CATCHWORDS TRADE PRACTICES —- misleading conduct - advertisement seeking applicants for a professional qualification - that qualification previously granted only by a leading body in the profession - whether sufficient reputation in name and initials of qualification - whether contravention by newspaper publisher - whether association placing advertisement knowingly involved in contravention. PASSING OFF - whether one professional body offering to grant a qualification previously identified with another constitutes passing off. Trade Practices Act 1974 ss.52,53,75B,80 and 85 AUSTRALIAN SOCIETY OF ACCOUNTANTS v FEDERATION OF AUSTRALIAN ACCOUNTANTS INC. KEITH LAURENCE DRAPER JOHN FAIRFAX & SONS LIMITED No. VG 71 of 1987 Woodward J. 12 June 1987 Melbourne IN THE FEDERAL COURT OF AUSTRALIA VICTORIA DISTRICT REGISTRY No. VG 71 of 1987 weer ww GENERAL DIVISION BETWEEN: AUSTRALIAN SOCIETY OF ACCOUNTANTS Applicant and FEDERATION OF AUSTRALIAN ACCOUNTANTS INC. KEITH LAURENCE DRAPER JOHN FAIRFAX & SONS LIMITED Respondents MINUTES OF ORDER COURT : Woodward J. DATE : 12 June 1987 PLACE : Melbourne THE COURT ORDERS THAT: 1. The respondents and each of them, whether by themselves their servants or agents or howsoever otherwise be restrained - (a) from publishing the advertisement annexed to the application herein or causing the advertisement to be published; (b) from representing by any other means that the firstnamed respondent is entitled to confer CPA (c) (d) (e) (f£) (Certified Practising Accountant) status on members of the firstnamed respondent; from representing by any other means that the firstnamed respondent is affiliated with, connected with, approved by or sponsored by the applicant; from representing by any other means that the firstnamed respondent offers services which are those of or have the sponsorship or approval of the applicant; from otherwise howsoever passing off the firstnamed respondent as and for or connected with the applicant, passing off the services offered by the firstnamed respondent as those of or sponsored by the applicant or enabling any such passing off to occur; and from enabling members of the firstnamed respondent to pass themselves off as possessing CPA status or otherwise being members of or affiliated with the applicant. 2. The first and second respondents pay the applicant's taxed costs of the application. (Note: Settlement and entry of orders are dealt with in Order 36 of the Federal Court Rules.) IN THE FEDERAL COURT OF AUSTRALIA VICTORIA DISTRICT REGISTRY No. VG 71 of 1987 ee ee eee we GENERAL DIVISION | , BETWEEN: AUSTRALIAN SOCIETY OF ACCOUNTANTS Applicant and FEDERATION OF AUSTRALIAN ACCOUNTANTS INC. KEITH LAURENCE DRAPER JOHN FAIRFAX & SONS LIMITED Respondents COURT: Woodward J. DATE: 12 June 1987 PLACE: Melbourne REASONS FOR JUDGMENT This is an application for interlocutory relief under ss.52 and 53 of the Trade Practices Act 1974 ('the Act') and under the common law of passing off. It is agreed between the parties that this hearing should be treated as the trial of the action. The application arises from an advertisement placed by the second respondent, on behalf of the first respondent, in the third respondent's newspaper, the Financial Review. The advertisement, which first appeared on 18 March 1987 and was repeated on 25 March and 1 April 1987, was in the following terms: peer "(PAA Coat of Arms) THE FEDERATION OF AUSTRALIAN ACCOUNTANTS wish to invite suitably qualified accountants to join our federation. We are currently running examinations to increase your status to C.P.A. Any accountant who wishes to do so with our federation is encouraged to inquire. Any accountant that becomes a C.P.A. with our federation will be allowed to use our logos for advertising purposes. Federation of Australian Accountants Inc. Box 87, G.P.O. Adelaide 5001 APPLICATION FOR MEMBERSHIP" Then followed a form to be filled out, giving personal details, a reference certifying good character to be signed by an "Accountant, Lawyer, Bank Manager, Member of FAA, etc", and provision for a joining fee of $10 and membership fee of $35 per year, or $45 for a "Fellow" (who must have had at least ten years relevant experience). The whole objection of the applicant to the advertisement stems from the opening paragraph in which the first respondent undertook to confer the status of "C.P.A." on those members who passed its examination. The meaning of the letters is not explained in the advertisement. The applicant maintains that it is the only body which can confer the status of "CPA", or "Certified Practising Accountant" on members of the accountancy profession in Australia, and the advertisement is therefore misleading and deceptive. The applicant did not seek to argue that the first respondent, incorporated in 1979 pursuant to the South Australian Associations Incorporation Act 1956-65, was a trading or financial corporation within the meaning of the Act, so as to make it primarily liable for contravention of ss.52 or 53, which are, of course, directed to the conduct of corporations, as defined. It submitted that the third respondent was directly liable, having published the advertisement after the applicant's solicitors had requested in writing that it not do so. The relevant letter was sent on 30 March by facsimile and ordinary mail to the head