Sealegs International Limited v Zhang
[2020] NZHC 785
•22 April 2020
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE
CIV-2016-404-2256
[2020] NZHC 785
BETWEEN SEALEGS INTERNATIONAL LIMITED
Plaintiff
AND
YUN ZHANG
First Defendant
AND
ORION LIMITED AND ORION MARINE LIMITED
Second Defendants
AND
SMUGGLER MARINE LIMITED
Third Defendant
AND
Cont…
DARREN LEYBOURNE
Fourth Defendant
Hearing: On the papers Counsel:
B P Henry & A R Kenwright for Plaintiff
J G Miles QC, P J K Spring & A K Hyde for First, Second, Third, Fourth, Sixth and Ninth Defendants
Judgment:
22 April 2020
JUDGMENT OF PAUL DAVISON J
[Re: Costs]
This judgment was delivered by me on 22 April 2020 at 4:00 pm pursuant to r 11.5 of the High Court Rules.
Registrar/Deputy Registrar
Solicitors:
Colin Woodroffe, Auckland Keegan Alexander, Auckland
SEALEGS INTERNATIONAL LTD v YUN ZHANG [2020] NZHC 785 [22 April 2020]
Cont…
AND VLADAN ZUBCIC
Sixth Defendant
AND
WARREN FARR
Seventh Defendant
AND PAUL HOOD
Eighth Defendant
AND
DAVID PRINGLE AND PAULINE PRINGLE
Ninth Defendants
AND
STRYDA MARINE LIMITED
Tenth Defendant
Introduction
[1] Having delivered my judgment on 6 December 20181 and notwithstanding the defendants filing a notice of appeal, I proceeded to deliver a costs judgment2 awarding costs to the plaintiff. I said:3
The defendants have also filed a notice of appeal against my substantive judgment. There is no presumption that a determination of costs should be deferred until after an appeal is heard.4 In the present case, the parties have gone to the trouble of filing costs memoranda and the determination of costs should not be deferred too far into the future.5 I therefore consider it appropriate to determine the matter of costs now. However, I propose to make an order that compliance with any costs award, or enforcement of any such award, is to await the determination or other final disposition of the appeal.
[2] Following the judgments of the Court of Appeal6 and Supreme Court,7 the defendants now seek an order for costs and disbursements in relation to the proceedings in the High Court. These costs include those relating to the two pre-trial injunction applications, a pre-trial discovery application and the trial itself.
[3] The defendants seek costs predominantly calculated on a 2B scale basis, with several steps for which Band C is claimed, and which they have quantified as totalling
$199,793.50. In addition the defendants also seek three separate and cumulative uplifts of the scale costs with respect to particular steps in the proceeding by which the defendants say the plaintiff caused or contributed to unnecessary time and expense.
[4] Following the Court of Appeal delivering its judgment on 27 August 2019, the plaintiff unsuccessfully applied to the Supreme Court for leave to appeal. The application was declined by a judgment delivered on 13 December 2019. The plaintiff then applied to the High Court for an oral hearing to consider submissions regarding costs. The defendants opposed. I convened a judicial telephone conference on 12 February 2020 to hear submissions from the parties as to whether an oral hearing was
1 Sealegs International Ltd v Zhang [2018] NZHC 1724.
2 Sealegs International Ltd v Zhang [2018] NZHC 2956.
3 Sealegs International Ltd v Zhang [2018] NZHC 2956 at [2].
4 He v Earthquake Commission [2018] NZHC 67 at [71]; New Zealand Alpine Pilots’ Association Industrial Union of Workers Inc v Director of Civil Aviation [2016] NZHC 2409, (2016) 23 PRNZ 276 at [4]; McArthur Ridge Investments v Schulz [2015] NZHC 600 at [13] – [15].
5 He v Earthquake Commission [2018] NZHC 67 at [71].
6 Zhang v Sealegs International Ltd [2019] NZCA 389
7 Sealegs International Ltd v Zhang [2019] NZSC 147.
required, and at the conclusion of the telephone conference I declined the plaintiff’s application and said I would determine the costs on the papers. I made the following timetable directions:
(a)I grant leave to the plaintiff to file a further memorandum in relation to costs within five working days of today. The memorandum is not to exceed five pages in length.
(b)Following the filing of the plaintiff’s memorandum, in compliance with the five day timetable, the defendants will have the right to file a memorandum in reply in relation to costs, or any matters arising, within five working days. The memorandum is not to exceed five pages in length.
