CCH Australia Ltd v Accounting Systems 2000 (Developments) Pty Ltd
[1992] FCA 97
•11 MARCH 1992
Re: CCH AUSTRALIA LIMITED and CASTLE DOUGLAS PTY. LIMITED
And: ACCOUNTING SYSTEMS 2000 (DEVELOPMENTS) PTY. LIMITED; ACCOUNTING SYSTEMS
2000 PTY. LIMITED; GREGORY STOKES and CCH AUSTRALIA LIMITED.
No. G334 of 1989
FED No. 97
Copyright
COURT
IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY
GENERAL DIVISION
O'Loughlin J.(1)
CATCHWORDS
Copyright - Computer programs - whether warranties in contracts relating to copyright and ownership amounted to misleading or deceptive conduct - whether issues of inducement and reliance were present.
Trade Practices - See above
HEARING
ADELAIDE
#DATE 11:3:1992
Counsel for the Applicant and
Cross Respondent: Mr D. Catterns
Solicitors for the Applicant and
Cross-Respondent: Rosenblum and Partners
Counsel for the 1st, 2nd and 3rd
Respondents and 1st and 2nd
Cross-Claimants: Mr J.M. Ireland QC
Solicitors for the 1st, 2nd and 3rd
Respondents and 1st and 2nd Cross-Claimants: Worthington Storey
ORDER
The applicants bring in short minutes of order within fourteen days of this date.
Any party is thereafter at liberty to re-list the matter for further argument on not less than seven days notice.
NOTE: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.
JUDGE1
In my reasons for judgment that were published in this matter on 27 March 1991 I stated my answers to certain questions that had been advanced as preliminary issues. I incorporate, without repeating, in these reasons, my earlier findings of fact and conclusions. A summary of those findings is as follows:- I found that the first respondent, Accounting Systems 2000 (Developments) Pty. Limited, was not, as at 23 December 1988, the proprietor of certain Accounting Software Products (the "Accounting Products") - nor was it the sole beneficial owner of the copyright in those Accounting Products. Hence, it was not possible for that respondent, as it purported to do, to assign copyright in the Accounting Products on that day to the second applicant, Castle Douglas Pty. Ltd.
Although I found that there was no claim existing against the first respondent 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. However, I exonerated all three respondents from any suggestion of fraudulent practise. I determined that they did not know "the true state of affairs" - the expression used in the specific question that dealt with that subject. My answer meant that none of the respondents was then aware that the first respondent did not own the relevant copyright: they did not realise that the work that they had performed under licence had been insufficient or inadequate to constitute originality. I had concluded that their AS V2.1E program was, unbeknown to them, a reproduction (and, if not a reproduction, then an adaptation) of the Focus FBS V1.3 program.
It was the intention of the first applicant, CCH Australia Ltd. ("CCH") to have Castle Douglas acquire copyright in the Accounting Products. I found that Mr Shanahan, who was then the Manager of CCH Solvware, a division of CCH, had made that intention clear to Mr Stokes, the third respondent. I therefore had no difficulty in answering, against the interests of the respondents, a series of questions, holding, in effect, that Mr Stokes well knew and understood that it was the belief of CCH that it would, through its licence from Castle Douglas, be able to deal exclusively with the copyright in the Accounting Products. These findings lead, in turn, to the finding that copyright in the Accounting Products was owned, perhaps by Focus Business Systems Pty. Ltd. or, perhaps, by some other person such as Adept Business Systems Pty. Ltd. whose licence or consent would be needed before the applicants could deal with the Accounting Products or the copyright in them.
The assignment agreement, Ex.A8, contained in sub-clause 3.1, a series of warranties, including warranties that the first respondent was "the sole beneficial owner of the copyright in the Accounting Products" and that it was "entitled to assign such copyright to the Assignee" (i.e. to Castle Douglas). It further warranted that there was no claim or potential claim against AS 2000 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 s.52 of the Trade Practices Act ("the TPA").
