Henley Arch Pty Ltd v McDonald Jones Homes Pty Ltd

IN THE FEDERAL COURT OF AUSTRALIA VICTORIA DISTRICT REGISTRY GENERAL DIVISION VID 821 of 2010

AND: MCDONALD JONES HOMES PTY LTD (ACN 089 524 050)

NEWCASTLE QUALITY CONSTRUCTIONS PTY LTD (ACN 003 687 232)

STUART EVERITT DESIGN STUDIO PTY LTD (ACN 114 049 106)

JUDGE: TRACEY J DATE: 21 june 2011 PLACE: MELBOURNE

REASONS FOR JUDGMENT 1 This is an application by Henley Arch Pty Ltd ("Henley Arch") and Henley Properties (Qld) Pty Ltd ("Henley Properties") for preliminary discovery from the respondents under O 15A r 6 of the Federal Court Rules. 2 Henley Arch builds family homes. It offers those who engage its services a range of designs. Those designs have been developed by Henley Arch which asserts copyright in the plans for the houses and facades built according to the plans. Specifically, Henley Arch is the owner of the copyright in drawings of floor plans for homes known as the "Retreat", the "Monterey", the "Bayview" and the "Sandpiper" and project homes built according to those floor plans. It is also the owner of copyright in plans and drawings of building facades known as the "Stella" and facades built according to those drawings and plans. Henley Properties is a licensee of these copyright works. 3 The first respondent ("McDonald Jones") markets and sells project homes. The second respondent ("Newcastle Constructions") constructs those project homes in New South Wales. The fourth respondent Mr Stuart Everitt, is an architect who designs plans for these homes. The third respondent is the company which employs Mr Everitt. 4 Henley Arch asserts that it has reasonable cause to believe that the respondents have infringed its copyright in the plans by copying them and building homes based on those plans. It has obtained copies of brochures which advertise display homes in Warnervale and South Nowra in New South Wales. These display homes are described in the brochures as being of a "Chesterfield Grande" design. McDonald Jones has also advertised, in its brochure, a "Balinese Tropicana façade" which is available for its display homes. Mr Everitt is the author of the Chesterfield Grande and the Balinese Tropicana façade designs. 5 In correspondence between solicitors acting for the applicants and the respondents the respondents deny that any copying has taken place and asserted that their plans had been independently created.

COPYRIGHT 6 The relevant aspects of copyright law are not in dispute. Under the Copyright Act 1968 (Cth) ("the Copyright Act") copyright subsists in original drawings and buildings as "artistic works": see ss 10 and 32. Copyright in a work is infringed if a person who, not being the owner of the copyright or not being licensed by the copyright holder reproduces or authorises the reproduction of the work in material form: see ss 31 and 36. A person will be taken to reproduce a work if he or she reproduces a substantial part of the work: see s 14(1). A qualitative rather than a quantitative judgment is required in determining whether a substantial part of a work has been copied. Reproduction may be effected by various means. The most obvious is tracing an original plan. It can also occur when a person draws on his or her memory after having visited a home constructed according to the original plan. Another possibility is that the copying draftsman has prepared the infringing plans in accordance with a detailed description provided by another person who is familiar with them. 7 If proceedings for infringement of copyright are brought in which it is alleged that copying of house plans has occurred the Court will compare the plans in which copyright subsists with those which it is alleged have been copied. If, upon examination, the Court forms the view that the plans are closely similar this may give rise to an inference of copying. The respondent may displace the inference by calling evidence which explains how its plans came to be drawn without reliance on the copyright works: see Barrett Property Group Pty Ltd v Metricon Homes Pty Ltd (2007) 74 IPR 52 at [115] (per Gilmour J). 8 If a copyright holder is able to establish that an infringement has occurred various forms of relief are available under s 115 of the Copyright Act.

