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High Court of New Zealand Decisions |
Last Updated: 28 June 2016
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
CIV-2005-419-000809 [2016] NZHC 1188
BETWEEN
|
ORAKA TECHNOLOGIES LIMITED
First Plaintiff
ORAKA GRADERS LIMITED Second Plaintiff
MICHAEL WILLIAM SCHWARZ Third Plaintiff
|
AND
|
GEOSTEL VISION LIMITED First Defendant
|
AND
|
P DAYNES AND G ROBERTSON Second Defendants
|
AND
|
NAPIER TOOL & DIE LIMITED Third Defendant
|
Hearing:
|
11, 12 and 13 April 2016
|
Appearances:
|
B P Henry and A M Dunlop for the Plaintiffs
No appearance by or for First and Second Defendants P G Skelton QC, M J
Gavin and C D Herbert for the Third Defendant
|
Judgment:
|
2 June 2016
|
JUDGMENT OF HINTON J
This judgment was delivered by me on 2 June 2016 at 5.00 pm pursuant to Rule 11.5 of the High Court Rules
.......................................................
Registrar / Deputy Registrar
Counsel/Solicitors:
Brian Henry, Barrister, Auckland
P G Skelton, QC, Auckland
Hudson, Gavin, Martin, Solicitors, Auckland
ORAKA TECHNOLOGIES LIMITED v GEOSTEL VISION LIMITED [2016] NZHC 1188 [2 June 2016]
[1] This judgment deals with a question of damages. There is only one
issue, but it is a significant one: is this a case where
a party can recover
“third party” losses?
[2] The third plaintiff, Michael Schwarz, developed the Oraka Grader,
the first automatic asparagus sorter in the world.
[3] The Oraka Grader has a unique tip cup assembly.
[4] After many years of litigation, the Court of Appeal determined in
its second judgment,1 that copyright in the cup assembly is
held by the first plaintiff, Oraka Technologies Ltd (upholding Allan J) and
that
copyright had been infringed by the defendants (reversing Allan J).
Judgment was entered for Oraka Technologies Ltd, as the owner
of the copyright,
against all defendants, and the matter remitted back to this Court for an
inquiry into damages.
[5] However, during the infringement period, the Oraka Grader was
exclusively manufactured and sold, under an informal arrangement,
by the
second plaintiff, Oraka Graders Ltd. Oraka Graders Ltd suffered the loss, but
it had no cause of action for breach of copyright
as it did not hold a written
exclusive licence, required by the Copyright Act 1994.
[6] Can Oraka Technologies Ltd recover losses directly
suffered by
Oraka Graders Ltd?
A brief history of the Oraka Grader
[7] The matter has an extensive background, but the facts can be
limited to those relevant to the remaining issue.2
[8] Mr Schwarz began developing the Oraka Grader in the early 1980’s. He and his wife, Janet Schwarz, were growing asparagus commercially in Tirau. He became interested in mechanisation of the grading process. World-wide, asparagus was still
being sorted by hand. As Mr Schwarz put it:
1 Oraka Technologies Ltd v Geostel Vision Ltd [2013] NZCA 111.
2 For a detailed factual history, refer to Oraka Technologies Ltd, above n1.
Sorting asparagus is one of the most difficult crops to work with in the
agricultural world. It won't roll like a lot of fruit; it
is reluctant to
behave well in water, as many crops will; and, it is much more delicate than
most other products. You can't tip
it out of bins; you can't shovel it or stack
it deeply. If the wind blows, it becomes bent and no two spears are ever the
same shape.
In addition to this, the size range between the largest and the
smallest is very great. For these reasons asparagus had resisted
mechanisation more than many other crops.
[9] It is evident that a large amount of work was involved
on the part of Mr Schwarz, including development
of a number of
systems which were unsuccessful. The Oraka Grader finally went into
commercial production in or around
1993, after Mr Schwarz perfected the design
of the cup assembly, which was the key component of the machine’s
successful operation.
