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High Court of New Zealand Decisions |
Last Updated: 8 February 2023
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IN THE HIGH COURT OF NEW ZEALAND CHRISTCHURCH REGISTRY
I TE KŌTI MATUA O AOTEAROA ŌTAUTAHI ROHE
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CIV-2022-409-285
[2022] NZHC 3452 |
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BETWEEN
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MULTIMEDIA COMMUNICATIONS LIMITED
Applicant
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AND
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ENABLE SERVICES LIMITED
Respondent
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Hearing:
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3 October 2022
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Counsel:
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R M N Marsich for Applicant
H R Smith and S N O Hider for Respondent
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Judgment:
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15 December 2022
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JUDGMENT OF EATON J
This judgment was delivered by me on 15 December 2022 at 2.30 pm pursuant to Rule 11.5 of the High Court Rules
Registrar/Deputy Registrar Date:
MULTIMEDIA COMMUNICATIONS LTD v ENABLE SERVICES LTD [2022] NZHC 3452 [15 December 2022]
Introduction
[1] The applicant, MultiMedia Communications Ltd (MMC), seeks leave to appeal an arbitral award determined by Peter Whiteside KC on 4 July 2022. The respondent, Enable Services Ltd (ESL), opposes the application.
Background
[2] The central dispute between the parties is the interpretation of cls 15.1 and 15.5 of the Ultra-Fast Broadband Connection and Deployment Services Agreement (UFB Agreement) dated 21 December 2012. These clauses relate to the relevant sources of liability and the maximum liability of ESL, as follows:
15. 1 Maximum liability of ESL
Subject to clause 15.4, in addition to its obligation to pay the Charges, the maximum aggregate liability of ESL to the Subcontractor under or in connection with this Agreement will be, in respect of all claims, proceedings, actions, liabilities, damages, costs, expenses or losses, $500,000.
...
15.5 Source of liability
The limitations and exclusions of liability in this clause 15 will apply however liability arises, whether in contract (including indemnities), equity, tort (including negligence), breach of statutory duty or otherwise.
[3] Also of relevance is cl 15.4, which sets out situations in which the limitations and exclusion of liability do not apply:
15.4 Exclusions
The limitations and exclusions of liability described in clauses 15.1 to 15.3 will not apply to or limit the liability of the Subcontractor or ESL for:
(a) any personal injury or death;
(b) any fraudulent, malicious or criminal act or omission; and
(c) breach of confidentiality under 13.1(a) (or any other confidentiality provisions under this Agreement) or a breach of clause 12.
[4] Pursuant to the UFB Agreement, ESL engaged MMC to deliver deployment and connection services to it—being those services required from time to time on request by ESL. Deployment services relate to the building of the network and the connection service work relates to the customers’ ability to connect to the network.
[5] On 29 October 2020, ESL gave MMC notice of non-renewal of the UFB Agreement because it was not satisfied with MMC’s performance. MMC challenged the notice and sought an interim injunction to prevent ESL from acting on the notice of non-renewal, pending determination of the substantive dispute.
[6] MMC’s interim injunction application was dismissed on 19 March 2021. In a decision dismissing the application, Mander J observed that MMC submitted that the “limitation on liability [in cl 15] is a further reason why damages should not automatically be viewed as overriding the right to secure specific performance”.1
[7] On 14 April 2021, MMC sought leave to appeal the injunction decision (an application it later withdrew). In its application for leave to appeal, MMC submitted:
The Judge was wrong at paragraph [76] in his determination “[the applicant] has [not] demonstrated why damages cannot provide a suitable remedy” when clause 15 of the Agreement severely limited the ability to claim damages based on any cause and the Judge failed to properly recognise those express limitations. As a result damages were not an adequate alternative remedy to the injunction.
[8] MMC did not accept the grounds of non-renewal based on alleged poor performance and notified ESL that it disputed the notice of non-renewal. This triggered a mandatory dispute resolution process under the UFB Agreement in which the parties were to engage in a period of good faith negotiations and, if those negotiations were not successful, refer the matter to an Arbitrator for determination of the issues. The good faith negotiations did not result in a resolution.
[9] On 23 December 2020, MMC issued an arbitration notice. An arbitration agreement was signed on 12 May 2021.
