FEDERAL COURT OF AUSTRALIA Unilever Aust Ltd v George Karounos & Anor [2001] FCA 921 STRIKE-OUT – application to strike-out or otherwise dismiss cross-claim - whether s 76 of the Trustee Act 1936 (SA) operates so as to vest any claim that the first cross-claimant as trustee of a trust might have in the new trustee upon execution and registration of the memorandum of appointment of new trustee – effect of s 20 of the Trade Marks Act 1995 (Cth) – whether cross-claim should be struck-out having regard to conduct. COSTS – consideration of how costs should be borne in relation to discontinued proceedings having regard to conduct of the parties. Trustee Act 1936 (SA) s 76 Trade Marks Act 1995 (Cth) s 20 UNILEVER AUSTRALIA LIMITED (ACN 004 050 828) v GEORGE KAROUNOS AND ANOR NG 732 of 1998 HILL J 19 JULY 2001 SYDNEY IN THE FEDERAL COURT OF AUSTRALIA NEW SOUTH WALES DISTRICT REGISTRY NG 732 OF 1998 BETWEEN: UNILEVER AUSTRALIA LIMITED (ACN 004 050 828) APPLICANT/CROSS-RESPONDENT AND: GEORGE KAROUNOS SECOND RESPONDENT/SECOND CROSS-CLAIMANT REVELINU PTY LIMITED (ACN 067 545 117) [in liquidation] (previously known as RFC Nominees Pty Limited) FIRST CROSS-CLAIMANT SABRE INTERNATIONAL LIMITED THIRD RESPONDENT/THIRD CROSS-CLAIMANT JUDGE: HILL J DATE OF ORDER: 19 JULY 2001 WHERE MADE: SYDNEY THE COURT ORDERS THAT: 1. There be no order for costs of the application so far as the proceedings relate to Revelinu Pty Limited (in liquidation). 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 NG 732 OF 1998 BETWEEN: UNILEVER AUSTRALIA LIMITED (ACN 004 050 828) APPLICANT/CROSS-RESPONDENT AND: GEORGE KAROUNOS SECOND RESPONDENT/SECOND CROSS-CLAIMANT REVELINU PTY LIMITED (ACN 067 545 117) [in voluntary administration] (previously known as RFC Nominees Pty Limited) FIRST CROSS-CLAIMANT SABRE INTERNATIONAL LIMITED THIRD RESPONDENT/THIRD CROSS-CLAIMANT JUDGE: HILL J DATE: 19 JULY 2001 PLACE: SYDNEY REASONS FOR JUDGMENT 1 Two matters arise for consideration in the present proceedings. The first is a motion brought by Unilever Australia Limited ("Unilever") to strike-out or otherwise dismiss the cross-claims of Revelinu Pty Ltd (in liquidation), formerly known as RFC Nominees Pty Ltd and hereafter referred to as "RFC". The second is an application by RFC that Unilever pay its costs of so much of the proceedings that concern the application brought by Unilever against RFC. 2 The parties, subject to one matter to which reference will later be made, are in agreement as to the chronology and procedural history of the proceedings. It will be necessary to refer to that chronology so far as it relates to each of the matters before the Court. On 4 January 1995, RFC applied to become the registered proprietor of two trade marks, one the word "Real" and the other the words "Real Fish'n Chips" (together with a logo) (the "trade marks"). In making the application RFC was trustee of a trust established for the benefit of the family of Mr Karounos, who is a respondent in the proceedings and a cross-claimant in the cross claim. Mr Karounos has at all relevant times held 1,000 of the 1,002 ordinary shares in RFC. Ms Helen Karounos and Ms Elia Karounos each hold one ordinary share. Mr Karounos was at all relevant times also a director of RFC. In addition, he was the appointor of the trust of which RFC was trustee and, as such, had the power to appoint and remove trustees. 3 On 4 June 1997, Mr Karounos terminated the appointment of RFC as trustee of the trust and appointed himself to that position. On 24 June 1997, there was lodged with the South Australian Land Titles Office, Old Systems Section, a document of which the parties are said to be RFC and Mr Karounos being an appointment of a new trustee. The actual "Deed of Appointment of New Trustee" is a deed poll of which the only party is Mr Karounos, although Mr Karounos is said to be a party in two different capacities. Nothing turns upon that. There has been no suggestion in the evidence that another deed of appointment to which RFC Nominees was a party was ever signed. The only significance of this matter is that the South Australian Land Titles Office has mislaid the document that has been registered. Despite the way the parties are described on the register, the inference is I think inescapable that what was lodged with the South Australian Land Titles Office was a Memorandum of Appointment which was an exhibit in the proceedings. 4 On 24 July 1997, and pursuant to the change of trustee, RFC executed an assignment of the two marks to Mr Karounos. 5 On 22 July 1998, Unilever commenced the present proceedings against RFC claiming that the trade marks should be cancelled or removed from the Register of Trade Marks (the "Register") and in the alternative seeking a declaration that it had not infringed them. Registration of the trade marks was effected on 29 August 1997 for the word mark "Real" and 15 May 1997 for the word and device mark "Real Fish'n Chips" with a registration date back to the date of filing of the respective applications, namely, 4 January 1995. Thus, at the time the proceedings had been commenced RFC was on the Register as registered owner of the trade marks and clearly the only relevant party to the proceedings so far as Unilever itself could ascertain. 