JR Consulting & Drafting Pty Ltd v Cummings
[2016] FCAFC 20
•3 March 2016
FEDERAL COURT OF AUSTRALIA
JR Consulting & Drafting Pty Limited v Cummings [2016] FCAFC 20
Appeal from: JR Consulting & Drafting Pty Ltd & Anor v Cummings & Ors [2014] NSWSC 1252 File number: NSD 183 of 2015 Judges: BENNETT, GREENWOOD AND BESANKO JJ Date of judgment: 3 March 2016 Catchwords: CONTRACT – consideration of the relevant principles for the construction of a commercial contract – whether Recitals taken into account – whether court may have regard to conduct after the contract – identification of commercial purpose or object of the agreement
CONTRACT – consideration of doctrine of abandonment – where abandonment not expressly pleaded –relevance of delay and failure to perform over a long period –whether appropriate in circumstances to infer an intention that agreement should not be further performed
CONTRACT – breach of contract – whether breach of contract gave right to terminate contract – whether contract actually terminated – where case not pleaded
INTELLECTUAL PROPERTY – consideration of the principles governing the subsistence and ownership of copyright in computer software as a literary work – consideration of the notions of authorship and originality in copyright – consideration of the principles to be applied in determining authorship, originality and subsistence of copyright in sequential works constituted by regular releases and publication of versions of the software program
INTELLECTUAL PROPERTY – consideration of the principles to be applied in determining whether a party has authorised infringements of the work – consideration of the principles to be applied for the purposes of s 36(1) and s 36(1A) of the Copyright Act 1968 (Cth) – consideration of the principles to be applied in determining whether parties engaging in particular conduct are to be regarded as joint tortfeasors
Legislation: Australian Consumer Law, ss 236, 237
Copyright Act 1968 (Cth), ss 10(1), 13(2), 14(1), 22(1), 29(1) and (2), 31(1), 32(1) and (2), 36(1), 36(1A), 115, 135AQ(2)
Trade Marks Act 1995 (Cth), s 126
Cases cited: Allen Manufacturing Company Pty Ltd v McCallum &Company Pty Ltd (2001) 53 IPR 400
Australian Broadcasting Commission v Australasian Performing Right Association Ltd [1973] HCA 36; (1973) 129 CLR 99
Autodesk Inc v Dyason [No 2] (1993) 176 CLR 300
Betfair Pty Ltd v Racing New South Wales and Another (2010) 189 FCR 356
BMA Special Opportunity Hub Fund Ltd & Ors v African Minerals Finance Ltd [2013] EWCA Civ 416
Branir Pty Ltd v Owston Nominees (No 2) Pty Ltd [2001] FCA 1833; (2001) 117 FCR 424
Byrnes and Another v Kendle (2011) 243 CLR 253
Cooper v Universal Music Australia Pty Ltd (2006) 156 FCR 380
Copyright Act: IceTV Pty Ltd v Nine Network Australia Pty Ltd (2009) 239 CLR 458
Cowell v The Rosehill Racecourse Company Limited (1937) 56 CLR 605
Data Access Corporation v Powerflex Services Pty Ltd and Others (1999) 202 CLR 1
Del Casale v Artedomus (Aust) Pty Ltd [2007] NSWCA 172; (2007) 73 IPR 326
Desktop Marketing Systems Pty Ltd v Telstra Corporation Ltd (2002) 55 IPR 1
DTR Nominees Proprietary Limited v Mona Homes Proprietary Limited and Another (1978) 138 CLR 423
Electricity Generation Corporation (t/as Verve Energy) v Woodside Energy Ltd [2014] HCA 7; (2014) 306 ALR 25
Farah Constructions Pty Ltd and Others v Say-Dee Pty Ltd [2007] HCA 22; (2007) 230 CLR 89
Fitzgerald and Another v Masters (1956) 95 CLR 420
Hightime Investments Pty Ltd v Adamus Resources Ltd [2012] WASC 295
Inverness Medical Switzerland GmbH v MDS Diagnostics Pty Limited [2010] 85 IPR 525
JR Consulting & Drafting Pty Ltd & Anor v Cummings and Ors [2015] NSWSC 10
JR Consulting & Drafting Pty Ltd & Anor v Cummings & Ors [2014] NSWSC 1700
Keller v LED Technologies Pty Ltd (2010) 185 FCR 449
King v Milpurrurru (1996) 66 FCR 474
Leotta v Public Transport Commission (NSW) (1976) 9 ALR 437
Lym International Pty Ltd v Marcolongo [2011] NSWCA 303
Mentmore Manufacturing Company Ltd v National Merchandising Manufacturing Company Inc (1978) 89 DLR (3d) 195
Microsoft Corporation v Auschina Polaris Pty Ltd (1996) 71 FCR 231
O’Brien v Dawson (1942) 66 CLR 18
Pacific Carriers Ltd v BNP Paribas [2004] HCA 35; (2004) 218 CLR 451
Performing Right Society Ltd v Ciryl Theatrical Syndicate Ltd [1924] 1 KB 1
Pioneer Electronics Australia Pty Ltd v Lee (2000) 108 FCR 216
Roadshow Films Pty Ltd v iiNet Ltd (2012) 248 CLR 42
Root Quality Pty Ltd v Root Control Technologies Pty Ltd (2000) 177 ALR 231
Sands & McDougall Pty Ltd v Robinson (1917) 23 CLR 49
Summers and Another v The Commonwealth (1918) 25 CLR 144
Telstra Corporation Ltd v Phone Directories Co Pty Ltd (2010) 194 FCR 142
Telstra Corporation Ltd v Phone Directories Co Pty Ltd (2010) 264 ALR 617
Thomson v STX Pan Ocean Co Ltd [2012] FCAFC 15
Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd [2004] HCA 52; (2004) 219 CLR 165
University of New South Wales v Moorhouse (1975) 133 CLR 1
Victoria Park Racing and Recreation Grounds Co Ltd v Taylor (1937) 58 CLR 479
Water Board v Moustakas (1988) 180 CLR 491
Dates of hearing: 17, 18 August 2015 Registry: New South Wales Division: General Division National Practice Area: Intellectual Property Sub-area: Copyright and Industrial Designs Category: Catchwords Number of paragraphs: 445 Counsel for the Appellants/ Cross‑Respondents: Mr G Sirtes SC and Ms T Catanzariti Solicitor for the Appellants/ Cross‑Respondents: Simone Legal Counsel for the Respondents/ Cross–Appellants: Ms S J Goddard SC and Mr S L Ross Solicitor for the Respondents/ Cross–Appellants: Sparke Helmore ORDERS
NSD 183 of 2015 BETWEEN: JR CONSULTING & DRAFTING PTY LIMITED ACN 081 252 691
First Appellant
HAYES STEEL FRAMING SYSTEMS PTY LIMITED ACN 103 574 732
Second Appellant
GIANNI PACIONE (ALSO KNOWN AS JOHN PACIONE) (and another named in the Schedule)
Third Appellant
AND: ROBERT CUMMINGS
First Respondent
TANMARI PTY LTD
Second Respondent
FRAMECAD IP LIMITED
Third Respondent
AND BETWEEN: ROBERT CUMMINGS (and others named in the Schedule)
First Cross-Appellant
AND: JR CONSULTING & DRAFTING PTY LIMITED
ACN 081 252 691 (and others named in the Schedule)First Cross-Respondent
JUDGES:
BENNETT, GREENWOOD AND BESANKO JJ
DATE OF ORDER:
3 March 2016
THE COURT ORDERS THAT:
1.The parties submit to the Court by 1.00pm on Tuesday, 8 March 2016 proposed orders to be made in disposition of the appeal and cross‑appeal having regard to the reasons for judgment published today.
2.As to the declaration to be made concerning the subsistence of copyright (and the ownership of that copyright) in versions of the Quik Series Software (“QSS”) released up to and including 1 November 2011 the subject of the cross‑claim of the cross‑appellants before the primary judge, and the variations to be made to the injunction orders 3 and 4 made by the primary judge on 19 December 2014, the cross‑appellants are directed to prepare and serve on the appellants a table identifying the versions of QSS released up to and including 1 November 2011 the subject of that cross‑claim so as to enable the parties to submit to the Court by 1.00pm on Tuesday, 8 March 2016, together with other orders in disposition of the appeal and cross‑appeal, a proposed formulation of the declaration and proposed variations to Orders 3 and 4 of the primary judge which incorporate an agreed table of the versions of QSS if agreement can be reached as to the content of the table.
3.In the event that agreement is unable to be reached as to the content of the table, the parties are directed to submit to the Court by 1.00pm on Tuesday, 8 March 2016 their respective proposed version of the table.
4.The proceeding is adjourned to 9.30am on Friday, 11 March 2016 for the making of final orders.
5.The parties file and serve short submissions on the question of costs by midday on Thursday, 10 March 2016, such submissions from each party to be limited to no more than four pages.
6.The costs of and incidental to the appeal are reserved for determination having regard to the submissions of the parties on costs.
Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.
REASONS FOR JUDGMENT
THE COURT:
Introduction
This is an appeal and cross-appeal from orders made by the Supreme Court of New South Wales.
The appellants are JR Consulting & Drafting Pty Limited (“JRC”), Hayes Steel Framing Systems Pty Limited (“HSFS”), Mr Gianni Pacione and Steel Framing Systems International Pty Limited (“SFSI”). The respondents to the appeal are Mr Robert Cummings, Tanmari Pty Ltd (“Tanmari”) and FrameCAD IP Limited (“FIPL”). Mr Cummings and Tanmari have filed submitting notices in the appeal.
The cross-appellants are Mr Cummings, Tanmari and FIPL, and the cross-respondents are JRC, HSFS, Mr Pacione and SFSI.
JRC and HSFS were the plaintiffs in the action in the Supreme Court of New South Wales and the defendants were Mr Cummings, Tanmari and FIPL. The plaintiffs sought various forms of relief against the defendants, including declarations, orders for specific performance, injunctions, damages at common law, and damages or compensation pursuant to ss 236 and 237 of the Australian Consumer Law. FIPL and Tanmari brought a cross-claim against JRC, HSFS, SFSI, Mr Pacione and a company called FrameCAD Limited (“FrameCAD”). The cross-claimants also sought various forms of relief, including declarations, injunctions, damages under s 115 of the Copyright Act 1968 (Cth) (“Copyright Act” or “the Act”) or an account of profits, orders for delivery up of materials, damages pursuant to s 236 of the Australian Consumer Law and damages pursuant to s 126 of the Trade Marks Act 1995 (Cth).
At the centre of the various claims made by the parties is the ownership and control of software known as Quik Series Software (“QSS”). QSS is used in the design and manufacture of cold form metal light gauge wall frames, trusses, flooring and roofing used in the construction of residential and commercial buildings. The primary judge described the composition of QSS in the following terms (at [6]):
Substantial evidence was led as to the history and functionality of QSS. By about 1996 or 1997, QSS included data files and software and was able to operate with rollforming machines, and included a computer numeric control file to permit the transfer of instructions between a computer and a roll form machine which contained the details necessary to produce the relevant steel item (Cummings 4.12.12 [16]-[21]), tables to calculate the placement of each structure in the relevant steel framework (Cummings 4.12.12 [24]) and "look-up" tables or data files containing the dimensions and other relevant information for each steel item within that framework (Cummings 4.12.12 [24]). Several user manuals in respect of the software and its applications are in evidence. After a user selects the relevant module which it wishes to use, the user can enter settings for, for example, applicable design standards and other information, and QSS is then used with third party computer aided design ("CAD") software to draw the roof, walls or floors, as the case may be, in layout form on the computer screen. The QSS software in turn applies the user's settings to that drawing to generate a drawing in elevation form and information about that drawing, and generates a file containing data that will be used to manufacture the relevant steel items.
A computer program that generates licence keys that activate the QSS for sub-licensees is also in issue on the claims made by the parties.
On 19 July 2013, Bergin CJ in Eq made orders in the action separating questions of liability and quantum, and the orders from which the appeal and cross-appeal are brought relate only to the question of liability.
