A recent Federal Court decision in Australia confirmed that the use of a trade mark in a domain name, coupled with use of the trade mark on allied web sites can amount to trade mark violation.

FACTS - Mantra Group Pty Ltd v Tailly Pty Ltd (No 2) [2010] FCA 29

·         Mantra, an on-site letting agent of apartments named 'Circle on Cavill' situated at Surfer's Paradise, Queensland was the plaintiff in this case.

·         Mantra held the rights to control and let apartments in the complex. Tailly, the defendant, on the other hand was an off-site letting agent for 'Circle on Cavill'.

·         Mantra owned the trade marks use of 'Circle on Cavill' as it had registered three marks each constituting the words 'Circle on Cavill'.

·         The defendant had made some expressive use of the words 'Circle on Cavill' to portray the apartment complex in the title, text and body of its web site - it had also registered the words 'Circle on Cavill' as its domain name.

LEGAL ISSUES

The question before the court was whether:

·         the defendant had used 'Circle on Cavill' as a trade mark and therefore violated the intellectual property rights of the earlier mark holder, Mantra;

·         Mantra contended that the defendant had breached its trade mark registration and had engaged in misleading and deceptive conduct under section 52 of the Trade Practices Act 1974.

REASONING

Tailly challenged Mantra by relying on section 122(1)(b) of the Trade Marks Act 1995 and stated that it had used the words in good faith to reflect the geographical location of its apartments.

The Court referring to the decision in the 'Chifley Tower' case (MID Sydney Pty Ltd v Australian Tourism Co Ltd (1998) 90 FCR 236.) accepted Mantra's contention and clarified that the defence under section 122(1)(b) applies only to indicate a location of a country, state, region, city, town or suburb - in the present case, the location of a place of business was not a part of the list provided under section122(1)(b).

FINDINGS

·         The Court found that the defendant had purposefully used the words 'Circle on Cavill' to obtain a commercial advantage for its business.

·         Considering the use of the words 'Circle on Cavill' by the defendant in context of the website as a whole, the court ordered in favor of Mantra, and held that the domain name be transferred to its rightful trade mark owner, Mantra.

·         The Court further banned Tailly from using the words as their domain name or a search engine optimization, trade name and for any source of promotion of its services.

LESSONS

·         This decision outlines the need of registering a trade mark, particularly for businesses which rely significantly on the use of their mark to promote their services and engage in trade. This includes property developers as well.

·         Property developers when deciding the name of the complex, apartment, or condo for instance, must register the trade mark before selling their property.

·         Registration alone is not enough although half the battle is won – actively protecting the mark against competitors and copy cats, will determine the remainder of victory.

Statutory demand is considered to be one of the strongest weapons for debt collection. And why not - it avoids bankruptcy petitions.

What is a statutory demand first of all? This is a document that is served by a creditor to a company for a debt which exceeds $2,000 and which has to be paid by the company to the creditor. This is defined under the Corporations Act.

Forza Finance v Vergepoint Facts

·         In Forza Finance Pty Ltd v Vergepoint Sales and Mangement Pty Ltd [2010] QSC 46, a statutory demand which was issued by the creditor stated that for the purpose of service of any application was the business address of the creditor's solicitor but it did not mention anything about the fax details of the creditor in the body of the demand.

·         The cover letter of the demand had the fax details of the creditor’s solicitor, via which the debtor faxed his reply for setting aside the statutory demand.

·         The debtor also posted a copy to the business address of the creditor's solicitor, which reached the solicitor but after the deadline.

·         The creditor disputed the debtor’s application and method of correspondence via fax.

Summary

The Supreme Court of Queensland whilst recognizing the importance of timely service rejected the creditor’s objections.

The Court held that the mode of service used by the debtor was appropriate to set aside the statutory demand - it did not matter that it was not synonymous with the mode of service as specified in the demand since the documents were sent to the address for service.

Implications

The pragmatic approach of the Court reflects the flexibility afforded with rapid technological means of communicating. To have decided to the contrary would have stifled the ‘instantaneous’ means of conducting business and resolving debt collection cases.

Every shareholder deal has the potential to end in dispute and as a result, the winding up of the company. Contracting parties sometimes believe that as long as the parties agree on significant matters, minor disagreements generally resolve themselves.

