Australian Hotels Association v Copyright Tribunal [2008] FCAFC 37 (13 March 2008)

Last Updated: 13 March 2008

FEDERAL COURT OF AUSTRALIA

Australian Hotels Association v Copyright Tribunal [2008] FCAFC 37

ADMINISTRATIVE LAW – review of decision of Copyright Tribunal – licensing scheme for use of recorded music in nightclubs – whether Tribunal asked itself the right question by referring to music in nightclubs as distinct from music in nightclubs for the purpose of dancing



Administrative Decisions (Judicial Review) Act 1977 (Cth) s 5
Copyright Act 1968 (Cth) s 154
Judiciary Act 1903 (Cth) s 39B

Craig v South Australia [1995] HCA 58; (1995) 184 CLR 163 applied
Minister for Aboriginal Affairs v Peko-Wallsend Limited [1986] HCA 40; (1986) 162 CLR 24 applied
Minister for Immigration and Multicultural Affairs v Yusuf [2001] HCA 30; (2001) 206 CLR 323 applied
Phonographic Performance Company of Australia Limited under section 154(1) of the Copyright Act 1968 (Cth) [2007] ACopyT 1 affirmed


















AUSTRALIAN HOTELS ASSOCIATION, EXPLORER CRUISE LINES PTY LTD, CHB CHARTERS PTY LTD AND WEST AUSTRALIAN NIGHTCLUB ASSOCATION INC v COPYRIGHT TRIBUNAL AND PHONOGRAPHIC PERFORMANCE COMPANY OF AUSTRALIA LIMITED
NSD 1536 OF 2007

HEEREY, LINDGREN & JACOBSON JJ
13 MARCH 2008
SYDNEY

IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY	NSD 1536 OF 2007

BETWEEN:	AUSTRALIAN HOTELS ASSOCIATION First Applicant EXPLORER CRUISE LINES PTY LTD Second Applicant CHB CHARTERS PTY LTD Third Applicant WEST AUSTRALIAN NIGHTCLUB ASSOCATION INC Fourth Applicant
AND:	COPYRIGHT TRIBUNAL First Respondent PHONOGRAPHIC PERFORMANCE COMPANY OF AUSTRALIA LIMITED Second Respondent

JUDGES:	HEEREY, LINDGREN & JACOBSON JJ
DATE OF ORDER:	13 MARCH 2008
WHERE MADE:	SYDNEY

THE COURT ORDERS THAT:

1. The application is dismissed with costs, including reserved 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	NSD 1536 OF 2007

BETWEEN:	AUSTRALIAN HOTELS ASSOCIATION First Applicant EXPLORER CRUISE LINES PTY LTD Second Applicant CHB CHARTERS PTY LTD Third Applicant WEST AUSTRALIAN NIGHTCLUB ASSOCATION INC Fourth Applicant
AND:	COPYRIGHT TRIBUNAL First Respondent PHONOGRAPHIC PERFORMANCE COMPANY OF AUSTRALIA LIMITED Second Respondent

JUDGES:	HEEREY, LINDGREN & JACOBSON JJ
DATE:	13 MARCH 2008
PLACE:	SYDNEY

REASONS FOR JUDGMENT

THE COURT:

1 The second respondent Phonographic Performance Company of Australia Limited (PPCA) is a collecting society under the Copyright Act 1968 (Cth). It represents the interests of record companies and recording artists in relation to the broadcast or public playing of recorded music. Under s 154 of the Act, PPCA referred to the Copyright Tribunal a scheme (the Proposed Scheme) for the grant of licences for the use of sound recordings in connection with dancing in nightclubs and dance parties. Section 154(4) provides:

The Tribunal shall consider a scheme referred under this section and, after giving to the parties to the reference an opportunity of presenting their cases, shall make such order, either confirming or varying the scheme, as the Tribunal considers reasonable in the circumstances.

