an JUDGMENT No. wnat 224 Att. CATCHWORDS COPYRIGHT - determination of defences under s 115(3) and s 116(2)(b) as separate issues - infringement of copyright in sound recordings - respondents admit infringement ~- whether 'infringement was "innocent" - whether respondent was not aware and had no reasonable grounds for suspecting that act constituting infringement was an infringement of copyright - whether respondent believed or had reasonable grounds for believing that licensed sound recordings were infringing copies - whether defences under ss 115 and 116 available where respondent reckless as to whether there is infringement of copyright: Copyright Act 1968: ss 115, 116. Copyright Act 1968 James Arnold & Co Ltd v Maifern Ltd (1980] RPC 397 at 410 Pollock v J.C. Williamson Ltd [1923] VLR 225 Byrne v Statist Co [1914] 1 KB 622 Kalamazoo (Aust) Pty Ltd v Compact Business Systems Pty Ltd (1985) 5 IPR 213 Copyright, Patents and Designs Act 1988 (UK) Copyright Act 1956 (UK) Jones v Dunkel (1959) 101 CLR 298 OR v DEN EDITIONS PTY LIMITED & ANOR No. G37 of 1993 Beazley J 2 December 1994 RECEIVED ~2 DEC 1994 FEDERAL COURT OF AUSTRALIA PRINCIPAL REGISTAY T STRALIA ) Ww STR R TRY ) No. G37 of 1993 GENERAL DIVISTON ) BETWEEN: POLYGRAM PTY LIMITED ACN 000 158 592 First Applicant and: RECO ITED Second Applicant and: A&M RECORDS INC Third Applicant E N_E NS PTY LIMITED ACN 001 311 629 Pirst Respondent and: HOGHTON. HUGHES Second Respondent Court: Beazley J Place: Sydney Date: 2 December 1994 REASONS FOR JUDGMENT This is a claim for damages or an account of profits, additional damages and damages for conversion for infringement of the applicants' copyright in certain sound recordings of two well known singing artists, Cat Stevens and The Carpenters, pursuant to the provisions of ss 115(2), 115(4) and 116(1) of the Copyright Act 1968 (the Act). The respondents have admitted the infringement but claim that they are not liable to pay damages pursuant to ss 115(3) and 116(2)(b) of the Act. The respondents concede that for the -2- purposes of determining these defences, the second respondent's state of mind was the first respondent's state of -mind. I ordered that these defences be determined separately from the issue of damages or an account of profits. Background facts The applicants are recording companies and are part of what has been described as the PolyGram group. The applicants alleged in the Statement of Claim that the Cat Stevens original sound recordings were made by the second applicant (Island) in 1969 and 1970 and that Island owned the copyright in those recordings. They also alleged that The Carpenters original sound recordings subject of these proceedings were made by the third applicant (A&M) and that Island owned the copyright in those recordings. There is evidence that Island and A&M have exclusively licensed their respective catalogues to PolyGram International BV including original sound recordings by Cat Stevens and the Carpenters, including those which are the subject of these proceedings. The Statement of Claim further alleges that Polygram has a catalogue licence agreement with PolyGram International BV whereby it licensed the copyright in the whole of PolyGram International BV's catalogue, including the Cat Stevens and The Carpenters original sound recordings which are the subject of these proceedings (the original sound recordings). It was also alleged in the Statement of Claim that Polygram was the exclusive licensee in Australia of the copyright in the -3- original sound recordings pursuant to its catalogue licence agreement with PolyGram International BV. However, the matter -has proceeded upon the basis" of an admitted infringement of Island's copyright in the Cat Stevens original sound recordings and of A&M's copyright in The Carpenters original sound recording. No issue was raised before me as to who was entitled, as between Polygram as-licensee and Island and A&M as owners of the respective copyright in the original sound recordings, to bring these proceedings. It is convenient at this stage to identify the tracks on the original sound recordings: - Tracks on the Cat Stevens' original sound recording: Where the Children Play Hard Headed Woman Wild World Sad Lisa Miles From Nowhere But I Might Die Tonight Longer Boats Into White On the Road Father and Son Tea For the Tillerman - Tracks on The Carpenters' original sound recording: Love Me Eventide Aurora Only Yesterday Desperado Mr Postman I Can Dream Solitaire Happy I'm Caught The first respondent (Golden Editions) was established by the second respondent (Mr Hughes} in New Zealand in 1966 and has been trading in Australia since 1979 as an independent record and video company. It specialises in low priced cassettes, compact discs and videos for the Australian mass market. It is currently the largest producer. of Australian recordings in Australia and the largest licensor of Australian recordings to the USA, mainland Europe and South East Asia. The company has recorded all types of music "...from rock to country to Classical, children's, relaxation...". Golden Editions' current catalogue consists of more than 700 albums. It releases between 10 and 20 new albums each month, about half of which are sourced from international record companies or licensors. Its customers are predominantly in the over 30's age group and it commonly releases' sound recordings made by well known artists, such as Elvis Presley, Roger Whittaker and The Platters. Most of its releases are of recordings of artists who had their prime recording years before 1980. Golden Editions concludes between 50 and 100 international licensing arrangements each year, about 60% of which are made with licensors in the United States. It most commonly enters into a form of licence agreement known in the United States as a "short form agreement" which omit a great deal of the detail found in