[10] Oraka Technologies Ltd (OTL) was incorporated on 12 March 1993. At
all
times, OTL’s directors and shareholders have been Mr and Mrs
Schwarz.
[11] On 19 March 1993, Mr Schwarz assigned the copyright ownership to OTL
by deed. Since then, OTL has remained the owner of
the copyright.
[12] OTL ran the business of manufacturing and selling the Oraka Grader
from
1993 until 1996. OTL got into financial difficulty and stopped trading in
late 1996.
[13] In October 1996, at the instigation of Mr Schwarz, Oraka
Technologies Holdings Ltd (OTHL) was incorporated. Mr
and Mrs Schwarz were
again directors and shareholders, but in addition, a Mr Kinder and a Mr Bell
held a 15 per cent shareholding
each. Mr Kinder and Mr Bell provided a
guarantee to the bank and received their shareholding in exchange.
[14] OTHL stepped into the shoes of OTL. Between late 1996 and 2001,
OTHL
manufactured and sold the Oraka Grader.
[15] By 1999, Messrs Kinder and Bell wanted to exit OTHL and to be
released from their guarantee. By March 2001, Mr and Mrs Schwarz
bought them
out.
[16] In 2000, Mr Schwarz suffered a heart attack and was subsequently in ill-health. His two adult children came to the assistance of the business.
[17] On 6 March 2001, at the instigation of Mr Schwarz, OGL was
incorporated. Neither Mr Schwarz nor his wife are directors
or
shareholders of OGL. The directors and shareholders are their two
adult children, Robert Schwarz and Anne-Maree
Schwarz.
[18] OGL stepped into the shoes of OTHL. Between mid-2001 and the
present day, OGL has manufactured and sold the Oraka Grader.
[19] Mr Daynes, one of the second defendants, provided software
development services to the plaintiffs up until July 2001. Mr
Robertson, the
other second defendant, was a commission sales agent for Mr Schwarz in Greece
until July 2001.
[20] In July 2001, Mr Daynes and Mr Robertson incorporated the first
defendant, Geostel Vision Ltd (Geostel). Through Geostel,
they went into
competition with the plaintiffs.
[21] The third defendant, Napier Tool & Die Ltd (NTD) provided
design, tooling and manufacturing services to OTL, OTHL, OGL
and then also to
Geostel.
[22] As the Court of Appeal found, the three defendants
copied the Oraka Grader’s unique tip cup assembly.
This caused serious
damage to OGL’s business.
[23] The first and second defendants are unrepresented and
apparently impecunious. The third defendant, NTD, opposes
any award of damages
to OTL.
The Oraka group
[24] Throughout, Mr Schwarz has been the key man of the Oraka business, whichever Oraka company has been the trading entity. Although it had been contemplated that Robert Schwarz would join him once OGL was incorporated, the down-turn resulting from the competition created by the first defendant, Geostel, meant OGL could only effectively fund Mr Schwarz. Anne-Maree Schwarz worked in the Solomon Islands, as she had done before the incorporation of OGL.
[25] Mr Schwarz controlled OGL, although he had no legal right to do so.
His son’s evidence in this regard was not challenged.
In addition, it
seems that any profits generated in OGL, again possibly improperly, were
directed to OTL, Mr Schwarz
or another of the Oraka group. The
evidence in this regard of Mr Walker, one of the expert accountants
called
by OTL, was not successfully challenged and no evidence was called by
the third defendant. Mr Walker said that OGL was a “proxy”
for OTL.
This seems logical given OGL had simply stepped into the shoes of OTL (via
OTHL).
[26] It seems, and I accept, that the plaintiffs operated as an informal
group, of which OTHL was also an earlier part.
A summary of OTL’s compensatory damages claim
[27] The amended statement of claim dated 18 January 2016 pleads the
quantum of the loss caused by the defendants’ infringement
at $4,453,661.
