Worldwide Holidays Ltd v Liu
[2018] NZHC 3443
•20 December 2018
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE
CIV-2018-404-001556
[2018] NZHC 3443
BETWEEN WORLDWIDE HOLIDAYS LIMITED
Plaintiff
AND
YING LIU
Defendant
Hearing: 19 October 2018 Appearances:
D Bigio QC for the Plaintiff
D A C Bullock for the Defendant
Judgment:
20 December 2018
JUDGMENT OF HINTON J
This judgment was delivered by me on 20 December 2018 at 4.30 pm pursuant to Rule 11.5 of the High Court Rules
…………………………………………………………………… Registrar/Deputy Registrar
Counsel/Solicitors:
David Bigio, Queen’s Counsel, Auckland Lee Salmon Long, Auckland
Grove Darlow & Partners, Auckland
WORLDWIDE HOLIDAYS LIMITED v YING LIU [2018] NZHC 3443 [20 December 2018]
[1] This judgment relates to the extent of the Court’s jurisdiction to issue an interim injunction where there is an agreement to arbitrate governed by the Arbitration Act 1996 (the Act).
Background
[2] Ms Liu worked for Worldwide, a tourism provider, for a period of 14 years, first as an employee, then as a contractor. In May 2018, she secured employment with a competitor of Worldwide.
[3] Worldwide claims that, contrary to the terms of her contract, Ms Liu has not returned confidential customer information stored on her devices and various communication platforms she uses, and said to be the property of Worldwide.
[4] It seems Ms Liu’s case is that the information is hers, and further that she has an entitlement to more remuneration from Worldwide, based on the sales she made up to the date of termination of her employment, and the information is required by her for that purpose.
[5] The contract between the parties contains a multi-tiered dispute resolution procedure. Clause 9.1 of the Contract states that the procedure is applicable to “any dispute arising out of or relating to this Contract whatsoever”.
[6]The clauses relevant to that dispute resolution procedure provide that:
(a)The party claiming a dispute has arisen must give written notice to the other party on or before 10 working days from the event giving rise to the dispute. (Clause 9.2)
(b)The other party then has 10 working days from the receipt of that notice for a written response. (Clause 9.3)
(c)The parties then have 10 working days to endeavour in good faith to resolve the dispute between themselves. (Clause 9.4)
(d)If settlement is not reached within those 10 working days, the parties must mediate the dispute in accordance with the contractual mediation procedure set out at clause 9.10. (Clause 9.5)
(e)If the mediation fails to resolve the dispute, it shall be referred to arbitration under the Arbitration Act 1996. Clause 9.6 also provides that in such circumstances, the dispute is deemed to have been submitted to arbitration. (Clause 9.6)
(f)Arbitration is to be final and binding between the parties. (Clause 9.7)
[7] By letter of 15 May 2018, Worldwide notified Ms Liu of a dispute under clause 9 of the agreement (presumably in compliance with clause 9.2). Ms Liu responded on 28 May (nine working days later).
[8] Correspondence was entered into between counsel for both parties between 30 May 2018 and 1 June 2018 (presumably in accordance with clause 9.3). However, the issues between the parties were unable to be resolved.
[9] In accordance with the disputes resolution procedure under the contract, the next steps should have been to proceed to mediation and then arbitration, as set out in clauses 9.5 and 9.6.
[10] Instead Worldwide filed proceedings in this Court on 23 July 2018, seeking relief in the form of damages for loss of business revenue occasioned by the provision of the plaintiff’s confidential information to a competitor, being Ms Liu’s new employer.
[11] The statement of claim also seeks relief in the form of a suite of mandatory injunctions, including requiring Ms Liu to deliver up to Bhavesh Mori, a digital forensic specialist of deCipher Ltd, her mobile phones and electronic devices, with passwords and access codes, so that those devices can be cloned and provided to Worldwide, and for the confidential information of Worldwide, contained on Ms Liu’s devices to then be permanently deleted.
[12] Worldwide also filed an “interlocutory application on notice for injunctions”. The application substantially mirrored the relief sought in the statement of claim. It sought the same suite of mandatory injunctions (“delivery up” orders referred to above) and even included a claim for damages for injury Worldwide has suffered in consequence of Ms Liu failing to deliver up the confidential information. This original injunction application relied only on the High Court Rules.
