Vartzokas Architects Pty Ltd v Nazero Group SA Pty Ltd and Anor (No.2)
[2017] FCCA 1019
•5 June 2017
FEDERAL CIRCUIT COURT OF AUSTRALIA
| VARTZOKAS ARCHITECTS PTY LTD v NAZERO GROUP SA PTY LTD & ANOR (No.2) | [2017] FCCA 1019 |
| Catchwords: PRACTICE & PROCEDURE – Application for a freezing order arising from allegation of breach of copyright – considerations relating to granting of freezing order – does applicant have a reasonably arguable case – has applicant delayed – prejudice to respondent – has applicant failed to display candour to the court – extent of likely damages. |
| Legislation: Copyright Act 1968 (Cth), ss.31, 32, 115; 131D Federal Circuit Court Act 1999 (Cth), ss.14 & 15 Federal Circuit Court Rules 2000, r.5.01 |
| Cases cited: Vartzokas Architects Pty Ltd v Nazero Group SA Pty Ltd & Anor [2017] FCCA 849 Cardile v LED Builders Pty Ltd (1999) 198 CLR 380 Mareva Compania Naviera SA v International Bulk Carriers SA [1975] 2 Lloyds Rep 509 Clout (Trustee) v Anscore Pty Ltd & Ors [2000]FCA 727 Patrick Stevedores Operations No 2 Pty Ltd v Maritime Union of Australia (1998) 195 CLR 1 Walter Rau Neusser und Fee v Cross Pacific Trading Ltd [2005] FCA 955 Thomas A Edison Ltd v Bullock(1912) 15 CLR 678 Insolvency Guardian Melbourne Pty Ltd v Carlei[2016] FCA 72 Concrete Pty Ltd v Parramatta Design & Development (2006) 229 CLR 577 Blair v Osborne & Tomkins [1971] 2 QB 78 Beck v Montana Constructions Pty Ltd [1964 – 5] NSWR 229 Gruzman Pty Ltd v Percy Marks Pty Ltd (1989) 99 FLR 116 |
| Applicant: | VARTZOKAS ARCHITECTS PTY LTD |
| First Respondent: | NAZERO GROUP SA PTY LTD |
| Second Respondent: | WARDY YOUNAN |
| File Number: | ADG 150 of 2017 |
| Judgment of: | Judge Brown |
| Hearing date: | 17 May 2017 |
| Date of Last Submission: | 17 May 2017 |
| Delivered at: | Adelaide |
| Delivered on: | 5 June 2017 |
REPRESENTATION
| Counsel for the Applicant: | Mr Jenner |
| Solicitors for the Applicant: | FBR Law |
| Counsel for the First Respondent: | Ms Walker |
| Counsel for the Second Respondent: | Sachs Gerace Broome Lawyers |
ORDERS
The freezing order made on 27 April 2017 and subsequently varied on 9 May 2017 be further varied so that the sum referred to in order 6 of the orders of 27 April 2017 be amended to be the sum of $50,000.00.
In order to give effect to order one hereof the sum of $160,000.00 be paid out of the monies currently held in court pursuant to the freezing order made on 27 April 2017 to the respondents’ solicitors trust account.
The parties attend mediation with a Registrar of the court on 10 July 2017 at 9:30am or if this date is not convenient to the parties at such other date as is appointed by the Registrar in the period of the adjournment.
Costs of the application reserved.
Further consideration of all applications is adjourned to 28 July 2017 at 9:30am.
| FEDERAL CIRCUIT COURT OF AUSTRALIA AT ADELAIDE |
ADG 150 of 2017
| VARTZOKAS ARCHITECTS PTY LTD |
Applicant
And
| NAZERO GROUP SA PTY LTD |
First Respondent
And
| WARDY YOUNAN |
Second Respondent
REASONS FOR JUDGMENT
Introduction
On 24 April 2017, I made what is commonly referred to as a Mareva or freezing order in respect of the proceeds of sale of a property located at 227 Prospect Road, Prospect (“the Prospect Road property”). Due to the apparent urgency of the situation at the time, the order was made on an ex parte basis, on the application of Vartzokas Architects Pty Ltd (“Vartzokas”). [1]
[1] See Vartzokas Architects Pty Ltd v Nazero Group SA Pty Ltd & Anor [2017] FCCA 849
The issue currently requiring the court’s determination is whether the freezing order should continue and, if so, what form it should take now that the subject of the order has had an opportunity to be heard and put material before the court.
The seller and former registered proprietor of the Prospect Road property is the first respondent in these proceedings, Nazero Group SA Pty Ltd (“Nazero Group”). The second respondent, Wardy Younan is the sole director and shareholder of Nazero Group, which was incorporated on 24 June 2015.[2]The sole director of Vartzokas is Anastasios Vartzokas.
[2] See annexure TV12 to the affidavit of Anastasios Vartzokas filed 26 April 2017
Mr Vartzokas is an architect, who practises in Fullarton, in suburban Adelaide. Mr Vartzokas and Mr Younan have now filed affidavit material detailing the nature of their engagement with one another and related corporate entities in respect of the Prospect Road property. Accordingly, the court now has much more evidence available to it than at the time when the freezing order was first made, particularly from the individuals affected by it.
In brief terms, it is the position of the applicant that the freezing order should continue until the final resolution of the proceedings, which relate to an allegation of an infringement of copyright arising from an unauthorised use of architectural plans created by it in respect of the development of the Prospect Road land.
On the other hand, it is the respondents’ position that there was no proper basis for such an extreme order being made in the first place, on the following bases:
·the applicant has not established that it has a good cause of action arising from its application;
·failed to be properly candid with the court, when it made its application, particularly in respect of possible defences available to the respondents, in the form of having an implied licence to use the plans in question; and
·delayed bringing its application, for the freezing order, until the last possible moment.
A freezing order is better described as an asset preservation order. The rationale of such orders is to prevent a party to litigation in prospect from disposing of assets, with the intention of frustrating the enforcement of a judgement likely to arise from such litigation.
