THE FEDERAL MAGISTRATE'S FINDINGS AND REASONS
4 To resolve the competing contentions of the parties it is necessary to identify the findings and conclusions of the Federal Magistrate in the reasons for judgment (Solitaire Homes Pty Ltd v Urban Ventures Pty Ltd [2010] FMCA 185).
5 Solitaire brought proceedings against three parties for infringement of its copyright in the plans for and the dwelling known as the Solitaire house, being Urban Design, Mr Farrelly and another company known as A & A Martins Pty Ltd trading as A & A Constructions (A & A Martins). Solitaire sought damages against each of these respondents. Urban Design and Mr Farrelly cross-claimed against A & A Martins for indemnity on the basis that they had done the work alleged to constitute the infringement of copyright at the request and under the direction of A & A Martins.
6 As the Federal Magistrate found, the Solitaire house is a project home constructed in Gungahlin in 2004. It was designed by Zelko Pekic in consultation with the principal of Solitaire, Angelo Turcin. The design took 70 to 80 hours to complete over a six to eight month period. The Solitaire house has six features which were unique or unusual in the sense they "had not been done before" in the ACT, described as (at [39]):
a) the tiled blade wall to the front balcony/ porch;
b) the upstairs home theatre;
c) the use of the theatre balcony as the front porch;
d) the combined use of flat roofing and hipped roofing;
e) the total front elevation appearance - the general composition of the front façade being unique;
f) the informal L-shaped living areas on the ground floor which separates the master bedroom at the front of the home from the other bedrooms located at the rear of the residence.
7 The plans for the Solitaire house were awarded the Master Builders Association of the ACT prize for the best Medium Density Small Lot Housing for excellence in building and design in 2004 and was a finalist for the same category of prize awarded by the Housing Industry Association of Australia in 2004 (at [43]-[44]). Mr Turcin, intended the Solitaire house to become "the signature against my company name" (at [55]). Solitaire was in the business of designing and constructing project homes. The Solitaire house was double storey in a street of single storey dwellings. Combined with the awards this ensured that the house attracted a considerable degree of publicity (at [62]-[64]).
8 Urban Design was in the business of designing and drafting plans for dwellings such as project homes. Mr Farrelly, Urban Design's sole director and shareholder, is an architectural draftsman who obtained his qualifications in 1997. From about 2001 onwards Urban Design had done design work for A & A Martins, which was a building company involved in the construction of project homes (at [104] and [180]).
9 In late 2002 Mr Martins, the principal of A & A Martins, retained Urban Design to design houses for nine lots including a lot known as the Dunlop block. Urban Design completed these plans and invoiced A & A Martins for the work in the sum of $979 (at [182]-[183]). In early January 2005 Mr Martins told Mr Farrelly that he wanted to buy the Dunlop block and have "something modern looking" constructed on it. Mr Martins asked Mr Farrelly if these plans could be completed as soon as possible (at [184]). Mr Martins collected the plans from Urban Design on 10 January 2005 and lodged them with the planning authority for approval on the same day. The plans were approved the next day by the planning authority. Mr Martins delivered the approved plans to the surveyor on 11 January 2005 so the house could be set out, it being Mr Martins' intention to construct the house as soon as possible (at [185]-[187]). Later that day the surveyor told Mr Martins the plans had been incorrectly drawn so the house would not fit on the block (at [188]). Mr Martins called Mr Farrelly who realised that the block outline had been mirror reversed. Mr Farrelly assured Mr Martins that he would try to come up with a new design and that Mr Martins should "leave the problem with him". Mr Martins told Mr Farrelly "in very firm terms, that he had better come up with a solution very quickly because the construction was due to commence the following week" (at [189]).
10 Mr Farrelly sent Mr Martins a revised sketch plan the following day but Mr Martins thought this nowhere near as good as the original design. Mr Martins told Mr Farrelly that "he needed it improved dramatically and he re-emphasised the need for this to occur quickly" (at [190]).
