International Writing Institute Inc v Rimila Pty Ltd

[1995] FCA 324

CATCHWORDS

COPYRIGHT -  principles governing the assessment of conversion damages under s 116(2)

Copyright Act 1968 s 115(2) 116(1)

Caxton Publishing Co Ltd v Sutherland Publishing Co (1939) AC 178

Infabrics Ltd v Jaytex Ltd (1982) AC 1

W H Brine & Co v Whitton (1981) 37 ALR 190; 55 FLR 440

Armory v Delamirie (1721) 1 Stra 505; 93 ER 664

Ley v Lewis (1952) VLR 119

Lewis Trusts v Bamber Stores Ltd (1982) 8 FSR 281 Ch D

International Writing Institute Inc v Rimila Pty Limited & Ronald Banfield Tubbs

No G946 of 1994

Burchett, Whitlam, Kiefel JJ.

Sydney

24 May 1995

IN THE FEDERAL COURT OF AUSTRALIA

NEW SOUTH WALES DISTRICT REGISTRY

GENERAL DIVISION   No. G946 of 1994

On appeal from a Judge of the Federal Court of Australia

BETWEEN:INTERNATIONAL WRITING INSTITUTE INC  Appellant

AND:   RIMILA PTY LIMITED

First Respondent

AND:RODNEY BANFIELD TUBBS

Second Respondent

BEFORE:   Burchett, Whitlam, Kiefel JJ.

PLACE:   Sydney

DATE:   15 May 1995

MINUTES OF ORDERS

THE COURT ORDERS THAT:

1.                The appeal be dismissed.

2.                The appellant pay the respondents' costs of and incidental to the appeal.

NOTE:        Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

IN THE FEDERAL COURT OF AUSTRALIA

NEW SOUTH WALES DISTRICT REGISTRY

GENERAL DIVISION   No. G946 of 1994

On appeal from a Judge of the Federal Court of Australia

BETWEEN:INTERNATIONAL WRITING INSTITUTE INC  Appellant

AND:   RIMILA PTY LIMITED

First Respondent

AND:RODNEY BANFIELD TUBBS

Second Respondent

BEFORE:   Burchett, Whitlam, Kiefel JJ.

PLACE:   Sydney

DATE:   15 May 1995

REASONS FOR JUDGMENT

THE COURT:

The appellant ("IWI") appeals from an assessment of damages by Lockhart J. which is reported at (1994) AIPC 91.115.

The first respondent Rimila Pty Limited ("Rimila") was, between 1985 and 1989, IWI's distributor in Australia of IWI's writing skills course entitled "Put It In Writing".  From March 1990 Rimila commenced selling, as its own, a course called "Basic Writing Skills".  Part of the materials in that course, namely the Participants Manual and the Overhead Projection Transparencies, were found by his Honour to have infringed IWI's copyright in its PIIW course.  Other materials in the BWS course, such as the guidelines for instructors, did not infringe.  The sales were made within the
framework of franchise agreements, the provisions of which are central to the issues debated in this appeal, to various franchisees, appointed by Rimila, as franchisor by those agreements.

His Honour, having determined the question of liability, subsequently assessed the damages to which IWI was entitled by reason of the infringements. It is of some importance in this appeal that IWI elected damages as its remedy and did not pursue an account of the profits, if any, made by Rimila (see s.115(2) Copyright Act 1968) and it was not suggested by the appellant that it ought not be held to that election.  The two remedies are of course quite different, damages being a compensation for loss suffered by the owner of the copyright whereas an account of profits requires the wrong-doer to give up any profits made.  In that sense a claim for an account has been taken to condone the infringement:  see eg per Lord Porter in Caxton Publishing Co Ltd v. Sutherland Publishing Co (1939) AC 178, 198. IWI did claim an account of profits based upon an alleged fiduciary relationship but his Honour dismissed that claim and no appeal is brought from that part of his Honour's decision.

