Peterson v Lucas Mills Pty Limited HC Auckland CIV 2009-404-7762

[2010] NZHC 2312

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

CIV-2009-404-007762

UNDER

IN THE MATTER OF BETWEEN

the Copyright Act 1994

alleged copyright infringement

CARL JAMES PETERSON

Plaintiff

AND

LUCAS MILLS PTY LIMITED First Defendant

AND

REX CAMERON LUCAS Second Defendant

AND

WARREN GEOFFREY LUCAS Fourth Defendant

AND

GEOFFREY WILFRED LUCAS Sixth Defendant

AND

DOLORES VIVIENNE LUCAS Seventh Defendant

Hearing:

16 September 2010

Appearances: Plaintiff in person

E Gray and T Walker for the Defendants

Judgment:      23 December 2010 at 10:00 a.m.

JUDGMENT OF WOODHOUSE J

This judgment was delivered by me on 23 December 2010 at 10:00 a.m. pursuant to r 11.5 of the High Court Rules 1985.

Registrar/Deputy Registrar

……………………………………

Solicitors / Parties:

Mr C J Peterson, Auckland

Mr E Gray / Ms T Walker, Simpson Grierson, Solicitors, Auckland

PETERSON V LUCAS MILLS PTY LIMITED AND ORS HC AK CIV-2009-404-007762  23 December 2010

[1]     In November 2009 Mr Peterson commenced this proceeding alleging infringement of copyright by the defendants.  He has throughout acted on his own behalf.  The defendants applied for an order for security for costs on the grounds that there is reason to believe that Mr Peterson will be unable to pay costs if he fails in his claim.   In a reserved judgment delivered on 17 May 2010 Associate Judge Doogue dismissed the application.  The defendants have brought this application for review of that decision.

[2]      In coming to his ultimate decision the Judge was exercising a discretion.  On an appeal against, or review of, the exercise of a discretion, the appellant must show that the Judge acted on a wrong principle of law, or failed to take into account a relevant matter, or took into account an irrelevant matter, or was plainly wrong.[1]    I will refer to these as “reviewable errors”.

[1] Kacem v  Bashir [2010] NZSC 112 at [32]; May v May (1982) 1  NZFLR 165 (CA) at 170;

Blackstone v Blackstone [2008] NZCA 312, (2009) 19 PRNZ 40 at [8].

[3]      The  defendants  submit  that  there  are  reviewable  errors  in  three  broad respects.  These were summarised in the defendants’ written submissions in support of the review application as follows:

(a)       Plainly wrong:  The decision to dismiss the defendants’ application was plainly wrong in that the wrong test was applied; contrary to the Associate Judge’s findings, Mr Peterson’s claims have little, if any, chance of success.

(b)No or no sufficient causal connection between Mr Peterson’s impecuniosity and defendants’ conduct:   The Associate Judge misapprehended the context of the previous litigation between the parties.   This led to an erroneous determination that there was substantial and sufficient commonality between the patent proceedings and these copyright proceedings and connection with Mr Peterson’s impecuniosity.

(c)       Errors in exercise of discretion:   The Court failed to take into account and give appropriate weight to relevant factors such as the economic realities of the case.

[4]      I have come to the conclusion that the application for review should be granted.  It does appear that relevant information was not before the Judge and that the  significance  of  information  that  was  put  before  him  in  a  large  number  of

documents may not have been made clear.  Moreover, on this application for review, both parties sought leave to adduce further evidence by affidavit, one for the defendants and three for Mr Peterson.   Leave was granted.   There are now nine affidavits in total.  There is additional information which was provided less formally by Mr Peterson, and in particular in his submissions to me on his own behalf.

[5]      Because of the relative importance of the background information and the fact that I have come to a conclusion different from that of the Judge, it is necessary to provide a reasonable amount of background information.

Factual background

[6]      This case concerns portable sawmills.   Towards the end of 1987 or early

1988, Mr Peterson began work on designing a portable sawmill.   Manufacturing began through Mr Peterson’s company, Peterson Portable Sawing Systems Ltd (PPSSL) in 1989.

[7]      One  or  more  of  the  defendants  has  been  involved  in  designing  and manufacturing portable sawmills since the 1994.   The involvement, or lack of involvement, of particular defendants is not a point that needs consideration on this application.

[8]      In  1999  the  first  and  second  defendants  commenced  proceedings  against PPSSL and Mr Peterson alleging infringement of a patent for the Lucas mill.  The matters that were at issue in that proceeding, the outcome, and the consequences of the proceeding for Mr Peterson, are all matters relevant to the present application. The patent action was determined in part by a judgment of Fisher J delivered on 9

May 2003.[2]    An appeal was dismissed by the Court of Appeal[3]  but allowed by the

Supreme Court.[4]    The nature of the matters under appeal, and what was left unresolved, will require noting in due course.

