JUDGMENT NO. sue Svnl oon? I. T HW R COPYRIGHT - artistic works - design drawings made for use in particular project - infringement - proper measure of compensatory damages - whether award of additional damages properly made. FIDUCIARY DUTIES - diversion by director of business opportunity to another company associated with director - equitable compensation - proper measure of compensation. Sellars v Adelaide Petroleum NL (1994) 179 C.L.R. 332 Nocton v Lord Ashburton [1914] 'a! C. 932 avel Pty Ltd v Multicoin Amusements Pty Ltd (1990) 171 C.L.R. ener. Tire Rubbe: v Firestone Rubber Tyre & Rubber Co. [1976] R-P.C. 197 ut. i v Caxton ishin: . L [1936] Ch. 323 Interfirm Comparison (Aust.) Pty Itd v Law Society of New South Wales (1975) 6 A.L.R. 445 Beloff v Pressdram Ltd [1973] R.P.C. 765 JOSEPH BAILEY v LP MITED No. NG77 of 1994 PEOUSTRALA OF PRINCIPAL REGISTRY BEFORE: BURCHETT » GUMMOW, O'LOUGHLIN JJ. PLACE: SYDNEY. DATE: 14 OCTOBER 1994. IN THE FEDERAL COURT OF AUSTRALIA ) NEW SOUTH WALES DISTRICT REGISTRY ) No. NG77 of 1994 GENERAL DIVISION ) On appeal from a Judge of the Federal Court of Australia. BETWEEN: bef EY Appellant AND: N. P' IMITED Respondent BEFORE: BURCHETT, GUMMOW, O'LOUGHLIN JJ. PLACE : SYDNEY. DATE: 14 OCTOBER 1994. M RDE. THE COURT ORDERS THAT: (1) The appeal be dismissed. (2) The appellant pay the costs of the respondent. Note: Settlement and entry of orders is dealt with by Order 36 of the Federal Court Rules. IN THE FEDERAL COURT OF AUSTRALIA ) NEW SOUTH WALES DISTRICT REGISTRY ) No. NG77 of 1994 GENERAL DIVISION ) On appeal from a Judge of the Federal Court of Australia. BETWEEN: PH ILEY Appellant AND: N L Pry LIMIT Respondent BEFORE: BURCHETT, GUMMOW, O'LOUGHLIN JJ. PLACE: SYDNEY. DATE: 14 OCTOBER 1994. R IN; R D NT THE COURT: This is an appeal from certain orders made by a Judge of this Court (Davies J.) on 10 December 1993. His Honour's reasons for judgment are reported [1993] A.I.P.c. 91-031. At first instance, the present appellant (Mr Bailey) was the third respondent, and the respondent ("Namol") was the first applicant. Mr Bailey was General Manager of Quinlara Pty Limited ("Quinlara") which was the second respondent. The primary Judge gave judgment for Namol against Mr Bailey and Quinlara in the sum (which included interest) of $657,238, and 2. made a costs order against them in favour of Namol. Quinlara is in liquidation. The other parties to the proceeding, as it was instituted, should be identified. The second applicant was Mrs Maria Nagy, the executrix of the estate of her late husband Mr Laszlo Nagy who died on 18 December 1989. He had been director and shareholder, with Mr Bailey, of Namol. The primary Judge found that Mr Bailey resigned as a director of Namol on 16 December 1985. He rejected what he described as the "purported backdating" of the resignation to October 1985. Mrs Nagy at first contended that the copyright in the drawings the use of which gave rise to this litigation was vested in her late husband. However, that claim was abandoned. The primary Judge found that the drawings in question were made by employeeg of Namol working in the course of their employment with the result that copyright vested in the company pursuant to sub-s. 35 (6) of the Copyright Act 1968 ("the Act"). That finding is not challenged. The first respondent below was A.W. Baulderstone Holdings Pty Limited, formerly named A.W. Baulderstone Pty Limited. The fourth respondent, Baulderstone Hornibrook Pty Limited, was a wholly owned subsidiary of the first respondent. The primary Judge drew no distinction between them and identified them in his reasons' for "judgment as "Baulderstone". Baulderstone was a large and well known firm of builders. Namol was a smaller organisation that carried on a business 3. which included the design and fabrication of aluminium and bronze window and door frames. In 1985, the shareholding of Namol was divided between the families of the two directors, Mr Laszlo Nagy and Mr Bailey. The chain of events which gave rise to the litigation may be said to commence in May 1985. Baulderstone then submitted its tender to the Commonwealth Bank of Australia ("the Bank") to carry out the first stage of the restoration and refurbishment of its building at the corner of Elizabeth Street and Martin Place, Sydney. The architect was the Department of Housing and Construction. The work required a variety of large bronze frames to be made in such a manner as to simulate the original windows for the building as it had