SOUTH AUCKLAND TAXI ASSOCIATION LIMITED v JAG MOHAN SINGH RAWAT AND MANPREET KAUR [2015] NZHC 846

SOUTH AUCKLAND TAXI ASSOCIATION LIMITED v JAG MOHAN SINGH RAWAT AND MANPREET KAUR [2015] NZHC 846 [28 April 2015]IN THE HIGH COURT OF NEW ZEALANDAUCKLAND REGISTRYCIV-2014-404-002432[2015] NZHC 846UNDER the Arbitration Act 1996IN THE MATTER of an appeal on a question of law from anArbitral AwardBETWEEN SOUTH AUCKLAND TAXIASSOCIATION LIMITEDAppellantAND JAG MOHAN SINGH RAWAT ANDMANPREET KAURRespondentsHearing: 14 April 2015Appearances: W A Endean for AppellantS Sharma for RespondentsJudgment: 28 April 2015JUDGMENT OF WOOLFORD JThis judgment is delivered by me on Tuesday, 28 April 2015 at 4.30 pmpursuant to r 11.5 of the High Court Rules......................................................Registrar / Deputy RegistrarSolicitors/Counsel: Dawsons, Howick, AucklandS Sharma, Henderson, AucklandIntroduction[1] This is an appeal against an arbitrator's award. The appellant, South Auckland Taxi Association Limited (South Auckland Taxis), is an approved taxi organisation in terms of s 30P Land Transport Act 1998. The respondents, who are husband and wife, held four shares in the appellant company. As shareholders in the company, the respondents were entitled and did hold passenger service licenses under the Act, which enabled them to carry on a passenger service. By February 2013, the respondents had approximately 10 taxis and employed seven full-time and a number of part-time drivers.[2] The relationship between the appellant and the respondents was governed by a service agreement signed by the parties. On 24 May 2013, solicitors acting for South Auckland Taxis wrote to the solicitor acting for the respondents, purporting to terminate the agreement. The letter attached a copy of a minute of a meeting of the Board of Directors of South Auckland Taxis held on 22 April 2013 and the resolutions passed at that meeting, one of which was to terminate the agreement with the respondents on the basis of a breach of cl 7(b)(v) of the agreement.[3] The agreement contained a provision for reference to a single arbitrator in the case of disputes between the parties. In accordance with that provision, a senior barrister, David Carden, was appointed as arbitrator in terms of the Arbitration Act 1996. An arbitration hearing was conducted on 29 April 2014 at which both parties gave evidence, and were represented by counsel.[4] In an interim award dated 13 June 2014, the arbitrator found that South Auckland Taxis did not have the right to terminate the agreement on the factual basis it purported to have done so. He therefore found that the agreement had been unlawfully cancelled by the appellant. He noted that the respondents were entitled to relief, which could be by damages or by some other relief under the Contractual Remedies Act 1979, which he reserved for later consideration.[5] Clause 5(1) of Schedule 2 to the Arbitration Act 1996 provides that any party may appeal to the High Court on any question of law arising out of an award if theparties had so agreed before the making of the award or with the leave of the High Court.[6] On 12 September 2014, three months after the arbitral award, the appellant filed an application for leave to appeal. When first called in the High Court, the parties sought an adjournment on the basis of settlement discussions. These proved to be unsuccessful and by memorandum of 4 December 2014, the parties sought a half day fixture. A half day fixture was then allocated for 14 April 2015. When the matter was first called on 14 April 2015, the parties advised the Court that the application for leave to appeal should be treated as an appeal because when they referred the dispute to arbitration, the parties specifically deleted a provision which would have removed the right of appeal. Both therefore considered that they had agreed on a right of appeal. I therefore treated the application for leave to appeal as an appeal.Factual background[7] In November 2012, South Auckland Taxis lost a Ministry of Education tender for the provision of disability transport in the Auckland area. According to the appellant's manager, this had a dire impact on the appellant and its shareholders'profitability.[8] In January 2013, the appellant negotiated separately with the taxi companies who had been successful in the tender to secure a sub-contracting arrangement. Ultimately, the appellant entered into a sub-contracting agreement with one of these companies, Alert Taxis Limited.