FEDERAL COURT OF AUSTRALIA

Urban Ventures Pty Limited v Solitaire Homes Pty Limited [2010] FCA 1373

THE COURT ORDERS THAT:

1.    The appeal be dismissed.

2.    The cross-appeal be allowed in part.

3.    Orders 2 and 3 of the orders of the Federal Magistrates Court of 23 March 2010 be set aside.

4.    The first and second cross-respondents to the cross-appeal pay the cross-appellant damages in the sum of $10,000 under s 115(2) of the Copyright Act 1968 (Cth).

5.    The first and second cross-respondents to the cross-appeal pay the cross-appellant damages in the sum of $10,000 under s 115(4) of the Copyright Act 1968 (Cth).

6.    The first and second cross-respondents to the cross-appeal pay the cross-appellant’s costs of the appeal, as agreed or taxed.

Note:    Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules. The text of entered orders can be located using Federal Law Search on the Court’s website.

REASONS FOR JUDGMENT

THE APPEAL AND CROSS APPEAL

1    This matter involves an appeal and cross-appeal against orders made by a Federal Magistrate on 23 March 2010.

2    By the appeal the appellant, Urban Ventures Pty Ltd trading as Urban Design and Drafting (Urban Design), challenges the Federal Magistrate’s award of compensatory and additional damages for infringement of copyright. Having found that Urban Design infringed the copyright of the respondent, Solitaire Homes Pty Limited (Solitaire), in the plans for and the dwelling known as the Solitaire house, the Federal Magistrate ordered Urban Design to pay to Solitaire compensatory damages of $10,000 and additional damages of $2,500 under ss 115(2) and 115(4) of the Copyright Act 1968 (Cth) respectively.

3    By the cross-appeal Solitaire also challenges the awards of damages to it as inadequate. In addition, Solitaire contends that the second respondent (in both the proceeding before the Federal Magistrate and on the cross-appeal), Jaime Farrelly, should have been found to be personally liable for the infringements of copyright and thus also ordered to pay damages to Solitaire.

THE FEDERAL MAGISTRATE’S FINDINGS AND REASONS

4    To resolve the competing contentions of the parties it is necessary to identify the findings and conclusions of the Federal Magistrate in the reasons for judgment (Solitaire Homes Pty Ltd v Urban Ventures Pty Ltd [2010] FMCA 185).

5    Solitaire brought proceedings against three parties for infringement of its copyright in the plans for and the dwelling known as the Solitaire house, being Urban Design, Mr Farrelly and another company known as A & A Martins Pty Ltd trading as A & A Constructions (A & A Martins). Solitaire sought damages against each of these respondents. Urban Design and Mr Farrelly cross-claimed against A & A Martins for indemnity on the basis that they had done the work alleged to constitute the infringement of copyright at the request and under the direction of A & A Martins.

6    As the Federal Magistrate found, the Solitaire house is a project home constructed in Gungahlin in 2004. It was designed by Zelko Pekic in consultation with the principal of Solitaire, Angelo Turcin. The design took 70 to 80 hours to complete over a six to eight month period. The Solitaire house has six features which were unique or unusual in the sense they “had not been done before” in the ACT, described as (at [39]):

a)    the tiled blade wall to the front balcony/ porch;

b)    the upstairs home theatre;

c)    the use of the theatre balcony as the front porch;

d)    the combined use of flat roofing and hipped roofing;

e)    the total front elevation appearance – the general composition of the front façade being unique;

f)    the informal L-shaped living areas on the ground floor which separates the master bedroom at the front of the home from the other bedrooms located at the rear of the residence.

7    The plans for the Solitaire house were awarded the Master Builders Association of the ACT prize for the best Medium Density Small Lot Housing for excellence in building and design in 2004 and was a finalist for the same category of prize awarded by the Housing Industry Association of Australia in 2004 (at [43]-[44]). Mr Turcin, intended the Solitaire house to become “the signature against my company name” (at [55]). Solitaire was in the business of designing and constructing project homes. The Solitaire house was double storey in a street of single storey dwellings. Combined with the awards this ensured that the house attracted a considerable degree of publicity (at [62]-[64]).

8    Urban Design was in the business of designing and drafting plans for dwellings such as project homes. Mr Farrelly, Urban Design’s sole director and shareholder, is an architectural draftsman who obtained his qualifications in 1997. From about 2001 onwards Urban Design had done design work for A & A Martins, which was a building company involved in the construction of project homes (at [104] and [180]).

9    In late 2002 Mr Martins, the principal of A & A Martins, retained Urban Design to design houses for nine lots including a lot known as the Dunlop block. Urban Design completed these plans and invoiced A & A Martins for the work in the sum of $979 (at [182]-[183]). In early January 2005 Mr Martins told Mr Farrelly that he wanted to buy the Dunlop block and have “something modern looking” constructed on it. Mr Martins asked Mr Farrelly if these plans could be completed as soon as possible (at [184]). Mr Martins collected the plans from Urban Design on 10 January 2005 and lodged them with the planning authority for approval on the same day. The plans were approved the next day by the planning authority. Mr Martins delivered the approved plans to the surveyor on 11 January 2005 so the house could be set out, it being Mr Martins’ intention to construct the house as soon as possible (at [185]-[187]). Later that day the surveyor told Mr Martins the plans had been incorrectly drawn so the house would not fit on the block (at [188]). Mr Martins called Mr Farrelly who realised that the block outline had been mirror reversed. Mr Farrelly assured Mr Martins that he would try to come up with a new design and that Mr Martins should “leave the problem with him”. Mr Martins told Mr Farrelly “in very firm terms, that he had better come up with a solution very quickly because the construction was due to commence the following week” (at [189]).

10    Mr Farrelly sent Mr Martins a revised sketch plan the following day but Mr Martins thought this nowhere near as good as the original design. Mr Martins told Mr Farrelly that “he needed it improved dramatically and he re-emphasised the need for this to occur quickly” (at [190]).

11    On 17 January 2005 Mr Farrelly called Mr Martins and asked him to come to his office. Mr Martins did so the following day. Mr Farrelly showed him a revised design involving a two storey dwelling with various features that would not have occurred to Mr Martins including a home theatre and tiled blade wall (at [192]). Mr Martins gave Mr Farrelly approval to complete these plans for lodgement with the planning authority (at [193]). On 19 January 2005, Mr Martins called Mr Farrelly three times regarding the plans and, late on that day, was able to collect the completed plans for both the single storey and two storey house (at [194]). The plans of the two storey house had to be amended due to the planning authority’s requirements (at [198]). Mr Farrelly corrected those plans and they were re-lodged with the planning authority on 28 January 2005 (at [199]). Urban Design then invoiced A & A Martins the sum of $1,100 for the amended plans relating to the two storey house (at [200]). After lodgement further minor amendments had to be made to these plans and Mr Farrelly made those amendments (at [202]-[203]). Mr Martins purchased the Dunlop block from a related company in May 2005. A & A Martins completed construction of the two storey house on that block on 11 October 2005 (the house being known as the Dunlop house) and resold it in April 2006 (at [204]).

