Forest Holdings Ltd v Mangatu Blocks Inc.

• Jurisdiction: New Zealand
• Judge: Downs J
• Judgment Date: 10 September 2019
• Neutral Citation: [2019] NZHC 2258
• Court: High Court
• Docket Number: CIV-2018-470-000084
• Date: 10 September 2019

Between

Forest Holdings Limited

Appellant

and

Mangatu Blocks Incorporation

Respondent

[2019] NZHC 2258

CIV-2018-470-000084

IN THE HIGH COURT OF NEW ZEALAND

TAURANGA REGISTRY

I TE KМTI MATUA O AOTEAROA

TĀURANGA MOANA ROHE

Arbitration — cancellation of forestry rights — proof of causation in a loss of chance claim — failure of Arbitrator to consider damages claim under the Contractual Remedies Act 1979

Appeal against a decision of an Arbitrator which refused Forest Holdings Ltd's (“Forest Holdings”) claim against Mangatu Blocks Incorporation (“Mangatu”) for terminating a forestry right on land it owned. Forest Holdings had paid several million dollars for the royalty and a considerable portion of that had gone unused. Forest Holdings claimed loss of chance. Mangatu had failed to provide Forest Holdings with the required 120 day notice of its intention to terminate, with a corresponding opportunity to remedy any defaults in breach of its contract with Forest Holdings. The Arbitrator found Forest Holdings had not suffered loss despite the breach. He found Mangatu was dissatisfied with Forest Holdings performance and would have terminated, with notice, in any event. The Arbitrator found if Forest Holdings had been given notice Mangatu would not have withdrawn it as Forest Holdings would not have been able to persuade Mangatu to do so given its poor performance, there was little possibility third parties would have acted to create an opportunity of value. On the issue of causation, the Arbitrator stated that Forest Holdings needed to establish on the balance of probabilities that it had lost a commercial opportunity of some value. Forest Holdings contended the Arbitrator had failed to consider its claim for damages under s9 Contractual Remedies Act 1979 (“CRA”) (power of Court to grant relief). In the application for leave to appeal, Courtney J stated that since the Court did not have the current pleadings or the submissions made to the Arbitrator on the s9 CRA claim, it was not possible to resolve the issue. If the claim for reliance damages had been advanced, either in pleadings or submissions, as being amenable to relief under s9 CRA, the Arbitrator would have made an error in not considering the issue. Such an omission would not be the exercise of a discretion but rather the failure to actually consider a legal issue raised in the proceeding. Courtney J said the Arbitrator had erred in treating Mangatu's hypothetical actions as those of a party rather than a third party. On that view Forest Holdings needed only have established there was a real prospect Mangatu would have withdrawn the termination notice.

The issues were: whether the Arbitrator had erred in treating Mangatu's hypothetical actions as those of a party rather than a third party; whether the Arbitrator had erred about causation and whether Forest Holdings was entitled to damages under s9 Contractual Remedies Act 1979 (“CRA”) (power of Court to grant relief).

In a loss of chance claim, the plaintiff must prove on the balance of probabilities that the defendant had wrongly deprived the plaintiff of a chance of some value. In some loss of chance claims, a plaintiff's loss turned on how a third party might have acted. In other loss of chance claims, a plaintiff's loss turned on whether the defendant would have done something.

The Court held there were reasons why a defendant should be treated as a third party. There were obvious reasons why the plaintiff should be required to prove what the defendant would have done, to demonstrate the plaintiff had lost a chance of genuine value, according to the usual, civil standard. The requirement was consistent with the overarching and fundamental principle a plaintiff must prove their case. There was also good reason for a lesser standard in relation to the actions of third parties. Frequently, a plaintiff could not know (hence could not prove) how the third party would have acted. It was right a plaintiff need only prove there was a real prospect the third party would have acted a certain way.

The Arbitrator had concluded that Mangatu was determined to terminate the forestry right and that it was entitled to do so because of Forest Holding's deficient performance. Those conclusions left little room for the existence of a valuable chance in a four-month notice period irrespective of who had to prove what, and to which standard, if any. The Arbitrator's conclusion that the prospect of relief was speculative directly answered Forest Holdings' concern about misapplication of a standard or proof.

Forest Holdings was entitled to an explicit determination of its claim for s9 CRA damages. There was a real risk the Arbitrator had overlooked that aspect of the claim. It was not an answer to say the s9 CRA damages were improbable; that was for the Arbitrator.

