Dependable Property Management Ltd v Li
[2015] NZHC 3355
•21 December 2015
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
CIV-2015-404-897 [2015] NZHC 3355
BETWEEN DEPENDABLE PROPERTY
MANAGEMENT LIMITED Plaintiff
AND
JUNNAN LI First Defendant
AND
FAST RENTAL LIMITED Second Defendant
Hearing: 22 October 2015 Appearances:
M R T Colthart for Plaintiff
F C Deliu for DefendantsJudgment:
21 December 2015
JUDGMENT OF KEANE J
This judgment was delivered by me on 21 December 2015 at 4pm pursuant to r 11.5 of the High Court Rules.
Registrar/Deputy Registrar
Solicitors:
Clendons, North Shore, Auckland
R Zhao, Auckland
DEPENDABLE PROPERTY MANAGEMENT LTD v JUNNAN LI [2015] NZHC 3355 [21 December 2015]
[1] Since 30 April 2015 Junnan Li, who between 22 January 2014 - 14 April
2015 was Dependable Property Management Limited’s general and property manager, and his company, Fast Rental Limited, have been restrained by an interim order made in this Court from:
(a) setting up in direct or indirect competition with DPM for four months as from 14 April within a 15 kilometre radius of DPM’s Hillcrest office;
(b) managing or letting any property recorded on DPM’s database as at 14
April 2015 (whether by drop box or spreadsheet); and
(c) disclosing or using DPM’s confidential information, as defined in
their agreement, dated 22 January 2014.
[2] The first of these restraints ceased on 14 August 2015 but Mr Li and Fast
Rental Limited remain subject to the two remaining. By application made on 23
June 2015, they seek to have DPM’s proceedings struck out, or stayed, or transferred to the Disputes Tribunal or the District Court; and, if the interim orders survive, to have them set aside or varied.
[3] The primary issue on this application is whether DPM’s proceedings should be stayed in order to give effect to the arbitration clause in its agreement with Mr Li; as to that, the critical point is whether Mr Li has subscribed to the jurisdiction of this Court and waived any right to elect arbitration. (Their strike out application assumed that jurisdiction lay with the Employment Court, not this Court, but that possibility has fallen away.)
[4] The second issue depends on my answer to the first. If I stay DPM’s proceedings I have no need to consider whether to transfer them to the Disputes Tribunal or the District Court. But I must then decide for how long the stay should continue, and on what terms, catering for the contingency that an arbitrator may not be agreed and any risk of undue delay.
[5] Thirdly, whether or not I grant a stay, I must consider whether I am able to, and should, review the interim orders in the absence of fresh evidence.
Evolution of case
[6] DPM’s case rests on the proposition that it has let and managed residential properties since 2008 and has acquired details of 900 properties; and that its database, coupled with its application and agreement forms, enables it to list properties and secure tenants almost immediately, giving it a competitive advantage.
[7] On 22 January 2014, it is not contested that DPM entered into an agreement with Mr Li, whom it had first engaged as a property manager and letting agent in June 2013, under which he became DPM’s general and property manager. That agreement imposed on him a duty of confidentiality and he became subject to a restraint of trade.
[8] On 14 April 2015, it is also uncontested that Mr Li terminated his agreement with DPM. DPM’s case is that even before but certainly after that date, he was in breach of his duty of confidentiality and of the restraint. By 16 February 2015 he had set up in competition in Long Bay, within 15 kilometres of DPM’s Hillcrest office. By the date he resigned he had copied DPM’s database and documents and he soon began to target properties on the database.
[9] On 29 April 2015 DPM brought this action against Mr Li and Fast Rental Limited, his company (to which I refer from this point whenever I refer to Mr Li), contending that it had suffered direct loss as a result of his breaches of their agreement, and seeking permanent and interim injunctive relief and an account of profits and damages.
[10] On 29 April Asher J, as duty judge, adjourned DPM’s without notice application for interim relief until the following afternoon. He did not direct service of that application but he directed that Mr Li and his company be given notice of the fixture on a Pickwick basis; a without notice procedure.
[11] At the fixture Mr Li appeared under a protest to jurisdiction contending that first, the Court lacked personal jurisdiction because he had not been served; and second, it lacked subject matter jurisdiction because he had been DPM’s employee, and jurisdiction lay with the Employment Court.
[12] Asher J held that a lack of service did not preclude interim relief and questioned whether Mr Li had been DPM’s employee. The Court might, he said, lack jurisdiction because Mr Li’s agreement contained an arbitration clause. But, under the Arbitration Act 1996, he could still make interim orders. In the orders he then made he reserved leave to Mr Li to apply on short notice to have them set aside or for further orders.
