MERISANT COMPANY, INCORPORATED v FLUJO SANGUINEO HOLDINGS PTY LIMITED [2018] NZCA 390

MERISANT COMPANY, INCORPORATED v FLUJO SANGUINEO HOLDINGS PTY LIMITED [2018]NZCA 390 [26 September 2018]IN THE COURT OF APPEAL OF NEW ZEALANDI TE KŌTI PĪRA O AOTEAROACA208/2018[2018] NZCA 390BETWEEN MERISANT COMPANY,INCORPORATEDFirst AppellantMERISANT AUSTRALIA PTY LIMITEDSecond AppellantMERISANT COMPANY 2 SARLThird AppellantNEW ZEALAND SUGAR COMPANYLIMITEDFourth AppellantAND FLUJO SANGUINEO HOLDINGS PTYLIMITEDRespondentHearing: 25 July 2018Court: Asher, Courtney and Moore JJCounsel: C L Elliott QC and J B Rutter for First, Second and FourthAppellantsD L Marriott for RespondentJudgment: 26 September 2018 at 11 amJUDGMENT OF THE COURTA The appeal is dismissed.B The appellants are jointly and severally liable to pay the respondent one setof costs for a standard appeal on a band A basis and usual disbursements.____________________________________________________________________REASONS OF THE COURT(Given by Asher J)Introduction[1] This is an appeal against a decision of Fitzgerald J refusing to stay thisproceeding because its continuation was an abuse of process.1 The proceedings havebeen filed by Flujo Sanguineo Holdings Pty Ltd (Flujo2) against the four respondents(Merisant), alleging passing off, trademark infringement, and breaches of theFair Trading Act 1986 in the packaging of stevia-based sweetener products.[2] This is the second proceeding where these allegations have been made againstMerisant (the second proceedings). Prior to the commencement of the presentproceedings, a different company to Flujo2, Flujo Holdings Pty Ltd (Flujo1), broughtproceedings that were substantially the same against Merisant. On 28 April 2017,some days before trial, an adjournment was sought by Flujo1. The application wasrefused. Flujo1 then within one hour discontinued the proceedings (the firstproceeding).[3] Prior to the discontinuance Flujo1 had executed a deed transferring theintellectual property that it relied on in the proceedings together with all intellectualproperty owned by Flujo1 to Flujo2 on 27 March 2017. That deed also assignedFlujo1's rights and remedies in relation to any past, present and future infringementsof the assigned intellectual property. Flujo2 is a company with the same directors andshareholders as Flujo1. Both are Australian companies.[4] After the discontinuance, Flujo2 as assignor commenced the currentproceedings. As we have indicated, the Flujo2 proceedings had the same Merisantdefendants as in the Flujo1 proceedings. Essentially the same allegations were made.Following filing of the second proceedings the Court heard an application of Merisantto vary the discontinuance, and an application for increased or indemnity costs in thefirst proceedings. The High Court declined to vary the notice of discontinuance, butawarded significant costs amounting to a total of $103,978.25. Flujo1 appealed1 Flujo Sanguineo Holdings Pty Ltd v Merisant Company Inc [2018] NZHC 54, [2018] NZAR 189.against the award, and a decision was delivered on 29 June 2018 dismissing theappeal.2 Flujo1 has still not paid any of the costs.[5] In late 2017 Merisant commenced enforcement proceedings against Flujo1 inAustralia in relation to these unpaid costs. Enforcement has been unsuccessful inAustralia to date, we are told because of a requirement for a certified copy of thejudgment that is sought to be enforced. Merisant was not able to provide such acertified copy while the first proceedings were under appeal. Despite Flujo1'snon-payment, Flujo2 wishes to proceed with all usual speed through the completionof interlocutories on the second proceedings, and to a trial.[6] On 14 August 2017 Merisant filed an application to dismiss or stay theproceedings. The application to dismiss was based on Flujo2 having no right to bringthe proceedings because the assignment was void. In her judgment delivered on5 February 2018 Fitzgerald J dismissed that aspect of the application.3 That part ofher judgment has not been appealed. She then went on to deal with the application fora stay. This was based on the non-payment of costs by Flujo1. She also dismissed theapplication to stay.