Fiordland Discovery Limited v Challenge Marine Limited
[2017] NZHC 1376
•21 June 2017
IN THE HIGH COURT OF NEW ZEALAND NELSON REGISTRY
CIV 2016-442-000072 [2017] NZHC 1376
BETWEEN FIORDLAND DISCOVERY LIMITED
Applicant
AND
CHALLENGE MARINE LIMITED Respondent
Hearing: 13 June 2017 Counsel:
S P Pope for Applicant
P Michalik and G C Engelbrecht for RespondentJudgment:
21 June 2017
JUDGMENT OF SIMON FRANCE J
[1] The respondent (Challenge) agreed to build a boat for the applicant (Fiordland). It was a fixed price contract with the possibility of variations. Disputes arose as to variations being sought and the matter went to arbitration. The parties identified 15 disputed variations out of a much larger number that would go forward to an urgent arbitration.
[2] The arbitrator issued what was titled an Interim Award (the Award).1 That award analysed the disputes in relation to each variation and identified a figure Challenge was entitled to as regards that item of work. The Award concluded in these terms:2
163The amounts I award for each of Challenge’s claims are: Variation claim 54 – aluminium alloy: nil
Variation claim 15 – …
1 Challenge Marine Ltd v Fiordland Discovery Ltd (Interim Award) Rodney Hansen QC,
9 August 2016.
2 At [163]–[165].
164The credits to be allowed to Fiordland in respect of materials and equipment supplied or paid for by Fiordland are as follows: Electronics system …
165I reserve leave to the parties to apply for any further directions required by or arising out of this award, as to the future conduct of
the proceeding and as to costs which are reserved.
[3] Fiordland applied for further orders pursuant to paragraph [165] of the
Award. These concerned:
(a) the amount of credit to be given Fiordland in relation to variations 15 and 16 (both being variations dealt with in the arbitration);
(b)three other pleaded credits that were not dealt with in the interim award; and
(c) the final figure Challenge was required to pay Fiordland.
[4] Challenge objected, particularly as regards the latter two of these. It submitted that the three pleaded credits, because they were not attached to any of the
15 variations, were outside the scope of the arbitration. It also submitted it was not part of the arbitration that the arbitrator would direct payment of the outcome, whoever it favoured. The purpose of the arbitration was only to identify the figure.
[5] A Ruling of Arbitrator (the Ruling) was issued on 19 September 2016 which
discussed but rejected Challenge’s objections.3 The Ruling concluded:4
14. In my view the balance over that sum is also payable to Fiordland.
As at the time of the interim award, Fiordland had paid Challenge more than it was liable to pay. Unless the contract provides otherwise – which is not suggested – there is a right to immediate repayment. A debt arises which is payable on demand unless the parties have agreed otherwise. On that basis the full amount of the balance of $218,315.88 is due and payable.
15. This does not, of course, affect Challenge’s rights in relation to any
enforcement action that Fiordland may take.
3 Challenge Marine Ltd v Fiordland Discovery Ltd (Ruling of Arbitrator) Rodney Hansen QC,
19 September 2016.
4 At [14]–[15].
[6] In reliance on art 35 of Sch 1 of the Arbitration Act 1996, Fiordland have applied for recognition and enforcement of the Ruling as an arbitral award. Challenge oppose, and have filed an application for an Order Refusing Recognition and Enforcement of Arbitrator’s Award. It is submitted:
(a) the Ruling is not an award;
(b)the Ruling is made on a matter not submitted to the arbitrator for determination;
(c) the application by Fiordland is an abuse of process and recognition of the award would be contrary to public policy.
[7] This judgment addresses the competing applications.
Issue one – the scope of the arbitration
[8] It is convenient first to address Challenge’s proposition that the purpose of the arbitration was not to produce a figure that would become payable at the time of the Interim Award. It submits that the arbitrator’s role was to identify that figure – limited to the 15 variations – but to leave it at that.
[9] Mr Michalik submits there is unfairness in making the Award figure immediately payable as excluded from the arbitration were numerous variations which will result in money owing to Challenge. The practice to date under the contract had been to issue credit notes when such a situation arose, and that is consistent with Challenge’s position on the intended scope of the arbitration.
[10] There is little in the documentation to support this proposition. Mr Michalik relies primarily on the pleadings where there is no specific request for such an outcome. Reflecting this, in the Ruling the arbitrator acknowledges that “timing of payment” was not specifically put in issue for the purpose of the interim award.5
However, he concluded it was part of the arbitration and made the direction.
5 Ruling of Arbitrator, above n 3, at [12].
Mr Michalik submits in the absence of an express request, a direction as to payment is outside the scope of the arbitration.