6 Prior to the proceedings being commenced, RFC had made demands of Unilever on the basis that the packaging of Unilever products infringed the trade marks. RFC filed a defence and cross-claim in the proceedings on 15 October 1998. At the time RFC was represented by its solicitors, Messrs Donaldson Walsh of South Australia. The cross-claim asserted, inter alia, infringement by Unilever of the trade marks as well as claiming Unilever had engaged in conduct which was misleading and deceptive under s 52 of the Trade Practices Act 1974 (Cth) and also constituted passing off. The assignment by RFC of the trade marks to Mr Karounos was filed with the Trade Marks Office on 26 February 1999. 7 Two matters may well have made filing that application of significance. The first was that Mr Karounos was involved in seeking to raise money by mortgaging the trade marks and may well have done so in February 1999. There were subsequent proceedings in the Court concerning what was said to be a mortgage of the trade marks but these have no present relevance. Extensive directions were made in the present proceedings which resulted in the filing by RFC of the evidence it proposed to rely on in respect of all issues other than damages. It was agreed between the parties that the quantum of damages could be left for a separate determination depending on the outcome of the questions going to the validity of the trade marks. Short minutes of order were filed in Court on 3 May 1999 that included an order that quantum be heard separately from and after all other claims arising in the proceedings. 8 On 15 December 1999, RFC was removed from the Register of Companies. It is said from the bar table that this occurred as a result of failure to file a statutory document, presumably an annual return. This only became apparent to Unilever some time around June 2000 by which time the affidavit evidence of RFC had been filed. Around that time Unilever also became aware that Mr Karounos had become the registered owner of the trade marks, their assignment to him being recorded on 29 February 2000. The effect of that assignment dated back to 26 February 1999 being the date of the actual filing of the application for registration of that assignment. 9 On 5 June 2000, orders were made to allow Mr Karounos to be joined as a respondent in the main proceedings. That joinder was by consent and in circumstances where Messrs Donaldson Walsh were also acting for Mr Karounos. On 5 June 2000, a date for hearing was also fixed for 3 October 2000. Counsel for Mr Karounos gave, on 26 July 2000, an undertaking that an application would be made to restore RFC to the Register. In the meantime, on 3 July 2000, the Register was further amended to record that Sabre International Limited was now the registered owner effective on and from 26 May 2000. It was that company that alleged it had lent money to Mr Karounos. It was subsequently joined as a party on 6 September 2000. The proposed hearing date of 3 October was vacated on 13 September 2000 and the matter re-listed for hearing on 12 December 2000. 10 On 16 November 2000, RFC was restored to the Register. Five days later RFC went into voluntary administration and a Mr Morgan was appointed administrator of it. Notification of the appointment was given to Unilever on 27 November 2000. Since that appointment operated as a stay of the proceedings so far as they concerned RFC it became obvious that the hearing on 12 December 2000 could not proceed at least against RFC. When the matter was re-listed before the Court on 4 December 2000 Messrs Donaldson Walsh, now acting for the administrator of RFC, notified that Mr Morgan did not then consent to the proceedings continuing. It was indicated that Mr Morgan was seeking funding and would make a decision at a later time whether the proceedings should be continued. 11 At this time, if not earlier, it was obvious that RFC, no longer being on the Register was not a necessary party to the claim that the trade marks be cancelled or removed from the Register. Since no one made any attempt to tell Unilever of what had happened, the first time that Unilever would have been aware that RFC was not a relevant party to the main proceedings was, as previously indicated, around June 2000. On 11 December 2000, when the matter was again before the Court, Messrs Donaldson Walsh for the administrator advised the Court that the administrator was still not in a position to consent to the proceedings continuing. It was on that day that Unilever sought and was granted leave to discontinue the main proceedings against RFC. It is that discontinuance that gives rise to the claim by RFC that it should be entitled to its costs of the main proceedings. 