WATCHES OF SWITZERLAND PTY LTD AND WATCHES OF SWITZERLAND PTE LTD THE HOUR GLASS LIMITED WATCHES OF SWITZERLAND (NZ) LIMITED THE HOUR GLASS (NZ) LIMITED
[2024] NZHC 2593
•9 September 2024
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE
CIV-2022-404-2113
[2024] NZHC 2593
UNDER the Fair Trading Act 1986 IN THE MATTER OF
Breaches of the Fair Trading Act and Passing Off
BETWEEN
WATCHES OF SWITZERLAND PTY LTD
Plaintiff
AND
WATCHES OF SWITZERLAND PTE LTD
First Defendant
THE HOUR GLASS LIMITED
Second DefendantWATCHES OF SWITZERLAND (NZ) LIMITED
Third Defendant
THE HOUR GLASS (NZ) LIMITED
Fourth Defendant
Hearing: 2 September 2024 Counsel:
J Miles KC / N C Allen for the Plaintiff C Elliott KC / J Rutter for the Defendants
Judgment:
9 September 2024
JUDGMENT OF ASSOCIATE JUDGE BRITTAIN
This judgment was delivered by me on 9 September 2024 at 4 pm
Pursuant to r 11.5 of the High Court Rules.
Solicitors/Counsel:
Dentons Kensington Swan, Auckland Richmond Chambers, Auckland Shortland Chambers, Auckland
Clive Elliott, Auckland
…………………..
Registrar/Deputy Registrar
WATCHES OF SWITZERLAND PTY LTD v WATCHES OF SWITZERLAND PTE LTD [2024] NZHC 2593
[9 September 2024]
Introduction
[1] This proceeding is a dispute between the plaintiff, Watches of Switzerland Pty Ltd (WOS Australia), and the defendants, a group of companies headquartered in Singapore (collectively referred to as The Hour Glass), regarding ownership of rights in the name and trademark “WATCHES OF SWITZERLAND” (the brand).
[2] The genesis of the dispute is the interpretation of a written agreement in 2008 between a party related to WOS Australia as vendor and a purchaser of rights in respect of the brand in New Zealand. The extent of the rights acquired by that purchaser are in issue. Those rights are the basis of the rights now asserted by The Hour Glass as a subsequent purchaser.
[3] WOS Australia sues The Hour Glass for passing off and breach of the Fair Trading Act 1986 (FTA) in respect of their use of the brand in New Zealand. The Hour Glass counterclaims against WOS Australia alleging infringement of a trademark, passing off and breach of the FTA in respect of WOS Australia’s use of the brand in New Zealand.
[4] WOS Australia is a closely held family company. The Hour Glass now wishes to join two of its directors, Eric van der Griend and Samuel van der Griend (the directors), as defendants to the counterclaim. The Hour Glass intends to allege that the directors are personally liable for the same wrongs alleged to have been committed by WOS Australia, on two grounds:
(a)they procured or directed WOS Australia’s breach of trademark and passing off; and/or
(b)they held themselves out as personally responsible for the misleading or deceptive conduct by WOS Australia.
[5] The Hour Glass has applied for an order under r 4.56 of the High Court Rules 2016 (HCR) joining the directors as second and third counterclaim defendants.
[6] WOS Australia opposes the application, primarily arguing that it is unnecessary for the directors to be present before the Court to determine all questions
involved in the proceeding as it stands, and there was no sufficient assumption of responsibility to engage personal liability.
Legal principles
The relevant provisions of the HCR
[7]Rule 5.57(1) of the HCR relevantly provides:
5.57 Counterclaim against plaintiff and another person
(1)A defendant who has a counterclaim against the plaintiff along with any other person (whether a party to the proceeding or not) for any relief relating to or connected with the original subject matter of the proceeding may, within the time allowed for filing a statement of defence, file a statement of the counterclaim and serve a copy on the plaintiff and that other person (to be referred to as a counterclaim defendant).
