THE COURT:
1 The principal issue raised by this appeal lies in a very narrow compass. The first appellant, Parramatta Design & Developments Pty Ltd, conducts an architectural business. It owns the copyright in architectural drawings for a 14-unit development prepared for a site in Nelson Bay. The drawings were commissioned by the former owners of the site, Landmark Building Developments Pty Ltd and Toyama Pty Ltd. The respondent, Concrete Pty Ltd, is the present owner of the site. It purchased the site from trustees for sale who were appointed under the Conveyancing Act 1919 (NSW) to sell the site after a falling out between the owners. Concrete did not, however, purchase the drawings. Nor did it obtain Parramatta Design's express permission to reproduce them. Nevertheless, Concrete wishes to construct the 14-unit development in accordance with the drawings and says it is a allowed to do so without infringing copyright. The question in issue is this: Has Parramatta Design conferred a licence on Concrete and its contractors to reproduce the architectural drawings by the construction of the development? In virtue of the unusual facts, the answer is not so simple as to apply the well-known cases that hold that an architect who is paid for his (or her) work impliedly licenses the client to use the drawings for the purpose for which they were prepared, usually for the construction of a building.
2 Now the question arises in this way. Mr Fares is an architect practising through his company Parramatta Design. Mr Barrak is a solicitor. Together they established Landmark as a property development company. In 1998 they discovered that the site at Nelson Bay was for sale. The asking price was $565 000. Rather than purchase and develop the site themselves they decided to look for a joint venture partner. They spoke to Ms Haviland (a solicitor) and her former husband, Mr Rix, both of whom were known to Mr Barrak. Ms Haviland and Mr Rix agreed to take a one-third interest in the project through their company, Toyama. In due course the site was purchased for $560 000, a large portion of which was borrowed from a bank. Parramatta Design prepared the drawings for an 8-unit development. It received payment of $27 000 in respect of the drawings. There is a dispute whether the payment was a fee for services or to cover Parramatta Design's out-of-pocket expenses. That dispute need not be resolved for nothing turns on it. Planning approval for the development was obtained from the local authority in 1999. Later Landmark proposed that a 14-unit instead of an 8-unit development be constructed. Toyama agreed to the change. New drawings were required. According to Ms Haviland she told Mr Fares and Mr Barrak that 'if you are satisfied to accept the $27 000 you have already been paid and all we (Toyama) have to pay is our share of the fresh engineering plans etc. I suppose we should try for 14 units'.
3 Planning approval for the new development was received on 10 May 2000. Section 95 of the Environmental Planning and Assessment Act 1979 (NSW) provides that the approval would lapse if the construction were not begun within five years. The development did not go ahead because of the falling out between the partners. There was a dispute regarding whether it had been agreed that Parramatta Design would build the units under a cost-plus contract.
4 In June 2002 the site was put up for sale. Offers were received but no contract was concluded. Toyama then applied to the Supreme Court of New South Wales for the appointment of trustees for the sale of the site. The order was made on 12 December 2002. It relevantly provides that 'the [Nelson Bay] land be vested in such trustees … to be held by the said trustees upon statutory trust for sale under … the Conveyancing Act'.
5 It was not clear what, if anything, the trustees could say to prospective purchasers about the right to use Parramatta Design's drawings. They sought advice from the Supreme Court. In accordance with that advice the trustees attached to the contract of sale a copy of each development consent and included the following terms:
'7.2 The vendors are unable to provide copies of the plans and designs which accompanied the First and Second Development Consents.
7.3 The vendors disclose that a dispute exists in relation to the right to use the plans and designs which accompanied the Development Applications, including as to the existence of any licence to make use of the copyright in those plans and designs. The vendors further disclose that legal action has been foreshadowed in respect of any future use of those plans and designs.
7.4 The vendors give no warranty as to the availability or the right to use the plans and designs which accompanied the First and Second Development Consents.'
