Eight Mile Style, LLC v New Zealand National Party
[2016] NZHC 741
•20 April 2016
IN THE HIGH COURT OF NEW ZEALAND WELLINGTON REGISTRY
CIV 2014-485-11220 [2016] NZHC 741
BETWEEN EIGHT MILE STYLE, LLC
First Plaintiff
MARTIN AFFILIATED, LLC Second Plaintiff
AND
THE NEW ZEALAND NATIONAL PARTY AND ANOTHER Defendants
AND
STAN 3 LIMITED First Third Party
SALE STREET STUDIOS LIMITED Second Third Party
AMCOS NEW ZEALAND LIMITED Third Third Party
AUSTRALASIAN MECHANICAL COPYRIGHT OWNERS SOCIETY LIMITED
Fourth Third Party
BEATBOX MUSIC PTY LIMITED Fifth Third Party
LABRADOR ENTERTAINMENT INC Fourth Party
MICHAEL ALAN COHEN Fifth Party
Hearing: 9 March 2016 Counsel:
G C Williams for Plaintiffs
G F Arthur and P T Kiely for Defendants
No appearance for Third Parties and Fourth PartyJudgment:
20 April 2016
EIGHT MILE STYLE, LLC v THE NZ NATIONAL PARTY & OR [2016] NZHC 741 [20 April 2016]
JUDGMENT OF BROWN J
Introduction
[1] The plaintiffs allege knowing infringement by the first defendant of the plaintiffs’ copyright in the musical composition entitled “Lose Yourself” (the Composition) by the first defendant’s communicating the Composition to the public in contravention of s 33 of the Copyright Act 1994 (the Act). They further allege knowing authorisation by the second defendant of the first defendant’s alleged copyright infringement.
[2] In both causes of action the plaintiffs sought, in addition to injunctive relief, an inquiry as to damages for infringement of copyright and additional damages under s 121(2) of the Act.
[3] The parties to the proceeding have been expanded by the inclusion of five third parties and a fourth party. The fourth party’s protest to jurisdiction was set aside by Dobson J on 2 October 2015.1 The fourth party’s application for leave to join a fifth party and to effect service overseas was granted on 19 November 2015 but the fifth party does not appear to have taken any steps.
[4] In the present application made under r 10.15 of the High Court Rules and in reliance on the inherent jurisdiction of the Court, the defendants apply for an order that there be a split trial on liability and quantum on the plaintiffs’ claim against the defendants to be conducted as follows:
(a) an initial trial to determine liability, injunctive relief and costs on that trial;
(b)only if liability is established, a subsequent trial to conduct the inquiry as to damages, including determining the issues of additional damages
and innocence.
1 [2015] NZHC 2409.
[5] The plaintiffs oppose the defendants’ application.
The claim for an inquiry as to damages
[6] In pleadings in intellectual property litigation, plaintiffs frequently seek the alternative and inconsistent remedies of an inquiry as to damages and an account of profits, for the reason that at the outset they are uncertain which remedy will prove to be the more advantageous. However it is necessary for a plaintiff to make an election between those alternative remedies at the time when judgment is entered against a defendant on liability.
[7] In the amended statement of claim the plaintiffs did not seek remedies in the alternative but only an inquiry as to damages. In the course of argument it became clear, however, that the plaintiffs did not accept that they had made an election, considering that they were at liberty to apply to amend the claim to seek an account of profits, although recognising that, in the particular circumstances of this case, it was not a route they would likely wish to pursue.
[8] Like an account of profits, an inquiry as to damages is a process separate from and subsequent to a liability hearing. However, in their submissions the defendants explained that it became apparent as a result of case management conferences that it was the plaintiffs’ expectation that the Court would conduct an inquiry as to damages at the same time as the trial, even though no order directing an inquiry had been made. As the defendants’ application dated 24 November 2015 stated:
2.6The defendants therefore understand that by their pleading the plaintiffs ask the court to:
2.6.1conduct an inquiry as to damages, before the court has granted the relief that there be an inquiry and, if so, decided the terms of the inquiry;
2.6.2determine whether there should be additional damages; and, if so,
2.6.3 determine the amount of additional damages; and
2.6.4 determine the innocence of the defendants
all at the same trial as determining whether there is copyright infringement.
[9] In response Mr Williams noted that the courts have stressed that the importance of finality in litigation requires that where damages are capable of straightforward assessment, the issue should be resolved at trial and a separate inquiry is unnecessary. He drew attention to the observation of the Court of Appeal in Rod Milner Motors Ltd v Attorney-General:2
… The jurisdiction to order an inquiry is to be used where complex issues arise which require the application of expertise not available to the Court. In particular, the jurisdiction given by R 384 should not be used as a method of obtaining separate hearings on liability and damages.