[7] In her judgment she found that Merisant in seeking the stay could not rely onr 15.24 of the High Court Rules 2016 (the rules), but nevertheless the Court hadinherent jurisdiction to grant a stay to prevent abuse of its processes. She did notconsider that the assignment of the cause of action was a device to get around theobligation in r 15.24 to pay costs before proceedings are re-commenced. She did notconsider that any other High Court rule was breached in issuing the proceedings.[8] She then went on to determine whether there was an abuse in continuing thesecond proceedings without paying the costs of the first proceedings. She concluded:4In circumstances where I have concluded the assignment from Flujo Holdingsto Flujo Sanguineo was not invalid or otherwise unlawful, I do not considerFlujo Sanguineo's continuance of these proceedings, solely on the basis that arelated entity has not yet paid costs ordered in the First Proceedings, is itselfan abuse of process.2 Flujo Holdings Pty Ltd v Merisant Company Inc [2018] NZCA 226.3 Flujo Sanguineo Holdings Pty Ltd, above n 1.4 At [59].[9] This is the aspect of the decision which is now challenged by Merisant.The Judge went on to note that the costs order of the first proceedings continued tostand and Flujo1 remained liable to pay it.5 She observed that the non-payment couldbe a factor in a security for costs application in the second proceedings. She dismissedthe application.[10] Mr Marriott for Flujo 2 objected to the appellants' submissions on the groundsthat the appellants' arguments bear little or no relationship to the grounds upon whichtheir application to dismiss or stay the second proceedings was based on inthe High Court. He submitted that there had been change of emphasis in focusing onthe ongoing conduct of the proceedings, rather than the original bringing of theproceedings. We are unable to accept this submission. Objection to the pursuit of theproceedings was clearly signalled in the original application for stay, and in thesubmissions both in the High Court and in this Court.The issue[11] Mr Elliott submitted that allowing Flujo2 to continue with the secondproceedings without costs being paid by Flujo1 after that proceeding would be to avoidthe purpose if not the words of r 15.24. Moreover, this would defeat the over-archingobjective of the rules which is to secure the just, speedy and inexpensive determinationof the proceeding. He submitted that the Judge should have stepped back and viewedthe situation as a whole.[12] The Judge had observed that to resort to the Court's inherent jurisdiction in anycase where second proceedings had been commenced before a costs award in the firstproceeding " would, without more, run counter to the plain wording of r 15.24".6Mr Elliott was critical of the "without more" reasoning saying that there could be anabuse of process even if it had been commenced in accordance with r 15.24, andsubmitted that in any event the extent and failure by the Flujo parties to pay the costswas something that created obvious unfairness and prejudice, and constituted an abuseof process.5 At [60].6 At [58].The rules[13] Rule 15.24 restricts the commencement of subsequent proceedings in the eventof the non-payment of costs on a discontinuance:15.24 Restriction on subsequent proceedingsA plaintiff who discontinues a proceeding (proceeding A) against a defendantmay not commence another proceeding (proceeding B) against the defendantif proceeding B arises out of facts that are the same or substantially the sameas those relating to proceeding A, unless the plaintiff has paid any costsordered to be paid to the defendant under rule 15.23 relating to proceeding A.[14] Mr Elliott QC for Merisant did not seek to argue before us that r 15.24 applied.He was right not to do so as the party that ultimately did commence the proceedingswas a different party to Flujo1, being Flujo2. Further, in the present case neitherFlujo1 nor Flujo2 was subject to any costs order at all when the current proceedingswere commenced on 9 June 2017. Indeed, the costs order was not made untilapproximately a month later on 18 July 2017.7 Rule 15.24 does not apply.[15] However the fact that r 15.24 does not apply is not an end to the matter.Mr Elliott argues that Flujo2, in continuing with the proceeding while Flujo1 has notpaid costs, is abusing the process of the Court.