6 The site was then offered for sale by public auction. It was purchased by Concrete for $2 760 000. Following the purchase Concrete approached Parramatta Design and offered to pay a modest sum for permission to reproduce the drawings for the 14-unit development, but Parramatta Design refused to give its permission.
7 On the basis of these bare facts the judge found that Parramatta Design had implicitly licensed Concrete to use the drawings: Concrete Pty Ltd v Parramatta Design & Developments Pty Ltd [2004] FCA 1312. The judge's reasoning stems from the premise (which is not in dispute) that a development approval 'runs with the land'. From this premise the judge developed the following principle:
'Where the architect (PDD and/or Mr Fares) has prepared plans and drawings for the purpose of landowners (Landmark and Toyama) obtaining development consent in respect of their jointly owned land, and since that consent runs with the land in accordance with the principles enunciated in those local government authorities, the architect has implicitly licensed any entity (here of course Concrete) who thereafter comes to own that land, that is of course any immediate or ultimate successor in title, during the currency of the development consent, that is until 10 May 2005, to use those plans and drawings for the purpose of implementing the basis, terms and scope of that earlier consent.'
According to the judge,
'To hold otherwise would sterilise the land in terms of its usage, in conformity with that development consent, in the hands of successors in title, notwithstanding that the development consent would remain otherwise in force and effect vis-ŕ-vis the original grantee of that consent for the requisite statutory or regulatory period of time.'
The judge said that this licence came into existence 'separately from any contractual arrangement previously entered into between the architect and commissioning owner'.
8 The judge had an alternative basis for reaching the same conclusion. This basis was grounded in the facts of this case and did not depend upon any overarching principle to be applied to architects who draw plans for a building. The judge found that there was implied by law a term 'in the relevant contractual relationship' (he did not identify the contract but presumably it was between, on the one hand, Parramatta Design and, on the other, the partners) to the effect that the partners were entitled to use the drawings for the purpose for which they were created (the construction of the development). He also found that '[s]uch a licence … extends in principle to any purchaser of the subject property' (presumably if the licence is transferred to the purchaser) and that, in this case, the implied licence had been 'transferred from the joint venture companies to Concrete (being a purchaser for value) per medium of the trustees for sale'.
9 To determine whether these findings are correct it is necessary to go back to basic principles. The first proposition is this. When an architect is retained to prepare drawings for a client, the architect retains copyright in the drawings unless the contract of retainer provides otherwise: Copyright Act 1968 (Cth) ('the Copyright Act') Pt III, Div 1. Second, because the architect retains the copyright, his (or her) client cannot reproduce the drawings without the architect's permission: Copyright Act s 31, s 36. (The CopyrightActuses the word 'licence', the former Act used the word 'consent', but the word 'permission' is apt to cover both.) Third, that permission, which may be a bare licence not supported by consideration, may be given in express terms or by implication. Finally (at least on this aspect of the appeal), if the relationship between the architect and his (or her) client is regulated by contract (eg a contract of retainer) then most usually that is where the permission (express or implied) is to be found.
10 If the contract contains an express permission to use the drawings, the terms of that permission will define the scope of the client's rights. The definition of those rights will involve the construction of the contract. If the client relies on an implied permission, that also involves the construction of the contract. True, it is not an 'orthodox exercise in the interpretation of the language of a contract, that is, assigning a meaning to a particular provision': Codelfa Construction Pty Ltd v State Rail Authority (NSW) (1982) 149 CLR 337 at 345 per Mason J. Nevertheless the process involved is of interpreting the meaning of the contract as a whole: Banque Bruxelles Lambert SA v Eagle Star Insurance Co Ltd [1997] AC 191 at 212 per Lord Hoffmann.
