City Care Limited v Subsurface Civil & Drilling Limited
[2018] NZHC 363
•8 March 2018
IN THE HIGH COURT OF NEW ZEALAND CHRISTCHURCH REGISTRY
I TE KŌTI MATUA O AOTEAROA ŌTAUTAHI ROHE
CIV-2017-409-420
[2018] NZHC 363
BETWEEN CITY CARE LIMITED
Applicant
AND
SUBSURFACE CIVIL & DRILLING LIMITED
Respondent
Hearing: 6 March 2018 Appearances:
P R Rzepecky for the Applicant M E Parker for the Respondent
Judgment:
8 March 2018
JUDGMENT OF MANDER J
[1] Subsurface Civil & Drilling Limited (Subsurface) has applied to strike out City Care Limited’s (City Care) appeal against an arbitrator’s decision. Subsurface contends that City Care was required to obtain leave before commencing such an appeal and that it is now out of time to apply for leave.
Background
[2] City Care entered into a contract with Subsurface to provide underground excavation services for the purpose of installing a waterpipe under a road. In the course of carrying out this work Subsurface damaged a high voltage power line. A dispute arose regarding the liability to pay the costs of repairs. The parties had agreed to refer such disputes to arbitration. Subsurface were successful at the arbitration. City Care filed a notice of appeal in this Court alleging the arbitrator’s decision gave rise to a number of questions of law which had been erroneously decided.
CITY CARE LTD v SUBSURFACE CIVIL & DRILLING LTD [2018] NZHC 363 [8 March 2018]
The strike out application
[3]The arbitration agreement provided:
Award
[27]The parties agree that the decision of the Arbitrator will be binding and that they will not seek recourse to the Courts except on questions of law as provided for in Clause 5 of the second schedule to the Arbitration Act 1996.
[4]Clause 5 of sch 2 of the Act relevantly provides as follows:
5 Appeals on questions of law
(1)Notwithstanding anything in articles 5 or 34 of Schedule 1, any party may appeal to the High Court on any question of law arising out of an award—
(a)if the parties have so agreed before the making of that award; or
(b)with the consent of every other party given after the making of that award; or
(c)with the leave of the High Court.
(2)The High Court shall not grant leave under subclause (1)(c) unless it considers that, having regard to all the circumstances, the determination of the question of law concerned could substantially affect the rights of 1 or more of the parties.
(3)The High Court may grant leave under subclause (1)(c) on such conditions as it sees fit.
[5] Subsurface brings its strike out application on the basis the parties agreed that any appeal from the decision of the arbitrator would be governed by cl 5 of sch 2 of the Arbitration Act 1996 (the Act). As a result, it submits the only avenue of appeal available to City Care was by leave of this Court. City Care disputes that leave is required. It submits the parties intended to provide for a right of appeal on questions of law without leave and that cl 27 represents their agreement to such a course.
The interpretation of clause 27
[6] The parties accept that in approaching the interpretation of the terms of the arbitration agreement the Court is required to ascertain the objective meaning of the
parties’ intention. That requires the Court to assess the meaning the words would convey to a reasonable person having all of the background knowledge reasonably available to the parties.1 The ordinary and natural meaning of the words used in the contract and construed in the context of the contract as a whole will be a powerful indicator of the parties’ intention, even if not always conclusive.2
[7] Essentially Subsurface contends cl 27 reflects the mutual intention of the parties that cl 5 of sch 2 of the Act would apply as it ordinarily would in the absence of any agreement to the contrary.3 City Care’s position is that cl 27 records the parties’ intention to allow a right of appeal on questions of law as anticipated by sub-cl (1)(a) of cl 5.
Jurisprudence
[8] The interpretation of arbitration agreements regulating access by parties to this Court has been considered in a number of cases. Inevitably, those cases turn on the interpretation of the individual terms of the disputed clause in the arbitration agreement.
[9] Subsurface places significant reliance on a decision of Asher J in Airwork Holdings Ltd v Auckland Regional Rescue Helicopter Trust (Airwork Holdings).4 The clause of the arbitration agreement in issue was similar to cl 27. It provided:
8.1The award of the Arbitral Tribunal shall be final subject to the parties’ agreed rights of appeal as set out in clause 5 of the Second Schedule to the Act.
