HEINZ WATTIE'S LIMITED V SPANTECH PTY LIMITED CA CA198/04

HEINZ WATTIE'S LIMITED V SPANTECH PTY LIMITED CA CA198/04 5 December 2005IN THE COURT OF APPEAL OF NEW ZEALAND CA198/04BETWEEN HEINZ WATTIE'S LIMITED Appellant AND SPANTECH PTY LIMITED Respondent Hearing: 8 August 2005 Court: Anderson P, Glazebrook and O'Regan JJ Counsel: B W F Brown QC and A J Harris for Appellant G J Judd QC for Respondent Judgment: 5 December 2005JUDGMENT OF THE COURT A The appeal and the cross-appeal are dismissed. B Costs of $6,000 plus usual disbursements are awarded to the Respondent. ____________________________________________________________________ REASONS(Given by Glazebrook J)Table of ContentsPara NoIntroduction [1]Background [4]The claim [8]The legislation [10]Judge Gendall's decision [12]HW's submissions [16]Spantech's submissions [19]Discussion of the appeal [22]Discussion of the cross-appeal [37]Result and costs [38]Introduction[1] Spantech Pty Limited claims that Heinz Wattie's Limited (HW) wrongfully authorised BPM Contracts Limited (BPM) to copy Spantech's copyright works with regard to a potato store constructed by BPM for HW. [2] HW applied to the High Court for summary judgment or alternatively for an order striking out Spantech's claim on the basis that there was no explicit or implicit grant of authority by HW to BPM to copy Spantech's works. [3] On 16 August 2004, Associate Judge Gendall refused HW's applications. HW appeals against that decision. Spantech cross-appeals against the failure of Judge Gendall to award indemnity costs in its favour.Background[4] In February 1997 Spantech constructed for HW a twin potato storage building at Feilding, referred to as Feilding 1 & 2. In January 1998, it constructed a further single potato storage building, known as Feilding 3. In mid 1999 HW decided that it required a fourth potato storage building at its Feilding site. The general specifications determined by HW for Feilding 4 were essentially the same as the specifications given to Spantech with reference to Feilding 1, 2 and 3. They provided that the fourth potato shed had to be 24 metres wide, with a capacity of 5,500 tonnes, a curved shape and serviced with similar airflow systems to those already operating at the Feilding site.[5] HW sought and obtained a quotation from Spantech for the construction of Feilding 4. It also sought and obtained a quotation from BPM. The BPM quotation was significantly cheaper than Spantech's. Spantech was given the opportunity to lower its offer but refused to do so. On 21 December 2000, therefore, HW and BPM entered into a contract for the construction of Feilding 4. In a letter sent on the same day, written by a representative of HW, BPM was directed that the specifications of Feilding 4 were to be "as per the existing adjacent Potato Stores". [6] On 9 January 2001, Spantech wrote to HW drawing attention to the copyright protecting Spantech's design. On 12 January 2001 HW forwarded to BPM the letter received from Spantech. On 15 January 2001 Spantech wrote separately to BPM drawing attention to the copyright in respect of its design of potato storage structures. [7] On 18 January 2001 there was a meeting of representatives of BPM and HW. BPM advised HW that BPM had taken legal advice and that there would be no breach of copyright by its construction of Feilding 4. On 29 January 2001 BPM wrote to Spantech advising that the new building was a BPM/Zipperlock design and that copyright was owned by it and its consulting engineers. Between January and May 2001 BPM constructed Feilding 4.The claim[8] Spantech asserts in its statement of claim that the construction of Feilding 4 represents an infringement of its copyright by BPM and others. As an aside, we note that much of Spantech's pleading appears rather to relate to Spantech's business systems than to its alleged copyright. [9] Spantech also alleges that HW, by entering into the contract with BPM and directing that the specifications of Feilding 4 be "as per the existing adjacent Potato Stores" and by assisting and approving the construction, has infringed its copyright. In making this contention, Spantech argues that Heinz Wattie's wrongly authorised BPM to copy Spantech's work, in breach of s 16(1)(i) of the Copyright Act 1994.The legislation[10] Section 16(1) of the Copyright Act provides as follows:16 Acts restricted by copyright(1) The owner of the copyright in a work has the exclusive right to do, in accordance with sections 30 to 34 of this Act, the following acts in New Zealand: (a) To copy the work: (b) To issue copies of the work to the public, whether by sale or otherwise: (c) To perform the work in public: (d) To play the work in public: (e) To show the work in public: (f) To broadcast the work or include the work in a cable programme service: (g) To make an adaptation of the work: (h) To do any of the acts referred to in any of paragraphs (a) to (f) of this subsection in relation to an adaptation of the work: (i) To authorise another person to do any of the acts referred to in any of paragraphs (a) to (h) of this subsection.