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Top Plus Pty Ltd & Ors v K Square Pty Ltd & Ors (No.2) [2010] FMCA 67 (10 February 2010)

Last Updated: 11 February 2010

FEDERAL MAGISTRATES COURT OF AUSTRALIA

TOP PLUS PTY LTD & ORS v K SQUARE PTY LTD & ORS (No.2)

COPYRIGHT – Infringement – cinematograph films of musical performances for use in karaoke outlets (KTVs) – claims by owners and exclusive licensee – where first respondent declined to renew sub-licence agreement – where substantial increase in price requested for the sub-licence – where copyright was first challenged but later admitted – where KTVs continued to be used during negotiations and then after negotiations had broken down – where first respondent indicated it had removed certain copyright material – whether additional damages should be awarded – commissioned work – whether sufficient evidence to show that fifth applicant owned copyright in KTVs.

TRADE PRACTICES – s.51AC – Where first applicant misrepresented reason for price increase and failed to enter into genuine negotiations – where first applicant required first respondent to enter into licence agreement within 7 days between Christmas and New Year – whether applicant’s conduct was in all the circumstances unconscionable – nature of any damages to be determined at later hearing when conduct did not result in contractual relationship.


Top Plus Pty Ltd & Ors v K Square Pty Ltd & Ors [2009] FMCA 900
Prior v Lansdowne Press Pty Ltd (1975) 12 ALR 685
Polygram Pty Ltd & Ors v Golden Editions Pty Ltd & Anor (No 2) (1997) 38 IPR 451
Aristocrat Technologies Australia Pty Ltd v DAP Services (Kempsey) Pty Ltd (in liq) [2007] FCAFC 40; (2007) 157 FCR 564
ACCC v Allphones Retail Pty Ltd (No 2) [2009] FCA 17
ACCC v Dukemaster Pty Ltd [2009] FCA 682
Deatons Pty Ltd v Flew [1949] HCA 60; (1949) 79 CLR 370
Modern Weighbridge & Anor v Carpenter [1994] FCA 961

J Lahore and W A Rothnie, Copyright and Designs, Vol 1, Butterworths

First Applicant:
TOP PLUS PTY LTD (ACN 115 594 477)

Second Applicant:
GOLD TYPHOON ENTERTAINMENT LIMITED

Third Applicant:
EMPEROR ENTERTAINMENT (HONG KONG) LIMITED

Fourth Applicant:
UNIVERSAL MUSIC HONG KONG LIMITED

Fifth Applicant:
BMA RECORDS LIMITED

First Respondent:
K SQUARE PTY LTD (ACN 102 871 778)

Second Respondent:
EAST ASIA MUSIC (HOLDINGS) LIMITED

Third Respondent:
EAST ASIA RECORD PRODUCTION CO LIMITED

File Number:
SYG 1429 of 2009

Judgment of:
Raphael FM

Hearing dates:
7 - 12 December 2009

Date of Last Submission:
12 December 2009

Delivered at:
Sydney

Delivered on:
10 February 2010

REPRESENTATION

Counsel for the Applicants:
Mr H Bevan

Solicitors for the Applicants:
DLA Phillips Fox

Counsel for the Respondents:
Ms J Rawlings

Solicitors for the Respondents:
Pancific Legal

DECLARATIONS AND ORDERS ON THE CLAIM

THE COURT DECLARES THAT:

(1) The First Respondent has infringed the copyright in cinematograph films contained in the karaoke music videos listed in Exhibit 6 by:

the whole or a substantial part of those cinematograph films, without the licence of the First Applicant or the Second Applicant.

(2) The First Respondent has infringed the copyright in cinematograph films contained in the karaoke music videos listed in Exhibit 7 by:

the whole or a substantial part of those cinematograph films, without the licence of the First Applicant or the Third Applicant.

(3) The First Respondent has infringed the copyright in cinematograph films contained in the karaoke music videos listed in Exhibit 8 and 9 by:

the whole or a substantial part of those cinematograph films, without the licence of the First Applicant or the Fourth Applicant.

(4) The First Respondent has infringed the copyright in cinematograph films contained in the karaoke music videos listed in Exhibit 10 by:

the whole or a substantial part of those cinematograph films, without the licence of the First Applicant or the Second Respondent.

(5) The First Respondent has infringed the copyright in cinematograph films contained in the karaoke music videos listed in Exhibit 11 by:

the whole or a substantial part of those cinematograph films, without the licence of the First Applicant or the Third Respondent.

(6) The First Respondent did the infringing acts referred to in Declarations 1 to 5 above flagrantly.

THE COURT ORDERS THAT:

(7) The First Respondent, whether by itself, its servants, agents or otherwise, be permanently restrained from infringing the copyright in any of the cinematograph films contained in the karaoke music videos listed in Exhibit 6 by:

the whole or a substantial part of those cinematograph films, or by authorising the doing of any of the above, without the licence of the First Applicant or the Second Applicant.

(8) The First Respondent, whether by itself, its servants, agents or otherwise, be permanently restrained from infringing the copyright in any of the cinematograph films contained in the karaoke music videos listed in Exhibit 7 by:

the whole or a substantial part of those cinematograph films, or by authorising the doing of any of the above, without the licence of the First Applicant or the Third Applicant.

(9) The First Respondent, whether by itself, its servants, agents or otherwise, be permanently restrained from infringing the copyright in any of the cinematograph films contained in the karaoke music videos listed in Exhibits 8 and 9 by:

the whole or a substantial part of those cinematograph films, or by authorising the doing of any of the above, without the licence of the First Applicant or the Fourth Applicant.

(10) The First Respondent, whether by itself, its servants, agents or otherwise, be permanently restrained from infringing the copyright in any of the cinematograph films contained in the karaoke music videos listed in Exhibit 10 by:

the whole or a substantial part of those cinematograph films, or by authorising the doing of any of the above, without the licence of the First Applicant or the Second Respondent.

(11) The First Respondent, whether by itself, its servants, agents or otherwise, be permanently restrained from infringing the copyright in any of the cinematograph films contained in the karaoke music videos listed in Exhibit 11 by:

the whole or a substantial part of those cinematograph films, or by authorising the doing of any of the above, without the licence of the First Applicant or the Third Respondent.

(12) There be an inquiry as to damages or profits in relation to the infringements by the First Respondent of the copyright in the karaoke music videos listed in Exhibits 6, 7, 8, 9, 10 and 11.
(13) The First Respondent pay the First to Fourth Applicants’ costs.
(14) The question of the basis of the costs referred to in Order 13 be reserved pending the final determination of the hearing with respect to damages.
(15) The proceeding be listed for further directions for the conduct of the proceeding with respect to damages on 10 February 2010.

