I-Health Limited v ISoft NZ Limited and another HC Ak CIV 2006-404-004502

[2009] NZHC 2428

IN THE HIGH COURT OF NEW ZEALAND

AUCKLAND REGISTRY

CIV 2006-404-004502

BETWEEN  I-HEALTH LIMITED

Applicant

ANDISOFT NZ LIMITED First Respondent

ANDISOFT GROUP PLC Second Respondent

Judgment:      31 July 2009

COST JUDGEMENT OF ASSOCIATE JUDGE H SARGISSON

This judgment was delivered by me on

31.07.09 at 11:30am, pursuant to

Rule 11.5  of the High Court Rules.

Registrar/Deputy Registrar

Date……………

Solicitors:

J Perry, Keegan Alexander, P O Box 999, Shortland Street, Auckland – [email protected] Nicola Penman-Chambers, Hesketh Henry, Private Bag 92093, Auckland – nicola.penman- [email protected]

I-HEALTH LIMITED V ISOFT NZ LIMITED AND ANOR HC AK CIV 2006-404-004502  31 July 2009

[1]      In this judgment I deal with an outstanding costs issue.

Background

[2]      The applicant, I-Health Ltd, wished to have discovery before commencing a proceeding it intended to bring against the first and second respondents, Isoft NZ Ltd and Isoft Group Plc, who were intended defendants.

[3]      For that purpose, I-Health filed applications for orders:

a)        Directing    the    first    and    second    respondents    to    make    pre- commencement discovery; and

b)Granting  leave  to  serve  the  discovery  application  on  the  second respondent by substituted service on the first respondent’s solicitors, Hesketh Henry, at their offices in Auckland.

[4]      The intended claim arose out of a contract between I-Health on the one hand and Isoft NZ and a related company in Australia on the other.   Under the contract, Isoft NZ and the Australian company were obliged to procure certain support from the  second  respondent,  Isoft  Group  Plc,  which  was  also  part  of  the  Isoft  group  of companies, to ensure that I-Health’s product was properly promoted to the market.

[5]      I-Health anticipated that the pre-commencement discovery application would elicit documentary evidence that would assist in formulating two intended causes of action based on deceit and breach of the Fair Trading Act 1986.  As the application disclosed,  I-Health  considered  it  could  not  formulate  its  intended  claim  properly without  the  benefit  of  seeing  documents  held  by  the  intended  defendant.  It  was concerned  that  if  it  proceeded  with  the  claim  it  would  be  so  broad  as  to  invite  a striking out application.

[6]      I-Health  served  Isoft  NZ  with  both  applications.  However,  because  Isoft Group  was  a  UK  company that  did  not  have  a  presence  in  New  Zealand  and  had declined to allow Isoft NZ to accept service on its behalf, I-Health wished to obtain the  Court’s  leave  to  serve  Isoft  Group  by means  of  substituted  service.  It  was  for

these purposes that it filed the application for substituted service to allow service on

Hesketh Henry.

[7]      The application was made in reliance on former rr 211 and 199 of the High

Court Rules and s 389(1)(d) of the Companies Act 1993.  Rule 211 (now re-enacted

in essentially the same terms in the new r 6.8) made provision for substituted service with leave where service of any document by any of the modes permitted or required under rules could not be effected.  Rule 199 (also re-enacted in essentially the same terms in the new r 6.13) provided for personal service in New  Zealand  on foreign corporations that, under  the rules, were allowed  to be served out of New  Zealand. The rule directed that such service must be effected in accordance with s 389. Section 389 governs service of documents in legal proceedings  on   overseas companies by service within New Zealand.  Sub-clauses (1)(a) – (c) and (e) provide for  modes of service by  delivery  to  certain  categories  of  individuals  in  specific circumstances  where  the  overseas  company  has  a  presence  in  New  Zealand  or  in accordance with an agreement with the overseas company. Sub-clause (1)(d) on the other hand provides for such service in accordance with directions given by a court having jurisdiction in the proceedings.  Section 389(2) provides that the methods in s 389 (1) are the only methods of service of documents on overseas companies in New Zealand.