been when erected in 1927. The manufacture of bronze framed windows has always required special skills and by 1985 there was a shortage of the necessary craftsmen. Companies which had undertaken such work had ceased business and many tradesmen who had been involved in such work had either died or retired. The last major work requiring bronze framed windows had been that for the Sydney Opera House. fThis had opened in 1973. That work had been carried out by Permasteel Industries Pty Limited and both Mr Laszlo Nagy and Mr Bailey had been involved with that company. Baulderstone perceived that the Bank project would require the services of a number of highly specialised sub- contractors. Its inquiries led it in April 1985 to Namol. In 4. May 1985, Namol furnished to Baulderstone prices for manufacture and installation totalling a sum in excess of $3m. Later in that month, Baulderstone submitted its tender to the Bank. This was in the form of three options, one of which included the price put forward by Namol and provided for Namol as sub-contractor. This was accepted by the Bank and it appears that at the end of June 1985 Baulderstone informed Namol that in due course it would become the sub-contractor to do the work in accordance with this quotation. Steps were then taken by Namol without the backing of any concluded written agreement between it and Baulderstone. The primary Judge found that a draft sub-contract was sent to Namol in mid or late October but that it was not executed. His Honour said that the reasons for this were not entirely clear, but that the most probable reason for the delay was that by early November 1985, Mr Bailey was seeking changes in the organisation of Namol. In particular, Mr Bailey had discussions with officers of Baulderstone in which there was mooted a sale of 50% of the shareholding in Namol. The October draft sub-contract appeared to recognise that work had already been done by Namol, by stipulating 9 September 1985 as the date for the commencement of the execution of the work. The work was to be completed by 21 August 1987. A lump sum of $3,306,871 was specified. 5. The primary Judge found that although Mr Bailey was the driving force behind Namol's involvement in the project, the relevant dealings always had been between Namol and Baulderstone, and that Namol was the proposed sub-contractor and remained such until January 1986. A French firm, Entreprise Voisin, the principal of which was Mr J.P. Voisin, had shown an interest in the Bank project, but in the first instance Baulderstone had preferred to deal with Namol. The primary Judge found that during November and early December 1985 Mr J.P. Voisin and Mr Bailey reached an understanding that they would set up an organisation which would take over the Bank project from Namol. As we have indicated, on 16 December 1985, Mr Bailey resigned as a director of Namol. In his letter of that date he stated that he tendered his resignation "as from 16.10.85". His Honour rejected Mr Bailey's evidence that he had "orally" resigned in October. The primary Judge found (at 39,687): "It seems to me that his resignation in December 1985 and the purported backdating of it to October were steps to obscure the fact that, in secretly planning in cooperation with Entreprise Voisin to set up an organisation to take away from Namol the Commonwealth Bank work, Mr Bailey was in breach of the duties -which as 4 director he owed to Namol." "Quinlara was a shelf company which by 6 January 1986 had been established as the vehicle for the Bailey/Voisin venture, 70% of the shares being held by Entreprise Voisin, and the remainder by members of the Bailey family. Mr Bailey was not 6. appointed a director and did not himself hold shares. The primary Judge held that this position was taken no doubt to obfuscate the role of Mr Bailey. But his Honour found that, until his subsequent ill health in 1987, Mr Bailey was the person in charge of the work done by Quinlara in relation to the Bank project. By 24 January 1986, Baulderstone had decided to withdraw the contract from Namol and to grant it to Quinlara. Drawings based on the Namol drawings were provided by Quinlara, and his Honour said he had no doubt that Quinlara could not have moved as quickly as it did without making use of the Namol drawings. A sub-contract with Quinlara was signed on 25 March 1986. The price was just $20 less than Namol's price had been. In the Supreme Court of New South Wales, Namol sued Baulderstone to recover in respect of