FEDERAL COURT OF AUSTRALIA Anchorage Capital Partners Pty Limited v ACPA Pty Limited (No 1) [2014] FCA 765 Citation: Anchorage Capital Partners Pty Limited v ACPA Pty Limited (No 1) [2014] FCA 765 Parties: ANCHORAGE CAPITAL PARTNERS PTY LIMITED v ACPA PTY LIMITED and ANCHORAGE CAPITAL GROUP L.L.C.; ACPA PTY LIMITED v ANCHORAGE CAPITAL PARTNERS PTY LIMITED File numbers: NSD 149 of 2014 Judge: PERRAM J Date of judgment: 25 July 2014 Catchwords: PRACTICE AND PROCEDURE – application to amend statement of claim – damages sought for lost profits and loss of chance of earning profits – whether necessary to identify basis for particular profits lost PRACTICE AND PROCEDURE – discovery – application for discovery before pleadings closed – whether unfair to require filing of evidence before discovery Cases cited: Australian Rugby Union Ltd v Canterbury International (Australia) Pty Ltd (No 1) [2012] FCA 497 considered Federal Commissioner of Taxation v Murry (1998) 193 CLR 605 cited Harrods Ltd v Harrodian School Ltd (1996) 35 IPR 355 cited Inland Revenue Commissioners v Muller & Co's Margarine Ltd [1901] AC 217 cited JT International SA v Commonwealth (2012) 291 ALR 669 cited Sellars v Adelaide Petroleum NL (1994) 179 CLR 332 considered Date of hearing: 17 July 2014 Date of last submissions: 18 July 2014 Place: Sydney Division: GENERAL DIVISION Category: Catchwords Number of paragraphs: 27 Counsel for the Applicant/ Cross-Respondent: Mr A Leopold SC Solicitor for the Applicant/ Cross-Respondent: Watson Mangioni Lawyers Counsel for the Respondents/ Cross-Claimant: Mr AJL Bannon SC and Mr NR Murray Solicitor for the Respondents/ Cross-Claimant: Herbert Smith Freehills IN THE FEDERAL COURT OF AUSTRALIA NEW SOUTH WALES DISTRICT REGISTRY GENERAL DIVISION NSD 149 of 2014 BETWEEN: ANCHORAGE CAPITAL PARTNERS PTY LIMITED Applicant AND: ACPA PTY LIMITED First Respondent ANCHORAGE CAPITAL GROUP L.L.C. Second Respondent AND BETWEEN: ACPA PTY LIMITED Cross-Claimant AND: ANCHORAGE CAPITAL PARTNERS PTY LIMITED Cross-Respondent JUDGE: PERRAM J DATE OF ORDER: 25 JULY 2014 WHERE MADE: SYDNEY THE COURT ORDERS THAT: 1. Grant leave to the applicant to file an amended statement of claim in the form included in the applicant's application book save that leave is not granted to include the claim for lost profits or the loss of chance of making profits. 2. Direct that the applicant file and serve the amended statement of claim within 7 days hereof. 3. Stand over generally the applicant's and the first respondent's applications for discovery. 4. Direct that there be tried separately and in advance all questions apart from relief. 5. Stand the matter over for further directions on Tuesday 29 July 2014 at 9.30 am. 6. No order as to costs. Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011. IN THE FEDERAL COURT OF AUSTRALIA NEW SOUTH WALES DISTRICT REGISTRY GENERAL DIVISION NSD 149 of 2014 BETWEEN: ANCHORAGE CAPITAL PARTNERS PTY LIMITED Applicant AND: ACPA PTY LIMITED First Respondent ANCHORAGE CAPITAL GROUP L.L.C. Second Respondent AND BETWEEN: ACPA PTY LIMITED Cross-Claimant AND: ANCHORAGE CAPITAL PARTNERS PTY LIMITED Cross-Respondent JUDGE: PERRAM J DATE: 25 JULY 2014 PLACE: SYDNEY REASONS FOR JUDGMENT 1 There are three questions to be answered: should the applicant have leave to amend its pleadings; should discovery be granted to the parties prior to the filing of their evidence; and, should the issue of liability be determined in advance of the issue of quantum? 1. Background 2 The matter arises this way: the Anchorage Capital Group L.L.C. is a Delaware corporation with its principal office on Broadway, New York. It manages private investment funds. What it does with those funds appears from its webpage which promotes it as providing services 'across the credit, special situations and illiquid investment markets of North America and Europe using an active long and short basis, with particular focus on defaulted and leveraged issuers.' It appears that it has been conducting that business since at least 2003. It has done so in a number of countries under the names ANCHORAGE, ANCHORAGE CAPITAL and ANCHORAGE CAPITAL GROUP. For reasons which will become clear soon enough it will aid the reader's ease of understanding for these reasons to refer to this entity as 'the US Company'. 3 Anchorage Capital Partners Pty Ltd is an Australian company incorporated in 2007. According to its website it is: '…a specialised private equity firm that provides both capital resources and operational experience to businesses that are not achieving their full potential. We call these opportunities "Special Situations".' 4 It will be convenient to refer to this entity as 'the Australian Company'. It is entirely unrelated to the US Company. 