[8]      Isoft  NZ  indicated  at  the  outset  that  it  wished  to  oppose  both  applications, chiefly on the ground that the Court lacked jurisdiction to grant leave to serve the pre-commencement discovery application on the  overseas  company, by service outside or  inside  of New  Zealand. It also  raised  concerns  about  the  far-reaching nature of the discovery that was sought. Isoft Group indicated that it did not submit to  the  jurisdiction  of the  New  Zealand  courts  and  gave  Hesketh  Henry  limited instructions for the purpose of advising the Court and I-Health, but it otherwise took no steps in respect of the applications.

[9]      There was no real dispute between I-Health and Isoft NZ. This meant that the “long  arm”  provisions  in  the  High  Court  Rules  (then  in  force)  that  provided  the means  by  which  jurisdiction  was  assumed  over  a  person  outside  of  New  Zealand territory, were not available to I-Health. The rules 219 and 220 (now re-enacted in

essentially the same terms by the new rr 6.27-6.29), provided for the assumption of jurisdiction by allowing service overseas in particular proceedings or by leave. In its application  as  to  service,  I-Health  noted  that  rr  219  and  220  were  not  available because of the interlocutory nature of the discovery application. The concession was appropriate as these provisions applied only to documents by which a proceeding or originating  application  was  commenced  –  see  Kroma  Colour  Prints  Ltd  v  Atco Controls Limited (2007) 18 PRNZ 510.  But rather than seeing that as a impediment to the court’s assuming jurisdiction over the intended overseas defendant, I-Health took the position that:

a)        Service  in  New  Zealand  by  substituted  service  under  r  211  was warranted because it had no other means of effecting service; and/or

b)        It was entitled to invoke the court’s jurisdiction by seeking directions

as to service in New Zealand under s 389(1)(d) and r 199.

[10]     Its  position  on  jurisdiction  was  set  out  in  the  grounds  of  the  substituted service application in the following way:

An  application  under  R  301  of  the  High  Court  Rules  is  an  interlocutory application.   Leave is therefore not required as Rules 219 and 220 refer to “proceedings”,  the  definition  of  which  specifically  excludes  interlocutory applications (Rule 3).

Rule 199 provides that service in New Zealand on foreign corporations must

be  in  accordance  with  section  389  of  the  Companies  Act  1993.    Section

389(1)(d) provides that service may be effected on an overseas company in New Zealand by serving it in accordance with any directions as to service given by the Court having jurisdiction to hear the matter.

Alternatively,  the  overseas  company  may  agree  how  service  should  be effected: Section 389(1)(e).   The second respondent has however instructed counsel for the first respondent that it is not authorised to accept service.

[11]     It is apparent that the reference to r 301 was an unintentional error. Rule 301 related to the Court’s power to order particular discovery against a non-party after a proceeding had  commenced. The discovery application made clear  that  it  was  an application made by an intended plaintiff who had yet to commence its proceeding against the two respondents or intended defendants. The relevant rule was therefore

r 299 (now re-enacted in essentially the same terms in the new r 8.22). It related to

the  Court’s  power  to  order  particular  discovery  before  the  commencement  of  the proceeding. Nothing turns on the error. Despite the error, it was common ground that a pre-commencement application was, for the purpose of the rules, to be treated as an interlocutory application. Indeed r 299 so provides in express terms.

[12]     Discussion took place between counsel on the issue of jurisdiction and they filed and exchanged memoranda.  It appeared that it would be necessary to allocate a fixture so that the application as to service could be heard on a defended basis and the question of jurisdiction fully argued. That question was deferred to a chambers hearing to allow counsel to confer on their respective arguments.

