Cavalier Corporation Limited v Pebblemill Limited
[2022] NZHC 1639
•12 July 2022
IN THE HIGH COURT OF NEW ZEALAND CHRISTCHURCH REGISTRY
I TE KŌTI MATUA O AOTEAROA ŌTAUTAHI ROHE
CIV-2019-409-604
[2022] NZHC 1639
BETWEEN CAVALIER CORPORATION LIMITED
Plaintiff
AND
PEBBLEMILL LIMITED
First Defendant
EDWARD CHARLTON RADFORD
Second Defendant
Hearing: 6 July 2022 Appearances:
J Edwards and Y Dong for Plaintiff (via VMR)
G C Williams and T D Mahood for Defendants (via VMR)
Judgment:
12 July 2022
JUDGMENT OF ASSOCIATE JUDGE LESTER
(Expert Evidence)
CAVALIER CORPORATION LIMITED v PEBBLEMILL LIMITED [2022] NZHC 1639 [12 July 2022]
Introduction
[1] The issue for determination is whether the defendants’ preferred expert, Mr Cuthbertson, should be permitted to inspect a machine operated by the plaintiff. Mr Cuthbertson’s expertise is not in issue, nor is it in issue that the defendants are entitled to have an independent expert to inspect the machine. The plaintiff says, however, that Mr Cuthbertson is not independent, nor would the plaintiff be adequately protected by any undertaking as to confidentiality Mr Cuthbertson may give.
[2] This is the second application in this proceeding relating to a party’s nominated expert’s ability to inspect machinery in issue. In the first application, the defendants opposed the plaintiff’s nominated expert being able to inspect the first defendant’s machine and manufacturing processes. That application was determined by Associate Judge Paulsen on 10 March 2022.1 I gratefully adopt his Honour’s summary of the background, which is as follows:
Background
[5] Around 1992, Mr Radford founded Homestead Yarns Ltd, which developed technology to manufacture felted yarns for carpets.
[6] Homestead Yarns Ltd was subsequently called Radford Yarn Technologies Ltd until it was renamed Connaught Textiles Ltd in April 2011, in anticipation of the acquisition of a 75 per cent share in the company by Bremworth, through its subsidiary, Curlicue Ltd.
[7] In April 2011, Curlicue changed its name to Radford Yarn Technologies Ltd (RYT) and, in December 2012, Bremworth acquired the remaining 25 per cent share of the company.
[8] Bremworth says the key asset it purchased as part of the acquisition of RYT was its intellectual property.
[9] From 2011 to 2017, Mr Radford was employed by RYT as a Product Development Manager, and then by Bremworth as RYT’s International Sales Manager. However, Mr Radford had also incorporated Pebblemill with Bremworth’s knowledge in March 2011, and, while he was employed by Bremworth, Pebblemill manufactured (and continues to do so) felted yarn using an IWS Periloc felting machine Mr Radford had retained. Mr Radford was also granted a licence to use RYT’s intellectual property.
[10] From around June 2017, Bremworth had concerns Mr Radford was continuing to use its intellectual property without authorisation. On
1 Cavalier Corporation Ltd v Pebblemill Ltd [2022] NZHC 419, (2022) 166 IPR 206.
1 June 2017, Bremworth’s lawyers proposed that an independent expert be appointed to “review the intellectual property of Mr Radford to independently determine if it is the same Intellectual Property of our client”. The defendants agreed to the appointment of an independent expert with some conditions, but no appointment was made.
[11] In November 2019, Bremworth brought this proceeding alleging breach of confidence in relation to modifications made to the IWS Periloc machine and associated manufacturing processes used to manufacture felted yarns for carpets. Bremworth believes it owns the felting technology that has been used by the defendants. The defendants deny the use of Bremworth’s confidential information, claiming that Mr Radford has used his intrinsic and residual know-how and knowledge, as well as information in the public domain, to produce felted yarns.
[12] The proceeding is well-advanced. The case is to be heard in August 2022 and Bremworth’s briefs of evidence are due to be exchanged by 22 April 2022. For that reason, this application, which was only filed in late January 2022, has been given urgency.
The application and the issue
[13] Bremworth has drawn the inference the defendants have made unlawful use of its confidential information from the following:
(a)Bremworth understands it took Mr Radford decades to develop the felting technology and processes it acquired, yet he claims to have been able to replicate the ability to manufacture felted yarns, as well as develop new processes, in just five years since he left Bremworth’s employment;2
(b)the ability to manufacture felted yarns with the consistency required for high-end broadloom carpets has not been replicated by competitors other than the defendants.
