FEDERAL COURT OF AUSTRALIA Sony Entertainment (Australia) Limited v Smith [2004] FCA 1254 SONY ENTERTAINMENT (AUSTRALIA) LIMITED & ORS v CHRISTOPHER FRASER SMITH & ORS N 944 of 2002 JACOBSON J 21 SEPTEMBER 2004 SYDNEY IN THE FEDERAL COURT OF AUSTRALIA NEW SOUTH WALES DISTRICT REGISTRY N 944 of 2002 BETWEEN: SONY ENTERTAINMENT (AUSTRALIA) LIMITED (ACN 000 033 581) FIRST APPLICANT UNIVERSAL MUSIC AUSTRALIA PTY LTD (ACN 000 158 592) SECOND APPLICANT CENTRAL STATION RECORDS & TAPES PTY LTD (ACN 005 707 997) THIRD APPLICANT and the applicants listed on the attached schedule AND: CHRISTOPHER FRASER SMITH also known as CHRIS KROSS also known as KRIS KROSS FIRST RESPONDENT TOWER RECORDS PTY LTD (ACN 084 046 784) T/A SLAMM DISTRIBUTION SECOND RESPONDENT PETER FERRIS also known as PEEWEEFERRRIS FIFTH RESPONDENT JUDGE: JACOBSON J DATE OF ORDER: 21 SEPTEMBER 2004 WHERE MADE: SYDNEY THE COURT ORDERS THAT: 1. The motion filed on 20 September 2004 be dismissed. 2. The first, second and fifth respondents to pay the applicant's costs of the motion. Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules. SCHEDULE OF ADDITIONAL APPLICANTS SONY MUSIC ENTERTAINMENT (GERMANY) GMBH FOURTH APPLICANT MEDIA RECORDS SRL FIFTH APPLICANT COMBINED FORCES RECORDS BV SIXTH APPLICANT TRACID TRAXX GMBH SEVENTH APPLICANT DANCE STREET GMBH EIGHTH APPLICANT KONTOR RECORDS GMBH NINTH APPLICANT ALPHABET CITY GMBH TENTH APPLICANT NERVOUS INC ELEVENTH APPLICANT WYZE PRODUCTIONS LIMITED TWELFTH APPLICANT TOCO AUSTRALIA PTY LIMITED (ACN 008 706 576) THIRTEENTH APPLICANT IN THE FEDERAL COURT OF AUSTRALIA NEW SOUTH WALES DISTRICT REGISTRY N 944 of 2002 BETWEEN: SONY ENTERTAINMENT (AUSTRALIA) LIMITED (ACN 000 033 581) FIRST APPLICANT UNIVERSAL MUSIC AUSTRALIA PTY LTD (ACN 000 158 592) SECOND APPLICANT CENTRAL STATION RECORDS & TAPES PTY LTD (ACN 005 707 997) THIRD APPLICANT AND: CHRISTOPHER FRASER SMITH also known as CHRIS KROSS also known as KRIS KROSS FIRST RESPONDENT TOWER RECORDS PTY LTD (ACN 084 046 784) T/A SLAMM DISTRIBUTION SECOND RESPONDENT PETER FERRIS also known as PEEWEEFERRRIS FIFTH RESPONDENT JUDGE: JACOBSON J DATE: 21 SEPTEMBER 2004 PLACE: SYDNEY REASONS FOR JUDGMENT – ADJOURNMENT APPLICATION 1 The applicants are recording companies which control, either as owner or as exclusive licensee, the copyright in the sound recording in 17 tracks which are the subject of these proceedings. The applicants claim declarations, injunctive and other relief against the first, second and fifth respondents ("the remaining respondents") for alleged infringement of their copyright in the sound recordings. 2 The proceedings were commenced on 11 September 2002 and on 20 May 2004 were listed for hearing before me today. Three days were fixed for the hearing. 3 However, late yesterday afternoon the remaining respondents filed a motion for an adjournment of the proceedings. I heard the adjournment application this morning. The applicants in the proceedings opposed the adjournment. 4 This is the second application for an adjournment made by the remaining respondents. The first was made on Thursday, 16 September 2004. I dismissed it, essentially because there was no evidence filed to support it. 5 The present adjournment application is supported by an affidavit sworn by a solicitor in the employ of the remaining respondents. Those solicitors are the fifth set of legal representatives to have acted for the remaining respondents. 6 The effect of the affidavit is that the solicitors were retained only on Thursday, 16 September, 2004, that new counsel was briefed only the next day, that is Friday, 17 September, 2004, and that in the short time available counsel has advised that no evidence has been filed by the remaining respondents to make good the affirmative defences pleaded in the defence. 7 The defence to the statement of claim was filed on 10 December 2002. In [32] and following of the defence the remaining respondents plead affirmative defences to the claim, namely that they were granted non-exclusive llicenses to reproduce the relevant sound recordings. Particulars of documents and conversations said to establish the defence are given. 8 Mr Miller, of counsel for the remaining respondents, put to me today that the licenses were informal and he tendered documents to support a submission that evidence was available to make good the defence of an informal license in relation to all but one of the 17 tracks. 9 Mr Miller conceded that this defence was affirmative and that his clients bore the onus of proving it. He also conceded that it was the only defence to the claims. Mr Miller further conceded that it was regrettable that no evidence has been filed in support of this defence in the period of over 18 months since it was filed. 10 It is notable that in this application for adjournment, there are no affidavits from the first respondent Mr Smith or the fifth respondent Mr Ferris, notwithstanding that Mr Miller conceded that they will be the principal witnesses that he would need to call at the hearing. There is not even a short outline of their evidence and in particular no short outline of Mr Smith's evidence notwithstanding that he would be the main witness on this issue. 11 Nor did Mr Smith or Mr Ferris seek to explain the reasons for the delay or give any assurance which could be tested by cross-examination that the evidence would be filed by any date to which the proceedings might be adjourned. 