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Re: FLAMINGO PARK PTY LIMITED and DOLLY DOLLY CREATION PTY LIMITED; BENNY
SPIESER and SIPI SPIESER
And: DOLLY DOLLY CREATION PTY LIMITED; MERCEDES TEXTILES PTY LIMITED; BENNY
SPIESER and SIPI SPIESER
No. G13 of 1985
Contract - Trade Practices - Confidential Information
COURT
IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY
GENERAL DIVISION
Wilson J.
CWDS
Contract - Fabric design created by customer - Design left with printer for
use only on fabric printed on behalf of customer - Use of design by printer on
fabric printed for other customers - Design including name of principal of
applicant - Name reproduction on part of fabric printed for others - Clothing
marketed by other customers inferior to that of applicant - Measure of damages
- Compensation for lost sales - Whether damages recoverable in contract for
damage to reputation - Whether exemplary or aggravated damages should be
awarded.
Trade Practices - Passing off - Sale by respondents of clothing containing
design made by applicant - Whether misleading or deceptive conduct or passing
off - Position in relation to garments containing name of principal of
applicant - Whether representation of association - Claim for indemnity by
cross-claimant upon basis that its misleading conduct caused by
cross-respondent's refraining from disclosing that design bore signature.
Confidential Information - Design supplied to printer for use only on behalf
of applicant - Whether duty of confidence arose - Whether action for breach of
duty available after sale by applicant to members of public of garments
bearing the design.
Trade Practices Act 1974 ss.4, 52, 82
Hornsby Building Information Centre Pty Limited v Sydney Building
Information Centre Pty Limited (1977) 140 CLR 216, Parkdale Custom Built
Furniture Pty Limited v Puxu Pty Limited (1982) 149 CLR 191, Saltman
Engineering Company Limited v Campbell Engineering Company Limited (1948) 65
RPC 203, Coco v A N Clark (Engineers) Limited (1969) RPC 41, O'Mustad & Son v
Dosen (1964) 1 WLR 109, C Czarnikow Limited v Koufos (1964) 1 AC 350, Enzed
Holdings Limited v Whythea Pty Limited (1984) 57 ALR 167, Yorke v Lucas (1985)
59 ALJR 776, Gates v The City Mutual Life Assurance Society Limited (High
Court, 26 February 1986, not reported) applied.
HRNG
SYDNEY
#DATE 19:3:1986
Counsel for the applicant: Mr A Martin
Solicitors for the applicant: Messrs Parish Patience
Counsel for the first, third and fourth respondents: Mr F G Lever
Solicitors for the first, third and fourth respondents: Messrs Pozniak &
Mane
Counsel for the second respondent: Mr B Walker
Solicitors for the second respondent: Messrs Allen Allen & Hemsley
ORDER
1. The existing interlocutory injunctions be dissolved.
2. The respondent, Mercedes Textiles Pty Limited, and its servants and
agents be restrained, except in accordance with the prior instructions of the
applicant:
a) from using the design known as the "sexy print
design", and being the design illustrated on
ex.A herein, in the printing of any fabric; and
b) from supplying or otherwise dealing with any
fabric printed with that design.
3. Judgment be entered in favour of the applicant against the
respondent Mercedes Textiles Pty Limited for damages in the sum of
thirty-eight thousand seven hundred and sixty-two dollars ($38,762.00).
4. The respondent, Dolly Dolly Pty Limited, and its servants and
agents be restrained from selling, offering for sale, supplying or otherwise
in the course of trade dealing with any garment manufactured from fabric
printed with the said design in which is included a facsimile of the signature
"J. Kee".
5. Judgment be entered in favour of the applicant against the
respondent Dolly Dolly Pty Limited for damages in the sum of one thousand nine
hundred and fifty dollars ($1,950.00).
6. To the extent that the judgment referred to in order 3 hereof is
satisfied, beyond the sum of thirty-six thousand eight hundred and twelve
dollars ($36,812.00), that satisfaction shall pro tanto satisfy the judgment
referred to in order 5 hereof; and to the extent that the judgment referred
to in order 5 hereof is satisfied, that satisfaction shall pro tanto satisfy
the judgment referred to in order 3 hereof.
7. The Application, insofar as it relates to Benny Spieser and Sipi
Spieser, be dismissed.
8. The respondents, Mercedes Textiles Pty Limited and Dolly Dolly Pty
Limited, pay to the applicant its costs of this proceeding other than any
costs incurred by it which were solely referable to the joinder as respondents
of Benny Spieser or Sipi Spieser.
9. The applicant pay to Benny Spieser and Sipi Spieser any costs
incurred by them in respect of this proceeding, being costs which would not
have been incurred but for the joinder of one or both of those respondents.
10. It be declared that the cross-claimant Dolly Dolly Pty Limited is
entitled:
i) to be imdemnified by the cross-respondent
Mercedes Textiles Pty Limited against all
costs and liabilities incurred by it under
this order as against the applicant; and
ii) to recover damages against the
cross-respondent Mercedes Textiles Pty Limited
in respect of the cost incurred by it in the
manufacture, distribution, collection and
storage of the garments referred to in order 4
hereof.
11. Liberty be reserved to the cross-claimant Dolly Dolly Pty Limited
to make application to the Court upon seven (7) day's notice for an assessment
of the amount of the damages referred to in order 10(ii).
12. The cross-respondent, Mercedes Textiles Pty Limited, pay to the
cross-claimant, Dolly Dolly Pty limited, the costs incurred by it in
connection with the principal proceeding and with the cross-claim.
Settlement and entry of orders is dealt with in
Order 36 of the Federal Court Rules.
JUDGE1
This is the hearing of the substantive litigation between these parties; the
previous proceedings -- reported at (1985) 59 ALR 247 -- being confined to
allegations by the applicant that certain of the respondents had, in contempt
of court, failed to comply with certain interlocutory injunctions.
2. The case involves claims by the applicant, Flamingo Park Pty Limited, a
company controlled by Jenny Kee, against the second respondent, Mercedes
Textiles Pty Limited, a company carrying on business as a fabric printer which
is controlled by Susan Banhegyi and her husband Laslo Szilvasi, and Dolly
Dolly Creations Pty Limited, the first respondent, a clothing retailer
controlled by the third and fourth respondents Benny and Sipi Spieser. The
major complaint is against Mercedes Textiles, the applicant alleging conduct
infringing s.52 of the Trade Practices Act 1974, breach of contract, breach of
a duty of confidence and passing off. In respect of Dolly Dolly, the
applicant relies upon s.52 of the Trade Practices Act -- claiming that Mr and
Mrs Spieser were knowingly involved in the contravention -- and the law
relating to passing off.
3. There are major issues between Flamingo Park and Mercedes as to the course
of dealing between those companies and the authorship of a particular design,
known to Flamingo Park as the "sexy print" design. This design was used upon
fabric printed by Mercedes for other clients, including Dolly Dolly. The case
for the applicant is that this design was created by Ms Kee and given to
Mercedes upon the express basis that it would be used only in respect of
fabric printed on behalf of Flamingo Park. Mercedes claims that the design,
only loosely based upon an idea of Ms Kee, was created by either Jillian
Clarke, a full time employee of the company, or Irene Diaz, a freelance
designer retained by Ms Banhegyi for the purpose. Mercedes therefore asserts
an entitlement to use the design for whomsoever it pleases. There is such a
difference between the cases respectively presented on these matters on behalf
of Flamingo Park and of Mercedes that it is preferable to summarize separately
each case.
The Flamingo Park version
4. Ms Kee was initially trained in Australia but then spent some years
working overseas. She returned to Australia late in 1972. In August 1973 Ms
Kee opened a shop in the Strand Arcade, Sydney, trading under the firm name
"Flamingo Park". The applicant company acquired that business, trading under
the same business name, in 1980. In 1982 it took its present name. Although
there has been at least one move in the meantime, the business has always
operated a shop in the Strand Arcade. In addition, in more recent years, the
business has included a small wholesale element.
5. The trading strategy of Flamingo Park, both the firm and the company, has
always been informed by two policies: to offer garments which are
identifiably Australian; cut and finished to a high standard of quality; and
to produce limited quantities of each particular design, so as to offer to
purchasers a measure of exclusivity. Consistently with these objectives, the
garments have been marketed at relatively high prices and in restricted
locations: in the Strand Arcade shop in Sydney and through one independent
retailer in each of several other Australian cities. In addition some sales
have been made overseas. The undisputed evidence is that Ms Kee is now
regarded, both in Australia and overseas, as one of Australia's leading
fashion designers.
6. Shortly after her return to Australia in 1972 Ms Kee formed a professional
association with Linda Jackson, a person who is also now regarded as a leading
designer. Ms Jackson designed the initial range of stock for the opening of
the Strand Arcade shop and she continued to work with Ms Kee for some years.
Shortly after the shop was opened, in 1974, Ms Kee designed a range of
knitwear with Australian animal motifs but it was not until 1977 that she
created her first fabric design. This design included references to
aboriginal art. Ms Kee called it "Kee corroboree".
7. Prior to this date Ms Banhegyi and Mr Szilvasi had commenced a business
known as Mercedes Design Studio, a business which included the printing of
fabrics. Ms Jackson suggested to Ms Kee that she should retain Mercedes
Design Studio to print Kee corroboree onto fabrics. Sometime in 1978 Ms Kee
and Ms Jackson went to the Mercedes factory at Marrickville. They took with
them photostat copies of the elements of the design, the originals of which
were sketched in black ink applied by brush strokes to white paper. They
spoke to Ms Banhegyi and Mr Szilvasi about the printing of the design. Both
Ms Kee and Ms Jackson say that, during the course of this conversation, one of
them pointed out that the design was original and that it was not to be used
for anyone else. Fabric was in fact printed with the Kee corroboree design by
Mercedes Design Studios in accordance with Ms Kee's instructions. This was
made into garments sold by Flamingo Park.
8. Sometime in 1979 Mercedes Textiles Pty Limited was incorporated to take
over the business of Mercedes Design Studio. At about that time Ms Kee and Ms
Jackson took another design, or a photostat copy thereof, which had been
created by Ms Kee apparently in 1977 and which she called "handprint", to Ms
Banhegyi and Mr Szilvasi for printing. This design was also reproduced by ink
brush strokes on white paper but, according to Ms Jackson, on this occasion
the drawing had been made to a size which would match that of the Mercedes
printing screens, thus eliminating the need -- which had been experienced in
the case of Kee corroboree -- to rearrange the elements of the design to fit
the screen. According to both Ms Kee and Ms Jackson, there was, once again, a
conversation about the design being original and an assurance was given that
it would be used only for printing ordered by Ms Kee. Fabric was printed with
the handprint design on behalf of Flamingo Park.
