Intech Inc v Stabicraft Marine Limited

[2023] NZHC 2546

IN THE HIGH COURT OF NEW ZEALAND INVERCARGILL REGISTRY

I TE KŌTI MATUA O AOTEAROA WAIHŌPAI ROHE

CIV-2023-425-57

[2023] NZHC 2546

BETWEEN

INTECH INC

First Plaintiff

WAREHAM STEAMSHIP CORPORATION

Second Plaintiff

ACRA-CUT INC
Third Plaintiff

AND

STABICRAFT MARINE LIMITED and STABIX LIMITED

First Defendant

PAUL ANTHONY ADAMS
Second Defendantt

continued over

Hearing:

4 December 2023

(with further submissions filed 8 December 2023)

Appearances:

C L Elliott KC and J T H Kohu-Morris for Plaintiffs S J Webster for Defendants

Judgment:

18 December 2023

JUDGMENT OF ASSOCIATE JUDGE PAULSEN

This judgment was delivered by me on 18 December 2023 at 3.45 pm pursuant to Rule 11.5 of the High Court Rules.

Registrar/Deputy Registrar Date:

INTECH INC v STABICRAFT MARINE LIMITED and STABIX LIMITED [2023] NZHC 2546 [18 December 2023]

ROAD AND SEA LIMITED

Third Defendant

PETER JOHN CARLSON
Fourth Defendant

SMUGGLER MARINE LIMITED
Fifth Defendant

DAVID JEFFERY PRINGLE
Sixth Defendant

PAULA SIGNA PRINGLE
Seventh Defendant

FC BOATS LIMITED
Eighth Defendant

HENRY ROSS MACKAY CHRISTENSEN
Ninth Defendant

Introduction

[1]        The defendants are involved in the business of designing, building, or selling recreational or other boats.

[2]The plaintiffs are companies incorporated in the United States.

[3]        The plaintiffs are suing the defendants for breach of copyright in relation to what is known as the S25 and S25 Gen 2 amphibious systems for boats and for breach of confidence in relation to what they say is confidential information incorporated into the S25 Gen 2 amphibious system.

[4]         The plaintiffs are also presently pursuing litigation in the Auckland High Court (CIV-2023-404-2270) against other defendants, including Anura Ltd, who are engaged in the design and manufacture of amphibious systems for boats (the Anura proceeding). There, the plaintiffs presently plead eight causes of action. Relevantly, they include allegations of misuse of confidential information by the defendants

incorporating the plaintiffs’ confidential information into the S25 Gen 2 system and breach of copyright in, inter alia, the S25 and s 25 Gen 2 systems.1

[5]        In their statement of claim filed in this proceeding the plaintiffs refer to Anura and the Anura proceeding in several respects. For instance, at [35] they plead that by virtue of an agreement entered with Anura in August 2018 they own copyright in the S25 and the S25 Gen 2 systems. At [43] they refer to the Anura proceeding and allegations of copyright infringement and breach of confidence made in it. At [44] they plead that the defendants have sourced the S25 Gen 2 from Anura. At [56] they plead that the defendants are benefitting from the plaintiffs’ confidential information obtained from Anura, and at [61] that the plaintiffs did not authorise Anura to impart the confidential information to the defendants and continue not to authorise its use by the defendants. The alleged misuses of the plaintiffs’ confidential information are set out at [63] and include installing the S25 Gen 2 system on their boats and promoting and selling the said system or boats.

[6]        Against that background the defendants apply for an order staying this proceeding until the Anura proceeding has been determined. They say a stay should be granted because the central issues arising in this case, namely ownership of the intellectual property in the S25 systems (the IP ownership issues), will be determined in the Anura proceeding, which will eliminate or reduce the risk of inconsistent findings in different proceedings, provide for the efficient use of judicial resources, and avoid unnecessary time and costs for the parties.

[7]        The plaintiffs oppose the application which they say will prejudice them by preventing them from pursuing their claim in a timely manner. They also say that the Anura proceeding will not, and cannot, determine the IP ownership issues and the interests of justice require that the application be dismissed so the case can be made ready for trial in the usual way.

