Scottish Co-operative Wholesale Society Ltd. v Meyer

Trevor Ivory Ltd. v. Anderson (1992) 2 N.Z.L.R. 517 University of N.S.W. v. Moorhouse (1975) 133 C.L.R. 1 Wah Tat Bank Ltd. v. Chan Cheng Kum [1975] A.C. 507 W.E.A. International Inc. v. Hanimex Corporation Ltd. (1987) 17 F.C.R. 274 White Horse Distillers Ltd. v. Gregson Associates Ltd. [1984] R.P.C. 61 Wigan v. Edwards (1973) 47 A.L.J.R. 586 Borrowdale and Simpson, Note - "Directors' Liability in Tort: Recent Developments", (1995) 13 Companies and Securities Law Journal, 400 G.H.L. Fridman, "Personal Tort Liability of Company Directors" (1992) 5 Canterbury Law Review 41 A.S. Sievers, "Farewell to the Sleeping Director - The Modern Judicial and Legislative Approach to Directors' Duties of Care, Skill and Diligence" (1993) 21 A.B.L.R. 111 GEORGE RAYMOND KING and ROBERT JAMES RYLANDS V. GEORGE MILPURRURRU, BANDUK MARIKA, TIM PAYUNKA and THE PUBLIC TRUSTEE FOR THE NORTHERN TERRITORY NO. DG1 OF 1995 JENKINSON, LEE, BEAZLEY JJ. PERTH 12 APRIL 1996

IN THE FEDERAL COURT) OF AUSTRALIA ) NORTHERN TERRITORY ) DISTRICT REGISTRY ) GENERAL DIVISION ) NO. DG1 OF 1995 ON APPEAL FROM A JUDGE OF THE FEDERAL COURT OF AUSTRALIA B E T W E E N: GEORGE RAYMOND KING and ROBERT JAMES RYLANDS Appellants AND: GEORGE MILPURRURRU, BANDUK MARIKA, TIM PAYUNKA and THE PUBLIC TRUSTEE FOR THE NORTHERN TERRITORY Respondents MINUTE OF ORDER THE COURT: JENKINSON, LEE, BEAZLEY JJ. DATE OF ORDER: 12 APRIL 1996 WHERE MADE: PERTH THE COURT ORDERS THAT:

1. The appeal be allowed.
2. The order contained in paragraph 1 of the order made 15 December 1994 in the proceeding numbered DG4 of 1993 be varied by inserting therein before the word "Respondents" where it first occurs the words "first and second".

3. The order contained in paragraph 3 of the said order made 15 December 1994 be set aside and in lieu thereof there be judgment in the said proceeding for the first appellant against the respondents and judgment for the second appellant against the respondents.
4. The order contained in paragraph 7 of the said order made 15 December 1994 be varied by inserting therein before the word "Respondents" wherever it occurs the words "first and second".
5. The security provided in pursuance of the order contained in paragraph 8 of the said order made 15 December 1994 be discharged.
6. The respondents pay the appellants' costs of the said proceeding (including costs reserved).
7. The respondents pay the appellants' costs of the appeal other than the costs of the motion which was dismissed on 10 July 1995.
8. The appellants pay the respondents' costs of the said motion. Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

IN THE FEDERAL COURT OF AUSTRALIA ) NORTHERN TERRITORY DISTRICT REGISTRY ) No. DG1 of 1995 GENERAL DIVISION ) On Appeal from a Single Judge of the Federal Court of Australia BETWEEN: GEORGE RAYMOND KING and ROBERT JAMES RYLANDS Appellants AND: GEORGE MILPURRURRU, BANDUK MARIKA, TIM PAYUNKA and THE PUBLIC TRUSTEE FOR THE NORTHERN TERRITORY Respondents CORAM: Jenkinson, Lee and Beazley JJ. PLACE: Perth DATE: 12 April, 1996 REASONS FOR JUDGMENT JENKINSON J. Appeals from final orders of a single judge of the court. The appellants are two of the four respondents in a proceeding for infringement of copyright in artistic works. The applicants in the proceeding, and respondents in this appeal, were three aboriginal artists and the Public Trustee for the Northern Territory, in whom the Administration and Probate Act 1988 (N.T.) had vested the real and personal property of five other aboriginal artists who had died before the proceeding commenced. The first respondent in the proceeding was at material times a company, of which the name at and after trial has been Indofurn Pty. Ltd. But until after the proceeding had commenced the name was Beechrow Pty. Ltd. and the learned trial judge used the word "Beechrow" to identify the first respondent in his reasons for judgment. It is convenient to adopt that name. At material times the second respondent in the proceeding, Brian Alexander Bethune, was one of the three directors of Beechrow and the two appellants were the other directors. The learned trial judge found that Beechrow had imported into Australia 246 carpets, in respect of the making of each of which there had been reproduction of an artistic work, the copyright in which was owned by one of the aboriginal artists, in a material form, in circumstances which constituted each importation an infringement of the copyright by force of s.37 of the Copyright Act 1968. That conclusion was not challenged by either appellant on appeal. The appellants were held liable in damages only in respect of importations which had occurred after the commencement of the proceeding. In respect of that liability a motion for leave to add grounds of appeal was heard by the court when the appeal came on for hearing and, for reasons to be stated later, was refused. The learned trial judge held the appellants and Mr. Bethune liable in damages as tortfeasors jointly with the importer, Beechrow, in respect of the importations which occurred after the proceeding had commenced. His Honour observed that the statement of claim alleged against the respondent directors that each had infringed copyright by importing the carpets for sale, "and/or authorising such conduct". His Honour noted that under s.36 of the Copyright Act 1968 copyright in an artistic work is infringed by a person who, not being the owner of the copyright, and without the licence of the owner, does in Australia, or authorizes the doing in Australia of, any act comprised in the copyright, but that s.37 "by its terms does not impose liability on any person who authorises the relevant importation; the section imposes liability only upon the importer'" : Milpurrurru v. Indofurn Pty. Ltd. (1994) 54 F.C.R. 240 at 264. In the paragraph in which the foregoing observations by the learned trial judge were made, and which concluded with the words I have quoted, his Honour also noted that in University of N.S.W. v. Moorhouse (1975) 133 C.L.R. 1 the High Court had ascribed to the word "authorizes" in s.36 the meaning "sanction, approve or countenance". His Honour's reasons proceeded (54 F.C.R. at 264-265): "The importer of all the carpets is Beechrow. If a director of Beechrow is to be held liable for an infringement under s.37 it is necessary to look beyond the express terms of that section. An infringement of copyright statutes is considered tortious, so as to make applicable the common law principles as to liability of tort feasors: see WEA International Inc. v. Hanimex Corporation Ltd. (1987) 17 FCR 274 at 283. Where two or more people are responsible in law for the commission of a tort they are joint tort feasors, each jointly and severally liable for the loss and damage thereby caused: see Clerk and Lindsell on Torts 16th ed, 1989), par 2-55. Under the general law where two or more people act together in furtherance of a common design to commit a tort they will be responsible as joint tort feasors: see Morton-Norwich Products Inc. v. Intercen Ltd. [1978] RPC 501 at 515-516. Where however the primary infringer is a corporation questions as to the liability of its directors for the tort also attract the principles of company law which impose personal liability on directors for the torts of the corporation depending on the degree of their involvement: see Hanimex (at 283). In Wah Tat Bank Ltd. v. Chan Cheng Kum [1975] AC 507, Lord Salmon in the course of delivering the judgment of the Privy Council said (at 514-515): A tort may be committed through an officer or servant of a company without the chairman or managing director being in any way implicated. There are many such cases reported in the books. If, however, the chairman or managing director procures or directs the commission of the tort he may be personally liable for the tort and the damage flowing from it: Performing Right Society Ltd. v. Ciryl Theatrical Syndicate Ltd. [1924] 1 1 1 at 14, 15, per Atkin LJ. Each case depends upon its own particular facts.' In C. Evans & Sons Ltd. v. Spritebrand Ltd. [1985] 1 WLR 317; [1985] 2 All ER 415 the Court of Appeal rejected the proposition that personal liability in a director arose only where it was proved that the director authorised acts known to be wrongful or where the director was reckless as to the possibility, but left open the degree of authorisation, procurement or direction necessary to attract personal liability. The judgment of the Court of Appeal emphasises that it is necessary to examine with care what part the director played personally in regard to the act or acts complained of: see at 329, 424. These decisions have been applied in later cases. Directors have been held personally responsible for authorising and directing the particular conduct which the corporation followed leading to infringement in A. P. Besson Ltd. v. Fulleon Ltd. [1986] FSR 319; Kalamazoo (Aust. Pty. Ltd. v. Compact Business Systems Pty. Ltd. at 126-128; Martin Engineering Co. v. Nicaro Holdings Pty. Ltd. (No. 2) (1991) 100 ALR 358. No difficulty arises in the application of these principles to the role played by Mr. Bethune in the importation of the carpets by Beechrow. The roles played by the other two directors, Mr. King and Mr. Rylands, require further consideration." The evidence did not provide, his Honour concluded, a basis for finding that either of the appellants knew before service of the originating application and the statement of claim that Beechrow had imported carpets of the kind here in question. Neither of the appellants gave evidence. The other respondent who had been a director of Beechrow, Mr. Bethune, gave evidence that neither of the appellants had at any relevant time taken any part in the management of Beechrow. The importation of the carpets by Beechrow was, according to Mr. Bethune's evidence, a "sideline" or "hobby" of his. All four respondents in the proceeding were represented by the same solicitors and counsel. His Honour accepted Mr. Bethune's evidence about the appellants' ignorance of the importation of carpets before the commencement of the proceeding and his evidence that, after service of the originating application and the statement of claim, he told both appellants that at his direction carpets had been imported by Beechrow, and his evidence that he also told both of them that the importation of carpets had ceased in October 1992. His Honour said (54 F.C.R. at 266-267): "Absent any evidence from them the court is entitled more readily to draw, and to act on, inferences adverse to their interests arising from that evidence: see Jones v. Dunkel (1959) 101 CLR 298. In particular I consider the Court should infer that they took no action when served with the proceedings other than to accept Mr. Bethune's explanation and to instruct solicitors, that they made no inquiries, or other efforts to verify that Beechrow had ceased importing or selling carpets bearing designs the subject of the proceedings, and that