NSK Ltd v General Equipment Co Ltd
[2016] NZHC 1424
•28 June 2016
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
CIV-2014-404-001899 [2015] NZHC 1424
BETWEEN NSK LIMITED
First Plaintiff
NSK NEW ZEALAND LIMITED Second Plaintiff
AND
GENERAL EQUIPMENT CO LIMITED Defendant
Hearing: 9 and 10 December 2015 Appearances:
Zane Kennedy and Oliver Skilton for the Plaintiffs
Clive Elliott QC and Sarah-Jane Neville for the DefendantJudgment:
28 June 2016
JUDGMENT OF MOORE J
This judgment was delivered by me on 28 June 2016 at 2:30 pm pursuant to Rule 11.5 of the High Court Rules.
Registrar/ Deputy Registrar
Date:
NSK LIMITED & ANOR v GENERAL EQUIPMENT CO LIMITED [2015] NZHC 1424 [28 June 2016]
Contents
Paragraph
Number
Introduction ..............................................................................................................[1] Factual background and the claims........................................................................[8] Legal principles on review .....................................................................................[28] What NSK seeks to review? ..................................................................................[31] Particular discovery – principles ..........................................................................[32] Document categories ..............................................................................................[43] GE customer names and details ...........................................................................[45] The “missing” supplier invoices ..........................................................................[62] Redacted Barton emails .......................................................................................[68] Application for split trial .......................................................................................[80]
Will there be difficult demarcation questions between those issues to be
addressed at the first trial and those left for the second? .....................................[85] Will the separate question bring the proceedings to an end? ...............................[94] What potential timesaving does the separate question offer? ..............................[98] How will appeals be dealt with? ........................................................................[101] Are there any other practical considerations tending one way or the other? .....[103] (a) Separate trials are usual in intellectual property cases ............................[104] (b) GE’s counterclaims are amenable to a split trial .....................................[107]
(c) Nature of the loss ..................................................................................... [110] (d) Confidentiality ......................................................................................... [113] Result ..................................................................................................................... [116] Costs ...................................................................................................................... [118]
Introduction
[1] The first plaintiff, NSK Limited, is a large multi-national company based in Japan. It manufactures and distributes ball and roller bearings for use across a broad range of industries. The second plaintiff, NSK New Zealand Limited, is a related entity of NSK Ltd. It carries on business in New Zealand and imports and distributes NSK manufactured and branded bearings. For the purposes of this judgment it is generally unnecessary to make a distinction between the two entities which I shall refer to collectively as NSK.
[2] The defendant, General Equipment Co Limited (“GE”), is an Auckland-based company which imports and distributes various industrial products including ball and roller bearings from overseas suppliers. Some of the product it sources from overseas are NSK-branded bearings. It is a parallel importer of NSK bearings. NSK alleges that GE imported and sold counterfeit NSK-branded bearings to various New Zealand-based distributors.
[3] The plaintiffs claim this infringes NSK’s registered trademarks, breaches the Fair Trading Act 1986 (“the FTA”) and constitutes the tort of passing off. Additionally, NSK claims that GE misrepresented to its customers that the bearings were genuine NSK manufactured bearings.
[4] GE denies any wrongdoing. It does not admit the bearings it imported were counterfeit. It claims it reasonably believed its suppliers were authorised or licensed by NSK. It says it acted without intention to deceive customers and its use of trademarks was unlikely to deceive or confuse.
[5] GE goes further. It counterclaims in injurious falsehood (trade libel), breach of various provisions of the FTA, negligence and estoppel.
[6] Pursuant to its obligations GE has given discovery. It has, however, refused to discover three categories of document. The grounds for refusal include claims of relevance and confidentiality. Some of the documents discovered have been redacted by GE. NSK sought orders that the documents in unredacted form be
discovered and the claims to confidentiality set aside. It also sought orders for
discovery of certain supplier invoices. Doogue AJ refused NSK’s applications.1
[7] NSK now applies for a review of the Associate Judge’s decision on the grounds that the documents in questions are, first, plainly relevant to issues arising on the pleadings and, secondly, that confidentiality is not a ground to withhold disclosure.
Factual background and the claims
[8] The relevant factual background and the respective positions of the parties is
fully summarised in the Judge’s decision.
[9] NSK alleges that GE’s suppliers include, but are not limited to, XRT-Sinda Development Ltd (“XRT”) and Barton Bearings Ltd (“Barton”). GE has disclosed invoices from 1 January 2009 to 4 October 2012 from approximately 14 suppliers that relate to GE’s purchase of NSK-branded bearings. However, GE has disclosed only correspondence with XRT and Barton. During this period GE imported 2,650
NSK-branded ball and roller bearings of which 2,469 were sourced from XRT and
Barton. It admits it sold these to 30 customers.
[10] NSK claims it is unable to particularise every GE customer who may have purchased counterfeit bearings from GE because it does not know their identities. It knows the names of only two of GE’s customers to whom GE sold counterfeit bearings. These were Travel Motors Direct Limited (“Travel Motors”) and Donovans Trade Supplies 2005 Limited (“Donovans”) who between them purchased
134 NSK-branded bearings originally sourced from overseas suppliers XRT and
Barton.2
[11] NSK says that the source of the counterfeit bearings was likely to be XRT
and Barton. Because the importation documentation has not been disclosed there is doubt as to the identity of the actual source. NSK says it lacks cogent evidence to
1 NSK Ltd & Anor v General Equipment Co Limited [2015] NZHC 1979..
2 Travel Motors and Donovans raised with NSK their concern they had been supplied counterfeit
NSK bearings by GE. This was the catalyst for the present proceedings.
establish that the bearings supplied by GE to wholesalers or retailers in New Zealand were counterfeit. It claims it would need to examine the bearings in question to determine that issue.
