Just Kids Limited v Pumpkin Patch Limited HC Auckland CIV 2010-404-3804
[2010] NZHC 1878
•1 September 2010
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
CIV 2010-404-3804
BETWEEN JUST KIDS LIMITED Plaintiff
ANDPUMPKIN PATCH LIMITED Defendant
Hearing: 30 August 2010
Counsel: D S McGill for Plaintiff
J W S Baigent and G Holm-Hansen for Defendant
Judgment: 1 September 2010
JUDGMENT OF HEATH J
This judgment was delivered by me on 1 September 2010 at 9.30am pursuant to Rule 11.5 of the High
Court Rules
Registrar/Deputy Registrar
Solicitors:
Duncan Cotterill, PO Box 5326, AucklandSimpson Grierson, Private Bag 92518, Auckland
JUST KIDS LIMITED V PUMPKIN PATCH LIMITED HC AK CIV 2010-404-3804 1 September 2010
Introduction
[1] Pumpkin Patch Ltd seeks damages and costs, arising out of a proceeding brought by Just Kids, which the latter has indicated will not be pursued.
[2] Damages are sought under an undertaking given when a (now) rescinded interim injunction was obtained by Just Kids, on 18 June 2010. Costs are relation to the substantive proceedings, which includes steps taken on the interim relief application.
Background
[3] Just Kids and Pumpkin Patch are engaged in the sale of children’s clothing and related products, in New Zealand and overseas. They are competitors. However, when Just Kids considered selling its business, during 2008, it identified Pumpkin Patch as a prospective purchaser. To enable due diligence to be undertaken, Just Kids and Pumpkin Patch executed a confidentiality agreement.
[4] On 13 and 21 April 2010, information of a commercially sensitive nature was released to Pumpkin Patch. Some of the information provided on 13 April 2010 disclosed detail about retail premises, commercial offices and lease payment arrangements. Premises situated at the Manukau SupaCenta (the Manukau premises) was one of those in respect of which disclosure was made.
[5] Just Kids’ negotiations with Pumpkin Patch were not exclusive. It considered that Pumpkin Patch knew or ought to have known that Just Kids was negotiating for the sale of its business with other parties. Therefore, when Pumpkin Patch issued a media release, on 26 April 2010, announcing both the launch of a new children’s-wear brand in the Australasian market and its decision not to make any final offer for the purchase of Just Kids’ business, Just Kids had suspicions about Pumpkin Patch’s good faith.
The application for an interim injunction
[6] As at 26 April 2010, Just Kids occupied, with consent of its landlord (AMP NZ Property Retail Ltd), the Manukau premises pursuant to a “holding over” of a lease that had expired on 31 December 2009.
[7] On 9 June 2010, AMP informed Just Kids that it had secured a “new retailer” for the premises and that a notice to quit would be served. At that time, Just Kids was in negotiations for an extended lease. Pumpkin Patch was the “new retailer”. Just Kids took the view that Pumpkin Patch, in order to secure the lease, had misused confidential information supplied during the due diligence period.
[8] Following an exchange of correspondence (to which I shall return), Just Kids filed a without notice application for interim injunction, on 18 June 2010. An order was made, on the papers, by Rodney Hansen J the same day:
1.1Pending further order of the Court, the defendant shall by itself, its servants or its agents, be restrained from entering into a Lease Agreement with AMP NZ Property Retail Limited and Trust Company of Australia Limited (in its capacity as custodian of the ADP (NZ) Trust, the trustee being Stocklands Trust Management Limited) in respect of the premises known as part shop M1 as outlined in green on the plan attached and having a rental area of
626.36 square metres and located at the Manukau SupaCenta, Cavendish Drive, Manukau, Auckland (“The Manukau retail
property”).
1.2 Costs be reserved.
Rodney Hansen J also adjourned the proceeding for mention before the Duty Judge on 23 June 2010.
[9] On 23 June 2010, the application for interim injunction came before Priestley J, after service of the orders made by Rodney Hansen J. An urgent hearing was requested. On 30 June 2010, when the proceeding was next called, a fixture for one half day was allocated, for 22 July 2010.
