COPYRIGHT TRIBUNAL OF AUSTRALIA

Pocketful of Tunes Pty Ltd v The Commonwealth of Australia (No 2)

[2015] ACopyT 2

THE TRIBUNAL ORDERS THAT:

1.    The fee for the synchronisation rights of the song “I am Australian” to be paid by the Commonwealth to Pocketful of Tunes Pty Ltd be increased by $39,994 in interest from $149,743.34 to $189,737.34, exclusive of GST.

2.    The respondent pay the applicants’ costs up to and including 25 July 2013 on the ordinary basis.

3.    The applicants pay the respondent’s costs from 26 July 2013 on an indemnity basis.

4.    These reasons not be published until further order.

5.    The parties provide submissions of no more than 2 pages on the basis for any confidentiality order by 1 June 2015.

REASONS FOR DETERMINATION

1    In Pocketful of Tunes Pty Ltd v The Commonwealth of Australia [2015] ACopyT 1 (the Tribunal Decision), I determined that the Commonwealth should pay to Pocketful of Tunes Pty Ltd the sum of $149,743.34 for the synchronisation rights to the song “I Am Australian” (the Song) co-written by Mr Woodley. I ordered the parties to submit proposed orders as to costs and, if not by consent, written submissions in support of the proposed orders by 17 March 2015. The parties were unable to agree on costs. The Tribunal has a discretion to award costs (Copyright Act 1968 (Cth) s 174(1)).

INTEREST

2    The parties have agreed that the determination should include a component to allow for interest on the fees that ought to have been paid for the relevant period in the sum of $39,994. It is appropriate to supplement the amount awarded to account for this interest (L Shaddock and Associates v City of Parramatta (1983) 151 CLR 590 and Copyright Act 1968 (Cth) s 165). Accordingly, the award is $149,743.34 plus $39,994 in interest, a total of $189,737.34.

COSTS

3    The Commonwealth has at all material times accepted that it is liable to pay a fee for the synchronisation right to the Song.

4    There is another proceeding between the applicants and the Commonwealth in the Federal Court (VID 93 of 2013), to which there are additional respondents (the other respondents). The claims in that proceeding are for detention and conversion and for infringement and authorisation of infringement of Mr Woodley’s moral rights under the Copyright Act 1968 (Cth). Those claims have not been determined and on 7 October 2014 the hearing was stayed pending the determination of this Tribunal proceeding.

5    In correspondence, the applicants asserted that the value of the claim for damages for infringement of moral rights is ‘in the order of $20,000 to $30,000’. The Commonwealth does not presently take issue with this valuation. The applicants have not asserted a value for claims for the conversion and detention.

6    The parties have made submissions as to the costs to be awarded in the Tribunal proceeding, taking into account steps taken to settle both proceedings.

7    The applicants seek costs. They contend that, as the injured parties who have had to commence proceedings in order to obtain compensation from the Commonwealth for the unauthorised use of their copyright, they are entitled to recover their costs. They submit further that there is no basis to reduce the costs payable by the Commonwealth by reason of the quantum of the fee that they claimed, which was based on explanation and evidence, or by reason of any unreasonable conduct of the hearing, or by reason of an unreasonable rejection of an offer to settle.

8    I accept that, while the applicants maintained a claim for $156,000 per year over a four year period, and that this amount was well in excess of the amount ultimately awarded, the applicants provided a basis for that claimed amount and an argument in support. The maintenance of that claim does not deprive the applicants of any rights to costs.

9    The applicants commenced proceedings seeking a licence fee that was due to them from the Commonwealth for the right to reproduce and use the lyrics of the Song on the sound-track to an Australian citizenship video montage in DVD format for use in Australian citizenship ceremonies (Montage). They were successful in establishing their right to such a fee and, accordingly and in the ordinary course, are entitled to costs. The fact that negotiations took place prior to the commencement of the proceedings in the Tribunal and that those negotiations were unsuccessful does not of itself, in the absence of disentitling conduct on the part of the applicants, affect their rights to costs.

10    In circumstances where the Commonwealth accepted that it was liable to pay the fee, if it was of the view that the quantum sought by the applicants was excessive and formed a view as to the proper amount, the appropriate course was to make “a Calderbank offer” (Calderbank v Calderbank [1975] 3 All ER 333). Such an offer would then protect the Commonwealth as to costs.

11    This is what the Commonwealth did. The applicants contend that the offer did not fulfil the requirements of a Calderbank offer.

Chronology of settlement offers

12    The Commonwealth took steps to withdraw the Montage containing the Song in November 2012, upon realising in July to August 2012 that there was an obligation to pay for the synchronisation right in addition to the licence fees already paid to Radiowise Media Networks Pty Ltd for music licences through the Australasian Performing Rights Association and the Australasian Mechanical Copyright Owners Society in an amount of $2,954.20 plus GST. As I have said, at all material times, the Commonwealth has been prepared to pay a fee. The dispute was over the quantum.

