Vulcan Steel Ltd v McDermott
[2013] NZHC 3232
•4 December 2013
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
CIV-2010-404-3254 [2013] NZHC 3232
BETWEEN VULCAN STEEL LIMITED Plaintiff
ANDPAUL THOMAS MCDERMOTT First Defendant
HJ ASMUSS & CO LIMITED Second Defendant
Hearing: On the papers
Counsel: CT Patterson for plaintiff
TP Mullins and ED Nilsson for first defendant
Judgment: 4 December 2013
JUDGMENT OF ASSOCIATE JUDGE FAIRE [on application for costs]
Solicitors: Murdoch Price Ltd, Auckland 2016
LangtonHudsonButcher, Auckland 1140
VULCAN STEEL LIMITED v MCDERMOTT [2013] NZHC 3232 [4 December 2013]
[1] Applications for costs are made by both the plaintiff and the first defendant following the making of an order by me on 26 July 2011.
[2] The orders that I made on 26 July 2011 were by consent and were as follows:
(a) That leave be granted to the plaintiff to discontinue the proceeding against the first defendant with costs being reserved pending the outcome of its criminal complaint against the first defendant; and
(b)That the plaintiff be granted leave to use the evidence obtained in this proceeding in order to be able to refer a complaint to the New Zealand Police.
[3] Memoranda have been filed in relation to costs on the plaintiff’s behalf on
7 October 2013, the first defendant’s behalf on 4 November 2013 and by the plaintiff in reply to the first defendant on 12 November 2013. The Case Officer who has responsibility for this file has received an email from counsel for the first defendant advising that there will be no response to the plaintiff’s memorandum of
12 November 2013. On that basis, I now proceed to determine the question of costs.
The procedural history
[4] This proceeding was commenced with the filing of a statement of claim and a without notice application for a search order pursuant to r 33.2 on 31 May 2010.
[5] Harrison J convened a conference with counsel on 1 June 2010. That was without notice to the first defendant. He issued a minute that contained an order. The order required a report to the court by 15 June 2010 and required the proceeding to be listed for mention in the Duty Judge list at 10am on 21 June 2010.
[6] On 16 June 2010, the plaintiff filed a supplementary affidavit by Mr R Jones. Mr Jones is the executive director of the plaintiff. He filed one of the affidavits in support of the without notice application. The affidavit filed on 16 June 2010 exhibited a letter dated 17 May 2010 and undertaking. The letter was from the first defendant’s solicitor and was sent to a barrister acting for the plaintiff. This letter,
and the undertaking which is attached to it, is the subject of comment in the minute of Priestley J, which I shall next refer to.
[7] The proceeding was called in front of Priestley J on 21 June 2010. Appearances were entered on behalf of both the plaintiff and the first defendant and, at that stage, the intended defendant. His Honour’s minute of that day records the position reached and is as follows:
[1] This mentions hearing follows on various Anton Pillar orders made by Harrison J on 1 June 2010.
[2] The relevant search and seizures have taken place and a report from the supervising lawyer has been filed.
[3] The identity of the second defendants has been ascertained.
Accordingly I direct that the second defendant’s name is to be
changed to H J Asmuss & Co Ltd.
[4] Ms Swarbrick, for the second defendant, informs the Court that it has been subjected to considerable inconvenience and cost.
[5] Both parties rely on a letter dated 17 May from the first defendant’s solicitors to the plaintiff’s solicitors which, although referred to in the body of a supporting affidavit may not have been exhibited. That letter has attached to it signed undertakings by the first defendant which might possibly have obviated the need for without notice orders in the first place.
[6] Mr Patterson has filed a sensible memorandum setting out various follow up directions necessary to obtain information from the supervising lawyer and the IT consultant all of which directions are designed to ascertain what precisely was seized.
[7] I note Mr Schirnack’s proposal, which I reject, that there should perhaps not be an analysis of the “yield” at this point given the allegedly undisclosed letter.
[8] I direct that the necessary implementation directions in terms of Mr
Patterson’s memorandum are to be complied with by 5 pm Monday
12 July. The matter is to be listed for mention only in the Duty
Judge List 10 am Wednesday 28 July 2010.