[8] It was open to The Hour Glass to include the directors as counterclaim defendants, as of right, when The Hour Glass filed its counterclaim against WOS Australia. The Hour Glass could have pleaded a separate cause of action against the directors to mirror the causes of action against WOS Australia. The Hour Glass did not do so.
[9] Rule 5.57 does not expressly provide for a grant of leave to a defendant to file a late counterclaim against the plaintiff along with any other person. This is incongruous with the position in respect of late claims by a defendant against a third party pursuant to r 4.4(2) of the HCR, which relevantly provides:
(2)A third party notice must be issued within—
(a)10 working days after the expiry of the time for filing the defendant’s statement of defence; or
(b)a longer time given by leave of the court.
[10]Rule 4.4(1) of the HCR provides the grounds for issuing a third party claim:
(1)A defendant may issue a third party notice if the defendant claims any or all of the following:
(a)that the defendant is entitled to a contribution or an indemnity from a person who is not a party to the proceeding (a third party):
(b)that the defendant is entitled to relief or a remedy relating to, or connected with, the subject matter of the proceeding from a third party and the relief or remedy is substantially the same as that claimed by the plaintiff against the defendant:
(c)that a question or issue in the proceeding ought to be determined not only between the plaintiff and the defendant but also between—
(i)the plaintiff, the defendant, and the third party; or
(ii)the defendant and the third party; or
(iii)the plaintiff and the third party:
(d)that there is a question or an issue between the defendant and the third party relating to, or connected with, the subject matter of the proceeding that is substantially the same as a question or an issue arising between the plaintiff and the defendant.
[11] Under r 5.57, a counterclaim against a person who is not a plaintiff is limited to a claim for relief relating to or connected with the original subject matter of the proceeding. There is overlap with the grounds for a third party claim provided in r 4.4(1). It would be a strange result if the principles for joinder were different depending on whether a defendant elects to apply for leave to issue a third party notice to a person who is not a plaintiff or to join that person as a counterclaim defendant.
[12] The learned authors of McGechan on Procedure state that leave to commence a counterclaim against a party other than the plaintiff outside the time for filing a statement of defence is likely to be granted if the subject matter is sufficiently connected with the original subject matter of the proceeding, and joinder in this way would avoid the complication and potential delay of commencing of separate proceedings, citing Property Sales Direct Ltd v Hawken Lane Development LP.1
[13] In Property Sales Direct Ltd, Brewer J granted leave to the defendant to commence a counterclaim against a party other than the plaintiff out of time, considering the issue to be whether the counterclaim could be heard fairly within the
1 Jessica Gorman and others McGechan on Procedure (online ed, Thomson Reuters) at [HR5.57.06]; and Property Sales Direct Ltd v Hawken Lane Development LP [2021] NZHC 3119.
scheduled fixture.2 Brewer J did not state which provision of the HCR founded the Court’s jurisdiction to grant leave.
[14]Jurisdiction may be afforded by r 1.19, which provides:
1.19 Extending and shortening time
(1)The court may, in its discretion, extend or shorten the time appointed by these rules, or fixed by any order, for doing any act or taking any proceeding or any step in a proceeding, on such terms (if any) as the court thinks just.
(2)The court may order an extension of time although the application for the extension is not made until after the expiration of the time appointed or fixed.
[15]Rule 1.6 provides:
1.6 Cases not provided for
(1)If any case arises for which no form of procedure is prescribed by any Act or rules or regulations or by these rules, the court must dispose of the case as nearly as may be practicable in accordance with the provisions of these rules affecting any similar case.
(2)If there are no such rules, it must be disposed of in the manner that the court thinks is best calculated to promote the objective of these rules (see rule 1.2).
