Orion Marine Limited v Sealegs International Limited
[2023] NZHC 214
•17 February 2023
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE
CIV-2020-404-2488
[2023] NZHC 214
UNDER Part 18 of the High Court Rules 2016 and/or the inherent jurisdiction of the Court UNDER
the Patents Act 2013
BETWEEN
ORION MARINE LIMITED
First Plaintiff/First Counterclaim Defendant
DARREN PAUL LEYBOURNE
Second Plaintiff/Second Counterclaim Defendant
VLADAN ZUBCIC
Third Plaintiff
Cont/…
Hearing: 5 October 2022 Counsel:
A Hyde for the Plaintiffs/Applicants
G F Arthur KC for the Defendant/Respondent
Judgment:
17 February 2023
JUDGMENT OF ASSOCIATE JUDGE SUSSOCK
[Application for leave to appeal]
This Judgment was delivered by me on 17 February 2023 at 4pm, pursuant to r 11.5 of the High Court Rules
Registrar/Deputy Registrar Date:
Solicitors:
Goodwin Turner, Auckland Keegan Alexander, Auckland
ORION MARINE LIMITED v SEALEGS INTERNATIONAL LIMITED [2023] NZHC 214 [17 February 2023]
SMUGGLER MARINE LIMITED
Fourth Plaintiff/Third Counterclaim Defendant
DAVID JEFFERY PRINGLE
Fifth Plaintiff
PAULINE SIGNA PRINGLE
Sixth Plaintiff
AND SEALEGS INTERNATIONAL LIMITED
Defendant/Counterclaim Plaintiff
Introduction
[1] The plaintiffs, Orion Marine Limited and others (Applicants),1 seek leave to appeal my judgment of 26 November 2021 dismissing their application to strike out parts of the statement of defence of the defendant, Sealegs International Limited (Sealegs), and the whole of Sealegs’ counterclaim (Judgment).2
[2] The Applicants are suing on the undertaking as to damages given by Sealegs in respect of the interim injunction ordered during Sealegs’ copyright proceedings. The injunction prevented the applicants from producing, displaying or selling allegedly infringing products until Sealegs’ copyright claim was determined. The undertaking as to damages provided that if Sealegs did not establish that its copyright was infringed, Sealegs would pay the applicants damages for the loss suffered as a result of the injunction. Sealegs did not succeed in its claim for breach of copyright so the applicants now seek damages of $6.8m plus interest and costs.
[3] Sealegs has filed a statement of defence and counterclaim pleading that any production, display or sale by Orion or the other parties, although not infringing Sealegs’ copyright, would have infringed Sealegs’ patent. As a result, Sealegs says no amount is owing on the undertaking.
[4] The Applicants applied to strike out the parts of the statement of defence relying on alleged patent infringement and the counterclaim on the basis the pleadings are an abuse of process as the breach of patent claim could and should in all the circumstances have been brought together with the copyright claim. The Applicants further say that either Sealegs substantively abandoned its patent claim or deliberately misled the Court and the Applicants as to its intention in this regard.
[5] In the Judgment I held that the Applicants had not established that it would be an abuse of process for Sealegs to plead defences relying on a breach of patent or to bring a counterclaim on that basis. I therefore dismissed the application to strike out.
1 I refer to the plaintiffs as Applicants to avoid confusion given the opposite roles of the parties in the copyright proceedings.
2 Orion Marine Ltd v Sealegs International Ltd [2021] NZHC 3207.
Legal principles applying to leave to appeal
[6] A party is required by s 56(3) of the Senior Courts Act 2016 to apply for leave to appeal any decision of the High Court made on an interlocutory application except for successful summary judgment or strike out applications. Applications for leave are governed by the following principles: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 be 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.
Issues
[7]The issues are therefore:
(a)Is there an arguable error of law or fact?
(b)Is there general or public importance in the appeal or is it sufficiently important to the Applicants to outweigh the lack of general or public importance?
(c)Do the circumstances warrant incurring further delay?
(d)Are the interests of justice served by granting leave?
(e)Is the high threshold for leave to appeal met?
Is there an arguable error of law or fact?
