Norm Engineering v Digga Australia [2007] FCA 953 | Case summary

Background 8 The applicant commenced these proceedings by Application and Statement of Claim filed on 18 August 2005. As initially formulated, the applicant sought a declaration that the respondent had infringed either directly or indirectly the copyright subsisting in 19 identified drawings made by an employee of the applicant, an injunction restraining the respondent from infringing the applicant's copyright in the plans by making either a two or three‑dimensional reproduction of those plans and either damages or at the election of the applicant, an account of profits. 9 On 23 September 2005, the applicant made an ex parte application by Notice of Motion filed on 21 September 2005 supported by an affidavit of Robert James Robinson sworn 22 September 2005, an affidavit of Sam Orr sworn 23 September 2005 and an affidavit of Michael Wayne Gould filed 22 September 2005 for an order that two solicitors from the solicitors for the applicant, Messrs LeMass Solicitors, together with Mr Gould an expert of Quantec McWilliam, Consulting Engineers (together with one or more employees of Quantec McWilliam), enter upon premises occupied by the respondent for the purpose of ascertaining whether an example of the applicant's 4 in 1 bucket was present on the premises and to inspect and make observations as to whether the 4 in 1 bucket appeared to have been used as a template for either a two or three‑dimensional reproduction. 10 An important aspect of that application involved a question going to the character of the conduct of the respondent. The allegation made by the applicant was that not only had there been a direct and indirect infringement of the copyright in the way contended for in the Statement of Claim but that the infringement was undertaken by the respondent consciously and deliberately. Particular reliance was placed upon the affidavit of Mr Robinson sworn 22 September 2005. The circumstances influencing the exercise of the discretion arising out of the application are identified in Norm v Digga [2005] FCA 1378. A further aspect of that application involved an inference that by reason of the contended conscious and deliberate copying, the applicant would be at risk should the application have been made on notice. For the purposes of the interlocutory application, the Court was satisfied that a prima facie case of infringement had been established subject to the question of whether the conduct of the respondent might not constitute an infringement by reason of ss 74 to 77 of the Copyright Act 1968 (Cth). Although the Court was satisfied that an arguable question as to exculpation arose by reason of ss 74 to 77 of the Copyright Act 1968 (Cth), the material establishing the prima facie case gave rise to a proper foundation for the making of an order. 11 The costs of the application were reserved. 12 On 23 September 2005, the applicant filed a Notice of Motion returnable on 6 October 2005 seeking an interlocutory injunction until further or earlier order restraining the respondent from 'manufacturing or selling equipment known as the Digga 4 in 1 bucket'. On 5 October 2005 the applicant elected not to proceed with its application on 6 October 2005 but rather, on 6 October 2005, the applicant filed with leave an Amended Statement of Claim. By that amendment the applicant abandoned any contention of direct infringement by the respondent by reproduction of the applicant's two‑dimensional drawing (that is, plan to plan copying). The applicant continued to rely upon indirect infringement by the respondent by making a two‑dimensional drawing as the foundation for a three‑dimensional reproduction of the 19 plans in suit. 13 The respondent contends that the allegations of fact of plan to plan copying contained in the Statement of Claim filed on 18 August 2005 were not only not supportable but were never supportable. In any event, by 6 October 2005, the contention of direct infringement of the 19 plans in suit had been abandoned. 14 On 6 October 2005, a directions hearing occurred. On that date, the Court by consent dismissed the notice of motion for an interlocutory injunction and reserved the costs of that motion. The Court gave the applicant leave to file and serve an amended statement of claim by 4.00pm on 6 October 2005 and made a series of directions orders for the case management of the proceeding. The directions orders included orders that there be mutual inspection of discovered documents by 28 October 2005; the matter be listed for hearing on 6, 7,8 and 9 February 2006; the applicant file and serve the statements of all lay witnesses and any expert reports upon which it intended to rely at trial no later than four weeks after the completion of inspection and that the respondent file and serve statements of lay and expert witnesses no later than four weeks after the service of the applicant's statements. 15 These directions orders contemplated that the action would proceed in the manner framed by the amended statement of claim to be filed that day which relied upon indirect infringement of 19 identified drawings. 16 Inspection of documents was completed between the parties between 15 November and 25 November 2005. 17 On 22 December 2005, the trial dates of 6, 7, 8 and 9 February 2005 were vacated as it was clear that the remaining interlocutory steps could not be completed so as to safely enable the trial to commence on 6 February 2006. Dates of 20 March to 27 March 2006 were allocated. On 8 March 2006, those dates were also vacated as the report of the applicant's expert, Mr Michael Gould, which, in accordance with the time table, ought to have been filed and served upon the respondent by the end of the week immediately before Christmas was not filed and served until 27 February 2006. The respondent and its expert were not able to deal with and respond to the report of Mr Gould in sufficient time to enable the trial to commence on 20 March 2006. 