[12] As at December 2012 GE had 194 unsold NSK-branded bearings in stock. After NSK raised its concerns that GE had been trading in counterfeit NSK bearings, GE delivered all its remaining stock to NSK for the purpose of allowing NSK to examine the bearings to determine whether any were counterfeit and, if so, how many.
[13] NSK tested the 194 bearings it had imported from XRT and Barton. NSK claims this testing revealed 148 were counterfeit and 46 were genuine, i.e. approximately 75 per cent of GE’s unsold NSK-labelled stock was likely to be counterfeit.3
[14] If the 75 per cent figure is extrapolated to all the NSK-branded products sold by GE in New Zealand it can be expected that a substantial proportion were counterfeit.
[15] Of significance, it appears likely that the product imported from XRT and
Barton included both authentic and counterfeit product.
[16] In its statement of claim GE essentially puts NSK to proof. It acknowledges that NSK’s claim GE distributed counterfeit bearings may be true, and that in the two instances where NSK has been able to identify the customer, only very small numbers of bearings were supplied.
[17] Thus GE denies the bearings it imported from XRT and Barton were counterfeit. In fact it goes further. GE claims it reasonably believed that XRT and Barton were authorised or licensed by NSK to sell its product. It denies it used any of NSK’s trademarks. Its position is it acted without intention to deceive customers
and the use of the trademarks was unlikely to deceive or confuse. It also
3 These allegations form the basis of NSK’s three causes of action namely: breach of the Trade
Marks Act 2002, passing off and breach of the Fair Trading Act 1986.
counterclaims against NSK. The details and effect of the counterclaims are discussed later in this judgment.
[18] GE has disclosed redacted copies of the customer invoices relating to its supply of NSK-branded bearings.
[19] The redactions are the customers’ names and the prices for which the bearings were sold. NSK complains that due to these redactions it is unable to particularise every GE customer who may have purchased counterfeit bearings or the price which those customers paid. Only GE has this information.
[20] NSK is only aware of the identity of two of GE’s 30 customers which were supplied with allegedly counterfeit NSK-branded bearings, Travel Motors and Donovans. GE says it sold and/or provided 134 bearings to those two customers.
[21] Additionally, it is not possible on the present state of discovery to reconcile the quantities of NSK-branded product supplied to GE by XRT and Barton with the quantities supplied by GE to its 30 customers as disclosed on the invoices. The customer invoices disclose GE supplied 1,565 units to customers but the supply invoices from XRT and Barton disclose only 1,418 units were supplied to GE leaving an unexplained shortfall of 147 bearings received by GE but not accounted for in the supplier invoices; the so-called “missing invoices”. GE has since undertaken further searches for these documents and as a result located another 29, leaving 118 unreconciled.
[22] In other words, on the face of the document disclosed, 118 more units appear to have been sold than there is documentary evidence of GE receiving from XRT and Barton.
[23] NSK thus claims:
(a) the alleged counterfeit NSK-branded bearings imported, offered for sale and on-sold by GE had the NSK trademark applied directly to the bearings and to its packaging;
(b)GE misrepresented to its customers that the bearings were genuine, NSK manufactured bearings;
(c) GE’s actions constituted infringement of NSK’s registered trademarks
(s 89(1) of the Trade Marks Act 2002 (“the TMA”)), breaches of ss
9, 10 and 33(a) of the FTA and passing off. GE denies there was any wrongdoing and, more specifically, it denies it purchased or sold counterfeit NSK-branded bearings.
[24] NSK issued proceedings against GE on 29 July 2014. GE responded with its statement of defence and counterclaims on 20 October 2014. Affidavits of documents were filed in May 2015 and in June NSK brought its application for particular discovery and setting aside GE’s claims to confidentiality. These applications came before Doogue AJ who, in a detailed and comprehensive judgment, declined the applications by NSK for particular discovery.
[25] NSK makes two applications. The first is to review Doogue AJ’s decision.
NSK submits that there were two fundamental flaws with the decision namely:
(a) the documents sought are plainly relevant to issues arising on the pleadings; and
(b) confidentiality is not a ground to withhold disclosure. [26] GE opposes the review and supports the findings of the Judge.
[27] NSK also applies for an order for split trials. It submits it is appropriate for the issue of liability to be determined separately from quantum.
Legal principles on review
[28] Section 26P of the Judicature Act 1908 provides for the review of decisions of Associate Judges. That provision relevantly provides:
“(1) Any party to any proceedings who is affected by any order or decision made by an Associate Judge in chambers may apply to the
court to review that order or decision and, where a party so applies in accordance with the High Court Rules, the court—
(a) must review the order or decision in accordance with the
High Court Rules; and
(b) may make such order as may be just.”
[29] The legal principles contained in the High Court Rules are set out in r 2.3 which relevantly provides:
“2.3 Review of decision
(1) An application for a review, under section 26P(1) of the Act, of an order or a decision made by an Associate Judge must be by interlocutory application, which must fully state the grounds of review and what exactly is challenged by the applicant.
