Dream Doors (NZ) Ltd v Mike Fatches Design Ltd [2014] NZHC 1391 (19 June 2014)

High Court of New Zealand

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Dream Doors (NZ) Ltd v Mike Fatches Design Ltd [2014] NZHC 1391 (19 June 2014)

Last Updated: 16 July 2014

IN THE HIGH COURT OF NEW ZEALAND NEW PLYMOUTH REGISTRY

CIV-2013-443-307 [2014] NZHC 1391

BETWEEN	DREAM DOORS (NZ) LTD First Plaintiff
AND	DEREK LILLY and PHILLIP JAY Second Plaintiffs
AND	MIKE FATCHES DESIGN LTD First Defendant
AND	MICHAEL ERNEST FATCHES Second Defendant
AND	DREAM DOORS KITCHENS LTD Third Defendant

Hearing:	25 February 2014
Appearances:	D Watson for Plaintiffs ME Fatches, Second Defendant, in person
Judgment:	19 June 2014

JUDGMENT OF TOOGOOD [COSTS]

This judgment was delivered by me on 19 June 2014 at 4:30 pm

Pursuant to Rule 11.5 High Court Rules

_{Registrar/Deputy Registrar}

DREAM DOORS (NZ) LTD v MIKE FATCHES DESIGN LTD & ORS [2014] NZHC 1391 [19 June 2014]

Introduction

[1] On 25 February 2014, I issued a judgment¹ concerning an application for interim orders in this proceeding in which the plaintiffs seek injunctive relief and damages for alleged breaches by the defendants of a contract protecting the plaintiffs’ trademark rights; passing off; and breaches of the Fair Trading Act 1986.

[2] The judgment followed a hearing in the course of which the parties agreed on the terms of a consent order for interim injunction. Costs were reserved.

[3] The plaintiffs seek indemnity costs against the defendant of $23,681.52 or, alternatively, uplifted costs or scale costs.

[4] The defendants were represented by Mr Michael Fatches both in person and, by leave, on behalf of the companies. Mr Fatches has filed a memorandum seeking costs in the sum of $25,000 including GST, presumably on behalf of the all defendants. The claim is made without reference to the High Court Rules.

[5] Because of the grounds advanced by the plaintiffs in support of the claim for indemnity costs or increased costs, it is necessary to provide a brief summary of the factual background, the plaintiffs’ substantive claims, and the defences raised by the defendants.

Factual background

[6] The Dream Doors franchise system, which provides for the renovation and installation of kitchens and joinery, was established in New Zealand in 2007.

[7] A franchise agreement was entered into between the first plaintiff and the first defendant, allowing the first defendant to use the Dream Doors concept and operate a Dream Doors business within Taranaki. The second plaintiffs are trustees of the

_{Dream Trust which is owner of the Dream Doors trademark. The second defendant,}

¹ Dream Doors (NZ) Ltd v Mike Fatches Design Ltd [2014] NZHC 290.

Mr Michael Fatches, personally guaranteed the obligations of the first defendant under the agreement.

[8] During the term of the franchise agreement, the franchisee had the use of certain intellectual property comprising:

(a) a distinctive Dream Doors trademark registered in July 2007;

(b) a red and white colour scheme used in conjunction with the name

Dream Doors;

(c) manuals explaining the methodology to be used in the operation of the franchise; and

(d) printed stationery and uniforms containing the trademark and colour scheme.

[9] The franchise agreement contained provisions protecting the plaintiffs’ intellectual property both during and after the term of the agreement. Intellectual property was defined broadly to include the system itself as well as brand names, trademarks, telephone numbers, know-how and other items. The agreement was terminated by consent on 31 May 2012, but on 1 June 2012, Mr Fatches was granted a one-year agency to carry on a Dream Doors business containing intellectual property-protection provisions similar to those in the franchise agreement. The first plaintiff took steps to terminate the agency agreement on 6 June 2013.

