Sanson v Energy Products Limited HC Auckland CIV 2009-404-5464

[2010] NZHC 994

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

CIV 2009-404-005464

BETWEEN  CHRIS ALEXANDER SANSON Plaintiff

ANDENERGY PRODUCTS LIMITED AND DEMON DRINKS LIMITED

Defendant

Hearing:         (On the papers)

Counsel:         M Colthart for the Plaintiff

W Akel for the Defendants

Judgment:      11 February 2010 at 4:00 pm

[COSTS] JUDGMENT OF WYLIE J

This judgment was delivered by Justice Wylie on 11 February 2010 at 4:00pm

pursuant to r 11.5 of the High Court Rules

Registrar/Deputy Registrar

Date:

Solicitors/Counsel:

Thomas Dewar Sziranyi Letts, P O Box 31 240, Lower Hutt

Simpson Grierson, Private Bag 92 518, Auckland

M Colthart, P O Box 535, Shortland Street, Auckland 1140

C A SANSON V ENERGY PRODUCTS LIMITED AND DEMON DRINKS LIMITED HC AK CIV 2009-404-

005464  11 February 2010

[1]      On 4 December 2009, I declined the plaintiff’s application for leave to bring a second application seeking an interim injunction.  I recorded that the defendants were entitled to costs and invited the parties to file the appropriate memoranda.

[2]      Since then, the Registry has been deluged with paper.

a)       By  application  and  memorandum  dated  8  December  2009,  the defendants sought indemnity costs or, in the alternative, increased costs.

b)On 10 December 2009, the plaintiff purported to reply.  However, that reply related to costs in respect of the earlier decision given by Allan J on 15 September 2009.

c)        On 14 December 2009, the plaintiff filed a notice of appeal to the

Court of Appeal against my decision.

d)On   16   December   2009,   the   plaintiff   filed   a   comprehensive memorandum dealing with the defendants’ application for costs in the present case.  He opposed the application for indemnity or increased costs  and  submitted  that  costs  on  a  Category 2B basis  should  be ordered.    In  support,  the  plaintiff  filed  a  lengthy  affidavit.    The affidavit sought to demonstrate that as at 12 December 2009, “NOS”

500 ml cans and 330 ml bottles with caffeine levels of 480 mg/1000 ml were still available for sale.

e)       The defendants replied by memorandum on 23 December 2009.  They also filed an affidavit from a Mr Shaw denying a number of the allegations  made  by  Mr  Sanson  and  setting  out  the  steps  the defendants had taken to try and ensure that “NOS” 500 and 330 ml products with the caffeine levels noted above were withdrawn from sale.

f)        On 25 January 2010, the plaintiff filed a further affidavit in opposition to the application for increased costs.  That affidavit advised that he was discontinuing the High Court proceedings, but that he was commencing new proceedings in the District Court.

g)       On 27 January 2010, the plaintiff discontinued the proceedings in this Court.   On the same day, he commenced similar proceedings in the District Court on the North Shore.

h)On 29 January 2010, Mr Shaw on behalf of the defendants filed a further affidavit in reply to the plaintiff’s affidavit of 25 January 2010.

i)On 2 February 2010, the plaintiff filed a notice of abandonment of his appeal to the Court of Appeal.

j)On 3 February 2010, the defendants filed a further memorandum with regards to costs.

k)On 4 February 2010, the plaintiff filed a further affidavit regarding his ongoing dispute with the defendants.

[3]      By way of general comment, I observe that the amount of paper filed in regard to the costs application is extraordinary.  There was no need for much of the material contained in the affidavits.  Indeed there is an element of “I told you so” in the plaintiff’s affidavits and in the submissions that have been filed on his behalf. That is inappropriate.

[4]      The  plaintiff  has  made  it  clear  that  he disagrees  with  my decision  of 4

December 2009.  Whether the plaintiff agrees with my decision or not is irrelevant for present purposes.  If he wished to challenge the decision, then his remedy was to appeal to the Court of Appeal.   Although he initially pursued that course, he has since abandoned the appeal and indeed discontinued the High Court proceedings.