[8] The application for leave to appeal attaches an appendix setting out the alleged errors of law and fact. The Applicants rely on six of these in particular:
3 Greendrake v District Court of New Zealand [2020] NZCA 122 at [6].
(a)failing to take the relevant public interest into account by failing to articulate or address the key abuse of process alleged and whether Sealegs’ conduct was consistent with the fair and orderly disposition of justice;
(b)wrongly finding that for abuse of process to be made out based on the rule in Henderson v Henderson4 the new claim must overlap with the earlier proceeding to the extent that the principles of res judicata apply;
(c)erring in regard to the overlap between the copyright and patent claims;
(d)wrongly categorising Sealegs’ patent claim as a defence to the damages claim by way of illegality or cost of manufacture when it is a separate claim which, if determined in Sealegs’ favour, could be set off against any damages awarded to the Applicants;
(e)failing to appropriately balance the parties’ rights; and
(f)failing to take into account adequately or at all the numerous inconsistencies in Sealegs’ evidence.
[9] Several of the alleged errors overlap but I consider each separately below, noting these overlaps as necessary.
Alleged failure to consider public interest and nature of abuse of process.
[10] The Applicants submit that at no point does the Judgment consider the public interest concerns that might arise if litigants are permitted to obtain an injunction on the basis of one claim, but later seek to avoid liability on the accompanying undertaking by raising a claim that was known and available at the time the injunction application was made. Instead, the Applicants submit that the sole focus in the Judgment was on the specifics of this particular case. As a result, the Applicants submit a precedent has been set whereby parties may strategically omit claims when seeking an interim injunction in order to retain a means of defending any eventual damages claim should they obtain an injunction but fail in the substantive proceeding.
4 Henderson v Henderson (1843) 67 ER 313 (Ch).
Counsel says that such a precedent is contrary to the orthodox premise of the injunction/undertaking process, and thus the public interest. The Applicants expand on this in their written submissions as follows:
13.1 The injunction remedy grants wide-reaching relief to a plaintiff, with profound effects on defendants without affording them a fair trial on the merits. The plaintiff obtains its remedy without having to fully prove its case, but the price of this is the plaintiff being bound to compensate the defendant should the plaintiff be unable to prove its claim. The undertaking to pay damages is the quid pro quo for interim relief and a key ingredient of the balance struck between the rights of the parties.
13.2 It therefore follows that if a plaintiff is too easily allowed to resile from its promise to pay damages or permitted to put up roadblocks to prevent a defendant from collecting on the undertaking then that balance is not struck and courts might be less willing to grant interim relief in appropriate cases. In enjoining a defendant, a court needs to be sure that if it is held the order should never have been made, the defendant will not be out of pocket for the losses sustained.
13.3 By permitting a plaintiff to evade liability under an undertaking by generating lengthy delays in the court system and putting an already weakened and damaged defendant to further undue cost, the utility and justice of the balance struck in relation to the exercise of the injunction remedy is threatened.
[11] The Applicants submit that allowing a party in the position of Sealegs to pursue a claim that could have been made at the time the undertaking was given as a defence to a claim on an undertaking, allows that party to retrospectively change the reason for the injunction. The Applicants say that Sealegs had its chance to obtain an injunction on the basis of a patent claim and they did not do so. In the Applicants’ view it would be contrary to the public interest to allow a party to avoid liability on an undertaking by advancing an alternative justification for the injunction in circumstances where the claim upon which an injunction was founded did not succeed.
[12] The Applicants refer to a passage in Johnson v Gore Wood & Co, the leading authority on the application of the Henderson v Henderson abuse of process principle, where Lord Bingham described the assessment necessary to determine whether there had been Henderson v Henderson abuse of process as being “a broad, merits-based assessment, which takes account of all of the public and private interests involved
…”.5 The Applicants submit that, contrary to this requirement, the Judgment does not
5 Johnson v Gore Wood & Co [2002] 2 AC 1 (HL) at 31.
identify the fundamental nature of the abuse of process alleged and whether Sealegs’ conduct is consistent with the fair and orderly disposition of justice.
[13] The Applicants say that if the above points had been considered in the Judgment it would have been a powerful consideration in the Applicants’ favour. If the balance on injunction applications is to be shifted in such a way, the Applicants submit such a shift should first be subjected to the scrutiny of the Court of Appeal.
[14] Sealegs responds that the Applicants’ submissions on this point are wrong because:
(a)the Judgment does consider the public interest;
(b)the Applicants’ submission is circular as it assumes that defending a claim under an undertaking as to damages by relying on the fact of patent infringement is an abuse and contrary to the public interest; and
(c)it overstates the effect of a Judgment clearly specific to its facts.
