Tam Dental Group Limited v Chang

[2022] NZHC 2873

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE

CIV-2022-404-1497

[2022] NZHC 2873

UNDER

The Arbitration Act 1996

IN THE MATTER

of an originating application for an interim measure

BETWEEN

TAM DENTAL GROUP LIMITED

Applicant

AND

YIN-SZU (MADISON) CHANG

Respondent

Hearing:

13 October 2022

Appearances:

S C Langton for Applicant

P T Kiely and A M Kamphorst for Respondent

Judgment:

3 November 2022

JUDGMENT OF WOOLFORD J

(Preliminary question of jurisdiction)

This judgment was delivered by me on Thursday, 3 November 2022 at 3:30 pm pursuant to r 11.5 of the High Court Rules.

Registrar/Deputy Registrar

Solicitors:Langton Hudson Butcher (S C Langton), Auckland Kiely Thompson Caisley (P T Kiely), Auckland

TAM DENTAL GROUP LIMITED v CHANG [2022] NZHC 2873 [3 November 2022]

[1]    Tam Dental Group Limited (TDG) and Yin-Szu (Madison) Chang are in dispute about Ms Chang’s employment status. TDG says Ms Chang was an independent contractor under a contract for services. Ms Chang says she was an employee under a contract of service. TDG wants to go to arbitration with Ms Chang in accordance with an arbitration clause in a contract between them dated 26 April 2018 (the contract). Ms Chang refuses arbitration. She wants the parties to attend mediation facilitated by Employment Mediation Services, a free service offered by the Ministry of Business, Innovation and Employment (MBIE), under the Employment Relations Act 2000 (the Act). TDG refuses mediation.

[2]    TDG has filed an originating application in this Court seeking an order prohibiting (by way of interim measure) Ms Chang from continuing to carry out services as a dentist in breach of a restraint of trade clause in the contract until such time as the parties’ dispute is settled by way of arbitration.

[3]    Ms Chang has filed a statement of claim in the Employment Court seeking an order declaring she was an employee of TDG under s 6(5) of the Act. If she was an employee, there would be doubts about the enforceability of the restraint of trade clause and the contract itself.

[4]    Section 187 of the Act provides that the Employment Court has “exclusive jurisdiction” to hear and determine, under s 6(5), any question whether any person is declared to be an employee within the meaning of the Act. The sole issue for determination in this hearing is therefore whether the High Court has jurisdiction to hear and determine TDG’s application for an interim measure before the Employment Court’s determination as to the employment status of Ms Chang is available.

Factual background

[5]    TDG is a cosmetic and general service dental practice with clinics in Newmarket and Devonport.

[6]    In around June 2018, TDG engaged Ms Chang to provide services as a dentist in accordance with the Dental Council of New Zealand’s Detailed Scope of Practice for General Dental Practice. The parties signed a contract dated 26 April 2018 which

described Ms Chang as an independent contractor. The contract contained a restraint of trade clause in which Ms Chang agreed not to work as a dentist within a radius of 10 kilometres from TDG’s clinics for a period of two years if her engagement with TDG was terminated. The contract also contained a dispute resolution clause providing for arbitration in the event that the parties were unable or unwilling to resolve any dispute between them by mediation. Every such arbitration is to be conducted in accordance with and shall be subject to the provisions of the Arbitration Act 1996.

[7]    According to TDG, there were behavioural issues with Ms Chang. TDG looked to terminate its relationship with her. Ms Chang said she would resign instead, but only if her restraint of trade was waived. TDG then terminated the contract on  19 May 2022 and reminded Ms Chang of her restraint of trade obligations.

[8]    Ms Chang retained lawyers Tompkins Wake. She raised a personal grievance on the basis that she was an employee not an independent contractor. At that stage, however, she took no further steps to prosecute that claim. Tompkins Wake ceased acting. On 14 July 2022, Ms Chang advised TDG that she was commencing employment with Ponsonby A&E Dental, which is within a radius of 10 kilometres from TDG’s clinics.

[9]    Between July and August 2022, TDG attempted to  reach  agreement  with Ms Chang over the appointment of an arbitrator to determine a claim that Ms Chang was in breach of the restraint of trade clause in her contract. Ms Chang declined to reach agreement and on 25 August 2022, TDG applied to the High Court for an interim measure requiring Ms Chang to cease practising within the area covered by the restraint.

[10]   On 14 September 2022, new lawyers engaged by Ms Chang, Kiely Thompson Caisley, filed a claim in the Employment Court for a declaration of employment status under s 6(5) of the Act. Ms Chang’s lawyers also filed a notice of opposition to TDG’s application for an interim measure on the basis that the High Court has no jurisdiction to hear an application for an interim measure.

