The Audio Visual Copyright Society v Australian Record Industry Association Ltd - [1999] NSWSC 947

Reported Decision: [1999] 152 FLR 142
[1999] 46 IPR 29

New South Wales

Supreme Court

CITATION: THE AUDIO VISUAL COPYRIGHT SOCIETY v AUSTRALIAN RECORD INDUSTRY ASSOCIATION LTD. and ORS. [1999] NSWSC 947

CURRENT JURISDICTION: EQUITY DIVISION

FILE NUMBER(S): 5004/98

HEARING DATE(S): 30 April 1999

JUDGMENT DATE:
17 September 1999

PARTIES :

THE AUDIO VISUAL COPYRIGHT SOCIETY LTD. (PLAINTIFF)
AUSTRALIAN RECORD INDUSTRY ASSOCIATION LIMITED and ORS. (DEFENDANTS)

JUDGMENT OF: Simos J

COUNSEL : N. Manousaridis (Plaintiff)
R.Cobden (First Defendant)
M. Green (Second and Third Defendants)
R.J. Webb (Fourth Defendant)
D.R. Sibtain (Fifth Defendant)
Ms. J.R. Baird (Sixth Defendant)

SOLICITORS: Mallesons Stephen Jaques (Plaintiff)
Gilbert & Tobin (First Defendant)
Faulkner & Associates (Second and Third Defendants)
Gray & Perkins (Fourth Defendant)
Bruce W. Pulsford (Fifth Defendant)
Eakin McCaffery Cox (Sixth Defendant)

CATCHWORDS: COPYRIGHT ACT 1968 (COMMONWEALTH), Part VA - Copying of Transmissions by Educational and Other Institutions -Generally Accepted Mistake of Law as to Entitlement to Royalties of Copyright Owners of Copyright in Sound Recordings Incorporated into the Sound-Track of Cinematograph Films Causing Breaches of Trust by Plaintiff Collecting Society in Distributing Equitable Remuneration to Copyright Owners - No Breach of Trust by Plaintiff Collecting Society in Paying Moneys from Plaintiff's IBNR Fund to Copyright Owners of Copyright in Artistic Works Included in a Cinematograph Film.; TRUSTEE ACT 1925 (NSW), Section 85; Held: Plaintiff Collecting Society Had Acted Honestly and Reasonably and Ought Fairly to be Excused and Wholly Relieved from Liability for Breaches of Trust;

ACTS CITED: Copyright Act 1968 (Commonwealth)
Trustee Act 1925 (NSW)

CASES CITED: Phonographic Performance Company of Australia Ltd. and Ors. v Federation of Australian Commercial Television Stations (1998) 154 ALR 211

DECISION: Plaintiff Collecting Society Entitled To Be Relieved From Liability For Innocent Breaches of Trust.

THE SUPREME COURT
OF NEW SOUTH WALES
EQUITY DIVISION

SIMOS J

FRIDAY, 17 SEPTEMBER 1999
(NO. 5004/98) - THE AUDIO VISUAL COPYRIGHT SOCIETY LTD v AUSTRALIAN RECORD INDUSTRY ASSOCIATION LTD & ORS
JUDGMENT
HIS HONOUR:
The Proceedings
1    By Further Amended Summons filed 30 April 1999 the plaintiff claimed certain declarations and orders, including, so far as material, the following:-

“1 A declaration that, of the remuneration received by the plaintiff pursuant to Part VA of the Copyright Act 1968 (Commonwealth) (“ the Statutory Collection ”) in each of the periods 1 July 1990 - 30 June 1991, 1 July 1991 - 30 June 1992, 1 July 1992 - 30 June 1993, 1 July 1993 - 30 June 1994, 1 July 1994 - 30 June 1995, 1 July 1995 - 30 June 1996 and 1 July 1996 - 30 June 1997 (each of the said periods being referred to as an “ Accounting Period ”):

(a) the whole was held on trust for the purposes and persons described in Articles 16.2, 16.3 and 16.6, and in conformity with the obligations described in Article 17 of the plaintiff’s Articles of Association, and not otherwise;
(b) the whole (apart from that expended pursuant to Article 16.2(a) was held on trust for the purposes and persons described in Articles 16.2(b)-(d), 16.3 and 16.6, and in conformity with the obligations described in Article 17 of the plaintiff’s Articles of Association, and not otherwise;

(c the whole (apart from that expended pursuant to Article 16.2(a)-(c ) was held on trust for the purposes and persons described in Articles 16.2(d), 16.3 and 16.6, and in conformity with the obligations described in Article 17 of the plaintiff’s Articles of Association, and not otherwise; or
(d) the whole (apart from that expended pursuant to Article 16.2) was held on trust for the purposes and persons described in Articles 16.3 and 16.6, and in conformity with the obligations described in Article 17 of the plaintiff’s Articles of Association, and not otherwise.

2 A declaration that in each Accounting Period the plaintiff, by adopting a Scheme of Allocation under which no allocation was made to persons who were the owners of copyright in sound recordings incorporated into the soundtrack of cinematograph films, as such, was not in breach of the trust described in paragraph 1(a), or alternatively paragraph 1(b), or alternatively paragraph 1(c , or alternatively paragraph 1(d).

3 Alternatively to paragraph 2, a declaration that in each Accounting Period, the plaintiff, by adopting a Scheme of Allocation under which no allocation was made to persons who were the owners of copyright in sound recordings incorporated into the sound-track of cinematograph films, as such, was in breach of the trust described in paragraph 1(a), or alternatively paragraph 1(b) or alternatively paragraph 1(c) , or alternatively paragraph 1(d).

4 An order pursuant to section 85 of the Trustee Act 1925 (NSW) that the plaintiff be wholly relieved from personal liability for the breach of trust declared to have occurred in paragraph 3.

5 A declaration that implementation by the plaintiff of the course described in Annexure “A” hereto is within the powers conferred on it pursuant to the Articles, particularly Article 17.7, and/or the general law.
6 An order pursuant to section 85 of the Trustee Act 1925 (NSW) that to the extent that the course described in Annexure “A” does not fully compensate the persons described in paragraph 3 for losses caused to them by the plaintiff’s breach of trust, the plaintiff is wholly relieved from personal liability for not adopting any other course.

7 Alternatively to paragraph 6, pursuant to section 63 of the Trustee Act 1925 (NSW), the opinion, advice and direction of the Court that to the extent that the course described in Annexure “A” does not fully compensate the persons described in paragraph 3 for losses caused to them by the plaintiff’s breach of trust, the plaintiff is justified in not adopting any other course.

7A A declaration that the plaintiff is entitled to distribute any royalties relating to the 1993, 1994, 1995, 1996 and 1997 Accounting Periods which are currently undistributed, on the basis of the Scheme of Allocation which was operable during the 1993, 1994, 1995, 1996 and 1997 Accounting Periods.

7B Further to paragraph 7A, the opinion, advice and direction of the Court pursuant to section 63 of the Trustee Act 1925 that the distributions referred to in paragraph 7A are a proper exercise of the trustee powers of the plaintiff.

7BB Orders 5, 6 and 7 are made without prejudice to any rights which the defendants (or any of them), those whom they represent, or those for whom they have acted as agent, may have or have had in relation to the determination by the plaintiff (whether by its directors or otherwise) of the compensatory amount.

8 A declaration that, by paying $12,300 out of the IBNR Fund to Viscopy Limited in July 1998 in respect of the 1992 Accounting Period, the plaintiff was not in breach of the trust described in paragraph 1(a), or alternatively 1(b), or alternatively paragraph 1(c), or alternatively paragraph 1(d).
9 Alternatively to paragraph 8, a declaration that, by paying $12,300 out of the IBNR Fund to Viscopy Limited in July 1998 in respect of the 1992 Accounting Period, the plaintiff was in breach of the trust described in paragraph 1(a), or alternatively paragraph 1(b), or alternatively paragraph 1(c), or alternatively paragraph 1(d).

10 Further to paragraph 9, an order pursuant to section 85 of the Trustee Act 1925 that the plaintiff be wholly relieved from personal liability for the breach of trust declared to have occurred in paragraph 9.

11 Alternatively to paragraph 10, the opinion, advice and direction of the Court pursuant to section 63 of the Trustee Act 1925 that the plaintiff should not take any steps to recover the amount of $12,300 paid out of the IBNR Fund to Viscopy Limited in July 1998 in respect of the 1992 Accounting Period.

12 A declaration that the plaintiff is entitled to make appropriate payments out of, inter alia, the IBNR Fund to Viscopy Limited or other owners of copyright in artistic works in respect of the 1993, 1994, 1995, 1996, 1997 and 1998 Accounting Periods.

13 Further to paragraph 12, the opinion, advice and direction of the Court pursuant to section 63 of the Trustee Act 1925 that the payments referred to in paragraph 12 are a proper exercise of the trustee powers of the plaintiff.