…
(4) If the order or decision being reviewed was made following a defended hearing and is supported by documented reasons,—
(a) the review proceeds as a rehearing; and
(b) the Judge may, if he or she thinks it is in the interests of justice, rehear the whole or part of the evidence or receive further evidence.
…”
[30] As the learned author in McGeechan on Procedure observed:4
(a) the approach is essentially appellate;
(b)the applicant has the burden of persuading the Court the decision was wrong; that it rested on unsupported findings of fact and/or applied wrong principles of law. The Court will apply the approach in Austin, Nichols & Co Ltd v Stichting Lodestar5 which involves the Court making its own assessment as to whether the original decision is
wrong;
4 McGechan on Procedure HR 2.3.02(1).
5 Austin, Nichols & Co Ltd v Stichting Lodestar [2007] NZSC 103, [2008] 2 NZLR 141 at [16].
(c) the Court on review is not bound to defer to the decision of the
Associate Judge.
What NSK seeks to review?
[31] Doogue AJ was faced with four challenges by NSK to GE’s refusal to give particular discovery. In respect of each he found in GE’s favour. NSK now challenges on review three of those determinations.6 These are discussed more fully below. Before doing so I must set out the applicable principles.
Particular discovery – principles
[32] Under r 8.19 a Court may make a further order for particular discovery after the proceeding has commenced where documents ought to be discovered if they are relevant to an issue in the proceedings.
[33] The rule provides for the making of orders for particular discovery.
“8.19 Order for particular discovery against party after proceeding commenced
If at any stage of the proceeding it appears to a Judge, from evidence or from the nature or circumstances of the case or from any document filed in the proceeding, that there are grounds for believing that a party has not discovered 1 or more documents or a group of documents that should have been discovered, the Judge may order that party—
(a) to file an affidavit stating—
(i) whether the documents are or have been in the party's control; and
(ii) if they have been but are no longer in the party's control, the party's best knowledge and belief as to when the documents ceased to be in the party's control and who now has control of them; and
(b) to serve the affidavit on the other party or parties; and
(c) if the documents are in the person's control, to make those documents available for inspection, in accordance with rule
8.27, to the other party or parties.”
6 The fourth determination is not pursued by NSK following amendment to its pleadings.
[34] As Asher J observed in Assa Aboly NZ Limited v Allegion (NZ) Ltd7 the starting point is whether a document or class of documents is relevant to the matters at issue before the Court. Only then can it be said that in terms of the rule “they should have been discovered”. The relevance is defined by the pleadings.
[35] However, as his Honour pointed out, the relevance of the documents is only the first step. While the applicant does not need to prove the documents actually exist there must be “grounds for believing” that the documents exist and are in the party’s control. The threshold for “grounds for belief” is not high.
[36] Asher J helpfully formulated a four stage approach requiring consideration of a number of factors. He listed the factors as follows:8
(a) Are the documents sought relevant, and if so, how important will they be?
(b)Are there grounds for belief that the documents sought exist? This will often be a matter of inference. How strong is that evidence?
(c) Is discovery proportionate, assessing proportionality in accordance with Part 1 of the discovery checklist in the High Court Rules?
(d) Weighing and balancing these matters, in the Court’s discretion
applying r 8.19 is an order appropriate?
[37] The documents which are able to be sought in an order for particular
discovery are those which “should have been” discovered by the defendant in the
proceeding.9
7 Assa Aboly NZ Limited v Allegion (NZ) Ltd [2015] NZHC 2760 at [9].
8 At [14].
9 High Court Rules, r 18.19.
[38] As Asher J noted it is necessary to have regard to the concept of proportionality.10 This requires the Court to balance the time and costs expended in making discovery against the potential value of that discovery.11
[39] I agree with the Judge’s description of the concept of proportionality where,
in adopting the submissions of counsel, he described it in the following terms:12
“[22] … The concept of proportionality reinforces and sharpens the requirement that a discovery order not be oppressive. … It involves considering the chances of finding relevant documents and their degree of relevance. If documents will only be of marginal relevance, their discovery is more likely to be regarded as disproportionate.
[23] This is then balanced against the cost of carrying out the process. Broader considerations, such as the amount at issue, the resources of the parties and delay to the proceedings, are also relevant…
[24] Rule 8.14 requires a party to make a reasonable search for documents within the scope of a discovery order. There is no absolute obligation to seek out and discovery every arguable document. What amounts to a reasonable search depends on a number of factors, including the cost of retrieving a document and the significance of any document likely to be found, together with the need for discovery to be proportionate to the subject matter of the proceeding.”
[40] These principles are reflected in the discovery checklist13 which requires the parties, when assessing proportionality, to review the pleadings to identify the categories of documents which would be required if a standard discovery order were made. It requires the parties to identify where those documents are likely to be located including the individuals likely to have the documents, the likely volume of material and whether other people have discoverable documents within the client’s control (for example, lawyers and accountants). It also requires the parties to estimate the likely volume and cost of discovering the material as well as assessing and discussing with the other parties whether that estimated cost is proportionate to the sums in issue or the value of the rights in issue in the proceedings.
[41] This is the cost/benefit analysis which the Judge referred to. I agree with
Mr Elliott QC, for GE, that this assessment is not limited to financial costs but
10 See too Pub Charity Inc v Department of Internal Affairs [2013] NZHC 1160 at [14].
11 Karam v Fairfax New Zealand Limited [2012] NZHC 887 at [137]-[142].
12 NSK Ltd & Anor v General Equipment Co Limited, above n 1, at [22] and [23].
13 Judicature Act 1908, sch 9, pt 2.
necessarily, by reason of the factors the parties are required to take into account, includes a wider assessment of the degree of effort required to meet the party’s obligation in discovering the documents.