[10] On 21 July 2010, counsel for the parties filed a joint memorandum, by which an order rescinding the interim injunction was sought, by consent. The hearing for
22 July 2010 was vacated. Questions of costs and damages were to remain at large for determination subsequently.
Damages and costs
[11] I heard from counsel on 30 August 2010 on questions of costs and damages. Their respective positions are:
a) Pumpkin Patch seeks damages of $43,912.33, made up of loss of profits, as a result of a delay of 61 days in obtaining possession of the store at the Manukau premises, together with business interruption and wasted management costs of $15,000. Indemnity costs of
$49,257.26 are sought on the grounds that Just Kids acted unnecessarily in the conduct of the litigation; in particular, that it had no basis on which to seek (particularly on a without notice basis) an interim injunction founded on alleged breach of confidence.
b)In relation to damages, Just Kids says that the basis for calculation of profitability and forecast sales is suspect, being more in the nature of speculation than appropriate quantification. It denies liability to pay any damages. Just Kids’ response on costs is that they should lie where they fall. In any event, Just Kids says that this is not an appropriate case for the award of increased or indemnity costs.
Analysis
(a) Chronology of events
[12] From the time that Just Kids lease of the Manukau premises expired on 31
December 2009, there had been discussions between Mr Sproat (of Just Kids) and Mr Curtis (of AMP) about the terms of a new lease. On 10 May 2010, Mr Sproat received an email from Mr Curtis inquiring about the possibility of Just Kids taking the Manukau premises on a long term lease.
[13] Unbeknown to Just Kids, on or before 26 March 2010 a representative of Pumpkin Patch (Mr Cardwell) had been in discussions with Mr Evans (of AMP) about opportunities to rent premises at the Manukau SupaCenta. On that day Mr Cardwell had sent an email to Mr Evans saying that Pumpkin Patch “need an opportunity for six months from June”, adding “If [Just Kids] are month to month what are they paying?” Mr Cardwell made it clear that Pumpkin Patch may “better” Just Kids’ rental payment “on a short term deal”.
[14] On 9 June 2010, Mr Curtis sent another email to Mr Sproat, advising that AMP had leased the Manukau premises to a new retailer. He advised that a notice to quit the premises would be issued in due course. Mr Sproat contacted Mr Evans to ask him why he had not spoken to him about discussions with a new retailer. Mr Sproat also asked the name of the new retailer: he says that Mr Evans “reluctantly confirmed” to him that the retailer was Pumpkin Patch. Mr Sproat’s view was that it was appropriate for Just Kids to be given an opportunity to negotiate with AMP with a view to securing a new lease on the premises, given their six and a half year occupation of that space previously.
[15] Mr Evans sent an email to Mr Sproat on 11 June 2010 indicating that it was likely AMP would progress its intention to lease the Manukau premises to Pumpkin Patch.
[16] Just Kids instructed Duncan Cotterill, solicitors Auckland to act on its behalf. On Friday 11 June 2010, that firm wrote to Pumpkin Patch expressing concern that it had misused confidential information provided to him in the course of due diligence. The letter to Pumpkin Patch stated:
2.It has come to our attention that you had had extensive discussions with the landlord of our client’s Manukau premises, AMP NZ Property Retail Ltd (“AMP”), with a view to entering into a long- term lease of those premises for the purposes of establishing a Pumpkin Patch store therein. Whilst our client has previously occupied those premises on a long-term lease it currently occupies those premises on a month to month tenancy. Our client has been in discussions with AMP regarding a new lease of the premises for some time.
3.As part of the due diligence process you entered into with our client with a view to a potential acquisition of our client’s business, you
received from our client extensive confidential information relating to our client’s business including details of all leases and the financial information in respect of each of our client’s individual stores. That information was provided to you in accordance with a confidentiality agreement executed by you, such agreement requiring you to keep confidential information belonging to our client protected and to not use that information for your benefit. In addition to the obligations owed pursuant to the confidentiality agreement, you owe our client common law obligations of confidence in respect of the confidential information that was imparted to you.
4.Notwithstanding the obligations owed by you pursuant to the confidentiality agreement and by common law, our client considers that you have used the information that was provided to you as the basis for a decision to approach our client’s landlord in respect of the Manukau premises and to attempt to acquire a long-term lease in respect of the same. It is pertinent to note that you have not previously operated premises in Manukau and as far as our client is aware, you have not previously made an approach to AMP with a view to securing premises in the Manukau Super Store. We are of the view that, in breach of your obligations of confidence owed to our client, you have used information provided to you by our client to try and steal a march on our client in terms of the securing of a long-term lease of the premises from which our client currently operates in the Manukau Super Store. Such a breach is flagrant and obvious.
