Bathurst Resources Limited v LMCHB Limited
[2024] NZHC 1058
•3 May 2024
ORDER MADE THAT NO PERSON MAY SEARCH, INSPECT, OR COPY ANY DOCUMENTS ON THE COURT FILE RELATING TO THESE
PROCEEDINGS (EXCLUDING THIS JUDGMENT) WITHOUT THE LEAVE OF A JUDGE.
IN THE HIGH COURT OF NEW ZEALAND WELLINGTON REGISTRY
I TE KŌTI MATUA O AOTEAROA TE WHANGANUI-A-TARA ROHE
CIV-2023-485-000575
[2024] NZHC 1058
UNDER the Arbitration Act 1996 and in the matter of an arbitration before the Hon Robert Fisher KC BETWEEN
BATHURST RESOURCES LIMITED
Applicant
AND
LMCHB LIMITED
Respondent
Hearing: 26 February 2024 Counsel:
T G H Smith and L J Hardcastle for Applicant
D R Kaldermis with N K Swan and D J Keogh for Respondent
Judgment:
3 May 2024
JUDGMENT OF LA HOOD J
Table of Contents
An application to set aside an arbitral award on costs [1]
Background [3]
The previous litigation [5]
The arbitration and the Partial Award [8]
The Costs Award [11]
Issues to be determined [16]
Applicable principles [18]
Article 34 in a costs setting [21]
General art 34 principles [28]
Natural justice under art 34 [29]
BATHURST RESOURCES LTD v LMCHB LTD [2024] NZHC 1058 [3 May 2024]
Issue one: was the Costs Award in conflict with public policy because the [40] senior Courts’ costs decisions in the previous litigation gave rise to an issue estoppel, or were binding precedent?
Did the arbitrator fail to appreciate that a declaration was sought in the [42]
High Court?
Was LMCH estopped from contending for a different approach to costs in [49]the arbitration because the outcome of the previous litigation and the arbitration was materially the same?
Even if no estoppel arises, was the arbitrator bound to follow the approach [58]
to costs taken in the Supreme Court and Court of Appeal?
Further comments on issue one [60]
Issue two: breach of natural justice [65] The ancillary issue of whether an order should be made that the [77] proceedings be conducted in private
Legal principles [80]
Decision [82]
Conclusion [86]
Costs [87]
An application to set aside an arbitral award on costs
[1] The applicant, Bathurst Resources Limited (Bathurst) seeks to set aside an arbitral award on costs issued in a long-running commercial dispute between Bathurst and LMCHB Limited (LMCH).1 In a decision dated 16 June 2023, the arbitrator determined that the parties had broadly similar success in the arbitration and therefore the parties’ costs, totalling approximately $9 million, should lie where they fall.
[2] For the reasons set out below, I find that Bathurst has failed to establish that the Costs Award was in conflict with the public policy of New Zealand, and therefore, I decline to set it aside under art 34(2)(b)(ii) of sch 1 of the Arbitration Act 1996 (the Act). In summary, Bathurst’s contentions fail because:
(a)The Supreme Court and Court of Appeal’s approach to costs in the previous litigation between the parties, in particular the finding that Bathurst was the successful party, do not give rise to issue estoppel for the purposes of the arbitrator determining costs in the subsequent arbitration, which involved the determination of a distinct issue –– whether a “change in control” had occurred, triggering cl 3.4 under the
1 L&M Coal Holdings Ltd v Bathurst Resources Limited (Final Award (Costs)), Hon Robert Fisher KC, 16 June 2023 [Costs Award].
Agreement for Sale and Purchase (the ASP) –– and which gave rise to distinct standalone declaratory relief. LMCH was therefore entitled to contend for a different approach to costs before the arbitrator than that taken by the senior Courts in the earlier litigation.
(b)Similarly, the arbitrator was not bound by the senior Courts’ decisions on costs in the previous litigation, as the arbitrator was determining a distinct issue and granting separate relief. Those decisions may provide persuasive guidance, but the arbitrator’s decision to depart from such guidance would not amount to a breach of public policy in the context of the arbitrator’s wide discretion on costs.
(c)It was not unfair or a breach of the rules of natural justice for the arbitrator to assess, and make a finding about, the practical value of the change in control declaration. Determination of that issue was necessary to evaluate the parties’ respective success, and Bathurst had the opportunity to present its own evidence as to the value of the declaration, but instead decided to only object to the receipt of evidence while maintaining it was prejudiced by the decision to embark on the inquiry. The arbitrator was entitled to assess the value of the declaration by reference to the likelihood of LMCH’s future legal arguments succeeding if certain events were to occur. This did not result in an unfair process or breach of natural justice so as to be in conflict with the public policy of New Zealand under art 34.
Background
[3] This application arises in the context of a series of disputes regarding the interpretation of an ASP the parties entered into in 2010, for the sale of shares in a mining asset covering defined permit areas.2 Clause 3.4 of the ASP required the payment of a deposit as well as two separate performance payments each of USD 40 million payable, respectively, once 25,000 tonnes and one million tonnes of coal had
2 Merged Agreement for Sale and Purchase of Shares in L&M Coal Limited (undated) [the ASP].
been “shipped from the Permit Areas”. Royalties were also payable under a separate Royalty Deed.
[4] There were then three amendments to the ASP. On 17 September 2010, the parties provided that any outstanding amounts under cl 3.4 would become due and payable on a “change in control” of Bathurst. On 29 October 2010, the parties extended the change in control definition to encompass changes in control of both Bathurst and its nominated subsidiary purchaser. On 21 August 2012, the parties inserted a new cl 3.10, which provided as follows:
3.10 Failure to make Performance Payments For the avoidance of doubt, the parties acknowledge and agree that a failure by the Purchaser to make, when and as due, a Performance Payment is not an actionable breach of or default under this Agreement for so long as the relevant royalty payments continue to be made under the Royalty Deed.
The previous litigation
[5] LMCH commenced the first of the series of disputes with Bathurst over the interpretation of the ASP in the High Court in December 2016. LMCH sought a declaration that the first performance payment had become due and an order that Bathurst pay USD 40 million.3 Bathurst defended the proceeding on the basis that the performance payment had not been triggered under cl 3.4 or alternatively, that cl 3.10 of the ASP permitted it to defer payment of the performance payment for so long as royalties continued to be made in accordance with the Royalty Deed. Dobson J found in favour of LMCH, granting the declaration and order sought.4 Bathurst’s appeal to the Court of Appeal was dismissed in 2020.5
[6] On appeal to the Supreme Court, the proceeding was focused on whether the threshold volume of coal had been shipped from the permit area so as to trigger Bathurst’s obligation to make the first of the two performance payments. The Court unanimously upheld the lower Courts’ views of cl 3.4 –– that Bathurst would have been obliged to make the payment once the relevant volume of coal had been transported from the permit area.6 However, a majority agreed with Bathurst that it
3 L&M Coal Holdings v Bathurst Resources Ltd [2018] NZHC 2127.
4 At [226].
5 Bathurst Resources Ltd v L&M Coal Holdings Ltd [2020] NZCA 113.
6 Bathurst Resources Ltd v L&M Coal Holdings Ltd [2021] NZSC 85.
was entitled to delay the first performance payment in reliance on cl 3.10.7 Therefore, LMCH would have been entitled to a declaration that the first performance payment was due and owing (given the criteria in cl 3.4 were met) but for the operation of cl 3.10.
[7] The Supreme Court ordered that costs should follow the event, applying a slight discount of approximately 15 per cent to recognise LMCH’s success on the interpretation of cl 3.4. This approach was followed by the Court of Appeal, which also applied the same discount to the High Court costs.8
The arbitration and the Partial Award
[8] LMCH started arbitration proceedings against Bathurst in May 2020 alleging that a change in control had occurred –– a separate trigger for the payment of performance payments under the ASP. LMCH sought a declaration that the proviso to cl 3.4 had been triggered, and a separate order that Bathurst within five working days pay LMCH the sum of USD 40 million pursuant to cl 3.4(b). The arbitration spanned two and a half years, with a four-week substantive hearing in August and November 2022.
