The Gama Foundation v Fletcher Steel Limited
[2021] NZHC 635
•26 March 2021
IN THE HIGH COURT OF NEW ZEALAND CHRISTCHURCH REGISTRY
I TE KŌTI MATUA O AOTEAROA ŌTAUTAHI ROHE
CIV-2020-409-184
[2021] NZHC 635
UNDER the Arbitration Act 1996 IN THE MATTER
of an application for an order setting aside part of an arbitral award
BETWEEN
THE GAMA FOUNDATION
Plaintiff
AND
FLETCHER STEEL LIMITED
Defendant
Hearing: 3 September 2020 Appearances:
A J Forbes QC and R A Hearn for Plaintiff W R Potter and J M Phillips for Defendant
Judgment:
26 March 2021
JUDGMENT OF OSBORNE J
This judgment was delivered by me on 26 March 2021 at 4.00 pm pursuant to Rule 11.5 of the High Court Rules
Registrar/Deputy Registrar Date:
THE GAMA FOUNDATION v FLETCHER STEEL LIMITED [2021] NZHC 635 [26 March 2021]
[1] The Gama Foundation (Gama) and Fletcher Steel Ltd (Fletcher Steel) were respectively lessor and lessee of warehouse premises in Christchurch under a lease which expired on 31 August 2016. They were then parties in an arbitral proceeding before Tomas Kennedy-Grant QC whose award is the subject of this proceeding.
Gama’s originating application
[2] Gama applies for an order setting aside the part of the award (para 14) in which the arbitrator determined that repudiation of Fletcher Steel’s obligations under the lease, entitling Gama to recover damages, was not an issue in the arbitral proceeding. Gama seeks a further order remitting that part of the award to the arbitrator for his consideration, in accordance with this Court’s judgment.
Gama’s pleading of repudiation
[3] Gama’s pleading for the arbitration hearing was contained in its third amended statement of claim (statement of claim).
[4] By its statement of claim, Gama asserted Fletcher Steel had in a number of respects breached its obligations under the lease in relation to repair, maintenance and making good.
[5] Gama further pleaded those (alleged) breaches of the lease (and other breaches) constituted a repudiation of Gama’s obligations. Specifically, Gama pleaded:
32 [Fletcher Steel’s] breaches of the lease pleaded at paragraphs 11 to 31 herein constitute a repudiation of the tenant’s obligations under the lease entitling [Gama] to recover damages.
[6] As relief, Gama sought not only damages in the particularised amounts but also interest at the default interest rate specified in the first schedule to the lease (being 4 per cent above the Bank of New Zealand base lending rate).
Usual relevance of repudiation
[7] The most commonly experienced relevance of repudiation is as an event which justifies the cancellation of the contract by the innocent party. The common law in this regard was codified in what is now s 36 Contract and Commercial Law Act 2017.1
[8] In its arbitral claim against Fletcher Steel, Gama did not assert there had been a repudiation which entitled and led it to cancel the lease. It was common ground between the parties that the lease expired on 31 August 2016, at the conclusion of its ten-year term.
Gama’s case for default rate interest
[9] Gama asserts its case before the arbitrator was that Fletcher Steel had repudiated its repair and maintenance obligations under the lease so as to entitle Gama for the loss or damage thereby suffered, and an express contractual right to damages under cl 31.1 of the lease meant that the damages were money payable “under” the lease in terms of cl 5.1.
[10]Clause 5.1 of the lease provides:
Interest on Unpaid Money
5.1 IF the Tenant defaults in payment of the rent or other moneys payable hereunder for 14 days then the Tenant shall pay on demand interest at the default interest rate on the moneys unpaid from the due date for payment to the date of payment.
[11] In Gama’s closing submissions in the arbitration, counsel for Gama identified the claim by Gama for interest on all damages pursuant to the default interest rate under the lease and referred in particular to Gama’s right of repair under cl 14.1 of the lease and to the default interest provision under cl 5.1.
[12]Counsel for Gama had in their opening submissions expressly referred to cl
31.1 as relevant (summarising it as providing “that the Tenant shall compensate the
1 Previously s 7(2) Contractual Remedies Act 1979. See the commentary in Jeremy Finn, Stephen Todd and Matthew Barber (eds) Burrows, Finn and Todd on the Law of Contract in New Zealand (6th ed, LexisNexis, Wellington, 2018) at [18.2].