[9] In February 2013, Mr Tapas Ghosh, who was described by one of the respondents, Mr Rawat, as a good friend, contacted Mr Rawat, who was out of Auckland at the time, asking for some assistance with taxi mobility (TM) jobs, as he did not have enough drivers to carry out the work he had available.[10] Mr Rawat said that he agreed to do so and did not ask for any details from Mr Ghosh, simply when and where the pickup and drop off's were. The arrangement between Mr Rawat and Mr Ghosh was an oral one and Mr Rawat saidthat he simply told Mr Ghosh that he would charge the costs of his drivers at their hourly rate plus petrol and running costs. He also asked Mr Ghosh to contact the drivers directly for future jobs.[11] It then came to the notice of South Auckland Taxis that the respondents' taxis were said to have been seen servicing school runs that had been allocated in the tender round to another competitor, Auckland Co-op Taxis Limited. On 13 February 2013, the appellant wrote to the respondents referring to the fact that therespondents' taxis had been seen performing school runs on 7 and 8 February 2013, and alleging breaches of various clauses of the agreement between them. The letter included notice of immediate suspension of services to the respondents until theoutcome of the appellant's investigations. Mr Rawat was asked for an explanation.He said that they were private runs for a friend and that he did not know that they were, in fact, school runs contracted to Auckland Co-op Taxis Limited. Because of the appellant's displeasure, Mr Rawat stopped assisting his friend, Mr Ghosh, with the school runs after about three weeks.[12] There were further exchanges between the parties and their respective solicitors. There was also a meeting on 16 March 2013, attended by Mr Rawat with his solicitor, when he accepted that photographs shown to him of one of the taxis performing the contested runs was owned by the respondents. The minutes of a special meeting of the South Auckland Taxis Board of Directors on 22 April 2013 recorded advice that an invoice from Reliable Energy Limited (Mr Ghosh'scompany) had been received by Auckland Co-op Taxis Limited, and the subsequentdecision of the Board to terminate the respondents' agreement and to seek the return of all property and equipment installed in the respondents' taxis or seek compensation for the same. It also recorded the decision of the Board to assign the respondents' shares, effective 22 April 2013.[13] The appellant was of the view that the respondents' actions, contrary to theservice agreement, were, or had been, or may have been, injurious to the welfare, reputation, interest or business of the appellant because Auckland Co-op Taxis Limited was struggling to meet the requirements of their contract with the Ministry of Education. This was because if the respondents were assisting them, AucklandCo-op Taxis Limited were less likely to fail to meet their requirements. If Auckland Co-op Taxis Limited did, in fact, fail to meet their requirements, there was a possibility that South Auckland Taxis could then take over the contract, which would be of financial benefit to the company. The assistance provided by the respondents to a rival taxi company was therefore seen to be detrimental to the interests of the appellant.Grounds of Appeal[14] The appellant sets out five questions of law as follows:(a) Whether the arbitrator was correct to exclude from his assessment of whether Mr Rawat was in breach of clause 7(b)(v) of the agreement, any subjective assessment by the appellant of the extent to which tothe actions of Mr Rawat "had been or may be injurious to the welfare,reputation, interest or business of South Auckland Taxis".(b) Whether the arbitrator was correct to treat clause 7(b)(v) of theagreement and the requirement that the actions of Mr Rawat "hadbeen or may be injurious to the welfare, reputation, interest orbusiness of South Auckland Taxis" as requiring proof of actual damage to those interests.(c) Whether the arbitrator was correct to place an onus on the appellant to prove an entitlement to terminate the agreement.(d) Whether the arbitrator was correct to reject evidence on various key factual issues solely on the basis that the evidence was hearsay evidence, and without any evaluation of the reliability or appropriateness of referring to that evidence in accordance with the provisions of s 18 of the Evidence Act 2006.