Gilbert v Auror Limited
[2017] NZHC 1655
•18 July 2017
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
CIV-2017-404-000953 [2017] NZHC 1655
UNDER Rule 8.20 of the High Court Rules 2016 BETWEEN
BARBARA JOYCE GILBERT Applicant
AND
AUROR LIMITED First Respondent
TRADE ME GROUP LIMITED Second Respondent
PHILIP THOMAS THOMSON Third Respondent
On thepapers: Appearances:
D A Laurenson QC for Applicant
E Gray for First and Third Respondents
R Gordon for Second RespondentJudgment:
18 July 2017
COSTS JUDGMENT OF WOOLFORD J
This judgment was delivered by me on Tuesday, 18 July 2017 at 4:00 pm pursuant to r 11.5 of the High Court Rules.
Registrar/Deputy Registrar
Solicitors/Counsel:
D A Laurenson QC, Wellington/McCabe and Company, Wellington
Simpson Grierson, Auckland
Minter Ellison Rudd Watts, Wellington
GILBERT v AUROR LIMITED & ORS [2017] NZHC 1655 [18 July 2017]
Introduction
[1] The first and third respondents seek indemnity costs in relation to an interlocutory application for pre-commencement discovery, which was withdrawn before hearing. The applicant opposes indemnity costs, but acknowledges that scale costs on a 2B basis are properly payable.
Background
[2] By way of background, the applicant had produced detailed specifications for a petrol theft and non-payment response system by late May 2013. The system was a product of a number of years of research and interaction with the petrol industry dating back to her time as a contractor of the Ministry of Transport where she worked on the motor vehicle register. By the time the applicant developed the specifications for her system in May 2013 there were no other similar systems in the New Zealand marketplace.
[3] Between February and late June 2013 the applicant worked with a potential joint venture partner, Motorweb. Motorweb engaged with the New Zealand Police about trialing the applicant’s system in petrol stations in the South Auckland area, specifically the Counties Manukau Police District. The applicant and Motorweb’s relationship ended in late June 2013 when Motorweb told the applicant that it did not wish to pursue the business opportunity offered by the applicant’s system. Motorweb was then sold to TradeMe, the second respondent. The founder of TradeMe is an adviser to and investor in the first respondent.
[4] The first respondent currently provides a petrol theft and non-payment response system to petrol stations. On the basis of publicly available information it appeared to the applicant that the first respondent had trialed the system in late 2013 in the Counties/Manukau area at Z Energy petrol stations. Through public statements and responses to requests under the Official Information Act 1982, the applicant was able to confirm that the Police were involved in this trial.
[5] The applicant also reviewed publicly available information on the first
respondent’s system and compared it with her own system. She identified significant
similarities between the two systems, not just in broad concept, but in the implementation of specific aspects of her system.
[6] The applicant formed the view that the first respondent must have had access to and utilised the detailed specifications she had prepared in breach of copyright in her system. She thought an action for breach of copyright was justified, but did not know just how the first respondent had obtained her confidential information. She therefore filed an application for pre-commencement discovery in the High Court at Auckland on 15 May 2017. It was allocated a first call of 8 June 2017. A notice of opposition together with an affidavit sworn by the third respondent was filed on 2
June 2017. On 8 June 2017, the application was allocated a half day fixture at 10.00 am on 5 July 2017. By memorandum dated 22 June 2017, the applicant advised the Court that as a result of reviewing and making further enquiries in relation to the third respondent’s affidavit, the applicant had decided to withdraw her application. Counsel advised the Court that the fixture could therefore be vacated and suggested that the issue of costs could be dealt with on the papers. Submissions have now been filed by both the applicant and the first and third respondents as to costs. The second respondent does not seek costs.
Discussion
[7] This is a somewhat unusual situation. On the one hand, I am of the view that the applicant had reasonable grounds to suspect that her confidential information had been used in some way by the first and third respondents. Without evidence from the first and third respondents, a judge could have held that it appeared that the applicant may be entitled to claim relief against the first and third respondents – which is the standard to be applied under r 8.20 of the High Court Rules 2016, which governs application for pre-commencement discovery.
[8] On the other hand, the affidavit subsequently sworn by the third respondent clearly shows that the applicant’s confidential information had not been utilised and that the first respondent had developed its own petrol theft and non-payment response system quite independently. There are a number of similarities in the different systems, but in hindsight they are explicable by the specific nature of the
problem (petrol station drive-offs and UTPs, or customers unable to pay) and the technology available to address it.
[9] The interlocutory application for pre-commencement discovery was therefore bound to fail if it had gone to a hearing. The application was, however, responsibly withdrawn after receipt of the sworn affidavit.
[10] In Bradbury v Westpac Banking Corp the Court of Appeal commented on the three broad approaches to costs as follows:1
[27] The distinction among our three broad approaches - standard scale costs, increased costs, and indemnity costs - may be summarised broadly:
(a) standard scale applies by default where cause is not shown to depart from it;
(b) increased costs may be ordered where there is failure by the paying party to act reasonably; and
(c) indemnity costs may be ordered where that party has behaved either badly or very unreasonably.
[11] At paragraph [28] the Court of Appeal reiterated its view that indemnity costs are exceptional and required exceptionally bad behaviour. The misconduct must be “flagrant”.