12 The administrator continued what may be thought to be a leisurely course in deciding whether or not the proceedings should be continued against Unilever. 13 Clearly the proceedings on 12 December, at least so far as they concerned RFC, could not proceed. Accordingly, the cross-claim of RFC was stood over until 19 February 2001, when it was hoped that the RFC cross-claim would be able to be heard with the main proceedings. At the hearing on 12 December 2000, Mr Karounos did not appear. Unilever adduced its evidence in chief and the hearing was then adjourned to 19 February 2001. However, RFC on 14 February 2001 sought to vacate the hearing on 19 February 2001. The administrator had still not made a decision, it was said. The day after RFC went into liquidation in a creditors' voluntary winding up and Mr Morgan was appointed liquidator. No attempt appears to have been made to advise the Court of this fact or, indeed, to advise Unilever. 14 On 20 February 2001, the hearing of the main proceedings to which RFC was no longer a party recommenced. The only person who presumably was aware that RFC was in liquidation was Mr Karounos. He made no endeavour to communicate the matter to the Court. The hearing was then adjourned on 21 February 2001 until 8 March 2001 to enable Mr Karounos to obtain legal representation. On that day Messrs Donaldson Walsh appeared for Mr Karounos to seek a further adjournment of the hearing and they suggested that the firm had been instructed to appear for Mr Karounos only for this purpose and did not have time to prepare the case. When the adjournment was refused Donaldson Walsh withdrew from the proceedings. Accordingly, the hearing of the main proceedings continued on 9 and 12 March and 3 April on which day Mr Keith, instructed by Messrs Donaldson Walsh, again appeared for Mr Karounos and addressed the Court on various matters. 15 It was only on or about 13 June 2001 that Mr Morgan's appointment as liquidator of RFC became known to the Court as a result of an affidavit he filed in the South Australian District Registry of the Court on that day. The affidavit, dated 12 June 2001, showed that his appointment had followed a first meeting of creditors held on 28 November 2000 and a second meeting held on 18 December 2000 which had been adjourned to 15 February 2000 at which time he was appointed liquidator. Mr Morgan did not have the courtesy to notify Unilever or, for that matter, the Court that RFC was now in liquidation. From evidence filed by the solicitor for Unilever it seems that he learned of the company being placed in liquidation by making a company search on 10 May 2001. An affidavit to this effect was filed in Court on 23 May 2001. 16 The above history of the matter ignores numerous interlocutory hearings. There is little doubt that Unilever in the proceedings and cross claim has incurred very substantial costs to date. Candid disclosure hardly seems to have been a priority with either Mr Karounos or Mr Morgan. 17 There are two bases upon which Unilever submits that the cross-claim should be struck-out or dismissed. The first, a legal basis, depends upon s 76 of the Trustee Act 1936 (SA). The second relates to the manner in which the proceedings have progressed to date, as a result of the various matters affecting RFC. Section 76 of the Trustee Act 1936 (SA) provides that on registration of a memorandum of appointment of new trustees, the trust estate without any conveyance, transfer or assignment is to vest in the new trustees subject in the case of land to registration under the Real Property Act 1886 (SA). 18 It was submitted that once the Memorandum of Appointment was executed and registered then, without more, the trade marks vested in Mr Karounos so that as at least from that date RFC had no legal or equitable interest in the trade marks. That interest vested in Mr Karounos in law although, being a trustee, not in equity. Hence, it was submitted that any claim which RFC may have had vested in Mr Karounos so that RFC could not be an appropriate party to the cross-claim and the cross-claim brought by it should be dismissed or struck-out. 19 Senior Counsel for RFC submitted that the issue had to be determined by reference to the provisions of the Trade Marks Act 1995 (Cth); in particular s 20 of that Act. That section provides relevantly that the registered owner has exclusive rights of user and authorisation of use in relation to the goods and services in respect of which the trade mark is registered and that the registered owner has the right, and presumably is the only person who has the right, to obtain relief under that Act for infringement. So, it is said that, whatever effect the provisions of the South Australian Trustee Act may have, RFC was the party and indeed the only party that could, from the time of commencement of the cross-claim to the time it ceased to be the registered owner of the trade marks, bring proceedings for infringement. 