Forest 360 Limited v Philips Contracting Mt Manganui Limited

[2022] NZHC 3186

IN THE HIGH COURT OF NEW ZEALAND TAURANGA REGISTRY

I TE KŌTI MATUA O AOTEAROA TAURANGA MOANA ROHE

CIV 2020-470-000070

[2022] NZHC 3186

IN THE MATTER

of a breach of contract

BETWEEN

FOREST 360 LIMITED

Plaintiff

AND

PHILIPS CONTRACTING MT. MAUNGANUI LIMITED

Defendant

Hearing:	14 February 2022
Appearances:	J K Mahuta-Coyle for Plaintiff L Foley for Defendant
Judgment:	30 November 2022

JUDGMENT OF DUFFY J

This judgment is delivered by me on 30 November 2022 at 4 pm pursuant to r 11.5 of the High Court Rules.

.....................................................

Registrar / Deputy Registrar

Solicitors/Counsel:

Dewhirst Law, Whanganui Le Pine & Co, Taupo

J K Mahuta-Coyle, Barrister, Wellington

FOREST 360 LTD v PHILIPS CONTRACTING MT. MAUNGANUI LTD [2022] NZHC 3186 [30 November 2022]

[1]    The plaintiff, Forest 360 Ltd (Forest 360) manages forestry blocks. The defendant, Philips Contracting Mt Maunganui Ltd (Philips) provides forest harvesting services. Forest 360 and Philips were parties to a written contract for forest harvesting services (the contract works).1 Clause 16 of this contract provided for dispute resolution, either by mediation or, failing that, expert determination.

[2]    Some months into the contract the parties were in dispute. Philips gave Forest 360 notice it required the parties’ dispute to be referred to expert determination, pursuant to cl 16.3. They failed to agree on an expert. Philips referred the appointment to the Chairperson of the Resolution Institute for that entity to appoint an expert, pursuant to cl 16.3(a).2 It appointed Bruce Cottrill of Wellington as the expert.

[3]    Forest 360 is now unhappy with part of Mr Cottrill’s determination. Hence this proceeding. The key issue is whether in relation to that part of the determination he has breached the mandate given to him by cl 16.

[4]    The contract does not provide for any right of appeal to this Court. Accordingly, Forest 360 has framed its statement of claim as a series of alleged breaches of contract that:

(a)the expert made manifest errors in his determination, which breach the contract;

(b)the determination includes decisions on questions of law, which is something that was beyond the expert’s jurisdiction and therefore in breach of the contract;

(c)the expert made decisions on non-contractual claims, which is also something that was beyond his jurisdiction and therefore in breach of the contract; and

1      Forest 360 was previously known as FOMS. The subject contract is recorded as being between FOMS and Philips. For convenience I shall refer to the plaintiff at all times as Forest 360, including when referring to documents or actions it may have executed when known as FOMS. Any quoted references which refer to FOMS should read as a reference to Forest 360.

2      At the time the Resolution Institute was known as LEADR and is referred as such in the evidence.

(d)the expert was not sufficiently qualified to determine the dispute, and therefore the process of expert determination was not one that the parties had bargained for under their contract, and in breach thereof.

[5]Philips denies there has been any such breaches.

[6]    These claims are against the determination insofar as the expert found that Forest 360 must pay four invoices (2728, 2729, 2730 and 2731) issued by Philips, minus some reduction in set-off for a payment that Philips owed to Forest 360. The remainder of the determination is not challenged.

[7]    Clause 16.3(b) made the determination final and binding on the parties except in the case of bad faith or manifest error. The parties agree that the scope for challenging the determination in this Court is narrow.

[8]    Before addressing the disputed invoices, I consider it is helpful to look at how matters proceeded before the expert.

The dispute resolution process

[9]    Forest 360 was not happy with the chosen expert (who is not legally qualified) and notified him and Philips of those concerns. Forest 360 thought the dispute required judicial determination. But ultimately, Forest 360 indicated it would participate in the expert determination, and then did so.

[10]   Following his appointment on 4 September 2019, the expert sent the parties’ lawyers an email setting out a draft process for their comment. This process was as follows. The determination was to be made on the papers of the claim and any counterclaim (if there was one), the response to the claims and supporting evidence from the parties. No reasons for the determination would be given.3 The strict rules  of evidence would not apply. If required, a hearing would be held in the event it was the expert’s opinion that evidential matters of credibility ought to be tested. The expert had authority to ask written questions of the parties and could request further

3      However the expert did go on to provide reasons.

particulars from them. Any such request and response process ordered by the expert was to be consistent with the rules of natural justice. The expert could appoint an advisory expert where there were matters outside of the expert’s particular range of expertise to be considered and decided upon. Any advice adduced from an appointed advisory expert that was relied upon by the expert in making his determination was to be provided to the parties for submissions on the same. The parties at their earliest convenience and in collaboration with each other were to submit to the expert a proposed time frame for the filing and service of submissions and evidence as between one another and to the expert. In the absence of agreement between the parties, in any process matter touching on the expert determination the expert’s decision was to be final. The fee was also set out.

[11]   The response from the lawyers for Forest 360 on the same date showed the company was essentially in agreement with the process the expert suggested. They set out a timetable for filing a claim. They noted that the expert’s determination, as per the contract, could be appealed in the event of manifest error/bad faith, and indicated that therefore they believed that reasons would ultimately be necessary, although these could be provided on request. Forest 360 further indicated that the expert should have the discretion to make an award of costs upon submission by the parties or otherwise. Subsequent emails from Philips dated 18 September 2019 confirmed the process as set out in the letter dated 4 September 2019 from Forest 360’s lawyers. All this is noted in the expert’s determination.