work done by it before the sub-contract was acquired by Quinlara. On 2 September 1987, the Supreme Court ordered that the proceeding be referred for determination by the Honourable R.G. Reynolds as arbitrator. The arbitrator determined that Namol was entitled to recover from Baulderstone $45,962.50 upon a claim for a quantum meruit. During the hearing before him, it had been conceded by Namol that it could not make out a cause of action for breach of contract. The proceeding in this Court was commenced in 1990. By the time of the trial, the proceeding against Baulderstone had 7. been discontinued. The claim against the remaining respondents, Quinlara and Mr Bailey, was put on two grounds. First, it was alleged that Quinlara had infringed the copyright of Namol in the drawings and that Mr Bailey had initiated and brought about that infringement. Secondly, it was contended that in late 1985, in breach of his fiduciary duties, Mr Bailey had ceased to work in the interests of Namol and had arranged for Quinlara to be established and to obtain the contract for the work which Namol was undertaking; Quinlara was said to have participated in the breach by Mr Bailey of his fiduciary obligations. The primary Judge held that copyright had been infringed. He said (at 39,689): "It seems to me to be unquestionable that there was such a breach, for the Namol drawings were copied for and used by Quinlara. That step was necessary if the work was to continue. Had ui ra not taken dvantage the already done, it would have required several months of work to arrive at the stage reached b ol i ecembe . Had such a delay been involved, it is unlikely that Baulderstone would have terminated its arrangement with Namol, for Baulderstone itself was under pressure with respect to this work. Namol's drawings were copied and used to _ enable Quinlara to acquire the contract which otherwise would have remained with Namol." [Emphasis supplied] His Honour also held that Mr Bailey was a joint tortfeasor with Quinlara in the infringement of copyright, he having been instrumental in taking Namol's plans from Namol's premises for copying without Namol's consent. 8. In his submissions at the hearing of the appeal, counsel for Mr Bailey did not challenge these findings. However, he did challenge the quantum of damages which the primary Judge awarded for infringement of copyright. Counsel also submitted that there had been no adverse finding against his client on the issue of breach of fiduciary duty. This is important for the appeal because, in argument, counsel accepted that even if the award of compensatory damages for copyright infringement in the sum awarded against his client could not be supported, the award still might be supported as an amount of equitable compensation if there was the necessary finding of breach of fiduciary duty. The primary Judge found that whilst Mr Bailey was the General Manager of Namol in charge of the Bank project, he had been instrumental in setting up Quinlara to take over that sub-contract (at 39,690). He also, in terms, found that Mr Bailey had acted in breach of the duties which he owed to Namol as a director in secretly planning the setting up of an organisation to take away the Commonwealth Bank work (at 39,687). We have set out that passage earlier in these reasons. In our view, it is quite clear that the primary Judge made the necessary finding of breach of fiduciary duty against Mr Bailey. This is made further apparent by consideration of his Honour's treatment' of the award of damages. In reaching his conclusion (at 39,691) the primary Judge said: 9. "In all the circumstances, I am of the view that total damages of $500,000 are appropriate. Of this sum, perhaps $350,000 can be taken as representing compensatory damages for infringement and $150,000 as additional damages for aggravated breach. $500,000 appears to me to be a fair total for both compensatory damages and damages under s. 115 (4). No ditional s eed be adde or Mr Bailey's breach of his fiduciary duties. Interest should, of course, be added in accordance with usual practice." {Emphasis suppliedj As will be apparent, Namol had elected for a remedy in damages rather than an account of profits in respect of copyright infringement. Counsel for the appellant, in dealing with the award of compensatory damages for copyright infringement, stressed the reference by his Honour, in the extract from p. 39,689 of the report, to the taking by Quinlara of advantage of the work already done so as to