[42] It is well settled that an application for discovery can be opposed if it amounts to oppression. In Karam v Fairfax New Zealand Limited it was put this way:14
“[142] The Court’s duty today is to consider the concept of oppression as
directly reinforced by the focus in the new Rules upon proportionality.”
Document categories
[43] The categories of document in respect of which discovery is sought are:
(a) GE’s customer names and details on the redacted customer invoices; (b) the “missing” supplier invoices for the bearings sold by GE during the
relevant period in respect of which there is no corresponding invoice from the supplier;
(c) an email chain between GE and one of its suppliers in which the identity of bearing brands (other than NSK) has been redacted.
[44] I now turn to consider each of these categories.
GE customer names and details
[45] GE has admitted that during the relevant period NSK-branded bearings were sold to 30 customers.15 NSK seeks an order that the redacted names and details of GE’s customers be revealed.
[46] GE claims that it redacted the customer names on the invoices because their specific identity is irrelevant and in any event it is confidential and commercially
14 Karam v Fairfax New Zealand Limited, above n 11.
15 17 were end-users and 13 re-sellers. In other words the imported stock was sold to other wholesalers for on-sale and some were sold to customers who used the stock themselves.
sensitive information. GE has agreed to disclose any relevant information from its customer base so long as the identity of the customers is not disclosed.
[47] Furthermore, GE has provided NSK with all documentation from the named suppliers and all customer supply documentation relating to the supply of NSK bearings to the market in New Zealand. Accordingly, Mr Elliott QC submits NSK knows exactly which bearings were imported and supplied to the market in New Zealand, when the stock was supplied and the price GE purchased the stock at. He thus submits NSK has all the available information. The only information NSK lacks is which particular bearing was supplied to which specific customer of GE’s 30 customers. Given the issues raised on the pleadings which are that GE misrepresented counterfeit bearings as genuine NSK products Mr Elliott submits the identity of the individual customers is not relevant.
[48] It is for this reason Mr Elliott submits the Judge was entirely correct to conclude that the information which NSK is seeking:16
“… would seem to fall outside the scope of the standard order which was
issued in this case. …”
The Judge said it did not possess the necessary “degree of relevance” nor did it:17
“… bear sufficient relevance to the issues in the case to fall within the terms
of the standard discovery order to which the defendant is subject.”
[49] Conversely, Mr Kennedy, for NSK, submits that withholding the names of the
customers “up hobbles” NSK’s case.
[50] Mr Kennedy submits that under standard discovery principles GE must disclose documents which adversely affect its own case or support NSK’s case.18 He points out that the primary factual issue on the pleadings is whether GE wrongly represented to the public at large and to particular customers that the counterfeit
bearings it supplied were genuine NSK manufactured bearings. NSK pleads these
16 NSK Ltd & Anor v General Equipment Co Limited, above n 1, at [56].
17 At [59].
18 High Court Rules, r 8.7; Robert v Foxton Equities Limited [2014] NZHC 726 at [8](b).
representations were made to a number of GE’s customers including to the two identified customers, Travel Motors and Donovans.
[51] GE denies it misrepresented counterfeit bearings as genuine and goes further and says that conventional trade practice is such that bearings are typically brought and sold by reference to part numbers and descriptions rather than the brand of the manufacturer.
[52] As a consequence, Mr Kennedy submits that NSK is required to prove that GE misrepresented the authenticity of the NSK-branded bearings sold to its customers. As such, the names and details of customers recorded in GE’s invoices for the bearings in question are directly relevant to NSK’s ability to prove its case. Without this information it is unable to lead evidence of GE’s representations to those customers because it does not know who they are.
[53] I agree. Even if the Judge was correct in his finding that NSK was seeking information which was only relevant on the Peruvian Guano approach, such an approach remains relevant to the adverse documents test under r 8.7.
[54] Furthermore, I am not persuaded by GE’s claim that this is confidential
information and, as such, it should not be required to disclose. [55] My reasons for coming to that conclusion follow.
[56] First, confidentiality is not a ground for non-disclosure of relevant documents.19 As the Court of Appeal observed:20
“Relevant documents should genuinely be made available for inspection. The fact that they are regarded as being confidential and would not be made available were it not for the requirements of the litigation, is immaterial.”
[57] Furthermore, as Dobson J observed in NZX Limited v Ralec Commodities Pty
Limited21 where the party requesting discovery is aware of confidentiality restrictions and the prohibition on using the documents for a collateral purpose, this
19 McGechan on Procedure at HR8.25.17.
20 Port Nelson Limited v Commerce Commission (1994) 7 PRNZ 344 (CA) at 348.
21 NZX Limited v Ralec Commodities Pty Limited [2015] NZHC 241 at [27].
can be sufficient to allay concerns about the disclosure of commercially sensitive information. It is an abuse of the Court’s process for information required to be disclosed to another party for that other party to use it for an ulterior or collateral purpose. To do so would not only be an abuse of the Court’s process but would amount to a contempt.
