Moda Systems NZ Limited v McLaren Smart Processing Limited
[2022] NZHC 1743
•20 July 2022
IN THE HIGH COURT OF NEW ZEALAND NAPIER REGISTRY
I TE KŌTI MATUA O AOTEAROA AHURIRI ROHE
CIV-2021-441-96
[2022] NZHC 1743
UNDER the Copyright Act 1994, the Fair Trading Act 1986 and the Trans-Tasman Proceedings Act 2010 BETWEEN
MODA SYSTEMS NZ LIMITED
First Plaintiff
MODA IP LIMITED
Second PlaintiffRG NEWCOMBE
Third PlaintiffAND
McLAREN SMART PROCESSING LIMITED
First Defendant
AR McLAREN
Second DefendantMULTIVAC AUSTRALIA PTY LIMITED
Third Defendant
Hearing: 23 June 2022 Counsel:
EC Gray and JC Murdoch for plaintiffs
KM Quinn and SA Rankin for first and second defendants Appearance for third defendant excused
Judgment:
20 July 2022
JUDGMENT OF ASSOCIATE JUDGE SUSSOCK
This judgment was delivered by me on 20 July 2022 at 4pm pursuant to r 11.5 of the High Court Rules
Registrar/Deputy Registrar
MODA SYSTEMS NZ LTD v McLAREN SMART PROCESSING LTD [2022] NZHC 1743 [20 July 2022]
Introduction
[1] The plaintiffs have applied for further and better particulars of the first defendant’s counterclaim. The hearing was allocated urgently as the two-week substantive fixture is scheduled to commence on 14 November 2022.
[2] The counterclaim was first filed in February 2022 together with the first and second defendants’ statement of defence. It was amended in April following the filing of the plaintiffs’ application for further and better particulars. The plaintiffs say however that several aspects of its application remain outstanding:1
2.1Paragraphs 93 to 95: Particulars of the pleading in paragraphs 93 to 95 that each identified diagram was “shared with the First and Third Plaintiffs,” including:
2.1.1When, how, by whom and to whom;
2.1.2Each diagram was shared; and
2.1.3If by way of document, identifying the document by which the sharing was effected with sufficient particularity;
2.2Paragraph 92: Particulars, for each of the diagrams identified in paragraphs 93 to 95 of the Amended Counterclaim, of the pleading that the Moda Machines “incorporate components, and/or arrangements of components that are copied from components and/or arrangements of [the] components in the First Defendant’s i- Range of Machines” identified in paragraphs 93-95 of the Amended Counterclaim, including:
2.2.1The confidential information allegedly misused, and how that confidential information has been allegedly misused by reference to the applicable component(s) and/or arrangement of component(s) of relevant Moda Machine(s).
2.2.2The copyright work allegedly copied and how, and whether in whole or substantial part and if as to a substantial part particulars of the substantial part by reference to applicable component and/or arrangement of component(s) of relevant Moda Machine(s).
1 Plaintiffs’ Synopsis in Support of Application for Further and Better Particulars of First Defendant’s Counterclaim, dated 22 June 2022.
[3] The first defendant submits the plaintiffs are pursuing particulars that they do not need and that go beyond what is required in terms of the High Court Rules 2016. Furthermore, the first defendant says they are particulars that the plaintiffs’ own claim does not provide.
[4] In the first defendant’s submission, the touchstone for particulars as required by r 5.26(b) is that the responding party must be sufficiently informed of the causes of action. The first defendant says the amended counterclaim is more than sufficiently detailed now, covers what is required for the causes of action pleaded, and that it cannot be seriously argued that the plaintiffs do not understand the counterclaim made against them.
[5] I set out below the background to this matter before considering the requirements for particulars and whether orders for further and better particulars ought to be made in this case.
Background
[6] The plaintiffs and the first and second defendants are involved in manufacturing and selling machines that vacuum-pack products for distribution.2 These machines are used at factories, particularly meat-processing plants. They are referred to as rotary vacuum machines as the product that is to be vacuum-packed rotates in a circle within the machine during the packaging process.
[7] In April 2015, Moda and McLaren began working together to develop and sell machines.3 The parties signed a confidentiality deed on 12 May 2015. Cooke J held that the deed was focused on a separate product but that its terms generally contemplate that all information provided by Moda to McLaren and all information generated by McLaren for Moda is confidential, except for the information developed separately by McLaren or which is public knowledge.4
2 I largely rely on the interim injunction decision of Cooke J for the background until February 2022: Moda Systems NZ Ltd v McLaren Smart Processing Ltd [2022] NZHC 96.
3 Except where necessary, I refer to the plaintiffs collectively as Moda and the defendants as McLaren.
4 Moda Systems NZ Ltd v McLaren Smart Processing Ltd, above n 2 at [8].
[8] In August 2018, the parties entered into a memorandum of understanding under which McLaren would manufacture and supply vacuum-packing machines to Moda.
