Forest Holdings Ltd v Mangatu Blocks Inc
[2019] NZHC 2258
•10 September 2019
IN THE HIGH COURT OF NEW ZEALAND TAURANGA REGISTRY
I TE KŌTI MATUA O AOTEAROA TAURANGA MOANA ROHE
CIV-2018-470-000084
[2019] NZHC 2258
BETWEEN FOREST HOLDINGS LIMITED
Appellant
AND
MANGATU BLOCKS INCORPORATION
Respondent
Hearing: 28 August 2019 Counsel:
MD Branch and KF Shaw for Appellant
ZG Kennedy and MD Toulmin for Respondent
Judgment:
10 September 2019
JUDGMENT OF DOWNS J
This judgment was delivered by me on Tuesday, 10 September 2019 at 1 pm pursuant to r 11.5 of the High Court Rules.
Registrar/Deputy Registrar
Solicitors:
Harkness Henry, Hamilton.
MinterEllisonRuddWatts, Auckland.
FOREST HOLDINGS LTD v MANGATU BLOCKS INC [2019] NZHC 2258 [10 September 2019]
Proof of causation in a loss of chance claim
[1] In a loss of chance claim, the plaintiff must prove the defendant wrongly deprived the plaintiff of a chance of some value. This may require the plaintiff to prove she or he would have done certain things. If so, the plaintiff must prove these to the usual, civil standard. In other words, the plaintiff must prove it is more likely than not she or he would have done these things.
[2] In some loss of chance claims, a plaintiff’s loss turns on how a third party might have acted: X. If so, the plaintiff does not need to prove it is more likely than not the third party would have done X; it is sufficient if the plaintiff proves there is a real prospect the third party would have done X. If this relatively low threshold is crossed, the Court then turns to quantum.
[3] In other loss of chance claims, a plaintiff’s loss turns on whether the defendant would have done something: Y. Must the plaintiff prove it is more likely than not the defendant would have done Y? Or, need the plaintiff only prove there is a real prospect the defendant would have done Y? These are the questions in this appeal.
[4] They arise this way. In 2003, Mangatu Blocks Incorporation1 granted Forest Holdings Ltd2 a forestry right on land owned by Mangatu. In 2013, Mangatu terminated the right. Mangatu could do so, but only after first giving Forest Holdings 120 days’ notice of its intention to do so, with a corresponding opportunity to remedy any defaults. Mangatu did not give this notice. So, it breached its contract with Forest Holdings. The case went to arbitration.
[5] The Arbitrator, the Hon B J Paterson QC, found Forest Holdings had not suffered loss despite this breach. He found Mangatu was very dissatisfied with Forest Holdings’ performance and would have terminated, with notice, in any event. Among other things, Forest Holdings had illegally logged some trees, a source of tension between it and Mangatu, and between Forest Holdings and others.
1 Mangatu.
2 Forest Holdings.
[6] The Arbitrator found if Forest Holdings had been given notice, it would have considered its options in the hope of retaining the forestry right, or “extract[ing] some commercial value from it during the 120 day notice to remedy period”.3 However, the Arbitrator found Mangatu would not have withdrawn the notice, as Forest Holdings would not have been able to persuade Mangatu to do so given Forest Holdings’ poor performance.
[7] The Arbitrator also found there was little possibility third parties would have acted to create an opportunity of value; for example, there was little possibility the Gisborne District Council would have withdrawn its abatement notices against Forest Holdings in relation to Forest Holdings’ illegal logging.
[8] Forest Holdings sought permission to appeal on questions of law. Courtney J granted permission.4 Indeed, the Judge said the Arbitrator had erred in relation to proof vis-à-vis causation. Other issues arise too. More about them later.