[15] Elaborating on these points, Sealegs also refers to Lord Bingham’s statement in Johnson v Gore Wood & Co that the assessment should take account of all of the public and private interests, noting that the public interest identified is finality in litigation and that a party should not be twice vexed in the same matter.6
[16] Sealegs submits that the public interest in finality in litigation and against twice vexing of a party is considered throughout the Judgment and says that the Applicants now assert a different public interest: an interest in preventing a party relying on patent infringement as a defence to the damages claim under the undertaking. Sealegs says that this argument was not advanced on the strike-out application and that no reason is given as to how there is a public interest in preventing a party advancing such a defence, pointing to Les Laboratoires Servier v Apotex Inc.7 Sealegs submits that any interest in whether a defence can be advanced in response to a claim under an
6 Johnson v Gore Wood & Co, above n 5, at 31.
7 Les Laboratoires Servier v Apotex Inc [2014] UKSC 55 at [49], [52] and [53].
undertaking as to damages must be fact-specific and a matter of private rather than public interest.
[17] I accept that if there were a possibility that parties could avoid their obligations under an undertaking as to damages associated with an interim injunction there may be a public interest in preventing that. However, I do not accept the Judgment allows such a possibility.
[18] The Judgment essentially considers two questions: could and should Sealegs have brought its patent claim together with the copyright claim. The question of whether Sealegs should have brought its patent claim together with the copyright claim is another way of considering whether there is a public interest in preventing Sealegs raising a defence based on breach of patent. If I had held that Sealegs should have brought the breach of patent claim together with the breach of copyright claim, then there would be a public interest in ensuring that Sealegs could not now rely on any breach of patent to avoid paying damages in the undertaking. However, I did not hold that Sealegs should have brought the breach of patent claim at the same time. There is no evidence of Sealegs strategically omitting their patent claim in order to retain it as a defence to a potential damages claim. The public interest relied on by the Applicants does not therefore arise in this case.
[19] Furthermore, I agree with the submissions for Sealegs that the Judgment is specific to its facts and will not have the precedential value that the Applicants seek to attribute to it. The Judgment simply finds on these facts that the defence and counterclaim can be advanced. On different facts a court may prevent a defence being advanced.
[20] It is also relevant to this alleged error that damages on an undertaking are assessed on ordinary contractual principles.8 The questions of whether the defence and counterclaim relying on breach of patent can be made out or should affect any award made need to be determined in the specific contractual context. The Judgment only determines the application to strike out the defence and the counterclaim. It goes
8 Orion Marine Ltd v Sealegs International Ltd, above n 2, at [176].
no further than that. Whether the defence or counterclaim raised are successful is still to be determined.
[21]I do not therefore accept that the Judgment erred in relation to this first ground.
Alleged wrongful limitation of Henderson v Henderson principle by requiring finding of res judicata
[22] The Applicants allege the Judgment limited Henderson v Henderson abuse of process to circumstances where res judicata has been made out. After referring to passages from Johnson v Gore Wood & Co describing the Henderson v Henderson principle, the Applicants submit:
The key point is this: res judicata applies where claims or issues have already been raised, argued or determined. The rule in Henderson applies where such claims have not been raised, argued or determined, but should have been.
[23] The question of whether the claims “should have been” raised is the main question I address in the Judgment. I start by distinguishing between Henderson v Henderson abuse and res judicata or cause of action or issue estoppel.9 I then consider whether there is Henderson v Henderson abuse of process, as defined in Johnson v Gore Wood & Co, by addressing whether the patent claim could have been brought, and whether it should have been. I held that the patent claim could have been brought at the same time. When I go on to consider whether it should have been brought, I consider a number of questions including whether Sealegs had abandoned its patent claim, whether Sealegs had misled the Court, the relevance of the amendment of the Sealegs’ patent, whether it would be a collateral attack on the Court of Appeal’s copyright decision to permit the breach of patent claim now, whether there would be unjustifiable prejudice to the Applicants and whether there was an absence of good faith by Sealegs. These are questions clearly relevant to identifying Henderson v Henderson abuse of process and not an analysis on a res judicata basis. The Applicants do not challenge the questions addressed.
9 Orion Marine Ltd v Sealegs International Ltd, above n 2, at [45].
[24] For this ground the Applicants rely in particular on sections in the Judgment where I consider, in the context of determining whether the breach of patent claim “should” have been brought, whether the defence now raised is a collateral attack on the Court of Appeal decision. As Lord Bingham stated in Johnson v Gore Wood & Co, where a collateral attack is present, the later proceedings will be much more obviously abusive.10 I did not find that without collateral attack there can be no abuse but instead that it was a factor to weigh in considering whether a patent claim should have been brought as part of the wider consideration of whether there was Henderson v Henderson abuse. I do not therefore consider I erred in this respect.
