EXAPL Limited v Pact Group (NZ) Limited HC Auckland CIV-2011-404-005919

[2011] NZHC 1815

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

CIV-2011-404-005919

BETWEEN  EXAPL LIMITED First Plaintiff

ANDEXAPL PTY LIMITED Second Plaintiff

ANDPACT GROUP (NZ) LIMITED Defendant

Hearing:         18 November 2011

Counsel:         R B Stewart QC and L A O'Gorman for the Plaintiffs

J C Miles QC and C M Green for the Defendant

Judgment:      12 December 2011

JUDGMENT OF DUFFY J

This judgment was delivered by Justice Duffy on 12 December 2011 at 3.00 pm, pursuant to r 11.5 of the High Court Rules

Registrar/Deputy Registrar
Date:

Counsel:     R  B  Stewart  QC  P  O  Box  2302  Shortland  Street Auckland  1140  for  the

Plaintiffs

J C Miles QC P O Box 4338 Shortland Street (DX CX10258) Auckland 1140 for the Defendant

Copies To:   Buddle Findlay P O Box 1433 Shortland Street (DX CX24024) Auckland 1140

Russell McVeagh P O Box 8 Shortland Street Auckland 1140

EXAPL LTD and ANOR v PACT GROUP (NZ) LTD HC AK CIV-2011-404-005919 12 December 2011

[1]      The plaintiffs, EXAPL Ltd and EXAPL Pty Ltd (“EXAPL”), were in the business of plastics recycling and manufacturing.  On 11 July 2011, they agreed in writing to sell their business assets, which included the leases of various premises, to the defendant, Pact Group (NZ) Ltd (“Pact Group”).

[2]      The parties now dispute the construction of the sale and purchase agreement (“the agreement”).  First, they dispute whether a liability, which is estimated to be approximately $1M and which arises from “make good provisions” in certain leases that Pact Group acquired as part of its purchase can be deducted from the purchase price.   Secondly, they are at odds over how this dispute should be determined. Pact Group  contends  that  the  dispute  falls  within  a  term  of  the  agreement  that provides for such disputes to be determined by an appointed expert, whereas EXAPL contends that it raises legal issues of contractual interpretation that fall within the jurisdiction of this Court.  Accordingly, EXAPL argues that this Court is the proper forum for the dispute.

[3]      In the light of its stance, Pact Group has applied for a stay of proceedings on the ground that this Court has no jurisdiction to determine EXAPL’s claim.  EXAPL opposes the application and seeks instead a judgment on the two causes of action that are pleaded in its statement of claim.  Consequent to orders made by this Court on the form of the hearing, the interlocutory application for a stay of proceedings and the substantive proceeding have been heard together.

[4]      I consider that  the parties’ respective cases  should  be approached  in  the

following way:

(i)First, to consider the application for a stay of proceedings, which involves considering whether the dispute falls within the mandate the agreement gives to the expert; and

(ii)      Secondly,  if  I  find  the  dispute  falls  outside  the  expert’s

mandate to proceed to consider the substantive proceedings.

[5]      The  agreement  is  a  carefully  prepared  30  page  document  with  attached schedules   that   was   prepared   by   EXAPL’s   legal   advisers   with   input   from Pact Group’s  legal  advisers.     It  expressly  provides  that  it  records  the  entire agreement between the parties, and that it is to prevail over any earlier agreement (clause 17.9).

[6]      Under clause 5.2 of the sale agreement, the purchase price was made up of: (a)        A completion payment, to be paid on the completion date; and

(b)An adjustment amount, which in short was the difference between the projected amount of total assets, less total liabilities, and the actual amount of total assets less total liabilities on the completion date (2 August  2011).    This  was  to  be  calculated  in  accordance  with clause 7.5.

[7]      Clause  6  dealt  with  completion  and  post-completion  matters.     Under clause 6.5, the parties gave indemnities to each other for costs incurred through their failure to comply with obligations arising on or before completion in the case of EXAPL and after completion in the case of Pact Group.