[13] By Minute of 31 July 2018, Davison J directed that Ms Liu was to file a notice of opposition to the application for interlocutory orders within five working days, and he allocated a fixture on 19 October 2018.
[14] Ms Liu instead filed an appearance under protest to jurisdiction, relying on the agreement to arbitrate.
[15] Though there was initial disagreement between the parties as to how to proceed, by 20 September 2018 they agreed that the appearance under protest to jurisdiction should be heard on 19 October 2018, instead of the interlocutory applications. This was confirmed by Muir J in a Minute of 20 September 2018. Muir J also said that neither party was required to file a formal application in relation to the protest.1
[16] Pending resolution of the dispute, Ms Liu has offered to give binding undertakings to not use, destroy, copy, or provide to third parties, any of Worldwide’s confidential information that she has in her control.
Amended application for interim injunction
[17] On 5 October 2018, Worldwide, by then with new counsel, amended its interlocutory application to rely on the Court’s inherent jurisdiction and the Act, in support of the orders sought. The amended application still seeks the same suite of
1 The parties were in disagreement over which party should be making an application under r 5.49 of the High Court Rules 2016, following the filing and service of the appearance under protest to jurisdiction by the defendant. Counsel for Ms Liu argued that Worldwide needed to apply under r 5.49(5) to have the protest set aside, and that it was in fact Worldwide who is seeking to invoke the jurisdiction of the Court. Counsel for Worldwide, on the other hand, argued that it was incumbent upon Ms Liu to file a formal application for a stay of the proceedings at the same time as filing her protest.
mandatory injunctions, but the claim for damages is removed and the orders re-framed to modify the process involved.
[18] The orders sought by Worldwide, as contained in the 5 October 2018 amended application, are spread over four pages, but can be summarised as follows:
(a)Ms Liu is to file and serve an affidavit within five working days deposing as to all devices and communication platforms that she owns or has owned and/or uses or has used to perform her duties under the contract. That affidavit is to also set out whether she has copied Worldwide’s confidential information and to where, and the extent of third party access to such information.
(b)Ms Liu is to then deliver up to Mr Mori, all devices listed in that affidavit along with passwords and access codes to those devices and the listed communication platforms.
(c)Ms Liu is to identify all personal contacts on those devices and platforms.
(d)Mr Mori is to then clone those devices and platforms, ensuring only the confidential information of Worldwide is cloned. Mr Mori is to then permanently delete the confidential information belonging to Worldwide from Ms Liu’s devices and communication platforms.
(e)The cloned devices will then be provided to Worldwide, except that Ms Liu’s solicitors will first have an opportunity to inspect the devices, to ensure they do not contain any of Ms Liu’s personal data. Any disputed data (that is data claimed to be her personal data, which is described as data related to her personal contacts) will not be made immediately available to Worldwide and the parties are invited to reach agreement as to how such information is to be dealt with. Failing which, both parties may apply to the Court for further orders relating to that disputed data.
The issues
[19] There does not appear to be any dispute that the parties have, by their contract, agreed to a mandatory dispute resolution procedure, including that, where a dispute arises between the parties, it is deemed to be submitted to arbitration.
[20] The dispute resolution procedure does not provide for proceedings to be initiated in the High Court. It provides that arbitration will be final and binding between the parties.
[21] It seems to be accepted that there is no jurisdiction for the Court to hear and determine the proceeding itself, because of the parties’ submission to arbitration. If that is not accepted, then in my view it must be the case.
[22] Although the amended application relies on the Act, it seems also to be accepted that the Court does not have jurisdiction to grant the interlocutory orders sought by Worldwide under the Act, which I explain below.
[23] The argument for Worldwide is that the Court has jurisdiction to grant the interlocutory orders sought, under its inherent jurisdiction.
The Arbitration Act 2006
[24]The relevant provisions of the Act are discussed below.
[25]Article 5 of Schedule 1 of the Act provides:
5 Extent of court intervention
In matters governed by this schedule, no court shall intervene except where so provided in this schedule.
[26] Prior to amendment in 2007, article 9 of Schedule 1 provided that the Court had the same power in arbitral proceedings as it would have in proceedings before itself to make orders for preservation, sale or securing the subject matter of the dispute; an order appointing a receiver; any other order to ensure an award was not rendered ineffectual by disposition of assets, or an interim injunction or other interim order. As
noted, that article specifically provided that the Court could grant an interim injunction.