[2] Lucas v Peterson Portable Sawing Systems Ltd [2003] 3 NZLR 361.

[3] Peterson Portable Sawing Systems Ltd v Lucas CA64/03 and CA97/03, 4 March 2005.

[4] Peterson Portable Sawing Systems Ltd v Lucas [2006] 3 NZLR 721 (SCNZ).

[9]      Fisher J’s findings of background facts were not reversed or questioned in any material way on appeal.  Although these background facts are fully set out in the reported judgment, it is convenient to reproduce some of them here, with omissions of some detail not presently relevant (mainly as to design details of some mills), and with some interpolation on matters that are relevant to the security for costs application.

[10]     Fisher J began:

[2]       Mr [Rex] Lucas and other members of his family were Australians involved in the design, manufacture, and sale, of outdoor machinery. Their principal product was originally a mechanical device known as a “grabber” for picking up logs. They incorporated the second plaintiff [Lucas Mills Pty Ltd] in about 1992.

[3]       Mr   Peterson   was  a   New   Zealander  involved   in   the   design, manufacture and sale of portable sawmills. He incorporated a company of which he was the managing director [PPSSL]. His company manufactured the mills in New Zealand and sold them in New Zealand, Australia, the Pacific Islands, and elsewhere.

[4]       A  portable  sawmill  usually  takes  the  form  of  a  powered  saw mounted on a carriage which runs on wheels along rails supported by a steel framework. By erecting the framework over the log, the log can be cut into planks in successive longitudinal passes with the saw. …

[5]       Mr  Peterson  was  an  ingenious  designer.  From  1989  he  and  his company designed, manufactured, marketed, and sold, an innovative series of portable sawmills. The first was the “Jack the Giant Killer” or “Log Dog”.

... This was a precursor to a design which Mr Peterson described as his

“standard frame” mill.

[6]       In  1991 Mr Peterson developed the “tube frame” version of the standard frame. It had two rectangular end-frames joined by two parallel horizontal tracks. The rails were mounted between the end-frames with sufficient room for the log, the operator, the saw, and the carriage for the saw, between the rails. The rails were bolted to couplings that slid vertically on the end-frames. A carriage bearing a swingblade circular saw, and spanning the rails, moved along the rails in a longitudinal direction. The saw head could also be adjusted in a direction transverse to the log through its mobility across the saw carriage. A significant operating advantage was that the top horizontals of each of the end-frames were high enough to allow unimpeded walk-through access for the operator. But the disadvantages included the slowness involved in releasing and tightening locking bolts at each of the four end-frame uprights on every occasion that the saw height required adjustment for vertical gauging.

[7]       Aware of the slowness of vertical gauging in the standard frame, Mr Peterson developed a new design known as the “production frame”. He achieved  this  late  in  1991.  It  utilised  stationary  tracks  which  remained

substantially at ground level although in the “Hi Lo” version one rail was higher than the other. The main point of distinction between the standard and production frame mills was the method of vertical adjustment. In the former a vertical adjustment was achieved by vertical movement of the entire rails while in the latter the rails remained stationary and vertical movement was achieved through vertical movement of the saw carriage alone. The latter made one-point vertical gauging possible rather than the four-point required for the standard frame mill.

[11]     It appears, from a spreadsheet produced by Mr Peterson that around August

1991 PPSSL’s production, or at least sales, of the Peterson standard frame mill essentially ceased.  I have not sought to analyse the spreadsheet.  For the defendants, Mr Gray submitted that there was only one sale after August 1991, in 1995.   Mr Peterson in his submissions to me said that there were about five.  The difference is not material, because either way the number is very small.  It also appears, in part from the spreadsheet and also from a further statement by Mr Peterson in the course of his submissions to me that, around late 1991 or early 1992, Mr Peterson and PPSSL began to focus on the Peterson production frame mill.  In his statement to me Mr  Peterson  said  that  by  1994  people  were  “throwing  money  at  us”  for  the production frame mill.

[12]     Fisher J continued:

[8]       In 1992 Mr Lucas and Mr Peterson met for the first time at a forestry industry expo in Australia. As a result of discussions each agreed to sell the other's  products in his  own  country.  In  consequence, Mr  Lucas  and  his brother acted as agents for the sale of Peterson mills in Australia from 1992 to 1994. Over that period they sold approximately 70 production frame mills and one standard frame.

[9]       Mr Lucas found it increasingly difficult to sell the Peterson mills due to growing competition from an American mill designed by a Mr Lewis. The Lewis mill similarly consisted of a demountable framework having two end- frames linked by twin rails. A circular saw was similarly mounted on a carriage which ran longitudinally along rails. Like the Peterson standard frame, vertical adjustment on the Lewis mill was achieved by raising and lowering the rails. Differences between them, however, included the facts that in the Lewis mill the rails had only enough space between them to accommodate the saw; that the operator did not walk between the rails; that there was no access for the operator through the end-frames; that the rails were raised and lowered by a winch at each end-frame; and that the rails were attached by swivelling crossbeams at each end-frame. Advantages of the Lewis mill were quick vertical adjustment and quick realignment with the log by moving the rails and crossbeams from a rectangle into a parallelogram.