9. Between that time and 1983 Ms Kee commissioned Mercedes -- by now
certainly the company, not the firm -- to print at least two further original
designs, the "shield" and the "Mali-oz" designs. Upon each occasion she took
the design to Ms Banhegyi and Mr Szilvasi at Marrickville and, according to
her, had a similar conversation about exclusivity. She was accompanied by Ms
Jackson upon the occasion relating to the shield print but apparently not
thereafter; the business association ceased in 1981 when Ms Jackson turned to
other work.
10. According to Ms Kee, the sexy print design was created by her as an
original design in August 1983. The design owes its name to its subtle
incorporation of outlines of breasts and penises. Ms Kee says that, as with
her earlier designs, she brushed the design in black ink on a sheet of white
paper and took that sheet to Mercedes. At the trial she identified a drawing
(ex.A) as being this sheet. According to Ms Kee, her evidence being based
upon notes in an appointment diary, she telephoned Ms Banhegyi for an
appointment on 22 August and she visited her at Marrickville on Wednesday 24
August 1983 at 10 am. She went alone and she saw Ms Banhegyi alone. The
drawing had been made to a size appropriate for the screen. Ms Kee showed Ms
Banhegyi the drawing and asked her to print it for her. Once again, she says,
she informed Ms Banhegyi that this was an original design and must not be
printed for anyone else. Ms Kee says that Mr Banhegyi replied "as usual this
is exclusively for you". Ms Kee left the drawing with Ms Banhegyi.
11. Early in September there was delivered to the shop a parcel containing 12
metres of fabric printed with the sexy print, this being a sample for her
approval. It was accompanied by an invoice dated 6 September 1983 claiming
$159.20 being comprised of a charge of $125.00 for the manufacture of the
screen used to print the design and $34.20 for printing the 12 metres of
fabric. Ms Kee examined the sample but was unhappy at the existence of a
blank area between the design repeats, created because of the position of the
upper and lower extremities of the brush marks. She decided to fill the gap
by adding to the design her signature, a practice she had followed when she
had worked in Italy. Ms Kee telephoned Ms Banhegyi and told her that she
wanted her signature inserted. Ms Banhegyi called a few days later and took
away a signature, made with a brush and black ink on a sheet of white paper.
In due course, lengths of fabric were printed with the amended design in
accordance with various orders of Flamingo Park. The sexy print design has
been used in respect of a total of 607 metres of fabric printed by Mercedes on
behalf of Flamingo Park; from which 277 garments have so far been made.
12. Between 1981 and February 1984 Ms Clarke was employed by Mercedes as a
textile designer. Amongst her duties was the production of what she called
"technical drawings", that is drawings made by tracing the original artwork
onto a photographic film with a paint called schmicke opaque. This was then
used to photograph the design onto the polyester screen used in the printing
process. In the case of a design which was other than the exact size of the
screen it was necessary, in the photographic process, to enlarge or reduce the
size of the original design but this did not affect its substance. Moreover
it was usual to adjust the extremities of the design so as to ensure that the
repeats would join up upon printing.
13. Ms Clarke gave evidence that, on an unidentified date in August 1983, Ms
Banhegyi brought to her an original drawing -- which she identified as being
the same drawing as that which Ms Kee had claimed to have given to Ms Banhegyi
(ex.A) -- and told her that it was "Jenny Kee's original design" and that it
"was exclusive to her". They discussed it. At Ms Banhegyi's request Ms
Clarke produced a technical drawing by tracing this design onto photographic
film. She extended some of the lines to allow joining on repeats but there
were still some gaps. A screen was made and a sample of fabric was printed
up. A week or more later, Ms Clarke said, she was given a piece of paper by
Ms Banhegyi bearing Ms Kee's brushed signature. She traced the signature into
a gap in the technical drawing and a new screen was produced.
14. The bottom left hand corner of ex.A is torn. Ms Clarke said that this
tear occurred when she pulled up the sheet after tracing it. Being, as she
put it, "a big fan" of Ms Kee, she put the drawing in a pink folder which she
kept near her desk and which contained drawings, or photostat copies of
drawings, which she admired. The folder was left in that position when she
left Mercedes.
15. Sally Orme was employed by Mercedes from February to December 1984, she
replacing Ms Clarke, who, however, continued in a part time capacity until
early April 1984. She saw the pink folder, referred to by Ms Clarke, but did
not look through it in detail. When she left Mercedes in December she
collected some of her own sketches for her design portfolio. About a month
before the trial of this matter, in looking through that portfolio, she
discovered drawing ex.A, which, she said, had become mixed with her own
drawings and taken in error. She mentioned the find at a conference with
counsel a few days before the trial. The drawing was brought in to the
applicant's solicitors and discovered to the respondents upon the Friday
before the Monday on which the trial commenced.
16. Ms Clarke described Ms Kee as being "neurotic about her designs". She
said that Ms Kee had made comments to her more than once, such as "they are
for nobody else; it is my original design and exclusive to me". Ms Clarke
recounted an incident early in 1983 when she found the Mali-oz design being
printed for a Queensland customer. Both Ms Banhegyi and Mr Szilvasi were
present when she remarked: "You know, that printing there, one of these days
you will get caught". One of them, she thought Mr Szilvasi, replied: "She
will not see it. It is going you know to Queensland".
17. On 27 December 1984 Ms Kee was walking past the Dolly Dolly shop in the
Strand Arcade when she noticed garments bearing the sexy print design. She
contacted her solicitor. A purchase was made and these proceedings were
commenced during the following month.
The Mercedes version
18. Ms Banhegyi agreed that her initial contact wih Ms Kee had related to the
Kee corroboree design, although she thought that the date was 1979, which
means that the company Mercedes Textiles might then have been incorporated.
She agreed that at this meeting there had been some shuffling of the elements
of the design and a discussion about the technical processes involved. She
said that Ms Jackson asked whether the screen would be available for use at a
later time and that she replied that Mercedes' "normal custom was that if a
screen is unused for three months and if we need the frame of the screen then
we normally ring the customer and ask them if we can tear down the mesh if
they are not going to use it any more". Ms Banhegyi denied that there was any
claim made then, or at any other time, that the design was to be used
exclusively for Flamingo Park.
19. Ms Banhegyi was taken to the later commissions. In relation to each of
them she denied any claim to, or promise of, exclusivity. On each of those
occasions the drawings were brought to Mercedes by Ms Kee.
20. Mr Szilvasi said that his main role in taking instructions from Ms Kee on
each ocasion had been to discuss the technical aspects; but he denied hearing
any claim to exclusivity.
21. The evidence for Mercedes in relation to the giving of instructions for
the sexy print design differs considerably from that of Ms Kee. Ms Banhegyi
said that she was not at work upon the day upon which Ms Kee said that she
took to her the sexy print design, 24 August 1983, because she was unwell. She
said that she visited her physician, Dr Elizabeth Heks, that morning, and then
returned home and lay down. Her husband telephoned and told her that Ms Kee
had a new design. She asked Mr Szilvasi if he and Mr Gyula Szabo, the factory
manager, could call on Ms Kee and pick it up.
22. Mr Szilvasi said in evidence that Ms Kee had telephoned the office and
asked him to call in to see her in her shop. He told her that he and Mr Szabo
would call in. They did so, and met Ms Kee's mother who worked in the shop; a
meeting denied by Mrs Kee who said that she had never seen the two men
together. Ms Kee showed them a sheet of ruled paper, the size of a school
note book, upon which there were marks made by a ballpoint pen. The marks on
this paper bore a general resemblance to the drawing on ex.A, Mr Szilvasi
said, but was different in layout, size, line and density. Mr Szilvasi said
that Ms Kee asked him whether "we could print this idea?". He and Mr Szabo
replied that they "could work on it, ... could turn it into a print". Mr
Szabo took the paper home and he, Mr Szilvasi, never saw it again.
23. Mr Szabo also gave evidence about the visit to the shop. He said that Ms
Kee showed Mr Szilvasi and himself a piece of lined paper about 10 inches by 7
inches with scribble on it. He took the paper and gave it to Ms Banhegyi the
next morning.
24. Ms Banhegyi said that, upon the following morning, Mr Szabo handed her
the paper. She described it as a ballpoint scribble on ruled note book paper.
The scribble meant nothing to her. She handed the paper to Ms Clarke with
instructions that, as there was no specific direction on the paper, she should
do two or three layout sketches with exact repeats "of the motives clearly
specified"; by which she explained that Mr Szabo had said that Ms Kee "had
requested tits and dicks". Ms Clarke, according to Ms Banhegyi, replied that
she "would do them as soon as she could". Ms Clarke, in her evidence, denied
that there was ever such a conversation and that she ever saw such a piece of
paper.
25. Ms Banhegyi said that, on an unidentified day, she contacted Ms Irene
Diaz -- now Mrs Lujan -- a freelance artist who did occasional work for the
company, and asked her to call at her home. There she gave her, not the
sketch said to have been picked up by Mr Szabo from Ms Kee or a copy of it,
but a dress which Ms Banhegyi had purchased overseas in 1981 and which was
said to have "a brush stroke style very similar to what we were
contemplating". Ms Diaz returned about three days later with the dress and
two layout sketches made on tracing paper in ballpoint pen and pencil. Ms
Banhegyi gave these sketches to Ms Clarke, who then produced three sketches of
her own, also on tracing paper. The five sketches were then, according to Ms
Banhegyi, taken to Ms Kee who chose one, which was then traced onto the
photographic negative by Ms Banhegyi and Ms Clarke. The sketches were all
destroyed. Ms Banhegyi said that she took the printed sample to Ms Kee, who
examined it in her presence and said "it looks great"; but then asked for her
signature to be added. Ms Kee wrote out her signature with a pen on a piece
of paper from a pad. Ms Banhegyi took this to the factory where she copied
the signature in a brush stroke style onto the negative and then photographed
a new screen.
26. Mrs Lujan, who now works for Mercedes as a full-time employee, confirmed
Ms Banhegyi's account of her being given the dress and preparing two sketches.
The sketches used the basic idea of the dress; neither purported to copy it.
Mrs Lujan did not charge for this service because she merely drew sketches,
not full artwork. Each sketch represented about half an hour's work. She was
firm in her recollection that the incident occurred in August 1983, although
she was unable to give any explanation as to how she remembered the date. At
the time Ms Banhegyi did not mention either Ms Kee or Flamingo Park.
The supply to Dolly Dolly and other retailers
27. It was the practice of Mercedes to keep a portfolio in which were placed
samples of prints made by it. A sample of the sexy print -- but without the
signature "J. Kee" -- was included in the portfolio. From time to time that
portfolio was shown to customers who were interested in selecting designs for
their own use. In October 1984 Elizabeth Aprahamian, the shop and factory
supervisor of Dolly Dolly, telephoned Ms Banhegyi and asked her to bring in
the portfolio of samples. She did so. A few days later she had a further
conversation with Ms Aprahamian and Mrs Spieser in which three designs were
chosen from the portfolio, including the sexy print. Ms Banhegyi claimed in
evidence that she told Mrs Spieser and Ms Aprahamian that this design "had
been used by Jenny Kee except with the inclusion of her signature on it";
this claim was denied by both Mrs Spieser and Ms Aprahamian, both of whom say
that there was no mention of Jenny Kee or anyone else.
