Heavyweight Hire Limited v Forest Management Limited
[2017] NZHC 468
•16 March 2017
IN THE HIGH COURT OF NEW ZEALAND CHRISTCHURCH REGISTRY
CIV-2016-409-000543 [2017] NZHC 468
BETWEEN HEAVYWEIGHT HIRE LIMITED
Plaintiff
AND
FOREST MANAGEMENT LIMITED Defendant and Counterclaim Plaintiff
Hearing: 14 March 2017 Appearances:
L A Andersen for Plaintiff
HDP van Schreven for DefendantJudgment:
16 March 2017
JUDGMENT OF ASSOCIATE JUDGE OSBORNE (on stay application)
Background
[1] The plaintiff (Heavyweight) and defendant (Forest Management) were the parties to a joint venture agreement entered into in 2013 which was terminated on
31 December 2014 (“the j.v. agreement”). The j.v. agreement provided for the parties to undertake stumpage deals within the forestry industry, and to thereafter calculate profit and loss, apportioning it between the parties on agreed percentages.
[2] In this proceeding Heavyweight pursues four causes of action against Forest Management. The parties have agreed that two of those causes of action will proceed – those causes of action are accordingly not a subject of this judgment.
[3] I will refer to the two remaining causes of action as the “timber sales cause”
and the “Bluff Port royalties cause”.
[4] By the timber sales cause, Heavyweight asserts that Forest Management wrongfully deducted a sum from money owed to Heavyweight under the j.v.
HEAVYWEIGHT HIRE LIMITED v FOREST MANAGEMENT LIMITED [2017] NZHC 468 [16 March 2017]
agreement, and that Forest Management has failed to provide to Heavyweight the source documents necessary for separate books of account to be prepared and for there to be verification of accounting calculations carried out by Forest Management. On that cause of action Heavyweight seeks judgment for $104,592.78, together with an order appointing an account taker and an order for an enquiry as to damages.
[5] By the Bluff Port royalties cause, Heavyweight asserts that Forest Management failed to pay Heavyweight its half-share of a levy agreed under the j.v. agreement. Forest Management seeks an enquiry as to damages.
The issue
[6] Forest Management filed a Notice of Appearance Under Protest to Jurisdiction. In its notice, Forest Management asserts that, in the absence of agreed mediation (which has not occurred), the issues raised by the two causes of action must be resolved by arbitration in accordance with the provisions of the Arbitration Act 1996. Forest Management relies upon a dispute resolution provision in the j.v. agreement (clause 36).
[7] The parties filed competing applications (Heavyweight applying for an order setting aside the Notice of Appearance Under Protest and Forest Management filing an application for orders either dismissing the causes of action, or staying the causes of action and referring their subject matter to arbitration).
[8] At the hearing, counsel recognised that the essential issue for the Court is whether each cause of action involves a dispute which the Court should refer to arbitration by reason of the j.v. agreement’s dispute resolution provisions.
The provisions of the j.v. agreement
[9] The j.v. agreement contains three clauses dealing with dispute resolution:
Dispute Resolution
36.The parties agree that except where urgent injunctive relief is essential or there is a “fundamental dispute” between the parties as hereafter defined that:
a.Any other dispute arising between the parties shall be notified in detail in writing by the disputing party to the other (“dispute notice”);
b.Once a dispute notice is served, both parties shall use their best endeavours over the ensuing next ten working days to resolve the dispute by discussion, meeting and/or informal process;
c.Only after the expiry of such informal process is either party entitled to pursue resolution of the dispute by either referring the dispute to mediation or to arbitration;
d. If the matter is referred to arbitration, the provisions of the
Arbitration Act 1996 shall apply.
37.For the purposes of this clause, a fundamental dispute includes a dispute involving matters which could lead to substantial injury to the joint venture business as a going concern and includes, without limitation, disputes involving:
a.The need to increase contributions to funding of the joint venture;
b.The incurring or repayment of significant loan finance (if any);
c.The drawing of profits of the joint venture or attainment of other benefits from the joint venture by the parties;
d. The apportionment of losses of the joint venture;
e. The directions or expansion of the joint venture.
