ALUSI LIMITED v G J LAWRENCE DENTAL LIMITED [2021] NZCA 87

ALUSI LIMITED v G J LAWRENCE DENTAL LIMITED [2021] NZCA 87 [25 March 2021]IN THE COURT OF APPEAL OF NEW ZEALANDI TE KŌTI PĪRA O AOTEAROACA568/2020[2021] NZCA 87BETWEEN ALUSI LIMITEDFirst AppellantOPENYD LIMITEDSecond ApplicantRUDAYNA IBRAHIMThird ApplicantABDULAH ABDULQADIRFourth ApplicantOMAR JASSIMFifth ApplicantAND G J LAWRENCE DENTAL LIMITEDFirst RespondentGARY JOHN LAWRENCE AND JASONPETER SILK AS TRUSTEES OF THEG J LAWRENCE FAMILY TRUST ANDDIANE SHERYL LAWRENCE ANDJASON PETER SILK AS TRUSTEES OFTHE D S LAWRENCE FAMILY TRUSTTOGETHER TRADING AS THELAWRENCE FAMILY TRUSTSSecond RespondentsCourt: Miller and Clifford JJCounsel: C J Griggs for ApplicantsR C Laurenson for RespondentsJudgment:(On the papers)25 March 2021 at 10.30 amJUDGMENT OF THE COURTA The application for special leave to appeal is declined.B The applicants must pay the respondents one set of costs on a band A basisfor a standard application for leave to appeal with usual disbursements.____________________________________________________________________REASONS OF THE COURT(Given by Clifford J)Introduction[1] This application, for special leave to appeal against an arbitral award onquestions of law, continues a long running dispute between the parties relating tothe ownership and control of a Raumati dental practice.[2] As now relevant, the applicants are in the process of challenging an arbitralaward (the Award) of the Hon Paul Heath QC.1 In doing so, they first applied to theHigh Court for leave to appeal on questions of law concerning four preliminarydeterminations of the arbitrator given in the Award. Ellis J declined that application,for a variety of reasons.2[3] The applicants then applied to the High Court for special leave to appealEllis J's leave decision to this Court. At the same time, they applied to the High Courtto have part of the Award set aside on the grounds that a breach of natural justiceoccurred. In a decision of 16 September 2020 Ellis J declined both applications.3[4] The applicants now apply to this Court for special leave to appeal the Awardon questions of law. In a separate proceeding they are also appealing, as of right,Ellis J's decision as to a breach of natural justice.1 (Revised) Partial Award dated 22 November 2019.2 Alusi Ltd & Ors v G J Lawrence Dental Ltd & Ors [2020] NZHC 739 [First leave decision].3 Alusi Ltd & Ors v G J Lawrence Dental Ltd & Ors [2020] NZHC 2409 [Second leave decision].Legal context — procedural[5] As Brown J confirmed in a direction on 29 October 2020, the application forspecial leave is to be determined first. The appeal against Ellis J's decision decliningthe application to set aside the Award is then to be determined, together with the pointsof law appeal — if leave is granted.Legal Context — substantive[6] The courts have a general reluctance to interfere with arbitral awards.The purposes of the Arbitration Act 1996, and its provisions as to judicial challenge,encourage that reluctance. Save in very limited circumstances, an arbitrator'sdetermination as to a matter of fact is final and binding. Appeals on questions of lawmay be brought in the courts, but only by agreement or with leave for such appeals.4The High Court must not give leave unless it concludes that, having regard to allthe circumstances, the determination of the question of law concerned couldsubstantially affect the rights of one or more of the parties.5[7] The extended, three stage, process for consideration of an application for leaveto appeal on a point of law reflects the statutory preference for finality of awards onquestions of law:(a) a party must first apply to the High Court for such leave;6(b) if leave is refused, a party may apply to the High Court for leave toappeal that refusal to the Court of Appeal;7 and(c) finally, where leave to appeal that refusal to the Court of Appeal is alsorefused, a party may apply to the Court of Appeal for special leave.84 Arbitration Act 1996, sch 2, cl 5(1).5 Clause 5(2).6 Clause 5(1)(c).7 Clause 5(5).8 Clause 5(6).[8] The courts have developed a series of separate tests for determining each ofthose leave decisions. Rule 26 of the High Court Rules 2016 governs the procedurefor each such application.