Geostel Vision Limited v Oraka Technologies Limited (in liquidation)
[2022] NZCA 312
•13 July 2022 at 2 pm
| IN THE COURT OF APPEAL OF NEW ZEALAND I TE KŌTI PĪRA O AOTEAROA |
| CA654/2021 [2022] NZCA 312 |
| BETWEEN | GEOSTEL VISION LIMITED |
| AND | ORAKA TECHNOLOGIES LIMITED (IN LIQUIDATION) |
| Hearing: | 9 June 2022 |
Court: | Gilbert, Mander and Fitzgerald JJ |
Counsel: | K T Glover for the Appellants |
Judgment: | 13 July 2022 at 2 pm |
JUDGMENT OF THE COURT
AThe appeal is dismissed.
BThe appellants are jointly and severally liable to pay the respondents one set of costs for a standard appeal on a band A basis and usual disbursements.
____________________________________________________________________
REASONS OF THE COURT
(Given by Fitzgerald J)
The appellants (Geostel) appeal against a costs judgment of Hinton J delivered on 5 October 2021.[1]
[1]Oraka Technologies Ltd v Geostel Vision Ltd [2021] NZHC 2635 [Judgment under appeal].
These proceedings have a long and tortuous history. They were commenced by the respondents (Oraka) in 2005, alleging breach of copyright by Geostel and Napier Tool & Die Ltd (NTD).[2] Liability was determined separately from quantum. Oraka was initially unsuccessful on liability in the High Court, but in 2013 this Court held that Oraka’s copyright had been infringed and directed an inquiry into damages.[3]
[2]NTD is not a party to this appeal, having resolved the question of costs with Oraka.
[3]Oraka Technologies Ltd v Geostel Vision Ltd [2013] NZCA 111.
There then followed multiple hearings in both the High Court and this Court on the question of damages. In 2018, the High Court awarded Oraka damages of $510,000, plus interest.[4] That award was set aside by this Court in 2020 and substituted with damages of $47,000, plus interest.[5] This Court remitted the question of costs of the damages hearing to the High Court for reconsideration in light of the Court’s judgment.
[4]OrakaTechnologies Ltd v Geostel Vision Ltd [2018] NZHC 769, (2018) 131 IPR 363. As explained at [15]–[22] below, this was in fact the second damages award made by the High Court. The first award of $4.1 million in June 2016 was set aside by this Court in Napier Tool & Die Ltd v OrakaTechnologies Ltd [2016] NZCA 554, [2017] 2 NZLR 611.
[5]Geostel Vision Ltd v Oraka Technologies Ltd [2020] NZCA 256, (2020) 152 IPR 500.
In her costs judgment, the Judge held that Oraka was the successful party for costs purposes, given it had received a damages award, albeit a modest one.[6] The Judge then considered the effect on costs of two Calderbank offers, the first made in 2015 (by NTD) and the second in 2017 (by Geostel). The Judge was not persuaded that either offer had the effect of reversing the incidence of costs.[7] She was nevertheless satisfied that the combination of Oraka’s negligible success, that it had contributed unnecessarily to the time of the damages hearing and the Calderbank offers meant that costs ought to lie where they fall.[8] We observe at the outset that this outcome accorded with both parties’ alternative positions advanced in the High Court, namely that if their primary position on costs was not accepted, a proper result would be for costs to lie where they fall.
[6]Judgment under appeal, above n 1, at [11].
[7]At [16]–[19].
[8]At [25].
Despite this, Geostel is unhappy with the costs outcome. Given the negligible damages award in Oraka’s favour, it says that it ought to be considered the successful party in the damages hearing. Alternatively, Geostel says that it should be awarded costs for all steps following the 2015 offer, or at the latest, the 2017 offer. In each scenario, it seeks increased costs. It also asks this Court to revisit the original costs award made in 2013 on the liability phase of the proceedings, on the basis that the quantum of damages ultimately awarded to Oraka means that the proceedings could have been brought in the District Court. It seeks a ‘refund’ of the difference between the costs it paid following the liability phase of the proceeding calculated at the High Court costs rates, and what it says ought to have been payable at the equivalent District Court rates.
