Dormeuil Freres SA v Nicolian International [Textiles] Ltd

SIR NICOLAS BROWNE-WILKINSON V-C. There are before me two motions in an action between the plaintiffs, Dormeuil Freres SA and Dormeuil Ltd, and the defendants, Nicolian International (Textiles) Ltd. The first is a motion by the plaintiffs to restrain the manufacture and sale by the defendants of cloth bearing the trade mark 'Dormeuil' until trial of the action. The second motion is an application by the defendants asking for relief of two kinds: first, they ask for an order setting aside an Anton Piller order made against the defendants by Hoffmann J on 26 February 1988, under which certain goods in the premises of the defendant company were seized and taken into the custody of the plaintiffs' solicitors; second, the defendants ask for the return of those goods, which are of very substantial value.
   The background to the case is, in outline, this. The first plaintiff, Dormeuil Freres SA, is a French company and is the owner of the registered trade mark 'Dormeuil'. The second plaintiff is a wholly-owned subsidiary of the first plaintiff; although it is wholly-owned, the evidence is that to an extent they compete with each other. The second plaintiff, Dormeuil Ltd, is the registered user of the trade mark. Both plaintiffs trade in the cloth business. They are not themselves manufacturers of cloth, although their names are very well known in the business. They have a large number of different ranges of material which they procure other manufacturers to manufacture on their behalf in countries all over the world, in particular in England and in Italy and, in one case, China.
   The material which they procure to be manufactured and then sell carries the trade mark and various other markings identifying the plaintiffs as being the source or origin of the cloth. The four ranges of cloth with which this case is particularly concerned are the plaintiffs' ranges, Super Brio, Dormeuil 10,000, Silver Mohair and Silver Kid.
   The defendant company is an English company, who are wholesalers in cloth. The ruling spirit behind it is a Mr Nicolian. It used to trade in a very substantial way with the plaintiff companies but, due to circumstances which are, to an extent, in dispute, since 1983 the trade between the plaintiffs and the defendant company has been very limited indeed.
   There is a further element in the story which is of central importance. Apparently there was a falling out amongst the family which controlled the French plaintiff company, as a result of which a brother of the present owners started a rival business in France under the name of Auguste Dormeuil. There have apparently been proceedings in France as to the rights of Auguste Dormeuil to use that name as a mark on cloths. The plaintiffs failed to get any order prohibiting Auguste Dormeuil from using that name in France.
   There is a gentleman called Mr Frand, an Englishman, who is associated with a company, Feraglow Ltd, which trades under the name Eutrex Textiles. There is apparently some connection between Mr Frand and a company Auguste Dormeuil Ltd, an English company.
   The chronology of events leading to these motions is as follows. In March 1987 the plaintiffs issued a writ against Auguste Dormeuil & Co Ltd and Mr Frand complaining of the use of the words 'Auguste Dormeuil' in this country as being an infringement of the plaintiffs' trade mark. Those proceedings are being defended. On 11 January 1988 the plaintiffs were notified by telex from Japan that there was circulating in Japan cloth bearing the 'Dormeuil' mark or marks, of which they were not the source. Inquiries in Japan led to the source of that counterfeit material being traced back to Mr Frand and Eutrex Textiles.
   As a result, on 25 January, the plaintiffs issued a second writ against Mr Frand and Feraglow Ltd and obtained an Anton Piller order from Harman J in the usual form. That Anton Piller order was executed on 26 January 1988 and a large number of documents and quantities of counterfeit cloth were taken into custody.
   Pursuant to that Anton Piller order, Mr Frand swore an affirmation disclosing the names of his suppliers and customers. The information and documents seized and that

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affirmation by Mr Frand enabled the plaintiffs to discover that the present defendants, Nicolian International (Textiles) Ltd, were substantial customers of Mr Frand.