12    Although Urban Design employed other people who did design work, Mr Farrelly said that he did the work on the Dunlop house himself (at [125]).

13    The Federal Magistrate found that Mr Farrelly “copied the design plans of the Solitaire house and used them in the plans for the Dunlop house” (at [222]).

14    The Federal Magistrate also found:

(1)    “… [T]here is more than sufficient originality in both the plans and the house to warrant a finding that copyright subsists in both the plans for and the Solitaire house itself” (at [293]).

(2)    The “Applicant in these proceedings [Solitaire] holds the relevant copyright in the plans and the Solitaire house” (at [295]).

(3)    As to the question of a causal relationship between the copyright work and the alleged infringing work (at [297(v)]):

I agree… that there is no direct evidence of copying. In my view, however, on the evidence, there is such significant similarity between the two houses (in particular, the various aspects of the facade, together with the second storey, complete with ‘home theatre’) that the causal link can confidently be inferred, supported by the circumstances surrounding the sudden and dramatic change of plans.

(4)    As to infringement of Solitaire’s copyright, the six elements which Mr Pekic had identified (at [39]), “save perhaps for the detail in relation to the combination of flat and hipped roofing, constitute ‘an essential or material part of the applicant’s work’” (at [296(vii)]), so that (at [296(viii)]):

In my view, there was no credible evidence to support any suggestion that Mr Farrelly arrived at the design for the Dunlop house, with its significant array of features that are congruent with the Solitaire house, independently. Indeed, on the evidence, I am firmly of the view, previously expressed, that Mr Farrelly copied the design of the Solitaire house and applied it to the plans for the Dunlop house.

15    The Federal Magistrate then moved to the question of remedies (at [298]-[332]), which are in issue in both the appeal and cross-appeal. Before considering the Federal Magistrate’s conclusions in that regard (and the challenges made to those conclusions) it is necessary to refer to other aspects of the proceeding and findings which were made.

16    On 9 June 2008, before the hearing of the proceeding before the Federal Magistrate commenced, Solitaire obtained a default judgment against A & A Martins (at [14]). On the first day of the hearing A & A Martins appeared and applied to set aside the default judgment on the basis that, at the time the default judgment was entered and thereafter, both Mr Martins and his son were seriously ill and were each undergoing intensive medical treatment. Almost inevitably in the circumstances, the Federal Magistrate set aside the default judgment against A & A Martins which had not taken any active role in the proceeding until that time (at [14]-[19]).

17    Urban Design and Mr Farrelly defended the claims against them on various bases including contentions, which the Federal Magistrate described as “regularly repeated in [Mr Farrelly’s] oral evidence”, that (at [102]):

… Mr Martins, and not either of the first and second respondents, was responsible for the design of the Dunlop house, and… that Mr Martins sat with Mr Farrelly at the latter’s computer (at Mr Farrelly’s office) while he made suggestions/directions for Mr Farrelly to alter or amend the plans for the Dunlop house.

18    The Federal Magistrate made a number of observations about Mr Farrelly’s evidence concerning the substantive dispute, as well as observations about certain conduct alleged (by Solitaire) to show that Mr Farrelly has a tendency or propensity to act in a particular way (albeit not admitted by the Federal Magistrate for that purpose) and to be relevant to the question of additional damages.

19    The observations of the Federal Magistrate about Mr Farrelly’s evidence in respect of the substantive dispute included the following:

(1)    “Mr Farrelly’s evidence, particularly in relation to the design and drafting of the Dunlop house, waxed and waned to a significant degree” (at [120]).

(2)    “As the trial wore on, I had the distinct impression that Mr Farrelly’s evidence in relation to certain matters, particularly that Mr Martins was truly the person responsible for the design of the Dunlop house and that he was merely the compliant draftsman, became more firm, or at least significantly more firm than at the commencement of the trial. I should not be taken as accepting Mr Farrelly’s emphasis on him being the compliant draftsman” (at [123]).

(3)    “I have the greatest difficulty in accepting Mr Farrelly’s contention that his role was solely as the draftsman of the plans for the Dunlop house and that he was not in any way involved in their design” (at [126]).

(4)    “Again, contrary to his affidavit evidence where he repeatedly stated that Mr Martins came to his office and sat with him while plans were either drawn or amended (and, once finished, handed Mr Martins a copy of the corrected plans), he agreed with Mr Higgs’ question/comment, which was to the effect that, after the plans had been corrected, (a) he contacted Mr Martins, and (b) he faxed Mr Martins a copy of the amended plans. The question can be posed, not unreasonably, why fax plans to someone if, as is alleged, that person was sitting beside you?” (at [127]).

(5)    “Given Mr Farrelly’s evidence, including his agreement with the proposition that he faxed the plans to Mr Martins, I cannot accept his contention that he gave a copy of the plans to Mr Martins at his office” (at [128]).

(6)    “Put as neutrally as possible, Mr Farrelly’s oscillation in his evidence did not assist his case” (at [129]).

(7)    “Mr Farrelly was unable to explain why drawing number 3 was not part of the plans available to the Court. This omission was remedied by the complete plans that were annexed to Mr Martins’ affidavit (annexure D), filed on 17th November 2008. The missing page 3 of the plans presents the ‘Upper Floor Plan’, with the description ‘home theatre’” (at [142]).

(8)    “Mr Farrelly agreed with a suggestion from the Bench that, to the untrained observer, the drawing of the blade wall indicated a finish with tiles. There was no dispute that the blade wall of the Solitaire house was finished in tiles. However, Mr Farrelly could offer no explanation as to why he had drawn the blade wall of the Dunlop house with what appears to be a tile finish. He simply opined that he was following Mr Martins’ instructions, but otherwise, he could offer no information or explanation” (at [144]).

(9)    “Mr Farrelly claimed clear recollection of many things about the plans, their drafting, to whom they were given, and such things. On such a matter of detail as the blade wall, which was such a significant feature on both houses, the lack of explanation was, at the very least, unfortunate if not somewhat surprising” (at [145]).

(10)    “Mr Farrelly said that the plans for the double storey Dunlop house came into existence ‘shortly after 19th January 2005.’ He said that, because he works quickly, he was able to draw the detailed plans for the Dunlop house in two to three hours. As will be seen from the expert evidence called on his behalf, and dealt with later in these reasons, this is a quite astonishing assertion. Mr [Christopher] Novak in particular said that the drawing side of plans would usually take the better part of eighteen (18) hours” (at [159]).

(11)    “While I do not doubt that Mr Farrelly is a very fast worker in the drawing of plans, I do have quite some difficulty in accepting completely the time frames that he asserted in the light of the detailed evidence of experts who were, as I have said, called on his behalf. Moreover, to re-draw a complete set of plans, for a very significantly different design for the Dunlop house (annexures P & Q), also tells against the incredibly short time suggested by Mr Farrelly to complete those drawings. In this respect I must be guided more by the evidence of the expert, Mr Novak, in which case, the time frame - and the events that are contended to have taken place therein - as described by Mr Farrelly is, in my view, even more dubious” (at [160]).

(12)    “I do not accept Mr Farrelly’s evidence that the initiative for, and the description of, the home theatre came from Mr Martins” (at [163]).