Landlord for any acts or omissions of the tenant that constitute a repudiation of the lease or the tenant’s obligations under it…”). In the written closing submissions which Gama filed, counsel recorded that the closing submissions would not repeat in detail matters already covered by the opening submissions.
[13] Counsel for the parties subsequently (and contemporaneously) filed written submissions in reply to the closing submissions of the other. The concluding paragraphs (numbered 41 to 52) were addressed in reply to the submissions filed for Fletcher Steel in relation to Gama’s claim to interest at the default interest rate. Counsel submitted interest was payable by Fletcher Steel in terms of the lease “on moneys payable hereunder”, again referring to cl 5.1 of the lease. Counsel then referred to a number of provisions in the lease as creating the entitlement to interest. Counsel expressly referred to and quoted the provisions of cl 31.1. This submission was contained in para 45 of Gama’s reply submissions under the heading “Interest claim”.
The award as it related to interest on cl 31.1 damages
[14] The arbitrator, alert to Gama’s para 45 reply submission in relation to the default interest rate, disregarded the submission upon the basis that it had been abandoned in the course of the opening of Mr Forbes’ QC.
[15]The matter is dealt with in the Award thus:2
In paragraph 32 of the 3ASC Gama alleges that these breaches “constitute a repudiation of [Fletcher Steel’s] obligations under the [L]ease entitling [Gama] to recover damages”. In the course of Mr Forbes’ Opening, in view of the absence of any substantiation of this allegation in the written briefs of evidence filed by Gama in advance of the hearing, I asked counsel whether repudiation was an issue or not. My contemporary note records that both counsel said, No. Nor was there any reference to repudiation by either party until, in their Reply to Fletcher Steel’s Closing Submissions, counsel for Gama, in the section in support of Gama's claim for interest, made the following submission:
The lease cl 31.1 provides that
the Tenant shall compensate the Landlord and the Landlord shall be entitled to recover damages for any loss or damage suffered by reason of any acts or omissions of the Tenant constituting a repudiation of ... the Tenant’s obligations under the lease.
2 The Gama Foundation v Fletcher Steel Ltd (First Award), 5 February 2020 at [14].
It is also provided in this clause that such entitlements shall subsist notwithstanding any determination of the lease and shall be in addition to any other right or remedy which the Landlord may have. Again interest should be payable on any such amount payable to Gama as the landlord.
Given the clear agreement at the beginning of the hearing that repudiation was not an issue, I propose to disregard this submission when I come to consider the question of interest other than at the Default Interest Rate (which I otherwise reserve as stated in paragraphs 366-367 of this Award).
Gama’s application for an order setting aside part of the award
[16] Gama, on this application (having set out the relevant background) set out the following grounds:
2.7.Paragraph 32 of the plaintiff’s third amended statement of claim in the arbitration alleged:
The respondent’s breaches of the Lease pleaded at paragraphs 11 to 31 herein constituted a repudiation of the Tenant’s obligations under the Lease entitling the claimant to recover damages.
2.8.On the first day of the arbitration hearing, during opening submissions for the plaintiff, the arbitrator asked counsel whether repudiation was in issue. The recollection of counsel for the plaintiff is that it was not insofar as this related to the potential cancellation of the lease.
2.9.The recollection of counsel is also that the plaintiff’s pleading at paragraph 32 of the third amended statement of claim was not specifically referred to nor was there any reference to the lack of any substantiation for the allegation in paragraph 32 in the plaintiff’s briefs of evidence.
2.10.Due to technical difficulties there was no recording of this discussion between the arbitrator and counsel.
2.11.In the claimant’s (ie the plaintiff) reply to the respondent’s (ie the defendant) closing submissions dated 13 December 2019 at paragraph 45 the submission was made that:
The Tenant shall compensate the Landlord and the Landlord shall be entitled to recover damages for any loss or damage suffered by reason of any acts or omissions of the Tenant constituting a repudiation ... of the Tenant’s obligations under the lease. It is also provided that in this clause that such entitlement shall subsist notwithstanding any determination of the lease and shall be in addition to any other right or remedy which the Landlord may have. Again, interest should be payable on any such amount to Gama, as the Landlord.
2.12The arbitrator delivered his award at 7:35pm on 7 February 2020 (dated 5 February 2020) following a hearing in November (2019 (Award).
