Top Plus Pty Ltd & Ors v K Square Pty Ltd & Ors (No.4)

[2010] FMCA 671

FEDERAL MAGISTRATES COURT OF AUSTRALIA

TOP PLUS PTY LTD & ORS v K SQUARE PTY LTD & ORS (No.4) [2010] FMCA 671

PRACTICE & PROCEDURE – Costs – costs orders following infringement proceedings and cross claim under s.51AC Trade Practices Act 1974 (Cth).

Trade Practices Act 1974 (Cth), s.51AC
Copyright Act 1968 (Cth), s.115(4)
Federal Magistrates Court Rules 2001
Federal Court Rules 1979

Top Plus Pty Ltd & Ors v K Square Pty Ltd & Ors (No.3) [2010] FMCA 590
CGU Insurance Limited v Corrections Corporation of Australia Staff Superannuation Ltd [2008] FCAFC 173
Sagacious Legal Pty Ltd v Wesfarmers General Insurance Ltd(No 5) [2010] FCA 630

First Applicant: TOP PLUS PTY LTD (ACN 115 594 477)

Second Applicant: GOLD TYPHOON ENTERTAINMENT LTD

Third Applicant: EMPEROR ENTERTAINMENT (HONG KONG) LTD

Fourth Applicant: UNIVERSAL MUSIC LTD

Fifth Applicant: BMA RECORDS LTD

First Respondent: K SQUARE PTY LTD (ACN 102 871 778)

Second Respondent: EAST ASIA MUSIC (HOLDINGS) LTD

Third Respondent: EAST ASIA RECORD PRODUCTION CO LTD

File Number: SYG 1429 of 2009

Judgment of: Raphael FM

Date of Last Submission: 23 August 2010

Delivered at: Sydney

Delivered on: 3 September 2010

REPRESENTATION

Counsel for the Applicant: Mr H Bevan

Solicitors for the Applicant: DLA Phillips Fox

Counsel for the Respondents: Ms J Rawlings

Solicitors for the Respondents: Pancific Legal Solicitors

ORDERS

1. Judgment be entered under s 115(2) of the Copyright Act1968 (Cth) against the First Respondent in favour of the First Applicant in the sum of $47,041.20, together with interest thereon in the sum of $5,829.90;

2. Judgment be entered under s 115(4) of the Copyright Act1968 (Cth) against the First Respondent in favour of the First Applicant in the sum of $80.000.00;

3. The sum of $20,000 paid by the First Respondent to the trust account of DLA Phillips Fox pursuant to Order 3 made on 24 September 2009, together with any interest accrued thereon, be released at the direction of the First Applicant in partial satisfaction of the judgment referred to in Order 1 above;

4. Save for the declarations made on 10 February 2010 the cross claim be otherwise dismissed;

5. The First Respondent pay the First Applicant’s costs of and incidental to the hearing as to damages at 80% of the scale under Order 62 of the Federal Court Rules 1979;

6. The costs on the Claim referred to in Order 13 made on 10 February 2010, if not agreed, be assessed at

   (a)at 80% of the scale under Order 62 of the Federal Court Rules  1979 from commencement of proceedings until 25 August 2009;

   (b)on an indemnity basis from 26 August 2009.

7. The costs on the Cross-Claim referred to in Order 2 made on 10 February 2010, if not agreed, be assessed at 80% of the scale under Order 62 of the Federal Court Rules 1979.