It is not always that simple when it comes to allegations of oppression under section 232 of the Corporations Act 2001 (‘the Act’).

The case of Tomanovic v Argyle HQ Pty Ltd; Tomanovic v Global Mortgage Equity Corporation Pty Ltd NSWSC 152 (5 March 2010) is illustrative.  

Quick Facts

Tomanovic invoked the protection under several sections of the Act, alleging oppression:

• He sought a winding up order under section 233 of the Act alleging oppression;
• Alternatively, a buy out order under section 233 of the Act.

 Points of law

 The key points of law in this case involved identifying oppression. Some of the relevant principles highlighted by Justice Austin are listed below:

• The plaintiff seeking an order of oppression is under an onus to demonstrate the absence or lack of good faith – mere inconvenience is not to be regarded as oppression;
• Fairness and reasonableness are other principles to be taken into account;
• The conduct of the minority shareholders will also be considered;
• Winding up of a company and the court’s intervention should only be used as a last resort in such matters.
  

 Findings

• The Court found that there was no deadlock between the defendant and plaintiff – the business had carried on despite the strained relationship between the parties;
• Moreover, the plaintiff had become a dormant participant in the Company over the years;
• There was no oppression and no obligation for the defendant to buy the plaintiff’s shares.

 Resolution

The Court did not issue a winding up order. It resolved that the inability to dispose of shares or a difficult relationship does not amount to oppression. Moreover, where the commercial viability of the business is not frustrated, a winding up order on grounds of oppression would be inequitable.

The simplest and most proactive way to attempt to resolve or avoid potential shareholder conflicts is to not only to have a shareholder agreement in place but to have one covering all eventualities, such as terminations, buy-outs and exit strategies for instance.

The Trade Practices Act 1974 is now being replaced with the Competition and Consumer Act 2010. The Trade Practices Amendment (Australian Consumer Law) Bill 2010 (ACL) has recently been passed.

WHO WILL BE IMPACTED AND BY WHEN?

Essentially, any industry where a client is an individual who acquires goods, services or interests for personal or household consumption, will be greatly impacted by the new Act.

Developers involved in real estate transactions with consumers, intending to sell land under standard form contracts, will also need to carefully review the terms within those contracts.  

These changes will be implemented in two phases: post 1 July 2010 will deal with unfair contract provisions and 1 January 2011 onwards will focus on the remaining aspects of the ACL.

WHAT ARE THE KEY CHANGES?

• Overall, the consumer reforms are aimed at delivering better quality, increased protection to consumers and providing consistency throughout the country.
• The ACL will regulate consumer contracts for the sale of land for personal or domestic use. Contracts which grant an interest in land for private or residential use will be viewed stringently once the Act comes into force.
• Sales for investment purposes will not come under the Act.
• Unfair contract terms will form the key focus under the new regime. If a term of the contract is considered unfair or if a standard form contract is being used, the ACL will declare that term void.
• Consumers will receive significant protection under the ACL as Australian Securities and
  Investments Commission (ASIC) and the Australian Competition and Consumer Commission (ACCC) will now have enhanced enforcement options in helping aggrieved consumers.

WHAT SHOULD YOU DO?

• Ensuring that the entire contract complies with the new Act will be at the heart of all business discussions from now on. As a good starting point, familiarize yourself with the changes being introduced.
• Needless to say, businesses and consumers should carefully review the terms of contracts before entering into transactions.
• Unfair terms should be pointed out quickly and rectified before signing.
• The risk of the contract being declared unfair and penalties being incurred should be avoided.

What is a self managed superannuation fund?

A self managed superannuation fund is a concept of investing in a fund designed for an employee’s retirement. The members of these funds are treated as trustees. These trustees control their contributions as well as payments of their benefits.

Latest announcements

The Australian government has made recent announcements on superannuation funds. It has proposed changes to the administration rules, which if implemented, would enable superannuation fund members to consolidate and transfer their assets efficiently and effectively.

