Microsoft Corporation v CPL Notting Hill Pty Ltd
[2024] FCAFC 20
•4 March 2024
FEDERAL COURT OF AUSTRALIA
Microsoft Corporation v CPL Notting Hill Pty Ltd [2024] FCAFC 20
Appeal from: Microsoft Corporation v CPL Notting Hill Pty Ltd(No 7) [2022] FedCFamC2G 590
Microsoft Corporation v CPL Notting Hill Pty Ltd (No 8) [2022] FedCFamC2G 1033
File number: NSD 1126 of 2022 Judgment of: NICHOLAS, ROFE AND JACKMAN JJ Date of judgment: 4 March 2024 Catchwords: APPEAL AND NEW TRIAL – proceeding brought by appellants against respondents for (inter alia) alleged infringement of copyright in computer programs – whether appellants were denied procedural fairness as a consequence of primary judge disallowing questions in cross-examination or otherwise curtailing cross-examination of respondents’ witnesses – whether questions proposed to be put to witnesses tendered and rejected – whether rejection of any questions or line of questions had the effect of denying the appellants the opportunity to put their case or depriving them of a fair trial – whether primary judge failed to consider the inherent improbability of respondents’ case as a whole – whether evidence of events given by respondents’ witnesses was glaringly improbable – where primary judge’s acceptance of respondents’ witnesses’ evidence heavily influenced by demeanour – relevance of lengthy delay between hearing and judgment
PRACTICE AND PROCEDURE – whether allegation that a witness has given a false account of events or has fabricated, concealed or destroyed evidence constitutes an allegation of fraud which must be pleaded in circumstances where such conduct is not an element of the cause of action
PRACTICE AND PROCEDURE – where appellants claimed additional damages under s 115(4) of the Copyright Act 1968 (Cth) relying upon (inter alia) alleged fabrication, concealment and destruction of documents – whether appellants required to plead or particularise such allegations in support of claim for additional damages
Held: appeal allowed - new trial ordered
Legislation: Competition and Consumer Act 2010 (Cth) Sch 2 (Australian Consumer Law), s 18
Copyright Act 1968 (Cth) ss 36, 38, 43B, 47B, 115
Fair Work Act 2009 (Cth) s 340
Federal Court of Australia Act 1976 (Cth) ss 28, 37N
Trade Marks Act 1995 (Cth) ss 120, 123, 126
Federal Court Rules 2011 (Cth) r 16.02(1)(d)
Crimes Act 1958 (Vic) s 254
Public Health (COVID-19 Restrictions on Gathering and Movement) Order 2020 (NSW) cll 5, 6, Schs 1, 2
Cases cited: 3WJ Pty Ltd v Kanj [2008] NSWCA 321
Allen v Tobias (1958) 98 CLR 367
Apotex Pty Ltd v Les Laboratoires Servier (No 2) [2012] FCA 748; (2012) 293 ALR 272
Australian Postal Commission v Bessey [2001] FCA 266
Australian Postal Commission v Hayes (1989) 87 ALR 283
Balenzuela v De Gail (1959) 101 CLR 226
Banque Commerciale SA (in liq) v Akhil Holdings Limited (1990) 169 CLR 279
Beaman v Bond [2017] FCAFC 142; (2017) 254 FCR 480
Briginshaw v Briginshaw (1938) 60 CLR 336
Browne v Dunn (1894) 6 R 67
Castel Electronics Pty Ltd v Toshiba Singapore Pte Ltd [2011] FCAFC 55; (2011) 192 FCR 445
Century Legend Pty Ltd v Ripani [2022] FCAFC 191
CPL Notting Hill Pty Ltd v Microsoft Corporation [2017] FCA 1385
CPL Notting Hill Pty Ltd v Microsoft Corporation (No 2) [2019] FCA 223
Director of Public Prosecutions v Chen [2017] VCC 735
Ellis v Wallsend District Hospital (1989) 17 NSWLR 553
Expectation Pty Ltd v PRD Realty Pty Ltd [2004] FCAFC 189; (2004) 140 FCR 17
Fox v Percy [2003] HCA 22; (2003) 214 CLR 118
Galea v Galea (1990) 19 NSWLR 263
Geneva Laboratories Ltd v Prestige Premium Deals Pty Ltd (No 5) (2017) 122 IPR 279
Ghazal v Government Insurance Office of New South Wales (1992) 29 NSWLR 336
Gould v Mount Oxide Mines Ltd (In Liq) (1916) 22 CLR 490
Guirguis Pty Ltd v Michel’s Patisserie System Pty Ltd [2017] QCA 83; (2018) 1 Qd R 132
Jones v Birmingham City Council [2023] UKSC 27; [2023] 3 WLR 343
Jones v. National Coal Board [1957] 2 QB 55
Jorgensen v Fair Work Ombudsman (2019) 271 FCR 461
Kioa v West (1985) 159 CLR 550
Microsoft Corporation v CPL Notting Hill Pty Ltd (No 7) [2022] FedCFamC2G 590
Microsoft Corporation v CPL Notting Hill Pty Ltd (No 8) [2022] FedCFamC2G 1033
Monie v Commonwealth [2005] NSWCA 25; (2005) 63 NSWLR 729
Nathanson v Minister for Home Affairs [2022] HCA 26; (2022) 403 ALR 398
National Mutual Life Association of Australasia Ltd v Godrich (1909) 10 CLR 1
Nobarani v Mariconte [2018] HCA 36; (2018) 265 CLR 236
Penn v Bibby (1866) LR 2 Ch App 127
Roadshow Films Pty Ltd v iiNet Ltd [2012] HCA 16; (2012) 248 CLR 42
Royds v Norcross Press Pty Ltd [2000] 1 Qd R 681
Secretary of State for the Home Department v Rehman [2003] 1 AC 153
State Rail Authority of New South Wales v Earthline Constructions Pty Ltd (In Liq) (1999) 73 ALJR 306
Stead v State Government Insurance Commission (1986) 161 CLR 141
Tattsbet Ltd v Morrow [2015] FCAFC 62; (2015) 233 FCR 46
The Ophelia (No 2) [1916] 2 AC 206 (PC)
Truong Giang Corporation v Tung Mau Quach(aka John Quach) (2015) 114 IPR 498
Universal Music Publishing Pty Ltd v Palmer (No 2) (2021) 158 IPR 421
Vivo International Corporation Pty Ltd v Tivo Inc (2012) 294 ALR 661
Heydon JD, Cross on Evidence (14th ed, LexisNexis, 2023)
Heydon JD, Reciprocal duties of Bench and Bar (2007) 81 ALJ 23
Wigmore J, Evidence in Trials at Common Law (rev Tillers, 1983) Vol 1
Division: General Division Registry: New South Wales National Practice Area: Intellectual Property Sub-area: Copyright and Industrial Designs Number of paragraphs: 277 Date of hearing: 25 and 28 August 2023 Counsel for the Appellants: Mr ADB Fox SC with Mr A Smorchevsky Solicitor for the Appellants: Harris & Company Counsel for the Respondents: Mr M Green SC with Mr C Thompson Solicitor for the Respondents: Henley Legal ORDERS
NSD 1126 of 2022 BETWEEN: MICROSOFT CORPORATION
First Appellant
MICROSOFT PTY LTD (ACN 002 589 460)
Second Appellant
MICROSOFT REGIONAL SALES CORPORATION
Third Appellant
AND: CPL NOTTING HILL PTY LTD
First Respondent
WEI LI
Second Respondent
CPL DISTRIBUTION PTY LTD
Third Respondent
JIN WANG
Fourth Respondent
ORDER MADE BY:
NICHOLAS, ROFE AND JACKMAN JJ
DATE OF ORDER:
4 MARCH 2024
THE COURT ORDERS THAT:
1.The appeal be allowed.
2.The judgment of the primary judge made on 6 December 2022 be set aside, and in lieu thereof, order that there be a new trial before a judge of the Federal Court of Australia on all issues except for those on which the appellants were successful at trial before the primary judge.
3.The costs of the trial before the primary judge be reserved for determination by the judge before whom the proceeding is retried.
4.The respondents pay the appellants’ costs of the appeal.
Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.
REASONS FOR JUDGMENT
NICHOLAS J:
BACKGROUND
Introduction
This is an appeal from a judgment by the Federal Circuit and Family Court of Australia (Division 2) comprising declarations and orders made on 6 December 2022. Although the primary judge granted the appellants declaratory relief and orders for the payment of damages and costs arising out of infringement of copyright by the first and third respondents, the damages awarded were far less than had been sought by the appellants against all respondents. Further, the primary judge declined to grant the appellants any injunctive relief.
The primary judge found that the first and third respondents committed a small number of copyright infringements compared to the number of infringements alleged by the appellants. Such infringements were found to have been committed in circumstances warranting a modest award of compensatory damages, no additional damages and no injunctive relief. The grant of relief reflected the primary judge’s rejection of the appellants’ case at trial that the respondents had committed more wide-spread acts of copyright infringement which they had later sought to conceal by failing to produce relevant records evidencing the true scope of their infringing activities and by relying on false documents, and giving false evidence, in relation to those activities.
The appellants now contend, in essence, that they did not receive a fair trial. They rely on a number of related matters in support of that contention. The first concerns rulings made by the primary judge in relation to the cross-examination of the respondents’ witnesses, which the appellants contend were erroneously made and which they say curtailed cross-examination of those witnesses to the point where the appellants were denied procedural fairness. The second matter concerns the lengthy delay between the date of the hearing before the primary judge and the date of delivery of judgment. The appellants contend that the delay contributed to a failure by the primary judge to consider the evidence in its totality and its inherent improbability when considered as a whole. The appellants seek orders setting aside the judgment and for a new (third) trial.
For the reasons that follow, I consider that the appeal should be allowed and that there should be a new trial.
The parties to the proceeding included, as first appellant, Microsoft Corporation (“Microsoft”) which was at all relevant times the owner of copyright in the computer programs which the respondents were alleged to have infringed. The respondents to the proceeding were the first respondent, CPL Notting Hill Pty Ltd (“CPL Notting Hill”), the second respondent, Ms Wei (Mabel) Li, who was at all relevant times the sole director of CPL Notting Hill, the third respondent, CPL Distribution Pty Ltd (“CPL Distribution”) and the fourth respondent, Mr Jin Wang, who was at all relevant times the sole director of CPL Distribution. The evidence indicates that Mr Wang (who did not give evidence at the trial) owned and controlled both companies through a related entity called LHX Pty Ltd. Except where it is necessary to distinguish between the two companies, I will refer to CPL Notting Hill and CPL Distribution as “the CPL companies”.
The primary judge published reasons for judgment on 30 September 2022 (“PJ”), which are lengthy and detailed (Microsoft Corporation v CPL Notting Hill Pty Ltd (No 7) [2022] FedCFamC2G 590). After publication of PJ the primary judge considered the parties’ submissions in relation to the relief which should be granted. Her Honour made final orders on 6 December 2022 and on that date published reasons for judgment as to relief (Microsoft Corporation v CPL Notting Hill Pty Ltd (No 8) [2022] FedCFamC2G 1033). Her Honour made a declaration that CPL Notting Hill, by pre-installing Windows 7 Pro software onto the hard drives of 30 new computers built by it, and to which it affixed loose Certificates of Authenticity (COAs) acquired by CPL Distribution on 9 June 2015, reproduced Windows 7 Pro in a material form without the licence of Microsoft and thereby infringed Microsoft’s copyright in Windows 7 Pro under s 36(1) of the Copyright Act 1968 (Cth) (“Copyright Act”). The primary judge also made a declaration that CPL Distribution authorised the infringing acts of CPL Notting Hill by supplying it with Windows 7 Pro software and loose COAs acquired on 9 June 2015, and thereby infringed Microsoft’s copyright in Windows 7 Pro under s 36(1) of the Copyright Act.