they took no steps to become informed about the continuing activities of Beechrow in relation to carpets. In short, they continued on as sleeping or passive directors." It will be observed that the learned trial judge refers to "efforts to verify that Beechrow had ceased importing or selling carpets". But the evidence was that Mr. Bethune had given an assurance to the appellants that importation had ceased in October 1992, not that selling imported carpets had ceased. Later his Honour made these observations (54 F.C.R. 271, 272) - "The trial was conducted in a way that focused attention mainly upon the infringements under s.37 constituted by the importation of the carpets, rather than upon infringements by sale and other dealings in Australia after the carpets entered Australia. It is convenient to consider the claims against Mr. King and Mr. Rylands as claims for personal liability for infringements by the company under s.37, and to assess the extent of their liability on that basis. This approach disregards infringements by sales or other dealings involving, carpets that were in stock between the time when Mr. King and Mr. Rylands were put on notice and the next shipment of carpets arrived, a possible further claim which the applicants have not pressed. ............................................... In light of the conclusion that the respondents are liable for infringements under s.37, it is not necessary to consider the more difficult claims pleaded, but not argued in detail, by the applicants under ss. 36 and 38. These alternate claims were not developed by the applicants because of an agreement struck with the respondents as to the value of the carpets for conversion damages at the time of importation. The evidence does not provide a basis for assessing damages in respect of post-importation infringements constituted by sales or other dealings." In reasoning to his conclusion that tortious liability was imposed on the appellants for the infringing importations of carpets after the proceeding had commenced, because "the degree of indifference by the inaction of Mr. King and Mr. Rylands is such that authorisation or permission by them for the course of conduct by Beechrow which followed should be inferred" (54 F.C.R. at 271), the learned judge gave careful consideration to the information which the evidence showed the appellants to have received shortly after the proceeding commenced, as well as to the questions as to what inquiries they could reasonably have been expected to make and as to what information they would probably have derived by those inquiries. His Honour found that such inquiries would have disclosed the continuing infringements. His Honour concluded that the appellants were not justified in accepting without question or inquiry Mr. Bethune's assurance when they were faced with what his Honour described as "the allegation of blatant serious and continuing infringement by Beechrow, which the other respondents as its directors were said to have authorised" (54 F.C.R. at 269). The allegation of continuing infringement his Honour identified in paragraph 8 of the statement of claim, which reads: "The Applicants have requested that the Respondents cease engaging in the conduct complained herein by a letter dated 10th December 1992, but the Respondents have failed or refused to cease engaging in the unlawful conduct complained of herein." The "conduct complained in herein" was pleaded in paragraph 4 of the statement of claim thus: "Since at least October 1992, the Respondents have been manufacturing and/or importing into Australia and/or offering for sale and selling carpets which reproduce and/or adapt each of the art works or substantial parts thereof and or authorizing such conduct, without the permission of the Applicants or Paddy Dhatangu (dec.), Tim Leuir (dec.), Uta Uta Tjangala (dec.) and George Garrawun (dec.) and Fred Nanganaralil (dec.) prior to their deaths, being in each case the copyright owners therein. PARTICULARS The Respondents have arranged for the manufacture of the said carpets in Vietnam and have imported the said carpets for sale in Australia. The Respondents have also displayed the said carpets for sale to the public at the Guildford Hotel in Perth in or about October 1992, and have thereafter been offering for sale and selling the carpets throughout Australia." The language of paragraphs 4 and 8 is consistent with an allegation of importation in (and perhaps before) October 1992 and not thereafter. The statement of claim did not explicitly contradict the statement by Mr. Bethune to the appellants that importation had ceased in October 1992. The appellants' inaction after that statement was made may justify the inference the learned judge drew - that "the degree of indifference exhibited by the inaction .... is such that authorisation or permission by them for the course of conduct by Beechrow which followed should be inferred" (54 F.C.R. at 271) - in respect of the sale of imported carpets after the statement was made. But I do not consider that inference is justified in respect of importation. It was for importation, not for sale, of carpets after the commencement of the proceeding that damages were awarded. Immediately before the sentence last quoted from the learned trial judge's reasons for judgment is this passage (54 F.C.R. at 271): "In the circumstances of the present case Mr. King and Mr. Rylands were put on notice that if nothing were done to alter the conduct of Beechrow infringements of copyright were likely to occur. That was the express plea in par. 8 of the statement of claim. The inference to be drawn against them is that they chose to do nothing even though it was within their power as the majority of directors to control the conduct of the company. The foreseeable result of that choice, which in fact eventuated, was that the company would continue to act as it had done in the past. Plainly, as directors of the company, it was their duty to take such steps as were reasonably available to them to prevent serious breaches of the law of the kind alleged against Beechrow, but they failed to take any steps at all." The appellants having been informed by Mr. Bethune that importation had ceased, the evidence did not in my opinion justify an inferred finding that they gave Mr. Bethune their authority or their permission for importation by Beechrow. Paragraph 8 of the statement of claim was reconcilable with the acceptance, as truthful, of Mr. Bethune's statement about importation. There was no evidence to justify a finding that either appellant suspected that the statement was false, in my opinion. If they were in breach of the duty they owed to Beechrow in failing to make enquiries to verify the statement, that does not give ground for the quite different conclusion that they authorised importation. If they breached their duty, that breach no doubt facilitated the commission of the tortious importations. But for tortious liability to be imposed on the respondents what is required is that they confer on Mr. Bethune and Beechrow their authority to commit the torts so that they can be said to have agreed in the commission : C. Evans and Sons Ltd. v. Spritebrand Ltd. [1985] 1 W.L.R. 317 at 323-329; Kalamazoo (Aust.) Pty. Ltd. v. Compact Business Systems Pty. Ltd. (1985) 84 F.L.R. 101 at 127; Martin Engineering Co. v. Nicaro Holdings Pty. Ltd. (1991) 110 A.L.R. 358. In my opinion the evidence which the learned judge accepted cannot support a finding that either appellant did confer that authority. The orders against which the appeals were brought were pronounced in December 1994. The motion on the part of the appellants for leave to add grounds of appeal was heard before the hearing of the appeal on the day in July 1995 fixed for that hearing, on one weeks' notice to the respondents. The proposed grounds read: "3A.The learned Trial judge erred in law finding against the Appellants in respect of carpets imported after proceedings were issued as such infringements: (a) were not pleaded; and (b) could not have been pleaded as they constituted causes of action arising after the proceedings were issued. Counsel for the Respondents (Applicants) conceded, and it was so held that the evidence could not support a finding that the Appellants were involved in any way with the importation of the carpets prior to their being served with the proceedings in the action. 3B. The learned Trial Judge erred in law in finding the Appellants liable on grounds different to that pleaded against the Appellants or opened by the Respondents' counsel at the hearing and the Appellants were thereby denied natural justice at the trial, in that: (a) the pleadings alleged that the Appellants had imported or authorised the importation of infringing carpets as at the date of the application, or alternatively that the Appellants had been knowingly concerned in the importation of carpets as at the date of the application pursuant to Section 75B of the Trade Practices Act; (b) there was no allegation in the pleadings or raided by Counsel for the Respondents (Applicants) in his opening that the Appellants were personally liable in tort; (b) the Appellants were thereby misled as to the nature of the case against them and deprived of the opportunity to give evidence as to their conduct in relation to the company Beechrow Pty. Ltd. and Bethune." Order 11 Rule 7 of this court's rules provides:

"A party may plead a new matter which has arisen since the commencement of the proceeding." Rule 7 is not identical with Pt. 15 r.16 of the New south Wales Supreme Court Rules, which provides: "A party may plead any matter notwithstanding that the matter has arisen after the commencement of the proceedings." The New South Wales Court of Appeal decided, in Baldry v. Jackson [1976] 2 N.S.W.L.R. 415, that in r.16 the word "matter" does not include cause or causes of action. Assuming, but without expressing an opinion, that in this court's r.7 the word "matter" does not include cause or causes of action, yet the conduct of counsel for the appellants at trial should in my opinion be regarded as giving consent to litigating at that trial the appellants' liability for infringements of copyright which occurred after the commencement of the proceeding. (See Wigan v. Edwards (1973) 47 A.L.J.R. 586 at 596.) And I found nothing in the transcript of the trial to justify a conclusion that the appellants had been denied natural justice. In those circumstances I thought it right that the appellants be treated on the appeal as bound by the conduct of their counsel at the trial, who was not counsel in the appeal, and I joined in the refusal of the motion for those reasons. I would propose the following orders in disposition of the appeal:

1. The appeal be allowed.
2. The order contained in paragraph 1 of the order made 15 December 1994 in the proceeding numbered DG4 of 1993 be varied by inserting therein before the word "Respondents" where it first occurs the words "first and second".