[10]      Customers told Mr Lucas that the Peterson production frame was too slow to set up and was difficult to realign with the log. The standard frame was  slow  to  adjust  vertically  and  was  underpowered.  But  Mr  Lucas considered the Lewis mill itself to have disadvantages, these including slowness in horizontal gauging, lack of operator access, and lack of power. He resolved to design his own mill. His evidence was that this intention was a long-standing one that pre-dated his encounter with Mr Peterson.

[11]      Mr Lucas duly designed his own mill and filed a provisional patent for it in the Australian Patent Office on 24 March 1994. The application resulted in the patent now sued upon. …

…

[13]      Mr Lucas' provisional application was filed on 23 March 1994 … The complete specification applicable in New Zealand was finally published in New Zealand on 22 September 1997.

[14]     The Lucas mill was first displayed in March 1994 … in Australia. Later in the same year Mr Lucas filed two further applications in relation to other refinements to the principal invention. It is common ground that these do not have any bearing on the present case. The second plaintiff company [Lucas Mills Pty Ltd] has been manufacturing, marketing and selling the Lucas mill under licence from Mr Lucas ever since. The mill has achieved considerable commercial success and is now the world's largest-selling portable mill of its type.

[15]     In April 1994 Mr Peterson visited Mr Lucas. He inspected and photographed the new Lucas mill and obtained from Mr Lucas a copy of his provisional specification. …

[13]     On 30 June 1994, PPSSL published a newsletter referring to the Lucas Mill. In  this  newsletter  PPSSL  acknowledged  that  the  Lucas  mill  did  not  infringe copyright in the existing Peterson mills.  The following was said under the heading “Lucas jumps ship!”:

Warren has left us.  He has decided to produce his own sawmill, similar to the Peterson sawmill.  He has made several design changes, and, as such, is not liable to copyright laws which would otherwise protect our designs. From what we’ve seen and what he tells us, his mill is designed for the “lower end” of the Australian market: …   It will not be the long-lasting aluminium & stainless steel, high-throughput mill that we put out but we expect they will manage to rob us of a fair share of our customers because of the lower price and because of the devotion that Warren puts into his sales/demonstrations.

[14]     Fisher J said, continuing at [15], that following Mr Peterson’s inspection of the new Lucas mill in April 1994 he “immediately set about adding his own refinements to the basic Peterson standard layout”.  Mr Peterson named the result the

“Islander”.   At [16]-[18] Fisher J described the three versions of the Islander that were produced between around June 1994 and June 1997.

[15]     On 10 February 1999 the patent infringement proceeding was commenced by Mr Rex Lucas and Lucas Mills Pty Ltd.  In a newsletter in November 1999 PPSSL said:

Key elements of Peterson design technology have been blatantly copied by other  manufacturers  in  New  Zealand  and  Australia.  In  order  to  prevent further abuse, Petersons have been acquiring patent protection wherever possible.  Elements  of  Peterson  design  technology  are  now  protected  by letters of patent grant in several countries. Other design aspects are currently subject to patent applications in various stages of acceptance. Take note that Petersons are determined to prosecute patent and copyright infringements energetically, which may also involve purchasers of infringing equipment.

[16]     The  facts  recorded  by  Fisher  J  identify  four  different  Peterson  mills. Identifying the particular Peterson mill in relation to the Lucas patent infringement proceeding and the present copyright infringement proceeding of Mr Peterson is important.  In summary, the four Peterson mills are as follows, with the date in the following summary being the approximate date of first manufacture:

a)       1989: Peterson Log Dog.

b)1991:  Peterson  standard  frame.    One  version  of  this  is  the  “tube frame”.    Mr  Peterson’s  present  copyright  proceeding  relates,  or appears to relate, to the Peterson standard frame mill.

c)       Late 1991: Peterson production frame mill.

d)June 1994 and following: the Peterson Islander.  As noted by Fisher J there were three versions.  The Lucas patent infringement proceeding was directed to the Peterson Islanders.

The patent infringement proceeding

[17]     The patent proceeding was set down in August 2000 for a five day hearing to commence  on  26  February  2001.    At  the  commencement  of  the  hearing  the

defendants, PPSSL and Mr Peterson, sought an adjournment.  This was because the defendants had overlooked the statutory requirement that they give 21 days’ notice before the hearing to the Solicitor-General of their intention to question the validity of the patent.[5]     Rodney Hansen J declined the application.[6]     In the course of his judgment, the Judge referred to the “thoroughly unsatisfactory history of the litigation”, which was directed to acts and omissions of the defendants.  The Judge

said, amongst other things:

[4]       It is not necessary, for the purpose of this decision, to review that history  in  detail.    The  greater  part  of  it  is  conveniently  reviewed  in  a judgment  of  Master  Kennedy-Grant  given  on  13  June  2000.    In  that judgment he struck out two paragraphs of the defendants’ counterclaim for persistent failure to provide the particulars required by r 725ZI of the High Court Rules.   On several occasions since September 1999 he had given directions requiring the defendants to provide proper particulars of the allegations in those paragraphs as to prior use.  Notwithstanding the filing of a further three amended counterclaims, the particulars had not been provided and no satisfactory explanation had been given for the default.

