NSK Ltd v General Equipment Co Ltd
[2015] NZHC 1979
•20 August 2015
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
CIV-2014-404-1899 [2015] NZHC 1979
BETWEEN NSK LIMITED
First Plaintiff
NSK NEW ZEALAND LIMITED Second Plaintiff
AND
GENERAL EQUIPMENT CO LIMITED Defendant
Hearing: 23 July 2015 Appearances:
Mr Z Kennedy and Ms H Jaques for Plaintiffs
Mr Elliott QC and Ms Neville for DefendantJudgment:
20 August 2015
JUDGMENT OF ASSOCIATE JUDGE J P DOOGUE
This judgment was delivered by me on
20.08.15 at 4 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 1979 [20 August 2015]
Table of Contents
Introduction ................................................................................................................ 3
Background................................................................................................................. 3
Plaintiffs’ applications ............................................................................................... 5
Issues ............................................................................................................................ 5
Principles..................................................................................................................... 7
Analysis of plaintiffs’ application ........................................................................... 10
Category one: emails from GE’s overseas-based suppliers ................................... 10
Category two: missing supplier invoices ............................................................... 12
Category three: customer names and details in invoices to its customers............. 14
Defendant’s applications.......................................................................................... 17
Background ................................................................................................................ 17
Analysis of defendant’s application ........................................................................ 21
Conclusions on category one ................................................................................. 25
Category two: exchanges between the plaintiffs and the WBA .............................. 28
Submissions on the privilege point............................................................................. 29
Discussion on privilege point..................................................................................... 30
Conclusions ............................................................................................................... 35
Costs .......................................................................................................................... 36
Introduction
[1] The first plaintiff, NSK Ltd, is a large multi-national company based in Japan that manufactures and distributes various ball and roller bearings for use across a broad range of industries. The second plaintiff, NSK New Zealand Ltd, is a related entity of the first plaintiff that imports and distributes NSK-manufactured and branded bearings. I shall refer to the plaintiffs as “NSK”.
[2] The defendant, General Equipment Co Ltd (“GE”), is an Auckland-based company that imports and distributes various industrial products, including ball and roller bearings, from overseas suppliers.
[3] The plaintiffs’ position is that at various times, including from 10 July 2009 to 4 October 2012, the defendant purchased and imported counterfeit NSK-branded ball and roller bearings. This, the plaintiffs say, infringes NSK registered trademarks, breaches the Fair Trading Act 1986 and constitutes the tort of passing off. As well, the plaintiffs’ case is that the defendant misrepresented to its customers that the bearings were genuine, NSK-manufactured bearings.
[4] The defendant denies any wrongdoing.
[5] The parties have each brought applications pursuant to the High Court Rules
(Rules) seeking orders that the other provide particular discovery.
Background
[6] The plaintiffs allege the defendant’s suppliers include, but are not limited to, entities known as XRT-Sinda Development Ltd (“XRT”) and Barton Bearings Ltd (“Barton”).
[7] The plaintiffs say that, at this point, they are unable to particularise every GE customer which may have purchased the counterfeit bearings but that NSK only knows the names of two of GE’s customers to whom the defendant sold counterfeit
bearings, namely Travel Motors Direct Ltd (Travel Motors) and Donovans Trade
Supplies 2005 Ltd (“Donovans”).
[8] The plaintiffs say that the defendant imported approximately 2650 of the alleged counterfeit bearings, of which some 2469 have been sold. This is consistent with the affidavit of Mr Michael Reid, a director of GE, who says that, during the period from 1 January 2009 to December 2012, the defendant purchased 2469 of NSK-branded ball and roller bearings from Barton and XRT which were sold to 30 of its customers.
[9] It is also agreed that the defendant retained 194 of the alleged counterfeit bearings. These were given to NSK to examine. The plaintiffs say the result was that about 75 per cent were counterfeit.1
[10] The plaintiffs say that the source of the counterfeit bearings was likely to be to overseas businesses, which will be identified in this judgment as XRT and Barton. Because the importation documentation relating to the counterfeit bearings has apparently not been disclosed, doubt remains as to the exact source. The plaintiffs also lack cogent evidence to establish that specific bearings, which the defendant supplied to the end-users or resellers in New Zealand, were counterfeit. It would need to examine the bearings in question in order to come to a view on that matter. I understand that the case for the plaintiffs is that, if the results of the analysis of the unsold bearings (which the plaintiffs say show a 75 per cent counterfeiting rate) can be extrapolated to all those that have been sold in New Zealand by the defendant, then it can be expected that a substantial proportion were counterfeit.
[11] Importantly, it would appear likely that the importations from the two sources identified for the counterfeit bearings, XRT and Barton, included bearings that either were legitimate NSK-branded stock or were not proved to be otherwise.
[12] The position of the defendant is that while it acknowledges that the plaintiffs’
claims of sold counterfeit bearings may be true, it puts the plaintiffs to proof of the allegations. It is further the position of the defendant that, in the two instances in
1 It is confirmed by the plaintiffs that 148 of the bearings were counterfeit and 46 were genuine.
which the plaintiffs have been able to identify the end-user, there are only very small numbers of bearings supplied.
[13] It further admits that it has imported bearings from two named suppliers who have been identified as the source of counterfeit bearings, XRT and Barton. It says that it has handed the unsold bearings that remained in its possession to NSK for examination, being bearings supplied by XRT and Barton, and has received advice from NSK that some of the items are counterfeit and some are genuine.
[14] The defendant says that the breakdown of the purchasers who bought the bearings that it imported was 17 end-users and 13 resellers. That is to say, some of the stock that it imported was sold to other wholesalers who intended to on sell and some was sold to parties who used the stock themselves.
[15] In summary, the defendant does not admit that the bearings that it imported from XRT and Barton were counterfeit. It also puts other matters in issue, including that it reasonably believed that XRT and Barton were authorised or licensed by NSK. It denies that it has used any of NSK’s trademarks and its position is that it acted without intention to deceive consumers and, further, that its use was unlikely to deceive or confuse. It also counterclaims against the plaintiffs and the subject matter of that claim will be considered subsequently.
Plaintiffs’ applications
Issues
[16] I accept the plaintiffs’ contentions that the issues relevant to the current application are these:
(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 bearings 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 claim.
(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.
Orders sought
[17] The application which the plaintiffs bring seeks orders as follows: (a) for particular discovery by the defendant of:
(i)emails from its overseas-based suppliers relating to the supply of NSK-labelled product; and
(ii)all invoices from suppliers to the defendant for NSK-labelled product that correspond with the invoices from the defendant to its customers, which have already been discovered.
