JUDGMENT No. 00 O27 BS CATCHWORDS PRACTICE AND PROCEDURE - discovery - relevance of documents recording settlement of related proceedings - adequacy of pleadings in defining dispute - without prejudice privilege. Field _v Commissioner for Railways for New South Wales (1957) 99 CLR 285. Mulley v Manifold (1959) 103 CLR 344, Welcome v_R Laboratories (Aust) Pty Ltd (1980) 29 ALR 261. IBES CORPORATION AND SEAS SAPFOR LTD v MOMENTUM (AUST) PTY LTD TRANSACCT AUSTRALIA PTY LTD and LARRY DALLAS VG 36 of 1993 CORAM: RYAN J PLACE: MELBOURNE DATE: 22 DECEMBER 1994 23 DEC 1994 FEDERAL COURT OF AUSTRALIA PRINCIPAL REGISTRY IN_THE FEDERAL COURT OF AUSTRALIA ) ) VICTORIA DISTRICT REGISTRY ) No VG 36 of 1993 ) GENERAL DIVISION ) BETWEEN: IBES CORPORATION and S _E A_S SAPFOR LTD (Applicants) AND: MOMENTUM (AUST) PTY LTD TRANSACCT AUSTRALIA PTY LTD and LARRY DALLAS (Respondents) CORAM: Ryan J PLACE: Melbourne DATE: 22 December 1994 REASONS FOR _ JUDGMENT RYAN _J: By application filed 19 February 1993 in proceeding numbered VG 36 of 1993 the applicants seek injunctions, orders for delivery up, and damages or alternatively, an account of profits, in respect of what are alleged to be breaches of copyright subsisting in a number of computer programs and associated literature. The present applicants also, on 19 February 1993, commenced proceedings numbered VG 37 of 1993 against different respondents alleging breach of the same copyright works and seeking relief in identical form. The latter proceeding was compromised as between the parties and an issue has arisen as to whether the documents which record negotiations leading up to that compromise and the compromise itself are discoverable in the present proceeding and, if so, -~2- whether the applicants can withhold them from inspection on the ground of legal professional privilege. That issue has arisen on a motion, seeking orders that the applicants give specific discovery pursuant to 0.15 r.8 of the Rules of this Court. The motion for specific discovery first came on for hearing on 8 April 1994 before Gray J at which time his Honour made orders including the following: "1. The Applacants within 7 days of this date file and serve an affidavit listing any of the following documents which are or have been in their possession, power or control; a) any agreement entered into between the Applicants and, unter alia, the Respondents to proceeding No vG 37 of 1993 which compromises that proceeding; b) any draft of the agreement referred to in (a) c) any correspondence or other document relating to the agreement or draft referred to in (a) or (b). 2. With the exception of the document referred to in paragraph 3 hereof, the Respondents not be at liberty to inspect the @ocuments listed in the Applicant's affidavit without the written agreement of the Applicants or order of the Court. 3. The Applicants upon counsel for the Respondents signing and delivering to the solicitors for the Applicant the attached form of undertaking marked "A" will forthwith provide to Counsel for the Respondents a copy of the document dated 26 October 1993 entitled "Without Prejudice" and signed by the Applicants and, inter alia, the Respondents to proceeding No vG 37 of 1993. 4. Liberty be reserved to any party upon 48 hours notice being given to every other party. 5. The further hearing of the Notice of Motion filed 24 March 1994 is adjourned to a date to be fixed." In accordance with those orders an affidavit of Mr Keith Brink was filed on behalf of the applicants which disclosed that the applicants have in their possession 35 documents which come within paragraph 1 of the order of 8 April. Mr Brink deposes - 3 - that each of the documents enumerated was created for the sole purpose of obtaining and recording legal advice with respect to the settlement of the proceeding numbered VG 37 of 1993. By supplementary affidavit sworn 2 June 1994 Mr Brink has deposed to the existence of a further document in these terms: "3, The applicants also have in their possession the following document : (33) Agreement between the applicants, Ibes Asia Pacific Pty Ltd, Buloco Limited, Mt Marketing Services Limited, Prosper Systems Pty Ltd, Michelle Cahill, Tam Kivell, Walmer DPA Pty Ltd, Maximise Software International Pty Ltd, Maximise Software International Limited and Computer Systems Implementation Limited exchanged 31 May 1994. 