THE BIG BASIN LIMITED v STOCKCO LIMITED [2022] NZHC 3010

THE BIG BASIN LIMITED v STOCKCO LIMITED [2022] NZHC 3010 [17 November 2022]IN THE HIGH COURT OF NEW ZEALANDCHRISTCHURCH REGISTRYI TE KŌTI MATUA O AOTEAROAŌTAUTAHI ROHECIV-2022-409-000014[2022] NZHC 3010UNDER the Arbitration Act 1996IN THE MATTER of leave to appeal the High Court decision[2022] NZHC 1020 dated 17 May 2020BETWEEN THE BIG BASIN LIMITEDPlaintiffAND STOCKCO LIMITEDDefendantHearing: 26 October 2022 (By way of VMR)Appearances: P A Cowey and F A Trowbridge for PlaintiffM H L Morrison and J A Zwi for DefendantJudgment: 17 November 2022JUDGMENT OF DUNNINGHAM JThis judgment was delivered by me on 17 November 2022 at 10.15 am, pursuantto r 11.5 of the High Court RulesRegistrar/Deputy RegistrarDate:Introduction[1] On 6 October 2021, after more than two weeks of hearing, a lengthy interimarbitral award issued. It rejected The Big Basin Ltd's (Big Basin) defence toStockCo Ltd's (StockCo) claim for payment of financing costs for 787 bulls acquiredby Big Basin.[2] Big Basin then sought leave to appeal under cl 5(1)(c) of the Arbitration Act1996 on six questions of law said to arise out of the interim award.[3] In a decision dated 17 May 2022 (the leave decision), I refused leave to appeal,concluding:1(a) Big Basin's assertion that the Arbitral Tribunal (the Tribunal) erredwhen it decided that bailment principles (including proof of delivery)did not apply to the relevant financing agreements, was not "stronglyarguable" and was based on a fundamental misunderstanding ofStockCo's claim which was brought in contract.2(b) The question of whether the Tribunal erred in deciding that the bailmentrequirement of delivery could be contracted out of by an implied termwas rejected for much the same reasons.3(c) The question of whether the Tribunal erred in making a finding that atleast 720 of the bulls were delivered to Big Basin, was a factual findingwhich was within the scope of the arbitration because Big Basin'sdefence put this fact at issue.4(d) The question of whether the Tribunal erred in interpreting the directors'certificate as representing that a single director of Big Basin could bindBig Basin was not strongly arguable and, given the arbitrator's finding1 The Big Basin Ltd v StockCo Ltd [2022] NZHC 1020.2 At [32] and [33].3 At [34].4 At [38] and [40].that two directors confirmed Big Basin's agreement to the relevantfinancing agreement, it would not materially change the outcome.5(e) The question of whether the Tribunal erred by making an alternatefinding that liability would arise on the basis of implied terms was achallenge to what were, in effect, obiter comments, and there would beno utility in pursuing this claimed error in law.6(f) Big Basin's assertion that the Tribunal erred in finding that Big Basincould be liable for what it said were "unascertained goods", was afurther iteration of Big Basin's argument that bailment principlesapplied and needed to be proved. It misunderstood that StockCo'sclaim for payment was a claim that Big Basin was liable under the termsof the contract.7[4] I also considered that the other factors relevant to the exercise of my discretionwhen deciding whether to grant leave to appeal largely supported my decision thatleave should not be granted.8This application[5] Big Basin now seeks leave to appeal the leave decision pursuant to cl 5(5) ofsch 2 to the Arbitration Act. That clause provides:With the leave of the High Court, any party may appeal to the Court of Appealfrom any refusal of the High Court to grant leave or from any determinationof the High Court under this clause.[6] Clause 5(5) does not provide any guidance as to the threshold for grantingleave. However, the principles governing an application for leave under that clauseare set out in the Court of Appeal's decision in Downer Construction (New Zealand)5 At [49]–[53].6 At [59].7 At [67]–[71].8 At [73]–[76], relying on the factors articulated in Gold and Resource Developments (NZ) Ltd vDoug Hood Ltd [2000] 3 NZLR 318 (CA) at [54].Ltd v Silverfield Developments Ltd,9 adopting the principles set out in an earlierHigh Court decision, Cooper v Symes:10 the primary focus is on whether the question of law is worthy ofconsideration. We cannot do better than Randerson J's summary of theposition in Cooper at para [12];(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 in thegeneral correction of error. Its primary function is then to clarify thelaw and to determine whether it has been properly construed andapplied by the Court below.