WORLDWIDE HOLIDAYS LIMITED v YING LIU [2018] NZHC 3443

WORLDWIDE HOLIDAYS LIMITED v YING LIU [2018] NZHC 3443 [20 December 2018]IN THE HIGH COURT OF NEW ZEALANDAUCKLAND REGISTRYI TE KŌTI MATUA O AOTEAROATĀMAKI MAKAURAU ROHECIV-2018-404-001556[2018] NZHC 3443BETWEEN WORLDWIDE HOLIDAYS LIMITEDPlaintiffAND YING LIUDefendantHearing: 19 October 2018Appearances: D Bigio QC for the PlaintiffD A C Bullock for the DefendantJudgment: 20 December 2018JUDGMENT OF HINTON JThis judgment was delivered by me on 20 December 2018 at 4.30 pmpursuant to Rule 11.5 of the High Court RulesRegistrar/Deputy RegistrarCounsel/Solicitors:David Bigio, Queen's Counsel, AucklandLee Salmon Long, AucklandGrove Darlow & Partners, Auckland[1] This judgment relates to the extent of the Court's jurisdiction to issue aninterim injunction where there is an agreement to arbitrate governed by the ArbitrationAct 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 witha competitor of Worldwide.[3] Worldwide claims that, contrary to the terms of her contract, Ms Liu has notreturned confidential customer information stored on her devices and variouscommunication 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 hasan entitlement to more remuneration from Worldwide, based on the sales she made upto the date of termination of her employment, and the information is required by herfor that purpose.[5] The contract between the parties contains a multi-tiered dispute resolutionprocedure. Clause 9.1 of the Contract states that the procedure is applicable to "anydispute 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 theother party on or before 10 working days from the event giving rise tothe dispute. (Clause 9.2)(b) The other party then has 10 working days from the receipt of that noticefor a written response. (Clause 9.3)(c) The parties then have 10 working days to endeavour in good faith toresolve the dispute between themselves. (Clause 9.4)(d) If settlement is not reached within those 10 working days, the partiesmust mediate the dispute in accordance with the contractual mediationprocedure set out at clause 9.10. (Clause 9.5)(e) If the mediation fails to resolve the dispute, it shall be referred toarbitration under the Arbitration Act 1996. Clause 9.6 also providesthat in such circumstances, the dispute is deemed to have beensubmitted 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 underclause 9 of the agreement (presumably in compliance with clause 9.2). Ms Liuresponded on 28 May (nine working days later).[8] Correspondence was entered into between counsel for both parties between30 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, thenext steps should have been to proceed to mediation and then arbitration, as set out inclauses 9.5 and 9.6.[10] Instead Worldwide filed proceedings in this Court on 23 July 2018, seekingrelief in the form of damages for loss of business revenue occasioned by the provisionof the plaintiff's confidential information to a competitor, being Ms Liu's newemployer.[11] The statement of claim also seeks relief in the form of a suite of mandatoryinjunctions, including requiring Ms Liu to deliver up to Bhavesh Mori, a digitalforensic specialist of deCipher Ltd, her mobile phones and electronic devices, withpasswords and access codes, so that those devices can be cloned and provided toWorldwide, and for the confidential information of Worldwide, contained on Ms Liu'sdevices 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. Itsought the same suite of mandatory injunctions ("delivery up" orders referred toabove) and even included a claim for damages for injury Worldwide has suffered inconsequence of Ms Liu failing to deliver up the confidential information. This originalinjunction 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 noticeof opposition to the application for interlocutory orders within five working days, andhe allocated a fixture on 19 October 2018.[14] Ms Liu instead filed an appearance under protest to jurisdiction, relying on theagreement to arbitrate.[15] Though there was initial disagreement between the parties as to how toproceed, by 20 September 2018 they agreed that the appearance under protest tojurisdiction should be heard on 19 October 2018, instead of the interlocutoryapplications. This was confirmed by Muir J in a Minute of 20 September 2018. Muir Jalso said that neither party was required to file a formal application in relation to theprotest.1[16] Pending resolution of the dispute, Ms Liu has offered to give bindingundertakings to not use, destroy, copy, or provide to third parties, any of Worldwide'sconfidential information that she has in her control.Amended application for interim injunction[17] On 5 October 2018, Worldwide, by then with new counsel, amended itsinterlocutory application to rely on the Court's inherent jurisdiction and the Act, insupport of the orders sought. The amended application still seeks the same suite of1 The parties were in disagreement over which party should be making an application under r 5.49of the High Court Rules 2016, following the filing and service of the appearance under protest tojurisdiction by the defendant. Counsel for Ms Liu argued that Worldwide needed to apply underr 5.49(5) to have the protest set aside, and that it was in fact Worldwide who is seeking to invokethe jurisdiction of the Court. Counsel for Worldwide, on the other hand, argued that it wasincumbent upon Ms Liu to file a formal application for a stay of the proceedings at the same timeas filing her protest.mandatory injunctions, but the claim for damages is removed and the orders re-framedto modify the process involved.