The primary judge handed down his reasons on 12 September 2014: JR Consulting & Drafting Pty Ltd & Anor v Cummings & Ors [2014] NSWSC 1252. He made orders on 19 December 2014. For present purposes, the relevant orders are as follows:
THE COURT DECLARES THAT:
1.By 11 August 2004 the ‘Deed of Agreement’ dated 28 July 2002 (2002 Agreement) between the First Plaintiff (JR Consulting & Drafting Pty Ltd) and the First Defendant (Robert Cummings) had been abandoned.
2.The purported termination of the licence agreement between the Second Plaintiff (Hayes Steel Framing Systems Pty Ltd) and the Second Defendant (Tanmari Pty Ltd) dated 11 August 2004 (2004 Agreement) on 24 January 2012 was invalid.
THE COURT ORDERS THAT:
3.The Third Cross Defendant (Steel Framing Systems International Pty Ltd) be permanently restrained from, without the express written licence of the Third Defendant/First Cross Claimant (FrameCAD IP Limited), whether by itself, its agents, its officers, its employees or otherwise:
a. reproducing in a material form;
b. communicating to the public; and
c. authorising the doing of a or b above,
the whole or a substantial part of versions 11.176, 11.406 or 11.604 of a suite of computer programs known as Quick Series Software (QSS).
4.Each of the Second Plaintiff/Second Cross Defendant (Hayes Steel Framing Systems Pty Ltd) and the Fourth Cross Defendant (John Pacione) in his personal capacity, be permanently restrained, whether by themselves, their agents, their officers, their employees or otherwise, from authorising, without the express written licence of the Third Defendant/First Cross Claimant (FrameCAD IP Limited) or its predecessors in title, the:
a. reproduction in a material form; or
b. communicating to the public,
of the whole or a substantial part of versions 11.176, 11.406 or 11.604 of QSS.
5.The Third Cross Defendant (Steel Framing Systems International Pty Ltd) be restrained, whether by itself, its agents, its officers, its employees or otherwise, from representing in trade and commerce that it is permitted to license QSS to third parties.
6.Each of the First Plaintiff/First Cross Defendant (JR Consulting & Drafting Pty Ltd) and the Third Cross Defendant (Steel Framing Systems International Pty Ltd), whether by itself, its agents, its officers, its employees or otherwise, be permanently restrained from using or authorising others to use the Licence Key Generator (as defined in paragraph [77] of the Cross Claim filed 24 May 2013) except to the extent that the First Plaintiff/First Cross Defendant (JR Consulting & Drafting Pty Ltd) uses the Licence Key Generator for the customers set out in paragraphs 4 and 5 of the affidavit of John Pacione sworn 9 December 2014.
7.The Second Plaintiff/Second Cross Defendant (Hayes Steel Framing Systems Pty Ltd), whether by itself, its agents, its officers, its employees or otherwise, be permanently restrained from disclosing or providing to any third party the Licence Key Generator (as defined in paragraph [77] of the Cross Claim filed 24 May 2013).
The primary judge also made orders dealing with election, quantum and delivery up, but it is not necessary for us to set those orders out.
There was a dispute between the parties as to the costs of the action and, on 26 February 2015, the primary judge made the following orders in the action:
1.The Plaintiffs/Cross-Defendants pay to the Defendants/Cross-Claimants 75% of the costs of and incidental to the hearing as to liability in respect of each of the Plaintiffs’ Claim and the Cross-Claim (Costs) as follows:
a. The Costs to include the costs of and incidental to the hearing on 2-6 and 10‑11 June on liability, 22 October 2014 as to the form of the orders and 10 December 2014 as to costs; and
b. The liability to pay the Costs is to be borne by the Plaintiffs/Cross-Defendants as follows:
i.Each of JR Consulting & Drafting Pty Ltd (the First Plaintiff/First Cross-Defendant), Hayes Steel Framing Systems Pty Ltd (the Second Plaintiff/Second Cross-Defendant) Steel Framing Systems International Pty Ltd (the Third Cross Defendant) is jointly and severally liable for the payment of the Costs; and
ii.John Pacione (the Fourth Cross Defendant) is jointly and severally liable only for payment of an amount up to and not exceeding 15% of the Costs.
(see JR Consulting & Drafting Pty Ltd & Anor v Cummings and Ors [2015] NSWSC 10).
The appeal and cross-appeal lie to this Court by reason of s 135AQ(2) of the Copyright Act. A judge of this Court granted leave to appeal on 25 March 2015.
The facts and issues determined by the primary judge are detailed and complex. A number of them are not in issue on the appeal and cross-appeal. Rather than setting the facts out at this stage, we think that it will assist in the understanding of these reasons if we set out a brief summary of the relationship between the parties and a statement of the key events, state the issues raised by the appeal and the cross-appeal and then deal with the facts when we address each issue.
The Relationship between the Parties and the Key Events
JRC, HSFS and SFSI are companies associated with Mr Pacione. He is a director of each of the companies. At all material times, Mr Pacione had control of JRC. HSFS was incorporated on 3 February 2003 and from that date until 30 September 2008, Bradbury International Inc (“Bradbury International”) owned 80% of the shares in HSFS and JRC owned the other 20% of the shares. Bradbury International was a manufacturer of rollforming machines and it owned a New Zealand company, Hayes International Ltd, which supplied rollforming machines manufactured in New Zealand. There was a Shareholders Agreement between Bradbury International and JRC which was executed in March 2004. On or about 30 September 2008, JRC became the sole shareholder of HSFS. SFSI was incorporated in Australia in October 2007 and, at all material times, JRC has been the sole shareholder of the company.
JRC and HSFS conducted and SFSI now conducts, at least as to new clients, a business involving the supply of equipment to manufacture steel frame structures for residential and commercial construction and associated software. Mr Pacione described the business conducted by the appellants in the following terms:
The Plaintiffs are in the business of designing and supplying manufacture systems for light gauge steel framing, utilising and integrating computer aided design software (“CAD”), computer aided manufacturing software (“CAM”), machinery and engineering data for the manufacture of light gauge steel wall panels, roof trusses and floors, typically used in residential, commercial and industrial buildings. As part of that work both Plaintiffs licence various software programs to their customers, including CAD software.
Mr Cummings developed QSS. He was the author and original owner of copyright in QSS and he would be the owner of copyright in any updates in QSS when copyright came into existence. There was an admission that Mr Cummings made QSS and the end user manuals and other documentation for use with QSS and updates and new releases of QSS and user documentation.
Tanmari was incorporated on 11 November 2003 and it is controlled by Mr Cummings. The company took over his business. On 2 November 2011, Mr Cummings and Tanmari assigned their rights in QSS to FIPL. The primary judge said (at [25]) that Mr Cummings could not be regarded as independent of FIPL, “where he is under a continuing retainer to provide services to FIPL”.
Mr Cummings and JRC entered into a Deed of Agreement dated 28 July 2002 (“2002 Agreement”) for the transfer by Mr Cummings to JRC of a non-exclusive “interest” in respect of QSS. This is the agreement which is the subject of the first declaration made by the primary judge.
The 2002 Agreement is between Robert Cummings & Associates as vendor and JR Consulting as purchaser. “The Goods” are defined in cl 1 as follows:
means a right to the Software package referred to as Quik Series Software and includes Quik Roof, Quick [sic] Truss, Quik Frame and Quik Floor and also includes the Know How, methodology and trade secrets necessary for the implementation of “The Goods”.
There is also a definition of the “The Materials” which is as follows:
means all books, manuals, specifications, programming source codes, instructions whether in a written or digitized form relating to “The Goods”.
Clause 2 is the transfer clause and it provides that, subject to cl 4, Mr Cummings will transfer to JRC an interest in and right to “The Goods”.
Clause 3 provides for the payment of a deposit of $7,500 upon execution of the agreement and cl 4 provides that JRC will pay Mr Cummings a further $15,000 “on completion of additional development as specified by The Purchaser” and a further $7,500 “on installation/delivery of “The Goods” as full and final payment on ‘The Goods’”.
Clause 5 places an obligation on JRC with respect to consultation for any application, adaptation or modification of “The Goods”. JRC is to give Mr Cummings the first option in relation to such work providing the consultation is supplied by Mr Cummings at standard reasonable commercial rates. The clause goes on to provide that any costs incurred for “any application, modification of ‘The Goods’” as instigated by JRC will be at the expense of JRC.
Clause 6 provides in the heading of the clause for obligations of Mr Cummings. It is in the following terms:
6. Obligations by Robert Cummings
Subject to Section 5, Instruction Manuals and staff training as required to establish an operational Software system as being used by an operator at any location required.
All relevant “Materials” pertaining to the design and development of “The Goods”, including functional specifications and source codes.
Complete and updated setup disks as required to load the latest, complete and operational version of “The goods”.
There are five recitals in the 2002 Agreement. Recital A identifies Mr Robert Cummings as the developer of “The Goods” who has copyright and proprietorship of “The Goods”. Recital B states that the purchaser is desirous of acquiring an interest in “The Goods” for its use in the development and application of steel construction frame manufacturing systems. Recital C provides that the agreement is for the non-exclusive sale of an interest to “The Goods” and does not prevent the vendor from selling, assigning, transferring or licensing “The Goods”. Recital D deals with payment and identifies the sum of $25,000 as the consideration for the vendor selling, assigning and transferring to the purchaser “a non‑exclusive right, title and interest to ‘The Goods’”. Finally, Recital E identifies the sum of $5,000 for further development of “The Goods” to meet the design specification supplied by the purchaser, such development to be exclusive to the purchaser.
In July 2003, Mr Cummings, HSFS and a company called NBR (Australia) Pty Ltd entered into an agreement under which Mr Cummings granted a software licence to HSFS whereby HSFS was authorised to grant sub-licences of QSS (“Stramit Agreement”). NBR (Australia) Pty Ltd was a company associated with Mr Nicholas Roulant who is a consulting engineer.
On 25 February 2004, Mr Cummings and Tanmari granted HSFS an exclusive licence, inter alia, to “use and exploit” QSS for the territory of Australia (“Exclusivity Agreement”). The Exclusivity Agreement was executed in the context of discussions between HSFS and Stramit, a customer, to provide Stramit with exclusivity. Those discussions ended in about July 2004. The licence included a licence of copyright in QSS. The parties to the Exclusivity Agreement terminated the agreement on 22 February 2005 with effect from 31 March 2005.
Mr Cummings sent an undated letter to Mr Pacione on 1 March 2004 under the letterhead of Quik Series Software and addressed “To Whom It May Concern” as follows:
This is to certify that JR Consulting & Drafting Pty Limited (ACN 081 252 691) have been given non exclusive rights to on sell Quick Series Software as defined under the “Deed of Agreement” dated 28thth [sic] July 2002.
While not explicitly stated in this agreement, JR Consulting & Drafting Pty Limited (ACN 081 252 691) has also been granted a non-exclusive right to market Quik Series Software under the HayesCAD banner.
There was an agreement entered into between JRC, Mr Pacione and HSFS dated 12 March 2004 and entitled “Technology Licence Agreement”. It is not necessary to discuss the details of the agreement at this stage.
On 11 August 2004, Tanmari and HSFS executed an agreement entitled “QSS Software Licence Agreement” (“2004 Agreement”) whereby Tanmari granted to HSFS a perpetual non-exclusive licence in relation to QSS. Clause 4.1 of the 2004 Agreement envisaged the execution of a development agreement between the parties and that in fact occurred on 11 August 2004. This is the agreement which is the subject of the second declaration made by the primary judge.
Under the agreement, Tanmari granted HSFS a non-exclusive, perpetual licence to use, copy, market, resell and promote “the Software” in the Territory. The consideration for the grant of the licence was the sum of $1.00 paid by HSFS to Tanmari.
The “Software” was defined as follows:
… the software package referred to as Quik Series Software and includes Quik Roof, Quick [sic] Truss, Quik Frame and Quik Floor owned by the Licensor and also includes the know how, methodology and trade secrets necessary for the implementation of the Software.
The “Territory” was defined to mean the world other than Australia. The definition of the “Territory” was subject to an important qualification. Upon the termination or expiration of the Exclusivity Agreement then, except where the Exclusivity Agreement was terminated or expired because of a breach by HSFS, the “Territory” under the 2004 Agreement included Australia.
