Gladvale Farms Limited v Baty t/a RR & KJ Baty Partnership
[2015] NZHC 1736
•28 July 2015
IN THE HIGH COURT OF NEW ZEALAND INVERCARGILL REGISTRY
CIV-2014-425-000011 [2015] NZHC 1736
BETWEEN GLADVALE FARMS LIMITED
Plaintiff
AND
ROBERT RAYMOND BATY AND KATHLEEN JAMES BATY TRADING AS
RR & KJ BATY PARTNERSHIP Defendants
Hearing: 1 July 2015 Appearances:
G Wilkin for the Plaintiff
A Ward for the DefendantsJudgment:
28 July 2015
JUDGMENT OF NATION J
Introduction
[1] These proceedings involve an appeal and cross-appeal from an arbitration decision.
[2] The plaintiff, Gladvale Farms Limited, is a company under the effective control of Mr Geoffrey Lindsay and his son David Lindsay. The company owns a dairy farm at Oreti. In this decision I refer to the plaintiff as “Gladvale”.
[3] For a time, the defendants farmed the property at Oreti and were a party to a Sharemilking Agreement with Gladvale. They were also the effective owners of a company, Robkat Limited, which received payments from Gladvale pursuant to the Sharemilking Agreement. Both the partnership and Robkat Limited were parties to
the arbitration but it was agreed between the parties that the benefit of any arbitration
GLADVALE FARMS LTD v RR & KJ BATY PARTNERSHIP [2015] NZHC 1736 [28 July 2015]
award for either the partnership or Robkat Limited would be available to the
partnership. In this judgment I refer to the partnership as “the Batys”.
Background
[4] The Batys and Gladvale entered into a written Sharemilking Agreement. It began on 1 April 2007 and continued through until 31 May 2009.
[5] On 23 August 2011, the Batys and Gladvale signed an Arbitration Agreement to deal with a number of issues that were then outstanding. Evidence was heard in October 2013, all submissions were filed by 15 November 2013 and the Arbitrator released a detailed and lengthy decision on 4 December 2013. He later received submissions as to costs and interest. He released his decision as to these on 17
December 2014.
[6] The Sharemilking Agreement provided for the Batys to receive 19.5 per cent of the milk cheques payment to which Gladvale was entitled in respect of milk supplied in terms of the Sharemilking Agreement. I will discuss later what this meant and the limitations on that remuneration.
[7] The Batys initially claimed a total of $163,493.54 for the unpaid share of the remuneration which they claimed was outstanding for the three seasons they had been farming the Oreti property pursuant to the Sharemilking Agreement. That claim related to a disputed entitlement to what was referred to as Value Add remuneration. At the hearing the claim in respect of this decreased to $62,988.74.
[8] The Batys also claimed $2,103.75 for two compressors supplied to Gladvale and for dehorning calves belonging to Gladvale.
[9] Gladvale denied it was liable for the remuneration claimed. It counterclaimed for some $70,228.13 for losses which it claimed it had suffered through Fonterra terminating its contract to take milk from the farm pursuant to a winter milking contract. It also counterclaimed for some $87,240 as damages for the loss of stock, damage to milking plant and appliances, and damage to buildings and other improvements.
[10] Gladvale’s appeal relates to the Arbitrator’s decision as to:
i. the Value Add remuneration; ii the winter milking contract; iii. costs; and
iv. interest.
[11] The Batys’ cross-appeal relates to the Value Add remuneration. [12] I will deal with each of these in turn.
Value Add remuneration
[13] In their statement of claim, dated 21 March 2012, the Batys claimed:
4. The Agreement
4.1 The Agreement included terms that:
…
b)Remuneration payable by the respondent to the claimants was calculated by an agreed share and recorded in writing on the schedule to the Agreement (“the schedule”). Clause 5 of the schedule provides the agreed share as follows:
“A 19.5% share of the milk cheques for milk supplied to the Dairy Factory, over a 12 month period, based on 350,000 kg MS at $4.05/kg MS in twelve equal payments of $23,034.38 plus GST, paid direct into the sharemilker’s nominated bank account 22nd of each month”.
c)The Agreement further records what remuneration is payable by the respondent to the claimants in the event that production exceeds 350,000 kg MS as referred to above. Clause 5 of the schedule records:
“All production to the Dairy Factory above 350,000 kg MS will be paid out on the 19.5% share in three equal payments, January, February and March. All production for a 12 month season will be paid at $4.05/kg MS and then if the Fonterra payout is above this the difference calculated at
19.5% will be paid to the sharemilker January, February and March. The Fonterra payout will be net of the industry
good levy payment”.
…
5. Amendment to the Agreement
5.1At the beginning of the 2008/2009 season the claimants and the respondent agreed that the monthly amount payable to the claimants referred to in paragraph 4(b) above would be increased to
$38,920.00 plus GST ($43,785.00).
[14] In the statement of claim, paragraphs 6 to 10.3 referred to “the total milk payout” for each season, stated the amounts the Batys had actually been paid, referred to certain credits Gladvale was entitled to, and set out the balance the Batys were claiming for each season. In that way, the Batys claimed for the total sum already referred to of $163,493.54 for three seasons.
[15] In the second amended statement of defence and counterclaim, dated 19 April
2013, Gladvale admitted the pleadings in paragraphs 4.1(b) and (c), denied the pleading in paragraph 5.1 and denied the Batys’ pleadings as to milk payments received by Gladvale, amounts due to the Batys, amounts paid and balances due. Gladvale then pleaded:
Pursuant to cl 27(e), 27(f)(2) and cl 5 schedule all of the agreement the claimant [the Batys] is not entitled to participate in bonuses dividends or credits paid by the dairy company as a return on supplier shares held by the respondent [Gladvale] nor in the industry good levy payment.
[16] In his decision, the Arbitrator said that the first issue for him to determine, as explained to him, was “Is the claimant [the Batys] entitled to the value-add portion of the Fonterra payment made?” On the basis of a calculation from the Batys’
expert, the Arbitrator recorded the Value Add components for each season were:
2006-2007 $37,721.09 2007-2008 $30,289.74 2008-2009 $219,117.34 Total $287,128.17
[17] He stated that a 19.5 per cent share amounted to $55,989.99 which, with GST
at 12.5 per cent, made for a total of $62,988.74.
[18] The Arbitrator decided the Value Add portion of remuneration for milk production was “a dividend component of the payout” to the shareholder and cl 27(f) of the Sharemilking Agreement expressly reserved that as being for the benefit of
Gladvale as the shareholder. He held cl 5 of the schedule simply stated the percentage share which the Batys as sharemilker were entitled to and described how payments were to be made based on an estimate of likely production and the likely dollar payment per kgMS (per kilogram of milk solids). He decided cl 5 of the schedule was subject to and did not override cl 27(e) and (f)(ii) so that, pursuant to the Agreement, the Batys were not entitled to share in the Value Add payments which were made by Fonterra to Gladvale.