28. The evidence shows that Mercedes used the sexy print design on 3048.1
metres of fabric supplied to customers other than Flamingo Park. Of this
total the quantity supplied to Dolly Dolly was 251 metres. Of the 3048.1
metres, 527 metres of fabric included Ms Kee's full signature; 24 metres of
this went to Dolly Dolly. The inclusion of the signature on part of the
fabric supplied to those other customers was apparently accidental. Ms
Banhegyi said that she instructed Mr Szabo to mask the signature so as to
exclude it from the print. He did so but the tape came away; first partly --
with the result that a large proportion of the print includes the letters "ee"
-- and then totally.
29. The applicant was apparently unaware of the supply to retailers other
than Dolly Dolly until the discovery of documents in connection with these
proceedings. No doubt for that reason, these other retailers are not parties
to this proceeding. In relation to the claim brought by Flamingo Park against
it there is a claim by Dolly Dolly against Mercedes for indemnification.
Dolly Dolly also claims damages in respect of the loss allegedly suffered by
it in being precluded, since the interlocutory order made in these
proceedings, from selling those garments made from sexy print fabric which it
still retains.
Findings as to the nature of the transaction and the authorship of the design
30. The applicant contends that the Court should find that an oral agreement
was made on 24 August 1983 between Ms Kee on behalf of Flamingo Park and Ms
Banhegyi on behalf of Mercedes that Mercedes would print onto fabric the
design contained in ex.A and that it would not print the design onto fabric
for anyone else. Reliance is placed upon the evidence of Ms Kee as to the
conversation upon that occasion but the applicant seeks support for that
evidence from the evidence of Ms Kee and Ms Jackson regarding conversations in
respect of earlier designs and from the evidence of Ms Clarke as to statements
about exclusivity made by Ms Banhegyi. Implicit in the contention is that the
Court should accept that the design was created by Ms Kee rather than, as
claimed by Mercedes, by one of Ms Clarke or Mrs Lujan.
31. The case made by Flamingo Park is at variance, in numerous respects, with
that presented on behalf of Mercedes. The discrepancies relate not only to
matters of detail, in respect of which there might be room for honest
differences in recollection. The respective versions are fundamentally
inconsistent. Moreover, more than one witness supports the version of each
side. For example, and to take a critical matter, each of Ms Kee, Ms Clarke
and Ms Orme gave evidence pointing to the existence, before the copying which
gave rise to this case, of ex.A. That existence is inconsistent with the
evidence of Ms Banhegyi, Mr Szilvasi and Mr Szabo that Ms Kee merely delivered
a rough biro sketch, leaving Mercedes to work this up into a design. It is
apparent that, on one side or the other, there has been an agreement to
fabricate evidence.
32. As a matter of logic, of course, it would be possible to accept the
evidence of one side in relation to ex.A and that of the other on the
conversation between Ms Banhegyi and Ms Kee. But both of those women are
intimately involved in the ex.A evidence. It would be difficult to reject the
evidence of one of them concerning ex.A as being fabricated and simultaneously
to regard that person as being reliable in relation to the conversation.
Recognizing this, counsel on each side have argued the question of credibility
broadly.
33. In determining which version of the critical events should be accepted I
have no hesitation in preferring that of the applicant. There are several
reasons for that choice. The first stems from the nature of Ms Kee's work and
reputation. As I have said, the respondents accept that Ms Kee was by 1983
one of the leading fashion designers in the country. Indeed counsel for
Mercedes sought in cross-examination to obtain evidence that her standing was
so high that it could not possibly be diminished by inferior reproductions of
her work. Under those circumstances it is curious to observe the same party
putting the case that she contented herself with handing over a squiggle so
meaningless that Ms Banhegyi did not even give a copy to Mrs Lujan;
supplemented only by a request that someone else design "tits and dicks".
34. Secondly, the Mercedes' version suffers from the embarrassment that no
author is proved. In its filed Defence, Mercedes pleaded that it was the
author of the sexy print design "by its employee Jill Clarke". When called by
the applicant Ms Clarke firmly denied this allegation, although accepting the
suggestion as a compliment. It then emerged that the case for Mercedes was
that the author was either Ms Clarke or Mrs Lujan but when the latter was
called she made no claim to the authorship of the design; indeed counsel for
Mercedes did not even show her any one of the examples of the sexy print
design which were in evidence. It is not suggested that the dress lent by Ms
Banhegyi to Mrs Lujan bears more than the most superficial similarity to the
sexy print deaign.
35. Thirdly there are a number of improbabilities about the Mercedes'
version. The evidence of Ms Kee as to the form of the sketch handed over by
her, that is made in black ink with brush on white drawing paper, is
consistent not only with the evidence of Ms Jackson as to the form of the
earlier designs which she saw but with those amongst them which were tendered
in evidence. It appears to me unlikely that, upon this occasion, Ms Kee would
depart from her practice of delivering to the printers fully developed and
highly crafted drawings. Moreover, the circumstances of the delivery of the
sketch, as asserted by Mr Szilvasi and Mr Szabo, are rather odd. On each
previous occasion upon which she desired to instruct Mercedes relating to a
new design, Ms Kee had taken the sketch to the Mercedes premises at
Marrickville, dealing primarily with Ms Banhegyi. On this occasion she is
suggested to have called for Mr Szilvasi to pick it up from her; she knowing
that Mr Szilvasi had nothing to do with design creation, and this in relation
to a design which was only in an embryonic state. Then, according to this
version, both Mr Szilvasi and Mr Szabo went to the shop on their way home from
work. I thought at first that this may have been because they travelled home
together but it turned out that this was not so, that they lived in different
suburbs -- Mr Szilvasi at Edgecliff and Mr Szabo at Eastlakes -- and drove
separate cars. It was never explained why it was necessary for both men to go
out of their way -- in the case of Mr Szabo, well out of his way -- to travel
into the city and to find parking spaces at a busy time of day to pick up one
sketch. Then a further oddity appears. It was not then known, according to
Mr Szabo, whether Ms Banhegyi would be fit for work next day. The drawing they
were given -- according to them -- clearly required considerable creative
effort before it was ready for printing. Under those circumstances it might
have been expected that Mr Szilvasi would take the sketch home to Ms Banhegyi;
but he did not. Mr Szabo took the sketch, so that it would be available for
Ms Banhegyi if she came in upon the following morning.
36. Fourthly, the case for Mercedes involves the proposition that both Ms
Clarke and Ms Orme have connived with Ms Kee in identifying ex.A as a document
in their charge whilst working for Mercedes. It is true that Ms Clarke left
Mercedes' employment under circumstances of some strain -- she complained that
Mercedes had failed to pay her some moneys which were owing -- but no reason
was suggested for either of these women to engage in such gross deception of
the Court. Each of these witnesses obviously feels that what Mercedes did to
Ms Kee was reprehensible; but each is independent of Ms Kee, having no other
disclosed motive for assisting her. Ms Clarke and Ms Orme both gave their
evidence in a careful, straightforward and apparently honest manner. Ms
Clarke's recollection was shown to be imperfect in one respect: whether the
drawing from which she worked was an original or a photostat. But this is not
significant. I thought that both Ms Clarke and Ms Orme were generally
reliable witnesses. The same comment may be made about Ms Kee. She is, of
course, an interested party with an intense, some might say almost
obsessional, concern for the integrity of her reputation and of her designs
but there was never any point in her evidence when it appeared that she was
doing otherwise than speaking the truth as she remembered it. Her evidence
was not totally free of blemish. There was some confusion as to what she
meant by her claim for ownership of the "screen". Her recollection was shown
to be faulty in regard to whether she handed over original drawings or
photostats on some occasions and as to whether the repeats were already shown
on a drawing identified as "Chanel". But these are matters of peripheral
detail. They do not go to her reliability upon critical matters. I see no
reason to doubt her honesty. The very intensity of her attitude to her
designs perhaps supports the likelihood that she did, as she claims, make
repeated stipulations about exclusivity.
37. My opinion about the credibility of Ms Banhegyi, Mr Szilvasi and Mr Szabo
contrasts starkly with the view I have just expressed regarding Ms Kee, Ms
Clarke and Ms Orme. I found the evidence of Ms Banhegyi and Mr Szilvasi
evasive, contradictory and tendentious. For example, Ms Banhegyi said that
she was sure that the sheet of paper given to her by Ms Kee was A4 size yet in
an answer to interrogatories she had described it as a "foolscap piece of
paper". Ms Banhegyi conceded that she knew the difference between these
descriptions and the importance of her description of the paper. She agreed
that she read the answers carefully before signing them and then explained the
erroneous reference to foolscap as being occasioned variously by an oversight
on her part and by the failure of her solicitor to change the answer in
accordance with specific instructions to that effect. There were occasions in
Ms Banhegyi's evidence when, as it seemed to me, she simply gave the answer
that best seemed to meet the needs of the moment. At a relatively early stage
of her cross-examination she was being pressed to concede awareness of the
exclusive nature of the garments sold by Flamingo Park. Asked the number of
occasions before 1983 that she had visited the Strand Arcade shop, she
replied: "Before 1983 I do not think I ever had been in the Flamingo Park
shop". When asked whether she was sure of this she said: "Before 1983, maybe
in '82, maybe once". Later on she conceded that she had, before that time,
purchased a number of garments at the shop commencing in 1980.
38. Mr Szilvasi also had difficulty in specifying his initial visit to the
shop. He first said that the visit on 24 August 1983, with Mr Szabo to pick
up the sketch, was the first occasion upon which he had ever been to the shop.
Shortly afterwards he said that he had been there "a few times" before that
day, to deliver fabric. Taxed about this inconsistency, he said that he did
not know the position.
39. But the evidence of Ms Banhegyi and Mr Szilvasi was unsatisfactory in
respects more important than matters of detail. Both witnesses claimed that
there was exhibited in the Mercedes' office at all material times, in a
conspicuous position, a notice signed by them, dated 3 June 1980 and reading
as follows:
"NO CLAIMS WILL BE MET AFTER 7 DAYS AND UNDER
NO CIRCUMSTANCES AFTER FABRIC HAS BEEN CUT.
AS CUSTOMERS FABRIC IS NOT COVERED BY OUR
INSURANCE POLICY, NO RESPONSABILITY (sic)
ACCEPTED FOR DAMAGES WHILE ON OUR PREMISES.
UP TO 2.5% LOSS DUE TO HANDLING AND UP TO 5%
SECOND GRADE PRINTING WILL BE CHARGED FULL
PRICE.