[11] The Copyright Act also now includes specific provisions relating to secondary infringements of copyright, including s 35 (dealing with infringement by importation), s 36 (possessing or dealing with infringing copy), s 37 (providing means for making an infringing copy), s 38 (permitting the use of premises for an infringing performance) and s 39 (the provision of apparatus for an infringing performance).Judge Gendall's decision[12] As indicated above, HW applied for summary judgment or alternatively for an order striking out Spantech's claim on the basis that there was no explicit or implicit grant of authority by HW to BPM to copy Spantech's works.[13] Relying on the decision of Pensher Security Door Co Ltd v Sunderland City Council [2000] RPC 249, Judge Gendall held that there was a reasonably strong argument that HW did authorise the alleged copyright infringement by BPM. He considered the facts in this case almost identical to those in Pensher. The Judge was satisfied that it was clearly arguable that HW, in commissioning BPM to build a potato store with "specifications as per the existing adjacent Potato Stores", impliedly at least, purported to grant BPM the right to manufacture a potato store to that design. [14] HW had argued that any implicit authorisation was negated by the events of January 2001 whereby BPM asserted copyright. The Judge held that the proper time for ascertaining authorisation was at the time the contract with BPM was entered into and the initial instructions given. Any later events were irrelevant. [15] The Judge awarded costs on a 2B basis to Spantech.HW's submissions[16] Mr Brown QC, for HW, submitted that the Judge was wrong to conclude that the time for ascertaining whether there was authorisation by HW was the moment the contract was entered into on 21 December 2000 and that subsequent correspondence in 2001 before construction commenced was irrelevant. Mr Brown submitted that it is settled law that infringement by authorisation is not complete until primary infringement occurs and, because any express or implied authority can be withdrawn up to that point, it is erroneous to reach a conclusion on authorisation by reference to an earlier time. It was submitted that, when the subsequent correspondence is taken into account, any similarities with Pensher become illusory. [17] When the January 2001 communications are analysed they are, in Mr Brown's submission, logically inconsistent with a finding of implied authorisation. Applying the formula in CBS Songs Ltd v Amstrad Consumer Electronics Plc [1988] AC 1013 to the complete evidential picture leads, in Mr Brown's submission, to the inevitable conclusion that BPM could not reasonably have deduced that HW possessed or purported to possess the authority to grant anyrequired permission to perform restricted acts in respect of Spantech's asserted copyright. [18] As to the cross appeal on costs, Mr Brown submitted that the award of costs on a 2B basis was within the Judge's discretion and should not be disturbed.Spantech's submissions[19] Mr Judd QC, for Spantech, submitted that it is the authorising of the particular act which gives rise to an infringement by authorisation. If the particular act which is authorised is one which as a matter of fact comes within any of paragraphs (a) to (h) of s 16(1), there will be infringement by authorisation. In Mr Judd's submission, all that is required for infringement by copying is substantial reproduction and a causal connection. [20] In this case the building was built on HW's land pursuant to a contract which required BPM to build it with specifications "as per the existing adjacent Potato Stores". HW therefore contracted BPM to build a building which in fact is a substantial reproduction. It has infringed because it authorised the building of that building, whether or not it thought the building of the building would be a copyright infringement and even if BPM claimed that there would be no infringement. Mr Judd submitted that the case of Pensher was clearly on point. He also submitted that, on these facts, it is strongly arguable that HW is liable as a joint infringer. [21] On the cross-appeal on costs, Mr Judd submitted, on the basis of comments of this Court in Bernard v Space 2000 Ltd (2001) 15 PRNZ 338, that indemnity costs should have been awarded in Spantech's favour as HW's argument in the High Court was hopeless. In Bernard this Court said:[39] This Court in [Westpac Banking Corporation v M M Kembla New Zealand Ltd [2001] 2 NZLR 298] rightly discouraged opportunistic applications by defendants pursuant to r 136(2). Where such applications fail to comply with the principles which have been identified, defendants can expect short shrift from the Courts. In appropriate cases, solicitor and client costs may be awarded to the plaintiff to offset the unnecessary costs which will have been incurred.Discussion of the appeal[22] There are two questions for this appeal. The first is whether Judge Gendall was correct to consider that the question of authorisation was to be considered at the date the contract was entered into and the initial instructions given. If that is answered in the negative, the second question is whether, in all the circumstances, what was done by HW could amount to authorisation. [23] With regard to the first question, we consider that the Judge should not have stopped his consideration of whether there had been authorisation at the time of the entry into the contract. The weight of authority is that an infringement of copyright constituted by authorisation is not