FEDERAL COURT OF AUSTRALIA

Nine Films & Television Pty Ltd v Ninox Television Limited
[2005] FCA 735

COSTS – security for – application under s 202 of Copyright Act 1968 (Cth) (unjustifiable threats provision) – cross-claim for infringement – applicant’s motion for order that cross-claimant provide security – which party true ‘attacker’ and which party true ‘defender’ – discretion – security ordered.

Copyright Act 1968 (Cth) s 202

Patents Act 1990 (Cth) ss 128, 129, 130

Trade Marks Act 1995 (Cth) ss 128, 129, 130

Designs Act 2003 (Cth) ss 78, 79, 80, 81

Circuit Layouts Act 1989 (Cth) s 46

Federal Court of Australia Act 1976 (Cth) s 56

Corporations Act 2001 (Cth) s 1335

Federal Court RulesO 28 r 3

Townsend Controls Pty Ltd v Gilead (1989) 14 IPR 443 followed

Neck v Taylor (1893) 1 QB 560 cited

Willey v Synan (1935) 54 CLR 175 cited

Amalgamated Mining Services Pty Ltd v Warman International Ltd (1988) 19 FCR 324 followed

Maatschappij voor Fondsenbezit v Shell Transport & Trading Co [1923] 2 KB 166 cited

Re Travelodge Australia Ltd  (1978) 21 ACTR 17 cited

Thunderdome Racetiming and Scoring Pty Ltd v Dorian Industries Pty Ltd (1992) 36 FCR 297 cited

Unilever Australia Pty Ltd v RFC Nominees Pty Ltd [2001] FCA 1021 distinguished

Buckley v Bennell Design & Constructions Pty Ltd (1974) 1 ACLR 301 cited

New Fenix Compagnie Anonyme D’Assurances de Madrid v General Accident, Fire and Life Assurance Corporation Ltd [1911] 2 KB 619 cited

Concrete Constructions v Dalma Formwork (Administrator Appointed) [1999] NSWCA 16  distinguished

P S Chellaram & Co Ltd v China Ocean Shipping Co (1991) 102 ALR 321 cited

NINE FILMS AND TELEVISION PTY LTD & ANOR v

NINOX TELEVISION LIMITED & ORS

NSD 1820 OF 2004

LINDGREN J

7 JUNE 2005

SYDNEY

THE COURT ORDERS THAT:

1.         The cross-claimant provide security for the cross-respondents’ costs on the cross-claim in a sum of $100,000.

2.         The parties attempt to agree on the form of security and time for the provision of the security and, in default of agreement, have liberty to apply on 24 hours’ notice.

3.         The cross-claimant pay the cross-respondents’ costs of the motion for security.

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

REASONS FOR JUDGMENT

(Motion for security for costs)

INTRODUCTION

1                     By notice of motion filed on 16 May 2005, the applicants/cross-respondents seek an order for security for their ‘costs in the defence of the Cross-Claim (or, alternatively, the applicable costs of the proceedings generally) in such amount and in such form as the Court considers fit’.  The following are my reasons for orders made on 3 June 2005 in relation to the motion.

2                     The substantive proceeding relates to three series of television programs.  Chronologically, the first was the ‘Dream Home’ series associated with the respondents.  The second, ‘The Block’, was associated with the applicants.  The third, ‘The Complex’, was produced and screened in the United States of America, apparently as a result of a licence granted by the applicants to United States companies. It is claimed by the first and third respondents that all three series contain generally similar elements and are based on the ‘Dream Home’ format.

3                     The second applicant, Nine Network Australia Pty Ltd (‘Nine Network’), produces and purchases television programs and supplies them to, relevantly, the first applicant, Nine Films and Television Pty Ltd (‘Nine Films’), for the purpose of its exploiting Nine Network’s copyrights in relation to the programs, by, for example, the granting of licences to others to do acts comprised in those copyrights.  (For convenience, I will refer to the applicants collectively, and where it is unnecessary to distinguish between them, simply as ‘Nine’.)

4                     The first respondent, Ninox Television Limited (‘Ninox’) and the second respondent, Television New Zealand Limited (‘TVNZ’) are both incorporated in New Zealand.  The third respondent, John Charles McEwen (‘Mr McEwen’), a New Zealand resident, is the sole director and shareholder of Ninox.  Ninox is a television production company and makes television programs in New Zealand for broadcasting there and for sale overseas.

5                     Nine commenced this proceeding on 7 December 2004 by filing an application accompanied by a statement of claim.  The application is brought under s 202 of the Copyright Act 1968 (Cth) (‘the Act’).  Nine seeks relief in relation to threats made by Ninox in respect of what Ninox alleges is infringement by Nine of the copyright of Ninox and TVNZ in the ‘Dream Home’ format.  In general terms, Ninox asserts that it and TVNZ own copyright in that format, and that, by reason of the production and screening of ‘The Block’, Nine infringed that copyright.