As a consequence of the freezing order, a sum of $813,649.02 was deposited into court on 28 April 2017. When the case returned to court on 9 May 2017, the parties agreed that $603,649.02 should be released to the first respondent, leaving the sum of $210,000.00 deposited with the court. On this occasion, orders were also made for the hearing of the contested freezing order application to occur as expeditiously as possible.
As an alternative to its primary position that the freezing order be entirely discharged, the respondents propose that all but the sum of $50,000.00 should be released to it. It is submitted that such a sum is sufficient to cover any likely award of damages to the applicant.
The applicant does not accept that this is likely to be the case. In its amended application, it seeks either damages or an account of profits flowing from what it asserts is the unauthorised use of its intellectual property.[3] In addition, it seeks additional damages arising from what it would characterise as a flagrant infringement of its copyright.[4] As a consequence of these matters, it is asserted that the sum currently retained should remain so.
[3] See Copyright Act 1966 (Cth) at section 115(2)
[4] Ibid at section 115(4)
Background
It is the position of Vartzokas that, between July 2014 and June 2015, it prepared architectural drawings, in which it holds copyright, in respect of a proposed development of the Prospect Road property, involving the design of between 30 and 24 units, in a multi-storey building, to be constructed on it. It contracted with an entity known as Nazero Constructions Pty Ltd (“Nazero No 1”) to provide its architectural services for this development.
From the perspective of Vartzokas, the relevant agreement between it and Nazero No 1 was contained in a document entitled fee acceptance, which appears on its letterhead and which was signed, by Mr Younan, on 30 June 2014. Mr Younan is described as a director of Nazero No 1.[5]
[5] See annexure TV2 to the affidavit of Anastasios Vartzokas filed 26 April 2017
The fees contained in the document concerned envisaged a step process of architectural work being potentially provided by Vartzokas to Nazero No 1. The first stage of work is entitled sketch design & preliminary development plan application. The fee concerned is $70,000.00. Amongst other architectural services, it is envisaged that Vartzokas would prepare a schematic sketch design proposal for submission to the relevant planning authority, the City of Prospect, to obtain building permission.
Thereafter, it is envisaged that Vartzokas would prepare modelling for marketing purposes ($8,000); design development and working documentation ($264,000); tender processing with possible building contractors ($8,000); and contract administration ($75,600). This last sum is based on a fourteen month period of construction.
The fee acceptance document makes only one reference to drawing work, which is that it will be undertaken electronically and made available on compact disc and hard copy. In particular, the document makes no specific reference to copyright issues arising from the plans. In addition, there is no indication that the fees proposed are calculated by reference to any schedule of fees stipulated by any professional body relevant to architects.
After a preamble in which the name and address of Nazero No 1 are set out and the identification of the Prospect Road land as the Project the fee acceptance document indicates that the “above-named client(s) accept your offer to undertake architectural services as outlined below.”
The agreement also includes the following statement:
“Although we seek your agreement for our total fee package, each stage of the work will require your formal instruction to proceed. (For part completion of work, a partial or pro-rata fee will apply.”
At the conclusion of the document, Mr Younan has indicated his acceptance of the fee offer outlined.
Between July and September 2014, Vartzokas prepared plans in respect of the Prospect Road property, which were lodged with the City of Prospect on 4 September 2014. The first planning proposal was rejected on the basis that the subject land was unsuitable for the number of units proposed. In this context, it should be noted that the original discussions between Mr Vartzokas and Mr Younan were in respect of the construction of between 30 and 35 units on the property.
Following the rejection of the 30 unit proposal, by the City of Prospect, in early 2015, Mr Younan and Mr Vartzokas agreed that a second set of plans would be prepared in respect of the Prospect Road land envisaging a 24 unit development, which could be resubmitted to the City of Prospect for its approval. The second set of plans was ultimately approved by the Council on 22 June 2015.
Although this is an issue, which is as yet far from fully developed, it is likely to be the case that there is a significant dispute between Mr Vartzokas, on the one hand and Mr Younan, on the other as to where responsibility lies for the first failed proposal and the costs which arose as a consequence of the second proposal and related plans being prepared. This was not an issue articulated before me, when the freezing order was made on 27 April 2017.
As at mid-June 2015, Vartzokas asserts that it was owed an amount of $48,100.00 by Nazero No 1 in respect of the architectural services provided to it, including the preparation of the two sets of drawings relating to the application for planning permission. Thereafter, it is Mr Vartzokas’ evidence that Mr Younan paid him further sums in October of 2015 and January of 2016, which reduced the debt to $23,100.00.[6]
[6] See affidavit of Anastasios Vartzokas filed 26 April 2017 at paragraph 21
Mr Younan does not agree. It is his position that he paid Vartzokas the sum of $54,380.90, in the period prior to the second development application being approved.[7] This is not an issue which can be resolved at this stage of proceedings.
[7] See affidavit of Wardy Younan filed 11 May 2017 at paragraphs 16-17
It seems to be the case that it would have been necessary for Mr Younan and/or his agents to have had access to the architectural drawings completed by Vartzokas in order to lodge the development application with the City of Prospect. In any event, Mr Vartzokas concedes that he provided Mr Younan with copies of some of the architectural drawings, which he had prepared in respect of the Prospect Road development.
Mr Vartzokas has deposed that he provided two sets of architectural drawings relating to the Prospect Road land to Mr Younan on two separate pieces of paper. The page is entitled Elevations; the second is entitled Floor Plans.
The first page is comprised of a set of four drawings of a completed block of units, indicating where such things as balconies are located; where sections of timber battens and slate are proposed to be placed as cladding on the outside of the building; and generally how it is anticipated the construction will physically appear in an aesthetic sense. The drawing is to scale and indicates the proposed height of the building, in relation to the topography of the site.
The second page is comprised of a set of three drawing of the ground floor; 1st – 3rd floor; and a landscaping. In total the drawings indicates the configuration and specific dimensions of 29 carpark spaces; 12 two bedroom/two bathroom apartments; 12 two bedroom/bathroom apartments; and the location of other carpark spaces and landscaping proposed to be placed on the site. The square meterage of each floor is indicated, particularly the area for living areas; staircases; fire escapes; and carpark spaces.
