Cranium Adspace Limited v British American Tobacco (New Zealand) Limited

[2016] NZHC 2922

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

CIV-2016-404-001021 [2016] NZHC 2922

BETWEEN

CRANIUM ADSPACE LIMITED

Plaintiff

AND

BRITISH AMERICAN TOBACCO (NEW ZEALAND) LIMITED Defendant

Hearing:	2 December 2016
Appearances:	B Henry for the Plaintiff I Gault for the Defendant
Judgment:	5 December 2016

JUDGMENT OF EDWARDS J

This judgment was delivered by Justice Edwards on 5 December 2016 at 11.30 am, pursuant to

r 11.5 of the High Court Rules

Registrar/Deputy Registrar

Date:

Solicitors:           Shanahans, Family and Property Law, New Lynn, Auckland

Belly Gully, Auckland

Counsel:            B Henry, Auckland

CRANIUM ADSPACE LTD v BRITISH AMERICAN TOBACCO (NEW ZEALAND) LTD [2016] NZHC 2922 [5 December 2016]

Introduction

[1]      The  parties  to  this  proceeding  are  parties  to  an  agreement  containing  a dispute resolution clause.  That clause requires disputes between them to be referred to mediation and then arbitration, with the exception of interim or preliminary relief which may be sought from the court.

[2]      On  20  May  2016  Cranium Adspace  Limited  (Cranium)  commenced  this proceeding against British American Tobacco (New Zealand) Ltd (BATNZ) alleging breach of the agreement between them.  It also applied for an interim injunction to restrain BATNZ from pursuing contractual negotiations with a third party.   That interim injunction application is no longer pursued and all issues relating to interim relief are now resolved.

[3]      BATNZ applies to strike out or alternatively stay this proceeding.

Background

[4]      On 15 May 2014, the parties entered into an agreement for Cranium to sell advertising space on BATNZ’s tobacco dispensing units (Agreement).  Clause 15 of that Agreement provides as follows:

15.      Dispute Resolution

15.1Any party may require any dispute between parties arising out of or in connection with this Agreement (Dispute), which has not been resolved within 10 working days, to be referred to mediation.  The mediator will be appointed by both  parties or, where the parties cannot agree on a mediator within 10 workings days of a party referring a Dispute to mediation, appointed by the Chairperson of LEADR New Zealand Incorporated or the Chairperson’s nominee. The mediator will conduct the mediation in accordance with those guidelines agreed between the parties or, if the parties cannot agree on those guidelines within 10 working days following appointment of  the  mediator,  in  accordance  with  the  guidelines  set  by  the mediator.  The costs and expenses of the mediator will be shared by the parties equally.

15.2In  the  event that  a Dispute  has  not been resolved  with [sic] 30 working days following the referral of the Dispute to mediation, the Dispute will be escalated to arbitration which shall be conducted in

accordance with the Arbitration Act 1996.  The arbitral tribunal shall decide the dispute in accordance with the substantive law of New Zealand and the place of the arbitration shall be Auckland, New Zealand.  The arbitrator shall be appointed by BATNZ and the Agent or failing agreement within 10 working days of service of the written notice shall be appointed at the request of either the BATNZ or the Agent by the president or vice-president for the time being of the New Zealand Law Society.  The arbitral award is final and binding on the parties.  The parties’ own costs and the costs of the award in relation to the arbitration will be borne in the manner determined by the arbitrator and, in the absence of such determination, each party will bear its own costs and an equal share of the costs of the arbitration.

15.3The provisions of this clause 15 will not limit or affect the right of BATNZ or Cranium to apply to a court at any time for any interim or preliminary relief in respect of the Dispute.

[5]      The Agreement between the parties came to an end on 19 May 2016 and BATNZ declined to renew it.   Cranium filed proceedings the following day.   The claim as pleaded alleges breach of the Agreement by: failing to provide customer sites; failing to exercise the discretion around renewal of the Agreement in good faith; and using Cranium’s protected information by divulging it to potential competitors.

[6]      The statement of claim was filed together with an application for an interim injunction restraining BATNZ from any conduct which was inconsistent with Cranium’s claim for specific performance.   An order requiring disclosure of the identity of the third party with which BATNZ was negotiating regarding the advertising on tobacco dispensing units was also sought.

[7]      By judgment  dated 10  June 2016,  Muir J  declined Cranium’s  disclosure application and issued timetabling orders for the hearing of the interim injunction application.  Cranium appealed the decision regarding the disclosure application.  On

1 July 2016 Cranium filed a memorandum in the High Court withdrawing its interim injunction  application  pending  the  outcome  of  its  appeal.     That  appeal  was abandoned in September 2016.  BATNZ subsequently informed Cranium that it had signed an agreement with Hypermedia for the advertising on the units.

[8]      It is not disputed that the interim relief phase of the proceeding is at an end.

Legal framework

[9]      BATNZ’s application was advanced under r 15.1 of the High Court Rules and

art 8 of sch 1 to the Arbitration Act 1996.