FEDERAL MAGISTRATES
COURT OF AUSTRALIA
AT SYDNEY

SYG 1429 of 2009

TOP PLUS PTY LTD (ACN 115 594 477)

First Applicant

GOLD TYPHOON ENTERTAINMENT LTD

Second Applicant

EMPEROR ENTERTAINMENT (HONG KONG) LTD

Third Applicant

UNIVERSAL MUSIC LTD

Fourth Applicant

BMA RECORDS LTD

Fifth Applicant

And

K SQUARE PTY LTD (ACN 102 871 778)

First Respondent

EAST ASIA MUSIC (HOLDINGS) LTD

Second Respondent

EAST ASIA RECORD PRODUCTION CO LTD

Third Respondent

REASONS FOR JUDGMENT

1. On 10 February 2010 I handed down judgment in the substantive proceedings; Top Plus Pty Ltd & Ors v K Square Pty Ltd & Ors (No 2) [2010] FMCA 590. I reserved for further hearing the question of damages to be awarded both from the claim and the cross claim. On 9 August 2010 I handed down judgment on the damages claim. I awarded damages on the claim for copyright infringement against the first respondent but found that the first responded had suffered no loss arising out of the breach of s.51AC Trade Practices Act 1974 (the “Act”) by the first applicant.  I ordered that the first respondent pay the first to fourth applicants’ costs but reserved the basis of the costs order pending the final determination of the hearing with respect to damages.  I ordered that the first applicant pay the first respondent’s costs of the cross claim with the same caveat.  The parties have provided me with written submissions in relation to the question of costs.

Costs of the claim for copyright infringement

1. The applicants provided an affidavit from Neil Garfield Sadler dated 19 August 2010 concerning certain negotiations between the parties between 26 August 2009 and 26 October 2009 being the period between the end of the hearing for an interlocutory injunction and the compulsory mediation which took place unsuccessfully in November 2009.  The respondents provided an affidavit of Edwin Kwan dated 20 August 2010. That affidavit annexed a copy of a letter dated 19 November 2009 written after the mediation on 16 November 2009.  In an affidavit sworn on 24 August 2010 Mr Sadler says that he received two emails from Mr Kwan on 19 November 2009, neither of which was the email with letter annexed that is exhibited to Mr Kwan’s affidavit.  Mr Sadler stated that he had conducted a physical search of the file and had not been able to locate a copy of the letter.  He says there is no record of him seeking his client’s instructions upon the offer which would be the normal thing to have done and there is no record of him referring the offer to Mr Bevan of counsel which is also something that he would have expected to have done had he received it.  It would appear that Mr Kwan did not send any reminders about the letter, nor did his clients make any further offer after 19 November 2009 which strikes me as somewhat unusual.  In all the circumstances I cannot be satisfied that the letter of 19 November was received by the applicants and I will disregard it for the purposes of considering the type of costs award which should be made to the applicants in respect to their substantive claim.

2. I ordered that the first respondent pay a licence fee calculated in the sum of $7.16 per room per day plus GST. I also ordered that the first respondent pay the applicants $80,000.00 by way of additional damages under s.115(4) of the Copyright Act 1968 (Cth). On 26 August 2009 the applicants made an offer of settlement to the first respondent which contemplated:

   ·The licence fee calculated at $7.80 per room per day plus GST (such fee not to increase for the subsequent year);

   ·An acknowledgment by the first respondent as to the validity of the first applicant’s exclusive licence and the copyright of the record companies;

   ·Payment of the applicants’ costs to be taxed if not agreed;

   ·The formal settlement agreement, confidentiality provisions and entry into the standard licence agreement;

   ·The discontinuance of the proceedings.

3. This offer was, I believe, a genuine offer to compromise because by it the applicants were prepared to give up their claims for declaratory and injunctive relief and additional damages.

