High Quality Limited v Eco Cubes Limited
[2023] NZHC 3424
•29 November 2023
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE
CIV-2021-404-2464
[2023] NZHC 3424
UNDER the Copyright Act 1994 and the Fair Trading Act 1986 BETWEEN
HIGH QUALITY LIMITED
Plaintiff
AND
ECO CUBES LIMITED
First Defendant
AND
BLAINE THOMAS MAIHI RAKENA
Second Defendant
AND
APRIL HU JIANG
Third Defendant
Hearing: On the papers Representation:
J R Wach & J R Rowland for plaintiff
D Zhang & E Tie for first and second defendants No appearance by or for third defendant
Judgment:
29 November 2023
JUDGMENT OF JOHNSTONE J
(Costs)
This judgment was delivered by me on 29 November 2023 at 3pm pursuant to r 11.5 of the High Court Rules.
Registrar/Deputy Registrar
Solicitors:
James & Wells, Auckland Integritas Law, Auckland
HIGH QUALITY LTD v ECO CUBES LTD [2023] NZHC 3424 [29 November 2023]
[1] In this proceeding, High Quality Limited sues Eco Cubes Limited, Blaine Rakena, and April Jiang for breach of its copyright. A substantive five-day trial is set to commence on 29 July 2024.
[2] In late November 2022, High Quality sought particular discovery from all three defendants. And in January 2023, Eco Cubes sought particular discovery from High Quality. These discovery applications were resolved, but not until July 2023. The defendants had failed to meet various timetable orders.
[3] This judgment deals with the issue of costs payable in respect of both applications. I am required to consider the question of which party was successful in respect of Eco Cubes’ application. And whether reduced, increased or indemnity costs should be awarded.
[4]First, I will set out some of the background.
Background
[5] Associate Judge Sussock issued the first judicial direction on discovery, by minute dated 12 December 2022. The Judge directed Eco Cubes to file its discovery application with supporting affidavits, and any notice of opposition to High Quality’s discovery application, by 22 December 2022. In doing so, Associate Judge Sussock declined High Quality’s application for “unless orders”, instead noting that the “dates are to be strictly complied with”. But it was clear the Judge considered there was some cause for concern that Eco Cubes and both of the other defendants (at that stage all jointly represented by counsel) had not been responding to judicial direction promptly. A half-day discovery hearing was fixed for 18 April 2023.
[6] In breach of Associate Judge Sussock’s direction, Eco Cubes did not file its discovery application, and the three defendants did not file their opposition to High Quality’s application, until 16 January 2023.
[7] The next relevant judicial direction was that of Moore J on 5 April 2023. The defendants had filed a memorandum seeking adjournment of the discovery hearing, because their former counsel had withdrawn, and the defendants were now self-
represented. High Quality accepted that it would be appropriate to adjourn the hearing but noted the defendants’ further non-compliance.
[8] Justice Moore expressed disappointment at the defendants’ conduct but granted the adjournment, re-fixing the discovery hearing for Thursday, 20 July 2023, and re- timetabling the defendants’ submissions as follows:
(a)Eco Cubes’ synopsis supporting its discovery application “no later than” 5 pm on Tuesday, 11 July 2023; and
(b)the defendants’ synopses in opposition to High Quality’s application “no later than” 5 pm on Monday, 17 July 2023.
[9] By 7 June 2023, Eco Cubes and Mr Rakena were represented, but in breach of Moore J’s revised timetable. Eco Cubes did not file its synopsis by 11 July 2023. High Quality filed a memorandum.
[10] On 13 July 2023, Moore J directed Eco Cubes to provide its synopsis in support of its discovery application by midday on 17 July, and maintained the previous direction that Eco Cubes and the other defendants were to provide their synopses in opposition to High Quality’s discovery application by 5 pm on 17 July 2023. Likely unbeknownst to Moore J, Eco Cubes and Mr Rakena had filed a memorandum earlier on 13 July 2023, indicating that they considered High Quality’s response to its application sufficient, and that they were willing to discover the material the subject of High Quality’s application, subject to redaction.
[11]Be that as it may, Moore J added to his revised directions that:1
[9] If those deadlines are not met, I direct that counsel and the defendants are to appear in person before the Duty Judge on Tuesday, 18 July 2023 at 10:00 am to explain why orders of this Court have been successively breached and to consider what sanctions should be imposed. Those sanctions will, necessarily, include indemnity cost awards, debarring from participation in the applications and, conceivably, contempt of Court.
