Accounting Systems 2000 (Developments) Pty Ltd v CCH Australia Ltd

Re: ACCOUNTING SYSTEMS 2000 (DEVELOPMENTS) PTY LIMITED and C.C.H. AUSTRALIA
LIMITED v. C.C.H. AUSTRALIA LIMITED; CASTLE DOUGLAS PTY LIMITED; ACCOUNTING
SYSTEMS 2000 (DEVELOPMENTS) PTY LIMITED and GREGORY STOKES
No. NG542 of 1992
FED No. 358
Number of pages - 19
Trade Practices - Copyright
(1993) 114 ALR 355
(1993) ATPR 41-269
(1993) AIPC 91-033 (extract)
(1993) 42 FCR 470
(1993) 27 IPR 133

COURT

IN THE FEDERAL COURT OF AUSTRALIA

NEW SOUTH WALES DISTRICT REGISTRY
GENERAL DIVISION
Northrop(1), Lockhart(2) and Gummow(2) JJ

CATCHWORDS

Trade Practices - Whether the term "conduct" in s. 4(2) of Trade Practices Act 1974 embraces the giving of warranties in an agreement without any anterior representation - whether inaccurate warranties of this kind are capable of constituting misleading or deceptive conduct - remedies under Trade Practices Act and common law compared - discretion to grant relief under s. 87 - ss. 4(2), 51A, 52, 75B(1)(a), 82, 87 Trade Practices Act 1974.

Copyright - Infringement of copyright in literary works being computer programs - whether a substantial part of a computer program was reproduced - Autodesk Inc v Dyason (1992) 173 CLR 330 and Autodesk Inc v Dyason (No 2) (1993) 111 ALR 385 considered - ss. 10(1), 14 and 31(1)(a)(i) Copyright Act 1968.

HEARING

SYDNEY, 22, 23 February 1993

#DATE 3:6:1993

Counsel and solicitors Mr N.R. Burns instructed
for the appellants: by Worthington Storey.

Counsel and solicitors Mr D.K. Catterns QC for the respondents: instructed by Rosenblum and Partners.

ORDER

THE COURT ORDERS THAT:

1. The appeal be dismissed.

2. The appellants pay the costs of the respondents of the appeal.

3. The cross-appeal be dismissed.

4. The respondents pay the costs of the appellants of the cross-appeal, which should be set off against the costs payable under order No. 3.
Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

JUDGE1

NORTHROP J This appeal raises a novel, but very important, issue under s52 of the Trade Practices Act 1974. Sub-section 52(1) provides:

"52(1) A corporation shall not, in trade or commerce, engage in conduct that is misleading or deceptive or is likely to mislead or deceive."

The most important issue, because of its widespread effect, raised by the appeal is whether a corporation, merely by making a contract containing warranties given by the corporation which warranties are false, thereby engages in conduct in contravention of sub-section 52(1).
By judgment given on 10 July 1992, the Court, constituted by O'Loughlin J, made the following orders and declarations:

"1. The whole of the following agreements are declared void ab initio:

(a) Copyright Assignment between the Second Applicant and the First Respondent dated 23 December 1988 (Exhibit A8);

(b) Option to Acquire Copyright between the First and Second Applicants and the First Respondent dated 3 January 1989 (Exhibit A11);

(c) Option to Acquire Shares between the First Applicant and the First Respondent dated 3 January 1989 (Exhibit A10); and

(d) Shareholders Agreement between the First Applicant and the First and Second Respondents dated 3 January 1989 (Exhibit A12).

2. It be declared that, to the extent that the Second Applicant has allotted shares to the First Respondent pursuant to the Copyright Assignment referred to in order 1(a) above, the Second Applicant is entitled to cancel the allotment.

3. It be declared that the First Applicant is not obliged to make any further payments to any of the Respondents in relation to any work carried out by them with respect to the accounting products pursuant to the Consultancy Agreement dated 23 December 1988 (Exhibit A7).

4. The First and Second Respondents pay damages to the First Applicant in the amount of $95,033.11 together with interest calculated to the date hereof in the sum of $51,330.77.

5. The First and Second Respondents pay the Applicants' costs.

6. The Applicants pay any costs incurred by the Third Respondent additional to those incurred by the First and Second Respondents."

In that proceeding CCH Australia Ltd and Castle Douglas Pty Ltd were the first and second applicants respectively. In these reasons, they can, for practical purposes, be treated as one and shall be referred to as "CCH". Accounting Systems 2000 (Developments) Pty Ltd and Accounting Systems 2000 Pty Ltd were the first and second respondents respectively. At the trial, they were treated as one. In these reasons they shall be referred to as AS2000. The third respondent was Gregory Stokes, a director of each of the AS2000 companies.
AS2000 has appealed from the judgment of O'Loughlin J and is seeking orders that the orders numbered 1 to 6 be set aside and that the application by CCH be dismissed. CCH has cross-appealed seeking orders that the orders numbered 4, 5 and 6 be set aside and that in lieu thereof AS2000 and Stokes be ordered to pay damages to CCH Australia Ltd in the amount of $95,033.11 together with interest in the sum of $51,330.77 as well as their costs.
On the appeal, it became apparent that the quantum of damages and interest were not, really, in dispute. Orders 1, 2 and 3 were made pursuant to s87 of the Trade Practices Act. The power to make those orders was challenged by AS2000. Further, it was argued that if there was power, as a matter of discretion the orders should not be made. In addition, it was argued that there was no power to award damages under the Trade Practices Act. It was argued further that had there been a breach of warranty by AS2000, CCH was entitled to damages for breach of warranty only. CCH argued that in law a breach of the warranty was in truth a breach of condition entitling it to rescind the agreement.
The facts giving rise to this appeal are very complex but for the purposes of determining the appeal can be stated in short form. The issues concern copyright in computer programs relating to accounting software to be used by a business as part of its accounting system. A company, Focus Business Systems Pty Ltd ("Focus"), carried on the business of a computer software developer. As part of its business it developed computer programs and claimed copyright in these programs. Under the Copyright Act 1968 a computer program, as defined, is a literary work. Thus, under s31(1)(a) of the Copyright Act, Focus claimed the exclusive right to reproduce its computer programs and to make adaptations of them.
Focus claimed copyright in computer programs known as "Focus Business Software". One of the programs was known as "the General Ledger and Accounts Receivable Software" which was described as the FBS V1.3 program. The V represented the word "version" and the current version of the program was thus 1.3. This program will be referred to as "the Focus program". The Focus program was provided to businesses to assist the businesses to maintain their accounts.
AS2000 also carried on the business of a computer software developer. It desired to develop computer programs suitable to be used by accountants who did the accounting and tax work for a large number of businesses which were engaged in many different types of business. Accountants who carried on this type of business are said to be in "the Public Accounting and Tax Agent market". The Focus program was not suitable to be used by accountants in that market. That program would need to be modified so that when used in conjunction with related computer programs, all would be suitable for use by accountants in that market. In order to develop its computer programs for use in the Public Accounting and Tax Agent market, AS2000 desired to make use of the Focus program. For the moment it is best to avoid the use of the words "reproduce" or "adapt" the Focus program. In order to fulfil its desire, AS2000 entered into an agreement with Focus. The agreement, which will be called the Focus agreement, is in writing. It is dated 4 December 1987 and the relevant parts of it are as follows:

"LETTER OF AGREEMENT BETWEEN FOCUS BUSINESS SYSTEMS PTY LIMITED and

ACCOUNTING SYSTEMS DEVELOPMENT PTY LIMITED It is agreed between Focus Business Systems Pty Limited and Accounting Systems 2000 Development Pty Limited to undertake the following:

1. Purchase of sourcecode for Focus Business Software to include General Ledger and Accounts Receivable for a consideration of $9,000 paid to Focus by Accounting Systems 2000.

2. The consideration paid to Focus by Accounting Systems 2000 entitles Accounting Systems 2000 to modify, resell and represent the purchased software as the property of Accounting Systems 2000 to the Public Accounting and Tax Agent market without the payment of royalties or licence fees to Focus.

3. The resale of Focus Business Software to markets other than the Public Accounting and Tax Agent markets will attract licence fees under the normal terms and conditions defined in the Focus Agent Agreement and provides the option for marketing said software under the Accounting Systems 2000 logo or brandname.

4. The purchased software will not be made available to other organisations targeting the Public Accounting and Tax Agent markets as a significant part of their operations.

5. Other modules of Focus Business Software will be available for the Public Accounting and Tax Agent markets under the terms and conditions stated above."