(b)setting aside the defendant’s claim to confidentiality in the following documents:
(i)the customer names and details in the invoices from the defendant to its customers; and
(ii) the sections redacted by the defendant in documents
GEC005.0213 to GEC005.0219.
(c) requiring the defendant to file a supplementary affidavit of documents.
Principles
[18] This case concerns an application for particular discovery under r 8.19 of the
Rules. Rule 8.19 provides:
8.19Order 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.
[19] Documents ought to be discovered if they are relevant to an issue in the proceedings. Mr Elliott, for the defendant, submitted, and I accept, that discovery of documents is directed by the pleadings. He referred to the decision of Cares Appliances Ltd v Smiths City (Southern) Ltd, where it was held:2
The documents sought must be relevant by reference to those issues which will actually be in issue before the Court. There is no place in this assessment to overlay the mandate in r 8.7 with the preliminary and necessarily only partially-informed view of the strength of the case of the party applying for discovery.
[20] 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.3
[21] In determining whether particular discovery ought to be directed, it is relevant to have regard to the concept of proportionality,4 which requires the court to balance the time and costs expended in making discovery against the potential value of that discovery.5
[22] Mr Kennedy, for the plaintiffs, submitted that r 8.2 of the Rules requires parties to cooperate to ensure that discovery is proportionate to the subject matter of the proceeding. The concept of proportionality reinforces and sharpens the requirement that a discovery order not be oppressive. He further submitted that proportionality is a form of a cost/benefit analysis. 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.
2 Cares Appliances Ltd v Smiths City (Southern) Ltd (2014) NZHC 1979 at [19].
3 High Court Rules, r 8.19.
4 Pub Charity Inc v Department of Internal Affairs [2013] NZHC 1160 at [14].
5 Karam v Fairfax New Zealand Ltd [2012] NZHC 887 at [137]–[142].
[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. I accept that the foregoing submissions correctly state the law.
[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 discover 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.6
[25] Mr Kennedy submitted, and I agree, that while account must be taken of the traditional rule as to the conclusive nature of affidavits of documents, and that the process of self-assessment of relevance undertaken by a party will not be disturbed without reason being shown, an applicant seeking particular discovery does not need to prove on the balance of probabilities that the documents sought actually exist. The court need only be satisfied that there is a reasonable probability, or a prima facie indication, that further documents exist. Also, the court retains an overriding discretion whether to make an order having regard to the interests of justice, the matters at issue and the proportionality of the cost of the particular discovery that is sought.
[26] An application for discovery can be opposed if it amounts to oppression. In
Karam v Fairfax New Zealand Ltd, the Court explained:7
[142] The Court’s duty today to consider the concept of oppression is directly reinforced by the focus in the new Rules upon proportionality.
[27] The decision of Karam was referred to in Insurego Ltd v Harris, where it was said:8
6 High Court Rules, r 8.14 (2)(b)–(e).
7 Karam v Fairfax New Zealand Ltd, above n 5.
8 Insurego Ltd v Harris [2014] NZHC 2261 (footnotes omitted).
[12] The legislated focus on proportionality therefore has a similar purpose to the Court’s traditional focus in discovery matters on whether an order would be oppressive. As I stated in Karam v Fairfax New Zealand Ltd, the concept of proportionality involves a balancing of the time and costs of making discovery against the potential value of discovery. It is the concept of proportionality which now reinforces and sharpens the requirement that a discovery order not be oppressive
[28] Mr Elliott did not dispute the above propositions.
Analysis of plaintiffs’ application
Category one: emails from GE’s overseas-based suppliers
[29] The first of the groups in regard to which particular discovery is sought are:
emails from GE’s overseas-based suppliers, Sunshine Trading Company and Tianjin Xuruite Bearing Co Ltd, relating to the supply of NSK-labelled product.
[30] I noted earlier in this judgment that NSK has adopted a form of pleading of stating, for example, that the allegations are of an inclusive kind. The plaintiffs give a detailed date range (between 10 July 2009 and 4 October 2012) but it is implicit in the pleading that the claims which the plaintiffs make are not limited to that period. They “include” that period. This, in my view, is not a satisfactory form of pleading.
[31] As well, the plaintiffs assert in their statement of claim that:
The plaintiffs are unable to particularise every customer of the defendant which may have purchased Counterfeit Ball and Roller Bearings, but shall endeavour to provide such particulars following discovery.
[32] The plaintiffs also assert that:
The GE Supplies include, but are not limited to, entities known as XRT- Sinda Development Limited and Barton Bearings Limited.
[33] The plaintiffs’ pleading appears to me to be in a form that the Rules do not contemplate. It does not set out distinct causes of action founded on separate and
distinct facts.9
9 High Court Rules, r 5.17.
[34] As Asher J stated in the decision of Intercity Group (NZ) Ltd v Nakedbus NZ Ltd:10
[34] The whole purpose of discovery is to fish for documents, in the sense that a party does not know exactly what documents discovery will reveal, or their contents. Fishing is permissible if the categories of documents sought can be assumed to relate to a matter at issue. Such fishing becomes impermissible where what is sought is not relevant to any pleaded cause of action, but might reveal material that could be the basis of a new head of claim. As Chilwell J observed in AMP Society v Architectural Windows Ltd:
An applicant is fishing when he seeks to obtain information or documents by interrogatories or discovery in order to discover a cause of action different from that pleaded or in order to discover circumstances which may or may not support a baseless or speculative cause of action.
[35] The opposing party is obliged to provide discovery relating to causes of action which are stated in the plaintiff ’s pleading. It is not required to provide discovery of other matters that the plaintiff might, if it had known about them, have included in the statement of claim. An omission to provide documents relating to matters which are not relevant to pleaded causes of action cannot give rise to an entitlement to an order for particular discovery.
[36] The only distinct claim made in the statement of claim is that two overseas suppliers, XRT and Barton, supplied counterfeit bearings to the defendant. On the back of that allegation, the plaintiffs seek emails that have relevance to the supply of NSK-labelled products, unlimited as to time or identity of specific suppliers. In my view, it would not be appropriate to order discovery if the only basis for seeking the emails from suppliers other than XRT and Barton is to identify further instances of importation of counterfeit bearings on the part of the defendant.
[37] There is a further possible basis upon which a limited order might be made in favour of the plaintiffs against the defendant relating to emails from suppliers. There is some evidence that the defendant dealt with a non-authorised NSK supplier, Tianjin Xuruite Bearings Co Ltd (“Tianjin”), and that the objective of the defendant was to purchase NSK products from that source. Given that Tianjin is not apparently
an authorised supplier of NSK-branded products, the evidence suggests that what was acquired was counterfeit.
