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High Court of New Zealand Decisions |
IN THE HIGH COURT OF NEW ZEALAND
AUCKLAND REGISTRY
CIV 2005-404-6447
BETWEEN BIRMAN KUMAR AND JOY KUMAR
Plaint iffs
AND MF ASTLEY LIMITED
Defendant
Hearing: 18 October 2006
Counsel: M H Benvie for Plaintiffs
A J Steele and S Cox for Defendant
Judgment: 18 December 2006 at 4.00pm
JUDGMENT OF ANDREWS J
In accordance with r540(4) I direct that the Registrar endorse this judgment
with the delivery time of 4.00pm on 18 December 2006.
..............................................
Deputy/Registrar
Counsel: M H Benvie, PO Box 3886, Auckland for Plaintiffs
Solicitors: Parshotam & Co, PO Box 27079, Auckland for Plaintiffs
Solicitors: Martelli McKegg, PO Box 5745, Wellesley
St, Auckland for Defendant
B KUMAR AND J KUMAR V MF ASTLEY LIMITED HC AK CIV 2005-404-6447 18 December 2006
Introduction
[1]
In April 2003 Mr and Mrs Kumar ("the Kumars") and MF Astley Limited
("Ast ley") submitted a dispute between them to arbitration.
Mr R F Gapes was
appointed sole arbitrator. An arbitration hearing was held in May 2004. Mr Gapes
issued an interim award on 12 April
2004 ("the Interim Award") and a final award
on 31 August 2005 ("the Final Award").
[2] In this proceeding the Kumars applied
to set aside the award on the grounds
that it is contrary to the public policy of New Zealand in that, in making the award, a
breach
of the rules of natural justice occurred. They argued that the breach occurred
when the arbitrator made findings of fact that were
not based upon logically
probative evidence. They also argued that the award contained serious and
fundamental errors.
Background
[3] The Kumars own a home in Manurewa. In or about November 2001 they
entered into a contract for additions and alterations
to be carried out by Astley. The
written contract between the parties (which was not in fact signed until some nine
mo nths after
work had commenced) contained an agreement to refer disputes or
differences between them to arbitration under the Arbitration Act
1996.
[4] Building consents had not been issued when construction began. By the time
the required consents were issued, the
original completion date for the work had
passed.
[5] Astley submitted progress payment claims to the Kumars. Approximately
two-thirds of the amount invoiced was paid. Cheques for substantial amounts
presented by the Kumars were dishonoured. Subsequently,
disputes arose between
the parties concerning the Kumars' claims as to defective construction and Astley's
claims in respect of the
non-payment of moneys. Astley claimed that it was
continually held up by changes being made to plans without details of
those changes
being provided. As noted above, the claims and counterclaims were referred to
arbitration.
[6] The arbitrator
made awards in favour of both parties. I was advised by
counsel that the net effect was an award of approximately $150,000 in favour
of
Astley. Both sides were, to some extent, disappointed. The arbitrator also awarded
Astley compound interest at its bank overdraft
rate, multiplied by 1.75.
Setting aside an arbitral award: principles.
[7] As relevant to this proceeding, Article 34(2)(b)(ii)
of the First Schedule to the
Arbitration Act 1996 provides that an arbitral award may be set aside only if the
High Court finds that
the award is in conflict with the public policy of New Zealand.
[8] Article 34(6) provides (again as relevant to this proceeding)
that:
(6) For the avoidance of doubt ... an award is in conflict with the public
policy of New Zealand if ...
(b) A breach of the rules of natural justice occurred - ...
(ii) In connection with the making of the award.
"A breach of the rules of natural justice occurred"
[9] Mr Benvie referred to the finding in Re Erebus Royal Commission: Air
New
Zealand v Mahon [1983] NZLR 662 (PC), at 671, that:
The first rule [of natural justice] is that a person making a finding
in the
exercise of such a jurisdiction must base his decision upon evidence that has
some probative value in the
sense described below. ... What is required by
the first rule is that the decision to make the finding must be based upon
some material that tends logically to show the existence of facts consistent
with the finding and that the reasoning
supportive of the finding, if it be
disclosed, is not logically self-contradictory.
[Emphasis as in original]
[10]
In the present case, Mr Benvie argued, four findings of the arbitrator were
unsupported by any evidence of probative value. There
was, he said, a complete
absence of evidence of probative value.
