Tiny Intelligence Ltd v Resport Ltd [2008] NZCA 281; [2009] 1 NZLR 590; (2008) 8 NZBLC 102,381 (5 August 2008)

Last Updated: 2 February 2018

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IN THE COURT OF APPEAL OF NEW ZEALAND

CA270/06
[2008] NZCA 281

BETWEEN TINY INTELLIGENCE LIMITED
Appellant

AND RESPORT LIMITED
Respondent

Hearing: 1 April 2008

Court: William Young P, Hammond and Ellen France JJ

Counsel: C R Carruthers QC and D J C Russ for Appellant
K W Clay for Respondent

Judgment: 5 August 2008 at 4 pm

JUDGMENT OF THE COURT

A The appeal is dismissed.

B Costs are reserved.

____________________________________________________________________

REASONS OF THE COURT

(Given by William Young P)

Introduction

[1] Resport Ltd infringed – and in a flagrant way – the copyright of Tiny Intelligence Ltd in a toy sword and toy trumpet and marketed the infringing copies to supporters of the Crusaders rugby team. John Hansen J found against Resport on liability and granted an injunction, see HC CHCH CIV 2003-409-352 21 November 2005. He reserved for further consideration what financial relief to award to Tiny Intelligence. In a second judgment, delivered on 15 November 2006 and reported at [2006] NZHC 1428; [2007] 2 NZLR 263, he awarded Tiny Intelligence $50,000, being his assessment of the profits which had accrued to Resport but dismissed a claim for additional damages under s 121(2) of the Copyright Act 1994.
[2] Tiny Intelligence now appeals, challenging the dismissal of the claim for additional damages and also the failure of the Judge to award interest.

The dismissal of the claim for additional damages

Overview

[3] Sections 120 and 121 of the Copyright Act relevantly provide:

120 Infringement actionable by copyright owner

(1) An infringement of copyright is actionable by the copyright owner.

(2) In proceedings for infringement of copyright, all such relief by way of damages, injunctions, accounts, or otherwise is available to the plaintiff as is available in respect of the infringement of any other property right.

...

121 Provisions as to damages in infringement proceedings

(1) Where, in proceedings for infringement of copyright, it is proved or admitted that at the time of the infringement the defendant did not know, and had no reason to believe, that copyright existed in the work to which the proceedings relate, the plaintiff is not entitled to damages but, without prejudice to the award of any other remedy, is entitled to an account of profits.

(2) In proceedings for infringement of copyright, the court may, having regard to all the circumstances and in particular to—

(a) the flagrancy of the infringement; and

(b) any benefit accruing to the defendant by reason of the infringement,—

award such additional damages as the justice of the case may require.

...

[4] Tiny Intelligence relied on s 121(2). It established that the infringement was flagrant and sought “additional damages” as well as an account of the profits made by Resport. John Hansen J held that because Tiny Intelligence had elected an account of profits, it was precluded from also claiming additional damages. The Judge followed the House of Lords’ decision in Redrow Homes Ltd v Bett Brothers Plc [1998] UKHL 2; [1999] 1 AC 197, in which virtually identical statutory provisions were under consideration. The primary issue in relation to this aspect of the case is whether the Judge correctly followed Redrow.

The provenance of ss 120 and 121

[5] The creation of a power to award additional damages was proposed in the Report of the Copyright Committee (1953) Cmnd 8662, usually known as the “Gregory Committee”, at [294]. The Gregory Committee considered that there could be cases for which the existing remedies (injunction, damages for infringement and damages for conversion) might be inadequate. It therefore recommended providing courts with a “discretionary power to impose something equivalent to exemplary damages in cases where the existing remedies give inadequate relief”.
[6] These recommendations resulted in the enactment of s 17(3) of the Copyright Act 1956 (UK), which provided:

Where in an action under this section an infringement of copyright is proved or admitted, and the court, having regard (in addition to all other material considerations) to

(a) the flagrancy of the infringement, and
(b) any benefit shown to have accrued to the defendant by reason of the infringement,

is satisfied that effective relief would not otherwise be available to the plaintiff, the court, in assessing damages for the infringement, shall have power to award such additional damages by virtue of this subsection as the court may consider appropriate in the circumstances.

[7] An identical provision appeared as s 24(3) in our Copyright Act 1962. Section 24 was relevantly in these terms:

24 Action by owner of copyright for infringement

(1) Subject to the provisions of this Act, infringements of copyright shall be actionable at the suit of the owner of the copyright; and in any action for such an infringement all such relief, by way of damages, injunction, accounts, or otherwise, shall be available to the plaintiff as is available in any corresponding proceedings in respect of infringements of other proprietary rights.

