FEDERAL COURT OF AUSTRALIA

TS & B Retail Systems Pty Ltd v 3fold Resources Pty Ltd (No 2)

[2004] FCA 1101

CONTEMPT – injunction – breach of – penalty

Federal Court Rules Order 37, r 2

Degmam Pty Ltd (in Liq) v Wright (No 2) [1983] 2 NSWLR 354 applied

Hughes v Western Australian Cricket Association (Inc) [1986] ATPR 48,134 cited

Inn Leisure Industries Pty Ltd v D F McCloy Pty Ltd (No 2) (1991) 28 FCR 172 cited

J-Corp Pty Ltd v Australian Builders Labourers Federated Union of Workers, Western Australian Branch (No 2) (1993) 46 IR 301 referred to

TS & B RETAIL SYSTEMS PTY LTD v 3FOLD RESOURCES PTY LTD, PETER VANDERZAAG, FRANCIS D’MELLO and GARY WILLIAM SMITH

V 147 of 2003

FINKELSTEIN J

25 AUGUST 2004

MELBOURNE

THE COURT ORDERS THAT:

1.                  3fold Resources Pty Ltd be adjudged guilty of contempt.

2.                  3fold Resources Pty Ltd pay seventy percent (70%) of the applicant’s costs of this motion, such costs to be taxed on a solicitor and client basis.

3.                  The orders in V147 of 2003 made on 11 April 2003 be varied so that paragraph 1 (c) (iii) reads as follows:

“the Respondents or any of them if requested by a customer by reference or partial reference to a part number which is within the definition of Copyright Materials, from:

(A)                  supplying (otherwise than by reference to other Copyright Materials) that item; or

(B)                   storing that item

and if necessary by that number”.

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

REASONS FOR JUDGMENT

1                     Following a contested hearing in which the applicant alleged, and for the purpose of granting interlocutory relief I found, that the respondents, the applicant’s former employees and a company (3fold Resources Pty Ltd) which they had established, had infringed the applicant’s copyright in certain works including a part numbering system used to identify and fit out retail premises.  Interim injunctions were granted against the respondents pending trial.  Those injunctions restrained the respondents from, among other things, without the licence or authority of the applicant reproducing in a material form, making, authorising or causing the making or publishing or authorising the publication of the copyright works.  They were also restrained from publishing or causing to be published any of the copyright works on the ground that the works also constituted the applicant’s confidential information.  Certain conduct was, however, exempted from the restraints.  In particular, the respondents were entitled, if requested by a customer by reference or partial reference to a part number, to supply that item to the customer or store that item on the customer’s behalf. 

2                     The applicant complains that the respondents have engaged in conduct in breach of the injunctions and now moves for orders that the respondents be punished for contempt. 

3                     The applicant contends that 3fold committed two acts, which it says were authorised by the other respondents, and that these acts amount to a wilful disobedience of the injunctions.  The first is the production of a packing list which reproduced a series of part numbers which are the subject of the injunction.  The packing list, together with the items to which it relates, was delivered to K-Mart’s store at Traralgon.  K-Mart is one of 3fold’s customers.  The second act is the production of a drawing for shop fittings which reproduced further part numbers.  The drawing was also sent to K-Mart’s Traralgon store. 

4                     Initially in the statement of charge which accompanied the motion the applicant asserted that the respondents had breached the injunctions in other respects, but these allegations were not pressed at the hearing.  The applicant did not go ahead with these claims because there was no evidence that the respondents had engaged in the conduct about which complaint was made. 

5                     The respondents do not deny that 3fold prepared the packing list with the offending part numbers.  They explained how this came about.  3fold holds items of stock for K-Mart.  K-Mart requested the delivery of two of those items, namely two novelty units.  The request was made by reference to the novelty unit’s part number.  These items were delivered to K-Mart with the packing list which identified them.  As was explained by the respondents’ solicitors:  “For billing purposes, all of the parts supplied during a billing period are billed by 3fold to Kmart, and a credit is given for those parts taken from storage.  Thus, Kmart is able to maintain an inventory of stock held on its behalf by 3fold.”

6                     3fold resists a finding of contempt in relation to the production of the packing list.  First it says that there is no proof that it was served with a copy of the restraining orders:  see Order 37, r 2.  Secondly, it contends that the preparation and delivery of the packing list falls within the conduct permitted by the orders.

7                     I am unable to uphold either contention.  As to the first (non-service of the order) the applicant concedes that there is no direct evidence that the respondents were served with or obtained a copy of the order.  On the other hand there are uncontested facts from which service or receipt of a copy of the order may be inferred.  Those facts are:  (1) The respondents’ solicitor provided a detailed response to the allegation that their clients had breached the order.  That explanation did not suggest that their clients had not been provided with a copy of the order; (2) The individual respondents filed affidavits in answer to the applicant’s claims.  They did not depose that they had not received the order, if anything each individual respondent said that “to the best of [their] knowledge, information and belief” they have complied and have caused 3fold to comply “with the orders made on 11 April 2003”.  This suggests that they would have been aware of the contents of the order; and (3) The orders were made after a fully contested hearing at which several of the respondents were present.  In all of these circumstances it is inherently likely (to the requisite criminal standard) that the respondents were provided with a copy of the order by their solicitors. 

