Universal Music Australia Pty Ltd v Sharman Networks Ltd [2006] FCA 29 (30 January 2006)

Last Updated: 14 February 2006

FEDERAL COURT OF AUSTRALIA

Universal Music Australia Pty Ltd v Sharman Networks Ltd [2006] FCA 29

UNIVERSAL MUSIC AUSTRALIA PTY LIMITED, FESTIVAL RECORDS PTY LTD AND MUSHROOM RECORDS PTY LTD TRADING AS FESTIVAL MUSHROOM RECORDS, EMI MUSIC AUSTRALIA PTY LIMITED, SONY MUSIC ENTERTAINMENT (AUSTRALIA) LIMITED, WARNER MUSIC AUSTRALIA PTY LIMITED, BMG AUSTRALIA LIMITED, UMG RECORDS, INC., SHADY RECORDS, INC./INTERSCOPE RECORDS, AFTERMATH RECORDS, REAL HORRORSHOW PTY LTD, THE LIVING END PTY LTD, VIRGIN RECORDS AMERICA, INC, EMI RECORDS LTD, CAPITOL RECORDS, INC, ARISTA RECORDS, LLC (FORMERLY KNOWN AS ARISTA RECORDS, INC.), CIRCA RECORDS LTD, CHRYSALIS RECORDS LTD, SONY MUSIC (AUSTRALIA) PTY LTD, SONY MUSIC ENTERTAINMENT (CANADA) INC., SONY BMG MUSIC ENTERTAINMENT, MAYER MUSIC LLC, TIMOTHY JAMES FREEDMAN, WARNER BROS. RECORDS, INC., ATLANTIC RECORDING CORPORATION, WARNER MUSIC UK LTD, J RUBY PRODUCTIONS, INC. DBA SLASH RECORDS, ZOMBA RECORDING LLC (FORMERLY KNOWN AS ZOMBA RECORDING CORPORATION), BMG MUSIC (BMG MUSIC DBA THE RCA RECORDS LABEL, A UNIT OF BMG ENTERTAINMENT), BMG UK & IRELAND LTD, LAFACE RECORDS v SHARMAN NETWORKS LTD, LEF INTERACTIVE PTY LTD, NICOLA ANNE HEMMING, ALTNET INC, BRILLIANT DIGITAL ENTERTAINMENT INC and KEVIN GLEN BERMEISTER