11 No one has suggested that Parramatta Design has given express permission to Concrete or to any other person to reproduce the drawings. The question is whether it has done so by implication. Here it is convenient to begin with the contract between Parramatta Design and the joint venture partners. The express terms of that contract were not gone into by the judge. This makes the task on appeal of identifying any implied term all the more difficult. It is best to proceed on the assumption that all Parramatta Design was requested to do under the contract was to prepare the relevant drawings in a form that could be submitted for approval to the local authority. It is not clear whether there was any consideration to support the contract as the judge rejected Parramatta Design's case that it had been retained by the partners under a cost-plus contract to prepare the drawings and to construct the development. Certainly Landmark offered nothing of value although Toyama did promise to confer benefit on Landmark (to remain in the venture) and this might be sufficient to amount to consideration: see International Petroleum Refining Supply Sociedad Ltd v Caleb Brett & Son Ltd (The "Busiris") (1980) 1 Lloyds Rep 569 at 594. At any rate, at least for the purpose of analysis, we will assume that there was consideration to support the contract. Is it then possible to imply the term which the judge found to exist?
12 Speaking very generally for the moment, there are different kinds of implied terms and different tests for making the implication. Two kinds of implied term are, to use their modern description, ad hoc implications (or terms implied in fact) where the test is to discover what is the presumed intention of the parties, and terms implied by law, where a positive rule of the law is applied to a contract to confer rights or impose duties on one or other party. The distinction between these two categories was highlighted by Lord Cross in Liverpool City Council v Irwin [1977] AC 239 at 257-258:
'When it implies a term in a contract the court is sometimes laying down a general rule that in all contracts of a certain type - sale of goods, master and servant, landlord and tenant and so on - some provision is to be implied unless the parties have expressly excluded it. In deciding whether or not to lay down such a prima facie rule the Court will naturally ask itself whether in the general run of such cases the term in question would be one which it would be reasonable to insert. Sometimes, however, there is no question of laying down any prima facie rule applicable to all cases of a defined type but what the court is being in effect asked to do is to rectify a particular - often a very detailed - contract by inserting in it a term which the parties have not expressed. Here it is not enough for the court to say that the suggested term is a reasonable one the presence of which would make the contract a better or fairer one; it must be able to say that the insertion of the term is necessary to give - as it is put - "business efficacy" to the contract and that if its absence had been pointed out at the time both parties - assuming them to have been reasonable men - would have agreed without hesitation to its insertion.'
13 The conditions that must be satisfied before a term will be implied have become to a large extent artificially rigid. The clearest statement of the criteria for ad hoc implications is found in BP Refinery (Westernport) Pty Ltd v Shire of Hastings (1977) 180 CLR 266 at 286. There Lord Simon said that the conditions were that: '(1) it [the term] must be reasonable and equitable; (2) it must be necessary to give business efficacy to the contract, so that no term will be implied if the contract is effective without it; (3) it must be so obvious that 'it goes without saying'; (4) it must be capable of clear expression; (5) it must not contradict any express term of the contract.'
14 For a time it was thought that it was necessary in all cases to meet all five conditions. (We put to one side the possibility, based on cases such as Bank of Nova Scotia v Hellenic Mutual War Risks Association (Bermuda) Ltd [1990] 1 QB 818 at 895 and 897, that conditions (2) and (3) are alternative). But there has been a sensible retreat from this rigidity. It is now accepted that it is only where the parties have set out their contract in some detail, apparently having covered all aspects, that each condition must be satisfied. Where there is no formal contract complete on its face a more flexible approach is allowed: Hospital Products Limited v United States Surgical Corporation (1984) 156 CLR 41 at 121; Hawkins v Clayton (1988) 164 CLR 539 at 573; Byrne & Frew v Australian Airlines Limited (1995) 185 CLR 410 at 422-423. In that kind of case all that is necessary is to show that the term to be implied is necessary for the reasonable or effective operation of the contract in all the circumstances.
15 As regards a term implied as a legal incident of a particular category of contractual relationship, the basis for the implication is not founded on the presumed intention of the parties but on wider considerations: Lister v Romford Ice and Cold Storage Co Ltd [1957] AC 555 at 572-573 per Viscount Simonds. Here the test is whether the term in question is 'reasonable to insert' (Liverpool City Council v Irwin at 258 per Lord Cross) or whether the term is required 'of necessity' (Liverpool City Council v Irwin at 254 per Lord Wilberforce). See also Tai Hing Cotton Mill Ltd v Liu Chong Hing Bank Ltd [1986] AC 80.
