Flintoft v Oneforest Limited

[2021] NZHC 2493

IN THE HIGH COURT OF NEW ZEALAND INVERCARGILL REGISTRY

I TE KŌTI MATUA O AOTEAROA WAIHŌPAI ROHE

CIV-2020-425-77

[2021] NZHC 2493

UNDER

Senior Courts Act 2016 and Contract and Commercial Law Act 2017

BETWEEN

TOD BERNARD FLINTOFT and SARA JANE FLINTOFT

Applicants

AND

ONEFOREST LIMITED

Respondent

Hearing:

9 September 2021

Appearances:

L S B Acland for Applicants (via MS Teams)

B J Sanders and S F Lomaloma for Respondent (via MS Teams)

Judgment:

22 September 2021

JUDGMENT OF ASSOCIATE JUDGE LESTER

(in respect of application for leave to appeal)

[1]    The applicants (the Flintofts) apply for leave to appeal my decision granting the application by OneForest Limited (OneForest) to stay this proceeding on the ground the parties had agreed to refer disputes to arbitration. The Flintofts’ mirror application to set aside OneForest’s protest to jurisdiction was dismissed as a result.1

Leave to appeal

[2]    Leave is required to appeal to the Court of Appeal by virtue of s 56(3) of the Senior Courts Act 2016 (the Act).

1      Flintoft v OneForest Ltd [2021] NZHC 1906.

FLINTOFT v ONEFOREST LIMITED [2021] NZHC 2493 [22 September 2021]

[3]    The requirement for leave to appeal is intended to serve as a “filtering mechanism” to ensure that unmeritorious appeals of interlocutory orders do not unnecessarily delay the proceeding. Ultimately, I am obliged to stand back and assess in a pragmatic and realistic way whether the interests of justice are served by granting leave.2

[4]    Dobson J in A v Minister of Internal Affairs, identified (in obiter) the following considerations as relevant to any such application:3

(a)A high threshold exists for the granting of leave. An allegation of error of law or fact is generally insufficient. An application should raise an arguable error.

(b)Leave should only be granted if the circumstances warrant incurring further delay.

(c)The alleged error should be of general or public importance that requires determination, or otherwise be of sufficient importance to the applicant to outweigh the lack of any general or precedential importance.

[5]    An application for leave to appeal an interlocutory decision is likely to be granted if:4

(a)the appeal is not likely to be overtaken by the substantive hearing or cannot otherwise be considered as effectively in the context of an appeal in the substantive decision; or

(b)the appellant is likely to be prejudiced by a postponement to the substantive appeal; or

2      Finewood Upholstery Ltd v Vaughan [2017] NZHC 1679 at [13]-[14].

3      A v Minister of Internal Affairs [2017] NZHC 887 at [10]-[12], approved in Finewood Upholstery Ltd, above n 2, at [9].

4      Li v Chief Executive, Ministry of Business, Innovation and Employment [2018] NZHC 1171, [2018] NZAR 1134 at [21].

(c)the appeal may be dipositive of the case in law or as a practical matter; and

(d)the arguments in the appeal are capable of bona fide and serious argument; and

(e)the issue on appeal concerns a decision of sufficient significance to the parties or a question of law or general principle of sufficient importance as to outweigh the cost and delay of the appeal.

[6]    Mr Acland, counsel for the applicants, makes the point that, while in form the judgment his clients want to appeal was interlocutory, in substance it was a final judgment in respect of his clients’ proceeding.

Assessing the application

[7]    Gendall J in Smith v Claims Resolution Service Ltd said, in respect of assessing applications for leave to appeal:5

There is always an inherent tension in being the Judge who delivered the judgments at issue and then being required to consider whether those judgments raised arguable errors of law or fact.

[8]    Accordingly, in assessing this application, I have to consider the merits of the appeal – so much being inherent in the leave process being a filter - but not apply so fine a filter as to exclude a reasonably arguable appeal. I also need to consider any prejudice to the applicant in leave not being granted, the delay an appeal will cause to resolution of the substantive dispute and the costs of the appeal. In short, as I have said, I must assess whether the interests of justice are served by granting leave.

The decision under appeal

[9]    The full background to the dispute is set out in my judgment subject to appeal.6 In short, the Flintofts issued proceedings against the respondent company, OneForest, alleging breach of a contract under which OneForest agreed to harvest and

5      Smith v Claims Resolution Services Ltd [2019] NZHC 2738 at [29].

6      Flintoft v OneForest Ltd, above n 1.

market nearly 60 hectares of pine forest owned by the Flintofts. The contract contains an arbitration clause.

[10]   OneForest filed a statement of defence which, when served, was accompanied by an email. This email referred to the fact the forestry contract included a dispute resolution process and advised: “We have filed and served the defence in the meantime but reserve our client’s position to pursue this option.” The defence when filed was not accompanied by a notice of appearance under protest or a statement that OneForest was reserving its rights to refer the dispute to arbitration.

