InterCity Group (NZ) Ltd v Nakedbus NZ Ltd

[2013] NZHC 1054

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

CIV-2012-404-007532 [2013] NZHC 1054

BETWEEN  INTERCITY GROUP (NZ) LIMITED Plaintiff

ANDNAKEDBUS NZ LIMITED Defendant

Hearing:         6 May 2013

Counsel:         JD McBride and P Hall for Plaintiff

MC Harris and BR Prewett for Defendant

Judgment:      10 May 2013

JUDGMENT OF ASHER J

This judgment was delivered by me on Friday, 10 May 2013 at 4.30pm pursuant to r 11.5 of the High Court Rules.

Registrar/Deputy Registrar

Solicitors/Counsel:

Simpson Western Lawyers, Private Bag 93533, Takapuna, Auckland 0740.

Email: [email protected] and  [email protected]
JD McBride, PO Box 1008, Shortland Street, Auckland 1140. Email:  [email protected]
Gilbert Walker, PO Box 1595, Shortland Street, Auckland 1140.

Email:  [email protected] and  [email protected]

INTERCITY GROUP (NZ) LTD V NAKEDBUS NZ LTD HC AK CIV-2012-404-007532 [10 May 2013]

Introduction

[1]      This is an application for discovery.   It arises in proceedings brought by InterCity Group (NZ) Ltd seeking an injunction and account of profits against Nakedbus NZ Ltd, based on Nakedbus’ alleged misuse of the words “inter city” and variations on those words.

[2]      The  first  cause  of  action  is  based  on  a  breach  of  undertaking  which  is irrelevant to this discovery application.  The second and primary cause of action is that of trademark infringement, it being alleged that Nakedbus NZ Ltd (Nakedbus) has infringed the trademark of InterCity Group (NZ) Ltd (InterCity) and damaged its goodwill in the brand by using its sign in a manner that is identical or confusingly similar to InterCity’s mark.  In the third cause of action, it is alleged that Nakedbus’ use of “inter city” constitutes passing off, and in the fourth cause of action that its use of the words “inter city” constitutes misleading and deceptive conduct under the Fair Trading Act 1986.

[3]      InterCity  Coachlines  conducts  the  largest  national  bus  service  in  New Zealand.  It links cities and towns throughout the country.  Nakedbus opened in competition to InterCity in 2006, and now has a market share of some 30 per cent.

[4]      InterCity  says  that  in  promoting  its  service  online,  and  in  particular  on Google, Nakedbus has been guilty of the alleged breaches.   Nakedbus conducts much of its promotion and business online and it is only possible to book travel on Nakedbus through that means.

[5]      InterCity  unsuccessfully  sought  an  interim  injunction.    Hansen  J  in  his decision of 1 March 2013 summarised the background facts and issues that had

arisen,1 and I will not repeat that material.

1      InterCity Group (NZ) Ltd v Nakedbus NZ Ltd [2013] NZHC 379 at [5]–[18].

Jurisdiction

[6]      Given the fact that there is an ongoing trading conflict between the parties, the proceedings have been set down for hearing with all possible speed, with the hearing to begin on 25 November 2013.  The first case management conference was held on 24 April 2013.  As required by r 8.2 of the High Court Rules, counsel discussed the scope and burden of discovery prior to the conference.   While they agreed that standard discovery was appropriate, they were unable to agree on aspects of that discovery.  Counsel for the parties at the conference set out the areas of disagreement which could not be resolved.  Directions were made for Nakedbus to file an application for discovery and for InterCity to file a notice of opposition, and a fixture to determine discovery issues was allocated.

[7]      Nakedbus has since filed an application for particular discovery, relying on r 8.19 of the High Court Rules, and InterCity has filed a notice of opposition.  While no jurisdictional point has been taken, Mr McBride for InterCity suggested  that r 8.19 may not apply as there have been no lists of documents filed at this time. Therefore the application may fall rather under rr 8.7–8.9 relating to standard and tailored discovery.