[38] More significantly, the plaintiffs take the view that email traffic which it has obtained in redacted form shows that the defendant was dealing with the company it knew was likely to be in the business of supplying counterfeit bearings or, as the defendant described them in an email, “Chinese made fake bearings”.11
[39] It may be that documents which tend to show that the defendant was prepared to deal with a supply of counterfeit bearings would support the plaintiffs’ case in that the defendant is more likely than not to have acted deliberately when acquiring counterfeit NSK bearings. In other words, the plaintiffs’ interest in the emails with Tianjin is to obtain a type of similar fact evidence.
[40] I am not convinced that the reference to fake bearings in the emails demonstrates that the defendant was more likely than not to be prepared to deliberately infringe NSK’s intellectual property rights. So much of the email correspondence as has been discovered does not amount to the defendant placing an order for what it knew to be counterfeit NSK bearings.
[41] Therefore, the application for an order requiring the defendant to supply unredacted copies of documentation, including the emails, could not result in documents that would satisfy the standard discovery test. Even following consideration of this aspect of the matter, I do not consider that the plaintiffs have made out an entitlement to the order that they seek in this part of their application.
Category two: missing supplier invoices
[42] The second part of the application for particular discovery refers to:
all invoices from suppliers to GE for NSK-labelled product that correspond with the invoices from GE to its customers
[43] The documents that the plaintiffs are seeking are those which relate to an allegedly counterfeit product which the defendant has onsold. The defendant claims
11 I understand that NSK is a Japanese owned enterprise.
that it has difficulties in attempting to establish which incoming suppliers of products these documents relate to.
[44] The plaintiffs have, in respect of the two defined suppliers, XRT and Barton, provided dates as to when, they say, the defendant imported counterfeit products. Documents that the defendant has in its possession which respond to the standard discovery test must be discovered insofar as they relate to those dates and those suppliers.
[45] I understand that the defendant wishes to receive greater particularisation of the documents in question and, in particular, wants the plaintiffs to narrow down the products in issue by giving details of the standard part number(s) relating to them. It does not, with respect, seem to me to be the obligation of the plaintiffs to do any such thing. The plaintiffs broadly allege sale within New Zealand of counterfeit products without limitation to any particular part numbers. Any documents that the defendant has had under its control in relation to XRT and Barton, that are relevant in the standard discovery sense, ought to be disclosed.
[46] The defendant is required to give discovery of any documents that it must discover pursuant to a standard discovery order. It is required to make a conscientious search for documents that, in the honest belief and judgement of the defendant (as advised by its counsel), are discoverable, having regard to the standard discovery criterion. The consequences of carrying out that exercise may be that documents are located which support the claim of the plaintiffs relating to the alleged importation from XRT and Barton of counterfeit parts. It may find other documents that are inconclusive on that issue or it may find no documents that are even likely candidates. If, having carried out that exercise, the defendant actually finds documents that, fairly viewed, come within the standard discovery test, then the defendant is required to provide a further affidavit of documents disclosing them. The defendant has disclosed no documents falling into the present category. Essentially, it says that it cannot make a meaningful search without the plaintiffs first providing additional details about technical descriptions of the particular bearing types which are said to have been counterfeit and on sold.
[47] The position of the defendant is not to say that it will not give discovery of the category of documents sought but that it needs assistance before it can do so.
[48] The obligation of the defendant in terms of r 8.14 is to make a reasonable search for documents within the scope of the discovery order. What amounts to the reasonable search that the defendant is bound to undertake is defined in that same rule. If that has not been done, clearly it ought to be done, and if necessary, a further affidavit filed supplementing that previously sworn.
[49] However, it is not apparent that there ought to be an order under r 8.19 in the circumstances of this case because it is quite possible that there are no documents which the defendant has not disclosed which it has or has in its possession which would help prove the case of the plaintiffs. The application is therefore declined insofar as it relates to these documents.
[50] This part of the application is therefore dismissed.
Category three: customer names and details in invoices to its customers
[51] The next application which the plaintiffs brings is that set out at paragraph
1(b)(i) of the interlocutory application, which seeks orders setting aside the
defendant’s claim to confidentiality in the following documents:
customer names and details in the invoices from GE to its customers
[52] In Part 3 of that document, the following introduction appears before tabulation of the various documents which were disclosed:
Part 3: Documents in the defendant’s control and for which the
defendant claims confidentiality
Documents listed in this part consist of commercially sensitive and confidential communications, or drafts or records of such communications, and all such information has been redacted from the documents.
[53] The first line of table setting out the redacted documents reads as follows by
way of example:
Document ID Date Document
Type
Author Recipient Parent
Document ID
Privilege GEC006.0031 Various
Invoices
between GEC, Customers and Suppliers
Confidential
[54] The reasons why the plaintiffs seek this information are in the submissions filed by the plaintiffs in support of the application:
29.It is NSK’s position that the names and details of GE’s customers are directly relevant. That information is necessary to enable NSK to liaise with purchasers of NSK-branded bearings and thereby seek to establish the extent to which GE dealt in counterfeit bearings.
30.It is not accepted that the information sought is not relevant because the bearings sold by GE are likely to have been replaced or are virtually impossible to trace. This is speculation on GE’s part. There is no direct or admissible evidence on the issue.
31.In any event, as set out in the Wilson Reply Affidavit, it is not necessary to physically inspect a bearing to determine whether it is counterfeit. For example, it would be possible to determine that a bearing is counterfeit based on discussions with the end-user regarding:
(a) any issues encountered during the installation of the bearing;
and/or
(b) the performance of the bearing once installed.
[55] The plaintiffs, in short, want to contact the defendant’s customers because they want to ask them questions related to the bearings that were supplied by the defendant and to inspect records that might shed light on the alleged counterfeit dealings.
[56] The information which the plaintiffs are seeking would seem to fall outside the scope of the standard discovery order which was issued in this case. A standard
discovery order has been described in the following terms:12
12 McGechan on Procedure (online looseleaf ed, Thomson Reuters, Wellington) at [HC8.7].
Standard discovery requires each party to disclose documents that are, or have been, in that party’s control upon which it relies, or adversely affects that party’s own case or that of another party as well as documents that support any other party’s case.
[57] The information which has been sought in this case does not appear to possess the degree of relevance that is required before discovery of documents can be required under a standard discovery order, pursuant to r 8.7 of the Rules. An enquiry of this nature would have possibly satisfied the requirements of the former test established by the Compagnie Financière et Commerciale du Pacifique v Peruvian Guano Co (Peruvian Guano) case, being an obligation to discover any
document which:13
… it is reasonable to suppose, contains information which may – not which must – either directly or indirectly enable the party requiring the affidavit either to advance his own case or to damage the case of his adversary.