[9] Leave is reserved to both defendants to apply for costs before that date if a case is made out.
[10] The appearance of the second defendant on 28 July is excused if there are no matters which, at that date, Ms Swarbrick wishes to pursue.
[8] Following that the matter then came before Venning J on 28 July 2010 at which time his Honour after hearing from counsel for all the parties issued the following minute:
[1] The previous minutes on this file refer. It has been returned to the Duty Judge list because of the search and seizures that have taken place and to monitor the developments thereafter.
[2] It was last before the Court on 21 June 2010. There has been some slippage in the timetable addressed at that time. At present it is proposed that counsel for the first and second defendants are to provide the supervising lawyer and the plaintiff with a list of any objections by Tuesday 3 August 2010. As the supervising lawyer will be out of the country until 24 August 2010 a further time period will be required to enable a response.
[3] By consent the following directions are made:
[a] The case is to be allocated a first case management conference by the Registrar on the first available date after
6 September 2010.
[b] The plaintiff is to file its memorandum five working days before the conference.
[c] The first and second defendants are to file their memorandum three working days before the conference.
[4] Costs reserved. I reserve leave generally to all parties to bring the matter back before the Court on 48 hours notice in the event that is required.
[9] The matter was next allocated a case management conference before me on
12 October 2010. I noted in the minute issued as a result of that case management conference the six causes of action in the then statement of claim. I recorded the issues of fact and law. I gave directions covering the pleadings, discovery and interlocutory applications.
[10] The file was the subject of further directions on 13 and 17 December 2010. Further directions were given by Associate Judge Matthews. Part of those further directions related to an application by the second defendant to strike out or seeking summary judgment against the plaintiff. Associate Judge Bell heard that application and delivered judgment on 13 June 2011. He dismissed the application for summary judgment and granted the strike out application in part and on certain terms.
[11] What followed was the plaintiff’s discontinuance of the proceeding in respect
of the claim against the second defendant.
[12] The next development occurred with the filing by the plaintiff of an application on notice for leave to discontinue the proceeding and to use evidence obtained in the proceeding.
[13] On 26 July 2013, I made orders by consent in terms of the plaintiff’s
application. The orders that were made were the following:
(a) That leave be granted to the plaintiff to discontinue the proceedings against the first defendant with costs to be reserved, pending the outcome of its criminal complaint against the first defendant; and
(b)That the plaintiff be granted leave to use the evidence obtained in this proceeding in order to be able to refer a complaint to the New Zealand Police.
Developments after the order discontinuing the proceeding
[14] The plaintiff next, by its counsel, laid a complaint with the New Zealand
Police against the first defendant for:
(a) Breach of s 220 (theft by a person in a special relationship) of the
Crimes Act 1961;
(b) Breach of s 230(2) (taking, obtaining or copying trade secrets) of the
Crimes Act 1961;
(c) Breach of s 249 (accessing the computer system for a dishonest purpose) of the Crimes Act 1961; and
(d)Breach of s 250(2) (damaging or interfering with computer system) of the Crimes Act 1961.
[15] The first defendant was charged with breaches of ss 220 and 250(2)(a) of the Crimes Act 1961. He elected trial by jury. In April 2013 the Crown Solicitor made a decision not to present an indictment in the District Court against the first defendant. That effectively brought to an end the criminal proceedings.
[16] The plaintiff has now filed, with the Employment Relations Authority, a statement of problem dated 7 October 2013. That claim is yet to be heard.
General factual background
[17] The plaintiff company carries on business as a steel wholesaler and retailer. The first defendant is a shareholder and was a former employee of the plaintiff. At a date that is not pleaded, the first defendant accepted employment with the second defendant and commenced that employment on 1 June 2010. In his capacity as an employee, the first defendant admits that the plaintiff authorised him to use and copy the plaintiff’s confidential information and/or copyright materials for purposes associated with the plaintiff’s business and to enable the first defendant to discharge his duties and responsibilities as an employee of the plaintiff.