[8]      Clause  7,  which  is  the  key  clause  in  this  proceeding,  applied  to  the completion  accounts  and  the  purchase  price  adjustment.     Under  this  clause, Pact Group was to prepare a completion statement in accordance with Schedule 7 within a specified timeframe (clause 7.1).  On receipt of the completion statement, EXAPL was  to  review  it  and,  within  a  specified  timeframe,  either  confirm  its agreement  or  give  notice  in  accordance  with  clause  7.8  that  it  disputed  the completion statement (clause 7.3).

[9]      The  completion  statement,  which  was  defined  in  clause  1  to  mean  the statement prepared in accordance with Schedule 7, set out the adjustment amount. Under clause 7.5, the adjustment amount was arrived at by off-setting the projected completion amount against the actual completion amount.    The “projected completion  amount”  and  the  “actual  completion  amount”  were  each  defined  in

clause 1.    The  “projected  completion  amount”  was  $4,600,000,  which  was  the projected amount of total assets less total liabilities at the day before the completion date, or any other date agreed by the parties.  The “actual completion amount” was the amount by which total assets exceeded total liabilities as determined from the completion statement.  Under clause 7.5, if the actual completion amount exceeded the projected completion amount, Pact Group was obliged to pay the difference (the adjustment  amount)  to  EXAPL;  whereas  if  the  converse  applied,  EXAPL  was obliged to pay the difference to Pact Group.

[10]     The purpose of the completion statement was to provide flexibility on the determination of the purchase price through a “wash up” provision that allowed for some adjustment of the purchase price in order to accommodate factors influencing the price that could not be known until after the agreement was executed.  To provide for the parties being unable to reach agreement on the actual completion amount and, therefore, the adjustment amount, the agreement provided a disputes resolution provision.  Clause 7.8 provided:

Disputes in relation to the Completion Statement: If the Vendors dispute the Completion Statement or the calculation of the Adjustment Amount, then:

(a)       the Vendors must notify the Purchaser in accordance with clause

7.3(b)(ii) of the specific details of the Completion Statement and/or calculation they do not accept;

(b)       the Vendors and the Purchaser must negotiate in good faith in order to  attempt  to  resolve  the  dispute  and  determine  the Adjustment Amount (if any); and

(c)       if the dispute remains unresolved after 15 Business Days from the date of receipt by the Purchaser of the notice from the Vendors under clause 7.8(a), any party may refer the dispute for resolution by an Expert, who shall determine the Actual Completion Amount and the Adjustment Amount (if any).

[11]     Schedule 4 of the agreement provided for how an independent expert was to be appointed.   Clause 3 of Schedule 4 provided that if the parties were unable to agree on an expert within a specified timeframe, either party was entitled to request the New Zealand Institute of Chartered Accountants to appoint an expert of repute with   experience  in   similar  matters,   and   for   the  New   Zealand   Institute  of Chartered Accountants to agree with the expert the terms of his or her appointment.

The parties accepted that it was envisaged that the independent expert would be a chartered accountant.

[12]     Clause 10 of Schedule 4 provided that the expert was to act as an expert and not as an arbitrator.  Clause 10 also provided that the expert’s written decision on the matters referred to him or her was to be final and binding on the parties, in the absence of manifest error or fraud.

[13]     The process for preparing the completion statement was set out Schedule 7, which was divided into parts marked “A” and “B”.  Part A set out the form of the completion statement.  This section listed agreed items comprising the total assets and the total liabilities of the business.  No figures were attributed to any listed item, it being intended that the parties would agree on a figure for each item and, if they could  not  agree,  then  under  the  disputes  procedure  provided  in  clause  7.8,  the decision would be for the independent expert.  I consider it helpful to set out Part A of the completion statement in its entirety:

SCHEDULE 7

COMPLETION STATEMENT Part A – Form of Completion Statement

Prepayments  XX Trade Debtors  XX Sundry Debtors  XX Prov for Doubtful Debts      XX Forward Exchange Asset  XX Inventories  XX Stock Obsolescence Provision  XX Stock Overhead Absorption  XX Interco Stock Profit Elimination  XX Total Assets

