Golden Editions Pty Ltd & Anor v Polygram Pty Ltd & Ors [1996] FCA 141

CATCHWORDS

COPYRIGHT - whether "defendant was not aware, and had no reasonable grounds for suspecting, that the act constituting the infringement was an infringement of the copyright" within s. 115(3) - meaning of "the copyright" - whether knowledge of the identity of the owner of the copyright is in question - proof.

APPEALS - whether finding of fact depended on credibility of witnesses - effect of error of law upon ultimate conclusion.

Copyright Act 1968, ss. 115(3) and 116(2)

Z S Projects Pty Ltd v G & R Investments Pty Ltd (1987) 8 IPR

460

The Film Investment Corporation of New Zealand v Golden

Editions Pty Ltd (1994) 28 IPR 1

Churchill v Badenochs Transport Ltd and Devine (1971) 1 SASR

Westpac Banking Corporation v Spice (1990) ATPR ¶41-024

GOLDEN EDITIONS PTY LIMITED & ANOR v POLYGRAM PTY LIMITED & ORS

NG 162 of 1995

Burchett, Tamberlin and Kiefel JJ.

Sydney

14 March 1996

IN THE FEDERAL COURT OF AUSTRALIA)

)

NEW SOUTH WALES DISTRICT REGISTRY) NG 162 of 1995

)

GENERAL DIVISION )

ON APPEAL FROM A JUDGE OF THE FEDERAL COURT OF AUSTRALIA

BETWEEN: GOLDEN EDITIONS PTY LIMITED and HOGHTON HUGHES

Appellants

AND: POLYGRAM PTY LIMITED, ISLAND RECORDS LIMITED and A & M RECORDS INC

Respondents

CORAM: Burchett, Tamberlin and Kiefel JJ.

PLACE: Sydney

DATE : 14 March 1996

ORDERS OF THE COURT

THE COURT ORDERS that the appeal be dismissed with costs.

NOTE: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

IN THE FEDERAL COURT OF AUSTRALIA)

)

NEW SOUTH WALES DISTRICT REGISTRY) NG 162 of 1995

)

GENERAL DIVISION )

ON APPEAL FROM A JUDGE OF THE FEDERAL COURT OF AUSTRALIA

BETWEEN: GOLDEN EDITIONS PTY LIMITED and HOGHTON HUGHES

Appellants

AND: POLYGRAM PTY LIMITED, ISLAND RECORDS LIMITED and A & M RECORDS INC

Respondents

CORAM: Burchett, Tamberlin and Kiefel JJ.

PLACE: Sydney

DATE : 14 March 1996

REASONS FOR JUDGMENT

BURCHETT AND TAMBERLIN JJ.:

We have had the advantage of reading the judgment prepared by Kiefel J. Subject to what follows, we are in agreement with it. In our opinion, the findings of the trial Judge are findings of fact dependent upon her Honour's assessment of the credibility of oral evidence, and are unassailable upon appeal.

We desire, however, to make some comments about the construction of s. 115(3) of the Copyright Act 1968. In The Film Investment Corporation of New Zealand v Golden Editions Pty Ltd (1994) 28 IPR 1 at 20, Burchett J. referred to the decision of Needham J. in Z S Projects Pty Ltd v G & R Investments Pty Ltd (1987) 8 IPR 460 at 463 as expressing "the view that s 115(3) is not concerned with a suspicion that copyright subsisted in the work, but with a suspicion related to `the plaintiff's copyright'". (The emphasis was added by Burchett J.) As Kiefel J. has explained in the present case (and it was the point that Needham J. was making too), s. 115(3) departs from the language of earlier provisions that referred to situations where there were "no reasonable grounds for suspecting that copyright subsisted in the work". But ambiguity lurks in the substituted expression "the defendant was not aware, and had no reasonable grounds for suspecting, that the act constituting the infringement was an infringement of the copyright". Does this mean the plaintiff's copyright in such a sense as to allow the provision to exclude a claim for damages in a case where a defendant knew he was infringing copyright, simply because he did not know the copyright he was infringing was "the copyright" of the plaintiff? We do not think this can possibly be the meaning. The report of the Spicer Committee to which Kiefel J. refers showed no sign of intending any such wide exemption. In para. 308 of that report, which plainly led to the current provision, the concern expressed is that there should be protection for a person who has taken "every step possible to ensure that he obtained a licence from the proper person and yet, through no fault of his own, and despite searching inquiry, he could be in error".