6                     Section 202 provides that where a person threatens another with an action or proceeding in respect of an infringement of copyright, then, whether the maker of the threats is or is not the copyright owner or an exclusive licensee, a person aggrieved by the making of the threats may bring an action against the maker of them.  The party threatened may obtain a declaration to the effect that the threats are ‘unjustifiable’ and an injunction, and may recover damages, unless the maker of the threats satisfies the court that the acts in respect of which the action or proceeding was threatened, did indeed constitute, or, if done, would constitute an infringement of copyright.

7                     Nine also claims that the making of the threats involved the making of representations, in particular to Nine’s United States licensees, that Nine had infringed Ninox’s copyright, and that the making of the representations constituted misleading or deceptive conduct in contravention s 52 of the Trade Practices Act 1974 (Cth) (‘the TP Act’).

8                     Nine seeks declarations that Ninox’s various threats are unjustifiable within the meaning of s 202 of the Act, and that by producing, exploiting, licensing, broadcasting and authorising the broadcast of ‘The Block’, Nine has not infringed any copyright of Ninox or TVNZ relating to the ‘Dream Home’ program.  Nine also seeks injunctive relief against Ninox and Mr McEwen and an inquiry into damages.

9                     By its cross-claim, Ninox sues Nine, inter alia, for infringement of copyright and contravention of s 52 of the TP Act.

10                  The proceeding is fixed for hearing before Tamberlin J commencing on 27 June 2005, with an estimated hearing time of five days.

11                  TVNZ sought to be removed as a party and offered to consent to a declaration in favour of Nine, but Tamberlin J decided that in view of the ongoing contest between Nine and Ninox and Mr McEwen, it was inappropriate that TVNZ should cease to be a party, although His Honour excused it from further attendance:  Nine Films & Television Pty Ltd v Ninox Television Limited [2005] FCA 249.

12                  Nine’s case for the provision of security is that Ninox and Mr McEwen are resident outside the jurisdiction, that they do not have assets within the jurisdiction; and that any assets they may have in New Zealand are inadequate to satisfy a costs order against them.

THE FACTS IN MORE DETAIL

General

13                  Except where stated otherwise, the following account is based on those facts alleged in Nine’s statement of claim which are admitted in the defence of Ninox and Mr McEwen.

14                  According to Ninox’s and Mr McEwen’s defence:

·        Ninox and TVNZ each owns ‘half of the television program format for the lifestyle program entitled ‘Dream Home’; and

·        by an agreement dated 1 April 2000 between TVNZ and Ninox on the one hand, and Becker Group Ltd (‘Becker’) on the other, Ninox granted to Becker a licence for the format of the ‘Dream Home’ series for the territory of Australia and Papua New Guinea, including a right to grant sub-licences.

15                  On or about 11 July 2000, Nine Films and Becker entered into an agreement by which Nine Films was granted the right to produce a series of ‘Dream Home’ in Australia, and an option to produce here a second and subsequent series.  In 2000, Nine Films produced a series of ‘Dream Home’ which was broadcast nationally from 18 July 2000 to 12 September 2000, but Nine Films did not exercise the option to produce a further series.

16                  In about early June 2000, Nine Network commenced production of a series of ‘The Block’.  The program was broadcast nationally in Australia from 1 June 2003 to 17 August 2003.  In about late August 2003, Nine commenced production of a second series of ‘The Block’ which was broadcast from 18 April  2004 to 25 July 2004.

17                  Over a period from 12 December 2003 to 10 March 2004, Ninox:

(a)        asserted that it was the owner (or alternatively a joint owner with TVNZ) of ‘the copyright in the format rights’ to ‘Dream Home’;

(b)        alleged that in producing, distributing, exploiting, licensing and broadcasting ‘The Block’ (both first and second series), Nine Films, or alternatively, Nine Films and Nine Network, has, or have, infringed Ninox’s copyright in the format rights in ‘Dream Home’; and

(c)        threatened to bring infringement proceedings against Nine Films, or alternatively, against Nine Films and Nine Network.

18                  In addition, by letters dated 10 and 11 March 2004, Ninox alleged, in communications to Nine’s United States licensees, that in producing, distributing, exploiting, licensing and broadcasting ‘The Block’, Nine Films, or alternatively, Nine Films and Nine Network, has or have infringed Ninox’s copyright in the format rights in ‘Dream Home’, and Ninox has threatened to bring infringement proceedings against Nine Films, or alternatively, Nine Films and Nine Network.  These further threats were intended and expected to be passed on by the United States licensees to Nine.

19                  Nine has requested, but Ninox has not agreed, to cease making the threats, and they continue to be made.

20                  By reason of the making of the threats, Ninox has represented to persons including Nine’s licensees, that in producing, distributing, exploiting, licensing and broadcasting ‘The Block’, Nine Films, or alternatively, Nine Films and Nine Network, has or have infringed Ninox’s copyright in the format rights in ‘Dream Home’.  At no time has Ninox withdrawn or stated that it intends to withdraw or depart from these representations, which are continuing.  While Ninox and Mr McEwen admit the making of the representations, they deny their falsity.

21                  Nine’s claim against Mr McEwen is one of accessorial liability.  The defence admits that at all material times Mr McEwen was aware of, directed, counselled or procured Ninox to do the acts and things mentioned above.