[14]Counsel are agreed that key issues in the proceeding are:
(a)what aspects (if any) of Bremworth’s machines and manufacturing processes for producing felted yards are Bremworth’s confidential information; and
(b)whether the defendants have misused that confidential information.
[3] The legal principles applicable to the present application were not in dispute. The application by the defendants seeks an order:
[P]ermitting the defendants’ chosen expert, Mr Ian Murray Cuthbertson, to a reciprocal inspection of the machines and manufacturing processes used by Bremworth to produce felted yarns, on substantially similar terms to those set
2 Bremworth considers that in regard to any processes the defendants have developed, they have obtained a springboard advantage. See Aquaculture Corporation v New Zealand Green Mussel Co Ltd (1985) 5 IPR 353 (HC) at 384—385.
out in the Schedule annexed to the judgment of Associate Judge Paulsen dated 10 March 2022.
[4] This application was brought on for an urgent hearing given the substantive hearing commences on 29 August 2022.
[5] The jurisdiction under r 9.34 of the High Court Rules 2016 (the Rules), to make an order for inspection is not in issue. Rule 9.34 provides:
9.34 Order for inspection, etc
(1)The court may, for the purpose of enabling the proper determination of any matter in question in a proceeding, make orders, on terms, for—
(a)the inspection of any property:
(b)the taking of samples of any property:
(c)the observation of any property:
(d)the measuring, weighing, or photographing of any property:
(e)the conduct of an experiment on or with any property:
(f)the observation of a process.
(2)An order may authorise a person to enter any land or do anything else for the purpose of getting access to the property.
(3)In this rule, property includes any land and any document or other chattel, whether in the control of a party or not.
[6] Nor is it in issue that any expert who carries out the inspection would have to comply with r 9.43 of the Rules in respect of their expert evidence. This means the experts will have to comply with the code of conduct for experts set out in sch 4 to the Rules.
[7] Mr Williams, counsel for the defendants, referred to ss 7 and 25 of the Evidence Act 2006 which provide:
7 Fundamental principle that relevant evidence admissible
(1)All relevant evidence is admissible in a proceeding except evidence that is—
(a)inadmissible under this Act or any other Act; or
(b)excluded under this Act or any other Act.
(2)Evidence that is not relevant is not admissible in a proceeding.
(3)Evidence is relevant in a proceeding if it has a tendency to prove or disprove anything that is of consequence to the determination of the proceeding.
…
25 Admissibility of expert opinion evidence
(1)An opinion by an expert that is part of expert evidence offered in a proceeding is admissible if the fact-finder is likely to obtain substantial help from the opinion in understanding other evidence in the proceeding or in ascertaining any fact that is of consequence to the determination of the proceeding.
(2)An opinion by an expert is not inadmissible simply because it is about—
(a)an ultimate issue to be determined in a proceeding; or
(b)a matter of common knowledge.
(3)If an opinion by an expert is based on a fact that is outside the general body of knowledge that makes up the expertise of the expert, the opinion may be relied on by the fact-finder only if that fact is or will be proved or judicially noticed in the proceeding.
(4)If expert evidence about the sanity of a person is based in whole or in part on a statement that the person made to the expert about the person’s state of mind, then—
(a)the statement of the person is admissible to establish the facts on which the expert’s opinion is based; and
(b)neither the hearsay rule nor the previous consistent statements rule applies to evidence of the statement made by the person.
(5)Subsection (3) is subject to subsection (4).
[8] Mr Williams noted that expert evidence can be ruled out at the pre-trial stage,3 but submitted this was not the approach usually taken where an objection is made on the basis of a lack of independence.
[9] With reference to the commentary in McGechan on Procedure, Mr Williams said there is a general hesitancy to rule on the admissibility of expert evidence in
3 Commissioner of Inland Revenue v BNZ Investments Ltd [2009] NZCA 47, (2009) 19 PRNZ 553 at [22].
advance of trial.4 This is because the relevance assessment which the Judge can make at trial will be much better informed than any pre-trial assessment.
[10] In particular, Mr Williams emphasised it is clear from the authorities that a lack of independence of an expert goes to the weight to be attributed to their evidence, rather than being a ground for excluding it.5 In ANZ National Bank Ltd v Commissioner of Inland Revenue, MacKenzie J said:
The admissibility of opinion evidence depends, as a matter of law, on the expertise of the witness, not on the independence of the witness.
[11] In this context, his Honour treated the expression “independent” as indicating the necessity for expert evidence to be unbiased or impartial. His Honour said:6
… the evidence of an expert witness who is not independent is not rendered inadmissible. It is admissible, and the weight to be attached to that evidence is a matter for the Court, having regard to all relevant considerations, which will include the degree of involvement which the witness has with the party calling that witness.