4. All the documents referred to were created for the purpose of either: {1) the obtaining of legal advice and/or the recording of Buch legal advice and legal drafts and correspondence recording the legal advice obtained by the applicants from their legal advisers, and the respondents and their solicitors with respect to the settlement of proceeding VG 37 of 1993 assued out of the Melbourne Registry of this Honourable Court. (2) the settlement of proceeding VG 37 of 1993 issued out of this Honourable Court. Documents (hh) and (jj) and hereof reflect and comprise from the terms of settlement of VG 37 of 1993 and involves parties who were not parties to either proceedings VG 36 and VG 37. It is a term of each such document that the terms thereof not be disclosed and remain confidential to the parties who are signatories thereto, 5. The Statement of Claim in each of VG 36 and VG 37 are almost identical and raise the same, if not identical, issues." Pursuant to 0.15 r.10 of the Rules, where a party refers to a document in an affidavits any other party may, by notice to produce, require production of the document for inspection. Parties served with such a notice are required, within 4 days, to serve a notice either appointing a time for inspection, claiming privilege from production, or stating the document is no longer in that party's possession. Order 15 r.10 contemplates that a party who refers to a document in an - 4 - affidavit or a pleading cannot resist the production of a document on the ground of lack of relevance. In the present case, the orders made by Gray J which required the applicant to file an affidavit referring to various documents and permitting Counsel to inspect one of those documents on terms of confidentiality, were made with a view to assisting the parties in reaching agreement on the relevance of the documents to the present proceedings. However, in the result, agreement has not been reached and the orders that were made should not now be seen to preclude the applicant from arguing the primary ground of relevance in seeking to resist the discovery and production of the documents. Accordingly, I shall first turn to the threshold question of relevance. Discovery is a process whereby parties can obtain access to those documents held by other parties which bear on or assist in the resolution of the issues between them. Accordingly, discovery is confined to the disputes raised by the pleadings in the sense that it is limited to documents which would, or might lead to a train of enquiry which would, either advance a party's own case or damage that of his adversary: see Mulley vy Manifold (1959) 103 CLR 344 at 345 and Welcome v V R Laboratories (Aust) Pty Ltd (1980) 29 ALR 261 at 264. With those principles in mind it is necessary to refer to the pleadings. - 5 - Paragraphs 6 and 7 of the statement of claim deal respectively with ownership of the copyright works and infringement. The paragraphs are in these terms: "6. At all material times, until 23 December 1992 IBES a successor in tatle to Vanguard Technology Inc was the owner and after 23 December, 1992 Sapfor is and was the owner of the copyright subsisting in Australia in: (a) a computer program known as "FACS", and each and every version of it ("3.0, 3.1, 3.2"); (b) a computer program known as "IBES" previously known as FACS and each and every version of it ("3.2"); (c) certain artistic and literary works, being manuals and other such documents designed by the first Applicant's predecessor in title, Vanguard Technologies Inc., for use with or in relation to the computer programs; (a) certain artistic and literary works, being manuals and other such documents designed by the first Applicant and/or its predecessor in title for use with or in relation to the computer programs. (({a) and (b) to be referred to hereafter as "the computer programs" and (c) and (d) to be referred to hereafter as "the works") all such computer programs and works being first produced in the United States of America on dates commencing in or about April 1988. PARTICULARS OF OWNERSHIP (a) Gerald Bruce Eriksen, computer programmer of the United States of America was the author of the said computer programs and works whilst in the employment of first, Vanguard Technologies Incorporated, a company incorporated in Texas in the United States of America, which company assigned all its right title and interest un such copyright to VTI Acquisition Inc pursuant to Court order of the United States Bankruptcy Court for the Northern District of Texas, Dallas dated 18 June, 1990, VTI Acquisition Inc thereafter changing its name to IBES Corporation and secondly, whilst in the employment of the first Applicant after the change of name. A copy of the Court order and assignment is in the possession of the Solicitors for the Applicants and may be inspected on reasonable notice during ordinary business hours. (b) By an agreement in writing dated 23 December, 1992 made between the first Applicant and the second Applicant, the first Applicant assigned to the second Applicant the said computer programs and said works for various countries including, inter alia, the Commonwealth of Australia. A copy of the Deed of Assignment is in the possession of the Solicitors for the Applicants and such copy may be -6- inspected on reasonable notice during ordinary business hours. 