1 MultiMedia Communications Ltd v Enable Services Ltd [2021] NZHC 568 at [75].
[10] MMC filed a statement of claim on 4 June 2021. Relevant to this leave application is the third amended statement of claim dated 10 April 2022 pleading three distinct causes of action. Only the second is relevant here. It alleges a breach of the Fair Trading Act 1986 (FTA). MMC pleads that ESL represented to MMC the intention to allocate a consistent and new larger volume of work to MMC because of a significant increase in demand for fibre connections. More particularly, it is alleged ESL represented there being 60 connections needed per day.
[11] MMC’s position regarding the cl 15 limitation of liability, as evidenced in the injunction proceedings, shifted prior to the arbitration. By an amendment to the arbitration agreement, dated 14 July 2021, the parties agreed to a preliminary hearing on the interpretation of cl 15.1 (the maximum liability of ESL). A central issue for determination was whether the second cause of action was capped at $500,000.
[12] MMC pleads that in reliance on both written and oral representations regarding the represented capacity requirement of 60 connections per day, it employed additional staff in order to carry out the extra connection work, purchased vehicles, bought plant and equipment, and installed relevant IT systems. MMC alleges that from July 2018 ESL arbitrarily, and without any prior warning, ceased allocating to MMC 60 connections per day.
[13] The alleged misleading representations are said to contravene ss 9 and 13 of the FTA. Lost financial profit calculated per connection is alleged to be $7.8 million for the 2019 and 2020 financial years.
[14] The award on the preliminary questions was dated 4 July 2022. The Arbitrator determined MMC’s FTA claim was not excluded by the UFB Agreement. It was determined, however, that the FTA claim was limited by cl 15.1 to $500,000. The formal findings, including reference to the agreed questions for determination, were:
(a) With respect to the interpretation of Clause 15.1, is the Applicant’s claim as pleaded and at law:
(i) A claim for Charges, as defined in the UFB Agreement; or
Answer: No
(ii) A claim that is captured by Clause 15.1 and limited to
$500,000; or
Answer: No for the first cause of action and yes for the second and third causes of action.
(iii) A claim that is unlimited (in terms of clause 15.1)?
Answer: Yes for the first cause of action and no for the second and third causes of action.
(b) By virtue of Clause 15.5, does the Clause 15.1 limitation (if any) apply to liability under the Fair Trading Act 1986?
Answer: Yes.
(c) Does the Agreement and its subsequent Deeds of Amendment, by way of clause 2.4(b), clause 15.5 and/or clause 22.8 have the legal effect of “contracting out”/precluding the Respondent from incurring liability under the Fair Trading Act 1986 for the Applicant’s claim as pleaded?
Answer: No.
Questions of law
[15] Leave to appeal is sought in relation to two questions of law said to arise in relation to the award on the preliminary questions, as follows:
(a) Was the Arbitrator wrong to find MMC’s second cause of action, founded on representations which contravene ss 9 and 13 of the FTA, are “breaches of statutory duty” and as a result the quantum of claims under the cause are limited by cl 15.1 to $500,000?
(b) Given the Arbitrator had found “very clear words” were required in order to specifically exclude liability for FTA claims post Agreement, are those same “very clear words” identifying FTA liability required in order to limit the quantum of FTA claims, and as a result the Applicant’s second cause of action is not “captured” by clause 15.1, contrary to the Arbitrator’s determination?
[16] If granted leave to appeal, MMC will seek to have the Arbitrator’s determination on the application of cl 15.1 to the FTA claims set aside and a determination that cl 15.1 does not limit the quantum for FTA claims to $500,000.
Relevant law
[17] The application for leave to appeal is made pursuant to cl 5(1)(c) of sch 2 in the Arbitration Act 1996, which enables a party to appeal an arbitral award on any question of law with the leave of the High Court.
[18] Leave shall not be granted by this Court unless it considers that, having regard to all the circumstances, the determination of the question of law concerned could substantially affect the rights of one or more of the parties.2
[19] The Court of Appeal in Gold and Resource Developments (NZ) Ltd v Doug Hood Ltd held that, even if that statutory threshold is met, the Court must still consider whether to exercise its discretion to grant leave.3 The most important consideration in the exercise of the Court’s discretion is whether MMC can show it has a “strongly or very strongly arguable case” that there has been an error of law and the nature of that point of law.4 Other factors that may be relevant are:5
(a) the importance of the dispute to the parties;
(b) how the question arose before the arbitrators;
(c) the qualifications of the arbitrators;
(d) the amount of money involved;
(e) the amount of delay in going through the courts;
(f) whether the contract provides for the arbitral award to be final and binding; and
(g) whether the dispute before the arbitrators is international or domestic.