(e) Whether the arbitrator was correct in his analysis of clause 7(b)(vi) given the uncontroverted evidence that Mr Rawat had worked forReliable Cabs, which were in turn working for Auckland Co-op Taxis, facts which, on their face, established a breach of that clause.Discussion[15] The first ground of appeal challenges the arbitrator's interpretation of clause7(b)(v) of the agreement. Clause 7(b)(v) provides:(b) In addition to any other rights that parties may have, South Auckland Taxis may forthwith by notice in writing to the Proprietor delivered to the Proprietor or posted by registered mail to him at his last known address terminate this Agreement in any of the following events, such termination to take effect from time to time specified in the notice, but without prejudice to any rights that may have accrued prior to such determination.(v) If the conduct or actions of the Proprietor or his/her permitted driver is or has been or may be injurious to the welfare, reputation, interest or business of South Auckland Taxis.[16] The appellant submits that the arbitrator wrongly excluded any subjective assessment by South Auckland Taxis of the extent to which the conduct of Mr Rawat was, had been or may have been injurious to the welfare, reputation, interest or business of South Auckland Taxis from his assessment of whether the respondents were in breach of clause 7(b)(v). What the arbitrator, in fact, said was:43 The assessment of whether there has been one or more of those grounds occur is an objective one based on the facts. If one or more in fact exists, then the discretion for the [appellant] is as to whether then to terminate or cancel the agreement.[17] The appellant submits that, because of the language of clause 7(b)(v), the assessment of whether or not there has been a breach should be undertaken on a subjective basis. It submits that the use of the words "may be injurious" refers to thepossibility of injury in the future. All that is required of the appellant is the belief that the actions of the respondents may possibly injure the welfare, reputation, interest or business of South Auckland Taxis. The use of the language "may" refersto injury that may possibly happen in the future, and therefore, it cannot be said to be objectively a fact. The appellant submits that it is therefore a subjective judgmentconferred by the contract on the appellant to be exercised, taking into account the circumstances known to it at the time.[18] It is my view, however, that the arbitrator did not arbitrarily exclude any subjective assessment by South Auckland Taxis of the extent to which the conduct of Mr Rawat was, had been or may have been injurious to the welfare, reputation, interest or business of South Auckland Taxis. The point the arbitrator was making was that any subjective assessment had to be supported in some way by facts which had been objectively ascertained. For instance, South Auckland Taxis may have subjectively thought that Auckland Co-op Taxis Limited was struggling to meet its requirements under its contract with the Ministry of Education, but this subjective assessment had to be supported by some independent objective evidence. The arbitrator found that there was none and accordingly there was no basis for theappellant's subjective assessment. The arbitrator was of the view that the appellant could have called witnesses of fact to give evidence about Auckland Co-op TaxisLimited's predicament, but chose not to do so. In my view, the arbitrator was quiteright to interpret clause 7(b)(v) as requiring some objective factual evidence. If an agreement could be terminated purely on the subjective assessment of South Auckland Taxis without some independent objective evidence, this would amount to termination at the whim of the appellant. This was never intended.[19] The second ground of appeal is related. The appellant submits that the arbitrator was wrong to treat clause 7(b)(v) as requiring proof of actual damage to those interests. The appellant takes issue with comments of the arbitrator such as the following:57 There is reference in those submissions to the belief that Auckland Co-op would be unable satisfactorily to perform its contractual obligations and the further belief of the likelihood of Auckland Co- op surrendering its runs being diminished if the [respondents] undertook work on those runs. Those matters of belief are not sufficient to found a cancellation of the agreement and furthermore they are speculative in submissions not supported by direct evidence.