Russma Limited v Li
[2016] NZHC 1675
•22 July 2016
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
CIV-2015-404-897 [2016] NZHC 1675
BETWEEN RUSSMA LIMITED
Plaintiff
AND
JUNNAN LI First Defendant
FAST RENTAL LIMITED
Second Defendant
Hearing: 20 July 2016 Counsel:
M R T Colthart for plaintiff
F C Deliu for defendantsJudgment:
22 July 2016
JUDGMENT OF KATZ J
This judgment was delivered by me on 22 July 2016 at 1:30pm
Pursuant to Rule 11.5 High Court Rules
Registrar/Deputy Registrar
Counsel: M Colthart, Barrister & Arbitrator, Auckland
F Deliu, Barrister, Auckland
RUSSMA LIMITED v LI AND FAST RENTAL LIMITED [2016] NZHC 1675 [22 July 2016]
Introduction
[1] On 7 April 2016 an interlocutory application by the defendants seeking the appointment of the Hon Robert Fisher QC as arbitrator, and dismissing these proceedings (“the appointment application”), came before me for first mention in the Duty Judge’s list.
[2] After hearing from counsel I made timetable orders providing for a notice of opposition to be filed by the plaintiff Russma Ltd, then known as Dependable Property Management Ltd (“DPM”), for the defendants to file and serve any evidence in reply, and for the appointment application to be set down for hearing.
[3] The defendants now seek to rescind the directions I made, on the basis that they were fraudulently or improperly obtained (“the rescission application”). The rescission application is opposed by DPM.
Background
[4] From 22 January 2014 until 14 April 2015 the first defendant, Junnan Li, was the general and property manager of DPM. DPM alleges that by 16 February 2015, at the latest, he had set up in competition to it, in breach of a restraint of trade clause in his agreement with DPM dated 22 January 2014 (“Agreement”). DPM also alleges that Mr Li breached duties of confidentiality that he owed to it. DPM accordingly commenced these proceedings on 29 April 2015, and also sought an interim injunction against Mr Li and his company Fast Rental Ltd, the second defendant.
[5] On 30 April 2015 interim orders were granted by Asher J, on a Pickwick basis, preventing Mr Li from:1
(a) setting up in direct or indirect competition with DPM for four months as from 14 April 2016, within a 15 kilometre radius of DPM’s
Hillcrest office;
1 Dependable Property Management Ltd v Li [2015] NZHC 916.
(b) managing or letting any property recorded on DPM’s database as at
14 April 2015; and
(c) disclosing or using DPM’s confidential information, as defined in the
Agreement.
[6] The first of these restraints expired on 14 August 2015, but the other two remain in force.
[7] On 23 June 2015 the defendants applied to have the proceedings struck out, stayed, or transferred. In the event that the strike out application failed, the defendants sought to have the interim orders set aside or varied.
[8] In his judgment of 21 December 2015, Keane J stayed the proceedings and referred the dispute to arbitration, pursuant to an arbitration clause in the Agreement.2 He declined the defendants’ application to set aside or vary the interim orders. His Honour noted that, after a reference is made to arbitration, the arbitral tribunal itself has the ability to modify, suspend or cancel such orders. It was therefore not essential that the Court revisit them before arbitral proceedings were commenced.3
[9] Further, while Keane J accepted that the Court had jurisdiction to rescind or vary the interim orders if they were shown to be wrong,4 he was concerned that he had been invited to revisit the interim orders on essentially the same evidence that was before Asher J. He observed that “Mr Li’s evidence is spare in the extreme”.5
In the absence of fresh evidence from Mr Li that cast doubt on the appropriateness of the interim orders, Keane J saw no basis for revisiting them. He concluded that:6
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.
2 Dependable Property Management Ltd v Li [2015] NZHC 3355.
3 At [46]. Arbitration Act 1996, sch 1, art 17H.
4 Rule 7.49.
5 Dependable Property Management Ltd, above n 2, at [47].
6 At [50]-[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.
[10] Keane J directed that the stay was to continue until the making of the final arbitral award, subject to any prior order made by the arbitrator and the following two conditions:7
(a) an arbitrator must be appointed by 18 February 2016; or
(b)by that date an application must have been made to the Court for any orders necessary under Article 11 of Schedule 1 of the Arbitration Act
1996 (which provides for the Court to appoint an arbitrator if the parties cannot agree).
[11] On 29 January 2016 Mr Zhang, Mr Li’s solicitor, proposed to Mr Colthart, DPM’s solicitor, that Mr Fisher be appointed as arbitrator. No response was forthcoming and accordingly, on 18 February 2016, Mr Li filed the appointment application in this Court seeking an order that Mr Fisher be appointed as arbitrator. A further order was also sought, dismissing the proceedings. The ground provided for seeking dismissal of the proceedings was that DPM had:
acted contumeliously of the Court’s order that “[a]n arbitrator…must be appointed under the Arbitration Act 1996 by 18 February 2016” and/or continues to nolle prosequi and/or is in breach of its contractual obligations towards [Mr Li].
