Fisher & Paykel Financial Services Limited v Karum Group LLC
[2013] NZHC 587
•26 March 2013
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
CIV-2006-404-6646 [2013] NZHC 587
BETWEEN FISHER & PAYKEL FINANCIAL SERVICES LIMITED
Plaintiff
ANDKARUM GROUP LLC Defendant
Hearing: On the papers
Judgment: 26 March 2013
JUDGMENT OF RODNEY HANSEN J As to costs
This judgment was delivered by me on 26 March 2013 at 11.30 a.m. pursuant to Rule 11.5 of the High Court Rules.
Registrar/Deputy Registrar
Date: ………………………….
Solicitors:
A J Park (K W McLeod), P O Box 565 AucklandEmail: [email protected] (jess@[email protected]) MinterEllisonRuddWatts, P O Box 3798 Auckland
Email: [email protected]
Copy for:
Alan R Galbraith QC, P O Box 4338 Auckland 1140
Email: [email protected]
Julian G Miles QC (J F Anderson), P O Box 4338 Auckland 1140
Email: [email protected] / [email protected]
FISHER & PAYKEL FINANCIAL SERVICES LIMITED V KARUM GROUP LLC HC AK CIV-2006-404-
6646 [26 March 2013]
Introduction
[1] On 10 December 2012, I delivered a judgment determining the substantive issues arising in this proceeding.1 My judgment is being appealed and the parties are agreed that the determination of costs should be deferred until the appeal has been determined. However, I am asked to make an award of costs in relation to a series of steps taken immediately after the hearing which led to judgments (No 2)2 and (No 3)3 in this proceeding.
[2] The issues for determination arose from the counterclaim of Karum Group LLC (Karum) against Fisher & Paykel Financial Services Limited (FPF) for breach of copyright and of obligations of confidence in the CMS software at issue in the proceeding. The claim for copyright infringement was brought on the basis that Karum was the owner of the copyright. That was denied by FPF, though it was not until it opened its case that the basis of its denial emerged. This exposed potential shortcomings in Karum’s case which it sought to address by seeking leave to call further evidence at the conclusion of the hearing. This proved to be insufficient to deal with the problem identified by FPF.
[3] Accordingly, beginning soon after the hearing finished, the following steps were taken:
(a) Karum filed a memorandum making supplementary submissions on the interpretation of documents affecting its standing to sue for breach of copyright and, alternatively, applying for leave under s 124 of the Copyright Act 1994 (the Act) for leave to proceed in the absence of a third party, Zale Delaware Inc (Zale), or to join Zale in the
proceeding. I granted leave to Karum to file submissions and made
1 Fisher & Paykel Financial Services Ltd v Karum Group LLC (No 4) [2012] NZHC 3314.
2 Fisher & Paykel Financial Services Ltd v Karum Group LLC (No 2) [2012] NZHC 240.
3 Fisher & Paykel Financial Services Ltd v Karum Group LLC (no 3) [2012] NZHC 794.
timetable orders in relation to the foreshadowed application for leave under s 124 of the Act and to join Zale.4
(b)Karum applied for leave to amend its statement of claim to bring a claim as an exclusive licensee and to join Zale as a party to the proceeding.
(c) FPF applied for an order excluding affidavit evidence filed in support
of Karum’s application for leave to amend and other orders.
(d)Following a hearing focussing on the interpretation of documents relied on by Karum to establish its claim of ownership in the CMS software, Karum sought and obtained leave to file further affidavit evidence and related submissions.
[4] In judgment (No 2) I made findings as to the interpretation of documents purporting to grant licences of the CMS software and, after hearing further argument, in judgment (No 3) I granted Karum leave to amend its claim to enable it to plead, in the alternative, that it is the exclusive licensee of the copyright.
[5] FPF seeks increased or indemnity costs having regard to: (a) The lateness of the applications.
(b)The applications were necessitated by Karum having to advance matters that ought to have been identified and pursued prior to trial.
(c) The applications resulted in substantially increasing the costs that would otherwise have been incurred by FPF.
(d)While ultimately obtaining leave to amend, Karum was unsuccessful in several of the arguments it had advanced.
[6] Karum’s position is that neither indemnity nor increased costs are justified as:
4 Ruling (5), 18 November 2011.
(a) The late applications were required because FPF’s pleading on the issue of title to the CMS software was inadequate and in breach of the High Court Rules.