[13] On 4 June 2015 Mr Li applied for relief to the Employment Relations Authority. DPM opposed his application, contending that the Authority was without jurisdiction because Mr Li had been an independent contractor. That issue of jurisdiction was set down for 27 July 2015 and thus had still to be decided when Mr Li made this present application on 23 June 2015. The Authority decided that it did not have jurisdiction and that ground for protest therefore fell away.
[14] At the fixture before me on 22 October 2015, Mr Li pressed instead for a stay relying on the arbitration clause, and sought to have the interim orders set aside or varied on the ground that they were unjustified and oppressive. In the minute I issued that day I required further submissions on both issues, the last of which I received on 27 November 2015.
Stay application
[15] Mr Li’s application for a stay and an order referring the parties to arbitration rests on Article 8(1) of the First Schedule of the Arbitration Act 1996, which says:
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.
Three questions
[16] The first question, under Article 8(1), is as to the efficacy of the agreement and thus the arbitration clause. As to that there is no issue. There is no suggestion that the agreement is null and void, inoperative, or incapable of being performed.
[17] The second question is whether the arbitration clause does, on its face, require the subject matter of DPM’s proceedings to be referred to arbitration and as to that there is no issue either. The clause is widely expressed. It says this:
In the event that any dispute shall arise between the parties hereto as to the interpretation of any terms or contained (sic), or as to any matter or thing arising out of this agreement, such dispute shall be referred to a single arbitrator to be agreed upon between the parties hereto or failing agreement to two arbitrators and its umpire, subject to the provisions of the Arbitration Act 1996 or any amendment therefore.
[18] The issues arising in this proceeding - whether Mr Li has since the date of his resignation, as well as before, been subject to the confidentiality and restraint obligations it imposes, whether he is in breach of them and whether DPM is entitled to an account of profits and damages - are clearly matters or things arising out of his agreement with DPM capable of being resolved by an arbitral award.
[19] The third and critical question is whether Mr Li is precluded from pursuing his application for stay relying on Article 8(1); and that depends on whether before making that application, as it says, he had made his “first statement on the substance of the dispute”.
Disqualifying first statement on substance
[20] In Pathak v Tourism Transport Ltd, in a statement which I gratefully adopt, Heath J said:1
In determining whether there has been a statement on the substance of the dispute this Court should focus on whether a particular party has elected to submit the substantive dispute to the jurisdiction of the Court.
1 Pathak v Tourism Transport Ltd [2002] 3 NZLR 681.
[21] As the cases to which counsel referred show, a party may make a first statement on the substance of the dispute in a variety of ways, some of which vary depending on whether the party seeking the stay is the plaintiff or defendant. There can be no general prescription.
[22] In The Property People Ltd v Housing New Zealand Ltd, on which DPM relies, the contract was terminated by the defendant and the plaintiff issued proceedings seeking immediate interim relief.2 The defendant filed a notice of opposition and affidavit evidence and interim relief was declined; a decision upheld on appeal.
[23] The plaintiff then applied for a priority substantive fixture, which the defendant opposed, firstly by letter, on the ground that their dispute had to be resolved by arbitration. At the priority fixture given the defendant appeared under protest and applied for a stay and a reference to arbitration under Article 8(1). The issue was whether that application had come too late. Salmon J held that it had.
[24] The defendant, he said, had not become compromised by opposing the plaintiff’s application for interim relief, because that application was authorised by Article 9 of the First Schedule of the 1996 Act and that implicitly authorised the defendant’s response. But, he held, by not at the same time or immediately afterwards applying for a stay, the defendant had submitted to the jurisdiction of the
Court. He said this:3
It is desirable that there be certainty in these matters. Certainty is assured by giving the words of Article 8(1) their ordinary meaning. … It is clear that the notice of opposition to the interim injunction application and the affidavits filed … did constitute a statement by the defendant on the substance of the dispute. In order to be able to rely on Article 8(1) the defendant should have applied for a stay at least prior to the hearing of the interim injunction application. Its failure to do so means that it cannot rely on Article 8.
[25] In Marnell Corrao Associates Inc v Sensation Yachts Ltd, by contrast, on which Mr Li relies, the plaintiff applied for an order restraining the defendant from
appointing an arbitrator, or taking any further related step; and the defendant applied
2 The Property People Ltd v Housing New Zealand Ltd (1999) 14 PRNZ 66 (HC).
for a stay on the ground that their agreement contained a disputes regime, which extended to a duty to go to arbitration.4
[26] Wild J held the disputes regime to be binding; and, in doing so, held that the defendant had not, before applying for a stay, made any statement on the substance of the dispute. The defendant had done no more than subscribe to interim consent orders restraining it from working further on the vessel in issue, giving the plaintiff controlled access, agreeing how the vessel was to be kept secure, and timetabling the case to the fixture.