2 The applicants are associations of operators of nightclubs. They were parties to the reference.

3 The Tribunal, after a substantial hearing, confirmed the Proposed Scheme subject to some variations: Phonographic Performance Company of Australia Limited under section 154(1) of the Copyright Act 1968 (Cth) [2007] ACopyT 1. In respect of the use of sound recordings in Nightclubs the Confirmed Scheme fixed a rate per person per night of operation, calculated on the basis of venue capacity. The rates increased over a five year period commencing from 23 November 2007 as follows:

Year 1 $0.51

Year 2 $0.64

Year 3 $0.78

Year 4 $0.91

Year 5 $1.05

The rate fixed for Dances and Dance Parties is not relevant for present purposes.

4 The rates fixed were a huge increase over those fixed by the previous scheme which had operated since 1994.

5 The Act does not provide for any appeal from an order of the Tribunal confirming a scheme. The applicants seek judicial review under s 5 of the Administrative Decisions (Judicial Review) Act 1977 (Cth) and declarations and certiorari under s 39B of the Judiciary Act 1903 (Cth). Because the Tribunal was constituted by a judge (Emmett J) sitting with Professor Dennis Pearce and Dr Rhonda Smith, the application has been heard by a Full Court, although not in the Court’s appellate jurisdiction.

6 The applicants’ case centres around one complaint. The Proposed Scheme was identified in the Reference as (emphasis in original):

... a licence scheme (the Dance Use Licence Scheme) in relation to the granting of Sound Recording Licences for the use of Sound Recordings for the purpose of dancing:

(a) in nightclubs;or

(b) at dances or dance parties,

(Dance Use).

7 The applicants say that PPCA’s expert evidence before the Tribunal, and the Tribunal’s reasons themselves, addressed the question of the value to be attributed to the use of music in nightclubs simpliciter, as distinct from music for the purpose of dancing. The evidence before the Tribunal was that patrons of nightclubs went there for purposes other than dancing such as drinking, socializing, playing pool, watching television and DVDs and enjoying music with friends, whether or not also for the purpose of dancing. In some nightclubs, according to the evidence, the vast majority of patrons socialized without dancing.

8 The legal consequence, so the applicants argue, is that the Tribunal asked itself the wrong question and took into account an irrelevant consideration. There was thus jurisdictional error, within the principle stated in Craig v South Australia [1995] HCA 58; (1995) 184 CLR 163 at 179 where the High Court said:

If such an administrative tribunal falls into an error of law which causes it to identify a wrong issue, to ask itself a wrong question, to ignore relevant material, to rely on irrelevant material or, at least in some circumstances, to make an erroneous finding or to reach a mistaken conclusion, and the tribunal's exercise or purported exercise of power is thereby affected, it exceeds its authority or powers. Such an error of law is jurisdictional error which will invalidate any order or decision of the tribunal which reflects it.

9 It is necessary to describe in a little detail the course of proceedings before the Tribunal. Before doing so, we note that the point now taken by the applicants was not raised before the Tribunal. (The applicants’ present counsel did not appear below.)

10 The Tribunal noted at [10] that in a reference under s 154 it must make a value judgment as to what it considers reasonable in the circumstances. After considering various possible approaches, and noting that there was no market rate or comparable bargain, the Tribunal concluded at [12] that its approach should be a combination of what it described as "notional bargain rate" and "judicial estimation". The former was described at [11] as:

... the rate on which the Tribunal considers the parties would agree in a hypothetical negotiation, between a willing but not anxious licensor and a willing but not anxious licensee.

The latter was also described at [11]:

... the rate determined by the Tribunal after taking into account a range of matters such as:

• previous agreements or negotiations between the parties;

• comparisons with other jurisdictions;

• comparison with rates set by other licensors, capacity to pay, value of the copyright material, the general public interest and the interests of consumers; and

• administrative costs of a licensing body.

11 It may be, the Tribunal thought, that "judicial estimation" includes "notional bargain rate". In any event, no legal challenge is made to the approach the Tribunal adopted.

12 Consistently with the Tribunal’s approach, PPCA led evidence designed to establish what value patrons of nightclubs would place on music in nightclubs in terms of the cover charge they would be prepared to pay. This was treated as a proxy for the value to the nightclub operator of the use of the music.