In respect of the infringements the subject of declarations, the primary judge awarded compensatory damages to Microsoft in the amount of $5,911.75 (excluding interest) against CPL Notting Hill and a mere $121.50 (excluding interest) against CPL Distribution. Her Honour declined to make any award of additional damages against any respondent and, apart from costs orders also made by the primary judge, the proceeding was otherwise dismissed.
The proceeding was commenced by the appellants against CPL Notting Hill and Ms Li on 13 May 2016 some months after Microsoft’s lawyers issued a letter of demand dated 8 January 2016 (“the letter of demand”). Various causes of action were relied on including, most relevantly, infringement of Microsoft’s copyright in the Windows 7 operating system (“Windows 7”). This is an operating system that is no longer supplied or supported by Microsoft that came in four different versions – Windows 7 Professional (“Windows 7 Pro”) and Windows 7 Home Premium (“Windows 7 Home”), with each available in either a 32bit or 64bit version. Except where it is necessary to distinguish between the different versions in these reasons, I will refer to them as Windows 7.
Microsoft relied on a sale of a computer by CPL Notting Hill to Ms Simone Lanyon on 11 November 2015. The sale to Ms Lanyon, who was an investigator engaged by the appellants, is referred to in PJ as the “test purchase”. This sale was relied on by Microsoft in support of what is referred to in the parties’ submissions and PJ as the “retail case” which related to “at least” 39 installations of Windows 7 Pro on new computer systems built and supplied by CPL Notting Hill in the period 28 February 2014 to 16 December 2015.
Although the respondents denied that they infringed Microsoft’s copyright, they admitted that CPL Notting Hill installed 30 copies of Windows 7 Pro on new computers which it supplied to end-users and to which it had affixed loose COAs. The respondents contended that those COAs were acquired by CPL Notting Hill on 9 June 2015, as evidenced by an invoice of that date issued by LDS International Pty Ltd (“LDS”) to CPL Distribution. Mr Felix Chen, an employee of LDS, was alleged by the respondents to have supplied 50 COAs and a number of installation disks (specifically, compact disks or CDs) for Windows 7 for a total cash price of $3,850.
A witness called by the respondents, Mr Pan, gave evidence that he was contacted by Mr Chen by telephone on 5 June 2015 and that he negotiated with Mr Chen for the purchase of the 50 COAs (with installation disks) which were delivered by Mr Chen to CPL Notting Hill’s premises on 9 June 2015. It is not in dispute that (as found by the primary judge) the COAs supplied by Mr Chen to Mr Pan were genuine certificates authorised for use in connection with what was referred to as the Microsoft refurbisher program, which permitted them to be used by participants in that program to install Windows 7 on refurbished computers, but not new computers. Neither of the CPL companies was a participant in Microsoft’s refurbisher program. They were (or at least CPL Notting Hill was) what Microsoft’s licensing structures and arrangements refer to as low volume original equipment manufacturers (“OEMs”) engaged in the production of new computer systems on which a Windows operating system would be installed. Low volume OEMs were also referred to as “commercial OEMs” or “system builders”. Commercial OEMs were entitled to acquire copies of Windows 7 in the form of “system builder packs”. A system builder pack comprised a COA label on which a unique 25 digit alphanumeric product key was printed, and an authorised recovery DVD or other medium including a copy of Windows 7. Commercial OEM software licence terms (known as the “system builder licence”) were printed on the packaging of the system builder packs.
The appellants were granted leave to join CPL Distribution and Mr Wang to the proceeding on 4 August 2017. By amendments made at the time of their joinder, the appellants alleged that CPL Distribution supplied CPL Notting Hill with at least 1,467 loose COAs which permitted CPL Notting Hill to activate, install, and operate Windows 7 on new computer systems even though such loose COAs had been created by Microsoft solely for use by entities which were licenced to do so under the refurbisher program. The pleaded case based on the supply of these 1,467 COAs were referred to in the parties’ submissions and the primary judge’s reasons as the “supply case”. Microsoft ultimately contended at trial that a total of 1,617 loose COAs were acquired by CPL Distribution and supplied by it to CPL Notting Hill.
There is an issue raised by the respondents in the appeal as to the scope of the supply case as pleaded by the appellants and whether it touched CPL Notting Hill and Ms Li. The primary judge was of the view that it was not part of the appellants’ pleaded case that any of the at least 1,467 COAs alleged to have been supplied by CPL Distribution were used to install Windows 7 on new computers by CPL Notting Hill, which it then supplied to its customers. The appellants accepted that their pleading did not include this express allegation.
The proceeding was heard by the primary judge on 19 - 23 August 2019 (when the evidence was taken) and 16 December 2019 (when oral closing submissions were heard) on remittal from a judge of this Court (O’Callaghan J) exercising appellate jurisdiction. O’Callaghan J set aside orders made on 29 August 2018 by a different judge of what was then the Federal Circuit Court of Australia, in favour of the CPL Companies, Ms Li and Mr Wang: see CPL Notting Hill Pty Ltd v Microsoft Corporation (No 2) [2019] FCA 223. His Honour also ordered that there be a new trial. The present appeal arises out of the re-trial that occurred pursuant to his Honour’s orders.
The supply case pleaded by the appellants referred to what became known in the parties’ submissions and PJ as the Chen invoices. Most of the Chen invoices referred to in the appellants’ particulars were identified by date and invoice number. In each case the purchaser was identified as CPL Distribution. Nineteen of those invoices nominate LDS as the supplier. The dates appearing on them fall within the range of 17 July 2014 to 17 August 2015. The Chen invoices referred to in the appellants’ particulars also include others in which the supplying party is a company called Ever Success Pty Ltd (“Ever Success”). Evidence called at the trial established that Ever Success was a company operated by Mr Chen’s parents-in-law that Mr Chen used as a vehicle to sell computer products that he stole from LDS. This conduct was, in part, the subject of a police investigation and subsequent criminal proceeding, which I discuss in more detail below.
The Chen invoices were, as will be seen, critical to the appellants’ infringement case. On their face, they purported to show that LDS and Ever Success supplied a total of 1,617 COAs to CPL Distribution in the period between 17 July 2014 and 17 August 2015. The appellants’ case was complicated by the existence of different versions of the Chen invoices (at least those purportedly issued by LDS) and an evidentiary contest concerning their admissibility which raised questions concerning their authenticity and how it happened that many of those invoices came to be supplied by Ms Li to Victoria Police. Before returning to that topic, it is necessary to say something more about Mr Chen.
Mr Chen was the main point of contact between LDS and CPL Distribution. According to the primary judge’s findings, he was the LDS sales representative who principally dealt with the CPL companies on LDS’ behalf. Mr Pan was the CPL companies’ staff member who primarily dealt with Mr Chen and, according to Mr Pan’s evidence, he saw Mr Chen at the CPL companies’ business premises once or twice a month.
Mr Chen was the subject of a police investigation that commenced in about April 2015. The investigation was conducted by Sergeant O’Sullivan of Victoria Police who was called to give evidence by the appellants. She investigated allegations made by LDS that Mr Chen had stolen stock and fraudulently manipulated accounting records to cover his tracks. She gave evidence that he would raise orders which he would use to obtain stock from the LDS warehouse. He would later delete the order and corresponding invoice and then supply the stock taken from the warehouse to customers of LDS, presenting them with fraudulent invoices which he prepared. According to Sergeant Megan O’Sullivan’s evidence (her evidence is recited in detail by the primary judge in PJ [218] and [224] – [225]), the false invoices created by Mr Chen on his computers (of which there were several including a laptop) were not recorded in any of LDS’ records. They bore dates and invoice numbers corresponding to invoices issued to different customers of LDS. As a result of Mr Chen’s theft of stock and false accounting, LDS suffered serious cash flow problems and went into voluntary liquidation in March 2016.
Mr Chen was arrested on 3 September 2015 and found in possession of cash in envelopes and plastic bags totalling $451,904 which he obtained through sales of computer hardware and software that he stole from LDS. Following his arrest Mr Chen was released on bail. The evidence is not clear as to when bail was granted, but Ms Li’s evidence was consistent with this having occurred prior to 4 November 2015. Mr Chen defended the charges against him for a year or more before pleading guilty to four charges of theft, four charges of false accounting and one charge of knowingly dealing with the proceeds of crime. He was sentenced by Judge Gaynor on 1 June 2017 to three years imprisonment with a non-parole period of 20 months. There was no allowance made for time already served which also suggests that Mr Chen was granted bail soon after his arrest. According to her Honour’s sentencing remarks, Mr Chen stole computer hardware and software from his employer to the value of $557,018.58. It was never suggested by Sergeant O’Sullivan, or the appellants for that matter, that either of the CPL companies was a target of the police investigation or that they may have been implicated in Mr Chen’s criminal activities.
The Chen invoices
Various invoices purportedly issued by LDS and Ever Success were obtained by the appellants by subpoena for production served on Victoria Police, produced in the period 10 April 2017 to 11 July 2017. These included nineteen invoices issued in the name of LDS and five issued in the name of Ever Success. It is apparent that there was more than one copy of some of these invoices. Some were described by her Honour as “clean” in the sense that there was no handwriting on them whereas others included some handwriting. Sergeant O’Sullivan gave evidence as to the source of the invoices.
The nineteen clean Chen invoices purporting to have been issued by LDS came from Mr Chen’s laptop computer. There were multiple copies of some of these invoices which appeared to be extracted from Mr Chen’s laptop computer, some of which were different (e.g. marked as drafts) in ways identified by the primary judge at PJ [445]. Her Honour ruled that these invoices, sourced from Mr Chen’s laptop, were not admissible as business records.
Other versions of the Chen invoices purporting to have been issued by LDS were provided by Ms Li to Victoria Police and admitted into evidence on the basis that they were (or at least may have been) represented by Ms Li to be business records of CPL Distribution. However, the primary judge concluded that those invoices were not authentic and she gave them no weight. That conclusion was based on a close examination of the Chen invoices, the existence of what are referred to in PJ as the CPL/LDS invoices (which I discuss below), evidence of Mr Desmond Lu and Mr Yuanfeng (Kevin) Xu (both of whom worked in the CPL companies’ warehouse) and, importantly, evidence given by Ms Li explaining how those invoices came into the possession of the CPL companies. I will say more about Ms Li’s evidence on that topic shortly.
The five Ever Success invoices were, according to Microsoft, attached to an email which Ms Li sent to Mr Chen on 4 November 2015 (“4 November email”). I discuss the relevant email, including the question whether these invoices were attached to it, below. Two other copies of invoices purportedly issued by Ever Success to CPL Distribution were exhibited to an affidavit of one of the solicitors for the appellants (Mr Alvin Ng) and were said to have been extracted from the documents produced by Victoria Police. One of these invoices, which bore the same invoice number as one of the invoices the appellants alleged to be attached to the 4 November email, was admitted into evidence by her Honour, but found to be a forgery at PJ [538] – [541]. As to the other invoice, her Honour observed at PJ [542] that she could not be satisfied of its provenance due to discrepancies between the invoice number identified as between the solicitor and Sergeant O’Sullivan.
