Global Kiwi NZ Limited v Fannin [2014] NZHC 656 (4 April 2014)

Last Updated: 16 April 2014

IN THE HIGH COURT OF NEW ZEALAND WHANGAREI REGISTRY

CIV-2012-488-882 [2014] NZHC 656

BETWEEN	GLOBAL KIWI NZ LIMITED Plaintiff
AND	JAKE BERNARD FANNIN First Defendant GLOBAL DIAMONDS LIMITED Second Defendant MONICA OSTLE Third Defendant

On the papers:
Appearances:	J A Browne for Plaintiff J G Fannin in person for First and Second Defendants R C Mark for Third Defendant
Judgment:	4 April 2014

_{JUDGMENT OF ASSOCIATE JUDGE BELL}

This judgment was delivered by me on 4 April 2014 at 11:00am

pursuant to Rule 11.5 of the High Court Rules.

...................................

Registrar/Deputy Registrar

Solicitors:

Henderson Reeves, Whangarei, for Plaintiff

R C Mark, Kerikeri, for Third Defendant

GLOBAL KIWI NZ LIMITED v FANNIN [2014] NZHC 656 [4 April 2014]

[1] This is a decision whether this court has jurisdiction to hear all of the plaintiff’s claims. The jurisdiction issue arose after the third defendant was joined. She is a former employee of the plaintiff. Allegations against her are directed at what she did in the course of her employment and accordingly may be within the exclusive jurisdiction of the Employment Relations Authority under s 161 of the Employment Relations Act 2000.

[2] The jurisdiction question cannot be waived or ignored. It is irrelevant that the defendants have filed statements of defence in the proceeding. It is the kind of case described by Mustill J in Rothmans of Pall Mall (Overseas) Ltd v Saudi Arabian Airlines Corporation:¹

The ... situation exists where the objection is not simply that the matter lies outside the jurisdiction of the court, as conferred by the common law or by statute, but is one in respect of which jurisdiction has been actively withdrawn from the court and conferred on another tribunal. The position in such a case is stated by Asquith LJ in Wilkinson v Barking Corporation [1948] 1 KB 721, 724:

“It is undoubtedly good law that where a statute creates a right and, in plain language, gives a specific remedy or appoints a specific tribunal for its enforcement, a party seeking to enforce the right must resort to that remedy or tribunal, and not to others.”

Where the statute is of this kind, it is immaterial whether the parties wish the court to try the action. It must disclaim jurisdiction, since to continue with the action would be contrary to law. Still less can one party by unilateral act confer on the court a jurisdiction which Parliament has said it should not have. Entry of an unconditional appearance does not preclude the defendant from raising the objection at a later stage, since it is the duty of the court not to entertain the dispute.

[3] While there is no formal application, this is a decision under r 5.49 of the High Court Rules as to the jurisdiction of the court. It is an interlocutory decision made in chambers and carries the normal right of review under r 2.3. I have decided

_{it on the papers.}

¹ Rothmans of Pall Mall (Overseas) Ltd v Saudi Arabian Airlines Corporation [1981] QB 368 at

375-376 (this point was not challenged on appeal).

What the case is about

[4] The plaintiff is a Whangarei jewellery retailer which trades under the name “Global Diamonds”. Mr Fannin, the first defendant, was employed as manager of the plaintiff until 30 November 2012. He was also a 25 per cent shareholder. He was director of the plaintiff until 21 January 2013. He remains a shareholder. Mr Fannin is also the sole director and shareholder of the second defendant, Global Diamonds Ltd, which was incorporated in December 2012. The plaintiff employed Ms Ostle, the third defendant, as one of its staff from 25 May 2010 until 19 January

2013.

[5] The second amended statement of claim alleges misconduct by Mr Fannin while he worked for the plaintiff. The allegations of misconduct go to false accounting, not accounting to the plaintiff for benefits received, misappropriating company assets and the like. Ms Ostle is alleged to have assisted him.

[6] Mr Fannin and the second defendant are alleged to be carrying on business under the name “Global Diamonds”.

[7] There are seven causes of action:

1. Against the first defendant only, for breach of duty under s 131 of the Companies Act 1993 to act in good faith in the best interests of the plaintiff.