[12] Mr Williams submitted the threshold for an order barring an expert witness from giving evidence was a high one, and such an order would only be made where bias was established or where the expert was simply acting as a mouthpiece.
[13] Mr Williams noted Mr Cuthbertson’s evidence in which he says he has no interest in the outcome of the proceeding and does not have any commercial relationship with any party in this proceeding, save for providing expert evidence. Mr Cuthbertson says he is now retired and has no intention of working in the textile industry, contracting, consulting or otherwise.
[14] Mr Williams submitted there is nothing to suggest that Mr Cuthbertson will not conduct himself in accordance with the requirements of the code of conduct for experts.
4 Robert Osborne (ed) McGechan on Procedure (online ed, Thomson Reuters) at [HR9.43.01].
5 See the discussion in ANZ National Bank Ltd v Commissioner of Inland Revenue (2005) 18 PRNZ 114 (HC) at [22]—[23].
6 At [24].
[15] Mr Williams submits that even if Mr Cuthbertson’s independence is impacted (which is denied), this would not be to such an extent as to “…make it obvious that an opinion he [Mr Cuthbertson] … expresses in evidence will not be able to be substantially helpful” to the Court.7
[16] Essentially, Mr Williams submitted Mr Cuthbertson should be permitted to carry out the inspection because his expert evidence resulting from that inspection would be admissible and would not be excluded at this early stage due to the high threshold for excluding evidence on the ground of lack of independence.
[17] While accepting Associate Judge Paulsen referred to the need for the defendants’ experts to be independent, Mr Williams submitted a lack of independence is only triggered when the proposed expert is clearly biased so that their evidence could not assist the Court, or that they are acting as a mouthpiece.
[18] Mr Edwards, counsel for the plaintiff, accepted the test for excluding an expert’s evidence was as set out in Commissioner of Inland Revenue v BNZ Investments as follows:8
[22] In the New Zealand context, the question for decision is whether the proposed expert evidence will meet the tests set out in ss 7 and 25 of the Evidence Act. To the extent that the Simcock/McLeod evidence is evidence of fact, it must be relevant, and to the extent it is expression of an opinion, it must be substantially helpful to the fact finder. We accept that there may be cases in which the position of the proposed expert is so lacking in independence as to make it obvious that an opinion he or she expresses in evidence will not be able to be substantially helpful, and in those circumstances it may be appropriate to rule out the evidence at the pretrial stage in order to avoid the costs which may otherwise be incurred in responding to it.
[19] Accordingly, it is necessary to examine in more detail the objections raised by the plaintiff to Mr Cuthbertson. Those objections are, as I have noted, firstly, a lack of independence and secondly, amount to saying Mr Cuthbertson’s undertaking would not provide adequate protection to the plaintiff.
7 Commissioner of Inland Revenue v BNZ Investments Ltd, above n 3, at [22].
8 Commissioner of Inland Revenue v BNZ Investments Ltd, above n 3.
The plaintiff’s grounds for asserting lack of independence
[20] The defendants deny misusing the plaintiff’s confidential information. The defendants say they developed a new machine which Mr Edwards in his submissions called the “New Prototype”.
[21] Part of the plaintiff’s case is that the New Prototype incorporates or “spring-boarded” from the plaintiff’s intellectual property (IP). Importantly, from the plaintiff’s point of view in respect of this application, the New Prototype was a project co-funded by the first defendant, Pebblemill Limited (Pebblemill), and Wool Industry Research Limited (WIRL).
[22] Mr Cuthbertson was the research manager of WIRL from 2011 until his retirement on 1 July 2022. Mr Cuthbertson’s role at WIRL included driving the process for attracting proposals for its funding, being the lead point of contact for parties who were granted funding, and co-ordinating and participating in the Wool Advisory Group (which was responsible for making recommendations about funding initiatives under WIRL’s partnership with Ministry of Business, Innovation and Employment (MBIE) and the wool industry). Mr Cuthbertson also reported to the Wool Advisory Group on the status of current projects.
[23] Pebblemill’s proposal to WIRL for funding related to the development of the New Prototype, which includes the IP which is in issue in this proceeding. WIRL and Pebblemill entered into an agreement with Tasman Textile Technologies Limited (Tasman) in March 2015 to build and evaluate a machine which incorporates the IP in issue. That research agreement recorded existing IP was owned by Pebblemill.
[24] The plaintiff says Mr Cuthbertson was “clearly closely involved in the [p]roject, from obtaining funding through the entire duration of the [p]roject from around March 2015 to January 2016”.