[10] I agree with the view that it is not appropriate to seek an inquiry simply to engineer a split hearing. However it does not follow that, an inquiry having been sought, it can simply be run contemporaneously with the liability claim. Both conceptually and practically I have difficulty with the notion that an inquiry as to damages in the proper sense (as distinct from an ordinary claim for damages) could be undertaken in conjunction with the liability hearing and in anticipation of the actual making of an order for an inquiry. I drew to Mr Williams’ attention the amendment made in the course of the litigation Wellington Newspapers Ltd v Dealers Guide Ltd, deleting the claim for an inquiry as to damages and substituting a
claim for $10,000 damages.3
[11] Mr Williams indicated that the plaintiffs might wish to give consideration to amending their claim to substitute a damages claim for the request for an inquiry. Understandably Mr Arthur was not enamoured with that course, submitting that the defendants’ application should be determined on the basis of the interlocutory proceedings before the Court. However no close of pleadings date had been set and the plaintiffs were at liberty to amend their claim if they wished to do so. I advised Mr Williams that I would not be releasing a judgment on the current application before 23 March 2016 and that it was open to the plaintiffs to revise their claim for
relief prior to that time.
2 Rod Milner Motors Ltd v Attorney-General [1999] 2 NZLR 568 (CA) at 581.
3 Wellington Newspapers Ltd v Dealers Guide Ltd [1984] 2 NZLR 66 (CA) at 76.
The amendment to the claim
[12] On 22 March 2016 the plaintiffs filed a memorandum advising of their intention to file an amended pleading, hopefully by no later than 6 April 2016. On
7 April 2016 a second amended statement of claim was filed. Relevant to the issue discussed above, prayer (b) for an inquiry as to damages was deleted in respect of both causes of action and replaced by a claim for damages in the following terms:
(b) Damages in the amount that the first defendant would have had to pay to the plaintiffs for a licence to:
(i) synchronize the Composition with the relevant election campaign advertisements; and/or
(ii) communicate the Composition to the public as part of the relevant election campaign advertisements; and/or
(iii) adapt, alter and/or reproduce the Composition; and/or
(iv) otherwise use and/or exploit the Composition in connection with its election campaign activities.
Particulars of damages in essentially similar terms were added to paragraphs 9 and
12 and at paragraphs 10(d) and 13(d).
[13] In view of the amendment to the pleadings I afforded the defendants an opportunity to file a further submission directed to the implications of the amendment for their current application. On 13 April the defendants filed a further submission to the effect that:
(a) the amendment was a change in form, not substance, and still required the Court to conduct an inquiry as to damages;
(b)each of the new “particulars” and the prayer for relief was in fact a broad framework for conducting an inquiry with a series of four cumulative or alternative bases on which to calculate damages;
(c) to assess the damages now sought by the plaintiffs the Court would have to conduct the same steps as would have been required on an
inquiry as to damages including the determination of the matters at
[16] below.
[14] Hence the defendants submitted that the Court should still order a split trial notwithstanding the amendment to the pleading. However, whether or not the Court granted the order sought, the defendants contended that costs should be awarded in their favour.
The parties’ submissions
The defendants’ contentions
[15] The defendants’ primary argument in support of the application was that if there is found to be no copyright infringement, then the expense and time in compiling and leading the evidence on damages, cross-examining on and preparing and making submissions on damages would be entirely wasted. Such wastage could be avoided if the Court first conducted a trial on liability alone. It was further said that, if liability is first determined, then the parties can be expected to seriously seek to avoid further cost by negotiating a settlement on quantum.
[16] The defendants rejected the proposition in the plaintiffs’ notice of opposition that damages would be capable of straightforward assessment. The defendants submitted that the Court would have to assess compensatory damages, additional damages and determine the issue of innocent infringement. Collectively those matters would require the Court to consider submissions and evidence on all the following topics:
(a) A factual enquiry as to the use by the defendants of the allegedly infringing music (how often, how much, how long, on what programs, how many people heard the music).
(b)A factual enquiry as to the use by other people of the allegedly infringing music.
(c) A factual enquiry as to the plaintiffs’ licensing and use of the allegedly
original musical work.
(d)Expert evidence on whether the plaintiffs lost any sales as a result of the allegedly infringing use of the music.
(e) Evidence on whether the plaintiffs would have granted a licence for the allegedly original music.
(f) Expert evidence on the licence fee for a willing licensor/willing licensee.
(g)Evidence on the constructive and actual knowledge of the defendants about the plaintiffs’ music and the status of the allegedly infringing music.