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 respondents' claim was to the effect that the applicants' interest lay in, and was dominated by, the acquisition of "Unitax" and that they only purchased the Accounting Products as a means of achieving their primary objective. This being the case, the consequence was, so it was argued, that the applicants are not entitled to any relief as they did not rely on the incorrect representation about the copyright in the Accounting Products; in particular, the respondents denied the plea contained in paragraph 13 of the statement of claim that the two applicants were entitled to rescind each of the agreements to which they were parties. To consider these submissions it is necessary to review the evidence and, in particular, to look at the evidence of the principle witnesses, Mr Shanahan and Mr Stokes.
Since about 1985, CCH has been involved in the development of software products for use in the preparation of income tax returns. In late 1985, it acquired from a company described as "Datapak", the copyright in a product called "Tax Schedular 11". Subsequent to its acquisition, and following further development, CCH licensed the product, primarily to public accountants, it being intended that they would use it in the preparation of income tax returns for their clients. The final product was introduced into the market place in May 1986 under the names of "CCH Solvware Tax Return Package" or "CCH Tax Package". In August 1988, CCH acquired another product; it purchased the copyright in the software known as "Taxpac" from Trilogy Business Systems Pty. Ltd. The acquisition of "Taxpac" gave to CCH access to the "client base" of Trilogy - that is, to those accountants who had been using Trilogy's products; CCH set about persuading those users to switch to the "CCH Tax Package". The acquisitions of the copyrights in these two programs were not questioned by the respondents during these proceedings and their existence constitutes a base for CCH's claim that it was a matter of company policy to acquire copyrights in products wherever possible as distinct from mere licences to use.
For present purposes, CCH and the respondents first came together in September 1988. At that time the first respondent owned the copyright in a tax package that was called "Unitax"; the question was whether "Unitax" was for sale to CCH and if so on what terms? The negotiations were conducted principally by Mr Shanahan on behalf of CCH and Mr Stokes, the third respondent; Mr Stokes was a director and minority shareholder of the first two respondents. Although their evidence was, in several important respects, contradictory, it was nevertheless common ground, and I find, that CCH's first and paramount interest was in the purchase of "Unitax". However, I am satisfied, and I also find, that the AS 2000 group was not interested in selling that product unless there was a contemporaneous sale of the Accounting Products.
Negotiations continued through until December 1988 when settlement took place and CCH acquired the copyright in the "Unitax" program for approximately $1M; but those negotiations had culminated with CCH also deciding that it would purchase the copyright in the Accounting Products. However, with the agreement of all parties, settlement for that acquisition was delayed until 3 January 1989 so that the transaction would not appear in the accounts of CCH for its financial year that ended on 31 December 1988. In addition, CCH sought and obtained a delay in payment of the purchase price of the Accounting Products. It was necessary to devise a scheme that would protect the vendor and ensure that CCH would proceed with the purchase of the Accounting Products. This was achieved through the use of Castle Douglas, a shelf company that was jointly acquired by CCH and the first respondent. Six agreements were executed; the first of them, Ex.A8, allegedly assigned copyright in the Accounting Products from the first respondent to Castle Douglas. Another document, a put-option, Ex.A11, could force CCH to purchase that copyright from Castle Douglas in 3 years time; the base price was $750,000 but, with indexation, the cost to CCH would be a sum slightly in excess of $1M. A third document gave an option to the first respondent to acquire the whole of the capital of Castle Douglas (with consequential access to the $1M) for a nominal consideration.
Mr Shanahan failed to explain satisfactorily some of the budget papers and financial forecasts that he prepared, or in which he had an involvement, in late 1988. His evidence in respect of a document dated 16 December 1988, entitled "Effect of Proposed Solvware and AS.2000 (dev) Transactions over three years" (p 83 of his affidavit sworn 3 June 1991) and also in respect of two inter-office transmissions of 1 November and 19 December 1988 (Exs. R28 and R29) was decidedly shaky and, if it had been necessary to consider that evidence in greater detail, I would have been reluctant to rely on what he said. He had been cross-examined at length about CCH's financial expectations based on its acquisition of "Unitax" and the Accounting Products; the case that the respondents sought to build was that the Solvware division of CCH had been running at a loss and that it was the hope of CCH that the two acquisitions would convert a $1M per annum loss to a $600,000 per annum profit. Mr Shanahan agreed, basically, with this proposition. He also agreed that it became apparent in May 1989 that the budgeted profits would not be forthcoming. It was then put to him by Mr Ireland QC, counsel for the respondents, that the issue of terminating the contracts relating to the Accounting Products was seriously raised at that stage - not because of lack of title or failure to assign copyright - but because, and only because, the financial consequences of the acquisitions had not reached CCH's expectations.
