FOREST HOLDINGS LTD v MANGATU BLOCKS INCORPORATION [2017] NZHC 1174

FOREST HOLDINGS LTD v MANGATU BLOCKS INCORPORATION [2017] NZHC 1174 [31 May 2017]IN THE HIGH COURT OF NEW ZEALANDTAURANGA REGISTRYCIV 2016-470-158[2017] NZHC 1174BETWEEN FOREST HOLDINGS LTDApplicantAND MANGATU BLOCKSINCORPORATIONRespondentHearing: 31 May 2017 (at Auckland)Counsel: K Bond and K Shaw for Forest Holdings LtdZ Kennedy and M D Toulmin for Mangatu Blocks IncJudgment: 31 May 2017JUDGMENT (NO. 4) OF HEATH JThis judgment was delivered by me on 31 May 2017 at 5.00pm pursuant to Rule 11.5 of the High Court RulesRegistrar/Deputy RegistrarSolicitors:Hesketh Henry, HamiltonMinter Ellison Rudd Watts, AucklandThe application[1] On 15 March 2017, I gave judgment on Forest Holdings Ltd's appeal againstan award made by Hon B J Paterson QC (the arbitrator) on 29 July 2016.1 The appeal was from a preliminary question determined by the arbitrator about the methodology to be employed in assessing damages (the Damages Award). That award followed an earlier decision of the arbitrator on liability, made on 8 June 2016, in favour of Forest Holdings.[2] I allowed the appeal against the arbitrator's Damages Award. I remitted all questions of damages to the arbitrator, "to be assessed in light of my reasons for judgment".2 Mangatu Blocks Incorporation now seeks leave to appeal to the Court of Appeal against my judgment. That application is opposed by Forest Holdings.[3] On 17 May 2016, I heard from counsel on a preliminary question as to whether I ought to give leave to Mangatu to adduce evidence in support of the application for leave to appeal to the Court of Appeal. In a judgment given later that day,3 I dismissed that application. I indicated that I would give reasons for that decision when giving judgment on the substantive application for leave to appeal to the Court of Appeal.4[4] I heard argument on the leave application earlier today, 31 May 2017. This judgment determines that application, and also provides the reasons for my decision not to permit additional evidence to be adduced.Legal principles: Leave to appeal[5] Arbitration is a consensual process designed to enable parties to obtain a binding decision on a dispute. There are limited circumstances in which awards may be challenged in the High Court. Generally speaking, no challenge may be made to1 Forest Holdings Ltd v Mangatu Blocks Incorporation [2017] NZHC 448. Leave to appeal, under cl 5(1)(c) of the Second Schedule to the Arbitration Act 1996, had been granted on 14 November 2016: Forest Holdings Ltd v Mangatu Blocks Incorporation [2016] NZHC 2720.2 Forest Holdings Ltd v Mangatu Blocks Incorporation [2017] NZHC 448, at para [52].3 Forest Holdings Ltd v Mangatu Blocks Incorporation [2017] NZHC 1011.4 Ibid, at para [2].factual findings made by an arbitrator.5 In this case, the first appeal was heard following the grant of leave to appeal on a question of law, under cl 5(1)(c) of the Second Schedule to the Arbitration Act 1996 (the Act). The circumstances in which leave may be granted are addressed in cl 5(2) and (3):5 Appeals on questions of law(2) The High Court shall not grant leave under subclause (1)(c) unless it considers that, having regard to all the circumstances, the determination of the question of law concerned could substantially affect the rights of 1 or more of the parties.(3) The High Court may grant leave under subclause (1)(c) on such conditions as it sees fit..[6] The factors to be taken into account in deciding whether leave should be given for a first appeal from an arbitral award are set out in the judgment of the Court of Appeal in Gold & Resource Developments (NZ) Ltd v Doug Hood Ltd.6Since that decision was given cl 5(10) has been added to the Second Schedule tomake clear the nature of the "question of law" on which leave may be granted. Clause 5(10) provides:(10) For the purposes of this clause, question of law—(a) includes an error of law that involves an incorrect interpretation of the applicable law (whether or not the error appears on the record of the decision); but(b) does not include any question as to whether—(i) the award or any part of the award was supported by any evidence or any sufficient or substantial evidence; and(ii) the arbitral tribunal drew the correct factual inferences from the relevant primary facts.5 For a summary of the circumstances in which the High Court may entertain an application challenging an award, see arts 5 and 34 of the First Schedule, and cl 5 of the Second Schedule to the Arbitration Act 1996.6 Gold & Resource Developments (NZ) Ltd v Doug Hood Ltd [2000] 3 NZLR 318 (CA), at para [54].