[18] The first defendant admits copying material from the plaintiff’s computer
system to a USB device. He says that he returned that material on or about 17 May
2010 and has not used or disclosed that material save for instructing his solicitor to take a copy to hold that material in confidence and not to view it. He also admits that he signed a letter on 4 May 2010, stating that he had not retained any property belonging to the plaintiff and that he would comply with his continuing obligations of confidentiality. He admits, further, that in a statement dated 17 May 2010, he said that he had not copied the plaintiff’s confidential information onto any other device other than a USB stick. The letter of 17 May 2010 is the matter that is the subject of comment in the minute of Priestley J to which I have referred and, in particular, his Honour’s observation that the content of the letter and the undertakings attached to it might possibly have obviated the need for the without notice orders in the first place.
[19] It is common ground that there has never been a finding of liability against the first defendant in respect of any causes of action pleaded in the statement of claim. Further, the search which was the subject of the without notice application
and orders, revealed nothing new. The report of the supervising barrister confirmed that the first defendant, his wife, the general manager of the second defendant and the executive chairman of the second defendant “were each entirely cooperative throughout the service and execution process”.1
[20] No application for costs in accordance with the leave reserved in paragraph 9 of Priestley J’s minute was made at the time.
[21] The plaintiff has filed three statements of claim. The second amended statement of claim contains prayers for relief against the first defendant which refine and slightly extend what was initially sought. The prayers for relief are as follows:
(a) A declaration that the first defendant has breached his duty of confidence;
(b) An order for the first defendant [to] deliver up all copies of the
plaintiff’s confidential information;
(c) An inquiry into the losses suffered by the plaintiff and/or an account of profits made by the first defendant;
(d) Permanent injunctive relief restraining the first defendant from
making any use of the plaintiff’s confidential information;
(e) Exemplary damages in the sum of $100,000 or such sum as the Court considers just;
(f) Interest; (g) Costs;
(h) Such other relief as the Court deems just.
1 Report to the Court of Supervising Barrister (CJR Baird) as to service and execution of search order pursuant to High Court Rules 33.2 at [77].
[22] There has been no order of the court providing any of the relief sought that goes beyond the matters covered in the letter of 17 May 2010 and the undertaking.
The law
[23] There is a general presumption that a discontinuing plaintiff pays the
defendant’s costs. Rule 15.23 provides:
15.23 Costs
Unless the defendant otherwise agrees or the court otherwise orders, a plaintiff who discontinues a proceeding against a defendant must pay costs to the defendant of and incidental to the proceeding up to and including the discontinuance.
[24] The rule and court’s interpretation of it provide that the presumption may be
displaced where it is just and equitable to do so.
[25] The Court of Appeal gave the following helpful guidance on the subject, where it said:2
The Judge correctly stated the law on r 476C. She referred to North Shore City Council v Local Government Commission (1995) 9 PRNZ 182, noting that the presumption in favour of awarding costs to a defendant against whom a proceeding had been discontinued may be displaced if there were just and equitable circumstances not to apply it. A court would not speculate on respective strengths and weaknesses of the parties’ cases. The reasonableness of the stance of both parties, however, had to be considered. She also referred to Oggi Advertising Limited v McKenzie (1998) 12 PRNZ
535 which recognised that the discretion reposing in r 46 could override the general principles relating to discontinuance.
[26] Words attaching to a discontinuance that it is on a without prejudice basis3 or that costs are reserved4 do not, without more alter the presumption in r 15.23. The reason for this is helpfully explained by Asher J in Fong v Wong as follows:5
[9] … The presumption, after all, does no more than reflect the unsurprising proposition that if a plaintiff issues proceedings against a defendant and then terminates them, it follows as a prima facie proposition that the proceedings should not have issued in the first
2 Kroma Colour Prints Ltd v Tridonicatco NZ Ltd [2008] NZCA 150 at [12], (2008) 18 PRNZ
973.