[16] In relation to this appeal, the Court has an express power to stay all or part ofa proceeding under r 15.1(3). This rule does not affect the Court's inherentjurisdiction.8 Although this rule was not referred to in the High Court judgment orsubmissions it applies when, under r 15.1(1)(d) there is " otherwise an abuse of theprocess of the court". The issue in this appeal should be considered in the context ofthat rule. There is no definition of abuse of process in r 15.1.[17] We have considered, but rejected, the possible application of r 1.6 which dealswith cases for which there is no specific provision in the rules:7 In McKeown Group Ltd v Russell HC Timaru CIV-2008-476-530, 16 March 2009, French J citedthis rule in dismissing a r 15.24 strike out application, noting that there had never been any costsorder made in the earlier proceedings.8 High Court Rules 2016, 15.1(4).1.6 Cases not provided for(1) If any case arises for which no form of procedure is prescribed by anyAct or rules or regulations or by these rules, the court must dispose ofthe case as nearly as may be practicable in accordance with theprovisions of these rules affecting any similar case.(2) If there are no such rules, it must be disposed of in the manner thatthe court thinks is best calculated to promote the objective of theserules (see rule 1.2).[18] This rule also reflects the Court's inherent jurisdiction to control its ownprocedure. Where there is no applicable rule the Court must dispose of the case asnear as may be practicable in accordance with analogous rules. In r 1.6(2) it isprovided that if no such rules can be applied, the case must be disposed of to promotethe objective of the rules, which is to secure the just, speedy and inexpensivedetermination of the interlocutory application or proceeding.9[19] We must examine whether the Court should approach the issue of stay fornon-payment of costs in the first proceedings by way of an analogy to r 15.24, andwhether this is a similar case under r 1.6. In our view r 1.6 is of no assistance.The situation that has arisen involves significantly different facts from those referredto in r 15.24. There is not the same party, and there has not been a filing after a costsorder has been made. There is no analogy.[20] While r 15.24 does not apply, this does not limit the Court's powers.Plainly the fact that r 15.24 extends only to the discontinuing party starting again doesnot preclude a more general consideration of abuse of process.Abuse of process[21] An abuse of process can arise from a breach of the rules, or from conduct notthe subject of any rule of Court. Not every breach of a rule is an abuse of process, andactions which are not in breach of any rule can be an abuse of process. Somers J statedin New Zealand Social Credit Political League Inc v O'Brien:109 Rule 1.2.10 New Zealand Social Credit Political League Inc v O'Brien [1984] 1 NZLR 84 at 95.It is not in my view material that the League and Mr Riddoch have not pleadedabuse of process save in a limited way. The Court in this field is concernedwith proceedings which are ex facie lawful, that is to say are within the rulesabout procedure. But to prevent those rules being used oppressively the Courtwill intervene proprio motu [of its own initiative] if necessary. It recognisesthat the literal application of the law itself can be a tyranny.[22] The jurisdiction of the Court to intervene for abuse of process stems fromthe Court's obligation to ensure that its procedures are used fairly, and not in anoppressive or unjust manner. Lord Diplock offered this often quoted explanation inHunter v Chief Constable of West Midlands Police:11My Lords, this is a case about abuse of the process of the High Court.It concerns the inherent power which any court of justice must possess toprevent misuse of its procedure in a way which, although not inconsistent withthe literal application of its procedural rules, would nevertheless be manifestlyunfair to a party to litigation before it, or would otherwise bring theadministration of justice into disrepute among right-thinking people.[23] In Reid v New Zealand Trotting Conference Richardson J who quotedLord Diplock's dicta stated:12The public interest in the due administration of justice necessarily extends toensuring that the Courts' processes are fairly used and that they do not lendthemselves to oppression and injustice.