FEDERAL COURT OF AUSTRALIA

Prodata Solutions Pty Ltd v South Australian Fire and Emergency Services Commission (No 2) [2019] FCA 2051

REASONS FOR JUDGMENT

CHARLESWORTH J:

1    In this action the applicant alleges that the first and second respondents infringed their copyright subsisting in certain works and that they breached an equitable or contractual obligation of confidence. By an interlocutory application filed on 14 October 2019, the applicant seeks an order that certain questions in this proceeding be heard and determined separately pursuant to r 30.01 of the Federal Court Rules 2011 (Cth). On 2 December 2019 I determined that the interlocutory application should be dismissed. Oral reasons were given on that day. The parties have been given the opportunity to be heard on proposed orders giving effect to those reasons. I now provide written reasons in substantively the same terms and will make and enter the orders substantially as foreshadowed.

2    The applicant has proposed that the issues be divided in such a way that would result in a trial proceeding in three stages.

3    As will be seen, the question of the whether the respondents are liable for infringement of copyright raises questions of fact and law that do not often arise in this Court. Depending on the answers to those questions it may transpire that the Court does not have jurisdiction to grant a financial remedy even if it should find that the respondents or either of them have done acts comprised in copyright owned by the applicant and without the applicant’s licence. That circumstance provides a strong basis for determining the question of remedies separately from other issues. However, I am not satisfied that the trifurcation of issues proposed by the applicant is either necessary or appropriate.

PRINCIPLES AND PLEADINGS

4    Rule 30.01 of the Rules provides that:

(1)    A party may apply to the Court for an order that a question arising in the proceeding be heard separately from any other questions.

  (2)    The application must be made before a date is fixed for trial of the proceeding.

5    The power to make an order under this rule is discretionary. Its exercise is guided by the principles stated by Branson J in Reading Australia Pty Ltd v Australian Mutual Provident Society (1999) 240 FCR 276 in respect of the predecessor in O 29 r 2 of the Federal Court Rules 1979 (Cth). Her Honour said (at [8]):

The principles that govern the circumstances in which an order will be made under O 29, r 2 are relatively well established. They may be summarised as follows:

(a)    the term ‘question’ in O 29, r 1 includes any question or issue of fact or law in a proceeding. The distinction in the rule between an ‘issue’ and a ‘question’ is the distinction between that which, when resolved, will result in an adjudication in favour of one party or the other, being an ‘issue’, and less decisive matters of dispute being ‘questions’ (Landsal Pty Ltd (in liq) v REI Building Society (1993) 41 FCR 421 at 425);

(b)    a question can be the subject of an order for a separate decision under O 29, r 2 even though a decision on such a question will not determine any of the parties’ rights (Landsal Pty Ltd (in liq) v REI Building Society at 425);

(c)    however, the judicial determination of a question under O 29, r 2 must involve a conclusive or final decision based on concrete and established or agreed facts for the purpose of quelling a controversy between the parties (Bass v Permanent Trustee Co Ltd (1999) 198 CLR 334 at [45]);

(d)    where the preliminary question is one of mixed fact and law, it is necessary that the question can be precisely formulated and that all of the facts that are on any fairly arguable view relevant to the determination of the question are ascertainable either as facts assumed to be correct for the purposes of the preliminary determination, or as agreed facts or as facts to be judicially determined (Jacobson v Ross [1995] 1 VR 337 at 341, referring to Attorney-General (UK) v Nissan [1970] AC 179 at 242-243 per Lord Pearson; Bass v Permanent Trustee at [53]);

(e)    care must be taken in utilising the procedure provided for in O 29, r 1 to avoid the determination of issues not ‘ripe’ for separate and preliminary determination. An issue may not be ‘ripe’ for separate and preliminary determination in this sense where it is simply one of two or more alternative ways in which an applicant frames its case and determination of the issue would leave significant other issues unresolved (CBS Productions Pty Ltd v O’Neill (1985) 1 NSWLR 601 at 606 per Kirby P);

(f)    factors which tend to support the making of an order under O 29, r 2 include that the separate determination of the question may –

(i)    contribute to the saving of time and cost by substantially narrowing the issues for trial, or even lead to disposal of the action; or

(ii)    contribute to the settlement of the litigation (CBS Productions Pty Ltd v O’Neill at 607 per Kirby P);

(g)    factors which tell against the making of an order under O 29, r 2 include that the separate determination of the question may –

(i)    give rise to significant contested factual issues both at the time of the hearing of the preliminary question and at the time of trial (GMB Research & Development Pty Ltd v Commonwealth [1997] FCA 934;

(ii)    result in significant overlap between the evidence adduced on the hearing of the separate question and at trial – possibly involving the calling of the same witnesses at both stages of the hearing of the proceeding (GMB Research & Development Pty Ltd v Commonwealth; Arnold v Attorney-General (Vic) [1995] FCA 727). This factor will be of particular significance if the Court may be required to form a view as to the credibility of witnesses who may give evidence at both stages of the hearing of the proceeding; or

(iii)    prolong rather than shorten the litigation (GMB Research & Development Pty Ltd v Commonwealth).