Alleged errors regarding overlap with copyright claim
[25] The Applicants submit that I failed to properly consider the factual overlap between the two claims saying the reason such matters require consideration was encapsulated by Woolford J following a review of relevant authorities in Ma v Tay:11
[47] The principle distilled from these cases is that a party cannot bring a later claim when the claim “properly belonged” to the earlier litigation. The following facts illustrate that the present claim by Mr Tay properly belonged in the earlier litigation.
[26] The Applicants further refer to the decision in Butcher v Body Corporate 342525 where Muir J held:12
Critical to the [Henderson] principle is the concept of what “properly belonged” to the litigation.
[27] The Applicants say that the question of whether a claim “properly belonged” to the earlier litigation is not a new and distinct test but submit that it is an aspect of whether the claim should have been brought that was not dealt with in the Judgment. To demonstrate that the patent claim properly belonged to the earlier litigation, the Applicants identified aspects of the expert evidence from the copyright trial that would also have been relevant to a patent claim, particularly:
10 Johnson v Gore Wood & Co, above n 5, at 31.
11 Ma v Tay [2013] NZHC 573.
12 Butcher v Body Corporate 342525 [2016] NZHC 3128 at [43].
24.1The overlapping factual background and total overlap as between the amphibious systems that were the subject of the claims;
24.2The need for the Court to understand and assess the function performed by the [Applicants’] and Sealegs’ works; and
24.3The similarities between the aspects of Sealegs’ alleged copyright works that were said to be copied, and the integers of Sealegs’ patent that are now alleged to have been adopted.
[28] The Applicants say that in addition to consideration of the alleged copyright infringement, extensive evidence was given at the copyright trial by the Applicants, primarily by way of expert evidence, to explain the amphibious mechanisms and the engineering behind them and that this evidence would have been relevant to a patent claim. The Applicants further submit that they demonstrated that the aspects of copyright alleged to have been infringed were closely linked to the integers of the Sealegs patent, thus creating overlap in relation to the question of infringement. The Applicants therefore submit that it would have been appropriate, efficient and reasonable for the parties and the expert witnesses to address all issues arising in relation to copyright and patent together. In the Applicants’ submission, they “properly belonged” to the same proceeding and Sealegs should therefore have brought the two claims concurrently.
[29] The Applicants’ submissions on this point overlap with their submissions on the error above alleging that the application of the Henderson v Henderson principle required the Applicants to establish the issues were res judicata. They submit that the question of factual overlap was only considered in that context, with the Judgment focused on the different nature of the legal tests that apply as between patent and copyright infringement, and holding that even a close resemblance could not justify strike out unless it met the threshold of res judicata which it did not.
[30] For the reasons already set out, I do not accept that the Henderson v Henderson principle was held to only apply where res judicata has been made out. The cases now referred to by the Applicants, and the shorthand of “properly belonged”, in my view, do not change the position that the Court is required to undertake a broad merits-based assessment. “Properly belonged” and “should have been brought” are different ways of expressing the same test.
[31] The Applicants’ submission that it may have been appropriate, efficient and reasonable for the parties and the expert witnesses to address all issues of copyright and patent together does not provide a basis for strike-out for abuse of process. Efficiency and reasonableness are not the tests for strike-out for abuse. The test is whether the later proceeding will vex, harass or embarrass,13 not whether it will create some efficiency or unreasonableness. I do not therefore consider that this ground of error is made out.
The so called “defences”
[32] The Applicants submit that the Judgment misconceives the nature of the patent claim, wrongly categorising it as a defence to the damages claim by way of illegality or cost of manufacture when it is not a defence: it is a separate claim which could, if determined in Sealegs’ favour, be set off against the damages Sealegs has undertaken to pay to the Applicants (once quantified by the Court).
