The work of architects exposes them to legal risks. Lack of clarity in documents or arrangements often causes angst for architects. It is sometimes also used by them as a negotiation tactic.
This is illustrated in a leading copyright case for architects decided by the High Court of Australia in December 2006. The decision in Concrete Pty Ltd v Parramatta Design & Developments Pty Ltd [2006] HCA 55 is about copyright in property development plans.
It’s an interesting case worthy of a detailed case report.
The money at stake makes copyright in property development architectural plans a common legal issue. To simplify this recent case we’ll tell the story in words, pictures and finally numbers.
Words
In terms of words, the case is about a joint venture that went wrong and calculated risks taken by property developers out to make a profit.
An architect (Mr Ghassan Fares), and a solicitor with 40 years of experience (Mr Benjamin Barrak), were joint shareholders of a property development company. To buy land at 5 Laman Street, Nelson Bay in 1998, they sought a joint venture with others. They were joined by a solicitor (Ms Jeanette Haviland) and her former husband (Mr Kevin Rix).
These joint venturers bought the land. They accepted that Mr Fares, the architect, should do the design work for an eight unit development
Soon after, the Port Stephens Council approved a development application for a neighbouring block to have 16 units. After initially opposing the neighbour’s plan, Mr Fares and Mr Barrack decided to press for more units. After Mr Fares said he would not charge more for a new plan, the joint venturers made a successful application to build 14 units. The Council approved the development application on 10 May 2000. Importantly, to utilise the approval development was required to proceed within five years. After that new approval would be required.
Irreconcilable differences then arose among the joint venturers. The Supreme Court of NSW was asked to make orders to sell the land in June 2002. It was sold but under a sale of land contract in which the buyer (Concrete Pty Ltd) was expressly put on notice that the joint venturers’ dispute existed, including as to the existence of any licence to use the copyright in the development application plans for the 14 units.
Concrete bought nonetheless. It then received copyright threats in two letters from solicitors representing Mr Fares and Mr Barrak. Both letters said use by Concrete of the copyright plans would be “at its own risk”.
Relying on section 202 of the Copyright Act 1968 (Cth), Concrete sued to seek a court declaration and damages for “unjustifiable threats” from the architect, Mr Fares, about his copyright claim to the plans for the 14 units. Mr Fares’ company, Parramatta Design & Developments cross-claimed to allege infringement of copyright. In other words the architect said no plan was licensed and Concrete said it had received unjustified threats connected with that claim.
The first hearing was before a single judge (he ruled for Concrete). It then went on appeal to the full court of the Federal Court (it ruled unanimously for the the architect and Mr Barrak). The saga continued to the High Court (it ruled unanimously in favour of Concrete). In all three hearings the courts considered claims of bias against the single judge. This claim of bias was because his Honour noted the dual role of Mr Fares as architect and co-developer through the joint venture company and said that the architect’s copyright claims were “enigmatic”.
In the High Court, Mr Fares and his collaborator, Mr Barrak, both lost against Concrete, the buyer of the land. In essence, the court ruled that there was an implied copyright licence granted by Mr Fares or his company in the plans for the 14 units and that this licence was more than a bare licence revocable at will. Instead it ran with the land to buyers of the land and hence no further copyright licence or negotiation or deal was needed with Messrs Fares and Barrak as regards copyright in the plans.
Perhaps the result would have been different if the special “enigmatic” facts of the case were not present. They were that the architect holding copyright in the plans was closely involved in development decisions, thus making it harder for the architect to avoid a licence being implied by the circumstances. Still there were other considerations found for ruling in favour of Concrete. For example, in their joint decision, Kirby and Crennan JJ state: “It is important to observe that there were no conditions imposed restricting the development consent to the applicant, the owners of the land, or to the effect that the development consent did not run with the land.” (para 66)
Pictures
!["laman_st_nelson_bay"]("/images/stories/laman_st_nelson_bay.jpg" "\"laman_st_nelson_bay\"")
In terms of pictures, the story is much simpler. The opening picture of this article and the picture (right) are both views of or from the units as now built at 5 Lamon Street, Nelson Bay.