(13)    “By way of conclusion, in my view, Mr Farrelly’s evidence was flawed. Accepting that most witnesses are nervous, he struck me as a man whose evidence in relation to the matters before the Court was significantly coloured by reconstruction and his attempt to explain or to justify his past actions in relation to the plans for the Dunlop house” (at [171]).

(14)    “… almost without exception, [Mr Martin’s] narrative of events not only had a logic, consistency and credibility about it (which Mr Farrelly’s evidence rather regularly, and unfortunately, did not) but also it was supported by relevant documentation, such as date-stamped plans” (at [177]).

20    Mr Farrelly’s alleged tendency or propensity to act in a particular way concerned his inspection of another Solitaire display home (known as the Harrison house) under a false name. The observations of the Federal Magistrate about Mr Farrelly’s evidence in respect of this issue included the following:

(1)    Mr Farrelly’s explanation for signing the false name (that he did not wish to be “followed up by sales agents”) “rings quite hollow” (at [84]) and was “far-fetched” so that the Federal Magistrate did “not accept, in any respect, Mr Farrelly’s explanations in relation to the Harrison house” (at [86]).

(2)    As such, the facts are that Mr Farrelly “… clearly and deliberately signed a false name to gain entry to the display home, and [gave in evidence an] incongruous, if not incredible, response of signing a false name so as to avoid being pursued by sales agents, when there was no requirement to provide contact details” (at [89]). This “completely inappropriate action in visiting the Harrison house, and where he signed a false name, did not put his evidence in the most favourable light” (at [90]).

(3)    Mr Farrelly’s evidence that he did not fit within any of the classes of persons prohibited from inspecting the Harrison house (builders, architects or agents) was “pedantic and unhelpful” (at [167]).

(4)    Mr Farrelly’s evidence about his inspection of the Harrison house gave “either confirmation of an alarming naïveté and/or a disturbing example of disingenuousness” (at [168]).

(5)    Whilst the evidence was inadmissible for any tendency or propensity purpose it formed “part of… Mr Farrelly’s flawed mosaic of evidence” (at [169]).

21    Mr Farrelly’s other conduct concerned his advice to Mr Martin about Solitaire’s allegations of copyright infringement. Mr Martins became aware of the allegations in October 2006 and called Mr Farrelly. Mr Farrelly told him that “the claim was rubbish and that he (Mr Farrelly) would ‘look after it.’ Mr Martins said that Mr Farrelly advised him that he was speaking with his solicitor and that ‘we’ll sort it out’” (at [206]). Mr Martins heard nothing about the issue until 12 December 2007 (the day after the proceeding was commenced) and again called Mr Farrelly. In late January 2008, Mr Martins and Mr Farrelly had a conversation as follows (at [208], which the Federal Magistrate accepted at [177] and [223]):

[Mr Martins]: “Jaime, I thought you’d resolved that copyright issue at Dunlop. But I received court orders in December that the matter is going to court some time next month. What’s going on?”

[Mr Farrelly]: “I know, it’s bullshit. There’s a few similarities on the outside, but the internal layout is completely different, so how can that be copyright.”

[Mr Martins]: “Jaime, I’ve seen the photos they sent us. The front of the home in Gungahlin is fucking similar to the one you drew plans for in Dunlop, almost the same. Did you draw those plans or did they?”

[Mr Farrelly]: “They’re not copied plans.”

[Mr Martins]: “I hope not, I really do.”

22    These conversations are to be considered in light of the fact that, as events transpired, Mr Farrelly and Urban Design defended the proceeding, in effect, by blaming Mr Martins for any copyright infringement.

23    The Federal Magistrate, against the background of this evidence and the fact that Mr Farrelly and Urban Design, at least in a pecuniary sense, gained only the design fee of $1,100 for the infringing plans (as they had no involvement in the subsequent construction and sale of the Dunlop house (at [222])), drew the following inferences about Mr Farrelly’s conduct and motives:

[172] I had the strong impression that, when confronted in January 2005 by an irate client in the shape of Mr Martins, who was understandably complaining about a significant and fundamental error in the plans for his house, the construction of which he was wanting to commence quickly, Mr Farrelly took the understandable (but imprudent if not fraught) course of endeavouring to appease and to placate his client. He did so, in my view, by taking the expedient course of using the basic design of the Solitaire house and applying it to the Dunlop house.

[173] The further matters that, in my view, militate against the Court accepting Mr Farrelly’s evidence arise out of the following: (a) the conflict between the expert evidence and Mr Farrelly as to how long it would take (i) to design and (ii) to draft the plans for the Solitaire house; (b) the very short time between the plans which detailed a single storey house and their transfiguration to a double storey house with significant if not striking features and a façade that very closely resemble the Solitaire house.

[174] In my view, his intention – then (in 2005) and now (in the course of giving evidence) – was not to deceive, and still less to appropriate the Solitaire plans (and/or their most striking features) for any material or other personal gain, but, rather opportunistically, to look for a quick solution to get his company, and his client, out of the predicament in which they all found themselves, and which had been the product of an error in the design of the Dunlop house produced by Urban Design.

24    When dealing with the issue of damages generally, the Federal Magistrate said:

[310] I agree with Ms Olsson’s observations, which were to the effect that (a) the case concerned “project homes” (which is also to say – with no disrespect to any of the parties – that the proceedings involved homes of modest proportion, modest architectural significance, and, compared to many other houses and projects, of modest financial significance), and (b) the infringement was a “limited one-off, isolated incident.” These circumstances also, in her submission, militated against any substantial award of damages. It is certainly clear that there was no evidence, or even a hint, of profiteering on the part of any of the Respondents in relation to the Dunlop house.

[311] I also accept Mr Olsson’s submission that there is no basis for any award of damages against Mr Farrelly personally. All of his actions that were the subject of scrutiny in these proceedings (with the exception of his visitation of the Harrison residence, in relation to which there were no claims), in my view, were conducted on behalf of the First Respondent, Urban Design.

25    The Federal Magistrate adopted the approach that damages under s 115(2) of the Copyright Act were at large, relying on A V Jennings Ltd v Bogdan (2009) 80 IPR 356; [2009] FCA 307 at [96]. On this basis the Federal Magistrate continued:

[318] In my view, there was a clear breach of copyright by Urban Design in relation to the plans for the Solitaire house. I accept that the state of the evidence in relation to damages relied upon by the Applicant is poor; it is more by inference than by anything else. Indeed, it is difficult to see, and (as already stated) there is very little evidence of, any actual damage the Applicant has suffered.

[319] However, ‘doing the best to make a just and fair assessment of the quantum of damages’, and having regard to (a) the limited – and sometimes somewhat conflicting - evidence in relation to the cost of construction of the Dunlop house, (b) the fact that none of the Respondents ever actually owned the Dunlop house, (c) the “exorbitant licence fee” proposed by Mr Pekic and Mr Turcin for the use of the Solitaire plans, (d) the somewhat speculative nature of the “profit” on the sale of the Dunlop house (taken notably from comments – as opposed to documentary evidence of any kind - from Mr Turcin in cross-examination, and likewise from Mr Martins’ cross-examination), (e) the fact that there is no evidence of any continuing or repetition of any infringement – indeed, I accept without hesitation Ms Olsson’s submission that this was a “one-off event” – and, (e) the cases to which I have referred, in my view an appropriate award of damages is $10,000, which represents 25% of the asserted profit on the building of the Dunlop house.