The argument for Forest Holdings
[9] Forest Holdings contends the Arbitrator erred. It exhorts Courtney J’s reasoning. Courtney J said the Arbitrator erred in treating Mangatu’s hypothetical actions as those of a party rather than a third party. On this view, Forest Holdings need only have established there was a real prospect Mangatu would have withdrawn the termination notice; Forest Holdings did not need to prove it was more likely than not Mangatu would have done so. Or, as the Judge observed:5
Forest Holdings’ actions were certainly to be determined on the balance of probabilities. But Mangatu’s actions were, for the purposes of the loss of chance assessment, those of a third party.
Principle
[10] In Chaplin v Hicks, Mr Seymour Hicks offered acting engagements to women, determined in part by public feedback on their beauty.6 Ms Chaplin was one of
3 Forest Holdings Ltd v Mangatu Blocks Incorporation Arbitrator’s further ruling on damages issue, 7 March 2018, at [23] [Award].
4 Forest Holdings Ltd v Mangatu Blocks Incorporation [2018] NZHC 3272 [permission judgment].
5 At [43].
6 Chaplin v Hicks [1911] 2 KB 786.
50 finalists. Mr Hicks breached contract by not giving Ms Chaplin adequate notice of the final round of the contest. She successfully sued. Mr Hicks argued there were too many variables for Ms Chaplin to succeed. Any number of things might have happened—or not.
[11] The Court of Appeal dismissed the appeal. Vaughan Williams LJ rejected the contention “if certainty is impossible of attainment, the damages for a breach of contract are un-assessable”.7 The Judge said the fact “damages cannot be assessed with certainty does not relieve the wrongdoer of the necessity of paying damages for his breach of contract”.8 However, the Judge accepted in some cases “loss is so dependent on the mere unrestricted volition of another … it is impossible to say that there is any assessible loss resulting from the breach”.9
[12] The learned authors of McGregor on Damages say Chaplin v Hicks is generally regarded as having introduced the loss of chance doctrine into English law, and regard that case as “a legal Pandora’s box”.10 The doctrine evolved in the 1950s, largely in the context of (English) solicitors’ negligence. It then took “a giant leap forward” in Allied Maples v Simmons & Simmons, “to range over the whole territory of dependency on the acts of third parties”.11 Takaro Properties Ltd v Rowling is an early New Zealand example of a loss of chance claim.12
[13] The significant feature of such a claim is that once the plaintiff has proved she or he has lost a chance of some value, damages are assessed on a probabilities basis; not on the usual, civil standard of proof. So, if a plaintiff can establish the defendant wrongly deprived her or him of a chance to make a million dollars, and there is a 30 percent chance the plaintiff would have made that sum, the plaintiff’s damages are
$300,000. The High Court of Australia explained the concept this way in
Sellars v Adelaide Petroleum NL:13
7 Chaplin v Hicks, above n 6, at 792.
8 At 792.
9 At 792.
10 James Edelman McGregor on Damages (20th ed, Sweet and Maxwell, London, 2018) at [10-041].
11 At [10-042], citing Allied Maples Group Ltd v Simmons & Simmons (a firm) [1995] 1 WLR 1602.
12 Takaro Properties Ltd v Rowling [1986] 1 NZLR 22.
13 Sellars v Adelaide Petroleum NL [1994] HCA 4, (1994) 179 CLR 332 at 355 (emphasis in original).
... the general standard of proof in civil actions will ordinarily govern the issue of causation and the issue whether the applicant has sustained loss or damage. Hence the applicant must prove on the balance of probabilities that he or she has sustained some loss or damage. However, in a case such as the present, the applicant shows some loss or damage was sustained by demonstrating that the contravening conduct caused the loss of a commercial opportunity which had some value (not being a negligible value), the value being ascertained by reference to the degree of probabilities or possibilities. It is no answer to that way of viewing the applicant’s case to say that the commercial opportunity was valueless on the balance of probabilities because to say that is to value the commercial opportunity by reference to a standard of proof which is inapplicable.
