Supreme Court New South Wales Medium Neutral Citation: Kaspersky Lab UK Ltd v Hemisphere Technologies Pty Ltd [2016] NSWSC 1476 Hearing dates: 14 October 2016 Date of orders: 14 October 2016 Decision date: 14 October 2016 Jurisdiction: Equity - Commercial List Before: Bergin CJ in Eq Decision: Interim injunction granted Catchwords: ARBITRATION – where parties have bifurcated claims – where issues in arbitration must await outcome of proceedings in Court – where application made to Emergency Arbitrator – whether injunction should be granted to defendant to facilitate further application to Emergency Arbitrator Legislation Cited: Arbitration Rules of the Arbitration Institute of the Stockholm Chamber of Commerce Cases Cited: AB v CD [2015] 1 WLR 771 AKN v ALC [2015] SGCA 18 Texts Cited: Allsop CJ and Croft J The Role of the Courts in Australia's Arbitration Regime Commercial CPD Seminar Series, 11 November 2015, Melbourne. Category: Procedural and other rulings Parties: Kaspersky Lab UK Ltd (Plaintiff) Hemisphere Technologies Pty Ltd (Defendant) Representation: Counsel: DR Meltz/JG Simpkins (Plaintiff) JJT Loofs SC/JA Soars (Defendant) Solicitors: Bird & Bird (Plaintiff) Dormer Stanhope (Defendant) File Number(s): 2016/257298 Publication restriction: Nil Judgment – EX TEMPORE 1. This is an urgent application by the defendant for an injunction and a stay of proceedings. The listing today is to deal with the extension of the orders made by Rein J on 14 September 2016, up to 5.00pm today. The orders extending Rein J's orders were made on 12 October 2016 on the defendant's ex parte application in circumstances that I will describe shortly. 2. The orders that Rein J made were, in part, by consent. The plaintiff has terminated its distributorship agreement with the defendant. The defendant claims that the plaintiff wrongfully terminated that agreement. In these urgent circumstances I do not intend to descend into the very detailed submissions that have been made, other than to try and identify the real issues with which I must deal this afternoon. 3. On 14 September 2016 Rein J made orders including that the plaintiff was not to take any action or step pursuant to the notice of termination (dated 11 August 2016) until 6.00pm on 12 October 2016 to terminate the relationship with the defendant or to suspend or otherwise cease to supply the products to the defendant, the subject of the distributorship agreement. Another aspect to those orders was that the plaintiff would not appoint any other distributor to distribute the relevant products in Australia or New Zealand until 6.00pm 12 October 2016. 4. The orders that were made by Rein J were to take effect for a period of 30 days from the date of the making of the orders on the condition that in that period, the defendant would "make application to Stockholm with respect to the balance of its claim". The parties' contract includes an arbitration agreement. That arbitration agreement has what has been described in the submissions as a "carve out". The carve out relates to royalties. The plaintiff claimed that the defendant owed it royalties. In late 2015/early 2016 the defendant entered into a payment regime over a period of months of approximately $100,000 per week in respect of its obligation to pay the plaintiff royalties. 5. In July 2016 the defendant claimed that it was entitled to either a set off or a recognition that the plaintiff needed to bring to account certain amounts in respect of various categories of credits. Agreement was reached on 26 July 2016 that certain credits would be brought to account in the defendant's "ledger", on the condition that the defendant would continue with the previously mentioned arrangement of paying $100,000 per week to the plaintiff. That arrangement included a proposed amendment to the process that had been agreed with the apparent intention to reach a further agreement for various payments to be made between the parties. 6. The defendant's position is that the credits were not brought to account in the way that was anticipated notwithstanding that it continued to pay the $100,000 for the next two weeks. 7. On 11 August 2016 the plaintiff purported to terminate its contract with the defendant. 8. On 26 August 2016 the plaintiff commenced these proceedings for the recovery of the royalties. It has confined itself to that aspect of the relationship, on the basis that the balance of any issues between the parties would be arbitrated. On 13 September 2016 the defendant filed a Cross-Claim bringing into the proceedings the issue of the validity of the termination of the agreement. 9. However, by 14 September 2016, when the parties were before Rein J there was an agreement that the "balance of the claim", meaning those issues other than the royalties and the credits to which I have referred, would be the subject of an application in the arbitral arena in Stockholm. 