Intech Inc v Anura Limited (fka Orion Marine Limited)
[2022] NZHC 1876
•2 August 2022
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE
CIV 2021-404-002270
[2022] NZHC 1876
BETWEEN INTECH INC
First Plaintiff
AND
WAREHAM STEAMSHIP CORPORATION
Second Plaintiff
AND
ACRA-CUT INC
Third Plaintiff
AND
ANURA LIMITED
(formerly named ORION MARINE LIMITED) First Defendant
AND
ZHANG YUN
Second Defendant
continued overleaf…
Hearing: on the papers Counsel:
C Elliott QC & K Crossland for the Plaintiff
G Illingworth QC & A Hyde for the First, Second, Third & Fourth Defendants
Judgment:
2 August 2022
JUDGMENT OF VAN BOHEMEN J
[as to costs]
This judgment was delivered by me on 2 August at 3.00pm. Pursuant to Rule 11.5 of the High Court Rules.
Solicitors/Counsel:
C Elliott QC, AucklandG M Illingworth QC, Auckland Shieff Angland Lawyers, Auckland Heritage Law, Auckland
Keegan Alexander, Auckland
…………………………
Registrar/Deputy Registrar
INTECH INC v ANURA LIMITED [AS TO COSTS] [2022] NZHC 1876 [2 August 2022]
continued from previous page… AND
DARREN PAUL LEYBOURNE
Third DefendantAND
VLADAN ZUBCIC
Fourth Defendant
AND
STRYDA MARINE LIMITED
Fifth Defendant
AND
WARREN FARR
Sixth Defendant
Introduction
[1] In my judgment dated 25 March 2022,1 I dismissed the plaintiffs’ application for interim orders requiring the first to the fourth defendants:2
(a)to deliver to the plaintiffs the intellectual property in amphibious systems designed by the defendants at the plaintiffs’ instruction; and
(b)to set aside a notional royalty on the sales of the principal system sold by the first defendant pending determination of the plaintiffs’ claim to have acquired the intellectual property in that system.
[2] I held that the defendants were entitled to costs at least on a 2B basis but reserved leave to apply for increased costs.3
[3] In their counsels’ memorandum dated 14 April 2022, the defendants seek indemnity costs or, if indemnity costs are not approved, a 100 per cent uplift on scale costs calculated on 2B and 2C bases. The defendants say their actual costs were
$286,937.50, comprising $159,737.50 for the fees of their solicitors, Keegan Alexander, and $127,200.00 for the fees of their counsel, Mr Illingworth QC.4 The defendants also claim disbursements of $12,198.50 for charges incurred in New Zealand and USD11,012.50 for preparation of an affidavit by Jon Barooshian, an American lawyer, whose affidavit discussed the history of litigation in the United States of the plaintiffs and Mr Jack Baker, who owns and controls the plaintiffs.
[4] In their counsels’ memorandum dated 18 May 2022, the plaintiffs say the costs claimed by the defendants are excessive and that there is no case for indemnity costs to be ordered. They say costs should be awarded on a 2B basis and that the plaintiffs’ partial success should be reflected in the costs award. The plaintiffs also say that, if any increase on scale costs is to be awarded, it should not exceed 20 per cent.
1 Intech Inc v Anura Ltd [2022] NZHC 574.
2 No orders were sought against the fifth and sixth defendants who took no part in the application for interim orders. As in my judgment of 25 March 2022, references to the defendants in this judgment are to the first to the fourth defendants.
3 Intech Inc v Anura Ltd, above n 1, at [168].
4 Amended figures as advised in memorandum dated 6 May 2022 of counsel for the defendants.
[5] In subsequent memoranda, counsel for the parties make submissions on whether the defendants can properly claim costs with respect to the preparation of Mr Barooshian’s affidavit. Counsel for the defendants also provided further information about their costs in relation to the plaintiffs’ application.
Relevant background
[6] The background to the plaintiffs’ application is set out in my judgment of 25 March 2022.5
[7] Briefly, the plaintiffs say that, following the termination of their relationship with the first defendant, Anura Ltd, formerly called Orion Marine Ltd, (Orion), Orion and the second, third and fourth defendants, Mr Zhang, Mr Leybourne and Mr Zubcic:
(a)Failed to return the plaintiffs’ intellectual property in two amphibious systems, the S60 and S80/95, which the plaintiffs commissioned Orion to design;6 and
(b)Must account to the plaintiffs for the plaintiffs’ rights in Orion’s principal amphibious system, the S25, which the plaintiffs say they acquired when:
(i)Mr Baker commissioned improvements to a Modified S25 in 2016 – 17; and
(ii)Mr Baker agreed at meetings in Massachusetts in August 2018 to lend $200,000 to Orion to part fund Orion’s appeal against an injunction restraining manufacture of the S25 obtained by Orion’s rival, Sealegs International Ltd (Sealegs).
[8] In their substantive claim, which has yet to be heard, the plaintiffs seek a series of orders against the defendants, including permanent injunctions restraining the
5 Intech Inc v Anura Ltd, above n 1, at [24] – [100].
6 Although the plaintiffs’ pleadings assert that the S80 and S95 are distinct systems, it was apparent from the evidence that they are the same system and that Mr Baker chose to rename the S80 system, as re-designed by Orion, as the S95.
defendants from using the intellectual property in the S 60, S80/95 and S25, as well as other orders and damages.
[9] Pending determination of their substantive claim, the plaintiffs sought interim orders requiring the defendants:
(a)to deliver to them the intellectual property in the S60 and S80/95 systems;
(b)to set aside a notional royalty on sales of the S25 by Orion; and
(c)preservation and inspection orders to ensure the effectiveness of the above orders.
