C and J Designer Homes Pty Ltd v Robey
[2007] FMCA 79
•30 January 2007
FEDERAL MAGISTRATES COURT OF AUSTRALIA
| C & J DESIGNER HOMES PTY LTD v ROBEY & ORS | [2007] FMCA 79 |
| COPYRIGHT – Architectural drawings – domestic dwelling – builder’s indemnity claim against owner. |
| Fair Trading Act 1999 (Vic) Copyright Act 1968 (Cth) |
| Beck v Montana Construction Pty Ltd (1963) 80 WN(NSW) 1578 Toll FGCT Pty Ltd v Alphapharm Pty Ltd [2004] HCA 52 Maggbury v Hafaele (2001) 210 CLR 181 Baulderstone Hornibrook Engineering Pty Ltd v Gordian Runoff Ltd (formerly GIO Insurance Ltd) & Ors [2006] NSW SC 223 (BC 200602856) BP Refinery (Westernport) Pty Ltd v Shire of Hastings (1977) 180 CLR 266 Commonwealth Bank v Amadio (1983) 151 CLR 447 Wigan v Edwards & Anor (1973) 1 ALR 497 |
| Applicant: | C & J DESIGNER HOMES PTY LTD (ABN 43 005 236 144) |
| First Respondents: | CHRISTOPHER JOHN ROBEY AND VALERIE DAWN ROBEY |
| Second Respondent: | B & G COLE PTY LTD (ACN 006 536 536) |
| Cross-Claimants: | CHRISTOPHER JOHN ROBEY AND VALERIE DAWN ROBEY |
| Cross-Respondents: | B & G COLE PTY LTD (ACN 006 536 536) |
| File number: | MLG1015 of 2005 |
| Judgment of: | McInnis FM |
| Hearing dates: | 29 August 2006 and 30 August 2006 |
| Delivered at: | Melbourne |
| Delivered on: | 30 January 2007 |
REPRESENTATION
| Counsel for the First Respondents: | Mr S. Minahan |
| Solicitors for the First Respondents: | David Stagg Tonkin & Company |
| Counsel for the Second Respondent: | Mr E.J.C. Heerey |
| Solicitors for the Second Respondent: | Bolden Lawyers |
ORDERS BY CONSENT
The First Respondents (“the Owners”) indemnify the Second Respondent (“the Builder”) in respect of the damages incurred by the Builder by reason of the claim brought by the Applicant including:
(a)The amount paid in settlement by the Builder to the Applicant namely $1,500.00; and
(b)The amount in settlement for costs paid by the Builder to the Applicant namely $9,737.66.
The Owners pay the Builder’s costs of and incidental to the Cross-Claim proceedings and the substantive proceedings on an indemnity basis being agreed in the total sum of $64,762.35.
The damages pursuant to paragraph 1 and costs pursuant to paragraph 2 of these Orders be paid by the Owners to the Builder as follows:
(a)The amount of $38,000.00 within thirty (30) days of the date of these Orders; and
(b)The balance of $38,000.00 within sixty (60) days of the date of these Orders.
| FEDERAL MAGISTRATES COURT OF AUSTRALIA AT MELBOURNE |
MLG1015 of 2005
| C & J DESIGNER HOMES PTY LTD (ABN 43 005 236 144) |
Applicant
And
| CHRISTOPHER JOHN ROBEY AND VALERIE DAWN ROBEY |
First Respondents
| B & G COLE PTY LTD (ACN 006 536 536) |
Second Respondent
| B & G COLE PTY LTD (ACN 006 536 536) |
Cross-Claimant
| CHRISTOPHER JOHN ROBEY AND VALERIE DAWN ROBEY |
Cross-Respondents
REASONS FOR JUDGMENT
The issue before the Court is a Cross-Claim for contribution and indemnity by B & G Cole Pty Ltd (the Builder) against Mr and Mrs Robey (the Owners).
The Builder and the Owners have resolved the claim made in these proceedings by the Applicant. The proceedings were settled without an admission of liability and without evidence being adduced in the proceedings. An order was made by consent dismissing the Applicant’s claim on 26 May 2006. The Applicant’s claim was based on a copyright infringement against the Owners and in the alternative against the Builder of a domestic dwelling in Diamond Creek in Victoria (the house). The copyright breach was claimed to arise as a result of the Applicant’s ownership of plans for the house which it was claimed were used by the Builder to construct the house for the Owners. The Builder’s claim for indemnity and contribution against the Owners is based upon provisions of a Housing Industry of Australia Victoria New Homes Contract duly executed by the parties on
15 December 2003 (the contract).
The Owners and the Builder settled the claim by the Applicant in what can only be described as modest terms, namely a settlement whereby the Owners and the Builder each paid an amount of $1,500.00 towards the claim making a total of $3,000.00 with each agreeing to pay 50% of scale costs of the Applicant. Regrettably despite mediation the Owners and the Builder have been unable to resolve their differences arising from the cross-claim for contribution and indemnity by the Builder against the Owners.
The Cross-claim relies upon the contract and specifically clauses 15.0 and 15.1 as follows:-
“15.0 If the Builder constructs the Building Works in accordance with Plans which may incorporate designs which are:
· supplied by the Owner;
· prepared under instruction from the Owner; or
· prepared from sketches supplied by the Owner,
then:
· the Owner warrants that the Owner has the right to use the design and Plans and that no breach of copyright is involved in constructing the Building Works in accordance with the Plans;
and
· the Owner indemnifies the Builder in relation to any claim for breach of copyright.
15.1 A claim for breach of copyright brought against the Builder is a breach of this Contract by the Owner.”
The Builder relies upon an Amended Defence and Cross-claim dated 16 June 2006 which relevantly after setting out clause 15 of the contract then claims:-
“22.Pursuant to the New Homes Contract the Second Respondent constructed the House, being the public building works under the New Homes Contract, in accordance with plans incorporating designs which were prepared for it under instructions from the First Respondents.
PARTICULARS
Throughout the planning and construction of the house, the Second Respondent consulted with the First Respondents and sought and obtained specific instructions from the First Respondents as to all relevant aspects of the design of the House, and constructed the house according to those instructions.
