G-Star Raw C.V. v Jeanswest Corporation (NZ) Limited [2013] NZHC 1251 (27 May 2013)

Last Updated: 11 June 2013

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

CIV-2011-404-3243 [2013] NZHC 1251

UNDER the Copyright Act 1994

IN THE MATTER OF copyright infringement

BETWEEN G-STAR RAW C.V.

First Plaintiff

G-STAR AUSTRALIA PTY LIMITED Second Plaintiff

AND JEANSWEST CORPORATION (NZ) LIMITED

Defendant

Hearing: 27 May 2013

Appearances: D L Marriott with I Finch for Plaintiff

C L Elliott QC for Defendant

Judgment: 27 May 2013

_{ORAL JUDGMENT OF ASSOCIATE JUDGE BELL}

Solicitors:

James & Wells, Auckland, for Plaintiffs

Martelli McKegg, Auckland, for Defendant

Counsel:

D L Marriott for Plaintiffs

C L Elliott QC for Defendant

G-STAR RAW C.V. v JEANSWEST CORPORATION (NZ) LIMITED [2013] NZHC 1251 [27 May 2013]

[1] The plaintiffs have applied for an order that the defendant provide them with copies of the discovered documents numbered 1–9 (incl) of the defendant’s documents without any parts covered up. The defendant opposes. The grounds for its opposition are:

(a) The information covered up is highly sensitive and commercial;

(b) the covered up information is not relevant to any issue before the court;

(c) given the de minimis nature of the claim, the parties reasonably agreed to make tailored discovery comprising only essential documents;

(d) the information covered up is not essential or necessary to adjudicate and determine the matters pleaded and in issue between the parties, namely secondary infringement in New Zealand;

(e) the parties’ stated purpose in seeking access to the covered up information is to identify other potential overseas parties to join and to support and expanded case against those parties;

(f) the plaintiffs are fishing;

(g) the orders sought are not in the interests of justice; (h) the orders sought are unnecessary and oppressive;

(i) the plaintiffs have inexcusably delayed in bringing the application;

and

(j) If made the orders will raise novel jurisdictional issues which will significantly expand the proceeding and jeopardise the trial.

[2] The plaintiffs’ claim is for copyright infringement. The first plaintiff claims

to be the owner of copyright in original design drawings and in manufacturing

drawings for a garment, denim jeans called “5620 Elwood”. The second plaintiff is said to be the exclusive licensee and distributor of the first plaintiff’s products in Australia and New Zealand.

[3] The defendant is a New Zealand clothing retailer. It is alleged to have infringed copyright by importing and offering for sale infringing denim jeans which it sold under the name “Dean Biker Slim”. Importing and offering for sale are acts of secondary infringement under ss 35 and 36 of the Copyright Act 1994.

[4] For the defendant to be liable the defendant must have either known or had reason to believe that the jeans were infringing copies.[1] It is common ground that the test whether a defendant knew is subjective, but whether a defendant had reason to believe is objective.

[5] The defendant’s case is broadly this:

(a) It admits importing and selling the “Dean Biker Slim” jeans, but says it imported and sold only 63 garments. It stopped selling after receiving the plaintiffs’ cease and desist letter.

(b) It denies that there is copyright in the plaintiffs’ artistic works or, if there is copyright it is of limited scope as those designs form part of the existing state of art. The features which the plaintiffs claim warrant copyright protection are said to lack the qualities necessary to attract copyright protection. In short, it denies originality.

(c) It says that the jeans it sold were the product of independent design, so that there was no copying in the manufacture of the jeans.

(d) It denies that the “Dean Biker Slim” jeans are infringing copies of the plaintiffs’ designs.

(e) It denies that it was responsible for the design or manufacture of the “Dean Biker Slim” jeans, but believes that these jeans were an original copyright work created for it and were the product of independent skill and judgment. It did not have reasonable grounds to believe that the “Dean Biker Slim” product was an infringing copy.