7. From at least about mid 1991 and prior to the issue of the proceedings herein the Respondents and each of them has infringed the Applicants' copyright in each of the computer programs and works by without any licence or authority of the Applicants or either of them doing, and/or causing, and/or authorising the doing in Australia of the following acta: (a) Reproducing the said computer programs and/or works or any of them or a substantial part thereof in a material form; (b) publishing the said computer programa and/or the said works or any of them or a substantial part thereof; (c) selling or by way of trade offering or exposing for sale or by way of trade exhibiting in public the said computer programs and/or the said works or any of them or a substantial part thereof where to the knowledge of the Respondents and each of them the making of the said computer programs and the said works constituted an infringement of the copyright of the Applicants or either of them in each of the said computer programs and said works. PARTICULARS OF REPRODUCTION OR COPYING The Applicants as evidence of copying will rely, inter alia, upon the identity and general similarity between the Applicants' said computer programs and said works and the computer programs and manuals produced and made and/or sold or offered for sale by the Respondents or either of them under or by reference to the name Transacct or otherwise, which either wholly or in part substantially reproduce, adapt or copy the Applicants' said computer programs and said works in respect of each of which the copyright was and has at all material times been owned by the Applicants or either of them. PARTICULARS OF INFRINGEMENT (a) Since about mid 1991 and the date of the issue of proceedings herein the Respondents or either of them without the Applicants' licence or authority copied or caused to be copied the Applicants' said computer programs and/or gaid works. (b) Since about mid 1991 and the date of the issue of proceedings herein the Respondents or either of them without the Applicants' licence or authority: (i) produced or caused or authorised the production in Australia of tapes, disks and other material necessary for the production of the copies referred to im paragraph (a) above; (ii) printed or caused or authorised the printing in Australia of copies of the said works referred to in paragraph (a) above; (111) published or caused or authorised publication in Australia of the copies referred to in paragraph (a) above and in particular published or caused or authorised publication in Australia of computer programs and manuals bearing the name or mark Transacct (hereinafter referred to as "Transacct products"); (iv) (c) Since - 7 - sold, by way of trade offered for sale or exposed for sale or caused or authorised the sale or by way of trade offering for sale of, in Australia, the said Transacct products where to the Respondents' knowledge the making of the said Trangacct products constituted an infringement of the copyright of the Applicants' or either of them; by way of trade exhibited or caused or authorised the exhibition, in Australia, of the said Transacct products; distributed for the purpose of trade in Australia, the said Transacct products; sold the said Transacct products to the second Applicant on or about mid 1991; on or about 15 February, 1992, the Respondents or any of them offered Transacct products for sale to Michael Bruce Johnson. about mid 1991 and the date of the issue of proceedings herein the Respondents and each of them have, without the licence or authority of the Applicants imported into Australia Transacct products for the purpose of: (i) (22) (211) selling, letting for hire, or by way of trade offering or exposing for sale or hire such Transacct products; distributing the said Transacct products for the purpose of trade or for any other purpose that will affect prejudicially the Applicants' ownership of copyright; or by way of trade exhibiting the said Transacct products in public; where the Respondents and each of them knew or ought reasonably to have known that the making of the Transacct products in Australia by the Respondents would have constituted an infringement of the Applicants' copyright." To those paragraphs the respondents plead by way of defence as follows: "6, 7.1 7.2 They do not admit paragraph 6. They deny each and every allegation contained in paragraph 7. Further and alternatively, if they have done or caused or authorised the doing in Australia of any of the acts referred to in sub-paragraphes (a)-(c) thereof, (which is expressly denied), they did so with the licence of the owner of the copyright in the computer programs and the works. PARTICULARS Agreement between Prosper Systems Pty Ltd and/or Tim Kivell of the one part and the Respondents of the other - 8 - part made in February 1989. The agreement 1s partly in writing and partly oral. Insofar as it 18 in writing, it is contained in a document dated 1 February 1989. Insofar as 1t is oral it is comprised in conversations between Kivell on his own behalf or on behalf of Prosper, and Dallas on behalf of the Respondents the material substance of which was that the Respondents were permitted to reproduce and modify the Maximise software. 