Cadbury Schweppes Pty Ltd v (31 August 2005) Last Updated: 8 September 2005

Darrell Lea

Chocolate Shops Pty Ltd [2005] FCA 1213

FEDERAL COURT OF AUSTRALIA Cadbury Schweppes Pty Ltd v Darrell Lea 1213 Chocolate Shops Pty Ltd [2005] FCA

PRACTICE AND PROCEDURE application for direction that liability be determined separately from quantum Trade Practices Act 1974 (Cth) ss 52, 53(c) and 53(d) Federal Court Rules O 29 r 2 Cadbury Schweppes Pty Ltd v Darrell Lea Chocolate Shops Pty Ltd [2004] FCA 1718 cited Cadbury Schweppes Pty Ltd v Darrell Lea Chocolate Shops Pty Ltd [2005] FCA 112 cited Reading Australia Pty Ltd v Australian Mutual Providence Society [1999] FCA 718 cited Liberty Financial Pty Ltd v Trevor William Scott and Bluestone Group Pty Ltd [2003] FCA 226 cited Bathox Australia Pty Ltd v PJ Sas Trading Pty Ltd [2004] FCA 1082 cited A G Spalding & Bros v A W Gamage Ltd (1915) 32 RPC 273 cited H P Bulmer Ltd v J. Bollinger SA [1978] RPC 79 cited CADBURY SCHWEPPES PTY LTD v DARRELL LEA CHOCOLATE SHOPS PTY LTD NO. VID 555 OF 2005 HEEREY J 31 AUGUST 2005 MELBOURNE IN THE FEDERAL COURT OF AUSTRALIA VICTORIA DISTRICT REGISTRY

BETWEEN:

AND:

JUDGE: DATE OF ORDER: WHERE MADE: THE COURT ORDERS THAT:

CADBURY SCHWEPPES PTY LTD (ACN 004 551 473) APPLICANT DARRELL LEA CHOCOLATE SHOPS PTY LTD (ACN 000 498 386) RESPONDENT HEEREY J 22 AUGUST 2005 MELBOURNE

1. The issues of liability be heard prior to and separately from issues of quantum. 2. The parties file and serve sworn lists of documents on or before 15 September 2005. 3. The parties provide inspection of discovered documents on or before 20 September 2005. 4. The directions hearing be adjourned to 22 September 2005. 5. The applicant pay the respondents costs of the motion dated 10 August 2005. Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules. IN THE FEDERAL COURT OF AUSTRALIA VICTORIA DISTRICT REGISTRY

BETWEEN:

AND:

CADBURY SCHWEPPES PTY LTD (ACN 004 551 473) APPLICANT DARRELL LEA CHOCOLATE SHOPS PTY LTD (ACN 000 498 386)

RESPONDENT

JUDGE: DATE: PLACE:

HEEREY J 31 AUGUST 2005 MELBOURNE

REASONS FOR JUDGMENT 1 The respondent, Darrell Lea Chocolate Shops Pty Ltd ( Darrell Lea ), by a notice of motion dated 10 August 2005 seeks an order under O 29 r 2 of the Federal Court Rules that issues of liability be tried prior to and separately from issues of quantum. 2 The claim brought by the applicant Cadbury Schweppes Pty Ltd ( Cadbury ) alleges contravention of ss 52, 53(c) and 53(d) of the Trade Practices Act 1974 (Cth) and passing off based on the use by Darrell Lea of the colour purple in relation to chocolate confectionary products. The statement of claim contains in par 44 et seq allegations that " Darrell Lea has obtained and continued to enjoy the economic benefit of Cadbury 's reputation and goodwill in the colour Cadbury purple" and that Darrell Lea has "no just basis for appropriating and converting Cadbury s reputation and goodwill in the colour Cadbury purple". As far as I can see, this is not raised as a cause of action distinct from the Trade Practices Act and passing off claims. It does not appear as a separate claim in the application. 3 This matter has a somewhat unusual history. In a previous proceeding, VID 50 of 2003 commenced on 4 February 2003 (the previous proceeding), Cadbury together with its parent company sued Darrell Lea raising essentially the same claims as in the present proceeding. The previous proceeding was discontinued in February 2005 following a decision of Ryan J on 23 December 2004: Cadbury Schweppes Pty Ltd v Darrell Lea Chocolate Shops Pty Ltd [2004] FCA 1718. When I gave ex tempore reasons on the present application I had not been directed in terms to his Honours judgment although it was an exhibit to an affidavit. Having now had the opportunity to read it, my reasons for the orders I pronounced need to be expanded. 4 Relevantly for present purposes the history of the previous proceeding that emerges from Ryan Js judgment is as follows. After two amendments to Cadbury s statement of claim had been made, consent directions on 3 April 2003 provided for separate trials on liability and quantum. Cadbury was progressively ordered to file its evidence on liability on the following dates, none of which were met: 12 December 2003 26 April 2004 16 July 2004 5 On 23 July 2004 Ryan J heard an application by Cadbury seeking an order that the time for filing its evidence be extended to 17 December 2004. Cadbury s then solicitors had filed a lengthy affidavit detailing extensive work involved in obtaining evidence. His Honour (at [9]) records the deponent "doubting the appropriateness of the consent order which had been made for separate trials as to liability and quantum", but it seems no application was made to vacate that order. In the event, his Honour directed that the action be fixed for trial limited, subject to any further or other order, to issues of liability, to commence on 14 March 2005. His Honour vacated several orders, including those fixing times for the filing of evidence, and remitted the matter for direction hearings and case management conferences to Registrar Efthim. 6 Registrar Efthim conducted such conferences and amongst other things directed Cadbury to

