WINCHESTER INTERNATIONAL (NZ) LTD AND ANOR V CROPMARK SEEDS LTD CA CA226/04

WINCHESTER INTERNATIONAL (NZ) LTD AND ANOR V CROPMARK SEEDS LTD CA CA226/04 5 December 2005IN THE COURT OF APPEAL OF NEW ZEALAND CA226/04BETWEEN WINCHESTER INTERNATIONAL (NZ) LIMITED First Appellant AND RONALD DOUGLAS WINCHESTER Second Appellant AND CROPMARK SEEDS LIMITED Respondent Hearing: 19 September 2005 Court: Anderson P, Glazebrook and Baragwanath JJ Counsel: I G Hunt for Appellants G N Gallaway and J K Scragg for Respondent Judgment: 5 December 2005JUDGMENT OF THE COURT A Appeal dismissed. B Appellants ordered jointly and severally to pay respondent's costs $3,500 and usual disbursements.___________________________________________________________________REASONS(Given by Baragwanath J)Table of Contents Para No Introduction [1]Background facts [4]Mr Collie [8]Mr van Beek [15]Mr Templeton [20]Mr Ellis [23]The Judge's findings [24]The law [25]The Judge's approach [30]Submissions on appeal [32]Discussion [38]Breach of proprietary rights [38]Liability of director and of company [48]Exemplary damages [58]Costs [63]Result [67]Introduction[1] This appeal is against a judgment delivered by John Hansen J in the High Court at Timaru on 28 September 2004. It awarded exemplary damages of $5,000 against each appellant for breach of the respondent's proprietary rights under s 17 of the Plant Variety Rights Act 1987 in a barley called "Optic". The appellants challenge the judgment as to liability, the award of exemplary damages and an order for payment to the respondent of indemnity costs and disbursements less costs awarded against the respondent in favour of the second appellant's son. [2] There are three issues: (a) whether the appellants infringed the respondent Cropmark's proprietary rights; if so (b) whether the Judge was entitled to order exemplary damages of $5,000 against each appellant; and (c) whether he was entitled to award Cropmark indemnity costs of $40,000 and disbursements of $6,820.18 less costs on a 2B scale awarded against Cropmark in favour of the second appellant's son. [3] It is common ground that Optic may not be sold lawfully for the purpose of being sown to produce barley crops unless it is provided by or with the authority of Cropmark. Another alleged ground of authority, that the seed had been lawfully produced by a grower, does not arise from the facts.Background facts[4] The Plant Variety Act followed New Zealand's accession in 1981 to the International Convention for the Protection of New Varieties of Plants. On 26 August 1998 the Commissioner of Plant Variety Rights granted Cropmark a certificate of grant of plant variety rights in Optic barley which had been developed in the United Kingdom by New Farm Crops Limited, an English company forming part of the Sygenta Group. It has attributes that are particularly attractive to the beer brewing industry including low proteins, low beta glucan and high diastatic power. In New Zealand it is a premium variety for malt production. Cropmark is the sole New Zealand licensee and has granted sub-licenses to Pyne Guild Guinness Limited, International Malting Company Limited and Canterbury Seeds Limited. No one other than Cropmark and it sub-licensees has the right to produce Optic barley in New Zealand for sale as sowing seed. [5] In September/October 2002 there was publicity that the first appellant (Winchester Limited) was arranging a shipment of Optic malting barley to a brewery in China. Cropmark suspected that some of the sowing seed being used to produce the barley for the shipment might have been produced for sale without its authority and thus in breach of its exclusive proprietary rights. Its Regional Sales, Procurement and Production Manager for the South Island, Mr Jarvis, telephoned the second appellant (Mr Winchester) on 21 October 2002 and asked him whether Winchester Limited would require a supply of Cropmark seed. Mr Winchester responded that a number of growers would be making use of "their own" seed for the proposed shipment but that Winchester Limited would direct any requiring further seed to Cropmark for supply. [6] Mr Jarvis expressed his concern that there would be insufficient "own supply" to produce the acreage of barley that would be required for the shipment. He warned Mr Winchester of the protection afforded by the Plant Variety Rights Act to Optic, to Cropmark as head licensee and of the opportunity for Winchester Limited to secure a sublicence to produce certified seed. Mr Jarvis put his concerns into writing in a letter of 22 October 2002 to Mr Winchester's son. It was in the following terms:... Dear Miles Thank you for the opportunity to discuss with you, by phone, issues relating to your proposed shipment of Malting Barley to China, from the 2003 harvest, and specifically the issue of sowing seed. I think we both agree that we need to investigate further some possibilities in relation to Optic Barley sowing seed supply. I would like to re-iterate the following key discussion points: 1. Optic Barley is a protected variety under the Plant Variety Rights Act of NZ 1987 (right number 1445), a person or company may not sell seed or reproductive material of Optic Barley for further sowing without permission from the Breeder or Head Licensee. 2. Cropmark Seeds Ltd has been appointed as the head licensee by the breeder, for the New Zealand region, and has an obligation to the breeder to ensure the PVR protection on Optic is not breached. 3. Cropmark Seeds Ltd as head licen[c]e holder are in a position to grant sub licenses for production of Optic Barley, on a royalty payment basis, and currently have several licensees operating on this basis. 