Henley Arch v Lucky Homes – part 2

You will recall that Beach J ordered Lucky Homes and the Mistrys to pay Henley Arch $34,400 by way of compensatory damages and Lucky Homes to pay $25,000 and Mr Mistry $10,000 by way of additional damages for infringing Henley’s copyright in its Amalfi plan. An earlier post looked at the Mistry’s claim to apportion liability (refused) and their cross-claim against Lucky Homes for misleading or deceptive conduct. This post adds some comments on the damages awards.

Some background

You will recall that the Mistrys had their first house built for them by Henley according to one of Henley’s designs. When they came to build their next, “dream” home, they began negotiating with Henley to use its Amalfi design. Just before they signed up with Henley, however, they met with Lucky Homes. Within a very short space of time, the Mistrys signed up with Lucky Homes to have it build for them what was in effect an Amalfi home with “some” changes.[1] The changes did not avoid copyright infringement.

Innocent infringers

The Mistrys claimed they were ‘innocent infringers’ and invoked the protection of s 115(3) which provides:

Where, in an action for infringement of copyright, it is established that an infringement was committed but it is also established that, at the time of the infringement, the defendant was not aware, and had no reasonable grounds for suspecting, that the act constituting the infringement was an infringement of the copyright, the plaintiff is not entitled under this section to any damages against the defendant in respect of the infringement, but is entitled to an account of profits in respect of the infringement whether any other relief is granted under this section or not.

This “defence” has both a subjective element and an objective element. The Mistrys had to prove that they were not actually aware what they did was an infringement and they had no reasonable grounds for suspecting it was.

These are not easy tests to satisfy and it is very rare for them to be invoked successfully.

The Mistrys failed to satisfy the objective requirement. The pre-contract documents they signed with Henley included clauses stating that the information they were provided with was confidential and the exclusive property of Henley. Further, the pro forma plans and the plans prepared specifically for their land each included a copyright notice: “© Henley Arch P/L”. Beach J considered at [193] these clauses and notices would have put reasonable persons in the position of the Mistrys on notice that Henley claimed copyright and its permission was required to use them. That is, the Mistrys could not show they had no reasonable grounds for suspecting they would infringe copyright.

His Honour went further. At [194], Beach J considered that a reasonable person in the Mistrys’ shoes, about to spend $250,000 on a new build would not have acted on Lucky Homes’ assurances that it would change the plans sufficiently to avoid infringement “without checking with a lawyer” first. His Honour explained:

the assurances given by Mr Shafiq that only 15 to 20 changes were required ought not to have been relied on by persons who were proposing to spend nearly $250,000 based on that assurance, without checking it with a lawyer, particularly in the light of the specific acknowledgements set out in the various versions of the tender documents that they had notice of. The fact that the Mistrys did rely upon Mr Shafiq’s representations does not establish the objective limb of “no reasonable grounds”. Moreover, to say that they relied upon Mr Shafiq’s statements does not necessarily entail that they had no suspicions about whether they could use the Amalfi Avenue floorplan. In my view, whatever Mr Shafiq said, the Mistrys had reasonable grounds for suspecting that the use of that floorplan constituted an infringement. At the least, they have not discharged the onus of proving that they had no reasonable grounds for suspecting.

S 115(2) damages

Damages under s 115(2) are in the alternative to an account of (the infringer’s) profits. S 115(2) damages are compensatory; they are to put the copyright owner back in the position it would have been in if there had been no infringement (so far as a monetary award can do that).

Beach J considered that the “lost profits” method was the appropriate measure in this case. That is, the profit Henley lost on the Amalfi house it would have built if the Mistrys had gone ahead was the appropriate measure.

As the “lost profit” here was the loss of a chance or opportunity, Beach J noted that there were two steps to the inquiry. First, a determination whether there had in fact been a lost opportunity. Then, secondly, the value of that opportunity. His Honour explained at [213]:

where one is utilising the lost profits method based upon the loss of a chance or opportunity, there are two questions to consider. The first question is whether there has been such a lost opportunity. This is determined on the balance of probabilities. The second question is what is the value of that lost opportunity. That is to be decided on the possibilities or probabilities of the case (Sellars v Adelaide Petroleum NL (1994) 179 CLR 332 at 355 per Mason CJ, Dawson, Toohey and Gaudron JJ and at 365 to 368 per Brennan J). But some estimation or even educated guesswork under either question may be required and is justifiable.

The Mistrys of course said they never would have contracted with Henley. They had become too frustrated with delays and the price for the house with the facade they really wanted was too high ($10,000 higher than the more basic option).

Beach J rejected this claim. His Honour pointed out that, until they met with Lucky Homes, the Mistrys had been anxiously pressing Henley to finalise the contract documentation, even demanding it move up the settlement date. His Honour also rejected the Mistrys’ complaints about the delays in process as “implausible”. Amongst other things, Henley couldn’t finalise the buidling contract until the certificate of title to the land had issued to the Mistrys and that had occurred only a week or two before the Mistrys were introduced to Lucky Homes. This was to be the Mistrys’ “dream home”. They were anxious to get its construction underway. If Lucky Homes hadn’t turned up, Beach J did not think it realistic that the Mistrys would have abandoned the process with Henley and start all over again.

However, Beach J also rejected Henley’s argument that it was practically certain the Mistrys would have bought the house from Henley. Instead, at [221], his Honour considered the profit Henley would have made needed to be discounted by 20% “to reflect some aspect of uncertainty as to whether the Mistrys would have proceeded with Henley Arch absent the infringing conduct.”