file its evidence by 29 October 2004.

Cadbury

failed to meet this date.

7 On 1 December 2004 Ryan J heard the two motions in respect of which he gave judgment on 24 December. By those motions Cadbury sought leave to file a fourth amended statement of claim and Darrell Lea sought dismissal of the proceeding pursuant to O 35A r 3 or alternatively that Cadbury be restrained from filing any further evidence in chief. His Honour dealt with Darrell Lea s motion first. 8 In essence, as recorded by his Honour at [13]-[17], counsel for Cadbury referred to proceedings between the parties in the Trade Marks Office and said that Darrell Lea had perceived that the evidence relied on by Cadbury there was Cadbury s "sub-optimal case on purple" and that if Cadbury were compelled to meet the March trial date it would be presenting a "third or fourth rate case". Also Cadbury wished to obtain evidence to meet points raised by the decision of Finkelstein J in BP plc v Woolworths Ltd [2004] FCA 1362. 9 His Honour concluded that the proceeding should be brought to an end. It had been on foot for almost two years and Cadbury conceded it was not ready for a trial, even one confined to liability, on the fixed date in March 2005. Underlying Cadbury s argument, in His Honours view, was an assumption that it was entitled to collect and sift evidence until it judged that it was able to present its best or "optimal" case. This his Honour (at [20]-[23]) firmly rejected. However, his Honour recognized that dismissal would not create any issue estoppel and that Cadbury could begin another proceeding. His Honour therefore directed that the motion be stood over for further mention of any application by Cadbury for leave to discontinue pursuant to O 22 r 2(1)(d) and submissions on appropriate conditions. 10 On 15 February 2005, after hearing further argument, his Honour ordered that Cadbury have leave to discontinue the proceeding without prejudice to its right to commence a new proceeding seeking substantially the same relief by no later than 7 June 2005, with the parties to have the benefit of discovery and subpoenaed documents already obtained: Cadbury Schweppes Pty Ltd v Darrell Lea Chocolate Shops Pty Ltd [2005] FCA 112. 11 The present proceeding was commenced on 6 June 2005. 12 Considerations which might be taken into account in applications to split liability and quantum are usefully summarised by Branson J in Reading Australia Pty Ltd v Australian Mutual Providence Society [1999] FCA 718. However, it needs to be always kept in mind that procedural decisions of this kind involve the exercise of a broad discretion which must be exercised judicially but is not otherwise fettered. Each case must be considered on its own merits: Liberty Financial Pty Ltd v Trevor William Scott and Bluestone Group Pty Ltd [2003] FCA 226 at par 41, per Weinberg J. 13 In the present case counsel for Cadbury placed particular reliance on the decision of Stone J in Bathox Australia Pty Ltd v PJ Sas Trading Pty Ltd [2004] FCA 1082. Without indicating the slightest disrespect for her Honour's judgment I stress that Bathox, like the present case, turned entirely on its own facts and circumstances. I would deprecate any tendency to endeavour to resolve discretionary questions of this kind by the citation of numerous cases involving similar applications, leading to minute analysis and attempts to apply or distinguish those authorities. 14 To my mind an important factor in the present case is that the conduct of the parties has raised reasonable expectations that this matter would be dealt with in the same way as the previous proceeding, in accordance with the directions made by Ryan J and Registrar Efthim, including the order (made by consent over two years ago) for a separate trial on liability. On the material before me at the moment it seems that there was substantial default on the part of Cadbury . If those directions had been carried out this case would probably have been resolved by now.