4. Cropmark Seeds are able to supply certified Optic seed to Winchester International at a favourable wholesale price, which would allow resale on to Winchester International farmer clients, and allow a trading margin for Winchester International. 5. Cropmark Seeds Ltd feel strongly, that any malt barley shipment leaving New Zealand shores as Optic varietally, should be derived from certified sowing seed or from seed which can be guaranteed to be varietally pure as Optic. Failure to ensure this background could have a detrimental effect on Optic, as a top performing malting variety on the global market. 6. Cropmark Seeds Ltd believe that some form of contractual clause, stipulating use of certified Optic seed, or documentary evidence of purchase of certified Optic seed should give improved guarantees of varietal purity and therefore eliminate any potentially damaging effect on the variety and Winchester International markets and buyer relationships. We would like to meet with you sometime in the near future, to discuss these possibilities and how we can be better prepared for seed supply of any future shipments you may execute. I will be in contact to establish a suitable day and time. ...The letter was sent to Winchester Limited at Mr Winchester's home address in Ashburton. [7] Cropmark received no reply and remained concerned. It arranged for an employee, Mr Collie, to telephone Mr Winchester to express interest in growing barley for the shipment to China and for investigations to be made by a private investigator, Mr van Beek. The information received from Messrs Collie and van Beek was included in an affidavit sworn by Mr Jarvis in support of an application to the High Court for an Anton Piller order which was executed at the premises of Winchester Limited and revealed further information.Mr Collie[8] Mr Collie rang Mr Winchester on the evening of 23 October 2002 expressing interest in supplying barley for the shipment to China expected to occur in late November or early December. Mr Collie told Mr Winchester that he proposed to lease land from his father to grow barley for the purpose and asked Mr Winchester where he could buy Optic seed for sowing. Mr Winchester said that he "did not want to know" where Mr Collie got the seed from. He told Mr Collie that it was illegal to sell barley as sowing seed without licence and without paying levies and royalties to the Foundation for Arable Research. He added that it was not illegal to sell barley for "feed". Mr Collie asked Mr Winchester where he could obtain Optic barley seed suitable for sowing. Mr Winchester advised him to contact either Mr "A" or a Mr Young (Mr A was an original defendant but following settlement of the proceedings against him an order has been made for suppression of his name). Mr Winchester told Mr Collie that Mr A had Optic seed available for sowing. Mr Collie telephoned Mr A to buy some Optic barley seed. [9] Mr Collie said that Mr Winchester emphasised that if he bought seed from either Mr A or Mr Young he must ensure that they invoiced Mr Collie for feed barley. Mr Collie was cross-examined over an error in the date of his note and it was put to him that Mr Winchester would say that he simply told Mr Collie to contact Mr A without mentioning that he had Optic barley seed for sowing or for sale or for any other purpose. He denied that. Mr Winchester's initial brief confirmed that hehad told Mr Collie that he did not want to know where Mr Collie got Optic barley seed because it was none of his business. It confirmed that he advised Mr Collie of the legal position as to selling barley without a license and that it is not illegal to sell barley for feed. He said:I advised Mr Collie that the transaction should be invoiced as feed barley or straight barley or words to that effect.[10] Mr Winchester gave as his reason that he had previously been sold a product that did not conform with what had been ordered and thereafter did not specify the particular strain of barley involved in the sale but only, it seems, the purpose for which it was needed. In a second brief he said that in advising Mr Collie to buy Optic barley seed from Mr A's company he assumed that that company would pay Cropmark's royalties in accordance with what he described as common industry practice. Mr Winchester agreed that he knew that Mr Collie wanted the seed for the purpose of sowing to produce a crop to be included in Winchester Limited's shipment to China. Asked to confirm that he told Mr Collie to ensure that the seed was invoiced as feed Mr Winchester said he was unsure whether he had used such expression. Cross-examined on the plain statement to that effect in his second brief he responded that he did not know that Mr A or Mr Young had any seed. [11] The Judge concluded that Mr Winchester in this and other respects had prevaricated and accepted Mr Collie's evidence. [12] Mr A's version is recounted as hearsay by Mr Collie. It is inadmissible as to its truth but admissible insofar as it bears on Mr Winchester's state of mind. Mr Collie told Mr A that he needed enough seed to sow 12 acres of land. Mr A responded that the 50 kg bags of seed later bought from him by Mr Collie would be available a few days later. Mr A told Mr Collie that the seed was treated but not certified, meaning that it lacked evidence of deriving from an authorised source. Rather, it was in plain bags without tags, purity and germination tests and no FAR levies or royalty had been paid on it. Mr A assured Mr Winchester that the seed was Optic seed and would meet the genetics standards specified for the supply by Winchester Limited for the shipment.