Rascal and Friends NZ Limited t/a Rascal + Friends v Taylor
[2024] NZHC 2489
•2 September 2024
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE
CIV-2021-404-1041
[2024] NZHC 2489
BETWEEN RASCAL AND FRIENDS NZ LIMITED t/a RASCAL + FRIENDS
First PlaintiffZURU INC
Second Plaintiff
AND
GRANT BRUCE BYRON TAYLOR
First Defendant
KEITH ROBERT TAYLOR
Second Defendant
JJK GROUP LIMITED
Third Defendant
Hearing: On the papers Appearances:
CT Walker KC, JWJ Graham and LC Bercovitch for the Plaintiff DM Salmon KC and DAC Bullock for the First and Second
Defendants
SM Lowery and D Van Hout for the the Third DefendantJudgment:
2 September 2024
JUDGMENT OF ASSOCIATE JUDGE SUSSOCK
[Costs]
Thisjudgment was delivered by me on 2 September 2024 at 3 pm pursuant to r 11.5 of the High Court Rules
Registrar/Deputy Registrar
Solicitors:
Chapman Tripp, Auckland Lee Salmon Long, Auckland Russell Legal, Auckland
RASCAL AND FRIENDS NZ LIMITED v TAYLOR [2024] NZHC 2489 [2 September 2024]
Introduction
[1] The first and second defendants (together, the Taylors) and the third defendant, JJK Group Limited, seek costs from the plaintiffs following the resolution of their joint application in relation to confidentiality claims and associated inspection restrictions asserted by the plaintiffs in relation to discovery documents.
[2] The application was heard in part on 14 December 2023 when the plaintiffs agreed to review their confidentiality claims. I issued a minute providing a preliminary view and guidance to assist in that review.
[3] The plaintiffs undertook their review and following correspondence between the parties and further adjustments to the plaintiffs’ discovery, the defendants’ application has been withdrawn. The defendants now seek costs submitting that the application was necessary and that the defendants were successful.
[4] The plaintiffs oppose costs on the basis that the defendants’ application sought to override the plaintiffs’ claims to confidentiality. The plaintiffs submit that with the application now resolved, 94 per cent of the plaintiffs’ documents are still designated confidential, the same percentage as designated prior to the application. The plaintiffs submit that instead of changing any designations, counsel have now cooperated on inspection arrangements. The plaintiffs submit an award of costs would disincentivise such a cooperative approach, which they say is what could have been achieved from the outset.
[5] Furthermore, the plaintiffs submit that the defendants’ application for costs is premised on them “succeeding” in achieving an inspection outcome, when their application was in fact to remove the confidentiality designations from the plaintiffs’ documents, which did not succeed.
[6] The plaintiffs therefore say that the defendants did not obtain the relief sought and no judgment was issued so a costs award is not appropriate in the circumstances.
[7] I set out the background briefly below before summarising the costs principles and considering whether the application was necessary and whether the defendants succeeded as the defendants submit.
Background
[8] The parties exchanged discovery on 11 August 2023. Initially the plaintiffs discovered 4,047 documents with only 234 listed as “open”. The remaining 3,813 documents were withheld by the plaintiffs or access was restricted on the basis that the documents were confidential. The plaintiffs proposed a draft confidentiality protocol under which:
(a)the first and second defendants could inspect a subset of the plaintiff’s “confidential” documents but only at their lawyers’ offices;
(b)the third defendant would have no access to any of the plaintiff’s confidential documents; and
(c)the defendants’ lawyers and experts could access all documents discovered by the plaintiff, but only after signing confidentiality undertakings.
[9] The plaintiffs’ access restrictions were based on broad categories, rather than on a document-by-document basis.