office of the third respondent. It explained in detail the nature of the applicant's complaint and drew attention to relevant provisions of the Act. In particular it referred to s.85(3) of the Act which provides a defence to the publisher of an advertisement who has no reason to suspect that the advertisement will contravene the Act. It pointed out that the defence would no longer be available after receipt of the letter. In spite of this, the advertisement was repeated on 1 April. In the event, the third respondent has raised no defence to the action against it, and has reached agreement with the applicant that it would consent to judgment against it in the form of a permanent injunction. It has asked to be heard further if any order for costs or damages were sought against it, but the applicant has not sought any such orders. Against this background, the applicant now seeks to establish three propositions, each of which 1s contested by the first and second respondents. These are: (i) A finding that the third respondent contravened ss.52 and 53 of the Act would be appropriate on the facts and justified in law. (ii) Both the first and second respondents were knowingly involved in, and indeed procured, the third respondent's contravention, within the meaning of s.75B, and so are liable to be enjoined under s.80 of the Act. (i211) Both the first and second respondents were guilty of the tort of passing off and so are liable to be enjoined at common law. The applicant abandoned any claim for relief other than injunctions and, against the first and second respondents, costs. It was agreed between the parties that the matter would be tried on the affidavits, without pleadings, and that no deponent would be required to attend for cross-examination. Having studied the affidavits, and considered counsel's arguments, I am left in no doubt that, over the last three years, the applicant has gone to great trouble and expense - to the tune of over $3m - to establish the status of its qualification of Certified Practising Accountant or CPA. I am satisfied that, even in that comparatively short space of time, it has built up a substantial reputation in the accountancy profession and in the general community for that qualification. The expression Certified Practising Accountant was apparently unknown in Australia before the applicant began its campaign, and there is no evidence to suggest that it is used in any other English-speaking country. It seems that the expression Certified Public Accountant has currency in the United States, but there is no evidence before me to indicate how widespread its usage is or just what status it conveys. The applicant is a large professional organization of accountants, having some 53,000 members. Its antecedent bodies date back to 1887. It charges its members an annual subscription of $214, spends some $17m each year on its professional objects, and employs 160 people. It is, in short, a very large and reputable professional body, which recruits some 2,500 new members each year - over 70% of those who graduate in accountancy from tertiary institutions. Along with the Institute of Chartered Accountants, it has provided the only regulation of the profession in most states of Australia over a number of years. I am satisfied also that the designation of Certified Practising Accountant, or CPA, is only awarded following a careful examination of the applicant's professional abilities and, in the case of younger and future applicants, the passing of appropriate examinations. These are in five separate areas of study and involve the private study of material prepared by specialist authors which has been converted into a suitable format by the School of External Studies and Continuing Legal Education at the University of Queensland. This work, assessed as being the equivalent of 200 contact hours of lectures, is then tested in examinations conducted by Deakin University on behalf of the Society. Older members of the profession have naturally been judged on their records in the profession in awarding the status during its developmental or transitional years. Admission to the status of CPA is entirely governed by the rules of the applicant although those rules do recognize certain qualifications awarded by the Institute of Chartered Accountants as giving entitlement to CPA status. The Professional Schedule of the applicant's Members Handbook describes the CPA qualification in these terms: "The cornerstone of the Professional Schedule is the Status of the membership level of CPA (AASA CPA and the designation of FASA CPA). The CPA designation is a mark of high professional competence. It indicates a soundness in depth, breadth and quality of accountancy knowledge." All those admitted to the CPA status must undertake to devote at least 20 hours of study each year to their continuing professional development. . The evidence showed that of the 53,000 members of the applicant almost 21,000 have the CPA qualification, the same number have lesser qualifications and about 12,000 have higher or different qualifications. | : By way of contrast with the applicant, the second respondent claims for the first respondent a mrembership of 300 "spread nationally" and 30 in Singapore. | \ When the advertisement first appeared, attempts were made' over some six days