(2) Where in an action for infringement of copyright it is proved or admitted—

(a) That an infringement was committed; but

(b) That at the time of the infringement the defendant was not aware, and had no reasonable grounds for supposing, that it was an infringement of copyright,—

the plaintiff shall not be entitled under this section to any damages against the defendant in respect of the infringement, but shall be entitled to an account of profits in respect of the infringement, whether any other relief is granted under this section or not.

(3) Where in an action under this section an infringement of copyright is proved or admitted, and the Court, having regard (in addition to all other material considerations) to—

(a) The flagrancy of the infringement; and

(b) Any benefit shown to have accrued to the defendant by reason of the infringement,—

is satisfied that effective relief would not otherwise be available to the plaintiff, the Court, in assessing damages for the infringement, shall have power to award such additional damages by virtue of this subsection as the Court may consider appropriate in the circumstances.

...

[8] Pausing at this point, we note that in both s 17(3) of the 1956 United Kingdom statute and s 24(3) of the 1962 New Zealand statute:

• (a) The power to award additional damages was subject to the court being satisfied that “effective relief would not otherwise be available”. As will be already apparent, this precondition does not appear in the current Act.
• (b) The power to award additional damages was expressed to apply in cases when the court was “assessing damages for the infringement”.

[9] It is also necessary to refer to ss 96 and 97 of the Copyright, Designs and Patents Act 1988 (UK), which correspond closely to ss 120 and 121 of our Copyright Act 1994, respectively. Section 97, which was the subject of Redrow and uses practically identical language to our s 121, is in these terms:

97 Provisions as to damages in infringement action

(1) Where in an action for infringement of copyright it is shown that at the time of the infringement the defendant did not know, and had no reason to believe, that copyright subsisted in the work to which the action relates, the plaintiff is not entitled to damages against him, but without prejudice to any other remedy.

(2) The court may in an action for infringement of copyright having regard to all the circumstances, and in particular to —

(a) the flagrancy of the infringement, and

(b) any benefit accruing to the defendant by reason of the infringement,

award such additional damages as the justice of the case may require.

Is there an inconsistency between seeking both an account of profits and damages?

[10] There are two ways in which it could be regarded as inconsistent to seek both an account of profits and damages.
[11] It is common ground that claims for compensatory damages and an account of profits are contradictory and are not able to be brought concurrently. That in itself is not necessarily inconsistent with concurrent claims for an account of profits and additional (or exemplary) damages unless a successful plaintiff who seeks an account of profits is to be taken as thereby ratifying the infringement – an idea which finds support in the speech of Lord Westbury in Neilson v Betts (1871) LR 5 HL 1, where he observed (at 22):

My Lords, I have only farther to observe that the decree of the Court below directed not only an enquiry as to damages, but also an account of profits. The two things are hardly reconcilable, for if you take an account of profits you condone the infringement. I therefore think, my Lords, that we were right in calling upon the Respondent’s Counsel to elect between the two which he would adopt. He has adopted the inquiry as to damages, and the other, the account of profits, must be struck out of the decree.

[12] This perhaps metaphysical reasoning was not regarded as convincing by Laddie J in Cala Homes (South) Ltd v Alfred McAlpine Homes East Ltd (No 2) [1996] FSR 36 at 41 – 42 (QB) (a judgment later overruled on other grounds in Redrow). Nonetheless the idea of condonation was picked up in New Zealand by the Ministry of Justice’s departmental report on the Copyright Bill of 3 November 1994 (at 120 – 121):

Clause 112

Clause 112 deals with damages in infringement proceedings.

Submissions

Submission 55W considers that subclause 112(1) serves no useful purpose as it is impossible to prove knowledge or lack of knowledge and in many cases damages and an account of profits are roughly equivalent.

Comment

We do not agree that this clause serves no useful purpose. A defendant may be able to prove that the infringement was innocent in the sense that the defendant did not know and had no reason to believe copyright existed in the work. The onus of proving lack of knowledge is on the defendant. There may not be many cases where there infringement is genuinely innocent but that is not a sufficient reason to remove the subclause.

The conceptual basis for an account of profits is different from that for an award of damages. An account of profits condones the infringement whereas an award of damages does not. The basis for the calculation of an award of damages and an account of profits is also different. The fact that sometimes the end result is fairly similar is not sufficient justification to change the clause.