Each page bears the logo of Vartzokas Architects Pty and the following notation:
“These drawings are the copyright property of the architect and are not to be reproduced or copied without prior written licence of the architect ©.”
The gravamen of the current case turns on what was done with these documents, particularly in the context of the second envisaged step of the architectural services proposed to be provided by Vartzokas, namely the preparation of the construction documents necessary to construct the proposed 24 units on the Prospect Road land. These plans, together with the developmental approval obtained from the City of Prospect are, for obvious reasons, relevant to the value of the land in question.
Other controversies arise between Mr Vartzokas and Mr Younan in respect of what occurred between mid-2015 and May 2016. In July of 2015, Mr Younan asserts that he had a conversation with Mr Vartzokas in which he indicated that he wished to engage someone else to prepare the construction drawings because he deemed Mr Vartzokas’ firm to be too expensive. He further asserts that Mr Vartzokas told him that he would release the CAD drawings to him, when he (Mr Younan) had paid all the money owed by him.[8]
[8] See affidavit of Wardy Younan filed 11 May 2017 at paragraph 22
Mr Vartzokas has not specifically deposed as to whether this conversation did or did not take place, in the form asserted by Mr Younan. However, Mr Vartzokas does assert that he forwarded an email to Mr Younan in the following terms:
“When I have received all my amount due I will release full copyright and all drawings to you in regards to the Prospect project … ”
It is Mr Vartzokas’ evidence that he provided a full set of drawings to Mr Younan, on behalf of Nazero No 1, on 12 January 2016, in addition to earlier drawings, which had been prepared in respect of the earlier stages of the development. It is now clear that Mr Younan, through his agent, Mr Zaarour, provided these documents to a firm Archi-Build, in July of 2015, which was retained to prepare construction drawings, arising from the approved development of the Prospect Road property, for a fee of $16,800.00.
Since the issue of the freezing order on 27 April 2017, Mr Younan has provided evidence regarding the ownership of the Prospect Road land at relevant times. On 18 January 2014, Nazero No 1 executed an agreement to purchase the property for a sum of $1,023,000.00, with settlement due on 17 September 2014.
The relevant contract of sale was varied on 7 June 2014, with the purchase price becoming $1,017,500.00 and settlement extended to 30 November 2014. Nazero No 1 paid a licence fee to use the property until settlement and if settlement did not occur, as scheduled, the company would forfeit its deposit of $25,000.00. It was in this context, Mr Younan engaged Vartzokas. Later again, a further sum of $11,100.00 was paid to extend the settlement date beyond 30 November 2014.
In his affidavit, Mr Younan describes this process as Nazero No 1 holding various options to purchase the Prospect Road land, which it (Nazero No 1) did not formally exercise. As such, it was never the registered proprietor of the land.
In April of 2015, Nazero No 1 changed its name to Zeecat Constructions Pty Ltd “Zeecat”. Mr Younan has deposed that the name change occurred because Nazero No 1 was subject to litigation in the Supreme Court of New South Wales and, as such, he was desirous of minimising any potential brand damage to the Nazero name. He and his son Jarrod Younan apparently operate a number of companies which have Nazero in their titles.
Mr Younan concedes that he did not tell Mr Vartzokas of this change in name. From his perspective, it was none of Mr Vartzokas’ business. In mid-June of 2015, Mr Younan, his wife and Mr Jarrod Younan sold their shares in Zeecat to Minh Luan Jimmy Luong for an undisclosed price.[9] Mr Younan ceased to be a director of the company.
[9] See Annexure WY 06 to the affidavit of Mr Younan filed on 11 May 2017 being Share Sale Agreement. The copy document provided is unexecuted and the schedule containing the purchase price is blank.
On 24 June 2015, Mr Younan caused to be incorporated the company, which is the first named respondent in these proceedings, Nazero Group SA Pty Ltd “Nazero Group”. Again Mr Younan did not provide Mr Vartzokas with any information regarding this development nor that on 20 July 2015, Nazero Group settled the contract to purchase the Prospect Road land and so became its registered proprietor.
The purchase price of the land was $1,017,500.00, which attracted stamp duty of $49,792.50 and registration fees of $7,781.50, which totals $1,075,074.00. Mr Younan has deposed that this sum was obtained by Nazero Group mortgaging the land to NAB and funds advanced by his son Jarrod and an investor, Mr Zaarour. As indicated above, it was Mr Zaarour who engaged with Archi-Build to prepare the construction drawings.
Mr Younan has deposed that it “made sense to [him]” to settle the sale of the Prospect Road land “in a new entity” given that he was disposing of Zeecat and “had partners in the investment.” As previously indicated, as at mid-2015, from Mr Vartzokas’ perspective, his company was owed around $48,000.00 by Nazero No 1 in respect of the work it had done in preparing the drawing and planning proposal for the Prospect Road land. He pursued Mr Younan for this sum and was paid some further monies.
In early May 2016, solicitors for Vartzokas issued a statutory demand against Nazero No 1 seeking payment of $23,100.00. This demand was unsatisfied and led to Vartzokas taking winding up proceedings against Zeecat in the Federal Court at Adelaide. Zeecat was wound up by order of the Federal Court made on 27 July 2016.
In respect of the winding up, Mr Younan deposes as follows:
“I was unaware that the Applicant had issued Zeecat Pty Ltd with a statutory demand, that Zeecat Pty Ltd had failed to respond to the statutory demand or that the applicant commenced wind up proceedings against Zeecat Pty Ltd. Even if I had been aware, I would not have had any authority to take any steps on behalf of Zeecat Pty Ltd in respect of any of those matters.”[10]
[10] Ibid at paragraph 33
On 17 October 2016, solicitors engaged by Vartzokas wrote to the directors of the Nazero Group indicating concern about the latter’s unauthorised use of the former’s intellectual property in respect of the development of the Prospect Road property. The letter noted the change of name of Nazero No 1 to Zeecat and the liquidation of the latter. It reiterated that Vartzokas retained the intellectual property rights, including copyright in respect of the architectural services provided by it to Nazero No 1, for which it had not been paid.