[13] Mr Collie said he would arrange transport of the seed through a transport company to which it was later delivered. Mr A supplied Mr Collie with a sales invoice dated 29 October 2002 for the sum of $480. A goods order delivery document recording the transport company's receipt from Mr A's company of the 50 kg bags is dated 29 October 2002. Mr Collie received as well a form of agreement for the supply by him to Winchester Limited of Optic malting barley from the 2003 harvest together with a sales invoice dated 5 November 2002. [14] Mr Winchester gave evidence that he recalled the discussion with Mr Collie. He accepted that he told Mr Collie that he did not want to know where Mr Collie had obtained the seed because this was none of his business.Mr van Beek[15] Mr van Beek was instructed by Cropmark to investigate its suspicions that Winchester Limited was arranging a shipment of Optic malt barley which would contain barley grown with uncertified Optic seed. On 22 November 2002 he rang Mr Winchester's number and left a message giving the pseudonym John Cornelius which he used in his later dealings with Mr Winchester and said he was responding to a newspaper advertisement by Winchester Limited seeking malting barley for export to a Chinese brewery. A further call was answered by Mr Winchester. Mr van Beek said he was about to buy some bare land and was ringing to enquire about the possibility of growing barley but was concerned that he might be too late for the shipment to China. Mr Winchester said that he could still plant the barley seed and grow it in time for the shipment. Mr Winchester said that the seed had to be Optic malting barley seed which could be sourced form either Pyne Guild Guinness or Cropmark and that if Mr Cornelius wanted to go ahead he should ring Mr Winchester back to obtain the specifications and growing contract. [16] In response to a request for clarification of where the Optic barley seed might be obtained Mr Winchester said that Cropmark held the variety rights to the Optic seed but that the caller could also get it through Pynes or possibly through Speciality Seeds.[17] On 25 November Mr van Beek telephoned Mr Winchester again and said he would like to go ahead with establishing a crop of barley but was having trouble sourcing seed. He said that he had spoken to Cropmark and Pynes but both were out of Optic seed; while Cropmark had some seed it had not yet been processed. He also said that Speciality Seeds might be able to help and asked him if he had any ideas. Mr Winchester responded that he had "lots of ideas". He asked Mr van Beek how much seed was required and was told that one and a half tonnes was needed. Mr Winchester said that it was a pity that he had not rung the previous night because he had just sent two tonnes of seed to a chap at Gore. Mr Winchester said he would ring Mr "Cornelius" the following day and that he might be able to get some seed sent to Hinds Seed Cleaning from where Mr Cornelius could collect it. [18] On 26 November Mr van Beek received a message that Mr Winchester had called and wished him to telephone. Mr van Beek rang Mr Winchester who said that the seed was at Hinds Seed Cleaning being delivered there by his son and it could be uplifted from there either later that day or the following day. Mr Winchester explained to Mr van Beek that he would receive two accounts, one from the farmer who supplied the seed at a price of $270 per tonne for the 1.65 tonnes delivered and the other from Hinds Seed Cleaning for processing and treating the seed. Mr Winchester said that because the Optic variety is licensed the seed would be billed as "straight barley" (as contrasted with barley to be used for planting). He asked Mr Cornelius not to tell anyone about the transaction. Mr van Beek later received from Winchester Limited a contract for supply to it of Optic malting barley and a stamped envelope addressed to Winchester Limited. He received from Hinds Seed Cleaning Company Limited an invoice for $276.72 and from the supplier of the seeds an invoice for $486.00 which described the subject matter simply as "barley". [19] In his first brief Mr Winchester confirmed that he had conversations with a man calling himself John Cornelius. He said he was not representing Winchester Limited. Mr Winchester denied having just sent two tonnes of seed to a chap in Gore but confirmed he had arranged for seed from Mr Harris to be sent to Hinds Seed Cleaning for Mr Cornelius. He said that the barley delivered to Hinds was simply untreated and because of previous problems of conformity with transactions he recommended that the transactions be invoiced as straight barley.He said he was simply acting under instructions from Messrs Cornelius and Harris. He did not know whether Mr Harris could legitimately sell Optic barley seed. He denied that he had sold any seed to Mr Cornelius. In his second brief he denied that he arranged for Mr Cornelius to buy uncertified Optic seed from Mr Harris. Cross-examined he admitted that he had telephoned Mr Ellis of Hinds and told him that on instructions from Mr Harris he was to clean, dress and treat the seed which should then be made available for collection by Mr Cornelius.Mr Templeton[20] The Anton Piller order was executed at Mr Winchester's property in Ashburton on 5 March 2003. It produced a customer list referring to a Mr Templeton of Wanaka and an invoice from Hinds Seed Cleaning Company Limited to Mr Templeton of Cromwell for the treatment of two tonnes of barley. In cross-examination Mr Winchester admitted that he had organised the sale of seed to Mr Templeton who had attended a meeting he had arranged in Luggate. Mr Winchester agreed that Mr Templeton had asked him to source some seed to enable him to become a grower for the shipment to China. Although Mr Winchester denied making enquiries of a third party about selling seed to Mr Templeton at an earlier stage he had filed a brief stating:2. The second defendant [Mr Winchester] enquired from a third party as to whether that third party was able to sell Optic barley to be used as seed or reproductive material. That was the extent of the defendant's involvement in the sale of the Optic barley seed to John Templeton.