[10] Asher J rejected the proposition that the clause constituted an agreement between the parties, as provided by cl 5(1)(a). While acknowledging that an arbitration agreement can provide for a range of appeal rights, the effect of cl 8.1 was to confirm the application of cl 5 and did not displace its application. Asher J held:
1 Firm P1 I Ltd v Zurich Australian Insurance Ltd trading as Zurich New Zealand [2014] NZSC 147 at [60].
2 At [63].
3 Arbitration Act 1996, s 6.
4 Airwork Holdings Ltd v Auckland Regional RescueHelicopter Trust HC Auckland CIV-2005-404- 6808, 16 May 2006.
[16] Section 5 therefore creates a right to appeal, but it is a right that may only be invoked in the three listed circumstances, only one of which is agreement between the parties. In those circumstances, cl 8.1 of the agreement, in recording that cl 5 applies to the arbitration, does no more than record that the parties may appeal if they can bring themselves within one of the three conditions. Clause 8.1 is not an agreement in itself to an automatic right of appeal without leave.
[11] City Care sought to distinguish Airwork Holdings on the basis of submitted material differences in the wording of the respective arbitration agreements. It was emphasised that cl 8.1 of the Airwork Holdings agreement referred to the “parties agreed rights of appeal”, whereas in the present case cl 27 states the “parties agree... except on questions of law...”. It was also noted that cl 8.1 referred to the award being “final” rather than “binding”.
[12] However, City Care’s essential submission was that Airwork Holdings had been wrongly decided, and that the inclusion of the word “agreed” and “agree” in both agreements suggested a consensus between the parties permitting an appeal process on questions of law. It was submitted that if the parties in either case had simply wished to confirm that cl 5 was to govern their access to this Court, and which by default would apply in any event, they could simply have included a statement to that effect in the arbitration agreement without reference to having agreed on stipulated rights of appeal.
[13] Mr Parker on behalf of City Care submitted the Airwork Holdings case conflicted with the approach taken by Venning J in Coxhead v Wallbank.5 In that case a preliminary point arose as to whether leave was required on an application to have an award set aside on the ground the arbitrator erred in his finding on a question of law. The issue before the Court was similar to the present, but the circumstances which gave rise to it were quite different. The relevant provisions of the arbitration agreement provided as follows:
16.In the event of either of the parties wishing to take any action to have the award set aside, then the party initiating such action shall lodge in the solicitor’s trust account a sum equal to the amount that may have been awarded against it and no such action against the award shall proceed unless...
5 Coxhead v Wallbank [2013] NZHC 2622.
17.The party taking such action against the award pursuant to clause 16 of this agreement, is to commence proceedings in the High Court within 30 days of having given notice of the proposed action. TIME
BEING OF THE ESSENCE.
[14] Venning J noted the effect of cl 5 and its application in the absence of the parties having expressed any contrary intention. The defendant in that case did not consent after the making of the award to an appeal on a question of law.6 The issue therefore distilled to whether cls 16 and 17 constituted an agreement they may appeal to this Court on a question of law.7 If not, clearly leave was required. The plaintiff argued that cl 16 of the arbitration agreement which permitted a party to take “any action to have the award set aside”, was broad enough to encompass an appeal on a question of law, and that by using those words the parties had effectively agreed to an appeal on a question of law as of right. The defendant submitted there was no such agreement, and that any such agreement had to be express.
[15] Venning J referred to the decision of Walker J in Royal & Sun Alliance Insurance Plc v BAE Systems (Operations) Ltd (Royal & Sun Alliance), which the defendant relied upon in support of its submission that express words were necessary to preserve an appeal as of right.8 In that case, the crucial sentence was:9
Any party to the dispute may appeal to the Court on a question of law arising out of an award made in the arbitral proceedings.
[16] To similar effect was the wording of the arbitration agreement in issue in Weatherhead v Deka New Zealand Ltd which, while not explicitly referring to an “appeal”, provided that “the award shall be final and binding on the parties except for any error of law on the face of the award”.10 Venning J acknowledged the sentence the subject of focus in Royal & Sun Alliance was a clear and express provision preserving to the parties a right of appeal, but that such explicit language was not a necessary pre-requisite provided the effect of the clause in the arbitration agreement,
6 Arbitration Act 1996, cl 5(1)(b) of sch 2.
7 Clause 5(1)(a).
8 Royal & Sun Alliance Insurance Plc v BAE Systems (Operations) Ltd [2008] EWHC 743 (Comm).
9 At [16].
10 Weatherhead v Deka New Zealand Ltd [1999] 1 NZLR 492 (HC).
when properly interpreted, recorded an agreement that reserved the right of appeal on a question of law. Venning J concluded:11
... What is required for an appeal on a question of law without leave is wording that confirms the parties’ agreement an appeal may be lodged on a question of law. That is what art 5(1)(a) provides. The issue is not whether the parties had agreed to exclude the need for leave, but rather whether they had agreed to an appeal on a question of law. Article 5 does not require any particular form of words to be used to express that agreement.