5.In addition to using the information relevant to our client’s lease arrangements in respect of the Manukau store, our client considers that you have used the entirety of the confidential information imparted to you by our client during the due diligence process in an unauthorised manner. In particular, we consider that the issuing of a press release two days prior to the closing of the tender bids on our client’s proposed sale of its business to announce the launch of a new business to compete with our client was intended to undermine our client’s sale process and to damage the value of our client’s business generally.
6.As a result of the stated unauthorised use of confidential information, we require you to provide us by 12.00pm on Monday
14 June 2010 your undertaking not to conclude a lease in respect of
our client’s Manukau premises until such time as our client has exhausted discussions with AMP with a view to our client entering into a new long-term lease of those premises. In the absence of your undertaking in this regard we are instructed to issue proceedings in the High Court seeking an injunction preventing you from entering into a lease with AMP. Should the issue of proceedings be necessary, we will also include a claim for damages in respect of the damage caused to our client’s business by your unauthorised use of the confidential information provided to you during the due diligence process which information was clearly used to form your decision to establish a business to compete with our client and which has inevitability had a detrimental effect on the sale of our client’s business.
[17] On the same day, Duncan Cotterill sent an email to Mr Evans of AMP advising that they considered “Pumpkin Patch has breached various obligations owed to [Jut Kids] by communicating discussions with [AMP] with a view to leasing the premises that [Just Kids] currently occupies”. Mr Evans was advised that Duncan Cotterill had written to Pumpkin Patch about their concerns and “unless a satisfactory resolution is reached in the very near future, we have instructions to issue proceedings against Pumpkin Patch in the High Court”. Duncan Cotterill said that they considered it “appropriate” that AMP await the outcome of discussions between Just Kids and Pumpkin Patch before progressing further any discussions regarding the lease of the premises.
[18] On Monday 14 June 2010, Simpson Grierson solicitors Auckland wrote to Duncan Cotterill, advising they were acting for Pumpkin Patch. Duncan Cotterill were advised that Simpson Grierson were taking instructions and would respond “in due course”. In the meantime, they added, “all our client’s rights are reserved”. Mr McGill, of Duncan Cotterill, sent an email to the author of the Simpson Grierson letter (Ms Cave) at 5.19pm on 14 June, asking her to revert to him before 5pm the following day, with a substantive response.
[19] On 16 and 17 June 2010 there was telephone contact between Ms Cave of Simpson Grierson and Mr McGill. On the first occasion, Mr McGill was advised that the person from whom instructions had to be taken was overseas until the next day. On 17 June, she advised Mr McGill that she had spoken to her “client” and was “working up a response” that should be with Duncan Cotterill “in the next few days”.
[20] In an affidavit sworn on Friday 18 June 2010, in support of the interim injunction application, Mr Sproat explained why urgent relief was sought on a without notice basis:
49.I am deeply disappointed by the actions of Pumpkin Patch. I have had good faith discussions with Maurice Prendergast on a number of occasions over the last 2 years with a view to Pumpkin Patch acquiring the Just Kids business. It is clear to me now that Pumpkin Patch have taken the opportunity to receive the entirety of the commercial information regarding the operation of Just Kids and to use that information for its own benefits. I believe that the
announcement that Pumpkin Patch will be launching a new brand in the same market space as Just Kids 2 days prior to final offers being due by prospective purchasers on the Just Kids sale was intended to, and did, damage Just Kids business.
50.In terms of the Manukau retail premises, unless immediate relief by way of the injunction sought restraining Pumpkin Patch from entering into a lease in respect of those premises is granted, Pumpkin Patch will be able to steal a march on Just Kids and secure the retail premises in the Manukau SupaCenta on a long term lease. I believe it is necessary to grant the interim relief sought to protect the position of Just Kids by enabling it to negotiate with the landlord of the premises with a view to securing a long term lease of those premises.