[19] The Arbitrator, however, found that on 12 June 2008, Gladvale sent a document headed “Milk Contract” to the Batys (“the Milk Contract Statement”). He said it was in the nature of a summary showing a balance sum payable to the Batys in the sum of $37,961.02. He said it was significant in that it calculated the entitlement of the Batys up to that date “inclusive of Value Add”. He said the statement recorded a calculation for the 2007 season based on milk production at a price of $4.46 which included Value-Add. The Arbitrator found in his decision that the sending of the Milk Contract Statement by Gladvale to the Batys created an estoppel. He held that the estoppel had to have effect for the 2007-2008 season and the 2008-2009 season and accordingly the Batys were entitled to 19.5 per cent of the Value Add component for those two seasons, a total of $54,713.67.
[20] In their amended notice of appeal dated 28 April 2015, Gladvale contended that the Arbitrator had made an error of law in that there was no jurisdiction for him to find that Gladvale should be estopped from relying on the terms of the contract. Gladvale claimed the contract provided that the Batys were not entitled to a share of the Value Add payment paid by Fonterra and no estoppel had been pleaded by the Batys.
[21] In their amended notice of cross-appeal, the Batys stated that if the Court were to find the Arbitrator did not have the power to make a finding on the basis of estoppel then they raised the following questions of law:
2.1.1The Arbitral Tribunal failed to correctly apply the principle of interpretation that evidence of the subsequent conduct of the parties is relevant to the parties’ intended meaning of their contractual terms.
2.1.2The evidence upon which the Arbitral Tribunal made its decision based on estoppel is evidence of the subsequent conduct of the parties which is relevant to interpretation.
[22] The Batys also contended that the Court should answer these questions as follows:
3.1Evidence of the subsequent conduct of the parties to the contract should be considered when determining the meaning of the contractual terms.
3.2The subsequent conduct of the parties is consistent with the interpretation that the Defendants were entitled to share in the Value Add payment from Fonterra.
[23] As relief, the Batys sought:
4.1An order that the Defendants are entitled to receive the contractual proportion of the Value Add element of the milk payments made by Fonterra throughout the full term of the contract between the parties.
[24] Mr Wilkin, for Gladvale, referred to cl 9.7(i) of the Arbitration Agreement which stated “[the] pleadings are generally to conform to the High Court Rules”. He referred to r 5.17 of the High Court Rules, which requires that distinct grounds of defence, founded on separate and distinct facts, must if possible be stated separately and clearly. He referred to r 5.17(2) which provides “[if] a party alleges a state of mind of a person, that party must give particulars of the facts relied on alleging that state of mind.” He submitted that if estoppel was to be relied on as an affirmative defence, it should have been pleaded as a distinct ground of defence with particulars of the facts relied on in alleging the state of mind necessary for estoppel, namely, reliance.
[25] Counsel also referred to r 5.48(4): “An affirmative defence must be pleaded”, and r 5.62 which requires a reply to be filed to an affirmative defence. Mr Wilkin submitted that, in this instance, Gladvale had pleaded as an affirmative defence that the Batys’ entitlement to share in the Value Add payment from Fonterra was expressly excluded with the reference to bonuses, dividends, etc, and cl 27(e) of the Agreement. Mr Wilkin submitted that if the Batys were going to rely on estoppel as an answer to Gladvale’s reliance on the exclusion provisions of cl 27(e), they should have pleaded the facts essential to such an answer.
[26] In response, Mr Ward for the Batys submitted:
i.the right of appeal provided for in the Arbitration Act 1996 and in the Arbitration Agreement, was limited and the legislation was intended to promote the finality of arbitration and arbitral awards;
ii.the agreement to arbitrate required only that the Batys state “the relevant facts, the points at issue and the relief or remedy sought”;
iii.the agreement to arbitrate did not include reference to the rules of procedure contained in the District Court Rules or High Court Rules and therefore those rules did not apply to the arbitration;
iv. neither the provisions of the Act nor the Arbitration Agreement required the parties to plead legal principles; and
v. it was wrong in principle to expect a claimant to plead an answer to a defence to a cause of action.
[27] Mr Ward acknowledged estoppel was not raised by either party in the pleadings or in oral argument.
Discussion - Estoppel
[28] The submission that there was no reference in the Arbitration Act or in the Arbitration Agreement to the High Court Rules was incorrect. I have already referred to cl 9.7 of the Arbitral Agreement.
[29] The legislative purpose of promoting finality through arbitration, particularly as reinforced through the Court of Appeal judgment in Gold & Resource Developments (NZ) Ltd v Doug Hood Ltd, is relevant where the Court is considering an application for leave to appeal a claimed error of law in an arbitration award.1
This is not such a case, because here the parties had agreed there would be the right
to appeal an error of law.
1 Gold & Resource Developments (NZ) Ltd v Doug Hood Ltd [2000] 3 NZLR 318 (CA).
[30] I accept that the principles of pleading and the High Court Rules do not require a party to plead the principle of law that is being relied on to support the relief sought. What is required is that a party plead the facts that are essential to obtain the judgment it seeks.
[31] In this instance, the Arbitrator referred to the various elements of estoppel which had to be established as described in the Law of Contract in New Zealand:2
1. There must be clear words or conduct by one party which created a belief or expectation in the other.
2. The party to whom the representation or promise was made must have relied on it to such an extent that it would be inequitable or unconscionable to allow the promisor to go back on his word.
3. The relief granted by the Court must be what is deemed necessary to remove the inequity caused by the failure of the other party to keep to his or her word.
[32] In his decision, the Arbitrator decided the Milk Contrast Statement was a clear representation that the Batys would be entitled to a share in the Value Add portion of remuneration. He stated that any contract sharemilker receiving a document like that would have relied upon it for the purpose of his future position and would have been entitled to assume there was no argument about entitlement to Value Add. He said that he was in no doubt that, once that statement had been received, Mr Baty would have relied upon it. He referred to various matters and said there was thus an:
… irresistible inference that, on receiving the statement, Mr Baty would have assumed there was no issue about Value Add and would have altered his position by making plans in reliance on it.
[33] It was on the basis of those findings he found there was an estoppel and thus the plaintiffs were entitled to the Value Add remuneration for two seasons.
2 John Burrows, Jeremy Finn and Stephen Todd Law of Contract in New Zealand (4th ed, LexisNexis, Wellington, 2012) at [4.7.4].
[34] After Gladvale had pleaded in their statement of defence there was no contractual liability on Gladvale to share the Value Add payments with the Batys, nothing was said by way of reply as to any facts which could have given rise to an estoppel. In submissions, Mr Ward, for the Batys, acknowledged that if the contractual arrangements which Gladvale were relying upon had been changed by a later agreement then it would have been necessary for the Batys to have referred to that contractual variation. Estoppel has, in this instance, had the same effect as would have been achieved through a contractual variation.
