CARTER HOLT HARVEY LTD V COTTONSOFT LTD CA CA83/04

CARTER HOLT HARVEY LTD V COTTONSOFT LTD CA CA83/04 7 October 2004IN THE COURT OF APPEAL OF NEW ZEALAND CA83/04BETWEEN CARTER HOLT HARVEY LIMITED Appellant AND COTTONSOFT LIMITED Respondent Hearing: 16 September 2004 Coram: McGrath J Glazebrook J William Young J Appearances: R G Simpson for Appellant W M Wilson QC and D P Robinson for Respondent Judgment: 7 October 2004JUDGMENT OF THE COURT DELIVERED BY WILLIAM YOUNG J Introduction[1] This is an appeal from a judgment of Harrison J delivered in the High Court at Auckland on 8 April 2004. The Judge held that Cottonsoft Ltd, had breached s 13(j) of the Fair Trading Act 1986 ("the Act") in that it had made false and misleading representations as to the origin of its products in some but not all of the respects alleged by Carter Holt Harvey Ltd. However, subject to Cottonsoft providing an undertaking in the terms indicated by the Judge, he declined to grant relief other than as to costs. [2] Carter Holt Harvey now appeals the judgment in two respects: (a) The finding made by the Judge that elements of Cottonsoft's packaging which were the subject of complaint were not misleading and deceptive; and(b) The refusal to grant injunctive relief. As will become apparent, there is a sense in which these issues tended to coalesce in the course of argument in this Court.The facts[3] Cottonsoft manufactures and sells two brands of toilet tissue, CottonSofts andKiwisoft, and also Tuffy paper towels. Carter Holt Harvey also made toilet tissues and paper towels. So the two companies were direct competitors. Since the trial, Carter Holt Harvey has sold its tissue businesses but it supplies pulp to the purchasers of those businesses for conversion to bulk tissue. [4] Cottonsoft is a New Zealand owned company. Carter Holt Harvey is now controlled by American interests although it has had a lengthy history in New Zealand, with much capital investment and many employees in this country. [5] Carter Holt Harvey has not made much of its connections with New Zealand in its marketing. [6] Cottonsoft, however, has made much of its association with New Zealand. As part of this marketing approach, it has marketed its tissue products as having been made in New Zealand. We will refer later in this judgment to the way in which this claim was made. It is sufficient to say that it is self-evident (and indeed admitted by Cottonsoft) that such a claim was made in relation to all three of its product lines which were in issue in the case. For instance, all three product lines in issue in the case carried the "Buy NZ Made" logo on their packaging. The major issue at trial was whether this claim was true. [7] Tissue is produced either using recycled fibres (a process which is not relevant to this case) or by a four-stage process: the growing of the trees, the pulping of timber, the transformation of pulp into bulk tissue and the conversion of bulk tissue into consumer products. In relation to Carter Holt Harvey's products, all of these stages occurred in New Zealand. In the case of Cottonsoft, only thefourth stage occurs in New Zealand as it imports bulk tissue (usually from Indonesia). So the primary issue at trial came down to whether it was untrue for Cottonsoft to claim that its consumer products were made in New Zealand. [8] Carter Holt Harvey alleged that the Cottonsoft's promotional statements were false or misleading about the origin of its products in breach of ss 9 and 13(j) of the Act. So it issued proceedings in September 2003 and sought injunctive relief. It also claimed damages but, by agreement, the claim for damages has been deferred for later consideration. [9] The "Buy NZ Made" logo was the most obvious mechanism by which Cottonsoft had been asserting that the products were made in New Zealand. In response to the issue of proceedings, Cottonsoft removed this logo from the packaging of the three product lines. It also stopped using the phrase "By Kiwis for Kiwis" on its packaging and promotional material. Cottonsoft did this without prejudice to its entitlement to assert that its products were indeed made in New Zealand. Despite the removal of this logo the packaging of the three product lines continued to assert New Zealand origin by claiming that the goods were manufactured in Dunedin, see para [29](d) below. [10] An odd feature of the case is that Carter Holt Harvey has marketed for sale in Australia as "made in Australia", products which were merely converted in Australia from bulk tissue manufactured in New Zealand. The same product has also been marketed in New Zealand in the same way. So it has acted (although perhaps inadvertently) in essentially the same way as Cottonsoft. This conduct on the part of Carter Holt Harvey detracts a little from the moral resonance of its arguments and may conceivably have some relevance to its claim for damages (in terms of the marketing significance of origin claims in relation to tissue products) but is of no real moment to the issues which we must decide.The conclusions of Harrison J as to where Cottonsoft's products were made[11] Cottonsoft argued that its marketing was not false or misleading because its use of the "Buy NZ Made" logo complied with its trademark licence to use the logo,its processing of the bulk tissue gave the products their essential character and this processing occurred in