Pocketful of Tunes Pty Ltd v Commonwealth of Australia

1. The Commonwealth of Australia pay the costs of the applicants of the proceedings, including the costs of and in connection with the hearing on 4 March 2016, such costs to be agreed or, if not agreed, to be taxed by a Registrar.

JAGOT J (DEPUTY PRESIDENT): 1 If a court may make an order for costs in proceedings, it has been said (repeatedly) the discretion must be exercised "judicially, that is to say not arbitrarily, capriciously or so as to frustrate the legislative intent" (Oshlack v Richmond River Council [1998] HCA 11; (1998) 193 CLR 72 at [22]). 2 Insofar as courts are concerned, as described by McHugh J in Oshlack, "the law has gradually developed principles to guide the proper exercise of the discretion" (at [65]), one fundamental component of which is that a "successful litigant is generally entitled to an award of costs" (at [66]). It has long been accepted that this approach does not constitute an unlawful or inappropriate fetter on the discretion; to the contrary, as has been said, "a refusal to formulate a principle or guideline can only lead to exercises of discretion which are seen to be inconsistent, a result which would not have been contemplated by the legislature with any degree of equanimity" (Latoudis v Casey [1990] HCA 59; (1990) 170 CLR 534 at 541). The so-called "usual order as to costs", McHugh J explained, "is grounded in reasons of fairness and policy" and is intended to compensate the successful party, not to punish the unsuccessful party (Oshlack at [67]). The strength of this principle is such that, as McHugh J said at [70] in Oshlack, "[a]part from anomalous examples in the equity jurisdiction, there are very few, if any, exceptions to the usual order as to costs outside the area of disentitling conduct". As his Honour also noted at [68]: As a matter of policy, one beneficial by-product of this compensatory purpose may well be to instil in a party contemplating commencing, or defending, litigation a sober realisation of the potential financial expense involved. Large scale disregard of the principle of the usual order as to costs would inevitably lead to an increase in litigation with an increased, and often unnecessary, burden on the scarce resources of the publicly funded system of justice. 3 If a tribunal is vested with a power to make a costs order, the requirement that any exercise of discretion be "judicial" is inapt, but it is nevertheless necessary that the discretion be exercised consistently with "the subject matter and the scope and purpose" of the legislation (Oshlack at [22], referring to Dixon J in Water Conservation and Irrigation Commission (NSW) v Browning (1947) 74 CLR 492 at 505), and not arbitrarily, capriciously or by reference to any extraneous consideration (Oshlack at [34]). 4 Further, the importance of principled and consistent decision-making by tribunals has long been recognised. In his seminal decision in Re Drake and Minister for Immigration and Ethnic Affairs (No 2) (1979) 2 ALD 634 at 639 Brennan J, sitting as the President of the Administrative Appeals Tribunal, observed that: [i]nconsistency is not merely inelegant: it brings the process of deciding into disrepute, suggesting an arbitrariness which is incompatible with commonly accepted notions of justice. 5 These considerations apply equally to the discretion of this Tribunal to order costs, pursuant to the power in s 174(1) of the Copyright Act 1968 (Cth) (the Act). Section 174(1) provides that: The Tribunal may order that the costs of any proceedings before it incurred by any party, or a part of those costs, shall be paid by any other party and may tax or settle the amount of the costs to be so paid, or specify the manner in which they are to be taxed. 6 The events which prompted the application to the Tribunal are identified in the President's first decision, Pocketful of Tunes Pty Ltd v Commonwealth of Australia [2015] ACopyT 1. The Commonwealth had no licence from the applicants, the owners of the copyright in a song, to reproduce and use the lyrics of the song on the sound-track to a cinematograph film or other audio visual presentation (the so-called synchronisation right). The Commonwealth caused to be produced and distributed a montage to be used in citizenship ceremonies around Australia in which the synchronisation right was exercised to reproduce the song as part of the soundtrack to the montage. As such, s 183 of the Act was engaged, which provides that: (1) The copyright in a literary, dramatic, musical or artistic work or a published edition of such a work, or in a sound recording, cinematograph film, television broadcast or sound broadcast, is not infringed by the Commonwealth or a State, or by a person authorized in writing by the Commonwealth or a State, doing any acts comprised in the copyright if the acts are done for the services of the Commonwealth