This is broken down into loss of expected revenue in OGL of $3,603,027 and loss
of salary for Mr Schwarz of $850,634.
These figures are supported by detailed
evidence from Mr Walker and Mr Beylefeld, both specialist forensic accountants
of Crowe
Horwath (NZ) Ltd. They speak of the loss being suffered by
“Oraka”, which they define broadly. The pleading refers
to the
loss being directly suffered by OGL, as the trading entity, and by Mr Schwarz.
In reality, it is all suffered first by OGL
since it is the party notionally
paying Mr Schwarz the lost salary. For convenience, I refer to the loss
henceforth as a loss of
OGL, which is largely how the parties, at least NTD,
have characterised it. It makes no difference to the analysis.
[28] The quantum is effectively unopposed. The plaintiffs’
witnesses were briefly cross-examined as to various quantum
issues (including
liability for taxation and the financial difficulties besetting OTL prior to
infringement), but NTD did not contest
quantum in its closing
submissions.
[29] NTD’s opening submissions recite the amounts in the amended statement of claim, which I have set out directly above. However, Mr Henry advised in oral submissions that the plaintiffs’ experts had reduced the total claim of $4,453,661 to
$4.1 million. As I understand it, this resulted from removing the effect of
compounding interest from the calculations. The sum
of $4.1 million is the sum
with which Mr Walker concludes his brief, although it is not easy to see how he
reached that lower figure.
[30] In any event, in the absence of any contrary position, I am
satisfied on the balance of probabilities that the loss can be
taken as $4.1
million.
[31] The question is, what damages, if any, can OTL recover for
the losses suffered directly by OGL?
[32] NTD’s case is that OTL is limited to a claim for its own loss;
OTL has suffered no loss; the loss of $4.1 million
was suffered by
OGL and is not recoverable. Mr Skelton QC, for NTD, says OTL is
entitled only to nominal damages.
[33] Mr Henry, for the plaintiffs, opened by saying that he was seeking a
damages judgment in favour of all three plaintiffs and
he could therefore rely
on the loss suffered by any of the three. Clearly judgment for the three
plaintiffs is not possible. The
Court of Appeal has entered judgment for OTL and
has remitted the matter back to this Court for an enquiry into damages. Any
judgment
can only be in favour of OTL.
General approach to damages in copyright cases
[34] The court’s jurisdiction to award damages for breach of
copyright is set out in ss 120 and 121 of the Copyright Act
1994 (the
Act).
[35] Section 120 provides that an infringement of copyright is actionable by the copyright owner and that in proceedings for infringement of copyright, all relief by way of damages or otherwise is available to the plaintiff, as is available in respect of the infringement of any other property right.
[36] As has been regularly stated, infringement of copyright is a
statutory tort and, as with any other tort, the object of damages
in a breach of
copyright action is to compensate for loss or injury.3 The injured
party is to be put in the same position they would have been in had they not
sustained the wrong. Where a plaintiff elects
for damages rather than an
account of profits, they must prove their loss.
[37] Damages are to be liberally assessed, the defendant being a
wrongdoer, but on the basis that they are to compensate the plaintiff
and not
punish the wrongdoer. However, there is also power to award additional or
punitive damages under s 121(2) of the Act, to
which I revert.
[38] There is a wide range of pecuniary remedies available in
infringement cases.4
Quantum is not assessed by reference to any strict or consistent
formula.
[39] Damages can be awarded for lost opportunities. For example, where
a party has proven that they would probably have won
a contract which the
infringement denied them the opportunity or chance of securing, then damages are
awarded for the value of that
lost opportunity.5 Again, there is
nothing new in this.
Compensation for “third party” losses – loss of
opportunity for OTL
[40] The general rule is that a claimant is limited to claiming its own
loss. As
Lord Millett explained in Panatown Ltd v Alfred McAlpine Construction
Ltd:6
The necessity of such a rule in relation to compensatory damages is, in my
opinion, self-evident. Compensation is compensation for
loss; its object is to
make good a loss. It is inherent in the concept of compensation that only the
person who has suffered the
loss is entitled to have it made good by
compensation. Compensation for a third party’s loss is a contradiction
in terms.