The CPL/LDS invoices
With regard to the invoices referred to by the primary judge as the CPL/LDS invoices, these were invoices issued in the name of LDS and produced by the CPL companies on discovery. There were nineteen such invoices with the same invoice numbers and amounts as the Chen (LDS) invoices, but which record the purchase of hardware, not Windows 7 software. There was also a stock receive form of CPL Distribution corresponding to each such invoice. These documents were relied on by the CPL companies as evidence that, with the exception of the 9 June 2015 purchase, none of the sales evidenced by the Chen invoices were authentic, and were said to corroborate Ms Li’s and Mr Pan’s evidence that CPL Distribution only ever acquired 50 loose COAs by way of the 9 June 2015 purchase. The primary judge made an express finding at PJ [525] that the CPL/LDS invoices were genuine. In reaching this conclusion, her Honour had regard to the stock receive forms, the CPL/LDS payables list (which was emailed by Ms Li to Victoria Police), and the evidence of Mr Lu and Mr Xu. Until September 2015, Mr Xu was the person primarily responsible for receiving goods at the CPL companies’ warehouse. In that role he reported to Mr Lu, the warehouse manager. Mr Lu’s duties included receiving and dispatching goods and supervising warehouse operations.
Most of the CPL/LDS invoices are annotated with handwriting acknowledging payment. For example, invoice 300026866 dated 17 July 2014 for $2,211 is for six units of a HP product. The handwriting on the invoice states “2,211-received. Felix. 18.07.2014” and is initialled. The bottom of the invoice refers in handwriting to the name “Kevin” and a signature (or initial). Mr Xu gave evidence that the signature was his and that it recorded receipt by him of the goods specified in the invoice at the warehouse on or about the date of the invoice.
Mr Xu gave evidence to the same effect in relation to eleven other invoices with numbers and dates corresponding to Chen (LDS) invoices relied on by the appellants in support of their case. It was not put to Mr Xu in cross-examination that he had not signed the invoices or had not received the stock referred to in them. The primary judge found at PJ [431] that each of the CPL/LDS invoices had been initialled by either Mr Xu or Mr Lu at the time the goods the subject of the invoices were received.
The manila folder
Commencing in late 2015, Sergeant O’Sullivan and her colleagues requested at various times that Ms Li provide Victoria Police with documentary information relating to an investigation then underway, including invoices issued by LDS to CPL. In response to these requests, Ms Li did not provide the CPL/LDS invoices to Victoria Police. The invoices she provided to Victoria Police were copies of invoices she claimed had been provided to her by Mr Chen in a yellow manila folder on or about 14 or 15 January 2016.
The primary judge summarised Ms Li’s evidence concerning her production to Victoria Police of the Chen (LDS) invoices at PJ [450] as follows:
[450]…
(a)on about 16 December 2015, Sgt O’Sullivan and PO Smith attended CPL Notting Hill, and asked for a payables list of purchases from LDS. Police mentioned that they may need some copies of invoices in the future, but not then;
(b)on Christmas Eve, 24 December 2015, Ms Li provided the CPL/LDS Payables List to Sgt O’Sullivan;
(c)upon receiving the letter of demand on 8 January 2016, CPL investigated, identified the supplier of the impugned Windows 7 Pro licence as LDS, as part of the June 2015 purchase, and contacted Mr Chen of LDS to return remaining licences of the June 2015 purchase and get a refund;
(d)Mr Chen attended CPL Notting Hill on 13 January 2016, and CPL returned 15 licences and obtained a refund. Ms Li had a conversation with Mr Chen. She asked about LDS. Ms Li told him the police had visited and mentioned that they might need copies of delivery invoices. About 2 minutes later, Mr Chen told her he had all these invoices, and that he would prepare the copies of them for CPL, so that she would not have to spend time digging them out from CPL’s accounting records;
(e)a few days later, Mr Chen again visited CPL Notting Hill, told Ms Li he had copies of the LDS invoices for her as per above. Mr Chen handed her a bundle of loose invoices in a yellow manila folder;
(f)on 18 January 2016, Sgt O’Sullivan emailed Ms Li stating “I am hoping that you may be able to provide us with the following invoices;” and listed 15 items corresponding to items in the CPL/LDS Payables List;
(g)on about 25 January 2016, Ms Li looked through the invoices in the manila folder, located 15 requested invoices, and emailed them to Sgt O’Sullivan;
(h)on 2 March 2016, Gerard Curtin of Victoria Police sent an email to CPL requesting copies of 11 invoices. That email was overlooked. Then in early May 2016, PO Smith telephoned and asked if Ms Li could produce 11 invoices previously requested, and said if the invoices are ready, he could arrange someone to pick up. She said Ok. Again she looked at the invoices in the manila folder provided to her by Mr Chen. She found copies of the 11 invoices sought by police. On or about mid May 2016, a police officer attended CPL premises and picked up the 11 invoices police had requested; and
(i)it was only in 2018 when the Microsoft parties put on their evidence in chief that she realised she had been misled and they were false documents.
The primary judge referred to the relevant invoices as the Chen (LDS/manila) invoices in light of Ms Li’s evidence that they were handed by Mr Chen to Ms Li in a yellow manila folder. This yellow manila folder also included other LDS invoices, which are not part of the Chen (LDS/manila) invoices. As to the CPL/LDS Payables List referred to by her Honour, this was a list of purchases (comprising two documents) produced by CPL Distribution to Victoria Police listing purchases from LDS for the period 2 July 2014 to 5 October 2015. The list of purchases specifies the stock received number, the date of supply, the name of the supplier (in each case this is LDS), the invoice total and amount paid, and the invoice number. However, the product supplied is not identified. Total purchases recorded amount to around $277,000. In total the list includes entries for 130 separate transactions including a purchase on 9 June 2015 for $3,850.
Ms Li’s evidence was, in effect, that it did not occur to her that Mr Chen might provide her with copies of invoices different from those provided to the CPL companies and retained by them. The primary judge referred to cross-examination of Ms Li on this topic which included the following exchange at transcript p 528 lines 6-36:
MR COBDEN: Now, Mr Chen at this meeting or discussion on 13 January 2016 – you said to him, did you not, that the police had mentioned that they may need copies of delivery invoices from LDS; correct? --- Yes.
MR COBDEN: Yes. And Mr Chen said to you, on your account, after he had been given the cash refund for the product that CPL did not want to deal with anymore, “I have all these invoices. I will prepare copies for you. You don’t have to spend time digging them out from your accounting records.” That’s what you say he said? --- Yes.
MR COBDEN: Thank you. And you said okay? --- Yes.
MR COBDEN: So, instead of doing as the police asked you – or said they might ask you, which is to provide invoices from the records of CPL, you, instead, accepted Mr Chen’s suggestion that he give you copies of the invoices so you had them handy; that’s correct, is it? --- All the invoices were from Mr Chen, and he – to me he’s LDSs sales rep. And I’ve never thought about he could forge those invoices. And the invoices he gave me in the manila folder, to me the same as in our accounting records.
MR COBDEN: You had an obligation, did you not, if the police asked you for invoices, to do your very best to give you the precise invoices that the police wanted; correct? --- Yes. Correct.
MR COBDEN: And the only way to do that with any certainty was to go to your own records and extract those invoices and give them to police from your own original records. That’s correct, isn’t it? --- The invoices – I did check the invoice amount according to places in the email, the amount, the invoice number. To me, one invoice number, how could this possible to have two different invoices with different ‑ ‑ ‑
MR COBDEN: Yes? ‑ ‑ ‑ accountants? To me that’s impossible. And I’m accounting background. For me, for the invoices, I checked the invoice number and amount according to our payable list. Payable list is from our system, so must be right.
Ms Li’s evidence was that she did not look at the product descriptions, and that she focused on the number and amount of each invoice. Each invoice provided to Victoria Police by Ms Li is no more than one page long. Some are for computer hardware only, and others for either Windows 7 Pro or Windows 7 Home with the licence described as “For System Build Only”. However, there are others which are for Windows 7 Pro or Windows 7 Home that do not use the words “System Build Only” in the product description, but merely refer to the products as either “Microsoft Windows 7 Pro License” or “Microsoft Windows 7 Home License”. These invoices include the 9 June 2015 invoice for $3,850 for 50 units of what is referred to as “Microsoft Windows 7 Pro License”. There are other invoices that predate that invoice that use the same product description. For example, one, dated 14 May 2015, is for 100 units of Windows 7 Pro License for a total price of $7,700. Handwritten notations on that invoice purport to record the receipt of $3,000 by “Felix” on 14 May 2015 and another $4,700 the next day.
Her Honour considered that Ms Li’s evidence as to her focus on the invoice number and amount received was “plausible and consistent with her experience as having an accounting background, and her role in CPL Notting Hill”. She said that Ms Li’s evidence was not shaken in cross-examination and that she accepted Ms Li’s evidence as truthful. She went on to conclude at PJ [528] that while the Chen (LDS/manila) invoices were in Ms Li’s possession, she accepted Ms Li’s account that they were given to her by Mr Chen for the specific purpose of responding to the police request. Her Honour also observed at PJ [528] that she was not satisfied on the evidence that the Chen (LDS/manila) invoices were authentic or that they were what the appellants claimed them to be. Although her Honour admitted the Chen (LDS/manila) invoices into evidence, she did not give them any weight.
Mr Fox SC (who appeared for the appellants on appeal and as junior counsel at trial) emphasised in his submissions that the Chen invoices, or at least those provided by Ms Li to Victoria Police, were (on the appellants’ case) genuine records of transactions entered into by CPL Distribution whereby it acquired in exchange for cash the products referred to in those invoices. However, his submission left open the possibility that the Chen invoices were issued by Mr Chen in the course of his criminal activities, rather than in the ordinary course of LDS’ business.
The 4 November email
The documents produced by Victoria Police also included a copy of the email purportedly sent by Ms Li to Mr Chen on 4 November 2015, (i.e., the 4 November email) confirming that $23,485 in cash had been paid to Mr Chen in respect of Ever Success invoices. The 4 November email, as reproduced by the primary judge at PJ [309], stated:
Hi Felix,
We have paid cash to Felix of Ever success for the following invoices:
Invoice Number Amount ES 20150630A $3,575.00 ES 20150703A $6,380.00 ES 20150730C $3,575.00 ES 20150817A $6,380.00 ES 20150718A $3,575.00 Regards,
Mabel
There was no dispute that the 4 November email was sent from Ms Li’s email account on that date. However, Ms Li denied that she sent the email. Her evidence at trial was the CPL companies never had any business dealings with Ever Success.
While there is no explicit finding as to the source of Victoria Police’s copy of the 4 November email, it seems likely that it was obtained from one of Mr Chen’s computers or Mr Chen’s lawyer, Mr Chen Yang, who on 25 November 2015 made written representations (in what is referred to by the primary judge as the Yang 25 November email) on Mr Chen’s behalf for the return of a large part of the cash seized from Mr Chen’s house.
There was an issue as to whether copies of the Ever Success invoices were attached to the 4 November email. The primary judge found at PJ [465] that they were not attached to the email. Although Mr Fox SC asserted that the appellants challenged this finding, their submissions on this topic did not engage with the primary judge’s finding that the email does not contain any indication that there were any attachments to it. Sergeant O’Sullivan did not give any evidence indicating that the invoices were attached to the email or that this explains why the documents produced by Victoria Police were numbered sequentially (i.e., email followed by invoices).
