Mechanical Plastics Corp v Holdfast NZ Limited
[2012] NZHC 592
•30 March 2012
IN THE HIGH COURT OF NEW ZEALAND HAMILTON REGISTRY
CIV2007-419-000845 [2012] NZHC 592
UNDER the Fair Trading Act 1986
IN THE MATTER OF breach of the Fair Trading Act, Passing Off
BETWEEN MECHANICAL PLASTICS CORP Plaintiff
ANDHOLDFAST NZ LIMITED Defendant
Hearing: 5 - 7 December 2011 (written closing submissions 3 and 27 February,
7 March 2012)
Appearances: D Marriott for Plaintiff
B Henry and P Knapp for Defendant
Judgment: 30 March 2012
(RESERVED) JUDGMENT OF ANDREWS J
This judgment is delivered by me on 30 March 2012 at 3:30pm pursuant to r 11.5 of the High Court Rules.
..................................................... Registrar / Deputy Registrar
Solicitors: James & Wells, Private Bag 11907, Auckland 1051 (Plaintiff) Dennis J Gates, PO Box 222, Whangaparoa 0943 (Defendant)
MECHANICAL PLASTICS CORP V HOLDFAST NZ LTD HC HAM CIV 2007-419-000845 [30 March 2012]
Introduction
[1] The plaintiff, Mechanical Plastics Corp (MPC) claims that the defendant Holdfast NZ Ltd (Holdfast) has engaged in misleading and deceptive conduct in trade and/or passing off, by launching and selling its BULLDOG wall anchors in response to orders for MPC’s ALLIGATOR and TOGGLER anchors. MPC seeks injunctive relief and associated orders against Holdfast, and damages or, in the alternative, an inquiry into damages.
[2] Holdfast denies MPC’s claims. It says it has not engaged in misleading or
deceptive conduct, or passing off, and that MPC has suffered no loss caused by it.
Background
[3] MPC is a manufacturing company, based in Connecticut in the United States of America. Since 1968 it has manufactured TOGGLER and ALLIGATOR brand wall anchors. These are moulded plastic devices used to provide an anchor point, usually in hollow walls or ceilings, to which fastenings such as screws or hooks can be attached. The majority of TOGGLER and ALLIGATOR brand anchors are manufactured in the USA, and are sold in more than twenty countries throughout the world.
[4] TOGGLER and ALLIGATOR anchors have been sold in New Zealand since
1973. On 20 October 1994 MPC and Holdfast entered into a written “Distributor Agreement” under which Holdfast would purchase MPC’s TOGGLER and ALLIGATOR anchors, for resale in New Zealand. The agreement was for an initial period of one year, and could be renewed and extended, subject to Holdfast purchasing a certain minimum value of product in that first year.
[5] The agreement was not renewed after one year, and therefore lapsed as from
20 October 1995. However, Holdfast continued to order from MPC, and MPC continued to supply to Holdfast, after October 1995. New Zealand retailers ordered MPC’s products from Holdfast, and Holdfast met such orders. On several occasions MPC received inquiries from New Zealand companies seeking product or “OEM”
agreements for bulk supplies to the construction and industrial trade. MPC directed
such inquiries to Holdfast as “our New Zealand distributor”.1
[6] In 2005 MPC became aware that Holdfast was supplying its own BULLDOG brand anchors in response to orders for MPC products. MPC was contacted by a New Zealand customer who complained that he could no longer find the ALLIGATOR AF6 anchor in New Zealand. MPC initially directed the customer to Holdfast, but the customer responded that Holdfast would only supply its own BULLDOG BF6 anchor which was very similar. At the same time, Holdfast continued to order from MPC, albeit at a much reduced level.
[7] On 22 November 2006 MPC appointed Ray Staiger Limited (RSL) as its exclusive distributor of its TOGGLER and ALLIGATOR anchors. This proceeding was issued on 20 June 2007.
MPC’s claims
[8] MPC claims that Holdfast:
(a) Supplied BULLDOG anchors when fulfilling orders placed for MPC’s
products by name;
(b)Supplied BULLDOG anchors in response to orders for MPC’s products according to retailers’ SKU (stock keeping unit) codes corresponding to MPC’s products;
(c) Utilised product codes for each product in the BULLDOG range which were confusingly similar to those used for the corresponding products in MPC’s product range;
(d) Sold MPC products in BULLDOG packaging;
1 A cause of action alleging that the agreement was replaced by an informal distribution agreement was struck out in a judgment of Faire AJ: Mechanical Plastics Corp v Holdfast NZ Ltd HC Hamilton CIV 2007-419-845, 16 September 2010.
(e) Told customers who queried the new brand name and packaging that
“This is the way they come now”;
(f) Continued to represent that it was an authorised distributor of MPC’s
products on its website and in promotional material;
(g) Represented that it continued to be in a strategic alliance with MPC; (h) 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; and
(i) Failed to notify trade customers that it was no longer an authorised
distributor of MPC’s products.
[9] MPC alleges that Holdfast’s actions were deliberate and flagrant, and calculated to transfer all of the TOGGLER and ALLIGATOR goodwill to its own BULLDOG products, by ensuring that BULLDOG products simply replaced TOGGLER and ALLIGATOR products by direct substitution.
