Venus Adult Shops Pty Ltd v Fraserside Holdings Ltd

REASONS FOR JUDGMENT ON MOTION TO SET ASIDE AND VARY APPEAL JUDGMENT FRENCH AND KIEFEL JJ: Introduction 1 On 20 December 2006 this Court gave judgment in this appeal. The appeal concerned the assessment of damages for alleged infringement by the appellant companies of copyright in pornographic films on DVDs. It also involved claims against directors of those companies arising out of their authorisation of, or accessorial involvement in, the infringements. 2 In the Federal Magistrates Court damages were awarded and costs orders made against the companies and the directors, other than Mr De Prima. In its judgment of 20 December 2006 this Court allowed the appeal to the extent that the Federal Magistrate's assessment of damages under s 116 of the Copyright Act 1968 (Cth) was reduced. The appeal was otherwise dismissed with no order as to costs. 3 By a motion filed on 3 January 2007 the appellants sought orders that the judgment and orders made on 20 December 2006 be stayed until the hearing of the motion. They also sought an order that the Court consider grounds 1, 2, 6, 7 and 11 of the notice of appeal and that they be granted leave to file and serve supplementary submissions going to the proof of the classification of the films in question and their replacement cost. Kiefel J stayed entry of the orders made on 20 December 2006. The parties were subsequently directed to file written submissions on the appellants' motion. The appellants' were filed on 22 January 2007 and the respondents' on 5 February 2007. The appellants said that their written submissions constituted both their submissions on the application to reopen and in the appeal proper if it were to be reopened. 4 For the reasons that follow the motion will be dismissed with costs. The statutory framework 5 Order 35 of the Federal Court Rules provides, inter alia: RULE 3 DATE OF EFFECT 3 A judgment or order shall take effect on the date on which it is pronounced or made, unless the Court orders that it take effect at an earlier or later date. … RULE 7 SETTING ASIDE 7(1) The Court may vary or set aside a judgment or order before it has been entered. Rule 7(2) provides for the Court, in the exercise of its original jurisdiction, to vary or set aside a judgment or order after the order has been entered in the circumstances, including the case of default judgment, there set out. Principles governing applications to set aside or vary a judgment of the Court 6 The discretion under O 35 r 7(1) to vary or set aside a judgment before it has been entered is to be exercised sparingly. The public interest in the finality of litigation requires no less. A liberal approach would open the way to disappointed litigants to seek to re-argue cases generally on the basis that the Court failed to properly consider their submissions on the law or the facts. On the other hand, where a court has adopted a proposition of fact or law which the unsuccessful party has not had a reasonable opportunity to argue there may be a denial of procedural fairness if that party is not allowed to reopen argument for the purpose of meeting the adverse proposition: Autodesk Inc v Dyason (No 2) (1993) 176 CLR 300 at 309 (Brennan J). 7 In Autodesk Inc 176 CLR 300 the Court held that the respondents had failed to establish that without fault on their part they had been afforded no opportunity of being heard on questions which proved decisive in the determination of the appeal. On the other hand in Smith v New South Wales Bar Association (1992) 176 CLR 256, a decision of the Court of Appeal of New South Wales to disbar a barrister on the basis of a finding that he had lied was set aside. The High Court held that he had not been given an opportunity to be heard in the Court of Appeal on the critical issue of whether he had lied as found by the Court. Although the Court of Appeal had allowed the matter to be reopened it had declined to receive further evidence and denied the application to set aside its earlier orders. In their joint judgment Brennan, Dawson, Toohey and Gaudron JJ said (at 265): It has long been the common law that a court may review, correct or alter its judgment at any time until its order has been perfected … The power is discretionary and, although it exists up until the entry of judgment, it is one that is exercised having regard to the public interest in maintaining the finality of litigation. Thus, if reasons for judgment have been given, the power is only exercised if there is some matter calling for review. And there may be more or less reluctance to exercise the power depending on whether there is an avenue of appeal. It is important that it be understood that these considerations may tend against the re-opening of a case, but they are not matters which bear on the nature of the review to be undertaken once the case is re-opened, as this case was. In that case the court held that the extent of the review would vary depending on whether the error went to the heart of the matter or whether its significance was confined to some discrete subsidiary issue. In the present case the Court is not asked to receive additional evidence, but rather to come to a different view of the materials on the record before it. 8 Although O 35 r 7(1) does not specify a leave requirement the Court will ordinarily consider whether the application to vary or set aside its judgment is one which it should entertain. That first step, which may be regarded as akin to an application for leave to reopen reflects the necessary caution with which the Court will consider such an approach. In this case the Court has received full written argument on the question whether it should vary its judgment. The same process was followed by the Full Court in Li Shi Ping v Minister for Immigration, Local Government & Ethnic Affairs [1995] FCA 212. 