Application for interim measure

[11]   An interim measure in defined in art 17 of sch 1 to the Arbitration Act as meaning a temporary measure by which a party is required, at any time before an award is made in relation to a dispute, to maintain or restore the status quo pending the determination of the dispute. Article 17A provides that an arbitral tribunal may, at the request of a party, grant an interim measure.

[12]   The difficulty for TDG is that there is not yet a properly constituted arbitral tribunal because Ms Chang has refused to agree on a single arbitrator or alternatively to appoint an arbitrator as one of two arbitrators.

[13]   However, art 9 gives the High Court or the District Court the same powers as an arbitral tribunal to grant an interim measure. It provides:

9        Arbitration agreement and interim measures by court

(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 measure.

(2)For the purposes of paragraph (1), the High Court or the District Court has the same powers as an arbitral tribunal to grant an interim measure under article 17A for the purposes of proceedings before that court, and that article and article 17B apply accordingly subject to all necessary modifications.

…

[14]   The interim measure sought by way of originating application in this case is an order prohibiting Ms Chang from continuing to carry out services as a dentist within the geographical area of the restraint of trade at cl 12.1.1 of the parties’ contract for services, until such time as the parties’ dispute is settled by an arbitral tribunal.

Applicant’s submissions

[15]   TDG accepts that the Employment Court and only the Employment Court has jurisdiction to determine Ms Chang’s application for a declaration that she was an employee of TDG. But unless and until the Employment Court issues the declaration Ms Chang seeks, TDG submits that the High Court has and retains its own original jurisdiction to hear and determine the application before it.

[16]TDG points to three reasons why:

(a)The High Court has jurisdiction to hear and determine TDG’s application under the Arbitration Act. In contrast, a review of the relevant legislation and applying the Supreme Court decision in FMV v TZB,1 confirms the Employment Court does not have that jurisdiction unless and until the “jurisdictional fact” that the respondent was an employee is determined in her favour by the Employment Court.

(b)The Supreme Court’s analysis in FMV is premised on the existence of an employment relationship, or a dispute over the existence of one. That is not the dispute (or to use the Supreme Court’s wording in FMV, the “problem” or “controversy”) here; the controversy that arises in this application is whether the High Court should grant an application for an interim measure under the Arbitration Act 1996 to stop Ms Chang from breaching her restraint of trade.

(c)TDG therefore has no avenue for interim relief in the employment jurisdiction. And if Ms Chang’s arguments on jurisdiction are accepted, nor would this Court have jurisdiction. That would leave a lacuna which, as part of its inherent jurisdiction, this Court and only this Court can fill.

[17]   TDG acknowledges that the outcome of Ms Chang’s Employment Court claim that she is an employee may affect the on-going viability of any interim measure granted by this Court, but that can be dealt with by discharging the interim measure if necessary. In the meantime, this Court still retains jurisdiction to make the order in the first place under the Arbitration Act and in its inherent jurisdiction.

Respondent’s submissions

[18]   Ms Chang submits that, because the Employment Court has exclusive jurisdiction to determine the question of employment status, this Court cannot be

1      FMV v TZB [2021] NZSC 102, [2021] 1 NZLR 466.

satisfied whether it has jurisdiction to hear and determine the application until such time as the Employment Court makes a determination as to her employment status.

[19]   Ms Chang further submits that for the Court to assert jurisdiction before the Employment Court’s determination would require the Court to pre-suppose that:

(a)the relationship between the parties was one of contractor – principal, not employee – employer;

(b)the agreement between the parties is a contract for services rather than a contract of service;

(c)the restraint of trade is legally binding and enforceable; and

(d)arbitration under the Arbitration Act is available to the parties.

[20]   If the Employment Court was subsequently to declare that Ms Chang was an employee, then there would be a serious question about the enforceability of the restraint of trade because the legal principles applicable to employees would apply rather than the principles applicable to contractors. Furthermore, the Employment Relations Act would provide Ms Chang with a framework to resolve her outstanding personal grievance claims through the dispute resolution mechanism of the Act as opposed to the Arbitration Act.

[21]   Ms Chang submits that the High Court therefore has no jurisdiction to hear and determine the application at the present time and cannot assert or exercise jurisdiction until the determination by the Employment Court is made. This approach best accords with the recognition of the Employment Court’s exclusive jurisdiction as emphasised by the Supreme Court in FMV v TZB2 and the Court of Appeal in Labour Inspector v Gill Pizza.3

2      FMV v TZB, above n 1.

3      Labour Inspector (Ministry of Business, Innovation and Employment) v Gill Pizza Ltd [2021] NZCA 192, [2021] ERNZ 237.

[22]   If the Employment Court determines that Ms Chang was not an employee, then and only then can TDG assert its rights in this Court. In those circumstances, TDG would not be prejudiced and have a remedy, but not until that determination is made.