or State. … (4) Where an act comprised in a copyright has been done under subsection (1), the Commonwealth or State shall, as soon as possible, unless it appears to the Commonwealth or State that it would be contrary to the public interest to do so, inform the owner of the copyright, as prescribed, of the doing of the act and shall furnish him or her with such information as to the doing of the act as he or she from time to time reasonably requires. (5) Where an act comprised in a copyright has been done under subsection (1), the terms for the doing of the act are such terms as are, whether before or after the act is done, agreed between the Commonwealth or the State and the owner of the copyright or, in default of agreement, as are fixed by the Copyright Tribunal. 7 Terms for the exercise of the synchronisation right were not able to be agreed. Accordingly, it was necessary for the Tribunal to fix terms as provided for in s 183(5) of the Act. As the President pointed out, there are "very few cases relating to s 183(5) of the Act and those that have been decided provide limited guidance on how to proceed with the calculation in this case" (at [18]). 8 The position of the applicants and the Commonwealth evolved as the hearing progressed before the President. The applicants started with calculations that resulted in a payment by the Commonwealth of $156,000 per year (the relevant period of the exercise of the right being 3.67 years), alternatively $224,000 per year, and subsequently $250,000, then $226,000 per year. The Commonwealth started with calculations that resulted in a payment by the Commonwealth of $15,000 per year, then $30,000 per year, and ultimately $35,802 per year. At [52] the President observed (a not uncommon lamentation in decisions of the Tribunal) that: As the hearing progressed, it became clear that the imprecision of the evidence meant that the evidence alone could not form an adequate basis to support precise calculations. The parties ultimately agreed that the evidence was imperfect and that the calculation could not be done in a rigorous or systematic way. Concessions were correctly made that reflected the difficulties in determining the appropriate calculation and, ultimately, each of the parties departed from the calculations as initially advanced. 9 On this basis, and doing the best she could on the "imperfect evidence" (at [61]), the President determined that the Commonwealth's final calculations should be used as the starting point, but an additional premium of $5,000 per year was required to allow for a factor apparently overlooked by the Commonwealth: that it would have sought to negotiate a national licence permitting use by all councils. 10 Accordingly, the terms fixed by the Tribunal involved a payment by the Commonwealth to the applicants of $40,802 per year, resulting in a total payment of $40,802 x 3.67 years = $149,743.34. The President also rejected the Commonwealth's argument that the first applicant had no standing by reason of the transfer of the synchronisation right from the second applicant to the first applicant. The parties subsequently agreed that the payment should include interest, calculated in the sum of $39,994, resulting in a total payment by the Commonwealth to the first applicant of $189,737.94 for the Commonwealth's use of the synchronisation right. 11 No doubt mindful of the relatively small overall sums involved, the expense which the parties had already incurred and the undesirability of any further material expense being incurred in relation to resolution of the issue of costs, the President ordered that: The parties submit proposed orders as to costs and, if not by consent, written submissions in support of the proposed orders, of less than two pages, by 17 March 2015. 12 It is at this point that things began to go wrong. 13 The applicants submitted that, as parties who had to commence proceedings to obtain compensation from the Commonwealth for the use of the synchronisation right, an order for costs should be made in their favour in the absence of any disentitling conduct on their part, of which there had been none. The Commonwealth submitted that by reason of various offers made in other proceedings which the applicants did not accept and the "extravagance" of the applicants' claim ($156,000 per year compared to the final determination of $40,802 per year), the applicants should pay the Commonwealth's costs. Unfortunately, and no doubt unintentionally, in making these submissions the Commonwealth overlooked decisions indicating that offers of compromise in proceedings other than the immediate proceeding are not relevant (Stewart (in his capacity as liquidator of Newtronics Pty Ltd (in liq)) v Atco Controls Pty Ltd (ACN 005 182 481) (in liq) (No 2) [2014] HCA 31; (2014) 252 CLR 331, PTTEP Australasia (Ashmore Cartier) Pty Ltd v Commissioner of Taxation (No 2) [2014] FCAFC 96, Trustee for the Salvation Army (NSW) Property Trust v Becker (No 2) [2007] NSWCA 194, and Monie v Commonwealth (No 2) [2008] NSWCA 15). 