[5] See Patents Act 1953, s 76.

[6] Lucas v Peterson Portable Sawing Systems Ltd HC Rotorua, CP6/99, 26 February 2001.

[18]     The Judge noted that that morning he had received an application for leave to file a fourth amended statement of defence and counterclaim.  With the application for the adjournment declined, the defendants elected to be nonsuited on their counterclaim.

[19]   It seems that counsel for the defendants then withdrew.   Mr Peterson endeavoured to conduct the defence for himself and PPSSL through to the following morning when he made a further application for an adjournment.  This application was granted.[7]     The application was supported by a memorandum from Mr C L Elliott, an Auckland barrister specialising in intellectual property law.  He had been consulted by the defendants, although not formally instructed to act for them at that point. One of the grounds advanced by Mr Elliott in support of the application for an adjournment was that the case involved a specialised area of law and the defendants

[7] Lucas v Peterson Portable Sawing Systems Ltd HC Rotorua, CP6/99, 27 February 2001.

would suffer “a grave injustice” if not represented by competent counsel.   The application was strongly opposed but was granted.  Two of the reasons for granting

the adjournment, which remain relevant in respect of the present application for security for costs, were as follows:

[11]      …

[a]       This  is  undoubtedly  a  highly  technical  area  calling  for specialist expertise.  It is obvious that Mr Peterson does not have  the  technical  expertise  or  legal  skills  to  represent himself or his company whatever he may have believed in the past.  That became evident in the course of yesterday’s hearing.

…

[d]Although there will obviously be some limited prejudice to the plaintiffs as a result of the adjournment, I am of the view that it can be substantially met by appropriate conditions. The plaintiffs will obviously be entitled to an order for costs. I have been informed by Mr Peterson that the defendants have not been manufacturing or selling the machine which is claimed to infringe the plaintiffs’ patent and has no intention of doing so pending the resolution of this litigation.

[20]     The adjournment was granted on conditions.  One of these was an injunction restraining PPSSL and Mr Peterson from manufacturing, selling or otherwise dealing with the Peterson Islander mill.  This was an injunction imposed as a condition of the adjournment, following Mr Peterson’s advice recorded at [11]d) of the judgment of Rodney Hansen J.

[21]     The issues required to be determined by Fisher J are also of direct relevance to the present proceeding.  He said:

[21]     The  plaintiffs  seek  permanent  injunctions,  damages,  and  other remedies, for the infringement that the Islanders are said to represent. They also seek an injunction to restrain the defendants from making unjustified threats of infringement action contrary to s 74 of the Patents Act 1953. The Islander mills are said to infringe claims 7 to 19 of the Lucas complete specification. It is agreed that the present hearing is confined to liability only.

[22]      The defendants deny infringement and, in addition, advance a series of  challenges  to  the  validity  of  the  Lucas  patent.  The  challenges  are advanced both by way of defence to the infringement action and by way of counterclaim seeking declarations of invalidity. The defendants do not seek revocation of the patent in whole or in part.

[23]      There   have   been   protracted   difficulties   over   the   defendants’

pleadings prior to, and during, the hearing. The issues now before the Court

for determination are confined to those found in the plaintiffs’ original statement  of  claim  of  10  February  1999  and  in  the  defendants’  sixth amended statement of defence and counterclaim of 1 April 2003. For reasons recorded elsewhere in more detail, the defendants’ pleadings preclude them from challenging at this hearing the plaintiffs’ contention that the priority date attaching to all the claims in their patent was 11 March 1994. They are also precluded from arguing that the complete specification, as finally published in New Zealand on 22 September 1997, was not fairly based on the priority documents. That is not to encourage any belief that either argument would have succeeded on the merits even if procedurally available.

[24]      Both defendants originally challenged the validity of claims 7 to 19 on the grounds of lack of novelty, obviousness, insufficiency, ambiguity and lack of fair basis. The claims to be challenged, and the grounds of challenge, were narrowed to some extent in the course of the hearing. Mr Elliott began the trial representing both defendants. Partway through the trial Mr Peterson withdrew his instructions to Mr Elliott and from that point represented himself. Mr Elliott continued to represent the company for the remainder of the trial.

