FEDERAL COURT OF AUSTRALIA Smith's Snackfood v Arnott's Biscuits [2001] FCA 155 THE SMITH'S SNACKFOOD COMPANY LTD v ARNOTT'S BISCUITS LIMITED N 200 OF 2000 JUDGE: WHITLAM J DATE: 28 FEBRUARY 2001 PLACE: SYDNEY IN THE FEDERAL COURT OF AUSTRALIA NEW SOUTH WALES DISTRICT REGISTRY N 200 OF 2000 BETWEEN: THE SMITH'S SNACKFOOD COMPANY LTD APPLICANT AND: ARNOTT'S BISCUITS LIMITED RESPONDENT JUDGE: WHITLAM J DATE OF ORDER: 28 FEBRUARY 2001 WHERE MADE: SYDNEY THE COURT ORDERS THAT: 1. Paragraphs 13 and 14 of the defence be struck out. 2. The respondent pay the applicant the costs of its motion, notice of which was filed on 2 August 2000. 3. The respondent's motion, notice of which was filed on 3 August 2000, be refused. 4. Each party's cost of the respondent's motion be part of its costs of the cause. 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 200 OF 2000 BETWEEN: THE SMITH'S SNACKFOOD COMPANY LTD APPLICANT AND: ARNOTT'S BISCUITS LIMITED RESPONDENT JUDGE: WHITLAM J DATE: 28 FEBRUARY 2001 PLACE: SYDNEY REASONS FOR JUDGMENT 1 There are two motions before the Court, one of the applicant ("Smith's") and one of the respondent ("Arnott's"). Smith's seeks an order striking out part of Arnott's defence to its claims. Arnott's seeks orders that two American lawyers be given access to confidential documents produced by Smith's in this proceeding. Motion to strike out part of defence 2 The proceeding itself is in some ways a sequel to the long-running litigation, which commenced with the judgment in The Kettle Chip Company Pty Ltd v Apand Pty Ltd (1993) 46 FCR 152. In that case Burchett J described (at 156 - 157) the method by which potato chips were manufactured by The Kettle Chip Company. He said the process involved the chips being "stirred by hand by cooks". 3 Smith's claims that Arnott's has contravened ss 52 and 53 of the Trade Practices Act 1974 (Cth) ("the Act"). Relevantly, Smith's alleges in its statement of claim: "3. The Respondent and its predecessors in title have manufactured and offered for sale in Australia potato chips under the name and trade mark KETTLE (the KETTLE Chips). Misrepresentations 4. The Respondent and its predecessors in title have represented to members of the public that the KETTLE Chips are 'hand-cooked', hand peeled and/or hand sliced. PARTICULARS The packaging and advertising material used by the Respondent contains statements that the KETTLE Chips are hand cooked. Further, the Respondent used the statement 'Hand cooked potato chips' in relation to the KETTLE Chips both in packaging and advertising. 5. The representation pleaded in paragraph 4 above are made in trade or commerce. 6. The representations are false. PARTICULARS (a) The potatos [sic] from which the KETTLE Chips are made are neither hand peeled nor hand sliced. (b) The KETTLE Chips are cooked in the following process: (i) the peeled and sliced potatoes are automatically dropped into steel vessels containing oil; and (ii) the potatoes are stirred automatically by machine controlled paddles. 7. By its conduct in making the representations, the Respondent has, in trade or commerce, engaged in conduct that is misleading and deceptive and is likely to mislead and deceive." 4 Arnott's defence to these allegations states: "3. As to paragraph 3 of the statement of claim, Arnott's: (a) admits that the Kettle Chip Company Pty Limited manufactured, offered for sale and sold potato chips under the name Kettle Chips; (b) admits that since acquiring the assets and business of the Kettle Chip Company Pty Limited, Arnott's has manufactured, offered for sale and sold potato chips under the name Kettle Chips; (c) otherwise does not admit the allegations contained therein. 4. As to paragraph 4 of the statement of claim, Arnott's: (a) admits that between around 1989 and mid-1996 the Kettle Chip Company Pty Limited represented to members of the public that the Kettle Chips are hand-cooked; (b) admits that since late 1996 Arnott's has, or its wholly owned subsidiaries have, represented to members of the public that the Kettle Chips are hand-cooked; (c) admits that since around 1997 Arnott's has caused to be broadcast on television in Australia an advertisement (the television advertisement) in the same or substantially the same form as the copy of which is exhibited as Confidential Exhibit DM-1 to the affidavit of David Matthews sworn 19 April 2000; (d) otherwise denies the allegations contained therein. 5. As to paragraph 5 of the statement of claim, Arnott's: (a) admits that the representations referred to in paragraph 4 of the Defence were made in trade or commerce; and (b) otherwise denies the allegations contained therein. 6. Arnott's denies the allegations contained in paragraph 6 of the statement of claim. 7. Arnott's denies the allegations contained in paragraph 7 of the statement of claim." 5 At the end of its defence Arnott's pleads: "13. In further answer to the claims for injunctive relief, Arnott's says that such relief should be refused by reason of the applicant's laches, acquiescence and delay. PARTICULARS The applicant has know since at least 1993 of the basic elements of the batch cooking method used by the Kettle Chip Company Pty Limited and/or Arnott's in making Kettle Chips, involving as an essential step the hand stirring or raking of the chips when being cooked. 