[58] The judgment went on to describe the limits of discovery as extending to an obligation to disclose information which:14
… may enable the party requiring the affidavit either to advance his own case or to damage the case of his adversary, if it is a document which may fairly lead him to a train of inquiry, which may have either of those two consequences...
[59] The information sought does not bear sufficient direct relevance to the issues in the case to fall within the terms of the standard discovery order to which the defendant is subject.
[60] The fact that the defendant has not provided discovery on a Peruvian Guano basis does not justify a conclusion that the defendant has not given discovery of documents which it ought to have.
[61] Therefore, there is no justification for an order directing particular discovery to that regard.
13Compagnie Financière et Commerciale du Pacifique v Peruvian Guano Co [Peruvian Guano] (1882) 11 QBD 55 (CA) at 63.
14 At 63.
Category four: redaction of customer names in defendant’s list of documents
[62] This part of the application seeks a direction that the redaction of customer names, which the defendant effected when describing the documents in its list of documents, be set aside. The documents in question are in the range GEC005.0213 to GEC005.0219.
[63] One of the grounds upon which the defendant opposed provision of unredacted versions of the documents was stated as follows:
3.8The unredacted documents GEC 005.213 to GEC 005.0219 sought are not discoverable in these proceedings as they are not relevant documents that support or adversely affect either the plaintiffs’ or the defendant’s case.
[64] Given the contentions which the defendant makes, it is difficult to understand why the documents were disclosed in the first place. However, the grounds upon which the defendant resists disclosure are further referred to in the affidavit sworn by Mr M S Reid for the defendant on 10 July 2015, in which he says:
73.The redactions in documents GEC 005.0213 to GEC 005.219 relate to another brand of ball and roller bearings. It is not an NSK branded ball and roller bearing.
[65] There is no evidence contravening that which Mr Reid has given on this matter. In my view, there is therefore no basis for concluding that the defendant has not given the required level of discovery relating to one or more documents, or group of documents, that should have been discovered (which is a prerequisite to the making of an order pursuant to r 8.19 of the Rules).
[66] This part of the application, too, is dismissed.
Defendant’s applications
Background
[67] The defendant filed its defence and counterclaim on 20 October 2014. It counterclaims for injurious falsehood (trade libel) arising from statements made in a
publication and to third parties, breach of the Fair Trading Act, as well as negligence, induced reliance and omission to act.
[68] The claim which the defendant brings against the plaintiffs is described in the following passage from the submissions which Mr Elliott put forward:
3.11 The defendant’s third counterclaim in its statement of defence and counterclaim (tab 2, pg 21, Bundle) alleges negligence/induced reliance to act against the plaintiffs. In particular the pleading includes;
(a) That at all material times the plaintiffs knew or ought to have known that counterfeit bearings, bearing the NSK brand and trademark were being distributed and sold internationally, including into New Zealand, by entities including XRT-Sinda and Barton (para 49).
(b) It was reasonably foreseeable that the defendant would rely upon the plaintiffs ensuring that the NSK branding and trademark did not become deceptive, and provide adequate means to distributors to readily establish whether particular bearings are genuine product and to notify importers, wholesalers and distributors of known counterfeit operators.
[69] The defendant summarises its counterclaim as follows:
1.3The defendant claims that as a long-standing and legitimate importer of bearings it relied upon the plaintiffs, as it does with all its brand name suppliers, to protect the NSK brand and registered trademarks, to ensure that they were applied to genuine product only and to police the worldwide bearing market to ensure supplies of genuine NSK goods. The defendant claims that it relied upon the plaintiffs to take proper measures to enable legitimate distributors of its product to be satisfied, without undue cost, delay and difficulty, as to the genuineness of its product.
[70] The defendant is seeking a wide range of documents which are set out in the schedule to the notice of application dated 30 June 2015, a copy of which is annexed to this judgment as “Schedule 1”.
[71] The plaintiffs oppose the making of orders in regard to all the categories of documents set out in Schedule 1.
Issues
[72] The application which the defendant brings divides the documents sought into three broad categories. The first category is the documents generally relating to the knowledge that the plaintiffs had of the activities of XRT and Barton and records relating to investigations into genuine and counterfeit dealings on the part of those companies. The second part concerns the flow of information between the plaintiffs and the World Bearing Association (“WBA”), a trade organisation which, amongst other things, functions as a clearinghouse of information for its members (which I understand includes the plaintiffs) about global counterfeiting trade in bearings.
[73] The third category of documents relates to the testing that was carried out of bearings that were taken from the stock of the defendant and handed to the plaintiffs for that purpose.
[74] The fourth category of documents relates to proof of the quantum of the claim which the plaintiffs bring. I understand that the defendant is not pursuing its application in regard to this category of documents.
[75] The fifth category of documents is that referred to in paragraph 7 of the schedule to the application filed by the defendant.
[76] Assessment of the defendant’s application requires some consideration of the alleged duty of care which underlies its counterclaim. I will deal with that aspect of the matter at this point as it is common to each of the categories of documents in regard to which the defendant seeks orders for particular discovery.
Viability of the defendant’s causes of action
[77] The position that Mr Kennedy outlined in his submission was that the causes of action which the defendant was putting forward was bound to fail. In the course of the arguments that he and Mr Elliott developed, one of the main features that emerged was that the defendant is intending to allege that by not taking steps to prevent the counterfeiting companies from marketing counterfeit products, NSK was, in effect, authorising them to represent their products as NSK-branded genuine products. In the context of trademark infraction which the plaintiffs claim, the
position appears to be governed by s 97A of the Trade Marks Act 2002, which holds that it would be necessary for the defendant to demonstrate that the use of the trademarks by XRT and Barton were with the owner’s express or implied consent.15
However, it does not follow that because the plaintiffs did not take steps to prevent those companies from exporting allegedly counterfeit NSK products into New Zealand that consent is to be implied. Express consent is not, I understand, claimed.
[78] The other aspect of the claim is the duty of care which is alleged to have been owed to the defendant to warn it about the suspect origins of the products which XRT and Barton were exporting into New Zealand. It is alleged that the plaintiffs owed a duty of care to all importers of NSK products to expose the presence of counterfeit products in their market and to inform them that such counterfeit products were in circulation in the market.
[79] The plaintiffs criticise these claims because they say there is not the necessary direct proximity present between themselves and the defendant which would give rise to a duty of care.
[80] The plaintiffs were respectively the manufacturer and distributor on the one hand, and the importer and distributor into New Zealand, on the other, of a brand of bearings. The defendant was at liberty to import for resale of such bearings by parallel importing them. Serious issues may arise as to whether the relative positions and functions of the parties could give rise to the necessary proximity to make it incumbent upon the plaintiffs to warn the defendant of the identity of parties trafficking in counterfeit NSK bearings, either globally or in New Zealand.