7.3 The licence of the owner was given by Tam Kivell or Prosper Systems Pty Ltd acting, at all relevant times, as principal, alternatively as agent for an undisclosed principal." The identity of the copyright owner and the source of ownership are obviously matters that lie at the heart of this litigation. By para 6 of the Defence the respondents have put the applicants to their proof on the question of ownership yet the alternative plea in para 7.2 discloses an implied assertion that Tim Kivell or Prosper Systems Pty Ltd are the owners of the copyright. That allegation is then made expressly in para 7.3. In my view, the non-admission of ownership in para 6 of the defence should be read in the light of the subsequent pleading which amounts to a denial of the applicant's ownership in copyright and the positive assertion of ownership in another party. The source of the claim by Mr Kivell and Prosper Systems or either of them to ownership of the copyright in the computer programs and the works is not articulated in the pleadings. The particulars to para 7.2 of the defence refer to an agreement permitting reproduction and modification of "Maximise". It is not pleaded that "Transacct" is in fact a modification of Maximise nor is a relationship between Maximise and the computer programs and the works pleaded. In - 9 - my view, without the assistance of Counsel, it is difficult to see that the particulars appended to para 7.2 have, on their face, anything to do with the facts pleaded in that paragraph. Nor can I see how those particulars, if proved, would advance the respondents' defence of licence. As the relationship between Maximise and the issue of ownership in the computer programs and the works is not set out in the pleadings it is difficult to determine how the discovery of documents in relation to Maximise will assist the respondents' case. The respondents assert that they regard themselves as having a legitimate title to the copyright in "Transacct" emanating from a licence from Mr Kivell authorizing the reproduction and modification of "Maximise". "Maximise" was the allegedly infringing work which was the subject of the action in VG 37 of 1993. In that action the present applicants sued Maximise Software International Pty Ltd, Tim Kivell and D.P. Associates Pty Ltd alleging breach of copyright in the same computer programs and associated literature as is the subject of the present proceeding. Paragraph 6 of the statement of claim in VG 37 of 1993 is in identical terms to that pleaded in the present action. Paragraph 7 is in substantially similar terms to that quoted above and alleges infringement by the respondents' publication and production of computer programs bearing the name or mark "Maximise". - 10 - It was said in argument by the respondents that Kivell had, by assignment, become the owner of the copyright in a computer program called "Strictly Business" from which "Maximise" was created and the applicants' computer programs were copied. Accordingly, it is submitted that the form of compromise entered into between Kivell and the applicants in VG 37 of 1993 might lead the present respondents to a train of enquiry which could reveal whether Kivell had a clear chain of title capable of authorising the present respondents to reproduce the literary work comprised in "Transacct". Alternatively, it is said, it may be relevant to the belief held by the present respondents that they were authorised to reproduce' the copyright in "Transacct" and that any breach of copyright that May have occurred was neither flagrant nor intentional. Finally, it is said that any damages paid in settlement of VG 37 of 1993 may have been capable of fully compensating the applicants for any loss suffered. The assertions of Counsel as to how the respondents intend to defend the claim are no substitute for clear pleadings which set the parameters of the dispute. In my view, the particulars as presently given, do not fulfil the function for which they are intended. They do not adequately give the applicants notice of the nature of the respondents' case as to the existence and adequacy of the authorisation which it seeks to make out. It is only with the assistance of additional material which before me was supplied partly by affidavit but mainly by the assertions of Counsel that one can gain any - 11 - appreciation of