The substantive pleadings

[10] The plaintiffs allege that the defendants have committed breaches of their contractual and trademark obligations by:

(a) incorporating a company, Dream Doors Kitchens Limited (the third defendant), in order to carry on a kitchen-installation business;

(b) continuing to promote the business as “Dream Doors”;

(c) using the first plaintiff ’s trademark and colour scheme; and

(d) refusing to return the plaintiffs’ intellectual property, including transferring telephone numbers and uniforms used under the agency agreement.

[11] In addition to allegations of breach of s 89 of the Trade Marks Act 2002, the plaintiffs allege breaches of s 9 of the Fair Trading Act and passing off.

[12] The defences asserted were:

(a) the third defendant was within its rights to use the name Dream Doors because it had been incorporated with that name; and

(b) the defendants were not in breach of the trademark and had not engaged in passing off or committed any breach of the Fair Trading Act because of differences between the emblem or mark used by the defendants in the conduct of their business and the plaintiffs’ mark.

The interlocutory proceeding

[13] To restrain the defendants from what the plaintiffs alleged to be continuing breaches, pending a substantive judgment, the plaintiffs applied for interim orders as follows:

(a) An injunction to restrain the defendants from operating the website www.ddkitchens.co.nz.

(b) An injunction to restrain the defendants from using the name Dream Doors or any similar name in any manner, including in their registered company name, or in the operation and marketing of the defendants’ business.

(c) An injunction to restrain the defendants from infringing the trademark of Dream Doors or any similar version thereof.

(d) A mandatory injunction requiring the defendants to deliver to the first plaintiff all documents and information in any form containing or covering in any way any part of the intellectual property of Dream Doors, and including all uniforms containing any part of the intellectual property of Dream Doors and all other items containing or referring to in any way any part of the Dream Doors intellectual property.

(e) A mandatory injunction requiring the defendants to transfer to the first plaintiff, the telephone numbers 027 444 2860 and 0800 645 333.

[14] The defendants did not file a notice of opposition or any affidavits and the Court set the interlocutory application down for hearing on 25 February 2014. Mr Fatches wrote to the Court on 11 February 2014, a fortnight prior to the hearing, announcing that he was closing the business of Dream Doors Kitchens Limited and saying that all advertising bearing the name Dream Doors Kitchens would cease.

[15] Mr Fatches indicated to the Deputy Registrar of the Court that he did not intend to appear at the hearing and it was thought there might not be an appearance on behalf of the first and third defendant companies. The Court issued a Minute on

24 February 2014 observing that the plaintiffs were entitled to continue to pursue both the substantive claims and the application for interlocutory orders. The Court noted that counsel for the plaintiffs, Ms Watson, was domiciled in Auckland and that it would be an unnecessary expense for her to travel to New Plymouth to the hearing if there was to be no appearance by or on behalf of the defendants. Mr Fatches was requested to indicate to the Registrar by email no later than 3:30 pm that day whether there would be any appearance on behalf of the defendants at the hearing on

25 February 2014. It was said that, in the event that Mr Fatches did not indicate by that time that the defendants would not be appearing, it would be assumed that the hearing should continue with the costs of counsel’s appearance on behalf of the plaintiffs being a matter for consideration in due course. Mr Fatches subsequently informed the Registrar that he would appear at the hearing.

[16] At the hearing, Mr Fatches continued to assert the pleaded defences, but after discussions with the Court about the nature of the claims and his objections to them, it was clear that while he no longer intended to carry on a business using the Dream Doors methods, name or imagery. It was also apparent, however, that he was very concerned about the prospect of being required to relinquish an 0800 telephone number and a cell phone number which he had used for some years prior to entering into the business arrangements with the plaintiffs.

[17] In discussions with counsel, Mr Fatches agreed to the making of an interlocutory order which preserved his entitlement to the phone numbers but prohibited their use in conjunction with a business using the name “Dream Doors”.

The plaintiffs’ costs claim

[18] The plaintiffs incurred actual costs of $17,700.00 plus GST, and disbursements of $3,326.52. They say that costs on the interlocutory hearing should be fixed now and that costs should follow the event.