[10] The defendants challenged the plaintiff’s approach in a series of letters. Counsel for the third defendant refers to matters coming to a head on 9 October 2023, when counsel submits the plaintiffs declined to undertake a further review of their confidentiality designations, declined to amend the confidentiality protocol served on 11 August, and asserted that the defendants bore the burden of identifying particular documents or categories of documents for redesignation.1
1 Letter contained in affidavit of Kayleigh Heather Devane dated 13 October 2023 in support of application at KDH1-065.
[11] The defendants therefore jointly filed the application on 17 October 2023 pursuant to rr 8.25 and 8.30(4) of the High Court Rules 2016. They sought orders permitting them to access the 3813 documents listed as “confidential” unless those documents contained information about:
(a)the location, name and contact details of any factories currently being used by the first plaintiff for manufacturing nappies; and/or
(b)the first plaintiff’s current pricing; and/or
(c)the technical specifications for the first plaintiff’s nappies or related products; and/or
(d)the first and second plaintiffs’ financial statements, financial projections or tax returns.
[12] At the hearing, it was agreed that the plaintiffs would review the confidentiality claims made and the controlled inspection restrictions proposed and that I would issue a minute to assist in that process.
[13] In the minute issued, I confirmed that the starting point in discussing the application of the confidentiality rules was that relevant documents should generally be made available for inspection. The fact that they are regarded as being confidential and would not be made available were it not for the requirements of the litigation is immaterial, as the Court of Appeal held in Port Nelson Ltd v Commerce Commission.2
[14] I referred to the two-stage approach endorsed by Gault J in Payment Express Limited v Paymark Limited:3
(a)firstly, to determine whether the document is confidential; and
(b)secondly, to balance:
2 Port Nelson Ltd v Commerce Commission (1994) 7 PRNZ 344 (CA).
3 Payment Express Ltd v Paymark Ltd [2019] NZHC 2027.
(i)the interests of justice in ensuring a party is able to prepare and present its case; and
(ii)the interests of the other party in safeguarding its confidential information in a competitive market.4
[15] I then noted that it was clear that, although documents may be confidential, it may still be appropriate for other parties to have access to those documents to ensure that there is a fair hearing if respective prejudices weigh in favour of disclosure. I had earlier referred to r 8.30(4) which provides protection to all parties in discovery by restricting the use of documents obtained by way of inspection, or from providing the documents to any other person, except for the purposes of the proceeding.
[16] I noted that the balancing exercise may result in full access being granted without terms for the purposes of the litigation.
[17] I acknowledged that confidentiality issues are at the centre of this proceeding and that the primary issues appeared to be whether and in what circumstances the first and second defendants disclosed information to the directors of the third defendant and whether the disclosed information has the necessary quality of confidence.
[18] For those reasons I recorded that it was sensible to proceed on the basis that the threshold of confidentiality in terms of each document was reached so that the focus would then be on the balancing exercise and whether, even if the document is confidential, it was appropriate for access to that document to be restricted. I noted that I considered this a more pragmatic approach as whether a document is confidential may be critical to the plaintiffs’ claim and so ought to be determined in the substantive proceedings rather than in the context of this application.
[19] I commented that it would appear difficult to justify preventing inspection by the first and second defendants of documents from before they left the company, as they were likely to be aware of them and so any prejudice in their disclosure is not likely to be high. Furthermore, I noted that given r 8.30 prevents a party who obtains
4 Port Nelson Ltd v Commerce Commission, above n 2, at 7.
a document on inspection from using it for anything other than the purposes of the proceedings, it would seem difficult to justify controlled inspection once the relative prejudices weigh in favour of disclosure, except perhaps in relation to details of the nappy design or other highly sensitive information.
[20] Finally, before considering the individual documents provided by the defendants by way of example, I recorded that any continuing claim to confidentiality or inspection restriction after the review must be justified by the plaintiffs on an individual basis. This was a key criticism by the defendants of the plaintiffs’ discovery, that it was for the defendants to work out the basis on which the plaintiffs were claiming confidentiality.
[21] Following the review and further correspondence between the parties, the first and second defendants are now permitted to inspect 2,662 documents in full and a further 755 with redactions. Together, this comprises 3,417 of the documents previously withheld or to which access was restricted to only being at their lawyers’ offices. This leaves only 394 documents now withheld entirely from the first and second defendants.
