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Oraka Technologies Limited v Geostel Vision Limited [2016] NZHC 1188 (2 June 2016)

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Oraka Technologies Limited v Geostel Vision Limited [2016] NZHC 1188 (2 June 2016)

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.

  1. See General Tire & Rubber Co Ltd v Firestone Tyre & Rubber Co Ltd [1976] RPC 197 at 212, per Lord Wilberforce; Feltex Furnishings of New Zealand Ltd v Brintons Ltd (1992) 4

NZBLC 102, 913 (CA) at 6.

4 Bailey v Namol Pty Ltd (1994) 123 ALR 228, 237.

  1. Feltex Furnishings of New Zealand Ltd v Brintons Ltd, above n 3; Bailey v Namol Pty Ltd, above n 4.

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.
















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Hinton J


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