[5]      The discontinuance of the proceeding does not affect the determination of costs – r 15.21(2) of the High Court Rules.   Further, unless the defendants have

otherwise agreed or the Court otherwise orders, the plaintiff must pay costs to the defendants   of   and   incidental   to   the   proceeding   up   to   and   including   the discontinuance – r 15.23.  As yet, the defendants have not sought costs in relation to the discontinuance.   For present purposes, I am dealing only with the defendants’ application for costs in respect of my decision dated 4 December 2009 and I have ignored material filed which is irrelevant to that issue.

[6]      The plaintiff accepts that costs can be fixed on a Category 2B basis.  Costs on this basis have been calculated by the defendants.  They total $3,280.  Mr Akel for the defendants has advised that the defendants’ costs in relation to the hearing were in the vicinity of $30,000 plus GST.

[7]      Costs are at the discretion of the Court.  While the principles applicable to the determination of costs should generally be predictable, in appropriate cases, the rules permit the Court to order either increased costs pursuant to r 14.6(1)(a), or indemnity costs pursuant to r 14.6(1)(b).

[8]      I deal first with the request for indemnity costs.

[9]      The circumstances in which the Court may order a party to pay indemnity costs are set out in r 14.6(4).  Here it is submitted by the defendants that the plaintiff has acted vexatiously, improperly and unnecessarily in commencing and continuing his application for leave to seek further injunctive relief.  It is said that:

a)       the  plaintiff  was  aware  at  the  outset  of  the  arrangement  reached between the defendants and the New Zealand Food Safety Authority which provided for the sell down of the “NOS” 500 ml can and the

330 ml bottle with high caffeine levels;

b)this arrangement was a cost effective and pragmatic way of resolving the difficult issue of interpretation of the Dietary Supplement Regulations 1985 and the relevant Standard;

c)	the plaintiff was put on notice that his proceedings would result in additional legal costs being incurred, and that he was on more than
one occasion invited to reconsider his position;
d)	it was surprising that the plaintiff elected to pursue the application for
leave, and the application in any event had a very limited chance of success; and
e)	the plaintiff chose to ignore the comments made by Allan J in relation to his undertaking as to damages.
[10]	The	plaintiff’s  response  is  to  deny  that  he  has  acted  vexatiously  or

improperly.  Rather, he asserts that in bringing the application:

a)       he was responding to evidence suggesting that the defendants had produced significant additional quantities of a product that contained caffeine levels in excess of those specified in the Regulations, while at the same time, they were telling the plaintiff and the New Zealand Food Safety Authority that they were removing their product from shelves;

b)he was concerned to ensure that the defendants did not obtain a competitive advantage in breach of the law;

c)       he was not fully aware of the arrangements between the defendants and the New Zealand Food Safety Authority when the application was filed;

d)       he obtained advice from a well-respected Wellington barrister;

e)        there has been little judicial consideration of the relevant rule; and

f)        he had offered to put forward a cash bond to a sum required by the defendants, and the information he provided was provided in good faith with the expectation that it would be sufficient.

[11]     Generally costs are awarded on a party and party basis and are limited to a reasonable contribution to the costs of the successful party.  In the High Court, what is a reasonable contribution is generally fixed by reference to the relevant rules and the scale put in place by the rules.

[12]     Awards of indemnity costs – in particular those consequent on the behaviour of a party – are rare, and they require exceptionally or distinctly bad behaviour, generally entailing breach of confidence or flagrant misconduct – see Prebble v Awatere-Huata (No 2) [2005] NZSC 18, [2005] NZLR 467 at [6]. Indemnity costs can also extend to unreasonable conduct, but the unreasonableness must be of a high order and not just something which is wrong or misguided in hindsight – see Peters v Television New Zealand (2005) 18 PRNZ 149 (CA) at [20].

[13]     In  my  view  it  would  be  inappropriate  to  award  indemnity  costs  to  the defendants in the present case.

[14]     Allan  J  in  his  decision noted  that  there  was  nothing to  suggest  that  the New Zealand Food Safety Authority was concerned by the defendants’ activities. The application for leave to bring a second application seeking an interim injunction was prefaced on the basis that following Allan J’s decision, the New Zealand Food Safety Authority had taken a position on the matter, and that that position was favourable to the plaintiff.

[15]     As noted in my substantive decision at [31], I accepted that the New Zealand Food Safety Authority’s stance provided support for the arguments advanced by the plaintiff.  I also accepted that it was fresh evidence.  I concluded, however, for the reasons set out by me that it would not have had any significant bearing on the outcome of the plaintiff’s initial application, and that there were no special circumstances justifying the grant of leave to the plaintiff to bring a second application.