[10] MPC’s claims against Holdfast were pursued under two causes of action. First, MPC alleges that Holdfast’s actions were misleading and deceptive and in breach of s 9 of the Fair Trading Act 1986. Secondly, MPC alleges that Holdfast traded on the goodwill and reputation MPC had accrued in the marketplace in its TOGGLER and ALLIGATOR products to the detriment of MPC, thus constituting passing off.
MPC’s evidence
[11] Evidence was given for MPC by Mr Nathaniel Garfield (Chairman of MPC), Ms Justine Staiger (Sales Manager of RSL), Mr Darron McMurchy (formerly Product Manager for builders hardware for Bunnings New Zealand Limited), and Mr Martin van den Broek (formerly an installer of blinds and curtains, and therefore a purchaser of wall anchors). Mr van den Broek appeared under subpoena.
Mr Garfield
[12] Mr Garfield gave evidence as to MPC’s dealings with Holdfast both during the period from October 1994 to October 1995 (when the agreement was in place), and subsequently. Initially MPC’s products were manufactured in New Zealand, but MPC changed to supplying orders to Holdfast directly from the USA after it learned that Holdfast had placed orders directly with the New Zealand manufacturer rather than through MPC.
[13] Mr Garfield also gave evidence of a complaint received from a customer in New Zealand that he could no longer find the ALLIGATOR AF6 anchor in New Zealand. MPC responded by giving the customer contact details for “our distributor Holdfast”. The customer responded that Holdfast would only supply a BULLDOG BF6 anchor which he found “confusingly similar to the ALLIGATOR AF6 anchor, but feared was not as good”. Mr Garfield also referred to email exchanges and meetings between MPC (Mr David Garfield, Vice President Sales) and Holdfast (Mr Brett Henderson, Director) up to October 2006. Mr Garfield said that by October
2006 MPC had received dozens of calls and samples of what he described as “knock off anchors” supplied by Holdfast in New Zealand. This led to this proceeding being filed.
Ms Staiger
[14] Ms Staiger is the National Sales Manager for RSL, who became MPC’s New Zealand distributor in late November 2006. Her evidence was that when RSL took over the distributorship, the goodwill and reputation of MPC’s products had been almost completed destroyed. She said that RSL faced the task of effectively building up a customer base from scratch.
[15] Ms Staiger described the ordering system used by retailers as follows:
Ordinarily [retail] customers order from a supplier according to a unique SKU or product code. In many cases this is keyed into a hand-held electronic PDU by a sales assistant standing in the aisle beside the empty shelf. They key in the SKU code and the quantity required and an order is then generated electronically and sent to the corresponding supplier. He or
she usually has no idea who the product is supplied by. They are simply responding to an empty shelf and ordering more of the same product.
[16] Ms Staiger also gave evidence of a number of purchases made during March and April 2008:
(a) A package labelled as BULLDOG BF5 anchors, purchased from Bunnings Warehouse, Whangarei, on 9 April 2008. The package contains anchors marked “TOGGLER AF5”. On the corresponding receipt the product is described as “TOGGLER ALLIGATOR ANCHOR AF5”.
(b)A package labelled as “BULLDOG AF8” anchors also purchased from Bunnings Warehouse, Whangarei, on 9 April 2008. The package contains anchors marked ‘TOGGLER AF8”. On the corresponding receipt the product is described as “TOGGLER ALLIGATOR ANCHOR AF8”.
(c) A package labelled as “BULLDOG BF5” anchors purchased from
Bunnings Warehouse, Constellation Drive, North Shore, on 18 July
2005. The package contains anchors marked “TOGGLER AF5”. On the corresponding receipt the product is described as “TOGGLER ALLIGATOR ANCHOR AF5”.
(d)A package labelled as “BULLDOG B10” anchors purchased from Mitre 10 Mega, Ashburton, on 7 March 2008. The anchors contained in the package are not marked as being TOGGLER anchors. The corresponding receipt describes the product as “TOGGLER WALL ANCHORS”.
(e) A package labelled as “BULLDOG B10” anchors purchased from Mitre 10, Greymouth, on 16 April 2008. The anchors contained in the package are not marked as being TOGGLER anchors. The corresponding receipt describes the product as “ANCHOR BULLDOG HOLLOW WALL”.
(f) A package labelled as “BULLDOG B5” anchors purchased from Mitre 10 Mega, Botany Town Centre, on 10 April 2008. Five of the six anchors contained in the package are not marked as being TOGGLER anchors. The sixth is marked as a TOGGLER anchor. The corresponding receipt describes the product as “ANCHOR H/S”.
(g)A package labelled as “BULLDOG BF6” anchors and a package labelled as “BULLDOG AF8” anchors, purchased from Hammer Hardware, Dominion Road, Auckland on 7 April 2008. The barcode label on the latter package is marked “HOLDFAST H/C AF8
ANCHORS”.
(h)A package labelled as “BULLDOG HOLDFAST AF8” anchors, purchased from Mitre 10, Mt Wellington, Auckland, on 23 April 2008. The anchors contained in the package are all marked “TOGGLER AF8”. The corresponding receipt describes the product as “ANCHOR AF8 H/S HOLDFAST”.