(c) Not every error of law is of such importance either generally or to theparties as to justify further pursuit of litigation that has been twiceconsidered and ruled upon by a Court.[7] Big Basin emphasised that the threshold for granting leave to appeal the leavedecision is lower than the threshold I had to apply when I initially consideredBig Basin's application for leave to appeal. In the original application, Big Basin hadto show it had a "very strongly arguable case" that the Tribunal had erred in law.11However, on the current application, the test is simply that the appeal raises somequestion of law "capable of bona fide and serious argument".12[8] However, whether or not there is a lower threshold for deciding how arguableany question of law is, the other considerations which are relevant to granting leaveset out in Downer and Cooper, including the cost and delay of further appeal and theimportance of the public or private interest raised by the question of law, must also betaken into account. Furthermore, they must be considered in the context of sch 2 tothe Arbitration Act and the limited scope it envisages for permitting appeals of anarbitral award on a question of law.9 Downer Construction (New Zealand) Ltd v Silverfield Developments Ltd [2007] NZCA 355,[2008] 2 NZLR 591 at [33].10 Cooper v Symes (2001) 15 PRNZ 166 (HC).11 Gold and Resource Developments (NZ) Ltd v Doug Hood Ltd, above n 8, at [54(1)].12 Downer Construction (New Zealand) Ltd v Silverfield Developments Ltd, above n 9, at [33].Background[9] It is not necessary, in this decision, to repeat the details of the arrangementsbetween Big Basin and StockCo. They are covered in more detail in the leavedecision. It is sufficient to say that StockCo was suing under the terms and conditionsof a master livestock agreement (MLA) and a supplementary agreement (SA1)executed on 6 July 2017 by one of the directors of Big Basin, Carolyn Menzies, forthe financing costs of what were described as 787 R2 bulls comprised in Lots 1 to 24.[10] Under the terms of the MLA, StockCo became the legal owner of this stock(cl 5.1), while Big Basin was obligated to take, manage and keep possession of thestock (cls 1.2, 3.1, 6.1 to 6.3 and 11.1.11) and to keep the stock identified (cl 3.3).Under cl 1.2(e), Big Basin agreed to be "liable to StockCo for the aggregate cost priceof all Stock including interest on that amount until it is repaid and the costs andcharges and any other money due under this Agreement".[11] StockCo claimed that Big Basin failed to repay the purchase price of Lots 1 to24 by the relevant delivery date specified in SA1 and thereby breached the terms ofthe MLA. Big Basin's response to that pleading was to deny liability and say "inrespect of lots 1 to 24 the Supplementary Agreement is unenforceable".13 That defenceappeared to rely on the alleged lack of authority of Ms Menzies to enter the agreementon Big Basin's behalf. However, during the arbitration Big Basin also argued that itdid not get possession of the stock under the MLA and SA1, and so it should not beliable to pay StockCo.StockCo's submissions[12] Big Basin seeks leave to pursue questions 1 to 4 and 6 which were consideredby me in the leave decision.14[13] Once again, Mr Cowey, for Big Basin, argues that the elements of bailment(being ownership of the bulls by StockCo and ceding of possession to Big Basin) mustbe established by StockCo before it can succeed on its claim against Big Basin because13 Found at cls 27 and 32 of Big Basin's amended points of defence dated 22 September 2020.14 See The Big Basin Ltd v StockCo Ltd, above n 1, at [16].this is a "contract of bailment". Mr Cowey submits the arbitrator was wrong to treatthe contract as simply requiring Big Basin to repay StockCo because StockCo hadmade payment to Alliance Group for the stock in question, at Big Basin's behest.