The following issues arise for determination:
(a)Did the Judge err in concluding that Oraka was the successful party in the damages hearing?
(b)Did the Judge err in declining to award Geostel costs for all steps taken following the 2015 and/or 2017 offers?
(c)Can, and if so should, this Court revisit the 2013 costs award in the liability phase of the proceeding?
Background
It is helpful first to set out the background to the judgment under appeal in a little more detail.
As noted, Oraka commenced these proceedings in 2005 for copyright infringement, alleging infringement in components in an automated asparagus-grading machine, being the cups (which carry the spears through the machine) and chutes (the receptacles into which the spears are tipped after grading).
A three-week trial on liability took place before Allan J in 2008. The Judge delivered a judgment in February 2009 concluding that Oraka did not own copyright in the cups or the chutes, on the basis that the copyright was owned by NTD.[9] Allan J entered judgment for the defendants. Oraka appealed to this Court in respect of the findings related to the copyright in the cups (but not the chutes). In 2010, this Court overturned Allan J’s findings.[10] The Court held that Oraka owned the copyright in the cups, and remitted the matter to the High Court to consider infringement.
[9]Oraka Technologies Ltd v Geostel Vision Ltd HC Hamilton CIV-2005-419-809, 18 February 2009.
[10]Oraka Technologies Ltd v Geostel Vision Ltd [2010] NZCA 232, (2010) 88 IPR 227.
Allan J determined the infringement claim in 2011, concluding that the defendants had not infringed Oraka’s copyright in the cups.[11] This finding was, however, also overturned on appeal, this Court finding that Oraka’s copyright in the cups had been infringed, though observing that the level of originality was low.[12] The Court directed an inquiry into damages.
[11]Oraka Technologies Ltd v Geostel Vision Ltd (No 2) HC Hamilton CIV-2005-419-809, 7 April 2011.
[12]Oraka Technologies Ltd v Geostel Vision Ltd, above n 3, at [146].
In 2013, the High Court fixed costs in that Court to that point, and awarded Oraka costs and disbursements of $130,747.46 (the 2013 costs award).[13]
[13]Oraka Technologies Ltd v Geostel Vision Ltd (Costs No 2) [2013] NZHC 2787.
There was some delay in progressing the inquiry into damages. Following an unsuccessful mediation, on 11 December 2015, NTD sent Oraka a Calderbank offer proposing a payment of $500,000 to resolve all issues. The letter did not traverse the respective merits of the damages claim and response to it, but recorded NTD’s understanding that Oraka considered it might secure a judgment on quantum in the region of $4 million. NTD emphasised that its financial position meant that a judgment of anywhere near $4 million would inevitably cause NTD’s liquidation. Against that backdrop, NTD made what appeared to be a commercially pragmatic offer to pay $500,000 to settle the proceedings. The offer concluded:[14]
Upon payment of the first instalment, your clients will immediately discontinue the proceeding against the defendants, with no issue as to costs and agree to never make a claim against NTD or anyone else in relation to the infringement of your client’s copyright.
[14]Emphasis added.
Accordingly, while the offer was not made by Geostel,[15] it was nevertheless to its benefit.
[15]Geostel was not participating in the proceedings at that time.
Oraka did not accept the offer.
The first damages hearing took place in April 2016, following which the Judge awarded Oraka damages of $4.1 million.[16] The damages award was calculated on a loss of profits basis.
[16]Oraka Technologies Ltd v Geostel Vision Ltd [2016] NZHC 1188.