New Zealand. [12] Harrison J said that the relevant representations for the purposes of s 13(j) was not about the source of raw materials which were used in the manufacturing process but rather where that process took place. Goods are made in New Zealand if their manufacturing process occurred substantially in New Zealand, even if the raw materials originated elsewhere. [13] On the approach of Harrison J, the critical step in the tissue manufacturing process is its third one, where pulp is converted into bulk tissue. For Cottonsoft, this stage occurred overseas, and thus the final products were not manufactured in New Zealand. [14] The Judge recognised that a significant part of Cottonsoft's manufacturing processes occurred at Dunedin and the bulk tissue which was imported underwent a change in form there. Even Carter Holt Harvey recognised that Cottonsoft could not assert, in an unqualified way, that its goods were made overseas. [15] Nonetheless on balance, the Judge was satisfied that Cottonsoft's product was substantially formed overseas. The average shopper would assume that for tissues which are "New Zealand made", the entire transformation process from wood to goods on a supermarket shelf occurred entirely in New Zealand, rather than just the last stage. A label which restricted the manufacturing nomination to New Zealand was therefore false and misleading. [16] These conclusions are not under challenge in this appeal.The conclusions of Harrison J which are challenged[17] The disputed conclusions of Harrison J relate primarily to the extent to which Cottonsoft was entitled to retain existing elements of its packaging get up.[18] At trial the only witness called for Carter Holt Harvey was a mechanical engineer who gave evidence addressed to where Cottonsoft's products were manufactured. He produced exhibits of the packaging in issue. The only witness called by Cottonsoft was its quality assurance supervisor whose evidence was likewise primarily addressed to where the products in question were manufactured. There was some limited oral evidence of a general nature as to market practice including references to Kiwi shoe polish (which has never been made in New Zealand and is now made in Indonesia) and the use of New Zealand icons by divisions of Carter Holt Harvey. But there was no survey evidence and no expert evidence addressed to the likely responses of consumers to the disputed components of the packaging. [19] On this aspect of the case, Harrison J found substantially in favour of Cottonsoft. [20] Harrison J approached the case on the basis that Cottonsoft remains entitled to promote the associations between itself and its products and New Zealand providing it does not represent, in an unqualified way, those products as having been made in New Zealand. [21] On his approach, the existing packaging was acceptable provided the "Buy NZ Made" logo was not employed and minor alterations which he suggested were implemented. On this basis, he declined to grant Carter Holt Harvey relief, save as to costs. [22] Although this aspect of the judgment involves, in a sense, a single line of logic, it does give rise to two separate issues which we must address separately: (a) Whether the challenged elements of the packaging but with modifications as suggested by Harrison J are misleading. (b) Whether the Judge was right to refuse relief other than as to costs.Whether the challenged elements of the packaging but with modifications as suggested by Harrison J are misleadingOverview[23] This aspect of the case now focuses on the Kiwisoft product as there are now no longer any outstanding issues in relation to the way in which CottonSofts andTuffy are marketed. However, in order to understand the issues which remain in the ring, it is necessary to address the way in which Harrison J addressed all products. [24] There is a sense in which the case as argued has drifted away from the case which was presented to Harrison J. We say this because Carter Holt Harvey's case on appeal very much focused on the existing packaging for Kiwisoft rather than the packaging which was considered by the Judge. This shift of focus was probably inevitable given the nature of the case but must not be allowed to detract from the reality that we are hearing an appeal from Harrison J and not sitting at first instance hearing a Fair Trading Act case addressed to the new packaging.The relevant statutory provisions[25] Sections 9 and 13(j) of the Act provide:9 Misleading and deceptive conduct generallyNo person shall, in trade, engage in conduct that is misleading or deceptive or is likely to mislead or deceive13 False or misleading representationsNo person shall, in trade, in connection with the supply or possible supply of goods or services or with the promotion by any means of the supply or use of goods or services,— (j) Make a false or misleading representation concerning the place of origin of goods.