t say that they did allocate new SKU numbers?
A I just don’t know. I can’t say what I don’t know.
…
QDo you accept that after the introduction of Bulldog, when the hardware stores ordered Toggler product, they would have got Bulldog?
A I would accept that. We used the same product codes.
Q Did you say you would accept that?
A I would accept that, yeah. I haven’t denied it. Sorry.
…
QWell you didn’t try very carefully to make sure that Bulldog products were allocated a new SKU number by each of the hardware chains, did you?
AI personally didn’t and the company didn’t and I apologise, but we didn’t do it intentionally. I’ve said to you on many occasions in the last couple of three hours that we – it was, never no intention to misrepresent anything. It’s not our style. I don’t need to do that.
QDo you accept, even though you didn’t mean it to happen, do you accept that it means that these stores were ordering Toggler and getting Bulldog?
A That’s what it appears to be.
Q So you accept that?
A That’s what it appears to be.
QDo you accept that Holdfast appears to have skipped this step of having to get a SKU number for its Bulldog products?
AIt would appear that we didn’t do it as well as we could have done. I’m sorry.
Q So you accept that?
AI don’t particularly. It appears that there’s been some mistakes. It happens, I’m sorry.
QCan you give me a yes or no answer to this question. Did Holdfast obtain SKU numbers for the Bulldog products from all of the hardware chains?
A I don’t know, sir. I’m sorry.
QDo you accept that Holdfast would ordinarily have to obtain a SKU number for a new product range like that –
A Yes.
Q – before it could sell the products through –
A Yes, yes, that is correct, sir.
Fourthly, there was the evidence of Ms Staiger, the national sales manager for RSL. Mr Henry initially challenged the relevant parts of Ms Staiger’s evidence on the ground that they were inadmissible hearsay. During the hearing before us he abandoned that challenge. Ms Staiger gave evidence of purchases made in the period March to July 2008 from various Bunnings Warehouses, Mitre 10 and Mitre 10 Mega stores, and from one Hammer Hardware Store. These stores were in Ashburton, the Auckland area, Greymouth and Whangarei. The purchases were of packets of anchors packaged and labelled as Holdfast’s BULLDOG anchors, but containing either TOGGLER anchors or a mixture of TOGGLER and BULLDOG anchors. To take two examples:
(a)A packet of anchors was purchased on 18 July 2008 from Bunnings Warehouse on Constellation Drive in Auckland. This package was labelled Holdfast – Bulldog Anchors. The labelling containing the detailed installation instructions on the packet indicated that it contained six 5 mm BF5 anchors [SKU] code 21030.[4] The packet contained six TOGGLER ALLIGATOR AF5 anchors. The Bunnings GST receipt described the product as “TOGGLER ALLIGATOR ANCHOR AF5”. This packet was produced in evidence by Ms Staiger as exhibit 5.
(b)A packet of anchors purchased from the Mitre 10 store in Mt Wellington in Auckland on 20 July 2008. This package was labelled Holdfast – Bulldog Anchors. The barcode label stuck onto the package labelling read “Holdfast H/S 6 AF8 Anchors (8mm) W/Flange code 21032”.[5] The GST receipt described the product as “ANCHOR AF8 H/S HOLDFAST”. The packet contained TOGGLER AF8 anchors. This package was produced by Ms Staiger as exhibit 16.
[4]21030 was the SKU code number Holdfast had allocated to TOGGLER AF5 anchors (5mm with flange).
[5]21032 was the SKU code number Holdfast had allocated to TOGGLER AF8 anchors (8mm with flange).
In her evidence Ms Staiger also set out a list of 26 Bunnings, Mitre 10, Mitre 10 Mega and Hammer Hardware stores. She said that, as of 29 August 2008, at least those 26 stores were still either purchasing Holdfast products under MPC SKU codes, or selling MPC products in Holdfast packaging, or selling a mixture of MPC and Holdfast products in Holdfast packaging.
Fifthly, Ms Staiger gave evidence that some of the other retail hardware chains had switched back to TOGGLER products, once RSL had explained to them that Holdfast had been filling their orders for TOGGLER products with its own BULLDOG anchors. She said Placemakers, Bunnings and some of the stores in the Mitre 10 chain had switched back. Mr Henderson accepted that this switching back had occurred. There was this exchange in cross-examination:
QNow when Bunnings found out that you had started supplying Bulldog in place of Toggler, they switched back to Toggler, didn’t they?
A From the figures that I’ve seen, yes.
QWhen Placemakers found out that you had substituted Bulldog for Toggler, they switched back to Toggler, didn’t they?