Australian licenses. Most of its licenses are non- -5- exclusive and its recordings are sold side by side with competitive recordings. - Mr Hughes has been involved in the music industry since leaving school in 1959 at the age of 16. He is the managing director of Golden Editions and since its inception has been involved in all aspects of its work. He has done extensive production work and has been the principal, if not only, officer of the company involved in the negotiation and finalisation of licensing arrangements for sound recordings. Mr Hughes exhibited an extensive knowledge both of the content and variety of licence agreements available on the international and Australian market, extending to the way in which rights in sound recordings arose and the way those rights changed from time to time. He also has an extensive knowledge of the rights in the sound recordings of various individual artists and changes in those rights. He stated that it is his experience that the rights, in Australia, to recordings of well known artists sometimes do not belong to the original recording studio. He cited, by way of example, the fact that many well known artists, such as Kenny Rogers and Pat Boone, re-recorded their hit songs for various record labels and that companies which originally owned the copyright in the original recordings often sub-licensed their rights to other companies or to licensed brokers. He also referred to a practice in the 1960's and 1970's for artists to make their own recordings and then to license the rights to make records -6- from the master recording to a record company for a fixed period of time. Mr Hughes stated that to keep up with these . various changes in rights in- recordings in the international market place, he travels frequently and maintains contact with a range of international music brokers, licensors, record companies and fellow licensees both in Australia and overseas. He stated that it was: ",..critical to the business of Golden Editions that I keep up-to-date with the changes of ownership in the right to recordings or catalogues of music in which Golden Editions has, or might in future have, a commercial interest". Mr Hughes has at all times been aware that Cat Stevens originally recorded for Island and that The Carpenters originally recorded for A&M and that, as at 1991, those companies owned the copyright in the respective original sound recordings. He was also aware that, as at 1991, Island and A&M had each been asserting that it owned the copyright in Australia in the Cat Stevens and The Carpenters original sound recordings. He said he had no reason to doubt the accuracy of these assertions. He also believed that it was possible that they were still selling those recordings in Australia in 1991. He had no information which indicated to him that the position was otherwise. The New Breed Music Licenses In June 1990, Mr Hughes became aware that New Breed Music International, an American licence broker, had Cat Stevens -7- sound recordings available for license. Mr Hughes stated that, at the time he became aware of this, he believed that the rights to the recordings derived either from re-recordings or "lease deals". He used this latter term, which he described as a "term of art" in the international recording and licensing business, to refer to two situations: the first was a form of licensing agreement in which the master recordings were supplied for use by the licensee to make the records which had been licensed; the second was where a performer had funded the making of the original sound recording and then had contracted with record companies to reproduce records for distribution and sale. Mr Hughes did not provide any basis for his belief that the rights to the recordings available from New Breed Music International were either re-recordings or lease deals. On about 29 June 1990, Golden Editions entered into a "Lease Agreement" with New Breed Music International for a Cat Stevens sound recording of the same song titles as on the Cat Stevens original sound recording, save for the title "Longer Boats". The Lease Agreement stated that New Breed Music International was the owner of the master sound recording of the ten song titles and granted to Golden Editions a non- exclusive, three year lease, for the territories of Australia and New Zealand, of the right to manufacture and reproduce records, tapes, compact discs or any other device from the master sound recording, together with the right to merchandise and exploit the right to use the artist's name and likeness - 8 - and any other rights necessary to enjoy the use of the master sound recording. Mr Hughes stated in cross examination that _he was not aware, nor has he.ever checked, whether the master was of the original sound recording or of a re-recording. Golden Editions commenced manufacturing compact discs and cassettes from the Cat Stevens' master in December 1990 and commenced sales in January 1991. In April 1991, Mr Hughes contacted New Breed Music International about sound recordings of The Carpenters which he believed had become available for licensing. He gave evidence that at the time he made the inquiries, he believed that the rights in these recordings also derived either from re-recordings or lease deals of the type previously described. Golden Editions received the master for The Carpenters recording in May 1991, although it had not signed any lease agreement at that time. The song titles on the master were the same as on The Carpenters original sound recording. In July 1991, New Breed Music International advised Mr Hughes that, because of problems caused by Richard Carpenter in the United States, it was not able to license any more Carpenters' albums. However, in October 1991, New Breed Music International advised the respondents that The Carpenters titles were available and on 29 October 1991 Golden