[13]     Shortly before the hearing I-Health withdrew the service application, together with  the  application  as  to  pre-commencement  discovery.  It  did  so  without  making any  concession  on  the  matter  of  jurisdiction. Counsel  advised  I-Health  was withdrawing  essentially  for  practical  reasons  and  that  it  would  start  afresh  by actually  issuing  proceedings  and  then  pursuing  discovery.  Subsequently,  I-Health commenced  a  separate  proceeding  against  Isoft  NZ  and  the  related  Australian company.

[14]     At the time the applications were withdrawn, Isoft NZ had already attended several  mentions  hearings  and  telephone  conferences,  and  lodged  documents  in opposition  to  both  of  I-Health’s  applications.  It  had  also  prepared  for  a  defended hearing  of  the  application  relating  to  service  and  filed  submissions  prepared  by senior counsel.   Throughout, Isoft Group did not take any formal steps or submit in any other way to the Court’s jurisdiction.

[15]     The effect of I Health’s withdrawal of the applications was to bring them to

an end  save  only  as  to  an  argument  as  to  costs.  That  argument  is  before  me  for determination.  Counsel  are  agreed  that  I  should  decide  the  costs  issue  on  the memoranda  they have  filed.  Given  that  the  applications  were  filed  and  withdrawn under the former High Court Rules, it is to those rules that  I refer throughout this judgment except where otherwise indicated.

Costs

[16]     Isoft NZ seeks costs in respect of its involvement in the two applications up

to and incidental to the withdrawal calculated on a 2B basis, plus an increase of 50%, plus a filing fee of $90.00. There is no dispute that the 2B amount is $4,800, which increased by 50% gives a sum of $7,200. This brings the total amount Isoft NZ seeks

to  $7,290.   There  is  also  no  dispute  as  to  the  amount  of  the  disbursement  that  is claimed. The argument is centred on whether there should be an award at all, and if there should be, whether the 2B amount should be increased.  Isoft NZ argues that it should  not  only  have  costs  but  that  this  is  a  case  where  an  increase  of  50%  is warranted.

[17]     There is also the question of costs on the costs memoranda that were filed. Assuming Isoft NZ’s application for costs is successful it would also be entitled to costs on its costs memoranda.

[18]     The  costs  argument  raises  essentially  two  broad  issues  for  determination. First,  whether  I-Health  has  demonstrated  that  there  is  good  reason  to  allow  an exception to the general rule that a party who discontinues should pay costs to the other  party,  by leaving  costs  to  lie  where  they fall.   Secondly,  if  I-Health  has  not demonstrated good reason for such an exception, whether Isoft NZ has demonstrated good reason for increased costs and if it has what is the appropriate increase.

Has I-Health demonstrated good reason for a departure from the general rule?

[19]     Where a proceeding is discontinued the presumption is that the plaintiff must pay costs  to  the  defendant:  see  r  476C  (now  re-enacted  in  new  r  15.23).  The  rule states:

476CCosts – unless the defendant otherwise agrees or the Court otherwise orders, a plaintiff who discontinues a proceeding against a defendant must pay costs to the defendant of and incidental to the proceeding up to and including the discontinuance.

[20]     The following general principles emerge from the case law:

a)        There is a presumption in favour of an order for costs to the defendant where the plaintiff discontinues.  The onus is on the plaintiff to satisfy the Court that, because of the particular relevant circumstances, it is just and equitable that the normal presumption should not apply;

b)Unless the merits are obvious, the Court will not speculate as to the strengths or weaknesses of the respective cases or the likely outcome

of a trial that never took place;

c)        The  Court  will  consider  whether  the  plaintiff  acted  reasonably  in bringing  the   proceedings   and  the  defendant   acted   reasonably  in opposing them.

d)Other   relevant   factors   (although   of   no   relevance   in   the   present instance) may include:

i)Whether  the  issues  for  determination  were  significant  or  of some public importance; and

ii)Whether  the  proceedings  had  been  rendered  nugatory,  for example by legislation.