(i)A package labelled as “BULLDOG HOLDFAST H/S AF8” anchors, purchased from Mitre 10, Mt Wellington, Auckland, on 20 July 2008. The anchors contained in the package are all marked “TOGGLER AF8”. The corresponding receipt describes the product as “ANCHOR AF8 H/S HOLDFAST”.
(j)A package labelled as “BULLDOG BF5” anchors, purchased from Mitre 10, Dominion Road, Auckland, on 20 July 2008. The anchors contained in the package are all marked “TOGGLER AF5”. The corresponding receipt describes the product as “ANCHOR AF8 H/S HOLDFAST”.
[17] Ms Staiger said that on the packages referred to at (a) to (g), above, the product code on the package was the same as the original SKU code for the corresponding MPC product.
[18] Ms Staiger also referred to advertising material used by Holdfast until
October 2011:
(a) A Holdfast “site guide” which includes a depiction of MPC products.
(b)The same “site guide” depicts MPC’s ALLIGATOR products as being in a “strategic alliance” with Holdfast.
(c) Holdfast’s website which displayed MPC’s TOGGLER products labelled as “HOLDFAST BULLDOG HEAVY DUTY ANCHORS”.
[19] Finally, Ms Staiger listed 26 retail stores which were, as at 29 August 2008, purchasing Holdfast products under SKU codes allocated to MPC products, selling MPC products in Holdfast packaging, or selling a mixture of MPC and Holdfast products in Holdfast packaging.
Mr McMurchy
[20] Mr McMurchy was a Product Manager for Bunnings New Zealand Limited for nine and a half years, up to August 2011. For the first seven years he was the product manager for builders hardware. As such he was responsible for making decisions on what products Bunnings stocked. While he was product manager Bunnings stocked two brands of wall anchors, one of which was TOGGLER, supplied by Holdfast.
[21] Mr McMurchy explained the process of allocating SKU numbers, which were allocated to the product, not the supplier. To have an SKU allocated to a product the supplier would have to approach the relevant product manager with samples of the product with packaging and pricing, and the product manager would decide whether Bunnings would stock the product and allocate an SKU number. As product manager for builders hardware, Mr McMurchy allocated SKU numbers for TOGGLER products.
[22] Mr McMurchy said that in his last two years as product manager for hardware, he received calls from Bunnings stores to the effect that the TOGGLER range of products they thought they were buying from Holdfast were in fact not TOGGLER products, even though they were still being branded as TOGGLER. The TOGGLER SKU numbers were still being used, and he was never told by Holdfast that they were no longer supplying TOGGLER products.
[23] The correct procedure at Bunnings, Mr McMurchy said, was that the supplier (Holdfast) should have approached the product manager, in this case himself, and said that they were no longer the agents for TOGGLER products, and offered their new range. He would then have decided whether to continue with the TOGGLER range of products, or buy the Holdfast range. If the latter, he would have had to raise a new SKU and product description, and communicate that to the stores. Mr McMurchy’s evidence was that to his knowledge, the procedure for allocating SKU numbers is common across the hardware industry.
[24] Mr McMurchy was asked in cross-examination about the procedure where a supplier was unable to supply stock. He responded that in such a case the supplier should contact the product manager and advise him accordingly. If the supplier offered an alternative product, that would be taken into account.
[25] Mr McMurchy’s evidence was that Holdfast had never contacted him with a request to supply product in substitution for MPC’S TOGGLER products. It was put to him that another Bunnings Product Manager, Mr Rob Eyre, had been told of, and approved, Holdfast’s intention to supply BULLDOG products. Mr McMurchy rejected that suggestion. He said that Mr Eyre was not the product manager for TOGGLER products and, having worked with Mr Eyre for nearly ten years, Mr McMurchy was “101 per cent positive” that if Mr Eyre had been approached, he would have responded that the approach had to be made to the relevant product manager.
[26] Mr van den Broek was, until around December 2011, director of a company that installs blinds and curtains. His evidence was that he had used TOGGLER products for about 20 years. He said that in about July 2005 he went to Bunnings Albany to buy TOGGLER products. He saw that the product in stock was not MPC’s TOGGLER product, although the shelf label named the product as TOGGLER. He then placed an order with Bunnings for two boxes of TOGGLER products, which he was told would be ordered from Holdfast. When he picked up the order he found that they were not the TOGGLER product.
[27] Mr van den Broek then rang Holdfast and was told that “this is the way they are made now”.2 He was not told that Holdfast had substituted the TOGGLER product with its own product. Mr van den Broek then referred to an email exchange with MPC between 9 and 11 August 2005, in which he inquired about the supply of TOGGLER AF6 anchors which he said he could no longer find in New Zealand. MPC’s response was to refer him to Holdfast, to which he responded that Holdfast could only supply an anchor coded as BF6 which was similar but, he felt, not as good.
[28] Mr van den Broek’s evidence was that if he were not such a frequent user of TOGGLER products, he would not have noticed the difference the TOGGLER products and Holdfast’s equivalent, in particular, the difference in quality.