The rights conferred on HSFS included the right to grant to its customers the right to use the software for their internal business purposes only, subject to a proviso which applied for a period of seven years after the agreement. During that period of seven years, HSFS shall under its agreements with its customers limit the number of persons within the customer’s organisation who will be authorised to use the software and for each authorised person HSFS was obliged to pay Tanmari the sum of $1,000.00. Payment was to be made by HSFS to Tanmari within 30 days of the person being authorised. HSFS was granted the right to provide to each authorised person all New Releases or Updates as and when they became available without being obliged to make any further payment to Tanmari. A “New Release” was software developed by Tanmari for general release to its customers and primarily to provide an extension, alteration, improvement or additional functionality of the Software and an “Update” was software produced by Tanmari primarily to overcome defects in the Software. The agreement provides that after the seven year period has expired, HSFS was entitled to grant to its customers the right to use any number of copies of the software for their internal business purposes only and was able to provide such customers with all New Releases and Updates without being obliged to make any further payments to Tanmari. The relevant clause in the 2004 Agreement was in the following terms:
2.LICENCE OF THE SOFTWARE
…
2.2 Right to Use
The Licensee shall be entitled to grant to its customers the right to use the Software for their internal business purposes only, provided that for the period of seven years following the date of this Agreement only the following terms shall apply:
(a)the Licensee shall under the terms of its agreements with such customers limit the number of persons within the customer’s organisation who will be authorised to use the Software;
(b)for each person authorised by the Licensee to use the Software under paragraph (a) above the Licensee shall pay to the Licensor the sum of $1,000.00;
(c)payments due under paragraph (b) above in respect of each authorised person shall be made within 30 days following the date such authorised person is first authorised by the Licensee to use the Software; and
(d)the Licensee may provide to each person authorised by the Licensee to use the Software under paragraph (a) all New Releases or Updates as and when they become available and without being required to make any further payment to the Licensor under this clause 2.2.
For the avoidance of doubt, following the period of seven years after the date of this Agreement the Licensee shall be entitled to grant to its customers the right to use any number of copies of the Software for their internal business purposes only, and may provide such customers with all New Releases and Updates, without being obliged to make any further payments to the Licensor under this clause 2.2.
The 2004 Agreement provided that Tanmari was required to offer all New Releases and Updates to HSFS when they became available and without any further charge. It also provided that at the reasonable request of HSFS Tanmari was required to provide to HSFS with “all assistance and staff training, and copies of all information, documentation, authorisation-number generating software and other tools or materials relating to the Software (excluding source codes) reasonably necessary to enable [HSFS] to use, copy, market, resell and promote the Software”.
The 2004 Agreement provided for the provision of development services by Tanmari upon the request of HSFS and for the parties to enter into a Development Agreement which, as we have said, they did.
The 2004 Agreement provided for the parties to enter into an escrow agreement with a reputable escrow agent in relation to the source code of the Software and all Improvements (“Improvements” was defined to include, inter alia, any New Releases and Updates).
The 2004 Agreement provided that Tanmari could terminate the agreement where HSFS failed to pay the licence fee and such failure remained to be remedied for 21 days after receipt of a written notice from Tanmari. The agreement contained a dispute resolution clause which required the parties to endeavour to resolve a dispute expeditiously using informal dispute resolution techniques as defined. The termination clause in the 2004 Agreement was in the following terms:
8.TERMINATION
8.1Termination for breach by Licensee
The Licensor may terminate this document immediately at any time if the Licensee fails to pay the licence fee as set out in clause 3 of this document and such failure is not remedied within 21 days following receipt of a written notice from the Licensor requiring this non-payment to be remedied.
8.2Consequences of termination
Upon termination under clause 8.1, the Licensee shall immediately cease to use, copy, market, resell and promote the Software, except that:
(a)the Licensee may use, copy, market, resell and promote any copies of the Software already manufactured or being manufactured, or which it is under contract to provide to third parties;
(b)the Licensee’s permitted users under clause 2.2 may continue to use the Software for their internal business purposes; and
(c)any escrow agreement entered into between the parties under clause 5 shall be terminated.
The 2004 Agreement provided that neither party could assign or transfer its rights or obligations in the agreement or its rights, title and interest in the software without first obtaining the written consent of the other party, such consent not to be unreasonably withheld.
Metal Forming Technology Ltd was a predecessor of FIPL and, in September 2005, it entered into a memorandum of understanding with Mr Cummings. In May 2006, there were further discussions and dealings between FIPL and Mr Cummings.
SFSI was incorporated in October 2007 and the appellants’ case before the primary judge was that in 2009 JRC sub‑licensed SFSI to use QSS exercising its (i.e., JRC’s rights) under the 2002 Agreement, and that SFSI in turn licensed the use of QSS to a number of its customers under contracts between SFSI and those customers.
In mid-September 2011, Mr Cummings and Tanmari on the one hand, and FIPL on the other, negotiated the sale of the interest in QSS to FIPL and a Purchase Agreement (“FIPL Purchase Agreement”) was executed on 31 October 2011 and announced by FIPL in mid-November 2011.
In December 2011, Tanmari and FIPL gave notice of breaches of the 2004 Agreement, being the failure to pay licence fees on licences granted by HSFS and SFSI. On 13 January 2012, HSFS gave a notice of dispute to Tanmari under cl 10 of the 2004 Agreement. On 24 January 2012, Tanmari purported to terminate the 2004 Agreement by a letter from its solicitors to HSFS’s solicitors.
It is convenient to note two further matters at this point. The primary judge found that between 1990 and November 2011, Mr Cummings developed and released more than 500 versions of QSS and created end user manuals and other documentation (at [314]). The primary judge found that after April 2009, SFSI commenced licensing QSS to new customers after Mr Pacione decided to cease to undertake new business in HSFS and instead commenced to undertake new business in SFSI.
Before leaving this section, we should record his Honour’s conclusions about the significance of the credibility and reliability of the witnesses who gave evidence before him. His Honour noted that a number of issues did not turn on assessment of the credit and reliability of witnesses. He was critical of Mr Pacione’s evidence on some topics. He formed a generally favourable view in relation to the evidence of Mr Cummings (at [21]-[26]).
A Statement of the Issues
The primary judge found that JRC’s rights under the 2002 Agreement (i.e., a non-exclusive licence) were restricted to QSS as it existed at the date of the agreement and did not include new releases and updates issued after that agreement. Furthermore, he held that the 2002 Agreement had been abandoned by 11 August 2004. Although it was not strictly necessary for him to do so, he held that JRC had not granted or transferred its rights under the 2002 Agreement in April 2009 or indeed at any other time. Each of these conclusions is challenged in the Notice of Appeal (Grounds 1 – 6). The relevance of the appellants’ challenge to these conclusions is as follows. If upheld, the appellants claim that SFSI has a defence to the claim of copyright infringement as do those appellants held liable as having authorised the infringement (i.e., HSFS and Mr Pacione).
The primary judge held that SFSI had infringed copyright in certain versions of QSS and that conclusion is reflected in the injunctions he granted against it (orders 3 and 5). He also held that HSFS and Mr Pacione had authorised the infringement and that is reflected in the injunction he granted against them (order 4). Each of those conclusions is challenged in the Notice of Appeal (Grounds 7 – 14) as is the conclusion that there had not been groundless threats of copyright infringement. In the context of the copyright infringement part of the case, we note at this stage that in their cross-appeal, the cross-appellants claim that the primary judge should have held that copyright subsisted in each version of QSS (Ground 10).
The primary judge found that the appellants had breached an obligation of confidence in relation to the Licence Key Generator and that is reflected in the injunctions he made in relation to that matter (orders 6 and 7). The appellants challenge the primary judge’s conclusion that there had been a breach of confidence (Grounds 15 – 17).
This is a summary of the issues raised on the appeal and the copyright infringement issue raised on the cross-appeal.
As to the cross-appeal, and bearing in mind that we have already identified the copyright infringement issue raised on the cross-appeal, the cross-appeal raises a challenge to his Honour’s conclusion that the 2004 Agreement had not been terminated. This conclusion is reflected in the second declaration made by the primary judge. His Honour found that there was no continuing breach of the 2004 Agreement giving rise to a right to terminate the agreement and, in any event, the agreement had not been terminated. Both these conclusions are challenged by the cross-appellants on a number of grounds (Grounds 1 – 8). There is also a challenge to one of his Honour’s conclusions concerning the proper construction of the agreement (Ground 9). The relevance to his Honour’s conclusions about the 2004 Agreement is as follows. HSFS was given certain rights to sub-license QSS under the 2004 Agreement. As his Honour noted in reasons he delivered on 1 December 2014, there was evidence before him that “HSFS now claims to be entitled to grant new licences under the 2004 Agreement” (JR Consulting & Drafting Pty Ltd & Anor v Cummings & Ors [2014] NSWSC 1700 at [8]).
Finally, the cross-appellants challenge the primary judge’s orders as to costs, but only in the event that they are successful, in whole or part, on their cross-appeal (Ground 11).
2002 Agreement: grounds 1 to 6 of the notice of appeal
The primary judge rejected an argument by the appellants that the 2002 Agreement effected an assignment of copyright and that conclusion is not in issue on the appeal. His Honour held that JRC was given a non-exclusive licence in relation to QSS, but that the QSS was limited to the version of the software as at the date of the agreement.
The primary judge identified the relevant principles for the construction of a commercial contract. He referred to a number of cases, including the following authorities: Australian Broadcasting Commission v Australasian Performing Right Association Ltd [1973] HCA 36; (1973) 129 CLR 99 at 109 per Gibbs J (as his Honour then was); Pacific Carriers Ltd v BNP Paribas [2004] HCA 35; (2004) 218 CLR 451 at [22]; Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd [2004] HCA 52; (2004) 219 CLR 165 at [40]; Electricity Generation Corporation (t/as Verve Energy) v Woodside Energy Ltd [2014] HCA 7; (2014) 306 ALR 25 at [35] per French CJ, Hayne, Crennan and Kiefel JJ. Neither party challenged the primary judge’s statement of the relevant principles and it is not necessary for us to do more than to refer to two authorities. In Pacific Carriers Ltd v BNP Paribas at 461-462 [22] the High Court said:
… The case provides a good example of the reason why the meaning of commercial documents is determined objectively: it was only the documents that spoke to Pacific. The construction of the letters of indemnity is to be determined by what a reasonable person in the position of Pacific would have understood them to mean. That requires consideration, not only of the text of the documents, but also the surrounding circumstances known to Pacific and BNP, and the purpose and object of the transaction. In Codelfa Construction Pty Ltd v State Rail Authority of NSW, Mason J set out with evident approval the statement by Lord Wilberforce in Reardon Smith Line Ltd v Hansen-Tangen:
“In a commercial contract it is certainly right that the court should know the commercial purpose of the contract and this in turn presupposes knowledge of the genesis of the transaction, the background, the context, the market in which the parties are operating.”
(Citations omitted).
In Electricity Generation Corporation (t/as Verve Energy) v Woodside Energy, French CJ, Hayne, Crennan and Kiefel JJ said (at [35]):
Both Verve and the sellers recognised that this court has reaffirmed the objective approach to be adopted in determining the rights and liabilities of parties to a contract. The meaning of the terms of a commercial contract is to be determined by what a reasonable businessperson would have understood those terms to mean. That approach is not unfamiliar. As reaffirmed, it will require consideration of the language used by the parties, the surrounding circumstances known to them and the commercial purpose or objects to be secured by the contract. Appreciation of the commercial purpose or objects is facilitated by an understanding “of the genesis of the transaction, the background, the context [and] the market in which the parties are operating”. As Arden LJ observed in Re Golden Key Ltd (in rec), unless a contrary intention is indicated, a court is entitled to approach the task of giving a commercial contract a businesslike interpretation on the assumption “that the parties … intended to produce a commercial result”. A commercial contract is to be construed so as to avoid it “making commercial nonsense or working commercial inconvenience”.
(Citations omitted).
The primary judge said that the Recitals to the 2002 Agreement could be taken into account in determining the surrounding circumstances and the commercial purpose or object of the agreement, but that they could not be used to expand or limit the operative provisions where those operative provisions are clear and unambiguous.
