Intech Inc v Anura Limited (fka Orion Marine Limited)
[2024] NZHC 355
•28 February 2024
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE
CIV-2021-404-002270
[2024] NZHC 355
BETWEEN INTECH INC
First Plaintiff
WAREHAM STEAMSHP CORPORATION
Second Plaintiff
ACRA-CUT INC
Third Plaintiff
JOHN (JACK) WILLIAM BAKER
Fourth Plaintiff
AND
ANURA LIMITED
(formerly named ORION MARINE LIMITED)
First Defendantcontinued overpage …
Hearings: 17 August 2023; 27-28 November 2023 Counsel:
C L Elliott KC and R A Harrington for the Plaintiffs
G M Illingworth KC and H G Holmes for the First, Second, Third and Fourth Defendants
Judgment:
28 February 2024
Reissued:
8 July 2024
JUDGMENT OF VAN BOHEMEN J
[on applications for inspection, further discovery, and severance of trial on liability and quantum]
This judgment was delivered by me on 28 February 2024 at 12 pm pursuant to r 11.5 of the High Court Rules 2016.
Registrar/Deputy Registrar
……………………………..
INTECH INC v ANURA LTD (formerly named ORION MARINE LTD) [2024] NZHC 355 [28 February 2024]
continued from previous page… YUN ZHANG
Second Defendant
DARREN PAUL LEYBOURNE
Third Defendant
VLADAN ZUBCIC
Fourth Defendant
STRYDA MARINE LIMITED
Fifth Defendant
Solicitors/Counsel:
C L Elliott KC, Auckland
G M Illingworth KC, Auckland Shieff Angland Lawyers, Auckland Keegan Alexander, Auckland
Table of Contents
Introduction [1]
The essential dispute [2]
Relevant background [7]
The relevant pleadings [22]
Relevant procedural history [34]
Plaintiffs’ application for inspection [51]
Submissions for the plaintiffs [57]
Submissions for the defendants [62]
Analysis [66]
Result on application for inspection [90]
Plaintiffs’ application for further and better discovery [91]
Categories of documents on which orders are still sought [93]
Submissions for the plaintiffs [97]
Submissions for the defendants [107]
Analysis [116]
Result on application for further and better discovery [185] Defendants’ application for split trials [186] Analysis [189]
Result on application for split trial [204]
Defendants’ application for further discovery [205]
Relevant background [207]
Analysis [213]
Result on defendants’ application for further discovery [217]
Conclusions and orders on all applications [218]
Costs [222]
Introduction
[1]This judgment deals with applications:
(a)by the plaintiffs for inspection and for further and better discovery; and
(b)by the defendants:1
(i)to sever the trial currently set down to commence on 30 September 2024, so that it deals only with issues of liability in relation to all the plaintiffs’ claims and one of the defendants’ five counterclaims; and
(ii)for orders relating to the plaintiffs’ discovery to date.
The essential dispute
[2] The plaintiffs allege that the defendants have misappropriated intellectual property owned by the plaintiffs relating to the defendants’ design and manufacture of various amphibious systems for boats.2
[3] In their third amended statement of claim dated 2 September 2022 (ASOC3), the plaintiffs plead seven causes of action alleging: breach of contract; breach of express trust; breach of constructive trust; misuse of confidential information and breach of confidence; breach of copyright; breach of fiduciary obligations; and inducing customers of the plaintiffs to breach contracts with them.3 By way of relief, the plaintiffs seek various injunctions and declarations, damages in amounts to be quantified before trial, additional damages under s 121(2) of the Copyright Act 1994,
1 In this judgment, the term “defendants” refers only to the first to fourth defendants. The fifth defendant, Stryda Marine Ltd, took no part in the hearings of the applications. It is relevant to note that the original statement of claim and notice of proceeding dated 24 November 2021 named a sixth defendant, Mr Warren Farr, a director of the fifth defendant at the time. It appears, however, that the plaintiffs no longer seek judgment against Mr Farr.
2 The amphibious systems comprise motorised hydraulic wheels, which are bolted to the hull of a boat and enable the boat to be driven on land to and from the water and are retracted when the boat is in the water.
3 In fact, eight causes of action are pleaded but one is stated to be in the alternative.
equitable compensation and an account of profits, interest and such other relief as the Court deems just, and costs and disbursements.
[4] In their amended statement of defence to ASOC3 and first amended counterclaim dated 1 May 2023, the defendants admit that, subject to the defendants’ terms of trade, the plaintiffs own the intellectual property in a number of amphibious systems that the defendants designed or were in the process of designing for the plaintiffs when the plaintiffs terminated the commercial relationship with the defendants on 3 April 2021 (the Termination Date). The defendants say that all material, documents and information about those systems were sent to the plaintiffs after the Termination Date. The defendants deny, however, that the plaintiffs have any rights to the intellectual property in the system the defendants developed prior to the Termination Date or to the intellectual property in modifications to and next generations of that system.
[5] The defendants deny most of the material allegations in ASOC3 and plead five counterclaims. In the first counterclaim, the first defendant, Anura Ltd (formerly Orion Ltd), alleges breach of contract by the third plaintiff, Acra-Cut Inc, for failure to pay invoices for services performed by Anura. In the remaining counterclaims, the defendants allege against the second and fourth plaintiffs, Wareham Steamship Corp and Jack Baker: defamation; malicious falsehood and slander of title or goods; causing loss by unlawful means; and breach of the Fair Trading Act 1986. Those counterclaims relate to correspondence sent by Sheiff Angland, the plaintiffs’ solicitors, to customers of Anura after this proceeding had commenced (the Shieff Angland letters).
[6] Under the first counterclaim, Anura seeks judgment against Acra-Cut in the sum of $94,930.34 plus interest and costs. Under the remaining counterclaims, the defendants seek various declarations, orders and injunctions, an inquiry as to special damages, interest and indemnity costs.
Relevant background
[7] The history of the dispute is set out in some detail in my decision of 25 March 2022, in which I declined applications by the plaintiffs for interim orders pending
determination of their substantive claims.4 For present purposes it is sufficient to recall the following.
[8] The dispute has its origins in a dispute between the defendants and Sealegs International Ltd (Sealegs), where Darren Leybourne and Vladan Zubcic, the third and fourth defendants, had previously been employed in the design and manufacture of amphibious systems. After leaving Sealegs, Mr Leybourne and Mr Zubcic joined Anura (then called Orion) which had been established by Zhang Yun, the second defendant. Under the Orion brand, these parties began designing and manufacturing, three-wheel and four-wheel amphibious systems for small recreational vessels of between 2500 and 3000 kilograms in weight. Orion called these systems the S25. Mr Zhang also established Stryda Marine Ltd (Stryda), the fifth defendant, to manufacture and sell vessels fitted with S25 systems.
[9] In July 2016, the plaintiffs, comprising Mr Baker, a wealthy American businessman, and three companies owned and controlled by Mr Baker, became aware of the Orion systems. Mr Baker had previously purchased Sealegs systems and had had a commercial relationship with Sealegs, but that relationship later soured. In late 2016, Mr Baker ordered two vessels, manufactured by Smuggler Marine Ltd, another New Zealand company, fitted with the S25.
[10] In September 2016, Sealegs brought an action against all six defendants in the current proceeding for breach of copyright (the Sealegs proceeding). In December 2016, Peters J issued an interim injunction restraining the defendants from performing any acts that would infringe Sealegs’ claimed copyright.5
[11] In February 2017, Mr Zhang and Mr Leybourne travelled to Massachusetts to show Mr Baker the operation of the S25 and to discuss further opportunities to work together. Following that trip, there were on-going discussions between the plaintiffs and the defendants, including trips to the United States by Mr Zhang, Mr Leybourne and Mr Zubcic, about the possibilities of working together, bearing in mind the constraints of the interim injunction.
4 Intech Inc v Anura Ltd [2022] NZHC 574 [Interim Orders Judgment].
5 Sealegs International Ltd v Zhang [2016] NZHC 3143 [Interim Injunction Judgment].
[12] In December 2017, Mr Baker instructed Anura to design a front wheel drive assembly for single and dual wheels for a system capable of carrying vessels weighing approximately 6,000 kilograms. This was the start of work on what became known as the S65. At Mr Baker’s instruction, Anura also undertook preliminary work on a system for even larger vessels, known as the S80, based on a design prepared, at Mr Baker’s instruction, by Censco Corp, a United States company.
[13] On 12 July 2018, Davison J found that the defendants had infringed Sealegs’ copyright works in various respects and ordered that they were restrained from manufacturing, displaying, offering for sale, or completing the sale of the external amphibious assemblies of the S25 in its four-wheel or three-wheel configurations.6
[14] In early August 2018, Mr Zhang, Mr Leybourne and Mr Zubcic travelled to Massachusetts where they met with Mr Baker and his sons, Jeff and Paul Baker. What occurred and was agreed at the meetings in Massachusetts, and in emails exchanged before and after those meetings, and whether Mr Daniel Willis, Mr Baker’s associate, was at one of the meetings, are all contested by the parties. However, it is not in dispute that at or following those meetings:
(a)Mr Baker agreed to advance, and did advance, $200,000 to Anura to enable it to meet the fees of senior counsel to represent it at its appeal of the Final Injunction Judgment; and
(b)Anura agreed to refund that amount, with interest, if successful and did so after the appeal succeeded by crediting the plaintiffs for work to that value performed by Anura.
[15] In December 2018, Mr Baker accepted the advice of Mr Zubcic that the Censco design for the S80 would not work and commissioned Anura to develop a new design for the S80. Some time later, Mr Baker directed that the Anura designed S80 be re- named the S95.7
6 Sealegs International Ltd v Zhang [2018] NZHC 1724 at [472] [Final Injunction Judgment].
7 In their pleadings, the plaintiffs refer to both the S80 and the S95 as distinct systems, whereas the defendants say they are the same system. It appears from ASOC3, however, that, when referring to the S80, the plaintiffs are referring to work undertaken by Anura on the basis of the Censco
[16] In August 2019, the Court of Appeal upheld Anura’s appeal and set aside the orders made by the High Court.8 Sealegs’ application for leave to appeal the Court of Appeal’s judgment was later dismissed by the Supreme Court.9
[17] From August 2019 until late 2020 and possibly into 2021, relations between Mr Baker and Anura appear to have been generally positive. During this period, Anura was working on the development of the S65 and S80/S95. Later in the period, Anura was also working to upgrade the original S25 (S25 Gen 1) and to develop the next generation of that system, which became known as the S25 Gen 2. At Mr Baker’s direction, Anura was also providing S25 Gen 1 systems to ASIS Boats LLC (ASIS), a company headquartered in Dubai, under financing arrangements agreed between Anura and the plaintiffs on the one hand and ASIS and the plaintiffs on the other hand.
[18] On 3 April 2021, Mr Baker terminated the plaintiffs’ business relationship with Anura, apparently because he considered that Anura, in particular Mr Leybourne, had been intruding inappropriately into the relationship between the plaintiffs and ASIS.
[19]In November 2021, the plaintiffs commenced the current proceeding.
[20]On 25 March 2022, I declined the plaintiffs’ applications for interim orders.10
[21] In April 2023, the Shieff Angland letters were sent to a number of Anura customers alleging, among other things, that the defendants had, without the plaintiffs’ permission, reproduced in the S25 Gen 2 the plaintiffs’ intellectual property in the S65, S80 and S95 systems. The letters identified three features which were allegedly lifted from the S65 research and development programme and included in the S25 Gen 2. The letters stated that the plaintiffs would seek injunctions and substantial damages from the customers unless they ceased dealing with Anura systems, removed promotion of Anura systems from their websites, provided written undertakings not to deal in Anura systems and paid a contribution to cover the plaintiffs’ legal costs.
design and that, when referring to the S95, the plaintiffs are referring to work undertaken by Anura on a heavier system on the basis of its own designs.