[9] Rule 26.16 limits the time for the first of those leave hearings to a maximumof one hour and 10 minutes. McGechan on Procedure observes:9Rule 26.16 envisages only the most truncated of oral hearings. The verylimited time specified by the rule makes it clear that there is no scope forextended musings. In line with the general reluctance of Courts to interfere inarbitration matters, the intention seems to be that leave will only be granted inthe clearest cases. It will generally be obvious from the papers which casesfall within those categories.[10] More specifically, this Court in Gold and Resource Developments (NZ) Ltd vDoug Hood Ltd set out the factors applicable to the High Court's discretion.10As relevant, they include:(a) The strength of the challenge/nature of the point of law.(b) How the question arose before the arbitrator.(c) The qualifications of the arbitrator.(d) The importance of the dispute to the parties, the amount of moneyinvolved, and the delay associated with going through the courts.[11] Where leave is sought on an alleged error of law, the qualifications ofthe arbitrator is of particular significance. In Gold and Resource Developmentsthis Court explained:11Where the arbitrator chosen by the parties is legally qualified, it will be harderto obtain leave to appeal the arbitral decision on a question of law.As Lord Donaldson of Lymington MR stated in Ipswich Borough Council vFisons plc , if the chosen arbitrator is a lawyer and the problem is purelyone of law, the parties must be assumed to have had good reason for relyingon that lawyer's expertise.129 Andrew Beck McGechan on Procedure (looseleaf ed, Brookers) at [HR26.16.02].10 Gold and Resource Developments (NZ) Ltd v Doug Hood Ltd [2000] 3 NZLR 318 at [54].11 At [54(3)] (footnote added and citation omitted).12 Ipswich Borough Council v Fisons plc [1990] Ch 709 (CA) at 724.[12] As Ellis J noted in her second leave decision,13 in Downer Construction(New Zealand) Ltd v Silverfield Developments Ltd this Court considered the tests forthe High Court's decision on an application for leave to appeal refusal under sub-cl (5)(and for this Court's decision under sub-cl (6)) of cl 5.14[13] As to the High Court's decision in a second application under sub-cl (5),this Court agreed15 with Randerson J's explanation of the sub-cl (5) test in Cooperv Symes:16(a) The appeal must raise some question of law capable of bona fideand serious argument in a case involving some interest, public orprivate, of sufficient importance to outweigh the cost and delay of thefurther appeal.(b) Upon a second appeal, the Court of Appeal is not engaged inthe correction of error. Its primary function is then to clarify the lawand to determine whether it has been properly construed and appliedby the Court below.(c) Not every alleged error of law is of such importance either generallyor to the parties as to justify further pursuit of litigation which hasbeen twice considered and ruled upon by a Court.[14] As for the test under sub-cl (6), as directly applicable here, this Courtexplained:17Where the High Court has refused leave, this Court has power under cl 5(6)to grant special leave to appeal. Obviously that should not be a second bite atthe same cherry. This Court will be very mindful of why the High Courtdeclined leave, and will grant special leave only if the High Court Judge'sdecision was plainly wrong or if the test set out above was not applied orwas misapplied. We would hesitate to say that the test under subcl (6) isdifferent from the test under subcl (5). It is simpler to say the test is the same,but this Court will exercise its powers sparingly and mindful of whythe High Court declined leave.[15] Those remarks were made in the context of an application for special leavewhere the High Court had declined leave to appeal its substantive decision on apoint of law appeal made to it with leave. Where the application to this Court is for13 Second leave decision, above n 3, at [79].14 Downer Construction (New Zealand) Ltd v Silverfield Developments Ltd [2007] NZCA 355,[2008] 2 NZLR 591.15 At [33].16 At [33], quoting Cooper v Symes (2001) 15 PRNZ 166 at [12].17 Downer Construction (New Zealand) Ltd v Silverfield Developments Ltd, above n 14, at [35].special leave to appeal where the High Court has declined leave, in effect ontwo occasions, the need to focus on the possibility of error in the second leavedecision, rather than in the award itself, is emphasised.