PropertyIQ NZ Limited v Vicelich [2012] NZHC 2016 (13 August 2012)

Last Updated: 28 August 2012

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

CIV-2012-404-003693 [2012] NZHC 2016

BETWEEN PROPERTYIQ NZ LIMITED Plaintiff

AND CARMEN VICELICH First Defendant

AND DATA INSIGHT LIMITED Second Defendant

Hearing: 6 August 2012

Counsel: A V Foote for the Plaintiff

R S Teirney for the Defendants

Judgment: 13 August 2012

INTERIM JUDGMENT OF DUFFY J [Re Jurisdiction]

This judgment was delivered by Justice Duffy on 13 August 2012 at 11.30 am, pursuant to

r 11.5 of the High Court Rules

Registrar/Deputy Registrar

Date:

Counsel: R S Teirney P O Box 56501 Dominion Road Auckland 1446 for the Defendants

Solicitors: Duncan Cotterill P O Box 5 Christchurch 8140 for the Plaintiff

Copy To: Smith and Partners (G P Muller) P O Box 104065 Lincoln North

_{Waitakere 0654 (DX DP92005)}

PROPERTYIQ NZ LTD v VICELICH and ANOR HC AK CIV-2012-404-003693 [13 August 2012]

[1] The plaintiff, PropertyIQ NZ Limited (PropertyIQ), alleges that the defendants have unlawfully acquired its confidential information. It seeks interim orders of broad effect against them to protect the confidential character of the information and to restrain the defendants from dealing with the information in a way that would benefit them. The application is opposed.

[2] The application to this Court raises jurisdictional issues, as well as the usual issues regarding the merits of an application for interim injunctive relief.

[3] The parties have taken steps since the hearing of the application to identify the information that they agree is confidential and that which remains in dispute. While the parties are working towards reaching a measure of agreement on this topic, I consider that it will be of assistance to them if I provide them with an interim judgment on the jurisdictional question.

Jurisdiction

[4] The first defendant (Ms Vicelich) was an employee of PropertyIQ. Later, for a brief period of time, either she or the second defendant, Data Insight Limited (Data Insight), was contracted by PropertyIQ to perform services for it. Ms Vicelich is the sole director of Data Insight and she holds half the shares in that company.

[5] The confidential information that Ms Vicelich obtained from PropertyIQ was largely obtained while she was employed by the company. Both defendants contend, therefore, that the allegations that PropertyIQ make arise from, or are directly related to the employment relationship that then existed; hence, pursuant to s 161(1)(r) of the Employment Relations Act 2000, they fall within the exclusive jurisdiction of the Employment Relations Authority. So this Court has no authority to hear and determine the application.

[6] PropertyIQ contends that Ms Vicelich owes it fiduciary obligations, as well as being liable for breach of confidence and that Ms Vicelich’s potential liability under these causes of action is unaffected by s 161(1)(r). PropertyIQ also contends that part of its claim is against Ms Vicelich as an independent contractor, as well as the

company over which she has control; thus, the inclusion of these claims bring the proceeding within the jurisdiction of this Court, as such claims cannot be brought before the Employment Relations Authority.

[7] Whether a former employee, who has wrongfully misappropriated his or her former employer’s confidential information, can be sued in this Court by the former employer for breach of fiduciary duty and/or breach of confidence instead of being the subject of a claim under the Employment Relations Act is not clear cut. Whilst the general question has been considered before, the answers given have turned on the particular circumstances of the case.

[8] Thus, in BDM Grange Ltd v Parker [2006] 1 NZLR 353 (HC), Baragwanath and Courtney JJ drew a distinction between someone who was an employee per se and someone who was a working director of the company that employed him. In the latter case, the breaches of duty arising from the defendant’s misuse of the company’s confidential information were found to be attributable to the defendant’s failure to perform his duties as a director of the company, rather than his misconduct as an employee of the company. This led the Full Court to find that it had jurisdiction to determine the claims that were made against the defaulting director as such claims were seen to fall outside the purpose and scope of the Employment Relations Act. The Full Court expressly left open the question as to whether this Court has jurisdiction to hear proceedings brought against former employees who have misused their former employer’s confidential information; regarding the scope of the exclusive jurisdiction that s 161(1)(r) gives to the Employment Authority, at [88]-[89] the Full Court said:

In performing a careful conflict of jurisdictions analysis there may be noted the sharp antithesis between s 162 (conferring extensive contract jurisdiction) and s 100 (which by conferring only narrow injunction power suggests the exclusion of significant equity jurisdiction). The contrast indicates that, in so far as a claim alleging breach of confidence is brought essentially to achieve performance or to seek relief for breach of the employment contract, it is properly to be construed as arising from the employment relationship and thus within the exclusive jurisdiction of the authority and the Employment Court. However, a claim for relief which in essence arises not out of the employment relationship, but is to be characterised as substantially, say, a claim in equity (or, if the cause of action is as Meagher considers sui generis, for breach of confidence simpliciter), is properly within the jurisdiction of the High Court. It is unnecessary for the

decision of this case to pronounce upon remedies; it may be that the need to seek equitable relief such as account will be a pointer away from characterisation of the claim as within the jurisdiction of the authority. Again there will be concurrent complementary jurisdictions of this Court and the authority.

We do not attempt in this judgment to provide guidance beyond what is needed to decide this case. The open-textured language of the ERA will require the characterisation process to be worked through on the different facts of future cases.

[9] In Transnet NZ Ltd v Dulhunty Power (NZ) Ltd [2007] NZHC 519; [2007] ERNZ 379 (HC), Keane J was faced with circumstances where the plaintiff/employer’s claims for misuses of its confidential information were found to come within the Employment Relations Authority’s jurisdiction regarding the fifth defendant but to fall outside its jurisdiction with regard to the other defendants. Keane J found that the result could not be a complete void in jurisdiction and so he found that he had jurisdiction to deal with the plaintiff’s claims against all the defendants. He ultimately refused to award injunctive relief against the fifth defendant but that was because of delay on the plaintiff’s part, rather than through want of jurisdiction.

[10] In Pain Management Systems (NZ) Ltd v McCallum HC Christchurch CP72/01, 14 August 2001, Panckhurst J found that this Court has jurisdiction to determine a proceeding in which an employer brought claims for conversion, breach of copyright, breach of confidence, breaches of the Fair Trading Act 1986 and for an injunction restraining the defendants from processing a patent application. The defendants included a former employee of the plaintiff who had obtained the plaintiff’s confidential information during the course of his employment by the plaintiff and who also acted for the plaintiff under a contract for services.

[11] I consider that the reasoning of Panckhurst J in Pain Management Systems provides a helpful analysis of the two jurisdictions and the principles to determine which is to be applied to a given case. At [22] and [23], Panckhurst J said (emphasis added):

[22] To my mind the core concept which is determinative of the exclusive jurisdiction of the authority is whether the determination which is required is indeed about an employment relationship problem. In the words of the definition of that concept is the underlying problem one relating to, or arising out of, an employment relationship. I think it is important to

distinguish between a claim that may have its origins in an employment relationship on the one hand, and a claim the essence of which is related to or arises from the employment relationship of the parties on the other. Is the issue in a particular claim an employment relationship one, or is the subject matter of the claim some right or interest which is not directly employment- related at all? In this regard it may be necessary to distinguish between situations where the opportunity to breach the right or interest at stake arose in the context of an employment relationship as opposed to those where some employment right or interest is truly at stake.

[23] It is in this sense that I find the judgment in Pike v Semi Plastics [[1994] 1 ERNZ 969 per Doogue J] helpful, in particular for the focus upon the gist of the claim, the right or interests asserted by the plaintiff as having been infringed. Where the subject matter is property rights and the claim is tortious, equitable or statutory it may be unlikely that the case is one within the exclusive jurisdiction of the authority. Put another way where the rights or interest claimed by the plaintiff do not derive from a contract of service the general jurisdiction of this Court is unlikely to be ousted.

[12] Panckhurst J’s analysis was approved by the Full Court in BDM Grange. The Full Court analysed the words “ relating to” in s 161 and concluded that they must be read in accordance with the purpose and policy of the Employment Relations Act. These were not understood to intend that the jurisdiction of the Employment Relations Authority would extend “beyond claims arising directly within the employment relationship into causes of action such as claims in tort and in equity” (see [51]). The Full Court noted at [52] that the Employment Relations Act was directed towards conduct arising directly from obligations imposed under that Act and that its provisions were “tightly focused” on the employment relationship itself. The Full Court also recognised at [53] that the types of employment relationship problems covered by s 161 were referable to the employment agreement or the provisions of the Act such as union related matters and penalties under the Act, which gave some insight into the types of problems that the drafter of the legislation contemplated would be covered by the exclusive jurisdiction it gave to the Employment Relations Authority. The Full Court ultimately concluded at [65]-[66] that the scope of the Employment Relations Act was not so broad that it covered any conduct affecting an employer and an employee and in reaching this conclusion expressly approved the analysis of Panckhurst J in Pain Management, which read the exclusive jurisdiction created by s 161 and being more limited:

But the practical implications of extending the jurisdiction of the authority to the limit of the general language of s 161(1) are relevant to its construction. Parliament has not equipped the authority with any tort equivalent to the

battery of resources accorded contract claims by s 162. Had Parliament intended that it have general tort jurisdiction one could reasonably have expected that the power to deal with such matters as defamation, conversion and breach of copyright would have been given specific acknowledgment as part of the new provisions. To confer such jurisdiction would represent a significant change in the law, far beyond what would actually be required to give effect to the objectives of the ERA. We conclude that if the words “relating to” in the definition of “employment relationship problem” were construed so that any conduct touching on the relationship between employer and employee constitutes an employment relationship problem, then the net would be cast far wider than the objectives of the ERA require.

These various points are in our view compelling indicators that Parliament did not intend to extend the authority’s existing jurisdiction so dramatically as is suggested by the first defendant. We express our essential agreement, at greater length, with the analysis of Panckhurst J that “relating to” in the definition of “employment relationship problem” must be read in a limited way to mean any cause of action, the essential character of which is to be found entirely within the employment relationship itself. This would not encompass claims arising from tortious conduct even if arising between an employer and employee, since the relationship merely provides the factual setting for the cause of action; the duty arises independently.

[13] These analyses of the scope of s 161 lead me to conclude that this Court has jurisdiction to hear and determine PropertyIQ’s claims against Ms Vicelich. For a start, I am a faced with a claim against two defendants, one of whom clearly falls outside the jurisdiction of the Employment Relations Authority. It would be a bizarre outcome if PropertyIQ were to be required to prosecute its claim against Ms Vicelich before the Employment Relations Authority, but proceed in this Court against Data Insight when the key allegation in question, namely whether its confidential information has been misused, is the same for each claim. It follows that I agree with Keane J in Transnet NZ Ltd that an outcome that leads to a complete void in jurisdiction is unacceptable and that the more sensible outcome is that this Court has jurisdiction to deal with all claims against all defendants.

[14] More importantly, I have difficulty seeing how the circumstance of a disloyal employee, who appropriates his or her employer’s confidential information for a personal benefit, who then leaves this employment and prepares to, or actually sets to making use of the confidential information to the detriment of the former employer can fit within the scheme and purpose of the Employment Relations Act. The overall impression I have of the Act’s scheme and purpose is that it is focused

on current employer/employee relations and the termination of those relations where the termination has occurred in an unlawful manner.

[15] When an employee takes an employer’s confidential information for his or her own benefit, two results may follow. The first is that the employee remains in the employment relationship but by some means misuses the confidential information. Since the employee is still subject to the authority of the employer, it would be open to the employer to take steps under the Employment Relations Act to bring the misconduct to an end. But even then, such action would only be useful if the confidential information had not been disclosed to other persons who were outside the employment relationship. For if this had occurred and the employer wanted to prevent those persons from also misusing its confidential information, the employer would be faced with the jurisdictional void that was identified by Keane J in Transnet NZ Ltd. It would make no sense, given the procedural and evidential differences between the Employment Relations Authority and courts of general jurisdiction if, in such circumstances, the employer were obliged to bring proceedings against the employee under the Employment Relations Act, but to proceed before this Court against the third party recipients of the confidential information. Thus, I consider that in this circumstance, whether the employer can seek the help of a court of general jurisdiction will turn on whether the breach of confidence involves defendants who are outside the employment relationship.

[16] The second result is where the confidential information is obtained during the course of the employment relationship but the employer does not discover this until after the relationship has come to an end and the former employee is either about to or has begun taking steps to use the confidential information for his or her own benefit, either directly or indirectly through the auspices of another entity, such as a registered company in which the former employee has an interest. In this circumstance, I consider that the entirety of the former employee’s conduct can form the basis of a claim in this Court, irrespective of whether there are other defendants who have always been outside the employment relationship. This is because the Employment Relations Act provides no remedies for an employer faced with this conduct. I note that in SSC & B Lintas New Zealand Ltd v Murphy [1986] 2 NZLR

436 (HC) at 455, Prichard J said that an employee’s obligation of fidelity ended with

the employment relationship. There is nothing in the Employment Relations Act that leads me to conclude that it has changed matters and that the statutory obligations that Act imposes on employees survive the lawful termination of the employment relationship.