Mr Shanahan did not shy away from the fact that CCH's financial expectations had not come to fruition. He agreed that he was aware that the failure to retain many of the former subscribers to the services previously supplied by AS.2000 "represented in dollar terms a significant loss on the budgeted sales for the first half of 1989". (p 389)
He was then asked:-
"And you were conscious also, were you not, as at June 1989, of the obligation which could arise some two and a half years or so down the track in relation to the client accounting product, for CCH to pay about a million dollars ultimately to AS 2000?..., Yes, I was, And you knew that it was an obligation which AS 2000 could enforce in that regard at the end of that period if the agreements remained on foot?..., Yes, I did. As at June 1989 you took the view, did you not, that some way had to be found to avoid that obligation, that is to pay the million dollars at the end of the period?...Yes, I formed that view.
And the action taken by CCH in late June in commencing these proceedings, seeking a recision as it were, of the various agreements, was designed to avoid the obligation to pay the sum of a million dollars at the end of the option period?... That's correct." (p 389)
But Mr Shanahan denied that "the copyright issue was no more than a pretext to determine" the contractual ties then existing between CCH and AS 2000 (p 395). According to him it had been a live issue for three or four months.
According to Mr Shanahan, there was an occasion in late February 1989 when Mr Stokes said to him "It is a pity that we cannot sell the Accounting Products, particularly the Client Accounting System, to companies" (paragraph 43 of his affidavit of 3 June 1991). Mr Shanahan said that he responded to Mr Stokes by rejecting that proposition saying "we can sell it to whomever we want". He explained in evidence that he nevertheless checked the documentation, satisfying himself that "CCH could licence the Accounting Products to any person". He said that he therefore raised the subject of the assignment of the copyright again with Mr Stokes on 9 March 1989. I am satisfied that Mr Shanahan pursued the subject throughout March with Mr Stokes and that he also raised it at a meeting on 5 April.
The matter came to a head in June. In paragraph 57A of his affidavit of 3 June 1991 Mr Shanahan explained:
"Having regard to the above matters, I came to the firm conclusion after meeting with CCH's solicitors on 14 June 1989 and after discussing the matter with Dick Honor and John Pullinen '(Senior executives of CCH)' that the only course open to CCH was to cease marketing the accounting products and to move as soon as possible to independently develop a new client accounting system and a practice management system to replace the accounting products which were the subject of the agreement with AS 2000."
That in fact happened and two days later Mr Shanahan informed Mr Stokes of "the decision to withdraw the products from sale" (para 59). These proceedings were instituted a few days later on 23 June 1989. The relief sought included damages for breach of contract, damages pursuant to s.82 of the TPA and relief by way of declarations of rescission under s.87 of that Act.
Bearing in mind that Mr Stokes denied much of the detail that is contained in Mr Shanahan's affidavit, it is significant that Mr Stokes, in asserting his version of a conversation that took place between the two men on or about 12 May 1989, concluded by deposing, in paragraph 44 of his affidavit of 4 July 1991, that these words were spoken:
"Shanahan: 'Yes, have you spoken to the directors of Adept?' Stokes: 'No, I've been waiting to get this letter finalised first.' Shanahan: 'Look, I raised this with you months ago.' Stokes: 'You only raised it in March.' Shanahan: 'The matter is serious and must be resolved.' Stokes: 'That is your view but I will chase it up.'"