Reference to "source code" in para 1 is, in reality, a reference to the computer program being the Focus program. This follows from the definition of "computer program" contained in s10 of the Copyright Act. In that Act, unless a contrary intention appears, "computer program" means:

"an expression, in any language, code or notation, of a set of instructions (whether with or without related information) intended, either directly or after either or both of the following:

(a) conversion to another language, code or notation;

(b) reproduction in a different material form; to cause a device having digital information processing capabilities to perform a particular function;"

It is clear that the Focus agreement enabled AS2000 to reproduce or to make adaptations of the Focus program for use by a limited group of persons being persons in the Public Accounting and Tax Agent market without infringing the copyright of Focus. Although not an issue in this appeal, it is possible that the Focus agreement authorizes clients of AS2000 in the Public Accounting and Tax Agent market to use the computer programs supplied to them by AS2000 without infringing the copyright of Focus. Of necessity, to be effective for use in that market, the reproduction or adaptation of the Focus program would need to be used in conjunction with other computer programs developed by AS2000.
Attention is directed to paragraphs 3 and 4 of the agreement. The present case involves a sale of what is alleged to be a reproduction or adaptation of the Focus program by AS2000 to CCH and the issue of whether the reproduction or adaptation of the Focus program by CCH constitutes an infringement by CCH of the copyright of Focus in that program. CCH is not an accountant in the Public Accounting and Tax Agent market but is a supplier of appropriate software to accountants in that market. Paragraph 4 imposes a limitation on the rights of Focus.
The learned trial Judge rejected a submission made on behalf of AS2000 that the Focus agreement assigned the copyright in the Focus program from Focus to AS2000. He held copyright in the Focus program did not pass and was not intended to pass from Focus to AS2000. Thus, Focus retained copyright in the Focus program. This finding was not challenged on the appeal. This finding is of crucial importance in the submissions made on behalf of CCH.
In the 12 months between December 1987 and December 1988, AS2000 developed computer programs designed to be used by accountants in the Public Accountancy and Tax Agent market. These programs will be called the AS2000 programs. Having regard to the Focus agreement, it was to be expected that the AS2000 programs would include parts of the source code of the Focus program or, as the agreement states, modifications of the Focus program. Further, having designed the AS2000 programs, it would be expected that AS2000 had copyright in those programs.
Between 23 December 1988 and 3 January 1989 the four agreements referred to in order No 1 of the orders made by the Court on 10 July 1992 were entered into between AS2000 and CCH. For present purposes, the copyright Assignment agreement is the most important. That agreement is in writing and was entered into between Accounting Systems 2000 (Development) Pty Ltd, as assignor, and Castle Douglas Pty Ltd, as assignee, but for present purposes can be treated as being between AS2000 as assignor and CCH as assignee. It is necessary to set out the recitals and clauses 1, 2 and 3 only of this agreement which can be called the Copyright Assignment agreement. These parts of the agreement are as follows:

WHEREAS:

A The Assignor is the proprietor of certain accounting software products known as the "Client Accounting System", the "Office Management System", and the "Client Management System".

B The Assignor has agreed to sell and the Assignee has agreed to purchase the copyright in the accounting products referred to in recital A on the basis set out below. NOW IT IS AGREED:

1 DEFINITIONS

1.1 In this Agreement unless the context otherwise requires:

(a) "Accounting Products" means the software products owned by the Assignor and intended for use by accounting practitioners and known as the "Client Accounting System", the "Office Management System", and the "Client Management System" and includes all Associated Documentation, all other related and ancillary documents, programs and other supplementary material;

(b) "Associated Documentation" includes all operating manuals, user manuals, programming manuals, modification manuals, flow charts, drawings and software listings.

2 ASSIGNMENT

2.1 The Assignor hereby assigns to the Assignee absolutely all of the Assignor's right, title and interest in and to the copyright in the Accounting Products. 2.2 In consideration of the assignment the Assignee agrees to allot to the Assignor two hundred thousand "B" Class Ordinary shares of one dollar each in the Capital of the Assignee.

3 WARRANTIES

3.1 The Assignor warrants that:

(a) it is the sole beneficial owner of the copyright in the Accounting Products, that it has not granted any licence in respect of any or all of the Accounting Products to any person except certain licences to use the object code of the Accounting Products or mortgaged or otherwise encumbered the same in any way;

(b) it is entitled to assign such copyright to the Assignee without the consent of any person whomsoever;

(c) there is no claim or potential claim against the Assignor of any person whomsoever for infringement or breach of copyright in respect of any or all of the Accounting Products.

3.2 The Assignor hereby indemnifies and agrees to keep indemnified the Assignee from and against all claims, demands, actions, proceedings, costs, expenses and liabilities whatsoever and howsoever arising in connection with or incidental to any actual or alleged infringement of copyright resulting from the use or exploitation by the Assignee of the Accounting Products."

It appears that CCH did not know of the Focus agreement at the time it entered into the Copyright Assignment agreement. The Copyright Assignment agreement was prepared by the solicitors for CCH. It was presented by CCH to AS2000 for signature. It was signed for and on behalf of AS2000. There is no evidence that AS2000 had made any oral or other representation to CCH to the effect of warranties 3.1 (a), (b) or (c) before the agreement was presented for signature. In the events which have happened, on the appeal CCH abandoned relying upon any allegation that AS2000, in refraining from disclosing any defect in copyright it had in any of the computer programs, engaged in conduct in contravention of s52 of the Trade Practices Act. The learned trial Judge held that each of the warranties was false, even though AS2000 believed them to be true, and that each warranty constituted conduct by AS2000 in trade or commerce that was misleading or deceptive or likely to mislead or deceive in contravention of s52 of the Trade Practices Act. This finding is challenged most strenuously by AS2000.
Under clause 2 of the Computer Assignment agreement, AS2000 assigned to CCH all its "right title and interest in and to the copyright in the Accounting Products". By definition, the "Accounting Products" mean the AS2000 programs which are identified as 1: "the Client Accounting System", 2: "the Office Management System" and 3: "the Client Management System". Of these three programs, the Client Accounting System is the largest and, probably, the most important. CCH asserts that the evidence establishes that the Client Accounting System is a reproduction or adaptation of the Focus program and that Focus has copyright in that program. The other two programs were developed by AS2000 to complement the Client Accounting System. The three programs, being the Accounting Products, together are essential to enable accountants to benefit from them. At the trial, CCH submitted that AS2000 had no copyright in any of the computing programs within the Accounting Products and thus warranty 3.1 (a) was false. The learned trial Judge accepted that submission. On appeal, counsel for CCH expressly abandoned that submission and conceded that AS2000 had copyright in those programs. The concession appears to be well founded. Thus, there has been no breach of warranty 3.1 (a). Nevertheless, counsel for CCH submits that there has been a breach of each of warranties 3.1 (b) and (c) insofar as Focus has copyright in any part of the programs within the Accounting Products and that each of those breaches constitutes a contravention by AS2000 of s52 of the Trade Practices Act.
For the purposes of this appeal, it is not necessary to consider in detail any of the three agreements referred to in orders No 1 (b), (c) and (d) of the orders of the Court made on 10 July 1992. They dealt with the subsequent development and marketing of the Accounting Products the subject of the Computer Assignment agreement. In essence, these agreements provided for a complex series of transactions which would result in CCH becoming committed to pay some $1,000,000 for those computer programs and in addition to expend large sums of money in further developing those programs to enable CCH to grant licences to its customers to use the programs.

As a secondary defence, counsel for AS2000 submitted that even if, on the facts of this case, warranties 3.1 (b) and (c) did constitute conduct by AS2000 in contravention of s52 of the Trade Practices Act, the learned trial Judge should not have exercised the discretion conferred upon him by s87 of the Trade Practices Act to make the orders 1, 2 and 3. In order to show error in the exercise of that discretion, counsel referred to the error in finding that AS2000 had no copyright in any of the AS2000 programs.
The trial of this proceeding was heard and determined in two parts. The issues relating to what can be described as liability were heard prior to the issues relating to remedies. The parties agreed that 12 questions should be answered and the issue of liability could be determined from the answers given. One of the questions related to the wording of the warranty 3.1 (c) of the Copyright Assignment agreement. The parties agreed the warranty should be rectified to read:

"3.1 The Assignor warrants that:

(a) ...

(c) there is no claim or potential claim against the Assignor or any person whomsoever for infringement or breach of copyright in respect of any or all of the Accounting Products."

The rectification involved the substitution of the word "or" as underlined for the "of" as appearing in the agreement.
The questions raised at the hearing relevant to this appeal, and the answers of the learned trial Judge, are set out:

Question

"1. Whether as at 23 December 1988:

a) the first respondent was the proprietor of certain accounting software products being computer programs known as the 'Client Accounting System', the 'Office Management System' and the 'Client Management System' ('the Accounting Products' and the 'computer programs' respectively);

b) the first respondent was the sole beneficial owner of the copyright in the Accounting Products; c) the first respondent was entitled to assign the copyright in the Accounting Products without the consent of any person whatsoever." Answer: 1. (a) No

(b) No

(c) No

It is to be noted that the correct answer to question 1(a) is "Yes".

Question

"3. ... whether, as at 23 December 1988 there was no claim or potential claim against the first respondent or any person whatsoever for infringement or breach of copyright in respect of any or all of the Accounting Products." Answer

3. No

Question

"4. In the event that all or part of the questions 1 or 3 above is answered negatively, whether the respondents or any of them knew the true state of affairs as at 23 December 1988."

Answer

4. No

Question

"5. Whether as at December 1988 or January 1989 the respondents knew that:

a) it was the intention of the first applicant to grant licences in Australia to any persons to do acts comprised in the copyright in the Accounting Products and the computer programs;

b) the applicants believed that the second applicant would be entitled, following the execution of the agreements referred to in paragraph 5 of the statement of claim (the agreements referred to in the order of

10 July 1992 plus other agreements not necessary to refer to) to grant to any person whatsoever a licence to do any act comprised in the copyright in the Accounting Products or any of the computer programs without the licence or consent of any other person; c) the applicants believed that the second applicant would be entitled following the execution of the agreements referred to in paragraph 5, to grant an assignment of the copyright in the Accounting Products or any of the computer programs to the first applicant without the licence or consent of any other person ;

and

d) the applicants believed that, upon the assignment of the copyright in the Accounting Products or the computer programs by the second applicant to the first applicant, the first applicant would have the right to grant an assignment of such copyright to any persons whatsoever without the licence or consent of any other person."