[58] In the present case NSK has confirmed it will not use information obtained in the course of discovery outside the purpose of the proceedings and it has expressed it has no intention whatsoever of approaching GE’s customers and using information provided in the course of discovery to gain a commercial advantage. For the reasons set above it is barely necessary for NSK to confirm it will not abuse the Court’s process but it does serve as an express acknowledgement of NSK’s legal obligations to GE.
[59] Furthermore, I am not satisfied that GE’s claims of commercial sensitivity and confidentiality are as significant as claimed. The relevant bearing market in New Zealand is a relatively small one. The identity of customers in that market place is well known. It is not exclusive information.
[60] I also note the information sought falls within a relatively narrow period between January 2009 and October 2012, i.e. four to seven years ago. NSK does not seek customer information after that period. In that sense it is historic, if not obsolete, commercial information.
[61] I accept that in the context of the present case confidentiality does not and should not operate as a bar to disclosure and accordingly I direct that the customer names and details in the invoices for NSK labelled product from GE to its customers be disclosed.
The “missing” supplier invoices
[62] These are invoices for the NSK-branded bearings sold by GE in respect of which there is no corresponding supplier invoice.
[63] GE says that all ball and roller bearings not only have a product number but also a suffix. Without the suffix GE claims it is unable to respond to NSK’s claim that there is a discrepancy between the quantities supplied in the discovered supplier invoices and the quantities supplied by GE to its customers. It says without the suffix it is incredibly difficult, if not impossible, to find the requested information. Furthermore, GE submits that it has supplied 95 per cent of the invoices. Only five per cent are not accounted for and it will be extremely difficult, time consuming and expensive, if not impossible, to locate the balance.
[64] Furthermore, Mr Elliott submits that the essence of the plaintiffs’ claim is that GE made representations to the public at large as well as its own clients that the counterfeit bearings were genuine. He submits that if the plaintiffs can show that 75 per cent were counterfeit “their case is made out”. The resolution of the case in the plaintiffs’ favour does not come down to the question of individual customers. NSK says it cannot supply any further information but it appears that GE’s search is restricted to XRT or Barton.
[65] I agree with Doogue AJ when he described the obligation of GE in terms of r 8.14. This rule requires a party to make a reasonable search for documents within the scope of the discovery order. What is a reasonable search depends on the circumstances, including the complexity of the proceeding, the number of documents in the case, the cost of retrieving them and their significance to the issues. This reflects the concept of proportionality. As I noted in the course of my discussion on this topic earlier in this judgment, the cost/benefit analysis is not simply limited to financial costs. It is an exercise which calls for a wider assessment of the degree of effort required to meet the party’s obligation.
[66] The Judge was not in error when he declined to make the order. In my view he was correct for several reasons.
(a) First, I accept the evidence that it will be extremely difficult, if not impossible, to locate the documents in question.
(b)Secondly, 95 per cent of the documents in this category have been discovered.
(c) Thirdly, I do not accept that this documentation carries with it the importance NSK ascribes to it given the essence of NSK’s claim. Obviously, GE accepted these invoices were relevant. Had it not, it presumably would not have made discovery. But in the context of a cost/benefit analysis I am of the view that the balance favours GE.
[67] The application is declined in relation to this category of documents.
Redacted Barton emails
[68] This category of documents relates to an email exchange between GE and one of its international suppliers, Barton. The exchange covers the period 15 to 21
March 2012 and consists of seven emails. GE has discovered the emails but has redacted them. Mr Elliott advised that the redactions relate to the brand names of bearings other than NSK. He advised that three brand names feature in the redacted portions along with a price list for one of the redacted brands. Reference is made to NSK. The price which GE was offering to sell the product is also not redacted.
[69] In the course of argument Mr Elliott provided an amended copy of the redacted emails ascribing the letters A, B and C to each of the three redacted brand names referred to in the exchange. This was for the purpose of facilitating an understanding of what the document is saying.
[70] What the email exchange conveys is a conversation between GE and Barton in which the former has asked Barton for the price list of a non-NSK brand, “A”. Barton also indicated that if GE was interested in NSK product Barton could offer that as well. This email was followed by GE confirming its order for brand A but asking that the boxes do not have the word brand B on them.
[71] Barton replied that the brand A bearings have the word brand B on the boxes.
GE’s response is regarded by Mr Kennedy as significant. It is reproduced below:
“Dear Adelaide
Those packets with
B marked on the boxes are most likely to be
Chinese made fake bearings as they probably have a picture of a
roller bearing instead of taper roller bearing.
Genuine A
only used A B
on boxes for needle
roller bearings.
We do not not require the 6 B
marked items, however you can offer
those in C
and NSK.
Regards
Graham”
[72] Mr Kennedy submits that from this email an inference may be drawn that GE knew Barton could be dealing in counterfeit bearings. Mr Kennedy submits that this is significant in the context of these proceedings because GE denies that the product it received from Barton was counterfeit. He submits that GE has pleaded, as an affirmative defence, that if its conduct was found to be an infringement of a registered trademark, breach of the FTA and/or an action and passing off, such an infringement was innocent and GE had no knowledge it was passing off or infringing NSK’s trademark or damaging its brand. Furthermore, Mr Kennedy submits that in GE’s counterclaim it alleges NSK breached a duty of care to warn GE of the dangers of counterfeit bearings in the market.
[73] Mr Kennedy submits that these redactions, even in their new encoded form, prevent him from undertaking an effective cross-examination of the author of the email.