(b) Karum did not act unreasonably in its response to FPF’s contentions
on the issue of title as they developed during the trial.
(c) Karum was successful and FPF failed on some of the post-trial applications.
[7] Karum nonetheless accepts that an award of costs in FPF’s favour is justified. It submits that costs on Karum’s successful post-trial application should lie where they fall with costs on the balance of FPF’s attendances awarded in FPF’s favour on a category 3 band B basis.
Responsibility and reasonableness
[8] It is convenient to consider first the competing contentions of the parties as to who should bear responsibility for the fact that the threshold issue of standing was not fully explored at trial. FPF says Karum simply failed to present its case properly. Its ownership of copyright in the CMS software was denied. It was put on notice that ownership was in issue and it simply failed to prove its case.
[9] Karum responds that FPF’s pleading was inadequate. Its statement of defence failed to comply with r 5.48(2) resulting in a pleading that did not fairly and substantially address the substance of the point. Consequently, the statement of defence obfuscated FPF’s true position on the issue of ownership of the CMS software. Karum says that, in contrast to the fulsome way in which other aspects of its defence were pleaded, FPF responded to Karum’s pleading that it was the copyright owner of the CMS software with a bald denial. Karum asserts that, in these circumstances, it was entitled to infer that FPF was simply putting it to proof on the issue of whether Karum was the owner of the particular version of CMS software provided to FPF’s predecessor by Karum.
[10] Karum submits that its understanding of the nature of the defence as a typical challenge to a chain of ownership was confirmed by the way in which FPF opened its case and it was not until final submissions that it became apparent that FPF was mounting a wholesale challenge to Karum’s right to sue.
[11] Rule 5.48 of the Rules provides:
Requirements of statement of defence
(1) The statement of defence must either admit or deny the allegations of fact in the statement of claim, but a defendant does not have to plead to an allegation that does not affect that defendant.
(2) A denial of an allegation of fact in the statement of claim must not be evasive. Points must be answered in substance. If for example, it is alleged that the defendant received a sum of money, it is not sufficient to deny receipt of the particular amount. Rather, the defendant must deny receipt of that sum or any part of it, or set out how much was received. When a matter is alleged with circumstances it is not sufficient to deny it as alleged with those circumstances. In all cases a fair and substantial answer must be given.
(3) An allegation not denied is treated as being admitted. (4) An affirmative defence must be pleaded.
(5) The statement of defence must give particulars of time, place, amounts, names of persons, nature and dates of instruments, and other circumstances sufficient to inform the court, the plaintiff, and any other parties of the defendant's defence.
[12] Karum’s position is that FPF’s bare denial of ownership of copyright did not meet the requirements of subrule (2) of the rule. It did not answer the point “in substance”. It did not give “a fair and substantial answer”. Karum says that FPF’s obligation was to identify the parts of the CMS software which it denied Karum owned and the circumstances supporting the denial, noting that in closing submissions FPF drew a distinction between “original” CMS software and “enhanced” CMS software and “implicitly acknowledged” that Karum owned enhancements made by it to the software after dissolution of a partnership which had
carried out further developments to the original software.5
[13] I am not persuaded that FPF’s pleading was deficient and that blame for its failure to place the proceeding on a proper footing and ensure that the issue of ownership was fully canvassed at trial should be laid at its door. I do not think Karum was entitled to assume that the issues raised by the denial were restricted to what Karum refers to as the “typical objections to ownership” such as authorship. In my view, the denial put FPF on notice that it must prove its entitlement to sue. It was unwise to assume anything less without seeking clarification informally or by way of further particulars.
[14] I consider FPF’s position to have been fairly disclosed at trial. Mr Galbraith QC, senior counsel for FPF, made it clear in his opening submissions that FPF’s position was that Karum was neither the owner nor the exclusive licensee of the CMS software.6 He went on to comment that the fundamental difficulty in relation to standing appeared to have been recognised by Karum as the pleaded claim of ownership had not been repeated in opening submissions.
[15] It is true that FPF’s argument on this aspect of the case was developed and refined somewhat in closing submissions and the distinction drawn between the original CMS software and the enhanced CMS software. But that should have come as no surprise. The terminology emerges from the three agreements recording the ownership and licensing arrangements between Zale and Karum’s predecessors that were introduced into evidence by Karum. In the end, I was able to rely on those agreements without more to establish that, contrary to what had been pleaded by Karum, it is not the copyright owner of the CMS software but an exclusive licensee.