[9] On 11 December 2018 a separate confidentiality deed was signed, specifically directed to confidential information concerning the rotary vacuum-packing machines. Cooke J held this deed requires McLaren to maintain confidentiality in the information provided to it as part of the arrangement between the parties.5 On the same date, the parties signed a statement of intellectual property ownership specifying that Moda’s intellectual property encompassed seven elements. These seven elements are described in the interim injunction decision as the changes Moda suggested to the components of the machine during the relationship between the parties.6
[10] In evidence filed in support of the interim injunction, Mr Newcombe for Moda said that over 15 machines were successfully produced and installed, each with a sale price of approximately $950,000.
[11] The relationship between Moda and McLaren, and between their principals, Mr Newcombe and Mr McLaren, started to break down in 2019 and was brought to an end around December 2020.
[12] In late 2020, McLaren started to develop a new machine. Mr McLaren’s evidence in opposition to the interim injunction was that he gave instructions to his team to design a new machine from scratch using the original McLaren iVac machine as a starting point. Cooke J found that there was no dispute that the new machine developed by McLaren is different from both the original McLaren iVac machine and the machine that Moda and McLaren jointly worked on. Cooke J refers to two key differences.7 First, the conveyor belt on which the packaged product leaves the machine has been rotated by 90 degrees, apparently an ergonomic improvement for the operator. Secondly, the capacity of the machine has increased from six to eight packages at a time.
5 At [8].
6 At [8].
7 At [10].
[13] Moda’s evidence was that it had made amendments to its own machine, particularly in relation to packaging, making it different from the machine produced jointly.
[14] Moda, however, alleges that improvements to the machine developed during the course of the relationship between the parties have been incorporated into McLaren’s new machine and that this is in breach of Moda’s intellectual property rights.
[15] At the time of the interim injunction hearing, McLaren had been selling its new machine internationally and domestically and had entered into a distribution agreement with the third defendant for distribution in Australia. The third defendant did not oppose interim orders being made against it. As a result, the main source of business for McLaren, Australia, is subject to interim orders. In addition, McLaren offered an undertaking to set aside 20 per cent of all revenue received from the manufacture and sale of its machines from the time of the interim injunction, with those monies to be held in its solicitors’ trust account and not to be released or distributed without written agreement of the plaintiffs or by order of the Court.
[16] After considering the relative impact of granting or not granting an interim injunction on the businesses of Moda and McLaren, Cooke J found that the overall justice of the case did not support an interim injunction being ordered even though Moda had established that there was a serious question to be tried.8
[17] Cooke J’s decision records that his decision was reached on the basis that the parties would proceed to a prompt trial.9 As referred to above, a two-week trial is scheduled to commence on 14 November 2022.
[18] Following the interim injunction decision, on 28 February 2022, McLaren filed their statement of defence and the first defendant, McLaren Smart Processing Limited (MPSL)’s counterclaim against the first and third plaintiffs. The original counterclaim
8 At [20]–[30].
9 At [45].
pleaded that the Moda Machines were “virtually identical” to MPSL’s i-Range of machines.
[19] On 9 March 2022, Moda Systems and Mr Newcombe filed their defence to the counterclaim, including pleading that they were unable to plead to the allegation that the Moda Machines were “virtually identical” because it was insufficiently particularised.
[20]On 11 March 2022, Moda filed an amended statement of claim.
[21] On 25 March 2022, McLaren filed a statement of defence to the amended claim and repeated the first defendant’s counterclaim with no change. At the hearing, counsel for McLaren said that he had only been instructed just prior to the statement of defence being due. He explained that there was no time to amend the counterclaim.
[22] Moda served a notice requiring further particulars on 1 April 2022. The notice expired without answer so the first and third plaintiffs filed an interlocutory application for further and better particulars on 14 April 2022. No notice of opposition was filed. As a result, on 11 May 2022 the first and third plaintiffs filed a memorandum seeking orders.
[23] On 20 May 2022, McLaren filed an amended counterclaim (Amended Counterclaim), together with a memorandum in support. The memorandum acknowledged that McLaren had not filed a notice of opposition to the plaintiffs’ application. McLaren, however, submitted that the application was unnecessary as McLaren was always intending to file an amended counterclaim and had advised the plaintiffs that they were in the process of preparing the amended claim at the time. Counsel suggested that Moda ought to review the Amended Counterclaim and decide whether they wished to pursue their application.
[24] On 2 June 2022, Moda confirmed that their application was pursued in relation to the aspects set out in paragraph 2 of this judgment. A notice of opposition was filed by McLaren on 9 June 2022.
