FEDERAL COURT OF AUSTRALIA

AAP Industries Pty Limited v Han’s Pipe Fittings Co Ltd [2018] FCA 1505

ORDERS

THE COURT ORDERS THAT:

1.    Within 21 days of the date of these orders, the first respondent give discovery of purchase orders, invoices and receipts describing the goods sold by it for the period 1 July 2015 to 30 June 2018.

2.    The applicants’ interlocutory application filed 5 September 2018 be otherwise dismissed.

3.    Subject to order 4:

(i)    the applicants pay the costs of the second and third respondents of and incidental to the interlocutory application;

(ii)    as between the applicants and the first respondent there be no costs order.

4.    If any party wishes to contend for a different costs order, that party should notify the other parties, and my associate, within seven days of the date of these orders.

5.    If the parties consider it necessary to vary the directions made on 28 August 2018, the parties seek to agree on the necessary procedural orders for the further conduct of the proceedings and on appropriate orders to protect any information which is said to be commercial in confidence.

Note:    Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

REASONS FOR JUDGMENT

ROBERTSON J:

Introduction

1    These reasons deal with an interlocutory application by the applicants for discovery of the respondents’ financial information and records relating to the goods sold by the respondents.

2    The substantive case involves claims for infringement of copyright and of the Competition and Consumer Act 2010 (Cth) Sch 2 (‘Australian Consumer Law’). The statement of claim also refers to an infringement of the applicants’ trade mark.

3    The parties are, first, the applicants, two Australian companies, AAP Industries Pty Ltd (AAP) and AAP Engineering Pty Ltd, which each conducted the business of manufacturer and distributor of valves and fittings in Australia. Second, there are three respondents, Han’s Pipe Fittings Co. Ltd incorporated in China (Han’s Pipe Fittings), Global Valve & Fittings (GVF) and a director of Han’s Pipe Fittings and GVF, Mr Han Chungsheng (Mr Han).

The substantive proceedings

4    The nature of the substantive proceedings appears from the originating application filed on 22 December 2017. The claimed literary work is a catalogue depicting pictures, specifications and details of valves and fittings manufactured and/or sold by AAP (Catalogue) (Literary Work). The claimed artistic works are the photographs contained within the Catalogue (Artistic Work).

5    The final orders sought are in the following terms:

6.    An order that the First Respondent, Second Respondent and Third Respondent, whether by themselves, their servants, agents or otherwise, be restrained from infringing the Applicant’s copyright in the Literary Work and Artistic Work by reproducing or authorising the reproduction of the Literary Work and Artistic Work or a substantial part of the Literary Work and Artistic Work without licence from the Applicant.

7.    An order that the First Respondent, Second Respondent and Third Respondent pay to the Applicant:

a.    damages for infringement of copyright pursuant to section 115(2) of the Copyright Act 1968 (Cth); and

b.    additional damages pursuant to section 115(4) of the Copyright Act 1968 (Cth).

8.    In the alternative to the relief sought in paragraph 7 above, and at the Applicant's election, an order that an account be taken of the profits made by the First Respondent and Second Respondent and an order that an enquiry be held to determine the amount of such profits and an order that the First Respondent and Second Respondent pay to the Applicant such profits.

9.    An order pursuant to sections 236 and 237 of The Australian Consumer Law that the First Respondent, Second Respondent or Third Respondent individually or collectively pay damages or compensation to the Applicant.

10.    Interest on damages and any profits pursuant to section 51A of the Federal Court Act 1976 (Cth).

6    The applicants allege, and the respondents deny, that in or about 1997 Han’s Pipe Fittings and Elise Enterprises Ltd (Elise Enterprises) entered into an agency agreement with AAP whereby Han’s Pipe Fittings and/or Elise Enterprises was to source valves and fittings in China on behalf of AAP and Han’s Pipe Fittings and/or Elise Enterprises would charge AAP 9% of the value of each order sourced (the Agency Agreement).