Answer

5. (a) Yes

(b) Yes

(c) Yes

(d) Yes

Question

"6. If the answer to any of the questions 1, 3 or 4 above is in the negative, whether the giving of the written warranties (being 3.1 (a), (b) and (c) of the Copyright Assignment Agreement) or any of them is as a matter of law capable of constituting misleading conduct within the meaning of the s52 of the Trade Practices Act."

Answer

6. Yes

Questions

"7. Whether the computer programs and the Accounting Products (the AS2000 programs) are reproductions in a material form of the whole or a substantial part of computer programs which together form the Focus program.

8. Whether in the alternative the (AS2000 programs) are adaptations of the whole or a substantial part of the Focus programs.

9. Whether copyright, or in the alternative, part of the copyright in the Focus programs was in December 1988 and January 1989 owned by Focus Business Systems Pty Limited or some person other than the first respondent.

10. If the questions numbered 7, 8 and 9 above are answered in the affirmative, whether, by reason of the matters set out in paragraphs 7, 8 and 9 above the licence or consent of Focus Business Systems Pty Limited or its successors in title or some other person was required before the respective applicants could do any of the acts referred to in sub-paragraphs 5(a) to (d) of question 5." Answers

7. Yes

8. Yes

9. Yes

10. Yes

Question

"11. Whether the respondents knew each of the matters referred to in paragraphs 7 to 10 above."

Answer

11. No

On the appeal, AS2000 challenged the answers to questions 1(b) and (c), 3, 6, 7, 8 and 9. Before turning to consider each of these questions, it is helpful to make some general comments concerning copyright. Copyright is in the nature of a chose in action. It is the exclusive right to do the acts referred to in s31 of the Copyright Act. See also s13. Copyright is personal property and may be assigned, but an assignment does not have effect unless it is in writing signed by or on behalf of the assignor; s196. The owner of copyright is able to enforce copyright by an action for infringement of the copyright; s115. Copyright is infringed where a person, 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; s36. The owner of copyright may licence a person to do any act referred to in s31. The licence may be in writing, oral or to be implied, but any exclusive licence must be in writing signed by or on behalf of the owner; see definition of "exclusive licence" contained in s10 of the Copyright Act.
Having regard to the affirmative answer to question 1(a), AS2000 is, for the purposes of this appeal, to be treated as the owner of copyright in the Accounting Products, including the Client Accounting System, and thus is able to assign the copyright in the Accounting Products to CCH. The parties seemed to assume and accept that despite AS2000 being able to assign its copyright in the Accounting Products to CCH, Focus could claim copyright in parts of the Accounting Products and in particular in the Client Accounting System. This follows from the finding that the Focus agreement did not constitute an assignment of copyright in the Focus program from Focus to AS2000. The Focus agreement did not confer an exclusive licence on AS2000 to do the acts in paragraph 2 of the Focus agreement but did constitute a licence. Thus, at the trial, and on the appeal, the parties assumed and accepted the relevance of questions 1(b) and (c) in that if Focus was the owner of copyright in any part of the Client Accounting System, Focus could claim infringement of copyright by CCH if CCH did any act comprised in that copyright in relation to a substantial part of the Client Accounting System. As a result, at the trial, much evidence was directed to the issue of whether the Client Accounting System was a reproduction or adaptation by AS2000 of the copyright of Focus in the Focus program.
AS2000 had the licence of Focus to use its copyright in its source code constituting the Focus program. There can be no doubt AS2000 had access to that source code. Under the Focus agreement, Focus expressly authorized AS2000 "to modify, resell and represent (the Focus Program) as the property of (AS2000) to the Public Accounting and Tax Agent market without the payment of royalties or licence fees to Focus." Thus, there was no reason why AS2000 should not reproduce or make adaptations of the source code for the Focus program.
A computer program is, for the purposes of the Copyright Act, a literary work; see definition of literary work in s10. The definition of a computer program has been set out earlier in these reasons. There can be no doubt that the source code for the Focus program is a computer program. Evidence was led at the trial that the source code of the Focus program contained 99 files, each of which contained a number of lines. Twenty nine of those files, chosen at random, were compared with comparable files in the source code of the AS2000 Client Accounting System. The methodology used was to take each line in turn from the source code of the 29 Focus files, search for the same or similar line in the relevant source code of the AS2000 program and compare the contents. This comparison disclosed that 3907 lines out of a total of 6917 lines, that is 56% of the lines in the 29 files compared, were exactly the same, that is were reproduced, in the AS2000 source code. A further 2058 lines (30%) of the lines in the 29 files of the Focus source code were not reproduced in the AS2000 source code. The remaining 952 lines (14%) were said to be "very close".
At the trial, counsel for AS2000 challenged the methodology of the comparison relied upon and the fact that 29 Focus files only were made the subject of comparison, not the total 99 Focus files. These objections were not repeated on the appeal.
As a result of acceptance of this evidence, the trial Judge held that the AS2000 source code was a reproduction or adaptation of the Focus source code. His Honour said:

"I have come to that conclusion for two reasons. First, I am overwhelmed by the extent of the exact copying (that is not a quantitative statement; the extent is so great that it takes on a qualitative mantle). And if to that, there is added some part only of the close copying, the case for the applicants is the stronger. In some of the files the extent of the copying was extreme; for example, 7 of the 29 files showed copying ranging from 82.2% to 100%. The respondents would prefer to emphasise that all but 1 of the 99 files had some changes or alterations but it is necessary to bear in mind that those changes or alterations can range from minor modifications to new works. To the extent to which they might be minor modifications, the Privy Council said in Interlego A.G. v Tyco Industries Inc (1989) AC 217 at 256:

"In the nature of things the original drawings come to be reproduced, probably many times, and updated from time to time as minor modifications are made in design or methods of manufacture. To accord an independent artistic copyright to every such reproduction would be to enable the period of artistic copyright in what is, essentially, the same work to be extended indefinitely."

This, in turn, leads me to the second reason for rejecting the respondents' witnesses. In my opinion they have concentrated too much on the work done by AS2000 in 1988 and too little on the extent to which original Focus work was retained in the AS2000 program. No amount of new or additional work will compensate for the retention of a substantial and material part of the Focus program. (Ladbroke Football) Ltd v William Hill (Football) Ltd

(1964) 1 All ER 465; Blackie and Sons Ltd. v Lothian Book Publishing Co Proprietary Ltd (1921) 29 CLR 396. I am satisfied that my acceptance of Mr Grouse's evidence justifies, and leads to, the finding that the AS V2.1E program was a reproduction (and if not a reproduction, then an adaptation) of the FBS V1.3 program. Hence, AS2000 did not own and was not able to assign copyright to the CCH group without the assistance of Focus ..."

There was argument before the Full Court on whether this finding was, on the evidence, open. Paragraphs 31(a)(i) and (vi) of the Copyright Act provide:

"31(1) For the purposes of this Act, unless the contrary intention appears, copyright, in relation to a work, is the exclusive right:

(a) in the case of a literary ... work, to do all or any of the following acts:

(i) to reproduce the work in a material form; ...

(vi) to make an adaption of the work;"

It is noted that the words "material form" are defined in s10, but there is no issue in this appeal in relation to this. The word "adaptation" is, defined in s10 and the relevant definition is:

"adaptation" means:

(a) ...

(ba) in relation to a literary work being a computer program - a version of the work (whether or not in the language, code or notation in which the work was originally expressed) not being a reproduction of the work;"

Reference should be made also to sections 13 and sub-section 14(1):

"13. (1) A reference in this Act to an act comprised in the copyright in a work or other subject-matter shall be read as a reference to any act that, under this Act, the owner of the copyright has the exclusive right to do.

(2) For the purposes of this Act, the exclusive right to do an act in relation to a work, an adaptation of a work or any other subject-matter includes the exclusive right to authorize a person to do that act in relation to that work, adaptation or other subject-matter.

14. (1) In this Act, unless the contrary intention appears:

(a) a reference to the doing of an act in relation to a word or other subject-matter shall be read as including a reference to the doing of that act in relation to a substantial part of the work or other subject-matter; and

(b) a reference to a reproduction, adaptation or copy of a work shall be read as including a reference to a reproduction, adaptation or copy of a substantial part of the work, as the case may be."

The basic nature of infringement appears in sub-section 36(1) as follows:

"36. (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."

Remedies for infringements of copyright are contained in Part V of the Copyright Act commencing with s114.
Section 14 of the Copyright Act has an extending effect. Under s36, infringement occurs where a person, without the licence of the owner, does "any act comprised in the copyright." For present purposes, the relevant acts are reproduction of the Focus source code and the adaptation of the Focus source code. The whole of the Focus source code has not been reproduced, but on the evidence, the AS2000 source code at the very least is an adaptation of the Focus source code. The issue is whether the adaptation is "in relation to a substantial part" of the Focus source code.
Difficulties arise in applying copyright protection to computer programs on the footing that they are literary works. This is made evident by the Autodesk cases in the High Court; Autodesk Inc v Dyason (1992) 173 CLR 330 and Autodesk Inc v Dyson (No 2) (1993) 111 ALR 385. Neither of these decisions had been published at the time O'Loughlin J gave the judgments in the present matter. A very helpful summary of the first Autodesk case is given by Mason CJ in Autodesk (No 2) at pp387-8:

"The present case is a pioneering step into a technically and conceptually complex world. That is partly because the 1984 amendments to the Copyright Act 1968 (Cth) extended copyright protection to computer programs on the footing that they were literary works and is one reason why there has been difficulty in ascertaining precisely how the appellants presented their case. Autodesk was the first decision of this court dealing with the amendments made to the Copyright Act in 1984. It was only the second decision of this court dealing with the issue of copyright protection for computer programs, the decision in Computer Edge Pty Ltd v Apple Computer Inc (1986) 161 CLR 171 being made on the basis of the law as it stood before the 1984 amendment. And the precise interpretation of the legislation and its application in this case are likely to have a significant effect on the future development of the computer industry in Australia. The decision in Autodesk confirmed two fundamental principles. First, the definition of a "computer program" by reference to "an expression ... of a set of instructions" should be understood as conferring protection upon the set of instructions itself - which must be identified with some precision - but as doing so in a way which is adapted to the nature of copyright. Thus, the protection of computer programs is to conform to the dominant principle of copyright law that protection is given not for ideas, but only for the form of expression. However, as the judgment of Mason CJ, Brennan and Deane JJ makes clear, this distinction must not be applied too strictly. A distinction needs to be drawn between the relevant set of instructions and the form of storage or representation of the instructions, so that a person who reproduces a set of instructions in a different form - such as by turning source code into object code - does not escape infringement. The object of protection is the computer program, not just the particular form of storage or representation chosen by the author.