[13] A second and more practical possible inconsistency lies in the incongruity of the different forms of relief. On an account of profits a defendant might be thought fairly to be entitled to an allowance for expenses (or liabilities) incurred as a result of the infringement. Assuming say an award of additional damages against Resport of $25,000, it might be thought to follow that the actual profit associated with the infringement was not $50,000 but only $25,000. This particular point was not addressed by Laddie J in the Cala Homes case.
[14] When we put this problem to Mr Carruthers QC, he said that it was not conclusive because the case turned on whether s 121(2) contemplates an award of additional damages in a case where there is an account of profits. That is, as far as it goes, a legitimate point. If s 121(2) was intended to permit a successful plaintiff to receive both the profits made by the defendant and additional damages, it necessarily follows that the account of profits component of the award must not contain an allowance (or off-set) for the additional damages. Mr Carruthers’ response, however, did not shed much light on why:

• (a) The legislature would have provided for a remedy by way of account on a basis that not all expenses associated with the infringement should be allowed for; and
• (b) Why it would provide for so conceptually awkward a basis for an account without making it clear, explicitly, that this is what was intended.

The meaning of the phrase “additional damages”

[15] In issue is whether the phrase “additional damages” is confined to a financial award which is “additional” to compensatory (or nominal) damages or extends to a financial award which is “additional” to any other relief granted.
[16] The judgment in Cala Homes addressed ss 96 and 97 of the Copyright, Designs and Patents Act 1988 (ie the British analogues to ss 120 and 121 of our Copyright Act 1994). Laddie J had directed an account of profits against an infringing party and in issue before him was whether the plaintiffs could also seek additional damages.
[17] As already noted, Laddie J was not impressed by an argument based on the speech of Lord Westbury in Nielson v Betts. Having dismissed that argument, he then went on to refer to the Gregory Committee and in particular the passage of its report which we have already set out. He noted that prior to the judgment of the House of Lords in Rookes v Barnard [1964] UKHL 1; [1964] AC 1129, the expression “exemplary damages” tended to be used imprecisely. He then went on (at 42):

In any event, what was being suggested and what the 1956 Act did was to create a judicial discretion to award ahead of statutory damages over and above the remedies otherwise normally available to a successful plaintiff. Furthermore those damages would be available where “existing remedies” gave inadequate relief. There is nothing in the Report which suggests that it was intended that the statutory damages should be restricted to cases where the plaintiff had sought an enquiry as to damages and not an account.

The better view appears to be that the 1956 Act created a form of relief which was sui generis to copyright law.

[18] Laddie J then discussed the reasons for the shift in language between the Copyright Act 1956 (UK) and ss 96 and 97 of the 1988 Act and particularly the dropping of the condition that additional damages could only be awarded if effective relief would not otherwise be available. He concluded (by reference to the Whitford Committee Report on the Reform of Copyright and Designs Law (1977) Cmnd 6732) that the dropping of the pre-condition was intended as a quid pro quo for the 1988 Act’s abolition of the entitlement to seek conversion damages. Having regard to that history, he concluded that there was no requirement to limit additional damages to cases where the plaintiff had elected to pursue damages rather than an account of profits.
[19] Notably, Laddie J did not address the significance of the words “in assessing damages”, which formed part of s 17(3) of the 1956 Act.
[20] This judgment undoubtedly supports the arguments advanced by Mr Carruthers for Tiny Intelligence. Unfortunately for Tiny Intelligence, however, the judgment of Laddie J in Cala Homes was overruled by the House of Lords in Redrow.
[21] The primary speech in Redrow was that of Lord Jauncey of Tullichettle. He started with s 17 of the 1956 Act. As to this section he said (at 204):

Section 17(1) contemplated, inter alia, an action of damages for infringement. Subsection (2) provided that such damages should not be available against an innocent infringer. When subsection (3) referred to “assessing damages” it referred back to the damages mentioned in subsection (1) and (2), that is to say, normal compensatory damages for infringement. Subsection (3) made clear that it was only in assessing such damages that the court had power to award additional damages. There could thus have been no question of additional damages being awarded where an account of profits had been awarded. Additional damages in the subsection were damages additional to those being awarded under section 17(1).

Lord Jauncey then referred to the background to the 1988 Act and in particular to the Whitford Committee Report at [704]. He concluded that the dropping of the precondition that there would otherwise not have been an effective remedy did not suggest that additional damages could be awarded otherwise than in conjunction with normal compensatory damages. Both Lord Jauncey and Lord Clyde (who delivered the other substantive speech) were of the view that the dropping of the words “in assessing damages for the infringement” was a mere change in expression and did not have the effect of uncoupling the jurisdiction to award additional damages from an award of compensatory damages.