[18] The orders sought by Worldwide, as contained in the 5 October 2018 amendedapplication, are spread over four pages, but can be summarised as follows:(a) Ms Liu is to file and serve an affidavit within five working daysdeposing as to all devices and communication platforms that she ownsor has owned and/or uses or has used to perform her duties under thecontract. That affidavit is to also set out whether she has copiedWorldwide's confidential information and to where, and the extent ofthird party access to such information.(b) Ms Liu is to then deliver up to Mr Mori, all devices listed in thataffidavit along with passwords and access codes to those devices andthe listed communication platforms.(c) Ms Liu is to identify all personal contacts on those devices andplatforms.(d) Mr Mori is to then clone those devices and platforms, ensuring only theconfidential information of Worldwide is cloned. Mr Mori is to thenpermanently delete the confidential information belonging toWorldwide from Ms Liu's devices and communication platforms.(e) The cloned devices will then be provided to Worldwide, except thatMs 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. Anydisputed data (that is data claimed to be her personal data, which isdescribed as data related to her personal contacts) will not be madeimmediately available to Worldwide and the parties are invited to reachagreement as to how such information is to be dealt with. Failingwhich, both parties may apply to the Court for further orders relating tothat 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 disputearises between the parties, it is deemed to be submitted to arbitration.[20] The dispute resolution procedure does not provide for proceedings to beinitiated in the High Court. It provides that arbitration will be final and bindingbetween the parties.[21] It seems to be accepted that there is no jurisdiction for the Court to hear anddetermine the proceeding itself, because of the parties' submission to arbitration. Ifthat 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 beaccepted that the Court does not have jurisdiction to grant the interlocutory orderssought by Worldwide under the Act, which I explain below.[23] The argument for Worldwide is that the Court has jurisdiction to grant theinterlocutory 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 interventionIn matters governed by this schedule, no court shall intervene exceptwhere so provided in this schedule.[26] Prior to amendment in 2007, article 9 of Schedule 1 provided that the Courthad the same power in arbitral proceedings as it would have in proceedings beforeitself 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 renderedineffectual by disposition of assets, or an interim injunction or other interim order. Asnoted, that article specifically provided that the Court could grant an interiminjunction.[27] Following the 2007 Amendment, article 9 of Schedule 1 of the Act provides asfollows:9 Arbitration agreement and interim measures by court(1) It is not incompatible with an arbitration agreement for a party torequest, before or during arbitral proceedings, from a court an interimmeasure and for a court to grant such measure.(2) For the purposes of paragraph (1), the High Court or the District Courthas the same powers as an arbitral tribunal to grant an interim measureunder article 17A for the purposes of proceedings before that court,and that article and article 17B apply accordingly subject to allnecessary modifications.(3) Where a party applies to a court for an interim injunction or otherinterim order and an arbitral tribunal has already ruled on any matterrelevant to the application, the court shall treat the ruling or anyfinding of fact made in the course of the ruling as conclusive for thepurposes of the application.[28] Article 17A of Schedule 1 of the Act sets out the jurisdiction of an arbitraltribunal to grant interim measures.17A Power of arbitral tribunal to grant interim measureUnless otherwise agreed by the parties, the arbitral tribunal may, atthe 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 Interpretationinterim measure means a temporary measure (whether or not in the form ofan award) by which a party is required, at any time before an award is madein relation to a dispute, to do all or any of the following:(a) maintain or restore the status quo pending the determination of thedispute:(b) take action that would prevent, or refrain from taking action that islikely to cause, current or imminent harm or prejudice to the arbitralproceedings:(c) provide a means of preserving assets out of which a subsequent awardmay be satisfied:(d) preserve evidence that may be relevant and material to the resolutionof the dispute:(e) give security for costs.[30] The case law has further refined the effect of article 9, such that the Courtsgrant "interim measures" only where really necessary, which is generally where anarbitrator cannot.2Analysis[31] Mr Bullock, for Ms Liu, argues that, except for a limited role for the Court'sinherent jurisdiction, the combination of articles 5 and 9 now limits the Court'sjurisdiction 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 interimmeasures.