[9] In his substantive Partial Award (which Bathurst has not challenged), the arbitrator, Hon Robert Fisher KC, accepted LMCH’s claim that a change in control had occurred and granted a declaration that “for the purposes of the proviso to cl 3.4 of the ASP, a change in control of the nominated subsidiary, BNZ, occurred on 24 November 2015”.9 This issue dominated the hearing.10
[10] The arbitrator dismissed LMCH’s immediate payment claim on the basis that, while Bathurst would have been obliged to make performance payments under cl 3.4 on the basis there had been a change in control, cl 3.10 provided a defence, applying the Supreme Court majority’s interpretation of cl 3.10. The arbitration was, however,
7 At [281].
8 Bathurst Resources Ltd v L&M Coal Holdings Ltd [2021] NZCA 684. The Court of Appeal also determined costs in the High Court, as the presiding High Court Judge (Dobson J) had retired by this time.
9 L&M Coal Holdings Ltd v Bathurst Resources Limited (Partial Award), 16 February 2023 [Partial Award] at [175] and [179(b)].
10 Costs Award, above n 1, at [8] and [199(c)].
dominantly concerned with whether a change in control had occurred, and the cl 3.10 issue occupied “less than 2% of the hearing”.11
The Costs Award
[11] The arbitrator approached the issue of costs by noting at the outset that “[t]he approach to costs taken by the Courts in previous litigation between the parties is immaterial”. The arbitrator recognised that both parties enjoyed a measure of success, and thus, “the most important guide to costs will be their relative success and failure.”12
[12]The arbitrator considered the significance of the change of control declaration
–– whether it had independent significance, thus representing “a significant win” for LMCH, or whether it was an “empty gesture” of little practical value.13 By way of summary, the arbitrator concluded:
6. BRL’s [Bathurst] claim to costs is a powerful one. Its success in the arbitration saved it from an immediate obligation to pay US$80 million. Although deductions for BRL’s approach to discovery, common bundle and witness expenses are relevant they do not have an important part to play given the magnitude of the overall claims to costs.
7. Whether LMCH has an equally powerful claim turns on whether the declaration that there had been a change in the control of BRL is of practical value. I concluded that it does have practical value for two reasons:
(a)The relevant permits may come to an end before the second volume threshold is reached. LMCH has a strong case that if this occurs (i) it would abrogate cl 3.10 of the Agreement and
(ii) the declaration would elevate the required payment from US$40 million to US$80 million.
(b)Royalty arrears sufficient to abrogate cl 3.1 could also occur with the same result although this is less likely.
8. Once it is accepted that LMCH’s declaration has practical value, LMCH has an equally powerful claim to costs. The declaration may have less intrinsic value than BRL’s successful defence against coercive orders but this is counterbalanced by the way in which grounds for the declaration dominated the arbitration. Whether BRL could rely on cl 3.10 as a defence occupied less than 2% of the hearing.
11 At [8] and [83].
12 At [5].
13 L&M Coal Holdings Ltd v Bathurst Resources Limited (Minute 8 (Significance of Declaration)), 30 March 2023.
9. I concluded that the cost claims of the two parties were of broadly equal strength. For that reason party and party costs have been left to lie where they fall except for any unpaid expenses the parties had agreed to share.
[13] Bathurst now seeks to set aside the Costs Award under art 34(2)(b)(ii) of sch 1 of the Act on the grounds that it “is in conflict with the public policy of New Zealand”.. Specifically, it says that conflict arises due to:
(a)the failure of the arbitrator to follow the approach of the Supreme Court and Court of Appeal. Bathurst says a conflict arises regardless of whether that failure is considered a failure to recognise an estoppel or a failure to follow binding precedent – either way, public policy required a principled (and consistent) approach which accounted for the Courts’ earlier findings; and/or
(b)a breach of natural justice, on the basis that a key finding forming part of the arbitrator’s decision on costs was made without being the subject of any pleading, discovery, or evidence, in circumstances where Bathurst could not reasonably have foreseen that such issues would become significant and provided evidence on them pre-emptively.
[14] In both cases, Bathurst says that the consequences are sufficiently material to justify this Court setting aside the Costs Award.
[15] LMCH opposes the application and submits that there is no issue estoppel or binding precedent on the arbitrator and there were, in any event, material distinctions between the two sets of proceedings. Bathurst’s alternative ground –– that the arbitrator acted in serious breach of natural justice –– is also wrong and overlooks the arbitrator’s consideration of the parties’ submissions, as well as Bathurst’s own decision not to tender the very evidence in respect of which it now complains. The application does not even approach the necessary threshold. It should be dismissed with increased costs awarded to LMCH.
Issues to be determined
[16] The essential issues to be determined are whether the award is in conflict with the public policy of New Zealand because:
(a)the senior Courts’ costs decisions in the previous litigation gave rise to an issue estoppel, or were binding precedent; or
(b)it was in breach of natural justice.
[17] There is an ancillary issue of whether the High Court proceedings should be subject to an order that they be conducted in private.
Applicable principles
[18] Schedule 1 to the Act reflects an international framework based on a United Nations-drafted Model Law,14 implementing an international treaty to which New Zealand is a party,15 which guarantees limited curial intervention in international arbitrations. Article 5 of that schedule confirms that the Court cannot “intervene except where so provided in [that] schedule”.
[19] Bathurst, in asking the Court to set aside the Costs Award, relies on art 34(2)(b)(ii) which provides:
34 Application for setting aside as exclusive recourse against arbitral award
(1)Recourse to a court against an arbitral award may be made only by an application for setting aside in accordance with paragraphs (2) and (3).
(2)An arbitral award may be set aside by the High Court only if—
...
14 United Nations Commission on International Trade Law (UNCITRAL) Model Law on International Commercial Arbitration (1985) [the Model Law]. Note that Australia, Singapore, and New Zealand are “Model Law” jurisdictions. The United Kingdom is not, which limits the relevance of United Kingdom decisions in this context.
15 United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards (opened for signature 10 June 1958, entered into force 7 June 1959) 330 UNTS 38 (1959) [New York Convention].
(a)The High Court finds that––
(i)…
(ii)The award is in conflict with the public policy of New Zealand.
…
(6)For the avoidance of doubt, and without limiting the generality of paragraph (2)(b)(ii), it is hereby declared that an award is in conflict with the public policy of New Zealand if—
(a)…
(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.
[20] As this is an international arbitration, sch 2 of the Act does not apply (sch 2 reflects certain domestic modifications to New Zealand’s arbitral framework).
Article 34 in a costs setting
[21] The parties were unable to find a case where an international arbitral costs award was set aside in New Zealand, or any comparable commonwealth jurisdiction, under art 34.16
[22] LMCH relies on a leading Australian international arbitration text, which states:17
an incorrect award of costs cannot be corrected under Art 34. None of the grounds for recourse against an award delineated in Art 34 is either directly or indirectly applicable.
16 This is despite art 34 being “one of the most litigated provisions of the NZ Act”: see David Williams and Amokura Kawharu Williams and Kawharu on Arbitration (2nd ed, LexisNexis, Wellington, 2017) at [17.1.2].
17 Redwood, Bajaj and Jacobs (eds) International Commercial Arbitration in Australia (looseleaf ed, Thomson Reuters, 2023) at [39.50].
[23]The Singapore High Court expressed a similar view in VV v VW:18
[t]he prevailing public policy being that substantive arbitral awards are inviolable notwithstanding mistakes of fact or law, it would be odd for the courts to be able to justify interfering with the quantum of costs awarded by an arbitrator by invoking public policy.
[24] Bathurst takes issue with the contention that an award of costs can never be set aside under art 34. The above statement in the Australian text is under the heading “Where Arbitral Tribunal has failed to follow general rule” and is preceded by a discussion about a failure to follow the general rule that costs follow the event. I accept the general proposition stated in the text must be considered in that context. That there is no blanket rule that an arbitral costs award can never be set aside under art 34 is evident from LMCH’s concession that if the Supreme Court or Court of Appeal decision on costs has created an issue estoppel in this case, that would be a ground for setting aside the award under art 34.
[25] Similarly, the comments of the Singapore High Court in VV v VW must be considered in context. The Court was not foreclosing the possibility that in specific situations, such as an issue estoppel, an award of costs could be set aside for being in conflict with public policy. However, it will not be sufficient that there has been a failure to apply a particular principle or even that the discretionary costs decision is unreasonable.