23.Further or alternatively, pursuant to the New Homes Contract the Second Respondent constructed the House, being the building works under the New Homes Contract, in accordance with plans incorporating designs which were:
(a) supplied by the First Respondents;
(b) prepared for it under instruction from the First Respondents; and/or
(c) prepared from sketches supplied by the First Respondent, and
constructed the House in accordance with those plans prepared by or for the Second Respondents under instruction from the First Respondents.
PARTICULARS
The Second Respondent refers to and repeats the particulars contained in or subjoined to paragraphs 5 to 11 hereof, and says further that during a meeting between the First Respondents and Gayle Maree Cole for the Second Respondent on 25 September 2003 Christopher Robey provided to the Second Respondent a copy of a Preliminary Concept Sketch Plan prepared for the Second Respondent by Bruce Pittard of Eltham Design & Drafting, showing the front half of the floor plans for the proposed house from Bruce Pittard’s Preliminary Concept Sketch Plan, but with the rear half of the floor plans for the house having been cut and pasted by Christopher Robey onto Bruce Pittard’s Preliminary Concept Sketch Plan from some other source, not at that time recognised by the Second Respondent, and with further amendments marked on to those floor plans by hand, apparently by the First Respondents (‘the Robey Cut-and-Paste’), and the First Respondents provided verbal instructions to the Second Respondent at that time that the First Respondents wanted those changed marked on that plan incorporated into the House to be built for them on the Property by the First Respondent, as follows:
(1)To incorporate into the Kitchen/Meals/Family room area a greater undercover outdoor area, featuring indented angled walls, preferably under the one roofline or as a courtyard effect, and with the north wall of the games room to be made longer with an additional gable in the roof line;
(2)A new kitchen design without an island bench (as children could run around an island bench and create problems) and with the pantry re-positioned, to bring it inside the walkway through to the Family Room; and
(3) To include a fireplace in the Family/Games Room.
The Robey Cut-and-Paste document was a copy or adaptation of a substantial part of plan provided to the First Respondents by the Applicant.
The Robey Cut-and-Paste is in the possession of the solicitors for the Second Respondent and a copy of that document has previously been provided to the lawyers for the First Respondents.
24.The present proceeding has constituted and constitutes a claim for breach of copyright brought against the Second Respondent as builder for the purposes of clause 15 of the New Homes Contract.”
In a written outline of submissions relied upon by the Builder, the essence of the Builder’s Cross-claim was referred to as being the following:-
(a)That the builder constructed the Owners’ home incorporating designs which were:-
(i)supplied by the Owners, or
(ii) prepared under instruction from the Owners, or
(iii) prepared from sketches supplied by the Owners.
(b)Any, some or all of (a)(i), (ii) or (iii) is sufficient to satisfy the first limb of clause 15.0 of the contract.
(c)It follows that the Owners have indemnified the builder in relation to ‘any claim for breach of copyright”.
(d)The literal and natural meaning of ‘any claim for breach of copyright is:
(i) That it is not confined to claims which have been found by a Court to constitute infringement;
(ii) That it encompasses the claim made by the Applicant against the builder in the present proceedings;
(e)That it follows it is unnecessary and irrelevant and indeed embarrassing for the Court to attempt to determine whether the builder or the Owners infringed any copyright of the Applicant;
(f)That the indemnity applies to all costs incurred by the builder in connection with the claim;
(g)That applying the usual principles applicable to the implication of contractual terms, there is no basis to implied terms as contended by the Owners so as to escape the natural meaning of clause 15.0 of the contract.
(h)That there is no substance in the builder’s plea to avoid the natural meaning of the effect of clause 15.0 under the Fair Trading Act 1999 (Vic).
The issues which may be extrapolated from the Cross-claim by the Builder against the Owner identified by the parties during the course of submissions may be listed as follows:-
1. Did the house built by the Builder incorporate designs prepared under instructions from the Owners or prepared from sketches supplied by the Owners?
2. What is the meaning of ‘claim for breach of copyright’?
3. Is expert evidence as to the infringement of the Applicant’s copyright relevant and/or admissible when considering the Cross-claim?
4. Should there be an implied term in the contract that the Builder would not infringe copyright?
5. Is the indemnity limited to ‘reasonable’ losses?
6. Do the provisions of the Fair Trading Act 1999 (Vic) apply to the Cross-Claim?
At the hearing both parties relied upon written submissions and during the course of oral submissions tendered and/or relied upon exhibits including relevant affidavits. Given the nature of the Cross-claim by the Builder against the Owners this seemed to be a sensible and practical course to follow and in the interest of the parties. Hence, in this judgment the Court will refer to exhibits including affidavits and annexures relied upon by the parties during the course of submissions though noting that neither side sought to adduce oral evidence.
The Issues
Did the house built by the Builder incorporate designs prepared under instructions from the Owners or prepared from sketches supplied by the Owners?
Builder’s submissions
The Builder submitted that the Owners in their Defence had admitted that they gave instructions to the Builder to design their home and specifically in paragraph 7 of the Defence state that they provided the Builder with a ‘cut and paste sketch plan’ made by Mr Robey “together with verbal instructions to [the Builder] to incorporate changes marked on ‘the Robey cut and paste plan’. That admission it was submitted is sufficient to satisfy the first limb of clause 15.0 of the contract and enlivens the Owners warranty indemnity under the second limb of that clause.
Further it was submitted that in paragraph 3(a) of the affidavit of
Mr Robey sworn 7 July 2006 it is noted that he provided the Builder with a “cut and paste plan simply to illustrate some minor changes that I wanted to incorporate into the initial concept plan prepared by Bruce Pittard”.
It was submitted that one of the Owners Mr Robey had sworn that he had supplied sketches to the Builder so as to instruct the Builder as to features which he wanted the Builder to include in the building plans. Further reference was made to paragraph 3(a) of Mr Robey’s affidavit to the features that he wished to have included in the plan including angle returns on the kitchen/meals area wall and kitchen bench. Those features, it was submitted, were clearly copied from a plan provided to the Owners by the Applicant. Reference was made to Exhibit CJR-7 to Mr Robey’s affidavit which were apparent on the ‘cut and paste plan’ provided by Mr Robey to the Builder. So much is evident from Exhibit GMC-17 to the affidavit of Ms Cole sworn 29 May 2006.
It was argued that pursuant to the instructions of Mr Robey the features from the ‘cut and paste plan’ were incorporated into the plan subsequently commissioned by the Builder for the Owners. Reference was made to Exhibit CJR-9 of Mr Robey’s affidavit.
