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High Court of New Zealand Decisions |
IN THE HIGH COURT OF NEW ZEALAND
WELLINGTON REGISTRY
CIV-2008-485-026
UNDER the Arbitration Act 1996
BETWEEN SHADY EXPRESS LIMITED
Applicant
AND SOUTH STAR FREIGHTLINER
LIMITED
Respondent
CIV-2008-485-281
UNDER the Arbitration Act 1996
IN
THE MATTER OF an application for enforcement of an award
as a judgment
BETWEEN SOUTH STAR FREIGHTLINERS
LIMITED
Applicant
AND SHADY EXPRESS LIMITED
Respondent
Hearing: 3 March 2008
Counsel: E Cox and C Dunne for Shady Express Ltd
B Hunt for South
Star Freightliner Ltd
Judgment: 14 March 2008
JUDGMENT OF DOBSON J
[1] This dispute relates
to some $18,800 in repair costs charged by the
respondent in the first proceeding ("South Star") for effecting repairs to a truck
operated by the applicant in the first proceeding ("Shady Express").
SHADY EXPRESS LIMITED V SOUTH STAR FREIGHTLINER LIMITED HC
WN CIV-2008-485-026 14
March 2008
[2] On 22 December 2003, Ms Nicky Simpson, driver of Shady Express' truck,
noticed water apparently
leaking from the front of its engine at various points of a
journey from Wellington to Christchurch. The truck was taken to South
Star in
Christchurch which took some time to effect repairs, having been unable to identify
the source of any water leak from the
engine without partially dismantling it. On the
day the truck was uplifted after the engine repairs, a water leak resumed, and on
this
occasion it was promptly diagnosed as a fault with the air-conditioning unit, entirely
unrelated to the engine. Apparently
water lost from the air-conditioning unit
channelled out through the radiator overflow hose, giving the impression of a leak
from
the engine.
[3] Shady Express refused to pay for the repairs that had been effected.
South Star sued in the Lower Hutt District
Court for $18,785.49, plus interest and
costs. Shady Express denied liability and counterclaimed for misdiagnosis of the
fault and
for some $11,700 as loss of profits claimed to have been suffered in the
period in which the vehicle was needlessly off the road.
[4] The parties then agreed to refer the dispute to arbitration, and appointed
Mr G L Hargreaves, a claims assessor and loss
adjuster in Christchurch, for that
purpose. I was advised that the parties did not provide any list of issues for the
arbitrator.
Rather, they provided him with the pleadings from the District Court
proceedings, treating those as the source from which the arbitrator
should discern
what the issues were.
[5] As far as evidence of Shady Express' complaints were concerned, the
arbitrator was
also given a colourfully worded eight page (single spaced)
chronology, prepared by Ms Simpson setting out her concerns over the truck,
her
dealings with South Star about it, and the revelation, on the day she eventually
picked the vehicle up, of the unrelated source
of a leak from the air-conditioning
unit. I was invited to infer from this narrative that the conduct of the employee of
South Star
who eventually identified a leak from the air-conditioning unit, did so in
terms implicitly acknowledging that South Star ought to
have discovered that source
of the leak at the very outset.
[6] The arbitrator's award, dated 25 August 2007, began (the following
text
accurately reproducing how it was expressed):
INQUIRES:
(1) AIR CONDITIONING: While the repairs to the engine were being
carried out it was
found that there was a small problem with one of
the sensors, and this sensor was replaced, this fault sensor caused
the
air conditioning to loose water, and it was thought that this was the
cause of the engine loosing
water.
I was advised that the air condition had not been working properly
for some time.
This air conditioning problem is TOTLY UNRELATED to the
engine loosing water; therefore I shall NOT refer to
it again in this
report.
[7] The rest of the award analysed the checks that were undertaken on the
engine, and
the repairs then effected. It found that the work had been carried out
competently, and that the charges were reasonable.
[8]
With the benefit of hindsight, it is now easy to predict that the terms of the
award could have been quite different if it had
been determined by a panel including
a legally qualified arbitrator. Also if there had been argument focusing on whether it
was negligent
of the repairer not to identify the source of the leak as unrelated to the
engine, and competing positions were argued on the respective
levels of
responsibility for that misdiagnosis. A range of outcomes would be possible from
the decision reached that the repairer
was not responsible for the failure to diagnose
an unrelated leak at the outset in any way that compromised its entitlement to be
paid, to a finding of shared responsibility for that, or even that it was solely the fault
of the repairer. Once any significant
liability for misdiagnosis was attributed to
South Star on terms disentitling it to payment for repairs which were themselves
found
to be competently carried out, then issues of betterment to the engine might
also arise. The modest amount involved means this dispute
is not too far above the
Disputes Tribunal's extended consensual jurisdiction. In that forum, one can
imagine the prospect
of something akin to "equity and good conscience" influencing
the outcome.
[9] However, this is very far removed from an appeal
by way of rehearing, and
what might have occurred in a different arbitral forum can have very little bearing on
the confined jurisdiction
which the Court has in respect of arbitrations. The parties
have pursued a consensual opting-out of the Court system and, except
in narrowly
defined circumstances, the Court recognises the finality of the parties' decision to do
so.