Editions signed a Lease Agreement for The Carpenters sound recording. The Lease Agreement was in the same terms as that entered into for the Cat Stevens recording. Golden Editions commenced -~9- production of The Carpenters album, in compact disc and cassette form, in February 1992 and released it in March 1992. _AS was the case with the Cat §gtevens licensed sound recording, Mr Hughes stated that he was not aware whether The Carpenters master was of the original sound recording or of a re- recording and he has never checked. In May 1992, Golden Editions participated in a major "Star burst television campaign" which featured The Carpenters licensed sound recording. On 18 June 1992, the applicants' solicitors wrote to Golden Editions, advising that Polygram was the exclusive licensee for Australia of the copyright in the Cat Stevens and Carpenters original sound recordings and alleging that the manufacture and distribution of the recordings by Golden Editions constituted an infringement of Polygram's rights. Golden Editions acted immediately by withdrawing the recordings from sale and gave an undertaking to Polygram's solicitors that it would refrain from any further importation, manufacture or distribution until the dispute had been resolved. Golden Editions breached that undertaking on one occasion, after being informed by Polygram's managing director that Cat Stevens and The Carpenters had never had any agreement with Island and A&M. However, the undertaking was reinstated and remains in place. Mr Hughes stated that until he received the 18 June 1992 letter, he had no knowledge "that there was any problem with the recordings". His reason for not having checked the - 10 - position as to the ownership of copyright in the recordings was because he "trusted New Breed explicitly". The Copyright Act Copyright, in relation to a sound recording, is the exclusive right to, inter alia, make a copy of the sound recording: s 85(a). The maker of a sound recording is the owner of any copyright subsisting in the recording: s 97(2). Copyright is infringed by a person, who, not being the owner of the copyright, and without the licence of the owner of the copyright, does in Australia, or authorises the doing in Australia of, any act comprised in the copyright: s 101(1). A party whose copyright has been infringed, may claim damages or an account of profits: s 115(2). Additional damages may be claimed: "s 115(4). Damages may also be claimed for conversion: s 116(1). However, if a party claims that the infringement was "innocent", it may be excused from liability to pay damages pursuant to the provisions of s 115(3) or s 116(2) but may still be liable to an account of profits. The respondents bear the onus of establishing matters sufficient to satisfy the provisions of the respective sections: James Arnold & Co Ltd v Maifern Ltd [1980] RPC 397 at 410. Defence under section 115(3) Section 115(3) provides: "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 - 11 - 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 reltef is granted under this section or not." The section is one which, in practical terms, has not spread an extensive protective net. It has been held, for example, that it does not protect a person who, knowing or suspecting that copyright exists, makes a mistake as to the owner of copyright: Pollock v J.C. Williamson Ltd [1923] VLR 225; Byrne v_ Statist Co [1914] 1 KB 622. As was said in Kalamazoo (Aust) sines: stems Pt td (1985) 5 IPR 213 per Thomas J at 243~244: "...the special defence created by s 115(3) of the Act... is an alternative means by which a defendant may avoid an assessment of damages, although, curiously, it gives no assistance in avoiding the taking of an account (cf Ricketson, supra, para 2.21). The provision has not afforded defendants much assistance in practice. The requirement that the defendant should have no reasonable grounds for suspecting that his act was an infringement has been difficult to maintain under this provision and its forerunners: John Lane the Bodley Head Ltd v Associated Newspapers Ltd [1936] 1 KB 715; Pytram Ltd v Models (Leicester) Ltd [1930] 1 Ch 639. A mistake of law has not been regarded as being sufficient unless that mistake was made after reasonable inguiry and investigation: Pollock v J C Williamson Ltd [1923] VLR 225. Of course, the facts in the present case go far beyond a mere ignorance of law on both sides. At first glance, it may be thought that the defendants must have failed to make reasonable inquiries as to subsistence of copyright. Their conduct must be seen in light of the fact that they were encouraged to believe in the legality of their action by the conduct and statements of the plaintiff. Such facts reduce the ambit of the reasonable inquiry that might be expected in the circumstances". - 12 - Although the section does not speak of a need to make inquiries in order to satisfy its provisions, it is clear from Kalamazoo, that the circumstances may be such as to put a respondent on notice, so that unless inquiries are made, the respondent may not be able to successfully assert there were no reasonable grounds to suspect that copyright subsisted in the offending items. Indeed, the learned authors of Copinger and Skone James on Copyright (13th Ed, para. 11-28) state of s 97(1) of the Copyright, Patents and Designs Act 1988 (UK): "When can a direct infringer have no reason to believe that copyright subsisted in the work which he copies? It is submitted that the proper attitude of mind of an infringer towards a work that he copies is that copyright in the latter subsists unless he has evidence to the contrary. He can only have no reason to believe that Copyright subsists if he has grounds for thinking that (a) the period of copyright protection has run out; or (b) the work is of such a character that it ought not to be a subject of copyright..." Section 