On the question of quantum, Beach J considered that EBIT (earnings before interest and tax) was the appropriate measure.

When it comes to calculating profits, there is usually a ding dong battle over how much should be excluded from the gross profits to allow for overheads. Beach J side-stepped that fight here. In a context where Henley was building about 1,000 homes a year, it was unlikely that there would have been any increase in its overheads building the home for the Mistrys, a single house.

Henley’s evidence was that the total profit after allowing for variable (direct) costs it would have made was $48,231.83 (ex GST). There were some evidential disputes about this, but his Honour considered it was reasonable. At [235], Beach J declared it should be reduced by 10% to allow for contingencies and to reflect the uncertainty in the estimates advanced, and rounded that calculation down to $43,000.

That had to be further discounted by 20% to reflect his Honour’s finding that there was only an 80% chance the Mistrys would indeed have bought the house from Henley. Thus the award of $34,400.

Additional damages

Unlike damages under s 115(2), damages under s 115(4) may include a punitive element – to punish the wrongdoer and to deter others.

Henley contended that $250,000 would reflect the culpability of Lucky Homes and $75,000 that of Mr Mistry. Beach J considered these amounts wholly disproportionate. Accepting the degree of culpability involved and, amongst other things, taking into account the (un)likelihood of repetition of the conduct and the parties’ respective abilities to pay, his Honour ordered that Lucky Homes pay $25,000 by way of additional damages and Mr Mistry $10,000.

You will remember that, on the Mistrys’ cross-claim, Beach J ordered that Lucky Homes only had to be accountable for 50% of the additional damages awarded against Mr Mistry. This was because Mr Mistry’s participation in Lucky Homes’ creation of a copy of Henley’s pro forma plan without Henley’s copyright notice and his unsatisfactory approach to giving evidence meant Mr Mistry should bear some proportion of the sanction himself.

Beach J did not consider Mrs Mistry’s involvement in the infringing conduct warranted any award of additional damages.

Henley Arch Pty Ltd v Lucky Homes Pty Ltd [2016] FCA 1217


  1. The infringing conduct came to light because the Mistrys sued Henley in VCAT to recover their deposit!  ?

Another copyright in project homes case

Some 5 years after it went hunting, Tamawood[1] has successfully sued Habitare (now with administrators and receivers and managers appointed) for infringing copyright in house plans.

Copyright in some plans was infringed (Torrington v Duplex 1 & Duplex B); but not in others (Conondale / Dunkeld v Duplex 2 & Duplex A).

One point of interest: Habitare commissioned Tamawood to develop plans for 2 new houses for it. These plans were submitted to the Brisbane City Council to obtain development approvals. The relationship with Tamawood broke down, however, and Habitare continued to use the plans. Collier J found that the “usual” (i.e. Beck v Montana)[2] implied licence did not apply here. It did not apply because Tamawood did not get paid the “usual” fee for doing the job: rather, it agreed to prepare the drawings at no cost on the basis that it would build the houses once development approval had been obtained. Once the deal fell through and Habitare decided not to proceed with Tamawood as the builder, therefore, its rights to use the plans terminated.

Continuing with the licensing theme, Mondo (which Habitare eventually used to design the houses in dispute) did infringe copyright by creating the infringing plans Duplex 1 and Duplex B plans. It did not infringe Tamawood’s copyright, however, when it downloaded the Torrington plans from Tamawood’s website. Tamawood made the plans available on its website for the whole world to see and download so Collier J considered Mondo’s purpose in using the downloaded plans to design competing houses was not relevant.[3]

(Mondo did succeed in its cross-claim against Habitare and 2 of its principals for misleading or deceptive conduct: they told Mondo that the copyright issues with Tamawood had been sorted out or resolved.)

A second point of interest is that the builder of Habitare’s infringing houses, Bloomer Constructions, successfully made out the “innocent infringer” defence provided by s 115(3). Cases where this defence has been relied on successfully are as rare as the proverbial hen’s teeth. It seems to have been because the builder became involved very late in the day: it had no knowledge of Tamawood’s involvement in the earlier stages and the plans it was provided with had Mondo’s name or title block.

Finally, a curiosity: the reasoning on authorisation liability manages not to refer to Roadshow v iiNet at all, but refers extensively to University of NSW v Moorhouse. In the event, Habitare apparently conceded it would be liable for authorising the infringements of the others. Two of its principal officers, Mr Peter O’Mara and a David Johnson, managed to escape liability, however. While they were heavily involved in the business, their involvement was mainly on the finance side rather than sales and marketing. Collier J seems to have found that, within Habitare, responsibility for the conduct that infringed had devolved on to 2 other officers, Shane O’Mara – Peter O’Mara’s son – and a Mr Speer. Her Honour also considered that, by engaging Mondo as architects, Peter O’Mara and Johnson took “reasonable steps to prevent or avoid the doing of the infringing act”.[4]

Tamawood Limited v Habitare Developments Pty Ltd (Administrators Appointed) (Receivers and Managers Appointed) (No 3) [2013] FCA 410


  1. Yes, it is that Tamawood.  ?
  2. See _e.g. Concrete Constructions_ at [71] – [75] per Kirby and Crennan JJ).  ?
  3. There is no discussion in the judgment of whether Tamawood’s website included a notice purporting to limit the use of the site, for example, to “personal use” or “private and non-commercial use” (whatever either of those may mean) or in any other way.  ?
  4. See s 36(1A)(c). No claim for authorisation or procurement appears to have been pursued against Shane O’Mara or Speer.  ?