ANY DESIGNS PRODUCED BY THIS COMPANY REMAIN
OUR SOLE PROPERTY UNLESS:
A) EXCLUSIVITY AGREED TO IN WRITING
B) STAMPED, SIGNED AND DATED "MASTERSKETCH"
IS PROVIDED, WHICH IS AN EXACT COPY TO BE
PRINTED
C) THE ARTWORK HAS BEEN REGISTERED."
40. Counsel for Mercedes asked most of the witnesses who had visited the
Marrickville premises whether she or he had seen this notice. Only Mr Szabo
said that he had. Both Ms Clarke and Ms Orme denied any knowledge of it. Mrs
Lujan was not asked. It is conceded by Mercedes that this notice had never
come to the attention of Ms Kee and that it forms no part of any contract ever
made between her company and Mercedes. Notwithstanding that concession, it
was a major burden of the evidence of Mr Szilvasi and, to a lesser extent, Ms
Banhegyi that Ms Kee could have no entitlement to exclusivity of the sexy
print design because she did not deliver a mastersketch; as referred to in
the notice. Mr Szilvasi explained that by the word "mastersketch" he meant a
signed and dated design which was precisely suitable for reproduction; a
design which did not require any adjustment whatever, as for example by
photographic enlargement or reduction or by the addition of lines to link up
repeats. This convenient line of argument meant, as he conceded, that few
clients would be entitled to claim an agreement as to exclusivity. "Not very
many times" he said, had a mastersketch been delivered. However, even on the
occasions on which this had occurred, there had not been a written agreement
as to exclusivity; thus leaving Mercedes in the happy position, on its
reasoning, of being entitled to copy any customer's design at any time.
41. Ms Banhegyi also said that there had never been any arrangement for
exclusivity with any customer and that Mercedes had always regarded itself as
entitled to use any screen prepared for a customer for the printing of work on
behalf of a subsequent customer, without reference to the original customer.
It was not claimed that Ms Kee was ever told of this attitude. Leaving aside
any express discussion about exclusivity, the contrary attitude might have
been inferred from the fact that Flamingo Park was charged a lump sum fee for
the production of the screen and that, on Ms Banhegyi's own version, Ms Kee
was told that the customer for whom the screen was made was always consulted
before the mesh was torn down and the screen reused. Nor is it easy to
reconcile the brave assertion of an entitlement to use the design generally
with the fact that the sample of the sexy print design which was included in
the portfolio was one which omitted Ms Kee's signature or the evidence, which
emerged in the cross-examination of Mr Szilvasi, of an incident involving
Standard Knitwear, another Mercedes customer. Apparently a Mr Mears, a
representative of Standard Knitwear, happened to notice that the factory was
printing a design provided by his company upon fabric to be supplied to
someone else. He complained. Notwithstanding that Standard Knitwear had not
delivered a "mastersketch", Mr Szilvasi agreed not to deliver the fabric to
the second customer. Instead, at cost to Mercedes, he kept it in stock for
Standard Knitwear for the following season. The elaborate evidence of Mr
Szilvasi and Ms Banhegyi regarding exclusivity seems to me to be mere
sophistry, designed to justify the company's actions in relation to this case
and to disguise the fact that the only principle on which it acted was
commercial expediency.
42. I need say little about Mr Szabo's credit. He has been employed by
Mercedes since 1980 and has been manager of the factory since 1983. He was
still in that position at the trial. It is apparent, from numerous references
in the evidence, that he has a close relationship with Ms Banhegyi and Mr
Szilvasi. I do not regard him as an independent witness. I have no sense of
assurance that his account of the visit to the shop to pick up the sketch from
Ms Kee springs from independent recollection rather than from suggestion by
someone else.
43. I should refer to four specific matters which loomed large in the debate
as to which version should be accepted. The first relates to Ms Kee's
evidence. It was a matter which was described by counsel as "the most telling
reason to reject Flamingo Park's case on an express term as to exclusivity".
The point arises out of the circumstance that when the claim was initially
pleaded, in a Statement of Claim dated 12 February 1985, the allegation was
made that, by a contract made in about 1978, it was agreed for reward that
Mercedes would print onto fabric designs supplied to it by the applicant.
Paragraph 6 of that Statement of Claim then alleged that it was an implied
term of the contract that Mercedes would not otherwise make use of designs
supplied to it by the applicant. Paragraph 7 alleged that "in about August
1983" Ms Kee made the sexy print design and, in para.9, it was alleged that
"in August 1983" the design was delivered to Mercedes. In cross-examination
Ms Kee agreed that she saw the Statement of Claim at the time and she is now
criticised for not pointing out to her lawyers that it failed to allege the
express agreement which she claimed to have negotiated. There is nothing in
that point. Few lay-people understand pleadings. They trust their lawyers
adequately to plead their cases. Sometimes they are let down, either through
incompetence or -- perhaps rather more frequently -- because the lawyers have
not at that stage obtained sufficient instructions. It is not insignificant
that para.6 does allege a term -- albeit an implied term -- regarding
exclusivity. I think that the distinction between that allegation and the
allegation of an express term would not readily occur to most lay-people.
44. However, the matter goes a little further because interrogatories were
administered upon the basis of the original Statement of Claim in which, inter
alia, the applicant was asked what precisely was agreed in 1978. The reply
reads: "It was agreed that the second respondent would print onto fabric
designs supplied to it by the applicant. This agreement was entered into in
or about May 1983". The reference to May 1983 is wrong; its inclusion
reflects carelessness on the part of both Ms Kee and the solicitor who filed
the answer to interrogatories. More importantly, consistently with the case
now led, reference should have been made to the claim for exclusivity. But I
do not think that the failure to make that reference requires that I now
reject Ms Kee's account of her various conversations with Ms Banhegyi on that
subject. On any view the answer was not a complete statement of the
contractual arrangement and the answers to interrogatories go on -- admittedly
in the context of an implied term -- to deal with exclusivity.
45. It should be said that, by an amendment to the Statement of Claim made
immediately before the hearing, an allegation of an express term as to
exclusivity was made. As always, it would have been better for the matter to
have been properly pleaded in the first place but I do not think that what has
occurred is destructive of Ms Kee's evidence on this matter.
46. Secondly, Mercedes argues that Ms Kee's evidence must be rejected because
Ms Banhegyi was off sick on 24 August 1983 and therefore unable, as claimed,
to have received the drawing at Marrickville upon that day. In particular, it
is said, Ms Banhegyi saw Dr Heks in Bondi Junction at about the very time when
she was supposed to have been receiving Ms Kee at Marrickville. My first
comment is that it may be erroneous to put a lot of weight upon the date. Ms
Kee did not pretend to have any independent recollection of the date. She
fixed the date by reference to her appointments diary. It is not
inconceivable -- especially if Ms Banhegyi became indisposed for a day -- that
the appointment was varied by a day or so without there being an amendment in
the diary. But, even if the date be taken as definite, there is nothing in
the evidence of Dr Heks to justify the conclusion that Ms Kee's story is
false. It is true that, in an affidavit filed during the course of the
hearing, Dr Heks said that she saw Ms Banhegyi at her surgery in Bondi
Junction at about 10.30 am on 24 August 1983 for about 20 minutes. But in
cross-examination it emerged that the only record which assisted in fixing the
date was a clinical note which read "24/8/83 130/80". The appointment book
had been destroyed at the end of 1983. At one stage in her evidence, Dr Hecks
claimed to have an independent recollection of the date but she then became
confused as to whether it was 23 or 24 August. Eventually she conceded that
-- as one would expect -- she was dependent upon her note. That note made no
reference to the time of the consultation but Dr Heks fixed it as being 10.30
am because this was the first appointment made each day for ordinary
consultations, emergency calls normally extending until about that time. Dr
Heks said that she remembered that Ms Banhegyi was the first patient she saw
that day after emergencies. She claimed to remember this fact; indeed she
said that she remembered "the first or the last" patient for every day.
47. I do not believe her, either in relation to that general claim or in
relation to Ms Banhegyi. This consultation, according to Dr Heks, was a very
ordinary one. The only clinical note relates to a blood pressure reading. The
complaint, according to Dr Hek's recollection, was of "feeling dizzy and
unwell that day". No medication was prescribed. No extraordinary event
occurred at the time of, or in association with, the visit. I cannot conceive
that any doctor, being first asked to recall such a consultation over 2 years
later, would have any idea of the position which it occupied in her or his
working day. It may be that Ms Banhegyi saw Dr Heks sometime on 24 August
1983 but that does not negate the possibility of her having received the
drawing from Ms Kee during that morning.
48. The third matter relates to ex.A, the drawing said by Ms Kee to have been
delivered by her to Ms Banhegyi. This design conforms exactly with the sexy
print design as printed -- subject to the addition to the latter of the
signature and markings for the repeats -- and with the transparency from which
that print was made. Plainly one was copied from the other. I have already
referred to the evidence as to the subsequent history of this drawing and the
fact that the document was not produced to the solicitors for the respondents
until the eve of the trial. Understandably, under such circumstances, the
solicitors for Mercedes adopted a sceptical attitude to its authenticity. They
made two separate applications for leave to uplift the drawing, on each
occasion in order to submit it to a person skilled in the examination of
documents. As I understand the position, the hope was that these experts
would be in a position to offer opinions as to the age of the paper and/or the
ink used in the drawing. Notwithstanding some inconvenience to the progress
of the trial, but having regard to the circumstances under which the document
had appeared and its importance to a critical issue, I acceded to both these
applications. I understand that the document was in fact inspected by both
the experts selected by Mercedes' solicitors; but neither of those persons
was called to give evidence.
49. It would be wrong to draw from the fact that no expert was called a
conclusion that expert evidence would have established that the paper and the
ink were of an age consistent with Ms Kee's evidence. It may be that, for a
reason of which I am unaware, it was not possible for either of the experts to
reach a conclusion one way or the other. And, of course, there is no necessary
inconsistency between a conclusion that the drawing was made late in 1985 and
a finding that the paper on which it was made, and the ink used in the making,
were each manufactured in 1983 or earlier; although an inconsistency might
appear if scientific analysis could and did reveal how long the ink had been
applied to the paper. Having regard to the lack of evidence on these
questions, it is possible only to say that there is no scientific evidence to
suggest that the conclusion to which the evidence otherwise points is
inappropriate.
50. Finally, in relation to the fundamental contest between Flamingo Park and
Mercedes, it is submitted on behalf of the latter that the mere fact that
Mercedes did print the sexy print design for others without Flamingo Park's
consent is itself powerful evidence that those controlling Mercedes believed
themselves to be free to do so and is, therefore, evidence inconsistent with
the conversations alleged by Ms Kee. Counsel concedes that printing for
others does not of itself gainsay the existence of a contractual term
prohibiting such conduct but he says that the acceptance of such a contractual
term requires a finding against Mercedes "of gross carelessness or even
blatant knowing disregard of the exceptional contractual prohibition". I
accept that the view I have expressed carries the consequence that Mercedes
has acted in blatant disregard of Flamingo Park's rights but, in my opinion,
no other conclusion is open. In mitigation, perhaps, it may be noted that the
evidence suggests that Ms Kee's position was unique. Each of the witnesses
asked about the matter agreed that she or he knew of no other customer of
Mercedes who had created her or his own original designs. I suspect that not
enough attention was given to that circumstance and of Ms Kee's insistence
upon maintaining exclusive rights over her work. Instead, Mercedes' directors
acted in accordance with their normal practice.