Judgment of 25 March 2022
[10] In my judgment, I recorded that the defendants accepted that the plaintiffs owned the intellectual properly in the S60 and S80/95 systems and said they had returned all property they held with respect to those systems.7 Because of arrangements agreed after the hearing regarding CAD/CAM files8 that had been withheld by the defendants pending payment by the plaintiffs of outstanding invoices,9 I held that the only issue seriously in contention with respect to the S60 and S80/95 systems was whether the defendants had sent the plaintiffs all the electronic files and other material and information held with respect to those systems.10 I noted that some of the items for which the plaintiffs had sought proof of delivery were questionable.11 But, given the plaintiffs’ position that there were still outstanding issues to be resolved, I accepted that whether the defendants had sent all of the relevant material was arguable.12
7 Intech Inc v Anura Ltd, above n 1, at [103].
8 Computer Aided Design / Computer Aided Machining.
9 Intech Inc v Anura Ltd, above n 1, at [18].
10 At [106].
11 At [107].
12 At [109].
[11] However, I also said that the scope and detail of plaintiffs’ requests for proof of receipt did not accurately reflect the scope of the items really at issue, were not consistent with a wish only to recover the intellectual property the plaintiffs said should have been returned to them and were disproportionate to the issues at stake.13
[12] I held that the balance of convenience and the overall interests of justice lay strongly in favour of the defendants and declined the plaintiffs’ application for interim orders with respect to those systems.14
[13] With respect to the S25 system, I said it was remarkable that there was no documentary evidence to support Mr Baker’s contention that it had been agreed in 2016 and 2017 that he and his companies would acquire the intellectual property in the system by commissioning improvements that would result in a Modified S25.15 I held that it was not reasonably arguable that there had an agreement between Mr Baker and the defendants in relation to the S25 prior to August 2018.16
[14] With respect to the asserted agreement said to have been reached in August 2018, I said it was inherently unlikely Orion would have agreed to transfer the S25 to the Baker interests as the price for an advance to defend its rights to that system in the Sealegs litigation because that would have negated the purpose of the appeal.17
[15] I had doubts as to the veracity of the accounts of Mr Baker and his associate, Mr Willis, about what had taken place in August 2018.18 However, because Mr Baker and Mr Willis had not been subject to cross-examination, and because I considered there were aspects of the defendants’ evidence that gave rise to questions, I was not able to conclude that the accounts put forward by Mr Baker and Mr Willis were inherently incredible. Accordingly, I could not find that there was no credible evidence to support the plaintiffs’ claims.19
13 At [107] – [109].
14 At [159] – [160].
15 At [119].
16 At [119] – [123].
17 At [135] – [136].
18 At [137] – [143].
19 At [144] – [145].
[16] I concluded, therefore, that it was arguable that there was a serious issue to be tried in relation to the S25 under the first to fifth causes of action, namely whether Orion or any of the other defendants on its behalf had agreed to assigning the rights to the intellectual property in the S25 to the Baker interests.20
[17] However, with respect to the balance of convenience and the interests of justice, I saw no case for requiring the defendants to pay a notional royalty of any amount pending determination of the plaintiffs’ substantive claim.21
Applicable principles on costs
[18] As stated by the Supreme Court in Manukau Golf Club Inc v Shoye Venture Ltd and by the Court of Appeal in Bradbury v Westpac Banking Corp, and as reflected in the High Court Rules 2016, it is a fundamental principle that costs follow the event.22 While all matters relating to costs are at the discretion of the Court,23 that general discretion is qualified by the specific costs rules in the Rules and is exercisable only in situations not contemplated or not fairly recognised by the Rules. Ordinarily, the loser pays the winner’s costs according to the scale set out in the Rules. 24 The scale reflects the complexity and significance of the proceeding and is assessed at two-thirds of the daily rate considered reasonable in relation to the proceeding.25
[19] In the circumstances provided for r 14.6(3) and (4), the Court may either make an order for increased costs or an order for indemnity costs. Under r 14.6(3) the Court may order a party to pay increased costs if the party “has contributed unnecessarily to the time or expense of the proceeding” by, for example, “taking or pursuing an unnecessary step or an argument that lacks merit.” Under r 14.6(4), the Court may also order a party to pay indemnity costs if the party has “acted vexatiously, frivolously, improperly or unnecessarily in commencing, continuing, or defending a
20 At [146].
21 At [166].
22 Manukau Golf Club Inc v Shoye Venture Ltd [2012] NZSC 109, [2013] 1 NZLR 305 at [8]; Bradbury v Westpac Banking Corporation [2009] NZCA 234, [2009] 3 NZLR 400 at [6]; High Court Rules 2016, r 14.2(1)(a).
23 High Court Rules 2016, r 14.1(1).
24 Rule 14.2(1)(a).25 Bradbury v Westpac Banking Corporation, above n 22 at [6]; Rule 14.2(1).
proceeding or a step in a proceeding” or has “ignored or disobeyed an order or direction of the Court”.26
[20]In Bradbury, the Court of Appeal said:27
(a)Standard scale costs apply by default where cause has not been shown to depart from the scale;
(b)Increased costs may be ordered where there is failure by the paying party to act reasonably;
(c)Indemnity costs may be ordered where that party has behaved either badly or very unreasonably.