complete until there is in fact an act of infringement of copyright of the kind alleged: RCA Corp v John Fairfax & Sons Ltd[1981] 1 NSWLR 251 at 256-258; Copyright Agency Ltd v Haines [1982] 1 NSWLR 182 at 191; WEA International Inc v Hanimex Corporation Ltd (1987) 10 IPR 349 at 363-364; Nationwide News Pty Ltd v Copyright Agency Ltd (1996) 34 IPR 53 at 74; Performing Right Society Ltd v Mitchell & Booker (Palais De Danse) Ltd [1924] 1 KB 762 at 773. We did not understand Mr Judd to dispute this proposition. We accept Mr Brown's submission that, at the date of the act of primary infringement, the purported grant of authority to do the restricted act must be extant. This means that all of the relevant communications should have been taken into account by the Judge, including the meetings and correspondence in January. [24] On the second issue of whether there had been authorisation, Mr Brown relied heavily on the House of Lords decision in Amstrad. His submission was that, to constitute authorisation, BPM must have been led to believe that HW had the ability to authorise copying. He submitted that, whatever may have been the position as at the time of entry into the contract, BPM could not possibly have believed that HW had that ability after the correspondence and meetings in January. In his submission, because HW had been told that BPM owned the copyright, all that HW could be seen as having authorised was the use of BPM's alleged copyright.[25] In order to assess Mr Brown's submission it is necessary to analyse the reasoning in Amstrad. The question in Amstrad was whether selling hi-fi systems with facilities for recording at high speed from pre-recorded cassettes on to blank tapes had authorised members of the public to infringe the plaintiffs' copyright. Lord Templeman, in a speech with which all their Lordships agreed, held that it did not. He said (at 1053) that no manufacturer and no machine confers on the purchaser authority to copy unlawfully. It is the purchaser or operator who determines whether and what to copy. By selling the recorder, Amstrad may have facilitated copying in breach of copyright but did not authorise it. As to the submission that Amstrad's mode of advertising amounted to an authorisation of copying, Lord Templeman said that, while the advertising was open to severe criticism, it did not do so. The purchaser or other operator alone decides whether and what to record. [26] In a passage heavily relied on by Mr Brown, Lord Templeman said that no purchaser of an Amstrad model could reasonably deduce from the facilities incorporated in the model or from Amstrad's advertisement that Amstrad possessed or purported to possess the authority to grant any required permission for a record to be copied. The test was articulated by Lord Templeman (at 1054) in the following terms:[A]n authorisation means a grant or purported grant, which may be express or implied, of the right to do the act complained of. Amstrad conferred on the purchaser the power to copy but did not grant or purport to grant the right to copy.[27] Lord Templeman went on to discuss the High Court of Australia case ofMoorhouse v University of New South Wales (1975) 133 CLR 1. In that case, Gibbs J said (at 13) that a person who has under his or her control the means by which an infringement of copyright may be committed and who makes it available to other persons knowing or having reason to suspect that it is likely to be used for the purpose of committing an infringement and omitting to take reasonable steps to limit its use to legitimate purposes would authorise any infringement that resulted from its use. Lord Templeman said that, whatever may be said about his proposition, it was not applicable in this case as Amstrad had no control over the use of their models once they were sold.[28] Lord Templeman then approved the finding of Whitford J in C.B.S. Inc v Ames Records & Tapes Ltd. [1982] Ch 91 that a record library which lent out records and simultaneously offered blank tapes for sale at a discount did not authorise the infringement of copyright in the records. He considered that the following comment of Whitford J's (at 106) precisely described Amstrad's situation:Any ordinary person would, I think, assume that an authorisation can only come from somebody having or purporting to have authority and that an act is not authorised by somebody who merely enables or possibly assists or even encourages another to do that act, but does not purport to have any authority which he can grant to justify the doing of the act.