(h) The financial position of the defendants. (i) The conduct of the parties.
(j)Other factors relevant to flagrancy of infringement and the usual considerations for exemplary damages.
[17] The defendants maintained that there is a clear demarcation between liability and quantum and that any delay in determining quantum does not prejudice the plaintiffs, they having made a claim for interest.
The plaintiffs’ opposition
[18] The plaintiffs rejected the suggestion that the evidence on damages was likely to be particularly lengthy or complicated. They anticipate evidence relating to the licensing history of the Composition and recognise that both sides would no doubt adduce expert evidence relating to what a reasonable licence fee would have been in the particular circumstances of the case. Evidence would need to be led relating to
the defendants’ conduct (relating to whether an award of additional damages was appropriate) and to the defendants’ defence of innocent infringement.
[19] The plaintiffs made the point that it was likely that at least one of their US-based witnesses would be required to give evidence at both a liability and a quantum hearing. The witness would have evidence to give relating to both the copyright ownership position and the history of the licensing of the Composition.
[20] The plaintiffs also pointed to the factors which are usually relevant to the split trial issue, namely delay, the prospect of multiple appeals and the availability of the same Judge for both hearings. As noted above,4 they emphasise the importance of finality in litigation.
Analysis
[21] Plainly the separate consideration of liability and quantum issues can have advantages with a potential saving in time and cost. Such advantages have to be weighed against the potential significant difficulties conveniently summarised in Clear Communications Ltd v Telecom Corporation of New Zealand Limited:5
Split trials risk a number of difficulties. It is often difficult to define with sufficient precision the demarcation between those issues to be addressed at the first trial and those left for the second (see, for example, the Arklow litigation). It is not always easy to see what matters have become the subject of issue estoppel. It may be necessary to prepare issue estoppel schedules and hear argument as to their scope. A Judge may inadvertently disqualify himself or herself by expressing views on matters yet to be fully addressed at the second hearing (Winton). Findings might be inadvertently made without the benefit of evidence and argument envisaged by a party as appropriate only for the second hearing. The second hearing can require the recalling of the same witnesses with needless extra time and cost to the parties and the public. There is duplication of time spent by counsel and the Court in re-acquainting themselves with issues imperfectly remembered from an earlier trial and the time spent retraversing those matters in Court. There can be multiple appeals (in extreme cases taking the matter to the Privy Council as in Ryde v Sorenson) before returning to the Court of first instance to embark upon the second phase of the case. Even without appeals, there can be delay in embarking upon a second round of discovery and other interlocutory matters and amended pleadings following the first trial and then the delay of obtaining a fixture for the second hearing. There can be
4 At [9] above.
5 Clear Communications Ltd v Telecom Corporation of New Zealand Limited (1998) 12
PRNZ 333 (HC) at 335.
difficulties in ensuring that the same Judge is available for the second hearing, bearing in mind the usual commitments, sabbaticals, retirements and deaths which are the unhappy lot of the judiciary. If a different Judge has to preside at the second hearing there can be difficulties over earlier views as to credibility and the status of the notes of evidence from the first hearing. In my view these and other difficulties together place a heavy onus on any party seeking split trials.
[22] However as Fisher J in Clear Communications proceeded to note, in the end every case must be considered individually and the possibility of a split trial should never be dismissed out of hand. As Barker J stated in Rio Beverages Ltd v The Golden Circle Cannery:6
In the end, it comes down to a matter of discretion and judgment based often
on one’s experience in dealing with litigation generally.
[23] The plaintiffs have now committed themselves to a claim for damages, albeit it lacks the specificity to which the defendants refer in their recent memorandum. However any deficiency in the requisite pleading is a matter to be addressed by an appropriate interlocutory application.
[24] The claim for damages relates to a specific confined period, being the months of August and September prior to the 2014 General Election. The claim also concerns a particular type of alleged infringement, namely by communication to the public in contravention of s 33, although I recognise that such communication may comprise a number of modes of communication.
[25] While it would be going too far to say, as the plaintiffs do, that the assessment of damages would be capable of straightforward assessment, I do not consider that in the circumstances referred to in the previous paragraph that it should be especially burdensome, even allowing for the fact that evidence (including expert evidence) on licensing fees will be required.
[26] Save for three matters discussed below I consider that the various factors are roughly in balance which, given that the defendants have the burden of demonstrating that an order should be made, points to the application being dismissed.
[27] However in the present case in my view three matters in particular tip the balance against an order for a split trial.
[28] First, there are some cases where the primary dispute concerns liability. Once liability issues have been determined the issue of damages is more in the nature of an accounting exercise. In such cases the proposition which the defendants here advance, that a negotiated settled on quantum will obviate the need for a subsequent hearing, will gain traction.