pre-trial discovery 9 The orders ultimately sought by the applicants are for the pre-trial discovery of: "(a) All documents (including documents stored electronically) recording or referring to or used in the development of: (i) the "Chesterfield Grande" project home design; and (ii) the "Chesterfield" project home design; and (iii) the "Chesterfield Elite" project home design, collectively the (Chesterfield Series Designs), including but not limited to documents recording or referring to the development of the floor plans, or used as an influence in the development of floor plans, for the Chesterfield Series Designs. (b) All documents (including documents stored electronically) recording or referring to the development of the design for the house façade, now marketed as the "Balinese Tropicana Façade"." 10 In order for Henley Arch to obtain the orders which it seeks it is necessary that the conditions, prescribed by O 15A r 6 be satisfied. The rule provides: "Where: (a) there is reasonable cause to believe that the applicant has or may have the right to obtain relief in the Court from a person whose description has been ascertained; (b) after making all reasonable enquiries, the applicant has not sufficient information to enable a decision to be made whether to commence a proceeding in the Court to obtain that relief; and (c) there is reasonable cause to believe that the person has or is likely to have or has had or is likely to have had possession of any document relating to the question whether the applicant has the right to obtain the relief and that inspection of the document by the applicant would assist in making the decision; the Court may order that the person shall make discovery to the applicant of any document of the kind described in paragraph (c)." 11 In St George Bank Ltd v Rabo Australia Ltd (2004) 211 ALR 147 at 153-154 Hely J summarized a series of propositions which he derived from cases which had considered the construction of O 15A r 6. Those propositions were: "(a) the rule is to be beneficially construed, given the fullest scope that its language will reasonably allow, with the proper brake on any excesses lying in the discretion of the court, exercised in the particular circumstances of each case ..; (b) each of the elements prescribed in subparas (a), (b) and (c) of the rule must be established … Preliminary discovery cannot itself be used to remedy deficiencies in the satisfaction of the conditions themselves …; (c) the test for determining whether the applicant has "reasonable cause to believe", as required by subpara (a), is an objective one … The applicant does not have to make out a prima facie case …; (d) belief requires more than mere assertion and more than suspicion or conjecture. Belief is an inclination of mind towards assenting to, rather than rejecting a proposition. Thus it is not sufficient to point to a mere possibility. The evidence must incline the mind towards the matter or fact in question. If there is no reasonable cause to believe that one of the necessary elements of a potential cause of action exists, that would dispose of the application insofar as it is based on that cause of action …; (e) while uncertainty as to only one element of a cause of action might be compatible with the "reasonable cause to believe" required by subpara (a), uncertainty as to a number of such elements may be sufficient to undermine the reasonableness of the cause to believe …; (f) the question posed by subpara (b) of the rule is not whether the applicant has sufficient information to decide if a cause of action is available against the prospective respondent. The question is whether the applicant has sufficient information to make a decision whether to commence proceedings in the court … Accordingly, an applicant for preliminary discovery may be entitled to discovery in order to determine what defences are available to the respondent and the possible strength of those defences, or to determine the extent of the respondent's breach and the likely quantum of any damages award …; (g) whether an applicant has "sufficient information" for the purposes of subpara (b) also requires an objective assessment to be made … The subparagraph contemplates that the applicant is lacking a piece (or pieces) of information reasonably necessary to decide whether to commence proceedings; (h) it is no answer to an application under the rule to say that the proceeding is in the nature of a "fishing expedition" … Indeed O 15A r 6 "expressly contemplates" what once might have been castigated as "fishing" …" See also Dartberg Pty Ltd v Wealthcare Financial Planning Pty Ltd (2007) 164 FCR 450 at [44]. 12 In Echo Tasmania Pty Ltd v Imperial Chemical Industries PLC [2008] FCAFC 58 at [43] Black CJ and Sackville J held that Hely J had "correctly summarised" the principles governing the proper construction of O 15A r 6 insofar as his summary dealt with O 15A r 6(a).