8 Zhang v Sealegs International Ltd [2019] NZCA 389, [2020] 2 NZLR 308.
9 Sealegs International Ltd v Zhang [2019] NZSC 147.
10 Interim Orders Judgment, above n 4.
The relevant pleadings
[22] In ASOC3, the plaintiffs allege that, following the Interim Injunction Judgment, they and the defendants agreed to a mutually beneficial commercial arrangement (the Commercial Arrangement) whereby the plaintiffs and the defendants would jointly develop certain amphibious systems so as to become a global, market- leading amphibious systems enterprise in competition with Sealegs.11
[23] The plaintiffs also say that, in furtherance of the Commercial Arrangement, they and the defendants made specific agreements (the Agreements) for:
(a)the plaintiffs to purchase S25 systems from Anura to supply to ASIS (ASIS Agreement), which enabled Anura to stay in business, gave the plaintiffs and the defendants a shared interest in the on-going development of the S25 and enabled the plaintiffs and the defendants to collaborate on modifying and enhancing the S25;12
(b)the design and manufacture of the S65 (S65 Agreement);13
(c)the design and development of the S80 based on the Censco design (S80 Agreement);14 and
(d)the design and manufacture of the S95 (S95 Agreement).15
[24] The plaintiffs also say that, following the Final Injunction Judgment, the plaintiffs and the defendants agreed at the meetings in Massachusetts in August 2018 that, in consideration for the plaintiffs advancing the defendants $200,000, which was to be refunded with interest if the appeal of the Final Injunction Judgment was successful, the intellectual property in the S25 would become the exclusive property of the plaintiffs (the S25 Ownership Agreement).16
11 ASOC3 at [31]–[32].
12 At [34]–[42].
13 At [43]–[46].
14 At [47]–[52].
15 At [53]–[55].
16 At [61]–[62]. It is relevant to record that the Discovery Orders refer to the “S25 Agreement” rather than the “S25 Ownership Agreement”, the term used in ASOC3 and defined at [62].
[25] The plaintiffs further say that, under the S25 Ownership Agreement, the parties agreed, among other things, that:17
(a)the plaintiffs would market the S25 internationally and the defendants would continue to focus on the New Zealand market, in which the plaintiffs recognised a non-exclusive licence in favour of the defendants;
(b)the plaintiffs and the defendants would continue to modify and improve the S25 for their mutual benefit, subject to the plaintiffs’ ownership of the intellectual property in the S25, S65, S80 and S95; and
(c)the plaintiffs permitted the defendants to access and use the plaintiffs’ intellectual property, which encompassed copyright and confidential information, in the S25, S65, S80 and S95.
[26] The plaintiffs say that, in performance of the Agreements (not including the ASIS Agreement), the plaintiffs commissioned and agreed to pay Anura for various services for the development and modification of the S25, S65, S80 and S95 systems, subject to Mr Baker’s direction and control (the Commissions).18
[27] The plaintiffs say that, by virtue of the Commissions, the Agreements and the Commercial Arrangement, a range of intellectual property was created, including:19
(a)original artistic and literary works, prototypes and models (the Copyright Works), which, among other things:
(i)are original works in which copyright subsists, either in the individual works on their own or as a compilation or composite works;
17 At [62]–[63].
18 At [70].
19 At [75].
(ii)embody and record original and distinctive concept designs depicting the S25 (and all variations), S65, S80 and S95, prototypes and models to test, modify and develop those systems, and computer programmes and compilations, as further particularised at [143] and schs 2, 3, 4, 5, 6, 7 and 8 of ASOC3; and
(b)confidential information created or shared by the parties to design, test, modify and develop the S25, S65, S80 and S95 and created or shared by the parties that relates to their commercial arrangements and businesses (Confidential Information).
[28] The plaintiffs allege that the defendants wrongly used the S65, S80 and S95 projects and the plaintiffs’ funding as a research and development project for their own amphibious systems and have made or are about make unauthorised use of the Confidential Information by incorporating it into their own amphibious systems.20 More than seven pages of particulars are then set out, including illustrative examples of information said to have been produced or derived for or used in the parties’ cooperative activities, particularly in relation to the S65 and S80 projects. No examples are given of how or what information has allegedly been used by the defendants in developing their own amphibious systems. It is said that the details of such use are within the exclusive knowledge of the defendants and that further particulars will be provided after discovery.
[29] Of particular relevance to the plaintiffs’ applications for inspection and further and better discovery are [139], [143] and [146] of ASOC 3.
[30] At [139], under the fifth cause of action alleging misuse of confidential information and breach of confidence, the plaintiffs allege that the defendants:
… surreptitiously and without authority used Confidential Information, developed as part of the S65/S80 and S95 R&D program and paid for by the plaintiffs, to modify, enhance and develop the S25 and create the S25 Generation 2 system (defined at [146])
20 At [137].
[31] At [143] and [146], under the sixth cause of action alleging breach of copyright, the plaintiffs allege:
(a)that the Copyright Works include:21
(i)designs, drawings, prototypes and models of the S25, associated computer programmes and compilations, and all modifications of the S25; drawings as set out in sch 2; and different generations of the S25 as set out in sch 3;
(ii)designs, drawings, prototypes and models of the S65, associated computer programmes and compilations; and drawings or other copyright works commissioned by the plaintiffs, as set out in sch 4;
(iii)designs, drawings, prototypes and models of the S80, associated computer programmes and compilations; and drawings or other copyright works commissioned by the plaintiffs, as set out in schs 5 and 6;
(iv)designs, drawings, prototypes and models of the S95, associated computer programmes and compilations; and other drawings or copyright works commissioned by the plaintiffs, as set out in sch 7; and
(b)that the defendants:22
… have flagrantly reproduced a substantial part of the S65/S80 and S95 copyright by manufacturing amphibious systems using the Copyright Works, or elements thereof, and wrongly using the S65/S80 and/or S95 projects and the funding provided by the plaintiffs as a research and development project for their own amphibious systems:
Particulars
aThe Orion Parties have reproduced without permission or authority from the plaintiffs the following features and added
21 At [143].
22 At [146].
them to the S25, (S25 Gen 2) such features being derived directly or indirectly from the R&D projects and designs for the S65/S80/S95 systems and paid for by the plaintiffs in money or money’s worth:
i.Improved valve block …
ii Improved traction control system …
…
xiii New displays with touchscreen functionality, … and xiv New button and rotary dial keypad controller.
bThe plaintiffs refer to and rely on the particulars pleaded at [137].
[32] The 14 features particularised at [146 a] include most but not all of the items listed in sch 3, which lists 16 key changes from the S25 Gen 1 to the S25 Gen 2. The significant difference between the two lists is the inclusion in sch 3 of a larger Briggs and Stratton engine, which the plaintiffs do not dispute is an item in which neither they nor the defendants have any intellectual property. For the purposes of this judgment, I refer to the features listed in [146 a] and sch 3 collectively as the [146 a] Features.
[33] The plaintiffs also say that full details of the defendants’ dealing in the Copyright Works are within the exclusive knowledge of the defendants and that further particulars will be provided after discovery.23
Relevant procedural history
[34] On 25 March 2022, I dismissed the plaintiffs’ applications for interim orders requiring the defendants to deliver to them the intellectual property in the S65/S80/S95, to set aside a notional royalty on sales of the S25 and for preservation and inspection orders.24
[35] Given that the defendants accepted that Acra-Cut owned the intellectual property in the S65/S80/S95 and said that all relevant information and material regarding those systems had been sent to the plaintiffs,25 I considered the plaintiffs’
23 At [148].
24 Interim Orders Judgment, above n 4.
25 At [103]–[106].
applications with respect to those systems to be disproportionate to the issues at stake, while accepting that it was arguable that there was an issue to be tried as to whether everything the defendants held with respect to the S65/S80/S95 had been sent the plaintiffs.26
[36] On the basis of the evidence then before me, I expressed doubts about both bases on which the plaintiffs claimed rights in the S25. I was satisfied that it was not reasonably arguable that there was an agreement in relation to the S25 prior to the meetings in Massachusetts in August 2018.27 I also considered it inherently unlikely that the defendants would have agreed to transfer ownership of the S25 to the plaintiffs as the price for an advance to defend their rights to that system in the Sealegs litigation.28 However, because there was a conflict on the facts of what happened at the meetings in Massachusetts and because Mr Baker and Mr Willis had not been cross-examined, I accepted that it was arguable that there was a serious issue to be tried in relation to whether the defendants had agreed to assign the intellectual property in the S25 to the plaintiffs.29
[37] On 13 October 2022, the proceeding was set down for a four-week hearing commencing on 30 September 2024.
[38] On 18 November 2022, orders for tailored discovery were made by consent (the Discovery Orders).30 The Discovery Orders specified categories of documents to be disclosed in relation to each of the agreements pleaded by the plaintiffs. The start dates for the documents to be disclosed were, depending on the category, 1 October 2016, 1 January 2017, and 1 April 2018. Except for documents related to Baker Amphibious Systems, which had an end date of 31 October 2022, the end date for all categories was 3 April 2021, the Termination Date.
[39] In relation to the S25 Ownership Agreement, the Discovery Orders required discovery of all designs, drawings and other records relating to the [146 a] Features.
26 At [109].
27 At [123].
28 At [135].
29 At [144]–[146].
30 Intech Inc v Anura Ltd HC Auckland, CIV 2021-404-002270, 22 November 2022 (Minute of van Bohemen J).
[40] The Discovery Orders did not relate to the defendants’ second to fifth counterclaims, which had not been filed at that point.
[41] Under the Discovery Orders, the plaintiffs and the defendants were to complete discovery by 28 April 2023.
[42] Mr Baker’s affidavit of documents, dated 27 April 2023, was filed and served the following day (Baker Affidavit of Documents).
[43]In May 2023:
(a)the defendants sought an extension of time, until 30 July 2023, for completion of discovery and applied for discovery associated with their counterclaims; and
(b)the plaintiffs applied for orders for further and better discovery and inspection in relation to their claims.
[44] In their application for an extension of time for completion of discovery, the defendants said the task had been more complex and taken longer than anticipated and had been complicated by having to deal with the consequences of the Shieff Angland letters.
[45] On 11 May 2023, I extended the time for the defendants to complete discovery to 30 July 2023. The remaining applications were set down for hearing on 17 August 2023.31
[46] On 31 July 2023, Mr Leybourne’s affidavit of documents was filed and served (Leybourne Affidavit of Documents). Included in the discovery were documents, including CAD files, relating specifically to the [146 a] Features.32 In his affidavit, Mr Leybourne explained how the orders for discovery had been interpreted in relation
31 Intech Inc v Anura Ltd HC Auckland, CIV 2021-404-002270, 4 July 2023 (Minute of van Bohemen J).
32 CAD stands for computer-aided design and refers to the use of computers in the creation, modification and analysis of a design.
to those features. Mr Leybourne also explained that the discovery included PDM histories in relation to those features but that, because of an upgrade in the PDM software in late 2019, Anura did not have PDM histories from before January 2020 because only the latest revision of existing data had been migrated to the new software.33
[47] On 14 August 2023, it was agreed by consent that only the plaintiffs’ application for inspection would be heard on 17 August 2023.34 The hearing on 17 August 2023 proceeded on that basis and I reserved my decision.
[48]On 2 October 2023:
(a)the plaintiffs filed an amended application for further and better discovery; and
(b)the defendants applied for a split trial on liability and quantum and other orders relating to the plaintiffs’ discovery to date.
[49] On 13 October 2023, the plaintiffs and defendants filed notices of opposition to the others’ applications.
[50] On 27 and 28 November 2023, I heard the applications and reserved my decision.
Plaintiffs’ application for inspection35
[51] In their application for inspection, the plaintiffs seek orders under r 9.34 of the High Court Rules 2016 permitting Mr David Lyons, an independent engineering expert, subject to appropriate safeguards regarding confidentiality:
33 PDM stands for product data management and is a system that centralises product-related data and processes.
34 Intech Inc v Anura Ltd HC Auckland, CIV 2021-404-002270, 22 November 2022 (Minute of van Bohemen J).
35 This application is considered on the basis of the evidence before the Court when the application was heard. While some of the evidence filed later in relation to the discovery application heard in November 2023 bears on the issues discussed, that evidence was not before the Court in relation to the application for inspection. In any event, that evidence would not have changed my decision on the application.