[26] Although the parties could not locate a case from a comparable jurisdiction, Bathurst did manage to find one example of a case where an arbitrator’s award of costs was set aside. This was a decision of the Court of Appeal of the Philippines.19 However, a leading text on international arbitration describes that case in the following terms:20
18 VV v VW [2008] SGHC 11, [2008] 2 SLR 929 at [30]–[31]: “it is not part of the public policy of Singapore to ensure that the costs incurred by parties to private litigation outside the court system eg arbitration … are assessed on the basis of any particular principle …”. The Judge goes on to explain “[t]hat is not to say that arbitrators should not follow established legal principles when assessing costs … but simply that there are no public policy implications connected with that procedure. There is no public interest involved in the legal costs of parties to one-off and private ligation. Such litigation sets no precedents and binds no one apart from the immediate parties”.
19 Luzon Hydro Corp v Transfield Philippines Inc [2004] 4 SLR 705.
20 Michael Hwang and Shaun Lee “Survey of South East Asian Nations on the Application of New York Convention” (2008) 25(6) JIntlArb 873 at 890 (footnote omitted).
In this light, the Philippines has a very broad notion of public policy despite ostensibly being a Model Law state. In Luzon Hydro Corp v Rommel O Baybay & Transfield Philippines, Inc, the facts were that the arbitrator, having rendered his final award, decided costs should follow the event. The Court of Appeals, in reversing the trial judge’s decision, decided that this approach to costs was not part of Philippine law or principles and thus it was a violation of public policy that a bona fide litigant should not have to bear the costs of the other party and thus be made to pay a premium on top of its own solicitor’s costs if litigating a valid claim. Accordingly the award was set aside, despite the fact that it was an ICC arbitration in Singapore. This approach violates the Parsons approach of a narrow conception of public policy.
[27] I agree with that analysis and consider the Philippines case to be of no assistance.
General art 34 principles
[28] The following general principles are applicable to applications to set aside an award under art 34:
(a)There is no appeal of any kind – whether of law or fact – against international arbitral awards governed solely by sch 1 of the Act. Article 34 does not operate as an appeal right, and presents no opportunity for relitigating either legal or factual disputes.21
(b)Although cl 5 of sch 2 of the Act provides a limited basis for appeals on a question of law for domestic arbitral awards governed by that schedule, even that mechanism is narrowly framed to prevent parties dressing factual disputes in legal clothing.22 Thus, questions of law exclude an incorrect application of the applicable law, whether the award or any part of it was supported by any sufficient evidence, and whether the arbitral tribunal drew the correct factual inferences from the relevant primary facts.23
21 Pupuke Service Station Ltd v Caltex Oil (NZ) Ltd PC63/94, 16 November 1995 (PC) at [28], as reported in part as an appendix to Gold and Resource Developments (NZ) Ltd v Doug Hood Ltd [2000] 3 NZLR 318 (CA). There is no right to appeal on a point of fact: Carr v Gallaway Cook Allan [2014] NZSC 75, [2014] 1 NZLR 792 at [14].
22 Lipp v Chaney [2012] NZHC 1761 at [33].
23 Arbitration Act 1996, sch 2, cl 5(1).
(c)The Court’s residual jurisdiction to set aside an award under art 34 of sch 1 is narrower still. All of the grounds within art 34 are recognised internationally to be construed “narrowly” and “in a restrictive manner”.24 The Court of Appeal has reiterated that the specific aims of the Act include “the promotion of finality in arbitral awards and the limiting of judicial intervention”,25 and this Court has emphasised that the relevant principles “combine to provide a foundation for the proposition that courts should not interfere with factual findings made by the Arbitral Tribunal”.26
(d)The art 34(2)(b)(ii) public policy exemption is limited to a “relatively narrow category of non-waivable rules of mandatory law that are fundamental to the legal or social order of a jurisdiction, often involving criminal prohibitions or comparable mandatory rules”.27
(e)New Zealand’s leading authority, Amaltal Corporation Ltd v Maruha (NZ) Corporation Ltd,28 confirms a distinction between a public policy factor that might render a contractual provision unenforceable and the
24 See for example Law Commission Arbitration (NZLC R20, 1991) at [397] (“The limitation of judicial control of arbitral proceedings and awards is a central feature of the Model Law.”). As noted, art 34 essentially replicates art 34 of the Model Law which, in turn, seeks to give effect to the limited grounds for refusal of enforcement of awards in the New York Convention. See generally Carr v Gallaway Cook Allan, above n 21, at [10] and [93].
25 Gold and Resource Development (NZ) Ltd v Doug Hood Ltd, above n 21, at [55]. The three principles underpinning the art 34 jurisdiction are “party autonomy, reduced curial involvement in the arbitration process and increased powers for the Arbitral Tribunal”: Attorney-General v Tozer (No 3) HC Auckland M1528-IM02, CP607/97, 2 September 2003 at [14].
26 Attorney-General v Tozer (No 3), above n 25, at [15]. See also Pupuke Service Station Ltd v Caltex Oil (NZ) Ltd, above n 21, at [2] per Lord Mustill.
27 Bathurst cites Gary Born International Commercial Arbitration Volume iii International Arbitral Awards (Kluwer Law International BV, The Netherlands, 2021) at 4195–4196 and 4203. Born explains that “[n]ational courts in most developed jurisdictions have annulled international arbitral awards on the basis of public policy only in limited, exceptional cases” and uniformly hold that a violation of public policy must be “blatant, effective and concrete”, that it is available “only in extreme cases”. “[T]here are nonetheless frequent attempts to persuade courts to deviate from this rule – where counsel seek to garb substantive objections to a tribunal’s award in public policy dress – but these are only rarely successful”: Gary Born International Commercial Arbitration (3rd ed, Wolters Kluwer, Netherlands, 2021) at 3605 and 3611–3613. Another leading textbook confirms that the public policy ground is to be approached with “extreme caution” as it “was not intended to furnish an open-ended escape route for refusing enforcement of New York Convention awards”: David Sutton, Judith Gill and Matthew Gearing Russell on Arbitration (24th ed, Sweet & Maxwell, London, 2015) at 487–488.
28 Amaltal Corporation Ltd v Maruha (NZ) Corporation Ltd [2004] 2 NZLR 614 (CA) [Amaltal (CA)] at [41]–[46]. See also Downer-Hill Joint Venture v Government of Fiji [2005] 1 NZLR 554 (HC) at [76]–[84].
“weightier notion”29 of an award being in conflict with the public policy of New Zealand. The latter is confined to “occurrences of such seriousness that they would be regarded as in conflict with public policy of a state”, such as an award threatening a state’s welfare, being truly injurious to the public good or being wholly offensive to the ordinary reasonable and fully informed member of the public on whose behalf the powers of the state were exercised.30
(f)In 2014, the Federal Court of Australia in TCL Air Conditioner (Zhongshan) Co Ltd v Castel Electronics Pty Ltd examined the background underpinning art 34 of the Model Law and its application in comparable jurisdictions, including New Zealand.31 The Court confirmed that during the drafting of the Model Law, “public policy” under the New York Convention was “understood to be directed to fundamental principles and … not to be given a broad interpretation that might pick up particular national domestic policy manifestations”.32
(g)The courts’ limited role is no different where the public policy breach is said to arise from a serious breach of natural justice.33 Maintenance of a high bar in all cases, as reiterated in Amaltal34 and TCL,35 was the premise for the Law Commission’s recommendation to include art 34(6)(b).36 It is one thing to show that a finding is not based on facts
29 Amaltal Corporation Ltd v Maruha (NZ) Corporation Ltd [2003] 2 NZLR 92 (HC) at [32], referenced by the Court of Appeal in Amaltal (CA), above n 28, at [25].
30 Amaltal (CA), above n 28, at [42]. See also Downer-Hill Joint Venture v Government of Fiji, above n 28, at [76] and Hi-Gene Ltd v Swisher Hygiene Franchise Corp [2010] NZCA 359 at [21]–[23], discussing arts 34 and 36.
