No need to argue against yourself in a freezing order application – but loss and damage helps

Copyright – extension of ex parte freezing order – whether duty of candour requires applicant to identify potential bases to find an implied licence – whether freezing order should cover potential additional damages

Vartzokas Architects Pty Ltd v Nazero Group SA Pty Ltd & Anor (No.2)  [2017] FCCA 1019

The applicant (VAPL) was engaged by a related company of the first respondent to prepare architectural plans to assist in the development and construction of a property in Adelaide.  The plans were used to apply for, and obtain, planning permission for the development.  VAPL performed this initial work for a “modest fee”, with a view to performing further work as the development progressed.  VAPL’s drawings included a copyright notice forbidding reproduction without “prior written notice” of VAPL.

Before construction plans could be drawn up, however, the parties had a falling out over VAPL’s outstanding fees; that dispute led to litigation between VAPL and various companies in the respondents’ group.  Unbeknownst to VAPL, during that period the second respondent (the sole director of the companies in the group, including the first respondent), passed VAPL’s drawings to another firm to prepare construction drawings.

In January 2017, VAPL was approached by the subsequent purchaser of the property, who wished to engage VAPL to provide services in respect of it.  On 17 February 2017, VAPL was provided with drawings that evidently had been prepared with the assistance of VAPL’s original plans.

The actual sale of the property was due to settle on 28 April 2017.  Of note, the sale contract contained a number of provisions that noted the ongoing dispute between the vendor and VAPL, anticipated that VAPL might assert rights against the purchaser in respect of the development permission, and required the vendor to “take all reasonable steps” to resolve the issue.

On 26 April 2017 (two days before settlement), VAPL applied for and obtained a freezing order preserving the proceeds from the sale of the property, in the amount of $813,649.  By the present application, VAPL sought to extend the duration of the order.  The respondents argued that the funds should be released, on the basis that: VAPL had delayed in bringing its application; VAPL did not have a sufficiently strong case, because the respondents enjoyed an implied licence; and VAPL had failed to act with candour at the original ex parte hearing, because it failed to bring to the Court’s attention the likelihood that the respondents enjoyed such a licence.

As to whether the respondents enjoyed an implied licence, Judge Brown considered the line of authority to the effect that where an architect contracts with an owner to produce plans for a particular purpose, an implied licence arises permitting the use of those plans for those purposes, “notwithstanding the failure by the owner to pay the architect’s fees”.  His Honour noted, however, that the parties to such an agreement can contract out of the assumption of the creation of an implied licence.  Further, in the High Court decision Concrete Pty Ltd v Parramatta Design & Developments Pty Ltd (2006) 229 CLR 577, the plurality (Kirby and Crennan JJ) observed that the assumption might not arise “if the architect has charged a nominal fee only to prepare drawings for the limited purpose of obtaining a planning permission”, or might otherwise expressly reserve copyright.

In the present case, the evidence was that the principal of VAPL had indicated that VAPL would only release some drawings once all fees were paid.  Further, VAPL’s initial fees were “modest” and it would gain more from subsequent work.  In his Honour’s view, in that context by endorsing its plans with a copyright notice, VAPL was “attempting to preserve its entitlement” to that later source of profit.  His Honour accepted that under the authorities it was probable that an implied licence was created, but held that it was at least potentially arguable that VAPL conveyed only a bare licence, which was potentially revocable if fees were unpaid.

As to whether VAPL ought to have raised the question of the respondents enjoying an irrevocable licence at the ex parte hearing, his Honour noted that the issue was complicated.  However, the controversy between the parties was as to how the law applies to the facts, not the facts themselves (which were disclosed).  His Honour held that this was not a case where VAPL sought to “pull the wool over the eyes” of the Court or wilfully omit some salient fact or matter such that the remedy should be refused.

His Honour did, however, vary the freezing order to only cover $50,000 (compared with the original $813,649). The respondents asserted that very little profit was made from the sale of the property at all, such that VAPL’s share of those profits, if any, was likely to be nominal.  The unsubstantiated nature of those assertions aside, VAPL conceded that its own damages were likely to fall between $23,100 and $63,600.  The real question was whether the freezing order should also take into account VAPL’s claim for additional damages and in what quantum (issues that his Honour described as “extremely problematic” at that stage of the case).  Given that a freezing order is a “drastic remedy” not to be made lightly, his Honour declined to increase the freezing order beyond $50,000, noting that “the court must be extremely careful about retaining monies, quite possibly for a lengthy period of time, in respect of an uncertain claim” like a claim for additional damages.

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