[33] The Applicants submit that the Judgment wrongly approached the strike out application on the basis that Sealegs could be deprived of a means of defending the damages claim when, in fact, all that is sought to be brought is an entirely separate claim. The Applicants submit that this alleged error appears to have occurred as a result of a misapprehension as to the facts of Les Laboratoires Servier v Apotex Inc.14 The Applicants submit that the Judgment was wrong to suggest that Les Laboratoires Servier was authority for the proposition that a counterclaim may not be necessary for Sealegs to rely on patent infringement, highlighting that in Les Laboratoires Servier it had already been determined that there was patent infringement. Here, the Applicants say there is no existing “cost of manufacture” arising out of patent infringement, nor is there any existing illegality and this cannot be altered merely by the pleading of a defence.
[34] Sealegs submits in response that the Applicants misunderstand the pleading, apparently failing to distinguish between the defence and the counterclaim. Counsel explains that the statement of defence pleads that the production, display or sale of the
13 Craig v Stringer [2020] NZCA 260 at [15].
14 Les Laboratoires Servier v Apotex Inc, above n 7.
Orion amphibious system would have been a breach of the patent (the cost of manufacture defence), and further pleads that the production, display or sale of the Orion amphibious system would have been an unlawful activity (the illegality defence). The statement of defence then pleads that the Applicants suffered no loss because all profits from their businesses would have been payable to Sealegs as damages or an account of profits. Sealegs submits that these are stand-alone defences to the Applicants’ claim for damages. The Applicants have denied the pleading in their reply. To establish these defences, Sealegs will have to prove the injuncted activity would have infringed the patent, had the activity occurred.
[35] By contrast, Sealegs says the counterclaim alleges patent infringement by the actual manufacture of the Orion amphibious system. The Applicants have not yet pleaded to the counterclaim. In Sealegs’ submission, the fact that the Applicants can reply to the defence without also responding to the counterclaim confirms that they are separate matters.
[36] Counsel for Sealegs accepts that the factual issues that will need to be determined to establish the defences based on patent infringement and the counterclaim significantly overlap, but emphasises one is a defence and the other is a claim. It is not a set-off. Sealegs’ defence exists with or without the counterclaim for patent infringement. In Sealegs’ submission, this is consistent with Les Laboratoires Servier as recorded in the Judgment.15
[37] In Les Laboratoires Servier, the defendants relied on the cost of manufacture defence, as the Applicants recognised in their submissions. It was a defence and not a counterclaim. In my view it does not make any difference whether the finding of patent infringement occurs before the defence is raised or following. Effectively the Applicants appear to be saying that the defence can only be pleaded if patent infringement has already been established as it had been in Les Laboratoires Servier. This cannot be right.
15 Orion Marine Ltd v Sealegs International Ltd, above n 2, at [174].
[38] In addition, the Applicants refer to the requirements of the Patents Act 2013 that patent infringement can only be established by way of a patent infringement proceeding,16 and the High Court Rules 2016 confirm that a proceeding “must be commenced by filing a statement of claim in the proper registry of the court”.17
[39] Counsel for Sealegs submits that the requirements of the Patents Act do not prevent Sealegs raising breach of patent as a defence. Essentially, the defence to the damages claim is that if the Applicants had been able to manufacture boats, they would have infringed Sealegs’ patent. The alleged patent infringement is hypothetical, there is no need nor ability to prove actual patent infringement because the injunction prevented manufacture and so there could be no breach of patent. It is simply a defence to the damages claim.
[40] I agree that the requirements of the Patents Act do not prevent the defence being raised because the defence is hypothetical for the reasons explained by counsel for the defendants. I do not therefore consider I erred in my consideration of the defences pleaded either.
Alleged failure to balance the parties’ rights
[41] The Applicants allege that too much emphasis was placed on Lord Millett’s Judgment in Johnson v Gore Wood & Co and the right of access to the Courts, with the Judgment failing to consider adequately or at all the Applicants’ right to finality, referred to in Johnson v Gore Wood & Co as their right not to be “twice vexed in the same matter”. The Applicants submit that in an application for strike out based on the Henderson v Henderson principle, a balance must be struck between these two competing rights. The Applicants refer to Butcher v Body Corporate 342525 where Muir J referred to the rule in Henderson v Henderson as being designed to prevent “inefficiency and exposure to ongoing and repetitive litigation”.18
16 Patents Act 2013, ss 148–150.
17 High Court Rules 2016, r 5.25.
18 Butcher v Body Corporate 342525, above n 12, at [55].
[42] The Applicants further refer to the following passage from Rafiq v Secretary for Department of Internal Affairs of New Zealand,19 subsequently cited with approval by the Court of Appeal in Peterson v Lucas:20
A party cannot bring a case relating to a certain party, certain sequences of conduct, and a certain timeframe, and then when it fails bring another case raising another similar complaint relating to the same party, the same sequence and the same timeframe. Parties must bring their whole case to the Court so there can be finality of litigation.