[21] In response to Mr Winchester's denial that he had asked Mr Harris for seed counsel for Cropmark asked:Why then did you provide a brief of evidence... which said that you did ask him for seed?He replied "I can't answer that." [22] The Judge rejected Mr Winchester's evidence.Mr Ellis[23] The manager of Hinds Seed Cleaning Limited, Mr Ellis, confirmed that on Mr Winchester's instructions he cleaned and dressed barley seed and made it available for collection by Mr Cornelius. Likewise, on Mr Winchester's instructions, he cleaned and dressed seed and delivered it to Mr Templeton.The Judge's findings[24] The Judge found that on at least three occasions Mr Winchester acting on behalf of Winchester Limited had been responsible for arranging sales of uncertified seed. Such conclusion was clearly open to him in relation to the Collie, van Beek and Templeton transactions. It is plain that several such sales were completed by the delivery of Optic barley to purchasers.The law[25] Section 17 of the Plant Variety Rights Act provides:17. Rights of grantees(1) Subject to section 19 of this Act, a grantee shall have the exclusive right– (a) To produce for sale, and to sell, reproductive material of the variety concerned: ... (3) A grant may be assigned, mortgaged, or otherwise disposed of; and may devolve by operation of law. (4) The rights of a grantee under a grant are proprietary rights, and their infringement shall be actionable accordingly; and in awarding damages (including any exemplary damages) or granting any other relief, a Court shall take into consideration– (a) Any loss suffered or likely to be suffered by that grantee as a result of that infringement; and (b) Any profits or other benefits derived by any other person from that infringement; and(c) The flagrancy of that infringement. ... (8) Where, in any proceedings for the infringement of the rights under this section of a grantee, it is proved or admitted that an infringement was committed but proved by the defendant that, at the time of that infringement, the defendant was not aware and had no reasonable grounds for supposing that it was an infringement, the plaintiff shall not be entitled under this section to any damages against the defendant in respect of that infringement, but shall be entitled instead to an account of profits in respect of that infringement. (9) Nothing in subsection (8) of this section affects any entitlement of a grantee to any relief in respect of the infringement of that grantee's rights under this section other than damages.[26] An exception to the grantees' rights is provided by s 18:18. Exceptions to grantees' rightsNotwithstanding section 17 of this Act, any person may– (a) Propagate, grow, or use a protected variety, for non- commercial purposes; or (b) If the production of the hybrid or new variety concerned does not require repeated use of that variety,– (i) Hybridise, or produce a new variety from, a protected variety; or (ii) Sell any hybrid of, or new variety produced from, a protected variety; or (c) Use reproductive material from a protected variety for human consumption or other non-reproductive purposes.[27] Section 19 to which s 17(1) is subject provides:19. LicencesThe holder of a licence from a grantee shall have the same rights as that grantee to take proceedings in respect of any infringement of the rights of that grantee in respect of the variety concerned affecting the rights given under that licence and committed after it was granted.[28] Notification of the rights of the grantee is provided by s 20:20. Notice of protection(1) Any person who–(a) Has acquired rights in respect of a variety under... section 17 of this Act; and (b) Sells any reproductive material of that variety,---shall take all reasonable steps, by means of suitable labelling or other identification of that material, to inform the purchaser concerned of those rights. (2) In determining, for the purposes of section 17 (8) of this Act, whether or not any person had reasonable grounds for supposing that any action was an infringement of the rights of a grantee, a Court may take into account the extent (if any) to which that grantee or, as the case requires, the licensee concerned had complied with subsection (1) of this section in respect of any material in respect of which, or in respect of material propagated from which, that infringement occurred.[29] We mention finally the compulsory licensing provision on which the appellants relied:21. Compulsory licences and sales(1) Any person may at any time after the expiration of 3 years from the making of a grant, on payment of the prescribed fee request the Commissioner to consider whether or not reasonable quantities of reproductive material of a reasonable quality of the variety concerned are available for purchase by members of the public at a reasonable price.The Judge's approach[30] John Hansen J recorded the submission for Winchester Limited and Mr Winchester that as they did not themselves sell the seed there had been no breach of Cropmark's proprietary rights. Referring to s 17(1)(a) they submitted that it is only the person who actually sells the reproductive material of the protected variety who breaches the plaintiff's rights and the