51.I believe that if this matter were to proceed on notice, Pumpkin Patch will be afforded the opportunity to finalise lease arrangements with AMP in respect of the Manukau premises. This will preclude Just Kids from continuing to operate a store in the Manukau SupaCenta and the damage caused by that is incalculable. In the time available I have not been able to instruct a financial accountant to make an assessment of the value of the loss that would be suffered by Just Kids were it to lose the Manukau Premises. If an interim injunction on the terms sought were granted it is my intention to retain an expert to provide evidence in that regard. (my emphasis)
Just Kids gave an undertaking as to damages, in support of its application for an interim injunction.
[21] The interim injunction was issued as sought[1] after 5pm on 18 June 2010. While it appears that Simpson Grierson were served with a copy of the papers around that time, no attempt was made to have the hearing proceed on a Pickwick basis.[2] Further, it appears that the papers served did not find their way to the litigation department of Simpson Grierson that evening.
[1] See para [8] above.
[2] Pickwick International Inc (GB) Ltd v Multiple Sound Distributors Ltd [1972] 3 All ER 384 (ChD).
[22] On Monday 22 June 2010, Simpson Grierson responded to the interim injunction order served the previous day. Two emails were forwarded to Duncan Cotterill in an endeavour to explain that approaches were made to AMP about leasing the Manukau premises before confidential information was disclosed by Just Kids, as part of the due diligence process.
[23] After considering that response, Duncan Cotterill wrote to Simpson Grierson, on 23 June 2010, raising concerns about the response. They said:
3.We acknowledge receipt of the emails you have provided which you say clearly show that our client’s injunction is unsustainable. While we accept that the emails could demonstrate that your client had discussions with AMP regarding the availability of retail space in the Manukau SupaCenta prior to the disclosure of our client’s due diligence, there remain a number of unanswered questions. In particular you have not provided any evidence to show that your client was aware of the amount of rental being paid by our client for the Manukau premises it currently occupies prior to the delivery of the due diligence information. In those circumstances, we are of the view that the clear reference to be drawn is that your client received our client’s due diligence information, established the rental that was being paid by our client in respect of the Manukau premises and then set about negotiating a lease with AMP armed with that knowledge. Such a course of events would clearly constitute use by your client of our client’s confidential information.
4.Before our client would be prepared to consider withdrawing the injunction it would need to be satisfied that discussions with AMP subsequent to the delivery of the due diligence information were in no way furthered as a result of your client becoming aware of the content of the due diligence information. In this regard we seek from you the following:
4.1Copies of any emails between your client and AMP subsequent to 13 April 2010 (the date of delivery of the first tranche of due diligence information) in respect of the rental of the Manukau premises.
4.2Copies of any emails between your clinet and AMP prior to the delivery of the due diligence information that refers to the rental that our client was paying in respect of the premises. In this regard we note that you have provided an email from your client’s Chris Cardwell querying the rental that was being paid by our client, however we have not received any documentary evidence evidencing the disclosure of that information by AMP prior to the release of the due diligence information.
[24] On 29 June 2010, Simpson Grierson wrote again to Duncan Cotterill saying, among other things:
During the course of discussions with AMP regarding possible sites in the Manukau SupaCenta, AMP orally advised our client of the amount of rental payable and rental structure regarding the site occupied by your client in Manukau. Our client is regularly provided with such information in the normal course of investigating retail space. We understand that if our client is forced to formally oppose the injunction, AMP will confirm by way of affidavit evidence that AMP provided such rental information to our client.
We reiterate that our client utterly rejects any allegation that it used information obtained from your client during the course of due diligence, in breach of any obligations of confidence. The point is that the rental structure and payment information which your client has based its injunction application on, is all information which AMP advised our client of, independently from the due diligence process.
[25] Before the scheduled hearing of the interim injunction application
Mr Cardwell affirmed an affidavit on 14 July 2010. He deposed:
17...., in early 2010, I was told by our CEO that Pumpkin Patch wished to locate a suitable new premise in Auckland for an outlet store to clear ageing stock. We wanted the store to fit a profile similar to a previous outlet which we opened at “The Hub” in Botany in 2008.
18.I identified the Manukau SupaCentre as providing an appropriate fit for the new outlet store; that is, it is located in a bulk retail centre with low occupancy costs, low investment in terms of fit out, and a central location close to key transport networks. I knew that AMP was the landlord of the Manukau SupaCenta, so decided to make enquiries for retail space in Manukau in the course of our portfolio review of other sites with AMP.
