Orion Marine Limited v Sealegs International Limited
[2023] NZCA 315
•24 July 2023 at 9.30 am
| IN THE COURT OF APPEAL OF NEW ZEALAND I TE KŌTI PĪRA O AOTEAROA |
| CA148/2023 [2023] NZCA 315 |
| BETWEEN | ORION MARINE LIMITED |
| AND | SEALEGS INTERNATIONAL LIMITED |
| Court: | French and Collins JJ |
Counsel: | H G Holmes for Applicants |
Judgment: | 24 July 2023 at 9.30 am |
JUDGMENT OF THE COURT
AThe application for leave to appeal is granted.
BCosts are reserved until the substantive appeal has been determined.
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REASONS OF THE COURT
(Given by Collins J)
Introduction
The applicants seek leave under s 56(5) of the Senior Courts Act 2016 to appeal a judgment of Associate Judge Sussock in Orion Marine Ltd v Sealegs International Ltd.[1] An application for leave to appeal to this Court was dismissed by the Judge on 17 February 2023.[2]
[1]Orion Marine Ltd v Sealegs International Ltd [2021] NZHC 3207 [Strike out judgment].
[2]Orion Marine Ltd v Sealegs International Ltd [2023] NZHC 214.
The criteria for leave to appeal under s 56(5) of the Senior Courts Act are well established. As this Court observed in Greendrake v District Court of New Zealand:[3]
(a) a high threshold exists;
(b) the applicant must identify an arguable error of law or fact;
(c)the alleged error should be of general or public importance warranting determination or otherwise of sufficient importance to the applicant to outweigh the lack of general or precedential value;
(d) the circumstances must warrant incurring further delay; and
(e)the ultimate question is whether the interests of justice are served by granting leave.
Background
[3]Greendrake v District Court of New Zealand [2020] NZCA 122 at [6].
This litigation has had a protracted history and has already resulted in one extensive judgment from this Court.[4]
[4]Zhang v Sealegs International Ltd [2019] NZCA 389, [2020] 2 NZLR 308 [Copyright judgment].
The respondent (Sealegs) manufactures amphibious watercraft as does the first applicant (Orion). The second applicant (Mr Leybourne) was formerly an employee of Sealegs. In 2012 he, together with a Mr Zhang, incorporated Orion. The third applicant (Mr Zubcic) was also previously employed by Sealegs but became an employee of Orion in 2013. The fourth applicant (Smuggler Marine) is owned and operated by the fifth and sixth applicants (Mr and Mrs Pringle). Smuggler Marine supplied amongst other items, “amphibious leg kits” to Sealegs and also entered into a business relationship with Orion.
Sealegs was incorporated by a Mr Bryham in 2000. He developed a system designed to enable small boats to be manoeuvred on land. The system involved three legs and powered wheels which could be retracted when the boat was in water. For convenience, we will refer to these mechanisms as “amphibious extensions”.
In 2016, Sealegs commenced proceedings against Orion and Smuggler Marine alleging infringement of copyright in the leg and wheel assemblies of their amphibious craft. When the proceedings were commenced Sealegs obtained an injunction which had the effect of preventing Orion and Smuggler Marine from using amphibious extensions on their craft. The injunction lasted about 30 months. Sealegs provided an undertaking as to damages when it obtained the injunction.
In a minute issued on 31 May 2017, Woolford J made timetable orders by consent in which he directed Sealegs to file “an amended statement of claim (remedying current deficiencies and pleading any claim as to breach of patent)”.[5] The amended statement of claim was to be filed and served by 5.00 pm Friday 30 June 2017. Despite that direction, Sealegs elected to confine its proceeding in the High Court to a breach of copyright.
[5]Sealegs International Ltd v Zhang HC Auckland CIV-2016-404-2256, 31 May 2017, cited in Strikeout judgment, above n 1, at [99].
Sealegs succeeded in its copyright claim in the High Court,[6] but that judgment was set aside by this Court.[7] The approach taken by Sealegs to its possible patent claim was explained in the following way:
[42] … issues concerning Sealegs’ patents and their validity are not raised by this appeal. For, as Mr Bryham stated in evidence, while he believed the appellants’ design was a patent infringement, because of the impending trial date Sealegs decided not to add a patent cause of action in the New Zealand claim but to pursue what he referred to as the simpler copyright infringements leaving the patent to be relied on in the United States, Australia and other jurisdictions should litigation arise there.
[6]Sealegs International Limited v Zhang [2018] NZHC 1724.
[7]Copyright judgment, above n 4.
In 2020, Orion and the other applicants commenced proceedings to enforce Sealegs’ undertaking at the time it obtained the injunction. The applicants are seeking $6.8 million in damages, plus interest and costs.