[14] In this hearing, Big Basin's argument shifted somewhat from the argumentadvanced in the original leave application. Instead of arguing that because the contractinvolved an element of bailment, StockCo had to prove that the elements of a bailmentwere established, Mr Cowey focused on the terms of the contract to suggest that theynecessarily required StockCo to prove ownership of the bulls and then delivery of thebulls to Big Basin.[15] Questions 1 and 2 both effectively assert that for StockCo to succeed in itsclaim for payment, it had to first prove it had delivered, or "bailed", the bulls to BigBasin. In support of this submission, Big Basin relied on the contract with StockCobeing analogous to a hire purchase contract or rental agreement where the owner hadto transfer possession to the hirer before being able to sue on the hire purchasecontract. For example, in The Leasing Centre (Aust) Pty Ltd v Rollpress ProplateGroup Pty Ltd,15 the plaintiff financed the purchase of a forklift truck and required thepurchaser to enter a "Hiring Agreement" with it. The truck supplier went intoliquidation and the truck, which was in fact not owned by the supplier, was neversupplied. The Court would not enforce payment to the finance company of the hirecharge because there was no delivery of the truck as required under the hire agreement.[16] However, Big Basin's reliance on the cited cases is misplaced.16 In those cases,the plaintiff held itself out to be an owner of the item to be hired, and the contract forhire or rent entailed, at its essence, the provision of a possessory interest to the hirer.17In the MLA and SA1, there is no suggestion that, prior to entering the agreement,StockCo owned the animals. Indeed, the livestock is usually sourced by the farmerwhich, here, is Big Basin. Under the MLA, it is Big Basin which warrants that titleand property in the stock will pass to StockCo (cls 5.1 and 5.2) upon entry into the15 The Leasing Centre (Aust) Pty Ltd v Rollpress Proplate Group Pty Ltd [2010] NSWSC 282.16 The Leasing Centre (Aust) Pty Ltd v Rollpress Proplate Group Pty Ltd, above n 13; Karflex Ltd vPoole [1933] 2 KB 251; and Warman v Southern Counties Car Finance Corp Ltd [1949] 2 KB576.17 The Leasing Centre (Aust) Pty Ltd v Rollpress Proplate Group Pty Ltd, above n 15, at [97].agreement. Under cls 6.1 and 6.4, the obligation to graze the stock on Big Basin'sproperty (and to move the stock to that property if not already there) clearly falls onBig Basin as the farmer. In short, the specific contractual terms clearly differ fromthose in a hire purchase or rental agreement and those cases do not demonstrate thatStockCo has not performed its part of the bargain.[17] Question 6 is connected to the first and second questions of law. It asserts thatthe Tribunal erred in finding that Big Basin could be liable to pay for unascertainedgoods. Big Basin accepted that this question was directly connected to question 1, inthat it relied on the MLA and SA1 being conditional on StockCo proving ownership,raising the question of whether the goods that it owned could be ascertained.Mr Cowey submits that StockCo could not identify what stock belonged to Lots 1 to24 and therefore could not have met the standard for ascertainment.[18] I have already discussed, when dealing with Questions 1 and 2, why it is notseriously arguable that StockCo must prove ownership of the stock before it canenforce the contract. There is no other basis put forward as to why StockCo must beable to ascertain the stock before it can enforce payment under cl 1.2(e) of the MLA.[19] The reference by Mr Cowey to s 18 of the Sale of Goods Act 1908 (nowcontained in s 143 of the Contract and Commercial Law Act 2017) is irrelevant, as thecontract being enforced is not a contract for the sale of goods. Furthermore, thequestion of whether the stock comprising Lots 1 to 24 continued to be sufficientlyascertained to facilitate repossession in the circumstance of insolvency is an entirelyseparate issue and does not arise in the circumstances which were before the Tribunal.[20] Again, I do not consider this constitutes a seriously arguable question of law.