[14] Allied Maples Group Ltd v Simmons & Simmons (a firm) involved a takeover.14 The plaintiff acquired the assets of department stores and associated leases. The contract originally included a warranty by the seller that no contingent liabilities existed under the leases. The condition was deleted during negotiations between plaintiff and seller. After settlement, the plaintiff learned of a substantial claim under one of the leases. The plaintiff sued its solicitors.
[15] The plaintiff argued there was a real chance it would have successfully renegotiated the agreement with the seller to obtain protection against this species of liability. This mix posed two questions in relation to causation and damage. First, whether the plaintiff would have tried to renegotiate the issue with the seller if the defendant had properly advised the plaintiff of the effect of deleting the warranty. Second, whether the seller would have been prepared to renegotiate the issue with the plaintiff.
[16] Stuart-Smith LJ held the first question attracted the usual, civil standard. The plaintiff had to establish it was more likely than not it would have tried to renegotiate with the seller (had the plaintiff been properly advised by the defendant). The Judge held the second question was to be assessed as one of probability, not proof. So, the plaintiff did not need to establish it was more likely than not the seller would have agreed to renegotiate; rather, the likelihood the seller would have agreed to renegotiate was to be assessed as a matter of probability. Or, as the Judge explained:15
14 Allied Maples Group Ltd v Simmons & Simmons (a firm), above n 11.
15 At 1609–1611 (emphasis added).
... where the plaintiffs’ loss depends upon the actions of an independent third party, it is necessary to consider as a matter of law what it is necessary to establish as a matter of causation, and where causation ends and quantification of damage begins.
...
If the defendant’s negligence consists of an omission ... causation depends, not upon a question of historical fact, but on the answer to the hypothetical question, what would the plaintiff have done ... This can only be a matter of inference to be determined from all the circumstances...
Although the question is a hypothetical one, it is well established that the plaintiff must prove on the balance of probability that he would have taken action to obtain the benefit or avoid the risk. But again, if he does establish that, there is no discount because the balance is only just tipped in his favour.
...
In many cases the plaintiff’s loss depends on the hypothetical action of a third party, either in addition to action by the plaintiff, as in this case, or independently of it. In such a case does the plaintiff have to prove on the balance of probability ... that the third party would have acted so as to confer the benefit or avoid the risk to the plaintiff, or can the plaintiff succeed provided he shows that he had a substantial chance rather than a speculative one, the evaluation of the substantial chance being a question of quantification of damages?
... I have no doubt that ... the second alternative is correct.
[17] Allied Maples was applied in Benton v Miller & Poulgrain (a firm).16 Mr and Mrs Benton dealt property. The same firm of solicitors acted for both. Mr Benton sued the firm. He alleged their negligence caused him loss. The New Zealand Court of Appeal said:17
Applying [the Allied Maples] approach to the case at hand, uncertainties as to how Mr Benton would have acted had proper advice been given are to be dealt with on an all or nothing basis and decided on the balance of probabilities while uncertainties as to Mrs Benton’s conduct fall to be determined on loss of a chance principles.
In making a “loss of chance” assessment, broad judgments are called for. At one end of the spectrum, very low probabilities are unlikely to be reflected in an award of damages. So if the chance of avoiding an adverse event is as low as say one in ten, a Court will probably reject the claim rather than fix damages at ten per cent of the cost to the plaintiff associated with those adverse events. At the other end of the spectrum that approach is sometimes, but not always, adopted. So a 90 per cent chance of avoiding an adverse event may result either in complete recovery of all losses associated with that adverse event (on the theory that the chance of not avoiding those losses was sufficiently
16 Benton v Miller & Poulgrain (a firm) [2005] 1 NZLR 66 (CA).
17 At [49]–[50].
speculative to be able to be ignored) or alternatively a discount of ten per cent for contingencies.
As will be apparent, the Court of Appeal treated Mrs Benton as a third party.