[32] In support of the jurisdiction argument, Mr Bullock relies on Safe Kids in DailySupervision 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 interlocutoryinjunctions when it considers the grant of interim measures. It specificallyrestricts the High Court's powers to grant interim measures, to the samepowers as those of an arbitral tribunal. The general High Court jurisdiction,summarised in Klissers Farmhouse Bakeries Limited v Harvest BakeriesLimited, therefore quite simply no longer applies.[33] Mr Bigio QC, for Worldwide, accepts (in fact argues) that the orders sought donot come within the categories of "interim measures" as defined in the Act.(Therefore, as noted above, although the amended interlocutory application relies onboth the Arbitration Act and inherent jurisdiction, the argument for Worldwide focusessolely 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 isdistinguishable, I take it that his position is that Asher J did not intend the effect of thepassage 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 inherentjurisdiction of the Court to grant interim relief in situations not provided for under thejurisdiction to grant "interim measures".[35] I agree with that reading of the judgment. Safe Kids related to an applicationfor an "interim measure" and was therefore about what the Court should take intoaccount 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 thatset out under the Act, not under the High Court Rules, and is not governed by KlissersFarmhouse Bakeries Limited v Harvest Bakeries Limited.5 Article 17B(1) ofSchedule 1 of the Act requires the applicant to satisfy the Court that the harm it willsuffer cannot be adequately repaired by an award of damages; that the harm it willsuffer substantially outweighs the harm likely to result to the respondent; and that thereis a reasonable possibility of success on the merits of its claim. As Asher J held inSafe 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 publicinterest 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 atemporary measure. The orders sought would result in any confidential informationcontained on Ms Liu's devices being deleted from those devices and provided toWorldwide. Both counsel accepted that the only potentially relevant limb of thedefinition of interim measures is (a). That refers to temporary measures to "maintainor 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 inpossession of this information since before the dispute arose. Instead, it would appear5 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 determinationof the dispute. Worldwide seeks, via the interlocutory orders, for the confidentialinformation to be removed from Ms Liu's possession and restored to it, save for thelimited extent to which Ms Liu might sustain a claim of "personal data" (which wouldnot appear to contemplate a claim of ownership of business data).[38] Mr Bigio submits that the Court has inherent jurisdiction to make any orderfalling outside of "interim measures", and particularly to make orders intended to beenforceable against a third party. He says third-party orders are required here againstMr Mori.[39] He argues that if the High Court's jurisdiction were limited solely to thejurisdiction of an arbitrator to grant "interim measures" under article 9, then the Courtwould have no ability to order interim relief against a third-party, an arbitral tribunalbeing unable to make such orders.[40] Mr Bigio refers to both Williams & Kawharau on Arbitration,7 and SmithElements & Controls Ltd v EPI Group Ltd.8 In Smith, Wylie J noted that it may beappropriate for a Court to "grant interim measures where the interim measures aresought against a non-party" as an arbitral tribunal lacks such a power.9 The authors ofWilliams & Kawharau similarly note that if the jurisdiction of the Court is restrictedby the operation of article 9 of the Act, then a Court would have no ability to orderinterim measures against a non-party.10[41] I accept that the Court's jurisdiction to grant interim relief, where a third partyis involved, will be broader than that provided by the Act. For example, where aninterim order against a third party is necessary to prevent that party transferring assetsabroad, the parties to an arbitration must be able to have recourse to the Courts. Therationale for that might be simply that the Act does not apply where an order is sought7 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 bedifficult to see how it would.[42] Certainly, inherent jurisdiction in those circumstances would be consistent withthe general principle that a Court may exercise its inherent jurisdiction when facedwith 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 necessaryto constrain a third party. As Mr Bullock argues, and I accept, the circumstances ofMr Mori's proposed involvement are fundamentally different to that of true thirdparties, 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 todefeat the arbitration.[44] The present circumstances are, as Mr Bullock again submits, and I agree, moreakin to the Court appointment of an independent expert. Such appointments arecommonplace and do not by their occurrence convert those experts into parties to theproceeding or parties to be constrained by orders.[45] In this case Mr Mori has been selected by the plaintiff as the proposedintermediary to remove and transfer data. No order is required against him. If orderswere otherwise to be made, he could consent and provide undertakings as with anyexpert. If he did not consent, then an expert could be selected who would. The Courtwould 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 againstMs Liu.