02 Apr 2007

Implied licence and the copyright in architects' plans - Does the licence run with the land?

by Peter Knight, Nick Thomas

An architect who draws up plans for the purpose of obtaining a development consent thereby gives an implied licence to use the plans for that development, whether or not he has agreed to do so for a fee, unless some special circumstances exist that would contradict this.

Of course, an architect (or his or her employer) who creates plans owns the copyright in them, whether or not paid a fee, unless the copyright is assigned in writing. If there is no licence granted to use the plans, then the architect can prevent anyone using them or copying them for any building work.

It’s long been assumed that, even if there were no fee paid for the architect’s client to use the plans, the client nonetheless has an implied licence to use them. That assumption was challenged by a decision in 2005, leading to real practical problems.

Because of its importance, the case went to the High Court, which has clarified when these plans can be used, and what effect a development consent has on the issue.

A simple plan gets complicated

The decision in Concrete Pty Limited v Parramatta Design & Developments Pty Ltd [2006] HCA 55 arose from a falling out among property developers in a joint venture. An architect, Mr Fares, teamed up with a solicitor to form a company, Landmark Building Developments. Landmark and another company, Toyama, bought a property in Nelson Bay for $565,000, which they would develop together and then sell for a handsome profit.

That was the plan, at any rate.

To get development consent, Mr Fares’ architectural practice, Parramatta Design, created architectural plans for an 8-unit development of the property, for which he was paid $27,000. Later, Mr Fares agreed to create a new set of plans for a 14-unit development of the property, for which no additional fee was paid. The new plans became the subject of a development consent for the property, which was consequently made much more valuable. There was no agreement for any specific payment for these plans.

Development consent having been obtained for the development specified in the plans, the parties promptly fell out. Trustees were appointed and the property was put up for sale. The trustees were unclear about what, if any, rights they had in the plans created by Parramatta Design. Parramatta Design had made clear to the trustees that it considered itself to be the owner of the copyright in the plans, and asserted that the plans could not be used by any purchasers of the land. On the other hand, Mr Fares’ other company, Landmark, consented to the land being sold on the basis that the development consent had been obtained. As a result, the trustees made it clear that a dispute existed as to "the existence of any licence to make use of the copyright in those plans" and accordingly gave no warranty in that regard.

Concrete purchased the land, with the development consent, for $2,760,000. Concrete argued that, even though the claim of Parramatta had been brought to its attention, it paid the price it did in the belief that Parramatta’s claim was unjustified, and that a licence to use the plans was included in the price it paid.

Do you need express consent to use the plans?

The key issue here is what happened at the time the plans were drawn up. In this case, there was no express agreement under which the architect licensed the copyright it owned in the plans. The architect was not paid his usual professional fees. Nevertheless, said the High Court, he did get something out of the arrangement: his reward was so much of the net profits expected to eventually flow at the conclusion of the joint venture in respect of which he is both "architect to the joint venture" and a "joint venturer", profits which are increased by the fact that the joint venturers did not have to pay architect’s fees.

However, the High Court went far beyond this in clearing up the issues which surround these implied licences of copyright materials created for specific purposes. First, the Court said that this was not a case which was peculiar to architects’ contracts – this was not a legal presumption connected with a particular type of contract. In every case where copyright materials are created by one person for another, all the surrounding circumstances must be taken into account to decide what the parties intended – in this case the relationship of the architect to the other parties in the joint venture was sufficient.

Secondly, it’s not essential that there be a fee for the creation of the copyright material – that would be just one factor. Usually, in fact, if a fee was agreed but not paid, the implied licence would remain in place, and the architect could only sue for debt, unless the contract in place or other circumstances indicated to the contrary. Of course, the architect may have a right to terminate the licence, at least up to a certain point.

Does the implied licence ever become irrevocable?

Perhaps the most important thing the Court decided was what has been, until now, the most unclear, which is that, past a certain point, the architect loses the right to terminate the implied licence and the licence becomes irrevocable. The purpose for which the plans were commissioned was to obtain development consent (which lasts for five years). The High Court said that "once the development consent has been granted the implied licence or consent to the owners must be irrevocable, because one of the purposes for which the plans and drawings were prepared has then been achieved." And once the owners of the land (which included the architect) sold the land with the benefit of the development consent, the benefit of the implied licence must also pass to the new owner.

Do you need a contract at all?

Another important point coming from the decision is that the implied copyright licence does not depend on there being a contract between the copyright owner and the person who claims to have an implied licence. A copyright licence is just permission to do something given by the copyright owner and, as Justice Gummow pointed out, under section 15 of the Copyright Act, that permission need not have been given to the person who exercises it, but could be given to someone else, through which the person doing the relevant act has obtained the necessary rights. In this case, the permission was clearly given to the developers by the architect and, when the developers sold the land, that permission flowed to whomever bought the land.

The High Court did not really come to a concluded view as to why this was the case, other than simple fairness in this particular case. One theory considered was that this was because of the conveyancing principle of "non-derogation of grant" – that is, you can’t transfer something but at the same time make it useless. Another possible basis was that of estoppel – when Landmark gave its consent to the sale of the land with the development consent and Concrete altered its position in reliance upon that, Mr Fares could not in effect withdraw that consent after the sale.

What this case clears up – and what it doesn’t

The High Court has overturned the Full Federal Court’s decision that there was no implied licence, which is helpful not only for consortia that rely upon an architect member to draw up plans for them, but for anybody relying on materials created by a consultant for a vendor. Of course, it is still advisable to obtain express, written copyright licences (or assignments) so that everyone involved is clear about their rights and obligations.

What’s not clear from the High Court’s decision? We’ve highlighted below some of the issues which are yet to be resolved:

  • It's not yet clear what would happen if the planning approval was something other than a development consent, such as an approval under the new major projects regime in Part 3A of the Environmental Planning and Assessment Act 1979 (NSW). The specifics of the development consent regime – including the established law that a consent runs with the land – played an important role in the court’s decision here.
  • There is a curious provision in the regulations under the Act which states that, once an application for development consent has been made, "the applicant (not being entitled to copyright) is taken to have indemnified all persons using [the application] and documents in accordance with the Act" in relation to a claim for breach of copyright. That provision seems to be concerned with the fulfilment of the statutory processes under the Act, but its meaning has not yet been tested in the courts, and was not considered in this case.
  • It's not clear whether the principle of non-derogation from grant (ie. "giving with one hand and taking away with the other") will apply to copyright and, if so, how. The issue drew some comments from some of the High Court judges, but ultimately they reserved it for another day.

The High Court’s decision highlights the importance of addressing issues such as rights to use design drawings in an agreement relating to creation of the design. In addition, while the decision will give some comfort to purchasers of land with the benefit of a development consent, the unresolved issues about when a consent to use the drawings will not be implied underline the value in conducting sound due diligence before acquiring such land.

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Clayton Utz communications are intended to provide commentary and general information. They should not be relied upon as legal advice. Formal legal advice should be sought in particular transactions or on matters of interest arising from this communication. Persons listed may not be admitted in all States and Territories.