19.I cannot recall precisely when I opened discussions with AMP – as I said, I am in regular contact with them. In early 2010 I would have raised, in general terms, our wish to negotiate renewals. I would have spoken to Gareth Evans, the Leasing Manager for AMP, who I had regular dealings with. As part of my discussions with AMP regarding the portfolio, in around March 2010 I asked Mr Evans if AMP had any site availability in the Manukau SupaCenta. I indicated that we were keen to take on a site on a short term basis. I asked about any obvious vacancies (empty store sites), but Mr Evans indicated that AMP had plans for the empty sites. Mr Evans indicated that he would look into opportunities for Pumpkin Patch based on what expiries/vacancies were coming up. In our discussion he mentioned to me that the Just Kids lease had expired.
20.On 26 March 2010 Mr Evans sent an email to me in response to my verbal inquiry about the Manukau SupaCenta. The email noted:
[The] only idea I have for you is the old Toyworld site, it is available now until mid May.
21.The Toyworld site did not suit our needs as we did not want to open a store until around June. It appeared that Mr Evans had thought we wanted something immediately, and for a very short timeframe. I recalled that Mr Evans told me that the Just Kids site was on a month to month tenancy, so I thought it was worth exploring that site as a possibility. I replied to Mr Evans that day.
We need an opportunity for 6 months from June. If Just Kinds are month to month what are they paying [sic]? We might better it on a short term deal.
...
36.Around this time I decided to meet with AMP to progress negotiation of the renewals of Pumpkin Patch’s other AMP sites, and try to secure a lease at Manukau SupaCenta. Either I or AMP proposed a meeting for 22 April for this purpose. On 20 April I emailed AMP noting that I would be in Melbourne on 22 April and suggested a meeting on 23 April instead.
37.On 23 April 2010 I met with Mr Curtis and Mr Evans of AMP at AMP’s offices in Customs Street West. We discussed renewals of a number of existing leases ie Botany, The Palms and Lynnmall, together with a new lease at Manukau SupaCenta.
38.When our discussions turned to Manukau we focussed on the Just Kids site as I was told that it was the only site in the complex that was potentially available. Mr Curtis confirmed again that Just Kids was on a month to month tenancy, and AMP was interested in securing a longer tenancy for the site. I indicated that Pumpkin Patch was interested in taking on the site, if terms could be agreed. I asked AMP to confirm what Just Kids was paying in rent. Mr Curtis told me that the lease payable by Just Kids was $95,000 per annum. AMP voluntarily provided this information to Pumpkin Patch as part of our discussion. (my emphasis)
It is not entirely clear whether Mr Cardwell asked Mr Curtis to tell him the rental payable, or whether he put a figure to Mr Curtis for him to confirm.[3]
[3] Compare para 3 of Duncan Cotterill’s letter of 23 June 2010, set out at para [23] above.
[26] From 1 July 2010 (after a hearing for the interim injunction application had been allocated for 22 July 2010), further correspondence was disclosed to Duncan Cotterill in relation to communications between Pumpkin Patch and AMP. In addition, non-party discovery was ordered against and obtained from AMP. It was only after consideration of that material that Just Kids decided to consent to rescission of the interim injunction and determined not to proceed with the substantive proceeding.
(b) Damages claim
[27] As a result of what Pumpkin Patch says was an improperly obtained injunction, it alleges that damages have been suffered as follows:
a) $28,912.33 – loss of profits
b) $15,000 – business interruption
Both topics are the subject of evidence from Mr Washington, Pumpkin Patch’s Chief
Financial Officer.
[28] Mr Washington bases his evidence on loss of profits on a feasibility report prepared by Pumpkin Patch before entering into negotiations for a lease of the Manukau premises. Loss of profits are claimed on the basis that Pumpkin Patch was delayed from 1 July until 1 September 2010 in its ability to take possession of the premises. The Store Feasibility Report is expressed as being “pro forma” and has explanatory content excised from it. Based on unsubstantiated figures in the pro forma document, loss of profits based on a forecast net profit of $173,000 per annum is sought for 61 days. That equates to $28,912.33.