[27] He also said that, in contrast to the Arbitration Act 1908, the 1996 Act gives “powerful new emphasis” to “encouraging the use of arbitration as an agreed method of resolving commercial and other disputes”;5 and that also favoured a stay in that case.
[28] In Pathak v Tourism Transport Ltd, to which I referred at the outset, the plaintiffs, having brought the proceedings and sought interim relief, which was met by undertakings, then invoked the arbitration clause in the franchise agreement in issue and applied for a stay.6 The issue was, whether between the two events, they had subscribed to the Court’s jurisdiction.
[29] Heath J accepted that the plaintiffs had been entitled under Article 9 of the First Schedule to the 1996 Act to bring proceedings to obtain interim relief. But after that he held they had taken “significant steps” in applying for further and better particulars, and in giving such particulars themselves, and in supplying a verified list
of documents. And he said:7
It is no answer … to say that those steps were required by the case
management conference process.
[30] Heath J held that if the plaintiffs had sought a stay immediately after they got the undertakings, a stay would have been granted. But they had not, and the arbitral
proceedings were not commenced, on one view, until five months after the
4 Marnell Corrao Associates Inc v Sensation Yachts Ltd (2000) 15 PRNZ 608 (HC).
5 At [66] – [67].
6 Pathak v Tourism Transport Ltd, above n 1.
undertakings were given. On those grounds, the first in particular, he held that the plaintiffs had become disentitled to rely on Article 8(1).
[31] At the same time, Heath J emphasised, as had Wild J in Marnell Corrao, that the 1996 Act, in contrast to the 1908 Act, favoured party autonomy and required a stay to be entered as long as the requesting party had not already subscribed to the jurisdiction of the Court. (By contrast the 1908 Act merely gave a discretion to the Court to stay.)8
[32] Conscious of that distinction, I mention one further case, under the 1908 Act, to which neither counsel referred, McKee-Fehl Constructors Ltd v Green & McCahill (Contractors) Ltd.9
[33] The issue in that case was whether the application for stay had been made, under s 5, “at any time before filing a statement of defence or a notice of intention to defend or taking any other step in the proceedings”; and whether, in particular, the filing of an affidavit in opposition to a summary judgment application constituted a disqualifying “step in the proceedings”.
[34] McGechan J held that an application for a stay under s 5 was viable as long as it was filed before or simultaneously with any affidavit in opposition. He said:10
A defendant who so desires may file contemporaneously both an affidavit in opposition, with or without a notice of opposition, and an application for stay, without thereby submitting to the jurisdiction of the Court. What he must not do is simply file an affidavit, even with reference to arbitration, and not then or previously file an application for stay.
[35] That reasoning, I consider, holds good with even greater force under the 1996
Act.
8 At [19].
9 McKee-Fehl Constructors Ltd v Green & McCahill (Contractors) Ltd (1988) 4 PRNZ 277.
10 At 284.
Stay conclusions
[36] In this case, I have concluded, Mr Li’s application for stay remains viable, and I am obliged to accede to it and refer the parties to arbitration, for the following reasons.
[37] First, DPM’s interim relief orders were obtained on a without notice application, of which Mr Li only became aware as a result of Asher J’s minute. His counsel appeared on a Pickwick basis and, as Asher J made clear, did not enter into the merits. In filing and serving his appearance in objection to jurisdiction, Mr Li
did not submit to the jurisdiction of the Court.11
[38] Secondly, the ground on which Mr Li then contended that the Court lacked subject matter jurisdiction was that exclusive jurisdiction lay with the Employment Court. As to that, Asher J was sceptical. For the purpose of granting interim relief, he deemed Mr Li to be an independent contractor. But, as he said, that was not an issue that he was able to determine finally.
[39] Thirdly, in then pursuing relief before the Employment Relations Authority, unsuccessfully, Mr Li did not make any statement as to the substance of the dispute in this proceeding (or, indeed, make any statement to this Court). His recourse to the Authority was consistent with his protest to jurisdiction.
[40] Fourthly, Mr Li’s recourse to the Authority, consistent with his protest, also accounts for his omission to apply for a stay under Article 8(1), relying on the arbitration clause. If the Authority had accepted jurisdiction, there would have been no need to go to arbitration (a form of recourse DPM itself had elected not to pursue).