[7] Clause 5(5) of the Second Schedule to the Act confers jurisdiction on the High Court to determine whether leave should be granted to appeal to the Court of Appeal. If an application for that type of leave were refused, the Court of Appeal is given power, under cl 5(6), to grant special leave to appeal. Clause 5(5) and (6) expresses the jurisdiction to grant leave in broad terms:(5) With the leave of the High Court, any party may appeal to the Court of Appeal from any refusal of the High Court to grant leave or from any determination of the High Court under this clause.(6) If the High Court refuses to grant leave to appeal under subclause (5), the Court of Appeal may grant special leave to appeal..[8] More detailed guidance on the application of cl 5(5) was given by the Court of Appeal in Downer Construction (New Zealand) Ltd v Silverfield Developments Ltd.7 In a judgment delivered by Chambers J, the Court equated an application for leave to bring a second appeal against an arbitral award to cases in which the High Court was required to consider whether to grant a second appeal in any civil proceeding, under s 67 of the Judicature Act 1908, or in summary criminal proceedings under s 144 of the Summary Proceedings Act 1957.8 It regarded thosetests as "broadly similar" to those applying under s 69(8) of the Arbitration Act 1996 (UK).9[9] Having made those preliminary observations, the Court of Appeal adopted the approach taken by Randerson J, in this Court, in Cooper v Symes (No 2).10 InDowner Construction, Chambers J said:[33] It does not matter particularly whether the cl 5(5) test is equated to the s 67 test or the s 144 test. Under either test the primary focus is on whether the question of law is worthy of consideration. We cannot do better thanRanderson J's summary of the position in Cooper at para [12]:7 Downer Construction (New Zealand) Ltd v Silverfield Developments Ltd [2008] 2 NZLR 591 (CA).8 Both of these provisions have since been repealed and replaced.9 Downer Construction (New Zealand) Ltd v Silverfield Developments Ltd [2008] 2 NZLR 591 (CA), at paras [30]–[32].10 Cooper v Symes (No 2) (2001) 15 PRNZ 166 (HC)."(a) The appeal must raise some question of law . . . capable of bona fide and serious argument in a case involving some interest, public or private, of sufficient importance to outweigh the cost and delay of the further appeal.(b) Upon a second appeal, the Court of Appeal is not engaged in the general correction of error. Its primary function is then to clarify the law and to determine whether it has been properly construed and applied by the Court below.(c) Not every alleged error of law is of such importance either generally or to the parties as to justify further pursuit of litigation that has been twice considered and ruled upon by aCourt."[10] Although more nuanced approaches have been taken in other cases in the High Court,11 the Court of Appeal's decision in Downer Construction is binding on me. In the circumstances in which the present application arises, nothing turns on any points of difference identified in those High Court decisions.Reasons for refusal of application to adduce evidence on the leave application[11] Mangatu sought permission to adduce evidence in support of its application for leave to appeal to the Court of Appeal. The proposed evidence took the form of an affidavit from a law clerk employed by the solicitors for Mangatu. A number of documents previously before the Court at the time the appeal decision was given were exhibited to his affidavit. The only additional documents came into existence after my appeal decision, and represented communications that had passed between the arbitrator and counsel.[12] My starting point was the limitation of the second appeal right to a question of law.12 Background facts are set out in the awards which I considered in my judgment of 15 March 2017, and supporting documents which were put before me by consent. The question was whether there was any need for me to consider any additional evidence to determine whether there was a qualifying question of law fit for submission to the Court of Appeal for decision.11 For example, see Patcroft Properties Ltd v Ingram (2000) 14 PRNZ 524 (HC) (Glazebrook J) and Shell (Petroleum Mining) Co Ltd v Todd Petroleum (Mining) Co Ltd HC Wellington CIV- 2009-485-2024, 8 June 2010, at para [23] (Dobson J). See also Williams & Kawharu on Arbitration (LexisNexis 2011) at paras 18.10 and 18.11, 535–540.12 Arbitration Act 1996, Second Schedule, cl 5(5), set out at para [7] above.