[16] We proceed accordingly.Analysis[17] The facts are comprehensively recorded in Ellis J's two leave decisions. A veryfocused, relatively brief, summary is appropriate at this point.[18] Alusi (the first appellant), G J Lawrence (the first respondent) andCreative Dentistry Ltd (not now involved) were, respectively, the corporate entitiesused by three dentists — Mr Ibrahim, Mr Lawrence and Mr Al-sabak — in the runningof their individual practices at shared dental premises at Raumati, northof Wellington.18[19] Each dentist had pre-emptive rights to the others' practices, including theirshares in those corporate entities and their shares, held in equal proportions, in acompany called Openyd Ltd. Openyd19 administered the individual practices and theshared premises. Mr Lawrence's wife, Mrs Lawrence, did that work for Openyd.[20] Those pre-emption rights were found in a deed relating to the practice(the Deed) and Openyd's constitution.[21] In 2016 Lawrence signalled its intention to retire from practice.Difficulties arose. A mediation on 15 March 2017 partially resolved matters.That partial resolution was recorded in a bullet point email dated that day which hadbeen read to and agreed by the parties (the Email Agreement). Subject to Creative'sconsent, Lawrence was to sell to Alusi for $475,000. Creative could sell to athird party, but Alusi had a right of first refusal with respect to that sale.18 I use the names of the three corporate entities; Lawrence, Alusi and Creative to refer collectivelyto each of the individual dentist's interests in their practice, under the Deed and in Openyd.19 Pronounced "Openwide".[22] As to the pre-emptive rights, and as Ellis J summarised matters in hersecond decision:20(a) [Alusi] would waive [its] pre-emptive rights in relation to any sale ofCreative to a third party, provided [it] had been given three workingdays to make an offer for the practice on the same terms;(b) [Creative] would be deemed to consent to the sale of Lawrence toAlusi, if [it] entered into an unconditional sale of [its] own practice;and(c) it is implicit that, if the Lawrence[/Alusi] ASP became unconditional(by virtue of [Creative's] actual or deemed consent) then [Lawrence's]consent to any sale of Creative — either to Alusi or to a third party —was not required (or would be deemed).[23] Matters did not proceed as hoped. Creative was unable to enter into anunconditional contract to sell to a third party. Moreover, it did not consent tothe Lawrence/Alusi sale. Notwithstanding, Alusi asserted the Lawrence/Alusi ASPwas unconditional, Creative's consent not being required.[24] The parties went to arbitration for the first time. At issue were the pre-emptiverights and the status at that time of the Lawrence/Alusi ASP. The first arbitrator ruled,in effect, that the Lawrence/Alusi ASP was "unenforceable" and of "no effect".There is no challenge to that ruling. The first arbitrator reached no view on the statusof pre-emptive rights.[25] Thereafter:(a) Creative agreed to sell to a third party. Alusi commenced legalproceedings to prevent that sale. Those proceedings were settled whenCreative agreed to sell to Alusi.(b) Lawrence relied on its pre-emptive rights.(c) Alusi contended those rights no longer existed and settled withCreative.20 At [8].(d) Alusi and Creative purported to register the transfer of the Openydshares from Creative to Alusi, and Alusi took actual control of Openydand its administration activities, displacing Mrs Lawrence.(e) Lawrence gave formal notice under the Deed of its intention to retire,acknowledging Alusi's pre-emptive rights and nominating a sale priceof $550,000.(f) Alusi responded, asserting Lawrence was already bound by a 2016contract — not the Lawrence/Alusi ASP signed on 15 March 2017 —to sell its shares to Alusi for $400,000.[26] In October 2018 the parties went to arbitration for a second time.Lawrence appeared to accept the fact of Creative's sale of its practice to Alusi, albeitnot the breach of pre-emptive rights as regards Openyd. In any event, Creative wasnot a party to the arbitration. In formal terms Lawrence focused its claims on Alusi'sactions in excluding it from Openyd. Lawrence effectively sought the winding up ofthe shared practice arrangements, which it termed an association, including Openyd,on the just and equitable basis.[27] Alusi counterclaimed. It asserted it had previously accepted Lawrence'srepudiatory breach of the Lawrence/Alusi ASP and sought damages of $75,000,presumably for that repudiatory breach.