3 Tennant v Simes HC Hamilton CIV-2004-419-1366, 20 May 2005.
4 Morris Crock Ltd v Cycletreads Ltd HC Auckland CIV-2004-404-4764, 5 December 2005.
5 Fong v Wong (2010) 20 PRNZ 22 (HC) at [9]-[11].
place. But there may be another explanation, and that is why the presumption is rebuttable. As has been noted in the Court of Appeal, the presumption in favour of awarding costs to a defendant against whom a proceeding has been discontinued may be displaced if there are just and equitable circumstances not to apply it …
[10] … Where, as here, the plaintiff opposes a costs order and submits that there are circumstances that make a different costs outcome just and equitable, the court will consider those circumstances and make a decision whether or not the words “without prejudice” are used. In such circumstances it will apply the general costs principles set out in rr 14.1 – 14.2 of the High Court Rules.
[11] The starting position that follows from a plaintiff discontinuing is that in terms of r 14.2(a) the plaintiff has failed with respect to the proceeding, and the defendant has succeeded. That consideration is tempered by the fact that the plaintiffs’ failure is a consequence of a unilateral act, rather than any decision by the court. A plaintiff who discontinues may not have failed at all, but may have chosen to discontinue because it has achieved its end by other means, or for reasons not connected to the strengths or weaknesses of the plaintiff’s case.
[27] In Fong v Wong his Honour had the advantage of a ruling in a second proceeding which gave guidance as to the actual merits of the outcome of the case. I do not have that advantage in this case. For that reason there is a limit as to how far one can examine the merits as such. Indeed, the court will not usually speculate on the merits of a case where a notice of discontinuance has been filed.
[28] Counsel’s memoranda deal with a series of propositions. That approach is relevant because in any examination of costs, ultimately the question returns to an application of the rules set out in Part 14 of the High Court Rules.
[29] Rule 14.1 gives the Court a discretion to order costs in relation to a step taken in a proceeding. That discretion is generally to be exercised in accordance with the specific Rules contained in rr 14.2-14.10.6 In Mansfield Drycleaners Ltd v Quinny’s Drycleaning (Dentice Drycleaning Upper Hutt) Ltd it was said of the costs regime contained in what is now rr 14.2-14.10 that:7
there is a strong implication that a Court is to apply the regime in the absence of some reason to the contrary
6 Glaister v Amalgamated Dairies Ltd [2004] 2 NZLR 606 (CA) at [19].
7 Mansfield Drycleaners Ltd v Quinny’s Drycleaning (Dentice Drycleaning Upper Hutt) Ltd
(2002) 16 PRNZ 662 (CA) at 668.
The test to be applied is entirely an objective and not a subjective one. The only reference which it is necessary to make towards actual costs is to be found in r 14.2(f), namely that an award of costs should not exceed the costs incurred by the party claiming the costs.8
[30] Rule 14.2 lists the principles applying to determination of costs. Subrule (a) affirms the principle that the losing party should pay the costs to the successful party. Subrule (b) requires that the costs reflect the complexity and significance of the proceedings and refers specifically, therefore, to the categorisation of a proceeding which is provided for in r 14.3. Subrule (c) requires a consideration of each step for which costs are sought and an application of the daily rate having regard to the appropriate band which is to be applied after a consideration of r 14.5(2) and the Third Schedule to the High Court Rules.
[31] The first question that I must ask is, who was the successful party in this proceeding. What is apparent from the factual analysis set out in this judgment is that the plaintiff was able to achieve nothing more than was offered in the letter of
17 May 2010 with the undertaking. Mr Patterson has argued, however, that because of the dishonesty shown by the first defendant by:
(a) on the morning of his resignation, copying the plaintiff’s confidential
material;
(b)in the week before his resignation deleting at least two important client emails relating to a substantial tender process from the plaintiff’s computer and failing to advise the plaintiff of the existence of the tenders; and
(c) on the day following his resignation falsely declaring that he had returned and not retained any of the plaintiff’s confidential information
that the plaintiff was entitled to go further and to be satisfied by independent inquiry
8 Glaister v Amalgamated Dairies Ltd, above n 6, at [14].
that the letter of 17 May 2010 and undertaking were sufficient relief. I am not satisfied that the defendant’s conduct justifies an order for costs against the defendant on this ground alone. What this conduct does do is to indicate to me that the defendant should not have an order for costs. I reach that conclusion by applying specifically r 14.7(g) which reserves to the court a right to refuse costs where some other reasons exist that justify the court adopting that position. I conclude this is one of those sorts of cases.