the way in which the respondents assert that they have obtained the authority of the copyright owner to produce "Transacct". The state of the pleadings raises a difficult question in the present context. Should the Court allow the respondents to maintain a bare denial of ownership and an assertion of authorization based on an unclear foundation in order to widen the net of discovery? The generality of the pleading would thereby give a greater ambit to discovery and make more difficult a proper adjudication of the limits of the dispute. The experience of this Court has clearly demonstrated that discovery can significantly expand the time and expense of litigation without making a corresponding contribution to the resolution of the issues. Accordingly, the Court should be astute to avoid sterile arguments about relevance which are caused by a lack of clarity and definition in the pleadings. I accept the applicants' submission that the case described by the respondents in argument is not one which can readily be discerned from the pleadings. I shall return to the consequences of the inadequacy of the defence later in these reasons. For the moment, I propose to determine the relevance of the disputed documents on the basis that the respondents will seek to prove at trial a chain of title emanating from a licence to modify "Maximise". The respondents will in turn seek to prove that "Maximise" is a modification of "Strictly Business", the copyright of which was owned by Kivell and from - 12 - which both Maximise and the applicants' software were copied. On that basis the applicants are obliged to discover those documents in their power or possession which would advance the respondents' case on the entitlement of Kivell to authorize the reproduction of the copyright subsisting in the applicants' computer programs and literature including his interest in both Maximise and Strictly Business. The two principal documents which record the compromise of VG 37 of 1993 are terms of settlement dated 26 October 1993 and an agreement which formally embodies those terms which is dated 1 November 1993. The remaining documents identified in the affidavit of Mr Brink are draft documents = and correspondence which led to those two principal documents. f[f have read both principal documents. As the documents have been treated by the parties as being confidential and as I was persuaded to entertain this application in closed Court, I shall avoid disclosing to the content of those documents except to the extent that is strictly necessary to explain the conclusions which I have reached. There are twelve parties to the formal agreement, five of whom were parties to VG 37 of 1993. The agreement effects an assignment of both the "Maximise" software and "Strictly Business". It is enough, I think, for present purposes to note that the agreement proceeds on the basis that Kivell has the title to assign in "Strictly Business". That is not to say, of course, that the agreement is admissible as tending to = 13 - prove Kivell's interest. However, it is relevant in the sense that it may constitute a step on the path which the respondents may follow in order to trace Kivell's interest. It may also lead to further enquiries which are relevant to Kivell's state of mind in relation to the ownership of "Strictly Business". That matter may well be an issue at trial. In my view, the same reasoning applies to the assignment of "Maximise". The agreement embodies cross-licences in relation to a range of products including "Maximise" and "Strictly Business". As well there are consequential licence provisions. I regard those provisions as relevant in the sense that they form a part of the overall picture against which the source of "Maximise" and relationship to the applicants' software can be viewed. As I am proceeding on the assumption that the respondents will meet the allegation of unfringment by asserting title derived from "Maximise" that connection is sufficient to make those aspects of the agreement discoverable. There are other provisions in the agreement which may be considered to be consequential to the assignment and cross- licensing arrangements which the agreement embodies. There are also formal clauses and provisions going to the availability of parties to the agreement to supply expert evidence in the current proceedings. In my view, those clauses provide a context in which the agreement operates and - 14 - on that basis should not be severed from the remaining provisions of the agreement. I regard the terms of settlement and formal agreement as relevant and discoverable in the present proceeding. In essence, they embody dealings by the applicants and by Kivell in respect of the applicants' software, "Maximise" and "Strictly Business". The relationship between "Strictly Business", "Maximise" and the