12 Mr Cobden, for the applicants, opposed the application for a number of reasons. He relied on the history of the matter to which I will refer below, but he also submitted that the documents which the remaining respondents relied upon in support of their contention that there is an arguable defence did not make good that proposition. 13 Mr Cobden read a number of affidavits which deal with the question of prejudice. In an affidavit of Mr J.M. Speck sworn on 15 September 2004 the deponent, who is the general manager of Music Industry Piracy Investigations Pty Limited, deposes firstly to Mr Smith's conduct of the proceedings since they were instituted. 14 Mr Speck says that the allegations of copyright infringement are very serious, that the proceedings have been on foot since September 2002, that the respondents have adopted a contemptuous attitude towards the proceedings, that they have had a number of lawyers and that at an early stage in the proceedings the first respondent, Mr Smith, made a series of threats against representatives of the applicant companies and witnesses. Details of the threats are set out in an earlier affidavit sworn by Mr Speck on 12 September 2002 and in affidavits sworn by Mr Kearney of the second applicant and Mr ME Williams of the third applicant. 15 I made orders against Mr Smith on 13 September 2002, including orders that he be restrained from communicating directly with the applicants or their non-legal representatives concerning the subject matter of the proceedings. 16 Mr Speck also deposes to threats made against one of the applicant's witnesses known as Ms Kate Munroe, who was previously the sixth respondent in the proceedings. The applicants settled the proceedings with Ms Munroe in April 2004 and she has given evidence in support of the applicants. On 20 May 2004 orders were made against Mr Smith restraining him from communicating directly with the applicants' witnesses without the leave of the court in relation to the subject matter of the proceedings. 17 Mr Speck also deposes to the fact that Mr Smith has communicated with the legal representatives of the applicants in a way which concerns them and that he has made allegations of fraud against them. 18 Mr Speck lists the likely prejudice that would be suffered if an adjournment is granted. Firstly, the costs which would be thrown away would exceed $50,000. There is other evidence to establish that the costs thrown away would be in the order of $75,000. The evidence does not establish whether the estimate is made on a solicitor/client or party/party basis. 19 Mr Speck deposes to inquiries which he has made about Mr Smith's asset position and also as to the position of the second respondent, Tower Records. His evidence is to the effect that the applicants have very little prospect of recovering their costs thrown away either from Mr Smith or the other remaining respondents unless security is provided. I note that no offer to provide security for such costs was made. 20 There are a number of other matters to which Mr Speck deposes on the question of prejudice, including the loss of any possible deterrent effect which would flow from the final determination of these proceedings on the date for which they have been fixed for hearing. Mr Speck suggests that it may well be that a perception will be created as a result of any further delay that there are real difficulties in bringing effective copyright infringement proceedings against persons who infringe copyright. 21 An affidavit of 15 September 2004 was filed by Ms Finter, who is the solicitor with day to day carriage of these proceedings under the supervision of Mr Michael Williams, who is the solicitor for the applicants. Ms Finter deposes to the fact that directions which I gave for the hearing of the proceedings, including pre-trial directions made on 20 May 2004, have not been complied with by the remaining respondents. 22 Ms Finter lists the legal representatives of the remaining respondents over the period from October 2002. There were in fact four firms of solicitors, and during the period from 4 August 2004 to 15 September 2004,the remaining respondents were represented by Mr David Baran, a barrister who acted on a direct access basis for the remaining respondents. 23 The remaining respondents were not legally represented during the period from 10 February 2004 to 4 August 2004 and on at least two occasions Mr Smith appeared in court on his own behalf and purportedly on behalf of the second respondent, Tower Records, and the fifth respondent, Mr Ferris. 24 I pointed out to Mr Smith when he appeared before me that it was not open to him to represent the company because he is not a solicitor and that it was also not possible for him to appear on behalf of Mr Ferris. He assured me on 20 May 2004 that he would have legal representation at the hearing which, as I have said, was set down for today. 25 There was correspondence between the parties' legal representatives during the period from 4 August 2004 to 14 September 2004 to which I should refer briefly. On 4 August 2005 Ms Finter received a letter from Mr Baran who confirmed that he was acting on a direct access basis for the respondents. There was then some without prejudice correspondence between Ms Finter and Mr Baran. 