COLOMBO MARKETING LIMITED (IN LIQUIDATION) V PALMERSTON NORTH CITY COUNCIL HC PMN CIV 2007-454-000741

COLOMBO MARKETING LIMITED (IN LIQUIDATION) V PALMERSTON NORTH CITY COUNCIL HC PMN CIV 2007-454-000741 19 December 2007IN THE HIGH COURT OF NEW ZEALAND PALMERSTON NORTH REGISTRY CIV 2007-454-000741BETWEEN COLOMBO MARKETING LIMITED (IN LIQUIDATION) Applicant AND PALMERSTON NORTH CITY COUNCIL Respondent Hearing: 14 December 2007 Counsel: A N Isac for the Applicant P J Reardon for the Respondent Judgment: 19 December 2007JUDGMENT OF WILD J Introduction[1] By notice filed on 13 September the applicant, Colombo Marketing Limited (In Liquidation) (Colombo) applies for leave to appeal to this Court from an award made by an arbitrator on 29 June. [2] The application is made pursuant to clause 5(1)(c) of the Second Schedule to the Arbitration Act 1996. That restricts appeals to questions of law arising out of an award and provides:(2) The High Court shall not grant leave unless it considers that, having regard to all the circumstances, the determination of the question of law concerned could substantially affect the rights of one or more of the parties.[3] The respondent, the Palmerston North City Council (the Council), opposes the application. Were it otherwise leave to appeal would not be required: clause 5(1)(b). [4] The nub of the application is that the arbitrator failed to determine the status of the agreement which Colombo says was fundamental to its claim against the Council. In particular, Colombo says the arbitrator failed to determine whether that agreement was still in force when the roading works Colombo claims for was done, thus entitling Colombo to payment under the agreement. Colombo says the arbitrator misunderstood, and as a consequence did not decide, what was fundamentally at issue in the arbitration.Background[5] Colombo (previously called Bletchley Developments Ltd) was a property developer. It owned land at Aokautere in Palmerston North which it developed for residential subdivision, in stages. [6] Colombo had been in dispute with the Council over the latter's ability to require Colombo to build the main road through the subdivision, Pacific Drive, to a width and standard sufficient to serve subdivisions which might in the future be developed, though not necessarily by Colombo. That dispute was resolved in Colombo's favour by a decision of the Planning Tribunal given on 20 December 1994 (Bletchley Developments Ltd (No. 1) v PNCC [1995] NZRMA 337). I mention that decision for completeness, although counsel disagree as to its relevance to this application, because it involved roading requirements designed for future subdivisional developments in addition to those which might be undertaken by Bletchley/Colombo. [7] On 28 December 1994 Colombo (still called Bletchley at the time) obtained resource consent from the Council for the third stage of its subdivisional development in Aokautere. That consent was RM 698.[8] By an agreement dated 11 October 1995 Colombo agreed with the Council to build the first part of Johnstone Drive (intended ultimately to be the secondary link road through the subdivision) to an increased width of 20 metres, with a minimum carriageway width of 11 metres. Terms of that agreement included:17.0 The Council shall pay upon completion of the roading work the lump sum of $16,690.00 (GST exclusive) in respect of the road construction made up as follows (the breakdown of the sum is then set out) 18.0 The Council shall pay upon completion of the roading work required by this agreement the sum of $18,500.00 GST exclusive (if any) being the agreed value of a 1 metre strip of land on each side of the carriageway to accommodate the greater width of carriageway. 19.0 The work required by this agreement must be completed before the Council has an obligation to issue a completion certificate pursuant to S.224 of the Resource Management Act.This is the critical agreement, which I will call the 1995 agreement. [9] Some work was done on the subdivision, including on Johnstone Drive, but that work stopped in or about May 1996. The property market had gone quiet. [10] On 12 March 1996 Colombo sold its property development business to Kimber Properties Limited (Kimber). Mr L W Fugle was controlling shareholder and director of both Colombo and Kimber. The sale agreement allocated the purchase price to plant, fixtures and fittings, goodwill and land. It did not mention the 1995 agreement. [11] RM 698 lapsed on 28 December 1996 (pursuant to s125 Resource Management Act 