Holdfast’s evidence
[29] Evidence was given for Holdfast by Mr Brett Henderson, Director of
Holdfast, and Mr Derek van der Vossen, a former employee of Holdfast.
2 MPC’s statement of claim alleges that Mr van den Broek was told that “this is the way they come now”. I do not consider that difference between that and Mr van den Broek’s evidence of what he was told is material.
[30] Mr Henderson acknowledged in cross-examination that when the distribution agreement expired in 1995 he did not turn his mind to it, but continued to purchase stock from MPC and supply it to retail chains such as Bunnings.
[31] Mr Henderson said in his evidence-in-chief that he had never sold anything other than MPC’s manufactured goods under their trademark, branding and packaging. He also said that when the New Zealand manufacturer ceased making TOGGLER anchors he obtained all the stock the manufacturer was holding, and that he “sold out” the remainder of MPC’s product received from the New Zealand manufacturer, under the BULLDOG brand. He said that MPC was “an erratic supplier” so he set up his own brand, and the product in his BULLDOG packaging could be from any manufacturer he chose.
[32] However, Mr Henderson also said, in answer to questions in cross- examination, that he had no knowledge of, or responsibility for, TOGGLER anchors sold in BULLDOG packages. He said that he “discovered that the staff were cutting the packets open and repacking them, and I didn't discover that until later”.
[33] Mr Henderson acknowledged in cross-examination that Holdfast had supplied BULLDOG products in response to orders for TOGGLER products. He said in his evidence-in-chief that dealing with MPC was “driving me nuts” so he contacted Mr Rob Eyre at Bunnings, who he had known since about 1982, and told him that he was going to make his own anchors. He said that Mr Eyres said that he would “deal with it”. Mr Henderson could not remember meeting with Mr McMurchy and said that Mr Eyre was the “main person” he had dealings with at Bunnings. He said he did not receive any complaints from Bunnings after he started supplying BULLDOG anchors.
[34] Mr Henderson said, in answer to a question in cross-examination, that the decision not to sell TOGGLER products was “probably” made by an employee (Mr Fell) and “the marketing person at the time”. Later in cross-examination Mr Henderson said that “we decided not to carry on with [MPC] because of the, the long
arduous battleground that I had and I basically got sick of the man. I’ve had enough, don’t need him.” He gave similar evidence later in his cross-examination, saying “we stopped simply selling [MPC] because it was what we considered well just not worthwhile. I did, I had made a decision not to deal with them again.” Mr Henderson accepted that retailers had not been told that Holdfast was no longer supplying MPC’s TOGGLER products.
Mr van der Vossen
[35] Mr van der Vossen was employed by Holdfast as Sales and Marketing Manager up until 2004. He is now a director of a company which provides refill management to retail home improvement stores. His evidence related to SKU’s and how SKU numbers are allocated to products by retail chains such as Bunnings and Placemakers, and stock is ordered. He also gave evidence as to the procedure for changing suppliers of products. In those respects, his evidence reflected that of Mr McMurchy.
Assessment of evidence
[36] I did not find Mr Henderson’s evidence either credible or reliable. In some respects the evidence he gave at the hearing was inconsistent with his brief of evidence, and with evidence given in affidavits filed earlier in the course of the proceeding. As an example, at the most basic level, he denied in cross-examination having read Mr Garfield’s brief of evidence, at any stage before the hearing, notwithstanding having said in his brief of evidence that he had done so. As a further example, Mr Henderson said in his brief of evidence that the product in a BULLDOG package could be from any manufacturer he chose, and that Holdfast had “sold out” MPC products obtained from the New Zealand manufacturer. However, in cross-examination he denied any knowledge of, or responsibility for, selling TOGGLER anchors in BULLDOG packages.
[37] Mr Henderson’s evidence also varied during the course of his cross- examination, as demonstrated by his evidence as to who made the decision to stop selling MPC’s products, referred to at [34], above.
[38] Overall, Mr Henderson was an unimpressive witness who appeared to have a selective memory, and to be concerned to attempt (without success) to distance himself from anything to do with the introduction of the BULLDOG range. He was unable to refer to any documentary evidence in support of his assertions, blaming this on various “crashes” of the computer.
[39] On the contrary, the evidence of Mr Garfield was substantiated by the extensive log of records of contact between MPC and Holdfast (including Mr Henderson). Where Mr Garfield’s evidence is contrary to that of Mr Henderson’s, I accept Mr Garfield’s evidence.
[40] I accept Mr McMurchy’s evidence concerning supplies of MPC products to Bunnings, and the allocation of SKU numbers. I also accept his evidence as to the common procedures adopted across the hardware industry. In particular, I accept Mr McMurchy’s evidence that, as the relevant product manager, any request to substitute BULLDOG products for TOGGLER products would have to have been made to him, not Mr Eyre. On this point, I note that Mr Eyre was not called to give evidence for Holdfast. 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.
[41] I accept Mr van den Broek’s evidence as to his experience with purchasing BULLDOG product labelled as TOGGLER, supplied in response to a specific order for TOGGLER products. I also accept his evidence that when he inquired of Holdfast, he was told that “this is the way they are made now”.