[24] In Waterhouse v Contractors Bonding Ltd, the Supreme Court recorded withapproval extracts from the Australian High Court decision of Jeffery & Katauskas PtyLtd v SST Consulting Pty Ltd, where it was stated that abuse of process extends toproceedings that are "seriously and unfairly burdensome, prejudicial or damaging" or"productive of serious and unjustified trouble and harassment".13 The onus on a partyalleging abuse of process by bringing a proceeding for an improper purpose has beendescribed as "a heavy one" and one to be exercised only in "the most exceptionalcircumstances".1411 Hunter v Chief Constable of West Midlands Police [1981] 3 WLR 906 (HL) at 909.12 Reid v New Zealand Trotting Conference [1984] 1 NZLR 8 at 9.13 Waterhouse v Contractors Bonding Ltd [2013] NZSC 89, [2014] 1 NZLR 91 at [32], quoting fromJeffery & Katauskas Pty Ltd v SST Consulting Pty Ltd [2009] HCA 43, (2009) 239 CLR 75 at [28].14 Williams v Spautz (1992) 174 CLR 509 at 528 and 536; and Goldsmith v Sperrings Ltd [1977] 1WLR 478 (HL) at 498.[25] It is useful to compare the present circumstances with other cases where it hasbeen held that there was an abuse of process. In Hunter v Chief Constable ofWest Midlands Police there were civil actions taken by defendants to earlier criminalproceedings, which were seen to be a collateral attack on the previous decision of acriminal court. That was held to be an abuse of process. In Reid v New ZealandTrotting Conference there were significant overall delays that had taken place that ledto Limitation Act issues and there were deficiencies in the pleadings. In particularthere was an absence of particulars and relevant witnesses had died. The issue of theproceeding was an abuse of process. So also, the re-litigation of an issue alreadydetermined has been frequently held to be abuse of process.15 Abuse of process mayalso include issuing proceedings with an improper motive or in an attempt to obtain acollateral advantage beyond that legitimately gained from a court proceeding.16[26] All these cases involve the immediately recognisable and serious misuse ofCourt procedures.[27] It is clear, therefore, that just as it is not every breach of the rules that wouldbe regarded as an abuse of process, similarly not every action by a party which resultsin some form of unfairness to another party will be an abuse of process.17 The conductmust be "manifestly unfair".18 There must be something more than the breach of arule or an action, which might offend a general sense of fair play. The action must bean abuse of the Court's process with all the seriousness that the word "abuse" entails.Some action involving serious unfairness is required, where the Court perceives it hasa duty to intervene and protect the Court process. It must conclude that it is obligedto intervene to stop the Court's process being used in the way proposed by theoffending party.Application to facts[28] From a commercial perspective the frustration of Merisant is understandable.They have to fund their defence, but are out of pocket on a costs award in what they15 McGougan v DePuy International Ltd [2018] NZCA 91, [2018] 2 NZLR 916 at [100].16 Goldsmith, above n 14.17 Jeffery & Katauskas Pty Ltd, above n 13, at [28]; and Waterhouse, above n 13, at [32].18 Hunter, above n 11, at 729.see as the same case. There is an element of unfairness in that. But is it an abuse ofprocess for a proceeding to continue when there is an assignment of the claim to a newparty and outstanding costs owed by the assignor?[29] There is no doubt that Flujo1 and Flujo2 are closely related companies.Searches produced to the Court show that a Mr Mark Hanna and Mr Samuel Tew arethe sole directors and shareholders of both companies, although in differentproportions. They are Australian companies. It was not submitted to us that theywould fall within the definition of a related company under s 2(3) ofthe Companies Act 1993.[30] Mr Hanna is the managing director of Flujo2. He deposed that the assignmentfrom Flujo1 to Flujo2 was carried out for completely legitimate commercial reasons,relating to a restructure of the Flujo group of businesses. It had been implementedsome 18 months prior to the discontinuance. He stated that the assignment was notrelated in any way to the dispute with Merisant, and the reason it was delayed fromthe time of the restructure was that it was a low priority. He stated that the option ofdiscontinuing the proceedings was not drawn to his attention until the adjournmentissue became pressing on 27 April 2017. He also deposed that the last minuteadjournment was sought because Flujo1's barrister had withdrawn due to a disputeabout fees.