14 The Commonwealth also appears to have adopted a somewhat idiosyncratic approach to the notion of the applicants being worse off than if the offer had been accepted because, as the Full Court subsequently pointed out, "as against the Commonwealth and as a matter of arithmetic, the outcome in the Tribunal was better, so far as the applicants were concerned, than under the Offer had it been accepted" (Pocketful of Tunes Pty Ltd v Copyright Tribunal [2015] FCAFC 146 at [50]). 15 In any event, the President was persuaded by the Commonwealth's submissions and ordered the Commonwealth to pay the applicants' costs up to the date of relevant offer and the applicants to pay the Commonwealth's costs on an indemnity basis from the date of the offer. It is apparent from this order, and the President's reasons (Pocketful of Tunes Pty Ltd v Commonwealth of Australia (No 2) [2015] ACopyT 2), that but for the applicants not having accepted the Commonwealth's offer, the President considered that the Commonwealth should pay the applicants' costs. The Commonwealth's submissions to the contrary before me are not persuasive. 16 The applicants applied for judicial review of this decision. The Full Court held that the Tribunal's order was based on an erroneous principle because it failed to recognise that offers of compromise in one proceeding are not relevant to the exercise of discretion in another proceeding (Pocketful of Tunes Pty Ltd v Copyright Tribunal [2015] FCAFC 146). The Full Court set aside the Tribunal's orders on costs and remitted the matter to the Tribunal for "reconsideration and determination according to law". In so doing, the Full Court did not accept that it should make a costs order on the ground that only one exercise of discretion was reasonably open (namely, as sought by the applicants, that the Commonwealth pay the applicants' costs). The Full Court also doubted the common position of the parties that the "principles that inform the exercise of a court's power to award costs also inform an exercise by the Tribunal of the power conferred by s 174" (at [54] and [37] respectively). 17 One matter that supports the Full Court's reservation, which also informs the appropriate exercise of discretion in a case such as the present, is that a party in the position of the applicants does not choose to litigate in the way that a party to conventional litigation chooses. A party in the position of the applicants, necessarily, is the owner of copyright which the Commonwealth or State has converted to its own use. But for s 183(1), this use would constitute an infringement of copyright. The Crown is protected from infringement provided the acts are done for the service of the Commonwealth or State. The Commonwealth or State, however, is bound to notify the owner of copyright of the use (unless it is contrary to the public interest to do so - s 183(4)) and the terms of the use are as agreed between the owner and the Commonwealth or State or, in default of agreement, as are fixed by the Tribunal (s 183(5)). Under this statutory scheme, it is the Commonwealth or State which decides on the use irrespective of any intention or desire of the owner of the copyright. Moreover, the Commonwealth or State decides on the use in circumstances where each must be taken to know that, absent any public interest to the contrary, they are bound to either agree terms with the owner or terms will be as fixed by the Tribunal. 18 Another matter that supports the Full Court's reservation is that, in conventional litigation, there is usually a risk that an alleged claim or defence may or may not be vindicated either in whole or part. In a matter before the Tribunal under s 183(5) of the Act, in contrast, the Tribunal is determining the terms on which the parties would have reached an agreement on the Crown's use of the copyright material assuming the Crown and the owner were willing to strike a bargain in respect of that use and, in striking that notional bargain, would act reasonably. Accordingly, the outcome ordinarily to be expected from a matter brought to the Tribunal under s 183(5) is that the Crown will be required to pay the copyright owner an amount for the use which reflects the amount the Tribunal considers the Crown would have had to pay the owner in any hypothetical negotiation. 19 Another relevant matter in a case such as the present is that the matter before the Tribunal, ordinarily, will involve the Commonwealth or State on the one hand and an individual owner of copyright on the other hand. If the copyright owner has granted a licence to a collecting society then s 183(5) does not apply. Instead, s 183A applies, in which event payment is to be as agreed between the government and the collecting society or, failing agreement, as determined by the Tribunal under s 153K of the Act (see s 183A(2)). Section 153K, in common with the licensing schemes for which s 154 provides, involves a determination which binds the relevant collecting society in respect of all copyright licensed to the collecting society within the scope of the determination. 