[29] The evidence produced does not satisfy me that damages should be awarded on the basis outlined. There is nothing in the feasibility report to explain the basis on which the projected profitability figures are reached. Further, there is nothing to indicate (for example) what profits have been made at stores where garments to be transferred to the Manukau premises are currently held; that might be relevant to whether Pumpkin Patch has made or lost money on sale of those garments during the period of delay. The loss of profit claim has not been substantiated.
[30] Similarly, the evidence in support of the claims for wasted management costs or business interruption are so devoid of detail that I cannot rely on it, to award damages. Nor am I prepared to allow damages on a “loss of chance” basis. The suggestion that both Mr Cardwell and Mr Washington spent a total of five days each in dealing with matters arising out of the injunction and leasing with AMP seems excessive, in any event.
(b) Costs
[31] Pumpkin Patch seeks costs of $49,257.26 (inclusive of disbursements but exclusive of GST). The original claim was based on two invoices rendered on 29
June 2010 and 30 July 2010 respectively in which fees of $16,811 and $33,461
respectively were rendered. Those totals leave to one side relatively modest disbursements charged and GST. The invoices made available to the Court have their narrations redacted.
[32] Ms Case, a partner of Simpson Grierson, has sought to explain the basis on which those fees have been charged, in an affidavit sworn on 27 August 2010. The explanations are in the most general terms and do not provide any detail of the attendances identified. Ms Cave deposed:
7.On 29 June 2010 Simpson Grierson issued an invoice to Pumpkin Patch which included fees of $14,811.00 (Washington affidavit, Exhibit E). This invoice covered the following attendances:
7.1Correspondence with Just Kids beginning on 14 June 2010 prior to the commencement of proceedings;
7.2 receipt of the interim injunction order and pleadings from
Just Kids.
7.3Review of the pleadings, discussions and investigations with Pumpkin Patch regarding the factual background to the claim, review of relevant legal principles and considering defences;
7.4 Preparation and attendance at a mentions hearing on 23
June, including preparation of a memorandum of counsel;
and
7.5Correspondence with Just Kids, including providing substantive responses in the nature of evidence and discovery on 22 June 2010.
8.On 30 July 2010 Simpson Grierson issued an invoice to Pumpkin Patch which included fees of $33,461.00 (Washing affidavit, Exhibit F). This invoice covered the following attendances.
8.1Preparation and attendance at mentions hearings on 30 June and 7 July 2010, including liaising with counsel for Just Kids and preparing joint memoranda;
8.2Correspondence with Just Kids including providing substantive responses in the nature of evidence and discovery on 29 June and 2 July 2010;
8.3Gathering and reviewing documents, and providing documents to Just Kids by way of informal discovery;
8.4Liaising with AMP and Just Kids in relation to provision for non-party discovery by AMP, and carrying out inspection of non-party discovery;
8.5 Preparation and filing of notice of opposition;
8.6 Preparation of substantive affidavit evidence with Mr
Washington and Mr Cardwell; and
8.7Full preparation for a hearing to rescind the interim injunction including necessary legal and factual analysis, and preparing written submissions.
[33] The bulk of the time spent by authors within Simpson Grierson is attributed to a Senior Associate and an Associate of the firm, whose recorded time is 48.2 hours and 45.3 hours, at rates of $500 per hour and $330 per hour respectively.
[34] While the proceedings brought by Just Kids included other issues requiring close attention from the solicitors for Pumpkin Patch, it was Pumpkin Patch’s involvement in attempting to lease the Manukau premises that was central to the interim injunction application. The ultimate issue on which the interim application and the substantive proceedings resolved turned was the timing of Pumpkin Patch’s approach to AMP and the way in which the rental being paid by Just Kids came to Pumpkin Patch’s attention. The latter information was only provided in Mr Cardwell’s affidavit of 14 July 2010; even though it had been requested specifically
on 23 June 2010 by Duncan Cotterill,[4] to which an opaque response was provided by
Simpson Grierson on 29 June 2010.[5]
[4] See para [23] above.
[5] See para [24] above
[35] Indemnity costs are sought on the basis that Just Kids improperly or unnecessarily commenced or continued to pursue the interim injunction application. Rule 14.6(4)(a) of the High Court Rules states:
14.6 Increased costs and indemnity costs
...
The court may order a party to pay indemnity costs if—
(a)the party has acted vexatiously, frivolously, improperly, or unnecessarily in commencing, continuing, or defending a proceeding or a step in a proceeding; or
....