[5]The parties filed a supplementary memorandum.
The plaintiff’s position
[6] The plaintiff accepts that the defendants’ costs should be assessed on the same basis as the plaintiff’s costs were previously determined. The plaintiff also agrees that certification for the defendants’ second counsel is appropriate. The plaintiff opposes the three uplifts of costs sought by the defendants. The plaintiff further says that the defendants’ claim of developing its amphibious retractable leg system by way of an independent design path, which was rejected by the High Court and not determined by the Court of Appeal, considerably extended the duration of the trial. The plaintiff submits that the defendants’ costs should be reduced to recognise that considerable time was involved in relation to the defendants’ unsuccessful independent design path claim.
The defendants’ costs application
Costs scale
[7] Having delivered my judgment finding for the plaintiff,8 I delivered a further judgment awarding the plaintiff costs.9 In that judgment I found that the proceedings were appropriately categorised as being Category 2 and Band B. However I also
8 Sealegs International Ltd v Zhang [2018] NZHC 1724.
9 Sealegs International Limited v Zhang [2018] NZHC 2956.
allowed Band C costs in relation to several steps due to the extensive and detailed nature of the evidence and documents which would have required a comparatively large amount of time to be spent on: preparing a list of document for discovery; inspection; preparation of briefs of evidence; preparation of a list of issues, authorities and common bundle; and preparation for hearing.
[8] When a party seeks costs other than Band B, it must demonstrate why a normal amount of time for that particular step would be insufficient.10 Rule 14.5(2)(c) of the High Court Rules 2016 indicates that Band C is appropriate if “a comparatively large amount of time for the particular step is considered reasonable”.
[9] The defendants submit that the same categorisations and approach previously applied to the determination of the plaintiff’s costs is appropriately to be applied to the assessment and determination of the defendant’s costs, and that Band C is appropriate for those steps for which it was previously allowed in the assessment of the plaintiff’s costs. The plaintiff agrees that the defendants’ costs should be assessed on the same basis as was previously applied to the assessment of the plaintiff’s costs.
[10] The defendants also seek an increase to Band C in relation to the pre-trial conference which they submit is appropriate having regard to the actual time involved. The defendants note that the pre-trial conference occupied one and a half days, and that Band B provides for only a half day, and Band C one day.
[11] I consider that Band C is appropriate in relation to those steps relating to the preparation of a list of documents for discovery; inspection; preparation of briefs of evidence; preparation of a list of issues, authorities and common bundle; and preparation for hearing, having regard to the comparatively large amount of time required to be spent on those matters. I also consider that Band C is appropriately applied in relation to the pre-trial conference.
10 Paper Reclaim Ltd v Aotearoa International Ltd [2007] NZCA 544, (2007) 18 PRNZ 743 at [35].
The interim injunction applications
[12] The defendants also apply for costs in respect of the two applications for injunction orders made in late 2016 and on which costs were reserved. The defendants were successful in relation to the first application11 and unsuccessful on the second.12
[13] In his judgment refusing the plaintiff’s without notice application for an interim injunction, Faire J said that both parties had accepted that the normal rule that the successful party was entitled to costs on the application should apply. However noting that a fixture had been made for the hearing of the plaintiff’s application for an injunction, and that the analysis he had undertaken for the purpose of the without notice application would provide considerable assistance as regards the material that should be placed before the Court to hear that application, he reserved costs on the basis that costs would be likely to follow the outcome of the hearing, or would be assessed in the overall by the Judge at the conclusion of that hearing.13
[14] The interim injunction application was subsequently heard by Peters J on 28 October 2016. Peters J granted the plaintiff’s application for an interim injunction restraining the defendants from copying, issuing, or showing the works which the plaintiff claimed to be in breach of its copyright. Addressing the issue of costs, Peters J noted that the costs on the hearing before Faire J had been reserved pending her decision. She said:14
The defendants are to have costs on a 2B basis, and disbursements, for that hearing, and Sealegs’ for the hearing before me. The costs are likely to “net off” but the parties may submit brief memoranda on any particular point on which they disagree.
[15] The defendants submit that notwithstanding that they succeeded on only one of the two injunction applications, having regard to their subsequent success in the Court of Appeal, they are now entitled to an award of costs on both applications. The defendants submit that their ultimate success shows that had the court hearing the
11 Sealegs International Ltd v Zhang [2016] NZHC 2274.
12 Sealegs International Ltd v Zhang [2016] NZHC 3143.
13 At [82] – [84].
14 At [48].
injunction application been fully apprised of the facts and law they would have succeeded.