Accordingly it was submitted that having regard to the evidence that any of the three alternate conditions of clause 15.0 have been fulfilled. It was argued that the Court can conclude that the plans for the Owners home incorporated designs which were supplied by the Owners or prepared under instructions from the Owners or prepared from sketches supplied by the Owners.
It is not the Builder’s case that Ms Gayle Cole passed on the Owners ‘cut and paste plan’ to the Builder’s draftsman Mr Pittard. It was argued that is not a necessary element of clause 15.0 which is simply fulfilled upon the “supply of the designs, instructions and/or sketches” by the Owners to the Builder.
It was submitted that it is evident in any event from Mr Pittard’s subsequent drawing in Exhibit CJR-9 to Mr Robey’s affidavit that Mr Cole, the Owner, communicated the relevant design features to Mr Pittard who then incorporated the features into the Owners home and that is sufficient for the purpose of clause 15.0 of the contract. It follows, according to the Builder’s submissions, that the admissions by the Owners in their Defence is sufficient to satisfy the first limb of clause 15.0 of the contract to thereby enliven the indemnity in favour of the Builder.
Affidavit evidence of Mr Pittard, it was submitted, is not necessary to prove the claim for indemnity and accordingly he was not called to give evidence.
During the course of submissions reference was made to affidavit material and the analysis undertaken of paragraph 9 of the affidavit of Mr Robey sworn 1 March 2006 (Exhibit 2R1) and in particular paragraph 9 which refers to CJR-3 the deponent Mr Robey deposes that he received from a representative of the Applicant an unaltered plan of a Roxburgh Park home. A modified plan (CJR-7) annexed to Mr Robey’s affidavit shows the rear half of the house has been put in reverse where the kitchen, meals and family area where then on the left hand side instead of the right hand side.
The Court was invited to then compare the preliminary sketch plan prepared for the Builder and sent to the Owner (CJR-8) with Exhibit CJR-1 to the affidavit of Mr Robey sworn 7 July 2006 (Exhibit 2R2) which was deposed to as being the ‘cut and paste plan’ provided by the Owner to the Builder.
The comparison of that plan to the preliminary sketch plan of the Builder shows that the entrance for the master bedroom entry, lounge, dining and study appear to be the same as the preliminary sketch plan. Other submissions were then made through the course of comparisons between the plan and amendments made. Ultimately it was submitted the ‘cut and paste plan’ included some elements from the Applicant’s plan with the result that it was submitted that features of the Applicant’s plan were incorporated via the ‘cut and paste sketch’ from the Owners to the Builder in the plan produced from the Owners by the Builder. In the circumstances it was submitted by the Builder that the indemnity is enlivened.
Owners’ submissions
It was submitted on behalf of the Owners that no liability arises on the basis of any “actual copyright infringement”. In circumstances where “none has been admitted nor found nor indeed is any longer alleged”. Any suggestion that the Owners would have faced difficulties defending the copyright infringement it was submitted are unwarranted. A challenge was made to the similarities between the plan used in the construction of the Owners’ house compared with the Applicant’s designs.
It was submitted that notwithstanding that a copyright infringement is no longer a live issue directly in the case the Court should look at the purpose of clause 15.0 of the contract which it was claimed was to give the Builder constructing a house on a design dictated by a client “some protection from any infringement of third party copyright infringement claims”. Reference was then made to the principles arising from various authorities concerning copyright claims arising from building plans (see Beck v Montana Construction Pty Ltd (1963) 80 WN(NSW) 1578). It is not necessary to refer to other cases relied on by the Owners save to note the obvious difficulties which the authorities referred to when dealing with breach of copyright arising out of architectural drawings or plans for buildings.
It was argued that the interpretation advanced for and on behalf of the Builder should be rejected as it effectively seeks to include within the term “instruction” in the phrase “plans prepared under instruction of the Owner” which appears in clause 15.0 of any “indication by an owner of the home or particular feature desired”. Even if, as it is submitted in the present case, it is described or indicated in general terms rather than stipulated in detail or includes features of a common or generic character.
The instruction it was submitted must be capable of infringing copyright in order to attract liability.
Further, it was argued that to treat a design as being “incorporated” simply on the basis of an owner indicating what he or she wants go beyond the normal understanding of the expression used in the context of a discussion between an owner and a Builder concerning building plans and designs.
Clause 15.1 of the contract should be considered as a whole rather than narrowly focusing on a claim of “breach of copyright” which may enliven liability even where a claimant’s case was “vexatious and utterly without foundation”.
The Court was invited to consider the affidavit evidence of Mr Pittard that he did not incorporate and design the house on the basis of material supplied by the Owners but rather re-employed design elements previously used on other occasions which were generic. It was argued that there needs to be real specificity and detail to qualify as a design or an instruction of a design. It was otherwise argued that a proper construction of the clause is that liability “should only pertain in respect of a ‘valid’ claim for breach of copyright – not any claim – no matter how ill conceived”. That construction it was submitted is consistent with liability arising out of a demonstrated breach of the warranty set out in clause 15.0. The clause otherwise should be subject to the contra proferentem rule and should be construed in favour of the Owners.
Further submissions were made concerning the suggested estoppel applying on the basis that the owners were encouraged to provide instructions and that that would not create liability. The Builder it was argued knew or a reasonable person in its position would have reasonably known that if the Owners were not experienced in questions of copyright in building designs that they would rely upon the Builder in that regard. The Builder actively sought information concerning previous designs the Owners had obtained and did so, it was argued, on the implicit basis that this did not involve the Owners in any wrong doing. It was argued the Builder knowingly studied plans provided by the Owners without demur and made or accepted copies of them. Further detailed reference was made to the evidence including affidavit material of Mr Pittard and assurances claimed to be given by the Builder to the Owners that they were not doing “anything wrong” or contrary to their interests. Accordingly it was submitted it would be unconscionable for the Builder to be allowed to depart from the assumption that it created in the Owners and/or sought to hold the Owners accountable for conduct actively encouraged by the Builder to then render the Owners liable.
Reasoning
I accept the submissions of the Builder and I am satisfied that the house built by the Builder did incorporate designs prepared under instructions from the Owners or prepared from sketches supplied by the Owners.
