Palmer v Box Living Limited
[2015] NZHC 2960
•25 November 2015
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
CIV-2015-404-2300 [2015] NZHC 2960
UNDER the Arbitration Act 1996 and High Court
Rules 26.15
IN THE MATTER
of an appeal from an Arbitral Award
BETWEEN
BARBARA LYNN PALMER Applicant
AND
BOX LIVING LIMITED Respondent
Hearing: 25 November 2015 Counsel
AD Gormack for applicant
KM Quinn and SM Thompson for respondentJudgment
25 November 2015
JUDGMENT OF FAIRE J
This judgment was delivered by me on 25 November 2015 at 3 pm, pursuant to Rule 11.5 of the High Court Rules.
Registrar/Deputy Registrar
Date……………
Solicitors: Grimshaw & Company, Auckland
McVeagh Fleming, Auckland (JT Burley)
Palmer v box living limited [2015] NZHC 2960 [25 November 2015]
Contents
Reasons for decision ..............................................................................................[1] The application .......................................................................................................[2] Background ............................................................................................................[4] The law ...................................................................................................................[7] Discussion ............................................................................................................[13]
Lawful basis for not awarding entire consequential losses sought [14]
Lawful basis for declining to award general damages [18] Lawful basis for not awarding all repair costs sought [21] Other reasons [24]
Conclusion............................................................................................................[25] Costs .....................................................................................................................[27]
Reasons for decision
[1] Today I announced my decision that leave to appeal was declined and that the respondent was entitled to costs based on Category 2 Band B plus disbursements as fixed by the Registrar. These are my reasons.
The application
[2] The applicant applies under sch 2, cl 5(1)(c) of the Arbitration Act 1996 for leave to appeal an arbitral award dated 1 July 2015. The applicant alleges that three questions of law arise, namely:
(a) Whether or not there was any lawful basis for the arbitrator declining to award the applicant all of the consequential losses she sought;
(b)Whether or not there was any lawful basis for the arbitrator declining to award general damages to the applicant; and
(c) Whether or not there was any lawful basis for the arbitrator reducing the repair costs sought by the applicant.
[3] In summary, Mr Gormack submits that the applicant wishes to challenge two discrete findings in the award. First, a finding against the applicant of what appears to be contributory negligence and, second, arbitrary treatment of the quantum evidence.
Background
[4] The applicant and respondent are parties to a construction contract dated
23 September 2013. Under that contract the respondent agreed to design and build a house on a section on Waiheke Island owned by the applicant for a price of
$796,090, GST inclusive.
[5] Disputes arose under the contract, including alleged non-payment by the applicant and substandard work carried out by the respondent. Pursuant to the contract, the parties were required to refer the dispute to arbitration. The contract provides that if the parties cannot agree on an arbitrator within 15 working days either may request the president of the Arbitrators’ and Mediators’ Institute to appoint an arbitrator. The respondent sought such an appointment. The Arbitrators’ and Mediators’ Institute of New Zealand appointed Mr RG Hawkins as sole arbitrator. The respondent filed a statement of claim, first seeking money from the applicant which it alleged it was due and owing in the sum of $148,446.17. The applicant counterclaimed alleging defective workmanship for which damages were sought together with remedial costs, consequential losses and general damages. A hearing took place before the arbitrator from 18 to 25 March 2015. An experts’ conference was held. Closing submissions and replies were dealt with on the papers. The award was then issued. A separate award, dealing with costs, was issued but is not the subject of the matters before the High Court.
[6] The arbitrator declined the respondent’s claim. The applicant’s counterclaim was partly successful. In respect of remedial costs, she was awarded $255,300 out of a total claim made of $382,950. In respect of consequential losses, she was awarded
$14,007 out of a total claim of $129,071.59. In respect of general damages, no award was made. She had sought $30,000.
The law
[7] For the purposes of this application, the relevant parts of cl 5 of sch 2 to the
Arbitration Act 1996 provide:
5 Appeals on questions of law—
(1) Notwithstanding anything in articles 5 or 34 of Schedule 1, any party may appeal to the High Court on any question of law arising out of an award—
…
(c) with the leave of the High Court.
(2) The High Court shall not grant leave under subclause (1)(c) unless it considers that, having regard to all the circumstances, the determination of the question of law concerned could substantially affect the rights of one or more of the parties
…
(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.
[8] If the above conditions are satisfied, the Court of Appeal has confirmed that the court has a discretion to grant leave.1 The Court of Appeal listed the factors which are to be considered in the exercise of that discretion as follows:2
(a) The strength of the challenge/nature of point of law; (b) How the question arose before the arbitrators;
(c) The qualifications of the arbitrators;
1 Gold & Resource Developments (NZ) Ltd v Doug Hood Ltd [2000] 3 NZLR 318 (CA).
2 At [54].
(d) The importance of the dispute to the parties; (e) The amount of money involved;
(f) The amount of delay involved in going through the courts;
(g)Whether the contract provides for the arbitral award to be final and binding; and
(h) Whether the dispute before the arbitrators is international or domestic.