22                  Notwithstanding its threats, Ninox did not launch a proceeding against Nine in Australia.  On 5 October 2004, however, it filed a proceeding against Nine’s United States licensees of ‘The Block’ in the United States District Court Southern District of New York.  The defendants in that proceeding are Fox Entertainment Group Inc, FremantleMedia North America Inc, and Fox Television Stations Inc.  The United States proceeding has been stayed pending the outcome of this proceeding.

23                  As noted earlier, Nine launched this proceeding on 7 December 2004.  By its cross-claim filed on 27 January 2005, Ninox claims to hold the worldwide distribution rights for the ‘Dream Home’ format and to be joint owner of the copyright and the intellectual property rights in that format.  The cross-claim pleads that ‘The Block’ is made to the ‘Dream Home’ format, and asserts that, by producing ‘The Block’, Nine:

·        engaged in unconscionable conduct in contravention of s 51AA, s 51AB and/or s 51AC of the TP Act;

• passed off ‘The Block’ and its program format as Nine’s own, and thereby engaged in misleading or deceptive conduct within s 52 of the TP Act; and
• infringed Ninox’s copyright in the ‘Dream Home’ format.

Mr Williams’s inspection of documents discovered by Ninox and subsequent events

24                  Nine did not file the notice of motion for security until 16 May 2005.  Nine’s explanation for the apparent lateness and other facts relating to the motion must now be considered.

25                  On or about 12 April 2005, Michael John Williams, the solicitor for Nine, became aware, in the course of inspecting discovered documents, of two emails from Mr McEwen.  These emails, dated 26 April 2004 and 14 May 2004, suggested to Mr Williams that Ninox would not be able to satisfy a costs order.  Mr Williams states that he was not previously aware of any information suggesting this.

26                  The content of the documents inspected by Mr Williams and the date of his inspection of them have assumed importance on the motion.  In the first email (dated 26 April 2004), not addressed to Nine or to anyone associated with Nine, Mr McEwen states in relation to the ‘Nine Network case’:

‘We are ready to file.  Before issue proceedings Nine’s lawyers have signalled they are going to prove to the courts that we are not big enough to take them on.  This of course is a good tactic.  We can afford the costs of battle but it is anticipated that Nine are going to ask for $500,000 security to be lodged for costs in case we lose.  This is not as easy to confirm and are working on finding ways to offload this to another party with a kick-back. ...

I am assuming Ninox will have to go it alone but any suggestions would be very helpful.’

27                  In the second email, dated 14 May 2004, Mr McEwen wrote to Sir David Frost:

‘We have now had all the legal opinions and expert witnesses examine the case thoroughly and have confirmed that our case is very strong.

We have papers ready for filing but I am delaying starting the process until I am sure I have the resources to fight the battle.

I am expecting at least 50,000 pounds in legal fees to get Nine to the negotiating table.

My only worry and the worry of my lawyers is Nine will try to force a high sum to be deposited by me for security for costs.

..............................................................................................................................

In lieu of option fees would you consider contributing to a security for costs for the case in exchange for exclusive right for UK.  The case as you know is far stronger than the USA and we were very successful there.  The only thing holding us back in Aust is the security issue.  The likelihood of the security being called on is remote and our lawyers believe the judge will not allow Nine to go for high cost.

As an insurance I have been asked to allow for 150,000 pounds as a worst case scenario.

There is no doubt the filing against Nine will send a strong message to The Block licensees and our position in the UK market will strengthen.’  (my emphasis)

28                  At about the same time (on or about 12 April 2005) Mr Williams became aware of an article published in the ‘Dominion Post’ in New Zealand attributing certain statements to Mr McEwen explaining why Ninox had not sued Nine in Australia in early 2004.  The article, dated 12 October 2004, included the statement:

‘The prospect of huge legal bills – up to NZ$1 million – had caused Ninox to back out of a fight with Nine in Sydney earlier this year, he [Mr McEwen] said.’

29                  Between 13 and 18 April 2005, Mr Williams caused property searches to be undertaken in each Australian State and Territory to determine if Ninox or Mr McEwen owned property in Australia.  The searches revealed that neither of them did.

30                  On 18 April 2005, Mr Williams instructed a New Zealand solicitor to conduct searches in New Zealand, and the searches did not reveal any property holdings that would suggest that Ninox was able to meet any costs order made against it.

31                  There followed a course of correspondence between the parties’ solicitors.

32                  On 27 April 2005, Mr Williams wrote to the solicitors for Ninox stating that Nine’s costs were likely to exceed $600,000, and requesting that Ninox disclose its financial position in order to allow Nine to determine whether or not to move for security.  Mr Williams requested to be supplied with Ninox’s two most recent annual returns or comparable statements (showing profit and loss statements and balance sheets); Ninox’s two most recently filed tax returns; and any other more recent available financial information indicating whether Ninox had the capacity to meet an adverse costs order.

33                  On 28 April 2005, Ninox’s solicitors replied that Ninox’s defence and cross-claim merely adopted the factual matrix pleaded by Nine, so that there was no basis on which Nine could obtain an order for security.  They added that if Nine should seek security, their clients would require particulars of how the sum of $600,000 was made up on a party/party basis.  They also said that they would ask Mr Williams to distinguish between Nine’s costs of defending the cross-claim and its costs of prosecuting its own case.