[8]      Two preliminary issues arise.   First, what is the procedure to be followed when unresolveable differences as to the scope of discovery are identified at the first case  management  conference?     Secondly,  what  is  the  test  to  be  applied  in determining what should be discovered?

Procedure to be followed

[9]      The rule relating to particular discovery, r 8.19, does not apply as it arises when there are grounds for believing that a party has not discovered documents “… that should have been discovered.”  This presupposes that there has been discovery. The rule cannot be applied before discovery.

[10]     The application rather falls under r 8.12, which states that orders may be made for no discovery, for standard discovery or for tailored discovery at the case

management conference.   When orders are made by consent at the first case management conference (as is usually the case) they are made under this rule. When the parties cannot consent, even after judicial input at the conference, the party who seeks the specific documents about which there is disagreement must seek an order that those documents be discovered.  The hearing where that order is sought can proceed informally at the case management conference if there is time available and it is fair to do so, and orders can be made under r 8.12.

[11]     If the issue cannot be so resolved, as has happened here, directions will be made by the Judge for a defended interlocutory hearing, a timetable for the filing of an application and notice of opposition, and if appropriate the filing of submissions. It is possible that priority will be given to hearing such an application so that discovery is not unduly delayed. An early hearing was ordered for this application.

Approach

[12]     Nakedbus relied in its application on r 8.19 but for the reasons I have set out it does not apply.  Mr McBride for InterCity raised the question of the particular rule and test that could apply to a pre-discovery application such as this, where the parties agree that standard discovery is appropriate but cannot agree on whether certain categories of documents should be discovered.  He queried whether what was in fact being sought was tailored discovery.  He asked whether the requirement that the discovery checklist in sch 9 had to be complied with.

[13]     Whenever the parties agree on standard discovery but disagree as to its ambit, and specific discovery of named documents or categories of documents is sought, the standard discovery test  set  out  in  r 8.7  applies.    In  contrast,  tailored  discovery involves a different approach to standard discovery.  Rule 8.8 provides that tailored discovery involves more or less discovery than standard discovery.

[14]     In this case, both parties seek standard discovery, and the order sought in this application is an order defining documents that are discoverable under that head. Thus, the documents discoverable as standard discovery under r 8.7 must be:

(a)   documents on which the party relies; or

(b)   documents that adversely affect that party's own case; or (c)   documents that adversely affect another party's case; or (d)   documents that support another party's case.

[15]     This definition of standard discovery in r 8.7 can be seen as an elaboration on the concept of relevance that has always been at the heart of discovery2 and provides a formula by which relevance can be assessed.  The test of relevance is also the touchstone for tailored discovery, although the test for relevance can be different from the standard discovery test.3   For instance, it can be extended to documents that “may” lead to a train of enquiry in accordance with the approach set out in Compagnie Financiere Commerciale Du Pacifique v Peruvian Guano Co,4 which applied prior to the 2011 amendments.5     More often, however, the particular categories of tailored discovery will be narrower in scope than what could have been the case under standard discovery.6

[16]     Thus, I approach this application for discovery of these particular documents on the basis that the standard discovery test applies.   No issues of proportionality have been raised.

[17]   Before any discovery application seeking any sort of discovery can be determined, it is necessary for the issues arising on the pleadings to be identified, and for the categories of documents or particular documents to be then assessed as to their relevance to those issues.7

[18]     Four of the six categories of documents for which this discovery is sought relate to an affirmative clean hands defence raised by Nakedbus against InterCity.  It

is necessary to consider the details of this defence to identify the nature of that issue.

2      New Zealand Rail Ltd v Port Marlborough New Zealand Ltd [1993] 2 NZLR 641 (CA).

3      Air National Corporate Ltd v Aiveo Holdings Ltd [2012] NZHC 2258.

4      Compagnie Financiere Commerciale Du Pacifique v Peruvian Guano Co (1882) 11 QBD 55 (CA) at 63.

5      See High Court Amendment Rules (No 2) 2011.

6      See Laura O’Gorman “Discovery Orders” (paper part of New Zealand Law Society New

Discovery Rules seminar, October 2011) 41 at 47.