1 High Quality Ltd v Eco Cubes Ltd HC Auckland CIV-2021-404-2464, 13 July 2023.
[12] Eco Cubes did not provide a synopsis in support of its discovery application. Instead, its counsel filed a memorandum on 17 July 2023 confirming that High Quality had discovered what had been sought, and that:
If a formal withdrawal of [Eco Cubes’] application is necessary, [Eco Cubes] withdraws it.
[High Quality] no doubt will press on costs for [Eco Cubes’] application, and [High Quality’s] own application. That can be dealt with together after the applications themselves are disposed of.
[13] And in respect of High Quality’s discovery application, counsel for Eco Cubes and Mr Rakena filed a second 17 July 2023 memorandum, proposing that that matter should be regarded as resolved, following the contemporaneous filing of an affidavit of redacted documents.
[14] On 18 July 2023, at a hearing convened before me as duty Judge due to Eco Cubes’ non-compliance, I declined its request to withdraw its discovery application, instead dismissing it. And, because High Quality sought an opportunity first to consider the redacted affidavit, I left the balance of the 20 July 2023 discovery fixture in place.
[15] By joint memorandum dated 19 July 2023, the parties sought consent orders granting High Quality’s discovery application, establishing a mechanism for confirmation that discovery had been provided, and vacating the 20 July 2023 discovery fixture. Justice Venning granted those orders.2
[16] The parties have filed multiple costs memoranda, addressing both High Quality’s discovery application, and Eco Cubes’ discovery application. I will outline the parties’ submissions sequentially.
2 High Quality Ltd v Eco Cubes Ltd HC Auckland CIV-2021-404-2464, 19 July 2023.
High Quality submissions
Eco Cubes’ discovery application
[17] High Quality submits that it should be regarded as the party that succeeded upon Eco Cubes’ discovery application. High Quality says that upon Eco Cubes’ application it promptly responded, resulting in the provision of drawings not previously requested, and that the application was not then withdrawn as it should have been. Instead, it was dismissed following Eco Cubes’ failure to advise its position until 13 July 2023.
[18] High Quality submits the appropriate 2B scale costs are $4,541. However, it submits that increased costs would be warranted because the defendants have:3
… contributed unnecessarily to the time or expense of the proceeding or step in it by:
(i)Failing to comply with these rules or with a direction of the court; or
(ii)Taking or pursuing an unnecessary step or an argument that lacks merit; or
(iii)Failing, without reasonable justification, to admit facts, evidence, documents, or accept a legal argument.
[19] High Quality submits that the following failures would justify a 50 per cent uplift under this rule:
(a)Eco Cubes filed its interlocutory application in breach of Associate Judge Sussock’s 12 December 2022 timetabling direction which was to be “strictly complied with”.
(b)Eco Cubes sought categories of documents that High Quality had already advised on multiple occasions no longer existed.
(c)No informal request for documents was made prior to the discovery application. Had this happened, High Quality would have provided the drawings soon after it did.
3 High Court Rules 2016, r 14.6(3)(b).
(d)By 29 January 2023, Eco Cubes was in receipt of an affidavit confirming that the majority of documents did not exist, and providing the documents that had not previously been requested.
(e)Eco Cubes then arranged a new fixture for its unnecessary discovery application, and proceeded to breach Moore J’s new timetabling order of 5 April 2023, by failing to file its synopsis in support by 11 July 2023.
[20] High Quality further submits that the fact Eco Cubes must, from 29 January 2023, have known its application was unnecessary would justify indemnity costs. The claimed indemnity costs amount to $15,632.50, plus GST of $2,345.50.
High Quality’s discovery application
[21] High Quality submits that its own discovery application succeeded. It says that, despite the small number of documents obtained, the defendants were forced to comply by providing them, and self-evidently the application was necessary.
[22] High Quality submits the appropriate 2B scale costs would be $7,170. However, it relies on similar grounds as outlined in respect of Eco Cubes’ discovery application for increased or indemnity costs.
Defendants’ submissions
Eco Cubes’ discovery application
[23] Eco Cubes submits that it should be considered the successful party because its discovery application resulted in the provision of at least some documents. On this basis, High Quality would not be entitled to a costs award. However, accepting its failures to comply with judicial directions, Eco Cubes does not seek costs as the successful party.
[24] Eco Cubes submits if the Court does award costs to High Quality, they should be, at most, scale costs. There is no basis for increased or indemnity costs, because:
(a)Although it did not make an informal request for documents prior to filing the application, its prior failure to meet the 12 December 2022 direction by Associate Judge Sussock meant that doing so may only have exacerbated matters.