16 To this point we have considered separately, as if regulated by quite different criteria, terms implied in fact and terms implied by law. Such a rigid approach invites error. In fact there is a danger in approaching every case in which an implication is sought to be made as if it must fit into one or other of either a term implied in fact or one implied by law. A degree of flexibility is sometimes required. This was recognised by Lord Wilberforce who said in Liverpool City Council v Irwin (at 254) that the different kinds of implied term should be treated as 'shade[s] on a continuous spectrum'. It is an observation with which we agree.
17 With this background in mind, we now return to contracts with architects. It may be accepted, and the cases do accept, that in a contract between an architect and client, the architect who retains the copyright in the drawings and is free to repeat those drawings for another client (Meikle v Maufe [1941] 3 All ER 144 at 146) nevertheless, by the implication of a term, is taken to have authorised the client to make some use of them. As the cases show, the extent of the permission will depend upon the express terms of the contract as well as the surrounding circumstances. The implied term will not be the same in every case. Thus, contrary to the view of some judges (eg Wootten J in NG v Clyde Securities Ltd [1976] 1 NSWLR 443 and Merkel J in Acohs Pty Ltd v RA Bashford Consulting Pty Ltd (1997) 37 IPR 542) a grant of permission is not implied in all contracts between an architect and client by reference to 'the inherent nature of a contract and of the relationship thereby established', to use the language of Lord Wilberforce in Liverpool City Council v Irwin at 254 (quoted with approval by Mason CJ in Esso Australia Resources Ltd v Plowman (1995) 183 CLR 10 at 30). The majority in Stovin-Bradford v Volpoint Properties Ltd [1971] Ch 1007, an architect's case, held that there was no such implication in law. See also Devefi Pty Ltd v Mateffy Perl Nagy Pty Ltd (1993) 37 IPR 477.
18 The cases in which an architect has been held to permit, implicitly, the client to use drawings are when the architect is entitled to be paid a reasonable fee for his (or her) work. The permission impliedly given is to use the drawings for the purpose for which they were brought into existence: Beck v Montana Constructions Pty Ltd [1964-65] NSWR 229 at 235. So, for example, if the drawings are brought into existence to enable the client to obtain a planning permission, they may be used for that purpose: Stovin-Bradford v Volpoint Properties Ltd. If the drawings are brought into existence so that the client can construct a building in accordance with them they may be used for that purpose: Blair v Osborne & Tomkins [1971] 2 QB 78. In the latter case, the permission will be wider than a mere permission for the client to reproduce the drawings. It will often be the case that the client will engage a builder to construct the building and perhaps even another architect to prepare working drawings. The implied permission must cover the builder and the second architect (if there be one) for otherwise each of them would infringe the architect's copyright and the permission given to the client would be useless: Blair v Osborne & Tomkins at 85. There are even circumstances in which it will be appropriate to imply a term that the permission granted to the client is capable of assignment. For instance, if a client owns land and retains an architect to prepare drawings for, say, a commercial development to be constructed on the land, there will most likely be an implied term granting the client permission to reproduce the drawings together with a further implied term allowing the client to transfer that permission to a purchaser: Beck v Montana Constructions Pty Ltd. If the further term is implied, it goes without saying that it is up to the client to decide whether the implied licence is to be assigned to a purchaser.