[12]   The determination further noted that the evidential test used was the balance of probabilities and that in making a decision the expert would have regard to forest harvesting industry custom and practice, and accord it appropriate weight. The report stated that for the purpose of clarity and context, and as per the reference for expert determination as agreed between the parties, he would not be giving reasons for his determination. A timetable was then set for filing submissions. At the relevant time neither party formally objected to the process the expert said he would follow. Each participated in that process by filing evidence. Copies of affidavits prepared for the determination were before me. Copies of affidavits filed in this Court relating to a statutory demand for payment issued by Philips were also before me. It is not clear to

me if those affidavits were also before the expert. The expert appears to have received some submissions/memoranda.

The claims and counterclaims of the expert determination

[13]The claims sought from Forest 360 by Philips were:

(a)a determination that Forest 360 owes Philips the sum of $100,690 GST inclusive for invoices 2728, 2729, 2730, 2731 dated 9 July 2018;

(b)damages of $38,206 for failure to give a month’s notice;

(c)loss of profit for remaining work in the Fryett block and three other blocks of $208,102.02;

(d)interest on any determination pursuant to the Interest on Money Claims Act 2016 from 6 August 2018 to date of payment;

(e)a determination that Forest 360 is liable for the entire costs of the expert.

[14]The counterclaim by Forest 360 against Philips sought as follows:

(a)$11,108.92 (excluding GST) for site damage caused by Philips; and

(b)$6,099.00 (excluding GST) for damage caused to the bridge by Philips; and

(c)$251.94 (excluding GST) being the cost to have the Forest 360 forwarder keys replaced after Philips refused or was unable to provide them.

The expert’s determination

The results

[15]   The expert found the sum of $100,690 (GST inclusive), being made up of invoices 2728, 2729, 2730 and 2731 was owed by Forest 360 to Philips. He gave reasons for this, which I address later.

[16]   The claim of damages for failure to give a month’s notice of $38,206 was dismissed. The expert was satisfied Philips repudiated the contract through its words and actions, and that its attempt to resile from the repudiation was inadequate in the circumstances. Further, he found Forest 360 was justified in cancelling the contract to mitigate foreseeable losses.

[17]   The claim for loss of profit for remaining work on the Fryett forestry block and three other blocks of $208,102.02 was dismissed. The expert was satisfied that no enforceable contract or adequate meeting of the minds existed between Philips and Forest 360 in regards to further work.

[18]   Regarding the counterclaim the expert found the counterclaim had not been made out and accordingly it was dismissed in its entirety.

[19]   Regarding a claimed setoff, the expert found that Philips had admitted it owed Forest 360 $4102.80 (including GST) by way of legal fees. The expert found this sum was to be set off against the $100,690 that Forest 360 owed to Philips under the determination. This reduced the net liability of Forest 360 to $96,587.20 (including GST).4

[20]Regarding interest, the expert awarded Philips interest on the sum of

$96,587.20 (including GST) pursuant to the provisions of the Interest on Money Claims Act from 6 August 2018 until the date of full and final settlement.

[21]   Regarding costs, the expert found the parties ought to be able to settle the costs of the determination and their own costs between them. The dispute resolution provisions of the contract anticipated that the parties meet their own costs and share the costs of the expert. In the event that the parties did not settle these costs between

4      This sum was later adjusted under a slip rule; see [35]—[36] herein.

them Mr Cottrill set out a process for him to receive submissions on those matters within a specified time frame.

Discussion and reasons given in the determination

[22]   I focus here on the reasons for the expert’s finding that Forest 360 must pay the disputed invoices.

[23]   The expert generally observed that the parties had entered into an agreement which specifically provided for their disputes to be determined by referral to an expert rather than arbitration. He described the reference to an expert as a simpler process, further observing that if the parties had intended to resolve disputes by arbitration or even litigation they could have drafted a contract with appropriate dispute resolution provisions. He stated that he would therefore be taking into account forest harvesting custom and practice, and that normal practice should be given due regard and inform his decisions, along with the evidence and submissions provided. He further commented that the dispute resolution provisions in the contract anticipated that “fairness in all of the circumstances be given regard to in the decision by the expert”. He concluded his general observations by noting that his discussion, reasons and decisions looked beyond contractual certainty “the lack of which being the very essence of this dispute”.

[24]   At paragraph 4.2 of the determination the expert made general findings on the disputed invoices. First, he found that Philips held a genuine belief there would be a top up over and above the $/m3 rate. The expert considered this belief was reasonably foreseeable based on the evidence, the representations made to him by Blair Van der Maas (a person engaged by Forest 360) and corroborated by Elias Cole and Benjamin Grice (persons engaged by Philips). Second, he found it was “reasonable for Philips to believe it would be reimbursed for certain (but never specified) work undertaken by [it] that fell outside the specific terms of the agreements and the $/m3 rate”. He considered this had been established through the evidence and noted the case for Forest 360 was undermined by the absence of evidence from Blair Van der Maas corroborating the evidence of Daniel Gaddum (the managing director of Forest 360).