[16] The defendants rely on the approach adopted in Roberts v Rodney District Council,15 where the plaintiff who was ultimately successful, had earlier failed in an application for an injunction and unsuccessfully opposed an injunction application brought by the defendant. Barker J observed that:16
The plaintiff has demonstrated, after a full hearing, that she would have succeeded at the injunction hearings had the two Judges concerned been fully apprised of the facts and the law. In other words, her ultimate success on liability proved that she should have been successful on both the previous applications. The fact that she was denied a permanent injunction at the substantive hearing was merely an acknowledgement of the reality of the then situation: i.e. the defendant had built the sewer line, it was not practical to order its removal and damages were an appropriate remedy.
[17] In its submissions on costs the plaintiff does not oppose this aspect of the defendants’ claim. Applying the principle explained by Barker J in Roberts, I find that the defendants are entitled to costs on both of the injunction applications, notwithstanding that they did not succeed on one of them. The defendant’s ultimate success in defending the plaintiff’s claim to copyright establishes that had the Judge who determined the second application been apprised of the full facts and law when determining the injunction application, the defendant would have succeeded.
Costs on the present application for costs
[18] The defendants also seek costs on their present application for costs and that it be treated as the filing of an interlocutory application.17 The defendants submit that the preparation and progressing of their costs application has required considerable time by reason of the extensive steps taken by the parties in the proceeding. The defendants note that pursuant to Band B only 0.6 days is allowed, and say that Band C, for which 2 days is allowed, is appropriate.
15 Roberts v Rodney District Council (No 3) HC Auckland M 735/96, 4 May 2001.
16 At [6].
17 Body Corporate Administration Ltd v Mehta (No 4) [2013] NZHC 213 at [85].
[19] I am satisfied that the defendants are entitled to costs in connection with their application for costs. It is clear from the volume and detail contained in the application that its preparation has required well in excess of 0.6 days. The application has been supported by written submissions and materials and additional attendances have been required in the course of proceeding with the application including the filing of further memoranda to respond to memoranda filed by the plaintiff, and attendance at the judicial telephone conference relating to the issue of whether an oral hearing for the costs application was required.
The uplifts sought by the defendants
[20] The defendants seek three uplifts of the scale costs on account of particular steps taken by the plaintiff in the course of the proceeding which the defendants say contributed unnecessarily to the time required for trial and consequently the legal costs incurred by the defendants.18
[21]Rule 14.6(3)(b) of the High Court Rules 2016 relevantly provides:
(3)The court may order a party to pay increased costs if—
…
(b)the party opposing costs has contributed unnecessarily to the time or expense of a proceeding or step in it by –
(i) …
(ii)taking or pursuing an unnecessary step or argument that lacks merit; or
(iii) …
(iv) …
(v)failing, without reasonable justification, to accept an offer of settlement whether in in the form of an offer under rule 14.10 or some other offer to settle or dispose of the proceeding; or
…
18 The Court of Appeal explained the approach to determining whether an award of increased costs is required in: Holdfast NZ Ltd v Selleys Pty Ltd (2005) 17 PRNZ 897 (CA) at [43] – [47].
(d) some other reason exists which justifies the court making an order for increased costs despite the principle that the determination of costs should be predictable and expeditious.
[22] The Court of Appeal in Bradbury v Westpac Banking Corp said as regards the costs provisions in the High Court Rules that:19
[27] The distinction among our three broad approaches: standard scale costs; increased costs; and indemnity costs may be summarised broadly:
(a)standard scale applies by default where cause is not shown to depart from it;
(b)increased costs may be ordered where there is failure by the paying party to act reasonably; and
(c)indemnity costs may be ordered where that party has behaved either badly or very unreasonably.
First claimed uplift: for unnecessary time and expense caused by the plaintiff changing its case at trial
[23] The defendants say that the plaintiff’s case as run at trial was not what it had pleaded as it did not plead that it held copyright in an arrangement or sequence of the mechanical components comprised in its amphibious legs. The defendants say that they had briefed their witnesses and prepared for trial on the basis of the plaintiff’s pleaded claim which identified a number of features which it alleged had been copied by the defendants and which were identified in approximately 150 pages of images, photographs and drawings annexed to the statement of claim. The defendants submit that as a result of the plaintiff’s revision of its case at and during the trial, it had been put to unnecessary expense in briefing evidence and preparing for trial on matters that the plaintiff was no longer relying on, and in revising their own position in order to respond to the new case being advanced by the plaintiff.