The primary judge also addressed the circumstances in which the court, in construing a written contract, may have regard to conduct after the contract. He said that conduct after the contract may amount to an admission by one of the parties which is admissible as to the construction of the terms of the written contract. That approach was not challenged by either party (see generally the discussion in Seddon N, Bigwood R and Ellinghaus M, Cheshire & Fifoot’s Law of Contract, (10th Australian ed, LexisNexis Butterworths, 2012) at [10.16]).
The appellants submitted that the primary judge erred in not identifying the commercial purpose or object of the agreement. We reject that criticism. In some cases, the commercial purpose or object of a contract is clear and it is a matter of construing a particular clause in an agreement in light of the purpose or object. In this case, the commercial purpose or object was determined as part of an examination of the contract as a whole and having regard to relevant surrounding circumstances. It was identified by the primary judge as the grant of a non-exclusive licence in relation to QSS as at the date of the agreement for monetary consideration.
The appellants submitted that the primary judge erred in his approach to the construction of the 2002 Agreement in that he allowed his own view of what was a sensible commercial solution to the issues of construction to determine or influence his decision. They referred to BMA Special Opportunity Hub Fund Ltd & Ors v African Minerals Finance Ltd [2013] EWCA Civ 416 at [24] per Aikens LJ. Another way the appellants put the submission was to contend that the primary judge allowed himself to be influenced by what he considered the parties would have done (had they wished to achieve the result for which the appellants contended), or he focused on what the parties may have meant to say, rather than on what they did say. They referred to Byrnes and Another v Kendle (2011) 243 CLR 253. The error was said to be contained in the following passage in the primary judge’s reasons (at [74]):
It seems to me that the structure of the 2002 Agreement, and particularly the use of the term “The Goods”, is consistent with the delivery of property in “The Goods” as they existed at the relevant point in time and does not have ambulatory or future operation indefinitely into the future. It seems to me that the striking absence of any limits to, or controls upon, JRC’s conduct under the 2002 Agreement provides compelling evidence that that agreement should not be construed in the manner for which JRC contends. It seems to me improbable that the parties could have objectively intended that Mr Cummings would grant a licence to use (still less assign the copyright in) all future versions of QSS extending into the future without any time limitation, so as to allow JRC to sub-license others (such as SFSI) who could in turn distribute software to others (as SFSI has done), without imposing significant controls on the use of that software. The lack of control on future use of the software is more readily explicable if that agreement is understood as directed to the software as it existed at a point in time and Mr Cummings assumed only a limited contractual obligation to update that software.
The appellants referred in particular to the primary judge’s reference to what seemed to him “improbable”, his earlier reference in the passage to “compelling evidence”, and his reference to “without imposing significant controls on the use of that software”.
In BMA Special Opportunity Hub Fund Ltd & Ors v African Minerals Finance Ltd, Aikens LJ (with whom McFarlane and Sullivan LJJ agreed) said the following (at [24]):
There was no dispute between the parties on the principles of construction that the court must use in interpreting this commercial document. There has been considerable judicial exposition of these principles by the House of Lords and the Supreme Court in recent years. There is no point in my going over the same ground again at any length. The court’s job is to discern the intention of the parties, objectively speaking, from the words used in the commercial document, in the relevant context and against the factual background in which the document was created. The starting point is the wording of the document itself and the principle that the commercial parties who agreed the wording intended the words used to mean what they say in setting out the parties’ respective rights and obligations. If there are two possible constructions of the document a court is entitled to prefer the construction which is more consistent with “business common sense,” if that can be ascertained. However, I would agree with the statements of Briggs J, in Jackson v Dear, first, that “commercial common sense” is not to be elevated to an overriding criterion of construction and, secondly, that the parties should not be subjected to “…the individual judge’s own notions of what might have been the sensible solution to the parties’ conundrum”. I would add, still less should the issue of construction be determined by what seems like “commercial common sense” from the point of view of one of the parties to the contract.
(Citations omitted).
A number of points may be made about these observations. First, we do not think there is any material difference between Aiken LJ’s observations and those of the High Court in Electricity Generation Corporation (t/as Verve Energy) v Woodside Energy Ltd set out above. Secondly, we too would emphasise the need to identify the commercial purpose or object of an agreement by reference to the interests of both parties and not just by reference to one of them. Thirdly, it is one thing for a judge faced with competing constructions of an agreement to adopt what he or she considers the best commercial solution. It is another for the judge to test a proposed construction by reference to what is or is not in the agreement. The latter is permissible and indeed we think involves taking a commercial approach to the issue of construction. We think that that was all that the primary judge was doing and that he was not in error.
The passage in the reasons of Gummow and Hayne JJ in Byrnes and Another v Kendle relied on by the appellants is in the following terms (at 273 [53]):
The fundamental rule of interpretation of the 1997 Deed is that the expressed intention of the parties is to be found in the answer to the question, “What is the meaning of what the parties have said?”, not to the question, “What did the parties mean to say?” The point is made as follows, with reference to several decisions of Lord Wensleydale, in Norton on Deeds:
“The word ‘intention’ may be understood in two senses, as descriptive either (1) of that which the parties intended to do, or (2) of the meaning of the words that they have employed; here it is used in the latter sense.”
Dixon J and Starke J spoke to similar effect when construing the terms of wills creating testamentary trusts.
(Citations omitted).
We do not think that this passage assists the appellants. The primary judge did not examine what the parties meant to say and he was well aware that the meaning of the 2002 Agreement was to be determined objectively (see at [30]).
The appellants submitted that even if the primary judge did not make the errors it identified and which we have dealt with above, he nevertheless overlooked or failed to place sufficient weight on a number of matters, including the surrounding circumstances and conduct of the parties after the contract, which meant that he adopted a construction of the contract which failed to give effect to the commercial purpose or object of the contract. The appellants submitted that this argument does not involve a challenge to any findings of fact made by the primary judge and that this Court is in as good a position to decide the question of construction as the primary judge. That latter proposition is correct, although this Court must still be satisfied of error before it will intervene (Branir Pty Ltd v Owston Nominees (No 2) Pty Ltd [2001] FCA 1833; (2001) 117 FCR 424 at 435 [22], 438 [30] per Allsop J (as his Honour then was) (with whom Drummond and Mansfield JJ agreed).
It is convenient to address the matters relied on by the appellants by reference to three categories: matters in the 2002 Agreement itself, surrounding circumstances known to both parties, and conduct after the contract. Before doing that, two important matters relied on by the primary judge should be noted because they provide an important aspect of the context in which he made his decision. First, cl 5 of the 2002 Agreement provided for what his Honour called development work by Mr Cummings. That might see updates “provided” to JRC ([50]-[75]). Secondly, his Honour noted that Mr Cummings was in the habit of providing updates of QSS to users, including JRC, and that he did that for users who had not entered into agreements such as the 2002 Agreement.
The operative clause in the 2002 Agreement is cl 2 and it refers to “an interest in and right to ‘The Goods’”. “The Goods” means a right to the software package referred to as Quik Series Software. This means at least the software package as at the date of the agreement (i.e., 28 July 2002), but the appellants submitted that it could also mean the software package as at 28 July 2002 and the software package thereafter as it was from time to time (i.e., with updates). They pointed to the fact that the software package is not described as a particular version by number or date, and that Mr Cummings did use different version numbers. These matters are correct, but they do not of themselves advance the resolution of the issue of construction. The appellants also referred to the development work envisaged under cl 5 and the staff training in cl 6 and submitted that it would have been known on 28 July 2002 that if there were updates, then it would only have been sensible for that development work and staff training to take place by reference to QSS as updated at the time of the development work or staff training. As we read his Honour’s reasons, he acknowledged that JRC might obtain updates of QSS through development work carried out by Mr Cummings under cl 5. That is quite a different thing from a general obligation on Mr Cummings to provide each and every update. As far as staff training and cl 6 is concerned, the primary judge noted that cl 6 is expressed to be subject to cl 5 and he did not think that there was an ongoing obligation to provide staff training under cl 6 (at [52]). We agree with those conclusions. Mr Cummings provided some training in August and September 2002, but the primary judge said that that did not establish an obligation to do so, “still less to do so indefinitely into the future” (at [66]). We also agree with that conclusion.
The surrounding circumstances allegedly known to both parties and upon which the appellants rely are as follows. First, Mr Cummings knew that JRC and Mr Pacione were developing a business based on using the software as a component of a steel construction frame manufacturing system which they were developing to sell to their customers. It seems that it was common ground that at the time of the 2002 Agreement, no such system was in existence and the appellants’ argument was that the parties would have contemplated the most up-to-date version being installed, not an “old” version. There is some limited force in this argument, but it must be remembered that the appellants’ construction would put an obligation on Mr Cummings which would apply both before and after the system had been developed. Secondly, at the time of the 2002 Agreement, Mr Cummings was updating the software regularly and its code and functionality changed regularly. The appellants submitted that if the software was limited to the software as at 28 July 2002 then, as they put it, “it is likely to be out of date the very next day”. The primary judge did not think that this was significant because he said Mr Cummings was in the habit of providing updates to persons to whom he had sold QSS, but who had not entered into anything like the 2002 agreement. That conclusion was open to his Honour.
The subsequent conduct relied on by the appellants was as follows. First, on 13 August 2002, Mr Cummings gave Mr Pacione a compact disc dated August 2002 rather than 28 July 2002. The primary judge said that this did not advance the appellants’ construction because the conduct was equally consistent with a position “that Mr Pacione, sensibly, did not object to Mr Cummings providing a (slightly) more up-to-date version of the software source code that was strictly required under the 2002 Agreement, if it was directed to the software existing at the date of the agreement” (at [68]). We do not disagree with that conclusion. Secondly, Mr Cummings provided JRC with updates to the software after the date of the 2002 Agreement. The primary judge said that the force that this fact might have otherwise had was removed by the fact that Mr Cummings made updates available to other users who did not have agreements like the 2002 Agreement. We do not disagree as long as it is remembered that, although the factual matters can be considered individually, they must also be considered as a whole. In other words, an answer to a particular matter may appear sufficient when that matter is considered alone, but it is necessary to go on and consider the weight to be accorded to all matters considered together. We think that the primary judge did do that. The same comment applies to the fact that in November 2002, Mr Cummings delivered software to JRC’s client, Stratco, using the then current version and not the 28 July 2002 version. Thirdly, the appellants relied on the fact that Mr Cummings signed the Stramit Agreement on 11 July 2003 and it refers to JRC’s rights in the package without limiting it to a particular version by date or number. The primary judge’s response to this submission was as follows (at [73]):
… So far as that recital [i.e., Recital C] recorded that JRC had a right to use QSS arising from the 2002 Agreement, that statement would be no less true if the right related to the software as at the date of that agreement and JRC was dependent on the provision for development services in that agreement and Mr Cummings’ practice of continuing to circulate updates of the product to his clients generally.
We make the same observations as we did in relation to the previous submission. Finally, the appellants relied on the “To whom it may concern” letter given to Mr Pacione on 1 March 2004 which contained a reference to JRC’s rights under the 2002 Agreement and made no reference to a particular version by date or number. The primary judge made the same observation as he did in relation to the previous submission and he said that the letter was drafted by Mr Pacione and he (Mr Cummings) took little notice of it (at [71]). We make the same observation as we have in relation to the two previous submissions.
The 2002 Agreement is poorly drafted. There are matters that can be advanced in favour of the construction put forward by the appellants. However, we think that they are outweighed by the matters identified by the primary judge and referred to above (at [56]). We think the primary judge’s construction is the correct one.
Was the 2002 Agreement abandoned by 11 August 2004?
The respondents pleaded in their Defence to the Amended Statement of Claim that the 2002 Agreement came to an end by performance or that it was terminated when the 2004 Agreement was entered into. As to the former plea, the primary judge accepted that the obligations in respect of the sale of “The Goods” under the 2002 Agreement were discharged by the delivery of the disc containing the software. However, he did not accept that the 2002 Agreement came to an end by performance on delivery of the relevant disc containing the software because he said that was inconsistent with the continuing option for Mr Cummings to provide development services under cl 5 of the 2002 Agreement. As to the latter plea, the primary judge held that the 2004 Agreement could not bring about a termination of the 2002 Agreement because JRC was not a party to the 2004 Agreement.
However, his Honour went on to say (at [93]):
… the conduct of HSFS, under Mr Pacione’s control, in this regard may evidence as separate abandonment of the 2002 Agreement to which JRC was party.