[17] In reaching that conclusion, Venning J distinguished the case of A’s Company Ltd v Dagger (A’s Company) which he considered was confined to its facts.12 In that case the parties had entered into an oral agreement to arbitrate which was only confirmed subsequently by the arbitrator. In addressing whether the parties had agreed they may appeal on a question of law arising out of the award in the terms provided by cl 5(1)(a), Baragwanath J concluded the high point of the evidence was that both parties had agreed to there being a right to appeal. However, the question remained as to what type of appeal “as of right or only by leave”.13 Because the arbitration agreement as reconstructed by the arbitrator was ultimately silent on this issue, Baragwanath J concluded the result of failing to stipulate for an appeal as of right was that there was no reason to infer an agreement to exclude the need for leave as required under cl 5(1)(c).
[18] Venning J observed that if Baragwanath J’s conclusion was to be interpreted as requiring an express recitation of words to the effect the parties agree an appeal may lie on a question of law without leave, then he respectfully considered the decision was wrong. However, in Venning J’s view, the parties in A’s Company had effectively done no more than expressly confirm that the rights in cl 5 were to apply, and had not gone on to address how they were to apply.14
[19] To that extent, Venning J considered the case was similar to the Airwork Holdings decision. After referring to the clause of the arbitration agreement in issue
11 At [25].
12 A’s Company Ltd v Dagger HC Auckland M1482-SD00, 5 June 2003.
13 At [11].
14 Coxhead v Wallbank, above n 5, at [26].
in that case, as set out at [9], Venning J without demur set out the passage from the judgment where Asher J observed:15
Arbitration agreements can state that cl 5 does not apply, and that there may be no right of appeal on any point including a point of law. On the other hand, an arbitration agreement may indeed record that there is a right of appeal to the High Court without leave. Clause 8.1 of this agreement does neither of these things. It does no more than record the legal position set out in cl 5.
[20] Venning J then contrasted the situation in the case before him, where the clause provided for a process by which either of the parties wishing to take “any action” (which would include an appeal on a question of law) could seek to set aside the award in this Court.
[21] It follows from this analysis that I do not consider Venning J’s approach in Coxhead v Wallbank conflicts with that taken by Asher J in Airwork Holdings. The issue in the present case is not whether an agreement to provide a party with a right to appeal on a question of law had to be expressed. Rather, as in A’s Company and Airwork Holdings, the question is whether cl 27 represents the parties’ intention that cl 5 was to regulate their access to this Court, or recorded the parties’ agreement that they could as of right file an appeal on a question of law.
[22] Insofar as A’s Company may be considered authority for the proposition that the failure to expressly stipulate an appeal as of right, as provided by cl 5(2)(a), is to be interpreted as an intention by the parties that leave was a necessary requirement, I accept Coxhead v Wallbank and Royal & Sun Alliance renders that doubtful.16 However, as I have already observed, I do not consider that acknowledgment impacts on the approach taken by Asher J in Airwork Holdings.
Decision
[23] Clause 27 of the arbitration agreement commences by recording the parties’ agreement that the decision of the arbitrator will be binding. This reflects one of the purposes of the Act to redefine and clarify the limits of judicial review of the arbitral
15 Airwork Holdings Ltd v Auckland Regional Rescue Helicopter Trust, above n 4, at [17].
16 See commentary in Williams and Kawharu on Arbitration, 1st ed, para 18.5.2.
process and of arbitral awards, which in turn is given effect by cl 5 of sch 2.17 That Parliamentary intention was confirmed by the full bench of the Court of Appeal in Gold & Resource Developments (NZ) Ltd v Doug Hood Ltd, where it observed:18
By enacting a statute with the express purpose of redefining and clarifying the limits of judicial review of arbitral awards, Parliament has made clear its intention that parties should be made to accept the arbitral decision where they have chosen to submit their dispute to resolution in such a manner. It plainly intended a strict limitation on the involvement of the Courts where this choice has been made. This makes inappropriate a broad approach to the discretion, such as that proposed by counsel for the appellant in this case. (Of course, where both parties repent of their decision to choose arbitration over litigation and wish to submit their dispute over a question of law to the Courts, the 1996 Act makes provision for them to do so without leave: see cl 5(1)(b).)