[25]     For the first defendant company, Mr Elliott explained that if the validity of claim 7 were upheld the company would mount no challenge to the validity of any of the subsequent claims. If claim 7 were found to be invalid the company would challenge the validity of subsequent claims at a further hearing to be confined to submissions on evidence already provided at trial. The company abandoned the insufficiency challenge in any event (paras 36 and 37 of the sixth amended statement of defence and counterclaim).

[26]      On his own behalf as second defendant, Mr Peterson made it clear that he continued to rely upon all five invalidity grounds pleaded and further that his challenge to the validity of claims 8 to 19 would continue regardless of the Court’s finding as to the validity of claim 7.

[22]     Fisher J found against PPSSL and Mr Peterson on their challenges to the validity of claim 7 of the patent.   He further found that the three versions of the Peterson Islander mill infringed claim 7 of the patent.  PPSSL and Mr Peterson were held liable for that infringement.  Because PPSSL had accepted that, if claim 7 of the patent was valid, claims 8 to 19 of the patent would also be valid, PPSSL was also found liable for infringement of those patent claims.   Because Mr Peterson had maintained a challenge to claims 8 to 19 irrespective of the finding as to the validity of claim 7, issues of liability in that regard remained at large.  The proceeding was adjourned for a further hearing to determine this question as between the Lucas plaintiffs and Mr Peterson, claims by both parties of unjustified threats, remedies for infringement, and costs.

[23]     PPSSL and Mr Peterson appealed against Fisher J’s finding that claim 7 of the patent was valid.  The appeal was dismissed by the Court of Appeal[8] but allowed by the Supreme Court.[9]    The Supreme Court held that claim 7 in the Lucas patent was invalid because it lacked novelty, not in respect of a Peterson mill but in respect of the Lewis mill.   The conclusion, recorded at [51], was that the Lewis mill anticipated claim 7 in the Lucas patent.  The Court also held, although strictly obiter,

that claim 7 also failed on the grounds of obviousness.

[8] Peterson Portable Sawing Systems Ltd v Lucas CA64/03 and CA97/03, 4 March 2005.

[9] Peterson Portable Sawing Systems Ltd v Lucas [2006] 3 NZLR 721 (SCNZ).

[24]     In the challenge to the validity of claim 7, PPSSL and Mr Peterson had also contended that there was a lack of novelty because the invention claimed in claim 7 had also been anticipated by the Peterson standard frame mill.  The Supreme Court upheld Fisher J’s finding against PPSSL and Mr Peterson in that regard.

[25]     The Supreme Court judgment was delivered on 30 March 2006.   The case was remitted to the High Court for further determination.   On 27 February 2007

Keane J delivered a judgment[10] on an application by PPSSL and Mr Peterson for

costs in respect of the substantive proceeding in the High Court in light of the reversal of the decision on claim 7 of the patent.   At this date the costs awarded against PPSSL and Mr Peterson by Fisher J had not been paid.  Keane J awarded costs in favour of PPSSL in a sum less than the award that had originally been made by Fisher J in favour of the Lucas plaintiffs.  Mr Peterson, who had appeared on his own behalf before Fisher J, also sought costs.  His application was declined for two reasons.  The first was that, in accordance with settled principles, a litigant in person is generally not entitled to costs.   The second was that, in essence, Mr Peterson’s case was  essentially the same as  that  of  PPSSL,  with  the latter  represented  by counsel throughout.

[10] Lucas v Peterson Portable Sawing Systems Ltd (In Liquidation) HC Auckland, CIV-2001-404-3668, 27 February 2007.

[26]     Also as a consequence of the Supreme Court’s decision, the Lucas parties applied to amend their patent.  This application came before Heath J.  On 27 April

2009 he adjourned the application pending determination of the outstanding issues relating to the Lucas patent of infringement and validity.  On 15 June 2009 PPSSL

was struck off the New Zealand Companies Register.   It would appear that, in consequence of the striking off of PPSSL the Lucas interests discontinued the patent action against both defendants.

The judgment under review

[27]     The judgment commences with a concise summary of the background to the current proceeding.   This summary, with respect, indicates a misunderstanding of two  factual  matters  of  relevance.    The  first  is  that  the  Judge  appears  to  have proceeded on the basis that there was, in broad terms, one type of Peterson mill and one Lucas mill.   For example, he said that in 1994 the defendants began to manufacture a sawmill which Mr Peterson said was “a copy of his machine”.  At [6] the Judge says:

The plaintiff says that the defendants’ machine began to make inroads into the market share of the plaintiff.  In 1994 the defendants registered a patent in  Australia  and  commenced  patent  infringement  proceedings  in  1998 against the plaintiff arising out of alleged similarities between the two parties’ products.

(emphasis added)

[28]     As earlier noted, by the time the patent infringement proceeding was issued Mr Peterson, or PPSSL, had designed and manufactured four different mills.   In addition, and importantly, the patent infringement proceeding was in respect of the Peterson Islander, first produced in 1994, and not in respect of the Peterson mills earlier designed.   I expect that the fact that the Judge did not draw a distinction between the different mills may have arisen from the way in which the case was presented.  Parties and counsel already have familiarity with a range of names often given to the same product and not infrequently fail to make the distinctions clear to the Judge.