avoid the several months which otherwise would have been required to arrive at the stage reached by Namol in December 1985. Counsel submitted that the appropriate measure required the expression in monetary terms of the saving of time to Quinlara in not needing to have its own working drawings made, as would have been necessary had it not appropriated the Namol drawings. There is no doubt that the primary Judge proceeded on a different footing. His Honour approached as follows the assessment of compensatory damages for copyright infringement (at 39,690): 10. "I accept that damages for infringement should be assessed on the value of Namol's plans in the context that they were an essential element of, and of value only in connection with, the sub-contract for the Commonwealth Bank restoration. Namol''s preliminary working drawings were well developed and the concepts which they proposed had met with the general approval of Baulderstone and the Department of Housing and Construction. It was unlikely that Namol would have lost the sub-contract or that Quinlara would have gained it had Quinlara not copied and used Namol's drawings." The primary Judge then proceeded, as he expressed it, "to put a value on Namol's drawings". He noted the profit calculated by Mr Bailey was $535,145, being a little more than 15% of the quotation. This was a common percentage adopted by Mr Laszlo Nagy for Namol quotations. His Honour also noted that that profit figure would require substantial discounting for the risks and complexities involved in the project. He accepted as a further guide to the value of the drawings, the sum of $400,000 which had been offered by Entreprise Voisin in November 1985 to purchase the interests of the Nagy family in Namol. In the end, his Honour said that of the $500,000 damages which he regarded as appropriate, perhaps $350,000 might be taken as representing compensatory damages, the balance representing additional damages for aggravated breach. The appellant submits that the findings as to compensatory damages are based on a flawed premise. This is said to be the assumption that Namol in fact had entered into 11. a binding sub-contract with Baulderstone, so that Quinlara and Mr Bailey had been instrumental in that contract being withdrawn from Namol by Baulderstone. It is submitted that the evidence indicates that no sub-contract had been executed and that, indeed, the primary Judge had accepted as much in finding that the draft sub-contract, forwarded to Namol in October, had never been executed. The final step in the submissions is to contend that because no sub-contract had been entered into, there could be no rational basis for assessing damages by reference to an expected profit under that non-existent contract. It may be accepted that there was no concluded sub- contract between Namol and Baulderstone. However, that is not the end of the matter. The primary Judge found that between October and December there had been frequent meetings between officers of Namol, Baulderstone and the other sub-contractors at which aspects of the Bank project had been discussed. These included the suitability of the designs proposed by Namol. The evidence provides ample foundation for the conclusion that there had developed a significant business relationship between Namol and Baulderstone. As a result of the activities of Mr Bailey and Quinlara what was lost by Namol was, at the very lowest, a substantial business opportunity to take the project through to completion with attention being paid in due course to whatever legal formalities were outstanding. Thus, even if Namol did not lose the sub-contract as a result of breach of a concluded 12. agreement with it by Baulderstone, nevertheless it lost a business opportunity or chance at the very highest end of the scale of probability; cf Masters v Cameron (1954) 91 C.L.R. 353 at 360-362, Sellars v Adelaide Petroleum NL (1994) i179 C.L.R. 332 at 355. In our view, it follows that there was no error in approaching the quantification of damages for infringement of copyright by considering the expected profit from the commercial dealings between Namo] and Baulderstone. Nor, as we have indicated, is it correct to say that the primary Judge did not find that what transpired also involved a significant breach by Mr Bailey of the fiduciary duties which he owed to Namol. He had placed himself in a position of acute conflict of duty and interest, and acted in such a way as to divert business from Namol to the new