Pleadings and particulars – general principles
[25]Rule 5.26 of the High Court Rules 2016 relevantly provides:
5.26 Statement of claim to show nature of claim
The statement of claim—
(a)must show the general nature of the plaintiff’s claim to the relief sought; and
(b)must give sufficient particulars of time, place, amounts, names of persons, nature and dates of instruments, and other circumstances to inform the court and the party or parties against whom relief is sought of the plaintiff’s cause of action;
…
[26] Rule 5.26 applies to counterclaims in the same way it applies to statements of claim by r 5.54.
[27] The parties accept the statement of principles set out by Associate Judge Osborne (as he then was) in Body Corporate 74246 v QBE Insurance (International)
Ltd:10
(a)The primary purpose of pleadings is to define the issues and thereby to inform the parties in advance of the case they have to meet and so enable them to take steps to deal with it.
(b)The statement of claim should state the claim in each case so that the Court has sufficient clarity and detail to understand the issues it has to rule on, and the defendant knows the case which is to be met and is able to prepare for trial. The function of particularised pleading therefore includes:
(i)limiting the scope of matters a party may put in issue of the trial (or in pre-trial settlement discussions);
(ii)enabling the other party to know the witnesses it will need to retain and to enable the party to start preparing ahead of the formal exchange of evidence; and
(iii)providing an opportunity for the other party to seek summary determination on the basis that the other party's position is untenable.
(c)Specifically required by r 5.26(b) [of the] High Court Rules are such particulars “… of time, place, amounts, names of persons, nature and dates of instruments, and other circumstances as may suffice to inform the Court and the party or parties against whom relief is sought of the plaintiff’s cause of action”.
10 Body Corporate 74246 v QBE Insurance (International) Ltd [2015] NZHC 1360 at [18].
(d)The pleading must set out the facts or circumstances relied upon as giving rise to each cause of action alleged and the relief claimed as a consequence.
(e)The nature and level of particulars will depend on the facts of the individual case. In complex cases, over-pleading may obscure rather than clarify the issues.
(f)The distinction between particulars and interrogatories is important
— particulars are matters of pleading, designed to make plain to the opposite party the case to be raised whereas interrogatories are sworn statements of fact, procured by the opposite party to assist that party in proving his or her case.
(g)A request for further particulars can be resisted if the request goes beyond the scope of particulars and probes for evidence.
(h)Questions which a Court can usefully ask itself are:
(i)Has sufficient information been provided to inform the other party of the case they have to meet and to enable them to take steps to respond?
(ii)Is there a real risk that the other party may face a trial by ambush if further particulars are not provided?
(iii)Is the request oppressive or an unreasonable burden upon the party concerned?
(i)In considering whether any party is likely to be taken by surprise, the Court is entitled to have regard to the fact that:
(i)If the particulars sought are within the knowledge or control of the requesting party an order for further particulars may be declined pending the completion of discovery or other matters;
(ii)Case management is available to ensure each side is fairly informed of what is in issue, with the Court able to require leading counsel to agree a list of issues;
(iii)Briefs of evidence will be exchanged well in advance of the hearing. The Court is also entitled to take into account its ability in cases with substantial evidence to provide for defendants to have extended periods of time to digest and respond to the evidence of the plaintiff.
(j) Particulars of pleading should be approached in a practical and not a theoretical, mechanical or pedantic manner.
(footnotes omitted)
[28] In addition, the statement by Fisher J in Russell v Taxation Review Authority is a useful guide as to what should (and should not) be included in a pleading:11
11 Russell v Taxation Review Authority (2000) 19 NZTC 15,924 (HC) at [40]; as approved by the Court of Appeal in Reay v Attorney-General [2016] NZCA 519 at [17].
It should not be necessary to state that there are only three possible reasons for including an allegation in a pleading. The primary reason is that the allegation forms one of the essential factual planks upon which judgment depends. Whether an allegation is justified under this heading is easily tested. The question is whether, in the absence of proof of the pleaded fact, the plaintiff would be entitled to judgment. The second is that the pleaded fact is critical to the quantum or nature of the remedy sought. The third is that contextual facts may be pleaded if without them it would not be possible to understand the more critical factual allegations. In addition it will be helpful to set out the statement of claim in a way which concisely shows the legal nature or classification of each cause of action.
Nature of the counterclaim
[29]The causes of action pleaded in the Amended Counterclaim are:
(a)breach of contractual duty of confidentiality;
(b)breach of equitable duty of confidentiality; and
(c)primary infringement of copyright.
[30] Claims for misuse of confidential information must give particulars of what is alleged to be confidential and how it was misused.12 Moda relies on Fujitsu General New Zealand Ltd v Black Diamond Holdings Ltd where Wild J discussed further particulars in the context of a claim of misuse of confidential information.
[31] In Fujitsu, Wild J referred to the classic statement of the Court of Appeal in Price Waterhouse v Fortex Group Ltd that the aim of a statement of claim is to inform the opposing party and the Court of the nature and necessary ingredients of the plaintiff’s claim.13 His Honour set out the issues that emerged from the pleadings in Fujitsu as follows:14
(a)Did Black Diamond obtain Fujitsu’s confidential information?