11 On 17 January 2005 Mr Farrelly called Mr Martins and asked him to come to his office. Mr Martins did so the following day. Mr Farrelly showed him a revised design involving a two storey dwelling with various features that would not have occurred to Mr Martins including a home theatre and tiled blade wall (at [192]). Mr Martins gave Mr Farrelly approval to complete these plans for lodgement with the planning authority (at [193]). On 19 January 2005, Mr Martins called Mr Farrelly three times regarding the plans and, late on that day, was able to collect the completed plans for both the single storey and two storey house (at [194]). The plans of the two storey house had to be amended due to the planning authority's requirements (at [198]). Mr Farrelly corrected those plans and they were re-lodged with the planning authority on 28 January 2005 (at [199]). Urban Design then invoiced A & A Martins the sum of $1,100 for the amended plans relating to the two storey house (at [200]). After lodgement further minor amendments had to be made to these plans and Mr Farrelly made those amendments (at [202]-[203]). Mr Martins purchased the Dunlop block from a related company in May 2005. A & A Martins completed construction of the two storey house on that block on 11 October 2005 (the house being known as the Dunlop house) and resold it in April 2006 (at [204]).
12 Although Urban Design employed other people who did design work, Mr Farrelly said that he did the work on the Dunlop house himself (at [125]).
13 The Federal Magistrate found that Mr Farrelly "copied the design plans of the Solitaire house and used them in the plans for the Dunlop house" (at [222]).
14 The Federal Magistrate also found:
(1) "… [T]here is more than sufficient originality in both the plans and the house to warrant a finding that copyright subsists in both the plans for and the Solitaire house itself" (at [293]).
(2) The "Applicant in these proceedings [Solitaire] holds the relevant copyright in the plans and the Solitaire house" (at [295]).
(3) As to the question of a causal relationship between the copyright work and the alleged infringing work (at [297(v)]):
I agree… that there is no direct evidence of copying. In my view, however, on the evidence, there is such significant similarity between the two houses (in particular, the various aspects of the facade, together with the second storey, complete with 'home theatre') that the causal link can confidently be inferred, supported by the circumstances surrounding the sudden and dramatic change of plans.
(4) As to infringement of Solitaire's copyright, the six elements which Mr Pekic had identified (at [39]), "save perhaps for the detail in relation to the combination of flat and hipped roofing, constitute 'an essential or material part of the applicant's work'" (at [296(vii)]), so that (at [296(viii)]):
In my view, there was no credible evidence to support any suggestion that Mr Farrelly arrived at the design for the Dunlop house, with its significant array of features that are congruent with the Solitaire house, independently. Indeed, on the evidence, I am firmly of the view, previously expressed, that Mr Farrelly copied the design of the Solitaire house and applied it to the plans for the Dunlop house.
15 The Federal Magistrate then moved to the question of remedies (at [298]-[332]), which are in issue in both the appeal and cross-appeal. Before considering the Federal Magistrate's conclusions in that regard (and the challenges made to those conclusions) it is necessary to refer to other aspects of the proceeding and findings which were made.
16 On 9 June 2008, before the hearing of the proceeding before the Federal Magistrate commenced, Solitaire obtained a default judgment against A & A Martins (at [14]). On the first day of the hearing A & A Martins appeared and applied to set aside the default judgment on the basis that, at the time the default judgment was entered and thereafter, both Mr Martins and his son were seriously ill and were each undergoing intensive medical treatment. Almost inevitably in the circumstances, the Federal Magistrate set aside the default judgment against A & A Martins which had not taken any active role in the proceeding until that time (at [14]-[19]).
17 Urban Design and Mr Farrelly defended the claims against them on various bases including contentions, which the Federal Magistrate described as "regularly repeated in [Mr Farrelly's] oral evidence", that (at [102]):
… Mr Martins, and not either of the first and second respondents, was responsible for the design of the Dunlop house, and… that Mr Martins sat with Mr Farrelly at the latter's computer (at Mr Farrelly's office) while he made suggestions/directions for Mr Farrelly to alter or amend the plans for the Dunlop house.
18 The Federal Magistrate made a number of observations about Mr Farrelly's evidence concerning the substantive dispute, as well as observations about certain conduct alleged (by Solitaire) to show that Mr Farrelly has a tendency or propensity to act in a particular way (albeit not admitted by the Federal Magistrate for that purpose) and to be relevant to the question of additional damages.