18 On 6 March 2006, the applicant's solicitors gave notice to the respondent's solicitors of a proposed further amendment to the statement of claim. The Court made further orders on 8 March 2006 granting leave to the applicant to further amend the statement of claim; ordered the applicant to pay the respondent's costs of and occasioned by amendments made by leave to the amended statement of claim in the form of the Further Amended Statement of Claim; ordered the applicant to pay the costs of the directions hearing on 7 February 2006 and reserved the costs of and occasioned by vacating the commencement of the trial on 20 March 2006. 19 The report of Mr Gould filed and served on 27 February 2006 raised and addressed five additional drawings which gave rise to the foreshadowed amendment to the statement of claim. On 7 March 2006, the applicant formulated its Further Amended Statement of Claim which was the subject of leave granted on 8 March 2006. By that pleading, the applicant abandoned any reliance upon 17 of the 19 drawings previously pleaded; continued to rely upon two of the plans previously pleaded, namely, BC 41 A003 (an assembly drawing) and BC 41 D013 (a drawing for a 'side cutter bar'). Apart from preserving reliance upon those two drawings, the pleading of 7 March 2006 introduced five additional plans into the proceeding namely BC 41 A004 (a front assembly drawing); BC 41 D018 (an outside mounting bracket drawing); BC 41 D016 (an inside mounting bracket drawing); BC 41 D014F (a front side plate drawing); and BC 41 D015 (a drawing for a pivot mechanism). 20 Accordingly, the applicant re‑formulated the action to found the proceeding upon seven drawings described as plans 185A to 185G made up of two of the original 19 plans plus five new plans. 21 On 29 May 2006, the applicant filed its lay evidence in relation to ownership and provenance concerning the subsistence of copyright in the five additional drawings. 22 One aspect of the relief claimed by the applicant was a claim for damages or alternatively an account of profits. By letter dated 1 December 2005 from the respondent's solicitors to the applicant's solicitors, the respondent agitated for the applicant to make an election between damages or an account of profits. In that letter, the respondent urged upon the applicant that it must make its election at the 'earliest reasonable opportunity'; that the applicant had been provided with sufficient financial information to enable an election to be made; that delay in making the election influenced the preparation of reports from the respondent's expert and that a failure to make an election would delay preparation of the action for trial generally. These propositions were put in response, in part at least, to the applicant's contention that it could not make an election 'until disclosure is complete and [the applicant] has had the advantage of expert analysis and consideration of that material'. The applicant had contended on or about 1 December 2005 that it was under no obligation to make an election at that stage of the proceeding. 23 On 23 December 2005, the applicant's expert, Mr David Van Homrigh, a chartered accountant and partner of KPMG prepared a report ('DVH1' to Mr Van Homrigh's affidavit field 1 June 2006) which addressed two areas of enquiry. First, an analysis of a series of 'worksheets' forwarded by email to KPMG by the respondent dated 24 November 2005 (Annexure 'B' to Mr Van Homrigh's report, 'DVH1') setting out calculations of costs, profits and losses incurred by the respondent in the manufacture and sale of the respondents 4 in 1 buckets (a 1550MM flat floor bucket and a 1727MM flat floor bucket). Mr Van Homrigh undertook a review of the respondent's calculations, produced an amended calculation of profits derived by the respondent and compared those outcomes with the applicant's data on costs and profits. Secondly, Mr Van Homrigh sought to calculate the damage suffered by the applicant by reason of the infringement of copyright. Mr Van Homrigh identified a method for the calculation of the applicant's damages which is the subject of discussion in Norm v Digga [2007] FCA 761 at [272] - [290]. The report provides a critique of the alternative forms of relief. 24 On 2 May 2006, the respondent filed an affidavit sworn 2 May 2006 by Mr Warwick Alan Parker, a consulting chartered accountant. Mr Parker annexed an expert report to his affidavit ('WP‑1') which addresses comments arising out of his of Mr Van Homrigh's report. Mr Parker's report deals with the approach to the calculation of damages identified by Mr Van Homrigh and aspects of the proper approach to determining an account of profits derived by the applicant so as to properly illustrate the loss said to have been suffered by the applicant. 25 On 1 June 2006, Mr Van Homrigh prepared a further report ('DVH3' to Mr Van Homrigh's affidavit sworn 1 June 2006) which addresses comments in response to the report of Mr Parker. 26 It is clear from all this material that an extensive professional exchange occurred both in relation to the proper approach to the calculation of profits on the part of the respondent, the methodology for the calculation of damages on the part of the applicant. 27 On 16 June 2006, the applicant elected to claim damages rather than an account of profits. 28 On 19 June 2006, the trial of the action commenced. 29 The applicant made an election on 16 June 2006 informed by an examination of the respondent's worksheets and other discovery aided by the initial report of Mr Van Homrigh, the responsive report of Mr Parker and Mr Van Homrigh's supplementary report of 1 June 2006. 