That damages award was then set aside by this Court, on the basis that loss of profit damages were not available because the copyright owner was not competing against the infringing parties.[17] The Court directed that damages be assessed on a user principle or notional licence fee basis.[18] The Court noted that Oraka had pleaded and advanced its claim for damages on the basis of lost profits, and considered whether Oraka should be permitted to have a second go at establishing its claim. The Court was divided on the issue, the majority concluding that the question of damages should be remitted to the High Court for a further hearing.[19]
[17]Napier Tool & Die Ltd v Oraka Technologies Ltd, above n 4, at [72]–[73].
[18]At [74].
[19]At [70]–[80].
Oraka’s reformulated damages claim was first particularised when its expert briefs were served in June 2017, valuing the claim at more than $5.1 million, plus interest of $3.4 million.
Geostel’s expert evidence, based on a notional licence fee, assessed the appropriate range for damages at between $38,250 and $63,750, or $37,880 and $62,975, depending on the methodology used.
The second damages hearing was due to commence on 10 July 2017. On Friday 30 June 2017, Geostel sent Oraka a Calderbank offer proposing a resolution. Against that background, Geostel proposed that:
(a)Oraka pay Geostel $20,484.39 (being the total of earlier unpaid costs awards made in Geostel’s favour);
(b)Geostel would procure that a third party, Kamber Electronics Ltd, would agree not to enforce a judgment entered in its favour and against Oraka by the District Court in July 2001 in the amount of $154,340.95;[20] and
(c)the parties would bear their own costs, except as provided in (a) above and in relation to costs already paid.
[20]Geostel had already taken a partial assignment of the judgment debt from Kamber Electronics Ltd.
The letter concluded that given the trial was to commence on 10 July 2017, the offer was open for acceptance until 4 pm on Tuesday 4 July 2017.[21]
[21]Unlike a parallel offer made on the same day by NTD, the letter did not expressly refer to a potential extension of time to consider the offer.
There was no response by Oraka to the offer.
Following the second damages hearing, the Judge awarded Oraka damages of $510,000, plus interest.[22] The Judge subsequently fixed costs and disbursements arising from the hearing, awarding costs to Oraka on a 2B basis.[23]
[22]OrakaTechnologies Ltd v Geostel Vision Ltd, above n 4.
[23]Oraka Technologies Ltd v Geostel Vision Ltd [2019] NZHC 1325 at [11]–[12].
In a judgment delivered on 25 June 2020, this Court set aside the High Court’s damages award and substituted damages of $47,000, plus interest.[24] This figure was based on the midpoint of the range of damages assessed by Geostel’s experts. The Court stated:
[141] … we think it is important to reiterate that, as is made quite clear in General Tire [and Rubber Co v Firestone Tyre and Rubber Co Ltd [1975] 1 WLR 819 (HL)] and all subsequent cases, the burden was on the plaintiffs to prove their loss and (so) to adduce evidence which will guide the court in its assessment of a notional licence fee.
[142] In our view the plaintiffs failed to do that here. Instead, they reran (in thinly disguised form) Graders’ lost profits claim, despite the earlier finding by this Court that those profits could not be the proper foundation for a damages claim.
…
[144] The plaintiffs proffered no alternative methodology. As noted earlier, Mr Davies simply said that that [sic] it was not a matter on which expert licensing evidence could assist. In light of that we think a conclusion that the plaintiffs failed to prove their loss might well have been available, particularly given the history of this matter. But the appellants did not ask us to proceed on that basis and so we do not do so. …
[24]Geostel Vision Ltd v Oraka Technologies Ltd, above n 5.
As noted earlier, this Court remitted the issue of costs of the second damages hearing to the High Court for reconsideration in light of its judgment. This led to the costs judgment the subject of this appeal.
Applicable principles
The High Court has a discretion in relation to costs.[25] But although the costs jurisdiction is discretionary, it is not unprincipled.[26] This Court said in Mansfield Drycleaners Ltd v Quinny’s Drycleaning (Dentice Drycleaning Upper Hutt) Ltd that the overall structure of the costs regime means “there is a strong implication that a court is to apply the regime in the absence of some reason to the contrary”.[27]
[25]High Court Rules 2016, r 14.1(1).