competing submission for Cropmark that breach of rights is not limited to the case of sale. The Judge preferred Cropmark's submissions for the reasons he gave:[32] The Act does not define "proprietary rights". They are clearly the ownership rights of the plaintiff in the "Optic" barley seed. In a sense in the intellectual property rights of the developer. Infringement is a violation of those rights, and, in my view, cannot be limited to sale. It would mean in a case such as this that someone like the second defendant could blatantly organise sales of seed in clear breach of the plaintiff's proprietary rights, but escape all forms of action from the holder of the proprietary right. I do not consider that was the intention of Parliament, and there are strong policy reasons why it should be so. This case is just such an example. It is apparentthat on at least three occasions the second defendant, acting on behalf of the first defendant, was responsible for arranging sales of uncertified seed while he was aware this was breaching the rights of the plaintiff. In fact, he has gone to some lengths, in my view, to avoid any sort of paper trail, and has suggested to purchasers to have invoices falsified to hide the true nature of the sale and the purpose for which the seeds were wanted. [33] Accordingly, I am satisfied that the intention of s 17(4) does capture somebody who is responsible for procuring breaches of the plaintiff's rights. Accordingly, I consider the plaintiff has been successful in its claim against the defendants, excepting the third defendant. In my view, quite clearly, the first and second defendants have breached the proprietary rights of the plaintiff. [34] Accordingly, there will be a declaration that the first and second defendants have infringed the plaintiff's proprietary rights in relation to "Optic" barley seed.[31] Finding that there was no evidence that the defendants had profited from their breaches of Cropmark's rights the Judge made no order for account of profits or enquiry into damages. He was satisfied that the defendants' conduct showed contumelious behaviour and flagrant disregard of Cropmark's rights and made the challenged awards of exemplary damages.Submissions on appeal[32] Mr Hunt submitted that the appellants had not infringed Cropmark's proprietary rights. He pointed to Cropmark's pleading:The first [and] second... defendants have been engaged in organising the sale of Optic barley and uncertified Optic seed to third parties... assisting third parties to sell uncertified Optic barley and seeking breach of the plaintiff's proprietary rights to Optic.He submitted to prove infringement the grantee must establish that the alleged infringer has itself engaged in the conduct to which the grantee has the exclusive right:to produce for sale, and to sell, reproductive material of the variety concerned.[33] He relied upon article 5 of the International Convention for the Protection of New Varieties of Plants (1978 revision) ("UPOG 78") which provides:Rights protected; scope of protection(1) The effect of the right granted to the breeder is that his prior authorisation shall be required for – the production for purposes of commercial marketing – the offering of sale – the marketing of the reproductive or vegetative propagating material, as such, of the variety.[34] He submitted that those provisions are reflected in the words of s 17(1)(a). He contrasted that article with UPOG 91, which has not been ratified by New Zealand, and which contains significantly more extensive and detailed provisions as to the exclusive rights of a breeder in respect of reproductive or propagating material. The 1987 Act and UPOG 91 have been the subject of extensive review by the Ministry of Economic Development and on 9 August 2005 the Ministry released for comment the Plant Variety Rights Amendment Bill, a key purpose of which is to replace completely the provisions of s 17 to implement the provisions of UPOG 91. It proposed a new s 17 which would provide:17 Rights of grantees(1) A grantee has the right to prevent anyone from doing any of the following acts in relation to the reproductive material of a protected variety: (a) produce or reproduce the material: (b) condition the material for the purpose of propagation: (c) sell (including offer to sell) or market the material: (d) import the material: (e) export the material: (f) stock the material for the purposes of any of the acts described in paragraphs (a) to (e). (2) A grantee's rights under subsection (1) are not infringed if a person does an act referred to in that subsection with the grantee's authority and in accordance with any terms and conditions specified by the grantee. (3) A person who sells the reproductive material of another variety under the denomination of the protected variety infringes the grantee's rights unless– (a) the grantee has authorised the sale; or (b) the groups of plants to which the varieties belong are internationally recognised as being distinct for the purposes of denomination.[35] Mr Hunt submitted that on the assumption that the proposed amendments would catch the kind of conduct found to have occurred in this case it is evident that the rights under the 1987 Act are not sufficiently extensive to catch the appellants' conduct. He submitted that by necessary implication the provisions of s 17(1)(a) must be seen as confined to the acts described alone. Organising or arranging sales, without actually selling or offering to sell reproductive material, or disposing of such material for the valuable consideration, is not an infringement of a grantee's proprietary rights. [36] Mr Hunt further submitted that the facts did not warrant orders for exemplary damages or for indemnity costs. [37] Mr Gallaway and Mr Scragg joined issue with each of the appellants' submissions.DiscussionBreach of proprietary rights[38] The exclusive right "to produce for sale and to sell reproductive material" of the variety concerned (s 17(1)) which was expressed to constitute proprietary rights (s 17(4)) is expressed succinctly. "Reproductive material" is defined as s 2 as meaning in relation to any variety:Any portion of a plant of that variety by means of which plants of that variety may be reproduced or propagated; and includes... seeds...