Tasman Insulation New Zealand Limited v Knauf Insulation Limited

[2015] NZHC 26

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

CIV 2011-404-8141 [2015] NZHC 26

BETWEEN

TASMAN INSULATION

NEW ZEALAND LIMITED Plaintiff

AND

KNAUF INSULATION LIMITED First Defendant

AND

ECO INSULATION LIMITED Second Defendant

AND

BUILDFORNEXTGEN LIMITED Third Defendant

Hearing:	On Papers
Counsel:	J G Miles QC and K W McLeod for Plaintiff C L Elliott QC and I Finch for Defendants
Judgment:	23 January 2015

JUDGMENT OF BROWN J

ON SECOND APPLICATION FOR EXTENSION OF STAY

OF EXECUTION OF INJUNCTIVE ORDERS

Previous orders for stay of execution

[1]      In my judgment of 20 June 20141  (“Judgment No 3”) on the application of the first and third defendants and over the vigorous opposition of the plaintiff I

granted a stay of execution of my judgment of 9 May 2014.2

1      Tasman Insulation NZ Ltd v Knauf Insulation Ltd (No 3) [2014] NZHC 1400.

2      Tasman Insulation NZ Ltd v Knauf Insulation Ltd [2014] NZHC 960; (2014) 108 IPR 162.

TASMAN INSULATION NZ LTD v KNAUF INSULATION LTD [2015] NZHC 26 [23 January 2015]

[2]      The defendants’ primary contention in support of its original stay application was that if the defendants incurred substantial cost in the interim period pending the arrival of their new product in their proposed  new packaging and  if they were successful on appeal, then they would not be able to recover that cost which would have been shown to have been an unnecessary expense.

[3]      Because, for reasons explained in Judgment No 3, other options were not available to me, I concluded that the appropriate course was to permit the defendants to continue to sell stocks of the EARTHWOOL product in its existing (contravening) packaging but subject to the qualification of a deadline for the cessation of sales of products so packaged and for the commencement of sales in the new packaging.

[4]      In   the   interests   of   certainty   I   imposed   a   deadline   of   the   end   of September 2014 which was within the range of dates proposed in an affidavit of Mr S  B  Dunbar,  a  director  of  the  first  defendant.    However,  para [29]  of  my Judgment No 3 concluded as follows:

… If for whatever reason the defendants cannot obtain sufficient EARTHWOOL product in the new packaging by that date, then it is open to them to apply for an extension of the stay and leave will be reserved to do so.

[5]      Accordingly paras (a) and (b) of the order for a stay of execution of Order (2)

in paragraph [401] of the primary judgment stated:

(a)       Until    30 September 2014    the    defendants    may    import    into New Zealand and sell in New Zealand the EARTHWOOL product in the existing packaging.  From 1 October 2014 the stay will lapse and Order (2) will take effect absent the grant of any extension to the order for stay of execution;

(b)       Leave is reserved to the defendants to apply for an extension of the stay of execution;

[6]      On the application of the first and third defendants, on 19 September 2014 I

extended the stay of Order (2) until midnight on 31 December 2014.3

3      Minute of Brown J dated 19 September 2014.

The further request for an extension of stay of execution of injunctive orders

[7]      On 16 December 2014 the defendants lodged a request for a further stay of execution.   No formal interlocutory application was filed.   However, in a memorandum of senior counsel for the defendants it was stated that Knauf sought an extension of the stay to 31 March 2015 to sell its remaining stock of EARTHWOOL GLASSWOOL insulation in “old” packaging through the trade.  The memorandum stated  that  the  periods  of and  the reasons  why the defendants  sought  a  further extension  were  detailed  in  the  third  affidavit  of  Mr Dunbar  accompanying  the application.

[8]      Para [5] of that affidavit stated:

5.Since  September 2014  we  have  continued  to  roll  out  Earthwool glasswool insulation in “new” packaging.  We have made significant progress to the extent we can advise the Court:

a)Between 9 June and 30 November we sold some 120,277 of packs in “old” packaging or 85% of the total available to be sold;

b)       A break up of the mix between “old” and “new” packaging

sales during the same period is as follows:

Jun	Jul	Aug	Sep	Oct	Nov
Old %	100%	99%	92%	82%	53%	27%
New %	0%	1%	8%	18%	47%	73%

[9]      Mr Dunbar explained in para 8 of his affidavit that Knauf also sought an extension to 30 June 2015 for its customers, including Bunnings, to sell through any remaining  packs  of  EARTHWOOL  insulation  in  “old”  packaging.    Mr Dunbar suggested there was some uncertainty as to the application of Order (2) to Knauf’s customers, stating in para 10 as follows:

10.To date it has not been clear whether Order (2) applied to Knauf’s customers.   We therefore would like to clarify this point to avoid Tasman potentially alleging that we have breached of Order (2) if our customers such as Bunnings continue to sell product in “old” packaging beyond the date of the injunction coming into force.

[10]     To similar effect, the memorandum of counsel for the defendants stated:

To date it has not been clear whether your Honour’s Order (2) applied to Knauf’s customers.  Knauf is therefore seeking clarification of this point, as mentioned above, out of an abundance of caution and so as to avoid Tasman subsequently trying to allege a breach of your Honour’s order by sales of product in old packaging by parties other than Knauf.

[11]     Mr Dunbar proceeded to explain what he considered would be the impact on

the defendants’ customers if the further extension was not granted:

13.If either we or our customers are not able to sell through remaining stock in “old” packaging we will end up with a significant quantity of, in particular, specialist product lines which will not be straightforward to substitute or replace in the short term.

14.This is also likely to cause significant interruption to our Customer’s operations are  we  would be  forced to remove  products in “old” packaging from customers premises.

15.With  the  inability  to  supply  also  comes  a  concern  that  we  will jeopardise the relationships we have with our customers, particularly Bunnings which does not source insulation from any other manufacturer or supplier in New Zealand.

Tasman’s response

[12]     On  22 December 2014  Tasman  filed  a  memorandum  of  counsel  which opposed the further application for an extension of stay of execution.   In that memorandum counsel for the plaintiff recorded his understanding that the stay of execution had been granted in order to permit Knauf to continue to sell product in the old, contravening packaging while it waited for product in the new packaging to arrive in New Zealand.

[13]     Counsel  for  Tasman  contended  that  the  new  packaging  was  currently available and that consequently the basis on which the order for a stay of execution was made no longer applied.  Paragraph 4 of the memorandum stated:

4.Since  the  granting  of  the  original  stay,  the  defendant’s  concern regarding a loss of sales while awaiting the arrival of product in new packaging is no longer an issue.  There is no evidence that there is insufficient   supply   of   product   in   the   new   packaging.      The defendants’ are now simply seeking a further extension to permit the sale of remaining stock in the old packaging, which, if permitted, would be a direct contravention of Order (2) as well as contrary to the grounds on which the stay was originally granted.

[14]     The submission was made that if the understanding of counsel for Tasman regarding the original basis for the stay was correct (which it was submitted was an orthodox view), then an extension of the stay of execution of Order (2) was neither necessary nor appropriate.

[15]     With reference to the request for an extension of the stay until 30 June 2015 to allow Knauf’s customers to sell any remaining stock in the old, contravening packaging, Tasman submitted that such an extension was not appropriate.  It made the point that this issue had only been raised for the first time in the defendants’ memorandum  of 16 December 2014  and  noted  that  Knauf’s  customers  were not parties to the proceeding.  Consequently it was submitted that any consideration of Knauf’s customers in relation to the granting of an extension of the stay was irrelevant.

[16]     Unfortunately the memoranda of counsel and the third affidavit of Mr Dunbar did not come to my attention until my stint as Wellington Duty Judge this week.

Decision

[17]     In  my view counsel for the plaintiff accurately states the purpose of the stay of execution of Order (2), namely to permit Knauf to continue to sell product in its old, contravening packaging while it waited for product in the new packaging to arrive in New Zealand.  Indeed, the reservation of leave to the defendants to apply for an extension of the stay of execution was to address the possibility that the defendants might not be able to obtain sufficient EARTHWOOL packaging in the new packaging by the deadline which I specified, namely 30 September 2014.

[18]     In my view it is quite clear that the defendants’ original application was made on that footing.  For example, in para 16 of his affidavit in support of the original application (which was recorded at [19] of Judgment No 3), Mr Dunbar stated:

16.As a condition of a stay being granted, the Knauf Insulation Group will  undertake  to  meet  any  loss  or  damage  suffered  by  any identifiable New Zealand consumer of any of the defendants in this proceeding that can reasonably establish that they have mistaken Knauf NZ’s Earthwool product for sheep’s wool and have suffered loss as a consequence.   Knauf NZ appreciate that the intent of the

Court is to ensure that New Zealand consumers are not misled by the Earthwool logo or name, and therefore rely on the financial security of the Knauf Group to provide confidence to the Court to ensure that purchasers of Earthwool up until the new packaging is implemented in  the  New Zealand  market  will  be  compensated  if  they  can demonstrate they have been genuinely misled and suffered damage. (emphasis added)

[19]     Similarly in the same affidavit at para 14 (which was recorded at [20] of

Judgment No 3), Mr Dunbar stated:

14.We firmly believe that these efforts will dispel any possible misconception amongst consumers that Earthwool insulation is made from natural wool, and seek a stay of the Order in its current form pending the arrival of our new packaging into the country – which we are committed to introduce as soon as it becomes available. (emphasis added)

[20]     As Tasman submits, the material filed on 16 December 2014 does not suggest that there is insufficient supply of EARTHWOOL product in the new packaging.  On the contrary, as Tasman submits, it appears that the reason for the further extension which is now sought is simply to permit the sale of the remaining stock in the old packaging which would be a contravention of Order (2).

[21]     I am not satisfied that there is any proper basis for a further extension of the stay of execution of Order (2).  Consequently the defendants’ request in para 3(a) of the memorandum of counsel is declined.

[22]     I also decline to make the order sought in para 3(d) for an extension of the stay for Knauf ’s customers to have until 30 June 2015 to sell out any remaining stock in “old” packaging.

[23]     However, in declining to make that order I am not to be taken as conveying any expression of view on the issue whether such an order would be necessary in order to protect the position of trade purchasers of the EARTHWOOL product from the defendants.

[24]     In my view if there is a live issue as to the application of Order (2) to Knauf ’s customers such that clarification of orders in my primary judgment is required (a matter which  to my knowledge has not previously been brought to the Court’s

attention), then I do not consider that an application for an extension of the stay without any formal application and without any representation of Knauf’s customers is an appropriate vehicle for securing such clarification.

[25]     The defendants  have  been  unsuccessful  in  their  application  for  a further extension of the order for stay of execution.   Tasman is entitled to costs.  A memorandum seeking an order for costs (of no more than five pages) may be filed by Thursday, 5 February 2015 and any memorandum in response by the defendants

(again of no more than five pages) may be filed by Thursday, 19 February 2015.

Brown J

Solicitors:

A J Park, Auckland

James & Wells Solicitors, Auckland