[25]   Also at paragraph 4.2 the expert found that regarding the provision of infrastructure:

normal industry practice was that work necessary to enable the extraction of logs will have been completed by the Principal prior to log extraction. Exceptions would be where certain infrastructure work required to be undertaken by the contractor was specifically prescribed and agreed to, or is considered as part of the logging rate.

The expert found “neither to be the case here”. Further, regarding the extra site work undertaken by Philips the expert noted:

there is no evidence that Van der Maas instructed Philips on any of his frequent site visits to stop and desist such work, but did make … a series of undertakings that Philips would be reimbursed.

[26]   Then at paragraph 4.2.1 the expert specifically addressed invoice 2728. He found the amounts noted on the invoice for 14 and 15 June related to the Forest 360 provided forwarder, which was $600 plus GST. He found that all other noted details referred to machine hire related to remediation and reinstatement work being $22,775 plus GST. The expert was satisfied from the evidence that these costs were reasonable. He recorded that where possible he had reconciled the dates of the evidence against the dates of the invoice. He noted there was “very little evidence provided of communication that might relate to instructions or verbal agreements on scope of works between the parties during the invoice period when [Mr] Philips was overseas”.

[27]   The expert then turned to the question of what might constitute reasonable remediation costs. He found normal practice is that any remediation (housekeeping) works that might be required to secure the site against weather events, for example, unblocking water tables, clearing culverts, installing water cut-outs which would be required before leaving the site, were a contractor responsibility and would be covered in the $/m3 rate. However, in this case he found that work was “a lot more than expected”. Here it included the removal of a bridge, repairing bridge entranceways and reinstating extra work that was necessary due to changes and shortcomings in the logging plan. He found this work was unknown to Philips at the time of entering the agreement with Forest 360. He found there was no evidence of a clear or finalised work plan in place at the commencement date. He noted that “[Mr] Gaddum acknowledges some of these costs as reasonable, however [Mr Gaddum] provides little

evidence that disputes the particulars of those that he disagrees with save for a refusal to pay”. The expert concluded that in the absence of such evidence and given the particulars as outlined he preferred the evidence and case for Philips in regards to this invoice.

[28]   In paragraph 4.2.2 the expert set out reasons for his findings on invoices 2729, 2730 and 2731. He found these invoices detailed Philips’ daily costs based on charge out rates for equipment and other resources. He found the quanta reasonable. The expert noted the costing of additional machinery recorded as deductions on several work sheets. The expert presumed these deductions were “introduced into the system and without any expectation of cost coverage” by Forest 360. The expert noted “throughout the daily costs, references to work completed on the removal of fencing related activities, bridge installation and removal, corduroy installation etc”. The expert found that:

These costs were outside the schedule of services provided for in the agreement and therefore ought to be recognised. Time spent on these activities not only had incurred direct costs but also likely consumed time that would otherwise be spent extracting logs.

[29]   The expert concluded that from the evidence throughout “there was an expectation of monthly wrap-ups to capture additional costs incurred over and above log extraction or production”. He found it appeared that the $/m3 costs have been correctly netted off these invoices to calculate the cost shortfall. He found “in simple terms total daily costs/daily production = $/m3, in this case the derivation of the

$44.80”.

Further reasons

[30]   Later, on 1 July 2020, in response to a request from one of the parties the expert provided further reasons for the determination. First, however, he stated that following delivery of the determination, save for matters regarding costs and correcting any slips, his jurisdiction had finished. However, for the purposes of clarity only, he said he would provide brief answers to questions. Second, he would not answer questions that involved relitigating matters or enabling the raising of new arguments. He stated that

the further reasons he gave should be read in conjunction with paragraph 4.1 of the determination, which dealt with his findings on Philips’ claim.

[31]   In relation to the further reasons the expert found that “invoices 2729, 2730 and 2728 have been generated specifically by Philips for the purpose of reimbursement of extra costs”. He found they were not buyer generated invoices.5 In support of this he stated that “[Mr] Gaddum was clear on the purpose of the invoices” and referred to an email dated 20 July 2018 where Mr Gaddum had stated:

Invoices 729, 730, 6731 [sic] will not be paid as there was no agreement between FOMS and Philips contracting for day rate work.

[32]   The expert repeated his finding in the original decision that “where possible he had reconciled the dates of the evidence against the dates of the [relevant] invoice”. He added as further reasons that “on the basis of the evidence provided by Philips”, he had “reconciled the handwritten transcript of Philips’ on the day sheets in regards to extra costs and they appeared to be correctly netted off the harvest rate”. Further, he was satisfied that on the balance of probabilities “the site was not harvest ready and required further and ongoing work outside of the Schedule of Services and that would not ordinarily be expected to be included in a $/m3 rate”.

[33]   Regarding the provision of infrastructure, the expert repeated the reasons he gave at paragraph 4.2 of the determination.6

[34]   The expert then identified factors that had been persuasive in his decision-making. First, Philips’s correspondence to Mr Van der Maas in regard to top ups was continual and specific and Mr Van der Maas’ responses were repeatedly vague. The expert repeated reasons given in the determination at paragraph 4.2 that Philips held a genuine belief that there would be a top up over and above the $/m3 rate as one that was reasonably foreseeable for him to have; based on the evidence, the representations made to him by Mr Van der Maas and corroborated by Mr Cole and Mr Grice. Second, the expert found that it was “more likely than not that there was some sort of agreement in regards to top ups arising from the 11 June meeting”. But,

5      I shall return to this later. Clause 2.2 of the contract provided for payment to be by way of buyer created tax invoice for volume harvested in the previous month.