The primary judge rejected a submission from the appellants that the respondents could not rely on the doctrine of abandonment because they had not pleaded it. He said that the case was conducted on the basis that whether the 2002 Agreement remained in force was in issue and that the respondents could rely on it (at [94]).
The primary judge concluded that the 2002 Agreement had been abandoned. He relied on a number of matters. First, he noted the terms of the Exclusivity Agreement. Recitals B and D of the Exclusivity Agreement were in the following terms:
B.Licensee wishes to obtain an exclusive Australian territory licence to exploit “The Licenced Goods”.
D.The parties agree that this licence replaces any other agreement to use “The Licenced Goods” within the territory.
Clause 2 of the agreement provided that the licensor (Tanmari) provided to the licensee (HSFS) an exclusive licence to use and exploit “The Licensed Goods” for the term in the territory. The “Licensed Goods” are defined in a similar way to “The Goods” in the 2002 Agreement, and the territory is Australia.
Clause 14.4(a) was in the following terms:
(a)This document contains the entire agreement between the parties about its subject matter. Any previous understanding, agreement, representation or warranty relating to that subject matter is replaced by this document and has no further effect.
The primary judge noted the first part of cl 2.5 of the 2004 Agreement as follows:
2.5 Exclusivity Agreement
The parties agree that this document replaces any current licences and licensing conditions issued with, or in relation to the Software, with the exception of the Exclusivity Agreement …
At the time HSFS executed the Exclusivity Agreement and the 2004 Agreement, JRC owned 20% of the shares in HSFS. Nevertheless, Mr Pacione had day to day control of HSFS and was involved in the negotiations for the agreements.
The primary judge said that HSFS repeatedly acknowledged that previous agreements with respect to QSS had been replaced and that it had the exclusive rights to QSS. He said that JRC was a shareholder in HSFS and that each company was relevantly controlled by Mr Pacione. Furthermore, his Honour said that it was relevant that none of the parties thereafter exercised rights under the 2002 Agreement for a considerable time and until JRC purported to do so in 2009 after their relationship had broken down. These matters combined supported an inference of an abandonment by Mr Cummings and JRC of earlier inconsistent arrangements under the 2002 Agreement (at [95], [99]).
The primary judge expressed his conclusion in the following way (at [99]):
In this case, notwithstanding that JRC was not party to the Exclusivity Agreement and the 2004 Agreement, it seems to me that the plain inference from those agreements is that the parties, including JRC (which, as I have noted, was under Mr Pacione's control) intended the Exclusivity Agreement and the 2004 Agreement to replace the 2002 Agreement. The recitals and terms of the Exclusivity Agreement and 2004 Agreement would not have sensible operation, absent such an intention. No later than the date of entry into the 2004 Agreement, Mr Pacione, Mr Cummings, HSFS and Tanmari seem to me to gave [sic] treated the relevant rights as arising under the Exclusivity Agreement and the 2004 Agreement and, more fundamentally for present purposes, JRC did not take any step to exercise rights of ownership of software under the 2002 Agreement, nor did Mr Cummings act as though that agreement were on foot, after that agreement was executed and until Mr Pacione later claimed that JRC had, in 2009, assigned rights under the 2002 Agreement to SFSI. The parties, consistent with the informality of their dealings generally, did not take steps expressly to terminate the 2002 Agreement, but it seems to me that an abandonment of that agreement may properly be inferred from these circumstances. For these reasons, I find that the non-exclusive licence to JRC to use QSS did come to an end by abandonment, at least by the entry into the 2004 Agreement.
It is true that abandonment was not expressly pleaded by the respondents. Later in these reasons we consider some pleading objections in relation to the alleged breach of the 2004 Agreement. We discuss his Honour’s approach to the pleadings and we note that generally, he held the parties to their pleadings. However, a party may be permitted to rely on some matters which travel beyond the pleadings but not others (Leotta v Public Transport Commission (NSW) (1976) 9 ALR 437; Water Board v Moustakas (1988) 180 CLR 491). The primary judge is in a better position than this Court to assess that issue. Although, in the case of the alleged abandonment of the 2002 Agreement, the primary judge appears to have accepted that abandonment was not pleaded, he allowed the matter to be raised because of the way in which the case had been conducted. We are not persuaded that we should interfere with that decision. We are fortified in that view because it is not apparent to us that there is a reasonable chance the appellants’ case would have been conducted any differently had abandonment been pleaded. In those circumstances, we would not uphold a challenge to his Honour’s finding of abandonment on the basis that it was not pleaded by the respondents.
An initial question arises as to his Honour’s reliance on delay. He referred to JRC’s delay in taking any steps under the 2002 Agreement up until a date on or after April 2009, but the declaration is to the effect that the 2002 Agreement had been abandoned by 11 August 2004. A question arises as to whether the delay between August 2004 and a date on or after April 2009 was conduct constituting part of the abandonment or simply post-abandonment conduct confirming that abandonment had indeed taken place. We do not need to consider this issue because we think the 2002 Agreement was abandoned by 11 August 2004.
In Fitzgerald and Another v Masters (1956) 95 CLR 420 Dixon CJ and Fullagar J said (at 432):
There can be no doubt that, where what has been called an “inordinate” length of time has been allowed to elapse, during which neither party has attempted to perform, or called upon the other to perform, a contract made between them, it may be inferred that the contract has been abandoned. A good example is to be found in Pearl Mill Co Ltd v Ivy Tannery Co Ltd. See also Mathews v Mathews and G W Fisher Ltd v Eastwood Ltd, per Branson J. What is really inferred in such a case is that the contract has been discharged by agreement, each party being entitled to assume from a long-continued ignoring of the contract on both sides that (in the words of Rowlatt J) “the matter is off altogether”.
(Citations omitted)
(see also Summers and Another v The Commonwealth (1918) 25 CLR 144 at 151-152 per Isaacs J; DTR Nominees Proprietary Limited v Mona Homes Proprietary Limited and Another (1978) 138 CLR 423).
This is not a case where it can be said that, objectively viewed, abandonment arose by reason of a failure to perform over a long period of time. That will be the most common case where a plea of abandonment is raised. Where a case involves a subsequent agreement, the parties will usually be the same and the issue will not be one of abandonment, but whether there has been an express or implied revocation by subsequent agreement. This case is somewhat unique, but the question is the same and that is whether when all the circumstances are viewed objectively it should be inferred that neither Mr Cummings nor JRC (i.e., Mr Pacione) intended that the 2002 Agreement should be further performed (DTR Nominees Proprietary Limited v Mona Homes Proprietary Limited and Another at 434 per Stephen, Mason and Jacobs JJ).
As at 11 August 2004, HSFS had an exclusive licence in Australia in relation to QSS under the Exclusivity Agreement. At the very least JRC, through Mr Pacione, must be taken to have agreed not to exercise any rights in QSS under the 2002 Agreement in Australia. Under the 2004 Agreement, HSFS was given a non-exclusive perpetual licence in relation to QSS with the licensor (i.e., Tanmari) given the express right to terminate the agreement only in the limited circumstances set out in cl 8. Following the expiration of the Exclusivity Agreement, the territory of Australia was to be brought within the terms of the 2004 Agreement. We think that the inference is irresistible that, as at 11 August 2004, the parties, being Mr Cummings, Tanmari, HSFS, Mr Pacione (and through him JRC) and Bradbury International, considered that the future licensing of QSS would be governed by the Exclusivity Agreement and the 2004 Agreement, and then after the expiration of the former agreement, in accordance with the perpetual non-exclusive licence under the 2004 Agreement. The licensee parties would have contemplated that they would proceed in that way and it would not have been contemplated, even as a possibility, that JRC and HSFS would compete with each other. In those circumstances, objectively viewed, it should be concluded that neither party to the 2002 Agreement intended that the agreement should be further performed. We would uphold the primary judge’s conclusion that the 2002 Agreement had been abandoned by 11 August 2004.
Did JRC through Mr Pacione Grant Rights under the 2002 Agreement to SFSI in April 2009?
If, as we have held, the 2002 Agreement was abandoned by 11 August 2004, then this issue does not arise. However, the primary judge dealt with it and the parties made detailed submissions with respect to the issue. We will consider it.
The appellants’ case was that in April 2009 JRC, acting through Mr Pacione, granted a sub-licence of its rights under the 2002 Agreement to SFSI also acting through Mr Pacione. The sub-licence was not in writing and the primary judge said that its terms were not identified.
The primary judge accepted that a person who controls two companies may make an agreement between the two companies, “in an informal way” (at [163]). He said that he was not satisfied that JRC granted rights under the 2002 Agreement to SFSI which would enable SFSI to grant licences to its customers. He referred to Mr Pacione’s evidence to the effect that JRC granted its rights under the 2002 Agreement to SFSI in April 2009. He said that Mr Pacione’s initial evidence was striking for its lack of specificity (at [164]).
The primary judge referred to authority which had held that a court could consider the subsequent conduct of the parties with a view to determining if there was an oral agreement and, if so, the terms of the agreement (Lym International Pty Ltd v Marcolongo [2011] NSWCA 303 at [143] per Campbell JA; Hightime Investments Pty Ltd v Adamus Resources Ltd [2012] WASC 295 at [98]-[99] per Edelman J).
The primary judge first considered correspondence which had passed between the appellants and the respondents in 2008 and the first half of 2009 and in which the appellants put forward proposals for the continuation by one of the companies of its ability to grant licences to its customers. It is not necessary for us to set out the details of the correspondence. The important point is that the proposals involved either new licence agreements or the assignment of rights to JRC. There is no reference to an assignment of rights by JRC under the 2002 Agreement (at [168]-[172]).
The primary judge also referred to correspondence which had passed between the appellants and the respondents at or about the time it was alleged that the oral agreement was made. An email dated 19 April 2009 from Mr Pacione to Mr Cummings referred to a proposed transfer of rights to JRC, and an email dated 1 May 2009 from Mr Pacione to Mr Cummings did not refer to JRC granting a licence to SFSI under the 2002 Agreement which, on Mr Pacione’s evidence, had by that time occurred.
The primary judge found that there was no contemporaneous notification to Mr Cummings of the grant of a sub-licence under the 2002 Agreement, that there was no contemporaneous record of the grant of the sub-licence, and that there was no reference to such a sub‑licence in any of the licence agreements between SFSI and its customers. He also noted that when the solicitors acting for JRC and HSFS wrote to Mr Cummings and Tanmari on 18 November 2011, they referred to the 2002 Agreement as if it was still on foot, but made no allegation to the effect that JRC had granted a licence of its rights under the 2002 Agreement to SFSI.
The primary judge said that having regard to the generality of Mr Pacione’s evidence and the absence of contemporaneous support for an agreement, he was not satisfied that there was such an agreement “with sufficient specificity that it was directed, first, to the rights under the 2002 Agreement rather than the 2004 Agreement and, second, that it had the character of a sub-licence of those rights by JRC to SFSI” (at [176]).
The appellants challenged the primary judge’s conclusion on three grounds.
First, the appellants submitted that the primary judge erred in relying on the generality of Mr Pacione’s evidence as a reason to reject their case. As we understood the submission, it was that the licence granted by JRC was a general one of all of its rights and (as the appellants put it) “the sub-licence did not require any more detail”. We have considered Mr Pacione’s evidence on this topic and we think that the primary judge was entitled to view it as general and lacking specificity (at [164] and [176]).
Secondly, the appellants submitted that in rejecting their case the primary judge erred in relying on the fact that JRC did not give any contemporaneous notice to Mr Cummings of the fact that it had granted a sub-licence to SFSI. The appellants submitted that JRC was not required to give notice of the sub-licence to Mr Cummings. It is true that JRC was not required to give notice of the sub-licence to Mr Cummings. However, that does not mean that the primary judge was not entitled to take the absence of notification into account together with other factors, particularly in a context where the appellants had been putting proposals to the respondents which would involve one of the appellants retaining the ability to grant licences of QSS to its customers.