10. Under the provisions of the Arbitration Rules of the Arbitration Institute of the Stockholm Chamber of Commerce (the Stockholm Rules), an Arbitral Tribunal may grant any interim measures it deems appropriate (Art 32). However, until the case has been referred to an Arbitral Panel, a party may make application for the appointment of an Emergency Arbitrator. Article 9 of Appendix II of the Stockholm Rules includes the following: Article 9 Binding effect of emergency decisions (1) An emergency decision shall be binding on the parties when rendered. (2) The emergency decision may be amended or revoked by the Emergency Arbitrator upon a reasoned request by a party. (3) By agreeing to arbitration under the Arbitration Rules, the parties undertake to comply with any emergency decision without delay. (4) The emergency decision ceases to be binding if: (i) the Emergency Arbitrator or an Arbitral Tribunal so decides; (ii) an Arbitral Tribunal makes a final award; (iii) arbitration is not commenced within 30 days from the date of the emergency decision; or (iv) the case is not referred to an Arbitral Tribunal within 90 days from the date of the emergency decision. (5) An Arbitral Tribunal is not bound by the decision(s) and reasons of the Emergency Arbitrator 1. One of the steps that the defendant took was to seek the appointment of an Emergency Arbitrator. An Emergency Arbitrator was appointed and, as I understand it, an application was made for orders similar to those that were made by Rein J on 14 September 2016 to protect the status quo, whilst the defendant sought to: (1) defend the proceedings here in respect of the royalties; and (2) bring the application before an Arbitral Panel in respect of the balance of its claims. The Emergency Arbitrator refused the defendant's application for relief. 2. The defendant was notified of the Emergency Arbitrator's decision on the morning of 12 October 2016. The defendant then moved this Court for the extension of the orders that had been made by Rein J in these proceedings. The solicitors for the plaintiff were not in a position to appear as they were not instructed in respect of this urgent application. As I have said, the orders made by Rein J were extended until 5.00pm today. 3. Today the plaintiff appears represented by Mr DR Meltz, of counsel, and Mr JG Simpkins, of counsel. Mr JJT Loofs SC, leading Ms JA Soars, of counsel, appear for the defendant. 4. The plaintiff resists any further injunctive relief. Put shortly, it submits that the defendant has embraced the arbitration process; it has made an application for the establishment of an Arbitral Panel to hear the balance of its claim; it chose to make an application to the Emergency Arbitrator; it lost; it has come to this Court to try and have it supervise the Emergency Arbitrator; and in the circumstances, the Court should reject the application. 5. The plaintiff submitted that courts do not and must not interfere in the merits of an arbitral award and bail out parties who have made choices that they might come to regret: AKN v ALC [2015] SGCA 18 per Menon CJ at [37]–[39] delivering the judgment of the Court (Menon CJ, Andrew Phang Boon Leong JA and Steven Chong J). 6. However, some further analysis is required. The plaintiff concedes that the only basis upon which it claimed an entitlement to terminate the distributorship agreement with the defendant was the non-payment of royalties. Proceedings in this Court will determine whether, as at 11 August 2016, the plaintiff was owed money or, as the defendant claims, the plaintiff owed the defendant money. As I apprehend what has been said in argument, it is accepted that until that outcome is known, the determination of the validity of the termination notice cannot occur. 7. Mr Meltz submitted that the parties have chosen a commercial arrangement in a multi-million dollar contractual setting pursuant to which they agreed that certain aspects of their dispute would be arbitrated and others would not. However, where there has been a requirement for the defendant to commence the arbitration process, in circumstances where that arbitration process cannot be completed until these proceedings that the plaintiff has brought in this jurisdiction are completed, one needs to review the situation more carefully. 8. I should return to the question of the Emergency Arbitrator. For whatever reason, the defendant's representatives misapprehended the test it had to satisfy before the Emergency Arbitrator in seeking the interim relief. The defendant's position is that it wishes to proceed pursuant to Art 9(2) of the Stockholm Rules to put a "reasoned request" to the Emergency Arbitrator for the emergency decision to be amended or revoked, on the basis of available evidence to show that the defendant misapprehended the test to be applied in the process. This aspect of the defendant's submissions is not in issue and it would seem that the defendant needs to move promptly to have the reasoned request put before the Emergency Arbitrator. 9. The plaintiff does not wish to provide any undertaking to restrain itself from relying on the termination notice whilst the defendant moves to put the reasoned request before the Emergency Arbitrator. 