7      Commerce Commission v Cathay Pacific Airways Ltd [2012] NZHC 726.

The clean hands defence

[19]     Nakedbus  focuses  on  one  aspect  of  InterCity’s  claim  in  respect  of  this defence.   In addition to claiming actual confusion, InterCity has asserted that Nakedbus has since October or November 2012 paid Google to display advertisements for its Nakedbus coachlines network in response to Google searches for InterCity.  Although the pleadings are unclear on the issue, Mr McBride for InterCity confirmed that InterCity claimed that this was a breach of trademark by Nakedbus, even if there was no confusion.

[20]     Nakedbus’ statement of defence contains an affirmative defence, in which it is asserted that injunctive relief should be refused to InterCity as it does not come to Court with clean hands and because it should be refused relief when it has practiced against Nakedbus the same type of conduct it now complains of.  It is alleged that since at least 2007, InterCity has advertised its coach services on the Google search engine against searches for the key words “naked bus” and other similar words, and is still engaging in this practice.  It is alleged that InterCity has never been authorised by Nakedbus to do so and that this conduct of Intercity infringed Nakedbus’ trademarks.  InterCity, in a conference before Woolford J, is recorded as having through its counsel acknowledged that its use of “naked bus” and variations on this in Google advertising has been “illegitimate”.   It claims to have now ceased such activity.

[21]     Nakedbus does not seek an injunction or other remedies against InterCity in respect of this conduct.   However, it is asserted that this “illegitimate” conduct by InterCity is the same as the complained of conduct by Nakedbus.  It is the pot calling the kettle black.  For this reason alone, Nakedbus says, InterCity should fail in this aspect  of  the  claim,  and  this  should  result  in  any  injunctive  relief  that  might otherwise be granted being refused.

[22]     It  is  necessary  now  to  consider  the  categories  of  documents  for  which discovery is sought.

First category – documents relating to key words

[23]     Nakedbus seeks:

Documents relating to bids by InterCity for Google keywords containing the words “nakedbus”, “naked bus”, “naked” or variations of those words, alone or in combination with other words, including: documents showing when InterCity made the bids; how much InterCity bid on those keywords; and the InterCity  advertisements  displayed  in  response  to  searches  for  those keywords on Google.

[24]     Nakedbus claims that bids by InterCity for Google keywords containing the words “naked bus” or variations, and the subsequent advertising, were breaches of trademark.   Thus, documents showing that InterCity made bids, and the actual InterCity advertisements displayed in response to searches for Nakedbus on Google, are relevant.

[25]    Mr McBride submits in response that there is no issue requiring discovery because the fact of InterCity making the Google bids for advertisements on the Nakedbus site will be admitted by InterCity.  There will be nothing therefore for Nakedbus to prove when the matter comes to trial.  He relies on the proposition that parties should not be put to the expense of producing documents on matters which, while raised, are not in dispute, and he relies on the fact that the doctrine of clean hands needs to be treated with caution.  He submitted that the Court will only decline relief where the alleged inequitable conduct has an immediate and necessary relation

to the relief sought, making the ground of relief unconscionable.8     He relied on

Fullers Bay of Islands Ltd v Otehei Bay Holdings Ltd9  where Heath J dismissed a discovery application seeking documents concerning the motives of a party seeking discretionary  relief  in  relation  to  a  lease  were  brought  into  question.    Heath  J regarded the fact that the plaintiff would have been motivated by commercial considerations as so clear as to not require the discovery of documents.

[26]     A court will be cautious about denying a party discovery in relation to an issue raised by the pleadings just because the other party admits the allegation, as

8      Relying on I Spry The Principles of Equitable Remedies (7th ed, Law Book Co, Sydney, 2007)

at 409ff.