34                  On 4 May 2005, Mr Williams responded asserting that Nine Films and Nine Network were, in substance, in the position of respondents, and that Ninox should have sued Nine in Australia for infringement of copyright.  According to Mr Williams’s letter, a proceeding for infringement would have raised directly the issues whether Ninox had copyright in the ‘Dream Home’ format, and, if so, whether Nine had infringed it.

35                  Mr Williams again sought disclosure of the financial material.  He said that, from the lack of a response to his earlier request, Nine inferred that Ninox was unwilling to provide that material, adding, ‘If this assumption is incorrect, please advise us immediately’.

36                  Mr Williams also gave a breakup of costs yet to be incurred by Nine in amounts totalling $200,000, on both Nine’s pursuit of its claim and its defence of Ninox’s cross-claim.  Notwithstanding this estimate, and his expressed view that Nine was entitled to security in respect of the entirety of the proceeding, he stated that Nine was prepared to agree to security in an amount of $100,000, based on a conservative estimate of party/party costs, and being 50 percent of those costs likely to be awarded to Nine if it succeeded.

37                  It was not disputed before me that:

·        the sum of $100,000 represented a sizeable discount on the amount of the costs which Nine would be likely to incur down to the conclusion of the five day hearing; and

·        if I should decide to order security in respect of all of those costs, an order in a sum of $100,000 would be appropriate.

38                  On 6 May 2005, Ninox’s solicitors replied stating that any motion for security would be opposed on the basis of delay.  Ninox’s solicitors again challenged Mr Williams’s characterisation of the roles (offensive or defensive) of the respective parties.  No financial information was provided.

39                  On 16 May 2005, Nine filed its present notice of motion and gave Ninox a notice to produce the following documents:

‘1.        your two most recently available annual returns or comparable statements (showing profit and loss statements and balance sheets);

2.         quarterly, half yearly (or such other available period) management accounts (or management reports) for the period since the last date of the most recent annual returns (or comparable statement) within paragraph 1 above;

3.         your two most recently filed tax returns; and

4.         any other more recently available summary or statement of financial information which indicates whether you have the capacity to meet an adverse costs order made against you.’

40                  Documents were not produced in response to the notice, but on the hearing before me on 23 May 2005, counsel for Ninox and Mr McEwen was granted leave to file in Court, and to read, an affidavit by Mr McEwen sworn 23 May 2005, to which were attached certain financial statements relating to Ninox.

41                  On 18 May 2005, Ninox’s solicitors wrote to Nine’s solicitors asserting that they had still not addressed the question of the basis on which Nine ‘would be entitled to security against a cross-claimant where there would be no cost referable to defending the cross-claim as opposed to prosecuting [Nine’s] claim’.  They advised that they could not recommend that Mr McEwen accept Nine’s offer.

Mr McEwen’s affidavit and financial statements relating to Ninox annexed to it

42                  Annexed to Mr McEwen’s affidavit are a copy of Ninox’s last income tax return, being for the year ended 31 March 2004, and a copy of its management accounts for the year ended 31 March 2005.

43                  The income tax return shows:

·        that Ninox’s retained earnings carried forward were, for the year ended 31 March 2003 ($955,488), and for the year ended 31 March 2004 ($896,768);

·        that Ninox’s gross profit for the year ended 31 March 2003 was $389,734, and for the year ended 31 March 2004, $999,522;

·        that there was a net surplus/deficit after taxation for the year ended 31 March 2003 of ($179,753), and for the year ended 31 March 2004, of $61,314; and

·        an improvement in shareholders’ equity from ($9,812) to $48,908 as between the two years.

44                  The management accounts show, as at 31 March 2005, total assets of $1,492,588.23 and total liabilities of $1,111,627.74, a difference of $380,960.49; retained earnings of $208,921.86; and net ‘year to date’ income of $172,038.63.  Assets and liabilities figures had increased substantially above their levels as at 31 March 2004.  The management accounts showed that for the ‘period to date’, Ninox had suffered a net loss of $336,671.77, but that for the ‘year to date’, it had made a net profit of $172,038.63.

45                  The last two paragraphs in Mr McEwen’s affidavit are as follows:

‘7.        Ninox’s business has expanded considerably in the past two years.  Total sales for the 2005 year, as appears from annexure “B” [the management accounts], yielded production income of approximately $NZ2.7 million and a profit of $172,038.  For the current financial year ended 31 March 2006, having regard to expansion of the business and current contracts, the company is budgeting for production income in excess of $NZ5 million.

8.         Ninox has overdraft facilities with the Bank of New Zealand secured by a charge over its assets and my guarantee.’

REASONING

Jurisdiction

46                  Subsections 202(1) and (4) of the Act provide:

‘(1)      Where a person, by means of circulars, advertisements or otherwise, threatens a person with an action or proceeding in respect of an infringement of copyright, then, whether the person making the threats is or is not the owner of the copyright or an exclusive licensee, a person aggrieved may bring an action against the first‑mentioned person and may obtain a declaration to the effect that the threats are unjustifiable, and an injunction against the continuance of the threats, and may recover such damages (if any) as he or she has sustained, unless the first‑mentioned person satisfies the court that the acts in respect of which the action or proceeding was threatened constituted, or, if done, would constitute, an infringement of copyright.’