(b)If yes, what confidential information?
12 Matthew Casey (ed) Sim’s Court Practice (online ed, LexisNexis) at [HCR5.26.5], citing Fujitsu General New Zealand Ltd v Black Diamond Holdings Ltd HC Wellington CP143/00, 13 November 2002, Wild J at [32] and [39]. See also Secton Pty Ltd v Delawood Pty Ltd (1991) 21 IPR 136 (VSC) at 155; and Donovan Group NZ Ltd v Reid [2020] NZHC 3367 at [18]–[19].
13 Price Waterhouse v Fortex Group Ltd CA 179/98, 30 November 1998 at 19.
14 Fujitsu General New Zealand Ltd v Black Diamond Holdings Ltd, above n 12, at [34].
(c)Did Black Diamond misuse some or all of that confidential information?
(d)If yes, what information, and when and how?
(e)If there was misuse, what, if any, loss or damage did it cause to Fujitsu?
[32] After setting out these questions, Wild J commented that in Fortex, McGechan J emphasised that pre-trial exchange of statements of evidence had not diluted the requirement for proper pleading. Wild J continued that McGechan J also made the point that pleadings and statements of evidence are far from synonymous, the aim of the former being to enable the latter properly to be undertaken.
[33] Wild J held in Fujitsu that Black Diamond was seeking a level of particularity which departed from sufficient pleading and entered the realm of evidence. His Honour did not accept Black Diamond’s submission that claims for breach of confidentiality were in a category of their own when it came to pleading, Wild J referring to Occular Sciences Ltd v Aspect Vision Care Ltd where Laddie J held:15
[t]he rules relating to the particularity of pleadings apply to breach of confidence actions as they apply to all other proceedings …
[34] Wild J went on to endorse the position reached in Occular Sciences, however, that the plaintiff must ensure that the defendant knows what confidential information is in issue.16
[35] Counsel for Moda further relied on Secton Pty Ltd v Delawood Pty Ltd, a decision of the Supreme Court of Victoria relating to alleged trade secrets.17 The Court held that the law relating to trade secrets should not be regarded as distinct from the general law relating to breach of confidence. King J discussed the particulars given in that case which included details of the way in which the concepts in issue were communicated to the defendants. His Honour commented that the particulars were in terms of documents, discussions and things which were more detailed than the alleged
15 Occular Sciences Ltd v Aspect Vision Care Ltd [1997] RPC 289.
16 Fujitsu General New Zealand Ltd v Black Diamond Holdings Ltd, above n 12, at [34]–[38].
17 Secton Pty Ltd v Delawood Pty Ltd, above n 12.
trade secrets. The particulars were relied on by the plaintiffs as having communicated to the defendants not only the details of the communication but also the alleged trade secrets themselves. The Court went on to comment:18
The said details are not themselves relied on as trade secrets which have been disclosed or used by the defendants. I have been informed by Mr Merkel that before trial the defendants insisted on clear particulars of the trade secrets which they are alleged to have improperly disclosed or used, as distinct from the particulars of documents initially supplied by the plaintiffs as repositories of the said trade secrets. The defendants were entitled to such particulars.
[36] It is clear from both Secton and Fujitsu that the confidential information needs to be clearly identified, especially where it is contained in a document, or drawing as it is here.
[37] Furthermore, as the plaintiffs submit, by their nature, claims for breach of a duty of confidentiality cannot succeed if the defendant has not been privy to the alleged confidential information.
[38] The plaintiffs further submit that it is the particularised diagrams that are alleged to be the relevant confidential information, not the McLaren machines themselves. Consequently, those diagrams need to have been communicated, and identified confidential information in those diagrams needs to have been misused.
[39] Similarly, identifying the copyright work and any part that has been allegedly copied is critical to an action for infringement of copyright, as is access to the copyright work that is alleged to have been copied.19 The plaintiffs submit that proper particularisation of all of these elements is required.
[40] The first defendant sets out the grounds of its opposition to the orders for further and better particulars in its notice of opposition as follows:20
18 At 155.
19 Henkel KGAA v Holdfast New Zealand Ltd [2006] NZSC 102, [2007] 1 NZLR 577 at [16].
20 Paragraph 4 of the Notice of Opposition dated 9 June 2022.
(a)The particulars sought [at paragraph 2.1 as set out above in paragraph 2]21 are a matter of evidence, not pleading.
(i)A statement of claim must state the factual allegations necessary to establish the right to a remedy.
(ii)While adequate particulars are required, the statement of claim must not stray into setting out the evidence relied upon. That is, material facts should be stated but evidence and law should not.
(iii)The Amended Counterclaim in its present form sufficiently informs the First and Third plaintiffs of the cause(s) of action alleged against them. The relevant material fact is that the identified drawings were shared, and this fact is pleaded in the Counterclaim.
