Tasman Insulation New Zealand Limited v Knauf Insulation Limited [2014] NZHC 1400 (20 June 2014)

	Home \| Databases \| WorldLII \| Search \| Feedback High Court of New Zealand Decisions

UNDER	The Trade Marks Act 2002
IN THE MATTER OF	Infringement of New Zealand trade mark registration number 105507
BETWEEN	TASMAN INSULATION NEW ZEALAND LIMITED Plaintiff
AND	KNAUF INSULATION LIMITED First Defendant
AND	ECO INSULATION LIMITED Second Defendant
AND	BUILDFORNEXTGEN LIMITED Third Defendant

Hearing:	19 June 2014
Counsel:	J G Miles QC and K W McLeod for the Plaintiff C L Elliott QC and I Finch for the Defendants
_Judgment:	_{20 June 2014}

This judgment was delivered by me on 20 June 2014 at 4 pm, pursuant to r 11.5 of the High Court Rules

[1] The first and third defendants (the defendants) sought an order for stay of execution of my judgment of 9 May 2014¹in the following terms:

Staying the proceeding and execution of the orders made in paragraphs [401] and [404] of the judgment pending an appeal being heard by the Court of Appeal and judgment being given.

Paragraph [401] records the eight orders which reflect the findings at [399] of the judgment. Paragraph [404] provides for a timetable for the filing of memoranda as to costs.

[2] It transpired however that the only order in respect of which a stay of execution is pursued is the injunction, being order (2), as follows:

An injunction restraining the defendants from using the name or the brand EARTHWOOL^®except where that name or brand is printed immediately alongside the words “glasswool” or “glass insulation” in the same font and print size.

[3] There was no serious dispute between the parties as to the applicable principles. Particular reference was made to the decisions of the Court of Appeal in New Zealand Insulators Ltd v ABB Ltd,²Duncan v Osborne Building Ltd³and the judgment of Hammond J in Dymocks Franchise Systems (NSW) Pty Ltd v Bilgola Enterprises Ltd.⁴

[4] A well known statement of the objective for the Court on such an application is that of Buckley LJ in Minnesota Mining & Manufacturing Co v Johnson & Johnson Ltd,⁵quoted in the New Zealand Insulators case, as follows:

On what principles ought such a discretion to be exercised? The object, where it can be fairly achieved, must surely be so to arrange matters that,

⁴_{Dymocks Franchise Systems (NSW) Pty Ltd v Bilgola
Enterprises Ltd (1999) 13 PRNZ 48.}

⁵Minnesota Mining & Manufacturing Co v Johnson & Johnson Ltd [1976] FSR 139; [1976] RPC

when the appeal comes to be heard, the appellate court may be able to do justice between the parties, whatever the outcome of the appeal may be. Where an injunction is an appropriate form of remedy for a successful plaintiff, the plaintiff, if he succeeds at first instance in establishing his right to relief, is entitled to that remedy upon the basis of the trial judge’s findings of fact and his application of the law. This is, however, subject to the defendant’s right of appeal. If the defendant in good faith proposes to appeal, challenging either the trial judge’s findings or his law, and has a genuine chance of success on his appeal, the plaintiff’s entitlement to his remedy cannot be regarded as certain until the appeal has been disposed of.

In applications of this kind it is necessary carefully to weigh all of the factors in the balance between the right of a successful litigant to have the fruits of a judgment and the need to preserve the position in case the appeal is successful. Often it is possible to secure an intermediate position by conditions or undertakings and each case must be determined on its own circumstances.

[6] The point about undertakings was reiterated by the Court of Appeal in New Zealand Insulators at [14] where it was observed that undertakings may be appropriate (from either side) to maintain a sensible and just balance pending ultimate determination. The Court also said⁶that the proper start point for the exercise was that enunciated by Cotton LJ in Polini v Gray:⁷

[W]hen there is an appeal about to be prosecuted the litigation is to be considered as not at an end, and that being so, if there is a reasonable ground of appeal, and if not making the order to stay the execution of the decree or the distribution of the fund would make the appeal nugatory, that is to say, would deprive the Appellant, if successful, of the results of the appeal, then it is the duty of the Court to interfere and suspend the right of a party who, so far as the litigation has gone, has established his rights. [P446]

[7] The factors which fall to be considered were recently discussed by the Court of Appeal in Keung v GBR Investment Ltd:⁸

... In determining whether or not to grant a stay, the Court must weigh the factors “in the balance” between the successful litigant’s rights to the fruits of a judgment and “the need to preserve the position in case the appeal is successful”. Factors to be taken into account in this balancing exercise include:

⁷Polini v Gray (1879) 12 Ch D 438 (CA). The Court of appeal in New Zealand Insulators noted that there has been no deviation from that fundamental principle in subsequent cases over the years.