[11]   I concluded the statement of defence was OneForest’s first statement on the substance of the dispute in terms of art 8 of sch 1 of the Arbitration Act 1996 (the Act). However, I held that the fact that OneForest could not bring itself within art 8 of the Act did not bar it from seeking a stay under r 5.49 of the High Court Rules 2016 (the Rules) when, not long after filing and serving its defence, OneForest filed a protest to jurisdiction. I also concluded that the fact OneForest did not qualify for a compulsory stay under art 8 was not fatal to the application for a stay provided it had not submitted to the jurisdiction of the Court.

[12]   I concluded there had not been a submission to the jurisdiction of the Court as in the circumstances OneForest did not abandon their contractual right to insist on disputes going to arbitration. Because service of the defence was not unqualified, OneForest’s reservation of its right to seek arbitration was sufficient to mean it had not waived or surrendered its ability to hold the Flintofts to their contractual obligation to use arbitration to resolve disputes.

[13]The grounds of appeal are as follows:

(1)that there was no jurisdiction to grant a stay under r 5.49 absent compliance with art 8(1) of sch 1of the Act;

(2)there was an error of law in finding OneForest’s failure to qualify for a stay pursuant to art 8 was not fatal to the stay application under r 5.49;

(3)that if r 5.49 of the Rules was available there was an error of law in finding that a contractual analysis was required to determine if a party had objected to jurisdiction;

(4)there is a general allegation that I failed to consider the authorities relied on by the Flintofts; and

(5)that I erred in treating OneForest’s email reserving rights as an effective protest to jurisdiction when no similar statement was made to the Court as required by r 5.49.

[14]   I consider the first two points together. Mr Acland’s main proposition is that art 8 is the only substantive power to stay proceedings that can be used by a party with the benefit of an arbitration clause (save for a residual and presently irrelevant inherent jurisdiction). Mr Sanders for OneForest says r 5.49 creates a standalone jurisdiction to order a stay which is not dependent on satisfying art 8.

First and second grounds of appeal

[15]   In respect of each point I remind myself, as Mr Acland pointedly did during the hearing, that my role is not to decide the appeal but only  whether there is           a reasonably arguable point.

[16]   The approach I took is consistent with the approach taken by Clark J in Openyd Ltd v Lawrence where, in granting an application for an order dismissing     a proceeding for want of jurisdiction, her Honour said:7

[46] Rule 5.49 permits a defendant, who objects to the jurisdiction of the court to hear and determine a proceeding, to file and serve an appearance stating the objection  and  the  grounds  for  the  objection  instead  of  filing a statement of defence. One of the bases for protesting the Court’s jurisdiction is where jurisdiction is precluded by contract. An agreement between parties to refer disputes to arbitration is one such example. I do not see the resolution of this jurisdictional issue as lying within the terms of art 8(1) upon which the Trust relies for its dismissal application.

(footnotes omitted)

7      Openyd Ltd v Lawrence [2019] NZHC 46, [2019] NZAR 451.

[17]Accordingly, Clark J treated r 5.49 as a standalone basis for granting a stay.

[18]   My approach is also consistent with Kim v Oh, referred to in my earlier judgment, where a statement of defence was filed that contained a reservation of the right to arbitrate.8  It was also consistent with cases where at the same time as filing  a statement of defence, an application for stay is filed.9

[19]   Mr Acland meets this point by submitting that a reservation of rights communicated to the Court prior to or at the time of filing a defence prevents the defence being treated by OneForest  as  the  first  statement  on  the  substance  of  the dispute, thereby leaving art 8 open.

[20]   My approach to the issue of jurisdiction was not whether there had been       a statement on the substance of the dispute for the purposes of art 8, but whether OneForest had done enough to reserve its contractual right to insist on arbitration.

[21]   Mr Acland  relies  on  the  decision  of   Salmon   J   in   The   Property People Ltd v Housing New Zealand Ltd, in support of the proposition that art 8 is the exclusive source of jurisdiction for a stay where a defendant insists on arbitration.10   I doubt The Property People Ltd is authority for that proposition as the applicant for a stay had done nothing to reserve their right to pursue arbitration. While art 8 was not available, nor was a stay under what  was  then r 477.  However,  support  for  Mr Acland’s submission is found at [18] of the judgment where the Judge said:

[18] The issue for these proceedings is whether the defendant’s involvement in the interim injunction proceedings, including the appeal, at a time prior to any request being made for a stay was a submission of the defendant’s “first statement on the substance of the dispute”. If it was, then the defendant is not entitled to a stay pursuant to art 8(1) and would not be entitled to a stay at all unless able to rely upon some residuary inherent jurisdiction.