… to access and inspect iterations of the S25 amphibious system, including design documents, assembly processes, prototypes, and final products.
[52] The application applies to all iterations of the S25 that existed between the baseline design of the S25, as it existed immediately prior to the alleged incorporation of the [146 a] Features, and the S25 design incorporating such features, as it existed at 1 April 2021.
[53] The grounds for the application are that whether and, if so, to what extent, the defendants copied the plaintiffs’ intellectual property in iterations of the S25, is a central matter in question in the proceeding, is relevant to the defendants’ counterclaims, and cannot properly be determined without an expert assessment of the S25 designs over the relevant period. In support of the application, the plaintiffs filed affidavits from Mr Warren Farr, who had originally been the sixth defendant in the proceeding, the fifth defendant, Mr Gavin Hawkless, a former employee of Anura, and two affidavits from Mr Lyons.
[54] Under draft inspection orders filed by the plaintiffs, the plaintiffs would be permitted to attend Anura’s premises for the purposes of inspecting:
(a)data held electronically on the “Solidworks” CAD software and on the application software that operates the different parts or systems; and.
(b)a craft fitted with an S25 Gen 1 system and a craft fitted with an S 25 Gen 2 system.36
[55] Under the draft orders, the plaintiffs, represented by their solicitors, Mr Lyons and up to two other independent experts, approved by the defendants, would be able to:
(a)film or record the inspection on specified conditions;
36 It is clear that the S 25 systems, and not the craft to which they were fitted, would be subjects of the inspection.
(b)examine Solidworks CAD files relating to the [146 a] Features and request relevant material if not previously provided by the defendants; and
(c)direct the dismantling of any part of the S25 systems or craft that may be required for the purpose of the inspection.
[56] The defendants oppose the application on the grounds that the orders would require them to provide access to information technology infrastructure containing confidential, commercially sensitive and personal information and would amount to an unreasonable search in terms of the New Zealand Bill of Rights Act 1990. They also say that the plaintiffs have failed to provide an adequate basis for the orders. An affidavit from Mr Leybourne has been filed in support of the defendants’ opposition.
Submissions for the plaintiffs
[57] Mr Elliot KC, counsel for the plaintiffs, notes that the question of whether the defendants have incorporated the plaintiffs’ intellectual property in the S25 is at issue in the proceeding. Based on the affidavit of Mr Hawkless, he says that the S25 system is complex and multi-layered and involves distinct innovations arranged in a compound fashion. Mr Elliott says many of the innovations are not visible to a simple external inspection. For this reason, the plaintiffs seek not only to inspect the various iterations of the S25 but also to disassemble them, subject to appropriate supervision and confidentiality undertakings.
[58] Mr Elliot submits that r 9.34 of the High Court Rules confers a broad power to order an inspection “for the purpose of enabling the proper determination of any matter in question in a proceeding”. Mr Elliot says that, because the plaintiffs have alleged infringement of their copyright by the defendants, the application must be assumed to be capable of bona fide argument in that the Court must assume that the plaintiffs can establish ownership, subsistence or infringement of copyright at trial.
[59] Mr Elliot notes that, at an interlocutory phase in the Sealegs proceeding, Gilbert J considered that it was “clearly desirable” for counsel and experts to inspect the systems in dispute in that proceeding to enable Sealegs to identify all aspects of
copyright infringement so a fully particularised pleading could be prepared.37 Mr Elliot submits that the case for inspection is stronger in the present case because Mr Lyons’ affidavit lays the evidentiary foundation to satisfy the requirement that the inspection be for the purpose of enabling the proper determination of a matter before the Court. More generally, Mr Elliot says that the plaintiffs’ evidence establishes the likelihood of copyright breach in the S25 Gen 2 and says the purpose of the inspection is to obtain relevant evidence to enable the determination of that question. He also says the inspection is needed to enable the plaintiffs to defend the claims made by the defendants in their counterclaims.
[60] Mr Elliot says the defendants’ responses to the issues raised in the affidavits of Mr Hawkless and Mr Farr – that the items in the S25 Gen 2 referred to were purchased “commercially off-the shelf” (COTS) – overlooks the point that ownership of the S25 is also an issue in the proceeding. He says it also overlooks the point that a combination of COTS parts can itself be a copyright work, with or without linking software, under the collocation principle.
[61] Mr Elliot submits that s 21 of the New Zealand Bill of Rights Act is not germane because r 9.34 is a carve out from the right not to be subjected to search and, in any event, there is nothing unreasonable in the search proposed. He says the defendants have not provided any evidence to suggest that there may be private information on the computer systems that the plaintiffs wish to inspect. Mr Elliott also says the defendants’ concerns about commercial confidentiality can be met by the proposed undertakings.
Submissions for the defendants
[62] Mr Illingworth KC, counsel for the defendants, submits that the orders sought by the plaintiffs are overly broad and would give Mr Lyons wide discretion to look at anything he wanted to examine.
[63] Mr Illingworth submits that the plaintiffs have not established an adequate factual basis for the proposed inspections. He says that Mr Farr’s affidavit provides
37 Sealegs International Ltd v Zhang [2017] NZHC 741 [Sealegs Inspection Judgment] at [6].
no evidence linking the plaintiffs’ intellectual property in the S65, S80 and S95, of which he had no knowledge, with the improvements in the S25 Gen 2. Mr Illingworth submits that the credibility and reliability of Mr Hawkless have been strongly challenged by Mr Leybourne and those challenges have not been answered. With regard to the four items common to lists of components referenced by both Mr Hawkless and Mr Farr, Mr Illingworth says there is no sufficient basis for even a preliminary finding that any of those components represents an element that is in an original work copied by the defendants. As to the other three components referred to by Mr Hawkless, Mr Illingworth says that Mr Hawkless has not provided a detailed description of those items that would justify a preliminary finding that their inclusion in the S25 Gen 2 would constitute a breach of copyright or a breach of confidentiality.
[64] Mr Illingworth also submits that an inspection order should only be made if the applicant can demonstrate a genuine need for the information sought. He notes that the defendants have provided or have agreed to provide a vast amount of information concerning the amphibious systems at issue which the plaintiffs have yet to analyse and that it was premature to order inspection of documents until the plaintiffs have established that the discovery made to date was inadequate.
[65] Mr Illingworth submits that, for an order to be granted, the Court has to be satisfied that it is justified in the circumstances of the case, as was held by Gordon J in Ecostore Co Ltd v Worth.38 Mr Illingworth also says that, far from being a carve out of the right not to be subjected to search, r 9.34 of the High Court Rules is plainly subject to the law on search and seizure.
Analysis
[66] The plaintiffs’ application highlights an apparent inconsistency in the pleadings. On the one hand, the plaintiffs say they acquired ownership of the S25 in August 2018 under the S25 Ownership Agreement. On the other hand, they say that the defendants misappropriated their intellectual property by installing components and systems developed in the S65 and S80/S95 in the S25 Gen 2, on which development commenced in 2020. If the plaintiffs owned all rights in the S25 from
38 Ecostore Co Ltd v Worth [2017] NZHC 2943 at [30].
August 2018, the defendants no longer owned that system at the times they are alleged to have misappropriated the plaintiffs’ property in the S65, S80 and S95 when developing the S25 Gen 2. On the case as alleged in [61] – [63] of ASOC3, the plaintiffs must own the intellectual property in the S25 Gen 2, whether or not it came from one of the other systems being developed by the defendants for the plaintiffs. Accordingly, although not pleaded in the alternative, the allegations of misappropriation are relevant only if the Court holds that the plaintiffs do not own the intellectual property in the S25, including the S25 Gen 2.
[67]Rule 9.34(1) of the High Court Rules provides:
The court may, for the purpose of enabling the proper determination of any matter in question in a proceeding, make orders, on terms, for–
(a)the inspection of any property:
…
[68] It is common ground that there is no established test to be satisfied for an order to be made under r 9.34. However, the language of the rule itself indicates that some judgement is to be exercised before an order for inspection is made, given the focus on enabling a “proper determination” of a matter in question in the proceeding.
[69] As Asher J observed in Jag Media Ltd v Magna Systems Engineering (NZ) Ltd, inspections are inherently invasive and can intrude into sensitive commercial matters.39 It cannot be the case, therefore, that it is enough for a party to allege a state of affairs as giving rise to an issue in question in the proceeding to obtain an order for inspection. As Asher J put it in Jag Media, once the issues are apparent from the pleadings, the relevance and importance of an inspection must be evaluated and a decision made as to whether the invasive step of inspection is warranted.40 Or, as Gordon J said in Ecostore, the question is whether an order for inspection is justified in the circumstances of the case.41
39 Jag Media Ltd v Magna Systems Engineering (NZ) Ltd [2012] NZHC 733 at [6]–[7].
40 At [6].
41 Ecostore Co Ltd v Worth, above n 38, at [30].
[70] The plaintiffs propose two distinct inspections: an inspection of documents and software held on Anura’s computers and an inspection of two S25 systems. It is appropriate to consider each aspect separately. Before doing so, however, it is also appropriate to note that, notwithstanding the invasive nature of inspections, I do not consider that s 21 of the New Zealand Bill of Rights Act is of material relevance to the application.
[71] I agree with Mr Illingworth that r 9.34 is not a carve out of the right not to be subjected to an unreasonable search. However, the extent to which companies can claim the benefit of the right provided for in s 21 is not straightforward, bearing in mind that s 29 of the New Zealand Bill of Rights Act provides that the provisions of the Bill of Rights apply “so far as practicable” for the benefit of all legal persons, as well as for the benefit of all natural persons. Neither counsel addressed that question. The proposed inspections are of Anura’s property and computer systems. As Mr Elliott notes, there is nothing in Mr Leybourne’s affidavit to suggest that personal information of Mr Zhang, Mr Leybourne or Mr Zubcic would be on Anura’s computers. The information being sought is relevant to Anura’s commercial activities. It is not clear to me that a search of Anura’s computer systems is of itself unreasonable. For these reasons, I base my decision on the narrower ground of whether the search is consistent with established principles and authorities relating to discovery and inspection.
[72] As far as the computer search is concerned, in Gillespie v Guest, Associate Judge Bell observed that orders for the inspection of computer systems are really extended discovery orders and said that, because discovery ought to be achieved by the rules under pt 8 of the High Court Rules, the party seeking inspection of another party’s computer systems to obtain documents needs to satisfy the court that there is good reason for this additional form of discovery.42 I agree with that analysis.
[73] In the present case, the plaintiffs filed their application for inspection of Anura’s computer systems even before the defendants had completed discovery. The application was heard just over two weeks after the filing of the Leybourne Affidavit of Documents, in which the defendants provided discovery in relation to the [146 a] Features, which relate to the basis on which the plaintiffs made their application for inspection of Anura’s
42 Gillespie v Guest [2013] NZHC 668 at [65].
computer systems. At the hearing of the application for inspection, Mr Elliott acknowledged that it would take the plaintiffs time to inspect and analyse the defendants’ documents that had been discovered to date. In other words, as at the time of hearing the application for inspection, the ordinary discovery process was still far from complete. It could not be said, therefore, that the plaintiffs had a good reason for the additional form of discovery that they seek by way of orders to inspect Anura’s computer systems.
[74] For these reasons, I am not satisfied that an order for inspection of Anura’s computer systems and software is justified in the current circumstances of this proceeding.
[75] As for the application for inspection of the two S25 systems, although Mr Elliot puts some emphasis on possible copyright in the collocation of COTS items included in the S25 Gen 2 and the S65/S80/S95 as discussed in the affidavits of Mr Lyons, the allegations of misappropriation at [146] of ASOC3 are not based on possible collocation of items. The allegation in that paragraph is that the defendants reproduced and included in the S25 Gen 2, specific features said to have been designed directly and indirectly from research and development projects and designs for the S65/S80/S95. In these respects, the affidavits of Mr Farr and Mr Hawkless are more pertinent than those of Mr Lyons.