[13] I was referred to Wylie J's judgment in Fresh Direct Ltd v JM Batten & Associates.13 The Judge had before him an application for leave to appeal from a judgment that he had given on an application to review a decision made by an Associate Judge. The test for leave was the same as that applied to applications under s 67 of the Judicature Act 1908,14 to which the Court of Appeal had referred inDowner Construction. Wylie J accepted that there was jurisdiction to admit such evidence but confined the circumstances in which a Judge might accede to an application of that type. He said:15[11] Supporting affidavits should, however, be confined to the application which is before the Court. They may be necessary to explain why leave should be given. They should not, however, seek to introduce fresh evidence which could and should have been before the Associate Judge at the first hearing and this Court on the review.[14] I formed the view that there was no additional evidence that could be relevant to my decision whether to grant leave to appeal to the Court of Appeal. Mr Kennedy, for Mangatu, submitted that I should receive evidence of what had been done by the arbitrator subsequent to my appeal decision, on the grounds that it could point to a significant increase in cost that Mangatu would face as a result of a change in approach to determination of damages. It does not seem to me to be relevant to inquire what steps an arbitrator has taken in consequence of an appeal decision of this Court which requires reconsideration of a point on which the appellate court has differed from the view taken by the arbitrator. For that reason, I was not satisfied that the proposed evidence fell within the scope of the circumstances envisaged by Wylie J in Fresh Direct Ltd.16 For that reason, I dismissed the application.1713 Fresh Direct Ltd v JM Batten & Associates HC Auckland CIV-2008-404-4757, 3 December 2009.14 The application was brought under s 26P(1AA) of the Judicature Act 1908.15 Fresh Direct Ltd v JM Batten & Associates HC Auckland CIV-2008-404-4757, 3 December 2009, at para [11]. In that case, Wylie J admitted some evidence of industry practice relevant to the importance of the question arising on the application for leave to appeal but ruled other evidence inadmissible.16 See para [12] above.17 Forest Holdings Ltd v Mangatu Blocks Incorporation [2017] NZHC 1011.Application for leave to appeal(a) The competing contentions in outline[15] Mr Kennedy submits that leave to appeal to the Court of Appeal should be granted because:(a) The judgment raises questions of law capable of serious and bona fideargument in that it:(i) Fails to identify an error of law in the Damages Award dated29 July 2016 ;(ii) Wrongly concludes that the arbitrator has pre-determined the issue of damages; and(iii) Wrongly equates the date of the counterfactual notice to remedy breach with the date of Forest Holdings' acceptance of Mangatu's repudiation; and(b) The importance of these issues outweighs the cost and delay associated with a second appeal.[16] Mr Bond, for Forest Holdings, submits that there is no qualifying question of law, in the sense explained in Downer Construction.18 He submits that the issue for my determination was the methodology to be employed by the arbitrator in assessing damages, something that has not been raised specifically by Mangatu.(b) Analysis[17] During the course of argument, it became clear that Mr Kennedy did not seeany material difference between the arbitrator's view on the methodology point andthe approach I had taken. His primary concern was to ensure, given that I had "set18 Downer Construction (New Zealand) Ltd v Silverfield Developments Ltd [2008] 2 NZLR 591 (CA), at para [33], set out at para [7] above.aside" the Damages Award,19 his client was not precluded from relying on factual findings set out in that award, as well as an earlier award on liability, given on 8 June 2016.[18] Leave to appeal from the Damages Award was granted on the following point of law:20Having regard to binding findings of fact set out in the arbitral tribunal'saward of 8 June 2016, did the arbitral tribunal correctly determine the legal basis on which Forest Holdings Ltd was entitled to seek damages resultingfrom Mangatu Block Incorporated's unlawful termination of the forestryright?