[18] I pause here. Allied Maples and Benton clearly establish that when a plaintiff’s loss (in a loss of chance claim) turns on the actions of a third party, the plaintiff does not need to prove it is more likely than not the third party would have taken those actions. It is sufficient for the plaintiff to prove there is a real prospect, or as Stuart-Smith LJ described it, a “substantial chance”, the third party would have taken them.18 But, the chance or prospect must be real; a speculative chance does not qualify.
[19] This brings me to Hirtenstein v Hill Dickinson LLP.19 The case is important. Mr Hirtenstein bought a motor yacht. It suffered “a major failure” at sea.20 Mr Hirtenstein did not test the yacht before he bought it. He bought it as is, where is. Mr Hirtenstein believed the seller had provided a personal guarantee. Mr Hirtenstein did so because his solicitor, Mr Lawson of Hill Dickinson, told him this. Mr Lawson was wrong.
[20] Mr Hirtenstein sued Hill Dickinson in negligence. Leggatt J said he had to decide whether the negligence of Hill Dickinson caused Mr Hirtenstein to purchase the boat without a personal guarantee. This required “judgments about what each of Mr Lawson, [the seller], and Mr Hirtenstein would have done if Mr Lawson had not been negligent”.21
[21] The Judge said, “the standard of proof differs according to whose actions are under consideration”.22 “Where the question is what a third party would have done”, Allied Maples applied.23 This meant the Judge had to “assess the chance … the third party would have acted in the relevant way and … award damages which reflect that chance”.24
18 Allied Maples Group Ltd v Simmons & Simmons (a firm), above n 11, at 1611.
19 Hirtenstein v Hill Dickinson LLP [2014] EWHC 2711.
20 At [1].
21 At [84].
22 At [85].
23 At [85].
24 At [85].
[22] The Judge said where “the question is what a party to the proceedings would have done, the matter is decided on the balance of probability”.25 So, “if the Court considers … it is more probable than not that the claimant would have acted in a particular way, the Court will proceed on the basis that the claimant would have indeed acted in that way”.26 The Judge said the “same all-or-nothing approach applies where the question is what the defendant would have done”.27
[23] Leggatt J applied these tests to the evidence. He found it more likely than not Mr Lawson would have sought a personal guarantee from the seller had Mr Lawson not been negligent; Mr Lawson’s firm, Hill Dickinson, was of course, a party.
[24] The Judge then turned to what the seller would have done; “whether, if Mr Lawson had sought a personal guarantee … there is a real or substantial chance that [the seller] would have agreed to give one”.28 The Judge said, “the relevant standard of proof is a relatively low one, being much less than the balance of probability”.29 The Judge held this lower threshold was not met because there was no real chance the seller would expose himself to personal liability.30
[25] So, Hirtenstein is authority for the proposition in a loss of chance claim, the law draws a distinction between what the plaintiff must prove about the defendant, and what the plaintiff must prove about a third party. When loss turns on what the defendant might have done, the plaintiff must prove that to the usual, civil standard. But, when loss turns on what a third party might have done, the plaintiff need only prove there is a real prospect the third party would have acted that way.
[26] Hirtenstein was not cited to Courtney J. The parties said the distinction between a defendant and third party was not explored in detail before her Honour at the permission hearing.
25 Hirtenstein v Hill Dickinson LLP, above n 19, at [85].
26 At [85].
27 At [85].
28 At [91].
29 At [91].
30 At [91]–[94].
Analysis
[27] I consider Hirtenstein represents the law. Forest Holdings did not cite any contrary authority (beyond the permission judgment). Forest Holdings also struggled to articulate why a defendant should be treated as a third party in this context. More accurately, Forest Holdings could not.
[28] There are no obvious reasons why a defendant should be treated as a third party here. Conversely, there are obvious reasons why the plaintiff should be required to prove what the defendant would have done—to demonstrate the plaintiff has lost a chance of genuine value—according to the usual, civil standard.