26 On 13 September 2004, the firm of Dorrough Smart wrote to the solicitors for the applicants stating that they had received instructions to act for Mr Smith in the proceedings and that they were currently obtaining full instructions in relation to the matter. They said that upon receipt of full instructions they would attend to filing a defence to the further amended statement of claim, no such defence having then, or as yet, been filed. 27 On 13 September 2004, the solicitors for the applicants wrote to Ms Megan Dorrough of Dorrough Smart, pointing out that that firm was now the fourth set of legal representatives for Mr Smith. The applicants' solicitors said that although no defence had been filed to the further amended statement of claim, they would not be seeking judgment in the interim because the matter was listed for hearing on Tuesday, 21 September 2004. 28 On 14 September 2004, the applicants' solicitors wrote to Mr Baran asking whether the firm of Dorrough Smart would be acting for all three respondents as they noted that Ms Dorrough had indicated only that she had instructions from Mr Smith and that she did not refer to Tower Records or Mr Ferris. 29 On 14 September 2004, Mr Baran wrote to the applicants' solicitors stating that it was his understanding that Dorrough Smart would be acting for all of the remaining respondents. He also said that he would be conferring with his clients later in the week and that he apprehended that he would be instructed to seek an adjournment of the hearing of the matter and accordingly the matter would be relisted before me as soon as those instructions were received. 30 Not unnaturally the applicants' solicitors contacted my associate as a matter of urgency and the matter was listed for the adjournment application on Thursday, 16 September 2004. In a letter from the applicant's solicitor to Mr Baran of 14 September 2004, the solicitors stated that the application should be made by a motion with evidence in support served on the solicitors no later than the close of business on 15 September 2004, and that the deponent of the affidavit should be available for cross-examination on the application. 31 Notwithstanding this, no affidavit was filed in support of the application. At the hearing on 16 September 2004, Mr Baran put to me from the bar table that he had been briefed on a limited basis, that the remaining respondents had an arguable defence and that no prejudice would be suffered by the applicants if an adjournment were granted. It seemed to me that having regard to the history of the matter it was inappropriate to grant an adjournment in the absence of any sworn evidence in support of the application which was, of course, opposed by the applicants. 32 Ms Finter filed a further affidavit of 20 September 2004 in which she deposed inter alia to a telephone conversation with Mr Baran of 17 September 2004 in which he indicated that he was no longer counsel for the remaining respondents. She also deposed to a telephone conversation with Mr Stonhom of the firm Stephen Smart and Associates who had indicated on 16 September 2004 that he would be acting for the remaining respondents. In a further conversation Mr Stonhom indicated that he intended to serve some additional evidence on the applicants on the following day. The conversation took place on 17 September 2004 but no further affidavit evidence has been filed. 33 Mr Cobden tendered two bundles of documents, exhibits B1 and B2, which he relied upon to support his submission that the documents tendered by Mr Miller, exhibit A1, did not establish an arguable defence. 34 Exhibit A1 consisted of a number of documents which might, on one view, if the documents are admissible on a final hearing, establish some links in a chain of documentary or oral evidence to the effect that there was an informal oral and or written license for the sound recordings. It is plain that the evidence would have to be supplemented by further documents and by oral evidence. 35 Mr Miller told me that he had not been able to get access to all of the remaining respondents' discovered documents because two boxes of documents are in the possession of one of the former solicitors for the remaining respondents. 36 It is sufficient to say that I accept Mr Cobden's submission that in relation to at least two of the tracks in respect of which there are said to be informal licenses, there are significant discrepancies in the material to which the remaining respondents point, and that those discrepancies strongly suggest that the asserted licenses could not have been granted. 37 For example, in relation to the track "Too Many Times" the remaining respondents' documents suggested that a license may have been granted in November 2000 but the evidence in exhibits B1 and B2 give rise to a strong inference that the sound recording was first released in Germany, which was its country of origin, during the year 2001. 38 It seems to me that on the basis of the material to which Mr Cobden has pointed I cannot have confidence that the remaining respondents will be able to put on any coherent evidence which is likely to establish an arguable case that informal licenses were granted. 39 In my opinion the remaining respondents, through Mr Smith, have taken a calculated and advised course as to the way in which they would conduct these proceedings. 