BALLANCE AGRI-NUTRIENTS LIMITED v QUIN ENVIRONMENTALS (NZ) LIMITED [2020] NZHC 2275

BALLANCE AGRI-NUTRIENTS LIMITED v QUIN ENVIRONMENTALS (NZ) LIMITED [2020] NZHC2275 [3 September 2020]IN THE HIGH COURT OF NEW ZEALANDAUCKLAND REGISTRYI TE KŌTI MATUA O AOTEAROATĀMAKI MAKAURAU ROHECIV-2018-404-002438[2020] NZHC 2275BETWEEN BALLANCE AGRI-NUTRIENTSLIMITEDPlaintiffAND QUIN ENVIRONMENTALS (NZ)LIMITEDDefendantHearing: (On the papers)Counsel: J Edwards and P E Coulter for PlaintiffP F Dalkie and D A Watson for DefendantJudgment: 3 September 2020COSTS JUDGMENT OF VENNING JThis judgment was delivered by me on 3 September 2020 at 9.30 am pursuant to Rule 11.5 of theHigh Court Rules.Registrar/Deputy RegistrarDateSolicitors: Russell McVeagh, AucklandMcDonald Law, AucklandCounsel: P Dalkie/D Watson, AucklandIntroduction[1] The judgment delivered on 31 July 2020 refers.1 In the concluding paragraphon the issue of costs the Court said:[164] The issue of costs is reserved. Category 2 is to apply. I certify forsecond counsel. Ballance has largely succeeded, but Quin has successfullyresisted an absolute prohibition on the use of the term RPR in conjunctionwith its product. An apportionment would seem appropriate. In the eventcounsel cannot agree memoranda may be exchanged (limited to three pages).[2] The parties have not been able to agree. Both apply for costs.2Quin's claim[3] Quin refers to a Calderbank letter and says Ballance did no better than the offerin the letter. Alternatively, the Calderbank offer was "close enough", and even if theoffer was not quite sufficient, the outright rejection of the offer by Ballance is relevantto the issue of costs.[4] On the issue of apportionment Quin submits that there should be anapportionment of costs on a 70/30 per cent basis in Quin's favour but applying apenalty of around 20 per cent to the costs otherwise payable to Ballance. Quin claimscosts (and disbursements) of $234,352.65 for costs incurred after the offer expired. Italso claims costs for earlier stages in the proceeding calculated on an apportionmentat 70 per cent in Quin's favour of $6,121.20, less the costs of its unsuccessfulcounterclaim, $6,434. In total Quin seeks to recover $234,039.85.Ballance's claim[5] Ballance submits that, in accordance with the view expressed in the judgment,it is entitled to costs apportioned to reflect the fact that Quin successfully resisted anabsolute prohibition on the use of the term RPR in conjunction with its product. Itrejects that Quin's Calderbank offer is relevant, submitting that Ballance did betterthan the offer made in the letter.1 Ballance Agri-Nutrients Ltd v Quin Environmentals (NZ) Ltd [2020] NZHC 1885.2 Memorandum of Quin dated 17 August 2020; memorandum of Ballance dated 27 August 2020;memorandum in reply by Quin dated 1 September 2020; memorandum of Ballance in responsedated 2 September 2020.[6] Ballance seeks costs calculated on a 2B basis in relation to its claim but with a30 per cent uplift for Quin's actions during the litigation (reduced by 10 per cent forapportionment). In addition it seeks indemnity costs in relation to Quin'scounterclaim, and $37,883.47 for disbursements. In total Ballance claims $181,462.62for costs and disbursements.Calderbank offer[7] The first issue is to determine the relevance of Quin's Calderbank offer.[8] In the letter of 8 November 2019 Quin offered to settle the proceeding on thebasis that:(a) the existing interim injunction in its current form and wording becamepermanent; and(b) it would pay Ballance's party–party costs on scale 2B; and(c) the counterclaim would be dismissed with each party paying their owncosts on it.[9] Calderbank offers are provided for in High Court Rules 2016, rr 14.10 and14.11. In particular the effect such an offer may have on costs is set out in r 14.11:14.11 Effect on costs(1) The effect (if any) that the making of an offer under rule 14.10has on the question of costs is at the discretion of the court.(2) 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 aproceeding (party A) to another party to it (party B).(3) Party A is entitled to costs on the steps taken in the proceedingafter the offer is made, if party A—(a) offers a sum of money to party B that exceeds theamount of a judgment obtained by party B against partyA; or(b) makes an offer that would have been more beneficial toparty B than the judgment obtained by party B againstparty A.(4) The offer may be taken into account, if party A makes an offerthat—(a) does not fall within paragraph (a) or (b) of subclause(3); and(b) is close to the value or benefit of the judgment obtainedby party B.[10] In his submissions for Quin Mr Dalkie submitted that Ballance effectively onlyachieved what was contained in the Calderbank offer and against that the Court hadmade a number of findings of fact against Ballance. He referred to the case of Cowardv Phaestos Ltd.3 Coward involved what the Court described as "hard foughtintellectual property litigation". The plaintiff incurred $6 million in costs and thedefendants incurred $13 million. While the defendants had largely succeeded, DrCoward, the plaintiff, resisted an order for costs against him and sought an order forcosts in his favour on the basis of a Calderbank offer, arguing that the defendants hadbeen offered substantially all that they achieved at trial.