Misleading Conduct Prohibited: Injunction and Damages Awarded

The court granted an injunction and awarded damages for passing off and misleading conduct under the Fair Trading Act. The defendant registered and advertised a name similar to the plaintiff's well-known business, leading to confusion among potential customers.

New South Wales Supreme Court

CITATION : [NAME] v [NAME] [2009] NSWSC 1378

HEARING DATE(S) : 7 December 2009

JUDGMENT DATE : 14 December 2009

JUDGMENT OF : Gzell J

DECISION : Injunction granted. Damages of $5,000 awarded.

CATCHWORDS : TRADE PRACTICES AND RELATED MATTERS - Consumer Protection - passing off - Fair Trading Act 1987, s 42 - 25 years of business as [NAME] - [NAME] a competitor - it registers and advertises [NAME] and then [NAME] - limited evidence of actual confusion - modest fees for emergency services

LEGISLATION CITED : Fair Trading Act 1987 Trade Practices Act 1974 (Cth)

CATEGORY : Principal judgment

[COMPANY] v [NAME] (Aust) [COMPANY] (1992) 33 FCR 302 [NAME] v [NAME] & Sons (Hull) Ltd [1979] AC 731 [COMPANY] v [COMPANY] (1980) 55 ALJR 333 CASES CITED : [COMPANY] v [COMPANY] (No 2) [1984] HCA 73; (1983-1984) 156 CLR 414 [NAME] de Chocolat v Cadbury Ltd (1997) 41 IPR 1 Campomar Sociedad, Limitada v Nike International Limited [2000] HCA 12; (1999-2000) 202 CLR 45 Equity Access Pty Ltd v Westpac Banking Corporation (1989) 16 IPR 431 Anakin Pty Ltd v Chatswood BBQ King Pty Ltd [2008] FCA 1467; (2008) 250 ALR 620

PARTIES : [NAME] (Plaintiff) [NAME] (Defendant)

FILE NUMBER(S) : SC 4540/09

COUNSEL : [redacted] [NAME] (Defendant)

SOLICITORS : [redacted] [NAME] (Defendant)

IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION

GZELL J

MONDAY 14 DECEMBER 2009

4540/09 [NAME] v [NAME]