The claims against Mercedes: liability
51. It follows from the above findings that the applicant has established the
existence of a contract between it and Mercedes relating to the printing of
the sexy print design, which contract contained an express term that Mercedes
would not use that design except in accordance with the instructions of the
applicant. That term has been breached. It is not necessary to consider the
arguments of counsel relating to an implied term.
52. As mentioned, the applicant also contends that, irrespective of contract,
the conduct of Mercedes infringes s.52 of the Trade Practices Act, amounts to
a passing off and constitutes a breach of a duty of confidence. Under some
circumstances, having regard to my conclusion upon the claim for breach of
contract, it would be unnecessary to deal with those claims. However, several
issues have been raised in relation to the proper computation of damages in a
case such as this; including the questions whether exemplary or aggravated
damages should be awarded. Under those circumstances, it is desirable to deal
with the other claims.
53. I have referred in two recent cases to the principles governing the
question whether the use by one party of a name resembling, or identical with,
the name of another constitutes misleading or deceptive conduct within the
meaning of s.52 of the Trade Practices Act: see Chase Manhattan Overseas
Corporation v Chase Corporation Limited (1986) ATPR 40-661, Hutchence v South
Sea Bubble Company Pty Limited (28 February 1986, not reported). Where a
person deliberately adopts a concocted or fancy name which is identical with,
or similar to, that of another person, not being a name merely descriptive of
the relevant business, it will readily be concluded that he or she is thereby
representing his or her business or goods to be that of the other: see the
comments, made in passing off cases, of Lord Simonds in Office Cleaning
Services Limited v Westminster Window and General Cleaners Limited (1946) 63
RPC 39 at p.42 and of Dixon and McTiernan JJ. in Australian Woollen Mills
Limited v F S Walton & Company Limited (1937) 58 CLR 641 at p.657.
54. It is conceded by Mercedes, in an answer to interrogatories admitted into
evidence in this case, that it delivered to customers other than the applicant
527 metres of fabric printed with the sexy print design and containing the
signature "J. Kee". Leaving aside a small test sample printed on lycra for
Ronmax, the fabric was admittedly delivered with the understanding that it
would be made into garments for retail sale. The evidence shows that Ms Kee
has enjoyed considerable publicity during recent years. It must be inferred
that her name would be known widely amongst members of the public interested
in the fashion industry or in the purchase of attractive clothing of
contemporary design. The delivery, therefore, of the signed fabric
constituted a representation likely to mislead such of those people who might
see the signature that the resultant garments were those of, or associated
with, Ms Kee. It is, of course, true that the manufacturer of the garments
would be likely to attach its own label to those garments -- as the evidence
shows that Dolly Dolly did in fact -- but this does not remove the likelihood
that at least a significant portion of purchasers of a garment would be
misled. Not all would look for the label but, even if a particular person did
appreciate that a garment was made up by a manufacturer other than Flamingo
Park, this would not necessarily negative a belief that the garment -- as
distinct from the print -- was designed by, or otherwise associated with, Ms
Kee. An intention to mislead is not, of course, a necessary ingredient of
conduct falling within s.52: see Hornsby Building Information Centre Pty
Limited v Sydney Building Information Centre Pty Limited (1977) 140 CLR 216 at
p.228. Neither is it material to inquire whether the defendant has taken
reasonable care -- see Parkdale Custom Built Furniture Pty Limited v Puxu Pty
Limited (1982) 149 CLR 191 at p.197 -- although, in the present case, it may
be noted that Mr Szabo became aware during the process of printing some of
this fabric that the tape had come away but that he took no steps to check the
material printed or to recall any fabric already delivered. I conclude, in
relation to the 527 metres containing the signature, that the conduct of
Mercedes infringed s.52 of the Act.
55. The position in respect of the remaining 2521 metres delivered to
customers other than Flamingo Park raises different considerations. As
Parkdale demonstrates, the mere sale by one manufacturer of goods similar to,
or even identical with, those of another will not usually constitute
misleading or deceptive conduct. The question must be whether there is
anything in the design used on garments made from those 2521 metres of fabric
which proclaims an association with Ms Kee.
56. Despite a submission to the contrary, I do not think that members of the
relevant section of the public would associate the material containing merely
the partial signature "ee" -- as distinct from the full "J. Kee" -- with Ms
Kee. The "ee" marking is unobtrusive. It is not obviously part of a person's
name. Whilst it appears that the full name "Kee" is well known, there is no
evidence to suggest a public awareness of Ms Kee's calligraphy so as to make
likely the recognition of a partial signature, even as part of a design of her
creation. It is true that Margaret McCallum, the editor-in-chief of the Vogue
magazines and a person with some 25 years experience in the fashion industry,
gave evidence as to certain characteristics of Ms Kee's style, characteristics
which are present in the sexy print design. Ms McCallum did not go so far as
to say that, if she had seen this design without the full signature, she would
have recognized it as a Jenny Kee design or otherwise associated it with Ms
Kee or Flamingo Park; but, even if that position may be inferred from her
evidence, it is another matter to conclude that there would be such a
recognition or association amongst members of the relevant section of the
general public. Ms McCallum is especially expert upon such subjects. There
is no evidence to lead me to the conclusion that the design itself -- with or
without the "ee" -- would convey any relevant representation to the public.
It is a fair comment, as stated by counsel for Mercedes, that Ms Kee's image
and reputation are generally associated with the use of recognisably
Australian motifs. The motifs used in this design are not peculiarly
Australian. The s.52 claim in relation to the 2521 metres must fail.
57. The elements necessary to establish the tort of passing off differ from
those required to make out a claim under s.52 of the Trade Practices Act; but
in a case such as the present it is unlikely that there will be a difference
in result. In order to succeed in its passing off claim, the applicant must
establish that there was a misrepresentation by Mercedes concerning Mercedes'
product, that is the fabric, resulting in a likelihood of damage to Flamingo
Park; as for example causing confusion adversely affecting its goodwill --
see Erven Warnink Besloten Vennootschap v J Townend & Sons (Hull) Limited
(1979) AC 731, Lego System Aktieselskab v Lego M Lemelstrich Limited (1983)
FSR 155 -- or wrongfully appropriating its name and reputation -- see
Henderson v Radio Corporation Pty Limited (1960) SR (NSW) 576, Totalizator
Agency Board v Turf News Pty Limited (1967) VR 605. There is, in the present
case, no doubt that, to the extent to which they are apparently associated
with Ms Kee, garments distributed upon the mass market, being of inferior cut
and finish to those of the applicant, are likely to cause confusion adversely
affecting the goodwill of the applicant and appropriating its name and
reputation. It is no answer to say, as does counsel for Mercedes, that
inferior garments will not be attractive to Flamingo Park's usual clientele.
That circumstance does not remove the confusion; rather, by causing people to
think that Ms Kee has lowered her standards, it exacerbates the damage. The
magazine clippings tendered in evidence demonstrate that the reputations of
the applicant and of Ms Kee are closely related. The applicant predominantly
sells garments designed by Ms Kee; so the goodwill and reputation of the
applicant are largely dependent upon the reputation attaching to Ms Kee
personally. Insofar as the applicant has shown a misrepresentation of
association -- as in my view it has in relation to the 527 metres of fabric
printed with the full signature -- the claim in passing off is made out.
Insofar as it has failed to show such a misrepresentation, that is in respect
of the remaining 2521 metres, the passing off claim must fail.
58. Finally, I turn to the claim based upon alleged breach of a duty of
confidentiality. In Commonwealth of Australia v John Fairfax & Sons Limited
(1980) 147 CLR 39 at p.50, Mason J. adopted the principle, stated by Swinfen
Eady LJ in Lord Ashburton v Pape (1913) 2 Ch 469 at p.475, that a court
exercising equitable jurisdiction will "restrain the publication of
confidential information improperly or surreptitiously obtained or of
information imparted in confidence which ought not to be divulged". The
principle is generally traced back to three 19th century decisions, Abernethy
v Hutchinson (1824) 3 L J Ch 209, Prince Albert v Strange (1849) 18 L J Ch 120
and Morison v Moat (1851) 20 L J Ch 513, (1852) 21 L J Ch 248, although -- as
is pointed out by Meagher, Gummow and Lehane in "Equity - Doctrines and
Remedies" (2nd ed.) para.4106 -- those were each cases in which the plaintiff
had rights under contract or the law of copyright; and the modern doctrine is
clearly independent of any such limitation: see Saltman Engineering Company
Limited v Campbell Engineering Company Limited (1948) 65 RPC 203 at
pp.211-212, Seager v Copydex Limited (1967) 1 WLR 923 at p.931.
59. In Coco v A N Clark (Engineers) Limited (1969) RPC 41 at p.47 Megarry J
itemised three elements which "are normally required if, apart from contract,
a case of breach of confidence is to succeed": first, that the information
must be of a confidential nature, secondly, that it must have been imported in
circumstances importing an obligation of confidence and, thirdly, there must
be an unauthorised use of that information to the detriment of the party
communicating it. There is, in the present case, little doubt that the second
and third elements are proved but, from the viewpoint of the applicant, there
is a difficulty about the first requirement. In Saltman Engineering Lord
Greene MR at p.215 said that the information "must not be something which is
public property and public knowledge ... However confidential the
circumstances of communication, there can be no breach of confidence in
revealing to others something which is already common knowledge".
60. What constitutes "common knowledge" is sometimes a matter of degree --
see Commonwealth v John Fairfax at p.54, Ansell Rubber Co Pty Limited v Allied
Rubber Industries Pty Limited (1967) VR 37 at pp.44-51, Interfirm Comparison
(Australia) Pty Limited v Law Society of New South Wales (1975) 2 NSWLR 104 at
pp.117-118, G v Day (1982) 1 NSWLR 24 at pp.37-41 -- but there will also be
cases in which the disclosure is so complete that there is no longer a secret
to protect: see O'Mustad & Son v Dosen (1964) 1 WLR 109 at p.111. That is
the present case. This case is not one where an article is put upon the
market which must be analysed if information is to be procured as to its
design: compare Conveyor Co of Australia Pty Limited v Cameron Bros
Engineering Co Limited (1973) NZLR 38 and Yates Circuit Foil Company v
Electrofoils Limited (1976) FSR 345. This is a case where the applicant had
itself published the design, displayed for all to see on every sexy print
garment which it sold. The evidence establishes that a design printed on
fabric may be reproduced, for printing on other fabric, by a simple
photocopying process. The situation is the same as if a person published a
document and then sought, in reliance upon the law relating to breach of
confidentiality, to restrain the further publication of that document by
another.