See: North  Shore City  Council v Local  Government  Commission  (1995)  9

PRNZ  182;  Oggi  Advertising  Ltd  v  McKenzie  (1998)  12  PRNZ  535;  J  T Stratford & Son Ltd v Lindley (No 2) [1969] 3 All ER 1122.

[21]     In Oggi Baragwanath J noted the general principles  as  to  costs  on  a discontinuance are subject always to the overriding provision in r 46 (now r 14.1), that costs of a proceeding or incidental to a step in a proceeding are at the discretion

of the Court.  In Glaister v Amalgamated Dairies Ltd [2004] 2 NZLR 606 at [22] the Court of Appeal held that when a departure is to be made from the usual costs allowances in the High Court Rules, it is necessary that the departure be made in a particularised and principled way.

[22]     The same principles should apply, by analogy, to an interlocutory application that is discontinued.

[23]     I-Health’s contention is that r 476C gives the Court a discretion to deny costs where they are technically available and that the Court should refuse to order costs in this instance.  It relies essentially on the following factors:

a)        The applications were reasonably brought;

b)Isoft  NZ raised  technical  arguments  in  opposition  and  together  with Isoft Group, which plainly knew about the applications, unreasonably refused to accept service on behalf of the latter;

c)        It saved the Court and the respondents time and costs by withdrawing the applications and commencing a separate proceeding;

d)       Delay.

[24]     I am unable to agree with the position I-Health advances. Even assuming the applications  were  reasonably brought,  that  would  not  be  an  end  of  the  matter.   In terms  of  the  relevant  principles  it  is  necessary  also  to  consider  whether  Isoft  NZ acted reasonably in opposing the applications.   I am satisfied that Isoft NZ did act reasonably, for several reasons.

[25]     First, the jurisdiction that I-Health  seeks  the  Court  to  assume  over  Isoft

Group is one to be exercised with considerable caution because:

a)        Service is  the  very  basis  of  jurisdiction  and  at  common  law  the jurisdiction of the courts is subject to territorial limits. Unless a person is  in  jurisdiction  there  must  be  statutory authority for  service  out  of New Zealand and for the resulting assumption of jurisdiction over a person outside the territory: see the discussion in Cockburn v Kinzie Industries   Inc   (1988)   1   PRNZ   243   at   246-248,   and   a   similar discussion on the matter of jurisdiction in       Regie Nationale Renault v Zhang [2002] HCA 10;

b)The   Courts   have   always   adopted   a   cautious   approach   to   the assumption of jurisdiction over an overseas person: see, for example, the discussion in McGechan in respect of the former rules 219 to 227 at HR219. There the author states:

This has always been regarded as a jurisdiction to be exercised with great  care.  See  the comments for example,  of Pearson J  in  Sociĕtĕ

Gĕnĕrale  de  Paris  v  Dryfus  Bros  (1885)  29  Ch  D  239,  where  the learned Judge said (at pp 242, 243):

“It becomes a very serious question,  and  ought  always  to  be considered a very serious question, whether or not … it is necessary for  jurisdiction  of  the  Court  to  be  invoked  and  whether  this  Court ought  to  put  a  foreigner,  who  owes  no  allegiance  here,  to  the inconvenience and annoyance of being brought to contest his rights in  this country,  and  I for one  say,  most  distinctly,  that  I think this Court ought to be exceedingly careful before it allows a writ to be served out of jurisdiction.”

c)        The statement in McGechan at HR6.29.01 notes that it is well settled that a foreigner resident abroad will not be lightly subjected to local jurisdiction.

d)The  courts  have  generally looked  for  express  statutory authority (or submission  to  jurisdiction)  where  a  plaintiff  has  sought  to  raise  a proceeding against an overseas person. See, for example, Environmental  Solutions  Ltd  v  Jesco  Dosiertechnik  GMBH   and Simperland Co KG (1999) 8 NCLC 261, 854 at 859.