   Though Mr Frand is not a party to these proceedings, I have seen his affirmation and it is notable for its frankness in that it does apparently indicate that, amongst his other activities, Mr Frand was in the business of providing false letters indicating that the cloth that he was supplying was the plaintiff companies' and not that of anyone else. The truth of the matter appears to be that Mr Frand and Eutrex Textiles were acquiring the counterfeit cloth from other manufacturers, who were making up the counterfeit cloth with 'Dormeuil' marks on it to the order of Mr Frand.
   Those circumstances having been discovered, the plaintiffs issued the writ in this action against Nicolian International (Textiles) Ltd (who I will call 'Nicols', which is their normal trade name) and on 26 February applied ex parte to Hoffmann J asking for an Anton Piller order. In support of that motion ex parte they put before the judge over 350 pages of affidavits and exhibits, including all the affidavits which had been sworn in the proceedings against Mr Frand.
   [His Lordship referred to the affidavit evidence and continued:] The total mass of evidence before me on these motions is something over 750 pages.
   The issues that arise before me are these. First, should I now set aside the ex parte order made by Hoffmann J because it was made in circumstances in which the plaintiffs failed to make a full disclosure of the relevant and material facts? Second, should the goods to the value of Ł180,000-odd, seized under the Anton Piller order, now be returned so that the offending marks can be removed from them and Mr Nicolian be enabled to sell them in the market, admittedly at a substantially reduced price? Third, what injunctions should be granted until trial? Mr Nicolian accepts and has accepted throughout that some injunction should continue. The only issue between the parties is whether he should be restrained from handling any goods carrying the mark 'Dormeuil' which are in fact counterfeit goods or only injuncted from handling goods marked 'Dormeuil' which he knows to be counterfeit goods. Those are the three matters I have to decide.
   I will deal first with the application to set aside the ex parte order. It is a basic principle, applicable to all ex parte applications, that a plaintiff seeking ex parte relief must make full disclosure to the court of all facts which are material to the exercise of the court's discretion whether or not to grant the relief. If such disclosure is not made by the plaintiff, the court may discharge the ex parte injunction on that ground alone. But if, in the circumstances existing when the matter comes before the court inter partes, justice requires an order either continuing the ex parte injunction or the grant of a fresh injunction, such an order can be made notwithstanding the earlier failure of the plaintiff to make such disclosure. Moreover, there is authority that, contrary to the law as it was originally laid down, there is no absolute right to have an ex parte order obtained without due disclosure set aside: there is a discretion in the court whether to do so or not.
   These propositions, which are of very great everyday practical importance, are established by three decisions in the Court of Appeal. The first is Yardley & Co Ltd v Higson [1984] FSR 304. The second is Lloyds Bowmaker Ltd v Britannia Arrow Holdings plc (Lavens, third party) [1988] 3 All ER 178. The third is Brink's-MAT Ltd v Elcombe [1988] 3 All ER 188.
   It has been my experience and that of other judges of this division that the application of those principles frequently gives rise to applications being made to discharge ex parte orders such as that made by the defendants in this case. Those applications to discharge the ex parte order are frequently made at the same time as the plaintiffs' motion to continue the ex parte injunction comes before the court inter partes. The result of the joining of an application to discharge the ex parte order with the hearing of the inter partes motion for an injunction is almost invariably to increase both the duration and the complexity of the interlocutory proceedings to a substantial extent.
   To discover whether an ex parte order has been improperly obtained, the court first

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has to consider the evidence as it was at the time of the application for the ex parte order and then a mass of evidence designed to demonstrate that that evidence was misleading or failed to make full disclosure. The real question at the time of the inter partes hearing should not be what has happened in the past but what should happen in the future. On the hearing of the inter partes motion it is impossible to make any concluded finding of fact, yet the court is being asked to reach a conclusion on the issue of non-disclosure without full knowledge of the circumstances. This attempt involves a minute examination of detailed allegations and counter-allegations, the exact materiality of which may not be clear to the judge in the interlocutory hearing, in circumstances when that is not necessary for the future conduct of the case.