It is impossible on any logical basis to justify the recovery of
compensatory damages by a person who has not suffered the loss
in respect of
which they are awarded unless he is accountable for them to the person who
has.
NZBLC 102, 913 (CA) at 6.
4 Bailey v Namol Pty Ltd (1994) 123 ALR 228, 237.
6 Panatown Ltd v Alfred McAlpine Construction Ltd [2004] EWHC 124; [2004] 4 All ER 97(HL).
[41] There are exceptions to the rule that a plaintiff can only claim for its own loss. As is hinted at by the end of the quote, Panatown itself represents one such exception. Panatown is the leading authority in a line of English cases where a party to a contract has been allowed to recover damages for the benefit of a third party, in circumstances where the contracting party was effectively the agent for the third
party.7
[42] In Panatown, Alfred McAlpine Construction Ltd (McAlpine)
entered into a building contract with Panatown Ltd (Panatown), one of the Unex
group
of companies, of which the parent company was Unex Corp Ltd (UCL) and
which also included Unex Investment Properties Ltd (UIPL).
Although Panatown
entered into the building contract as employer, the site was actually owned by
UIPL. McAlpine also entered into
a duty of care deed with IUPL, wherein
McAlpine assumed a duty of care to UIPL and its assignees in respect of the
building contract.
Both Panatown and McAlpine agreed that McAlpine had breached
the building contract by reason of serious defective design, defective
construction and delay, but McAlpine claimed that Panatown was not entitled to
recover substantial damages under the building contract
on the ground that it
did not own the building and hence did not suffer any loss (and that UPIL
had).
[43] Lord Goff observed that, allowing a contracting party to recover
damages for the benefit of a third party, was not so much
an exception to the
rule regarding compensatory damages, as a means of circumventing an overly
narrow approach to compensatory loss.
[44] Lords Goff and Millett talked of a “broader ground” upon which their decision was based, rather than the concept of the plaintiffs seeking to recover the third party’s losses on its behalf. The broader ground was that, although the plaintiff, as the contracting party, had not suffered an economic or monetary loss, it nevertheless had suffered loss because it did not receive from the defendant the
performance of the bargain for which it had
contracted.
7 See also, St Martins Property Corp Ltd v Sir Robert McAlpine & Sons Ltd [1993] All ER 417.
[45] Mr Henry argued that Panatown is applicable to the facts of
this case. He said it stands for the proposition that the court will not allow
a party in breach to
take advantage of family arrangements (or lack of
arrangements) to escape responsibility for the damage they wrongfully caused.
He put the position more broadly still. Based on Panatown, he said the
court will not permit a “legal black hole” and that “a
defendant has to take a family as it finds
them”. I do not consider there
are any such established principles.
[46] I agree with Mr Skelton that Panatown is limited to
contract. Further, Panatown is dealing with a situation where the
party suing, is then accountable to a third party who has actually suffered the
loss. There
is no suggestion, nor basis, on which OTL could be accountable to
OGL for any judgment sum it might receive.
[47] While I do not consider Panatown to be directly applicable, I
consider it relevant in terms of policy considerations, including the
observations of Lord Goff to which
I have already referred and the often-quoted
passage from the judgment of Lord Clyde:8
The problem which has arisen in the present case is one which is most likely
to arise in the context of the domestic affairs of a
family group or the
commercial affairs of a group of companies. How the members of such a group
choose to arrange their own affairs
among themselves should not be a matter of
necessary concern to a third party who has undertaken to one of their number to
perform
services in which they all have some interest. It should not be a
ground of escaping liability that the party who instructed the
work should not
be the one who sustained the loss or all of the loss which in whole or part has
fallen on another member or members
of the group. But the resolution of the
problem in any particular case has to be reached in light of its own
circumstances.