[29] However where, as here, the claim seeks an award of additional damages under s 121(2), intuitively I consider that the prospects of a settlement on quantum are reduced. That section states:
121 Provisions as to damages in infringement proceedings
…
(2) In proceedings for infringement of copyright, the court may, having regard to all the circumstances and in particular to–
(a) the flagrancy of the infringement; and
(b) any benefit accruing to the defendant by reason of the infringement,–
award such additional damages as the justice of the case may require.
[30] In Skids Programme Management Ltd v McNeill7 the Court of Appeal concluded that s 121(2) gives the Court the power to award damages that are not linked to a compensation award. The power is to be exercised applying principles that correspond to those which govern awards of exemplary damages at common law. The Court further observed that the subsection has no stated temporal limitation in relation to what is relevant in the assessment process, although noting that the particular items of flagrancy and benefit to the defendant are more specific.
[31] I am inclined to agree with Mr Williams’ contention that the defendants’
exposure on the pleadings to additional damages is a matter which renders it unlikely
that the discrete determination of liability would lead to a settlement of the quantum issues.
[32] A second and related factor referred to by Mr Williams which bears on the likelihood of the litigation being resolved without a second hearing is the fact of the defence of innocent infringement pleaded in the statement of defence in relation to both causes of action.
[33] Section 121(1) states:
121 Provisions as to damages in infringement proceedings
(1) Where, in proceedings for infringement of copyright, it is proved or admitted that at the time of the infringement the defendant did not know, and had no reason to believe, that copyright existed in the work to which the proceedings relate, the plaintiff is not entitled to damages but, without prejudice to the award of any other remedy, is entitled to an account of profits.
[34] The onus of proof is on a defendant to establish that the defendant did not know, and had no reason to believe that, copyright existed in the work. On the face of it this defence is more limited than that previously provided by s 24(2)(b) of the Copyright Act 1962 which referred to a lack of knowledge that “it was an infringement of copyright”.
[35] Mr Arthur’s submission was that there is a clear demarcation between liability and quantum and that the innocent infringement defence would be addressed at the second hearing, if that hearing proved necessary. However, again as a matter of intuition, the prospects of a second hearing being avoided do not appear high if a finding of infringement was made but the issue of innocent infringement remained unresolved.
[36] A third factor concerns the involvement of the five third parties, the fourth party and the fifth party. As previously noted8 the order sought is for a split trial on liability and quantum “on the plaintiffs’ claim against the defendants”. The plaintiffs’ claim against the defendants is confined to the two copyright causes of action referred to at [1].
[37] However it is apparent that the defendants propose that all liability claims should be resolved at the first hearing, not just the two copyright causes of action involving the plaintiffs and the defendants. The downstream claims against the joined parties are reasonably extensive comprising:
(a) claims by the defendants against the first third party for breach of contract and for contribution pursuant to s 17 of the Law Reform Act 1936;
(b)claims by the defendants against the second, third, fourth and fifth third parties for breach of the Fair Trading Act 1986, contribution and in negligence;
(c) cross claims by the first third party against the second to fifth third parties;
(d)claims by the fifth third party against the fourth party for indemnity and contribution;
(e) claims by the fourth party against the fifth party for indemnity and contribution.
[38] In my view it would be inefficient to have separate hearings when there are so many parties involved. It might be said for the defendants that if the plaintiffs succeed at a first hearing then any issues as to quantum at the second hearing would be at least primarily between the plaintiffs and the defendants. That may prove to be so. However, having perused the folder of pleadings in the downstream claims, that is not an assumption which I consider can safely be made at this stage of the matter.
Disposition
[39] Consequently the defendants’ application for an order for a split trial is
dismissed.
[40] The primary principle is that costs follow the event. However that would not be a just outcome in the present case where, had the plaintiffs not amended their pleadings, I would have granted the defendants’ application for the reasons evident from paras [10]–[11] above. The plaintiffs have been astute to remedy their pleading which has paved the way for their success in resisting the application. In those circumstances I do not award the plaintiffs costs.
[41] The defendants for their part seek an order for costs, notwithstanding that ultimately their application was unsuccessful. They argue that they raised the pleading issue in their notice of application9 and that the plaintiffs did not seek to address that issue until after the interlocutory hearing. I consider that there is merit in that submission. Accordingly I award costs to the defendants of 50 per cent of a
2B award, that percentage reflecting the fact that ultimately they were not successful.
Brown J
Solicitors:
Hudson Gavin Martin, Auckland
Kiely Thompson Caisley, Auckland
Dominion Law, Auckland
Rennie Cox, Auckland
9 At [8] above.
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