6    By its fifth amended statement of claim (SOC), the applicant alleges that the respondents infringed its copyright and that the respondents breached an equitable obligation of confidence. That latter obligation is said to arise by reason of certain contractual terms, although it does not appear that the applicant advances a case founded on breach of contract per se. Stripped to its fundamentals, the case founded in infringement of copyright is that:

(1)    the applicant is the developer of a “system of software programs” known as the ESOTAS system, comprising a “front end system” and a “back end system”;

(2)    the applicant is the owner of copyright subsisting in the source code for each software component used to create and operate the front end and the back end systems, together with documents created in the course of designing the software (the works);

(3)    the applicant is the owner of copyright subsisting in the works;

(4)    in 2014 the applicant and the first respondent entered into a software agreement governing the parties’ rights and obligations in relation to the ESOTAS system;

(5)    the first respondent engaged the second respondent to develop an IT solution to replace the ESOTAS system; and

(6)    it is alleged that in the process of developing and implementing an IT solution to replace the ESOTAS system, the first and second respondents infringed the applicant’s copyright subsisting in the works in a manner that was not authorised by the software agreement.

7    Section 115 of the Copyright Act 1968 (Cth) provides that an owner of copyright may bring an action for its infringement. The applicant seeks a range of pecuniary and non-pecuniary orders under s 115(2) and (4). The applicant’s entitlement to those orders depends upon proof that the respondents have infringed its copyright within the meaning of s 36(1). It provides:

Subject to this Act, the copyright in a literary, dramatic, musical or artistic work is infringed by a person who, not being the owner of the copyright, and without the licence of the owner of the copyright, does in Australia, or authorizes the doing in Australia of, any act comprised in the copyright.

8    The term “literary work” is defined in s 10 to include:

(a)    a table, or compilation, expressed in words, figures or symbols; and

(b)    a computer program or compilation of computer programs.

9    Division 2 of Pt VII of the Copyright Act is titled “Use of copyright material for the Crown”.

10    Section 183 is contained in Div 2. It relevantly provides:

Use of copyright material for the services of the Crown

(1)    The copyright in a literary, dramatic, musical or artistic work or a published edition of such a work, or in a sound recording, cinematograph film, television broadcast or sound broadcast, is not infringed by the Commonwealth or a State, or by a person authorized in writing by the Commonwealth or a State, doing any acts comprised in the copyright of the acts are done for the services of the Commonwealth or State.

…

(3)    Authority may be given under subsection (1) before or after the acts in respect of which the authority is given have been done, and may be given to a person notwithstanding that he or she has a licence granted by, or binding on, the owner of the copyright to do the acts.

(4)    Where an act comprised in a copyright has been done under subsection (1), the Commonwealth or State shall, as soon as possible, unless it appears to the Commonwealth or State that it would be contrary to the public interest to do so, inform the owner of the copyright, as prescribed, of the doing of the act and shall furnish him or her with such information as to the doing of the act as he or she from time to time reasonably requires.

11    For the purposes of Div 2 of Pt VII, the phrase “copyright material” is defined to include a work, but does not include a reference to a literary work that consists of a computer program or compilation of computer programs: Copyright Act, s 182B. A “computer program” means “a set of statements or instructions to be used directly or indirectly in a computer in order to bring about a certain result”: Copyright Act, s 10.

12    At the trial stage it will be necessary to determine whether s 183(1) is intended to apply to a literary work that consists of a computer program, having regard to the heading of the section and to the text of the provision. For present purposes it is not necessary to express a concluded view on that question.

13    It is not disputed that the first respondent is an instrumentality of the Crown in right of South Australia. By its fourth defence, it puts in issue the applicant’s ownership of copyright. Alternatively, it alleges that if it has done acts comprised in the applicant’s copyright, the acts were either authorised by the software agreement or were acts to which s 183(1) of the Copyright Act applies, such that the acts were not infringing acts for the purposes of s 36 and s 115. Relevantly, the case of the second respondent is that if it has done an act comprised in the applicant’s copyright (which it denies) it did so with the written authorisation of the first respondent for the purposes of s 183(1).