[21] The Court said indemnity costs are “exceptional and require exceptionally bad behaviour” and that to justify an order for such costs the misconduct must be “flagrant”.28 Similarly, the Court of Appeal in Vining Realty Group Ltd v Moorhouse said an award of indemnity costs is exceptional.29
Correspondence on possible settlement of application for interim orders
[22] Both sets of counsel refer, in their memoranda on costs, to correspondence exchanged between the parties. Only one of the referenced communications, the plaintiffs’ letter of 29 June 2021, was previously in evidence.
Plaintiffs letter of 29 June 2021
[23] Counsel for the plaintiffs refer to a letter sent to the defendants on 29 June 2021 in which, they say, the plaintiffs sought undertakings from the defendants in an effort to mitigate their losses and avoid the need for any interim application. This letter was exhibited to Mr Baker’s first affidavit, sworn on 1 December 2021.
26 Rule 14.6(4)(a).
27 At Bradbury v Westpac Banking Corporation, above n 22 at [27].
28 At [28].
29 Vining Realty Group Ltd v Moorhouse [2010] NZCA 104, (2011) 11 NZCPR 879 at [131].
[24] In that letter, the solicitors for the plaintiffs sought to require the defendants to sign written declarations by which the defendants would, among other things:
(a)acknowledge that the intellectual property in the S65, S80 and S95 systems was the sole property of Acra-Cut, the third plaintiff;
(b)acknowledge that all manufactured or partly manufactured S65, S80 and S95 systems and related parts and components for manufacturing and servicing the systems were the sole property of Acra-Cut;
(c)undertake not to disclose or transfer the intellectual property and confidential information in those systems to any third party;
(d)undertake to return all hard copies and electronic copies of documents containing the intellectual property and confidential information in those systems; and
(e)undertake to deliver up all manufactured or partly manufactured S65, S80 and S95 systems and related parts and components for manufacturing and servicing the systems.
[25] In addition, the letter demanded that Orion acknowledged an indebtedness to Acra-Cut for USD 2 million for unfinished design and manufacturing work and agree to reimburse Acra-Cut that amount within 20 working days.
[26] The letter advised that the plaintiffs would issue proceedings if the plaintiffs could not gain the comfort sought by the measures outlined in the letter.
[27]The letter made no reference to the S25.
Plaintiffs’ letter of 7 December 2021
[28] Counsel for the plaintiffs refer to “a reasonable settlement offer” made to the defendants on 7 December 2021. The letter was not exhibited to any of Mr Baker’s
three affidavits, and has not been provided by counsel, although subsequent correspondence from the plaintiffs’ solicitors referred to the letter as an “open” letter.
Defendants’ letter of 9 December 2021
[29] On 9 December 2021, the defendants’ solicitors wrote to the plaintiffs’ solicitors a letter headed “WITHOUT PREJUDICE SAVE AS TO COSTS.” A copy of this letter is enclosed with the costs memorandum filed by counsel for the defendants, together with copies of subsequent email exchanges.
[30] The defendants’ letter referred to a minute of Katz J dated 6 December 202130 and to subsequent discussions between senior counsel. It also acknowledged receipt of the plaintiffs’ without prejudice proposal of 7 December 2021.
[31] The letter said the defendants did not dispute the plaintiffs’ ownership of intellectual property rights in the S60 and S80/95 systems and said they had provided to the plaintiffs all physical items relating to those systems. The letter asked the plaintiffs to specify what they said had been retained.
[32] The letter also said the defendants kept and would continue to keep records of all sales relating to the S 25. It also said the defendants would not agree to forensic clones being made of Orion’s computers, phones and other electronic devices because that would amount to copying Orion’s entire business and was disproportionate to the claims in the proceeding.
[33] The letter proposed an agreement in which the defendants would, among other things:
(a)Undertake not to manufacture or sell the S65 or S80/95 systems;
(b)Deliver up all existing design documents relating to the S65 and S80/95 systems, including the CAD/CAM files withheld pending payment of
30 CIV-2021-404-002270 HC Auckland, 6 December 2021 (Minute of Katz J).
the outstanding invoices, and offered to waive payment of those invoices;
(c)Consider refunding any costs of S25 systems supplied to the plaintiffs that were faulty or malfunctioning if returned in the same condition as when supplied; and
(d)Agree to an independent expert taking copies of all Solidworks files held on Orion computers relating to the S25, S65 and S80/95 systems, with the copies to be held by the expert pending resolution of the plaintiffs’ substantive claims.
[34] If these arrangements were agreeable to the plaintiffs, the defendants said the plaintiffs should withdraw the application for interim orders and there would be no issue as to costs.
Plaintiffs email of 10 December 2021
[35] In his email of 10 December 2021 to the defendants’ solicitor, Mr Crossland, solicitor for the plaintiffs, took issue with the defendants’ characterisation of the plaintiffs’ letter of 7 December 2021 as being a “without prejudice” proposal and said it was open and admissible in evidence.
[36] The email did not engage with the defendants’ letter of 9 December 2021 but asked the defendants to state in an open letter what they would agree to. The email refined aspects of the proposals in the plaintiffs’ letter of 7 December 2021 concerning:
(a)The time the plaintiffs’ expert would need to consider the CAD/CAM drawings;
(b)The fact the plaintiffs had already retained and were willing to pay the costs of an expert to undertake the proposed cloning; and
(c)The plaintiffs’ willingness to match the proposed 20 per cent royalty arrangement once the amount paid by the plaintiffs reached $300,000.
Plaintiffs’ email of 15 December 2021
[37] In an email dated 15 December 2021, Mr Crossland asked for an open response to the matters highlighted in the plaintiffs’ email of 10 December 2021 and letter of 7 December 2021.
