IN THE HIGH COURT OF NEW ZEALAND WELLINGTON REGISTRY

CIV 2014-485-11179 [2015] NZHC 263

BETWEEN	IAN JAMES BURDEN First Plaintiff	

AND	
PLANTATION GROWN TIMBERS (INTERNATIONAL) LIMITED Second Plaintiff	

AND	
PLANTATION GROWN TIMBERS (VIETNAM) LIMITED
Third Plaintiff	

AND	
DEBONAIRE FURNITURE LIMITED First Defendant	

AND	
BURDEN FURNITURE (INTERNATIONAL) LIMITED Second Defendant	

AND	
BURDEN FURNITURE CO LIMITED Third Defendant	

AND	
LINDSAY JOHN BURDEN Fourth Defendant	

AND	
JEREMY DAVID SMITH Fifth Defendant	

AND	
ROBERT WAYNE SMITH Sixth Defendant	

Hearing:	20 February 2015	

Counsel:	
G Hazel for Plaintiffs
G F Arthur for First, Fifth and Sixth Defendants
No appearance for the Second, Third and Fourth Defendants	

Judgment:	
24 February 2015	

JUDGMENT OF BROWN J

BURDEN v PLANTATION GROWN TIMBERS (INTL) LTD [2015] NZHC 263 [24 February 2015]

[1]      In this proceeding the plaintiffs allege that furniture imported by the first defendant  into  New Zealand  infringes  copyright  owned  by  the  plaintiffs  and constitutes a breach of the Fair Trading Act 1986.

[2]       The  statement  of  claim  alleges  that  the  first  plaintiff  is  resident  in Queensland, Australia.  The second plaintiff is a British Virgin Islands company and the third plaintiff is a Vietnamese company.

[3]       The first defendant seeks an order for security for costs against the plaintiffs in reliance on both r 5.45(1)(a) (plaintiffs resident/incorporated out of New Zealand) and r 5.45(1)(b) (that there is reason to believe that the plaintiffs will be unable to pay costs if the defendant is successful).  Reliance is also placed on r 1.6 and the Court’s inherent jurisdiction.

Applicable principles

[4]       The decision whether or not to order security is discretionary.  It is a matter for the Judge if he or she thinks fit in all the circumstances.  The discretion is not to be fettered by constructing “principles” from the facts of previous cases: A S McLachlan Ltd v MEL Network Ltd.1

[5]       The Court of Appeal there stated:

[14]      While  collections  of  authorities  such  as  that  in  the  judgment  of Master Williams in Nikau Holdings Ltd v BNZ (1992) 5 PRNZ 430, can be of assistance, they cannot substitute for a careful assessment of the circumstances of the particular case.  It is not a matter of going through a checklist of so-called principles.  That creates a risk that a factor accorded weight in a particular case will be given disproportionate weight, or even treated as a requirement for the making or refusing of an order, in quite different circumstances.

[15]      The rule itself contemplates an order for security where the plaintiff will be unable to meet an adverse award of costs.  That must be taken as contemplating also that an order for substantial security may, in effect, prevent the plaintiff from pursuing the claim.  An order having that effect should be made only after careful consideration and in a case in which the claim has little chance of success.   Access to the Courts  for a  genuine plaintiff is not lightly to be denied.

1	A S McLachlan Ltd v MEL Network Ltd (2002) 16 PRNZ 747 at [13].

[16]      Of course, the interests of defendants must also be weighed.  They must be protected against being drawn into unjustified litigation, particularly where it is over-complicated and unnecessarily protracted.

