FEDERAL COURT OF AUSTRALIA Key Logic Pty Ltd v Blue Groper Investments Pty Ltd [2017] FCA 774 File number(s): QUD 605 of 2016 Judge(s): DERRINGTON J Date of judgment: 30 May 2017 Catchwords: PRACTICE AND PROCEDURE – Disclosure – Adequacy of proposed discovery – Disclosure of financial information from years prior to the alleged breaches of the Copyright Act 1968 (Cth) and/or the Australian Consumer Law PRACTICE AND PROCEDURE – Statutory obligation under ss 37M and 37N of the Federal Court of Australia Act 1976 (Cth) Legislation: Copyright Act 1968 (Cth) Federal Court of Australia Act 1976 (Cth) ss 37M, 37N Date of hearing: 30 May 2017 Registry: Queensland Division: General Division National Practice Area: Intellectual Property Sub-area: Copyright and Industrial Designs Category: Catchwords Number of paragraphs: 23 Solicitor for the First and Second Applicants: Mr SX Zhang of Bennett & Philp Solicitor for the First and Second Respondents: Mr BJ Sindel of Plastiras Lawyers Counsel for the Third and Fourth Respondents: Mr M Doyle Solicitor for the Third and Fourth Respondents: Synkronos Legal ORDERS QUD 605 of 2016 BETWEEN: KEY LOGIC PTY LTD ACN 099 244 078 First Applicant KEY WHOLESALERS PTY LTD ACN 106 776 130 Second Applicant AND: BLUE GROPER INVESTMENTS PTY LTD ACN 083 191 548 First Respondent KYM JOHN BIDE SCUTTER Second Respondent IAN REGINALD FRY (and another named in the Schedule) Third Respondent JUDGE: DERRINGTON J DATE OF ORDER: 30 MAY 2017 THE COURT ORDERS THAT: 1. Paragraphs 2 and 3 of the Orders made on 7 April 2017 be vacated. 2. By 9 June 2017, the Applicants provide discovery of the following categories of documents to the other parties' solicitors, provided that those solicitors have executed a confidentiality undertaking substantially in the form of Annexure A to these Orders: (a) profit and loss statements for: (i) the financial years 2014, 2015 and 2016; and (ii) the period from 1 July 2016 to 30 April 2017; (b) financial records showing: (i) cost price of each type of solar bollard product produced or sourced in 2016; (ii) list price and distributor price for each type of solar bollard sold between 1 July 2014 and 30 April 2017; (iii) Details of all invoices issued for the sale of solar bollards dated between 1 July 2014 and 30 April 2017, including the invoice number and date, the quantity, model and description of the goods sold, and the amount charged for each item sold. 3. By 9 June 2017 provided that the solicitors for the Applicants have executed a confidentiality undertaking substantially in the form of Annexure A to these Orders, the Respondents make discovery to the Applicants' solicitors of the following documents: (a) documents evidencing the cost price of each type of Sun-Wizard solar bollard product produced or sourced by the Respondents in the period being the financial years 2014, 2015 and 2016 and the period from 1 July 2016 to 30 April 2017 (the relevant period); (b) documents evidencing the list price and distributor price for each type of Sun-Wizard solar bollard sold by the Respondents in the relevant period; (c) all invoices issued for the sale of Sun-Wizard solar bollards during the relevant period. 4. The date by which the parties are to take part in a mediation pursuant to paragraph 4 of the Orders made on 7 April 2017 be 14 July 2017. 5. The costs of the mediation are to be borne equally between: (a) the Applicants as to one third; (b) the First and Second Respondents as to one third; (c) the Third and Fourth Respondents as to one third. 6. Liberty to apply on two business days' notice. 7. The Applicants' costs of today's hearing be their costs in the proceedings. 8. There be no other order as to costs. Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011. REASONS FOR JUDGMENT DERRINGTON J: 1 In this action, the Applicants seek injunctions, declarations and damages for the alleged infringement of their claimed copyright in certain photographs of solar bollards. The Applicants produced and sold the bollards depicted in the photos around Australia and internationally. They also seek an injunction and damages relating to misleading or deceptive conduct allegedly engaged in by the Respondents. In part, they rely upon the Australian Consumer Law as the foundation of relief. The Respondents are, in one way or another, commercial competitors of the Applicants. 2 The gravamen of the allegations against the Respondents concern the production by them of a document which purports to compare the product produced by the Third and Fourth Respondents and sold by the First and Second Respondents with the Applicants' product. The Applicants allege that, in this document, the Respondents made misleading statements as to the attributes of the bollards which the Applicants sold. To some extent, that turns on whether or not, in the document, the Respondents were referring to the current model of the Applicants' bollard or the previous model. In any event, the alleged infringing document included photographs of the Applicants' bollards and its componentry. It is alleged that the copying in some of the photographs used in the comparison document belonged to the Applicants, although this is denied by some of the Respondents. The Respondents either deny, or do not admit, the occurrence of any infringing conduct in relation to the comparison of the First and Second Respondents' bollards to the Applicants' bollards. The Applicants alleged that the document making the comparison of the respective bollards was disseminated to their existing customers. It is also said that the infringing document was distributed into the relevant marketplace. 