(f) For good measure, it has also counterclaimed under s 130 of the

Copyright Act for unjustified proceedings for copyright infringement.

[6] The defendant’s affidavit of documents lists 10 documents. The brevity of the affidavit is explained by the fact that the parties had reached agreement as to the scope of discovery. Potentially, discovery could have encompassed a large number of documents which would require fairly exhausting enquiries for both sides. That is because documentation going to state of the art may have resulted in lengthy lists of documents setting out information and designs as to jeans from and even before the date when the plaintiffs claim that their copyright work was created. The parties agreed to make what they termed “essential” discovery for the purpose of alternative dispute resolution, it being understood that there might be more extensive discovery if the matter could not be resolved by alternative dispute resolution. Hence the relatively brief list of documents in the defendant’s list.

[7] I was referred to correspondence between the parties’ lawyers. As I read the correspondence, the parties believed that “state of the art” documents would not be required and, instead, documents would be more limited. The defendant has accepted that documents relating to the purchase, payment, and importing of its “Dean Biker Slim” garments are all relevant to the confined scope of discovery which the parties had agreed upon. What the defendant has done is cover up parts of those documents.

[8] I was referred to copies of those documents in the form received by the plaintiffs. The documents comprise: a purchase order, an invoice, a packing list, an airway bill, an air pre-alert, a tax invoice from a logistics company, an import entry, a costing report, and another logistics tax invoice. All of those documents have certain parts blackened out. It can be inferred though that the parts that have been

blackened out identify the person who supplied the defendant with the garments, and possibly the payee. On the fourth document, the airway bill, both the shipper’s name and consignee’s name are blackened out. Potentially the shipper and consignee may be different people. In the remaining documents the name of the shipper or the name of the supplier are blackened out.

[9] The person who has sworn the affidavit has included the following:

7. The buying office in Hong Kong responsible for supplying the product was asked to conduct a similar search on their computers. To the best of my knowledge and belief they advised that nothing relevant was found.

..

10. I identify in the schedule the documents that are in the defendant’s control for which it claims confidentiality. I propose that inspection of these documents be restricted to the plaintiffs’ solicitor and counsel and the following restrictions apply: that they provide written undertakings agreed by our counsel.

Accompanying the schedule of documents is this statement:

The documents numbered 1-10 (inclusive) consist of documents which are commercially sensitive, contain trade secrets or otherwise contain information of a confidential or commercially sensitive nature that inspection of them should only be given on terms restricting access to the documents and their contents, whether by undertaking or order of the court. Document 10 is particularly sensitive commercially.

As it happens, document 10 has been made available for inspection without any part of it being blackened out.

[10] By arrangement, the plaintiffs’ counsel, New Zealand solicitors and Australian instructing solicitors, each gave undertakings, following which the documents were made available for inspection by the plaintiffs’ lawyers. The plaintiffs contest the covering-up of parts of the documents. They wish to see the documents in their entirety. Their case is that they believe that the covered-up parts would identify the persons who supplied the garments to the defendant, and that that information can help them in this proceeding. They accept that part of their purpose in wishing to find out the identity of the supplier is to consider possible joinder of other parties involved in importing these garments.

[11] It appears that the information as to the actual manufacturer may be available from the documents. One of the documents refers to the factory as being a business of “New Treasure Trading Limited”. It also appears from the documents that the garments were all made in China.

No proposal in affidavit of documents to cover up

[12] In bringing their application, the plaintiffs rely on their rights of inspection under r 8.27 of the High Court Rules. That requires any party who has filed and served an affidavit of documents to make the documents listed in the affidavit available for inspection by way of exchange. That rule is subject to a qualification – r 8.28. Rule 8.28(1) and (2) apply to inspection of documents for which privilege is claimed – but they do not apply here. Rule 8.28(3) states:

A party may limit inspection of confidential documents to the persons specified in the affidavit of documents, subject to the restrictions proposed in the affidavit.