[43] The Applicants say that their “right” to finality has not been respected as Sealegs has raised a similar complaint (the patent claim) relating to the same parties (Orion, Smuggler, Mr Leybourne), the same sequences of conduct (the design by the Applicants of the Orion amphibious system) and the same timeframe (2014–2016). The Applicants submit that prejudice has only been considered in the Judgment from the perspective of increased costs, neglecting to assess the critical harm that would be caused to the Applicants by the patent claim and thus the fundamental purpose of the rule in Henderson v Henderson.
[44] Furthermore, Sealegs submits both Lord Millett and Lord Bingham held in Johnson v Gore Wood & Co that the rule of law depends upon the existence and availability of courts and tribunals to which citizens may resort and that litigants are not, without scrupulous examination of all the circumstances, to be denied the right to bring a genuine subject of litigation before the Court.21
[45] Counsel for Sealegs further submits that the importance of access to the courts was confirmed by the Court of Appeal in New Zealand in Craig v Stringer, citing Lord Bingham.22 Like Lord Bingham, the Court of Appeal recognised access is properly denied where the litigant seeks to misuse the court’s processes for an improper purpose “such as to vex, harass or embarrass the other party rather than for the genuine purpose of seeking to vindicate legal rights”. Counsel for Sealegs that finality is about not being vexed or harassed, not never being sued again.
19 Rafiq v Secretary for the Department of Internal Affairs of New Zealand [2014] NZHC 2064 at [21].
20 Peterson v Lucas [2015] NZCA 627 at [32].
21 Johnson v Gore Wood & Co, above n 5, at 22.
22 Craig v Stringer, above n 13, at [14]–[15].
[46] In the Judgment I referred to submissions filed in support of Sealegs’ application for the injunction referring to keeping the “more lengthy patent proceedings” separate as it would otherwise delay the substantive trial. I further referred to Mr Bryham’s evidence for Sealegs at the hearing that Sealegs believed Orion’s design is a breach of patent, but given the Court had a fixture available on 25 September 2017, Sealegs had decided not to add a patent cause of action to the proceeding.
[47] This is not a situation therefore where the same matter is being brought twice. The parties were well aware of the potential for separate patent proceedings. I note that the Applicants themselves in their submissions do not go so far as to refer to the breach of patent claim as the “same matter”, referring to it as a “similar complaint”.
[48] In response to the Applicants’ reliance on Venning J’s judgment granting leave to appeal in Burden v ESR Group (NZ) Ltd,23 Sealegs accepts that leave was granted in part on the basis that Venning J considered he may have put too much weight on access to the courts. The Court of Appeal did not then address access to the court in its judgment following leave being granted. However, the Supreme Court held there were strong interest of justice considerations in not striking out the second proceeding as Venning J had originally concluded, stating that the conclusion that the plaintiff could pursue its claim was entirely consistent with the interests of justice.24 Sealegs submits that notwithstanding Venning J’s concern, the Supreme Court held he had been correct in his original assessment, which included recognition of the importance of access to the courts.
[49] In addition, the Applicants say that factual errors made also appear to have resulted in the balance being wrongly assessed. The Applicants submit the Judgment incorrectly records that the Smuggler Strata 800 was released in 2019, when in fact it was released prior to the injunction, and the Strata 700 was released after the injunction. Furthermore, the Applicants submit that the Judgment appears to say that the development and sale of the further Smuggler craft in 2019 gives rise to a distinct
23 Burden v ESR Group (NZ) Ltd [2019] NZHC 2745 at [20].
24 ESR Group (NZ) Ltd v Burden [2021] NZSC 22 at [15] and [16].
claim on Sealegs’ part but that is incorrect as there is not a new amphibious system.25 The Applicants go on to say that if a patent claim in relation to the Strata 800 had been brought with the copyright claim and succeeded, the Strata 700 would and could never have been produced. Rather than demonstrating harm to Sealegs, the Applicants say this is a further example of abuse by Sealegs: having represented that Sealegs would not bring any patent claim in New Zealand, Sealegs seeks to punish the Applicants for continuing to sell their product in reliance upon that representation.