[11] With respect to a challenge to an arbitrator's award on
the basis that findings
were unsupported by evidence, a Full Court of the High Court held in Downer-Hill
Joint Venture v Government
of Fiji [2005] 1 NZLR 554, at [83] that Re Erebus:
... requires only that a factual finding be based on some logically probative
evidence.
The Court further held, at [105]:
... the burden on the party alleging inadequacy is to establish that there was
no
evidence.
[Emphasis as in original]
[12] The Court also held, at [83], that it is the absence of evidence that may form
the basis of a challenge to an arbitral award, not its assessment by the arbitrator:
Provided there is such evidence, its
assessment is entirely the province of the
arbitrator: art 19(2) in the First Schedule to the Act; Sextant Holdings Ltd v
New Zealand Railways Corporation (1992) 2 NZ ConvC 191,318.
[13] Finally, it is relevant to note the comment of Randerson J in Downer Connect
v Pot Hole People HC CHCH CIV-2003-409-2878,
at [111], that even if a breach of
natural justice has been established:
... it is necessary for the applicant to demonstrate
that evidence could have
been led or submissions could have been made which could have persuaded
the arbitrator to
a different conclusion.
[14] The arbitrator has the power to determine the admissibility, relevance,
materialit y and weight of
any evidence (Article 19(2), First Schedule). Furthermore,
Art icle 3(1)(b) of the Second Schedule provides that for the purposes
of Article 19 of
the First Schedule, and unless the parties agree otherwise, the arbitrator's powers
include the power to draw on
his own knowledge and expertise.
"The award is in conflict with the public policy of New Zealand"
[15] The "breach of the rules
of natural justice" must be such that the award is "in
conflict with the public policy of New Zealand". The Court of Appeal considered
the interpretation of "in conflict with public policy" in its judgment in Amaltal
Corporation Ltd v Maruha (NZ) Corporation Ltd
[2004] 2 NZLR 614. At [46],
having reviewed decisions from a number of jurisdictions, the Court noted:
Another way in which the matter has been
expressed has been to say that the
enforcement of an award will be contrary to public policy where the integrity
of
the Court's processes and powers will thereby be abused. ... An award
whose confirmation can be seen to damage the integrity
of the Court system
will not be enforced.
[16] In Downer-Hill, at [76], the Court referred to the Court of Appeal's judgment
in Amaltal and observed that it:
... indicates that the words "public policy" require that some fundamental
principle
of law and justice be engaged. There must be some element of
illega lity, or enforcement of the award must involve clear injury
to the public
good or abuse of the integrity of the Court's processes and powers.
[17] Mr Benvie acknowledged that the
plaintiffs face an extremely difficult task
when seeking to have an arbitral award set aside. He urged that I bear in mind the
comments
of Fisher J in Methanex Motunui Ltd v Spellman [2004] 1 NZLR 95. In
his judgment, Fisher J noted at [40] the development of a judicial policy of
non-interference with arbitral decisions where the
parties intended them to be final.
However, at [44] Fisher J cautioned that in such a climate it would be easy to
overlook an important
consideration, which is that Parliament clearly intended, in
passing the Arbitration Act 1996, that each party would enjoy, and where
necessary
be able to enforce, a minimum standard of procedural protection.
[18] I turn now to the arbitrator's findings that
were, Mr Benvie submitted,
unsupported by any evidence of probative value.
"Contract Extended Period Preliminary & General Costs"
[19] The Arbitrator awarded Astley $23,520 under this heading. His discussion of
the claim is at [47](a)-(j) of the Final Award.
[20] In coming to that conclusion the Arbitrator referred to a calculation put
forward in evidence given by Mr K McKee, Director
of Astley. Mr McKee arrived
at the claim of $23,520 by reference to the original "preliminaries" figure. This had
been set out
in the "Proposed Additions and Alterations Summary", sent by Astley
to the Kumars under cover of a letter dated 2 November 2001.
Mr McKee then
discounted that figure for one-off costs, and determined a value per week by dividing
the resultant sum by the expected
construction period of 15 weeks. That figure
($840 per week) was multiplied by 28, being the delay in construction for which the
Kumars were held responsible.
[21] Mr Benvie argued that Mr McKee's calculation was not "probative
evidence". It was a theoretical
calculation whereas, by the time of the arbitration,
the actual loss attributable to the delay must have been known. He criticised
the
arbitrator's "easy adoption" of Mr McKee's "theoretical formula", rather than
requiring invoices and other corroborative and
contemporaneous documentary
evidence to be produced.