3. The order contained in paragraph 3 of the said order made 15 December 1994 be set aside and in lieu thereof there be judgment in the said proceeding for the first appellant against the respondents and judgment for the second appellant against the respondents.
4. The order contained in paragraph 7 of the said order made 15 December 1994 be varied by inserting therein before the word "Respondents" wherever it occurs the words "first and second".
5. The security provided in pursuance of the order contained in paragraph 8 of the said order made 15 December 1994 be discharged.
6. The respondents pay the appellants' costs of the said proceeding (including costs reserved).
7. The respondents pay the appellants' costs of the appeal other than the costs of the motion which was dismissed on 10 July 1995.
8. The appellants pay the respondents' costs of the said motion. I certify that this and the 12 preceding pages are a true copy of the Reasons for Judgment of the Honourable Justice Jenkinson. Associate Dated: 12 April, 1996

IN THE FEDERAL COURT ) OF AUSTRALIA ) NORTHERN TERRITORY ) DISTRICT REGISTRY ) GENERAL DIVISION ) NO. DG1 OF 1995 ON APPEAL FROM A JUDGE OF THE FEDERAL COURT OF AUSTRALIA B E T W E E N: GEORGE RAYMOND KING and ROBERT JAMES RYLANDS Appellants AND: GEORGE MILPURRURRU, BANDUK MARIKA, TIM PAYUNKA and THE PUBLIC TRUSTEE FOR THE NORTHERN TERRITORY Respondents CORAM: JENKINSON, LEE, BEAZLEY JJ. DATE : 12 APRIL 1996 PLACE: PERTH REASONS FOR JUDGMENT LEE J: The appellants ("King and Rylands") appeal from the order of a Judge of this Court (von Doussa J.) that judgment be entered against King and Rylands, and others, in the sum of $43,222.18 and that those parties pay the respondents' costs of the trial. At material times King and Rylands were two of three directors of Beechrow Pty. Ltd. ("Beechrow"), as it was then known. The third director was Bethune. The judgment appealed from was a judgment entered against King, Rylands, Bethune and Beechrow jointly. His Honour ordered that judgment also be entered against Beechrow and Bethune in the further sum of $188,640.52. The amount of the several judgments represent the damages assessed by his Honour to be payable to the respondents for infringements of their copyright in artistic works of their creation, such infringements having been committed by Beechrow by importing carpets which reproduced those works. Beechrow, Bethune, King and Rylands jointly instructed a firm of solicitors to defend the respondents' action. Separate defences were filed. At trial they were represented by the one counsel. King and Rylands instructed other solicitors to prosecute their appeal. Beechrow and Bethune did not appeal from the judgments entered against them. At the commencement of the hearing of the appeal King and Rylands sought leave to add further grounds of appeal. Those grounds sought to raise the argument that his Honour's finding that King and Rylands were liable for the acts of infringement of Beechrow was not a finding that his Honour was able to make in that the infringements for which King and Rylands were found to be liable were acts which occurred in July 1993 and thereafter and, therefore, any causes of action in respect of those acts did not arise until after the proceedings had been instituted.

After hearing submissions from the parties the Court decided to refuse leave to amend the grounds of appeal. The reasons for that refusal have been set out by Jenkinson J. to which I add the following short remarks. Once the parties were before the Court the Court had power under s.22 of the Federal Court of Australia Act 1976 to make orders that would resolve the entire controversy between them. The nature of that controversy has to be found in the application and the subsequent pleadings and in the case presented to the Court at trial. If the parties so agreed the controversy, so defined, may include a cause of action which accrued after the commencement of the application. (See: Eshelby v. Federated European Bank Ltd. [1932] 1 K.B. 254 per Swift J. at 259; Wigan v. Edwards (1973) 47 A.L.J.R. 586 at 596.) In the application which commenced the proceeding in this Court the respondents claimed relief for infringement of copyright and alleged that the infringing conduct was continuing at the date of commencement of proceedings. It is clear from the manner in which the proceedings were litigated before his Honour that there was assent, tacit or express, that any claim to relief for an infringement arising subsequent to the commencement of the proceedings was to be included in the controversy to be resolved by the Court's adjudication. Therefore, on the hearing of an appeal from that judgment it is too late for a party to the proceeding to withdraw its assent and argue its case on appeal as if the trial had been conducted in the absence of such accord. Bethune gave evidence at trial but King and Rylands did not. King and Rylands relied upon the evidence of Bethune to make out their defences. Bethune stated that Beechrow was "a one-person company" controlled and directed by himself. He said that the roles of King and Rylands were merely "nominal" and that meetings of directors of Beechrow did not take place. Rylands and Bethune were the holders of the two issued shares in Beechrow. Rylands conducted a business in Vietnam from where Beechrow imported the carpets. It was said that Rylands found it "convenient" to use "banking and other commercial facilities available through Beechrow" in Vietnam. His Honour was satisfied in respect of all of the importations of carpets carried out by Beechrow that Beechrow knew that had the carpets been made in Australia such an act of manufacture would have constituted an infringement of copyright. There is no appeal from that finding. King and Rylands appeal from findings made by his Honour that they were liable for damages for the infringements of s.37 of the Copyright Act 1968 ("the Act") that occurred upon the importation of carpets by Beechrow in, and after, July 1993. Copies of the application and statement of claim had been served on King and Rylands by May 1993. In June 1993 they discussed with Bethune the acts of infringement of copyright alleged against Beechrow by the respondents in their statement of claim. The respondents alleged, inter alia, that Beechrow had manufactured, imported and/or offered the carpets for sale since October 1992. Bethune said that he told King and Rylands that importation of the carpets by Beechrow had ceased in October 1992. In fact, importation of the carpets had not ceased and, to the contrary, continued up to and after the commencement of the trial. Although his Honour did not consider Bethune to be a reliable witness, he was prepared to accept Bethune's account of the involvement of King and Rylands in the affairs of Beechrow. However, in determining what role King and Rylands could, and should, have taken in the management of Beechrow after they had discussed the respondents' statement of claim with Bethune in June 1993 his Honour noted that if there were inferences to be drawn from the evidence adverse to King and Rylands, those inferences could be drawn with equanimity by reason of the failure of King and Rylands to give evidence to explain their conduct. (See: Jones v. Dunkel (1958-59) 101 C.L.R. 298.) His Honour found that if King and Rylands had undertaken reasonable enquiries after June 1993 they would have discovered that Beechrow was continuing to import carpets in breach of the respondents' copyright and committing further breaches by offering the imported products for sale. A summary of the enquiries found by his Honour as those that could have been made and of the information that King and Rylands would have obtained as a result of those enquiries is as follows. His Honour found that carpets were available to be inspected by King and Rylands and that such an inspection would have revealed that designs which reflected the art works in which the respondents claimed copyright were reproduced in the carpets. Further enquiries as to the amount of imports and the number of sales would have revealed that Beechrow's accounting records were in a deplorable state and given the directors cause for concern and awareness of the need to undertake more rigorous examination of Beechrow's affairs. Basic enquiry would have revealed to King and Rylands that Beechrow had no order book for carpets, no stock book recording receipts and despatches of carpets and no financial records of sale or transfers of carpets to distributors. At that point it may have been expected that King and Rylands personally would have inspected the carpets Beechrow had on hand. The inspection would have revealed that infringing carpets were held in stock and that like carpets were on consignment to distributors around Australia. That revelation would have caused them to take steps to ensure that the impugned conduct had ceased. Having made those findings his Honour identified the question raised by those conclusions to be whether it could be said that in respect of the infringements that occurred after the proceedings had been served on King and Rylands they had "authorized, directed or procured the infringement so as to incur personal liability". His Honour answered that question by finding that "the degree of indifference exhibited by the inaction of Mr King and Mr Rylands is such that authorisation or permission by them for the course of conduct by Beechrow which followed should be inferred." Counsel for King and Rylands submitted that unless the directors had evidence that Bethune was dishonest, untrustworthy or unreliable they were entitled to rely on Bethune's assurances and that the steps regarded by his Honour as being reasonable went well beyond that which was reasonable in the circumstances. The principal points of the appeal, therefore, are whether his Honour correctly identified the scope of the reasonable enquiries expected to be made by King and Rylands, and whether his Honour was entitled to make the further finding that by reason of their failure to make such enquiries King and Rylands "authorised or permitted" a course of conduct undertaken by Beechrow to import the infringing articles after June 1993 and incurred personal