Facts:

Following an earlier substantive hearing and appeal, the first plaintiff was successful in its claim that the defendant had infringed its patent relating to stabilizing legs on sidelifter trailers.  At a subsequent procedural hearing, the defendant had agreed to provide an affidavit concerning the sales of infringing sidelifters and associated financial information.  The defendant supplied two affidavits containing financial information, a summary of sales data and a profit and loss history. 

The plaintiff then filed a further application in which (as a preliminary to making its election between an account of profits or damages) it sought:

1. Financial information including profit and loss figures for two years prior to the six years in issue, detailed management accounts for the period 2002 to 2010, a breakdown of expenses and the proportion of general expenses unrelated to infringing units;
2. Costs of sales including specific costs and related questions, currency information, date of sales currency conversions, and specific information relating to sale of the infringing item;
3. Data comparing apparently identical sales, including as between items exported to Holland and to Australia;
4. Legal expenses;
5. General operational information for the purposes of identifying potential sources of income.

The first plaintiff alleged it ought not to have to make an election “in the dark” and that counsel and its financial advisers were not able to advise it on what election to make on the information that had been supplied to that point. 

At the same time, the plaintiff sought a preliminary ruling on a question of law, namely whether the defendant was required to account for its profits for infringement on an annual basis or on a cumulative six year basis.  This followed from the defendant’s refusal or failure to say whether it would seek to offset accumulated losses against accumulated profits (which would have a considerable bearing on the loss of profits claim). 

 
Held

(1)   The procedural principles governing the election as to a remedy are practical applications of the overarching principle of fairness and reasonableness in the conduct of Court proceedings.  The Court’s power under HCR16.3 to give directions about the account or inquiry, should be interpreted in light of their ostensible purpose, namely to facilitate an account of profits, and to “lubricate” the process.  However the rule was not directed towards substantiating (or testing) the information supplied to the satisfaction of a plaintiff. That would simply invite a prequel to the formal auditing exercise to be undertaken in the account itself.

Personal Representatives of Tang Man Sit v Capacious Investments Limited [1996] AC 514, 522; Island Records Limited v Tring International Plc [1995] 3 All ER 444, 447 referred to.

(2)   The defendant should provide its management accounts (for the relevant six year period) since these were able to be produced without much effort.  Discovery of them was proportionate to the importance of the election process to the parties and to the Court. The balance of the items sought by the plaintiff would not be ordered since these invited a preliminary audit at considerable effort on the defendant’s part that was neither necessary nor proportionate to the objective of pre-election discovery.  Further, data for years prior to the six in issue would not be ordered since it invited a disproportionate cost sapping prequel to the formal account of profits.

(3)   As to the preliminary question of law, the Court would refuse to direct this.  It was premature to be making categorical statements of principle that might or might not be applicable to an account of profits.  Existing authority was that the profit should be assessed on the difference between the costs and income from each sale of an infringing item.  But these were questions that needed to be resolved at the substantive hearing once the facts were properly established – rather than on a hypothetical basis.

Intellectual Property Development Corporation v Primary Distributors New Zealand Limited HC Auckland CIV 2006-404-4695, 9 December 2010; Leplastrier & Co Limited v Armstrong-Holland Limited (1926) 26 SR (NSW) 585 referred to.