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Luck Doesn’t Come Into It: Henley Arch Successfully Prosecutes Lucky Homes and Lucky Homes’ Client For Infringing Copyright

Luck Doesn’t Come Into It: Henley Arch Successfully Prosecutes Lucky Homes and Lucky Homes’ Client For Infringing Copyright

Published on November 10, 2016 by Ben Robertson

Headline Message

The Federal Court of Australia decision in Henley Arch Pty Ltd v Lucky Homes Pty Ltd [2016] FCA 1217 (13 October 2016) sounds a warning for builders presented with plans by a client that were prepared by a third party.  Approach such clients with caution and ensure you take appropriate risk management steps.

The case is another amongst recent authorities that should give heart to the owners of copyright in project homes that copyright infringement can be actioned.

Three Easy Risk Management Steps

  • Contact the party that designed the plans to ascertain that the owners have permission to build the design and get that confirmation in writing. The designer’s name should be on the title block on the plans.  If it has been removed this is a red flag.
  • Request the client provide documentary evidence (e.g. license agreement or assignment) establishing that the owner has permission to build the design. Keep that document on file and verify its authenticity with the other party to the document.
  • Do not proceed with a client on the basis that a sufficient number of modifications can be made to a design so as to avoid copyright infringement. That path is beset with difficulty and danger.

Henley Arch and Lucky Homes: Federal Court Finds No Mystery to Copyright Infringement

The Parties

The Applicant – Henley Arch, is a builder that operates throughout Australia and trades in Victoria under the name of “MainVue Homes”.  Henley Arch has designed and constructs various project home designs which include the “Amalfi” designs, with facades that include the “Avenue” façade, or the less expensive “Eclipse” façade.

The Respondent Builder – Lucky Homes, is a builder in Victoria whose managing director and sole shareholder is Muhammed Shafiq, and who found itself subject to a copyright infringement claim by Henley Arch in respect of the Amalfi design with an Avenue façade, by reproducing plans and building a house that copied those plans.

The Respondent Home-owners – Mr and Mrs Mistry are the registered proprietors of Lot 828, Circus Avenue, Point Cook, Victoria, where the house that infringed copyright was built.

Facts

  • The Mistrys and Henley Arch had pre-contract communications regarding Henley Arch constructing a project home at their Point Cook property using the “Amalfi” design.
  • The Mistrys elected not to proceed with Henley Arch and told the Court that they were unhappy with Henley Arch delaying the project and failing to incorporate changes the Mistrys wanted into various versions of the project tender. The Court didn’t find Mr Mistry to be reliable and didn’t accept the reasons given for not proceeding with Henley Arch.  Rather, the Court found that the Mistrys went to another builder to get more for less, i.e. the “Amalfi” design with an “Avenue” façade for an “Eclipse” façade price.
  • Lucky Homes were engaged by the Mistrys to build the “Amalfi” design with an “Avenue” façade.
  • Mr Shafiq copied the “Amalfi” floorplan, removing the title block, and arranged for Ms Izic of BN Design to prepare construction plans. The Court didn’t make any adverse findings against Ms Izic who gave evidence that Mr Shafiq told her that the Mistrys owned the plans.

The Decision

In essence, the Copyright Act 1968 prohibits someone from copying a substantial part of a work in which copyright is held.  The Court provided a summary of the general principles surrounding the concept of “substantial part”, which significantly turn around the qualitative nature of what is reproduced rather than the amount of similarities or dissimilarities.

There is a common misnomer in the construction industry that changing a plan by 20% will avoid copyright infringement, this decision along with a long line of authorities renders that misconception to be false.

The Court found that Lucky Homes, Mr Shafiq and the Mistrys infringed Henley Arch’s copyright in the “Amalfi” design with an “Avenue” façade.

Mistry’s Defence of Innocent Infringement

The Mistry’s attempted to argue a defence of innocent infringement and had the onus of establishing that:

  1. they had no subjective awareness that the acts constituting the infringement were an infringement of copyright; and
  2. they had no reasonable grounds for suspecting that the acts constituted an infringement of copyright.

The Court didn’t find that the Mistry’s had proven the defence.  Initially, the Court found, with some hesitation, that the Mistry’s didn’t have subjective awareness of infringement because it accepted they had been told by Mr Shafiq that 15 – 20 changes could be made to the plans with a view to avoiding copyright being infringed.

The Court didn’t find, however, that being told 15 – 20 changes could be made satisfied the objective test.  The plans contained copyright notices and the Mistrys had signed an acknowledgement not to provide the plans to third parties which the Court considered should have placed reasonable persons on notice not to use the plans without Henley Arch’s permission.

The Damages

The Court awarded compensatory damages of $34,400, after analysing the loss of profits suffered by Henley Arch and an 80% chance that the Mistry’s would have contracted with Henley Arch absent the infringing conduct.

The Court also awarded $25,00 in additional damages collectively against Lucky Homes and Mr Shafiq and $10,000 in additional damages as against Mr Mistry.

Cross-Claims

Lucky Homes and Mr Shafiq sought to cross-claim against the Mistrys on the basis of a contractual indemnity that the Mistrys gave to the builder in relation to any claim for breach of copyright.

The Court dismissed the cross claim noting that, Lucky Homes and Mr Shafiq knew that the Mistrys didn’t own the copyright in the plans or were recklessly indifferent to this issue.  In addition, the Court didn’t regard the indemnity as applicable to conduct pre-dating the building contract.

The Court found that Mr Shafiz had engaged in misleading and deceptive conduct under section 18 of the Australian Consumer Law by representing to the Mistrys that 15 to 20 changes were sufficient to avoid copyright infringement.  Accordingly, the Court ordered Lucky Homes and Mr Shafiq to compensate the Mistrys fro compensatory damages they are liable to pay to Henley Arch and for 50% of the additional damages awarded against Mr Mistry.

Summary

Builders, and building designers, should take care to properly risk manage clients who come armed with their own plans.  In this case there was little mystery to the Court that copyright had been infringed by both the builder and its client and should be a lesson to all construction industry participants.

Disclaimer: This article contains general advice only and does not constitute legal advice.  Readers’ own particular facts and circumstances may change the general advice in this article and it is recommended that readers obtain legal advice in relation to their own individual facts and circumstances.

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