The primary judge provided a detailed account of the circumstances in which Ms Li said the 4 November email came into existence. According to Ms Li, Ms Jenny Zhang (who also worked for the CPL companies) forwarded Ms Li an email received from Mr Chen (“the Chen/Zhang email”) requesting that he be provided with a letter declaring that between June 2015 and August 2015 he had been paid cash for invoices from Ever Success. The draft letter included in the email to Ms Zhang provided for the inclusion of an approximate amount of cash paid to Mr Chen which was left blank.
According to Ms Li, Mr Chen came to CPL Notting Hill’s premises in early November 2015 and asked about the email to Ms Zhang. Ms Li said he asked her to turn up the email, which she then found and read. In relation to the discussion that then occurred between Ms Li and Mr Chen, the primary judge provided the following summary of Ms Li’s evidence at PJ [314]-[317]:
[314]Mr Chen then said to Ms Li to the effect “can you help me out by putting a big number like $100,000 to $200,000 in the form attached to the email”. Ms Li says she told him that “we can only provide you with information that relates to actual sales” and that she “cannot sign any false documents”. He then asked if she could “at least acknowledge a few sales for me”, and that he had drafted an email for her. Ms Li attests that Mr Chen then produced from his pocket a USB stick drive, plugged it into a computer in the sales office, opened a draft email, and she looked at it. Ms Li recollects it was similar to the 4 November email. She recalls looking at the table, the amounts.
[315]Ms Li attests that she was unaware whether CPL Distribution or CPL Notting Hill had any transactions with a supplier called ‘Ever Success’. She said to Mr Chen she needed to check with the accounting department. She then left Mr Chen alone in the sales office, and went down the corridor to check with the accounting department. Ms Li was informed by one of the accounting staff that there had been no dealings ever with Ever Success. She returned to the sales office, told Mr Chen this, he responded “Never mind” and left. Ms Li attests that the purported Chen (Ever Success) invoices (which I refer to as the Chen (ES/print) invoices) were never received by CPL companies, she never sent the 4 November email, and at no time did CPL Notting Hill or CPL Distribution have any business dealings with Ever Success.
[316]Tested in cross‑examination, Ms Li confirmed her evidence. Ms Li said she did not suspect anything. She looked at the draft email, she noted the table and she told Mr Chen “If we paid you this, then I can confirm that. If we haven’t then I cannot.” She went and checked with the accounting department, and they had a look, and gave her the answer above. When she came back to the sales office, [Mr Chen] was already at the doorway about 2 metres away from the computer, and told her never mind. Under cross‑examination, Ms Li reiterated that she then did not pay any attention to the matter. Ms Li said that the form of expression is not what she would say. She reiterated that she did not send the 4 November email.
[317]Ms Li’s evidence is corroborated by the evidence of Mr Pan, and each of the warehouse staff Mr Lu, Mr Xu and Mr Godby, each of whom received goods into the warehouse in the relevant period, and attested that they had never received goods from Ever Success or seen an invoice from it, or heard of it until the proceeding.
(Footnotes omitted)
The primary judge accepted Ms Li’s account of her meeting with Mr Chen on 4 November 2015, that Ms Li never sent the 4 November email, and that at no time did either of the CPL companies have any business dealings with Ever Success. As for Mr Chen’s motivation around this time, her Honour found that there was an available inference that Mr Chen was at that time fabricating material for presentation to Victoria Police and the Office of Public Prosecutions (“OPP”) for the purpose of securing the release of seized funds. Her Honour said at PJ [534]:
I consider that the timing of the Yang 25 November email and the representations made by Mr Yang to the OPP and Sgt O’Sullivan on instructions, whilst I am not persuaded that they can be relied upon as true (given Sgt O’Sullivan’s evidence, and the remarks of the sentencing judge), give credence to, and are supportive of Ms Li’s evidence … that Mr Chen visited CPL on 4 November 2015, that he sent the Chen/Zhang email to CPL earlier that day, and to her account of the events of, and surrounding that visit, and her disavowal of the 4 November email. The sequence of these events and the documents give rise to an available inference that Mr Chen was engaged in fabricating material to cover up his thefts from LDS of goods and his sales of those goods, and sought to present to the OPP and police an alternative explanation for having obtained the money seized, which money he then petitioned (through his solicitor) to be returned …
There are two other points to make in relation to the Ever Success invoices which Microsoft contends were attached to the 4 November email. Two of the invoices referred to in the 4 November email have the same invoice number and date but different invoice amounts. Further, none of Ever Success invoices said to have been attached to the email bear any handwritten note or other indications to acknowledge or record the receipt of the goods or any cash payment, notwithstanding that all of the sales are described as cash sales.
The 2017 data loss
Ms Li gave an account of an incident referred to in PJ as the 2017 data loss in an affidavit made on 21 December 2017 in response to an order for discovery made against the CPL companies. The information she provided in that affidavit was supplemented by a further affidavit made on 30 January 2018. In short, Ms Li claimed that electronic records required to be produced pursuant to the discovery order were no longer accessible following a mains electricity supply outage that occurred at around 6.15pm on 21 November 2017. Her Honour considered the evidence given by Ms Li and Mr Pan in relation to this incident in PJ [407]-[420]. There was no criticism by the appellants of the accuracy of her Honour’s summary of Ms Li’s and Mr Pan’s evidence. The following account is largely drawn from those paragraphs of her Honour’s reasons.
In Ms Li’s written evidence the relevant event was first identified as a mains electricity supply outage. Mr Pan, in his evidence, described it as a power surge. Ms Li’s evidence was that the power to CPL Notting Hill’s premises went off and the premises went dark. According to Ms Li, after power was restored, the staff were unable to log onto the data server. The data server hard drive and back up drive were affected, and content was rendered inaccessible. Steps were taken to recover the data but those steps were unsuccessful.
Ms Li contacted Mr Charles Chang of Digifield Technology who was the person who had developed and helped install the Business Assistant software used by the CPL companies, and who set up the backup drive of the software system. She became aware that he was overseas, and would not return to Australia until 1 December 2017, so Ms Li called Mr Pan, CPL Notting Hill’s former technical manager for help.
Mr Pan gave evidence that he received a call from Ms Li at about 6pm. Ms Li said that “the inventory software was down after a power surge, and they… can’t connect to the database any more”. She asked him if he could “quickly go there and have a look”. He attended the CPL companies’ premises at about 8pm.
Mr Pan tried to turn on the computer, which he could, but found that he could not access the database. He advised Ms Li to contact the developer of the software, but that he (Mr Pan) could quickly build another computer, and have it ready for use the next day.
Under cross‑examination Mr Pan said the only way he could access the data created by the Business Assistant software was through the system, and because he could not log into that system, he could not access the database. Mr Pan installed a new hard drive, installed Windows, and then installed the Business Assistant software from an installation disk.
Mr Pan’s oral evidence in chief, and under cross‑examination, was that Mr Pan then imported the stock codes by downloading them from CPL’s website. The stock levels were then manually entered by staff using the results of the latest stocktake. Mr Pan and several staff spent until late the next morning manually typing in stock levels. In this way the business was ready to resume on 22 November 2017. Mr Pan said that the only electronic records that existed after the new hard drive was installed with the Business Assistant software were the product codes and the stock levels entered during the course of the night.
According to Ms Li’s evidence, on 1 December 2017, the damaged hard drive was sent to Mr Chang of Digifield Technology. Ms Li says she later sent the backup drive to Mr Chang. Correspondence from Mr Chang indicates that he received the main drive on 4 December 2017 and the backup drive on 21 December 2017. On 8 January 2018, Mr Chang informed Ms Li that he was unable to recover and restore any information from either drive. In an email sent on 23 January 2018, Mr Chang told her that he disposed of both drives after he had finished working on them. In the email, Mr Chang stated that his usual practice was to dispose of hard drives once he had finished working on them unless the customer told him to retain them.
As her Honour’s reasons record, the appellants submitted to her that the events described by Ms Li and Mr Pan were “unbelievable, self-serving, and seek to minimise and prevent verification of the quantum of infringement, and evidence the lengths the CPL parties have gone to conceal their infringement”. They further submitted that the respondents knew that their attempt to appeal the order for discovery made against them would fail and that the evidence given concerning the 2017 data loss was “… all part of the CPL parties’ web of deceit”. The order for discovery referred to by the appellants was that made by Judge Street on 4 August 2017 as amended on 7 August 2017. Among other things that order required the respondents to give verified discovery of sales invoices relating to the acquisition or supply of Windows 7 or COAs for Windows 7 in the period 1 January 2014 to the date of order. The respondents’ application for leave to appeal that order was heard and dismissed by Robertson J on 24 November 2017, just a few days after the data loss was said by Ms Li and Mr Pan to have occurred: CPL Notting Hill Pty Ltd v Microsoft Corporation [2017] FCA 1385.
Various submissions were made by the appellants to the primary judge as to why Ms Li’s and Mr Pan’s evidence concerning the 2017 data loss should not be accepted. It is not suggested that any matter relied upon by the appellants in support of that submission was not considered or dealt with by her Honour. Apart from what was said to have been a failure by the respondents to call evidence from Mr Xu, Mr Lu or Mr Liyao (Leon) Guo in relation to the incident, the appellants relied on differences in the description of the relevant event which referred to it as either a power outage or a power surge. Her Honour did not consider that Ms Li’s description of the incident as a power outage cast doubt on the veracity of her evidence. Her Honour concluded at PJ [425]:
However described, the witnesses’ observations of what happened, of the steps then taken, and as to the consequences are substantially similar. I consider that their descriptions of the event, and the evidence of the reactions, and the actions taken to minimise adverse impact and business damage, and to recover the lost data plausible, reasonable and proportionate. I have regard to the emails exchanged with Mr Chang. I consider Mr Chang’s correspondence independent and corroborative. The documentary and oral evidence gives rise to a clear inference that a chance power surge occurred at the CPL premises, which caused disruption to the database server, and data loss, and that genuine efforts were made to recover the data, which were unsuccessful. I do not ascribe to the 2017 data loss the characterisation urged by the Microsoft parties.
Mr Pan’s merger of stock codes on 9 June 2015
Mr Pan gave evidence that on the same date and around the same time he acquired from Mr Chen the 50 COAs the subject of the 9 June 2015 invoice, he merged various stock codes in the Business Assistant software used to identify Windows 7 software in the stock database. Until that date, the following eight stock codes were used for Windows 7 software:
(a)SOF‑MS‑W7PCOA with the description of Microsoft Windows 7 Professional COA Label Only (No Media);
(b)SOF‑MS‑W7P/64B with the description of Microsoft Windows 7 Professional OEM 64bit;
(c)SOF‑MS‑W7PCOA32 with the description of Microsoft Windows 7 Professional 32bits COA Label Only (No Media);
(d)SOF‑MS‑W7P/32B with the description of Microsoft Windows 7 Professional OEM 32bit;
(e)SOF‑MS‑W7H64COA with the description of Microsoft Windows 7 Home Premium 64bits COA Label Only (No Media);
(f)SOF‑MS‑W7H/64B with the description of Microsoft Windows 7 Home Premium OEM 64bit;
(g)SOF‑MS‑W7H32COA with the description of Microsoft Windows 7 Home Premium 32bits COA Label Only (No Media);
(h)SOF‑MS‑W7H/32B with the description of Microsoft Windows 7 Home Premium OEM 32bit.