Thirdly, the appellants submitted that the primary judge erred in relying on the general course of dealings between the appellants and the respondents in rejecting their case. As we understood the submission, it was that the primary judge should have focused on, and only focused on, the conduct of the two parties to the alleged sub-licence, being JRC and SFSI, whereas he focused more generally on the dealings between the appellants and the respondents. There are a number of answers to this submission. By 30 September 2008, HSFS was a wholly-owned subsidiary of JRC and Mr Pacione was the controlling mind of each of JRC, HSFS and SFSI. He was the person who is alleged to have made the sub‑licence agreement between JRC and SFSI. As far as Mr Cummings knew, the entity with the power to grant licences was HSFS under the 2004 Agreement. The primary judge was entitled to consider the dealings Mr Pacione, whether on behalf of JRC, HSFS and SFSI, had with the respondents because they were relevant to whether JRC granted sub-licences to SFSI. In any event, the primary judge did not treat the dealings as decisive. The appellants further submitted that the primary judge “failed to have regard to subsequent dealings between the parties, that is, SFSI licensing customers in 2009, after JRC sub-licensed SFSI in 2009”. This submission contains within it the answer for which the appellants contend. As to the relevance of the fact that SFSI granted licences to customers in 2009, the primary judge took that matter into account and he noted a number of alternatives as to how that might have come about (at [176]).
We do not think the primary judge erred in concluding that, assuming the 2002 Agreement was still on foot (contrary to our earlier conclusion that the agreement had been abandoned), he could not be satisfied that, in April 2009, JRC sub-licensed its rights under the 2002 Agreement to SFSI.
It is now necessary to consider the grounds of appeal and cross‑appeal going to the copyright issues.
The copyright issues: grounds 7 to 14 of the notice of appeal and ground 10 of the amended notice of cross‑appeal
Before identifying and examining those grounds of appeal and cross‑appeal on these issues and thus the contended errors on the part of the primary judge, it is necessary to identify the material findings of the primary judge on these issues and the context within which those findings were made. It is necessary to briefly note some of the earlier factual matters we have already mentioned.
JRC and HSFS contended that pursuant to the terms of the 2002 Agreement, Mr Cummings, as author and original owner of the copyright in the “QSS Application” (a defined term described later in these reasons) assigned to JRC “an interest in the copyright” including “updates” to the QSS Application. It followed for JRC that, as an owner of such an interest, it was entitled to non‑exclusively use and sub‑licence others (customers of its system) to use the QSS Application in the development of its steel frame manufacturing systems business.
Put simply, that business involved designing and supplying a manufacturing system which enables a user (a buyer of the system) to manufacture light gauge steel wall panels, roof trusses and floors used in residential, commercial and industrial buildings. Such a system is integrated with computer‑aided design software and computer‑aided manufacturing software.
In the context of issues related to the 2002 Agreement, JRC (and HSFS) contended, in effect, that whatever the characterisation of JRC’s rights might be, the legal source of those enduring rights was to be found in Mr Cummings and the 2002 Agreement.
As to the scope of the rights Mr Cummings enjoyed, JRC and HSFS contended that the QSS Application was “a suite of computer programs known as [QSS]” being “one component” of steel framing manufacturing systems sold by JRC and HSFS: see para 3, amended statement of claim (“ASOC”). HSFS continued to sell such systems incorporating the QSS component until April 2009 when SFSI assumed that business (a matter discussed later in these reasons).
JRC and HSFS contended that Mr Cummings was “the author and original owner of copyright in the QSS Application”: para 4, ASOC. Moreover, JRC and HSFS contended that copyright subsisted in the suite of computer programs called QSS Application (para 7(a), ASOC); that Mr Cummings was the first owner of the copyright (para 7(b), ASOC); and that Mr Cummings would be the owner of the copyright in any updates to the suite of programs comprising the QSS Application when the copyright came into existence (para 7(b), ASOC): that is, when the copyright in the update was first reduced to a material form, as that term is understood.
Those propositions followed for JRC and HSFS because, apart from satisfaction of the relevant connecting factors under the Copyright Act, Mr Cummings was the “author” of the suite of programs and at the relevant time he was the author of the “updates” to the suite of programs called the QSS Application: para 7 (ASOC). By the particulars to para 7 (ASOC), JRC and HSFS asserted that: “QSS Application [as defined at para 3] and each of the computer programs was a literary work”. They also assert by the particulars that: “The QSS Application was in material form and was original”.
As to the functionality and early development of QSS by Mr Cummings, the primary judge made the observations at [6] which we have already quoted at [5] of these reasons.
At [7], the primary judge makes these further observations:
From about 2002, JRC and later HSFS used (and, so far as new business is concerned, SFSI now uses) QSS software as one of several items used for the design and manufacture of steel framing. These include engineering tables and manuals in book and electronic form; computer aided manufacture software which reads the data file generated by QSS and prepares the relevant data for manufacturing; machine control software known as “frameware” that is used by the operator of the roll‑form machinery to manufacture steel framing components from that data; and roll‑form machinery which is controlled by the frameware.
The QSS Software works together with CAD Software including software referred to as “IntelliCAD” which is software controlled by a group of third parties who use and licence IntelliCAD and the right to sub‑licence IntelliCAD. That company provides access to the source code and technical support for IntelliCAD. The primary judge observes that the proceedings gave rise to an issue concerning the impact of updates to IntelliCAD on the use of the QSS Software by JRC and HSFS: [8] of the primary judge’s (“PJ”) reasons.
Although some of these background findings have already been mentioned, it is important to further note these matters having regard to the contentions of the parties on the copyright issues. On 3 February 2003, HSFS was incorporated. It was then 20% owned by JRC and became wholly owned by JRC on 30 September 2008. JRC is a company associated with Mr Pacione and at least from 30 September 2008, HSFS was also a company associated with him. SFSI, incorporated in 2007, is a wholly owned subsidiary of JRC although it changed its name to SFSI on 8 December 2008. Mr Pacione is, and was, at all times relevant to these issues, a director of JRC, HSFS and SFSI. On 11 November 2003, Tanmari, a company controlled by Mr Cummings, was incorporated. It took over the business conducted by Mr Cummings: PJ, [4]. On 31 October 2011, Tanmari and Mr Cummings, entered into an agreement to sell to FIPL their respective interests in assets including the “Quik Series Range” of software products including “Truss Module; Wall Framing Module; Floor Framing Module; all current features plus those currently under development; Systems Documentation and Process Documentation”: Schedule 1 to the Agreement. The assets also included the “current version” of the software including “all current releases and fixes”; all prior versions and releases; any fixes, new versions and releases under development at 31 October 2011 and source code: see definitions “Software” and “Assets”.
The agreement settled on 2 November 2011.
Although JRC and HSFS pleaded authorship and original ownership of the copyright in the QSS suite of programs in Mr Cummings (and the subsistence of copyright, at all material times, in the QSS suite of programs), and also recited in the 2002 Agreement that Mr Cummings “has” the “copyright and proprietorship” in, relevantly, the “software package referred to as Quik Series Software”, including four particular packages, nevertheless, broader questions of originality, subsistence and ownership of subject matter comprising QSS, from time to time, arose in the principal proceedings, in the following way.
Mr Cummings, Tanmari and FIPL contended, in answer to JRC and HSFS’s pleading, that Mr Cummings was the owner of the copyright in QSS created between 1990 and 3 February 2004 (and related documentation) which they called “Cummings QSS”; that as to “versions” of QSS created between 4 February 2004 and 1 November 2011, Tanmari is the owner of the copyright (and related documentation) which they called “Tanmari QSS”; and that since 2 November 2011, FIPL has been and remains the owner of the copyright in QSS including QSS created after 2 November 2011 (and related documentation) which they called “[FIPL] QSS”: para 4 of the defence to the amended statement of claim. In response to para 7 of the amended statement of claim, Mr Cummings, Tanmari and FIPL admit para 7(a), that is, that copyright subsisted in the QSS Application (as defined) and also say that copyright subsists in Cummings QSS, Tanmari QSS and FIPL QSS and related documentation. As to para 7(b), they repeat the matters pleaded in para 4 as described above but otherwise deny para 7(b). They admit the assignment by Mr Cummings and Tanmari to FIPL dated 31 October 2011 although they say that FIPL has been the owner of the copyright in QSS (and hence FIPL QSS) since 2 November 2011.
JRC submitted that it retained certain rights to the Licence Key Generator which it had under the 2002 Agreement. The answer to this submission is that we have upheld the primary judge’s conclusion that the 2002 Agreement was abandoned by 11 August 2004. Even if some rights survived the abandonment (a matter it is not necessary for us to address), they did not include a right to disclose the Licence Key Generator to SFSI for the latter’s use.
We uphold his Honour’s conclusions and order with respect to the respondents’ breach of confidence claim.
2004 Agreement: grounds 1 to 8 of the amended notice of cross‑appeal
The main issue raised by the cross-appellants in relation to the 2004 Agreement is a contention that his Honour erred in not concluding that HSFS had breached the 2004 Agreement in a manner which gave Tanmari the right to terminate the agreement and that either Tanmari or FIPL terminated the agreement in 2011. The relevance of this issue is identified in the Statement of the Issues above (at [48]). There is also a challenge by the cross-appellants to his Honour’s construction of a clause in the agreement. We start with the main issue and we divide it into two parts, the first being whether HSFS breached the agreement in a manner which gave Tanmari the right to terminate, and the second being whether the agreement was in fact terminated.
Did HSFS breach the 2004 Agreement in a manner giving Tanmari the right to terminate?
The 2004 Agreement gave HSFS the power to grant the right to use QSS to its customers and placed an obligation on HSFS to pay a licence fee in relation to each person authorised by it to use the software. Under cl 8.1 of the agreement, the non-payment of the licence fee by HSFS gave Tanmari the right to terminate the agreement. That is the only express power to terminate in the 2004 Agreement.
At the trial, the cross-appellants claimed that HSFS had failed to pay licence fees in respect of licences granted by it. The primary judge found that HSFS had failed to pay licence fees in respect of licences granted by it, but that those breaches had been cured by a payment made by HSFS on or about 6 January 2012. The primary judge noted that it was not alleged by the cross-appellants that that payment was not sufficient to cure the past breaches by HSFS in respect of the licences granted by it (at [156]). The cross-appellants did not challenge those conclusions on the cross-appeal and that means that their case that HSFS breached the 2004 Agreement does not rely on a failure by HSFS to pay licence fees in respect of licences granted by it.
The primary judge found that after April 2009, SFSI commenced licensing QSS to new customers. SFSI was a wholly-owned subsidiary of JRC. By that time, HSFS was also a wholly-owned subsidiary of JRC. Mr Pacione was the controlling mind of all three companies. The primary judge said that in or about April 2009, Mr Pacione decided to cease to undertake new business in HSFS and instead to undertake new business in SFSI (at [148]). The primary judge said that Mr Pacione’s evidence about the activities HSFS undertook after April 2009 was unclear and that, doing the best he could with the evidence, he concluded that “HSFS had at least ceased to deal with new clients and substantially ceased all its business from April 2009, but may have had a residual business renewing licences granted to previous clients, the extent of which is unclear” (at [148]).
In their Statement of Cross-Claim, the cross-appellants alleged that HSFS breached the 2004 Agreement by:
(1)failing to pay licence fees in respect of licences granted (paragraphs 38-41);
(2)purporting to license, including the right to sub-license, the use of QSS and any know how, methodology and trade secrets necessary for the implementation of QSS to SFSI (paragraphs 28-32); and
(3)consenting with knowledge to JRC purporting to license, including the right of sub‑license, the use of QSS and any know how, methodology and trade secrets necessary for the implementation of QSS to SFSI (paragraphs 33-37).
We turn to deal with paragraphs (1) and (2). Paragraph (3) was not raised on the cross‑appeal.
As we have said, there was no continuing breach by HSFS in failing to pay licence fees in relation to licences granted by it. After 2009, SFSI granted licences of QSS to its customers and did not make any payments in respect thereof to Mr Cummings or Tanmari. That conduct did not give rise to an obligation on HSFS to pay licence fees under the 2004 Agreement. HSFS was under an obligation to pay licence fees in respect of each person it authorised to use QSS under cl 2.2 of the agreement. Neither party argued that HSFS had licensed SFSI to exercise the rights under cl 2.2 of the agreement and thereby had become liable to pay licence fees under the 2004 Agreement. The cross-respondents’ case at trial was that SFSI had rights to sub-license QSS by reason of JRC granting the rights it had under the 2002 Agreement, and the cross-appellants’ case was that SFSI’s activities were in breach of their copyright. It is not necessary for us to consider the argument that, in any event, the 2004 Agreement did not give HSFS the power to confer on SFSI the right to grant sub-licences. We make the observation that that argument appears to be correct. The cross‑appellants made reference in their submission to the fact that in an early version of the cross-respondents’ Statement of Claim, they alleged that SFSI acted as HSFS’s agent, but never made clear how they sought to deploy this allegation.