Exception was taken to the alleged fact that an estate agent had been using Vartzokas’ 3D renders of the development in connection with the marketing for sale of the Prospect Road land, which it was asserted represented a breach of copyright. In this context, a demand was made that Nazero Group cease to use Vartzokas’ intellectual property in respect of the development.[11]
[11] See affidavit of Nicholas John Anderson filed on 9 May 2017
On 18 January 2017, Mr Vartzokas was approached by Mr Ray Chen, who indicated to him that he represented a company – Yi Hong Pty Ltd “Yi Hong” which had purchased the Prospect Road land and was interested in retaining Mr Vartzokas and his firm to provide architectural services in respect of the land.
As a consequence of this approach, Mr Vartzokas asked Mr Chen to provide him with a copy of the contract of sale of the Prospect Road land to Yi Hong and any drawings received in conjunction with it. Mr Chen provided these documents on 17 February 2017.
The relevant contract indicates a sale price of $1,190,000.00 with GST of $119,000.00 making a total of $1,309,000.00. Settlement is indicated as being due on 28 April 2017. In this context, as previously indicated, counsel for the respondents is critical of the applicant for delaying the institution of the freezing order proceedings until 26 April 2017, when it became aware of the settlement date in mid-February of 2017.
The contract was executed by Mr Younan, as a director of Nazero Group. It is subject to what are described as a number of condition precedents which are specified in Annexures B & C to the agreement and include the following:
·Under the heading Plans in Annexure B
7.1 Transfer
(a)Without limiting Further Condition 3.1(e)Av, the Vendor will use its reasonable endeavours to, and only to the extent it can legally, provide to the Purchaser at Settlement copies of the Plans which are the property of and in the possession of the Vendor.
(b)For the avoidance of doubt, in using its reasonable endeavours under Further Condition 7.1(a) , it would be unreasonable for the
VendorPurchaser (in order to obtain ownership) to be required to pay any fees or amount to any supplier or provider of a Plan.7.2 No Objection
Notwithstanding anything else in this Further Condition 7, Settlement must occur despite the fact that:
(a)The Vendor has not been able to provide the Purchaser with a copy of a particular Plan; or
(b)The benefits available to the Vendor under a Plan may not be available to the Purchaser following Settlement.”[12]
[12] See affidavit of A Vartzokas filed 26 April 2007 – Annexure B – page 95
·Under a further heading Plans in Annexure C
3. Plans
3.1The purchaser acknowledges receiving the following documents from the Vendor:
(a)copy of Development Approval in relation to the development of 24 residences on the Land (Development Approval); and
(b)working drawings from the Vendor's architect (Archibald [sic] as noted on the drawings), which relate to the Development Approval.
3.2Further to Additional Further Condition 3.1 above, the Vendor will use its reasonable endeavours to provide to the Purchaser at Settlement copies of any additional documents comprising the Plans which are the property of and in the possession of the Vendor.
3.3 The Vendor advises that:
(a)prior to engaging Archibald [sic] as his architect, he had engaged Tom Vartzokas; and
(b)the Vendor and Tom Vartzokas are currently in dispute in relation to fees charged by Tom Vartzokas to the Vendor in relation to the Development Approval.
3.4Notwithstanding Additional further Condition 3.3 above, but without limiting Further Condition 3:1(e)Av in Annexure B, to the best of the Vendor’s knowledge, the Vendor believes that the Purchaser has full use of the Development Approval for the Purchaser's benefit.
3.5Should Tom Vartzokas make a claim against the Purchaser for using the Development Approval:
(a)the Purchaser must notify the Vendor lmmediately; and
(b)subject to the Purchaser complying with Additional Further Condition 3.5(a) above, the Vendor will Indemnify the Purchaser against such a Claim.
3.6Should Tom Vartzokas or the Council attempt to prevent the Purchaser from having the benefit of the Development Approval:
(a)the Purchaser must notify the Vendor immediately; and
(b)subject to the Purchaser complying with Additional Further Condition 3.6(a) above, the Vendor will take all reasonable steps to resolve the Issue with Tom Vartzokas and/or Council (including payment of the disputed fees to Tom Vartzokas if necessary) to able the Purchaser to have the benefit of the Development Approval.
3.7Other than the Vendor's obligations included at Additional Further Condition 3.6(b), the Vendor shall not be responsible for payment of any other monies in relation to the Plans.
3.8 Confidentiality
The Purchaser waives the Vendor’s obligations to comply with Additional Further Conditions 3.5 and 3.6 should Tom Vartzokas or the Council become aware of the terms of this Agreement, other than through disclosure by the Vendor (or the Vendor's representatives), and any money paid by the Vendor pursuant to Additional Further Conditions 3.5 and 3.6 will be recoverable by the Vendor against the Purchaser as a debt.”[13]
[13] See affidavit of A Vartzokas filed 26 April 2007 – Annexure C – page 100
Neither Mr Jenner, counsel for the applicant, nor Ms Walker, counsel for the respondents made reference to these specific provisions, which ostensibly at least, seem to have some application to the plans in question. One possible inference arising from the provisions in question is the Mr Younan was aware that Mr Vartzokas was aggrieved that his fees remained outstanding and had indicated his view that he retained some form of proprietary interest in the plans, which had been prepared for Nazero No 1 by his firm.
Along with the contract, Mr Chen provided Mr Vatzokas with a set of technical drawings in respect of the Prospect Road land. I have not received any expert or technical evidence in respect of these drawings, which are comprised in seven sheets, entitled Construction Certificate 24 Residential Units 227 Prospect Road, Prospect. At the foot of each page is the legend “Designed by Vartzokas Architects Pty Ltd” along with the logo and name of Archi-Build.
The drawings appear to be technical in nature. Each sheet contains construction details of the proposed building including of walls and the roof; details of windows; construction dimensions of stairs and stairwell; detailed specifications of the layout of individual apartments; placement of smoke alarms and fire doors; and placement of ventilation ducts and hot water units.
It is Mr Vartzokas’ evidence that the drawings provided to him by Mr Chen were considered by him “to be a reproduction of the whole or a substantial part” of the drawing which he had prepared previously and in respect of which he had reserved copyright. Undoubtedly there is a high degree of similarity.