(a) Whether the appeal may be rendered nugatory by the lack of a stay; (b) The bona fides of the applicant as to the prosecution of the appeal; (c) Whether the successful party will be injuriously affected by the stay; (d) The effect on third parties;

(e) The novelty and importance of questions involved; (f) The public interest in the proceeding; and

That list does not include the apparent strength of the appeal but that has been treated as an additional factor.

[8] This is a trade description case. The injunction has been sought and obtained by a trade competitor (Tasman) on the grounds that the use of the injuncted brand name is likely to lead the public to believe the EARTHWOOL product is something which it is not, namely that it is made from animals’ wool when in fact it is made from recycled glass.

[9] However Tasman does not manufacture or sell a product manufactured from animals’ wool. Consequently a sale which the defendants win as a consequence of an erroneous assumption on the part of the purchaser that the EARTHWOOL product is made from animals’ wool is not a sale lost to Tasman. Rather it would be a sale lost to a manufacturer and seller of insulation made from animals’ wool but no such entity has been a party to this litigation.

[10] Nevertheless Tasman does maintain that a perception that the EARTHWOOL product is a natural product, and a premium insulation product, gives the defendants a commercial advantage over all other non-wool insulation manufacturers and suppliers in what Tasman submits is a very competitive market.

[11] It appears that the defendants have now taken steps (belatedly Tasman says) to comply with Order (2) so far as websites and other promotional activities are concerned. Whether or not that is the case, at least as I understand it, no order for stay is sought so far as such activities are concerned. The key concern of the defendants relates to the current packaging of the product which of course represents a contravention of Order (2).

[12] The defendants have now made the decision to change their packaging. Mr S B Dunbar, a director of the first defendant, explained the position in an affidavit as follows:

11. We have made the decision to change the packaging to ensure that we will be able to continue to supply the New Zealand market with glasswool insulation regardless of the result of our appeal to the Court of Appeal on the question of whether the old packaging was misleading. Given this, it is possible that we will not revert to the existing packaging, even if successful on appeal. However it is certainly not an option we would forego or give away.

12. To an extent then, events have overtaken the grounds on which the original application for a stay of the Order was sought.

10. However, because of production lead times and the need to ship that product from overseas, it may be up to approximately 10-19 weeks before product in the new packaging arrives in New Zealand. The reasons for this are explained below (depending on production plant):

Packaging lead time to arrive from international supplier to production plant (5 weeks)

[14] Consequently the order for a stay which is now sought is temporary and in relation only to the current packaging for the product.

“options” with reference to the period until the product in the new packaging arrives in New Zealand:⁹

⁹A fourth option which involved “over bagging” has been abandoned as impracticable for reasons

(a) Option 1: the ability to sell all current stocks of EARTHWOOL currently in New Zealand (in a Knauf or customer’s warehouse) or on route to New Zealand “as is” in its existing (contravening) packaging;

[16] The difference between options 2 and 3 is that the latter would be far more comprehensive in achieving coverage of all “important and prominent uses” of EARTHWOOL on the packaging.

[17] However there is a substantial cost associated with both options 2 and 3, in both cases involving a seven figure sum although Mr Miles QC notes that a significant component of that cost relates to discounting of product due to sub- standard packaging and customer inconvenience.

[18] The defendants’ primary contention is that, if they incur that substantial cost in the interim period pending the arrival of their product in the new packaging and if they are successful on appeal, they will not be able to recover that cost which will have been shown to have been an unnecessary expense. They would be able to recoup that cost from Tasman were Tasman to provide a cross-undertaking as to damages. However, as it is entitled to do, Tasman declines to provide any such undertaking.

[19] The defendants submit that, if they are permitted to continue to sell EARTHWOOL in the current packaging, they are willing to take steps to protect the public in the event that the EARTHWOOL brand name misleads any purchaser. Mr Dunbar deposed:

16. As a condition of a stay being granted, the Knauf Insulation Group will undertake to meet any loss or damage suffered by any identifiable New Zealand consumer of any of the defendants in this proceeding that can reasonably establish that they have mistaken Knauf NZ’s Earthwool product for sheep’s wool and have suffered

loss as a consequence. Knauf NZ appreciate that the intent of the Court is to ensure that New Zealand consumers are not misled by the Earthwool logo or name, and therefore rely on the financial security of the Knauf Group to provide confidence to the Court to ensure that purchasers of Earthwool up until the new packaging is implemented in the New Zealand market will be compensated if they can demonstrate they have been genuinely misled and suffered damage.

[20] He considers that the risk of purchasers being misled will be reduced as a consequence of the other steps which the defendants are taking:

13. We have updated, and will continue during the period prior to introduction of the new packaging to update, marketing material to increase the emphasis on the composition of the product and to use the additional “glasswool” descriptor alongside Knauf NZ’s Earthwool trade mark to ensure that no possible confusion can exist as to the actual composition of the product.

14. We firmly believe that these efforts will dispel any possible misconception amongst consumers that Earthwool insulation is made from natural wool, and seek a stay of the Order in its current form pending the arrival of our new packaging into the country – which we are committed to introduce as soon as it becomes available.