[13] If the inspecting party wishes to challenge a claim to privilege or confidentiality, they may apply under r 8.25 to modify or set aside the claim. There is no provision in the rules for challenging a claim to privilege or confidentiality which is not made in an affidavit of documents.

[14] The plaintiffs’ first point is that the only restriction proposed in the affidavit of documents was that inspection of the documents should be limited to the plaintiffs’ counsel and solicitors who should give undertakings, and there was no proposal for any part of the documents to be covered-up. Because covering-up documents was not proposed in the affidavit of documents, the defendant cannot limit inspection by now blackening-out parts.

[15] For the defendant, Mr Elliott QC accepted that that was a valid point, but he urged me to look at the wider picture. I find that because the defendant had not raised in its affidavit of documents the proposed covering-up of the documents for which it was going to claim confidentiality, it cannot now, belatedly, run a confidentiality claim when the plaintiffs have honoured the conditions set out in the defendant’s affidavit for preserving confidentiality.

[16] Notwithstanding that, I accept Mr Elliott’s invitation to look at the wider

picture.

[17] The starting point is that the party entitled to inspection is entitled to see the documents in their entirety, without any part being covered-up. If the party required to make documents available for inspection contends that the documents should be covered-up in some way, that person has the onus of justifying the redactions. It has the onus of justifying any limitations on full inspection.

Relevance

[18] Obviously the defendant has discovered each of the documents in its affidavit because they are properly relevant to the matters in issue – specifically the importing of the “Dean Biker Slim” garments. It may be that the party required to make documents available for inspection may believe that not all parts of the document are relevant to the issues. However, that belief does not justify unilateral redaction. When documents are inspected they are to be made available for inspection in their entirety, even if only some parts of the documents are relevant to the matters in issue. Parties required to make documents available for inspection do not normally cover- up parts unless they have reason for doing so. The point I am making at this stage is that the argument that these parts of the documents are not relevant is not, by itself, enough to allow blackening-out.

[19] The plaintiffs go further. They say that the information that has been covered-up is information that is relevant to the matters in issue in this proceeding. They say that it goes to the defence run by the defendant – that is, that the defendant did not know or did not have reason to believe that the garments it was importing and selling were infringing copies.

[20] The plaintiffs’ submission is that the identity of the supplier can be relevant to determining the defendant’s knowledge or reasonable belief. It may be that the supplier was another Jeanswest company. The plaintiffs submit that, if it is another Jeanswest company, then knowledge of the other Jeanswest company may also be attributed to the defendant. They refer to the documents and show that there is room

for an intermediary between the defendant and the ultimate supplier, and that the identity of intermediaries may be relevant as going to the defendant’s knowledge or the reasonableness of the defendant’s belief. I accept that disclosure of the documents for that purpose is relevant to the matters in issue in this proceeding.

[21] The plaintiffs also propose that disclosure of that information may assist them in identifying the supplier with a view to also taking proceedings against that supplier. The defendant counters that that would be a misuse of discovery.

[22] I do not regard using discovery which reveals the names of other parties who may bear liability as involving a misuse of discovery if the information obtained is used to join those other parties or to take other proceedings against those other parties. That approach is an everyday occurrence in leaky building litigation. It is common in leaky building cases for defendants – and I have in mind territorial authorities in particular - to ask for time for the joinder of third parties to be extended until after discovery has been completed so that they can join third parties using information obtained in discovery. No one in leaky building litigation contends that using discovery for those purposes is in some way a misuse of the discovery process. It assists the adjudication of all matters arising in a leaky building case.

[23] What I understand the defendant to be saying is that even though it may be accused of being a copyright infringer by reason of importing, and even though it may hold information identifying others who have infringed the same copyright in respect of the same garments, it cannot be compelled to make that information available under inspection of documents. In my judgment, that position is not sustainable.