2.13The arbitrator did not refer the issue of repudiation back to counsel in the light of paragraph 45 of the plaintiff’s submissions in reply for clarification or comment.
2.14.In the Award the arbitrator determined, relevant to the present application, that the defendant had breached the Repair Covenants in the Lease.
2.15.The arbitrator also said at paragraph 14 of the award:
Given the clear agreement as the beginning of the hearing that repudiation was not an issue, I propose to disregard this submission (ie in paragraph 45 of the plaintiff’s closing submissions) when I come to consider the question of interest
...
The arbitrator consequently made no finding as to the claim made by the plaintiff at paragraph 32 of the third amended statement of claim.
2.16.Consequently the plaintiff asserts that the award is, in this regard, in conflict with the public policy of New Zealand in terms of the Arbitration Act 1996 Schedule 1 article 34(b)(ii) and in breach of the rules of natural justice during the arbitral proceeding or in connection with the making of the award, in terms of article 34(xi).
What happened in counsel’s opening for Fletcher Steel?
The significance of Gama’s pleading
[17] Gama had by its statement of claim both pleaded that Fletcher Steel’s breaches of the lease constituted a repudiation of its lease obligations entitling Gama to damages, and had identified default rate interest as the interest relief sought.
[18] Gama was therefore entitled to have its interest claim (as put on that basis) considered on its merits and in accordance with the law, unless some development cut across that entitlement.
[19] By para 14 of the award (set out at [15] above) the arbitrator found that there was such a development — effectively an abandonment or withdrawal of Gama’s pleaded reliance upon cl 31.1 of the lease. The arbitrator explains that as having arisen through “the clear agreement at the beginning of the hearing”.
Did Gama clearly agree to the withdrawal of its pleading?
[20] The arbitrator recorded he asked Mr Forbes in opening (implicitly by reference to para 32 of the statement of claim) whether repudiation was an issue. The arbitrator records his contemporary note records that both counsel said “no”.
[21] There is not a transcript of the opening submissions. Counsel have explained there was no recording “due to technical difficulties”.
[22] The Court has been provided with the affidavit evidence of a number of people who were present during the opening submissions and the contemporaneous and/or file notes made by those present.
[23] On Gama’s “side”, Mr Forbes was speaking to his submissions and appears not to have taken any note of his exchange with the arbitrator. Mr Forbes’ junior at the arbitral hearing (Mark Henderson) exhibited his hand-written notes of the opening, which includes the following passage:
repudiation – will ignore this in the 3ASoC
– not affect Gama’s claim for breaches as it was the breaches that relevant.
[24]Mr Henderson in his affidavit explained this in relation to his note:
9.The second hyphenated paragraph, based on my recollection, refers to the discussion between the arbitrator and Mr Forbes QC and Mr Forbes’ response which was to the effect that repudiation was not an issue in so far as it related to any potential right of cancellation of the lease by Gama. I acknowledge that I did not note the reference to “cancellation” but see that it is referred to in Ms Phillip’s notes (exhibit RC-3 to Ms Cotter’s affidavit).
10.My notes are consistent with my recollection that Mr Forbes QC confirmed that Gama was not arguing that it had grounds to cancel the lease for repudiatory breach, but that the breaches were still alleged and were relevant to Gama’s claims. The breaches (being mainly breaches of repairing covenants and failing to remedy them following notice to do so) were the subject of extensive evidence from both parties.
11.I believe from Ms Phillips’ notes it is possible to identify that on the first hearing day the relevant discussion with the arbitrator occurred
while Mr Forbes QC was addressing the issue of fair wear and tear in the context of the leased premises’ floor coverings. This is contained in paragraph 55 of Gama’s written opening which appears to be referred to at note “2.7” in Ms Phillip’s notes.
12.At the time of the arbitrator’s query about repudiation, paragraph 47(n) of Gama’s opening submissions had already been covered by Mr Forbes in his oral submissions without comment or question by the arbitrator.
13.I note that Ms Phillips’ notes refer to the arbitrator saying that the repudiation issue does not affect Gama’s claim. This is also consistent with my recollection of Mr Forbes’ statement that Gama was not saying that repudiation was relevant in a cancellation sense. As I have said in my first affidavit, I did not understand that Mr Forbes QC agreed to a withdrawal of paragraph 32 in Gama’s Third Amended Statement of Claim referring to repudiation. If he had I believe I would have noted that, and I did not.
