The Big Basin Limited v StockCo Limited
[2022] NZHC 3010
•17 November 2022
IN THE HIGH COURT OF NEW ZEALAND CHRISTCHURCH REGISTRY
I TE KŌTI MATUA O AOTEAROA ŌTAUTAHI ROHE
CIV-2022-409-000014
[2022] NZHC 3010
UNDER the Arbitration Act 1996 IN THE MATTER
of leave to appeal the High Court decision [2022] NZHC 1020 dated 17 May 2020
BETWEEN
THE BIG BASIN LIMITED
Plaintiff
AND
STOCKCO LIMITED
Defendant
Hearing: 26 October 2022 (By way of VMR) Appearances:
P A Cowey and F A Trowbridge for Plaintiff M H L Morrison and J A Zwi for Defendant
Judgment:
17 November 2022
JUDGMENT OF DUNNINGHAM J
This judgment was delivered by me on 17 November 2022 at 10.15 am, pursuant to r 11.5 of the High Court Rules
Registrar/Deputy Registrar Date:
THE BIG BASIN LIMITED v STOCKCO LIMITED [2022] NZHC 3010 [17 November 2022]
Introduction
[1] On 6 October 2021, after more than two weeks of hearing, a lengthy interim arbitral award issued. It rejected The Big Basin Ltd’s (Big Basin) defence to StockCo Ltd’s (StockCo) claim for payment of financing costs for 787 bulls acquired by Big Basin.
[2] Big Basin then sought leave to appeal under cl 5(1)(c) of the Arbitration Act 1996 on six questions of law said to arise out of the interim award.
[3] In a decision dated 17 May 2022 (the leave decision), I refused leave to appeal, concluding:1
(a)Big Basin’s assertion that the Arbitral Tribunal (the Tribunal) erred when it decided that bailment principles (including proof of delivery) did not apply to the relevant financing agreements, was not “strongly arguable” and was based on a fundamental misunderstanding of StockCo’s claim which was brought in contract.2
(b)The question of whether the Tribunal erred in deciding that the bailment requirement of delivery could be contracted out of by an implied term was rejected for much the same reasons.3
(c)The question of whether the Tribunal erred in making a finding that at least 720 of the bulls were delivered to Big Basin, was a factual finding which was within the scope of the arbitration because Big Basin’s defence put this fact at issue.4
(d)The question of whether the Tribunal erred in interpreting the directors’ certificate as representing that a single director of Big Basin could bind Big Basin was not strongly arguable and, given the arbitrator’s finding
1 The Big Basin Ltd v StockCo Ltd [2022] NZHC 1020.
2 At [32] and [33].
3 At [34].
4 At [38] and [40].
that two directors confirmed Big Basin’s agreement to the relevant financing agreement, it would not materially change the outcome.5
(e)The question of whether the Tribunal erred by making an alternate finding that liability would arise on the basis of implied terms was a challenge to what were, in effect, obiter comments, and there would be no utility in pursuing this claimed error in law.6
(f)Big Basin’s assertion that the Tribunal erred in finding that Big Basin could be liable for what it said were “unascertained goods”, was a further iteration of Big Basin’s argument that bailment principles applied and needed to be proved. It misunderstood that StockCo’s claim for payment was a claim that Big Basin was liable under the terms of the contract.7
[4] I also considered that the other factors relevant to the exercise of my discretion when deciding whether to grant leave to appeal largely supported my decision that leave should not be granted.8
This application
[5] Big Basin now seeks leave to appeal the leave decision pursuant to cl 5(5) of sch 2 to the Arbitration Act. That clause provides:
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] Clause 5(5) does not provide any guidance as to the threshold for granting leave. However, the principles governing an application for leave under that clause are set out in the Court of Appeal’s decision in Downer Construction (New Zealand)
5 At [49]–[53].
6 At [59].
7 At [67]–[71].
8 At [73]–[76], relying on the factors articulated in Gold and Resource Developments (NZ) Ltd v Doug Hood Ltd [2000] 3 NZLR 318 (CA) at [54].
Ltd v Silverfield Developments Ltd,9 adopting the principles set out in an earlier High Court decision, Cooper v Symes:10
… the primary focus is on whether the question of law is worthy of consideration. We cannot do better than Randerson J’s summary of the position in Cooper at para [12];
(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 and to determine whether it has been properly construed and applied by the Court below.
(c)Not every 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 upon by a Court.
[7] Big Basin emphasised that the threshold for granting leave to appeal the leave decision is lower than the threshold I had to apply when I initially considered Big Basin’s application for leave to appeal. In the original application, Big Basin had to show it had a “very strongly arguable case” that the Tribunal had erred in law.11 However, on the current application, the test is simply that the appeal raises some question of law “capable of bona fide and serious argument”.12
[8] However, whether or not there is a lower threshold for deciding how arguable any question of law is, the other considerations which are relevant to granting leave set out in Downer and Cooper, including the cost and delay of further appeal and the importance of the public or private interest raised by the question of law, must also be taken into account. Furthermore, they must be considered in the context of sch 2 to the Arbitration Act and the limited scope it envisages for permitting appeals of an arbitral award on a question of law.