2 Arbitration Act 1996, sch 2 cl 5(2).
4 At [54(1)].
5 At [54].
[20] The Court of Appeal went on to note:
[58] If the Judge decides to grant leave, reasons should ordinarily not be given. It is undesirable that the Judge who is to hear the substantive argument should be embarrassed or influenced by the existence of written reasons.
[59] If leave is not granted, the Judge should deliver a short judgment for the benefit of the parties indicating, where necessary, whether the matter in issue is considered to be one-off, and why the case did not meet the required standard. A detailed analysis of the alleged error of law is not required.
Discussion
Could the determination of the questions of law substantially affect the rights of the parties?
[21] Mr Marsich, for MMC, submitted that if MMC’s FTA claim is limited by cl 15.1 to $500,000 MMC cannot recover losses from ESL for the estimated
$7.8 million pleaded. Mr Marsich also noted that a potential amendment to its pleading for the first cause of action is contingent on whether cl 15.1 applies to FTA claims in terms of quantum. He says MMC’s rights are substantially affected by the determination made in the preliminary award.
[22] Ms Smith, for the respondent, submitted that the statutory threshold is not met as the two questions of law raised by MMC do not substantially affect its rights. She sounds a word of caution in relying on the applicant’s reference to a $7.8 million claim. She does not accept any monies are due and owing by way of damages. She submitted MMC has overstated the importance (and value) of the dispute to it.
[23] In terms of whether the statutory threshold has been met, I accept that the question of whether leave should be granted here could substantially affect the rights of MMC purely in terms of whether their claim is limited by cl 15.1. To uphold such a limitation would very significantly reduce the quantum MMC could claim to
$500,000.
[24] Despite this determination, it is still for this Court to exercise its discretion to grant leave to appeal. I turn to the discretionary guidelines in Gold and Resource Developments.
Is there a strongly or very strongly arguable case that the Arbitrator erred in law?
[25] Mr Marsich understandably focused his submissions on the strength of the alleged errors of law.6 In Gold and Resource Developments it was noted that in relation to questions of law:7
If it is a one-off point, in the sense that it is unlikely to occur again and cannot be seen as having any precedent value, either generally or to the parties on another occasion, then unless there are very strong indications of error leave should rarely be given. In other cases, the Court will be looking for a somewhat less stringent assessment. In those cases a strongly arguable case would normally be required for leave to be granted. The existence of conflicting decisions will also be relevant.
[26] In relation to the first question of law, Mr Marsich maintained there is a serious legal argument as to whether a breach of the FTA is a breach of a statutory duty. Mr Marsich submitted s 9 civil claims are a distinct legal action based on claims for misleading or deceptive misrepresentations.8 He submitted that a successful FTA claim requires proof of a number of variables, inconsistent with any breach of “statutory duty”.
[27] Mr Marsich submitted the phrase “breach of statutory duty” is not simply a matter of contractual interpretation. He submitted it also involves a complex and nuanced assessment as to how FTA claims arise. In an argument not advanced before the Arbitrator, Mr Marsich submitted that MMC’s pleaded second cause of action is not a claim for a “breach” of the FTA. He submitted that MMC’s cause is based on ESL’s “failure to perform” its representation to deliver connection work at volumes of 60 connections per day. He did not expand on the nature of the cause of action that MMC would raise, or how this would circumvent the restrictions on liability set out in cl 15.5 of the UFB Agreement. Mr Marsich relies on the Court of Appeal in Cox & Coxon Ltd v Leipst, where he says the Court found that a failure to make good a misleading statement cannot constitute a “breach” of the FTA.9
6 Gold and Resource Developments, above n 3, at [54(1)].
7 At [54(1)].
9 Cox & Coxon Ltd v Leipst [1998] NZCA 202; [1999] 2 NZLR 15 (CA) at 26.
[28] With reference to Cox, it was submitted that it is fundamental the remedy must be directed to the consequences of the breach of the imposed duty. This centred on the allegation that as ESL required MMC to “ramp up” to meet the demand for 60 connections per day, there was a corollary duty on MMC to provide the connection work (especially when the good faith clause is considered).