8      Kim v Oh [2020] NZHC 2985.

9      Yawata    Ltd    v    Powell,    HC    Wellington   AP142/00,   4     October 2000    at    [16];    and

Kupe Group Ltd v Primary Producers Co-operative Society Ltd [1987] 1 PRNZ 49 (HC) at 55.

10     The Property People Ltd v Housing New Zealand Ltd (1999) 14 PRNZ 66 (HC).

[22]   I   also   note   the   opening   paragraph   of   Zurich    Australasian  Insurance Ltd v Cognition Education Ltd, where French J delivering the judgment of the Court of Appeal said:11

[1] Article 8(1) of the First Schedule to the Arbitration Act 1996 regulates what is to happen when a defendant seeks a stay of court proceedings on the grounds that the parties had agreed to submit the dispute to arbitration.

[23]   Mr Sanders’ response is that r 5.49 is an independent source of jurisdiction open to a party seeking to protest jurisdiction and seeking a stay. He illustrates that point by saying, in cases where a contract requires the parties to attend mediation or to refer their dispute to expert determination, r 5.49 has been recognised as a source of jurisdiction to grant a stay and to support a protest to jurisdiction. In support of this proposition, Mr Sanders referred to Peryer Construction Wgtn Ltd v Cathie,12 where a passage from the  Supreme  Court  Judgment  in  Commissioner  of  Inland Revenue v Redcliffe Forestry Venture Ltd was reproduced as follows:13

[25] We also conclude that the Court of Appeal’s view of the scope of what can be addressed in an objection to “jurisdiction” under r 5.49 is too restricted. The Court has held that r 5.49 can be invoked in only three situations: first, when the matter is extraterritorial; secondly, when by law the case can only be determined by a different New Zealand court or authority; and thirdly, where the operation of a contractual term or failure to comply with statutory requirements precludes the High Court having jurisdiction. The third of these categories is obviously directed primarily at arbitration. Although each of these situations is clearly covered by r 5.49, it is not easy to read the rule as limited to them as it expresses an unqualified right to challenge a court’s jurisdiction to hear and determine a proceeding. The better approach is to give r 5.49 its ordinary meaning. In that respect, the Court of Appeal’s limitation on the application of the rule appears to cut across Diplock LJ’s classic expression of the meaning of jurisdiction set out in Garthwaite v Garthwaite:

In its narrow and strict sense, the “jurisdiction” of a validly constituted court connotes the limits which are imposed upon its power to hear and determine issues between persons seeking to avail themselves of its process by reference (1) to the subject-matter of the issue or (2) to the persons between whom the issue is joined or (3) to the kind of relief sought, or to any combination of these factors.

11     Zurich  Australasian  Insurance  Ltd v Cognition  Education  Ltd  [2013] NZCA 180, [2013] 3 NZLR 219.

12     Peryer Construction Wgtn Ltd v Cathie [2019] NZHC 2881 at [13].

13     Commissioner of Inland Revenue v Redcliffe Forestry Venture Ltd [2012] NZSC 94, [2013] 1 NZLR 804 (footnotes omitted).

[24]   In light of the Supreme Court noting that one of the three categories in r 5.49 is primarily aimed at arbitration, Mr Sanders submitted it cannot have been intended that r 5.49 only created an independent source of jurisdiction for stay in less obvious categories such as an agreement to refer disputes to expert determination. Accordingly, Mr Sanders submitted that r 5.49 was not merely a procedural provision, the sole function of which in the arbitration context was to give effect to art 8.

[25]   Essentially, the question comes down to whether a party with the benefit of an arbitration clause and who has indicated to their counterparty that they wish to rely on the clause submits to the Court’s jurisdiction if they take a step in the proceeding without filing a protest to jurisdiction. The clearest way in which a defendant can communicate their intention to rely on the arbitration clause is to invoke art 8, that is, to apply for a stay prior to filing any statement of substance. Having done so and assuming the arbitration clause is binding and the dispute is within the clause, then the Court must grant a stay. Beyond that statutory process, I held the issue is determined on a case-by-case basis according to whether the defendant has objected to jurisdiction.

[26]I am satisfied a reasonably arguable issue arises in respect of this ground.

Third ground of appeal

[27]   The third ground of appeal is that I erred in adopting a contractual analysis to determine whether a party had objected to jurisdiction. I do not accept that point is arguable.

[28]   A review of Clark J’s decision in Openyd Ltd v Lawrence, in my view, confirms that a contractual analysis is called for.14 As her Honour put it, where parties have contracted to refer their disputes to arbitration it is the proper function of the Court  to  support  that  election.15    By  requiring  parties  to  refer  their  dispute     to arbitration, the Court is giving effect to their contract. If the contractual obligation to arbitrate remains intact then Clark J’s review shows that it is for the courts to give

14     Openyd Ltd v Lawrence, above n 7, at [46]-[52]

15 At [49].

effect to that obligation – a failure to do so would, as her Honour put it, effectively render arbitration clauses meaningless.16

[29]   Given that starting point, it is necessary to determine whether the contractual obligation to arbitrate remains intact or whether it has been lost through a defendant accepting the plaintiff’s breach of the obligation to arbitrate by filing an unqualified defence or through other conduct amounting to waiver or estoppel.