7    It is common ground that on or about 29 July 2004, AAP, Han’s Pipe Fittings and Elise Enterprises entered into a joint venture in order to set up and manage a manufacturing facility in China for the production of metal components to be solely marketed by AAP (the Joint Venture).

8    It is also common ground that the Joint Venture was terminated by agreement, but there is a dispute as to whether that was on or about 31 October 2015 or in mid to late December 2016.

9    It is common ground that in or about 2011 AAP prepared and produced or caused to be prepared and produced a trade Catalogue depicting pictures, specifications and details of valves and fittings that were distributed and sold by AAP.

10    There is a dispute on the pleadings as to whether AAP owns the copyright in the Catalogue.

11    There is also an issue as to whether the Catalogue is an original literary work and whether the photographs contained within the Catalogue are original artistic works.

12    The applicants claim that from about 21 September 2016, GVF or someone else published a catalogue of documents located on the website www.maxiflo.cn, and that GVF produced documents which were substantial reproductions of the Literary Work and Artistic Work in material form without the licence or approval of AAP. GVF admits that at the latest from about 21 September 2016 “someone else” outside Australia and in the People’s Republic of China published a catalogue of documents on that website but denies that it published that catalogue and denies that it authorised the creation and publication of the catalogue. It denies that it produced documents which were substantial reproductions of the Literary Work and Artistic Work.

13    So far as concerns Han’s Pipe Fittings, it is common ground that that company was and remained the owner of the web domain www.maxiflo.cn. Han’s Pipe Fittings admits that it and no one else published the post-June 2015 alterations and additions to that website. It admits that the catalogue of documents located on that website was published by it in trade and commerce. It admits that a purpose of its publishing the post-June 2015 alterations and additions to the website was that it might make a profit from sales following customers reviewing the alterations and additions to that website. It denies that its publication was a substantial reproduction of the Literary Work and Artistic Work. It also denies that its reproduction was without the licence or approval of AAP.

14    The applicants claim that by reason of the infringement AAP has suffered loss and damage. This is denied by Han’s Pipe Fittings. That company also denies that it has made and is continuing to make profits by infringement of the copyright of AAP. It denies that the infringement was committed deliberately by it “well knowing AAP’s rights, with the intention of appropriating, for its own use and benefit, the property of AAP.”

15    The applicants also claim breach of copyright by Mr Han. Mr Han denies that he procured or directed that Han’s Pipe Fittings and/or GVF produce documents being substantial reproductions of the Literary Work. However he admits that he authorised Han’s Pipe Fitting to create and publish outside Australia in the People’s Republic of China the post-June 2015 alterations and additions to the www.maxiflo.cn website but says he only became aware of the content of those alterations and additions in December 2017 whereupon he immediately procured the removal of those alterations and additions from that website. He denies that he infringed the copyright of AAP in the Literary Work and Artistic Work. He denies that, by reason of the infringement, AAP has suffered loss and damage and will, unless such acts and conduct are restrained, continue to suffer loss and damage. He also denies that he has made, and is continuing to make, profits by his infringement of the copyright of AAP in its Literary Work and Artistic Work.

16    In relation to the Australian Consumer Law claims, the applicants allege, and GVF denies, that GVF made certain misleading or deceptive representations and contravened the Australian Consumer Law.

17    In relation to the pleaded misleading or deceptive representations made by Han’s Pipe Fittings, that company and Mr Han admit that the company represented to consumers that it was the author of the post-June 2015 alterations and additions to the www.maxiflo.cn website, admit the company represented to consumers that those alterations and additions were the result of skill and effort on its part, but deny that the company represented to consumers that it had the sponsorship or approval of, or an affiliation with, either of the applicants. Those respondents do not admit that the representations were relied upon by consumers in Australia and say that the Australian Consumer Law has no application to consumers elsewhere than in Australia. Those respondents deny that the admitted representations were misleading or deceptive.

18    Those respondents also deny that Mr Han was a person involved in contraventions of the Australian Consumer Law by GVF and Han’s Pipe Fittings.