[22] As far as the third defendant is concerned, following the review and further correspondence with the defendants, the plaintiffs have now agreed that the third defendant can access 3,539 of the plaintiffs’ 4,047 discovery documents, either in full or with targeted redactions. In percentage terms, the third defendant can now access 87 per cent of the plaintiffs’ discovery documents either in full or with redactions, compared with 6 per cent before the application was filed.
Relevant legal principles
[23] The general rule is that costs on opposed interlocutory applications are to be fixed “when the application is determined”.5 An interlocutory application may be “determined” in various ways, including when the application results in the respondent altering its position. The absence of a judgment is not an impediment to a costs award.6
5 High Court Rules 2016, r 14.8(1)(b).
6 David Bullock and Tim Mullins The Law of Costs in New Zealand (Lexis Nexis, Wellington, 2022) at 52; Winton v Winton [2018] NZHC 486 at [16]; Ip v Ip [2016] NZHC 528.
Was the defendants’ application necessary?
Plaintiffs’ submissions
[24] As set out above, the plaintiffs submit the application sought to override the plaintiffs’ claims to confidentiality and that those claims still remain. The plaintiffs therefore submit that the application was not necessary and did not succeed. They submit that the application, with its focus on the classification of confidential documents, was made without the defendants first endeavouring to resolve inspection matters through correspondence, despite the plaintiffs’ attempts. Counsel submits that the resolved position reflects cooperation between the parties on inspection terms, which the plaintiffs contemplated from the outset. In addition, counsel submits the defendants have now provided confidentiality undertakings confirming the manner in which the documents will be reviewed and protected and those undertakings confer essentially the same obligations on the parties to protect the plaintiffs’ confidential documents as was originally contemplated by the draft protocol.
[25] The plaintiffs say they had already confirmed, in early correspondence and prior to the hearing, that the defendants would be able to inspect a meaningful number of confidential documents, including in relation to the example documents at issue in the application. They submit that if the application was properly a matter of inspection, the defendants could have withdrawn the application before the hearing and worked with the plaintiffs to resolve any residual matters. Counsel says that proper engagement with the plaintiffs on an inspection mechanism could have circumvented the application entirely.
Discussion
[26] One of the difficulties with the plaintiffs’ submissions is that, by the time of the hearing, the plaintiffs had not separately identified the basis upon which confidentiality was claimed in respect of each document. This therefore created an unfair burden on counsel for the defendants to consider each of the documents before then corresponding with counsel for the plaintiffs in respect of inspection protocols.
[27] Furthermore, I do not accept that the main purpose of the application was to override claims to confidentiality. The application clearly discussed confidentiality in terms of access by the defendants themselves, rather than in terms of the world at large. This can be seen from the wording of the orders at paragraph 1(a) of the application: “the defendants shall be permitted to access the 3,813 documents in part 3 unless the document contains information about [the matters listed at [9] above] … together, Confidential Information”. The defendants’ main aim was therefore not to overturn claims to confidentiality but rather to seek access.
[28] The focus of the defendants’ application is underlined by the fact that the minute proposed that a pragmatic way of resolving the matter was to accept that all of the documents were confidential, but then to weigh whether access to the documents should be restricted in any way or at all. If the purpose of the application had been to override the confidentiality claims in terms of the world at large, this would not have been a viable resolution and the parties are likely to have returned to court.
[29] Attempts had been made to correspond with the plaintiffs about this but had been unsuccessful leading up to the application. As I noted in the 14 February 2024 minute, even after the application had been filed and the defendants had filed examples of eight documents to support their application, the plaintiffs did not permit access in respect of any of those documents even though one document for example was annexed to an affidavit already filed in the proceeding. Whilst the plaintiffs claimed that the eight documents selected were not representative of the majority of documents for which confidentiality was claimed, unrestricted access was still not allowed in respect of any of them.
[30] I therefore do not accept the plaintiffs’ position that the application was unnecessary.
Did the defendants succeed?