[74] I agree with Mr Kennedy that before the redactions were coded with A, B and C the nature of the exchange was difficult to interpret. However, when the missing brand names are substituted with letters the essence of the electronic conversation is readily decipherable. Furthermore, I agree that the actual identity of the other bearing brands is irrelevant to understanding what is being discussed in the email. The meaning of the document and the conversation is not distorted or obscured.
[75] Additionally, it is difficult to see how an effective cross-examination could not be undertaken with the documents in the present form. Mr Kennedy can still challenge the GE author of the email on the question of his knowledge.
[76] I also accept Mr Elliott’s submission that the price at which Barton was offering the non-NSK brand, A, is a commercially sensitive issue given that NSK New Zealand Limited and GE are direct competitors in the New Zealand market.
[77] Furthermore, because this is a case concerning the NSK brand, the price at which other bearings were offered to GE can only be of limited relevance. However, I agree that the price at which NSK-branded bearings were offered to GE is likely to be of relevance, particularly if any of the offered prices were so modest that it is possible to infer they were known to be counterfeit. However, the NSK prices are included in the correspondence.
[78] In my view the redactions are irrelevant and were properly made to preserve confidentiality, particularly in relation to the price list for non-NSK-branded products.
[79] For these reasons this part of the application is also dismissed.
Application for split trial
[80] NSK seeks orders that the parties’ claims and counterclaims be split so that
liability and quantum are determined at separate trials.
[81] The power to order separate trials in this case is contained in r 10.15 of the
High Court Rules, which provides:
“10.15 Orders for decision
The court may, whether or not the decision will dispose of the proceeding, make orders for –
(a) the decision of any question separately from any other question, before, at, or after any trial in the proceeding; and
(b) the formulation of the question for decision and, if thought necessary, the statement of a case.”
[82] The starting point is the presumption that all matters in a proceeding are to be disposed of at one trial, given that this will normally be the most efficient and expedient method of dealing with the issues raised.22 It is well established the party arguing in favour of split trials carries the burden of displacing this presumption; a burden which has been described as “heavy” or “not insignificant”.23
[83] Although the Courts have considered an array of factors in deciding whether or not to order a split trial, a clear exposition of the relevant factors is that formulated by Kós J in Haden v Attorney General.24 This approach requires the following five questions to be asked:
(a) Will there be difficult demarcation questions between those issues to be addressed at the first trial and those left for the second?
(b) Will the separate question bring the proceedings to an end? (c) What potential timesaving does the separate question offer? (d) How will appeals be dealt with?
(e) Are there any other practical considerations tending one way or the other?
[84] These questions, while providing a helpful framework for analysis, do not avoid the need for careful consideration of the individual circumstances of the case.25
With that caveat in mind,I now turn to consider each question in the context of this
case.
22 Clear Communications Ltd v Telecom Corporation of NZ Ltd (1998) 12 PRNZ 333 (HC) at 334.
23 Turners & Growers Ltd v Zespri Group Ltd HC Auckland CIV 2009-404-4392 at [10].
24 Haden v Attorney-General (2011) 22 PRNZ 1 (HC) at [50]-[67].
25 Karam v Fairfax New Zealand, above n 11 at [59].
Will there be difficult demarcation questions between those issues to be addressed at the first trial and those left for the second?
[85] In Haden v Attorney General, Kós J made the following observations:26
“The interaction between issues in split trials is said to be the single most important question for consideration by a Court considering a Rule 10.15 application. This question requires the Court to look at (1) what is pleaded, (2) what issues arise on the separate question, (3) what issues remain for the second hearing, and (4) in each case, what evidence is required to dispose of those issues. Issues in the two hearings desirably should be discreet. If they are not, or if there is significant evidential overlap, separate determination is far less likely to be appropriate.”
(Footnotes omitted)
[86] I turn first to what has been pleaded. NSK advances four claims based on the allegation that GE offered for sale, and in fact sold counterfeit bearings which were labelled or represented as genuine NSK product. The first is that GE infringed its registered trademarks under ss 89(1)(a) and (c) of the TMA. The second is that GE engaged in misleading and deceptive conduct generally and/or in relation to goods under ss 9 and 10 of the FTA. The third is that GE made false or misleading representations under s 13 of the same act. The final claim is that GE committed the tort of passing off.
[87] GE makes four counterclaims. It argues that NSK damaged its professional reputation by contributing to an article published in Demm Engineering and Manufacturing Magazine which contains the suggestion that GE deliberately imported spurious or counterfeit NSK bearings and passed these on to unsuspecting consumers. In doing so, GE claims that NSK has engaged in trade libel and has breached ss 9, 10 and 13 of the FTA. GE also argues that NSK committed the tort of negligence. It argues that NSK owed a duty to importers like itself to protect the NSK brand and trademarks and provide importers with a means of readily distinguishing between genuine and counterfeit products. It also claims that NSK had a duty to notify importers of known counterfeit operators. It submits that NSK failed to discharge these duties in circumstances where it was reasonably foreseeable that GE would rely on it. Lastly, GE claims that an estoppel operates in this case.
[88] Doogue AJ described the relevant trial issues as follows:27
(a) The first issue, based on the pleadings, is the extent to which the defendant imported and sold counterfeit NSK-labelled product. In this regard:
(i)The plaintiffs allege in the statement of claim that the defendant imported counterfeit NSK-branded ball and roller bearings including from, but not limited to, XRT and Barton.
