FNH Investments Pty Ltd v Sullivan [2003] FCAFC 246 (7 November 2003)

Last Updated: 7 November 2003

FEDERAL COURT OF AUSTRALIA

FNH Investments Pty Ltd v Sullivan [2003] FCAFC 246

COPYRIGHT - additional damages - breach of contract and copyright infringement - whether damages can be awarded under subs 115(4) of the Copyright Act 1968 (Cth) if the copyright owner and infringing parties are contracting parties - where no license agreement in force - where breach of copyright flagrant.

Copyright Act 1968 (Cth), subs 115(4)

Harris v Digital Pulse Pty Ltd [2003] NSWCA 10; (2003) 56 NSWLR 298 referred to

FNH INVESTMENTS PTY LTD v NORTH JOHN SULLIVAN & XYZ PRODUCTIONS PTY LTD

N 615 of 2003

WHITLAM, MOORE & KIEFEL JJ

SYDNEY

7 NOVEMBER 2003

IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY	N 615 OF 2003

ON APPEAL FROM A SINGLE JUDGE OF THE FEDERAL COURT OF AUSTRALIA

BETWEEN:	FNH INVESTMENTS PTY LTD APPELLANT
AND:	NORTH JOHN SULLIVAN FIRST RESPONDENT XYZ PRODUCTIONS PTY LTD SECOND RESPONDENT
JUDGES:	WHITLAM, MOORE & KIEFEL JJ
DATE OF ORDER:	7 NOVEMBER 2003
WHERE MADE:	SYDNEY

THE COURT ORDERS THAT:

1. The appeal be dismissed.

2. The appellant pay the respondents' costs.

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	N 615 OF 2003

ON APPEAL FROM A SINGLE JUDGE OF THE FEDERAL COURT OF AUSTRALIA

BETWEEN:	FNH INVESTMENTS PTY LTD APPELLANT
AND:	NORTH JOHN SULLIVAN FIRST RESPONDENT XYZ PRODUCTIONS PTY LTD SECOND RESPONDENT

JUDGES:	WHITLAM, MOORE & KIEFEL JJ
DATE:	7 NOVEMBER 2003
PLACE:	SYDNEY

REASONS FOR JUDGMENT

THE COURT:

Introduction

1 This is an appeal from a judgment of a single judge of this Court of 10 April 2003 in which his Honour awarded the first respondent, Mr Sullivan, damages and additional damages under the Copyright Act 1968 (Cth) (`the Act') and a judgment of 30 April 2003 ordering the appellant, FNH Investments Pty Ltd (`FNH'), to pay Mr Sullivan's costs (and the costs of a service company he used (`the service company') which was the second applicant below) on an indemnity basis. The proceedings concerned photographs Mr Sullivan had taken and the use of them by FNH in breach of Mr Sullivan's rights under the Act.

Background

2 The following emerges from the findings made by the primary judge. FNH operated and owned an interest in Palm Bay Hideaway Resort (`the Resort'). Mr Sullivan was a photographer who (personally or through his service company) entered a contract with FNH to take photographs of the Resort. The directors of FNH were Mr and Mrs Davidson. The general manager of the Resort was Mr Hill. Mr Davidson met Mr Sullivan on a ferry from Daydream Island where Mr Sullivan had finished a shoot for the resort there. Mr Davidson suggested that Mr Sullivan contact Mr Hill regarding the possibility of doing some photography for the Resort.

3 In November 2001 the contract was concluded for Mr Sullivan to take photographs of the Resort. The contract was partly oral and partly written. The primary judge left open the question of whether the contract was with Mr Sullivan or his service company and it is not an issue raised for determination in this appeal. The relevant written aspects of the contract were as follows:

`The estimated cost for photography is AUD $14,850.00

Terms of License

On receipt of full payment, the Client is thereby licensed to use the photography in production of advertising, marketing and collateral material throughout Australia for 2 years unless otherwise agreed.

Conditions

...

Prior to the commencement of the assignment, the Agency agrees to pay the Photographer 50% of fees and expenses in advance.

...

Balance of account to be paid within 30 days of invoice.'

4 FNH paid Mr Sullivan $7425 in advance. It was not in issue that the fees agreed were $14,850 notwithstanding the use the expression `estimated cost'.

5 Mr Sullivan took photos over five days in December 2001. On three of those days he engaged his girlfriend, his brother and his brother's girlfriend as models. None were professional models and FNH paid for their accommodation and travel expenses. Though playing a significant role in the operation of the Resort, Mr Davidson left the day to day implementation of the photography project to his wife and Mr Hill. In accordance with Mr Sullivan's usual practice, he took Polaroids before the shoot and showed them to Mrs Davidson and Mr Hill who approved the shoot based on the Polaroids. Within two weeks he sent a selection on compact disc to Mr Hill. From a conference call with Mrs Davidson and Mr Hill it emerged that the Davidsons were unhappy with the quality of the photographs. There was discussion about Mr Sullivan retouching one of the photographs which he did and emailed to Mr Hill the same day.