The cost in time and money to the parties in a complex case can become vast and the waste of court time quite unacceptable. I share the view expressed by Slade LJ in the Brink's-MAT case [1988] 3 All ER 188. He said that the principle of full disclosure is an extremely important one, a sentiment with which I agree. He continued (at 194-195):

That account of the experience in the Court of Appeal I echo as being my experience also.
   In the present case, which is far from the largest of the kind I have seen, the evidence and the exhibits extend to more than 750 pages. The hearing has lasted two days, plus a substantial amount of time spent by me reading the evidence out of court. But for my perhaps overfirm intimation that I thought the procedure inappropriate, I suspect that the hearing might have continued for longer, if counsel had had their way.
   Much the greatest part of the time has been taken up on the issue whether or not the plaintiffs made full disclosure to Hoffmann J. Much of the material relevant to that question is, in my judgment, dependent on the veracity of Mr Nicolian. All this has taken place against a background in which the future regulation of this case is not in doubt. It is accepted that between now and trial there is to be an injunction running. The only question as to the future is as to the exact terms of the injunction.
   In my judgment, save in exceptional cases, it is not the correct procedure to apply to discharge an ex parte injunction on the grounds of lack of full disclosure at the interlocutory stage of the proceedings. The purpose of interlocutory proceedings is to regulate the future of the case until trial.
   Where an Anton Piller order has been made ex parte, in the vast majority of cases the order has been executed before the inter partes hearing. Setting aside the Anton Piller order cannot undo what has already been done. As to the injunction contained in the ordinary Anton Piller order, that is directed to last only until the inter partes hearing of the motion. The correct course, as the Court of Appeal decisions show, is to regulate the matter for the future on the basis of the evidence before the judge on the inter partes hearing. The sole relevance of the question 'Should the ex parte order be set aside?' is, so

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far as I can see, to determine the question whether the plaintiff is liable on the cross-undertaking in damages given on the ex parte hearing. That is not an urgent matter. It is normally much better dealt with at the trial by the trial judge, who knows all the circumstances of the case and is able, after cross-examination, to test the veracity of the witnesses.
   Similar considerations apply in the case of an ex parte Mareva injunction. When the motion comes before the court inter partes, the court can then on the evidence before it from both sides decide what is the correct form of the Mareva relief to grant until trial. The question whether the earlier ex parte order should be set aside is not an urgent matter and is only relevant to the cross-undertaking in damages. Similar considerations apply in the case of ordinary ex parte injunctions.
   In my judgment, therefore, in the ordinary case it is wrong on the hearing of an inter partes motion to go into the huge complexities involved in seeking to disentangle at that stage whether there was full disclosure when the ex parte order was obtained. The matter should normally be dealt with at trial in the way I have indicated. The right course, therefore, would normally be to adjourn an application to set aside the ex parte order to be dealt with at the trial. That is the course that I think is appropriate in this case, but neither the plaintiffs nor the defendants are happy with that.
   The defendants seek to satisfy me that, on any footing, the affidavits sworn before Hoffmann J did not make full disclosure. I can illustrate the kind of way they put it by reference to the question of price. The defendants say that the circumstances of there being inter-wholesaler trading and special lines being offered at less than the current market price are relevant matters which ought to have been disclosed to the judge in considering whether or not the low price at which the goods were obtained was or was not a badge of fraud.
   In my judgment, that is not necessarily so. It may be so but it is not necessarily so. The question whether or not the price of these fabrics was so low that it was necessarily a badge of fraud depends on the circumstances of the industry. When Mr Nicolian has been cross-examined and other evidence is before the court, it may emerge that the dealings in other special lines and inter-wholesaler dealing do not render untrue or misleading the allegation that in the instant case the price at which the Super Brio was acquired was necessarily an indication of dishonest dealing by Mr Nicolian. Nor does it follow that the fact that there is such inter-company dealing necessarily makes the revelation of those facts relevant and material, so that non-disclosure renders the order capable of being set aside. If in fact the matters to which Mr Nicolian refers do not impinge in any way on the price paid for these particular materials then, in my judgment, they will not be material facts which should have been disclosed.