40 Mr Smith was present in court, as I have said, on 20 May 2004 when I made directions to enable the proceedings to be heard on a final basis today. He told me on that occasion that he would be represented by lawyers. Mr Baran was retained on 4 August 2004 but nothing was done to comply with any of the directions which I made on 20 May 2004. 41 I should point out that no criticism is made of Mr Miller. He accepted the brief at the Eleventh hour and has said all that could be said in support of the application. 42 It has not been put that mistakes were made by the remaining respondents' lawyers. Rather, the position in which the remaining respondents find themselves is due entirely to their approach to the proceedings. They have effectively ignored the fact that the matter was listed for hearing and have done nothing to prepare for the hearing of the proceedings. By that I mean that they have taken no steps to file any evidence to make good the affirmative defences pleaded in [32] and following of the defence filed on 10 December 2002. 43 It is apparently true that resources were diverted from preparation during the period from 4 August 2004 to 14 September 2004 in order to try to settle the proceedings, but it was not open to the remaining respondents to take that course without doing any preparation for the hearing. 44 The deficiencies or indeed the total lack of crucial evidence must have been apparent to the remaining respondents well before 14 September 2004. Notwithstanding this, nothing was done to overcome the situation. 45 There is nothing in the decision of the High Court in State of Queensland v JL Holdings Pty Limited (1996-7) 189 CLR 146 ("JL Holdings") which requires me, in the exercise of my discretion, to grant an adjournment in the present case. In JL Holdings the application for an adjournment was made six months before the hearing. The primary Judge's decision was held to have miscarried because undue reliance was given to the question of case management. 46 It does seem to me that there comes a point of time when a respondent is effectively shut out from seeking further adjournment of the proceedings and the history of this case indicates that that point has arrived. 47 It is true that the question of whether any prejudice can be cured by a costs order should weigh heavily in the exercise of the Court's discretion. However, I can have no confidence that the costs which would be thrown away by an adjournment would be paid. Mr Speck's evidence put the remaining respondents firmly on notice that it was not sufficient to offer to submit to an order for costs thrown away without providing security. It seems to me that in the circumstances of this case it was incumbent upon the remaining respondents to satisfy me by evidence that they could satisfy a costs order. As I have said, no such evidence was filed. 48 There is no explanation whatsoever for the delay that has been occasioned and there is no evidence to satisfy me that the case will be ready for hearing if I vacate the hearing date and grant and adjournment. It would have been a simple matter for Mr Smith and probably also for Mr Ferris to file affidavit evidence stating in short form the effect of the evidence that they proposed to give to establish their defence. 49 The affidavits of Mr Smith and Mr Ferris which have been filed touch on the question of procedures which the remaining respondents have taken in the past to obtain licenses for copyright material, but in their present form it is plain that those portions of their affidavits are irrelevant and inadmissible. 50 I did consider the possibility of granting an adjournment for perhaps one or two days so that the matter could still be heard within the allocated period upon the basis that oral evidence could be given by Mr Smith and Mr Ferris. However, I am satisfied that the applicants would be unfairly prejudiced by such a course. They do not know what evidence will be given and would not find out the case which is sought to be made out by the respondents until oral evidence is given in the witness box. It may well be, as Mr Cobden has submitted, that it may be necessary for him to obtain evidence from overseas witnesses. He would not know until he heard the evidence the names of the parties who he may have to call in reply to the evidence. Of course particulars have been given in the defence but in light of the history of the matter and from I have been told today I could have no confidence that the evidence which might be given orally would accord with the particulars that have been given in the defence. 51 In any event, the remaining respondents did not seek a short adjournment. They sought to vacate the hearing in its entirety. 52 It seems to me that this is a case in which I ought to adopt the same course as was taken by Heerey J in Australian Competition and Consumer Commission v Boral Limited [1999] FCA 889 and by Tamberlin J in Versace v Monte [2001] FCA 1454. 53 For those reasons the orders I will make are that the motion filed on 20 September 2004 be dismissed. 54 I order the remaining respondents to pay the applicant's costs of the motion. I certify that the preceding fifty-four (54) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Jacobson. Associate: Date: 28 September 2004 Counsel for the Applicant: Mr R Cobden and Mr J Hennessy Solicitor for the Applicant: Gilbert + Tobin Counsel for the Respondent: Mr J Miller Solicitor for the Respondent: Stephen Smart and Associates Date of Hearing: 21 September 2004 Date of Judgment: 21 September 2004