13    The Commonwealth relies upon a series of offers it made and the other respondents for the settlement of all proceedings between the parties, culminating in an offer on which the Commonwealth relies as a Calderbank offer, as follows:

    On 26 July 2013, the Commonwealth and the other respondents made an open offer of $250,000 plus $50,000 for costs to be paid in instalments over a 3 year period, with the moneys to be paid by the Commonwealth to be paid within 28 days of the settlement being finalised (the Offer). The Commonwealth stated that it reserved the right to rely on the Offer in relation to costs. It was not accepted.

    The applicants made a counter-offer of $900,000 plus $75,000 in legal costs. That offer was not accepted.

    The Commonwealth repeated the Offer in a formal notice of offer of compromise under r 25.01(1) of the Federal Court Rules 2011 (Cth), served on 3 September 2013. It was not accepted.

14    The Commonwealth says that if the applicants had accepted the Offer by the expiration date of 9 August 2013, they would have received $250,000 by 20 September 2013, a further $15,000 by 20 September 2014 and an entitlement to further payments totalling $35,000 over a further two year period ending 20 September 2016.

15    All of the parties’ costs in the Tribunal proceeding were incurred after 26 July 2013, as the Tribunal proceeding was not commenced until 6 September 2013.

16    On 6 June 2014 (evidence incorrectly nominated 2 May 2014), the parties received a non-binding early neutral evaluation opinion from Dr Lindgren AM QC which assessed the licence fee at $25,000 per year over a four year period, making a total of $100,000 (the Lindgren evaluation).

17    On 18 June 2014, the applicants offered to settle for $250,000 plus costs. On 26 June, the applicants advised that legal costs were approximately $205,000, so the offer was to settle for $455,000.

18    On 8 July 2014, the Commonwealth offered settlement on behalf of itself and the other respondents in the sum of $200,000 plus $100,000 for legal costs with payment terms similar to those previously specified. That offer was rejected and the applicants made a counter-offer of $200,000 plus $180,000 for costs. The Commonwealth responded on 14 July 2014 with an offer of $375,000 inclusive of costs. This offer included terms as to the proportion of the settlement amount to be paid by each of the parties and a deferred payment by the other respondents. The offer was open for acceptance for 24 hours.

19    On 15 July 2014, the applicants made a further settlement offer of $400,000 inclusive of costs in accordance with a deferred timetable for payment by the other respondents or, in the alternative, payment by the Commonwealth of $390,000 inclusive of costs without any recovery from the other respondents. Neither proposal was accepted and the matter proceeded to a hearing.

20    The hearing commenced on 17 July 2014.

The applicants’ submissions

21    The applicants challenge the characterisation of the Commonwealth’s offer as a Calderbank offer. They submit that:

    The Offer is not sufficiently clear, precise and certain;

    It is not possible to compare the outcome achieved with an offer made inclusive of costs without a further assessment of costs incurred; and

    The Commonwealth cannot establish that the applicants’ conduct in rejecting the Offer was unreasonable in the circumstances.

22    The applicants point out that the Offer encompassed the resolution of all claims made by them in the Tribunal and in the Federal Court proceeding so that the Tribunal cannot assess or compare the Offer and the outcome achieved. The Federal Court proceeding is yet to be heard and determined and is not before the Tribunal.

Value of moral rights claim

23    The parties agree that there has been no formal agreement between them as to the amount of damages for Mr Woodley’s claim for infringement of his moral rights in the Federal Court proceeding. The applicants submit that they do not consider that the parties can or should be required to agree on the value of the claims for the purposes of the Tribunal’s decision on costs.

24    However, the applicants sent a letter to the respondents on 9 July 2014 that asserted ‘that our clients’ claim for infringement of moral rights is likely to result in an award of damages in the order of $20,000 to $30,000’. The Commonwealth submits that even though there has been no formal agreement, the parties agree as to the value of the moral rights claim.

25    The applicants argue that the Tribunal should conclude that the Offer was not sufficiently certain to constitute a Calderbank offer and that it was not unreasonable for the applicants to reject the Offer. The applicants submit that such an approach accords with the views expressed including Smallacombe v Lockeyer Investment Co Pty Ltd (1993) 42 FCR 97, GEC Marconi Systems Pty Ltd v BHP Information Technology Pty Ltd (2003) 201 ALR 55 and Elite Protective Personnel Pty Ltd v Salmon [2007] NSWCA 322.

