HEALTHY FOOD MEDIA LTD V HEALTHY OPTIONS LTD HC AK CIV 2005-404-6484

HEALTHY FOOD MEDIA LTD V HEALTHY OPTIONS LTD HC AK CIV 2005-404-6484 16 November 2005IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY CIV 2005-404-6484UNDER the Fair Trading Act 1986 BETWEEN HEALTHY FOOD MEDIA LIMITEDPlaintiff AND HEALTHY OPTIONS LIMITEDDefendant Hearing: 16 November 2005 Appearances: NI Finch and M Scally for Plaintiff No appearance by Defendant Judgment: 16 November 2005JUDGMENT OF ASHER JThis judgment was delivered by me on at am/pm pursuant to Rule 540(4) of the High Court Rules .. Registrar/Deputy Registrar DateSolicitors: James & Wells, Private Bag 11907 Ellerslie, Auckland Copy: J Priest/C Sass, Healthy Options Ltd, 5 Wharf Street Tauranga[1] I have to consider as a matter of urgency today, an ex parte interim injunction application filed by the plaintiff. The plaintiff seeks a "temporary injunction" against the defendant and, amongst others, its agents, retailers and distributors, restraining them from distributing, circulating and/or selling a competing magazine. [2] The matter first came before me on an ex parte basis yesterday and I directed that a full set of the proceedings be served on the defendant, Healthy Options Limited, together with a copy of my Minute directing that the application would be heard at 2:15 pm this afternoon. The plaintiff has complied with my direction and filed an affidavit of service of documents showing those documents together with my Minute was served on the defendant yesterday. Despite this, there is no appearance for the defendant today. [3] My purpose in directing the service and the short delay was to give the defendant an opportunity to appear to oppose on what is known as a "Pickwick" basis. This is based on a procedure implemented in Pickwick International Inc (GB) Ltd v Multiple Sound Distributors Ltd [1972] 1 WLR 1213; [1972] 3 All ER 384, which provides a type of half-way house for ex parte applications whereby the defendant can appear on very short notice and have an opportunity to make submissions and even, if this is possible, present some evidence. The defendant has chosen not to avail itself of this opportunity, and has not appeared.Background[4] The plaintiff is a company that publishes a magazine in New Zealand called the "Healthy Food Guide". Its principal shareholder, Phillip Ryan, deposes that he has been involved in marketing and media work for 14 years and has had previous successful publications. [5] The "Healthy Food Guide" is aimed at the New Zealand consumer who is interested in the nutritional values of food and how to eat more healthy food. Mr Ryan states that his magazine is based on credible and scientifically established nutritional principles and has been successful. It presently has an audited netcirculation of 13,909 magazines monthly. AC Nielson Research indicates that each issue of "Healthy Food Guide" is read by an average of 90,000 people per month. It is asserted that the magazine is growing quickly. Mr Ryan annexes various statements and publications which, on their face, provide support for that proposition. "Healthy Food Guide" has spent approximately $100,000 on marketing, advertising and promotion in the last six months. It is dependent on both subscription and purchase income and advertising revenue. [6] Early this month the plaintiff became aware that a publication with a similar name was coming on the market. The plaintiff ascertained that the defendant was the publisher of the new magazine and contacted it. On 3 November 2005 the plaintiff's lawyers wrote to the defendant advising that it was concerned that consumers would confuse the new publication with the plaintiff's publication, and that that confusion could damage the reputation and goodwill established in the name and the magazine. Undertakings were sought. [7] On 4 November 2005 the plaintiff's solicitors received an undated response headed "To whom it may concern" advising that the managing director of the defendant was currently out of the office and overseas until 20 November 2005. It was stated by the writer that:My fellow colleagues and I do not have authority to act on this matter. I will pass your fax onto Ms Priest on her return.[8] On 7 November 2005 the plaintiff's lawyers wrote again to the defendant saying that Ms Priest's absence overseas was no justification for deferring a response and setting out the plaintiff's concerns in greater detail. On 8 November 2005 a further undated response was received from the defendant's advertising manager advising that she did not have authority to act on the matter. [9] The response to the plaintiff's letter was under a letterhead of "Healthy Options". The response read:As per my fax of 4 November 2005 I reiterate, I DO NOT have authority to act on this matter.I am under contract as advertising manager for the Healthy Options magazine and have ABSOLUTELY NO ASSOCIATION with the above mentioned publication. Please address all correspondence, as mentioned, to Janice-Ann Priest. She will be dealing with this issue on her return 20 th November 2005.