(b)Although High Quality had communicated, informally, that items sought did not exist, it was not until after Eco Cubes’ application was filed that an affidavit was served confirming this. In the same vein, High Quality should simply have filed this affidavit rather than a notice of opposition.
(c)The 16 January 2023 application for discovery and opposition to discovery were only two working days late, being due on 22 December 2022.4 Further, a clerical error in another matter had a “domino effect” resulting in this matter being delayed. This was explained to the plaintiff in a letter. Such a minor breach with a reasonable explanation should mean that no increase is warranted.
[25] Eco Cubes opposes costs being awarded for the period after 13 July 2023. On that day, it filed a memorandum confirming it was satisfied with High Quality’s discovery. Formal withdrawal was not necessary.
High Quality’s discovery application
[26]Eco Cubes and Mr Rakena submit that reduced costs are appropriate because:
(a)They reasonably denied discovery of certain employment-related documents, first believing them to be in High Quality’s possession already and then until related proceedings in the Employment Court were concluded.
(b)The so-called awning pole documents were provided, albeit without associated metadata, following informal request. Eco Cubes’
4 See, above, at [5]–[6].
opposition to High Quality’s application for the metadata was correctly based on the fact it did not possess it, albeit Eco Cubes did not explain why.
(c)The identification documents were initially denied because they were described as “infringing” documents, a description they were disinclined to accept.
[27] Eco Cubes further submit there is no basis for an award of increased or indemnity costs. Their conduct does not reach the high threshold of “flagrant”. They rely on the same grounds stated in respect of Eco Cubes’ discovery application as to delay that was their fault. Further, their opposition to High Quality’s discovery application was not unreasonable.
[28] Ms Jiang’s position is unknown, as she has not taken steps in the proceeding, notwithstanding her opposition to High Quality’s application, since original counsel was disinstructed.
Legal principles
[29] The starting point is that costs follow the event. The party who fails should pay costs to the party who succeeds.5 In cases where each party has achieved some degree of success the authority is somewhat divergent. The learned authors of Law of Costs in New Zealand describe the divergence:6
One stream of authority has its origins in the 2003 Court of Appeal decision in Packing In Ltd (in liq) v Chilcott.7 … [The Court of Appeal] held that in cases where parties had similar levels of success, the starting point was to consider how much time had been spent dealing with each of the issues and any other relevant matters as part of an overall endeavour to do justice to both sides in the circumstances of the case.8 Success or failure was best assessed by a realistic appraisal of the end result, rather than an absolute approach which would have perverse effects for the parties.9
…
5 High Court Rules 2016, r 14.2(1)(a).
6 David Bullock and Tim Mullins The Law of Costs in New Zealand (Lexis Nexis, Wellington, 2022) at [2.3]–[2.5].
7 Packing In Ltd (in liq) v Chilcott (2003) 16 PRNZ 869 (CA).
8 At [5].
9 At [6].
The second stream begins more than a decade after Chilcott, with the 2017 decision of the Court of Appeal in Water Guard NZ Ltd v Midgen Enterprises Ltd.10 … the Court held that the unsuccessful party was ‘the party which was adjudged liable to pay money to the other’, and that the successful party did not lose that status merely because most of its claims failed.11 However, that failure would normally provide a basis upon which to reduce costs.
The Court of Appeal reinforced this ‘absolute’ approach a few months later in Weaver v Auckland Council.12 The Court in Weaver preferred the view that ‘success on more limited terms is still success’, and that it was a simple case of the party that failed being required to pay costs to the party that succeeded, albeit with a reduction in half the costs entitlement, being appropriate to reflect the extent of the plaintiffs’ failure.13
The reasoning in Waterguard and Weaver has been applied extensively in the High Court in the years that have followed,14 despite neither of those decisions purporting to overrule Chilcott. It is also doubtful that the divisional court in Weaver could have overruled the earlier decision of the permanent court
…
The authors’ view is that the principle in Weaver and Water Guard is a useful presumption or starting point in a money claim, but that it may not be applicable in other claims (Middeldorp was a judicial review), and it may be displaced even in money claims where, upon a realistic appraisal, it is clear that the defendant was the successful party overall. If an absolute approach is to be the way of the future, then that should be clearly stated in the High Court Rules.
[30] I respectfully agree that the correct approach in determining success for costs requires realistic appraisal.