[36] The circumstances in which indemnity costs may be sought was discussed by the Court of Appeal in Bradbury v Westpac Banking Corporation.[6] In distinguishing among standard scale costs, increased costs and indemnity costs, the Court of Appeal said:
[6] Bradbury v Westpac Banking Corporation [2009] 3 NZLR 400 (CA) at paras [24]-[30].
[27] The distinction among our three broad approaches – standard scale costs, increased costs and indemnity costs – may be summarised broadly:
(a)standard scale applies by default where cause is not shown to depart from it;
(b)increased costs may be ordered where there is failure by the paying party to act reasonably; and
(c) indemnity costs may be ordered where that party has behaved either badly or very unreasonably. (my emphasis)
[37] In my view, having regard to Just Kids’ knowledge, as at 11 June 2010, about Pumpkin Patch’s discussions with AMP and the lack of any response to the “please explain” letter of 11 June 2010 by the end of the following week, it was reasonable to issue interim injunction proceedings. It is not difficult to accept that Mr Sproat may have seen the delays in obtaining a response as attempts to “fob off” Just Kids’ questions. At that stage, Just Kids knew that negotiations had been going on between Pumpkin Patch and AMP at a time when disclosed information, subject to the confidentiality agreement, indicated that the tenancy of the Manukau premises was being held over and the amount of the rent payable was $95,000 per annum.
[38] Nevertheless, it was not appropriate for Just Kids to issue its interim injunction application on a without notice basis. A Pickwick[7] approach should have been taken. Had that occurred and had Pumpkin Patch been given time to file and serve affidavits in opposition, it is likely that the information ultimately provided by Mr Cardwell would have come to light earlier. Having said that, it is difficult to understand why Pumpkin Patch could not have provided that information, more quickly and specifically, in an informal way.
[7] Pickwick International Inc (GB) Ltd v Multiple Sound Distributors Ltd [1972] 3 All ER 384 (ChD).
[39] This appears to be a case in which both parties distrusted the other as a result of their status as competitors. Just Kids was prepared to take an adverse view of
Pumpkin Patch’s conduct because it saw its genuine attempts to provide information for due diligence purposes apparently misused. On the other hand, Pumpkin Patch probably regarded Just Kids’ attempts to hold the interim injunction order after providing detail about the March 2010 discussions between Mr Cardwell and Mr Evans as provocative and designed to affect adversely its economic interests.
[40] In my view, Just Kids’ conduct cannot be characterised as “very unreasonable” or improper for the purposes of r 14.6(4)(a), as explained in Bradbury v Westpac Banking Corporation.[8] However, Just Kids’ failure to proceed on a Pickwick basis did cause unnecessary cost, through creating a difficult atmosphere for information to be exchanged readily in good faith. Further, its insistence to hold the injunction, right up to the date of the proposed hearing, undoubtedly threw
additional costs onto Pumpkin Patch.
[8] Bradbury v Westpac Banking Corporation [2009] 3 NZLR 400 (CA).
[41] In those circumstances, increased costs are required to reflect the need for Pumpkin Patch to respond promptly to the application in circumstances where it was not provided with an adequate opportunity to be heard on whether an injunction should have been issued in the first place and also to reflect wasted costs incurred in the period leading up to the intended 22 July 2010 hearing.
[42] Both parties have prepared calculations on scale costs. In my view, a 2B basis, together with some uplift, is appropriate to meet Pumpkin Patch’s entitlement to costs.
[43] In relation to the schedule prepared by Simpson Grierson, I allow all steps except for production of documents for inspection. I take the view, contrary to that put forward by Mr McGill, that preparation for hearing of the defended interlocutory application was necessary. That means that 2B costs total $13,536. In my view, costs should be awarded in favour of Pumpkin Patch on a 2B basis (as calculated) with a 50% uplift, together with reasonable disbursements to be fixed by the Registrar.
Result
[44] Judgment is entered in favour of Pumpkin Patch in the substantive proceeding. The claims for damages made by Pumpkin Patch on Just Kids undertaking as to damages are dismissed.
[45] Just Kids is ordered to pay Pumpkin Patch’s costs, on the basis set out at para
[43] above.
P R Heath J
Delivered at 9.30am on 1 September 2010
0
0
1