[29] The requirement is consistent with the overarching and fundamental principle a plaintiff must prove her or his case. The requirement is also consistent with the principle the plaintiff must prove her or his conduct to the civil standard in a loss of chance case; so too causation of “historical fact”.31 The requirement filters claims that would otherwise be speculative, an ever-present danger in this area.
[30] No unfairness arises, or could arise, from this requirement. Both parties are just that; both are before the Court. Each may offer evidence. Each may challenge the evidence offered by the other. Each may adduce contrary evidence. Each may insist on discovery from the other, to determine what evidence to adduce, challenge, or both. Each may argue what the other would have done if Y had happened. And, each may comment on the other’s argument about what the other would have done, if Y had happened. None of this is true of third parties, who are typically not before the Court in a loss of chance claim.
[31] There is also good reason for a lesser standard in relation to the actions of third parties. Frequently, a plaintiff cannot know—hence cannot prove—how the third party would have acted. So, it is right a plaintiff need only prove there is a real prospect the third party would have acted a certain way. This lesser standard also inhibits well-
31 Allied Maples Group Ltd v Simmons & Simmons (a firm), above n 11, at 1610.
resourced defendants from putting a plaintiff to proof on every conceivable aspect of a hypothetical scenario.32
[32] This analysis is consistent with Allied Maples in which Stuart-Smith LJ expressly referred to the hypothetical actions “of an independent third party”.33 Forest Holdings’ argument presupposes this expression was used to encompass a defendant or used imperfectly. Courts generally choose their language with care.
[33] This conclusion does not overlook uncited commentary in McGregor on Damages that can be read as supporting Forest Holdings’ position.34 That text does not cite or discuss Hirtenstein. Nor does it overlook the cited decision of the High Court of Australia in Badenach v Calvert, which provides some support for Mangatu’s position.35 The High Court said Allied Maples was incompatible with Australian legislation and common law.
Did the Arbitrator err about causation?
[34]The Arbitrator considered some of these cases (but not Hirtenstein), and others.
He summarised principle this way:36
(a)[Forest Holdings] needs to establish on the balance of probabilities that it has lost a commercial opportunity of some value (not being a negligible value).
(b)In the circumstances of this case, it is necessary to determine whether Mangatu would have issued a notice to remedy defaults under the provisions of Schedule D of the Forestry Right (notice to remedy). This needs to be established by Mangatu on the balance of probability basis.
(c)If it is accepted that the notice to remedy would have been issued, [Forest Holdings] is required to establish on the balance of probabilities what action it would have taken and that such action would have achieved a commercial opportunity of some value. The commercial opportunity must be more than a speculative opportunity.
(d)If a commercial opportunity of value is established, the damages are to be assessed on the degree of probabilities and possibilities.
32 See Perry v Raley’s Solicitors [2017] EWCA Civ 314 at [36].
33 Allied Maples Group Ltd v Simmons & Simmons (a firm), above n 11, at 1609.
34 McGregor on Damages, above n 10, at [10-057]–[10-064].
35 Badenach v Calvert [2016] HCA 18, (2016) 257 CLR 440.
36 Award, above n 3, at [12]–[13].
I do not accept, as [Forest Holdings] appears to contend that the future actions of the parties need to be assessed on the balance of probabilities and possibilities basis. As is implicit in the principles stated in the previous paragraph, the likely actions of both parties are relevant to establishing causation. In my view, their actions before the date of repudiation and the inferences that can be drawn from them are relevant in establishing causation and are to be assessed on the balance of probabilities basis.
[35]This approach is consistent with my analysis.