[29] Lord Templeman (at 1057) rejected the alternative proposition that Amstrad was a joint infringer as there was no common design. Amstrad sold a machine and the purchaser or the operator of the machine decided the purpose for which the machine would from time to time be used. The machine could be used for both lawful and unlawful purposes and manufacturers and retailers are not joint infringers because purchasers or operators choose to break the law. [30] Lord Templeman accepted (at 1058) the proposition, based on ordinary common law principles, that a defendant who procures a breach of copyright is liable jointly and severally with the infringer for the damages suffered by the plaintiff as a result of the infringement. He also accepted that a defendant may procure an infringement by inducement, incitement or persuasion. He considered, however, that Amstrad did not do so, again because it was the purchaser who decided whether or not to copy unlawfully. All Amstrad did was to offer for sale and advertise the machines. He said that, generally speaking, inducement, incitement or persuasion to infringe must be by a defendant to an individual infringer and must identifiably procure a particular infringement in order to made the defendant liable as a joint infringer. [31] The House of Lords in Amstrad was dealing with the situation where what was provided was the means to copy but there was no control whatsoever over the use to which the equipment was put and where it could be used for both lawful and unlawful purposes. The comments that Mr Brown sought to rely on must be read in that context and, in our view, are not applicable in this case.[32] For the purposes of this appeal, we are assuming that the instructions given by HW that the specifications were "as per the existing adjacent potato stores" could amount to a direction to copy those other potato stores. We record that HW strenuously disputes that there was such a direction. Mr Brown, however, accepted that this would have to be resolved at trial. We are not to be taken as making any findings on that issue. [33] In this case, HW was the contracting party and directed what was to be built through the contractual specifications and any accompanying instructions. If following the specifications and instructions given by HW necessarily resulted in an infringing copy of Spantech's works, then, in any ordinary sense of the word, the copying, having been directed by HW, must have been authorised by it. We agree with the Judge and Mr Judd that the case of Pensher is directly on point. [34] We do not consider that it matters that HW thought, on the basis of BPM's representations, that there would be no breach of copyright. Innocence is not a defence to a claim for infringement of copyright – see Garnett, Davies and HarbottleCopinger and Skone James on Copyright (15ed 2005) at 369; Cornish and LlewelynIntellectual Property: Patents, Copyright, Trade Marks and Allied Rights (5ed 2003) at [11-03]; Sutherland Publishing Co v Caxton Publishing Co [1938] Ch 174 (CA) at 191 and Performing Right Society Ltd v Urban District Council of Bray [1930] AC 377 (PC) at 389-390. To the extent that the case of Brintons Ltd v Feltex Furnishings of New Zealand Ltd [1991] 2 NZLR 677 at 681 (HC) suggests otherwise, then we do not consider it to have been correctly decided. We accept Mr Judd's submission that it is normally sufficient if the authorisation is an authorisation to copy. It does not have to amount to an actual authorisation of a breach of copyright. [35] Finally, we accept Mr Judd's submission that there must also be an argument, if the building is an infringing copy as alleged, that, by commissioning the building on the terms that it did (see at [32] above), HW became a joint infringer or procured the breach of copyright – see the discussion at [29] and [30] above. This means that HW would not have succeeded in its applications, even had we accepted Mr Brown'ssubmissions on authorisation. It would be inappropriate for us to be definitive, however, as we did not hear full argument on these points. [36] Finally, for the avoidance of doubt, we make it clear we are not to be taken as deciding on the exact extent to which the Amstrad case has modified the concept of authorisation or as deciding whether Moorhouse applies in New Zealand despiteAmstrad - see the comments on this topic in Frankel and McLay Intellectual Property in New Zealand (2002) at [5.11.7(c)]. We also make no comment on the applicability in New Zealand of the recent decision by the United States Supreme Court in MGM v Grokster SC04-0480 27 June 2005 or on the case of Universal Music Australia Pty Ltd v Sharman License Holdings Ltd [2005] FCA 1242 (5 September 2005) in Australia. Equally, we make no comment on how the provisions in the Copyright Act dealing with secondary infringements – see at [25] above – interact with the concept of authorisation – see the comments in Frankel and McLay at [5.12.2].Discussion of the cross-appeal[37] There are no special rules as to costs in relation to defendants' applications for summary judgment. The remarks in Bernard, referred to above at [21], were not intended to suggest anything different. Whether indemnity costs should be awarded therefore falls to be determined in accordance with r 48C(4) of the High Court Rules. In this case, HW's argument on authorisation was a respectable legal argument which, if accepted, would have determined that point. There was thus no basis for ordering indemnity costs (or even increased costs).Result and costs[38] The appeal and cross-appeal are dismissed (subject to [40] below). [39] Having been successful in its appeal, costs of $6,000 plus usual disbursements are awarded to Spantech. There is no award of costs on the cross-appeal.[40] There was also an issue raised by Spantech as to its liability to pay a filing fee on the cross-appeal. We understand that this matter has been referred by the Registry to Crown Law. We therefore adjourn that aspect of the cross-appeal.Solicitors: Gifford Devine, Hastings for Appellant Wells & Co, Auckland for Respondent