[47] Were this matter before the arbitral tribunal, an expert such as Mr Mori wouldbe entirely free to consent to be bound by the tribunal's orders, or the tribunal couldmake any interim measures, of which Mr Mori is a part, conditional on suitableundertakings 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 therules of Court.[49] Therefore, this is not an instance where the Court should be called upon togrant an order against a third party. I consider that the fact the orders sought byWorldwide involve Mr Mori, does not mean that the Court possesses inherentjurisdiction to grant such an order.[50] In support of the existence and scope of the Court's inherent jurisdiction toorder interim relief generally, Mr Bigio says this still exists where the relief soughtdoes not fall within the definition of interim measures as set out in the Act. He relieson the text I have already cited from McGechan on Procedure12 to the effect that acourt may exercise its inherent jurisdiction when faced with a situation that cannot bedealt with satisfactorily by statute or the Court rules. In such circumstances, theinherent jurisdiction of the Court can be invoked to further the administration ofjustice.[51] As I have already said, Mr Bigio's jurisdiction argument focused heavily onthe third-party point.[52] As to the wider point that the Court has general inherent jurisdiction, to makeany order outside of an "interim measure". Mr Bigio has not put up any authoritybeyond the extract from McGechan to which I have already referred, a propositionwhich cannot be disputed.[53] I accept that the Court's inherent jurisdiction might well go beyond a genuinethird-party scenario, but it must be constrained by the Act, in particular by the languageof articles 5 and 17, and by the arbitration agreement. The relief sought here wouldbe so much wider than the terms of article 17, that it would make that article redundantas to the Court's jurisdiction.[54] While the orders sought would not be contrary to article 17, they would cutacross it. Further, article 17 talks expressly of interim measures and the listed12 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 goa long way towards determining the substantive dispute between the parties and wouldcut across the undisputed arbitration agreement and jurisdiction of the arbitral tribunalto resolve the dispute. Inherent jurisdiction is not available in those circumstances.The Court's inherent jurisdiction cannot ride roughshod over the Act and thearbitration agreement.[55] I also consider such a limitation on the Court's inherent jurisdiction to beconsistent with the principle Mr Bigio cited to me from McGechan. As noted, inherentjurisdiction 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. Theymust be taken to have known and accepted the advantages and disadvantages of sucha process when they entered the agreement, and Ms Liu is entitled to have the disputeresolved through arbitration. Where the form of interim relief being sought by one ofthe parties is such that the jurisdiction of the arbitral tribunal would, for all intents andpurposes, be largely nullified by its grant, then it clearly would not further theadministration of justice to allow such relief.[56] Also, applying the general principle from McGechan, it would not be correctto say that this is a situation that could not otherwise be dealt with satisfactorily. Therelief currently sought would still be available in terms of the arbitrator's award andso would interim relief (albeit in the form of preservation orders) be available in termsof interim measures. Worldwide is attempting to short-circuit the arbitration andachieve immediate solutions.[57] I also agree with Mr Bullock that the absence of authority, or examples of theCourt exercising jurisdiction in the way sought by Worldwide, tells against a findingin its favour.[58] Mr Bigio suggested that the application for interlocutory orders cannot be dealtwith by an arbitrator for the simple reason that none has been appointed to date. WhileI do not consider that this point is even germane to the question of the Court'sjurisdiction, I note that the reason no arbitrator has been appointed is becauseWorldwide has neglected to refer the dispute to arbitration, and has instead sought topursue civil proceedings against Ms Liu through the Court.[59] Mr Bigio also suggested that the orders would ensure that furtherindeterminable damage is not occasioned to Worldwide and would provide thearbitrator with relevant evidence. Again, neither of these points is germane to the issueof jurisdiction. They are instead relevant to the question of whether such jurisdictionshould be exercised, were it found to exist. As the current matter is limited solely tothe issue of jurisdiction, I would not be considering whether to grant such orders inany event.[60] To conclude, while it might be appropriate for the Court to exercise its inherentjurisdiction to grant interim relief beyond that provided for in the Act in some cases, Ido not consider that the Court has inherent jurisdiction to grant the orders sought byWorldwide.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 soughtby Worldwide.[63] Mr Bigio submitted that if I found there was no jurisdiction, I should stay theproceeding. 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 thatregard. If not, Ms Liu should file a brief memorandum by 8 February 2019, withWorldwide to reply by 15 February 2019.------------------------------------------Hinton J