Total Creditors  XX Training Grant  XX Accruals Sundry  XX Accruals Accounting Fees  XX Accrual Creditors  XX Payroll Clearing  XX Annual Leave Liability  XX Long Service Leave Liability  XX Public Holiday Accrual  XX Shift Leave Liability  XX

Finance Lease Liability  XX Deferred Payment Liability  XX Suspense  XX Total Liabilities

Projected Completion Amount (NZD)

[14]     Part B set out the accounting policies of the completion statement.  Clause 1 of Part B set out the order of precedence, as follows:

Part B – Completion Statement Accounting Policies

1.        Order of precedence

The  Completion  Statement  must  be  prepared  in  accordance  with  the following order of precedence:

a.The specific principles, policies and procedures set out in this Schedule 7;

b.Where an item is not covered by the accounting principles, policies and procedures referred to in paragraph (a) of this clause, in accordance with NZ GAAP [New Zealand Generally Accepted Accounting Practice]; and

c.Where  an  item  is  not  covered  the  specific  accounting principles, policies and procedures referred to in paragraph (a) or (b) of this clause, in a manner consistent with past management practice.

[15]     Following  clause  1  were  a  specified  set  of  valuation  principles.    The completion statement was to be prepared by applying those principles in the order of precedence provided in clause 1.  The parties accept that what is in issue here does not fall within any of the specific principles that are listed in clause 1a. of Part B.

[16]     Clause 8 of the valuation principles set out a series of excluded items. Again, it is helpful to set this provision out in full:

8.        Excluded items: For the avoidance of doubt, the following shall not be included in the Completion Statement with none of these matters being assumed by the Purchaser:

(i)        Any amounts due to Kordamentha for management fees or any other work performed by Kordamentha;

(ii)      Any  amounts  in  respect  of  the  FY11  audit  and  taxation work;

(iii)     GST input tax receivable & output tax payable amounts;

(iv)     All tax related assets & liabilities including but not limited to PAYE, group tax, income tax, withholding tax & FBT;

(v)      Loans  &  borrowings  (including  bills  payable  &  lease liabilities);

(vi)     Accrued interest payable on loans & borrowings;

(vii)     Amounts  receivable/payable  to/by  the Vendors  or  entities associated with the Vendors; and

(viii)    Asset balances relating to capital work-in-progress including machine deposits.

[17]     The items in dispute in this case are not within any of the excluded items in clause 8.

[18]     On  30 August  2011,  Pact  Group  provided  a  draft  completion  statement, purportedly to satisfy clause 7.1 of the agreement.  The statement included under the listed liabilities in Part A an item entitled “make good provision”, which had a value of $NZ1,079,191 attributed to it. As is apparent from Part A of Schedule 7, this item was not expressly listed.

[19]     On 14 September 2011, EXAPL responded to Pact Group advising that the draft completion statement must not include any items other than those set out in Part A of Schedule 7, and that EXAPL did not accept that the “make good provision” could  form  part  of  the  completion  statement  or  the  purchase  price  adjustment process.

[20]     Pact Group replied on 15 September 2011.  It asserted that the “make good provision” was intended to be captured within the “Accruals Sundry” item in the completion statement; and argued that if EXAPL disputed this, the dispute should be dealt with pursuant to clause 7.8, which requires disputes to be determined by an expert.

[21]     At all material times prior to receiving the draft completion statement, no accruals had been made in EXAPL’s accounts regarding a “make good provision” and there had not been any negotiation between the parties about such a provision.

Further, EXAPL’s accounts did refer to deferred payment liabilities, but a zero value was consistently allocated to those items.  However, this does not necessarily mean that there were no such liabilities.  The zero value in the accounts could indicate that either no deferred payment liabilities existed, or alternatively that no allowance had been made in the accounts for existing liabilities of this nature.

[22]     During the parties’ pre-contractual negotiations, representatives of EXAPL and Pact Group exchanged information, including copies of earlier accounts and sample specimens of what the completion statement might contain.  Those accounts and specimens made no specific reference to monetary allowances for “make good provisions”.  However, the communications of this period often contain references that make it clear that the negotiations and pre-contractual exchanges were subject to due diligence and legally binding documentation.