A I think so, yes.
Q And what about Mitre 10?
AMitre 10 is a little different than what, than most because unfortunately head office is a bit of a shambles and the stores operate differently. So all I know is that Mitre 10 in the last six months have perhaps started to tighten up their supply system, but it’s taken till then to get it right. So Mitre 10 has been for some time non, their systems are not good.
QSo once Mitre 10 were aware of the substitution, did they go with Toggler or with Bulldog?
A I don’t know. I don’t know.
Q What about Hammer Hardware, the Hammer Hardware chain?
AI don’t deal with them, sir. I don’t deal with them. Sorry, I don’t know. I don’t think we even call on Hammers, I’m not sure.
QIn fact there aren’t any examples where a retailer has continued to stock Bulldog in preference to Toggler once it was aware –
A I can’t –
Q – that you were supplying Bulldog in place of Toggler, is there?
AI can’t tell you because I just don’t know. There must – I just don’t know.
To summarise:
(a)Although he claimed to have advised Bunnings, Mr Henderson accepted that he had not advised any of the other retail hardware chains that Holdfast was substituting its own BULLDOG products for TOGGLER products.
(b)Mr Henderson claimed Holdfast had a “plan” to advise the retail hardware chains of the substitution, but accepted the plan had not been implemented, or at least that he did not know whether or not it had been.
(c)Mr Henderson accepted that Holdfast had not asked the retail hardware chains to allocate new SKU numbers to its BULLDOG products, but had simply started supplying BULLDOG products when retailers placed orders using the SKU numbers allocated to TOGGLER products.
(d)Ms Staiger’s evidence of what was actually on the shelves in the stores of the retail hardware chains at relevant times was consistent with retailers not being aware of the substitution.
(e)Mr Henderson essentially accepted Ms Staiger’s evidence that Placemakers and Bunnings had switched back to TOGGLER products, and that some stores in the Mitre 10 chain had also switched back. Ms Staiger had explained that this switching back followed RSL explaining to those retail hardware chains what Holdfast had done, and advising them that RSL was now the authorised distributor for TOGGLER products.
In the face of all that evidence we do not accept Mr Henry’s submission that Andrews J erred in making the findings we have set out in [27] above. Indeed, we consider the evidence established that Holdfast had not advised the other – other, that is, than Bunnings – retail hardware chains that it was substituting its own BULLDOG products for TOGGLER products.
Before we leave this part of our judgment, we mention that Mr Henry sought to make something of the difference between the packaging in which Holdfast and MPC respectively marketed their products. His point was that Holdfast’s packaging is bright red, while MPC’s is green and black. We think Mr Henry’s submission is incorrect in terms of the products that TOGGLER marketed in cellophane packaging. At the end of his cross-examination, Mr Henry had Ms Staiger produce (as exhibit A) a box of ALLIGATOR anchors. They are in a stout cardboard box coloured green and black. This re-examination by Mr Marriott ensued:
QCan I just clarify, is that the only packaging that MPC uses for the products that you sell?
ANo.
QWhat is the other packaging?
AThey have yellow and black boxes for the picture hooks. They have orange and black boxes for the hollow wall anchors. They have blue and black boxes for the snaptoggles. They’re green and black for the Alligator toggles, and purple and white for the snap screws.
One of the orange and black packages of TOGGLER hollow wall anchors was then produced by Ms Staiger as exhibit 21. It is a heat sealed cellophane package containing five TOGGLER wall anchors with screws. Although more robust, it is not dissimilar to the cellophane packages used by Holdfast for the products comprising exhibits 5 and 16 described in [32] above.
But the more important point is that this is not a case where MPC complains that Holdfast confused and misled consumers, or for that matter retailers, by packaging up its own products in a way that was confusingly similar to MPC’s packaging. The gravamen of MPC’s complaint is misrepresentation by substitution in what it supplied to retailers, in particular by the use of the SKU codes allocated to MPC’s products. That misrepresentation preceded any confusion that may have been caused by the packaging of the parties’ respective products. There was also evidence that some of the products were sold loose in bins.[6]
Error in finding Holdfast liable for breach of s 9 and/or for passing off, by packaging up and selling MPC’s products in Holdfast packaging
[6]Mr Van den Broek referred to products being sold loose – in bins – by Bunnings.
One of the Judge’s findings was this:
[55] The purchases made by Ms Staiger clearly demonstrate that Holdfast made misrepresentations by supplying MPC’s TOGGLER and ALLIGATOR products in its own BULLDOG packaging. Thus a customer may have purchased a BULLDOG package containing a TOGGLER product, then subsequently made further purchases of BULLDOG products, on the basis of the performance of the TOGGLER products.[7]
[7]Referred to as “post-sale confusion”.