His Honour found the extent of the infringement was the printing of 3,222 books (the Participants Manual or what have also been referred to as the workbooks) and 15 sets of overhead transparencies, and described the scale of the infringement as small.  It was, in his Honour's view, also pertinent to note that having regard to income historically generated by the product and its commercial life, the loss suffered by IWI was not likely to be extensive.  After considering the principles governing the measure of
infringement damages under s.115(2) and conversion damages under s.116(1) his Honour assessed the damages to which IWI was entitled pursuant to these provisions at $20,280 and $15,226 respectively. The conversion damages initially assessed at $26,269 were the subject of reduction because of an impermissible overlap between the two heads of damage, and no point is taken either with respect to the correctness of that approach or with respect to the extent of the overlap identified. Further, no issue is taken by IWI as to his Honour's assessment of the infringement damages nor as to his Honour's statements of the principles governing both infringement and conversion damages. As will be seen this appeal is essentially concerned with a finding of fact and the evidence available with respect to it.

Section 116(1) provides:

"116.(1)  Subject to this Act, the owner of the copyright in a work or other subject-matter is entitled in respect of any infringing copy, or of any plate used or intended to be used for making infringing copies, to the rights and remedies, by way of an action for conversion or detention, to which he would be entitled if he were the owner of the copy or plate and had been the owner of the copy or plate since the time when it was made."

Section 10 defines "infringing copy".  It is not necessary here to set out that definition.

His Honour held that the relevant measure of damages for copyright conversion is the same as for conversion at common law, that is, "by reference to the value of the goods converted":  Infabrics Ltd v. Jaytex Ltd (1982) AC 1, 26 and W.H. Brine & Co v. Whitton (1981) 37 ALR 190, 196-8; 55 FLR 440, 448-50 and that the value of the goods converted is the figure that someone is prepared to pay for them: 
Caxton Publishing Co (1939) AC 178 203-4.  That market value is the normal measure is well established:  see Caxton Publishing 190.  Here, as his Honour pointed out, there was evidence available as to value, namely what the franchisees had in fact paid for the materials. This was not a case such as Armory v. Delamirie (1721) 1 Stra. 505; 93 ER 664, where the person who had wrongfully converted property refused to produce it so that the plaintiff was then unable to prove its full description or condition.  In such a case a presumption is raised against the defendant, that the property is of the best quality or condition.  The principle is not however applicable where evidence is available (Ley v. Lewis (1952) VLR 119) and is not to be taken as creating, in cases where there is an insufficiency of evidence as to a particular value contended for, a presumption that the higher value ought to be accepted. 

The appellant's principal submission was that the prices paid by the franchisee for the supply of the materials, being the sums used by the accountant Lonergan (called by Rimila and whose evidence his Honour accepted in preference to the accountant called by IWI) in calculating market value was part only of what was in fact paid.  His Honour held that these sums were the full payments for the materials, so IWI seeks to overturn a finding of fact.  IWI's point is that his Honour in adopting the accountant's approach failed to take account of a later "royalty" payment or payments to Rimila by its franchisees as required under their franchise agreement.  There was, the submission proceeds, nothing else provided by Rimila and so it must follow that the royalty was paid only for the infringing material supplied. 

We have no difficulty, in principle, in accepting that if the sum in fact paid for goods converted is not just the amount paid at the time of supply but includes a later instalment, an assessment of market value necessarily requires an aggregation of those sums.  The question then is whether, as IWI contends, the royalty payment was a part of the total payment for the material.  This was the approach taken by the accountant called by it, who added to the gross margin achieved on the "direct sale" of the course books income royalties for BWS courses run by Rimila's franchisees, being ten percent of the gross fees charged by the franchisees.  He also took account of what were called capital royalties said to be from the sale of the franchisees' business.  It is convenient here to note however that, regardless of the true price paid for the goods, an ascertainment of the price paid was not the exercise IWI's accountant was undertaking.  As he said in his report, he considered conversion damages to represent "past and future profits", which clearly they do not.  Later in his report, he indicated that the exercise undertaken was to assess the profit made by Rimila from the sale of its course.  As we have earlier noted, an account of profits was not the remedy sought. 

