Milk New Zealand (Shanghai) Company Limited fka Shanghai Junenglian Trading Co Limited v Miraka Limited
[2020] NZHC 697
•6 April 2020
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE
CIV-2018-404-2433
[2020] NZHC 697
BETWEEN MILK NEW ZEALAND (SHANGHAI)
COMPANY LIMITED (now known as SHANGHAI JUNENGLIAN TRADING CO. LIMITED)
PlaintiffAND
MIRAKA LIMITED
Defendant
Hearing: 6 March 2020 Appearances:
J Anderson and LH Mau for Plaintiff
LA O’Gorman and AN Birkinshaw for Defendant
Judgment:
6 April 2020
JUDGMENT OF WALKER J
[Leave to Appeal to the Court of Appeal]
This judgment was delivered by me on 6 April 2020 at 12.00 midday Pursuant to Rule 11.5 High Court Rules
Registrar/Deputy Registrar
MILK NEW ZEALAND (SHANGHAI) COMPANY LIMITED (now known as SHANGHAI JUNENGLIAN TRADING CO. LIMITED) v MIRAKA LIMITED [2020] NZHC 697 [6 April 2020].
Introduction
[1] Milk New Zealand (Shanghai) Co. Limited (MNZ) applies for leave to appeal my judgment dated 23 October 2019 (the Judgment).1 The judgment dismissed an appeal against a Partial Arbitral Award (the Award) dated 2 August 2018, save with regard to one issue relating to the rate and period of interest payable on the damages awarded to Miraka. The Award had been made by the Hon. Robert Fisher QC.
[2] My Judgment remitted the issue of interest to the Arbitrator to determine the rate and appropriate period of interest.
[3] It is unnecessary to traverse the commercial background in any detail as it is set out in the Judgment. Briefly, the genesis is a dispute between MNZ and Miraka Limited (Miraka) regarding the interpretation of minimum volume obligations and liquidated damages provisions in a Supply and Purchase Agreement for UHT milk dated 13 February 2013 (UHT Agreement). An arbitration agreement between the parties reserved a right of appeal to the High Court on questions of law.
The judgment at issue
[4]In summary, the Judgment held:
Issue one
(a)The UHT Agreement did not preclude Miraka’s claim to common law damages as it was suing for an event outside the ambit of the liquidated damages provision.
Issues two and three
(b)Miraka is entitled to damages in respect of MNZ’s under-ordering for Seasons Two and Three as:
1 Milk New Zealand (Shanghai) Co. Limited v Miraka Limited [2019] NZHC 2713. Milk New Zealand (Shanghai) Co. Limited is now known as Shanghai Junenglian Trading Co Limited.
(i)Miraka did not have an independent obligation to supply the Minimum Volumes;
(ii)MNZ’s compliance with its notification obligations and therefore with its ordering obligations was a condition precedent to Miraka’s Minimum Volume commitments;
(iii)Miraka had no obligation to supply the contractual Minimum Volumes in circumstances of MNZ’s default; neither did it have to establish its own ability to meet the Minimum Volume requirements;
(iv)Both parties had Minimum Volume obligations and the liability for the annual volume shortfall falls on the party who caused the shortfall, in this instance, MNZ;
(v)Miraka’s ability to perform is properly an aspect of mitigation of damages. Any inability to be ready, willing and capable of producing the Minimum Volume does not prevent Miraka from being able to sue but is properly considered in the quantum assessment as Miraka’s Minimum Volume obligations under the UHT Agreement are not mutually dependent and concurrent.
This application and approach
[5] This application for leave to appeal is made under clause 5(5) of Schedule 2 to the Arbitration Act 1996 which reads:
(5)With the leave of the High Court, any party may appeal to the Court of Appeal from any refusal of the High Court to grant leave or from any determination of the High Court under this clause.
[6] The parties agree that the approach to be followed is set out in Downer Construction (New Zealand) Ltd v Silverfield Developments Ltd citing Cooper v Symes as follows:2
(a)The appeal must raise some question of law ... capable of bona fide and serious argument in a case involving some interest, public or private, of sufficient importance to outweigh the cost and delay of the further appeal;
(b)Upon a second appeal, the Court of Appeal is not engaged in the general correction of error. Its primary function is then to clarify the law to determine whether it has been properly construed and applied by the Court below; and
(c)Not every alleged error of law is of such importance either generally or to the parties as to justify further pursuit of litigation that has been twice considered and ruled by a Court.