The need for Mr Stokes to speak to the directors of Adept was directly related to the subject of the copyright in the Accounting Products; Mr Stokes had assured Mr Shanahan, on more than one occasion, that there was no cause for concern and, to support that assurance, had said that he would get verification from the directors of Adept that would satisfy Mr Shanahan that copyright had vested in Castle Douglas. Furthermore, the reference by Mr Stokes to the month of March contradicts the respondents' primary submission that the applicants' concern about copyright was a matter recently invented so as to avoid having to payout a $1M for the copyright of a product that they now regarded as unsatisfactory. Rather, it corroborates the proposition that CCH had not been idle; it shows that Mr Shanahan had been actively pursuing the question of copyright for some months. It was reasonable, in my opinion, for a man in Mr Shanahan's position to assume, at first, that all would be in order; it was reasonable for him to accept, initially, assurances from Mr Stokes that there was no cause for alarm. I have therefore come to the conclusion that CCH acted reasonably; Mr Shanahan was quick to inquire about an apparent irregularity but, he acted properly in giving to the respondents every opportunity to remedy any defect.
I now turn to the questions of "inducement" and "reliance". In Gould v Vaggelas (1985) 157 CLR 215, a case of deceit, Wilson J. at p 236 summarised the law on these subjects in these terms:
"1. Notwithstanding that a representation is both false and fraudulent, if the representee does not rely upon it he has no case.
2. If a material representation is made which is calculated to induce the representee to enter into a contract and that person in fact enters into the contract there arises a fair inference of fact that he was induced to do so by the representation.
3. The inference may be rebutted, for example, by showing that the representee, before he entered into the contract, either was possessed of actual knowledge of the true facts and knew them to be true or alternatively made it plain that whether he knew the true facts or not he did not rely on the representation.
4. The representation need not be the sole inducement. It is sufficient so long as it plays some part even if only a minor part in contributing to the formation of the contract."
In Argy v Blunts and Lane Cove Real Estate Pty. Ltd. (1990) 94 ALR 719 at 741, Hill J. said that he thought this passage from the judgment of Wilson J. to be equally applicable, by analogy, to a cause of action under the TPA; I respectfully agree.
The respondents' claim that Mr Shanahan did not rely on the warranties in the assignment agreement and their theory that CCH used the lack of copyright in the Accounting Products as an excuse to avoid its contractual commitments have not impressed me.
The weakness in the theory which, independently of my acceptance of Mr Shanahan's evidence, justifies its rejection is that CCH had decided to acquire an accounting service that it could offer to its tax clients as one which would be compatible with its tax service. AS 2000's Accounting Products was such a service and CCH had spent many thousands of dollars and about five months work in developing it. When CCH decided to withdraw the Accounting Products in June 1989, it forfeited that expenditure and perhaps of more importance, it jettisoned the benefit of the five months that had been spent on development. It had to start again. Such conduct is only borne out of necessity. "Unitax" may have been its primary objective, but that did not mean that Mr Shanahan was disinterested in what was said about the Accounting Products, even though on one version of the facts, his company had been forced to buy it against its will.
Let it be assumed that CCH was a reluctant purchaser of the Accounting Products; the fact remains that CCH committed itself to pay in excess of $1M to acquire them in 1992. Mr Shanahan would have been a poor executive if he had not applied his mind to the quality and the calibre of the assets that would be costing his employer such a large sum of money. Then there is CCH's history which has already been briefly summarised and which supports the evidence of the applicant's witnesses that CCH always looked to acquire copyright when it involved itself in any product. I was impressed by the manner in which Mr Shanahan gave his evidence on this subject; in all material areas he was firm and clear. I accept him as a witness of truth. I am satisfied and I find that Mr Shanahan made it clear to Mr Stokes that CCH insisted on acquiring copyright. I am also satisfied and I find that the subject of copyright in the Accounting Products was a subject of the utmost importance to CCH and that this was known to Mr Stokes. Where the evidence of Mr Stokes conflicts with that of Mr Shanahan, I prefer the evidence of Mr Shanahan; it had the ring of authenticity. I find that Mr Stokes either told Mr Shanahan that the first respondent owned copyright in the Accounting Products and was capable of assigning that copyright or, at least, made statements that were calculated to induce in Mr Shanahan a belief that the first respondent owned that copyright and was capable of assigning it. I further find that Mr Shanahan, and therefore both applicants, relied on these statements and were induced by them into entering into the several contracts with the respondents that were executed in late December 1988 and early January 1989.