6 On 25 January 2002, Mr Sullivan sent 61 original photographs to Mr Hill accompanied by a letter stating that he would issue `the appropriate usage licence' for the photographs when the balance of the account was paid. The letter also stated:

`As you probably already know, any use of the material prior to the issuing of the licence, constitutes a breach of copyright.'

7 On 29 January 2002, Mr Hill wrote to Mr Sullivan advising him of FNH's disappointment with the quality of photographs. The relevant aspects of the letter were as follows:

`...we would like to propose a re-shoot, under taken at your own expense, to ensure that we receive the quality product promised.

...

Unfortunately, until we receive the same quality that was offered by you and displayed on your website, we find ourselves in the uncomfortable position of withholding the remaining money until such time that we are satisfied with the end product.

...

...we feel that we have been most accommodating with your requests even to the point of not chasing you for your outstanding charges that were not settled upon departure from the Resort.'

8 Mr Sullivan told Mr Hill that he was not prepared to do a re-shoot at his own expense. There was an issue at the trial about the quality of the photographs. The evidence of one expert called by FNH was that the photos were, overall, only of average quality. However, speaking at a level of generality, the trial judge did not accept that evidence.

9 On 9 March 2002 the Sydney Morning Herald published a photo in an advertisement for the Resort. Mr Sullivan saw the photograph and it bore a remarkable resemblance to one of his. By that time, FNH had prepared a brochure using Mr Sullivan's photographs. It contained four photographs, three of which were certainly taken by Mr Sullivan. On 19 March 2002, Mr Sullivan sent an email to Mr Hill requesting that the balance of his account be settled. There had been no complaint about any of the photos used in the advertisement or the brochure.

10 Mr Davidson replied by letter to Mr Sullivan that FNH was `disappointed' with Mr Sullivan's photographs which were said to be `almost useless'. Taking what the trial judge found to be `plainly a very aggressive stance' Mr Davidson also said:

`You are not entitled to be paid for what you have delivered and I will fight you tooth and nail before I agree to the balance of your account. You are totally unprofessional and nothing short of a rip-off.'

11 On 9 April 2002 Mr Sullivan's solicitors wrote to FNH requesting payment of the outstanding balance under threat of legal action for infringement of copyright and breach of contract. The letter detailed three infringements of Mr Sullivan's copyright. They were first, by publishing the brochure containing the photos, secondly, by permitting the photographs to be published in magazines (namely `Vogue Entertainment and Travel' and `Conde Nast Traveller') and on websites and thirdly, by converting images from the film to digital format.

12 On 19 April 2002 FNH's solicitors wrote to Mr Sullivan's solicitors saying that FNH was `completely dissatisfied' with the photographs. The letter went on to say:

`Our client acknowledges that it is using three photographs produced by your client. This is a matter of necessity, not choice. Our client needed some photographs for brochures that were just about to be printed. You have our client's assurance that none of the remaining photos will be used. Our client engaged another photographer to take photos on the island. These photos have now been produced. As soon as the new promotion material is printed the existing brochures will be destroyed. Only the new photographs will be included.'

13 Though new photographers were engaged, their photographs were not used in the brochure or other publications.

14 On 23 April 2002 the respondents' solicitors wrote again to FNH's solicitors advising them of the respondents' intention to take legal action in light of their wilful and continuing infringement. Throughout April and May 2002, FNH continued to circulate the brochure.

15 The proceedings in this Court were commenced by an application filed on 22 May 2002. After this date, brochures continued to be distributed. Mr Sullivan's solicitors wrote again to FNH stating that it was clear that FNH was `intent on taking every possible opportunity to further infringe our client's copyright for its own commercial advantage'. After this letter there was another delivery of brochures on behalf of FNH to a person who had requested them toward the end of May 2002. Also, as late as 18 July 2002, Mr Hill gave instructions for a further brochure to be prepared using Mr Sullivan's photos (although publication of this brochure did not go ahead).

16 The primary judge accepted that at no point did Mr Davidson give instructions to any of the Resort's employees to withdraw the brochures from circulation after the warning from the applicant's solicitors and notwithstanding the commencement of proceedings. Nor did FNH, in the course of proceedings, offer to pay the sum of $7425.