[30]I do not consider this ground of appeal arguable.

Fourth ground of appeal

[31]   The fourth ground of appeal is a purported failure to consider or distinguish authorities.

[32]   I do not consider any of the authorities raised were directly on point, that is, once there has been a statement on the substance of the dispute, that this bars recourse to r 5.49. Again, the question of substance is whether a defendant that has taken steps to set out to the plaintiff their objection to jurisdiction has done enough to protest jurisdiction even if they do not notify the Court of the protest. I note there is no compulsory form for a protest to jurisdiction under rr 5.49 to r 5.52.

Fifth ground of appeal

[33]   The final ground of appeal is that the filing of the statement of defence without qualification rendered ineffective the reservation of rights in the email that accompanied the statement of defence, and that I erred in treating the email as an effective protest to jurisdiction.

[34]   Some support for this submission can be found in r 5.49(1), which refers to   a defendant who objects to jurisdiction filing and serving an appearance stating the defendant’s objection.

16 At [52].

[35]   It is in this context that the contractual analysis in my view may be relevant.  I approached r 5.49 by asking whether OneForest had, as regards the Flintofts, conceded or abandoned the right to arbitrate. I did not go on to consider whether the filing of the unqualified defence trumped the inter-party reservation of rights. This is because I ultimately asked whether, in all the circumstances, and viewed objectively (this being a contractual context), OneForest had given up their contractual right.

[36]   I am satisfied the issue of whether an inter-party reservation of rights under an arbitration clause is sufficient to support a subsequent appearance under protest to jurisdiction when a defence is filed without any similar reservation raises an arguable error with my decision. That in my view warrants the granting of leave to appeal. In turn, that issue will itself require addressing the inter-relationship between art 8 and  r 5.49, being the point Mr Acland seeks to pursue.

[37]   Accordingly, leave is granted to file the draft notice of appeal that accompanied the application. Mr Acland foreshadowed the possibility of adding a further ground in relation to s 11 of the Act, which provides:

11       Consumer arbitration agreements

(1)Where—

(a)a contract contains an arbitration agreement; and

(b)a person enters into that contract as a consumer,—

the arbitration agreement is enforceable against the consumer only if—

(c)the consumer, by separate written agreement entered into by the consumer and the other party to the contract after a dispute has arisen out of, or in relation to, that contract, certifies that, having read and understood the arbitration agreement, the consumer agrees to be bound by it; and

(d)the separate written agreement referred to in paragraph (c) discloses, if it is the case, the fact that all or any of the provisions of Schedule 2 do not apply to the arbitration agreement.

(2)For the purposes of this section, a person enters into a contract as     a consumer if—

(aa)     that person is an individual; and

(a)that person enters into the contract otherwise than in trade; and

(b)the other party to the contract enters into that contract in trade.

(3)Subsection (1) applies to every contract containing an arbitration agreement entered into in New Zealand notwithstanding a provision in the contract to the effect that the contract is governed by a law other than New Zealand law.

(4)For the purposes of article 4 of Schedule 1, subsection (1) shall be treated as if it were a requirement of the arbitration agreement.

(5)Unless a party who is a consumer has, under article 4 of Schedule 1, waived the right to object to non-compliance with subsection (1), an arbitration agreement which is not enforceable by reason of non-compliance with subsection (1) shall be treated as inoperative for the purposes of article 8(1) of Schedule 1 and as not valid under the law of New Zealand for the purposes of articles 16(1), 34(2)(a)(i), and 36(1)(a)(i) of Schedule 1.

(6)Nothing in this section applies to—

(a)a lease; or

(b)a contract of insurance to which section 8 of the Insurance Law Reform Act 1977 applies.

[38]   I do not consider this point arguable. This was not a point raised in the Flintofts’ notice of opposition to the stay application. This was a commercial forestry, harvesting and marketing agreement in relation to a 60 hectare pine forest. I see no arguable point that this contract was a consumer contract.

[39]   I do not consider that declining leave would cause any particular prejudice to the Flintofts, as they could have referred their dispute to arbitration at the outset. Arbitration proceedings can proceed as expeditiously as proceedings in this Court. However, there is some force in Mr Acland’s point that the challenged decision was in substance a final one.

[40]The application for leave to appeal is granted.

Costs

[41]Costs are reserved.

Associate Judge Lester

Solicitors:

Darroch Forrest Lawyers, Wellington Rout Milner Fitchett, Nelson