JUDGMENT 1 For 25 years a business has been conducted under the name [NAME]. [NAME], the plaintiff, has conducted a business called [NAME] for approximately 18 years. [NAME] bought [NAME] in 2005. 2 Like the other locksmiths in town, [NAME] advertised a 24-hour emergency service. 3 [NAME], the defendant, commenced a locksmith business in Bathurst under the name [NAME] in 2006. It advertised a 24 hour emergency service as did [NAME], the largest locksmith business in Bathurst. 4 On 29 June 2009, [NAME] registered the name [NAME] and an entry was placed in the online yellow pages immediately below [NAME] and immediately above [NAME]. 5 A complaint was made on [NAME]' behalf and on 25 August 2009 the name [NAME] was cancelled and the name [NAME] was registered and thereafter advertised. 6 [NAME] seeks injunctive relief and damages for passing off and for misleading and deceptive conduct in contravention of the Fair Trading Act 1987, s 42. 7 [COMPANY] v [NAME] (Aust) [COMPANY] (1992) 33 FCR 302, Lockhart J carried out an exhaustive consideration of the authorities on passing off. At 308 of that fine analysis, his Honour described portion of the speech of Lord Diplock in [NAME] v J [NAME] & Sons (Hull) Ltd [1979] AC 731 at 742 as a passage that had come to be regarded as the authoritative statement of the necessary elements to establish passing off. His Lordship said: "My Lords, A G Spalding & Bros v [COMPANY] , 84 LJ Ch 449 and the later cases make it possible to identify five characteristics which must be present in order to create a valid cause of action for passing off: (1) a misrepresentation, (2) made by a trader in the course of trade, (3) to prospective customers of his or ultimate consumers of goods or services supplied by him, (4) which is calculated to injure the business or goodwill of another trader (in the sense that this is a reasonably foreseeable consequence) and (5) which causes actual damage to a business or goodwill of the trader by whom the action is brought or (in a quia timet action) will probably do so." 8 Lord Fraser of Tullybelton at 755-756 also considered the elements of a passing off action: "It is essential for the plaintiff in a passing off action to show at least the following facts: — (1) that his business consists of, or includes, selling in England a class of goods to which the particular trade name applies; (2) that the class of goods is clearly defined, and that in the minds of the public, or a section of the public, in England, the trade name distinguishes that class from other similar goods; (3) that because of the reputation of the goods, there is goodwill attached to the name; (4) that he, the plaintiff, as a member of the class of those who sell the goods, is the owner of goodwill in England which is of substantial value; (5) that he has suffered, or is really likely to suffer, substantial damage to his property in the goodwill by reason of the defendants selling goods which are falsely described by the trade name to which the goodwill is attached." 9 These passages were described as declarations of principle of general application by the Privy Council in [COMPANY] v [COMPANY] (1980) 55 ALJR 333 at 335. And Deane J cited Lord Diplock's statement with apparent approval in [COMPANY] v [COMPANY] (No 2) [1984] HCA 73; (1983-1984) 156 CLR 414 at 443-444. 10 It was submitted that none of the elements identified by Lord Diplock were established. 11 It was submitted that the plaintiff had not put on evidence that [NAME] business had a value attributable to the use of those words. It was submitted that there was no evidence that there was a perception in Bathurst or the Central West that [NAME] connoted a quality of service as a locksmith that other words did not. 12 [NAME] business was carried on from its premises in Bathurst continuously over the 25-year period. The name [NAME] was prominently displayed for all passers by to see on its shop front as were its services. 13 [NAME] was aware of the business while he traded as [NAME]. He paid $220,000 for [NAME] of which $169,500 was attributed to goodwill. One might think that was not an insignificant amount in 2005. 14 [NAME] and its services have been advertised in the yellow pages year after year with the name [NAME] prominently displayed. 15 For the year ended 30 June 2008, [NAME] made a profit just under $50,000 on a turnover of just over $272,500. [NAME] expects the combined total of sales for [NAME] and [NAME] in 2009 to be slightly greater than the combined figure of over $601,000 in 2008. 16 In the competitive market of three locksmiths in Bathurst together with locksmiths from the surrounding area such as Orange advertising into Bathurst, [NAME] must have had a reputation for quality service to be able to maintain an increasing turnover from its business. 17 [NAME] must have thought [NAME] had a good reputation otherwise he would not have paid so much as he did for goodwill. 18 The name of a place can acquire a distinctive reputation and goodwill as, for instance, Swiss chocolate ([NAME] de Chocolat v Cadbury Ltd (1997) 41 IPR 1 at 10). 19 I find that [NAME] had established a reputation for the services it offered and because of that reputation there was goodwill attached to the name [NAME]. 20 In terms of the first three elements identified by Lord Fraser, [NAME] sells services to which its name, [NAME], applies. The name [NAME] distinguishes [NAME]' services from services provided by [NAME] and [NAME]. The other two locksmiths distinguish their services by the prominent display of their names and the identification of their services on their premises and in advertising material. Because of the reputation of [NAME] for its services, there is goodwill attached to its name. 21 As to the fourth element of Lord Fraser, [NAME] is the owner of that goodwill. What is a substantial value for goodwill is a relative matter. What to one person may be a substantial value may be a pittance to another. Lord Fraser was dealing with a case seeking injunctive relief and it cannot be supposed that his Lordship in his fourth element was referring to anything other than that an injunction would not be granted if damages were an adequate remedy. 22 Damages are not an adequate remedy in this case because, for reasons I will develop, confusion in the market place will remain if [NAME] continues to list [NAME] in the online yellow pages and elsewhere. 23 In the analogous situation of a representation made to the public at large, said to be misleading or deceptive for the purposes of the Trade Practices Act 1974 (Cth), s 52, the High Court said in Campomar Sociedad, Limitada v Nike International Limited [2000] HCA 12; (1999-2000) 202 CLR 45 at 84-85 [101] that the sufficiency of the nexus between the conduct and likely deception is to be approached at a level of abstraction not present where the case is one involving an express untrue representation made only to identified individuals. Thus, the inquiry is to be made with respect to a reasonable hypothetical member of the class of prospective purchasers of emergency locksmith services in or around Bathurst why the misconception has arisen or is likely to arise if injunctive relief is not granted. 