‘(4)      The defendant in an action under this section may apply, by way of counterclaim, for relief to which he or she would be entitled in a separate action in respect of an infringement by the plaintiff of the copyright to which the threats relate and, in any such case, the provisions of this Act with respect to an action for infringement of a copyright are, mutatis mutandis, applicable in relation to the action.’

47                  Unjustifiable threats provisions, generally similar to s 202, are found in the other Australian intellectual property statues; cf Patents Act 1990 (Cth) ss 128–130;  Trade Marks Act 1995 (Cth) ss 129–130;  Designs Act 2003 (Cth) ss 77-81;  Circuit Layouts Act 1989 (Cth) s 46.  The legislative genesis and other aspects of s 202 are discussed in Ricketson, The Law of Intellectual Property: Copyright, Designs & Confidential Information (looseleaf, LawBook Co, 2002) at [2.195]–[2.210]; and in Lahore, Copyright and Designs (looseleaf, Butterworths, 2004) at [36.450].

48                  The Australian provisions can be traced back to the Patents, Designs and Trade Marks Act 1883 (UK) s 32 and the Patents, Designs and Trade Marks Act 1907–1928 (UK) s 36.  Those sections gave a statutory cause of action for groundless threats of infringement proceedings, even if made bona fide (under the previous general law, there was a cause of action only if the threats were not made bona fide).  The sections did not apply, however, if an action for infringement was ‘commenced and prosecuted with due diligence’ (this exception was not continued in s 36 of the Patents and Designs Act 1932 (UK).

49                  The current provisions in the United Kingdom are to be found in the Patents Act 1977 s 70; the Trade Marks Act 1994, s 21; the Registered Designs Act 1949, s 26; and the Copyright, Designs and Patents Act 1988, s 253.  It should be noted, however, that the provision last noted applies, not to copyright in general, but only to design rights.

50                  In the United States of America, intellectual property legislation does not contain unjustifiable threats provisions.  Relief in respect of such threats is available in the form of a declaration of non-infringement the Federal Declaratory Judgment Act, 28 USC §2201 (see McCarthy on Trademarks and Unfair Competition (4^th ed, Thomson West, 2005) vol 6, p 32-102.3; Nimmer on Copyright (LexisNexis, 2004) vol 6, p 33-7).

51                  An unjustifiable threats provision was introduced into Australian copyright legislation when s 41A was inserted into the Copyright Act 1912–1933, by the Copyright Act 1935 (Cth).  The provision was modelled on s 91A of the Patents Act 1903 (Cth) and s 100A of the Trade Marks Act 1905–1912 (Cth), which had, in turn, been modelled on the comparable United Kingdom legislation.

52                  Section 56 of the Federal Court of Australia Act 1976 (Cth) (‘the FCA Act’) empowers the Court to order ‘an applicant’ in a proceeding in the Court (or an appellant in an appeal to the Court) to give security for the payment of any costs that may be awarded against him or her.  The words ‘an applicant’ replaced the words ‘a plaintiff’ in s 56(1): Law and Justice Amendment Act 1990 (No 115 of 1990) s 49, Schedule.  Similarly, s 1335 of the Corporations Act 2001 (Cth) (‘Corporations Act’) provides that where a corporation is ‘plaintiff’ in any action or other legal proceeding, the court having jurisdiction in the matter may, if it appears by credible testimony that there is reason to believe that the corporation would be unable to pay the costs of the defendant if successful in his, her or its defence, require sufficient security to be given for those costs.  Although Nine did not rely on s 1335, that section would not raise any different issue as to the foundation of the Court’s jurisdiction to make the order which it seeks.  The question under s 56 of the FCA Act is whether Ninox is ‘an applicant’ and the question under s 1335 is whether Ninox is ‘plaintiff’.

53                  In Townsend Controls Pty Ltd v Gilead (1989) 14 IPR 443 (‘Townsend’) von Doussa J held that word ‘plaintiff’ in s 56 in its then form included a party who, in substance, was the party invoking Court’s jurisdiction for the purpose of establishing rights or obtaining relief in the sense laid down in Neck v Taylor [1893] 1 QB 560 and Willey v Synan (1935) 54 CLR 175.  Townsend was similar to the present case.  Townsend Controls Pty Ltd, the first applicant, sought injunctive relief and damages pursuant to s 121 of the Patents Act 1952 (Cth) (now see s 128 of the Patents Act 1990 (Cth)) which was an ‘unjustifiable threats’ provision similar to s 202.  The first respondent was the patentee.  He and the other respondents contended that his threats were justified, and he cross-claimed seeking relief for patent infringement.  Von Doussa J concluded that the cross-claimants were in substance the ‘attackers’ and ‘should have commenced’ an infringement proceeding.  His Honour found that the cross-respondents had made out a case for an order for security against the cross-claimants.