DECLARATIONS AND ORDERS ON THE CROSS-CLAIM

THE COURT DECLARES THAT:

(1) The First Applicant during the period between December 2008 and April 2009, in connection with the negotiations for the renewal of a non exclusive sub-licence agreement between it and the First Respondent for the right to utilise the First Applicant’s copyright in certain KTVs, more particularly identified in the draft agreement found in exhibit CC-1 to the affidavit of Christopher Chan sworn 16 June 2009 under tab 35, engaged in conduct that was in all the circumstances unconscionable in contravention of s.51AC Trade Practices Act 1974 by reason of:

THE COURT ORDERS THAT:

(2) The First Applicant pay the First Respondent’s costs of the cross-claim.
(3) The question of the basis of costs referred to in Order 2 be reserved pending the final determination of the hearing with respect to damages.
(4) The liability of the First Applicant to pay the First Respondent damages under s.82 for the breach of s.51AC set out in the declarations be determined together with the liability of the First Respondent to the First to Fourth Applicants for damages for infringement of copyright.
FEDERAL MAGISTRATES
COURT OF AUSTRALIA AT
SYDNEY

SYG 1429 of 2009

TOP PLUS PTY LTD (ACN 115 594 477)

First Applicant


GOLD TYPHOON ENTERTAINMENT LIMITED

Second Applicant


EMPEROR ENTERTAINMENT (HONG KONG) LIMITED

Third Applicant


UNIVERSAL MUSIC HONG KONG LIMITED

Fourth Applicant


BMA RECORDS LTD

Fifth Applicant


And


K SQUARE PTY LTD (ACN 102 871 778)

First Respondent


EAST ASIA MUSIC (HOLDINGS) LIMITED

Second Respondent


EAST ASIA RECORD PRODUCTION CO LIMITED

Third Respondent


REASONS FOR JUDGMENT

Introduction

  1. In July and August 2009 I heard an application for interim relief in these proceedings. The relief sought by the applicants was for injunctions restraining the first respondent from making copies of, causing to be seen in public or communicating to the public the whole or substantial parts of certain cinematograph films that were being utilised in the first respondent’s karaoke lounge (“KTVs”). The first applicant is the exclusive licensee of the second to fifth applicants and the second and third respondents who are Hong Kong based record companies which produce records and KTVs of those records for the Mandarin and Taiwanese speaking markets. These KTVs are very popular in Sydney and there are a number of karaoke lounges which cater for members of the public who wish to sing along to these songs. Up until about four years ago the owners of the karaoke lounges would buy individual KTVs and exercise the copyright holder’s rights in them in a manner which has not been clearly explained to the Court but is not relevant for the purposes of these proceedings.[1] The first applicant, appreciating the growing market in Australia, arranged with the second to fifth applicants and the second and third respondents (“the record companies”) to obtain an exclusive licence to exercise their copyright in the KTVs including the right to sub-licence. Top Plus negotiated individual licence arrangements with each of the record companies pursuant to which it paid an upfront non-refundable advance on royalties and a royalty. It then set about granting sub-licences to the karaoke lounges who wished to utilise the record companies’ KTVs.
  2. Whilst a number of karaoke lounges within Australia did agree to enter into licence agreements there were a number who did not and the existence of these lounges, which were utilising KTVs from the record companies obtained otherwise than through Top Plus, caused some friction between the licensed lounges and Top Plus. Top Plus charged the karaoke sub-licensees a fixed fee based upon the number of rooms in each karaoke lounge. The first respondent in these proceedings (K Square) took out a sub-licence from Top Plus for the years 2006, 2007 and 2008. The amount payable under the sub-licence was $19,800.00 for 2006 and 2007 and $22,000.00 for 2008. In order to comply strictly with the Copyright Act 1968 (the “Act”) and not be in breach of anyone’s copyright a karaoke lounge would need to be licensed in respect of the music and lyrics of each karaoke song and the cinematograph film of the song being performed. Licences in respect of the music and lyrics were obtained from APRA and the licence in respect of the film could be obtained from the PPCA unless the record companies who held the copyright in the films were not subscribers to that collection agency. In this case they were not, which allowed Top Plus to become the Australian exclusive licensee and required K Square to obtain a licence from it.
  3. On 10 December 2008 a meeting was held at the Zilver Restaurant in Chinatown. It was attended by most of the Sydney sub-licensees of Top Plus including K Square. At the meeting Top Plus presented a document which outlined its proposals for the 2009 licence fee commencing on 1 January 2009. The licence fee was to be calculated in a different manner to previously.
  4. The net effect in the case of K Square was that its licence fee would be increased from $22,000.00 to around $75,000.00. In the document produced by Top Plus it gave some suggestions as to how individual sub-licensees might make up the difference between the old licence fee and the new. The sub-licensees were not happy. They asked Mr Chan of Top Plus why the fees were going up so much. Mr Chan responded that this was because of increased fees to the record companies and increased costs to Top Plus which intended to bring out a number of performers and take other steps to publicise the availability of the record companies’ KTVs.[2]
  5. There was also discussion at the meeting about the enforcement of Top Plus’ rights against karaoke lounges who had not taken out a sub-licence. The feeling appeared to be that this was not happening and so the sub-licensees felt it unfair that they were being asked to pay when others would appear to have been getting away with not paying. Questions were asked such as:

...

c. Why other non-licence fee paying karaoke operators and other karaoke operating venues were getting away with not paying licence fees for the previous years when we had been paying them for three years already.”[3]
  1. The meeting at the Zilver Restaurant did not achieve resolution. Top Plus decided to place the negotiations for the 2009 licences in the hands of its solicitors DLA Phillips Fox. On 23 December 2008 Phillips Fox sent a letter dated 19 December 2008 to K Square. That letter is reproduced in full at [8] of my judgment Top Plus Pty Ltd & Ors v K Square Pty Ltd & Ors [2009] FMCA 900. The letter explained that Phillips Fox were acting in negotiating and concluding the agreements. The letter continued:
  2. In addition the Agreement provided a discount if signed by 31 December 2008 reducing the fee per room from $10.00 plus GST to $8.00 plus GST. [Clause 6.1]
  3. K Square did not sign the agreement. It placed the matter in the hands of its own legal advisors. It was not happy about the way in which the negotiations had been conducted. It thought the increase was far too high, the directors were not happy with the short notice and the pressure evident from the solicitor’s letter to sign the agreement within such a short space of time. There were discussions between the directors of the companies which bypassed Phillips Fox. There is a dispute as to whether anything in these discussions constituted a counter offer from K Square. K Square became unhappy with its own solicitors and changed them. The discussions between the directors continued in a desultory way until March 2009. By the end of that month the directors of K Square had come to the conclusion that they were not going to get a satisfactory licence agreement with Top Plus.[4] In February they had received a letter from Phillips Fox demanding that they remove 839 KTVs from their server. They had not removed any KTVs up to that time nor stopped utilising the Top Plus licenced content because they thought that agreement could be reached and then they would pay the licence fee as from 1 January 2009. At the end of March, having come to the conclusion that agreement was not possible, K Square claimed to have removed the 839 KTVs. However, there were still several thousand KTVs that had been obtained from Top Plus which remained on K Square’s server. As things transpired many of the KTVs which had been removed found their way back onto the server in one way or another over the ensuing months as did a number of “new release KTVs” in respect of which Top Plus had the exclusive licence from the record companies. K Square continued to make these KTVs available to the public in its karaoke lounge.
  4. On 17 June 2009 Top Plus commenced these proceedings. K Square put in issue the validity of the copyright in the KTVs requiring Top Plus to prove the chain of copyright from the producers of the KTVs through the record companies to Top Plus. The arguments surrounding these matters are discussed in my first judgment. I declined to grant the injunction for the reasons given and copyright remained in issue up to the commencement of the substantive hearing on 7 December. However, shortly thereafter K Square made concessions which allow me to make the declarations numbered 1, 2, 3, 4, 5 and 6 and Orders numbered 7, 8, 9, 10 and 11 to be made by consent.
  5. On 9 December 2009 K Square filed a Further Amended Defence and First Cross-Claim pursuant to Orders of 24 September 2009 and 7 December 2009. The Cross-Claim sought damages under s.82 for breaches of s.51AC(1) of the Trade Practices Act 1974.