Defendants’ email of 15 December 2021
[38] In an email dated 15 December 2021 and headed “Without prejudice as to costs,” Ms Hyde, solicitor for the defendants, said that until agreement was reached on the matters set out in the defendants’ letter of 9 December 2021, the defendants would not correspond on these matters on an open basis. The email asked for clarity on which matters said the plaintiffs considered could be agreed and which were outstanding.
Plaintiffs’ email of 16 December 2021
[39] In an email dated 16 December 2021, Mr Crossland pressed Ms Hyde for an open response to the plaintiffs’ proposals. The email said that if the defendants did not agree to anything openly, the plaintiffs would be seeking additional damages for the defendants’ equivocation over recognising and returning the plaintiffs’ copyright works relating to the S60, S80 and S95.
Defendants letter of 21 December 2021
[40] In a letter dated 21 December 2021, Mr Illingworth QC, senior counsel for the defendants, took issue with the plaintiffs’ shutting the door on the ordinary and sensible process of allowing without prejudice discussions between senior counsel.
Questions for decision
[41] Having regard to the above principles, the memoranda of counsel and the correspondence between the parties, the questions for decision are:
(a)In pursuit of the interim orders, did the plaintiffs behave badly or very unreasonably such as to warrant an award of indemnity costs?
(b)If the answer to (a) is “yes”, are the actual costs claimed by the defendants appropriate?
(c)If the answer to (a) is “no”:
(i)what scale should apply to the costs claimed by the defendants?
(ii)did the plaintiffs fail to act reasonably such as to warrant an award of increased costs? and
(iii)if an award of increased costs is warranted, what level of uplift should be applied?
(d)Should the plaintiffs’ asserted partial success be reflected in the costs award?
(e)Should the plaintiffs be required to meet the costs of Mr Barooshian’s affidavit?
Did the plaintiffs behave badly or very unreasonably?
Submissions of counsel for the defendants
[42] Counsel for the defendants say the plaintiffs acted very unreasonably by pursuing an application which was fundamentally flawed, was not founded on a proper legal or evidential basis and sought intrusive orders that would have been oppressive to the defendants if granted. They also say the application was brought for an ulterior motive, to seek retribution against the defendants for continuing to provide services to ASIS Boats and its customers against Mr Baker’s instructions and to carry out a “commercial mugging” of the defendants’ intellectual property.31 They also say that
31 In Acra-Cut Inc v Almega Tooling Inc, Superior Court of Massachusetts, 2012 WL 3029457 (2012), the Superior Court of Massachusetts described the actions of Acra-Cut Inc as manifesting, if not extorsion as suggested by the defendants in that proceeding, as “at the least an attempted commercial mugging.” In Acra-Cut Inc v Almega Tooling Inc, 87 Mass. App. Ct. 1122 (2015), the Appeals Court of Massachusetts held that the Superior Court Judge was warranted in describing Acra-Cut’s course of conduct as “an attempted commercial mugging.”
the plaintiffs’ witnesses fabricated numerous aspects of their evidence, including evidence of the S25 agreement.
[43] Counsel for the defendants submit that, while I was not able to resolve the conflicts of evidence at the interlocutory stage, my findings as summarised at [10] –
[17] above support the defendants’ view that the plaintiffs’ application was not brought in good faith.
Submissions of counsel for plaintiffs
[44] Counsel for the plaintiffs say there is a great deal at stake in this proceeding and that the plaintiffs say they are out of pocket to the tune of many millions of dollars. They say there was a proper evidential and legal foundation to the plaintiffs’ application and that there is no basis for saying it had no prospects of success or that the plaintiffs behaved unreasonably in pursuing it. They also say the plaintiffs’ case cannot be hopeless because it enjoyed a degree of success. That is, I found it was arguable as to whether defendants had sent the plaintiffs all the electronic files and other material and information concerning the S60 and S80/95 systems and that it was arguable there was a serious issue to be tried in relation to the S25 under the first to fifth causes of action.
[45] Counsel for the plaintiffs say there is no evidence that the plaintiffs brought the proceedings with an improper motive and that it unprincipled, unfairly prejudicial and inappropriate to allege that Mr Baker’s evidence was fabricated. They also say the defendants have quoted selectively from my judgment and omitted comments similarly critical of the defendants. They take issue with Mr Barooshian’s affidavit, which they say was an affidavit of fact and not expert evidence. They also say there is no basis for drawing a connection between the comments of a United States judge in an unrelated case and this proceeding.
[46] Counsel for the plaintiffs further say that the plaintiffs had always been highly motivated to work with the defendants and sought undertakings in an attempt to mitigate their losses and avoid the need for interim orders. They also say that they made a reasonable settlement offer but that the defendants were uncompromising and
made a counter-offer that did not address most of the plaintiffs’ concerns. They say it was reasonable for the plaintiffs to reject the defendants’ settlement offer.
Discussion
[47] There is no suggestion that the plaintiffs ignored or disobeyed an order or direction of the Court. The essential question is whether, in terms of r 14.6(4), the plaintiffs acted vexatiously, frivolously, improperly or unnecessarily in seeking the interim orders which I declined to make.
[48] In assessing that question, I have regard principally to the allegations made by the plaintiffs in their statement of claim, the evidence put forward in support of their application, the orders sought and in the plaintiffs’ conduct of the proceeding prior to my decision.