NSD 110 of 2004


WILCOX J
30 JANUARY 2006
SYDNEY

IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY	NSD 110 of 2004

BETWEEN:	UNIVERSAL MUSIC AUSTRALIA PTY LIMITED FIRST APPLICANT FESTIVAL RECORDS PTY LTD AND MUSHROOM RECORDS PTY LTD TRADING AS FESTIVAL MUSHROOM RECORDS SECOND APPLICANT EMI MUSIC AUSTRALIA PTY LIMITED THIRD APPLICANT SONY MUSIC ENTERTAINMENT (AUSTRALIA) LIMITED FOURTH APPLICANT WARNER MUSIC AUSTRALIA PTY LIMITED FIFTH APPLICANT BMG AUSTRALIA LIMITED SIXTH APPLICANT UMG RECORDS, INC. SEVENTH APPLICANT SHADY RECORDS, INC./INTERSCOPE RECORDS EIGHTH APPLICANT AFTERMATH RECORDS NINTH APPLICANT REAL HORRORSHOW PTY LTD TENTH APPLICANT THE LIVING END PTY LTD ELEVENTH APPLICANT VIRGIN RECORDS AMERICA, INC TWELFTH APPLICANT EMI RECORDS LTD THIRTEENTH APPLICANT CAPITOL RECORDS, INC FOURTEENTH APPLICANT ARISTA RECORDS, LLC (FORMERLY KNOWN AS ARISTA RECORDS, INC.) FIFTEENTH APPLICANT CIRCA RECORDS LTD SIXTEENTH APPLICANT CHRYSALIS RECORDS LTD SEVENTEENTH APPLICANT SONY MUSIC (AUSTRALIA) PTY LTD EIGHTEENTH APPLICANT SONY MUSIC ENTERTAINMENT (CANADA) INC. NINETEENTH APPLICANT SONY BMG MUSIC ENTERTAINMENT TWENTIETH APPLICANT MAYER MUSIC LLC TWENTY-FIRST APPLICANT TIMOTHY JAMES FREEDMAN TWENTY-SECOND APPLICANT WARNER BROS. RECORDS, INC. TWENTY-THIRD APPLICANT ATLANTIC RECORDING CORPORATION TWENTY-FOURTH APPLICANT WARNER MUSIC UK LTD TWENTY-FIFTH APPLICANT J RUBY PRODUCTIONS, INC. DBA SLASH RECORDS TWENTY-SIXTH APPLICANT ZOMBA RECORDING LLC (FORMERLY KNOWN AS ZOMBA RECORDING CORPORATION) TWENTY-SEVENTH APPLICANT BMG MUSIC (BMG MUSIC DBA THE RCA RECORDS LABEL, A UNIT OF BMG ENTERTAINMENT) TWENTY-EIGHTH APPLICANT BMG UK & IRELAND LTD TWENTY-NINTH APPLICANT LAFACE RECORDS THIRTIETH APPLICANT
AND:	SHARMAN NETWORKS LTD SECOND RESPONDENT LEF INTERACTIVE PTY LTD THIRD RESPONDENT NICOLA ANNE HEMMING FOURTH RESPONDENT ALTNET INC SIXTH RESPONDENT BRILLIANT DIGITAL ENTERTAINMENT INC SEVENTH RESPONDENT KEVIN GLEN BERMEISTER NINTH RESPONDENT
JUDGE:	WILCOX J
DATE OF ORDER:	30 JANUARY 2006
WHERE MADE:	SYDNEY

THE COURT:

1. Pursuant to s 25(6) of the Federal Court of Australia Act (Cth) 1976, reserves, for the consideration of the Full Court constituted to hear pending appeals in this matter, the following question: whether, having regard to the nature and terms of order 4 made on 5 September 2005, a determination of contempt of court may be made in respect of the contraventions of that order alleged in the statement of charge filed on 9 December 2005.

2. Reserves liberty to any party to apply for an amendment of order 1, so as to include any other question, provided that the terms of the proposed amendment are notified to the Court and all other parties by 1 pm on Wednesday, 1 February 2006. If there is any dispute about any proposed amendment, argument will be heard at 2.15 pm on Friday, 3 February 2006 with a video-link to Melbourne.

3. Dismisses with costs the applicants’ notice of motion dated 19 December 2005.

4. Dismisses with no order for costs the motion of the second, third and fourth respondents filed on 24 January 2006.

5. Reserves for determination by the Full Court the costs of today.

























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

IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY	NSD 110 of 2004

BETWEEN:

UNIVERSAL MUSIC AUSTRALIA PTY LIMITED FIRST APPLICANT FESTIVAL RECORDS PTY LTD AND MUSHROOM RECORDS PTY LTD TRADING AS FESTIVAL MUSHROOM RECORDS SECOND APPLICANT EMI MUSIC AUSTRALIA PTY LIMITED THIRD APPLICANT SONY MUSIC ENTERTAINMENT (AUSTRALIA) LIMITED FOURTH APPLICANT WARNER MUSIC AUSTRALIA PTY LIMITED FIFTH APPLICANT BMG AUSTRALIA LIMITED SIXTH APPLICANT UMG RECORDS, INC. SEVENTH APPLICANT SHADY RECORDS, INC./INTERSCOPE RECORDS EIGHTH APPLICANT AFTERMATH RECORDS NINTH APPLICANT REAL HORRORSHOW PTY LTD TENTH APPLICANT THE LIVING END PTY LTD ELEVENTH APPLICANT VIRGIN RECORDS AMERICA, INC TWELFTH APPLICANT EMI RECORDS LTD THIRTEENTH APPLICANT CAPITOL RECORDS, INC FOURTEENTH APPLICANT ARISTA RECORDS, LLC (FORMERLY KNOWN AS ARISTA RECORDS, INC.) FIFTEENTH APPLICANT CIRCA RECORDS LTD SIXTEENTH APPLICANT CHRYSALIS RECORDS LTD SEVENTEENTH APPLICANT SONY MUSIC (AUSTRALIA) PTY LTD EIGHTEENTH APPLICANT SONY MUSIC ENTERTAINMENT (CANADA) INC. NINETEENTH APPLICANT SONY BMG MUSIC ENTERTAINMENT TWENTIETH APPLICANT MAYER MUSIC LLC TWENTY-FIRST APPLICANT TIMOTHY JAMES FREEDMAN TWENTY-SECOND APPLICANT WARNER BROS. RECORDS, INC. TWENTY-THIRD APPLICANT ATLANTIC RECORDING CORPORATION TWENTY-FOURTH APPLICANT WARNER MUSIC UK LTD TWENTY-FIFTH APPLICANT J RUBY PRODUCTIONS, INC. DBA SLASH RECORDS TWENTY-SIXTH APPLICANT ZOMBA RECORDING LLC (FORMERLY KNOWN AS ZOMBA RECORDING CORPORATION) TWENTY-SEVENTH APPLICANT BMG MUSIC (BMG MUSIC DBA THE RCA RECORDS LABEL, A UNIT OF BMG ENTERTAINMENT) TWENTY-EIGHTH APPLICANT BMG UK & IRELAND LTD TWENTY-NINTH APPLICANT LAFACE RECORDS THIRTIETH APPLICANT

AND:

SHARMAN NETWORKS LTD SECOND RESPONDENT LEF INTERACTIVE PTY LTD THIRD RESPONDENT NICOLA ANNE HEMMING FOURTH RESPONDENT ALTNET INC SIXTH RESPONDENT BRILLIANT DIGITAL ENTERTAINMENT INC SEVENTH RESPONDENT KEVIN GLEN BERMEISTER NINTH RESPONDENT

JUDGE:	WILCOX J
DATE:	30 JANUARY 2006
PLACE:	SYDNEY

REASONS FOR JUDGMENT

WILCOX J:

1 There are before the Court a number of notices of motion. Three of them may be described as substantive motions. They are as follows:

(i) A notice of motion, filed by the applicants on 9 December 2005, seeking punishment for contempt of court of those respondents against whom findings were made on 5 September 2005. In the orders made on that date those respondents were referred to as ‘the infringing respondents’.

(ii) A notice of motion, filed on 19 December 2005, seeking substantive orders additional, or alternative, to order 4 made on 5 September 2005.

(iii) A notice of motion, filed by the second, third and fourth respondents on 24 January 2006, seeking orders that the contempt proceeding be heard by a judge other than myself and/or that the hearing of that proceeding be postponed until after determination of various appeals to a Full Court of this Court, which are fixed to commence on 20 February 2006.

2 The other motions are ancillary to the hearing of the motion for contempt. It is not necessary to refer to them.

3 The motion for contempt initially came before me on 15 December 2005. There was some discussion on that occasion as to the desirable course to be followed. The respondents, or at least some of them, indicated they would prefer that I did not hear the motion for contempt. The applicants had no objection to my doing so. I said I would prefer not to undertake the hearing but I was reluctant to ask another judge to hear the motion for contempt because of the amount of time that judge would require to become familiar with the complex facts of the case. In the end, I made no final determination as to the preferable course to be taken. I adjourned the motion for contempt until today and promised to give further thought to the situation in the meantime.