A clear reading of the pleadings and affidavits to which reference was made by Counsel for the Builder indicates that at least in part the home built by the Builder incorporated, with some modification, designs prepared under instructions from the Owners and/or prepared from the cut-and-paste sketch provided by the Owners which in turn appears to have derived substantially from features of a plan which the Owners obtained by one of the Owners from a representative of the Applicant being an unaltered plan of what is described as a “Roxburgh Park home”. I accept that it is not relevant for the Court to have regard to the evidence of Mr Pittard in relation to the issue of incorporation as there is sufficient other evidence to enable the Court to be satisfied that the house built by the Builder did incorporate designs prepared under instruction from the Owners and/or prepared from sketches supplied by the Owners.
It is not relevant to consider whether the Builder had encouraged the Owners to provide suggestions, instructions or indeed rough plans. That invitation for instructions in my view does not advance the interests of the Owners in this case or detract from the finding which I have made based on the Builder’s submissions and the evidence referred to that ultimately the home built by the Builder did incorporate not simply ideas and suggestions from the Owners but rather designs prepared under instruction from the Owners and/or based upon sketches supplied by the Owners. The ‘cut and paste sketches’ substantially appear to have been superimposed on the Builder’s plan though I am satisfied from the evidence that the details of the Applicant and the assertion of copyright was not superimposed nor incorporated in the ‘cut and paste plan’. Instructions were given to incorporate the changes marked on that ‘cut and paste plan’ in the Builder’s plans. It is not necessary for me to provide further details concerning the comparison between the plans save to note that I accept the submissions made for and on behalf of the Builder that the evidence provides sufficient basis upon which the Court is able to draw the conclusions it has reached in relation to the ‘cut and paste plan’ incorporated at the end of the Builder’s plan on the instructions of the Owners. I further accept that the connection has been made satisfactorily for the purpose of this clause based upon the evidence and specifically the evidence of Mr Robey referred to during the course of submissions.
I should note in passing that Counsel for the Owners also submitted that the Court should regard it as too general or insubstantial to permit the conduct of the Owners to fall within the definition of a design or construction to incorporate a design. In my view on a proper reading of the clause and having regard to the material before the Court including the pleadings and affidavit evidence the conclusion reached by the Court accepting the Builder’s submissions is reasonably open and correct. It does not involve a misinterpretation of the clause which must be interpreted according to its natural and ordinary meaning.
Accordingly I am satisfied that it is appropriate for the Court to consider the application of clause 15 and the consequences of what may flow from the warranty of the Owners that the Owners have the right to use the design and plans which were incorporated in the house which the Builder completed.
What is the meaning of ‘claim for breach of copyright’?
Builder’s submissions
The Builder submitted that the current application by the Applicant is sufficient to constitute a “claim for breach of copyright” within the meaning of clause 15.0 of the contract. The ordinary meaning of the term is sufficient it was submitted to include any claim made to a Court on the basis of an allegation of copyright infringement. This includes claims which may ultimately succeed or fail at judgment or on appeal and claims which may settle without a determination by a Court. It was argued the indemnity set out in clause 15.0 should not be interpreted to mean any “judgment for breach of copyright”.
Reference was made to paragraph 9 of the Owners’ Defence where they state, “The proper construction of clause 15 is that it concerns a valid claim for copyright infringement”. Further, it was noted in the Defence at paragraph 17(c) that the Owners plead,
“The due and proper consideration of the contractual terms relied upon is that any liability to indemnity or for breach of contract under clause 15 only arises in consequence of a successful claim for copyright infringement, alternatively such a claim validly made and the present case is not such, alternatively if so interpreted, would in the premises be unfair and liable to be varied or struck out under the Fair Trading Act (Vic) 1999.”
It was noted particulars were not provided as to the relevant section of the Fair Trading Act 1999 (Vic) (the Fair Trading Act) relied upon by the Owners.
The Builder in any event submitted that the Court should have regard to the decision in the New South Wales Supreme Court in Baulderstone Hornibrook Engineering Pty Ltd v Gordian Runoff Ltd (formerly GIO Insurance Ltd) & Ors [2006] NSW SC 223 (BC 200602856) (Baulderstone) where Einstein J considered the construction of the word “claim” in a context where the Plaintiff sought indemnity from its insurers in respect of claims made against it by the Sydney Airports Corporation Limited (SACL). The claim arose in relation to the Plaintiff’s construction of a runway after it and SACL had reached settlement agreement in respect of a SACL claim against the Plaintiff. It was submitted that as in the present case the Baulderstone claim was one where indemnity was sought in circumstances concerning prior litigation settled before any judgment.
It was submitted that at no stage during the decision in Baulderstone did the Court suggest that the Plaintiff’s right to seek indemnity under its insurance contract was limited to a ‘valid’ or ‘successful’ claim brought against it. Rather it was submitted it was accepted that a claim had been made against the Plaintiff and the case then considered the number of claims involved and which claims were covered by which policies.
Specific reference was made to the following paragraphs of the judgment of Einstein J in Baulderstone,
“[899] There is no definition of ‘claim’ in the HIH policy wording. It is not a technical term. The concern is, therefore, its ordinary and natural meaning.
[900] The word ‘claim’, when used in an insurance policy, can have different meanings depending on the context: Transport Industries Insurance Co Ltd v NSW Medical Defence Union Limited (1986) 4 ANZ Ins Cas 60-736 at 74,411, per Kirby P, at 74, 416 per Glass JA.
[901] The noun ‘claim’ has a wide range of meaning [See discussion of the meaning of ‘claim’, as used in the context of s 33C(1)(a) of the Federal Court of Australia Act 1976 (Cth) by Carr J in Bray v F Hoffman – La Roche Ltd (2003) 200 ALR 607 at [112]]. Relevantly, it includes a demand for something as being due and also a statement of one’s right to something: see the New Shorter Oxford English Dictionary, p.409; the Macquarie Dictionary, 2nd ed, p 232. That is, a demand for payment or other relief and a statement of the basis upon which that demand is made [Bray v F Hoffman at [112]].
[902] The primary sense of the word ‘claim’ is ‘a demand for something as due, an assertion of a right to something’: Walton v National Employers’ Mutual General Insurance Association Limited (1973) 2 NSWLR 73 per Bowen JA at 82. Sheller JA held in Triden Properties Ltd v Capita Financial Group Ltd (1996) 12 BCL 402 that the phrase ‘claims made’ should be construed:
In accordance with the ordinary plain meaning of those words, which, simply stated, denote a claim that is ‘made’ by being notified or otherwise brought to the attention of the person against whom it is asserted. However that is done, the essence of the making of the claim is that the substance of the claim is in fact ‘brought home to’ that person.