[26]Shirley v Wairarapa District Health Board [2006] NZSC 63, [2006] 3 NZLR 523 at [16].
[27]Mansfield Drycleaners Ltd v Quinny’s Drycleaning (Dentice Drycleaning Upper Hutt) Ltd (2002) 16 PRNZ 662 (CA) at [27], cited with approval in Manukau Golf Club Inc v Shoye Venture Ltd [2012] NZSC 109, [2013] 1 NZLR 305 at [7].
Because an appeal against a decision on costs is an appeal against the exercise of a discretion, an appellant must show that the decision in question was wrong in principle, failed to take into account some relevant matter, took account of some irrelevant matter, or was plainly wrong.[28]
Did the Judge err in finding that Oraka was the successful party?
[28]Shirley v Wairarapa District Health Board, above n 25, at [15].
The Judge accepted Oraka’s submission that it remained the successful party in the proceeding, albeit in a limited way, as it received damages for the breaches it alleged.[29] As she found that Oraka remained the successful party, the Judge recorded that she did not need to go on to consider Geostel’s arguments concerning an uplift in costs. She observed, however, that Geostel’s submissions on those matters remained relevant to other points requiring determination.[30]
Submissions
[29]Judgment under appeal, above n 1, at [11].
[30]At [13].
Geostel first submits that by implication, the Judge must have assessed success for the purposes of costs of the second damages hearing by reference to the entire proceeding, including the liability phase. It says the Judge was wrong in doing so, on the basis that establishing liability under a cause of action does not mean that a plaintiff is entitled to costs on all subsequent steps as the successful party. Geostel relies on this Court’s decision in Water Guard NZ Ltd v Midgen Enterprises Ltd (Water Guard) as supporting this proposition.[31]
[31]Water Guard NZ Ltd v Midgen Enterprises Ltd [2017] NZCA 36.
Putting aside Oraka’s success on liability, Geostel says that it was the successful party in the second damages hearing. Geostel refers to the total amount claimed by Oraka, including interest, of $8.6 million, compared to the damages and interest ultimately awarded of approximately $91,000. Geostel says that on any realistic appraisal, it should be considered the successful party, rather than taking what it refers to as an “absolute” approach, which treats any success on the part of a plaintiff as success entitling that party to costs. Again, by reference to Water Guard, Geostel submits that that decision supports the proposition that the amount awarded as damages can lead to a party who is ordered to receive damages nevertheless being treated as the losing party.
Finally, Geostel says that as a matter of policy, Oraka should not be in the same position as the plaintiff in Water Guard. In that case, and after liability had been established, the plaintiff reduced its claim to approximately $296,000, and then again to just over $108,000, and then shortly before trial, reached agreement with the defendant that the appropriate damages figure was $67,527.97 and consented to judgment being entered in its favour for that amount. The High Court concluded that costs of the quantum phase of the proceeding ought to lie where they fall (reflecting the plaintiff’s unreasonable behaviour).[32] That finding was not disturbed on appeal.Geostel emphasises that in this case, Oraka unnecessarily pressed on to a damages hearing, yet only recovered nominal damages in line with Geostel’s expert evidence.
[32]At [18].
Oraka, on the other hand, says that the Judge’s finding that it was the successful party in the second damages hearing was consistent with principles articulated by this Court in decisions such as Water Guard and Weaver v Auckland Council.[33] Oraka refers to this Court’s observation in Weaver that “success on more limited terms is still success”.[34] Oraka further says that there is nothing in the judgment under appeal to suggest that the Judge based her decision on who was the successful party in the second damages hearing by reference to the entire proceeding, including the liability phase.
Analysis
[33]Weaver v Auckland Council [2017] NZCA 330, (2017) 24 PRNZ 379.
[34]At [26].