[24] The plaintiff rejects the allegation that it did not plead its claim of copyright in the arrangement of the components of its amphibious legs, and it disputes the defendants’ claim that its case at trial changed. The plaintiff submits that the sequencing of the features it relied on was set out in the schedules annexed to the statement of claim particularising the components of each model for which copyright
19 Bradbury v Westpac Banking Corp [2009] NZCA 234, [2009] 3 NZLR 400 at [27].
was claimed. The plaintiff says that the Court of Appeal found that copyright existed in each of the three models: prototype boat 1; prototype boat 136; and prototype IKA11.
[25] I note that when opening the plaintiff’s case Mr Henry said that while all of the features of the Sealegs’ leg assembly combined were known, it was the way in which Mr Bryham had put them together which had a high degree of originality. He said that the copyright claimed by Sealegs was in the arrangement, combination or compilation of the features that had been put into combination in a unique way by Mr Bryham to create an original work.
[26] In opening the case for the defendants, Mr Spring said that the plaintiff could not hold copyright in the “idea” of creating an amphibious leg assembly, and that the defendants’ “amphibious kit” was developed by the defendants after following an independent design path. He said that the similarities between the two systems were explicable by the functional and geometric constraints faced by the defendants in the course of developing their independent design.
[27] Although the defendants are correct in submitting that the plaintiff did not directly plead the allegation that it held copyright in the arrangement of the components of its amphibious leg assemblies, I am nevertheless satisfied that the plaintiff’s pleadings sufficiently informed the defendants that its case was founded on its claim that it held copyright in the combination of features developed by Mr Bryham. In its Fifth Amended Statement of Claim20 the plaintiff annexed schedules in which it described and listed the features of the leg assemblies that it claimed were within the scope of its copyright.
[28] The defendants’ case was firmly founded on their claim to have designed and developed their amphibious legs as a result of their adopting an entirely independent design path informed by engineering principles and constrained by function and geometry, and the evidence adduced by the defendants was predominantly directed at establishing that to be the case. The defendants’ response to the plaintiff’s claim that the Sealegs leg assembly represented a unique arrangement of features, was that such
20 Dated 25 August 2017.
an arrangement was the necessary result of functional and engineering constraints and geometry. Moreover, the defendants did not suggest at trial that they were taken by surprise or prejudiced by the way in which the plaintiff had presented its case, compared to how it had been pleaded.
[29] I do not consider that the way in which the plaintiff pleaded or presented its case misled the defendants so as to cause them to expend unnecessary time and legal costs preparing to defend the plaintiff’s case at trial, and I reject the defendants’ claim for an uplift of costs as advanced on that ground.
Second claimed uplift: for the plaintiff failing to accept offers of settlement
[30] The defendants seek an uplift by reason of the plaintiff’s failure to accept two settlement offers, of the type contemplated by r 14.10, which the defendants say were reasonable and commercially sensible.
[31] The first settlement offer was made in emailed correspondence sent by the defendants’ solicitors to the plaintiff’s counsel, Mr Henry, on 2 May 2017. The letter was endorsed: “Without prejudice save as to costs”. The proposed terms of settlement were for the proceeding to be discontinued with no issue as to costs on the basis that:
(a)As regards the Third Defendant (“Smuggler Marine”):
(i)Smuggler Marine would pay the plaintiff $30,000.
(ii)Smuggler and the plaintiff would enter into a detailed written agreement to recommence their former business relationship and pursuant to which Smuggler could purchase amphibious leg assemblies from the plaintiff for fitting and use on its Smuggler boats, and the plaintiff could purchase Smuggler boat hulls fitted with the plaintiff’s amphibious leg assemblies from Smuggler.
(b)As regards the Second Defendants (“Orion”):
(i)Orion would pay the plaintiff $30,000.
(ii)Orion would agree not to sell the S25-3WD in New Zealand and would pay the plaintiff $2,500 for each S25-3WD it sold outside New Zealand until 31 December 2020.
(iii)Until 31 December 2020, for every S25-4WD Orion sold in New Zealand 2020, it would pay the plaintiff $4,000, and for every S25-4WD it sold outside New Zealand, $2,500.