[81] The essence of the counterclaim is that the plaintiffs ought to have warned the defendant of the potential for trademark and other abuses on the part of XRT and Barton. Its case is that, presumably, if they had done so, the defendant would not have unwittingly contravened the plaintiffs’ intellectual property rights in regard to
its brand of bearings.
15 Trade Marks Act 2002, s 97A(2)(b).
[82] The discoverable documents would embrace categories which show the extent of the plaintiffs’ knowledge of the extent of counterfeiting by XRT and Barton, the sources of the counterfeit bearings, as well as the supply of which is alleged to be contravening conduct on the part of the defendant within New Zealand.
[83] Having stated the issues, it is necessary to locate them in the context of this application for particular discovery.
[84] While there is force in the criticisms that the plaintiffs make of the causes of action in the counterclaim, it is my view that the current application is not one in which it is apt to examine whether the pleadings are viable in the sense that they would not be amenable to being struck out. The defendant has pleaded the case that it wishes to bring and the Court must allow it to have the assistance of discovery in order to make out its case as pleaded.
[85] The task of the Court is carried out on the assumption that the pleaded causes of action, set out in the counterclaim, when read together with the statement of defence to the counterclaim, provides a framework for the Court to isolate the relevant issues which, in turn, informs the question of what documents the parties are required to provide discovery of.
Analysis of defendant’s application
Category one: documents held by first and/or second plaintiffs regarding XRT
and/or Barton
[86] The key question that arises in regard to this category of documents is that of proportionality.
[87] I have made some comments above about the duty of care which the defendant alleges was owed to it.
[88] The defendant is able to claim that the scope of discovery is to be determined by assessing the question of relevance, which, in turn, is to be measured by relevance to the allegations, the claim and the denials in response to it. That is so even if the
claim is very wide in scope. It brings into question the global counterfeiting operations that companies, including XRT and Barton, were allegedly involved in. Discovery would be correspondingly broad. The very description of the types of documents in subparagraph 2 which the defendant seeks discovery of illustrates that point.
[89] As Mr Kennedy submitted, the concept of proportionality requires the Court to weigh up considerations such as whether, given the chances of any relevant documents being produced by the discovery sought and, having regard to the imposition in financial and other terms on the party required to give discovery, the request is disproportionate.
[90] It has been explained in affidavits which have been filed on behalf of the plaintiffs that the sources of documents, which are primarily emails, would appear to have been searched by application of keystrokes to locate references to XRT and Barton. While it is not explicit in the plaintiffs’ affidavits, I understand that this has been principally carried out by New Zealand-based personnel who are employees of the second plaintiff.
[91] The request for particular discovery would involve a considerable expansion of this effort. It would extend to documents under the control of any employee of the first plaintiff. The evidence was that there are 30,000 such persons. Secondly, the proposed discovery would relate to information about and investigations into XRT and Barton globally, rather than being limited to such activities as occurred within New Zealand. The plaintiffs make two points in that regard.
[92] The first contention is that what has happened outside New Zealand is not relevant. In my view, that is not a complete answer to the application. Assuming that the plaintiffs owed a duty of care of the kind pleaded to the defendant, the fact that they knew about counterfeit products emanating from the two companies under discussion – whether that occurred overseas or not – could place the plaintiffs under an obligation to make that information known within New Zealand. The fact that illicit activities have occurred offshore may well be an indication that there was a probability that, in the context of globally trading companies, which I assume the
two companies to be, the New Zealand market might become a target at some point. Therefore, based upon the state of the pleadings as presently constituted, the application would not necessarily involve a search for irrelevant documents. The fact that the plaintiffs had knowledge that these two companies were counterfeiting products, and did nothing to warn other parties who might be affected by that, might be seen as evidence of a breach of duty. In such a case, it might be that the plaintiffs would be under an obligation to give standard discovery with respect to documents that are in support of that case.
[93] However, the plaintiffs say that the process of locating and disclosing any documents that would be disclosed by a search into the documents of the overseas employees would be disproportionate, in the sense that it would involve a very large effort which would be unlikely to lead to the identification of any documents that have not already been provided by New Zealand personnel as part of the discovery obligations of the plaintiffs. Further, they have made a proposal that Mr Uchida should provide limited discovery which, I understand, would involve both the first and second categories of documents.
[94] The relevant period covered in the statement of claim was July 2009 to October 2012. The circumstances that justify the duty of care which is pleaded in the counterclaim must therefore have been in existence prior to and/or during that date range. If the duty of care was dependent upon knowledge that harm could be done to the New Zealand importers of NSK bearings, then it would be necessary to point to some grounds for apprehending that harm prior to and during that period. That would seem to require a search of the plaintiffs’ archives for a period that is now some time distant to establish that the plaintiffs had received information that would have led to the view that the activities of XRT or Barton represented a risk of harm to the importers in New Zealand. The search for relevant information would inevitably involve retrieval of data from archives. The resources required for the search must then be multiplied across a number of employees of the first plaintiff.
[95] Referring to the provisions of r 8.3(2) of the Rules, the defendant made the point that, in as far back as October 2012, plaintiffs’ solicitors wrote to the defendant regarding alleged counterfeit importation. At that point, therefore, the defendant
says the plaintiffs were on notice of litigation and ought to have made provision to ensure that key personnel retained any information which may be relevant to any court proceedings electronically and in a manner that was accessible.
[96] However, the question about when executives of the first plaintiff became aware of circumstances that could lead to harm being caused to New Zealand importers through availability on the market of counterfeit products was a question that only came into view later when the defendant filed the counterclaim alleging negligence. It is true that may have been preceded by a letter of demand. However, the point is a valid one. Further, it is not clear that early knowledge would have made any difference to how the first plaintiff would have changed the mode of archiving emails so that they would be retrievable with less expense and effort being required.
What is at stake in this litigation?
[97] It is relevant to balancing the proportionality factors to have regard to what is at stake for the defendant in this litigation. The claim which is being brought against the defendant is currently quantified at $130,000 in damages.16 Further, the defendant itself is bringing a counterclaim and is seeking an enquiry as to damages. Brief consideration has been given in the defendant’s statement of defence and counterclaim of the factors that would define the loss which the defendant could
claim had occurred to its reputation as a result of its involvement in dealing with what are now said to be counterfeit NSK products.
