Todd Petroleum Mining Company Limited v Vector Gas Trading Limited

[2017] NZHC 2734

ORDER PROHIBITING PUBLICATION OF REDACTED TEXT IN THIS JUDGMENT

IN THE HIGH COURT OF NEW ZEALAND WELLINGTON REGISTRY

CIV-2015-485-1016 [2017] NZHC 2734

BETWEEN

TODD PETROLEUM MINING

COMPANY LIMITED First Applicant

SHELL (PETROLEUM MINING) COMPANY LIMITED

Second Applicant

AND

VECTOR GAS TRADING LIMITED First Respondent

VECTOR GAS LIMITED Second Respondent

Hearing:	1 November 2017
Counsel:	M G Colson and D F McLachlan for Applicants B A Scott and A Kraack for Respondents
Judgment:	8 November 2017

JUDGMENT OF WILLIAMS J

[1]      I issued a judgment on 31 May this year denying the applicants leave to appeal an adverse arbitral award.1

[2]      Todd now applies to recall that judgment to correct, Todd says, an aspect of it.  In the judgment, I addressed whether Todd and Shell had been accorded natural justice in relation to the way in which the question of the pricing of liquids was

addressed by the Arbitral Panel.  I found that while the natural justice argument did

1      Todd Petroleum Mining Company Limited v Vector Gas Trading Limited [2017] NZHC 1166.

raise a bona fide question of law, it was weak on the facts. At [100] of the judgment, I expressed my conclusion in these terms:

I do not think there is anything in the procedural unfairness question.  It is true that the [redacted] per GJ option was introduced in Vector’s closing, but in  fact Vector’s  stance  in  opening  submissions  was  consistent  with  that proposal.  Vector accepted that an overall net back approach might well be appropriate for raw gas pricing (if the opening gambit of no change in price did not succeed), but did not concede that this inexorably applied to the liquids component.

[3]      And at [105], I took the view that, even if the above conclusion was wrong, Todd and Shell had failed to take the point during the hearing.  I expressed my view in these terms:

In any event, if the KMCs were taken by surprise by the [redacted] option raised in closing, they did not say so.  They could have taken the point at the time, suggesting that this submission was new and demanding a right to call evidence on it.   The Tribunal would then have been required to rule on whether the new element was truly a departure from the way Vector’s case was structured or more in the nature of a refinement of an existing position. I  have  no  doubt  the  Tribunal  would  have  concluded  that  this  was  a refinement, but it is nonetheless significant that the matter does not appear to have been raised and the Tribunal does not appear to have been called upon to resolve the issue.

[4]      Todd argues that I was neither asked nor required to come to the conclusions I have set out.  Indeed, the question of procedural fairness rights was at the time, and remains, the subject of Todd’s separate application pursuant to art 34, sch 1 of the Arbitration Act 1996 to set aside the arbitral award.2   The application for leave, the subject of my judgment, was pursuant to cl 5, sch 2 of the Act.

[5]      Todd argues that procedural fairness issues were only raised in the leave application before me in order to explain the nature of that collateral application because the challenges, Todd said, though required by law to be placed on separate procedural tracks, were in fact closely connected.  Todd says I should not therefore have  expressed  even  a  preliminary  view  of  the  strength  of  its  natural  justice

arguments because that risks pre-empting its other application.

2      Todd Petroleum Mining Company Limited v Vector Gas Trading Limited CIV-2015-485-1012.

[6]      Todd asks me to recall the judgment and delete these adverse conclusions even though they are preliminary.

[7]      In response, Vector submits that the recall application should be dismissed. Vector  argues  that  the  merits  of  Todd’s  natural  justice  argument  were  in  fact addressed in Todd’s written submissions and referred to at length in oral argument. Vector  says  given the topic of natural  justice  was  introduced  by Todd  into  the application, it cannot now be heard to complain when the Court decides to canvass that issue in the judgment.  In short, Todd put the issue in play, and cannot now take it out of play because the conclusion I reached was adverse to its interests.

Applicable principles

[8]      It is open to the Court to take the step of recalling its judgment provided it has not been sealed. The judgment in this case has not been sealed.

[9]      The general principles applicable to recall applications are not in dispute. As Wild CJ identified in the Horowhenua County v Nash  decision,3  there are three categories of case where recall will be justified:

(a)       where there has been a material intervening law change;

(b)where counsel have omitted to refer to materially relevant statutory provisions or authorities; and

(c)       where for some other very special reason, justice requires an aspect of the judgment to be further addressed.

[10]     Here, we are in the territory of very special reasons.  Todd’s point is that as natural justice was never an issue for me to resolve, counsel had been denied an opportunity to fully argue the point including by addressing in detail the evidence on it, because they were unaware of the risk of an adverse finding on it.  As a result,

there was real potential for prejudice.  Mr Colson outlines some particulars in that

3      Horowhenua County v Nash (No 2) [1968] NZLR 632 (SC) at [633].

respect, but for the reasons that follow, it is unnecessary for me to address those matters further.

This case

[11]     If it were the case that I had simply gone off and offered an opinion about a matter not raised, nor relevant to the proceeding before me, it would be inevitable that I should recall the judgment to take back that which should not have been said in the first place.  That is not however quite the position in this case.  Here, there is no doubt that procedural fairness was addressed by counsel in argument.