19    Mr Han denies that AAP has suffered and is continuing to suffer loss and damage by reason of the pleaded contraventions of the Australian Consumer Law and that GVF and Han’s Pipe Fittings made, and are continuing to make, profits by reason of the contraventions of the Australian Consumer Law.

Case Management directions

20    On 4 July 2018 the Court relevantly made the following orders:

1.    By 4pm on 20 July 2018, the parties serve a list of documents in accordance with r 20.17 of the Federal Court Rules 2011 (Cth).

2.    By 4pm on 3 August 2018, the parties give standard discovery pursuant to r 20.14 of the Federal Court Rules 2011 (Cth).

3.    Discovery be given by electronic means.

21    The relevant rules are in the following terms:

20.14    Standard discovery

(1)    If the Court orders a party to give standard discovery, the party must give discovery of documents:

(a)    that are directly relevant to the issues raised by the pleadings or in the affidavits; and

(b)    of which, after a reasonable search, the party is aware; and

(c)    that are, or have been, in the party’s control.

(2)    For paragraph (1)(a), the documents must meet at least one of the following criteria:

(a)    the documents are those on which the party intends to rely;

(b)    the documents adversely affect the party’s own case;

(c)    the documents support another party’s case;

(d)    the documents adversely affect another party’s case.

(3)    For paragraph (1)(b), in making a reasonable search, a party may take into account the following:

(a)    the nature and complexity of the proceeding;

(b)    the number of documents involved;

(c)    the ease and cost of retrieving a document;

(d)    the significance of any document likely to be found;

(e)    any other relevant matter.

(4)    In this rule, a reference to an affidavit is a reference to:

(a)    an affidavit accompanying an originating application; and

(b)    an affidavit in response to the affidavit accompanying the originating application.

Note:    Control is defined in the Dictionary.

20.15     Non‑standard and more extensive discovery

(1)     A party seeking an order for discovery (other than standard discovery) must identify the following:

(a)     any criteria mentioned in rules 20.14(1) and (2) that should not apply;

(b)     any other criteria that should apply;

(c)     whether the party seeks the use of categories of documents in the list of documents;

(d)     whether discovery should be given in an electronic format;

(e)     whether discovery should be given in accordance with a discovery plan.

(2)     An application by a party under subrule (1) must be accompanied by the following:

(a)    if categories of documents are sought—a list of the proposed categories; and

(b)     if discovery is sought by an electronic format—the proposed format; and

(c)     if a discovery plan is sought to be used—a draft of the discovery plan.

(3)    An application by a party seeking more extensive discovery than is required under rule 20.14 must be accompanied by an affidavit stating why the order should be made.

(4)     For this Division:

category of documents includes documents, or a bundle of documents, of the same or a similar type of character.

Note: A discovery plan is a plan that has regard to the issues in dispute and the likely number, nature and significance of the documents discoverable in relation to those issues—see the Court’s Practice Note CM6, ‘Electronic Technology in Litigation’.

The respondents’ discovery affidavits

22    On 19 July 2018, Mr Han affirmed an affidavit of discovery on behalf of the first respondent which included a list of documents which were or had been in the control of the first respondent. He also made a further affidavit of discovery on behalf of the first respondent dated 20 August 2018 which included an amended list.

23    On 20 July 2018, Mr Benedict McCormick, a director of GVF, made a similar affidavit of discovery on behalf of GVF.

24    On 19 July 2018, Mr Han affirmed an affidavit as the third respondent stating in effect that he did not have control of any documents.

25    None of the affidavits listed documents sought in the schedule to the interlocutory application set out in [26] below.

The interlocutory application

26    The relevant orders sought in the interlocutory application filed on 5 September 2018 are as follows:

1.    An order pursuant to Rule 20.21 of the Federal Court Rules that the respondents file an affidavit stating:

(a)    whether any of the documents in the categories set out in the schedule is or has been in that respondent’s control; and

(b)    if any document in the category set out in the schedule has been, but no longer is, in that respondent’s control, when it was last in that respondent’s control and what became of it.