97(1}) is not in the same terms as s 115(3). It provides that a plaintiff is not entitled to damages in respect of an infringement, if it is shown that, at the time of the infringement, the defendant did not know, and had no reason to believe, that copyright subsisted in the work, to which the action relates. However, its predecessor provision, s 17(2) of the Copyright Act 1956 (UK), was in the same terms as s 115 (3). The authors of Copinger and Skone James considered that the change in the wording of the new United Kingdom provision was not intended to reflect any change in the law. Counsel for the applicants submitted that I should find that _.Mr Hughes was aware that the licensed sound recordings were copies of the original sound recordings or, alternatively, that he had no basis whatsoever, and certainly no reasonable basis, for suspecting that the recordings might be re- recordings so that no defence under s 115(3) had been made out. He further submitted that if I did find that the infringement was innocent within the provisions of s 115(3), I should find alternatively that the respondents could not sustain the defence after March 1992, when Festival Records commenced infringement proceedings against the respondents in respect of an Olivia Newton John recording, which Golden Editions had licensed from new Breed Music International (the Festival proceedings), or, at the latest, after receipt of the letter of 18 June 1992. The Festival proceedings were settled in November 1992. As part of the settlement, Golden Editions agreed to pay damages for infringement of Festival's copyright, and, to state the matter in general terms, was permanently restrained from infringing Festival's copyright. The principal reason advanced in support of the s 115(3) defence was Mr Hughes' implicit trust in New Breed Music International. He said that they were a reputable company with whom Golden Editions had dealt for many years and he had never had cause to question them, at least until the Festival proceedings in March 1992. It is possible that dealings with a reputable company might be sufficient to satisfy s 115(3) in - 14 - a given case. However, whether the defence has been made out will depend upon all the circumstances. In the present case, _this requires an examination~-of the basis and reliability of Mr Hughes' explicit trust in New Breed Music International in the context of his state of knowledge, both of the music industry generally and of his specific knowledge of Island's and A&M's ownership of copyright in the original sound recordings. In his affidavit sworn 24 January, 1994, Mr Hughes stated he had been dealing with New Breed Music International, which originally traded as Music City Associates, Nashville for about five years. Music City Associates had been owned by a Paul Wyatt, who had sold the business in about 1988 to his chief assistant, Frankie Moore, who now carried on business as New Breed Music International. Mr Hughes stated that "Music City Associates was one of the most reputable licensing brokers in the world". He also said: "as I keep trying to emphasise, I had ~ because of the predecessor of Frankie Moore which was a company called Music City Associates that had the - just enjoyed the great credibility of any of the licensing brokers I've come across in 28 years of business and when Mr Wyatt got seriously ill and sold the business to Frankie Moore, I mean I naturally assumed that the operation was the same integrity. Mr Hughes stated he had never been challenged in respect of licensed sound recordings from New Breed Music International until the Festival proceedings were commenced in March 1992. - 15 - There was no other evidence to support Mr Hughes' opinion as to the integrity of Paul Wyatt, Music City Associates, New _ Breed Music International or its current owner. Even so, had there been no other critical material in the matter, Mr Hughes' opinion of New Breed Music International and his implicit trust in its integrity, given his trouble free dealings with it, at least until March 1992, may have been sufficient for him to establish that he was not aware, or had no reasonable grounds' for suspecting infringement of copyright. I should add however, that the relatively short period of dealing and the absence of evidence to support Mr Hughes' belief in the reputation of New Breed Music International and its predecessor and its principals, including the absence of any evidence of enquiries he had made or information he had received upon which to base his opinion as to the integrity of the broker, would be factors which could weigh against the defence having been made out in that limited case. However in this case, there are other relevant factors. It will be recalled that in his affidavit evidence, Mr Hughes said he believed that the rights in the recordings derived from either re-recordings or lease deals of the original sound recordings. He said that it was of no concern to him as to what the position was, as his concern was Golden Editions' commercial aim to tap into the market of known artists with popular songs. He also said he had no reason to believe that New Breed Music International was not entitled to grant the - 16 - rights granted by the two Lease Agreements. He provided no basis for his belief or for his reasoning and, it follows, no _ evidence in support of his belief or reasoning. The picture which emerged in cross-examination was significantly different from that portrayed in Mr Hughes' affidavit evidence. In cross-examination, Mr Hughes conceded that he did not know, one way or the other, whether the licensed sound recordings were of the original sound recordings or were re-recordings, and that, at the time he entered into the Cat Stevens Lease Agreement, he appreciated that it was possible that the licensed sound recording was of the original sound recording. He said he was