[35] There was no pleading that, through the Milk Contract Statement sent from Gladvale to the Batys on 12 June 2008, Gladvale had represented in future seasons that the Batys would be entitled to 19.5 per cent of the Value Add portion of any payment Fonterra made to Gladvale for milk produced from the Oreti Farm.
[36] There would potentially have been a real issue over this. The Arbitrator’s decision refers to a submission that the Milk Contract Statement was “a draft prepared by Marianne Lindsay without any input from Geoff Lindsay and without Mrs Lindsay having read the contract”. The Arbitrator referred to evidence from Mr Lindsay that if he had known of the potential for Gladvale having to share the Value Add payments, he would have shifted his rights to that portion of the payout to another farm.
[37] A copy of the statement was made available to me in a supplementary bundle of documents. It refers to the credits due to Gladvale for the periods April-May 2007 and June 2008. The details on the statement were as follows:
12 June 2008
Milk Contract
Credits
Credit April – May 2007
61771.3 MS @ $4.46 (19.5%) $ 60,437.81
Credit June 2007 – 30 March 2008
336630.3 MS @ $7.60 (19.5%) $560,489.44
Credit Power Owed $ 5,625.00
Total Credits Owed (incl GST) $626,552.25
Debits
Tax Invoice 47 (22 Oct 2007) $ 988.29
Tax Invoice 72 (18 Mar 2008) $ 31,230.94
Tax Invoice 80 (12 Jun 2008) $ 26,459.92
Total Debits Owed (incl GST) $ 58,679.15
Payments made to RobKat Ltd
23 April 2007 – 12 June 2008 (Incl GST)
$529,912.08
Remaining to pay to RobKat Ltd $ 37,961.02
[38] Although the price per kgMS did apparently include the Value Add portion, there was no express reference to this in the statement. In terms of estoppel, there thus could have been argument and cross-examination over whether there was the clear representation required to found an estoppel.
[39] There was also no pleading that the Batys had, in fact, relied upon such a representation in continuing with the work required of them by the Sharemilking Agreement. It is perhaps because this had not been specifically pleaded and had not been the subject of direct evidence or cross-examination that the Arbitrator’s decision, in terms of reliance, was expressed in terms that he found Mr Baty would have relied on the representation rather than that he had in fact done so.
[40] Although the Arbitrator’s decision might be thought to have accorded with common sense, Mr Wilkin submitted this was not the inevitable inference to be drawn from what had happened. He said there were other reasons why the sharemilking arrangements would have been attractive to the Batys, even without them sharing in the Value Add portion of the remuneration. In particular, he said the Agreement was unusual in that, through cl 5 of the schedule, some cash flow difficulties which the Batys faced were eased through Gladvale agreeing to pay them a monthly amount on account of their entitlement before Gladvale had itself necessarily received any payments from Fonterra for the milk supplied.
[41] It was submitted for Gladvale that they were prejudiced through the non- pleading of the facts essential to establish an estoppel. Mr Wilkin submitted that as a result Mr Baty was not cross-examined in respect of whether there had been a clear representation or as to whether he had relied on such a representation.
[42] Mr Wilkin, with his submissions, annexed copies of the submissions presented to the Arbitrator on behalf of both parties in relation to the Value Add portion of the claim. It is clear that neither counsel addressed the Arbitrator with regard to a potential estoppel.
[43] Counsel referred to the judgment of the Court of Appeal in Gray v Perry.3
That case concerned an arbitration where the claimant sought to pursue a claim for a specific sum and interest on that sum. The claimant did not succeed with either claim, but the Arbitrator awarded the claimant interest on other sums where there had been a delay in payment. The Court of Appeal found that, because no claim had been made for interest by way of special damages, the Arbitrator had made an error of law in awarding interest. The Court of Appeal stated:4
We are reluctant to rely on what is in one sense a pleading point, but its importance here is that we cannot be satisfied that the appellant was not prejudiced by the course matters took. He says his payments were not late but were in accord with the agreement between the parties. It is clear from the information before us that the issue of whether the appellant was in breach of contract in respect of that was never squarely raised in any way in the arbitration. It certainly did not form part of the statement of claim, the amended particulars of the claim, the formal evidence for the respondent, or the submissions of either party. Because of the way the claim was before him, it was understandable the Arbitrator found as he did. We sympathise both with the Arbitrator and with the High Court Judge in that they both would have been misled by the approach of the parties to the issues before them. However, in the circumstances we are satisfied the only safe course open to us is to determine there was an error of law on the face of the record in that what in substance were damages measured as interest were awarded without there being any claim for damages before the Arbitrator.
[44] Mr Wilkin referred to the judgment of Venning J in Westlowe Investments v Jujnovich.5 There, Venning J found there had been no error in the Arbitrator refusing to allow the applicant’s relief under the Property Law Act 2007, when that possibility had not been covered in the pleadings. Venning J stated:6
However, while it was unnecessary to plead law, it is necessary to plead the facts which the applicant says underlie the application of the law. While the applicant’s statement of claim made some rather oblique references to the respondent’s insurance arrangements, the applicant did not plead the factual
3 Gray v Perry CA216/96, 3 September 1997.
4 At 6-7.
5 Westlowe Investments Ltd v Mate Jujnovich HC Auckland CIV-2009-404-008064, 11 March
2010.
basis for the application of ss 269 and 270 of the Property Law Act, namely that the damage in issue was caused by a peril, against the risk of which the respondent was insured or had covenanted to be insured. This is not a technical point, it is a matter of some importance. If pleaded the respondent could have responded to and led evidence about the point. The applicant did not expressly plead the matters it later sought to raise before the arbitrator…
[45] Venning J held there was no error because “the arbitrator found, on the pleadings before him, the applicant had not raised the issue of the application of the Property Law Act, and thus was not entitled to rely on the provisions of the Act”.7
[46] In the pleadings which were before the Arbitrator and which the parties relied on, the Batys referred to their contract with Gladvale to justify their claims. In submissions, they referred to subsequent conduct not as establishing an estoppel but to support their argument as to how the contract should be interpreted. Gladvale, in their statement of defence, denied the contract permitted them to share in the Value Add portion of remuneration. I do not consider it was open to the Arbitrator to find the Batys were entitled to what they were seeking on the basis, not of any contract, but of an estoppel where there had been no pleading as to the facts essential to found such an estoppel.
[47] If estoppel cannot be relied on, the Batys will not be entitled to 19.5 per cent of the total remuneration for the 2007/2008 and 2008/2009 seasons on the basis provided for in the award. I calculate that this would reduce the Batys’ entitlement
under the award by $54,713.66, calculated as follows:
Value Add payments
2007-2008
$30,289.74
19.5 per cent
$5,906.49
GST at 12.5 per cent $738.31 2008-2009 $219,117.34 19.5 per cent $42,727.88 GST at 12.5 per cent $5,340.98 Total $54,713.66
[48] I must, however, consider the cross-appeal brought by the Batys.