The Judge made that finding in relation to MPC’s claim under the Fair Trading Act, but she held “the same misrepresentations that I have found to be misleading and deceptive conduct for the purposes of the claim under the Fair Trading Act are misrepresentations for the purposes of the tort of passing off.”[8]
[8]At [62] (footnote omitted).
Mr Henry could not – and did not – challenge the Judge’s finding that Holdfast had sold TOGGLER products as BULLDOG, packaging them in its own packaging. The evidence that that had occurred was unassailable. Rather, Mr Henry submitted that conduct was neither misleading and deceptive in breach of s 9, nor passing off. He argued there was no representation by Holdfast as to who had manufactured the anchors in the package. The only representation Holdfast made was that the manufacturer of the anchors in the package was a manufacturer Holdfast had selected.
We altogether reject this argument. The thesis underlying it was put by Mr Henry in his cross-examination of Ms Staiger. It is that Holdfast, in this age of parallel importing, was free to purchase TOGGLER anchors from MPC, repackage them in packages describing them as Holdfast BULLDOG anchors, and sell them to the retail trade. That is not the position. Implicit in that conduct is a representation, to retailers and their customers alike, that the package contains Holdfast BULLDOG anchors. That is a misrepresentation. It is not the true position because the package contains TOGGLER anchors.
Legitimate parallel importing would involve Holdfast purchasing and importing TOGGLER anchors from MPC, or some other overseas source of supply, and on-selling them in New Zealand to the retail trade. That importing would “parallel” the importing by MPC’s current exclusive distributor, RSL.
Holdfast’s conduct – misrepresenting to retailers that TOGGLER products are Holdfast products – was reverse passing off. “Reverse” because it is the converse of the usual or classic passing off situation where the defendant has claimed that its goods are those of the plaintiff.
We did not understand Mr Henry to argue that reverse passing off is not a firmly established aspect of actionable passing off. Rather, Mr Henry submitted MPC needed to show that the goods were substituted without the retailer’s consent and MPC had not done that.
Reverse passing off is discussed in Todd’s The Law of Torts in New Zealand.[9] Shanahan’s Australian Law of Trade Marks and Passing Off contains this pertinent description of what Holdfast did here:[10]
Substitution
A dealer might pass off by substituting, in response to an order for the product of one trader, that of another. Typically, this will occur where the ordinary customer is unable to identify the product received, for instance in a bar or restaurant. But even where the label could have been examined, it is no defence to say that the customer should have done that.
It must be established that the order given referred clearly and specifically to the plaintiff’s product and that something else was substituted without the customer’s consent. It would seem that where this is shown, the defendant will be liable although the substitution was effected by employees without the defendant’s knowledge and contrary to the defendant’s orders.
(Footnotes omitted.)
[9]Stephen Todd (ed) The Law of Torts in New Zealand (6th ed, Brookers, Wellington, 2013) at 725 (subsection 6 of [14.2.02] is headed “Reverse Passing Off”).
[10]Mark Davison and Ian Horak Shanahan’s Australian Law of Trade Marks and Passing Off (5th ed, Thomson Reuters, Sydney, 2012) at [100.3510].
The footnotes omitted cite a large number of authorities for each proposition in that extract. One of the cases cited for the initial “passing off by substituting proposition” is the decision of the New Zealand High Court in Bacardi & Co Ltd v Totara Lodge Ltd.[11] An interim injunction was granted against the defendant which had, on seven occasions, supplied its “Cockspur” white rum to customers who had asked for a “Bacardi”. Those seven occasions involved trap orders, which are a well established means of proving reverse passing off, or passing off by substitution. The purchases of Holdfast packages of which Ms Staiger gave evidence were trap orders.
[11]Bacardi & Co Ltd v Totara Lodge Ltd [1980] 1 NZIPR 289 (HC).
Wadlow’s The Law of Passing-Off contains a detailed commentary on passing off by substitution. This commentary includes the following:[12]
[12]Christopher Wadlow The Law of Passing-Off: Unfair Competition by Misrepresentation (4th edition, Sweet & Maxwell, London, 2011), at 480–486.