concerned not to mislead the market by selling re-recordings, unless they were labelled as such and had he been aware that they were re- recordings, he would have labelled them accordingly. Assuming this to be correct, it is difficult to accept that an astute business person, as Mr Hughes projected himself to be, would be unconcerned as to whether he was selling the original sound recordings or re-recordings. This is even more so, given Mr Hughes' evidence that the likelihood of a re-recording being the same as an original sound recordings was "extremely remote" and further that Mr Hughes had had an earlier experience where Golden Editions had marketed a Kenny Rogers album which was a re-recording. He said in relation to that incident: - 17 - "...We got heaps of consumer complaints about how bad they were and that they weren't the originals. In fact we had to, in the end, we had to establish a practice of marking on the packages that these are not the original recordings." The only explanation he gave as to why he had not taken any steps to ascertain what the true position was with the licensed sound recordings was: "...I didn't know and hadn't had that experience before". He then gave the following evidence: "The short answer I suggest to you, Mr Hughes, would you agree, is that your assumption was that they were the same as the originals?---Either the same or close. I will put it more clearly. Would you agree that your assumption was that they were copies of the originals?---No, I didn't know whether they were or not. Would you agree that your assumption was that the great probability was that they were copies of the originals?---There would be a strong possibility". This last answer is a significant concession in the respondent's case. If I accept Mr Hughes evidence that he was concerned not to mislead the market and that he would have relabelled the recordings as re-recordings had he known that was the case, it is difficult to accept his evidence that he did not know what he had licensed and that he was unconcerned about it. If that evidence is to be accepted, I would be compelled to find that Mr Hughes was reckless as to what he licensed. However, I consider that more likely than not, Mr - 18 - Hughes was aware that he was licensing the original sound recordings. s There are a number of other factors which reinforce my view that Mr Hughes at all times believed that he was licensing the original sound recordings. First, had Golden' Editions licensed re-recordings, the respondents would have had a complete defence to the applicants' claims. However, the respondents have never asserted that the licensed recordings were re-recordings, nor have they taken the most simple of steps, such as by listening to the licensed recordings, to establish whether they were re-recordings. Secondly, at the time that the respondents gave an undertaking not to further distribute the sound recordings until the dispute was resolved, the only matter it sought to raise with the applicants's solicitors was for them to prove their title to the original sound recordings. His reason for this limited response is found in the following passage in cross- examination: Would you agree with the suggestion that the only point you had to make through your solicitors to Gilbert and Tobin was for them to try and prove to you the title they had to those original recordings, would you agree with that?---That's correct. And apart from that you had nothing else to put in your instructions to Phillips Fox to be put to Gilbert and Tobin?---No, you see, because we had licensed them on a non-exclusive basis." - 19 - The last answer is consistent with a belief that Golden Editions had licensed copies of the original sound recordings. Mr Hughes' subseguent evidence that he had no grounds for believing, in 1991, that Island and A&M did not own the copyright in the Cat Stevens and The Carpenters original sound recordings and Golden Editions' practice of labelling re- recordings as such, following the Kenny Rogers incident, is also consistent with a belief being held by Mr Hughes that Golden Editions had licensed copies of the original sound recordings. The specific factors to which I have just referred must be considered in light of Mr Hughes' general evidence. He placed considerable emphasis on the fact that he was an "industry veteran". He prided himself on his knowledge of the market place. His affidavit evidence was replete with examples of his experience in the music industry. At various times in his evidence, he was at pains to demonstrate that knowledge. I consider that the whole tenor of Mr Hughes' evidence is such that he knew or at least suspected that he was licensing the original sound recordings. If he neither knew nor suspected that he was licensing the original sound recordings, then I consider that he was reckless as to what he was licensing. That, of course, does not mean that the respondents were aware or had no reasonable grounds to suspect that the manufacture and distribution of the licensed sound recordings constituted -20- an infringement of copyright. The New Breed Music International licenses were non-exclusive licenses. Thus, even knowing that the licensed sound recordings were of the original sound recordings, it was possible that Golden Editions could exercise the rights conferred by the New Breed Music International licenses without infringing copyright. There are three factors which support the respondents' case that they were not aware that the licensed recordings were infringing copies: first, the fact that the licenses were non-exclusive and the related evidence that at the time that Golden Editions entered into the licenses, Mr Hughes, understood that the recordings had been licensed to other licensees, in particular, to Tring International in the United Kingdom and VS Music in Germany, although there was no evidence to