It can be seen that apart from distinguishing between Windows 7 Pro and Windows 7 Home versions of OEM software, each in either 32bit or 64bit, the codes included four stock codes for Windows 7 versions designated as “COA Label Only (No Media)”. This is the stock code that appears on the invoice for the test purchase and invoices to Mr Anthony Purcell’s business, Alpine, an IT business that purchases pre-assembled computers. There were four such invoices annexed to Mr Purcell’s affidavit, which were dated 28 February 2014, 12 March 2014, 11 April 2014 and 29 June 2015. Each of the invoices to Alpine in 2014 used the stock code “Microsoft Windows 7 Professional COA Label Only (No Media)”. All of the invoices issued to Alpine pre-date the first of the Chen (LDS) invoices, except for the Alpine invoice issued on 29 June 2015. The appellants also relied on five invoices issued by CPL Notting Hill to AV2PC, each of which includes a reference to “Microsoft Windows 7 Home Premium 64bits COA Label Only (No Media)”. These invoices were dated 24 April 2014, 21 July 2014, 30 July 2014, 6 August 2014 and 27 October 2014.
In his evidence, Mr Pan described the eight stock codes as comprising two “parallel” codes (being a “COA” code and an “OEM” code) in the stock database for each of the various versions (32bit and 64bit) of Windows 7 for both Windows 7 Pro and Windows 7 Home. According to his written evidence, these two parallel codes both refer to the same product and there was no difference of any significance between the products designated by the COA Label Only (No Media) codes and the products designated by the OEM codes. He said that each of these codes was a stock code for an OEM product, namely, a system builder pack in which the COA and installation disk were packaged.
Mr Pan’s evidence was that he noticed there were differences between the versions of Windows 7 with which he was familiar and the Windows 7 COAs supplied by Mr Chen on 9 June 2015. He thought this might cause confusion when warehouse staff carried out stocktakes. What Mr Pan then did, according to his evidence, was merge the four existing COA codes into the corresponding OEM codes, and create a new code for the products supplied to him by Mr Chen.
Her Honour referred to Mr Pan’s evidence at PJ [291]-[293]:
[291]In the stock database Mr Pan merged the above stock codes for Windows 7 products, merging each of the COA codes into the OEM codes. He explained in Pan 3 at [17]-[18] that he did this to clarify the stock coding on the stock database to merge all previous stock code items (the above) to designate those products as ‘OEM’, and the Windows 7 Pro products purchased on 9 June 2015 (that is, the June 2015 purchase) as ‘COA Label Only (No Media)’.
[292]Mr Pan swore that:
All sales prior to 9 June 2015 were of legitimate fully licensed Microsoft Windows 7 labels and software. The change of the coding arises solely as a result of the re‑coding which I did in the ordinary course of the First Respondent’s business on 9 June 2015. I did this to clarify the stock coding on the stock database. I did this to distinguish the 2 types of non‑retail versions of Microsoft Windows professional software, one has been a stock item since late 2009, and new one from LDS. Although the First Respondent only purchased the Professional version of Windows 7 from LDS on 9 June 2015 I also merged the COA and OEM codes for the Home version of Microsoft Windows as at the time it appeared to me that I should make a uniform change to all Microsoft Windows versions including the “Home” versions.
[293]Mr Pan was cross examined about the potential for confusion before the stock code merger:
MR COBDEN: Your evidence is that the presence of two codes? --- Yes.
--- in the past? --- Yes.
--- had had the capacity to cause confusion in the staff? --- A little bit, but the problem is not really a problem, as the two codes refer to the same product.
Yes? --- So either if you – say, for example, you sold a product under code A, you will give the same product to the customer. If you sell – sold the item under product B, you will give the exact same product to the customer. It won’t cause any confusion, because there’s packaging difference. I decide to merge the code – I didn’t expect to merge the code until I see the packaging is slightly different. Then, in my mind, if the packaging is slightly different, it will cause confusion for the warehouse people to do stocktake, because, under one code, they are two different packagings. Then there’s another code with one of the packaging also in the code. Then when you do the stocktake, it will cause confusion. So if the two products under both codes, then all they need to do is just how many product A, how many product B; you add up together; if match the stock level on the shelf, that’s it, but if you add another variable, as it’s different packaging, then they may get confused.
In his cross-examination, Mr Pan, in answer to the suggestion that the merger had the effect of “wiping out” certain data, explained that this was not correct, and that while the stock codes had changed, the records of pre-existing transactions remained the same. Her Honour considered Mr Pan’s evidence on this topic as follows at PJ [294]-[298]:
[294]Thus, the import of Mr Pan’s evidence is that on 9 June 2015, whilst Mr Chen was delivering the June 2015 purchase to CPL Distribution for receiving, Mr Pan reduced the pre-existing 4 codes for Windows 7 Professional OEM products to the following two codes:
(a)SOF‑MS‑W7P/64B and description Microsoft Windows 7 Professional OEM 64bit;
(b)SOF‑MS‑W7P/32B and description Microsoft Windows 7 Professional OEM 32bit;
and that Mr Pan then added the stock code to designate the June 2015 purchase (the product bought from Mr Chen on 9 June 2015) as follows:
(c)SOF‑MS‑W7COA and description Microsoft Windows 7 Professional COA Label Only (No Media).
[295]Mr Pan corrected Microsoft senior counsel’s proposition that the previous stock records were “wiped out”, stating that as the system only keeps the most recent data, after the merging of the codes, the 5 new codes appeared in the system (the above 3 codes for Windows 7 Pro, and corresponding 2 codes for Windows 7 Home), not the old 8 stock codes. It follows from Mr Pan’s evidence that every document printed from the system thereafter will show the new codes, even where the transaction took place before 9 June 2015. It also follows that the records of pre‑existing transactions remain – they are not “wiped out”, but the stock code and product description accorded those transactions thereafter was one of the two codes and descriptions set out in the previous paragraph: (a) or (b). Accordingly, the sales ledger for Windows 7 Pro sales to 7 September 2016, printed in compliance with the first judge’s order of 7 September 2016, and compiled from CPL Notting Hill’s computer sales records, shows the above 3 codes, the code SOF‑MS‑W7COA corresponding to sales of items from the June 2015 purchase. There was no evidence by any witness that any other details of the pre‑existing transactions were affected by the merger of the codes, and there was no cross‑examination on the subject. It follows that the Microsoft parties proposition that upon the stock code merger pre‑existing transactions were wiped out is rejected.
[296]Mr Pan’s evidence is that it did not take long for him to do the merger of stock codes in the stock system. He did so while Mr Chen walked around to the warehouse. The view evidences that this journey involved walking out through the retail shop car park to the street frontage, onto and along the street, around the central building, and down from the street to the warehouse receiving area. There is no basis to find that the stock code merger was a time consuming task, or attended by any difficulty. Assuming, as I consider reasonable given the evidence of Mr Chen’s physique, that he did not run, I consider that there was more than sufficient time whilst Mr Chen was walking around to the warehouse for Mr Pan to undertake the merger of the pre‑existing codes, and allocation of the “COA Label only (No Media)” code to the June 2015 purchase, as Mr Pan states.
[297]It is appropriate to state at this point in the chronology of events … that I accept Mr Pan’s evidence of the stock code merger, and its timing, and outcome. I found Mr Pan a highly credible and careful witness, concerned to the best of his recollection to be accurate and to give a truthful account. I am not persuaded that the rationale for the stock code merger Mr Pan gives is implausible, or unreasonable, nor that it must have taken place at some later time, and/or was done to hide transactions involving non-OEM supplies of COA labels for Windows 7.
[298]The sales ledger produced by Mr Pan on 6 November 2016 disclosed 30 sales of new computers built using product from the June 2015 purchase … This is consistent with the stock merger having occurred at the time of the June 2015 purchase, not later after notice of the letter of demand, or the commencement of the proceeding, or some other time.
Although Mr Pan denied that the merger of the stock codes “wiped out” data, it is clear that the effect of his actions resulted in a situation in which Windows 7 products identified in the Business Assistant system before 9 June 2015 as “COA Label Only (No Media)” were given a new name from which those words were deleted and the acronym “OEM” included in their place. The consequence of this change was that sales of stock previously recorded in the accounting system as sales of Windows 7 “COA Label Only (No Media)” were instead recorded as sales of Windows 7 “OEM” product. It follows that, as a result of Mr Pan’s action, it was no longer possible after 9 June 2015 (assuming, as found by the primary judge, that is the date on which the recoding occurred) to determine what sales had been made using the code “COA Label Only (No Media)”. The only product that could be identified by reference to the “COA Label Only (No Media)” code was the stock which was supplied by Mr Chen on 9 June 2015. It may be noted that if, as the appellants contended at trial, the recoding occurred not in June 2015, but some time the following year after the letter of demand was received, the result would be exactly the same; it would not be possible to identify any product sold prior to the date the change was made by reference to the old codes.
The primary judge found at PJ [578] that, if the appellants’ contention that the stock code merger was done “some time in 2016 for concealment” was correct, an “elaborate process of merger of codes, and post-merger item by item identification of the 30 [admitted] transactions” would need to be undertaken, or “alternatively, some painstaking transaction by transaction alteration of codes”. Her Honour accepted Mr Pan’s evidence that he merged the stock codes on 9 June 2015. She found at PJ [581] “that Mr Pan made the stock code merger and code changes as and when he states in his evidence – on 9 June 2015, and for the reasons he says, and that Mr Xu received the June 2015 purchase stock into the system after Mr Pan had made the stock code merger and code changes”.
THE GROUNDS OF APPEAL
The appellants’ Further Amended Notice of Appeal (“Notice of Appeal”) includes 15 grounds which include lengthy particulars. Each of the grounds 1-5 were relied on in support of a contention that the appellants were denied a fair trial. Grounds 1-5 can be summarised as follows:
#Ground 1 – The trial judge failed to use, or palpably misused, the advantage as trial judge to properly consider and assess the credibility, reliability, plausibility and improbability of the affidavit evidence and oral testimony of the respondents’ lay witnesses by reason of her Honour’s delay and the failure to refer to, or give any weight to, significant parts of the testimony of the respondents’ lay witnesses at the trial.
#Ground 2 – The trial judge erred by failing to refer to significant parts of the essential facts and evidence in the case, and/or failing to consider significant parts of the essential facts and evidence in the case.
#Ground 3 – The trial judge erred in finding that the appellants were bound to their pleaded case, which did not include allegations that the respondents had engaged in alteration, destruction and concealment of business records (“the unpleaded fraud case”), with the consequence that the proceeding should be determined on that basis.
#Ground 4 – The trial judge erred by characterising the unpleaded fraud case as a case which the appellants positively advanced at trial, with the consequence that they were required to plead it and bore the onus of establishing it.
#Ground 5 – Although the trial judge found that the appellants were bound by their pleaded case, her Honour nevertheless considered the counterfactual that the appellants’ allegations of fraud fell within the ambit of the case pleaded, with the consequence that such consideration of the unpleaded case was conducted in light of, and was infected by, her Honour’s findings as to the scope of the appellants’ case. Consequently, the appellants say, her Honour could never have reached a view on the unpleaded case that was favourable to the them.