[27] Following the 2007 Amendment, article 9 of Schedule 1 of the Act provides as follows:
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.
(3)Where a party applies to a court for an interim injunction or other interim order and an arbitral tribunal has already ruled on any matter relevant to the application, the court shall treat the ruling or any finding of fact made in the course of the ruling as conclusive for the purposes of the application.
[28] Article 17A of Schedule 1 of the Act sets out the jurisdiction of an arbitral tribunal to grant interim measures.
17A Power of arbitral tribunal to grant interim measure
Unless otherwise agreed by the parties, the arbitral tribunal may, at the request of a party, grant an interim measure.
[29]“Interim measure” is defined in article 17 of Schedule 1 of the Act, as follows:
17 Interpretation
…
interim measure means a temporary measure (whether or not in the form of an award) by which a party is required, at any time before an award is made in relation to a dispute, to do all or any of the following:
(a)maintain or restore the status quo pending the determination of the dispute:
(b)take action that would prevent, or refrain from taking action that is likely to cause, current or imminent harm or prejudice to the arbitral proceedings:
(c)provide a means of preserving assets out of which a subsequent award may be satisfied:
(d)preserve evidence that may be relevant and material to the resolution of the dispute:
(e)give security for costs.
…
[30] The case law has further refined the effect of article 9, such that the Courts grant “interim measures” only where really necessary, which is generally where an arbitrator cannot.2
Analysis
[31] Mr Bullock, for Ms Liu, argues that, except for a limited role for the Court’s inherent jurisdiction, the combination of articles 5 and 9 now limits the Court’s jurisdiction to grant interim relief to that possessed by the arbitral tribunal to grant an “interim measure” as defined in article 17. He says the orders sought are not interim measures.
[32] In support of the jurisdiction argument, Mr Bullock relies on Safe Kids in Daily Supervision Ltd v McNeill.3 In that case, Asher J noted that Article 9:4
… no longer gives the court the powers it had to grant interlocutory injunctions when it considers the grant of interim measures. It specifically restricts the High Court’s powers to grant interim measures, to the same powers as those of an arbitral tribunal. The general High Court jurisdiction, summarised in Klissers Farmhouse Bakeries Limited v Harvest Bakeries Limited, therefore quite simply no longer applies.
[33] Mr Bigio QC, for Worldwide, accepts (in fact argues) that the orders sought do not come within the categories of “interim measures” as defined in the Act. (Therefore, as noted above, although the amended interlocutory application relies on both the Arbitration Act and inherent jurisdiction, the argument for Worldwide focuses solely on inherent jurisdiction.)
2 Smith Elements & Controls Ltd v EPI Group Ltd [2018] NZHC 336 at [31]-[32].
3 Safe Kids in Daily Supervision Ltd v McNeill [2012] 1 NZLR 714.
4 At [18].
[34] Mr Bigio says that Safe Kids does not apply where the orders fall outside “interim measures”. Though he did not expressly state how Safe Kids is distinguishable, I take it that his position is that Asher J did not intend the effect of the passage outlined above to limit the jurisdiction of the Court solely to the granting of “interim measures”. That is, Asher J did not intend to exclude or constrain the inherent jurisdiction of the Court to grant interim relief in situations not provided for under the jurisdiction to grant “interim measures”.
[35] I agree with that reading of the judgment. Safe Kids related to an application for an “interim measure” and was therefore about what the Court should take into account in light of the 2007 amendments, not about jurisdiction.
[36] As Asher J said, the test applicable for the grant of an “interim measure” is that set out under the Act, not under the High Court Rules, and is not governed by Klissers Farmhouse Bakeries Limited v Harvest Bakeries Limited.5 Article 17B(1) of Schedule 1 of the Act requires the applicant to satisfy the Court that the harm it will suffer cannot be adequately repaired by an award of damages; that the harm it will suffer substantially outweighs the harm likely to result to the respondent; and that there is a reasonable possibility of success on the merits of its claim. As Asher J held in Safe Kids, the test for the granting of an interim measure that is akin to an injunction, does not require an arbitral tribunal, or the Court for that matter, to consider the public interest or the interest of third parties.6
[37] The orders sought by Worldwide are outside the scope of “interim measures” as provided for in the Act. Under the Act, an “interim measure” is defined to be a temporary measure. The orders sought would result in any confidential information contained on Ms Liu’s devices being deleted from those devices and provided to Worldwide. Both counsel accepted that the only potentially relevant limb of the definition of interim measures is (a). That refers to temporary measures to “maintain or restore the status quo pending the determination of the dispute”. In the present case, the orders are not sought to maintain or restore the status quo. Ms Liu has been in possession of this information since before the dispute arose. Instead, it would appear