The primary judge rejected the cross-appellants’ case that HSFS breached the 2004 Agreement in purporting to licence, including the right to sub-licence QSS to SFSI, on the ground that there was no evidence that HSFS purported to transfer its rights to licence QSS to SFSI. He said that although he rejected the cross-respondents’ case that JRC had conferred a right to licence on SFSI under the 2002 Agreement, “that does not lead to the conclusion that some other transaction took place, where the Plaintiffs do not contend any other transaction took place and the alternative conclusion that SFSI simply dealt with the software without any right to do so is plainly open” (at [160]).
The cross-appellants submitted that the primary judge did not address, or did not properly address, their case that HSFS breached the 2004 Agreement by purporting to license its rights under the 2004 Agreement to SFSI. They submitted that the primary judge erred by assuming that the cross-appellants needed to show that HSFS’s conduct was effective or by proceeding on the basis that it was common ground that JRC purported to license its rights under the 2002 Agreement to SFSI in April 2009. They pointed to the following passages in the primary judges’ reasons (at [155], [325] and 341]):
155The Defendants contend that they were entitled to terminate the 2004 Agreement for failure by HSFS to pay licence fees to Tanmari as and from 2009 and for the purported transfer of the rights to license QSS to SFSI, without the knowledge or consent of Mr Cummings or Tanmari. That proposition assumes that HSFS in fact transferred such rights to SFSI.
325Paragraphs 28-29 and 32 of the Cross-Claim raise an issue whether HSFS purported to license the right to licence the use of QSS, know-how methodology and trade secrets under the 2004 Agreement to SFSI. The Plaintiffs and Cross-Defendants did not contend that such a licence had been granted. They relied exclusively on the sub-license of rights under the 2002 Agreement said to have been granted by JRC (by Mr Pacione) to SFSI (by Mr Pacione) in April 2009. The case has therefore been conducted on the common basis that no such licence of rights under the 2004 Agreement was granted by HSFS to SFSI.
341… and it is also common ground that SFSI has sub-licensed the use of QSS to third parties since April 2009 relying on the purported sub-licence to it by JRC of its rights under the 2002 Agreement; and I have held that JRC did not confer those rights on SFSI for the reasons noted above. …
There are some difficulties in these passages, although fairly read, we do not think that there is an error in paragraph 325. Nevertheless, we reject the cross-appellants’ submission. We think the primary judge did address the cross-appellants’ case that HSFS breached the 2004 Agreement by purporting to license its rights under the Agreement to SFSI. We refer to paragraph 398 above. Furthermore, we are not persuaded that there is any error in the primary judge’s reasoning.
We come now to the cross-appellants’ principal argument in support of their contention that HSFS breached the 2004 Agreement in a manner which gave Tanmari the right to terminate the agreement.
We have set out above his Honour’s findings in support of his conclusion that HSFS had authorised SFSI’s infringement of copyright and the facts supporting the finding that HSFS breached an obligation of confidence. To recapitulate, his Honour held that HSFS had authorised the infringement of copyright by SFSI on the basis that HSFS had at least a practical power to prevent the infringing conduct by SFSI. He relied on the following matters:
(1)HSFS ceased doing business with new clients and thereby permitted SFSI, in effect, to assume its business;
(2)there was a close relationship between HSFS and SFSI, by the fact that Mr Pacione controlled and had a substantial economic interest in each of them, and by their cooperation in the transfer of HSFS’s business to SFSI; and
(3)HSFS took no steps to prevent or avoid the infringing conduct which could have included at least withholding its cooperation by not ceding its business to SFSI
(at [345]).
The primary judge found that HSFS had provided the Licence Key Generator to SFSI in breach of an obligation of confidence it owed to Tanmari. In order for SFSI to sub-license QSS to third parties, it would need to have access to the Licence Key Generator (at [385]).
We will refer to this conduct of HSFS as “HSFS’s infringing conduct”.
The cross-appellants submitted that the primary judge ought to have found that HSFS’s infringing conduct in addition to authorising SFSI’s infringement of copyright and constituting a breach of confidence, was a breach of the 2004 Agreement which gave Tanmari the right to terminate the agreement.
This argument was sometimes advanced under the rubric of the argument that HSFS breached the 2004 Agreement by purporting to license its rights under the agreement to SFSI and sometimes as an independent argument. There was also a suggestion that the Court should lift the corporate veil, although which entity would be revealed and with what consequences was never made clear. By way of example, the following submissions appear in the cross-appellants’ written submissions on the cross-appeal:
The artifice of interposing and facilitating a new company (SFSI) to grant the licences without any corresponding obligations, constituted such a fundamental breach …
Put another way, HSFS armed SFSI with the means to infringe the copyright and to breach confidence and thereby sought to avoid its obligations as licensee under the 2004 Agreement …
Thus, the primary judge should have held that HSFS purported to grant a sub-licence of QSS to SFSI and, by that means, it sought to avoid its obligations under the 2004 Agreement, including to pay any royalties for the exploitation of the Software …
The cross-respondents’ chief response to this argument was that this was not a case pleaded by the cross-appellants or advanced before the primary judge and the cross-appellants should not be permitted to raise it on the cross-appeal.
The following matters support the cross-respondents’ contention:
(1)There is no plea in the cross-appellants’ Statement of Cross-Claim that the 2004 Agreement contained an obligation of good faith or a duty of cooperation and an obligation of that nature seems to be the foundation of the argument;
(2)There is no express plea that HSFS’s infringing conduct gave rise to a breach of the 2004 Agreement;
(3)The primary judge did not deal with the argument;
(4)In the context of the contention identified in paragraph 402(3) above, the primary judge said (at [328]):
The Cross-Defendants respond to the claim that HSFS's knowledge and consent to SFSI's conduct amounted to a breach of the 2004 Agreement by observing that there are no express terms prohibiting HSFS from knowing and consenting to JRC purporting to license SFSI and the Cross-Claimants have not otherwise pleaded why HSFS's knowledge and consent to JRC purporting to license SFSI is a breach of the 2004 Agreement. I accept those submissions. That conduct may or may not have breached a duty of good faith or an implied duty of cooperation or a narrower duty of HSFS not to act in a manner that would deprive Tanmari of the benefit of licence fees under that contract. However, a claim on that basis was not pleaded by the Cross‑Claimants and it would not be appropriate to address it where it was not squarely raised so as to allow the Cross-Defendants to respond to it.
(5)The trial was conducted according to the pleadings as was made clear by the primary judge in a number of passages in his reasons (see, for example, [42] and [308]).
On the one hand, there are reasons why this Court should entertain and determine the cross‑appellants’ argument. They are as follows:
(1)It is difficult to think of a reason why the 2004 Agreement did not contain an implied term of cooperation, that is to say, a duty on each party to do all things necessary within the context of the agreement to enable the other party to have the benefit of the agreement;
(2)The cross-appellants were plainly arguing that HSFS had breached the 2004 Agreement giving Tanmari the right to terminate, and the argument that it did so by purporting to licence SFSI can be seen as a related argument. That argument was dealt with by the primary judge; and
(3)HSFS’s infringing conduct was clearly in issue at the trial and, indeed, formed the basis of the primary judge’s conclusion with respect to the authorisation of infringement of copyright and breach of confidence.
We have had regard to recent judicial statements as to the function of pleadings. In Betfair Pty Ltd v Racing New South Wales and Another (2010) 189 FCR 356, the Full Court of this Court said (at 374-375 [55]):
In our respectful opinion, the proposition favoured by the primary judge that, from beginning to end, Betfair’s case was fatally flawed by a failure to adequately plead that the discrimination it alleged was of a protectionist kind, gave insufficient recognition to the fact that the case was fought out in every other sense on the constitutional issues arising from s 92. Betfair’s opponents sought to rely at the trial on the general proposition that Betfair would be “held” to its pleaded case. An announcement of that kind by a party misstates that party’s capacity to direct the course of the proceedings. The course of proceedings is in the control of the Court. That control is to be exercised for the attainment of a just outcome. There will obviously be cases where a pleaded case does not raise an important fact for attention. If that remains the position at the end of the case, the case may be lost on that basis, so far as it depends on that fact. Sometimes it would be unfair to allow a party to amend a case, or a pleading, to raise a new matter which could have been, but was not, raised earlier. On the other hand, mere infelicity of drafting will rarely be allowed to defeat a case on its merits if the merits of the case have been made apparent on the evidence without unfairness to the other party.
In Thomson v STX Pan Ocean Co Ltd [2012] FCAFC 15, the Full Court of this Court said (at [13]):
It is well-established that the main purposes of pleadings are to give notice to the other party of the case it has to meet, to avoid surprise to that party, to define the issues at trial, to thereby allow only relevant evidence to be admitted at trial and for the trial to be conducted efficiently within permissible bounds: see, eg Dare v Pulham (1982) 148 CLR 658 (at 664-665). However, it is also well-established that pleadings are not an end in themselves, instead they are a means to the ultimate attainment of justice between the parties to litigation: see Banque Commerciale S.A. (in liq) v Akhil Holdings Ltd (1990) 169 CLR 279 (at 293) per Dawson J who cites Isaacs and Rich JJ in Gould and Birbeck and Bacon v Mount Oxide Mines Ltd (in liq) (1916) 22 CLR 490 (at 517). For these reasons, the courts do not, at least in the current era, take an unduly technical or restrictive approach to pleadings such that, among other things, a party is strictly bound to the literal meaning of the case it has pleaded. The introduction of case management has, in part, been responsible for this change in approach: see the observations of Martin CJ in Barclay Mowlem Construction Limited v Dampier Port Authority (2006) 33 WAR 82 (at [4]-[8]). Even before the widespread use of case management, the High Court reflected this approach in decisions such as Leotta v Public Transport Commission (NSW) (1976) 50 ALJR 666 (at 668-669) per Stephen, Mason and Jacobs JJ and Water Board v Maustakas [sic] (1988) 180 CLR 491 (at 497) per Mason CJ and Wilson, Brennan and Dawson JJ.
We have also borne in mind the observations in Leotta v Public Transport Commission (NSW) and Water Board v Moustakas to which we have previously referred.
With some hesitation, we have reached the conclusion that it is not open to the cross‑appellants to advance before this Court the argument that HSFS’s infringing conduct gave rise to a breach of the 2004 Agreement in a manner which gave Tanmari the right to terminate the agreement. We do not think the cross-appellants should be permitted to advance the argument in the absence of a plea of a contractual term (i.e., a duty of good faith or duty to cooperate) forming the foundation of the argument and having regard to the primary judge’s approach to a closely related plea and to his approach to the pleadings more generally.
In the circumstances, it is not necessary for us to consider the parties’ submissions as to the decision in Cowell v The Rosehill Racecourse Company Limited (1937) 56 CLR 605 and the application of that decision to the facts of this case.
Did Tanmari or FIPL terminate the 2004 Agreement?
In view of our conclusion that HSFS did not breach the 2004 Agreement in a manner which gave Tanmari the right to terminate the agreement, the issue whether Tanmari or FIPL in fact terminated the agreement for such “breach” does not arise. However, the primary judge addressed the issue as did the parties in their submissions. We will consider the issue on the assumption that HSFS breached the 2004 Agreement in a manner which gave Tanmari the right to terminate the agreement.
The cross-appellants’ case as pleaded in their Statement of Cross-Claim was that Tanmari, through its solicitors Sparke Helmore, terminated the 2004 Agreement by letter dated 24 January 2012 (paragraph 49). In that letter, Sparke Helmore said:
7.Accordingly and effective immediately, Tanmari terminates the 2004 Agreement:
(a) in accordance with clause 8.1; and
(b)additionally, and pursuant to its common law rights, for Hayes SFS’s continued breach of a material condition of the 2004 Agreement.