[32] The defendants submit that the 2 May 2017 offer was reasonable and commercially sensible having regard to the information available to the parties at that time. They say that, if accepted, the proposed settlement would have resulted in the plaintiff maintaining its “existing monopoly” in the New Zealand market in relation to three-wheel drive amphibious water craft, as well as deriving revenue from other sales made by Orion. The defendants say that the revenue derived from Orion and Smuggler would have been likely to be greater than any damages award that the plaintiff might have achieved having regard to the interim injunction orders made in December 2016 which had prohibited the defendants from entering the amphibious water craft market since then.
[33] The defendants submit that overall the 2 May 2017 settlement offer was “more than reasonable” and that the plaintiff’s failure to accept the offer should be reflected in an order for increased costs in favour of the defendants. The defendants further say that the plaintiff ought to have understood at the time that its claim against the defendants was unlikely to succeed.
[34] The defendants’ second settlement offer was made in emailed correspondence sent by the defendants’ solicitors to Mr Henry on 12 September 2017, shortly after the defendants had served the plaintiff with all of their evidence. Once again the correspondence was endorsed: “Without prejudice save as to costs.” The defendants offered to settle the proceedings together with any other or further claims between the parties on the basis of the plaintiff paying the defendants $900,000 as compensation for their legal costs and expenses, and in settlement of the damages claim that the
defendants would be likely to bring against the plaintiff for losses sustained as a result of their inability to trade by reason of the interim injunction obtained by the plaintiff.
[35] The defendants say that the 12 September 2017 offer was also more than reasonable, and reflected the defendants’ assessment of the plaintiff’s case as being unlikely to succeed. The defendants say that the plaintiff did not accept either offer and did not engage with the defendants regarding the offers. The defendants say that as a result of the offers being unreasonably rejected they were put to the expense of defending the plaintiff’s claim, and subsequently appealing the High Court judgment.
[36] The defendants accordingly seek an uplift of 50 per cent of scale on all steps taken from 2 May 2017. The defendants have calculated those steps as totalling
$168,699.50 and accordingly 50 per cent being $84,349. 75.
[37] The plaintiff opposes an uplift of scale costs on account of its rejection of the two settlement proposals. The plaintiff says that the defendant’s description of the proposed settlement represents an oversimplification of the issues, as the settlement would have enabled Orion and a Chinese based manufacturer to use the plaintiff’s design and promote Orion products internationally, for an unreasonably low royalty, when that was also a market that the plaintiff itself was developing. The plaintiffs say that they negotiated with the defendants in good faith, and a director of the plaintiff travelled to New Zealand from Europe to participate in that process. The plaintiff says that it acted in good faith but despite its endeavours it was unable to achieve settlement.
[38] The statutory framework provides that offers of settlement are to be factored in the costs analysis. As set out above, r 14.6(3)(b)(v) provides that the court may order a party to pay increased costs if that party has contributed unnecessarily to the time or expense of the proceeding by failing, without reasonable justification, to accept an offer of settlement.
[39]Rule 14.11 provides further:
14.11 Effect on costs
The effect (if any) that the making of an offer under rule 14.10 has on the question of costs is at the discretion of the court.
Subclauses (3) and (4) –
(a)are subject to subclause (1); and
(b)do not limit rule 14.6 or 14.7; and
(c)apply to an offer made under rule 14.10 by a party to a proceeding (party A) to another party to it (party B).
Party A is entitled to costs on the steps taken in the proceeding after the offer is made, if party A –
(a)offers a sum of money to party B that exceeds the amount of a judgment obtained by party B against party A; or
(b)makes an offer that would have been more beneficial to party B than the judgment obtained by party B against party A.
The offer may be taken into account, if party A makes an offer that –
(a)does not fall within paragraph (a) or (b) of subclause (3); and
(b)is close to the full value or benefit of the judgment obtained by party B.
[40] There was clearly a significant division between the parties on key issues arising from the dispute. The plaintiff considered that the defendants had breached its copyright and had proceeded to use the plaintiff’s design without undertaking an independent design path. The plaintiff was also concerned about the impact of a settlement which would have enabled the defendants to manufacture and sell their products in New Zealand and internationally, thereby competing with the plaintiff in overseas markets to the detriment of the plaintiff’s interests.
[41] Acceptance of the first settlement proposal would have required the plaintiff to become involved with the defendants on an on-going basis, and enabled Orion to enter the market both in New Zealand and internationally. The proposed terms of settlement involved the plaintiff in making an assessment of both legal and commercial considerations.