[98] The description of the loss that the defendant allegedly suffered are of a generic type, in that they described the type of loss that logically could have been caused by the allegedly injurious statements of the plaintiff, amongst other things. They do not descend to any particularisation of harm that was actually caused. Even though a type of general damages claim is available as a result of s 5 of the Defamation Act 1992, the court will take a realistic approach to fixing the damages
to compensate the defendant for the harm allegedly suffered. It can be expected that
16 I acknowledge that counsel advises that the plaintiffs may amend the statement of claim to seek an enquiry into damages.
a conservative amount of compensation would be ordered, at least based upon the present material before the Court, which does not include any assertion of financial distress being caused to the company or that it has lost a significant part of its customer base.
[99] The remarks to the abovementioned point deal with the injurious falsehood type claims which the defendant has brought. The claim in negligence, on the other hand, would seem to be limited to what is in essence an indemnity against harm which the plaintiffs claim, on the basis that it was the plaintiffs’ own breaches of duty to the defendant which brought about the problem in the first place.
Conclusions on category one
[100] My conclusions are that the generalised application for discovery of the first category of documents, as I have earlier described them, would impose a disproportionate obligation upon the plaintiffs. That conclusion is based upon the obvious scale of effort that would be required from many employees to recover the documents which are sought.
[101] I consider that the width of the search that would need to be undertaken, if all of the possible documents about XRT and Barton’s trading activities were to be located, is not called for. Searches of documents of “key personnel” involved in monitoring, policing and engaging in the counterfeit issue would be a major undertaking, particularly given that at least some of the documents, namely emails, would need to be recovered from storage at a cost, according to the plaintiffs, of approximately 10 hours time expenditure for each month of emails.
[102] There remains to be briefly discussed the emails of an employee of the first plaintiff, Mr Uchida.
[103] This refers to a rather more focused group of documents. Thus the same objections about the large scale of the search and recovery operation that would be required to satisfy a discovery order do not apply with the same force to these documents. There are, nonetheless, some issues that need to be resolved with regard to that group of documents.
[104] Mr Kennedy pointed out that NSK had arranged for the emails of Mr Uchida to be searched by keyword searches. Mr Uchida was apparently selected because he has responsibility for NSK’s anti-counterfeiting effort. However, the plaintiffs limited the search of Mr Uchida’s emails to a period from September 2012 to August
2013.
[105] The plaintiffs, in evidence, put forward reasons why they propose to limit the email searches to the account of Mr Uchida and for the dates concerned, which was provided in an affidavit that Mr A P Wilson, the general manager of the second plaintiff, gave on its behalf.
[106] The essential element of the justifications was that it was unlikely that any emails that Mr Uchida may have sent or received would not have been copied to local personnel of the second plaintiff in New Zealand. In other words, the claim is that there would be little utility in extending the search of Mr Uchida’s emails because nothing would be disclosed which was not already in the discovery provided by the New Zealand employees of the plaintiffs. Further, Mr Wilson stated in his deposition that the date range was limited because of Mr Uchida’s location in Japan and the expense and time associated with restoring emails from backup servers based overseas.
[107] Mr Wilson’s statements can be viewed as at least indirectly providing some evidence that it would be an expensive and difficult process to go into the archives of the first plaintiff’s email to look for further email references to XRT and Barton. There is no direct statement that the emails would have to be brought out of overseas archive and nothing is said about exactly what expense would be involved. However, taking a practical view, I would accept that the statements that Mr Wilson made seem likely to be correct.
[108] I will not repeat the discussion about proportionality earlier in this judgment. In this regard, the averment in Mr Wilson’s affidavit is to be kept in mind; that is, an extended search in Mr Uchida’s emails would be unlikely to locate any documents not already known to New Zealand staff of the second plaintiff. What he has said
has not been controverted and it can be taken to represent his honest views given on oath.
[109] I now set out the conclusions I have come to with regard to Mr Uchida’s emails. The plaintiffs agree to carry out limited searches of Mr Uchida’s emails. The date range they offer, however, does not go back to the period immediately predating the beginning of the alleged illicit exports into New Zealand on the part of XRT and Barton. That apparently occurred in 2009. However taking the searches back to, say, 2008 would involve (for one year) 120 employee hours. While the defendant asserts that the date range that has actually been offered, September 2012 to August 2013, is inadequate, it does not submit what would be the minimum acceptable period for which Mr Uchida’s emails ought to be provided.
[110] Taking into account the defendant’s counterclaim that there was an omission to advise the defendant of the activities of XRT and Barton, and that that caused or contributed to the importing of counterfeit equipment, a rough and ready view can be made that discovery would have to take place prior to the beginning of the period and up to part way through it. That would involve a period of three or four years at a minimum.
[111] Given that the plaintiffs have conceded an obligation to search Mr Uchida’s emails, I consider that it would not be excessive to require emails from the period of July 2008 to July 2011 to be checked for references to counterfeiting activity on the part of XRT and Barton, with the searches not being restricted to exporting of counterfeit at items to New Zealand, but rather extending to knowledge of counterfeiting generally on the part of Mr Uchida.
[112] Mr Uchida has been identified as an employee of the plaintiffs,17 who has particular responsibilities for combating counterfeit trade in NSK-branded products. It may be assumed that he was a party to or copied into emails from elsewhere in the first plaintiff’s organisation which relate to counterfeiting. There is a reasonable level of assurance that his emails will reflect the state of knowledge of the first
plaintiff about the activities of XRT and Barton during the relevant period. That,
17 It is assumed that Mr Uchida is employed by the first plaintiff.
coupled with the deposition for the second plaintiff that it would expect there will be no documents in existence that have not been copied to its employees in New Zealand, represents a reasonably proportionate framework for carrying out discovery in this area.
[113] I accept that carrying out a search of this kind would involve some expense on the part of the plaintiffs. They will, of course, if successful in the proceedings, have a reasonable chance of recovering the cost of carrying out the searches. That provides them with a measure of protection.
Category two: exchanges between the plaintiffs and the WBA
[114] The next category of documents concerns exchanges between the plaintiffs and the WBA. The documents which the defendant seeks and which fall into this category relate to “all documents” belonging to either plaintiff that concern what might be described as exchanges of information with the WBA and members thereof.
[115] This category is very wide and is unlimited as to any named employees of either plaintiff. For the reasons that I have stated when considering the first category of documents, it is out of proportion, in my view, to the requirements of this case.
[116] I consider this category is limited to require Mr Uchida to furnish any relevant emails or other documents of Mr Uchida that relate to the defined areas and that fall within the date ranges (July 2008 to July 2011) that I set out for the category one documents.
Category three: quantum of loss
[117] This category of documents relates to the quantum of loss which the plaintiffs claim arises out of the alleged damage to reputation and loss of sales.
[118] The defendant does not intend to persevere with this part of the application so
I take this point no further.