1      I am told by counsel that there are further proceeding against yet other defendants in the Napier High Court (CIV-2023-441-15) in respect to similar matters, but those proceedings are not before me.

The High Court Rules 2016

[8]        The application is unusual in that neither party has filed any evidence in support or opposition to it, although Mr Elliott KC submits that the onus is upon the defendants to make out the grounds for a stay.

[9]        The application was made in reliance upon r 15.1 of the High Court Rules which provides:

15.1     Dismissing or staying all or part of proceeding

(1)The court may strike out all or part of a pleading if it—

(a)discloses no reasonably arguable cause of action, defence, or case appropriate to the nature of the pleading; or

(b)is likely to cause prejudice or delay; or

(c)is frivolous or vexatious; or

(d)is otherwise an abuse of the process of the court.

(2)If the court strikes out a statement of claim or a counterclaim under subclause (1), it may by the same or a subsequent order dismiss the proceeding or the counterclaim.

(3)Instead of striking out all or part of a pleading under subclause (1), the court may stay all or part of the proceeding on such conditions as are considered just.

(4)This rule does not affect the court’s inherent jurisdiction.

[10]However, at the hearing Mr Webster also relied upon r 10.12 which provides:

10.12When order may be made

The court may order that 2 or more proceedings be consolidated on terms it thinks just, or may order them to be tried at the same time or one immediately after another, or may order any of them to be stayed until after the determination of any other of them, if the court is satisfied—

(a)that some common question of law or fact arises in both or all of them; or

(b)that the rights to relief claimed therein are in respect of or arise out of—

(i)the same event; or

(ii)the same transaction; or

(iii)the same event and the same transaction; or

(iv)the same series of events; or

(v)the same series of transactions; or

(vi)the same series of events and the same series of transactions; or

(c)that for some other reason it is desirable to make an order under this rule.

[11]I do not think the application should be considered under r 15.1.

[12]      Mr Webster argues that r 15.1(1)(a) applies due to comments made by van Bohemen J in the Anura proceeding as to the veracity of the plaintiffs’ evidence.2 That evidence is not before me, and for present purposes the plaintiffs’ pleadings must be assumed to be true,3 and clearly contain reasonably arguable causes of action.

[13]      I do not consider r 15.1(b)–(d) apply either as they are concerned with misuse of the court’s processes. In Commissioner of Inland Revenue v Chesterfields Preschools Ltd the Court of Appeal held:4

[89] The grounds of strike out listed in r 15.1(1)(b)–(d) concern the misuse of the court’s processes. Rule 15.1(1)(b), which deals with pleadings that are likely to cause prejudice or delay, requires an element of impropriety and abuse of the court’s processes. Pleadings which can cause delay include those that are prolix; are scandalous and irrelevant; plead purely evidential matters; or are unintelligible. In regards to r 15.1(1)(c), a “frivolous” pleading is one which trifles with the court’s processes, while a vexatious one contains an element of impropriety. Rule 15.1(1)(d) — “otherwise an abuse of process of the court” — extends beyond the other grounds and captures all other instances of misuse of the court’s processes, such as a [proceeding] that has been brought with an improper motive or [is] an attempt to obtain a collateral benefit. An important qualification to the grounds of strike out listed in r 15.1(1) is that the jurisdiction to dismiss the proceeding is only used sparingly. The powers of the court must be used properly and for bona fide purposes. If the defect in the pleadings can be cured, then the court would normally order an amendment of the statement of claim.

2      Intech Inc v Anura Ltd [2022] NZHC 574 at [22], [116]–[121].

3      Couch v Attorney-General [2008] NZSC 45, [2008] 3 NZLR 725 at [33].

4      Commissioner of Inland Revenue v Chesterfields Preschools Ltd [2013] NZCA 53, [2013] 2 NZLR 679 (footnotes omitted).

[14]      In Danone Asia Pacific Holdings Pte Ltd v Fonterra Co-operative Group Ltd, Venning J held that discretionary power under r 15.1(3) to stay instead of striking out must be informed by the considerations in r 15.1(1).5

[15]      Mr Webster argues it was an abuse of process for the plaintiffs to have commenced proceedings against different parties concerning the same central issues. He contends the plaintiffs should have commenced proceedings against all relevant parties at the outset. On this basis he says r 15.1(d) applies. I do not accept that submission.