[11] At first instance the Judge considered that four of the eight points advanced onbehalf of the defendants showed they had done significantly better at trial than theCalderbank offer made on behalf of Dr Coward. She did, however, conclude it wasappropriate to reduce the costs recoverable by the defendants by 15 per cent in relationto a counterclaim. The Court of Appeal agreed with the Judge.[12] In the Coward case the Calderbank offer had proposed an order that Dr Cowardhand over software to the defendants or an order that all copies of the software bedestroyed. During the course of the proceedings the defendants obtained anundertaking by the plaintiff (in place of an injunction) not to make any use of thesoftware. In both the Judge and the Court of Appeal's view the undertaking (in place3 Coward v Phaestos Ltd [2014] EWCA Civ 1256.of the injunction) was a significant improvement on the terms of the Calderbank offer.As the Court of Appeal noted:4First, the grant of an injunction, or the extraction of an undertaking in place ofan injunction, is by the very nature of the remedy a serious step. The court willnot grant an injunction unless in all the circumstances it is satisfied that it isappropriate to do so. If the other orders to be made by the court give theapplicant all that it can reasonably require, it is not the practice of the court togrant an injunction which by definition is unnecessary. Dr Coward has notsought to appeal the requirement that he give an undertaking in order to avoidthe grant of an injunction. He cannot therefore argue that it was requiredinappropriately or on insubstantial grounds. With her detailed knowledge ofthe issues, the course of the litigation and the parties, the judge considered thatit was appropriate to grant an injunction. There is no basis on which this courtcan interfere with that approach. That being so, the undertaking in place of theinjunction represents a significant improvement on the terms of theCalderbank offer.[13] I agree with Mr Edwards' submission on this issue that Ballance did better thanthe offer made in the Calderbank letter in that the Court made injunctive orders againstQuin as opposed to confirming the form of the existing undertaking. Relevantly theterms of the injunction went further than the terms of the previous undertaking,providing for the prominence and placement of any disclaimer and also prohibitingthe reference to true "RPR" and any reference to the product having 30 per cent pluscitric solubility.[14] Further, the Court granted the injunction because it was concerned that theundertaking following the earlier interim injunction hearing was not sufficient to curethe misleading representations as evidenced by the fact a number of the advertisementsthat had followed the interim injunction hearing did not fully comply with theundertaking.[15] Finally, as Mr Edwards submits, the Court also issued declarations that Quin'sconduct contravened ss 9, 10 and 13 of the Fair Trading Act 1986. While damageswere not pursued, the declarations were meaningful.[16] For those reasons I reject the submission made for Quin that Ballance did nobetter than the Calderbank offer.4 At 58.[17] Mr Dalkie next submitted that the Coward case supported the proposition thatthe offer was "close enough" and should be taken into account.[18] In the Coward case the Court approved a proposition from an earlier case that"in the circumstances it might be appropriate to penalise the offeree in costs" wherean offer is nearly but not quite sufficient and the offer is rejected outright without anyattempt to negotiate. But whether it would be appropriate to do so "would of coursedepend entirely on the facts of the particular case".5[19] As a general proposition, the statement is reasonable enough, but there is noneed to rely on the Coward case. The approach in New Zealand is provided for by theRules. Quin cannot establish that the offer would have been more beneficial toBallance in terms of r 14.11(3)(b). However, if the offer was close to the effectivebenefit Ballance achieved in the judgment then r 14.11(4) confirms the Court may takethe offer into account.[20] While Ballance achieved more in the judgment than the offer in relation to theundertaking, there were features of the Calderbank offer which make it appropriate totake it into account. The offer to pay costs and to resolve the counterclaim issue wasreasonable. Ballance could have engaged with the issue of the proposed undertaking.The fact and terms of the offer are additional factors which I accept are relevant to theappropriate apportionment.[21] That leaves the Court in the position it recorded in the judgment, namely thatBallance, having largely succeeded, is entitled to costs but there should be anapportionment to reflect Quin's success on certain issues. In fixing the appropriateapportionment the Court will also take into consideration the fact and terms of theCalderbank offer.