14. In further answer to the claims for injunctive relief, Arnott's says that such relief should be refused by reason of the unclean hands of the applicant, in that the present proceedings are part of a strategy by the applicant to eliminate or substantially damage the business of Arnott's of manufacturing and selling Kettle Chips (as a competitor of the applicant) by means which include the applicant supplying its potato chips and other products at a higher discount or with an allowance, rebate or credit on condition that retailers acquiring the applicant's potato chips and other products do not acquire Kettle Chips from Arnott's. [Particulars omitted] 15. In further answer to the claims for damages pursuant to section 82 of the Trade Practices Act, if (which is denied) the applicant is found to be entitled to damage, such damages are limited to the period commencing 9 March 1997 pursuant to sub-section 82(2) of the Trade Practices Act." 6 Smith's submits that paragraphs 13 and 14 of the defence should be struck out because those allegations are not relevant to any issue of final relief and because neither allegation provides a defence to the claims made against Arnott's. Both sides referred me to the judgment in Glev Pty Ltd v Kentucky Fried Chicken Pty Ltd (1994) ATPR ¶41-299. That was an application for an interlocutory injunction, where the respondent argued that such relief should be refused on discretionary grounds. In that case, von Doussa J said (at 41,981): "The 'clean hands' argument raises another issue, which in many cases would not arise on an application for interlocutory injunction. It is necessary to consider as a separate question, whether there is conduct on the part of the applicants which should disentitle them to equitable relief. In litigation between individuals, the failure to make a full and frank disclosure to the Court of information relevant to the proceedings, or delay in bringing the proceedings, or misconduct which has some relevance to the proceedings on the part of the claimant, may singularly or together be grounds for refusing equitable relief. And, as I understood the arguments of the respondent, that is forcefully urged in the present case. However, it must be remembered that these proceedings are brought under the umbrella of the Trade Practices Act which is an Act for the protection of consumers. There is an element of public interest involved. That being so, the Court will be slower to withhold relief than would be an equity court in a suit involving individual interests alone. The 'unclean hands' argument is a matter to be taken into account, but it may not be a matter that would lead to the withholding of a remedy if the public interest appeared to require a remedy to protect consumers." 7 His Honour went on to say (at 41,982): "I add into the scales on the balance of convenience the information led about unclean hands, that is the conduct of the applicants. There are aspects of that conduct to which I am about to refer which leave something to be desired. It is conduct that has gone on for some months, and although it has been modified to an extent recently, it nevertheless is continuing to some degree. Given that background, and given the fact that I think damage to consumers is likely to be minimal, I think it would be unreasonable for this Court to lend itself to giving one side in a hotly contested market some commercial advantage which could arise as the result of a Court order of the type sought by the applicants. In my view, on the balance of convenience, the applicants' claim for interlocutory injunctive relief against the respondent should be dismissed." 8 In CBS Records Australia Ltd v Telmak Teleproducts (Aust) Pty Ltd (1987) 72 ALR 270 Bowen CJ declined to refuse an interlocutory injunction under the Act on grounds of delay, laches and unclean hands. However, his Honour considered those grounds and, interestingly, did not regard as a reason for withholding such relief the fact that the respondent "might have been lulled into imagining it would not be proceeded against" by the applicant's delay in commencing the proceeding. 9 Delay is, therefore, something that may be taken into account on the question of the balance of convenience at an interlocutory stage. As to final relief, Arnott's points, by way of analogy, to the availability of defences of laches, acquiescence and delay in the statutory causes of action relating to copyright and registered designs: Autocaps (Aust) Pty Ltd v Pro-Kit Pty Ltd (1999) 46 IPR 339 at 356 - 358. However, those kinds of actions where a proprietary right is asserted are, in my opinion, quite different to a claim for an injunction under s 80 of the Act based on a s 52 contravention. As Lockhart J explained in the early days of the Act's operation in Colgate Palmolive Pty Ltd v Rexona Pty Ltd (1981) 58 FLR 391, corporate giants may in such litigation enter the lists as the professed champion of the public interest. 10 At trial the Court will be bound to consider the effect of Arnott's advertising on the members of the public to whom it is directed. The real issue in the case is joined by paragraphs 6 and 7 of the defence. If Arnott's advertising is found to be misleading or deceptive, I am quite unable to see how any actual knowledge of Smith's about the methods used by Arnott's or the Kettle Chip Company to manufacture their potato chips could affect the decision to grant a permanent injunction under s 80 of the Act. That decision may, of course, be informed by temporal considerations, such as the duration and contemporaneity of the advertising. Smith's may know the subject representations are false but that does not matter. It would be different if members of the public generally knew that they were false. 