5 Although the matter is not altogether clear, it appears that the US Company decided to set up an office in Sydney sometime in 2011. It did so through an Australian subsidiary called ACPA Pty Ltd. Since July 2013 both ACPA and the Australian Company have had their offices in the same office tower in Sydney's central business district, the AAP Centre at 259 George Street. ACPA admits that its sign in the foyer of that tower contains the statement 'ACPA Pty Ltd is a subsidiary of Anchorage Capital Group L.L.C.'. It also agrees that a similar statement appears on the business cards and the email sign-offs used by its staff. 6 Minds might legitimately differ on whether ACPA is using the word ANCHORAGE to promote its business and, indeed, they do. The Australian Company perceives ACPA and the US Company to be exploiting its name. ACPA, on the other hand, sees no use of the word ANCHORAGE as a trade name because the name it is using is ACPA and, pursuing that thought, it can hardly be wrongful to tell the world the identity of your parent company. 7 Since the answers to those questions largely depend on the perspective one holds and since the perspective of these two firms is entirely opposite, proceedings were inevitable. Solicitors' letters were exchanged containing demands and denials and on 14 February 2014 the Australian Company sued ACPA in this Court. It alleges that three trademarks its owns (each containing the word ANCHORAGE) have been infringed and that ACPA has engaged in passing off as well as misleading and deceptive conduct. It claims injunctions, delivery up, damages or an account of profits and a number of declarations. 8 For its part, whilst admitting that it does suggest to the public that it is subsidiary of the US Company, ACPA denies the allegations against it. Further, ACPA has cross-claimed against the Australian Company to have its three trademarks expunged from the register of trademarks on the basis of prior use in Australia by the US Company and because the registration of the trademarks is said to have been misleading by reason of the confusion it engenders with its own business. It also seeks an injunction to restrain misleading and deceptive conduct. 2. Amendment to Statement of Claim 9 The Australian Company now seeks to amend its statement of claim. Most of the amendments are not opposed. However, each of the claims for damages and, in particular, the claim for passing off are said to be defective by reason of the particulars of damage which have been provided. The proposed particulars to paragraph 34(b) which makes the claim in passing off are as follows (the other corresponding damages claims are not materially different): 'Particulars (a) Lost profit (or the loss of the real chance of earning additional profit) and/or damage to goodwill. The nature of the statutory contraventions and the tortious conduct is such that the applicant is unable to point to any particular transaction in which it would have been engaged but for the contraventions and/or the tortious conduct. However, it is to be inferred from: (i) the nature and extent of the contraventions and/or tortious conduct; (ii) the particulars of actual confusion exemplified in Schedule 1 to the applicant's response dated 8 April 2014 to the first respondent's request for further and better particulars; (iii) the extent to which the financial services provided in Australia by the applicant as described in paragraph 1(c) above coincide or overlap with the financial services provided in Australia by the first respondent and (since about mid 2011) by the second respondent as described in paragraphs 2(c) and 2A(c) above respectively, that, on the balance of probabilities, as a result of the contraventions and/or the tortious conduct, engagements in transactions have in fact been lost by the applicant with consequential lost profit, and/or its goodwill has been damaged. (c) (b) The applicant reserves the right to provide further particulars of loss or damage after discovery is given and after the extent of the respondents' conduct is known. The applicant is unable to provide particulars of loss or damage until after discovery is given and the extent of the respondent's conduct is known.' 10 APCA does not contend that the Australian Company must now fully quantify any alleged pecuniary loss. It does submit, however, that in order to plead loss and damage 'it must have some awareness of the nature of the loss and damage said to have been suffered'. It is then said by the respondents that the Australian Company is unaware of any actual or probable damage from which it follows that the amendment should be refused. During argument it was suggested that the Australian Company had to point to some transaction which had not occurred because of the conduct to show a real diversion of business. 