[10] There has been no further substantive contact from the defendant. [11] The plaintiff also contacted the proposed distributor of the defendant's new magazine, Independent Magazine Distributors Limited ("IMD"). Through that company they were able to view a copy of the proposed magazine and have been able to get a black and white copy of the front-page of the proposed magazine. It featured the name "Health Food" and then in smaller letters below "A Nutritional Guide". The distributor has not been joined as a defendant. Mr Finch advises me that he has been in contact with its lawyers and that it is content to abide the decision of the Court. He notified them by facsimile of this hearing today.The causes of action[12] The two causes of action are 'passing off' and a breach of s 9 of the Fair Trading Act 1986.Ex parte application[13] This is an ex parte application but the defendant has been given an opportunity to appear. I would have expected that with modern communications being what they are, that the defendant should have been able to arrange an appearance this afternoon if it wished to oppose the application. [14] I propose to approach this application on the usual basis of considering whether the plaintiff has shown a serious question to be tried, and that the balance of convenience and the overall justice of the case favour the granting of an injunction. [15] Mr Ryan attests to the fact that IMB indicates that the defendant's magazine will be distributed this weekend. To prevent that distribution it is necessary that the order issue this afternoon or tomorrow morning. To require the plaintiff to givefurther notice would cause undue delay and prejudice. I am prepared to proceed today without giving the defendant any further opportunity to appear.Principles to be applied[16] The principles relating to 'passing off' are well known. I refer to the classic statement of Somers J in Dominion Rent A Car Ltd v Budget Rent A Car Systems (1970) Ltd [1987] 2 NZLR 395 (cited in Taylor Bros Limited v Taylor Group Limited [1988] 2 NZLR 1 at p 16):"The essential elements of an action for passing off were discussed in Erven Warnink B V v J Townend & Sons (Hull) Ltd [1979] AC 731 - the 'Advocaat' case. Lord Diplock at p 742 identified five characteristics which must be present to give rise to a valid cause of action as: '(1) a misrepresentation, (2) made by a trader in the course of trade, (3) to prospective customers of his or ultimate consumers of goods or services supplied by him, (4) which is calculated to injure the business or goodwill of another trader (in the sense that this is a reasonably foreseeable consequence) and (5) which causes actual damage to a business or goodwill of the trader by whom the action is brought or (in a quia timet action) will probably do so.' Lord Fraser of Tullybelton at pp 755-756 stated them as follows: '(1) that his business consists of, or includes, selling in England a class of goods to which the particular trade name applies; (2) that the class of goods is clearly defined, and that in the minds of the public, or a section of the public, in England, the trade name distinguishes that class from other similar goods; (3) that because of the reputation of the goods, there is goodwill attached to the name; (4) that he, the plaintiff, as a member of the class of those who sell the goods, is the owner of goodwill in England which is of substantial value; (5) that he has suffered, or is really likely to suffer, substantial damage to his property in the goodwill by reason of the defendants selling goods which are falsely described by the trade name to which the goodwill is attached.' As was observed by Oliver LJ in Anheuser-Busch Inc v Budejovicky Budvar NP (trading as Budweiser Budvar Brewery) [1984] FSR 413, 463: 'These two statements of principle complement one another, Lord Diplock emphasising what has been done by the defendant to give rise to the complaint, and Lord Fraser what the plaintiff has to show as a prerequisite of complaining. Since the remaining members of their Lordship's House agreed with both speeches, it is not in dispute that the two statements have to be taken as a composite.'"The law about passing off represents a compromise between two conflicting objectives, on the one hand the public interest in free competition, on the other the protection of a trader against unfair competition by others."