[12] I note, however, that Keane J had set out two alternative options in his judgment. The first was that the parties reach agreement as to an arbitrator by
18 February 2016. The second was that, in the absence of such agreement, an application be made to the Court by that date. As agreement had not been reached by 18 February 2016 the defendants elected to pursue the second option, and made an application to the Court. It is somewhat difficult to see, in such circumstances, how DPM can be said to have disregarded a court order, contumeliously or
otherwise, albeit it has exposed itself to a costs order for putting the defendants to
7 At [52].
the expense of filing the appointment application and then agreeing to the appointment of Mr Fisher as arbitrator at the eleventh hour.
[13] The appointment application was listed for mention in the Duty Judge list on
7 April 2016. A notice of opposition should have been filed by early March, in accordance with the High Court Rules. It was not. Rather, on 5 April 2016, Mr Colthart emailed Mr Zhang confirming that DPM agreed to the appointment of Mr Fisher as arbitrator. He requested Mr Zhang to notify Mr Fisher that he had been appointed and to pass on Mr Colthart’s contact details to him so that a preliminary conference could be arranged.
[14] Mr Colthart believed that, as a result of DPM’s agreement to the appointment of Mr Fisher as arbitrator, the appointment application was moot and would not be pursued. When the matter came before me in the Duty Judge list, however, the defendants’ counsel, Mr Deliu, advised that the defendants did not accept that an arbitrator had been appointed. The defendants accordingly wished to pursue the appointment application and indeed sought that such an appointment be made forthwith. Mr Deliu further submitted that DPM should be debarred from opposing the application, on the basis that it had not filed a notice of opposition within the period prescribed in the High Court Rules.
[15] DPM’s position was that it would be inappropriate for the Court to appoint Mr Fisher as arbitrator, as his appointment was already effective. In particular, Mr Colthart submitted that:
The reason we say that is not only that I have confirmed in writing to my friend, as he points out, on Tuesday, the plaintiff’s agreement to Robert Fisher’s appointment. But prior to that, your Honour, the defendants issued a default notice under the provisions of the Second Schedule of the Arbitration Act saying that they were nominating Mr Fisher as arbitrator and that if we did not agree within seven days we would be in default and what the Second Schedule of the Arbitration Act provides in that situation is that Mr Fisher’s appointment takes effect…by default.
[16] Ultimately, as set out in my Minute of 7 April 2016, I concluded as follows:
[7] No notice of opposition has yet been filed to the [appointment] application and Mr Deliu, for the defendants, accordingly sought substantive orders in terms of the application this morning. Mr Colthart appeared for the
plaintiff and opposed the making of any such orders. His position was, in essence, that an order appointing Mr Fisher as arbitrator would be moot as he is already the arbitrator, by operation of statute. In particular, he said that a default notice under the Arbitration Act, nominating Mr Fisher as arbitrator, was served on Dependable Property in February. After seven days he accordingly became the arbitrator. In addition, Mr Colthart apparently advised Mr Deliu earlier this week that there was no objection to Mr Fisher’s appointment. Accordingly there is no need for a court order as Mr Fisher is already the arbitrator or, alternatively, he can be appointed by consent. The intervention of the Court is accordingly not required.
[8] Mr Colthart appeared to assume that, in such circumstances, the defendants would not be proceeding with their application. Mr Deliu does wish to proceed with the application, however. He does not accept that Mr Fisher has already been appointed as arbitrator. Further, he wishes to pursue the application to dismiss the proceedings, as this would have the effect of bringing the interim orders to an end. Mr Deliu’s view is that such a course is justified due to delays on the part of the plaintiff in progressing the arbitration.
[9] Mr Deliu also submitted that the Court should not enlarge the time for the filing of a notice of opposition to the defendant’s application. Rather, it should make the substantive orders today or set the application down for formal proof. Alternatively, he submitted that Dependable Property should be required to file a formal application with a supporting affidavit seeking to enlarge the time for filing a notice of opposition.
[10] I am satisfied that it is in the interests of justice to permit Dependable Property to formally oppose the application. Mr Colthart’s belief that the application would not be pursued given Dependable Property’s view that Mr Fisher has already been appointed (and the fact that it does not oppose his appointment) was not unreasonable. Nevertheless, Dependable Property clearly should have filed a notice of opposition, out of an abundance of caution. Further, the Court is likely to be assisted by hearing from Dependable Property in respect of the application. For example, the possibility that Mr Fisher has already been appointed as arbitrator was raised by Dependable Property and would not otherwise have come to the Court’s attention. Such matters will need to be fully addressed at the hearing of the application.