11 So far as paragraph 14 of the defence is concerned, the maxim about "clean hands" operates as a discretionary defence to a claim for equitable relief. What von Doussa J said in Glev was in the context of a claim for interlocutory relief, where the respondent cross-claimed in respect of the applicants' own allegedly misleading and deceptive advertising, and should be read as confined to the question of the balance of convenience. The scope for such a defence in a misleading or deceptive conduct case such as the present one must be very limited. On no possible view does the alleged "strategy" of Smith's have "an immediate and necessary relation" to the contravention of s 52 of the Act on which it sues to obtain injunctive relief: Collier Constructions Pty Ltd v Foskett (1990) 97 ALR 460 at 474. Further, the alleged "strategy" is not proscribed by the Act at all. Arnott's submits that paragraph 14 alleges a contravention of a norm of conduct identified in s 47 of the Act. I reject that submission. The conduct pleaded does not breach the Act unless it has the effect of substantially lessening competition: Sodastream Ltd v Electronics (Broken Hill) Pty Ltd (1985) 60 ALR 427. 12 Accordingly, I am of the view that paragraphs 13 and 14 of the Arnott's pleading do not disclose a defence. They are untenable as contrary to principle revealed in the authorities and would have a tendency to cause unnecessary delay in the proceeding. In saying so, I am conscious of the strictures about the need for restraint in exercising the power under rule 16 of Order 11. Paragraphs 13 and 14 of the defence will be struck out. Arnott's must pay Smith's its costs of the motion. Access to confidential documents 13 This brings me to Arnott's motion, which I should put in its forensic context. By its originating process Smith's made a claim for interlocutory relief. The parties prepared for a hearing of that claim on the first return date in this matter, and in anticipation of such a hearing Arnott's served notices to produce upon Smith's. In the event the claim for interlocutory relief did not proceed on that day. However, Smith's produced certain documents in answer to the notices. Some of these documents were marked confidential and access was given to the lawyers for Arnott's and the experts retained by them upon their undertaking to keep them confidential. Subsequently confidentiality undertakings were exchanged between the parties. 14 Smith's would not agree, however, to grant access to Ellen Kaden and Martin Levitas. Ms Kaden and Mr Levitas are lawyers employed by Campbell Soup Company, which is the parent of Arnott's. Ms Kaden is a senior vice president and Mr Levitas is a corporate counsel reporting to her. Both are located at the corporate headquarters in Camden, New Jersey. They provide instructions to Mr David Matthews, Arnott's general counsel, about the conduct of this proceeding. Access to Smith's confidential documents has been given to Mr Matthews. 15 Smith's declined to agree to grant access to Ms Kaden and Mr Levitas because "neither the Court nor [Smith's] would have any ability to proceed against them for breach of the undertaking". Arnott's initially said they were unable to obtain instructions to file a defence until Ms Kaden and Mr Levitas were given access to the confidential documents. Both persons were for the purposes of the confidentiality undertakings to submit personally to the jurisdiction of the Court. Smith's refused to agree, but Arnott's filed its defence. 16 In support of its motions, Arnott's read an affidavit of Michael Williams, who is a solicitor employed by Arnott's solicitors in this proceeding. He deposed: "9. I am instructed that both Ms Kaden and Mr Levitas are prepared to given [sic] written confidentiality undertakings and submit to the jurisdiction of the Federal Court of Australia. I am informed by Mr David Matthews and believe that unless Ms Kaden and Mr Levitas are given access to the documents the Respondent will be prejudiced because Ms Kaden and Mr Levitas are likely to be unable to provide meaningful instructions to Mr Matthews in relation to the allegations the subject of paragraphs 13 and 14 of the Defence." 17 Paragraphs 13 and 14 of the defence are now to be struck out. Accordingly the immediate problem disappears. Arnott's motion will be refused. Each party's costs of the motion shall be part of its costs of the cause. If occasion arises in the future conduct of the proceeding where Mr Matthews needs to seek instructions from Ms Kaden and Mr Levitas in respect of any confidential document, the matter should be taken up with Smith's solicitors, who I would expect would be amenable to any reasonable request. I certify that the preceding seventeen (17) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Whitlam. Associate: Dated: 28 February 2001 Solicitor for the applicant: Mr P J Kerr of Allen Allen & Hemsley Counsel for the respondent: I M Jackman Solicitors for the respondent: Gilbert & Tobin Date of hearing: 21 August 2000 Date of judgment: 28 February 2001