[24] Mr Parker sought to make something of the use of the word “binding” and the absence of the word “final” in cl 27, in contrast to cl 8.1 of the arbitration agreement in Airwork Holdings, which stipulated that the award of the arbitral tribunal shall be “final”. I do not consider the absence of the word “final” from cl 27 is of significance. Arguably, because of the subsequent reference to the circumscribed recourse to the Courts available to the parties, the wording of the clause accurately stated that the arbitrator’s decision would be binding upon them subject to the prescribed avenue of appeal.
[25] The exception to the express understanding of the parties that they will “not seek recourse to the Courts” is “on questions of law as provided for in Article 5 of the second schedule to the Arbitration Act”. Had the intention of the parties been to provide direct access to this Court on questions of law, there was no need for cl 27 to reference cl 5 of sch 2 to the Act. Wording similar to that used in the arbitration agreement in Royal & Sun Alliance, as set out at [15], would likely have been employed. The elaboration in cl 27 of the questions of law to which recourse to this Court would be permitted as being “as provided for in Clause 5” would be redundant. Alternatively, had the reference to cl 5 been intended by the parties to refer to the provision made in that clause for parties to agree they may appeal on a question of law, the clause would have explicitly referred to sub-cl (1)(a) rather than to the whole clause.
17 Arbitration Act 1996, s 5(d).
18 Gold & Resource Developments (NZ) Ltd v Doug Hood Ltd [2000] 3 NZLR 318 (CA) at [52].
[26] Clause 5 of sch 2 provides for various circumstances in which a party may have or may obtain a right of appeal to the High Court on a question of law. The questions of law provided for are those arising out of an award where the parties have agreed to an appeal on a question of law before the making of that award, the parties consent after the making of the award to such an appeal, or with leave. The intention of the parties was to limit judicial review except in one or other of those circumstances.
[27] I do not consider the parties’ intention was to provide a right of appeal as of right on a question of law beyond, as cl 27 itself states, those provided for in cl 5; that is in the prescribed circumstances set out in that clause of the arbitration agreement. No automatic right of appeal was intended nor, for the same reasons set out by Asher J in Airwork Holdings, does cl 27 of itself constitute a pre-award agreement to bring an appeal on a question of law as provided for by cl 5(1)(a), that being only one of the circumstances listed in cl 5(1) which the clause contemplates as having application. Any other interpretation would be contrary to the natural meaning of the words used in cl 27.
[28] Insofar as cl 27 may have been considered unnecessary, because the second schedule of the Act would have applied by default in the absence of any agreement to the contrary, I accept Mr Rzepecky’s submission that the agreement by the parties of the binding force of the arbitrator’s decision except on questions of law provided for in art 5 was, like other clauses of the arbitration agreement, declaratory of the law that would otherwise apply. In that regard, it was noted for example that cl 37 stipulates that costs will be determined under the Act according to “clause 6 of the second schedule” despite that clause having application in any event. It follows, and I did not understand Mr Parker to be contending otherwise, that the inclusion of clauses in the arbitration agreement that are reflective of the terms of sch 2 of the Act does not assist in determining the mutual intention of the parties, or an inference that by agreement something different from that otherwise provided by the Act was to be inferred. As Asher J observed in Airwork Holdings, the inclusion of clauses in an arbitration agreement which record rights that already exist does not mean the Court should strain to find a further meaning for those claims beyond their plain meaning.19
19 At [19].
Result and disposition
[29] I have determined that cl 27 of the arbitration agreement does not provide a right to appeal on a question of law. The parties were agreed that should I find there was no agreement to appeal as of right the proceedings should be stayed to allow City Care the opportunity to file and argue an application for leave.20 I agree that is the appropriate course.
[30] The present proceedings before this Court are stayed pending the outcome of City Care’s anticipated application for leave to appeal. City Care is to file its leave application within seven days of the date of this judgment. Subsurface is to file its notice of opposition within seven days following receipt of the leave application. In the event the leave application is unsuccessful, City Care’s appeal will be struck out.
Solicitors:
Parker Cowan, QueenstownShine Lawyers NZ Ltd, Christchurch
20 Weatherhead v Deka New Zealand Ltd, above n 10.
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