[21] Tasman submits that the stay seeks a significant indulgence from the Court and that in those circumstances all the usual factors come into play including coming to the Court with clean hands and being candid with the reasons why a stay is sought.

(a) The injunction simply prevents the defendants from selling their product in a particular form but does not impair their ability to continue to sell the product itself;

(b) The consequences of compliance with the judgment are purely economic and the cost to the defendants in complying should not resonate with the Court;

(c) The bulk of the costs are referred to as discounts to customers but there is no independent evidence of such discounts being claimed;

(d) The defendants have been less than forthcoming in their evidence and in the case of Mr Durbin’s affidavit have made some misleading statements;

(f) The quantity of stock in transit to New Zealand is very substantial and Tasman perceives that the defendants are stockpiling volumes of product in the injuncted packaging; and

(g) The defendants appear to take no responsibility for the activities of their major retailer, Bunnings.

[23] As I indicated in the course of argument, the scenario best calculated to preserve the overall position pending appeal would be for option 3 to be pursued with a cross-undertaking from Tasman. While that would be the most expensive option, it is the course best calculated to avoid or reduce any prospect of members of the public being misled. It would have the consequence that the defendants would be compensated under the cross-undertaking if they succeeded on appeal whereas Tasman would only have liability under the cross-undertaking if it did not succeed in defending the judgment on this issue.

[24] Regrettably that scenario is not an available one. Tasman declines to give a cross-undertaking as it is fully entitled to do. However the result is that an intermediate position of the nature contemplated by the Court of Appeal in Duncan v Osborne Building¹⁰and New Zealand Insulators¹¹is not attainable.

[25] Tasman accepts that the defendants genuinely intend to prosecute their appeal and for its part Tasman is willing to do whatever is necessary to ensure that the

_{appeal is dealt with promptly. However that is of academic interest
here where there}

is no prospect of the appeal being heard and determined before the point in time when the product in the new packaging will be available in New Zealand.

[26] Unsurprisingly Tasman does not accept that the appeal has strong prospects of success. However, notwithstanding the recognition of that consideration in Keung,¹²I do not consider that the prospects of success or otherwise on appeal is a useful consideration in the present case.

[27] The present time of the year is an important period for sales of insulation. If the defendants were unable to sell their product they would presumably lose a significant volume of sales, many of which would be likely to be secured by Tasman. If they succeeded on appeal the defendants would have no basis for claiming from Tasman in respect of the sales that they had lost. Consequently the defendants have no real alternative but to endeavour to remain in the market which involves significant expenditure by them, at least under options 2 and 3. However, if they win on appeal, they cannot recover that expenditure and, at least in that sense, their right of appeal is rendered nugatory.

[28] Given that the most suitable scenario is not available, in my view the appropriate course is to permit the defendants to proceed under option 1 but with a qualification. That course would enable them to continue to sell their product with the minimal irrecoverable cost. The risk for members of the public in purchasing EARTHWOOL would be reduced as a consequence of the marketing efforts referred to by Mr Dunbar. The defendants’ undertaking would also be available to any persons who purchased EARTHWOOL under a misapprehension as to its composition.

[29] The qualification which I would impose is a deadline for the cessation of sales of the EARTHWOOL product in the current packaging and for the commencement of sales in the new packaging. Mr Elliott QC pressed for a four month period. Having regard to the information provided by Mr Dunbar at [13] above I consider that a date within the 12 to 15 week range is appropriate. In the interests of certainty I favour the end of September 2014 which is within that range.

If for whatever reason the defendants cannot obtain sufficient EARTHWOOL product in the new packaging by that date, then it is open to them to apply for an extension of the stay and leave will be reserved to do so.

[30] I grant an order for a stay of execution of Order (2) in paragraph [401] on the following basis:

(a) Until 30 September 2014 the defendants may import into New Zealand and sell in New Zealand the EARTHWOOL product in the existing packaging. From 1 October 2014 the stay will lapse and Order (2) will take effect absent the grant of any extension to the order for stay of execution;

(b) Leave is reserved to the defendants to apply for an extension of the stay of execution;

(c) The order for stay is conditional upon the defendants filing in the Court an undertaking in the terms of that proffered by Mr Dunbar and referred to at [19]; and

37 of his affidavit dated 14 June 2014 (but subject to the revised form of order in my Judgment (No 2) issued today; namely:

34. Knauf NZ will immediately update all websites to ensure the EARTHWOOL trade mark is followed by the words “glasswool” in the same font and size. Knauf NZ will provide education and support for its customers to do the same.

35. Knauf NZ will replace existing printed material (product guides/data sheets) with new material which references the words EARTHWOOL GLASSWOOL.

36. Knauf NZ will continue its TV advertising in the current form with the subtitles clearly indicating the product is made

[31] The defendants have been successful in their application. They are entitled to costs on a 2B basis.

High Court of New Zealand Decisions

Tasman Insulation New Zealand Limited v Knauf Insulation Limited [2014] NZHC 1400 (20 June 2014)