[49] Because Mr Baker has not been cross-examined, I make no findings as to his veracity or as to whether he and Mr Willis fabricated evidence. I also draw no inference from the observations of the Superior Court of Massachusetts which were made following a trial and the evaluation of evidence or of the findings of the Appeals Court of Massachusetts. It is relevant, nonetheless, that the plaintiffs do not contest the essential purport of Mr Barooshian’s affidavit which is that Mr Baker and the plaintiff companies have been involved in a significant number of proceedings – more than 50 since 1981 – and that, in a number of those proceedings, the Courts have made findings and observations critical of Mr Baker and his companies.
[50] The affidavits of Mr Baker and those of Mr Leybourne, Mr Zubcic and Mr Zhang provide a sufficient basis from which to infer that Mr Baker terminated his relationship with Orion because he was unhappy with Mr Leybourne’s continued assistance to ASIS Boats, with whom Mr Baker had fallen out. In the absence of cross- examination of Mr Baker, however, I do not consider the affidavits provide a sufficient basis from which to infer that the interim orders were sought for an improper motive. Just because Mr Baker was angry with Mr Leybourne and the others at Orion does not establish that Mr Baker’s claims against the defendants have been brought improperly or for an improper motive.
The S60 and S80/95
[51] With regard to the S60 and S80/95 systems, despite the plaintiffs’ allegations in the statement of claim that the defendants had failed to provide complete details of those systems, and despite the application for orders restraining the defendants’ use of those systems and for preservation and inspection orders, at the hearing it was apparent that the only significant items at issue were the CAD/CAM files which the defendants had retained pending payment of outstanding invoices. Once a procedure for resolving those issues had been agreed following the hearing, it appeared that orders might no longer be required in relation to the S60 and S80/95 systems.
[52] It then transpired that, following agreement on the procedure regarding the CAD/CAM files, the plaintiffs had demanded proof of receipt of a large number of items drawn from invoices sent by Orion dating back to May 2018, including consumables, outwork and raw materials.
[53] Because I was not in a position to assess the validity of the plaintiffs’ claims that some of their questions of the defendants had not been answered, I held that it was arguable that there was an issue to be tried as to whether the plaintiffs had received all of the material in relation to the S60 and S80/95 systems. Even so, I am satisfied that the plaintiffs’ attempt to put the defendants to proof of receipt of items for which the plaintiffs had been invoiced many years ago and in relation to which no objection had been made at the time, and to continue to press for inspection and preservation orders in respect of that material, was out of all proportion to the issues at stake. That is so irrespective of the questions I had with respect to some aspects of the defendants’ evidence.
[54] I am also satisfied that the plaintiffs’ actions with respect to the S60 and S80/95 were not consistent with a good faith effort to resolve the matters at issue concerning those systems but instead to exert pressure on the defendants. In that regard, I do not consider that the letter of 29 June 2021 from the plaintiffs’ solicitors to the defendants, which referred only to the S60 and S80/95 systems and made no reference to the S25, can properly be characterised as an attempt by the plaintiffs to mitigate their losses and avoid the need for interim orders as asserted by counsel for the plaintiffs.
[55] Acceptance of the terms of the declarations the plaintiffs required the defendants to sign would have been seriously prejudicial to the defendants, who denied any liability to the plaintiffs. It is hardly surprising that these demands were rejected.
[56] I am satisfied that the plaintiffs acted for the purpose of putting pressure on the defendants. I doubt the plaintiffs had any genuine concern that the defendants had retained intellectual property in the S65 and S80/95 systems which had not been proved and which were very far from being commercial propositions.
[57] In all of these respects, and in seeking the orders applied for, I am satisfied that the plaintiffs over-reached and used the application for the purpose of exerting pressure on the defendants. However, aggressive posturing in contested proceedings is hardly unusual, even if often of doubtful utility. Regrettably, it is not exceptional. Until the plaintiffs’ substantive claims have been determined, therefore, I do not consider that I can conclude at this interlocutory phase that the plaintiffs acted vexatiously, frivolously, improperly or unnecessarily with respect to the orders sought in relation to the S60 and S80/95 systems.
The S25
[58] The plaintiffs asserted ownership of the intellectual property in the S25 system only after the defendants had refused to provide the undertakings sought with respect to the S60 and S80/95 systems. That itself raises a question as to the genuineness of the plaintiffs’ claim.
[59] There is also no documentary evidence to support Mr Baker’s original claim to have acquired the intellectual property in the S25 prior to the meetings in Massachusetts in August 2018. In his later affidavits, Mr Baker effectively abandoned that claim which I held not to be seriously arguable. That raises a further question as to the genuineness of the plaintiffs’ claim.
[60] The only question seriously in contention is whether the defendants agreed to assign their intellectual property in the S25 to the plaintiffs in return for Mr Baker agreeing to advance $200,000 to enable the Orion to meet the fees of senior counsel
on its appeal against the Sealegs injunction. For the reasons given in my judgment of 25 March 2022, that seems unlikely. The evidence, therefore, appears to be strongly against the plaintiffs, despite the vigour with which their counsel asserted their claims.
[61] Because Mr Baker had not been cross-examined, I refrained from making any findings on the plaintiffs’ claim to the intellectual property in the S25. However, I was satisfied that there was no case for the orders sought with respect to the S 25, namely the setting aside of a royalty. As I said:
[165] Even on the plaintiffs’ account of events, there is no evidence of the plaintiffs asking, or of the defendants agreeing to pay, or of the defendants paying, the plaintiffs a royalty on sales of the S25. Nor is there any evidence of the plaintiffs asking for any accounting on sales of the S25 when Mr Baker terminated the relationship with the defendants.
[62] However, until the evidence of the parties has been tested at trial, I do not consider I can conclude that, in asserting a right to the intellectual property in the S25 and in seeking the setting aside of royalty, the plaintiffs acted vexatiously, frivolously, improperly or unnecessarily.