[29]     There was also a misapprehension as to the scope of the decisions in the patent proceeding.   In that respect I note that I have had an opportunity fully to review the history of this proceeding and I apprehend that the learned Associate Judge did not have that opportunity.  The judgment under review records that Fisher J gave rulings on seven points of claim and allowed only one, with the decision on

the one claim allowed being reversed by the Supreme Court.  The correct position is as earlier recorded: one only of the Lucas patent claims, claim 7, was held to be invalid; it was held to be invalid because it had been anticipated by the Lewis mill, not by any of the Peterson mills; Fisher J’s dismissal of the challenge to the validity of claims 8 to 19 in the Lucas patent remained undisturbed.

[30]     As to the relevant principles on an application for security for costs on the grounds of impecuniosity, the Judge referred to McLachlan v MEL Network Ltd[11], and recorded paragraphs [15]-[17] of that Court of Appeal decision.

[11] CA39/02, 29 August 2002.

[31]   The Judge then proceeded with a discussion of relevant aspects of the application and the parties’ competing submissions on it.  It is convenient to consider those matters in the next section of this judgment.

Discussion

Impecuniosity and ability to pay security for costs

[32]     The first question was whether there is reason to believe that Mr Peterson will be unable to pay the defendants’ costs if Mr Peterson is unsuccessful in his proceeding.  This was not in issue; Mr Peterson did not dispute that he will be unable to pay costs to the defendants if he is unsuccessful in his claim.

[33]     The Judge then said that it had been established to his satisfaction that if an order for security of costs was made “at any meaningful level”, Mr Peterson would not be able to pay it and that would result in the proceeding never coming to trial. The defendants on this review take issue with that finding.  It was a finding central to the Judge’s exercise of his discretion in favour of Mr Peterson, as made apparent by the Judge’s comments in his overall conclusion.   This finding of fact is open to review as such.  In my respectful opinion the evidence is insufficient to justify the effectively definitive conclusion that an order for security at a meaningful level would bring the proceeding to an end.

[34]     There  was  correspondence  between  the  defendants’  solicitors  and  Mr Peterson commencing soon after Mr Peterson issued the proceeding.  There is a letter from Mr Peterson stating that, since February 2007, he and his son had “invented and  manufactured  an  entirely new  type  of  sawmill”.    He referred  to  a “family squabble” over intellectual property (which had led to proceedings before the Employment Authority and then the Employment Court) and then said:

This situation has both uplifted and depressed our circumstances simultaneously.  It has caused a considerable amount of debt to accumulate; and at the same time it has produced a very valuable intellectual property, and a working automated portable sawmill.

[35]     Mr Peterson continued in this letter that he and his son, as a consequence of the  Employment  Court  decision,  were  “free  to  begin  commercial  use  of  the equipment and … free to capitalise on the IP”.   He referred to negotiations with possible investors and the fact that he and his son had begun seeking commercial work “for the present prototype sawmill”.   He said that as a consequence of the Employment Court judgment he and his son were entitled to costs and “a separate damages award against the other contesting party”.  He then said in this letter, dated

5 February 2010:

Consequently, we fully expect our financial constraints to be considerably lifted within the next few months; certainly within the timeframe between now and a full hearing on our claims.

[36]     In addition, in the course of his submissions to me, Mr Peterson advised that he is the joint owner of a house with his partner of seven years.  Mr Peterson said that money had been borrowed against the security of the property.  He said there is equity in the property of $40,000, although he said, in effect, that this should be regarded as his partner’s equity, notwithstanding the joint ownership.

[37]     On this particular point of fact I conclude that, in the light of the information available to me, it is not established that Mr Peterson could not meet an order for security for costs of an appropriate sum, particularly if this is dealt with in a staged manner.

[38]     The Judge’s conclusion on this point was as follows:

[18]      The evidence on the point is scant.  Nonetheless, I consider that it is arguable that the plaintiff, whose fortunes were closely tied up with those of PPSSL, was financially harmed by the company’s involvement in litigation with the defendants.   I do not consider that in the circumstances of this application it would be reasonable to take an overly-technical approach to determining whether there are grounds for assuming that the conduct complained of in this proceeding was the cause of impecuniosity.  The patent proceeding – like the present copyright proceeding – sought to resolve whether he had the intellectual property in the design of a particular type of portable sawmill.  There is substantial commonality between the two sets of proceedings; for example, in the nature of the acts which are relied upon to establish damages or compensation.  At its heart, it is the appropriation of the design of the sawmill which has caused loss.  That conclusion seems to be correct irrespective of whether the route to recovering compensation is via copyright or patent law.

