Fairlight.AU Pty Ltd v Peter Vogel Instruments Pty Ltd

IN THE FEDERAL COURT OF AUSTRALIA NEW SOUTH WALES DISTRICT REGISTRY GENERAL DIVISION VID 784 of 2012

JUDGE: EDMONDS J DATE: 2 DECEMBER 2013 PLACE: SYDNEY

INTRODUCTION 1 On 21 November 2013 I heard interlocutory applications by the second respondent ("Mr Vogel") for, inter alia: (1) An order that KFT Investments Pty Ltd (ACN 005 144 945) ("KFT") be joined as a second cross-respondent to the cross-claim filed 20 December 2012 by the first respondent ("PVI") against the applicant ("Fairlight") ("the cross-claim"); and (2) leave to amend the cross-claim by filing an amended cross-claim in the form of a draft annexed as annexure "PSV223" to the affidavit of Mr Vogel affirmed 4 October 2013 (Ex 1). 2 Both the joinder application and the application for leave to amend were opposed by Fairlight. 3 As noted in 1 above, the applications were brought by Mr Vogel, but PVI, not Mr Vogel, is the cross-claimant, and Mr Vogel has no standing to bring the applications. No objection was taken to Mr Vogel's lack of standing and the parties proceeded as if the applications were brought by PVI. I shall do likewise. 4 Paragraph 5 of the interlocutory application dated 4 October 2013 sought leave under r 15.15(1) of the Federal Court Rules 2011 ("the Rules") to amend the cross-claim. But Div 15.2, despite its heading, and r 15.15(1) in particular, are concerned with the amendment of notices of cross-claim, that is to say, the form of process by which a cross-claim is commenced, not with the substantive cross-claim that is brought by it. Amendment of the substantive cross-claim is regulated by Pt 16 of the Rules, in particular r 16.51, dealing with the amendment of pleadings generally.

BACKGROUND 5 On 2 November 2012, Middleton J made orders under Practice Note CM8, known as the "Fast Track Directions", for this proceeding to be managed in accordance with those directions. In response to, and in accordance with, those orders, Fairlight filed and served a fast track statement on 26 November 2012 and PVI and Mr Vogel filed and served a fast track response on 20 December 2012. On the same date, PVI filed a fast track cross-claim against Fairlight and on 1 February 2013 Fairlight filed a fast track response to the cross-claim. 6 On 12 April 2013, Middleton J ordered that the proceeding be transferred to the New South Wales registry pursuant to s 48 of the Federal Court of Australia Act 1976 (Cth). 7 Since that time, and despite the provisions of Pt 7 of the Fast Track Directions, the proceeding has become "bogged down" with issues of discovery; doubtful claims for the non-production of documents required for inspection and, at least from my perceptive, a general reluctance by the parties to progress the proceeding on a fast track basis. In my view, principal responsibility for this lies with Fairlight and its solicitors, but Mr Vogel must bear some responsibility for the delays that have been encountered because they are due to in part his lack of qualifications and expertise in representing himself and, with the leave of the Court, PVI. 8 To date, no order has been made that this proceeding no longer be conducted in accordance with the Fast Track Directions (see para 2.5 of the Fast Track Directions). If this proceeding ever warranted being managed under the Fast Track Directions, it no longer does. Fairlight, in particular, has invariably sought to avoid or resist the discovery or production of documents relevant to the proceeding at every opportunity. 9 As there are no pleadings in a proceeding to be conducted in accordance with the Fast Track Directions (see para 4.1 of the Fast Track Directions), arguably the requirement, in r 16.51, that leave is required to amend a pleading after the time for filing pleadings has closed, has no application and leave is not required. The cross-claim has not previously been amended, either with or without the leave of the Court. 10 KFT is the parent company of Fairlight, Fairlight being a wholly owned subsidiary of KFT. Apparently, certain individuals, but notably Mr Steve Kepper, hold positions of office and management in both companies. Mr Kepper is the secretary of Fairlight as well as being the General Manager of KFT. 11 Indeed, it is this relationship between KFT and Fairlight, and Mr Steve Kepper's role in both companies, that has impelled the applications to join KFT and amend the cross-claim. 12 For example, the copyright infringement claim is sought to be amended by pleading that KFT was a de facto director of Fairlight (para 26A); that KFT was in effective day-to-day control of the business activities of Fairlight and authorised, directed or knew of the conduct by Fairlight in respect of the infringement of PVI's copyright and, pursuant to s 36(1) of the Copyright Act 2001 (Cth), being a person who authorised the infringing act, infringed PVI's copyright (paras 26B and 26C). 13 It is also exemplified in the completely new claim pleaded in the draft amended cross-claim of unconscionable conduct (para 26F): that Fairlight and KFT engaged in conduct that was in all the circumstances, unconscionable, in breach of s 22 [sic] of Sch 2 of the Competition and Consumer Act 2010 (Cth) ("The Australian Consumer Law"). 14 The new claim of unconscionable conduct is particularised by reference to some 17 acts or omissions, but in the course of submissions Mr Vogel was forced to concede that the vast majority of these were only done or omitted to be done by Fairlight. He nevertheless submitted that there was evidence that some of the specified acts or omissions were done or omitted to be done by both Fairlight and KFT or by KFT alone. Even if that is so, there is the further difficulty that some of these acts or omissions, either alone or together, provide no basis for the Court to be satisfied that PVI's unconscionable conduct claim has any reasonable prospect of success; on the other hand, others do.