2. Against the first defendant only, for breach of fiduciary duties in equity owed by him as director.

3 Against the first defendant only, for breach of duty under s 137 of the

Companies Act to exercise care, diligence and skill.

4 Against the first and second defendants, for breach of s 9 of the Fair

Trading Act 1986.

5 Against the first and second defendants, for passing-off.

6. Against the first and third defendants, for conversion. Ms Ostle is said to have assisted Mr Fannin in conversion of jewellery and other property.

7 Against the first and third defendants, for money had and received.

Exclusive jurisdiction of the Employment Relations Authority

[8] The plaintiff employed both Mr Fannin and Ms Ostle and accordingly the jurisdiction question applies to both of them. I have considered the jurisdiction question in the usual way that strike-out applications are decided, that is, I have assumed that the plaintiff will be able to prove the allegations in its pleadings.

[9] I follow the approach I took in Aztec Packaging Ltd v Malevris,² and the

Hibernian Catholic Benefit Society v Hagai:³

(a) Section 161 of the Employment Relations Act confers an exclusive jurisdiction on the Employment Relations Authority. No court can hear a matter that is within the Authority’s exclusive jurisdiction.

(b) The Authority has exclusive jurisdiction to make determinations about employment relationship problems. The definition of “employment relationship problem” in s 5 of the Employment Relations Act is wide enough to cover a range of claims that may be made between those in an employment relationship. The definition is not tied to particular causes of action.

(c) A matter is outside the jurisdiction of the Authority if a determination about an employment relationship problem is not required, and the matter does not fall within any of the specific heads of jurisdiction in

_{s 161(1)(a)-(s).}

² _{Aztec Packaging Ltd v Malevris [2012] NZHC 243, (2012) 10 NZELC 79,003.}

³ Hibernian Catholic Benefit Society v Hagai [2014] NZHC 24.

(d) The Authority may determine matters of general law that, but for the exclusive jurisdiction provision, would otherwise be decided by courts of general jurisdiction. The Authority has jurisdiction to decide matters in equity, as employment law may require the application of equity in its concurrent jurisdiction.

(e) Employment relationship problems may give rise to concurrent causes of action. As an example, a claim for breach of good faith obligations might be pleaded either under the statute or in equity. The jurisdiction of the Authority to hear a claim under one head of jurisdiction, say breach of an employment agreement, cannot be sidestepped by pleading the matter as some other cause of action, if the case is still about an employment relationship problem. There cannot be concurrent causes of action about employment relationship problems both inside and outside the Authority.

(f) Inconvenience may arise because proceedings may cover both employment relationship problems and other issues between the parties. Notwithstanding that, Parliament has made the policy decision that the benefits of a specialist jurisdiction outweigh problems that might arise in individual cases.

Second defendant

[10] The second defendant is easily dealt with. As it is a company, it was never in an employment relationship with the plaintiff. The claims against it do not allege any kind of employment relationship, let alone an employment relationship problem. The allegations against the second defendant are clearly outside the exclusive jurisdiction of the Authority. This court can hear them.

First defendant

[11] Apart from the fourth and fifth causes of action, all the allegations are directed at Mr Fannin’s conduct while he worked for the plaintiff, both as employee

and as director. BDM Grange Ltd v Parker⁴ held that where a former employee was also a director, the employer may base his claim on breaches of duty as a director so as to keep the proceeding within the jurisdiction of the High Court.

[12] The first three causes of action in this case are clearly directed at Mr Fannin as director and, under BDM Grange Ltd v Parker, are within the jurisdiction of this court. The Authority cannot decide claims between companies and directors. Even if Mr Fannin were to bring a counter-proceeding in the Authority against Global Kiwi NZ Ltd to decide whether he breached any duty to the company, that would only give rise to findings as to his liabilities as an employee and would not clash with findings in this court as to his duties as a director.

[13] In his submission Mr Fannin said that he was not really a director because Mr and Mrs Trass had effective control of the company and he took directions from them. Those are factual matters that cannot be decided in this application. Mr Fannin did not give evidence by affidavit, but even if he had, it would not have made any difference. The jurisdiction question is decided on the basis of what the plaintiff says its case is, not what defences a defendant may claim.