respondents' software which I have imputed, is sufficient, I consider, to provide the nexus necessary to establish relevance. Before turning to the applicants' claim for privilege which is called in aid to resist inspection, I shall briefly turn to the relevance of the draft documents. Sixteen of the thirty-four draft documents are draft formulations of the agreement which ultimately became the terms of settlement. The remaining documents constitute correspondence between the parties to VG 37 of 1993, memoranda from Counsel and a software distribution agreement. In my view, the draft documents are not relevant to the present proceeding. They were prepared in the course of negotiations to settle VG 37 of 1993 and accordingly reflect each participant's view of the facts at that time but only for the purposes of reaching settlement of that action. In that sense the focus of the chain of enquiry to which an examination of those documents may lead is embodied in the final agreement which records the settlement which I have already found that - 15 - to be relevant. However, I consider that the views of the parties along the way to reaching that settlement do not constitute a source of information of the requisite relevance to the present proceeding. They reflect the various positions adopted by the parties during the course of negotiations. The circumstances which led to the parties' forming those views and reaching a settlement are not relevant, in the sense discussed above, to the current proceeding. I am not prepared to find that any of the draft documents are relevant so as to require to be discovered in the present action. That brings me back to the claim of the applicants for privilege. Legal professional privilege was relied on in respect of the draft documents. As I have found that they are not relevant it is not necessary to refer to the submissions advanced. In relation to the two principal agreements the applicants rely on "without prejudice" privilege. The protection which the law accords to communications which are made "without prejudice" is confined to their admissibility in evidence in curial proceedings between the parties by and to whom the communications have been made: see eg Field v Commissioner for Railways for New South Wales (1957) 99 CLR 285. The rationale for that protection is to encourage free and frank discussions with a view to facilitating settlement of disputes and avoiding the continuation of litigation. However, that such communications are inadmissible, also follows from the proposition that parties may concede matters not as an admission of their truth but to encourage dialogue - 16 - and avoid the entrenchment of bargaining positions. In my opinion, the "without prejudice" principle and its rationale do not prevent the communication from being discoverable in the present case. In the first place, discovery is not confined to admissible documents. Secondly, and more importantly, the documents in terms create binding legal rights and obligations enforceable between the parties. They do not record negotiations leading to a settlement but embody the terms of the settlement itself. There is nothing to suggest that any of the parties to the agreement would be unable to prove the contents of the documents in an action to enforce the terms of the agreement as against any of the other parties to the agreement. It is true that the parties to the agreement accepted an obligation to keep the terms of the agreement confidential. However, that is not sufficient to establish an intention that the agreement would be "without prejudice". I. cannot uphold the applicants' claim to privilege. In my view, on the basis on which the respondents have put their defence in argument, the two principle agreements are relevant and should be discovered in the present proceeding. However I regard the present state of the defence as inadequately pleading the matters which Counsel has asserted and am persuaded that the Court should not widen the scope of discovery and thereby allow a benefit to the respondents to flow from that inadequacy. Accordingly, I propose to adjourn -17 - the application to enable the respondents to consider whether to amend the defence so that it fairly accords with the case which it has contended it will seek to raise. If it does so, it may renew the application for discovery before me and I shall consider it in the light of the proposed amendment and of these reasons. I certify that this and the preceding sixteen (16) pages are a true copy of the reasons for judgment of His Honour Justice Ryan Associate: LA-ol A) a4 Date: Dyes Deromtry 19% Counsel for applicant: Mrs § Crennan QC with Mr H Aizen Solicitors for applicant: Stephen J Peak & Co Counsel for respondent: Mr J Burnside QC with Mr I Waller Solicitors for respondent: Jack Cohen Sherry & Co