[11] The starting point is the pleadings. When the parties agreed upon a reduced urgent hearing, each side drafted documents specific to that reduced hearing. Challenge drafted a “Claimant’s Points of Claim”. It provided 14 paragraphs of background narrative and then stated:
Pursuant to the submission to arbitration contained in clause 13 of the Agreement, the parties have agreed to refer 15 of Challenge’s variation claims to arbitration, without prejudice to Challenge’s right to pursue its claim for the balance of the variations and damages in the future in a resumed or new arbitration.
[12] There is nothing in this paragraph to suggest the type of limitation now being advanced by Challenge. It contemplates the arbitration may not continue or there may be a new one. This is consistent with the standard position that the arbitration will resolve the situation as regards the matters submitted.
[13] At the conclusion of its pleading, Challenge concluded with a prayer for relief being:
(a) damages in the sums particularised in the pleading, less any monies already paid by Fiordland in respect of the 15 variation claims;
(b) interest on the net sum payable to Challenge by Fiordland; and
(c) costs.
[14] None of this is consistent with Challenge’s present position. Not only are damages sought, but also “interest on the net sum payable”. This plainly contemplates the type of order that the arbitrator has directed. It is not clear what specific pleading might be needed to make it clear the arbitrator was to make an award of money. Normally a claim for damages is taken as being exactly that.
[15] Fiordland replied with “Respondent’s Points of Defence and Counterclaim”. In responding to the 14 paragraphs of narrative, Fiordland specifically identified a series of payments it had made that it wished to be taken into account. There were two groups of payments – agreed items of credit where Fiordland said it had not received all that was due to it, and other items it said had not been credited at all but should have been. Not all these credits were connected to the 15 variations.
[16] Fiordland also added six counterclaims. Challenge objected to these as being outside the scope of the arbitration. The arbitrator issued a ruling agreeing with Challenge and withdrawing the six counterclaims from the arbitration.6 That decision can be read as relating only to the six specific counterclaims that are pleaded at the end of Fiordland’s document. It does not apply to the pleading of credits contained in the body of the pleading.
[17] Challenge filed a “Points in Reply”. It contended the counterclaims were outside the scope of the arbitration. It did not, however, challenge the inclusion by Fiordland of the claim for credits.
[18] In my view the pleadings are sufficient to dispose of Challenge’s contention. They point to a contrary position, namely that an award of an actual amount was expected, together with interest payable on it. The pleading is not consistent with the idea that all the arbitrator was doing was producing a running balance type figure.
[19] If more be needed, it can be found in a side agreement reached between the parties prior to the arbitration. It concerned one of the items that was the subject of dispute. Fiordland agreed to advance the money for its purchase but on conditions which Challenge agreed to. Of particular relevance is this provision:7
(h) The parties agree to the principle that, depending on the arbitrator’s determination of Variation Claim 15, any amounts ordered by the arbitrator to be paid in relation to the interim arbitration as a whole shall be adjusted to take into account some or all of the funds paid by Fiordland (or such lessor amount if there has been any surplus repaid to Fiordland from Glasgow Harley under (a) above). For example, if Challenge is successful in relation to all its claim for
6 Challenge Marine Ltd v Fiordland Discovery Ltd (Ruling of Arbitrator as to scope of Interim
Hearing) Rodney Hansen QC, 4 July 2016.
7 Ruling of Arbitrator, above n 3, at [12], emphasis added.
Variation Claim 15, then it will owe Fiordland NZD$56,949.93 (ie
$132,716.90, the total amount of Challenge’s claim for Variation
Claim 15 in the arbitration, less the $123,313.10 that Fiordland paid under this agreement and the $66,353.73 that Fiordland paid to Challenge in November 2015).
[20] The arbitrator referred to this agreement in his ruling dismissing Challenge’s argument about whether he could direct payment. As highlighted, the passage refers to “any amounts ordered by the arbitrator to be paid in relation to the interim arbitration”. This is again consistent with the proposition that the arbitrator was to direct payment of a final figure in relation to the arbitration. Mr Michalik notes that in the example immediately following, the term “owes” is used, but that does not in my view detract from the overall meaning of the passage.
[21] As noted at the beginning of this discussion, there is objectively nothing that supports Challenge’s position. It is a counter-intuitive proposition that is unsupported by documentation and which runs contrary to the parties own documents. I accordingly conclude that a direction that money be immediately payable was not outside the scope of the arbitration.