11 Particular (a) contains three elements: lost profits; loss of the real chance of earning additional profits; and damage to goodwill. The considerations applying to these are not the same. 12 I do not think that the inability of the Australian Company to point to any particular transaction which it says would have come to it but for the impugned conduct has any consequence insofar as the allegation that its goodwill was harmed is concerned. What is goodwill? As Lord Macnaghten observed in Inland Revenue Commissioners v Muller & Co's Margarine Ltd [1901] AC 217 at 223-224 '[i]t is a thing very easy to describe, very difficult to define. It is the benefit and advantage of the good name, reputation, and connection of a business. It is the attractive force which brings in custom'. That statement has been often enough applied; see, for e.g., Federal Commissioner of Taxation v Murry (1998) 193 CLR 605 at 615 [23]; JT International SA v Commonwealth (2012) 291 ALR 669 at 696 [106] per Gummow J, 756 [349] per Kiefel J. 13 This concept of goodwill as the attractive force which brings in custom may be harmed in many ways. Infringing conduct at its simplest may cause diversion of trade. But even where trade is not shown to have been diverted, yet the infringing conduct may still damage a plaintiff's goodwill. The prominence of a plaintiff's reputation may be diminished just by the mere presence of the infringing competitor. Further, the quality of the infringer's goods or services may redound adversely on the plaintiff's own reputation. For these reasons, the assessment of damage to a plaintiff's goodwill goes beyond the merely transactional. As Sir Michael Kerr observed in his dissenting judgment in Harrods Ltd v Harrodian School Ltd (1996) 35 IPR 355 at 382 '[i]n the great majority of cases the relevant damage will not be measurable in pounds and pence, but consist in the probability of damage to the plaintiff's reputation and goodwill which is ultimately liable to lead indirectly to a reduction in trade.' 14 The same is not true of the Australian Company's claims for lost profits. If it wants to recover on the basis that it has lost actual profits then it is not unreasonable that it be required to say what those profits are. If it is unable to point to any particular profit which it has lost then this means that it presently has no such case. 15 The same goes for its claim for the loss of a real chance of earning additional profits. To make good that claim it will need to prove the existence of such a real chance on the balance of probabilities: see Sellars v Adelaide Petroleum NL (1994) 179 CLR 332 at 355. This principle requires a plaintiff to identify the chance which has been lost. In this case, this would require the Australian Company to prove that there was a chance that a particular transaction might have been lost. Unpacked in that way, the loss of a chance case has the same problem that the lost profits case has, that is to say, a failure to identify what the case is. 16 In those circumstances, the Australian Company should have leave to amend its statement of claim to include the claims for damage to goodwill particularized in particular (a) but not the claims for lost profits or the loss of a chance of making profits. 3. Separation of Quantum from Liability 17 Following the receipt of post-hearing submissions, the parties were agreed that it would be useful to split the issue of liability from quantum. They differed only over a point of detail. That point concerned those causes of action where damage was a necessary element. The actions for passing off and misleading conduct afford useful examples in this case. Without proof of damage there can be no liability under either action. A decision to split the determination of liability from quantum therefore carries with it the connoisseur's risk that claims of that kind will fail simply because the separation of quantum from liability prevents liability being established at all. 18 This is a well-known problem. Multiple solutions to it abound. One, which is popular in many quarters, is simply to pretend the problem does not exist. By and large this is a successful strategy and its practitioners are a happy folk rarely coming to grief. Another solution, which comes from the school of pragmatics, is to cast upon the plaintiff an obligation to prove some loss to complete the cause of action for the liability hearing but without prejudice to its right to produce more evidence of loss at the quantum hearing. A third solution, which commends itself to purists, is to craft the separation of the issues with sufficient care that the issue of loss is excised from the liability hearing which becomes, instead, a hearing on whether all elements in the causes of action apart from loss have been established. 