For the reasons set out below, I have also concluded that the facts of this case are such that the warranties that were contained in the assignment agreement (Ex.A8) constituted representations that were made by the respondents to the applicants. The warranties were written statements that were misleading or deceptive; the presentation of them to the applicants in the assignment agreement amounted to conduct that offended against s.52 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 the applicants would not have entered into any of the contracts if it had known that Castle Douglas would not be acquiring copyright in the Accounting Products. I find that written warranties can - and in this case did - constitute the making of representations. In my opinion the following authorities make that clear.
The first of these is the decision of the High Court in Alati v Kruger (1955) 94 CLR 216; that was a case dealing with a claim that the purchaser of a fruit business had been induced to enter into a contract of purchase as a result of a fraudulent misrepresentation as to the average weekly takings of the business. In their joint judgment, Dixon C.J. Webb, Kitto and Taylor JJ. pointed out that the trial judge had made a finding that the purchaser had relied upon the vendor's representation which "was in the form of a statement contained in the contract itself" (p 220). Their Honours noted that those findings were justified by the evidence. The relevant clause in the contract was clause 21 which stated that the "(v)endor states that the average takings are 100 per week". Their Honours classified that provision as a warranty.
The second decision is Simons v Zartom Investments Pty. Ltd, (1975) 2 NSWLR 30. In that case, the plaintiffs believed, based on what they had read in the defendant's leaflet, that they would be buying a home-unit and a lock-up garage; at the time of the signing of their contract for the purchase of the units, they were only partially completed. The defendant only ever intended to build secure under-cover car parking and mistakenly but innocently regarded that as a lock-up garage. The defendant's mistake was compounded by the insertion of the same representation as a term of the contract. The plaintiffs purported to rescind the contract when they ascertained the truth of the matter. In holding that the contents of the leaflet were designed to induce people to buy home-units in the defendant's project and that they constituted representations as to what property a purchaser would acquire. Holland J. said at p 34:
"If a vendor makes a material false representation which is calculated to induce a purchaser to enter into a contract for the sale of land and the purchaser does so, the vendor cannot hold the purchaser to performance of the contract in equity and the purchaser may elect to rescind and approach the equity court for an order declaring the contract rescinded. Such an order is one affirming by judicial determination that the act of the purchaser in electing to rescind was justified, effective, and put the contract at an end: Abram Steamship Co. v. Westville Shipping Co. (1923) AC 773, at p 781; Kramer v. McMahon (1970) 1 NSWR 194, at p 206. Inducement may be inferred from the fact that the purchaser entered into the contract, unless the vendor proves that the purchaser either knew that the representation was false or did not rely on it: Redgrave v. Hurd (1881) 20 Ch D 1, at p 21. If the representation is one that would affect the mind of an ordinary person, and did in fact affect the mind of the purchaser, it is a material representation, and, if it led him to enter, or was a contributory influence upon him in entering, into the contract, he is entitled to be relieved of the contract: Barton v. Armstrong (1973) 2 NSWLR 598, at p 631; Australian Steel and Mining Corporation Pty. Ltd. v. Corben
(1974) 2 NSWLR 202. The purchaser does not have to establish that the misrepresentation went to the root of the consideration, or that the property offered by the vendor in performance of the contract is substantially different from that as represented to the purchaser: Wilson v. Brisbane City Council (1931) QSR 360, at pp 379-386; Voumard, Sale of Land, 2nd ed., p 38.
In appropriate circumstances, it is quite clear that the contents of a written document - by whatsoever name they may be called - can amount to a representation.
I turn next to the subject of rescission.
