Ecostore Company Ltd v Worth
[2017] NZHC 1480
•29 June 2017
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
CIV-2017-404-000672 [2017] NZHC 1480
BETWEEN ECOSTORE COMPANY LIMITED
Plaintiff
AND
GILLIAN HELEN WORTH Defendant
Hearing: 24 May 2017 Further submissions:
Appearances:
25 and 29 May 2017
J D McBride and L E Mannis for Plaintiff
A M Toohey for DefendantJudgment:
29 June 2017
JUDGMENT OF GILBERT J
This judgment is delivered by me on 29 June 2017 at 4.45 pm pursuant to r 11.5 of the High Court Rules.
..................................................... Registrar / Deputy Registrar
Solicitors/Counsel:
J D McBride, Barrister, Auckland
L E Mannis, Barrister, Auckland
A M Toohey, Barrister, Christchurch
ECOSTORE COMPANY LTD v WORTH [2017] NZHC 1480 [29 June 2017]
Introduction
[1] Ecostore Company Ltd is an Auckland-based manufacturer and distributor of household cleaners and body-care products. It seeks to produce products that exclude toxic and unnecessary chemicals, making them safer for people and the environment. Gillian Worth, who lives in Christchurch, was employed by Ecostore as a development chemist under two short-term contracts, each lasting a little over three months, spanning the period from 9 May 2016 to 25 November 2016.
[2] There is no dispute that throughout the period of her employment, Ms Worth transferred confidential information belonging to Ecostore to her personal email account and that she retains this information. The information includes sales data, product formulations, development ingredient databases, product test results, consumer testing information and a surfactant study plan. Ms Worth is now employed in a similar capacity by Earthwise Group Ltd, a direct competitor of Ecostore based in Christchurch.
[3] Ecostore seeks an injunction restraining Ms Worth from using its confidential information, requiring the return or destruction of all documents containing confidential information, and damages or an account of profits for any misuse of this information. Ecostore advances three causes of action as justifying this relief, breach of confidence, conversion, and breach of copyright. These causes of action are all founded on the retention and misuse of the same confidential information.
[4] The background allegations pleaded for all three causes of action refer to the terms restricting the use of confidential information in the employment agreements. These include terms: prohibiting Ms Worth, other than in the reasonable performance of her duties to Ecostore, from removing, disclosing or using any of its intellectual property without its written consent; prohibiting Ms Worth from removing, copying or transmitting any confidential information from Ecostore’s premises without its consent unless this is in the normal course of her duties; and requiring Ms Worth to respect the confidentiality of Ecostore’s confidential information at all times during and after her employment and not to divulge it to anyone or use it for any purpose other than in connection with her employment without Ecostore’s consent.
[5] Ms Toohey initially applied for an order striking out the first cause of action for breach of confidence on the grounds that the Employment Relations Authority has exclusive jurisdiction to deal with that claim. She sought a stay of the other two causes of action, conversion and breach of copyright, pending determination of the breach of confidence claim in that jurisdiction. At the time the application was filed, Ms Toohey acknowledged that only this Court has jurisdiction to determine these two tortious claims.
[6] However, during the course of her reply submissions, Ms Toohey applied to amend the application to seek an order striking out all causes of action because she now contends that the Employment Relations Authority has exclusive jurisdiction to determine all three claims. I allowed the amendment, even though it was made very late, because I did not consider that Ecostore would be prejudiced so long as it was given an opportunity to file further submissions in response to the amended application. Further, this Court either has jurisdiction or it does not. The parties cannot confer jurisdiction on the Court by agreement so the issue has to be confronted and dealt with.
[7] Both parties have now filed further submissions addressing the amended application.
Does this Court have jurisdiction to determine the claims?
Submissions
[8] Ms Toohey relies on the following provisions in s 161 of the Employment Relations Act 2000 for her contention that the claims come within the exclusive jurisdiction of the Employment Relations Authority:
161 Jurisdiction
(1) The Authority has exclusive jurisdiction to make determinations about employment relationship problems generally, including –
(a) disputes about the interpretation, application, or operation of an employment agreement:
(b) matters related to a breach of an employment agreement:
…
(r) any other action (being an action that is not directly within the jurisdiction of the court) arising from or related to the employment relationship or related to the interpretation of this Act (other than an action founded on tort):
…
(3) Except as provided in this Act, no court has jurisdiction in relation to any matter that, under subsection (1), is within the exclusive jurisdiction of the Authority.