[39] "Sale" is also defined as including "any disposition to the value for consideration and any offer for sale"; and "sell... has [a] corresponding meaning...". [40] The clear purpose of s 17(1) is to state the nature of the grantee's right and the fact of its exclusivity. Necessarily implicit is that infringement referred to in subsection 4 entails any conduct having the effect of diminishing the grantee's enjoyment of its exclusive right. The section does not attempt any description ofwhat kind of conduct may have that effect: it is left to the courts to make that judgment as a matter of fact. [41] Whereas s 17 leaves to implication what conduct may constitute breach of the exclusive right, the replacement section proposed in the amendment bill stipulates expressly the conduct that is proscribed and expresses the grantee's right as the right to prevent such conduct. The legislative techniques are quite dissimilar and we derive no assistance from the draft bill, to which Professor Burrows' observation inStatute Law in New Zealand (3 rd ed) 2003 at 398 applies with greater force than if the bill had been introduced:Even more so than an act not yet in force, a Bill before Parliament but not yet passed will seldom be relevant to judicial-making and cannot be applied as law, and there are clear dangers in taking it into account for any purpose if there is no guarantee that it will be passed in its present form, or at all.[42] The question then is whether the appellants' conduct has diminished Cropmark's enjoyment of its exclusive right. We have noted that such conduct was summarised in the pleading as:[Being] engaged in organising the sale of Optic barley and uncertified Optic seed to third parties.[43] Each of the sales – to Mr Collie, to Mr van Beek and to Mr Templeton – was of reproductive material namely Optic seed. Since Cropmark possessed the exclusive right to engage in such conduct, undoubtedly the vendors to Mr Collie, Mr van Beek and Mr Templeton infringed the exclusive right by depriving it of potential royalties. So the question is whether the conduct of Mr Winchester and his company also diminished Cropmark's enjoyment of its exclusive right. [44] For present purposes the legal person Winchester Limited has attributed to it the conduct of Mr Winchester who was acting to secure barley for Winchester Limited's export venture: Meridian Global Funds Management Asia Limited v Securities Commission [1995] 3 NZLR 7; [1995] 2 AC 500 (PC).[45] Mr Hunt did not dispute the infringement of Cropmark's proprietary right by the three vendors but denied that the vendors' infringement was caused by the conduct of the appellants. [46] In some contexts the concept of causation can present difficulty. In this case we are content to apply the test proposed by Prosser and Keaton on Torts (5th ed) at 267:The defendant's conduct is a cause of the event that was a material element and a substantial factor in bringing it about.The approach of the House of Lords in Bonnington Castings Limited v Wardlaw[1956] AC 613 is to similar effect. [47] We are satisfied that the sales by the vendors to each of Mr Collie, Mr van Beek and Mr Templeton were effectively caused by the conduct of Mr Winchester. The conduct of the vendors was performed at his request for the purposes of his company's contract and done quite deliberately. We find it unnecessary to consider the s 18 exceptions to grantee's rights and the argument that supply to Messrs Collie, van Beek and Templeton of farmers "own seed" would have brought the supply within the exception. That issue is one to be determined if necessary in a case where there is evidence supporting it, which is not this case.Liability of director and of company[48] In Trevor Ivory Limited v Anderson [1992] 2 NZLR 517 this Court held that the major shareholder and managing director of the appellant company was not liable for negligent advice he had given in recommending the use of a herbicide. Mr Hunt submitted for the appellants that the Judge's findings that Mr Winchester was acting on behalf of the company preclude judgment and therefore an award of damages against him as well. [49] Mr Gallaway and Mr Scragg referred to the following passage in Mr Winchester's cross-examination:Q. And your evidence is that when you spoke to Mr Collie you weren't acting in your capacity as a director of Winchester International, correct? A. I was just speaking as Ron Winchester... Q. And yet you still maintain, do you, that when you spoke to Mr Cornelius you weren't representing Winchester International? A. He rang me for information and I was just responding to him as Ron Winchester.They submitted that while Mr Winchester was held to have acted for the company his insistence that he was acting personally should be taken into account to hold him liable personally as well. [50] The principle applied in Trevor Ivory Ltd v Anderson is the elementary one that an incorporated company and its human personnel, who include a director or a shareholder, are distinct legal entities, however absolute the director's or shareholder's control of its