enterprise with which he wa' associated. This was a plain case of breach of duty. It was not necessary to have regard to the cases which treat a defendant as liable even where it was not his duty to obtain for his company a particular property or a particular benefit, or the relevant opportunity was not available to the company; cf Industrial Development Consultants Ltd v Cooley [1972] 1 W.L.R. 443, Green & Clara Pty Ltd v Bestobel] Industries Pty Ltd [1982] W.A.R. 1. In the course of argument, counsel for the appellant accepted that if the Court reached this stage in its 13. reasoning, it would follow that the measure of compensatory damages, whatever the position in copyright law, might properly be supported as an award of equitable compensation for the breach of fiduciary duty. Counsel agreed that the reasoning which supported an award of this nature in authorities such as Nocton v Lord Ashburton [1914] A.C. 932, McKenzie v McDonald {1927] V.L.R. 134, Mordecaj v Mordecaj (1988) 12 N.S.W.L.R. 58, Commonwealth Ban stralia v Smith (1991) 42 F.C.R. 390, and Wan v McDonald (1992) 33 F.C.R. 491 would apply. That concession was rightly made. This was not, for example, a case where it properly could be said that the loss to Namol was caused principally by the actions of others after completion of the transaction resulting from the breach of duty by Mr Bailey; cf Canson Enterprises Ltd v Boughton & Co. (1991) 85 D.L.R. (4th) 129. Here, as his Honour found, Baulderstone would not have terminated its arrangement with Namol had it not been able promptly to continue with the work by using the services of Quinlara, which, in turn, was able to act as it did because of the copying of the Namol drawings. However, in our view, it is also the case that the award of compensatory damages was properly based in copyright infringement. It is necessary first to turn to the statutory text. Section 115 of the Act is as follows: "115 (1) Subject to this Act, the owner of a copyright may bring an action for an infringement of the copyright. 14. (2) Subject to this Act, the relief that a court may grant in an action for an infringement of copyright includes an injunction (subject to such terms, if any, as the court thinks fit) and either damages or an account of profits. (3) Where, in an action for infringement of copyright, it is established that an infringement was committed but it is also established that, at the time of the infringement, the defendant was not aware, and had no reasonable grounds for suspecting, that the act constituting the infringement was an infringement of the copyright, the plaintiff is not entitled under this section to any damages against the defendant in respect of the infringement, but is entitled to an account of profits in respect of the infringement whether any other relief is granted under this section or not. (4) Where, in an action under this section: (a) an infringement of copyright is established; and (b) the court is satisfied that it is proper to do so, having regard to: (i) the flagrancy of the infringement; (ii) any benefit shown to have accrued to the defendant by reason of the infringement; and (iii) all other relevant matters; the court may, in assessing damages for the infringement, award such additional damages as it considers appropriate in the circumstances." It is important to bear in mind that the artistic works were, within the meaning of the Act, unpublished. One of the exclusive rights given: to Namol by the Act was the exclusive right to publish the works by making them public for the first 15. time: (sub-para. 31 (1) (a) (ii)), Infabrics Ltd v Jaytex Ltd [1982} A.C. 1 at 16-17, Ave] _ Pty Ltd v Multicojin Amusements Pty Ltd (1990) 171 C.L.R. 88 at 93, 103, 117. Furthermore, as his Honour found, the drawings were of value only in connection with the work on the restoration of the particular Bank building. Thus, when Quinlara gained the sub-contract and utilised the copied drawings, it was appropriating to itself the only opportunity for exploitation for commercial advantage of Namol's intellectual property. In those circumstances, it is no answer to the claim for the loss sustained by Namol that had Quinlara acted otherwise, it might, with delay, have devised its own drawings independently of the efforts of Namol. Further, and in any event, there is, as we have indicated, the finding of the primary Judge that it is unlikely that Quinlara would have gained the sub-contract had it not had ready the drawings copied from