It is passing-off to supply other goods or services in response to a request for those of the claimant unless the recipient voluntarily accepts them in place of those asked for. It is no defence that the goods could, with diligence, have been distinguished from those requested if no such examination would be likely to be made in practice. The loss of the custom of an incautious purchaser is as damaging to the claimant as the loss of a careful one. The general proposition is that if the name under which the customer requests the goods is distinctive of the claimant then it is passing-off to substitute other goods without informing the customer and obtaining, at least implicitly, his consent. This general rule applies irrespective of whether a sufficiently astute customer would have realised what was happening.
…
It is not passing-off to substitute goods with the knowledge and consent of the person placing the order. …
…
Passing-off by substitution depends on an implied misrepresentation that the goods tendered are those requested … On this basis there is always a misrepresentation, but one which is not material if it is obvious to the customer. If the customer willingly accepts goods other than those he had first intended to buy, the claimant has no cause for complaint.
…
If goods are supplied in response to a written order then the general rule is the same:[13]
[The defendants] are not entitled to supply a corresponding … article without first making it perfectly clear to the enquirer that they cannot supply him with the article which he wants, and leaving him an interval to decide what he is going to do.
(Most footnotes omitted.)
[13]Bostitch Inc v McGarry and Cole Ltd [1964] RPC 173 (Ch).
The reasons for Holdfast’s substitution of its own BULLDOG product for TOGGLER are patent. First, the Judge had evidence that TOGGLER products were long established and well respected in the New Zealand market. Mr Van den Broek said he had been using TOGGLER products in his installation business for about 20 years. It was his insistence on TOGGLERs that led him to query the substitution with Bunnings; then to telephone Holdfast to enquire, and subsequently to Mr Van den Broek ordering TOGGLERs direct from MPC. In his evidence Mr Van den Broek made it clear that he considered Holdfast’s BULLDOG anchors to be of “inferior quality”, to the extent that their use may result in “breakages and/or physical damage”. In cross‑examination Mr Henry avoided any challenge to Mr Van den Broek about his assessment of the comparative quality of the TOGGLER and BULLDOG anchors. So, by supplying TOGGLER products packaged up as Holdfast BULLDOG products, Holdfast was seeking to acquire MPC’s reputation and goodwill for itself, with corresponding damage to MPC.
Secondly, Ms Staiger gave uncontested evidence that retailers, especially the larger retail groups such as Bunnings and Mitre 10, have strict protocols making it “very difficult to get acceptance of a new product, particularly where there is already an existing product range”. As Mr Henderson ultimately frankly admitted, when the hardware chains placed orders using the SKU numbers allocated to TOGGLER products, Holdfast fulfilled them by supplying its own BULLDOG products. This very effectively got BULLDOG products onto the shop shelves in place of TOGGLER products, and when TOGGLER products had been ordered. By this somewhat insidious means, Holdfast also appropriated to itself TOGGLER’s market reputation and share. Mr Henderson admitted that the correct course would have been for Holdfast to tell its retail customers that it could not/would not any longer supply TOGGLER products, and to seek to persuade its customers to take Holdfast’s BULLDOG products, with fresh SKU numbers and pricing.
It follows that we do not accept Mr Henry’s argument that there cannot have been a misrepresentation by Holdfast because there was no evidence that any member of the consumer public was misled.
Both as a matter of law, and on the evidence she heard, it was well open to Andrews J to find that Holdfast had both passed off its own BULLDOG products as TOGGLERs, and supplied TOGGLERs as BULLDOG products, and in both respects had acted in a manner that breached s 9 of the Fair Trading Act.
Error in finding that Holdfast’s advertising material constituted conduct breaching s 9 and/or passing off
In her evidence Ms Staiger complained of misleading advertising by Holdfast, up until at least October 2011, in:
(a)showing TOGGLER products on its site guide. The guide included a picture of a box of ALLIGATOR A8 anchors;
(b)stating that Holdfast was in a “strategic alliance” with MPC. It did this by including in a column headed “Strategic Alliances”, a picture of a box of ALLIGATOR anchors; and
(c)showing on its website ( under the heading “HOLDFAST® BULLDOG® HEAVY DUTY ANCHORS” a picture of a box of TOGGLER anchors. This seems to appear on the website in a number of places.
The Judge concluded:
[44] I am, therefore, satisfied as to the following:
…
(f)Holdfast continued to represent that it was an authorised distributor of MPC’s products on its website and in promotional material.
(g)Holdfast represented that it continued to be in a strategic alliance with MPC.
(h)Holdfast continued to display images of MPC’s products on its website and in promotional material, but described them as its own products, using its own product names.
(i)Holdfast failed to notify trade customers that it was no longer an authorised distributor of MPC’s products.