(iv)The particulars requested … are not required to fairly inform the First and Third plaintiffs of the case to be met because no further information is needed to understand the allegation of sharing.
(v)If the First and Third plaintiffs do not wish to admit that the specific drawings had been shared with them, then they can deny that allegation and the onus will be on MSPL to prove it.
(vi)Accordingly, this aspect of the Application goes beyond the proper scope of particulars and probes for evidence.
(vii)The pleading in the Amended Counterclaim is essentially no different from the pleading in the plaintiffs’ amended statement of claim (ASOC) insofar as paragraphs 33, 35, 37 and 39 of the ASOC all plead that various drawings “were shared with MSPL” but the pleading provides no particulars of such sharing or any of the information sought …
(b)The particulars sought at [paragraph 2.2 as set out in paragraph 2 above (and paragraph 2.1 as well)] are not required for the following reasons:
(i)The Amended Counterclaim lists and identifies some 63 drawings which are said to have been copied by the First and Third plaintiffs. Further, those drawings have been provided to the plaintiffs by way of an initial disclosure.
(ii)In terms of identifying the confidential information allegedly misused by the plaintiffs [paragraph 2.2.1 above], paragraph 87 of the Amended Counterclaim makes it clear that it is the drawings listed in paragraphs 93-95 which contain or comprise the confidential information in issue. This equivalence between drawings and confidential information is the same pleading approach adopted by the plaintiffs in their ASOC (refer paragraphs 34, 38, 40 and 42 of the ASOC).
21 The Notice of Opposition referred to Moda’s memorandum dated 2 June 2022 which set out the remaining further and better particulars sought. For convenience, I have replaced these references with references to the relevant paragraphs in the plaintiff’s submissions as set out in paragraph 2 of this judgment.
(iii)In terms of identifying the copyright work allegedly copied [paragraph 2.2.2 above], this is done at paragraphs 93-95 of the Amended Counterclaim, which is at least as detailed as the equivalent pleading by the plaintiffs in their ASOC (refer paragraphs 33 and 37 of the ASOC).
(iv)The pleadings in the Amended Counterclaim are adequate considering the nature of the case, the scope of the pleadings, the issues in dispute and the stage of the proceeding that has been reached.
(v)Given discovery has taken place, the First and Third plaintiffs are not likely to be taken by surprise at trial. The information relating to the particulars sought in paragraphs [2.1 and 2.2 above] is now within the control of the First and Third plaintiffs.
(vi)Case management is also available to ensure the First and Third plaintiffs are fairly informed of what is in issue, with the court able to require counsel to agree a list of issues.
(vii)Within this context, the First and Third Plaintiffs’ request insists upon excessively refined pleadings, which is unnecessary and wasteful of costs and court time.
(viii)The complexity of the case means that over pleading of this kind would obscure rather than clarify the issues.
[41] The plaintiffs submit that none of the first defendant’s responses in its notice of opposition are persuasive:
(a)Omitting all particulars means that the factual allegations necessary to establish a right to a remedy have not been provided;
(b)The required further particulars will set out the relevant material facts and are needed to understand the first defendant’s allegations of sharing and of misuse;
(c)It is contrary to current pleadings’ practice for a defendant to simply deny an allegation and the onus then be on the plaintiff (in this case the counterclaim plaintiff) to prove it. If that was the case, Moda submits we would go back to the “old way” of trial by ambush and particulars would never be required by the Court.
(d)Furthermore, the plaintiffs submit there are many material differences between the plaintiffs’ ASOC and that pleaded in the Amended Counterclaim, in particular:
(i)The first defendant was the first plaintiff’s manufacturer. In that role the first defendant either created or received all of the first plaintiff’s production drawings, and possesses all of the plaintiffs’ relevant production drawings and the confidential information shared with the first defendant as manufacturer;
(ii)Paragraphs 35, 39, 41 and 43 of the ASOC particularise relevant communications between the first plaintiff and the first defendant, whereas paragraphs 93 to 95 of the Amended Counterclaim simply identify diagrams and not communications;
(iii)The evidence for the interim injunction application provided details of the plaintiffs’ allegations of the defendants’ copying and misuse of confidential information, whereas the first defendant’s counterclaim was not foreshadowed at all during the interim injunction application and so there is no relevant evidence to guide the first and third plaintiffs;
(iv)The first defendant has had the benefit of inspection of fully compiled and completed examples of each relevant Moda Machine which is the subject of the Amended Counterclaim, whereas all of the machines made available for inspection by the first defendant were only partially complete.
(e)As with interrogatories, the discovery process does not replace the requirement for proper pleading. In this case McLaren have included approximately 25,000 documents in their discovery with no guidance as to where to find communications relevant to paragraphs 93 to 95 of the Amended Counterclaim.