The second fundamental proposition confirmed in Autodesk derives from the first. Functionality is not the proper object of copyright protection. As Dawson J stated in Autodesk, the purpose or function of a utilitarian work is its idea, while the method of arriving at that purpose or function is the expression of the idea."

In the present case, in determining whether the act, being the reproduction or adaptation of the Focus source code, is in relation to a substantial part of the Focus source code, regard must be had to quality rather than the quantity of what is taken. The learned trial Judge was aware of this as appears from the quotation set out earlier in these reasons. In Autodesk (No 2) Mason CJ said at p389:

"It is clear that the phrase "substantial part" refers to the quality of what is taken rather than the quantity. Hawkes and Son

(London) Ltd v Paramount Film Service Ltd (1934) Ch 593; Ladbroke

(Football) Ltd v William Hill (Football) Ltd (1964) 1 WLR 273; Greenfield Products Pty Ltd v Rover-Scott Bonnar Ltd (1990) 95 ALR 275; 17 IPR 417, at 436; Dixon Investments Pty Ltd v Hall (1990) 18 IPR 481. In Ladbroke (Football) Ltd v William Hill (Football) Ltd, Lord Pearce stated (1964) 1 WLR, at 293: Whether a part is substantial must be decided by its quality rather than is quantity. The reproduction of a part which by itself has no originality will not normally be a substantial part of the copyright and therefore will not be protected. For that which would not attract copyright except by reason of its collocation will, when robbed of that collocation, not be a substantial part of the copyright and therefore the courts will not hold its reproduction to be an infringement. It is this, I think, which is meant by one or two judicial observations that "there is no copyright" in some unoriginal part of a whole that is copyright.

As this statement makes clear, in determining whether the quality of what is taken makes it a "substantial part" of the copyright work, it is important to inquire into the importance which the taken portion bears in relation to the work as a whole: is it an "essential" or "material" part of the work? Ricketson, The Law of Intellectual Property, (1984), p169."

In the present case, the inference is clear. Adopting the qualitative test, the part of the AS2000 source code which constitutes a reproduction or adaptation of the Focus source code is an "essential" or "material" part of the whole of the work being the Focus source code. This is to be expected since it formed the basis of the Focus agreement.
This does not mean that in producing its Accounting Products, AS2000 has infringed any copyright of Focus in the Focus source code. This was done with the licence of Focus. In all probability, the Focus agreement is sufficient to constitute a licence to AS2000 to sell its programs to persons in the Public Accounting and Tax Agent market and to enable these persons to use the programs with the result that those persons, in using the AS2000 programs, are not infringing the copyright of Focus in those programs. CCH is not in that market. It is difficult to see any basis by which it can be argued that the Focus Agreement could form the basis for implying a licence from Focus to CCH to make use of its copyright in the AS2000 programs.
By the Copyright Assignment agreement, AS2000 has assigned its copyright in the AS2000 programs to CCH. If CCH uses these programs without the licence of Focus, it may infringe the copyright of Focus in these programs.
On the facts found, the correct answer to questions 1(b) and 1(c) is No. Parts of the AS2000 programs contain reproductions or adaptations of the Focus program. Focus retains copyright in those parts. Thus AS2000 was not the sole beneficial owner of the copyright in the Accounting Products. In one sense, it is true that AS2000 is able to assign its copyright in the Accounting Products, but any assignment, of necessity, is to enable the assignee to acquire copyright in the products. Insofar as Focus has copyright in the Accounting Products, Focus can enforce its rights against the assignee. Thus, to be effective, to enable the assignee to make use of the Accounting Products, it would need the consent of Focus. It is noted that questions 1(b) and (c) relate to 23 December 1988, the date of the Copyright Assignment agreement.
It is necessary to consider question 3. In his introduction to his second judgment on 11 March 1992, O'Loughlin J said:

"Although I found that there was no claim existing against the

(AS2000) or any other person as at 23 December 1988 for infringement or breach of copyright in respect of the Accounting Products or any part of them, I concluded that it was not possible to find that there was no potential claim then subsisting."

On the appeal, it was not challenged that as at 23 December 1988 there was no claim then existing against AS2000 or any other person. Hence the negative answer to question 3. However, the appellant challenged the finding that it was not possible to find that there was no potential claim then subsisting.
This finding must be considered having regard to the finding that Focus, or some person other than AS2000 claiming through Focus, was the owner of copyright in the Focus program which is contained in the AS2000 programs whether by way of reproduction or adaptation and could bring an infringement action against AS2000, CCH or any other person who without the licence of Focus or its successor in title in Australia did or authorized the doing in Australia of any act, as defined in s14 of the Copyright Act comprised in that copyright.
Logically, this must be so. It must be understood that the time relevant to be considered with respect to any potential claim is 23 December 1989. Logically, it should make no difference to the answer to question 3 if, after 23 December 1989, the persons who on 23 December 1989 had a potential claim, said they would not make a claim. It is too late for that to have effect on liability, but it could affect remedies. Yet this is what AS2000 attempted to do to support an affirmative answer to question 3.
The issue raised with respect to question 3 is illustrated by the following passage from the first judgment of O'Loughlin J given on 27 March 1991:

"Subsequent to the execution of the agreements (23 December 1988) Focus went into liquidation and such rights as it had in the copyright in the FBS V1.3 program (the Focus program) vested in another company, Adept Business Systems Pty Ltd ("Adept"). The CCH group have complained that the money spent or intended to be spent on the acquisition, development and promotion of the Accounting Products would be wasted or, at least, jeopardised if a third party (such as Adept) could restrain the use or the sub-licensing of the program for the Accounting Products by the CCH group or if the group did not own the program exclusively. The claim continued that it was essential for the group to acquire and hold copyright in the program so that they could, in turn, sell the software as purchased, or, the software as purchased and developed, to their customers.

Mr Shanahan (for CCH interests) sought from Mr Stokes (for AS2000 interests) evidence or assurances that Focus and Adept did not have and would not have any claim against the CCH group in respect of its ongoing development and marketing of the Accounting Products. As neither was forthcoming to Mr Shanahan's satisfaction, the CCH group ceased marketing the Accounting Products and thereafter instituted these proceedings on 23 June 1989."

His Honour then considered question 1 and having determined that the answers should be in the negative, said:

"These answers, in turn, must mean, in my opinion that there was, at the least, a "potential claim" - perhaps against the first respondent - perhaps against the CCH group - for infringement. Hence, to match the language of Question 3, the answer must be - "No"."

On the appeal, counsel for AS2000 challenged the conclusion. It was conceded that at 23 December 1988 there was no existing claim against any person for infringement or breach of copyright in respect of any or all of the Accounting Products. Counsel contended that it did not follow from the negative answers to question 1(b) and 1(c) that at 23 December 1988, there existed any potential claim against any person for infringement or breach of copyright.
From the reasons of O'Loughlin J, it is apparent that any possible potential claim was limited to a claim by Focus or a person claiming through Focus, namely Adept. After the proceedings between CCH and AS2000 had been commenced on 23 June 1989, AS2000 procured the execution by Adept of a deed dated 29 September 1989 by which it purported to acknowledge the legitimacy of what AS2000 had done. Subsequently, during the hearing of the trial, Adept executed a further deed in which it purported unreservedly to acknowledge that it would not take action against any person to whom AS2000 had sold its program. Counsel for CCH contended that this was not supported by the evidence.
The short answer to these contentions is that at 23 December 1988, either Focus or Adept had copyright in part of the AS2000 programs. The licence given to AS2000 by the Focus agreement would have prevented any infringement claim against AS2000 based on the AS2000 programs and against persons in the Public Accountant and Tax Agent market. On the findings made, the Focus agreement would not have provided a good defence to an infringement action by Focus or Adept against AS2000 arising from the Copyright Assignment agreement, or an infringement action against CCH or against persons to whom it had sold the Accounting Products. A subsequent disclaimer does not deny a potential claim existing before the disclaimer.
In any event, neither of the deeds is sufficient to remove a potential claim. The first deed is based on a wrong assumption, namely that the AS2000 program is not a reproduction of the Focus program. This cannot affect the rights of the Focus or Adept insofar as the AS2000 programs are a reproduction or adaptation of the Focus program. Under the second deed, Adept did not assign its copyright in the Focus program so as to enable CCH to acquire that copyright. In fact Adept expressly preserved its rights in the Focus program. AS2000 fails on this part of its appeal.
From what has been said, the affirmative answers given by the learned trial Judge to questions numbered 7 to 10 inclusive are correct. The answers to questions 4 and 5 are not challenged. The answers to questions 1(b), 1(c), 3 and 4 are all in the negative. It becomes necessary, therefore, to consider question 6 which is as follows:

"6. If the answer to any of the questions 1, 3 or 4 above is in the negative, whether the giving of the written warranties (being 3.1 (a), (b) and (c) of the Copyright Assignment Agreement) or any of them is as a matter of law capable of constituting misleading conduct within the meaning of the s52 of the Trade Practices Act."