[6]       The Court is entitled to assess the merits and prospects of success of the claim2 but there is a very real limit as to how far such an inquiry can be made, particularly at an early stage of the proceeding.3

[7]       The  amount  of  security  is  equally  in  the  Court’s  discretion.    It  is  not necessary that it be fixed by reference to likely costs awards but rather will be what the Court thinks fit in all the circumstances.4

[8]       The following factors recorded in McGechan on Procedure at HCR 5.45.07 will be relevant:

(a)       the amount or nature of the relief claimed;

(b)	the nature of the proceeding, including the complexity and novelty of the issues, and therefore the likely extent of interlocutories;

(c)       the estimated duration of trial;

(d)       probable costs payable if the plaintiff is unsuccessful and perhaps also

the defendant’s estimated actual (i.e. solicitor and client) costs.

Evidence

[9]       In support of the application an affidavit was filed of Mr R W Smith, the sixth defendant. Among other things his affidavit impliedly challenged the assertion that the first plaintiff is resident in Australia.  Mr Smith’s inquiries suggested to him that the first plaintiff is resident in Vietnam because he has an apartment in Ho Chi Minh City to which Mr Smith had made a telephone call.  He also noted that the first plaintiff holds the position of general director of the third plaintiff which is the
recognised position in Vietnam for a foreign owned entity’s legal representative.  He

2	Ambrose v Pickard [2009] NZCA 502 at [32].
3	Meates v Taylor (1992) 5 PRNZ 524 (CA).
4	A S McLachlan, fn [1]above, at [27].

deposed that the first plaintiff must have permanent residence status in Vietnam to hold this position in a company and to do so it is necessary to obtain and hold a resident card permit valid for three to five years, which he claimed the first plaintiff does indeed hold.

[10]     A second matter to which Mr Smith deposed was that the three plaintiffs had been the plaintiffs in copyright proceedings in Ireland which had been discontinued by them but resultant cost orders had not been paid.  This point was addressed in more detail by Mr L Dilleen a director of Terryland Furniture Centre Limited of Galway, Ireland which company was the defendant in the proceedings to which Mr Smith referred.  That proceeding involved the alleged infringement of copyright by Terryland of drawings on boxes used for the packaging of furniture.  Terryland filed an application for security for costs and very shortly before the security for costs hearing the plaintiffs filed a notice of discontinuance.  An order for costs in favour of Terryland in the sum of Euros 73,693.01 is outstanding.

[11]     The first plaintiff filed a confidential affidavit deposing that he and his wife own a substantial property in Australia which is his residence in Australia and which is  not  the  subject  of  any  mortgage  or  encumbrance.     I  understood  that  the confidential aspect of the affidavit was the first plaintiff’s estimated value of that property.

[12]     In that affidavit he stated that he understood it was relatively straightforward to enforce orders of a New Zealand Court in Australia and he expressed the belief that he would be able to easily meet any costs award made in relation to these proceedings if he was ultimately unsuccessful.  In that affidavit he did not engage with the issue of the costs award in the Irish proceedings.

[13]     A reply affidavit was filed by Mr P T McCabe which revealed that the first plaintiff’s property had a registered mortgage.  The first plaintiff then filed a second affidavit, which was not the subject of a claim for confidentiality, explaining that the mortgage was a “line of credit” facility with a zero balance which had never been used.  His explanation for his contradictory statement in his first affidavit was that he had forgotten that the mortgage was registered.

Counsel’s submissions

[14]     Mr Hazel properly accepted that the r 5.45(1)(a) threshold was crossed.   In his view the argument really boiled down to the significance and implications of the Australian property which he said was a substantial asset and which could be the subject of an execution process if a costs judgment obtained in New Zealand was enforced in Australia.  In his submission the existence of the property should provide comfort to the defendants and he rejected as speculative the suggestion that there might potentially be other creditors.

[15]     Even assuming that the property was of the value estimated by the first plaintiff, Mr Arthur submitted that the Court was not informed of the net worth of any of the plaintiffs: indeed there was no evidence at all about the second and third plaintiffs.  So far as the first plaintiff was concerned, he submitted that there was no information about whether there were other dealings with the mortgagee.  He also noted that not only was the first plaintiff only a joint owner of the property but there was no guarantee that other persons might not pursue the first plaintiff and obtain priority in relation to that asset.