6      See [24] herein.

he then said that his decision in regard to the invoices “had not relied or turned on this or the date and thus did not require testing”.

Correction of expert’s determination

[35]   Later on 1 July 2020 the expert acknowledged a slip in his decision regarding invoice 3649, which had been referred to as 3641 by counsel for Philips. Further, he acknowledged an error regarding the set-off. This led him to correct the determination by reducing the agreed set off amount to $4,000. The alteration of the set off changed the sum Forest 360 owed Philips to $96,690 (including GST); this became the figure on which interest was to be calculated.

[36]   For Philips, its lawyer had also raised concerns about invoice 3649 and a debt owing of $9,872.27. The expert said he accepted the facts, as set out by Philips’ lawyer, showed this sum was owed by Forest 360 to Philips. However, the expert refused to make a decision on liability to pay this sum and he would not alter the determination. This was because the unpaid Philips invoice had not formed part of the claim, and accordingly in his view making orders in relation to it was beyond his jurisdiction.

The contract

[37]   Clause 1 dealt with the appointment of the contractor and the term of appointment. The contractor (Philips) was to harvest the volumes and grades of timber as agreed in writing from time to time and from sites agreed with Forest 360. The services the contractor was to provide were those listed in sch 1 to the contract. The contractor acknowledged the quantity of harvesting may vary and no minimum quantity of harvesting was agreed. Clause 1 also provided for the renewal of the contract if the parties were agreed on that happening.

[38]   Clause 2.1 set out a method of payment which provided that the rate was to be paid in dollars per tonne for wood produced by Philips, as set out in each harvesting prescription. Each such prescription was to detail the area of the forest to be worked, the harvesting operations to be undertaken and the rates to be paid for the work performed. It seems, therefore, that each demarcated area of the forest to be harvested

was to have a separately agreed harvesting prescription which provided for the work to be done and the rates to be paid for that work.7

[39]   Payment was to be made by Forest 360 on the 20th day of each month by way of a “Buyer-Created Tax Invoice” for volume harvested in the previous month.

[40]   Thus, the payment clause envisaged that it would be Forest 360 rather than Philips that generated a monthly invoice for payment of the work undertaken by Philips. Presumably that buyer-created tax invoice would be based on the rates of the agreed harvesting prescription for whatever area of a forest was currently being worked.

[41]   Philips was to supply all machinery, equipment, personnel and supplies as needed to perform under the contract.8

[42]   Clauses 3.2 to 3.4 set out Philips’ obligations in terms of compliance with public liability insurance requirements, staffing and health and safety requirements and on-site supervision of the work. Similarly, clause 4 specifically related to health and safety and set out detailed obligations imposed on Philips in that respect.

[43]   Clause 5 dealt with Philips’ environmental obligations such as compliance with resource consents, obtaining agreement in writing prior to any deviation from applicable resource consents, removing rubbish and operational waste from the forest on an at least weekly basis, minimising soil disturbance and tracking, ensuring water controls were installed post-harvest and adhering to the New Zealand Forest Owners Association Inc, New Zealand Environmental Code of Practice for Plantation Forestry, ensuring all Philips’ employees understood and complied with the environmental requirements of the contract.

[44]   The remaining clauses covered the following. Clause 6 provisions related to the quality of Philips’ harvesting performance. Clause 7 related to stock management documentation and communication. Clause 8 dealt with confidentiality. Clause 9

7      See cl 2.1.

8      See cl 3.1.

restricted assignment of the benefit of the contract. Clause 10 dealt with infrastructure and the obligations on Philips to take all reasonable care to prevent any damage to infrastructure. Clause 11 dealt with drugs and alcohol. Clause 12 dealt with fire security and protection. Clause 13 made it clear that the relationship between Forest

360 and Philips was that of independent contractor. Clause 14 provided the circumstances when the contract could be suspended. Clause 15 dealt with termination.

[45]Finally, there was clause 16, which provided as follows:

Dispute Resolution Notice of dispute

16.1If a party considers that a dispute has arisen between the parties in relation to this Agreement, it will give a notice to the other party, setting out in reasonable detail the dispute (Dispute Notice). On receiving a Dispute Notice each party will promptly commence discussions to attempt in good faith to resolve the dispute.

Mediation

16.2If the dispute has not been resolved within 10 working days (or other period agreed by the parties) after the receipt of the Dispute Notice, either party may require that the dispute is referred to the mediation of a single mediator. The mediator will be as agreed and failing agreement chosen by the chairperson for the time being of LEADR New Zealand Inc (or any successor body) or his or her nominee. The parties will share equally in the costs of the mediation.

Expert determination

16.3If a party considers at any time that a dispute referred to mediation will not be resolved by that method, either party may by notice in writing require that the dispute is referred for the determination of an expert who has experience with the type of dispute at hand.

(a)The expert will be agreed by the parties and if they cannot agree, the expert will be appointed on the application of either of the parties by the Chairperson for the time being of LEADR New Zealand Inc (or any successor body) or his or her nominee.

(b)The expert will determine the dispute acting as an expert and not an arbitrator so as to give effect to the intention of this Agreement. The expert’s decision will be final and binding on the parties except in the case of bad faith or manifest error.