e)        The same caution has been adopted in respect of interlocutory applications  against  intended  parties  who  are  outside  the  territory. See, for example, Cedco Publishing Company v Hodder Moa Beckett Publishers   Ltd   HC   AK   CL33/00,   29   May   2001   at   [15]   where Williams  J  dealt  with  an  application  to  order  discovery  from  an overseas non-party after the commencement of a proceeding under r 301. His Honour made an order for non-party discovery as the non- party consented, but he noted with approval counsel’s concession that:

This Court has no express statutory power to order discovery against a non-party in a foreign jurisdiction…

f)        In  Von  Wyn  v  Engeler  [1998] 3 NZLR 416, where the Court of

Appeal was concerned with service on an overseas defendant by way

of substituted service within New Zealand, it stated with reference to

Dicey and Morris on the Conflict of Laws (12th  edition) 1993, at 421:

…it seems there is no jurisdiction to order substituted service within the  jurisdiction  on  a  defendant  who  was  outside  the  jurisdiction when the proceeding was issued.

[26]     Secondly, the same caution must apply to the court’s power to order service

on an overseas company outside New Zealand or by substituted service within New

Zealand, of a discovery application in a proceeding yet to be commenced.

[27]     Thirdly,  there  was  no  legal  obligation  on  Isoft  Group  to  accept  service outside  the  jurisdiction,  that  much  was  common  ground,  and  Isoft  Group  did  not wish  to  give  Isoft  NZ  the  necessary  authority.  Indeed  Isoft  Group  made  clear  it would not give Isoft NZ or its solicitors’ authority to accept service.   Nor could I- Health confidently assert that it had the ability, even with the Court’s leave, to serve Isoft  Group  within  New  Zealand.         I-Health  relied  partially  on  r  199.  But  the prerequisite to invoking r 199 was that the overseas company had to be a company that, “under the rules, may be served out of New Zealand”. I-Health knew neither r 219 or r 220 authorised service of the application on Isoft Group out of the territory, Isoft NZ was plainly entitled to ask in these circumstances how r 199 could assist I- Health.

[28]     Fourthly, it was entirely reasonable for Isoft NZ to expect I-Health to be able

to  show  how  its  reliance  on  s  389(1)(d)  would  give  the  court  the  necessary jurisdiction to direct service on Isoft Group by way of some mode of service within New Zealand. Isoft NZ raised by   counsel’s   memorandum   several   authorities including Environmental Solutions Ltd that supported its contention that s 389(1)(d) requires the overseas company’s submission to jurisdiction. The authorities indicated that  Isoft  NZ  had  hurdles  to  cross  if  it  was  to  justify its  invitation  to  the  court  to assume  jurisdiction  to  order  service  in  New  Zealand  under  this  provision.  The question  whether  the  Court’s  power  under  s  389(1)(d)  was  available  to  enable  I- Health  to  overcome  its  service  difficulties  posed  considerable  difficulty  for  it. Correspondingly  they  support  Isoft  NZ’s  position  that  its  decision  to  oppose  the

applications  was  entirely  reasonable.  The  arguments  it  raised  as  to  jurisdiction cannot  be  treated  as  merely technical  given  the  substantial  issues  they raised.  Nor can  those  arguments,  together  with  Isoft  NZ’s  indications  that  it  would  protest jurisdiction, file for review or lodge an appeal if substituted service were ordered, be characterised  as  delay tactics  and  I  am  unable  to  accept  I-Health’s  submissions  to that effect.

[29]     In  reaching  the  view  that  Isoft  NZ  did  act  reasonably  I  do  not  overlook  I- Health’s contentions that Isoft Group clearly knew about its desire to have discovery and the reasons for it.   As I-Health pointed out, the contract that lay at the heart of the intended proceeding contemplated that Isoft Group would play a significant role in  its  performance.       Clause  3.6  of  the  contract  for  example  set  out  Isoft  NZ’s agreement  that  it  would  procure  Isoft  Group  to  make  all  reasonable  investment  in product   development   necessary  to   meet   certain   contractual   obligations. That circumstance might have enabled I-Health to name Isoft Group in a proceeding had it chosen to commence one. But it does not make unreasonable Isoft NZ’s decision to  resist  the  applications  on  jurisdictional  grounds  when  Isoft  Group  had  plainly indicated it did not wish to confer authority on Isoft NZ to accept service.