[23]     Pact Group accepts that the make good provisions were not expressly referred to  in  the  pre-contractual  negotiations.    However,  it  has  expert  evidence  from John Hagen,  chartered  accountant,  who  says  that  a  “make  good”  provision  is something that fits the description of either an accrual sundry or a deferred payment liability, which are listed in Part A of Schedule 7.  Thus, Pact Group argues that it is entitled to include the make good provisions under those two items, the deposition hearing on the date payment was due.

[24]     Mr Hagen acknowledges that the valuation principles in Part B of Schedule 7 do not specifically cover “make good” provisions, “accruals sundry” or “deferred payment liabilities”.  However, in terms of clause 1 of Part B of Schedule 7, where an item is not covered by the accounting principles etcetera referred to in clause 1a, the next step is to consider whether an item comes within the principles of NZGAAP. Mr Hagen considers that if those principles are applied to a make good provision, they would bring it within the meaning of an accrual sundry or a deferred payment liability.   Mr Hagen says that financial statements that comply with NZGAAP are defined within s 3 of the Financial Reporting Act 1993 as statements that comply with “applicable financial reporting standards”, or where there are no relevant standard accounting policies those that are appropriate in the circumstances and that have  authoritative  support.    He  also  says  that  an  applicable  financial  reporting

standard (“the standard”) at the time of the preparation of the completion statement was   the   New   Zealand   equivalent   to   international   accounting   standard   37 (NZ IAS 37) entitled Provisions, Contingent Liabilities and Contingent Assets.  He says that this standard was issued in November 2004 and was applicable for all financial statements beginning on or after 1 January 2007.  Mr Hagen goes on to say that clause 10 of NZ IAS 37 defines a “provision” as “a liability of uncertain thing or amount”, and a “liability” as meaning:

A present obligation of the entity arising from past events, the settlement of which is expected to result in an outflow from the entity of resources embodying economic benefits.

[25]     Mr Hagen says that under clause 14 of NZ IAS 37, a provision is to be recognised when:

(a)       An entity has a present obligation as a result of a past event;

(b)      It is probable that an outflow of resources embodying economic benefits will be required to settle the obligation; and

(c)       A reliable estimate can be made of the amount of the obligation.

He says that these elements are each defined in NZ IAS 37 at clauses 15, 23 and 25, respectively.   Clause 36 of NZ IAS 37 requires that the amount recognised as a “provision” shall be the best estimate of the expenditure required to settle the present obligation.

[26]     Mr  Hagen  opines  that  in  accordance  with  the  material  principles  in NZ IAS 37, the need to recognise a make good provision arises when an act occurs that will require some rectification at the end of the lease period.  For example, if the lease requires the removal of fixtures and fittings (installed by a tenant) at the end of the lease, the need to recognise and provide for this liability is triggered when the fixtures and fittings are first installed.  He submits that as the present leases contain make good provisions, any liability that has been triggered should be recognised now,  in  accordance  with  NZGAAP,  as  either  an  accruals  sundry  or  deferred payments liability.  His view is that in cases where payment would be due within the next 12 months, the liability could be described as an “accruals sundry” item, and in

those where payment would be due at a later date,  they could be described as

“deferred payment liabilities”.

[27]     To support his view as to the timing for when a make good provision should be recognised, Mr Hagen has referred to extracts from Manual of Accounting published by Pricewaterhouse Coopers and a similar publication by Deloitte.  Both publications take the view that a make good provision should be recognised when the original act that leads to the need to make good has occurred, rather than at the end of the lease.   Thus, the accounting principles and standards set out in these manuals recognise that the liability for make good provisions arises when there can be no avoidance of the future rectification expenditure.  Pricewaterhouse Coopers’ manual describes the provisions in this way:

Operating leasehold improvements:

Some operating leases allow the tenant to improve the property by adding for example additional partitioning but include obligations on the lessee to return the property at the end of the lease in its original state.  Often this will entail dismantling certain aspects of the asset.

The manual then gives an example of an entity that leases a warehouse for office accommodation in circumstances where the operating lease requires the lessor to return the property to its original condition. The manual notes:

The entity has an obligation under the lease to remove the improvements at the end of the lease term.  The obligation arises as the entity completes the improvements and this represents a past event.