2    The plaintiff also sought various orders as to costs of the parties.
3    Annexure A to the Further Amended Summons was in the following terms:-
“ANNEXURE A

1. By reason of no allocation having been made in any Accounting Period between 1 July 1992 and 30 June 1997 (or additionally between 1 January 1990 and 30 June 1992) to persons who in those periods were owners of copyright in sound recordings incorporated into the sound track of cinematograph films (“t he Compensable Persons” ), the plaintiff through its directors will calculate the total amount of compensatory payments to be paid to the Compensable Persons by reference to the aggregate amount of Potential Shares that the Compensable Persons would have received if the Scheme of Allocation, then being applied, allocated a proportion of the Distributable Amount to the Compensable Persons (“ the Compensatory Amount” ).

2. In each of the Accounting Periods ending 30 June 1998, 30 June 1999 and 30 June 2000 the plaintiff through its directors will,

(a) deduct one third of the Compensatory Amount from the Distributable Amount; and
(b) pay such of the Compensatory Amount so deducted to such of the Compensable Persons as the plaintiff reasonably can identify who:

(i) in the relevant Accounting Period, would have had allocated to them a Potential Share of the Distributable Amount for that Accounting Period had the Scheme of Allocation, then being applied, allocated a proportion of the Distributable Amount to the Compensable Persons; and
(ii) are members of the plaintiff at the time of payment.

3. The plaintiff may continue to make payments to Compensable Persons after 30 June 2000.
4. If by 30 June 2001 the plaintiff:

(a) has been unable to identify all the Compensable Persons, or
(b) not all persons whom the plaintiff has identified as Compensable Persons are members of the plaintiff or do not become members of the plaintiff, with the consequence that by 30 June 2001 the plaintiff will not have paid out all the Compensable Amount, the plaintiff shall within a reasonable time after 30 June 2001 apply to the Court for directions in relation to such of the Compensable Amount as the plaintiff has not paid out.”

In this further Amended Summons and Annexure “A” to it:

“Accounting Period” , as defined in paragraph 1 above, has the same meaning as in the Articles of Association of the plaintiff.

The Facts
4    The plaintiff is a company limited by guarantee which was duly incorporated under the laws of the State of New South Wales on 8 January 1990. The plaintiff adopted the trading name “Screenrights” in 1997. On 13 June 1990 the then Attorney-General for the Commonwealth of Australia, pursuant to section 135P(1) of the Act, declared the plaintiff to be “the collecting society for the purposes of Part VA of the Act” which deals with the “Copying of transmissions by educational and other institutions”.
5    Section 135E of the Act is in the following terms:-

“135E.

(1) The copyright in a transmission, or in any work, sound recording or cinematograph film included in a transmission, is not infringed by the making, by or on behalf of an administering body, of a copy of the transmission if:

(a) a remuneration notice, given by or on behalf of the administering body to the collecting society, is in force;
(b) where the copy is made by, or on behalf of, a body administering an educational institution-the copy is made solely for the educational purposes of the institution or of another educational institution;
(c) where the copy is made by, or on behalf of, a body administering an institution assisting persons with an intellectual disability-the copy is made solely for the purposes of use in the provision of assistance to persons with an intellectual disability by the institution or by another similar institution; and
(d) the administering body complies with subsection 135K(1) or (3), as the case requires, in relation to the copy.

(2) Where a copy of a transmission referred to in subsection

(a) is used for a purpose other than a purpose referred to in paragraph (1)(b) or (c);
(b) is made, sold or otherwise supplied for a financial profit; or
(c) is given to an administering body when there is not in force a remuneration notice given by that body to the collecting society;

with the consent of the administering body by whom, or on whose behalf, it is made, subsection (1) does not apply, and shall be taken never to have applied, to the making of the copy.”

6    Section 135A provides, inter alia, that “administering body” means a body administering an institution, that “collecting society” means the body that is, for the time being, declared to be the collecting society under section 135P, and “institution” means either (a) an educational institution or (b) an institution assisting persons with an intellectual disability.
7    Section 135G of the Act is in the following terms:-

“135G.

(1) An administering body may, by notice in writing given to the collecting society by it or on its behalf, undertake to pay equitable remuneration to the society for copies of transmissions made by it, or on its behalf, being copies made while the notice is in force.

(2) A remuneration notice shall specify whether the amount of equitable remuneration is to be assessed on the basis of a records system or a sampling system.

(3) A remuneration notice comes into force on the day on which it is given to the collecting society, or on such later day as is specified in the notice, and remains in force until it is revoked.”

8    By section 10(1) of the Act “sound recording” is defined to mean “the aggregate of the sounds embodied in a record.”
9    “Record” is defined in that subsection to mean a disc, tape, paper or other device in which sounds are embodied, “sound-track” is defined in relation to visual images forming part of a cinematograph film to mean (a) the part of any article or thing, being an article or thing in which those visual images are embodied, in which sounds are embodied; or (b) a disc, tape or other device in which sounds are embodied and which is made available by the maker of the film for use in conjunction with the article or thing in which those visual images are embodied”, and “work” is defined to mean a literary, dramatic, musical or artistic work. A “cinematograph film” is defined to mean the aggregate of the visual images embodied in an article or thing so as to be capable by the use of that article or thing (a) of being shown as a moving picture; or (b) of being embodied in another article or thing by the use of which it can be shown and includes the aggregate of the sounds embodied in a sound-track associated with such visual images.
10    Section 135H of the Act deals with the amount of equitable remuneration payable to the collecting society by the administering body where that remuneration is to be assessed on the basis of a record system, and section 135J of the Act deals with the amount of equitable remuneration payable to the collecting society by the administering body where the remuneration is to be assessed on the basis of a sampling system. In each case the amount of the equitable remuneration payable to the collecting society by the administering body is such an amount as is determined by agreement between the administering body and the collecting society or, failing such agreement, by the Copyright Tribunal on application made by either of them.
11    It was agreed between the parties that these proceedings do not raise any issue in respect of which the Copyright Tribunal has jurisdiction.
12    Section 135P of the Act also provides, inter alia, that the Attorney-General shall not declare a body to be the collecting society unless, inter alia, all relevant copyright owners, or their agents, are entitled to become its members and its rules contain such other provisions as are prescribed, being provisions necessary to ensure that the interests of the collecting society’s members who are relevant copyright owners or their agents are protected adequately.
13    By section 135A of the Act a “relevant copyright owner” is defined to mean the owner of the copyright in a work, a sound recording, or a cinematograph film.
Submissions on behalf of the Plaintiff
14    It was submitted on behalf of the plaintiff, whose submissions in this respect were adopted and supported on behalf of all the defendants, that the equitable remuneration collected by the plaintiff pursuant to Part VA of the Act in each of the relevant accounting periods was held on trust for the purposes and persons described in Articles 16.2, 16.3 and 16.6, and in conformity with the obligations described in Article 17 of the plaintiff’s Articles of Association and not otherwise.
15    The provisions of the plaintiff’s Articles of Association which are principally relevant to this issue include the following:-

Article 15.4 which provides:-

“The Society must establish and operate:

(a) A Statutory Trust Fund;
(b) A Voluntary Trust Fund; and

(c) A Society Reserve Fund.”
Article 15.5 provides:-

“The administrative costs and other outgoings of the Society that are paid out of the Statutory Trust Fund and Voluntary Trust Fund must be reasonable.”

Article 1.1 defines “Statutory Trust Fund” as meaning:-

“The fund operated by the Society for the purposes of holding the Statutory Collection on Trust for Qualified Persons.”

Article 1.1 defines “Statutory Collection” as meaning:-

“In relation to each Accounting Period the amount of equitable remuneration received by the Society in accordance with the Statutory Scheme (and any interest earned from investment of the equitable remuneration) that is attributable to an Accounting Period.”

Article 1.1 defines “Statutory Scheme” as meaning:-

“The Scheme in Australia under Part VA … under which the Society has been authorised to collect equitable remuneration on behalf of Copyright Owners, and to hold on trust and distribute the amounts collected to the relevant Copyright Owners, and any other scheme under the Act in respect of which the Society is declared to be the relevant collecting society.”

Article 1.1 defines “Qualified Persons” as “a Copyright Owner” or “a Registered Title Owner” and “Copyright Owner” is defined to mean “a person who is the legal or beneficial owner of copyright in a Copyright Work.”
Article 16.2 provides:-

“In each Accounting Period, the Statutory Collection must be dealt with in the following order:-

(a) for the payment of all reasonable expenses that are incidental to the conduct, management and operation of the Society as the Directors consider appropriate;

(b) for such special purposes (including cultural and charitable purposes) that the Directors consider are in the interest of the Society, provided that the funds expended for special purposes do not exceed 1% of the Statutory Collection;

(c) to the Society’s Reserve Fund to meet any anticipated future obligations of the Society as the Directors consider appropriate; and
(d) the remainder, for payment to each Qualified Person who is a Member, in accordance with their Potential Share, as soon as reasonably possible after determination of their entitlement under Article 17.”