We do not discern any error in the Judge’s analysis or conclusion that Oraka was the successful party for the purposes of the second damages hearing. Oraka received an award of damages for the breaches it alleged, albeit a modest one. It was open to Geostel to have offered to pay that or a similar amount to Oraka, but it did not do so. Ultimately, the Judge’s conclusion was a relatively orthodox application of the relevant principles from authorities such as Water Guard and Weaver.
For this reason, while we accept that in a split trial such as this, establishing liability does not mean that the plaintiff is necessarily entitled to costs on all subsequent steps, we do not accept that, by implication, the Judge’s approach must have reflected Oraka’s earlier success on liability.
We also do not accept Geostel’s submission that the approach taken by this Court in Water Guard supports the proposition that the amount of damages awarded may mean that the party receiving a damages award is nevertheless to be treated as the losing party. Rather, it is apparent that this Court viewed the plaintiff in Water Guard, as the recipient of a damages judgment, as the successful party, but that its success was not decisive for costs purposes (it being open to the Judge to have found that costs on the quantum phase of the proceeding should lie where they fall).[35] That outcome reflected the successful party’s costs entitlement being reduced to zero given its unreasonable conduct, rather than it being treated as the losing party.
[35]Water Guard NZ Ltd v Midgen Enterprises Ltd, above n 29, at [17].
Finally, we do not agree that as a matter of policy, Oraka ought to be in a worse costs position than the plaintiff in Water Guard. Each case must be considered on its own merits, against the applicable costs principles. Reference to broader (and ultimately subjective) notions of policy or fairness risks undermining the principled approach to costs reflected in the High Court costs regime.
This ground of appeal fails.
Did the Judge err in her treatment of the 2015 offer?
The key terms of the offer are set out at [12] above. While accepting that the effect of the 2015 offer was for the benefit of all defendants, the Judge noted that it was not expressly made on behalf of Geostel.[36] While not reaching a final view on the point, the Judge recorded that she was therefore inclined to agree with Oraka that on a plain reading of r 14.11 of the High Court Rules 2016 (the terms of which are set out at [43] below), a party is entitled to costs after a qualifying offer is made only if that party actually makes the offer.
[36]Judgment under appeal, above n 1, at [16].
The Judge found as determinative, however, that it was not unreasonable for Oraka to have rejected the offer at the time it was made, given Oraka had been successful before this Court on liability and in 2015 was claiming a much larger sum than that offered. The Judge observed that while Oraka ultimately obtained much less, it did obtain two judgments in excess of $500,000 following the 2015 offer.[37] The Judge accordingly concluded that the 2015 offer did not entitle Geostel to costs on all subsequent steps. She did, however, take it into account in reaching her overall conclusion that costs of the second damages hearing ought to lie where they fall.[38]
Submissions
[37]This was a reference to the 2016 High Court judgment quantifying damages at $4.1 million (Oraka Technologies Ltd v Geostel Vision Ltd, above n 16) and the 2018 High Court judgment determining quantum at $510,000 (OrakaTechnologies Ltd v Geostel Vision Ltd, above n 4).
[38]Judgment under appeal, above n 1, at [25].
In its written submissions, Geostel argued that despite it not being the party that made the 2015 offer, the offer nevertheless fell within the scope of r 14.11 for the purposes of determining costs as between it and Oraka. In his oral submissions, however, Mr Glover (counsel for Geostel) accepted that given Geostel did not make the 2015 offer, the offer did not fall within the strict ambit of rr 14.10 and 14.11. Geostel nevertheless submits that the offer was relevant under the Court’s general discretion pursuant to r 14.1 as a situation “not contemplated by the rules, or … not fairly recognised by them”.[39] Given the 2015 offer was plainly for the benefit of Geostel and was for an amount considerably higher than the damages ultimately awarded to Oraka, Geostel says that it should be awarded costs on all steps following the offer being made.
[39]Geostel refers to Wheeldon v Body Corporate 342525 [2016] NZHC 862 at [11], cited with approval in Smith v Smith [2020] NZCA 556 at [66].