[16]      As I have said, on the pleadings the plaintiffs have arguable causes of action. There is no evidence before me that they have commenced this proceeding for an improper or collateral purpose. The defendants in the Anura proceeding are different; the issues in that proceeding are broader and more numerous; and, unlike the Anura proceeding, in respect to the breach of copyright claim the defendants here are sued for secondary, not primary, infringement. If it was genuinely the defendants’ case that all parties should have been joined to the Anura proceeding, they could have sought consolidation of the two proceedings, which is a course Mr Webster disavowed on their behalf.

[17]      Mr Webster  also  seeks  to  invoke  the  Court’s  inherent  jurisdiction  under r 15.1(4), arguing that a stay should be ordered to attain the just and inexpensive determination of the proceeding.6 There is no need to revert to the inherent jurisdiction when there is a High Court rule which addresses the situation that has arisen, which in this case is r 10.12.7 I intend to deal with the application under that rule.

5      Danone Asia Pacific Holdings Pte Ltd v Fonterra Co-operative Group Ltd [2014] NZHC 1681 at [34].

6      High Court Rules 2016, r 1.2.

7      CED Distributors (1988) Ltd v Computer Logic Ltd (in rec) (1991) 4 PRNZ 35 (CA) at 41, cited in R A Osborne and others McGechan on Procedure (online ed, Thomson Reuters) at [HR15.1.11(2)].

Relevant principles

[18]      The principles to be applied to an application under r 10.12 were set out in the judgment of Associate Judge Lester in Shadbolt v Invercargill City Council, and relevantly are as follows:8

[16] Rule 10.12 vests in the Court a wide discretion.  The purpose of the  rule is to encourage efficiency in court proceedings and to avoid conflicting findings and/or inconsistent decisions. In determining whether and how to exercise its discretion the Court must balance considerations of justice, convenience and expense.

[19]      In Malthus v Laura Fergusson Trust Inc, Hinton J adopted the principles in Shadbolt v Invercargill City Council and said “[t]he discretion given to the Court under r 10.12 is ‘a wide one, to be exercised broadly in the interests of justice’”.9

The arguments for a stay

[20]      Mr Webster argues that the plaintiffs’ claims in this proceeding and in the Anura proceeding traverse the same subject matter and require determination of the IP ownership issues. He submits that, in effect, the plaintiffs allege the defendants are liable because they have been empowered by the defendants in the Anura proceeding, through the supply of product and information about design improvements, to breach their alleged obligations to the plaintiffs.

[21]      I am told that the Anura proceeding is presently set down for hearing over four weeks commencing 30 September 2024. Accordingly, the defendants submit the Anura proceeding is well advanced and the parties to it are plainly best placed to test the IP ownership issues.

[22]      I was referred to Lawrence Riverside Ltd v Colliers International New Zealand Ltd.10 There, the plaintiffs’ claim for damages against the defendant valuers arising from the preparation of a rental assessment report was stayed pending the hearing of other proceedings brought by the plaintiffs. Those other proceedings involved claims

8      Shadbolt v Invercargill City Council [2021] NZHC 2363 (footnotes omitted).

9      Malthus v Laura Fergusson Trust Inc [2022] NZHC 407 at [37] (footnote omitted).

10     Lawrence Riverside Ltd v Colliers International New Zealand Ltd HC Auckland CIV-2011-404- 1486, 30 June 2011.

against the landlord alleging that the plaintiffs’ business failed in part because of the landlord’s failure to repair consistent flooding damage and the excessive rent they were required to pay in terms of the defendant’s rental assessment.

[23]      The decision is relied upon because of Associate Judge Gendall’s acceptance that there was a common thread running through the two proceedings such that r 10.12 was engaged.11 The Associate Judge also held if the hearing of the claim against the landlord was to address possible liability on the part of the landlord for damages relating to the rent review complaints, then it needed to be disposed of before the claim against the valuers, and a stay was ordered.12

[24]      Mr Webster submits that here the ordering of a stay will ensure the best and most efficient use of both judicial and the parties’ resources. He argues that the fact the Anura proceeding was set down for a four-week trial in September 2024 is a strong indication of the complexity of the case, and that the volume of evidence and presentation of argument will take a significant toll on the parties’ resources which should not be duplicated in this proceeding.