In some respects, the questions and answers which formed the basis for the first judgment are of a similar nature to a special verdict of a jury. The questions and answers in the present case are directed to questions of fact and of law, but the form of the questions and the answers have a limiting affect. This is so particularly with respect to question 6. The question is limited to whether "the giving of the written warranties ... is as a matter of law capable of constituting misleading conduct under s52 of the Trade Practices Act". This led to a limitation, apparently, on the evidence relevant to wider issues as to the conduct of AS2000 leading up to the Copyright Assignment agreement. Hence the issue raised on this aspect of the appeal is limited as explained earlier in these reasons. The Full Court cannot draw inferences going beyond the confines of question 6. This is very similar to restrictions arising with respect to special verdicts. The interesting history of the development of special verdicts is given in Otis Elevators Pty Ltd v Zitis (1985-1986) 5 NSWLR 171 per Kirby P at pp178-180 and McHugh JA at pp197-202. At p198 McHugh JA said:

"The nisi prius record was then brought before the Court in banc. The Court gave judgment for the party who, in point of law, was entitled to judgment on the findings of fact. No further inferences of fact could be drawn by the Court from any of the jury's findings: Hubbard v Johnstone (1810) 3 Taunt 177 at 209; 128 ER 71 at 83. If the special verdict did not find all necessary facts or the verdict was uncertain or ambiguous, a venire de novo was awarded upon which a further trial was heard: Fryer v Roe at 444; 980 per Jevis CJ; Bacon's Abridgement (at 100, 102-103); Brown v Lizars (1905) 2 CLR 837 at 847. Frequently, the findings of the jury in a special verdict were extensive and required a lengthy statement. In Lickbarrow v Mason (1794) 5 TR 683; 101 ER 380, the facts constituting the special verdict occupy three pages of the original report. The better opinion seems to be that the Court had no power without consent to amend a special verdict concerning any question of fact: Bacon at (101). Accordingly, as Lord Blackburn said in Dublin, Wicklow and Wexford Railway Co v Slattery (1878) 3 App Cas 1155 at 1204-1205, there was so much technical nicety required in framing a special verdict that it required some good fortune to be able to raise the real question in the case."

The present appeal illustrates the difficulties and limitations that can arise where specific questions are answered as preliminary issues. Of necessity, the form of the questions limit the future conduct of the hearing of the application and limit the scope of any appeal after final orders have been made. On appeal, the Full Court cannot go beyond the terms of the questions. This is illustrated by what O'Loughlin J said in his second reasons for judgment given on 11 March 1992:

"The (Copyright Assignment agreement) contained in sub-clause 3.1, a series of warranties, including warranties that AS2000 was "the sole beneficial owner of the copyright in the Accounting Products" and that it was "entitled to assign such copyright to (CCH)". It further warranted that there was no claim or potential claim against AS2000 or "any person whomsoever for infringement or breach of copyright in respect of any or all of the Accounting Products". I found that the giving of such warranties was, as a matter of law, capable of constituting misleading or deceptive conduct within the meaning of s52 of the Trade Practices Act. Subsequent to the publication of my earlier reasons, the prosecution of the proceedings has been resumed; further evidence has been led and further submissions have been made. One of the first issues that has been raised is this: even though the giving of such warranties was capable of amounting to misleading or deceptive conduct, it was still necessary to consider whether, in the particular circumstances of this case, their giving did amount to such conduct or to conduct that was likely to mislead or deceive. It was the case for the respondents that the warranties should not be regarded as representations, that the giving of them did not constitute an inducement and that the applicants did not, in any relevant sense, rely on the contents of the warranties."

The difficulties inherent in the statement of issues expressed in the latter part of this extract will be considered later in these reasons.
The second part of the hearing of the application, therefore, was limited to the issue of whether AS2000, in giving the warranties, had engaged in conduct in contravention of s52 of the Trade Practices Act and, if so, the appropriate remedies to which CCH was entitled. Thus there was no consideration given to the issues of whether there had been any breach of the warranties by AS2000, whether the warranties should have been treated as conditions, or the remedies to which CCH was entitled for breach of the warranties. For the same reason, no evidence was led concerning conduct by AS2000 leading up to the making of the Copyright Assignment agreement, whether that conduct was misleading or deceptive or likely to mislead or deceive and whether CCH relied on that conduct in entering into the agreement. It follows that if the Full Court disagrees with the answer given by O'Loughlin J to question 6, it will not be required to consider the second reasons for judgment but will be required to set aside the orders made and order a new trial. This illustrates the limitations arising from the form of the questions answered in the first judgment and the inability of the Full Court to go beyond the terms, in this case, of question 6 since the subsequent hearing was based on the affirmative answer given to that question.
Under sub-section 82(1) of the Trade Practices Act, a person who suffers loss or damage by conduct of another person that was done in contravention of s52 may recover the amount of the loss or damage against that other person. In addition, under s87, the person who has so suffered loss or damage may obtain a wide range of remedies including orders declaring any agreement void ab initio. There is ample authority for the proposition that conduct, whether of commission or omission, engaged in before an agreement is entered into, is capable of constituting conduct in contravention of s52. If the conduct is constituted by representations which are then incorporated as terms of the agreement, these representations, if false, are capable of constituting a contravention of s52. In the present case, there is no evidence of any conduct, whether by representations or otherwise, engaged in by AS2000 before the Copyright Assignment agreement was executed. As counsel for AS2000 contended, the case put on behalf of CCH depended upon the proposition that the written warranties themselves, being executed by AS2000 in favour of CCH, constituted conduct which contravened s52 of the Trade Practices Act. Before O'Loughlin J, AS2000 contended that, as a matter of law, the mere giving of a warranty was not capable of constituting a misrepresentation in contravention of s52.
On this issue, O'Loughlin J said in his first judgment:

"Subsection 4(2) of the Trade Practices Act provides that: " ... a reference to engaging in conduct shall be read as a reference to doing or refusing to do any act, including the making of, or the giving effect to a provision of, a contract or arrangement, the arriving at, or the giving effect to a provision of, an understanding or the requiring of the giving of, or the giving of, a covenant." The breadth of this provision is such that the word "conduct" would embrace the giving of warranties in an agreement and if those warranties were inaccurate at the time when they were given then such conduct could be capable of constituting misleading or deceptive conduct within the meaning of s52. ... The conclusion that I have reached is that the giving of the warranties that were referred to in the statement of claim can, as a matter of law, be capable of constituting misleading conduct within the meaning of the Trade Practices Act.

On the appeal, counsel for CCH contended that this view was correct. He contended that a contractual warranty is, at least, a statement or promise that something is true and that this is a representation constituting conduct under s52 of the Trade Practices Act. He contended that s52 does not import distinctions as to types of representations or remedies from the general law. Irrespective of the nature of the remedy in the general law of contract and of the distinction between conditions, warranties and intermediate terms, the Trade Practices Act focuses on conduct. He contended that the giving of a warranty is conduct in terms of sub-section 4(2) of the Trade Practices Act whether or not it is a representation.

It is apparent, therefore, that it is necessary to determine whether the provisions of sub-section 4(2) of the Trade Practices Act, when referring to the word "conduct" and the phrase "engaging in conduct", apply to the phrase "engage in conduct" appearing in s52. If this is the case, it follows that "engage in conduct" is to be read as a reference to the making of a contract.
Reference is made to a number of provisos of the Trade Practices Act as originally enacted in 1974. Part IV, comprising sections 45 to 51, was headed "Restrictive Trade Practices". One of the important sections in that Part was s45 which related to the making of contracts or arrangements or entering into understandings in restraint of trade or commerce. Sub-section 4(1) was the normal definition provision. It commenced in the traditional form "In this Act, unless the contrary instruction appears - ". Included in this sub-section were the following:

""conduct", when used as a noun, includes doing, refusing to do, or refraining from doing, any act, including making a contract or arrangement or entering into an understanding;" "engage in conduct" includes do, refuse to do, or refrain from doing, any act, including the making of a contract or arrangement or the entering into an understanding, and "engaging in conduct" has a corresponding meaning;"

It is noted that neither of these definitions is definitive. Each is inclusive. In fact each contains a double inclusion. In each definition, the second inclusion contained the expressions used in s45 namely "making a contract or arrangement or entering into an understanding" in restraint of trade or commerce. This made it clear that the provisions of the Act proscribed conduct of a particular kind being acts of the kind described in s45. The Trade Practices Act imposed penalties on persons who engaged in conduct of that kind and conferred remedies on third parties who suffered loss or damage as a result of that conduct.
Part V, comprising sections 52 to 75, was headed "Consumer Protection". Division 1 of Part V was headed "Unfair Practices". At that time, s52 did not include the words "or is likely to mislead or deceive".
Part VI, comprising sections 76 to 87, was headed "Enforcement and Remedies". Sub-section 82(1) provided:

"82(1) A person who suffers loss or damage by an act of another person that was done in contravention of a provision of Part IV or V may recover the amount of the loss or damage by action against that other person."