[31] The second submission made on behalf of the plaintiffs is that the defendants did not succeed. This is made on the basis that prior to the application the documents were designated as confidential and that those designations have remained following
the application. Again, I consider this mischaracterises the reason for the application, which was mainly for access, or in some cases less restricted access, to the documents.
[32] The question of whether the application was successful can be determined, as the defendants submit, by a comparison of the documents to which the defendants now have unrestricted access. As set out above, the first and second defendants are now permitted to inspect 2,662 documents in full and a further 755 with redactions, together 3,417 of the documents previously withheld or to which access was restricted to only being at their lawyers’ offices. JJK can now access 87 per cent of the plaintiff’s discovery documents either in full or with redactions, compared with 6 per cent before the application was filed.
[33] I consider on this basis that it has clearly been successful for the defendants. They are therefore entitled to costs.
What is the appropriate quantum?
[34] The defendants claim costs on a 2B basis and set out schedules of the costs and disbursements claimed. The application was brought as a joint application, so only half of the daily allowance provided for is claimed by the first and second, and third defendants respectively. Separate amounts are then claimed for the preparation of submissions and attendance at the hearing including for second counsel. The third defendant also claims half of the costs allowance for four joint memoranda filed on the basis that the memoranda also dealt with case management.
[35] The plaintiffs submit that if the Court is minded to award costs then the costs awarded ought to be reduced so that:
(a)costs for second counsel are not allowed; and
(b)the costs claimed for memoranda by the third defendant are adjusted as all were prepared and filed on a joint basis.
[36] In addition the plaintiffs submit that costs ought to be further reduced to focus on the hearing time for the application itself, given the nature of the application shifted at the hearing but not before.
[37] I consider that second counsel were justified given the importance of the application, the details and numbers of documents involved and the confidentiality protocol proposed. Although not determinative, I note that the plaintiffs themselves had second counsel.
[38] In terms of the claim for costs in respect of the memoranda by the third defendant, the plaintiffs submit that the amount claimed ought to be reduced to reflect that all memoranda were prepared and filed jointly so that the appropriate claim would be 0.27 days, being one third of 0.8.
[39] The party that drafts a joint memorandum is usually the party that bears the main burden in terms of cost. Three of the memoranda appear to have been drafted by plaintiffs’ counsel, whereas one was drafted by counsel for the third defendant (22 April 2024). I note that the memorandum filed on that date largely deals with this application and that costs of $956 for that one memorandum might appropriately have been claimed by the third defendant.
[40] It is difficult to assess what proportion of the remaining memoranda is appropriate. To avoid seeking further submissions, I take a broad-brush approach and award $1,200 for the third defendant’s costs in relation to the memoranda filed. I note this number is also approximately midway between the $1,912 claimed on behalf of the third defendant and the $645.30 considered appropriate by the plaintiff.
[41] In terms of the submission that the nature of the application shifted at the hearing but not before, it will be clear from the discussion above that I do not accept this. The application itself and the submissions filed by the defendants focused on the terms of access from the beginning and so costs for all steps are appropriate.
[42] Finally, I note that a party that is registered for and able to recover GST is not entitled to disbursements inclusive of GST.7 The defendants do not confirm whether they are registered for GST. The Court therefore proceeds on the basis that the parties are GST registered and able to recover GST.8 (If this is not correct, memoranda may be filed.) For this reason, the total amount of the disbursements claimed by the third defendant, taking into account the $712 reduction for memoranda, is reduced from the GST inclusive figure of $2,054.39 to $1,786.43 exclusive of GST. For the first and second defendants, the total amount of disbursements is reduced from $800 to $695.65 excluding GST.
Result
[43]The plaintiffs are to pay costs as follows:
(a)to the first and second defendants on a 2B basis in the amount of
$6,094.50 in costs, plus disbursements of $695.65, for a total of
$6,790.15; and
(b)to the third defendant in the amount of $8,728.50, plus disbursements of $1,786.43, for a total of $10,514.93.
Associate Judge Sussock
7 New Zealand Venue and Event Management Ltd v Worldwide NZ LLC [2016] NZCA 282, (2016) 23 PRNZ 260 at [12].
8 At [12].
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