[25] Grant Nelson, the managing trustee of Gama, also provided affidavit evidence on these matters, in reply. He was present at the arbitration hearing and took notes of matters which were of concern to him so that he could raise them with Gama’s counsel. He deposes, if he had understood that Mr Forbes was withdrawing repudiation as part of Gama’s claim entirely, he would certainly have made a note of it as he would not have agreed to that withdrawal. He exhibited his notes and observed that they do not record any such withdrawal.
[26] Fletcher Steel, in support of its opposition to the setting aside of part of the arbitral award, filed an affidavit of Rebecca Cotter. Ms Cotter is senior legal counsel employed by Fletcher Building Ltd, of which Fletcher Steel is a subsidiary. She had primary responsibility for the conduct of the dispute between Fletcher Steel and Gama. She was present during the opening and closing submissions, including during the opening exchange between the arbitrator and Mr Forbes.
[27] She deposes she was especially interested in that particular discussion: “because I had always felt the repudiation point to be irrelevant in the context of a make good case, and it was near the start of Mr Forbes’ opening and I was curious as to the approach he was taking”.
[28] Ms Cotter deposes it is her recollection that the arbitrator raised the issue and, after some discussion, Mr Forbes effectively confirmed Gama would withdraw the repudiation allegation made in the statement of claim.
[29] Ms Cotter exhibits her handwritten note of the exchange in which she recorded: “Repudiation of the lease? Is Agreed to take this allegation off the table.”
[30] Ms Cotter additionally exhibited the notes taken by Fletcher Steel’s senior and junior counsel during the discussion.
[31]Mr Potter recorded simply: “Repudiation allegation w/drawn.”
[32]Ms Phillips recorded this in somewhat more detail:
TKG:3ASOC alleged by action/inaction. Fletchers have repudiated the lease. U/st repudiation not necessary to recover damages
— only proof of breaches and loss. None of briefs deal with repudiation. Can we ignore.
AFQC: normally a step to cancellation.
TKG:ignore repudiation then — not seeking to prove and doesn’t affect claim.
[33] Finally, and also of relevance, is the arbitrator’s own record as referred to at para 14 of the award. When the arbitrator asked Mr Forbes whether repudiation was an issue or not, the arbitrator made a contemporaneous note which recorded Mr Forbes said “no”. It is in this same paragraph of the award that the arbitrator records his understanding that there was “clear agreement” that repudiation was not an issue.
My findings as to the discussions which occurred
[34] Gama’s pleading at para 32 of the statement of claim — that Fletcher Steel’s breaches of the lease constituted a repudiation of its obligations under the lease entitling Gama to recover damages — is located in Gama’s pleading of its first cause of action (“Breaches of the Lease”). It immediately precedes para 33 in which Gama particularised the damages it claimed. There is no expressed link between the para 32 pleading and an entitlement to interest at the default interest rate.
[35] Paragraph 32 of the statement of claim contains Gama’s only pleading of repudiation. It is clear, both as a matter of common sense and in light of the recording of the exchange at para 14 of the award, that it was precisely in relation to the allegations at para 32 that the arbitrator enquired of Mr Forbes whether repudiation was an issue. I am further satisfied, particularly having regard to the contemporaneous note taken by Ms Phillips (as Fletcher Steel’s junior counsel) that the arbitrator, having enquired as to the relevance of the repudiation allegation, directly asked Mr Forbes whether the arbitrator and counsel could ignore that pleading (either in those exact terms or materially similar terms).
[36] I am further satisfied, again as recorded by Ms Phillips, that Mr Forbes responded by recognising that the relevance of repudiation is normally as a step towards and/or justifying cancellation.
[37] I am further satisfied in the exchange which followed between the arbitrator and Mr Forbes, that it was expressly discussed between the arbitrator and counsel that the para 32 pleading of repudiation was to be ignored upon the basis that it did not affect Gama’s claim. Such a clear resolution emerging from the discussion is evidenced not only by the three notes taken by counsel for Fletcher Steel but also by that of Mr Henderson, appearing for Gama.