14    Before the Court is a notice issued by the Crown pursuant (or purportedly pursuant) to s 183(4) (183 Notice) on 2 November 2018. It is expressed as follows:

To:    Prodata Solutions Pty Ltd

By its solicitors Xenophon & Co

THE STATE OF SOUTH AUSTRALIA HEREBY GIVES NOTICE pursuant to s 183(4) of the Copyright Act 1968 (Cth) (the Act) that to the extent that it is agreed, or the Federal Court (the Court) determines in action no.SAD338/2017 (the proceedings), that copyright in any literary work or compilation of such works owned by Prodata Solutions Pty Ltd (ACN 058 014 823) (the claimant) the subject of the proceedings has been, or would have been but for the operation of s 183(1) of the Act, infringed by any act done by or on behalf of the South Australian Fire and Emergency Commission (the agency), then:

1.    Such acts (as agreed between the agency and claimant or as determined by the Court) in respect of any literary work or compilation (to be identified by agreement or by the Court) were or are being done for the services of the State of South Australia;

2.    The doing of the act or acts are as set out in the pleadings of the claimant and agency filed in the proceedings and as further agreed by them or determined by the Court; and

3.    Any further information the claimant reasonably requires is at first instance provided as agreed between the claimant and agency, or specified in the determination of the Court.

This notice has been provided for the purposes of s 183(4) of the Act to inform the owner of the doing of any such act(s).

TAKE NOTICE pursuant to s 183(3) of the Act that to the extent that it is agreed, or the Court determines that acts have or are being done for the services of the State of South Australia and / or the agency on behalf of the agency by SMS Consulting Group Ltd trading as SMS Management and Technology (ACN 006 515 028) or any successor in title, those acts are authorized by the State of South Australia.

PROVIDED THAT nothing in this Notice is to be construed as an admission by the State of South Australia or the agency of the existence of copyright, the ownership of same by the claimant, or the doing of any act, or any infringement by or on behalf of the State of South Australia, the agency, and its or their servants or agents, in the absence of express agreement between the claimant and agency, or determination by the Court, and all appeal rights have been exercised or not invoked by the agency, to the contrary.

15    To the extent (if any) that the first or second respondent have done any act comprised in its copyright, the applicant does not dispute that the services were done for the services of the State within the meaning of s 183(1). However it contends that the issuing of the 183 Notice in such conditional terms gives rise to a critical question concerning its validity, justifying orders under r 30.01 of the Rules to hear and determine the validity of the notice as a separate question.

THE APPLICANT’S PROPOSAL

16    The applicant seeks an order in the following terms:

2.    The Court hear and determine the following questions separately from, and before, determination of any other questions in the proceedings (Separate Questions):

(1)    Whether one or more Works as defined in [30] and pleaded in [30] and [31] of the Fifth Amended Statement of Claim (5ASOC) are an original literary work within the meaning of s 10(1) of the Copyright Act 1968 (Cth) (Copyright Act).

(2)    Whether at the time or times of their creation, the author or authors of each Work was an employee of the Applicant who made the Work in pursuance of the terms of his or her employment under a contract of service.

(3)    Whether the Applicant is the owner of the copyright in the Works, or any of them, as defined in [30] and pleaded in [30] and [31] of the 5ASOC.

(4)    Whether the State of South Australia’s notice pursuant to sub-section 183(4) of the Copyright Act (183 Notice) is valid.

(5)    Whether s 183A(1) of the Copyright Act operates in whole or in part in relation to the 183 Notice, by reason of the declaration made on 18 December 1998 by the Copyright Tribunal declaring the Copyright Agency Limited to be a relevant collecting society for the purposes of Division 2 of Part VII of the Copyright Act in relation to government copies of works.

3.    In the alternative to Order 2, an order pursuant to s 54A Federal Court Act 1976 (Cth) that one or more of the Separate Questions be referred to a referee for inquiry and report in accordance with the Rules.

4.    After determination of the Separate Questions (or alternatively receipt and adoption of the referee’s report) the Court next determine all questions:

(a)    of liability for the breaches of copyright, breaches of contract and breaches of equitable duties alleged by the Applicant against the Respondents;

(b)    (if the Court finds that the 183 Notice is valid), concerning the matters pleaded in [3.2] and [3.3] of the Reply to Fourth Defence of the First Respondent and [2.2] and [2.3] of the Reply to Fourth Defence of the Second Respondent; and

(c)    of the Applicant’s entitlement to the non-pecuniary relief sought by it.