15 I accept the submissions on behalf of Darrell Lea that there would be a very substantial extra burden if this matter were to proceed on all issues. Darrell Lea 's products are sold at some 550 retail outlets throughout Australia; of these only about 50 are owned by Darrell Lea and the remainder are licensees or franchisees. The extent of the documentary discovery required is apparent from a letter that Cadbury s solicitors wrote to Darrell Lea s solicitors on 17 August 2005, which amongst other things required: "18. All documents showing Darrell Lea s sales revenue from 1995 to date by: (a) calendar month; (b) State; (c) distribution channel (eg shops, licensed stores, compacts and minis); (d) product; or (e) reference to purple. 19. All documents showing Darrell Lea s costs from 1995 to date by: (a) calendar month; (b) State; (c) distribution channel (eg shops, licensed stores, compacts and minis); (d) product; or (e) reference to purple. 20. All documents recording Darrell Lea s financial information from 1995 to date including: (a) annual reports; (b) financial statements (whether audited or not); (c) audit letters; or (d) management accounts." 16 Mr Anthony Watson, a partner in Middletons, the solicitors for Darrell Lea , has deposed to the kind of issues which would arise in relation to the damages claim:

(a) an analysis of the history of sales over 13 years of each of the Respondents products (in the range of over 500 product lines); (b) an analysis of any changes to the sales and/or profitability of each of the Respondents products over the 13 year period; (c) an analysis of the history over the 13 year period of each of the approximately 550 locations where the Respondents products are sold, to determine the colours used for signage, uniforms, packaging goods, fit-out etc. as this varied across the Respondents stores and sites; (d) an analysis of the history of sales of the Respondents products at each of the approximately 550 stores and sites to determine the increase in sales or profits derived from those stores or sites which did have purple colour schemes, uniforms or other purple indicia during the relevant period; and (e) an examination of the packaging used for each of the Respondents 500 products over the 13 years and any changes to such packaging and a determination of any changes in sales or profits that correlate to changes in packaging. Mr Watson points out that these issues would need to be considered over a period since about 1992 when Darrell Lea first introduced the colour of which Cadbury complains. I am persuaded that the issue of damages would create a very substantial extra burden by way of discovery and evidence which would not be imposed on the parties if the matter were to proceed for trial on issues of liability alone. 17 There should be no major duplication of issues should claims for damages or an account of profits be heard subsequently. The Trade Practices Act claims require no findings as to any actual loss or damage. For a passing off claim it is sufficient, in the words of Lord Parker in A G Spalding & Bros v A W Gamage Ltd (1915) 32 RPC 273,

"that the misrepresentation being established, and being in its nature calculated to produce damage, the plaintiffs are prima facie entitled both to an injunction and to an enquiry as to damages, the

enquiry, of course, being at their own risk in respect of costs." Similarly, Lord Justice Buckley in H P Bulmer Ltd v J. Bollinger SA [1978] RPC 79, said "It is well settled that the plaintiff in a passing off action does not have to prove that he has actually suffered damage by loss of business or in any other way. A probability of damage is enough, but the actual or probable damage must be damage to him in his trade or business, that is to say, damage to goodwill in respect of that trade or business." 18 It was said by counsel on behalf of Cadbury that the questions to be determined in a trial on liability only have not been sufficiently articulated. I do not agree with that submission. The pleadings raise matters in considerable detail. For example, Darrell Lea has pleaded that Cadbury s reputation is not dependent on the use of the colour purple. It identifies many other products of Cadbury which do not use the colour purple. It refers to other manufacturers, not parties to this proceeding, using the colour purple. So I think the pleadings give a realistic indication of the kind of issues the parties need to grapple with on liability. 19 There is also the inconvenience and complication pointed out by senior counsel for Darrell Lea that any expert evidence on the assessment of quantum would have to be based on differing assumptions as to what cause of action might succeed. This also raises the question of election. To date Cadbury has not elected whether it would claim damages or an account of profits, so the evidence on a trial without splitting would have to assess both methods of loss, thereby complicating matters. 20 Another relevant factor is the facilitating of a settlement. It seems to me that if the question of liability is resolved one way or the other the prospects of a negotiated settlement between these experienced commercial institutions is likely to be improved. 21 The submission of counsel for Cadbury that the separation of liability and quantum will "prolong rather than shorten the proceeding and will thwart the achievement of a just, quick and economically obtained result" does not sit too well with his clients conduct of the previous proceeding. Whether Cadbury was, as senior counsel for Darrell Lea alleged, influenced by tactical considerations relating to the trade mark proceeding need not be investigated. If Cadbury has had a change of heart, that is all to the good. However it will need to treat any subsequent procedural directions seriously. 22 For these reasons I will make the orders sought in Darrell Lea s notice of motion dated 10 August 2005. The parties are requested to submit a realistic timetable for the further conduct of this proceeding.

I certify that the preceding twenty-two (22) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Heerey. Associate: Dated: 31 August 2005 Counsel for the Applicant: Solicitors for the Applicant: Counsel for the Respondent: Solicitors for the Respondent: Date of Hearing: M D Wyles Mallesons Stephen Jaques C D Golvan SC Middletons 22 August 2005

Date of ex tempore judgment: Date of revised reasons:

22 August 2005 31 August 2005