[16] It would be open to the Court to dispose of an application for leave to join a counterclaim defendant by analogy with the approach taken to a grant of leave for a third party claim out of time under r 4.4(2)(b). This would ensure consistency of approach to the addition of claims by a defendant which exhibit a similar connection to the plaintiff’s claim, by the application of the settled principles applicable to a grant of leave to bring a third party claim late. Circumstances relevant to the exercise of the discretion can include:3
(a)delay to the plaintiff;
(b)the interests of justice;
2 At [12].
3 Westwood Group Holdings Ltd v Rilean Construction (South Island) Ltd [2013] NZHC 1739 at [15].
(c)prejudice to the plaintiff;
(d)avoiding duplicity of proceedings and preventing the same question being tried with different results;
(e)the relative strengths and weaknesses of the parties’ cases;
(f)the extent to which the plaintiff is necessarily involved in the issues between the defendant and the third party.
[17] The Hour Glass has not applied for a grant of leave on that basis, and instead brings its application in reliance on r 4.56 of the HCR, which provides:
4.56 Striking out and adding parties
(1)A Judge may, at any stage of a proceeding, order that—
(a)the name of a party be struck out as a plaintiff or defendant because the party was improperly or mistakenly joined; or
(b)the name of a person be added as a plaintiff or defendant because—
(i)the person ought to have been joined; or
(ii)the person’s presence before the court may be necessary to adjudicate on and settle all questions involved in the proceeding.
(2)An order does not require an application and may be made on terms the court considers just.
(3)Despite subclause (1)(b), no person may be added as a plaintiff without that person’s consent.
[18] In response, WOS Australia directed its opposition to the criteria prescribed in r 4.56 and the relevant jurisprudence. The submissions for WOS Australia focused on whether the directors’ presence is necessary before the Court to adjudicate on the issues in the counterclaim against WOS Australia, rather than an analysis of whether the proposed counterclaim against the person sought to be joined is related to or connected with the original subject matter of the plaintiff’s claim, as required by r 5.57.
[19] The issue is whether the requirement in r 4.56(1)(b)(ii), that a person’s presence before the court may be necessary to adjudicate on and settle all questions involved in the proceeding, should be assessed based on:
(a)the proposed party’s connection to the existing causes of action by the plaintiff; and/or
(b)the proposed party’s connection to the existing counterclaims; and/or
(c)any new cause of action against the proposed party.
[20] The principles applicable to r 4.56 are well settled and were reviewed by the Court of Appeal in Newhaven Waldorf Management Ltd v Allen.4 There is no fixed general rule in relation to joinder, reflecting the wide variation in circumstances arising in any particular case. It is necessary to assess the rights of the person sought to be joined that will be affected by a judgment in the proceeding. The approach to joinder is liberal. All persons materially interested in the subject of the proceeding ought to be parties.5 Applications by a plaintiff to join a defendant receive the most liberal treatment.6
[21] Rule 4.56(1)(b)(ii) imposes a flexible standard, not a bright line jurisdiction or threshold. Questions informing jurisdiction and the exercise of the Court’s discretion tend to overlap.7
[22] In Newhaven, Kós J noted that a cause of action need not necessarily be advanced against a person to be added as a defendant.8 It is implicit that a new cause of action may be permitted.
[23] The facts in Inverness Switzerland GMBH v MDS Diagnostics Ltd9 are analogous to the present case. The plaintiff sued the defendant for breach of copyright
4 Newhaven Waldorf Management Ltd v Allen [2015] NZCA 204, [2015] NZAR 1173.
5 At [44] and [45].
6 McGechan on Procedure, above n 1, at [HR4.56.11].
7 Newhaven Waldorf Management Ltd v Allen, above n 4, at [53].
8 At [46].
9 Inverness Switzerland GMBH v MDS Diagnostics Ltd HC Auckland CIV-2007-404-748, 1 November 2007.
and sought to join a director of the defendant as second defendant on the basis that the director was personally liable for the conduct alleged to be the basis of the company’s liability.
[24] Allan J took a liberal approach and allowed joinder, stating that all sorts of reasons arise in the course of litigation which justify a plaintiff in adding additional defendants as interlocutory issues are resolved. There was an arguable basis for a claim against the director. It was open to the plaintiff to commence a separate proceeding against the director and seek consolidation, which would be a waste of time and resources.10 The reasoning applies with equal force to a counterclaim.
[25] I take the following approach to the joinder of a person who is not a plaintiff as a counterclaim defendant under r 5.57 where the application is made late in reliance on r 4.56:
(a)the approach should be consistent in principle with the approach that would be taken if the application was for an extension of time under r 1.19 of the HCR to file a counterclaim late;
(b)the starting point remains that the defendant must be seeking relief against the person relating to or connected with the original subject matter of the proceeding, as required by r 5.57;
(c)this starting point informs the requirement that the person’s presence before the Court is necessary to adjudicate on and settle all questions involved in the proceeding, which can arise from the plaintiff’s claims or the existing counterclaims;
(d)this requires a comparison of the existing pleadings with the proposed new cause of action against the person sought to be joined as a counterclaim defendant; and
10 At [20].
(e)if jurisdiction is established, then the key factors relevant to the exercise of the discretion are delay, any other prejudice to the existing parties and the overall interests of justice.
Analysis
Jurisdiction
[26] This is not a situation where the directors ought to have been joined to the existing counterclaim in the sense that the counterclaim against WOS Australia should not be determined without them, so r 4.56(1)(b)(i) does not apply.
[27] The Hour Glass’s application raised various grounds in support, some of which related to the connection of the directors to the existing counterclaim against WOS Australia. During submissions, Mr Elliott KC confirmed that the primary ground now pursued is (d) in the notice of application:
THG considers the Van der Griends jointly and severally liable for the actions complained of, together with WOS AU. They ought to have been joined as counterclaim defendants in their personal capacity.
[28] This involves new causes of action against the directors. I will deal with this ground first, as it disposes of the application.
[29] The existing claim by WOS Australia against The Hour Glass pleads two causes of action:
(a)the first cause of action alleges that The Hour Glass engaged in misleading or deceptive conduct in breach of the FTA, by falsely representing a connection between The Hour Glasses services and WOS Australia’s services, or authorisation for The Hour Glass to use the brand; and
(b)the second cause of action alleges that the conduct by The Hour Glass amounts to passing off.
[30] WOS Australia seeks an injunction restraining The Hour Glass from using the brand, and damages.
[31]The existing counterclaim pleads four causes of action against WOS Australia:
(a)the first cause of action seeks declarations regarding ownership of the brand;
(b)the second cause of action pleads that WOS Australia has infringed the trademark;
(c)the third cause of action alleges that WOS Australia has held itself out as the lawful owner of the brand, in breach of ss 7 and 9 of the FTA; and
(d)the fourth cause of action alleges that WOS Australia’s conduct amounts to passing off.
[32] The same relief is sought in respect of the second to fourth causes of action — an injunction restraining WOS Australia and its servants, officers and agents from continued breach, and compensation.
[33] It is plain that the counterclaim against WOS Australia is for relief relating to or connected with the original subject matter of the proceeding. Appropriately, WOS Australia has not taken any issue with the right of The Hour Glass to bring the counterclaim against it under r 5.57 of the HCR.
[34] The Hour Glass has not filed a draft statement of counterclaim including the proposed causes of action against the directors. Even so, it is possible to ascertain the nature of the proposed claims by reference to the existing claims against WOS Australia and the submissions made on behalf of The Hour Glass. The proposed claims are:
(a)the directors procured or directed WOS Australia to commit the torts pleaded against the company — trademark infringement and passing off; and
(b)the directors are personally liable under ss 7 and 9 of the FTA, together with WOS Australia, because the directors effectively made the misleading and deceptive conduct their own.
[35] Both parties made careful submissions on the nature of these claims and the legal and factual issues that will arise if the claims are permitted. The Hour Glass will have significant hurdles to overcome to sheet home liability to the directors personally, given the concept of personal assumption of responsibility by a director which underpins a director’s personal liability, both in tort and under the FTA.
[36] For WOS Australia, Mr Miles KC referred me to the advertisements by WOS Australia which are alleged by The Hour Glass to amount to an assumption of personal responsibility by the directors, submitting with some force that the type of advertisement in question falls well short of the evidential standard that is required to be met. However, Mr Miles did not go so far as to suggest that the proposed causes of action are legally untenable. It is not appropriate, at this stage of the proceeding, to delve into a detailed assessment of the evidence. The proposed claims by The Hour Glass against the directors are arguable as a matter of law.