13 This evidence included a Survey and Report by Allen Consulting Group. The Executive Summary of the Report included the following:

1. The Allen Consulting Group was engaged to provide an expert report on the appropriate level and structure of equitable remuneration payable under the Copyright Act’s statutory licensing scheme for the use of sound recordings by dance venues (nightclubs, dances and dance parties).

2. Given the characteristics of the dance venue industry the value of music to such venues is best determined by calculating dance venue patrons’ willingness to pay for recorded music. This is an appropriate proxy for venues’ willingness to pay because a profit maximising dance venue could reasonably be expected to seek to provide a product to consumers that matches their willingness to pay.

Nightclub tariff

3. In order to determine the public’s willingness to pay for recorded music at nightclubs a survey of more than 800 people was undertaken as part of a ‘choice modelling’ exercise. In this choice modelling exercise respondents were presented with a series of late night venues (bars and nightclubs) with differing attributes, and were asked to choose their most preferred option. By varying the attributes over a number of questions it has been possible to isolate the value that the respondents place on recorded music by comparing the values associated with a nightclub (without a DJ) over another form of late night venue which does not have music.

4. The choice modelling revealed that respondents are willing to pay about $6.97 to visit a nightclub without a DJ over another form of late night venue (such as a bar), all else held constant.

5. This $6.97 represents the entire willingness to pay by nightclub patrons and in any ‘notional bargain’ would need to be distributed between the parties to the negotiation; in this case, the nightclub owner, PPCA and APRA. Adopting the conservative view that these three parties have equal bargaining power, bargaining theory suggests that the value will tend to be shared evenly. Thus, the $6.97 would be split evenly between nightclub owners, PPCA and APRA, leaving $2.32 for each party.

14 The Allen Report was subject to a Review by Professor David Hensher, who also gave evidence. Professor Hensher accepted some of the criticism of the Allen Report made by the applicants and sought to address that criticism by conducting a further analysis of "the willingness to pay for music in nightclubs" without using the criticised data. In the course of his alternative analysis he stated that the choice modelling used in the Allen Report was appropriate to derive an estimate of the value patrons would place on "recorded music played in a nightclub". His alternative analysis had the aim of deriving "an alternative measure of willingness to pay for recorded music". In his alternative analysis the "duration for which the nightclub is open" was used as a "proxy for the exposure to music". In explaining why this proxy was chosen he said:

It does not matter if a person is dancing or just listening or even not listening; there is a passive and active role of music at all times.

15 The applicants say that both the Allen Report and Professor Hensher, by not confining themselves to music for the purpose of dancing, asked the wrong question. Moreover, this error was repeated by the Tribunal itself. For example at [80] it said the purpose of the Allen Group Report was "to determine the value derived from the use of recorded music by nightclub and dance party operators". Later the Tribunal said at [184] (emphasis in original):

Professor Hensher did not assume that music was the only attribute not already accounted for, but that it was the major attribute. The evidence indicated that the decibel level of music in nightclubs is significantly high. It is such as not to be conducive to ordinary conversation and socialising. People seeking the opportunity to socialise with friends and to consume alcohol, and nothing more, would be unlikely to choose a nightclub to do so. Professor Hensher’s assumption, that the music is a major attribute of a nightclub, is eminently reasonable. His conclusions, therefore, give some support to the results of the Allen Consulting survey, in so far as that survey is criticised for the adoption of a bar without music as a comparator with nightclubs with dance floor and recorded music. However, for the reasons indicated below, there must be some discounting of the results of the survey.

16 The Tribunal reached its conclusion as follows ([212] et seq). It discounted the $6.97 by 20% to allow for the fact that some music used by operators was "non protected" (not subject to copyright). It made a further discount of 20% to take account of competition from other late night venues that might take patronage away from nightclubs in the event of an increase in, or imposition of, a cover charge or entry fee. It then made an adjustment to reflect that the entrepreneurial risk in relation to the operation of a nightclub is undertaken by the operator and not by PPCA or the Australian Performing Right Association (APRA), the collecting society representing composers and performers of recorded music (APRA took no part in the Reference). An appropriate division would be 50% to the operator and 25% each to each of PPCA and APRA. The resultant figure was $1.05 which, as already indicated, was to be subject to a progressive introduction over a five year period.