[36] The Arbitrator applied it to the acts of Forest Holdings and Mangatu, in other words, the acts of the parties. He found Forest Holdings “would have wished to retain the Forestry Right or alternatively, extract some commercial value from it during the 120 day notice to remedy period if at all possible”.37 But as observed, the Arbitrator also found Forest Holdings would not have been able to persuade Mangatu to withdraw its termination notice. The Arbitrator said this:38
The conclusion that I have come to is that the discovery by Mangatu of illegal harvesting was certainly the tipping point which led to the termination notice which was ultimately held to be a repudiation of contract. However, it was not the sole reason. It brought to a head simmering discontent by Mangatu with [Forest Holdings’] performance. It was also concerned that [Forest Holdings] had misled it when it said it had complied with the consent conditions. When all the circumstances are considered, I am not persuaded, if the logging was in fact illegal, that [Forest Holdings] could have persuaded Mangatu to withdraw a notice to remedy. The evidence from Mangatu is such that [Forest Holdings] could not have on the balance of probabilities established that the notice would have been withdrawn. If I were required to assess this matter on the degree of probabilities and possibilities, my assessment would be that Forest Holdings’ chances on this particular point were less than 10%.
[37] Forest Holdings failed to prove it could have persuaded Mangatu to have withdrawn the notice; an act either of Forest Holdings, Mangatu, or both, hence an act of one or both parties attracting the usual, civil standard.
[38] A possible response to this analysis is that the loss of chance arose from the 120-day period itself. On this view, the existence of a chance of value did not turn on Mangatu’s response.
37 Award, above n 3, at [23].
38 At [35].
[39] The first part of the answer to this response is that the notice period had no intrinsic value. It had value only if Forest Holdings persuaded another—most obviously Mangatu—to act favourably toward it. The second part of the answer to this response lies in the award itself. The Arbitrator asked, as an alternative inquiry, whether there was a real prospect Forest Holdings might have been able to persuade Mangatu to withdraw the termination notice. In other words, the Arbitrator posed the test Forest Holdings now contends for. The Arbitrator concluded this possibility was speculative. He therefore dismissed it:39
[Forest Holdings’] position is that it is only necessary to establish that it had a reasonable chance to persuade Mangatu to withdraw a notice to remedy if one had been issued and it does not have to do so on a balance of probabilities basis. Although I do not accept that this is the test, I note that if I am wrong, I would in the circumstances of this case, because of the past history, the continued breaches and unsatisfactory performance by [Forest Holdings], and [Forest Holdings’] perilous financial position assess that the chances of persuading Mangatu to withdraw a notice to remedy were less than 10% and therefore in the negative value category.
[40] This brings me to Forest Holdings’ related arguments. Before the Arbitrator, Forest Holdings submitted it could have invoked an arbitration clause, in turn giving rise to the possibility of interim relief; a stay of the termination notice. The Arbitrator addressed this submission this way:40
… [Forest Holdings] had the right to invoke the provisions of this clause and was entitled to endeavour to resolve the matter by discussion failing which it could have referred the matter to arbitration. On the findings already made, Mangatu would not have been prepared to have withdrawn the notice to remedy and would have been prepared to terminate. As already noted, I do not accept the submission that in assessing the actions which either party would have taken, it is necessary to do so on the degree of probabilities or possibilities basis.
The second step in the dispute resolution process would have been to refer the matter to arbitration. On the authorities noted above, [Forest Holdings] would be required to establish on the balance of probabilities that it had a substantial chance rather than a speculative one of achieving a satisfactory result. …
An arbitrator under the interim relief powers in the Arbitration Act 1996 has the power to stay the termination pending the arbitration. However, it is still necessary in my view, for [Forest Holdings] to show that it would have a substantial, rather than a speculative, chance of success. In my view for the reasons already given, I am of the view that the chances of success are speculative and not substantial. The poor performance by [Forest Holdings],
39 Award, above n 3, at [44].
40 At [46]–[49].
its financial position and the number of breaches which it was unable to remedy within the prescribed time leads to this finding. Mangatu had a contractual right to terminate the Forestry Right for breaches, which were serious, and which could not be remedied within the 120 day period. It had an absolute right to terminate.
If I am incorrect and the matter has to be determined on the degree of probabilities or possibilities, I assess the chance of succeeding in an arbitration as no greater than 10%.