Article 16.3 provides:-

“If the Society is unable, at the time of allocation, to distribute a Potential Share (accruing under Article 16.2(d)) because the Qualified Person is not a Member or for any other reason, the Society must hold that Potential Share on trust in the Statutory Trust Fund and pay it to the Qualified Person (or their Agent), as soon as reasonably possible, or otherwise in accordance with Article 16.6.”

Article 16.6 provides:-

“If any Potential Share has remained in the Statutory Trust Fund or the Voluntary Trust Fund under Articles 16.3 and 16.5 for a period of four years from the end of the accounting period in which the Directors determined the relevant total Distributable Amount, the monies may be distributed in accordance with Articles 16.2 and 16.4 , unless the Directors are satisfied that special circumstance require the monies to be held on trust for a further period of not more than two years.”

16    In my opinion, it is plain from the terms of the plaintiff’s Articles of Association, which relevantly constitute a contract between the plaintiff on the one hand and its members on the other hand, and from their context in the statutory scheme provided for in the Act (as to which see later), that both the plaintiff, through its board of directors, and its members, intended that the plaintiff should hold the whole of the amounts of equitable remuneration collected by it (the “Statutory Collection”) upon trust for the purposes and persons described in Article 16.2, 16.3 and 16.6, and in conformity with the obligations described in Article 17 of the plaintiff’s Articles of Association, and not otherwise, as the plaintiff submitted with the support of the other defendants.
17    This intention, is, in my opinion, manifested, inter alia, by the frequent use of the word “trust” in the relevant Articles (as well as in the relevant provisions of the Act, as to which see later). Thus for example Article 15.4 provides for the Society to establish, inter alia, a Statutory Trust Fund and a Voluntary Trust Fund. Article 1.1 then defines “Statutory Trust Fund” to mean: “The fund operated by the Society for purposes of holding the Statutory Collection on trust for Qualified Persons.” This definition in particular makes it plain, in my opinion, that the intention of the parties to the Articles of Association of the plaintiff was that the equitable remuneration collected by the Society would be held “on trust” for the relevant Copyright Owners (“Qualified Persons”).
18    Further, in the definition of “Statutory Scheme” there is reference to the equitable remuneration collected by the Society as having been collected “on behalf of Copyright Owners” and to the fact that the Society has been authorised “to hold on trust and distribute” the amounts collected to the relevant Copyright Owners.
19    There is further reference to the Society holding the equitable remuneration collected on trust in Article 16.3, which provides that if the Society is unable at the time of allocation to distribute a Potential Share because the Qualified Person is not a Member or for any other reason, the Society must hold that Potential Share “on trust in the Statutory Trust Fund” and pay it to the Qualified Person (or their Agent) as soon as reasonably possible, or otherwise in accordance with Article 16.6.”
20    So far as concerns the terms of the plainly intended trust, I note that Article 16.3 expressly provides the terms of the trust so far as the subject matter of that Article is concerned. In the same way, in my opinion, and although the word “trust” is not used in Article 16.2, Article 16.2 relevantly defines the terms of the trust upon which the Society holds the Statutory Collection, that Article providing that “the Statutory Collection must be dealt with” in the order specified in paragraphs (a) to (d) as set out above.
21    I note in particular in this connection that Article 16.2(d) incorporates reference to the determination of the entitlement of each Qualified Person under Article 17, so that the terms of the trust, in my opinion, also include the provisions of Article 17 as the plaintiff has submitted.
22    Article 17 is in the following terms:-

“17.1 The Directors must determine the total Distributable Amount at least once in each Accounting Period.”

(The “Distributable Amount” is the proportion of the Statutory Collection that is available for distribution, that is, the amount left after the Article 16.2(a)-(c) monies have been disbursed from the Statutory Collection).

“17.2 The Directors must exercise reasonable endeavours to ensure that each Potential Share is allocated equitably and accurately.

17.3 The Directors must, in determining the scheme of allocation of the Distributable Amount, have regard to all relevant matters including without limitation the following:

(a) records;
(b) information provided under a sampling procedure; and
(c) any information obtained by the Directors that assists in ascertaining the nature and extent of use of the Copyright Works or the Registered Titles.

...

17.5 Except as provided in Articles 17.7 and 17.8 the allocation of Potential Shares by the Directors is final and binding.

17.6 If a person claims to be entitled to a share in the Statutory Collection or the Voluntary Collection and has not been allocated a Potential Share, the Directors may if satisfied that the person is entitled to a payment, make any payment to the person that they consider fit, from the Society’s Reserve Fund.

17.7 If the Directors determine that a Potential Share allocated and paid to a Qualified Person constitutes an over-allocation, the excess may be deducted from any subsequent allocation by the Directors to that person.

17.8 Where there is a dispute as to the amount of the Potential Share to which a Qualified Person is entitled, the Directors must retain the amount of the Potential Share in the Statutory Trust Fund or the Voluntary Trust Fund as applicable.”

23    The statutory context also makes it plain, in my opinion, that it was equally the intention of the legislature in enacting the relevant provisions of the Act that the equitable remuneration collected by the collecting society should be held upon trust for the relevant Copyright Owners, in accordance with the relevant provisions in the Articles of Association of the collecting society (the plaintiff) and the Act.
24    Thus section 135D of the Act provides as follows:

“This Part applies to the collecting society despite anything in the rules of the society but nothing in the Part affects those rules so far as they can operate together with this Part.”

25    In section 135A the term “Rules” is defined to mean “in relation to the collecting society ... the provisions of the memorandum and articles of association of the society.”
26    In relation to the collecting society the broad structure and intent and purpose of the Act is that the collecting society should collect the relevant equitable remuneration from the relevant administering body for the purpose of distributing the same to the relevant Copyright Owners, after deducting the appropriate administrative costs of so doing. This, in my opinion, is quite inconsistent with any possibility that the collecting society (plaintiff) should hold any part of the amounts of equitable remuneration collected beneficially, in the sense that the collecting society (plaintiff) would only have a contractual obligation to distribute the equitable remuneration to the relevant Copyright Owners, pending which the collecting society (plaintiff) was free to do as it wished with the relevant funds. On the contrary, in my opinion, it is plain that this was not the intention of the legislature, but rather that it was the legislature’s intention that those funds should be held by the collecting society (plaintiff) upon trust for the relevant Copyright Owners, the terms of the trust being those embodied in the rules (Articles of Association) of the collecting society (plaintiff) and/or the Act as appropriate and, in particular, where the rules of the collecting society (plaintiff) cannot “operate together” with the Act.
27    This underlying legislative structure, policy and purpose is most clearly manifested, in my opinion, by the provisions of section 135P which has been referred to earlier and which provides, inter alia, that all relevant Copyright Owners or their Agents are entitled to become members of the collecting society; that the rules of the Society should prohibit payment of dividends to its members; and that its rules should contain such other provisions as are prescribed, being provisions necessary to ensure that the interests of the collecting society’s members who are relevant Copyright Owners or their agents are protected adequately, including in particular, provisions about:-

“(i) the collection of amounts of equitable remuneration payable by administering bodies ...

(ii) the payment of the administrative costs of the Society out of amounts collected by it;

(iii) the distribution of amounts collected by it;

(iv) the holding on trust by the Society of amounts for relevant Copyright Owners who are not its members; and
(v) access to records of the Society by its members.”

[Underlining supplied]