The Judge held those four findings involved misrepresentations by Holdfast, and that it had engaged in misleading and deceptive conduct in breach of s 9 of the Fair Trading Act.[14] She held that the same conduct constituted misrepresentations for the purposes of the tort of passing off, and that the conclusion that injury to MPC’s business or goodwill resulted from those misrepresentations was inescapable.[15]
[14]At [49], [54] and [57]–[58].
[15]At [62] and [64].
Advertising of the type complained of by Ms Staiger is described in Shanahan under the heading “switch selling” in these terms:[16]
This involves a kind of substitution that is far less certainly categorised as passing off. The defendant does not stock the plaintiff’s product, but advertises it nonetheless on attractive terms. Having thus gained custom, the defendant attempts to sell would-be purchasers a rival brand. Here there is clearly damage by diversion of trade, and certain of the attendant misrepresentations may support an action for injurious falsehood. However, the practice can be brought within the narrower range of passing off by treating the representation that the defendant is associated with the sale of the plaintiff’s goods as indicating a relevant connection with the plaintiff. The wrong thus defined would be complete upon publication of the advertisement, albeit that the rival product is not subsequently misrepresented as that of the plaintiff. If it were thus misrepresented, that would constitute a further act of passing off.
(Footnotes omitted; our emphasis.)
[16]Davison and Horak, above n 10, at [100.3515].
Similarly, the commentary on switch selling in Wadlow’s The Law of Passing Off includes these passages:[17]
Switch selling or “bait-and-switch” is the name given to the practice of deliberately advertising particular goods as being available when they are not, often upon advantageous terms, so as to attract customers in the expectation that they can be persuaded to buy other goods. …
… In deliberate switch selling there is necessarily a misrepresentation and the question ought therefore to be whether it is material in the sense that damage arises from it.
(Again, our emphasis.)
[17]Wadlow, above n 12, at 486–487.
Wadlow’s commentary refers to the conceptual difficulty presented by switch selling, that although there is a misrepresentation it is no longer operative on the mind of the customer when the sale is made, and he is under no misapprehension that he is getting the claimant’s goods rather than those of the defendant. The older as well as more modern authorities are analysed by Wadlow. The author concludes:[18]
The general principle is that if the defendant successfully induces the public to do business with him by making a misrepresentation then it ought not to matter that the falsity of the representation would become apparent at some stage.
[18]At 488.
The author cites Rima Electric v Rolls Razor,[19] Westinghouse Electric v Thermopart[20] and W & G Du Cros v Gold[21] as authorities for this proposition. He adds that cases of switch selling may also involve actionable misrepresentation that the defendant is an authorised dealer of the claimant, or enjoys a particularly privileged relationship with the claimant.[22]
[19]Rima Electric v Rolls Razor [1965] RPC 4 (Ch).
[20]Westinghouse Electric v Thermopart [1968] WAR 39 (WASC).
[21]W & G Du Cros v Gold (1913) 30 RPC 117 (Ch).
[22]At 488.
There was evidence that Holdfast’s substitution of its BULLDOG products for TOGGLER products had caused damage to MPC. For example, Mr Garfield, the Chairman of MPC, gave evidence that MPC’s annual sales to New Zealand dropped from USD200,000 to less than $30,000. And Mr Henderson conceded that Holdfast’s sales of its BULLDOG products, in the first year they were substituted, approximated the previous level of sales of TOGGLER products. It is inappropriate to say more, given that the enquiry into damages ordered by Andrews J has not yet occurred.
But it seems to us that Andrews J had no evidence about the impact of Holdfast’s advertising on any of the retail hardware chains it supplied. Given the passages in Shanahan and Wadlow we have emphasised, our view is that the Judge erred in holding that Holdfast’s advertising comprised both actionable passing off and conduct in breach of s 9 of the Fair Trading Act.
We have already made the point that the nub of MPC’s complaint was Holdfast’s substitution of its own products for TOGGLER products, in particular by using the same SKU numbers for them. It follows that the Judge’s error in respect of Holdfast’s advertising is of no practical consequence.
Result
Only the last of Holdfast’s challenges to the judgment of Andrews J has succeeded. For the reasons we have just explained, success on that challenge does not affect the result.
The appeal is accordingly dismissed.
As we noted at the outset, the Judge directed further discovery by Holdfast to facilitate the inquiry as to damages she ordered. If discovery and the inquiry have not been progressed in the interim, they now should be.
Holdfast is to pay MPC’s costs for a standard appeal on a band A basis, with usual disbursements.
Solicitors:
Dennis J Gates, Whangaparaoa for Appellant
James & Wells, Auckland for Respondent
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