[26] The case against Cottonsoft was pleaded by reference to both ss 9 and 13(j) of the Act and was addressed by Harrison J primarily by reference to s 13(j). Forpresent purposes, the difference between the two sections is that the focus under s 9 is on "conduct" which is "misleading or deceptive or is likely to mislead or deceive" whereas s 13(j) addresses "representations" which are "false or misleading". The greater specificity of s 13(j) might mean that it is easier for a plaintiff, in this sort of case, to succeed under s 9 than under s 13(j). In this context it may be material that criminal liability attaches to breaches of s 13 but not of s 9. [27] We will revert to this point later in the judgment.The approach of Harrison J[28] The packaging for CottonSofts had, prior to the issue of proceedings, contained the "Buy NZ Made" logo and stated "CottonSofts Toilet Tissue is proudly produced by Kiwis for Kiwis and to the very highest quality and standards". Cottonsoft admitted that these represented that the product originated in New Zealand. The effect of the judgment was that Cottonsoft was required to stop describing its goods as having been made in New Zealand. Harrison J suggested that Cottonsoft should instead use wording along the lines of "New Zealand and [Indonesian] made" or "Made in New Zealand from imported raw tissue" and qualify its assertions as to "proudly produced by Kiwis" in a similar way. [29] The packaging for Kiwisoft contained the following features: (a) The Kiwisoft trademark, with the first part (ie "kiwi") written in a colour and style which differ from those used in relation to the second part (ie "soft"). (b) A stylised kiwi in a black rugby jersey with "NZ" on it. (c) The "Buy NZ Made" logo (albeit that this had been removed voluntarily by Cottonsoft before trial). (d) The words "Kiwisoft is a new toilet tissue in the great New Zealand tradition of quality at an affordable price" or similar words.(e) The words "Manufactured by Plypac Industries Limited, PO Box 1410, Dunedin, New Zealand". Cottonsoft was previously called Plypac Industries Ltd. Some promotional material also contained several of the above features and the words "For Kiwis by Kiwis". Cottonsoft stopped using this phrase at the time the proceedings were commenced. [30] Cottonsoft admitted that the "Buy NZ Made" logo and its associated wording, and the "Manufactured by" statement (points (c) and (e)) represented that the product originated in New Zealand. However, the Judge was of the opinion that the remaining details were references to Cottonsoft's New Zealand ownership. He thought that minor alterations to the packaging would put this beyond doubt. [31] The packaging for Tuffy had: 1. The "Buy NZ Made". 2. A "Manufactured by" statement identical to that on Kiwisoft packaging. 3. The words "For Kiwis by Kiwis". [32] Cottonsoft accepted and the Judge found that the first two features asserted that the product was made in New Zealand. Accordingly, on the Judge's primary findings, they were deceptive and misleading. They were, however, capable of correction in the same way as the packaging of the other products. The last feature (the words "For Kiwis by Kiwis") was associated with Cottonsoft, and not its product.The current Kiwisoft packaging[33] The case has largely come to focus on the packaging of the Kiwisoft product which has now been changed in response to the judgment of Harrison J.[34] The key features of the packaging consist of the Kiwisoft trademark and stylised kiwi as before (see points (a) and (b) of para [29]) above along with: (a) An assertion that Cottonsoft is "100% New Zealand Owned". (b) An assertion that the product is "Made in New Zealand from imported tissue". This is printed in what would appear to be the equivalent of font size 9 (or thereabouts).The argument for the appellant[35] The arguments of Mr Simpson focused on the current packaging of Kiwisoft. He submitted that a significant number of consumers will interpret the packaging elements as a whole to mean that the product is made in New Zealand and that comparatively few consumers will be careful enough to read what he described as the disclaimer - "Made in New Zealand from imported tissue". He argued that the kiwiana utilised in the packaging so strongly conveys New Zealand origin (which he treated as meaning "made in New Zealand") that a bolder disclaimer is required. He laid particular emphasis on what he contended was the continuing deceptive effect of the now removed elements, particularly the "Buy NZ Made" logo. [36] As his argument progressed, it became apparent that this aspect of the case comes down to the prominence which should be accorded to the words "Made in New Zealand from imported tissue". As noted above, they are printed in what appears to be the equivalent of font size 9. Mr Simpson suggested that the letters should be bigger and he suggested that the equivalent of a font size of around 24 (ie with letters about a centimetre in height) would be appropriate.Argument for Cottonsoft[37] Mr Wilson QC for Cottonsoft argued that there is no evidence to substantiate the allegation that a significant number of consumers are likely to interpret the features now complained of as indicating that the product was made in New Zealand.He maintained that Carter Holt Harvey's case came down to the proposition that a New Zealand owned company is not entitled to use New Zealand icons in relation to its products. [38] Mr Wilson also stressed the significance of the packaging changes which were made in response to the issue of proceedings in September last year. Kiwisofthas been marketed for 12 months now without the "Buy NZ Made" logo which was the most distinctive feature of the claim to New Zealand manufacture.Discussion[39] The use of kiwiana on the Kiwisoft packaging undoubtedly represents