FEDERAL COURT OF AUSTRALIA Cold Rock Management Pty Ltd v Maerceci Pty Ltd [2011] FCA 850 Citation: Cold Rock Management Pty Ltd v Maerceci Pty Ltd [2011] FCA 850 Parties: COLD ROCK MANAGEMENT PTY LTD ACN 078 334 326 v MAERCECI PTY LTD ACN 093 099 891 and AURUMINE PTY LTD ACN 106 082 400 File number: VID 452 of 2011 Judge: LOGAN J Date of judgment: 25 July 2011 Catchwords: PRACTICE AND PROCEDURE – discovery – application for further and better discovery Legislation: Trade Practices Act 1974 (Cth) Date of hearing: 25 July 2011 Place: Brisbane Division: GENERAL DIVISION Category: Catchwords Number of paragraphs: 22 Counsel for the Applicant: Mr I Upjohn Solicitors for the Applicant: ComLaw Barristers and Solicitors Counsel for the Respondents: Mr RJ Anderson Solicitor for the Respondents: Cleary Hoare IN THE FEDERAL COURT OF AUSTRALIA QUEENSLAND DISTRICT REGISTRY GENERAL DIVISION VID 452 of 2011 BETWEEN: COLD ROCK MANAGEMENT PTY LTD ACN 078 334 326 Applicant AND: MAERCECI PTY LTD ACN 093 099 891 First Respondent AURUMINE PTY LTD ACN 106 082 400 Second Respondent JUDGE: LOGAN J DATE OF ORDER: 25 JULY 2011 WHERE MADE: BRISBANE THE COURT ORDERS THAT: 1. The respondents make discovery of the documents set out in the Schedule hereto by filing and serving a Supplementary List of Documents on or before 28 July 2011. 2. The costs of and incidental to today's hearing in respect to the Notice of Motion be costs in the proceeding, but otherwise the costs of the Notice of Motion be reserved. 3. The Notice of Motion is otherwise adjourned to a date to be fixed. 4. The proceeding be set down for trial for four (4) days commencing on 11 August 2011. 5. By 4pm on 4 August 2011, the applicant file and serve a paginated and indexed bundle of documents which the parties agree are to be tendered in evidence. 6. The applicant file and serve its Chronology of Relevant Dates and Outline of Opening Submissions on or before 12 noon on 9 August 2011 and the respondents file and serve their Chronology of Relevant Dates and Outline of Submissions by 12 noon on 10 August 2011. 7. The time fixed in paragraph 5 of the Orders of 10 June 2011 insofar as it relates to the respondents be enlarged to on or before 29 July 2011. That enlargement of time is without prejudice to the ability of the applicant to make such application, as it may be advised, in respect of any consequence of the enlargement. 8. The costs of and incidental to that enlargement of time be the applicant's costs in the proceeding but otherwise the costs of the directions hearing be reserved. 9. Liberty to apply is reserved to the parties. Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules. The text of entered orders can be located using Federal Law Search on the Court's website. Schedule for Discovery required by the Applicant from the Respondents 1. The manual prepared by the respondents and used by the respondent whilst Franchisees of the Cold Rock Ice Creamery Franchise referred to in paragraph 10.1 of the affidavit of Paul Bailey sworn 7 June 2011. 2. All documents prepared by or on behalf of the respondents or any of them in relation to the decision to rebrand the Thuringowa, The Strand and Magnetic Island stores under the name The Ice Cream Factory. 3. All bank statements, cheque butts and deposit books and documents containing related explanations of electronic transfers or receipts of the respondents for the period 1 July 2009 to date of this Order evidencing and concerning: (a) receipts or takings of the sale of ice cream whether under the name Cold Rock or the IF Ice Cream Factory from the Thuringowa, The Strand and Magnetic Island Stores; (b) payments for all purchases of material or goods required for the manufacture or sale of ice cream; 4. All documents (including and not limited to the respondents' purchase orders and the respondents suppliers invoices) evidencing or concerning purchase of ingredients or product used in the manufacture of ice cream by the respondents between the period 1 July 2009 to the date of this Order. 5. All documents (including and not limited to the respondents' purchaser orders and the respondents' suppliers invoices) evidencing or concerning purchase of ingredients used in ice cream sold to the public by the respondents between the period 1 July 2009 to the date of this Order. IN THE FEDERAL COURT OF AUSTRALIA QUEENSLAND DISTRICT REGISTRY GENERAL DIVISION VID 452 of 2011 BETWEEN: COLD ROCK MANAGEMENT PTY LTD ACN 078 334 326 Applicant AND: MAERCECI PTY LTD ACN 093 099 891 First Respondent AURUMINE PTY LTD ACN 106 082 400 Second Respondent JUDGE: LOGAN J DATE: 25 JULY 2011 PLACE: BRISBANE REASONS FOR JUDGMENT 1 Cold Rock Management Pty Ltd (Cold Rock Management) is the applicant in a claim brought originally in the Victorian District Registry of the Court against two respondents, Maerceci Pty Ltd (Maerceci) and Aurumine Pty Ltd (Aurumine). 2 At the heart of the claim brought by Cold Rock Management is a termination of a Cold Rock franchise which had until, it seems, May this year been operated by Maerceci and Aurumine in Townsville (at The Strand), Thuringowa and Magnetic Island. 3 It is alleged in the substantive application that the restraint of trade clause in the franchise agreement (cl 24), which is in a standard form in respect of each of the locations mentioned, has been breached by a continuance of the "Business" as defined, by the respondents, without the prior written consent of Cold Rock Management. It is also alleged that Maerceci and Aurumine have breached the copyright of Cold Rock Management in various documents used in conjunction with the operation of a Cold Rock franchise business, eg, an operations manual. A further basis for the claim is to be found in what was once termed the Trade Practices Act 1974 (Cth). It is not necessary, for present purposes, further to explore the latter, save to note that it relates to a presentation of the present business in a way which is said to mislead having regard to the business hitherto carried on by Maerceci and Aurumine. 