31 TCL Air Conditioner (Zhongshan) Co Ltd v Castel Electronics Pty Ltd [2014] FCAFC 83, (2014) 232 FCR 361 at [64]–[80].
32 At [70].
33 Arbitration Act, sch 1, art 34(6)(b).
34 Amaltal (CA), above n 28, at [41]–[46].35 TCL Air Conditioner (Zhongshan) Co Ltd v Castel Electronics Pty Ltd, above n 31, confirming that the reference to natural justice in (the equivalent of) Art 34(6) was expressly to avoid doubt, and not to signal any idiosyncratic national approach (at [73]). The phrase natural justice within the context of public policy was clearly understood to be “limited to the fundamental principles of justice and morality conformable with, and suited to operation within … international commercial arbitration (at [74]), see also [111]: “Arts 34 and 36 should be seen as requiring the demonstration of real practical injustice or real unfairness in the … making of the award”).
36 Law Commission, above n 24, at 404: “We have hesitated before including the reference to ‘the rules of natural justice’ in article 34(6)(b) for two reasons. First, the principal rules of natural
or is based on imperfect reasoning, “[b]ut it is a much larger step to conclude that an error by an arbitrator in that respect is sufficient to render an award contrary to public policy …”.37
(h)Even where an art 34 ground is made out, the court retains a residual discretion whether to set the award aside.38 Unless the breach is of a sufficiently serious character to offend fundamental notions of fairness and justice, the discretion should not be exercised.39
Natural justice under art 34
[29] The leading New Zealand case on the principles applicable to breaches of natural justice under art 34 is Kyburn Investments Ltd v Beca Corporate Holdings Ltd.40 The Court noted that recourse to the court is limited, and requires: proof of a breach of the rules of natural justice; and the court to exercise its discretion.41 The Court observed that a number of factors were relevant to its interpretation:42
(a)the Act is largely based on the Model Law ...
(b)the purposes of the Act include encouragement of the use of arbitration as an agreed method of resolving commercial and other disputes and the redefinition and clarification of the limits of judicial review of the arbitral process and of arbitral awards;
(c)it is no longer helpful to consider the approach in cases decided under earlier legislation; and
(d)while the discretion in art 34 is of a wide and apparently unfettered nature, it must be exercised in accordance with the purposes and policy of the Act which emphasise the finality
justice, an impartial decision-maker, and a proper opportunity to be heard, are clearly embodied in articles 12, 18 and 24. Second, the thrust of the Model Law, and of the draft Act, involves a reduction in judicial involvement in arbitral proceedings, and an expansive approach to judicial review by New Zealand courts would contradict that thrust. Nevertheless, we have concluded that the Australian provision should be followed: the significance of natural justice in arbitral proceedings can be emphasised; and many recent decisions of New Zealand courts show that our judges are sensitive to their relatively limited role in arbitrations.” (Emphasis added).
37 Downer Connect Ltd v Pot Hole People Ltd HC Christchurch CIV-2003-409-002878, 19 May 2004 at [117]–[118].
38 Carr v Gallaway Cook Allan, above n 21, at [76]–[77].
39 TCL Air Conditioner (Zhongshan) Co Ltd v Castel Electronics Pty Ltd, above n 31, at [13]–[14] and [111] and [169].
40 Kyburn Investments Ltd v Beca Corporate Holdings Ltd [2015] NZCA 290, [2015] 3 NZLR 644.
41 At [27].
42 At [28] (footnotes omitted).
of arbitral awards and reduce the scope for curial intervention in accordance with the intentions of parties to arbitrations.
[30] Even if the Court finds a breach of the rules of natural justice, its power to set aside an award is discretionary43 and will be based on the Court’s evaluation of “the nature and impact of the particular breach”.44 Considerations such as the materiality of the breach, causation, and proportionality (of cost and delay to the disputed amount), are likely to impact whether the Court will exercise its wide discretion to set aside an award.45 As to when the discretion is likely to be exercised, the Court said:46
... where the breach is significant and might have affected the outcome courts are inclined to set aside the award. In some cases, the significance of the breach may be so great that the setting aside of the award will be practically automatic, regardless of the effect on the outcome of the award. Examples include TNT Bulkships Ltd, where the arbitrator had circumvented the legal procedures that were agreed to be applied to the arbitration. The Judge found this to be a substantial and complete misunderstanding by the arbitrator of his role in the arbitration, as opposed to a casual breach or occasional error which may not have necessitated court intervention.
[31] The Court endorsed the proposition stated in Williams and Kawharu on Arbitration that the discretion allows the courts to weigh up the policy of encouraging arbitral finality with “the need to protect parties against seriously flawed arbitrations”.47
[32] The Court accepted that neither the history and policy of the legislation nor the case law across Model Law jurisdictions supports placing an onus on a complaining party to show that the consequences of a breach of natural justice are sufficiently material to invoke the Court’s discretion under art 34.48 Rather, materiality is one matter relevant to the exercise of the Court’s wide discretion to set aside an award.49
43 At [41].
44 At [42] and [45].
45 At [42] and [45].
46 At [43] (footnotes omitted).
47 Williams and Kawharu, above n 16, at [17.2].
48 At [45]–[46].
49 At [45]. ‘Materiality’ in the sense of the extent to which the breach of the rules of natural justice had or might have had an impact on the outcome of the dispute. The Court went on to say at [47], there is “legal requirement to show the outcome would be different had the breach not occurred. No single factor is decisive or necessary for an award to be set aside ... Other factors may be relevant to the exercise of the discretion, such as the likely costs of holding a rehearing.”
The Court noted that there is an ordinary onus on the complaining party to make out its case that the award should be set aside.50
[33] Applying this approach to the case before it, the Court was satisfied that while the arbitrator had significantly breached the rules of natural justice, it did not set aside the award because the breach did not have any material effect on the outcome.51
[34] In Hi-Gene Ltd v Swisher Hygiene Franchise Corp,52 the Court dealt with an allegation that a refusal of an adjournment had resulted in a breach of natural justice contrary to public policy.53 In finding there was no breach of natural justice, the Court noted the purposes of the Act in s 5 and said:
[20] Of particular relevance here are the purposes of encouraging the use of arbitration as an agreed method of resolving disputes; the promotion of international consistency of arbitral regimes based on the Model Law; and the facilitation of the recognition and enforcement of arbitration agreements and arbitral awards. Consistent with these purposes, the courts of New Zealand have followed the decisions of courts in other jurisdictions in setting a high threshold when considering applications to refuse recognition or enforcement of an arbitral award under article 36. The onus is on the party seeking an order under that provision to establish one or more of the defined grounds. An order refusing recognition or enforcement of the arbitral award may be made only if one or more of those grounds is established.
[35] The Court summarised the principles articulated in Amaltal, and made the following observations:
[22] Reference may also be made to a decision of the Supreme Court of India in which it was said that an award could be opposed on public policy grounds where “it shocks the conscience of the court”.
…
[27] The Convention’s intention to remove obstacles to enforcement of arbitral awards and to apply a narrow construction (or high threshold) to all grounds for refusing enforcement is confirmed in Parsons Whittemore
50 At [47] following Pacific China Holdings Ltd (in liquidation) v Grand Pacific Holdings Ltd [2011] HKCFI 424, [2011] 4 HKLRD 188 at [88].
51 At [48].
52 Hi-Gene Ltd v Swisher Hygiene Franchise Corp, above n 30.
53 Hi-Gene Ltd v Swisher Hygiene Franchise Corp, above n 30. Although the Court was considering the position under art 36 rather than art 34 as the appellant sought refusal of enforcement rather than setting-aside, the provisions are equivalently worded, see [23].
Overseas Co v Société Générale de L’industrie du Papier, a decision cited by this Court in Amaltal.
(Footnotes omitted).