[14] The fourth and fifth causes of action are directed against the actions of Mr Fannin after his employment finished. These allegations do not arise out of the employment relationship. Decisions such as Pain Management Systems (NZ) Ltd v McCallum, Transnet NZ Ltd v Dulhunty, Power (NZ) Ltd and Property IQ NZ Ltd v Vicelich and BDM Grange Ltd v Parker⁵ show that conduct by a former employee after the termination of an employment relationship is not within the exclusive jurisdiction of the Authority.

[15] The sixth and seventh causes of action against Mr Fannin may be pleaded as alternative or concurrent causes of action to the claims against him for breach of duty as a director. Equally, they could be pleaded as alternatives to claims for breach of

_{an employment agreement or for breach of a duty of good faith, matters within the}

⁴ _{BDM Grange Ltd v Parker [2006] 1 NZLR 353 (HC) at [75]-[77], [86]-[87].}

5. Pain Management Systems (NZ) Ltd v McCallum HC Christchurch CP72/01, 14 August 2001; Transnet NZ Ltd v Dulhunty Power (NZ) Ltd [2007] NZHC 519; [2007] ERNZ 379 (HC); PropertyIQ NZ Ltd v Vicelich [2012] NZHC 2016, (2012) 9 NZELR 614 and BDM Grange, above n 4.

exclusive jurisdiction of the Authority under s 161(1)(b) and (f). As the plaintiff has chosen to bring its claim in this court, in reliance on Mr Fannin’s alleged misconduct as a director, I treat the sixth and seventh causes of action as also directed against Mr Fannin as director and not as employee. Accordingly, I find that all the causes of action against Mr Fannin are within the jurisdiction of this court.

Third defendant

[16] Ms Ostle is alleged to have actively assisted Mr Fannin in his alleged misconduct. For the sixth cause of action she is alleged to be a joint tortfeasor. For the seventh cause of action she is alleged to have given dishonest assistance.

[17] At all material times, she was an employee of the plaintiff. Unlike Mr Fannin, she was not a director. There is only one relevant relationship between her and the plaintiff – employment. Her misconduct is alleged to have occurred in the course of employment. The allegations against her could be pleaded as breaches of the employment agreement under s 161(1)(b) of the Employment Relations Act or as breaches of the good faith obligations under s 161(1)(f). If her conduct is in breach of her employment agreement, it does not matter that the claim is not pleaded as a breach of contract. Even if an employer elects an alternative cause of action, the matter is still “related to” breach of an employment agreement. Matters that relate to breach of an employment agreement cannot be the subject of proceedings outside the Authority, no matter how the cause of action is pleaded.

[18] The plaintiff contends that it has pleaded a claim against Ms Ostle in tort and that tort proceedings are excluded under s 161(1)(r). The exclusion is only for any claim that would otherwise come within s 161(1)(r). That is:

161 Jurisdiction

(1) The Authority has exclusive jurisdiction to make determinations about employment relationship problems generally, including—

...

(r) any other action (being an action that is not directly within the jurisdiction of the Court) arising from or related to the employment relationship or related to the interpretation of this Act (other than an action founded on tort) ...

[19] If a claim can be brought under any of the other heads of jurisdiction under s 161(1), then s 161(1)(r) does not oust the Authority’s jurisdiction. It applies only to “any other action”. It is common to find that a matter may be pleaded both for breach of contract and in tort. Where concurrent claims are available for one of the heads of jurisdiction under s 161 (except (r)), it is no bar to the Authority’s jurisdiction that the claim is framed in tort rather than under some other cause of action, such as breach of contract. Because Ms Ostle can be sued for breach of her employment agreement or for breach of good faith duties by reason of the matters pleaded in the sixth and seventh causes of action, claims against her are within the exclusive jurisdiction of the Authority.

[20] The plaintiff also submitted that the employment merely provided the setting for Ms Ostle’s misconduct. That misstates the position. The misconduct alleged against Ms Ostle goes to the heart of the employment relationship. On this I rely on the reasons I gave in Hibernian Catholic Benefit Society v Hagai at [42].

[21] For these reasons I strike out the claims against Ms Ostle as third defendant as being outside the jurisdiction of the High Court, but I leave in the causes of action against the first and second defendants. Ms Ostle is removed as third defendant.

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Associate Judge R M Bell