[22] It is true, as Mr Carruthers urged on us, that the 1988 Act chose to deal specifically with the interpretative impact of differences in wording between itself and the 1956 Act. Section 172(2), in particular, provided that:

A provision of this Part which corresponds to a provision of the previous law shall not be construed as departing from the previous law merely because of a change of expression.

It is also true that both Lord Jauncey and Lord Clyde drew some support for their position from provisions associated with remedies provided in relation to infringement of design rights in the 1988 Act, which have no counterparts in our statute.

[23] The significance of these points of distinction is best assessed by reference to the four considerations, set out at 208 – 209, which led Lord Clyde to reject the approach of Laddie J:

In the first place the language used in the statute seems to me to point to the understanding that what is intended in section 97(2) is an enhancement of an award of damages and not the provision of a self-standing remedy. The use of the word “damages” in sections 96(2) and 97(1) plainly refers to the ordinary remedy of damages and it is difficult to read the term “additional damages” in section 97(2) as something quite separate and distinct. The phrase itself naturally reads as intending an addition to an award of damages rather than, as Laddie J. put it, at p. 40, “damages additional to the relief ordinarily available under section 96(2).”

Secondly, it seems to me that Chapter VI of the Act, which commences with section 96, sets out a statutory code for the remedies for infringement of copyright. This is reflected in particular in sections 96 and 97 by the repetition of the phrase “in an action for infringement of copyright,” in sections 96(2), 97(1) and 97(2). The provision in section 97(1) is tied in as part of the scheme and does not constitute a separate remedy. The initial list of remedies in section 96(2) is made by subsection (3) to have effect “subject to the following provisions of this Chapter.” Thus structurally section 97(1) is a qualification to section 96 and it is natural to read section 97(2) as similarly related. In this way section 97 appears to contain respectively a derogation from and an embellishment to the provisions of section 96(2). That it is not as matter of form directly included within section 96(2) does not mean that it is an independent self-standing remedy. The corresponding provision of the Act dealing with design right, section 229, provides in subsection (2) for the list of remedies and in subsection (3) for the award of “additional damages.” That the provision appears in the one context in a separate section and in the other in the same section suggests that the particular layout of sections 96 and 97 is not of consequence.

In the third place, it seems to me quite clear that additional damages under the earlier legislation, section 17 of the Copyright Act 1956, were intended to be an enhancement of an award of ordinary damages. In section 17(3) it was expressly provided that the court might make such an award “in assessing damages for the infringement.” Those words have not been copied in the later form of the legislation in section 97. But the significance which might otherwise have been attributed to the disappearance of those words in the Act of 1988 is materially diminished by the provisions of section 172. That section explains that Part I of the Act, into which sections 96 and 97 fall, is restating and amending the law of copyright. It then provides expressly in subsection (2) that a provision of Part I which corresponds to a provision of the previous law is not to be construed as departing from the previous law merely because of a change of expression. Subsection (3) expressly permitted reference to decisions under the former law to establish a departure from the previous law or to establish the true construction of Part I. The intention was plainly not only to amend but also to restate the former law, in what was no doubt hoped to be clearer language, and to preserve the existing jurisprudence. The expression “additional damages” remained unchanged. If it was to be transformed into some independent remedy compatible with an accounting that would have required clear words. On the contrary the retention of the expression and the evident intention to re-write without necessarily amending the law suggest that the concept of additional damages was not intended to be changed. Furthermore I find no indication in paragraph 704 of the report of the Whitford Committee, which deals with this matter, of the intention to make any basic change in the concept of additional damages. It was evidently desired to strengthen the deterrent element in a damages award with particular reference to flagrant infringements, especially since it was proposed to remove the provisions in section 18 of the Act regarding conversion damages. The whole context and substance of the discussion is one of damages. The intention at least of the Committee was evidently to widen the scope of the remedy and the deletion of the words in the former legislation restricting the award of additional damages to cases where “effective relief would not be otherwise available” was not done in order to change the nature of the award from being an enhancement of an award of damages.