(ii)The defendant, in its statement of defence, denies the substance of the plaintiffs’ allegations. The defendant admits that it provided to NSK for examination all bearings supplied to it by XRT and Barton that it had not sold to customers. It also admits that NSK has advised it that some of the items supplied are counterfeit and some are genuine.
(b)The second issue is whether the defendant misrepresented that counterfeit NSK-branded bearing were genuine. In this regard:
(i)The plaintiffs allege in the statement of claim that the defendant incorrectly represented to the public at large and to particular customers that counterfeit bearings were genuine, NSK manufactured bearings.
(ii)The defendant denies that it made any such misrepresentations.
(c) The third issue is the proper value of NSK’s claims.
(i)The plaintiffs allege that the defendant’s actions have caused loss to the plaintiffs, including loss of sales of genuine NSK manufactured product.
(ii) The defendant denies that the plaintiffs have suffered any loss.
[89] Mr Elliot agrees this is an accurate summary of what the real issues will be at trial. I agree. There is a certain amount of unease with regards to demarcation in this case. In respect of each of NSK’s causes of action, as well as the first two of GE’s counterclaims, it will be necessary for the Court to consider whether and to what extent GE imported and sold counterfeit NSK-branded bearings. This will require it to hear evidence as to the origins and quantities of bearings imported by GE, the extent to which these bearings were on-sold and their subsequent performance, if this can be ascertained, as well as the results of testing carried out on the NSK-branded bearings that remained in GE’s possession.
[90] Additionally, these findings will also be central to any enquiry as to quantum. As a result, there will necessarily be a degree of overlap.
[91] However, this issue forms only a small part of the enquiry as to quantum. In the event GE is found liable for making misrepresentations to the public at large, Mr Kennedy submits that the Court will be required to undertake a much broader and more complex consideration of the damage suffered to its goodwill and reputation. I accept this submission. Indeed, in my view, this will be the most significant issue in regards to quantum. It is unlikely to arise at the liability stage. On the other hand, it is likely to be contentious and difficult to quantify. It will almost certainly require significant expert evidence which would not be relevant to establishing liability.
[92] Aside from this degree of overlap, the issues which will arise at the liability and quantum stages are likely to be relatively distinct. The remaining issues in terms of liability are likely to concern the circumstances in which GE on-sold its bearings and whether this amounts to misleading or deceptive conduct or amounted to a false or misleading representation. GE’s counterclaims are yet still further removed from the issue of quantum.
[93] For this reason, while there will be a degree of overlap between the issues arising at the liability and quantum stages, I am not convinced this overlap is such that it should tell against separate determination in different phases of the hearing.
Will the separate question bring the proceedings to an end?
[94] Mr Kennedy submits that the primary driver for the initiation of these proceedings is not compensation for lost sales but rather the need to protect NSK’s brand and reputation by taking, and being seen to be taking, a firm stance against counterfeiters. Given that the cost of pursuing proceedings before this Court is likely to outweigh any potential award as to damages this appears a reasonable enough suggestion. Mr Elliott argues that if monetary compensation is of secondary importance then it should be dealt with at the same time as liability for reasons of convenience and finality. However, this submission ignores that reality that, while monetary compensation may be of secondary importance, it may still require significant amounts of the Court’s time and the parties’ resources to resolve.
[95] In the event that NSK fails in establishing liability of the part of GE, there will obviously be no need for a second enquiry as to quantum, assuming of course that none of GE’s counterclaims are made out.
[96] On the other hand, in the event that NSK does succeed in this respect, this would necessarily provide a strong, if not decisive and conclusive, indication of the extent to which GE did import and trade in counterfeit bearings. Reputation is the central concern of both parties. As such I accept that a finding as to fault is likely to significantly increase the desirability and prospects of settlement and thus remove the need for a second trial on quantum in any case. I consider this factor to be particularly persuasive.
[97] Therefore, regardless of the result of the liability hearing, splitting the trials could well bring the proceedings to an end or, at the least, move the parties closer to an agreed resolution.
What potential timesaving does the separate question offer?
[98] I also accept Mr Kennedy’s argument that splitting the trials could result in appreciable time savings. It follows that if liability is not made out, it will be unnecessary for the plaintiffs to call expert evidence regarding the impact of the counterfeit sales to their reputation and goodwill. Mr Elliott is undoubtedly correct
in his submission that, to some extent, the scale of damage will depend on the Court’s findings as to how widespread GE’s sales of the counterfeit bearings were. However, these findings will be of little practical utility in the absence of further expert evidence as to the conditions and customer attitudes at play in this particular industry. These are likely to bear upon how NSK’s reputation and goodwill would have been affected by counterfeiting. To spare the parties the time and cost of calling and testing this evidence is clearly desirable.
[99] I place less weight on the submission that unnecessary and expensive discovery of documents relating to quantum issues (which has not yet occurred) will not need to take place prior to the liability hearing. Because these documents are also likely to bear upon issues engaged in the liability phase there is a real possibility discovery would be ordered in any case.
[100] Nevertheless, this consideration also tells in favour of splitting the trials.
How will appeals be dealt with?
[101] NSK accepts that the possibility of appeals on a number of questions is unavoidable. This is a responsible concession. There is a real risk that granting NSK’s application could open a number of appeal streams and prolong what has already been a long and costly exercise for the parties. The resulting inefficiency would be compounded by the fact that the issues in these proceedings go back over six years, creating the risks that the witnesses would need to be briefed and then re- briefed well after the events in question.
[102] Certainly this factor supports GE’s argument that the appeal be dismissed.