[41] Fifthly, all the while, Mr Li’s protest to jurisdiction remained operative.
DPM did not apply, as it was entitled to do, to have that appearance set aside.12
Instead it was Mr Li who made the present application, relying on his appearance, to
11 High Court Rules, r 5.49(2).
12 Rule 5.49(5).
have this proceeding struck out or stayed on the ground that this Court lacked jurisdiction;13 and then invoked Article 8(1), as he remained able to do.
[42] Sixthly Mr Li only made his first statement on the substance of the dispute at the same time as he made his application for stay: to support his now redundant argument that the Authority had exclusive jurisdiction, and to have the interim orders set aside or varied under the leave given. That statement cannot compromise his right to a stay.
[43] Seventhly, neither the rules of this Court, nor those applying under the Arbitration Act 1996, required Mr Li to make any reference to arbitration before this present application for stay was resolved. Indeed it would have been premature for him to do so.
Interim orders
[44] The issue remaining is whether, in referring the parties to arbitration as Article 8(1) obliges me to do, I am able to and should revisit the interim orders Asher J made and I am satisfied that, even if I have the ability to do so, there is no justification for setting them aside or varying them. My reasons are these.
[45] Firstly, the interim orders Asher J made, as he recognised, are expressly authorised by Article 9(1):
It is not incompatible with an arbitration agreement for a party to request, before or during arbitral proceedings, from a Court an interim measure and for a Court to grant such a measure.
[46] Secondly, the orders, as “interim measures”, are temporary measures which may subsist until the arbitral award,14 and after a reference is made to arbitration the arbitral tribunal itself has the ability to modify, suspend or cancel such orders.15 It is
not essential that the Court revisit them before arbitral proceedings are commenced.
13 Rule 5.49(3).
14 Arbitration Act 1996, arts 17, 17A, 17B.
15 Article 17H.
[47] Thirdly, while I accept that this Court has jurisdiction to rescind or vary the orders if they are shown to be wrong,16 I have been invited to revisit the orders Asher J made essentially on the evidence before him. Mr Li’s evidence is spare in the extreme.
[48] Normally there will be a basis in evidence to review orders made. Often, that basis will involve a material change in circumstance.17 Even though it has been held that orders obtained without notice must be reviewable without inhibition and that on the review there is a hearing de novo in the presence of the then absent party,18 a change without fresh evidence would have self evidently to rest on some truly significant error.
[49] Mr Li contends that the restraint of trade is oppressive but that argument is now otiose because that restraint ceased on 14 August 2015. He then contends that the information secured by the remaining restraints is not confidential and is in the public domain; that it is indefinite in that it is housed in a database not before the Court; that it is information which DPM has not proved Mr Li possesses; that the orders are anti-competitive; and that they are draconian because they are indefinite. He also contends that damages would be an adequate remedy.
[50] After setting those criticisms of the orders made against DPM’s evidence, I am satisfied, as Asher J was, that DPM’s database is arguably a valuable commercial resource, even though it may contain data which is commonplace and in the public domain; and that Mr Li is in arguable breach of his duty of confidentiality under his agreement with DPM.
[51] Thus, I am satisfied equally, that the interim orders made were proper for the reasons Asher J gave and that it would be wrong for me to revisit them. The issues
Mr Li raises can only properly be determined on evidence now before an arbitrator.
16 Rule 7.49.
17 Eastridge v Oceanic Life Ltd (1997) 10 PRNZ 340.
18 At [36].
Orders
[52] I therefore stay these proceedings and refer the parties to arbitration, under Article 8(1) of the First Schedule of the Arbitration Act 1996; a stay which is to continue until the making of the arbitral award called for, subject to these conditions:
(a) An arbitrator, or two arbitrators and an umpire, must be appointed under the Arbitration Act 1996 by 18 February 2016; or
(b)by that date an application must have been made to this Court for any order necessary.19
[53] The interim orders Asher J made will continue until the issue of the final award, subject to any prior order made by the arbitrator. If any further orders are required of this Court, that will have to be by way of further application on notice.
[54] Mr Li is entitled to costs in scale 2B, to be fixed by the Registrar unless there is some issue of principle. In that event DPM is to file and serve a succinct memorandum by 3pm on 29 January 2016, and Mr Li’s equally succinct response is
to be filed and served by 3pm on 12 February 2016.
P.J. Keane J
19 Arbitration Act 1996, Schedule 1, art 11.
5
0
1