[42] Finally, I accept Ms Staiger’s evidence as to RSL’s experience when taking over sales of MPC’s TOGGLER products, as to the purchases made during 2008 in which BULLDOG packages were supplied on SKU numbers allocated to TOGGLER products, and where TOGGLER products were sold in BULLDOG packaging, and as to advertising and other material displaying TOGGLER products alongside the BULLDOG name.
[43] Mr Henry submitted that Ms Staiger’s evidence was hearsay, and could not be given any weight. I reject that submission. Ms Staiger’s evidence as to what RSL experienced when it took over as distributor of MPC’s products, and as to the purchases made in 2008, is not hearsay. Further, I accept that Ms Staiger has knowledge and experience in the hardware industry. I also accept that, in all material respects, Ms Staiger’s evidence was supported by Mr McMurchy’s evidence and, as noted earlier, I accept Mr McMurchy’s evidence as to the common procedures adopted across the industry for ordering stock.
[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”.
(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.
MPC’s claim under the Fair Trading Act 1986
[45] MPC claims that Holdfast engaged in misleading and deceptive conduct, in breach of s 9 of the Fair Trading Act 1986, which provides:
Misleading and deceptive conduct generally
No person shall, in trade, engage in conduct that is misleading or deceptive or is likely to mislead or deceive.
[46] The phrase “misleading or deceptive” is to be interpreted on the basis of the plain and ordinary meaning of the words. In Taylor Bros Ltd v Taylors Group Ltd3 the Court of Appeal said:
As to when conduct is to be characterised as misleading or deceptive, judicial exegesis probably can do little at a general level to expand upon the ordinary words of the section; and obviously it cannot be allowed to supersede them. In the end one must always return to them and apply them to the particular facts.
[47] Conduct will not generally be misleading or deceptive, or likely to mislead or deceive, unless it contains or conveys a misrepresentation, which may be express or arise from conduct or silence.4 The question whether conduct is misleading or deceptive or likely to be so, is an objective one for the Court. Evidence of an erroneous conclusion is admissible but not conclusive.5 It does not need to be proved that any person was actually misled.6
[48] Mr Marriott submitted that the circumstances and manner in which Holdfast went about supplying its BULLDOG products amounted to a misrepresentation, and
3 Taylor Bros Ltd v Taylors Group Ltd [1988] 2 NZLR 1 (CA) at 39.
4 Neumegen v Neumegen & Co [1998] 3 NZLR 310 (CA) at 317.
5 Taylor Bros, above n 3, at 28.
6 Red Eagle Corp Ltd v Ellis [2010] NZSC 20, [2010] 2 NZLR 492 at [28].
misleading and deceptive conduct. MPC’s claim is not as to similarities in the
appearance, get-up, or names of the products concerned.
[49] On the basis of the factual findings set out at [44] above, I am satisfied that in each respect Holdfast has made misrepresentations, and has engaged in misleading and deceptive conduct.
Supplying Holdfast’s products in response to orders for MPC’s products
[50] First, Holdfast made misrepresentations by representing that its product was that of MPC, or in some way linked to MPC’s products, by supplying BULLDOG products in response to orders for MPC’s TOGGLER and ALLIGATOR products. Such orders were made for MPC products by name, or by the SKU codes allocated to MPC’s products. It was only because of its previous role as MPC’s distributor that Holdfast could substitute its own products for MPC’s, and the substitution was done without customers being alerted.
[51] It is clear from Mr McMurchy’s evidence that Bunnings was misled. Mr McMurchy, the person who had allocated the SKU numbers for MPC’s products, and who should have been approached before the substitution was made, was not told of the substitution and was not aware that Holdfast had been supplying its BULLDOG products in response to orders for MPC products, until after RSL was appointed distributor.
[52] I do not accept Mr Henry’s submission that when Holdfast’s customers received the products they could see they were packaged in BULLDOG packaging, and could have returned the products if they were unhappy. Such a submission wrongly places an onus on the customer, not to be misled or deceived. That is not the intention of s 9 of the Fair Trading Act.
[53] I also reject the submission for Holdfast that the purchaser (whether the hardware store or an OEM customer), upon seeing the BULLDOG packaging, would recognise that the product was not in any way related to MPC. Purchasers would only know they were dealing with the same supplier, Holdfast, and that they had not
been informed of any changes in the products being supplied in response to orders for MPC products. As Mr McMurchy said, he (and on his evidence, his experience is the same as that in the industry generally) only sees a sample of the product when the decision is made to stock it. He could not be expected to inspect every delivery of product, and the floor staff unpacking the product could not be expected to know that it was different from that which had been ordered.
Holdfast was still a distributor of MPC’s products
[54] Holdfast made misrepresentations by continuing, up until at least late 2011, to include depictions of MPC’s products in its “site guide”, and to depict itself as being in a “strategic alliance” with MPC. Also, as noted earlier, Holdfast did not tell its customers that it was no longer distributing MPC’s products.