26    In respect of additional damages under s 115(4) of the Copyright Act, the Federal Magistrate said:

[322] Accepting the evidence before the Court and the findings I have made, especially in relation to Mr Farrelly’s conduct on behalf of the First Respondent, in my view, some award of damages under s.115(4) is appropriate. In the light of the authorities to which I have referred, and in the circumstances of this case, including the fact that (a) Urban Design is a very modest commercial enterprise, (b) there has been no profiteering by either the First or Second Respondents, and (c) there has not been, and is unlikely to be, any future infringement, an award of $2500.00 should be made in favour of the Applicant against the First Respondent by way of exemplary damages.

[323] In making award of damages under s.115(4)(b)(iv), the Court is entitled to take into account “all other relevant matters.” In these proceedings, I am acutely conscious of the significant burden – financial and other – that the proceedings themselves will have already imposed on all parties. In my view, in the overall circumstances of the case, this is a not insignificant consideration. Indeed, having regard to the number of Senior and other Counsel involved, the length of the trial, the all-embracing and far-reaching involvement of solicitors, and numerous interlocutory Court events, it might be inferred that the combined legal costs are likely to exceed the cost of construction of either or both of the houses in question. I recorded earlier in these reasons, at [55], that Mr Turcin said in evidence that “this house was ... to become the signature against my company name.” To state the obvious, “principles” or ‘signature houses’ are costly matters to protect.

PERSONAL LIABILITY OF MR FARRELLY

27    The relevant finding regarding the personal liability of Mr Farrelly is at [311], quoted above. The making of this finding indicates that the issue of Mr Farrelly’s personal liability was before the Federal Magistrate. Despite this, Solitaire accepted that it required leave to raise the issue on appeal because it had omitted to make any submission below seeking a finding of personal liability on the part of Mr Farrelly. It had omitted to do so by reason of oversight and in circumstances where its application claimed damages against Mr Farrelly. Mr Farrelly objected to leave being granted. The prejudice was said to be that it was not put to Mr Farrelly that in acting as he did, he had a common design or was acting in concert with the corporation. Accordingly, there was no opportunity for Mr Farrelly to deal with any such allegation. Nor was the potential role of other people in the infringement (specifically, Ian Dawn, an employee of Urban Design and “Leonie”, a consultant who was responsible for selecting the materials and finishes of the Dunlop house) explored in evidence.

28    The prejudice which Mr Farrelly identified assumes that in order for him to be personally liable Solitaire had to establish that Mr Farrelly and Urban Ventures were joint tortfeasors in the sense that they acted in concert with one another pursuant to a common design in the infringement of Solitaire’s copyright (relying on O’Brien v Dawson (1942) 66 CLR 18 at 32-33, WEA International Inc v Hanimex Corporation Ltd (1987) 17 FCR 274 at 283, CBS Songs Ltd v Amstrad Consumer Electronics Plc [1988] AC 1013 at 1057, C Evans & Sons Ltd v Spritebrand Ltd [1985] 2 All ER 415 at 424 and Aristocrat Technologies Australia Pty Ltd v Global Gaming Supplies Pty Ltd (2009) 84 IPR 222; [2009] FCA 1495 at [620]-[624]). According to Mr Farrelly none of the circumstances for joint tortious liability as summarised in Aristocrat Technologies were satisfied, namely:

[620] As Gummow J explained in WEA International at 283, infringement of copyright statutes are considered tortious, so as to make applicable the common law principles of liability of joint tortfeasors.

[621] It is not sufficient to establish a claim of joint liability that two or more persons assisted or concurred in or contributed to a tortious act; what is required is that there be “some common design”: WEA at 283.

[622] In Universal Music Australia Pty Ltd v Cooper (2005) 150 FCR 1 at [135], Tamberlin J pointed out that it follows from the remarks of Gummow J in WEA International that:

… there must be something in the nature of concerted action or agreed common action. It is not necessary that there must be an explicitly mapped out plan with the primary offenders. Tacit agreement between the parties is sufficient … .

[623] Tamberlin J referred to Australian and English authority which support the abovementioned statement of principle including the decision of the High Court in Thompson v Australian Capital Television Pty Limited (1996) 186 CLR 574 and the seminal English case, The Koursk [1924] P 140.

[624] Siopis J cited the relevant passage from the decision of Tamberlin J with apparent approval in Foxtel Management Pty Ltd v The Mod Shop Pty Ltd (2008) 165 FCR 149 at [133].

29    Further, the evidence did not support any finding capable of satisfying the test for Mr Farrelly’s liability as a director of Urban Design, again referring to Aristocrat Technologies:

[627] Three separate tests have been stated. The first is the “Performing Right Society test”, namely whether the director “directed or procured” the company’s infringement. The second is the “Mentmore test”, that is whether the director or officer “makes the tortious act his own” by deliberate, wilful and knowing pursuit of a course of conduct that was likely to constitute infringement: see the discussion of Finkelstein J in Root Quality Pty Ltd v Root Control Technologies Pty Ltd (2000) 177 ALR 231 at [123]ff.

[628] The third test was formulated by Finkelstein J in Root Quality at [146]. The test is that the director’s conduct is such that:

… he was so personally involved in the commission of the unlawful act that it is just that he should be rendered liable.

30    The difficulty for Mr Farrelly’s objection to leave being granted (and substantive defence should leave be granted) is that, as the Federal Magistrate found, in the course of carrying out the business of Urban Design, Mr Farrelly personally and alone created the infringing drawings (see the findings at [125] and [222]). Indeed, Mr Farrelly’s own defence (albeit rejected by the Federal Magistrate) was that he sat at the computer personally creating the drawings found to be infringing but did so under the control and direction of Mr Martins.

31    On the facts as found, Mr Farrelly was not carrying out any duty as a director of Urban Design in creating the drawings found to be infringing. It was no part of Mr Farrelly’s duties as a director of Urban Design to create architectural drawings on behalf of a client. More to the point it was no part of Mr Farrelly’s duties as a director, when confronted by Mr Martins’ ire about the significant and fundamental error in the design of the Dunlop house, to “appease” and “placate” Mr Martins by “expediently” and “opportunistically” copying the plans of the Solitaire house and using them as the basis of the design of the Dunlop house as a “quick solution” to the predicament the error had caused. On these facts, Mr Farrelly was Urban Design’s agent for the purpose of the creation of the plans just as one of Urban Design’s other employees, such as Mr Dawn, would have been had they drawn the plans in question. In that capacity Mr Farrelly personally infringed Solitaire’s copyright. As Solitaire submitted, Urban Design, thereby, was rendered vicariously liable for Mr Farrelly’s infringing conduct (Lister v Romford Ice and Cold Storage Co. Ltd [1957] AC 555).