Ground 6 asserted that the primary judge erred in rejecting the appellants’ “supply case” having regard to grounds 2-5 (described above) and grounds 7-8. Grounds 7 and 8 asserted that the primary judge erred in rulings on evidence including, in particular, in finding at PJ [465] that the 4 November email did not include as attachments various Ever Success invoices.
In their Notice of Appeal, the appellants also sought in grounds 9-11, 14, 15, 18 and 19, the reversal by this Court of findings made by the primary judge and substitution of different findings in their favour. Those grounds were only faintly pressed (if not implicitly abandoned) by the appellants, who made it clear in the course of the appeal that their primary position was there should be a new trial on all issues.
It is necessary to say something about the way in which grounds 1-5 were developed in the appellants’ submissions. Early on in the appeal Mr Fox SC indicated that grounds 1 and 2 were not relied on as independent grounds, and that delay in delivery of judgment was relied on in support of what was said to be the appellants’ principal grounds 3, 4 and 5. Subsequently, the appellants withdrew from this position and indicated that they did rely on grounds 1 and 2 in support of a submission that the primary judge failed to take into account what was said to be the “glaring improbability” of the respondents’ case. Accordingly, the appellants say that the primary judge should not have accepted the respondents’ witnesses’ evidence because, when considering it in light of the evidence as a whole, it was glaringly improbable and the judgment could not be allowed to stand. The delay in delivery of the judgment was relied on in support of that contention, as providing an explanation for her Honour’s acceptance of a story that the appellants contended was simply unbelievable when considered in light of all of the evidence. However, so far as grounds 1 and 2 are otherwise concerned, there was no submission developed by the appellants in support of the contention that the primary judge failed to refer to what was said to be significant parts of the testimony of the respondents’ witnesses.
Mr Fox SC submitted that the appellants’ principal point was that the effect of her Honour’s ruling on the “unpleaded fraud case” was that the appellants were deprived of the opportunity to cross-examine the respondents’ witnesses on matters relevant to the supply case and, in particular, the respondents’ contention that CPL Distribution only ever acquired 50 loose COAs from Mr Chen. As the appellants’ submissions were developed in writing and orally, it became clear that this challenge to her Honour’s judgment was based on what was said to have been rulings on evidence at the trial disallowing questions asked of the respondents’ witnesses and preventing the appellants’ counsel from exploring relevant matters in their cross-examination of the respondents’ witnesses. That aspect of the appeal requires close consideration of rulings said to have been made by the primary judge during cross-examination of the respondents’ witnesses.
Ultimately, the focus of the appellants’ submissions on this topic was on the cross-examination of Ms Li, which the appellants say was wrongly curtailed by the primary judge and resulted in them being denied a fair trial. The appellants assert in ground 5(e) of the Notice of Appeal that they were denied a fair trial with respect to the unpleaded case. However, there is no ground of appeal that explicitly refers to the disallowance of any question or line of questions at the trial. Grounds 5(e) and 4 (specifically particular (vi) to that ground) were said by Mr Fox SC to be as close as the Notice of Appeal comes to raising the point. That said, the point was developed in the appellants’ submissions and argued before us, and I will proceed on the basis that it arises under those grounds.
PLEADING ISSUES
There are two pleading issues that arose at the trial relevant to the disposition of the appeal. The first concerned the absence of any express allegation against CPL Notting Hill and Ms Li connecting them to the supply case. The second concerned the unpleaded fraud case, which the primary judge found the appellants failed to plead or particularise whether generally or specifically, in relation to their claim for additional damages which relied on (inter alia) the alleged destruction, concealment and fabrication of evidence by the respondents. I will deal with each of these issues in turn.
The pleading of the supply case
The appellants’ pleading relevantly alleged the supply by CPL Distribution of at least 1,467 “loose” COAs for Microsoft programs. Paragraph 28A of the Further Amended Statement of Claim (“SOC”) alleged that CPL Distribution supplied CPL Notting Hill with loose COAs on at least 1,467 occasions between 1 January 2008 and 11 November 2015. The appellants did not plead that the supply of at least 1,467 loose COAs by CPL Distribution was itself a primary infringement of copyright. Paragraph 28E of the SOC pleads that, by doing the acts and things referred to in (inter alia) para 28A, CPL Distribution authorised the doing of acts comprised in the copyright in the Microsoft Programs without Microsoft’s licence.
The primary judge observed at PJ [58] that “there is no express pleaded allegation of primary infringement of copyright by CPL Notting Hill in respect of the alleged supply of the 1,467 loose COAs as pleaded”. Her Honour further observed at PJ [59] that “[t]here cannot be an act of authorisation done without an act of primary infringement, and a secondary infringement is completed only when the primary infringement has taken place: Roadshow Films Pty Ltd v iiNet Limited [2012] HCA 16; (2012) 248 CLR 42, at [94]; Apotex Pty Ltd v Les Laboratoires Servier (No 2) [2012] FCA 748; (2012) 293 ALR 272, at [27] and [30].” Both observations are correct.
The respondents submitted that the appeal is “inutile”, because the primary judge found at PJ [58] that the only primary infringements pleaded were the 39 instances of reproduction of Windows 7 particularised at para 26 of the SOC in support of the retail case, and that CPL Distribution could be not held liable for authorisation based on the supply case. In support of this, the respondents point to her Honour’s conclusion at PJ [59], set out above. The same conclusion was said to follow with regard to the appellants’ case against Mr Wang. In short, the respondents submitted that, given the state of pleadings, Microsoft could not succeed against any of the respondents based on the supply by CPL Distribution of 1,467 loose COAs to CPL Notting Hill.
In considering the respondents’ submissions on this point it is essential to have regard to para 28D of the SOC which alleged:
The provision of Loose COAs and a Product Key by the Third Respondent to the First Respondent necessarily resulted in the substantial reproduction of the Microsoft Program associated with the Loose COAs and Product Key by the First Respondent.
That allegation only makes sense if the Microsoft program referred to was pre-installed on a computer system built by CPL Notting Hill. The clear implication of the pleading is that the loose COAs supplied by CPL Distribution to CPL Notting Hill were used by CPL Notting Hill to install copies of the relevant programs on such computer systems, thereby rendering CPL Notting Hill liable for reproduction and CPL Distribution liable for authorisation. Moreover, as the appellants submitted in reply, the primary judge recognised at PJ [12] that the appellants’ case was based on “inferential reasoning”, and that the appellants were asking the court to draw an inference that for each loose COA bought by CPL Distribution, a copy of Windows 7 was installed by CPL Notting Hill. The appellants also say that the inclusion of the additional 1,467 instances of primary infringement in their claim, was apparent from the evidence they led in the proceeding. That was a case, they say, the respondents elected to meet through leading their own responsive evidence.
The role of pleadings was considered by Issacs and Rich JJ in Gould v Mount Oxide Mines Ltd (In Liq) (1916) 22 CLR 490. Their Honours said in the well-known passage at 517:
Undoubtedly, as a general rule of fair play, and one resting on the fundamental principle that no man ought to be put to loss without having a proper opportunity of meeting the case against him, pleadings should state with sufficient clearness the case of the party whose averments they are. That is their function. Their function is discharged when the case is presented with reasonable clearness. Any want of clearness can be cured by amendment or particulars. But pleadings are only a means to an end, and if the parties in fighting their legal battles choose to restrict them, or to enlarge them, or to disregard them and meet each other on issues fairly fought out, it is impossible for either of them to hark back to the pleadings and treat them as governing the area of contest.
The clear implication of paras 28A to 28E of the SOC was that the appellants alleged the supply by CPL Distribution to CPL Notting Hill of loose COAs necessarily resulted in infringement of Microsoft’s copyright, by reason of CPL Notting Hill having reproduced the relevant programs. That case was pleaded with reasonable and sufficient clarity. The submissions made by the respondents on this issue are therefore rejected.
The pleading of the additional damages case
The appellants’ sought against the respondents awards of additional damages in substantial amounts under s 115(4) of the Copyright Act. Section 115(4) provides:
(4) Where, in an action under this section:
(a) an infringement of copyright is established; and
(b) the court is satisfied that it is proper to do so, having regard to:
(i)the flagrancy of the infringement; and
(ia)the need to deter similar infringements of copyright; and
(ib)the conduct of the defendant after the act constituting the infringement or, if relevant, after the defendant was informed that the defendant had allegedly infringed the plaintiff’s copyright; and
(ii)whether the infringement involved the conversion of a work or other subject‑matter from hardcopy or analog form into a digital or other electronic machine‑readable form; and
(iii)any benefit shown to have accrued to the defendant by reason of the infringement; and
(iv)all other relevant matters;
the court may, in assessing damages for the infringement, award such additional damages as it considers appropriate in the circumstances.
In Truong Giang Corporation v Tung Mau Quach(aka John Quach) (2015) 114 IPR 498, Wigney J helpfully summarised the principles relevant to an award of additional damages. Although his Honour was concerned with the application of s 126 of the Trade Marks Act 1995 (Cth), many of the cases referred to by his Honour are concerned with awards of additional damages under s 115(4) of the Copyright Act, the terms of which are not materially different from the provision with which his Honour was concerned. His Honour said at [138]:
… post-infringement conduct within s 126(2)(c) of the TM Act is unlikely to include the respondent’s conduct of the infringement proceedings. Such conduct is more relevant to the appropriate order as to costs: [Futuretronics.com.au Pty Ltd v Graphix Labels Pty Ltd (No 2) (2008) 76 IPR 763] at [17]; Flags 2000 Pty Ltd v Smith (2003) 59 IPR 191; [2003] FCA 1067 at [31]–[34]. That said, it is difficult to see why some aspects of the conduct, by a respondent, in defence of infringement proceedings, might not be relevant to the award of additional damages: compare [Facton Ltd v Rifai Fashions Pty Ltd (2012) 199 FCR 569] at [44], [69]. Conduct of the proceedings which involved high-handedness, dishonesty, recalcitrance, or flagrant disregard of, or deficiencies in compliance with, discovery orders or notices to produce, might, at the very least, suggest a greater need for an award of additional damages that would deter future infringing conduct by the respondent.
I respectfully agree with his Honour’s statement, which has been cited with approval in a number of other cases including Geneva Laboratories Ltd v Prestige Premium Deals Pty Ltd (No 5) (2017) 122 IPR 279 at [78]-[83] per Bromwich J, Universal Music Publishing Pty Ltd v Palmer (No 2) (2021) 158 IPR 421 at [509]-[510] per Katzmann J. There may be cases in which a respondent’s conduct during the course of an infringement proceeding involving the wilful and deliberate fabrication or destruction of evidence, warrants an award of additional damages. Such conduct may properly be taken into account pursuant to s 115(4)(ib).
The appellants alleged at para 32-33 of the SOC:
[32]Further, the said infringements referred to above were committed flagrantly and deliberately by the First to Fourth Respondents, well knowing the First Applicant's rights, with the intention of appropriating for their own use and benefit the property of the First Applicant and so appropriating the property of the First Applicant.
Particulars
(a)The Microsoft Programs were at all material times widely known and extensively published in Australia.
(b)The subsistence of copyright in the Microsoft Programs was readily able to be ascertained from the packaging of the Microsoft Programs.
(c)The First to Fourth Respondents well know or ought to well know that the unlicensed reproductions of Microsoft Programs was an infringement of the First Applicant's rights.