support Mr Hughes' understanding that this was the case; secondly, Golden Editions' expenditure on the "Star Burst" advertising campaign, which, as counsel for' the respondents submitted, does not sit comfortably with the respondents being aware that its recordings were infringing copyright, as it gave exposure to the infringing recording; and thirdly, the fact that New Breed Music International had withdrawn The Carpenters recording from sale, confirming the respondents belief in New Breed Music' International's integrity. -21- Counsel for the respondents relied upon the following further _ factors in support of the s J15(3) defence: first, until the issue of proceedings, neither Island nor A&M had made a claim for infringement of their respective copyright in the sound recordings; secondly, Polygram did not provide documentary proof of its chain of title, despite the respondent's request that "it do so; thirdly, Polygram's managing director had advised Mr Hughes, in about August 1992, that there was no contract in existence between Cat Stevens and Island and New Breed Music International had given advice to the same effect; fourthly, the Cat Stevens licensed recording was on the market for 18 months before any complaint was made in respect of the recording or indeed in respect of either recording. These factors are all matters which arose after the commencement of the infringement, which occurred when Golden Editions first manufactured each of the licensed recordings. They are matters which, if the respondents did not know they were infringing copyright, would have confirmed that belief. They are also matters which would not give the respondents any ground to suspect that they were infringing copyright. However, the overall effect of these matters, as with the three specific matters to which I have referred, has to be considered in conjunction with all other relevant circumstances. Mr Hughes' knowledge of the music industry generally, his knowledge of Island and A&M's ownership of the copyright in the original sound recordings and his belief that it was possible that those companies were still selling the -22- recordings in Australia as at 1991 are matters which make his assertion that he did not know or had no reasonable grounds to suspect that the respondents "were infringing copyright naive, but not untenable. However, there is one significant factor which points to the opposite conclusion. Each of the Cat Stevens and The Carpenters lease agreements stated that New Breed Music International "was the owner of the master sound recordings". Mr Hughes stated he understood that, by that clause, New Breed Music International was asserting that it owned the copyright in the master sound recordings. He also knew that a lease of copyright did not entitle a party to assert ownership of the copyright. Having regard to Mr Hughes' avowed understanding of copyright and the state of his knowledge to which I have referred, both generally and in respect of Island's and A&M's rights in respect of the original sound recordings, he must have appreciated that this provision in the lease agreements was either false or erroneous and that therefore, by manufacturing and distributing the licensed sound recordings, the respondents were infringing copyright. If he did not have such an appreciation, then I consider that he was reckless as to whether the respondents were or were not infringing copyright. In my opinion, s 115(3) does not assist a party who is reckless in this way. To say that a party is reckless as to whether it is or is not infringing copyright may only be another way of concluding -23- that a party has no reasonable grounds to suspect the infringement. Even if that is not so, I consider that the circumstances here were such that the respondents were put on inquiry as to whether they were infringing copyright. This is so, notwithstanding that Mr Hughes believed he was dealing with a reputable broker and that he had an non-exclusive license. The particular matters which put him on inquiry were his awareness that he was licensing (or even possibly licensing) the original sound recordings; his knowledge that Cat Stevens and The Carpenters had recorded for Island and A&M; his knowledge that Island and A&M owned the copyright in the original sound recordings; the possibility that they were still selling the original sound recordings in Australia in 1991; the clause in the lease agreements to which I have referred and Mr Hughes' understanding of the meaning of that clause. Mr Hughes did not make any enquiries, and in this case, I consider that he did so at his peril. There are certain additional factors to which I should refer. Those matters, in the main, go to Mr Hughes' credit. If, as Mr Hughes said, it was critical to Golden Editions' business to keep up-to-date with changes of ownership and the right to recordings or catalogues of music in which Golden Editions has or might, in future, have a commercial interest, and that he did so, it was disingenuous for him to assert, in relation to the applicants: "...I really take no notice of what competitor companies do, I get on with my own business". - 24 - This is the more so given that he admitted that he knew that Cat Stevens and The Carpenters had recorded for the Island and _ A&M respectively and that he knew of their ownership of copyright. It also follows from his knowledge of this matter that his assertion that the copyright could have been in the artists with a lease or licence to a third party such as to Island or A&M does not withstand scrutiny. In their defence dated 4 May 1993, the respondents pleaded that s 115(3) and s 116(2) of the Copyright Act applied: "...by reason of the fact that the respondents were not aware, and had no reasonable grounds for suspecting, that copyright subsisted in the Cat Stevens' recordings and in The Carpenters' recordings..." Mr