Category four: NSK’s inspection of ball and roller bearings provided by the
defendant on 18 December 2012
[119] The last category concerns documents relating to the inspection of the suspect bearings which the plaintiffs carried out after the defendant handed them over. The plaintiffs declined to provide any such documents on the ground that the documents were brought into existence for the predominant purpose of use in litigation.
Submissions on the privilege point
[120] Mr Elliott referred me to Brandlines Ltd v Central Forklift Group Ltd, in which Gendall AJ referred to the decision of Public Trust v Hotchilly Ltd for a summary of the relevant principles.18 Gendall AJ noted the statement the principles in these terms:
[18] Litigation privilege attaches in respect of communications or information that were made or compiled for the dominant purpose of preparing for a reasonably anticipated proceeding…
…
[21] Nevertheless, the dominant purpose for the creation of the document must have been submission to legal advisers for use in connection with that litigation…
[121] Mr Elliott also referred to Genall AJ’s reference to the decision in Fresh Direct Ltd v J M Batten and Associates.19 In particular, the summary of the legal position of Wylie J:
[48] Whether or not the dominant purpose for preparation of the documentation was to enable the advisers to conduct or advise regarding litigation was a question of fact. Similarly whether litigation was reasonably apprehended was a question of fact.
[122] In the Brandlines decision, the Court referred to a two-step test which Mr
Elliott relied upon in his submission:
18 Public Trust v Hotchilly Ltd HC Wellington CIV-2009-485-704, 30 March 2010 cited in
Brandlines Ltd v Central Forklift Group Ltd HC Wellington CIV-2008-485-2803, CIV-2009-
485-384, 11 February 2011 at [51].
19 Fresh Direct Ltd v J M Batten and AssociatesHC Auckland CIV-2008-404-4757, 1 October 2009 at [58]-[74] in Public Trust v Hotchilly Ltd, above n 31, at [26].
Having inspected the documents I am satisfied that litigation was in reasonable contemplation as at 2 October 2008. The only issue, therefore, is whether the documents were for the dominant purpose of litigation.
[123] Mr Elliott submitted that the dominant purpose of the inspection of the
defendant’s ball and roller bearing stock, supplied to the plaintiffs on 18 December
2012, was to determine whether it was genuine. It was primarily, if not wholly, “fact finding”.
[124] Mr Kennedy submitted:
30.The documents and information in respect of which litigation privilege is claimed must also have been prepared for the dominant purpose of conducting or advising on actual or reasonably anticipated litigation. If preparation for litigation is but one of two or more equally important purposes, it is not the dominant purpose. In this case, recognising that litigation was probable, the testing of the bearings was undertaken for the dominant purpose of enabling MERW to advise on the pending litigation.
31.At paragraph 3.42 of its submissions, GE submits that the primary purpose of the documents associated with the 18 December 2012 supply of bearings was “to determine whether the product supplied by the defendant was counterfeit or genuine”. This is not disputed. By the time that the documents in issue had been created, NSK had already confirmed that GE had supplied counterfeit bearings to its customers. NSK therefore had all of the necessary facts to initiate its claim against GE. Indeed, the documents in issue were created to enable MERW to advise on the scope of the pending litigation.
Discussion on privilege point
[125] Litigation privilege attaches to documents which were brought into existence for the dominant purpose of preparing for proceedings and in relation to an extant proceeding or an apprehended proceeding.20
[126] Litigation must be of a real likelihood rather than a mere possibility.21 It is against that background the lawyer will review the claim for litigation privilege that is said to attach to the documents produced as a result of the examination of the residual stock that the defendant has provided to the plaintiffs. The proceedings
must be reasonably apprehended, which can be tested by asking whether a
20 Evidence Act 2006, s 56.
21 Financial Markets Authority v Hotchin [2014] NZHC 2732 at [46].
reasonable person placed in the position of the party in question and possessed of the same information at that time would have regarded the future commencement of litigation as possible.22
[127] The first contact between NSK and the defendant seems to have been the letter from the solicitors for the plaintiffs dated 24 October 2012. This document was in uncompromising terms. It referred to the defendant having sold or supplied counterfeit bearings and required a number of agreements from the defendant. It required the defendant to cease breaching the rights of the plaintiffs. It demanded that the defendant make available all NSK-branded products to the plaintiffs so that they could inspect it “to determine whether the product is genuine”.
[128] The letter stated that its purpose was to put the defendant on notice as to the counterfeit nature of the bearings that it had on its position and to demand that it immediately cease the sale of “such counterfeit product”.
[129] The letter went on to particularise other remedies that the plaintiffs required, including preserving relevant documents pursuant to r 8.3 of the Rules. The solicitors also stated that if the required cooperation was not forthcoming in the various steps that were set out in the letter, the plaintiffs would apply for an interim injunction in which case the letter itself would be produced to the court. The letter concluded by advising that the plaintiffs reserved all their rights.
[130] The tone of the letter suggested that the solicitors did not wish, on behalf of NSK, to initiate negotiations about how the matter would be resolved. It presented a series of demands which had to be complied with and, as I have said, it referred to the intention to take proceedings to enforce its position in the absence of agreement from the defendant. On 8 November 2012, the solicitors acting for the defendant apparently responded and made a number of proposals about how it could meet the concerns of the plaintiffs. These, in turn, were responded to by a further letter that the plaintiffs’ solicitors sent, this time to the solicitors acting for the defendant, on 20
November 2012. That letter acknowledged that some of the proposals that the
22 Guardian Royal Exchange Assurance of New Zealand Ltd v Stuart [1985] 1 NZLR 596 (CA) at
599 and 606.
defendant made were acceptable but it reiterated demands that apparently had not been met, which included supply of the identity of clients to whom the allegedly counterfeit products had been supplied. There was again reference to the plaintiffs having resort to the courts if the defendant did not comply.
[131] On 18 December 2012, the defendant handed over the remaining stock that it had in its possession on the understanding that had been set out in the first letter that plaintiffs’ solicitors wrote to the defendant, which was that the stock would be inspected, counterfeit items would be retained and the plaintiffs would return to the defendant any stock that was found to be genuine.
[132] On 29 July 2014, the plaintiffs issued proceedings against the defendant. On
20 February 2015, the plaintiffs advised the defendant about the outcome of the testing that it had carried out on the product to determine what parts of the remaining stock that had been handed over were counterfeit and what parts were genuine.
[133] This was a case where the analytical reports were not carried out in the same context as, say, in cases where there has been an accident and analysis undertaken as a first step to find out what caused the problem. In this case, the position which the plaintiffs set out in their communications with the defendant made it clear that the defendant had supplied counterfeit goods and that they, the plaintiffs, were entitled to legal remedies. They were forthright in their demands as to what they expected to be done to make good what they perceived as the harm caused by the supply of the non- genuine products. There was a reference in one of the letters to the fact that there was reason to believe that the defendant had been involved in this type of conduct on another occasion and that its behaviour possibly was not inadvertent.
