Ballance Agri-Nutrients Limited v Quin Environmentals (NZ) Limited

[2020] NZHC 2275

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE

CIV-2018-404-002438

[2020] NZHC 2275

BETWEEN

BALLANCE AGRI-NUTRIENTS LIMITED
Plaintiff

AND

QUIN ENVIRONMENTALS (NZ) LIMITED

Defendant

Hearing:

(On the papers)

Counsel:

J Edwards and P E Coulter for Plaintiff

P F Dalkie and D A Watson for Defendant

Judgment:

3 September 2020

COSTS JUDGMENT OF VENNING J

This judgment was delivered by me on 3 September 2020 at 9.30 am pursuant to Rule 11.5 of the High Court Rules.

Registrar/Deputy Registrar

Date……………

Solicitors:           Russell McVeagh, Auckland

McDonald Law, Auckland Counsel:   P Dalkie/D Watson, Auckland

BALLANCE AGRI-NUTRIENTS LIMITED v QUIN ENVIRONMENTALS (NZ) LIMITED [2020] NZHC

2275 [3 September 2020]

Introduction

[1]        The judgment delivered on 31 July 2020 refers.1 In the concluding paragraph on the issue of costs the Court said:

[164] The issue of costs is reserved. Category 2 is to apply. I certify for second counsel. Ballance has largely succeeded, but Quin has successfully resisted an absolute prohibition on the use of the term RPR in conjunction with its product. An apportionment would seem appropriate. In the event counsel cannot agree memoranda may be exchanged (limited to three pages).

[2]The parties have not been able to agree. Both apply for costs.2

Quin’s claim

[3]        Quin refers to a Calderbank letter and says Ballance did no better than the offer in the letter. Alternatively, the Calderbank offer was “close enough”, and even if the offer was not quite sufficient, the outright rejection of the offer by Ballance is relevant to the issue of costs.

[4]        On the issue of apportionment Quin submits that there should be an apportionment of costs on a 70/30 per cent basis in Quin’s favour but applying a penalty of around 20 per cent to the costs otherwise payable to Ballance. Quin claims costs (and disbursements) of $234,352.65 for costs incurred after the offer expired. It also claims costs for earlier stages in the proceeding calculated on an apportionment at 70 per cent in Quin’s favour of $6,121.20, less the costs of its unsuccessful counterclaim, $6,434. In total Quin seeks to recover $234,039.85.

Ballance’s claim

[5]        Ballance submits that, in accordance with the view expressed in the judgment, it is entitled to costs apportioned to reflect the fact that Quin successfully resisted an absolute prohibition on the use of the term RPR in conjunction with its product. It rejects that Quin’s Calderbank offer is relevant, submitting that Ballance did better than the offer made in the letter.

1      Ballance Agri-Nutrients Ltd v Quin Environmentals (NZ) Ltd [2020] NZHC 1885.

2      Memorandum of Quin dated 17 August 2020; memorandum of Ballance dated 27 August 2020; memorandum in reply by Quin dated 1 September 2020; memorandum of Ballance in response dated 2 September 2020.

[6]        Ballance seeks costs calculated on a 2B basis in relation to its claim but with a 30 per cent uplift for Quin’s actions during the litigation (reduced by 10 per cent for apportionment). In addition it seeks indemnity costs in relation to Quin’s counterclaim, and $37,883.47 for disbursements. In total Ballance claims $181,462.62 for costs and disbursements.

Calderbank offer

[7]The first issue is to determine the relevance of Quin’s Calderbank offer.

[8]        In the letter of 8 November 2019 Quin offered to settle the proceeding on the basis that:

(a)the existing interim injunction in its current form and wording became permanent; and

(b)it would pay Ballance’s party–party costs on scale 2B; and

(c)the counterclaim would be dismissed with each party paying their own costs on it.

[9]Calderbank offers are provided for in High Court Rules 2016, rr 14.10 and

14.11. In particular the effect such an offer may have on costs is set out in r 14.11:

14.11Effect on costs

(1)The effect (if any) that the making of an offer under rule 14.10 has on the question of costs is at the discretion of the court.

(2)Subclauses (3) and (4)—

(a)are subject to subclause (1); and

(b)do not limit rule 14.6 or 14.7; and

(c)apply to an offer made under rule 14.10 by a party to a proceeding (party A) to another party to it (party B).

(3)Party A is entitled to costs on the steps taken in the proceeding after the offer is made, if party A—

(a)offers a sum of money to party B that exceeds the amount of a judgment obtained by party B against party A; or

(b)makes an offer that would have been more beneficial to party B than the judgment obtained by party B against party A.