Some of the key aspects mentioned in the announcement on March 10th 2010 included:

the selling of instalment warrants to these funds to be specified as a financial product
the tax consequences affiliated to a fund held by a trustee, entering into a transaction, do not belong to the propertytrustee, but to the fund
the superannuation trustee when purchasing an asset, is to be treated as the owner of the asset when entering into non-recourse borrowing arrangement, for income tax purposes
it has been recommended that the property trustee under the arrangement should adopt a more active role in managing the asset

What are limitations of this announcement?

The announcement will not have any critical effect on the competence of Self Managed Superannuation Funds [SMSF], which aid in purchasing real estate as well facilitating that particular purchase. Moreover, the proposal will not extend to arrangements that are 'private' in nature.

What are the other changes?

There has also been considerable debate surrounding the income tax treatment of Instalment Warrants and the impact of section 67(4A) within the Superannuation Industry (Supervision) (SIS) Act.

It has been considered that the Government wants to achieve these changes with the use of instalment warrants. This is an investment that enables the purchase of an asset over time by making an initial part payment and then settling the remaining payment by way of instalments along with interest.

What are the concerns?

Critics have posed certain questions, answers to which do not appear clear at the moment. It is not certain how an instalment warrant trusts will be distinguished from other trusts. Other concerns included the role a trustee was required to play – what reporting requirements will a trustee need to follow in its relationship with a beneficiary.

One cannot assess the impact of these changes just yet but this announcement will encourage practitioners to update themselves and become more familiar with these changes and the exceptions under the proposal. Overall, consistency, transparency and clarity are the keys to seeing a successful implementation of this proposal.

Agreements involving indemnity clauses must be drafted carefully and must clearly state the intention of the parties with regard to the liabilities arising from the breach of the indemnified party. This might appear obvious but a recent case suggests otherwise.

Quick Facts

In Westina Corporation Pty Ltd v. BGC Contracting Pty Ltd [2009] WASCA 213, Westina and BGC entered into a hire agreement. The plaintiff’s side of the deal involved providing a road train and three trailers and a qualified operator for transporting ore and other materials, for BGC.

The plaintiff company was to indemnify and hold the defendants harmless for any injury, death or any other loss arising out of the use of the above equipment. These terms were a part of the hire agreement.

What happened next?

One of the employee’s from the plaintiff company who was driving the hired equipment for the defendant died when the road train owned by the defendants collided with another train. It so happened that the train Westina’s employee collided with was owned by BGC and driven by it’s a BGC employee.

At trial it was held that the accident was due to the negligence of the defendant’s employee.

Post accident

The defendant tried to claim shelter under the indemnity provisions, saying it was drafted to cover any and all loss arising from the hiring of the plant, regardless of the defendant employee’s negligence.

However, at appeal, it was unanimously held that the indemnity must be viewed contextually –‘the surrounding circumstances known to the parties, and the apparent purpose and object of the transaction’ were to be considered carefully.

The Court of Appeal also found other uncertainties in the wording of this clause, which cast uncertainty over when indemnity would arise, to what extent and what responsibility the two parties were to endure when the indemnified party caused a breach under the agreement.

In hindsight

• The Court of Appeal concluded that when faced with such an ambiguous clause, clarity must be found in favour of the indemnifier.

• Needless to say that an indemnity clause must be precisely and vigilantly drafted – the parties’ intention must be transparent and clear.

• The pitfall of making assumptions must be avoided, especially where one party has insured itself against indemnity risks, should not indicate that this party will naturally suffer all ensuing risks.

Buying a property is always exciting but equally challenging and tricky. One should not get carried away with a perfectly landscaped garden or the prime location of the property. A recent Federal Court decision drew light to the relevance of GST liabilities associated with properties.

Quick Facts

In Sunchen Pty Ltd v Commissioner of Taxation [2010] FCA 21, the buyer initially purchased a property for residential purposes.

If the property were to be transformed into a commercial use by the buyer, giving rise to a GST liability to the seller, the buyer would indemnify the seller for the GST burden. These terms were clearly provided for in the contract.

The conflict arose when the buyer, who was already GST registered, claimed an Input Tax Credit (ITC), which was denied by the ATO.

Point of law

The law looks at the dominant use of the property in determining whether its owner qualifies for ITC. Where the dominant purpose is residential, ITC will not apply.

In Toyama Pty Ltd v Landmark Building Developments Pty Ltd [2006] NSWSC 83, the Supreme Court of New South Wales held that the intentions of the buyer were reasonably relevant in determining the main use of the property.

