CRANIUM ADSPACE LTD v BRITISH AMERICAN TOBACCO (NEW ZEALAND) LTD [2016] NZHC 2922

CRANIUM ADSPACE LTD v BRITISH AMERICAN TOBACCO (NEW ZEALAND) LTD [2016] NZHC 2922 [5 December 2016]IN THE HIGH COURT OF NEW ZEALANDAUCKLAND REGISTRYCIV-2016-404-001021[2016] NZHC 2922BETWEEN CRANIUM ADSPACE LIMITEDPlaintiffAND BRITISH AMERICAN TOBACCO(NEW ZEALAND) LIMITEDDefendantHearing: 2 December 2016Appearances: B Henry for the PlaintiffI Gault for the DefendantJudgment: 5 December 2016JUDGMENT OF EDWARDS JThis judgment was delivered by Justice Edwardson 5 December 2016 at 11.30 am, pursuant tor 11.5 of the High Court RulesRegistrar/Deputy RegistrarDate:Solicitors: Shanahans, Family and Property Law, New Lynn, AucklandBelly Gully, AucklandCounsel: B Henry, AucklandIntroduction[1] The parties to this proceeding are parties to an agreement containing a dispute resolution clause. That clause requires disputes between them to be referred to mediation and then arbitration, with the exception of interim or preliminary relief which may be sought from the court.[2] On 20 May 2016 Cranium Adspace Limited (Cranium) commenced this proceeding against British American Tobacco (New Zealand) Ltd (BATNZ) alleging breach of the agreement between them. It also applied for an interim injunction to restrain BATNZ from pursuing contractual negotiations with a third party. That interim injunction application is no longer pursued and all issues relating to interim relief are now resolved.[3] BATNZ applies to strike out or alternatively stay this proceeding.Background[4] On 15 May 2014, the parties entered into an agreement for Cranium to selladvertising space on BATNZ's tobacco dispensing units (Agreement). Clause 15 ofthat Agreement provides as follows:15. Dispute Resolution15.1 Any party may require any dispute between parties arising out of or in connection with this Agreement (Dispute), which has not been resolved within 10 working days, to be referred to mediation. The mediator will be appointed by both parties or, where the parties cannot agree on a mediator within 10 workings days of a party referring a Dispute to mediation, appointed by the Chairperson ofLEADR New Zealand Incorporated or the Chairperson's nominee.The mediator will conduct the mediation in accordance with those guidelines agreed between the parties or, if the parties cannot agree on those guidelines within 10 working days following appointment of the mediator, in accordance with the guidelines set by the mediator. The costs and expenses of the mediator will be shared by the parties equally.15.2 In the event that a Dispute has not been resolved with [sic] 30 working days following the referral of the Dispute to mediation, the Dispute will be escalated to arbitration which shall be conducted inaccordance with the Arbitration Act 1996. The arbitral tribunal shall decide the dispute in accordance with the substantive law of New Zealand and the place of the arbitration shall be Auckland, New Zealand. The arbitrator shall be appointed by BATNZ and the Agent or failing agreement within 10 working days of service of the written notice shall be appointed at the request of either the BATNZ or the Agent by the president or vice-president for the time being of the New Zealand Law Society. The arbitral award is final and bindingon the parties. The parties' own costs and the costs of the award inrelation to the arbitration will be borne in the manner determined by the arbitrator and, in the absence of such determination, each party will bear its own costs and an equal share of the costs of the arbitration.15.3 The provisions of this clause 15 will not limit or affect the right of BATNZ or Cranium to apply to a court at any time for any interim or preliminary relief in respect of the Dispute.[5] The Agreement between the parties came to an end on 19 May 2016 and BATNZ declined to renew it. Cranium filed proceedings the following day. The claim as pleaded alleges breach of the Agreement by: failing to provide customer sites; failing to exercise the discretion around renewal of the Agreement in goodfaith; and using Cranium's protected information by divulging it to potentialcompetitors.[6] The statement of claim was filed together with an application for an interim injunction restraining BATNZ from any conduct which was inconsistent withCranium's claim for specific performance. An order requiring disclosure of theidentity of the third party with which BATNZ was negotiating regarding the advertising on tobacco dispensing units was also sought.[7] By judgment dated 10 June 2016, Muir J declined Cranium's disclosureapplication and issued timetabling orders for the hearing of the interim injunction application. Cranium appealed the decision regarding the disclosure application. On 1 July 2016 Cranium filed a memorandum in the High Court withdrawing its interim injunction application pending the outcome of its appeal. That appeal was abandoned in September 2016. BATNZ subsequently informed Cranium that it had signed an agreement with Hypermedia for the advertising on the units.[8] It is not disputed that the interim relief phase of the proceeding is at an end.Legal framework[9] BATNZ's application was advanced under r 15.1 of the High Court Rules andart 8 of sch 1 to the Arbitration Act 1996.