[30]         There  is  also  nothing  in  I-Health’s  contention  that  it  saved  the  Court  and respondents   significant   time   and   costs   by   withdrawing   the   applications   and commencing the separate proceeding, and therefore should not be saddled with costs. Withdrawal will always benefit the opposing party by not putting it to time and cost yet to be incurred for hearings and other attendances.  That is a necessary incident of the operation of the general presumption that arises on discontinuance and is not, of itself,  good  reason  for  overturning  the  presumption  in  relation  to  costs  that  have already been incurred.

[31]     The  result  is  that  I-Health  has  not  shown  sufficient  reason  why  the  usual presumption as to costs should not apply.  I am not satisfied that it would be just and equitable that costs should not be paid by I-Health to Isoft NZ.

[32]     I turn next therefore to consider Isoft NZ’s claim for increased costs.

Is Isoft NZ entitled to increased costs?

[33]     Given that the presumption in favour of an award of costs to Isoft NZ has not been  displaced,  it  is  necessary to  consider  whether  it  has  established  its  claim  for increased costs. If it has not established its claim then I-Health will be entitled to the finding  it  seeks,  that  being  that  the  matters  Isoft  NZ  has  raised  do  not  justify  an award of increased costs and that increased costs would be inappropriate.

[34]     The grounds raised for increased costs have been made essentially in reliance

on conduct that comes within sub-clause (3)(b)(ii) of r 48C. Rule 48C(3)(b)(ii), (now

re-enacted   by   r   14.6(3)(b)(ii)   in   essentially   the   same   terms)   sets   out   the circumstances  in  which  the  Court  may  order  a  party  to  pay  increased  costs.  The relevant part of the rule in its current form provides:

(3)The Court may order a party to pay increased costs if – (a)  …

(b)  The  party  opposing  costs  has  contributed  unnecessarily  to  the time and expense of a proceeding or a step in it by –

(i)  …

(ii) taking or pursuing an unnecessary step or an argument that lacks merit; …

[35]     The   grounds   for   invoking   this   provision   are   that   I-Health   contributed unnecessarily to the time or expense of the proceeding or step in it because it took or pursued  an  unnecessary  step  or  an  argument  that  lacked  merit.  Specifically,  it brought:

a)        An  application  for  substituted  service  against  Isoft  Group  that  was “misconceived  from  the  outset”  and  always  doomed  to  fail  for  the jurisdictional reasons;

b)A pre-commencement discovery application that was unnecessary and without merit. It was unnecessary because I-Health was in a position

to   file   a   proceeding   against   Isoft   NZ.   When   it   withdrew   the application  it  did  so  with  the  rider  that  it  would  proceed  instead  by way of statement of claim including actions for breach of contract and deceit. The application could not have succeeded in any event because it failed to identify with any specificity the documents it was seeking and it went well beyond what was necessary for it to plead. It had the hallmarks of a fishing expedition.

[36]     The  Court  of  Appeal  set  out  the  correct  approach  to  the  question  whether grounds  for  increased  costs  are  established  in  Holdfast  NZ  Ltd  v  Selleys  Pty  Ltd (2005)  17  PRNZ  897,  itself  a  case  involving  the  discontinuance  of  a  proceeding. Where sub-clause 3(b) conduct is made out, the right approach is to uplift scale costs for a particular step to allow a fair recovery for the step unnecessarily forced on the party entitled to costs.   In most cases an increase should not exceed a maximum of 50%.

[37]     When considering a request for increased costs on a discontinued application

on  the  grounds  of  sub-clause  (3)(b)  conduct,  the  Court  should  not  allow  itself  to engage in speculating on what the outcome would otherwise have been. It must be clear what the outcome after hearing would have been to justify a finding that the application or argument was unnecessary or lacked merit.