19 The observations of the Federal Magistrate about Mr Farrelly's evidence in respect of the substantive dispute included the following:
(1) "Mr Farrelly's evidence, particularly in relation to the design and drafting of the Dunlop house, waxed and waned to a significant degree" (at [120]).
(2) "As the trial wore on, I had the distinct impression that Mr Farrelly's evidence in relation to certain matters, particularly that Mr Martins was truly the person responsible for the design of the Dunlop house and that he was merely the compliant draftsman, became more firm, or at least significantly more firm than at the commencement of the trial. I should not be taken as accepting Mr Farrelly's emphasis on him being the compliant draftsman" (at [123]).
(3) "I have the greatest difficulty in accepting Mr Farrelly's contention that his role was solely as the draftsman of the plans for the Dunlop house and that he was not in any way involved in their design" (at [126]).
(4) "Again, contrary to his affidavit evidence where he repeatedly stated that Mr Martins came to his office and sat with him while plans were either drawn or amended (and, once finished, handed Mr Martins a copy of the corrected plans), he agreed with Mr Higgs' question/comment, which was to the effect that, after the plans had been corrected, (a) he contacted Mr Martins, and (b) he faxed Mr Martins a copy of the amended plans. The question can be posed, not unreasonably, why fax plans to someone if, as is alleged, that person was sitting beside you?" (at [127]).
(5) "Given Mr Farrelly's evidence, including his agreement with the proposition that he faxed the plans to Mr Martins, I cannot accept his contention that he gave a copy of the plans to Mr Martins at his office" (at [128]).
(6) "Put as neutrally as possible, Mr Farrelly's oscillation in his evidence did not assist his case" (at [129]).
(7) "Mr Farrelly was unable to explain why drawing number 3 was not part of the plans available to the Court. This omission was remedied by the complete plans that were annexed to Mr Martins' affidavit (annexure D), filed on 17th November 2008. The missing page 3 of the plans presents the 'Upper Floor Plan', with the description 'home theatre'" (at [142]).
(8) "Mr Farrelly agreed with a suggestion from the Bench that, to the untrained observer, the drawing of the blade wall indicated a finish with tiles. There was no dispute that the blade wall of the Solitaire house was finished in tiles. However, Mr Farrelly could offer no explanation as to why he had drawn the blade wall of the Dunlop house with what appears to be a tile finish. He simply opined that he was following Mr Martins' instructions, but otherwise, he could offer no information or explanation" (at [144]).
(9) "Mr Farrelly claimed clear recollection of many things about the plans, their drafting, to whom they were given, and such things. On such a matter of detail as the blade wall, which was such a significant feature on both houses, the lack of explanation was, at the very least, unfortunate if not somewhat surprising" (at [145]).
(10) "Mr Farrelly said that the plans for the double storey Dunlop house came into existence 'shortly after 19th January 2005.' He said that, because he works quickly, he was able to draw the detailed plans for the Dunlop house in two to three hours. As will be seen from the expert evidence called on his behalf, and dealt with later in these reasons, this is a quite astonishing assertion. Mr [Christopher] Novak in particular said that the drawing side of plans would usually take the better part of eighteen (18) hours" (at [159]).
(11) "While I do not doubt that Mr Farrelly is a very fast worker in the drawing of plans, I do have quite some difficulty in accepting completely the time frames that he asserted in the light of the detailed evidence of experts who were, as I have said, called on his behalf. Moreover, to re-draw a complete set of plans, for a very significantly different design for the Dunlop house (annexures P & Q), also tells against the incredibly short time suggested by Mr Farrelly to complete those drawings. In this respect I must be guided more by the evidence of the expert, Mr Novak, in which case, the time frame - and the events that are contended to have taken place therein - as described by Mr Farrelly is, in my view, even more dubious" (at [160]).
(12) "I do not accept Mr Farrelly's evidence that the initiative for, and the description of, the home theatre came from Mr Martins" (at [163]).
(13) "By way of conclusion, in my view, Mr Farrelly's evidence was flawed. Accepting that most witnesses are nervous, he struck me as a man whose evidence in relation to the matters before the Court was significantly coloured by reconstruction and his attempt to explain or to justify his past actions in relation to the plans for the Dunlop house" (at [171]).