(f)The first and third plaintiffs are therefore unable to currently know the case against them, the pleadings in the Amended Counterclaim are not adequate considering the nature of the case and the issues in dispute. Case management cannot be expected to cure the serious deficiencies in the Amended Counterclaim.
(g)The plaintiffs further submit that the particulars sought are modest and must be easily within the first defendant’s knowledge. There is nothing unnecessary or wasteful of costs or Court time in requiring the first defendant to properly plead its case.
[42] Osborne J identified three questions in Body Corporate 74246 v QBE (International) Ltd that a Judge may usefully ask, in deciding whether further particulars should be ordered.22 I discuss these three questions below in relation to each of the two subjects of further particulars sought.
Further particulars of sharing
Has sufficient information been provided to inform the other party of the case they have to meet and to enable them to take steps to respond?
[43] The first defendant says that the pleading that the drawings have been shared is not even necessary for pleading the counterclaim, submitting that it is not an element of the cause of action. The plaintiffs disagree.
[44] As set out above, a claim for breach of a duty of confidentiality cannot succeed if the counterclaim defendant has not been privy to the alleged confidential information. The allegation that the documents have been shared is therefore a necessary element of the claim. As held in Russell v Taxation Review Authority, “[t]he question is whether, in the absence of proof of the pleaded fact, the plaintiff would be entitled to judgment”.23 In my view, there is no question that the allegation of sharing is necessary for pleading the counterclaim. The question is therefore whether further particulars of the sharing are required.
[45] The first defendant’s opposition to providing further particulars relies heavily on the fact that its counterclaim is as particularised as Moda’s ASOC. However whilst the ASOC does list the drawings in the same way as the Amended Counterclaim does, in addition the plaintiffs’ claim separately lists the way in which the drawings were
22 Body Corporate 74246 v QBE (International Ltd), above n 10, at [18].
23 Russell v Taxation Review Authority, above n 11.
shared – see, for example, paragraphs 35, 39, 41 and 43. There are not equivalent pleadings in the Amended Counterclaim.
[46] The defendants submit that it would be a simple matter for the plaintiffs themselves to determine whether the drawings listed have been shared with them. This does not seem reasonable given the size of the discovery and the time to trial. If McLaren has knowledge of when and how the drawings were shared, then that ought to be particularised in the counterclaim. If McLaren does not know, then the basis for why they allege the information has been shared needs to be set out.
[47] Considering therefore the first question posed by Osborne J, the first part, whether sufficient information has been provided “to inform the other party of the case they have to meet”, is arguably met by the allegation of sharing. However, the second part, whether sufficient information has been provided “to enable them to take steps to respond”, has not. The point of the pleading is to allow the party to not only know the case but to be in a position to collect the necessary evidence to respond. Bare allegations that 63 diagrams have been shared is not sufficient to allow Moda to collect evidence, brief its witnesses and prepare for trial within a reasonable timeframe.
Is there a real risk that the other party may face a trial by ambush if further particulars are not provided?
[48] As will be clear from the discussion above, I consider there is a real risk of trial by ambush if further particulars are not provided. If it is alleged that drawings were shared in meetings or in further correspondence, then that should be set out so that Moda can respond in their statement of defence and their evidence.
Is the request oppressive or an unreasonable burden upon the party concerned?
[49] There is nothing to suggest that ordering further particulars would be oppressive or an unreasonable burden.
[50] The defendant submits that given the particularised drawings identify the components in issue, the plaintiffs will know better than anyone whether they have copied those components. I do not accept this as a reason for not requiring further
particulars. It may be that McLaren does not know when the sharing occurred. If that is the case, then the first defendant is required to set that out.
Conclusion on further particulars of sharing
[51] In conclusion, McLaren ought to provide further particulars of the alleged sharing. The particulars sought in respect of each diagram shared of “when, how, by whom and to whom” appear appropriate and are consistent with the plaintiffs’ pleading of sharing.
[52] The plaintiffs further request that if the sharing is by way of document, that the document by which the sharing was effected is identified with sufficient particularity. In my view these particulars are appropriate and are consistent with Moda’s ASOC. For example, the entry in paragraph 35 of the ASOC in relation to the lifting post element refers to an email from Mr Dan Noakes of Moda to Mr Jed Graham of McLaren with the dates set out. I therefore make orders on this basis below.
Further particulars of misuse of confidential information
[53] I now ask the same three questions in relation to the further particulars sought in regard to the identification of the confidential information, its alleged misuse, and the copyright works allegedly copied and how.
Has sufficient information been provided to inform the other party of the case they have to meet and to enable them to take steps to respond?