liability for the tort of breach of copyright committed by Beechrow by such importations. The starting point in determining the answers to those questions is to consider the role King and Rylands undertook upon accepting appointment to the office of directors of Beechrow. Both at common law and under statutory provisions governing the conduct of the affairs of corporations King and Rylands had a duty to the company to act with care and diligence in performing their functions as directors. (See: Daniels v. A.W.A. Ltd. (1995) 16 A.C.S.R. 607 per Clarke, Sheller JJA at 656 et seq.) As directors they were the controlling organs of Beechrow. That did not mean that they had to approve, or be aware of, all steps relevant to the management and control of the company as and when those steps occurred. Directors may agree to divide between them responsibility for various operations of a corporation. However, the duty of care and diligence owed by King and Rylands to Beechrow was not suspended by entrusting the control of Beechrow to Bethune. Such a duty of care and diligence is not delegable and applies in full force to any person holding the office of director. (See: Metal Manufacturers Ltd. v. Lewis (1988) 13 N.S.W.L.R. 315 per Kirby J. at 318-319; Group Four Industries Pty. Ltd. v. Brosnan (1992) 10 A.C.L.C. 1437 per Matheson J. at 1445; A.S. Sievers, "Farewell to the Sleeping Director - The Modern Judicial and Legislative Approach to Directors' Duties of Care, Skill and Diligence" (1993) 21 A.B.L.R. 111.) Whether the failure of King and Rylands to be aware of the manner in which the control entrusted to Bethune was being exercised involved a breach of the duty of care and diligence each director owed to Beechrow was a question of fact. By limiting the liability of members of a corporation to the capital subscribed and by recognizing a corporation as an entity at law, encouragement is given to use corporations as risk-takers in businesses operating in industry, trade and commerce. However, regard for the interests of parties who have business dealings with corporations enjoying such advantages requires the development of the duty of care and diligence owed by a director to the corporation as a counterpoise to ensure that the natural persons responsible for the control of a corporation effect due management and governance of the corporation. The relevance of that duty of care and diligence to the question of the personal liability of King and Rylands for breaches of copyright committed by Beechrow lies in the extent to which the conduct of King and Rylands may be said to reflect abnegation of that duty. An egregious default may lead to an inference that neither director intended to perform the duty he owed to Beechrow and that each was content to accept the risk that Beechrow would continue to engage in conduct that involved asportation of the property of the respondents. Such an examination of the conduct of King and Rylands is not an enquiry to determine whether King or Rylands "authorised" the infringements committed by Beechrow within the meaning of that word as used in the Act. Unlike s.36 of the Act, which deals with direct infringements and imposes liability upon a person who "authorises" such an infringement, s.37, which deals with indirect infringements, does not impose such a liability. A finding of "authorisation" is not the foundation of a director's liability for the tort of infringement of copyright committed by a corporation. As Gummow J. said in W.E.A. International Inc. v. Hanimex Corporation Ltd. (1987) 17 F.C.R. 274 at 283 the concept of "authorisation" in the Act operates independently of the primary infringement by the person committing the tort of breach of copyright. Such an independent operation of the concept of "authorisation" does not prevent general law principles in respect of joint tortfeasors arising upon the commission of the primary infringement. However, if a primary infringement is committed by a corporation the liability of a director of that corporation for the tort of the corporation is governed by separate principles that have evolved in respect of the personal liability of directors for the torts of a corporation rather than principles relating to "authorisation" or joint tortfeasance. Obviously a director who expressly procures or directs the commission of a tort by a corporation will be personally liable for the tort of the corporation. That was the position of Bethune. (See: Wah Tat Bank Ltd. v. Chan Cheng Kum [1975] A.C. 507 at 514-515; Performing Right Society Ltd. v Ciryl Theatrical Syndicate Ltd. [1924] 1 K.B. 1 per Atkin LJ. at 13-15.) However, the personal liability of a director is not confined to express acts of procurement or direction nor is it limited to circumstances in which the director has adopted expressly the tortious conduct of the corporation after becoming aware of the nature of that conduct. It is consistent with both policy and reason that the liability of a corporation in tort to a third party should be imposed upon a director whose breach of duty to the company is materially connected with the incurring of that liability. The ground for liability is not the degree of "control" exercised by the director or the "assumption of responsibility" to the third party but the extent to which the breach of duty to the corporation to act with care and diligence qua director has caused the tortious conduct of the corporation. It is the nature of that breach that displays acquiescence by the director in the conduct of the corporation flowing from that breach and makes it appropriate for personal liability to attach to the director concurrently with the corporation. The application of those principles under the general law is consistent with the development of the statutory liability imposed on directors who close their eyes to the insolvent trading of a corporation. (See: Kinsela v. Russell Kinsela Pty. Ltd. (1986) 4 N.S.W.L.R. 722; Group Four Industries Pty. Ltd. (supra); Morley v. Statewide Tobacco Services Ltd. (1992) 10 A.C.L.C. 1233; Commonwealth Bank of Australia v. Friedrich (1991) 9 A.C.L.C. 946.) As Street CJ. noted in Kinsela (pp.730-733), where a corporation is approaching insolvency the duty of care and diligence owed by a director to the corporation may include a requirement that the interests of creditors of the corporation be considered. In claims of infringement of the intellectual property rights of third parties where economic harm may be caused to those parties if such rights in property are misappropriated by a corporation, the duty of care and diligence of a director of that corporation will include consideration of the interests of those parties. In such a case liability also may be imposed upon the director by statute, but the statutory provisions do not exclude the development of a parallel or broader liability at common law. Where Atkin LJ. stated in Performing Right Society at p.15 that a director may be liable for impliedly directing or procuring the commission of a wrongful act by a corporation, such implied direction or procurement is to be found in the approval of, or acquiescence in, that wrongful act, inferred from the breach of duty by the director the circumstances of which support the conclusion that the director has refused to enquire, or to act, to avoid learning, or dealing with, the obvious. (See: Metal Manufacturers per McHugh JA. at p.329.) I note that several recent New Zealand cases suggest that restraint should be applied before liability in negligence is imposed on a director of a corporation. (See: Trevor Ivory Ltd. v. Anderson (1992) 2 N.Z.L.R. 517; Livingston v. Bonifant (1995) 7 N.Z.C.L.C. 260,657.) Those cases, and Sealand of the Pacific v. Robert C. McHaffie Ltd. (1974) 51 D.L.R. (3d) 702, referred to with approval in Trevor Ivory, deal with the need to distinguish between the acts of a director as an agent or employee of a corporation and the acts of a director as the embodiment of the corporation when determining whether a duty of care is owed by the director to third parties. The cases are not concerned with the principles that determine the liability of a director for the acts of a corporation. (See: Borrowdale and Simpson, Note - "Directors' Liability in Tort: Recent Developments", (1995) 13 Companies and Securities Law Journal, 400; G.H.L. Fridman, "Personal Tort Liability of Company Directors" (1992) 5 Canterbury Law Review 41.) The cases draw attention to the risk of imposing personal liability on the controllor of a "one-person" company because of the degree of control that person is able to exercise. However, power to control the corporation is not the determinant of whether a director is liable for the tort of the corporation. The duty of care and diligence imposed on a director is intended to secure the proper management and governance of the corporation. If that duty is ignored, with the consequence that liability to third parties is incurred by the corporation, it is the extent of the director's default that brings personal liability to that director for the acts of the corporation. That is to say, if the circumstances permit an inference to be drawn that the director acquiesced or participated in the conduct of the corporation the director may be held liable for the harm caused by that conduct as if the director had expressly directed or procured that conduct. The essence of the comments of Nourse J. in White Horse Distillers Ltd. v. Gregson Associates Ltd. [1984] R.P.C. 61 at 92 is to the same effect. It is not necessary that the director be under a separate duty of care to the third party before the director may be liable for the conduct of the corporation. However, in appropriate circumstances, where there is proximity between the director and the third party and it is reasonably foreseeable that harm may be caused to that party by tortious acts of the corporation, the director also may be liable under a personal duty of care to the party dealing with the corporation. (See: National Mutual Life Nominees Limited v. Worn (1990) 5 N.Z.C.L.C. 66,384; Sub nom. on appeal: Deloitte Haskins & Sells v. National Mutual Life Nominees (1991) 5 N.Z.C.L.C. 67,418; Berger v. Willowdale A.M.C. (1983) 145 D.L.R. (3d) 