(14) "… almost without exception, [Mr Martin's] narrative of events not only had a logic, consistency and credibility about it (which Mr Farrelly's evidence rather regularly, and unfortunately, did not) but also it was supported by relevant documentation, such as date-stamped plans" (at [177]).
20 Mr Farrelly's alleged tendency or propensity to act in a particular way concerned his inspection of another Solitaire display home (known as the Harrison house) under a false name. The observations of the Federal Magistrate about Mr Farrelly's evidence in respect of this issue included the following:
(1) Mr Farrelly's explanation for signing the false name (that he did not wish to be "followed up by sales agents") "rings quite hollow" (at [84]) and was "far-fetched" so that the Federal Magistrate did "not accept, in any respect, Mr Farrelly's explanations in relation to the Harrison house" (at [86]).
(2) As such, the facts are that Mr Farrelly "… clearly and deliberately signed a false name to gain entry to the display home, and [gave in evidence an] incongruous, if not incredible, response of signing a false name so as to avoid being pursued by sales agents, when there was no requirement to provide contact details" (at [89]). This "completely inappropriate action in visiting the Harrison house, and where he signed a false name, did not put his evidence in the most favourable light" (at [90]).
(3) Mr Farrelly's evidence that he did not fit within any of the classes of persons prohibited from inspecting the Harrison house (builders, architects or agents) was "pedantic and unhelpful" (at [167]).
(4) Mr Farrelly's evidence about his inspection of the Harrison house gave "either confirmation of an alarming naïveté and/or a disturbing example of disingenuousness" (at [168]).
(5) Whilst the evidence was inadmissible for any tendency or propensity purpose it formed "part of… Mr Farrelly's flawed mosaic of evidence" (at [169]).
21 Mr Farrelly's other conduct concerned his advice to Mr Martin about Solitaire's allegations of copyright infringement. Mr Martins became aware of the allegations in October 2006 and called Mr Farrelly. Mr Farrelly told him that "the claim was rubbish and that he (Mr Farrelly) would 'look after it.' Mr Martins said that Mr Farrelly advised him that he was speaking with his solicitor and that 'we'll sort it out'" (at [206]). Mr Martins heard nothing about the issue until 12 December 2007 (the day after the proceeding was commenced) and again called Mr Farrelly. In late January 2008, Mr Martins and Mr Farrelly had a conversation as follows (at [208], which the Federal Magistrate accepted at [177] and [223]):
[Mr Martins]: "Jaime, I thought you'd resolved that copyright issue at Dunlop. But I received court orders in December that the matter is going to court some time next month. What's going on?"
[Mr Farrelly]: "I know, it's bullshit. There's a few similarities on the outside, but the internal layout is completely different, so how can that be copyright."
[Mr Martins]: "Jaime, I've seen the photos they sent us. The front of the home in Gungahlin is fucking similar to the one you drew plans for in Dunlop, almost the same. Did you draw those plans or did they?"
[Mr Farrelly]: "They're not copied plans."
[Mr Martins]: "I hope not, I really do."
22 These conversations are to be considered in light of the fact that, as events transpired, Mr Farrelly and Urban Design defended the proceeding, in effect, by blaming Mr Martins for any copyright infringement.
23 The Federal Magistrate, against the background of this evidence and the fact that Mr Farrelly and Urban Design, at least in a pecuniary sense, gained only the design fee of $1,100 for the infringing plans (as they had no involvement in the subsequent construction and sale of the Dunlop house (at [222])), drew the following inferences about Mr Farrelly's conduct and motives:
[172] I had the strong impression that, when confronted in January 2005 by an irate client in the shape of Mr Martins, who was understandably complaining about a significant and fundamental error in the plans for his house, the construction of which he was wanting to commence quickly, Mr Farrelly took the understandable (but imprudent if not fraught) course of endeavouring to appease and to placate his client. He did so, in my view, by taking the expedient course of using the basic design of the Solitaire house and applying it to the Dunlop house.
[173] The further matters that, in my view, militate against the Court accepting Mr Farrelly's evidence arise out of the following: (a) the conflict between the expert evidence and Mr Farrelly as to how long it would take (i) to design and (ii) to draft the plans for the Solitaire house; (b) the very short time between the plans which detailed a single storey house and their transfiguration to a double storey house with significant if not striking features and a façade that very closely resemble the Solitaire house.