3 As a result, the Applicants claim that they have suffered loss and damage consequent upon the infringement and/or misleading or deceptive conduct. Alternatively, it is alleged that the Respondents have made profits and will continue to make profits, by reason of the breaches. The pleas for damages are generally found in paragraphs 20, 21 and 22 of the statement of claim. It is important to observe that the Respondents have put in issue the question of whether the Applicants suffered any loss and damage, or whether they themselves obtained any profit by reason of the alleged breaches. That said, it is not in dispute that the Respondents or some of them engaged in distributing the document in respect of which the complaint is made. 4 On 17 April 2017, this matter came before the Court for the purposes of a case management hearing. At that time, I expressed to the parties my concern about the costs of this litigation, both in terms of the costs incurred to date, and the potential future costs. That comment was made in relation to the perceived quantum of the claim which, although it was not then identified in any great detail, may not have been substantial. I emphasised to all parties the need to be mindful as to the costs which might be incurred in the matter. On that day, orders were made for the delivery of particulars of loss or damage under paragraphs 20 and 21 of the further amended statement of claim. Orders were also made for the parties to agree upon a protocol for the discovery of documents, and that discovery take place in accordance with that protocol. The parties were also ordered to take part in a mediation to be completed by 16 June 2017. 5 I gave the parties leave to approach my chambers to relist the matter if any issues arose which might have caused non-compliance with the programmed steps. I should mention that at that directions hearing I was of the understanding that all parties generally accepted that the matter was one in which an order for discovery would be made. I am uncertain whether that remains the case. In any event, the Applicants have asked that this matter be relisted today for a further case management hearing. In order to expedite matters, my associate advised the parties to identify to each other any orders they sought, and I dispensed with the need for the formal filing of interlocutory applications. The Applicants' proposed orders are set out in exhibit 2 and the Respondents seek the orders set out in exhibit 3. 6 The general point of disputation which has been raised by the Applicants concerns the adequacy of the proposed discovery to be made by the Respondents. It appears that the issues generally surround the scope of the financial documents to be disclosed. Importantly for the present discussion, it appears that the document which is said to infringe the Applicants' copyright was created in or around April 2016. It is said that it was used thereafter by copies of it being distributed to the Applicants' customers or to other persons. One might interpolate that it is then said damages flowed from the distribution of that document around the marketplace. As mentioned previously, the statement of claim asserts damages being suffered by the Applicants and the Respondents obtaining profits as a result of the use of the allegedly infringing document. 7 For this reason, the Applicants seek discovery of financial information from the Respondents in the years prior to 2016; that is, the financial years 2014 and 2015, as well as for the financial year 2016. They also seek documents containing financial information in the period from what I apprehend to be 1 July 2016 up until 31 March 2017. Additionally, the Applicants seek documents disclosing details of all the Respondents' cost/price for each bollard, their list price and volume of each type of solar bollard sold. The relevant period in relation to that discovery is also 1 July 2014 to 31 March 2017. They further seek details of invoices issued in the relevant period. 8 By a letter dated 21 April 2017, the solicitors for the Applicants indicated that the applicant was prepared to provide information of the description which I have just mentioned on the Respondents' reciprocal undertaking to do so. By further letter dated 24 April 2017, the solicitors for the Applicants also proposed a confidentiality regime whereby the disclosed documents would only be made available to legal representatives who would execute an undertaking in the usual form, and that any customer's identities would be redacted from any document discovered. By a letter from Plastiras Lawyers, the solicitors for the first and second Respondents, to Bennett & Philp, the solicitors for the Applicants, the Respondents did not directly respond to the matters raised in Bennett & Philp's letter as to the nature and scope of discovery. The letter merely referred to the usual orders of the Federal Court relating to disclosure and proposed that the discovery proceed along those lines. 9 On the same day, a letter from Synkronos Legal, the solicitors for the third and fourth Respondents, was sent to the solicitors for the Applicants, and those solicitors indicated that they were unable to ascertain whether or not the documents sought were directly relevant and/or sufficiently probative of the issues to the proceedings. No detailed explanation as to why that was the case was provided. 10 During the course of the hearing this morning, a number of arguments were advanced by the Respondents as to the relevancy of documents predating 2016, that being the year in which the offending conduct allegedly occurred. However, the foundation of the arguments to that effect were not completely elucidated. Ultimately, it is difficult to understand why such documents would not be relevant to the Applicants' claim for damages, which included damages for a lost opportunity and a claim for an account of profits. The necessary step in establishing such damages would be to establish a baseline from which to compare the sales of the parties after the occurrence of the alleged contravening conduct. 