[38]     I-Health’s service application was necessary because it could not serve Isoft Group  with  the  discovery application  overseas,  so  it  had  to  find  a  way to  serve  it within  New  Zealand.  Clearly,  I-Health  was  always  going  face  a  difficult  task  if  it was to justify jurisdiction for an order for service in New Zealand.  But it is for Isoft NZ to demonstrate whether or not that warrants a finding that the service application lacked merit, and involved conduct in relation to the argument as to jurisdiction, that calls for the exercise of the discretion to award costs on an increased basis.

[39]     I accept that it was, or should have been,  clear  enough  to  I-Health  that  its reliance on r 199 was misconceived. As Counsel for Isoft NZ points out, I-Health’s own application effectively acknowledged that the long arm provisions of the High Court Rules allowing service on a foreign company outside of New  Zealand  were

not  available  to  I-Health.   I-Health  knew  therefore  that  it  could  not  rely  on  those provisions  to  effect  service  on  Isoft  Group  outside  of  New  Zealand,  and  that  the unavailability of those provisions was fatal to reliance on r 199. Rule 199 made clear on  its  face  that  it  could  not  be  invoked  to  authorise  a  mode  of  service  in  New Zealand,  unless  the  overseas  company  was  one  that  could  be  served  out  of  New Zealand.   It  should  also  have  been  clear  to  I-Health,  at  least  from  the  point  when counsel for Isoft filed detailed submissions on jurisdiction, that its ability to rely on s389(1)(d) faced difficulty, possibly insuperable.  But I-Health did withdraw before a defended  hearing  took  place,  and  did  not  prolong  the  debate  beyond  that  point. Further, it did not concede that its reliance on s 389(1)(d) was hopeless, and whether or not I-Health would have had a persuasive argument with respect to the breadth of the court’s discretion in s 398(1)(d) is not one I should prejudge.

[40]     In  this  last  respect  I  accept  that  Isoft  NZ  went  to  considerable  lengths  to persuade I-Health that its reliance on s 389(1)(d) was misconceived.  Its submission filed  in  readiness  for  argument  was  very persuasive  in  its  contention  that  the  sub- clause  does  not  confer  on  the  court  a  broad  or  implied  discretion  to  assume jurisdiction over an overseas company where the company is not otherwise subject to, and does not submit to, the jurisdiction.   I-Health’s contrary position seemingly must depend on a reading of the sub-clause that allows the court to act on an implied statutory  authorisation  to  assume  jurisdiction  over  an  entity  that  is  outside  of  the jurisdiction and that has not submitted to jurisdiction. The position runs counter to authorities Isoft NZ raised in support of its approach to the interpretation of the sub- clause and to the  courts’  general approach of  requiring clear  and express  statutory provisions to authorise the assumption of jurisdiction over such an entity.

[41]     However, I also accept that there may be some limited room for argument, and that were I to find that I-Health’s argument obviously lacked merit and was doomed to fail, I would be straying into the area of speculation as to outcome. Kroma Colour Prints Ltd illustrates the need for caution. There the Court dealt with an  application  that  raised  similar  issues  as  to  jurisdiction. The plaintiff wished to join two Australian companies who were outside the jurisdiction as defendants. It filed an application for leave to join the proposed defendants under r 97 and leave to join one of them under s 9(4) of the Law Reform Act 1936. Those provisions did

not expressly authorise or require service on the proposed defendants, whether inside

or  outside  the  jurisdiction.  The  court  did  not  find  the  lack  of  express  authority to assume jurisdiction by service over foreign defendants to be a barrier to its assuming jurisdiction  over  the  proposed  defendants  and  it  ordered  their  joinder  without  the need for service. What is significant about the decision for present purposes is the Court’s apparent willingness to assume jurisdiction over overseas companies despite the lack of express statutory authority.   The need for express statutory authority to assume  jurisdiction  over  an  overseas  company  by  service  was  not,  at  least  by implication, thought necessary.