Oraka says the Judge did not err in relation to the 2015 offer. The offer was not an offer made by Geostel and so did not fall within the scope of r 14.11. Further, it was not unreasonable for Oraka not to have accepted the offer at the time it was made. As the Judge noted, Oraka had a liability finding in its favour and all parties were proceeding on the basis that the claim was one for damages, rather than for a notional licence fee. Oraka had calculated its losses to be $4.1 million and the defendants had not put forward any evidence at that point to dispute the quantum of the claim. Oraka further notes that the offer advanced no reasons why the claimed quantum was unreasonable, and instead was simply a pragmatic offer based on alleged solvency issues.
Analysis
It is helpful first to set out the relevant rules, being rr 14.10 and 14.11.
Rule 14.10 provides as follows:[40]
14.10Written offers without prejudice except as to costs
(1)A party to a proceeding may make a written offer to another party at any time that—
(a)is expressly stated to be without prejudice except as to costs; and
(b)relates to an issue in the proceeding.
(2)The fact that the offer has been made must not be communicated to the court until the question of costs is to be decided.
[40]We will refer to an offer that falls within the scope of r 14.10 as a “qualifying offer”.
Rule 14.11 then addresses the effect on costs of a qualifying offer:
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.
Subject to the discretion contained in r 14.11(1),[41] r 14.11(3) provides a presumptive entitlement to costs on all steps following the making of a qualifying offer that meets the requirements of r 14.11(3). Given the effect of this rule is to reverse the otherwise fundamental principle that costs follow the event, the combined effect of rr 14.10 and 14.11 is to create a prescribed set of circumstances in which that principle may be displaced. In this context, Mr Glover’s concession that because Geostel did not make the 2015 offer, that offer does not qualify as an offer for the purposes of rr 14.10 and 14.11 (at least when determining costs as between Geostel and Oraka) was a proper one.
[41]Rule 14.11 not being one of those rules expressly subject to the discretion in r 14.1(1); see r 14.1(2).
We do not accept Geostel’s alternative position that the 2015 offer should nevertheless entitle Geostel to costs on all subsequent steps pursuant to the High Court’s primary discretion in r 14.1(1). As noted earlier, that discretion must be exercised in a principled manner, reflecting the costs regime set out in rr 14.2 to 14.10. Nowhere in that regime is it envisaged that, other than in circumstances in which rr 14.10 and 14.11 apply, an unsuccessful party will be entitled to costs. Rather, the 2015 offer fell to be considered by reference to r 14.7(f)(v), namely reducing or refusing costs otherwise payable to the successful party on the basis that that party failed, without reasonable justification, to accept an offer of settlement.
We consider that the Judge’s finding that it was not unreasonable for Oraka to have rejected the 2015 offer at the time it was made was a finding open to her in the circumstances of this case. Oraka subsequently received two substantial damages awards in the High Court, in amounts of $4.1 million and $510,000 respectively.[42] Those sums were ultimately set aside and a much smaller sum substituted. Nevertheless, the fact that the High Court on two successive occasions awarded damages in an amount in excess of the 2015 offer suggests that Oraka’s view at the time the offer was made that it had prospects of obtaining more than the amount offered, was not wholly fanciful or unrealistic. Further and in any event, the 2015 offer was a matter expressly taken into account by the Judge in reducing Oraka’s costs entitlement on the second damages hearing to zero.
[42]Oraka Technologies Ltd v Geostel Vision Ltd, above n 16; and OrakaTechnologies Ltd v Geostel Vision Ltd, above n 4.
This ground of the appeal also fails.
Did the Judge err in her treatment of the 2017 offer?
The Judge did not consider that r 14.11 applied to the 2017 offer, stating that:[43]
Geostel did not offer “a sum of money” in terms of the rule but a set-off of a debt over which it had taken an assignment unrelated to the copyright claims.
[43]Judgment under appeal, above n 1, at [18].