26    Justice Spender in Smallacombe assessed whether an “all-up” offer, an offer of “claim plus costs”, was sufficiently certain to constitute a Calderbank offer (at 102). His Honour stated that the existence of a genuine doubt as to the worth of an offer might make it appropriate to give no effect to a Calderbank letter. The facts of that case required the applicant to assess the likely value of the claim and the likely party and party costs to date. His Honour concluded that uncertainty in the offer was problematic because ‘on the one hand, it really is a question of precise dollar and cents so that if there is a shortfall, however small, then the respondent would be liable for costs, but if there was a surplus, however small, the respondent would have the applicants pay their costs subsequent to the date’. That is, ‘the “all-up” offer ought not to be relevant consideration on the question of costs and does not fall to be considered in the same way as a Calderbank letter… in my opinion it would be unfair to expect a sensible and considered response to the offer in those circumstances’ (at 102).

27    The principles in Smallacombe were discussed by Finn J in GEC at [34]. Justice Finn acknowledged that the Supreme Court of Victoria had taken a different approach to Smallacombe. The Supreme Court of Victoria in MT Associates Pty Ltd v Aqua-Max Pty Ltd (No 3) [2000] VSC 163 had held that ‘any form of offer assuming it can be adduced into evidence should be considered by the court on the question of costs’. The respondents in GEC argued that Smallacombe should be disregarded because it is clearly wrong (at [35]). However, Finn J was unwilling to conclude that Smallacombe was clearly wrong on the analysis of an “all-up” offer (at [36]). Nonetheless, Finn J concluded that ‘the reasonableness of the rejection of an offer is to be considered in light of the circumstances which existed at the time of the rejection’ (at [34]).

28    The implications of an “all-up” offer were also analysed by the New South Wales Court of Appeal in Elite. Justice McColl stated, at [115], that Smallacombe ‘does not lay down a “definitive rule” that an “all-in” Calderbank offer can never be considered on the question of indemnity costs… It informs the question of the reasonableness of an offeree’s refusal to accept an “all-in” offer’. Justice Basten agreed that there is no “definitive rule” for “all-up” offers as ‘the suggestion that a Calderbank letter which is expressed to be inclusive of costs is “insufficiently precise to qualify as a Calderbank offer” requires to be addressed in particular circumstances’. That is, that while each case should be considered on its facts, Smallacombe discourages offerors from drafting Calderbank letters on an “all-up” basis.

29    The applicants submit that an assessment of the value of the moral rights claim cannot be made on the basis of an estimate, even if agreed. The applicants submit that if the value of the claim were to be found to exceed the agreed estimate, for example $40,000 plus interest, the outcome obtained by the applicants would likely exceed the amount of the Offer. That is, they say, the Tribunal is not in a position to determine whether the Offer is relevant as the value of the claim is sufficiently uncertain within the reasoning of Smallacombe.

30    In my view, the circumstances are different to those in Smallacombe. For the purposes of the Offer, the value of the moral rights claim was certain. By contrast, an offer said to include “costs” could be uncertain. The value attributable to incurred costs would change over time, including ‘further expense in assessing the costs element of an offer’ (Elite at [144]). By contrast, the value of the moral rights claim for a fixed past period would not change constantly over time. The applicants submit that the value could be determined by the Federal Court to be higher than the estimate but at the time of the Offer the parties had informally agreed on that quantum of the claim. It follows that the Offer was sufficiently certain.

Deferred payments

31    The applicants also rely on what they characterise as the reasonableness of their refusal of the Offer. They point out that full payment would not have been received for more than three years and that they would have been dependent on receiving ongoing periodic payments from the other respondents. They assert that if the deferred payment component of the Offer is discounted, the amount obtained from the Tribunal was only $10,000 less than the amount of the Offer, bearing in mind that the Tribunal award did not include a component for the rights claimed in the Federal Court proceeding.

32    There are no calculations or evidence to support this assertion.

33    The applicants submit that they had concerns about the solvency of the other respondents and that the other respondents would be reliant on a third party to fund their contribution to the deferred payments aspects of the Offer. The gravity of that concern is, they say, evidenced by the fact that at the time of the Tribunal hearing all that separated the parties’ offers was the question of who was willing to bear the risk of default on the part of the other respondents. Further they say, the Commonwealth was unwilling to guarantee those payments and that that also added to the gravity of their concern. The applicants submit that there was a real risk the deferred payment aspects would not be able to be enforced against the other respondents and that they had a right to consider whether the Offer ‘carries with it the possibility of further litigation in the event of non-payment’ (Smallacombe). That is, the applicants submit, it was not unreasonable for them to reject the Offer which was subject to such arrangements.

34    The applicants explain that the difference between the parties was, ultimately and prior to the commencement of the hearing, relatively small in dollar terms. Rather, they say, it was a question of the deferred payments from the other respondents or the fact that payments were not all to be from the Commonwealth but from the other respondents that seemed to represent the “sticking point”.