Namol's drawings. The present case is perhaps unusual but, in our view, the award of compensatory damages fits readily within the accepted principles in this field. Awards of damages as statutory remedies for infringement of intellectual property rights have, in general, been treated as attracting similar considerations as attend the award of damages in tort. 16. a j ubb Oo. v Firestone Rubber Ltd [1976] R.P.C. 197, involved patent infringement. But the general remarks of Lord Wilberforce (at 212) are, putting to one side sub-s. 115 (4), applicable to cases of copyright infringement. His Lordship said: "As in the case of any other tort (leaving aside cases where exemplary damages can be given) the object of damages is to compensate for loss or injury. The general rule at any rate in relation to 'economic' torts is that the measure of damages is to be, so far as possible, that sum of money which will put the injured party in the same position as he would have been in if he had not sustained the wrong. In the case of infringement of a patent, an alternative remedy at the option of the plaintiff exists by way of an account of profits made by the infringer. . . There are two essential principles in valuing that claim [in damages]: first, that the plaintiffs have the burden of proving their loss: second, that the defendants being wrongdoers, damages should be liberally assessed but that' the object is to compensate the plaintiffs and not punish the defendants. These elemental principles have been applied in numerous cases of infringements of patents. Naturally their application varies from case to case. Reported authorities, many of which were cited in argument, may be useful as illustration of judicial reasoning, but are capable of misleading if decisions on a particular set of facts and observations in judgments leading up to such decisions are later relied upon as establishing a rule of law." In copyright cases, reference often has been made to the statement of Lord Wright M.R. in erland P is v Caxton Publishing Co. Ltd [1936] Ch. 323 at 336, that the measure of damages is the depreciation caused by the 17. infringement to the value of the copyright as a chose in action. a statutory provision. Interfixrm Comparison (Ayst.) Pty Ltd v Law Society of New South Wales (1975) 6 A.L.R. 445 at 446-447. After speaking of But that is not to be given the force and rigidity of Bowen C.J. in Eq. pointed this out in the measure of damages stated by the Master of the Rolls his Honour continued: See also Autodesk Australia Pty Ltd v Cheung "The purpose of damages is to compensate the plaintiff for the loss which he has suffered as a result of the defendant's breach. It would, in my opinion, be wrong to regard it as the exclusive measure of damages for breach of copyright appropriate to all circumstances. Somewhat different considerations may apply to unpublished works from those which apply to published works. Furthermore, the circumstances in which breach of copyright arises vary widely. Various measures of damage appropriate to the particular circumstances have to be applied. This was recognised when the Copyright Act 1968 was passed (see ss. 115, . 116, and 122). Examples of cases where a different measure of damages from that suggested by the defendant has been applied to infringement of copyright are: Performing Right Society v Bradford Corporation (1921) MacG Cop Cas (1917-23) 309 (fee which would have fairly been charged for the performance of a song); Pike v Nicholas (1869) 5 Ch. App. 260n (damages on conversion basis) and Stovin-Bradford v Volpoint Ltd [1971] 3 WLR 256; [1971] 3 All ER 570 (fee which would have been fair for using architect's plans)." 90-665 at 36,223-5. [1990) A.I.P.c. The references above by Sir Nigel Bowen to ss. 116 and 122 of the Act draw attention to the width of the pecuniary remedies available in infringement cases. Section 18. confers, in certain circumstances, the remedies which would be available in an action for conversion or detention if the plaintiff were the owner of the infringing copies. Section 122 applies where the copyright is the subject of an exclusive licence within the meaning of the definition in sub-s. 10 (1); 8. 