Alusi Ltd v G J Lawrence Dental Ltd
[2021] NZCA 87
•25 March 2021 at 10.30 am
| IN THE COURT OF APPEAL OF NEW ZEALAND I TE KŌTI PĪRA O AOTEAROA |
| CA568/2020 [2021] NZCA 87 |
| BETWEEN | ALUSI LIMITED |
| AND | G J LAWRENCE DENTAL LIMITED |
| Court: | Miller and Clifford JJ |
Counsel: | C J Griggs for Applicants |
Judgment: | 25 March 2021 at 10.30 am |
JUDGMENT OF THE COURT
AThe application for special leave to appeal is declined.
B The applicants must pay the respondents one set of costs on a band A basis for a standard application for leave to appeal with usual disbursements.
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REASONS OF THE COURT
(Given by Clifford J)
Introduction
This application, for special leave to appeal against an arbitral award on questions of law, continues a long running dispute between the parties relating to the ownership and control of a Raumati dental practice.
As now relevant, the applicants are in the process of challenging an arbitral award (the Award) of the Hon Paul Heath QC.[1] In doing so, they first applied to the High Court for leave to appeal on questions of law concerning four preliminary determinations of the arbitrator given in the Award. Ellis J declined that application, for a variety of reasons.[2]
[1](Revised) Partial Award dated 22 November 2019.
[2]Alusi Ltd & Ors v G J Lawrence Dental Ltd & Ors [2020] NZHC 739 [First leave decision].
The applicants then applied to the High Court for special leave to appeal Ellis J’s leave decision to this Court. At the same time, they applied to the High Court to have part of the Award set aside on the grounds that a breach of natural justice occurred. In a decision of 16 September 2020 Ellis J declined both applications.[3]
[3]Alusi Ltd & Ors v G J Lawrence Dental Ltd & Ors [2020] NZHC 2409 [Second leave decision].
The applicants now apply to this Court for special leave to appeal the Award on questions of law. In a separate proceeding they are also appealing, as of right, Ellis J’s decision as to a breach of natural justice.
Legal context — procedural
As Brown J confirmed in a direction on 29 October 2020, the application for special leave is to be determined first. The appeal against Ellis J’s decision declining the application to set aside the Award is then to be determined, together with the points of law appeal — if leave is granted.
Legal Context — substantive
The courts have a general reluctance to interfere with arbitral awards. The purposes of the Arbitration Act 1996, and its provisions as to judicial challenge, encourage that reluctance. Save in very limited circumstances, an arbitrator’s determination as to a matter of fact is final and binding. Appeals on questions of law may be brought in the courts, but only by agreement or with leave for such appeals.[4] The High Court must not give leave unless it concludes 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.[5]
[4]Arbitration Act 1996, sch 2, cl 5(1).
[5]Clause 5(2).
The extended, three stage, process for consideration of an application for leave to appeal on a point of law reflects the statutory preference for finality of awards on questions of law:
(a)a party must first apply to the High Court for such leave;[6]
(b)if leave is refused, a party may apply to the High Court for leave to appeal that refusal to the Court of Appeal;[7] and
(c)finally, where leave to appeal that refusal to the Court of Appeal is also refused, a party may apply to the Court of Appeal for special leave.[8]
[6]Clause 5(1)(c).
[7]Clause 5(5).
[8]Clause 5(6).
The courts have developed a series of separate tests for determining each of those leave decisions. Rule 26 of the High Court Rules 2016 governs the procedure for each such application.
Rule 26.16 limits the time for the first of those leave hearings to a maximum of one hour and 10 minutes. McGechan on Procedure observes:[9]
Rule 26.16 envisages only the most truncated of oral hearings. The very limited time specified by the rule makes it clear that there is no scope for extended musings. In line with the general reluctance of Courts to interfere in arbitration matters, the intention seems to be that leave will only be granted in the clearest cases. It will generally be obvious from the papers which cases fall within those categories.
[9]Andrew Beck McGechan on Procedure (looseleaf ed, Brookers) at [HR26.16.02].
More specifically, this Court in Gold and Resource Developments(NZ) Ltd v Doug Hood Ltd set out the factors applicable to the High Court’s discretion.[10] As relevant, they include:
(a)The strength of the challenge/nature of the point of law.
(b)How the question arose before the arbitrator.
(c)The qualifications of the arbitrator.
(d)The importance of the dispute to the parties, the amount of money involved, and the delay associated with going through the courts.
[10]Gold and Resource Developments(NZ) Ltd v Doug Hood Ltd [2000] 3 NZLR 318 at [54].
Where leave is sought on an alleged error of law, the qualifications of the arbitrator is of particular significance. In Gold and Resource Developments this Court explained:[11]
Where the arbitrator chosen by the parties is legally qualified, it will be harder to obtain leave to appeal the arbitral decision on a question of law. As Lord Donaldson of Lymington MR stated in Ipswich Borough Council v Fisons plc …, if the chosen arbitrator is a lawyer and the problem is purely one of law, the parties must be assumed to have had good reason for relying on that lawyer’s expertise.[12]
[11]At [54(3)] (footnote added and citation omitted).