Interpreting the Sharemilking Agreement
[49] I deal with the cross-appeal on the basis the Batys are seeking a ruling that the Arbitrator erred in interpreting the contract to mean the Batys were not entitled to share in the Value Add portion of remuneration paid to Gladvale for milk supplied from the Oreti farm.
[50] In the pleadings on the cross-appeal, it was contended the Arbitrator had made this error of interpretation because he failed to rely on the way the parties had conducted themselves subsequent to signing the Sharemilking Agreement in interpreting that Agreement. Essentially it was submitted the Agreement could not be interpreted in a way which was inconsistent with the way they had acted.
[51] I do not consider the Arbitrator made an error of law in dealing with this narrow issue.
[52] The Arbitrator heard evidence as to how other owners and sharemilkers had applied similar contractual arrangements. In referring to authority, he stated it would have been open to him to have regard to “business common sense” if there was ambiguity in the words of a contract.8 There was a potential ambiguity between the effect of cl 5 of the schedule and cls 27(e) and 27(f)(2). He interpreted the contract to remove most of that potential ambiguity by holding that cl 5 of the schedule was subordinate to cls 27(e) and 27(f)(2). He held that it was cl 27 which determined the remuneration to which the Batys were entitled. The schedule stipulated the manner
in which they were to receive that remuneration, with an estimate of what their entitlements might be, recognising that there would ultimately be adjustments.
[53] Clause 5 of the schedule referred to a rate at which payments would be made for production for a 12 month season, but provided for the Batys to receive 19.5 per cent of an additional amount if the Fonterra payment was above the $4.05/kgMS. If cl 27 did exclude any entitlement to share in Value Add, I do not consider that would have meant there was necessarily an inconsistency or ambiguity with cl 5 of the
schedule. Clause 5 did not say the Batys would be entitled to share in Value Add
8 Rainy Sky SA v Kookmin Bank [2011] UKSC 50, [2011] 1 WLR 2900 at [21]; and Lumley
General Insurance (NZ) Ltd v Body Corporate No 205963 [2010] NZCA 316 at [41].
remuneration. The claimed inconsistency or ambiguity thus arose only through evidence that $4.05/kgMS did include the Value Add component. The ambiguity or conflict thus did not arise through the words that were used in cl 27 as against cl 5 of the schedule.
[54] The Batys contend that Gladvale cannot assert the contract excluded the sharing of Value Add remuneration given the provisional payments to be made to the Batys (referred to in cl 5 of the schedule), allowed them to receive a portion of the Value Add remuneration. The Milk Contract Statement also gave them a share of Value Add remuneration.
[55] Given that neither cl 5 of the schedule nor the Milk Contract Statement expressly referred to Value Add remuneration, it is by no means certain that the Lindsays and Gladvale were aware of any inconsistency between what Gladvale claimed was the correct interpretation of cl 27 and what they were paying the Batys. However, even if they had been aware of such inconsistency, that does not mean the original contract had to be interpreted and applied in a manner consistent with the parties’ subsequent conduct.
[56] In situations of uncertainty, the subsequent conduct of the parties can be considered by a Court if capable of providing objective guidance as to the parties’ intended meaning.9
[57] In Gibbons Holdings Ltd v Wholesale Distributors Ltd, Elias CJ, Tipping, Anderson and Thomas JJ all supported the admissibility of evidence of subsequent conduct to construe a contract.10 With the incisive comment that the focus must be on objective conduct, rather than subjective or unilateral intention, Tipping J
addressed this matter of principle as follows:11
9 Gibbons Holdings Ltd v Wholesale Distributors Ltd [2007] NZSC 37, [2008] 1 NZLR 277 at [52]-[53], cited with approval in Vector Gas Ltd v Bay of Plenty Energy Ltd [2010] NZSC 52 [2010] 2 NZLR 444 at [30].
10 Gibbons Holdings Ltd v Wholesale Distributors Ltd [2007] NZSC 37, [2008] 1 NZLR 277.
Blanchard J reserved his position on the point, although he acknowledged the strength of the arguments in favour: at [27].
11 At [52]. In at least one High Court case subsequent to Gibbons Holdings, the Judge preferred the view that the conduct must be mutual or shared: Open Country Cheese Co Ltd v Fonterra Co-operative Group Ltd HC Auckland CIV-2008-404-000727, 11 December 2009 at [8]. The Gibbons case was followed in Kiwi Freeholds Queen Street Ltd v Shanti Holdings Ltd [2008]
… the Court should not deprive itself of any material which may be helpful in ascertaining the parties’ jointly intended meaning, unless there are sufficiently strong policy reason for the Court to limit itself in that way. I say that on the basis that any form of material extrinsic to the document should be admissible only if capable of shedding light on the meaning intended by both parties. Extrinsic material which bears only on the meaning intended or understood by one party should be excluded.
[58] Noting the policy reasons underlying the common law’s objective approach
to contract interpretation, his Honour concluded that:12
… if some mutual or shared post-contract conduct of the parties is objectively capable of shedding light on the meaning they themselves placed on the words in dispute … more is to be gained than lost by allowing the Court to take it into account.
[59] Tipping J went on to say that:13
If the court can be confident from their subsequent conduct what both parties intended their words to mean, and the words are capable of bearing that meaning, it would be inappropriate to presume that they meant something else.
[60] Anderson J, while agreeing in principle, ultimately found it necessary “to have recourse to post-contract evidence in this case, the intention of the parties being ascertainable from the terms of the deed, considered in its commercial and documentary context”.14
[61] His Honour issued a caution about imputing a common intention different from what would naturally be inferred from the language of reasonable common form conveyancing or commercial documents.15
[62] A contract may be varied by what the parties later do and agree on. An issue of estoppel may arise but there is no rule of interpretation that a contract must have a meaning that is consistent with the way the parties acted in relation to it
subsequently.
NZCA 177, [2008] 3 NZLR 69.
12 At [53].
13 At [63]. See also the comments of Elias CJ at [7].
14 At [74].
15 At [75].
[63] However, on all the information available to me, including evidence as to the subsequent conduct of the parties, it does seem likely the Arbitrator made an error in deciding the Batys were not entitled to a 19.5 per cent share of Value Add.
[64] This was an issue of contractual interpretation. The Arbitrator’s task may have been made more difficult because of the way the issue was put to him. The Batys relied on cl 5 of the schedule to the Agreement as the basis for their entitlement. Gladvale then pleaded Value Add was a bonus or dividend which was solely theirs under cl 27(e). Both parties called experts who gave evidence as to how the industry operated as if that would assist with the interpretation of this contract. It seems the issue then became whether it was cl 27(e) or the schedule which should have effect. The real issue should have been whether the Batys were entitled to a share of Value Add under cl 27, with that clause to be interpreted and applied having regard to the purpose of the contract as a whole.