32    The authorities to which Mr Farrelly referred involve different circumstances and thus different legal consequences from the present case. O’Brien v Dawson concerned a claim in conspiracy. A person who is a director of a company cannot, in carrying out duties as a director, conspire with the company itself (at 32). Nevertheless, as was also stated by Starke J at 32:

But I would add that it does not follow that a director of a company would escape personal liability under cover of the company’s responsibility if he himself became an actor and invaded the plaintiff’s rights…

33    To a similar effect, before entering upon a discussion of the liability of a director of a corporation for conduct of a corporation in which the director is “in some way personally involved”, Finkelstein J in Root Quality Pty Ltd v Root Control Technologies Pty Ltd (2000) 177 ALR 231; [2000] FCA 980 at [116] said:

I can begin by stating some basic principles which, I trust, will not be regarded as controversial. A corporation is a legal entity separate and distinct from its officers, directors and shareholders. This separate status has produced the general rule that officers, directors and shareholders are not liable for the obligations of the corporation. On the other hand, if in the course of carrying out his duties an officer or a director of a corporation commits a tortious act, such as negligence or trespass, he will be personally liable for the wrongdoing. The corporation may also be vicariously liable for the act of its officer or director.

34    Presumably for this reason Finkelstein J did not see the decision in Trevor Ivory Ltd v Anderson [1992] 2 NZLR 517 as “authority for the proposition that it will only be in the case of ‘an assumption of liability’ that a director or officer will be found liable for a personal tort: Banfield v Johnson (1994) 7 NZCLC 260 at 496” (at [140]). A similar qualification was expressed in Johnson Matthey (Aust) Ltd v Dascorp Pty Ltd (2003) 9 VR 171; [2003] VSC 291 (at [158]), where Redlich J said “[w]ith great respect to those who suggest otherwise, the judgments of each of the members of the Court of Appeal in Trevor Ivory appear confined to an analysis of the elements required to establish liability by a director for economic loss dependent upon a personal duty of care by the director to the injured party”.

35    In the present case Mr Farrelly infringed Solitaire’s copyright. On his own evidence he alone was responsible for the creation of the infringing plans. The Federal Magistrate noted the initials of one of Urban Design’s other employees (Mr Dawn) on the plans but, consistent with the evidence, observed that “it seemed not disputed that Mr Farrelly was the person responsible for these plans, and details such as changing the initials for Mr Dawn to those for Mr Farrelly were obviously not a high priority” (at [149]). Given the finding that Mr Farrelly personally copied the plans of the Solitaire house the references in submissions to Mr Dawn and other employees of Urban Design having carried out drawing work and to the role of Leonie in respect of the finishes and landscaping are immaterial. They could give no relevant evidence to the issue of Mr Farrelly’s personal liability given Mr Farrelly’s evidence that he alone was responsible for creating the infringing plans.

36    In circumstances where: - (i) Mr Farrelly was personally the subject of a claim for damages from the outset, (ii) Mr Farrelly had the opportunity to put whatever evidence he saw fit in relation to his personal liability for damages, and (iii) the Federal Magistrate made a finding about Mr Farrelly’s personal liability in response to a submission put by Mr Farrelly’s counsel during the hearing (at [311]), I am unable to accept that Mr Farrelly will be prejudiced by the grant of leave sought. Despite Solitaire’s oversight in making a submission that Mr Farrelly be found personally liable, that matter was plainly in issue before the Federal Magistrate both on the pleadings and during the course of the hearing. The point has merit, is advanced, and in the circumstances described there can be no real prejudice suffered by Mr Farrelly if Solitaire is permitted to press for that finding on appeal (VUAX v Minister for Immigration and Multicultural and Indigenous Affairs [2004] FCAFC 158 at [56]-[47]).

37    Accordingly, leave as sought should be granted. Moreover, for the reasons already given, Mr Farrelly should be held personally liable for the infringement of Solitaire’s copyright in the Solitaire house and the plans for it.

DAMAGES

Compensatory damages

38    Section 115(2) of the Copyright Act provides as follows:

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.

39    Although Solitaire did not concede that the Federal Magistrate erred in the assessment of compensatory damages under s 115(2) of the Copyright Act, it acknowledged that the Federal Magistrate’s reasoning in this regard might be considered flawed. The reason for this is as follows. The Federal Magistrate (rightly according to both parties) rejected any calculation of compensatory damages on the basis of the fee that Solitaire would have charged for a licence to use the Solitaire plans in the design of the Dunlop house. The reason this approach could not be used was that there was no real possibility that Solitaire would have granted or the respondents paid the proposed licence fee of $40,000 (at [51] and [319]). Accordingly, the Federal Magistrate adopted the approach Greenwood J used in AV Jennings of seeking to identify the contribution of the copyright in the plan to the profit that would have been made on the design and construction of the dwelling. There was evidence before the Federal Magistrate of a usual profit of $40,000 on project homes (at [212] and [308]). The Federal Magistrate considered that the value of Solitaire’s copyright represented 25% of the profit on the design and construction of the Dunlop house, leading to the compensatory damages of $10,000 (at [319]). In AV Jennings, however, the respondents designed and constructed the house that infringed the applicants’ plans. In the present case, there was no finding of infringement by A & A Martins, only against Urban Design. Mr Farrelly and Urban Design had no involvement in the construction of the Dunlop house. Urban Design’s financial gain was limited to the $1,100 design fee. These factual circumstances inform Solitaire’s apparent concern in respect of the Federal Magistrate’s assessment of compensatory damages.

40    For their part, Mr Farrelly and Urban Design contended that the award of $10,000 compensatory damages is unsupportable on any basis. According to them, the Federal Magistrate overlooked the need for Solitaire to prove some loss or damage before engaging in the assessment of damages, contrary to established principle (Commonwealth v Amann Aviation Pty Limited (1991) 174 CLR 64 at 83). In circumstances where: - (i) compensatory damages must reflect the loss suffered by reason of the infringement, the measure being “the depreciation caused by the infringement to the value of the copyright as a chose in action” (Sutherland Publishing Company, Limited v Caxton Publishing Company, Limited [1936] Ch 323 at 336), (ii) Solitaire called no evidence of loss or damage suffered (as reflected in the finding at [318]), including no expert evidence as to the value of the copyright which was a telling factor against any finding of loss based on a Jones v Dunkel ((1959) 101 CLR 298) inference, (iii) no inference could be drawn that Solitaire had lost the opportunity of other work as no evidence supported any such inference, and (iv) in particular, the evidence about Dr Maldoni (the purchaser of the Dunlop house) did not support any such inference.

41    I do not accept the submission that the Federal Magistrate overlooked the need for there to be proof of some loss or damage before undertaking the task of assessment which, as Mr Farrelly and Urban Design conceded, may involve some degree of speculation and guesswork. The Federal Magistrate’s comment in [318] is not to the effect that there was no evidence of loss or damage. It is an acknowledgment that the evidence in support was poor, leaving a finding of loss or damage as “more by inference than by anything else”. Whilst the damage was “difficult to see” on the state of the evidence, on a fair reading of the reasons, the Federal Magistrate must be taken to have accepted that there was a depreciation in the value of Solitaire’s copyright caused by the infringement requiring the task of assessment to be undertaken having regard to a court’s obligation, in such a case, to do the best it can on the evidence. It is on this basis that the Federal Magistrate adopted the approach in AV Jennings of attempting to identify the value of the copyright by allocating to it a proportion of the profit on design and construction of the Dunlop house.