9 Downer Construction (New Zealand) Ltd v Silverfield Developments Ltd [2007] NZCA 355, [2008] 2 NZLR 591 at [33].
10 Cooper v Symes (2001) 15 PRNZ 166 (HC).
11 Gold and Resource Developments (NZ) Ltd v Doug Hood Ltd, above n 8, at [54(1)].
12 Downer Construction (New Zealand) Ltd v Silverfield Developments Ltd, above n 9, at [33].
Background
[9] It is not necessary, in this decision, to repeat the details of the arrangements between Big Basin and StockCo. They are covered in more detail in the leave decision. It is sufficient to say that StockCo was suing under the terms and conditions of a master livestock agreement (MLA) and a supplementary agreement (SA1) executed on 6 July 2017 by one of the directors of Big Basin, Carolyn Menzies, for the financing costs of what were described as 787 R2 bulls comprised in Lots 1 to 24.
[10] Under the terms of the MLA, StockCo became the legal owner of this stock (cl 5.1), while Big Basin was obligated to take, manage and keep possession of the stock (cls 1.2, 3.1, 6.1 to 6.3 and 11.1.11) and to keep the stock identified (cl 3.3). Under cl 1.2(e), Big Basin agreed to be “liable to StockCo for the aggregate cost price of all Stock including … interest on that amount until it is repaid and the costs and charges and any other money due under this Agreement”.
[11] StockCo claimed that Big Basin failed to repay the purchase price of Lots 1 to 24 by the relevant delivery date specified in SA1 and thereby breached the terms of the MLA. Big Basin’s response to that pleading was to deny liability and say “in respect of lots 1 to 24 the Supplementary Agreement is unenforceable”.13 That defence appeared to rely on the alleged lack of authority of Ms Menzies to enter the agreement on Big Basin’s behalf. However, during the arbitration Big Basin also argued that it did not get possession of the stock under the MLA and SA1, and so it should not be liable to pay StockCo.
StockCo’s submissions
[12] Big Basin seeks leave to pursue questions 1 to 4 and 6 which were considered by me in the leave decision.14
[13] Once again, Mr Cowey, for Big Basin, argues that the elements of bailment (being ownership of the bulls by StockCo and ceding of possession to Big Basin) must be established by StockCo before it can succeed on its claim against Big Basin because
13 Found at cls 27 and 32 of Big Basin’s amended points of defence dated 22 September 2020.
14 See The Big Basin Ltd v StockCo Ltd, above n 1, at [16].
this is a “contract of bailment”. Mr Cowey submits the arbitrator was wrong to treat the contract as simply requiring Big Basin to repay StockCo because StockCo had made payment to Alliance Group for the stock in question, at Big Basin’s behest.
[14] In this hearing, Big Basin’s argument shifted somewhat from the argument advanced in the original leave application. Instead of arguing that because the contract involved an element of bailment, StockCo had to prove that the elements of a bailment were established, Mr Cowey focused on the terms of the contract to suggest that they necessarily required StockCo to prove ownership of the bulls and then delivery of the bulls to Big Basin.
[15] Questions 1 and 2 both effectively assert that for StockCo to succeed in its claim for payment, it had to first prove it had delivered, or “bailed”, the bulls to Big Basin. In support of this submission, Big Basin relied on the contract with StockCo being analogous to a hire purchase contract or rental agreement where the owner had to transfer possession to the hirer before being able to sue on the hire purchase contract. For example, in The Leasing Centre (Aust) Pty Ltd v Rollpress Proplate Group Pty Ltd,15 the plaintiff financed the purchase of a forklift truck and required the purchaser to enter a “Hiring Agreement” with it. The truck supplier went into liquidation and the truck, which was in fact not owned by the supplier, was never supplied. The Court would not enforce payment to the finance company of the hire charge because there was no delivery of the truck as required under the hire agreement.
[16] However, Big Basin’s reliance on the cited cases is misplaced.16 In those cases, the plaintiff held itself out to be an owner of the item to be hired, and the contract for hire or rent entailed, at its essence, the provision of a possessory interest to the hirer.17 In the MLA and SA1, there is no suggestion that, prior to entering the agreement, StockCo owned the animals. Indeed, the livestock is usually sourced by the farmer which, here, is Big Basin. Under the MLA, it is Big Basin which warrants that title and property in the stock will pass to StockCo (cls 5.1 and 5.2) upon entry into the
15 The Leasing Centre (Aust) Pty Ltd v Rollpress Proplate Group Pty Ltd [2010] NSWSC 282.
16 The Leasing Centre (Aust) Pty Ltd v Rollpress Proplate Group Pty Ltd, above n 13; Karflex Ltd v Poole [1933] 2 KB 251; and Warman v Southern Counties Car Finance Corp Ltd [1949] 2 KB 576.
17 The Leasing Centre (Aust) Pty Ltd v Rollpress Proplate Group Pty Ltd, above n 15, at [97].
agreement. Under cls 6.1 and 6.4, the obligation to graze the stock on Big Basin’s property (and to move the stock to that property if not already there) clearly falls on Big Basin as the farmer. In short, the specific contractual terms clearly differ from those in a hire purchase or rental agreement and those cases do not demonstrate that StockCo has not performed its part of the bargain.