[65] With the issue posed that way I consider the answer would probably be in the affirmative.
[66] Under cl 27 of the Agreement, remuneration of the sharemilker for work
performed by the sharemilker and the sharemilker’s employees was to be as follows:
(a) A share negotiated between the sharemilker and the farm owner, in the
agreement referred to as the “agreed share” …
(b) A share of not less than the agreed share for all milk products from the herd milked by the sharemilker during the period of this agreement.
(c) In the event that there is any change to the method by which any payments are calculated and paid by the dairy company to the owner it is the intention of this agreement that the Sharemilker shall not be disadvantaged. Therefore the method by which the Sharemilker’s share of income is paid to the Sharemilker shall be revised by agreement between the parties and failing agreement pursuant to the mediation and, if necessary, arbitration procedures provided in this agreement.
…
(f) Milk Cheques Payment
1.The owner shall at the commencement of this agreement lodge with the responsible Dairy Company an automatic payment authority to a bank nominated by the sharemilker directing payment to the sharemilker on the 20th of each month without any deduction
whatsoever, subject to the provisions of Clause 12 in this agreement,
19.5% of the income to the sharemilker in respect to the milk, the subject matter of this agreement, supplied by the sharemilker during
the previous month …
2. In addition, the sharemilker shall be entitled to receive by automatic payment, direct credit, or otherwise the same proportion as detailed in above clause of any deferred payments made by the Dairy Company including any retrospective payments (which shall be shared in the same proportion between the owner and the sharemilker) made in respect of the milk supplied in terms of this agreement ...
3. Where any other avenues of sale of milk are used any proceeds there from shall be shared in the same proportion between the owner and sharemilker.
[67] The remuneration entitlement in cl 27 was subject to cl 27(e):
The sharemilker shall not be entitled to participate in bonuses covered by shares nor in the dividends on any supplier shares held by the farm owner, nor shall the sharemilker be required to make any payment towards the purchase of shares in a dairy company.
[68] The words in cl 27(f)(2) referred to above were followed by the words “excepting however, any credits paid by the dairy company as a return on shares held by the owner in the dairy company”.
[69] It seems clear to me that cl 27 thus entitled the Batys to a 19.5 per cent share of the remuneration Gladvale would receive from Fonterra for milk supplied from the Oreti farm. Consistent with that, an automatic payment authority had to be lodged by Gladvale with Fonterra’s bank requiring Fonterra to pay to the Batys direct 19.5 per cent of the income to the sharemilker in respect to the milk supplied by the sharemilker during the previous month. In addition, pursuant to cl 27(f)(2), the sharemilker was entitled to the same proportion “of any deferred payments made by the Dairy Company including any retrospective payments … made in respect of the milk supplied in terms of this Agreement”.
[70] Consistent with that interpretation of cl 27, cl 5 of the schedule required the initial monthly payments to be based on a value of $4.05/kgMS. That value was inclusive of the then Value Add level of payment. This was not expressly referred to and the parties may not have been consciously aware of this. Nevertheless, it is clear
the Agreement contemplated the Batys might be entitled to share in remuneration at a higher level than was being paid as the milk was being supplied. Clause 5 of the schedule expressly anticipated the Batys’ entitlement to 19.5 per cent of the difference if the Fonterra payment for a 12 month season turned out to be higher than would have applied at the original payout rate of $4.05/kgMS.
[71] I do not consider there was anything unambiguous as to the Batys’ entitlement to 19.5 per cent of the payout which Fonterra would make for milk supplied. Accordingly, much like Anderson J in Gibbons Wholesale, I find it unnecessary to have recourse to post-contract evidence in this case, as the parties’ intention is ascertainable from the terms of the Agreement, considered in its commercial and documentary context.16
[72] The Arbitrator then had to decide to what extent that entitlement was to be reduced by the words in cl 27(e) and the exception referred to in cl 27(f)(2). I consider those clauses could be given full effect by holding them to exclude from sharing any benefit that was derived from Gladvale’s investment in shares, rather than milk production from the farm. Hence, in cl 27(f)(2) “there was to be no sharing in respect of any credits paid by the dairy company as a return on shares” held by Gladvale. In cl 27(e), there was to be no sharing “in bonuses covered by shares nor in the dividends on any suppliers shares” held by Gladvale. The Agreement recognised that it was Gladvale who had made the investment in the shares and who thus should benefit solely from that investment. Consistent with that, the Batys were not required to make any contribution towards the cost of that investment. In contrast, any bonus based on milk production would be a benefit to which they had contributed because it was through their work on the farm the milk had been produced.
[73] The words used in the Sharemilking Agreement should have been interpreted according to their ordinary meaning.17 The interpretation should have given effect to
16 At [74].
17 Investors Compensation Scheme Ltd v West Brunswick Building Society [1998] 1 WLR 896 (UKHL) at 912-913; Boat Park Ltd v Hutchinson [1999] 2 NZLR 74 (CA) at 81-82; Mount Joy Farms Ltd v Kiwi South Island Co-operative Dairies Ltd CA297/00, 6 December 2001 at [38]. See also Pyne Could Guinness Ltd v Montgomery Watson (NZ) Ltd [2001] NZAR 789 (CA) at [22]; Firm Pl 1 Ltd v Zurich Australian Insurance Ltd [2014] NZSC 147, [2015] 1 NZLR 432 at
the purpose of the contract which was to enable the Batys to share in the agreed proportion to all remuneration for milk produced from the farm. The real issue for the Arbitrator was not whether the payment made by Fonterra for Value Add was a bonus on shares but whether it was a payment for milk produced from the farm.
[74] There is sufficient information referred to in the Arbitrator’s decision to
suggest that Value Add should have been treated as a payment for milk produced:
i. Prior to 2009, Fonterra recorded the allowance for Value Add based on the fixed amount per kilogram.
ii. A share dividend policy was approved by the Fonterra board in December 2009, whereby dividend payments were subsequently made to farmers separate from the milk price and Value Add was no longer included as part of the milk price. Expert witnesses said that policy enabled Fonterra to pay profits to the shareholders separate from the raw milk price paid to farmers. If such a change was made for that purpose, the logical inference was that prior to November 2009, and thus during the term of the Batys’ Sharemilking Agreement, the payment for Value Add was part of the milk price (if the change had been made during the term of the Agreement cl 27(c) may well have come into play. The parties’ intention was that the Batys should not be disadvantaged by such a change).
iii. The Arbitrator referred to the report dated 15 December 2006 from the Fonterra chairman to the effect “that Fonterra was holding with its 45 cent forecast for Value-Add dividend component of payout, despite the combined impact of the high New Zealand dollar and the fact that rising commodity prices were putting increased pressure on Value-Add margins”. That statement indicates the Fonterra chairman thought that
Value Add was part of the payout for milk produced.