In our opinion, the expression "an infringement of the copyright" refers to the copyright that was infringed. It does not suggest a legislative interest in the question whether the defendant knew the identity of the copyright owner, although, in a particular case, an error on that subject might place a defendant in a position where he could rely on the section in the very way contemplated by the report of the Spicer Committee. But in general the question is not whether the defendant knew the identity of the owner of the copyright, but whether the defendant has established a lack of awareness, and of reasonable grounds for suspecting, that the relevant act was an infringement of the copyright which was infringed, in whomsoever that copyright might be vested. Otherwise, the limited extension of the earlier form of defence which the Spicer Committee contemplated would be converted into an entirely new defence of extraordinary width.

In our opinion, the appeal should be dismissed with costs.

I certify that this and the preceding two (2) pages are a true copy of the Reasons for Judgment herein of his Honour Justice Burchett and his Honour Justice Tamberlin.

Associate:

Date: 14 March 1996

IN THE FEDERAL COURT OF AUSTRALIA

NEW SOUTH WALES DISTRICT REGISTRY

GENERAL DIVISION No. NG 162 of 1995

On appeal from a Judge of the Federal Court of Australia

BETWEEN: GOLDEN EDITIONS PTY LIMITED and HOGHTON HUGHES

Appellants

AND: POLYGRAM PTY LIMITED

First Respondent

AND: ISLAND RECORDS LIMITED

Second Respondent

AND: A&M RECORDS INC

Third Respondent

CORAM: Burchett, Tamberlin, Kiefel JJ.

PLACE: Sydney

DATE: 14 March 1996

REASONS FOR JUDGMENT

KIEFEL J:

This is an appeal from the decision of Beazley J, declaring that questions as to whether the respondents were entitled to rely upon the defences pleaded pursuant to
ss.115(3) and 116(2)(b) Copyright Act 1968, be answered in the negative. The questions had been ordered to be determined separately from any assessment of damages.

By two agreements for licence entered into between the respondent Golden Editions Pty Limited ("Golden Editions") and New Breed Music International ("New Breed") in June 1990 and October 1991, Golden Editions obtained non-exclusive licences, each for a term of three years, to manufacture and reproduce sound recordings by the artists Cat Stevens and The Carpenters. Each of the agreements contained a statement by New Breed that it was owner of the master sound recordings, the subject of the agreements. Those sound recordings were, it follows from the admission of infringement, copies of the original sound recordings. The owner of the copyright in the original sound recordings of Cat Stevens which made up the collection "Tea for the Tillerman" was Island Records Limited ("Island"). A&M Records Inc. ("A&M") owned the copyright in the relevant sound recordings of The Carpenters. Whilst infringement in fact was the subject of later admission, the proceedings before her Honour concerned whether Mr Hughes, who had set up Golden Editions some years earlier and acted for it at all times, knew or had reason to suspect that copies it would make under the licences would constitute infringement. The determination of those questions by her Honour against the respondents turned upon three aspects of Mr Hughes' knowledge or understanding at the time the licensing agreements were entered into: as to whether the recordings New Breed was licensing were the original sound recordings; as to the ownership of the copyright in the original recordings; and as to whether a question was raised by these matters and the statements made by New Breed as to its ownership of the "master recordings".

The production and sale of infringing copies of the recordings by Golden Editions came to the attention of the copyright owners in 1992 when Golden Editions was conducting some advertising with respect to them. It and Mr Hughes provided an undertaking not to manufacture or distribute copies until the resolution of this dispute and in the interim requested proof of the applicants' title to establish their exclusive right in Australia to copyright in the sound recordings. In the proceedings which followed Polygram Pty Limited ("Polygram") was said to hold the exclusive licence in Australia with respect to the recordings and it also sought damages, as it might do (s.119). No issue was taken for the purposes of the declarations sought as to who was entitled to bring the proceedings and claim the damages in question. For the purposes of the defences the copyright infringed is that admitted. If the defences were successful each of the applicants would be held disentitled to damages for infringement and limited to an account of profits (s.115(3)) and with respect to the infringing copies made, disentitled to any pecuniary remedy other than costs (s.116(2)).