[16]     Mr Arthur placed significant emphasis on the fact that the costs awarded against the same plaintiffs in copyright proceedings in Ireland remain unpaid and that no explanation had been provided in the plaintiffs’ evidence.  He further argued that the plaintiffs’ case was weak because:

(a)       the plaintiffs’ designs were not original but were a copy of furniture manufactured  by   an  American   company  and   consequently  no copyright subsisted in the plaintiffs’ designs;

(b)	the  defendants’  furniture  is  different  from  the  plaintiffs’  alleged design;

(c)       the  plaintiffs’ furniture  is  clearly  labelled  with  the  brands  IRISH COAST and TOSCANA whereas the first defendant’s furniture is clearly labelled with the brands CARRINGTON and INDUSTRIAL.

[17]     Mr Hazel submitted that it was not appropriate to have regard to the strength of the parties’ cases at this early stage.  He acknowledged that the plaintiffs’ evidence did not address the issue of costs in the Irish proceeding but noted that the certificate of taxation was only dated 3 September 2014.

Quantum

[18]     Mr Arthur submitted that security for costs in the sum of $150,000 should be paid into Court in a single sum and that staged or staggered security was not appropriate for plaintiffs with a track record of not paying costs and who are resident overseas.   In support of an order of that amount it was submitted that the first defendant anticipates:

(a)	multiple pleadings;

(b)	extensive discovery and inspection;

(c)	several case management/issues conferences;

(d)	interlocutory processes with regard to discovery of all drawings and the status of the authors;

(e)	interlocutory  processes  with  regard  to  the  inspection  of  original drawings;

(f)	interrogatories with regard to the first plaintiff ’s creation of drawings and the status of the authors of the other drawings;

(g)	expert evidence on the authenticity of drawings; (h)	a trial of five to 10 days duration.
[19]     He submitted that this is a complex proceeding and that costs were likely to be awarded on a 3C basis.  On the basis of the steps outlined above and a five day trial, scale costs were calculated as follows:

(a)	on a 2B basis, $54,526; (b)	on a 2C basis, $122,108; (c)	on a 3C basis, $188,516.
Expert witness fees were anticipated to be at least $25,000.

[20]     Mr Hazel submitted that an order for security significantly less than $150,000 would be appropriate and that payments should be staged as the various steps were undertaken.  He contended that the defendants had proposed an unrealistically high classification for the complexity of the proceeding which was predominantly a copyright infringement proceeding with a relatively modest volume of evidence.  A
2B basis for costs was suggested as appropriate unless and until a higher degree of complexity became apparent.

[21]     Consequently he proposed staggered payments as follows:

Stage 1

	Commencement of defence by defendant

	Preparation for case management conference

	Filing memoranda for case

	List of documents on discovery

	Inspection of documents

(6.8 days x $1,990 per day = $13,532)

Stage 2

	Preparation of briefs or affidavits

	Preparation of list of issues, authorities, and common bundle

(4.5 days x $1,990 per day = $8,955)

Stage 3

	Preparation for hearing

	Appearance at hearing for sole or principal counsel

	Second and subsequent counsel if deemed appropriate

(3 days preparation +5 day hearing x 1.5 counsel at $1,990 per day =
$20,895)

Discussion

[22]     I take as a starting point the fact that the Court has no information about the assets of the second or third plaintiffs and no information as to the financial position of the first plaintiff, save for the fact of his joint interest in what appears to be a substantial property in Australia.  While that is stated to be his Australian residence, it is apparent that he also spends substantial amounts of time in Vietnam. I recognise that it is easier to enforce judgments in Australia than in a number of other jurisdictions  including  Vietnam  and  the  Virgin Islands.    However  there  is  no guarantee that that property will still be available as a source for the payment of costs by the time this proceeding ultimately is heard and determined.