[31] In finding that the Court's process had not been abused by the adjournmentapplication and discontinuance, Fitzgerald J declined to find that the assignment wasinvalid or otherwise unlawful.19 It is to be noted that the new proceedings were notfiled until 9 June 2017, over two months after the assignment and over a month afterthe discontinuance and adjournment of 28 April 2017. These findings are notchallenged. Merisant's real complaint of unfairness is that if the corporate veil islifted, the directors and shareholders of Flujo1 are able to continue the sameproceedings through Flujo2, while thumbing their noses at the Flujo1 costs order.[32] However the two Flujo companies must be regarded as two legally separatepersons, and from all appearances on the file to date Flujo2 is a genuine plaintiff19 Flujo Sanguineo Holdings Pty Ltd, above n 1, at [59].seeking a trial as soon as possible. There is nothing to suggest that Flujo2 set outthrough the assignment and discontinuance to take advantage of the procedures ofthe Court to defeat the costs award against Flujo1. Mr Elliott made no submissions tothe contrary.[33] If the Court had been satisfied that the assignment had been entered into withthe deliberate purpose of defeating the costs order, there might well have been an issueof abuse of process. However that is not the case here. There was no finding that theassignment was made for anything other than a legitimate commercial purpose,20 andas we have said, this was not challenged in this appeal. The only wrongdoing byFlujo2 that can be alleged is the continuing of the second proceedings while costs onthe first are unpaid.[34] While Merisant nurses a feeling of unfairness it is not without remedy.Merisant should be able to seal its costs judgment against Flujo1 and enforce it inAustralia. It has not been demonstrated that Flujo1 is unable to meet the award ofcosts. In other words Merisant has orthodox procedural options available to it throughwhich it should be ultimately able to get payment of the costs. Any unfairness istherefore likely to be a matter of delay in obtaining a sum of money which althoughconsiderable is far from being of the most significant order between commercialparties. There is no evidence that the delay in payment is causing any particular harmto Merisant.Conclusion[35] We conclude that there is no abuse of process in Flujo 2 continuing itsproceedings. The filing of the proceedings is to pursue what appears to be a genuinegrievance, and the actual processes of the Court in relation to the second proceedingsare not being misused in any way. We do not see the fact that there has been an earlierproceeding by an assignor relating to the same grievance in which there areoutstanding costs creates the necessary element of serious unfairness to warrantintervention. In our view the Court's jurisdiction to prevent an abuse of process wouldbe stretched beyond its natural boundary if it was made to cover the present quite20 See the discussion at [18]–[28] of this judgment.unusual circumstances. We cannot see why, as a matter of duty to protect the fairnessof its processes, the High Court was obliged to issue a stay.[36] This conclusion does not defeat the just, speedy and inexpensive determinationof the proceeding. The proceeding is properly brought and is being properly pursued.Indeed this application and appeal appears to have delayed it, on the initiative ofMerisant. The costs ordered in the first proceedings can be enforced, and delay inpayment will be highly relevant to the making of a security for costs order to protectMerisant for its costs in this proceeding. In the meantime, the ongoing conduct of theproceedings is not outrageous or seriously unjust. Like Fitzgerald J we conclude thatthere is no abuse of process warranting the Court's intervention.Result[37] The appeal is dismissed.[38] Costs follow the event. The appellants are jointly and severally liable to paythe respondent one set of costs for a standard appeal on a band A basis and usualdisbursements.Solicitors:Kensington Swan, Auckland for First, Second and Fourth AppellantsHudson Gavin Martin, Auckland for Respondent