[29] Mr Marsich submitted there is no utility in ss 9 and 13 of the FTA as statutory duties in a post-contractual context, when parties are subject to contractual rights and obligations governed by the terms of their contract. This is particularly so since 2013, when parties have been allowed to contract out of the FTA provisions—provided the specific statutory criteria under s 5D of the FTA is met.
[30] He further submitted the language of cl 15.5 of the UFB Agreement does not specifically refer to an FTA claim or liability, although it would have been very easy to do so. He submitted the case law at the time the UFB Agreement was signed meant it was unlikely that post-contractual representation could be covered by any exclusion clause10 and, as the Arbitrator found, if such clauses did apply, “very clear” language was needed. Given the legal uncertainty at the time of signing and lack of specificity in the wording, Mr Marsich submitted it was highly unlikely the phrase “breach of statutory duty” was intended to cover FTA claims at the time of signing.
[31] Mr Marsich points to cl 2.4 of the UFB Agreement as recognising the distinction between “pre-contractual” and “post-contractual” representations. Clause 2.4(b) provides MMC “has not relied on any representations made, or advice given, or similar act, by ESL”.
[32] Mr Marsich submitted that, even if it was permissible to contract out of the FTA, the good faith provision in cl 8 of the UFB Agreement, would not permit a party to avoid liability for a post-agreement misrepresentation. On this issue he referred to the Canadian Supreme Court authority of Bhasin v Hrynew.11 Mr Marsich submitted the Arbitrator failed to have regard to the good faith clause at all. He submitted that
10 With reference to David v TFAC Ltd [2009] NZCA 44; [2009] 3 NZLR 239 (CA); PAE (New Zealand) Ltd v Brosnahan [2009] NZCA 611; and Body Corporate 90315 v Redican Allwood Ltd [2014] NZHC 1212.
11 Bhasin v Hrynew 2014 SCC 71, [2014] 3 SCR 494 at [60].
in “relational” contracts of significant duration there is a good faith obligation of mutual trust and confidence, such that misleading conduct would fly in the face of the expectations of the parties.
[33] Mr Marsich submitted the first question of law raised has precedential value for cases involving the application of “limitation” and “exclusion” clauses to FTA claims. He submitted the determination of this issue will apply to all clauses purporting to limit FTA liability notwithstanding the statutory amendment in 2013 permitting parties to contract out of the FTA. He submitted the relevant section, s 5D, only applies to clauses purporting to prevent parties from bringing a proceeding for contravention of ss 9, 12A, 13 or 14 of the FTA, not clauses limiting the quantum of FTA claims. The question of whether a clause limits the quantum of FTA claims is submitted to involve the exercise of contractual interpretation, not the application of s 5D of the FTA. Mr Marsich submitted the appeal will materially assist in determining the contentious issue of whether a different approach to the interpretation of “exclusion” and “limitation” clauses is required.
[34] Mr Marsich placed much weight on the absence of any authority to support the Arbitrator’s finding that an FTA claim is a “breach of statutory duty”. Further he submitted the phrase “or otherwise” has not been directly addressed in case law. He submitted those words are “vague and uncertain”.
[35] On the second question of law, Mr Marsich submitted “very clear words” identifying FTA liability are required in order to limit the quantum of FTA claims. Mr Marsich submitted the Arbitrator’s finding in relation to cl 15.1 was contradictory, as he had found that exclusion clauses relied upon could not apply to exclude “liability” under the FTA after the UFB Agreement was signed unless there had been “very clear wording”. Mr Marsich submitted the established legal authorities support the Arbitrator’s finding that very clear words are required in order to exclude or limit FTA liability.12 He submitted this requirement of “very clear words” should also relate to the limitation as to the quantum of liability under cl 15.1, and that the obligation of
12 With reference to Dairy Containers Ltd v Tasman Orient Line CV [2004] UKPC 22, [2005] 1 NZLR 433; i-Health Ltd v iSoft NZ HC Auckland CIV-2006-404-7881, 8 September 2010; Dorchester Finance Ltd v Deloitte [2012] NZCA 226, [2012] NZCCLR 15; and Vance v Huhtamaki New Zealand Ltd [2011] NZCA 602.
good faith in cl 8 would also require any “limitation” of quantum or liability to be expressed in specific and clear words.