11 As I understand the contest before the Court, the two main points of disagreement are the periods during which discovery should be made and the type of documents which should be the subject of the order. In relation to the first, it appears that the solicitors for the first and second Respondents do not perceive that the financial documents for the years immediately preceding the alleged breaches of the Copyright Act 1968 (Cth) and/or the Australian Consumer Law were directly relevant to the allegations of increased profits in subsequent years. Whilst there is no doubt in my mind that any increase in the Respondents' profits in the year of contravention or thereafter might be explicable by causes other than the alleged breaches, that is a matter for evidence and for trial and not one for one of the parties to decide. The Applicants have put in issue the sustaining of damage by them, and the gaining of profits by the Respondents to the extent to which the Respondents advanced their business as a result of the alleged contraventions. That is a matter which can only be determined by consideration of what the Respondents' position would have been had the contraventions not occurred. That necessarily requires a consideration of the performances of the Respondents' businesses in the period prior to the alleged contraventions. I will say more about that in a minute. 12 By a letter from Bennett & Philp to the solicitors for Respondents, the Applicants sought to explain in detail why the documents they sought were relevant. The explanation occurs from paragraph number 10 and following in that letter. Despite the attempt by the solicitors for the Applicants to explain the relevancy of the documents, the solicitors for the third and fourth Respondents purported to make disclosure without any agreement on any protocol. That did not seem to be in accordance with the orders which I had previously made, although one might say it was an attempt to advance the matter. In any event, the Applicants are now concerned by the scope of discovery. 13 Subsequent correspondence continued between the parties but, if I may say so, without real semblance of an attempt to usefully resolve the issues. I accept that the legal representatives for the parties have their duties to ensure they advance their clients' interests to the best of their abilities. However, ss 37M and 37N of the Federal Court of Australia Act 1976 (Cth) imposes a statutory obligation on parties to conduct proceedings in a way which will facilitate the just resolution of disputes according to law, and as quickly, inexpensively and efficiently as possible. The lawyers for the parties before the Court have similar obligations. 14 As I previously stated in an earlier case management hearing in this matter, the costs of the contest before the court may well be extravagant when compared to the amount in dispute. Whether or not that is so cannot yet be determined. However, because it is a possibility, it is a matter which must be of concern to both the Court and the parties. 15 It was in the light of this that I urged parties to reach a consensus about disclosure of the relevant documents necessary to assist in the identification of the quantum of any claim so that a mediation might be usefully held. It was unfortunate, to say the least, that no agreement was able to be reached. However that may be, despite the lack of agreement, the parties are entitled to stand on their respective points of view and it now simply falls to the court to make an order in the absence of any concerns. 16 In this case the Applicants have asserted, that as a consequence of the breach of the Copyright Act and the Australian Consumer Law, they have lost sales and/or lost profits both immediately and in the future. That being so, there can be little doubt that the assessment of such losses will require a consideration of the business which was conducted by the Applicants in the period leading up to the year in which the alleged contraventions occurred. No doubt, it is for that reason the Applicants, on their part, are prepared to disclose their financial documents from 2014 onwards. 17 Further, where the allegation is that the Respondents have profited from the breach of copyright or breach of the Australian Consumer Law, it would be necessary to consider the financial position of the Respondents leading up to the year in which the breach occurred. Were it otherwise, the financial documents for the year in which the alleged contraventions occurred will be meaningless in assisting to determine whether or not profits were derived from the contraventions of the various statutes. If the Applicants were not able to prove the Respondents' sales in the financial years leading up to the year of contravention, the case against the Respondents would most likely be met with the submission that the Applicants had not established any advantage obtained by the alleged contraventions. As I have said, whilst it might be accepted that any increase in sales by the Respondents might be explained by other circumstances, that is not to the point. The question is whether or not the financial information in the years immediately preceding the alleged contravention, is directly relevant to the issue of the Respondents increasing their profits, in the year of contravention or thereafter by reason of the contraventions. As I have mentioned, such information would be directly relevant. 