Are there any other practical considerations tending one way or the other?
[103] The parties raise a number of additional points which require consideration.
(a) Separate trials are usual in intellectual property cases
[104] Mr Kennedy submits that this Court should give weight to what he says is an assumption that intellectual property cases should be determined by way of the split
trial procedure, or that they are at least amenable to such a procedure. Mr Kennedy cites Baldock v Addison28 and Yves Lt Laurent Parfums v Louden Cosmetics Ltd (No
2)29 in support of this proposition. In the latter case, Barker J commented that “in
intellectual property cases, particularly ones alleging breach of patent or trademark
split trials are fairly usual”.30
[105] Mr Elliot points out that this is far from an assumption; split trials have been ordered in some cases but not in others, particularly where the points that were supposed to be decided in split trials were not sufficiently discrete.31
[106] I accept Mr Kennedy’s submission but only to a limited extent. In determining whether or not to make an order under r 10.15, regardless of the subject matter of the case, the Court is required to consider the desirability of splitting the trials based on a consideration of the circumstances as a whole, and determine what the most expedient or efficient course of action is. It may be correct to submit split trials are more likely to be appropriate in intellectual property cases but this does not obviate the need for careful analysis on a case by case basis. I do not consider that anything in the nature of a presumption of splitting trial in intellectual property cases exists.
(b) GE’s counterclaims are amenable to a split trial
[107] Mr Kennedy also submits that it would be wasteful to require the parties to have to adduce evidence as to quantum in respect of GE’s counterclaims, which he submits are fundamentally flawed.
[108] Unsurprisingly, Mr Elliott submits that there is no merit in this submission,
and that the same could be said in respect of NSK’s claims.
[109] It is not appropriate at this stage of the proceedings for me to comment on the respective merits of the parties’ claims. However, it need hardly be said that, just as
28 Baldock v Addison & Ors [1995] WLR 158 at 160.
29 Yves St Laurent Parfums v Louden Cosmetics Ltd (No 2) (1994) 8 PRNZ 238.
30 At 240.
31 Ashmont Holdings Limited v Jurox Pty (2000) 53 IPR 464; Levi Strauss & Co v Kimbyr
Investments Limited [Separate Issues] (1992) 5 PRNZ 577.
with NSK’s claims, there are obvious time savings involved in not requiring the parties to lead evidence as to quantum in relation to GE’s counterclaims until these claims are actually made out.
(c) Nature of the loss
[110] Mr Kennedy further argues that the nature of the loss in this case favours splitting the trial. He points out that both parties are now seeking an inquiry as to damages on the basis that their goodwill and reputations in the marketplace have suffered as a result of the actions of the other. Mr Kennedy reiterates that the damages sought by both parties are not capable of straightforward assessment.
[111] Mr Elliott submits that NSK’s change in approach to primarily seeking damages for loss of reputation, rather than loss of sales, is nothing more than a tacit admission it cannot prove that counterfeit bearings were sold in anything more than a few isolated instances. He states that GE would now be willing to amend its prayer for relief and restrict it to a claim for damages so that the quantum issues can be dealt with as part of a single trial. Mr Elliot submits that NSK continues to overstate the complexity of the assessment as to damages. He submits that once the extent of GE’s dealings in counterfeit bearings is established, any issues of quantum can be dealt with swiftly whether based on loss of reputation or loss of sales. He submits that the quantum assessment would be a “mechanical” enquiry at this point and that separating it into its own trial would risk conflating the two hearings and undermining the efficiency of the overall proceeding.
[112] In my view this submission downplays how complex and time consuming the determination and quantification of the reputational harm suffered by either party is likely to be. As I have mentioned, I consider that it is likely to require extensive expert evidence as to the conditions and customer attitudes at play in the particular industry. I accept Mr Kennedy’s submission that the full scale of NSK’s loss, if GE is held to be at fault, is not readily or easily quantifiable. This is likely to be a complex exercise and it is best to cross this bridge if and when it presents itself.
(d) Confidentiality
[113] Mr Kennedy also submits that the documents it holds relating to quantum are highly commercially sensitive and that it is best to avoid disclosure of these documents until it is absolutely necessary.
[114] There is obvious merit in this submission and I do not take Mr Elliott to seriously resist it. However, I note again that discovery might well be ordered in relation to these documents in any case given that some might well be relevant also to the issue of liability.
[115] Considering all these matters I am satisfied NSK has discharged the onus on it to show that the question of liability and quantum should be determined in separate trials.
Result
[116] I make the following orders/findings:
(a) The application for discovery of the GE customer names and details is granted.
(b)In respect of order (a) above (discovery of customer names and details) I direct GE to file a supplementary affidavit of documents.
(c) The application for discovery of the “missing” supplier invoices for the bearings sold by GE during the relevant period in respect of which there is no corresponding invoice from the supplier is declined.
(d)The application for discovery of the email chain between GE and one of its suppliers (in the form of the removal of the redactions) is declined.
(e) The application for split trials to determine liability and quantum is granted.
[117] Leave is reserved to either party to seek such other or further orders or directions as may be necessary to give effect to this judgment.
Costs
[118] Given the result my inclination is to order that costs lie where they fall. However, if counsel take a contrary view I direct the parties to file memoranda as to
costs within 10 working days of the date of this judgment.
Moore J
Solicitors/Counsel:
Minter Ellison, AucklandMr Elliott QC and Ms Neville, Auckland
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