[903] In Corporate Pension Planning Pty Ltd v NRG Victory Australia (unreported, Supreme Court of New South Wales, 8 April 1997), Young J considered the meaning of the word “claims” in the context of a contract between underwriters of life insurance policies and a company which organised groups to take out bulk term life insurance in respect of which policy that company then acted as trustee. His Honour examined a number of authorities as to the meaning of the word “claims”. He stated (at 13-14) that:
Counsel referred me a series of cases and dictionaries in which the word ‘claim’ was used in insurance law. In Transport Industries Insurance Co Ltd v NSW Medical Defence Union Ltd (1986) 4 ANS Insurance Cases 60-736, the Court of Appeal examined the word ‘claims’, said it was ambiguous and that it was of limited utility to examine the meaning ascribed to the word ‘claims’ in other insurance policies for other and different purposes (per Kirby P at 74,411). In ANZ Bank Ltd v Colonial & Eagle Wharves Ltd [1960] 2 Lloyd’s Rep 241 and 245 [sic], McNair J said that the word ‘claims’ in the policy there under consideration could mean either the right to make a claim of the assertion of that right. This was said by the NSW Court of Appeal to be an instructive approach.
The prime dictionary meaning of the word ‘claim’ is to demand or assert a right to something. Usually, the mere occurrence of something which gave rise to an action is not in itself a claim, the claim is the demand which again is not the same thing as a cause of action: West Wake Price & Co v Ching [1957] 1 WLR at 55. A claim usually means an assertion of a cause of action: Schordich-Churchwood v Cordle [1959] 1 WLR 351 at 353. However, often the word ‘claim’ will mean contingent claims so that when one is dealing with executors who are to distribute without notice of claims, the executor has to allow liabilities of which he or she knows where a person has the right to make a claim as well as those actually sent in: Markwell’s case (1872) 21 WR 135. Another illustration is given by Keates v Lewis Merthyr Consolidated Collieries Ltd [1911] AC 641, where a court had power to adjust claims between employer and employee and was held able to include in the adjustment claims which the employee could have made but had not in fact put forward.
No analysis of pervious cases is likely to provide any conclusive answer as to what the word ‘claims’ means in the instant document.
[904] In West Wake Price & Co v Ching [1957] 1 WLR 45 at 55, Delvin J said the following as to the meaning of the word ‘claim’ in the context of an professional indemnity policy taken out by a firm of accountants:
I think the primary meaning of the word ‘claim’ – whether used in a popular sense or in a strictly legal sense – is such as to attach it to the object that is claimed; and is not the same thing as the cause of action by which the claim may be supported or as the grounds on which it may be based.
[905] His Honour further stated, at 57:
If the word [‘claim’] is to be used with any precision, it must be defined in relation to the object claimed. The grounds for the claim or the causes of action which support it can be give it colour and character, but cannot give it its entity … if you identify a claim as something that has to be paid (and that is how it is referred to in the QC clause), it must be something capable of separate payment: you: you cannot pay a cause of action. It follows, I think that if there is only one object claimed by one person, then there is only one claim, however many may be the grounds or the causes of action which can be raised in support of it: likewise, where several claims are each dependent on the same cause of action (as, for example, where one cause of action leads to alternative claims for an injunction, damages or an account or other different forms of relief), there remains only one cause of action, however many claims give rise to is.
[906] In Haydon v Lo & Lo [1997] 1 WLR 198, Lord Lloyd of Berwick, delivering judgment of their Lordships, said the following in relation to the meaning of the word “claim” in a professional indemnity policy held by a firm of solicitors (as 201-206):
Their Lordship’s agree with Mr Kentridge that it is the underlying facts which are determinative, and that the formulation of the claim by the third party cannot be decisive of an insurer’s liability, whether the for the purpose of calculating the deductible, or for any other purpose … But it does not follow that there were a separate claim whenever a separate cause of action arose, nor that there were, as a consequence 43 claims.
Although the nature of the demand cannot be decisive, it at least provides a useful stating point in a claims made policy, such as this was. There is nothing here to displace that first impression … that there were was only one claim by the Tang estate against Lo & Lo – namely a claim for restitution of the loss caused by a dishonest employee of the firm.
[907] The meaning of the word “claim” is ultimately a question of construction of the policy.
[908] In determining what the claim “is” for the purposes of determining whether it fall within the indemnity provisions of an insurance policy, it is necessary to focus upon “the facts which give rise to the claim and not the form in which the claim is asserted”: Australia & New Zealand Bank Ltd v Colonial & Eagle Wharves Ltd [1960] 2 Lloyd’s Rep 241 at 255; Allianz Australia Finance Ltd v Wentworthville Real Estate Pty Ltd [2004] NSWCA 100 per Mason P at [23]; State of New South Wales v AXA Insurance Australia Ltd (2002) 54 NSWLR 409 per Ipp AJA at [47]..
[909] The fact that a plaintiff’s case is based upon a number of causes of action will not be conclusive of the fact that more than one claim has been made under the policy. The distinction between a claim for insurance purposes and a cause of action was drawn by Stocker LJ in Thorman v New Hampshire Insurance Co (UK) Ltd [1998] 1 Lloyd’s Rep 7 at 16. His Lordship said:
Plainly a claim can only be enforced by legal proceedings where the appropriate cause of action is pleaded and proved but the cause of action is not, itself, a claim but the necessary vehicle for it legal enforcement…”
It was submitted that the authorities referred to by the Court in Baulderstone demonstrate that Courts have consistently given a broad construction to the word “claim” in the context of contractual indemnity to encompass any demand or assertion of a right. Those authorities it was submitted counter the owners suggestion that a “claim” ought to be construed narrowly to include only those claims successfully held in Court or otherwise deemed “valid”.
In the alternative it was submitted that to introduce a concept of a “valid” claim involves a subjective assessment which would deny certainty to the contract. Indemnity has been agreed between the parties against any “claim” which is objectively identifiable as a “demand or assertion of right” in accordance with the authorities set out by the Court in Baulderstone.
It was argued that there is a need to give effect to the natural and objectively certain meaning of ‘claim’ when construing a term in what is regarded as a standard form contract used by the building industry throughout Victoria. The alternative interpretation suggested by the owners in their pleadings would create uncertainty, according to the Builder’s submissions.
Owners’ submissions
It was submitted on behalf of the Owners that the Builder’s submissions concerning the interpretation of clause 15 of the contract would lead to unreasonable and unintended results. It was submitted that this would render any owner under a contract liable for any claim of copyright infringement by a third party regardless of how frivolous or ill-founded the claim or if the wrong committed was that of the Builder. Reliance was placed upon the decision of the High Court in Toll FGCT Pty Ltd v Alphapharm Pty Ltd [2004] HCA 52 (Toll) where the Court states in relation to the construction of the contract the following,
“40.This Court, in Pacific Carriers Ltd v BNP Paribas, has recently reaffirmed the principle of objectivity by which the rights and liabilities of the parties to a contract are determined. It is not the subjective beliefs or understandings of the parties about their rights and liabilities that govern their contractual relations. What matters is what each party by words and conduct would have led a reasonable person in the position of the other party to believe. References to the common intention of the parties to a contract are to be understood as referring to what a reasonable person would understand by the language in which the parties have expressed their agreement. The meaning of the terms of a contractual document is to be determined by what a reasonable person would have understood them to mean. That, normally, requires consideration not only of the text, but also of the surrounding circumstances known to the parties, and the purpose and object of the transaction.”
The Owners submitted that the Builder’s interpretation depends upon “a fragmented and obtuse reading of the clause which ignores the purpose of the clause and by its construction renders a significant part of the clause otiose.” The clause should be interpreted in the light of its commercial purpose where the Builder controlled the transaction and documentation.
During the course of submissions as I understand it the Owner sought to rely upon those cases which encourage a “purposive construction” or a common sense approach to the interpretation of business contracts” (see Maggbury v Hafaele (2001) 210 CLR 181 at [43]).
It was submitted for and on behalf of the Owners that adopting a purposive approach to the interpretation of the phrase should lead the Court to include the word “valid” in the phrase “claim for breach of copyright”. It should not apply to any claim no matter how ill conceived. For the purpose of these proceedings however the parties do not any longer rely upon the Builder’s pleadings in relation to the application.
During the course of submissions Counsel for the Owners expressed concern that if the indemnity was enlivened as a result of interpretation proposed by the Builder then the Owners would be liable for any claim of copyright infringement by a third party “no matter how frivolous or ill founded the claim nor if the wrong was that of the Builder”.
Reliance was placed upon the decision of the Court in Toll at [40],
“40. This Court, in Pacific Carriers Ltd v BNP Paribas has recently reaffirmed the principle of objectivity by which the rights and liabilities of the parties to a contract are determined. It is not the subjective beliefs or understandings of the parties about their rights and liabilities that govern their contractual relations. What matters is what each party by words and conduct would have led a reasonable person in the position of the other party to believe. References to the common intention of the parties to a contract are to be understood as referring to what a reasonable person would understand by the language in which the parties have expressed their agreement. The meaning of the terms of a contractual document is to be determined by what a reasonable person would have understood them to mean. That, normally, requires consideration not only of the text, but also of the surrounding circumstances known to the parties, and the purpose and object of the transaction.”
This part of the contract as with other parts should be construed in the light of commercial purpose as indicated in earlier submissions concerning the first issue.
Reasoning
Applying the authority of Baulderstone and noting the submissions of the Builder, it is my view that the meaning of the phrase “claim for breach of copyright” is clear. I accept that the meaning of “claim” though not defined is not as Einstein J said in Baulderstone a “technical term”. The ordinary and natural meaning of the term in the context of this application is clearly satisfied either by a letter of demand or in this instance the filing of an application. In either event and in particular in this case the filing of the application is sufficient to constitute a claim for breach of copyright. So much is evident from the pleadings and the nature of the application.
There is no need to introduce any other qualification to the phrase by including words such as “valid” in order for the phrase to have meaning to accurately reflect the intent of the parties.
The process involved in the construction of a house by a Builder on behalf of an Owner, whilst clearly involving an exchange of ideas and suggestions which may even include plans also involves legal interests of the parties. Owners will often be in possession of material obtained from a third party perhaps in breach of copyright or obtained in a manner which may be regarded as an infringement of a third party’s copyright. The source and nature of the material obtained by an Owner will not necessarily be conveyed to the Builder. The Builder acts upon the Owners instructions and in this case has done so including instructions regarding the design and/or the supply of a sketch plan.
I do not accept that the phrase “claim for breach of copyright” therefore needs to be explained further by the addition of the word “valid” before the word “claim” to give it a meaning which can be understood. To introduce a concept of validity to a claim would essentially defeat the objective of an indemnity being provided by the Owner to the Builder. It is the Owners’ responsibility to then either deny and/or have tested in Court the validity of the claim with the Builder perhaps supporting the Defence in circumstances where the Builder in any event is indemnified. If the clause provided an indemnity for the Builder in relation to ‘any’ plans or designs used by the Builder then of course that would provide the Builder with a far greater indemnity than would be intended by this clause. This clause in its natural meaning is designed to enliven an indemnity specifically related to circumstances where the Builder constructs the building works “in accordance with plans which may incorporate designs” supplied or prepared under instruction from or prepared from sketches supplied by the Owner.
In my view the use of the phrase “any claim for breach of copyright” to which the indemnity applies arising out of the other conditions of the clause has a clear meaning. It does not apply to simply ‘any’ plans which may infringe copyright. It is intended to provide an indemnity arising out of the specific circumstances like the preconditions set out earlier in the clause, that is the source of the incorporated designs must be the Owner. It is the Owner then who can challenge the validity of the claim but at the same time is required to indemnify the Builder who has incorporated the designs which are the subject of the claimed breach of copyright.
This is not a case where the Court has adopted what might be regarded by the Owners as an unduly literalist approach. It was noted that at one stage Counsel for the Owners referred to the decision of Lloyd LJ in the Sounion decision and it was noted in particular the reference to the concept of sorting “the purposive sheep and the literalist goats”. In the present case the interpretation which I accept is applicable as submitted by Counsel for the Builder is not particularly literalist but simply a reflection of the ordinary meaning of the relevant phrase. Indeed it might be suggested the purposive sheep are grazing quite peacefully with the literalist goats in order to achieve an outcome where the words are given their ordinary and natural meaning.