[7] This approach reflects the policy that appeals which have little enduring import ought not tie up scarce judicial resources.3
[8] Miraka opposes leave. It has filed a conditional application for leave to cross- appeal on the interest issue. MNZ does not oppose. Thus, if MNZ’s application for leave is granted, Miraka is similarly granted leave to appeal that issue.
[9] I am conscious that I am being asked to re-assess my own decision. An observer may consider there is a temptation therefore to simply allow leave without rigorous examination of the grounds for leave. However, to adopt that approach would be unprincipled in my view. As Gendall J articulated it in the context of leave to bring a second appeal in the family jurisdiction:4
2 Cooper v Symes (2001) 15 PRNZ 166 (HC) at [12], approved by the Court of Appeal in Downer Construction (New Zealand) Limited v Silverfield Developments Limited [2007] NZCA 355, [2008] 2 NZLR 591 at [33].
3 Greig v Hutchinson [2015] NZHC 3067 at [12].
4 Supra at [6].
There are two gatekeepers of propriety. The first is this Court. If an application for leave fails before the High Court, the Court of Appeal represents a second option for an intended appellant.
Issues on proposed appeal
[10]MNZ submits that three questions of law arise, namely whether I:
(a)applied the wrong standard of review;
(b)erred in the interpretation of the UHT Agreement by finding that it did not exclude the right to common law damages in circumstances where:
(i)the parties had agreed a liquidated damages framework;
(ii)compensation based on actual damages was proposed and expressly rejected during the contract negotiation;
(iii)from the third season onwards, the peak month and seasonal shortfall obligations will overlap given both the peak month and seasonal Minimum Volume obligations require the UHT plant to be run at capacity.
(c)erred in the interpretation or application of the UHT Agreement in finding, in particular, that MNZ’s compliance with its notification obligations was a condition precedent to Miraka’s Minimum Volume obligations.
[11] Issues (b) and (c) essentially rerun the challenge to the Award. If examined independently from the first question of law, these grounds can be disposed of in short order. The dispute over the interpretation of the UHT Agreement has been pronounced on twice, including by a highly experienced arbitrator with particular expertise in commercial and contractual law. The same conclusions were reached both times although through different routes on some issues. I do not accept that issues (b) and
(c) on their own are questions of law capable of bona fide and serious argument.
[12] If I am wrong in my assessment, however, it seems clear to me that those issues involve the application of the relevant legal principles to the specific facts of this case without any public value in terms of precedent. This is because the UHT Agreement is a ‘bespoke’ and heavily negotiated agreement with “no apparent wider currency”, to adopt the language in Holden Foodstuffs (Wellington) Co-Operative Society Ltd.5 Though I acknowledge the materiality of these issues to the parties given the relatively substantial sums involved and their ongoing commercial relationship, I conclude that these issues are in themselves not of sufficient importance to justify the cost and delay of a further appeal.
[13] The first issue or ground of appeal is however of a different character to the questions of construction of the UHT Agreement at the heart of the arbitration. In my assessment, the crux of this application for leave is really whether the first issue –did I apply the wrong standard of review – satisfies the test for leave to appeal. This purports to be an ‘incidental error’ in the sense that it is a challenge to my approach to the substantive appeal. If answered affirmatively, it would follow that leave should be granted on all issues identified in the application for leave to appeal since the standard of review arguably ‘infects’ the conclusions reached on those issues.
What is the argument on behalf of MNZ?
[14] Ms Anderson QC for MNZ submits that I posited a standard of review which is too high, and which is contrary to the rehearing approach required by Austin, Nichols & Co v Stichting Lodestar.6 She argues that this error led me to confirm the Award in respect of all issues on the appeal except on the question of interest.
[15] She contends that the appealability of mixed questions of fact and law remains unclear in New Zealand, as is the applicable standard of review on an appeal. These two issues are inter-related in her submission. In short, she submits that the uncertainty around mixed questions of fact and law should feed into the review standard.
5 Holden Foodstuffs (Wellington) Co-Operative Society Ltd [2014] NZCA 245 at [18].
6 Austin, Nichols & Stichting Lodestar [2007] NZSC 103, [2008] 2 NZLR 141 at [5] and [16].
[16] Further, she contends that this standard has been inconsistently addressed in the authorities and that my reference to Bryson v Three Foot Six Ltd was misplaced as it is not authority for the standard of review in appeals concerning contract interpretation more generally. 7
[17] I apprehend an immediate tension between this proposition and MNZ’s submission on the substantive appeal before me that contract interpretation is an orthodox question of law.