The Court, when considering the question of relief and remedies under s.87 of the TPA, is not restricted by the limitations under the general law that deal with the right of a party to rescind for breach of contract or for misrepresentation. Even so, as Lockhart J. pointed out in Henjo Investments Ltd. v. Collins Marrickville Pty Ltd. (1988) 79 ALR 83 at 102, in exercising its jurisdiction under the section, "the Court will consider the conduct of the parties after they had knowledge of the misleading quality of the conduct". Henjo v Collins dealt with the sale of a restaurant business. The trial Judge thought that the nature of the vendor's misrepresentations warranted an order that the contract of sale be declared void ab initio. On appeal however, the majority considered that damages would be a sufficient remedy having regard (inter alia) to the purchaser's delay in prosecuting his cause.
There was delay on the part of CCH in this matter; there is evidence that suggests that the integrity of AS 2000's 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.
Counsel for the respondents submitted that there were three arguments in support of his contention that, as a matter of discretion, s.87 of the TPA should not be invoked for the purpose of rescission. One of these arguments can be disposed of quickly; I have elsewhere in these reasons stated that the conduct of the applicants, and Mr Shanahan in particular, was reasonable and understandable. I cannot therefore agree that they were dilatory: hence I do not accept the argument that their conduct should be classified as an affirmation of the agreements in respect of which declarations of rescission are now sought. I also reject the proposition that the contractual arrangements that dealt with the Accounting Products were part only of a larger transaction involving "Unitax" and that the acquisition by and on-going ownership of CCH of "Unitax" was therefore a bar to rescission. The two matters were dealt with by the parties as independent exercises; the transactions were not in any way connected with nor were they dependent on one another. The second argument that was advanced against rescission raised the question of restitution. That problem is explained in the joint judgment of Rich, Starke and Dixon JJ. in A.H. McDonald and Co. Pty. Ltd. v Wells (1931) 45 CLR 506 at 512:
"We think that the finding of the learned Chief Justice that the respondent was not fraudulent must be sustained. The result is that the appellant cannot obtain relief save upon the footing of innocent misrepresentation, and this means that he is limited to rescission. But rescission requires restitutio in integrum and it cannot be granted unless the parties can be restored substantially to the position which they occupied before the transaction was entered upon. No doubt it is not necessary to restore them precisely, and Courts of equity give relief by way of rescission when by the exercise of their powers they can do practically what is just in the restoration of the parties."
These principles were reaffirmed in Alati v Kruger (supra); the facts of that case emphasise that the Courts can, in appropriate cases, be liberal in testing the principle of restitutio. Thus in this case, it may be that some of the former clients of AS 2000 with respect to the Accounting Products have been lost, and it may be that the developmental work that was carried out over a period of five or six months may mean that the state of the Accounting Products differed from that which existed at the time of the purported assignment. But in my opinion these are natural business consequences that would have occurred, to some degree, even if the purported assignment had not taken place. I am satisfied that there can be a substantial restitution.
The last of the arguments against rescission has its base in the rule that denies rescission of an executed contract in the absence of fraud. This rule, sometimes called the rule in Seddon's case (Seddon v North Eastern Salt Co. Ltd. (1905) 1 Ch 326) is not universally favoured although it has been followed on several occasions in this country. The authorities and commentaries are to be found in the decision of Wood J. in Vimig Pty. Ltd. v Contract Tooling Pty. Ltd. (1987) 9 NSWLR 731 and need not be repeated here save to comment that all of them relate to the question of the application of the general law - none of them were concerned with the statutory powers that are invested in this Court by virtue of the provisions of the TPA. However, the immediate answer to this problem is that the agreement that is of most concern to the applicants - Ex.A11, the put option, the one pursuant to which CCH can be forced to acquire the copyright in the Accounting Products from Castle Douglas - remains executory and is thus not susceptible to the rule in Seddon's case. On the other hand, the Assignment Agreement has been executed. Thus it would be open, when considering the question of discretionary relief to reaffirm those agreements between the litigants that have been executed and to declare those that remained executory as having been lawfully rescinded. But I do not consider that it would be fair to any of the parties to adopt such a course. In my view the only sensible answer is to unravel all contractual commitments presently subsisting between the parties to this litigation.
