Hayes v John S Hayes & Associates Pty Ltd (ACN 082 978 238) [1999] FCA 839

FEDERAL COURT OF AUSTRALIA Hayes v John S Hayes & Associates Pty Ltd (ACN 082 978 238) [1999] FCA 839

JOHN STEPHEN HAYES & ANOR v JOHN S HAYES & ASSOCIATES PTY LIMITED N 468 OF 1999 EMMETT J 18 JUNE 1999 SYDNEY

IN THE FEDERAL COURT OF AUSTRALIA

NEW SOUTH WALES DISTRICT REGISTRY N 468 OF 1999

BETWEEN: JOHN STEPHEN HAYES AND WENDY MARGARET HAYES

Applicants

AND: JOHN S HAYES & ASSOCIATES PTY LIMITED

(ACN 082 978 238)

Respondent

JUDGE: EMMETT J

DATE OF ORDER: 18 JUNE 1999

WHERE MADE: SYDNEY

THE COURT ORDERS THAT:

1. The respondent pay 50% of the applicants' costs up to and including 28 May 1999.

2. The respondent pay the whole of the applicants' costs thereafter, including the costs of today.

3. The proceedings be otherwise dismissed.

Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

IN THE FEDERAL COURT OF AUSTRALIA

NEW SOUTH WALES DISTRICT REGISTRY N 468 OF 1999

BETWEEN: JOHN STEPHEN HAYES AND WENDY MARGARET HAYES

Applicants

AND: JOHN S HAYES & ASSOCIATES PTY LIMITED

(ACN 082 978 238)

Respondent

JUDGE: EMMETT J

DATE: 18 JUNE 1999

PLACE: SYDNEY

EX TEMPORE REASONS FOR JUDGMENT 1 On 24 May 1999, I granted leave to the applicants, ex parte, to file an application returnable before me on 28 May 1999. On 28 May 1999, the respondent appeared and, upon the applicants giving the usual undertaking as to damages, I made orders restraining the respondent from supplying to any person, any product bearing the trade marks "Prosan" and "Protect". The proceedings were stood over for directions on 4 June 1999. 2 On 4 June 1999, orders were made by consent granting relief substantially as claimed in the application. However, those orders were made without admissions by the respondent and I stood the matter over to today for argument on the question of costs. In order to understand the issues which arise in relation to costs, it is necessary to consider the background of the relationship between the parties that gave rise to the dispute. 3 On 27 August 1998, an agreement was entered into between a company then known as John S Hayes & Associates Pty Limited ("the Vendor") and a company then known as Gilcone Pty Limited ("the Purchaser"). By the agreement, the Vendor agreed to sell and the Purchaser agreed to buy the assets described in the agreement. Those assets comprised the records, the rights of the Vendor under certain contracts, certain commercial information, certain intellectual property and all plant and equipment required for the operation of what was described as "the Business". The Business was defined as the business involving the provision of washroom paper products including toilet paper, hand towels, dispensers and soaps at various locations. 4 By the agreement, the Vendor and Purchaser acknowledged that the Vendor would be retaining the business known as "Prosan" as well as various contract cleaning contracts. The Purchaser agreed and acknowledged that the Vendor may continue to operate the business known as Prosan, as well as completing and carrying out all existing cleaning contracts. All proceeds of these businesses were to belong to the Vendor after the completion date. The agreement also provided that, on completion, the Vendor would consent to the Purchaser changing its name to "John S Hayes & Associates Pty Limited" and that the Purchaser would acknowledge and consent to the Vendor changing its name to "Prosan Hygiene Services Pty Limited". The respondent is the company which was the Purchaser under that agreement. The applicants are the registered proprietors of the trade marks "Prosan" and "Protect", together with certain other trade marks. 5 The agreement was completed and the Purchaser entered into possession of the assets and continued to carry on or began to carry on the Business. On 3 March 1999, the applicants wrote to the Purchaser referring to the trade marks and saying inter alia as follows: "Use of any one of these trade marks without the owner's consent or without a licensing agreement is illegal. We are prepared to allow you 3 months from the date of this letter to quit stock bearing our Trade Marks. After the 3 months' notice has expired, all shippers or packaging products bearing our trade marks should be destroyed. We will notify the manufacturers concerned and all packaging material currently in their hands illegally bearing our trade mark should be destroyed." 6 The question may arise as to the true construction of that letter. The question is whether the requirement "to quit stock" was a requirement for the Purchaser to dispose of the stock then in its possession or whether it was, in effect, an authority for the Purchaser to dispose of all stock then in existence (whether or not in the possession of the Purchaser) that bore the trade marks. 7 I consider, if it is relevant, that, on the proper construction of the letter, it was an authority only to continue to use the trade marks in respect of the disposition of stock then in the possession of the Purchaser. I rely, for that conclusion, on the expression of "to quit stock" and on the last sentence indicating that the applicants would notify the manufacturers that all packaging material "currently in their hands" was to be destroyed. 8 It appears that the manufacturer of the stock, a company called Ecolab Pty Ltd, in fact had supplies of stocks as at 3 March 1999. Those supplies were subsequently sent to the Purchaser. It seems more likely than not that those supplies were in fact ordered by the Purchaser. On 4 May 1999, the applicants wrote to the Purchaser, saying inter alia as follows: "It was noticed whilst on site at Sefton Road today that there is still product being ordered and stored in the rear building at Sefton Road bearing both the trade marks "Prosan" and "Protect". We are now concerned that you are continuing the illegal use of our Trade Marks and are not quitting stock as instructed in our letter of 30 March 1999. Would you please confirm in writing that all misuse of our Trade Marks will cease on 3 June 1999. If you fail to confirm your compliance to this final warning, we will institute an action against you for breach of Trade Mark and restitutive damages." There was no response by the Purchaser to that letter and, on 10 May 1999, the applicants wrote again, referring to their letter, and saying as follows: "If this compliance is not in our hands by Wednesday 12 May, we have instructed our patent and Trade Mark attorneys to proceed with a Trade Mark breach action against you." 9 The Purchaser communicated with the applicants by facsimile communication on 12 May 1999, saying as follows: "When you advised us, on 3 March, of your concerns regarding the use of your trade mark, we immediately contacted Ecolab Pty Limited. Instructions were given to Mr Bill Rogers that we could only accept existing stocks of packaged product and any future manufacturing should not bear any reference to "Protect" or "Prosan". This was agreed. However, it appears Mr Rogers did not communicate our instructions to his production people. Additional stock bearing your trade mark was produced and has been sent to us." Our current stock holding is 307 cartons, which is about 2˝ months sales. We have contacted Ecolab Pty Ltd regarding the return of the stock, however, they are reluctant to accept the product back. How do you want this handled? We can insist on returning the product, however, it is not in our long term interest to get into a hostile situation with an important supplier. Alternatively, if you would allow a further extension on the time to clear the stock, say until 31 July 1999, we can resolve this matter with a minimum of costs to all parties." 10 That letter was not acknowledged by the applicants. Rather, on 19 May 1999, their solicitors wrote to the Purchaser referring to the trade marks and also the letter of 3 March 1999. The letter referred to the fact that the Purchaser was in possession of products which bore the trade marks "Protect" and "Prosan" and asserted that usage of the trade marks was unlawful and must be discontinued. The letter sought written undertakings "by 5pm, Friday 20 May 1999". The date of 20 May 1999 was, in fact, a Thursday.