[28]     The section in the Deloitte manual on obligations to restore leased property provides:

Generally it will not be appropriate to recognise a provision for restoring leased property on a straight line basis over the lease term, because typically the obligation will not arise on a straight line basis.  For example, if a lease agreement requires carpets to be replaced or walls to be repainted at the end of the lease period, full provision for the associated costs will be required from the outset because the outflow cannot be avoided. Accordingly entity A should provide for the cost of removing leasehold improvements when those leasehold improvements are first made (e.g. when additional internal walls and partitioning are fitted).  Entity A should only provide for repairs to the fabric of the building once it is no longer possible for entity A to avoid making those repairs.

[29]     Whilst Mr Hagen opines that the make good provisions come within the meaning of accruals sundry or deferred payment liabilities, he does not say whether it  would  be  standard  practice  to  include  such  provisions  under  these  generic categories when they comprise approximately 18 per cent of the relevant total liabilities.

[30]     EXAPL’s  expert  accountant,  Eric  Lucas,  agrees  with  Mr  Hagen  that  if NZGAAP is to be applied, then NZ IAS 37 requires provision for a liability to be made when:

(a)       an entity has a present obligation as a result of a past event;

(b)it  is  probable  that  an  outflow  of  resources  embodying  economic benefits will be required to settle the obligation; and

(c)       a reliable estimate can be made of the obligation.

[31]     Mr  Lucas  expressly  excludes  from  his  consideration  and  expert  opinion whether the make good provisions in the draft completion statement meet the criteria of a provision in terms of NZ IAS 37.   In this regard, he does not engage with Mr Hagen’s evidence, which, therefore, leaves this aspect of Mr Hagen’s evidence unchallenged.

[32]     Mr Lucas goes on to say that, in his opinion, he considers that provisions are a clearly defined category of liability, which requires separate disclosure.   He contends, therefore, that the make good provision should have been categorised separately in Schedule 7.  He describes the term a “deferred payment liability” as not being a term defined within accounting standards, but says the wording suggests that such items would be known with greater certainty than is the case for something like the make good provisions in this case.   He offers as an example the notion of a company acquiring an asset on deferred settlement terms where amounts and timing of payments, as well as the payee would be known with relative certainty.  He says such items are distinct from make good provisions where the amount and timing of payments and the payee are likely to be uncertain.  He opines that in the context of a

completion amount of approximately $2.9M and total liabilities of $6M, a $1.1M liability  for  make  good  provisions  is  very  significant  and  therefore  warrants inclusion as a discrete category of obligation.

[33]     Mr Lucas does not provide any accounting authority to support his view.  Nor does he say that his view represents common practice and/or the views of other chartered accountants.  Thus, it is not clear whether his views reveal no more than his personal preference as to how such liabilities should be categorised, or whether they represent a generally held view.  Without knowing this, it is difficult to place much weight on his opinion.

[34]     Pact Group argues that whether a make good provision fits the description in Part  A  of  Schedule  7  of  accruals  sundry  or  deferred  payment  liability  is  an accounting issue for the independent expert to determine under the alternative disputes process in clause 7.8, and that EXAPL must comply with the process that it has contractually bound  itself to  follow.   This process is currently operating in relation  to  a  number  of  other  disputed  items  in  the  completion  statement. Accordingly, Pact Group contends that determining this issue is outside the jurisdiction of this Court and it would be an abuse of process if this Court permitted EXAPL to opt out of the agreed dispute process.

[35]     EXAPL argues that whether the make good provision properly forms part of Part A of Schedule 7  is a matter of contractual  interpretation  for this  Court  to determine.   EXAPL contends that in this regard, the independent expert cannot determine his or her jurisdiction.

[36]     EXAPL also contends that whether make good provisions properly fall within the accruals sundry and deferred payment liabilities should be considered taking into account the factual matrix.   Here, EXAPL argues that the various pre-contractual communications between the parties’ representatives, which omit any mention of make good provisions, support the view that such provisions were not intended to be included under any of the specified items in Part A of Schedule 7.