[25]      The plaintiffs argue that any determination in the Anura proceeding in relation to the IP ownership issues cannot, due to the application of s 50 of the Evidence Act 2006, have any material or determinative effect in these proceedings. The defendants do not accept that is the case.

[26]Section 50 of the Evidence Act provides:

50       Civil judgment as evidence in civil or criminal proceedings

(1)Evidence of a judgment or a finding of fact in a civil proceeding is not admissible in a criminal proceeding or another civil proceeding to prove the existence of a fact that was in issue in the proceeding in which the judgment was given.

(1A) Evidence of a decision or a finding of fact by a tribunal is not admissible in any proceeding to prove the existence of a fact that was in issue in the matter before the tribunal.

(2)This section does not affect the operation of—

11 At [18].

12 At [21].

(a)a judgment in rem; or

(b)the law relating to res judicata or issue estoppel; or

(c)the law relating to an action on, or the enforcement of, a judgment.

[27]      I understand that if the Court finds against the plaintiffs on the IP ownership issues in the Anura proceeding the defendants intend to plead that is conclusive as against the whole world as a judgment in rem. They also intend to plead issue estoppel as an affirmative defence, regardless of the fact they are not parties to the Anura proceeding, on the basis that they are privies of the defendants in that proceeding. On either basis, they say s 50 of the Evidence Act does not prevent them raising a determination of the IP ownership issues in the Anura proceeding in defence of the plaintiffs’ claims.

[28]      The plaintiffs argue that even if the determination of the IP ownership issues would have a material effect on this proceeding (which they deny), it is not in the interests of justice to grant a stay because that will significantly delay this proceeding, there will be no duplication of costs (as the defendants are not parties to the Anura proceeding) and any wasted costs that are proven would be minimal and can be addressed by appropriate costs orders.

[29]      The defendants, however, respond that if the plaintiffs are unsuccessful on the IP ownership issues in the Anura proceeding then there simply is no cause of action to answer and all the effort and resource in preparation for a hearing will have been wasted.

[30]      The defendants also say many of the witnesses involved in the Anura proceeding will have to be briefed and called as witnesses and there may be a need for non-party discovery so the defendants are equipped to test the plaintiffs’ allegations. They say much time and resource can be avoided by the simple expedient of staying this proceeding and waiting for the Anura proceeding to be heard.

[31]      The defendants also submit that if the IP ownership issues are decided in the plaintiffs’ favour in the Anura proceeding that would benefit the parties by reducing the number of contentious issues between them. They say the hearing would then likely focus only on the issues of breach and damages.

[32]      Finally, the defendants submit that the plaintiffs have failed to demonstrate how the delay consequent upon the granting of a stay will prejudice them.

My analysis

[33]      I accept the defendants’ contention that the IP ownership issues are common to this and the Anura proceeding such that r 10.12 is engaged. What I do not accept is that it would be appropriate at this time to grant a stay of this proceeding.

[34]      The starting point is that this proceeding is not an abuse of process. I do not consider the plaintiffs were wrong to commence separate proceedings against these defendants. The claims made by the plaintiffs in the Anura proceeding are broader, more numerous and complex than are raised in this proceeding. As Mr Elliott correctly submits, the focus of that proceeding will mainly concern the nature and content of commercial arrangements between the parties to which these defendants are strangers.

[35]      Having come to that view, I consider the plaintiffs have the right to expect access to justice, including the right to pursue their claims expeditiously. As Venning J said in Danone Asia Pacific Holdings Pte Ltd v Fonterra Co-operative Group Ltd [34]:13

In this context the importance of a party’s fundamental right to access the Court is relevant. The starting point must be that a plaintiff, such as the Danone plaintiffs, is entitled to sue who he or she wishes to sue so long as the claim is bona fide and is of substance.