When one stands back and assesses the totality of this matter, one immediately recognises that the base arrangement that was made between CCH and AS 2000 called for CCH to pay out in excess of $1M for the copyright in the Accounting Products. There have now been findings in this litigation that the present and former "owners", Castle Douglas and AS 2000 do not have and never did have copyright; in those circumstances common sense demands an unscrambling of the mess and the restoration of the parties to their former positions with appropriate adjustments and compensating damages.
In principle this means that I would be amenable to making, where appropriate, declarations that agreements are void ab initio. There is one difficulty however that was not addressed by counsel during their submissions. The power to declare that an applicant has lawfully rescinded a contract is contained in paragraph 87(2)(a) of the TPA. That refers however to a contract that was made between the person who suffered, or is likely to suffer, the loss or damage and the person who engaged in the conduct. In the case of the put-option, Ex.A11, the party who is likely to suffer the loss, CCH, is a party to that agreement and its loss will arise when AS 2000, as a party to that agreement calls upon CCH to exercise the option. But it is the assignment agreement Ex.A8 - not the put-option - which contains the warranties which are the cause of this loss and CCH was not a party to that agreement. If the respondents question the ability of the Court to make such a declaration of rescission under paragraph 87(2)(a), the appropriate relief might be "an order refusing to enforce any or all the provisions" of the put-option (paragraph 87(2)(ba)). This problem will best be attended to when the parties have had an opportunity to consider these reasons.
I turn then to the question of the liability, if any, attaching to the third respondent, Mr Stokes. Section 82 of the TPA allows a person who has suffered loss or damage by the conduct of another person that was done in contravention of a provision of Parts IV or V (and s.52 is within Part V) to "recover the amount of the loss or damage by action against that other person or against any person involved in the contravention". The applicants have claimed that Mr Stokes was involved in the contravention of s.52; they rely upon the provisions of s.75B to support that proposition. Subsection (1) of that section provides as follows:-
"A reference in this Part to a person involved in a contravention of a provision of Part IV or V shall be read as a reference to a person who -
(a) has aided, abetted, counselled or procured the contravention;
(b) has induced, whether by threats or promises or otherwise, the contravention;
(c) has been in any way, directly or indirectly, knowingly concerned in, or party to, the contravention; or
(d) has conspired with others to effect the contravention."
The basis upon which the applicants contend that Mr Stokes is liable under s.82 is that, he aided, abetted, counselled or procured the contravention: (para 75B(1)(a)); and that he had been, directly or indirectly, knowingly concerned in, or party to, the contravention: (para 75B(1)(c)). Based on the decision of the High Court in Yorke v Lucas (1985) 158 CLR 661 I do not think that either of these propositions is tenable. To apply the High Court's decision, it is important to state the relevant findings of fact in that case; the respondent, Lucas, had acted as an agent for the vendor in the sale of a business to the appellant, Yorke. The trial Judge had found that the vendor had engaged in conduct that was misleading and deceptive by falsely representing the extent of the average weekly turnover of the business. However, he dismissed the claim against Lucas, taking the view that Lucas was insufficiently aware of the relevant facts for him to be involved in the contravention within the meaning of s.75B and s.82 of the TPA. Even though Lucas passed on the false information about the takings to Yorke, the trial Judge made the following findings of fact:
"The position then is and I find that Mr Lucas was not aware and had no reason to suspect, that the information concerning turnover which he relayed to Mr Yorke was incorrect. He made all appropriate inquiries from Mr Mahoney and was entitled to be satisfied with the answers he was given, particularly as the turnover figure which he was supplied was received some support from the accounts of Treasureway. He did not know of or suspect, and had no reason to suspect, the inaccuracy of the turnover figures and in no way could it be said that he acted recklessly or deliberately abstained from asking questions or pursuing enquiries." (pp 665-666)
The High Court held that the trial Judge was "correct in concluding that, upon the facts as found, Lucas was not a person involved in the contravention of s.52..." (pp 670-671). As to paragraph 75B(1)(a), Mason A.C.J.., Wilson, Deane and Dawson JJ. said in their joint judgment that it was necessary to prove that Lucas had intentionally aided, abetted, counselled or procured a contravention of s.52 of the TPA and the trial Judge's findings established that he lacked the knowledge necessary to form the required intent. As to paragraph 75B(1)(c) their Honours said at p 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 application of Yorke v Lucas to the facts of this case, it seems to me that the findings of fact that I have made make it clear that Mr Stokes did not have the requisite knowledge or intention. In fact he had a belief - honestly held but nevertheless mistaken - that AS 2000 had acquired copyright in the Accounting Products and was competent to assign it to Castle Douglas. In these circumstances I have come to the conclusion that the applicants' claim against Mr Stokes must fail.