28    Particularly relevant is provision (iii) above, namely “the distribution of amounts collected by it”. This indicates, in my opinion, that it is the very amounts which have been collected by the collecting society (plaintiff) that are to be distributed, and not merely some equivalent amount by way of contractual obligation. This provision clearly requires the amounts collected and to be distributed to be held separately and apart from any other funds of the collecting society (plaintiff) (if any), and the statutory obligation to keep the amounts collected separate is in my opinion a most powerful indication of an intention that the relevant funds should be held by the collecting society (plaintiff) upon trust and, indeed, in my opinion, is plainly inconsistent with any view to the effect that the funds are to be held by the collecting society (plaintiff) only subject to a contractual obligation to distribute the funds to relevant Copyright Owners.
29    So also in my opinion is the provision contained in paragraphs 4(iv) above indicative of an intention on the part of the legislature that the whole of the equitable remuneration collected is to be held upon trust. It is inconceivable, in my opinion, that that provision requiring as matter of statute, the collecting society (plaintiff) to hold on trust “amounts for relevant Copyright Owners who are not its members”, could have been intended to impose such a trust obligation upon the collecting society (plaintiff), while at the same time imposing no such obligation in relation to funds distributed to Copyright Owners before that distribution.
30    Also consistent with the legislative intention to create a trust of the relevant monies is, in my opinion, the very use of the term “remuneration”, being remuneration to the relevant Copyright Owners. The use of this term, in my opinion, reinforces the view that the collecting society (plaintiff) is, in substance, collecting, as agent for the relevant Copyright Owners, the remuneration which is, in substance, payable by the administering body directly to the relevant Copyright Owners, so that in a very real sense the monies collected by the collecting society (plaintiff) are, from the moment of collection, the funds of the relevant Copyright Owners, rather than the funds of the collecting society (plaintiff) subject only to a contractual obligation to pay the equivalent amounts to the relevant Copyright Owners. It is plain, in my opinion that when an agent (the plaintiff collecting society) receives on behalf of a principal (the relevant Copyright Owners), funds, not merely payable to the principal, but funds to which the principal is entitled at all relevant times, those funds must be kept separately by the agent from his own funds, and the agent plainly holds those separate funds upon trust for the principal.
31    I also note that in the Articles of Association of the plaintiff the term “Statutory Scheme” is defined in Article 1.1 to mean: “The Scheme in Australia under Part VA … under which the Society has been authorised to collect equitable remuneration on behalf of Copyright Owners and to hold on trust and distribute the amounts collected to the relevant Copyright Owners”.
32    In my opinion, this provision in that definition, that the plaintiff has been authorised to collect equitable remuneration “on behalf” of the Copyright Owners, and to hold on trust and distribute the amounts collected to the relevant Copyright Owners, is a further indication that the equitable remuneration collected consists of amounts which are paid for and to which the Copyright Owners are entitled, and which are collected by the Society as agent for the Copyright Owners, which by reason of the fact that those monies are the monies of the Copyright Owners, and are held on trust, should be kept separate, this obligation being, as stated earlier, one of the important indicia of the creation of a trust.
33    I also note in Copyright regulation 23J, being the provisions prescribed by the Attorney-General of the Commonwealth, pursuant to section 135P(3)(d), as provisions which must be contained in the rules of the collecting society (plaintiff), that reference is made in sub-paragraph (1)(g)(ii)(C to “the trust fund”, in sub-paragraph (1)(h) to a “trust fund” and to “the holding on trust” of Potential Shares, and in sub-paragraph (1)( ) to any part of the distributable amount being “held on trust in the trust fund referred to in paragraph (h)”.
34    I also note the reference in Regulation 23J(1)(g)(ii)(A) to “a trust fund”.
35    Accordingly, for all these reasons, I am clearly of the opinion that the amounts of equitable remuneration collected by the plaintiff on behalf of the relevant Copyright Owners are held by the plaintiff upon trust for the purposes and persons described in Articles 16.2, 16.3 and 16.6, and in conformity with the obligations described in Article 17 of the plaintiff’s Articles of Association, and not otherwise, as the plaintiff submitted with the support of all the defendants to the present proceedings. Accordingly, I propose to make a declaration to this effect by consent, although I indicate that it is also the Court’s clear view that the plaintiff is entitled to a declaration in the terms sought.
36    The plaintiff also sought consequential declarations to the effect that the plaintiff was either in breach or not in breach of the trust which I propose to declare, by reason of the plaintiff having failed for a number of years to distribute any part of the equitable remuneration collected by it to the owners of copyright in sound recordings incorporated into the sound-track of cinematograph films. The omission of the plaintiff to make those distributions to the relevant owners of copyright in sound recordings incorporated into the sound-track of cinematograph films resulted from the belief of the directors of the plaintiff, which was shared by a majority of the persons concerned in the relevant industry, that no separate right existed in such a sound recording by reason of the provisions of section 23(1) of the Act which provides as follows:

“23 (1) For the purpose of this Act, sounds embodied in a sound-track associated with visual images forming part of cinematograph film shall be deemed not to be a sound recording.”

37    This commonly held view as to the meaning of section 23(1) of the Act was, in due course, found to be erroneous by the High Court of Australia by a majority of three to two in the case of Phonographic Performance Company of Australia Ltd and Ors. v Federation of Australian Commercial TelevisionStations (1998) 154 ALR 211. In that case the Court held that although section 23(1) operated to deny any separate protection of the sound recording for the sounds embodied in a sound-track which form part of a cinematograph film, the provision did not operate to deny to the broadcasting of a film the character of a broadcast of the sound recording. The majority of the Court held at 216 as follows:-

“The respondent’s contention was that because s 23(1) deems the sounds embodied in a sound-track not to be a sound recording, broadcasting the film does not broadcast the sound recording embodied in the sound-track. But the fact that the sound-track is not a sound recording (or as the Act has it ‘sounds embodied in a sound-track ... shall be deemed not to be a sound recording’) does not mean that the broadcast of a film embodying a sound recording does not broadcast that sound recording as well as the film. The broadcast of a sound recording may occur in many contexts. The simplest, and most obvious, is the radio or television station that plays the recording in the course of its transmission to the public. But if, in the course of a live production of a dramatic work which is broadcast by radio or television, a sound recording is broadcast, there is a broadcast of that sound recording for the purposes of s 85. No less is there a broadcast of a sound recording when a cinematograph film, the sound-track of which embodies that sound recording, is broadcast to the public. The fact that the sound-track is deemed by the Act not to be a sound recording is not to the point. The question is whether the aggregate of sounds embodied in the sound recording has been broadcast. What the Act deems not to be a sound recording is the aggregate of sounds that is recorded in a particular form: a sound-track. Usually, the aggregate of sounds recorded in the sound-track will be larger than, or, in some other way, different from the aggregate of sounds that constitutes the sound recording. Broadcasting the film broadcasts the sound-track (which is not a sound recording) but it also broadcasts the aggregate of sounds which constitutes the sound recording.”

38    This decision was handed down by the Court on 20 May 1998 and on 26 June 1998 the first defendant, an organisation which collects copyright royalties on behalf of record companies, demanded payment of “the proportionate share of the distributable receipts of Screenrights attributable to the reproduction of sound recordings”.
39    Reference was made on behalf of the plaintiff to a possible view that, in failing to make distributions to persons who were the owners of copyright in sound recordings incorporated into the sound-track of cinematograph films, the plaintiff was not in breach of the relevant trust the subject of the declaration referred to above, because the plaintiff was subject only to a duty of good faith, skill, care, prudence and diligence in ensuring that each Potential Share was allocated equitably and accurately, by reason of the provisions of Article 17.2 which provide that:

“The Directors must exercise reasonable endeavours to ensure that each Potential Share is allocated equitably and accurately”.

40    However, the principal submission made on behalf of the plaintiff, with the support of all the defendants, was to the effect that in adopting a Scheme of Allocation under which no allocation was made to persons who were the owners of copyright in sound recordings incorporated into the sound-track of cinematograph films the plaintiff was in breach of the trust referred to in the declaration referred to above.
41    In my opinion, it is plain that the plaintiff was in breach of trust in so acting, albeit unwittingly, since, the terms of the trust upon which it held the equitable remuneration collected by it required it, inter alia, to deal with “the Statutory Collection”, after payment of certain amounts as specified in the Articles, “for payment to each Qualified Person who is a Member, in accordance with their Potential Share as soon as reasonably possible after determination of their entitlement under Article 17.”
42    Although at the relevant times the persons who were owners of copyright in sound recordings incorporated into the sound-track of cinematograph films were not members of the plaintiff (collecting society), a further relevant term of the trust was that contained in Article 16.3 which provides as follows:-

“If the Society is unable, at the time of allocation, to distribute a Potential Share (accruing under Article 16.2(d)) because the Qualified Person is not a Member or for any other reason, the Society must hold that Potential Share on trust in the Statutory Trust Fund and pay it to the Qualified Person (or their Agent), as soon as reasonably possible, or otherwise in accordance with Article 16.6.”

43    Owing to its mistaken view of the law at the relevant times, the plaintiff did none of these things in certain Accounting Periods in respect of relevant Copyright Owners, being the owners of copyright in sound recordings incorporated into the sound-track of cinematograph films broadcast by educational and certain other institutions, with the result that the plaintiff was plainly, in my opinion, in breach of the trust upon which it held the equitable remuneration collected. Accordingly, I propose to make a declaration to this effect in accordance with the principal submission in this connection made on behalf of the plaintiff. I note that all defendants consented to the making of a declaration in the terms sought on behalf of the plaintiff, but I record that, although the declaration will be made by consent of all the defendants, the declaration also embodies the Court’s own view of the matter.
44 The plaintiff next submitted that, in all the circumstances, the plaintiff should be relieved from any personal liability for the breaches of trust committed by it, pursuant to the provisions of section 85 of the Trustee Act 1925 (NSW) by reason of the fact that it had at all times acted honestly and reasonably and ought fairly to be excused for the breaches of trust, and for omitting to obtain the direction of the Court in respect of the subject matter of those breaches.
45    The precise circumstances in which those breaches of trust were committed were as follows: the plaintiff’s original Scheme of Distribution was formally implemented by the plaintiff at a meeting of the Board of the plaintiff on 4 September 1990. The Scheme of Distribution was incorporated into the plaintiff’s Distribution Policy under the heading of “Scheme of Allocation”. A copy of the minutes of the meeting of 4 September 1990 was tendered to the Court.
46    This Scheme of Distribution was in the same form as a Scheme of Distribution which had been agreed at a meeting of the Copyright Interests Committee on 25 July 1989, which was an informal committee of interest groups which was instrumental in establishing the plaintiff. Those interest groups included the Australian Broadcasting Corporation, the Australian Record Industry Association, the Australian Mechanical Copyright Owners Society, the Screen Producers Association of Australia and the Australian Writer’s Guild amongst others. The minutes of the meeting of the Copyright Interests Committee of 25 July 1989 were also tendered in evidence.
47    At that meeting it was resolved that the total distributable fund would be allocated as follows:-

(a) as to the copyrights in cinematograph films 70%;

(b) as to the copyrights in literary and dramatic works 22.5%;
(c) as to the copyrights in musical works 7.5%.