The Section 115(3) Defence

The sub-section provides:

"(3) Where, in an action for infringement of copyright, it is established that an infringement was committed but it is also established that, at the time of the infringement, the defendant was not aware, and had no reasonable grounds for suspecting, that the act constituting the infringement was an infringement of the copyright, the plaintiff is not entitled under this section to any damages against the defendant in respect of the infringement, but is entitled to an account of profits in respect of the infringement whether any other relief is granted under this section or not."

It was submitted that her Honour fell into error in equating this section with s.17(2) of the Copyright Act 1956 (UK). That provision only extended protection to a defendant who was not aware or had no reasonable grounds to suspect the existence of copyright in the matter to which the action related and did not, as s.115 does, direct attention to the defendant's appreciation that infringement would occur if the acts proposed were undertaken. Section 17(2) was in these terms:

"Where in an action for infringement of copyright it is proved or admitted -

(a) that an infringement was committed, but

(b) that at the time of the infringement the defendant was not aware, and had no reasonable grounds for suspecting, that copyright subsisted in the work or other subject-matter to which the action relates,

the plaintiff shall not be entitled under this section to any damages against the defendant in respect of the infringement, but shall be entitled to an account of profits in respect of the infringement whether any other relief is granted under this section or not".

The previous Act in the United Kingdom was that of 1911, which was enacted for Australia by the Copyright Act 1912, s.8 of which similarly provided that a plaintiff was not entitled to any remedy other than injunction if the defendant proved "he was not aware and had no reasonable grounds for suspecting that copyright subsisted in the work". The Copyright Law Review Committee 1959 ("the Spicer Committee") drew attention to the fact that no account had been taken and no protection afforded by existing legislation to an innocent person who, for example, had obtained a licence from a person who was believed to be the true owner of copyright, but turned out not to be. In some cases despite search and enquiry, the Committee observed, a person might never discover what
the true position was. It went on to recommend that the words appearing in s.17(2) of the 1956 Act (UK), "that copyright subsisted in the work" be replaced with the words "that it was an infringement of copyright". Section 115(3) of the 1968 Act appears to be responsive to these recommendations. The person who later drafted the sub-section however added "the" before the word "copyright". Nothing would seem to follow from its inclusion, for the copyright in question could only ever be that of the plaintiffs, that found to be infringed and the subject of the claim for damages referred to in the sub-section. The changes effected in Australia were not taken up in the United Kingdom in the later Copyright, Patents and Designs Act 1988 (UK). Section 97(1) of that Act, although altering the wording, continued to limit the availability of the defence to an infringer who had no knowledge of or reason to believe that there was copyright in the work in question.

Needham J. in Z.S. Projects Pty Ltd v. G.&R. Investments Pty Ltd (1987) AIPC ¶90-392, 37,524 said of the difference between s.8 of the earlier Australian Copyright Act and cases concerning it, and s.115(3):

"Apart from the last-mentioned case [Kalamazoo Aust Pty Ltd v. Compact Business Systems Pty Ltd & Ors [1985] AIPC ¶90-234] and the Infabrics case, all of those decisions were based upon sec.8 of the Commonwealth Act, but the critical words are, "if the defendant proves that at the date of the infringement he was not aware and had no reasonable ground for suspecting that copyright subsisted in the work". That, in my opinion, is a very different question from the question which is posed by sec. 115(3), which I construe as meaning that the plaintiff was not entitled to damages if the defendant was not aware and had no reasonable grounds for suspecting that the act constituting the infringement was an infringement of the plaintiff's copyright."