The Judge said that she did not consider it was clear in 2017 that the set-off would have been of greater benefit to Oraka than a judgment, and further observed that “for the reasons already set out above” (which we take to be a reference to her reasoning in relation to the 2015 offer), it was not unreasonable for Oraka to have rejected the offer.[44] The Judge further observed that the 2017 offer was made very late, giving Oraka only two days to consider it in the week immediately preceding the second damages hearing. The Judge accordingly concluded that this offer also did not entitle Geostel to costs on all subsequent steps. As with the 2015 offer, however, she nevertheless took it into account when concluding that costs of the second damages hearing ought to lie where they fall.[45]
Submissions
[44]At [18].
[45]At [25].
Geostel says that it ought to have been awarded costs on all steps following the 2017 offer, given the offer comprised real value for Oraka. It says that the proposed agreement not to enforce an earlier debt qualified either as a “sum of money” for the purposes of r 14.11(3)(a), or “an offer that would have been more beneficial to party B than the judgment obtained by party B against party A” for the purposes of r 14.11(3)(b). Geostel says that the Judge was accordingly wrong to conclude that r 14.11 did not apply. It further submits that the Judge was plainly wrong in finding that Oraka’s rejection of the offer was reasonable because it subsequently obtained a judgment in excess of the value of the offer. Geostel again emphasises that the High Court’s 2018 damages award was later set aside by this Court and damages of only $47,000 (plus interest) were awarded. Geostel further submits that the timing of the 2017 offer ought not to have disqualified the offer from having any effect for the purposes of r 14.11, given it was made within a matter of days of Oraka’s expert evidence on quantum being served.
Geostel further submits that by making the offer, it did its best to avoid a trial that was uneconomic for all parties, particularly given Oraka failed to comply with this Court’s direction that the second damages hearing proceed on the basis of user principle damages. Geostel emphasises this Court’s later observation that Oraka’s evidence on quantum at the second damages hearing was a “thinly disguised” attempt to have quantum established on a loss of profits basis.[46]
[46]Geostel Vision Ltd v Oraka Technologies Ltd, above n 5, at [142].
Oraka, on the other hand, says that the Judge did not err in exercising her discretion not to award costs to Geostel for steps taken after the 2017 offer was made. It refers to the fact that the 2017 offer did not offer a sum of money, but rather an agreement not to enforce a 2001 judgment unconnected with the copyright proceeding. In those circumstances, Oraka says that it was not at all unreasonable for it to have disregarded the offer when considering whether to proceed with its damages claim. Oraka further submits that it was not clear in 2017 that the proffered set-off would have been of greater benefit to Oraka than a money judgment and the fact that, initially at least, it obtained a High Court judgment for a significantly greater amount confirms it was not obviously unreasonable for it to have rejected the offer at the time. Finally, Oraka points to the very late stage at which the offer was made, Oraka only having two working days in the week immediately prior to trial to consider it.
Standing back, Oraka says that taking the offer into account as one of a number of factors leading the Judge to conclude that costs should lie where they fall was an outcome well within the Judge’s discretion.
Analysis
The 2017 offer was made by Geostel and was expressly stated to be without prejudice save as to costs. It was therefore a qualifying offer for the purposes of r 14.10. The offer did not comprise an offer to pay a sum of money for the purposes of r 14.11(3)(a). We accept, however, that it would have been open to the Judge to conclude that the offer was one that would have been more beneficial to Oraka than the judgment it ultimately obtained. The effect on costs of a qualifying offer nevertheless remains at the Court’s discretion; such an offer does not afford automatic protection from costs in the event of a lower recovery. All relevant circumstances must be considered.[47]
[47]Gauld v Waimakariri District Council [2014] NZHC 956 at [24]–[28], upheld on appeal in Waimakariri District Council v Gauld [2015] NZCA 200.