48    In the course of the meeting of the Board of Directors of the plaintiff on 4 September 1990, it was noted that the directors believed that the Scheme of Distribution took into account all potential categories of claims, with the exception of owners of copyright in artistic works, in respect of which it was resolved that any claims from owners of copyright in artistic works would normally be met by producers out of their share, with recourse to the contingency fund if necessary.
49    It was the recollection of Ms Rowe, presently a director of the plaintiff, and formerly its chairperson for a number of years, and who attended the meetings on 25 July 1989 and 4 September 1990, that no discussion took place in relation to the position of the owners of the copyright in the sound recordings of musical works because she understood at that time that the Act did not recognise any separate copyright interest in a sound recording after it had been incorporated into the sound-track of a film. When the allocation of 7.5% to “musical works” was resolved, it was her understanding that the allocation was intended to cover the whole musical component of a film. Further evidence as to what was discussed at the meetings of 25 July 1989 and 4 September 1990, as well as what was discussed at an earlier meeting of the Copyright Interests Committee on 18 July 1989, is contained in the affidavit of Ms Rowe of 14 December 1998.
50    There has not, to Ms Rowe’s knowledge, been any challenge to the percentage allocations set out above which were resolved at the meeting of the Copyright Interests Committee on 25 July 1989 and subsequently adopted by the Board of Directors of the plaintiff on 4 September 1990, apart from ongoing discussions in relation to the position of artistic works (see later).
51    At the meeting of the Copyright Interests Committee on 25 July 1989, a representative of the first defendant was present, whilst at the meeting of the Board of Directors of the plaintiff of 4 September 1990, the present Executive Director of the first defendant was present as a director of the plaintiff. No objections were raised by either of these representatives of the first defendant at either of those meetings as to the percentage allocations agreed upon in the Scheme of Distribution. The minutes of those two meetings do not record, and Ms Rowe does not recall, any suggestion from either of these representatives that a separate allocation to the rights holders of sound recordings of musical works should be included in the Scheme of Distribution which was resolved by the Copyright Interests Committee and adopted by Screenrights in those two meetings. Ms Rowe was not aware of any claim being made by the first defendant or any other person in relation to the payment by the plaintiff of a separate allocation of royalties by the rights holders of sound recordings of musical works in relation to cinematograph film prior to the letter from the first defendant dated 26 June 1998.
52    Ms Rowe gave evidence that no allowance was made in the Distribution Policy for royalties to be allocated to the owners of copyright in sound recordings which had been incorporated into the sound-track of cinematograph films, because it was the view of the members of the Board of Directors of the plaintiff and to her knowledge of the copyright industry generally, as well as being her own view, that no separate right existed, as a matter of law, in such a sound recording, by reason of the provisions of section 23(1) of the Act set out above.
53    In all the circumstances, I am clearly of the view that the plaintiff, at all relevant times, acted honestly and reasonably and ought fairly to be excused for the breaches of trust referred to earlier, and should accordingly be relieved from any personal liability in respect thereof. Accordingly, I propose to make a declaration or order to this effect in accordance with the submissions made on behalf of the plaintiff in this connection. I note that this proposed order also is made with the consent of all defendants, although I record that the Court would have made such an order even if there had been opposition to that course.
54    The plaintiff also sought a declaration that implementation by the plaintiff of the course of action described in Annexure “A” to the summons was within the powers conferred on it pursuant to the Articles, particularly Article 17.7, and/or the general law.
55    Annexure “A” has been quoted above.
56    The substance of the course of conduct described in Annexure “A” is that the plaintiff, through its directors, will calculate, in respect of various earlier Accounting Periods, the total or aggregate amount (“the Compensatory Amount”) which the plaintiff should have paid, but did not pay, to the owners of copyright in sound recordings incorporated into the sound-track of cinematograph films (“the Compensable Persons”) (being the total or aggregate amount of the compensatory payments to be paid to the Compensable Persons calculated by reference to the aggregate amount of Potential Shares that the Compensable Persons would have received if the Scheme of Allocation, then being applied, had allocated a proportion of the Distributable Amount to the Compensable Persons). In each of the Accounting Periods ending 30 June 1998, 30 June 1999 and 30 June 2000, there will then be deducted one-third of the Compensatory Amount from the total or aggregate of the Distributable Amount payable in respect of each of those three years, and so much of the Compensatory Amount, as so deducted, will be paid to such of the Compensable Persons as the plaintiff can reasonably identify who, in the relevant period, would have had allocated to them a Potential Share of the Distributable Amount for that Accounting Period, had the Scheme of Allocation then being applied allocated a proportion of the Distributable Amount to the Compensable Persons, and who are members of the plaintiff at the time of payment.
57    In this connection the first question for determination is whether the plaintiff has power to deduct any part of the Compensatory Amount payable in respect of previous Accounting Periods, from the Distributable Amounts referable to later Accounting Periods.
58    In this connection counsel for the plaintiff submitted that one source of power for the implementation of such a scheme was to be found in Article 17.7 which provides:-

“If the Directors determine that a Potential Share allocated and paid to a Qualified Person constitutes an over-allocation, the excess may be deducted from any subsequent allocation by the Directors to that person.”

59    In my opinion, however, the proposed course of conduct would not be authorised by the Articles of Association of the plaintiff and, in particular, would not be authorised by Article 17.7 of those Articles, or by the general law, by reason that what is proposed in Annexure “A” is not in accordance with those Articles or the general law because, inter alia, the strict application of Article 17.7 and of the general law requires exact precision as to the identity of the recipient and amount of any over-allocation which, on the evidence, is, practically speaking, not possible.
60    It was also submitted on behalf of the plaintiff that an alternative basis for the course of conduct proposed in Annexure “A” to the further amended summons was Article 16.2(a) of the Articles of Association of the plaintiff which provides, in effect, that the Statutory Collection must be first applied “for the payment of all reasonable expenses that are incidental to the conduct, management and operation of the Society as the Directors consider appropriate.” In my opinion, however, the payment of the Compensatory Amount to the Compensable Persons as envisaged in Annexure “A” would not constitute the payment of “reasonable expenses that are incidental to the conduct, management and operation of the Society”, more particularly, because, in my opinion, the non-payment to the relevant Copyright Owners, which was the result of a mistake as to law, cannot be regarded as simply incidental to the conduct management and operation of the Society within the meaning of Article 16.2(a). That Article is, in my opinion, directed to the payment of reasonable expenses that are incidental to the proper and correct and lawful conduct management and operation of the Society and is not, for example, intended to comprehend the payment of all reasonable expenses that are incidental to the committing by the plaintiff of breaches of trust.
61    In this connection I also note that, in my opinion, and contrary to the supplementary submission on behalf of the plaintiff, Article 16.2(c , on its true construction does not authorise the plaintiff to pay the Compensatory Amount to the Compensable Persons, principally, inter alia, because that Article is limited to payment of “any anticipated future obligations, and the Compensatory Amount does not fall within the description as an “anticipated future obligation”.
62 It remains to consider whether, notwithstanding that it would involve a breach of trust, the plaintiff would be justified within the meaning of section 63 of the Trustee Act 1925 (NSW) in adopting the course of conduct described in Annexure “A” to the Further Amended Summons.
63    Whilst it is plain that, in respect of the earlier Accounting Periods some Qualified Persons will have been allocated a Potential Share which did constitute an over-allocation, the individual members of that class may have varied from Accounting Period to Accounting Period, both as to their identity and as to their allocated share of equitable remuneration making it extremely difficult, as a practical matter, to identify those members and to calculate the precise amount of over-allocations in each Accounting Period. There would also be the difficulty of identifying in respect of each previous Accounting Period which relevant individual Copyright Owners of copyright in sound recordings incorporated into the sound-track of cinematograph films should have received a share, and if so, what share, of the equitable remuneration collected by the plaintiff. This is a task which will also have to be performed in respect of individual future accounting periods, no doubt, with the help, inter alia, of the first defendant. Nevertheless, the task of doing this in respect of the previous Accounting Periods would, as the plaintiff submitted, be, at the very least, extremely burdensome at best, and, at worst, practically speaking, impossible. The evidence in this connection is contained in paragraphs 91 to 96 of the affidavit of Ms Rowe of 14 December which are in the following terms:-

“91. If Screenrights is required to make compensatory payments to owners of sound recordings of musical works, this will involve a significant administrative burden.