that the product has an association with New Zealand. But Kiwisoft has a substantial association with New Zealand. It is sold by Cottonsoft which is a New Zealand owned and operated company. The product is formed in New Zealand from imported bulk tissue. If the representation is simply that there is an association with New Zealand, it is true (given the association which exists) and therefore neither false nor misleading for the purposes of s 13(j). [40] On this point, the position of Carter Holt Harvey might arguably be stronger under s 9 as all it must establish under that section is "conduct" that is "likely to mislead". Section 9 as opposed to s 13 might be thought to be appropriate for cases involving conduct amounting to a statement which is literally true but likely to be taken in another and incorrect way by those to whom it is addressed. [41] In Marcol Manufacturers Ltd v Commerce Commission [1991] 2 NZLR 502 Tipping J recognised that s 13 applies more narrowly than s 9 (see at 505) but his approach to what was said to be the representation (to be determined by how what was said would be viewed by "the average shopper") suggests that in a case such as the present liability under s 13(j) and s 9 effectively is coterminous. We say this because the "average shopper" approach is not appreciably different from the way in which New Zealand Courts decide whether conduct is "misleading or is likely to mislead" under s 9, see BONZ Group Pty Ltd v Cooke (1996) 5 NZBLC 104,188 andAMP Finance NZ Ltd v Heaven (1998) 6 NZBLC 102,414.[42] As we have noted, the language of s 13(j) differs from that of s 9. There may be something of a difference between "conduct" (including representations) which is "misleading or deceptive or is likely to mislead or deceive" and a "representation" which is "false or misleading". Where the allegation relates to conduct which is said to be "likely to mislead", the emphasis is very much on the impact of the conduct in question on the mind of the person to whom it is directed. On the other hand, in relation to s 13(j), there is at least scope for argument that what constitutes a "representation" should be determined objectively with less allowance made for the possibility of subjective misinterpretation by the person to whom it is made. Given that s 13(j) carries criminal sanctions it may be that it should be construed more strictly than s 9. [43] As s 9 is arguably broader in scope than s 13, one might expect that the plaintiff in a civil case would focus on s 9. But Carter Holt Harvey was not prejudiced by the Judge's focus on s 13(j) rather than on s 9. This is because Harrison J followed and applied Marcol and accordingly applied a test which, at least in substance, was the same as he would have applied under s 9. [44] The argument of Mr Simpson is that a significant number of consumers will treat the association which is promoted as including an assertion that the product is made in New Zealand and that, accordingly, the packaging as a whole is misleading. No doubt there will be some consumers who will assume that Kiwisoft is made in New Zealand and the question comes down to whether those consumers are merely mistaken as opposed to misled. This is a pretty familiar problem in this area of the law. [45] In the absence of survey evidence this issue necessarily came down to the evaluative assessment of the Judge involving essentially a matter of impression, cf BONZ Group Pty Ltd v Cooke and AMP Finance NZ Ltd v Heaven. It remained, however, a factual decision. [46] Against that background there is limited utility in analysis of other cases in which the use of national icons on packaging has been held to be misleading and deceptive as to place of manufacture; see for instance Golden Bay Cement CoLtd v TONS Group (NZ) Ltd (CP 417/97 HC Auckland Registry, Hammond J, 3 October 1997). [47] On this aspect of the case we see no reason to differ from the approach of Harrison J. [48] It is not suggested that there was any legal error in his approach. [49] His evaluation of the components of the packaging seems to us to have been appropriate. [50] It might be thought that those consumers whose purchasing decisions depend upon whether goods are made in New Zealand will look for the "Buy NZ Made" logo or a similar bold assertion of New Zealand manufacture or will look closely at the actual claims as to place of manufacture. Viewing the current packaging, we are left with the view that it cannot fairly be regarded as misleading. [51] The possible carry over effect of the earlier misleading packaging has caused us some concern. However, there was no specific evidence called as to this point which accordingly falls to be determined as a matter of evaluation and impression. In this regard we consider it very significant that the "Buy NZ Made" logo has not been part of the packaging for approximately one year.Whether the Judge was right to refuse relief other than as to costsThe approach of Harrison J[52] The Judge doubted if he had jurisdiction to order Cottonsoft to publish corrective statements. Express power to do so is conferred under s 42(b) of the Act but only in cases in which the Commerce Commission is a plaintiff. He was uncertain whether his powers under s 41 would extend to requiring publication of such statements. But, in any event, he saw no need for such orders. Cottonsoft had told