Evidence

  1. At the substantive hearing the applicant read a number of the affidavits which had been prepared for the interlocutory proceedings and some additional affidavits. I will deal with these shortly. The applicant read the affidavit of Mr Ho Bun Chan (Ben Chan) sworn on 16 June 2009 which dealt with the negotiations between Top Plus and K Square between December 2008 and May 2009. It dealt with the presentation to the karaoke outlets at the Zilver restaurant on 10 December 2008 and the views expressed by persons who attended that meeting that they did not wish to enter into new agreements because of the significant increase in the licence fees being proposed. The suggestion was made that the participants might not sign up until the result of legal action which had been taken in Queensland was known. The affidavit goes on to depose the conversations with Mr Woo of K Square in April including the following:

The affidavit has a section dealing with discussions with other operators of karaoke outlets, the effect of which is to show that the resistance to signing up continued as did a feeling amongst the outlets that there should be some form of resolution of the dispute with the Sydney operators or others would refuse to re-sign for 2009.

  1. The affidavit of Mr Christopher Chan of 16 June 2009 was also read again. This is the principal affidavit going to infringement. It deals with the method by which the KTVs are provided to Top Plus by the record companies and then by Top Plus to the karaoke outlets and the instructions which Mr Chan gave to Ms Linda Tang to go to K Square and obtain evidence that this outlet was still utilising KTVs that were provided to K Square under the agreement that had not been renewed in 2009 and which had been provided to Top Plus by the record companies. There is a further affidavit of Mr Chan of 27 July 2009 concerning the collection of evidence of infringing material. These affidavits are complemented by those from Ms Tang of 27 July and a later one of 4 December 2009. This latter affidavit comes with a folder containing exhibit WCT-1 and a CD, exhibit WCT-2. She provides lists of what she describes as “new release karaoke music videos” that had been released by the record companies since the date of the song lists which were referred to in paragraph 7 of her first affidavit. She provides a song list in respect of each of the record company parties. Ms Tang deposes that on 26 November 2009 Chris Chan transferred to her through skype a copy of the song list from the K Square server. That file is exhibited on WCT2 under the name “K Square song list”. There are 41,400 separate items on that list. Ms Tang carried out a series of investigations, firstly, she selected a list of karaoke music videos from the record companies as a sample:

Ms Tang also compared K Square’s song list with the lists of new release karaoke music videos. And finally, she compared K Square’s song list with each of the song lists of the record companies. Ms Tang’s evidence seeks to establish infringement by K Square by its continued use of the Top Plus song list during the course of 2009 when no licence had been taken, infringement after the assurance that the Top Plus songs had been removed from the K Square song list in April 2009 and infringements of individual record company KTVs that were made subsequent to 1 January 2009 and were never provided by Top Plus to K Square but nonetheless feature on the K Square song list.

  1. The applicants then produced a series of affidavits from record company executives, some of whom had already given evidence, which went to the method by which KTVs were made in Hong Kong and in particular to the commissioning of those KTVs from independent production houses. Lists of commissioned KTVs were annexed to these affidavits. K Square objected to some of this evidence on the basis that the deponent had not himself gone through all the individual contracts and created the schedules. Individual deponents had deposed to the fact that this was done by responsible persons within the organisation. The individual deponents were all high ranking officers of the various companies up to the level of CEO. I admitted the evidence.
  2. The respondent called Mr Terence Chau who swore an affidavit on 30 November 2009. He is a director of K Square and told that at the end of 2005 Ben Chan approached K Square with a proposal that it enter into a sub-licence agreement for KTVs from Hong Kong. The offer was attractive because it would provide K Square with a continuous source of the latest KTVs from Hong Kong. K Square took out a sub-licence for the years 2006, 2007 and 2008 in which it paid lump sums of $19,800.00 for 2006 and 2007 and $22,000.00 for 2008. The rate was said to be a flat rate for unlimited use of the KTVs based upon the formula whereby ten seats equalled one room. Mr Chau says that K Square has over 55,000 KTVs on its server of which 839 were supplied pursuant to the Top Plus agreement although according to Top Plus the figure is much higher. In response to questions from me Mr Chau said that when K Square first signed with Top Plus it received a hard disk of titles which were added to by way of downloads over the years. He told me that before he had signed with Top Plus he obtained the KTVs from other independent sources. It would appear from his evidence that he accepts that K Square received more than 839 KTVs from Top Plus over the three years of the licence.
  3. Mr Chau’s evidence went on to discuss his payment to the Phonographic Performance Company of Australia (PPCA) which is a licensing and collection agency with respect to music videos. The PPCA collections do not cover KTVs from any of the parties in these proceedings. Mr Chau deposes to paying a licence fee of $2,334.09 to PPCA for the period 1 July 2009 to 30 June 2010 and under cross-examination he accepted that the calculations which led to that fee may have been incorrect. In any event the total fee payable to the PPCA on the alleged appropriate basis would not exceed $5,000.00. Mr Chau noted that the new licence fee for 2009, requested by Top Plus was $11.00 inclusive of GST per room which he claimed represented a 331 per cent increase over the licence fee of $22,000.00 for 2008, a rate of $3.35 per room per day. Mr Chau referred to the meeting at the Zilver Restaurant in December 2008. He said that the representatives of the karaoke lounges were anxious to know why there was such a high increase in fees and whether or not there could be some certainty about the future. He indicated that the concern was general amongst the operators. There appears to be a general feeling amongst operators that some were being singled out for increases whereas others were not and there was a concern about the heavy handedness of the negotiating tactics being used by Top Plus, in particular, the referring of all future negotiations to Messrs Phillips Fox who were acting on behalf of Top Plus. In the Agreement contained in the first letter received from Phillips Fox a discount from $11.00 per room per day inclusive of GST, to $8.80 inclusive of GST, was offered by it and only remained available for acceptance until 31 December 2009. The letter had been sent out on 23 December.
  4. When K Square put the matter into the hands of its solicitors they called for some more particulars about Top Plus’ rights in relation to the KTVs, in particular, they wished to get some grasp on the necessity for increasing the fees by so much. They were being told that this was because of the record companies but they had no evidence of this. Mr Chau confirmed the evidence given in his original affidavit that he had several conversations with Mr Ben Chan over the period between January and March 2009. He agreed that he had not made any counter offer to the $11.00 inclusive of GST proposal at any time but said that Top Plus had not provided him with an offer.
  5. The witness’ evidence is less than satisfactory about his knowledge of the agreement with Top Plus. He responded “I do not recall” to questions that clearly he should have been able to answer as a director such as the fact that this company had acknowledged the record companies’ copyright in the KTVs or that Top Plus was the exclusive licensee. He suggested that he did have concerns about these matters before the commencement of proceedings but could not point to any conversation deposed to or document exhibited that showed such a concern addressed to the applicants. He agreed that he only had these doubts after K Square had contacted its solicitors.
  6. The witness agreed that he was a committee member of the Australian Karaoke Operators Association as was one of his fellow directors Ms Jesse Xiao. He was shown an email from Ms Xiao to Universal Music dated 29 August 2009 and said that he agreed with its contents. The email sought to contact Universal for the supply of KTVs which are the subject of these proceedings. Ms Leong of Universal referred the writer back to Top Plus as their exclusive licensee. The witness did not accept that part of the increase proposed by Top Plus at the December meeting came about as a result of the increase in licence fees payable by Top Plus to the record companies but he was unable to show in his deposed evidence where he raised that with Top Plus. He claimed that he did not accept Top Plus’ representations at the December meeting that it could not sign up to long term agreements or indicate what price rise might come in the future because Top Plus was subject to the decision of the record companies. He may well have had his doubts about this but he did not raise them at the meeting.
  7. Mr Chau agreed that the 2008 licence fee was $423.00 per week and that the 2009 proposed rate was $1,398.46 per week, a difference of approximately $1,000.00 a week. He agreed that this cost was one of the most critical areas of his business but it was an expense that was much less than his other expenses such as rent that was $5,000.00 per week and wages. Mr Chau did not agree that the old rate had been a bargain. He accepted that he was offered a discount down to $8.00 plus GST, a rate which would have reduced the weekly payment to about $1,100.00 and that he had no other problems with the agreement. He agreed that there were methods by which he could cover the increase which were suggested by Top Plus at the December meeting but he had not taken any of them up.
  8. Mr Woo also gave evidence for the respondent. He is a licensee and shareholder of K Square Pty Limited and swore an affidavit on 30 November 2009. He tells that he spoke to Mr Ben Chan about the holdup in signing the 2009 agreement. He says that he had said to Mr Chan words to the effect that:

He says that Mr Chan replied with words to the effect:

“This is impossible, why don’t you give me a written offer.”

To which Mr Woo responded:

“I have just given you an offer and you turned it down point blank. What is the point of me giving you a written offer. You do not look like you are ready and willing to negotiate at all.”
  1. Mr Woo confirmed that he had spoken with Mr Chan six or seven times by telephone between January 2009 and April 2009. He made some suggestions as to a method of lowering the licence fees for example by only taking records from some of the record companies but he says that Mr Chan insisted that it was one package. Mr Woo deposed to the fact that he told Mr Chan that he was holding K Square and the other karaoke companies to ransom by requiring them to pay a substantially greater licence fee in 2009 compared with 2008. He said that Mr Chan would invariably reply with words to the effect:

But he would not elaborate on why that was the case.

“During one of the telephone conversations in this period I also said to him words to the effect of: “You cannot just set a price that is sky high and expect us to bend over and accept. This is no better than highway robbery.”
Chan replied with words to the effect of: “The record companies are not selling CDs due to the internet and they can only raise revenue from karaoke outlets.” I said: “This is not fair.” Chan said words to the effect of: “I am afraid there is no other choice, you can take it or leave it.””[5]
  1. Mr Woo deposed to the fact that he thought that prior to March 2009 he would be able to negotiate a satisfactory arrangement with Top Plus but by the end of that month he felt that this was no longer possible and it was then that he decided to delete the 839 titles that were referred to in a letter from Phillips Fox of 8 January 2009 from his playlist. He felt that prior to that time if a commercial resolution could have been found he would have paid back the licence fee to 1 January 2009.
  2. Mr Ben Chan was then recalled for the purposes of cross-examination upon the non-redacted versions of the licence agreements between Top Plus and the various record companies. These were revealing. The agreement with Gold Typhoon Entertainment Limited, the second applicant, commenced on 1 September 2007 and continued until 31 December 2009. The licence fee had not increased since the agreement started so it could not be said that this could be relied on by the applicants to justify the increase in price as from 1 January 2009. The Universal Music agreement commenced on 1 January 2009 and had been negotiated at the end of 2008. In that agreement there was a flat fee expressed in $USD plus 18 per cent licence fee based upon royalties received over and above $25,000.00 with a minimum of US$3,000.00 for each outlet to whom a sub-licence was granted. The 2009 agreement had an advance which was $5,000.00 less than the 2007 agreement but that was only for one year and there was a licence fee for each KTV delivered. I am satisfied from the evidence that I have heard concerning the figures that the 2009 fee was in excess of the fee being charged in 2008 but not significantly.
  3. The BMA agreement was dated 1 December 2007 and had a term which expired on 31 December 2009 thus the fees did not increase from 2008 to 2009.
  4. The Emperor Entertainment agreement was a supplementary agreement dated 1 January 2009 that was an extension of an agreement made in 2007. But in fact the period that the extension covered was only between 9 September 2009 and 31 December 2009. The royalty for the extended period does appear to be greater than that in the first nine months of the year which were similar to those in 2008 but it is noteworthy that the agreement had not been entered into at the time the meeting in the Zilver Restaurant took place. There was a second agreement with Emperor Entertainment that was negotiated and signed on 16 March 2009 but its term was two years from 1 January 2010 to 2011. Whilst the figures are in excess of the earlier figures I do not think they are relevant for the purposes of this case because at no time was Top Plus prepared to grant a licence in excess of one year in length.
  5. The previous East Asia Record Production Company Agreement was signed on 1 December 2007 and expired on 31 December 2008. The fee in that agreement was similar to the agreement that commenced on 1 January 2009 and expires on 31 December 2009. Finally, East Asia Music (Holdings) Limited’s agreement of 1 September 2007 is the current agreement and the fee which was charged is the same for 2008 and 2009.

The Issues

  1. The substantive issues between the parties that remain for decision by the Court are:
    1. Whether the first respondent has infringed the copyright in cinematograph films contained in karaoke music videos listed in Exhibit 13 being the KTVs licensed by BMA Records Limited, the fifth applicant to Top Plus Pty Limited;
    2. Whether the Court should award the applicants damages under s.115(4) of the Act in addition to any other damages or an account of profits;
    3. Whether Top Plus breached s.51AC(1) of the Trade Practices Act 1974 (Cth) in the manner described in the first respondent’s cross-claim.

At the request of the parties and at a time when it was thought that the hearing upon the validity of the applicants’ claim to copyright would be lengthy and complex the Court made orders that the hearing to take place in December 2009 be on liability only. Although at a very early stage the admissions as to copyright were made the matter still took up the full five days allotted and no submissions were made as to the quantum of damage.

Discussion

  1. I shall deal with each of the three issues that remain between the parties in turn.

The claim by BMA Records

  1. BMA Records filed an affidavit which was proposed to be read in the interim injunction proceedings.[6] The deponent was not available for cross-examination and the affidavit was not read. BMA did not introduce any further evidence at the substantive hearing in December. Evidence was given by Ms Tang of a list of BMA’s newly released karaoke music videos.[7]
  2. Evidence was read from a Mr Roger Chow and a Mr Jacky Lee who were respectively directors of a production company and a post production company involved in the production of KTVs in Hong Kong. Whilst they indicated that they were aware of the deponents of the affidavits from the other record companies they did not make any reference to Mr Chan of BMA.[8] This evidence went to the manner in which KTVs were commissioned by the record companies and thus became their copyright pursuant to s.98 of the Act and Regulation 4 of Copyright (International Protection) Regulations 1969. It was the first link in the copyright chain. There being no evidence available in respect of BMA Records I am left with their assertion of copyright. BMA did not raise the rebuttable presumption of ownership under s.126B(2) which could have arisen from the label or the mark on the KTVs and it did not join in the first applicant’s application for injunctive relief. I do not believe that the fifth applicant has discharged the onus of proving that it is the owner of the copyright in the KTVs even though I am satisfied from the evidence of Ms Tang that some KTVs of which it claims to be the copyright owner were being wrongfully utilised by K Square. As I am not satisfied with the copyright ownership of BMA no relief can be granted to Top Plus as its exclusive licensee against K Square.