[36] Mr Marsich submitted there were no such clear words within the UFB Agreement. He submitted the catch all of “or otherwise” in cl 15.5 (which the Arbitrator did not consider) relating to the “source of liability” cannot meet the requirement for “very clear words” and cannot have been intended to cover FTA liability at the time the UFB Agreement was signed because of the doubt at common law as to whether FTA claims for post-contractual representations could be caught by any purported exclusion or quantum limitation. He acknowledged that cl 15.5 is wide but says, when read within the context of the contract, it is not a blanket application.
[37] Mr Marsich does not accept the position MMC took when seeking the injunction answers his submission. He explains the injunction submissions were made at an early stage of these proceedings and in a different context. MMC is now advancing an argument in light of further information and research in relation to a different legal issue.
[38] Ms Smith submitted MMC was advancing arguments that were strained and at odds with an earlier acknowledgement its claim is limited to $500,000. She said this was evidenced by MMC’s submission in the High Court, both in terms of the original application for an interim injunction and the application to appeal the refusal to grant that injunction.
[39] Ms Smith does not accept there were errors of law but submits that even if there were, any error was one-off, requiring a very strongly arguable indication of error for leave to be granted to appeal.
[40] It was submitted MMC’s claim is an allegation of a breach of the FTA, which is a breach of statutory duty. Ms Smith submitted that even if MMC were to successfully argue its FTA claims are not claims that fall under “statutory duty”, there is no utility in granting leave because the claim must be caught by the words “or otherwise” in cl 15.5 of the UFB Agreement (and therefore cl 15.1). Ms Smith submitted cl 15.5 was deliberately drafted in very wide terms.
[41] Ms Smith submitted there were no errors of law as the limitation in cl 15.1 is clear, unambiguous and free from doubt. In these circumstances, where there were two commercial companies on equal footing who were intending to limit any potential liability, Ms Smith submitted the Arbitrator was correct to give effect to the words in cl 15.1. Her position is that the parties engaged in an informed allocation of risk, being a risk no matter how that risk might arise.
[42] With reference to the third amended statement of claim, Ms Smith does not accept that the applicant has in fact pleaded a “failure to perform”. She submitted the authority of Cox says no more than if a party is to be awarded damages beyond s 43 of the FTA, there must be a clear duty to perform, otherwise the FTA is the source of relief and the damages award is discretionary under s 43.13 Ms Smith submitted the Act does not impose a duty to perform in the manner identified by Mr Marsich and the Court’s focus will be on the breach of the Act.
[43] Ms Smith submitted there is no basis to distinguish pre-contractual representations from post-contractual representations in terms of MMC’s ability to contract out of the FTA at the time of signing the UFB Agreement. She said no authority recognises that distinction, and there would be no basis for such a distinction to be made.
[44] As to the second question of law, Ms Smith noted the Arbitrator did not find that “very clear words” identifying FTA liability were required, he simply found the clauses that ESL said prevented it from incurring liability were not clear enough to have that effect. Ms Smith submitted that even if the Court finds MMC’s claim did not fall within cl 15.1, the Arbitrator could still find (assuming he found FTA liability, which is denied) that the allocation of risk in cl 15.1 was relevant to his discretion under s 43 of the FTA, a factor he relied on in his decision to uphold the clause. Given all these factors, Ms Smith submitted an appeal would have no utility.
[45] Ms Smith submitted the proposed appeal involves no question of general or public importance because the relevant limitation clause appears in the specific UFB Agreement (which she said has expired) and was signed before the Fair Trading
13 Cox & Coxon Ltd v Leipst, above n 9.
Amendment Act 2013 (the Amendment Act 2013) came into force, which permitted some parties to contract out of the FTA provisions if statutory criteria are met.
[46] Given these factors, Ms Smith submitted there is no strongly or very strongly arguable case that the Arbitrator erred in law.
Analysis
[47] A detailed analysis of the alleged errors of law is not required here.14 What must be shown, on a preliminary view, is that MMC has a strongly or very strongly arguable case that the Arbitrator erred in law.15 In my assessment the issues relevant to the two questions of law interact.