to contact the second respondent at the address given for the first respondent in the telephone book. The premises were those of an accountants' firm called Cutillo, Draper and Associates, but there was nothing at the premises to indicate that this was the office of the first respondent and enquirers were informed that Mr Draper was the only person there who had anything to do with the Federation of Australian Accountants Inc. Mr Draper has now moved the office of the Federation to his home. All the material on behalf of the first respondent has been put before the Court by Mr Draper. It is not very informative. It does not, for example, disclose the identity of any other office bearers of the Federation or whether meetings are held and, if so, what form they take. Nor does it say what experience the Federation has had in the conduct of courses for accountants or the setting of appropriate examinations. Nothing is volunteered about the proposed examinations for C.P.A. status. It is interesting to note that the resolution amending the constitution of the Federation to provide for the C.P.A. qualification was passed at a meeting at Marleston (presumably in ae aeitan oral dame Um Mati eee certainties eeeeed am hanateddned aeeeeeten amet temmiaeentenaeninamientnattimenenemenanated ow me i] Mr Draper's home) on 12 March 1987, six days before the advertisement first appeared. It concludes with the words. "The Meaning of C.P.A. shall be Certified Public Accountant." However, in an interview given to Business Review. Weekly, in which he is reported as saying that he would like to see the applicant take the Federation to court over its use of the initials C.P.A., Mr Draper is said to have confirmed that the initials meant "Certified Practising Accountant". It could be assumed that this was a misunderstanding by the reporter were it not for the fact that in one of his many affidavits, Mr Draper deposed "The advertisement did not show that we were advertising the Society's CPA Status but the Federations C.P.A. Status. We have in our organization Certified Practising Accountants". In view of the absence of any evidence about the proposed quality of the first respondent's tests for its C.P.A. qualification, it cannot be assumed that it would be of the same high standard as the applicant's requirements for CPA status. Mr Draper's own failure to complete the applicant's entrance examinations, and his lack of any tertiary qualification other than Accounting Diplomas from the Commercial Education Society of Australia - apparently the forerunner of the Federation - give no confidence as to the likely quality of the proposed C.P.A. In these circumstances the applicant claims that the opening paragraph of the advertisement is likely to mislead students, and other persons wishing to obtain accountancy qualifications, into believing they can obtain the applicant's CPA qualification, or its equivalent, from the respondent Federation. Users of accountancy services may also be misled into thinking that the Federation is in some way connected with the applicant, or that any organization can award such a qualification, thus devaluing it in the eyes of such potential clients. In my view these arguments, considered objectively, are valid. It is true that no great harm can have been done by these advertisements - apart from raising questions in the minds of readers and causing some confusion - because the applicant has acted swiftly. But there is no doubt in my mind that the advertisements represent the first distinct steps in a course of conduct which is most likely to mislead and deceive the types of persons I have referred to. If the respondent Federation is not restrained, it is likely that the damage to the great majority of members of the profession of accountancy, and to those of the general public who use the profession's services, will be considerable. Against this case made out by the applicant, a number of arguments were advanced on behalf of the first and second respondents. In the first place it was said that there could have been no misleading because the advertisement was headed by the Federation's coat of arms, whereas the applicant's constitution only provides for the qualification CPA to be used in conjunction with the letters AASA or FASA. A similar submission relied on the fact that the advertisement uses full stops between the letters CPA whereas the applicant does not. -9- Users of accountancy services may also be misled into thinking that the Federation is in some way connected with the applicant, or that any organization can award such a qualification, thus devaluing it in the eyes of such potential clients. | In my view these arguments, considered objectively, are valid. It is true that no great harm can have been done by these advertisements -— apart from raising questions in the minds of readers and causing some confusion - because the applicant has acted swiftly. But there is no doubt in my mind that the advertisements represent the first distinct steps in a course of conduct which is most likely to mislead and deceive the types of persons I have referred to. If the respondent Federation is not restrained, it is likely that the damage to the great majority of members of the profession of accountancy, and to those of the general public who use the profession's