30 Plainly enough, there is no obligation on a party to exercise a remedial election until the applicant is in a position to make an informed and meaningful choice between the two alternative remedies. The election ought not to be unreasonably postponed. However, considerations that condition whether a party has acted reasonably in all the circumstances may vary widely (LED Builders Pty Ltd v Eagle Homes Pty Ltd (No. 3) (1996) 70 FCR 436 per Lindgren J; Dr Martens Australia Pty Ltd v Bata Shoe Co of Australia Pty Ltd (1997) 75 FCR 230 per Goldberg J). In this case, the applicant made an election on 16 June 2006 against the background of the expert reports. The conduct of the trial proceeded on the footing that cross‑examination of experts and other witnesses (in relation to this aspect of the case) was directed to the applicant's claim for damages where the issues of liability and damages were dealt with in one hearing. There may be cases where interlocutory processes of the Court reveal all there is to know to enable an applicant to reasonably reach a meaningful and informed election. Such a point is unlikely to be reached in the absence of the filing and serving of relevant statements and experts' reports. In other cases, it may be that an election cannot properly be made until an applicant has had the benefit of cross examining experts to determine the final state of the evidence on all aspects of the controversy including differences in an approach to the calculation of damages or the basis upon which an account of profits might be struck. Although a remedial election ought not to be postponed unreasonably or deferred in a way prejudicial to the respondent, the Court ought not to adopt an approach to the exercise of the election which is unnecessarily prescriptive. 31 The question to be determined is whether the applicant, having regard to the way in which the controversy is framed, the extent to which interlocutory processes have revealed information relevant to the exercise of the election and the extent to which evidence, particularly expert evidence addresses the merits or otherwise of one remedy as against another, has been put in a position where an informed decision, objectively viewed, might reasonably be made as to an election between a claim for damages on the one hand or an order for an account of the profits derived by the respondent by reason of the infringement, on the other. 32 In this case, the applicant acted reasonably in preserving the exercise of the election until the applicant and its advisers had the benefit of informed commentary upon the basis for calculating damages as compared with the considerations influencing the approach to the calculation of the profits derived by the respondent.

Resolution of Issues 37 Having regard to all of these considerations, I propose to make the following orders. 38 As to the costs incurred in providing discovery of financial documents or any documents relevant to the applicant's claim for either damages or an account of profits, and those costs incurred in preparing and responding to experts' reports addressing either claim, those costs properly form part of the costs in the cause. 39 The applicant acted reasonably in deferring its election to claim damages until 16 June 2006, and accordingly, no specific order limiting or excluding the applicant's recovery of its costs incurred in taking particular steps in relation to the claim for damages or an account of profits ought to be made, and nor ought an order be made that the applicant pay the respondent's costs in relation to addressing a possible claim for an account of profits after any particular date (being the date by which the respondent says the applicant ought to have made an election). 40 As to the applicant's Notice of Motion filed 7 June 2006 for further and better discovery of emails going to the topics previously discussed, it seems to me that the email that came into the possession of the applicant gave rise to a reasonable basis for believing that documents were in the possession power or control of the respondent, or were once so, and perhaps no longer, relevant to the conduct of the respondent. Although the applicant may not have ultimately called for these supplementary discovered emails and put any of them into evidence, the applicant properly sought and obtained discovery of some additional material. 41 The respondent shall pay the costs of and incidental to the applicant's Notice of Motion dated 7 June 2006. 42 As to the applicant's notice of motion dated 23 September 2005 seeking an interlocutory injunction until further or earlier order, two defining features influence the exercise of the discretion. First, the application was made in the context of a claim framed against 19 plans, 17 of which were abandoned, and in respect of the remaining two plans, the applicant was unsuccessful; and secondly, the applicant brought on the Notice of Motion, caused the respondent to prepare material in response, and then abandoned it. The applicant shall pay the respondent's costs of and incidental to the Notice of Motion dated 23 September 2005. 43 As to the ex parte application by which the applicant sought inspection of the respondent's premises, I am satisfied that the application was properly made against the background of the evidence then available, and accordingly, the costs of the application shall be the applicant's costs in the cause. 44 As the proceeding generally, I propose to make these orders. First, the applicant shall pay the respondent's costs of and incidental to all issues in connection with the contentions of direct or indirect infringement by the respondent of the 17 plans pleaded by the applicant's Statement of Claim of 18 March 2005, and abandoned by the Further Amended Statement of Claim of 7 March 2006, the subject of leave granted on 8 March 2006 for the plain enough reason that the applicant put the respondent to cost on those abandoned issues. 