[41] Forest Holdings contends the Arbitrator erred as the second paragraph implies Forest Holdings had to prove it was more likely than not there was a real prospect of interim relief; the correct test was simply whether Forest Holdings had proved there was a real prospect of interim relief.
[42] This paragraph can be read this way, and when so, is incorrect. Hirtenstein, Allied Maples and Benton reveal the usual, civil standard of proof, does not apply to the actions of third parties. Consequently, a plaintiff does not need to prove it is more likely than not the third party would have taken those actions. It is sufficient for the plaintiff to prove she or he had a real prospect or as Stuart-Smith LJ described it, a “substantial chance”, the third party would have taken them. This is merely to repeat what I said earlier.
[43] However, as will be apparent from the next paragraph in the quotation at [40], the Arbitrator expressly considered whether there was a real chance of interim relief. He did so with reference to the prospect of a substantial rather than speculative chance. This passage implies the Arbitrator did apply the correct test.
[44] In any event, it is not clear how employing the usual, civil standard with the correct test could yield a different result on these facts.41 The Arbitrator regarded the prospect of interim relief as remote, indeed speculative, because Forest Holdings had been such a poor forester since obtaining the forestry right. The Arbitrator concluded Mangatu was determined to terminate the forestry right; and concluded Mangatu was entitled to do so because of Forest Holding’s deficient performance. These bedrock conclusions leave little room for the existence of a valuable chance in a four-month notice period irrespective of who had to prove what, and to which standard, if any.
41 In other words, asking whether it was more likely than not there was a real prospect of X.
[45] Finally on this point, the Arbitrator also assessed the likelihood of interim relief “on the degree of probabilities or possibilities”. He concluded the prospect of relief was not greater than 10 percent, or as already observed, speculative. This conclusion directly answers Forest Holdings’ concern about misapplication of a standard or proof.
[46] Forest Holdings also argued it could have sought cancellation of the Gisborne District Council’s abatement notices or sold the forestry right. The Arbitrator dealt with abatement notices this way:42
Notwithstanding the previous history if [Forest Holdings] can establish on the balance of probabilities that it had a substantial chance of obtaining a commercially valuable opportunity either through an application to the [Gisborne District Council] or on an appeal or application to the Environment Court, it is entitled to have an assessment of the degree of probabilities and possibilities made. It did not call further evidence on this aspect.
It is necessary to assess what any possible action to have the abatement notices cancelled would have had on the decision-making process of Mangatu as well as that of [Gisborne District Council]. In summary, [Forest Holdings’] position is that by challenging the abatement notices it would have either persuaded [Gisborne District Council] to cancel the notices or have persuaded Mangatu that it should not proceed with termination or would have been successful in the Environment Court which would have led to the abatement notices being cancelled. To assist [Forest Holdings’] position it is necessary for it to establish on the balance of probabilities that there would have been a substantial prospect of achieving value by one of these methods …
…
It is my opinion that on the basis of the above findings, [Forest Holdings] did not have a substantial chance of either persuading Mangatu to withdraw a notice to remedy if one had been issued or of having [Gisborne District Council] cancel the abatement notice. If it is necessary to assess on a degree of probabilities and possibilities basis, the chances were in my view negligible.
[47]The Arbitrator said this about a possible sale:43
[Forest Holdings’] position is that a sale of half of the shares in it would have no doubt allayed Mangatu’s concerns and would have provided significant cash resources which could then be used to ensure any breach was remedied…
…
The only evidence adduced in support of the prospects of a sale was at the liability hearing when Mr Scott referred to two possible purchases…
42 Award, above n 3, at [57], [58] and [64].
43 At [76], [78] and [79].
Accepting that these two possible purchases did express interest, the hearsay evidence of Mr Scott is not sufficient to satisfy the onus of [Forest Holdings] that there was a realistic rather than a speculative prospect of selling a half- interest in the company or assigning [Forest Holdings’] interest in the Forestry Right… There was no evidence at the liability hearing and as noted no further evidence was called at the recent hearing, which establishes on the balance of probabilities that a sale of a half-interest was a realistic or significant prospect.