1991). [12] On 17 March 1997 Colombo was placed in voluntary liquidation, and on 31 May 2001 it was struck off the Register of Companies. [13] The Council claimed it told Kimber in December 2002 that the Council did not consider it was any longer bound by the 1995 agreement. Kimber disputes that.What is not disputed is that the Council's solicitors, Cooper Rapley, wrote to Mr Fugle on 9 April 2003 advising: the Council considers that the (1995) agreement be no longer binding because the consent (RM 698) on which it was based has lapsed The letter elaborated on the Council's reasoning. [14] In about October 2002 work started again on the subdivision. When the Council became aware of this it wrote to Colombo (it was unaware of the sale to Kimber) pointing out that a new subdivision consent was required and advising that the Council: may review the previous agreement (associated with the expired approval RM 698) to contribute to an extra width road beyond that necessary to service your potential developments.[15] On 14 October 2003, Kimber applied for, and on 27 November, the Council granted, a new subdivisional consent, RM 2043. The consent was granted to Kimber in its own right: there was no suggestion in either application or consent that Kimber was acting as agent for Colombo. The Council's decision granting the consent recorded:5. CONSIDERATION 5.1.1 Access The proposed subdivision layout of this subdivision provides for the construction of a road (called Johnstone Drive on the plans) that will service approximately 160 dwelling units in the future. This is required to have a total road reserve width of 20 metres, a carriageway width of 11 metres and a berm area of 9 metres. The Applicant has submitted plans in accordance with these requirements.The consent recorded that it was granted subject to conditions which included: Prior to approval under Section 223 of the Resource Management Act 1991 the Land Transfer Plan shall be amended to show access to Lots 457, 458, 459 with an 8 metre separation distance from the intersection of Road 2 (as shown on the subdivisional plan submitted) as required by rule 20.3.9.1(d)(ii)(b).[16] The Council subsequently, on 8 March 2004, upheld an objection by Kimber to the latter part of that condition, altering it in respect of Lots 457-459. Kimber did not object to the requirements of RM 2043 in terms of the width of Johnstone Drive. [17] Kimber completed construction of Johnstone Drive to the required widths and it was vested in the Council as road on 14 April 2004. [18] Around the time subdivisional work re-commenced in 2002, the dispute between Colombo (or Kimber) and the Council over the 1995 agreement emerged. Kimber said the 1995 agreement was still live. The Council said it was spent, and that the Council had no further liability under it. [19] The dispute between Kimber and the Council as to the latter's liability under the 1995 agreement was referred by Kimber and the Council to arbitration pursuant to an undated agreement. That arbitration agreement identified the question in dispute between Kimber and the Council as whether the Council has any liability to Kimber under the 1995 agreement. In that arbitration Kimber claimed from the Council the same relief as Colombo claimed in its subsequent arbitration with the Council – the arbitration which resulted in the award from which Colombo now seeks leave to appeal. [20] In his award of 13 February 2004 the arbitrator (Mr J L Marshall) dismissed Kimber's claim for two reasons. First, he held that there was no new contract – no novation – whereby the Council agreed to pay Kimber the money it had agreed to pay Colombo on completion of Johnstone Drive to the required width. Secondly, there was no evidence of an assignment of the 1995 agreement from Colombo to Kimber. The Council had no notice of assignment. Indeed, the arbitrator considered there had not been one as the sale agreement from Colombo to Kimber made no mention of the 1995 agreement. [21] The arbitrator declined Kimber's request that he make an additional award pursuant to Article 33(3) of the First Schedule to the Arbitration Act dealing with the status of the 1995 agreement, given the lapse of RM 698.