[54] The particular nature of the confidential information/copyright works in this case is discussed by Cooke J in the interim injunction decision when describing why he considered that Moda has an arguable case, by reference to one of many elements:24
[21]For example, and without providing a detailed description in a judgment that will become public in a way that may disclose what Moda says is its confidential information, one of the elements of the overall machine is called a “lifting post”. This is a post with a wheel at its base that runs along a track which has the function of lifting the vacuum chamber where the vacuum packing takes place. The lifting post lifts up the vacuum chamber assembly before it comes down over the product for vacuum packing. Mr Sornikov describes design
24 Moda Systems NZ Ltd v McLaren Smart Processing Ltd, above n 2.
problems with the original post that caused damage to the machine’s componentry during operation. He explains that during the period of joint development there were innovations made to the lifting arm, including through the introduction of lubrication but also in at least one other respect, to address these problems. He was able to demonstrate how those features of the design were not present in the original McLaren machine, were present in the joint design, and that they appear to be apparent in the new McLaren design.
[22]I am satisfied on the basis of his evidence that there is accordingly a serious question to be tried that use of this developmental information has taken place. Having said that, the potential limits of Moda’s claims are also demonstrated by the evidence filed in relation to this element. The lifting arm is part of a series of interrelated components including the vacuum chamber, the chamber arm and other connected parts. My assessment of the interrelated series of components in the original McLaren design, the joint Moda/McLaren design, and McLaren’s new design suggests that McLaren has engaged in what appears to be a redesign of this integrated set of components. The new overall assembly appears materially different. So at this stage not only do Moda’s claims not extend to the vacuum packing machine overall, but also key components of the machine appear to have been separately designed by McLaren in a manner consistent with its evidence that its design was started afresh from scratch. But Moda is still able to show particular elements of the components may have included the improvements made during the course of the joint operation which are subject to Moda’s intellectual property rights.
[23]A similar analysis could be conducted for each of the elements that are presently subject to Moda’s claims. …
[55] From the above, it is clear that the counterclaim pleaded needs to be specific in terms of the components of the drawings that are in issue, in order to enable a full analysis for each of the elements. Currently, working through the Amended Counterclaim, it effectively pleads that:
(a)following termination of the relationship between the parties, the first plaintiff has marketed, manufactured and sold machines copied from components and/or arrangements of components in the first defendant’s range of machines (paragraph 92 Amended Counterclaim);
(b)the components referred to in (a) for the i-Shrink machine include components shown in the following drawings (i-Shrink Copyright Works) (paragraph 93 Amended Counterclaim);
(c)the components referred to in (a) for the i-Chill machine include the components shown in the following drawings (i-Chill Copyright Works) (paragraph 94 Amended Counterclaim);
(d)the components referred to in (a) for the i-Dry machine include the components show in the following drawings (i-Dry Copyright Works) (paragraph 95 Amended Counterclaim);
(e)the Moda Machines are being marketed, manufactured and sold by the first plaintiff without the express or implied authorisation of the first defendant (infringing conduct) (paragraph 96 Amended Counterclaim).
[56] The plaintiffs are seeking further particulars of which of the components in the drawings are alleged to be confidential information or copyright works. As the Court held in Secton, the plaintiffs are entitled to particulars of the confidential information or copyright works alleged to have been misused as distinct from the particulars of documents allegedly supplied by McLaren as repositories of the said confidential information or copyright work. 25
[57] If McLaren alleges that all components in the drawings listed in paragraphs 93 to 95 are confidential information or amount to copyright works, then the particulars need to set that out. If however McLaren is alleging only that particular components are confidential or copyright works, then those particular components need to be clearly identified. Without these particulars, I do not consider Moda is sufficiently informed of the case it has to meet nor does it have sufficient information to enable it to take steps to respond.
Is there a real risk that the other party may face a trial by ambush if these particulars are not provided?
[58] I consider there is such a risk. Although evidence will be provided in the briefs of evidence exchanged prior to the trial, the tight timeframe before trial may not allow sufficient time for Moda to collect its evidence in response. The case against Moda
25 Secton v Delawood, above n 12.
ought to be sufficiently clear from the pleadings to allow Moda to begin collecting evidence in advance of the exchange of briefs before trial.
Is the request oppressive or an unreasonable burden upon the party concerned?
[59] Counsel for McLaren submits that it would not be fair to McLaren to require it to provide particulars when Moda has not been required to provide equivalent particulars in its statement of claim. However, as counsel for Moda submits, the position of the two parties is distinguishable:
(a)McLaren was Moda’s manufacturer and in that role either created or received all of Moda’s production drawings and possesses those drawings and the confidential information shared with McLaren as manufacturer.
(b)The evidence for the interim injunction provided details of Moda’s allegations of McLaren’s copying and misuse of confidential information.
(c)McLaren has had the benefit of inspecting fully compiled and completed examples of each Moda Machine that is the subject of the Amended Counterclaim whereas all of the machines made available for inspection by McLaren have only been partially assembled.
[60] Providing this second set of particulars may be more onerous than the particulars in relation to sharing. Despite this, in my view the particulars are very important, not only to enable Moda to prepare for trial but also for the Court to understand the confidential information and copyright works in issue. The benefit of requiring these particulars therefore outweighs the potential burden that it may place on MPSL.