[17] In relation to breach of the Fair Trading Act, the essential question is whether there has been misleading or deceitful conduct. The claim focuses on the deception of the public rather than the appropriation of goodwill: Taylor Bros Ltd v Taylor Group Ltd, p 39. In a case like this the Court's approach in relation to both causes of action is much the same.Serious question to be tried[18] The title of the plaintiff's magazine "Healthy Food Guide" is a descriptive title using ordinary words in common parlance. Indeed, the words exactly describe what the magazine sets out to do. It is clear that a party that chooses to use such words as a trade name must accept that it has no right to those words individually or in combination, and that competitors may use them also. That position was well expressed in Hornsby Building Information Centre Pty Ltd v Sydney Building Information Centre Ltd (1978) 140 CLR 216; (1978) ATPR 40-067, (quoted with approval in Independent Newspapers Ltd v Australian Consolidated Press NZ Ltd[1996] 3 NZLR 722 at 725):There is a price to be paid for the advantages flowing from the possession of an eloquently descriptive trade name. Because it is descriptive it is equally applicable to any business of a like kind, its very descriptiveness ensures that distinctive of any particular business and hence its application to other like businesses will not ordinarily mislead the public.[19] The defendant magazine is called "Health Food A Nutritional Guide". However, the defendant has gone a lot further than just using descriptive words that are also used by the plaintiff. The two magazines are going to be of similar size, although the defendant's magazine will be somewhat smaller. They are both of a smaller size than is usual for glossy magazines. The plaintiff's current magazine has the words "Healthy Food" in bold green (for "Healthy") and black (for "Food"). Previous editions have had other colours for the word "Healthy", such as red.[20] The following similar features of the name and front-page can be summarised: a) The magazines are of similar size. b) The names are similar: "Healthy Food Guide" and "Health Food A Nutritional Guide". c) The defendant's proposed magazine has "Health Food" at the top of the magazine in a very similar position to the plaintiff's "Healthy Food". d) The lettering is similar. e) The colouring of the letters is similar. From the black and white copy obtained by the plaintiff it seems that the word "Food" is in a dark colour, although apparently red, against black in the defendant's magazine. [21] At a quick glance, the overall appearance of the titles is very similar. The defendant's has the word "Health" rather than "Healthy", it uses a capital letter to start each word and there may be some difference in the colours, but the titles look alike. The plaintiff's has the word "Guide" inserted in the two "o"s of "Food" and the defendant's does not, but this is a minor difference. In both magazines the backdrop is white with a photo or photos and sentences summarising what is within. At the foot of the defendant's magazine there is the phrase "Healthy Options". [22] While there are differences in the overall size and appearance of the magazine covers, I am satisfied, certainly to the level of a serious question to be tried, that there is a real danger that the public will be confused by the two titles, and may believe when they purchase the defendant's magazine that they are purchasing the plaintiff's magazine. I am also satisfied, to the extent of there being a serious question to be tried, that in arranging the magazine's title and the front cover in theway it has, the defendant may mislead the public into believing that their magazine is the same as the plaintiff's. [23] It would have obviously been possible to have arranged the cover, even using the title "Health Food", in a way that could not cause this possible confusion and the possibility that the public would be misled. There are many different ways in which the colouring, the nature of the print and the arrangements of the words could have been arranged in a different way. The defendant has chosen, however, to arrange its cover in a manner that closely follows the layout of the plaintiff's cover, and despite the correspondence of the last two weeks, has made no effort to change it. [24] I am not accepting that the plaintiff has any monopoly in the words "Healthy Food". However, they have a right to expect that a competitor will not follow their front-page layout and will take some basic steps to avoid confusion if similar words are used. [25] In summary, following Lord Diplock's five characteristics: a) The words and layout presented as they are misrepresent the defendant's magazine as the plaintiff's magazine. b) The defendant is a trader in the course of trade. c) The representation is to purchasers of magazines. d) It is a reasonably foreseeable consequence of the publication that the business or goodwill of the plaintiff could be injured. e) I am satisfied that if the publication is allowed it may well cause actual damage to the business or goodwill of the plaintiff. f) In fair trading terms, the layout of the magazine may mislead the public into believing the defendant's magazine is the plaintiff's magazine.