Issue two – the credits
[22] Challenge also contends that three of the credits awarded to Fiordland were outside the scope of the arbitration because they are unconnected to the
15 variations. In response to this, the arbitrator observed the credits were pleaded in the statement of defence, were covered in evidence by both parties, and were addressed in closing submissions.8 Nothing more need be said.
Issue three – the Fiordland’s application to register and enforce the award
Is it an arbitral award?
[23] The document is entitled a “Ruling”. It otherwise meets the formal requirements of an award.9 It is in writing and is signed by the arbitrator; it states the date and place of the arbitration; it states its reasons, and I understand a signed
copy has been delivered to each party.
8 Ruling of Arbitrator, above n 3, at [7].
9 Article 31 of Schedule 1 of the Arbitration Act 1996.
[24] Mr Michalik’s objections on behalf of Challenge are that the Ruling is not final, and it is on matters not submitted to the arbitrator. I have addressed the latter issue already.
[25] Concerning it not being final, it is well established an award can be interim in the sense of not resolving the whole dispute between the parties. The definition of “award” in s 2 of the Arbitration Act makes that plain. As I understand Challenge’s point, it is more a reference to the fact that the figure identified is not a final figure as between the parties. It is the final figure on those 15 variations, but there are many more credits and debits to be determined.
[26] Mr Michalik calls in aid two English decisions from the Queen’s Bench. The first is Charles M Willie and Co (Shipping) Ltd v Ocean Laser Shipping Ltd (“the Smaro”).10 The issue there was when an arbitrator might revisit a decision, or alternatively whether the arbitrator was functus officio. Rix J held that a decision which could be revisited was one which concerns changing circumstances.11
Examples were timetabling decisions or decisions not to permit amendment. Mr Michalik likens the present case to this since the balance owing between the parties will likewise be constantly shifting. Accordingly, the arbitrator’s decision cannot be seen as finally dispositive of the issues, and so cannot be recognised.
[27] The second decision is Enterprise Insurance Company PLC v U-Drive Solutions (Gibraltar) Limited.12 It similarly holds that procedural rulings by an Arbitrator are not awards capable of qualifying for recognition and enforcement by the High Court because they lack finality.13
[28] Although not doubting any of the principles in either case, I do not consider either has relevance to the present case. Enterprise Insurance concerned orders for security for costs, and for payment of the arbitrator’s fee. The orders included
directions as to the dates by which these events were to occur. At issue, in part, was
10 Charles M Willie and Co (Shipping) Ltd v Ocean Laser Shipping Ltd [1999] 1 Lloyd’s Law Rep
225 (QB).
11 At 248.
12 Enterprise Insurance Co Plc v U-Drive Solutions (Gibraltar) Ltd [2016] EWHC 1301 (QB).
13 At [38]–[39].
whether the arbitrator was bound by the timetable he had set, or whether he could revisit it. The issues were procedural in nature, and different from the present case.
[29] The Smaro concerned the ability of the arbitrator to revisit a prior decision as to whether an amendment would be allowed. Unsurprisingly it might be thought, the Court held the arbitrator could revisit such a decision if circumstances required it. There are no parallels in the Smaro to the present case. The Ruling represents a final determination which will settle the situation between the parties as regards the
15 variations, and the credits claimed by Fiordland.
[30] The definition of award in the Arbitration Act is:14
a decision of the arbitral tribunal on the substance of the dispute and includes any interim, interlocutory or partial award.
[31] The inclusion in the definition of reference to the substance of the dispute makes plain the distinction identified in the English cases between orders settling matters and procedural directions. The present Ruling goes to the substance of the dispute and finally determines those matters. Notwithstanding the fact it is termed a Ruling (and no point is taken on that), it is an arbitral award capable of recognition and enforcement.
Functus officio?
[32] Challenge contends that the arbitration was at an end with the issuing of the initial Interim Award. It is said that the Award determined all the matters at issue, namely the sums payable in relation to each variation. It is noted the arbitrator heard no further evidence after this Award.
[33] This submission is a variation on that already discussed concerning the scope of the arbitration. It is plain from the text of the Interim Award that the arbitrator did not consider all matters had been addressed. Paragraph [165] of the Award allows for requests for further directions arising out of the award.15 The arbitrator held that
as regards the three credits, they were matters pleaded, and on which evidence was
14 Arbitration Act 1996, s 2, emphasis added.
15 Cited in full at [2] of this judgment.
heard and submissions received. They were therefore within the scope of the arbitration and had not been addressed in the Award.
[34] In my view the Interim Award was not, and did not purport to be, the last word on the matters in issue before the arbitrator. He was accordingly not functus officio.