35    It is not possible to quantify these concerns and the applicants have not advanced such a basis. In any event, the deferred payments did not render the offer uncertain or unquantifiable.

36    The applicants also seem to rely on the fact that the Offer is inclusive of costs and say that without further assessment of those costs, the Court should disregard the Offer. Further, the applicants submit that the Offer was made without explanation of the basis of the Commonwealth’s position, or was predicated on a position that was later rejected by the Tribunal, or was based on a calculation by extrapolation of the Brisbane licence that had not then been advanced. They also say that it is relevant to assume that they had a reasonable prospect of achieving a result in excess of the Offer.

37    None of these matters are relevant. Even though the Offer included costs, there is no requirement to assess those costs, as a fixed sum of $50,000 was allocated. It was not incumbent on the Commonwealth to explain the basis of, or reasons for, the Offer. It is not relevant that one of the Commonwealth’s submissions was later rejected by the Tribunal. It is not relevant to the validity or effect of the Offer that the applicants reasonably believed that they would achieve more. It is likely that the applicants believed that they would achieve a better outcome and that the outcome would not include deferred payments. That is a logical basis for an offeree refusing an offer but it does not derogate from the character of the Offer.

38    That was the chance that the applicants took in rejecting the Offer.

39    The applicants assert that it cannot be said that they adopted an extreme position from which they were not prepared to resile or that the position they adopted was unreasonable or unjustified (cf Re Application by Seven Dimensions (1996) 35 IPR 1) such that it provides a basis to reduce the costs to which they would ordinarily be entitled. The Commonwealth points out that in the Tribunal the applicants maintained the basis of their calculation, which would have resulted in an award six times greater than the Lindgren evaluation which, the Commonwealth says, was unreasonable in light of the Lindgren evaluation.

40    It is the case, as I noted in my reasons, that at the hearing the parties made an effort to take reasonable positions and that the applicants adopted a calculation that was well below the initial offer that they had made to settle the matter. They also agreed to the engagement of Dr Lindgren to prepare the Lindgren evaluation and the applicants further reduced the amount that they were seeking after receiving that evaluation, although the amount was in excess of both the Lindgren evaluation and of the amount awarded by the Tribunal. The Lindgren evaluation was made on the same basis as that adopted by the Tribunal, namely the multiplication of the Brisbane licence by 20 to reflect the population of Australia as a whole and not on the bases advanced by the applicants, namely multiplying the Brisbane licence by reference to the number of Councils in Australia to which the Montage was distributed or the estimated proportion of Councils that actually used the Montage. The difference lay in a further amount allowed by the Tribunal for a national licence.

CONCLUSION

41    I accept that, in the negotiations that took place after the Lindgren evaluation and prior to the hearing, the applicants did not ultimately adopt an extreme position, in that the parties were apart only as to $15,000 and the mode of payment, and that it cannot be said that, at that stage, they adopted a position that was unreasonable. That is not the main basis of the Commonwealth’s claim concerning costs. Rather, it is the fact that there was a Calderbank offer which was not accepted and that the applicants were less successful under the award made.

42    I do not accept that it was unreasonable or extravagant for the applicants to maintain the basis of the calculation advanced. I do, however, accept that the consequences of the rejection of the Offer are that the Commonwealth is entitled to its costs on an indemnity basis after the expiry of that offer.

43    The applicants are entitled to an order for costs up to the date of making the Offer. Accordingly, the applicants are entitled to costs up to (and including) Thursday, 25 July 2013. From Friday, 26 July 2013, the Commonwealth is entitled to indemnity costs (Jones v Bradley (No 2) [2003] NSWCA 258).

44    Those costs do not include the costs of the Lindgren evaluation that were for the purposes of that evaluation. That is, costs expended and “thrown away” by reason of the Lindgren evaluation are not part of the costs of the proceeding in the Tribunal. Costs incurred in respect of actions that were also incurred for the Tribunal proceeding should be included in the costs of that proceeding.

Confidentiality

45    The Commonwealth has asked that the Lindgren evaluation and other negotiations between the parties be kept confidential. The applicants have not opposed such a course. However, the Commonwealth has not provided sufficient basis in its submissions for the making of an order under s 37AF of the Federal Court of Australia Act 1976 (Cth). Some of the detail seems to relate to steps taken for the purposes of a confidential form of alternative dispute resolution; however, this does not apply to the circumstances and fact of the Offer. I will order that these reasons not be published until I hear further from the parties as set out in the orders, as to reasons for specific confidentiality or proposed redactions. If no submissions are received by that date, these reasons will be published.

Associate:

Dated:    22 May 2015