Key Points:

Arbitral tribunals cannot order preliminary discovery under the Commercial Arbitration Act – and it's not a "matter" warranting mandatory referral to arbitration under section 8 of the Act.

The past four years have seen a number of changes to both State and Federal arbitration laws in a concerted effort to align Australian arbitration law with the UNCITRAL Model Law on International Commercial Arbitration. The Model Law has since been adopted in full across all state jurisdictions (with the exception of ACT). Australian courts have endorsed the changes and continue to promote the arbitral process and its independence from court intervention.

Section 8 of the Commercial Arbitration Act 2012 (WA) mandates that a court must stay court proceedings "in a matter which is the subject of an arbitration agreement", at the request of a party.

The recent decision by Justice Bergin CJ in Eq of the NSW Supreme Court in Nearmap Ltd v Spookfish Pty Ltd [2014] 1790 clarifies that a "matter" for the purposes of section 8 does not include an application for preliminary discovery, nor any other question of legal entitlement, that lies outside the rights and responsibilities set out in a parent contract to which an arbitration agreement is collateral.

Upon an examination of the Commercial Arbitration Acts (CAAs) and relevant authorities, Justice Bergin also determined that the provisions under the CAAs do not empower an arbitral tribunal to order preliminary discovery.

The parties

The plaintiffs were Nearmap Australia Ltd, Nearmap Ltd and Ipernica Holdings Pty Ltd. Nearmap Australia was the parent company of Nearmap and Ipernica was a shareholder in Nearmap. The plaintiffs operated a business supplying aerial or geospatial photomosaic images to their customers by subscription.

Joined as defendants in these proceedings were Mr Cope, Mr Perkins, Mr von Bertouch and Spookfish Pty Ltd. Mr Cope and Mr Perkins were previously employed at Nearmap Ltd as the Chief Technology Officer and the Chief Operating Officer respectively. Each of their Executive Employment Agreements contained an arbitration clause. Mr von Bertouch carried out work for Structured Design who entered into a contract to provide consulting services to Nearmap.

Spookfish Pty Ltd was incorporated on 18 October 2012. Its directors include Mr Cope, Mr Perkins and Mr von Bertouch.

The application

The case concerned an application filed by Nearmap on 9 September 2014 seeking an order for preliminary discovery of certain documents held by the defendants, for the purpose of evaluating whether to commence proceedings for breach of confidence and infringement of intellectual property rights. The issue arose when former employees of Nearmap, Mr Cope and Mr Perkins, established the competitive business Spookfish which allegedly operated with "remarkably similar" technology to that of the plaintiff.

Spookfish refused to respond and denied the allegations, despite the plaintiff's numerous letters to the defendants requesting information and documents relating to Spookfish's operating systems and their possible use of Nearmap's confidential information. The plaintiff subsequently sought orders for preliminary discovery in the NSW Supreme Court, contending that litigation, as opposed to arbitration, was the appropriate forum for the present application. The plaintiff made this argument on the basis that none of the arbitration agreements between Nearmap and its employees were in force.

The defendants sought a stay of the application for preliminary discovery and, in addition, a referral to arbitration. Spookfish submitted that as the arbitration agreements in the employment contracts were operative in the event of "any disputes", the agreements in conjunction with section 8 of the Act mandated referral to arbitration in the circumstances.

The Court dismissed the defendants' motion for a stay of the application for preliminary discovery and refused to order a referral to arbitration.

The Supreme Court's reasoning

The Court reaffirmed the longstanding principle that an arbitration agreement is separable from the adjoined main contract. Accordingly, the arbitration agreements in Nearmap's employment contracts with Mr Cope and Mr Perkins had survived the termination of those contracts. The Court made it clear, however, that the only arbitration agreements in force were those between Nearmap and its former employees. Neither Spookfish nor Mr von Bertouch were subject to arbitration agreements.

The Court nonetheless dismissed the defendants' motion for a stay of the proceedings on two grounds.

First, Justice Bergin declared that in the present case there was no "matter which is the subject of an arbitration agreement" within the meaning of section 8 of the Act. The arbitration clause in the employment agreements between the former employees and Nearmap was confined to disputes "as to the rights or obligations" of the parties to the agreement and, because the issue of preliminary discovery was not such a dispute, the arbitration clause was not engaged and there was no "matter" to be stayed and referred to arbitration. This issue turned on the narrow scope of the relevant arbitration clause.

Although this sufficed to settle the application before the Court, Justice Bergin went on to consider whether the power to grant preliminary discovery is within the scope of an arbitral tribunal's powers under the CAAs. She considered section 17 of the Act, in particular, section 17(2)(d) which confers power to make interim orders in respect of the preservation of evidence. Ultimately, it was held that the interim powers under the Act are "not a vehicle for preliminary discovery".

Implications of the decision

The overhaul of the previous arbitration regime and the enactment of new provisions commencing in 2010 have opened a plethora of new issues for interpretation and determination by Australian courts. As a consequence, a new body of arbitration case law is fast growing to give volume to, and clarify, the provisions of the new arbitration acts. A provision of significance is section 8 of the CAAs which requires mandatory referral of disputes to arbitration where there is a valid arbitration agreement in force. Section 8 has replaced the discretionary approach to referral which preceded the reforms, and the present case is a useful aid in interpreting the reach of this relatively new provision.

There is little doubt that the decision is significant in the greater context of Australian international arbitration governed by the International Arbitration Act 1974 (Cth). It is likely that Australian courts faced with the question of an international arbitral tribunal's power to order preliminary discovery will give due consideration to the decision in Nearmap Ltd v Spookfish in determining the scope of a tribunal's interim powers in the international arena.

Parties should be wary that preliminary discovery orders cannot, by default, be made by arbitral tribunals constituted under the CAAs. This much was made abundantly clear by the court in this case. Although the CAAs themselves are not a source of power for granting preliminary discovery orders, the effect of this is not to prohibit arbitral tribunals from making preliminary discovery orders altogether.

Preliminary discovery orders may therefore be within a tribunal's power only where such a power has been specifically incorporated into the arbitration agreement by the parties. As a creature of contract and as a result of the doctrine of party autonomy, the tribunal's jurisdiction and powers are ultimately defined by the arbitration agreement under which the tribunal is constituted.

This case serves as a welcome reminder that an arbitral tribunal's powers are limited to those found in the arbitration agreement itself, the institutional rules (if any) and the procedural law designated for the arbitration.