Discussion

[23]   At the outset, it is important to focus on what the High Court is being asked to do. The High Court is not  being  asked  to make  a  definitive  ruling  on  whether Ms Chang was an independent contractor or an employee. The Employment Court has exclusive jurisdiction to hear and determine that question. The High Court is being asked to grant an interim measure prohibiting Ms Chang from continuing to carry out services as a dentist within the geographical area of the restraint of trade at cl 12.1.1 of the contract until such time as the parties’ dispute is settled by an arbitral tribunal.

[24]   Counsel for Ms Chang submits that the High Court would be required to “pre- suppose” that the relationship between the parties was one of contractor — principal, not employee — employer. However, art 17B of sch 1 to the Arbitration Act sets out the three matters of which the High Court must be satisfied in order to grant an interim measure. It provides:

17B Conditions for granting interim measure

(1)If an interim measure of a kind described in subparagraph (a), (b), or

(c) of the definition of that term in article 17 is requested, the applicant must satisfy the arbitral tribunal that—

(a)harm not adequately reparable by an award of damages is likely to result if the measure is not granted; and

(b)the harm substantially outweighs the harm that is likely to result to the respondent if the measure is granted; and

(c)there is a reasonable possibility that the applicant will succeed on the merits of the claim.

(2)If an interim measure of a kind described in subparagraph (d) of the definition of that term in article 17 is requested, the applicant must satisfy the arbitral tribunal of the matters specified in paragraph (1)(a) to (c), but only to the extent that the arbitral tribunal considers appropriate.

(3)If an interim measure of a kind described in subparagraph (e) of the definition of that term in article 17 is requested, the applicant must satisfy the arbitral tribunal that the applicant will be able to pay the costs of the respondent if the applicant is unsuccessful on the merits of the claim.

(4)A determination by the arbitral tribunal on the matter specified in paragraph (1)(c) does not affect its discretion to make any subsequent determination.

[25]   The pre-supposition about the nature of the relationship between the parties arises in the context of the third matter of which the High Court must be satisfied, that there is a reasonable possibility that TDG will succeed on the merits of its claim before the yet to be constituted arbitral tribunal that Ms Chang is in breach of the restraint of trade clause in the contract.

[26]   The threshold test of “a reasonable possibility” is a low threshold and it is quite conceivable that a different decision may be reached following a substantive hearing. This is specifically recognised in art 17B(4) when it states a determination by an arbitral tribunal (in this case the High Court) on the question of whether there is a reasonable possibility that the applicant will succeed on the merits of the claim “does not affect its discretion to make any subsequent determination”. It also does not impinge on the Employment Court’s exclusive jurisdiction to make a definitive ruling on whether Ms Chang was an employee within the meaning of the Act.

[27]   The contract signed by Ms Chang refers to her as an independent contractor who has agreed to provide the services set out in a schedule in consideration for the payments also set out in the schedule. The contract contains the following provisions:

3STATUS OF THE INDEPENDENT CONTRACTOR

3.1The Practice will be under no obligation whatsoever to provide work for or to make available any particular volume of work to the Independent Contractor.

3.2The Independent Contractor is in all respects an independent contractor and not an employee or partner or subsidiary of the Practice.

3.3The Independent Contractor agrees that at no stage either during or subsequent to the termination of this Agreement will the Independent Contractor claim that he/she is or was an employee of the Practice.

3.4The Independent Contractor acknowledges that she has had an opportunity to seek advice about this Agreement and intends this arrangement to be that of independent contractor and principal.

[28]The restraint of trade clause also includes the following:

12.      RESTRAINT OF TRADE

…

12.2The Independent Contractor acknowledges that their position with the Practice gives them access to and the benefit of confidential information, patient information, and business relationships vital to the Practice’s continuing success and she therefore acknowledges and agrees that the provisions of this clause are reasonable and necessary in their application to protect the genuine proprietary interests of the Practice.

12.3The Independent Contractor further acknowledges that damages would not be an adequate remedy for the Practice should it wish to enforce compliance of the undertakings and that the Practice is entitled to seek an injunction should she breach clause 12.1, notwithstanding the Dispute Resolution clause herein.

12.4The Independent Contractor acknowledges that the payments they receive includes consideration for accepting these restraint of trade terms.

[29]   The pre-supposition that the relationship between the parties was one of contractor — principal, not employee — employer appears to be firmly grounded in the contract, which was the subject of extensive negotiations  between TDG and    Ms Chang.

Result

[30]   In summary, therefore, I am of the view that the High Court does have the jurisdiction to hear and determine TDG’s application for an interim measure.

[31]   TDG’s application is adjourned for a one hour hearing to be allocated by the Registry after consultation with counsel.

Woolford J