Likewise the word “claim” does not infer a “successful” claim nor one where a judgment is obtained. I otherwise accept and apply the reasoning of Einstein J in Baulderstone set out earlier in this judgment.
In this case the facts which give rise to a claim are a perception by the Applicant set out in the application and the pleadings that the Owners supplied to the Builder plans which in part at least were incorporated by the Builder in the construction of the house. I find in the context of this dispute and copyright claim that the word “claim” is broad enough to encompass the application made by the Applicant in this application which is clearly a demand or assertion of a right claimed to exist under the copyright legislation.
I further accept as submitted by the Builder that the alternative interpretation as suggested by the Owners either in the pleadings or submissions would create uncertainty and confusion. It would effectively render the indemnity somewhat pointless as the Builder would have to participate in proceedings in these circumstances sometimes to the “bitter end” to determine whether the indemnity is enlivened. That cannot be the intention of this contract.
Is expert evidence as to the infringement of the Applicant’s copyright relevant and/or admissible when considering the Cross-claim?
Builder’s submissions
The Builder referred to the Owners Defence at paragraph 8 which reflects statements made by Mrs Cole’s affidavit sworn 17 February 2006 (Exhibit 1R2) referring to legal opinions and conclusions relevant to the elements of copyright infringement. It was submitted that once it is accepted that the first limb of clause 15.0 has been fulfilled and that the present application brought by the Applicant and settled between the parties which falls within the term “any claim for copyright infringement” then it is irrelevant and unnecessary for the Court to determine whether the Respondents infringed the Applicant’s copyright. It is argued that it would be embarrassing to demand a determination by the Court in the absence of the Applicant given the determination must depend firstly upon matters which only the Applicant can prove, particularly that copyright subsists in the Applicant’s plans and that the Applicant is the owner of the copyright and has standing to bring the action pursuant to the relevant provisions of the Copyright Act 1968 (Cth).
Without the Applicant proving copyright and standing, it was submitted, that it is a waste of the Court’s time and resources to engage in a hypothetical consideration of whether other parties have infringed such copyright. It was submitted that it is in the nature of compromise claims that many issues remain undetermined which could have been determined either way. In this application it is noted that it may have been open to the Court to decide that the owners had infringed the Applicant’s copyright by making the ‘cut and paste plan’ or by authorising the Builder to design and build a house incorporating a substantial part of the Applicant’s plans. In the alternative it may have been open to the Court to determine to the contrary by finding that the part copy was not “substantial”. Ultimately it was submitted the settlement puts and end to these enquiries and the Applicant’s cause of action for copyright infringement has merged in the consent orders made amongst the parties on 26 May 2006 pursuant to the principles of res judicata.
The statements therefore made by either the owners or the Builders which relate to the copyright infringement are therefore irrelevant to the present indemnity dispute before the Court. The task of the Court it was submitted was to deal with the narrow issue of whether and how the present proceeding falls within the indemnity provided by clause 15.0 of the contract. It was submitted that issues of copyright infringement against the Builder will always remain unresolved due to the settlement.
Owners’ submissions
As I understand it the Owners submitted that opinion evidence was necessary to establish any alleged copyright infringement and that any settlement was without prejudice to the rights of the Owners in dealing with the alleged infringement. Detailed reference was made to statements made as set out in the affidavit material together with the correspondence between the parties.
Further argument was sought to be advanced concerning the circumstances surrounding the settlement and the indemnity now claimed in the Amended Defence and Cross-claim.
Reasoning
I accept the submissions made on behalf of the Builder.
When considering the Cross-claim, it is clear that as a result of the settlement the Applicant’s copyright infringement cause of action ultimately remains unresolved. That does not mean that the Court was not required to be satisfied as it has been in relation to the incorporation of the plans in a manner sufficient to attract liability under clause 15 of the contract.
I accept as submitted by the Builder that it would be embarrassing to now demand a determination of this Court in the absence of the Applicant of the copyright claimed by the Applicant. Further, I accept that it is not relevant for the Court to do so when considering the Cross-claim.
Should there be an implied term in the contract that the Builder would not infringe copyright?
Builder’s submissions
Reference was made by the Builder to the Owners allegation in paragraph 6 of their Defence that “it was an express, alternatively an implied term and condition of the engagement of the second respondent that the second respondent would provide original designs and construct a house which did not infringe any third parties copyright".
The Builder submitted that whether the plans infringed the Applicant’s copyright is irrelevant for reasons already advanced. In any event it was further submitted there is no term in the contract nor is there any proper basis to imply such a term casting an obligation on the Builder.
Reference was made to relevant authorities concerning when a Court will imply a term into a contract which I accept is applicable to the present case. Specifically reference was made to BP Refinery (Westernport) Pty Ltd v Shire of Hastings (1977) 180 CLR 266 at 282-283 (BP Refinery) where the Court relevantly states,
“Their Lordships do not think it necessary to review exhaustively the authorities on the implication of a term in a contract which the parties have not thought fit to express. In their view, for a term to be implied the following conditions (which may overlap) must be satisfied: (1) it must be reasonable and equitable; (2) it must be necessary to give business efficacy to the contract, so that no term will be implied if the contract is effective without it; (3) it must be so obvious that ‘it goes without saying;’ (4) it must be capable of clear expression; (5) it must not contradict any express term of the contract.”
In the present case it was submitted the contract is effective without any implied term and that the rights and obligations of the parties are clear. In any event it was submitted that the implied term raised in response to the Cross-claim is not a term which could be regarded as so obvious at the time of the contract that it went “without saying”. Rather it was submitted it contradicts the plain meaning and effect of clause 15.0 of the contract. The contradiction demonstrates how the implied term is neither reasonable nor equitable. It is the owner who supplies plans to the Builder and/or instructs the Builder or provides sketches who is better placed to know the providence of the designs, instructions or sketches, according to the Builder’s submissions.
Further, it was submitted by the Builder that to introduce the implied term contended for by the owners would expose the Builder to liability to an owner for breach of a contract where the design incorporates a third party’s copyright known to the owner but not to the Builder. This, it was submitted, was inequitable, not just inequitable but illogical to expect such a Builder to promise to the owner that the design does not infringe any third party’s copyright. There is accordingly no basis for implying the contractual term suggested by the owners.