[12]Ipswich Borough Council v Fisons plc [1990] Ch 709 (CA) at 724.
As Ellis J noted in her second leave decision,[13] in Downer Construction (New Zealand) Ltd v Silverfield Developments Ltd this Court considered the tests for the High Court’s decision on an application for leave to appeal refusal under sub-cl (5) (and for this Court’s decision under sub-cl (6)) of cl 5.[14]
[13]Second leave decision, above n 3, at [79].
[14]Downer Construction (New Zealand) Ltd v Silverfield Developments Ltd [2007] NZCA 355, [2008] 2 NZLR 591.
As to the High Court’s decision in a second application under sub-cl (5), this Court agreed[15] with Randerson J’s explanation of the sub‑cl (5) test in Cooper v Symes:[16]
(a)The appeal must raise some question of law … capable of bona fide and serious argument in a case involving some interest, public or private, of sufficient importance to outweigh the cost and delay of the further appeal.
(b)Upon a second appeal, the Court of Appeal is not engaged in the correction of error. Its primary function is then to clarify the law and to determine whether it has been properly construed and applied by the Court below.
(c)Not every alleged error of law is of such importance either generally or to the parties as to justify further pursuit of litigation which has been twice considered and ruled upon by a Court.
[15]At [33].
[16]At [33], quoting Cooper v Symes (2001) 15 PRNZ 166 at [12].
As for the test under sub-cl (6), as directly applicable here, this Court explained:[17]
Where the High Court has refused leave, this Court has power under cl 5(6) to grant special leave to appeal. Obviously that should not be a second bite at the same cherry. This Court will be very mindful of why the High Court declined leave, and will grant special leave only if the High Court Judge’s decision was plainly wrong or if the test set out above was not applied or was misapplied. We would hesitate to say that the test under subcl (6) is different from the test under subcl (5). It is simpler to say the test is the same, but this Court will exercise its powers sparingly and mindful of why the High Court declined leave.
[17]Downer Construction (New Zealand) Ltd v Silverfield Developments Ltd, above n 14, at [35].
Those remarks were made in the context of an application for special leave where the High Court had declined leave to appeal its substantive decision on a point of law appeal made to it with leave. Where the application to this Court is for special leave to appeal where the High Court has declined leave, in effect on two occasions, the need to focus on the possibility of error in the second leave decision, rather than in the award itself, is emphasised.
We proceed accordingly.
Analysis
The facts are comprehensively recorded in Ellis J’s two leave decisions. A very focused, relatively brief, summary is appropriate at this point.
Alusi (the first appellant), G J Lawrence (the first respondent) and Creative Dentistry Ltd (not now involved) were, respectively, the corporate entities used by three dentists — Mr Ibrahim, Mr Lawrence and Mr Al-sabak — in the running of their individual practices at shared dental premises at Raumati, north of Wellington.[18]
[18]I use the names of the three corporate entities; Lawrence, Alusi and Creative to refer collectively to each of the individual dentist’s interests in their practice, under the Deed and in Openyd.
Each dentist had pre-emptive rights to the others’ practices, including their shares in those corporate entities and their shares, held in equal proportions, in a company called Openyd Ltd. Openyd[19] administered the individual practices and the shared premises. Mr Lawrence’s wife, Mrs Lawrence, did that work for Openyd.
[19]Pronounced “Openwide”.
Those pre-emption rights were found in a deed relating to the practice (the Deed) and Openyd’s constitution.
In 2016 Lawrence signalled its intention to retire from practice. Difficulties arose. A mediation on 15 March 2017 partially resolved matters. That partial resolution was recorded in a bullet point email dated that day which had been read to and agreed by the parties (the Email Agreement). Subject to Creative’s consent, Lawrence was to sell to Alusi for $475,000. Creative could sell to a third party, but Alusi had a right of first refusal with respect to that sale.
As to the pre-emptive rights, and as Ellis J summarised matters in her second decision:[20]
(a)[Alusi] would waive [its] pre-emptive rights in relation to any sale of Creative to a third party, provided [it] had been given three working days to make an offer for the practice on the same terms;
(b)[Creative] would be deemed to consent to the sale of Lawrence … to Alusi, if [it] entered into an unconditional sale of [its] own practice; and
(c)it is implicit that, if the Lawrence[/Alusi] ASP became unconditional (by virtue of [Creative’s] actual or deemed consent) then [Lawrence’s] consent to any sale of Creative — either to Alusi or to a third party — was not required (or would be deemed).
[20]At [8].
Matters did not proceed as hoped. Creative was unable to enter into an unconditional contract to sell to a third party. Moreover, it did not consent to the Lawrence/Alusi sale. Notwithstanding, Alusi asserted the Lawrence/Alusi ASP was unconditional, Creative’s consent not being required.
The parties went to arbitration for the first time. At issue were the pre-emptive rights and the status at that time of the Lawrence/Alusi ASP. The first arbitrator ruled, in effect, that the Lawrence/Alusi ASP was “unenforceable” and of “no effect”. There is no challenge to that ruling. The first arbitrator reached no view on the status of pre-emptive rights.