Supplying MPC’s products in Holdfast BULLDOG packaging
[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
[56] In Robertson Engineering Ltd v Gallagher Group Ltd,8 the defendants were distributors of the plaintiff’s wire strainers. The plaintiff sought an interim injunction when it discovered that the defendant intended to sell a product of similar design. The defendant used brochures that depicted the plaintiff’s products on its stand at The National Agricultural Field Days at Mystery Creek, Hamilton. Heath J concluded:9
In short, it is seriously arguable that the use of [the defendant’s] get-up to
display a product of a competitor that is depicted in [the defendant’s] own
7 Referred to as “post-sale confusion”.
8 Robertson Engineering Ltd v Gallagher Group Ltd HC Hamilton CIV-2008-419-744, 11 July
2008.
9 At [82].
marketing brochures is likely to mislead those customers who are loyal to
[the plaintiff’s] brand into acquiring the wrong product.
[57] In the present case, not only did Holdfast make a misrepresentation by supplying MPC’s products in BULLDOG packaging, it also depicted MPC products next to BULLDOG descriptions on its website and in its promotional material.
[58] There was (and could not be) any doubt that Holdfast was “in trade”. I am satisfied that Holdfast engaged in misleading and deceptive conduct in trade. I am, therefore, satisfied that Holdfast was in breach of s 9 of the Fair Trading Act.
MPC’s claim of passing off
[59] The rationale for the tort of passing off is protecting a trader’s intangible
goodwill from misappropriation by others. Goodwill has been defined as follows:10
What is goodwill? It is a thing very easy to describe, very difficult to define. It is the benefit and advantage of the good name, reputation, and connection of a business. It is the attractive force which brings in custom. It is the one thing which distinguishes an old-established business from a new business at its first start.
[60] The elements of the tort of passing off were set out by Lord Diplock in Erven
Warnink BV v J Townend & Sons (Hull) Ltd (“the Advocaat case”), as follows:11
(1) a misrepresentation;
(2) made by a trader in the course of trade;
(3) to prospective customers of his or ultimate customers of goods or services supplied by him;
(4) calculated to injure the business or goodwill of another trader (in the sense that this is a reasonably foreseeable consequence); and
(5) which causes actual damage to a business or goodwill of the trader by whom the action is brought.
10 Inland Revenue Commissioners v Muller & Co’s Margarine Ltd [1901] AC 217 (HL) at 223–
224, per Lord Macnaghten.
11 Erven Warnink BV v J Townend & Sons (Hull) Ltd [1979] AC 731 (HL) at 742.
[61] This formulation has been adopted in New Zealand.12 As noted by McGechan J in Taylor Bros,13 Lord Diplock’s reference to prospective customers and ultimate consumers is to be read as expanded to include suppliers.
Has there been a misrepresentation made by a trader in trade?
[62] In Spalding v Gamage Ltd,14 it was held that it would be “impossible” to “enumerate or classify all the possible ways in which a man may make the false representation relied on”. In this case, the same misrepresentations that I have found to be misleading and deceptive conduct for the purposes of the claim under the Fair Trading Act15 are misrepresentations for the purposes of the tort of passing off. Again, there can be no dispute that Holdfast was a trader, in trade.
Was the misrepresentation calculated to injure the business or goodwill of another trader?
[63] In the Advocaat case, Lord Diplock said that it is sufficient to meet this requirement that the injury to the other trader’s business or goodwill is a reasonably foreseeable consequence. Fraud or intentional deception is not required.
[64] In the present case the conclusion that injury to MPC’s business or goodwill was a reasonably foreseeable consequence of Holdfast supplying its own products in response to orders for MPC products is inescapable.
Was damage caused to MPC’s business or goodwill?
[65] In his judgment in Tot Toys Ltd v Mitchell,16 Fisher J observed that:
In the majority of [passing off] cases, ... the principal loss alleged will be the actual or anticipated diversion of trade from the plaintiff to the defendant. Diversion of trade is of legal consequence only if the customers who purchased from the defendant would have purchased from the plaintiff had it not been for the defendant’s deception. It can generally be assumed that the presence of a competitor in the market will in itself cause the plaintiff loss
12 See, for example, Dominion Rent a Car Ltd v Budget Rent a Car Ltd [1987] 2 NZLR 395 (CA)
at 419, per Somers J, and Taylor Bros (HC), above n 3, at 16.
13 Taylor Bros (HC), above n 3, at 17.
14 Spalding v Gamage Ltd (1915) 32 RPC 273 (HL) at 284, per Lord Parker.
15 See [45]–[57], above.
16 Tot Toys Ltd v Mitchell [1993] 1 NZLR 325,(HC), at 349–50.
through diversion to the defendant of sales which would otherwise have gone to the plaintiff. That alone will be insufficient. There must be a nexus between the deception and the diversion
[66] His Honour went on to observe,17 that the nexus between deception and diversion will usually be implicit, noting that the “intrinsic qualities” of products will not be demonstrable until they are put to use after purchase. Thus a purchaser may know and like a particular product made by a particular manufacturer, and wish to purchase more. This is known as “source motivation”; and the customer may buy deceptively similar products on the basis of an assumption as to source. In those cases the causative link between deception and the plaintiff’s loss is established. However, where the qualities of a product are transparent at the point of sale, the customer may be uninfluenced by any assumptions as to source, and proof of loss is necessary.