8                     In relation to the assertion that the preparation of the packing list falls within the exempt conduct, all I can say is that it does not because “supplying … item[s]” or “storing … item[s]” by reference or partial reference to a part number does not include the preparation of a list, whether it be a packing list or some other list, which describes those items by reference to their part number.  By the same token, as I said during the course of the hearing, I regard this disobedience of the injunctions as unintentional and conduct which would not in ordinary circumstances warrant the imposition of any punishment.

9                     This observation does not apply to the use of the part numbers in the drawing prepared for K-Mart.  The respondents’ solicitors again provided an explanation for their clients’ conduct.  They said:

“[T]hat as a result of discussions between representatives of Kmart and representatives  of 3fold, Kmart sought ideas for a way to better merchandise particular entertainment products.  3fold produced a drawing which includes standard and new parts designed by 3fold.  The drawing was provided to Kmart and approved.  We are further instructed that Kmart included the drawing as part of a tender.  The reference to standard parts in the drawing are identified by reference to 3fold part numbers as the drawing was produced on behalf of Kmart for its use and it has standing instructions to attempt, where possible, to use component parts from stock.  To do so, both Kmart and 3fold must be able to determine what parts are being referred to.”

10                  The explanation is a little unclear.  It was amplified by counsel during the hearing.  It seems to come down to this.  In respect of “standard parts”, that is to say, parts which the applicant refers to by reference to its part numbering system, it is convenient for 3fold to identify the same parts by reference to TS&B’s same or similar part numbers so K-Mart can easily identify the part in question.

11                  This is not a casual, accidental or unintentional disobedience of the injunctions.  To the contrary it seems that 3fold deliberately chose to employ the same or a similar part numbering system in the preparation of the drawing in order to convenience its customers.  This was despite the subsistence of the restraining orders. 

12                  What of the allegation that the individual respondents authorised 3fold’s conduct?  The applicant now limits its claim to one respondent, Mr Vanderzaag, who is a director of 3fold.  It concedes that there is no evidence to tie in the others.  However, even in relation to Mr Vanderzaag, there is no real evidence to suggest that he was involved in, or authorised the preparation of, the packing list or the drawing.  The only direct evidence against Mr Vanderzaag is that he was involved in discussions with K-Mart about the return of the two novelty units.  That, however, is far short of evidence that he authorised the production of the packing list, especially in a case where the burden of proof is to the criminal standard.  I suspect that the task was performed by the person responsible for dispatching the novelty units to K-Mart.  It is unlikely that this person was aware of the existence of the orders.  I should also add that there is no evidence to indicate that Mr Vanderzaag had any involvement in the 3fold drawing.

13                  What penalty should be imposed on 3fold?  The applicant did not seek the imposition of a fine; it only sought to be paid its costs on an indemnity basis.  It is usually appropriate that the plaintiff should not be out of pocket for prosecuting a contempt action.  In Degmam Pty Ltd (in Liq) v Wright (No 2) [1983] 2 NSWLR 354 Holland  J (at 358) said:

 “It is, in my experience, quite common to find, in cases where an application is made to the court for committal for contempt such orders being made in an endeavour to ensure that the party that has been enforced to take that extra step, in order to obtain his rights, after they have been adjudicated by the court, may be relieved entirely of the expense of doing so, and, although there is nothing in the rules about it, it is in my experience common to find an order designed to give a party a complete indemnity against such costs, usually by an order that the contemnor pay the other party’s costs on a solicitor and client or solicitor and own client basis but the object is to ensure an indemnity.”

I think it proper to order that 3fold pay the applicant’s costs on a solicitor and client basis.  There should however be a qualification to this order.  I mentioned previously that the applicant moved for contempt on a number of grounds which were not pressed due to a lack of evidence.  It also failed in its claim against the individual respondents; had the individual respondents been separately represented they would have been entitled to recover their costs.  The fact that the applicant’s claim was only partly successful gives rise to the possibility for an apportionment of costs.  See by way of example Hughes v Western Australian Cricket Association (Inc) [1986] ATPR 48,134 and Inn Leisure Industries Pty Ltd v D F McCloy Pty Ltd (No 2) (1991) 28 FCR 172.  Inevitably any apportionment is a matter of “impression and discretion”: J-Corp Pty Ltd v Australian Builders Labourers Federated Union of Workers, Western Australian Branch (No 2) (1993) 46 IR 301, 302.  All in all, I think that it is appropriate to reduce the applicant’s costs by 30 per cent.

14                  The final matter which I must deal with is the respondents’ request to vary the injunctions so that they might, in future, be permitted to do that which has brought them to court on this occasion.  The request, which was made orally during the course of the hearing, is opposed.  In the circumstances, I am only disposed to make one change to paragraph 1(c)(iii) (A) and (B) of the order dated 11 April 2003 which defines the exempt conduct.  Presently the respondents are permitted to supply or store items by reference to their part number.  The respondents should be permitted to make reference to the part number in their dealings with the person to whom items are supplied or for whom items are stored.  Accordingly, the order will be varied by deleting the full stop after the words “that item” where last appearing and adding the following line immediately below (B): “and if necessary by reference to that number.”  This will qualify what appears in paragraph (A) and (B).   

Associate:

Dated:              25 August 2004