ACP Machinery Australia Pty Ltd v Aerospace Technologies of Australia Pty Ltd

IN THE FEDERAL COURT OF AUSTRALIA VICTORIA DISTRICT REGISTRY GENERAL DIVISION VID 765 of 2010

BETWEEN: ACP MACHINERY AUSTRALIA PTY LTD (ACN 066 485 925)

AND: AEROSPACE TECHNOLOGIES OF AUSTRALIA PTY LTD (ACN 008 622 008)

BOEING AEROSTRUCTURES AUSTRALIA PTY LTD (ACN 103 165 466)

JUDGE: DODDS-STREETON J DATE: 22 JUNE 2011 PLACE: MELBOURNE

REASONS FOR JUDGMENT 1 On 22 June 2011, for reasons set out below, I granted leave for the applicant, ACP Machinery Australia Pty Ltd ("ACP") to file and serve a further amended application and statement of claim in the form handed up at the hearing and made orders as follows: 1. Orders 1, 2, 3, 5 and 8 made by Justice Dodds-Streeton on 28 April 2011 be vacated. 2. The applicant have leave to file and serve a further amended statement of claim and amended application in the form attached to these orders and marked Annexure A on or before 4.00 pm on 23 June 2011. 3. The respondents file and serve a further amended defence to the further amended statement of claim on or before 4.00 pm on 14 July 2011. 4. The applicant file and serve a further amended reply to the further amended defence on or before 27 July 2011. 5. The applicant pay the respondents' costs thrown away by reason of pleading to the further amended statement of claim (if any). 6. On or before 4.00 pm on 27 July 2011, the parties give discovery of, and make available for inspection, all documents relating to the further issues arising out of the further amended statement of claim, further amended defence and further amended reply. Such issues to be specified by the applicant by 24 June 2011. 7. The applicant file and serve any affidavits on which it intends to rely at trial by 4.00 pm on 1 September 2011. 8. The matter be listed for further direction on 8 September 2011. 9. The applicant pay the respondents' costs of and incidental to the applicant's notice of motion dated 31 May 2011 including the costs of this day. 10. The issues of liability be tried and determined prior to and separately from issues of quantum. 11. Liberty to apply. 2 ACP's application made by notice of motion dated 31 May 2011 was supported by the affidavits of Andrew Goatcher of the solicitors for ACP sworn 1 and 21 June 2011 and an outline of submissions dated 20 June 2011. 3 The application was opposed by the respondents, Aerospace Technologies of Australia Pty Ltd ("Aerospace") and Boeing Aerostructures Australia Pty Ltd ("Boeing"). 4 The affidavit of Christopher Round (of the solicitors for the respondents) was affirmed on 20 June 2011 in opposition to the application and in support of an oral application for orders that ACP file and serve its evidence. It exhibited correspondence between the solicitors for the parties. 5 The applicant commenced the present proceeding by an application and a statement of claim dated 7 September 2010, at which stage the sole respondent was Aerospace. Aerospace filed a defence dated 18 November 2010. ACP filed and served a reply dated 7 December 2010. 6 The statement of claim dated 7 September 2010 alleged that: (a) ACP entered a supply agreement with Aerospace on 10 August 2001 ("2001 contract") to supply Aerospace with a universal holding fixture. The 2001 contract provided, by clauses 1 and 32 and by implication, that Aerospace would not use, in future projects involving a third party, without ACP's prior written approval, technical data in tangible form developed in connection with supplying the universal holding fixture by ACP and made available to it. (b) ACP developed (alternatively developed jointly with another entity, Elmeq) technical data in tangible form (as defined) which it made available to Aerospace. Particulars were provided of the technical data fixed in tangible form in specified documents. (c) In about