9      Fullers Bay of Islands Ltd v Otehei Bay Holdings Ltd HC Auckland CRI-2009-404-7207,

18 March 2010.

there may be details or nuances that still need to be explored.  Thus in this present dispute there can be no doubt that commercial motivations have driven both parties, and if documents were sought only to prove a commercial motivation for an action, it is likely that discovery would be denied.10

[27]     However where, as here, an allegation is made and admitted, but the outcome is at the discretion of the Court, and there must be an assessment of the degree of alleged wrongdoing, it can be a mistake to deny a party discovery.  The party making the allegation is entitled to see all documents that relate to the alleged wrongdoing, so that all facts working to the advantage of the exercise of a discretion in that party’s favour can be put before the Court.  In terms of rr 8.7(a) and (c), these will be documents on which Nakedbus relies to show a serious lack of clean hands.  If they show extensive actions by InterCity that mirror the complained of actions by Nakedbus they may, in terms of r 8.7(b), adversely affect InterCity’s ability to get relief under the trademark cause of action.

[28]    Therefore, the InterCity bids to Google and related documents should be discovered as sought, and Nakedbus should be able to see the actual Google advertisements.   Only then will the extent of InterCity’s “illegitimate” conduct be apparent.  The order will extend to the amount that InterCity paid for the bids as that will assist in evaluating the significance to the parties of the alleged wrongful conduct.     If  InterCity’s  advertisements  prove  to  be  extensive  and  expensive,

Nakedbus’s defence may be strengthened.11

[29]    I am not prepared to make the order open-ended as to time.  InterCity’s allegations against Nakedbus are limited to actions following October 2012. Nakedbus is entitled to go back beyond that time so that it understands the extent and volume of InterCity’s bids, but there needs to be a cut-off point. That cut-off point to an extent must be arbitrary, and I fix it at approximately 18 months prior to the

alleged misconduct at 1 June 2011.

10 See [35] below.

11     High Court Rules, r 8.7(a) and (c).

[30]     The order will therefore be made in terms of category 1, it being specified that this relates to the period after 1 June 2011.

Category 2

[31]     This reads:

Documents relating to InterCity’s decision to bid on Google keywords containing the word “nakedbus” or variations of that word, alone or in combination with other words.  These documents should include: documents relating to the decision by InterCity to begin bidding on Google keywords containing the word “nakedbus”; documents relating to InterCity’s decisions to continue bidding on those keywords; and documents relating to reviews of or amendments to InterCity’s strategy of advertising against those keywords.

[32]     Mr Harris for Nakedbus described this as “the why”.  It relates to motive.  He says the documents may well show that the decision to advertise on the Nakedbus site was driven by something that went beyond normal competitive behaviour, and could be relevant to an assessment of the clean hands defence.

[33]     Mr McBride submits that this is just the sort of fishing order that should be resisted, particularly given the admission that the advertisements have been placed.

[34]     The whole purpose of discovery is to fish for documents, in the sense that a party does not know exactly what documents discovery will reveal, or their contents. Fishing is permissible if the categories of documents sought can be assumed to relate to a matter at issue.  Such fishing becomes impermissible where what is sought is not relevant to any pleaded cause of action, but might reveal material that could be the basis of a new head of claim. As Chilwell J observed in AMP Society v Architectural

Windows Ltd:12

An applicant is fishing when he seeks to obtain information or documents by interrogatories or discovery in order to discover a cause of action different from that pleaded or in order to discover circumstances which may or may not support a baseless or speculative cause of action.

[35]     There can be no doubt that InterCity’s decision to advertise on the Nakedbus

Google site was driven by commercial considerations.   It can be assumed that it

12     AMP Society v Architectural Windows Ltd [1986] 2 NZLR 190 (HC) at 196.

decided to so advertise because it thought that by doing so, potential customers interested in its competitor Nakedbus would see the InterCity advertisement and decide to place their business with InterCity.   It is difficult to see how further discovery could elaborate on this transparent fact.  It will not advance or derogate from either party’s case.  I do not consider that any discovery is required on motive, and I am not prepared to make the order sought at category 2.