[42]     In the end therefore I think it would be overstating the position to say that when  the  service  application  was  filed  it  should  have  been  obvious  that  it  was misconceived for jurisdictional reasons. I think the position is more properly viewed as a case of a legal issue where opposing counsel legitimately took different views on the issue of jurisdiction.

[43]     I turn therefore to consider whether Isoft NZ has raised some other reason for increased costs. That brings me to Isoft NZ’s further argument that the application

for pre-commencement discovery obviously lacked merit.

[44]     Pre-commencement discovery is available where it is impossible or impracticable for the plaintiff to formulate the claim without the documents sought: see Welgas Holdings Ltd v Petroleum Corp of NZ Ltd (1991) 3 PRNZ 33. On the one hand  I-Health  said  it  could  not  formulate  its  claims  in  deceit  and  under  the  Fair Trading   Act   properly   without   pre-commencement   discovery   and   risking   an application for strike-out.  On the other, when it withdrew the application it indicated that  what  it  would  do  was  to  file  a  claim  in  contract  and  deceit  against  Isoft  NZ. While I fully accept I-Health’s claim that it withdrew because it had a concern about the  time  it  would  take  to  get  a  fixture  to  hear  the  application,  its  own  position suggests that it was able to proceed anyway against Isoft NZ without the benefit of pre-commencement discovery. But there is a view that the fact that a statement of claim may be able to be filed does not mean that discovery is inappropriate. One of the  objectives  of  pre-commencement  discovery  is  to  ensure  that  pleadings  are

properly drawn as noted in the  discussion  in  McGechan  in  relation  to  the  former

r 199 at HR299.05.

[45]         Isoft NZ raised as other factors, the lack of specificity and the sheer scope or breadth  of  the  documentation  sought. It  submitted  that  the  application  could  not have  succeeded  for  these  reasons  as  well.   An  application  for  pre-commencement discovery must describe the document or class of document with some specificity: see Campbell v Tameside Metropolitan Council [1982] QB 1065, 1071 and AMP v Architectural  Windows  Ltd [1986] 2 NZLR 190. Here the classes of documents I- Health sought included documents in the intended defendants’ possession relating in any way to the obligations of one or other or both under the contract, and to the decision of one or other or both not to perform. They also included all documents relating to expected royalty payments under the contract. The classes were wide but not without some specificity. Whether that would have put them on the right side of the borderline in terms of specificity, or whether they could have been saved with some refinement had the application gone further, are open questions.

[46]     It also needs to be borne in mind that Isoft filed a notice of opposition and a supporting affidavit for which it clearly should recover costs but it did not need to prepare submissions in opposition. The application was withdrawn well before the date of the fixture allocated for a defended hearing and the time when submissions were required to be filed.

[47]     Taking all these factors into account, I am not satisfied that this is clearly a case  where  the  discretion  should  be  exercised  to  award  increased  costs  on  the grounds  of  subclause  (3)(b)  conduct.  Costs  on  a  2b  basis  are  in  my  view  the appropriate means of allowing for a fair recovery.

Result

[48]     There will be an order for costs against I-Health in favour of the Isoft NZ.

[49]     I-Health is to pay to Isoft NZ:

a)        2B  costs  on  the  steps  up  to  and  including  the  withdrawal  of  the applications.   The sum claimed of $4,800 for those steps is allowed; plus

b)2B costs for the costs memorandum filed for the purpose of seeking costs at .4 of a day or $640; plus

c)        The disbursement that is sought of $90.00.

[50]     Leave is reserved to file and serve memorandum within 7 days in the event that  there  is  any dispute  as  to  the  calculation  of  the  overall  amount  of  the  award, failing which the orders  will stand.  If a memorandum is filed by either  side  I will allocate a telephone conference.

Associate Judge Sargisson