Hughes conceded this allegation was incorrect. Counsel for the applicants submitted that this was one of the matters which demonstrated that Mr Hughes's should not be accepted as truthful or reliable. Care has to be taken when assessing a witness's credit on the basis of errors or apparently false statements in pleadings which have been prepared by someone other than the person whose credit is in issue. However, Mr Hughes gave evidence that he discussed the terms of the defence with his solicitors, reviewed a draft of the defence and approved it. It may be that Mr Hughes did not appreciate the falsity of the defence at the time it was drafted. However, his failure to notice the error was, at the least, careless. Mr Hughes admitted to another' error in the formal documentation before the court, this time in paragraph 12 of _Mr Hughes' second affidavit sworn 17 June 1994. In order to understand the error it is necessary to refer to the following paragraphs of the affidavit: "5. The Cat Stevens Sound Recordings were included in the Golden Editions catalogue at the beginning of January 1991, as catalogue number STB 8722 (CASSETTE) AND cd 8722 (compact disc). 6. In April 1992, the cat Stevens Sound Recordings were released as part of a double cassette and CD package. This package was given a new catalogue number. This affidavit details all sales and manufacture of the Cat Stevens Sound Recordings, including those which were sold as part of the double packages, CLIV 533 and LTV 533. di. In May 1994, I instructed Phillips Fox to deliver up to the solicitors for the Applicants all copies of the Sound Recordings in the possession, power or control of Golden Editions. Iam informed by Katherine Haddock, and verily believe, that on 25 May 1994, Phillips Fox delivered up to Gilbert & Tobin: 11.1 3494 copies of CD STB 8751; 11.2 2778 copies of STB 8751; 11.3 319 copies of CD STB 8722; and 11.4 323 copies of STB 8722. 12. The copies of STB 8722 and CDSTB 8722 which were delivered up on 25 May 1994 include cassettes and CDs which were included in CLTV 533 and LTV 533, which once removed from their packaging are indistinguishable from STB 8722 and CDSTB 8722 respectively." - 26 - As I have said, the assertion in paragraph 12 was wrong. He gave the following explanation as to how he had made the error: "m--For want of better terminology, I have a very hands-off involvement in the manufacture of the recordings. I do liaise and licence, do the licensing, authorise the releases and then I pay employees good money to look after that for the company. In fact, this is the first time I have ever held this cassette. What checks did you make before you swore the affidavit in relation to the statement in paragraph 12?---No checks, just personal knowledge." It is not known what personal knowledge Mr Hughes had or how he might have acquired that given the first of those two answers just quoted. Indeed, the two answers seem to be internally inconsistent. Whatever be the position, it indicates another occasion of carelessness, at least, in respect of Mr Hughes approach to the litigation. However, Mr Hughes' "carelessness" both in relation to the affidavit and the defence, reinforced my view as to Mr Hughes recklessness to which I have referred earlier. The next matter to which reference should be made is Mr Hughes evidence that he did not know whether any person in his employ had listened to the original sound recordings to ascertain whether there was any difference between them and the original sound recordings. His evidence in this regard was as follows: - 27 - "A simple way you appreciated in 1991 to check whether they were the original recordings or re- recording would have been to listen to the New Breed ones and listen to the Island ones?---Whosever wanted to check, of course. And did you do that?---No, I had no reason to. Have you listened to it since?---No, never listened to it. You have not bothered to listen to it?---No. fo your knowledge has anyoné in your company - are you aware of anyone in your company having listened to the two?---I'm sure they would have. I'm not aware of anyone, no. Somebody may well have? ---May well have, possibly, of course. I employ a lot of people". I was unimpressed with Mr Hughes' evidence on this point. The very quick change in his answer, from stating that he was sure that someone in his company had listened to the recording, to stating "I'm not aware of anyone, no" indicated to me that Mr Hughes appreciated there may have been a difficulty with his concession that employees would have listened to the two recordings. The second part of his answer and the next answer seeks to expunge that difficulty, so as to enable him to maintain the fundamental part of his case that he was not aware and had no reasonable grounds for suspecting that the respondents were infringing the applicants' copyright. Counsel for the applicants submitted that having regard to the respondents' failure to call any employee to give evidence as to whether they had listened to the recordings, I should infer that responsible persons within Golden Editions were aware that the licensed sound recordings were copies of the - 28 - originals and that Island and A&M were still selling those recordings: Jones v Dunke] (1959) 101 CLR 298. The principle in Jones vy Dunkel is that the unexplained failure of a party to call a witness may, in appropriate circumstances lead to an inference that the uncalled evidence would not have assisted that party's case. The inference which counsel for the applicants would have me draw, is therefore, too wide. However, having regard to the admission of the infringement I do not consider that this is an appropriate case in which to draw the permitted inference. There was other unsatisfactory evidence. In his affidavit evidence, Mr Hughes had offered another alternative as to the nature of the licensed recordings, namely that he believed that their source was in lease deals between the artists and a record company. However, this assertion is inconsistent with his industry knowledge and knowledge of Island's and A&M's ownership of copyright in the original sound recordings. Mr Hughes initially denied the inconsistency. However, under cross examination he was forced to retract this stance. His evidence in this regard was: "You knew very well in 1991, from your understanding as a veteran in the industry, that a lease of the copyright by an artist to a record company did not entitle the record company to assert that it was the owner of that copyright; correct?