92. Each program copied under the Scheme for which Screenrights has previously allocated a Potential Share, is likely to contain a number of sound recordings of musical works. If Screenrights were required to make payments to each of the individual rights holders for these sound recordings this would involve performing calculations and making separate payments for each sound recording. Such a course of action would involve considerable time and expense on Screenrights’ part.

93. For example, there were approximately 13,000 individual identified works in programs copied under the Scheme in the 1997 Distribution Period (the period from 1 July 1996 to 30 June 1997). Using the 1997 Distribution Period figure as a guide, Screenrights will need to rely upon the assistance of other organisations to identify approximately 90,000 sound recordings of musical works (being approximately 13,000 for seven individual distribution periods).

94. In the event that Screenrights was required to make payments to the rights holders in sound recordings of musical works, detailed identification and ownership information about each sound recording would be required to be undertaken. Screenrights does not currently have any such information in its possession. Screenrights has not previously paid royalties to the rights holders in sound recordings and consequently has not collected any data that would assist it in making payments to individual rights holders to sound recordings.

95. Identification assistance could be sought from Screenrights from a number of sources. The initial task of identifying each individual musical work, is likely to be conducted by APRA. It is my understanding that the APRA database may contain some data as to the owners of the sound recordings of some of these musical works.

96. Although a comprehensive identification process will need to be implemented to make payments to rights holders in sound recordings of musical works from the 1998 Distribution Period and onwards, the volume of sound recordings of musical works from earlier distribution periods makes the task of identifying who is entitled to compensatory payments burdensome to Screenrights.”

64    In these circumstances, the Board of Directors of the plaintiff has formed the view that it is fair and equitable that the consequences of the innocent mistake made in previous years by the company should be shared among all classes of rights holders.
65    In relation to Annexure “A” to the further amended summons, this approach would mean, as stated above, that in each of the three Accounting Periods ending 30 June 1998, 30 June 1999 and 30 June 2000 all classes of rights holders, and the individual members of all such classes, would have the amounts to which they would have otherwise been entitled reduced by one-third, even if it were the case that, in respect of some or all of the previous Accounting Periods, some of those individual members may not have been over-allocated and/or overpaid, or not have been over-allocated and/or overpaid to the extent that would justify reduction of their entitlements in respect of future Accounting Periods by one-third. It would appear that the only way to overcome such a result would be to undertake the course of identifying in respect of each of the earlier Accounting Periods the individual relevant Copyright Owners who may have received an over-allocation and if so to what extent. It is plain that this would be as stated above an extremely burdensome task to the extent of being, practically speaking, impossible.
66    As I understand it, it is not suggested that it is impossible for the directors of the plaintiff to calculate the total amount of Compensatory Payments to be paid to the Compensable Persons by reference to the aggregate amount of Potential Shares that the Compensable Persons would have received if the Scheme of Allocation then being applied had allocated a proportion of the distributable amount to the Compensable Persons. Rather, as I understand it, the difficulty arises from the practical impossibility of identifying the individual persons who were overpaid or over allocated royalties and determining the amount of any such overpayment or over allocation in each of the relevant prior Accounting Periods, and it is to overcome that difficulty that the plaintiff proposes that the Compensatory Payments will be paid in respect of each of the three relevant periods by all those Copyright Owners who are entitled to distributions in each of those periods, to a greater or lesser extent, even though they may not have been, but others were, overpaid or over allocated royalties in respect of one or more of the prior Accounting Periods.
67 I am of the prima facie opinion that within the meaning of section 63 of the Trustee Act 1925 (NSW) the plaintiff would be justified in adopting the course of conduct described in Annexure “A” to the further amended summons, with the qualification and upon the basis referred to below. I say “prima facie” because having regard, inter alia, to the substantial sums of money involved I require further argument, and, if necessary further evidence, before I would be prepared to express a final view on this matter.
68 In all the circumstances, I am also prima facie of the view that not only would the plaintiff be justified in following the course of conduct described in Annexure “A” to the further amended summons with the qualification and on the basis referred to below, but that, to the extent that in doing so the plaintiff would commit a breach of trust, the plaintiff would have acted honestly, reasonably and ought fairly be excused within the meaning of section 85 of the Trustee Act 1925 (NSW).
69    The qualification referred to above arises from the submission by counsel on behalf of the first defendant, and others, to the effect that in each of the three years in which Compensatory Payments are to be made, the full amount payable to owners of copyright in sound recordings incorporated into the sound-track of cinematograph films should first be notionally paid, after which the Compensatory Payments should be paid from the balance of the Distributable Amounts since otherwise, so it was submitted, that class of copyright owners would end up subsidising itself.
70    It was also submitted on behalf of the first defendant, and others, that the relevant Copyright Owners had been kept out of their money for many years by reason of the failure to compensate them for uses of their copyright material whilst, in the meantime, other classes of Copyright Owners had been overpaid. In those circumstances it was submitted that it was inappropriate that affected sound recording Copyright Owners should share in the burden of compensating themselves.
71    In my prima facie opinion, the submissions made on behalf of the first defendant are well founded. Whilst it is true that it is not possible to state that the members of the class of Copyright Owners represented by the first defendant in future Accounting Periods will be the same as the members of that class in respect of the previous Accounting Periods, in respect of which they were not paid, and upon the assumption that, practically speaking, it will be impossible to identify the relevant members of that class on a year by year basis in respect of previous Accounting Periods, in my prima facie opinion more substantial justice would nevertheless be achieved if the first defendant’s submissions were to be accepted, upon the basis that there is at least, perhaps, some likelihood that there will be some overlap between the members of the same class in previous and future Accounting Periods.
72    In all the circumstances, however, I decline at the present time to express any final opinion as to whether the plaintiff would be justified in acting in accordance with the proposed course of conduct described in Annexure “A” subject to, or not subject to, the qualification referred to above, and although I have expressed a prima facie view for the assistance of the parties, that should not be taken as placing any onus on any party to displace my prima facie view since I propose to consider the whole matter de novo in the light of the further submissions and, if appropriate, further evidence.
73    The next question which arises for consideration is as to whether the plaintiff is entitled to distribute royalties relating to Prior Accounting Periods, which are currently undistributed, on the basis of the old Scheme of Allocation which was in operation during those previous periods (being the 1993-1997 Accounting Periods).
74    As a result of the delay in the identification and authentication of Copyright Owners entitled to payments from the plaintiff, an amount of $7,044,059.80 of the Distributable Amounts relating to those distribution periods is currently undistributed. The plaintiff proposes to distribute this amount in accordance with the old Scheme of Allocation, which, as stated earlier, did not recognise the rights of Copyright Owners of sound recordings in musical works incorporated into film sound-tracks, on the basis that those Copyright Owners will be compensated under the Scheme of Compensation proposed in Annexure “A”. The reasons for this approach on the part of the plaintiff are contained in paragraph 14 of the affidavit of Ms Rowe of 23 December 1998 which was as follows:-

“14. The reasons why the Undistributed Amount should be distributed in accordance with the old Scheme of Allocation are as follows:

(a) to distribute the Undistributed Amount on the basis of the new Scheme of Allocation would be inequitable. This is because the total Distributable Amount for each of the 1991-1997 distribution periods has been allocated in accordance with the old Scheme of Allocation. On the basis of this allocation, some rights holders in a particular copied program in a particular distribution period have already been paid, while other rights holders in relation to that same copied program remain unpaid (these unpaid amounts are included in the Undistributed Amount). If the Undistributed Amount was distributed on the basis of the new Scheme of Allocation, the situation could arise where rights holders of musical works in a program which have already been paid will have received a Potential Share of 7.5%, whereas, rights holders of musical works in that same program who have not been paid, would receive 6.6%. This would mean that rights holders whose works or subject matter are incorporated in the same program would be treated differently in relation to use of that work or subject matter in the same distribution period.

(b) a more equitable approach is to treat the payment of all royalties relating to the 1991-1997 distribution periods equally on the basis of the old Scheme of Allocation. Under this approach, owners of copyright in sound recordings in musical works would all be compensated on the same basis. That is, the Compensatory Amount (as described in the proposed Amended Summons) will be funded by making deductions against the Distributable Amount for the next three distribution periods. By funding the Compensatory Amount in this way, it means that the burden of funding the Compensatory Amount will fall proportionately on all rights holders in relation to the entire period in which Screenrights was operating under a mistake of law.

(c) If the Undistributed Amount was distributed on the basis of the new Scheme of Allocation (and therefore the 0.9% amount to be paid to owners of copyright of sound recordings in musical works would be taken from the 7.5% allocation to musical works), owners of copyright of musical works would bear the full burden of compensating owners of copyright of sound recordings in musical works. This burden would be inconsistent with the scheme in Annexure A to the proposed Amended Summons which provides that the burden of compensating owners of copyright in sound recordings in musical works in relation to amounts which have been distributed will fall proportionately on all rights holders.

