LED Builders Pty Ltd v Eagle Homes Pty Ltd [1996] FCA 972

CATCHWORDS

DISCOVERY AND INTERROGATORIES - Discovery - infringement of copyright previously declared - alternative remedies of damages or an account of respondent's profits remaining to be determined - time by which applicant must elect between remedies - whether applicant entitled to discovery of respondent's documents relating to its overheads, to enable applicant to make an "informed" election.

COPYRIGHT - Remedies for Infringement - infringement previously declared - alternative remedies of damages or an account of respondent's profits remaining to be determined - election between remedies - whether applicant entitled to defer election (a) until after further reasons for judgment delivered, (b) until after further hearing, (c) until after discovery by respondent, or (d) at all - whether respondent must discover documents relating to its overheads so that applicant can make "informed" election.

Betts v Neilson and Betts v De Vitre (1868) LR 3 Ch App 429 Weingarten Bros v Charles Bayer & Co (1905) 22 RPC 341

United Australia Ltd v Barclays Ltd [1941] AC 1

Thornton Hall Manufacturing Ltd v Shanton Apparel Ltd [1989] 3 NZLR 304 (CA)

Minnesota Mining & Manufacturing Co v Colin Jeffries Pty Ltd (1992) 37 FCR 294

Gentry Homes Pty Ltd v Diamond Homes Pty Ltd (1993) AIPC 91-008

Island Records Ltd v Tring International Plc [1996] 1 WLR 1256

Tang Man Sit v Capacious Investments Ltd [1996] 2 WLR 192

Brugger v Medicaid [1996] FSR 362

Dart Industries Inc v Decor Corporation Pty Ltd (1993) 179 CLR 101

Neilson v Betts (1871) LR 5 HL 1

De Vitre v Betts (1873) LR 6 HL 319

LED BUILDERS PTY LTD v EAGLE HOMES PTY LTD

No NG 817 of 1993

No NG 862 of 1994

Lindgren J

Sydney

13 November 1996

IN THE FEDERAL COURT OF AUSTRALIA)

NEW SOUTH WALES DISTRICT REGISTRY) No NG 817 of 1993

GENERAL DIVISION ) No NG 862 of 1994

BETWEEN:

LED BUILDERS PTY LTD (ACN 002 351

957)

Applicant

AND:

EAGLE HOMES PTY LTD (ACN 002 800 115)

Respondent

CORAM: Lindgren J

PLACE: Sydney

DATE: 13 November 1996

MINUTE OF ORDERS

THE COURT ORDERS THAT:

1. The proceeding be stood over to Friday 15 November 1996 at 9.30 am for the making of orders, including orders as to costs.

2. By 5.00 pm on Thursday 14 November 1996, the parties provide to the Associate to Lindgren J agreed form of short minutes of orders to be made, or if agreement has not by then been reached, the forms of short minutes of orders for which they will respectively contend.

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) No NG 817 of 1993

GENERAL DIVISION ) No NG 862 of 1994

BETWEEN:

LED BUILDERS PTY LTD (ACN 002 351 957)

Applicant

AND:

EAGLE HOMES PTY LTD (ACN 002 800 115)

Respondent

CORAM: Lindgren J

PLACE: Sydney

DATE: 13 November 1996

REASONS FOR JUDGMENT (No 3)

GENERAL INTRODUCTION

The parties are project home builders. In each proceeding, the applicant ("LED") has claimed that the respondent ("Eagle") infringed LED's copyright in certain plans of project homes. The two proceedings relate to different homes. I need not distinguish between the proceedings.

Davies J delivered Reasons for Judgment on 29 July 1996 dealing with the issue of infringement and the claims for non-monetary relief. His Honour found infringement established, and on 27 August gave declaratory and injunctive relief and made orders against Eagle for delivery up and payment of LED's costs to date. This left outstanding, relevantly, the following claims by LED in the amended application in each proceeding:

"2 Damages pursuant to s 115 (2) of the Copyright Act 1968.

3 Additional damages pursuant to s 115 (4) of the Copyright Act 1968.

4 An account of profits.

5 Interest."

Included in his Honour's orders of 27 August were the following directions (they were numbered 6 and 7 in proceeding No NG 817 of 1993 and 5 and 6 in proceeding No NG 862 of 1994, and I will henceforth refer to them as "directions 6 and 7"):

"THE COURT DIRECTS:

6. The respondent file and serve an affidavit or affidavits by 13 September 1996 setting out in respect of the houses referred to in paragraph 1 above or any substantial reproduction thereof built by the respondent ('the houses'):

(a) the total number of houses;

(b) the location of each of the houses;

(c) the contract price for the construction by the respondent of each of the houses; and

(d) the costs to the respondent of the construction of the houses.

7. The applicant specify by letter to the respondent the classes of documents of which the applicant seeks discovery for the quantification of damages or an account of profits on or before 27 September 1996."

Both proceedings were stood over to 4 October for further directions.