54                  An earlier case, Amalgamated Mining Services Pty Ltd v Warman International Ltd (1988) 19 FCR 324 (‘Amalgamated Mining’), was an unjustifiable threats proceeding under s 202 of the Act.  As in the present case, the application also relied on alleged contravention of s 52 of the TP Act, and, also as in the present case, that claim did not raise any separate factual issue. Although it was the respondents who moved for security, Wilcox J dismissed their motion on the ground that they were in substance the ‘party attacking’, and the applicant the ‘party attacked’.  His Honour referred to Maatschappij voor Fondsenbezit v Shell Transport & Trading Co [1923] 2 KB 166 at 176-178;  Willey v Synan, above at 179-180, 184-185;  and Re Travelodge Australia Ltd (1978) 21 ACTR 17 at 18-19.

55                  Wilcox J was not dissuaded from regarding the respondents as the attackers by the absence of a cross-claim for infringement, and his Honour dismissed their motion on the sole ground that they were in substance the attackers and the applicant, the attacked.  His Honour remarked that the first attack came in the form of a letter from the respondents’ solicitors which, ‘in a commercial sense’, probably left the applicant with little alternative other than to launch proceedings.

56                  (His Honour did not have to address the question whether an applicant could obtain an order for security in the absence of a cross-claim.  Neither do I, but I suggest that in those circumstances the respondent would not be ‘an applicant’ for the purposes of s 56(1) of the FCA Act, or ‘plaintiff’ for the purposes of s 1335 of the Corporations Act.)

57                  Order 28 of the Federal Court Rules, which contains rules governing applications for security for costs, provides (in r 1) that the reference in O 28 r 2 to ‘applicant’ extends to any person who makes a claim for relief in any proceeding, and reference to a respondent extends to any person against whom such a claim for relief is made.  Rule 3(1) of O 28 provides, relevantly:

‘When considering an application by a respondent for an order for security for costs under section 56 of the Act, the Court may take into account the following matters:

(a)       that an applicant is ordinarily resident outside Australia;

(b)       that an applicant is suing, not for the applicant’s own benefit, but for the benefit of some other person and the Court has reason to believe that the applicant will be unable to pay the costs of the respondent if ordered to do so; ...’

According to this rule, each of Nine and Ninox is both an ‘applicant’ and a ‘respondent’.  If the rule gave jurisdiction, it would allow the Court to order security against and in favour of each party, and the ‘attacker/attacked’ question would go only to discretion.  This, as I understood it, was the position taken by counsel for Ninox on the hearing of the motion.  But the Court’s rules do not confer jurisdiction and cannot enlarge or diminish its jurisdiction under s 56 of the FCA Act (or s 1335 of the Corporations Act) (cf Thunderdome Racetiming and Scoring Pty Ltd v Dorian Industries Pty Ltd (1992) 36 FCR 297 (‘Thunderdome’) at 309-310).

58                  The approach of looking to the substance of the roles (offensive or defensive) played by the parties rather than their formal designations has been followed not only in the cases cited by Wilcox J in Amalgamated Mining, by his Honour in that case, and by von Doussa J in Townsend, but also in later cases in this Court; cf Thunderdome at 310;  Unilever Australia Pty Ltd v RFC Nominees Pty Ltd [2000] FCA 1021 (‘Unilever’) at [9].

59                  Is it right to regard Ninox as ‘an applicant’ for the purposes of s 56(1)?  In my opinion it is.  In the first place, the terms of s 202(1) themselves place on the party making the threats the onus of satisfying the Court that the acts in respect of which the action or proceeding was threatened constitute, or, if done would constitute, an infringement of copyright.  The provision affords a facility by which a threatened party may require the threatener either to undertake the onus of establishing that copyright exists and that the acts in question constitute or would constitute an infringement of it, or, in the alternative, to cease to making the threats.

60                  In the second place, the field of contest is the same on the application and the cross-claim, and Nine seeks no relief other than declarations, injunctions and damages based on Ninox’s threats.  The case is unlike Unilever in which the first respondent had threatened to sue the applicant for infringement of its registered trade mark; the applicant sought rectification of the Register of Trade Marks by expungement of the mark; and the first respondent cross-claimed for infringement.  Hill J rejected the applicant’s submission that it had filed its application simply as a defence to the threatened action for infringement, pointing to the fact that it sought expungement of the mark.

61                  Does the substantial lapse of time between the making of the last threat by it and the commencement of this proceeding by Nine, signify that Ninox should not be regarded as the attacker, and Nine the attacked?  Ninox’s last threat was made on 11 March 2004.  On 8 April 2004, Nine’s solicitors wrote to Ninox’s solicitors demanding that their client either launch proceedings or cease threatening to do so. Nine did not commence this proceeding until 7 December 2004.  Apparently Nine did not feel in March 2004 that it had no alternative but to bring an ‘unjustifiable threats’ proceeding (cf Amalgamated Mining at 328).

62                  So far as the evidence reveals, there was a cessation of hostilities between Ninox and Nine until Ninox launched its United States proceeding against Nine’s licensees on 5 October 2004.  The evidence does not reveal what happened during the intervening seven months.