Conclusion on particulars of confidential information and misuse and copyright works and how copied
[61] In these circumstances I consider that the further particulars sought by Moda in relation to the confidential information in the drawings and its misuse and the copyright works in those drawings and how copied need to be provided.
Form of the order
[62] The orders sought by the first and third plaintiffs are either that the first defendant is required to file further and better particulars of its counterclaim or that the first defendant is to file a more explicit counterclaim in accordance with r 5.21 of the High Court Rules and provide initial disclosure as required by r 8.4.
[63] These two alternatives were not discussed at the hearing of the particulars’ application probably because it was allocated on two days’ notice. It is usually more convenient for all parties and the Court for the particulars to be incorporated into the counterclaim rather than having a separate document. In the circumstances of this case, with complex components and only a two-week trial, it would appear sensible to try to streamline the documents to the extent possible. I therefore make orders below for a further amended counterclaim to be filed.
[64] I record that I have made small adjustments to the wording of the description of the further and better particulars required to be included in the amended counterclaim for clarity.
Result
[65] The first and third plaintiffs’ application for further and better particulars is granted.
[66] The first defendant is to file and serve a more explicit counterclaim by Wednesday 3 August 2022 including further and better particulars as follows:
(a)Paragraphs 93 to 95: Particulars of the pleading that each identified diagram was “shared with the first and third plaintiffs”, including:
(i)when, how, by whom and to whom each diagram was shared; and
(ii)if by way of document, sufficiently identifying the document by which the sharing was effected.
(b)Paragraph 92: Particulars of the pleading that the Moda Machines “incorporate components, and/or arrangements of components, that are copied from components and/or arrangements of components in the first defendant’s i-Range of machines” for each of the drawings identified in paragraphs 93-95 of the Amended Counterclaim dated 20 May 2022 in the following respects:
(i)the confidential information allegedly misused, and how that confidential information has been allegedly misused by reference to the applicable component(s) and/or arrangement of component(s) of relevant Moda Machine(s); and
(ii)the copyright work allegedly copied and how, and whether in whole or substantial part, and if as to a substantial part by reference to applicable component(s) and/or arrangement of component(s) of relevant Moda Machine(s).
Costs
[67] The first and third plaintiffs seek 2B costs of $15,893.50 plus disbursements of $1,140 for all relevant steps up to the mentions hearing on 23 May 2022 and for the subsequent steps to resolve the application.
[68] The first and third plaintiffs submit that they should not have had to bring this application. They say that it was readily apparent on the face of the first version of the counterclaim that the first defendant had failed to provide any of the particulars that were required for a breach of confidentiality claim or for a copyright infringement
claim. Despite the inadequacies being brought to the first defendant’s attention by the first and third plaintiffs’ statement of defence to the counterclaim dated 9 March 2022, the first defendant filed essentially the same counterclaim on 25 March 2022. This then led to the notice requiring further and better particulars dated 1 April 2022 (to which there was no response) and the filing of the application on 14 April 2022.
[69] A notice of opposition was not filed within the required time and it was only after Moda’s counsel filed their memorandum dated 11 May 2022 seeking orders in terms of the application that the first defendant filed its Amended Counterclaim (and this was only on the Friday before the Monday, 23 May 2022 mention).
[70] The plaintiffs say in response to the first defendant’s assertion that there was always going to be an amended counterclaim and that the application was therefore unnecessary, that there is no justification for filing a claim that so lacks particulars of any basis for the causes of action that it would not survive a strike out application. The plaintiffs say this is even more the case in a proceeding that has an urgent trial fixture allocated.
[71] Counsel for McLaren submits that costs ought to be reserved with the parties to confer and memoranda to be filed if the parties are unable to agree. Counsel said that he had not had an opportunity to review the costs sought in any detail but he queried costs being sought for the preparation of a bundle given there were only three items, some of which did not need to be included. Furthermore, Mr Quinn said the circumstances did not justify an award for second counsel and he would not have sought the same for McLaren.
[72] I expect that counsel ought to be able to agree costs but, if that is not possible, memoranda may be filed on behalf of Moda within 25 working days of this judgment and by McLaren within a further 10 working days. For the assistance of counsel, my preliminary views are that the first and third plaintiffs are entitled to costs generally on a 2B basis, with the preparation of the bundle on a 2A basis and with second counsel justified, given the complexity of the material and the short time leading up to the hearing.
[73] I record that I have allowed extra time before the costs memoranda are required to be filed to ensure that the particulars have been provided and any issues resolved and to increase the prospect of agreement on costs being reached.
Associate Judge Sussock
Solicitors/Counsel:
Martelli McKegg, Auckland Sainsbury Logan & Williams, Napier Simpson Grierson, Auckland
E Gray, Sangro Chambers, Auckland
S Rankin, Bankside Chambers, Auckland
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