[50] The above submission proceeds on the basis that Sealegs misrepresented the position in relation to the breach of patent. Without this misrepresentation there appears to be no abuse. In the Judgment I held that for the purposes of strike out, the Applicants had not established that Sealegs clearly abandoned its patent claim or that Sealegs deliberately misled the Court in relation to whether it would bring a patent claim. The Applicants do not directly challenge those findings. I do not, therefore, consider any factual errors in this regard affected the balancing of interests in the Judgment.
[51] Furthermore, the reference to a “new system” in the passage referred to by the Applicants was a passing comment made after I found that a breach of patent claim could have been brought together with the copyright proceedings. Even if it is not correct that there was a “new system” the decision on the strike out would not have changed.
Alleged errors regarding Sealegs’ evidence
[52] The Applicants submit that if allowed to appeal, they will argue that the Judgment fails to take into account, adequately or at all, the numerous inconsistencies in Sealegs’ evidence. The Applicants rely on Ma v Tay in support of this submission, referring to Woolford J’s statement that his Honour was fortified in his view that there was Henderson v Henderson abuse of process by the contradictory evidence given by Mr Tay in the two sets of proceedings”.26 The Applicants say the Judgment has not
25 Orion Marine Ltd v Sealegs International Ltd, above n 2, at [87].
26 Ma v Tay, above n 11, at [58].
confronted the fact that two aspects of Sealegs’ evidence cannot be reconciled, namely between:
(a)Mr Henry’s memorandum of 30 May 2017 and Mr Bryham’s evidence on oath at trial in October 2017, who both stated that a decision on whether to bring a patent claim would be, or was only, taken following the inspection process in June 2017; and
(b)Mr McKee Wright’s evidence in opposition to the strike out application that an application to amend the patent was filed on 14 March 2017, following which, as the Judgment allegedly confirms,27 no patent claim could have been filed.
[53] The Applicants submit that this is a critical inconsistency which tends to support a finding of abuse.
[54] In answer to this, Sealegs submits that there is no inconsistency. Mr Henry’s memorandum of 30 May 2017 said that it was unlikely that a cause of action relating to the patent will be filed but that this was “subject to inspection”. Furthermore, contrary to the Applicants’ submission, Sealegs submits the Judgment held that even after applying to amend, Sealegs could have filed a patent infringement claim.28 Sealegs submits there is no inconsistency in saying filing a patent claim was unlikely while a patent claim technically could still be filed.
[55] Furthermore, Sealegs submits that in Ma v Tay Woolford J had already held that there was abuse of process and the inconsistency in the evidence was only described as fortifying his view. In Sealegs’ submission, this is not a basis therefore on which to grant leave to appeal.
[56] I do not accept that the inconsistencies alleged by the Applicants are necessarily irreconcilable. At [89] to [117] of the Judgment, I referred to each of the pieces of evidence relied on by the Applicants in the discussion of whether Sealegs abandoned its patent claim and concluded that it did not clearly do so for the purposes
27 Orion Marine Ltd v Sealegs International Ltd, above n 2, at [78]–[79].
28 At [85].
of strike out. I then went on to consider whether Sealegs deliberately misled the Court and other parties at [118] to [120] and held that Sealegs did not do so. Implicit in this discussion is that I did not find the evidence irreconcilable as otherwise the conclusions I reached would have been different.
[57] Furthermore, I did not find that a patent claim could not have been filed when an application to amend a patent has been filed. I referred to the fact that the Commissioner of Patents must not amend a patent while a breach of patent proceeding is pending but found that a Court may do so following the process set out in rr 22.9 to
22.16 of the High Court Rules 2016.29 I therefore concluded that technically a patent claim could have been brought.30 Again, I do not consider that I erred in this regard.
Conclusion on alleged errors
[58] Because of the view I have come to in relation to the alleged errors in the Judgment, it is unnecessary to go on to consider whether any errors are of sufficient significance to justify granting leave.
[59] In case I am wrong in those conclusions, however, I consider the remaining questions required to be addressed before determining leave.
Significance of appeal
[60] Even if there were errors in the Judgment, they are still required to be of sufficient significance to justify leave. Contrary to the Applicants’ submissions, I do not consider that the alleged errors raise questions of such general or public importance that they ought to be submitted to the Court of Appeal for its consideration. In my view, the boundaries of Henderson v Henderson abuse of process are settled, as the High Court held in Waikoro Ltd v Beach Arena Ltd.31 Each case necessarily turns on its facts.