[42] The second settlement proposal was sent by email to the plaintiff on 12 September 2017 and stipulated it would remain open for acceptance until 4.00 pm on
14 September 2017. Acceptance would have required the plaintiff to agree to payment of $900,000, and to abandon all claims against the defendants:
… of whatsoever nature and howsoever arising including (but not by way of limitation) all those brought in the proceeding, and all those arising from patent infringement whether in New Zealand or anywhere else in the World.
[43] In determining whether the defendants have established that the plaintiff failed without reasonable justification to accept an offer of settlement, the focus must be on the circumstances as they appeared to the parties at the time the settlement offer was made. The defendants’ success in the Court of Appeal does not determine the issue of whether the plaintiff was justified in rejecting the settlement offer. The fact that the plaintiff subsequently succeeded in the High Court shows that its position was not untenable.
[44] While the defendants, when making their settlement offer expressed confidence in the strength of their case, having regard to the circumstances from which the dispute had arisen and the role played by the former employees of the plaintiff involved in the Orion business, and without the defendants having discovered cogent evidence of following an independent design path for the design and manufacture of the Orion products, the plaintiff’s rejection of the proposed settlement could not be considered to have been without reasonable justification.
[45] The wider commercial implications for the plaintiff of Orion entering international markets were another relevant consideration and, having regard to the scope of the dispute and the commercial consequences of the proposed settlement, I do not consider that the defendants have shown that the plaintiff had no reasonable justification for not accepting the two settlement proposals.
[46] I accordingly decline the defendants’ application for an uplift of scale costs on the ground that the plaintiff failed to accept the two offers of settlement without reasonable justification.
Third claimed uplift: for the plaintiff’s unreasonable conduct of the proceedings
[47] The defendants seek an uplift of scale costs as partial compensation for the cost incurred as a result of the plaintiff’s unreasonable conduct of the proceedings. The defendants submit that some aspects of the plaintiff’s conduct of the proceedings arguably falls within the category of being “bad or very unreasonable”, such as to warrant an award of indemnity costs, at the very least the plaintiff has acted unreasonably in its conduct of the proceedings.
[48] The defendants say that, having obtained the interim injunction in December 2016 and the subsequent inspection orders in April 2017, the plaintiff then failed to actively prosecute its claim, thereby requiring the defendants to apply to the Court for the requisite pre-trial directions with only four months remaining before the scheduled trial date. The defendants say that the plaintiff’s conduct of the proceedings from that point, if not actively opposed by the defendants, would have caused further delays and forced the defendants to seek to abandon the September 2017 trial date, thereby prolonging the restrictions imposed on them by the interim injunction.
[49] The defendants say that the plaintiff’s unreasonable conduct of the proceeding is evident from: its failure to comply with discovery orders and timetable orders; belatedly withdrawing its fifth cause of action; requiring additional inspection of the defendants’ craft beyond that which had been ordered by the Court; consistently seeking to revisit orders of the Court without a proper foundation for doing so; significantly increasing the workload of the defendants’ counsel by producing voluminous fresh evidence on the pretext that it was in reply.
[50] The defendants note that the plaintiff’s repeated failures to comply with Court orders was referred to by Wylie J in a minute dated 18 August 2017, in which His Honour said:
[11] Neither Woolford J’s order, nor Davison J’s order, was taken on appeal. They apply and it is a contempt of Court to ignore them. It is not for the plaintiff through Mr McKee Wright to flout the orders, and try and excuse non-compliance. The plaintiff’s legal advisor must bear some responsibility for this as well. Solicitors and counsel are required to engage in and guide discovery.
[51] The defendants note that the plaintiff filed reply witness briefs which in some cases were twice the length of the primary briefs, and which contained extensive fresh evidence which ought to have been included in the witnesses’ primary briefs. Mr Spring says that the defendants were forced to deal with this situation rather than seek an adjournment of the trial fixture, as an adjournment of the trial would have had the effect of prolonging the prohibitions imposed by the interim injunction and precluding them from carrying on their business. Mr Spring says that the addition of the extensive reply evidence filed by the plaintiff contributed significantly to the duration of the trial and to counsel’s workload in preparing for trial.