[16] It was therefore Karum’s failure to come to grips with the difficulties establishing standing to sue before or at an early stage of the trial that necessitated reopening the issue after the hearing. As submitted by FPF, Karum sought to alter the basis of its claim to standing to sue in relation to copyright infringement after several years of interlocutory processes and an eight-week trial in which ownership was always in issue. In the end, Karum was able to establish standing, though not on the basis it had contended at trial and for much of the time the issue was debated
post-trial. It ultimately succeeded in its application to amend its claim on the basis of an argument which was advanced for the first time at the final hearing.
[17] An award of costs must therefore recognise that the post-trial applications would not have been required if Karum had taken the necessary steps to establish standing at an earlier stage. The award should also recognise that the post-trial proceedings were unnecessarily protracted and complex. While Karum eventually succeeded in establishing standing to sue, it did so by a circuitous route which involved a number of steps that turned out to be misconceived or unnecessary.
[18] These included its initial attempt to reopen its case in a manner which did not comply with the relevant practice note.7 An affidavit (by Matthew Wayde Appel) filed for the purpose of interpreting the relevant documents contained largely inadmissible evidence leading to an application to exclude the evidence. Karum also filed evidence in relation to the post-dissolution merger of Zale and its subsidiary, ZRCM2, which I held to be irrelevant to the interpretation issue8 and ultimately of no assistance to Karum.9 Karum failed in its primary argument that there had been an assignment of copyright and finally succeeded in establishing standing on a different basis altogether.
[19] I acknowledge that Karum was in the difficult position of having to address difficult and potentially decisive issues in awkward circumstances. However, it is clear, with the advantage of hindsight, that had the issues been clearly identified and the arguments marshalled at an early stage, the post-trial proceedings could have been completed with considerable savings in time and attendances.
Evaluation
[20] Although Karum succeeded in the end, this is plainly a case where it would not be right for costs to follow the event10 or to sever the final hearing for the
purpose of costs as contended by Karum. I am satisfied that FPF is entitled to an
7 Practice Note [1968] NZLR 608.
8 Judgment (No 2) at [34].
9 Judgment (No 3) at [26] – [27].
10 High Court Rules, r 14.2(a).
award of costs for all post-trial attendances. The question is whether they should be costs according to scale or on the increased basis sought.
[21] In my judgment, the appropriate award is one of increased costs. Karum sought and was granted an indulgence so that it could plug a significant gap in the case it presented at trial. As I have said, I do not think it can shift responsibility for that oversight onto FPF. Karum must also accept responsibility for prosecuting the post-trial application in an inefficient and non-compliant way. It undoubtedly contributed unnecessarily to the time and expense of the post-trial proceedings. The genesis and conduct of the post-trial applications are are not among the acts of default set out in r 14.6(3)(b) which may justify an order for increased costs if they contribute unnecessarily to the time or expense of the proceeding or step in it. However, the circumstances are closely analogous and, in my view, constitute a further reason which justifies making an order for increased costs in terms of r
14.6(3)(d).
[22] I am satisfied, however, that an award of indemnity costs is not warranted. While I have described the conduct of the post-trial proceedings as inefficient and non-compliant, they demonstrably did not involve the flagrant misconduct required to justify an order for indemnity costs.11 In terms of the broad approaches described in Bradbury v Westpac Banking Corporation12 there was a failure to act reasonably but Karum did not behave badly or very unreasonably.
[23] By reference to the four-step process mandated in Holdfast NZ Limited v
Selleys Pty Limited,13 there is agreement that post-trial steps should be categorised as
3B. The uplift sought on each step is 50 per cent. I consider that to be appropriate as a fair recovery for the steps in the proceeding unnecessarily forced on FPF.14
11 Prebble v Awatere Huata (No 2) [2005] NZSC 54, [2005] 2 NZLR 467 at [6]; Bradbury v Westpac
Banking Corp [2009] 3 NZLR 400, (2009) 19 PRNZ 385 (CA) at [28].
12 Bradbury v Westpac Banking Corp at [27].
13 Holdfast NZ Ltd v Selleys Pty Ltd (2005) 17 PRNZ 897 (CA) at [44].
14 Holdfast NZ Ltd v Selleys Pty Ltd at [47].
Result
[24] FPF is entitled to costs on the post-trial steps in the proceeding set out in Schedule B to FPF’s submissions on a category 3 band B basis, uplifted by 50 per cent, and disbursements to be certified, if necessary, by the Registrar.
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