[10]     Rule 15.1 provides the Court with a discretion to strike out or alternatively stay all or part of a proceeding.  BATNZ specifically relies on r 15.1(1)(b) (likely to cause prejudice or delay) and r 15.1(1)(c) (frivolous or vexatious) in its application.1

[11]     Article 8 of sch 1 to the Arbitration Act 1996 provides:

8        Arbitration agreement and substantive claim before court

(1)       A court before which proceedings are brought in a matter which is the subject of an arbitration agreement shall, if a party so requests not later than when submitting that party’s first statement on the substance of the dispute, stay those proceedings and refer the parties to arbitration unless it finds that the agreement is null and void, inoperative, or incapable of being performed, or that there is not in fact  any  dispute  between  the  parties  with  regard  to  the  matters agreed to be referred.

(2)       Where proceedings referred to in paragraph (1) have been brought, arbitral proceedings may nevertheless be commenced or continued, and an award may be made, while the issue is pending before the court.

Parties’ submissions

[12]     BATNZ  seeks  to  strike  out,  or  alternatively  stay,  the  proceeding  on  the grounds that the proceeding could only be filed in this Court for the purposes of pursuing interim relief.  With the interim relief issues now resolved, the claim may only be pursued by following the procedure in cl 15 of the Agreement.

[13]     Further, BATNZ says that having the proceeding “hanging over its head” is causing it serious prejudice.  The uncertainty created by the proceeding means that advertising campaigns have had to be delayed, and Hypermedia remains unable to commit to timeframes with potential advertisers with any certainty.  That is causing

loss  to  BATNZ  and  difficulties  in  conducting  its  business  affairs.    That  latter

1      Although the application originally relied on r 15.2, that was abandoned at the hearing.

prejudice has been recognised as an appropriate factor to take into account in considering whether to strike out proceedings.2

[14]     Finally BATNZ says that to continue the proceeding in this Court solely on the basis that evidence against Hypermedia may be obtained in the future, which could lead to it being joined to the proceeding, is an abuse of the Court’s processes.

[15]     Cranium does not dispute that the current claim as pleaded falls within the arbitration clause.   There is also no issue taken with the timing of the request, it being accepted that it has been made prior to the first statement on the substance of the dispute being made.  However, on behalf of Cranium, Mr Henry submits that the arbitration agreement is “inoperative” or “incapable of being performed” within the meaning of art 8.  That is because the dispute involves a third party which is not a party to the arbitration agreement.  On the proper interpretation of cl 15, Mr Henry submits that the parties cannot have intended for the proceeding to be split between

multiple dispute resolution options.3

[16]     Mr Henry further submits that the allegations of prejudice and delay are unfounded.  He contends that any such prejudice and delay would exist whether or not the dispute was referred to arbitration or was pursued in the High Court.

[17]     Cranium says that the reason why Hypermedia has not entered the market is because as soon as it does, it will become apparent that it is using Cranium’s confidential information.  Mr Henry further submits that discovery is needed to be able to properly formulate the claim against Hypermedia.

Analysis

[18]     An  order  striking  out  the  proceeding  is  premature.    It  has  only  been commenced relatively recently and, but for the arbitration clause, there is no other

basis upon which it should be struck out.

2      Biis v Lambeth Health Authority [1978] 2 All ER 125 (CA) at 131applied by New Times Media

Ltd v Chinese Herald Ltd HC Auckland CIV-2001-404-002027, 10 August 2006 at [15].

3      Citing Premium Nafta Products Ltd v Fili Shipping Co Ltd [2007] UKHL 40, [2007] 4 All ER

951 in support.

[19]     Cranium  has  indicated  it  intends  to  pursue  its  claims  as  pleaded.    The Arbitration Act 1996 applies.  Article 8 mandates a stay of proceedings in favour of arbitration so long as the prerequisites in that article are met.  Cranium’s sole basis of opposition  to  the  application  is  that  the  arbitration  agreement  in  cl  15  is “inoperative” or “incapable of being performed” within the meaning of art 8.

[20]     I do not consider that potential or hypothetical claims against Hypermedia render the arbitration agreement “inoperative” or “incapable of being performed”. Claims against Hypermedia (or indeed any other third party) are not currently pleaded.  Whether any grounds exist for such claims is entirely speculative.  There is no basis to maintain proceedings in this jurisdiction in the hope that something might arise later which might form grounds for a related claim against a third party.

[21]     Questions of delay and prejudice are irrelevant to the considerations under art

8. That article does not afford a discretion to the Court where the parties have agreed to refer their dispute to arbitration and when the prerequisites of art 8 are otherwise met.  I am bound by art 8 and must accordingly stay the proceeding.

Result

[22]     The application for a stay of proceeding is granted.  The parties are referred to the dispute resolution process set out in cl 15 of the Agreement.

[23]     BATNZ has been successful in its application and is entitled to an award of costs on a category 2B basis.  I decline to certify for second counsel.

Edwards J