[134] The actions of the plaintiffs were consistent with their statements. They evidenced an intention of not letting the matter lie. They made the necessary arrangements to uplift from the defendant the residual stock remaining unsold.
[135] Protection of the reputation of products and goodwill in them is commonly a high priority for companies whose brands have a large presence in the market. There is little tolerance for activities which have the tendency to undermine the value of
intangible property of this kind. The plaintiffs had referred to the prospect of litigation being commenced against the defendant. The plaintiffs expressly reserved their rights, which could only be read as including their right to take court proceedings to enforce their property rights, notwithstanding that they were engaging in discussions with the defendant in an attempt to at least partially come to an agreed position about what was to happen from that point forward. I infer that, viewed objectively, the plaintiffs were part of an organisation with the resources to embark upon litigation quite readily if that was seen to be in their best interests.
[136] It was in the control of the plaintiffs whether proceedings would be commenced or not. In taking the steps that they did, the plaintiffs may have intended to see how far they could get by bluffing. That is, they may never have intended to commence legal proceedings or they may have been equivocal on that point without ruling out that contingency. In judging what their true intentions were, some weight can be given to the fact that they ultimately did commence proceedings, that they acted consistently with the intentions that they stated in their solicitors’ letters at the outset.
[137] Looking at the position overall, what is disclosed is that the plaintiffs, through their legal advisers, took a proactive, vigorous and uncompromising approach in the steps that they took right from the outset when they first learned of the alleged counterfeit product being supplied. That, no doubt, reflected the instructions that were given to the legal advisers. Viewed objectively, I consider that at the point when the testing of the residual stock was carried out, it is likely that the plaintiffs had a bona fide belief that the proceedings would probably be necessary.
[138] The next issue is the question of whether the dominant purpose of preparing the documents was to assist in the preparation for contemplated litigation.
[139] There may have been other purposes which the plaintiffs had in mind, such as obtaining information as to any characteristics of the counterfeiting. There is no evidence that such was their purpose. However, it is theoretically possible that obtaining information through testing the residual stock might help in future efforts to detect and suppress counterfeiting from the sources in question. But the fact is
that the testing was carried out at a time when litigation had already been commenced. The testing which was carried out is a typical initiative undertaken in preparation to prove a case at trial in litigation of this kind. The acquisition of evidence to prove counterfeiting made it important to carry out the testing. Although the claim could be proved by other means, testing was the most obvious one. That, too, supports the view that the testing was for the purposes of litigation. The defendant has not been able to point to any other likely explanation for why the testing was carried out when it was.
[140] It would be a mistake to view the interaction between the parties at this phase of the dispute as being a cooperative one where they were both interested in seeking out the truth about the nature of the XRT and Barton-sourced products. The exchanges between the plaintiffs’ advisers and the defendant/defendant’s advisers make it clear that the purposes of the plaintiffs were to obtain compensation from, and to prevent recurrences of counterfeiting by, the defendant.
[141] While the defendant had advanced an intention to cooperate in some respects, it certainly did not surrender its overall position. If anything, it took the position that any breach had been inadvertent. It did not suggest any basis for compensation.
[142] It is in no doubt the defendant expected to be provided with a copy of any report that might be compiled following inspection. But that was not the main or dominant purpose for carrying out the inspection. These were parties at arm’s length and one side was taking a position which made it fairly clear that an agreed compromise was not going to be the outcome.
[143] That, in my view, made it likely that, at the time when the inspections were carried out and the resulting documentation prepared, they were being compiled for the dominant purpose of preparing for proceedings.
[144] For these reasons, I conclude that the documents are subject to the privilege claimed.
Conclusions
[145] In relation to the plaintiffs’ application, I have reached the following
conclusions:
(a) The application in relation to the first category of documents is dismissed.
(b)Documents in the second category which respond to the standard discovery test must be discovered insofar as they relate to those dates and those suppliers. The plaintiffs are not required to provide greater particularisation.
(c) The application in relation to the third category of documents is dismissed.
(d)The application in relation to the fourth category of documents is dismissed.
[146] In relation to the defendant’s application, I have reached the following conclusions:
(a) The first category of documents is limited to searches of Mr Uchida’s
emails between the period of July 2008 and July 2011.
(b)The second category of documents is limited to any relevant emails or other documents of Mr Uchida between the period of July 2008 to July 2011.
(c) The fourth category of documents is subject to privilege.
Costs
[147] I would expect the parties will be able to agree the matter of costs. If they cannot, they should file memorandum within 10 days and I will allocate a 9 a.m.
hearing time to resolve that issue.
J.P. Doogue
Associate Judge
Schedule 1
1.All documents held by the first and/or second plaintiff’s regarding the defendant’s suppliers of ball and roller bearings, XRT-Sinda Development Limited and Barton Bearings Limited, including all internal and external correspondence, emails, reports and Minutes of meetings, relating to or in any way concerning the acquisition, promotion, marketing or supply of or other commercial dealing in genuine and/or counterfeit product, including ball and roller bearings.
2.All documents held by the first and/or second plaintiff’s regarding XRT-Sinda Development Limited and Barton Bearings Limited, including the monitoring of, investigations, enquiries, trap orders or market intelligence, relating to or in any way concerning the acquisition, promotion, marketing, supply of or other commercial dealing in genuine and/or counterfeit product, including ball and roller bearings.
3.All documents including correspondence, file notes, emails and Minutes provided by the first and/or second plaintiff to either members or the executive of the World Bearing Association regarding the first and/or second plaintiff’s activities in monitoring or policing the supply of counterfeit ball and roller bearings.
4.All documents, including correspondence, file notes, emails, reports and Minutes provided by either members or the executive of the World Bearing Association to the first and/or second plaintiff regarding the activities of XRT- Sinda Development Limited and/or Barton Bearings Limited in relation to their commercial dealing in genuine and/or counterfeit product, including ball and roller bearings.
5.All documents including, emails, correspondence, reports and Minutes including documents relating to the monitoring of, investigations, enquiries, trap orders or market intelligence, provided by the first and/or second plaintiff directly or indirectly to the World Bearing Association to be distributed or included on its web site “stopfakebearings.com”.
6.Documentation regarding the quantum of the first and second plaintiffs claimed losses, both in terms of loss of sales and alleged damage to reputation of the NSK brand.
7.All documentation, including reports, file notes, emails, photographs and other information arising from the inspection of ball and roller bearings provided by the defendant on 18 December 2012 for inspection by the first and/or second plaintiffs, including all results from testing undertaken.
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