[23]     I do not put any significant weight on the relative prospects of success of the parties although I note that this is a case where the subsistence of copyright in the drawings on the grounds of originality is challenged. A matter which does carry not insignificant weight in my consideration is the fact that the costs which the plaintiffs were ordered to pay in the Irish proceeding have not been paid.   Although, as Mr Hazel notes, the certificate of taxation is dated 3 September 2014, in fact the order  of  the  High  Court for  the  taxing of  costs  was  dated 30 September 2013. Against that background I would have expected those costs to have been paid by now. The first defendant’s apprehensions on that account are understandable.

[24]     In the circumstances of this case I consider that it is appropriate that the first defendant’s position should be protected by an order for security for costs.  However I do not accept that it is necessary or appropriate that an order should be made that the full amount be paid at the outset.  In my view the first defendant’s position will be adequately protected by an order for staggered payments together with an order

that the proceeding will be stayed in the event that any payment is not made at the relevant point and time. I do not regard the nature of the causes of action in this case as involving a particularly high degree of complexity.   However, where issues of originality are involved, significant amounts of time may need to be devoted to analysis of the original drawings and I infer that a degree of forensic analysis may be required.   That in turn may sound in more complex interlocutory processes than would normally be the case.

[25]     Consequently I order that the plaintiffs are to pay security for costs into Court as follows:

(a)       stage one (steps as in [21] above) $25,000; (b)       stage two (steps as in [21] above) $15,000; (c)       stage three (steps as in [21] above) $35,000.
[26]     The first payment is to be paid by 9 March 2015.  The second payment is to be paid seven days following the next case management conference at which a timetable will be set for the service of briefs of evidence. The third payment is to be paid 30 working days prior to the commencement date of the trial.

[27]     In the event that a payment is not made at the appointed time the proceeding will be stayed and the defendants may apply for an order striking out the proceeding.

Timetable

[28]    There has been significant slippage in the filing of the second amended statement of claim which was the subject of the direction in para [5](a) of my Minute (No 2) dated 15 December 2014.

[29]     The plaintiffs now propose an amended timetable as follows:

(a)       second amended statement of claim to be filed by 2 March 2015;

(b)	statements of defence to be filed by 30 March 2015;

(c)	discovery to be completed by 24 April 2015 by filing and service of sworn affidavits; and

(d)	inspection to take place by 8 May 2015.

[30]     Mr Arthur’s stance was that if an amended timetable is to be made then it should be made on the condition that the furniture products of the defendants of the value of $130,000 which are currently being detained by the Customs Department under s 140 of the Copyright Act 1994 should be released to the defendants for sale. He noted that there is no requirement under the s 140 process for the provision of an undertaking as to damages.  His clients were disadvantaged by the slippage of the timetable in having the proceeding determined and, assuming his clients were successful, by the consequent delay in obtaining the release of the detained product.

[31]     While he had no instructions, Mr Hazel expected that his clients would not be prepared to agree to the course proposed by the defendants as a condition of a direction to amend the timetable.  He pointed out that s 141(2) provides a process whereby a person whose property has been detained may apply to the Court for an order that it be released noting that it was open to the defendants to pursue that course if they wished.

[32]     While I am conscious of the implications of the quite significant slippage in the timetable as a consequence of the delay in the filing and service of the second amended statement of claim, I do not consider that it is appropriate to impose such a condition on the making of an amended timetable. In effect it would mean that if the plaintiffs did not volunteer to have the defendants’ goods released, then no amendment to the timetable would be made and, in theory at least, the defendants could apply to strike out the claim on the basis of the non-compliance with my direction of 15 December 2014.

[33]     The  timetable  will  be  amended  in  the  terms  requested  by  Mr Hazel. However,  in  the  event that  the  timetable is  not  observed  by  the  plaintiffs,  the

defendants  may  make  application  to  the  Court  for  an  order  striking  out  the proceeding.

Costs

[34]	The first defendant having been successful on its application it is entitled to costs on a 2B basis.

Brown J

Solicitors:
James & Wells Solicitors, Auckland
McCabe and Company, Wellington