[76] Mr Farr identifies 18 components as being specific improvements to the S25 Gen 2 as compared with the S25 Gen 1. Many, but not all, relate to the [146 a] Features. However, there is nothing in Mr Farr’s affidavit that provides evidentiary support for the allegation that these components were reproduced from the S65/S80/S95. Mr Farr makes no reference to the S65 or the S95. His only reference to the S80 is as commercial cover for the manufacture of the S25, which has no relationship to the development of the S80. For that reason, and as Mr Illingworth says, there is nothing in Mr Farr’s affidavit that supports the plaintiffs’ allegation that the improvements in the S25 were derived from the S65/S80/S95.
[77] In his affidavit, Mr Hawkless says he was involved in every stage of the life of the S25, that he assembled and commissioned the systems and tested them on land and on the water, and that he was personally involved in building different additions and modifications to produce the S25 Gen 2. Mr Hawkless provides a general description
of the parts of the S25 and identifies seven components that he says incorporated specific elements developed for the S65. All are included in the [146 a] Features.
[78] Mr Leybourne takes issue with Mr Hawkless’ claims of expertise and experience and says Mr Hawkless is wrong in his general description of the S25. Mr Leybourne says he terminated Mr Hawkless’ employment in March 2020 and that work on the S25 Gen 2 did not start in any meaningful way until after Mr Hawkless had ceased working at Anura. Mr Leybourne says Mr Hawkless’ list of components allegedly derived from the S65 and incorporated in the S25 Gen 2 is full of errors and repeats errors made in the Shieff Angland letters. He notes that these errors were corrected in letters sent by the defendants’ solicitors, Keegan Alexander, in April 2023 in response to the Shieff Angland letters. Schedules to the Keegan Alexander letters set out why, in the defendants’ view, the plaintiffs’ claims that the defendants had infringed the plaintiffs’ copyright are untenable.
[79] The schedules to the Keegan Alexander letters set out where components identified in the Shieff Angland letters and listed by Mr Hawkless were not developed by Anura but were COTS items purchased from third parties. They also set out where descriptions of components are factually wrong and why allegations that components developed for or used in the S65 were used in the S25 Gen 2 must also be wrong. One example, in the Shieff Angland letters and in Mr Hawkless’ affidavit, is a reference to the development of displays with touchscreen functionality. In fact, neither of the displays in the S65 or the S25 Gen 2 is touch screen. In addition, the screens look very different and come from different manufacturers.
[80] In fact, the plaintiffs do not contest the accuracy of the schedules to the Keegan Alexander letters or Mr Leybourne’s criticisms of Mr Hawkless’ knowledge and experience. Mr Elliott seeks to circumvent the issue by focusing on the possibility that the plaintiffs have copyright in the way components in the S65 were assembled or collocated and that this copyright has been misappropriated by the defendants in the development of the S25 Gen 2.
[81] If the plaintiffs want to pursue that argument at the substantive hearing, they are, of course, free to do so. It is not an issue that falls for decision on this application for inspection. However, for the purposes of this application, the more relevant point is that the credibility and reliability of Mr Hawkless, the only witness who says directly that
components developed for the S65 have been incorporated in the S25 Gen 2, have been seriously called into question. I do not accept, therefore, that the plaintiffs’ evidence establishes the likelihood of copyright breach in the S25 Gen 2, as contended by Mr Elliott. To the contrary, the primary evidence put forward in support of the application does nothing of the kind. For those reasons, I am not satisfied that Mr Hawkless’ affidavit provides a sufficient basis for ordering an inspection, including a dismantling, of two iterations of the S25, based on that alleged incorporation.
[82] Probably for that reason, Mr Elliott based the plaintiffs’ case for inspection principally on the collocation argument, even though that proposition is not specifically pleaded, and on the affidavits of Mr Lyons.
[83] Mr Lyons is an independent engineer and naval architect and has no personal knowledge of any of the amphibious systems designed and manufactured by Anura. He is not able to say, and does not say, in his affidavit in support of the inspection application, that the S25 Gen 2 has incorporated design features developed for the S65. On that question, he refers to the affidavit of Mr Hawkless. In other words, Mr Lyons does not add any substance to the plaintiffs’ contention that there is evidence establishing the likelihood of a copyright breach. The focus of Mr Lyons’ evidence of is on what he says he would be able to find if an inspection were ordered; not on whether there has been a copyright breach. He says that the inspection would enable him to understand and explain to the Court any similarities and differences between the systems as designed and the systems as built.
[84] I accept that a physical inspection may well enable Mr Lyons to reach conclusions about the development of the S25 over time and, if indeed there are features derived from the S65 that have been incorporated in the S25 Gen 2, to identify those features. However, before ordering an inspection of the kind proposed, which includes dismantling of the S25 if requested by Mr Lyons, I consider that there must be more cogent evidence than that currently before the Court to support the allegation that features developed for the newer and much bigger S65 system were incorporated into the S25, which has a much longer pedigree and with which the defendants have much more experience. That conclusion is reinforced by the fact that the plaintiffs
have consistently failed to provide cogent evidence in support of their various claims with respect of the S25.
[85] I do not accept that there is a significant parallel between the search proposed in this case and that ordered by Gilbert J in the Sealegs proceeding. The inspection ordered in that case differed in a number of significant respects from that proposed by the plaintiffs. It was limited to a visual inspection and did not involve any dismantling, although Anura was prepared to agree to some dismantling on specific conditions.43 The issues in that case were whether a company set up in competition to Sealegs and using personnel formerly employed by Sealegs was using Sealegs’ intellectual property. Those circumstances obviously raised questions of misappropriation.
[86] The current circumstances are quite different. Until Mr Baker terminated the relationship, the plaintiffs and Anura were engaged in a cooperative commercial enterprise under which Anura manufactured and sold S25 systems to Acra-Cut and ASIS and, on the instructions of the plaintiffs, designed, developed and tested the S65, undertook preliminary research into the S80, and designed and began development of the S95. It is reasonable to infer that the plaintiffs commissioned the defendants to do the work on the S65, S80 and S95 because of their expertise and experience in the design and development of the S25. In that respect, the plaintiffs benefitted from that expertise and experience. There is no evidence to suggest that, during the course of the relationship, the plaintiffs had any concern that the defendants would misappropriate and use in the S25, intellectual property derived from their work on the S65, S80 and S95.
[87] On the current evidence, the termination of the commercial relationship was unconnected to any concerns on the part of the plaintiffs about the incorporation in the S25 of intellectual property derived from the S65/S80/S95. No allegation of misappropriation by incorporation was made in the original statement of claim filed in November 2021. The allegation appeared only after I had expressed, in the Interim Orders Judgment, significant doubts about the strength of the plaintiffs’ claims and, in that regard, the veracity of the evidence of Mr Baker and his associate, Mr Willis.44
43 Sealegs Inspection Judgment, above n 37, at [19]–[20]
44 Interim Orders Judgment, above n 4, at [136]–[143].
[88] It will be for the trial judge to assess the parties’ substantive claims after the evidence has been tested by cross-examination. At this stage, however, I do not consider that the plaintiffs’ allegations of misappropriation and incorporation of their intellectual property in the S65, S80 and S95 intellectual property, whether based the [146 a] Features or the principle of collocation, are anything more than that; allegations without reliable probative evidence to support them.
[89] For all these reasons, I am not satisfied that there is a sufficient basis to order an inspection of the S25 Gen 1 and the S25 Gen 2 systems, particularly an inspection that may require the dismantling of the systems over which the parties contest ownership.
Result on application for inspection
[90]The plaintiffs’ application for inspection is dismissed.
Plaintiffs’ application for further and better discovery
[91] Although the plaintiffs filed an amended application for further and better discovery on 2 October 2023, at the hearing on 27 November 2023, Mr Elliott advised that the parties had agreed on some aspects of the further discovery sought by the plaintiffs and that the plaintiffs no longer sought orders in relation to some categories of documents in the amended application.
[92] Before setting out the categories of documents on which the plaintiffs still seek orders, I record the agreement that has been reached with respect to third party invoices for parts and services that were then invoiced to the plaintiffs. As stated in his affidavit sworn on 13 October 2023, Mr Leybourne has undertaken to provide those third party invoices to the plaintiffs. On that basis, the plaintiffs do not seek orders in relation to those invoices.
Categories of documents on which orders are still sought
[93] At the hearing on 27 November 2023, Mr Elliott advised that the plaintiffs still seek orders:
(a)requiring the defendants to complete discovery in accordance with the Discovery Orders by discovering:
(i)documents relating to proposed structures, means and entities by which the defendants or their agents/associates could operate in or between New Zealand and Australia in relation to the design, development, manufacture and supply of amphibious systems, and the implementation of such structures (Category 1);
(ii)all communications and records relating to the defendants’ return to the plaintiffs of amphibious systems, parts, designs, software and hardware (Category 2);
(b)varying the Discovery Orders to include:
(i)all documents, records, and communications between 3 April 2021 and the present relating to the S25, ASIS and Baker Amphibious Systems (Category 3);
(ii)all designs, drawings, electronic models and other records depicting the design of the S25 and S25 Gen 2, including all Solidworks files or other electronic files depicting or reflecting the S25 Gen 1 and any modifications made to it during the development of the S25 Gen 2, or any other versions or variations of the S25 (Category 4);
(iii)records of the supply of S25 systems or related services by the defendants to customers or potential customers and any financial details relating to that supply after 3 April 2021 (Category 5);
(iv)financial information of Anura showing income and expenditure relating to its design, development, sales, and
servicing of amphibious systems from 2016 to the present (Category 6); and
(v)records, including stocktakes (including stock handling documentation such as spreadsheets and/or DBA records, recording prototypes, parts, amphibious systems, and customers), lists, schedules, photographs or videos of S25 prototypes and parts for the S25 from 2016 to the present (Category 7).
[94] The stated grounds for the application are that the disclosure provided in the Leybourne Affidavit of Documents was inconclusive and omitted relevant documents and that the plaintiffs had previously foreshadowed an intention to seek further discovery beyond 3 April 2021.
[95] In support of their application, the plaintiffs filed affidavits from Mr Baker, and Mr Lyons. In reply to affidavits from Mr Leybourne and Mr Zubcic filed in opposition to the plaintiffs’ application, the plaintiffs filed an affidavit from Professor Bruce MacDonald, a professor of Electrical, Computer and Software Engineering at the University of Auckland, and further affidavits from Mr Baker and Mr Lyons.
[96] The stated grounds for the defendants’ opposition are that there are no further relevant documents or records to discover, there is no need to vary the Discovery Orders and the orders sought and the proposed variations are overbroad, oppressive and disproportionate. The defendants filed three affidavits from Mr Leybourne and two from Mr Zubcic, the later affidavits being in reply to the affidavits of Professor MacDonald, Mr Baker and Mr Lyons.
Submissions for the plaintiffs
[97]Mr Elliott did not address Category 1 in his submissions.
[98] With respect to Category 2, Mr Elliott says the plaintiffs are seeking further documents in relation to the return of inventory to the plaintiffs and proper disclosure of the CAD and PDM files relating to the design of the S25.
[99] Mr Elliott submits that the plaintiffs have been prejudiced by the fact that the defendants say they did not make or retain a detailed inventory of the material relating to the S65/S80/S95 material that was sent to the plaintiffs after Mr Baker ended the relationship with Anura.
[100] Mr Elliott says that, in refusing to disclose all CAD and PDM files relating to the design of the S25, the defendants have failed to distinguish between the merits of the respective positions of the parties, which are not at issue in discovery, and relevance, which is. He says the defendants are required to discover all documents, including CAD and PDM files, relating to the development of the S25. He refers to the affidavits of Professor MacDonald and Mr Lyons as demonstrating that COTS components still need to be configured to make a system operable. He also points out that the plaintiffs claim copyright not only in individual features or parts but also in the compilation of those features as set out at [75], [137], [143] and [146] of ASOC3. For these reasons, he says the defendants cannot limit discovery to the [146 a] Features.