17 The Tribunal concluded (at [217]) that the figure it thus arrived at was "to a considerable extent, arbitrary and artificial". Nevertheless it had a "rational basis" as a "judicial estimate of what a reasonable but not too anxious licensor would require to be paid and what a reasonable but not too anxious nightclub operator would be prepared to pay for the right to play recorded music at nightclub venues". Again the applicants say that here the Tribunal was asking itself the wrong question.

18 In our view it is significant that the point now taken did not occur to either side in the proceeding before the Tribunal. This was probably due, at least in part, to the fact that in the Proposed Scheme "Dance Use" was defined to mean:

the use of Sound Recordings for the purpose of dancing:

(a) in Nightclubs; or

(b) at Dances or Dance Parties

"Nightclub" was defined, relevantly for present purposes to mean:

a licensed venue, carrying on or promoting itself as carrying on a business providing music for dancing, which:

(a) uses sound recordings as the primary form of music based entertainment; and

(b) has a dance floor/area or charges an entry fee ...

19 The Tribunal at [106] modified that definition to read (again, relevantly for present purposes):

a licensed venue that:

• is used for providing music for dancing; and

• uses sound recordings as the primary form of music for dancing; and

• has a dance floor or other area for dancing or charges an entry fee ...

20 So the term "nightclub" necessarily indicated a venue which provided music for the purpose of dancing. The omission of which the applicants complain was no more than the result of the use of a shorthand term which all concerned understood. No doubt that is why it did not occur to anybody involved before the Tribunal to take the point now relied on.

21 The applicants’ expert economist Mr Gregory Houston said that "‘Nightclubs without music’ are not Nightclubs" and that "music and dancing in nightclubs are inextricably linked".

22 Patrons of nightclubs may not wish to dance, or may wish to dance but for one reason or another do not do so. Nevertheless, they are paying for entry to a venue which has as an essential element the provision of music for dancing. There was no suggestion that nightclub operators use music of two kinds; that suitable for dancing and that not. All of the sound recordings are used "for dancing" by patrons, even if some patrons do not dance the whole night through and some do not dance at all. Again there is no suggestion that patrons paid differently for cover charge or drinks depending on whether or not they danced.

23 The applicants’ point has no substance at a factual level. What patrons were prepared to pay for entry to a nightclub, a place which by definition provided music for dancing, was a valid proxy for the value to the proprietor of the right to provide such music.

24 Still less is there jurisdictional error. The statutory mandate of the Tribunal is in completely general terms, to make an order confirming or varying a scheme "as the Tribunal considers reasonable in the circumstances". The suggested question was not one which the Tribunal was bound, expressly or by necessary implication in the statute, to have regard to: Minister for Aboriginal Affairs v Peko-Wallsend Limited [1986] HCA 40; (1986) 162 CLR 24 at 39; Minister for Immigration and Multicultural Affairs v Yusuf [2001] HCA 30; (2001) 206 CLR 323 at [82]. It has not so far been suggested that the passage relied on in Craig is in any way inconsistent with Peko-Wallsend. In the present case the jurisdiction conferred on the Tribunal was to answer the question: Is the Proposed Scheme, or some variation of it, reasonable in the circumstances? If the Tribunal made some factual or evidentiary error in answering that question its jurisdiction was nevertheless exercised in accordance with the statute. However, for the reasons above, there was in any event no such error.

25 The application will be dismissed with costs, including reserved costs.

I certify that the preceding twenty-five (25) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justices HEEREY, LINDGREN & JACOBSON.

Associate:

Dated: 13 March 2008

Counsel for the Applicants:	J E Griffiths SC and K H Barrett
Solicitor for the Applicants:	Minter Ellison
Counsel for the Second Respondent:	A Robertson SC and S J Free
Solicitors for the Second Respondent:	Gilbert & Tobin
Date of Hearing:	6 March 2008
Date of Judgment:	13 March 2008