[19] The plaintiffs seek increased or indemnity costs relying on the principles set out in Bradbury v Westpac Banking Corporation.² They say that the late notification by Mr Fatches that he no longer intended to continue the Dream Doors business and would wind up the company using that name required them to spend costs of

$10,000 plus GST and other disbursements unnecessarily. The plaintiffs also argue that the defendants’ pleadings were expressed in intemperate language, displaying no appreciation of legal principles and no arguable defences. They note in particular the inconvenience to the plaintiffs of the defendants’ failure to file a notice of opposition or affidavit in respect of the application for interim relief.

The defendants’ costs claim

[20] The defendants’ claim for costs is based on a continued assertion that the third defendant has not breached any trademark. Despite consenting to an order

_{giving the plaintiffs interim relief, it appears that Mr Fatches continues to have no}

² Bradbury v Westpac Banking Corporation [2009] NZCA 234, [2009] 3 NZLR 400.

appreciation of the scope of the legal obligations into which he entered. He continues to deny that he acted improperly and says the discontinuance of the business which he set up under the Dream Doors name and style was merely pragmatic.

[21] Since the defendants were not represented by counsel they are not entitled to costs.³ In any event, the making of consent orders indicates that the plaintiffs were justified in bringing the application for interim relief and that they were successful. It is the plaintiffs, not the defendants, who are entitled to costs.⁴

[22] Accordingly, the defendants’ application for costs is dismissed.

Discussion of the plaintiffs’ claim for costs

[23] While the issues between the parties have not been addressed in a substantive hearing, I consider that I am sufficiently informed by the affidavits filed by the plaintiffs and the information provided by Mr Fatches to find for present purposes that the plaintiffs have a strongly arguable substantive claim; that their concerns about breaches occurring pending a substantive resolution were justified; and that interim orders would have been made whether or not Mr Fatches had agreed to them.

[24] I infer that had proper pleadings and undertakings been filed in response to the interlocutory applications, with Mr Fatches’s concern to preserve the right to use the telephone numbers made clear notwithstanding his apparent contractual obligations to relinquish them, the plaintiffs may well have adopted an approach which limited the interim relief to an order similar to that made by consent.

[25] The plaintiffs are entitled to costs which recognise that they were put to additional and, in my view, unnecessary expense because of the defendants’ failure to comply with the High Court Rules regarding notices of opposition; their failure to

_{advance any substantial argument against the making of appropriate interim orders in}

3. Re Collier (A Bankrupt) [1996] 2 NZLR 438 (CA). The decision does not preclude recovery of disbursements by a self-represented litigant but none were sought in this case.
4. High Court Rules, r 14.2(a); Manukau Golf Club Inc v Shoye Venture Ltd [2012] NZSC 109, [2013] 1 NZLR 305 at [8].

light of the plaintiffs’ strongly arguable case; and their failure to give timely undertakings about the closure of the defendants’ business and its operations.

[26] I take account of the fact that the defendants were not represented by counsel. For that reason alone, I do not consider that indemnity costs are appropriate. Nevertheless, an uplift to the costs to be paid to the plaintiffs is justifiable in respect of steps taken close to the hearing, on account of the additional expense to which the plaintiffs have been put by the unreasonable refusal of Mr Fatches to undertake to the Court at an early stage that he would close down the business or acknowledge

that interim orders should be made.⁵

Decision

[27] The defendants shall pay the plaintiffs’ costs, calculated on a category 2B basis, in relation to filing the application for interim injunction and sealing of the order. The defendants shall pay the plaintiffs’ costs, calculated on a category 2B basis and uplifted by 50 percent, in relation to the preparation of written submissions and the bundle, and counsel’s attendance at the interlocutory hearing. The total sum calculated in terms of this paragraph is $8,606.75.

[28] The defendants shall also pay the travel and accommodation expenses of counsel and all disbursements in relation to the interlocutory proceedings as fixed by the Registrar.

Order

[29] I order the defendants to pay to the plaintiffs costs in the sum of $8,606.75 and disbursements as fixed by the Registrar.

...........................
_{Toogood J}

⁵ High Court Rules, r 14.6(3). And see Aplin v Lagan (1993) 10 FRNZ 562 (HC) at 576.