[19]      I  therefore  conclude  that  the  there  is  arguably  a  causative  link between the alleged conduct of the defendant which is under question in these proceedings and the impecuniosity of the plaintiff.

[39]     The Judge was here dealing with Mr Peterson’s contention that, as the Judge recorded it, “because of the scale on which the defendant breached his copyright, it effectively ruined sales that he might have made”.  There are possible issues relating to the linkage between the financial fortunes of PPSSL and those of Mr Peterson, and the extent to which an action for patent infringement may be treated as broadly equivalent to a copyright infringement action, but it may nevertheless be accepted that the Judge was entitled to proceed without taking an overly technical approach. However, the essential foundation for the conclusion is the misapprehension earlier referred to.  The Lucas patent infringement proceeding was directed to the Peterson Islander mill.   Mr Peterson’s complaint in this proceeding is that the Lucas mill infringed his copyright in the much earlier Peterson standard frame.

[40]     The Judge focused on  the patent proceeding in this way because it  was central to Mr Peterson’s submissions.   Mr Peterson had submitted, as the Judge recorded, that in considerable measure his financial difficulties were caused by the patent infringement proceeding.  I am satisfied that there is a relevant error in this respect.

[41]     There are further considerations.   As noted, the Judge in his background summary appears to have been of the understanding that the Lucas plaintiffs, in the end, were completely unsuccessful in establishing infringement in their patent infringement proceeding.  The proceeding was, of course, in the end discontinued. However, at that point the Lucas plaintiffs had a subsisting judgment against PPSSL for infringement of claims 8 to 19 in the patent.  That was of no value because the company had been struck off the register.  Whether those more specific patent claims would have survived, in the light of the Supreme Court’s declaration of invalidity of claim 7, will never be known.

[42]     The Judge said, in his conclusion:

[32]      … I accept that a number of factors in combination have contributed to the plaintiff’s impecuniosity.  However, the account that the plaintiff gives of  matters  is  that  his  impecuniosity  was  at  least  contributed  to  by  the breaches of copyright that he complains of and I consider that his complaint is plausible.

[43]     Given the Judge’s initial approach to the question, as recorded at [18] of his judgment,  it  may not  have been  necessary to  review  the  evidence in  detail,  or relevant evidence may not have been drawn to his attention.   Issues in this regard were put to me and such evidence as is presently available indicates that the introduction into the market of the Lucas mill would not have had a material impact on the financial fortunes of PPSSL.  In consequence, this would in turn mean that the introduction of the Lucas mill would have had no material impact on the financial fortunes of Mr Peterson, if his financial fortunes are treated as inseparable from those of PPSSL (and without formally concluding that that is an appropriate approach).   The reason for this was adverted to in the factual background in this judgment.  By the time the Lucas mill came into the market in 1994 it appears that PPSSL had turned its attention from the Peterson standard frame (the mill which is the subject of this copyright action) to the Peterson production frame.   And then when the Lucas mill came into the market, Mr Peterson and PPSSL turned their attention to the Peterson Islander mill.

[44]     The Judge carefully reviewed the defendants’ submission that Mr Peterson’s claim has little prospect of success for a number of reasons.  On this application for review Mr Gray, for the defendants, took issue with the Judge’s conclusions in a number of respects.   This included the question whether there was any adequate identification of an artistic work and whether there was a sufficiently arguable case of originality.   I am not persuaded that there are reviewable errors in that regard. However, it is necessary to consider some further points fully developed on the review application, or which seem to have involved a material change since the matter was before the Associate Judge.

[45]     The first relates to ownership of the copyright in question.  The Judge noted that the position as put to him was that PPSSL had been the owner of copyright, not Mr Peterson, but this had changed.  The Judge said:

[30]     … In the current proceeding Mr Peterson asserts that he is now the party entitled to enforce rights under the alleged copyright.   He says that there has been an arrangement reached between himself and PPSSL to that affect.   No doubt the position will be explored in discovery and by other means.  At this point I am not prepared to view that aspect of the case as being a major obstacle for Mr Peterson.

[46]     There is no basis upon which that conclusion could properly be challenged on review.   However, Mr Peterson’s own contention has shifted fairly dramatically. The statement of claim before the Associate Judge was a second amended statement of claim.   A third amended statement of claim was filed the day after the Judge delivered his decision.   A fourth amended statement of claim was filed not long before the review hearing before me.  In this latest statement of claim Mr Peterson alleges that he was the original owner pursuant to s 9(1) of the Copyright Act 1962 because he is the original author of the copyright work in question.   In his submissions Mr Peterson made clear that the contention is that ownership remained with him throughout, with an oral agreement enabling PPSSL to manufacture and market the mill.