4 I considered the situation over the Christmas period. As a result, my associate sent a letter to the parties drawing to their attention the possibility of the motion for contempt being referred to the members of the Full Court which is constituted to hear the appeals due to commence on 20 February 2006. My associate pointed out this would not necessarily mean the Full Court would determine the merits of the contempt charge. The Full Court may decide to do this. On the other hand, it may decide to remit that task to a single judge. The Full Court’s choice about that matter would no doubt reflect its views about the issues argued in the appeals. The letter indicated I had not made a firm decision about the course to be taken, but I wished the parties to give consideration to the suggestion and to put submissions about it when the motion for contempt came back in the list today.

5 All parties have put submissions about the suggestion. During the course of those submissions, reference was made to two possible mechanisms for a reference to the Full Court. The first possible mechanism is s 20(1A) of the Federal Court of Australia Act 1976 (Cth) (‘the Act’). This subsection is in the following terms:

‘If the Chief Justice considers that a matter coming before the Court in the original jurisdiction of the Court is of sufficient importance to justify the giving of a direction under this subsection the Chief Justice may direct that the jurisdiction of the Court in that matter, or a specified part of that matter, shall be a exercised by a Full Court.’

6 The second possible mechanism is s 25(6) of the Act, which reads:

‘The Court constituted by a single Judge may state any case or reserve any question concerning a matter with respect to which an appeal would lie from a judgment of the Judge to a Full Court of the Court for consideration of a Full Court and the Full Court has jurisdiction to hear and determine the case or question.’

7 It may also be relevant to note a wide power given to the Full Court by s 28(1)(b) of the Act. That paragraph provides that the Court ‘in the exercise of its appellate jurisdiction’ may:

‘...give such judgment, or make such order, as, in all of the circumstances, it thinks fit, or refuse to make an order.’

There is a question whether this power applies to the Full Court’s exercise of power pursuant to s 25(6) of the Act.

8 There has been debate today as to whether I should proceed immediately to hear the motion for contempt, this being the wish of the applicants, or whether I should cause the motion for contempt (or elements of it) to go before the Full Court constituted to hear the pending appeals, this being the preference of the respondents.

9 The parties agree that any referral of the contempt proceeding to the Full Court should not be allowed to interfere with the proper hearing of the appeals, which will need to be determined by reference only to the evidence given at the trial.

10 The submissions put to me by the parties were lengthy but I think they can be summarised without doing substantial injustice to counsel. The applicants advanced the following propositions:

(i) Authorisation of infringement of the applicants’ copyright has already been established; as appears from the reasons for judgment given on 5 September 2005 and the declarations and orders made on that day.
(ii) Order 4 made on 5 September 2005, that being the order in relation to which the contempt proceeding is brought, is capable of founding contempt proceedings. The order is in unexceptional terms and follows a form used in numerous cases in this Court. Although order 8 made on 5 September 2005 gave the parties liberty to apply in relation to the form of order 4, no application pursuant to that liberty was made by any respondent.
(iii) By order 5 made on 5 September 2005, the Court provided a means by which the infringing respondents could avoid the operation of order 4. This involved adoption of either of two filtering mechanisms, which the Court had found were feasible for adoption.
(iv) It is common ground that the infringing respondents have not adopted either of the alternatives mentioned in order 5.
(v) Only two things have changed since the trial. First, new Kazaa users with Australian ISP addresses are now denied access to the Kazaa file-sharing technology. Second, the warnings given to all users about file-sharing have been reframed.
(vi) The issue, therefore, is whether these changes have caused the respondents to move from being persons who are authorising the users’ copyright infringements to people who are not authorising those infringements.
(vii) The changes have not had that effect.