29 Orion Marine Ltd v Sealegs International Ltd, above n 2, at [78]-[80].
30 At [85].
31 Waikoro Ltd v Beach Arena Ltd [2021] NZHC 2707 at [38].
[61] Sealegs submits that the best support for the Judgment being correct is the fact that in Johnson v Gore Wood & Co, Lord Bingham’s extensive review of the authorities does not identify any case where a second claim with a different cause of action, different factual issues and different legal issues was struck out.
[62] In submitting that the appeal was of sufficient importance, the Applicants relied on the significant prejudice they would suffer if leave was not granted. This is based on the abuse the Applicants say they would suffer as a result of allowing the defence and counterclaim to proceed. This submission relies on the significance of the appeal to the Applicants rather than public significance.
[63] I accept that the outcome of the strike out application would be of sufficient importance to the Applicants to outweigh the lack of general or precedential value if the other factors favoured the granting of leave, as it would significantly improve the Applicants’ likely success and greatly reduce the cost and timeframes if the appeal was successful. This factor would therefore support leave.
Do the circumstances warrant incurring further delay?
[64] The Applicants submit that for the same reason that the appeal is of particular significance to them, the circumstances warrant incurring further delay. They say the additional cost of arguing a breach of patent and the abuse of process they will have to suffer warrant any delay that will occur.
[65] Counsel for Sealegs considers the cost and delay of any appeal as further supporting its opposition to the granting of leave. Sealegs points to the fact that the statement of defence and counterclaim were filed and served on 17 February 2021. A reply was filed and served on 3 March 2021 but since that date the substantive proceeding has not progressed because of the Applicants’ application to strike out and then application for leave to appeal. The defence to the counterclaim has not yet been filed.
[66] Sealegs’ patent expired on 17 December 2022. Sealegs submits that if the claim and counterclaim had proceeded in the normal way, there was a chance that judgment would have been issued before the patent expired and that, if successful, Sealegs would have obtained an injunction.
[67] Sealegs submits that because of the delay caused by the strike out and leave applications, there is no prospect of judgment now before the expiry of the patent. Sealegs submits therefore that the Applicants’ applications can be seen as tactical.
[68] Counsel for the Applicants rejects this, submitting that even if Sealegs had filed a patent claim with the copyright claim, it would not have been finally resolved before the end of the patent.
[69] I agree that given the increased length of a combined trial this may have been unlikely, so I do not take this point into consideration in determining whether leave ought to be granted or not.
[70] Sealegs further submits, however, that it is clear that the additional time spent in pursuing an appeal will cause significant delay which will harm Sealegs as:
(a)it has the threat of a claim for several millions hanging over its head;
(b)the claim seeks interest and so delay adds to the interest sought; and
(c)the negative publicity about the Applicants’ claim causes doubt in the market about Sealegs.
[71] The Applicants in response say, to the extent that there is delay, it is more prejudicial to the Applicants than to Sealegs. The decision on the copyright proceeding means the injunction was wrongfully made yet the Applicants are still prevented from being compensated for that loss. In contrast, the Applicants submit there is no real harm to Sealegs in terms of damages as the patent expired in December 2022 anyway.
[72] There is no question that granting leave will cause significant delay. It is unlikely that progress will be able to be made in the substantive proceeding until after any appeal is determined. There has already been significant delay as a result of the strike out application and the application for leave to appeal. It is important that the Applicants’ claim is determined on its merits as soon as possible with the Court considering the defences and counterclaims raised with the benefit of full evidence on those matters.
[73] I do not therefore consider that the circumstances warrant incurring further delay, particularly in circumstances where the Applicants will be able to respond to the defences and counterclaims raised and where there has been considerable delay already. Even though any appeal may have considerable significance for the Applicants, the fact that such an appeal would cause considerable further delay outweighs the significance to the Applicants.
Are the interests of justice served by granting leave and is the high threshold for leave met?
[74] As the preceding discussion makes clear, I do not consider that the interests of justice would be served by granting leave, or that the high threshold for leave to appeal has been met in this case.
Result
[75]The application for leave to appeal by the Applicants is declined.
Costs
[76] Both parties agree that if the application is declined, costs should follow the event. I see no reason for departing from awarding costs on a 2B basis. I ask the parties to confer and only if agreement cannot be reached file memoranda of no longer than three pages excluding schedules:
(a)on behalf of Sealegs within 20 working days of this judgment;
(b)on behalf of the Applicants within a further 10 working days.
Associate Judge Sussock
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