38.If a fundamental dispute in the opinion of one party has arisen following disagreement between the parties as to the matter at issue, the parties shall endeavour to resolve such matter by discussion, meeting and/or other informal process, but if that fails then by mediation, which must be conducted within twenty working days of any fundamental dispute arising. If mediation does not resolve the matter, the joint venture shall be terminated and the termination provisions of this Joint Venture shall apply.
[10] The j.v. agreement provided in clause 39 for the survival of rights and obligations of the parties beyond termination of the agreement.
Consequences of Termination
39. Termination of the Agreement shall not affect such rights and obligations of the parties as are intended to survive the termination, and such termination shall always be without prejudice to and shall not be deemed a waiver of any claims which any party may have against any other party in respect of any breach or other failure to comply with any term or condition of this Agreement prior to the date of termination.
The submissions
[11] Counsel each developed a stepped argument, dealing with the possibility of alternative findings at different steps. Counsel disagreed on some basic issues which would not usually be considered to attract controversy, such as whether there even exists such a dispute or disputes between the parties.
[12] In the event, I have come to the conclusion (whether or not the issues raised constitute “disputes”) the subject matter of the issues is such that the correct construction of the j.v. agreement means that they fall outside the subject matter which the parties agreed or intended to be, as a matter of course or at the instigation of one party, the subject of arbitration.
[13] In his written synopsis, Mr van Schreven for Forest Management dealt with the construction of the j.v. agreement in two paragraphs:
There is no dispute that the Joint Venture Agreement is the subject of an Arbitration Agreement.
The effect of that dispute resolution clause is that in the absence of either urgent injunctive relief or there existing a “fundamental dispute” between the parties – and neither of those exceptions applies – then the parties must, in the Defendant’s submission, resolve disputes in accordance with the process set out at clauses
36(a) to (d) of the Joint Venture Agreement.
[14] For Heavyweight, Mr Andersen correctly identified the subject matter of the two causes of action as involving matters as to the apportionment of profits and losses.
[15] Mr Andersen submitted upon that basis that, if there is a dispute between the parties, it is under the regime of clauses 36 – 38 of the j.v. agreement a “fundamental dispute” because it is a dispute involving:
·The drawing of profits of the joint venture or attainment of other benefits from the joint venture by the parties (clause 37c); and
· The apportionment of losses of the joint venture (clause 37d).
[16] As the subject matter of each cause of action involves a “fundamental dispute”, the dispute is expressly (by the introductory words of clause 36) outside the parties’ agreement as to informal resolution followed by arbitration.
Discussion
[17] I accept Mr Andersen’s submission that the subject matter of the two causes of action is not within the category of disputes between the parties which by clause
36 in the j.v. agreement attracts the informal resolution and/or arbitration procedures identified in that clause.
[18] The parties each accordingly have the right to pursue in the courts their monetary entitlements and other rights under the j.v. agreement (which survive by reason of clause 39).
[19] Heavyweight is entitled to proceed. Its application for an order setting aside the Notice of Appearance Under Protest will be granted. Correspondingly, Forest Management’s application for alternative orders will be dismissed.
Costs
[20] At the conclusion of their submissions, counsel addressed me on costs. Each accepted that the appropriate order would be that costs follow the event on a 2B basis.1 It is appropriate that Heavyweight have its costs and disbursements on that basis.
Orders
[21] I order:
(a) On the application of the plaintiff, there is an order setting aside the
Notice of Appearance Under Protest to Jurisdiction dated 24 August
2016.
(b) The defendant’s application dated 20 October 2016 is dismissed.
1 High Court Rules, Category 2 under r 14.3(1) and band B under r 14.5(2).
(c) The defendant is to pay to the plaintiff its costs in relation to both applications on a 2B basis together with disbursements to be fixed by the Registrar.
(d)The proceeding is adjourned for case management purposes to a telephone conference at 3 p.m., 26 April 2017.
Associate Judge Osborne
Solicitors:
Albert Alloo & Sons, Dunedin
Clark Boyce, Christchurch
Copy to Len Andersen, Barrister, Dunedin
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