20 In contrast, an application to the Tribunal under s 183(5) will be by a person who, or corporation which, owns the copyright in a particular work or works which the Commonwealth or State has chosen to use for their purposes. The Tribunal's determination will be specific to the use made of the particular work or works. The determination will not involve a collecting society which holds licences from numerous copyright owners and will not involve a collective bargain on behalf of a multiplicity of copyright owners and the person using the copyright work. It is also likely, as a result, that the amounts of money involved will be relatively small, and orders of magnitude less than would be involved in a determination as between a collecting society and a substantial copyright user organisation. 21 Against this background, it is apparent that the costs provision in s 174(1) of the Act applies to types of proceedings which are fundamentally different from each other in character and scope. Accordingly, s 174(1), which is in broad terms, must be applied in any particular case recognising these kinds of differences. 22 This recognition underlies the observations of Sheppard J in Re Application by Seven Dimensions Pty Ltd [1996] ACopyT 2; (1996) 35 IPR 1 (Seven Dimensions) in which his Honour said at 21 - 22: There remains the question of costs. Section 174 of the Act empowers the tribunal to order that the costs of any proceedings incurred by any party, or a part of those costs, be paid by any other party. It has not been the practice of the tribunal to order costs to successful parties as a matter of course. The view has been taken that orders for costs will only be made in cases where there are circumstances which justify the making of the order. Otherwise costs are borne by the parties who appear before the tribunal themselves. The reason for this is that cases before the tribunal often involve matters of doubt and difficulty between substantial parties who are owners or substantial users of copyright material. These cases often involve parties who are in an ongoing relationship who are in genuine dispute about the amount or amounts to be paid for the use of copyright material. In those circumstances, it is thought fair, particularly if parties have acted in good faith, that there should be no order for the payment by one party to another party of costs incurred before the tribunal. This case, I think, is exceptional in that the tribunal's jurisdiction was contested because of the view that there was an agreement, that being the agreement contended for by Inspector Keys, which provided for the terms upon which the copyright material could be used. No charge was involved. I have rejected that case in the circumstances which appear earlier in these reasons. If that case had not been maintained, the exercise would have been a very much more confined one. Furthermore, there would then have been a likelihood that the matter may have been settled for a reasonable amount without the need for a hearing. In those circumstances I think that I should make an order that the State of New South Wales pay to Seven Dimensions a portion of its costs. The reason I have thought that it is right to award only a portion of the costs is because I regard the case brought by Seven Dimensions, in so far as it claimed $15,000, as an extravagant one. I realise that Seven Dimensions will have difficulty in understanding why I should reach this conclusion. I endeavoured to explain the position to Mrs Ash while she was in the witness box. A number of things were said in her presence to counsel in order to explain the way in which the tribunal works and the nature of the exercise which is in question. There was never any indication that Seven Dimensions was prepared to resile from the extreme position which it maintained all along. In my opinion the amount it claimed was unreasonable and unjustified. In those circumstances I think that the correct order for costs is that the state pay to Seven Dimensions two-thirds of those costs. In default of agreement, the costs are to be taxed by the secretary to the tribunal as if the proceeding were a proceeding in the Federal Court of Australia and an order had been made that Seven Dimensions be paid its costs by the other party to the litigation. The costs are thus to be taxed in accordance with the scale of costs which applies to proceedings in the Federal Court. They are to be taxed on the highest scale, there being no other avenue of redress which Seven Dimensions could have sought. 