[22] Before undertaking that exercise, however, it is necessary to deal withBallance's application for an uplift in costs on its claim and for indemnity costs onQuin's counterclaim.5 At 100.[23] Despite the Court's indication it considered the costs on a 2B basis to beappropriate, Ballance seeks increased costs against Quin in relation to its claim on thebasis that:(a) Quin materially failed to comply with discovery obligations;(b) Quin focused on irrelevant issues in evidence and during the hearing;and(c) Quin proceeded with arguments that could not be substantiated by theevidence.[24] Increased costs are provided for in r 14.6(3).[25] The issues that Ballance refers to in relation to discovery are not unusual incivil litigation of the nature involved in this case. I do not consider Quin's actionswere such as to support an increased level of costs generally. However, havingreviewed the file and minutes of the Court again, and despite the additional pointsmade by Mr Dalkie in his reply submission, the Court accepts that Ballance was putto more expense in relation to obtaining full discovery from Quin than it should havebeen. The appropriate way to recognise that is to increase the time allowed for thediscovery and inspection process generally. I propose to double the time allowed forthat process.[26] Again, while the Court did identify a number of red herrings, neither they northe arguments which were ultimately not substantiated by the evidence led to anyrelevant increase in the length of the hearing. Overall, the hearing was conductedresponsibly and efficiently by counsel for both parties. I decline the application toincrease costs on Ballance's claim.[27] Ballance also seeks indemnity costs in relation to Quin's counterclaim on thebasis that the counterclaim was frivolous and vexatious and had no hope ofsucceeding.[28] As the Court of Appeal made clear in Bradbury v Westpac BankingCorporation indemnity costs will generally only be ordered where the parties behavedeither badly or very unreasonably.6 In that case indemnity costs were appropriatebecause the case was hopeless from the inception which the appellants knew or shouldhave known.[29] While the counterclaim in this case failed, as the Court observed:[162] The Hi P RPR example does however show the rather arbitrary natureof the reliance on the Citsol Test for determining what is RPR in New Zealand.The Algerian phosphate rock could be blended with a more highly reactivephosphate rock, given a new product name and marketed as RPR which passesthe Citsol Test. Alternatively, if (as I understand Quin has done with its V2)the dolomite was removed or reduced, the Algerian phosphate rock wouldmeet the Citsol Test and can be marketed as RPR.[30] The counterclaim was based on the fact that Ballance blended two phosphaterocks, Sechura RPR and a waste product PB3 to produce its Hi P RPR. Quin arguedthe process was not carried out at a Fertmark registered blending or mixing station.That was correct, but the Court ultimately accepted it was answered by DrBlennerhassett's evidence that such approved facilities are only required incircumstances where a number of quite different products are blended. Thecounterclaim was also based on Quin's theory of the case as to the nature of a "trueRPR". Quin's counterclaim was arguable, although it was readily dismissed by theCourt. It occupied little of the Court's hearing time. Quin's failure on its counterclaimdoes not support an award of indemnity costs.[31] Subject to the uplift for costs associated with the discovery process, theappropriate order is for costs to scale on a 2B basis in favour of Ballance with anapportionment to recognise that Quin successfully opposed an absolute prohibition onits use of the term RPR and also to take account of the Calderbank offer.[32] In my judgment, having regard to the outcome but also taking account of theoffer contained in the Calderbank letter, the appropriate apportionment is a reduction6 Bradbury v Westpac Banking Corporation [2009] 3 NZLR 400 at [27].of 20 per cent in the costs otherwise payable by Quin to Ballance. That leads to anorder for costs in the sum of $68,019.20 calculated as follows:7Costs on a 2B basis on Ballance's claim (withthe discovery and inspection uplifted:$78,810.00Costs on a 2B basis in relation to Quin'scounterclaim:$6,214.008$85,024.00Less 20 per cent apportionment $17,004.80Total: $68,019.20[33] In addition Ballance is entitled to disbursements in the sum of $37,883.47 asclaimed. Orders accordingly.__________________________Venning J7 I note Mr Dalkie's submission as to the length of the conference with Lang J but for certaintydecline to alter the time allowance.8 I do not allow Ballance's claims for discovery, preparation of briefs etc and preparation andattendance at the hearing for the Quin counterclaim as they are covered by the costs on Ballance'sclaim.