[88].
iv. The Arbitrator also referred to “a printed report of an apparent Fonterra announcement which stated that on 20 February 2007 the total forecast payout for the current season had been increased by 10 cents to $4.15 kgMS and went on to refer to the “Value Add component remaining unchanged at 45 cents”.” Again that statement is consistent with the Value Add payment being part of the total payout for milk produced.
v. Use of the term “Value Add” suggests it is a payment in addition to a payment or consideration that has already been available. Use of the term “Value-Add” is thus consistent with it being consideration additional to the rate at which Fonterra have initially acquired milk from the producer.
vi. The Arbitrator said that his treatment of Value Add as “a dividend component of the payout” was consistent with the fact that Gladvale’s property at Oreti attracted a Value Add payment but another property which Mr Lindsay farmed at Drummond did not, as that was under a separate contractual arrangement with Fonterra where Value Add was not included. Given the Arbitrator’s reference to the fact that Mr Lindsay was not entitled to Value Add remuneration from this other farm because of the particular contractual arrangement with Fonterra relating to that property, I cannot see how logically he could have inferred this meant Gladvale was entitled to Value Add remuneration only because of the shares the Lindsays held in Fonterra.
vii. Importantly, in the context of the cross-appeal, interpreting the contract in the way I have suggested would be consistent with the way the parties calculated the monthly payments which were to be made when the contract started. The interpretation is also consistent with the accounting which Gladvale provided to the Batys with the 12 June 2008 Milk Contract Statement.
[75] While it appears from the information contained in the Arbitrator’s decision
that he has wrongly interpreted the contract in the conclusion he has come to, I am
conscious that I do not have all of the evidence which was before him. Neither counsel who appeared on the appeal was able to explain to me how the Value Add payout was arrived at or what it was based on. My understanding is that the price of
$4.05/kgMS referred in the schedule was a price which Fonterra indicated it would be using for payouts for the current season, based on what it could afford to pay, having regard to its anticipated costs and what it expected to be able to obtain for its milk sold internationally. The Value Add component represented a further amount that it anticipated it would be able to pay based on the profits generated from the sale of other milk products. The Arbitrator may have received information as to how the Value Add component was calculated that may be relevant in assessing finally whether Value Add was a payment for milk produced. This is relevant in determining whether I should substitute my opinion as to how the contracts should have been interpreted, and make the necessary changes to the award, or remit the matter back to the Arbitrator.
[76] If the Arbitrator ultimately interprets the contract in the way, based on information currently available to me, it appears he should, the Batys will be entitled to share in Value Add remuneration for the 2007/2008 and 2008/2009 seasons in the sum of $54,713.66 as currently allowed relying on estoppel. In addition, the Batys would be entitled to share in Value Add remuneration for the 2006/2007 season calculated as follows:
2006-2007
Total Value Add payment $37,721.09 19.5 per cent $7,355.61
Plus GST $919.45
Total potential entitlement $8,275.06
The winter milking contract
[77] Gladvale claimed the Arbitrator had made an error of law in that there had:
… been a failure to correctly interpret para 11(a) of the second amended statement of defence and counterclaim dated 19 April 2013 and consequently to properly consider and rule on the plaintiff’s claim for the loss of ability to supply 18,802.9 kgms under its winter milking contract between 18 July
2008 and 15 August 2008.
[78] In submissions before me, Mr Wilkin for Gladvale referred to passages in the Arbitrator’s award where it showed he had found the Batys were responsible for Fonterra cancelling its contract with Gladvale to take winter supply milk. Those findings were made in the context of Gladvale having pleaded that it had a contract to supply 63,000 kgMS and only 44,197.1 kgMS had been supplied. It was submitted that the Arbitrator made an error of law in not determining the consequence of the loss of the contract to the plaintiff and in not finding the claim proven.
[79] For the Batys, it was submitted that the Arbitrator’s decision on the claim for
the loss of the winter milk contract did not raise any question of law.
[80] The Arbitration Agreement recorded the parties’ agreement that there would be a right to appeal pursuant to cl 5 of the second schedule to the Arbitration Act. The second schedule allows any party to appeal to the High Court on any question of law arising out of the award if they have so agreed before the making of that award. Pursuant to cl 5.10:
For the purposes of this clause, question of law –
(a) includes an error of law that involves an incorrect interpretation of the applicable law (whether or not the error appears on the record of the decision); but
(b) does not include any question as to whether –
i. the award or any part of the award was supported by any evidence or any sufficient or substantial evidence; and
ii. the Arbitral Tribunal drew the correct factual inferences from the relevant primary facts.
[81] In submissions for the Batys, counsel referred me to a judgment of the Court of Appeal in Gold and Resource Developments (NZ) Ltd v Doug Hood Ltd in which the Court held that the determination of whether a party has adduced sufficient evidence to prove a claim for losses under a contract is a question of fact and is not
appealable.18
18 Gold & Resource Developments (NZ) Ltd v Doug Hood Ltd, above n 1, at [55].
[82] Gladvale asserts the Arbitrator made an error of law in not accepting that the claim for the loss of the winter contract had been proven when Gladvale had, in its pleadings, referred to the quantity of milk which it had contracted to supply and the lesser amount which was actually supplied.
[83] In its amended statement of defence and counterclaim in the arbitration, Gladvale pleaded:
As a consequence of grades incurred over May through July 2008 Fonterra terminated the respondent’s winter milking contract from 18 July 2008. Supply between 15 May and 15 August 2008 was to be 63,000 kgMS.
44197.1 was supplied. Gladvale lost 18802.9 kgMS at $3.32 a solid
$62,425.00 plus GST = $70,228.13.
[84] In their statement of defence to this aspect of the counterclaim, the Batys denied they were responsible for the lowering of grades or that they were liable for any loss resulting from any non-acceptance or grading down by the dairy company. They also specifically pleaded:
They deny the amount of supply lost due to the termination of the winter milk contract and the value of that loss as they have no knowledge of it.
[85] In his decision, the Arbitrator referred to difficulties that had arisen with this claim. The winter milking contract between Gladvale and Fonterra had not been produced. The damages claimed referred to an intended supply between 15 May and
15 August 2008 but it had been pleaded that the contract had been terminated from
18 July 2008 so any loss could have only been for the period from 18 July 2008 to
15 August 2008. There had been no apportionment of production over that period. The Arbitrator stated that the losses suffered as a result of Fonterra advising, in a letter of 18 July 2008, that winter milk contract premiums would cease from that date “had not been satisfactorily proven”. There had been no clear explanation as to what loss of “premiums” meant. The Arbitrator also said there was no evidence as to whether or not Gladvale was able to continue milking but sell the milk on a different basis. The Arbitrator concluded, in relation to this counterclaim, “in short, I am not satisfied that this claim has been proven”.