4. It is to be remembered that the prospect of additional damages and indemnity costs being awarded was always present in this case. The respondents had put in issue the question of the applicant’s copyright relying on the application of Hong Kong law in circumstances where it should have been clear and later did become clear that Australian law prevailed and that copyright could not be in issue. During the course of the hearing on 17 August 2009 I warned the respondents about the possibility of an award under s.115(4) and those warnings were repeated. The respondents do not put in issue that the letter of 26 August 2009 was a valid “Calderbank” letter and although it does not follow automatically that a party who has had an award made against him in excess of the amount which it would have been obliged to pay had it accepted a Calderbank offer should have to bear indemnity costs from the time of the offer, the existence of the offer must be taken into account by the court in considering the exercise of its discretion in relation to the award of costs; CGU Insurance Limited v Corrections Corporation of Australia Staff Superannuation Ltd [2008] FCAFC 173 at [75] per Moore, Finn and Jessup JJ. The applicants have also drawn to my attention the views expressed by Rares J in Sagacious Legal Pty Ltd v Wesfarmers General Insurance Ltd(No 5) [2010] FCA 630 at [23]:

   “In today’s world, costs and litigation are not regarded as they once were. Unnecessary litigation imposes its own strains on the parties, their resources, witnesses and their employers, families, or businesses, as well as the public resource of the courts. The primary purpose of an order for costs is to compensate the successful party. However, this does not compel the exercise of the discretion to order costs in favour of a party under s 43(2) of the Federal Court of Australia Act 1976 in all cases: cf Probiotec Ltd v University of Melbourne (2008) 166 FCR 30 at 43 [48] and see too at 42 [45]–44 [52] where I discussed the principles with the agreement of Finn J at 31 [1] and Besanko J at 51 [82]. Costs awarded, even on an indemnity basis, do not always compensate a party: cf the considerations discussed in AON Risk Services Ltd v Australian National University (2009) 239 CLR 175 at 213–215 [97]–[103] esp at 214 [100] per Gummow, Hayne, Crennan, Kiefel and Bell JJ.”

5. I regard the position taken by the first respondent to the offer as being unreasonable to an extent that would justify an order for payment of indemnity costs.  The respondents were fully aware that if they continued to utilise the KTVs supplied by the applicants they were at grave risk of infringing the applicants’ copyright, they made statements to the effect that they would not utilise this copyright material and would remove it from their servers but did not do so and by their conduct required the applicants to take unusual and extensive steps to establish copyright under both copyright and Hong Kong and Australian law.

6. Both parties are in agreement that this is not an appropriate case for an award of costs under the schedule to the Federal Magistrates Court Rules 2001 (the “Rules”). It is a case where costs should be assessed in accordance with the Federal Court Rules 1979.  This court has a long practice of ensuring that even when a taxation or assessment of this type is undertaken the final award takes into account the intentions of the Parliament on the formation of the court that it be “quicker, simpler and cheaper”.  Thus the general rule has been that costs under the Federal Court scale be payable at only as to 80%.  That is the order that I would make.

The cross claim

1. The respondents succeeded in their cross claim even though no damages were awarded. The court made a declaration that the applicants had infringed s.51AC of the Trade Practices Act.  This is a very serious matter and it is proper that the applicants should pay the respondents’ costs as I have already ordered.  Once again there appears to be agreement that the appropriate order should be that those costs be assessed in accordance with the Federal Court Rules 1979 if not agreed and payable at 80% of the amount so assessed.

Orders on the cross claim

1. In the court’s orders of 10 February 2010 there was a declaration that the applicants had engaged in conduct that was in all the circumstances unconscionable in contravention of s.51AC. The applicants now seek that there be an order made that:

   “The cross claim otherwise be dismissed.”

   The respondents counter that the order should be:

   “There be no award of damages under s.82 of the Trade Practices Act 1974 (Cth) against the first applicant in favour of the first respondent with respect to the first applicant’s contravention of s.51AC Trade Practices Act 1974 (Cth) and the cross claim otherwise be dismissed.”

   In my view the order proposed by the applicants could be confusing whereas the order proposed by the respondents appears to me to be prolix.  The order that I think is appropriate is that:

   “Save for the declarations made on 10 February 2010 the cross claim otherwise be dismissed.”

2. The orders the court will make are contained on the first page of this decision record.

I certify that the preceding ten (10) paragraphs are a true copy of the reasons for judgment of Raphael FM

Date:  3 September 2010