2.    An order pursuant to Rule 20.15 of the Federal Court Rules or the Court's inherent jurisdiction that the respondents give discovery of the documents set out in the schedule.

The schedule referred to is in the following terms:

1.    For the period 1 July 2015 to 30 June 2018:

a.    profit and loss statements;

b.    balance sheets;

c.    general ledgers produced by any bookkeeping programme or system;

d.    purchase orders, invoices and receipts describing the goods sold by the respondents;

e.    purchase orders recording stock purchased by the respondents for sale to its customers;

f.    stock and inventory records, including any records of stocktake.

27    So far as concerns the second respondent, GVF, there is in evidence an undated and unsigned statement by Mr McCormick, being annexure CL-3 to the affidavit of Carrie Lee affirmed 18 September 2018. The applicants accept that if Mr McCormick either swears or affirms an affidavit consistent with the contents of his unsigned statement, the second respondent has complied with its obligations of discovery. In that unsigned statement Mr McCormick says, in effect, that no document evidencing sales (less still, profits) by reason of the post-June 2015 alterations and additions to the www.maxiflo.cn website is or has been in GVF’s control. GVF did not make any such sales. I note the proposed compromise and, so far as concerns the second respondent, open offer in the letter dated 21 September 2018 from the solicitors for the respondents to the solicitors for the applicants that the second respondent, without admission, will file and serve an affidavit stating that no document evidencing sales by reason of the post-June 2015 alterations and additions to the www.maxiflo.cn website is or has been in GVF’s control. I shall not direct Mr McCormick to make such an affidavit as I see no reason to go behind the second respondent’s discovery affidavit.

The parties’ submissions

28    The applicants pressed for discovery orders against the first and third respondents. In support of their interlocutory application, the applicants submitted that the standard discovery order required a party to discover documents that supported its own case or adversely affected its own case. If the first respondent did make sales of any products, contrary to its untested assertions, those documents would plainly support the applicants’ case and were discoverable. If the first respondent’s financial documents and sales records recorded that they did not sell a single item from the infringing catalogue, that would adversely affect the applicants’ case on damages. Either way, the applicants submitted, the documents were discoverable and ought to have been discovered.

29    The applicants drew attention to an unsworn statement of Mr Han which was in evidence as CL2-1 to the affidavit of Ms Carrie Lee affirmed 21 September 2018. There Mr Han said that Han’s Pipe Fittings issued purchase orders, invoices and receipts describing the goods sold by it to its customers. What the applicants wished to test, they submitted, was whether a connection could be drawn on the documents between the infringing website and the orders placed, or the receipts given. If documents were ordered by reference, for example, to the identifying numbers on the infringing website then that would torpedo the case theory of the respondents that, in their view, no one ever went and looked at the website.

30    As to the financial information, paragraphs a, b and c of the schedule, the applicant submitted that there was an element of competition between the applicants on the one hand and the respondents on the other and the financial material may suggest that Han’s Pipe Fittings sold only three units over the whole of the period of the infringement or it may show that it made no profit at all, or it may show that there was a huge spike in sales and that those sales were commensurate with other evidence that may demonstrate that they were sales foregone by the applicants. The applicants submitted that the assertion that these documents were not properly discoverable rested on an unsworn assertion that there was no connection between the infringing website and the sales that had admittedly been made, and that was what the applicants wanted to test by reference to the primary documents. The applicants submitted that those documents would be capable of showing an increase in sales that would correspond to the infringement. The financial material may demonstrate an increase in sales that had a temporal connection with the infringement. They would not necessarily show that those sales were connected with the catalogue but were a necessary first step in the applicants’ attempt to prove damage.