[9] An “employment relationship problem” is defined to include any problem relating to or arising out of an employment relationship. An employment relationship is relevantly defined to include the relationship between an employer and an employee employed by the employer.
[10] In her written submissions in reply and in oral argument, Ms Toohey relied particularly on the Chief Justice’s decision in Bowport Ltd v Alloy Yachts International Ltd.1 In that case, three causes of action were pleaded against a former employee for breaching the terms of his employment agreement. These were for a breach of the confidentiality provisions in the employment agreement and breach of his duties of fidelity and confidence in terms of that agreement. Elias CJ concluded
that these claims were within the exclusive jurisdiction of the Employment Relations
Authority because they were all founded on the employment agreement.
[11] Ms Toohey claims that all causes of action in the present case are founded on the allegation that Ms Worth took confidential information during her employment in breach of her employment contracts and has misused that information. Ms Toohey submits that the dispute therefore concerns “the operation of an employment agreement” (within s 161(1)(a)), or is a “matter related to a breach of an employment agreement” (s 161(1)(b)), or “arise[s] from or relates to the employment relationship” (s 161(1)(r)). For these reasons, she argues that this Court has no jurisdiction to deal with any of the claims.
[12] Turning to the specific causes of action, Ms Toohey submits that the critical issue under the breach of confidence claim is whether Ms Worth breached her
employment agreement by using her private email for work purposes. She says that
1 Bowport Ltd v Alloy Yachts International Ltd [2004] 1 NZLR 361 (HC).
this cannot be determined without reference to the express terms of the employment agreement so the Court will inevitably be engaged in the “interpretation”, “application” and “operation” of the agreement.
[13] As to the conversion claim, Ms Toohey submits that the key issue is whether Ms Worth “took” confidential information unlawfully. Again, this turns on whether she breached her employment agreement. Ms Toohey submits that the same analysis also applies to the breach of copyright claim because the copyright works claimed to have been infringed comprise the same confidential information. She says that the alleged breach of copyright is based on the same pleaded facts as for the other two causes of action and therefore also comes back to the terms of the employment agreement and whether these were breached.
[14] Mr McBride disputes this analysis and claims that this Court has jurisdiction to deal with all of the claims. He refers to Pain Management Systems (NZ) Ltd v McCallum2 and BDM Grange Ltd v Parker3 in support of his submission that although the claims have their origin in an employment relationship, they do not relate to or arise out of that relationship in the required sense.
[15] Mr McBride places particular reliance on Duffy J’s decision in PropertyIQ NZ Ltd v Vicelich, a case he submits is on all fours with the present.4 Duffy J held that the High Court has jurisdiction to determine claims against former employees who seek to misuse confidential information belonging to their former employer following termination of the employment relationship:
[14] … I have difficulty seeing how the circumstance of a disloyal employee, who appropriates his or her employer’s confidential information for a personal benefit, who then leaves this employment and prepares to, or actually sets to making use of the confidential information to the detriment of the former employer can fit within the scheme and purpose of the Employment Relations Act. The overall impression I have of the Act’s scheme and purpose is that it is focused on current employer/employee relations and the termination of those relations where the termination has occurred in an unlawful manner.
…
2 Pain Management Systems (NZ) Ltd v McCallum HC Christchurch CP72/01, 14 August 2001.
3 BDM Grange Ltd v Parker [2006] 1 NZLR 353 (HC).
4 PropertyIQ NZ Ltd v Vicelich [2012] NZHC 2016, (2012) 9 NZELR 614.
[16] … where the confidential information is obtained during the course of the employment relationship but the employer does not discover this until after the relationship has come to an end and the former employee is either about to or has begun taking steps to use the confidential information for his or her own benefit, either directly or indirectly through the auspices of another entity, such as a registered company in which the former employee has an interest. In this circumstance, I consider that the entirety of the former employee’s conduct can form the basis of a claim in this Court …
[16] Mr McBride submits that the first cause of action is concerned with potential disclosures to third parties post employment and concerns Ms Worth’s equitable obligation not to use Ecostore’s confidential information. He says that this claim is not dependent on any finding of a breach of the employment agreement. He argues that the other two causes of action are brought in tort and cannot be categorised as “employment relationship problems”.