[86] It is clear to me that the Arbitrator’s decision in relation to this aspect of Gladvale’s claim was a decision on the facts. There is no apparent error of law. Accordingly, the cross-appeal in relation to this issue is dismissed.
Costs
[87] In its amended notice of appeal, Gladvale claimed the Arbitrator had made an error of law in his award of costs and interest against the Batys in the amount set out in his award dated 17 December 2014.
[88] In relation to this, it was submitted for Gladvale:
i. The Batys had initially claimed in the arbitration for $165,000 but, recognising an oversight of one of their expert witnesses, reduced the claim to $115,000 at the commencement of the hearing. They ultimately succeeded in their claim for an amount of $36,713.71 (including GST), an amount which would fall within the jurisdiction of the District Court.
ii. The Arbitrator had made an error of law in awarding legal costs in the sum of $50,000 given the Arbitrator had found the success of the claimant to be modest and, on one view of it, Gladvale could be said to have been more successful than the Batys.
iii. The Judge erred in awarding costs equivalent to the 2B scale in the High Court when the result was very much within the jurisdiction of the District Court.
iv. Where the award was of $36,000, there must plainly have been an error in awarding costs in an amount of twice that sum.
[89] For the Batys, it was submitted:
i. The award of costs by the Arbitrator was reasonable and not based on an incorrect application of the principles that apply to the discretion to award costs.
ii. It was reasonable to allow recovery of expert witness fees in full because those witnesses should be treated as if they were witnesses owing duties to the Court and not to the client.19
iii. The approach taken by the Arbitrator was consistent with one approach that was considered potentially appropriate by the High Court, that approach being to consider the actual costs incurred by the parties and then discount the figure, as the case may be, to a relevant contribution, having regard to all relevant considerations.20
iv. The approach taken by the Arbitrator was consistent with the current tendency of arbitrators to award the successful party its full costs.
[90] In the Arbitrator’s decision in respect of costs, he recorded that the summary
of actual and real costs incurred by the Batys was:
Solicitors costs $76,000.00 Expert witness fees (Sarah Kennedy) $7,732.50 Southern Debt Collection – service of witness fees $412.97 One half share of Arbitrator’s fees before this decision $6,542.54 TOTAL $90,688.01
[91] He referred to a submission that an estimate of fees calculated under the High
Court Rules would exceed $50,000.
[92] The Arbitrator did not have any indication of costs incurred by Gladvale but had been advised by Gladvale’s counsel that they would be similar to those incurred by the Batys. There was no suggestion to the Arbitrator from either counsel that the
legal costs incurred were unreasonable.
19 New Zealand Licensed Rest Homes Associated Inc. v Midland Regional Health Authority HC Hamilton CP34/9, 7 October 1999 at [47]-[49].
20 Holden v Architectural Finishes Ltd [1997] 3 NZLR 143 (HC).
[93] The Arbitrator referred to the way in which arbitration costs had been dealt with by the High Court in three cases.21 He also referred to a paper presented to the AMINZ-IAMA Conference on 26 July 2013 by Terry Sissons in which he said that Mr Sissons had gathered together various authorities in support of the “reasonable contribution approach” and a number of cases which provided examples of full indemnity for costs actually incurred.
[94] The Arbitrator summarised a number of relevant features of the proceeds. He ultimately concluded that the Batys should be reimbursed for $50,000 of their actual solicitor’s costs. He referred to the fact the expert witness fee incurred in calling Sarah Kennedy was $7,732.50. He referred to the mistake she had made in calculating the Batys’ loss in failing to take into account a payment of $50,000 that had been made by Gladvale. He awarded the Batys $6,000 of her actual costs of
$7,732.50. He required Gladvale to reimburse the Batys for one half of the Arbitrator’s fee to the extent of $15,672.58, effectively requiring Gladvale to pay all the Arbitrator’s fees. He held the Batys were entitled to recover in full the witness summons fees they had paid of $412.97.
[95] It does seem to me that there is an apparent error in the decision which the Arbitrator ultimately reached. The Arbitrator referred to the Batys’ delays in providing information and processing the steps required for the arbitration to proceed. He also referred to there being numerous factual issues which had to be covered off by the Batys, the case being important to the parties because the breakdown in their business relationship had reached a point where they could not objectively deal with the overall situation. He referred to the factual complexity in the case. From the way he summarised the case, it seems likely that a significant proportion, probably more than half of the Batys’ costs, would have been incurred in dealing with issues raised by Gladvale’s counterclaim. The Arbitrator considered that, overall, Gladvale had been arguably more successful than the Batys. It appears
to me to be inconsistent with those conclusions that the Batys should ultimately be
21 New Zealand Licensed Rest Homes Associated Inc. v Midland Regional Health Authority, above n 19; Dymocks Franchise System (NSW) Pty Ltd v Bilgola Enterprises Ltd [1999] 3 NZLR 239; Holden v Architectural Finishes Ltd, above n 20 at 147-148.
able to recover from Gladvale $50,000 of their total solicitor’s costs of $76,000 and that Gladvale should have to pay all the Arbitrator’s costs.
[96] In Packing In Ltd (in liq) v Chilcott, the Court of Appeal held that where each party has had similar success, it is not helpful to focus too closely on “the question which party has failed and which has succeeded”. 22 Rather, the starting point of costs in such a case should be premised on the fact that “approximately equal success and failure attended the efforts of both sides”.23 Consideration should then be given to the amount of time spent on each transaction and any other matters relevant to the Court’s ultimate discretion.
[97] In their amended notice of appeal, Gladvale claimed the Arbitrator had made an error of law in his award as to costs and, by way of relief, sought the setting aside of the Arbitrator’s award.
[98] On the amended notice of appeal, Gladvale did not refer to schedule 2 cl 6 of the Arbitration Act 1996.
[99] Clause 20 of the parties’ Arbitration Agreement provided:
The costs and expenses of the arbitration, including the fees and expenses of the arbitrator, shall be fixed and paid by the parties as directed by the arbitrator in his/her award. The arbitrator may make an order in his/her award directing one party to pay the other party a sum by way of costs.
[100] Clause 6(3), schedule 2 of the Act provides:
Where an award or additional award made by an arbitral tribunal fixes or allocates the costs and expenses of the arbitration, or both, the High Court may, on the application of a party, if satisfied that the amount or the allocation of those costs and expenses is unreasonable in all the circumstances, make an order varying their amount or allocation, or both. The arbitral tribunal is entitled to appear and be heard on any application under this subclause.
[101] Clause 6(5) provides:
An application may not be made under subclause (3) after 3 months have elapsed from the date on which the party making the application received
22 Packing In Ltd (in liq) v Chilcott (2003) 16 PRNZ 869 (CA) at [5].
23 At [5].
any award or additional award fixing and allocating the costs and expenses of the arbitration.