45 As to the costs of and in the cause generally, the applicant failed entirely in respect of 2 of the 7 plans; succeeded in respect of 3 of the 7 plans as to two-dimensional reproduction in the period from the crystallisation of the cause of action to 17 June 2004, although losses which might otherwise have been characterised as damages were considered to be referable to three-dimensional reproduction and sale within the scope of s 77(2) of the Copyright Act; failed to establish infringing three-dimensional reproduction in respect of those three plans; failed to establish subsistence of copyright in respect of another drawing; and succeeded both as to two-dimensional and three-dimensional reproduction in respect of the pivot mechanism drawing. Although damages awarded in respect of the three examples of two-dimensional reproduction in the period to 17 June 2004 were nominal, the applicant nevertheless succeeded on that part of the claim involving those causes of action. The damages in respect of the two and three-dimensional reproduction of the applicant's drawing for the pivot mechanism were of substance. 46 The costs of resolving the total controversy as framed by the applicant include plainly enough costs incurred not just on unsuccessful issues, but in respect of unsubstantiated causes of action. There is, however, a common substratum of fact giving rise to the contentions in respect of the seven plans, and the applicant ultimately sustained a remedy of substance in respect of a drawing for a significant component, a remedial entitlement in respect of three drawings for a limited period, and importantly, the Court was unable to be persuaded of the respondent's contentions, and particularly the evidence of Mr Stewart Wright on the issue of conscious copying. In dealing with the costs of the cause, I disregard the consideration that the applicant abandoned 17 of the initial 19 plans in suit, as costs in connection with that circumstance have been dealt with separately. 47 The exercise of the discretion in determining whether a party ought to pay the costs incurred by another in connection with a proceeding is not to be determined upon a shorthand statement of principle that costs simply follow the event. They may not. However, a party that has suffered the prejudice of being put to expense in asserting causes of action or responding to claims ought, as an analytical starting point, be compensated on a party-and-party basis for those costs. However, the particular circumstances of the case, outcomes in relation to particular causes of action, or on discrete issues, will determine the extent to which such a party might be compensated. In this case, the costs that might be awarded to the applicant ought to be discounted to take account of the applicant's failure to succeed on the entirety of the claim as framed and in relation to specific issues such as the question of the date of authorship of the plans which necessitated evidence directed to an explanation of the anomaly of the date contained in the properties box of the software. 48 Rather than limit the costs awarded to the applicant by exclusion of those costs referable to causes of action and issues on which the applicant failed, it seems to me that the approach ought to be this. The applicant has established causes of action against the respondent and ought to be awarded the costs of the proceeding. Those costs ought to be discounted generally to reflect the claims and issues in respect of which the applicant failed. The discount is not usefully determined as an adjusted proportion of the costs based on the number of plans in suit and measured against success or otherwise in respect of each plan. A broader overall judgment must be made which reflects what is just and fair in the conduct of an integrated case where there is a measure of success, and, in part, failure on issues and claims. The respondent shall pay approximately two-thirds of the applicant's costs of and incidental to the proceeding, or put more precisely, 65% of those costs from 1 March 2006. 49 As to the reserved costs in relation to the step of vacating the trial dates of 20 March to 27 March 2006, the parties will recall that such a step became necessary as Mr Philp and counsel for the respondent were put in a position of not being able to respond to the expert report of Mr Gould on behalf of the applicant, filed and served on 27 February 2006, in sufficient time to enable the trial to commence. The report of Mr Gould was to be filed and served in the week immediately before Christmas 2005. Although no criticism is made of Mr Gould, the appropriate order is that the applicant pay those costs incurred by the respondent of the adjournment of the trial from 20 March to 27 March 2006. 50 As to the interest calculation, interest is claimed on the amount of damages awarded to the applicant pursuant to s 115(2) of $61,233. Interest ought to be calculated from the date upon which the applicant introduced the pivot mechanism drawing into the proceedings, namely 8 March 2006. 51 Accordingly, 8 March 2006 to 25 June 2007 represents 474 days. Interest at the rate of 10.5% upon $61,233 constitutes a daily rate of interest of $17.61, and thus an award of $8,347.14. 52 Accordingly, the respondent shall pay the applicant interest of $8,347.14 upon the amount of damages awarded pursuant to s 115(2) of the Copyright Act 1968 (Cth). I certify that the preceding fifty-two (52) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Greenwood.

Norm Engineering v Digga Australia

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Judgment (8 paragraphs)

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Cases Cited (7)

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