Conclusions on indemnity costs
[63] For these reasons, I cannot reach the conclusion reached by the Court of Appeal in Bradbury, that the plaintiffs’ claims in the application for interim orders were hopeless from inception and that they knew or should have known that from the outset.32 I also do not consider the plaintiffs’ claims to be “flagrant” in the sense contemplated in Bradbury33 or that this an exceptional case of the kind referred to in Bradbury and in Vining Realty Group Ltd.34
[64] I am not satisfied, therefore, that the plaintiffs behaved badly or very unreasonably such as to warrant an order for indemnity costs at this interlocutory phase of the proceeding.
32 Bradbury v Westpac Banking Corporation, above n 22, at [73].
33 At [28].
34 Vining Realty Group Ltd v Moorhouse, above n 28, at [131].
[65] Given that conclusion, it is unnecessary for me to decide whether the actual costs incurred by the defendants were appropriate.
What scale should apply to the costs claimed by the defendants?
[66] Counsel for the plaintiffs and defendants agree that I should follow the approach set out by the Court of Appeal in Holdfast NZ Ltd v Selleys Pty Ltd; that is:35
(a)As a first step, I should categorise the proceeding under r 14.3;
(b)Next, I should work out a reasonable time for each step in the proceeding;
(c)Next, I should consider any application by a party for extra time to be applied to a particular step;
(d)Next, I should consider whether there are additional grounds for awarding increased costs, such as whether a party has contributed unreasonably to the time or expense of the proceeding or step in the proceeding.
[67] As to the first step, I indicated in my judgment, that I was satisfied the defendants were entitled to costs at least on a 2B basis.
[68] The defendants accept the 2B characterisation except they say that band C costs should apply to:
(a)filing the notice of opposition;
(b)preparing affidavit evidence;
(c)preparing submissions; and
(d)attending the hearing.
35 Holdfast NZ Ltd v Selleys Pty Ltd (2005) 17 PRNZ 987 (CA) at [43] – [46].
[69] The defendants submit that band C should apply because of the substantial number of documents that had to be reviewed; six of the 11 witnesses briefed reside overseas; the defendants’ evidence involved complex technical and engineering matters and a commercial history dating back 15 years. The defendants also say that, because of the importance of the matter to the defendants, it was necessary to respond to the plaintiffs’ allegations in great detail.
[70] The plaintiffs do not accept the proceeding was more complex and required significantly more preparation than a standard interlocutory application. They say the defendants did not need to brief 11 witnesses and the issues were not overly complex.
Discussion
[71] I accept that the orders sought by the plaintiffs were of great importance to the defendants. If granted, the orders would have given the plaintiffs access to confidential commercial information about the operation of the defendants’ business. For that reason, I do not fault the defendants for briefing 11 witnesses or for taking considerable care over the preparation of affidavits. I accept that band C should apply to that step.
[72] I have more difficulty in accepting that it was necessary to go into the detail apparent in the notice of opposition. That document runs to 18 pages, not including schedules, and goes beyond a statement of reasons for opposing the orders sought. It engaged with the evidence and made submissions on that evidence. I do not accept that band C should apply to that step. However, I increase the time for that step from
0.6 days to 1 day.
[73] Similarly, I am not persuaded that the proceeding was of such complexity that band C should apply to the preparation of submissions. However, I accept that the unfocused and undisciplined manner in which the plaintiffs’ case was advanced, particularly in the affidavits of Mr Baker, required more time in the preparation of submissions than would ordinarily have been necessary. Accordingly, I increase the time allocation for that step from 1.5 to two days.
[74] Step 26 of sch 3 of the High Court Rules does not differentiate between bands for appearance at hearing but provides that costs for that step are to be allocated according to the time occupied by the hearing as measured in quarter days.
[75] The Court record shows that the hearing took 1.5 days. Accordingly, I agree that 1.5 days should be allocated for that step.
[76] Similarly, Step 32 of sch 3 of the High Court Rules does not differentiate between bands for preparation for an affidavit hearing. It provides two days for the first hearing day and one day for the second to fifth days.
[77]On that basis, 3 days should be allocated to that step.
[78] My assessment of costs based on the above analysis is set out at in the Appendix to this judgment. It totals $30,353.00.
Did the plaintiffs fail to act reasonably?
[79] I am satisfied the answer to this question is yes, having regard to the considerations set out in r 14.6(3)(b) of the High Court Rules.
[80] As I have already held, the plaintiffs over-reached in the orders they sought. In that respect, particularly in maintaining their application for inspection and preservation orders and in seeking payment of a notional royalty on sales of the S25, the plaintiffs pursued arguments that were without merit.
[81] Despite the resolution reached over the CAD/CAM files, the plaintiffs continued to assert that they had not received all the electronic files relating to the S65 and S80/95 but did not attempt to specify what material they considered was missing. Similarly, the plaintiffs did not dispute that the defendants had returned physical material relating to the S65 and S80/95 systems but refused to take up the defendants’ request that they specify what material might be missing. Instead, the plaintiffs tried to make the defendants prove that they had delivered items for which they had been invoiced for some years earlier and maintained their application for oppressive
preservation and inspection orders. In both respects, they contributed unnecessarily to the time and expense of the proceeding.
[82] The plaintiffs’ own conduct with respect to their application for an order to set aside a notional royalty on sales of the S25 shows the unreasonableness of that application. In their application, the plaintiffs sought an order for a royalty of 20 per cent of sales of the S25. By the hearing on 11 February 2022, the application had been reduced to 15 per cent of sales. Later, it was reduced to whatever percentage the Court considered appropriate.