20 The argument may be thought to raise an issue under s 109 of the Commonwealth Constitution of inconsistency but the parties agreed in essence that the matter should in any event be determined by reference to s 20 of the Trade Marks Act 1995 (Cth). It follows inexorably, therefore, as indeed I understood Counsel for Unilever to concede, that the proceedings should not be struck-out or dismissed on the ground that RFC was not a relevant party to the cross-claim. It clearly was. 21 That leaves the discretionary question whether, having regard to its conduct, RFC's cross-claim should in any event be struck-out or dismissed. Given the history which I have described there is much to be said for the submission of Unilever that the proceedings should be struck-out. However, two matters mitigate against that consequence. The first, forcefully submitted by Senior Counsel for RFC, is the fact that RFC's financial position has been such that it has throughout been endeavouring, at least while it existed as a company, to obtain finance to enable it to pursue the proceedings. So it is submitted that the proceedings should not be struck-out just because RFC is impecunious. The second, is an offer, made in open Court, that RFC would consent to an order to provide security for the costs of Unilever from the time of commencement of the cross-claim up to and including the hearing of it, subject to the question of quantum being determined by a Registrar of the Court. On this basis it is hard to see how Unilever will suffer any prejudice. If security is not provided in accordance with the order, which RFC consents to, by 8 weeks from the date the strike-out application was heard, RFC agrees that the proceedings should then be dismissed with costs. If on the other hand security is given then the matter can proceed for hearing at a nominated date. 22 It is largely for the reason that the security for costs was offered that I acceded to the application by RFC not to strike-out or dismiss its cross-claim but to accept what was an alternative claim of relief on the part of Unilever in any event, that an order be made requiring security for costs to be provided. I accordingly made that order in terms which were agreed ultimately by Counsel and in the circumstances ordered that no order for costs be made on the motion to date. I indicated I would publish reasons later. These are those reasons. 23 This leaves remaining the question of the costs of the proceedings initially commenced against RFC and ultimately discontinued. 24 It is clear from the chronology which I have already set out, that at the time the present proceedings were commenced, RFC was the only and proper respondent to the proceedings. It was the registered owner of the mark which Unilever sought to have expunged. It is true that in all the circumstances it ceased to be a relevant party once the assignment of the mark to Mr Karounos was registered on 29 February 2000 effective on and from 26 February 1999. In the present circumstances it was only after 29 February 2000 when that registration was effected that it became appropriate that the proceedings be discontinued against RFC. 25 It is submitted by Senior Counsel for RFC that because Unilever discontinued the proceedings the usual course should be adopted; that Unilever pay the costs of RFC. However, it seems to me that the history of the present litigation does not dictate that that is an appropriate order to make in the interests of justice. Leaving aside matters such as the deregistration of RFC, the chronology demonstrates that only a short period of time elapsed between it becoming apparent that RFC was no longer on the register and the application made on 11 December 2000 by Unilever for leave to discontinue the proceedings against RFC. Given that RFC only was restored to the Register of Companies a few days earlier and indeed for a considerable period of time could not have incurred any costs in any event as it did not exist, I do not propose to order Unilever to pay the costs of RFC. Indeed there is much to be said for the view that RFC should be required to pay some of the costs of Unilever. Not without some doubt I am of the view that in all of the circumstances the appropriate order is that there be no order for costs on either side of the proceedings brought by Unilever against RFC and I so order. I certify that the preceding twenty-five (25) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Hill. Associate: Dated: 19 July 2001 Counsel for the Applicant: R J Webb Solicitor for the Applicant: Baker & McKenzie Counsel for the First Cross-Claimant: J Emerson QC Solicitor for the First Cross-Claimant: Donaldson Walsh Date of Hearing: 14 June 2001 Date of Judgment: 19 July 2001