[22] In finding in favour of Astley, the arbitrator referred to relevant
portions of
the written contract, and customary practice in the industry, then referred to Mr
Benvie's submissions on behalf of the
Kumars. Having concluded that the building
programme was significantly delayed due to causes not under Astley's control, and
setting
out Mr McKee's calculation, the arbitrator stated that he preferred the
evidence of Mr McKee to the Kumars' submissions.
[23]
It cannot in my view be said that Mr McKee's evidence was not "evidence
that has some probative value" (see Re Erebus at 671).
Nor can it be said, as Mr
Benvie submitted, that the arbitrator did not have before him a "shred of probative
evidence". He had Mr
McKee's evidence as to his calculation of the loss caused by
the delay. What weight was to be given to it (that is, the extent of
the "probative
value" of the evidence) was a matter to be assessed by the arbitrator (Downer-Hill at
[83]).
[24] Further, I
am not satisfied that the outcome would have been different, had
the evidence of "actual loss" Mr Benvie referred to been before
the arbitrator (see
Downer Connect at [111]). The issue of the delay in construction was squarely
before the arbitrator, as was Mr
McKee's calculation of Astley's loss. He had
submissions on behalf of the Kumars. He clearly rejected those submissions
in
favour of Mr McKee's evidence.
"Additional Labour Costs Due to Impeded Work"
[25] The arbitrator awarded Astley $33,705
under this heading. His discussion of
the claim is at [48](a)-(c) of the Final Award. I note that the arbitrator referred in the
Final Award to a claim, and award, of $31,500. This was corrected to $33,705 in the
arbitrator's "Awards Correction" issued on 26
September 2005. Like the "P&G"
award, this award was made on the basis of a calculation submitted in evidence by
Mr McKee.
[26]
It is evident from Mr McKee's calculation that he started from the original
labour component in the contract, of a four-man team
for the estimated 15 weeks of
the contract, each charged for 45 hours per week at $25 per hour. His evidence was
that during the period of delay Astley "maintained a workforce to try and progress
the dwelling". He calculated the additional cost on the basis of one man, for the 28
weeks delay. That, together with Asley's margin
of 7%, resulted in the claim for
$33,705.
[27] The arbitrator found (at [23] of the Interim Award) that Astley "did incline to
do as much as (if not more than) was formally permitted in the absence of [necessary
consents], apparently in order to keep the job
moving". At [48](b) of the Final
Award he referred to Astley's claim for disruption to the workforce caused by the
delay and found
"the evidence and views of Mr McKee sufficiently compelling".
They appeared "entirely fair from my own experience of the effects
of disrupted
work" and were to be preferred to those put forward by the Kumars.
[28] Mr Benvie submitted that the arbitrator
should not have made the award on
the basis of a theoretical calculation, and in the absence of evidence of the actual
labour costs.
Further, Mr Benvie submitted that the arbitrator had before him
evidence, given by Mr McKee, that Astley's site foreman had falsified
time records
for the job, and had left the site unsupervised. There was also evidence before the
arbitrator, given by the Kumars,
that work had progressed very slowly even when
Astley's workmen were in attendance.
[29] Any "right-thinking" person would,
Mr Benvie submitted, view the
arbitrator's "perverse" finding as offending the principles of natural justice
sufficient ly to be
contrary to the public policy of New Zealand.
[30] Mr Benvie's submission must be answered in the same way as that in relation
to the "P&G" claim. The arbitrator had before him Mr McKee's evidence of his
calculat ion of the labour costs resulting from the
delay. The basis of the calculation
was clear on its face. What he made of it, and what probative weight he found it to
have, was
a matter for the arbitrator to assess. He was entitled to draw on his own
experience and expertise in deciding that the claim was
fair.
[31] Again, I am not satisfied that the outcome would have been different, had the
arbitrator had before him the evidence
of "actual labour costs" referred to by Mr
Benvie.
The Kumars' claim for general damages
[32] At [27] of the Interim Award
the arbitrator considered the Kumars' claim that
decks around the house had been defectively constructed. He awarded the Kumars
$76,070
for remedial work in that respect. He also found other matters of defective
construction, in respect of which he awarded the Kumars
a total $16,050 (Final
Award [51]).
[33] The Kumars had claimed $20,000 for general damages. The arbitrator made
no award for
general damages. His reasons are set out in the Final Award at [49]. In
doing so he noted the general principle that damages are
intended to restore an
innocent party to the position it would have been in, had the other party performed
its obligations.