[22] In a judgment delivered on 25 November 2004 MacKenzie J dismissed Kimber's appeal to this Court. He held that the 12 March 1996 agreement by which Colombo sold its property development business to Kimber did not effect an assignment of the benefit of the 11 October 1995 agreement. The Judge also held that the arbitrator was right to formulate the threshold question as whether there had been a novation of the 11 October 1995 agreement. [23] Kimber applied for leave to appeal to the Court of Appeal, but subsequently withdrew that application. [24] Mr Fugle's response to a subsequent demand by the Council for the costs awarded to it by the High Court and Court of Appeal was to put Kimber into liquidation. I assume that move was designed to thwart the Council's recovery from Kimber of the legal costs. I do not know whether it was successful. [25] Mr Fugle's response to the first arbitrator's award was to seek restoration to the Register of Colombo, so that it resumed legal existence and could bring a claim against the Council under the 1995 agreement. Over the Council's objection, Ronald Young J, on 7 April 2005, ordered that Colombo be restored to the Register. [26] By an arbitration agreement dated 26 August 2005 the restored Colombo and the Council agreed to arbitrate Colombo's claim against the Council under the 1995 agreement for $35,190 plus GST, interest and costs. That is the total of the amounts I have set out in [8] above. [27] Colombo had five causes of action, either upon or related to the 1995 agreement: breach of contract, a claim under s9 Fair Trading Act 1986 for misleading and deceptive conduct, unjust enrichment and equitable estoppel. [28] In his Interim Award of 29 June 2007, the arbitrator, Mr T G Stapleton, dismissed each of those causes of action. He dismissed the contractual one because Johnstone Drive was constructed and vested in the Council, not pursuant to the 1995 agreement, but pursuant to RM 2043. Accordingly, the arbitrator held that the Council was not in breach of the 1995 agreement. He dismissed the quantum meruitclaim because the Council's obligation under the 1995 agreement was not to pay Colombo for materials and services commenced but not completed under that agreement, but only to pay Colombo when Johnstone Drive was constructed and vested in the Council pursuant to that agreement. [29] It followed that the Council had not engaged in misleading or deceptive conduct with either Kimber or Colombo (the latter not legally in existence between 31 May 2001 and 7 April 2005). [30] Because Johnstone Drive was constructed and vested in the Council pursuant to RM 2043, the Council had not been unjustly enriched at Colombo's expense. [31] Finally, the arbitrator took the view that the estoppel claim could succeed only if the Council had contractual liability, which it was estopped from denying. [32] Critical to the present application by Colombo for leave to appeal is the arbitrator's observation:39. In my view, the critical issue is not whether Johnstone Drive was constructed and vested in the Respondent by way of vicarious performance of the agreement dated 11 October 1995, but whether those matters were effected pursuant to that agreement at all. As noted, they were effected not pursuant to that agreement, but pursuant to RM 2043.The opposing arguments[33] What follows is a brief summary, which I hope captures the essence of detailed, careful arguments: [34] For Colombo• The arbitrator misunderstood or misstated the issue he needed to address to deal with the parties' dispute as pleaded. He had to determine the legal status of the 1995 agreement, and in particular whether Colombo succeeded on any of its five causes of action against the Council based on, or related to, the 1995 agreement. The narrow issue was whether the1995 agreement remained a source of legal obligations through to the completion of the work on Johnstone Drive. But the arbitrator made no finding at all on that issue. By mis-framing the issue as set out in [32] above, the arbitrator effectively concluded that the consideration passing from Colombo to the Council under the 1995 agreement was not consideration at all, but effectively a gift.• The arbitrator thus failed to determine, or wrongly determined, questions of law affecting the rights of the parties.• In concluding that Johnstone Drive was constructed and vested in the Council pursuant to RM 2043, the arbitrator erred in two respects. First, because RM 2043 could not lawfully require Colombo to build Johnstone Drive to a width of 20 metres. The relevant provisions of the Resource Management Act, coupled with the Council's engineering requirements, had the effect of limiting the width requirement the Council could impose for Johnstone Drive to 18 metres. The legality of the Council's "over- width" requirements stemmed only from the 1995 agreement. Secondly, it conflated the 1995 agreement and RM 2043. It thus ran together common law legal (contractual) rights and regulatory requirements. Put differently, it equated performance of the obligations under the 1995 agreement with permission to undertake the sub- divisional, including roading, work under RM 2043. It was no more correct in law and tenable, than saying that the construction of a house is completed pursuant to the building consent granted by the local authority, rather than pursuant to the building contract between the owner and the builder.