61. It is understandable that the applicant should feel aggrieved that a
design developed by it for its own use should be taken by others, for their
own purposes, without its permission. This is a situation against which it
would be usual to look for protection to the law of copyright. However,
although breach of copyright was pleaded, the applicant does not press that
claim; no doubt because of the circumstance that the design was not
registered under the Designs Act 1906 and of the provisions of s.77 of the
Copyright Act 1968. This case constitutes a further example of the injustice
of those provisions, upon which I commented in Hutchence at pp.29-31.
62. As there was a contractual relationship between the applicant and
Mercedes, there is a question whether the law of confidential information
could, in any event, have any application to this case: see Meagher, Gummow
and Lehane para.4104. But that is a matter which I need not consider. It is
my view that, even if that law did apply at the time when the design was
delivered to Mercedes, it ceased to have any relevance once Flamingo Park
published the design by selling its garments.
The claims against Mercedes: relief
63. The conclusions I have reached, upon issues of liability, in relation to
the applicant's claim against Mercedes are that Mercedes has acted in breach
of contract with the applicant in respect of the whole of the 3048 metres of
fabric supplied to others, that in respect of 525 metres the conduct of
Mercedes infringed s.52 of the Trade Practices Act and constituted a passing
off and that Mercedes is not liable to the applicant in respect of breach of a
duty of confidence. Having regard to my conclusions as regards breach of
contract, it is appropriate to grant to the applicant an injunction
restraining the use of the design, and the sale or supply of fabric printed
with that design, other than in accordance with the instructions of the
applicant. That order will encompass any dealing in fabric containing the
name "J. Kee" so that there is no need to make the injunction which I would
otherwise make, to give effect to my conclusions on the s.52 and passing off
claims, concerning material bearing that name.
64. The applicant also seeks damages. In relation to that claim, having
regard to my conclusions and the submissions of counsel, four questions
emerge: in the light of the facts that the quantity of sexy print fabric put
onto the market by reason of the action of Mercedes exceeds that which would
have been likely to have been distributed by Flamingo Park and that Flamingo
Park serves a segment of the market different from that served by the other
manufacturers for whom Mercedes printed the sexy print design, whether
Flamingo Park has suffered damage and, if so, how the general damages for
breach of contract should be assessed; whether the applicant is entitled to
have included in its award of damages for breach of contract any amount
representing compensation for loss of reputation; whether any amount,
additional to the damages for breach of contract, should be added to reflect
the applicant's limited success in respect of the claims under s.52 and the
law of passing off; and whether exemplary or aggravated damages may, or
should, be awarded.
65. Dolly Dolly operates a chain of 15 shops in Sydney, Melbourne and
Adelaide, selling relatively inexpensive female garments. The fabric printed
with the sexy print design for that company by Mercedes was used to make up
113 two-piece suits -- representing two different garment cuts -- and 18
dresses. These garments -- in texture, cut and finish -- were markedly
inferior to those produced by the applicant out of the fabric which it had
printed with the same design. Reflecting that fact, the Dolly Dolly garments
were offered at a considerably lower price -- something like a third of the
comparable Flamingo Park price. There is no evidence as to the garments
produced by the other manufacturers on whose behalf Mercedes used the sexy
print design; but it is accepted that they were in the same segment of the
market as Dolly Dolly and that their prices -- and no doubt their quality
standard -- were likely to be comparable to those of Dolly Dolly rather than
those of Flamingo Park. Under those circumstances it is contended on behalf
of Mercedes that no damage has been sustained by Flamingo Park by reason of
any breach by Mercedes of a term of its contract relating to exclusivity. It
is said that it is unlikely that Flamingo Park has lost any sales by reason of
the fact that the sexy print design is available through other retailers;
and, therefore, that -- leaving aside for the moment the matter of reputation
-- no damage has been sustained.
66. I accept that Flamingo Park serves a different section of the market from
that supplied by the other retailers who have used the sexy print and that it
is unlikely that any significant number of potential purchasers of a Flamingo
Park sexy print garment have satisfied their needs by purchasing a sexy print
garment from one of the other retailers; but I do not think that it follows
that no damage has been sustained by the putting onto the market of these
additional garments. One of Ms Kee's policies has been to so regulate her
sales as to give to her customers confidence that they are unlikely to be
confronted by another person wearing a closely similar garment. And if there
is anything worse, from a wearer's point of view, than the knowledge that the
print used on one's own expensive garment is being worn by great numbers of
people, it is the realisation that that print is more usually associated with
garments of inferior quality. The practical effect of the release onto the
market of large quantities of inferior quality sexy print garments must be to
diminish the market for Flamingo Park's sexy print garments. Some portion of
the benefit which Flamingo Park was entitled to gain from Ms Kee's design is
thus lost to it. It is true that the volume of sales of Flamingo Park sexy
print garments in the year immediately following the supply of this design to
Dolly Dolly and others was not markedly different from the preceding year.
However, this does not demonstrate that sales were not lost; there may have
been a substantial increase absent the unauthorised use of the print. And,
there may be losses in the future. It does not appear how many of the
garments made from fabric printed for others than Dolly Dolly have yet been
sold. The applicant may have, to a considerable extent, "over-hanging (its)
market ... a quantity of deceptive goods which are liable to be sold at any
moment": see Draper v Twist (1939) 3 All ER 513 at p.519.
67. Counsel for the applicant led evidence from the company's accountant, Mr
J D Thomas, relating to a calculation made by him as to the profit which would
have been earned if Flamingo Park had manufactured into garments 3048 metres
of fabric printed with the sexy print design. The assumption was that the
distribution of the fabric -- as between different garment types -- would be
in the same proportions as for the sexy print garments already manufactured by
Flamingo Park, that the garments would achieve the usual Flamingo Park
standard and that unit costs and prices would be the same as for the actual
sexy print sales. However, differing from the actual experience and because
of the greater volume involved, the assumption was that only one-third of the
garments would be sold at the Strand Arcade shop, the remaining two-thirds
being wholesaled through selected retailers. The analysis showed a total of
541 garments for retail sale, yielding a gross profit of $42,720, and 1082
garments for wholesale sale, yielding a gross profit of $18,235. The
resultant total, $60,955, was then reduced by tax of 46% giving a final figure
of $32,916. This amount is claimed by the applicant under this head of
damages.
68. Mercedes does not dispute the accuracy of the computation made by Mr
Thomas but it attacks its major assumption: that, absent Mercedes' conduct,
the applicant would have been likely to sell an additional 1623 garments.
Mercedes points out that, in the period of two years from the first printing
of the sexy print design until the trial, Flamingo Park made up only 280 sexy
print garments.
69. The fundamental principle of the common law, in the words of Parke B in
Robinson v Harman (1848) 1 Exch 850 at p.855 is that "where a party sustains a
loss by reason of a breach of contract, he is, so far as money can do it, to
be placed in the same situation with respect to damages, as if the contract
had been performed". But the literal application of that principle in all
cases would be unfair, fixing some contract breakers with liability beyond any
possible contemplation. Accordingly, in Hadley v Baxendale (1854) 9 Ex 341 --
to which Parke B was himself a party -- the Court of Exchequer at p.354
modified the principle by postulating that:
"Where two parties have made a contract which
one of them has broken, the damages which the
other party ought to receive in respect of
such breach of contract should be such as may
fairly and reasonably be considered as either
arising naturally i.e. according to the usual
course of things, from such breach of contract
itself, or such as may reasonably be supposed
to have been in the contemplation of both
parties, at the time they made the contract,
as the probable result of the breach of it".
The effect of these rules, as refined in subsequent
cases, was analysed and summarized by the English Court of Appeal in Victoria
Laundry (Windsor) Limited v Newman Industries Limited (1949) 2 KB 528 at
pp.539-540; it being observed that, in order that the contract breaker may be
held liable, it is not necessary that he should actually have asked himself
what loss is liable to result from the breach. It is enough that, if he had
considered the question, he would as a reasonable man have concluded that the
loss in question was liable to result: using the phrase "liable to result" as
meaning that such a loss was "a serious possibility" or a "real danger".
70. In C Czarnikow Limited v Koufos (1964) 1 AC 350 the House of Lords
considered the application of the rule in Hadley v Baxendale to a claim for
damages for breach of a charterparty. At p.385 Lord Reid said:
"I am satisfied that the court did not intend
that every type of damage which was reasonably
foreseeable by the parties when the contract
was made should either be considered as
arising naturally, i.e., in the usual course
of things, or be supposed to have been in the
contemplation of the parties. Indeed the
decision makes it clear that a type of damage
which was plainly foreseeable as a real
possibility but which would only occur in a
small minority of cases cannot be regarded as
arising in the usual course of things or be
supposed to have been in the contemplation of
the parties: the parties are not supposed to
contemplate as grounds for the recovery of
damage any type of loss or damage which on the
knowledge available to the defendant would
appear to him as only likely to occur in a
small minority of cases.
... it is not enough that in fact the
plaintiff's loss was directly caused by the
defendant's breach of contract. ... The
crucial question is whether, on the
information available to the defendant when
the contract was made, he should, or the
reasonable man in his position would, have
realised that such loss was sufficiently
likely to result from the breach of contract
to make it proper to hold that the loss flowed
naturally from the breach or that loss of that
kind should have been within his
contemplation."
71. In Czarnikow a variety of tests were adopted to describe the requisite
degree of predictability of damage: that it was "not unlikely" -- Lord Reid at
p.388, Lord Morris of Borth-y-Gest at p.406 -- "liable to result" -- Lord
Hodson at pp.410-411 -- "serious possibility or real danger" -- Lord Pearce at
pp.414-415, Lord Upjohn at p.425. In the present case, when she entered into
the contract to print the sexy print design, Ms Banhegyi was aware that the
fabric was required for the purpose of being made into garments for sale by
Flamingo Park. She knew the nature of the business of Flamingo Park. She
knew Ms Kee's reputation as a designer. Applying the approach of Lord Reid in
Czarnikow, and adopting the most onerous of the suggested degrees of
predictability, it must be held that, when the contract was made, a reasonable
person in the position of Ms Banhegyi would have realised that, if the term of
exclusivity was breached and others put onto the markets garments of sexy
print design, it was not unlikely that Flamingo Park would lose sales. I
think that the loss arises out of the first rule in Hadley v Baxendale, that
is according to the usual course of things from such a contract, but if this
is erroneous the loss must certainly be taken to have been in the
contemplation of the parties. I have in mind the evidence of Ms Kee, which I
accept, of her reference to originality and of her requirement that "you must
not print this for anyone else". It may be that Ms Banhegyi did not
contemplate, and that a reasonable person in her position would not have
contemplated, the extent of the loss claimed by the applicant in the present
proceedings; but this does not appear to be material. Provided that there is
the requisite degree of likelihood of the relevant kind of damage, it is not
necessary that the extent of that damage also be predictable: see Vacwell
Engineering Co Limited v B D H Chemicals Pty Limited (1971) 1 QB 88 at p.107,
H Parsons (Livestock) Limited v Uttley Ingham & Co. Limited (1978) 1 QB 791 at
p.813. It follows that Mercedes is liable for damages in respect of whatever
loss was suffered by the applicant as a result of its breach of contract.