Note that sub-section 82(1) did not contain the word "conduct" despite the definition of that word in sub-section 4(1) and the first inclusion of that definition. But that definition applied to the word "conduct" and "engage in conduct" appearing in s52.
Section 87 conferred ancillary remedies including a power enabling the Court to declare a contract to have been void ab initio.
The Trade Practices Amendment Act 1977 (the Amendment Act) came into operation on 1 July 1977. It followed and adopted most of the recommendations of the Swanson Committee Report of 1976. It made major amendments to the Trade Practices Act, particularly to Part IV. It also made amendments to other Parts of the Trade Practices Act. It deleted the definitions of "conduct" and "engage in conduct" in sub-section 4(1). It inserted a definition of "covenant" designed to overcome the decision of Quadramain Pty Ltd v Sevastopol Investments Pty Ltd (1976) 133 CLR 390. It rescinded sub-sections 4(2),(3) and (4) but re-enacted the substance of those provisions in a different form together with other special provisions, in sections 4A, 4B, 4C, 4D, 4F, 4H, 4J, 4K, 4L and 4M. It inserted new sub-sections 4(2), (3) and (4). For present purposes, the new sub-section 4(2) is of importance. That sub-section is set out in full:

"(2) In this Act -

(a) a reference to engaging in conduct shall be read as a reference to doing or refusing to do any act, including the making of, or the giving effect to a provision of, a contract or arrangement, the arriving at, or the giving effect to a provision of, an understanding or the requiring of the giving of, or the giving of, a covenant;

(b) a reference to conduct, when that expression is used as a noun otherwise than as mentioned in paragraph (a), shall be read as a reference to the doing of or the refusing to do any act, including the making of, or the giving effect to a provision of, a contract or arrangement, the arriving at, or the giving effect to a provision of, an understanding or the requiring of the giving of, or the giving of, a covenant;

(c) a reference to do an act includes a reference to -

(i) refraining (otherwise than inadvertently) from doing that act; or

(ii) making it known that that act will not be done; and

(d) a reference to a person offering to do an act, or to do an act on a particular condition, includes a reference to the person making it known that the person will accept applications, offers or proposals for the person to do that act or to do that act on that condition, as the case may be."

These provisions will be considered further later in these reasons.

The Amendment Act virtually rewrote Part IV of the Trade Practices Act. This followed the main thrust of the Swanson Committee recommendations. Sub-section 45(2) provided that a corporation shall not make a contract or arrangement or arrive at an understanding if the proposed contract arrangement or understanding contains an exclusionary provision or if a provision of the proposed contract, arrangement or understanding has the purpose or would have or be likely to have the effect of substantially lessening competition, or give effect to such a provision. It is not necessary, for present purposes, to refer to the other provisions inserted into Part IV of the Trade Practices Act nor to the provisions which enable a corporation to engage in conduct which would contravene sections 45, 45B, 47 and 50 where an authorization is in force by reason of s93.
The Amendment Act also inserted the words "or is likely to mislead or deceive" at the end of s52 of the Trade Practices Act. This was done to assist in proving a contravention of s52. Section 55A was inserted, but this section is to be contrasted with the existing s55 which, apparently, is based on the external affairs powers. Sub-section 82(1) was amended to read:

"82(1) A person who suffers loss or damage by conduct of another person that was done in contravention of a provision of Part IV or V may recover the amount of the loss or damage by action against that other person or against any person involved in the contravention."

Section 87 was substantially amended, but the ancillary remedies referred to in sub-sections 87(1), 1(A) (2) and (3) were related to "conduct of another person that was engaged in" in contravention of a provision of Part IV or Part V as the case may be.
It is necessary to come back to sub-section 4(2). It is noted that this sub-section does not include the words "unless the contrary intention appears". In each of paragraphs 4(2)(a) and (b) the opening words are "In this Act a reference to engaging in conduct shall be read as a reference to ... " and "In this Act, a reference to conduct, when that expression is used as a noun otherwise than as mentioned in paragraph (a) shall be used as a reference to ... " respectively. To this extent, the meanings are absolute. In each case the reference is to "doing or refusing to do any act" and "the doing of or the refusing to do any act". By way of comment it is noted that these provisions are very similar to the opening provisions of the definitions of "engage in conduct" and "conduct" as originally contained in sub-section 4(1) and which were repealed by the Amendment Act. There can be no doubt that these parts of the definition have and have been given a very broad meaning by decisions of the Federal Court and High Court.
Paragraphs 4(2)(a) and (b) contain the words of inclusion being "including the making of, or the giving effect to a provision of, a contract or arrangement, the arriving at, or the giving effect to a provision of, an understanding or the requiring of the giving of, or the giving of a covenant;".
The issue to be decided by this appeal is whether those words of inclusion are, on the proper construction of the paragraphs, to be limited to the making of a contract or arrangement or arriving at an understanding of the kind referred to in Part IV of the Trade Practices Act and other provisions related thereto, or whether they are to be given an unrestricted meaning so as to include within the word conduct the making of any contract, the giving effect to a provision of any contract, the making of an arrangement, the giving effect to a provision of any arrangement, the arriving at any understanding, the giving effect to a provision of any understanding, the requiring of the giving of any covenant or the giving effect to any covenant.
In my opinion, the words are to be given the limited meaning.
The words concerned form a strange collocation of words. They are used in the same way both in Part IV of the Trade Practices Act as originally enacted and as amended by the Amendment Act. It follows that when they are used in the same way in paragraphs 4(2)(a) and (b) they are to be taken to have the same limited meaning, namely to that applying in Part IV; a contract or arrangement or understanding of the kind proscribed by Part IV. Thus, the making of a contract is limited to the making of a contract proscribed by Part IV. It is the making of a contract of that type which is included in the definition as engaging in conduct, the conduct being the doing of an act. This conclusion is consistent with the perceived application of sub-section 52(1) of the Trade Practices Act.
The authorities show that a very wide meaning has been given to the words "engage in conduct that is misleading or deceptive or is likely to mislead or deceive" in s52. Conduct has been held to include a representation, but a representation is not an essential element. Conduct is the doing of or the refusing to do any act. The act may be an act of commission or an act of omission. It is not necessary that the person mislead or deceived or likely to be mislead or deceived in fact entered into a contract as a result of the conduct of the corporation. The conduct proscribed by s52 is absolute. The remedy conferred by s82 arises where a person suffers loss or damage "by conduct of another person that was done in contravention of a provision of Part IV or V". The normal case under s52 is where a person enters into a contract as a result of conduct of another person that was done in contravention of that section. The loss or damage is to be determined in conformity with tortious liability, not for breach of contract. The liability of the other person arises from conduct in contravention of s52, not from breach of contract entered into as a result of that conduct. But the injured person may sue for breach of contract if the representation is a term of the contract. In many cases, loss or damage may be recovered even if no contract is entered into.
The conclusion that the words of inclusion contained in paragraphs 4(2)(a) and (b) of the Trade Practices Act are limited to the activities described by the same words when used in Part IV, and in particular s45, is supported by looking at each type of activity. Conduct is to be read as a reference to doing or refusing to do any act. The words of inclusion then appear. The activities mentioned include not only the making of a contract but extend to the giving effect to a provision of a contract, the making of an arrangement, the giving effect to a provision of an arrangement, the arriving at an understanding or the giving effect of a provision of an understanding. These activities are not appropriate to describe conduct or the engaging in conduct in contravention of s52. They are appropriate to describe the activities described in s45. Those activities, if having the consequences described in s45, are proscribed by s45. It is natural to describe those activities as acts constituting conduct under the Trade Practices Act with all the consequences flowing therefrom. Persons who are not a party to such a contract, arrangement or undertaking have remedies conferred upon them by s82 and s87. There is no warrant for taking part of this composite phase, namely, the making of a contract, and to conclude that the making of a contract of any type is conduct within the meaning of s52. Neither the second reading speech nor the explanatory memorandum with respect to the Amendment Act suggest this was the intention of the Legislature. The submission made on behalf of CCH on this issue are rejected.
In the present case, counsel for CCH contended that the warranties numbered 3.1(b) and (c) of the Copyright Assignment agreement were representations which were contained in the contract and that AS2000, in making the contract which contained those representations, which were not true, had, by definition, engaged in conduct which was misleading or deceptive or likely to mislead or deceive in contravention of s52 of the Trade Practice Act. The conduct was the making of the contract itself, not any act of commission or omission which occurred before the contract was made.
Counsel referred to authorities which, he contended, supported this view, namely that a warranty may constitute the making of a representation. In Alati v Kruger (1955) 94 CLR 216, the High Court considered a fraudulent representation in relation to a contract for the purchase of a business. The purchaser successfully sued the vendor in the Supreme Court of Queensland. The vendor, as appellant, appealed to the High Court. The contract for the sale of the business was on a printed form with typewritten additions. The clause relevant for present purposes was Clause 21. As appears at p221, Clause 21 was headed in print "21. Special Clause", and it proceeded in typewriting: "Vendor states that the average takings are pounds 100 per week". The takings proved immediately to be much less than pounds 100 per week. A question arose concerning the remedies available to the purchaser. Three possibilities were available: sue for damages for breach of warranty, but if he did this he could not rescind the contract, sue for damages for fraud, but this involved affirming the purchase, or rescind the contract. The main issue before the High Court was whether rescission was available.
At p219, Dixon CJ, Webb, Kitto and Taylor JJ, in a joint judgment, referred to the purchaser's allegations that he had been induced to enter into the contract of purchase by three fraudulent representations as to the takings of the business made respectively by three separate persons including the appellant personally. Their Honours continued:

"At the trial the respondent proved the making of all three misrepresentations, but he failed to satisfy the learned judge that in entering into the contract he had relied upon those made by Yenco and B.F. Canniffe Pty Ltd. As against Yenco, therefore, the action failed. His Honour found, however, that the respondent did rely upon the representation which had been made by the appellant himself. This was in the form of a statement contained in the contract itself that the average takings were pounds 100 per week. The learned judge held that this statement was a representation made by the appellant to the respondent, made, that is, at the time when the form of contract containing it was presented to the respondent for signature; and his Honour further found that the statement was false in fact, and that the plaintiff made it either knowing it to be false or recklessly not caring whether it was true or false. These findings were justified by the evidence, ... "

At p222 their Honours said:

"On the footing which must be accepted, that the contract had been induced by a fraudulent representation made by the appellant to the respondent, the latter had a choice of courses open to him. He might sue for damages for breach of the warranty contained in cl.21, for the statement in that clause clearly formed one of the terms of the contract and was not only a representation;"

In that case, there can be no doubt that the misrepresentation had been proved. In all probability on the same evidence, if the vendor had been a corporation, it would have engaged in conduct in contravention of s52 of the Trade Practices Act. That case is very different from the present.
In the present case, the sixth question asked at the first hearing was directed to whether the giving of the written warranties, being identified as paragraphs 3(1)(a), (b) and (c) of the Copyright Assignment agreement, or any of them, is as a matter of law capable of constituting misleading conduct within the meaning of s52 of the Trade Practices Act. The trial Judge held that, having regard to s4(2) of the Trade Practices Act, the word "conduct" would embrace the giving of the warranties in the Copyright Assignment agreement and if those warranties were inaccurate at the time they were given then such conduct could be capable of constituting misleading or deceptive conduct within the meaning of s52.
In the present case, the affirmative answer given to question 6 in the first judgment, restricted the evidence called at the hearing of the second part of the trial. The warranties were treated as constituting conduct under s52 because they formed part of the Copyright Assignment agreement, which was a contract, which, by definition, constituted conduct. His Honour said:

"I have also concluded that the facts of this case are such that the warranties that were contained (in the Copyright Assignment agreement) constituted representations that were made by (AS2000) to (CCH). The warranties were written statements that were misleading or deceptive; the presentation of them to (CCH) (in the Copyright Assignment agreement) amounted to conduct that offended against s52 of the TPA. Although innocently made, it remains a fact that the representations as to the existence of and ownership of copyright struck at the root of the bargain. I accept Mr Shanahan when he says that (CCH) would not have entered into any of the contracts if it had know that (CCH) would not be acquiring copyright in the Accounting Products. I find that written warranties can - and in this did - constitute the making of representations. In my opinion the following authorities make that clear."

His Honour then referred to Alati v Kruger.
85. Difficulties arise from this passage which were foreshadowed in the earlier extract from the second judgment set out earlier in these reasons. It seems to assume conduct, or representations, being engaged in or made by AS2000 before the Copyright Assignment agreement was made. But the relevant pleadings and particulars do not allege this. One of the issues on the second part of the hearing was whether CCH had suffered loss or damage by the conduct of AS2000 that was in contravention of s52 of the Trade Practices Act; see s82. The only conduct alleged was the existence of the warranties contained in paragraphs 3.1(a), (b) and (c) of the Copyright Assignment agreement. The agreement was prepared by the solicitors for CCH. There is no evidence to show how the clauses came to be included in the agreement, whether they were included because of statements made on behalf of AS2000 or whether they were raised for the first time in the agreement prepared by the solicitors for CCH. On the way the appeal was argued, it is to be assumed that the only relevant fact is that the terms were in the agreement and that by entering into that agreement AS2000 engaged in conduct within the meaning of that phrase in s52 of the Trade Practices Act, the meaning of "engaging in conduct" and "conduct" being the inclusion appearing in paragraphs 4(2)(a) and (b). Thus, this was not a case where CCH sought to establish that, as a result of prior conduct of AS2000, CCH was induced to enter into the Copyright Assignment agreement. The facts of Alati were very different.

(8) The result of this examination of the provisions of the

legislation before and after the 1977 Act is that para. 4 (2) (a), in dealing with "conduct" operates generally, in its terms, so that the T.P. Act after the 1977 Act, was to be read as "one connected and combined statement of the will of Parliament . ..": Sweeney v Fitzhardinge (1906) 4 CLR 716 at 735. So understood, para. 4 (2) (a) provides significant support for the conclusion reached in this case by the primary Judge, and for the general proposition that the making of a statement as to a presently existing state of affairs, if false, may be the engaging in misleading or deceptive conduct, where the statement is embodied as a provision of a contract. In many cases, there will have been pre-contractual conduct which itself contravenes s. 52. The present case is a striking one because it was presented on a narrower basis, and concerned the giving of the warranties in the contract itself.

(9) Where the conduct relied upon involves not a statement as to a

presently existing state of affairs, but a representation with respect to a future matter, which is contained purely in a contractual promise, then a case for contravention of s. 52 will involve consideration of the extra steps spelled out in s. 51A of the T.P. Act. Some of the issues that would arise in such a case are discussed by Ormiston J in Futuretronics International Pty Ltd v Gadzhis (1992) 2 VR 217 at 233-241, where reference is made to the relevant authorities in this Court. But this is not a case concerning representations as to future conduct.

(10) In the present litigation, the significance of the contravention

of s. 52 was to enliven the powers of the Court under ss. 82 and

87. This emphasises that s. 52 does not purport to create liability, nor to vest in any party any cause of action in the ordinary sense of that term; rather, it establishes a norm of conduct and failure by those to whom it is addressed, in its various operations, to observe that norm has the consequences provided for in the remedial provisions which found primarily in Part VI: Tobacco Institute of Australia Ltd v Australian Federation of Consumer Organisations Inc. (1988) 19 FCR 469 at 473-4.

(11) Where contravention of s. 52 is linked with a claim for damages

under s. 82 and the representation complained of was a contractual warranty, it may be necessary to consider whether the measure of damages that would be recoverable under s. 82 would differ from that available at common law for breach of the warranty. The point was not ventilated in the present case. However, this situation does serve as a reminder of the danger of automatically translating into s. 82 as the appropriate measure of damages, that recoverable in an action for the tort of deceit; cf Gates v City Mutual Life Mutual Life Assurance Society Ltd (1986) 160 CLR 1.

(12) It also needs to be borne in mind that, in a case such as the

present, standing to seek remedies under Part VI, such as those provided for in ss. 82 and 87, is not limited to parties in contractual relations with the party which contravened s. 52. See, with particular reference to s. 82, Janssen Cilag Pty Ltd v Pfizer Pty Ltd (1992) 109 ALR 638. It is no objection to relief under these provisions that the misleading conduct is found in the making of a contractual provision, and the complainant does not have contractual privity with the defendant. This may be contrasted with the uncertain (and perhaps unsatisfactory) state of the general law disclosed in Trident General Insurance Co. Ltd v McNiece Bros Proprietary Limited (1988) 165 CLR 107; there the plaintiff did not plead any count alleging contravention of s. 52.

(13) The orders made by the primary Judge in this case proceeded upon

the footing described above. Consistently with what has been said, the applicants for the relief included not only Castle Douglas, the party to the Castle Douglas Agreement, but also C.C.H., which controlled Castle Douglas, and the relief under ss. 82 and 87 was obtained not only against Developments but its confederate, Systems 2000.

For these reasons, we conclude that the primary Judge correctly decided the trade practices issue in favour of the respondents.
The question then is whether his Honour is correct in deciding the copyright infringement in such a way as to involve breaches of paras. (b) and (c) of cl. 3.1 of the Castle Douglas Agreement.

The Copyright Infringement Issue
39. On the issue of infringement, the primary Judge held that whilst it was clear that System 2000 spent much time and effort in 1988 in developing and improving the Focus program, that circumstance alone would not prevent infringement. His Honour came to the conclusion that there had been infringement for two reasons. First:

"I am overwhelmed by the extent of the exact copying (that is not a quantitative statement; the extent is so great that it takes on a qualitative mantle). And if to that, there is added some part only of the close copying, the case for the applicants is the stronger."

Secondly:

"No amount of new or additional work will compensate for the retention of a substantial and material part of the Focus program."

The second proposition is plainly correct. The first will require further consideration.

The Focus program comprised a total of 99 "files". The primary Judge rejected the submission, which was faintly renewed by the respondents on the appeal, that each of the 99 files was a separate "set of instructions" within the meaning of the definition of "computer program" in sub-s. 10 (1) of the Copyright Act. The definition is as follows:

"'computer program' means an expression, in any language, code or notation, of a set of instructions (whether with or without related information) intended, either directly or after either or both of the following:

(a) conversion into another language, code or notation;

(b) reproduction in a different material form, to cause a device having digital information processing capabilities to perform a particular function."

His Honour was impressed by the apparent contrary understanding of the expert witnesses who had worked in the computer industry. On the appeal, counsel for the respondents conceded that the subsequent interpretation of the legislation by the High Court in the Autodesk litigation supported the proposition that the Focus program should be viewed as the one computer program and thus as the one "literary work" within the meaning of the Copyright Act. The definition of "literary work" is as follows:

"'literary work' includes:

(a) a table, or compilation, expressed in words, figures or symbols (whether or not in a visible form); and

(b) a computer program or compilation of computer programs."