31    In the alternative, the applicants sought a further order for discovery. They submitted that they should not be left with the respondents’ untested assertion as to what sales took place. The applicants submitted that the question of what items were sold was peculiarly in the knowledge of the respondents and it was only through the Court’s compulsory processes that the applicants would be able to determine the level of sales. The sales of the first and third respondents were relevant to the claim for account of profits, and were necessary to inform the applicants’ election between that remedy and damages. Further, the submission went, the documents were relevant to any claim for damages. If the respondents enjoyed sales of products from the catalogue that roughly corresponded to a drop off in sales enjoyed by the applicants, that would be relevant to the assessment of damages. Conversely, if the respondents made no sales, or made very few sales, that would be highly relevant to the assessment of damages.

32    The applicants submitted that in the event that the Court was minded to make an order for discovery under either of those two grounds, the claim for a further affidavit under r 20.21 was not pressed. That order was sought, in the alternative, in the event the discovery was not ordered.

33    The respondents submitted that they had satisfied their obligations of standard discovery; inadequate reasons had been shown to justify an order for non-standard and more extensive discovery against the respondents under r 20.15; and that the filing and service of affidavits under r 20.21 in the terms offered by the respondents should be ordered.

34    As to standard discovery, the respondents submitted that the affidavits verifying their lists of documents ought be found (subject to a r 20.21 order) to be conclusive for interlocutory purposes as to the non-existence of documents evidencing such sales. There was no basis for the requisite degree of certainty that the respondents had misconceived the nature of the documents to be discovered under the orders of 4 July 2018. Nor had reasonable grounds been shown so that the Court could be fairly certain that such sales documents were or had been in the control of the respondents. The pleadings and the evidence were not capable of supporting such conclusions.

35    The respondents submitted that if their affidavits verifying their List of Documents were conclusive in this way, it followed that the financial records of the respondents ought be taken as dealing with entirely different transactions and were not even indirectly, less still, directly relevant.

36    In relation to an order for non-standard or more extensive discovery following satisfactory standard discovery, the respondents submitted that such an order needed to be adequately justified by an applicant, not least, the respondents submitted, on the basis that it would facilitate the just resolution of the proceeding as quickly, inexpensively and efficiently as possible; referring to r 20.11 and also Practice Note CPN-1 at [10.6].

37    The respondents submitted that an application for such an order must be accompanied by, amongst other things, an affidavit stating why such an order should be made and there was no such affidavit in the present case. Moreover, the respondents submitted, the applicants had not complied with r 20.15, identifying the matters there specified. Even if the Court excused those procedural deficits, the merits of making the r 20.15 orders sought were lacking. First, this application was a “fishing” exercise which the Court should refrain from assisting. Secondly, the orders sought lacked sufficient prospect of advancing the interests of justice, but at the same time came at a significantly higher price in terms of delay, expense and inefficiency in the proceeding. Further, on the basis of the respondents’ material, the orders sought were too wide.

38    As to r 20.21, the respondents submitted that orders by the Court in terms of paragraph 1 of the respondents’ open offer would now be appropriate. The terms of that offer were that each of the respondents, without admission that they had failed to satisfy their obligations of standard disclosure pursuant to the orders of the Court made on 4 July 2018, file and serve an affidavit stating that no document evidencing sales by reason of the post-June 2015 alterations and additions to the www.maxiflo.cn website was or had been in their control.

39    The respondents submitted that if the applicants at trial managed, in their own case, to adduce evidence of infringing sales, the presence of these affidavits pursuant to r 20.21 would fairly facilitate a challenge to the credit of the respondents’ witnesses and, in particular, of Mr Han and Mr McCormick.

Consideration

40    In my opinion the schedule to the interlocutory application falls into two parts: the first being the financial information sought in paragraphs a, b and c, and the second being the records relating to sales in paragraphs d, e and f.

41    I accept that the applicants want to test whether or not the alleged infringing website was material to any sales made by the first or second respondents, the respondents’ position being that it was not. I also accept that the applicants are not bound by what Mr Han says as to why there were no sales by reason of the website.