In the context of the current proceedings, there appears to be no great controversy that the drawings compiled by Archi-Build could not have been completed without access to the Vartzokas material, although it is also apparent that technical detail has been added to them subsequently, which is not of itself directly attributable to the first set of drawings.
It was this set of circumstances, which led Vartzokas to instigate the relevant proceedings in this court, which were delivered to court under cover of a letter dated 24 April 2017, which indicated as follows:
“The applicant seeks that the application in a case be heard ex parte as there are grave concerns that the funds will be dissipated either prior to, or immediately following, the settlement of the property by the first and/or second respondent.”
24 April was a Monday. The following day was the ANZAC Day public holiday. The case was listed on Thursday 27 April 2017 as a consequence of the indications made by the applicant, particularly that settlement of the sale of the Prospect Road land was scheduled for 28 April. This was the background to the making of the freezing order.
Legal principles applicable to the making of a freezing order
In the earlier judgment, I summarised the applicable principles applicable to what I incorrectly characterised as a Mareva injunction,[14] in the following terms:
[14] See Cardile v LED Builders Pty Ltd (1999) 198 CLR 380 at 412 [80] per Kirby J
“Section 15 of the Federal Circuit Court of Australia Act 1999 (Cth) empowers the court to make whatever orders, including interlocutory orders, as it thinks appropriate. Section 14 directs the court to grant all remedies to which any of the parties before it appears to be entitled in respect of a legal or equitable claim properly brought forward…
Accordingly, I am satisfied that the court has a broad jurisdiction, including in the area of copyright, to make any necessary injunction it considers appropriate. A Mareva injunction is one which is granted to prevent a party from disposing of assets with the intention of frustrating the enforcement of a judgement.[15] It is a drastic remedy, which is not to be granted lightly.
Part 5 of the Federal Circuit Court Rules 2001 deals with urgent applications. Pursuant to this Part, the court is authorised to make interim orders on an ex-parte basis, in circumstances of urgency. The onus lies on the applicant, for any ex-parte, order to establish by affidavit the circumstances of urgency, which justify the making of such an order.
In order to be successful, in an application for a Mareva injunction, an applicant must firstly establish an arguable case for relief in the primary proceedings concerned. Secondly, the applicant must demonstrate, by real evidence, that a refusal to make the injunction sought would involve a real risk that any judgement, in the applicant’s favour, would remain unsatisfied because of the concealment is dissipation of assets. Thirdly, as with all injunctions, the balance of convenience must favour the making of such an order.
Given the ex-parte basis of Mareva injunctions, an adequate undertaking in damages is also necessary. This may extend to the protection of third parties, who may be affected by the making of any such injunction or who may incur expense in complying with it.
[15] Mareva Compania Naviera SA v International Bulk Carriers SA [1975] 2 Lloyds Rep 509
…
In Clout (Trustee) v Anscore Pty Ltd & Ors[16] Drummond J summarised the requirements, to be satisfied before a Mareva injunction should be granted as follows:
“… the requirements which must be satisfied before a Mareva order can be made against a party to an action, viz, that the applicant must establish by evidence a prima facie case, in the sense of an arguable case, that it will obtain a judgment against the particular party, that the applicant must demonstrate by evidence that there is a real risk that, unless restrained, the respondent will deal with its assets so as to frustrate enforcement of that judgment and, finally, that the Court, in granting any interlocutory relief, including a Mareva order, should generally grant the minimum relief necessary to do justice between the parties.”
[16] Clout (Trustee) v Anscore Pty Ltd & Ors [2000]FCA 727 at [6]
Given the controversy created by these proceedings and the truncated and ex parte nature of the first hearing, it is appropriate that I expand upon this summary. As indicated above, the court’s authority to make an order of the kind sought by the applicant stems from section 15 of the Federal Circuit Court of Australia Act which empowers the court to make whatever orders, including interlocutory orders, as it thinks appropriate.
Such a power has been characterised as being wide in nature, but subject to the limitation that it be exercised for the purpose for which it has been conferred, which necessarily must include the prevention of any abuse or frustration of the court’s process. As such, the moulding of any interlocutory injunction must depend upon the circumstances of the particular case concerned.
In this context, the High Court held as follows:
“The general principle which informs the exercise of the power to grant interlocutory relief is that the court may make such order, at least against the parties to the proceedings against whom relief might be granted, as are needed to ensure the effective exercise of the jurisdiction invoked.”[17]
[17] See Patrick Stevedores Operations No 2 Pty Ltd v Maritime Union of Australia (1998) 195 CLR 1 at 32
Accordingly, one of the prime purposes of a freezing order is as an aid to the administration of justice. In Cardile the High Court approved this passage and provided other principles, relating to the making of interlocutory orders, in the nature of Mareva orders, particularly in the context of their application to third parties. Following my reading of the judgment, I have attempted to summarize those principles as follows:
·It is a drastic remedy, which should not be granted lightly;
·This is because it imposes a severe restriction upon a party’s entitlement to deal with his/her assets, in circumstances where the party seeking to impose the restriction has not as yet been able irrefutably to establish to the court any such entitlement to do so in concluded proceedings;
·The purpose of such orders is not to provide de facto security in advance of judgment nor to improve the position of a plaintiff in the event of the insolvency of a defendant;
·In this context, it is likely to be difficult to quantify, with precision, the amount of damages likely to be granted on judgment and as a consequence of which it is apprehended assets may be disposed.
·This necessitates great care being taken in the framing of such orders, particularly the extent of any freezing order, as an order lightly or wrongly granted may have a capacity to impair or restrict commerce;
·In this context, the court should consider matters relating to the practicality of the order concerned;
·It is a discretionary remedy. As such, any applicant for such relief must proceed diligently and expeditiously;
·An applicant must show a reasonably arguable case on both legal and factual matters.
Counsel for the respondent also contends that an applicant for a freezing order must also act with complete candour before the court, on the making of any ex parte order. This responsibility arises as a consequence of the importance of the expectation that the community should have complete confidence that ex parte orders will only be made in appropriate circumstances of urgency. This is important because of the extreme nature of such orders.