(d)In the alternative, the conduct of the First to Fourth Respondents was carried out in reckless disregard of the subsistence of copyright in the Microsoft Programs.
(e)From their experience in the computer retail industry, the First to Fourth Respondents well knew or ought to have well known that the First Applicant does not permit the sale of Microsoft Programs from the Microsoft Refurbisher Program unless the Respondents are a member of that program and the Microsoft Program is installed on a refurbished computer system;
(f)The First to Fourth Respondents knew or ought to have known that the COA referred to in paragraph 23 was distributed pursuant to the Refurbisher Program;
(g)The First to Fourth Respondents knew or ought to have known that First Applicant does not distribute Loose COAs;
(g)[sic]The Applicants reserve the right to provide further particulars following discovery and any interlocutory steps.
[33]By the acts and conduct referred to in paragraph 32 above, the First Applicant is entitled to additional damages from the Respondents.
Particulars
(a) Additional damages pursuant to section 115(4) of the [Copyright] Act.
(b) Refer to the particulars in paragraph 32 above.
At PJ [85] the primary judge noted there was no other pleading or particulars in support of the additional damages claim including any indicating reliance on matters that post-date any of the infringing acts. In particular, there is no pleading that any of the respondents created false invoices or deliberately concealed or destroyed evidence.
The unpleaded fraud case
The primary judge dealt with what she characterised as unpleaded allegations of fraud and dishonesty made against the respondents at PJ [99]-[119]. Her Honour said at PJ [113] that she was persuaded that the appellants’ case was not limited to an attack on the credit of Ms Li, and other witnesses called by the respondents, or a submission that their evidence should not be believed. Her Honour said at PJ [113] “[the appellants] prosecute a positive case both of alteration, destruction, and concealment of CPL’s business records – including the sales ledger, of the Business Assistant inventory system and database, purchase and sales records – and also of fabrication of CPL’s business records – the CPL/LDS invoices – and fabrication of the witnesses’ accounts”. Her Honour said at PJ [112]:
I accept that concealment, dishonesty, fabrication and destruction, or fraud are not necessary elements of a cause of action for copyright infringement, or for trade mark infringement. However, fraud need not be a separate cause of action. The Microsoft parties contend those very matters (excepting the use of the word ‘fraud’) as relevant to my determination of their claims on liability, and as foundational to their claims for additional damages. There was no hint of these matters or any reliance on them in their Claim.
Her Honour also noted that the appellants in their opening submissions at the trial rejected any suggestion that they were alleging that the respondents had engaged in fraud. She referred to statements made by Mr Cobden SC (who appeared for the appellants at trial) disavowing any fraud case. He submitted that fraud was not an element of a claim of copyright infringement, and the appellants’ allegations of destruction, fabrication and concealment of evidence went merely to the witnesses’ credit.
The Microsoft Parties submitted, and I accept, that in the first of those passages the primary judge expressed a clear ruling that the Microsoft Parties were precluded from challenging the CPL Parties’ defensive case (as they plainly intended to do) on the basis that it involved the fabrication of documents, or other unpleaded fraudulent conduct relating to documents such as concealment or destruction of documents, or that witnesses called by the CPL Parties had colluded in engaging in such conduct. The primary judge permitted the Microsoft Parties only to put whether a witness was lying, and drew the line clearly at that point. That reasoning is reflected also in the second of those passages. While some counsel may have chosen to persist with their proposed line of cross-examination and thereby elicit a series of rulings to the same effect, there is no obligation on a barrister to engage in stubborn and indignant repetition. On the contrary, the obligation imposed by s 37N(2) of the Federal Court of Australia Act 1976 (Cth) is to the opposite effect, in that a party’s lawyer must assist the party to comply with the duty to conduct the proceeding consistently with the overarching purpose of facilitating the just resolution of disputes according to law, and as quickly, inexpensively and efficiently as possible. The Microsoft Parties drew attention to the primary judge acknowledging at [112] that concealment, dishonesty, fabrication and destruction, or fraud were not necessary elements of a cause of action for copyright infringement or for trade mark infringement, but also saying that the parties were to be held to the cases that they had pleaded, which did not include any allegation of dishonest or fraudulent conduct on the part of the CPL Parties: at [99]-[119].
The Microsoft Parties submitted, and I accept, that in making that ruling and in reaching that conclusion the primary judge incorrectly conflated two distinct legal principles: first, the principle that a party must clearly put to a witness the basis upon which it will be submitted that his or her evidence should not be believed; and second, the principle that a cause of action based on fraud must be pleaded clearly, distinctly and with sufficient particulars of the alleged fraud. It is well established that if a matter is “pleadable” then ordinarily it may not be raised unless pleaded, using “pleadable” in the sense that it is an element in the cause of action relied upon in the claim, or an element in a defence. However, if the allegation of fraud is not pleadable, then it is necessary only to make clear that an allegation of that nature is to be made and is a real issue at the trial: Ghazal v Government Insurance Office of New South Wales (1992) 29 NSWLR 336 at 347-348 (Mahoney JA, with whom Clarke JA agreed); 3WJ Pty Ltd v Kanj [2008] NSWCA 321 at [12] (Ipp JA, with whom Allsop P and Hodgson JA agreed); Royds v Norcross Press Pty Ltd [2000] 1 Qd R 681 at [39]-[41] (Shepherdson J, with whom McMurdo P and McPherson JA agreed). In Ghazal, the allegation was that the plaintiff had brought a false or fraudulent case, in that he had sought compensation on the basis that he had been a passenger in a car which was in a collision, whereas it was asserted at the trial that he had not been present in the car at all, that being an allegation which was not pleadable but something which needed to be raised as a real issue at the trial. In my view, the present case falls into the same category, in that allegations of fabrication, concealment or destruction of documents, or collusion between witnesses in engaging in those acts, were not elements in any cause of action on which the Microsoft Parties brought the proceedings, but were real issues in the sense that, if established, then they would have undermined the defence raised by the CPL Parties to the effect that the Chen Invoices were false and the invoices upon which the CPL Parties relied were true. During oral argument before us, senior counsel for the CPL Parties conceded that the primary judge’s ruling in relation to the Unpleaded Fraud Case was not consistent with authority (T107.38-47). No complaint was made by the CPL Parties that the Microsoft Parties had not raised clearly as a real issue their allegations as to the falsification of documentary evidence in compliance with the rule in Browne v Dunn, nor would such a submission have been tenable in view of the detailed written opening submissions by the Microsoft Parties.
The effect of the primary judge’s ruling was to prevent the Microsoft Parties from being able to advance the full force of their contentions that CPL’s witnesses should not be believed and that findings should be made about concealment, destruction and fabrication of evidence. The Microsoft Parties were confined to the typically ineffective line of merely putting to the opposing witnesses that they were lying, without having a fair and effective opportunity to test those witnesses’ accounts in cross-examination by confronting them with the reasons why they should not be believed, in an attempt to extract admissions or, failing that, to obtain answers that may have appeared implausible. Where the rules of natural justice (or procedural fairness) are applicable, a party is entitled to a fair opportunity to correct or contradict any relevant material prejudicial to it: Kioa v West (1985) 159 CLR 550 at 569 (Gibbs CJ). Although the court has a discretion to control cross-examination so as to ensure relevance and to guard against repetition and prolixity, the right to cross-examine means the right to cross-examine effectively, and if a court or tribunal fetters cross-examination in such a way that a witness’s evidence cannot properly be tested, then procedural fairness has been denied: Australian Postal Commission v Hayes (1989) 87 ALR 283 at 289-90 (Wilcox J); Australian Postal Commission v Bessey [2001] FCA 266 at [16] (Gyles J). As I have indicated above, the primary judge took the view at [483] that the Microsoft Parties could not succeed in their Supply Case unless the Court found that CPL staff conspired to create false documents, but denied the Microsoft Parties a fair opportunity of making good that allegation. The findings which the primary judge made about the credibility of witnesses and the authenticity of documents were reached without the primary judge having had the benefit of fair and effective cross-examination on those matters. As I have indicated above in my summary of the primary judge’s reasoning, the dispositive conclusions expressed by the primary judge, such as those at [545], [556] and [561], on central credit-based findings did not contain any acknowledgement of the limitations imposed by the primary judge on the cross-examination conducted by the Microsoft Parties. In my view, the primary judge’s ruling was a clear denial of procedural fairness to the Microsoft Parties in relation to the central factual issues in the case.
The question then arises as to whether that procedural unfairness is sufficient to justify the setting aside of the primary judge’s orders and the making of an order for a new trial. All that the Microsoft Parties need to show is that the denial of procedural fairness deprived them of the possibility of a successful outcome, rather than the probability of a different result, and in order to negate that possibility it would be necessary for this Court to find that a properly conducted trial could not possibly have produced a different result: Stead v State Government Insurance Commission (1986) 161 CLR 141 at 147 (Mason CJ, Wilson, Brennan, Deane and Dawson JJ); Nobarani v Mariconte [2018] HCA 36; (2018) 265 CLR 236 at [38]-[39] (Kiefel CJ, Gageler, Nettle, Gordon, Edelman JJ). That is to be treated as a question of “realistic possibility”: Nathanson v Minister for Home Affairs [2022] HCA 26; (2022) 403 ALR 398 at [32]-[33] (Kiefel CJ, Keane and Gleeson JJ); [45] and [59] (Gageler J). While Nathanson concerned the judicial review of administrative decision-making, there does not appear from the majority’s reasoning that there is a difference in the test of materiality applicable to procedural fairness in that context and procedural fairness in the context of conventional litigation. Indeed, the plurality in Nathanson referred to Stead (being a case involving conventional litigation) as an analogous case which involved the question of whether there was a realistic possibility of a different outcome: [34]. Similarly, Gageler J referred to Stead at [47] in relation to the threshold of materiality not being onerous, and said at [50] that the approach to the assessment of the reasonableness of a conjecture that a decision could have been different if a fair opportunity to be heard had been afforded, as exemplified by the holding in Stead, has been informed by the cumulation of curial experience.
As Kiefel CJ, Keane and Gleeson JJ said at [33], with the agreement of Gageler J at [59], there will generally be a realistic possibility that a decision-making process could have resulted in a different outcome if a party was denied an opportunity to present evidence on an issue that required consideration. In Nathanson, the applicant was not given an opportunity to give or adduce evidence at all on the relevant matter, whereas in the present case the Microsoft Parties were denied the opportunity to cross-examine fairly and effectively on the relevant matter. I do not regard that as a point of distinction. Cross-examination is one of a number of different ways of presenting or adducing evidence, and in the setting of conventional litigation, denial of an opportunity to cross-examine fairly and effectively on a central issue in the proceedings is a denial of an opportunity to present or adduce evidence on that matter. The cross-examination which was prevented in the present case concerned a central issue in the proceedings and, in my view, could realistically have led to a different result.
The CPL Parties relied on the primary judge’s finding at [600] and the evidence of CPL’s witnesses to the effect that, if the CPL companies had dealt in about 1,467 loose COAs in the relevant period then those witnesses would have noticed, but I do not regard that finding or evidence as determinative in the light of the primary judge refusing to permit the Microsoft Parties to put their Unpleaded Fraud Cause in cross-examination. When Mr Cobden SC said in final address that he did not need to challenge that evidence (T746.12-20), he appears to have been merely making a virtue of necessity given the primary judge’s ruling.