On 13 September Eagle filed an affidavit of that date of John
Valeri, its general manager, in which Mr Valeri stated that he had searched Eagle's records and ascertained the houses which had been built by LED based on the various plans referred to in the orders in the two proceedings. Fifty-seven such houses were identified by address. By reference to those plans, he set out in his affidavit "the contract building cost and gross cost to build each such home". The 57 "Contract Sums" totalled $5,465,759 and the 57 "Gross Costs to Build" totalled $4,392,034. The difference between the two totals is $1,073,725.

On 27 September 1996, LED's solicitors wrote to Eagle's solicitors a letter which, because it is central to the dispute which has arisen, deserves to be quoted in full:

"We refer to the orders made by Justice Davies on 27 August 1996.

In accordance with direction 7 we have specified below the classes of documents of which our client seeks discovery for the quantification of damages or an account of profits:

1. All client files of all houses referred to in the affidavit of J Valeri sworn 13 September 1996.

2. All balance sheets, profit and loss accounts, financial statements, management accounts, tax returns, financial reports, management reports margin reports, journal books, cash payments and cash receipt books, trial balances, general ledger transaction reports, costing ledgers, bank statements and bank reconciliations, depreciation schedules, payroll and superannuation records, debtor ledger records, minutes of all meetings of directors (including any committees containing a director) and minutes of all meetings of shareholders dated or brought into existence during the financial years in which the houses referred to in paragraph 1 were built.

3. All documents recording any overheads incurred by Eagle Homes Pty Limited and all documents recording any allocation of overheads on any basis dated or brought into existence during the financial years in which the houses referred to in paragraph 1 were built.

4. all job cost reports and all other documents recording in summary form the amounts referred to under the heading 'Gross Cost to build' for the houses referred to in paragraph 1.

5. All contracts and all agreements for the payment of commission by Eagle Homes Pty Limited to any employee, consultant or any other person, company or entity which operated during any part of the financial years in which the houses referred to in paragraph 1 were built.

6. All creditors invoices and creditors statements recording costs which are included in the amount contained in the 'Gross Cost to build' column of Mr Valeri's affidavit for the following houses:

(a) Lot 1928 Centaurus Drive, Hinchinbrook;

(b) Lot 1310 Woolmeres Place, Glen Alpine;

(c) Lot 8130 Daintree Drive, Wattle Grove;

(d) Lot 1106 Moreton Street, Hinchinbrook;

(d) Lot 211 Denalbain Circuit, Rosemeadow.

7. All contracts, agreements, licence agreements, franchise agreements, by which Eagle Homes Pty Limited licensed or franchised any company, person or entity to build any house during the financial years in which the houses referred to in paragraph 1 were built.

Please note that we do not at this stage, seek discovery of the invoices which comprise the direct costs of your client to build the houses referred to in Mr Valeri's affidavit, other than the invoices referred to in paragraph 6.

If the invoices we have requested in paragraph 6 accurately reflect the gross cost referred to in Mr Valeri's affidavit for those houses, then it is
unlikely we will require the discovery of any further invoices for the other houses listed in his affidavit.

We note this matter is next returnable before the Court on 4 October 1996. At that time we will seek directions for the filing and service of a List of Documents by Eagle Homes Pty Limited, inspection of those documents and the provision by our client of its affidavits in chief. Would you please give consideration to these suggested orders and the time your client would require to file and serve a List of Documents and provide for inspection."

Eagle's solicitors replied on 2 October advising that Eagle's view was that LED was bound to elect whether it wished to seek damages or an account of profits. LED's solicitors responded on 3 October to the effect that LED was not obliged to make an election until the evidence established the facts upon which an election could fairly be made.

The matter came before me on 4 October. Pursuant to directions then made, LED filed a notice of motion on 9 October seeking an order that Eagle discover the documents comprised in the classes of documents referred to in LED's solicitors' letter dated 27 September.

The motion was heard on 17 October when Mr I M Jackman with Mr M Leeming of counsel appeared for LED and Mr D M Yates of counsel appeared for Eagle.

REASONING

Copyright Act 1968

Section 115 of the Copyright Act 1968 provides as follows:

"115(1) Subject to this Act, the owner of a copyright may bring an action for an infringement of the copyright.

(2) Subject to this Act, the relief that a court may grant in an action for an infringement of copyright includes an injunction (subject to such terms, if any, as the court thinks fit) and either damages or an account of profits.

(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.

(4) Where, in an action under this section:

(a) an infringement of copyright is established; and

(b) the court is satisfied that it is proper to do so, having regard to:

(i) the flagrancy of the infringement;

(ii) any benefit shown to have accrued to the defendant by reason of the infringement; and

(iii) all other relevant matters;

the court may, in assessing damages for the infringement, award such additional damages as it considers appropriate in the circumstances."

(Section 116 gives the copyright owner a remedy as of right in respect of infringing copies. I need not concern myself
further with s 116.) The references in s 115 to "damages" and "an account of profits" draw upon the remedies so called originating at common law and in equity respectively.

Order 15 of the Federal Court Rules

Order 15 r 5 of the Federal Court Rules provides that the Court may, at any stage of a proceeding, order any party to give discovery in accordance with r 2 of O 15. Relevantly, and in effect, r 2 provides that a party required to give discovery must do so by filing and serving a verified list of documents "relating to any matter in question between" the party giving discovery and the party to whom it is given. Rule 5 confers a discretion. Exercise of that discretion is constrained by r 15 which provides as follows:

"15 The Court shall not make an order under this Order for the filing of any list of documents or affidavit or other document or for the production of any document unless satisfied that the order is necessary at the time when the order is made."

In Trade Practices Commission v CC (New South Wales) Pty Ltd (No 4) (1995) 131 ALR 581, I said by reference to authorities there cited, that the notion of necessity to which r 15 refers is one of necessity "in the interests of a fair trial" or "for the fair disposition" of "any matter in question between" the party giving discovery and the party to whom it is given.

It is important to understand that on the present motion, I am
asked to exercise the discretion given by O 15 r 5 and that I am constrained by O 15 r 15.

In the present case the quantum of the loss suffered by LED and the quantum of the profit made by Eagle as a result of Eagle's infringement remain, albeit in the alternative, matters in question between those parties. LED and, perhaps, Eagle, can be expected to possess some documents relating to the quantum of the loss suffered by LED. Eagle alone can be expected to possess documents relating to the quantum of the profit made by it. Moreover, Eagle's profit may be an issue under sub-paras 115 (4) (b) (ii) and (iii) even if LED elects for damages rather than an account of profits.

Outline of parties' submissions

LED submits that it should have the benefit of the discovery which it seeks, yet not be put to its election between the two remedies until after the further hearing to take place. At the heart of its submission is the proposition that to be effective, an election must be "informed" and that in the present case this is not possible at present and will not be possible until that time. LED has read in support of its motion an affidavit of its solicitor, Malcolm Robert Gordon Stewart sworn 8 October 1996 which includes the following paragraphs:

"6. The applicant has no knowledge of the respondent's overheads and is therefore unable to say what profit, if any, the respondent made
from building the houses referred to in Mr Valeri's affidavit.

7. The applicant has not yet been able to confirm the gross profit made by the respondent from building the houses referred to in Mr Valeri's affidavit.

8. The applicant has not yet been able to confirm whether the respondent had any licensing or franchise agreement with another builder."

Eagle, on the other hand, submits that LED should be put to its election now and that according to the election made, directions should be given for the preparation of the hearing of LED's claim for damages or for an account of profits.

Directions 6 and 7

It is necessary to refer to the circumstances in which Davies J gave directions 6 and 7 on 27 August. I was referred to the following passages in the transcript of the proceeding before his Honour on 15 August:

"HIS HONOUR: ... all right. Everyone is happy that the election takes place some time after more information is obtained on the question of damages; is that right?

MR YATES: Yes, for our part we are content with that, your Honour. We accept as a principle that my learned friend's client is allowed to make an informed election and the idea of this order, and we have discussed this between ourselves, is in fact to give some indication in obviously furnishing this affidavit if in fact profits are elected for of course is not our final evidence on the matter but it is to give some indication to the applicant as to what is involved.

HIS HONOUR: Well, you do not want to say anything more about these matters at the moment. I will look at these plans. Can we come back on Tuesday the 27th at 9.30; is that convenient?

MR JACKMAN: Yes, your Honour.

HIS HONOUR: I may have a view about these matters by that date. The court will adjourn."

In his submissions, Eagle's counsel makes the point that his expectation, when consenting to the making of directions 6 and 7, was that LED would elect once the affidavit was provided. LED's position is that the purpose of the affidavit was to give it a "preliminary indication" of the amount of the "gross profit" arising which Eagle made from the infringement, so that LED might, if the amount was small, decide that the allocation of part of Eagle's overheads would have the effect of eliminating the profit so that LED would elect for damages without further ado.

The transcript passage quoted above is less than clear, although it may slightly favour Eagle's suggestion. There was no evidence before me of any negotiations which led to the making of directions 6 and 7 by consent. In any event, it was not submitted that LED is prevented by what happened down to 27 August or afterwards or both, from obtaining the discovery which it now seeks. I approach the question of the exercise of the discretion given by O 15 r 5 on the basis that directions 6 and 7 and the events surrounding the making of them do not limit the ways in which my discretion might be properly exercised.

Authorities

Some statements in the cases dealing with the necessity of an election between the two remedies are, with respect, less than clear, because they fail to distinguish between two senses in which the expression "damages" and "an account of profits" are used. The expressions are sometimes used to refer to inquiries into damages and profits. If an election must be made between inquiries, it must be made before the relevant hearing. On the other hand, the expressions are sometimes used to refer to the ultimate remedial results, that is to say, an order that an infringer pay a stipulated amount which represents monetary compensation for the loss or injury suffered by a copyright owner or the amount of profit made by the infringer. If a copyright owner is obliged only to elect between remedies in this sense, the election may be able to be made after the end of the hearing. It is necessary to bear this distinction in mind when the statements in the cases are considered.

The first litigation to be considered comprises certain patent infringement actions brought by a Mr Betts in respect of his patent for making metallic capsules of lead and tin compressed together, which were used in covering the corks of bottles. (Edelsten v Edelsten (1863) 1 De GJ & S 185 (46 ER 72), decided only a short while earlier, is sometimes mentioned in the present context, but an account of profits only was sought and granted in that case.) In Betts v Neilson and Betts v De Vitre, which were heard together, Vice Chancellor Wood granted injunctions and directed both that an account be taken of the infringer's profits and that there be an inquiry into damages. In both proceedings there were appeals to the then Lord Chancellor, Lord Chelmsford. Both appeals are reported at (1868) LR 3 Ch App 429. In Betts v Neilson, Chelmsford LC held expressly, for reasons which I need not stay to discuss, that both an inquiry as to damages and an account might be granted (at 440-441). In Betts v De Vitre, his Lordship also affirmed the Vice Chancellor's decree.

There were appeals to the House of Lords. The first to come on was that in Neilson v Betts reported at (1871) LR 5 HL 1. The new Lord Chancellor (Lord Hatherley) and Lords Chelmsford, Westbury, Colonsay and Cairns heard the appeal. At the request of the Lord Chancellor and Lord Chelmsford, both of whom had heard the case in the courts below, Lord Westbury delivered the first speech which included the following:

"My Lords, I have only farther to observe that the decree of the Court below directed not only an inquiry as to damages, but also an account of profits. The two things are hardly reconcilable, for if you take an account of profits you condone the infringement. I therefore think, my Lords, that we were right in calling upon the Respondent's Counsel to elect between the two which he would adopt. He has adopted the inquiry as to damages, and the other, the account of profits, must be struck out of the decree. But that ought not to alter the result of this appeal, and I trust, therefore, that your Lordships will concur in the motion I have to make, that this appeal should be dismissed with costs." (at 22)

The Lord Chancellor, Lord Hatherley, who had heard the case at first instance as Vice Chancellor Wood, and the previous Lord Chancellor, Lord Chelmsford, who had heard the appeal from him below and affirmed his decree, expressed some satisfaction that Lords Westbury, Colonsay and Cairns had agreed with them. While it is true that they had done so on the major issues argued before the House, they treated the two remedies as alternatives and the House varied the decree by deleting the reference to the account of profits.

The appeal to the House of Lords in De Vitre v Betts is reported at (1873) LR 6 HL 319. This appeal was heard by Lords Chelmsford, Colonsay and Cairns. Lord Chelmsford was by now able to say this:

"My Lords, the case of Neilson v Betts most undoubtedly decided the general principle that, upon a decree against a party for the infringement of a patent, the patentee is not entitled both to an account of profits and an inquiry into damages. That principle applies generally and without any distinction at all. It applies to every case of infringement; and, therefore, it must be taken to have settled conclusively that point, that the patentee must, in all these cases where he has a decree, elect whether he will have an account of profits or an inquiry into damages. He cannot have both. That being so, we understand that on the present occasion the patentee, through his counsel, has elected to take the inquiry as to damages; and of course, therefore, the decree must be varied by striking out that which gives him, in addition, an account of the profits." (at 321)

Lord Cairns traced the course of the two proceedings and noted that the House had opined in Neilson v Betts "that the double inquiry as to profits and damages could not be maintained" (at 325 - emphasis supplied). Later, his Lordship referred to the House's decision in Neilson v Betts as a decision "against the duplicate inquiry" (at 326 - emphasis supplied).

In Weingarten Bros v Charles Bayer & Co (1905) 22 RPC 341, a trade mark infringement case, the House of Lords held that the successful plaintiff was entitled, at its option, to "an inquiry as to damages or an inquiry as to profits" (at 351 per Lord Macnaghten with whom Lord Lindley agreed; Lord Robertson dissented on the issue of infringement and so did not deal with the question of remedy).

The two Betts cases and the Weingarten case are authority for the proposition that an election must be made before any hearing on the quantum of monetary relief to be ordered is embarked upon.

United Australia Ltd v Barclays Ltd [1941] AC 1 was a different kind of case. Debtors of United Australia Ltd ("United") sent to United a crossed cheque payable to its order. MFG Trust Ltd ("MFG") converted the cheque by causing it to be paid into its own account with Barclays Bank Limited ("Barclays"). Barclays collected, received and paid away the proceeds of the cheque. At first, United sued MFG for money lent by United to it or for money had and received by MFG to United's use. Indeed, United obtained an interlocutory judgment in that proceeding but this was later set aside and the action against MFG never came to trial. MFG went into liquidation. United proved in the liquidation for money lent but the proof was not admitted by the liquidator by the time of the hearing to which I am about to refer.

United sued Barclays for damages for conversion of the cheque or, alternatively, for negligence. The House of Lords held that United was not prevented from succeeding in its action in tort against Barclays by the earlier proceeding against MFG.

The particular case concerned different causes of action against different parties, as distinct from alternative remedies against the one party. The question before their Lordships was what would prevent a plaintiff from pursuing a good cause of action against one party to judgment. In that context, things could be said which cannot be applied to alternative bases of monetary relief awardable in respect of the one cause of action.

However, in the context of a discussion of alternative causes of action (and remedies) against the one tortfeasor, Viscount Simon LC said this:

"If, under the old forms procedure, the mere bringing of an action while waiving the tort did not constitute a bar to a further action based on the tort, still less could such a result be held to follow after the Common Law Procedure Act, 1852, and the Judicature Act, 1875. For it is now possible to combine in a single writ a claim based on tort with a claim based on assumpsit, and it follows inevitably that the making of the one claim cannot amount to an election which bars the making of the other. No doubt, if the plaintiff proved the
necessary facts, he could be required to elect on which of his alternative causes of action he would take judgment, but that has nothing to do with the unfounded contention that election arises when the writ is issued. There is nothing conclusive about the form in which the writ is issued, or about the claims made in the statement of claim. A plaintiff may at any time before judgment be permitted to amend. The substance of the matter is that on certain facts he is claiming redress either in the form of compensation, i.e., damages as for a tort, or in the form of restitution of money to which he is entitled but which the defendant has wrongfully received. The same set of facts entitles the plaintiff to claim either form of redress. At some stage of the proceedings the plaintiff must elect which remedy he will have. There is, however, no reason of principle or convenience why that stage should be deemed to be reached until the plaintiff applies for judgment." (at 18-19)

The passage contemplates a single "all issues" hearing. In that situation the plaintiff will have had the benefit of discovery on all issues. Moreover, the delictual cases which their Lordships had in contemplation may be thought not to raise reasons of convenience why an election should be required before the hearing. Usually, the "restitutionary" remedy will give a judgment for an amount equal to the amount of the proceeds of sale of a piece of property - a matter which will not unduly extend the evidence on the hearing.

In Thornton Hall Manufacturing Ltd v Shanton Apparel Ltd [1989] 3 NZLR 304 (CA) ("Thornton Hall"), an action for infringement of copyright, the plaintiff originally claimed an injunction, an account of profits, damages pursuant to sub-s 24 (3) of the Copyright Act 1962 (NZ), and delivery up of the infringing articles. Over the defendant's objection, the plaintiff was granted leave to file an amended statement of claim seeking, in the alternative, damages for conversion pursuant to sub-s 25 (1) of the Act. In order to make use of the time which had been set aside for the case, the trial Judge directed, again over the defendant's objection, that the hearing should proceed in two parts with the question of liability being determined in the time available and the quantum of damages being determined subsequently if it had to be determined at all. His Honour found for the plaintiff on liability. On an appeal against the interlocutory order granting leave to amend, the defendant contended that because the plaintiff had sought an account of profits and not conversion damages in its original statement of claim, it had made an election from which it could not resile.

The Court of Appeal rejected the submission, while acknowledging that in particular circumstances there might be conduct by a plaintiff which would reasonably induce the defendant to believe that an election to pursue one remedy and to relinquish the other was being made. The joint judgment of Richardson and Bisson JJ contains this passage:

"In the absence of such conduct and provided there is no prejudice to the defendant, the plaintiff should not be called upon to elect until the evidence has established the facts upon which an election can fairly be made. That stage may not be reached until the plaintiff applies for judgment. Although concerned with alternative courses of action, we regard as applicable to alternative forms of relief the following passage from the speech of Viscount Simon LC in United Australia Ltd v Barclays Bank Ltd [1940] 4 All ER 20 at p 30: [that part of
the passage quoted above commencing `There is nothing ...']." (at 309)

Wylie J expressed agreement with Richardson and Bisson JJ on the point.

Their Honours allow for the possibility that a plaintiff may be entitled to defer making an election until the conclusion of the hearing. The words "until the plaintiff applies for judgment" suggest that the election must be made, at the latest, before the judge delivers judgment and gives reasons for it.

In Minnesota Mining & Manufacturing Co v Colin Jeffries Pty Ltd (1992) 37 FCR 294, ("Minnesota Mining"), an action for infringement of a patent, injunctive relief was granted against relevant respondents, leaving on foot the applicant's claim for damages or for an account of profits. The applicant sought an order for discovery of documents relating to supplies and sales by those respondents. They submitted that discovery should not be ordered until the applicant had elected for an account of profits. The applicant, on the other hand, said that it was not in a position to make that election until it had access to the documents in question.

After referring to Neilson v Betts, De Vitre v Betts and Thornton Hall, supra, Sheppard J said this:

"Here the applicant seeks to keep its options open notwithstanding that there has been the grant of injunctive relief. But it only wishes to defer making an election until it has had access to the respondents' documents. Once it has inspected them, it will make its election with the consequence that the election will be made prior to the hearing of the claim for damages or an account of profits and, importantly, before any other step is taken towards the preparation of that case for hearing by both the applicant and the respondents." (at 296)

His Honour noted that the applicant did not seek an order for general discovery in relation to an account of profits or a claim for damages, but an order limited to certain documents which, it seemed likely, would need to be discovered whether the claim to be pursued was for damages or for an account of profits, so that there was no question of costs being thrown away as a result of the exercise. (An infringer is entitled not to have his costs burden increased unnecessarily.) His Honour observed further that the documents and the information contained in them were in the possession and knowledge of the respondents, and that the applicant had no means of knowing what supplies or sales of the infringing product had been made. In the result, his Honour made the order sought.

Minnesota Mining is both similar to and different from the present case. In both cases, after a finding of infringement and the granting of injunctive relief, claims in the alternative for damages and an account of profits remained on foot and the applicant submitted that it was not in a position to make an informed election without access to the documents of a respondent relating to profits made by it. Minnesota Mining differs from the present case in that the applicant wished to defer making an election only until after it had access to the documents sought, and accepted that it would make its election prior to the further hearing, while LED's primary submission is that it is entitled to defer making its election until after the further hearing has taken place, and, according to that submission's extreme form, until after reasons for judgment are delivered. In Minnesota Mining, Sheppard J noted that it seemed likely that the documents sought would need to be discovered whether the claim for damages or that for an account of profits was pursued, so that there was "no question of costs being thrown away as a result of the exercise" (at 296). In the present case, the position in this respect is not clear in view of LED's claim for additional damages under sub-s 115 (4) of the Copyright Act 1968 and the provisions of sub-paras 115 (4) (b) (ii) and (iii) of that Act, referred to earlier.

In Gentry Homes Pty Ltd v Diamond Homes Pty Ltd (1993) AIPC 91-008, ("Gentry Homes") Beazley J directed the applicant to make its election between damages and an account of profits prior to the commencement of the hearing (on all issues). Her Honour rejected a submission that s 115 of the Copyright Act 1968 left it to the court to determine whether an order by way of damages or an account of profits was the appropriate remedy. At the commencement of the hearing, the applicant announced its election in favour of an account of profits.

Island Records Ltd v Tring International Plc [1996] 1 WLR 1256, decided on 12 April 1995, was an action for infringement of copyright in which the plaintiff sought summary judgment for an injunction restraining further infringement of its copyright, and sought an order that:

"(2)there be at the plaintiff's option the following, namely either:

... An inquiry be made as to what damages the plaintiff suffered by reason of the infringement of the plaintiff's copyright in the Cat Stevens recordings committed by the defendants and each of them. ... alternatively, an account be taken of the profits that have accrued to the defendants and each of them by reason of the infringements ..."

On the hearing of the motion it was common ground that the plaintiff was entitled to judgment but the parties were in dispute as to the date by which the plaintiff had to elect between damages and profits. The defendants contended that the plaintiff had to elect on the hearing of the motion and that therefore order (2) set out above should not be made. The plaintiff, on the other hand, contended that it should not be required to elect until after it had, by means of discovery or otherwise, sufficient information to make an informed choice between the two remedies.

Lightman J noted that in a proceeding in which all claims for relief, including the alternative claims for damages or an account of profits, are heard and determined in a single trial:

" ... full discovery will include all documents relevant to the assessment [of damages] and calculation [of profits], and the plaintiff can make an informed election between damages and profits in the course of the trial in the light of the information revealed on discovery and in the evidence at the trial." (at 1258B - emphasis supplied)

His Honour noted that a practice of "split trials" had developed, in particular in intellectual property cases, according to which the first stage relates to the issue of infringement and only documents relating to that issue are required to be discovered, while the second stage, contingent on the plaintiff's succeeding in the first, is concerned with the assessment of damages and calculation of profits. If a plaintiff were required to elect at the conclusion of the hearing on liability, the plaintiff would not have had the benefit of any discovery relating to monetary relief.

Lightman J noted the following four principles which he described as "clear":

1. While a plaintiff can apply for damages and an account of profits in the alternative, he can obtain judgment only for one or the other (his Lordship cited Neilson v Betts and De Vitre v Betts, both supra).

2. Once judgment has been entered for damages or for an account of profits, any right to elect for the other remedy is forever lost (his Lordship referred to United
Australia Ltd v Barclays Bank Ltd, supra, at 30).

3. "Third, a party should in general not be required to elect or be found to have elected between remedies unless and until he is able to make an informed choice. A right of election, if it is to be meaningful and not a mere gamble, must embrace the right to readily available information as to his likely entitlement in case of both the two alternative remedies. It is quite unreasonable to require the plaintiff to speculate totally in the dark as to whether or not the sum recoverable by way of damages will exceed that recoverable under an account of profits." (at 1258H-1259A) (His Lordship referred to Mate & Son v Samuel Stephen Ltd [1928-1935] Mac C C 257 at 261).

4. The exercise of the right of election must not be unreasonably delayed to the prejudice of the defendant.

With respect, I agree that these statements of principle represent the law.

His Lordship thought that the case before him raised the question whether the Court could adopt a procedure which reconciled the four principles and which also enabled a plaintiff who had established liability to make an informed election. After referring with approval to the course taken by Sheppard J in Minnesota Mining, his Lordship concluded as follows:

"In my view, the court can at the split trial or on any other application for judgment be invited to defer entry of judgment for damages or profits. At this stage the court may either make no order as to the remedy for infringement (as in the Minnesota case) or (as I would prefer) may grant a declaration that the plaintiff is entitled at his election to judgment for either. The court may at the same time
or thereafter give directions which secure that such information as is available and is reasonably required to enable the plaintiff to make an informed election (and accordingly is necessary for fairly disposing of the cause or matter: see Ord 24, rr 8 and 13(1)) is made available to him and that the election is made within a reasonable time thereafter. To secure that the plaintiff has the required information, the court may direct discovery, but if the information may be made available by some other satisfactory means (eg in an affidavit by the defendant or by way of audited accounts or reports) the court may hold that the alternative means be adopted. The court should not be deterred from this course by the fact that the information required may likewise be required on the taking of an account or an assessment. There should be no over-lengthy or unnecessarily sophisticated exercise. The plaintiff is not entitled to know exactly the amount of any damages or profits to which he is entitled, but only to such information as the court considers to be a fair basis in the circumstances of the particular case for an election." (at 1259F-1260A)

The plaintiff sought discovery of the defendants' documents relating to (1) the sums received or receivable in respect of the infringement; (2) the sales of infringing copies; (3) the number of infringing copies unsold; and (4) the cost incurred by the defendants in the manufacture, distribution and sale of the infringing copies. While challenging the plaintiff's right to any order, the defendants offered, if the Court should favour the making of an order, to provide an audited schedule within two months detailing the figures sought. In the result, Lightman J declared that the plaintiff was entitled, at its election, to an assessment of damages or an account of profits; directed the defendants to furnish within two months the auditor's schedule; and directed the plaintiff to elect between the two remedies within seven days after the supply of that schedule.

On 18 December 1995, some eight months after judgment was handed down in the Island Records case, the Privy Council delivered judgment in Tang Man Sit v Capacious Investments Ltd [1996] 2 WLR 192. The case was not an intellectual property one but a claim of breach of trust in respect of real estate comprising 16 houses. On an application by the plaintiff for summary judgment, Mayo J ordered the defendant to assign the houses to the plaintiff and declared that the plaintiff had been, from at least 20 March 1982, the equitable owner of them. As well, he ordered the defendant to furnish an account of all secret profits in respect of the use and letting of the houses and payment of those profits to the plaintiff. Finally, he made an order for "damages for breach of trust to be assessed".

Because both remedies had been ordered, the Privy Council held that the plaintiff's acceptance of a certain payment in respect of profits did not constitute an election disentitling the plaintiff to pursue the assessment of damages. However, their Lordships noted that, provided the plaintiff had had all the necessary information, it should have been required, at the time when summary judgment was entered, to make an election between the two remedies to the extent that they were inconsistent. In delivering the judgment of their Lordships, Lord Nicholls of Birkenhead said this:

"Alternative remedies

Faced with alternative and inconsistent remedies a plaintiff must choose, or elect, between them. He cannot have both. The basic principle governing when a plaintiff must make his choice is simple and clear. He is required to choose when, but not before, judgment is given in his favour and the judge is asked to make orders against the defendant. A plaintiff is not required to make his choice when he launches his proceedings. He may claim one remedy initially, and then by amendment of his writ and his pleadings abandon that claim in favour of the other. He may claim both remedies, as alternatives. But he must make up his mind when judgment is being entered against the defendant. Court orders are intended to be obeyed. In the nature of things, therefore, the court should not make orders which would afford a plaintiff both of two alternative remedies.

In the ordinary course, by the time the trial is concluded a plaintiff will know which remedy is more advantageous to him. By then, if not before, he will know enough of the facts to assess where his best interests lie. There will be nothing unfair in requiring him to elect at that stage. Occasionally this may not be so. This is more likely to happen when the judgment is a default judgment or a summary judgment than at the conclusion of a trial. A plaintiff may not know how much money the defendant has made from the wrongful use of his property. It may be unreasonable to require the plaintiff to make his choice without further information. To meet this difficulty, the court may make discovery and other orders designed to give the plaintiff the information he needs, and which in fairness he ought to have, before deciding upon his remedy. A recent instance where this was done is the decision of Lightman J in Island Records Ltd v Tring International Plc [1995] 3 All ER 444. The court will take care to ensure that such an order is not oppressive to a defendant." (at 197C-G)

A month later on 12 January 1996, in the Patents Court, Jacob J made an order in Brugger v Medicaid [1996] FSR 362, by reference to the Island Records case, that a defendant supply an affidavit setting forth "the numbers of infringing copies made and sold, the sums received or receivable, and an
approximate estimate of the costs incurred, that approximate estimate to include a statement as to how the estimate was made" (at 362).

The present case

It merits repetition that LED's motion raises a question of the exercise of the discretion given by O 15 r 5 of the Federal Court Rules subject to the constraint imposed by O 15 r 15, both noted earlier. The motion requires consideration to be given to the nature and extent of the information which it is necessary for LED to have in order to make a reasonably informed election and the question of prejudice to the respondent. LED's primary submission is that it is entitled to defer its election until after the further hearing is concluded and, in that submission's more extreme form, until reasons for judgment have been delivered. Its secondary and "fall back" submission is that it is entitled to defer its decision until after discovery and inspection of the documents referred to in its solicitors' letter.

In relation to both submissions, LED relies on Dart Industries Inc v Decor Corporation Pty Ltd (1993) 179 CLR 101 ("Dart v Decor"). In that case, the High Court held that in the determination of the amount of an infringer's profits, the infringer is ordinarily entitled to the benefit of a deduction in respect of general overheads, as well as of the costs directly attributable to the sales in question. The affidavit of Mr Valeri sworn 13 September 1996 does not, of course, address this question but states in a single figure in respect of each house, the "Gross Cost to Build". LED submits that it cannot make a informed election without discovery of documents relating to Eagle's overheads.