services, will be considerable. Against this case made out by the applicant, a number of arguments were advanced on hehalf of the first and second respondents. In the first place it was said that there could have been no misleading because the advertisement was headed by the Federation's coat or arms, whereas the applicant's constitution only provides for the qualification CPA to be used in conjunction with the letters AASA or FASA. A similar submission relied on the fact that the advertisement uses full stops between the letters CPA whereas the applicant does not. - 10 - 1 In my view there is no substance in these points. Much of the applicant's publicity for its CPA qualification has been oral, and divorced from its own name or the qualifications AASA or FASA. It has sought to have the CPA status recognized by itself, and I am satisfied that it has succeeded. The presence or absence of full stops would strike very few observers. The next argument advanced for the respondents was that the initials CPA are widely used by other organizations such as Canadian Pacific Airlines and the Communist Party of Australia. The applicant can have no proprietary interest in these letters or in the ordinary words 'certified', 'practising' or 'accountant'. However I am satisfied that these three words, used in combination, have acquired a secondary meaning and _ become distinctive. In the same way, the letters CPA have acquired a special meaning in relation to accountants in Australia. It was then submitted that the applicant had not yet . acquired a sufficient reputation in its CPA status to enable it to say that its use by others was misleading, within the meaning of 6.52 of the Act, or could amount to passing off at common law. Perhaps the best answer to this contention is provided by the offending advertisement itself, which used the expression "C.P.A.", without explanation, in the obvious expectation that it would be understood by many, and perhaps most, of the readers of the Financial Review. RR er perenne ree --- ~11i - The last general argument for the respondents was that there was no evidence from the applicant that the respondents' C.P.A. would be of any lower standard than the applicant's CPA. The point is not strictly relevant because. the conduct would still be misleading even if the qualifications were of equal value. However it does go to the extent of the likely deception and the nature of the public interest to be protected. For reasons already given, I am satisfied that the respondent's qualification, if it were ever awarded, would probably bear little relation to the applicant's. Finally, it was argued that if orders were to be made against any of the respondents, they should not be made against Mr Draper, who had only acted "in his corporate capacity". In fact I have no doubt that Mr Draper was knowingly involved in, and in fact procured, the contravention of the Act by the third respondent. The last matter I should refer to is the question of passing off. In view of my findings pursuant to the Act, it is not necessary for me to consider this issue in any detail. The five characteristics which must be established to make out such a case were stated by Lord Diplock, in the Advocaat case (Erven Warnink BV v J Townend & Sons (Hull) Ltd [1979] 2 All ER 927 at 932-3) as, "(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." eT, w Ps er er ie ee ee oe - = - 12 - The only difficulty about this formulation in the present case is the consistent reference to traders, customers and business. No doubt the great majority of passing off cases will occur in the field of trade, properly so called. But I can see no reason why the principle should not be applied to any persons who provide services, in the form of a qualification, at a price. Thus, in the present case, there was a misrepresentation, made by a provider of services (in the form of professional qualifications), in the course of its provision of such services, to prospective users of those services (and their ultimate clients who rely on the qualifications), which was calculated to injure the goodwill (professional standing) of another provider of services, and which would probably cause actual damage to the goodwill of the provider by whom the action is brought. For the reasons given, I am satisfied that the third respondent has contravened the provisions of ss.52 and 53 of the Act and that the first and second respondents procured and were knowingly inveived in that contravention within the meaning of s.75B of the Act. The first and second respondents are also guilty of the tort of passing off the service represented by their proposed C.P.A. qualification for the service represented by the applicants CPA qualification. -13- The applicant is entitled to the injunctions sought against all three respondents, with costs against the first and second respondents. I certify that this and the twelve (12) preceding pages are a true and accurate copy of the Reasons for Judgment herein of The Hon Mr Justice Woodward G2Sh. Associate Dated: 12 June 1987 Counsel for the Applicant: Mr A.C. Archibald QC & Mr R.C. Macaw Solicitors for the Applicant: Arthur Robinson & Hedderwicks Solicitor for the first and second respondents: Mr J. Pertl Solicitor for the third respondent: Mr A. Brown of Mallesons Stephen Jacques