72. The parties have argued the matter of loss on an "all or nothing" basis,
the applicant relying upon Mr Thomas' calculation and Mercedes contending that
there was no loss. But I do not find the matter so simple. I think that, as
a matter of commonsense and the for the reasons already indicated, it is
probable that the use by others of the sexy print design has and will cost
Flamingo Park sales. However, I see no reason to believe that the loss equals
the amount which would have been earned if Flamingo Park had chosen to have
printed for its own use the same quantity of fabric. The applicant's approach
involves assumptions that the only limitation upon the sales potential of
Flamingo Park sexy print garments is the volume of sexy print garments already
available to, or being worn by, purchasers and that each metre of inferior
sexy print fabric displaces a metre of Flamingo Park sexy print fabric. I do
not think that those assumptions are justified. It is true that Ms McCallum
spoke of the lasting quality of Ms Kee's designs. She said that they "are not
ephemeral. I believe they endure". I take from this an opinion that, in
contrast perhaps with some fashion designs, it might normally have been
expected that the sexy print design would go on selling over a substantial
period of time. But no witness gave an estimate of the sales life of the
design or of the total volume which might have been achieved. Ms McCallum did
refer to the increasing overseas interest in Australian design -- and in
particular in Ms Kee's designs -- and Ms Kee indicated that she was moving to
expand her overseas sales; but 3,048 metres represents about six times the
volume of sexy print fabric which Flamingo Park in fact sold over a period of
two years. I find it difficult to believe that the actions of the respondent
have cost Flamingo Park sales equal to 12 years' supply at the rate actually
achieved. It may be accepted that, if Ms Kee were faced with the necessity of
getting rid of 3,048 metres of this fabric, she would take the marketing steps
outlined in her evidence, and assumed for his calculation by Mr Thomas, but I
do not think that, absent the respondent's breach, there would ever have been
any question of sales of that order. As Ms Kee herself said, the sale of 3,048
metres would be a very different type of marketing operation from that to
which she is accustomed.
73. It is not possible to demonstrate by reference to the evidence or by
calculation the correctness of any particular figure for lost sales;
nonetheless some estimate must be made: see Enzed Holdings Limited v Wynthea
Pty Limited (1984) 57 ALR 167 at pp.183-184. All that one can do is to make a
judgment about the probable situation and to select a figure which reflects
that judgment. According to Ms Kee's calculation, in the two years to the
trial 277 garments were manufactured from the sexy print fabric supplied to
the applicant. Of the 277 garments, 160 were sold at the Strand Arcade shop
and 107 were sold wholesale. Provided the resultant figure is not unrealistic
in terms of the sales capacity of the shop, in estimating the loss of profits
this same ratio of retail to wholesale sales -- rounded out it is 3:2 --
should be used, rather than the 1:2 ratio assumed by Mr Thomas and which has
no basis in fact. I think that, in lieu of the 1623 garments, representing
3,048 metres, assumed by Mr Thomas, it is more realistic to assume a sales
loss over the life of the design of about two years' sales, 300 garments,
representing roughly 560 metres. At a ratio of 3:2 this assumes 180 garments
sold in the Strand Arcade -- a figure well within the capacity of the shop --
and 120 garments sold in the wholesale trade. Applying these sales volumes to
Mr Thomas' calculation, but adopting it in all other respects, yields gross
profits as follow: retail $14,208, wholesale $2,018, total $16,226. This
total produces a net figure, after deducting tax at 46%, of $8,762.
74. The next question is whether there ought to be any addition to this
figure to compensate the applicant for damage to goodwill and reputation.
There is no doubt that the action of Mercedes in releasing onto the market,
for use in inferior quality garments, a fabric design bearing the name of Ms
Kee has adversely affected her reputation as a designer and the goodwill and
reputation of Flamingo Park. Both Ms Kee and Ms McCallum gave evidence to this
effect and pointed out the close relationship between the control of the
quality of garments and the reputation of a leading fashion designer. There
was no evidence to the contrary.
75. But counsel for Mercedes contends that, in an action in contract, damages
for loss of reputation may not be awarded. He refers to Addis v Gramophone
Company Limited (1909) AC 488 in which the House of Lords held that, in an
action for wrongful dismissal, compensation may not be awarded for the injured
feelings of the plaintiff or because the fact of the dismissal makes more
difficult the obtaining of new employment. That decision was for a long time
generally treated as excluding compensation in contract cases for
non-pecuniary damage. But in the 12th edition of "McGregor on Damages" it was
argued that there was no reason why it should be so. It was said that, just
as a failure to pay money will generally not attract damages, other than
interest, because no more is in the contemplation of the parties, mental
distress does not, for the same reason, usually form a head of damage; but
that the basic criterion is the parties' contemplation and the scope of the
contract and that there may be cases in which it is within the contemplation
of the parties that breach will result in mental suffering. Following upon
that suggestion, there were a number of awards of damages for mental distress
and inconvenience arising out of spoiled holidays -- Jarvis v Swans Tours
Limited (1973) 1 QB 233, Jackson v Horizon Holidays Limited (1975) 1 WLR 1468,
Athens - Macdonald Travel Service Pty Limited v Kazis (1970) SASR 264 --
incompetent legal representation -- Heywood v Wellers (1976) 1 QB 446 -- or
breach of a contractual term as to the responsibilities to be allocated to an
employee -- Cox v Philips Industries Limited (1976) 1 WLR 638. It is not yet
clear how far the courts will be prepared to go in this direction. As is
pointed out in the 14th edition of McGregor (para.72), the cases in which
damages have been awarded for mental distress are all cases in which a purpose
of the breached term was to provide mental satisfaction, in one form or the
other. Thus the distress was not merely an incidental result of the breach;
it represented a denial of the purpose of the promise.
76. There is one area of law in which, notwithstanding the influence of
Addis, damages have been awarded, in contract, for loss of reputation. In
Marbe v George Edwardes (Daly's Theatre) Limited (1928) 1 KB 269 the English
Court of Appeal held that an actress, whose contract of engagement in a play
was breached, was entitled to recover damages, including compensation for loss
of reputation; that is, loss both of the further reputation which she would
have acquired had the contract been honoured and damage to the reputation she
already had. This was all referred to as "loss of publicity". In a similar
case shortly afterwards, Herbert Clayton and Jack Waller Limited v Oliver
(1930) AC 209, the House of Lords held that damages were recoverable for "loss
of publicity". That term was not defined but it is noteworthy that Viscount
Dunedin, who agreed with the principal speech -- that of Lord Buckmaster --
specifically held that Marbe was rightly decided. Puzzlingly, notwithstanding
that fact, in Withers v General Theatre Corporation Limited (1933) 2 KB 536 at
p.547, Scrutton LJ interpreted Oliver as permitting recovery only in respect
of the loss of prospective advantage, not of existing reputation.
77. Whether or not Scrutton LJ was correct in his understanding of the
intention of the House of Lords in Marbe, there appears to be no reason why,
especially in the light of the recent authorities which depart from what was
once thought to be a strict general rule against permitting recovery for
non-pecuniary damage, awards of damage should not in all appropriate cases
include compensation for loss of reputation; at least in a case where the
purpose of the breached term was to enhance or to safeguard reputation. As
McGregor points out, at para.74, the proposition that damages are not
recoverable for injury to the reputation is "closely connected with, and
established by the same authorities as, the proposition, now largely eroded,
that no damages are recoverable for injury to the feelings". Although, no
doubt, Addis remains authoritative in relation to the precise question there
decided and arising out of wrongful dismissal, there appears to be no reason
why, in other situations, reputation should not be treated in the same manner
as mental distress; or, to put the matter in another way, why the approach
taken in Marbe should not be applied to all relevant cases. I am encouraged
in this opinion by the fact that in Brabazon v Western Mail Limited (1985) 58
ALR 712 at p.718 Toohey J expressed the view that s.82 of the Trade Practices
Act permits the recovery of damages in respect of loss of reputation; his
Honour drawing on the contract cases I have mentioned in which damages have
been awarded for mental distress.
78. Any assessment of damages for loss of reputation must necessarily be made
with a broad brush; as in a defamation case a court can do no more than fix a
sum of money which, in the whole of the circumstances, appears to be
proportionate to the damage which has been incurred. The greater the
reputation, the more vulnerable it is to damage. In the present case the
damage was in the area of greatest sensitivity; the applicant's reputation
for excellence and for limitation of output. I think that the damage was
likely to have been considerable and that an appropriate sum of money to allow
for damage to reputation is $30,000.
79. The third question, in relation to damages, is whether any additional
allowance should be made in respect of the claims under s.52 and the law of
passing off, to the extent that they are successful. I think not. The High
Court of Australia, in Gates v The City Mutual Life Assurance Society Limited
(26 February 1986, not reported) has recently approved a line of decisions in
this Court to the effect that the proper approach to the assessment of damages
under s.82 of the Trade Practices Act, for infringements of s.52 of that Act,
is to compare the position of the applicant with the position in which he or
she would have been if the misleading or deceptive conduct had not occurred:
see Brown v Jam Factory Pty Limited (1981) 53 FLR 340 at p.351, Mister Figgins
Pty Limited v Centrepoint Freeholds Pty Limited (1981) 36 ALR 23 at p.59,
Hubbards Pty Limited v Simpson Limited (1982) 41 ALR 509 at pp.517-518, Yorke
v Ross Lucas Pty Limited (1982) 45 ALR 299 at p.315, Gates v City Mutual Life
Assurance Society Limited (1983) 68 FLR 101 at p.104. The High Court confirms
that, as held in Frith v Gold Coast Mineral Springs Pty Limited (1983) 47 ALR
547 at pp.565-566, consequential losses may be recovered. These may extend to
opportunity costs: see per Mason, Wilson and Dawson JJ at p.12. The High
Court was not concerned with the matter of damage to reputation but the
approach taken is consistent with the view expressed in Brabazon that, in a
proper case, damages under s.82 may extend to damage to reputation.
80. The position in relation to the assessment of damages for passing off
will usually be the same as for conduct falling within s.52: see Prince
Manufacturing Inc v Abac Corporation Australia Pty Limited (1984) 57 ALR 159
at p.165. In the present case the damage suffered in relation to these two
causes of action -- loss of sales and loss of reputation -- is the damage
flowing from Mercedes' breach of contract. To add any extra amount in respect
of s.52 and passing off would be to duplicate compensation.