[36] In dismissing the appeal, the Court emphasised that “[a]s the party seeking the adjournment, it was incumbent upon Hi-Gene to seek a ruling from the arbitrators”.54 Although it would have been desirable for the arbitrators to have communicated better with the parties, that did not “detract from the essential obligation on the part of Hi-
Gene to seek a formal decision on the adjournment application”.55
[37] LMCH relies on statements of principle in the more recent decision of the Singapore Court of Appeal in China Machine New Energy Corp v Jaguar Energy Guatemala LLC and another.56 Those principles include:
(a)The right to be heard is a fundamental rule of natural justice. However, the right is impliedly limited by considerations of reasonableness and fairness.57
(b)What constitutes a “full opportunity” as a contextual inquiry. The question is whether what the arbitrator did fell within the range of reasonable and fair-minded responses, which can only be assessed by reference to what was known to or had been brought to the Tribunal’s attention at the material time. The Court will accord a margin of deference to the Tribunal in matters of procedure and would not intervene simply because it might have done things differently.58
(c)While objections had been raised to the Tribunal’s management of its procedure, it had never been asserted that the cumulative effect of the various complaints was such that the prospects of a fair arbitration had been irretrievably lost. Instead, the complaining party’s conduct of
54 At [29].
55 At [30].
56 China Machine New Energy Corp v Jaguar Energy Guatemala LLC and another [2020] SGCA 12, [2020] 1 SLR 695.
57 At [87], [88] and [97].
58 At [98], [99] and [103].
continuing to engage in the proceedings was entirely at odds with its contention that the arbitration was irretrievably lost and doomed.59
(d)The inconsistency between conduct during the arbitration and the case on the setting aside application was important for two reasons. First, the Tribunal could not be criticised for failing to consider points that never had been put to it. Second, the assertion that the Tribunal had acted in a material breach of natural justice was a very serious allegation, not just because of the impugning of the bona fides and professionalism of the Tribunal, but also for the grave consequence it might have for the validity of the award. For this reason, there could be no room for equivocality in such matters.60
[38] Mr Smith, for Bathurst, urged me not to consider these statements of principle part of the law of New Zealand because the Court of Appeal decisions addressing allegations of breach of natural justice in Kyburn and Hi-Gene do not go so far. That submission does not sit easily with the express purposes in s 5 of promoting international consistency of arbitral regimes based on the Model Law, nor the adoption by New Zealand courts of the approach of other jurisdictions in cases such as Amaltal, Hi-Gene and Kyburn. Moreover, the approach in China Machine, although more extensively expressed, appears to accord with the general approach in Hi-Gene of requiring the party to seek a formal ruling on its position rather than appearing to acquiesce by failing to do so.
[39] The importance of international harmony was emphasised by the Federal Court of Australia in TCL Air Conditioner (Zhongshan) Company Ltd v Castel Electronics Pty Ltd.61 There, it was said that it is essential to pay due regard to the reasoned decisions of other countries where their law was either based on, or take their content from, the Model Law and this “is especially so by reference to the reasoned judgments of common law countries in the region, such as Singapore, Hong Kong and New Zealand”.62 After an extensive review of the case law in these jurisdictions,
59 At [164] and [166].
60 At [167]–[172].
61 TCL Air Conditioner (Zhongshan) Company Ltd v Castel Electronics Pty Ltd, above n 31.
62 At [75].
including New Zealand,63 the Court held that no international arbitration award should be set aside “for being contrary to Australian public policy unless fundamental norms of justice and fairness are breached”.64 A party must demonstrate that it has suffered real unfairness or real practical injustice,65 and minor or technical breaches of natural justice will not suffice.66
Issue one: was the Costs Award in conflict with public policy because the senior Courts’ costs decisions in the previous litigation gave rise to an issue estoppel, or were binding precedent?
[40] Bathurst submits that it was in conflict with public policy for the arbitrator to deviate from the senior Courts’ approach to costs in the previous litigation. Bathurst’s arguments are essentially three-fold:
(a)That the arbitrator failed to appreciate that a declaration was sought and granted in the High Court and confirmed by the Court of Appeal and Supreme Court (in the previous litigation), that had an identical effect to that obtained by LMCH in the arbitration.
(b)That LMCH was estopped from contending for a different approach to costs in the arbitration because the outcome of the previous litigation and the arbitration was materially the same.
(c)That even if estoppel cannot be established, the arbitrator was bound to follow the costs precedent set by the Courts.
[41]I deal with each contention in turn.
63 This included endorsing the arbitrator in this case, Robert Fisher’s, decision, while sitting as a Judge of the New Zealand High Court, summarising the principles of natural justice in Trustees of Rotoaira Forest Trust v Attorney-General [1999] 2 NZLR 452 (HC), which was described by the Federal Court as “a helpful but not determinative, summary” at [141].
64 At [111].
65 At [113].
66 At [169].
Did the arbitrator fail to appreciate that a declaration was sought in the High Court?
[42] The arbitrator noted Bathurst’s submission that assessing the practical value of the declaration that cl 3.4 was breached by a change in control was inconsistent with the approach to costs adopted by the Supreme Court and Court of Appeal in identical circumstances.67 The arbitrator then said:
39. The short point is that the circumstances are not identical. The present inquiry concerns the significance of the Declaration. No declaration was sought or obtained in those courts. That makes it unnecessary to embark on the other differences.
[43] LMCH submits that the statement that there was no declaration sought in this paragraph needs to be looked at in its full context. The starting point is that LMCH’s pleadings in the litigation contained only one cause of action in debt with the relief sought being a declaration that the debt is due, followed by an order that Bathurst pay the amount due of USD 40 million. In other words, there was effectively one remedy sought, namely a declaration that the amount was due and an order for its payment.
[44] LMCH submits that its claim in the litigation was a claim in debt which depends entirely on demonstrating that the debt is immediately payable, whereas in the arbitration, LMCH brought a separate claim for a declaration of contractual breach pursued independently of its claim for immediate payment.
[45] The arbitrator was aware of this because he stated the following in his Minute No 7 (Issue Estoppel) dated 25 November 2022:
17. It appears that in the High Court LMCH sought and obtained a declaration that the first performance payment had become due and owing, and an order that Bathurst pay US$40 million to LMCH.
[46]The arbitrator then said the following about the declaration in his costs award:
21. BRL cannot claim that LMCH failed to signal its reliance on a declaration as an independent remedy. A declaration was expressly sought in LMCH’s originating Memorial of 30 June 2021. That remained the Memorial on which LMCH later went to a hearing. Contrary to BRL’s submission, there was nothing to suggest that the declaration was intended to be subsumed within the further remedies seeking orders for payment and issue of shares.
67 Costs Award, above n 1, at [38].
There would have been no point in seeking a declaration if it would have added nothing to those orders.
[47] In that paragraph, the arbitrator distinguishes between a declaration as an independent remedy and a declaration intended to be subsumed within the further remedy seeking orders for payment.
[48] Against that background, I accept LMCH’s submission that when the arbitrator said that no declaration was sought or obtained in the Court of Appeal or Supreme Court at [39] of his decision, his language was imprecise, but what he meant was that no independent declaration was sought separate from the remedy seeking orders for payment. In any event, even if the arbitrator had overlooked the declaration sought and obtained (in the High Court at least) in the litigation, that would be of little relevance to my assessment of whether an issue estoppel arises, or whether there was a failure to follow binding precedent.
Was LMCH estopped from contending for a different approach to costs in the arbitration because the outcome of the previous litigation and the arbitration was materially the same?
[49] Bathurst submits that there is no material distinction between the current position and what occurred in the litigation had the Supreme Court and Court of Appeal expressly made declarations that cl 3.4 had been triggered. The Courts made clear findings that cl 3.4 had been triggered as the coal had been shipped, but cl 3.10 had precisely the same effect in both proceedings, namely there was no obligation to make a payment so long as no mining was occurring.
[50]Bathurst refers to [115] of the arbitrator’s decision:
The submission overlooks the following:
(a)The issues were different. The principal issues in the litigation before the Courts were (i) whether coal had been “shipped” and (ii) whether the shield in cl 3.10 prevailed even where a Performance Payment was triggered by the shipping of a specified volume and royalties ceased to be payable due to the decision to stop mining. In the arbitration the issues were (i) whether the shield in cl 3.10 would prevail even where there was a change in control and (ii) whether there had in fact been a change in control.
(b)No declaration was sought in the litigation before the Courts.
(c)The costs codes used in the senior courts do not apply. In arbitrations it can often be helpful to draw analogies with approaches taken by courts but the discretion is broader and costs awards tend to be higher.
[51] Bathurst submits that determining (i) whether the shield in cl 3.10 would prevail even where there was a change in control and (ii) whether there had in fact been a change in control, were separate issues. However, determining the issue of whether the shield in cl 3.10 would prevail was the same in the litigation and arbitration. Both the Court and arbitration proceedings ultimately turned on the shield to an otherwise due debt. Thus, Bathurst submits, the reality is, there is no material distinction between the litigation and the arbitration when it comes to outcome – in both cases there was a finding that cl 3.4 was triggered but that cl 3.10 operated to preclude payment. Both findings have the same effect, so the same approach should be taken to costs.
[52] The problem with Bathurst’s argument is that it is made at a level of abstraction that sidesteps the precision required to determine whether an issue estoppel arises.