• The effect of the arbitrator's award is that Colombo's rights under the 1995 agreement have disappeared "at some indeterminate point into a legal black hole": Balance Agri-Nutrients Ltd v Gamma Foundation[2006] 2 NZLR 319 (CA); Darlington Borough Council v WiltshireNorthern Ltd [1995] 3 All ER 895. In the former case Robertson J said at [39]: Courts will not permit clear legal rights to fall into black holes and be unenforceable in circumstances such as this.[35] For the Council• Standing directly in Colombo's path in this leave application is the arbitrator's finding of fact that Kimber constructed Johnstone Drive pursuant to RM 2043. In Gold and Resource Developments (NZ) Ltd v Doug Hood Ltd [2000] 3 NZLR 318, Blanchard J delivering the judgment of the Court of Appeal, referred at [55] to: the general principle that the arbitrator is master of the facts (now to be found in this country in article 19(2) of the First Schedule to the 1996 Act) In view of those comments, the arbitrator's finding of fact is an end of this matter.• Alternatively, the 1995 agreement did come to an end, and it is not correct to say that Colombo's rights under that agreement have fallen into a black hole. The 1995 agreement expired either: - With the sale of the land by Colombo to Kimber in March 1996, Colombo thereby disabling itself from completing the work it had promised to do, or with the lapse of RM 698 on 28 December 1996, or when Colombo went into voluntary liquidation on 17 March 1997, or (at the very latest): - On 31 May 2001 when Colombo allowed itself to be struck off the Companies Register. Whichever of those actions represented Colombo's repudiation of the 1995 agreement, that repudiation was accepted by the Council, whichcancelled the 1995 agreement, at the latest, by its solicitors' letter of 9 April 2003 to Mr Fugle.• There was no novation or assignment of the 1995 agreement. Those assertions were conclusively disposed of by MacKenzie J in his judgment of 25 November 2004 in Kimber Properties Ltd Palmerston North City Council CIV HC PMN CIV 2004-454-390, so that issue is res judicata. Nor was there any evidence before the arbitrator that Kimber completed the roading work on Johnstone Drive as agent for Colombo, or under contract with it. Colombo had to point the arbitrator to some legal footing for its claim that Kimber did the work on its behalf: Wong Mee Wan v Kwan Kin Travel Ltd [1996] 1 WLR 38 (PC) at 42. There was no evidence before the arbitrator of any agency or contractual relationship between Colombo and Kimber in respect of the Johnstone Drive roading work.• By the time RM 2043 was granted on 27 November 2003, the Council was lawfully entitled to impose on Kimber a 20 metre width for Johnstone Drive. So imposition of that limit was within the Council's legal rights and abilities, and not dependent on the 1995 agreement for its legality.• The British Waggon Company and the Parkgate Waggon Company v Lea & Co. (1880) 5 QB 149 and Tolhurst v The Associated Portland Cement Manufacturers (1900) Ltd [1902] 2 KB 660, relied upon by Colombo as entitling it to rely here on vicarious performance (by Kimber), are both cases in which contractual rights were assigned. As just mentioned, MacKenzie J has already held that Colombo did not assign the 1995 agreement to Kimber.Decision[36] The principles applying to this application were authoritatively outlined by the Court of Appeal in Doug Hood. In summary, leave will be granted only wherethe question of law could substantially affect the rights of the parties to the arbitration agreement. If that threshold is met, answers to the following questions are relevant to exercise of the discretion to grant leave:• Is it a one-off point, or one with precedent value?• Was a question of law at the heart of the arbitration, or did it emerge incidentally?• Was the arbitrator legally qualified?• Is the dispute of great significance to the parties?• Is a very substantial amount of money involved?