[38] I consequently find, as the hearing then proceeded, it was commonly understood by the arbitrator and counsel for both parties that Gama was no longer, for the purposes of the arbitration, making the repudiation allegation contained in para 32. Those present may have expressed that conclusion in different ways — Mr Henderson by the note “will ignore this in the 3ASoC”; Mr Potter by the note “Repudiation allegation w/drawn”; and Ms Cotter by the note “Agreed to take this allegation off the table” — but the substance of the common understanding was materially identical. Gama was no longer making that allegation as part of its case in the arbitration.
[39] In reaching these conclusions, I have not overlooked the narrative evidence of Mr Henderson contained in the affidavit filed in support of this application. Rather, I
have carefully considered his narrative evidence alongside that of his own contemporaneous note and of the evidence in records of counsel for Fletcher Steel.
[40] In his affidavit initially filed in support of the setting aside application, Mr Henderson did not attach a copy of his contemporaneous handwritten note (as set out at [23] above).
[41] In that first affidavit, Mr Henderson referred to the discussion during Gama’s opening submissions in these terms:
I recall the issue of repudiation being raised by the arbitrator, however I did not understand that Mr Forbes QC, when discussing this point with the arbitrator, agreed to withdrawal of any paragraphs relating to repudiation in Gama’s Third Amended Statement of Claim, including where it is referred to at paragraph 32 of that Statement of Claim.
My recollection is that Mr Forbes QC said that repudiation was not an issue in so far as it related to any potential right of cancellation of the lease by Gama.
[42] It was in response to that affidavit that Ms Cotter filed her affidavit in opposition. To that affidavit she exhibited the three file notes of counsel for Fletcher Steel. She recorded in the narrative:
… I was present for Mr Austin Forbes QC’s opening on behalf the applicant (Gama) on 18 November 2019, and I remember the discussion that occurred between the arbitrator and counsel for both parties regarding repudiation.
I was particularly interested in this, because I had always felt the repudiation point to be irrelevant in the context of a make good case, and it was near the start of Mr Forbes’ opening and I was curious as to the approach he was taking.
My recollection is that the arbitrator raised the issue, and that after some discussion Mr Forbes effectively confirmed that Gama would withdraw the repudiation allegation made in the third amended statement of claim.
[43] It was only then that Mr Henderson, by a reply affidavit, exhibited his own file note which included the record “repudiation — will ignore this in the 3ASoC”.
[44] In the narrative of his affidavit, Mr Henderson suggested that his own notes “do not particularly assist in providing clarity on the point”.
[45] In the reply affidavit, Mr Henderson went on to record (at para 10) his view of the exchange, as quoted at [24] above.
[46] Contrary to the view expressed by Mr Henderson in his reply affidavit, I find his own note to be clear and materially in line with the record kept by other participants. Mr Henderson’s particular way of recording the outcome was that the para 32 pleading was to be ignored. I am satisfied that, as the note indicates, there was no qualification to that outcome.
[47] To this extent I reject as unreliable Mr Henderson’s recollection (as stated in his initial affidavit) that Mr Forbes had said that repudiation was not an issue “in so far as it related to any potential right of cancellation of the lease by Gama”. I find as a matter of probability that such a qualification was not expressed. In fact, the position as stated in the paragraph in Mr Henderson’s reply affidavit (set out at [24] above) is consistent with the position which I found to have been reached between the arbitrator and counsel by the time the discussions were completed — Gama was standing by its allegations of breach (on which it was basing its damages claims) but Gama (through counsel) withdrew the allegation that those breaches amounted to a repudiation of Fletcher Steel’s obligations under the lease.
Gama’s case for setting aside para 14 of the award
Gama’s entitlement to natural justice
[48] By its application, Gama asserts the arbitrator’s disregarding of Gama’s closing submissions on repudiation was in conflict with the public policy of New Zealand in terms of the Arbitration Act 1996, sch 1, art 34(2)(b)(ii) and in breach of the rules of natural justice during the arbitral proceeding or in connection with the making of the award, in terms of art 34(6)(b).
[49] Gama thus invokes provisions of sch 1, art 34 to the Arbitration Act and, in particular, these:
34Application for setting aside as exclusive recourse against arbitral award
(1) …
(2) An arbitral award may be set aside by the High Court only if—
…
(b) the High Court finds that—
…
(ii)the award is in conflict with the public policy of New Zealand.