[48] Mr Skelton submitted that the courts in New Zealand have repeatedly rejected any extension of the Panatown exception to other areas of law, such as tort law. He referred, for example, to Santa Barbara Homes v Cozzolino, where Rodney Hansen J stated that:9
There is, however, no such [Panatown] exception to the general rule in
tortious claims. A plaintiff can only recover losses which it suffers. The
qualifications to
the principle discussed in Panatown are confined to
claims in contract where the party suffering loss does not have a
contractual
8 Above n 7, at [112].
9 Santa Barbara Homes Ltd v Cozzolino HC Auckland CIV-2002-404-2577, 12 May 2004 at [33].
relationship with the party in breach. There was no such impediment in tort
to the injured party recovering from the wrongdoer.
[49] I note that while the last sentence of this quote is generally
correct, there is in fact an impediment in copyright
cases such as this
one, to the injured party recovering from the wrongdoer. Were this a common
law tort, rather than a statutory
tort, there would be little doubt that NTD
would be liable to the plaintiff based on the usual tortious principles of
foreseeability
and lack of remoteness. NTD well knew that the plaintiffs were
trading through OGL at the time of the infringement, as it was in
a contractual
relationship with OGL to manufacture the grader.
[50] Another situation where a party who has not immediately suffered the loss can recover it, is in the case of a shareholder recovering the loss suffered by its company. In Gerber Garment Technologies Inc v Lectra Systems Ltd, the English Court of Appeal held that, when a shareholder in a company had a cause of action against a wrongdoer, but the company had none, the shareholder could recover damages in respect of his loss (whether an income or a capital loss) based on the
misfortune that had fallen upon the company.10 Damages
could therefore be
recovered by reference to a reduction in the value of a shareholding.
However, the plaintiff must show that they had a personal
cause of action and
must prove a personal loss caused by the defendant’s actionable
wrong. In Gerber, the shareholder in question was a parent company,
seeking to recover the loss suffered by its subsidiary.
[51] Clearly again, as Mr Skelton argued, Gerber is limited to the
situation where a shareholder in a company has a cause of action, but here, OTL
is not a shareholder in OGL.
[52] Again, some of the discussion and policy considerations may be broadly relevant to the present case. Mr Henry said Gerber is another example of the policy that was outlined in Panatown, that the court does not permit “legal black holes”. I have already disagreed with the latter proposition, but I do agree that Gerber is another example of the court’s taking an expansive approach to recovery of a “third
party” loss, rather than an overly narrow one, where that will
achieve justice.
10 Gerber Garment Technologies Inc v Lectra Systems Ltd [1997] RPC 443 (CA).
[53] The third case to which Mr Henry referred, was the aptly-named case
of Insight SRC IP Holdings Pty Ltd v Australian Council for Educational
Research Ltd.11 This decision arises out of facts broadly
analogous to the present.
[54] The plaintiff had developed a “School Organisational Health
Questionnaire” (SOHQ). Copyright was held during
the relevant
period by a Dr Hart, who informally licensed it to a company of
which he was the major shareholder,
Insight SRC Pty Ltd (Insight SRC).
When the defendant infringed the copyright, the question was whether Dr Hart, in
his personal
capacity,12 could claim damages for business lost by
Insight SRC. The quantum of Insight SRC’s lost profit had been assessed
at $131,000.
[55] The trial Judge found that Dr Hart was not entitled to any award of
compensatory damages, because he had not suffered any loss:13
Although ... Dr Hart was the owner of the copyright ... he was not using it
or commercially exploiting it in any way. That was being
done by Insight SRC.
Therefore Dr Hart did not suffer any damage. ... If any party suffered damage,
it was Insight SRC.