4 A controversy has emerged between the parties with respect to discovery. There are in all six controversial categories. Those categories are detailed in Annexure A to Cold Rock Management's notice of motion. 5 Of these categories, numbers 3 and 4 presently require judicial determination as to whether further discovery should be ordered. That is because Maerceci and Aurumine have, in stages, furnished documents to Cold Rock Management which, so it is said, answer without admission of liability the obligation to provide further discovery in categories 1, 2, 5 and 6 in Annexure A to the notice of motion. 6 The last such stage of provision of documents said to fall within the latter categories occurred as recently as Friday last. In these circumstances Cold Rock Management, understandably, wishes to analyse what has been provided before deciding whether further to press the notice of motion insofar as it relates to those categories. For this reason, so much of the notice of motion as relates to categories 1, 2, 5 and 6 will be adjourned to a date to be fixed with liberty to apply. The notice of motion can be restored to the list in the event that, upon reflective consideration of what has been provided, there is a remaining controversy concerning them. Cold Rock Management has additionally sought that there be a supplementary list verified by affidavit in respect of the further discovery which has occurred. That request is quite understandable in the circumstances and again quite properly in the circumstances is not opposed by Maerceci and Aurumine. There will be an order for the provision of a supplementary list. 7 Whether or not that supplementary list should include anything in respect of categories 3 and 4 falls for decision. As to that, there has been some refinement by Cold Rock Management as to what is sought under those categories. That refinement is to be found in a draft order helpfully provided by its counsel today. As there reproduced, categories 3 and 4 comprise: (3) All bank statements, cheque butts and deposit books of the respondents for the period 1 July 2009 to the date of this order evidencing and concerning: (a) receipts or takings (including the cash register rolls) of the sale of ice cream whether under the name of Cold Rock or IF Ice Cream Factory from the Thuringowa, The Strand and Magnetic Island stores; (b) payments for all purchases of material or goods required for the manufacture or sale of ice cream. (4) All documents in relation to the identity and duties of, hours worked by and salary paid to persons employed by the respondents, whether as permanent or casual by the respondents whose place of employment is or was situated at either the Thuringowa, The Strand or the Magnetic Island stores for the period 1 July 2009 to the date of this order. 8 The reason why 1 July 2009 has been selected, as explained on behalf of Cold Rock Management, was that this is the commencement date of the first complete financial year prior to the financial year in which the franchise was terminated. Thus, that prior financial year will, so it is submitted, provide a reference base in respect of questions both as to liability and damages or an account of profits. 9 It is convenient first to deal with category 4. As to that, the submission made on behalf of Maerceci and Aurumine is that the identification of employees and what was paid to them in no way advances the liability case on any of its bases. It is not controversial, so it is submitted, that Maerceci and Aurumine continue to carry on a business of selling ice cream products at the locations mentioned. That being so, it is also not controversial that there are staff engaged in the selling of ice cream and that many of those staff are casuals. It is submitted that the identification of particular staff, before and after, as it were, does not advance a case brought on any of the bases pleaded by Cold Rock Management. 10 The riposte to this is that it goes to show that the same business is being carried on and hence the types of document in category 4 are relevant. 11 Were this an industrial case where the controversy was one as to whether there had been a transmission of business, a continuance of the same employees would be one indicator of that. Here, though, there is, at a general level of abstraction, no controversy that the same type of business is being carried on, that of selling ice cream products by retail to the public. 12 In my opinion, the differentiation is not to be found, having regard to the pleaded case, in a continuance of staff but rather in a continuance of business method, particularly if that be found in a continuance by breach of copyright and in a continuance of product, particularly if that product be of a uniqueness found only in businesses conducted by Cold Rock franchisees. That being so, I am not persuaded that category 4 is directly relevant to the liability issues in the case. 13 The cost of labour is, of course, a business outlay and to that extent is relevant in any assessment of profit. Normally though, as was highlighted in the submissions made on behalf of Maerceci and Aurumine, an order for an account of profits would be a sequel to a finding as to liability. As to a damages award, that too would have profit as a reference base. It is not necessary though, in the ascertainment of damages, to descend to the level of detail which is found in category 4. At least as presently advised, the discovery of profit and loss statements, before and after, would be both necessary and, it seems to me, sufficient. Put another way, what is sought in category 4 would be an "overkill" in a damages assessment in terms of an evidentiary foundation. 