Category 3

[36]     This reads:

Documents  relating  to  other  advertisements  by  InterCity  which  use  the words “nakedbus”, “naked”, “stripping”, variations of those words, similar words  or  any  other  words  which  are  similar  to  or  evocative  of  the defendant’s trademarks or branding.

[37]     Given that InterCity has used the word “naked bus” on Google to advertise its products, it is possible that there are other advertisements by InterCity which use the words “naked bus”.  Only documents that do so advertise will be discoverable, and they will be relevant to the clean hands defence in that they will show further conduct by InterCity, which is the same as that complained of against Nakedbus.

Such documents may advance the defence of Nakedbus.13     The pot will become

blacker.  I am therefore prepared to make this order.  I am not prepared to make it open-ended as to time.  I consider that the appropriate time limitation is that already fixed in relation to category 1, namely, 1 June 2011.

[38]     I therefore make the orders sought at category 3 with the addition of the

words “from 1 June 2011”.

Category 4

[39]     This category was amended during the hearing and reads as follows:

Documents,   including   Google   Analytics   reports,   showing   traffic   to

InterCity’s website caused by internet users clicking on InterCity’s Google

13     High Court Rules, r 8.7(a) and (b).

advertisements  generated in  response to the search terms  “nakedbus” or

variations of that word alone or in a combination of those words.

[40]     The extent to which InterCity has benefitted from its alleged wrongful use of the Nakedbus website is relevant in terms of evaluating InterCity’s actions and deciding whether as a consequence of those actions InterCity should be denied relief because it lacked  clean  hands.    If, for instance, there has  been little  benefit to InterCity from its actions, they may be seen as less serious than if there has been a

significant benefit.14    Documents showing the traffic to the website are relevant to

this assessment and I make this order.

Category 5

[41]     This category was amended during the hearing to read as follows:

Google  analytics  reports,  showing  changes  in  internet  impressions  to

InterCity’s website since October 2012 on a month-by-month basis.

[42]     This category does not relate specifically to the clean hands defence.  In the statement of claim InterCity had sought an enquiry into damages or, at the election of the  plaintiff,  an  account  of  profits.    If  InterCity  had  succeeded  in  obtaining  a damages order, documents showing improvements in the impressions of InterCity’s website might have been relevant to the assessment of quantum.  However, in the course of the hearing before me, Mr McBride advised that InterCity abandoned its claim to damages and it elects to seek only an account of Nakedbus’ profits.

[43]    Nevertheless, Mr Harris argued that the documents were relevant to show whether there was confusion after Nakedbus started using the word “inter city”.

[44]     I consider such a link to be extremely tenuous.  The fact that impressions on InterCity’s website went up or down following October 2012 could be attributed to a myriad of factors that had nothing to do with the actions of Nakedbus.  There is not a sufficient connection between such traffic and the issues in the case to warrant discovery.  The documents will not strengthen or weaken either case.  That order is

refused.

14     High Court Rules, r 8.7(a), (b) and (c).

Category 6

[45]     This category seeks:

All other documents, including financial accounts and monthly management accounts, showing that InterCity has lost sales or decreased in profitability as a result of online advertising by Nakedbus using the words “inter city”.

[46]     These documents might be relevant to a claim for damages, but have no other relevance to the issues in the case and in particular to an amount of Nakedbus’ profits.  Damages being no longer an issue, I decline to make this order.

Result

[47]     I make orders as to categories 1, 3 and 4 with the variations set out in this judgment.  I decline to make orders sought in categories 2, 5 and 6.

Costs

[48]     Both parties have had a measure of success.   If either side wishes to seek costs they should notify the Court and each other by Friday, 17 May 2013, and file submissions by Friday, 24 May 2013.

……………………………..

Asher J