9 In De L v Director-General, NSW Department of Community Services (No 2) (1997) 190 CLR 207 the High Court was asked to vacate a costs order it had made against the Director-General. It was put that the Director-General had not had an opportunity to make submissions about costs. In their joint judgment the majority said (at 215): The power of this Court to reopen its judgments or orders is not in doubt. The Court may do so if it is convinced that, in its earlier consideration of the point, it has proceeded "on a misapprehension as to the facts or the law", where "there is some matter calling for review" or where "the interests of justice so require". It has been said repeatedly that a heavy burden is cast upon the applicant for reopening to show that such an exceptional course is required "without fault on his part", ie without the attribution of neglect or default to the party seeking reopening. By such expressions of the power to reopen final orders, courts seek to recognise competing objectives of the law. On the one hand, there is the principle of finality of litigation which reinforces the respect that should be shown to orders, final on their face, addressed to the world at large and upon which conduct may be ordered reliant upon their binding authority. On the other hand, courts recognise that accidents and oversights can sometimes occur which, unrepaired, will occasion an injustice. 10 The circumstances in which the Court will embark upon a reconsideration of its decision on an application under O 35 r 7(1) are various. But they will be exceptional. They may involve want of procedural fairness. They may involve, for reasons not attributable to the moving party, failure to consider a critical fact or a failure to consider some direct and binding authority. As appears below the present case is one in which, in effect, the appellants say they have been denied procedural fairness because the majority in the Court decided the appeal on the basis of propositions which they did not have a fair opportunity to argue. The issues on the application to reopen 11 The appellants complain that their grounds of appeal 1, 6 and 7 were dismissed upon the evidentiary basis that they had failed to prove that their films were unclassified or X-rated. They say that they were not afforded an opportunity to deal with that issue. Had such an opportunity been afforded, they would have submitted, and now submit, that there was evidence in the Federal Magistrates Court which proved, on the balance of probabilities, that the films were X-rated or unclassified and that accordingly their sale in New South Wales and Queensland was illegal. This question was said to go to the assessment of conversion damages. 12 The appellants further contend that the majority found that conversion damages could properly be based upon the cost of the replacement of the infringing articles. They say, however, that replacement cost damages were not the subject of submissions on appeal and that they should be offered an opportunity to make such submissions. In that respect they say that there was no evidence of the replacement costs and the matter would have to be remitted for assessment. The replacement cost to the producer and distributor of the relevant DVDs would presumably be much lower than the retail value. 13 The appellants also said that Finkelstein J, who delivered a minority judgment and dissented at least in part from the majority, did not address appeal grounds 1 and 2 and did not address the effect of illegality on s 115(4) damages under grounds 6 and 7. The appellants also contend that ground 11 relating to costs, was not addressed by any of the judges. 14 It is appropriate now to consider each of these issues in turn. The proof of classification issue 15 The proof of classification issue was raised by the appellants in their submissions in support of the motion in connection with the Full Court's treatment of their appeal grounds 1, 6 and 7. 16 Ground 1 was in the following terms: His Honour erred by upholding the second respondent's objection to David Newnham for the second respondent being questioned and required to answer questions in cross examination on the illegal or possibly illegal conduct of the second respondent. Ground 6 stated: His Honour erred in the assessment of damages under sections 115 and 116 of the Act by failing to: (a) Consider or adequately consider whether damages should be denied as it is illegal to sell, trade and exchange Private films in New South Wales and Queensland, instead considering whether damages should be denied as Private films might be considered immoral, the latter being a defence as to damages the first to fourth appellants expressly did not make; and (b) Deny damages as it is illegal to sell, trade and exchange Private films in New South Wales and Queensland. Ground 7 was: His Honour erred in the assessment of damages under sections 115 and 116 of the Act by: (a) Considering that the first to fourth appellants were required to and/or did not show that there is an offence of aiding and abetting the illegal sale, exchange and trade of Private films in New South Wales and Queensland; (b) Considering that the first to fourth appellants were required to prove any such offence beyond all reasonable doubt; (c) Considering that the sale of the second respondent's Private films was not the subject to the application; and (d) Accordingly failing to reduce damages on account of the first and second respondents' aiding and abetting of the first to fourth appellants' sale, exchange and trade in Private films. 17 The appellants submit that in the main these grounds were dismissed on the evidentiary basis that they had not proven that the films were unclassified or X-rated, a question which affected both conversion and additional damages. They argue that it was not an issue in the Federal Magistrates Court or on the appeal that they had not proven that the films were X-rated or unclassified, albeit it was adverted to in their written submissions but not the respondents. The majority in the Full Court, they say, noted that the hearing proceeded on the assumption that the sale of the films was illegal. They refer to the finding in the Federal Magistrates Court that the sale or distribution of the DVDs in evidence before the Court was illegal in New South Wales and Queensland. This is said to convey an implicit finding that the films were X-rated or unclassified. The DVDs produced for distribution by Calvista Australia Pty Ltd (Calvista) were found to be packaged in boxes featuring Calvista brand and including information provided by Calvista as to the film's classification code and its X-rating film licence number. The Federal Magistrates Court had also found that none of the parallel imported DVDs produced in the case was classified. These findings were not disputed by the respondents nor the subject of argument on appeal. It is submitted that they should stand as facts unless properly disputed and overturned. 