In summary

The buyer’s intention and the seller’s expectations do not always synchronize. A seller may belabour under the false notion that the property qualifies for ITC, thus removing GST liabilities. The buyer’s intended use on the other hand may make it a taxable supply, attracting GST.

The ATO outlined similar concerns in the Toyama case – the seller may be unaware of the buyer’s intention. This may adversely impact on the seller’s GST liability. Contractual remedies may not always be available or helpful for any misrepresentation that may be made.

The moral of these cases is clarity – both in drafting a clear contract and in showcasing clear intentions and consideration.

Therefore, prudent buyers and sellers should investigate GST issues before entering into contracts. If this is ignored, the seller may end up with not just a rose garden and marble flooring but with a GST liability as well.

The Personal Property Securities Act (PPSA) is expected to come into force on 11 May 2011. In anticipation, the government has advised ‘an early bird and worm’ strategy - the sooner businesses start restructuring and reorganizing, the easier it will be on commencement of the legislation in 2011.

Who will the PPSA impact?

Businesses and professional advisors such as financers and insurers, suppliers, manufacturers and lessors as well as insolvency practitioners will need to ensure they become PPSA compliant.

Key changes

• Stakeholders will be served by one national Act.
• This uniformity will be supported by a national online register of securities.
• Securities such as company charges and chattel mortgages will be registered in the new PPS register, no longer with ASIC.
• Conditional sale agreements, retention of title provisions, certain leases, interests in motor vehicles and boats will also be registerable interests in the PPS register.   
• On the other hand, some Registers will be discontinued and land and statutory licenses will not fall under the new register.

How should businesses respond?

Businesses should firstly become proactive, right away. Complacency should be fought even if May 2011 seems far away. The PPSA will demand significant transformation to the daily running of businesses. This time should be used to fully prepare for these changes, educate staff and customers and get ready to do business, differently. 

 In summary:

• Learn how your business can become PPSA compliant.
• Understand the impact the new regime will have on your business dealings whether you are a financial institution or a manufacturer.
• A comprehensive review of business security registers falling under the PPSA will be needed.  
• Work closely with professional advisors in restructuring business documentation, operating models and trading terms.
• Familiarize yourself with the consequences for failure to comply. This becomes particularly important if the security provider becomes insolvent where an unperfected security is involved.  
• Manufacturers will no longer remain owner of goods but become holders of security interests instead.

Australian Securities and Investments Commission v Citrofresh International Ltd (No 2) [2010] FCA 27 will serve as a wake up call to directors of Australian companies.  Or will it?

Earlier this year, ASIC was successful in obtaining judgment against the former Managing Director and CEO of Citrofresh International Limited. The former Director of Citrofresh, now Paragon Care Limited, was pulled up on three counts:

•    Misleading and Deceptive conduct
•  Breach of Duty of Care and Diligence
•   Wrongful reliance on third party consultants

The Director was involved in drafting and approving an ASX announcement in connection with his Company’s products. Under section 1041H of the Corporations Act, the Federal Court found that the announcement was misleading and deceptive. The Court held that this announcement was linked to a financial product or service, although remote, it was enough to invoke s.1041H.    

Duty of Care and Diligence

Following a breach of the above section, holding the Director liable for dishonoring the duty of care and diligence was inevitable. Goldberg J was very clear when explaining what this duty entailed. His Honor stated that under section 180 of the Act, the test of a reasonable man was used - directors and officers are expected to demonstrate the same level of care and diligence that a reasonable person would, in the same position.

Wrongful reliance on third party consultants

The Director in defending himself argued that he relied on two consultants hired by the Company. These consultants advised and assisted with the drafting of the announcement. According to the Director, the liability here should have been reduced or removed.

The Court did not accept this argument. Both consultants lacked the technical and scientific expertise required in this matter. This logic raises the operation of section 189 of the Act. Under this section, directors cannot release themselves from their statutory duties by relying on third parties who lack the required know-how or skills.

Australian companies have recently witnessed a spate of similar cases involving misleading and deceptive conduct and breach of the duty of care. Directors, managers and officers occupying fiduciary positions must familiarize themselves with their statutory duties and the repercussions for a breach.