(c)Each party will meet its own costs in relation to the determination. The parties will meet in equal shares the costs of the expert unless the expert determines otherwise.

(d)Subject to the above provisions, the expert will direct the rules to apply and manner by which he or she will determine the dispute, and how the determination will be given effect to.

Urgent Relief

16.4Nothing in this clause 16 will prevent a party from seeking urgent interlocutory or injunctive relief in the New Zealand Courts.

The contractual work

[46]   The contract works were set out in sch 1 to the contract. Schedule 1 was partly a proforma document that contained five check boxes with a description describing the particular services relating to that check box. In addition a handwritten insertion set out additional services.

[47]   For the subject contract check boxes 1, 3, 4 and 5 were checked. Check box 2 was not. This meant the forest harvesting services Philips was to provide to Forest 360 under the contract were as follows:

Checkbox one

Clearfell logging: which will include the felling of standing trees, the delimbing and the extraction to a skid or landing or other designated work areas of the stems, and the measuring and cutting up of the stems into the log products as specified by the Company. Every exotic tree from the harvest area will be felled even if it is deemed non-merchantable, this includes dead standing spars.

Checkbox three

Sorting and stacking: which will include the sorting out of the cut up logs into their various product categories and stacking those logs in readiness for their loading out. This includes branding of the logs as directed by the Company.

Checkbox four

Loading out: which will include the loading out of logs onto trucks and the accurate completion of the Company’s Weighbridge Docket for each load; and

Checkbox five

Other services: as specified below.

[48]   In relation to checkbox five which referred to “other services as specified” there was a handwritten insertion which stated as follows:

Managing and operating shuttling equipment provided by FOMS, this includes, a purpose built forwarder and a grapple loader.

It is understood that Philips Contracting will provide the labour as in an operator for both machines, also fuel for the machines, labour hours & fuel volumes will be documented and charged for at agreed rates.

[49]   The parties by notice of agreed statement of fact dated 18 June 2021 agreed that the contract works set out in sch 1 constituted the contract works.

The disputed invoices

[50]   The contract obliged Philips to cut and remove logs from specified forestry blocks. Forest 360 was responsible for ensuring everything was in place to allow the cutting and removal of logs to procced. However, with some blocks Forest 360 had not done all that was required before Philips could start cutting and removing logs. Instead Philips did preparatory work that should have been done by Forest 360. Without the preparatory work it seems the cutting and removal of logs in those areas could not have proceeded.

[51]   The contract did not expressly provide for Philips to substitute for Forest 360 when it came to the preparatory work. There is no dispute that some preparatory work that was outside the contract works was done by Philips. However, Forest 360 contends that it paid for this work. It further contends that the disputed invoices sought payment of contract works for which buyer created invoices had already been issued and paid for. Thus, there is no basis for Philips seeking further payments via the disputed invoices.

[52]   All invoices are dated 9 July 2018. Philips sent these invoices as attachments to an email to Forest 360 dated 17 July 2018. By then Philips had indicated (on 4 July 2018) that it would be stopping work and by 6 July 2018 Forest 360 had terminated the contract with Philips. Accordingly, the disputed invoices were issued some time

after performance of the subject works for which they were issued, contract works for those months had already been the subject of buyer created invoices which were paid to Philips, and the parties were entering the early stage of their broader dispute about performance of the contract.

Invoice 2728

[53]   Invoice 2728 itemised the provision of labour provided on 14 and 15 June 2018. The names of the workers and their hourly rate of $40 per hour is specified. This invoice also includes hire charges for several machines, all with hireage hours and hourly rates stated:

(a)in relation to the Fryett block clean up – river flat/skid area, hireage of machine 325FM in June 2018 and hireage of machine 320C in June 2018;

(b)hireage of machines for the Payne loadout skid reinstatement in June 2018;

(c)machine hireage for the Fryett crossing removal in June 2018;

(d)hireage of machines in June 2018 for the Fryett crossing and track reinstatement;

(e)hireage of machines for the Payne reinstatement in June and 2–5 July 2018; and

(f)machine hireage for the Kella track reinstatement on 29 June and 3 and 4 July 2018.

[54]The sum total of these charges comes to $26,881.25 including GST.

[55]   Invoice 2728 records no credits for payments of a work-related buyer created invoice from Forest 360.

Invoice 2729

[56]   Invoice sets out day rate logging charges as per cost book, excluding earthworks for the Fryett block of the Gasson Lane forest. It provides a series of dates in May 2018, in June 2018 and on 5 and 9 July 2018. The day rate logging charge is simply a monetary sum listed beside each day without any explanation for how that sum is derived. Also included in this invoice are two deductions to take account of payments made under the buyer created invoices, which were issued monthly. For June 2018 there is a deduction of $8,364.16 and for July 2018 there is a deduction of

$44,164.74. The presence of the two monthly deductions for buyer created invoices suggests that the dates set out in this invoice and the amounts claimed are being sought in addition to payments that have already been received in relation to the Fryett block based on the buyer created invoices. The total claimed in invoice 2719 is $34,598.74 including GST.

[57]   There are no Forest 360 buyer created invoices in evidence that match the credits recorded in invoice 2729.

Invoice 2730

[58]   Invoice 2730 relates to the Payne block. It is described as March/April day rate logging charges as per cost book excluding earthworks. The itemised sums relating to this invoice relate to work performed in March 2018 and April 2018. There is also a deduction for a May 2018 buyer created invoice in the sum of $59,317.76. Once that deduction is made the balance owing under invoice 2730 is $24,164.15. Again, it appears from this invoice that it relates to work provided on the specified dates for which payment is sought over and above that already received under the buyer created invoice for May 2018.