affairs. The Companies Act 1993 restates the rule applied in Salomon v Salomon & Co Ltd [1897] AC 22 (HL) and Lee v Lees Air Farming Ltd [1961] NZLR 325; [1961] AC 12 (PC):15 Separate legal personalityA company is a legal entity in its own right separate from its shareholdersBut as pointed out by Lord Steyn in Williams v Natural Life Ltd [1998] 1 WLR 830, 836, the basis of Trevor Ivory Ltd v Anderson was that stated at 532 by McGechan J who had analysed the evidence, that there was:no singular feature which would justify belief that Mr Ivory was accepting a personal commitment, as opposed to the known company obligation.In his 1997 Hamlyn Lecture "Turning Points of the Common Law" in a passage cited by Lord Steyn at 836 Lord Cooke said that if the plaintiff:had reasonably thought that it was dealing with an individual, the result might have been different. ("Taking Salomon Further" at 18 note 51)[51] At 837 of Williams Lord Steyn responded to academic criticism of the principle of assumption of liability as often resting on a fiction used to justify a conclusion that a duty of care exists. He considered that it might become necessary for a final court to re-examine the principles of consideration and privity of contract. But in the meantime:Coherence must sometimes yield to practical justice.[52] The wisdom of Lord Steyn's caution is seen when an attempt is made to extend Trevor Ivory Ltd v Anderson beyond its particular context. Todd The Law of Torts in New Zealand (4th ed) argues at 294 - 5 that the exclusion of directors' liability where a company is liable in cases of assumption of responsibility for negligence can have no application where the tort alleged is one of intent. In Trevor Ivory Ltd v Anderson Cooke P at 524 expressed a tentative view:it may well be possible to sheet home personal responsibility for an intentional tort such as deceit or knowing conversion.[53] In Brooks v New Zealand Guardian Trust Co Limited [1994] 2 NZLR 134 (CA) Cooke P distinguished Trevor Ivory Ltd v Anderson and held directors personally liable in negligence. The decision was sustained on appeal: [1995] 1 WLR 96 (PC). [54] In Standard Chartered Bank v Pakistan National Shipping Corporation[2003] 1 AC 959 the House of Lords reversed the decision of the Court of Appeal that a director should not be held personally responsible for fraud committed by him in his capacity as director. Lord Hoffmann at 968 distinguished the negligent misstatement cases as analogous to contract: just as an agent can contract on behalf of another without assuming personal responsibility, so for the purposes of the rule in Hedley Byrne & Partners Ltd v Heller [1964] AC 465 an agent can assume responsibility on behalf of another without assuming personal responsibility. He reasoned that:No one can escape liability for his fraud by saying: "I wish to make it clear that I am committing this fraud on behalf of someone else and I am not to be personally liable".[55] But it is not every tort of intention that carries liability for the director in addition to that of the company. In Said v Butt [1920] 3 KB 497 McCardie J held that where a company breaches a contract the company employee whose conduct within the scope of employment is ascribed to the company is not usually personally liable for inducing breach of that contract. The decision was followed by Salmond J in Henderson v Kane [1924] NZLR 1073 and also in Canada, Australia and the United States: see Root Quality Pty Ltd v Root Control Pty Ltd (2000) 177 ALR 231, 263 per Finkelstein J. The position will be otherwise where the conduct is performed for the purpose of injuring another: Root Quality at 268. In Lord Steyn's phrase, the result must achieve practical justice. [56] In the present case the shares in Winchester Limited are held by Mr Winchester (500), his son Miles (500) and a Ms Zhou (200). There is no evidence as to the financial position of the company and whether creditors may be interested in the result. But there is no reason of principle or policy why the distinct legal character of Mr Winchester and Winchester Limited should not be recognised. Mr Winchester has offended in his own right and he has concurrently caused his company to do so. The policy of s 17 is that the exclusive proprietary right should not be interfered with by other parties. We have found that it was interfered with by the conduct of Mr Winchester and there is no challenge to the Judge's decision that in terms of Meridian his conduct is also attributable to the company. If liability under s 17(d) is characterised as a statutory tort Mr Winchester and his company may properly be regarded as joint tortfeasors: Brooks v New Zealand Guardian Trust Co Limited. [57] We agree with the Judge that separate awards should be against each. The only significance of the close identity of Mr Winchester and his company is that proportionality must be observed when considering damages.Exemplary damages[58] The principles were stated by the Privy Council in Bottrill v A [2003] 2 NZLR 721, 728-9:[20]... Exceptionally, a defendant's conduct in committing a civil wrong is so outrageous that an order for payment of compensation is not an adequate response. Something more is needed from the Court, to demonstrate that such conduct is altogether unacceptable to society. Then the wrongdoer may be ordered to make a further payment, by way of condemnation and punishment. [21] Thus, in distinguishing the essentially different roles of compensatory damages and exemplary damages Lord Devlin said a jury should be directed that if, but only if, the amount they have in mind to award as compensation is "inadequate to punish [the defendant] for his