[10] Rule 15.1 provides the Court with a discretion to strike out or alternatively stay all or part of a proceeding. BATNZ specifically relies on r 15.1(1)(b) (likely to cause prejudice or delay) and r 15.1(1)(c) (frivolous or vexatious) in its application.1[11] Article 8 of sch 1 to the Arbitration Act 1996 provides:8 Arbitration agreement and substantive claim before court(1) A court before which proceedings are brought in a matter which is the subject of an arbitration agreement shall, if a party so requests not later than when submitting that party's first statement on thesubstance of the dispute, stay those proceedings and refer the parties to arbitration unless it finds that the agreement is null and void, inoperative, or incapable of being performed, or that there is not in fact any dispute between the parties with regard to the matters agreed to be referred.(2) Where proceedings referred to in paragraph (1) have been brought, arbitral proceedings may nevertheless be commenced or continued, and an award may be made, while the issue is pending before the court.Parties' submissions[12] BATNZ seeks to strike out, or alternatively stay, the proceeding on the grounds that the proceeding could only be filed in this Court for the purposes of pursuing interim relief. With the interim relief issues now resolved, the claim may only be pursued by following the procedure in cl 15 of the Agreement.[13] Further, BATNZ says that having the proceeding "hanging over its head" iscausing it serious prejudice. The uncertainty created by the proceeding means that advertising campaigns have had to be delayed, and Hypermedia remains unable to commit to timeframes with potential advertisers with any certainty. That is causing loss to BATNZ and difficulties in conducting its business affairs. That latter1 Although the application originally relied on r 15.2, that was abandoned at the hearing.prejudice has been recognised as an appropriate factor to take into account in considering whether to strike out proceedings.2[14] Finally BATNZ says that to continue the proceeding in this Court solely on the basis that evidence against Hypermedia may be obtained in the future, whichcould lead to it being joined to the proceeding, is an abuse of the Court's processes.[15] Cranium does not dispute that the current claim as pleaded falls within the arbitration clause. There is also no issue taken with the timing of the request, it being accepted that it has been made prior to the first statement on the substance of the dispute being made. However, on behalf of Cranium, Mr Henry submits that thearbitration agreement is "inoperative" or "incapable of being performed" within themeaning of art 8. That is because the dispute involves a third party which is not a party to the arbitration agreement. On the proper interpretation of cl 15, Mr Henry submits that the parties cannot have intended for the proceeding to be split between multiple dispute resolution options.3[16] Mr Henry further submits that the allegations of prejudice and delay are unfounded. He contends that any such prejudice and delay would exist whether or not the dispute was referred to arbitration or was pursued in the High Court.[17] Cranium says that the reason why Hypermedia has not entered the market isbecause as soon as it does, it will become apparent that it is using Cranium'sconfidential information. Mr Henry further submits that discovery is needed to be able to properly formulate the claim against Hypermedia.Analysis[18] An order striking out the proceeding is premature. It has only been commenced relatively recently and, but for the arbitration clause, there is no other basis upon which it should be struck out.2 Biis v Lambeth Health Authority [1978] 2 All ER 125 (CA) at 131applied by New Times Media Ltd v Chinese Herald Ltd HC Auckland CIV-2001-404-002027, 10 August 2006 at [15].3 Citing Premium Nafta Products Ltd v Fili Shipping Co Ltd [2007] UKHL 40, [2007] 4 All ER 951 in support.[19] Cranium has indicated it intends to pursue its claims as pleaded. The Arbitration Act 1996 applies. Article 8 mandates a stay of proceedings in favour of arbitration so long as the prerequisites in that article are met. Cranium's sole basis ofopposition to the application is that the arbitration agreement in cl 15 is"inoperative" or "incapable of being performed" within the meaning of art 8.[20] I do not consider that potential or hypothetical claims against Hypermedia render the arbitration agreement "inoperative" or "incapable of being performed".Claims against Hypermedia (or indeed any other third party) are not currently pleaded. Whether any grounds exist for such claims is entirely speculative. There is no basis to maintain proceedings in this jurisdiction in the hope that something might arise later which might form grounds for a related claim against a third party.[21] Questions of delay and prejudice are irrelevant to the considerations under art 8. That article does not afford a discretion to the Court where the parties have agreed to refer their dispute to arbitration and when the prerequisites of art 8 are otherwise met. I am bound by art 8 and must accordingly stay the proceeding.Result[22] The application for a stay of proceeding is granted. The parties are referred to the dispute resolution process set out in cl 15 of the Agreement.[23] BATNZ has been successful in its application and is entitled to an award of costs on a category 2B basis. I decline to certify for second counsel.___________________Edwards J