What is Miraka’s response?
[18] Ms O’Gorman for Miraka responds that there is no uncertainty in respect of the standard of review; Bryson and Vodafone New Zealand Ltd v Telecom New Zealand Ltd are binding authority on what constitutes an error of law.8 She adds that the Judgment comprises my own assessment of how the UHT Agreement should be properly interpreted. As such, any dispute about the precise nature of the standard of review is moot on the facts. She submits that this factor tells against granting leave, relying on Crothers v Accident Compensation Corporation.9
[19] In addition, Ms O’Gorman refers to the Court of Appeal decision in Holden v Foodstuffs (Wellington) Co-operative Society.10 There the Court declined special leave to appeal in a case concerning interpretation of a lease where the High Court had reversed the arbitral award. Accepting that the determination was a matter of financial importance to the party seeking leave, the Court of Appeal held: 11
Clause 2.19 is unique to this agreement to lease. It has no apparent wider currency. The argument before the arbitrator and in the High Court focussed purely on the correct construction of the words used. The terminology and context may arguably give rise to differing interpretations. However, we cannot say that the construction favoured by Woolford J was not reasonably open to him.
7 Bryson v Three Foot Six Ltd [2005] NZSC 34, [2005] 3 NZLR 721 at [20].
8 Vodafone New Zealand Ltd v Telecom New Zealand Ltd [2011] NZSC 138, [2012] 3 NZLR 153 at [51]-[58].
9 Crothers v Accident Compensation Corporation [2017] NZHC 1952 at [52]- [58].
10 Holden v Foodstuffs (Wellington) Co-operative Society [2014] NZCA 245.
11 At [16].
Analysis
[20] I apprehend that implicit in Ms Anderson’s submission is a criticism that by adopting the wrong standard of review, I deferred to the Arbitrator’s conclusions rather than coming to my own conclusion based on all the material, contrary to r 26.13 of the High Court Rules 2016 and the principles of Austin, Nichols. I note, however, that the Supreme Court in Austin, Nichols said that the weight the High Court “gives to a decision of [the Commissioner of Trade Marks] is a matter of judgment” and that the appeal court may or may not find the reasoning of the first instance tribunal persuasive in its own terms.12
[21] Under the heading “Approach to Appeal”, my Judgment canvassed the parties’ respective arguments as to what comprises a question of law, this being a threshold question in an appeal from an arbitral award. MNZ submitted that this Court is bound by the decision of the Supreme Court in Bryson and New Zealand Air Line Pilots’ Association to the effect that construction of a contract is an orthodox question of law. I concluded that interpretation of contract terms raises a question of law, but it does not follow that all errors in interpretation are properly characterised as errors of law. Rather, a more nuanced approach is required to ensure that the identified error is not in reality a challenge to factual inferences or evidence sufficiency.13
[22] After acknowledging that appeals of an arbitral award are by way of rehearing under r 26.13(1) of the High Court Rules, my assessment was that the dicta in Bryson supported a narrow appellate approach to issues involving the weighing of relevant facts in the light of the applicable law. This was in the context of the more nuanced approach to purported errors of contract interpretation which I had settled on in the determination of what constituted a question of law.
Issue One – The availability of common law damages and the standard of review
[23] I turn to the Judgment to examine the standard of review and reasoning employed for each issue on appeal. The purpose is to assess whether the approach on appeal raises a question of law capable of bona fide and serious argument.
12 Austin, Nichols & Stichting Lodestar [2007] NZSC 103, [2008] 2 NZLR 141 at [5].
13 Milk New Zealand (Shanghai) Co. Limited v Miraka Limited [2019] NZHC 2713 at [59].
[24] At [65] of the Judgment, I determined that the question of whether the liquidated damages provisions of the UHT Agreement are a comprehensive code is an appealable question of law, but the pleaded particulars in MNZ’s notice of appeal challenged the Arbitrator’s reliance on aspects of the factual matrix.
[25] After setting out the Award’s treatment of this issue (and recording my disagreement with one of the interpretive indicia relied on by the Arbitrator) the Judgment turned to the respective arguments of MNZ and Miraka.