[52] The defendants submit that the plaintiff’s conduct constitutes repeated and sustained unreasonable conduct in the proceedings such that an increase of the scale costs is justified. The defendants accordingly seek a 20 per cent uplift of scale costs relating to all steps taken from May 2017 to trial. The defendants have calculated the amount of the uplift as $19,021.90.
[53] The plaintiff says that the delays which arose in relation to discovery related to the form of the plaintiff’s affidavit of documents, and not the production of the discovered documents which were provided to the defendants. Mr Henry says that the discovery issues included documents evidencing the plaintiff’s design trail as relevant to the issue of whether the plaintiff held copyright in the designs. He says that time pressures because of the proximity of the trial fixture precluded any defended pre-trial applications to resolve the issues which arose.
[54] Mr Henry further submits that the defendants’ own conduct contributed unnecessarily to the duration and expense of the trial, by raising the defence that the Orion amphibious leg assemblies were designed and developed pursuant to an independent design path undertaken by the defendants. The defendants submit that by raising this defence the defendants caused the length of the trial to be unnecessarily extended, and resulted in a significant amount of time being required to be spent by counsel addressing the associated discovery issues. The defendants say that the independent design path defence was rejected by the High Court and those findings were expressly not contested in the Court of Appeal.
[55] Mr Henry submits that the Court should exercise the power contained in r 14.7(f)(ii) and reduce the costs to which the defendants are otherwise entitled to recover following their successful appeal.
[56] In his reply memorandum of 24 February 2020, Mr Spring opposes the plaintiff’s submission that the Court should reduce the defendant’s costs by reason of the High Court’s adverse credibility findings as regards the defendants. He submits that the costs regime should not be employed to punish a party unless the Court considers that they have acted unreasonably such as by pursuing a wholly unmeritorious and hopeless claim or defence.21 Mr Spring submits that the defendants’ independent design path defence cannot be considered as being unmeritorious or hopeless, as had it been accepted it would have been a complete defence to the allegations of copyright infringement. Counsel submits that the effect of the Court of Appeal judgment is that “there are no valid findings on independence of design.” He submits that the merits of the defendants’ arguments and evidence on his matter cannot therefore reasonably be called into question in the context of a determination of costs.
[57] I however reject the submission that there are no valid findings on the issue of whether the defendants’ amphibious leg systems were the result of an independent design process. The findings made in my judgment on that issue were not directly challenged before the Court of Appeal, and are not rendered invalid by the judgment of the Court of Appeal. Nevertheless, I do not consider that the defendants’ conduct in the proceeding by raising the independent design path defence was such as to warrant it being categorised as unreasonable or that the defendants pursued a wholly unmeritorious and hopeless defence in that regard. I also agree with the defendants’ submission that the duration of the trial was not significantly extended by the defendants’ independent design path defence, as the defendants’ witnesses Messrs Leybourne, Zubcic, Zhang, and Pringle would have been called as witnesses in any event.
[58] Accordingly I find that the defendants’ costs should not be reduced by reason of their conduct of the proceeding and specifically as a consequence of it advancing
21 Prebble v Huata (No 2) [2005] NZSC 18, [2005] 2 NZLR 467 at [10].
the independent design path defence, notwithstanding that the defence was unsuccessful and notwithstanding the Court made adverse credibility findings against certain of the defendants’ witnesses.
[59] In my view the plaintiff’s conduct of the proceeding in relation to its repeated failures to comply with Court orders was unreasonable and justifies the defendants being awarded increased costs on the steps taken by the defendants from May 2017 to the commencement of the trial. I award the defendants a 20 per cent uplift of scale costs in relation to the steps taken during that period.
[60] The defendants also seek to recover their disbursements totalling $179,525.60 as detailed in the schedule annexed to their memorandum dated 10 September 2019. The plaintiff has not taken issue with any of the amounts claimed.
Result
[61] The defendants are entitled to costs calculated pursuant to scale 2B other than in respect of those steps identified in this judgment at paragraph [11] in respect of which costs are to be calculated pursuant to scale 2C.
[62] The defendants are awarded scale 2B costs on both of the injunction applications together with reasonable disbursements.
[63] The defendants are also awarded scale 2B costs on this successful application for costs.
[64] The defendants’ costs on the steps taken from May 2017 to trial are increased from scale by 20 per cent. The two other applications for an uplift of costs are declined.
[65]The defendants are entitled to disbursements totalling $179,525.60.
[66] The Registrar is to determine any issues that may arise regarding the final calculation of costs and disbursements.
Paul Davison J
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