[102] The Arbitrator’s award as to costs was made on 17 December 2014. The amended notice of appeal challenging the Arbitrator’s award of costs was not filed until 28 April 2015 but, as already referred to, did not include an application pursuant to schedule 2, cl 6(3). I note that, despite this, counsel for the Batys did refer to that provision and dealt with the appeal as to costs as if it was an application for relief under that clause.
[103] It was accepted by both counsel that, if the Batys cannot succeed in recovering for the Value Add part of their claim, it will be Gladvale which is ultimately successful. If, on reconsidering how the contract is to be interpreted, the Arbitrator decides to award more than in his original decision, it may also be appropriate to vary the award he originally made for costs.
Interest
[104] In its amended notice of appeal, Gladvale also claimed that the Arbitrator had made an error of law in awarding the Batys interest in the amount set out in his award dated 17 December 2014. They sought the setting aside of that award.
[105] In opposition, counsel for the Batys said the award of interest was discretionary and the decision to award interest at a particular rate could not be treated as an error of law. He also referred to cl 27(g) of the Sharemilking Agreement.
[106] In their statement of claim, the Batys pleaded at 4.1(g) that the Sharemilking
Agreement included the term:
If [Gladvale] did not pay any money owed within 14 days of the due dates, [Gladvale] would pay interest at the current penalty overdraft rate to [the Batys]. The rate applicable is 23.4 per cent per annum, calculated on a daily basis.
The Batys claimed “interest at 23.4 per cent per annum on a daily basis, calculated
on the various sums as they fell due”.
The Arbitration Agreement included the following clause:
19.1Any award by the Arbitrator may include interest and the award may be subject to interest from the date of the award.
[107] Clause 27(g) of the Sharemilking Agreement reads:
In the event of the farm owner not paying money due within 14 days of the dates as set out in the agreement, the farm owner shall pay interest to the sharemilker on that portion due but unpaid. Likewise, any money becoming due by the sharemilker to the farm owner but unpaid within 14 days shall, shall also bear interest. The interest rate shall be the currently penalty overdraft rate at the time unless the matter is ruled on by arbitration, then the Award interest rate stands on any such rates shall not be limited to the judicature rate [sic].
[108] The Arbitrator referred to the Batys’ calculations and claim for interest at what he assumed to be a current penalty overdraft rate but at a consistent 23.4 per cent for various periods between 22 April 2007 and 20 December 2013. There appears to have been no evidence that this was the Batys’ actual overdraft rate for that period or that the relevant account was in overdraft throughout that period.
[109] The Arbitrator also referred to Judicature Act rates of interest for periods:
1 August 2002 to 30 June 2008 – 17.5 per cent
1 July 2008 to 30 June 2011 – 8.4 per cent
1 July 2011 to 17 December 2014 – 5 per cent.
[110] The Arbitrator decided it was not appropriate to award interest from the time monies were due because of all the issues between the parties during the duration of the contract. He noted that he had concluded that at the end of the contract the net amount due from Gladvale to the Batys was $36,713.71 (inclusive of GST). The Batys had been out of pocket for this sum since 31 October 2009. He considered it appropriate to award interest on that sum at the rate of 15 per cent to the date of his decision. That award is obviously dependent on the Batys’ entitlement to the award of $36,713.71. This relates to their claim for the Value Add portion of remuneration.
[111] In awarding interest, the Arbitrator said he was mindful:
… that the respondent (Gladvale) either knew or ought to have known that he was not paying close attention during the duration of the contract to the percentage share to which the sharemilker was entitled.
[112] I do not consider the Arbitrator made an error or law in deciding to award the Batys interest but I do consider he is likely to have been in error in awarding interest at the rate of 15 per cent per annum. The rate appears arbitrary. The rates under the Judicature Act provide a reasonable guide as to rates which would normally be appropriate as compensation for the loss of use of monies which should have been paid. A rate of 15 per cent appears to offend against the principle that awards of interest should not constitute a penalty and if contractual provisions for awards of
interest are deemed to constitute a penalty, they will be unenforceable.24
[113] The Arbitrator’s decision on interest was also dependent on the decision he reached with regard to the Batys’ entitlement to benefit from the Value Add remuneration. Given the need for the Arbitrator to reconsider his award in that regard, he may also need to revisit his award in respect of interest.
Conclusion
[114] Pursuant to sch 2 cl 5(4) of the Arbitration Act, the High Court may confirm, vary or set aside the award or remit the award together with this Court’s opinion on the question of law which was the subject of the appeal, to the arbitral tribunal for reconsideration.
[115] In all the circumstances, I consider the appropriate course is to remit the award to the Arbitrator with this opinion. The Arbitrator will have to consider:
i. his interpretation of the contract, and the Batys’ entitlement to a share of the Value Add payments in light of this Court’s opinion as to how the contract could be interpreted;
ii. whether to vary his award in favour of the Batys, given estoppel was not pleaded by them (the Arbitrator will have the powers available to the
24 Dunlop Pneumatic Tyre Co Ltd v New Garage and Motor Co Ltd [1915] AC 79; General Finance Acceptance Ltd v Melrose [1988] 1 NZLR 465; Export Credits Guarantee Department v Universal Oil Products Co [1983] 2 All ER 205 (UKHL).
High Court to allow an amendment to the pleadings which may permit him to have regard to estoppel);
iii. the award he made for costs, having regard to this Court’s opinion in that
regard and whatever determination he reaches on Value Add issues; and
iv. whether it was appropriate to award interest at 15 per cent, and if not, what that interest rate should be having regard to the opinion of this Court.
[116] As each party has had some success on this appeal, my tentative opinion is that costs should lie where they fall and neither party should be entitled to costs against the other. If the parties do not agree with this, then Gladvale are to file a memorandum as to the costs they seek by 14 August 2015. The Batys are to file a memorandum in response and setting out their position on costs by 28 August 2015. Each memorandum is to be no longer than three pages.
[117] Clause 5(4) of schedule 2 of the Arbitration Act requires the Arbitrator to release his further award, having regard to the opinion of the High Court, within three months of the award being remitted back to him. While he will no doubt be ready to do so, the Batys and Gladvale have now had the expense and benefit of his detailed consideration of all issues, including Gladvale’s counterclaim. The parties have also had the benefit of this opinion from the High Court. Accordingly, it may be possible for the parties to settle outstanding issues in a way that will avoid the further expense associated with a continuing arbitration. I do urge the parties to take advantage of that opportunity for settlement, just as the Court of Appeal did in the
case of Gray v Perry.25
Solicitors:
AWS Legal, Solicitors, Invercargill
Ward Adams Bryan-Lamb, Solicitors, Invercargill.
25 Gray v Perry, above n 3..
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