[101] Mr Elliott takes issue with the defendants’ care of Anura’s PDM files, the significance of which, he says, cannot be understated for the reasons given by Mr Lyons. Mr Elliott says the defendants have an obligation to make the documents available in a readable format and says the plaintiffs should not be prejudiced by not having discovery of relevant and potentially highly significant documents because the defendants upgraded their software and failed to retain access to those records. He also takes issue with Mr Zubcic’s claim that the folder with the unreadable material cannot contain relevant material. He asserts that there is documentary and other evidence that design improvements or elements from the S65 were used in the S25. He refers in that regard to material discussed in the affidavits of Professor MacDonald and Mr Lyons.
[102] Mr Elliott invites the Court to draw an adverse inference from the fact that the defendants appear to have mishandled the PDM files at the time they were under a duty, in the Sealegs proceeding, to take all reasonable steps to preserve documents under the High Court Rules. In that regard, Mr Elliott refers to adverse findings by Davison J in the Final Injunction Judgment regarding explanations provided by
Mr Leybourne and Mr Zubcic for the absence of contemporaneous records of their design decisions.45
[103] Mr Elliott says the documents in Category 3 are relevant to whether Anura used the plaintiffs’ intellectual property after the Termination Date and, if so, to what extent. He says the order sought is proportionate because not every post Termination Date document is sought.
[104] With respect to Category 4, Mr Elliott says the baseline designs for the S25 immediately prior to the alleged incorporation of the plaintiffs’ intellectual property in the S25 Gen 2 are critical to enabling a comparison between what the defendants have or have not incorporated and to identify the nature and extent of the alleged misuse of the disputed intellectual property. He says identification of when a feature was incorporated may be determinative and that discovery of the baseline designs of the S25 would put the plaintiffs in a better position to refine their pleadings. Mr Elliott says the defendants have an obligation to disclose all of the S25 Gen 2 design documents to substantiate their pleading that they did not copy or substantially copy the plaintiffs’ intellectual property.
[105] Mr Elliott submits that the Courts have recognised the difficulties for a plaintiff in particularising matters about which a defendant is not likely to be overt, particularly in copyright cases. Mr Elliott submits that there are more than sufficient grounds to show that the plaintiffs have a good case.
[106] In respect of the remaining categories, Mr Elliott says the documents are relevant to:
(a)Anura’s financial position after the Sealegs injunction, the significance of the plaintiffs’ support and the likelihood of there being joint venture
/ fiduciary obligations and the impetus for the S25 Ownership Agreement (Category 5);
45 Final Injunction Judgment, above n 5, at [383].
(b)the nature and extent of the copyright infringement and the misuse of confidential information (Category 6); and
(c)which parts / physical products were sent to the plaintiffs after termination of the commercial relationship (Category 7).
Submissions for the defendants
[107]Mr Holmes, counsel for the defendants, also did not address Category 1.
[108] With regard to the return of inventory in Category 2, Mr Holmes says Mr Baker arranged for the collection of the S65/S80/S95 material to be sent to the United States and that it is his responsibility if insufficient records have been retained as to the contents of the crates that were shipped to the United States. He notes that Mr Baker is in error about the number of crates sent to the plaintiffs and that Mr Baker’s evidence contains mistakes that call into question the accuracy of his account.
[109] With regard to the CAD and PDM files, Mr Holmes says the defendants were not obliged to disclose the entire suite of S25 design files. The relevant order required only that they disclose documents relating to the [146 a] Features and that those documents have been disclosed, including CAD and PDM files and software to the extent it was written by or on behalf of the defendants.
[110] With regard to Category 3, Mr Holmes says the plaintiffs have failed to provide any credible basis for the proposed extension of discovery beyond the Termination Date. It is not disputed that the defendants continue to use the S25 designs and continue to manufacture and sell the S25. Those activities are relevant only to quantum. Accordingly, that aspect of the plaintiffs’ application can be addressed at a later date if there is a trial on quantum.
[111] With regard to Category 4, Mr Holmes says the attempt to secure wider discovery is a fishing expedition unsupported by credible evidence and is not justified on the basis of the plaintiffs’ pleading. He says the plaintiffs have not shown sufficient evidence to ground a suspicion that they have a good case that features of the S65 were
incorporated in the S25 Gen 2. Mr Holmes says the allegation that the S25 Gen 2 or any part of it is a copy of the S65 is speculative and baseless.
[112] Mr Holmes also notes that, despite having had full discovery of relevant drawings, schematics and calculations for the S65/S80/S95 and of documents, schematics and software relating to the [146 a] Features since the end of August 2023, the plaintiffs have not identified a single example of something that might have been copied or misappropriated. Mr Holmes is also critical of the evidence of Mr Lyons and Professor MacDonald, who have purported to reach conclusions about the inter- relationship of the development of the S65 and S25 Gen 2 on the basis of documents that do not support those conclusions.
[113] With regard to Category 5, Mr Holmes says that post Termination Date sales are relevant only as to quantum and only if the plaintiffs succeed in their claim to ownership of the S25 and can be addressed at a later date if there is a trial on quantum.
[114] With regard to Category 6, Mr Holmes says the relevance of the material sought is dubious. It is not pleaded that Anura was financially dependent on the plaintiffs, although it is acknowledged that Anura received considerable custom from the plaintiffs.
[115] With regard to Category 7, Mr Holmes says it is very broad and its relevance is not apparent.
Analysis
[116] Under the Discovery Orders, the defendants were required to provide the plaintiffs with a list of the documents, records or communications that are or had been in their possession, power or control and fell within any of the descriptions in paras 9 to 24.
[117] Categories 1 and 2 relate to documents that the plaintiffs say should have been disclosed in accordance with the Discovery Orders. Categories 3 to 7 are for documents that are sought in addition to those required to be discovered under the Discovery Orders. Even so, there is considerable overlap in the submissions made
with respect to Categories 2 and 4. Both concern whether the defendants are required or should be required to disclose documents about the S 25 Gen 2 beyond the [146 a] Features. That question was the principal focus of the plaintiffs’ submissions and evidence.
[118] The plaintiffs’ amended application for further and better discovery was made in reliance on rr 8.15, 8.16, 8.17 and 8.19 of the High Court Rules. Of those rules, the most relevant are:
(a) r 8.17, under which a party may apply for an order varying the terms of a discovery order because of difficulties of compliance or a change of circumstances; and
(b)r 8.19, under which, if there are grounds for believing that a party has not discovered one or more documents or a group of documents that should have been discovered, a Judge may order that party to file and serve an affidavit attesting to whether the documents are or have been in the party’s control, and requiring discovery of those documents.
[119] Despite the reference to r 8.17, which would seem applicable when seeking further discovery beyond orders made by consent, Mr Elliott bases his case on r 8.19 and does not suggest there has been a change of circumstances since the Discovery Orders were made.
[120] It is common ground that the test for further discovery under r 8.19 is as set out by Asher J in Assa Abloy New Zealand Ltd v Allegion (New Zealand) Ltd:46
(a)Are the documents sought relevant, and if so how important will they be?
(b)Are there grounds for belief that the documents sought exist? This will often be a matter of inference. How strong is that evidence?
46 Assa Abloy New Zealand Ltd v Allegion (New Zealand) Ltd [2015] NZHC 2760, [2018] NZAR 600 at [14].
(c)Is discovery proportionate, assessing proportionality in accordance with Part 1 of the Discovery Checklist in the High Court Rules?
(d)Weighing and balancing these matters, in the Court's discretion applying r 8.19, is an order appropriate?
[121] As Richardson J reaffirmed in New Zealand Rail Ltd v Port Marlborough New Zealand Ltd:47
[Documents] must be relevant in the sense of being capable of advancing a party’s case or of damaging the case of its adversary. Relevance is determined by the pleadings and an order is not to be made unless the Court is satisfied that it is reasonably necessary.
The pleadings both identify and limit the issue in the case.
[122] As Asher J said in Assa Abloy, the existence of documents does not have to be established on the balance of probabilities or on a more likely than not basis. The threshold of “grounds for believing” in r 8.19 is not that high. All that is necessary:48
… is to show that there is some credible evidence which assessed objectively indicates that the documents that are sought exist.
[123] As Asher J said in Commerce Commission v Cathay Pacific Airways Ltd, the concept of proportionality is central to tailored discovery.49 Asher J went on to say:50
The starting point in such a consideration of appropriate tailored discovery orders must be an analysis of the issues. Discovery categories will reflect the issues and will only be ordered for the discovery of documents that are relevant to those issues. Except in exceptional circumstances, these issues will be discernible from a review of the pleadings. Discovery orders that are essentially of a “fishing” nature are not part of tailored discovery. Orders will not be granted where the categories do not relate to a pleaded relevant issue, but rather a non-pleaded issue which might be pleaded should discovery reveal documents that support such a pleading.
[124] In the circumstances of this case, counsel agreed that, in determining whether discovery should be ordered, an appropriate test to be applied is that set out by Brennan J in WA Pines Pty Ltd v Bannerman,51 and endorsed by the Federal Court of
47 New Zealand Rail Ltd v Port Marlborough New Zealand Ltd [1993] 2 NZLR 641 (CA) at 644.
48 Assa Abloy New Zealand Ltd v Allegion (New Zealand) Ltd, above n 46, at [12].
49 Commerce Commission v Cathay Pacific Airways Ltd [2012] NZHC 726 at [12].
50 At [13].
51 WA Pines Pty Ltd v Bannerman [1980] FCA 79, (1980) 39 ALR 559 at 181.
Australia in Trade Practices Commission v CC (New South Wales) Pty Ltd.52 That is, sufficient information must be shown to ground a suspicion that the party applying for discovery has a good case proof of which is likely to be aided by discovery.
Category 1
[125]As noted above, neither Mr Elliott nor Mr Holmes address this category.
[126] Based on the affidavits of Mr Baker and Mr Leybourne, the issue appears to be whether the defendants have fully disclosed documents relating to their activities in Australia. Mr Baker says they have not because there has been no disclosure of the activities of Stryda, the fifth defendant, of which Mr Zhang is a director. Mr Leybourne says that, to the best of his knowledge, there are no further documents in this category. He also says that Stryda Australia, which was set up by Mr Farr as a separate entity from the fifth defendant and that Mr Zhang has “no part of” Stryda Australia.
[127] On the basis of the evidence, I am not able to assess whether Mr Leybourne’s response is an adequate answer. However, in the absence of submissions, I have no sufficient basis for reaching any conclusion about whether further discovery should be ordered in relation to this category.
Category 2
[128]There are two principal aspects to Category 2:
(a)Whether the defendants have disclosed all documents they hold in relation to the inventory of parts and equipment relating to the S65, S80 and S95 that were sent to the plaintiffs after the termination of the commercial relationship; and
(b)Whether the defendants have disclosed all documents required to be disclosed in relation to the S25, including CAD and PDM files.
52 Trade Practices Commission v CC (New South Wales) Pty Ltd (No 4) [1995] FCA 1418, (1995) 58 FCR 426 at 438.
[129] With respect to the return of inventory, Mr Leybourne and Mr Zubcic say they have sent to the plaintiffs all parts and equipment they had in relation to the S65, S80 and S95 and have disclosed all documents they hold in relation to that inventory. Mr Baker says the defendants have provided only a limited number of documents. He also says the plaintiffs never received the S65 and S95 systems, whether assembled or in parts, or other items for which the plaintiffs were invoiced. It appears, however, that Mr Baker is mistaken about the number of crates sent to the plaintiffs after he terminated the relationship; he says they received only four crates whereas Mr Laybourne says 10 crates were sent after being packed at Mr Baker’s direction.
[130] At the hearing, it appeared that the plaintiffs are seeking documents showing what inventory the defendants held in relation to the S65/S80/S95 so they can check that against the parts, equipment and other material that were crated and sent to Mr Baker. Whatever the plaintiffs’ difficulties in verifying what has been received from the defendants, the Court cannot order the defendants to disclose documents they say they do not have. Nor is there much purpose in ordering the defendants to file an affidavit attesting to whether they have such documents when Mr Leybourne and Mr Zubcic have already sworn affidavits to that effect.