(d) Screenrights’ database does not contain sufficient information which would allow Screenrights to identify the Potential Shares which are owing to individual musical works within a program. This means that, if Screenrights was required to distribute the Undistributed Amount on the basis of the new Scheme of Allocation, it would have to rely on APRA to carry out the calculations of royalties owing to individual musical works within a program. This calculation must be carried out by APRA before the amount which is payable to owners of copyright of sound recordings in musical works can be identified by Screenrights. The administrative burden of identifying each of these musical works is considerable and the extent of this task is unknown at this stage.

(e) Screenrights’ database, which contains information to identify Potential Shares which are allocated to individual cinematograph films and literary/dramatic works, was developed in such a way that the old Scheme of Allocation is hard-coded with the application rather than relying on a variable which can be re-defined. Because of this design limitation, it would require significant redevelopment work to allow the application to generate payments of the Undistributed Amount on the basis of the new Scheme of Allocation.”

75    As the question here being considered is so intimately bound up with the issues relating to the course of conduct proposed in Annexure “A”, it is equally appropriate that further consideration of this question should also be postponed pending the further argument, and as appropriate, further evidence on those issues.
76 I note, however, in this connection, that, it is my opinion, contrary to the supplementary submission on behalf of the plaintiff, that section 81 of the Trustee Act 1925 (NSW) does not authorise the Court to empower the plaintiff to distribute royalties relating to Prior Accounting Periods, which are currently undistributed, on the basis of the old Scheme of Allocation, because to do so would, in my opinion, have the effect of altering the beneficial interests of the relevant beneficiaries, and it is common ground that section 81 cannot be validly used to confer a power which produces such a result.
77    There remains for consideration certain issues relating to the sixth defendant, a body representing owners of copyright in artistic works included in cinematograph films.
78    The first question relating to the sixth defendant is as to whether the plaintiff was entitled to pay to the sixth defendant the sum of $12,300 from the plaintiff’s IBNR Fund (“Incurred But Not Reported”), or whether, in so doing, the plaintiff was in breach of the trust the subject of the first declaration referred to above. This issue arises in relation to cinematograph films where artistic works are the principal matter of the film, for example, a documentary film about an artist. The plaintiff has always recognised owners of copyright in artistic works as relevant Copyright Owners but has not previously included such owners within its Scheme of Allocation because it is difficult to identify programmes where artistic works are the principal matter of the film, and because of section 67 of the Act which provides that:-

“The copyright in an artistic work is not infringed by the inclusion of the work in a cinematograph film or in a television broadcast if its inclusion in the film or broadcast is only incidental to the principal matters represented in the film or broadcast.”

79    In May 1997 the Board of Directors of the plaintiff resolved that, where a film qualifies as having artistic works as the principal matter of a cinematograph film or television broadcast, it would make allocations of an amount equivalent to 22.5% of the royalties accruing to that film, to owners of artistic works. The Board of Directors of the plaintiff resolved that this allocation would be made from the IBNR Fund and, not from the Distributable Amount, because of the difficulty in identifying cinematograph films and television broadcasts in which the artistic works were the principal matters represented in the film or broadcast.
80    Because allocations are made to owners of copyright in artistic works from the IBNR Fund, in fact, a distribution of 122.5% of that films proper entitlement is made. This is because 70% is paid to the rights holder in the film, 22.5% to the rights holder in the script and 7.5% to the musical rights holders (each of these three payments comes from the Distribution Amount) and in addition 22.5% is paid to the owners of the copyright in artistic works where applicable (which is drawn from the IBNR Fund).
81    The only payment made to date to copyright owners of artistic works pursuant to this policy was $12,300 paid to the sixth defendant in June 1998 for the 1992 Distribution Period (equivalent to 0.4% of the Distributable Amount for the 1992 year).
82    The allocations from the IBNR Fund have been possible because the IBNR Fund is 1% of the total Distributable Amount for each year.
83    As previously stated, the plaintiff did not include owners of copyright in artistic works in its Distribution Policy (instead making allocations to such owners from the IBNR Fund), because of the difficulty in identifying the use of artistic works in programmes which did not fall within the exception in section 67 of the Act. Those difficulties are set out in the affidavit of Ms Rowe of 14 December 1998 and in particular in paragraph 105 thereof which is in the following terms:-

“105. The difficulties faced by Screenrights in identifying programs incorporating artistic works as the principal subject matter are considerable. Screenrights is only provided with title information (title, broadcast date/time, and channel) in relation to a particular program. This information does not reveal whether a program has artistic works contained within it and, if so, the identity of those artistic works (including the number thereof) included in the program. It is unlikely that this information could ever be obtained from the surveys currently conducted on behalf of Screenrights to monitor the level of copying by end users. For example, the staff of Institutions cannot be required to specify artistic works contained in every copied program, and whether the use of the artistic work was incidental or central to the program, because copying of programs is almost always done prior to the time when the program is actually watched.”

84    The plaintiff is currently considering the issue of how to deal with payments to owners of copyright in artistic works which have not yet been made in relation to the 1993-1998 years. The plaintiff wishes to make such payments from the IBNR Fund in the same manner as the payment was made to the sixth defendant in June 1998 for the 1992 Distribution Period.
85    The sixth defendant has provided extensive written submissions to the plaintiff setting out the reasons why it considers it should be specifically included within the plaintiff’s Scheme of Allocation. On 25 November 1998 the Board of Directors of the plaintiff resolved to commence the same type of research and consultation in respect of the rights of owners of copyright in artistic works as it has undertaken in respect of the rights of owners of copyright in sound recordings of musical works. If after due consideration the Board of Directors of the plaintiff were to decide to amend the Scheme of Allocation to take into account the rights owners of copyright in artistic works, this would take effect from the 1999 Distribution Period.
86    The Articles of Association of the plaintiff do not expressly refer to the constituting of an IBNR Fund but, as submitted on behalf of the plaintiff, that Fund appears to be the same in purpose and operation as the “Society Reserve Fund” referred to in Articles 15.4(c), 16.2(c), 16.4(c) and 17.6.
87    Thus, as stated earlier, Article 15.4 provides, inter alia, that the Society must establish, inter alia, “a Society Reserve Fund”.
88    “Society Reserve Fund” is defined in Article 1.1 of the plaintiff’s Articles of Association to mean “a fund established and operated by the Society for the purposes of Articles 16.2(c and 16.4(c .”
89    Article 16.2 provides, inter alia, that in each Accounting Period the Statutory Collection must be dealt with in a certain order, in respect of which the third item of the order is “to the Society’s Reserve Fund to meet any anticipated future obligations of the Society as the Directors consider appropriate.” “Statutory Collection” is defined in Article 1.1 of the Articles of Association of the plaintiff to mean “in relation to each Accounting Period, the amount of equitable remuneration received by the Society in accordance with the Statutory Scheme (and any interest earned from investment of the equitable remuneration) that is attributable to an Accounting Period”; and Article 17.6 in the following terms:-

“17.6 If a person claims to be entitled to a share in the Statutory Collection or the Voluntary Collection and has not been allocated a Potential Share, the Directors may, if satisfied that the person is entitled to a payment, make any payment to the person that they consider fit, from the Society’s Reserve Fund”.

90    Article 16.4 of the plaintiff’s Articles of Association provides that in each Accounting Period the Voluntary Collection must be dealt with in a certain order, the third item of that order being “to Society’s Reserve Fund to meet anticipated future obligations of the Society under the Voluntary Scheme as the Directors consider appropriate”; “Voluntary Collection” is defined in Article 1.1 to mean “in relation to each Accounting Period, the royalties received by the Society under the Voluntary Scheme (and any interest earned from investment of royalties received) that is attributable to an Accounting Period”; “Voluntary Scheme” is defined in Article 1.1 of the plaintiff’s Articles of Association to mean “any scheme other than the Statutory Scheme, pursuant to which the Society holds on trust royalties collected for Registered Title Owners who have authorised the Society to act as their agent in administering their Registered Title Rights”.
91    I also note that paragraph 6.1 of the plaintiff’s current Distribution Policy provides, inter alia, in relation to the IBNR Fund, as follows:-

“An allocation of 1% of the total Distributable Amount may be made to the IBNR Fund (amended 27 July 1994) and by analogy with insurance practice, ‘claims incurred but not reported’ may be met from the IBNR Fund, which is an allocation to a class of relevant Copyright Owners of their Potential Share of the Distributable Amount which the Society will not further automatically allocate to a particular programme title ... Allocation to a particular title will be made when a relevant copyright owner makes a claim that is accepted by the Society in accordance with the Scheme of Distribution or when information becomes available to identify the Potential Share.

Distributions anticipated from this Fund include ...

(b) payment to a relevant Copyright Owner not otherwise specifically provided for, such as an owner of copyright in ... artistic works included in a broadcast or footage and stills included in a broadcast (other than a news broadcast) ...”.