247; Lewis v. Boutilier (1919) 52 D.L.R. 383.) The breach of that duty of care by the director will attract vicarious liability to the corporation. (See: New Zealand Guardian Trust Co. Ltd. v. Brooks (1995) 1 W.L.R. 96 (Privy Council) per Lord Keith at p.100.) Although it was unnecessary for his Honour to decide the issue it may be said that when King and Rylands were put on notice by the proceedings served upon them that it was alleged by the respondents that Beechrow had in its possession, and had sold and was offering for sale, articles that infringed the respondents' copyright, King and Rylands became aware that it was alleged that Beechrow was continuing to engage in acts of breach of copyright. At that point proximity between the respondents and King and Rylands was established in that the latter were aware that if they did not cause Beechrow to act otherwise the respondents may suffer harm if the alleged breaches of copyright by Beechrow continued. As directors of Beechrow King and Rylands had a duty to the respondents to duly exercise the duty of care they owed to Beechrow, in particular, by ascertaining the nature of Beechrow's conduct and by taking steps to protect the respondents from further harm if such enquiries showed that Beechrow had committed the breaches of copyright alleged. Up to the point that King and Rylands were duly served in these proceedings each may have been entitled to rely upon the reasonableness of his belief that the affairs of Beechrow were being properly managed by Bethune. However, after such service, and after the conference with Bethune, it would have been plain to King and Rylands that breaches of copyright had occurred as alleged. If, as was the case, Beechrow continued to hold copies of the infringing articles Beechrow was under an obligation to take steps to remedy its infringements by delivering up that property to the parties whose copyright had been infringed. King and Rylands sought no assurances in that regard and took no steps to acquaint themselves with the true state of the company's affairs. At that point they could not say they were entitled to rely upon an assurance by Bethune that the affairs of Beechrow were properly managed. (See: Commonwealth Bank of Australia v. Friedrich; Morley v. Statewide Tobacco Services Ltd.) If it is alleged that a corporation has been involved in serious breaches of copyright a director put on notice of such an allegation must make all enquiries as are necessary to establish the nature of the corporation's conduct. An allegation that a corporation has appropriated property of third parties for the gain of the corporation compels a director to take prompt action to obtain knowledge of all relevant facts. (See: Daniels v. A.W.A. Ltd. at pp.663-664.) The belief that such an enquiry would lack utility is not a defence if no enquiry is undertaken, (See: Scottish Co-operative Wholesale Society Ltd. v. Meyer [1959] A.C. 324 per Ld. Denning at 367.) and a director whose attempts to make due enquiries are obstructed or frustrated should resign. (See: Metal Manufacturers Ltd. v. Lewis (1986) 11 A.C.L.R. 122 per Hodgson J at 136.) In the present case the assurance received by King and Rylands from Bethune was limited. Furthermore, it was contradicted by, and did not deal with, all matters raised in the statement of claim. The duty to Beechrow to make appropriate enquiries and examine the affairs of the company relevant to the serious breaches alleged against it was a duty that transcended any right to rely upon the assurance of Bethune. His Honour found that the degree of indifference exhibited by King and Rylands was such that each should be taken to have "authorised or permitted" the conduct of Beechrow. By the use of those words I take his Honour to find that the conduct of King and Rylands as directors fell so far short of the performance of the duty of care each owed to Beechrow that it should be inferred that each had acquiesced in the conduct of Beechrow that breached s.37 of the Act and thereby, impliedly, had directed or procured the commission of that tort. Such an inference was available on the findings of fact made by his Honour and, in my opinion, the drawing of that inference accorded with legal principle. His Honour determined that the damages King and Rylands were liable to pay was a proportion of the damages assessed for conversion calculated according to the proportions of carpets imported before and after July 1993. His Honour's calculation was challenged by King and Rylands on the ground that his Honour credited against the carpets imported before July 1993 a substantial proportion of the carpets in stock. Counsel contended that it was likely that such stock would have included, in the main, carpets imported after July 1993. There was a paucity of evidence to assist his Honour due to the absence of records maintained by Beechrow. His Honour noted that the stock on hand at the time King and Rylands were put on notice of the infringements by Beechrow had been maintained at approximately the same level at the time the importations ceased and that, therefore, the importations after July 1993 must have been sufficient to meet sales. But that did not mean that stock on hand consisted at all times of pre July 1993 importations and if King and Rylands are to be liable in damages for conversion for stock imported after July 1993 any stock on hand imported after that date must be credited against post 1993 importations. I agree that on the face of the material before his Honour his Honour erred in failing to make an adequate allocation to the carpets imported after July 1993 of the stock then on hand. In my opinion, in the absence of other evidence, a fairer apportionment would have been a distribution of the stock on hand according to the proportions of pre and post July 1993 importations. Approximately 629m˛ of carpets were imported before July 1993 and 215m˛ imported after that date. If conversion damages are divided according to those proportions the amount of damages assessed against Beechrow and Bethune would be $75,302.70 and against Beechrow, Bethune, King and Rylands $15,678.80. Interest on the latter sum, calculated according to the period and rate fixed by his Honour, would be $1,846.23. Therefore, the amount for which judgment should have been entered against King, Rylands, Bethune and Beechrow jointly was $17,525.03. King and Rylands, also sought to appeal against the order that they, jointly with Beechrow and Bethune, pay the respondents' costs of the trial. Although the order for costs was in the discretion of his Honour a principal consideration in exercising that discretion would be the extent to which the proceeding commenced by the respondents sought relief against King and Rylands separately. The case against King and Rylands was more limited than the case alleged against Beechrow and Bethune and an order that King and Rylands meet the whole of the costs of the action carries the seeds of unfairness if King and Rylands are unable to recover contribution from Beechrow and Bethune. Counsel for King and Rylands submitted that joint and several liability with Beechrow and Bethune for one-half the respondents' costs would have been an appropriate order against King and Rylands in the circumstances and I agree. According to the foregoing reasons King and Rylands fail on the major issue in the appeal, namely, the finding that they were liable in law to the respondents for the judgment entered against them, but succeed partially on the subsidiary issues of the quantum of the judgment and the costs of the trial and the order for the costs of the appeal should be that they pay one-half of the respondents' costs. I certify that this and the preceding nineteen (19) pages are a true copy of the Reasons for Judgment of his Honour Justice Lee. Associate: Date:

IN THE FEDERAL COURT OF AUSTRALIA ) ) No. DG1 of 1995 NORTHERN TERRITORY ) DISTRICT REGISTRY ) ) GENERAL DIVISION ) BETWEEN: GEORGE RAYMOND KING First Appellant ROBERT JAMES RYLANDS Second Appellant AND: GEORGE MILPURRURRU First Respondent BANDUK MARIKA Second Respondent TIM PAYUNKA Third Respondent THE PUBLIC TRUSTEE FOR THE NORTHERN TERRITORY Fourth Respondent CORAM: JENKINSON, LEE AND BEAZLEY JJ PLACE: PERTH DATE: 12 April 1996 REASONS FOR JUDGMENT BEAZLEY J: This is an appeal from part of a decision of von Doussa J (Milpurrurru & Ors v Infodurn Pty Ltd & Ors (1994) 54 FCR 240) in which his Honour held that the appellants were personally liable as directors of Beechrow Pty Limited (Beechrow), for Beechrow's infringement of the respondents' copyright in certain art work. The appellants were two of the four respondents in the court below. The other two respondents in the court below, Beechrow and its managing director, Mr Bethune, (Bethune) were also found liable for infringement of copyright. Neither has appealed.

The first three respondents to the appeal are Aboriginal artists. The fourth respondent is the trustee of the estates of five deceased Aboriginal artists. The work of all artists has attracted national and international acclaim. The respondents own the copyright in the artwork which was the subject of the infringing conduct. Background facts Beechrow had been acquired by Bethune in about October 1991. He was a shareholder and the chairman of directors of Beechrow. The appellants were appointed directors of Beechrow in October 1991. The second appellant also became a shareholder. Neither of the appellants gave evidence at the trial. According to Bethune, the first appellant was appointed a director as he had made available certain security for borrowings by Beechrow. The second appellant conducted a business in Vietnam. Bethune said that the second appellant was appointed a director as it was convenient for him to use banking and other commercial facilities available through Beechrow, which was also engaged in business activities in Vietnam. The appellants played no part in Beechrow's management or in its day to day affairs, which were directed and carried out by Bethune. Between about October 1992 and September 1994, Beechrow imported and sold carpets which reproduced artwork, or substantial parts of artwork, of the respondents without their permission or license.