63                  Ninox’s Complaint filed against Nine’s United States licensees asserts that:

·        Nine Films was Ninox’s Australian licensee in respect of the ‘Dream Home’ series;

·        in April 2003, almost immediately after Ninox ceased to have an agent exploiting rights in ‘Dream Home’ in Australia, Nine Films created and broadcast a ‘spin-off’ and ‘version’ of ‘Dream Home’ called ‘The Block’;

·        Nine Films has purported to license rights in ‘The Block’ to the defendants; and

·        despite warnings by Ninox, the defendants have produced ‘The Complex’ in infringement of Ninox’s rights in ‘Dream Home’.

A heading in Ninox’s Complaint is telling:  ‘Channel 9 misappropriates the [Dream Home] series and licenses it to defendants’.

64                  By their defence dated 24 November 2004, the defendants admit that FremantleMedia North America Inc (‘Fremantle’) entered into an agreement with Nine Films concerning the use of ‘The Block’ format in North America and that notwithstanding Ninox’s threats of 10 and 11 March 2004, Fremantle engaged in the production of ‘The Complex’ which first aired in the United States on 30 August 2004.

65                  It was shortly after the filing of the defence by its licensees, that Nine launched this proceeding (on 9 December 2004).  I infer that there had been communication between Nine and its United States licensees in relation to Ninox’s proceeding against them.  No doubt the licensees looked to Nine to bear the burden of defending them.

66                  In substance, Ninox’s proceeding against Nine’s licensees re-enlivened its threats.  I infer that Nine launched this proceeding defensively in response to the United States proceeding.  Apparently Nine preferred to have the issue whether ‘The Block’ infringed any copyright in the format of ‘Dream Home’ determined in Australia, where the first infringement of any copyright in the ‘Dream Home’ format was alleged by Ninox to have occurred, rather than as part of the United States proceeding, to which, after all, Nine was not a party.

67                  I do not think that it is inappropriate to regard Ninox as the attacker and Nine as the attacked, by reason only of the fact that Nine did not feel in March/April 2004 that it had no alternative but then and there to commence a proceeding under s 202 of the Act.

68                  Accordingly, Ninox is ‘an applicant’ for the purposes of s 56 of the FCA Act, and the Court has power to order it to provide security in respect of Nine’s costs in defence of the cross-claim.

Discretion

69                  It is common ground that:

·        the respective parties’ costs on the application and the cross-claim are virtually identical; and

·        the sum of $100,000 represents such a sizeable discount on the amount of the party-and-party costs which Nine would be entitled to recover under a costs order in its favour, that I need not concern myself with any difference between the alternative forms of order sought by Nine on its motion (set out at [1] above).

70                  Ninox and Mr McEwen submit that an order for security should be refused for the following discretionary reasons:

(a)        The application for security is, in substance an application for security for the costs of the claim advanced by Nine in its statement of claim;

(b)        Nine has delayed unreasonably in applying for security; and

(c)        Nine has failed to demonstrate Ninox’s incapacity to meet a costs order.

(a)        Nine’s motion in substance an application for security for the costs of an applicant?

71                  What I have said earlier in relation to jurisdiction is relevant to Ninox’s present submission.  Ninox relies on the well-established principle that, where a cross-claim amounts, in substance, ‘simply’ to a defence, an order against the cross-claimant for security will ordinarily not be made.  Ninox cites Buckley v Bennell Design & Constructions Pty Ltd (1974) 1 ACLR 301 at 306-307 per Street CJ (Moffitt P and Hutley JA agreeing); Neck v Taylor above; and New Fenix Compagnie Anonyme D’Assurances de Madrid v General Accident, Fire and Life Assurance Corporation Ltd [1911] 2 KB 619 at 625-6 per Vaughan Williams LJ.

72                  In that line of authority, the language differs as between cases and judges, and sometimes the description is of the circumstances in which security will be ordered, and, at other times, the circumstances in which it will not be.  Statements can be found that security will be ordered where the respondent’s cross-claim raises a distinct claim or seeks relief other than dismissal of the head claim and, on the other hand, that security will not be ordered where the cross-claim is truly only defensive.

73                  Concrete Constructions v Dalma Formwork (Administrator Appointed) [1999] NSWCA 16 (‘Construction Constructions’) is illustrative.  The substantive proceeding was brought by a subcontractor (Dalma Formwork Pty Ltd (administrator appointed)) against the head contractor (Concrete Constructions Pty Ltd), and the head contractor cross-claimed and sought security for costs from the plaintiff.  Leave to appeal from a dismissal by Rolfe J of the motion for security was refused.

74                  The Court of Appeal agreed with Rolfe J that ‘the fact that a claim and a cross-claim arise out of the same, or essentially the same, factual matrix is a very important consideration’, and that ‘it would be quite wrong to preclude a party from litigating matters by way of defence to a cross-claim merely because that party was the initial institutor of the proceedings’ (at [24]).  The Court of Appeal also agreed with the primary Judge that it was ‘a somewhat arid exercise to be considering an application for security for costs if the plaintiff could be cast in the role of a defendant and could litigate the very matters the subject of its claim by way of defence’.  The Court of Appeal noted that Rolfe J plainly would have taken a different view if the head contractor had given an undertaking not to prosecute its cross-claim (and so be cast in the role of defendant alone).