(Emphasis added)[19] Some further findings of fact are contained in the Damages Award. To the extent that those findings are based on the contested evidence that the arbitrator has already heard, they will be binding on the parties unless the arbitrator is minded to reopen them on an application by Forest Holdings. My appeal judgment does not put any of those factual findings in issue. It dealt solely with the question of methodology, which was the subject of the preliminary determination contained in the Damages Award.[20] A number of relevant factual findings remain to be made. In particular, the arbitrator will need to rule on whether Mangatu would have issued a notice to terminate, at the same time, if it was had proceeded on the footing that immediate termination was impermissible. Also, the arbitrator will need to consider what steps might have been taken in the period between any notice being given and its expiry, to determine whether, and if so, to what extent, Forest Holdings has suffered loss. Damages must be assessed in accordance with the principles set out in my judgment of 15 March 2017, in light of the binding factual findings that have already been made and those which remain for determination.[21] My summary of the reasons for allowing the appeal, set out in my judgment of 15 March 2017, is consistent with those views. I said:2119 Forest Holdings Ltd v Mangatu Blocks Incorporation [2017] NZHC 448, at para [52].20 Forest Holdings Ltd v Mangatu Blocks Incorporation [2016] NZHC 2720, at para [6](a).21 Forest Holdings Ltd v Mangatu Blocks Incorporation [2017] NZHC 448, at paras [50] and [51].[50] The manner in which damages should be assessed in the present case will necessarily turn on the findings of fact that the arbitrator makes, both in relation to the time at which Mangatu was likely to have given notice and the likely consequences of its issue. Once the arbitrator has considered the impact of the different commercial dynamics that would result from a termination on notice, he will be better placed to assess the method by whichForest Holdings' loss can be determined. Among other things, the arbitratormay need to consider whether the approach to assessment of damages might be better informed by treating the asset in the hands of Forest Holdings at the relevant time as one for which there was (or was not) an available market of the type to which Lord Mustill referred. The factors to be taken into account in determining the loss suffered cannot be anticipated in advance of the relevant factual findings being made.[51] My conclusion is that the decisions of the House of Lords and Supreme Court of the United Kingdom in Golden Victory and Bunge SA respectivelydo not necessarily operate to give Forest Holdings only a "minimal" chanceof recovering more than nominal damages. To adapt the pithy observation of Woodhouse P in Maori Trustee v Clark,22 to fit the circumstances of this case, the immediate and important test is simply to inquire: What did ForestHoldings lose by reason of Mangatu's wrongful repudiation of the ForestryRight on 10 July 2013?(original footnotes retained)[22] The arbitrator's task is now to complete the damages phase of the arbitration, having regard to the principles set out in my appeal judgment. It is for him to decide what further case management directions should be given, and the way in which remaining questions will be determined; possibly, including whether findings of fact should be made before argument on the legal principles to apply. By setting aside the Damages Award I intended no more than that the arbitrator would apply the analysis set out in my appeal judgment in preference to his own. I said expressly:"Questions of damages are remitted to the arbitrator, to be assessed in light of my reasons for judgment".23 It remains open for Mr Kennedy to submit to the arbitrator that there is no material difference between the two approaches. That is something the arbitrator will need to consider, if asked to do so.