[53] The finding of an issue estoppel requires that the relevant issue must be precise and identical.68 The Courts are cautious before finding an issue estoppel exists.69 In particular:70
… the doctrine cannot be made to extend to presumptions or probabilities as to issues in a second action which may be, and yet cannot be asserted beyond all possible doubt to be, identical with those raised in the previous action.
[54]The position needs to be considered against this test.
68 Issue estoppel “precludes a party from contending the contrary of any precise point which, having once been distinctly put in issue, has been solemnly and with certainty determined against [them]” (emphasis added): Joseph Lynch Land Co Ltd v Lynch [1995] 1 NZLR 37 (CA) at 40–41 per Tipping J, affirmed in Oy v Complaints Hearing Committee [2013] NZCA 107, [2013] NZAR 629 at [26]; and van Heeren v Kidd [2016] NZCA 401, [2017] 3 NZLR 141 at [54] and [137].
69 van Heeren v Kidd, above n 68, citing Talyancich v Index Developments Ltd [1992] 3 NZLR 28 (CA) at 37. Also approved recently in White v Attorney-General [2021] NZCA 497 at [29]. With regards to matters of fact, issue estoppel is confined to those “ultimate facts which form the ingredients in the cause of action”: Justice K R Handley Spencer Bower and Handley: Res Judicata (5th ed, LexisNexis, London, 2019) at [8.02], citing Blair v Curran (1939) 62 CLR 464 at 532–533.
70 New Brunswick Railway Co v British and French Trust Corp Ltd [1939] AC 1 (HL) at 20, as endorsed by Shiels v Blakeley [1986] 2 NZLR 262 (CA) at 267.
[55] In oral argument, Mr Smith, for Bathurst, narrowed the issue to which estoppel is said to apply to a finding that, for the purposes of costs, Bathurst won and LMCH lost. He submitted that the arbitrator was not required to adopt the approach of the Court of Appeal of applying a 15 per cent reduction in costs but was required to find that Bathurst was the successful party, given the materially equivalent overall outcome.
[56]I do not accept Bathurst’s submission for the following reasons:
(a)Mr Smith accepted that the Supreme Court’s reasoning on costs was insufficient to give rise to an issue estoppel, especially as the Court heard no oral or written submissions on costs and certainly never gave the parties an opportunity to address, nor addressed itself, the economic significance of the cl 3.4 finding to LMCH.
(b)The Court of Appeal’s observation, relied upon by Bathurst, that “L&M’s success had no economic effect between the parties” was a statement that arose in the context of the pleaded claim before the Court.71 It meant only that LMCH had failed in its indivisible debt claim in relation to which there was no separate independent declaration sought.
(c)In the arbitration there was a standalone declaration sought from the outset. The power of purely declaratory relief should not be dismissed,72 especially in circumstances where LMCH clearly signalled this during the interlocutory stages of the arbitration, as recognised by the arbitrator when he said:
22. Nor can BRL claim that LMCH failed to signal its perception of the remedy as important in its own right. During the interlocutory stages of the arbitration BRL informally proposed that the application of cl 3.10 to a change in control be treated as preliminary determination. LMCH responded:
“LMCH’s primary claim in this arbitration for a declaration that the Change in Control debt has been
71 Bathurst Resources Ltd v L&M Coal Holdings Ltd, above n 8, at [26].
72 Smith v Fonterra Co-operative Group Ltd [2024] NZSC 5 at [171].
triggered requires determination irrespective of the application or otherwise of cl 3.10 to the Change in Control mechanism
and that:
this arbitration must in any event determine whether a debt arises under the Change in Control mechanism, regardless of whether it is presently recoverable under the ASP”.
(d)The inquiry as to the effect of the standalone declaration could not have arisen in the previous litigation. The key difference between the costs judgments in the previous litigation and the Costs Award in the arbitration is not just one of form alone, but extends to the further inquiry that unfolded in the arbitration because of its different form. That inquiry could not arise in the previous litigation because LMCH failed to obtain any relief at all. The fact no relief was granted in the litigation did not mean that no further inquiry was warranted, just that it fell beyond the scope of that litigation.
(e)I do not accept Bathurst’s argument that LMCH is somehow contradicting itself by arguing in separate proceedings that the effect of the Supreme Court judgment was that Bathurst’s debt to LMCH was “due” but not yet “owing”.73 Bathurst submits this illustrates that LMCH itself has proceeded on the assumption that the Supreme Court’s finding was equivalent to a declaration that cl 3.4 has been triggered. However, this argument is also made at a level of abstraction that ignores the precision required to determine whether an issue estoppel arises. There is no doubt that the effect of the Supreme Court’s decision is that cl 3.4 had been triggered. The question to be determined is the impact that has on a costs award in a subsequent arbitration where an independent declaration was sought that cl 3.4 was triggered for other reasons. And where the importance of the independent declaration was signalled from an early stage of the proceedings, and the resolution of the question took up 98 per cent of
73 LMCHB Ltd v Buller Coal Ltd & Bathurst Resources Ltd [2023] NZHC 633 at [82].
the arbitration (in circumstances where Bathurst did not seek to have the question determined as a preliminary issue).
(f)A costs award in distinct proceedings cannot by its nature amount to binding precedent. Even the Court of Appeal did not regard the Supreme Court’s costs decision as binding.74
(g)As the arbitrator noted, arbitral costs are not determined on the same basis as Court proceedings and are often greater in quantum.75 Arbitral discretion is especially sacrosanct in international arbitrations to which sch 2 of the Act does not apply. Although Bathurst relies on commentary expressing dissatisfaction about the extent of arbitrator discretion when making costs awards, failure to apply particular costs principles cannot amount to a conflict with public policy.76
(h)The exercise of a costs discretion will rarely be capable of amounting to an issue estoppel. The question the arbitrator was asked to determine was different to the question the Court of Appeal asked itself, not only because the proceedings and costs regimes are different, but because the cl 3.4 question was different, and the cl 3.10 issue was treated by both parties in the arbitration as an afterthought while they battled over whether a change in control had happened. As the arbitrator noted, “neither party raised the question whether the declaration would be moot until the post-Award exchanges over costs”.77
(i)It would be an unusual outcome for an issue estoppel to arise from observations in a costs judgment in a subsequent arbitration between the parties. I was provided with no judgment where an issue estoppel has arisen in New Zealand or in any analogous overseas jurisdiction in
74 Bathurst Resources Ltd v L&M Coal Holdings Ltd, above n 8.
75 Costs Award, above n 1, at [115(C)].
76 For example, see discussions of the public policy threshold in art 34 in Amaltal (CA), above n 28;
TCL Air Conditioner (Zhongshan) Co Ltd v Castel Electronics Pty Ltd, above n 31.
77 Costs Award, above n 1, at [24].
these circumstances. In Clancy v Santoro, the Supreme Court of Victoria held:78
In my opinion identification of the “same question” does not sit easily with determination, most often following an informal hearing, of the manner in which the judicial discretion with respect to costs is to be exercised. Further, if the intent of the doctrine is to prevent relitigation of certain questions once finally determined, it is implicit that any such question was the subject of true inter parties agitation. That was not the case in Nathan J’s disposition of the costs application. It would rarely if ever be the case in the disposition of such an application.
(j)Leaving to one side the other differences in the outcomes of the two proceedings, the stark reality is that LMCH succeeded on an issue that took up 98 per cent of the arbitration compared to the less than 40 per cent of time spent on the cl 3.4 “shipping” issue in the litigation.79
[57]For these reasons, I consider no issue estoppel arises.
Even if no estoppel arises, was the arbitrator bound to follow the approach to costs taken in the Supreme Court and Court of Appeal?
[58] This issue can be dealt with briefly. For the Supreme Court and Court of Appeal’s decisions on costs to amount to binding authority, I consider those Courts would have needed to have addressed the same question the arbitrator was required to address. For the reasons just traversed in respect of issue estoppel, I do not consider that to be the case. I do not consider there is any material distinction between the concepts of issue estoppel and binding authority in circumstances where the effect of a Court’s decision as a precedent is being determined in subsequent proceedings, relating to the same subject matter, between the same parties. In other words, for the Courts’ decisions on the issue to be binding authority they would have needed to have addressed precisely the same issue.