42    Nevertheless I am not persuaded that a discovery order is appropriate so far as concerns the profit and loss statements; the balance sheets; and the general ledgers for the period 1 July 2015 to 30 June 2018. The applicants have not satisfied me that these documents are directly relevant to the issues raised by the pleadings or in the affidavits, within the meaning of r 20.14. Neither have the applicants satisfied me that I should make an order for discovery of these documents under r 20.15 and I would decline to order their discovery bearing in mind the terms of ss 37M and 37N of the Federal Court of Australia Act 1976 (Cth). Contrary to the submissions on behalf of the respondents, my analysis and conclusion does not depend on the concept of “fishing”: see Bertran v Vanstone [1999] FCA 1753 at [23] per Kenny J. I do not regard this as being a case where the purpose of the application for discovery is to ascertain whether a case exists, rather than to compel the production of documents for a case where the applicant for discovery already has some evidence for it.

43    So far as concerns the records relating to sales of goods by the respondents, paragraphs d, e and f of the schedule, I would not make an order in relation to the third respondent as I see no reason to go behind his discovery affidavit in light of his position as a director. I am not persuaded that, in that capacity, he would have control of the documents sought.

44    In relation to the first respondent, or indeed the respondents generally, I do not accept the submission on behalf of the applicants that the respondents are in breach of the standard discovery order because it is known that documents exist that are central to the case on damages and the election between damages and an account of profits and the respondents do not want to hand the documents over because they say they have provided an explanation of how they see the case. What is known is that there are documents of the first respondent being purchase orders, invoices and receipts describing the goods sold by it to its customers and purchase orders, invoices and receipts recording stock purchased by it for sale to its customers. But this does not show that those documents are directly relevant to the issues raised by the pleadings or in the affidavits, within the meaning of r 20.14.

45    Nevertheless, I consider that in the particular circumstances of this case and its just, efficient and proportionate determination, which on this issue involves whether or not certain sales were causally related to the alleged breach of copyright, the applicants should be permitted to assess for themselves the relationship of the sales to the alleged breach and that they should not be required to rely only on the relevant respondents’ assessment of absence of relationship. I do not consider the offered affidavits would provide an answer as again the applicants would be reliant on the respondents’ assessment of relationship which, in the absence of the documents, the applicants would not be in a position to test. As I have said, the applicants should be afforded the opportunity of assessing for themselves the relationship between the sales and the material on the website. For this reason I do not order that the respondents file an affidavit as sought, in the alternative, in order 1 of the applicants’ interlocutory application. I also note that the respondents did not contend that the number of documents involved would make an order for their discovery oppressive. I make this order under r 20.15 and, to the extent necessary, under r 1.34 I dispense with compliance with r 20.15(1): see Taylor v Saloniklis (No 3) [2014] FCA 744 at [32] per Besanko J.

46    Having said that, I am not persuaded that records of stock purchased should be required to be discovered or stock and inventory records. In my opinion what the applicants seek to establish may be done by reference to the purchase orders, invoices and receipts for the goods sold by the first respondent in the specified period.

Conclusion and orders

47    For these reasons I order that, within 21 days, the first respondent give discovery of purchase orders, invoices and receipts describing the goods sold by it for the period 1 July 2015 to 30 June 2018.

48    I otherwise dismiss the applicants’ interlocutory application.

49    In relation to costs, my provisional view is that as between the applicants and the first respondent there should be no order as to costs but that the applicants should pay the costs of the second and third respondents. If any party wishes to contend for a different costs order that party should notify the other side, and my associate, within seven days of the date of these orders and I will then make consequential procedural orders. In any event, I direct that if the parties consider it necessary to vary the directions made on 28 August 2018 they seek to agree on the necessary procedural orders for the further conduct of the proceedings and on appropriate orders to protect any information which is said to be commercial in confidence. Thereafter, if necessary, the parties should communicate by email with my associate to arrange for a further Case Management Hearing.

Associate:

Dated:    9 October 2018