[32] I next consider the question of whether the search order was regularly obtained.
[33] Rule 33.5(4) requires the applicant for an Anton Piller order without notice to “fully and frankly disclose to the court all material facts”. This provision reinforces the general provision relating to without notice applications contained in r 7.23.
[34] The first defendant’s counsel’s submissions correctly set out the position as
follows:
5.1On 17 May 2010, prior to commencement (and the Anton Piller order being granted) Mr McDermott, through his solicitor, wrote to counsel for Vulcan. The letter:
a.Confirmed that the writer (Mr Schirnack, Mr McDermott’s solicitor and partner at Langton Hudson Butcher) had spoken to Mr McDermott and had explained his legal obligations to him in some detail.
b.Set out in detail what information belonging to Vulcan that Mr McDermott had taken from Vulcan’s offices (and the manner in which it had been taken);
c.Explained that Mr McDermott had been unable to access the information after removing it;
d. Returned a copy of the information to Vulcan’s counsel on a
USB flash drive;
e.Noted that a copy of the information on the flash drive had been copied by Mr McDermott’s solicitors;
f. Enclosed extensive undertakings by Mr McDermott in relation to the information;
g. Requested that Vulcan’s representatives contact Mr Schirnack if Vulcan did not consider that the information and undertakings provided were sufficient; and
h.Expressly requested that the letter and undertakings be included in any information provided to any court or tribunal should proceedings be commenced.
5.2No response was received by Mr Shirnack. Instead, proceedings were commenced without further notice (on 31 May 2010), and an ex-parte application for an Anton Piller order was made.
5.3While Mr Schirnack’s letter was referred to in the body of the affidavit of Rhys Jones filed in support of the application, the reference did not mention or refer to the undertakings provided or the express request that further concerns be addressed directly with Mr Schirnack.
[35] Counsel was also critical of the way the position was put to the court in counsel for the plaintiff’s memorandum to the judge dealing with the without notice application.
[36] I have already recorded that the matter was the subject of comment by Priestley J who questioned whether the application was required in light of the content of the letter and the undertaking.
[37] Counsel’s submissions also invite me to read something into the fact that the defendants did not challenge the search orders retrospectively. I accept, in the circumstances, counsel for the first defendant’s submissions that, save for the question of costs, nothing would have been achieved by the first defendant making such challenge. The order had already been executed.
The existence of other proceedings, criminal and before the Employment
Relations Authority
[38] I do not regard these matters as of any significance in the determination that I must make. The order I made releasing material to allow the criminal proceeding to proceed was, in essence, a partial relaxation of the requirements of r 8.30(4). That requires a document only to be used for the purpose of the proceeding and it must not be made available to any other person unless it has been read out in open court.
[39] My analysis of the principal issues that arise in this case leads me to the conclusion that the plaintiff is not entitled to an order for costs and that, in the exercise of the discretion that I have, it would not be appropriate, having regard to the defendant’s initial conduct, to order costs in his favour in this case. Indeed, his counsel properly recognised that that was a conclusion that I could conceivably come to in paragraph 10.3 of counsel’s submissions.
[40] The above result makes it unnecessary to determine the quantum of costs. In case this matter is taken further, however, some comment is required. In terms of r 14.3 there is no argument that the appropriate categorisation of the proceedings for cost purposes is Category 2. Indeed, both counsel’s submissions have proceed on that basis.
[41] The next question is where there is a difference and that is the appropriate band to be applied after a consideration of r 14.5(2) and the Third Schedule to the High Court Rules. Clearly, the steps taken in preparing the papers for the without notice application would have justified a Band C designation. So far as the other steps taken in the proceeding are concerned, they do not justify departing from Band B. It is not necessary, as I have said, for the purposes of this decision to finally conclude the matter.
Orders
[42] The applications for costs by the plaintiff and first defendant respectively are dismissed. No orders are made.
JA Faire
Associate Judge
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