75                  In my opinion, ‘unjustifiable threats’ claims are special and are distinguishable from the general principles that security should not be ordered where an application and the defence to it on the one hand, and the cross-claim and defence to it on the other, cover the same factual and legal territory.  If the applicant under an unjustifiable threats provision assumes no other role, it will ordinarily be viewed as, in substance, the defending party, and the maker of the threats as the attacking party.  This analysis has no application to cases such as Concrete Constructions.

76                  Indeed, telling in favour of an order for security in the unjustifiable threats cases is the fact that head claim and cross-claim raise, in substance, the same factual and legal issues, and the relief sought by each party is the obverse of that sought by the other.  However, in the ordinary case, of which Concrete Constructions is an example, the coincidence of factual and legal issues on head claim and cross-claim tell against the ordering of security.

77                  Nine’s application and Ninox’s cross-claim raise, in substance, the same factual and legal issues, and Ninox’s cross-claim does not claim any relief other than the obverse of that sought by Nine.  In the ordinary case, to state matters in that way would suggest that the cross-claim is merely defensive and that Ninox should not be ordered to provide security.  Yet, for the purpose of the statutory action for unjustifiable threats, it is proper to regard Ninox as, in substance, the attacker and Nine as defending itself.  In this special class of case, it is no answer to Nine’s motion for security that Ninox’s cross-claim is merely in respect of the same facts and issues as Nine’s principal claim.

 (b)       Delay

78                  I do not think that Nine is defeated by delay in applying for security.  It is true that:

·        Ninox’s cross-claim was filed as long ago as 27 January 2005 and the notice of motion for security was not filed by Nine until 16 May 2005;

·        on 17 December 2005, the proceeding was fixed for hearing for the week commencing 11 April 2005; and

·        Nine was prepared to go to that hearing without security.

Ninox and Mr McEwen moved for a vacation of the hearing dates of 11-15 April 2005, and on 18 March 2005, Tamberlin J vacated them, ordering Ninox to pay Nine’s costs thrown away (see Nine Films & Television Pty Ltd v Ninox Television Ltd [2005] FCA 357).  It was on 22 March 2005 that the proceeding was fixed for hearing for five days commencing 29 June 2005.  Nine did not file its notice of motion until 16 May 2005.  But the affidavit of Mr Williams satisfactorily explains the passage of time.  He did not become aware of Ninox’s financial position until 12 April 2005 when he read the documents discovered by Ninox to which I referred earlier.  Ninox does not suggest that he should have become aware of them earlier, or that there has been delay on the part of Mr Williams or Nine between that date and the bringing of the motion for security.

(c)        Has Nine demonstrated that Ninox lacks capacity to satisfy a costs order?

79                  The fact that a party is resident outside the jurisdiction and has no assets within it has long been recognised as a ground for the making of an order for security:  cf P S Chellaram & Co Ltd v China Ocean Shipping Co (1991) 102 ALR 321 at 323 per McHugh J.  If the evidence shows that the party has assets in the foreign jurisdiction available and sufficient to satisfy the hypothetical order for costs, it may be appropriate to order that the party provide security limited in amount to the cost of registering the costs order in that jurisdiction.

80                  The evidentiary position differed on the morning of the hearing from what it had previously been, by reason of the filing and reading of Mr McKewen’s affidavit.  Nonetheless, the two emails and the newspaper report described at [26]–[28] remain very persuasive.  Does Mr McEwen’s affidavit overcome their effect?

81                  Mr McEwen does not state in his affidavit, either that an order for security would stultify Ninox’s cross-claim or that Ninox is able to meet an order for costs against it up to a particular monetary amount or at all.

82                  Ninox’s financial statements for the year ended 31 March 2004 suggest an inability to pay costs of $100,000.

83                  Ninox’s management accounts are more promising, but also give cause for concern.  They show that one of Ninox’s most substantial assets is ‘Lawyers Trust account $324,165.29’.  Mr McEwen does not explain the nature of the trust.  It may or may not be a bare trust for Ninox.  If the sum is held wholly or partially subject to a trust in favour of others, it cannot be regarded as available to satisfy a costs order against Ninox.

84                  Another cause for concern is that the management accounts show a loss of $336,671.77 for the ‘period to date’ and the profit of $172,038.63 for the ‘year to date’.  There is no explanation of the meaning of ‘period to date’.  It is conceivable, in the absence of explanation, that although there was a profit of $172,038.63 over the full year ended 31 March 2005, for some unidentified lesser period also ended 31 March 2005, Ninox made a loss of $336,671.77.  This loss for the ‘period to date’ may give a better indication of Ninox’s present financial position than the figure for the full year.

85                  I am not persuaded by Mr McEwen’s affidavit to put to one side the effect of the two emails and the newspaper report referred to earlier.

CONCLUSION

86                  For the above reasons, Ninox should be required to provide security for Nine’s costs of the cross-claim in the sum of $100,000, and to pay Nine’s costs of the motion for security.

Associate:

Dated:              6 June 2005