42    Contrary to the arguments of Mr Farrelly and Urban Design and the apparent concerns of Solitaire that this approach may be flawed, I see no difficulty in principle with the application of AV Jennings to these facts or the Federal Magistrate’s reasons for so doing. Mr Farrelly (and, through him, Urban Design) infringed the copyright in the Solitaire house. This was an award winning and distinctive design intended to be the signature for Solitaire’s business of designing and constructing project homes. By reason of Mr Farrelly’s infringement of Solitaire’s copyright A & A Martins was able to build the Dunlop house. There was evidence to support the Federal Magistrate’s acceptance of the usual profit on the design and construction of a project home as $40,000 (being the evidence of both Mr Martins and Mr Turcin). The allocation of the 25% value by the Federal Magistrate to the copyright undoubtedly involved some degree of speculation and guesswork, but that was permitted (indeed, required) in the circumstances. The award winning nature of the design, and its unique features in the market, supported the allocation of 25%.

43    I do not accept the submission for Urban Design and Mr Farrelly that an inference arises that Solitaire suffered no loss or damage because it did not adduce specific evidence (including expert evidence) of loss. The Federal Magistrate was entitled to infer from the evidence that Solitaire had suffered some loss. On the facts of this case, it is difficult to imagine what expert evidence about loss could have added. Parties should not assume that expert evidence about loss is always either necessary or even desirable, particularly where the claims are relatively modest. One of the unfortunate features of this case, as apparent from the Federal Magistrate’s reasons (at [11] in particular), is that despite the relatively modest nature of the claims the first instance hearing took eight days.

44    Other evidence supports the figure of $10,000 as a just and fair assessment of compensatory damages on alternative bases. If the Federal Magistrate erred in using the AV Jennings approach (which I do not accept), the depreciation in the value of Solitaire’s copyright can be assessed by reference to the time and cost incurred in creating the plans for the Solitaire house that Mr Farrelly was found to have copied. Mr Farrelly and Urban Design agreed that the time taken to complete the Solitaire plans was relevant to the assessment of compensatory damages. They argued, however, that the time taken to create the plans should reflect Mr Novak’s evidence that it would take 30 hours to complete the plans (at [276]). Applying Mr Pekic’s rate of $50 per hour to that task would result in an assessment of $1,500 compensatory damages. I do not accept these submissions. First, the Solitaire house is an award winning design that included a number of features unique to the market at the time. As such, it took Mr Pekic 80 hours to create the plans for the Solitaire house over a period of six to eight months. There is no reason to discount Mr Pekic’s actual time involved of 80 hours. At a rate of $50 per hour that is a fee of $4,000. At the standard rate of $55 per hour (the hourly rate for a draftsperson for design and drafting in 2005), that is a fee of $4,400. Second, although Mr Pekic drew all of the plans he did so in consultation with Mr Turcin who wanted the Solitaire house to be a “stand out” home with “unique external and internal features” (at [38]). Therefore, Mr Turcin’s time was also involved and had value. Third, as Solitaire pointed out, there was added value to the copyright by reason of the fact that drafting fees takes no account of the entrepreneurial risk of Solitaire in not only designing but also constructing the Solitaire house. Fourth, there is substance to Solitaire’s submission that, although difficult to quantify, it suffered a loss of opportunity, or at the least goodwill, by reason of Mr Farrelly having taken Solitaire’s signature design and applying it to a non-Solitaire house. The fact that the Solitaire house was intended to be a “signature” for the company reinforces rather than undermines the nature of this loss. Fifth, whilst estimating the added value from Mr Turcin’s involvement and the other elements of loss also involve speculation, it is difficult to accept that together they would not exceed the amount attributable to Mr Pekic’s work. On these bases, the assessment of compensatory damages in the sum of $10,000 appears fair and reasonable.

45    For these reasons I do not accept Urban Design’s challenge to the Federal Magistrate’s award of $10,000 in compensatory damages. Nor, however, do I accept Solitaire’s cross-appeal against that award. Whilst there were uncertainties about building costs of the Dunlop house and the added value from finishes and the like, Mr Turcin said he expected a profit from the design and construction of the Solitaire house (with its unique features) to be in the order of $70,000. Even on the calculations of Mr Farrelly and Urban Design, the Dunlop house in fact sold for a profit of some $75,000. Urban Design relied on these figures to submit that the copyright added a value of some $30,000 to $35,000. However, the $30,000 figure is based on a less sound foundation than the approach of the Federal Magistrate based on the usual profit. At its highest that evidence corroborates the reasonableness of the Federal Magistrate’s approach. It does not provide a sufficiently persuasive basis to suggest that the award of compensatory damages should be increased as Solitaire contended in the cross-appeal. Nor does the inquiry made by Dr Maldoni assist Solitaire in its case for an increase of the award of compensatory damages. As Solitaire acknowledged in oral submissions, ultimately, the evidence about Dr Maldoni remained “a curiosity”. Further, and contrary to Solitaire’s submission, the considerations to which the Federal Magistrate referred at [310] were not irrelevant. The nature of the houses in question – relatively modest and inexpensive project homes – is relevant to the assessment of compensatory damages because it informs the context for that exercise. Nor do the observations in [319] disclose any error. The Federal Magistrate was entitled to take those matters into account when doing the best possible, on the evidence, to assess the loss.

Additional damages

46    Section 115(4) of the Copyright Act is in these terms:

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; and

(ia)    the need to deter similar infringements of copyright; and

(ib)    the conduct of the defendant after the act constituting the infringement or, if relevant, after the defendant was informed that the defendant had allegedly infringed the plaintiff's copyright; and

(ii)    whether the infringement involved the conversion of a work or other subject matter from hardcopy or analog form into a digital or other electronic machine readable form; and

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

(iv)    all other relevant matters;

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

47    Urban Design and Mr Farrelly challenged the award of additional damages under s 115(4) of the Copyright Act, submitting that: - (i) the Federal Magistrate made no finding of flagrancy, (ii) the infringement was not flagrant in the recognised senses of in “calculated disregard” of Solitaire’s rights or “cynical pursuit of benefit” or “scandalous conduct” involving “deceit including deliberate and calculated infringement where a defendant reaps a pecuniary advantage in excess of the damages he would otherwise have to pay” (MJA Scientifics International Pty Ltd v SC Johnson & Son Pty Ltd (1998) 43 IPR 275 at 282 and the cases cited there), (ii) to the contrary, the Federal Magistrate found that Mr Farrelly did not intend to deceive for any material or other personal gain (at [174]), with there being no hint of profiteering (at [310]), the only gain for them being the $1,100 drafting fee, (iii) on this basis it could be said that the Federal Magistrate “almost goes as far as to say that this is a case of inadvertent copying”, and (iv) the infringement was accepted to be a “limited one-off, isolated incident” (at [310]). According to Mr Farrelly and Urban Design the findings about Mr Farrelly’s evidence did not support the conclusion that his infringement was calculated or deliberate. Further, “there was no evidence that Mr Farrelly ever had access to the actual plan” of the Solitaire house. Given the predicament in which he found himself, Mr Farrelly’s actions were said to be “no more than a straightforward way to deal with the issue”. Mr Farrelly was now aware of the seriousness of copyright infringement so that considerations of specific deterrence were not material. In the context of the protracted hearing and legal costs already incurred, no further deterrent value could be achieved by increasing (as opposed to reducing) the award of additional damages. The cases in which additional damages have been awarded bear no resemblance to the facts of the present case. Additional damages are not appropriate in a case of a one-off isolated incident, not done for material personal gain, and not done in a calculated or deliberate manner.