18 The appellants submit that they were not afforded an opportunity to respond to the majority's "concerns". They then refer in their submissions to aspects of the evidence below which were said to prove on the balance of probabilities that the films were X-rated or unclassified and accordingly that their sale in New South Wales and Queensland was illegal. 19 As the respondents point out in their submissions, the question of classification was treated consistently by the Court and the parties in the appeal. At p 5 of the transcript it was put to senior counsel for the appellants that it was common ground that "none of these could be lawfully sold in Australia". This view was corrected by counsel who said: No. They can be lawfully sold in the ACT and the Northern Territory, your Honour. Asked if that applied even if the films were unclassified, counsel said: Sorry, no. If they are properly classified as X-rated, they can be sold in those two places. In their reasons for judgment the majority in the Full Court referred to the finding by the Federal Magistrate that the classified Calvista product was "acceptable in at least two territories of this Commonwealth" (at [16]). 20 In dealing with ground 1 of the appeal, the majority observed that the argument about the question put to Mr Newnham proceeded on a common assumption that the sale of the Private Film DVDs in New South Wales and Queensland would have been in breach of the State Classification Enforcement Acts. The majority went on (at [52]): Counsel for Venus took the position that, on a royalty based claim, the only relevant notional sale from Calvista to Venus of the DVDs would necessarily have been in breach of State law. Counsel for Fraserside and Calvista argued that the relevant transactions between them and Venus could have taken place in the ACT and would have been lawful. And at [56] the majority said: … it was apparent that counsel for Venus was not permitted to cross-examine Mr Newnham on matters relevant to the unlawfulness of reselling Private Film DVDs in the States and Territories of Australia. Underpinning the proposed cross-examination was the assumption that the Private Films in respect of which Venus had infringed copyright could not lawfully be sold in New South Wales or Queensland. And at [59]: The magistrate, in disallowing the questions put to Mr Newnham, also seemed to rely, in part, upon the proposition that there was no necessary connection between the infringement of copyright alleged against Venus and any infringing notional sale of Private Film DVDs, contrary to State or Territory laws, by Fraserside and Calvista. No such connection seems to have been identified in the case beyond a generalised "clean hands" argument. Let it be assumed that a Private Film DVD copied by Venus was classified X 18+ under the Commonwealth Act. It did not follow that it would have been unlawful to sell or supply that film in all States or Territories of Australia. The parties seem to have assumed that any of the Private Film DVDs could be sold or supplied in the ACT or the Northern Territory. And further (at [59]): The proportion of copied X rated films saleable in the ACT and the Northern Territory to copied unclassified films not saleable anywhere, was not the subject of any finding. 21 The respondents submit that the Court did not dismiss the appeal because the appellants had not proven matters going to the classification of the films. Those matters were common ground. The nominated basis for their application, it was said, therefore does not exist. 22 In dismissing the first ground of appeal the Court said (at [61]): The question of the lawfulness of the sale of films which had been argued was not a question to be answered by reference to whether Fraserside and Calvista sold or supplied or offered them for sale or possessed them contrary to the provisions of particular State or Territory laws. The questioning of Mr Newnham in that respect was irrelevant and rightly disallowed. The primary basis upon which Venus raised the issue was that it was relevant to the calculation of the value of the pirated DVDs for the purposes of assessing damages under s 116. This would have required, for each film copied, evidence of its classification or lack thereof and submissions about the application of each State and Territory law to its sale, offering for sale or possession for sale. Broad common assumptions about all of the films copied and the lawfulness of their resale in New South Wales, Queensland, the ACT and the Northern Territory were not sufficient for that purpose. In the context of ground 1, the appellants cannot complain that they were not given a reasonable opportunity to address the issues upon which, ultimately, that ground was dismissed. The respondents submitted in opposition to the appellants' motion their failure to establish on the evidence and otherwise that the connection between their infringement and notional sales by the respondents had the consequence that the cross-examination of Mr Newnham on the topic was irrelevant. The question of the legality of film sales for the purposes of assessing conversion damages was not a question to be answered by reference to the respondents' conduct. 