11 The position taken by the respondents can be summarised in the following way:

(i) As a matter of law, order 4 is not an order non-compliance with which is capable of founding a contempt proceeding. The order is ambiguous and was not a proper order to be made. The order is under challenge in the forthcoming appeals. It would be invidious for me to be required to pronounce upon the propriety of my own order.
(ii) No respondent alleges actual or apprehended bias.
(iii) The applicants are incorrect in asserting that the only factual issue in the contempt proceeding is the effect of the changes made to the Kazaa system on 5 December 2005. As the applicants’ allegation is that the respondents contravened an order requiring them not to authorise Kazaa users to do infringing acts, it will be relevant in the contempt proceedings to consider (or re-consider) the whole matrix of facts upon the basis of which it was previously held particular respondents were authorising infringements. The relevant facts will need to be established beyond reasonable doubt, not merely on the balance of probabilities.
(iv) The issue of what constitutes ‘authorisation’, in this context, and the nature of the respondents’ earlier conduct will necessarily fall for consideration by the Full Court at the hearing of the forthcoming appeals.
(v) The contempt proceedings ought to be referred to the Full Court.

12 I have considered all these matters and reached the following conclusions:

(i) It is important that any referral to the Full Court not result in confusion at the hearing of the forthcoming appeals or over-burdening of the Full Court. The problem of confusion can be avoided by proper management of the Full Court hearing. In relation to over-burdening the Full Court, I have spoken briefly to Branson J, the designated presiding judge for the appeals. She has agreed to the contempt motion (or elements of it) being referred to her Full Court if I concluded that was the desirable course to take. Her Honour said the Full Court would then determine the best method of proceeding. She pointed out that the Full Court would not necessarily itself reserve any questions of disputed fact. The desirable course to be undertaken would be decided at an appropriate time, after the Full Court was fully seized of the issues.

(ii) There is already an issue before the Full Court about the appropriateness of order 4. This issue is raised by at least one of the filed notices of appeal. If that issue is resolved in a particular way, that is by a finding that the order was inappropriately uncertain, that finding would probably resolve the contempt proceeding, by its dismissal. In that event, it would be unnecessary for any judge to consider any contested factual issues that might arise out of the contempt proceeding.

(iii) The members of the Full Court will necessarily form views about the concept of ‘authorisation’, as used in the relevant legislation, having regard to the authorities and the facts of this case. Contrary to the submissions of the applicants, the issues in the contempt proceeding may not necessarily be confined to the significance of the changes made on 5 December 2005. However, even in relation to the significance of those changes, the Full Court’s exposition of the concept of authorisation will necessarily influence any judge’s conclusions.

(iv) I share the desire of the applicants for an early determination of all outstanding issues between the parties. The case commenced about two years ago. It has been burdensome for the parties and the Court. It is highly desirable it be finalised as soon as possible.

(v) I am not certain that a decision by me immediately to proceed with the hearing of the contempt motion would necessarily lead to earlier finality than if that motion (or elements of it) was referred to the forthcoming Full Court. I have to take account of the possibility - indeed, given the history of these proceedings, the overwhelming probability - that any conclusion that I reached in the contempt proceeding would itself be subjected to appeal.

(vi) The question whether the matter will be more quickly determined by taking one course rather than another has, however, not been the dominant factor in my thinking. The dominant factor is that there are substantial areas of overlap between issues that the Full Court necessarily will have to consider and issues that arise in the contempt proceeding. Having regard to the extent of that overlap, it seems to me appropriate to take the course of referring the contempt proceeding (or, at least, significant elements of it) to the Full Court rather than immediately to undertake a hearing of that proceeding myself.

(vii) Section 20(1A) of the Act is not a suitable reference mechanism. I find it difficult to say that the particular proceeding is of such importance that it ought to be referred to a Full Court. Although this would be a matter for the Chief Justice to determine, I have a doubt as to whether he would feel able properly to make that determination. Secondly, s 20(1A), seems to require that the Full Court itself determine the whole of the matter that was referred by the Chief Justice – that is the whole contempt proceeding. That requirement introduces an inflexibility which is undesirable in the present case.