81. Finally, the applicant seeks exemplary or aggravated damages. The
distinction between the two was adverted to by Hunt J in Bickel v John Fairfax
and Sons Pty Limited (1981) 2 NSWLR 47 at p.496; aggravated damages being
given to compensate a plaintiff for aggravated damage occasioned by the
defendant's conduct or subsequent behaviour and exemplary damages being given
to punish the defendant, not to compensate the plaintiff.
82. The damages which I have already assessed are intended to provide for the
applicant full compensation for the conduct of Mercedes attracting liability
whether in breach of contract or in tort. There is no relevant subsequent
behaviour. There is, therefore, no occasion for the award of aggravated
damages; assuming this to be a course open to the Court.
83. The High Court has rejected, for Australia, the limitations upon the
circumstances in which exemplary damages may be awarded which were suggested
by Lord Devlin in Rookes v Barnard (1964) AC 1129 at pp.1226-1228: see Uren v
John Fairfax & Sons Pty Limited (1966) 117 CLR 118. This rejection was
accepted by the Privy Council in Australian Consolidated Press v Uren (1969) 1
AC 590. The traditional view, which thus remains the law in Australia, is
that exemplary damages may be awarded, without rigid limitation as to
categories, to punish a defendant whose conduct has been high-handed,
insolent, vindictive, malicious or in contumelious disregard of the
plaintiff's rights. According to McGregor (14th ed. para.323) there has never
been an award of exemplary damages for breach of contract; although the
learned author suggests that, in the wake of Rookes v Barnard, this may now be
possible in England. It is not impossible to conceive of circumstances in
which a defendant's conduct, in relation to a breach of contract, will be
conduct of the type attracting exemplary damages in tort. However, that would
probably be a rare event; and if it arose it would be a matter of policy for
the courts to determine whether it was appropriate to extend what some see as
an anomaly -- punishment in a civil action -- from tort into contract law.
The question does not arise in the present case. Although the circumstances
of Mercedes' breach of contract reflect no credit upon that company, its
behaviour does not merit the epithets necessary, upon the traditional view, to
attract exemplary damages.
84. The argument for the award of exemplary damages in a passing off action
is perhaps easier to make than is the argument in respect of breach of
contract. Passing off is a tort and it is not difficult to think of
circumstances in which a passing off may be in contumelious disregard of a
plaintiff's rights. But this is not such a situation. The passing off in
this case is limited to those lengths of fabric which were printed with Ms
Kee's name. This was accidental. There is no occasion for the award of
exemplary or aggravated damages.
85. I award to the applicant damages against Mercedes in the sum of $38,762;
being $8,762 for loss of sales and $30,000 for damage to reputation.
The applicant's claims against Dolly Dolly and Mr and Mrs Spieser
86. I have already indicated that the applicant alleges that Dolly Dolly has
acted in contravention of s.52 of the Trade Practices Act -- Mr and Mrs
Spieser being knowingly concerned in that contravention -- and that it has
passed off its garments as being those of the applicant. Having regard to the
matters already discussd I can deal shortly with these claims.
87. I am not satisfied that Dolly Dolly was made aware of the connection
between the applicant and the sexy print design at the time when Mrs Spieser
selected this design for printing. On this issue I prefer the evidence of Mrs
Spieser and Ms Aprahamian to that of Ms Banhegyi, whose evidence I regard as
generally unreliable. It is true that some of the garments sold by Dolly
Dolly bear the name "J. Kee", but there is no evidence that anyone in
authority in Dolly Dolly was aware of that fact until after the commencement
of these proceedings. So far as the evidence indicates, the first occasion
upon which the connection with Ms Kee was drawn to the attention of any such
person was when Mr Spieser was served with the Application in these
proceedings and with notice of the ex parte order which had been made by Fox J
on 29 January 1985. The circumstances of that service, and Mr Spieser's
subsequent actions, are set out in my reasons for judgment in the contempt
proceedings, which reasons were by consent tendered in this proceeding upon
the basis that the findings of fact there contained -- to the extent that they
are presently relevant -- should be regarded as admitted facts in this
proceeding.
88. Notwithstanding the lack of actual knowledge of the position by persons
in authority in Dolly Dolly and for reasons already stated, the sale by that
company of garments bearing the name "J. Kee" constituted a contravention of
s.52 of the Trade Practices Act and a passing off. The sale of such garments
was brought to a halt only by the injunction made by Fox J and the applicant
is entitled to a permanent injunction restraining any further sales.
89. The applicant is also entitled to recover damages against Dolly Dolly.
These must be limited to the 24 metres of fabric printed with the full
signature of Ms Kee. I have referred to the measure of damages appropriate in
relation to the claims under s.52 and for passing off. In the present case
they will not, in practice, differ from those in respect of breach of
contract; but, of course, bearing in mind that Dolly Dolly sold only about 5%
of the fabric containing the full signature. I think that substantial justice
would be done by assessing the damages as between the applicant and Dolly at
about 5% of the amount allowed against Mercedes, say $1,950. In order to
avoid duplication it should be provided that satisfaction of one award of
damages will pro tanto satisfy the other.
90. There is evidence that Mr Spieser was aware of the position in relation
to the sexy print design as from the evening of 30 January 1985 and there is
room for criticism of the manner in which he handled the matter after that
time: see 59 ALR at p.263. However, there is no evidence that, at any
relevant time, Mr Spieser was aware of the continued sale -- if, in fact,
sales did occur -- of garments bearing the full signature. It cannot be said
that Mr Spieser was knowingly concerned in the breach by the company of s.52.
Consequently he is not liable under the Act: see Yorke v Lucas (1985) 59 ALJR
776.
91. In relation to Mrs Spieser the position is even clearer. During the
critical first few days after the proceedings were commenced and before sales
terminated -- except apparently in the Penrith shop -- Mrs Spieser was absent
interstate. The claim against Mr and Mrs Spieser personally must be
dismissed.
The cross-claim by Dolly Dolly against Mercedes
92. Dolly Dolly contends that, in relation to the supply to it of fabric
bearing the sexy print design, Mercedes contravened s.52 of the Trade
Practices Act. Counsel points out that s.4(2) of that Act provides that a
reference in the Act to engaging in conduct is to be read as a reference,
inter alia, to "refusing to do any act" and that this term is, in turn,
defined to include a reference to "refraining (otherwise than inadvertently)
from doing any act". The submission is that Mercedes, being under an
obligation of fair dealing so to do, deliberately refrained from telling Dolly
Dolly of the connection between Ms Kee and the design and in particular -- as
was admitted by Ms Banhegyi -- that nobody revealed to Dolly Dolly Mr Szabo's
knowledge that some of the fabric printed for that company bore Ms Kee's full
signature. Under those circumstances it is submitted that, if Dolly Dolly has
by selling garments made from the sexy print design engaged in misleading and
deceptive conduct, that conduct was the direct result of the failure of
Mercedes to inform it of the position, so that Dolly Dolly is entitled to be
indemnified against its liability to the applicant. This submission is sound
and a declaration ought to be made accordingly.
93. In addition Dolly Dolly claims damages from Mercedes; being the costs of
manufacture and the loss of profits on the garments made by it from sexy print
fabric which remain unsold. Of the 131 garments -- counting sets as a single
garment -- manufactured from the fabric only 39 have been sold, leaving 92 in
stock. For the purpose of analysis they have been broken down into 179
individual units; treating, for example, a top and a skirt in a set as
separate units. Of these units, 18 contain the full signature of Ms Kee.
94. Dolly Dolly is entitled to recover from Mercedes the cost incurred by it
in relation to the manufacture -- including costs of distribution, collection
and storage -- of the units which it is to be permanently restrained from
selling; after giving credit for an allowance of $93.60 made by Mercedes in
respect of the 24 metres of fabric containing a full signature of Ms Kee.
However, there is not sufficient evidence to enable me to determine the extent
of that cost. It will be necessary to analyse the garments still held, having
regard to the fact that many consist of two units, to determine what is
saleable, consistently with the orders made in this case. It will then be
necessary to determine what costs have been incurred in connection with those
garments which are not saleable, either because they are directly affected by
the order or because they are saleable only in conjunction with another unit
which is so affected. Dolly Dolly and Mercedes probably can reach agreement
on these matters. I will make a declaration of entitlement to damages and
reserve leave to Dolly Dolly to apply for an assessment of the amount of
damages if necessary.
95. I do not propose to make any declaration of entitlement to damages for
loss of profits upon the garments which are not able to be sold. The approach
taken in respect of the assessment of damages under s.52 is to make such
assessment as will put the applicant in the same position, financially, as if
he or she had never entered into the transaction which flowed from the
misrepresentation. As was said by the Full Court in Gates at p.104 "the
question is not how much better off" (Mr Gates) "would have been if the
statements had been true but how much worse off he is by reason of having
taken the steps which he did in reliance on the statements". Of course, if
Dolly Dolly could show that, as a result of having invested capital in the
sexy print garments, it had precluded itself from obtaining other stock which,
upon the probabilities, could have been sold at a profit, it would be "worse
off" to the extent of that loss. But nothing of that nature has been
suggested.
Orders
96. I propose to dissolve the existing injunctions and make orders, summarily
stated, as follows:
I) Restrain Mercedes, except in accordance with the
prior instructions of the applicant, from using the
sexy print design in the printing of any fabric and
from supplying fabric printed with that design.
II) Enter judgment for the applicant against Mercedes
for damages assessed in the sum of $38,762.00.
III) Restrain Dolly Dolly from selling, offering for
sale, supplying or otherwise in trade or commerce
dealing with any garment manufactured from fabric
containing the sexy print design and including
therein the signature "J. Kee".
IV) Enter judgment for the applicant against Dolly
Dolly for damages assessed in the sum of
$1,950.00.
V) Provide that satisfaction of the judgment under
order (II) or under (IV) shall operate as a pro
tanto satisfaction of the judgment under the other
order.
VI) Dismiss the proceedings against Mr and Mrs Spieser.
VII) In the cross-claim declare that Dolly Dolly is
entitled:
(a) to be indemnified by Mercedes
against all costs and liabilities
incurred by it under this order as
against the applicant; and
(b) to recover damages against Mercedes
in respect of the cost incurred by
it in the manufacture, distribution,
collection and storage of all
garments unable to be sold by it as
a result of the order (III) above.
VIII) Reserve liberty to apply on 7 day's notice for an
assessment of the damages payable under order
(VII)(b).
IX) The applicant should have orders for costs against
Mercedes and Dolly Dolly; Dolly Dolly to be
indemnified by Mercedes in respect of that order
and, in addition, to have from Mercedes its costs
of the principal proceeding and the cross-claim.
The applicant must pay any costs incurred by Mr and
Mrs Spieser in relation to the proceedings against
them personally which would not have been incurred
but for the joinder of one or both of them.