[59] Even though the Supreme Court and Court of Appeal’s approach to who was the successful party is not binding authority on the arbitrator in these circumstances,
78 Clancy v Santoro [1999] 3 VR 783 at 799 (SC) at [72].
79 Costs Award, above n 1, at [8] and [82]–[83].
it could nonetheless amount to highly persuasive guidance that should not be readily overlooked. However, I do not consider that an arbitrator’s failure to follow highly persuasive guidance from New Zealand’s superior courts would of itself be sufficient to meet the high threshold for a breach of public policy in the context of a discretionary costs decision.80 Moreover, even if I am wrong about this, I consider the arbitrator’s reasons for departing from the Supreme Court and Court of Appeal’s approach, as noted above, were clearly open to him. On that basis, there is no ability to intervene under art 34.
Further comments on issue one
[60] I have not overlooked the submission that the arbitrator’s approach may be a reflection of his scepticism about the correctness of the Supreme Court’s decision evident from his description of it as a “surprising”,81 and “unexpected decision”,82 and his reference to “puzzling” aspects of the decision, including a “linguistic leap” in the Court’s interpretation of cl 3.10 and the plausibility of its assumption that LMCH was so intent on encouraging investment it was prepared to forgo a major part of the sale price for an indefinite period.83
[61] However, I also note that despite this evident scepticism, the arbitrator diligently applied the law of issue estoppel in finding against LMCH on the effect of the Supreme Court’s decision on the availability of the shield in cl 3.10. He was unable to find any legal ground to distinguish the applicability of the Supreme Court’s reasoning because cl 3.4 was triggered by a change in control rather than the quantity of shipped coal.84
[62] Moreover, the question of whether the Courts’ costs decisions give rise to an issue estoppel and/or were binding authority are matters for this Court irrespective of the arbitrator’s views on the merits of the Supreme Court’s decision.
80 For example, see discussions of the public policy threshold in art 34 in Amaltal (CA), above n 28;
TCL Air Conditioner (Zhongshan) Co Ltd v Castel Electronics Pty Ltd, above n 31.
81 Partial Award, above n 9, at [4].
82 At [89].
83 At [70] and [89].
84 At [5] and [94].
[63] I also do not accept LMCH’s submission that failure to raise issue estoppel on costs before the arbitrator precludes it being raised now as a ground to set aside the award. I accept Mr Smith’s submission that whether there was an issue estoppel is a matter of evaluative judgment for this Court. If, as a matter of law, there was an issue estoppel, as Mr Kalderimis concedes, that would amount to a conflict with the public policy of New Zealand sufficient to set aside the award.
[64] Although Bathurst did not rely on issue estoppel before the arbitrator, it did submit that the arbitrator was required to “apply binding Supreme Court and Court of Appeal authority on the approach to costs on this very contract, on a finding that is materially identical to the finding in that litigation that cl 3.10 applied”.85 It could be said that this submission, although not expressly raising issue estoppel, does so in substance. On the other hand, given, as LMCH points out, estoppel was raised in respect of other issues both as to liability and costs,86 it seems expressly raising it would not have been readily overlooked. The failure of experienced counsel to expressly raise issue estoppel in these circumstances, tends to reinforce my conclusion that no issue estoppel arises.
Issue two: breach of natural justice
[65] Bathurst’s essential complaint was that it was unfair and a breach of natural justice for the arbitrator to make findings about the practical value of the change in control declaration. This was because:
(a)It was contrary to the approach of the Court of Appeal and Supreme Court on costs. This ground repeats the arguments already addressed under issue one.
(b)Bathurst had insufficient notice of LMCH’s position that the change in control declaration had practical value and was therefore deprived of the ability to call evidence in the substantive proceedings, or at all, in respect of the issue.
85 Costs Award, above n 1, at [114].
86 At [18].
(c)The arbitrator’s decision to make the inquiry based on legal reasoning only and future postulated scenarios (referred to as “hypothetical scenarios” by the arbitrator) was unfair as it required crucial factual findings that could not be made without the benefit of detailed pleadings, discovery, and evidence.
(d)Issues of whether payment might possibly one day be due should be litigated in the future. It is not appropriate to determine who won by reference to unpleaded future hypothetical scenarios.
[66] The essence of these complaints was dealt with by the arbitrator. The arbitrator noted the parties’ competing contentions about the effect of the declaration on costs,87 recorded that he issued minutes seeking assistance on the issue,88 and he then set out the following list of documents filed or issued:89
(a)LMCH memorandum of 15 April 2023 as to Declaration and Notification;
(b)BRL memorandum of 13 April 2023 objecting to fresh evidence in LMCH’s memorandum;
(c)LMCH email of 13 April 2023 responding to BRL’s objection;
(d)Minute 10 upholding BRL’s objection and requiring LMCH to file a fresh memorandum;
(e)LMCH fresh memorandum of 26 April 2023 as to Declaration and Notification;
(f)BRL opposition memorandum of 3 May 2023 as to Declaration and Notification;
(g)LMCH reply memorandum of 5 May 2023.
[67] The arbitrator then noted that Bathurst’s memorandum of 3 May 2023 made it clear that the setting aside of LMCH’s first memorandum (referred to further below) did not cure the jurisdictional and procedural problems. Its objections were summarised as follows:90
87 Costs Award, above n 1, at [15].
88 At [17].
89 At [17].
90 At [18].
(a)LMCH’s contention that the Declaration would or might have future significance had not been advanced in the course of the substantive hearing.
(b)LMCH’s contention that BRL had breached an obligation to give notice of a change in control had not been advanced in the course of the substantive hearing.
(c)The procedure permitted by Minutes 8 and 9 raised the risk of issue estoppel.
(d)The same procedure prejudiced BRL by denying it the opportunity to adduce evidence as to the likelihood of the hypothetical scenarios relied on by LMCH.
(e)The adopted procedure was inconsistent with the approach to costs mandated by the Supreme Court and Court of Appeal.
[68] Objection (e) has been dealt with above. No issue has been taken with the arbitrator’s finding on (c) (that no issue estoppel arises due to the procedure adopted)91 and (b) (the breach of contract allegation should be disregarded for costs purposes as it would introduce a whole new cause of action),92 but (a) and (d) remain alive.
[69] In relation to (a), the contention that the declaration would have future significance was not advanced at the hearing, the arbitrator held:
(a)Bathurst cannot claim that LMCH failed to signal its reliance of a declaration as an independent remedy of a declaration was expressly sought in its originating Memorial of 30 June 2021. There was nothing to suggest that it had been subsumed within the further remedies seeking orders for payment and issue of shares and there would have been no point seeking a declaration if it would add nothing.93
(b)Nor could Bathurst claim that LMCH failed to signal its perception of the remedy as important in its own right, quoting the following from LMCH’s response to the possibility of a preliminary determination of the application of cl 3.10:94
91 At [33].
92 At [28].
93 At [21].
94 At [22].
LMCH’s primary claim in this arbitration for a declaration that the Change in Control debt has been triggered requires determination irrespective of the application or otherwise of cl 3.10 to the Change in Control mechanism
and that:
this arbitration must in any event determine whether a debt arises under the Change in Control mechanism, regardless of whether it is presently recoverable under the ASP.
(c)Bathurst’s real complaint must be that LMCH did not particularise the ways in which the declaration might prove to be of future significance. Bathurst’s failure to oppose the independent declaration as moot would have otherwise put the practical consequences of an independent declaration in issue. LMCH was entitled to assume a declaration was not opposed on that ground.95
(d)Neither party raised the mootness of the declaration until the post-
Award exchanges over costs.96
(e)There is no problem with issues arising for the first time as part of determining the extent of a party’s success for the purposes of costs. If one party says it has secured a valuable remedy and the other party says it is worthless, there is little choice but to decide who is right.97
[70] In relation to (d), Bathurst being denied the opportunity to adduce evidence, the arbitrator found:98
When LMCH raised its hypothetical scenarios Bathurst could have, but did not, apply to adduce its own likelihood evidence. Instead of doing so when its opportunity arose following LMCH’s memorandum of 15 April 2023, Bathurst applied to strike out the new evidence. While entirely justified in doing so, it just cannot be reconciled with its complaint that it has been denied the opportunity to respond with its own evidence and that opportunity was repeated in Minute 10, which stated:
To the extent that resort to evidence is required, it is to be taken from evidence already adduced in the arbitration or recorded in the Supreme Court judgment. Any evidence
95 At [23].
96 At [24].
97 At [25].
98 At [35] and [36].
outside those parameters would be possible only after an application to adduce evidence is granted (emphasis added).