24 The advantage [NAME] has in the online yellow pages listings is that the name of his business precedes the names of his competitors. By causing the name [NAME] to be included in the listings, [NAME] represented that there was a connection between his new business and [NAME]. In the mind of a reasonable reader of the listings, that name appearing immediately below [NAME] would lead the person to believe that the two businesses were connected. 25 [NAME] required his employees to wear clothing that prominently displayed the name [NAME]. Whenever he attended a job he wore the same uniform. That action enforced a distinction between [NAME] or [NAME] and [NAME] and enforced the perception of a relationship between the businesses thus described and [NAME]. 26 In the online yellow pages, a mobile number was given for [NAME] and a telephone number was given for [NAME]. That difference tended to support an assumption that [NAME] was linked to [NAME] and not to [NAME]. 27 The linkage of [NAME] to [NAME] was far more tenuous. Below each entry the same address appeared in small print. There was a Google map on the same page showing the location of each of [NAME], [COMPANY], [NAME] and [NAME] by identification numbers. The same identification number linking them to the map appeared before the names [NAME] and [NAME]. 28 To a highly perceptive reader, then, it might become apparent that [NAME] and [NAME] operated from the same address. But for the average reasonable reader the immediate effect of the listings was to draw attention to the names of the locksmith businesses and the juxtaposition of [NAME] with [NAME] and the similarity in the names would, in my view, deceive a reasonable reader, whether familiar with the services of [NAME] or not, into believing that [NAME] was part of the [NAME] business. That was a misrepresentation. 29 The substitution in the online yellow pages of [NAME] for [NAME] did not, in my view, remove the misrepresentation. The use of the words Bathurst and Locksmith and the positioning of the name immediately below [NAME] conveys to a reasonable reader that [NAME] is part of the business of [NAME]. 30 In terms of the elements in Lord Diplock's list, then, [NAME] made a misrepresentation in the course of his trade to his prospective customers. 31 [NAME] maintained that he had no intention of trading off the reputation of [NAME]. He said he wanted to provide an easily googled name that could be searched to find emergency services in Bathurst, so he registered [NAME] and then [NAME] rather than [NAME] or [NAME] Service. 32 In his affidavit, [NAME] swore that, to his knowledge, there was no emergency locksmith service advertised in the Bathurst area and he wanted to advertise such a service with a new name so that people in Bathurst could easily find the service via directory assistance or via another easily available name search. 33 When it was pointed out to him that all three businesses in Bathurst advertised emergency services, it did [NAME] no credit to add a rider to his evidence that there was no such service advertised in the Bathurst area as a registered business. 34 I do not accept [NAME]'s evidence that he did not intend to take advantage of the reputation and goodwill of [NAME]. 35 [NAME]'s determination to advertise an emergency service with Bathurst as the first part of its name was intentionally calculated to injure the business and goodwill of [NAME] and in the sense that this was a reasonably foreseeable consequence. 36 The director of [NAME] was confused when he saw the online yellow page listing for [NAME]. He called [NAME] and asked whether there was any agreement between him and [NAME], which he noticed had the same address as [NAME]. He was told there was no agreement. 37 Up until September 2009, [NAME]' staff received at least ten telephone calls on the business number of [NAME] asking for [NAME]. There was no [NAME], of course, associated with [NAME]. [NAME] was the proprietor of [NAME]. 38 The persons who called had associated [NAME] or [NAME] with [NAME]. 39 In terms of the fifth elements of the lists of Lord Diplock and Lord [NAME] has suffered and will continue to suffer substantial damage to his business or goodwill unless advertising containing a combination of the words Bathurst and Locksmiths or Locksmith interposed with any other words is enjoined. 40 I am satisfied that [NAME] has made out a case of passing off and that he is entitled to injunctive relief preventing [NAME] using the names [NAME] and [NAME] or any other name incorporating the words Bathurst and Locksmith or Locksmiths. 41 The scope of the Fair Trading Act, s 42 is broader than that involved in the tort of passing off as Hill J observed in Equity Access Pty Ltd v Westpac Banking Corporation (1989) 16 IPR 431 at 440 with respect to the Trade Practices Act, s 52. The provision is limited only by its wording. 42 For the reasons discussed with respect to the passing off action, [NAME] has established that [NAME], in trade or commerce, engaged in conduct that was misleading or deceptive, or was likely to mislead or deceive contrary to the Fair Trading Act, s 42. The court may grant an injunction under s 65(1) since the contravention is of a provision in Part 5. 43 [NAME] also seeks damages for passing off or under the Fair Trading Act, s 68(1). 44 Reference was made to Anakin Pty Ltd v Chatswood BBQ King Pty Ltd [2008] FCA 1467; (2008) 250 ALR 620 at 645 [109] where Branson J inferred that the custom of a new restaurant named [NAME] included the custom of persons who knew of the [NAME] and, being under a misapprehension that the [NAME] was associated with the [NAME], ate at the [NAME] rather than travelling to the city to eat at the [NAME]. 45 Her Honour went on to say that she was satisfied that the respondent decided to operate its restaurant under the name [NAME] because it considered that by doing so it might benefit from the reputation of the [NAME]. 46 Her Honour observed that a precise evaluation of damage was impossible. She looked at gross profit from trading at the [NAME]. It showed an upward trend over three successive years – approximately $234,000, approximately $270,000 and approximately $300,000. 47 Having regard to what her Honour described as the comparatively modest scale of the restaurant's trading, damages of $20,000 were awarded. 48 It was submitted that in this case I should award damages between $30,000 and $50,000. 49 [NAME] was an apprentice employee of [NAME]. He said that he had attended probably 15 to 20 emergency service calls on the new mobile number. He said the charge for the emergency calls was between $80 and $110. 50 The evidence is of limited confusion and the injunctive relief I propose to grant should stem that confusion. The prices charged for emergency services are modest. In my view an award of damages of $5,000 is appropriate. 51 [NAME] must pay [NAME]' costs. 52 I direct the parties to bring in short minutes of order reflecting these reasons.

**********************************

DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated.