NESTLE NEW ZEALAND LTD v MARS NEW ZEALAND LTD [2014] NZHC 1837

NESTLE NEW ZEALAND LTD v MARS NEW ZEALAND LTD [2014] NZHC 1837 [6 August 2014]IN THE HIGH COURT OF NEW ZEALANDAUCKLAND REGISTRYCIV 2014-404-001351[2014] NZHC 1837UNDER the Fair Trading Act 1986, sections 9, 10,13, 14 and 43BETWEEN NESTLE NEW ZEALAND LIMITEDPlaintiffAND MARS NEW ZEALAND LIMITEDDefendantHearing: 10 July 2014Appearances: L O'Gorman and B White for PlaintiffT Walker and J C Dixon for DefendantJudgment: 6 August 2014 at 4pm(RESERVED) JUDGMENT OF ANDREWS J[Plaintiff's application for summary judgmentand interim injunction]This judgment is delivered by me on 6 August 2014 at 4pmpursuant to r 11.5 of the High Court Rules......................................................Registrar / Deputy RegistrarIntroduction[1] The plaintiff, Nestlé, imports and distributes "PURINA ONE®" brand petfood products. The defendant, Mars, imports and distributes "WHISKAS®" and"OPTIMUM®" pet food products.[2] At issue in Nestlé's proceeding against Mars is the meaning of the statement on the WHISKAS® Dry Range cat food packets "HIGHEST level of PROTEIN*" ("the protein claim"), accompanied by the qualifying text box "*highest level ofprotein in New Zealand based on the average of the WHISKAS® dry range, compared with the average of leading dry cat food ranges sold by competitors in supermarkets, excluding OPTIMUM®" ("the qualifying text"). Nestlé claims thatthe packaging represents to the public that each product in the WHISKAS® dry range marked with the protein claim has the highest level of protein compared with competing products, and constitutes conduct which is misleading and/or deceptive and/or false, and is in breach of ss 9, 10 and 13 of the Fair Trading Act 1986.[3] In addition, Nestlé claims that Mars' packaging represents that themethodology used by Mars provides an adequate foundation to justify the protein claim. Nestlé alleges that this, too, is misleading and/or deceptive and/or false.[4] Nestlé has applied for summary judgment by way of a declaration that Mars is in breach of the Fair Trading Act, a permanent injunction pursuant to s 41 of the Act restraining Mars from further publishing, printing, making or including the protein claim or similar representations on any product sold within New Zealand, or in any other form or media in New Zealand (with measures to be taken with regard to product already for sale), an inquiry into damages, and costs. Nestlé has also applied for an interim injunction, pending determination of the proceeding, whichwould require Mars to "take all such steps that are necessary to prevent theproduction of any further packaging, or packaged products" containing the proteinclaim or any similar representation, and would restrain Mars from making the protein claim, or similar representation, in any form.[5] The applications for summary judgment and an interim injunction are opposed by Mars on the grounds that the protein claim is not misleading, deceptive,or likely to mislead or deceive consumers, as the qualifying text is clear, accurate, and sufficiently prominently displayed. Further, Mars says that the interim injunction should not be granted, as the effect of any such injunction is likely to be irreversible, and damages would not be an adequate remedy if Mars succeeds. Further, Mars says that the protein claim, or a version of it, has been made on WHISKAS® packaging since 2010, and the status quo therefore favours dismissing the application.[6] Affidavits have been filed on behalf of both Nestlé and Mars. Sample packages of a number of Mars and Nestlé cat food products were put in evidence. The evidence for Mars included an affidavit by Professor Andrew Parsons, Professor of Retailing at Auckland University of Technology Business School.Application for summary judgmentThe test[7] Pursuant to r 12.2 of the High Court Rules, judgment may be given against a defendant if the plaintiff satisfies the Court that the defendant has no defence to acause of action, or part of a cause of action, in the plaintiff's statement of claim. Theprinciples for giving summary judgment are well-settled and were not in dispute. The plaintiff must establish, to the extent that the Court is left without any real doubt or uncertainty, that there is no real case to be tried. The onus is on the plaintiff, but where its evidence is sufficient to show that there is no defence, the defendant willhave to respond if the application is to be defeated. The Court's assessment of theevidence is a matter of judgment, and the Court may take a robust approach where the facts warrant it.1Fair Trading Act provisions[8] Section 9 of the Fair Trading Act provides that "No person shall, in trade,engage in conduct that is misleading or deceptive or is likely to mislead or deceive."Section 10 of the Act provides that "No person shall, in trade, engage in conduct that1 See Krukziener v Hanover Finance Ltd [2008] NZCA 187, [2010] NZAR 307 (CA) at [26], and the authorities cited therein.is liable to mislead the public as to the nature, manufacturing process, characteristics,suitability for a purpose, or quantity of goods."[9] Section 13 provides, as relevant, that "No person shall, in trade, in connectionwith 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, make a false or misleading representation that goods are of a particular kind, standard, quality, grade, quantity,composition "[10] There was no dispute over the legal principles as to the application of the Act in the present circumstances. In Red Eagle Corporation Ltd v Ellis ("Red Eagle"),the Supreme Court said regarding establishing a breach of s 9 of the Act:2 That section is directed to promoting fair dealing in trade by proscribing conduct which, examined objectively, is deceptive or misleading in the particular circumstances. Naturally that will depend upon the context, including the characteristics of the person or persons said to be affected. Conduct towards a sophisticated business man may, for instance, be less likely to be objectively regarded as capable of misleading or deceiving such a person than similar conduct directed towards a consumer or, to take an extreme case, towards an individual known by the defendant to have intellectual difficulties. Richardson J in Goldsbro v Walker said that there must be an assessment of the circumstances in which the conduct occurred and the person or persons likely to be affected by it. The question to be answered in relation to s 9 in a case of this kind is accordingly whether areasonable person in the claimant's situation – that is, with the characteristics known to the defendant or of which the defendant ought to have been aware– would likely to have been misled or deceived. If so, a breach of s 9 has been established. It is not necessary under s 9 to prove that the defendant'sconduct actually misled or deceived the particular plaintiff or anyone else.[11] The Court of Appeal set out the general approach under the Fair Trading Act in Luxottica Retail New Zealand Ltd v Specsavers New Zealand Ltd ("Luxottica"):3[39] The general approach under the Fair Trading Act is well establishedby authority both in New Zealand and in Australia A business competitor is entitled to take action where an infringement has occurred, both for its own benefit and in the wider interests of the public. The test as to whether there has been misleading or deceptive conduct is objective and the court must determine the question for itself. Whether the representation at issue is likely to mislead involves an assessment of risk. That risk must be real and more than a mere possibility but need not necessarily be assessed on the2 Red Eagle Corporation Ltd v Ellis [2010] NZSC 20, [2012] 2 NZLR 492 at [28].3 Luxottica Retail New Zealand Ltd v Specsavers New Zealand Ltd [2012] NZCA 357 at [39] and [40].balance of probabilities. Proof of an intention to mislead is unnecessary. While evidence of actual misleading or deception is admissible and may be persuasive, it is not essential.[40] In the case of an advertisement, it is important to consider the whole advertisement. The focus is upon what is said rather than what is unsaid. The legal obligation is to avoid falsehood; there is no obligation to provide compendious explanations.(references omitted)[12] As Allan J said in Energizer NZ Ltd v Panasonic New Zealand Ltd("Energizer NZ"), the same standard applies to comparative advertising claims as to other types of claims.4 Representations in comparative advertising claims which are literally true may be misleading or deceptive under the Act if they convey a half- truth, for example by making comparisons which, in all the circumstances, are unfair.5[13] As Allan J also noted in Energizer NZ, there is, in principle, no objection to the use of an asterisk for the purpose of drawing attention to relevant material.6 His Honour went on to note that whether an asterisk, referring to a qualification or explanation, is effective to neutralise an otherwise misleading or deceptive advertisement will be a matter to be determined in the specific circumstances of each case. The qualifying text is required to be sufficiently prominent to prevent the primary statement from being misleading or deceptive, or likely to be misleading or deceptive.7 It must also be sufficiently instructive to nullify the risk that the primary statement might be misleading or deceptive.8Submissions[14] Ms O'Gorman, on behalf of Nestlé, accepted (for the purposes of the hearing before me) that the protein claim may be literally true. However, she submitted thatit infringes against the Fair Trading Act because it creates a "smoke and mirrors"effect, in two ways. First, if the comparison is made between a single product and4 Energizer NZ Ltd v Pansonic New Zealand Ltd HC Auckland CIV-2009-404-4087, 16 November 2009, at [46]-[48].5 Luxottica above n 3 at [41].6 Energizer above n 4 at [51].7 At [52] and [53].8 At [81].the average of all other competing products, then any above-average single product can be labelled "the best". Secondly, if the subject of the comparative claim is "diluted" to being the average of a range of products, then even below-average products in the subject range could be labelled the "best". In either case, she submitted, Mars' position is untenable.[15] Ms O'Gorman submitted that the averaging approach does not justify Mars'claim. It does not assist the consumer to assess whether a particular WHISKAS®product carrying the protein claim contains higher or lower levels of protein compared with competing products, but it purports to make this comparison. Thus, she submitted, a consumer who relies on the protein claim when buying cat food will be misled. She submitted that the protein claim is meaningless for comparison purposes.[16] Further, she submitted, on the facts a consumer buying a WHISKAS® dry range product is likely to be buying a product that does not have a high level of protein, as 83 per cent of WHISKAS® dry range sales are of the two products which have a lower level of protein than other products in the WHISKAS® range, and lower than the protein levels of six out of eight of Nestlé's PURINA ONE® dry range.[17] For Mars, Ms Walker submitted that the only issue in this case is "what will the consumer understand?" She submitted that Nestlé's case is based on a state ofaffairs which does not exist, as the protein claim does not involve a comparison between a single product and any other products. There is no comparison between the particular formulation of the particular item in the Mars range with the average of all other competing products. She submitted that the protein claim is exactly as set out in the claim itself and the qualifying text.[18] Ms Walker submitted that Nestlé's submissions ignore the qualifying text,which is located adjacent to the protein claim, and is visually prominent, standing out against the background packaging, clear and unambiguous, and fairly compares the average of a range with the average of another range, not a product within arange. The concept of averages will be readily understood by consumers, and Mars'approach and methodology is consistent with how consumers process indirect comparative advertising.[19] Further, Ms Walker submitted that a consumer buying cat food is able to make an independent assessment of the nutritional composition of a package of cat food by reference to the nutritional panel on the packaging. In summary, she submitted, the protein claim is true, easily understandable by reference to the qualifying text, and not misleading or deceptive. She submitted that Nestlé had provided no evidence of the impact of the protein claim on shoppers' behaviour, socannot establish any real likelihood that consumers will be misled or deceived.Discussion[20] Both counsel referred in submissions to judgments concerning comparativeadvertising claims in the "batteries" cases, in particular Eveready Australia Pty Ltd v Gillette Australia Pty Ltd (No. 4) ("Eveready Australia"),9 and Energizer NZ.10 Theformer case concerned claims that Duracell AAA batteries "last four times longer" or "up to four times longer" than competitors' batteries. Energizer NZ concerned aclaim that an Evolta battery was the "Guinness World Records Longest Lasting AA Alkaline Battery". Allan J determined that there was a serious question to be tried over whether the claim, although literally true, had a tendency to mislead. HisHonour considered it "seriously arguable that a claim to product superiority (onaverage) even if true, will tend to mislead a consumer seeking a battery for aparticular purpose."11[21] Ms O'Gorman submitted that the two cases were most analogous to the present case, and were authority for holding that Mars has no defence to Nestlé's claim. However, I accept that the "batteries" cases do not necessarily dictate thatMars has no defence. I accept Ms Walker's submission that cat food has but one purpose (that is, feeding cats), whereas batteries may be used to power a wide variety of devices; consumers buying cat food can check on the nutritional panel to compare the protein content of cat food products, whereas they cannot readily9 Eveready Australia Pty Ltd v Gillette Australia Pty Ltd (No. 4) [2000] ATPR 41-751 (FCA).10 Energizer NZ Ltd v Panasonic New Zealand Ltd, above n 4.11 At [101].undertake testing to compare the relevant performance of competing batteries; the qualifying text on the cat food products appears to be adjacent to the protein claim and in clear, legible print, whereas in each of the two batteries cases the qualifying text was in small print, of a lighter colour than the claim and surrounding packaging (Eveready Australia), or appeared fleetingly in small print in a television commercial and was disregarded by the Judge (Energizer NZ).[22] In deciding whether Mars has no arguable defence to Nestlé's claim that theprotein claim is misleading and/or deceptive, or likely to mislead and/or deceive, I bear in mind the observation of Gault J in Allied Liquor Merchants Ltd v Independent Liquor (NZ) Ltd, that while it may be said that applying the words of the Fair Trading Act is a matter of impression, care needs to be taken:12Judicial impression can be no more reliable than any other informed impression. It must not be capricious, idiosyncratic, or intuitive impression but rather, impression had formed having regard to the long-established tests for the assessment of likely reaction to a mark, label, or trade description. That requires consideration of the nature and make-up of the purchasing public, that is the relevant section of the public to whom the product will have an appeal and, any particular characteristics of that section. It involves consideration of the nature of the product and the circumstances of tradethrough which the product passes. [23] Further, as Allan J said in Energizer NZ:13Whether the representation concerned is likely to mislead that portion of the public involves an assessment of risk – the risk must be real and more than a mere possibility, but need not necessarily be assessed on the balance ofprobabilities: (reference omitted)[24] And in the specific context of a defendant's application for summaryjudgment under the Fair Trading Act, the Court of Appeal said in Luxottica:14 Although the threshold issue of whether the material in question iscapable of breaching the Fair trading Act is a question of law for the Judge, it will often be difficult to divorce that question from the issue of whether there has been a breach in fact in all the circumstances. It would berelatively unusual to find that a plaintiff's claims cannot succeed where issue12 Allied Liquor Merchants Ltd v Independent Liquor (NZ) Ltd (1989) 3 TCLR 328 (HC) at 334.13 Energizer NZ Ltd v Panasonic New Zealand Ltd, above n 4 at [65].14 Luxottica, above n 3 at [51].of judgment are involved and where the evidence is incomplete and has not been tested at trial.[25] Similarly, in the present case, issues of judgment are involved, and the evidence is incomplete and has not been tested at trial.[26] I am not persuaded that Mars has no arguable defence. Following the approach adopted by Allan J in Energizer NZ, a Judge should first determine whether the representation is to be treated as qualified or unqualified. Next, a Judge should determine whether the (qualified or unqualified) representation is likely to mislead the relevant section of the public, bearing in mind the persons to whom it is addressed and those whom it is intended to affect, with the overall assessment to be completed having regard to the reasonable consumer. As part of this, a Judge should determine whether there is a risk of the representation being likely to influence consumer behaviour, that risk being a real possibility. Although the context ofEnergizer NZ was an application for an interim injunction, the approach is also useful in the context of an application for summary judgment.[27] On the evidence of the WHISKAS® packaging, Mars has an arguable defence that there is no real risk that the protein claim and the accompanying qualifying text will mislead or deceive consumers. The evidence of Professor Parsons to the effect that a consumer is likely to see all of the information on a WHISKAS® package,including the qualifying text, provides support for Mars' defence. I do not accept that the substantive issue can be determined on a summary hearing. The summary judgment procedure is intended as a way to expedite, in a just way, the resolution of proceedings in this Court.15 There is a danger that where the process is utilised to resolve disputes which are not necessarily clear cut, injustice will occur. I am satisfied that this would be one of those occasions.