[17] The following day, as a result of an email exchange between counsel, Mr Colthart realised that he was incorrect in his belief that a default notice had been served. He promptly filed a memorandum, on 12 April 2016, correcting the position and apologising to the Court and Mr Deliu for his error. He submitted that, in any event, Mr Fisher had been validly appointed as arbitrator, by agreement. On that basis he submitted that the substance of his submission, namely that a court order appointing Mr Fisher is neither necessary nor appropriate, remained.
[18] On 9 May 2016 DPM wrote to Mr Fisher advising him of his appointment as arbitrator, by agreement of the parties. It appears that Mr Deliu subsequently raised some concerns regarding Mr Fisher’s jurisdiction. Mr Fisher’s preliminary view was that the parties had contractually agreed to arbitrate and that the arbitration should proceed. He noted, however, that he could formally rule on the issue of his jurisdiction if that were required.
[19] It appears that any issues of jurisdiction were not ultimately pursued by the defendants, as a teleconference between Mr Fisher and the parties took place on
13 July 2016. Timetable orders were made in relation to pleadings, discovery and so on. DPM has now formally executed the arbitration agreement. Although the defendants have not yet done so, Mr Deliu confirmed that they will. Accordingly, the only “live” issue remaining in terms of the appointment application is the application for an order dismissing the proceedings.
Should I rescind my directions of 7 April 2016?
[20] Against this background, the defendants filed the rescission application on
3 June 2016. They seek an order rescinding my directions of 7 April 2016. They submit that, instead of setting down the appointment application for an opposed hearing, I should set the application (now limited solely to the issue of dismissal) down for a formal proof hearing. In addition, the defendants seek costs against the plaintiff and/or Mr Colthart personally on an indemnity, increased or scale basis in respect of the rescission application. Mr Deliu accepted that the costs of the appointment application itself cannot be resolved until that application is finally determined.
[21] Rescission is sought on the grounds that the directions obtained by DPM on
7 April 2016 were fraudulently or improperly obtained and “the plaintiff’s counsel has conceded de minimis the latter and thereby breached a duty to the Court not to mislead and/or act with due diligence”. Further, rescission is said to be in the interests of justice.
[22] Rule 7.51 of the High Court Rules provides:
7.51 Order may be rescinded if fraudulently or improperly obtained
(1) A Judge may rescind any order that has been fraudulently or improperly obtained.
(2) The Judge may grant any further relief by way of costs that the interests of justice require.
(3) This rule does not limit any other remedies of a party who has been adversely affected by an order that has been fraudulently or improperly obtained.
[23] The Court, accordingly, has a wide ranging discretion to rescind an order that has been fraudulently or improperly obtained. The (non-exhaustive) principles that apply to the exercise of that discretion were summarised in Yang v Ko as follows: 8
(a) The rule exists to prevent intentional or innocent misuse of the
Court’s processes;
(b) The focus of the enquiry is the knowledge and conduct of the party that obtained the order in question: orders are fraudulently obtained when there is intentional misuse of Court processes but improperly obtained when there is innocent misuse;
(c) A key factor in an enquiry into whether the order was improperly obtained is whether the party obtaining it knowingly ignored a legal obligation, so that it would be contrary to the interests of justice to allow the order to stand;
(d) The conduct of the party seeking to rescind the order is relevant only insofar as it affects the knowledge of the party who obtained the order;
(e) The fact that the order would not have been granted had the alleged impropriety not occurred is a relevant fact in the exercise of the discretion.
[24] As I have noted above, Mr Colthart now accepts that he erred in saying that a default notice had been issued. Mr Colthart says that when the matter was called in the Duty Judge list his primary point was simply that Mr Fisher’s appointment had already taken effect. There was therefore no need for a Court order formally appointing Mr Fisher as arbitrator. Two bases were advanced in support of this submission. The first was that Mr Fisher had been appointed by agreement. The
alternative (somewhat contradictory) submission was that he had been appointed by
8 Yang v Ko HC Auckland CIV-2005-404-4583, 31 July 2007at [24].
default, as a result of the issue of a default notice. The latter submission (only) was subsequently found to be incorrect.
[25] In explaining his error, Mr Colthart advised that he had relied upon his memory of the detail of the defendants’ notice of nomination of Mr Fisher, as he did not have a copy of it with him in Court. He says that:
The notice had been given by way of the email from Mr Deliu’s associate, Mr Zhang, on 29 January 2016. I hadn’t thought to print the email and bring it with me to court. I didn’t think that there would be any controversy that the parties were in agreement that Mr Fisher had been appointed and was therefore seized of the matter. I acknowledge that, with the benefit of hindsight, I should have printed the notice of nomination and acceptance, and would have been better prepared to address the details surrounding Mr Fisher’s appointment if the issue arose.