122 requires a special treatment of damages where the owner and the exclusive licensee are not both plaintiffs in the action for infringement. Section 31 of the Act identifies copyright, in relation to works, as the exclusive right to perform certain acts. Those exclusive rights include the right to authorise another to perform those acts (sub-s. 13 (2)); see W.E.A. International Inc. v Hanimex Corporation Ltd (1987) 17 F.C.R. 274 at 286. This means that, in many cases, a licence fee or royalty is an apt measure of damages. Hence, the force of the statement (omitting footnotes) : "For a single act of user, for example of an architect's plans, damages are the equivalent of a licence fee; for multiple reproductions, damages are assessed on a "royalty basis. Awarding such damages seems at odds with the usual tortious principle of compensation, since it suggests a ratification of the tortious acts. But copyright is not only the right to restrict interference with the copyright subject-matter as a piece of property. Copyright embodies rights to control and exploit that subject matter, and user by the defendant without licence represents an invasion of those rights." (Wells "Monetary Remedies for Infringement of Copyright" (1989) 12 Adel.L.Rev. 164 at 168.) 19, Different considerations arise where the copyright work is devised for a limited and particular purpose, and the effectuation of that purpose is frustrated or destroyed by the fulfilment of that purpose by the defendant with infringing use of the work by the defendant. The present is such a case. Here the plaintiff may recover as damages profits which he would have achieved were it not for the activities of the defendant. This is on the footing that had the infringement not been committed, it is likely that the plaintiff would have entered into a contract and have received sufficient sums thereunder, not only to have covered production costs, but also to yield a profit: Allibert S.A. v O'Connor [1982] F.S.R. 317 at 320; cf Chabot v Davies (1936) 106 L.J. Ch. 81 at 85- 86, Vivian Mansel] & Co. Ltd v Harold Wesley Ltd (1939) MacG Cop Cas (1936-45) 288 at 290-291. In our opinion, once there is an appreciation of the relevant principles involved, it follows that there was no error on the part of the primary Judge in the treatment by him of compensatory damages. There remains the allowance for additional damages within the meaning of sub-s. 115 (4) of the Act. On the hearing of the appeal, it was accepted that the additional sum which was awarded on this footing was not properly to be supported as compensation for breach of fiduciary duty.. This was because of the punitive element involved. 20. It is true that in some circumstances the degree of dishonesty on the part of the erring fiduciary will be of importance in assessing a pecuniary remedy. An allowance for his work and skill may be made in favour of a fiduciary who is ordered to account for his profits made in breach of duty. That degree of liberality will be reduced to reflect any element of dishonesty: Green & Clara Pty Ltd v Bestobe Industries Pty Ltd (No. 2) [1984] W.A.R. 32, Fraser Edmiston Pty Ltd v A.G.T. (Qld) Pty Ltd [1988] 2 Qd. R. 1. Again, a higher rate of interest may be allowed in cases of gross misapplication of trust funds; however, it appears that this 1s on the footing not that a penalty is imposed but that the defendant is estopped from denying that he received interest at such a rate which he ought to have received: Ashburner "Principles of Equity", 2nd ed., pp. 147-148. There are authorities in Canada and New Zealand which suggest that, as a general proposition, punitive damages may be awarded for breach of fiduciary duty: Aquaculture Corporation v New Zealand Green Mussel Co. Ltd [1990] 3 N.Z.L.R. 299, Norberg v Wynrib [1992] 2 S.C.R. 226. No reliance was placed upon these authorities. It is therefore unnecessary to reach a conclusion about them. But there is much to be said for the contrary view, put by Somers J. in Aquaculture at 302, that "equity and penalty are strangers"; see also Michalik "The Availability of Compensatory and Exemplary Damages in' Equity: A Note on the Aquaculture 21. Decision" (1991) 21 Victoria University at Wellington Law Review, 391 at 412-413. Accordingly, it remains to consider only sub-s. 115 (4) of the Act. In a number of the decisions to which we have been referred, there is discussion and application of comparable legislation in the United Kingdom and in New Zealand. However, care is required in applying those authorities to the Australian provision. Sub-section 17 (3) of the Copyright Act 1956 (U.K.) provides: "17. (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 no ot is be available to he 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." {Emphasis supplied] Sub-section 24 (3) of the Copyright Act 1962 (N.Z.) is in the same terms. 