The question then becomes whether the A.S. program reproduces "a substantial part" of the Focus program within the meaning of s. 14 of the Copyright Act, so as to amount to a reproduction of the work in invasion of the exclusive right given by sub-para. 31 (1) (a) (i) of the Copyright Act.
The Focus program comprises 15,686 lines. The evidence showed an examination of 6,917 of those lines. The 6,917 lines examined represented 29 of the 99 files from the Focus program. Of the lines examined, 952 were close copies, and 3,907 were exact copies of lines in the A.S. program. 3,907 lines is some 25% of the whole. The result was that the evidence indicated that, even assuming that the unexamined files contained no lines from the Focus program, the A.S. software reproduced some 25% of the Focus program. The comparison was conducted by an expert witness for the respondents, Mr P.J. Grouse, and apart from a trivial number of errors, no doubt was cast upon the accuracy of his comparison by the experts for the appellants, Miss Finlayson and Mr De Ferranti.
The A.S. program contained 40,013 lines of sourcecode. The primary Judge held that Developments had spent much time and effort in developing and improving the Focus program. Counsel for the appellants submitted that the difference in length between the two sourcecodes reflected this fact. But the fundamental issue remains whether a substantial part of the first work was reproduced in the second.
There was no suggestion that the passages of the Focus program which were copied were of less utility or had required less skill and labour in formulation than the balance. The appellants' witnesses, Mr Stokes and Mr G.J. Smith, support the respondents' contention that the programmers for Developments chose to continue with those passages which were taken because they remained useful. Time and labour were saved by continuing in this way.
In the course of his cross-examination, Mr De Ferranti said that the "whole art of programming" was

"to use the sequences that one has found useful but to use them in an intelligent and logically compact way."

The cross-examination continued:

"And to the extent that one programme takes those sequences expressed in . . . (an) intelligent and logically compact way, that is using the skill and labour of the first work? - What do you mean by the first work?

It would be one programmer taking from here and it would be one programmer taking from something he himself has written previously, the first in time. If one takes those sequences of statements, expressed in an intelligent and logically compact way from work to the other, you are using the skill and labour of the first programmer? - The skill and labour of the second programmer is choosing what it is that is going to be relevant in his work.

Certainly, but in part, he is choosing which parts of the skill and labour of the first programmer he will take with him? - You mean like quoting from some other piece of work. Not just quoting, using some of the earlier work to save himself the necessity of writing it out and expressing it himself? - Certainly, to save that labour."

In the cross-examination of Mr Smith, the following passage appears:

"And can one assume from that that some of the Focus sourcecode remained, some intact, some rewritten in part? - Yes, but the function, the purpose for which that code existed had altered. And because it is doing a different job you made certain changes, but you were able to use the Focus sourcecode to do part of a job? - As easily as I could have rewritten it to do the same job.

But in fact you did not rewrite it and you used the Focus code to save yourself the necessity of rewriting it. - Yes."

Mr Smith also agreed in cross-examination that it was highly likely that an examination of the balance of the 99 files from the Focus program with a comparison of the A.S. program would show that other lines of the A.S. program had as their genesis the Focus program.

His Honour said that the extent of the copying was so great "that it takes on a qualitative mantle". We take this to mean that, in a given case, so large a portion of the work may be taken that it is fair to infer that this was of a qualitative in addition to quantitative significance. But, in our view, it would be an unusual case where it was not necessary to have some further regard to the evidence before determining the question of quality in favour of the applicant for relief. In the present case, the evidence, some of which has been discussed above, shows that the respondents had made out their case. The A.S. program might in some cases perform a different function, from the point of view of the user, to the Focus program. But the lines of code which were taken would continue to do their work in performing the desired function.
Accordingly, in our view, the appeal on the copyright issue also fails.

Section 87 - Discretion
49. The appellants submitted that the primary Judge fell into error in the exercise of his discretion in favour of granting relief under s. 87. It was said that the respondents had not demonstrated that they had suffered damage in consequence of the falsity of the warranties contained in paras. (b) and (c) of cl. 3.1 of the Castle Douglas Agreement. In particular, it was submitted that the evidence indicated that the only entity with a possible claim to restrict the activities of CCH pursuant to the arrangements with Developments and Systems 2000 was Adept and that the deeds between Adept and Developments, which were in evidence, made it plain that no action would be brought by Adept in respect of infringement by the A.S. program or the Focus program.

But the first deed, that dated 29 September 1989, proceeds upon the recited basis that Developments had modified, developed and rewritten the Focus program, and that the programs were "totally different". The second deed, that dated 12 July 1990, still did not license or assign copyright in the Focus program to CCH, so that CCH or its associated companies might assign or license others.
Further, both deeds came late in the day, the second during the course of the trial.
On the position of CCH, the primary Judge held:

"There was delay on the part of CCH in this matter; there is evidence that suggests that the integrity of (Developments') copyright was questioned within CCH as early as January 1989 and certainly by February; yet CCH did not purport to rescind until the following June. I have summarised Mr Shanahan's evidence on the subject of delay and I have concluded that his explanations show that CCH acted reasonably and responsibly. If the contracts that deal with the subject matter of copyright in the Accounting Products are not rescinded, it would mean, arguably, that CCH could be forced to pay out over $1M - supposedly to purchase a copyright for which it could not obtain good title."

Mr M.J. Shanahan was the principal witness for CCH.

The reference by his Honour in this and another passage of the second judgment to the obtaining of a "good title" was criticised by the appellants as reflecting the error, referred to earlier in these reasons, in treating the A.S. program as itself not attracting copyright, the true position being that a licensee from CCH of the A.S. program would escape the risk of suit only with a licence given by the owner of the copyright in that program and also of copyright in the Focus program. Nevertheless, his Honour plainly was correct in approaching the question of rescission on the footing that the representations as to copyright "struck at the root of the bargain" and that looking at the totality of the matter, the "base arrangement" which was made between CCH and Developments called for CCH to pay out in excess of $1m for a clear right deal with the Accounting Products. Hence his Honour's conclusion that "the only sensible answer is unravel all contractual commitments presently subsisting between the parties to this litigation".
The "loss or damage" which is required for s. 87 is not made out only by the party or parties seeking relief thereunder making out a case for recovery of damages in the sense understood at general law in contract or tort. The written submissions for the appellant appear to proceed on this basis. However, as was, as we understand it, conceded in argument, the recent decision of the Full Court in Demagogue Pty Ltd v Ramensky supra demonstrates that the concept involved is a more flexible one and encompasses a case such as the present.
In our view, it has not been shown that his Honour erred in the exercise of his discretion in making the orders that he did under s. 87.

The Cross-Appeal
56. Before the primary Judge, the respondents contended that Mr Stokes had aided, abetted, counselled or procured the contravention of s. 52 (para. 75B (1) (a) of the T.P. Act) and that he had been, directly or indirectly, knowingly concerned in, or a party to, that contravention (para. 75B (1) (c)). After consideration of Yorke v Lucas (1985) 158 CLR 661, his Honour concluded that neither of those propositions should be accepted. In the joint judgment in that case, it had been said, at 670:

"In our view, the proper construction of par.

(c) requires a party to a contravention to be an intentional participant, the necessary intent being based upon knowledge of the essential elements of the contravention."

In the present case, it had not been asserted that when his company, Developments, gave the warranties in question to Castle Douglas, he knew that the warranties were false. Nor was it contended that he was recklessly indifferent to their truth or falsity; see Goroka Pty Ltd v Montgomery Jordon and Stevenson Pty Ltd (1986) ATPR 40-722, Crocodile Marketing v Griffith Vintners (1992) 28 NSWLR 539. In short, it was not a case of fraud. The primary Judge held that Mr Stokes did not have "the requisite knowledge or intention" which is required for a case under s. 75B. His Honour said:

"In fact he had a belief - honestly held but nevertheless mistaken - that (Developments) had acquired copyright in the Accounting Products and was competent to assign it to Castle Douglas."

The primary Judge thus approached the issue in the same fashion as had Mason ACJ, Wilson, Deane and Dawson JJ in York v Lucas. Their Honours had said (at 667-8):

"Upon the findings of the trial judge, however, Lucas lacked the knowledge necessary to form the required intent. A contravention of s. 52 involves conduct which is misleading or deceptive or is likely to mislead or deceive and the conduct relied upon in this case consisted of the making of false representations. Whilst Lucas was aware of the representations - indeed they were made by him - he had no knowledge of their falsity and could not for that reason be said to have intentionally participated in the contravention."

Their Honours went on to decide that s. 75B, in speaking of aiding, abetting, counselling or procuring, makes use of an existing concept drawn from the criminal law and was intended to carry with it the settled meaning of that concept. They considered para. (c), and reached the conclusion which was reproduced by the primary Judge in the passage we have quoted above.

On the cross-appeal against the dismissal of their case against Mr Stokes, the respondents submitted that it was sufficient that he knew of the "essential facts" and that it was not necessary that he know "the legal consequences". That submission contradicts his Honour's finding that Mr Stokes had the honest but mistaken belief that Developments had acquired the copyright in the Accounting Products, and that it was competent to assign it to Castle Douglas. This finding carried with it the necessary corollary that Mr Stokes had no knowledge of the falsity of the warranties given by Developments in cl. 3.1 of the Castle Douglas Agreement.

The cross-appeal should be dismissed.

Conclusions
59. The appeal should be dismissed with costs. The appellants should pay the costs of the respondents. The cross-appeal should be dismissed. The respondents should pay the costs of the appellants on the cross-appeal, which should be set off against the costs payable under the earlier costs order.

[1993] FCA 358

03 JUNE 1993