[48] Forest Holdings submits the same error affects these conclusions, as the Arbitrator intermingled the usual, civil standard with the assessment of a real chance. The error, if any, is harmless for the same reasons as earlier.
[49]The primary ground of appeal fails.
Illegal logging of trees
[50] Forest Holdings sought permission to argue the Arbitrator erred in concluding Mangatu believed the 2013 harvest was illegal. Forest Holdings asked to challenge this conclusion on the basis it had applied to recall the finding, and the Arbitrator did not determine the recall application because the parties agreed the point would be addressed as part of the loss of chance assessment.
[51] Courtney J noted she did not have the recall papers. The Judge said there might have been an error of law if there had been an agreement to revisit this issue and that had not happened. However, the permission judgment is a little equivocal on whether Forest Holdings was given permission to pursue this point.44
[52] Forest Holdings does not now contend the parties agreed to revisit the point. It argues, “it does not really matter whether there has been a finding of fact by the Arbitrator on this point or not”; rather, the important point is that there was a possibility Forest Holdings could persuade Mangatu “its view on illegal logging was not validly held”. Forest Holdings also argues the Arbitrator overlooked its recall application.
[53] This is unsatisfactory. If Courtney J granted permission, it was to allow Forest Holdings to prosecute the argument the Arbitrator erred in law by not revisiting an
44 Compare [51] and [71]–[72] of permission judgment, above n 4.
issue the parties had agreed would be revisited. On no view did the Judge grant broader permission. Forest Holdings does not advance the agreement argument. I decline to entertain any other. This is not a general appeal.
[54]This ground fails.
Damages under s 9 of the Contractual Remedies Act 1979
[55] Courtney J’s judgment helpfully frames this ground of appeal, which is distinct and confined:45
In the Preliminary Damages Decision, the Arbitrator noted that, on the pleadings, [Forest Holdings] had not sought s 9 relief in the event of him holding that Mangatu had unlawfully repudiated the contract, but that s 9 allowed him to consider a reliance award in respect of the unused portion of the royalty and the costs incurred, though [Forest Holdings] would need to amend its pleadings. The Arbitrator did make the observation that [Forest Holdings] would face difficulty in advancing a claim of that kind, given that the Forestry Right entitled Mangatu to retain the unused portion of the royalty payment. Nevertheless, [Forest Holdings] was invited to consider its position and advise what it proposed to do.
…
Since I do not have the benefit of the current pleadings or the submissions made to the Arbitrator on this issue, it is not possible to resolve this issue. If the claim for reliance damages had been advanced, either in pleadings or submissions, as being amenable to relief under s 9, the Arbitrator would have made an error in not considering the issue. Such an omission would not be the exercise of a discretion as such, but rather the failure to actually consider a legal issue raised in the proceeding. If, however, the issue had not been advanced by counsel in that way either in pleadings or submissions, then I cannot see that any error was made.
[56] Forest Holdings contends it squarely raised the possibility of damages under s 9 and the Arbitrator did not address this aspect of its claim. Forest Holdings paid several million dollars for the royalty and a considerable portion of this went unused.
[57] Mangatu accepts the Arbitrator made no express reference to this part of the claim, but contends he implicitly rejected it. Mangatu also contends this outcome was inevitable given the Arbitrator’s factual conclusions, and the breadth of his discretion under s 9.
45 Permission judgment, above n 4, at [67] and [70].
[58] This ground of appeal must succeed. Forest Holdings was entitled to an explicit determination of its claim for s 9 damages; there is a real risk the Arbitrator overlooked this aspect of the claim. It is no answer to say s 9 damages were improbable; that is for the Arbitrator.
Result
[59] The appeal is allowed, but only in relation to the availability of damages under s 9 of the Contractual Remedies Act. The award is remitted for consideration of this issue.
……………………………..
Downs J
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