(4)The offer may be taken into account, if party A makes an offer that—

(a)does not fall within paragraph (a) or (b) of subclause (3); and

(b)is close to the value or benefit of the judgment obtained by party B.

[10]      In his submissions for Quin Mr Dalkie submitted that Ballance effectively only achieved what was contained in the Calderbank offer and against that the Court had made a number of findings of fact against Ballance. He referred to the case of Coward v Phaestos Ltd.3 Coward involved what the Court described as “hard fought intellectual property litigation”. The plaintiff incurred $6 million in costs and the defendants incurred $13 million. While the defendants had largely succeeded, Dr Coward, the plaintiff, resisted an order for costs against him and sought an order for costs in his favour on the basis of a Calderbank offer, arguing that the defendants had been offered substantially all that they achieved at trial.

[11]      At first instance the Judge considered that four of the eight points advanced on behalf of the defendants showed they had done significantly better at trial than the Calderbank offer made on behalf of Dr Coward. She did, however, conclude it was appropriate to reduce the costs recoverable by the defendants by 15 per cent in relation to a counterclaim. The Court of Appeal agreed with the Judge.

[12]      In the Coward case the Calderbank offer had proposed an order that Dr Coward hand over software to the defendants or an order that all copies of the software be destroyed. During the course of the proceedings the defendants obtained an undertaking by the plaintiff (in place of an injunction) not to make any use of the software. In both the Judge and the Court of Appeal’s view the undertaking (in place

3      Coward v Phaestos Ltd [2014] EWCA Civ 1256.

of the injunction) was a significant improvement on the terms of the Calderbank offer. As the Court of Appeal noted:4

First, the grant of an injunction, or the extraction of an undertaking in place of an injunction, is by the very nature of the remedy a serious step. The court will not grant an injunction unless in all the circumstances it is satisfied that it is appropriate to do so. If the other orders to be made by the court give the applicant all that it can reasonably require, it is not the practice of the court to grant an injunction which by definition is unnecessary. Dr Coward has not sought to appeal the requirement that he give an undertaking in order to avoid the grant of an injunction. He cannot therefore argue that it was required inappropriately or on insubstantial grounds. With her detailed knowledge of the issues, the course of the litigation and the parties, the judge considered that it was appropriate to grant an injunction. There is no basis on which this court can interfere with that approach. That being so, the undertaking in place of the injunction represents a significant improvement on the terms of the Calderbank offer.

[13]      I agree with Mr Edwards’ submission on this issue that Ballance did better than the offer made in the Calderbank letter in that the Court made injunctive orders against Quin as opposed to confirming the form of the existing undertaking. Relevantly the terms of the injunction went further than the terms of the previous undertaking, providing for the prominence and placement of any disclaimer and also prohibiting the reference to true “RPR” and any reference to the product having 30 per cent plus citric solubility.

[14]      Further, the Court granted the injunction because it was concerned that the undertaking following the earlier interim injunction hearing was not sufficient to cure the misleading representations as evidenced by the fact a number of the advertisements that had followed the interim injunction hearing did not fully comply with the undertaking.

[15]      Finally, as Mr Edwards submits, the Court also issued declarations that Quin’s conduct contravened ss 9, 10 and 13 of the Fair Trading Act 1986. While damages were not pursued, the declarations were meaningful.

[16]      For those reasons I reject the submission made for Quin that Ballance did no better than the Calderbank offer.

4      At 58.

[17]      Mr Dalkie next submitted that the Coward case supported the proposition that the offer was “close enough” and should be taken into account.

[18]      In the Coward case the Court approved a proposition from an earlier case that “in the circumstances … it might be appropriate to penalise the offeree in costs” where an offer is nearly but not quite sufficient and the offer is rejected outright without any attempt to negotiate. But whether it would be appropriate to do so “would of course depend entirely on the facts of the particular case”.5

[19]      As a general proposition, the statement is reasonable enough, but there is no need to rely on the Coward case. The approach in New Zealand is provided for by the Rules. Quin cannot establish that the offer would have been more beneficial to Ballance in terms of r 14.11(3)(b). However, if the offer was close to the effective benefit Ballance achieved in the judgment then r 14.11(4) confirms the Court may take the offer into account.

[20]      While Ballance achieved more in the judgment than the offer in relation to the undertaking, there were features of the Calderbank offer which make it appropriate to take it into account. The offer to pay costs and to resolve the counterclaim issue was reasonable. Ballance could have engaged with the issue of the proposed undertaking. The fact and terms of the offer are additional factors which I accept are relevant to the appropriate apportionment.