This responsibility of candour entails any applicant putting forward information, which may be adverse to its case before the court, including the details of any potential defences available to the respondent concerned. In this context, Ms Walker relies on what was said by Allsop J (as His Honour then was) in Walter Rau Neusser und Fee v Cross Pacific Trading Ltd:
“In an ex parte hearing, it is the obligation of the party seeking orders, through its representatives, to take the place of the absent party to the extent of bringing forward all the material facts which that party would have brought forward in defence of the application. That does not mean stating matters obliquely, including documents in voluminous exhibits, and merely not mis-stating the position. It means squarely putting the other side’s case, if there is one, by coherently expressing the known facts in a way such that the Court can understand, in the urgent context in which the application is brought forward, what might be said against the making of the orders. It is not for the Court to search out, organise and bring together what can be said on the respondents’ behalf. That is the responsibility of the applicant, through its representatives.”
This responsibility of an applicant to be candid with the court arises as a consequence of the court’s obligation to ensure that any freezing order should be made only if the applicant concerned has established an appropriate basis for the granting of the order concerned. Such a basis, for obvious reasons, must relate to the overall strength of the case for the final relief sought in the pleadings.
Essentially, the applicant concerned must establish, firstly, that its case has sufficient prospects to merit the granting of such an order; and secondly that there is a sufficient degree of risk that assets will be dissipated in order to frustrate the court’s ultimate judgment which, of itself, would be contrary to the interests of justice as potentially leading to a frustration of the court’s jurisdiction.
It is the respondent’s position that the applicant was not candid with the court in its initial application for the freezing order; did not act expeditiously; and does not have a sufficiently strong case to merit the making of such an order.
In the event that these submissions are not accepted by the court, it is the contention of the applicants that the amount of money currently subject to the order is excessive, given the lack of precision in the applicant’s case regarding any damages likely to be awarded to it and the unfairness resulting to it in a significant amount of money being tied up for a potentially lengthy period of time.
Some controversy arose between counsel for the respective parties as to the distinction between an arguable case and a good arguable case. In Insolvency Guardian Melbourne Pty Ltd v Carlei[19] Edelman J considered that the latter phrase had had a long history in the law but had been regarded as the equivalent of the general law requirement, explained by the High Court in Cardile, that an applicant for a freezing order must establish that it has a reasonably arguable case on legal and factual matters. As such the claim must be more than an assertion.
[19]Insolvency Guardian Melbourne Pty Ltd v Carlei[2016] FCA 72
The substantive claim – is it reasonably arguable?
The applicant’s case is based on the similarity between the drawings it provided for Nazero No 1 and the drawings which came into its possession, via Mr Chen, which carried both its claim of copyright and the logo of Archi-Build. In these circumstances, the applicant contends that it must be axiomatic that its drawings have been reproduced and it did not give any permission, either actual or implied, for this to occur.
In this context, the applicant has made a claim for infringement of its copyright in the drawings concerned. Pursuant to section 32 of the Copyright Act 1966 (Cth) “the Act” copyright subsists in an artistic work. Pursuant to section 31(1) such copyright entitles the exclusive right to reproduce the work in question.
Pursuant to section 10 of the Act, an artistic work can include a drawing whether such drawing is of artistic quality or not. In Concrete Pty Ltd v Parramatta Design & Development the High Court (Kirby & Crennan JJ) held as follows:
“An architect who is the author of two-dimensional architectural plans and drawings has copyright in those plans and drawings as ‘artistic works’ … It will be an infringement of such copyright to reproduce or publish those drawings without the architect’s permission.”[20]
[20] Concrete Pty Ltd v Parramatta Design & Development (2006) 229 CLR 577 at 595 [58]
The applicant relies on this passage to support its assertion that it is clearly the case that the respondents have utilised its drawings, without its explicit permission and have therefore infringed its copyright. It seeks either damages or an account of the profits arising from this infringement together with exemplary damages.
The respondents’ position is that it holds an implied licence to use the relevant plans in the context for which they were created, namely the development of the Prospect Road land. Accordingly, it was entitled to provide the relevant drawings to Archi-Build to permit their adaptation so that they could be utilized to this specific end.
This principle is most simply (and eloquently) expressed in the English case of Blair v Osborne & Tomkins where Lord Denning MR said as follows:
“…when the owner of a building plot employs an architect to prepare plans for the building on that site, the architect impliedly promises that, in return for his fee, he will give a licence to the owner to use the plans for the building on that site. The copyright remains in the architect, so that he can stop anyone else copying his plans, or making a house from them; but he cannot stop the owner, who employed him, from doing work on that very site in accordance with the plans. If the owner employs a builder or another architect, the implied licence extends so as to enable them to make copies of the plans and to use them for that very building on that site: but for no other purpose. If the owner should sell the site, the implied licence extends so as to avail the purchaser also."”[21]
[21] Blair v Osborne & Tomkins [1971] 2 QB 78 at 85
The Court of Appeal expressly approved a New South Wales authority Beck v Montana Constructions Pty Ltd[22] to this effect. In Gruzman Pty Ltd v Percy Marks Pty Ltd McLelland J, in reference to these lines of authority, said as follows:
“When an architect contracts with a building owner to produce plans for the purpose of their being carried out construction work at a particular site, there arises, subject to any contractual provision to the contrary, an implied licence from the architect for the use of the plans for that purpose… once granted and acted upon by the commencement of the work, the licence was irrevocable, notwithstanding the failure by the owner to pay the architect’s fees.”[23]
[22] Beck v Montana Constructions Pty Ltd [1964 – 5] NSWR 229
[23] Gruzman Pty Ltd v Percy Marks Pty Ltd (1989) 99 FLR 116 at 118
On the basis of these authorities, it is the respondent’s submission that the applicant does not have a reasonably arguable case that its copyright in the plans in question has been infringed in circumstances where the plans were provided to Archi-Build in connection with the particular parcel of the land – the Prospect Road land – for which use they were both envisaged and created in the first place.