[34]
With respect to the decks, the arbitrator noted at [49](c) of the Final Award
that construction problems were inevitable given
the "rather impractical details" in
the drawings provided by the Kumars. He then found that Astley had failed to refer
the drawings
back to the Kumars for new directions. That failure was the prime
reason for the arbitrator not finding the faulty construction to
be solely the Kumars'
responsibilit y which would have led to his making no award in their favour.
[35] The arbitrator then
noted that it was conceivable that, had there been a full re-
design, the construction problems might not have arisen, but there
would most likely
have been additional delay, cost increases, and additional design costs. Having
awarded a reinstatement amount,
and considering all the circumstances, he did not
find it appropriate to award the Kumars an additional amount for general damages
in
respect of the decks (Final Award [49](c)(iii)).
[36] Turning to the question of the claim for $20,000 for general damages, the
arbitrator noted his findings that the Kumars were "significantly
responsible" for "so
many key difficulties experienced throughout the saga of the construction". He
found, therefore, that the Kumars
were not "an innocent party" in the context of the
general principle as to damages. Further, he found that the monetary awards for
the
individual items "restored the parties to appropriate positions insofar as is practicable
now". He accepted Astley's submission
that the Kumars had "created their own
`distress and upset'" (Final Award [49](d)).
[37] Mr Benvie submitted that none of the
"defective construction" issues would
have arisen had Astley met its obligation to construct in accordance with good trade
practice.
He referred to evidence given by each of Mr and Mrs Kumar of the stress,
distress, and inconvenience suffered. He submitted that
in light of that evidence, and
the arbitrator's finding that there had been defective construction by Astley, his
finding that the
Kumars' were not entitled to general damages cannot have been
based on the evidence before him. Alternatively, he submitted that
the finding was
manifest ly unreasonable given the weight of the evidence.
[38] An award of general damages is an exercise of
discretion. It necessarily
invo lves an assessment of the witnesses. As the Court of Appeal noted in Stieller v
Porirua City Council
[1986] 1 NZLR 84, at 97, it is best left to the Judge at trial, and
is not to be lightly interfered with.
[39] In the matter of the decks, the
arbitrator found that the Kumars were
responsible for the defective design. He found that that factor made it inappropriate
to order
general damages in addition to the reinstatement sum. He was entitled to
find, as he did, that they bore some responsibility for
the position they were in and
were not, therefore, "innocent parties".
[40] Again, in relation to the claim for $20,000 general
damages, having found the
Kumars not to be "innocent parties", the arbitrator was entitled to exercise his
discretion against awarding
general damages.
[41] In the circumstances, there are no grounds for this court to interfere with the
exercise of the arbitrator's
discretion.
Interest awarded to Astley
[42] The Kumars were late in making payments. At [35] of the Interim Award the
arbitrator
awarded Astley $11,897.39 for interest on outstanding sums due prior to
10 February 2003. In doing so he referred to a schedule prepared
by Mr McKee,
which set out Astley's Payment Claims, and interest owing up to the date of
payment. All interest was claimed at 9.45%
multiplied by 1.75.
[43] Further, at [35] of the Interim Award, the arbitrator awarded Astley $53,375
for interest for the period
from 11 February 2003 to 10 April 2005. Again this was
by reference to a calculation prepared by Mr McKee, claiming interest of $50,818.13
for the period to 30 April 2004. This was on the sum of $229,372.22 outstanding at
10 February 2003. The calculation was apparently
provided to the arbitrator in an
email of 2 May 2004. It was not in evidence before me. However, Appendix C to
the Interim Award
contains the arbitrator's calculation of interest. The arbitrator
recalculated interest due to Astley on the basis that the Kumars
had succeeded in
about half of its counterclaims. He calculated interest on the sum of $125,000. He
also adjusted interest to extend
the period to 10 April 2005. The calculation is at
9.75% multiplied by 1.75, and interest appears to be compounded.
[44] Further,
at [36] of the Interim Award he awarded interest at 9.45% x 1.75 on
any sum unpaid after 30 April 2005. His award at [36] included
the following:
Inasmuch as the contract has a clear provision for interest on late amounts,
then any amount or portion
outstanding after [30 April 2005] shall bear
interest at the contract rate (9.45% x 1.75, calculated monthly on each month
end balance), to be calculated from the date of this award.