Should damages be awarded under s.115(4)

  1. Section 115(4) is in the following form:
....
....
(4) Where, in an action under this section:
the court may, in assessing damages for the infringement, award such additional damages as it considers appropriate in the circumstances.”
  1. The relevant matters that the Court would consider in this case are:

Flagrancy

  1. The applicants argue that K Square had a licence agreement with Top Plus for each of the previous years 2006, 2007 and 2008 and made a deliberate decision not to sign the licence agreement in 2009 because of the cost. It was aware that if it continued to utilise KTVs that had previously been licensed to it by Top Plus and which were in the copyright of the record companies then it would be in breach of the Act. The applicants say that the new release KTVs from Top Plus were the most popular karaoke songs in K Square’s song list and that Mr Chau indicated that deleting the KTVs from the song list would affect his business.
  2. The meaning of flagrancy has been considered in a number of authorities. It was described in Prior v Lansdowne Press Pty Ltd (1975) 12 ALR 685; 29 FLR 59 at [65] as a “calculated disregard of the plaintiff’s rights, or cynical pursuit of benefit”. In Polygram Pty Ltd & Ors v Golden Editions Pty Ltd & Anor (No 2) (1997) 38 IPR 451 at [461], Lockhart J distinguished flagrant conduct from “mere mistake or carelessness”;
  3. I am satisfied that the directors of K Square were at all times aware that if they continued to use the Top Plus KTVs then they were breaching copyright. They had been sent an uncompromising letter making this fact very clear to them by DLA Phillips Fox in December 2008 and they had employed solicitors who had written to Phillips Fox on 31 December 2008. Phillips Fox wrote to those solicitors on 8 January 2009 once again making it clear that further use of the KTVs would constitute a breach of the copyright. A further cease and desist letter was sent on 2 February 2009. The letter of 8 January included a list of licensed KTVs which K Square later advised had been removed.
  4. Whilst I am quite satisfied that up until the end of March K Square were aware they were treading on dangerous ground by continuing to utilise the Top Plus licensed material without having signed a non exclusive licence I should take into account the claims by K Square that they were, during this period, actively trying to negotiate an agreement which, if it had been successful, would have resulted in them paying licence fees back to 1 January 2009 and there being no proceedings for any breach of copyright that may have occurred during the negotiation period. Much was said in submissions about these negotiations. Top Plus wished to paint a picture of it being at all times ready, willing and able to deal but not having a partner in the process. It was said that K Square never put a counter offer to Top Plus. On behalf of K Square it was put that Top Plus refused to negotiate and make any reasonable concession on the over 300 per cent increase in price that had been proposed. My findings on the facts are that the decision to raise the licence fees to the level proposed at the December meeting came as a surprise to the participants. Concern at the size of the increase was expressed by all of the participants.
  5. I shall be considering the actions of each of the parties in these negotiations again in connection with the s.51AC trade practices claim but for the purposes of the allegation of flagrancy I take the view that the existence of these negotiations constitute a mitigating factor. The evidence is that K Square had approximately 41,400 KTVs in its playlist. There are over 3000 KTVS to which Top Plus claims to be the exclusive licensee. The Top Plus KTVs were the most popular in K Square’s playlist, accounting for 50 per cent of songs used by K Square’s customer base.[9] They should have been removed on 1 January 2009 when K Square had not signed the agreement but the letters that were being written and the conversations that were being had between January and March 2009 all carried the inference that if the agreement was signed there would be no claim made in respect of any breach whilst the negotiations had been continued. Top Plus, in its submissions, makes much of the fact that K Square had accepted a licence for the previous three years. I think that points towards a general willingness by K Square to take a licence on what it considered to be reasonable terms.
  6. What the factors were which prevented these parties from some more serious and more fruitful negotiations I do not know. But the evidence reveals a combination of unfortunate circumstances which might well have made the commencement of such negotiations difficult. The meeting in December left a bad taste in the mouth of the participants not only because of the large increase in the licence fee proposed but also because of the unsatisfactory nature of the responses to questions about going after non-licensed karaoke bars. The letter from Phillips Fox of 23 December was, to my mind, not at all conducive to amicable negotiation, containing as it did heavy handed threats if a complex licence agreement was not signed within a few days between Christmas and New Year. Phillips Fox’s following letter of 8 January was again, to my mind, equally unhelpful. It was the type of letter written in the context of intended litigation, being disparaging of K Square’s solicitors and their knowledge of this complex area of the law. K Square made it clear that it felt that the licence fee request was far too high and suggested an alternative way of calculating one. Top Plus would have none of that and requested K Square to put a further counter offer but did not itself put forward a figure that it would be prepared to accept that was less than the per room rate demanded at the December meeting. Having considered all of these factors I am of the view that the conduct of K Square between January and March 2009 should be excluded from any calculation of additional damages under s.115(4) on the ground of flagrancy.
  7. The period from April 2009 until the final hearing of these proceedings is an entirely different matter. After March 2009 K Square acted in a manner that had all the hallmarks of flagrancy. Firstly it told Top Plus that it had removed the 839 titles that were contained in the Phillips Fox letter of 8 January. The evidence of Ms Linda Tang establishes that a large number of these songs were still being made available to K Square’s customers when Ms Tang visited in March, April and May 2009. In some instances the same song was available but without the Top Plus logo.[10] K Square was aware by this time that negotiations had broken down, indeed it made the decision not to continue with them and to resist any action by Top Plus. It was also aware that it was not just the 839 titles that were in issue but all the KTVs that had been licensed by Top Plus. K Square took no steps to remove any of those KTVs from their playlist. Also between April 2009 and December 2009 K Square obtained and utilised in its karaoke bar a large number of additional newly released KTVs that it had obtained from sources other than Top Plus, the exclusive licensee within Australia. Although it had in the earlier agreements acknowledged Top Plus as the exclusive licensee and the record companies as copyright owners it set about making a very serious challenge to their status. Whilst a person against whom proceedings have been commenced for infringement is perfectly entitled to require the claimant to establish his right to sue, the basis upon which it was being done here was, perhaps, flimsy. At first it relied exclusively on the wording of the licence agreement between each of the record companies and Top Plus. It was suggested that these did not meet the requirements of s.86 of the Act and thus give Top Plus an effective exclusive licence that would allow it to act as if it was the copyright owner within the territory. I dealt with these matters at [28] of my interlocutory decision saying at [29]:

By the time the matter came to final hearing that claim was no longer being pressed. The claim that did appear more effective at the interlocutory stage was the alleged failure by the applicant to establish that each of the record companies had themselves full copyright in the KTVs because they had been made by independent producers and very few assignments could be shown. That claim also fell by the wayside during the course of the final hearing because of the realisation that these matters came within the context of s.98 of the Act and Regulation 4 of the Copyright (International Protection) Regulations 1969.

  1. Given K Square’s failure to remove the infringing material after the negotiations had broken down, its claims that it had done so and its persistence in challenging Top Plus’ status as exclusive licensee, I am satisfied that a finding of flagrancy is justified in this case.

The need to deter similar infringements of copyright

  1. The deterrence factor was introduced into the Act by the Copyright Amendment (Parallel Importation) Act 2003 (Cth). The practice suggests:

J Lahore, Copyright and Designs at [36,260A].