22. We have set out the provisions of sub-s. 115 (4) earlier in these reasons. It does not include the requirement that before the Court may award additional damages, it must be satisfied that "effective relief" would not otherwise be available to the plaintiff. Further, when, in Australia, the section is construed against the background of the general law of damages, this does not include the restrictions in England imposed upon the award of exemplary damages by Rookes v Barnard {1964} A.C. 1129. That decision does not represent the common law in Australia: stralian idated P v Uren [1969] 1 A.C. 590. In Yren v John Fairfax & Sons Pty Ltd (1967) 117 C.L.R. 118 at 149, Windeyer J. referred to the distinction between aggravated and exemplary damages as one which was hard to preserve in practice. His Honour said: "The formal distinction is, I take it, that aggravated damages are given to compensate the plaintiff when the harm done to him by a wrongful act was aggravated by the manner in which the act was done: exemplary damages, on the other hand, are intended to punish the defendant, and presumably to serve one or more of the objects of punishment - moral retribution or deterrence." The United Kingdom provision was considered by Ungoed- Thomas J. in Beloff v Pressdram Ltd [1973] R.P.C. 765 at 788- 790. His Lordship's remarks provide authority for the propositions that (i) the reference to "effective relief" is directed purely to compensatory damages, (ii) accordingly, exemplary or punitive damages are outside the ambit of the subsection, and (iii) the sub-section is a "code" in the sense 23. that it replaces any aggravated damages that might otherwise have been obtainable as a species of compensatory damages. Proposition (iii) would appear applicable to the Australian sub-section, but not proposition (i) or (ii). In an appropriate case, it will be proper to take into account in considering an award under sub-s. 115 (4) the aggravation of the harm done as a result of the infringement by the manner in which the act was done and also the need to Mark the disapproval of that conduct. In the present case, the primary Judge stated that additional damages should be allowed on the footing that the conduct in question amounted to a flagrant breach. That is the term used in sub-para. 115 (4) (b) (i). Counsel for the appeliant complained that no reasons followed for that finding. The answer is that what was said by the primary Judge has to be read with what preceded it. This included findings that the drawings concerning the Bank project had been removed by Mr Bailey from Namol's premises (at 39,687), that Mr Dowsett, the draftsman employed by Namol who had worked on the Namol drawings, joined Quinlara at Mr Bailey's request and was asked by him to copy the Namol drawings with which he was supplied by Mr Bailey (at 39,681), and that whilst a director of Namol, Mr Bailey secretly planned the establishment of an organisation to take away from Namol the Commonwealth Bank work. Findings such as- these clearly supplied the necessary foundation for an award under sub-s. 115 (4). In saying this, 24. we do not overlook Mr Bailey's submission that it was he who had been the driving force behind Namol's involvement in the project. However, it should be added that the primary Judge found (at 39,681) that, in general, the evidence of Mr Bailey was not reliable on points that were crucial to his case, and he appeared to have come to Court to put forward a prepared version of events which suited his interests and those of Quinlara. Mr Nagy, who had died, could not come to Court to contradict them. The assessment of the amount of an award under sub-s. 115 (4) must, of necessity, be a somewhat imprecise exercise. Nevertheless, in all the circumstances of this case, we see no ground for any interference with the finding of his Honour that of the total award of $500,000, $150,000 might be taken as additional damages for aggravated breach. The appeal 'should be dismissed with costs. I certify that this and the preceding twenty three (23) pages are a true copy of the Reasons for Judgment of the Court. en eg Associate: C Ace Date: - . 14 October 1994. Counsel for the Counsel for the Date of Date of and solicitors appellant: and solicitors respondent: hearing: judgment: 25. CHF M.S. Willmott instructed Maurice May & Co. J.J. Garnsey Q.C. and S.J. McMillan instructed Vaughan Zarb & Capolupo. September 1994. October 1994.