19 On the other hand, a permission to use the architect's plans will not be implied in every contract with an architect. Where the architect has charged only a nominal fee for the drawings (as in Stovin-Bradford v Volpoint Properties Ltd) a licence to use the drawings to construct a building will not be implied. Why should it? If the architect has not been paid for the work or has only been paid a nominal fee, there is no reason why the client should be allowed to take the full benefit of that work. In Stovin-Bradford v Volpoint Properties Ltd,Megaw LJ said (at 1021) that to hold otherwise would be neither reasonable nor sensible. Salmon LJ went even further. He said (at 1019) that even if the architect were to charge the full scale fee for preparing drawings for a planning permission he would not necessarily imply a licence to use the drawings for erecting the building. He instanced the example of a world famous architect who charged a reasonable fee for his drawings but in the expectation that he would be retained to supervise the construction of the building he had drawn. Salmon LJ rightly said that in those circumstances if the architect was not retained to supervise the works then it is unlikely that his design could be used by another architect appointed for that purpose.
20 These are the general principles. Now we must apply those principles here. It was earlier said that we know very little about the terms of the contract between Parramatta Design and the joint venture partners. Perhaps there is little to know. Parramatta Design certainly agreed to prepare the drawings and to do so for no fee. Mr Fares, its director, wanted to keep Toyama in the venture. While its agreement to stay in the venture might be sufficient consideration to support the contract, the agreement could not be characterised as the payment of a full fee for Parramatta Design's services. Moreover, the only reason why Parramatta Design agreed to prepare the drawings for no charge was to keep the joint venture going (a venture in which Mr Fares had a significant, albeit indirect, interest), to obtain planning approval for the 14-unit development, and then to see it constructed by the joint venture partners. It may be accepted that in those circumstances Parramatta Design granted a licence to the joint venture partners themselves to construct a building in accordance with the drawings if planning approval were obtained. But we see no reason to imply a term that this licence could be assigned by the partners to, say, a purchaser of the Nelson Bay site. Why should it be presumed that Parramatta Design would agree to such an assignment bearing in mind that it was not going to be paid for its work? Such a result might prove unfair, unjust and is, in any event, unnecessary. Architects should not be expected to work for free for the benefit of third parties. The position does not change merely because the architect has an interest in the proceeds of sale of the land. Equally, if it be relevant, a sensible purchaser would not expect to be permitted to use an architectural drawing without having made any payment for the privilege either to the architect or to the vendor by way of reimbursement. A later offer to pay a reasonable fee, as was made here, cannot retrospectively alter the contract.
21 Even if, contrary to our view, an assignable licence to reproduce the drawings was conferred upon the joint venture partners, that licence was not in fact transferred to Concrete. The judge thought otherwise. He said that the trustees for sale appointed under the Conveyancing Act stood 'in the shoes' of the co-owners and he accepted a submission from Concrete that 'the relevant factual and regulatory matrix strongly support the notion that the licence [has been] impliedly transferred with the land for the benefit of the purchaser'. With the greatest respect we do not accept this conclusion. There are at least two reasons why the judge's approach is in error. The most obvious is that the so-called 'implied term' is inconsistent with the tenor of cl 7 of the contract of sale. The principles upon which terms will be implied do not admit of an implication which is inconsistent with an express term: FA Tamplin Steamship Company, Limited v Anglo-Mexican Petroleum Products Company Ltd [1916] 2 AC 397 at 422; Equitable Life Assurance Society v Hyman [2002] 1 AC 408. There is in any event a more fundamental problem. Trustees for sale can only dispose of property which has been vested in them. According to the Conveyancing Act that property may be real or personal: see s 66G and the definition of 'property' in s 7. In this case the order of the Supreme Court only vested in the trustees the Nelson Bay land. The order could have but did not purport to vest in them any personal property, such as a licence to use the drawings. Therefore to hold that the transfer of the land by implication transferred a licence to use the drawings, if such licence existed, is to ignore the terms of the order.
22 To this juncture we have only disposed of the alternative basis (the existence of an implied term) upon which the judge decided the case. Our reasons for rejecting the judge's approach come close to disposing of the principal basis for his decision. But it is best that we explain more directly why on that ground the judge also erred. Remember that the judge decided that an architect who prepares drawings for a development approval implicitly gives permission to any person who becomes the owner of the land to which the approval relates to reproduce the drawings so that the subject matter of the drawings (eg a building) may be built. That permission, as it is framed by the judge, is, so it seems, given to the world at large. It is a permission which exists independently of the terms upon which the client engages the architect. It is a permission which, at least as the judge sees it, does not depend upon the consent of the client on whose instructions the drawings are prepared and who pays the architect for his (or her) services. It is a permission which would significantly detract from the rights of an owner of copyright in an architectural drawing: Copyright Act s 13(2).