There is a clear need for deterrence in this particular case. K Square is only one of a number of karaoke outlets that is infringing Top Plus’ rights. There is evidence from the conduct of the parties at the meeting in December 2008 of a reluctance to pay the new licence fees and continue as sub-licensees until after the litigation. An award of additional damages would indicate to other infringers and potential infringers that to commence or continue on this path would not be advantageous to them in any way. That deterrence is an important constituent of additional damages was confirmed by the Full Bench, Black CJ, Jacobson and Rares JJ in Aristocrat Technologies Australia Pty Ltd v DAP Services (Kempsey) Pty Ltd (in liq) [2007] FCAFC 40; (2007) 157 FCR 564 where at [116] Rares J said:

“There is a need to deter and punish those who act or seek to act as Vidtech and Mr Parry were proved to have done. I am of opinion that a further $40,000 or 50% of the profit they made was too small a figure to reflect an appropriate sum to award under s 115(4)(b). One of the important purposes served by the power to award additional damages granted in s 115(4)(b) is that market practices of the kind engaged in by Vidtech and Mr Parry can be firmly discouraged. In a case like the present where precision of assessment of damage or profit is impossible but substantial, deliberate and flagrant infringement has been proved, a substantial sum of additional damages should be awarded. I am of opinion that having regard to the whole of the evidence, the $80,000 profit and interest already quantified, the flagrancy of Vidtech and Mr Parry and the need to deter similar conduct, additional damages should be awarded against them in a lump sum amount of $200,000.”
  1. His Honour’s views were supported by Black CJ and Jacobson JJ at [53]. I am satisfied that the need to deter similar infringements is a substantive element in a decision to award additional damages.

Defendant’s conduct after infringement

  1. This element was added to those to be taken into account by the Copyright Amendment (Parallel Importation) Act 2003 (Cth). The practise reports that:

J Lahore, Copyright and Designs at [36,260B].

  1. The transcript reveals a number of occasions upon which I cautioned the first respondent, through its counsel, of the dangers of persisting in the challenges to the applicant’s copyright. I am prepared to accept the legitimacy of the challenge to the licence agreements which I dismissed in my decision on the interlocutory application. I am prepared to be forgiving about the failure to appreciate the effect of s.98 of the Act and Regulation 4 of the Copyright (International Protection) Regulations 1969 as this was not raised by the applicants until the first day of the substantive hearing and was then accepted by the respondent. But overall the respondent’s conduct after being notified of the breaches has been far from accommodating.
  2. Other matters under this subheading which would lead me to make an award of additional damages is the continued use of the Top Plus KTVs that had not been removed in March, the reuse of some of the Top Plus KTVs that had been removed in March and the obtaining and use of new release KTVs between March and December. These are very serious matters because K Square must have known that it was taking a substantial risk that it could not establish the technical defences it had raised. The respondent’s action in persisting in infringing in this manner goes both to flagrancy and to conduct after infringement.

Benefits accruing to respondent

  1. Lahore at [36,265] indicates that this consideration

This is not a matter upon which I have been addressed or which is manifestly clear from the evidence as I believe the previous matters are. I propose to allow this matter to be addressed at the subsequent hearing.

Other relevant matters

  1. This again is a matter which I believe should be addressed at the subsequent hearing.
  2. It follows from what I have said above that I believe the Court should award additional damages under s.115(4) of the Act. I have indicated the matters which have gone towards my making that decision. It will be open to the parties at the subsequent hearing to persuade or dissuade me of the seriousness of those matters so that it can be reflected in the award.

The claim under s.51AC – Cross-Claim

  1. The cross-claim is expressed in paragraph 13 of the Further Amended Defence and Cross-Claim filed on 9 December 2009 in the following form:
PARTICULARS
  1. The First Applicant is the exclusive licensee of the Second, Third, Fourth and Fifth Applicants in Australia and New Zealand.
  2. The 2008 licence fee of $22,000.00 paid by the First Respondent to the First Applicant was a lump sum of $22,000.00.
  1. The 2009 licence demanded by the First Applicant from the First Respondent was based on a rate of $11.00 (inclusive of GST) per room per day. For K Square’s K Square Karaoke Lounge the licence fee in 2009 amounted to $72,720.00.
  1. The Applicants have refused to provide the First Respondent any projection of likely increases in licence fees after 2009, whereas the licence fees charged by APRA and PPCA are increased by an agreed mechanism being the Consumer Price Index All Groups Sydney.
  2. Under its proposed sub-licence to the First Respondent for 2009 the First Applicant as the exclusive licensee of the Second, Third, Fourth and Fifth Applicant demanded licence fees for the use of the Karaoke Music Works from its sub-licensees including the First Respondent that considerably exceeded, by a factor of up to 10 times:
    1. the licence fees rates charged by APRA to karaoke operators in Australia including the First Respondent for the rights to make a copy of a sound recording, to cause a sound recording to be heard in public in a karaoke bar and
    2. the licence fees charged by PPCA for the rights to show music videos in public and communicate them to the public in a karaoke bar.
  1. In the premises the First Applicant has engaged in conduct in trade and commerce that is unconscionable conduct in business transactions in contravention of s.51AC(1) of Trade Practices Act 1974 (Cth).”
  2. The relevant subsections of s.51AC are the following:
(3) Without in any way limiting the matters to which the Court may have regard for the purpose of determining whether a corporation or a person (the supplier) has contravened subsection (1) or (2) in connection with the supply or possible supply of goods or services to a person or a corporation (the business consumer), the Court may have regard to:
(5) A person is not to be taken for the purposes of this section to engage in unconscionable conduct in connection with:

(b) the acquisition or possible acquisition of goods or services from another person;

by reason only that the first-mentioned person institutes legal proceedings in relation to that supply, possible supply, acquisition or possible acquisition or refers to arbitration a dispute or claim in relation to that supply, possible supply, acquisition or possible acquisition.
(6) For the purpose of determining whether a corporation has contravened subsection (1) or whether a person has contravened subsection (2):
(7) A reference in this section to the supply or possible supply of goods or services is a reference to the supply or possible supply of goods or services to a person whose acquisition or possible acquisition of the goods or services is or would be for the purpose of trade or commerce.
(13) Expressions used in this section that are defined for the purpose of Part IVB have the same meaning in this section as they do in Part IVB.”

51. Licences by the applicant constitute the supply or possible supply of services and that the applicant’s general activities in relation to licensing constitutes engaging in conduct for the purposes of s.51AC. The real question here is whether the first applicant on behalf of the second to fifth applicants:

refused
or failed
to enter into commercial negotiations with the first applicant to grant the first applicant a new licence agreement.
except for a licence fee that is excessive compared to the licence fees demanded by APRA and PPCA.
and on terms that are harsh, unconscionable and unfair.

52. It is clear from paragraph 13 of the cross-claim that the refusal or failure to enter into negotiations is subject to the exception in respect to the excessive licence fee and that these integers of the claim cannot be separated. Thus, it would not be a defence to the cross-claim to say that Top Plus did enter into negotiations if it can be established that Top Plus was never prepared to reduce its price to anything that was less than excessive. Even if this was established that would not necessarily mean that Top Plus had acted unconscionably. But if it cannot be established then there is no need to consider unconscionability.