THE AMENDMENT APPLICATION 15 It is appropriate to deal first with the amendment application insofar as it seeks an order to enable PVI to plead the new claim of unconscionable conduct. This proposed amendment (new paras 26F and 26G), unlike the proposed amendments to the existing copyright infringement claim (new paras 26A to 26D inclusive), is not dependent on the outcome of the joinder application, although if the joinder application is not successful any pleadings in new paras 26F and 26G would be confined to Fairlight as the cross-respondent. 16 I have already indicated my doubt (see [9] above) as to the need to obtain leave to amend the cross-claim by the addition of the new claim for unconscionable conduct, but that aside, I am of the view that my discretion should be exercised in favour of the application to amend, for the following reasons: (1) Having regard to at least some of the acts or omissions the subject of the particulars provided on the conduct constituting the "unconscionable conduct", one could not say that PVI had no reasonable prospect of succeeding if it was otherwise able to prove those acts or omissions on the part of Fairlight. (2) Having regard to the nature and scope of the matters to which the Court may have regard under s 22(1) of The Australian Consumer Law, the categories of unconscionable conduct are not closed. In this regard, the observations of French J (as he then was) in ACCC v Berbatis Holdings Pty Ltd & Ors (No 2) (1999) 96 FCR 491 at [24], [25] are apposite: There is no reason to suppose that the unconscionable conduct prohibited by ss 51ab and 51ac is limited by reference to specific equitable doctrines. The factors to which the Court may have regard for the purpose of determining whether there has been a contravention of those sections include undue influence and duress and other issues falling outside the equitable doctrines to which reference has been made. And even then, the listed factors in those sections do not limit the matters to which the Court may have regard. In Garry Rogers Motors (Aust) Pty Ltd v Subaru (Aust) Pty Ltd (1999) ATPR 41-703, Finkelstein J considered the operation of s 51ac in connection with an application for interlocutory relief against the termination of a motor vehicle dealership said to be contrary to the Franchising Code of Conduct 1998 (Cth). In the course of his reasons for judgment, his Honour said: "I take as the measure of unconscionability, conduct that might be described as unfair." Ultimately, each of ss 51ab and 51ac prescribes a standard rather than a rule. The boundaries of its application are normative rather than logical. There is a qualitative difference between their operation and that of the prohibition on misleading or deceptive conduct imposed by s 52 of the Act even allowing for normative controls on the application of that section within its logical boundary. The categories of unconscionable conduct for the purposes of ss 51ab and 51ac will never be closed albeit the circumstances of the application of the standard prescribed in each of them is confined by the language of each section. (3) What his Honour there said was embraced by Sundberg J in ACCC v Simply No-Knead (Franchising) Pty Ltd (2000) 104 FCR 253 at [33]. (4) No hearing dates will be lost in consequence of the amendment and it was not suggested, nor could it, that Fairlight will otherwise suffer any prejudice if the amendment is allowed; certainly no prejudice that could not be cured by a costs order.