[37] The relief sought against the directors will mirror the relief presently sought against WOS Australia and is undoubtedly connected with the original subject matter of this proceeding and the existing counterclaim. The directors’ presence before the Court is necessary to adjudicate on all questions involved in the proceeding. Jurisdiction is established.
Delay and other prejudice
[38] Mr Miles submitted that The Hour Glass has unreasonably delayed in seeking to bring the counterclaim against the directors. The possibility of the application was raised in the joint memorandum of counsel which was filed for case management review under r 7.3 of the HCR, dated 10 May 2023. As Mr Elliott points out, the application was filed in January 2024, before discovery was completed, and the delay in the hearing of the application was beyond The Hour Glass’s control.
[39] The parties have completed discovery, and there are no outstanding discovery issues. The parties do not intend to file any other interlocutory applications, and the proceeding is ready to be set down for a trial. Counsel estimate that two weeks’ hearing time will be required.
[40] There is no hearing time available until 2026. If The Hour Glass is permitted to bring its counterclaim against the directors, there is ample time to allow for the filing of amended pleadings, and any minor additional discovery that will be required. The joinder of the directors will not delay the determination of the proceedings. The proceedings could be set down for trial now.
[41] The only other prejudice that Mr Miles could point to was the addition of discrete issues to the proceedings. The proposed causes of action against the directors will certainly add legal issues, requiring discrete submissions on director’s liability. The factual basis of the claims against the directors will not materially change the nature or scope of the evidence likely to be adduced by the parties. The addition of the counterclaim against the directors will not materially change the amount of trial time required.
Other discretionary factors
[42] Mr Miles submitted that The Hour Glass was seeking to join the directors for tactical reasons; to incentivise the directors to give evidence to defend the claims against them, permitting The Hour Glass the opportunity to cross-examine them; and possibly to influence settlement negotiations.
[43] Both of those purposes may exist, and such purposes often influence how a party conducts litigation. Even if The Hour Glass does have those purposes in mind, that does not render the application to join the directors an abuse of process, and it should not influence the exercise of the Court’s discretion, provided that there is jurisdiction to join the directors as defendants to the counterclaim and the orthodox grounds for supporting joinder are made out.
[44] If this application is declined, then it would be open to The Hour Glass to file a separate proceeding against the directors and to apply for consolidation. Given the
commonality of issues of fact and law, it is likely that consolidation would be ordered. I can see no point in compelling The Hour Glass to take this course.
The overall interests of justice
[45] The Hour Glass wishes to bring claims against the directors that arise out of the same transactions and series of events as the existing counterclaims against WOS Australia. The most efficient way to dispose of all issues between the parties is one trial with all claims heard together. There is no material prejudice to WOS Australia from the addition of the proposed causes of action by The Hour Glass against the directors.
[46] The interests of justice are best served by an order joining the directors as counterclaim defendants, followed by the filing of an amended statement of counterclaim.
Orders
[47] Eric Paul van der Griend is joined to this proceeding as second counterclaim defendant.
[48] Samuel Eric van der Griend is joined to this proceeding as third counterclaim defendant.
[49]The defendants shall file and serve an amended statement of counterclaim by
28 September 2024.
[50] The counterclaim defendants shall file and serve statements of defence to the amended statement of counterclaim by 25 October 2024.
[51] This proceeding is adjourned for a case management conference on the next available date after 25 October 2024.
[52] Costs on this application should follow the event. If the parties are unable to agree on costs, then:
(a)the defendants shall file and serve submissions on costs, of no more than five pages, by 28 September 2024;
(b)the plaintiff shall file and serve submissions on costs, of no more than five pages, by 25 October 2024; and
(c)I will determine costs on the papers.
[53] Leave is reserved to the parties to seek a variation of the dates for compliance with these directions.
Associate Judge Brittain
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