The court confirmed that the first is the most important. The remaining matters were not listed in any particular order.
[9] The Court of Appeal has commented that there is “a bias towards finality” in
arbitration proceedings, but that, in relation to an error of law:3
… the view should not be overlooked that a party who can show that there has been a truly significant error of law has a justifiable grievance for which the law should provide a remedy, unless he or she has freely contracted out of that right.
[10] An award based on a claim which does not form part of a statement of claim is an error of law.4 Arbitrators must observe the requirements of natural justice.5
[11] The Court of Appeal has also settled the procedure on an application for leave and has said:6
Procedure on application for leave
[56] The application for leave to appeal should state the alleged error(s) of law and concisely give reasons why the arbitral tribunal is said to be in error (citing, but not discussing, relevant authority). It should also indicate whether any error is said to be of general importance, supplying affidavit evidence where necessary to support that contention.
3 At [43].
4 Gray v Perry (CA216/96, 3 September 1997 at 6-7.
5 Rotoaira Forest Trust v Attorney-General [1999] 2 NZLR 452 (HC) at 463.
6 Gold & Resource Developments (NZ) Ltd v Doug Hood Ltd, above n1.
[57] The hearing of the application should be kept brief. It should be merely an opportunity for the Judge to ensure that he or she has a grasp of the arguments and so enabling a determination to be made of whether the applicant has, in light of the nature of the point of law and the factors to be considered, established a sufficiently strong case to justify the grant of leave. As Lord Donaldson of Lymington MR said in Ipswich Borough Council v Fisons plc at p 722:
“. . . a decision on whether or not to grant leave to appeal to the High Court should be arrived at after only brief argument. It is not the function of the judge to hear the putative appeal, before deciding whether or not to grant leave.”
[58] If the Judge decides to grant leave, reasons should ordinarily not be given. It is undesirable that the Judge who is to hear the substantive argument should be embarrassed or influenced by the existence of written reasons.
[59] If leave is not granted, the Judge should deliver a short judgment for the benefit of the parties indicating, where necessary, whether the matter in issue is considered to be one-off, and why the case did not meet the required standard. A detailed analysis of the alleged error of law is not required.
[12] The respondent’s position, in summary, is:
(a) The remediation cost issue raises a question of fact not law; and
(b)The applicant does not establish a very strong arguable case on consequential loss or general damages;
(c) The remaining factors referred to in Gold & Resource Developments (NZ) Ltd v Doug Hood Ltd by the Court of Appeal weigh against the granting of leave.
Discussion
[13] I address each of the applicant’s grounds for seeking leave to appeal in turn.
Lawful basis for not awarding entire consequential losses sought
[14] The applicant submits that the decision to award only a minor portion of the consequential losses sought was due to the arbitrator’s finding that due to the applicant’s extensive involvement in the project, the applicant was a contributor to
the difficulties that have arisen. The applicant submits that this finding amounted to a finding of contributory negligence on the applicant’s part. The applicant submits the finding is erroneous in law, as contributory negligence is not a defence to a claim for breach of contract, and in fact was not pleaded as an affirmative defence by the respondent. The applicant submits that the question of contributory negligence was therefore outside the scope of the submissions and raises issues of breaches of natural justice by the arbitrator, which constitute an error of law for the purposes of an appeal.
[15] I cannot agree with the applicant’s submissions for two reasons. The first is that the applicant’s challenge seems to directly contravene cl 5(10)(b)((i) of sch 2 of the Act, which specifically provides that “questions of law” for the purposes of requesting leave to appeal do not include matters relating to whether any award, (or part of an award), was supported by any evidence or any sufficient or substantial evidence. The applicant’s argument relies on the arbitrator’s reasoning in [244](b) of the decision, in which he stated that there are costs which “should reasonably be met by Ms Palmer as a result of the degree to which she became directly involved in the project”. The other reasons given by the arbitrator related to the fact that the losses claimed were in fact incurred in pursuit of litigation and certain expenses, such as moving house, would have needed to be met by the applicant regardless of any breach of contract by the respondent. The quantum of consequential losses awarded was based on these findings, which were made in reliance on the available evidence.
[16] Second, I reject that the arbitrator made a finding of contributory negligence. In the context of the other two findings made, the arbitrator did not find that a particular percentage of the loss can be attributed to the applicant’s negligence. Rather, as the respondent submits, the arbitrator’s decision should be understood as a finding of causation. The applicant was required to prove each claimed loss on the balance of probabilities, showing that each loss was caused by the respondent’ breach of contract, and that the loss was sufficiently proximate. The arbitrator’s finding at [244](b) is essentially a finding that due to the extent of the applicant’s direct involvement in the project, she could not prove to the required standard that the claimed losses were caused by the respondent and that they were sufficiently
proximate to the breach. These are findings of fact which the arbitrator was entitled to make.