  1. The evidence in relation to the negotiations commences with the meeting at the Zilver restaurant when all participants were presented with a Top Plus information pack which said in terms that the new fee would be $11.00 inclusive of GST per room per day and that a room would constitute 10 seats (i.e. a room with 15 seats would be counted as two rooms). The evidence of what occurred at the meeting indicates that the licensees were not happy about the new charges proposed and that Top Plus was questioned as to why there was such a substantial increase. I am satisfied that Mr Ben Chan gave as an explanation for the licence fee increase its own increase in fees to be paid to the record companies. I am satisfied that there was no movement on the part of Top Plus at that meeting on the position which it had put in its documentation.
  2. Top Plus then transferred the responsibility for negotiations to Phillips Fox and it is true that in the agreement presented to K Square and the other record companies there was an offer of a discount from $11.00 plus GST to $8.00 plus GST per room per day. However, that was a “take it or leave it” offer requiring the parties to sign up by 31 December 2008. I accept Mr Woo’s evidence that he had further telephone conversations with Mr Ben Chan, including one in which Mr Chan asked him to make a counter offer. I also accept that in one conversation Mr Woo said to Mr Chan words to the effect that the proposed price was far too high and Top Plus needed to come down to a more reasonable level. I note that Mr Ben Chan did not file an affidavit which dealt with paragraphs 19 and 20 of Mr Woo’s affidavit of 30 November 2009 which stated:

And he was not examined about it by Mr Bevan when called to give evidence. I am satisfied that, on the balance of probabilities, words to this effect were said. I am also satisfied that K Square in the telephone conversations with Top Plus suggested as a way of reducing the licence fee the taking of a licence either from just some of the record companies or only in respect of Cantonese KTVs as opposed to Cantonese and Taiwanese KTVs. I am satisfied that those proposals were rejected. There is no evidence that Top Plus was prepared to discuss with any of the sub-licensees a licence that was less than the discounted amount offered for the very short period between 23 December and 31 December in the draft agreement that came from DLA Phillips Fox. Whilst much was said about the failure of K Square to put a written counter offer, my reading of the evidence is that K Square gave an indication to Top Plus of the range within which such a counter offer would be placed (2008+) and Top Plus made it clear that a figure of that type would not be acceptable. It is also clear that Top Plus rebuffed another important proposal put by K Square which was for the agreement to be extended beyond one year. It gave as its reason the fact that its licences with the record companies were only for one year.[11] Top Plus rebuffed K Square when it requested an indication as to the possible increases in fees over the next few years, again saying that it did not know what its licence fees to the record companies might be. I think that being rebuffed in this way would have been another discouragement to K Square to make a written counter offer which was what Top Plus were demanding.

  1. The applicant argues that if there was a refusal to negotiate it was by K Square and not Top Plus, firstly, by not making a counter offer and secondly by unilaterally deciding no longer to talk to Top Plus without even the courtesy of the notification of that decision to Top Plus. I have already dealt with the question of the counter offer finding that there was an original counter offer on the basis of 2008 plus and given reasons why I did not expect K Square to put anything further in writing. I think the history of the negotiations would have allowed Top Plus to infer by the end of March 2009 that they were not going any further and indeed it was after this time that Top Plus made the most serious of its investigations into K Square’s infringements. This would indicate that it was aware that negotiations had broken down.
  2. The increase in licence fees required by Top Plus was over 300 per cent. That is a very significant year on year increase. The evidence about the APRA licence fees reveals that the approximate cost of an APRA licence was $5,000.00.[12] The more appropriate comparator is the PPCA licence fee because that is the collection society which the record companies could have joined in order to collect royalties from KTVs. I am of the view that the cross-examination of Mr Chau from K Square established that K Square may have been less than fully frank with the collection society and thus the fee that they are currently paying of $2,334.09 is probably less than they should be paying given the number of rooms they are operating. I suggested in my introduction that the proper fee might be in the region of $5,000.00 but even if it went up to $7,000.00 it was still only one tenth of the proposed Top Plus fee. I would therefore find that the first applicant refused or failed to enter into commercial negotiations with the first respondent to grant the first respondent a new licence agreement from the applicants for 2009 except for a licence fee that was excessive compared to the licence fees demanded by APRA and the PPCA. The first respondent’s pleading says that the first applicant did these things “on behalf of the second to fifth applicants”. At first sight that would not appear to be correct. The first applicant, as the exclusive licensee in Australia, was the person entitled to exercise the second to fifth applicant’s Copyright Act rights and entered into the negotiations on its own behalf. However, particular (e) is in the following form:

No point has been made by the respondent about the words “on behalf of” and I am prepared to accept for the purposes of these proceedings that the first respondent is saying no more than what is said in particular (e), i.e. that the applicant was the exclusive licensee of those other applicants.

  1. K Square says that the terms proposed by Top Plus were harsh, unconscionable and unfair because they were excessive as compared with the immediately preceding licence fee and the licence fees charged by the collecting societies. They say that Top Plus was in a monopoly position as the only person who could licence the record companies’ KTVs in Australia and they say that Top Plus acted wrongfully in the negotiations when it told K Square that the reason for the increase was the demand from the record companies. To the extent that I accept that Top Plus may also have said it was due to Top Plus’ own increased costs, K Square would argue that this was a misrepresentation.
  2. I have already discussed the evidence concerning the record companies’ agreements with Top Plus [23-26]. Top Plus requested that the information contained in the redacted agreement be kept confidential and I therefore attempted in my summation of the evidence to respect that wish. The non-redacted agreements are available as exhibits. I do not think I need to say anymore about them save that I have formed the view that there was no significant increase in costs from the record companies at all and that this statement by Mr Ben Chan was a misrepresentation. Given that Mr Chan would have been aware that many of the agreements which he entered into with the record companies were not even due for renewal in the upcoming year, I would regard this misrepresentation as a very serious one.
  3. I am of the view that Mr Ben Chan probably did give as a reason for the increase in fees his own increased costs. I say this because the information memorandum indicates that Top Plus was going to incur expenses in bringing out karaoke performers, although I found Mr Chan’s evidence about the value of this to the other karaoke lounges ambivalent. The other evidence concerning Top Plus’ expenses was most unsatisfactory. The Court was provided with income and expenses statements covering the years 2006 to 2008 and a budget for 2009. Mr Chan gave evidence with refreshing candour that he really was not the person to ask about accounts. And, as he was the person through whom the income statements had been tendered and no other evidence was brought, I cannot give them any weight. The estimate was prepared by Mr C Chan. It has a total expenditure for 2009 of approximately 1.5 million dollars of which .45 million dollars is legal fees. This was said not to be for the current proceedings, which were not in contemplation at the time the document was prepared but in respect of proceedings against other infringers, presumably the infringers that the attendees at the Zilver restaurant were complaining about. Mr Ben Chan admitted that, apart from one case in Queensland, there had been no other proceedings. Again, the document was not that of Mr Ben Chan, and Mr Chris Chan was not called to explain it. I likewise give that document very little weight and have come to the view that to suggest there was some correspondence between the tenfold increase in licence fees and the company’s expenses going forward for 2009 was a misrepresentation.
  4. I note that the first applicant has indicated in its submissions that it is dealing with “the pleaded case” and that the misrepresentations that I have found were not pleaded. It is these misrepresentations which K Square says escalate the conduct of Top Plus into unconscionability. The evidence upon which the findings that I have made is based only became available during the hearing. Prior thereto the agreements between the record companies and Top Plus had been redacted so that it was impossible for K Square to know what the financial arrangements were between the parties. Whilst the financial statements were attached to an affidavit, it was only when Mr Ben Chan was called that they were explained and utilised and only then was his ignorance of them exposed. The estimate of costs was only produced at the hearing. To the extent that it might be necessary to particularise the unconscionability by making reference to these facts, I would allow the first respondent leave to amend, yet again, its Further Amended Response and Cross-Claim which needs some further work because in the form that has been filed reference has only been made to applicants and not to a respondent in paragraph 13.
  5. Having made the findings adumbrated above, I am now required to determine whether the actions of Top Plus constituted unconscionability and constituted a breach of s.51AC. Ms Rawlings in her helpful written submissions upon this topic commences by making reference to the recent decision of Foster J in ACCC v Allphones Retail Pty Ltd (No 2) [2009] FCA 17 at [109-110] and [113-115]:
...