THE JOINDER APPLICATION 17 The joinder application is brought pursuant to r 9.05 of the Rules, which relevantly provides: (1) A party may apply to the Court for an order that a person be joined as a party to the proceeding if the person: (a) ought to have been joined as a party to the proceeding; or (b) is a person: (i) whose cooperation might be required to enforce a judgment; or (ii) whose joinder is necessary to ensure that each issue in dispute in the proceeding is able to be heard and finally determined; or (iii) who should be joined as a party in order to enable determination of a related dispute and, as a result, avoid multiplicity of proceedings. 18 The application is brought in reliance on sub-para (b)(ii), namely, that the joinder of KFT is necessary to ensure that each issue in dispute in the proceeding is able to be heard and finally determined. 19 Under the former Rules, the equivalent O 6 r 8 was required to be liberally construed so that all parties to disputes relating to the one subject matter may be dealt with at the one time: John Cook & Co Proprietary Ltd & Anor v Commonwealth & Anor (1922) 31 CLR 394 at 411. In order to obtain an order under the rule a party was required to show it had an arguable case against the proposed respondent(s) at least to the standard of being able to resist an application for summary judgment by the proposed respondent had that proposed party been sued in separate proceedings. But O 6 r 8(1)(b) (now r 9.05(1)(b)(ii)) is not brought into operation merely by the circumstance that a cause of action may be legitimately prosecuted against a proposed respondent or that an applicant seeking joinder has claims against the proposed respondent which cannot be dismissed as unarguable: Comcare v John Holland Rail Pty Ltd (2009) 109 ALD 508 at [13] per Jessup J. His Honour continued: [N]either do I accept that O 6 r 8 is concerned only with existing proceedings which are "improperly constituted by reason of the failure to join a person as a party". I consider that such a view takes too narrow an approach to the concept of ensuring that all matters in dispute in the proceeding are effectually and completely determined and adjudicated upon. It is sufficient for present purposes to say that I consider that the expression "all matters in dispute in the proceeding" extends at least to matters which are placed in dispute by an existing party and which, if determined in a particular way, would result in a finding that another person, rather than the existing party, should be called to account for the transgression presently alleged by the applicant. 20 In Brisbane Slipways Operations Pty Ltd v Pantaloni & Ors (2010) 270 ALR 13, Greenwood J at [152], [153] said that he agreed with Jessup J's observation that it is not sufficient to simply demonstrate satisfaction of the kinds of tests discussed in General Steel Industries Inc v Commissioner for Railways (NSW) (1964) 112 CLR 125 at 129 per Barwick CJ, variously expressed as - "so obviously untenable that it cannot possibly succeed"; "discloses a case which the Court is satisfied cannot succeed"; "under no possibility can there be a good cause of action" and whether the case advanced on the current state of the pleadings would be "manifestly groundless" - as those tests are no substitute for the language of the rule. 21 The proposed amended fast track cross-claim alleges that KFT "authorised" Fairlight's infringement of PVI's copyright in the relevant software developed by Fairlight for the purposes of the Development and Licensing Agreement ("the Agreement"), the alleged acts of infringement being Fairlight's sale and copying of software known as "Sound Design Sample" ("SDS") which, it is alleged, includes the software, the copyright in which had been transferred to PVI under the Agreement. 22 The statutory basis for this allegation is s 36(1) of the Copyright Act which provides: Subject to this Act, the copyright in a literary, dramatic, musical or artistic work is infringed by a person who, not being the owner of the copyright, and without the licence of the owner of the copyright, does in Australia, or authorizes the doing in Australia of, any act comprised in the copyright. 23 Relevantly, s 36(1A) and (2) provides: (1A) In determining, for the purposes of subsection (1), whether or not a person has authorised the doing in Australia of any act comprised in the copyright in a work, without the licence of the owner of the copyright, the matters that must be taken into account include the following: (a) the extent (if any) of the person's power to prevent the doing of the act concerned; (b) the nature of any relationship existing between the person and the person who did the act concerned; (c) whether the person took any reasonable steps to prevent or avoid the doing of the act, including whether the person complied with any relevant industry codes of practice. (2) The next three succeeding sections do not affect the generality of this section. 24 The factual basis for the allegation that KFT "authorised" Fairlight's infringement of PVI's copyright in the relevant software appears to be confined to two premises: (1) First, the allegation that KFT was at all relevant times a de facto director of Fairlight; and (2) secondly, that KFT was at all material times in effective day to day control of the business activities of Fairlight. 25 But these factual premises elide the real issue. Fairlight did not require KFT's "authorisation", express or implied, to commit the alleged acts of infringement - sale and copying - of PVI's copyright in the relevant software. I have real doubts as to the prospects of PVI succeeding against KFT on this proposed amended claim. The same comment is equally applicable to the inclusion of KFT, in addition to Fairlight, in the proposed new claim of unconscionable conduct. 26 Against this, it is now well established that the word "authorise" is to be given a wide meaning: Falcon v Famous Players Film Co [1926] 2 KB 474 (CA). In Bankes LJ's view, "authorise" was to be understood in its ordinary dictionary sense of "sanction, approve and countenance" (p 491) and this has been the view adopted by most subsequent courts, both in the United Kingdom and Australia: see University of New South Wales v Moorhouse (1975) 133 CLR 1 at 20 (Jacobs J): see, generally, The Law of Intellectual Property: Copyright, Design & Confidential Information, Staniforth Ricketson & Christopher Creswell (Law Book Company, 2nd ed revised, 2002) at [9.575]-[9.585]. 27 There will be cases involving fairly clear conduct amounting to authorisation, but as Herring CJ observed in Winstone v Wurlitzer Co Ltd [1946] VLR 338 at 345: [A]s the acts that may be complained of as infringements of copyright are multifarious, so, too, the conduct that may justify an inference of authorisation may take on an infinite variety of differing forms. In these circumstances any attempt to prescribe beforehand ready-made tests for determining on which side of the line a particular case will fall, would seem doomed to failure … In the end the matter must in each case depend on a careful examination of all the relevant facts. See, too, Jacobs J in Moorhouse at 21 and his Honour's reference to the extract from the reasons of Bankes LJ in Performing Rights Society Ltd v Ciryl Theatrical Syndicate Ltd [1924] 1 KB 1 at 9. 28 Not without some hesitation, I propose to exercise my discretion by order that KFT be joined as a cross-respondent to the cross-claim and to grant leave to PVI to amend the cross-claim by filing an amended cross-claim in the form of the draft annexed as annexure "PVS223" to the affidavit of Mr Vogel affirmed 4 October 2013. 29 Costs of the applications to be costs in the cause. I certify that the preceding twenty-nine (29) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Edmonds.