48    I have a number of difficulties with these submissions. It cannot be said that the Federal Magistrate “almost goes as far as to say that this is a case of inadvertent copying”. While the Federal Magistrate accepted that Mr Farrelly did not intend to deceive for material personal gain, there can be no real doubt that the findings made disclosed that Mr Farrelly deliberately infringed Solitaire’s copyright. He did so “expediently” and “opportunistically” to “appease” and “placate” his angry client who wanted to construct the Dunlop house immediately but had been given a defective design. Mr Farrelly’s “quick solution” was to copy the plans for the Solitaire house. Mr Farrelly’s conduct in so doing, as the Federal Magistrate said, was “understandable” (at [172]), an observation with which I agree. It is always understandable that a person in the position Mr Farrelly found himself would wish to solve the problem as quickly and effectively as possible. But to act expediently and opportunistically to infringe a competitor’s copyright when confronted with a problem capable of affecting Urban Design’s and his own professional reputation could not be described as “almost inadvertent”.

49    The submission that this was “no more than a straightforward way to deal with the issue” is even more problematic. If reflective of Mr Farrelly’s present state of mind, the submission provides no comfort that Mr Farrelly now understands that his conduct was wrong. In fairness to Mr Farrelly, however, I do not consider that the submission can be used for that purpose. The issue of specific deterrence is otherwise dealt with below.

50    The submission that there was no evidence that Mr Farrelly ever had access to the actual plan of the Solitaire house is also inconsistent with the factual inferences the Federal Magistrate drew. The Federal Magistrate, by inference, found that Mr Farrelly “copied the design plans of the Solitaire house” (at [222]). It is true that there was no evidence of how Mr Farrelly obtained those plans or what became of them after he had copied them, but there is no doubt that the Federal Magistrate inferred that Mr Farrelly had the plans of the Solitaire house. The inference that Mr Farrelly had access to the plans of the Solitaire house was well-founded given that: - (i) the Dunlop house went – “and rather quickly so” – from a single storey to a two storey dwelling (at [130]) on Mr Farrelly’s initiative (at [131]), (ii) the plans for the Dunlop house, after their sudden transformation, showed a tiled blade wall which was a significant feature of the Solitaire house (at [145]), (iii) Mr Farrelly could give no explanation why he had drawn the blade wall with a tile finish despite his detailed knowledge of other aspects of the plans (at [144]-[145]), (iv) Mr Farrelly’s “astonishing” and “even more dubious” evidence about how quickly he drew the amended plans for the Dunlop house (at [159]-[160], (v) the rejection by the Federal Magistrate that the home theatre on the Dunlop plans (a significant feature of the Solitaire house) came at other than Mr Farrelly’s initiative (at [163]), (vi) the rapid transformation of the plans for the Dunlop house to a double storey dwelling “with significant if not striking features and a façade that very closely resemble the Solitaire house” (at [173]), and (vii) the overall “flawed mosaic of evidence” given by Mr Farrelly (at [169]).

51    As Solitaire submitted, in this context, Mr Farrelly’s (and Urban Design’s) defence of the proceeding cannot be characterised as one in which Mr Farrelly gave evidence some of which was not accepted. Mr Farrelly defended the proceeding on the basis that he had never been to the Solitaire house, had never seen the Solitaire house plans and acted as a mere tool under the control and directions of Mr Martins. The Federal Magistrate rejected this defence in its entirety. The Federal Magistrate found that Mr Farrelly copied the plans of the Solitaire house entirely of his own initiative. The Federal Magistrate also rejected Mr Farrelly’s attempt to blame Mr Martins for the infringement. This attempt was not a trivial or incidental part of Mr Farrelly’s evidence. Mr Farrelly was found to have constructed (or reconstructed) events in a flawed mosaic of evidence. This flawed mosaic of evidence, moreover, was intended to blame Mr Martins for Mr Farrelly’s wrongful conduct. Mr Martins, it must be remembered, had been told by Mr Farrelly in October 2006 and January 2008 not to worry about Solitaire’s claims because Mr Farrelly would look after things.

52    It is against this background that the significance of the Federal Magistrate’s reference at [322] to Mr Farrelly’s conduct as a reason for making an order for additional damages must be understood. It is true that the Federal Magistrate did not expressly find that the infringement was flagrant. Nevertheless, the facts found and the reference at [322] to Mr Farrelly’s conduct as warranting an award of additional damages disclose that the Federal Magistrate was satisfied that Mr Farrelly deliberately copied the plans of the Solitaire house in order to fix the problem caused by the fundamental drafting error originally made. While by no means at the worst end of the scale of flagrancy the infringement was flagrant in the sense at least of being deliberate. In other words, the infringement was not the result of mere inadvertence or anything like it. Moreover, when infringing Solitaire’s copyright Mr Farrelly must be taken to have known or, at the least, not cared about the fact that Mr Martins, a competitor to Solitaire, intended to construct the Dunlop house. There was no prospect that the plans would remain unused. The very reason for Mr Martins’ ire and Mr Farrelly’s desire to appease him was that construction was ready to commence but the original plans for the Dunlop house were wrong.

53    Although the pecuniary reward was small ($1,100) the real gain to Mr Farrelly and Urban Design (had the infringement not been discovered) was that the copying of the plan for the Solitaire house both: - (i) placated an irate client who had been a repeat customer over many years, and (ii) it must be inferred, protected the professional reputation of Mr Farrelly and Urban Design in the market for design and drafting services (a market in which Mr Farrelly and Urban Design were also in competition with Solitaire). As things have turned out, Mr Farrelly and Urban Design happened not to obtain that non-pecuniary benefit. However, they did not obtain the non-pecuniary benefit only because Solitaire discovered the infringement and took the proceeding to enforce its copyright. This non-pecuniary benefit is a relevant matter under s 115(4)(b)(iv) if not under s 115(4)(b)(iii) (the benefit not in fact having accrued due to this proceeding and the findings against Mr Farrelly).