[83] In reality, there was never any serious prospect of the Court ordering that the defendants set aside a royalty on sales of a system to which the plaintiffs’ claim to an ownership interest is unsupported by any contemporaneous documentation.
[84] In addition, the plaintiffs did not seriously engage with the reasonable and appropriate offer in the defendants’ letter of 9 December 2021. Instead, the plaintiffs took a positional and unreasonable response to the defendants’ appropriate and reasonable efforts to negotiate a resolution on a without prejudice basis. The reasonableness of the defendants’ offer is borne out by the fact that the result the plaintiffs achieved was less than what the defendants had offered – except that both sets of parties were put to the costs of a hearing.
[85] For these reasons, I am satisfied that the plaintiffs acted unreasonably in their pursuit of interim orders and that an increase on scale costs is warranted.
What level of increase should apply?
[86] In Holdfast NZ Ltd, the Court of Appeal said that an increase of 50 percent on scale costs should grant a costs-claiming party a fair recovery for the step unnecessarily forced on it, assuming that the time allocated to the step has been reasonably calculated under the bands and that any greater recovery would mean that the party paying costs was contributing to the other party’s choice of special counsel. However, the Court went on to say that it should not be taken as saying that an uplift
of more than 50 percent can never be justified, as there may be circumstances where a Court considers a higher award to be justified.36
[87] I consider that this is a case where an uplift of more than 50 per cent is justified. In Mueller v Hendren, Heath J awarded a 75 per cent uplift where grounds for indemnity costs had been established, but considered a lesser award was warranted.37 While I have concluded that the case for indemnity costs has not been established in this case, that was largely because the plaintiffs’ evidence concerning the asserted non- return of information and physical components of the S65 and S80/95 and the asserted agreement concerning ownership of the S25 had not been tested in cross-examination.
[88] Even so, I am satisfied that in maintaining their applications for inspection and preservation orders and payment of a notional royalty on sales of the S25, the defendants were put to considerable unnecessary cost. Whether or not the actual costs incurred by the defendants were reasonable, it is apparent that even with a substantial uplift, the costs that the defendants recover will fall well short of those costs.
[89] In these circumstances, I am satisfied that an uplift of 70 per cent is warranted. This results in costs of $51,600.10.
Should the plaintiffs’ asserted partial success be reflected in the costs’ award?
[90] The answer to that question is “no.” The only success achieved by the plaintiffs was my acceptance that, in the absence of cross-examination establishing the contrary, their claims were arguable. Their application for interim orders was entirely unsuccessful.
Should the plaintiffs have to meet the costs of Mr Barooshian’s affidavit?
[91] The plaintiffs say the defendants cannot claim for the costs of Mr Barooshian’s affidavit because he did not qualify himself as an expert and, having regard to r 4.12(2) of the High Court Rules, the defendants have not established that Mr Barooshian’s
36 Holdfast NZ Ltd v Selleys Pty Ltd, above n 34, at [47] – [48].
37 Mueller v Hendren (2009) 19 PRNZ 432 (HC).
evidence was specific to and reasonably necessary for the conduct of the proceeding, and was reasonable in amount.
[92] As the defendants have said in response, it was accepted in Trustpower Ltd v Commissioner of Inland Revenue that r 14.12 does not restrict claims for witnesses’ expenses to those of expert witnesses.38 In that decision, Andrews J also noted that it was clear that a party claiming disbursements which meet the criteria set out in r 14.12(2) is entitled to recover actual expenses.39
[93] I am satisfied that the evidence in Mr Barooshian’s affidavit was relevant and admissible in terms of s 7 of the Evidence Act 2006, irrespective of whether it was offered for the purposes of assessing Mr Baker’s veracity or his propensity.
[94] As stated in the affidavit itself, Mr Barooshian’s affidavit set out brief summaries of selected decisions which illustrate the kinds of cases in which Mr Baker and his companies have been involved and attached copies of those decisions. While the defendants invited me to draw inferences adverse to Mr Baker, particularly by reference to what was said in Acra-Cut Inc v Almega Tooling Inc,40 the affidavit and exhibits essentially spoke for themselves.
[95] I refrained from drawing any inference about Mr Baker’s motives or ways of operating because he had not been cross-examined. Nonetheless, Mr Barooshian’s evidence was useful in illustrating the wider context of Mr Baker’s activities. As such it had a tendency to prove or disprove matters of consequence in the plaintiffs’ application, in particular the weight to be given to Mr Baker’s evidence.
[96] I am satisfied the costs of preparing Mr Barooshian’s affidavit are properly payable by the plaintiffs.
Result
[97]I order the plaintiffs to pay the defendants:
38 Trustpower Ltd v Commissioner of Inland Revenue [2014] NZHC 3072 at [69].
39 At [71].
40 Acra-Cut Inc v Almega Tooling Inc, above n 30.
(a) Costs of $51,600.10
(b) Disbursements of:
(i) NZD 12,198.50; and
(ii) USD 11,102.50.
Postscript
[98] This decision was written before I had seen memoranda from counsel for the plaintiffs and the respondents concerning further documents that Mr Baker has apparently located on his computer records with the assistance of an information technology expert.41
[99] The most relevant document is an email from Mr Leybourne to Mr Baker written on 13 July 2018. In that email, Mr Leybourne summarises “the situation as it presently stands” in the light of the High Court’s decision issued on 12 July 2018 granting Sealegs’ application for an injunction restraining Orion from continuing to manufacture the S25.