• Would the delay consequent upon any appeal be disproportionate to the significance of the dispute?• Was the arbitrator's award final?• Is the dispute international in nature? [37] My own judicial instincts, since well before Doug Hood was decided, accord exactly with those now authoritatively stated principles. I point, for example, to my judgment of 8 October 1998 in Master Build Services Ltd v Peterson HC PMN AP55/98. Reverting to one's own previous judgments is always a dubious undertaking, but two points I made in that judgment have relevance here: It is not consistent with encouraging recourse to arbitration to leave an obvious or clearly arguable error of law uncorrected. Accordingly, the interest of protection of a citizen from misapplication of the law by an arbitrator of limited experience may warrant weighing against the cost and delay of litigation. (at p 12) Reference of a specifically identified question of law no longer excludes curial review i.e. the doctrine of specific referral of law was abrogated by the 1996 Act: Camatos Holdings Ltd v Neil Civil Engineering (1992) Ltd HC AK HC189/98 27 May 1998 Giles J p 14; Weatherhead v Deka New Zealand Ltd HC AK CP8/97 24 June 1998 p 21. However, the identity of the arbitrator may have an influence on the exercise of the discretion. Selection of a lawyer to decide upon a purely legal issue requiring no special commercial expertise may indicate that the parties wished for finality rather than review by the Court: Weatherhead p 21; Carter Holt Harvey Forests Ltd v The Attorney-General [1999] 1 NZLR 70 (citing from Mustill & Boyd: The Law and Practice of Commercial Arbitration in England 2nd Ed. 1989 pp 605-608). (at p13)[38] I am against resort to the Courts by parties who have agreed to arbitrate their dispute, unless their arbitration agreement provides for such resort. I regard it as inconsistent with the confidentiality and choice of decision-maker which are the primary advantages of arbitration, and often as contrary also to the secondary advantages of the speed and economy of arbitration. On a more general – law and economics – level, permitting in-roads into contractually bargained for terms risks upsetting the allocation of the benefits/burdens in the contract. This carries the potential to give one contracting party something it was not prepared to pay for. This risks unfairness, as well as uncertainty for similarly situated parties in the future. [39] This application does not meet the Doug Hood test. First, it fails at the threshold: the recovery of the $35,000 approximately does not substantially affect the rights of Colombo and the Council. The position is that Mr Fugle, obviously a man of considerable substance, is annoyed at what he considers is the Council's breach of the 1995 agreement, effectively giving the Council an "over-width" road for nothing. Mr Fugle puts his annoyance and the principle he considers is at stake ahead of the costs involved. Litigating this dispute must already have cost Mr Fugle's companies a substantial amount in legal fees, possibly in excess of the $35,000 at stake. I do not accept that the dispute substantially affects the parties' legal rights.[40] The discretionary considerations therefore do not need to be balanced. But if a balancing were required, it would fall decisively against granting leave. Comment (obviously obiter) is required only on the first two discretionary factors. [41] As to the first, Mr Reardon conceded disagreement may arise over payment for the cost of extensions to Johnstone Drive through any future stage(s) of the subdivisional development by Mr Fugle's companies. Payment will be a matter of applying the legislation and Council requirements then in force, and/or a matter for agreement. I do not see that a decision from this Court upon the facts as I have outlined them will be of precedent value. [42] As to the second factor, I accept that the status of the 1995 agreement, and in particular whether it remained available for Colombo (once restored to the Register of Companies) to sue on, was at the heart of the arbitration before Mr Stapleton. I accept also that Mr Stapleton did not determine that question. But that was because he considered Johnstone Drive had been constructed pursuant to RM 2043, which required a 20 metre road reserve width and an 11 metre carriageway width ([15] above). [43] That meant that it was unnecessary and thus inappropriate, for Mr Stapleton to determine the status of the 1995 agreement. The roading work and strip of land being claimed for had not been done/vested pursuant