Sealegs International Ltd v Zhang [2016] NZHC 2480 (18 October 2016)

Last Updated: 11 November 2016

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

CIV 2016-404-2256 [2016] NZHC 2480

BETWEEN	SEALEGS INTERNATIONAL LTD Plaintiff
AND	YUN ZHANG & ORS Defendants

Hearing:	18 October 2016
Counsel:	B Henry for Plaintiff P D M Johns for Defendants
Judgment:	18 October 2016

_{(ORAL) JUDGMENT OF HEATH J}

Solicitors:

Colin Woodroffe, Auckland Baldwins Law, Auckland Counsel:

B Henry, Auckland

_{P D M Johns, Auckland}

SEALEGS INTERNATIONAL LTD V ZHANG [2016] NZHC 2480 [18 October 2016]

[1] Sealegs International Ltd (Sealegs) has brought proceedings against the defendants alleging breach of copyright. The allegations relate to the design and development undertaken by Sealegs in relation to a system of retractable legs for marine craft. It is said that the company has spent more than $16 million in research and development over the years. It is now said that the defendants are in effect copying Sealegs’ designs and will obtain a market benefit to which they are not entitled.

[2] In the first statement of claim filed on 9 September 2016, an order was sought restraining the defendants from displaying, offering for sale or selling copies of Sealegs’ copyright works as particularised for the product known as S25/3WD and OS25. An application was filed contemporaneously for an interim injunction. Mr Henry, for Sealegs, sought an urgent fixture for that in light of the fact that the Boat Show was due to commence on 29 September 2016 and the defendants intended to show the boat there.

[3] After hearing submissions, Lang J decided that a reasonable time ought to be allowed to the defendants to file evidence in opposition. In those circumstances, he set the application down for hearing on 28 October 2016.

[4] In the meantime, Sealegs renewed an application for an order that would prevent displaying at the Boat Show. That was done on a without notice basis but subsequently heard on a Pickwick basis by Faire J on 23 September 2016.

[5] In a judgment given on 26 September 2016, Faire J declined to make an order, holding that the balance of convenience favoured a refusal of the injunction at that stage. Importantly, he added that the balance of convenience favoured refusal “for the period under review, that is the 35 days from the date of hearing including the commencement of the Auckland On Water Boat Show and the hearing on 28

October 2016”. It is clear that the Judge based his decision on the time between his decision and the scheduled interim injunction hearing. Whether he would have come to a different view had there been any issue of the interim injunction proceeding on

28 October 2016, is not something on which I would speculate.

[6] Faire J made further directions in respect of the 28 October hearing. In particular, he directed that an amendment to the statement of claim to be considered at that hearing shall be filed and served no later than 3pm on 30 September 2016. It was anticipated that any amended pleading would be considered by the Court on the interim injunction application.

[7] An amended statement of claim dated 30 September 2016 has been filed. As a result of that and evidence filed in support of the interim injunction application, Mr Johns, for the second, third, fourth and sixth defendants, submits that the injunction hearing should be adjourned. That is the application that I have heard today.

[8] Mr Johns contends that the amended statement of claim and the further evidence has significantly amended and considerably increased the scope of the dispute for the Court’s consideration. In particular, he has referred to a greater number of designs to which the plaintiff has referred as part of its alleged copyright infringements.

[9] Mr Johns submits that the addition of a claim of infringement of registered design 303199, is particularly concerning. He contended that the registered design pleaded was significantly amended only on 30 September 2016. This point has been explained by Mr Henry on the basis that the registered design is as originally created and any suggested variation to it resulted inadvertently from the digitisation of records of New Zealand Intellectual Property Office. Mr Johns is currently making inquiries in that regard.

[10] Mr Johns points in particular to the 22 alleged copyright works identified in the original statement of claim and compares that with the 68 alleged copyright works that appear in the amended version of that document.

[11] Mr Johns submits that the defendants are prejudiced in their preparation for the interim injunction hearing. That prejudice is said to have arisen, both from the expanded terms of the claim and the further evidence. He also submits that there is no prejudice to Sealegs. The vessels are already in the market in the sense that they were displayed at the Boat Show. As a result, Mr Johns submits there is no

justification for haste in determining an interim injunction hearing and that it can properly be adjourned for hearing on the first available date which is 2 February

2017.

[12] Mr Henry, after setting out the background to the proceeding, submitted that the drawings on which he relies in respect of the copyright were completed, at least as to part by persons who are now involved with the defendants. As a result he contends that there is no difficulty in the defendants meeting the specific allegations that have now been made.

[13] On the other hand, Mr Henry asserts real economic prejudice to Sealegs if the interim injunction hearing were adjourned. He contends that if Sealegs were unsuccessful it has the ability to meet any damages for costs that might be payable. It is a publicly listed company.

[14] In deciding whether to adjourn a proceeding the interests of justice is the appropriate criterion. That has a number of components. They must be considered in the context of the particular proceeding or application before the Court. The nature of an interim injunction application is the need to deal promptly with an allegation that wrongful acts on the part of another party may damage the economic interests of the plaintiff. Generally it is necessary for counsel and the parties to deal promptly with such issues, notwithstanding the obvious time constraints that emerge.

[15] In my view, with respect to Mr Johns, the suggestions of prejudice in preparing for the hearing are overstated. The defendants have knowledge of the background against which the claims are made. To the extent that there is any real prejudice in answering any new allegation in the amended statement of claim or affidavits in support, it will be open to a deponent to explain why that cannot be done so that the Judge can take the explanation into account when determining whether to issue an interim injunction. The ability of the defendants’ witnesses to approach the issue in that way militates against any suggestion that the application for an interim injunction should be adjourned at this stage. An allied point is the one to which I have already referred, namely that Faire J’s decision was premised on the expected hearing of the interim injunction application on 28 October 2016.

[16] I am also satisfied that there is a risk of economic damage to Sealegs if the interim injunction hearing were deferred until February 2017. There appear to be some questions about the ability of Sealegs to recoup any financial loss it might otherwise incur during the interim period. In my view, Sealegs is entitled to have its application heard.

[17] In saying that there may or may not be merit in the points raised by Mr Johns about the prejudice caused to the defendants. I do not wish to pre-Judge that. I have made it clear that if a Judge hearing the interim injunction application is satisfied that there was merit in the points raised in a summary way by Mr Johns today, that Sealegs may be at risk of an order for increased or indemnity costs depending upon the view taken of that point. However, the ability to remedy any wasted costs is something that weighs in favour of refusal of the adjournment.

[18] For those reasons, I dismiss the application for an adjournment and make the following timetabling directions which are substituted for those previously made by Lang J:

(a) The defendants shall file and serve affidavits in opposition to the application for interim injunction by 5pm on 23 October 2016.

(b) The plaintiffs shall file and serve any reply affidavits limited solely to balance of convenience issues by 5pm on 25 October 2016.

(c) Counsel for the plaintiff shall file and serve submissions by 5pm on

25 October 2016 and will paginate further volumes of documents to match the numbering of documents already filed.

(d) Submissions from counsel for the defendants shall be filed and served by 5pm on 26 October 2016.

[19] I confirm that the interim injunction application will proceed at 10am on 28

October 2016, with one day allocated.

[20] In light of the comments I have made about the issues raised today, I reserve all questions of costs on the adjournment application. They can be considered by the Judge when giving a decision on the interim injunction application. That will enable the defendants to raise any questions of costs in the context of the submissions made

_today.

P R Heath J