[35] Ms Pope alternatively relied on art 33(3) of Sch 1 to the Arbitration Act which provides:
(3) Unless otherwise agreed by the parties, a party, with notice to the other party, may request, within 30 days of receipt of the award, the arbitral tribunal to make an additional award as to claims presented in the arbitral proceedings but omitted from the award. If the arbitral tribunal considers the request to be justified, it shall make the additional award within 60 days.
[36] She submits, and I accept, that this provides authority for what occurred, there being matters omitted that were presented in the arbitral proceedings.
[37] Article 33(5) requires that to be an award, any additional award made under art 33(3) must meet the formal requirements of an award under art 31. That is met here. Further, the parties were given full opportunity to make submissions. The fact no further evidence was needed is supportive of the applicability of art 33(3). It reinforces that the additional award flows from matters presented in the arbitral proceedings.
Contrary to public policy
[38] Article 36 of Sch 1 sets out when a Court may decline to enforce an arbitral award. Article 36(1)(a)(iii) deals with situations where the award is shown to be outside the terms of the arbitration. That issue has been addressed. Article 36(2)(b)(ii) provides further that the Court may decline the recognition or enforcement of the award if it would be contrary to public policy to do so. Article 36 represents a high threshold an applicant must overcome in order to oppose
recognition and enforcement.16 Reflecting this, the public policy ground is to be given a narrow reading.17
[39] Challenge’s claim that recognition of the 19 September award would be contrary to public policy is sourced in the proposition that it would be unfair because the Ruling only deals with part of the dispute between the parties, and it would prove a powerful tool in Fiordland’s hands. The history between the parties is traversed, leading to a submission that there is a reasonable basis to consider the Ruling, if recognised, would be misused.
[40] It is further submitted that allowing recognition and enforcement of this partial award would threaten the continuation of the arbitration. Support for this as a ground to refuse recognition is said to be found in Williams and Kawharu.18
However, the relevant passage refers to a situation where an overseas Court considered that a subpoena had been issued by a party to an arbitration in order to avoid compliance with an order of the arbitrator. The subpoena was therefore an abuse of process. The case, and the passage from the text, is of no relevance to the present proceeding.
[41] Relevant, however, to the claim advanced by Challenge is a later observation in the text that a public policy consideration will rarely involve going behind the findings of the Tribunal.19 Contrary to that, Challenge here relies in part on what it says is generally an unacceptable approach by Fiordland to the contact dispute between the parties.
[42] I agree with counsel for Fiordland that the matters raised by Challenge fall a considerable distance short of legitimately engaging the public policy exception. The subject matter of the arbitration is routine, and the award resolves the disputes in an orthodox manner. The parties chose to submit only part of their dispute to the
arbitrator. It is unclear why allowing recognition and enforcement of the resulting
16 Hi-Gene Ltd v Swisher Hygiene Franchise Corp [2010] NZCA 359 (CA) at [20].
17 At [21], citing Amaltal Corp Ltd v Maruha (NZ) Corp Ltd [2004] 2 NZLR 614 (CA).
18 David A R Williams QC and Amokura Kawharu Williams and Kawharu on Arbitration
(LexisNexis, Wellington, 2011) at [3.9].
19 At [17.5.7].
award will prevent continuation of the arbitration concerning the balance of the dispute.
[43] The objection to Fiordland’s application on the basis that recognition of the award would be contrary to public policy is rejected. For the avoidance of doubt, there are no other matters that might engage a residual discretion to refuse Fiordland’s application.
Conclusion
[44] The application by Fiordland for recognition and enforcement of the award in the Ruling of 19 September 2016 is granted. The application by Challenge for an order declining recognition and enforcement of that award is declined.
[45] Challenge has not established any of the bases on which the Court may decline to recognise an arbitral award:
(a) the Ruling of 19 September is an arbitral award;
(b)it resolves finally the substance of the dispute concerning the matters submitted to arbitration;
(c) the parties chose to submit only part of their dispute to arbitration.
The fact that there are other unresolved issues does not prevent recognition of the award;
(d)the award addresses only matters that were the subject of the pleadings;
(e) the Interim Award of 9 August did not finally determine matters. The arbitrator invited applications on any matters arising that were required to finalise the dispute, and the 9 August Award omitted to consider matters that were part of the arbitration (the three credits). The arbitrator was not functus officio when issuing the further Ruling of 19 September 2016;
(f) there are no public policy reasons which mean the Court should decline to recognise the arbitral award of 19 September 2016.
[46] Fiordland is entitled to costs on a 2B basis, together with reasonable disbursements to be fixed by the Registrar if necessary.
Simon France J
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