FEDERAL COURT OF AUSTRALIA

Council of the City of Sydney v Goldspar Pty Limited (No.2)

[2002] FCA 1268

CONTRACTS – construction and interpretation

WORDS AND PHRASES – “arising out of”

Hi-Fert Pty Ltd v Kiukiang Maritime Carriers Inc (1998) 90 FCR 1 referred to

Francis Travel Marketing Pty Ltd v Virgin Atlantic Airways Ltd (1996) 39 NSWLR 160 referred to

IBM Australia Ltd v National Distribution Services Ltd (1991) 22 NSWLR 446 referred to

Royal Botanic Gardens and Domain Trust v South Sydney City Council (2002) 186 ALR 289 cited

Bass v Permanent Trustee Company Ltd (1999) 198 CLR 334 applied

Hamzy v Tricon International Restaurants (2001) 115 FCR 78 applied

COUNCIL OF THE CITY OF SYDNEY v GOLDSPAR AUSTRALIA PTY LIMITED (ACN 002 705 991) AND DOUGLAS RAWSON-HARRIS

N728 OF 2002

GYLES J

SYDNEY

11 OCTOBER 2002

THE COURT ORDERS THAT:

1.                  The answers to the separate questions are as follows:

Question 1: Whether on the true construction of the contract between the Applicant and the First Respondent dated 29 May 1998 (“the Contract”) and in the events which have happened, the owner of copyright in the drawings identified in Schedule A hereto (“the Works”), is the Applicant or the First Respondent

Answer: (i)         As to the first item in Schedule A - not the applicant;

(ii)                As to the second item in Schedule A - as between the applicant and the respondents, the applicant;

(ii)                As to the third item in Schedule A - inappropriate to answer as a preliminary question.

Question 2: Whether on the true construction of the Contract and in the events which have happened the owner of all right, title and interest in the intellectual property (including but not limited to all design, patent and/or copyright) which has arisen, may have arisen or may arise, in relation to the Works, is the Applicant or the First Respondent.

Answer:  Inappropriate to answer as a preliminary question.

Question 3:  Whether on the true construction of the Contract and in the events which have happened the owner of all right, title and interest in the copyright which has arisen, may have arisen or may arise, in relation to the goods supplied by the First Respondent to the Applicant pursuant to the contract is the Applicant or the First Respondent.

Answer:  Inappropriate to answer as a preliminary question.

Question 4: Whether on the true construction of the Contract and in the events which have happened the owner of all right, title and interest in the intellectual property (including but not limited to all design, patent and/or copyright) which has arisen, may have arisen or may arise, in relation to the goods supplied by the First Respondent to the Applicant pursuant to the Contract is the Applicant or the First Respondent.

Answer:  Inappropriate to answer as a preliminary question.

2.             The respondents are to pay 50% of the costs of the applicant of and incidental to the separate determination of these questions.

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

REASONS FOR JUDGMENT

1                     On 28 August 2002 I delivered reasons for Judgment (Judgment No.1) and stood the matter over to enable the parties to consider those reasons and bring in minutes of order to give effect to them.  These reasons should be read in conjunction with Judgment No.1.  There has been no agreement between the parties as to what orders should be made and I have heard further argument as to that.  This has highlighted aspects of the matter which were not so obvious previously.  Counsel for the respondents has submitted that I should not answer most of the questions.  Counsel for the Council has taken a strong objection to that course, suggesting that it amounts to resiling from the basis upon which the parties agreed to deal with the matter.  It may be that tactical considerations have influenced the current attitude of the respondents, but the issue as to whether answers to preliminary questions amounting to declarations of right should be answered is for the court as much as it is for the parties.  Indeed, I raised that issue in Judgment No.1.  As will appear, I am not prepared to answer questions 2, 3 and 4 or question 1 insofar as it relates to the third item in Schedule A.  I do propose to consider the issue of substance arising from question 1 so far as it relates to the first item in Schedule A.

2                     The starting point for consideration of that issue is that, as the drawings were made and completed prior to submission to the Council, with the tender, copyright must have subsisted at that time either in Goldspar or the actual author of the drawings, but certainly not the Council.  Next, it does not follow that the view I expressed in Judgment No.1 as to copyright in the issue C drawings has application to the version 2 drawings, notwithstanding the fact that one was derived from the other and that there are substantial similarities between them.  Agreement between parties as to copyright in a particular set of drawings does not settle copyright in a prior but different set of drawings.

3                     It is then submitted for the respondents that the version 2 drawings are not caught by the terms of cl 10 of the General Conditions for Contract as they were not provided to or supplied to Goldspar by the Council and, insofar as the definition of “Intellectual Property” is concerned, were not created in the course of, nor arose out of, the contract.  It is further submitted that the version 2 drawings are not referred to in the Supply Contract, as that is only the General Conditions of Contract.  In the previous judgment I remarked that cl 10 sits more comfortably in the case of a conforming than a non-conforming tender, and that aspect comes into sharp focus in considering this submission by the respondents.

4                     It is submitted for the Council that the version 2 drawings are referred to in the Supply Contract, as they have been found to be part of the contract, and it is also submitted that the version 2 drawings were brought into existence and supplied as part of the non-conforming tender and so answer the description in the definition of Drawings namely “the use of which is permitted by the Council for the purposes of the Supply Contract”.  It is also submitted that the words in the definition of Intellectual Property, “in particular, includes all Intellectual Property in the Drawings” stand alone and are not cumulative upon any other preceding description.  It is further submitted that the words “arises out of” are wide enough to include the version 2 drawings.

5                     As to the last point each side referred me to authority, principally in relation to the construction of arbitration clauses.  Counsel for the respondents referred to Hi-Fert Pty Ltd v Kiukiang Maritime Carriers Inc (1998) 90 FCR 1 at 18-22 and submitted that the expression “arises out of” is not apt to cover something that is antecedent to, and does not depend upon, a contractual relationship between Goldspar and the Council.  Counsel for the Council referred to Francis Travel Marketing Pty Ltd v Virgin Atlantic Airways Ltd (1996) 39 NSWLR 160 and IBM Australia Ltd v National Distribution Services Ltd (1991) 22 NSWLR 446.  Once it is recognised that the authorities referred to by the Council allow that a claim for rectification might “arise out of” a contract, the potential width of the phrase is obvious, and here the mere temporal sequence is not necessarily enough to avoid being caught by the phrase.

6                     In my opinion the version 2 drawings were referred to in the Supply Contract.  That contract can only mean, in this context, the whole of the contract as found.  The attempt to limit the Supply Contract to the General Conditions of Contract is not open, even on the face of the written document – see, for example, the last sentence of cl 1 which distinguishes between the two.  I am also of the opinion that intellectual property in the Drawings as defined is within the definition of “Intellectual Property” without it being necessary to also qualify as one of the alternatives following the words “valuable information”.  On the face of it, therefore, copyright in the version 2 drawings is capable of being “Intellectual Property” as defined.  In this connection, I should note, in passing, that the respondents’ written submissions appear to rely upon the absence of issue D drawings to suggest that the inclusion of Production Drawings in the definition is of no significance in the present case.  That submission is contrary to my finding in Judgment No.1, but does not appear to have any real significance for the present debate, as the version 2 drawings are plainly not the Production Drawings.

7                     Something more is required to resolve the present issue than merely literal textual analysis (Royal Botanic Gardens and Domain Trust v South Sydney City Council (2002) 186 ALR 289 at [10]).  The issue C drawings were created in the course of and arose out of the Supply Contract.  In those circumstances, it is not difficult to see the commercial rationale behind the application of cl 10, which is consistent, for example, with cl 32.  It is clear enough that (as between the parties) the Council wished to take the full benefit of the copyright (and other potential intellectual property) in relation to the poles as supplied pursuant to the contract.  This is so even if it might be thought that such a provision would be more naturally attracted if there were modification by the supplier of concept drawings provided to it by Council for production purposes rather than modification of concept drawings provided by the supplier for that purpose.

8                     Although all that would be necessary for the purpose would be some form of licence, it seems to me that Council bargained for more, at least so far as production drawings are concerned, even if the final product evolved from the concept of the tenderer rather than of the Council.  It is also fairly obvious that, on that footing, any copyright (and other intellectual property) which the final product might infringe would need to be dealt with and I have no doubt that, as between the parties, cl 10 would, at least, grant a licence or permission to use the relevant intellectual property for the purposes of the contract.  It is not clear that an out and out assignment of any such copyright or other intellectual property to the Council would be necessary to effect the commercial objectives.

9                     It is more difficult to see a commercial rationale for acquisition by Council of copyright in all drawings supplied to it by the tenderer provided that it obtained the benefit of the copyright in the ultimate production drawings.  The tender documents included in the contract give no hint that a purpose of the tender was for Council to acquire intellectual property for external and independent commercial exploitation, at least independent of the product supplied pursuant to the contract.  As I pointed out in Judgment No.1, the provisions of cl 10 are not well adapted to effect an assignment of copyright (or other intellectual property).  Whilst I take the view that the clause is sufficient to vest copyright in the Production Drawings as between the parties, I do not think they are apt to effect an assignment of copyright in existing drawings which are not produced, created or made post tender as a result of some contribution from the Council, or otherwise in the course of working out of the contract, and are not the Production Drawings.  It would, no doubt, have been possible to draft the contract in such a fashion that copyright and intellectual property in non-conforming tender drawings which are not Production Drawings would be assigned to and vested in the Council.  In my opinion, however, that was not done here.

10                  I do not gain any assistance in the resolution of this problem from the itemised form of tender and purchase order No. 000745, each indicating an amount for production of drawings.  There is nothing to indicate that these items refer to the purchase of copyright or other intellectual property in pre-existing drawings supplied with the tender and would more naturally relate to the conversion of concept drawings to production drawings.

11                  It is relevant to bear in mind that the Supply Contract primarily relates to the supply of poles, with copyright and intellectual property an incidental or ancillary aspect of it.  Clause 10 does not amount to a warranty that the supplier is the owner of all relevant intellectual property but rather is a promise that there will be no infringement.  It is entirely possible that third parties actually own the copyright in question but have granted licence or permission for it to be utilised for the purposes of the contract.  It has been pointed out by counsel for the respondents that this is not a copyright suit but rather a question of construction of contract.  This has implications for the answers to question 1.

12                  In my opinion it is not appropriate to answer question 1 in relation to the third item in Schedule A.  The drawings are not identified and there is no evidence given as to the provenance of any of them.  It follows from my reasoning that it is likely that they would be regarded as similar to issue C drawings, but it is not appropriate to make any formal declaration to that effect in so general a form.

13                  The answers to question 1 will be as follows:

(i)                  As to the first item in Schedule A - not the applicant.

(ii)                As to the second item in Schedule A - as between the applicant and the respondents, the applicant.

(iii)               As to the third item in Schedule A - inappropriate to answer as a preliminary question.

14                  So far as questions 2, 3 and 4 are concerned, in the light of my reasoning, it is likely that, as between the parties, the applicant is correct in principle.  However, in my opinion, the questions are too general to be answered as preliminary questions having effect as declarations of right.  The form of property is not specifically identified and application to a concrete set of facts is not identified.  Counsel for the respondent also raised a number of other textual difficulties which I need not set out as I am satisfied to deal with the issue on a broad basis, conformably with such decisions as Bass v Permanent Trustee Company Ltd (1999) 198 CLR 334 at 353-360; and Hamzy v Tricon International Restaurants (2001) 115 FCR 78 at [16]-[23] and [81].  The answer to each of questions 2, 3 and 4 will thus be - inappropriate to answer as a preliminary question.

15                  So far as costs are concerned, each side has had a measure of success.  However, the Council has succeeded in establishing a proper basis for bringing the proceeding or at least the aspect of it which concerns the preliminary questions.  In my opinion the proper order is that the respondents should pay 50% of the costs of the applicant of and incidental to the separate determination of the questions.

Associate:

Dated:              15 October 2002