23 The only other decision of the Tribunal involving the costs of a matter under s 183(5) is Marine Engineering & Generator Services Pty Ltd v State of Queensland (Queensland Emergency Services) [1997] ACopyT 4 (Marine Engineering) in which Lockhart J ordered the State to pay costs saying that: In my opinion the respondent should pay the applicant's costs of the matter. The applicant has succeeded in its claim. It is true that the Fire Service laboured under the misapprehension that it was entitled to do, in essence, what it liked with both the Schedule and the Log. It is also true that, once the applicant became aware that the respondent had used its Log and informed the respondent that such use constituted an infringement of the applicant's copyright in the Log, the respondent ceased to use it. 24 The Commonwealth submitted that Sheppard J in Seven Dimensions should be understood as saying only that because the State contested jurisdiction and failed, the case was exceptional and justified a costs order against the State, reduced on account of the extravagant claims which the applicant made. Otherwise, according to the Commonwealth, his Honour confirmed that the usual position is that each party bears its own costs in proceedings before the Tribunal. As such, the Commonwealth said, there should be no order as to costs in this matter in which the Commonwealth did not challenge the Tribunal's jurisdiction and, in addition, the applicants' claims were extravagant, the Commonwealth's position on payment ultimately being vindicated, the Commonwealth being the "victor" because its method of calculation (on the basis of population) was adopted. 25 I consider this submission: - (i) misunderstands the point Sheppard J was making, (ii) overlooks the fact that in the only other decision involving an application under s 183(5), Marine Engineering, costs were also ordered, (iii) fails to recognise the difference between an application in respect of a licensing scheme and under s 183(5) and thus why the decisions in Seven Dimensions and Marine Engineering involved an exercise of discretion on a principled basis to achieve justice as between the parties, and (iv) mischaracterises the outcome of the present proceedings. 26 The point Sheppard J was making in Seven Dimensions is that the Tribunal does not usually order costs because matters before it usually involve "matters of doubt and difficulty between substantial parties who are owners or substantial users of copyright material…who are in an ongoing relationship". In other words, most disputes before the Tribunal involve a collecting society which controls copyright in numerous works and a large scale user of such works. The Commonwealth's focus on the reference to such matters involving "doubt and difficulty", in an attempt to align the present case with such matters, is unduly narrow. What his Honour was saying is clear - costs are usually not ordered because it is not seen to be fair to do so where both parties are substantial owners (or controllers) and users of copyright material and the Tribunal is determining the ongoing commercial relationship between these parties. The case before his Honour in Seven Dimensions was not such a case. As explained, of necessity, no case brought to the Tribunal under s 183(5) is such a case. It is for this reason that the Tribunal's usual practice of not making any costs orders was inapplicable. The observations his Honour then made, that the case was exceptional because jurisdiction was challenged, raise a different consideration which was also relevant to the exercise of discretion, as was the intransigence of the copyright owner. But his Honour was not saying that in such a case costs would be appropriate only if some legal issue was unsuccessfully agitated by the Commonwealth or the State. 27 I have no doubt that in the present case the appropriate order to achieve a fair and just outcome is that the Commonwealth pay the applicants' costs of the proceeding before the Tribunal. 28 First, the proceeding was not between "substantial parties who are owners or substantial users of copyright material…who are in an ongoing relationship". It related to the Commonwealth's use of one confined copyright over one confined period. As such, and as is likely in a matter under s 183(5), the amounts in dispute were relatively small, at least compared to the amounts usually at stake in respect of a contested licensing scheme. 