[67] I have found that Holdfast made misrepresentations by supplying its own product in response to orders for MPC’s products, and by representing that it continued to be the authorised distributor of MPC’s products when it was not. In both cases, damage in terms of diverting business to itself can be presumed, as the qualities of the products concerned were not wholly or largely transparent at the point of sale. In fact, the products were ordered from Holdfast on the basis that they were MPC products.
[68] However, if I am wrong in that conclusion, it is clear on the facts that Holdfast did divert much of MPC’s business to itself, as customers did not learn of the substitution of BULLDOG products for TOGGLER and ALLIGATOR products until after sales had already occurred.
[69] Mr Henry submitted that MPC’s claim of passing off could not succeed, because the packaging was clearly BULLDOG packaging, and that what was inside had no effect on the sales. I reject that submission, for two reasons. First, post-sale confusion is actionable.18 Secondly, in addition to misrepresentations that MPC’s
product was its own, there were also misrepresentations in the present case not as to
17 At 350–352.
18 See Levi Strauss & Co v Kimbyr Investments Ltd [1994] 1 NZLR 332 (HC).
packaging, or get-up of the product, but about the circumstances and manner in which they were sold. Those misrepresentations occurred before the sales, and had an effect on the sales.
[70] I therefore conclude that MPC has established the elements of the tort of passing off against Holdfast. MPC therefore succeeds on both of its causes of action.
Duration of the misrepresentations
[71] It is clear from Mr van den Broek’s evidence that Holdfast was supplying its BULLDOG products in response to orders for MPC products as at July 2005. How long it was doing so before July 2005 is not so clear.
[72] In his evidence-in-chief, Mr Henderson said that when the New Zealand manufacturer ceased making MPC’s TOGGLER and ALLIGATOR products, he bought the manufacturer’s stock. He went on to say that, as MPC was “an erratic supplier” he decided to set up his own brand (BULLDOG) using products imported from China. In answer to a question put in cross-examination, he said that MPC’s anchors stopped being manufactured in New Zealand “About 12, 18 months ago. I can’t remember the exact date”.
[73] Mr Henderson’s assessment of “12, 18 months ago” (that is, June or December 2010) can only be incorrect, as Mr van den Broek bought BULLDOG products in July 2005, Mr McMurchy gave evidence as to receiving complaints as to non-MPC products in his last two years as product manager for hardware (which would have been, on his evidence, 2006 or 2007), and Ms Staiger produced receipts for purchases of BULLDOG products bought in mid-2008.
[74] In his evidence, Mr Garfield said that MPC supplied Holdfast’s orders directly from the USA from the time it learned that Holdfast had placed orders directly with the manufacturer, rather than placing orders with MPC. The documents produced at the hearing include an MPC “History & Pending Report” dated 25
November 1996, which refers to product being supplied to Holdfast by the New
Zealand manufacturer.
[75] Accordingly, while Holdfast’s breaches clearly occurred from at least mid-
2005 to October 2011 (the date of print outs from Holdfast’s website produced by Ms Staiger), it is reasonable to assume that they began much earlier. This is on the basis of Mr Henderson’s evidence as to sourcing BULLDOG product from the time the New Zealand manufacturer stopped making TOGGLER and ALLIGATOR products, and Mr Garfield’s evidence as to supplying Holdfast’s orders from the USA.
[76] Mr Marriott submitted that MPC had been hampered in this proceeding by the inadequate discovery provided by Holdfast. This was a matter referred to in case management Minutes issued during the course of the proceeding. Following a case management conference on 7 December 2010, Holdfast was ordered to file and
serve, by January 2011, a list of documents covering:19
a. all sales documents for the BULLDOG or TOGGLER orders from
20 June 2001;
b.all sales documents for purchases (wholesale) for TOGGLER clips from 20 June 2001;
c. all promotional material for BULLDOG and TOGGLER clips from
20 June 2001;
d. all correspondence from June 2001 with purchasers of BULLDOG
and TOGGLER products.
[77] Mr Henderson was questioned as to Holdfast’s compliance with its discovery obligations during his cross-examination, and gave as an explanation that he had not understood what Holdfast was required to do, or that computer server crashes had led to documents being unavailable.
[78] As a result, Mr Marriott submitted, MPC has been severely compromised and, in particular, has not been able to determine the full extent of Holdfast’s misrepresentations. MPC has not been able to determine the date when the BULLDOG range was introduced, or the extent of sales by Holdfast of BULLDOG, TOGGLER and ALLIGATOR products.
[79] This has had an impact on the question of relief.
19 Case Management Conference Minute of Associate Judge Faire, 7 December 2010.
Remedies
[80] MPC sought a range of relief, including injunctive relief to restrain Holdfast from all forms of misrepresentations, and requiring corrective statements, damages or an account of profits, and costs.
[81] As a preliminary point, I note that the two pleaded causes of action have different limitation periods. Under the Fair Trading Act cause of action, the limitation period, as specified in s 43(5) of the Act, is three years after the date on which the loss or damage, or the likelihood of loss or damage, was discovered or ought reasonably to have been discovered. The limitation period for the passing off cause of action is six years from the date on which the cause of action accrued. I have concluded that the cause of action accrued in mid-2005, when Mr van den Broek brought Holdfast’s misrepresentations to MPC’s attention.