Further, it is submitted that it was incumbent on the applicant, when applying for the ex parte freezing order, to bring this line of authorities to the court’s attention in order to discharge its obligation to be candid with the court. This duty of disclosure axiomatically including a responsibility, on its part, to inform the court of what it should have anticipated would by the position of Nazero Group in respect of the plans that it held an obvious implied authority to use them in the manner in which it had done.
What is clear from Gruzman (supra) is that the parties to an agreement to provide architectural services may contract out of an assumption that the provision of any plans, as a consequence of that agreement, creates with it an implied licence authorizing the subsequent use of those plans in any particular or specified manner.
In Concrete Pty Ltd the High Court was sitting as a bench of four. The plurality (Kirby & Crennan JJ) approved Beck v Montana but, in my view, provided a possible but nonetheless significant rider upon it, when they conjectured as follows:
“The position may be otherwise if the architect has charged a nominal fee only to prepare drawings for the limited purpose of obtaining a planning permission … In those two cases [Beck v Montana; Blair v Osborne] … the architects were utilising standard contract conditions and scales of professional fees determined by their professional institutes and the rationale for implying a consent in all of them depended on the architect’s reward or fee.”[24]
[24] Concrete Pty Ltd v Parramatta Design & Development (supra) at 600 [72]
In the current matter, when compared to the other fees, which Nazero No 1 had ostensibly agreed to, the fee actually levied by Vartzokas for preparing the necessary plans for developmental approval was modest. Vartzokas stood to gain, in financial terms, from seeing its intellectual capital move literally from the page into brick and mortar, over the course of the development of the land. In this context, by endorsing its plans with the notation that it preserved its copyright in them, it was attempting to preserve its entitlement to this source of potential enrichment.
The facts arising in Concrete Pty Ltd are significant and, in my view, indicate that the postulation posed by Kirby & Crennan JJ remains unresolved. The case concerned a joint venture between two companies to develop a site which both owned and then sell it. One of the companies concerned was a firm of architects, which provided drawings for the purpose of obtaining developmental approval at no cost. The relationship between the two companies soured. The firm of architects subsequently sought to restrain the other company from using its plans by asserting its ownership of copyright in them.
Accordingly, in Concrete Pty Ltd the issue of whether the absence of payment for architectural services in question was germane, particularly whether any licence arising was conditional on payment in full being received. In this context, Kirby & Crennan JJ considered that the fact that no fees had been paid for the relevant architectural drawings was a factor which needed to be assessed from the circumstances surrounding the joint venture. They held as follows:
“…in the absence of an agreement to the contrary, an express contract or an express reservation of copyright, an owner (or a co-owner) of land who is an architect, who himself prepares plans or drawings, free of charge, for himself (or for himself and other co-owners) impliedly consents to himself as owner (or co-owner) using the plans and drawings for the purposes for which they have been prepared. The “reward” to the architect in such circumstances is not the “feel” which accompanies an orthodox retainer between an architect and client. The reward is so much of the net profits expected to eventually flow at the conclusion of the joint venture in respect of which he is both “architect to the joint venture” and a “joint venturer”, which are referrable to the fact that the joint venture partners did not have to incur a disbursement for architect's fees. The fact that an architect might be prepared to share that part of the net profit with his co-venturers does not detract from the foregoing analysis. For this reason, the argument that there is no consideration in these circumstances must be rejected. It follows that such circumstances are distinguishable from those cases in which there is a bare licence, revocable at will.”[25]
[25] Ibid at 603 [84]
Gummow ACJ considered that the legal rights and duties of the parties in Concrete Pty Ltd turned on the particular circumstances of the case involved, particularly the entitlement of the joint venturers concerned to share in the profits arising from the sale of the property. As such, His Honour indicated that he did not consider that the case “turn[ed] upon any implication as a matter of law in a contract of a particular description.”[26]
[26] Ibid at 583 [18]
Ms Walker relies particularly on the following passage from the joint judgment of Kirby & Crennan JJ:
“…in the absence of any reservation of copyright in the plans and drawings, or any withdrawal of the development application by Parramatta Design prior to its determination, once the development consent has been granted the implied licence or consent to the owners must be irrevocable, because one of the purposes for which the plans and drawings were prepared has then been achieved. Further, an owner who sells (or does not oppose the sale of) the land, with the benefit of the development consent, must be taken to be passing on the benefit of the implied consent it holds to the purchaser, such conduct being within the ambit of the implied consent which the owners originally received from the architect as explained above.”[27]
[27] Ibid at 605 [95]
It is Mr Vartzokas’ position that he did expressly reserve the copyright in his drawings and indicated to Mr Younan that he would not release it to him until his fees had been paid in full. The relevant contract of sale, between Nazero Group and Yi Hong, whilst warranting that the vendor has the full authority to transfer the benefit of the plans leading to the developmental approval of the Prospect Road land, alludes at least to the possibility of Mr Vartzokas not accepting this position.
Mr Jenner relies on statements by Kirby & Crennan JJ in Concrete Pty Ltd indicating that problems often arise in cases involving an implied licence to use architectural plans and that the issue of whether such a licence is to be implied may depend upon all the circumstances prevailing in the particular case concerned, particularly if such an implication is otherwise inconsistent with the contract concerned. [28]
[28] Ibid at 596 [59]
In all these circumstances, I reject the assertion that Vartzokas does not have a case against Nazero Group on the basis that it is, to my mind, potentially arguable that it (Vartzokas) conveyed a bare licence to the respondents to utilise its drawing, in the making of the planning application, which was potentially revocable, if its fees were not paid. The nicety of the legal issue being did such licence subsequently become irrevocable when planning approval was gained, this being the purpose for which the drawings were created in the first place?
In my view, the case law, particularly Beck v Montana indicates that it is probable that such a licence was created. However, as the plurality indicated in Concrete Pty Ltd, it may be the case, in certain circumstances, if only a nominal fee is charged, that such licence can be revoked, particularly given what was anticipated by the parties concerned as the development in question moved closer to fruition.