[25] While the project was completed in around January 2016, it seems Mr Cuthbertson did not progress a commercialisation agreement with Pebblemill until September 2017. Indeed, the commercialisation agreement was not completed until May 2022. The research agreement between WIRL, Pebblemill and Tasman
provided for the commercialisation agreement to be entered into six months after completion of the project.
[26] The plaintiff says there was no explanation for the delay and that it appears Mr Cuthbertson did not ask any questions or raise any concerns in that regard, at least so far as the defendants’ discovery discloses.
[27] A further point raised by the plaintiff is that none of the documents discovered by the defendants show Mr Cuthbertson ever raising any questions regarding who owns the existing IP, referred to at [21] above.
[28] As to this last point, I accept it is answered by the submission made by Mr Williams in reply. In the WIRL funding agreement, Pebblemill warrants it owns the underlying IP. I accept Mr Williams’ submission that WIRL, having the benefit of the warranty, had no reason to make further enquiry.
[29] The plaintiff’s concerns go further. The plaintiff says at the point Mr Cuthbertson became aware of these proceedings, it was his responsibility to notify the WIRL Board accordingly.
[30]Mr Edwards submitted:
The fact this was not raised by Mr Cuthbertson, at any stage, raises issues including whether there was adequate disclosure and conflicts of interest in relation to [the Wool Research Organisation of New Zealand (WRONZ)] and Mr Cuthbertson directly given, in his own words, he drove the process, was the lead point of contact and sat on the committee for making recommendations.
WIRL is funded by members of WRONZ.
[31] The essence of the plaintiff’s submission was that Mr Cuthbertson has a personal interest in seeing the plaintiff’s claim fail. This submission is made on the basis that if it is established through this proceeding that Pebblemill is the owner of the IP in question and it has not breached Cavalier’s rights, Mr Cuthbertson will have no concerns arising from his involvement in WIRL’s funding of the research agreement, his disclosures or otherwise to WIRL, his involvement with WRONZ, or the timing of the commercialisation agreement.
[32] These are points that the plaintiff will, of course, be free to make in cross-examination and submission. Mr Williams points out there has been no criticism or pleading against WIRL or Mr Cuthbertson.
[33] To the extent the issues raised by the plaintiff may, once fully explored and developed go to Mr Cuthbertson’s independence, in my view, they are not so clear cut or at such a serious level at this point for me to conclude they would make Mr Cuthbertson’s evidence so unreliable that he should be excluded from giving evidence. Again, the threshold is a high one.
[34] The plaintiff’s submissions need to be seen in the light of the fact that Mr Cuthbertson has no commercial relationship with any of the parties in this litigation. He has no commercial interest in WIRL. He has resigned from WIRL and has retired. The parties agree that the wool processing industry is a small one and those involved in it are known to each other. Given the plaintiff is a member of WRONZ, it would certainly be aware of the litigation and it seems highly unlikely that WIRL would not have become aware of the litigation given the size of the industry. There is no evidence of those organisations having any concerns about Mr Cuthbertson’s role.
[35] A further ground for attacking Mr Cuthbertson’s independence is that he has disclosed that he worked for the New Zealand Wool Board from 1980 to 2000. That role involved him reporting to the second defendant and demonstrating a prototype of a machine of the basic type in issue in this proceeding to members of the industry in the 1980s and 1990s. Further, in 2008, Mr Cuthbertson helped the second defendant’s company obtain funding from Meat and Wool New Zealand Limited for research into the type of wool processing machine in issue in this proceeding. Mr Williams says the basic characteristics of this machine are not confidential – what is in issue are the modifications to the basic machine. Therefore, Mr Cuthbertson’s historical involvement with the basic machine is not a ground for challenging his independence.
[36] Again, these are points that can be raised in cross-examination of Mr Cuthbertson. Given how small this aspect of the wool industry is in New Zealand, it is not surprising there has been some contact between Mr Cuthbertson and the
second defendant in the last 20 plus years. Again, I remind myself that the threshold to debar the defendants from having their expert witness of choice is a high one. I do not consider these aspects of historical contact between Mr Cuthbertson and the second defendant or his company, either by themselves or together, with the other factors relied on by the plaintiff mean the plaintiff’s objections meet that high threshold.
[37]Mr Edwards, in his carefully prepared submissions, summed up by saying:
37.The evidence filed in support and opposition of the Application raises so many concerns and questions that any opinion evidence that Mr Cuthbertson would give at trial on what he would see at the reciprocal inspection could not be substantially helpful or could only be given little weight due to his plain lack of independence, in terms of s 25(1) of the Evidence Act 2006.
[38] In my view, it is not enough to justify barring an expert from giving evidence because questions or concerns have been raised.