Finally, I turn to CCH's claim for damages under the TPA. One of the documents that was executed by the parties was a "Consultancy Agreement", Ex.A7, the parties to which included the first applicant and the first respondent. According to the information contained in the affidavit of Pentti Juhani Pullinen, sworn on 20 June 1991, the accounting records of CCH establish that expenses totalling $429,649.88 were incurred by CCH in 1989 in respect of work performed under the Consultancy Agreement by AS 2000. Mr Pullinen, who is the General Manager of CCH and the Managing Director of CCH Solvware Ltd, apportioned those expenses into four categories which he classified as follows:
"A. Client Accounting System $274,456.33
B. Office/Practice Management System $ 95,823.56 C. Client Billing $ 36,983.13 D. Practice Debtors $ 22,386.86 $429,649.88"
However, in its calculations, CCH has deducted from this gross figure the revenue of $275,246.78 that it earned from these products; this revenue was wholly attributable to the Client Accounting Systems and Office/Practice Management Systems - CCH earned nothing from Client Billing and Practice Debtors. The net claim for damages is therefore $154,403.10.
The first two items, the Client Accounting System and the Office Practice Management System, were two of the three programs that made up the Accounting Products. Although the respondents do not concede liability, they do not challenge the calculations; it remains therefore to consider whether a monetary award should be given to CCH. It seems to me that answer is self-evident: CCH, in the belief that copyright had been assigned to Castle Douglas, took a licence from Castle Douglas to exploit the licenced products. It spent, in good faith, moneys in the development of two of the products; it now finds that the conduct of the first respondent (or perhaps the first two respondents) has been the direct cause of it losing the value of that expenditure. In my opinion CCH is entitled to recover the net losses that it has suffered. The third and fourth products are however in a different category; they were not the subject of the assignment of copyright and I do not know enough about them to accept Mr Pullinen's evidence that they are a "module" and an integral part of the software. I propose to exclude their expenditure $59,369.99 thereby reducing the claim to $95,033.11. For the purposes of computing interest and adding it to the award of damages, I note that CCH's expenditure would have been incurred throughout the first half of 1989. The applicants' willingness to accept interest from 1 July 1989 is therefore quite generous.
Counsel for the applicants suggested, during the course of his final submissions, that if I was disposed to grant relief supporting the claims of rescission, I should say so but then go no further other than to direct the applicants to bring in short minutes of order. Having regard to the number of contracts and to the number of litigants, an intimation in these terms would give the parties an opportunity to consider their respective positions and perhaps reach some agreement as to what consequential orders should be made. I am prepared to do this. Without proceeding to enter judgment at this stage, I note that the respondents' cross-claims have been withdrawn and I intimate that this is a case where the Court would, in the exercise of its discretion, grant relief under one of the heads contained in sub-s.87(2) of the TPA. I also intimate that the applicant CCH would be entitled to an award of damages in the sum of $95,033.11 together with interest on that sum as from 1 July 1989. In view of the way in which this matter will be finalised I will defer fixing the rate of interest so that counsel may if they wish, make submissions and calculations on that subject. I will also hear counsel on the question of costs.
I direct the applicants to bring in short minutes of the orders that they would seek consistent with these reasons within fourteen days of this date; any party is thereafter at liberty to re-list the matter for further argument on not less than seven days notice.
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