Increased costs
[31] Rule 14.6 provides for orders to pay increased costs. Various circumstances in which the Court may make such orders are listed at r 14.6(3). The Court may order increased costs against a party who has contributed unnecessarily to the time or expense of the proceeding:
(a)by failing to comply with these rules or with a direction of the Court;15 or
10 Water Guard NZ Ltd v Midgen Enterprises Ltd [2017] NZCA 36.
11 At [13].
12 Weaver v Auckland Council [2017] NZCA 330.
13 At [26].
14 [Citations omitted].
15 Rule 14.6(3)(b)(i).
(b)by failing, without reasonable justification, to comply with an order for discovery, a notice for further particulars, a notice for interrogatories, or other similar requirement under these rules;16 or
(c)where some other reason exists which justifies the Court making an order for increased costs despite the principle that the determination of costs should be predictable and expeditious.17
[32] The threshold for such a departure is unreasonable conduct by the party opposing costs.18 That conduct must be in relation to the proceeding.19 An uplift will be justified to the extent the failure to act reasonably contributed to the time or expense of the proceeding.20 The party seeking increased costs bears the onus of convincing the Court they are justified.21
[33] When making an order for increased costs the Court uplifts from scale, rather than awarding a percentage of actual costs.22 This is usually calculated on a step-by-step basis. However, where they are awarded because an argument lacked merit and was inherently unlikely to succeed, increased costs apply to all steps.23
Reduced costs
[34] Rule 14.7 provides that the Court may reduce the costs otherwise payable in certain circumstances. The rule provides:
Despite rules 14.2 to 14.5, the court may refuse to make an order for costs or may reduce the costs otherwise payable under those rules if—
(a)the nature of the proceeding or the step in a proceeding is such that the time required by the party claiming costs would be substantially less than the time allocated under band A; or
16 Rule 14.6(3)(b)(iv).
17 Rule 14.6(3)(d).
18 Bradbury v Westpac Banking Corp [2009] NZCA 234, [2009] 3 NZLR 400 at [27].
19 See Paper Reclaim Ltd v Aotearoa International Ltd [2006] 3 NZLR 188 (CA) at [160].
20 Commissioner of Inland Revenue v Chesterfields Preschools Ltd [2010] NZCA 400, (2010) 24 NZTC 24,500 at [165].
21 Strachan v Denbigh Property Ltd HC Palmerston North CIV-2010-454-232, 3 June 2011.
22 Holdfast NZ Ltd v Selleys Pty Ltd (2005) 17 PRNZ 897 (CA) at [40].
23 NR v MR [2014] NZCA 623, (2014) 22 PRNZ 636 at [52]; and Broadspectrum (New Zealand) Ltd v Nathan [2017] NZCA 434, (2017) 15 NZELR 398 at [57].
(b)the property or interests at stake in the proceeding were of exceptionally low value; or
(c)the issues at stake were of little significance; or
(d)although the party claiming costs has succeeded overall, that party has failed in relation to a cause of action or issue which significantly increased the costs of the party opposing costs; or
(e)the proceeding concerned a matter of public interest, and the party opposing costs acted reasonably in the conduct of the proceeding; or
(f)the party claiming costs has contributed unnecessarily to the time or expense of the proceeding or step in it by—
(i)failing to comply with these rules or a direction of the court; or
(ii)taking or pursuing an unnecessary step or an argument that lacks merit; or
(iii)failing, without reasonable justification, to admit facts, evidence, or documents, or accept a legal argument; or
(iv)failing, without reasonable justification, to comply with an order for discovery, a notice for further particulars, a notice for interrogatories, or other similar requirement under these rules; or
(v)failing, without reasonable justification, to accept an offer of settlement whether in the form of an offer under rule 14.10 or some other offer to settle or dispose of the proceeding; or
(g)some other reason exists which justifies the court refusing costs or reducing costs despite the principle that the determination of costs should be predictable and expeditious.
[35] The party claiming reduction bears the burden of proving it. In the present case, the burden falls on the defendants to demonstrate that either the grounds on which High Quality was unsuccessful “significantly increased” their costs or that its application “lack[ed] merit”. The learned authors of Law of Costs in New Zealand express the following statement of principles:24
It is not the case that costs will be reduced simply because a successful party lost on some part of its case—a reduction is only appropriate where that issue ‘significantly’ increased the costs of the losing party. The court must make an assessment of how much preparation and hearing time was devoted to issues on which the successful party failed, although that will usually be a matter of
24 Bullock and Mullins, above n 6, at [3.37].
judgment and impression rather than precise arithmetical calculation.25 A matter that is minor, or that only involved additional limited legal submissions but not evidence, is unlikely to ‘significantly’ increase the costs of the losing party.26 However, where the successful party wins on a minor point and loses on matters taking up most of the evidence or hearing time, a reduction in costs may be quite material.27
The most relevant considerations are likely to include the extent of the evidence and written or oral submissions directed exclusively towards the unsuccessful argument or cause of action. Where a court finds that a losing point did not significantly increase costs, it might nevertheless find that the losing point lacked merit and caused unnecessary cost for the purposes of r 14.7(f)(ii).28
Eco Cubes’ discovery application
Successful party?