[39] Yes, the plaintiff has raised a number of questions but the response to those questions is ultimately a matter for trial. I cannot assume, in determining this application, that the matters the plaintiff says are unanswered will mean the Court will conclude Mr Cuthbertson’s evidence is not substantially helpful.
[40] Accordingly, I conclude any questions around Mr Cuthbertson’s expert evidence do not meet the high threshold referred to in the passage from Commissioner of Inland Revenue v BNZ Investments Ltd, set out at [18] above, on the ground of lack of independence such as to warrant Mr Cuthbertson being excluded from giving evidence.9
The effectiveness of Mr Cuthbertson’s undertaking
[41] The plaintiff says that during Mr Cuthbertson’s inspection, he will see information that is confidential and commercially sensitive. It must be accepted that there is no way for Mr Cuthbertson to “unsee” what he would see at the inspection.
9 Commissioner of Inland Revenue v BNZ Investments Ltd, above n 3.
Mr Edwards says that as the wool industry is relatively small, there is a real risk Mr Cuthbertson will consult for, or work with, Bremworth’s competitors in the future.
[42] In Mr Cuthbertson’s affidavit he says 1 July 2022 (also the date of his affidavit), was his last day as a contractor for WIRL and that he has now retired from the workforce. He says:
I have no intention in my retirement to do any work in the textile industry, including no plans to do any contracting or consulting apart from providing expert evidence in these proceedings.
[43]The Court takes Mr Cuthbertson’s sworn evidence at face value.
[44] Clearly, this evidence is aimed at meeting the plaintiff’s concerns that Mr Cuthbertson may become a consultant to the plaintiff’s competitors.
[45] In rejecting the plaintiff’s concerns about the effectiveness of protections provided by Mr Cuthbertson’s undertakings, I rely on this evidence. Mr Cuthbertson can expect that if he acts inconsistently with his sworn evidence, the plaintiff will take steps to hold him to his commitment. This is not a matter on which Mr Cuthbertson could simply say he had changed his mind.
[46] Accordingly, I am treating Mr Cuthbertson’s evidence as a commitment to the Court that he will not work in the textile industry or contract or consult in the industry in any area that touches on the matters in issue in this proceeding. Again, the evidence set out at [42] can only be put forward to provide comfort to the Court that Mr Cuthbertson’s commitment is an answer to the plaintiff’s concerns about Mr Cuthbertson working for the plaintiff’s competitors in the future. That is the way I have taken it. That commitment is enough to meet the plaintiff’s concerns on that issue.
[47] Mr Edwards rightly points out that the second defendant, Mr Radford, in relation to his challenge to the expert proposed by the plaintiff, and dealt with by Associate Judge Paulsen, said he knows of several independent experts with the requisite experience in the industry who could provide evidence as to the similarities and differences between the parties’ respective machines. Mr Radford said there were
a number of suitably qualified independent persons who could readily understand the machines and processes in question. Mr Radford did not attempt to backtrack from that evidence but the starting position, in my view, is that the defendants are entitled to use the expert of their choice. That the plaintiff is unhappy with that choice and can point to there being suitable alternatives, is not enough for the Court to require a party to opt for a different witness.
[48]It follows from my conclusions above that the defendants’ application is
granted.
Orders
[49]There are orders:
(a)Permitting Mr Ian Murray Cuthbertson to undertake a reciprocal inspection of the machines and manufacturing processes used by Bremworth to produce felted yarns, on substantially similar terms to those set out in the Schedule annexed to the Judgment of Associate Judge Paulsen dated 10 March 2022.10
(b)Counsel agreed that costs should follow the event on a 2B basis. Accordingly, the plaintiff is to pay the defendants’ costs in respect of this application on a 2B basis together with disbursements as fixed by the Registrar.
(c)Leave is reserved to apply should the terms in the Schedule annexed to Associate Judge Paulsen’s Judgment of 10 March 2022 not be entirely apposite for Mr Cuthbertson’s application — any such application to be made within five working days of the date of this Judgment (that is by 19 July 2022).
(d)The plaintiff is to permit the inspection to be undertaken no later than
20 July 2022.
10 Cavalier Corporation Ltd v Pebblemill Ltd, above n 1.
(e)Given the confidential affidavit of Mr Radford sworn 1 July 2022, the confidential affidavit of Mr Cuthbertson sworn 1 July 2022, the application and notice of opposition in respect of this application and counsels’ submissions refer to confidential information, it was agreed that those documents may not be searched either by the parties or otherwise without leave of the Court. I so order.
Associate Judge Lester
Solicitors:
Russell McVeagh, Auckland Hudson Gavin Martin, Auckland
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