[82] This proceeding was filed on 20 June 2007, which appears to be within the limitation period for both causes of action.
Injunctive relief
[83] MPC is entitled to injunctive relief, both to restrain Holdfast from any further misrepresentations, and to require Holdfast to issue corrective statements. However, the forms of the orders sought under the two causes of action vary slightly. Accordingly, it is appropriate that counsel for MPC files a memorandum annexing draft orders.
Damages
[84] In its prayer for relief in both causes of action MPC seeks “an inquiry as to
damages or, at the election of the plaintiff, an account of profits”.
[85] Mr Garfield’s evidence was that although it was very difficult to calculate, he was certain that Holdfast’s misrepresentations had cost MPC in excess of USD$1 million in lost profit. Mr Garfield did not set out any detail as to how this assessment was made. While I accept that Holdfast’s failure to give adequate
discovery explains MPC’s difficulty in calculating its loss, I do not consider it appropriate to make an order for payment of damages on the basis of Mr Garfield’s assessment.
[86] In its judgment in Rod Milner Motors Ltd v Attorney-General, the Court of
Appeal said:20
The importance of finality in litigation requires that where damages are capable of straightforward assessment the appropriate evidence should be called and the issue resolved at trial. The jurisdiction to order an inquiry is to be used where complex issues arise which require the application of expertise not available to the Court. In particular, the jurisdiction given by R
384 [now r 16.2] should not be used as a method of obtaining separate hearings on liability and damages.
[87] In the light of Holdfast’s failure to give adequate discovery, as set out earlier, it cannot be said that in this case, damages are capable of straightforward assessment.
[88] Mr Marriott submitted that MPC should be permitted to defer making its election whether to claim relief by way of damages or an account of profits until Holdfast has provided full an unrestricted access to, and inspection of, its financial records. As to the election between damages and an account of profits, Associate Judge Faire cited in his judgment in Oraka Technologies Ltd v Geostel Vision Ltd,21 the following from the judgment of Lightman J in Island Records v Tring International Plc:22
First, whilst a plaintiff can apply in proceedings in the alternative for damages and an account of profits, he cannot obtain judgment for both: he can only obtain judgment for one or the other. Secondly, once judgment has been entered either for damages or an account of profits, any right of election is lost: any claim to the remedy other than that for which judgment is entered is forever lost. Thirdly, a party should in general not be required to elect or be found to have elected between remedies unless and until he is able to make an informed choice. A right of election, if it is to be meaningful and not a mere gamble, must embrace the right to readily available information as to his likely entitlement in case of both the two alternative remedies. It is quite unreasonable to require the plaintiff to speculate totally in the dark as to whether or not the sum recoverable by way
20 Rod Milner Motors Ltd v Attorney-General [1999] 2 NZLR 568 (CA) at 581.
21 Oraka Technologies Ltd v Geostel Vision Ltd HC Hamilton CIV-2005-419-809, 5 February 2008 at [22].
22 Island Records v Tring International Plc (1995) FSR 560, at 563.
of damages will exceed that recoverable under an account of profits. ... Fourthly, the exercise of the right of election should not be unreasonably delayed to the prejudice of the defendant.
(Citations omitted.)
[89] I accept that MPC is “totally in the dark” and is not in a position to make a meaningful and informed election. It should not be required to speculate as to whether damages or an account of profit is claimed. I have concluded that the appropriate course is to direct that there be an inquiry as to damages. In order that this inquiry be undertaken, it will be necessary for Holdfast to provide full details relating to its sales of BULLDOG and MPC’s TOGGLER and ALLIGATOR products. I assume that, if fully complied with, the information referred to in the Minute of Associate Judge Faire (see [76], above) will be sufficient.
Result
[90] I order as follows:
(a) Judgment is given in favour of MPC against Holdfast on each of
MPC’s two causes of action.
(b)MPC is entitled to injunctive relief. Counsel for MPC is to file a memorandum within seven days of the date of this judgment, setting out the form of the orders sought.
(c) There will be an inquiry as to damages.
(d)Holdfast is to file and serve, within 14 days of the date of this judgment, an affidavit setting out details as to the following:
(i)all sales documents for the BULLDOG or TOGGLER orders from 20 June 2001;
(ii) all sales documents for purchases (wholesale) for TOGGLER
clips from 20 June 2001;
(iii)all promotional material for BULLDOG and TOGGLER clips from 20 June 2001; and
(iv) all correspondence from June 2001 with purchasers of
BULLDOG and TOGGLER products.
(e) In the event that MPC considers that the order referred to in (d), above, does not set out sufficient (or the appropriate) information on which MPC can make an election as to claiming damages or an account of profits, counsel for MPC is to file a memorandum within seven days of the date of this judgment, setting out any further or other information required.
[91] MPC’s claim for punitive damages is reserved for further consideration, after
MPC has made its election as to claiming damages or an account for profits.
[92] Costs should follow the event, but the quantum of costs to be paid by
Holdfast is reserved until the question of relief is determined.
Andrews J
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