[36]      The defendants argue the plaintiffs have not demonstrated how a delay will prejudice them, but I consider such prejudice is obvious as the granting of a stay will

13     Danone Asia Pacific Holdings Pte Ltd v Fonterra Co-operative Group Ltd, above n 5, at [38] (footnote omitted).

delay the plaintiffs’ access to justice and, potentially at least, expose them to the risk of ongoing damage through the infringement of their rights.

[37]      It is also for the defendants (who are, after all, seeking the stay) to establish that the interests of justice are in their favour, yet they have filed no evidence on that matter.

[38]      Further, the application proceeds on the basis that the Anura proceeding will determine the IP ownership issues promptly. It is said that proceeding will go to trial commencing 30 September 2024 and a decision, effectively determining the IP ownership issues, can be expected within a reasonable time thereafter. However, Mr Elliott, who is also counsel in the Anura proceeding, advises that there are contested discovery issues and the prospect of an appeal in relation to them to the Court of Appeal which would likely delay the trial. If that occurs there could be a very substantial delay before a new trial date is obtained.

[39]      The defendants relied upon Lawrence Riverside Ltd v Colliers International New Zealand Ltd.14 While I do not take issue with that decision, each case must be determined on its own facts in the exercise of the Court’s broad discretion under r

10.12. There, not only did the plaintiffs’ counsel concede that a temporary stay would be appropriate, but Associate Judge Gendall appeared satisfied that the related proceeding was going to trial within five months.15

[40]      The defendants also say that if a stay is not granted there will be substantial duplication of costs. This is disputed by the plaintiffs on the basis that the defendants are not parties to the Anura proceeding. In response, Mr Webster submits that duplication of costs does not have to relate exclusively to the same defendants. He submits use of the Court’s resources and the resources of the defendants in responding to the IP ownership issues could be avoided by awaiting the outcome of the Anura proceeding.

14     Lawrence Riverside Ltd v Colliers International New Zealand Ltd, above n 10.

15 At [20].

[41]      I do not accept that the defendants will incur substantial costs in respect to the IP ownership issues, at least at this stage of the proceeding. As Mr Webster submits, those issues can only be properly and thoroughly tested in the Anura proceeding because “none of the defendants in the Current Proceeding was privy to the interchange between the plaintiffs and the [Anura] Parties”. The concern about duplication of costs is also undermined by the defendants’ stated intention to rely upon the judgment in the Anura proceeding as determinative of the IP ownership issues.

[42]      The other matter that, to my mind, weighs against granting a stay is that it is not the defendants’ position that the Anura proceeding will determine all issues between these parties and thus avoid the need for a trial altogether. Mr Webster submits that regardless of the result in the Anura proceeding, issues of breach and damages will remain to be determined as between these parties. If that is the case, there is no reason why the parties should not advance the case towards hearing now.

[43]      Notwithstanding all that, I do accept the defendants’ contention that the Court will be required to determine the IP ownership issues in the Anura proceeding. I also agree that the Anura proceeding is the proper proceeding for those issues to be thoroughly aired and determined. Furthermore, the defendants have expressed the intention to rely on the Court’s ruling in that case on the IP ownership issues in defence of the plaintiffs’ claim, and I consider it is at least arguable that they may be entitled to do so.16 In those circumstances, there is much force in the defendants’ position that the Anura proceeding should be heard first, but that is not a matter upon which a final decision needs yet to be made. All that is required is appropriate case management at the time this case is ready to be set down for hearing, not the granting of a stay.

Result

[44]The defendants’ application for a stay is dismissed.

16 Counsel were granted leave to file further submissions on this issue following the hearing, which were received and considered. Although the submissions were helpful, I have decided that I do not need to rule on the application of s 50 of the Act to any findings made in the Anura proceeding to decide this application.

[45]      I am not aware of any reason why costs should not follow the event in the usual manner. If agreement cannot be reached between counsel on costs, then they may file memoranda of no more than five pages before 31 January 2024. In the event no memoranda are filed by that date costs shall be reserved.

O G Paulsen Associate Judge

Solicitors:

Shieff Angland, Auckland Webster Inc Ltd, Napier