[21] Once the requirement to prove the elements of a bailment are put aside, andinstead the contractual terms focused on, I am satisfied that questions 1, 2 and 6 arenot seriously arguable. Furthermore (and perhaps most importantly), they are not oneswhich could seriously affect the outcome of the arbitration. The acknowledgement byrepresentatives of Big Basin during the hearing that at least 720 bulls were deliveredto Big Basin, and the Tribunal's finding to that effect, demonstrates this argument,even if viable, would not substantially affect the rights of the parties.18[22] This leads on to Question 3, which is that the finding as to delivery was outsideof the scope of arbitration. In that regard, Big Basin relies on the decision in HenkelKGAA v Holdfast New Zealand Ltd, where there was a finding that the defendant,Holdfast, had copied Henkel's "SuperAttak" packaging.19 Although Holdfastadmitted it copied the SuperAttak packaging, the Supreme Court found Henkel's claimcould not succeed as it did not advance its case on the basis that this particularpackaging had been copied. Rather, it was advanced on the basis that two other typesof packaging had been copied.[23] Mr Cowey argues in the current case that as StockCo had expressly pleaded itdid not need to prove possession because it relied on the contractual terms alone, thefinding as to whether possession passed to Big Basin was beyond the scope of thearbitration. That submission is misguided. Big Basin itself put the issue of possessionwithin the scope of the arbitration by pleading in its defence that it had not obtainedpossession.[24] This is not a case where the question of law is capable of bona fide and seriousargument. Furthermore, it is not a question of law of sufficient, public or privateimportance to justify the further cost and delay of allowing the appeal. It turns on thethe facts arising in this specific case.[25] That leaves Question 4, which is whether the Tribunal was correct in itsinterpretation of the directors' certificate. Here, Big Basin argues that the directors'certificate provided to StockCo by Big Basin did not permit a single director to bindBig Basin. It submits that, as Ms Menzies was the sole signatory of SA1, she couldnot bind Big Basin and the contract cannot be enforced against Big Basin.[26] I reiterate the view I expressed in the leave decision which is that the directors'certificate would have no business efficacy whatsoever if it simply confirmed the18 The Big Basin Ltd v StockCo Ltd, above n 1, at [37].19 Henkel KGAA v Holdfast New Zealand Ltd [2006] NZSC 102, [2007] 1 NZLR 577.default position that two directors were required to bind the company. The only pointof creating the document would be to confirm that any one of the four Big Basindirectors could bind the company when entering into supplementary agreements.20While I held Big Basin's interpretation was not strongly arguable, I also doubt that itis seriously arguable. More importantly, even if it was seriously arguable, this couldmake no material difference to the outcome given the factual finding made by theTribunal that a second Big Basin director, Mr Bourton, confirmed SA1.21Result[27] I am satisfied that none of the five questions of law being pursued in thisapplication have been shown to raise a question of law which is capable of bona fideand serious argument involving some interest, public or private, of sufficientimportance to outweigh the cost and delay of a further appeal. In making thatjudgment, I also bear in mind the context of the proposed appeal, which is that it relatesto an arbitral award which should, in the normal circumstances, conclude the disputebetween the parties.[28] Accordingly, Big Basin's application for leave to appeal my decision of17 May 2022 declining leave is itself declined.Costs[29] As StockCo has been the successful party, costs on a 2B basis would normallyfollow the event.[30] If the parties cannot agree on costs, then any application for costs must be madewithin 20 working days of the date of this decision.Solicitors:Parry Field Lawyers Ltd T/A Parry Field, ChristchurchMorrison Mallett, Auckland20 The Big Basin Ltd v StockCo Ltd, above n 1, at [48]–[54].21 At [52], citing Interim Award at [258] and [569].