[26] I emphasise that although on occasions I have expressed myself in an unqualified way, I am approaching the issue only from the perspective of a serious question to be tried. I have not heard argument from the defendant and I do not express any concluded views at this point.Balance of convenience[27] Mr Ryan's affidavit indicates a concern on his part that his goodwill will be damaged by the defendant's publication. He believes that the plaintiff will lose sales. He comments that the consequence may be that readers are put off the plaintiff's publication because of their experience in reading and using the defendant's publication believing it to be that of the plaintiff. In my view, the plaintiff's damages would be very difficult to calculate if the publication is allowed to proceed. It is notoriously difficult to weight the damage to the reputation of the product, arising from sales of a competing product that is confused with that of a plaintiff. [28] I have no information about the inconvenience and loss will be caused to the defendant if an interim injunction is granted. It will obviously mean that the defendant's magazine cannot be distributed this weekend and that, at the very least, it will have to be rebound with a new front-page. However, those damages arising, should the plaintiff ultimately fail, should be able to be ascertained, arising as they will from delay, and the actual costs involved in rebinding and reprinting. [29] In considering the availability of a satisfactory damages remedy, I am satisfied that the balance is in the plaintiff's favour, and the prospect that it faces of a loss that cannot be calculated is more real than that of the defendant. [30] In summary, I accept the plaintiff's submission that it is likely to suffer the following types of damage if the defendant's publication is distributed: a) Diversion of trade to the defendant if consumers mistakenly purchase its publication believing it to be "Healthy Food Guide".b) A loss of distinctiveness of get-up. This may be diluted by the defendant's use of the same combination of features which are distinguishing features of "Healthy Food Guide". c) There is a risk of loss and/or diversion of advertising revenue which may result if readership numbers decline, and a competing magazine is seen to be challenging the particular position of the plaintiff's publication. [31] I note that an undertaking as to damages has been filed. I also note that although I do not have accounts for the plaintiff, I do have Mr Ryan's statement in his affidavit projecting an annual turnover of $1.4m. He appears to have been a successful publisher over the years and he states that the magazine is selling well. In the absence of any challenge from the defendant I am prepared to accept the undertaking as to damages as sufficient at this stage.Overall justice[32] I have already set out why I believe there is a serious question to be tried and why the balance of convenience favours the plaintiff. Damages would not be an adequate remedy for the plaintiff. I also take into account in considering overall justice, the defendant's cavalier response to the plaintiff's letters. The plaintiff's letters were responsibly written expressing an obvious and legitimate concern and warranted a substantive response. None was forthcoming. It was quite unsatisfactory to suggest that the plaintiff should wait until a particular person returned to New Zealand after publication and distribution of the defendant's magazine. It is significant that absolutely no attempt has been made by the defendant to justify its actions, and that no attempt has been made to arrange an appearance this afternoon. [33] I have already noted that the defendant could have chosen a way to use the title to its magazine that did not have the similarity to the features of the plaintiff's magazine. The multiplicity of coincidences that I have mentioned earlier does give rise to the possibility that the defendant's adoption of the features was deliberate.There is a possibility of a deliberate attempt by the defendant to exploit the goodwill that had developed in the plaintiff's publication. [34] I also note that the plaintiff does not seek to injunct the defendant from publishing any magazine in the health area, or indeed from publishing a magazine with some of the individual features complained of. It is to restrain the defendant from publishing a magazine having the combination of features which give rise to the danger of confusion.Conclusion[35] I make an order in terms of the application and draft order filed. It is a temporary injunction made on very short notice and the Court should be prepared to facilitate the hearing of an application to set it aside should the defendant choose to take that course. However, the defendant's conduct in not responding to the letters or service that I have set out earlier in this judgement would disqualify it from the very urgent consideration that would otherwise be warranted of an application to set aside an ex parte interim injunction. [36] Costs are reserved. .Asher J