[131] With regard to disclosure in relation to the S25 and the CAD and PDM files on which Mr Elliott placed considerable emphasis, the essential questions are what were the defendants required to disclose and what have they disclosed?
[132]The relevant paragraph of the Discovery Order provided:
14.3Designs, drawings and other records relating to the features particularised at paragraph 146 and Schedule 3 of the third amended statement of claim including:
(a)The design of those features of the S25 that existed immediately prior to the alleged incorporation of those features in the S25 Gen-2, including all Solidworks drawings or specifications depicting or reflecting that baseline version and any modifications subsequently made to that baseline version.
(b)All communications, written records, designs, drawings, schedules, data, software, invoices with or created by third- party contractors or suppliers in relation to those features.
[133] In the Leybourne Affidavit of Documents, Mr Leybourne explains how he interpreted the obligation in the above paragraph and describes the material discovered under that paragraph. It includes all CAD and PDM files of the [146 a] Features in relation to the S25 Gen 2 that were created by or on behalf of Anura and are in Anura’s control. Mr Leybourne says it also includes CAD and PDM files of the [146 a] Features in relation to the S25 Gen 1 – except for PDM files from before January 2020, when the PDM software was upgraded and Anura migrated only the latest versions of its design documents to the new platform. As it later transpired, Anura have since found a folder with the older PDM files, but it is unreadable unless relevant software is acquired.
[134] Mr Zubcic says the only [146 a] Features that were designed by Anura are the valve block, steering link, steering cylinder and lift cylinder, and that the CAD files for these components have been provided. He also says the PDM files for those components, as incorporated in the S25 Gen 1 and S 25 Gen 2, have been disclosed in discovery.
[135] The plaintiffs’ submissions and evidence go into considerable detail about the significance of CAD and PDM files to the design process, the potential significance in copyright terms of COTS items incorporated in the S25 Gen 2 and the potential significance of Anura not having available readable versions of the older PDM files. Mr Lyons and Professor MacDonald also emphasise the importance of having access to all of the design files for the S25 Gen 2 so they can determine how the design evolved and what features it included. However, the plaintiffs’ evidence and submissions do not engage with the language of the Discovery Orders. Nor do they take issue with the scope of what has been discovered in relation to the [146 a] Features, except with regard to the unreadable PDM files. The central thrust of the plaintiffs’ argument is that the defendants were obliged to disclose all documents relating to the development of the S25, irrespective of what has already been disclosed in relation to the [146 a] Features.
[136] In that respect, the plaintiffs are wrong. The obligation was to disclose “the features particularised at paragraph 146 and Schedule 3” of ASOC3. That can only be
the specific features listed at [146 a] and sch 3.53 It is apparent that the Discovery Orders do not extend more broadly.
[137] As for the PDM files, since the unreadable files are said to pre-date the commencement of the development of the S25 Gen 2 it is difficult to see their relevance, particularly in the light of Mr Zubcic’s evidence that the PDM files for components designed by the defendants as incorporated in the S25 Gen 1 and S25 Gen 2 have been disclosed.
[138] For these reasons, I do not accept that the defendants have failed to comply with their obligations under paragraph 14.3 of the Discovery Orders or that there is any other basis for making any order in relation to Category 2.
Category 3
[139] The essential issue with Category 3 is whether the end date for discovery as it relates to the S25, the ASIS Agreement and Baker Amphibious Systems should be extended out to the present.
[140] Mr Baker asserts that, just because he terminated the commercial relationship with the defendants on 3 April 2021, does not mean the defendants stopped using and profiting from their relationship with the plaintiffs or the plaintiffs’ intellectual property. That is supposition, not evidence. Mr Elliott’s submission that parties to commercial relationships often still interact post-termination to wind up their arrangements does not advance matters. Since documents sought in this category include records and communications with Baker Amphibious Systems, it might have been assumed that the plaintiffs would know if there was actual evidence of such documents. They have provided none.
[141] In the absence of any evidence, I am not satisfied that sufficient information has been shown to ground a suspicion that the documents sought exist other that in relation to the S25, which Anura continues to manufacture and sell. In any event,
53 Despite the cross reference in [146 b] to [137], it was not argued – and could not credibly have been argued – that para 14.3 of the Discovery Orders extended to the Confidential Information that was described but not particularised in the particulars set out at [137].
except for documents relating to the manufacture and sale of the S25, other documents, if they do exist, are unlikely to be relevant to the plaintiffs’ principal claims against the defendants. If relevant, they are unlikely to be of particular importance to those claims. Weighing and balancing these considerations, I do not consider an order for discovery of such documents is appropriate.
[142] Documents relating to the continued manufacture and sale of the S25 are not relevant to the basis on which the plaintiffs assert ownership of the S25. They are relevant only if the plaintiffs succeed in establishing such ownership and, as Mr Holmes says, are relevant only as to quantum. In these circumstances and given my decision below to order separate trials for liability and quantum, I decline to make orders in relation to these documents at this stage.
Category 4
[143] Category 4, as formulated in the amended application for further and better discovery, would require discovery of the entire design history of the S25 Gen 1 and the S25 Gen 2. In his submissions, however, Mr Elliott focused on securing the disclosure of the baseline designs of the S25 “immediately prior to the alleged incorporation of S25 Gen 2 features”, in addition to the S25 Gen 2 design documents.54
[144] As Mr Holmes says, there is some uncertainty as to what baseline documents prior to incorporation means. The defendants deny any such incorporation. The plaintiffs do not say when the alleged incorporation occurred. However, based on Mr Leybourne’s evidence that work on the S25 Gen 2 began some time in 2020, it would appear that disclosure of the S25 designs as they stood at 1 April 2020 should meet the plaintiffs’ objective of obtaining baseline designs before the alleged incorporation. That is also a date for which Anura should have relevant PDM files because it is after the migration of the S25 designs to the new PDM platform.
54 Although Mr Elliott focused his submissions on securing disclosure of the baseline documents prior to the alleged incorporation, later in his submissions he referred to securing the baseline documents “in addition to the S25 Gen 2 documents”. Given that reference and the evidence of Mr Lyons and Professor MacDonald that they seek access to the entire design history of the S25 Gen 2, I have interpreted the plaintiffs’ application for Category 4 as embracing the baseline documents for the S25 prior to the alleged incorporation plus all documents relating to the design of the S25 Gen 2.
[145] The question to be answered with respect to Category 4, therefore, is whether the defendants should be required to discover those baseline designs and the design history of the S25 Gen 2.
[146] There is no doubt the documents exist. The primary issue is whether the documents are relevant to the plaintiffs’ case as pleaded.
[147] As Mr Elliott says, the plaintiffs plead ownership of all intellectual property in the S25 and of copyright in all designs, drawings and models of the S25 and not just the [146 a] Features.55 However, the plaintiffs’ base their claim for ownership of the intellectual property in the S25 on the S25 Ownership Agreement concluded at the meetings in Massachusetts in August 2018. The development of the S25 design, particularly the S25 Gen 2 on which work began in 2020, is not relevant to those claims.56
[148] The plaintiffs’ principal pleadings in relation to the alleged misappropriation of intellectual property in the S25 are at [139], which relates to the Confidential Information, and [146], which relates to the Copyright Works.
[149] Although the terms “Copyright Works” and “Confidential Information” are defined separately at [75] of ASOC3, there will inevitably be overlap in the content of the two terms, even though each is the subject of a distinct cause of action. In his submissions, however, Mr Elliott focuses on the Copyright Works, which are the subject of the sixth cause of action and for which [146] sets out the particulars.
[150] In [146], the central allegation is that the defendants have reproduced a “substantial part” of the S65/S80/S95 copyright by “manufacturing amphibious systems using the Copyright Works or elements thereof”. However, without
55 ASOC3 at [75] and [143].
56 Mr Elliott advises that Mr Baker maintains his claim that the plaintiffs’ acquired rights in the S25 as a result of agreements or understandings reached with the defendants after the Interim Injunction Judgment and before the meetings in Massachusetts in August 2018 and that he was involved in design discussions for the improvement of the S25 over that period. I accept that this is consistent with what is pleaded in ASOC3 at [31]–[32]. However, it is clear from ASOC3, at
[61] – [63] and the terms in which all of the causes of action are pleaded, that the claim to ownership of the S25 is based on the S25 Ownership Agreement said to have been agreed in Massachusetts in August 2018 and not on any asserted design input by Mr Baker.
particulars, the pleading would be so broad it could not be responded to, and the defendants would not know what case they had to answer. Such a broad pleading would also not conform with r 5.26 of the High Court Rules, which provides that a statement of claim:
(a)must show the general nature of the plaintiff’s claim to the relief sought; and
(b)must give sufficient particulars of time, place, amounts, names of persons, nature and dates of instruments, and other circumstances to inform the court and the party or parties against whom relief is sought of the plaintiff’s cause of action; and
…
[151] It follows that some particulars had to be pleaded, even if, as Mr Elliott says, the plaintiffs do not have to particularise each and every aspect of the alleged infringement.
[152] In any event, the plaintiffs have particularised their copyright claims by reference to the [146 a] Features, a number of which, as the plaintiffs now accept, are COTS items that were not designed by the defendants.
[153] As Mr Elliott points out, a work may qualify for copyright protection, either because the work itself is original or because its originality lies in the way a number of features which have no originality in themselves have been arranged or collocated, as discussed by Tipping J in Bonz Group (Pty) Ltd v Cooke and in Henkel KGaA v Holdfast New Zealand Ltd.57 However, as the latter case illustrates, how a claim for copyright is pleaded matters.
[154] In Henkel, the Supreme Court endorsed the finding of Chambers J in the Court of Appeal that it is the essence of a claim for breach of copyright that the plaintiff identify the work that is said to have been wrongly copied.58 Because of the way the claim was pleaded, the Supreme Court held that Henkel’s claim for copyright in packaging for certain products did not permit reliance on drawings that underlay
57 Bonz Group (Pty) Ltd v Cooke [1994] 3NZLR 216 (HC); Henkel KGaA v Holdfast New Zealand Ltd [2006] NZSC 102, [2007] 1 NZLR 577.
58 Henkel KGaA v Holdfast New Zealand Ltd, above n 57, at [27]
packaging for another Henkel product that had not been identified in the statement of claim. In reaching that decision, the Supreme Court referenced the precursor of r 5.26 of the High Court Rules and stated:59
A cause of action for breach of copyright necessarily involves clear and accurate identification of the copyright work in respect of which the defendant is said to have infringed.
[155] In [146 a] of ASOC3, the plaintiffs have listed the features they allege were reproduced by the defendants from the plaintiffs’ Copyright Works and included in the S25 Gen 2. In that respect, the plaintiffs have, in terms of Henkel, clearly identified the copyright works the defendants are alleged to have infringed. There is no argument that the defendants were required to disclose all documents and information relevant to those alleged infringements, as provided for in para 14.3 of the Discovery Orders.
[156] The defendants say they have provided discovery in relation to the [146 a] Features and, leaving aside the issue of CAD and PDM files as discussed in relation to Category 2, the plaintiffs do not dispute this. What the plaintiffs effectively now seek is discovery of the baseline designs for the S25 as a whole, as well as the design history of the S25 Gen 2, in order to ascertain whether any aspect of their copyright has been incorporated in the S25 Gen 2, whether or not the incorporated features are included in the [146 a] Features. In other words, they seek discovery in relation to alleged infringements that have not been identified with any particularity.
[157] As Mr Elliott has fairly noted, given their respective roles and locations, the defendants are much more likely than the plaintiffs to have documents relating to alleged breaches of copyright. For that reason, and because particulars cannot exclude consideration of copyright infringements that fall outside those particulars but within the central allegation, and applying Brennan J’s test in Bannerman, it would be appropriate to order discovery extending beyond the pleaded particulars if it can be shown that there are grounds for suspicion that the plaintiffs have a good case for such wider infringement, proof of which is likely to be aided by discovery.