[20] The appellant submits that it held a reasonable belief that by working for a competitor the respondents were supporting a rival business and diminishing the prospect of Auckland Co-op Taxis Limited failing in its business, which theappellant believed was a strong likelihood. Those were matters that related to possibilities in the future, which South Auckland Taxis was entitled to take into account under clause 7(b)(v).[21] Again, I am of the view that the arbitrator was correct in determining thatthere had to be some objective basis for the appellant's belief. Although proof ofactual damage was not required in terms of clause 7(b)(v), in that future damage was specifically referred to in the clause, there needed to be some objective evidence of actual damage or the possibility of future damage. In that regard, I note that South Auckland Taxis saw that it was in its best interests to undertake work for a different competitor, Alert Taxis Limited, when it entered into a sub-contracting arrangement with them, similar to the arrangement that Mr Ghosh, of Reliable Energy Limited, had entered into with Auckland Co-op Taxis Limited. It was not explained why helping Alert Taxis Limited was different to helping Auckland Co-op Taxis Limited. Both were rivals of the appellant.[22] The third ground of appeal relates to the onus of proving the existence of grounds enabling termination of the agreement. The appellant submits that the arbitrator was wrong to place an onus on the appellant to prove an entitlement to terminate the agreement. The appellant complains of the comment made by the arbitrator:59.5 Fifthly, there was submitted for the Respondent that all it had wasshow "an honest belief" of injury and that is rejected out of hand. Itwas required for the Respondent to provide objective evidence of injury, or at least potential injury, before its discretion to terminate arose.[23] The appellant submits that the potential injury was a competitor, Auckland Co-op Taxis Limited, managing to sustain its business in the face of the difficulties South Auckland Taxis understood it to have. Here, I agree with the arbitrator that the appellant had an obligation to put evidence in front of the arbitrator which could substantiate or support its decision to terminate the agreement. There is a generalprinciple of law that "he who asserts must prove." Hence, I agree with the arbitrator that the appellant was required to provide objective evidence of injury, or at least potential injury, before its discretion to terminate arose.[24] The fourth ground of appeal challenges the arbitrator's rejection of hearsay evidence. He did so on the basis that it was unreliable and he would not therefore place any weight on it. This is in accordance with the general exclusionary rule set out in s 17 of the Evidence Act 2006 that hearsay statements are not admissible. The appellant criticises the arbitrator for not going on to consider whether the hearsay evidence may, nonetheless, have been admissible under s 18 of the Evidence Act 2006, which allows hearsay statements if the circumstances relating to the statement provide reasonable assurance that the statement is reliable and either, the maker of the statement is unavailable as a witness, or the decision maker considers that undue expense or delay would be caused if the maker of the statement were required to be a witness.[25] An example of the hearsay evidence rejected by arbitrator is at paragraphs 54–55 of his decision:54 Again by way of hearsay evidence Mr Tofilau said that shortly after the commencement of term 1 2013 the Respondent became aware that Auckland Co-op was struggling to service the Auckland south cluster due to shortage of drivers not wanting to provide service for the school run work as well as a shortage of specialist TM mobility vehicles.55 That matter could have been the subject of direct evidence but it was not and the arbitral tribunal is not prepared to take what Mr Tofilau said on this matter as evidence.[26] By saying that this could have been the subject of direct evidence, the arbitrator was in effect saying that one of the pre-conditions for the admissibility of hearsay evidence under s 18 had not been met: namely, the unavailability of the maker of the statement as a witness.[27] The arbitrator clearly had the power to determine the admissibility, relevance, materiality and weight of any evidence.1 The appellant has not, even now, made any submissions that the requirements of s 18 of the Evidence Act 2006 had, in fact, beenmet. South Auckland Taxis' submissions are merely that the arbitrator did not evaluate whether the evidence was admissible in terms of s 18 of the Evidence Act 2006.1 Arbitration Act 1996, sch 1, cl 19(b).