23 It is difficult to know precisely how the judge was able to reach the conclusion that in the circumstances he described an architect implicitly licenses any entity who comes to own the land to use the plans. So far as we are able to tell his view seems to be based solely on the premise that the land would otherwise be sterilised 'in terms of its usage, in conformity with the development consent'. That premise is false. Land is not 'sterilised' in terms of usage (whatever that may mean) simply because a purchaser cannot without the agreement of the architect use the architect's plans to develop the land. The land will have an exchange value. Subject to local planning requirements it may be used for private, commercial or public purposes. So, provided the purchaser paid a fair price for the land (and whether he did or not is a matter for the purchaser) it suffers no loss by not being able to use the drawings. Looked at more broadly, there is simply no basis upon which to found a licence to use an architect's drawings in favour of a purchaser which has neither paid for those drawings nor altered its position in the belief, induced by the architect, that the drawings would be available for its use. Even if, by some new doctrine, there were such a licence, in the absence of any consideration or preclusion, it would be revokable at will.
24 Concrete purchased the Nelson Bay site at a public auction. The site was offered for sale on the basis that no warranty as to the availability of the drawings was given. It must be assumed that Concrete paid a price which represented the fair market value of the Nelson Bay site as a piece of land upon which a particular 14-unit development might be constructed in compliance with the Environmental Planning and Assessment Act 1979 (NSW), but without any guarantee that the drawings for that development would be available to the purchaser. Concrete's case, which the judge accepted to be a good case, is that a purchaser of land who does not before purchase obtain the architect's consent to use his (or her) drawings, who does not under the contract of purchase take an assignment of the right (if there be one) to use the drawings, who does not rely upon any conduct by the architect which represents that the purchaser can use the drawings, and who does not in any event pay anything for the drawings or for their use, nonetheless has the architect's irrevocable permission to reproduce the drawings. In our opinion that case cannot be sustained. To hold otherwise could create a private right (akin to a promise) not founded in contract or in equity. There is as yet no place for such a right in our system. Moreover, the right would interfere with copyright in the drawings in a way not envisaged by the Copyright Act.
25 What we have said so far is sufficient to dispose of the appeal. There are, however, other points which have been raised and about which we should say something. For that purpose we need to explain the nature of the proceeding below and mention some things that happened during the trial.
26 Concrete instituted the action out of which this appeal arises. It is an action under s 202 of the Copyright Act which allows a person who is threatened with an action for infringement of copyright to bring an action against the person making the threat to obtain a declaration that the threat is unjustified and also obtain an injunction against the continuance of the threat and recover any sufficient damages. It is a defence to the action for the defendant to show that his threat was justified, that is, that the acts in respect of which the threat was made constituted (or would constitute) an infringement of copyright. The defendants were the present appellants, Parramatta Design and Mr Fares. It was alleged that each of them claimed to be the owner of the copyright in the drawings and that each of them made threats that were 'unjustifiable' within the meaning of s 202. The threats were said to be found in two letters which passed between the parties' solicitors.
27 In their defence, the appellants admitted that Parramatta Design claimed to be, and they asserted that it was, the owner of the copyright and denied that Mr Fares made any such claim. By a counterclaim in which Parramatta Design was the only claimant, a declaration was sought that Parramatta Design is the owner of the copyright as well as an injunction restraining Concrete from infringing that copyright and other relief. From that point forward the case was conducted on the basis that copyright in the drawings lay with Parramatta Design. The principal point then to be decided was whether Parramatta Design had by implication licensed Concrete to construct a building in accordance with those drawings.