Finally, I accept that, as counsel for the appellant explained, a distinction can be drawn between a “benefit accruing to the defendant” such as is referred to in section 97(2) and the net profits which the defender might earn by the infringement. The latter would be caught by an action for accounting, but the former could extend to such matters as the acquisition of an enhanced position in the market which would not be included in a calculation of the net profits. But this additional content for the word “benefit” does not seem to me to justify the conclusion that an award under section 97(2) was intended to be available when the pursuer opted to claim an accounting. The matter of a benefit accruing to the defender was among the express considerations to which the court was to have regard under the former provision in section 17(3)(b) of the Act of 1956 which was plainly in the context of an award for damages. That the remedy of an award under section 97(2) may not be available as an addition to an accounting of profits is wholly consistent with the basic principle that an award for damages is inconsistent with an accounting. Whether the character of an award of damages under section 97(2) is defined as exemplary damages, or, more probably, aggravated damages, it remains an award of damages. In the absence of any clear indication to the contrary I am not persuaded that Parliament intended to innovate upon the basic principle and allow a claim of this kind to be pursued alongside an accounting. But that is what the pursuers have sought to do in the present action.

[24] We have italicised those parts of the speech which most obviously contain reasoning that is inapplicable to our statute. A substantial portion of the reasoning remains applicable. Furthermore, when the New Zealand Parliament enacted ss 120 and 121 of the 1994 Act, it presumably intended them to have the same meaning as ss 96 and 97 of the United Kingdom Act. If this was not the intention, why copy the language of those sections?
[25] We note as well that a similar approach to that in Redrow has been adopted in Australia in relation to similarly expressed Australian legislation (s 115 of the Copyright Act 1968 (Cth)), see LED Builders Pty Ltd v Eagle Homes Pty Ltd [1999] FCA 584; (1999) 44 IPR 24 (FCA).
[26] Mr Carruthers advanced a number of arguments as to why we should construe s 121(2) of the 1994 Act as permitting a claim for additional damages in conjunction with a claim for an account of profits:

• (a) He noted the change in structure between s 24 of the 1962 Act and ss 120 and 121 of the 1994 Act, with a separating of the available remedies (as listed in s 120(2)) and the qualifications (s 121).
• (b) He stressed the dropping of the words “in assessing damages for the infringement” from the 1994 Act.
• (c) He contended that a limitation of additional damages to cases where compensatory damages are sought will have the result that flagrancy will sometimes go unpunished.
• (d) He relied on the New Zealand cases on additional damages, see International Credit Control Ltd v Axelson [1974] 1 NZLR 695 (SC), Wellington Newspapers Ltd v Dealers Guide Ltd [1984] 2 NZLR 66 (CA), Thornton Hall Manufacturing Ltd v Shanton Apparel Ltd [1989] NZCA 159; [1989] 3 NZLR 304 (CA) and Wilson v Broadcasting Corporation of New Zealand [1990] 2 NZLR 565 (HC). The judgments do not give any indication that the power to award additional damages is confined to situations where damages are sought. Indeed, in Axelson Mahon J plainly assumed that additional damages could be awarded on top of an account of profits and the same is true of McMullin, Somers and Greig JJ in the Dealers Guide case.

[27] We consider that points (a) and (b) are adequately addressed in the reasons given by Lords Jauncey and Clyde in Redrow. Point (c) has some force but it is important to remember the gains made by a defendant can be captured in an award of additional damages. So there is no need to seek both an account of profits and additional damages. Point (d) is true as far as it goes, but none of the cases addressed the issue squarely and all were decided in relation to s 24 of the 1962 Act which contained the words “in assessing damages” and plainly confined additional damages to cases where damages were sought.
[28] There is one additional point that we should make. Where there is a possibility that the plaintiff may seek additional damages, it is appropriate for the Judge, when determining liability, also to make a finding as to flagrancy, thus permitting the plaintiff to make an informed choice between an account and damages, see Condé Nast Publication Ltd v MGN Ltd [1998] FSR 427 (QB). This practice which is well established in England, has much to commend it and takes a good deal of the sting out of the rather stark debate over an enforced election. In this case, the Judge did not make an express finding as to flagrancy in his first judgment (presumably because he was not asked to do so) but such a finding was probably implicit in the way in which the judgment was expressed.

The failure to award interest

[29] This aspect of the case was settled after the hearing of the appeal on the basis that Resport agreed pay Tiny Intelligence $18,000 by way of interest with payment to be made on 27 June 2008. No formal order was sought but on the basis that this agreement would be material to costs.

Disposition

[30] The appeal is dismissed and we reserve costs.
[31] Because Tiny Intelligence succeeded, in substance, on the interest point but failed on the additional damages issue, it may be appropriate for there to be no order as to costs. If either party seeks costs, counsel should file memoranda.

Solicitors:
Russ & Associates, Christchurch for Appellant
Macfarlane Dougall Stringer, Christchurch for Respondent