[17] Parliament has given some explicit recognition to the difficulty posed by the potential for claims falling in two jurisdictions by excluding from the Employment Relations Authority’s exclusive jurisdiction actions founded in tort (see s 161(1)(r). However, this does not provide a clear-cut answer for actions of breach of confidence which have been seen as having either a plurijurisdictional source, arising in contract, equity, property (see Alperton Rubber Co v Manning (1917) 86

LJ Ch 377 at 379), or tort (see McKaskell v Benseman [1989] 3 NZLR 75 (HC) at

88), or alternatively in accordance with the modern trend, which sees the action’s jurisdiction as being sui generis (see Hunt v A [2008] 1 NZLR 368 (CA) at [64]). Thus, the action does not fit easily with the tort exception in s 161(1)(r).

[18] Once there are some defendants who are outside the employment relationship and others who are within it, the only sensible approach is for a court of general jurisdiction to exercise jurisdiction over all of them, as was done by Keane J in Transnet NZ Ltd. To do otherwise would be to risk a jurisdictional void. Such an approach is also consistent with the observations expressed at [74] in BDM Grange regarding the limited availability of remedies like injunctions under the Employment Relations Act pointing to that Act not excluding this Court’s general jurisdiction to deal with claims in equity (emphasis added):

We have reasoned that Parliament’s purpose cannot be to shift to the authority and the Employment Court the responsibility to deal with claims in tort (outside those covered by s 99) or claims in equity (outside those covered by s 100 [which provides the limited injunctive remedies available under the Act]) when it has refrained from providing tools equivalent to those furnished by s 162 for contract cases. The only way to reconcile the language of para (r) with the policies of the ERA is to treat it, as its penultimate position in the list of jurisdictions suggests, as something ancillary to the core business of the authority and the Employment Court. The exclusion of tort jurisdiction, implicit in that as a whole, is there made explicit, no doubt out of caution.

It follows from this that the exclusion of an action like breach of confidence, which is best viewed as being sui generis in nature, can be understood to be implicitly excluded from the scope of s 161(1)(r).

[19] Ms Vicelich sought to persuade me to follow the reasoning expressed in Aztec Packaging Ltd v Malevris [2012] NZHC 243 in which Associate Judge Bell found that this Court had no jurisdiction to hear a claim for money had and received brought by an employer against a former employer who had taken approximately

$25,000 of her employer’s money during the course of her employment. The Judge considered that the same conduct could just as readily be expressed in terms of a breach of the obligations the Employment Relations Act imposed on an employee and, therefore, the conduct came within the Employment Relations Authority’s exclusive jurisdiction. Ms Vicelich argued that in this case, the alleged misconduct could also be described as a breach of the obligations to act in good faith that the Employment Relations Act imposes on the parties to an employment relationship.

[20] At [15]-[17] of Aztec Packaging, the Judge likened the conduct to circumstances where an employee was overpaid, the case being here that she had dishonestly overpaid herself, and found that recovery of overpayments to an employee fell squarely within the Employment Relations Authority’s exclusive jurisdiction. No consideration was given to what might have been the outcome if the claim had been brought in equity to trace and recover the misappropriated funds: see Banque Belge pour L’Etranger v Hambrouck [1921] 1 KB 321 at 330. I consider that this is to take too liberal a view of what constitutes an employment relationship problem. Such a view was expressly disavowed in BDM Grange at [65] as failing to take into account the scheme and purpose of the Employment Relations Act. Such a view also overlooks the careful distinctions drawn by Panckhurst J in Pain Management at [22] between a claim which may have its origins in an employment relationship and one in which the essence of the claim is related or arises from the employment relationship of the parties. I find, therefore, with all due respect to the Judge, that I have a different view on this topic and am not persuaded by his reasoning.

[21] It follows that for the above reasons, I have found that this Court has jurisdiction to hear and determine PropertyIQ’s proceeding and to grant the injunctive relief sought.

Duffy J