59 At [29].
[158] The plaintiffs say that such grounds are provided in the affidavits of Mr Lyons and Professor MacDonald.
[159] As I have already recorded, Mr Lyons has no personal knowledge of any of the amphibious systems designed and manufactured by Anura. The same holds for Professor MacDonald. As I have also already recorded, Mr Lyons was not able to say, and did not say, in his affidavits in support of the inspection application, whether the S25 Gen 2 incorporated design features developed for the S65. In his affidavits in support of the application for further and better discovery, however, Mr Lyons goes considerably further than he was prepared to go in his earlier affidavits.
[160] Mr Lyons says an inference can be drawn that there is some connection between developments discussed in emails between Mr Leybourne and Mr Baker in September 2018 about tests carried out in Gabon of a boat fitted with an Anura system, and an email exchange in 2020 between Mr Leybourne and an engine manufacturer in which there was a discussion about the need for variable engine speed, and improvements to the S25 Gen 2 discussed by Mr Farr in a YouTube interview in February 2021. The clearly intended but unstated further inference is that the “developments” discussed in the emails were about the S65 and relate to the improvements in the S 25 Gen 2 discussed by Mr Farr.
[161] Professor MacDonald goes even further. He reviews emails exchanged between Mr Leybourne and various third parties. He also reviews invoices sent by Anura to Acra-Cut, with covering emails from Mr Leybourne to Mr Baker reporting on relevant developments. From these materials, the Professor said he considered the communications were suggestive of a reasonably extensive development programme for the S65. The Professor then says:
It also appears to me, based on what the parties were saying to each other at the time, that there was a not insignificant amount of crossover at a technical level between the S65 and S25 projects, and that certain developments from the S65 seem to have been used in the S25/S25 Gen 2.
[162][REDACTED]
[163] Since the S65 was not an operable system at the Termination Date, it is plain that the system being tested in Gabon in 2018 cannot have been the S65 and must have been the S25, as Mr Leybourne confirms. The exchange with the engine manufacturer was about engines – which Anura does not manufacture. And, as already noted, Mr Farr has given no evidence to support any inference that the improvements he extols in the YouTube interview are derived from the S65. There is nothing in the emails discussed by Mr Lyons or in the interview, taken separately or together, that is sufficient to ground a suspicion that copyright works developed in relation to the S65 have been incorporated in the S25 Gen 2.
[164] Similarly, the documents reviewed by Professor MacDonald do not provide a basis for reaching conclusions about the level of technical crossover between the S65 and S25 projects. The only evidence of crossover is that one email advises Mr Baker that the programmer on the S65 development team had worked with Mr Leybourne on the S25. In other words, the S65 project was getting the benefit of the S25 development team’s experience. The covering emails for the invoices provided updates on the S65 and S80 and made no reference to the S25.
[165] There is even less basis for the Professor’s statement about developments from the S65 being used in the S25. The only document that discussed the development of the S65 in relation to the S25 was an email about a display made by WIKA (Mobile Control) that Mr Leybourne said might be used in the S25 Gen 2, in a smaller version, if successful in the S65. However, that email itself said the display had originally been considered for the S25, so the progression was not from the S65 to the S25 but vice versa. Moreover, as shown in the schedules to Keegan Alexander letters, while a WIKA display was eventually used in the S65, a smaller display from an entirely different company, Deep Sea Electronics, was used in the S25 Gen 2.
[166] In short, there is no adequate factual basis for these statements by Mr Lyons and Professor MacDonald [REDACTED].
[167] Without that foundation, the evidence of Mr Lyons and Professor MacDonald about collocation and the use of purpose-developed software is little more than speculation – that the defendants could have developed intellectual property in relation
to the way they configured the S65, including through the incorporation of COTS items and related software, and that this intellectual property could have been used in the S25 Gen 2.
[168] While I accept that Mr Lyons and Professor MacDonald might be able to establish whether or not there has been such incorporation if given access to the baseline designs of the S25 and the design history of the S25 Gen 2, this is fishing, as Mr Holmes submits. As discussed by Lindgren J in Trade Practices Commission v CC, it is using discovery to ascertain whether a case exists as distinct from using discover to compel the production of documents where there is already some evidence that a case exists.60
[169]However, that is not the end of the matter.
[170] In Intercity Group (NZ) Ltd v Naked bus NZ Ltd, Asher J observed that fishing is permissible if the categories of documents sought can be assumed to relate to a matter in issue, but becomes inadmissible where what is sought is not relevant to any pleaded cause of action but may reveal relevant material that could be the basis of a new head of claim.61 As noted above, Asher J made similar comments in Cathay Pacific Airways about fishing being impermissible if the documents sought relate to a non-pleaded issue.62
[171] That is not the situation here. The documents sought are relevant to the sixth cause of action pleaded in ASOC 3. The difficulty is that, while the documents may be relevant to the central allegation of misappropriation at [146], they are outside the scope of the allegation as particularised. In terms of Henkel, that particularisation is necessary to identify clearly the copyright work in respect of which the defendants are said to have infringed.63
[172] In these circumstances, I consider the case for ordering further discovery to be finely balanced. On the one hand, the plaintiffs have not adduced evidence sufficient
60 Trade Practices Commission v CC (NSW) Pty Ltd (No 4), above n 52, at 592.
61 Intercity Group (NZ) Ltd v Naked bus NZ Ltd [2013] NZHC 1054 at [34].
62 Commerce Commission v Cathay Pacific Airways Ltd, above n 49, at [12].
63 Henkel KGaA v Holdfast New Zealand Ltd, above n 57, at [27].
to ground a suspicion that there has been a breach of copyright other than in relation to the [146 a] Features – on which discovery has been ordered and completed. On the other hand, it is undoubtedly the case that discovery of the documents sought may lead to a chain of inquiry that has the consequence of either advancing the plaintiffs’ case or damaging the case for the defendants – one element of the classic test for discovery articulated by Brett LJ in Compagnie Financiere et Commerciale du Pacifique v Peruvian Guano Co.64
[173] While that limb of Brett LJ’s test is not contained in r 8.7 of the High Court Rules, which defines the scope of standard discovery, given that r 8.8 provides that tailored discovery must be ordered when the interests of justice require more or less discovery than standard discovery and given that r 8.9 provides that it is to be presumed that the interests of justice require tailored discovery in proceedings that involve allegations of fraud or dishonesty (as this proceeding does), I consider that it is appropriate to require the defendants to disclose the design drawings of the S25 as at 1 April 2020 and the design drawings of the S25 Gen 2 from 1 April 2020 to the present.
[174] I am reinforced in that view because, without discovery of those design drawings, the trial judge may be invited to speculate about what might have been disclosed if such discovery had been ordered. I consider that it is in the interests of justice that the requested material is before the Court so that all claims of misappropriation of copyright can be resolved one way or another. If there is no substance to these claims, that will clearly be a matter to be taken into account when costs are determined.
[175] I recognise that this might be a significant undertaking for the defendants, which is why I am setting 17 April 2024, six weeks from the date of this judgment, as the date for completion of discovery.
64 Compagnie Financiere et Commerciale du Pacifique v Peruvian Guano Co (1882) 11 QBD 55 at 63.
[176] I also recognise the defendants’ concerns about the commercial sensitivity of the documents sought. For that reason, I am making orders directing that access to the documents is to be limited to the plaintiffs’ counsel, Mr Lyons, Professor MacDonald and any other agreed expert witnesses, all of whom must provide undertakings as to confidentiality.
Category 5
[177] As Mr Holmes says, documents relating to the supply of S25 systems and services after the Termination Date can be relevant only to quantum and are not relevant to whether the plaintiffs own the intellectual property in the S25 or have misappropriated intellectual property from the S65/S80/S95 and incorporated it in the S25 Gen 2.
[178] As with the Category 3 documents, in these circumstances and given my decision below to order separate trials for liability and quantum, I decline to make any orders in relation to these documents.
Category 6
[179] Mr Elliott says the financial information it seeks about Anura is relevant to the likelihood of there being joint venture / fiduciary obligations and to the impetus for the S25 Ownership Agreement.
[180] Having regard to the test for the interpretation of contracts confirmed by the Supreme Court in Bathurst Resources Ltd v L&M Coal Holdings Ltd,65 whether or not there was a joint venture and/or fiduciary obligations, and whether or not there was an agreement for the transfer of ownership in the S25, will depend on what the Court considers that a reasonable person, having all the background knowledge which would reasonably have been available to the parties in the situation in which they were at the time, would have considered the parties had agreed to. This will largely depend on contemporaneous documents exchanged between the parties and the oral evidence of relevant participants about what took place in the period between when the plaintiffs
65 Bathurst Resources Ltd v L&M Coal Holdings Ltd [2021] NZSC 85, [2021] 1 NZLR 696 at [43].
and Anura first engaged until August 2018. I accept, however, that other evidence, including evidence about the financial position of Anura at the time, may be relevant. That is particularly so if, as appears to be the case, there are no documents that record the terms of any agreements as such and there is a conflict in the evidence about what happened and what was, and was not, agreed.
[181] For these reasons, I agree that Anura should be required to disclose financial information showing income and expenditure relating to its design, development, sales and servicing of amphibious systems from its accounting year commencing in 2016 to its accounting year ending in 2019. Disclosure of those financial records should not impose a significant financial burden on the defendants or affect the operations of Anura.
[182]I see no case, however, for extending that obligation past 2019.
Category 7
[183] This category seeks stocktaking information about the S25. Yet, Mr Elliott’s submissions in support of this category relate only to the S65/S80/S95, in respect of which:
(a)the plaintiffs sent the defendants some parts and products during those programmes; and
(b)the defendants say all information and material has been sent to the plaintiffs in the United States.
[184] On that basis, I see no purpose in requiring discovery at this stage. Whether such documents may be relevant to quantum can be considered later if appropriate.
Result on application for further and better discovery
[185] The plaintiffs’ application for further and better discovery is granted in part as set out at the conclusion of this judgment.
Defendants’ application for split trials
[186] The defendants ask that the four-week trial set down for 30 September 2024 be limited to determining liability under the plaintiffs’ seven causes of action and Anura’s counterclaim against Acra-Cut for unpaid invoices. Under the orders sought by the defendants, issues of quantum under the plaintiffs’ causes of action would be heard at a subsequent trial, if necessary, and after any appeals have been resolved, together with the defendants’ remaining counterclaims, if the defendants elect to continue those claims.
[187] The plaintiffs oppose that application but propose that the defendants’ counterclaims arising out of the Shieff Angland letters be heard at a later trial.
[188] Given the length of this judgment, I will not traverse all the submissions and authorities that were addressed on this application, the answer to which I consider to be straightforward.
Analysis
[189]Rules 10.4 and 10.15 of the High Court Rules provide:
10.4 Court may order separate trials
When justice requires, the court may order separate trials of causes of action and it may also direct the sequence of the separate trials and make any supplementary order that is just.
10.15 Orders for decision
The court may, whether or not the decision will dispose of the proceeding, make orders for—
(a)the decision of any question separately from any other question, before, at, or after any trial or further trial in the proceeding; and
(b)the formulation of the question for decision and, if thought necessary, the statement of a case.
[190] As White J said in Turners & Growers Ltd v Zespri Group Ltd, the Court has a broad discretion under both rules to decide whether justice requires a split trial and, in exercising that discretion, the Court will take into account not only the interests of the
parties immediately affected but also the interests of other parties to other cases awaiting hearings before the Court.66
[191] As Associate Judge Osborne observed in Karam v Fairfax New Zealand Ltd, each case is to be considered on its merits, but there is an assumption that it is usually preferable to determine all matters at issue in one trial and it is for the party seeking a split trial to establish good, preponderant reasons in favour of separate hearings.67
[192] As discussed by White J in Turners & Growers, there have been judicial warnings about the risks of a split trial, and some decisions refer to the applicant having a heavy burden to discharge to persuade the Court to depart from the presumption that all issues in a proceeding should be heard at a single trial.68 As set out by White J, a considerable number of criteria have been developed to assess those risks.69 However, more recently, the Court of Appeal has observed that separate hearings are now commonplace, particularly in intellectual property cases.70
[193] Having presided over two two-day interlocutory hearings in this proceeding, each of which has involved volumes of evidence that was heavily contested in lengthy submissions supported by many volumes of authorities, and which resulted in substantial judgments, and having case-managed this file over the past two years, I consider there are a number of reasons in favour of ordering a split trial as sought by the defendants.