[24] The right to have discovery to ascertain the identity of wrongdoers is recognised in the decision in Norwich Pharmacal Co v Customs and Excise

_{Commissioners.}[2] _{Lord Reid said this:}[3]

So discovery to find the identity of a wrongdoer is available against anyone against whom the plaintiff has a cause of action in relation to the same wrong.

[25] That proposition was used as a step in the argument to require the Commissioners of Customs and Excise, who were not themselves parties to patent infringement but who held information as to the identity of importers of infringing products, to disclose that information to the plaintiff in that case. That was a case where the sole proceeding was a claim in equity to obtain discovery. In this case the claim is against the defendant as a copyright infringer. The dictum of Lord Reid makes it clear that as it has information as to the identity of others involved in the same infringement, the defendant cannot resist making that information available. Even if the plaintiffs had not sued the defendant for copyright infringement but had brought their own separate proceeding seeking non-party discovery with a view to ascertaining the identity of the other party, the defendant would not be able to resist identifying the other parties to the importing.

[26] The defendant protested that it had admitted the importing and accordingly the scope of the discovery should not be widened to allow its supplier to be identified. It has taken an unduly narrow approach to the question of relevance. It referred me to Massive NV v Lighting Plus Ltd.[4] That was not a decision on the scope of discovery but was a decision on a defended hearing for copyright infringement by an importer — where the claim ultimately failed. It was a case where the burden of proof had passed to the defendant to show absence of knowledge or reasonable belief. Ultimately the defendant succeeded. That case

does not assist on the question of relevance for the purpose of this application to inspect discovered documents.

Confidentiality

[27] While the defendant has pleaded and asserted that the information covered-up is highly sensitive and commercial, there is nothing by way of evidence that persuades me that information to the supplier of the garments or the manufacturer

_{has any element of confidentiality that requires the court to protect it.}

[28] The defendant filed a late affidavit by a lawyer with relevant intellectual property litigation experience and qualifications. That affidavit contains general assertions as to the protection of information relating to intellectual property, especially trade secrets. The affidavit makes the obvious point that when intellectual property, especially trade secrets, is disclosed to trade rivals it may lose its value. I do not take any issue with those general propositions, but that lawyer has not, apparently, seen the information in this case, and she has not directed her evidence at the particular documents in issue here. Her affidavit does not bear on the question in this case, which is information as to the defendant’s source of supply. There is no evidence suggesting why that information should be absolutely protected from disclosure. It seems rather that in a case where the defendant is potentially liable for copyright infringement by way of importing, it has been coy about disclosing its sources of supply. If there were an innocent source of supply, it would probably have no good reason to cover-up that information.

[29] The desire for protection because of commercial sensitivity can be preserved by the means proposed by the defendant’s affidavit of documents which is to restrict disclosure to the lawyers for the plaintiffs. That is the only safeguard put in place by reason of the undertakings which were requested. I see no basis for allowing the information to remain covered-up by reason of commercial sensitivity.

De minimis nature of claim

[30] The defendant refers to the de minimis nature of the claim. The parties’ restricted the scope of discovery in the interests of efficiency. That was with a view to not going to the trouble of marshalling and collating a huge number of documents which might be relevant to “state of the art”. However, the documents here are within the scope of essential documents the parties agreed to disclose. Once it was agreed that they are essential and they have been disclosed, there is no good reason for covering them up.

Fishing expedition

[31] There was a complaint of the plaintiffs “fishing”. Generally, fishing begins when relevancy ends. In my judgment the defendant does not have a good ground for objecting on the grounds of fishing. That is because I have found that the plaintiffs are entitled to the information as to the defendant’s source of its documents and the identity of their supplier. As the information is relevant, the plaintiffs are not fishing.