[47]     Mr Gray submitted that PPSSL would have been the owner, pursuant to s 9(4) of the Copyright Act 1962, because Mr Peterson was an employee of PPSSL

when the work was created.  I am not persuaded that Mr Gray’s argument is decisive at this point.   Section 9(4) provides an exception when the “work is made in the course  of  the  author’s  employment”,  but  it  is  not  clear  that  Mr  Peterson,  a shareholder and director of PPSSL, would be found to have been an employee for the purposes of s 9(4) of the Act.[12]

[12] See, for example, New Zealand Educational Institute v Director-General of Education [1981] 1

NZLR 538 at 540.

[48]     However, there are two difficulties for Mr Peterson bearing on the present general question of the merit of his copyright claim.  One is that the contentions have shifted significantly and that is a matter to be taken into account on an application such as the present one.   In that respect it may also be noted that Mr Peterson’s broader arguments in respect of the essential elements of copyright have changed considerably.  The second point is that the present contention is difficult to reconcile with Mr Peterson’s evidence in the patent infringement proceeding.  Mr Peterson’s brief of evidence includes the following:

7.While I have been named as a defendant in these proceedings, I have only acted, in so far as the allegations of the [Lucas] Plaintiffs are concerned, as an officer or employee of Peterson Portable [i.e. PPSSL].  At all material times I have been an employee and manager of the first defendant company.   I have never acted in a personal capacity in relation to any products or services provided by Peterson Portable.  When I refer to myself in the statement it is solely as an employee/company manager and not in my personal capacity.

[49]     In assessing the strength of Mr Peterson’s claim, the statement he made in

1994, through his company’s newsletter, cannot be ignored.  He said then that the Lucas mill did not infringe Peterson copyright.  Having regard to the nature of the statement,  being  a  statement  markedly  against  interest,  it  needs  to  be  given reasonable weight when seeking to assess the merit of the present claim at this early stage of the proceeding.

[50]     I am satisfied that Mr Peterson’s claim does face a number of difficulties, and in some respects, in relation to essential elements of a copyright infringement action, there may be serious difficulties.

[51]     For the reasons recorded to this point, I am satisfied that the application for review should be granted.  Having come to that general conclusion it is appropriate to consider any further points bearing on the original application for security.  The following points in my judgment are relevant.  One is that it is likely that the costs of this proceeding will be reasonably high.  That assessment is based on the history of the patent proceeding.   The difficulties caused by Mr Peterson and PPSSL in the course of defending that proceeding are not ameliorated by the fact that Mr Peterson and his company succeeded in the Supreme Court in their challenge to claim 7 of the Lucas patent.  The concern in this regard is emphasised by the fact that, although the present copyright proceeding commenced only in November of last year, five statements of claim have so far been filed.  These matters are not referred to in order to criticise Mr Peterson, but to point to the likelihood of increased costs for the defendants.  It is always necessary for a Court to give proper weight to a plaintiff’s right to have his or her case heard by the Court, and due allowance is always made for plaintiffs conducting proceedings on their own behalf.   But as with all these things, the interests of the other side need also to be given proper weight.

[52]     Associated with this consideration is the reasonable likelihood that, if Mr Peterson succeeds in establishing liability, notwithstanding a number of reasonably significant hurdles noted in the defendants’ submissions, the damages may be relatively  modest,  particularly  when  weighed  against  the  likely  cost  of  the proceeding.  There is evidence from the defendants that a relatively small number of Lucas mills have been sold in New Zealand within the six year limitation period for Mr Peterson’s claim.  Mr Peterson did not dispute the number.  He responded with an argument that his copyright claim, in effect, can be extended to sales of Lucas mills outside New Zealand.  Notwithstanding the careful way in which Mr Peterson developed this submission, the contention is not sustainable.

Conclusion on the application for security for costs

[53]     I am satisfied that Mr Peterson should provide security for the defendants’ costs.   The defendants submitted that, if the Associate Judge’s decision was set aside, there should be an order for security on a staged basis, as well as an order for stay until security is provided.   I consider that it is appropriate that security be ordered on a staged basis with the first stage being, as proposed, to the close of pleadings.  Mr Gray advised that, if costs are assessed on a 2B basis, and including the costs of the original application for security and this application for review, an appropriate sum would be $17,000.   In my judgment an appropriate sum at this stage, weighing all relevant circumstances, is $10,000.

Result

[54]     The application for review is allowed.

[55]     The decision declining the defendants’ application for security for costs is set aside and the application for security is granted.

[56]     The plaintiff is to provide security for the defendants’ costs to the close to pleadings in a sum of $10,000, with the plaintiffs having leave to apply further.

[57]     Security may be provided by the plaintiff paying the sum of $10,000 into Court, but the plaintiff has leave to apply to provide security to the satisfaction of the Court by other means.

[58]     Pending the provision of security this proceeding is stayed.

[59]     The defendants are entitled to costs of and incidental to the application for security  for  costs,  including  on  the  review,  with  those  costs  to  be  fixed  on

determination of this proceeding, or as the Court may direct.

Peter Woodhouse J