…
(6)For the avoidance of doubt, and without limiting the generality of paragraph (2)(b)(ii), it is hereby declared that an award is in conflict with the public policy of New Zealand if—
(a)…
(b)a breach of the rules of natural justice occurred—
(i)during the arbitral proceedings; or
(ii)in connection with the making of the award.
[50] For Gama, Mr Forbes appropriately recognised, where grounds for setting aside are made out under art 34, the court nevertheless retains a discretion whether to make an order. Also (in exercising its discretion) the court may consider the magnitude of the defect and the extent to which it had or might have had an impact on the outcome of the dispute. A particular consideration is whether the arbitral tribunal might have reached a different conclusion had it adopted the correct approach.3
[51] For the requirements of natural justice (a concept not defined in the Arbitration Act itself), Mr Forbes cited the judgment of Fisher J in Trustees of Rotoaira Forest Trust v Attorney-General.4 Central amongst the principles there identified is the need for the arbitrator to give each party a full opportunity to present its case.5
[52] Mr Forbes also relied upon the observation of Dobson J in Todd Petroleum v Mining Co Ltd v Shell (Petroleum Mining) Co Ltd, that:6
It will generally be the duty of a tribunal to determine an arbitration on the basis of the cases which have been advanced by each party, and of which each has notice. To decide a case on the basis of a point which was not raised as an
3 Citing David A R Williams and Amokura Kawharu Williams & Kawharu on Arbitration (online ed, LexisNexis) at [17.2].
4 Trustees of Rotoaira Forest Trust v Attorney-General [1999] 2 NZLR 452 (HC).
5 At 463.
6 Todd Petroleum v Mining Co Ltd v Shell (Petroleum Mining) Co Ltd HC Wellington CIV-2008- 485-2816, 17 July 2009, citing London Underground Ltd v Citylink Telecommunications Ltd [2007] EWHC 1749 (TCC), [2007] 2 All ER Comm 694 at [37].
issue or argued, without giving the parties the opportunity to deal with it, will be a procedural irregularity.
[53] Mr Forbes referred to cases in which there had been discussion of misunderstandings. He referred to Williams v Stephenson in which McGechan J observed (obiter) that a failure to call for or accept further material could amount to a breach of natural justice:7
I accept there could be situations where notwithstanding prior reasonable opportunity to be heard, the official conclusion of hearing, and absence of reservation of rights to call further evidence or make further submissions, natural justice principles might still call for acceptance of further material. I would not attempt to be definitive. Mistaken understandings may be an example.
[54] Mr Forbes also referred to the English decision in Peter Cassidy Seed Co Ltd v Osuustukkukauppa IL.8 Mr Forbes observed that case involved the failure of one party to adduce evidence on a particular point in the mistaken belief that the point had been accepted by the other side and the arbitrator was proceeding on that basis.
[55] Finally, Mr Forbes referred to the observation of Heath J in Cynotech Securities Ltd and Budget Loans Ltd v People Ltd, in which his Honour observed (in the context of the recall of a judgment) that his own “misapprehension of counsel’s submissions is a ground to re-open the breadth of the order made”.9
Gama’s submissions as to the application of natural justice principles
[56] Mr Forbes submitted Gama’s entitlement to natural justice had been breached at a number of levels.
[57] First, Mr Forbes submitted (contrary to the factual finding I have now made) Gama had not withdrawn the repudiation allegation.
[58] Secondly, Mr Forbes submitted there was a lack of clarity in any event flowing from the discussion between the arbitrator and counsel, which led to a
7 Williams v Stephenson HC Palmerston North CP18/97, 20 August 1999, at 13–14 (decided under the Arbitration Act 1908).
8 Peter Cassidy Seed Co Ltd v Osuustukkukauppa IL [1957] 1 All ER 484 (QB).
9 Cynotech Securities Ltd and Budget Loans Ltd v People Ltd HC Auckland CIV-2008-404-1559, 4 March 2009 at [5].
misunderstanding or miscommunication. In the circumstances, that required the arbitrator to clarify the position with counsel instead of proceeding to make his decision contrary to relevant submissions.
[59] Thirdly, Mr Forbes submitted if there had been a concession (which Gama denied), then it must have been made on the conditional basis that it would not affect Gama’s claim.
Fletcher Steel’s opposition
Grounds of opposition
[60] Fletcher Steel opposed the making of a setting aside order upon two principal bases.