February 2006, in breach of the clause alleged of the 2001 contract, Aerospace, without ACP's approval, used the technical data to prepare a Statement of Work supplied to third party tenderers. (d) In January 2009, in breach of the 2001 contract, Aerospace used the technical data to prepare another Statement of Work which it also supplied to third party tenderers. (e) The author of the specified documents was Mark Wingrove, an employee of ACP. (f) Aerospace knew that ACP owned the copyright in the specified documents. (g) Aerospace reproduced a substantial part thereof without licence, and thereby infringed ACP's copyright. 7 The defence dated 18 November 2010 alleged that from 1 September 2003, Boeing carried on Aerospace's business in Australia. It admitted clause 32 of the 2001 contract, but denied that the technical data was original work protected within the meaning of that clause. 8 The defence denied that Aerospace issued the statement of work ("2009 Document") and pleaded that Boeing did so, but denied that Boeing thereby breached the 2001 contract by issuing it. It also denied that Aerospace prepared the 2009 Document using the technical data, or was required to obtain ACP's approval to issue it to third party tenderers, as the 2009 Document was not identified for protection by the operation of clause 20, and did not consist of an original work within the meaning of clause 32, because it was publicly available information and was used in Aerospace's 2001 specification prepared two months before the technical data. 9 The defence denied breach of copyright, as it denied the subsistence of copyright in the part of the technical data said to have been reproduced by Aerospace. 10 The defence denied that Aerospace knew that ACP was the owner of the copyright, but, if it was, denied that Aerospace or Boeing reproduced the whole or substantial part of the work. 11 Aerospace alleged that in 2006, ACP responded to Boeing's call for tenders to supply a universal holding fixture after having received relevant documents, but at no point of the tender process did ACP allege breach of copyright or contract. It was therefore estopped from making such claims, or acquiesced in or waived the breach, as it induced Boeing to believe it was unconcerned by its conduct and, in reliance, Boeing acted to its detriment in receiving tenders and awarding contracts in the belief that ACP did not regard it as a breach of contract or an infringement of copyright. 12 By a reply dated 7 December 2010, ACP denied that the technical data was included in an Aerospace document prepared two months prior to the technical data. It also denied that Aerospace became aware of the Boeing 2006 tender document until early 2010, at which stage it did notify Aerospace of its concerns regarding breach of contract. 13 On 4 February 2011, I gave leave by consent for Boeing to be joined as a respondent and for the amended statement of claim to be filed and served. 14 On 2 February 2011, both Aerospace and Boeing filed a list of documents. 15 ACP filed a list of documents dated 24 January 2011. 16 An amended statement of claim was filed on 4 February 2011 and an amended defence on 16 February 2011. 17 The amended statement of claim dated 4 February 2001 added Boeing as a party and added claims that Aerospace was contractually bound, inter alia, to ensure that Boeing (and members of the Hawker de Havilland group of companies) would not use the technical data without ACP's approval. It alleged that Boeing knew that ACP owned the copyright and alternatively that Boeing infringed the copyright. 18 The amended defence included responsive amendments. 19 The amended reply alleged that clauses 32 and 20 of the 2001 contract operated independently and that the manual ACP provided to Aerospace on or soon after 19 March 2011 was marked with a proprietary legend.