The proceedings at first instance The application and statement of claim were served on the first appellant on 17 May 1993. The statement of claim was served on the second appellant on 31 May 1993. There is no evidence as to the date the second appellant was served with the application. However, he filed a notice of appearance on 4 May 1993. Bethune gave evidence that neither appellant had any knowledge of the importation of the carpets until they were served with the application. Bethune said that at that time, which he placed as being in April 1993, he had extensive discussions with the appellants about the matter and that he told them that the importation of the carpets subject of the proceedings had ceased in October 1992. His Honour accepted that such discussions had taken place, at least well before 24 June 1993, when the appellants filed their defences. His Honour found (at 266) that the appellants: "accepted [Bethune's] assurance that the impugned conduct of the corporation had ceased without further inquiry". His Honour also found the appellants took no other action in respect of the alleged infringement, save to join with Beechrow and Bethune in instructing solicitors to defend the action. The appellants had contended at trial that they could not be liable for breach of copyright occasioned by the importation of the carpets prior to the time they were served with proceedings. His Honour agreed. They also contended that they were not liable for the importations after this time as they had taken all reasonable steps to ensure that there was no breach of copyright after that date. However, his Honour held (at 271) that the appellants had a duty as directors of the company: "to take such steps as were reasonably available to them to prevent serious breaches of the law of the kind alleged against [the corporation] but they failed to take any steps at all." His Honour further found (at 271) that: "...the degree of indifference exhibited by the inaction of [the appellants] is such that authorisation or permission by them for the course of conduct by [the corporation] which followed should be inferred". His Honour held, therefore, that the appellants were liable, together with Beechrow and Bethune, for conversion damages for the carpets imported during and after July 1993. The appellants appeal against these findings as well as against his Honour's order for costs. Trial Judge's approach to personal liability of directors The respondents brought their copyright claim under both s 36 and s 37 of the Copyright Act, 1968 (Cth). His Honour considered that, having regard to the way the trial had been conducted and certain concessions made by Beechrow, Bethune and the appellants as to the proper basis for assessment of conversion damages, it was appropriate to determine the matter on the basis of the s 37 claim. Neither party challenged this approach. However, having regard to the way in which the s 37 claim was pleaded and the language used by his Honour in finding the appellants liable under s 37, it is necessary to refer to the terms of both sections. Section 36 provides: "(1)Subject to this Act, the copyright in a literary, dramatic, musical or artistic work is infringed by a person who, not being the owner of the copyright, and without the licence of the owner of the copyright, does in Australia, or authorizes the doing in Australia of, any act comprised in the copyright." Section 37 provides: "..the copyright in a literary, dramatic, musical or artistic work is infringed by a person who, without the licence of the owner of the copyright, imports an article into Australia for the purpose of: (a) selling, letting for hire, or by way of trade offering or exposing for sale or hire, the article; (b) distributing the article: (i) for the purpose of trade; or (ii)for any other purpose to an extent that will affect prejudicially the owner of the copyright; or (c) by way of trade exhibiting the article in public; if the importer knew, or ought reasonably to have known, that the making of the article would, if the article had been made in Australia by the importer, have constituted an infringement of the copyright." In finding that Beechrow had infringed the respondents' copyright, His Honour held that each of the purposes in s 37(a), (b) and (c) had been established and that Bethune knew, at the time the importation occurred, that the making of the carpets, if they had been made in Australia, would have constituted an infringement of copyright. His Honour stated, correctly, that constructive knowledge is sufficient for the purposes of s 37 and that Bethune's knowledge was imputed to Beechrow: Beach Petroleum NL & Anor v Johnsons & Ors (1993) 43 FCR 1. Accordingly, Beechrow had breached s 37. His Honour then dealt with the claim against the directors. He considered that as the primary infringer, Beechrow, was a company, the relevant liability of the appellants was to be found, if at all, under the company law principles which imposed liability upon directors for the torts of the corporation: see WEA International Inc & Anor v Hanimex Corporation Ltd (1987) 17 FCR 274 (at 283) where Gummow J stated: "It should be added that infringement of copyright statutes for long has been considered tortious, so as to make applicable the common law principles as to liability of joint tortfeasors. However, those principles would not have provided an answer for plaintiffs in cases such as Sarpy v Holland, supra. This was because the circumstance that one or more persons assisted or concurred in or contributed to an act causing damage is not of itself sufficient to found joint liability; some common design is necessary... ... Where the infringer is a corporation questions frequently arise as to the degree of involvement on the part of directors necessary for them to be rendered personally liable. Those questions are not immediately answered by principles dealing with "authorisation" or joint tortfeasance. Rather, recourse is to be had to the body of authority which explains the circumstances in which an officer of a corporation is personally liable for the torts of the corporation..." The learned trial judge concluded that the appellants were liable for importations which occurred after they were put on notice of the alleged infringement, and had time, had they chosen to do so, to react to that notice. On that basis, his Honour found (at 269) them personally liable for the importations which occurred in and after July 1993, as: "...reasonable inquiry by [the appellants] in response to service of the proceedings would have brought to their notice the fact that Beechrow had in 1992 imported carpets which were exact reproductions of seven of the eight artworks identified in the statement of claim taken from the Australian National Gallery or Australian Institute of Sport portfolios; that the company had also imported snake, green centres and waterhole carpets that were or might have been within the allegations of infringement; and that the company in 1993 was continuing to import and market snake, green centres and waterhole carpets. These inquiries were not made." His Honour further stated (at 271): "Plainly, as directors of the company, it was their duty to take such steps as were reasonably available to them to prevent serious breaches of the law of the kind alleged against Beechrow, but they failed to take any steps at all." In reaching this conclusion, his Honour found the appellants failed to make a number of inquiries or take steps, reasonably open to them, which would have established that Beechrow was still importing carpets which infringed the respondent's copyright. Those inquiries or steps included inspecting the designs on the carpets at Beechrow's warehouse, investigating Beechrow's order and despatch records, checking the packing slips against the design codes, and checking and investigating the design codes against an exhibition catalogue for the carpets. They could also have contacted the respondents' solicitors if they were in any doubt as to the correct position. Appellants' submissions Counsel for the appellants submitted that, to be personally liable for infringement under s 37, the appellants had to have procured or directed, either expressly or impliedly, the commission of the infringing act. It was submitted that there was no evidence to support such a finding against the appellants. It was alternatively submitted that the appellants, by making the inquiries they did of Mr Bethune, had taken all reasonable steps to satisfy themselves that the infringing conduct had stopped. The steps which his Honour found should have been taken were, it was submitted, well beyond what was reasonable. Respondents' submissions The respondents submitted that the trial judge's findings and decision should be upheld. They further submitted that, in addition to the trial judge's findings, the appellants, by their very participation in the proceedings, including the amending of defences and the denial of the respondents' copyright until the second week of the trial, were involved in "affirming...the infringing conduct by the defendant". The respondents further submitted that it was appropriate to have regard to the principles governing the duty of directors to the company in determining the appellants' liability under s 37: see Daniels & Ors v Anderson & Ors (1995) 37 NSWLR 438 (the AWA case). Finally, it was submitted that there was a nexus between the tortfeasor question and the law on authorisation. It is convenient to deal with these latter two submissions first. Section 36 provides that a person may be liable, not only for performing the infringing act, but also by authorising the infringing conduct. I have already stated that, by its express terms, s 37 does not impose liability for authorising an importation which contravenes the section. There is no warrant, either in the express words of the section, or from the provisions of the Act generally, for importing into the words of the section concepts which appear in other sections of the Act. I should also state that there appears to be an error in his Honour's judgment in the part I have quoted above which does refer to authorisation or permission. That finding is inconsistent with his Honour's earlier statement that authorisation is not relevant to s 37. The respondents submitted that the liability of a director for the torts of the company should be considered having regard to the standard of care imposed upon directors in respect of their duty to the company. That matter was the subject of the recent decision in the New South Wales Court of Appeal in the AWA case. Clarke & Sheller JJA, in their comprehensive review of the law of directors' duty, concluded that there was no place in the modern law of corporations for sleeping or passive directors to thereby avoid liability. Their Honours stated that at 662: "The insolvent trading cases demonstrate that ignorance is no longer necessarily a defence to proceedings brought against a director. In some respects, at least, the director must inform himself or herself about the affairs of the company. ... Even so a director, whatever his or her background, has a duty greater than that of simply representing a particular field of experience. That duty involves becoming familiar with the business of the company and how it is run and ensuring that the board has available means to audit the management of the company so that it can satisfy itself that the company is being properly run. ... In our opinion the responsibilities of directors require that they take reasonable steps to place themselves in a position to guide and monitor the management of the company." Although the AWA case is not binding on this court, I accept it as correctly stating the principles which govern a director's duty to the company. However, those principles do not apply to the duty of directors to a third party. The reason for this is obvious. The relationship between a director and the company is different from the relationship between a director and a third party. A director is in a direct contractual relationship with the company. The directors' governance of the corporation ultimately determines what the company does and how it operates. Given the nature of that relationship, the law imposes a duty on directors, to repeat the words in the AWA case, to "take reasonable steps to place themselves in a position to guide and monitor the management of the company". A breach of that duty will result in liability at the suit of the company if the company thereby suffers damage or sustains loss. The liability of a director to third parties is not dependant upon these factors. It involves the director acting in a way which distinguishes his conduct from his role as the directing mind and will of the company: see Tesco Supermarkets Ltd v Nattrass [1972] AC 153. The question as to when a director crosses that threshold so as to be personally liable