[100] In the email, Mr Leybourne canvasses various options, including an entity called “Baker Amphibious Services” (BAS) copying the S25 and supplying it globally, and says that he and Mr Zubcic would be pleased if BAS kept the S25 alive, that “ … it would be a saviour for us if BAS took up” the S25 and that it would give him “ … immense pleasure to see S25 (or any other system) succeed through [Mr Baker].”
[101] Counsel for the plaintiffs submit that this evidence is consistent with and corroborates the evidence of Mr Baker and Mr Willis that the parties subsequently agreed on the transfer of the IP in the S 25. They also say that the evidence raises concerns about the assertion made by the defendants at the hearing of the plaintiffs’ application for interim orders that the plaintiffs fabricated evidence, on which
41 The memoranda, dated 27 and 29 July 2022 and 1 August 2022, were brought to my attention by the Registry after I had authorised this costs decision to be issued on 1 August 2022. Having read the memoranda, I ordered that the judgment not be issued until I had had an opportunity to consider the memoranda and enclosed material.
assertion, the plaintiffs’ counsel say, the defendants rely in their application for indemnity costs. They also raise questions about why this email and related correspondence were not discovered by the defendants and attach copies of various exchanges in that regard between the solicitors for the plaintiffs and the defendants.
[102] Counsel for the defendants take issue with the plaintiffs submitting this further evidence without seeking leave of the Court as required by r 11.8A of the High Court Rules 2016. They also take issue with the method by which the plaintiffs have produced this evidence and with any suggestion that the defendants may have behaved improperly. They also say that plaintiffs are seeking to re-open substantive matters, that leave should not be granted to admit this evidence and that, if leave is granted, Mr Leybourne should be given an opportunity to reply. Finally, they say that evidence does not change the substantive position as the plaintiffs suggest.
[103] In a further memorandum, counsel for the plaintiffs request that their earlier memorandum be treated as a request for leave.
Discussion
[104] As has been the case with much of this proceeding so far, the submissions of counsel on both sides are over-wrought and do not substantially assist the Court.
[105] The email of 13 July 2018 was written the day the day after the High Court had found that the defendants had infringed Sealegs’ copyright works in various respects and had ordered that the defendants 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.42 It is apparent that Mr Leybourne was exploring the options available to Orion in the light of the High Court’s decision. There is no discussion in the email about the possibility of appealing the High Court’s decision.
[106] Whatever Mr Leybourne may have intended in that email, it was followed by the lodging of an appeal, a decision that Mr Leybourne, Mr Zubcic and Mr Zhang
42 Sealegs International Ltd v Zhang [2018] NZHC 1724 at [472] and [474].
should travel to Massachusetts to see Mr Baker, and Mr Baker’s email of 31 July 2018 asking Mr Leybourne, Mr Zubcic and Mr Zhang to provide proposed business plans and proposals in order to make the best of the meeting to be held in Massachusetts in early August 2018. These and subsequent events are discussed in my judgment.43
[107] I see nothing in the email of 13 July 2018 or the other material enclosed with the memoranda that affects the analysis of those matters in my judgment or this costs decision.
[108] In my judgment, I found that, notwithstanding my doubts as to the veracity of the accounts put forward by Mr Baker and Mr Willis, it is arguable that there is a serious issue to be tried in relation to the S25, namely whether Orion or any of the other defendants on its behalf agreed to assigning the rights to the intellectual property in the S25 to the Baker interests.44 The email of 13 July 2018 may be relevant to the issue to be tried but does not alter my assessment.
[109] In this decision, I have specifically made no findings as to Mr Baker’s veracity or as to whether he and Mr Willis fabricated evidence. My decision to award increased costs relates principally to the reasonableness of the plaintiffs’ prosecution of their application for interim orders.
[110] For these reasons, whether or not leave should be granted to the plaintiffs to adduce this new evidence, the new evidence makes no difference to this decision.
G J van Bohemen J
43 Intech Inc v Anura Ltd, above n 1, at [60] – [66] and [135] – [143].
44 At [146].
Appendix: Defendants’ Costs and Disbursements
Costs
Daily recovery rate $2,390
Step
Category
Allocation
Amount
Item 11: Filing memorandum for mention in Duty Judge List
(2 December 2021)
2B 0.4 $956 Item 12: Appearance in Duty Judge List (6 December 2021) 2B 0.2 $478 Item 11: Filing memorandum for mention in Duty Judge List
(10 December 2021)
2B 0.4 $956 Item 12: Appearance in Duty Judge List (13 December 2021) 2B 0.2 $478 Item 23: Filing opposition to interlocutory application 2B 1 $2,390 Item 24: Preparation of written
submissions
2B 2 $4,780 Item 26: Appearance at hearing of defended application for sole or principal counsel
(11 and 18 February 2022)
6 quarter days 1.5 $3,585 Item 30: Preparation of affidavits 2C 4 $9,560 Item 32: Preparation for hearing 2 hearing days 3 $7,170 Total 12.7 $30,353 70% uplift $51,600.10
Disbursements
Description
Amount (excluding GST)
Court Filing fee: Notice of Opposition NZD 93.50 Invoice Sapere Research Group Ltd (Marnus Beylefeld) NZD 8,032.50 Invoice: Findex NZ Ltd NZD 1,172.50 Invoice: Thinkable Ltd NZD 2,900.00 Total NZ disbursements NZD 12,198.50 Invoice: Bowditch & Dewey LLB (Barooshian) USD 11,012.50 Total US disbursements USD 11,012.50
2
7
1