10. It is true that the parties are operating in this Court, in the arbitral arena and in the commercial community in a global environment. That said, the tyranny of distance must be recognised. The defendant has to take the necessary steps to have the matter brought before the Emergency Arbitrator in Stockholm. It needs to instruct lawyers with the appropriate evidence to prepare and make the reasoned request. It indicates it can do so promptly, but I have no evidence before me that this can happen in the next 24 to 48 hours, particularly having regard to the fact that it is 4.15pm on a Friday afternoon in Sydney. As I understand the recent exchange from the Bar Table, the defendant has already contacted lawyers in Sweden. 11. There is no basis for any criticism of the plaintiff for not providing an undertaking not to act on its termination notice in the next short while. It is operating a very large international business and it is entitled to approach the matter on a commercial basis. In other words, to require the Court to decide the position rather than to acquiesce in any process of commercial undertakings with the defendant. 12. Having regard to the bifurcation of some aspects of the case to which I have referred, and to the fact that these proceedings have to be determined before the arbitral process can be concluded, it seems to me that it is a different landscape to that with which the Court was dealing in AKN v ALC. In any event, in that case, the Court granted an interim injunction ([19]). This is a case in which the parties want to proceed to arbitration, but acknowledge that the arbitration will be held up until these proceedings are finalised. 13. I should also refer to the fact that under the distributorship agreement the defendant has limited recourse to damages. It submitted that this should be taken into account in the exercise of discretion as to whether to grant the injunction. In this regard Mr Loofs relies on the decision in AB v CD [2015] 1 WLR 771. I am not satisfied that case is on all fours with these proceedings. It is authority for the proposition that a provision in a contract limiting recovery of damages is not an agreement to excuse the performance of the primary obligation of the contract. I do not regard it as authority for the proposition that a clause limiting the recovery of damages entitles an applicant for an injunction to claim that damages would be an inadequate remedy: at [27] (Underhill LJ, Laws and Ryder LJJ agreeing). 14. On the other hand, the plaintiff submits that the parties agreed to a regime; they struck a commercial bargain; and the defendant should live with that bargain, having regard to the obvious profits that were made between the parties over the years. Prima facie the plaintiff's submission seems to have force. However, in the circumstances of this case I will take into account the fact that there is limited recourse for the defendant in any claim for damages, if the termination is valid. 15. This Court recognises the necessity for, and the good sense in, the arbitral process. The plaintiff has referred to some discussion as to whether Courts are "arbitration-friendly" and whether they are "supportive or interventionist in their approach to arbitration": Allsop CJ and Croft J The Role of the Courts in Australia's Arbitration Regime Commercial CPD Seminar Series, 11 November 2015, Melbourne. However such epithets may be unhelpful. It is clear that commercial courts respect commercial parties' decisions to proceed to arbitration of their dispute. Every application must be considered on its own facts and merits. 16. Having regard to the matters to which I have referred above, I am satisfied that I am not interfering with the arbitral process in providing to the defendant a short interim injunction to maintain the status quo and to enable it to return to the Emergency Arbitrator. I intend to grant that short term injunction to allow that process to occur. 17. I will require the parties to provide me with Short Minutes of Order on Monday 17 October 2016 at 10.00am setting out the steps to be taken and the terms (other than the terms that I am about to impose) of an order that will be certain between the parties. 18. The defendant sought also to move on the second aspect of the Motion for a stay of the proceedings. I do not intend to deal with that application today. It requires more time and thought. However, it seems to me in the circumstances of the parties choosing to commence the proceedings here, fighting them to this point, and then commencing the arbitration proceedings, they should reflect on what they really can achieve by this bifurcated process. I will hear them further on Monday 17 October 2016. 19. On the defendant, through its Senior Counsel, giving the usual undertaking as to damages, I extend the operation of the orders made on 14 September 2016, and extended on 12 October 2016, up to 5.00pm on 19 October 2016. 20. I list the matter before me at 10.00am on 17 October 2016. ********** Amendments 17 October 2016 - Typographical error on cover sheet DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 17 October 2016