5 Klissers Farmhouse Bakeries Limited v Harvest Bakeries Limited [1988] 1 NZLR 16.
6 At [36].
that the intention of the orders is to reverse the status quo pending the determination of the dispute. Worldwide seeks, via the interlocutory orders, for the confidential information to be removed from Ms Liu’s possession and restored to it, save for the limited extent to which Ms Liu might sustain a claim of “personal data” (which would not appear to contemplate a claim of ownership of business data).
[38] Mr Bigio submits that the Court has inherent jurisdiction to make any order falling outside of “interim measures”, and particularly to make orders intended to be enforceable against a third party. He says third-party orders are required here against Mr Mori.
[39] He argues that if the High Court’s jurisdiction were limited solely to the jurisdiction of an arbitrator to grant “interim measures” under article 9, then the Court would have no ability to order interim relief against a third-party, an arbitral tribunal being unable to make such orders.
[40] Mr Bigio refers to both Williams & Kawharau on Arbitration,7 and Smith Elements & Controls Ltd v EPI Group Ltd.8 In Smith, Wylie J noted that it may be appropriate for a Court to “grant interim measures… where the interim measures are sought against a non-party” as an arbitral tribunal lacks such a power.9 The authors of Williams & Kawharau similarly note that if the jurisdiction of the Court is restricted by the operation of article 9 of the Act, then a Court would have no ability to order interim measures against a non-party.10
[41] I accept that the Court’s jurisdiction to grant interim relief, where a third party is involved, will be broader than that provided by the Act. For example, where an interim order against a third party is necessary to prevent that party transferring assets abroad, the parties to an arbitration must be able to have recourse to the Courts. The rationale for that might be simply that the Act does not apply where an order is sought
7 David A R Williams and Amokura Kawharau Williams & Kawharau on Arbitration (2nd ed, LexisNexis, Wellington, 2017).
8 Smith Elements & Controls Ltd v EPI Group Ltd [2018] NZHC 336.
9 At [32].
10 At 266, footnote 76.
against someone who is not a party to the arbitration agreement. Indeed, it would be difficult to see how it would.
[42] Certainly, inherent jurisdiction in those circumstances would be consistent with the general principle that a Court may exercise its inherent jurisdiction when faced with a situation that cannot be dealt with satisfactorily by statute or the rules of Court.11
[43] However, I do not consider this is an instance of a Court order being necessary to constrain a third party. As Mr Bullock argues, and I accept, the circumstances of Mr Mori’s proposed involvement are fundamentally different to that of true third parties, whose rights might be affected by a Court order, for instance as outlined above, where the order sought is to restrain a third party from transferring assets offshore to defeat the arbitration.
[44] The present circumstances are, as Mr Bullock again submits, and I agree, more akin to the Court appointment of an independent expert. Such appointments are commonplace and do not by their occurrence convert those experts into parties to the proceeding or parties to be constrained by orders.
[45] In this case Mr Mori has been selected by the plaintiff as the proposed intermediary to remove and transfer data. No order is required against him. If orders were otherwise to be made, he could consent and provide undertakings as with any expert. If he did not consent, then an expert could be selected who would. The Court would not impose the role on Mr Mori, or anyone in his position, against their will. That would be an extraordinary proposition.
[46] The orders actually required to effect Worldwide’s purpose, are all only against Ms Liu.
[47] Were this matter before the arbitral tribunal, an expert such as Mr Mori would be entirely free to consent to be bound by the tribunal’s orders, or the tribunal could make any interim measures, of which Mr Mori is a part, conditional on suitable undertakings being provided by him.
11 McGechan on Procedure (looseleaf, Brookers, Wellington) at [J16.02].
[48] This is not a situation that cannot be dealt with satisfactorily by statute or the rules of Court.
[49] Therefore, this is not an instance where the Court should be called upon to grant an order against a third party. I consider that the fact the orders sought by Worldwide involve Mr Mori, does not mean that the Court possesses inherent jurisdiction to grant such an order.