[37]     Pact Group rejects this argument and relies on clause 17.9, statements in some  of  the  pre-contractual  communications  recording  that  the  discussions  are subject to “legally binding documentation”, as well as the omission to list make good provisions in the excluded items under clause 8 of Part B of Schedule 7.  Pact Group contends that these factors counteract drawing the inferences for which EXAPL contends.

Analysis

[38]     There is no doubt that this Court has authority to order that a proceeding be stayed or dismissed when satisfied that the parties have agreed to an alternative means for resolving their dispute: see Fisher and Paykel Financial Services Ltd v Credit Management Services Ltd HC Auckland CIV 2006-404-6646, 16 May 2008 at [26]:

In a clear case, the Court may order a proceeding to be stayed or dismissed, either under r 477 of the High Court Rules or in its inherent jurisdiction, when the parties have agreed to an alternative means for resolution of their dispute  -  Channel  Tunnel  Group  v  Balfour  Beatty  Construction  Limited [1993] 1 All ER 664, Braid Motors Limited v Scott (2001) 15 PRNZ 508; see also McGechan on Procedure at HR477.07.   The power and duty of the Court to stay an action in such circumstances is under the general principle that the Court makes people abide by their contracts and will restrain a plaintiff  from  bringing  an  action  which  he  is  doing  in  breach  of  his agreement – see Racecourse Betting Control Board v Secretary of State for Air [1944] 1 All ER 60 at 65, [1944] Ch 114 at 126 in a passage quoted in Channel Tunnel at 677-8.

The relevant procedural rule is now r 15.1 of the High Court Rules.

[39]     Before the Court acts to stay a proceeding for this reason, it must be satisfied that the parties have contractually bound themselves to an alternative means of resolving their dispute and that the process for doing so is sufficiently certain.  If so, the Court will keep the parties to their bargain on the basis that to allow otherwise would be to permit an abuse of process of the Court: see Braid Motors Ltd v Scott (2001) 15 PRNZ 508 at [33]:

Even absent any statutory provisions such as those in the Arbitration Act, the Court may invoke either the general provision of r 447(c) or its inherent jurisdiction to stay proceedings that are otherwise properly before the Court where the parties have agreed on an alternative method of dispute resolution

(ie have agreed to go to mediation) and that agreement is sufficiently certain. As Giles J noted, it must depend upon the terms of the parties agreement.  If they  have  contractually  bound  themselves  to  attend  mediation  and  the process is sufficiently certain either from the expressed terms of the agreement or otherwise from terms that may properly, be implied, then the parties will be kept to the bargain they have made.   To allow otherwise would be to permit an abuse of process of the court.

[40]     On the other hand, in Barclays Bank PLC v Nylon Capital LLP [2011] EWCA Civ 826, the English Court of Appeal found that where there is a dispute as to the jurisdiction of an expert appointed to determine a dispute, a Court is the final decision-maker on the question of jurisdiction, even when the contract responsible for the expert’s appointment purports to confer that authority on the expert. At [21] the Court said:

The use of the term “the jurisdiction of the expert” is a convenient way of encapsulating the question as to whether under the contract the expert has a mandate to enter into a determination of any part of the dispute between the parties.  It is helpful to use this term to distinguish the different question of the extent and limits of his mandate (including the principles on which he determines a dispute), once he has entered into the determination of that dispute.

And later, at [23]:

… in any case where a dispute arises as to the jurisdiction of an expert, a court is the final decision maker as to whether the expert has jurisdiction, even if a clause purports to confer that jurisdiction on the expert in a manner that is final and binding.

[41]     These findings led the Court in Barclays Bank PLC to conclude that the real issue that arises on an application for a stay of proceedings is whether the determination as to the expert’s jurisdiction should first be made by the expert, even if one of the parties is seeking the determination be made by the court.

[42]     I agree with the approach of the English Court of Appeal in Barclays Bank PLC. I consider that it is always open to this Court to determine whether the parties have, through their contract, chosen to oust the jurisdiction of the Court and to substitute an alternative form of dispute resolution.