to the 1995 agreement. Anything Mr Stapleton determined about the 1995 agreement would be irrelevant to his award. [44] A further and related point made by Mr Reardon is that the arbitrator's relevant findings are findings of fact ([35] above – first bullet point). Again, it is unnecessary to deal with this point, but my view may assist, particularly as Mr Fugle considers the nub of his argument has never been dealt with. The relevant part of the award is:31. Johnstone Drive has been constructed with a road reserve width of 20 metres, a carriageway width of 11 metres, and berm widths on both sides of the carriageway of 4.5 metres. The road so constructed has been vested in the Respondent. In my view, on the facts of this case, Johnstone Drive was so constructed and vested in theRespondent pursuant to neither RM 698 nor the agreement dated 11 October 1995, but RM 2043.And perhaps also:38. In view of my findings of fact at paragraphs 11 to 37 of this award, and for the following reasons, I dismiss each of the Claimant's five causes of action against the Respondent in the amended points of claim dated 27 March 2006 and claims for relief for an award of $35,190 plus GST, interest and costs: 38.1 Johnstone Drive was not constructed and vested in the Respondent pursuant to the agreement dated 11 October 1995; 38.2 Johnstone Drive was constructed and vested in the Respondent pursuant to RM 2043 granted to Kimber on 25 November 2003; [45] Mr Reardon's point is thus an accurate one. Indeed, Mr Isac really concedes that, but contends the arbitrator's finding was not supported by the evidence. I do not consider that is so. The evidence Mr Stapleton relied on is as he set it out in paragraphs 18-29 of his Interim Award. Even were Mr Isac's submission correct, I would not grant leave. The Court of Appeal's view, as tentatively expressed at [55] in Doug Hood is that: whether there was any evidence to support a particular finding of fact made by the arbitrator is not a question of law in the context of the 1996 Act. [46] Further comment on the merits of the argument Mr Isac wants to run for Colombo on appeal to this Court is well and truly obiter. But in deference to Mr Isac's thorough submissions, and because Mr Fugle considers his case has never been considered, I add three brief comments. [47] First, my view is that the 1995 agreement came to an end, at the latest, when RM 698 expired on 28 December 1996. Recital A and clause 16.0 specifically relate the agreement to RM 698. The roading work specified in the agreement for which payment was to be made was work permitted by RM 698. Of course, Colombo had earlier – on 12 March 1996 – sold the land, disabling itself from completing the roading work. Strictly, as Mr Reardon submitted, the 1995 agreement came to anend when, by its solicitors' letter to Mr Fugle of 9 April 2003, the Council accepted Colombo's repudiation of the agreement. [48] Second, and in the event that I am wrong on that first point, there is potential difficulty for Colombo in arguing that the 1995 agreement survived its dissolution and striking off. I need not explore that further. [49] Third, the two cases relied on by Mr Isac as authority that, in the circumstances here, Colombo can still now seek payment from the Council under the 1995 agreement are The British Waggon Company and Tolhurst ([34] above – last bullet point). Both are cases where recovery under the contract was by the company to which the benefit of the contract had been assigned. Here, a company (Colombo) which sold its business (to Kimber) without assigning the contract in issue, and later went into liquidation and was struck off, seeks to recover for work it (substantially) did not do. And there is no evidence that the company which did substantially do the work (Kimber) did it on behalf of Colombo. To suggest that Colombo (now restored to the Register of Companies) can recover under the contract in those circumstances, on the basis of "vicarious performance", is to attempt to expand the law of contract into Neverland.Result[50] Colombo's application for leave to appeal the arbitrator's interim award fails and is dismissed.Costs[51] Colombo is to pay the Council's costs on a 2B basis, together with disbursements as fixed by the Registrar. [52] I should mention that, in view of [24] above, if there is any difficulty over payment of those costs, I will make an order that Mr Fugle pay them personally.Solicitors: Fitzherbert Rowe, Palmerston North for the Applicant Cooper Rapley, Palmerston North for the Respondent