In the circumstances of this case, we do not consider the Judge was bound to conclude that the effect of the 2017 offer was to reverse the incidence of costs. To put the point another way, we do not consider the Judge erred in the sense outlined at [26] above in not adopting that approach. The offer was not for a sum of money, which would have provided greater clarity as to its value and benefit. Further, the suggested value of the offer was not very significantly greater than that ultimately achieved by Oraka and was substantially less than the High Court’s 2018 damages award of $510,000 (plus interest). Further, and as the Judge noted, the offer was made very late and with very limited time for Oraka to consider it. Finally, the Judge did not ignore the effect of the offer. Like the 2015 offer, it was expressly taken into account by her as one of a number of factors when concluding that costs on the second damages hearing ought to lie where they fall.
For these reasons, we do not consider the Judge erred in exercising her discretion in relation to the 2017 offer. This ground of the appeal also fails.
Can, and if so, should this Court adjust the 2013 costs award?
Geostel relies on r 14.13, which provides that, unless the High Court otherwise directs, costs payable to a successful plaintiff must not exceed the costs and disbursements that the plaintiff would have recovered in the District Court if the proceeding could have been brought there. Geostel says that these proceedings could have been brought in the District Court, as that Court has jurisdiction in relation to copyright infringement claims[48] and the quantum of damages ultimately awarded falls within the District Court’s jurisdiction. Geostel therefore seeks an order from this Court that Oraka pay Geostel an amount of $68,774.67, being the difference between the costs and disbursements Geostel paid pursuant to the 2013 costs award and the amount that would have been payable at the applicable District Court rates (plus interest).
[48]Geostel submits that both the District Court and High Court have jurisdiction over copyright infringement claims, citing Earl Gray Intellectual Property Law (online ed, LexisNexis) at [COP120.3A].
Geostel accepts that the Court may be reluctant to revisit costs so long after the event but says that it was only following this Court’s decision in 2020 awarding damages of $47,000 that it became apparent that these proceedings could have been brought in the District Court. Geostel also accepts that, procedurally, it is not possible to vary the 2013 costs award. It nevertheless submits that:
… the Court, in exercising its discretion, should make an award to reflect that [Oraka] received more than should have been the case and would otherwise receive a significant windfall at the expense of [Geostel] but through no fault of [Geostel].
In this context, Geostel points to Oraka’s constantly shifting claim, the modesty of the ultimate damages award and Oraka’s poor behaviour generally in the pursuit of its damages claim.
We can deal with this point briefly.
There is no jurisdictional basis for this Court to make the award as sought. The present appeal concerns the Judge’s determination of costs of the second damages hearing. For obvious reasons, the judgment under appeal made no findings or orders in relation to the 2013 costs award and that award similarly does not feature in Geostel’s notice of appeal. Geostel cannot, by the back door, seek to challenge the 2013 costs award that it did not appeal at the time.
Further and in any event, the 2013 costs award is irrelevant to the question of costs of the second damages hearing. Had the Judge taken that award into account when fixing the costs of the second damages hearing, Oraka would have been on firm ground to submit that the Judge erred in the sense described at [26] above, having taken into account an irrelevant consideration. For the same reason, it would be quite wrong for this Court to somehow adjust the 2013 costs award in the context of the present appeal.
This aspect of Geostel’s appeal also fails.
Decision
We have some sympathy for Geostel. It (and NTD) faced an inflated and, as it transpired, misguided damages claim. Nevertheless, costs of the second damages hearing must be approached on a principled basis, rather than by reference to broad notions of fairness.
We reiterate the point made at the outset of this judgment, namely that both parties’ alternative submission in the High Court was that a proper outcome would be for the costs of the second damages hearing to lie where they fall. In that context, it is difficult to see how such a result falls outside the scope of the Judge’s discretion.
For the reasons given, the Judge did not err in the exercise of her discretion. Geostel’s appeal must therefore be dismissed.
Result
The appeal is dismissed.
The appellants are jointly and severally liable to pay the respondents one set of costs for a standard appeal on a band A basis and usual disbursements.
Solicitors:
Malloy Goodwin Harford, Auckland for Appellants
Tompkins Wake, Hamilton for Respondents
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