REASONABLE CAUSE 13 At the forefront of the applicants' case is what they say is the close and unexplained similarity between their designs and those marketed by the respondents. 14 Henley Arch's floor plans have evolved over the past decade. The "Sandpiper plans" were first created in about 1999 and were updated in 2002. In about 2003 the revised Sandpiper design was renamed "Bayview" when used in the Queensland market. Project homes, also based on the revised "Sandpiper" design, were marketed in Victoria under the name "Monterey". More recently the name "Retreat" has been used in place of "Bayview" in the Queensland market. The Monterey design differs from the Bayview/Retreat design in that its master bedroom is at the front of the house whereas in the Bayview/Retreat equivalent it at the rear. 15 What the designs have in common is that they are all four bedroom, single storey project homes. 16 The applicants drew attention to what they submit were striking similarities between their Sandpiper design as it stood in 2002 and the 2004 and 2005 versions of the Chesterfield design. Specifically they pointed to: The clustering of minor bedrooms around a communal or study space; A study or computer nook with a partial height wall on the corridor side of this space; Movement of the dining room to be positioned in front of the kitchen which creates a flow from kitchen to dining to casual living/games area; Orientation of the kitchen that now flows into the newly dedicated home theatre/living area; Relocation of the laundry to feed off the casual living space; and The inclusion of a false blade wall walk-in robe with dual entry. Photographs of the Stella façade and the Balinese Tropicana façade were in evidence. The applicant relied on the similarity in the appearance of the two façades to justify their suspicion that the latter may have been copied from the former. 17 The respondents accepted that some of the similarities relied on by the applicants were common to the Sandpiper and Chesterfield designs. They contended, however, that no copying was involved and that the particular features amounted to no more than a natural evolution in planning. In other instances the respondents pointed to dissimilarities between the features of their designs and those of the applicant. 18 At no point in the evolution of the two sets of designs were the respondents' designs identical with those of the applicants. It is neither necessary nor appropriate, on an interlocutory application of this kind, to seek to embark on a detailed comparison of the two sets of designs. It is sufficient for me to find (as I do), on the basis of a visual comparison of the various plans, that they are closely similar. 19 A visual comparison of the photographs of the Stella and Balinese Tropicana façades leads me to the same conclusion. 20 The applicants did not produce any evidence which suggested that the respondents had access to their plans or had visited any display homes which had been built from those plans. They did, however, establish that their designs, and homes built from them, were publicly available before the respondents' designs appeared. 21 In resisting the application the respondents have adopted the unusual course of filing affidavits from senior company officers. These officers deny that any conduct amounting to copyright infringement had occurred. The affidavits which have been filed have come from Mr Stuart Everitt, Mr Andrew Helmers, the managing director of McDonald Jones and Newcastle Constructions, Mr Peter Durbin and Mr William McDonald, who are directors of both companies and by Mr Leonard Clack, a designer employed by McDonald Jones. 22 Mr Everitt deposes that he was the author of the Chesterfield Grande and Balinese Tropicana façade designs. He denies having any familiarity with the applicants' designs or the Stella façade. 23 The other deponents support Mr Everitt's evidence that he independently created the disputed designs and deposed that, at no relevant time, were employees of the respondents aware of the applicants' designs. 24 Additional affidavits were filed which had been sworn by persons involved in the development of the Chesterfield designs. Mr Philip Haigh is a contractor for McDonald Jones and Newcastle Constructions. Mr Simeon Davidson is a draughtsperson employed by McDonald Jones. Both deposed that, during the time at which they were involved in the development of the Chesterfield plans, they had no knowledge of the applicants' Sandpiper designs or subsequent variations of them. Mr Haigh further deposed that, at relevant times, he had no knowledge of the Stella façade. 25 None of the persons who swore or affirmed affidavits in support of the respondents' opposition to the application was required for cross-examination. This is hardly surprising given the applicants' state of knowledge (or lack of it). They are in no position, at the present time, to test that evidence. 26 It is correct, as the respondents contend, that the first requirement of O 15A r 6 will not be met unless the Court is satisfied, on the evidence, that a breach of copyright may have occurred. The mere possibility of infringement will not be sufficient. 27 In my view an objective foundation exists for believing that the applicants may have a right to obtain relief from the respondents for breach of the copyright in the Sandpiper and related designs and the Stella façade. That foundation is provided by the close similarity between the designs and the facts that the applicants' designs were widely available and display homes had been built in accordance with those designs prior to the respondents' plans coming into existence. 28 The evidence filed on behalf of the respondents does not undermine this conclusion. It is evidence which, if advanced and accepted at trial, would probably provide the respondents with a good defence to a claim of copyright infringement. I say "probably" because the denials, made by the respondents' witnesses, do not cover all the possible means by which the applicants' copyright in the designs might have been infringed. For present purposes, however, that evidence remains, for good reason, untested. Having regard to the purpose served by O 15A r 6, I do not consider that the application can or should be defeated by assertions made by the respondents which the applicants are in no position to test.