---Correct. So that once you understood that Island and A & M owned the copyright in these recordings, the original recordings, you appreciated that the artist could not have owned the copyright in_ those recordings; correct?---No, I really don't know what the arrangement was with either Cat Stevens or the - 29 - Carpenters with their respective companies. Would you agree with me that you perfectly understood that it was inconsistent, it would have been inconsistent, fore the artist to own the copyright in those recordings if you understood that the record companies owned the copyright; would you agree with that?---Yes. Just to be clear, I suggest to you that you well understood from your knowledge of copyright law as a veteran in the industry that if A & M and Island owned the copyright in these recordings that the artists could not have owned the copyright in those recordings; do you agree with that?---If they owned them, yes." The qualification in the last answer does not assist the respondents, given Mr Hughes' admission that at all times he knew that Cat Stevens recorded for Island and The Carpenters recorded for A&M and that those recording companies respectively owned the copyright, not that they had a license in respect of the copyright, in the original sound recordings. Finally, reference should be made to Golden Editions' use of the symbol "C" on its recordings. Mr Hughes stated that the use of this symbol indicated that Golden Editions "had leased the copyright for that territory for the period of your licensing agreement". He admitted, however, that he had both seen and used the expression "manufactured under license" on sound recordings. He also admitted that he: "understood that "c" next to the name of a record company such as Island on any record they put out in Australia was an indication by that company that they were saying that they owned the copyright in that recording" (emphasis added). - 30 _- His evidence also clearly demonstrated that he knew and understood the difference between ownership and the lease or _ license of copyright. - As I have said, the matters to which I have just referred, in the main, go to the question of Mr Hughes' credit. The inconsistencies in his evidence are such that I did not find him to be a satisfactory witness and I do not accept his assertions that he was not aware or had no reasonable grounds to suspect that the respondents were infringing copyright. In any event, as I have said, I consider that he was reckless as to these matters. Accordingly, I reject the respondents' defence under s 115(3). Defence under Section 116(2) The owner of copyright of a work is entitled, in respect of any infringing copy or of any plates used or intended to be used for making infringing copies to the rights and remedies by way of an action for conversion or detention to which the owner would be entitled if owner of the copy or plate : s 116(1). However, s 116(2) provides: "(An applicant] is not entitled by virtue of this section to any damages or to any other pecuniary remedy, other than costs, if it is established that, at the time of the conversion... (A) eee (b) where the articles converted...were infringing copies - the [respondent] believed, and had reasonable grounds for believing that they were - 31 - not infringing copies; Section 116(1) differs from s 115(3) in that it is not dependant upon a party's awareness nor upon whether it had reasonable grounds to suspect infringement. The question to be determined, under s 116(2)(b) is whether a party believed the articles converted were infringing copies. Section 116(2) is directed to a genuinely held belief, hence the requirement that there must be reasonable grounds for the belief. The respondents rely upon the same factors to support their defence under s 116(2)(b) as they did under s 115 (3). As I have found that Mr Hughes was aware that the licensed recordings were infringing copies, the defence under s 116(2)(b) must also fail. However, even if I am wrong in that finding, and if Mr Hughes believed that the licensed recordings were not infringing copies, for the reasons which I expressed in relation the s 115(3) defence, I consider that he was reckless as to whether he was or would be infringing copyright by exercising his rights under the lease agreements. It follows therefore that his belief was a reckless belief. In my opinion, s 116 (2) does not apply to a reckless belief. In any event, I consider that the matters upon which the respondents relied to prove that they had reasonable grounds for the belief are outweighed by the evidence as a whole, for the same reasons that I made that finding in respect of the s 115(3) defence. - 32 - I will stand the matter over for 7 days to enable the parties to bring short minutes of order and to consider the further - conduct of the matter. I certify that this and the preceding (31) pages are a true copy of the Reaso gment of the Honourable Justice Beazley. LS. Associate: Dated: 2 December 1994 PP CES Counsel for the Applicant: T. Bannon Solicitors for the Applicant: Messrs Gilbert & Tobin Counsel for the Respondent: D.M. Yates Solicitors for the Respondent: Messrs Phillips Fox Dates of hearing: 17 June, 13 July and 19 August 1994