Oppression and lack of proportionality

[32] The defendant protests that what the plaintiffs are seeking is disproportionate given the nature of the case. I accept the plaintiffs’ submission that there is nothing oppressive in requiring the defendant to uncover the covered-up parts of its documents. If anything, the defendant is the one who has put the plaintiffs to unnecessary trouble and expense by covering-up the information in the first place.

Delay

[33] There is a complaint about delay. The defendant swore its affidavit of documents on 12 March 2013 and the plaintiffs received the covered-up documents on 14 March 2013. The plaintiffs brought their application on 21 March 2013. That was prompt. The plaintiffs could not have brought their application earlier, before they had received the documents, because they were not forewarned that the information was to be covered-up. The plaintiffs had put the defendant on notice earlier that they were seeking disclosure of the very information they are seeking now. I find no delay on the part of the plaintiffs.

New jurisdictional issues

[34] It was also objected that these orders will raise jurisdictional issues by expanding the proceedings and jeopardising the trial. I take it that the reference to jurisdictional issues means the possibility that the court may be asked to assume jurisdiction over foreign parties alleged to have infringed copyright overseas. Those

questions will arise only if there is a proposal to join those parties in the proceeding. It is a premature objection at this stage. It is not known at the moment whether the supplier is a foreign party or not and whether it will be necessary for the court to consider assuming jurisdiction over someone outside the jurisdiction. That cannot be a relevant ground for covering up the documents.

Outcome

[35] Overall, I am satisfied that the defendant does not have any good ground for covering-up the documents and I grant the plaintiffs’ application.

[36] I adjourn this hearing until 4:00pm on Wednesday, 29 May 2013. That is to allow the defendant to either make the documents available for inspection in their entirety or for Mr Elliott to take instructions to seek a review of my decision. If the parties do not require the hearing at 4:00pm on Wednesday 29 May 2013, they can advise the court and the hearing will be vacated, with appearances excused.

Costs

[37] The plaintiffs will have costs on the application – category 2 band B.

Security for costs

[38] For the hearing today Mr Elliott filed a memorandum wishing to revive the question of security for costs. The parties have an arrangement under which the plaintiffs have already provided security for costs of $25,000. Mr Elliott’s memorandum signalled the wish for an increase in the amount of security. I have explored the matter with counsel.

[39] Both the plaintiffs are corporations from outside New Zealand. The first plaintiff is a Dutch corporation. The second plaintiff is Australian. If the first plaintiff were the sole plaintiff there would be good reason for seeking proper security for costs because it would be completely uncertain whether an order for costs made in New Zealand would be enforceable in The Netherlands. The second plaintiff, however, has its registered office in New South Wales. There are

arrangements for quick and efficient reciprocal enforcement of judgments between New Zealand and New South Wales. It is not a difficult exercise to register an order for costs of this court in the Supreme Court of New South Wales. In particular, the second plaintiff would have real difficulty in resisting registration because it is a plaintiff in this proceeding. Accordingly, the only added costs that the defendant would be put to in enforcing a New Zealand order for costs against the second plaintiff would be the extra costs of enforcement by registering the judgment in New South Wales. The existing security of $25,000 is more than enough to cover those costs.

[40] The only other matter that could generate a need for increased security for costs would be if there was reason to believe that the second plaintiff would not be able to meet any order for costs. At this stage Mr Elliott accepts that there is not any evidence that suggests the second plaintiff would be unable to meet an order for costs, but he reserves the right to come back if evidence does show that there is reason to believe that the second plaintiff may not be good for an order for costs.

[41] On that basis, the security for costs question is left to await any further application by the defendant.

...........................................

Associate Judge R M Bell

---

[1] Copyright Act 1994, ss 35(1)(a)(ii) and 36.
[2] _{Norwich Pharmacal Co v Customs and Excise Commissioners [1973] UKHL 6; [1974] AC 133 (HL).}
[3] At 174.

[4] Massive NV v Lighting Plus Ltd [2003] 1 NZLR 222; (2002) 7 NZBLC 103,839 (HC).