[10] Shady Express did
seek leave to set aside the award. This was pursued out of
time, a point taken against the application on behalf of South Star. For
its part,
South Star made application to enter the award as a judgment.
[11] When the matter was called, Mr Cox for Shady Express
sought leave to
expand the terms of its application to include an application that the award not be
recognised. That amendment was
not opposed and, in reliance on it, Mr Cox
accepted that there was no scope to extend time for the application for leave to set
the
award aside. Accordingly, the argument focused on Article 36 of the First
Schedule to the Arbitration Act 1996 ("the Act"), as affording
grounds for refusing
recognition or enforcement of the award.
[12] Mr Cox indicated reliance first on Article 36(1)(a)(iv) which
relevantly
provides:
36. Grounds for refusing recognition or enforcement
(1) Recognition or enforcement
of an arbitral award, irrespective of the
country in which it was made, may be refused only
(a) At the request
of the party against whom it is invoked, if that party
furnishes to the court where recognition or enforcement is
sought
proof that
...
(iv) The composition of the arbitral tribunal or the arbitral
procedure was not in accordance with the agreement of the
parties or, failing such agreement, was not in accordance
with the law of the country where the arbitration took place;
or
[13] It was argued
that New Zealand law (namely Article 31(2) of the First
Schedule to the Act) required the provision of reasons unless the parties
had agreed
to waive that requirement. There had been no waiver here, and the award was
contrary to law because there were no reasons
given for a critical aspect of the
award, namely that there was no relevant mistake in South Star's failure to find the
cause of
the water leak at the outset.
[14] The argument also invoked Article 36(1)(b)(ii) which relevantly provides that
recognition
or enforcement may be refused:
(b) If the court finds that
...
(ii) The recognition
or enforcement of the award would be
contrary to the public policy of New Zealand.
[15] That provision
is to be considered in light of subs (3)(b) which further
provides:
(3) For the avoidance of doubt, and without limiting
the generality of
paragraph (1)(b)(ii), it is hereby declared that an award is contrary to the
public policy of New
Zealand if
...
(b) A breach of the rules of natural justice occurred
(i) During the arbitral
proceedings; or
(ii) In connection with the making of the award.
[16] As to an alleged absence or inadequacy
of reasons, the content of the dispute,
the way it was presented to the arbitrator and qualifications of the arbitrator will all
affect the reasonable expectation on the extent of reasons to be provided. The
complaint here is that the arbitrator "missed the
point", and has not made a
determination on the complaint that South Star failed to correctly identify the
original source of the
leak, with the consequence that they proceeded to recommend,
and get authority from Shady Express to carry out, repairs that were
not necessary.
[17] The response is that the opening finding in the award, quoted in [6] above,
does recognise the "unrelatedness"
of the leak from the air-conditioning unit.
Having put the issue to one side, the award then proceeds to consider the
reasonableness
of the sequence in which steps were taken to find a leak in the
engine. The arbitrator found:
Inside the engine there
were marks relating to water entering the combustion
chamber; so it was decided to send the heads to Transport Repairs
&
Servicing 2002 Ltd (T R S) as they have the special Cummins tools required
to service Cummins cylinder heads.
T R S found there were damaged
injector tubes and seals, and this were (sic) the water leak was, and this
water
leak could vary depending on temperature.
[18] The award then acknowledges other indications of slight water damage to the
engine.
[19] This reasoning is only consistent with a view that there were grounds for
seeking a water leak in the engine,
and that there was damage to parts of the engine
consistent with it having occurred. Within the confines of this arbitration, where
matters were informally referred to a technical expert, without a defined set of issues
and without there having been any hearing,
or even an exchange of submissions
prepared by the respective lawyers, I am not prepared to find that there is an absence
of reasons
on a material point, such as would render the award other than in
accordance with the requirements under New Zealand law. The finding
that the air-
conditioning leak was "totally unrelated", means it did not have a bearing on the
sequence in which investigative steps
were undertaken to identify and then repair an
engine leak.
[20] The second argument is that the finding that the work charged
for was
reasonable was either a finding so contrary to the evidence and, or in the alternative,
a finding so entirely unsupported by any evidence, that it was made in breach of the
rules
of natural justice.
[21] "Rules of natural justice" is a concept borrowed in the Schedule to the Act
from administrative law
where it connotes a fluctuating expectation as to procedural
fairness obligations imposed on those exercising powers, in their dealings
with
persons affected by them. In administrative law, as Lord Steyn has observed,
"context is everything" (R (Daly) v Secretary
of State for the Home Department
[2001] UKHL 26; [2001] 2 AC 532, [28].
[22] So too, when requirements of "natural justice" are imported into the conduct
of arbitrations. For instance, one of
the authorities cited for Shady Express was
Downer-Hill Joint Venture v Government of Fiji [2005] 1 NZLR 554. That related
to an arbitration over a claim to additional payments of FJD22,000,000 for
completion of a roading contract. The arbitral
tribunal comprised Sir Ian Barker QC,
a former member of this Court and at the time of the arbitration a Judge of the Fijian
Court
of Appeal, together with a senior New Zealand engineer and an English QC.