18 It follows that I accept the Applicants' submissions, that certain documents relating to the sales made by the Respondents, or any of them in the period from 1 December 2014, to 31 March 2017, including the price, distributor price and volume to sales would all be relevant to the issues in this matter. Despite that, I do accept that there is force in the submissions, made on behalf of the Respondents, that a range of financial information in their possession concerning the operation of their businesses would be of little relevance to the present proceedings. I have been told, from the Bar Table, that various profit and loss statements and other financial statements, will not be of any assistance to the Applicants because the Respondents produce and sell a variety of commodities, not merely solar bollards of the type of which sales might be advanced by the offending conduct. Because all of the revenue, sales and cost data is accumulated it is said that the financial statements would have insufficient detail to disclose information relevant to the proceedings. It does not take much thought to consider that this might be so. Given that, and the sensitivity of such information in the circumstances of the litigation between commercial competitors, I am reluctant, at this stage, to make orders for the disclosure of those documents. However, as I have said, the Applicants are entitled to documents within the possession or power of the Respondents, which show the level of sales of relevantly similar solar bollards in the periods from 2014 through to 2017. 19 At this point, I have further concerns. There is not before the Court any real evidence as to the differentiation of the products produced and/or sold by the Respondents. No attempt was made today to differentiate between the products produced or sold by the Respondents which may be relevant or irrelevant to the proceedings. I was told, again from the Bar Table, that there were a range of products made, but the nature and the extent of the differentiation of those products is not in evidence. That being so, I can only rely upon the pleadings as they stand, to formulate the appropriate orders. 20 In the statement of claim, reference is made to the fourth respondent being involved in the business of selling or offering for sale solar bollard products known as Sun-Wizard, and it being the supplier of Sun-Wizard products to the first respondent for distribution and/or resale. It seems to follow that it is the sales of the solar bollard products known as Sun-Wizard which are in issue. That being so, and subject to any alterations which the Respondents might seek to advance at some time in the future, I am prepared to make orders in relation to the discovery of the following documents: (a) Documents evidencing the cost price of each type of Sun-Wizard solar bollard product produced or sourced by the Respondents, in the period being the financial years 2014, 2015 and 2015, and the period from 1 July 2016 to 30 April 2017; (I will refer to that as the relevant period). (b) The list price and/or distributor price for each type of Sun-Wizard solar bollard sold by the Respondents in the relevant period, and; (c) all invoices issues for the sale of Sun-Wizard solar bollards during the relevant period. 21 Given the submissions made by the legal representatives for the first and second Respondents, and for the third and fourth Respondents, I do not consider it appropriate to make any orders for the discovery of profit and loss statements for the relevant period. I ought to add that the reluctance of the Respondents to make discovery, in accordance with the Applicants' wishes was, to some extent, a consequence of the paucity of the Applicants' pleading. It is not unfair to say that the allegations of causation in the pleading are less than desirable, and it was only upon the delivery of the particulars of loss and damage that one might have discerned the real connection between the alleged infringing conduct and the subsequent losses. However that may be, I also note this does not appear to be the subject of any contention by the Respondents, in the numerous pieces of correspondence which have passed between the parties since the previous orders were made. I also notice that there is, similarly, little said in the correspondence by the Respondents, as to the utility of the profit and loss statements for the periods inquired of by the Applicants. Had the arguments made before the Court today been agitated with the Applicants earlier, today's proceedings may not have been necessary. Nevertheless, in my opinion, the discussion in the course of the correspondence was really in the nature of each party taking a stand in relation to the disputed issues and refusing to move, without offering solutions as to an appropriate way forward. 22 The parties also sought orders relating to the confidentiality of documents obtained on discovery. In circumstances such as the present, it is most appropriate to make those types of orders. Happily, it appears that the parties are generally content to provide undertakings. The orders which I will make is that the parties provide written undertakings as to the confidentiality of the documents, substantially, in the form of annexure A to exhibit 2 of the hearing today, but with the words "and to the Applicants/relevant Respondents" elided. 23 In relation to costs, the hearing today was somewhat unfortunate. Whilst I accept that all parties before the Court acted in good faith and in the interests of their clients, which they no doubt are bound to do, I am concerned about whether or not sufficient attention was paid to the obligations imposed by ss 37M and 37N of the Federal Court of Australia Act. That said, I accept that the actions of legal representatives were reflective of their client's instructions. The failure of the parties to reach any reasonable agreement, in relation to scope of discovery, has to fall upon the parties, but there appears to be slightly more success on the part of the Applicants, who have had some degree of success, but not a great degree and they were not successful in obtaining all of the orders that they set out to obtain. Therefore, the Applicants' costs should be their costs in the proceedings and there should be no other order as to costs. I certify that the preceding twenty-three (23) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Derrington. Associate: Dated: 30 May 2017 SCHEDULE OF PARTIES QUD 605 of 2016 Respondents Fourth Respondent: KARMIC LIGHTING PTY LTD ACN 600 193 404