Proposed further amendments 20 The applicant submitted that a review of the respondents' discovered documents had revealed conduct previously unknown to it which apparently occurred in mid to late 2005. 21 Mr Goatcher, by his affidavit sworn on 1 June 2011, deposed to the process of discovery and inspection which appeared to be substantially completed, by which the respondents discovered 600 documents filling approximately 10 lever arch folders. 22 Mr Goatcher deposed that as a result of discovered documents, the most relevant of which were marked confidential, ACP became aware of further facts, involving communications between the respondents and third parties from mid to late 2005, evidencing further breaches of contract and copyright. 23 ACP contended that from emails and chains of emails passing between the respondents and ACP's competitor, Marand Precision Engineering Pty Ltd ("Marand"), it could be inferred that the respondents provided ACP's drawings, software and technical data to Marand, in breach of the 2001 contract and in breach of copyright. 24 ACP submitted that it was therefore necessary to amend its pleading forthwith in order to preserve its position in relation to limitation periods. It also submitted that documents relevant to those issues were likely to be in the respondents' possession. 25 In written submissions, ACP described the background to the application as follows: 7 ACP contracted with the First Respondent in late 2001 (tab 1) to supply it with a 'universal holding fixture' (UHF), which was a piece of equipment designed to hold aircraft components while they were being machined by a separate 'cutting machine'. The contract price for the supply of the UHF was $1.322 million. The parties also agreed on a breakdown of that price of which the largest two components were: (a) 500 'actuators' at $824,500; and (b) software, testing and acceptance at $105,000. 8 In order to supply the UHF, ACP had to design and engineer a new specific piece of equipment. To do so it collaborated with a Dutch company called Elmeq Nederland bv to develop a key component of the UHF, known as an `actuator' (also called a 'pogo'). Simplistically, the UHF was a product that incorporated about 500 actuators, each to be fitted with a suction cup at the end, which could be moved simultaneously to hold and control the aircraft components while they are machined. 9 ACP relies on clause 32 of the contract, the effect of which is alleged at paragraph 4 of the Statement of Claim. As alleged, the clause provided ACP with some measure of protection by limiting the future use that the Respondents could make of the technology that ACP had developed in supplying the UHF. 26 ACP submitted that amendments were required to reflect the following: (a) ACP's allegation that it owned copyright in CAD drawings of the UHF and its components ("CAD drawings") because its employee, Mr Wingrove, created detailed preliminary drawings that ACP provided to a third party, Cannon Industrial Services Pty Ltd ("Cannon"), which prepared the CAD drawings in conjunction with Mr Wingrove and assigned the copyright to ACP pursuant to an oral agreement. Alternatively, ACP alleged that it owned the copyright in the preliminary drawings it provided to Cannon and that the copyright in the preliminary drawings was infringed by reproduction of the CAD drawings. (b) ACP's allegation that it supplied a software module known as the DLL file to permit software programs (CITIC software) prepared by a third party, CT Technology Pty Ltd, which controlled the actuators, to interface with the contract CT software. (c) ACP's allegation that the technical data, which it developed with Elmeq's research, was recorded in writing and embodied in the actuators and the software system that controlled them. (d) ACP's contention that emails and chains of emails between the respondents and Marand indicated that the CAD drawings were provided to Marand, the software including the DLL file were supplied to Marand, and the technical data (specifically, the actuators and the associated software system) were provided to Marand.