[28] The second arbitrator identified six preliminary questions, aimed atdetermining the status and significance of the legal relationships as by then existingbetween Lawrence and Alusi, including as represented by Openyd.[29] The issues formally put to the arbitrator would appear to have ignoredthe elephant in the room: that is, in reality the dispute was about the price to be paidby Alusi for Lawrence's practice. There was no attempt to question Alusi's positionas the owner of what had been Creative's interests, but only the day to day significanceof Alusi taking over the management of the "association" and excluding Mr andMrs Lawrence.[30] As matters transpired, and representing the reality of the situation, the practicalfocus of those questions was their significance for determining the central issue: that iswhether, and if so to what effect, Lawrence continued to enjoy pre-emptive rights asregards the Openyd shares so as to preserve the status quo vis a vis negotiation of thesale of its practice.[31] Alusi argued that those rights had been waived in the Email Agreement.Lawrence argued the Email Agreement had ceased to have any relevant effect.[32] The second arbitrator agreed with Lawrence, but not for the reason given byLawrence. Lawrence argued that the Email Agreement ceased to have any effect whenthe first arbitrator ruled that the Lawrence/Alusi ASP was not enforceable. The secondarbitrator appeared to consider subsequent events could have "revived" the postmediation deal, but that that possibility had subsequently come to an end asacknowledged at one point by counsel for Alusi in submissions on court costs for onestage of the dispute.[33] It is that decision Alusi challenges, as of right, as having been reached in breachof its natural justice rights.[34] The second arbitrator also found, and that finding is not now challenged,that where the Deed and Openyd's constitution conflicted, the Deed was to prevail.[35] As for the High Court's first leave decision, there is no real dispute that theassociation is at an end. As we have observed, this argument is in reality abouta difference of some $150,000 in the purchase price to be paid by Alusi for Lawrence'spractice. That is clearly not a matter of any public or general importance.[36] Moreover, for our part we doubt whether the threshold of substantial effect isreached, notwithstanding Ellis J being prepared to find that it was. Although the Deedhas now been cancelled, it provided an appropriate price setting mechanism of currentmarket valuation to be determined by agreement or, failing agreement, by arbitration.That approach is the obvious and efficient way to resolve this essentiallycommercial dispute.[37] In making this application, Alusi did not address in any meaningful way thesignificance of the limited nature of the basis upon which leave may be given to appealan arbitrator's alleged error in law. Even less did it focus on the narrow grounds onwhich this Court would grant leave following a second leave decision ofthe High Court declining leave.[38] As to those tests: we are not satisfied the High Court's decision was plainlywrong. Rather, we agree with the essence of that decision as expressed by Ellis Jin the following paragraph from her second leave decision:21The idea that Lawrence Dental would have agreed to waive its pre-emptiverights without a firm agreement for the sale of its own practice makes no sense.It was, no doubt, for this reason that the focus of the argument beforethe arbitrator was largely on the Lawrence ASP.[39] The second arbitrator is the Hon Paul Heath QC, a retired judge. Mr Heath iseminently qualified and has extensive experience in commercial disputes ofthis nature. That is, no doubt, why he was chosen by the parties.[40] Finally, the as-of right appeal against the second arbitrator's ruling will see thatdecision on the status of the pre-emptive rights reviewed.[41] For all those reasons, Alusi's application for special leave is declined.Costs[42] The applicants must pay the respondents one set of costs on a band A basis fora standard application for leave to appeal with usual disbursements.Solicitors:Lawler & Co, Auckland for ApplicantsGillespie Young Watson, Lower Hutt for Respondents21 The second leave decision, above n 3, at [68].