19 In this case, it is appropriate to take the second course. Accordingly, the Australian Company will be required to prove that some loss was caused to it by the conduct alleged but this will be without prejudice to its right to supplement its proven losses with further evidence at the quantum hearing. An order that there should be tried separately and in advance all questions apart from relief will achieve that end. 4. Discovery 20 The Australian Company sought discovery in relation to 10 specified categories. At this stage the pleadings have not closed and no evidence has been proffered by either party. Ordinarily, discovery would not be ordered this early in the case. The process of delivering first pleadings and then evidence has the practical effect of reducing the issues between the parties. More generally, there is tendency for the issues in dispute between parties to reduce the longer a case is on foot (although this is not an invariable principle – some cases, like bad wine, just get worse). Postponing discovery is, therefore, usually likely to reduce the ambit of discovery. 21 For that reason, it is regarded in many quarters as sensible to require parties to put on their evidence before seeking discovery. Whilst this will generally be the correct approach it cannot be a universal one. There will be some cases where it is unfair to require evidence to be put on before discovery takes place. One case of that kind is where a defendant has unique knowledge of the extent of its own misconduct. Thus in Australian Rugby Union Ltd v Canterbury International (Australia) Pty Ltd (No 1) [2012] FCA 497 Canterbury was alleged to have used the ARU's trademarks on apparel without its permission. The ARU was able to point to some individual examples of infringing conduct but it really had no idea how widely Canterbury had engaged in the practice of infringing its marks. In that case, I was persuaded to order discovery going to that issue even though evidence had not been prepared: see [10]-[11]. 22 There can be no hard and fast rules about this; just the presence of a general disinclination to order discovery before evidence. 23 In this case, the proposed categories go both to quantum and liability. I would not be disposed to put the parties to the expense of giving discovery on quantum. The cases of the present kind brought in this Court usually concern chocolates or washing detergent rather than investment advisers. Of those that proceed to trial on liability, only a very small minority thereafter proceed to an assessment of damages. Usually the liability trial whets most litigants' enthusiasm for the courtroom. In light of that observation, there is a real risk that money spent on discovery on quantum at this stage will be wasted money. Further, in cases concerning quantum often a few well-crafted interrogatories will achieve what cartons of documents cannot: c.f., 'What were the sales made in the 2012 financial year?' 24 On the issue of liability the Australian Company submitted that a number of its proposed categories went to the manner in which ACPA had used the marks. This may well be so. However, I think it would be more efficient to see what the parties have to say on this issue in their evidence first. The Australian Company already has evidence of infringement. Further, ACPA has already admitted to using the name of its parent on its sign, business cards and email signature blocks. The evidence which comes forth may narrow further what is presently in dispute. Notions of efficiency are, therefore, against the Australian Company. Further, this is not a case like Australian Rugby Union where it would be unfair to make an applicant press on in ignorance of the basic infringements with which it was confronted. The Australian Company already has considerable knowledge of what ACPA has been doing. It is, after all, in the foyer. 25 Accordingly, I will stand over generally the Australian Company's application for discovery with the understanding that it will be restored when the evidence on liability has been completed. APCA opposed the granting of discovery but brought its own application in case it was granted to the Australian Company. That application, too, should be stood over generally. 5. Orders 26 I make the following orders: 1. Grant leave to the applicant to file an amended statement of claim in the form included in the applicant's application book save that leave is not granted to include the claim for lost profits or the loss of chance of making profits. 2. Direct that the applicant file and serve the amended statement of claim within 7 days hereof. 3. Stand over generally the applicant's and the first respondent's applications for discovery. 4. Direct that there be tried separately and in advance all questions apart from relief. 5. Stand the matter over for further directions on Tuesday 29 July 2014 at 9.30 am. 6. No order as to costs. 27 I would expect at the directions hearing to make orders dealing with the preparation of the parties' evidence on the liability issues and also fixing the matter for a hearing this year. In that regard, the parties should liaise as soon as possible with my Associate to find suitable dates. The timetable can then be worked out working backwards from the trial dates. My present thinking is that this is a 3 day case. I certify that the preceding twenty-seven (27) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Perram. Associate: Dated: 25 July 2014