Issues determined by trial judge

17 In the proceedings in this Court, Mr Sullivan sought a declaration his copyright had been infringed, damages and additional damages pursuant subs 115(4) of the Act and his service company sought the balance of the amount due under the contract. Other relief was sought but it is unnecessary to refer to it. FNH cross-claimed but no issue concerning the cross claim arises in this appeal. The primary judge made certain findings about the attitude of the participants in the events just described. Relevantly, his Honour found that Mr Davidson believed he had paid more than enough to justify the use of the photos and was determined to use them regardless of the terms of the contract and regardless of the warnings given to him by Mr Sullivan's solicitor. His Honour accepted much of Mrs Davidson's evidence and, in particular, that notwithstanding her disappointment with the photographs, she understood the terms of the contract and knew that FNH had no right to use the photos in the brochures or other publications.

18 Three expert witnesses were called to give evidence about the quality of Mr Sullivan's photographs. His Honour was not satisfied that the photographs did not conform to the contract. His Honour found that `the photographs were, overall, of merchantable quality' and also that if the photography proposal (a proposal submitted at the time the contract was entered into which contemplated three signature shots to represent the Resort) was a part of the contract, it was plain that that term had been fulfilled by reference to the publication of the three photos in the brochure and the photos in the high quality magazines. Moreover, his Honour was of the view that, even if it was a term of the contract that there be fifteen useable photos, there was such a number.

19 In a section of his reasons headed `Copyright Infringement or breach of contract?' The primary judge addressed the question of whether there had been infringement and concluded there had been because FNH had used the photos without being licensed to do so. His Honour noted that even if Mr Sullivan and the company were in breach of contract, which he found they were not, that did not amount to a defence to the claim for damages for copyright infringement.

20 The primary judge then considered what damages would be appropriate. His Honour noted that, generally speaking, damages for infringement of copyright were to compensate the wronged party for loss suffered as a result of breach. Accordingly he found that the appropriate amount of damages was the outstanding amount of $7425.

21 His Honour then considered whether damages should be awarded under subs 115(4) as additional damages. He noted that such damages may be awarded where the Court is satisfied that it is proper to do so not only upon the ground of the flagrancy of the infringement but also on the ground of any of the other matters referred to in subparas (ii), (iii) and (iv) of par 115(4)(b). Subsection 115(4) provides:

`(4) 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.'

22 The primary judge noted that in Raben Footwear Pty Ltd v Polygram Records Inc (1997) 75 FCR 88, Tamberlin J had determined that the Court need only be satisfied that one or more of those circumstances exists in order to enliven the discretion in subs 115(4). Earlier in the primary judge's reasons, when discussing the evidence and credibility of the witnesses, his Honour had found that:

`[Mrs Davidson's] evidence establishes quite clearly the flagrancy of FNH's conduct, because, as I have said, she agreed that she used the photos knowingly without any entitlement to do so.'

23 After referring to Raben, his Honour found that it was plain that the infringement by FNH was flagrant. His Honour pointed to his earlier discussion of `the aggressive determination on the part of Mr and Mrs Davidson and Mr Hill to use the photographs without regard to the legal consequences and in spite of ample warnings'. His Honour found that their behaviour satisfied `all the tests of flagrancy referred to by Tamberlin J'.

24 His Honour went on to discuss the principles for determining whether additional damages are awarded under subs 115(4). His Honour said at [95] - [103]:

`Additional damages are awarded under s 115(4) on principles which correspond to those which govern awards of aggravated and exemplary damages at common law; see Autodesk Inc v Yee (1996) 68 FCR 391 at 394 per Burchett J.

Exemplary damages at common law may be awarded where there has been conscious wrongdoing in contumelious disregard of another's rights; see Gray v Motor Accident Commission at 7. The conduct of Mr and Mrs Davidson and Mr Hill also satisfies that test.

Counsel for FNH submit that I ought not to award additional damages because here there was no secret or deceitful behaviour by FNH. Rather, in his submission, FNH openly used the photos and informed Mr Sullivan of its intention to do so. To concede this is tantamount to an admission of the flagrancy of the infringement. In any event, secrecy and deceit are not the sole tests for flagrancy.

Moreover, in this case there were other circumstances which fell within s 115(4)(b)(ii) and (iii). First, FNH converted the photos from hardcopy to digital format. Second, FNH plainly obtained a benefit by reason of the infringement because it was likely to have attracted custom by publishing the photos in its brochure and in high quality travel magazines and their corresponding websites, although benefit need not necessarily be pecuniary; see Polygram Pty Ltd v Golden Editions Pty Ltd (1997) 76 FCR 565 at 576 and authorities cited therein.