[12] The actual rule relating to indemnity costs is r 14.6(4). It provides:
14.6 Increased costs and indemnity costs
…
(4) The court may order a party to pay indemnity costs if—
(a) the party has acted vexatiously, frivolously, improperly, or unnecessarily in commencing, continuing, or defending a proceeding or a step in a proceeding; or
(b) the party has ignored or disobeyed an order or direction of the court or breached an undertaking given to the court or another party; or
(c) costs are payable from a fund, the party claiming costs is a necessary party to the proceeding affecting the fund, and the party claiming costs has acted reasonably in the proceeding; or
(d) the person in whose favour the order of costs is made was not a party to the proceeding and has acted reasonably in relation to it; or
(e) the party claiming costs is entitled to indemnity costs under a contract or deed; or
(f) some other reason exists which justifies the court making an order for indemnity costs despite the principle that the determination of costs should be predictable and expeditious.
[13] The situations listed in r 14.6(4)(c) to (e) are not related to behaviour. Apart from these, indemnity costs may be ordered only if a party has acted either badly or very unreasonably.
[14] In the present case, the first and third respondents rely on r 14.6(4)(a). The Court of Appeal stated that the word “unnecessarily” in r 14.6(4)(a) takes its meaning and flavour from the adverbs which proceed it “vexatiously, frivolously, improperly”.2
[15] Vexatious in this context means instituted without sufficient grounds serving only to cause annoyance to a defendant. Frivolous means characterised by a lack of seriousness, while improper means not in accordance with propriety of behaviour. Unnecessary means not essential or needless, but must, in my view, include at least an element of wilfulness.
[16] The first and third respondents submit that the application did not have a substratum of fact that could lead to the real possibility of the existence of a claim and the applicant should have been well aware of that.
[17] In my view, the applicant was not aware of it. She brought the application in good faith and obviously on the advice of able and experienced counsel who were well aware of the standard required for an application for pre-commencement discovery. She drafted and filed a comprehensive 28 page affidavit, annexing 283 pages of exhibits, which included a draft statement of claim, which properly acknowledged the lack of information needed to plead the particulars of disclosure to the first respondent of the applicant’s confidential information.
[18] The first and third respondents are also critical of the applicant’s failure to engage with them once the application had been served. The third respondent first contacted the solicitors for the applicant by telephone on 25 May 2017, shortly after being served with the application. He sought a meeting which he says was refused by the solicitors for the applicant. The solicitors emailed the third respondent confirming their view that a meeting was premature, but inviting the third respondent to contact counsel if he was confused regarding the request for information.
[19] On 30 May 2017, solicitors instructed by the first and third respondents wrote to the solicitors for the applicant enclosing a draft affidavit (without exhibits) from the third respondent and required them to withdraw the application and undertake to reimburse the first and third respondents’ legal costs by 2 June 2017. The solicitors for the applicant responded by requesting a final sworn version of the third respondent’s affidavit to enable the applicant to consider her position further on a fully informed basis. The solicitors also suggested timetable orders to be made by consent when the application was first called on 8 June 2017. The solicitors for the first and third respondents responded suggesting alternative timetable orders, which were then agreed subject to one variation. Following timetable orders made by the Court by consent on 8 June 2017, the solicitors for the applicant advised the solicitors for the first and third respondents by letter dated 15 June 2017 that the application for pre-commencement discovery was to be withdrawn. Notice was given of the withdrawal three weeks after it was served and two weeks after receipt of the third respondent’s sworn affidavit.
[20] This cannot be considered to be acting vexatiously, frivolously, improperly, or unnecessarily. I am of the view that the applicant needed time to consider her position on a fully informed basis. Two weeks is not excessive.
Conclusion
[21] I have some sympathy for the first and third respondents as they have been subject to unjustified legal proceedings and are clearly out of pocket. On the other hand, the applicant did not act in bad faith or with intent to gain an advantage over a business competitor. I also note the decision in Pearson Australia Group Pty Ltd v
Rangitoto College in which an application for pre-commencement discovery did go to a hearing.3 The application was refused on the basis that the applicant’s case did not rise above the level of suspicion. In that case, 2B costs were awarded although it appears that indemnity costs may not have been claimed.
[22] In the present case, the application did not proceed to a hearing as it was responsibly withdrawn. In the circumstances, I am of the view that 2B costs are appropriate. I have regard to the principle in r 14.2 that so far as possible the determination of costs should be predictable and expeditious.
[23] There remains some dispute between the parties as to the proper extent of 2B costs. First, I note the difference between steps 23 and 38 in Schedule 3 Time Allocations, which relate to filing an opposition to an interlocutory application and filing a notice of opposition and supporting affidavits to an originating application. Although technically these proceedings were commenced by an interlocutory application, I am of the view that substantially more work was required to respond than in a normal interlocutory application. This is because the affidavit of the applicant included a draft statement of claim, which set out the basis for the substantive claim to be filed by her. This required some consideration and response by the first and third respondents when they filed their notice of opposition. In those circumstances, I am prepared to allow two days as under step 38, rather than
0.6 days under step 23.
[24] Second, although the memorandum for the mentions hearing by way of teleconference on 8 June 2017 was in fact physically filed by the solicitors for the applicant, it was also signed by the solicitors for the first and third respondents. In that sense, it was also filed by them. It certainly required consideration and prior discussion between the parties. In those circumstances, I am prepared to allow
0.4 hours under step 11.
3 Pearson Australia Group Pty Ltd v Rangitoto College [2016] NZHC 2603.
[25] I set out below the costs which are properly payable to the first and third
respondents by the applicant on a 2B basis:
Number Step
Allocation
Amount
$
23(38)
Filing opposition to interlocutory application
(and supporting affidavit)2.0
4,460.00
11
Filing memorandum for mentions hearing by way of teleconference 8 June 2017
0.4
892.00
12
Appearance at mentions hearing by way of teleconference 8 June 2017
0.2
446.00
11
Filing memorandum re costs timetable
22 June 2017
0.4
892.00
Total
6,690.00
Filing fee for notice of opposition
110.00
[26] Orders accordingly.
Woolford J
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