is the matter in issue. Principles governing personal liability of directors It will be recalled that in WEA International Inc v Hanimex Corporation Ltd, Gummow J stated that the principles dealing, inter alia, with joint tortfeasance, did not directly apply when determining whether a director was liable for a company's infringement of copyright. This must be so. The essence of joint tortfeasance is "concerted action to a common end": The Koursk [1924] P 140 at 156. This notion does not fit easily with the liability of a director for the company's wrongs. This is because, as Lord Reid said in Tesco Supermarkets Ltd v Nattrass [1972] AC 153 (at 170-171), the person who is the directing mind and will of the company: "is an embodiment of the company...and his mind is the mind of the company... Normally, [a] board of directors...carry out the functions of management and speak and act as the company" It follows that the principles to consider are those relating to the personal liability of a director for the tortious conduct of the company. Notwithstanding the separate legal existence of a company: see Salomon v Salomon & Co Ltd [1897] AC 22; Lee v Lee's Air Farming Ltd [1961] AC 12, it has long been recognised that a director may be liable for a tortious act committed by the company. However, the authorities differ as to the principles which govern a director's liability in such a case. There are a series of English cases which have held that a director is personally liable for a tortious act committed by the company which the director has ordered or procured to be done: see Performing Right Society Limited v Ciryl Theatrical Syndicate Limited [1924] 1 KB 1; Wah Tat Bank Ltd v Cheng Kum [1975] AC 507; C. Evans Ltd v Spritebrand Ltd [1985] 1 WLR 317. The statement of the text usually quoted is that of Lord Atkin in the Performing Right Society case (at 15): "If the directors themselves directed or procured the commission of the act they would be liable in whatever sense they did so, whether expressly or impliedly. His Lordship stressed that, to be liable, the director had to be privy to the tortious act. The Wah Tat Bank case provides a good illustration of what, on this test, is required for a director to be fixed with personal liability. Salmon LJ, delivering the judgment of the Privy Council, stated (at 514-515): "No doubt the fact that the respondent is chairman and managing director of H.S.C. does not of itself make him personally liable in respect of that company's tortious acts. A tort may be committed through an officer or servant of a company without the chairman or managing director being in any way implicated. There are many such cases reported in the books. If, however, the chairman or managing director procures or directs the commission of the tort he may be personally liable for the tort and the damage flowing from it: Performing Right Society Ltd. v Ciryl Theatrical Syndicate Ltd [1924] 1 K.B. 1, 14, 15, per Atkin L.J. Each case depends upon its own particular facts. In the instant case the uncontradicted evidence proves that early in 1961 the respondent, as chairman and managing director of H.S.C., agreed with the directors of T.S.C. the terms upon which H.S.C. would continue wrongfully to convert goods consigned to the banks just as they had done in the past." The English authorities have been applied in Australia: see Kalamazoo (Aust) Pty Limited v Compact Business Systems Pty Limited & Ors (1984) 84 FLR 101; Australasian Performing Right Association Ltd v Valamo Pty Ltd & Another (1990) 18 IPR 216; Martin Engineering Co & Anor v Nicaro Holdings Pty Ltd & Ors (1991) 100 ALR 358. In Kalamazoo, Thomas J stated (at 127): "Infringement of copyright is a civil wrong and is generally regarded as a tort. A deal of English authority has held that a director is liable for those tortious acts of his company which he has ordered or procured to be done: Performing Rights Society Ltd v Ciryl Theatrical Syndicate Ltd [1924] 1 KB 1 at 14; Wah Tat Bank Ltd v Chan Cheng Kum [1975] AC 507 at 514-515. Recently, the Court of Appeal in C Evans Ltd v Spritebrand Ltd [1985] 1 WLR 317 had occasion to consider the propriety of the joinder of directors in an action for infringement of copyright. Whilst leaving open the degree of authorisation, direction or procurement necessary before a director may properly be included as a defendant, the court expressly rejected the suggestion that it must be proved that a director knew that the acts authorised were wrongful or that he was reckless as to the possibility. It does not automatically follow that a director of a company will be guilty along with his company or any tort that the company commits, even though the company be small and his control over it effective: C Evans Ltd v Spritebrand Ltd (supra) at 329. However, the discussion in that case suggests that in the usual course a director who procures or directs his company to perform a tortious act will be liable along with the company." There is another line of authority which expresses a higher test for the imposition of personal liability upon directors. In Mentmore Manufacturing Co Ltd v National Merchandising Manufacturing Co. Inc (1979) 89 DLR (3d) 195 the question arose whether a director of the respondent company was personally liable for the company's infringement of the appellant's patent. The Canadian Federal Court of Appeal held that directors would not be personally liable merely by imparting to the company the practical, business financial and administrative policies which resulted in the selling of the infringing articles. Le Dain J, giving the judgment for the Court, stated (at 203): "What...is the kind of participation in the acts of the company that should give rise to personal liability? It is an elusive question. It would appear to be that degree and kind of personal involvement by which the director or officer makes the tortious act his own. It is obviously a question of fact to be decided on the circumstances of each case. I have not found much assistance in the particular case in which Courts have concluded that the facts were such as to warrant personal liability. But there would appear to have been in these cases a knowing, deliberate, wilful quality to the participation." The Court rejected the proposition that the director must know or have reason to know that the acts which he directs or procures constituted infringement. To do so would impose a condition of liability that did not exist for patent infringement generally. Le Dain J stated (at 204): "...there must be circumstances from which it is reasonable to conclude that the purpose of the director...was not the direction of the manufacturing and selling activity of the company in the ordinary course of his relationship to it but the deliberate, wilful and knowing pursuit of a course of conduct that was likely to constitute infringement or reflected an indifference to the risk of it." Mentmore has been consistently followed in Canada. See Visa International Service Association v Visa Motel Corporation (1984) 1 CPR (3d) 109 where the British Columbia Court of Appeal applied the Mentmore test to personal liability for a company's trademark infringement; Apple Computer Inc v Mackintosh Computers Ltd (1986) 8 CIPR 153 where the Federal Court of Canada applied the Mentmore test to personal liability for a company's copyright infringement; and Cadbury Schweppes Inc v FBI Foods Ltd (1994) 93 BCLR (2d) 318 where the British Columbia Supreme Court applied the Mentmore test to personal liability for a company's breach of confidence. In White Horse Distillers Limited & Ors v Gregson Associates Limited & Ors [1984] RPC 61, a passing off case, Nourse J considered that Mentmore correctly stated the law in respect of the personal liability of directors for the tortious passing off of the company. His Honour stated (at 91):

"I believe that the principles embodied in the Mentmore decision can be stated as follows. Before a director can be held personally liable for a tort committed by his company he must not only commit or direct the tortious act or conduct but he must do so deliberately or recklessly and so as to make it his own as distinct from the act or conduct of the company. It is unnecessary for him to know, or have the means of knowing that the act or conduct is tortious. It is enough if he knows or ought to know that it is likely to be tortious. The facts of each case must be broadly considered in order to see whether, as a matter of policy requiring the balancing of the two principles of limited liability and answerability for tortious acts or conduct, they call for the director to be held personally liable." His Honour observed that this test was higher than that adopted in some of the English authorities such as in the Performing Right Society case. His Honour went on to state (at 92:) "...there is, in my view, much to be said for the higher test, particularly in regard to its requirement that the director should make the act or conduct his own as distinct from that of the company. That would seem to be an entirely rational basis for personal liability. Conversely, it would seem to be irrational that there should be personal liability merely because the director expressly or impliedly directs or procures the commission of the tortious act or conduct. In the extreme, but familiar, example of the one-man company, that would go near to imposing personal liability in every case. As for deliberateness or recklessness and knowledge or means of knowledge that the act or conduct is likely to be tortious, I think that these may on examination be found to be no more than characteristic, perhaps essential, elements in the director's making the act or conduct his own." The test adopted in Mentmore was also applied in Hoover PLC v George Hulme (Stockport) Ltd, [1982] FSR 565. Both lines of authority were considered in C Evans & Sons Ltd v Spritebrand Ltd a determination on a preliminary point of law. In considering that issue, Slade LJ, with whom O'Connor and Cumming-Bruce LJJ agreed, reviewed the authorities to which I have referred. Slade LJ considered that Nourse J had gone further than the statement of principle in Mentmore in the following respects. First, Nourse J had expressed the principle as being applicable to all torts, whereas the statements in Mentmore were limited to cases of patent infringement. Secondly, he did not accept that flexible principles of policy might apply in a given case. His Lordship further stated ([1985] 1 WLR 317 at 329; [1985] 2 All ER 415 at 424): "The authorities, as I have already indicated, clearly show that a director of a company is not automatically to be identified with his company for the purpose of the law of tort, however small the company may be and however powerful his control over its affairs. Commercial enterprise and adventure is not to be discouraged by subjecting a director to such onerous potential liabilities. In every case where it is sought to make him liable for his company's torts, it is necessary to examine with care what part he played personally in regard to the act or acts complained of.... Nevertheless, in my judgment, with great respect to Nourse J...in expressing a principle in the White Horse case said to be applicable to all torts, he expressed it in terms which were not sufficiently qualified. I readily accept that the statements of Lord Buckmaster and Atkin L.J., to which I have referred, themselves cannot be regarded as a precise and unqualified statement of the principles governing a director's personal liability for his company's torts; I do not think they were so intended. In particular, I would accept that if the plaintiff has to prove a particular state of mind or knowledge on the part of the defendant as a necessary element of the particular tort alleged, the state of mind or knowledge of the director who authorised or directed it must be relevant if it is sought to impose personal liability on the director merely on account of such authorisation or procurement; the personal liability of the director in such circumstances cannot be more extensive than that of the individual who personally did the tortious act. If, however, the tort alleged is not one in respect of which it is incumbent on the plaintiff to prove a particular state of mind or knowledge (e.g., infringement of copyright) different considerations may well apply." Three matters should be observed in relation to his Lordship's judgment. First, the matter in issue was limited to the question ([1985] 1 WLR 317 at 329; [1985] 2 All ER 415 at 424): "...is it the law of England that a director of a company who has authorised, directed and procured the commission by the company of a tort of the nature specified in section 1(2) of the Copyright Act 1956 can in no circumstances be personally liable to the injured party unless he directed or procured the acts of infringement in the knowledge that they were