[43]   Under clause 7.8, the parties have chosen to confer jurisdiction on the independent expert to determine disputes in relation to the completion statement.

Therefore, whether the make good provisions fit the description of one of the listed categories of liability in the completion statement is a jurisdictional question.  Unless such  items  are  understood  to  come  within  one  of  the  listed  categories,  the independent expert has no authority to consider any dispute about them.

[44]     The independent expert derives his or her authority from clause 7.8 of the agreement and Schedule 4.   Schedule 4 provides that the independent expert’s “written decision on the matters referred to him or her shall be binding on the parties in the absence of manifest error or fraud”.    I read this provision as  conferring exclusive authority on the independent expert to make decisions on those matters that have been lawfully referred to him or her, subject to manifest error or fraud. However, the question of whether a particular reference to him or her is lawful is a separate question that falls outside the independent expert’s exclusive jurisdiction. As the answer to this question determines whether or not the independent expert has jurisdiction, it must always be open to a court to rule on it.

[45]     But  this  does  not  mean  that  the  independent  expert  has  no  authority  to consider whether he or she has jurisdiction to deal with a particular reference.  Each time something is referred to the expert, a necessary first step for the independent expert to ascertain is whether he or she can decide on it.  This cannot always require the  Court’s  input.    To  perform  his  or  her  role,  the  independent  expert  must necessarily have authority to decide whether something that has been referred to him or her properly falls within his or her jurisdiction.

[46]     EXAPL wants the Court to determine whether the make good provisions come within Part A of Schedule 7.  Whilst I accept that the Court has the authority to make this determination.  I do not consider it appropriate for the Court to do so.  I consider that this question should first be left to the independent expert to decide. My reasons for reaching this conclusion are as follows.

[47]     First, I consider that the Court would benefit from a reasoned decision from the independent expert on this topic.  The parties recognised that disputes relating to the completion statement involved accounting principles, which was, presumably, a key factor in their decision to provide an alternative means of dispute resolution that

relied on a chartered accountant to determine these disputes.  The categorisation of make good  provisions  as either an  accrual sundry or deferred payment liability involves the application of settled accounting principles, which is something the independent expert is qualified to do.

[48]     Secondly, the Court is not presently well informed to make a decision on whether the make good provisions can be understood to come within the categories of accruals sundry or deferred payment liabilities in Part A of Schedule 7.  Whilst Mr Hagen  opines  that  the  make  good  provisions  come  within  the  meaning  of accruals sundry or deferred payment liabilities, he does not say whether it would be standard practice to include such provisions under these generic categories when the provisions represent approximately 18 per cent of the total liabilities.   Mr Lucas considers that a sum of this amount should be separately categorised.   However, without knowing the standard practice of chartered accountants, Mr Lucas’ personal preference for the treatment of a liability of this nature is no basis for excluding it from the relevant generic categories in Part A of Schedule 7.

[49]     As matters stand, I consider that the expert accounting evidence available to me is insufficient to determine the parties’ dispute.   I accept that the make good provisions  technically  meet  the  definition  of  a  “liability”  and  a  “provision”  in NZ IAS 37 and, therefore, they could be understood as items that properly fall within accruals sundry or deferred payment liabilities in Part A of Schedule 7.   But it is not clear to me whether the usual accounting practice is to include liabilities of the present value under generic categories, or to explicitly identify them.  I consider that this is a question within the area of the independent expert’s competency and expertise.  The independent expert should be given the opportunity to answer this question.  The Court will benefit from having the independent expert’s views on any future occasion.

[50]    Finally, the parties have chosen to submit their disputes relating to the completion statement to the independent expert.  EXAPL should not be allowed to resile  from  this  position  now.     The  present  case  can  be  distinguished  from Barclays Bank PLC, where the Court proceeded to make the determination, on the basis the English Court of Appeal had all that it needed to make a determination.

[51]     It follows that I consider that EXAPL’s application to this Court for a ruling on the substantive issue is premature.   The dispute should be determined by the independent expert before it is considered by this Court.  The application for a stay of proceeding is granted.

Result

[52]     The application by Pact Group for a stay of the proceedings is granted.

Duffy J