Analysis
[17] One of the principal objects of the Act is to build productive employment relationships. This central purpose must be borne in mind when considering whether Parliament can have intended that a claim by a former employer against a former employee for an injunction, damages or an account of profits for misuse of confidential information post employment must be determined by the Employment Relations Authority:
3 Object of this Act
The object of this Act is –
(a) to build productive employment relationships through the promotion of good faith in all aspects of the employment environment and of the employment relationship –
(i) by recognising that employment relationships must be built not only on the implied mutual obligations of trust and confidence, but also on a legislative requirement for good faith behaviour; and
(ii) by acknowledging and addressing the inherent inequality of power in employment relationships; and
(iii) by promoting collective bargaining; and
(iv) by protecting the integrity of individual choice; and
(v) by promoting mediation as the primary problem-solving mechanism other than for enforcing employment standards; and
(vi) by reducing the need for judicial intervention;
…
[18] To this end, the Employment Relations Authority was established as a specialist investigative body with “the role of resolving employment relationship problems by establishing the facts and making a determination according to the substantial merits of the case, without regard to technicalities”.5 In carrying out this role, the Authority is required to promote good faith behaviour and support successful employment relationships.
[19] In Pain Management Systems, Panckhurst J concluded that the jurisdictional divide turns on whether the claim is truly an employment relationship one or whether it merely has its genesis in that relationship:
[22] To my mind the core concept which is determinative of the exclusive jurisdiction of the Authority is whether the determination which is required is indeed about an employment relationship problem. In the words of the definition of that concept is the underlying problem one relating to, or arising out of, an employment relationship. I think it is important to distinguish between a claim which may have its origins in an employment relationship on the one hand, and a claim the essence of which is related to or arises from the employment relationship of the parties on the other. Is the issue in a particular claim an employment relationship one, or is the subject- matter of the claim some right or interest which is not directly employment related at all? In this regard it may be necessary to distinguish between situations where the opportunity to breach the right or interest at stake arose in the context of an employment relationship as opposed to those where some employment right or interest is truly at stake.
[23] It is in this sense that I find the judgment in Pike v Semi Plastics helpful, in particular for the focus upon the gist of the claim, the rights or interests asserted by the plaintiff as having been infringed. Where the subject matter is property rights and the claim is tortious, equitable or statutory it may be unlikely that the case is one within the exclusive jurisdiction of the Authority. Put another way where the rights or interest claimed by the plaintiff do not derive from a contract of service the general jurisdiction of this Court is unlikely to be ousted.
[20] This analysis was followed and elaborated on by a Full Court of the High Court in BDM Grange Ltd v Parker.6 After carefully reviewing the text and purpose of the Act in the light of the legislative history, Baragwanath J, who delivered the judgment of the Court, gave the following further guidance on the scope of the exclusive jurisdiction of the Employment Relations Authority and the
Employment Court:
5 Employment Relations Act, s 157.
6 BDM Grange Ltd v Parker [2006] 1 NZLR 353 (HC).
[50] These expressions of intent regarding the new legislation were carried through into s 3. It makes clear that, as regards employment disputes, the emphasis of the ERA was to be on encouraging and assisting parties to resolve such problems themselves speedily and informally through mediation; judicial intervention was specifically intended to be reduced. …
[51] We do not deduce from that policy that the jurisdiction of the authority (and the right of rehearing by the Employment Court) was intended to extend beyond claims arising directly within the employment relationship into causes of action such as claims in tort and in equity. …
[52] The ERA is generally directed towards conduct that arises directly from the obligations imposed either by the Act itself or under an employment contract. It is tightly focused on the relationship itself. It deals with disputes in Part 8 (strikes and lockouts), Part 9 (personal grievances, disputes and enforcement) and Part 10 (institutions). All of the provisions in these parts are concerned very directly with the rights and obligations of employers and employees in those capacities. …
…
[66] These various points are in our view compelling indicators that Parliament did not intend to extend the authority’s existing jurisdiction so dramatically as is suggested by the first defendant. We express our essential agreement, at greater length, with the analysis of Panckhurst J that “relating to” in the definition of “employment relationship problem” must be read in a limited way to mean any cause of action, the essential character of which is to be found entirely within the employment relationship itself. This would not encompass claims arising from tortious conduct even if arising between an employer and employee, since the relationship merely provides the factual setting for the cause of action; the duty arises independently.
…
[74] We have reasoned that Parliament’s purpose cannot be to shift to the authority and the Employment Court the responsibility to deal with claims in tort (outside those covered by s 99) or claims in equity (outside those covered by s 100) when it has refrained from providing tools equivalent to those furnished by s 162 for contract cases. The only way to reconcile the language of para (r) with the policies of the ERA is to treat it, as its penultimate position in the list of jurisdictions suggests, as something ancillary to the core business of the authority and the Employment Court. The exclusion of tort jurisdiction, implicit in that as a whole, is there made explicit, no doubt out of caution.