[56] The Full Court sitting of the Federal Court, however,
reversed the trial Judge’s decision. It held that
Dr Hart had suffered
loss because, as a result of the defendant’s infringement, Dr Hart had
lost the ability to cause
Insight SRC to generate a profit of
$130,000.
[57] In referring to the ability to claim damages for a lost
opportunity, the Full Court relied, amongst other things,
on the decision of
Bailey, to which I referred earlier.
[58] In a unanimous decision, the Full Court said:
[24] An important component of this identification of what Insight’s
damage would have been, is that Dr Hart wanted Insight to benefit by
receipt
11 Insight SRC IP Holdings Pty Ltd v Australian Council for Educational Research Ltd [2013] FCAFC 62.
12 Insight SRC IP Holdings Pty Ltd (Insight Holdings) was the named plaintiff, but only because it had taken an assignment of Dr Hart’s right to sue. Insight SRC could not sue as, like OGL, it held an informal licence only.
13 Summarised at [10] of the Full Court’s decision, above n 11.
of the profit. That is different to the characterisation urged by ACER that
his damage was what might be received by him after Insight,
Insight Holdings and
the interposed trusts had received and made sequential distributions. Dr Hart
used his efforts in exploiting
the copyright to benefit Insight.
[25] The donor of a gift that is destroyed by a wrongdoer before it is
enjoyed by the intended recipient is not compensated
by an award of
nominal damages because he or she was giving away the property. Rather, the
proposing donor would have the value
of what he or she intended to gift. If such
a gift were to be made after the destruction, the donor would have to replace
it. Dr
Hart was engaged in exploiting commercial activities relating to the
SOHQ through his interests in Insight Holdings and Insight.
There was no
submission that the bare licence he had granted to Insight was a gift or not
part of a commercial arrangement. Damages
are intended to place the injured
party in the position he or she would have been but for the wrongful act or
omission. Here, that
would be a sum sufficient to enable Dr Hart to have caused
Insight to earn a profit of $130,000.
[59] By analogy, Mr Henry says that OTL similarly lost the ability to
cause OGL to earn a profit of $4.1 million. OTL wanted
OGL to benefit by
receipt of the profit, which could then be applied to benefit the Oraka group.
That is consistent with events
since 2001. Put another way, OTL was engaged in
exploiting commercial activities relating to the cup assembly through its
indirect
interest in OGL.
[60] Mr Skelton, in well-crafted submissions, argued that the Full Court
judgment of Insight is unprincipled and, if not unprincipled, then it is
distinguishable, because Dr Hart was a director and shareholder of Insight SRC
and in effective control of that company, such that he was in a position to
cause Insight SRC to exploit the copyright. OTL, on
the other hand, had no
legal ownership or control over OGL and therefore was not in a position to cause
OGL to do anything.
[61] I accept Mr Skelton’s submission that Insight is
not a fully-reasoned judgment. The Full Court dealt with an apparently
difficult point in a summary fashion.
[62] It is also important to note that it was accepted by counsel in Insight that
Dr Hart had a claim for general damages,14 which is not accepted
here. It is difficult to discern how fully the damages issue was
argued.
14 At [22].
[63] Nonetheless, I agree with the Full Court’s finding that Dr
Hart lost the ability
to cause Insight SRC to enter into a contract that would have generated a
profit of
$130,000. I agree with the Full Court that Dr Hart’s damage was the
value of the loss of that ability or opportunity. Although
Mr Skelton would not
agree, that seems to me to be uncontentious. That is no different in principle
from the loss of opportunity
claims in Feltex and Bailey, referred
to above.
[64] I consider that the same sort of lost opportunity applies here.
OTL, who owned the copyright, lost the opportunity to cause
OGL to enter into
contracts that would have generated a profit of $4.1 million for OGL, on the
same reasoning applied by the Full
Court in Insight. I disagree with Mr
Skelton that such causative effect could only occur if OTL had ownership or
control of OGL. It arises primarily
out of OTL’s ownership of the
copyright and its informal exclusive provision of the copyright to
OGL.