Clause 4 of the Franchise Agreement provided:

"4.           The Franchisee covenants with the Company to pay to the Company royalties in respect of the reading & study skills courses of ten per centum (10%) of the gross revenue and income generated by the conduct of those courses by the Franchisee or by any person or company on behalf of or with the assistance of or in concert with the Franchisee AND the royalties due from the Franchisee to the Company calculated as aforesaid shall be calculated on a calendar monthly basis and paid by the Franchisee within fourteen (14) days at the end of each calendar month during the continuance of this agreement and within fourteen (14) days of the date of the proper determination of this agreement;  and royalties calculated as aforesaid shall be payable as aforesaid
whether or not such gross revenue or income so generated within each calendar month or within fourteen (14) days of the proper determination of this agreement is paid within such period or periods to the Franchisee or to any such persons or company."

The other, "capital", royalty referred to by IWI's accountant is, by reference to clause 16.1 of the Franchise Agreement a payment made when consent to the assignment of a franchise is given;  and whilst it might conceivably be relevant in an account taken of profits made, it may be disregarded as irrelevant here to the assessment of conversion damages.  Mr Lonergan, in cross-examination, explained that in his view the royalty on income from courses conducted was properly to be seen as referable to a whole range of services provided by the franchisor Rimila.  It seems to us that on the evidence available that conclusion is correct.  Clause 4 covers other courses provided by Rimila in addition to the BWS course and elsewhere it appears from the evidence that it provided such courses.  The franchise agreement also comprehends the franchisee receiving information from time to time from Rimila as to "systems and methods of administration and controls adopted or devised by the company for the conduct of the reading and studies skills courses or on any developments or refinements thereof" and there was evidence that some such memoranda were provided.  The agreement provides for an exclusive territory to be held by the franchisee and grants rights with respect to the use of trademarks, business names and copyright held by Rimila.  The franchise business conducted by Rimila had, the evidence suggests, an established customer base and maintained client lists which might be thought to be of some benefit to franchisees.  Other documentary evidence, not challenged, showed that Rimila conducted courses, organised conferences, developed new courses and promoted and marketed them.  So much is gleaned from the evidence available.  It follows in our view that the ten percent royalty could not be regarded as a payment merely for the BWS material.  Of course there always existed the possibility that some of the royalty could be shown to be referable to that course material, a position more likely reached if it were shown that there was little or no margin applied to Rimila's cost of producing the material in the price charged for supply.  But that was not the course taken by IWI, the applicant below and the party upon whom proof of damage lay.  The accountant called by it did not undertake that exercise and questions put to the first respondent's witnesses including the second respondent, Rimila's Managing Director, and the accountant Lonergan went nowhere towards establishing what such a figure might be.  The second respondent was asked whether royalties provided the major source of income to Rimila, to which suggestion he assented.  However no inquiry was made as to what the royalty represented and the evidence does not permit the drawing of an inference that any identifiable portion of the royalty was paid as part of the price of the materials in question.  In these circumstances, the evidence did not disclose any sum which was required to be added to the price paid by the franchisees for supply of the material and the finding of his Honour ought not to be disturbed.

The appellant also sought to argue, in the alternative, that his Honour ought to have regarded conversion of the materials as having taken place when the franchisees provided the materials to course participants.  His Honour, it can be seen by his acceptance of the accountant Lonergan's evidence, took the time of conversion as when the sale of the infringing material occurred.  Conversion occurs when goods are dealt with in a manner inconsistent with the rights of the owner, but this must be clear:  Caxton Publishing, 189. Whilst it is possible that conversion occurs at some different point (as
was found on the facts in Caxton Publishing) the sale of the goods will, generally speaking, provide the necessary certainty.  This appears to be the view expressed by Walton J. in Lewis Trusts v. Bamber Stores Ltd (1982) 8 FSR 281, 298. But there is nothing in the cases on this matter which suggests that a proper approach would be to look to some other dealing when a clear act of conversion, on sale, has been shown. Indeed the appellant's argument suffers from the additional difficulty that the later act is in any event a dealing not by Rimila, but by third parties. In reality, this alternative contention is to be seen, once again, as the pursuit of an account of profits.

The appeal will be dismissed with costs.

I certify that this and the preceding seven pages are a true copy of the reasons for judgment of the Court.

Associate

Date:          24 May 1995

Counsel and Solicitors for

the appellant:   C.J. Bevan instructed by Anisimoff Davenport

Counsel and Solicitors

for the respondents:   R. Cobden instructed by Baker & McKenzie

Date of Hearing:   15 May 1995

Date of Judgment:   24 May 1995