[45] Appendix C to the Final Award contains the arbitrator's
calculation of
interest for the period from 10 February 2003 to 26 September 2005, thus spanning
the second and third periods referred
to above. This calculation is on the same basis
as Appendix C to the Interim Award.
[46] At [50] of the Final Award the arbitrator
set out his reasons for awarding
compound interest. At [50](b) he referred to clause 9.03 of the General Conditions
of the "eventual
written contract" between the parties, which provided that if
payment was not made within ten days after the issue of a Certificate
of Payment,
interest was payable:
... at the Contractor's current non-penalty trading Bank overdraft interest
rate
... multiplied by 1.75, the accruing interest to be paid with the certified
amount.
[47] At [50](d) he stated:
That it is also common knowledge that banks' "overdraft rate" is taken under
a compound interest methodology.
[48] At [50](F)
and (g) he concluded that, as the contract did not specify simple
interest, compound interest was the "correct methodology".
[49]
Mr Benvie criticised the arbitrator's "blind" adoption of Mr McKee's
claimed interest rate, without requiring any corroborative
evidence from the bank.
Further, he criticised the arbitrator's reliance on "common knowledge" that banks'
overdraft rates are on
a compound basis. He said this could lead to the arbitrator's
awarding any interest claimed, regardless of what the actual bank's rate was. He did
not
suggest what evidence could have been led, which would have led to the
arbitrator concluding that a different rate applied, or that
it was not the practice of
banks to charge interest on a compounding basis.
[50] Again, it cannot be said that there was no evidence
before the arbitrator as to
Astley's bank overdraft interest rate. There was evidence from Mr McKee as to the
applicable bank overdraft
interest rate, in that that was the basis of his calculations.
On behalf of Astley, Mr Steele submitted that Mr McKee's calculations
were
available to the Kumars and were unchallenged during the course of the arbitration.
As with evidence in respect of other claims,
it was for the arbitrator to assess Mr
McKee's evidence, and to decide whether he was satisfied as to the point. The
arbitrator was
entitled, Mr Steele submitted, to draw on his own knowledge and
experience as to banks' practice as to charging interest.
[51]
I am not satisfied that the arbitrator was wrong to refer to "common
knowledge" that banks charge compound interest on overdrafts.
It was a fact well
within his experience as a Principal in a professional consulting practice, and his
experience as a consultant
in contract facilitation and dispute resolution. Further, I
am not satisfied that the outcome would have been any different, had
he had before
him the evidence Mr Benvie referred to.
Is there a breach of natural justice? Conclusion
[52] On each of the
matters referred to by Mr Benvie on behalf of the Kumars the
arbitrator reached his determination on the basis of evidence from Mr
McKee, or in
the application of his own knowledge and expertise. Re Erebus requires only that a
factual finding be based on some
logically probative evidence.
[53] In this case, the Kumars carried the burden of establishing that there was no
evidence for
the impugned findings (Downer-Hill), and of establishing that the
outcome would have been different, had that evidence been available
(Downer
Connect). In my judgment, the arbitrator had before him evidence on which those
findings could logically be based. As noted
earlier, the assessment of that evidence
was entirely the province of the arbitrator. In that assessment he was entitled to rely
on his own expertise. I am not satisfied that the outcome would have been different
had he had before him the further evidence Mr
Benvie referred to.
[54] Accordingly, I am not satisfied that there has been a breach of the rules of
natural justice.
Is
the award in breach of the public policy of New Zealand?
[55] Even if there were a breach of the rules of natural justice,
that breach must be
such that the award is "in conflict with the public policy of New Zealand". This
requires that "confirmation
of the award would damage the integrity of the Court
system" (Amaltal). There must be some "fundamental principle of law and justice"
engaged, and there must be "some element of illegality" (Downer-Hill), or
enforcement of the award "must involve clear injury to
the public good or abuse of
the integrity of the Court's processes and powers" (Downer-Hill).
[56] In my judgment, in this
case, even if I had been persuaded that there had been
a breach of the rules of natural justice, such breach would not have been
in conflict
with the public policy of New Zealand.
Decision
[57] I conclude that there is no basis for setting aside the
arbitrator's award, or any
part of it. The Kumars' claim fails.
[58] Astley are entitled to costs. I note that costs were fixed
as "category 2"
(Minute of Associate Judge Faire, 24 January 2006). I award costs to Astley on a 2B
basis.
_____________________________
Andrews J
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