[59]The relevant buyer created invoice which resulted in the set-off deduction of

$59,317.76 is a Forest 360 invoice dated 30 April 2018, invoice number 3527. This invoice is a logging payment for the period to 30 April 2018. It identifies the logging gang, the forest number being 2132 De Brett, the log grades, the various loads, the volumes, the tonnage units, all of which were logged at an hourly rate of $44.80. The

invoice notes the payment is due on 20 May 2018 and identifies the bank account to which the payment was to be made.

Invoice 2731

[60]   This invoice relates to the Payne block and is a claim for the May day rate logging charges as per cost book excluding earthworks etc. It is for work done in May 2018. Deducted from the sums claimed for those dates is a credit given for a received 20 June 2018 payment as per buyer created invoices in the sum of $37,251.20 and

$8,288.92. Once those deductions are taken into account the sum sought under invoice 2731 is $15,046.05.

[61]   Invoice 2731 relates to work on the Payne block. In the evidence before me I can find no buyer created invoice relating to the Payne Block for comparable dates and showing payment of the sum $37,251.20 and $8,288.92.

Discussion

[62]   Where an expert determination clause provides that the expert’s determination shall be final and binding there are limited grounds on which the determination may be challenged.9 In such circumstances it is still possible to challenge the determination on the ground the expert has departed from his or her mandate in a material respect and failed to do what he or she was appointed to do.10 Where the determination clause additionally provides that the determination may be challenged in the case of bad faith or manifest error, which is the case here, this will provide a further ground of challenge.

Was there a departure from mandate?

[63]   For a Court to decide whether an expert has departed from his or her mandate it should decide: (a) whether the expert has done what he or she was appointed to do, which entails analysis of the determination clause; and (b) whether there has been a

9      Waterfront Properties (2009) Ltd v Lighter Quay Residents’ Society Inc [2015] NZCA 62, [2015] NZAR 492 at [29].

10 At [29].

material departure from the terms of appointment, which entails analysis of the determination. This is helpfully explained in Jones v Sherwood Computer Services:11

On principle, the first step must be to see what the parties have agreed to remit to the expert, this being, as Lord Denning MR said in Campbell v Edwards, a matter of contract. The next step must be to see what the nature of the mistake was, if there is evidence to show that. If the mistake made was that the expert departed from his instructions in a material respect, example if he valued the wrong number of shares, or valued shares in the wrong company, or if, as in Jones (M) v Jones (RR) the expert had valued machinery himself whereas his instructions were to employ an expert valuer of his choice to do that, either party would be able to say that the certificate was not binding because the expert had not done what he was appointed to do.

[64]   Another way of putting this limitation is that expressed in Nikko Hotels (UK) Limited v MEPC where it was said of an expert’s amenability to challenge:12

If he has answered the right question in the wrong way, his decision will be binding. If he has answered the wrong question, his decision will be a nullity.

[65]   In Barclays Bank PLC v Nylon Capital LLP Lord Neuberger MR expressed the view, without deciding the point, that where there was solely an issue of law in dispute the expert’s determination on that issue may be open to challenge:13

[69]      Accordingly, it seems to me that, where a contract requires an expert to effect a valuation which is to be binding as between the parties, and there is an issue of law which divides the parties and needs to be resolved by the expert, it by no means follows that his resolution of the issue is incapable of being challenged in court by the party whose argument on the issue is rejected. As Hoffman LJ said in the Mercury Communications case [1994] CLC 1125 at 1140, ‘The parties have agreed to a decision in accordance with this meaning and no other. Accordingly, if the decision-maker has acted upon what in the court’s view was the wrong meaning, he has gone outside his decision- making authority’, and, it seems to me to follow that the court can review, and, if appropriate, set aside or amend his decision. While certainty and clarity are highly desirable, it is, regrettably, inappropriate to consider that issue further in this case.

[70]      I appreciate that, in cases of this sort, the advantage of leaving all points of law to the final determination of the expert is that it results in a relatively quick and cheap process for the parties. However, it must be questionable whether the parties would have intended an accountant, surveyor or other professional with no legal qualification, to determine a point of law, without any recourse to the courts, even if it has a very substantial effect on their rights and obligations. It would, I suggest, be surprising if that were the

11     Jones v Sherwood Computer Services [1992] 2 All ER 170, [1992] 1 WLR 277 at 179 (citations omitted).

12     Nikko Hotels (UK) Limited v MEPC [1991] 2 EGLR 103.

13     Barclays Bank PLC v Nylon Capital LLP [2011] EWCA CIV 826, [2012] 1 All ER 912.

effect of an expert determination agreement when the Arbitration Act 1996 gives a right (albeit a limited and prescribed right) to the parties to refer points of law to the court. That Act applies where the parties have entered into an arbitration agreement, which gives them a much greater ability, in law and in practice, to make representations and to involve lawyers in connection with the arbitration, than parties enjoy in connection with the great majority of contractual expert determinations.