[65] I do not consider that Insight is distinguishable on the
basis put forward by Mr Skelton. It did not seem to me that the Full
Court’s decision, at least
in this respect, turned on co-ownership or
control. Those factors were not referred to in its reasoning. In fact
paragraph [24]
of the judgment would suggest the opposite. The following
statement at [25] of the judgment was relied on by Mr Skelton: “Dr
Hart
was engaged in exploiting commercial activities relating to the SOHQ through his
interests in Insight Holdings and Insight.”
But this statement
was by way of overview of the factual position, not part of the ratio. The
Full Court did not refer
in that statement, or elsewhere, to any need for Dr
Hart to have effective control over Insight SRC, or to be in a position to cause
Insight SRC to exploit the copyright. The reasoning of the Full Court is much
broader. In fact, that is Mr Skelton’s primary
complaint about the
judgment.
[66] In any event, if ownership or control is required, the position here is comparable. OTL was engaged in exploiting commercial activities relating to the Oraka Grader through its indirect interest in OGL and through Mr Schwarz, the parties all operating as an informal group. OTL’s interest is not one of legal ownership or legal control, but it is in a similar category. Further, the uncontested
evidence is that, rightly or wrongly, OGL was like a proxy for OTL so that
OTL was effectively exploiting its copyright through OGL.
What is the value of OTL’s lost opportunity?
[67] There remains, however, the question: what is the value to OTL of
the lost opportunity to cause OGL to generate a profit
of $4.1 million? It is
not necessarily the same as OGL’s whole loss of profit.
[68] The Full Court in Insight did not make a finding that the loss of opportunity to Dr Hart equated the $130,000 sum lost by Insight SRC. They said that, on the facts of that case, the damages would be a sum sufficient to enable Dr Hart to have caused Insight SRC to earn a profit of $130,000. Although I have difficulty following the Full Court’s reasoning as to the $130,000 quantum, they did seem, however, to be indicating that the actual damages quantum would be higher than
$130,000.
[69] Returning to Gerber, the same point arose. A majority of two
out of the three Lord Justices disagreed with the approach of Jacob J in the
Patents Court
that it was “self-evident” that every dollar lost
to the subsidiary reduced the value of the parent’s
shareholding by
a like amount. They said the root principle must be adhered to, that each
company was a separate legal entity. The
plaintiff must prove its own financial
loss to its own pocket and quantify it. Jacob J had been wrong to include in
his assessment
of the plaintiff’s damages, the loss claimed to have arisen
from the losses to the subsidiaries, because the plaintiff had
not proved that
loss.
[70] Staughton LJ disagreed with the majority as to that finding. He readily acknowledged that there were two views as to whether the patentees had proved that they had suffered loss, but he preferred the conclusion of Jacob J in the Patents Court that, as a self-evident starting point, a dollar lost to the subsidiary is a dollar lost to the parent, unless there are extraneous circumstances. He gave two examples of extraneous circumstances which might have been relevant in that case. First, if the subsidiary is insolvent, the dollar is prima facie of value to the creditors, but of no value to the parent. Secondly, the incidence of taxation may mean that the
subsidiaries’ dollar is worth less (or perhaps more) to the parent. In
Gerber, one of the subsidiaries was a Belgian company and Staughton LJ
was concerned that there may have been tax treatment that would require
further
evidence. He would have referred the matter back on that point.
[71] Like Lord Staughton, I consider the starting point is that the
quantum of OTL’s loss is the same as that of
OGL. I agree
with the approach taken by Staughton LJ in Gerber and in effect, it
seems to me, by the Full Court in Insight. In this case, OGL is not
insolvent and the evidence is the tax treatment of damages in OTL’s hands
is the same as in OGL’s.
OTL would have to receive $4.1 million, to be in
a position to generate the lost profit for OGL (and the lost salary for Mr
Schwarz).