54    Given the Federal Magistrate’s findings about Mr Farrelly’s actions it also cannot be doubted that, when he received the letter from Solitaire’s lawyers on 9 October 2006, Mr Farrelly knew that the allegation of copyright infringement related to the Dunlop house (despite the incorrect lot reference). The fact that Mr Martins then called Mr Farrelly to ask what was going on in respect of the Dunlop house ensured that Mr Farrelly was aware that he was the subject of an allegation of copyright infringement by Solitaire for the Dunlop house by 9 October 2006 or very shortly thereafter. Despite this, Mr Farrelly attended another Solitaire home (the Harrison house), took the view that the prohibition on entry of builders, architects and agents did not apply to him, entered a false name in the registration book (which he tried to explain away on the basis that he did not want to be chased up by sales agents – an explanation which the Federal Magistrate rejected) and inspected the Harrison house. The Federal Magistrate rejected this evidence as relevant for any tendency purpose (a ruling against which there is no appeal) but rightly saw it as relevant to Mr Farrelly’s overall conduct including for the purposes of s 115(4)(b)(ib) of the Copyright Act. Solitaire’s claim that the Federal Magistrate failed to take that evidence into account as non-tendency evidence, accordingly, cannot be accepted. However, Solitaire’s other claim, that the Federal Magistrate did not give this evidence sufficient weight in the calculation of additional damages, requires further consideration.

55    Mr Farrelly’s visit to the Harrison house was not the only conduct relevant under s 115(4)(b)(ib). The fact that Mr Farrelly constructed a flawed mosaic of evidence blaming Mr Martins for the infringement of copyright was a significant cause of the hearing extending over eight days, thereby forcing Solitaire (in order to vindicate its rights) to not only commence but also fully prosecute the proceeding. But for the flawed mosaic of evidence Mr Farrelly constructed, Solitaire would not have been put to that substantial expense.

56    The Federal Magistrate’s satisfaction that this was a “one-off” incident with future infringement by Mr Farrelly and Urban Design “unlikely” (at [322]) has to be assessed against all of the evidence relevant to this issue. First, the type of problem that Mr Farrelly confronted must arise not infrequently in the architectural drafting business (that is, an error in the plans). Second, when confronted with the problem Mr Farrelly acted expediently and opportunistically in copying the plans for the Solitaire house. Whilst understandable (in the sense that a quick solution to keep clients happy is always understandable), this response must also be a common temptation for those in the architectural drafting business. Third, when threatened with exposure Mr Farrelly told his client that he would fix the problem and not to worry about it. At about the same time, Mr Farrelly saw no problem with inspecting another Solitaire home under a false name. Fourth, Mr Farrelly’s version of fixing the problem was to blame Mr Martins for the infringement. Fifth, when Mr Martins finally did take an active role in the proceeding Mr Farrelly persisted in blaming him through a flawed mosaic of evidence. In so doing, Mr Farrelly himself was largely responsible for the “significant burden – financial and other – that the proceedings themselves will have already imposed on all parties” (at [323]). The Federal Magistrate considered this a “not insignificant consideration” of which he was “acutely conscious” (also at [323]) in assessing the additional damages against Urban Design.

57    Although I accept that the burden of the proceedings may be a relevant matter within the meaning of s 115(4)(b)(iv) of the Copyright Act, I also consider that the weight that it may be given must take into account that, as described above, Mr Farrelly was the real cause of the burden. Mr Farrelly infringed Solitaire’s copyright. As such I consider that this burden should not have resulted in any substantial reduction of the additional damages that otherwise would have been payable. The circumstances are not analogous to those in Luxottica Retail Australia Pty Ltd v Grant (2009) 81 IPR 26; [2009] NSWSC 126. In Luxottica v Grant the first defendant, Ms Grant, was found to be a frank and truthful witness (at [33]). The same could not be said of Mr Farrelly. Ms Grant had no consciousness of doing anything wrong at the time and thus took no step to cover her tracks (at [36] and [42]). Mr Farrelly was found to have copied the plans but has never said how he came to obtain them nor explained what became of them. Ms Grant did not share the infringing material with anyone else (at [44]). Mr Farrelly sold the plans to A & A Martins, a competitor of Solitaire, knowing they would be used to erect the Dunlop house. Ms Grant did not obtain any benefit from the infringement (at [45]). Mr Farrelly obtained a pecuniary benefit, albeit small, and must be inferred to have acted for the more substantial non-pecuniary benefits he and Urban Design stood to gain provided the infringement was not detected (that is, keeping a repeat client happy and preserving professional reputation).

58    The circumstances of the present case, moreover, are difficult to reconcile with the Federal Magistrate’s approach to the important issue of deterrence. Specific and general deterrence are both relevant matters to the question whether it is proper to award additional damages under s 115(4). Section 115(4)(b)(ia) refers to “the need to deter similar infringements of copyright”. As Solitaire submitted, this must include similar infringements by both the infringer (specific deterrence) and others (general deterrence).

59    The Federal Magistrate considered specific deterrence, finding that there had not been and was unlikely to be any future infringements. This finding was open on the evidence. Despite largely being the cause of the burden of the proceedings, it would be difficult to infer that Mr Farrelly did not now understand that what appeared to be an expedient course at the time was in fact imprudent and fraught (as the Federal Magistrate observed at [172]). Further, and contrary to Solitaire’s submission, I do not see that Mr Farrelly’s answers in cross-examination to questions about his understanding of copyright added anything material. Mr Farrelly’s answers disclose that, unsurprisingly, he did not know when the permissible borrowing of ideas crossed the line to become impermissible copyright infringement.

60    The more important consideration on the facts of this case, however, was the need for general deterrence. There is no reference to that need in the Federal Magistrate’s reasons. It must be inferred that the Federal Magistrate did not consider this matter. By s 115(4)(b)(ia) the deterrence of others from committing similar infringements of copyright had to be considered in determining whether and in what amount to make an award of additional damages. General deterrence, moreover, was a consideration of substantial weight in the present case. The infringing act was committed by an architectural draftsman in the course of preparing design plans for a project home. Project homes exhibit a degree of similarity that makes the obtaining and protection of copyright in them of particular importance to participants in that industry. Further, the very fact that the act of copying was understandable (which it is) makes the need for general deterrence more, not less, important. Mr Farrelly was confronted by what must be a common problem in the industry. His response of copying was understandable because that is a temptation that also must commonly occur to people in that industry. Mr Farrelly did not want to profiteer from Solitaire’s work. He just wanted to solve the problem he had caused. But his response of copying was wrong. The award of additional damages must be sufficient to act as a real deterrent to other people in the same industry so as to ensure that they are not tempted to act expediently as Mr Farrelly did. At the same time it would be unjust to impose on Mr Farrelly a burden disproportionate to his actual culpability.

61    Having regard to all of the facts I consider that the award of $2,500 is insufficient to act as a real deterrent to others and does not reflect Mr Farrelly’s culpability. None of the factors on which the Federal Magistrate relied (at [322] and [323] in particular) should have resulted in such a low award of additional damages. The matters identified at [322] and [323] are not irrelevant. Thus, I do not accept Solitaire’s submission to that effect. But they are insufficient, when weighed with all other relevant circumstances, to result in an award of additional damages of $2,500. I consider that the award of additional damages under s 115(4) should not have been less than $10,000.

Associate:

Dated:    14 December 2010