[71] It seems to me that Bathurst’s essential complaint is issue (a) rather than (d). If the arbitrator was right that there was no unfairness in the value of the declaration being raised at the point of costs being determined, that issue had to be determined one way or another. Bathurst had the opportunity to engage with it at that point by presenting evidence, but instead chose to object to the receipt of evidence while maintaining it was prejudiced by the decision to embark on the inquiry at all. I consider Bathurst’s case on natural justice therefore stands or falls on whether it was a breach of natural justice to have embarked on the assessment of the value of the declaration in determining costs.
[72] On this issue, I find the arbitrator’s reasoning persuasive. LMCH signalled from the outset of the arbitration the value to it of an independent declaration, indicated that it considered the remedy important in its own right, and Bathurst’s failure to oppose the declaration as moot meant LMCH was not required to particularise the manner in which it may prove to be of value in the future.
[73] As already noted, once the value of the declaration was put in issue by both parties in determining relative success for the purpose of costs, the arbitrator had no choice but to resolve the issue. As the arbitrator held in dealing with the suggestion that this may risk an issue estoppel, it was not necessary to finally determine the legal rights the parties would have if certain events were to occur. It was sufficient to make an assessment based on the likelihood that LMCH’s legal arguments would succeed for the purposes of assessing costs.99 Against that background, no issue can be taken with the arbitrator’s approach of confining the parties to legal submissions based on the evidence already adduced in the arbitration and litigation. I consider that to be an orthodox approach to determining competing contentions about relative success for the purpose of costs.
[74] It is important to note here that Bathurst’s challenge is, as it must be, to the fairness of the process because the setting aside ground under art 34(2)(b)(ii) is only
99 At [33].
available if there has been a conflict with public policy due to a breach of natural justice. Accordingly, any concern that the arbitrator may have reached the wrong (or even unreasonable) conclusion on the merits of the value of the declaration is of no relevance at all.100
[75] I am therefore not satisfied that the “fundamental norms of fairness and justice” have been breached or that “real unfairness” or “real practical injustice” has occurred.101
[76] Given this conclusion, I do not need to deal with LMCH’s contention that, on the basis of the decisions of Hi-Gene and China Machine, it was not open to Bathurst to acquiesce in the approach adopted by the arbitrator without squarely raising that such an approach would be a breach of natural justice and unequivocally seeking a ruling on the point. Whether Bathurst’s failure to go that far precludes a finding of a breach of natural justice on an application to set aside need not be determined.
The ancillary issue of whether an order should be made that the proceedings be conducted in private
[77] I granted interim orders under s 14F(1) of the Act at the hearing pending final determination of the issue in this judgment. I allowed a member of the media to stay in the courtroom on the basis that the interim order would be complied with and pending final determination of the issue. No members of the public were present in the courtroom or sought to enter the courtroom and thus no decision was required to be made about closing the court.
[78] Bathurst seeks the order on the basis of the parties’ express agreement that any court proceedings should be conducted in private in the terms of appointment of the arbitrator dated 11 November 2020, cl 8 of which provides as follows:
8.1Except where agreed or directed otherwise, the Parties will keep all aspects of the arbitration confidential to the Parties and their
100 Downer Connect Ltd v Pot Hole People Ltd, above n 37, at [117]–[118]; and Gold and Resource Developments (NZ) Ltd v Doug Hood Ltd, above n 21, at 335. See also Attorney-General v Tozer (No 3), above n 25, at [15] and Pupuke Service Station Ltd v Caltex Oil (NZ) Ltd, above n 21, at
[2] per Lord Mustill.
101 See TCL Air Conditioner (Zhongshan) Co Ltd v Castel Electronics Pty Ltd, above n 31, at [109]– [111].
professional advisers, experts and witnesses. For the purposes of sections 14B–14E of the Act the contents of this agreement, the fact of the arbitration and the existence of the dispute, and any evidence or document used or provided in the course of the arbitration all constitute confidential information as defined in the Act.
8.2For the purpose of s 14H(D) of the Arbitration Act 1996 the ASP Parties record their desire and agreement that any court proceedings arising out of this arbitration should be conducted in private.
[79] Bathurst submits an order is appropriate given this express agreement, the fact that these are large commercial entities and the matters before the Court include commercially sensitive information, and the lack of public interest in the case.
Legal principles
[80] Under s 14H, in determining an application for an order to conduct court proceedings in private, the Court must consider:
(a)the open justice principle;
(b)the privacy and confidentiality of arbitral proceedings;
(c)any other public interest considerations;
(d)the terms of any arbitration agreement between the parties to the proceedings; and
(e)the reasons stated by the applicant.
[81] The starting point is the principle of open justice. It is a fundamental principle that maintains public confidence in the administration of justice.102 Parliament envisaged that proceedings under the Act be held in public except in circumstances where open justice is outweighed by the parties’ private interests.103
102 Erceg v Erceg [2016] NZSC 135, [2017] 1 NZLR 310.
103 Arbitration Act, s 14F(2)(e).
Decision
[82] I consider the parties’ express agreement that any court proceedings should be conducted in private is the major factor in support of an order.104 I note that in Telstraclear Ltd v Kordia Ltd the finding that the Court process should be public despite the parties having agreed the arbitration would be private, did not include a situation where there was express agreement the court process would also be private.105
[83] However, what the parties agreed cannot bind the Court, as the wording in cl 8 of the terms of appointment of the arbitrator indicates (the parties expressing a “desire and agreement” that any court proceedings be conducted in private). Moreover, LMCH’s desire has clearly changed since November 2020, as it now desires that the court proceedings be public. In addition to this, the following factors satisfy me that an order is inappropriate:
(a)The dispute between the parties has been the subject of public judgments of the most senior courts of New Zealand, which have traversed the parties’ commercial information in respect of the wider dispute in considerable detail already.
(b)There is a public interest in the resolution of this major commercial dispute arising in the context of New Zealand’s mining industry.
(c)There is a dispute between the parties about whether Bathurst’s Chairman’s comments, in his Chairman’s address at AGM presentations, have been dismissive of the change in control declaration. However, there is no dispute that there have been a number of public statements about the fact of the arbitration and its outcome, and that it dealt with an allegation that there had been a change in control triggering the second performance payment of USD 40 million.
104 Telstraclear Ltd v Kordia Ltd HC Auckland CIV-2010-404-1168, 28 September 2010 at [52] and [56].
105 Telstraclear Ltd v Kordia Ltd, above n 104.
[84] I do not accept, given the above, that details relating to the change in control declaration set out in this decision are sufficiently commercially sensitive to justify an order.
[85] I am, however, prepared to take the same approach to that taken in Telstraclear, namely ordering that this judgment be open to public scrutiny but the other material on the Court file should not be unless the Court can be persuaded otherwise.106 I accordingly make an order that no person may search, inspect, or copy any documents on the Court file relating to these proceedings (excluding this judgment) without the leave of a judge.
Conclusion
[86] For the reasons summarised at the start of this judgment, I dismiss the application to set aside the arbitral costs award.
Costs
[87] LMCH has indicated it intends to seek an order for increased costs pursuant to r 14.6(3)(b)(ii) and (iii). My preliminary view, adopting the approach of Cooke J in Lepionka & Company Investments Ltd v Gibson Sheat,107 is this is not a case where increased costs would be appropriate and LMCH should be entitled to scale costs on a 2B basis with certification for second counsel.108 However, if LMCH wishes to pursue an application for increased costs, it should file a memorandum (not exceeding five pages) within 10 working days of receipt of this decision, Bathurst should file a memorandum in response (not exceeding five pages) within 10 working days, and LCMH should file a reply within five working days (not exceeding three pages). I will then determine costs on the papers.
La Hood J
Solicitors:
Bell Gully, Wellington for Applicant
Chapman Tripp, Wellington for Respondent
106 At [56]-[57].
107 Lepionka & Company Investments Ltd v Gibson Sheat [2023] NZHC 2745.
108 While I have not accepted Bathurst’s arguments on the essential issues, my preliminary view is that they were not sufficiently unmeritorious to justify increased costs.
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