The architect’s first set of plans were the copyright plans for the eight units.
The architect’s second set were for the 14 units. The important plans were for the 14 units. They positioned the joint venture for greater capital gains provided development proceeded within five years of the approval of the DA for the 14 units. Failing sufficient progress in time, a new DA would have become necessary. The problem was that “… legislative changes meant that a development consent for a project of a similar size [ie 14 units] would not be forthcoming.”(para 83)
Concrete was offered a licence by the architect, Mr Fares, and his solicitor collaborator, Mr Barrack. As we shall see the price was a touch too high. So the real story springs out when we go to the numbers.
Numbers
If you got lost in the above words and pictures, the numbers will make things clear.
- In the late 1990s Mr Fares, the architect, had a modest architecture practice. The income tax returns of his business, Parramatta Design & Developments Pty Ltd, disclosed a total income in the 1998-99 financial year of A$153,275, with a net loss of A$936. In the preceding year the business had a similar small deficit. (para 144)
- On 2 October 1998 the Nelson Bay land was bought by the joint venture for A$560,000. Mr Fares and Mr Barrack had a two thirds interest in the land leaving the other joint venturers with one third.
- A fee of A$27,000 was paid by the joint venture for the copyright plans prepared by Mr Fares’ company for the development application for eight units. Development consent was obtained in September 1999 for eight units.
- A new development consent was subsequently obtained for 14 units. No more money was required by the author of the architectural plans, Mr Fares, for his plans for the 14 units.
- Because the joint venturers fell into dispute, the land was offered for sale. On 27 June 2002 a written offer to purchase the land was received for $1.8 million. The sale was called off because of alleged unprofessional behaviour by Mr Barrak (stated by Kirby and Crennan JJ at para. 30).
- On 7 August 2003 Concrete Pty Ltd purchased the land for A$2,760,000.
- After purchase of the land by Concrete a fee of A$5 million was sought from Concrete by Mr Fares and Mr Barrak for permission to use the copyright in the architectural plans for the 14 units. Time was running out given the five year limit imposed by the Council. At one stage the claim was made that the payment of $27,000 back in 1999 had been for disbursements, not a fee for the plans. In response to the A$5 million, Concrete offered $33,000 instead. No deal was reached. The parties turned to the court to decide. Concrete won.
Practical Tips
- Document the vision or objective Collaborators should communicate their plans by recording them and discussing them before major decisions are made.
- Distinguish the roles and relationships In a venture each role played by a party should generally be documented, along with its legal relationship to other roles and parties. Depending on what’s best on the specific facts, the documents should legally distinguish the roles of property architects, engineers, owners, investors and developers.In the Concrete case, Justice Callinan said that being able to frame the legal relationships was relevant to the resolution of the case. If the roles and relationships are defined or framed, then the parties don’t have to have a judge do that for them. It may be best to do all this in one or more documents.
- Document the collaboration Collaborators should record their deal. Legal documentation is recommended for partners, joint venturers and other collaborative arrangement.
- Document the deal Plans, drawings and other work affected by copyright should be made the subject to an appropriate written licence agreement or assignment contract. A licence or assignment contract can deal with a myriad of potential issues and minimize or avoid them. The lack of writing, a verbal contract or an unclear contract can make dispute resolution harder especially in highly contested matters.
- Act the part Being sharp or foxy may not be legal. Once more an Australian court confirms that a joint venture has little law to define it. However, if a joint venture can be said to arise then clear obligations follow. Justice Gummow states in the Concrete case that the nature and scope of the joint venture there “possessed fiduciary characteristics of the kind identified in United Dominions Corporation Ltd v Brian Pty Ltd.”(para 15). United Dominions is the leading joint venture case in Australia. In the Concrete case, Justice Callinan makes similar observations (para. 156-157) regarding the existence in a joint venture of an implied obligation to co-operate and not obstruct the performance of contracts.
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