[23] Mr Cox was inclined to accept that the expectations
of the arbitrator in the
present case must be vastly different from what was reasonably expected in that far
more complex and structured
arbitration before a panel including two expert lawyers
and a technical expert.
[24] I fully understand the frustration felt
by Shady Express at the arbitrator not
dealing more prominently with the complaint that South Star negligently failed to
identify
the unrelated leak in the air-conditioning unit. On its view that should have
led to an appreciation that it was the innocuous cause
of Ms Simpson's concerns, so
that arguably nothing further was required. That frustration must be caused in
significant measure by
the reality that the arbitrator did not agree with this point
that work to identify an engine leak was warranted, damage consistent
with an
engine leak was found, and on the arbitrator's view, such damage was competently
repaired.
[25] Other aspects of the
criticisms raised against the repairer related to the
decisions made on whether to repair or replace certain parts, and competing
opinions
on those technical aspects were put to the arbitrator. Given the technical nature of
the expertise which is inferentially
why he was appointed, it is understandable that
the award went on to focus on those.
[26] Any challenge on a claimed breach of
natural justice needs to surmount a
high hurdle. As the Full Court observed in Downer:
[84] Even assuming that Downer
could establish a breach of the Erebus
ground of natural justice, the "public policy" requirement in art 34 imposes a
high threshold on Downer. The phrases "compelling reasons" and "a very
strong case" are employed in the judgments of the
Hong Kong Court of
Appeal in Hebei Import and Export Corporation v Polytek Engineering Co
Ltd [1999] 2 HKC 205 at pp 211 and 215. Hebei involved an application to
set aside a foreign award. To warrant interference there must be the
likelihood that the identified procedural irregularity resulted in a "substantial
miscarriage of justice": Honeybun
v Harris [1995] 1 NZLR 64 at p 76. That
entails the impugned finding being fundamental to the reasoning or outcome
of the award. The Court of
Appeal suggested in Amaltal (at para [47]) that
the arbitrator's findings of fact should not be reopened unless it was
"obvious" that what had occurred was contrary to public policy.
[27] Shady Express cannot elevate this criticism of absence
of evidence for
findings into a breach of natural justice. The outcome is within the range of options
reasonably open to the arbitrator,
and his findings do not go beyond what might be
expected on the material before him.
[28] Whilst Shady Express criticises the
arbitrator for "going past" the primary
point that South Star negligently failed to consider a leak other than in the engine,
there
is another view that was open to the arbitrator, and he took it. Accordingly, the
grounds for refusing to recognise the award are
not made out.
South Star application to have the award entered as a judgment
[29] Mr Cox accepted that if his arguments fail,
then there was nothing more that
could be argued in opposition to this application.
[30] Ms Hunt sought interest, at Judicature
Act 1908 rates, from the date of the
award, 25 August 2007. Mr Cox was inclined to accept that if South Star was
entitled to enter
the award as a judgment, then an entitlement to interest would
follow. However, whilst the Court's ability to decline to enter the
award as a
judgment is specifically confined, steps post entry are within the Court's own
jurisdiction, and there is a broad discretion.
Shady Express can validly consider that
they were let down by the quality of the arbitral output, and an attempt to challenge
it
in the Court is understandable. In the particular circumstances involved, I consider
that interest should only run from the date
of entry of the award as a judgment. To
afford an opportunity for the liability to be settled without entry of a judgment, that
step
is to be delayed for a period of 14 days from delivery of this judgment.
[31] I accordingly grant the application for entry
of the award as a judgment
which is not to be effected for 14 days. I direct that South Star is entitled to interest
on the terms
described in the preceding paragraph.
Costs
[32] Mr Cox urged that if his arguments were unsuccessful, then the Court ought
not to order costs against Shady Express because this was a bitter experience where
the system had let his client down, and it was
a small, struggling business where the
loss it has suffered ought not to be further compounded. To heap more costs on
Ms Simpson's
company would not reflect justice.
[33] However, both parties have contributed to this modest dispute being seriously
overworked.
The position of the repairer was vindicated by the technical expert
appointed, and little weight can be given to the notion that
the Court or indeed any
lawyer would probably approach the issues differently from the manner in which
they were addressed in
the award.
[34] Although jurisdiction to challenge, and all aspects of enforcement of arbitral
awards are reserved solely to
this Court, here the substantive dispute was near the
bottom of the District Court's jurisdiction. The exceptionally low value of
the
interests at stake is one of the matters warranting a reduced award of costs in terms
of r 48D(b). Others of the criteria on
reduced costs in that rule could also apply here.
I consider the appropriate course is to classify the proceedings as category 1A,
and
allow South Star costs only on its own originating application to enter the award as a
judgment. South Star is, however, also
entitled to all reasonable disbursements
incurred in both sets of proceedings.
_________________
Dobson J
Solicitors:
Gibson Sheat, Lower Hutt for Shady Express Ltd
Macky Roberton, Auckland for South Star Freightliner Ltd
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