[28] No information has been provided to this Court about the circumstances under which the statements were made or any issue of undue expense or delay. Although counsel commented that no one from Auckland Co-op Taxis would appear to give evidence that they were struggling to service the contract with the Ministry of Education, no reason was given why a subpoena or a witness summons could not have been obtained from the High Court or the District Court.2 Accordingly, the appellant has not shown that the arbitrator was demonstrably wrong or in error in rejecting the hearsay evidence.[29] The fifth ground of appeal refers to clause 7(b)(vi) of the agreement. It provides:(b) In addition to any other rights the parties may have, South Auckland Taxis may forthwith by notice in writing to the Proprietor delivered to the Proprietor or posted by registered mail to him at his last known address terminate this Agreement in any of the following events, such termination to take effect from time to time specified in the notice, but without prejudice to any rights that may have accrued prior to such determination.(vi) If the Proprietor becomes a member of, enters into any agreement with or becomes an employee of any other Approved Taxi Organisation.[30] The appellant criticises the arbitrator given what it says is "the uncontroverted evidence that Mr Rawat had worked for Reliable Cabs, who were in turn working for Auckland Co-op Taxis, facts, which on their face, established abreach of that clause".[31] The first point to note is that South Auckland Taxis did not, in fact, rely on clause 7(b)(vi) when terminating the agreement with the respondents. It relied solely on a breach of clause 7(b)(v), the existence of conduct which is or has been or may be injurious to the welfare, reputation, interests or business of South Auckland Taxis. The arbitrator noted this point also. In addition, the arbitrator noted that clause 7(b)(vi) was not referred to in the letter from South Auckland Taxis' lawyer to therespondents' lawyer of 25 February 2013, nor in the statement of defence in High Court proceedings as a basis for cancellation of the agreement. Although mentioned2 Arbitration Act 1996, sch 1, cl 27(2)(a).briefly in the appellant's submissions to the arbitrator, the arbitrator found that theappellant had not relied on clause 7(b)(vi). Accordingly, he did not perceive that it was an issue which needed determination, but in the alternative, he found that there was no breach of clause 7(b)(vi). He stated that there were was simply no evidence of the respondents having become a member of, entering into any agreement with, or having become an employee of any other approved taxi organisation.[32] I agree. The notice of appeal refers to "Reliable Cabs", but the minutes of themeeting of the Board of Directors of the appellant, dated 22 April 2013, refers to"Reliable Energy Limited". Although not in evidence, it was accepted by counsel for the appellant that Mr Ghosh's company, however named, was not an approvedtaxi organisation. An approved taxi organisation is a phrase with particular statutory meaning. The same phrase in the agreement between the appellant and the respondent must be interpreted in the same way.[33] In terms of clause 7(b)(vi), the respondents had not become members or employees of Auckland Co-op Taxis Limited, which is an approved taxi organisation. Nor had they, in my view, entered any agreement with Auckland Co- op Taxis Limited. The agreement was with Mr Ghosh and/or his company, Reliable Energy Limited, which is not an approved taxi organisation. Mr Ghosh states that Mr Rawat was never aware as to who the job was from. On the other hand, SouthAuckland Taxis' Board of Directors was of the opinion that Mr Rawat knew full well that the runs he was performing were awarded to Auckland Co-op Taxis Limited through the tender process. Even if this was the case, however, there is just no evidence of the respondents having any agreement with Auckland Co-op Taxis Limited. The agreement was with Mr Ghosh and/or his company, which is not an approved taxi organisation. Clause 7(b)(vi) does not prohibit agreements with companies which are not approved taxi organisations. Accordingly, the appellant has not shown that the arbitrator was demonstrably wrong or in error in not finding a breach of clause 7(b)(vi).Result[34] In all the circumstances, the appeal is dismissed. The appellant has not shown that the arbitrator was demonstrably wrong or in error in reaching his findings. The respondents are entitled to costs on a 2B basis..Woolford J