92    It will be observed that Article 16.2 of the plaintiff’s Articles of Association provides in effect that, there shall be a “Society Reserve Fund” for the purpose of meeting “any anticipated future obligations of the Society as the Directors consider appropriate”. It will further be observed that the IBNR Fund as described in the plaintiff’s Distribution Policy was established for the purpose of constituting “an allocation to a class of relevant Copyright Owners of their Potential Share of the Distributable Amount” in respect of which “Allocation to a particular title will be made when a relevant Copyright Owner makes a claim that is accepted by the Society”. Such allocation to a particular title would, in my opinion, plainly be properly described as being a payment “to meet anticipated future obligation of the Society as the Directors consider appropriate” within the meaning of Article 16.2 of the plaintiff’s Articles of Association which, as stated above, provides, in effect, for the establishment of a “Society Reserve Fund”.
93    In those circumstances it is, in my opinion, appropriate, for present purposes, to treat the IBNR Fund as being in substance “the Society Reserve Fund” within the meaning of 16.2(c) and other Articles of Association of the plaintiff, including Article 17.6. In those circumstances, in my opinion, the payment to the sixth defendant of the sum of $12,300 out of the IBNR Fund in July 1998, in respect of the 1992 Accounting Period, did not involve the plaintiff in any breach of trust because it was in substance, as was submitted on behalf of the plaintiff, a valid payment made pursuant to Article 17.6 of the plaintiff’s Articles of Association. I note that all defendants supported the making of a declaration to this effect but I record that it is the view of the Court, quite apart from any question of consent, that the plaintiff was entitled to the declaration sought.

94 Having regard to this finding no occasion arises for considering the applicability of section 85 of the Trustee Act 1925 in relation to this payment. However I indicate that, in my opinion, if contrary to my view, the plaintiff was in breach of trust in making the said payment of $12,300 to the sixth defendant, I would have been of the opinion that the plaintiff was entitled to be relieved from any personal liability in respect thereof upon the basis that, in the relevant circumstances, it had acted honestly and reasonably and ought fairly to be excused for the breach of trust and for omitting to obtain the direction of the Court in respect of the subject matter of the breach.
95    In this connection I accept, in particular, the evidence to the effect that the plaintiff acted honestly and reasonably in not including owners of the copyright in artistic works in its Distribution Policy, but instead making allocations to such owners from the IBNR Fund, because of the difficulty facing the plaintiff in identifying the use of artistic works in programmes which did not fall within the exception in section 67 of the Act and because that Fund had been especially set aside for such purposes.
96    The substance of what the plaintiff did in this respect was to take the view that, because of the difficulties involved in identifying relevant owners of the copyright in relevant artistic works, it would not make any direct provision for distributions on that account in its Distribution Policy, but because it recognised that there might be some relevant owners of copyright in artistic works who were thereby excluded, it should set up a fund, being the IBNR Fund, for the purpose of satisfying such claims as might later be made on an individual basis, pending further investigations and discussions as to the practicalities of making an allocation to such copyright owner as part of the Distribution Policy.
97    For broadly the same reasons as expressed above in relation to the payment by the plaintiff to the sixth defendant of the sum of $12,300 from the plaintiff’s IBNR Fund, I am also of the opinion that, upon the basis that the plaintiff has still not resolved the difficulties involved in identifying the owners of the copyright in relevant artistic works, but is continuing to use its best endeavours to do so, the plaintiff is entitled to make payments out of the IBNR Fund to the sixth defendant or other owners of copyright in artistic works in respect of the 1993-1998 Accounting Periods.
98    Because the plaintiff is still considering its position in relation to owners of copyright in artistic works represented by the sixth defendant, I am of the opinion that it would be premature to consider making any other declarations sought on behalf of the sixth defendant, inter alia, because the plaintiff may decide for itself to act accordingly. In the event that after the plaintiff has made its decision, there remain differences of opinion, or doubts, between the plaintiff and the sixth defendant and/or other defendants, the matter may be listed for further hearing pursuant to the liberty to apply which I propose to reserve to all parties.
99    I record, however, for completeness that the following submissions, inter alia, were made on behalf of the sixth defendant:-

“(1) That the plaintiff has adopted a test for identifying when the reproduction of an artistic work in a film entitles the copyright owner in that artistic work to remuneration which differs from the exception provided in section 67 of the Act.

(2) That the Distribution Policy of the plaintiff in relation to artistic works applies the fair dealing provisions of the Act in a way which it is not apparent that they are applied to other copyright works and other subject matter.

(3) That the sixth defendant should be specifically included in any Scheme of Allocation and that the plaintiff should amend the Scheme of Allocation to take into account the rights of owners of copyright in artistic works with effect from the 1999 distribution.

(4) That, taking the same approach as the first defendant, there should first be deducted from the total Distributable Amount the required payment to be made for the current year to affected owners of copyright in artistic works before paying one-third of the remaining balance of the Compensatory Amount in each of the next three years to the relevant Copyright Owners or their representatives.

(5) That there may be other owners of copyright in artistic works whose works have been included in a cinematograph film as the principal matter who have not been compensated for uses of their copyright material in the 1992 Distribution Period.

(6) That, thus, amounts held in trust by the plaintiff in the IBNR Fund and in the Article 16 trust fund may include amounts due to persons the sixth defendant represents.”

Other Rights of the Parties
100    All parties agreed that any declarations and orders made in the present proceedings should not prejudice any rights which any of the defendants or, any of those whom they represent, may have in relation to the determination by the plaintiff, whether by its Directors or otherwise, of the Compensatory Amount as defined in Annexure “A” to the further amended summons. As this correctly reflects the basis upon which the present proceedings were conducted I propose to make this position clear in the declarations which I will make.
Representative Orders
101    I am satisfied that it is appropriate to make appropriate representative orders in respect of all representative parties to these proceedings and I propose to do so, noting that no party has any objection to the making of any of those orders.
Costs
102    As these proceedings were in the nature of an important test case in relation to the powers rights, and duties of the plaintiff and of the various defendants, I am of the opinion that the costs of the plaintiff of these proceedings on an indemnity basis should be paid out of the Statutory Collection Fund held upon trust by the plaintiff, and that the costs of the proceedings of each of the defendants be paid out of the said Statutory Collection Fund on the party and party basis.
Direction
103    I direct the plaintiff to bring in short minutes of order giving effect to these reasons for judgment and providing that all parties should have liberty to apply on two days notice.

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Last Modified: 09/17/1999

CITATION:	THE AUDIO VISUAL COPYRIGHT SOCIETY v AUSTRALIAN RECORD INDUSTRY ASSOCIATION LTD. and ORS. [1999] NSWSC 947
CURRENT JURISDICTION:	EQUITY DIVISION
FILE NUMBER(S):	5004/98
HEARING DATE(S):	30 April 1999
JUDGMENT DATE:	17 September 1999
PARTIES :	THE AUDIO VISUAL COPYRIGHT SOCIETY LTD. (PLAINTIFF) AUSTRALIAN RECORD INDUSTRY ASSOCIATION LIMITED and ORS. (DEFENDANTS)
JUDGMENT OF:	Simos J

COUNSEL :	N. Manousaridis (Plaintiff) R.Cobden (First Defendant) M. Green (Second and Third Defendants) R.J. Webb (Fourth Defendant) D.R. Sibtain (Fifth Defendant) Ms. J.R. Baird (Sixth Defendant)
SOLICITORS:	Mallesons Stephen Jaques (Plaintiff) Gilbert & Tobin (First Defendant) Faulkner & Associates (Second and Third Defendants) Gray & Perkins (Fourth Defendant) Bruce W. Pulsford (Fifth Defendant) Eakin McCaffery Cox (Sixth Defendant)
CATCHWORDS:	COPYRIGHT ACT 1968 (COMMONWEALTH), Part VA - Copying of Transmissions by Educational and Other Institutions -Generally Accepted Mistake of Law as to Entitlement to Royalties of Copyright Owners of Copyright in Sound Recordings Incorporated into the Sound-Track of Cinematograph Films Causing Breaches of Trust by Plaintiff Collecting Society in Distributing Equitable Remuneration to Copyright Owners - No Breach of Trust by Plaintiff Collecting Society in Paying Moneys from Plaintiff's IBNR Fund to Copyright Owners of Copyright in Artistic Works Included in a Cinematograph Film.; TRUSTEE ACT 1925 (NSW), Section 85; Held: Plaintiff Collecting Society Had Acted Honestly and Reasonably and Ought Fairly to be Excused and Wholly Relieved from Liability for Breaches of Trust;
ACTS CITED:	Copyright Act 1968 (Commonwealth) Trustee Act 1925 (NSW)
CASES CITED:	Phonographic Performance Company of Australia Ltd. and Ors. v Federation of Australian Commercial Television Stations (1998) 154 ALR 211
DECISION:	Plaintiff Collecting Society Entitled To Be Relieved From Liability For Innocent Breaches of Trust.