[21]      That leaves the Court in the position it recorded in the judgment, namely that Ballance, having largely succeeded, is entitled to costs but there should be an apportionment to reflect Quin’s success on certain issues. In fixing the appropriate apportionment the Court will also take into consideration the fact and terms of the Calderbank offer.

[22]      Before undertaking that exercise, however, it is necessary to deal with Ballance’s application for an uplift in costs on its claim and for indemnity costs on Quin’s counterclaim.

5      At 100.

[23]      Despite the Court’s indication it considered the costs on a 2B basis to be appropriate, Ballance seeks increased costs against Quin in relation to its claim on the basis that:

(a)Quin materially failed to comply with discovery obligations;

(b)Quin focused on irrelevant issues in evidence and during the hearing; and

(c)Quin proceeded with arguments that could not be substantiated by the evidence.

[24]Increased costs are provided for in r 14.6(3).

[25]      The issues that Ballance refers to in relation to discovery are not unusual in civil litigation of the nature involved in this case. I do not consider Quin’s actions were such as to support an increased level of costs generally. However, having reviewed the file and minutes of the Court again, and despite the additional points made by Mr Dalkie in his reply submission, the Court accepts that Ballance was put to more expense in relation to obtaining full discovery from Quin than it should have been. The appropriate way to recognise that is to increase the time allowed for the discovery and inspection process generally. I propose to double the time allowed for that process.

[26]      Again, while the Court did identify a number of red herrings, neither they nor the arguments which were ultimately not substantiated by the evidence led to any relevant increase in the length of the hearing. Overall, the hearing was conducted responsibly and efficiently by counsel for both parties. I decline the application to increase costs on Ballance’s claim.

[27]      Ballance also seeks indemnity costs in relation to Quin’s counterclaim on the basis that the counterclaim was frivolous and vexatious and had no hope of succeeding.

[28]      As the Court of Appeal made clear in Bradbury v Westpac Banking Corporation indemnity costs will generally only be ordered where the parties behaved either badly or very unreasonably.6 In that case indemnity costs were appropriate because the case was hopeless from the inception which the appellants knew or should have known.

[29]While the counterclaim in this case failed, as the Court observed:

[162] The Hi P RPR example does however show the rather arbitrary nature of the reliance on the Citsol Test for determining what is RPR in New Zealand. The Algerian phosphate rock could be blended with a more highly reactive phosphate rock, given a new product name and marketed as RPR which passes the Citsol Test. Alternatively, if (as I understand Quin has done with its V2) the dolomite was removed or reduced, the Algerian phosphate rock would meet the Citsol Test and can be marketed as RPR.

[30]      The counterclaim was based on the fact that Ballance blended two phosphate rocks, Sechura RPR and a waste product PB3 to produce its Hi P RPR. Quin argued the process was not carried out at a Fertmark registered blending or mixing station. That was correct, but the Court ultimately accepted it was answered by Dr Blennerhassett’s evidence that such approved facilities are only required in circumstances where a number of quite different products are blended. The counterclaim was also based on Quin’s theory of the case as to the nature of a “true RPR”. Quin’s counterclaim was arguable, although it was readily dismissed by the Court. It occupied little of the Court’s hearing time. Quin’s failure on its counterclaim does not support an award of indemnity costs.

[31]      Subject to the uplift for costs associated with the discovery process, the appropriate order is for costs to scale on a 2B basis in favour of Ballance with an apportionment to recognise that Quin successfully opposed an absolute prohibition on its use of the term RPR and also to take account of the Calderbank offer.

[32]      In my judgment, having regard to the outcome but also taking account of the offer contained in the Calderbank letter, the appropriate apportionment is a reduction

6      Bradbury v Westpac Banking Corporation [2009] 3 NZLR 400 at [27].

of 20 per cent in the costs otherwise payable by Quin to Ballance. That leads to an order for costs in the sum of $68,019.20 calculated as follows:7

Costs on a 2B basis on Ballance’s claim (with the discovery and inspection uplifted:	$78,810.00
Costs on a 2B basis in relation to Quin’s counterclaim:	$6,214.008
	$85,024.00
Less 20 per cent apportionment	$17,004.80
Total:	$68,019.20

[33]      In addition Ballance is entitled to disbursements in the sum of $37,883.47 as claimed. Orders accordingly.

Venning J

7      I note Mr Dalkie’s submission as to the length of the conference with Lang J but for certainty decline to alter the time allowance.

8      I do not allow Ballance’s claims for discovery, preparation of briefs etc and preparation and attendance at the hearing for the Quin counterclaim as they are covered by the costs on Ballance’s claim.