[48] The Arbitrator found that MMC’s claims under ss 9 and 13 of the FTA are statutory not contractual, and that to succeed MMC will need to establish that the FTA creates a duty enforceable by private action. He concluded that s 9 of the FTA creates a duty on a person in trade to not engage in conduct that is misleading or deceptive or likely to mislead or deceive. Similarly, he founds s 13(h) of the FTA creates a duty on a person in trade not to make a false or misleading representation.
[49] Mr Whiteside traversed the relevant authorities16 and concluded that prior to the Amendment Act 2013 commercial parties acting in good faith to achieve certainty when entering a substantial transaction could agree to exclude or limit liability for misleading conduct. There is no doubt ESL and MMC were commercial parties engaging in a substantial contract. My provisional view is that the Arbitrator’s finding was available to him notwithstanding the state of the authorities referred to by Mr Marsich.
14 Gold and Resource Developments, above n 3, at [58]–[59].
15 At [54(1)].
16 Adventurer Hobson Ltd v Cockery [2020] NZHC 675, [2020] 2 NZLR 544; Body Corporate 202254 v Taylor [2008] NZCA 317, [2009] 2 NZLR 17; David v TFAC, above n 10; PAE (New Zealand) Ltd v Brosnahan, above n 10; and Body Corporate 90315 v Redican Allwood Ltd, above n 10.
First question of law
[50] In relation to the first question of law two issues are raised. First, are the representations said to contravene ss 9 and 13 of the FTA alleging breaches of statutory duty? Second, does the second cause of action rely on a breach of the FTA as opposed to a failure to perform? The second question did not arise before the Arbitrator.
[51] I will only briefly address both questions because in my view, even if answered favourably for MMC, there remains the significant obstacle of the catch-all language of cl 15.5.
[52] The Arbitrator placed weight on the views expressed by the authors of Burrows, Finn & Todd on the Law of Contract in New Zealand that in claims under ss 9 and 13 of the FTA the cause of action is statutory, not contractual.17 As Mr Marsich observed, the authors recognised that a cause resting on a breach of statutory duty covers “much of the same ground” as one resting on misrepresentation.
[53] No case law is cited by the authors. I accept the question whether a breach of the FTA falls under the umbrella of a breach of statutory duty has not been considered in any of the authorities referred to by the parties. It is arguable that a s 9 action is based on a claim for misleading or deceptive misrepresentation. As was held in Neumegen v Neumegen and Co:18
Generally, indeed it may be thought in virtually all cases, a defendant’s conduct will not be deceptive or misleading unless it amounts to a misrepresentation. The misrepresentation may be express or arise from silence or from conduct. It need not be intentional and often will not be.
[54] In the absence of authority, let alone conflicting authority on point, I accept it may be strongly arguable that a civil claim under ss 9 or 13 FTA is based on a misrepresentation as opposed to a breach of statutory duty.
[55] As to the intent of the parties, I accept that it would have been simple for the parties to have referenced the FTA in cl 15.5 alongside the references to contract, equity and tort. They might reasonably have been expected to do so given my view
17 Todd and Barber, above n 8, at [7.4.4(a)].
18 Neumegen v Neumegen and Co, above n 8, at 317.
that the parties were free to contract out of the FTA as at the date the UFB Agreement was entered.
[56] What of the new argument that the second cause of action does not plead a breach of the FTA but rather a failure to perform?
[57] Paragraph 45 of the third amended statement of claim reads:
The Respondent made misleading representations in contravention of sections 9 and 13 of the FTA or engaged in conduct toward the Claimant that was or was likely to mislead or be deceptive, in contravention of sections 9 and 13 of the FTA, in one or more of the following ways:
...
[58] In the particulars that follow para 45, MMC refers to specific alleged representations as to work volume and plead that ESL “failed to deliver that volume of connection work”.
[59] Mr Marisich submits those particulars evidence a cause of action alleging a failure to perform. The Court of appeal in Cox held that a failure to perform cannot constitute a breach of the FTA. Ms Smith does not contest the finding of the Court of Appeal but says the focus of the second cause of action is the alleged breach of the FTA.
[60] I have reservations as to whether paragraph 45 does in fact plead a “failure to perform” as opposed to a misrepresentation under the FTA. I observe the Arbitrator referred, with reference to the third amended statement of claim, to a claim under the FTA arising from representations.