The issue is likely to be resolved only when further evidence becomes available in respect of the significance of the fee agreement entered into between the parties, particularly in regards to the anticipated sharply stepped increases in Vartzokas’ fees occurred, as the development proceeded. Accordingly, I would regard the claim as currently instituted by Vartzokas as being one which is reasonably arguable.
Delay in seeking freezing order
The evidence is clear that Mr Vartzokas became aware of the sale of the Prospect Road land in February of this year and only instituted the relevant proceedings a few days prior to the settlement of the sale. The only explanation given for the delay is the time likely to be required to assess potentially complex legal issues.
The respondents also point to the fact that the applicant’s solicitor forwarded correspondence to the Nazero Group, in October of 2016, calling upon it to cease and desist from using its allegedly copyright material but did nothing further about its demand.
I accept that, in the circumstances of this case, the delay concerned was significant and the explanation for it not particularly compelling. I will take these matters into account when determining whether the freezing order should be continued and on what terms, bearing in mind the fundamental objective of the order is whether it remains necessary to achieve justice between the parties concerned.
Lack of Candour
It is the case that the parties fundamentally disagree about how the relevant legal principles are to be applied in the case, particularly whether Vartzokas provided to Mr Younan and the various entities with which he is associated an irrevocable licence to use the drawings concerned to advance the development of the Prospect Road land up to and after developmental approval had been obtained.
The issue is a complicated one. It was not advanced by Mr Jenner at the initial ex parte hearing. However, I do not consider that this, of itself, indicates a lack of candour on the part of the applicants. As Mr Jenner indicated, there are few controversies arising between the parties as to the factual situation in the case. Where controversy arises is in how the law is to be applied to that factual situation. In my view, this is not a case where Vartzokas can be criticised for attempting to pull the wool over the eyes of the court or for willfully omitting some salient fact or matter to such a degree that its conduct should rob it of the benefit of a wholly discretionary remedy.
From Vartzokas’ perspective, it had entered into a contract to provide architectural services to one entity. It had not been paid for its services by that entity. It had attempted to obtain redress from the party with whom it had contracted but to no avail. It had also attempted to retain its copyright in the artistic material, which it had created, only to discover that this material had been utilised, by another entity, in respect of a service for which its services had apparently been previously been accepted by the party with which it had contracted.
Extent of possible damages
The evidence of Mr Younan is that Nazero Group has made only a modest profit from the sale of the Prospect Road land, which it purchased for $1,075,074.00 and sold for $1,309,000.00. From this ostensible profit of $233,926.00 he asserts other significant developmental costs must be deducted including drafting costs ($16,500.00); hydraulic engineering costs ($16,800.00); real estate commission ($21,511.00); rates and land tax ($12,728.00); utilities ($2,319.00); and finance costs ($35,329.00); which totals $105,187.00.[29]
[29] See affidavit of Mr Younan at paragraph 26
In these circumstances, it is the respondents’ position that they are not likely to make any significant profit, if any, from the development of the Prospect Road land and accordingly, any share of the profits, so far as Vartzokas is concerned is likely to be illusory.
Mr Jenner cautions the court in respect of accepting Mr Younan’s uncorroborated assertions in respect of these costs. However, putting aside the issue of exemplary damages, Mr Jenner assesses his clients’ claim to fall somewhere between $23,100.00 – the amount of the fees alleged to be outstanding – and $63,600.00.
In my view, at this stage, the issue of whether firstly additional damages under section 115(4) will be awarded in this case and secondly their quantum is extremely problematic. As such, the court must be extremely careful about retaining monies, quite possibly for a lengthy period of time, in respect of an uncertain claim.
In determining the amount to be retained in court, if anything, in my view, the court must act conservatively bearing in mind that it is a severe imposition to prevent any individual from dealing with his or her assets prior to the conclusion of proceedings. It should only be done if the individual circumstances of the case concerned are such that it is in the interest of justice to do so.
Conclusions
As indicated above, for the purpose of the present application, I have come to the conclusion that Vartzokas has established that it has a reasonably arguable case that its copyright has been infringed, on the basis that it did not convey an irrevocable licence to use the plans in question and reserved its copyright in them. Vartzokas has not however, by any means, established that it is certain of obtaining any particular form of relief.
The next question is whether, in all the circumstances of the case concerned, the interests of justice support the continuation of the current freezing order and, if so, what its form should be. In Gruzman Pty Ltd v Marks Pty Ltd McLelland J said as follows:
“When a plaintiff’s entitlement to ultimate relief is uncertain, the court, in deciding to grant or refuse an interlocutory injunction, must consider what course is best calculated to achieve justice between the parties in the circumstances of the particular case, pending the resolution of the uncertainty, bearing in mind the consequences to the defendant of the granting of an injunction in support of relief to which the plaintiff may ultimately be held not to be entitled, and the consequences to the plaintiff of the refusal of injunction to which the plaintiff may ultimately held to be entitled.”[30]
[30] Gruzman Pty Ltd v Percy Marks Pty Ltd (supra) at 119
If the order is not continued, the prospects of Vartzokas recovering any monies from the respondents appear limited. I reach this conclusion given the history of Mr Vartzokas’ dealings with Nazero No 1. In this case, in my view, the adverse consequence for Vartzokas, if the order is not preserved in some form and it is later found to have been warranted, will be far greater than the adverse consequences for Nazero Group, if the order is found to be ultimately unjustified. However, I concede these considerations also hinge on the amount of money which is retained in court, pending resolution of the proceedings.
In my view, an appropriate amount of money to be retained by the court is $50,000.00. The parties have expressed a desire to attend a process of mediation or alternative dispute resolution, which can be organised under the auspices of the court. I will make an order to this effect. I will also reserve the costs of the proceedings.
For all these reasons, the orders of the court will be as set out at the commencement of these reasons for judgment.
I certify that the preceding one hundred and three (103) paragraphs are a true copy of the reasons for judgment of Judge Brown
Date: 5 June 2017
[18] Walter Rau Neusser und Fee v Cross Pacific Trading Ltd [2005] FCA 955 at [30] following Thomas A Edison Ltd v Bullock(1912) 15 CLR 678 at 681-82 per Isaacs J
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