Foster J’s decision in Allphones Retail was considered and adopted at [17] by Gordon J in ACCC v Dukemaster Pty Ltd [2009] FCA 682 (“Dukemaster”). In that case, his Honour made declarations about matters which have some resonance in the instant case.

“6. Dukemaster, during the period from January 2006 to March 2007, in trade or commerce, in connection with the renewal of the Second Shop 3 Lease and the negotiation of the lease for Shop 3 for the period from 1 February 2007 to 31 January 2010 (the “Third Shop 3 Lease”), engaged in conduct that was, in all the circumstances, unconscionable in contravention of s 51AC of the TPA by reason of:
7. Dukemaster, in March 2007, in trade or commerce, in connection with the continuing operation of the Third Shop 3 Lease, engaged in conduct, that was, in all the circumstances, unconscionable in contravention of s 51AC of the TPA by reason of:
...

There are similar declarations made as declaration [13], [17], [19] and [20].

  1. Many aspects of Dukemaster’s conduct which led to a finding of unconscionability in that case resemble the facts in the instant case. First, both Dukemaster and Top Plus sought an amount, for the lease and licences respectively, for which there was no basis beyond the decision to seek the amount stated. Second, both companies misrepresented the reasons for the price increase; Dukemaster citing market value and Top Plus indicating that its price rise was due to increased operating costs and fees charged by the record companies. Finally, both Dukemaster and Top Plus exerted undue pressure by requiring a response to their offer within a very short time without providing any reason for doing so. These are all matters which the Court may have regard to under s.51AC(3). Although the list is not prescriptive, I will make reference to the subsections where they are relevant.
  2. What is apparent from reading the decision of Gordon J is that it was a combination of factors which rendered the dealing in that case unconscionable. For example, Dukemaster’s decision to charge inflated rent may not have been unconscionable in itself. However, that decision was aggravated by Dukemaster’s misrepresentation that the rent was based on market value when it was aware of the lessee’s limited ability to make their own enquiries. Similarly, Top Plus’ conduct in seeking a 300 per cent increase in licence fees when there was no basis for it was all the more serious on account of the false explanations it gave for the reasons behind the increase (an increase in fees charged by the record companies and increased operating costs). K Square was not in a position to ascertain the truth of either of these claims. These misrepresentations amount to unfair tactics under s.51AC(3)(d) and demonstrate lack of good faith; s.51(3)(k).
  3. In both the Dukemaster case and the instant case the overcharging and misrepresentations were exacerbated by other factors, including a requirement that a response to the offer be provided within seven and eight days respectively. Top Plus sent its offer on 23 December 2008 and required a response by 31 December 2008. Although K Square had been a willing party to the licence agreement in previous years, the substantial increase in fees meant that its decision to re-sign the agreement could not be made lightly. In addition, no evidence was provided as to why a response was required so urgently.
  4. Given that Top Plus had a monopoly on the supply of licences for these extremely popular KTVs, I consider that the pressure exerted by Top Plus on K Square is further evidence of a lack of good faith and was, in all the circumstances, unfair. These are matters which are canvassed in s.51AC(3). The monopoly held by Top Plus is relevant to the relative strengths of the bargaining positions of each party; s.51AC(3)(a), whilst Top Plus’ requirement that the agreement be executed in the eight day period over the Christmas break is an example of the type of undue pressure described in s.51AC(3)(d). It is also relevant that, even after that deadline passed, Top Plus was not prepared to enter genuine negotiations; s.51AC(3)(j).
  5. I am satisfied that Top Plus’ conduct was, in all the circumstances, unconscionable.
  6. Because it has been agreed that damages will be the subject of a further hearing and noting that I have made some remarks which indicate that s.115(4) damages are appropriate, I will also note that in regard to damages under s.82 for breach of s.51AC consideration will have to be given to whether damages can be awarded in circumstances where the unconscionable conduct that I have found to have taken place did not result in any contractual relationship. This would place any award of damages on a “loss of opportunity” basis with all its incumbent difficulties. The applicant has urged that no damages be awarded because of the respondent’s conduct, putting this forward on an equitable basis, but this was not a matter which received any consideration at the hearing on liability. Finally, I will have to consider the fact that the respondent, through its infringing conduct had the benefit of the licence it declined to accept so that it could not be said to have lost any profit through exclusion from a licence caused by the applicant’s unconscionable conduct.
  7. I should also make it clear that I do not consider the applicant’s conduct could justify the respondent’s infringement of its copyright. The proper course to have taken once negotiations had broken down was to pursue the remedy now pursued, not to indulge in unlawful activity in mitigation. Two wrongs do not make a right. A defendant on a charge of assault is not exonerated on the basis that, had it not been for the victim’s conduct in provoking and striking her, the defendant would not have assaulted him in the first place; Deatons Pty Ltd v Flew [1949] HCA 60; (1949) 79 CLR 370 at [380]. Similarly, irrespective of the way in which a debtor has conducted himself in his business relationship with a creditor, the latter must pay the price for the consequences of taking the law into their own hands; Modern Weighbridge & Anor v Carpenter [1994] FCA 961 at [236].
  8. The declarations and orders which I will make upon the claim are those accepted by the first respondent in regard to the breach of copyright. I have not found for the fifth applicant and all reference to it has been excluded. On the cross-claim I have made declarations and orders similar in form to those set out by Gordon J in Dukemaster.

I certify that the preceding sixty-nine (69) paragraphs are a true copy of the reasons for judgment of Raphael FM


Associate:


Date: 10 February 2009

[1] Evidence of A Woo T143-144
[2] Affidavit of Mr T Chau dated 6 July 2009 para 17
[3] Affidavit of Mr T Chau dated 6 July 2009 para 18
[4] Affidavit of Mr K Woo dated 30 November 2009 para 30
[5] Affidavit of Mr K Woo dated 30 November 2009 para 19-20
[6] Affidavit of Mr R Chan dated 6 July 2009
[7] Tab 4 of Exhibit WCT1 to Ms W Tang’s Affidavit dated 4 December 2009
[8] Affidavit of Mr J Lee dated 6 November 2009 para 6, Affidavit of Mr R Chow dated 6 November 2009 para 7
[9] Affidavit of Mr T Chau dated 6 July 2009 para 38
[10] Affidavit of Ms L Tang dated 27 July 2009 para 22
[11] Affidavit of Mr B Chan dated 7 July 2009 para 4(g)
[12] Affidavit of Mr T Chau dated 6 July 2009 para 11

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