[16]     There was no flagrant misconduct by the plaintiff in making the application. He did pursue it rather further than was necessary once he became aware of the agreement  made  between  the  defendants  and  the  New  Zealand  Food  Safety

Authority, but there was evidence that a very large number of cans and bottles had been sourced by the defendants and it was not clear at the time of the hearing before me that not all of these containers had been filled and sent to retailers.  The plaintiff did in my view choose to ignore Allan J’s comments when he declined to put forward proper evidence as to his ability to meet an award of damages.  I dealt with that issue at [38] – [41] of my judgment.  Allan J’s comments were not, however, a Court direction and in my view it cannot be said that the plaintiff flagrantly breached a Court order.

[17]    Nor was the plaintiff’s conduct unreasonable.   He elected to proceed in circumstances where it was unlikely that he was going to obtain the order for leave or an injunction even if leave had been granted.   While in my view the plaintiff behaved unreasonably, the unreasonableness was not of the requisite high order to warrant an order of indemnity costs.  Rather the circumstances are better reflected in an order for increased costs.

[18]     I therefore decline to award indemnity costs and now turn to consider the request for increased costs.

[19]     The circumstances in which the Court can order increased costs are set out in r 14.6(3).

[20]     The defendants submit that the plaintiff should be ordered to pay increased costs because he was fully aware that increased costs would be sought from the outset and because he was aware of the level  of costs that he was  putting the defendants to by his “relentless campaign”.  It is also submitted that the defendants offered to settle the proceedings and that the offer was rejected by the plaintiff.  It is suggested that an award of $20,000 would be appropriate.  The plaintiff responds by asserting that it was reasonable to reject the “settlement offer” made by the defendants, and in any event it was not actually an offer to settle the legal position.

[21]     In my view, an order for increased costs is appropriate.

[22]     I accept the plaintiff’s submission that there was no full settlement offer as such.   Nevertheless, continuation of the proceedings by the plaintiff in my view became unnecessary once he was fully aware of the proposal put by the defendants to, and accepted by, the New Zealand Food Safety Authority.  Further, the plaintiff repeatedly overstated the significance of the letters from the New Zealand Food Safety Authority to the defendants, and he chose not to disclose any detail of his ability to meet any award for damages.  Instead he repeated an offer to put up a cash bond, notwithstanding that Allan J had already indicated that that proposal was unsatisfactory.  Notwithstanding his assertions to the contrary, the plaintiff did not rely on the independent legal advice he received.  Rather it seems that he chose to adopt those parts of the opinion which suited him and to ignore those who did not do so; for example, advice that the stance taken by the New Zealand Food Safety Authority was but one view of the matter and that it did not determine the issue, and the need to detail his ability to support his undertaking as to damages with proper evidence.  Further, the relief sought by the plaintiff extended to products not affected by the letter from the New Zealand Food Safety Authority.  The affidavits filed by the plaintiff were overstated and unbalanced.  His arguments were not meritorious.

[23]     I also bear in mind that the plaintiff and the defendants are trade competitors. I have no doubt that that fact coloured the issue.   It accounts for the plaintiff’s persistence and dogged pursuit of the injunctions sought.

[24]     For these reasons, in the circumstances of this case, an award of increased costs is appropriate.

[25]     Generally  costs  calculated  in  accordance  with  the  scale  are  intended  to represent two thirds of the daily rate considered reasonable for any particular proceeding.  Here the defendants’ actual costs far exceed the scale costs.  While I am satisfied that increased costs are appropriate, it is not a question of awarding a percentage of actual costs – see Holdfast NZ Ltd v Selleys Pty Ltd (2005) 17 PRNZ

897 (CA).  Rather it is a matter of awarding an uplift to what would be a reasonable fee in terms of the rules.

[26]     In the present case the reasonable fee in terms of the rules is fixed by scale at

$3,280.   In my view it is appropriate to award an uplift of approximately 50% on these scale costs.   That uplift is high, but in my view it is appropriate given the plaintiff’s attitude to these proceedings.

[27]     The defendants are awarded costs in the sum of $5,000 together with their reasonable disbursements.   Disbursements are to be fixed by the Registrar.   In the event of a dispute, the same is to be referred to me.

Wylie J