tortious, or recklessly, without caring whether they were tortious or not?" Secondly, his Lordship expressly refrained from making a comprehensive statement of the circumstances in which a director will be personally liable for the torts of the company. Thirdly, his Lordship made express reference to the mental element, if any, required before a director will be personally liable for the torts of the company. I will return to this issue later in these reasons. Mentmore was also referred to in GM (Nth Melbourne) v Young Kelly (1986) 7 IPR 149, which involved the question of personal liability of directors for the company's infringement of copyright under s 36 Copyright Act. Woodward J referred to Nourse J's summary of the Mentmore test in White Horse Distillers, and the Court of Appeal's comments on the Mentmore test in Spritebrand. It appears his Honour adopted, at least in part, the Mentmore test. However his honour refrained from deciding whether Mentmore ought to be applied to all torts, or whether Nourse J's comments in respect of the necessary mental element were correct. The cases to which I have referred thus far were either intellectual property or passing off cases. There are two Canadian and two recent New Zealand decisions involving personal liability for negligence or negligent misstatement which call for consideration. The first Canadian decision is Sealand of the Pacific v Robert C. McHaffie Ltd (1974) 51 DLR 3d 702. In that case, Sealand retained McHaffie Ltd, a firm of naval architects, to advise on the suitability of using a certain type of concrete in an oceanarium. The British Columbia Court of Appeal held that the corporate defendant was liable for breach of contract. Sealand also brought a claim against Mr McHaffie personally, on the basis of negligent misstatement. Mr McHaffie was an employee of the corporate defendant and it would seem a director. The Court held that Mr McHaffie was not personally liable for negligent misstatement. Seaton JA, in delivering the judgment of the Court stated (at 706): "An employee's act or omission that constitutes his employer's breach of contract may also impose a liability on the employee in tort. However, this will only be so if there is breach of a duty owed (independently of the contract) by the employee to the other party. Mr McHaffie did not owe the duty to Sealand to make inquiries. That was a company responsibility. It is the failure to carry out the corporate duty imposed by contract that can attract liability to the company. The duty in negligence and the duty in contract may stand side by side but the duty in contract is not imposed upon the employee as a duty in tort." No distinction was drawn between an employee and a director for the purpose of determining personal liability. In Berger v Willowdale AMC (1983) 145 DLR (3d) 247, an employee had been injured when she slipped and fell in snow at the entrance of her workplace. The snow had not been cleared away in accordance with the company's instructions that snow and ice be cleared from the area. The employer company was held liable in negligence for this omission. Brooke and Cory JJA also held the director of company was personally liable. He had personal knowledge of the dangerous situation and had control over and had the means available for readily rectifying the situation. Weatherstone JA, in his dissenting opinion, considered that a director could not be liable for an act of omission. The two New Zealand cases are Trevor Ivory Ltd v Anderson [1992] 2 NZLR 517 and Livingston v Bonifant (1995) 7 NZCLC 260,657. In Trevor Ivory, the plaintiff orchard owners engaged the corporate defendant to provide certain horticultural advice. The corporate defendant, described in the judgments as "a one-person company", carried on business as an agricultural and horticultural supplier and advisory service. Trevor Ivory was the major shareholder and managing director of the company and was the person who provided advice to the plaintiffs on behalf of the company. The company was found to be negligent in failing to instruct the plaintiffs to protect certain plants from the effect of the herbicide which the first defendant had recommended for use in the orchard. The defendant director was held to be not liable to the plaintiffs for the company's negligent advice. Cooke P reviewed the English authorities, including White Horse Distillers Ltd, Wah Tat Bank Ltd and C. Evans and Sons Limited v Spritebrand. His Honour considered that the last two cases provided limited guidance in a case where a director was sought to be made jointly liable with the company for negligent advice. His Honour then endorsed as "basically right" the reasoning in Sealand. In finding that there was no personal liability in the circumstances, Cooke P found that the director had not assumed any duty of care in giving the advice to the plaintiffs as if he were carrying on business on his own account and not through a company. His Honour concluded (at 524): "...I commit myself to the opinion that, when he formed his company, Mr Ivory made it plain to all the world that limited liability was intended. Possibly, the plaintiffs gave little thought to that in entering into the consultancy contract but such a limitation is a common fact of business and, in relation to economic loss and duties of care, the consequences should, in my view, be accepted in the absence of special circumstances...something special is required to justify putting a case in [the] class [of cases where the owner of a one-man company has assumed personal responsibility in the giving of advice.]" Hardie Boys J was of a similar view. His Honour held that the test was, or at least included, "whether there has been an assumption of responsibility [by the director] actual or imputed" (at 527). His Honour considered that there may be an assumption of responsibility where a director exercised particular control, or control over a particular operation or activity within the company. His Honour endorsed (at 527) Slade LJ's statement in C. Evans & Sons Ltd v Spritebrand Ltd (at 424) that: "The authorities...clearly show that a director of a company is not automatically to be identified with his company for the purpose of the law of tort, however small the company may be and however powerful his control over its affairs. Commercial enterprise and adventure is not to be discouraged by subjecting a director to such onerous potential liabilities." Hardie Boys J otherwise considered that the line of authority reflected in the C. Evans & Sons Ltd v Spritebrand Ltd decision involved different considerations to those in the case before the court. To be liable in tort for negligent advice, a relevant duty of care had to be found. His Honour found that duty to exist where a director had assumed responsibility for the conduct in question. McGechan J likewise endorsed Slade LJ's warning of the need for care in fixing directors with liability. He did not consider that a director of a one-person company was to be regarded as having automatically accepted tort responsibility for advice given on behalf of the company by the director. His Honour also held that the applicable test was whether the director had assumed responsibility for the conduct in question. Livingstone's case was also a case of negligent advice, this time in respect of a foreign currency loan. Doogue J applied the Trevor Ivory test, namely, that, personal liability of a director depended upon whether the director had assumed personal liability (either actual or imputed) in the giving of advice. A significant factual circumstance in the case was that the company engaged a number of employees, some of whom, in addition to the director, were involved in aspects of the transaction which it entered into with the company. Doogue J considered this placed the director in a stronger position than in the Trevor Ivory case and found him not personally liable. The test for director's liability which has been applied in Australia in intellectual property cases is that stated in the Performing Right Society case. The appellants would not be liable under that test. Nor would they be liable under the Mentmore test. The question in this case is whether either of those tests applies where a director is sought to be made liable for the company's breach of s 37. One immediate distinction between cases such as the Performing Right Society case and the present is that those cases dealt with tortious liability where no mental element was involved. For example, in Kalamazoo, the infringing conduct arose under s 36 of the Copyright Act which does not involve a mental element. However, s 37 of the Copyright Act requires that the person must know, or ought reasonably have known, that the making of the article, had it been made in Australia by the importer, would have constituted an infringement of copyright. This is a different mental element to that stated to be necessary by Nourse J in White Horse Distillers. I should state however, I do not agree that the test for personal liability of a director involves the mental element specified by his Honour. The director is sought to be made liable for the same tort as that committed by the company. If the tort involves a mental element, the director must possess that mental element. If the tort does not involve any mental element, such as in the case of s 36, there is no reason in principle that some mental element should be imported into the test. However, I do not consider that the principles stated in the Performing Right Society case pay sufficient regard, either to the separate legal existence of the company, or to the fact that the company acts through its directors. Nor do I find the language used sufficiently describes the need to find conduct over and above that engaged in as part of the management of the company to find a director personally liable for the tortious conduct of the company. In this regard, I agree with the criticism made of these decisions by Nourse J in the White Horse Distillers case. Overall, I find the Mentmore line of authority a more satisfactory approach to the question of personal liability of a director, at least in the case of an alleged breach of s 37, but with the qualification I have already expressed. In my opinion, in the case of a director's liability for a s 37 infringement, the test may be stated as follows. A director will be liable if, having the requisite mental element prescribed by s 37, he commits or directs the commission of the tort, deliberately or recklessly, so as to make the tortious conduct his own. It may be that there is no difference in the test for personal liability of directors in the case of a s 37 infringement and in the case of personal liability for negligent advice. This is because one would expect that an essential integer of assumption of responsibility is engaging in conduct which makes the act in question the act or conduct of the director personally. In this case, I am satisfied that the appellants had the requisite knowledge for the purposes of s 37. They were put on notice of the claim by allegations made in the statement of claim: see Merchant Adventurers Ltd v M. Grew & Co Ltd [1972] Ch 242 at 255-256. The more difficult question is whether, from that point of time, by their conduct, they made the tortious act of the company their own act. In my opinion, they did not. They made inquiries of Mr Bethune about the tortious conduct. They were given an assurance it had stopped, but took no other steps to ensure that the conduct had stopped. Whilst their failure to more actively investigate the true state of affairs may well have been sufficient to make them liable for breach of duty to the company, I do not consider that such omissions had the effect of making the tortious conduct their own act so as to ground personal liability for infringement under s 37. Accordingly, the appeal should be allowed. Appeal against Trial Judge's order for costs The appellants also appealed against the trial judge's order for costs. As I would allow the appeal, it follows that the trial judge's order as to costs should be reversed and in that regard I agree with the orders proposed by Jenkinson J. Leave to add further grounds of appeal At the hearing of the appeal the appellant sought leave to add further grounds of appeal. That motion was dismissed by the court. I have read the reasons of Jenkinson J and Lee J in respect of the court's refusal of the motion and I agree with them. I certify that this and the preceding 25 pages are a true copy of the Reasons for Judgment of the Honourable Justice Beazley. Associate: Dated: 12 April 1996

APPEARANCES Counsel for the Appellants: J. Gilmour Q.C. M.C. Hotchkin Solicitors for the Appellants: Hotchkin Hanly Counsel for the Respondents: C. Golvan Solicitors for the Respondents: North Australian Aboriginal Legal Aid Service Inc. Date of Hearing : 10 July 1995 (Darwin) Date of Judgment : 12 April 1996