[12]     In its written submissions filed in support of the leave application, Todd submitted that the Arbitral Panel had applied the wrong legal formula for setting the price of liquids. The question of law posed in the application was as follows:

Whether the Tribunal was correct in its interpretation and application of the test for establishing a fair and reasonable price for raw Kāpuni gas, particularly in so far as the value of the liquids component of the raw gas stream is concerned.

[13]     Todd then addressed the stage two discretionary points in favour of granting leave (assuming that the question posed was one of law in the first place).

[14]     It was in that context that Todd suggested the way the matter of pricing for liquids arose before the Arbitral Panel was one of a number of factors that favoured allowing that question to go to appeal.4    The essential point was, given the natural justice argument in relation to liquids was reviewable as of right in the application to set aside, the question in relation to liquids identified in the leave application should also be allowed to go forward to a consolidated hearing because the two questions were so closely intertwined.  In written submissions, Todd summarised the grounds of its separate application to set aside in roughly these terms:

(a)       there was insufficient notice of Vector’s intention to suggest in its closing that the liquids’ price should be nominal only;

4      As the Court of Appeal considered in Gold and Resource Development (NZ) Limited v Doug Hood Limited [2000] 3 NZLR 318 at [54](2), the way in which an appeal issue arose in the arbitration is a relevant factor to the exercise of the Court’s discretion to grant leave.

(b)had there been sufficient notice, Todd would have led evidence on the point to oppose it;

(c)      the Panel’s support of nominal pricing could not have been foreseen

given the way the case had developed;

(d)      going into the hearing, Todd’s favoured net back approach (that is

market price less cost of production) appeared to be agreed by Vector;

(e)       Vector had adopted a net back approach in relation to liquids in the past; and

(f)      there was no evidence to support the pricing formula adopted.

[15]     At 16.4 of Todd’s submissions in the leave application, the matter was put

this way:

This wider liquids issue, therefore, is already part of an application to set aside the Award which the High Court is bound to hear.  It would therefore be most efficient and effective for the Court to deal with the legal issue (raised in the current application) as the same time as the application to set aside the Award. The two issues are intertwined.

[16]     In  his  oral  submissions  in  the  leave  application,  Mr  Colson  for  Todd expanded on these written submissions.  He referred extensively to the way Vector had opened and closed on the liquids pricing issue and the expert evidence led on the question.    He did  this in  an  attempt  to  establish  that  there was  in  substance a consensus around the net back formula and no evidential basis for the nominal value approach ultimately adopted by the Arbitral Panel.

[17]     Despite Mr Colson’s extensive (and probably over extensive) treatment of the liquids issue when leave was argued, I am satisfied that it was inappropriate for me to offer even a preliminary view of a matter the subject of separate proceedings. Vector has agreed that this view cannot, by its nature, support any suggestion of

issue estoppel.  On the authorities, that concession is properly made.5    The view I

5      Talyancich  v  Index  Developments  Ltd  [1992] 3 NZLR 28 (CA), Smith  v  Nathan  [2010] NZCA 265 at [6].

expressed was preliminary only.  That gets Mr Colson some of the way, but he is still left with the burden of a judgment containing an adverse view about his collateral application, albeit not a final one.

[18]     The issue of natural justice arose in the way it did because I found the broad question as initially posed did not raise a question of law at all.  It was a question of specialist economic and commercial judgment.  Having rejected that question, and (Mr Scott is right) somewhat emboldened by Mr Colson’s extensive treatment of the subject, I suggested that there were two genuine questions of law implied in the first question, and out of over-caution perhaps, I posed them. They were:6

(a)       Was the manner in which the proposed nominal price for liquids entered the arbitration so irregular as to deny the KMCs a fair opportunity to respond to the proposal?

(b)       Were the different methodologies adopted by the Tribunal to the price of spec gas and liquids so inconsistent as to render the liquids price irrational?

[19]     The  first  of  these  two  questions  was  essentially  the  subject  of  Todd’s application to set aside the award.  By posing it, and offering a preliminary answer, I am satisfied I fell into error.  It was not a question I was asked, and for good reason. It was not question that required an answer.

[20]     As noted, Vector says once the issue was in play, it was for me to address it as I saw fit.   Vector relied in that respect on Unison Networks Limited v Commerce Commission.7    While generally speaking that principle must be correct, the Unison case does not address the situation here.  In the present case, I provided a preliminary answer to a question the subject of separate proceedings.   That is an additional dimension not present in Unison.   I am satisfied this is to be avoided unless addressing the question as absolutely necessary.  It was certainly quite unnecessary in this case.

[21]     I therefore accept Mr Colson’s submission.  I am satisfied he has made out a

very special reason and recall the judgment accordingly in the interests of justice.

6      At [99] of the judgment.

7      Unison Networks Limited v Commerce Commission [2007] NZCA 49 at [34].

[22]     I now re-issue the judgment having deleted [100] to [106] and replacing

[100] with the following:

Question (a) is addressed in the separate application to set aside the Arbitral Award pursuant to art 34, sch 1 of the Act.  It is therefore inappropriate for me to venture an answer to that question, even in a preliminary way.   In addition, it is unnecessary to grant leave in that respect since the merits of that question will be addressed in this Court by another Judge in due course.

[23]     In light of Vector’s opposition, Todd will be entitled to its costs.

Williams J

Solicitors:

Bell Gully Solicitors, Wellington for Applicants

Chapman Tripp, Wellington for Respondents