The majority in Nathanson held that where a tribunal errs by denying a party a reasonable opportunity to present their case, “reasonable conjecture” does not require demonstration of how that party might have taken advantage of that lost opportunity, and does not require the articulation of a specific course of action which could realistically have changed the result: [2], [33], [34] and [39] (Kiefel CJ, Keane and Gleeson JJ); [48] and [59] (Gageler J). Accordingly, I reject the submission made by the CPL Parties that “it behoves a party in the position of the appellant to properly articulate what it is they were precluded from asking”: T118.24-26.
Accordingly, in my view, Grounds 3, 4 and 5 are made out. The orders of the primary judge should be set aside and there should be a new trial. I consider further below the appropriate nature of that new trial.
Grounds 7 and 8: Rulings on Evidence
Ground 7 contends that the primary judge erred by finding that no weight should be given to the Chen (LDS/manila) invoices. Ground 8 contends that the primary judge erred with respect to other rulings on evidence led by the Microsoft Parties, namely: (a) the finding that the 4 November 2015 email did not include as attachments the invoices to which it referred; (b) the finding that invoice ES 2015730C was a forgery; (c) refusing to admit invoice ES 20150817A into evidence; and (d) the findings with respect to the Alpine and AV2PC invoices.
The primary judge’s reasoning in relation to the lack of weight to be given to the Chen (LDS/manila) invoices was heavily dependent on the primary judge’s overall finding that the Chen Invoices were not true and correct, which in turn was inevitably infected by the denial of procedural fairness which is the subject of Grounds 3, 4 and 5. It follows that the primary judge’s conclusions on this matter are also the product of the same denial of procedural fairness in wrongly precluding the Microsoft Parties from pursuing in cross-examination the Unpleaded Fraud Cause. The same difficulty applies to the other rulings on evidence which are the subject of Ground 8.
Grounds 1 and 2: The Effect of Delay in the Delivery of Judgment
Grounds 1 and 2 focus on the delay of almost three years from the trial in 2019 to the delivery of reasons for judgment on 30 September 2022. The evidence had been given from 19 to 23 August 2019, and final oral addresses had been made on 16 December 2019. The Microsoft Parties contend that the primary judge’s ability to consider properly Microsoft’s case, especially as to the inherent improbabilities in CPL’s defensive case, would have been affected by the significant delay, together with the real risk that the primary judge’s advantage of having seen and heard the witnesses was compromised. While the Microsoft Parties accept that the primary judge attempted to deal with the consequences of delay by focusing on written materials, and by reciting evidence and submissions systematically, the Microsoft Parties submit that that approach, coupled with the delay, affected the primary judge’s ability to consider the evidence as a whole, and the broader submission Microsoft was advancing that the CPL Parties’ version of events was inherently improbable and should not be believed. The Microsoft Parties submitted that, considered as a whole, the evidence put forward by the CPL Parties in support of the sets of invoices upon which they relied was too reliant on cumulative coincidence and implausibility to be accepted, pointing to such matters as the merger of the stock codes occurring purportedly to resolve a very longstanding issue on the very day of the June 2015 Purchase, the provision by Ms Li of invoices to Victoria Police which she had taken from the Chen Invoices purporting that they were true, and the claimed power outage or power surge on 21 November 2017 (only three days before the hearing of the leave to appeal application from the orders requiring discovery of the lost records) which had purportedly damaged the only hard drives on which the relevant electronic records were located.
The relevant principles regarding the significance of delay in giving judgment are as follows:
(a)mere delay is not enough to uphold an appeal, and error must be shown: Monie v Commonwealth [2005] NSWCA 25; (2005) 63 NSWLR 729 at [44] (Hunt AJA, with whom Bryson JA agreed);
(b)a delay of 12 months is generally “substantial” and “excessive”: Beaman v Bond [2017] FCAFC 142; (2017) 254 FCR 480 at [65(b)] (McKerracher J, with whom Gilmour and Charlesworth JJ agreed); and a delay of almost 17 months was described as “grossly inordinate” in Expectation Pty Ltd v PRD Realty Pty Ltd [2004] FCAFC 189; (2004) 140 FCR 17 at [75] (Carr, Emmett and Gyles JJ);
(c)an operative delay alters the normal approach an appellate court takes: Expectation Pty Ltd v PRD Realty Pty Ltd at [75]-[76];
(d)the appellate court should be more disposed to find error where there has been “operative delay”, and such delay permits an appellate court more readily to infer that the judicial function has miscarried: Beaman v Bond at [65(c)];
(e)whatever the cause of any particular delay, its consequences must be examined with an eye to the fair administration of justice: Tattsbet Ltd v Morrow [2015] FCAFC 62; (2015) 233 FCR 46 at [2] (Allsop CJ, with whom White J agreed);
(f)significant delay creates the need to look with special care at any finding of fact challenged on appeal, and the mere fact of a long delay itself weakens a trial judge’s advantage: Expectation Pty Ltd v PRD Realty Pty Ltd at [69]-[70]; Beaman v Bond at [65(e)];
(g)where there has been a delay, the trial judge is obliged to give specific reasons for accepting or rejecting the evidence of those witnesses whose evidence plays an important part in the factual finding made, and where there has been significant delay, there can be no assumptions that statements of a general assertive character made by the trial judge are based on a sufficient consideration of the evidence, or that evidence relevant to a particular finding not considered in the judgment has not been overlooked: Monie v Commonwealth at [43](5) and (6); Beaman v Bond at [65(e)];
(h)the problems are not limited to fading memory, but include pressure which a judge may feel to complete a long-delayed judgment, and a losing litigant’s perception that the judge may not have grappled with the issues raised by them: Expectation Pty Ltd v PRD Realty Pty Ltd at [74]; Monie v Commonwealth at [43](7), (8) and (9).
In the present case, the delay of almost three years between the end of the trial and the delivery of reasons was certainly an operative delay. While the primary judge’s reasons were detailed and systematic, I accept the criticism made by the Microsoft Parties that the primary judge did not make an overall assessment of the reasonableness and plausibility of the CPL defensive narrative of events as a whole and failed to consider the question whether, taken as a whole, that version of events strained credulity to the point where the balance of probabilities may have been against it. An appellate court may intervene where the trial judge has failed to consider and reflect on the entirety of the evidence viewed as a whole: J.D. Heydon, Cross on Evidence (14th ed.) at [11150], citing Fox v Percy [2003] HCA 22; (2003) 214 CLR 118 at [23] (Gleeson CJ, Gummow and Kirby JJ) and Guirguis Pty Ltd v Michel’s Patisserie System Pty Ltd [2017] QCA 83; [2018] 1 Qd R 132 at [49] (Fraser JA, with whom McMurdo JA and Boddice J agreed). In the circumstances of this case, that principle is to be applied in conjunction with the principle that the inherent improbability of an event having occurred will, as a matter of common sense, be a relevant factor when deciding whether it did in fact occur, and accordingly proof of an improbable event may require more cogent evidence than might otherwise be required: Jones v Birmingham City Council [2023] UKSC 27; [2023] 3 WLR 343 at [51] and [60] (Lord Lloyd-Jones, with whom Lord Reid, Lord Hodge, Lord Sales, Lord Stephens, Lady Rose and Lord Richards agreed). As Lord Hoffmann observed in Secretary of State for the Home Department v Rehman [2003] 1 AC 153 at [55]: “It would need more cogent evidence to satisfy one that the creature seen walking in Regent’s Park was more likely than not to have been a lioness than to be satisfied to the same standard of probability that it was an Alsatian.” That reasoning applies even more forcefully where, as in the present case, the court must consider whether the cumulative effect of a series of allegedly unlikely events renders them improbable and implausible. I note that the reasoning in Jones v Birmingham City Council in a different respect must be treated cautiously in Australia, in that the reasoning of their Lordships also included the proposition that the seriousness of an allegation, or of the consequences which would follow for a defendant if an allegation is proved, does not necessarily affect the likelihood of it being true, and thus there is no general rule that the seriousness of an allegation or the consequences of upholding it justifies a requirement of more cogent evidence where the civil standard is applied, without reference to the contrary reasoning routinely applied in Australia following Briginshaw v Briginshaw (1938) 60 CLR 336 at 350 (Rich J) and 362-363 (Dixon J). However, that qualification does not affect the common sense proposition that the inherent improbability whether an event has occurred will be relevant to the degree of cogency required in the evidence led in support of that event. In the present case, the primary judge’s detailed reasoning did not demonstrate that her Honour gave proper consideration to whether the evidence of the CPL Parties, viewed as a whole, should be accepted in light of the relative unlikelihood allegedly involved in the overall combination of the various elements of that defensive narrative.
Accordingly, I would also uphold Grounds 1 and 2.
The Order for a New Trial
Section 28 of the Federal Court of Australia Act 1976 (Cth) confers on the Court a wide range of forms of judgment in the exercise of its appellate jurisdiction, including power to:
(b) give such judgment, or make such order, as, in all the circumstances, it thinks fit, or refuse to make an order;
(c) set aside the judgment appealed from, in whole or in part, and remit the proceeding to the court from which the appeal was brought for further hearing and determination, subject to such directions as the Court thinks fit;
…
(f) grant a new trial in any case in which there has been a trial, either with or without a jury, on any ground upon which it is appropriate to grant a new trial ….
In the present case, in my view, it is appropriate to set aside the judgment of the primary judge (except for the declarations of copyright infringement and authorisation of infringement by CPL Notting Hill and Ms Li respectively in relation to the 30 instances established in the Retail Case) and to grant a new trial. This is unfortunately the second occasion when a judgment of the Court below has been set aside, and the judgment presently appealed from was on a remitter from the first such occasion. Even if a new trial were to be regarded as a deplorable result, that is to be regarded as a necessity of justice to be deplored but not refused: Balenzuela v De Gail (1959) 101 CLR 226 at 243 (Windeyer J). In my view, it would be contrary to the proper administration of justice to remit the matter again to the Federal Circuit and Family Court of Australia (Division 2), and thereby run the risk of yet another miscarriage of justice. As the Federal Court has jurisdiction to hear and decide the issues raised in these proceedings, the appropriate order is for there to be a new trial in this Court. The Microsoft Parties expressed that to be their preference (T91.36-42), and the CPL Parties did not address this particular point as to which Court should hear the new trial.
As a separate matter, the CPL Parties submitted that there was no basis, if the matter were to be retried, for the matter to continue against Ms Li and Mr Wang, as there was no submission put by Microsoft on the appeal specifically addressing the position of Mr Wang or Ms Li, and further it was submitted that the way in which the matter was pleaded against them did not encapsulate any basis for proving authorisation. I do not think that the new trial should be so limited. It will be necessary for the trial judge to consider the authorisation allegations made against Ms Li and Mr Wang in the full context of the case concerning primary infringement, including what may emerge from a fair and effective opportunity to cross-examine the CPL Parties’ witnesses.
Accordingly, in my view, the following orders should be made:
(1)The appeal be allowed.
(2)Orders 3 to 6 of the orders made by the primary judge on 6 December 2022 be set aside.
(3)A new trial be granted of the proceeding before a single judge of the Federal Court of Australia.
(4)The respondents pay the appellants’ costs of this appeal.
(5)The question of costs with respect to the first trial and the trial below be reserved for determination in the new trial.
I certify that the preceding one hundred and three (103) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justice Jackman. Associate:
Dated: 4 March 2024
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