(viii) Section 25(6) of the Act is a more appropriate mechanism to use in this case. That section enables a single judge to state a case or reserve any question concerning a matter with respect to which an appeal would lie from a judgment of the Court to the Full Court. Any question arising in the contempt proceeding concerns a matter with respect to which an appeal would lie. The Full Court therefore has jurisdiction to hear and determine any reserved question. That may bring in the wide powers given by s 28 of the Act.

(ix) I have not discussed with counsel the form of any questions to be reserved for the Full Court. I propose to give counsel the opportunity of commenting upon two draft questions. I am happy to reconsider and amend the questions as appropriate. I will read them out and return to them later. The draft questions are:

(a) Having regard to the nature and terms of order 4 made on 5 September 2005, whether a determination of contempt of court may be made in respect of any contravention of that order.

(b) Whether the conduct of any of the infringing respondents after 5 December 2005, having regard to all relevant circumstances:

(i) was capable of constituting; and

(ii) did constitute contempt of court.

(x) I agree with counsel for the respondents that the motion of 19 December 2005 was misconceived. I doubt whether it would ever have been open to me to make orders in the form proposed in that motion. The proposed orders do not necessarily reflect the line between what is infringing conduct of the respondents and what is not. In any event, it is certainly not possible to make those orders at this stage. They would have the effect of altering the grant of primary relief. The court is functus officio in respect of primary relief subject to only two exceptions, neither of which applies in the present case. The two exceptions I have in mind are one, correction of slips or clarification of ambiguities and, two, amendments pursuant to the reserved liberty to apply.

(xi) Accordingly, the motion of 19 December 2005 should be dismissed. As it seems to me at the present time, although I will hear counsel if they wish, the dismissal should be with costs.

(xii) It seems to me that the motion filed on 24 January 2006 by the second, third and fourth respondents, which has been overtaken by events, may now properly be dismissed but, in this case, with no order for costs.

(xiii) The costs of today should be reserved to the Full Court. I assume the Full Court will consider those costs in the context of whatever views it ultimately takes about the contempt proceeding, but that would be a matter for the Full Court.

13 [There was prolonged discussion about the content and form of the draft orders reserving questions for the Full Court. At the end of that discussion, Wilcox J announced the orders below.]

14 The Court:

1. Pursuant to s 25(6) of the Federal Court of Australia Act 1976 (Cth), reserves, for the consideration of the Full Court constituted to hear pending appeals in this matter, the following question: whether, having regard to the nature and terms of order 4 made on 5 September 2005, a determination of contempt of court may be made in respect of the contraventions of that order alleged in the statement of charge filed on 9 December 2005.

2. Reserves liberty to any party to apply for an amendment of order 1, so as to include any other question, provided that the terms of the proposed amendment are notified to the Court and all other parties by 1 pm on Wednesday, 1 February 2006. If there is any dispute about any proposed amendment, argument will be heard at 2.15 pm on Friday, 3 February 2006 with a video-link to Melbourne.

3. Dismisses with costs the applicants’ notice of motion dated 19 December 2005.

4. Dismisses with no order for costs the motion of the second, third and fourth respondents filed on 24 January 2006.

5. Reserves for determination by the Full Court the costs of today.

I certify that the preceding fourteen (14) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Wilcox.

Associate:

Dated: 2 February 2006

Counsel for the Applicants:	Mr A J L Bannon SC, Mr J M Hennessy, Mr C Dimitriadis
Solicitor for the Applicants:	Gilbert + Tobin
Counsel for the Second, Third and Fourth Respondents:	Mr J M Ireland QC, Mr S C G Burley
Solicitor for the Second, Third and Fourth Respondents:	Clayton Utz
Counsel for the Sixth and Seventh Respondents:	Mr J Leemeing
Solicitor for the Sixth and Seventh Respondents:	Landerer & Co
Counsel for the Ninth Respondent:	Mr M Goldblatt
Solicitor for the Ninth Respondent:	Landerer & Co
Date of Hearing:	30 January 2006
Date of Judgment:	30 January 2006