outrageous conduct, to mark their disapproval of such conduct and to deter him from repeating it", then they might award exemplary damages: see Rookes v Barnard [1964] AC 1129 at p 1228... [23] The next point to note is that, in the nature of things, cases satisfying the test of outrageousness will usually involve intentional wrongdoing with, additionally, an element of flagrancy or cynicism or oppression or the like: something additional, rendering the wrongdoing or the manner or circumstances in which it was committed particularly appalling. It is these features which make the defendant's conduct outrageous. Either that or at the very least, in cases of negligence, the defendant was aware of the risks involved but he proceeded with a reckless indifference such that this conduct, too, evokes a sense of outrage. Such conscious recklessness approaches very closely to intentional wrongdoing. [24] Overwhelmingly, in the exceptional cases where questions of exemplary damages fall to be considered at all, the defendant's misconduct will be of a subjectively advertent nature as just described. Overwhelmingly, in cases of negligence, whose essential ingredients are objective in character ("ought to have known"), an award of exemplary damages will be appropriate only where the defendant's wrongdoing was intentional or consciously reckless. [25] It is not surprising, therefore, that when describing conduct meet for an award of exemplary damages Judges have often used adjectives or phrases primarily, or even solely, aimed at advertent conduct. These include: malicious, vindictive, high–handed, wanton, wilful, arrogant, cynical, oppressive, and contumelious disregard of the plaintiff's rights. [26] However...[t]here may be the rare case where the defendant departed so far and so flagrantly from the dictates of ordinary or professional precepts of prudence, or standards of care, that his conduct satisfies this test even though he was not consciously reckless.[59] In the present case the appellants had received plain warning both orally and in the form of Cropmark's letter of 22 October 2002. They nevertheless persisted in pursuing the course of conduct that entailed the breaches of s 17 to which we have referred.[60] Mr Winchester was very experienced in the practical operation of the Plant Variety Rights Act. He gave accurate information to Messrs Collie and van Beek about the effect of s 17 and sought to have the transactions documented in a way that would suppress knowledge of the breach of Cropmark's rights. John Hansen J with the advantage at first instance of getting a true feel of the case had no hesitation in finding contumelious behaviour in flagrant, blatant and deliberate disregard of Cropmark's rights. We have no doubt that he was right to do so. Put simply, Mr Winchester and through his agency Winchester Limited were pirating Cropmark's rights. [61] We do not accept the appellants' argument that alleged difficulties in securing Optic from authorised sources could excuse transactions in breach of Cropmark's proprietary rights because there is a potential compulsory licensing regime under s 21 (at [29] above). That regime can be triggered only by the Commissioner: the absence of any compulsory regime did not confer licence on Mr Winchester to breach Cropmark's proprietary rights by an exercise in self-help. [62] We also respectfully agree with the Judge's approach to quantum. In accordance with the principles discussed in McDermott v Wallace CA208/04 9 June 2005 at [96]-[102] (the schedule of awards included the Judge's assessment in this case). The award of $5,000 against each appellant is proportionate and unchallengeable.Costs[63] While by r 46 of the High Court Rules all matters relating to costs are at the discretion of the Court it will ordinarily apply as a general principle stated in r 47G that so far as possible the determination of costs should be predictable and expeditious. Accordingly the Court will generally be guided by the specific rules. [64] Rule 48C provides that the Court may make an order that a party pay indemnity costs if that party has acted vexatiously, frivolously, improperly or unnecessarily in defending a proceeding or a step in a proceeding. Rule 48Grecognises the value of offers made without prejudice as to costs considered inCalderbank v Calderbank [1975] 3 All ER 333. [65] In letters of 13 May and 28 August 2003, each written without prejudice but with reservation of the right to produce it on an issue of costs, Cropmark's solicitors spelt out in detail the basis of its claim and proposed settlement on a basis distinctly more advantageous to the appellants than the result of this case. We do not accept the appellants' submission that the Judge would have been misled by an inappropriate reference in one of the letters to discussions about possible mediation and judicial settlement conference. Rather there is a combination of factors that justify the Judge's approach. These included what we have described as piracy of Cropmark's rights; the lack of substance in the defence; the failure to respond to sensible settlement proposals and Mr Winchester's disingenuous conduct in the witness box on which the Judge remarked and which our own reading of the transcript confirms. [66] Looked at in the round against the quite moderate damages figures we are not persuaded that the Judge erred in the exercise of his costs discretion.Result[67] The appeal is dismissed. The appellants are jointly and severally responsible for payment of the respondent's costs which are fixed at $3,500 and usual disbursements.Solicitors: Young Hunter, Christchurch for Appellants Duncan Cotterill, Christchurch for Respondent