[66]   Forest 360 submits the inclusion and recognition of potential challenge based on bad faith or manifest error widens the scope for a challenge based on mistake beyond the circumstances referred to in Jones v Sherwood.14 In Veba Oil Supply & Trading GmbH v Petrotrade Simon Brown LJ outlined the test for manifest error as “oversights and blunders so obvious and obviously capable of affecting the determination as to admit of no difference of opinion”.15 In Galaxy Energy International Ltd v Eurobunker Spa a manifest error was referred to as a “plain and obvious error”.16

[67]   Accordingly, I consider that here the first step is to decide whether the expert did what he was appointed to do or whether he strayed outside the bounds of that mandate. To do so I take note of Lord Neuberger’s statement in Barclays Bank v Nylon Capital LLP:17

… the extent of the expert’s mandate in any case must depend on the words of the particular contract provision and the documentary, factual and commercial matrix of that provision.

[68]   Clause 16.1 of the contract provides for the parties to give notice of a dispute which they must attempt to resolve, and if they fail there is the prospect of mediation or expert determination. Clause 16.1 refers to a dispute that “has arisen between the parties in relation to this Agreement”. Other than this reference, nowhere else in cl 16 is the scope of the type of dispute to which cl 16 applies spelt out. It follows that here the expert’s mandate was to determine those disputes that were “in relation to” the contract.

14     Relying on Clive Freedman and James Farrell Kendall on Expert Determination (Sweet and Maxwell, London, 2015).

15     Veba Oil Supply & Trading GmbH v Petrotrade [2002] 1 All ER 703 at [33].

16     Galaxy Energy International Ltd v Eurobunker Spa [2001] 2 Lloyd’s Rep 725.

17     Barclays Bank PLC v Nylon Capital LLP [2011] EWCA CIV 826, [2012] 1 All ER 912 at [65].

[69]   In Sportzone Motorcycles (in liq) v Commerce Commission, the Court of Appeal found that the required connection imposed by the words “in relation to” would turn on the object and purposes of the particular statutory provision.18 The same would be true of a contractual provision. In plain terms the dispute must have some relationship or connection with the agreement. The relationship, depending on the context, may range from being “causal or consequential”19 to more loosely “having to do with”.20

[70]   This wording can be contrasted with language that would clearly narrow the scope of cl 16 to disputes about performance of the contract’s written terms. If the latter expression was intended to define the scope of cl 16 it could be expected that the clause would have used language like: (a) the performance of the contract; (b) performance of the contract works; or (c) performance of the work in sch 1 (these being the specified contract works). The phrase “in relation to” allows for a broader consideration of what is in dispute. It allows for the expert to consider matters that fall outside the written terms of the contract, but which can be seen to be related to the contract. Thus, any ancillary or additional conduct work/services that were not expressly provided for in the contract, but which arose by virtue of the parties being in a contractual relationship for harvesting services of the relevant forestry blocks is capable of being understood as something related to the contract.

[71]   Put simply, I consider the mandate cl 16 gave to the expert allowed him to look at matters of dispute that went beyond the express terms of the written contract, but which only came into being because of the parties’ contractual relationship. Had the parties wanted to confine cl 16 to a dispute about performance of the express terms of the written contract they could easily have done so.

[72]   This finding is consistent with the finding of Edwards J in Archers Road Trust Co Ltd v JMR Business Ltd.21 In that case the parties’ agreement contained a dispute resolution clause that allowed a party to refer to an expert for determination “a dispute

18     Sportzone Motorcycles (in liq) v Commerce Commission [2015] NZCA 78, [2015] 3 NZLR 191 at [52], citing Hatfield v Health Insurance Commission (1987) 15 FCR 487 at 491 per Davies J.

19     IAG New Zealand Ltd v Jackson [2013] NZCA 302 at [29].

20     Re Nanaimo Community Hotel Ltd [1944] 4 DLR 638; applied in Calibre Financial Services Ltd v Mortgage Administration Services (Calibre) Ltd [2013] NZCA 503, [2014] NZAR 483.

21     Archers Road Trust Co Ltd v JMR Business Ltd [2016] NZHC 2987 at [40]–[44].

in respect of any matter arising out of, or in connection with” the agreement. Edwards J held that the words “in connection with” in an expert determination dispute resolution clause required the dispute to have a “subject matter connection” to the agreement. The agreement there was about the sale and purchase of shares; a dispute about breach of director’s duties did not have a “subject matter connection” to the agreement. The case here is factually different because the dispute about the invoices and set-offs have a clear subject matter connection to the contract for forestry harvesting services.

[73]   Further, I consider the interpretation that I have given to cl 16.1 is consistent with other parts of the contract, the way the parties conducted themselves during its life and the commercial reality of their relationship. First, in other ways the contract recognised the need for some flexibility, and that parties could not in advance of forest harvesting spell out in precise written terms the obligations each was to assume. For example, the method of payment in cl 2.1 set out a process which involved the parties further reaching agreement in the form of a harvesting prescription for each block to be harvested. This method was clearly adopted to accommodate the individual characteristics of each block and the impact this had on the harvesting work required to be done. Second, on occasion works that Forest 360 was to perform under the contract were in fact performed by Philips, and Forest 360 made additional payments to Philips for that work. Given the parties seemingly could not anticipate everything that would need to be done and by whom before the harvesting work commenced it is understandable that they sought to build some flexibility into their contract. The way the forestry harvesting was actually done also demonstrates that those works did not readily lend themselves to being outlined in written form in a contract beforehand. The expert was someone with experience in forestry and he would have understood this.