Owners’ submissions
As I understand the Owners submissions reliance was placed upon paragraph 6 of the Defence where the Owners plead,
“6.The First Respondents submitted that the said New Homes Contract contains terms as set forth in Paragraph 21, and otherwise refer to the matters pleaded in Paragraph 5 thereof. Further and alternatively they say it was an express, alternatively an implied term and condition of the engagement of the Second Respondent that the Second Respondent would provide original designs and construct a house which did not infringe any third parties copyright.
Particulars
The said term was express insofar as it was made in assurances to the First Respondents by Gayle Cole that no issue as to copyright in the Applicant’s plans arose. In so far as it was implied it was implicit in the Second Respondent’s conduct in seeking to be informed of and shown the Applicant’s plans and proceeding to provide the design and construction work to the First Respondent’s without apprising or warning them of any issue or possible liability concerning infringement of copyright arising therefrom.”
Reasoning
The suggestion of there being an implied term that the Builder would not infringe copyright in my view is not necessary to give business efficacy to the contract in this instance. An implied term of this kind would be quite significant and indeed would provide a broad obligation upon a Builder not to infringe copyright.
The purpose and intent of this contract and in particular clause 15.0 is directed towards plans supplied by, prepared under instruction from or prepared from sketches supplied by the Owners. It is not necessary imply a term into the contract in broad terms requiring the Builder not to infringe copyright. The Builder is subject to the Copyright Act. In this case where a claim is made for breach of copyright infringement the Builder is entitled to rely upon the indemnity provisions of a contract between the Builder and the Owners.
Applying the authorities relating to implied terms to which reference has been made in the submissions by the Builder, it is my view that in this instance it is not necessary to imply any further terms as submitted for and on behalf of the Owners.
Is the indemnity limited to ‘reasonable’ losses?
Builder’s submissions
Reference was made to the owners Defence at [15] that liability would only extend to such losses which were “reasonable” and “reasonably incurred”. Again, it was submitted applying the relevant authorities including BP Refinery that the contract is effective without that implied term and is therefore not necessary to imply the term to give it business efficacy. The parties could have inserted a limitation if they chose to do so according to the Builder’s submissions.
Owners’ submissions
The Owners relied upon paragraph 15 of the Defence which provides:-
“15.Further and in the alternative, to the extent that the First Respondents are liable to indemnify or otherwise compensate the Second Respondent, as alleged or at all, it was an implied term of the contract imposing indemnity that in relation to costs and expenses incurred by the Second Respondent they are only so liable to the extent that such losses were reasonable and were reasonably incurred.
Particulars
The term was implied by the need to lend business efficacy to the agreement and by operation of law.”
Reasoning
I accept the submissions made on behalf of the Builder that applying the relevant authorities is not necessary to imply the term that the indemnity applies to “reasonable” losses. That does not of course mean that the Builder would not be required to prove the losses and that the losses are payable pursuant to the indemnity in the absence of agreement apart from determining the essential ingredients of the losses including costs on an indemnity basis. The quantum of costs is a matter which the Court may well be required to determine. This is not the same as conceding that there is a need for an implied term in the contract.
Do the provisions of the Fair Trading Act 1999 (Vic) apply to the Cross-Claim?
Builder’s Submissions
It was submitted that none of the provisions sought to be relied upon under the Fair Trading Act apply to clause 15.0 of the contract nor does the contract it was submitted cause any significant imbalance in the rights and obligations of the owners and the Builder. Rather the contract provides a good example of the fair purpose which clause 15.0 is designed to achieve. During the course of submissions reference was made to the contract being a “standard form contract” and at one stage a suggestion made that it was endorsed by the Housing Industry Association for Domestic Homes throughout Victoria. Whether that is true or not it should be noted at this stage that the Court does not regard the endorsement of the contract or indeed whether it is a “standard form” as being relevant to the Court’s consideration of the Cross-claim. The Court is concerned with the contract between the parties and the submissions made by the Builder should be dealt with on merit according to law and not whether the contract has been endorsed by some professional body.
In any event it was further submitted that the contract could not properly be regarded on any interpretation as “unconscionable”.
Accordingly the provisions of the Fair Trading Act do not apply.
Owners’ submissions
It was submitted on behalf of the Owners that as a matter of fairness the provisions of the Fair Trading Act should apply in relation to clause 15 of the contract. In particular reference was made to what was described as the encouragement by the Builder of the Owners to provide instructions which it is submitted ultimately enlivened the current indemnity claim.
Reasoning
In my view the provisions of the Fair Trading Act cannot apply to this contract. I do not see any unfairness in the interpretation advanced for and on behalf of the Builder accepted by the Court which would attract the operation of any provisions of the Fair Trading Act.
I further do not accept as appeared to have been submitted during the course of submissions that the contract and/or the conduct of the Builder could be regarded as unconscionable applying the relevant principles referred to during the course of submissions (see Commonwealth Bank v Amadio (1983) 151 CLR 447 at 474). I accept there is no evidence of any disability on the part of the Owners in this case or any other relevant matters which would lead the Court to conclude that there was unconscionable conduct on the part of the Builder.
Further, as indicated the contract is interpreted as a commercial document and I do not see any unfairness of a kind which would attract the operation of any provision of the Fair Trading Act.
Conclusion
For the reasons given it follows in my view that the Builder’s Cross-claim against the Owners should succeed. I should add that although some argument was advanced in relation to the correspondence arising out of the settlement of the Applicant’s claim and suggestions that the Amended Cross-claim and Defence post dated the settlement should not have the affect claimed by the Builder, it is my view that the Amended Defence Cross-claim and Defence stands as pleaded having regard to the authorities referred to by Counsel for the Builder (see Wigan v Edwards & Anor (1973) 1 ALR 497 at 515).
It follows that the orders sought should be made, that is that the Owners indemnify the Builder in respect of the costs incurred by the Builder by reason of the claim brought by the Applicant which includes the amounts paid in settlement of the Applicant’s claim by the Builder and further that the Owners should pay the costs of and incidental to the Cross-claim proceedings and the Builder’s costs of and incidental to the substantive proceedings on an indemnity basis.
I shall hear Counsel in relation to the form of orders to be made arising out of the Court’s decision.
I shall further grant liberty to apply in relation to the calculation of costs.
I certify that the preceding eighty-eight (88) paragraphs are a true copy of the reasons for judgment of McInnis FM
Associate:
Date: 30 January 2007
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