[36] I consider that High Quality should be regarded as the successful party to Eco Cubes’ discovery application. I accept that Eco Cubes achieved a measure of success. However, a realistic appraisal of success is necessary, and this favours High Quality for the following reasons:
(a)The application for discovery was never necessary. Eco Cubes did not make an informal request for the documents. Had they done so it is likely High Quality would have provided those documents promptly, as it did when the application was made. Eco Cubes submits that there was little time to make this informal request because the filing deadline had already passed. This is not an acceptable reason. The delay was entirely Eco Cubes’ fault.
(b)Eco Cubes did not accept informal communication that the bulk of the documents later sought by way of formal application were no longer held. There was no reason to not accept the informal communication. This compounds the failure to make an informal request for documents.
25 Semple v Wilson [2018] NZHC 1703 at [45]; and Savvy Vineyards 4334 Ltd v Weta Estate Ltd
[2018] NZHC 1771 at [43].
26 Middeldorp v Avondale Jockey Club Incorporated [2019] NZHC 1447 at [49]; and Zhao v He
[2020] NZHC 1048 at [18]–[19].
27 Weaver v Auckland Council, above n 12, at [26] (confirming the High Court’s reduction of costs by one-half).
28 See, for example, Ace Structural Ltd v Green [2019] NZHC 2094 at [36].
Parties in litigation should not treat discovery applications to the Court as inevitable. They should first attempt to resolve matters between themselves.
(c)In any event, High Quality provided an affidavit confirming its informal advice that certain documents were not held, and providing a single set of drawings that had not previously been discussed. The affidavit was provided in January 2023. At this point the application should have been withdrawn. Instead, months passed, and Eco Cubes only informed the Court and High Quality it was to withdraw its application after it missed Moore J’s explicit judicial direction.
(d)Owing to these various failures, I did not allow the application to be withdrawn and instead dismissed it.
Measure of costs
[37] Eco Cubes’ conduct might have warranted an award of increased or indemnity costs, had it not achieved some measure of success. However, that measure of success
— the provision of a document notwithstanding High Quality’s filing of a notice of opposition — means that the reversal of costs of itself is an adjustment of the usual position. I consider that an award to High Quality of 2B costs in respect of Eco Cubes’ application adequately reflects the adjustment required to take account of Eco Cubes’ conduct. I award High Quality 2B costs of $4,541.
High Quality’s discovery application
[38] High Quality is the successful party. I do not consider that there is any ground to reduce the award of costs to which it is entitled.
[39] The submissions for Eco Cubes and Mr Rakena referring to the parts of the discovery application which they submit were unnecessary and therefore warrant reduction are untenable. High Quality’s discovery application was granted by way of consent order. Each of the parts of the discovery application said to be “unnecessary” required the application to be pursued so that the question of necessity could be
resolved. In each case, opposition was either unnecessary or required additional explanation as to why discovery could not be provided.
[40] Indeed, I consider that there is a proper basis for an increase of scale costs. An initial fixture for High Quality’s application required to be re-fixed due to the defendants’ change of counsel. Despite new counsel being alerted to Moore J’s revised timetable, it was not until immediately prior to expiry of the direction for filing synopses in opposition to High Quality’s application, three days prior to the new fixture, that an affidavit and explanatory memorandum was offered, purportedly satisfying the application.
[41] However, I do not consider the uplift should be as much as the 50 per cent suggested by High Quality. The majority if not all of Eco Cubes’ non-compliance on discovery applications related to its own application, not this application by High Quality. Further, there is no proper basis for indemnity costs in respect of High Quality’s discovery application.
[42] In my view, a 25 per cent uplift is warranted for steps taken following 16 January 2023. I award scale costs of $7,170 with an uplift of 25 per cent of $1,434 for steps incurred after 16 January 2023 (totalling $8,604).
Result
[43]I award High Quality total costs in respect of both discovery applications of
$13,145. Of this sum, Eco Cubes is solely liable to pay $4,541. All three defendants are jointly and severally liable to pay the balance.
Johnstone J
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