[61] First, Fletcher Steel asserted (as I have found as a matter of fact) there was reached, in the course of Gama’s opening submissions, a clear agreement that repudiation (as pleaded in para 32 of the statement of claim) was not an allegation in the arbitration. Fletcher Steel further asserted if Gama wished at a later point to resile from that agreement, it was incumbent upon Gama to directly and specifically identify its wish to so resile.
[62] Secondly, Fletcher Steel asserted this is not an appropriate case for the exercise of the court’s discretion to set aside a part of the award. Fletcher Steel identified three particular grounds:
(a)Fletcher Steel would have objected to Gama resiling from the agreement in that the arbitration had been conducted upon the basis that, because repudiation was not an issue, cross-examination and submissions had not been directed to repudiation, and Fletcher Steel’s conduct of the arbitration and reliance upon those matters was reasonable;
(b)no submissions were made by Gama as to how Fletcher Steel’s conduct allegedly constituted repudiatory conduct, and there was no basis for the arbitrator to make such a finding; and
(c)accordingly, it is very unlikely that there would be a materially different outcome if the repudiation issue was to be reconsidered by the arbitrator. Gama has accordingly not met the high threshold necessary for that to occur.
Discussion
[63] The appropriate outcome of this application flows from Gama’s withdrawal of its reliance upon its pleading of repudiation. As I have found, and contrary to the tenor of Mr Henderson’s evidence, there was no reasonable room for any misunderstanding as to whether Gama was withdrawing its repudiation allegation. It did so in unequivocal terms.
[64] This was an arbitration which was conducted by the arbitrator upon the basis of the cases advanced by each party. When the arbitrator came to see in a single paragraph in Gama’s reply submissions (with no developed submissions as to its relevance to default rate interest) a fresh reference to cl 31.1 of the lease and repudiation, he was justified in proceeding to give his award in accordance with Gama’s case as it had been presented in the course of Gama’s opening submissions. That was particularly so when Gama’s withdrawal of reliance upon the allegation of repudiation had been clear and there was no suggestion in Gama’s closing and/or reply submissions that it was seeking leave to resile from its concession. It was not a requirement of natural justice, in that context, that the arbitrator revert to Gama’s counsel to clarify whether Gama was now wishing to depart from the case as pleaded (including through withdrawal of one particular pleading).
[65] Gama’s application falls to be dismissed upon the basis that its primary contention — that the arbitrator’s ruling at para 14 of the award was in breach of Gama’s rights of natural justice — is not made out.
[66] In these circumstances, it is unnecessary that I determine whether Fletcher Steel is also correct in opposing the application upon the basis that the discretion to set aside part of the award should not in any event be exercised in favour of Gama, having regard to all the circumstances. Had it been necessary to do so, I would have determined the application in favour of Fletcher Steel on that basis also. As was clearly indicated by the arbitrator’s discussion with counsel (recorded at para 14 of the award), an allegation of repudiation was a matter which (if pursued) would properly have been explored in the evidence. Breach of contract and repudiation are not necessarily co-extensive. Had repudiation remained a live issue, Fletcher Steel would have been entitled to lead evidence and to cross-examine Gama’s witnesses with a view to establishing that any breaches by Fletcher Steel had not been repudiatory. That opportunity was lost as a result of Gama making its clear concession in opening submissions. Were this Court to entertain the setting aside of this part of the award, it would have to do so with a direction that Fletcher Steel be entitled to lead further evidence on the repudiation issue and to have Gama’s witnesses recalled for cross- examination on that issue. Such would not be an appropriate outcome in relation to an arbitration which (through Gama’s own conduct) had the chequered history which the arbitrator set out at paras 7–10 of the award (before the nine-day hearing which occurred in late-2019).
[67] This accordingly would not have been an appropriate case to exercise the discretion in favour of setting aside.
Outcome
[68]I dismiss the application for an order setting aside part of the arbitral award.
[69] Costs must follow the event. The plaintiff is to pay to the defendant the costs and disbursements of the proceeding (without a certificate for second counsel, but with a certificate for leading counsel’s reasonable costs of travel and accommodation). In the event of any disagreement as to quantum, the matter will be determined on the
papers with submissions to be filed first by the respondent and secondly by the plaintiff (four-page limit in each case).
Osborne J
Solicitors:
A J Forbes QC, Christchurch Corcoran French, Christchurch Meredith Connell, Auckland
0
0
0