In support of its primary submission, LED makes the following submissions:

(a) Minnesota Mining is distinguishable in that the applicant volunteered to elect prior to the hearing so that the present issue did not call for decision;

(b) in Gentry Homes, the Court was dealing with the terms on which an amendment and an adjournment would be allowed, and made the direction for the making of the election at the beginning of the hearing as a condition of the granting of such discretionary interlocutory relief;

(c) "to require an election prior to the hearing would be unjust in that the formulation and application of the relevant legal principles in this area may not be sufficiently clear until reasons for judgment are pronounced", in that:

(i) The High Court in Dart v Decor recognised that there are exceptions to the "absorption" method of accounting for overheads, and left the determination of those exceptions to future cases;

(ii) the usual measure of damages, namely a reasonable licence fee, may not be as widely available as previously thought (LED refers to Autodesk Australia Pty Ltd v Cheung (1990) 94 ALR 472 (FCA/Wilcox J)); and

(iii) LED claims additional damages under sub-s 115 (4) of the Act, the quantification of which involves judgmental and discretionary considerations for the trial Judge.

LED's primary submission in its more extreme form is, in substance, that it is entitled to be informed by means of the further reasons for judgment to be delivered of the trial Judge's decisions on issues of fact and of law, and of the amounts which it would obtain as damages and as profits respectively (or the means of calculating those amounts). Acceptance of this submission would require that the Court conduct in the one hearing an inquiry into damages and into profits, then give, as it were, an advisory opinion founded on its resolution of factual and legal issues arising in the course of both forms of inquiry.

I do not accept the submission. I do not think that principle or authority requires that LED be placed in a position in which it is entitled to be "informed" by the Court to this extent before it is called upon to make its election. LED's primary submission, in this extreme form, is, in substance, no different from the submission that was rejected (properly in my respectful view) in Gentry Homes, that no election is required and that the Court is required to exercise a discretion as to which remedy to award, since it is impossible to conceive of circumstances in which the Court could properly choose to award the lesser of the two amounts.

Nor do I think that LED's primary submission in its less extreme form (election after hearing but before delivery of reasons for judgment) should be accepted. In the ordinary case, the owner of copyright or other intellectual property will be able to be adequately informed prior to the hearing, for the purpose of making its election, by the interlocutory procedures of discovery and, if appropriate, the administration of interrogatories, or by other means referred to in the cases discussed earlier. It is not to the point that in cases in the past a defendant may in fact have allowed a hearing, particularly one on all issues, to proceed to conclusion without having insisted that an election be made at any earlier stage. If a defendant takes the point, prima facie it should not be required to meet alternative claims for damages and an account of profits, whether as part of a single "all issues" hearing or in the second stage of a "split" hearing. There may be an exceptional case in which, through no fault of the plaintiff, it has not been adequately "informed" prior to the commencement of the hearing, but the present case is not shown to be out of the ordinary in this respect.

I turn now to LED's secondary submission. In my view, the general thrust of that submission should be accepted. Having regard to what the High Court has said in Dart v Decor on the issue of the allowance to be made in respect of an infringer's overheads, a copyright owner cannot make an informed election in relation to an account of profits in the absence of any information about the infringer's overheads.

That information should be provided by discovery or some other means. The extent and form of the provision of the information require that due regard be given to the copyright owner's right to be informed to a reasonable extent and the infringer's right not to be oppressed. Such considerations lie at the heart of the exercise of the discretion given by O 15 r 5. LED's oral submissions addressed the question of the necessity of discovery of the documents in the respective classes numbered (1) to (7) in its solicitors' letter dated 27 September 1996 quoted earlier. Eagle's submissions did not address that question. It may be that the conclusion which I have reached above will lead to the making of the order sought in LED's notice of motion. But it is important, in my view, that Eagle have the opportunity of proposing an alternative procedure. Perhaps it should be required, as an initial step, to provide a verified statement of the approximate amount of the profit which it contends it made by the infringement and of the broad calculation by which that amount has been arrived at. Discovery might still be required, if in a modified form, to enable LED to satisfy itself in relation to the verified statement. The form of any order to be made was not the subject of competing submissions. Moreover, I was told that there will be an issue as to the person or persons who, on behalf of LED, will be entitled to inspect any documents ordered to be discovered, the parties being trade competitors.

CONCLUSION

In the circumstances, the proceeding should be listed again in the near future for the making of any further submissions as to the precise form of the order to be made, inspection of documents to be discovered, and a time thereafter for the making by LED of its election between damages and an account of profits. At that time, I will hear the parties on the question of the costs of LED's motion.

I certify that this and the preceding 31 pages are a true copy of the Reasons for Judgment of the Honourable Justice Lindgren.

Associate:

Dated: 13 November 1996

Heard: 17 October 1996

Place: Sydney

Decision: 13 November 1996

Appearances: Mr I M Jackman with Mr M Leeming of counsel instructed by Speed and Stracey appeared for the applicant.

Mr D M Yates of counsel instructed by Castrission & Co appeared for the respondent.

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