At an early point in the reasons for judgment, and in the context of the extent of the protection afforded by s.115(3) and whether inquiries needed be made to claim it, her Honour does appear to have regarded the section as being in the same terms as s.17(2) of the Copyright Act 1956 (UK). Her Honour had correctly observed that the later UK provisions s.97 of the 1988 Act, was not in the same terms, but then went on to say:

"However, its predecessor provision, s.17(2), of the Copyright Act 1956 (UK), was in the same terms as s.115(3). The authors of Copinger and Skone James considered that the change in the wording of the new United Kingdom provision was not intended to reflect any change in the law."

As her Honour's reasons later disclose it was considered that, in the circumstances of this case, the failure to make any inquiry was not only relevant to the questions arising under s.115(3), it denied the infringers the protection afforded by the sub-section, for reasons I shall later refer to. One may accept for present purposes that it may have relevance to the question of the respondents' knowledge. However it is clear, at this point in the reasons, that her Honour was referring to inquiries as to the subsistence of copyright, and not those which might address the question with which s.115(3) is concerned, as to whether infringement might take place, which may of course involve other questions, for example, as to the ownership of that copyright and whether it was possible that those from whom the recordings were obtained had a right to them. That her Honour, with respect, here misapprehended that s.115(3) did not effect any significant change to the scope of the protection afforded to an innocent infringer follows from her Honour's equating it with s.17(2) and the acceptance that there had been no material change in the law in the United Kingdom.

That there be shown to be an error at one point in the judgment does not mean that the appeal will succeed, even though it concerns a matter vital to the ultimate conclusion. For what needs be considered is what part, if any, it played in the process of reasoning to the conclusion, and even if it be found to have played some part, whether the same conclusion should have been reached without it, so that "substantial justice has nevertheless been done": Churchill v. Badenochs Transport Ltd and Devine (1971) 1 SASR 63, 64-5, referred to with approval in Westpac Banking Corporation v. Spice (1990) ATPR ¶41-024, 51,399. As to the question whether it operated in the reasoning process, it ought be observed at the outset that at a number of points later in the reasons her Honour correctly refers to the question posed by the sub-section as one concerning awareness of infringement, or the possibility of it. Nevertheless the appellants submit that the misunderstanding earlier stated may be seen to have resulted in a wrong approach being taken to the evidence and a concentration upon matters relevant to Mr Hughes' knowledge of copyright in the recordings and by whom it was held, rather than what was submitted to be the critical enquiry: whether he "reasonably believed that New Breed Music International had obtained a valid licence of the relevant copyright". It was submitted that this belief explains why Mr Hughes was not concerned as to whether the recordings he was licensing were the original sound recordings or re-recordings, a matter which however, her Honour regarded as highly significant. The other matters raised upon the appeal concern particular findings of fact.

In the hearing before her Honour, Mr Hughes gave evidence that he had known that Island and A&M had each asserted ownership of copyright in the original
sound recordings of the songs in question. Although the companies had, he said, made these claims in the 1970's, he had had no reason to doubt that their assertions were correct, and in 1991 he had heard nothing else and this was the "last" information he had received. He also agreed that it was, to his knowledge possible that companies were continuing to sell the original sound recordings in Australia. Despite submissions to the contrary his evidence otherwise confirms that was his state of knowledge in 1991. It would follow that it was also in June 1990, when the first licensing agreement was entered into.

Mr Hughes was, as her Honour found, a person with considerable knowledge and experience of the recording industry. It will be recalled that New Breed had claimed to be the owner of the master sound recordings. Mr Hughes gave evidence of his faith in the integrity of New Breed as relevant to his belief that all was in order and as explaining his lack of enquiry as to the means by which New Breed came to be in a position to offer the licences. He said he believed that New Breed's recording could have been derived either from re-recordings by the artists or from what he described as "lease deals", by which he meant that New Breed may have derived them by licences either from a recording company or from the recording artist. In either of the two last mentioned cases New Breed would be licensing original sound recordings, not re-recordings. He was, he said, simply unsure as to which it was.