[23] My appeal judgment deals extensively with two authorities on which the arbitrator placed reliance in his Damages Award: Golden Strait Corporation v Nippon Yusen Kubishika Kaisa (The Golden Victory)24 and Bunge SA v Nidera BV.2522 Māori Trustee v Clark [1984] 1 NZLR 578 (HC and CA) [at 584].23 Forest Holdings Ltd v Mangatu Blocks Incorporation [2017] NZHC 448, at para [52].24 Golden Strait Corporation v Nippon Yusen Kubishika Kaisa (The Golden Victory) [2007] 2 AC 353 (HL).I was concerned that those authorities might be applied inflexibly. As a result, I emphasised the need for the arbitrator to approach the assessment of damages by focusing on the loss actually suffered. My conclusion was that Golden Victory andBunge SA did not "necessarily operate to give Forest Holdings only a 'minimal'chance of recovering more than nominal damages".26 As a result, I held that the arbitrator was wrong to say that, on the correct approach, Forest Holdings was unlikely to recover other than nominal damages on its claim for capital loss.27[24] Turning to the cl 5(5) test, while the applicability of the principles for the assessment of damages in cases involving anticipatory breach of contract discussed in both Golden Victory and Bunge SA are of a type that could well justify consideration by the Court of Appeal, I am not satisfied that this is an appropriate case in which leave to appeal should be granted. The issue arose initially on a preliminary determination by the arbitrator as to methodology. There is a factual vacuum; important facts remain to be determined. The applicability of Golden Victory and Bunge SA will be dependent on the factual findings to be made by the arbitrator. If at all, the Court of Appeal should consider the legal issue after the arbitrator has made those findings and applied legal principles to them in assessing loss.[25] Further, because Mr Kennedy submits that there is no real difference between the approach adopted by the arbitrator and by myself, it is difficult to see how resolution of the legal issue by the Court of Appeal will help the parties significantly at this stage. To adopt the test articulated by Randerson J in Cooper v Symes (No 2),28 and adopted by the Court of Appeal in Downer Construction,29 on "a second appeal" the Court of Appeal's "primary function is to clarify the law and to determine whether it has been properly construed and applied by the Court below".In my view, there would be no useful purpose in the Court of Appeal considering that25 Bunge SA v Nidera BV [2015] 3 All ER 1082 (SC).26 Forest Holdings Ltd v Mangatu Blocks Incorporation [2017] NZHC 448, at para [51], set out at para [21] above.27 Ibid, at para [41].28 Cooper v Symes (No 2) (2001) 15 PRNZ 166 (HC), at para [12](b).29 Downer Construction (New Zealand) Ltd v Silverfield Developments Ltd [2008] 2 NZLR 591 (CA), at para [33]. The relevant passage is set out at para [9] above.issue until such time as findings of fact have been made to which the legal principles can be applied.[26] In those circumstances, I do not consider leave to appeal should be granted.Costs[27] To date, all questions of costs arising on the application for leave to appeal to this Court, the appeal itself and my decision to decline to admit further evidence on the present application have been reserved. A timetable was established in my appeal judgment for the exchange of submissions on costs, but those directions were overtaken by the application for leave to appeal to the Court of Appeal. They are vacated.[28] During the course of the hearing, I discussed with counsel what approach should be taken to costs in this Court. I am mindful that Mr Kennedy's position isthat, irrespective of any change in methodology, Forest Holdings, on the evidence likely to be available at a quantum trial, could not ever recover more than nominal damages. I do not wish to foreclose the possibility that Mangatu could seek costs in respect of attendances in this Court on the grounds that the appellate exercise had been pointless. For that reason, I continue to reserve all questions of costs on the applications and the appeal with which I have dealt. That will enable those issues to be addressed fully (if not agreed) after the outcome of the arbitration is known.Result[29] For those reasons:(a) The application for leave to appeal to the Court of Appeal is dismissed.(b) All questions of costs in respect of proceedings in this Court arisingout of Forest Holdings' application for leave to appeal against theDamages Award are reserved. Leave is reserved for any party to seek a telephone conference to establish a timetable for the exchange ofsubmissions on costs. The Registrar shall review the position on 24 November 2017. If no steps have been taken by either party by that date, a direction will be entered to the effect that there is no order as to costs.[30] I thank counsel for their assistance.____________________________________P R Heath JDelivered at 5.00pm on 31 May 2017