[26] I rejected the submission that Foodstuffs (Wellington) Co-operative Society v Holden should be interpreted as stating that assessments as to the proper weight to be given to pre-contractual negotiations inherently raise extricable questions of law.14 I also rejected the argument that no real weight had been given to the aspect of pre- contractual negotiations relied on by MNZ. I determined that the weight was primarily a factual inquiry and it was open to the Arbitrator to reach the conclusion that the significance of Miraka’s rejection was qualified by the specific context.15
[27] What is important to note, however, is that this statement was in the context of my rejection of one limb of MNZ’s appeal grounds. The crux of my reasoning on the issue of liquidated damages is at [95]-[99], leading to my conclusion that there is no ambiguity about the ambit of the liquidated damages clause in the UHT Agreement; both the text and documentary context support the same interpretation.
[28] This analysis of the Judgment answers MNZ’s challenge. I reject the submission that I erroneously deferred to the Arbitrator or applied too high a standard of review in reaching the view that the UHT Agreement did not exclude the right to common law damages in the circumstances of the particular default.
14 Holden Foodstuffs (Wellington) Co-Operative Society Ltd [2014] NZCA 245.
15 Milk New Zealand (Shanghai) Co. Limited v Miraka Limited [2019] NZHC 2713 at [92].
Issues Two and Three – whether MNZ’s compliance with its obligations was a condition precedent to Miraka’s minimum volume obligations – standard of review
[29] The Judgment dealt with these issues in the appeal together because of their inter-relationship. These issues were characterised as “what is the relationship between the notification regime and Minimum Volume obligations in the UHT Agreement?”
[30] The Judgment records that there was an appealable question of law in the extent to which (if at all) the parties’ respective obligations are interdependent or amount to promissory conditions precedent, along with the consequences which flow from that. The Judgment identified elements of (at best) mixed fact and law, along with critical facts not capable of being disturbed on appeal. This observation harked back to the requirement of a more nuanced approach than merely declaring all issues of contract interpretation to be questions of law.
[31] On these issues, the Judgment identified the facts found by the Arbitrator on which he pinned his conclusions since these are unassailable in the context of an appeal from an arbitral award.16 It then set out the Arbitrator’s conclusions before turning to MNZ’s challenge and Miraka’s response.
[32] At [121]-[137], the Judgment analysed the respective obligations in the UHT Agreement, concluding that to construe it as requiring Miraka to be “ready, willing and able” to produce the stipulated quantity in the absence of forecasts or orders is untenable and commercially far-fetched. This observation relied on the express wording in cl 3.1 and the design of the forecasting and ordering regime to support the view I had taken. My conclusion was that MNZ’s compliance with its notification obligations was a condition precedent to Miraka’s Minimum Volume commitments and that Miraka’s performance ability is a matter of mitigation.
[33] I reached the same answer by another route in terms of the cause of the shortfall and potential performance excuse. I rejected the submission that the decision of McConnell Dowell Constructors (Aust) P/L & Anor v QCLNG assisted MNZ.17 I note that this decision had been referred to the Court but not to the Arbitrator. The
16 At [110].
17 McConnell Dowell Constructors (Aust) P/L & Anor v QCLNG [2014] QSC 157.
Judgment concluded that the causation finding by the Arbitrator in respect of the default was critical in the analysis and was a factual finding, not itself an appealable question of law.
[34] The Judgment concluded that there was no error in the result reached by the Arbitrator. Miraka was entitled to damages in respect of MNZ’s under-ordering for Seasons Two and Three. I reject the submission that I erroneously deferred to the Arbitrator or applied too high a standard of review in reaching this view.
[35] I conclude that there is no question of law capable of bona fide and serious argument identified. An application for leave to appeal in the arbitration jurisdiction has a particular policy context or framework which informs the nature of the standard of review. Any question about the precise nature of the standard of review is moot, as Ms O’Gorman submits, since I made my own assessment of how the UHT Agreement should be properly interpreted.
[36] While not material to this application, Issue Four in the substantive appeal – the question of interest payable on damages – was decided in MNZ’s favour. I rejected the Arbitrator’s determination that contractual interest was payable on an award of common law damages. This also tends to support my conclusion that I made my own assessment.
[37]Accordingly, I decline leave to appeal.
[38] Consequently, it is unnecessary to determine the question of whether conditions might be attached to the grant of leave; however, I acknowledge the helpful submissions of both counsel on this aspect.
Costs
[39] Miraka is entitled to an award of costs on a 2B basis. I fully expect that the quantum can be agreed between the parties. If not, memoranda of no more than three pages are to be sequentially filed and I will determine costs on the papers.
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Walker
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