Sealegs filed a statement of defence and counterclaim saying that the applicants had infringed Sealegs’ patent. Sealegs argues that no amount is owing in relation to its undertaking because of the applicants’ breaches of Sealegs’ patent.
The applicants applied to strike out the counterclaim and those parts of the statement of defence that allege patent infringement on the basis that it is an abuse of process for Sealegs to now rely on an alleged patent infringement. The applicants submit that as the breach of patent claim could and should have been pursued with the copyright claim, Sealegs’ belated reliance on its patent breaches the rule in Henderson v Henderson.[8]
High Court judgment
[8]Henderson v Henderson (1843) 67 ER 313 (Ch).
The Judge appreciated that a patent claim could have been brought by Sealegs in conjunction with its copyright claim at least in relation to Sealegs’ original amphibious extensions claim but not in relation to a boat that was launched in 2019.[9]
[9]Strike out judgment, above n 1, at [85].
The Judge concluded, however, that the applicants had not established that Sealegs should have brought its patent claim at the time it pursued its copyright cause of action. The Judge accepted Sealegs’ argument that a patent claim would have had to follow the procedures prescribed in the High Court Rules 2016 and if that had been done, the copyright claim would not have been able to be heard in a timely manner.[10]
[10]At [121].
The Judge was not satisfied that:[11]
(a)it would be an abuse of process for Sealegs’ counterclaim to proceed; and
(b)the striking out of Sealegs’ claim would be a justified limit on Sealegs’ right to defend itself.
Grounds of application
[11]At [177]–[178].
The applicants advance four grounds for their application.
First, they submit that the rule in Henderson v Henderson is designed to prevent the mischief that has occurred in this case. They say that Sealegs has had the benefit of an injunction and, when its proceeding failed, it should have honoured its undertaking as to damages. Instead, it is attempting to prevent being sued by claiming a breach of its patent, an argument that it consciously chose not to pursue when it claimed the applicants had infringed copyright.
Second, the proposed appeal is meritorious because a patent claim could and should have been pursued by Sealegs in conjunction with its copyright claim.
Third, the errors in the judgment are of general or public importance because the approach adopted in the High Court to Henderson v Henderson undermines the longstanding principle articulated in that case.
Fourth, the errors in the judgment are of sufficient importance to the applicants to outweigh any lack of general precedential importance because the applicants will suffer an abuse of process if the Court does not consider this issue. The applicants also argue that the appeal will be dispositive of Sealegs’ reliance on the alleged patent infringement and any further delays associated with an appeal are minor compared to the time and resources the parties have already expended in litigating Sealegs’ counterclaim and affirmative defence.
Opposition
Sealegs submits that there is no error of fact or law. In particular, it submits the High Court strike out judgment accurately recited the facts and chronology and correctly applied Henderson v Henderson.
Sealegs contends there is no general or public importance to the proposed appeal. The case is entirely fact-specific and concerns the application of well-settled strike out principles.
Even if there were errors, they are not sufficient to grant the application.
Sealegs also argues there would be unwarranted further delay in granting leave to Orion and the other applicants to appeal to this Court.
Analysis
It is neither necessary nor appropriate to engage in any depth with the various issues raised by the proposed appeal. Our task is to act as gatekeepers and assess whether or not the criteria for leave to appeal have been established.
Arguable question of law
We are satisfied that the applicants have identified an arguable error of law, namely whether the approach taken by the Judge below unduly restricted the rule in Henderson v Henderson as it was explained by the House of Lords in Johnson v Gore Wood & Co.[12] Closely aligned to this issue is whether or not the High Court should have applied the judgment of Neuberger J in Hodgkinson & Corby Ltd v Wards Mobility Services Ltd[13] which, has many parallels to the present proceeding.
General or public importance
[12]Johnson v Gore Wood & Co (a firm) [2002] 2 AC 1 (HL).
[13]Hodgkinson & Corby Ltd v Wards Mobility Services Ltd [1997] FSR 178.
The proposed appeal raises issues of general or public importance concerning the application of the rule in Henderson v Henderson and the impact that rule may have upon a defendant’s ability to advance a defence.
Further delay
There has already been considerable delay in this case. We need not apportion the reasons for those delays. Suffice to record that the copyright proceeding may not have been prosecuted as diligently as it should have been by Sealegs.
Overall interests of justice
The overall interests of justice favour the granting of the application. The applicants may have suffered considerable financial hardship as a result of Sealegs obtaining an injunction on the basis of its undertaking. This Court should have the opportunity to carefully assess whether or not Sealegs’ attempt to rely on an alleged patent infringement should effectively override the undertaking it gave when the injunction was issued.
Result
The application for leave to appeal is granted.
Costs are reserved until the substantive appeal has been determined.
Solicitors:
Keegan Alexander, Auckland for Applicants
Goodwin Turner, Auckland for Respondent
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