5.    After determination of the questions referred to in Order 4 above, the Court determine any outstanding issues of pecuniary relief, including:

(a)    as to the quantum of any damages to be paid by the Respondents or any of them, to the Applicant; or

   (b)    as to the taking of any account of the Respondents’ profits.

17    The applicant submits that it is generally thought to be just and convenient in intellectual property cases to hear and determine issues of liability separately and before issues of pecuniary relief because an applicant in such a case should not be compelled to elect between damages and an account of profits before the evidence on liability has been received. So much may be accepted as a general proposition: Fleming’s Nurseries Pty Ltd v Hannaford [2008] FCA 591 at [18]; Graham’s Factree Pty Ltd v Oak Enterprises (No 1) [2012] FCA 1033 at [9] – [10]; Reading at [9].

18    In the present case, however, the respondents’ liability for any infringement depends upon the application of s 36 and s 115 of the Copyright Act. Importantly, s 36 is expressly subject to the whole of the Copyright Act, including s 183. It follows that if the respondents have not infringed the applicant’s copyright because of the operation of s 183(1), the applicant would not be entitled to any remedy under s 115 because there would be no infringement within the meaning of s 36. Moreover, if s 183(1) applies to any use by the respondents of the applicant’s copyright, the terms of any such use would be a matter falling within the jurisdiction of the Copyright Tribunal under Pt VII of the Copyright Act, subject to any agreement between the parties under s 183(5). The applicant has contemplated the possibility that this Court might find that the respondents have done acts comprised in copyright owned by the applicant to which Pt VII applies and to which Pt V does not. Should that occur, this Court would not have jurisdiction to assess compensation under Pt VII or to make any other order under s 115: the acts of the respondents would not be infringing acts.

19    Counsel for the applicant submitted that after first hearing and determining the questions identified at [1] of the interlocutory application, the Court should then refer the matter to the Copyright Tribunal for an assessment of compensation, in the event that it were to find that the 183 Notice was “valid”. It was submitted that the Copyright Tribunal was uniquely placed to identify whether or not the respondents have done any act or acts comprised in the copyright and, if so, the extent of those acts and the value of any compensation to be paid for them. It was submitted that by issuing the 183 Notice (if valid), the first respondent had elected to have such questions heard in the Copyright Tribunal such that it would constitute an abuse of the Court’s processes to insist upon this Court resolving disputes concerning the use (if any) to which the applicant’s copyright had been put.

20    I am not satisfied that the issues should be divided in that way.

21    The applicant’s proposal appears to be founded on the assumption that the Copyright Tribunal’s jurisdiction turns upon the question of whether the 183 Notice is “valid”. The submission, as I understand it, is that the 183 Notice is not “valid” because it is expressed to be subject to the contingency that this Court makes certain findings of fact and law adverse to the first and second respondents. In my view, the jurisdiction of the Copyright Tribunal to make an assessment of the value of any use of the applicant’s copyright does not depend upon the issue of a “valid” (that is, unconditional) notice under s 183(4). Properly construed, s 183(4) is facilitative in the sense that it brings to the attention of a copyright owner the fact and extent of use, acknowledged by the user, being actual use that might otherwise remain unknown to the owner.

22    Where, as here, the parties are in dispute as to whether one of them has done an act comprised in a copyright owned by the other, and where that dispute forms a part of a controversy in a proceeding pending in this Court, it is difficult to comprehend how a party in the first respondent’s position could prepare and issue a notice other than in the contingent terms it has employed. If the Copyright Act does not contemplate or permit a notice to be issued in such terms, then in my view it would remain open to the first respondent to issue a notice as soon as possible, that is, as soon as possible after this Court’s resolution of the controversy. Such a notice may properly reflect the facts as found by the Court in resolving that controversy.

23    There may be cases in which it is necessary and appropriate for the Copyright Tribunal to resolve disputed facts so as to determine whether s 183(1) applies and so satisfy itself that it has jurisdiction to assess the value of the Crown’s use of a copyright. However, I do not consider this to be an appropriate case for the Copyright Tribunal to ascertain the limits of its own jurisdiction. Rather, it is the task of this Court is to determine whether s 115 of the Copyright Act is enlivened.