[61] If a failure to perform has been pleaded, there is some merit in the applicant’s argument. A failure to perform is distinct to an FTA breach.
[62] Putting the pleading point to one side, I think it is strongly arguable that MMC is not alleging a breach of statutory duty by ESL.
Second question of law
[63] As to the second question, the Arbitrator found:
Very clear wording in the UFB Agreement would be required to establish the Respondent was precluded from incurring liability under the FTA for any misleading conduct or false representations on its part after the Agreement was signed.
[64] As a result, the Arbitrator concluded that MMC’s FTA claim is not excluded under cls 2.4(b), 11.5, 15.5 and 22.8. That finding was made in answering the question whether those clauses had the legal effect of contracting out of the FTA.
[65] At issue is whether there is an inconsistency in the Arbitrator’s reasoning leading the Arbitrator to fail to apply the same standard in considering any limitation on quantum of liability under cl 15 as he did to liability under the FTA and to do so absent clear authority permitting parties in trade to limit the quantum of FTA claims at the time the UFB Agreement was entered into.
[66] This brings into issue the meaning of cl 15 of the UFB Agreement. Given the breadth of the language of cl 15.1, which purports to limit the liability of ESL “under or in connection with this Agreement ... in respect of all claims”, my initial view is that it seems clear the parties intended an expansive limitation of liability.
[67] However, as I have indicated, in my view the overall strength of the applicant’s arguments that the Arbitrator erred in law is answered by the words of cl 15 that I set out again for ease of reference:19
15.1 Maximum liability of ESL
Subject to clause 15.4, in addition to its obligation to pay the Charges, the maximum aggregate liability of ESL to the Subcontractor under or in connection with this Agreement will be, in respect of all claims, proceedings, actions, liabilities, damages, costs, expenses or losses, $500,000.
...
15.5 Source of liability
19 Emphasis added.
The limitations and exclusions of liability in this clause 15 will apply however liability arises, whether in contract (including indemnities), equity, tort (including negligence), breach of statutory duty or otherwise.
[68] The Arbitrator did not consider it necessary to consider the meaning of the words of cl 15.5, having reached a clear view that the second cause of action alleged a breach of a statutory duty.
[69] Clause 15 records the parties’ agreed allocation of risk. The parties sought to achieve certainty as to both source of liability and as to the quantum of liability. In my view cl 15 was deliberately drafted in broad terms by two sophisticated commercial parties with the intention of limiting the quantum of liability for any claim arising in connection with the UFB Agreement, no matter how liability arises, to
$500,000. It made commercial sense to achieve certainty at the outset of the relationship.
[70] It is notable that the parties turned their minds to possible exclusions to the agreed limitation on the quantum of liability, as reflected in cl 15.4, set out at [3] above.
[71] I do not accept the submission of MMC that cl 15.5 is vague and uncertain. On the contrary, the language used is clear and unambiguous. The limitation and exclusions of liability will apply “however” liability arises, whether in the category of case expressly referred to, or within the catch-all, “or otherwise”. The meaning of the words used is not contentious. “However” means “in whatever way”.20 “Otherwise” means in circumstances other than those considered.21 The language agreed indicates to me the parties’ intention that any claim is limited unless captured by the exclusion clause. Absent express exclusion, I am satisfied that FTA liability was intended to be included within the agreed limitation on liability. If that were not the case, the FTA would have been expressly referenced in cl 15.4.
[72] The Arbitrator did not find that very clear words were required “identifying FTA liability” (as suggested in question two) but were required to prevent ESL
21 At 803.
incurring liability under the FTA. In any event my provisional view is that cl 15.1 is clear and unambiguous in that it intended to cover all claims and that the language of cl 15.5 is so broad it must include the second cause of action in the third amended statement of claim.
[73] I do not consider the good faith obligation (cl 8) can lead to any alternative interpretation of the clear words of cl 15.
[74] Finally, and while I accept no issue of estoppel arises, it is apparent that MMC’s position in the injunction proceedings is consistent with the Arbitrator’s determination and my preliminary interpretation of cl 15.
[75] On balance I am not persuaded that it is strongly arguable that any liability for the second cause of action is not limited by cl 15.1 to $500,000.