14 I turn then to category 3. Category 3 is pressed on the basis of relevance to both liability and quantum. So far as liability is concerned, it is alleged that the cash register rolls would allow a comparison of patterns of trade. It is further submitted that what is sought in category 3 is really no different to what Maerceci and Aurumine have undertaken prospectively to preserve. 15 The response of Maerceci and Aurumine to the alleged relevance of category 3 is similar to that made in respect of category 4. In other words, it is put that it matters not as to whether patterns of trade were or were not the same in terms of whether there has been a breach of the restraint, an unauthorised use of copyright material or a transgression of a trade practices prohibition. That seems to me to be the better view. In other words, it matters not in terms of liability whether the trade pattern was or was not the same. If it is the same business which is being carried on, and if the restraint clause is valid, then there has been a breach of the restraint. 16 More difficult is the question as to the extent to which the documents sought in category 3 would touch upon a damages claim or an account. As to the latter, the same may be said in respect of this category as in respect of category 4, that it would be relevant in the event that liability were found and an account ordered. The cash register rolls will doubtless show at least sales. I do not have the benefit of ascertaining whether they will show the type of product which was sold as well. Even if they did, the relevance would lie only in the provision of material as to gross sales for the business before and afterwards and then a comparison of gross sales less expenses so as to yield profit before and after. Bank statements do, though, seem to have some relevance in terms of an assessment of profits before or after. To make sense of those, cheque butts would doubtless be necessary and so too would deposit books. It may be, in today's times, that category 3 is cast too narrowly in the sense that payments may have been effected electronically rather than by cheque. So too deposits may have been received electronically, rather than by a cheque requiring physical deposit and recording in a deposit book. That being so, the category seems to me to be somewhat narrow in relation to documents which I regard as relevant to an assessment of damages. 17 I can see much sense in the selection by Cold Rock Management of 1 July 2009 for the reason set out in its submission as described above. 18 That being so, I am persuaded there ought to be further discovery in respect of category 3 but in a way which takes account of the prospect in today's times of payment or receipt by electronic means as well as by cheque. I am not persuaded that it is necessary for Cold Rock Management to have discovery of cash register rolls. 19 There will therefore be an order for the respondents, Maerceci and Aurumine, to provide further discovery by list verified by affidavit of "all bank statements, cheque butts, deposit books and documents containing related explanation of electronic transfer or receipt for the period 1 July 2009 to date of this order" evidencing and concerning: (a) receipts and takings of the sale of ice cream whether under the name of Cold Rock or the IF Ice Cream Factory from Thuringowa, The Strand and Magnetic Island stores; (b) payments for purchases of material or goods required for the manufacture or sale of ice cream. 20 The orders will be in terms of para 1 and para 2 of the draft that has been handed to me and which I have signed and placed with the papers. 21 Paragraph 3 of that draft relates to costs. There has been mixed forensic success today. It seems to me that there has been a degree of forensic erudition applied to the notice of motion that was not present in the anterior correspondence on behalf of Cold Rock Management as to alleged deficiencies in the respondents' discovery. By that I mean there has been a refinement and better articulation in the notice of motion of the alleged deficient categories than one can glean from the correspondence. In those circumstances there is, in my view, much to be said for the respondents' submission that there is something of a pre-emptory quality about the application by notice of motion, as opposed to seeking such categories by precise request by correspondence beforehand. 22 For all that, the respondents have been disposed, with the benefit of the greater precision in the notice of motion, to provide further categories of discovery. It seems to me that, in these circumstances, I ought to order that the costs of today in relation to the notice of motion be the parties' costs in the proceedings and that otherwise the costs in respect of the notice of motion be reserved. Reserving those costs will preserve the costs of any further controversy in respect of the notice of motion. It will also mean that the ultimately successful party will, subject to any particular submission, have the benefit of that reserved costs order. I certify that the preceding twenty-two (22) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Logan. Associate: Dated: 28 July 2011