24    The controversy on the pleadings includes the critical question of whether the respondents have infringed the applicant’s copyright. That question turns, among other things, on whether s 183(1) applies. If s 183(1) does apply, it would follow that the Court would have no jurisdiction to make the orders sought under s 115 of the Copyright Act. Nor would it have jurisdiction to assess compensation in accordance with Pt VII of the Copyright Act, such an assessment being wholly within the jurisdiction of the Copyright Tribunal. Whilst the application founded in infringement of copyright must in that event be dismissed, the applicant’s success in establishing ownership and use would, in the ordinary course, weigh heavily in the Court’s discretion on the question of costs. In other words, costs would not necessarily follow the event of dismissal in this Court if it could be shown that the applicant was in a position to approach the Copyright Tribunal for an assessment of a financial remedy.

25    As to the application of r 30.01 of the Rules, the applicant’s proposal would see the matter referred to the Copyright Tribunal without this Court first ascertaining whether the respondents have done any act comprised in a copyright owned by the applicant. Assuming that such a referral could be made, it is difficult to conceive what efficiencies might be achieved by adopting such a course. The proposal gives rise to a real risk that the Copyright Tribunal would conclude that s 183(1) does not apply with the result that it has no jurisdiction, including because there has been no use of the copyright owned by the applicant or because the second respondent did not have written authorisation or because of the non-existence of any other factual matter preconditioning the exercise of its powers. There is a further risk that a party aggrieved by the Copyright Tribunal’s assumption or denial of jurisdiction might appeal from the Copyright Tribunal’s determination on that question to the Full Court. All the while, this proceeding would remain on foot and undetermined, including in relation to significantly overlapping claims founded on breach of confidence. That is clearly undesirable.

26    As to the issue identified at [2(5)] of the interlocutory application, I am not satisfied that the application and operation of s 183A of the Copyright Act is an issue that arises before this Court on the SOC or the defence of either respondent as presently pleaded.

27    The suggestion at [3] of the interlocutory application that the Court refer certain matters to a referee for inquiry and report in accordance with the Rules was not the subject of forceful oral submissions. I do not consider there to be a clear basis for any such referral.

28    The second stage of the trial proposed by the applicants at [4] of the interlocutory application introduces for the first time the issue of whether the respondents have an equitable obligation of confidence. In my view, the facts alleged in support of that aspect of the claim overlap significantly with the facts alleged in support of the copyright claim or would otherwise involve consideration of testimony from the same lay or expert witnesses. There is no efficiency to be gained by severing off the breach of confidence question from questions of ownership and use arising on the copyright claim.

29    The third stage of the trial proposed at [5] of the interlocutory application is more reflective of a conventional approach by which questions of liability on an intellectual property claim or a claim founded on breach of confidence are determined before questions of remedy. That approach is especially appropriate in cases where the applicant asserts an entitlement to elect an account of profits, as is the case here. There is even more reason in the present case to determine questions of liability before remedy, given the potential application of Pt VII of the Copyright Act as explained above.

30    At the hearing of the application the Court proposed of its own motion a division of issues so as to isolate questions of remedy from all other issues. Whilst it is true that the applicant has pleaded and particularised some facts relevant to the assessment of an award of damages, I consider that there are efficiencies to be gained by enabling the parties to present their cases as to remedies by reference to the Court’s factual findings on questions of liability.

SUBMISSIONS AFTER HEARING

31    Following the delivery of reasons to the above effect, questions arose as to the stage of the trial at which any question of the state of mind accompanying any infringement or breach ought to be tried. The Court’s orders as to the appropriate separation of issues have been made having regard to those additional submissions.

32    The first stage of the trial is to include all allegations of contravening acts occurring up to and including the reservation of judgment on the first stage. I have concluded that the state of mind accompanying any such acts is a factual question that is appropriate to be tried at the first stage, notwithstanding that the state of mind is relevant to (and perhaps only relevant to) the assessment of the flagrancy of any infringement under s 115(4)(a) of the Copyright Act or to any claim for exemplary damages at general law. The orders will make it plain that the state of mind questions fall to be tried at the first stage notwithstanding that they may bear in a significant way on the assessment of remedy.

33    The second stage of the trial is to include any dispute concerning any continued infringement or breach following the reservation of judgment on the first stage of the trial. The state of mind accompanying any such continued infringement or breach will of course be tried at the same time.

34    Any allegation that third parties have used the applicant’s copyright or accessed or used its confidential information (and the relevance of such allegations to the respondents’ liability) is to be tried at the first stage in respect of any act or omission occurring before the reservation of judgment on the first stage issues.

Associate:

Dated:    4 December 2019