[174] In my view, his intention - then (in 2005) and now (in the course of giving evidence) - was not to deceive, and still less to appropriate the Solitaire plans (and/or their most striking features) for any material or other personal gain, but, rather opportunistically, to look for a quick solution to get his company, and his client, out of the predicament in which they all found themselves, and which had been the product of an error in the design of the Dunlop house produced by Urban Design.
24 When dealing with the issue of damages generally, the Federal Magistrate said:
[310] I agree with Ms Olsson's observations, which were to the effect that (a) the case concerned "project homes" (which is also to say - with no disrespect to any of the parties - that the proceedings involved homes of modest proportion, modest architectural significance, and, compared to many other houses and projects, of modest financial significance), and (b) the infringement was a "limited one-off, isolated incident." These circumstances also, in her submission, militated against any substantial award of damages. It is certainly clear that there was no evidence, or even a hint, of profiteering on the part of any of the Respondents in relation to the Dunlop house.
[311] I also accept Mr Olsson's submission that there is no basis for any award of damages against Mr Farrelly personally. All of his actions that were the subject of scrutiny in these proceedings (with the exception of his visitation of the Harrison residence, in relation to which there were no claims), in my view, were conducted on behalf of the First Respondent, Urban Design.
25 The Federal Magistrate adopted the approach that damages under s 115(2) of the Copyright Act were at large, relying on A V Jennings Ltd v Bogdan (2009) 80 IPR 356; [2009] FCA 307 at [96]. On this basis the Federal Magistrate continued:
[318] In my view, there was a clear breach of copyright by Urban Design in relation to the plans for the Solitaire house. I accept that the state of the evidence in relation to damages relied upon by the Applicant is poor; it is more by inference than by anything else. Indeed, it is difficult to see, and (as already stated) there is very little evidence of, any actual damage the Applicant has suffered.
[319] However, 'doing the best to make a just and fair assessment of the quantum of damages', and having regard to (a) the limited - and sometimes somewhat conflicting - evidence in relation to the cost of construction of the Dunlop house, (b) the fact that none of the Respondents ever actually owned the Dunlop house, (c) the "exorbitant licence fee" proposed by Mr Pekic and Mr Turcin for the use of the Solitaire plans, (d) the somewhat speculative nature of the "profit" on the sale of the Dunlop house (taken notably from comments - as opposed to documentary evidence of any kind - from Mr Turcin in cross-examination, and likewise from Mr Martins' cross-examination), (e) the fact that there is no evidence of any continuing or repetition of any infringement - indeed, I accept without hesitation Ms Olsson's submission that this was a "one-off event" - and, (e) the cases to which I have referred, in my view an appropriate award of damages is $10,000, which represents 25% of the asserted profit on the building of the Dunlop house.
26 In respect of additional damages under s 115(4) of the Copyright Act, the Federal Magistrate said:
[322] Accepting the evidence before the Court and the findings I have made, especially in relation to Mr Farrelly's conduct on behalf of the First Respondent, in my view, some award of damages under s.115(4) is appropriate. In the light of the authorities to which I have referred, and in the circumstances of this case, including the fact that (a) Urban Design is a very modest commercial enterprise, (b) there has been no profiteering by either the First or Second Respondents, and (c) there has not been, and is unlikely to be, any future infringement, an award of $2500.00 should be made in favour of the Applicant against the First Respondent by way of exemplary damages.
[323] In making award of damages under s.115(4)(b)(iv), the Court is entitled to take into account "all other relevant matters." In these proceedings, I am acutely conscious of the significant burden - financial and other - that the proceedings themselves will have already imposed on all parties. In my view, in the overall circumstances of the case, this is a not insignificant consideration. Indeed, having regard to the number of Senior and other Counsel involved, the length of the trial, the all-embracing and far-reaching involvement of solicitors, and numerous interlocutory Court events, it might be inferred that the combined legal costs are likely to exceed the cost of construction of either or both of the houses in question. I recorded earlier in these reasons, at [55], that Mr Turcin said in evidence that "this house was ... to become the signature against my company name." To state the obvious, "principles" or 'signature houses' are costly matters to protect.