Thereafter:
(a)Creative agreed to sell to a third party. Alusi commenced legal proceedings to prevent that sale. Those proceedings were settled when Creative agreed to sell to Alusi.
(b)Lawrence relied on its pre-emptive rights.
(c)Alusi contended those rights no longer existed and settled with Creative.
(d)Alusi and Creative purported to register the transfer of the Openyd shares from Creative to Alusi, and Alusi took actual control of Openyd and its administration activities, displacing Mrs Lawrence.
(e)Lawrence gave formal notice under the Deed of its intention to retire, acknowledging Alusi’s pre-emptive rights and nominating a sale price of $550,000.
(f)Alusi responded, asserting Lawrence was already bound by a 2016 contract — not the Lawrence/Alusi ASP signed on 15 March 2017 — to sell its shares to Alusi for $400,000.
In October 2018 the parties went to arbitration for a second time. Lawrence appeared to accept the fact of Creative’s sale of its practice to Alusi, albeit not the breach of pre-emptive rights as regards Openyd. In any event, Creative was not a party to the arbitration. In formal terms Lawrence focused its claims on Alusi’s actions in excluding it from Openyd. Lawrence effectively sought the winding up of the shared practice arrangements, which it termed an association, including Openyd, on the just and equitable basis.
Alusi counterclaimed. It asserted it had previously accepted Lawrence’s repudiatory breach of the Lawrence/Alusi ASP and sought damages of $75,000, presumably for that repudiatory breach.
The second arbitrator identified six preliminary questions, aimed at determining the status and significance of the legal relationships as by then existing between Lawrence and Alusi, including as represented by Openyd.
The issues formally put to the arbitrator would appear to have ignored the elephant in the room: that is, in reality the dispute was about the price to be paid by Alusi for Lawrence’s practice. There was no attempt to question Alusi’s position as the owner of what had been Creative’s interests, but only the day to day significance of Alusi taking over the management of the “association” and excluding Mr and Mrs Lawrence.
As matters transpired, and representing the reality of the situation, the practical focus of those questions was their significance for determining the central issue: that is whether, and if so to what effect, Lawrence continued to enjoy pre-emptive rights as regards the Openyd shares so as to preserve the status quo vis a vis negotiation of the sale of its practice.
Alusi argued that those rights had been waived in the Email Agreement. Lawrence argued the Email Agreement had ceased to have any relevant effect.
The second arbitrator agreed with Lawrence, but not for the reason given by Lawrence. Lawrence argued that the Email Agreement ceased to have any effect when the first arbitrator ruled that the Lawrence/Alusi ASP was not enforceable. The second arbitrator appeared to consider subsequent events could have “revived” the post mediation deal, but that that possibility had subsequently come to an end as acknowledged at one point by counsel for Alusi in submissions on court costs for one stage of the dispute.
It is that decision Alusi challenges, as of right, as having been reached in breach of its natural justice rights.
The second arbitrator also found, and that finding is not now challenged, that where the Deed and Openyd’s constitution conflicted, the Deed was to prevail.
As for the High Court’s first leave decision, there is no real dispute that the association is at an end. As we have observed, this argument is in reality about a difference of some $150,000 in the purchase price to be paid by Alusi for Lawrence’s practice. That is clearly not a matter of any public or general importance.
Moreover, for our part we doubt whether the threshold of substantial effect is reached, notwithstanding Ellis J being prepared to find that it was. Although the Deed has now been cancelled, it provided an appropriate price setting mechanism of current market valuation to be determined by agreement or, failing agreement, by arbitration. That approach is the obvious and efficient way to resolve this essentially commercial dispute.
In making this application, Alusi did not address in any meaningful way the significance of the limited nature of the basis upon which leave may be given to appeal an arbitrator’s alleged error in law. Even less did it focus on the narrow grounds on which this Court would grant leave following a second leave decision of the High Court declining leave.
As to those tests: we are not satisfied the High Court’s decision was plainly wrong. Rather, we agree with the essence of that decision as expressed by Ellis J in the following paragraph from her second leave decision:[21]
The idea that Lawrence Dental would have agreed to waive its pre-emptive rights without a firm agreement for the sale of its own practice makes no sense. It was, no doubt, for this reason that the focus of the argument before the arbitrator was largely on the Lawrence ASP.
[21]The second leave decision, above n 3, at [68].
The second arbitrator is the Hon Paul Heath QC, a retired judge. Mr Heath is eminently qualified and has extensive experience in commercial disputes of this nature. That is, no doubt, why he was chosen by the parties.
Finally, the as-of right appeal against the second arbitrator’s ruling will see that decision on the status of the pre-emptive rights reviewed.
For all those reasons, Alusi’s application for special leave is declined.
Costs
The applicants must pay the respondents one set of costs on a band A basis for a standard application for leave to appeal with usual disbursements.
Solicitors:
Lawler & Co, Auckland for Applicants
Gillespie Young Watson, Lower Hutt for Respondents
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