Contrary to the submission earlier recited, her Honour specifically referred to Mr Hughes' evidence that it was "of no concern to him" whether the recordings were
originals or otherwise, and to his assertion that he had no reason to believe that New Breed was not entitled to grant the licence. From what follows however, and in the course of considering whether the latter contention could be accepted, her Honour did not accept that he was indifferent to whether they were re-recordings. In particular her Honour took account of Mr Hughes' evidence of an earlier incident involving re-recordings which had led to consumer complaints about "how bad they were and that they weren't the originals". As a result Golden Editions had adopted the practice of placing a notice on the packaging of re-recordings to the effect that they were not the original sound recordings. In cross-examination Mr Hughes made what her Honour considered a "significant concession". He agreed that there was, in his mind, a "strong possibility" that New Breed's recordings were copies of the original. It was therefore difficult, her Honour concluded, to accept that he was unconcerned about whether he ought re-label them. What it allowed of course, was the drawing of an inference that Mr Hughes did not seriously consider that they were re-recordings. If he was "unconcerned" her Honour considered:

"... that I would be compelled to find that Mr Hughes was reckless as to what he licensed."

and went on:

"However, I consider that more likely than not, Mr Hughes was aware that he was licensing the original sound recordings".

There were other factors, which her Honour listed, which were said to reinforce the view that he believed he was licensing the original sound recordings. In particular if they had been re-recordings he and Golden Editions would have had a complete defence to the applicants' claim. However when undertakings were sought this belief was not adverted
to. Nor was any step taken to establish whether they were re-recordings. All that might be required, at least in the first instance, was to listen to them and Mr Hughes said not even this had been done.

The reasoning thus far was clearly supported by the evidence. The findings, as to what Mr Hughes believed or suspected was being licensed, did not however foreclose reliance upon s.115(3). There remained the possibility, although he knew or suspected them to be original sound recordings and therefore likely the subject of the copyright of Island and A&M, that those companies had licensed New Breed in terms which enabled New Breed in turn to grant a non-exclusive licence to Golden Editions. But her Honour clearly did not consider that was an end to the matter either, for her Honour went on to say:

"That, of course, does not mean that the respondents were aware [1][or had no reasonable grounds] to suspect that the manufacture and distribution of the licenced sound recordings constituted an infringement of copyright. The New Breed Music International licences were non-exclusive licences. Thus, even knowing that the licensed sound recordings were of the original sound recordings, it was possible that Golden Editions could exercise the rights conferred by the New Breed Music International licences without infringing copyright".

It is to be observed that her Honour here states the questions arising under s.115(3). Her Honour then considered the factors which tended to support the respondents' case of lack of awareness of the possibility of infringement. Mr Hughes had given evidence that he understood that the recordings had been the subject of licences given to two companies overseas, although that this was not proven as a fact. Her Honour took into account that the respondents, by undertaking the advertising campaign, drew attention to themselves. This may of course be indicative of innocence. There was also evidence that New Breed had withdrawn The Carpenters' recordings from licensing when some difficulties arose with respect to copyright. That may have tended to confirm Mr Hughes' belief in the company's integrity. However, the factor which her Honour identified as weighing strongly against a conclusion favourable to the respondents concerned the statement by New Breed in the licensing agreements, that it was the owner of the master sound recordings. Of considerable significance in this respect was what that conveyed to Mr Hughes and, as part of that question, what was his understanding of the distinction between the rights of ownership of copyright and the rights acquired by licence.

It was submitted that the evidence discloses that Mr Hughes did not draw a clear distinction between the two sets of rights. At various points in his evidence however he responded clearly and in the affirmative to enquiries as to whether he appreciated the difference and this was not subsequently qualified. At another point, as her Honour later observed when dealing with his credit-worthiness, he gave evidence of his use of the phrase "manufactured under licence" and that he understood what the letter "C" appearing on recordings conveyed. It is not without importance that on one view Mr Hughes had qualified himself to answer such questions, given his evidence of his considerable experience and understanding of the music industry. There was one passage of evidence which, in part, might suggest however that he equated "ownership" with the ability to "control" rights in copyright and that a lessee from the original recording artist who retained copyright might also be said to be "the owner". That might, at the least, be thought to raise uncertainty as to his understanding were it not for the questions and answers which followed:

"You knew very well in 1991, from your understanding as a veteran in the industry, that a lease of the copyright by an artist to a record company did not entitle the record company to assert that it was the owner of that copyright; correct?---Correct."

from which however he then resiled to an extent:

"So that once you understood that Island and A&M owned the copyright in these recordings, the original recordings, you appreciated that the artists could not have owned the copyright in those recordings; correct?---No, I really don't know what the arrangement was with Cat Stevens or the Carpenters with their respective companies."

but which was followed by:

"Just to be clear, I suggest to you that you well understood from your knowledge of copyright law as a veteran in the industry that if A&M and Island owned the copyright in these recordings that the artists could not have owned the copyright in those recordings; do you agree with that?---If they owned them, yes."

That evidence in my view permits a conclusion that he understood that a lease did not accord the same rights as ownership. That conclusion is supported by the other evidence to which I have referred. Moreover the course of the answers and the ultimate concession were, as one might have expected, held by her Honour to have relevance to his credibility as a witness. The evidence supports the finding by her Honour that Mr Hughes knew "that a lease of copyright did not entitle the party to assert ownership of copyright". The importance of this finding is obvious. Regardless as to whether New Breed's description of the recordings as being masters was ambiguous, as the appellants seemed to contend, it is clear that the right it was asserting was of ownership, not of licence from an owner.
Taken with the other findings, that he likely knew or suspected that they were the original sound recordings and that Island and A&M owned copyright in them, a conclusion that there were "no reasonable grounds for suspecting" that Golden Editions would infringe that copyright seems difficult, if not impossible, to reach. Her Honour concluded that knowing what he did:

"... He must have appreciated that this provision in the lease agreements was either false or erroneous and that therefore, by manufacturing and distributing the licensed sound recordings, the respondents were infringing copyright. If he did not have such an appreciation, then I consider that he was reckless as to whether the respondents were or were not infringing copyright. In my opinion, s.115(3) does not assist a party who is reckless in this way."

Her Honour went on to deal with aspects of Mr Hughes' evidence relevant to his credit. Whilst her Honour did not express the findings so made as dependent upon any observation of Mr Hughes as a witness one cannot help but think that her Honour was, to an extent, advantaged by that opportunity. In any event there is no basis for overturning these findings. This would require the revelation of some serious and demonstrable error: Westpac Banking Corporation v. Spice 51,399, and none has been shown. Whilst an error relating to the terms and effect of s.115(3) was earlier disclosed, this could have had no bearing upon the matters which told against Mr Hughes' credit and which involved inconsistencies in his evidence, as her Honour observed in conclusion:

"As I have said, the matters to which I have just referred, in the main, go to the question of Mr Hughes' credit. The inconsistencies in his evidence are such that I did not find him to be a satisfactory witness and I do not accept his assertions that he was not aware or had no reasonable grounds to suspect that the respondents were infringing copyright. In any event, as I have said, I consider that he was reckless as to these matters. Accordingly, I reject the respondents' defence under s.115(3)."

Far from her Honour failing to appreciate the importance of Mr Hughes' belief that New Breed may have obtained a licence from the copyright owners, as the appellants submitted, the course of reasoning shows that this was the very question posed by her Honour following the finding that he knew or suspected that it was the original sound recordings that New Breed were attempting to license. Her Honour did not accept that he held any such belief. The onus of establishing lack of knowledge or suspicion as to infringement lay upon Golden Editions and Mr Hughes. The finding that assertions to that effect could not be accepted as truthful must have concluded the matter against them. Her Honour had also expressed the view that Mr Hughes must have appreciated that the assertion of ownership by New Breed had no basis and that they would therefore be infringing the true owner's copyright if they proceeded to manufacture and distribute copies. Such a positive finding also denies the operation of the defence under s.115(3). Her Honour went on to consider the position, in any event, if Mr Hughes did not have that appreciation and held that he was reckless as to whether infringement would follow. This additional reference does not seem to me to detract from the earlier finding as to his state of knowledge in fact. Rather her Honour, for completeness, was observing that in any case the facts known to him must have put him upon inquiry. Her Honour explained what was intended to be conveyed by the reference to "recklessness" in these terms:

"To say that a party is reckless as to whether it is or is not infringing copyright may only be another way of concluding that a party [2][has no reasonable grounds] to suspect the infringement. Even if that is not so, I consider that the circumstances here were such that the respondents were put on inquiry as to whether they were infringing copyright. This is so, notwithstanding that Mr Hughes believed he was dealing with a reputable broker and that he had a non-exclusive license. The particular matters which put him on inquiry were his awareness that he was licensing (or even possibly licensing) the original sound recordings; his knowledge that Cat Stevens and The Carpenters had recorded for Island and A&M; his knowledge that Island and A&M owned the copyright in the original sound recordings; the possibility that they were still selling the original sound recordings in Australia in 1991; the clause in the lease agreements to which I have referred and Mr Hughes' understanding of the meaning of that clause. Mr Hughes did not make any enquiries, and in this case, I consider that he did so at his peril."

It would follow that, given his awareness of these combination of factors, Mr Hughes could not be heard to say that he had "no reasonable grounds for suspecting" infringement and I take this to be her Honour's view. Her Honour was not saying that a failure to make inquiries in any case where reliance is placed upon s.115(3) would have that result.

In stating what consequences follow from awareness of the particular facts it may be thought unnecessary or even confusing to refer to the creation of some positive duty to ask questions. A finding of the necessary level of awareness of them will itself enable the conclusion that, to the contrary of what the section requires, there were reasonable grounds for suspicion. However a deliberate choice not to enquire, in such circumstances, may enable a further finding, since it may suggest a mind in which real suspicion resided. This may have been such a case. Her Honour at several points in the reasons referred to the lack of explanation given by Mr Hughes as to why no steps were taken. The level of his knowledge was such that the question which must logically have occurred to him was how New Breed came to be in possession of what was, most likely, the original sound recordings. The failure to put such a question to either New Breed, or
more appropriately to make enquiries of the copyright owners, could then be said to operate "to his peril" as her Honour inferred.

No ground has been shown in my view for setting aside the declarations made. Despite an error earlier stated, her Honour's consideration of the evidence and the conclusion reached discloses no misunderstanding of the questions posed by s.115(3). The appellants were not able to make out the defence because it was found, and there was evidence to support such findings, that Mr Hughes knew sufficient that, faced with a claim by the intended licensor to ownership which was inconsistent with other claims, which claims he had no reason to doubt, he was unable to offer any credible explanation as to why he did not then consider it at least possible that infringement would follow if he and Golden Editions pursued the licensing agreement.

Defence under s.116(2)(b)

Section 116(1) provides that an owner of copyright is entitled to the rights and remedies provided by an action for conversion or detention, with respect to infringing copies made. Section 116(2)(b) however provides:

"[An applicant] is not entitled by virtue of this section to any damages or to any other pecuniary remedy, other than costs, if it is established that,

(a) ...

(b) where the articles converted ... were infringing copies - the [respondent] believed, and had reasonable grounds for believing that they were not infringing copies; ..."

Whilst the sub-section refers to knowledge as to whether the copies taken were infringing copies, the answer to it is also provided by her Honour's reasons as to the defence under s.115(3) and from the specific finding that Mr Hughes must have appreciated that "...by manufacturing and distributing the licensed sound recordings, the respondents were infringing copyright". Reliance cannot be placed upon the sub-section.

The appeal with respect to both questions should be dismissed with costs.

I certify that this and the preceding sixteen pages are a true copy of the reasons for judgment of the Honourable Justice Kiefel.

Associate

Date: 14 March 1996

Counsel and Solicitors for

the appellants: Mr R V Gyles QC with Ms S J Goddard instructed by Banki Palombi Haddock & Fiora

Counsel and Solicitors

for the respondents: Mr J V Nicholas instructed by Gilbert & Tobin

Date of Hearing: 19 May 1995

Place of Hearing Sydney

Date of Judgment: 14 March 1996

Place of Judgment: Sydney

[1] [This passage should I think read "or had reasonable grounds"]

[2] [This should read "has reasonable grounds"]

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