[17] Question 6 is connected to the first and second questions of law. It asserts that the Tribunal erred in finding that Big Basin could be liable to pay for unascertained goods. Big Basin accepted that this question was directly connected to question 1, in that it relied on the MLA and SA1 being conditional on StockCo proving ownership, raising the question of whether the goods that it owned could be ascertained. Mr Cowey submits that StockCo could not identify what stock belonged to Lots 1 to 24 and therefore could not have met the standard for ascertainment.
[18] I have already discussed, when dealing with Questions 1 and 2, why it is not seriously arguable that StockCo must prove ownership of the stock before it can enforce the contract. There is no other basis put forward as to why StockCo must be able to ascertain the stock before it can enforce payment under cl 1.2(e) of the MLA.
[19] The reference by Mr Cowey to s 18 of the Sale of Goods Act 1908 (now contained in s 143 of the Contract and Commercial Law Act 2017) is irrelevant, as the contract being enforced is not a contract for the sale of goods. Furthermore, the question of whether the stock comprising Lots 1 to 24 continued to be sufficiently ascertained to facilitate repossession in the circumstance of insolvency is an entirely separate issue and does not arise in the circumstances which were before the Tribunal.
[20]Again, I do not consider this constitutes a seriously arguable question of law.
[21] Once the requirement to prove the elements of a bailment are put aside, and instead the contractual terms focused on, I am satisfied that questions 1, 2 and 6 are not seriously arguable. Furthermore (and perhaps most importantly), they are not ones which could seriously affect the outcome of the arbitration. The acknowledgement by representatives of Big Basin during the hearing that at least 720 bulls were delivered
to Big Basin, and the Tribunal’s finding to that effect, demonstrates this argument, even if viable, would not substantially affect the rights of the parties.18
[22] This leads on to Question 3, which is that the finding as to delivery was outside of the scope of arbitration. In that regard, Big Basin relies on the decision in Henkel KGAA v Holdfast New Zealand Ltd, where there was a finding that the defendant, Holdfast, had copied Henkel’s “SuperAttak” packaging.19 Although Holdfast admitted it copied the SuperAttak packaging, the Supreme Court found Henkel’s claim could not succeed as it did not advance its case on the basis that this particular packaging had been copied. Rather, it was advanced on the basis that two other types of packaging had been copied.
[23] Mr Cowey argues in the current case that as StockCo had expressly pleaded it did not need to prove possession because it relied on the contractual terms alone, the finding as to whether possession passed to Big Basin was beyond the scope of the arbitration. That submission is misguided. Big Basin itself put the issue of possession within the scope of the arbitration by pleading in its defence that it had not obtained possession.
[24] This is not a case where the question of law is capable of bona fide and serious argument. Furthermore, it is not a question of law of sufficient, public or private importance to justify the further cost and delay of allowing the appeal. It turns on the the facts arising in this specific case.
[25] That leaves Question 4, which is whether the Tribunal was correct in its interpretation of the directors’ certificate. Here, Big Basin argues that the directors’ certificate provided to StockCo by Big Basin did not permit a single director to bind Big Basin. It submits that, as Ms Menzies was the sole signatory of SA1, she could not bind Big Basin and the contract cannot be enforced against Big Basin.
[26] I reiterate the view I expressed in the leave decision which is that the directors’ certificate would have no business efficacy whatsoever if it simply confirmed the
18 The Big Basin Ltd v StockCo Ltd, above n 1, at [37].
19 Henkel KGAA v Holdfast New Zealand Ltd [2006] NZSC 102, [2007] 1 NZLR 577.
default position that two directors were required to bind the company. The only point of creating the document would be to confirm that any one of the four Big Basin directors could bind the company when entering into supplementary agreements.20 While I held Big Basin’s interpretation was not strongly arguable, I also doubt that it is seriously arguable. More importantly, even if it was seriously arguable, this could make no material difference to the outcome given the factual finding made by the Tribunal that a second Big Basin director, Mr Bourton, confirmed SA1.21
Result
[27] I am satisfied that none of the five questions of law being pursued in this application have been shown to raise a question of law which is capable of bona fide and serious argument involving some interest, public or private, of sufficient importance to outweigh the cost and delay of a further appeal. In making that judgment, I also bear in mind the context of the proposed appeal, which is that it relates to an arbitral award which should, in the normal circumstances, conclude the dispute between the parties.
[28] Accordingly, Big Basin’s application for leave to appeal my decision of 17 May 2022 declining leave is itself declined.
Costs
[29] As StockCo has been the successful party, costs on a 2B basis would normally follow the event.
[30] If the parties cannot agree on costs, then any application for costs must be made within 20 working days of the date of this decision.
Solicitors:
Parry Field Lawyers Ltd T/A Parry Field, Christchurch Morrison Mallett, Auckland
20 The Big Basin Ltd v StockCo Ltd, above n 1, at [48]–[54].
21 At [52], citing Interim Award at [258] and [569].
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