I do not consider that Mrs Davidson's belief that the photos were unsatisfactory to be a relevant matter within s 115(4)(b)(iv). It is sufficient for me to say that she could not have held that belief in relation to the three photos published in the brochure and in the travel magazines and their corresponding websites. In any event, she conceded that she knew she had no right to use the photos.

As the members of the Full Court said in Bailey, an assessment of an award of additional damages under s 115(4) is, of necessity, an imprecise exercise. There need not be any proportionality between the amount of damages awarded under s 115(2) and the amount awarded under s 115(4); Raben at 93 per Burchett J and at 103 per Tamberlin J.

It is evident that the Court has a very wide discretion and that there is an ability to award exemplary damages that contain a punitive element in the amount which is to be awarded; Raben at 103; Concrete Systems v Devon Symonds (1978) 20 SASR 79 at 85.

It is true that at common law exemplary damages are awarded rarely; Gray v Motor Accident Commission at 6. It is also true that there is a legislative trend against the power to award exemplary damages; Harris v Digital Pulse Pty Ltd [2003] NSWCA 10. These were matters on which FNH relied. But the short answer to this is that s 115(4) specifically provides for the award of this form of damages. Furthermore, as I have said, the matters which enliven my discretion to make an award are satisfied.

Having regard to all of the factors which I have mentioned, it seems to me that the appropriate figure to award under s 115(4) is $15, 000. In my opinion, damages of this amount sufficiently express the Court's disapproval of FNH's conduct. Accordingly, I propose to order FNH to pay damages in that amount to Mr Sullivan.'

It is the approach taken by his Honour in this passage which is challenged in this appeal.

Issues in the appeal

25 The appeal raises a very narrow issue and does not, in our opinion, raise a point of principle. Counsel for FNH submitted that the primary judge did not pay sufficient regard to the common law principles that exemplary damages are, at best, only awarded in rare cases involving a breach of contract. The relevant Australian authorities are sufficiently referred to in Harris v Digital Pulse Pty Ltd [2003] NSWCA 10; (2003) 56 NSWLR 298 at [28] per Spigelman CJ and Heydon JA at [294].

26 This submission confronts several difficulties. First, the primary judge understood that additional damages are awarded on principles which correspond to those which govern awards of aggravated and exemplary damages at common law. His Honour said so. Secondly, the submission was tantamount to saying that additional damages can never be awarded under subs 115(4) if the owner of the copyright and the infringing party were contracting parties. No such limitation is imposed by the subsection. Nor should it be implied given that the Act is intended to afford owners of the statutory rights attaching to original artistic works (or works having a similar status under the Act), a number of statutory remedies to protect or vindicate those rights. One is to seek and obtain damages (or an account of profits) for infringement and another is to seek and obtain additional damages.

27 The third difficulty with the submission of FNH is that it involves an imperfect analogy. Even accepting, for present purposes, that a party who has breached a contract cannot be ordered to pay exemplary damages for the breach, that is not the situation arising in this case. The additional damages were not awarded for any breach by FNH of its contract with the service company or Mr Sullivan. That contract was for the provision of photographs to FNH which, if complied with (by the payment of the full fee for the provision of those photographs), gave rise to a licence agreement in FNH's favour. That licence agreement never materialised. Thus the unlawful use of the photographs did not constitute a breach of contract but rather was, and was no more than, a violation of the statutory rights of Mr Sullivan.

28 During the hearing of the appeal it was suggested, at one point, by counsel for FNH that the infringement was not a flagrant one. We disagree. FNH used photographs created by Mr Sullivan in a marketing campaign in circumstances where it was refusing to pay Mr Sullivan because the photographs he had created were not of the quality contemplated in the contract. The paradox is obvious. FNH used the photographs without notice to Mr Sullivan. FNH used the photographs, and infringed the copyright, over a considerable period (having been put on notice at an early stage by Mr Sullivan that there was infringement of his copyright) on a basis which it now says involved, on its part, necessity. That plea, in the circumstances, appears somewhat hollow.

29 We are not satisfied that the primary judge erred in determining that additional damages in the sum of $15,000 should be awarded. It follows, having regard to the way the appeal was argued, it is unnecessary to address the consequential argument concerning the ordering of indemnity costs. That is because the challenge to the costs order was based on a successful challenge to the order awarding additional damages. We dismiss the appeal with costs.

I certify that the preceding twenty-nine (29) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justices Whitlam, Moore & Kiefel.

Associate:

Dated: 7 November 2003

Counsel for the Appellant:	P B Walsh
Solicitor for the Appellant:	Watson Mangioni
Counsel for the Respondents:	R K Weaver
Solicitor for the Respondents:	Mason Sier Turnbull (by their agent Bartier Perry)
Date of Hearing:	3 November 2003
Date of Judgment:	7 November 2003