[17] Accordingly, I find that the first question put forward by the applicant is not a question of law for the purposes of cl 5(1)(c). I also find that no breach of natural justice occurred as the applicant’s case was based on proving each claimed loss to the required standard. Nor was a finding made based on a claim which was not part of the statement of claim.
Lawful basis for declining to award general damages
[18] The arbitrator’s reason for declining to award general damages was “the degree to which Ms Palmer has directly involved herself in the project management”. The applicant acknowledges that these are discretionary damages, but submits that the arbitrator’s reason for declining to make the award was the same effective finding of contributory negligence.
[19] The respondent’s position, for the same reasons as in respect of consequential loss, is that the arbitrator did not make a finding of contributory negligence. The respondent also submits, in reliance on a number of authorities, that the general position in New Zealand is that general damages are compensatory and not punitive;7 that if awarded they should be modest;8 and that they should be assessed
with reference to the personal effect of the breach on the claimant.9
[20] General damages are a discretionary remedy and there is no requirement on the arbitrator to make an award, even if that is a general practice in arbitration, as claimed by the applicant. For the reasons discussed above, the decision was based on available evidence and findings of fact, and there was no finding of contributory
negligence.
7 Undrill v Senior HC Blenheim CP/94, 20 September 1997 at 24.
8 Stevenson Precast Systems Ltd v Kelland HC Auckland CP303-SD01, 9 August 2001.
9 At 100.
Lawful basis for not awarding all repair costs sought
[21] The applicant submits that the quantum of the repair costs awarded was chosen arbitrarily and no reasons for awarding that quantum were provided by the arbitrator. The applicant therefore submits that the duty to give reasons was breached. The applicant also submits that the quantum awarded is not supported by evidence put forward by either party. The applicant acknowledges that the arbitrator was entitled to make findings of fact but submits that the findings do not correspond with the evidence presented.
[22] The repair costs awarded were set out by the arbitrator in a table, detailing the cost awarded in respect of each item. The arbitrator commented at [243] of the decision that items excluded from the schedule “are concluded on the evidence on the balance of the evidence as being not borne by Box”.
[23] The quantum of repair costs was accordingly a finding of fact. As the respondent properly submits, an arbitrator is not bound to accept the entirety of one party’s evidence to the exclusion of the other; rather, arbitrators often find themselves finding a middle-ground between the evidence presented by both parties. The applicant’s complaint is essentially that the arbitrator did not prefer her evidence in its entirety. That is not a matter concerning whether an award was supported by any evidence. The applicant’s challenge in relation to repair costs is not based on a question of law for the purposes of the relevant provisions of the Act.
Other reasons
[24] I briefly address the factors listed by the Court of Appeal in Gold & Resource
Developments (NZ) Ltd v Doug Hood Ltd:
(a) The challenges put forward by the applicant are either barred by the application of cl 5(10)(b)(i), or are rather weak, such as the applicant’s arguments concerning an effective finding of contributory negligence by the arbitrator.
(b)The arbitrator is not legally qualified. As the Court of Appeal observed in Gold & Resource Developments, there is a risk the arbitrator “would not get the law completely right” but that parties should be held to that risk.10 However, determination of the quantum of various costs sought by the applicant was the point of the arbitration process.11
(c) The dispute is of considerable importance to the parties due to the large sums involved. The applicant has received approximately
50 per cent of her original claim for all costs combined. The applicant has received two-thirds of the amount claimed for repair costs. The remainder are consequential losses and general damages, which are not awarded in full for the reasons discussed above. The importance of the dispute to the parties is weighed against the prospect of success on appeal, which is low.
(d)The dispute began two years ago. The arbitration decision was made on 1 July 2015. If an appeal were to proceed, it is likely it would not be heard for a number of months. The delay is also balanced against the case’s low prospects of success.
(e) The matter went to arbitration pursuant to cl 17.3.4 of the parties’ contract, which requires the parties to refer the dispute to arbitration if settlement methods fail or do not occur. Clause 17.3.6 of the contract provides that the award of the arbitrator is final and binding on the parties. Although such a clause is not determinative, it is an important
consideration in deciding whether to grant leave12 as it indicates the
parties’ subjective beliefs at the time of entering into the contract.
10 Gold & Resource Developments (NZ) Ltd v Doug Hood Ltd, above n 1, at [54](2).
11 At [63].
12 At [54](7).
Conclusion
[25] The questions put forward by the applicant are not questions of law for the purposes of cl 5(1)(c). The applicant’s challenge in respect of general damages and the alleged finding of contributory negligence are relatively weak as they are based more on factual findings and errors of law are unlikely to be found.
[26] The application for leave to appeal is declined.
Costs
[27] Mr Quinn sought increased costs. The respondent is entitled to costs. I am not satisfied that increased costs in this case are justified in terms of r 14.6(3). The applicant is ordered to pay the respondent’s costs based on Category 2 Band B plus
disbursements as fixed by the Registrar.
JA Faire J
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