[28] In the light of my conclusion that Mars has an arguable defence to Nestlé'sclaim, the application for summary judgment must be dismissed.15 Lawrence v Bank of New Zealand (2001) 16 PRNZ 207 (CA) at [18].Application for interim injunctionThe test[29] An interim injunction may be granted if an applicant establishes that there is a serious question to be tried, the balance of convenience favours an injunction being granted, and an injunction will best serve the interests of overall justice in the particular circumstances of the case.16Submissions[30] Ms Walker submitted that Nestlé had not met the threshold of establishing a serious issue to be tried. I reject that submission. It is, in my view, obvious from the earlier discussion that there is a serious issue to be tried as to whether the protein claim is misleading and/or deceptive. The real issues are where the balance of convenience lies, and what would best serve the overall interests of justice.[31] Ms O'Gorman submitted that the balance of convenience was in favour ofgranting an injunction. The purpose of Mars' protein claim is to entice consumers topurchase WHISKAS® products rather than any others. She submitted that if Nestlé is successful at trial, damages will not be an adequate remedy, as it will be difficult to measure the precise impact and damage suffered by way of loss of sales. For essentially the same reasons, Ms Walker submitted that the balance favours Mars: it will suffer significant costs if the injunction is granted, and it will be difficult (if not impossible) to calculate damages if Mars succeeds at trial.[32] On the question of the overall interests of justice, Ms O'Gorman submitted that it is in the interests of justice to ensure that misleading advertising does not occur. Ms Walker submitted that the interests of justice clearly favoured the refusal of the application for interim relief.16 See American Cyanamid Co v Ethicon Ltd [1975] AC 396 (HL), and Klissers Farmhouse Bakeries Ltd v Harvest Bakeries Ltd [1985] 2 NZLR 129 (CA).Discussion[33] On the issue of whether damages would be an adequate remedy, both parties are New Zealand subsidiaries of international companies. Nestlé did not provide any evidence of its ability to meet an award of damages, but for the purposes of this application I assume that it has that ability. Mars did provide such evidence, and I am satisfied that it has the capacity to meet an award of damages, if required.[34] Having stood back and looked at the balance of convenience and interests of justice as a whole, I am not persuaded that an interim injunction should be granted. This is in essence for the reasons set out by Ms Walker:(a) The protein claim has been on WHISKAS® packaging since 2010. There was an exchange of emails between Nestlé and Mars between November 2011 and March 2012, but Nestlé took no further stepsuntil a solicitor's letter in May 2014. Nestlé then applied to the Court for urgent interim relief, but did not refer to the earlier exchanges, orexplain its delay. For that reason, Nestlé's submission that the statusquo should preserve the position as existed before Mars made the protein claim is not a strong one.(b) I also accept that the nature and effect of the disruption that would becaused to Mars' manufacturing and supply chain, if an interiminjunction were granted, is highly likely to be such as to be determinative of the proceeding. As Ms Walker submitted, the"commercial reality" is that the orders sought by Nestlé would requireMars to actively change its packaging, and is in effect a mandatory injunction.(c) Further, there is force in Mars' submission that this is not a case brought in the public interest. No evidence has been adduced that any consumers have actually been misled or deceived. While such evidence is not necessary for a finding of capability to mislead or deceive consumers, it is necessary to bear in mind the observation of McGechan J in ER Squibb & Sons (NZ) Ltd v ICI New Zealand Ltdthat "interim injunctions in this area should not be allowed to becomea matter of mere routine, turning the Court into a tool for marketing gamesmanship".17[35] Overall, I cannot conclude that the balance of convenience or the overall interests of justice require an interim injunction to be granted. Accordingly, the application for interim injunction orders is dismissed.Result[36] The proceeding should now be referred for case management.[37] Both parties sought costs in the event that they succeeded. My provisional view is that costs should therefore follow the event. If the parties are not able to agree as to the quantum of costs payable then memoranda may be submitted. I would anticipate then making an order on the papers.[38] Before concluding, I record that any comments I have made as to the facts are based on the information before me, and are necessarily provisional.________________________Andrews J17 ER Squibb & Sons (NZ) Ltd v ICI New Zealand Ltd (1988) 3 TCLR 296 (HC) at 324.