…
[88] In performing a careful conflict of jurisdictions analysis there may be noted the sharp antithesis between s 162 (conferring extensive contract jurisdiction) and s 100 (which by conferring only narrow injunction power suggests the exclusion of significant equity jurisdiction). The contrast indicates that, in so far as a claim alleging breach of confidence is brought essentially to achieve performance or to seek relief for breach of the employment contract, it is properly to be construed as arising from the employment relationship and thus within the exclusive jurisdiction of the authority and the Employment Court. However, a claim for relief which in essence arises not out of the employment relationship, but is to be characterised as substantially, say, a claim in equity (or, if the cause of action is as Meagher considers sui generis, for breach of confidence simpliciter), is
properly within the jurisdiction of the High Court. It is unnecessary for the decision of this case to pronounce upon remedies; it may be that the need to seek equitable relief such as account will be a pointer away from characterisation of the claim as within the jurisdiction of the authority. Again there will be concurrent complementary jurisdictions of this Court and the authority.
[21] The Court of Appeal recently approved this approach in JP Morgan Chase Bank NA v Lewis.7 The Court confirmed that the Authority and the Employment Court do not have exclusive jurisdiction to determine all claims that arise out of an employment relationship, only those that “directly and essentially [concern] the employment relationship”.8 The Court considered that where the employment relationship is not a necessary component of the available causes of action, this indicates that the essence of the claim is not employment related and should not be regarded as falling within the Authority’s exclusive jurisdiction.9 The approach taken by Duffy J in PropertyIQ was tacitly approved by the Court.10
[22] The starting point is to identify the nature of the problem, the “gist” of the dispute, and ask whether it is truly an employment relationship problem that must be dealt with in the Employment Relations Authority. As noted, there is no dispute that Ms Worth has in her possession intellectual property and confidential information belonging to Ecostore. Nor is there any dispute that she is not entitled to retain this information and that it must be returned or destroyed. Similarly, there is no dispute that Ms Worth was not entitled to use any of this information outside of her employment with Ecostore. She claims that she has not done so. If that is correct, it might be thought that the entire matter could be resolved promptly and at little cost to either party. Ecostore offered in open Court to meet the cost of an independent expert to examine Ms Worth’s computer to ensure the return or destruction of the relevant documents and verify that the confidential information has not been misused. Mr McBride advised that Ecostore would discontinue the proceedings with no issue as to costs if this was done. However, this is not acceptable to Ms Worth.
The dispute is therefore simply about the process that ought to be followed and the
7 JP Morgan Chase Bank NA v Lewis [2015] NZCA 255, [2015] 3 NZLR 618 at [98].
8 At [95].
9 At [97].
10 At fn 49.
jurisdiction to be employed to enable Ecostore to secure its confidential information and obtain redress for any misuse of it post-employment.
[23] For the reasons that follow, I agree with the conclusion reached by Duffy J in PropertyIQ that Parliament cannot have intended that a former employer would not be able to avail itself of this Court’s jurisdiction and processes in this type of situation.
[24] First, there is no ongoing employment relationship. Accordingly, the principal object of the Act, “to build productive employment relationships”, will not be furthered by requiring the dispute to be determined by the Employment Relations Authority. There is no scope in this case for the Authority to fulfil its primary role which is to “support successful employment relationships”.
[25] Second, as the analysis below demonstrates, there is no employment right or interest at stake here at all. In short, this is not an “employment relationship problem”. The rights relied on are: Ecostore’s right in equity to enforce a duty of confidence in respect of its confidential information; its property rights enforceable through the tort of conversion: and its rights as a copyright owner conferred under the Copyright Act 1984. None of these rights depend for their existence on the employment agreement. The employment agreement merely provides the factual setting for the causes of action which rely on duties that arise independently of that agreement.
[26] Contrary to Ms Toohey’s submission, nothing will turn on the interpretation of the employment agreements or how they were intended to operate (s 161(1)(a)) and the matter does not relate to a breach of the employment agreement (s 161(1)(b)). The terms of those agreements are contextual only and this is why those terms are pleaded in the background section of the statement of claim but are not repeated in any of the three causes of action or relied on as elements of those causes of action.