REASONABLE INQUIRIES 29 The applicants made a number of inquiries of the respondents before making their present application. 30 In March 2010 they caused letters of demand to be served on McDonald Jones, on Mr Everitt and on his company. They requested that these respondents provide a written statement containing information regarding the alleged infringement of the copyright works. No such statements were provided. 31 The applicants then caused a letter to be sent to the respondents' solicitors in which they sought informal discovery of documents of the kind now sought. That request was also unproductive. 32 The respondents have not suggested that alternative lines of inquiry were available to the applicants or that the applicants have failed to make reasonable inquiries.

INADEQUATE INFORMATION 33 The applicants contended that they are not in a position to determine whether or not to commence proceedings against the respondents. Although they have obtained a good deal of material, they presently do not know: Whether or not the respondents' contention of independent creation of the works is correct or plausible; and If not, whether the extent or flagrancy of the infringing conduct warrants the prosecution of a proceeding. 34 The respondents submitted that the Court ought to accept the affidavits tendered on their behalf as being conclusive of the matters in issue. Inferentially, they suggested that their evidence should satisfy the applicants that no infringing conduct had occurred. 35 For reasons already given in dealing with the first requirement of O 15A r 6, I do not consider that the applicants are obliged to accept the respondents' untested denials. Design documents of the kind to which the applicants seek access are documents which may reasonably be expected to assist them to form a judgment as to whether the respondents would have a good defence of independent creation and, if not, the extent to which the respondents had drawn on the applicants' designs for their own purposes.

REASONABLE CAUSE TO BELIEVE THAT THE RESPONDENTS ARE LIKELY TO HAVE RELEVANT DOCUMENTS 36 The type of documents which are sought by the applicants are of a kind which one would expect home builders or designers to have. 37 The respondents have not denied that they have documents of the kind sought in their possession. Rather, they have sought to resist the making of orders for their discovery.

DISCRETIONARY CONSIDERATIONS 38 Once the requirements of O 15A r 6 have been satisfied there will "normally be little scope for refusal of relief": see Optiver Australia Pty Ltd v Tibra Trading Pty Ltd (2008) 169 FCR 435 at [45]. The Court may, nonetheless, in an appropriate case, refuse to grant an order for pre-trial discovery in the exercise of its discretion. 39 The only discretionary consideration relied on by the respondents was the burden which would be imposed on them, were they to be required to search for documents which had come into existence over many years and which may well be held in archives. 40 All discovery exercises impose burdens on the parties who are required to search for or retrieve relevant material. Resources must be diverted from other work or additional assistance must be engaged. The costs associated with such exercises are brought into account when costs are dealt with in the course of or at the end of litigation. 41 The orders normally made by the Court, when an application under O 15A r 6 succeeds, make specific provision for the costs incurred by those required to provide discovery. Such orders will be made in the present case. 42 There is no reason, in the circumstances of the present application, for the applicants' application to be refused on discretionary grounds.

DISPOSITION 43 The orders sought by the applicants should be made. I certify that the preceding forty-three (43) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Tracey.