In late 2011 and early 2012, Sparke Helmore were acting for Tanmari and, it seems, Mr Cummings. A New Zealand firm of solicitors, Simmonds Stewart, was acting for FIPL. A New South Wales firm of solicitors, Simone Legal, was acting for JRC and HSFS.
There was a dispute before the primary judge about whether Tanmari had the right to terminate the 2004 Agreement or whether, by reason of the FIPL Purchase Agreement and other conduct, that right resided in FIPL. The primary judge decided that the right to terminate the 2004 Agreement in late 2011 and early 2012 resided in FIPL (at [191]) and neither party on the appeal and cross-appeal challenges that conclusion.
The cross-appellants submitted that nevertheless the Sparke Helmore letter dated 24 January 2012 was effective to terminate the 2004 Agreement on behalf of FIPL because Mr Taylor on behalf of FIPL gave evidence that he “directed” Tanmari as trustee for FIPL to send, inter alia, the Sparke Helmore letter dated 24 January 2012. Furthermore, they pointed to the fact that in a different context – a claim in tort by the cross-respondents against FIPL for inducing or procuring Tanmari to breach the 2004 Agreement – the primary judge said (at [299]):
… I accept that FIPL induced or procured Tanmari’s attempted termination of the 2004 Agreement. Mr Taylor's evidence was that he “directed” Tanmari to send the letter giving HSFS notice of breach of that agreement and the further letter terminating that agreement …
There are a number of difficulties with this argument which, when combined, mean that the argument must be rejected. First, the terms of the Sparke Helmore letter are clearly to the effect that it is Tanmari which is purporting to terminate the 2004 Agreement. Secondly, Tanmari was not acting as trustee for FIPL. The matter might have proceeded in that way had the assignment under the FIPL Purchase Agreement been ineffective (cl 5.5 of the FIPL Purchase Agreement), but the primary judge found that the assignment was relevantly effective and there is no challenge to that finding. Thirdly, there is nothing in the correspondence to indicate to HSFS that Tanmari was acting on behalf of FIPL in purporting to terminate the 2004 Agreement. In fact, Simmonds Stewart, acting for FIPL, wrote to Simone Legal complaining of SFSI’s unauthorised use of the QSS Software on 21 December 2011 and 24 January 2012.
In the alternative, the cross-appellants submitted that the Simmonds Stewart letter on behalf of FIPL to Simone Legal dated 24 January 2012 was an effective notice of termination. This letter is not referred to in the Statement of Cross-Claim. The cross-appellants submitted that it was a sufficient notice of termination by FIPL because it states that the 2004 Agreement is now terminated and adopts the reasoning for that termination in the Sparke Helmore letter dated 24 January 2012. The relevant passages in the letter are as follows:
1.We refer to your letter of 11 January 2012 and the letter to you from Sparke Helmore on behalf of Tanmari Pty Limited of today’s date (Tanmari Response).
…
7.Framecad considers that the Tanmari Response resolves many of the continuing issues between Tanmari and your clients. The 2004 Agreement is now terminated and Tanmari has made a without prejudice offer to provide you the Quick Series source code as at the date of the 2002 Agreement. It would appear the only remaining matter to be discussed is Hayes SFS’s liability to Tanmari for the previous breaches of contract.
…
We do not think that this is a termination by FIPL. It is at best an assertion by FIPL that Tanmari had terminated the 2004 Agreement by its letter dated 24 January 2012.
We come now to the principal argument advanced by the cross-appellants and that was that FIPL terminated the 2004 Agreement by letter from Sparke Helmore dated 23 May 2014. The primary judge seems to have made contradictory findings about whether this letter was sent on behalf of Tanmari and FIPL or only on behalf of Tanmari. He said (at [153]):
By a further letter dated 23 May 2014, without admission as to the effectiveness of the earlier notices to remedy the breaches and termination notices, Tanmari and FIPL terminated the 2004 Agreement for non-payment of licence fees and terminated any licence, authorisation or authority to JRC, HSFS, SFSI or Mr Pacione to do any of the acts comprised in the copyright in QSS or the user documentation.
Later, his Honour said (at [192]):
Tanmari gave a further notice of termination of the 2004 Agreement by letter dated 23 May 2014 from Sparke Helmore to HSFS (Ex P2 401.) The Plaintiffs also contend that notice was ineffective. That notice was not necessary so far as any question of service was concerned, since I have held that the initial termination letter was effectively served, and does not otherwise bring about an effective termination of the 2004 Agreement where notice was given by Tanmari rather than FIPL.
The cross-respondents submitted that the letter dated 23 May 2014 cannot be relied on by the cross-appellants because it was not pleaded. We reject this submission. It was written after the cross-respondents had commenced their action and was in evidence at the trial. Furthermore, the cross-respondents have not identified any prejudice to them if the cross‑appellants are able to rely on the letter as an effective notice of termination.
The cross-respondents submitted that the letter dated 23 May 2014 did not terminate the 2004 Agreement because “[FIPL] denied that the earlier termination letters were ineffective and also denied that the 2004 Agreement was assigned to [FIPL]” and that “[FIPL] cannot exercise rights where [FIPL] does not acknowledge that such rights even exist”.
These submissions are based on the following passages in the letter:
1.As you know we act for the Defendants/Cross Claimants in the proceedings JR Consulting & Drafting Pty Ltd & Anor v Robert Cummings & Ors.
…
7.Notwithstanding that, without any admissions as to the effectiveness or otherwise of the Written Notice and/or the Termination Notice, for the avoidance of doubt and in accordance with clause 8.1 of the 2004 Agreement, Tanmari hereby terminates the 2004 Agreement for non-payment of licence fees in accordance with clause 2 of the 2004 Agreement.
8.Alternatively, if the 2004 Agreement was assigned to FramceCAD as alleged by you (which is denied) without any admissions, for the avoidance of doubt and in accordance with clause 8.1 of the 2004 Agreement, FrameCAD hereby terminates the 2004 Agreement for non-payment of licence fees in accordance with clause 2 of the 2004 Agreement.
…
We reject this submission. This is not a case where a party and, in particular, FIPL cannot put its position in the alternative. We think that had there been a breach entitling Tanmari or FIPL to terminate, then the letter dated 23 May 2014 was an effective notice of termination.
However, the cross-appellants’ challenge to the second declaration made by the primary judge must be rejected because there was no breach of the 2004 Agreement by HSFS which entitled Tanmari or FIPL to terminate.
The Construction Point: ground 9 of the amended notice of cross‑appeal
The primary judge determined various points of construction concerning the scope of the licence granted under cl 2 of the 2004 Agreement. Only one of his determinations is challenged and that is a challenge by the cross-appellants on the cross-appeal. The issue is whether after the seven year period referred to in cl 8.2, that is to say, after August 2011, HSFS was restricted to granting sub-licences to its then customers without paying a licence fee, or whether, in addition, it could grant sub-licences to new customers without paying a licence fee. The primary judge held that the latter was the proper construction of the agreement and the cross-appellants appeal against that determination.
The primary judge said that he reached his conclusion with considerable hesitation (at [142]). He noted that another clause in the agreement, cl 9, referred to “any customer or prospective customer of HSFS” whereas cl 8.2 did not (at [140]) and that the construction he adopted might be viewed as conferring a windfall on HSFS being the right after August 2011 to grant as many licences as it wished to existing and new customers without having to pay any licence fee. However, the decisive matter to his mind was that the word, “customer” should receive a consistent interpretation throughout cl 2 and that in the earlier part of the clause it plainly meant customers of HSFS from time to time. That would embrace, he said, new customers.
The cross-appellants submitted that two matters should have led the primary judge to the alternative construction, being the windfall otherwise conferred on HSFS and that it was consistent with licences usually associated with software, that is, that “the existing end user who has purchased the software may continue to use it (and often to update it until the updates cease) without further payment”. On one view, the cross-appellants’ construction seems to reflect a more sensible commercial object or purpose than that of the cross‑respondents, although that said, clearly one cannot ignore the words of the agreement. Whilst we express no view on whether the licence could be revoked on grounds other than the non-payment of licence fees, if that was not the case, the construction adopted by the primary judge would mean the licence would enable HSFS to issue sub-licences to new customers in perpetuity. There seems to be considerable force in the cross‑appellants’ submissions.
The cross-respondents submitted that the primary judge decided an issue which was not before him. There were issues before him as to whether the licence granted to HSFS was restricted to granting sub-licences to customers who were purchasing a steel framing system from HSFS and an issue as to whether the licence was restricted to a period of seven years (paras 37-39 of the Amended Defence) which his Honour determined adversely to the cross‑appellants, but no issue as to whether after seven years the right to sub-license was restricted to existing customers. The cross-respondents submitted that his Honour’s determination on this point, although favourable to them, was no more than “obiter dicta”. They made the point, which is correct, that the primary judge’s determination is not reflected in any order made by him.
We do not think that we should address this issue because its determination is not reflected in any order of the Court. We assume neither party has asked his Honour to make an order reflecting his determination and we do not think that we should be making an order about the matter for the first time on appeal.
Costs
The appellants have been unsuccessful on the appeal.
The cross-appellants have succeeded on the cross-appeal as to the subsistence of copyright in QSS, but failed on the 2004 Agreement and on the point of construction concerning cl 2 of the 2004 Agreement.
Our provisional view is that an order that the appellants/cross‑respondents pay 85% of the respondents/cross-appellants’ costs of the appeal and the cross‑appeal would fairly reflect the result of the appeal and of the cross-appeal. However, we will give the parties the opportunity to make submissions on the question of the costs of the appeal and cross-appeal.
The orders as to the costs of the hearing concerning liability are set out above at [10]. The cross-appellants’ success on the cross-appeal on the subsistence of copyright in QSS calls for an adjustment of those orders. Our provisional view is that only one adjustment is called for and that is to adjust the figure of 75% to 80%. However, again we will give the parties the opportunity to make submissions on the question of the costs of the hearing concerning liability.
Conclusions
It follows that the appeal is to be dismissed.
As to the cross‑appeal, the orders of the primary judge are to be varied (Orders 3 and 4) such that the restraint contemplated by each order is to be framed not in terms of Versions 11.176, 11.406 or 11.604 but rather in terms of all versions of a suite of computer programs known as Quik Series Software published or released up to and including 1 November 2011.
Apart from restraints varied as described, a declaration is to be made as to the subsistence and ownership of the copyright subsisting in each version of QSS published or released up to and including 1 November 2011.
The principled basis upon which such a declaration is to be made is that the declaration is explanatory of the operative orders as varied. The restraining orders and the declaration are to recite all of the relevant version numbers of QSS so as to give precision to the declaration and the injunctions. The version numbers might be framed in terms of version X to version Y by reference to numbers and dates but precision would be ensured if a table was prepared setting out a list of all of the versions and the date of publication or release of each version. No doubt, the cross‑appellants are in a position to prepare such a table (and submit it to the appellants) as all of the information would be available to them.
The table could then be incorporated into the framing of the declaration and Orders 3 and 4 as varied.
A table setting out the relevant versions of QSS is to be prepared and submitted to the Court by the parties by Tuesday, 8 March 2016 together with a proposed form of the declaration and proposed orders varying the injunctions.
The cross‑appeal is otherwise to be dismissed.
The costs, as we have indicated, are to be the subject of further short submissions to be filed and served by Thursday, 10 March 2016. The parties are to limit their submissions to no more than four pages in length.
446 I certify that the preceding four hundred and forty‑five (445) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justices Bennett, Greenwood and Besanko.
Associate:
Dated: 3 March 2016
SCHEDULE OF PARTIES
NSD 183 of 2015 Appellants
Fourth Appellant:
STEEL FRAMING PTY LIMITED ACN 106 986 761
Cross-Appellants
Second Cross-Appellant:
TANMARI PTY LTD
Third Cross-Appellant:
FRAMECAD IP LIMITED
Cross-Respondents
Second Cross-Respondent
HAYES STEEL FRAMING SYSTEMS PTY LIMITED ACN 103 574 732
Third Cross-Respondent
GIANNI PACIONE (ALSO KNOWN AS JOHN PACIONE)
Fourth Cross-Respondent
STEEL FRAMING PTY LIMITED ACN 106 986 761
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