Conclusion on strongly arguable
[76] There has been some refinement of the argument since the arbitral award, but my preliminary view is that MMC does not have a strongly arguable case. I am also of the view the issues in dispute fall within the category of a one-off, given the contractual relationship between the parties is seemingly at an end. Overall, I do not consider the alleged errors of law raised by MMC reach the threshold that would permit leave to be granted.
Importance of the dispute to the parties
[77] The dispute is of importance to the parties in that it is said to involve a significant sum of money. ESL maintains that MMC cannot claim anything of monetary value for reasons including a “no minimum volume” clause in the UFB Agreement; deductions for cost fluctuations and business expenses being overlooked; and any claim being time-barred. MMC disputes each of those matters.
[78] It is not appropriate or necessary that I resolve whether the claim for
$7.8 million has merit. I accept that the sums involved indicate that the dispute is of importance. This factor favours granting leave to appeal.
How the question arose before the Arbitrator
[79] The parties signed an amendment to the arbitration agreement specifically seeking a preliminary hearing on whether all or part of MMC’s claim is capped at
$500,000. Determining the alleged errors of law was the issue central to the preliminary hearing. As outlined in Gold and Resource Developments, where parties have made the decision to submit a dispute to arbitration rather than asking a court to determine the question, they are generally held to this choice.22 This is especially so when the legal issue was seen as the central issue from the beginning of the arbitration, rather than emerging as a crucial issue during the arbitral process.
[80] This factor does not support granting leave to appeal.
Arbitrator’s qualifications
[81] Ms Smith highlights that the arbitrator is a King’s Counsel, with significant experience in commercial disputes and as an arbitrator, who was well qualified to determine questions of law. He delivered the award after receiving detailed submissions from both parties at a one-day hearing.
[82] Where the arbitrator chosen by the parties is legally qualified, it will be harder to obtain leave to appeal the arbitral decision.23 I agree that Mr Whiteside has extensive experience in arbitrations and, beyond that, extensive experience in civil litigation. This cannot be overlooked when determining his particular qualification and experience to answer the questions of law.
[83] This factor does not favour leave to appeal.
Amount of money involved
[84] Whether or not the $7.8 million sought by MMC is properly quantified is disputed by counsel. I do not consider this appeal is the appropriate vehicle by which this matter should be resolved. Evidence would be required to permit an informed
22 Gold and Resource Developments, above n 3, at [54(2)].
23 Gold and Resource Developments, above n 3, at [54(3)].
position. However, on the face of it, I accept the amount of money involved in the arbitration was substantial and of significance to MMC.
Likely delay
[85] Mr Marsich submitted there is no excessive delay that would be incurred in granting leave. He referred to Gold and Resource Developments in support of his proposition that the delay in having the appeal heard is proportionate to the size and significance of the dispute between the parties, that being the difference between a claim in the order of $7.8 million as opposed to $500,000.24
[86] Ms Smith emphasised the finality normally attributed to arbitration and submitted that proceedings in court would cause significant delay, especially as ESL is likely to cross-appeal if leave to appeal is granted.
[87] I accept that as there is a substantial amount of money involved, the issue of delay likely to be occasioned by submission of this dispute to the court system is of less relevance.25
Final and binding?
[88] As both parties accept, there was no agreement between ESL and MMC that the arbitral award would be final and binding.
Conclusion
[89] I have concluded that leave to appeal should not be granted. Neither of the questions of law raised by MMC provide a strong basis upon which to seek leave to appeal. Of the remaining factors which influence the Court’s discretion, I consider the qualifications of the Arbitrator and the fact the issue was deliberately and squarely put before him for the purpose of a preliminary award are material to this determination.
[90] Although the amount of money involved is substantial, the parties’ choice to refer these specific questions of law to an experienced arbitrator is indicative of their
24 At [54(6)].
25 Gold and Resource Developments, above n 3, at [54(6)].
informed decision to resolve the issue with finality. Further, both parties are experienced commercial companies who were on equal footing at the time the decision to seek arbitration and the decision to enter into the UFB Agreement were made.
Result
[91] The application for leave to appeal is dismissed.
Costs
[92] The respondent is entitled to costs on a 2B basis.
...................................................
Eaton J
W G C Templeton, Barrister, Auckland Simpson Grierson, Christchurch
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URL: http://www.nzlii.org/nz/cases/NZHC/2022/3452.html