[74]   In addition, cl 16 would be unworkable if it only applied to disputes falling directly under the express terms of the written contract. Because if that were the case any additional work/services undertaken by Philips would then have been done as a variation to the written contract, under a separate contract or under no contract. In either of the last two cases the party raising a dispute about those matters would be free to bring a claim in court; either for breach of the separate contract or in quantum

meruit, depending on whether the work/services were performed under a separate contract or not. In such circumstances it is difficult to see how court litigation could have been avoidable. Also, this would have led to a nonsense with some disputes being dealt with by expert determination and others by court process. The parties must have chosen expert determination as a means of resolving disputes between them because it is generally acknowledged to be a cheap and quick process. They are not likely to have intended that some disputes would be dealt with in this way but not others. Otherwise they would have written cl 16 in a way that limited its effects to matters specified in the written contract. I am satisfied their intent was for cl 16 to apply to all matters that were connected with the harvesting services to which their written contract applied.

[75]   It follows that I am satisfied the works for which the disputed invoices were issued and the claims for payment thereof are disputed matters that are related to the contract and therefore fall within the expert’s mandate. To adopt the language in Jones v Sherwood Computer Services,22 here the parties’ remit to the expert was to determine disputed issues that went beyond the express words of the contract and included other issues that were related to that contract.

[76]   Regarding the disputed invoices I consider these qualified as “other issues” that fell within the expert’s mandate. They imposed charges for matters that were sufficiently connected and incidental to the contract works, which makes them qualify as being “in relation to” the contract. This finding deals with Forest 360’s second and third causes of action. The expert did not make decisions on matters outside his mandate/jurisdiction, therefore, no questions of law of the type identified in the second and third causes of action arise.

[77]   The remaining questions are whether the determination on the disputed invoices is manifestly in error (first cause of action) and whether the expert lacked the necessary qualification so that the process of determination by this expert was not what the parties had bargained for (fourth cause of action).

22     Jones v Sherwood Computer Services [1992] 2 All ER 170, [1992] 1 WLR 277.

Was there a manifest error in the determination?

[78]   I am satisfied the determination discloses no manifest error. It is clear from the evidence that was before the expert and to which he has referred in the reasons he has given that he preferred the evidence of Philips on the questions raised by the claims for payment of the disputed invoices. There was evidence from the witnesses for Philips which supported this outcome. The summary of the expert’s reasons set out herein makes that clear. There was contrary evidence supporting Forest 360’s case, but the expert was entitled to reject that evidence, which is what he did.

[79]   I acknowledge the expert had reserved the possible option of a hearing and cross-examination, which is one way to determine conflicts of evidence. However, it was up to the expert whether he followed that process or not. If he considered, as he obviously did, that he could determine the conflicts on the papers he was entitled to proceed to do so. This is not a case like Waterfront Properties (2009) Ltd v Lighter Quay Residents’ Society Inc (Waterfront Properties) where an oral hearing with cross- examination was possible and the expert had indicated that counsel should appear at the hearing with their respective witnesses, which they did, but time was taken up with other matters and no cross-examination eventuated.23 Later when he released his determination the expert found he could not resolve the evidential conflicts. When later asked by the parties to reconvene to hear their witnesses’ evidence he refused to do that. The Court of Appeal found that by not allowing the cross-examination to take place and then finding he could not resolve the evidential conflicts on what were material issues the expert had effectively rendered himself unable to discharge his mandate.

[80]   On the other hand, in the present case, albeit without the assistance of cross- examination the expert resolved the evidential conflicts before him. The reasons he gave explain why he preferred Philips evidence to that of Forest 360. The explanation appears reasonable. It does not disclose any manifest error. By this I mean the reasons do not reveal any obvious oversights or blunders capable of affecting the determination and which admit of no difference of opinion.

23     Waterfront Properties (2009) Ltd v Lighter Quay Residents’ Society Inc [2015] NZCA 62, [2015] NZAR 492.

[81]   Accordingly, there is no breach of contract as alleged in the first cause of action.

Did the expert lack the necessary qualification?

[82]   As to the fourth cause of action, Forest 360 initially raised this complaint then abandoned it and submitted to the determination. The time for complaining the expert was not sufficiently qualified was at the outset and Forest 360 should then have refused to participate in the determination. Waterfront Properties shows that parties can go to Court with complaints about the process followed by an expert. Where one party is essentially contesting the decision of the Chairperson of the Resolution Institute and maintaining the appointed expert lacks the necessary qualifications, I consider the time to make that challenge is before the determination happens. Once it has proceeded and a determination is issued a party in Forest 360’s position is by then estopped from complaining about the expert’s qualifications. Moreover, the expert has provided the Court with evidence of his qualifications. His determination addresses the material issues correctly. The legal expertise Forest 360 contends was required would only arise if the expert were required to determine questions of law or mixed fact and law. No such questions arise here. The questions were factual and addressed in a way that does not reveal manifest error.

[83]Accordingly, the fourth cause of action is not established.

Conclusion

[84]   The causes of action Forest 360 brings and the submissions it makes in support of them largely rest on the expert having made jurisdictional errors which led him to stray beyond his jurisdiction/mandate. I am satisfied no such errors were made. Instead I consider the expert asked himself the right questions and answered them correctly. And if he did make any errors they were not the type of error that would allow this Court to interfere with the determination.

Result

[85]The first, second, third and fourth causes of action are dismissed.

[86]The parties have leave to file memoranda as to costs.

Duffy J