Carter Holt Harvey at the time the High Court proceedings were commenced that it was deleting the words "By Kiwis for Kiwis" and the "Buy NZ Made" logosfrom its packaging. He thought that Carter Holt Harvey's claim was motivated by commercial rivalry and not by a desire to protect the consumer. Further, he noted that the Commerce Commission had declined to investigate a complaint by Carter Holt Harvey. The Judge concluded that this indicated a belief on the part of the Commission that the conduct of Cottonsoft did not fall into the serious category of deceptive market place practices. [53] The upshot was that the Judge declined to grant the injunctive relief under s 41(1), subject to Cottonsoft undertaking (as it subsequently has) to amend its promotional material to ensure that consumers are informed that its three product brands are made both in New Zealand and Indonesia (or other countries) or are made from imported tissue.The argument for the appellant[54] In part Mr Simpson's argument on this part of the appeal proceeded on the basis that the Judge's conclusions as to the disputed packaging components was erroneous. We have already addressed and rejected the arguments as to that. [55] Mr Simpson pointed out what he claimed were errors in the approach of the Judge. There was jurisdiction to order corrective statements under s 41; it is not relevant that Carter Holt Harvey was a competitor of Cottonsoft, the Judge mistook the reason why the Commerce Commission was not interested in pursuing the case and in any event what the Commerce Commission thought was not relevant.Argument for Cottonsoft[56] Mr Wilson conceded that the Judge was mistaken in saying that he lacked the jurisdiction to order corrective statements. However, that error did not influence the result. He contended that the Judge was entitled to take into account the rivalry between the parties and the lack of evidence of consumer prejudice. He maintained that the public is sufficiently protected by the packaging changes already made. Healso noted the publicity given to these proceedings which has further informed the market. [57] We are not entirely sure that Mr Wilson's concession on the jurisdiction issue did justice to Harrison J. He only had jurisdiction under s 41 to grant injunctive relief involving corrective advertising if this was appropriate to prevent on-going breaches of the Act and the drift of his reasoning as a whole was that there would not be on-going breachesDiscussion[58] Our conclusion that the current Kiwisoft packaging is not likely to mislead the public provides an inauspicious (for Carter Holt Harvey) context for our consideration of the challenged to the refusal of injunctive relief. If it is the case (as we have held) that the public is neither currently being misled nor is likely to be misled by the way in which Kiwisoft and any other of Cottonsoft's products are being marketed, a justification for injunctive relief is not obvious. [59] The specific power to order publication of corrective statements which is conferred by s 42 applies only in cases in which the Commerce Commission is the plaintiff. But we agree with counsel that Harrison J, as a matter of jurisdiction, could have structured an injunction under s 41 so as to prohibit further trading without corrective advertising providing he saw this as appropriate to prevent on-going breaches of the Act. We also agree that the scheme of the Fair Trading Act envisages policing by, inter alia, competitors and that Carter Holt Harvey's rivalry with Cottonsoft was not in itself a decisive factor against relief. Finally, we regard the decision of the Commerce Commission not to intervene here as probably being largely motivated by its desire to conserve its financial resources for cases in which there was not an obvious trade complainant able and willing to litigate. [60] These points, however, are all of minor moment. The reality is that there was a distinct absence of evidence of consumer prejudice. Further, on the basis of the conclusion (which we have upheld) that the packaging with minor alterations would not be misleading, there was no obvious prejudice to Carter Holt Harvey whichwarranted injunctive relief. Indeed, it would not have been right for Harrison J to grant an injunction making the publication of corrective statements a condition of further trading unless he was satisfied that such further trading would otherwise have been in breach of the Act. Plainly he was not satisfied as to that. [61] If there was any utility in injunctive relief at the time when Harrison J delivered his judgment - sufficient to perhaps justify an injunction requiring Cottonsoft to display a bolder disclaimer for say six months - the five months which has now elapsed since the judgment has served to erode the merits of Carter Holt Harvey's position. [62] The essential reasons which motivated Harrison J not to grant an injunction seem to us to be persuasive and we see no legitimate basis upon which an injunction could now be granted.Result[63] The appeal is dismissed. [64] Carter Holt Harvey is to pay Cottonsoft costs of $6,000 together with disbursements (including the travel and accommodation expenses of counsel if any) to be agreed between the parties and, in default of agreement, fixed by the Registrar.Solicitors: Bell Gully, Auckland for Appellant Wilkinson Adams, Dunedin for Respondent