That is the sensible commercial value of the opportunity lost by OTL.
That is also consistent with Lord Wilberforce’s statement
that the
approach to quantum should be liberal.
[72] Mr Skelton says that to make a finding under s 120 of the Act, that pivots off OGL’s loss of profits, when OGL is not an exclusive licensee is contrary to the Act. I do not agree. The finding is solely in favour of the very party for whom s 120 provides: the owner of the copyright. Furthermore, the purpose of the Act is to provide a legislative code dealing exhaustively with the subject of copyright, of which its enforcement is a vital component.15 The purpose is not to facilitate a party in clear breach of copyright, to escape liability for damages. Such a consequence would not flow to a tortfeasor generally, as they would be liable to anyone whose
loss was foreseeable and that flowed directly from the breach. The Act
channels liability, but should not artificially, or at least
unnecessarily,
remove it.
[73] Further, although I do not consider that the ratio in Panatown or in Gerber is directly applicable, there are many similar features to the present case, including the fact that, in each instance, the plaintiff and the third party operated as part of a group (legal or otherwise); the loss flowed directly from the breach; the breach was actionable by the third party in principle, bar an impediment, and there was no prospect of double jeopardy. I therefore draw some comfort from the policy
statements made in those decisions.
15 See World TV Ltd v Best TV Ltd (2005) 11 TCLR 247 (HC) at [48].
[74] For these reasons, I find that the first plaintiff has
suffered a loss of
$4.1 million.
“Additional damages” under s 121(2) of the Act
[75] The plaintiff has succeeded in its claim for compensatory damages,
but for the sake of completeness, I consider Mr Henry’s
alternative
argument that these same damages could be awarded to OTL as “additional
damages” under s 121(2) of the Act.
Section 121(2) provides that a court
may award such additional damages as the justice of the case may require, having
regard to
all the circumstances and in particular to the flagrancy of the
infringement and any benefit accruing to the defendant
by reason of the
infringement.
[76] Damages under s 121(2) are akin to exemplary damages in tort. It
is said they are not necessarily a substitute for exemplary
damages. In other
words, the two could sit side-by-side, but that seems strained. For additional
damages, a plaintiff is not limited
to a claim for its own loss as this type of
damage is not compensatory, but punitive, and quantum is not
loss-related.
[77] I agree with Mr Skelton that an award by way of additional damages
would not be available here. First, such damage was
not pleaded, and that is
required. Second, I accept Mr Henry’s point that s 121(2) does not,
on its face, require
flagrancy but rather provides that the court is to have
particular regard to flagrancy. However, in my view, additional damages are
only
available where there is flagrancy or similar circumstances. That seems to
be clear law and Mr Henry cited no authority
in support of his
argument. Certainly, I do not consider a claim for compensatory
damages, which is otherwise unavailable,
can become so by calling it
“additional damages” under s 121(2). If nothing else, the name
“additional”
belies that.
[78] The Court of Appeal has expressly found there is no flagrancy on the part of NTD (which manufactured the competing machine, but did not compete, nor set out to sabotage the plaintiffs’ business) and I consider there is nothing in the circumstances akin to flagrancy.
[79] The claim for damages to be awarded as “additional
damages” under s 121(2)
of the Act is therefore dismissed.
Result
[80] I find that the first plaintiff can recover the loss directly
suffered by the second plaintiff, on the basis that such loss
was in effect also
the loss of the first plaintiff.
[81] For the reasons I have given, judgment is entered for the first
plaintiff for compensatory damages in the sum of $4.1 million,
against the first
to third defendants.
[82] Costs are reserved. The parties should try to resolve these, but if they cannot, the first plaintiff is to file a memorandum of not more than four pages by 16 June
2016 and the third defendant is to file a similar memorandum in reply by 30
June
2016.
–––––––––––––––––––––––––––––––––––––––––
Hinton
J
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URL: http://www.nzlii.org/nz/cases/NZHC/2016/1188.html