   On the other side, the plaintiffs urge me to reach a concluded view that there has been full disclosure in this case. I am equally resistant to that course. Mr Nicolian and the other witnesses have put in a mass of evidence as to the conditions in the trade. Mr Nicolian has sworn on oath that to somebody in the trade the price at which he purchased was not indicative of knowledge that these were counterfeit materials. If Mr Nicolian's evidence proves to be right (which can only be tested when there has been cross-examination) then there will have been a failure to reveal a material fact. I do not see how I can decide this matter either way until those matters have been gone into.
   There is the further fact that, since the setting aside of the order is discretionary, it is relevant to consider the extent to which there has been non-disclosure. If there has been a comparatively minor non-disclosure but there is overwhelming evidence otherwise justifying the making of the order, I doubt if the court would set aside the ex parte order. All those matters, it seems to me, are matters properly to be dealt with after a full investigation, if at all.
   It may well be in this case that in fact neither side will want to pursue this aspect of the case at all. As I have said, it only relates to the liability under the cross-undertaking in damages. Only in circumstances where the defendants are satisfied that they have

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suffered damage which they would not have suffered apart from the ex parte order are they likely to get much profit from pursuing the matter.
   I therefore propose to stand over the defendants' motion to set aside the ex parte order. In the light of the pending proceedings under RSC Ord 14, I will stand it over to come on at a later date. If judgment is recovered under Ord 14, the proceedings can come on separately. If, on the other hand, the matter is to go to a full trial, I adjourn the defendants' motion to come on at the trial of the action.
   The next matter is whether the injunction which is to run from today should impose an absolute liability on Mr Nicolian and the defendants restraining them from dealing with any counterfeit cloth bearing the 'Dormeuil' name, whether or not he knows that it is counterfeit cloth.
   Mr Nicolian and the defendants suggested that they should only be restrained from dealing with cloth bearing the 'Dormeuil' mark which they know to be counterfeit. I am not happy to modify the order in that form. The allegations made against Mr Nicolian in this case are serious and they are not without substance. It seems to be right that the order should go in the normal form. But I am sympathetic to the view put forward on Mr Nicolian's behalf that there may be real difficulties in his distinguishing between the genuine 'Dormeuil' material and counterfeit material. I therefore propose to attach a proviso to the order to the following effect, namely that he should not be liable for dealing in cloth if, prior to such dealing, he has submitted a sample of the cloth to the plaintiffs, unless within 24 hours of such submission of a sample the plaintiffs have alleged that it is counterfeit cloth. That should enable Mr Nicolian to deal in 'Dormeuil' cloth without running any risk in doubtful or borderline cases and will enable the plaintiffs to police his dealings in 'Dormeuil' cloth by having 24 hours to indicate their view one way or the other.
   Finally, there is the question whether the goods seized should or should not be returned. The plaintiffs object to returning the goods. They say that as there is as yet no admission that they are counterfeit goods the goods themselves may be necessary for use as evidence at the trial. There is some force in that. On the other side, it is said that goods have been seized to a very substantial value and the defendants have had to pay for them. This being a trade mark not a copyright case the plaintiffs have no claim to the goods themselves: the most they could get would be an order for the destruction of the goods.
   It seems to me that the need to preserve proper evidence can be fully met by allowing the plaintiffs seven days to photograph and mark in any way they think fit the cloth they wish and to take a sample from each bale and then to require the cloth to be handed back to the defendants for removal of the 'Dormeuil' marks from such cloth. The plaintiffs are entitled to an order that they should be present, if they so desire, to witness the removal of all 'Dormeuil' marks from the cloth.