23 In relation to grounds 6 and 7, which dealt with the assessment of damages under ss 115 and 116, the Court considered the effect on remedies for infringement of statutory restrictions or prohibitions on the possession, sale or hiring of the work or article in which copyright is said to subsist ([95]). The Court pointed to the difficulty facing an owner of copyright seeking to invoke the conversion remedy if the infringing copies were such that their possession was contrary to law (at [99]). The Court then went on (at [100]) to restate what was not in issue between the parties, that is: In the present case there are prohibitions in certain of the classification statutes referred to earlier, affecting possession of Unclassified or X-rated films at premises where classified films are sold (ACT Act s 20) or with intent to sell (NT Act s 50C). But mere possession of such films does not appear to be an offence. The case below was not contested on the basis that it is an offence. 24 The majority recognised, however, that the preceding finding was not the end of the matter. It identified a distinct question whether legal restrictions on the sale of copyright works are logically relevant to the market value and so to the assessment of damages in conversion of infringing copies (at [100]). The majority said (at [107]): In the case of a claim for damages for conversion of goods where the owner of the goods has shown that there is a market for their sale and the illegality of their sale is not patent, it is not for the owner to demonstrate that their sale in that market is lawful. It is for the respondent to show the facts upon which it could be concluded that their lawful sale is not possible or that it is so conditioned by statutory restrictions as to affect their value. There may be some cases in which illegality is apparent by reference to facts which are not in dispute. That is not this case. And at [113]: It seems to have been common ground that the products could be sold in X-rated versions in the ACT and the Northern Territory. Even if they were the only markets in which they could have been sold, there was no basis advanced upon which the conversion damages could be limited by reference to that restriction. In any event, even in relation to New South Wales and Queensland, there was no adequate foundation upon which to make findings about the application of particular restrictions to particular films copied and/or sold by Venus. Ground 6 failed on the preceding basis. 25 In respect of ground 7, the Court found that the inadequate evidence as to illegality of the films and the common ground that there were markets in which they could legally be sold militated against any argument that illegality would have supported a public policy basis for reducing the award of additional damages (at [114]). 26 Having regard to the preceding matters, we are satisfied that the appellants have not been denied procedural fairness in relation to the basis upon which the appeal was determined on grounds 1, 6 and 7. The replacement cost issue 27 The appellants also contend that the majority in the Full Court found that conversion damages "could properly be based upon the cost of their replacement". They complain that replacement cost damages were not the subject of submissions on appeal and that they should be offered an opportunity to make submissions on that question. 28 As appears from the reasons for judgment, the majority made the observation that (at [102]): As a general proposition it is difficult to see how a market value assessment could be undertaken of goods which, by law, cannot be sold. Damages assessed in respect of such goods could properly be based upon the cost of their replacement … This was clearly an observation about an alternative mode of assessment contained in a discussion of questions of general principle raised by grounds 6 and 7. It did not affect the outcome of the appeal. That observation provides no basis for reopening the appeal. The minority judgment 29 We do not accept that there is any basis for reopening the appeal on the ground that Finkelstein J who delivered a minority judgment, did not address certain grounds. The outcome of the appeal was not thereby affected. Appeal ground 11 30 Ground 11, which is said not to have been dealt with by the Full Court, was concerned with the costs order made at first instance. That ground stated: His Honour erred in the awarding of costs by: (a) Ordering that the first to fourth appellants pay the first and second respondents' costs without reduction on account of: (i) The application for a declarations [sic] and damages as against the fifth appellant not being pursued; (ii) The application for declarations as against the first to fourth appellants being denied; and (iii) The application for a permanent injunction as against the first to fifth appellants being consented to early in the proceedings; (b) Ordering that the first and second respondents' costs be taxed rather than assessed under the Federal Magistrates Rules 2001; and (c) Failing to order the first and second respondents to pay the fifth appellant's costs or a substantial proportion those costs. [sic] As appears from the reasons for judgment the Court, having decided that damages awarded under s 116 should be reduced to $54,400, saw no basis for disturbing the other orders made by his Honour. 31 At [62] of his reasons the learned Federal Magistrate had ordered that Venus, Vassallo and Gordon pay the costs of Fraserside and Calvista which "because of the complexity of these proceedings are more appropriately taxed than assessed in accordance with Schedule 1 of the Federal Magistrate Court Rules (2001)". The only form of taxation the Court could order was taxation under the Federal Court Act and Rules. His Honour said: Some account should be taken that this court is not intended to be as expensive a venue as the Federal Court. I would therefore order that the costs payable be 80% of the taxed costs. The order as to costs was a discretionary one made in the context of a legally and factually complex case. No basis is shown for reopening the appeal in order to deal more expansively with it. Conclusion 32 For the preceding reasons the appellants' motion to vary or set aside the judgment made on 20 December 2006 should be dismissed with costs. I certify that the preceding thirty-two (32) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justices French and Kiefel.