The parties' correspondence 27 By letter dated 27 May 2011, ACP sought the respondents' consent to file a proposed further amended statement of claim ("FASOC") and application. 28 On 31 May 2011, the respondents' solicitors replied that they were seeking instructions and, on that day, the applicants filed the notice of motion and the first Goatcher affidavit. 29 By a letter dated 3 June 2011, the respondents' solicitors advised that they would not consent to the amended pleading in its current form, due to a number of deficiencies, including inconsistencies and want of particulars. The letter complained that the respondents had not been given sufficient time to respond and there was no clear reason for the haste in filing a notice of motion when consent could be forthcoming if their complaints were corrected. The letter suggested a two week delay. 30 The court listed the notice of motion for 22 June 2011 to permit an opportunity for the parties to resolve the issues. In the interim, by letter dated 17 June 2011, ACP's solicitors responded to the criticisms and forwarded a revised proposed pleading dated 17 June 2011 reflecting those responses. 31 The proposed FASOC, dated 17 June 2011, alleged that Aerospace would not use and would ensure that Boeing (or other members of the Hawker and de Havilland group) would not use, in relation to future projects that involved third parties without ACP's prior written approval, in addition to technical data, "drawings designs, software and software improvements and enhancements" (if fixed in tangible form, developed in connection with the supply of the universal holding fixture by ACP to Aerospace pursuant to the contract, and made available by ACP to Aerospace). 32 The proposed FASOC alleged that each of the new categories of CAD drawings (in paragraph 5A) and software (the module DLL File) in paragraph 5B supplied by ACP to Aerospace, was developed by Aerospace, alternatively, jointly with other parties, which was fixed in tangible form and made available by ACP to Aerospace. 33 Paragraph 5C alleged that on or after 30 May 2005, Aerospace, or alternatively Boeing, provided some or all of the CAD drawings to Marand. 34 Paragraph 5D alleged that in breach of clauses 1 and 32 of the 2001 contract, without obtaining ACP's approval, Aerospace used, or Boeing used, and Aerospace did not ensure that Boeing did not use, the CAD drawings for a future project. 35 Paragraphs 5E and 5F alleged that in about December 2006, Aerospace or Boeing provided the CITEC software, including the DLL file, to Marand, to be used by Aerospace or Boeing in a future project, in breach of the relevant clauses of the 2001 contract. 36 Paragraph 5G alleged that on or after 30 May 2005, Aerospace, or alternatively Boeing, provided some or all of the technical data to Marand. 37 Paragraph 5H alleged that during about the second half of 2005, Aerospace, or alternatively Boeing, made the actuators supplied by ACP available to Marand. 38 Paragraph 5I alleged use of the technical data without approval in breach of the relevant clauses. 39 Paragraph 9 was amended to allege that ACP was the owner of the copyright in the CAD drawings and preliminary drawings or alternatively, by paragraph 9A, a co-owner, which was allegedly infringed. 40 By his affidavit affirmed on 20 June 2011, Mr Round: (a) exhibited correspondence between the parties; and (b) deposed to three successive requests by ACP's solicitors for extensions of time for filing its evidence. 41 The letter of the respondents' solicitors dated 20 June 2011 indicated that if two outstanding criticisms were addressed, consent would be forthcoming. 42 In particular, the letter stated: 1. the particulars sub-joined to paragraph 9 of the FASOC allege that copyright in the CAD Drawings were transferred by Cannon to ACP pursuant to an oral agreement made in or about August 2001 between Mark Wingrove of ACP and Fred Wasmer of Cannon. Section 196 of the Copyright Act 1968 (Cth) provides that an assignment of copyright does not have effect unless it is in writing signed by or on behalf of the assignor. The particulars do not refer to any written assignment of copyright in the CAD Drawings from Cannon to ACP. This is further set out in the letter which advises that a "confirmatory assignment" will be prepared. In the circumstances there is no basis for the claim that ACP owns copyright in the CAD Drawings. This paragraph of the FASOC remains embarrassing; and 2. paragraph 9A of the FASOC sets out a position in the alternative to the claim to ownership set out in paragraph 9 of the FASOC asserting that ACP was a co-owner of copyright subsisting in the CAD Drawings. No particulars have been provided which support this assertion or explain the basis on which ACP claims to be a co-owner of the copyright in the CAD Drawings. In the absence of particulars this paragraph is also embarrassing. 43 It foreshadowed that the respondents would seek self-executing orders for the timely filing of ACP's evidence and costs of the hearing which was brought on prematurely without good reason or any proper opportunity to respond. 44 At the hearing, ACP handed up a further revised version of the proposed amended application and statement of claim dated 21 June 2011 which addressed the respondents' criticisms in relation to the copyright in the CAD drawings and the particulars. In particular, ACP deleted the proposed amendments expanding the copyright claim in relation to the CAD drawings and the preliminary drawings. Senior counsel for ACP stated that, as the respondents consented to the revised FASOC, it proposed to secure an assignment of legal title to the copyright in the CAD drawings and foreshadowed a future repleading of that issue. ACP also sought supplementary discovery in relation to the new claims. 45 The court has a broad power to grant leave to amend: O 13 r 2(1) of the Federal Court Rules 1979 (Cth). The relevant principles are well established: see, for example, Medich v Bentley Smith Pty Ltd [2010] FCA 494 at [8] per Stone J. In the present case, the application was ultimately unopposed and it was appropriate to grant leave.

Costs 46 ACP submitted that it should pay only the respondents' costs of the notice of motion and not the costs of the hearing, which had functioned as a useful directions hearing. In my view, however, in circumstances where ACP had implicitly acknowledged the respondents' complaints in relation to the proposed pleading and had revised it accordingly to address them, securing the respondents' consent by revisions made on the evening before the hearing; and had successively failed to comply with orders for the filing of evidence, ACP should pay the respondents' costs of the notice of motion, any costs thrown away by reason of the amendment and costs of the hearing. I certify that the preceding forty-six (46) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Dodds-Streeton.