[50] In support of the existence and scope of the Court’s inherent jurisdiction to order interim relief generally, Mr Bigio says this still exists where the relief sought does not fall within the definition of interim measures as set out in the Act. He relies on the text I have already cited from McGechan on Procedure12 to the effect that a court may exercise its inherent jurisdiction when faced with a situation that cannot be dealt with satisfactorily by statute or the Court rules. In such circumstances, the inherent jurisdiction of the Court can be invoked to further the administration of justice.
[51] As I have already said, Mr Bigio’s jurisdiction argument focused heavily on the third-party point.
[52] As to the wider point that the Court has general inherent jurisdiction, to make any order outside of an “interim measure”. Mr Bigio has not put up any authority beyond the extract from McGechan to which I have already referred, a proposition which cannot be disputed.
[53] I accept that the Court’s inherent jurisdiction might well go beyond a genuine third-party scenario, but it must be constrained by the Act, in particular by the language of articles 5 and 17, and by the arbitration agreement. The relief sought here would be so much wider than the terms of article 17, that it would make that article redundant as to the Court’s jurisdiction.
[54] While the orders sought would not be contrary to article 17, they would cut across it. Further, article 17 talks expressly of interim measures and the listed
12 McGechan on Procedure (looseleaf, Brookers, Wellington) at [J16.02].
categories are directed towards preservation, whether that be of the status quo, assets, evidence, or prevention of harm. The relief sought here, however, would arguably go a long way towards determining the substantive dispute between the parties and would cut across the undisputed arbitration agreement and jurisdiction of the arbitral tribunal to resolve the dispute. Inherent jurisdiction is not available in those circumstances. The Court’s inherent jurisdiction cannot ride roughshod over the Act and the arbitration agreement.
[55] I also consider such a limitation on the Court’s inherent jurisdiction to be consistent with the principle Mr Bigio cited to me from McGechan. As noted, inherent jurisdiction is possessed by the Court in order to further the administration of justice. The parties have elected that their disputes are to be resolved through arbitration. They must be taken to have known and accepted the advantages and disadvantages of such a process when they entered the agreement, and Ms Liu is entitled to have the dispute resolved through arbitration. Where the form of interim relief being sought by one of the parties is such that the jurisdiction of the arbitral tribunal would, for all intents and purposes, be largely nullified by its grant, then it clearly would not further the administration of justice to allow such relief.
[56] Also, applying the general principle from McGechan, it would not be correct to say that this is a situation that could not otherwise be dealt with satisfactorily. The relief currently sought would still be available in terms of the arbitrator’s award and so would interim relief (albeit in the form of preservation orders) be available in terms of interim measures. Worldwide is attempting to short-circuit the arbitration and achieve immediate solutions.
[57] I also agree with Mr Bullock that the absence of authority, or examples of the Court exercising jurisdiction in the way sought by Worldwide, tells against a finding in its favour.
[58] Mr Bigio suggested that the application for interlocutory orders cannot be dealt with by an arbitrator for the simple reason that none has been appointed to date. While I do not consider that this point is even germane to the question of the Court’s jurisdiction, I note that the reason no arbitrator has been appointed is because
Worldwide has neglected to refer the dispute to arbitration, and has instead sought to pursue civil proceedings against Ms Liu through the Court.
[59] Mr Bigio also suggested that the orders would ensure that further indeterminable damage is not occasioned to Worldwide and would provide the arbitrator with relevant evidence. Again, neither of these points is germane to the issue of jurisdiction. They are instead relevant to the question of whether such jurisdiction should be exercised, were it found to exist. As the current matter is limited solely to the issue of jurisdiction, I would not be considering whether to grant such orders in any event.
[60] To conclude, while it might be appropriate for the Court to exercise its inherent jurisdiction to grant interim relief beyond that provided for in the Act in some cases, I do not consider that the Court has inherent jurisdiction to grant the orders sought by Worldwide.
Result
[61]The Court does not have jurisdiction to hear the civil proceeding.
[62] The Court does not have jurisdiction to grant the interlocutory orders sought by Worldwide.
[63] Mr Bigio submitted that if I found there was no jurisdiction, I should stay the proceeding. I can see no point in this case. The proceeding is therefore dismissed.
[64] Ms Liu is entitled to costs. Hopefully the parties can reach agreement in that regard. If not, Ms Liu should file a brief memorandum by 8 February 2019, with Worldwide to reply by 15 February 2019.
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Hinton J
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