I wish to stress that I had absolutely no intention, wish or desire to mislead the court or my learned friend in any way. My error in describing the defendants’ notice of nomination as a default notice was completely unintentional.
[26] Although he has not provided this explanation on oath (as Mr Deliu submitted he should have), I am prepared to consider Mr Colthart’s unsworn explanation for his error. I note that he is an officer of this Court of many years standing.
[27] Mr Deliu submitted that Mr Colthart’s explanation is implausible for four reasons:
(a) The legal effect of Keane J’s order was to exclude the default notice
procedure and that Mr Colthart must have been aware of this.
(b)Keane J gave the parties until 18 February 2016 to agree on an arbitrator. It follows that before 18 February there could be no default.
(c) Mr Colthart had agreed to the defendants’ proposal to appoint Mr Fisher as arbitrator two days prior to the 7 April hearing. This is inconsistent with the position that Mr Fisher had already been appointed by default.
(d)Mr Colthart did not file a memorandum prior to the 7 April hearing but instead “made highly detailed, well thought out, and very articulated submissions on the existence of the default notice and its effect on the defendants application … such excellent submissions could not have been conceived on the spot”.
[28] Mr Deliu submitted that these four points lead inevitably to the conclusion that Mr Colthart must have known the legal and factual impossibility of a default notice and therefore must have misled the Court intentionally.
[29] I do not accept that Mr Colthart intentionally misled the Court. First, he did not need to. Faced unexpectedly with Mr Deliu pursuing the appointment application, Mr Colthart could have simply submitted that the Court had no jurisdiction to appoint Mr Fisher in circumstances where agreement had already been reached between the parties to appoint him. Article 11(3)(b) of Schedule 1 of the Arbitration Act 1996 confers jurisdiction on the Court to appoint an arbitrator, in an arbitration with a sole arbitrator, if the parties are unable to agree on the arbitrator. It was therefore unnecessary for Mr Colthart to additionally, and somewhat inconsistently, submit that Mr Fisher had also been appointed by default.
[30] In any event, the explanation provided by Mr Colthart is inherently plausible. Prior to the 7 April 2016 court appearance, DPM had agreed to the appointment of Mr Fisher as arbitrator. It was therefore not unreasonable for Mr Colthart to assume that the mention would be a mere formality and that the appointment application would not be pursued. It is not surprising that Mr Colthart was taken somewhat off guard when the appointment application was pursued. The primary reason for the pursuit of the application, it appears, is not because there was any genuine disagreement as to whether DPM had agreed to appoint Mr Fisher as arbitrator. Rather, the defendants wished to seek a dismissal of the court proceedings in their entirety, based largely or solely on DPM’s delay in agreeing an arbitrator. This would have the effect of discharging the interim orders granted by Asher J, which Keane J had declined to vary or discharge, for the reasons I have outlined at [8] to [9] above.
[31] For the reasons outlined, I accept that Mr Colthart’s error was unintentional and there was no deliberate intent to mislead the Court. When the error was brought to Mr Colthart’s attention he immediately rectified his mistake by filing a correcting memorandum with the Court. He apologised unreservedly to both the Court and opposing counsel. He repeated that apology in open Court at the hearing of the rescission application.
[32] Ultimately, I am not satisfied that Mr Colthart’s error has given rise to any miscarriage of justice, or that I would have made different orders if Mr Colthart had not raised the default point. I accept Mr Colthart’s submission that his erroneous advice did relatively little to add to the point already being advanced. I note that in my 7 April 2016 Minute I referred to both of the alternative bases on which Mr Fisher had arguably been appointed, namely by serving of a default notice under the Arbitration Act or by agreement between the parties. I timetabled the appointment application for hearing, given that Mr Deliu did not accept, at that stage, that there was a valid appointment or agreement to appoint.
[33] In the circumstances I have outlined I am not satisfied that the directions of
7 April 2016 were obtained either fraudulently or improperly, as a result of Mr
Colthart’s erroneous statement that a default notice had been issued.
Result
[34] The defendants’ rescission application of 3 June 2016 is dismissed.
[35] Although the normal course is for costs to follow the event, Mr Colthart advised that DPM does not seek costs in the event that its opposition to the rescission application is successful. I accordingly direct that the costs of the rescission application are to lie where they fall.
[36] Mr Deliu advised that the defendants no longer wish to pursue the first limb of the appointment application (seeking an order appointing Mr Fisher as arbitrator). They do, however, wish to pursue the second limb of that application, in which they seek an order dismissing the proceedings. Although I would have been willing to deal with both applications together, if the parties had agreed, Mr Deliu was opposed
to such a course. That is because he was seeking orders in the rescission application that would have prevented DPM from opposing the appointment application. I accordingly direct that the appointment application now be set down for hearing,
with an estimated time of half a day.
Katz J
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