[27] The first cause of action is not a claim brought in contract for breach of the
employment agreement. Rather, as its heading “breach of confidence” signals, it is a
claim in equity for breach of confidence. It contains the following allegations: the relevant material is confidential to Ecostore; Ms Worth owes a duty of confidence which survives her resignation as an employee and she is obliged to keep the information confidential; and, in breach of her duty of confidence, Ms Worth has removed the confidential information to her personal email address and continues to possess and use it.
[28] The second cause of action is headed “conversion by taking”. It pleads that: Ecostore owns and is entitled to possession of the confidential information; Ms Worth took the confidential information from Ecostore’s premises without its consent; and Ms Worth continues to possess and use the confidential information, thereby converting it to her own use.
[29] The third cause of action also makes no reference to, and is not reliant on, the terms of the employment agreement. It is headed “copyright infringement” and alleges that: Ecostore owns copyright in the documents removed by Ms Worth from Ecostore’s premises without its consent; and Ms Worth has infringed Ecostore’s copyright in these works.
[30] Using Panckhurst J’s formulation in Pain Management, this is a case “where the opportunity to breach the right or interest at stake arose in the context of an employment relationship” but it is not one “where some employment right or interest is truly at stake”. Or, adopting Baragwanath J’s expression in BDM Grange, the “essential character” of each of these causes of action is not “to be found entirely
within the employment relationship itself”.11 It is therefore not an “employment
relationship problem” interpreted in the limited way explained by Baragwanath J. The essence of the claim is not one by an employer against an employee “tightly focused on the employment relationship itself” nor does it “very directly” concern their respective rights and obligations “in those capacities”.
[31] Third, this is not a case requiring determination “according to the substantial merits of the case, without regard to technicalities” and with a “reduc[ed] need for
judicial intervention” so as to “build productive employment relationships”. The
11 At [66].
Employment Relations Authority is not well-equipped to provide the remedies sought or the processes required to provide a principled outcome according to law. Ecostore seeks a permanent injunction, capable of being supervised by the Court, to ensure that its commercially sensitive and confidential information is secured and not misused. It also seeks damages or, at its election, an account of profits for any misuse of the information. These are further indications that the jurisdiction of the High Court is not ousted.
[32] Because Ms Toohey placed so much emphasis in her reply submissions on Elias CJ’s decision in Bowport, I should explain why I do not consider that this case assists her argument. It is clearly distinguishable. First, Bowport was decided in terms of the Employment Contracts Act 1991, not the Employment Relations Act. Second, in Bowport, the causes of action were clearly founded entirely on the employment agreement and accordingly had to be determined within the exclusive jurisdiction of the Employment Relations Authority:
[90] … I am of the view that, even applying the 1991 test that the action is “founded” on the employment contract, it is clear that the present claim is within the jurisdiction conferred exclusively upon the specialist bodies set up by the employment legislation.
[91] In some cases, the question whether proceedings are founded on an employment contract may be one of difficulty. But this is not such a case. Here, the claim is between the parties to the employment contract. It depends upon the terms of the employment contract and seeks remedy for breach of the personal obligations assumed under it. The three causes of action (for breach of the agreement as to confidentiality, breach of the obligation of good faith, and breach of confidence) specifically plead that these obligations are owed by Mr Turnbull for “breach of the confidentiality agreement” and “under the Turnbull engagement”. …
…
[94] … The question is not whether the cause of action is classified as being brought in contract or equity, but whether the claim is “founded” on the employment contract. That turns on the essential elements of the claim.
…
[97] All present causes of action in my view clearly are founded on the
employment contract. …
[33] With respect, the analysis in Bowport is perfectly conventional and cannot be doubted. However, because the claims there were founded entirely on the employment contract, the case does not assist in determining whether the present claims, none of which are founded on the employment agreements, also fall within
the exclusive jurisdiction of the Employment Relations Authority. As the Chief Justice said, Bowport was not one of those cases that posed a difficulty on the jurisdictional issue. This is no doubt why the case was not even referred to by the Full Court in BDM Grange or by the Court of Appeal in JP Morgan Chase Bank when addressing claims that do give rise to difficult questions of jurisdiction under the differently worded test to be applied in terms of the Employment Relations Act.
[34] For all of these reasons, I conclude that this Court’s general jurisdiction to deal with Ecostore’s claims in equity, conversion and for breach of copyright is not ousted. It follows that the application must be dismissed.
Result
[35] The application to strike out the proceeding is dismissed.
[36] The plaintiff is entitled to costs on the application calculated on a category 2 band B basis.
M A Gilbert J
6