[194] First, if the plaintiffs do not succeed in establishing liability under any of the pleaded causes of action, there will be no need for a second trial, at least as far as the plaintiffs’ claims are concerned. While the evidence in support of those claims has yet to be tested, there is, so far, a notable absence of documentary material to support the plaintiffs’ various claims to own the intellectual property in the S25 and, to date, no reliable direct evidence to support the plaintiffs’ claims regarding misappropriation of the plaintiffs’ intellectual property in the S65/S80/S95 and its incorporation in the S25
66 Turners & Growers Ltd v Zespri Group Ltd HC Auckland CIV-2009-404-4392, 5 May 2010 at [9].
67 Karam v Fairfax New Zealand Ltd [2012] NZHC 1331 at [58].
68 Turners & Growers Ltd v Zespri Group Ltd, above n 66, at [10], citing Clear Communications Ltd v Telecom Corporation of New Zealand Ltd (1998) 12 PRNZ 333 (HC) at 335.
69 Turners & Growers Ltd v Zespri Group Ltd, above n 66, at [11].
70 Burden v ESR Group (NZ) Ltd [2020] NZCA 560, (2020) 157 IPR 217 at [30].
Gen 2. There is a reasonable prospect, therefore, that discovery and a second trial on quantum, and the associated costs of each, will be avoided if the first trial is limited to liability on the plaintiffs’ claims and the first counterclaim.
[195]Secondly, unlike the plaintiffs’ claims, Anura’s counterclaim is limited in scope
– to three unpaid invoices. Damages have been quantified and the amount sought is held in the plaintiffs’ solicitors trust account. Quantum, therefore, is not likely to be an issue.
[196] Thirdly, if the defendants elect to proceed with their second to fifth counterclaims at a separate trial, the issues of liability and quantum of damages in that trial are quite discrete from the issues in the first trial.
[197] Fourthly, if the plaintiffs are unable to establish that the defendants are liable to the plaintiffs for breaches of confidence and breach of copyright, that is likely to resolve the proceedings brought by the plaintiffs against 13 separate defendants based on the alleged breaches of copyright by Anura. While those proceedings are separate from the current proceeding, the defendants in those proceedings should be able to plead issue estoppel against the plaintiffs. That would result in considerable savings in court time around New Zealand.
[198] Fifthly, I consider it likely that a trial on liability and quantum on all claims and counterclaims would not be concluded within the scheduled four weeks and would have to be adjourned part heard. I consider that there would be a real risk of that happening, even if the defendants’ second to fifth counterclaims were deferred to a later hearing. My reasons for this assessment are as follows:
(a)Despite the apparent paucity of evidence, the plaintiffs’ claims have increased as the proceeding has evolved and are now significant in number, scope and complexity.
(b)However, the scope and content of the claims for misuse of confidential information and breach of copyright have yet to be defined and
damages have yet to be quantified for any of the plaintiffs’ causes of action.
(c)In addition, the history of the proceeding to date demonstrates that the parties are likely to dispute any substantial point at issue and are unlikely to be able to agree on narrowing areas of difference.
(d)Given the various heads under which the plaintiffs seek damages (breaches of five contracts; breaches of confidence and of copyright; breaches of fiduciary duty; and inducement to breach contract) and the different bases on which remedies are sought (contractual damages; equitable compensation; an account of profits; and additional damages under s 121(2) of the Copyright Act), I do not accept that, if liability is determined, damages are likely to be largely an accounting exercise and not especially burdensome.
[199] In my judgement, those factors suggest that it is quite likely that the proceeding will not be resolved this year if there is no order for a split trial and that the trial will have to be adjourned part-heard to a date in 2025 or, more probably 2026, bearing on mind that most of the hearing time in 2025 will have been allocated by the time the hearing concludes in October 2024.
[200] In my view, these factors, taken together, strongly indicate that a split trial should be ordered.
[201] I acknowledge that Brown J declined to order a split trial in Eight Mile Style, LLC v The New Zealand National Party where, as here, additional damages were sought under s 121(2) of the Copyright Act.71 However, the circumstances of that case are rather different from those of this proceeding:
(a)There were more independent parties to that proceeding than the current proceeding, where the interests of all plaintiffs are aligned, as are those of the defendants.
71 Eight Mile Style, LLC v The New Zealand National Party [2016] NZHC 741.
(b)Brown J was reluctant to order a split trial, principally because he considered it reduced the prospects of settlement on quantum, with the consequence that the savings of time and cost associated with a split trial would not be achieved.72 Given the history of this proceeding, where the plaintiffs have pursued maximalist positions at almost every turn, I doubt that any finding of liability on the part of the defendants would lead to settlement on quantum. So, quantum is likely to be an issue in any event, whether or not the plaintiffs succeed in establishing that the defendants’ breaches of confidence and copyright were flagrant.
[202] While Mr Elliott draws attention to some of the risks identified by White J in Turners & Growers, such as inadvertent disqualification of the judge at the first trial and the risk that the judge at the first trial may not be available for the second, I do not consider these risks sufficient to outweigh the reasons in favour of a split trial.
[203] I acknowledge that, if the plaintiffs succeed in establishing that the defendants are liable under one or more of the causes of action, Mr Baker and Mr Willis may have to travel twice to New Zealand to give evidence. While that will cause inconvenience, it is the consequence of Mr Baker choosing to do business and bring proceedings litigate in New Zealand and the manner in which this proceeding has been pursued.
Result on application for split trial
[204] For the above reasons, I grant the defendants’ application for a split trial in accordance with orders set out at the conclusion of the judgment.
Defendants’ application for further discovery
[205] It is common ground that there is no need for me to make any orders for discovery in relation to the defendants’ second to fifth counterclaims if I order a split trial. Accordingly, I take those aspects of the defendants’ application no further.
72 At [29].
[206] All that remains is to determine the defendants’ request that the plaintiffs search for relevant documents which the defendants believe have not been captured in the searches on which discovery in the Baker Affidavit of Documents was effected.
Relevant background
[207] In the Baker Affidavit of Documents, Mr Baker said he instructed two individuals, Dominic Breen and Neville Tahmo, from a company that specialises in file management to:
(a)search Mr Baker’s email account, [REDACTED] (Baker Yahoo Address) and extract all communications from 1 January 2016 that Mr Baker had with specified email accounts and concerning certain categories of information including “any emails associated with Orion” and “anything associated with Sealegs”; and
(b)to conduct word and string searches of Mr Baker’s computer for specified terms which included “S25”, “S65”, “S80”, “S95” and “ASIS”.
[208] Mr Baker said the Baker Yahoo Address was the only email address he used for communications relevant to this proceeding.
[209] In their application, the defendants ask that the plaintiffs conduct further searches by instructing Mr Breen and Mr Tahmo to extract:
(a)all emails from the Baker Yahoo Address account sent to and received from 11 specified accounts; and
(b)all emails from another email account used by Mr Baker, [REDACTED] (Baker Gmail Address) sent to and received from the same 11 specified accounts.
[210] The 11 specified accounts comprise email addresses of Mr Willis, including [REDACTED] (the Dantheman Address), Mr Jeff Baker, two persons associated with
Sealegs, and staff members at Intech Inc, the first plaintiff, and Acra-Cut, with whom the defendants have communicated.
[211] Mr Leybourne disputes Mr Baker’s statement that the Baker Yahoo Address is the only email address Mr Baker has used and says that he believes relevant correspondence would be on the 11 specified accounts.
[212] Mr Baker agrees that he copied material to the Baker Gmail Address but says it was only used as a copy address. He says the Dantheman Address did not come into existence until 2023 and that, as his solicitors had already advised the defendants’ solicitors, Jeff Baker ceased working with the plaintiffs in July 2019 and his emails are no longer under the plaintiffs’ control. He also says that any communications relevant to the proceeding would have been captured by the word and string searches.
Analysis
[213] Under the Discovery Orders, the plaintiffs were required to provide the defendants with a list of the documents, records or communications that are or had been in their possession, power or control and fell within any of the descriptions in paras 9 to 24.
[214] I accept Mr Baker’s explanation regarding the Dantheman Address. Documents to and from that address would be outside the time periods specified in the Discovery Orders. I also accept that the plaintiffs’ no longer have control of Mr Jeff Baker’s email addresses but have disclosed communications to and from those addresses that are within the plaintiffs’ control.
[215] I also accept that Mr Baker’s instructions to Mr Breen and Mr Tahmo probably captured most documents of relevance because of the word and string searches included in the instructions, particularly the terms “any emails associated with Orion” and “anything associated with Sealegs” and the identification of S25, S65, S80 and S95 as relevant terms. I do not consider it is necessary, therefore, to require the plaintiffs to undertake further searches of the Baker Yahoo Address.
[216] Whether or not it is necessary for searches to be undertaken of the Baker Gmail Address is a little less straightforward. Searches carried out in accordance with Mr Baker’s instructions would not have captured relevant communications sent inadvertently or deliberately to or from the Baker Gmail Address and which were not copied to the Baker Yahoo Address. However, Mr Leybourne acknowledges that the Baker Gmail Address was used as a copy address. Given that acknowledgement, and in the absence of any evidence of substantive communications being conducted from the Baker Gmail Address and not copied to the Baker Yahoo Address, I am not persuaded that any further orders are necessary.
Result on defendants’ application for further discovery
[217]The defendants’ application for further discovery is dismissed.
Conclusions and orders on all applications
[218]The plaintiffs’ application for inspection is dismissed.
[219]With respect to the plaintiffs’ application for further and better discovery:
(a)The application with respect to the documents in Categories 1, 2, 3, 5 and 7 is dismissed.
(b)With respect to the documents in Category 4:
(i)the defendants are to file and serve, by 17 April 2024 a list of:
(1) all designs, drawings and other records relating to the design of the S25 Gen 1 as at 1 April 2020; and
(2) all designs, drawings and other records relating to the design of the S25 Gen 2 from 1 April 2020 to the present.
(ii)Access to these documents is to be limited to the plaintiffs’ representatives (comprising no more than three legal representatives, Mr David Henry Lyons and Professor Bruce
MacDonald) and no more than two additional independent experts agreed by the plaintiffs and the defendants, all of whom shall execute undertakings as to confidentiality in a form agreed by the plaintiffs and the defendants.
(c)With respect to the documents in Category 6, the defendants are to file and serve, by 17 April 2024 a list of documents showing income and expenditure of the first defendant relating to its design, development, sales and servicing of amphibious systems for its accounting year commencing in 2016 to its accounting year ending in 2019.
[220] The defendants’ application for a split trial is granted in accordance with the following order:
(a)The hearing set down to commence on 30 September 2024 is to be limited to determining:
(i)liability under the plaintiffs’ seven causes of action in the plaintiffs’ third amended statement of claim, dated 2 September 2022; and
(ii)all the first defendant’s counterclaim against the third plaintiff in the defendants’ amended statement of defence to the third amended statement of claim and first amended counterclaim, dated 1 May 2023.
(b)Issues of quantum under the plaintiffs’ causes of action are to be heard at a subsequent trial, if necessary, and after any appeals have been resolved, together with the defendants’ second to fifth counterclaims, if the defendants elect to continue those claims.
[221]The defendants’ application for further discovery is dismissed.
Costs
[222] As the successful parties in the plaintiffs’ application for inspection heard on 17 August 2023, the defendants are entitled to costs on that application on a 2B basis, to be fixed by the Registrar, with any disputed issues referred to me.
[223] Because the plaintiffs and defendants each had some success in the other applications heard on 27 and 28 November 2023, the costs of those applications shall lie where they fall.
G J van Bohemen J
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