29 Second, the applicants had no choice but to come to the Tribunal to have determined the terms of the use because they were not able to agree terms with the Commonwealth. For this reason, I reject the Commonwealth's submission that costs should be resolved by comparing the amount the Tribunal determined should be paid with the amount each party contended would be appropriate. Resolving costs on that basis, given the nature of proceedings under s 183(5), is likely to result in unfairness to an applicant who, as in this case, sought materially more than the Tribunal determined but also was awarded materially more than the Commonwealth contended it should pay. 30 Third, the Commonwealth's position was not vindicated. It is clear that the applicants had no choice but to approach the Tribunal given that the Commonwealth's initial position before the Tribunal was a payment of $15,000 per year which ultimately increased to $35,802 per year. While the President stated that she accepted the Commonwealth's final calculations, those are calculations which only emerged during closing submissions [see [78]). Moreover, the President in fact accepted the Commonwealth's final method of calculations to which a premium of $5,000 per year was added, resulting in a total payment of $40,802 per year (excluding interest, which the Commonwealth also agreed was payable). This is three times the amount of the Commonwealth's initial position before the Tribunal. As such, the Commonwealth's submission that it would be "perverse and unjust" for it to pay the applicants' costs involves a self-serving view of the requirements of justice between the parties which I do not share. That the Tribunal adopted the Commonwealth's population-based approach, and not the applicants' number of councils' approach, does not mean the Commonwealth was the "victor" in the proceeding. Even if it did mean the Commonwealth was successful, as explained, this is not conventional litigation, nor a typical exercise of the Tribunal's functions which ordinarily involves licensing schemes. For the Commonwealth to characterise the result in this way, as it does in its submissions, seems to me to misconceive the nature of a matter brought before the Tribunal under s 183(5), and the outcome in the present case, which resulted in the applicants receiving more than three times the amount the Commonwealth initially put before the Tribunal. 31 Fourth, the applicants' claims were not extravagant. Nor did the President suggest them to be so. To the contrary, the President considered that both parties correctly conceded matters as the hearing progressed. In particular, the applicants' claims were based on other licences of the synchronisation right for amounts which materially exceeded the amount paid by Brisbane City Council, which the applicants ultimately agreed was the most relevant comparable bargain (see the table at [30] and the observations at [32]). Given the applicants' claims were supported by other licences, the Commonwealth's description of the applicants' claims as extravagant are unfounded. 32 Fifth, given the relatively small amounts involved and that the applicants had no choice but to come to the Tribunal to have terms fixed, it would be unjust for the applicants to be at risk of the amount obtained as a result of the Tribunal's order being materially consumed or even exceeded by the costs the applicants have had to expend to have those terms determined. Applicants under s 183(5) of the Act should not be placed in such an invidious position. The nature of proceedings under s 183(5) indicates that it would be consistent with "the subject matter and the scope and purpose" of the legislation for the Commonwealth or State to pay the costs of the proceeding, at least where there has been no disentitling conduct on the part of such an applicant. This is the approach which was taken in Seven Dimensions and in Marine Engineering. Moreover, it is the approach which the President would have taken in the present case, but for the Commonwealth's misplaced reliance on offers of compromise made in other proceedings. 33 Sixth, and for what it is worth (which I accept is not much in the circumstances of this matter), the Commonwealth unsuccessfully argued that an assignment from the second to first applicant meant that the first applicant had no standing before the Tribunal. Why the Commonwealth felt the need to trouble the Tribunal with this question, given that either the first or the second applicant had the relevant right, remains unclear. 34 For these reasons, I consider that the Commonwealth should pay the applicants' costs of the matter, including the costs of and in connection with the hearing on 4 March 2016. 35 I should also note that a beneficial by-product of this approach is that the prospect of a costs order against the Commonwealth or State if an applicant has behaved reasonably yet must still come to the Tribunal to have terms determined is a factor that should be taken into account in negotiations. This may have the salutary effect of increasing the chances of terms being agreed - which is the first option for which the statute provides, and no doubt the most desirable option which the statute encourages. I certify that the preceding thirty-five (35) numbered paragraphs are a true copy of the Reasons for Decision herein of the Honourable Justice Jagot.