The appeal was allowed, but only in relation to the availability of damages under s9 CRA.

Counsel:

MD Branch and KF Shaw for Appellant

ZG Kennedy and MD Toulmin for Respondent

JUDGMENT OF Downs J

This judgment was delivered by me on Tuesday, 10 September 2019 at 1 pm pursuant to r 11.5 of the High Court Rules.

Registrar/Deputy Registrar

Solicitors:

Harkness Henry, Hamilton.

MinterEllisonRuddWatts, Auckland.

Proof of causation in a loss of chance claim

1 In a loss of chance claim, the plaintiff must prove the defendant wrongly deprived the plaintiff of a chance of some value. This may require the plaintiff to prove she or he would have done certain things. If so, the plaintiff must prove these to the usual, civil standard. In other words, the plaintiff must prove it is more likely than not she or he would have done these things.

2 In some loss of chance claims, a plaintiff's loss turns on how a third party might

have acted: X. If so, the plaintiff does not need to prove it is more likely than not the third party would have done X; it is sufficient if the plaintiff proves there is a real prospect the third party would have done X. If this relatively low threshold is crossed, the Court then turns to quantum.

3 In other loss of chance claims, a plaintiff's loss turns on whether the defendant

would have done something: Y. Must the plaintiff prove it is more likely than not the defendant would have done Y? Or, need the plaintiff only prove there is a real prospect the defendant would have done Y? These are the questions in this appeal.

4 They arise this way. In 2003, Mangatu Blocks Incorporation 1 granted Forest Holdings Ltd 2 a forestry right on land owned by Mangatu. In 2013, Mangatu terminated the right. Mangatu could do so, but only after first giving Forest Holdings 120 days' notice of its intention to do so, with a corresponding opportunity to remedy any defaults. Mangatu did not give this notice. So, it breached its contract with Forest Holdings. The case went to arbitration.

5 The Arbitrator, the Hon B J Paterson QC, found Forest Holdings had not suffered loss despite this breach. He found Mangatu was very dissatisfied with Forest Holdings' performance and would have terminated, with notice, in any event. Among other things, Forest Holdings had illegally logged some trees, a source of tension between it and Mangatu, and between Forest Holdings and others.

6 The Arbitrator found if Forest Holdings had been given notice, it would have considered its options in the hope of retaining the forestry right, or “extract[ing] some commercial value from it during the 120 day notice to remedy period”. 3 However, the Arbitrator found Mangatu would not have withdrawn the notice, as Forest Holdings would not have been able to persuade Mangatu to do so given Forest Holdings' poor performance.

7 The Arbitrator also found there was little possibility third parties would have acted to create an opportunity of value; for example, there was little possibility the Gisborne District Council would have withdrawn its abatement notices against Forest Holdings in relation to Forest Holdings' illegal logging.

8 Forest Holdings sought permission to appeal on questions of law. Courtney J granted permission. 4 Indeed, the Judge said the Arbitrator had erred in relation to proof vis-a-vis causation. Other issues arise too. More about them later.

The argument for Forest Holdings

9 Forest Holdings contends the Arbitrator erred. It exhorts Courtney J's reasoning. Courtney J said the Arbitrator erred in treating Mangatu's hypothetical actions as those of a party rather than a third party. On this view, Forest Holdings need only have established there was a real prospect Mangatu would have withdrawn the termination notice; Forest Holdings did not need to prove it was more likely than not Mangatu would have done so. Or, as the Judge observed: 5

Forest Holdings' actions were certainly to be determined on the balance of probabilities. But Mangatu's actions were, for the purposes of the loss of chance assessment, those of a third party.

Principle

10 In Chaplin v Hicks, Mr Seymour Hicks offered acting engagements to women, determined in part by public feedback on their beauty. 6 Ms Chaplin was one of

50 finalists. Mr Hicks breached contract by not giving Ms Chaplin adequate notice of the final round of the contest. She successfully sued. Mr Hicks argued there were too many variables for Ms Chaplin to succeed. Any number of things might have happened — or not

11 The Court of Appeal dismissed the appeal. Vaughan Williams LJ rejected the contention “if certainty is impossible of attainment, the damages for a breach of contract are un-assessable”. 7 The Judge said the fact “damages cannot be assessed with certainty does not relieve the wrongdoer of the necessity of paying damages for his breach of contract”. 8 However, the Judge accepted in some cases “loss is so dependent on the mere unrestricted volition of another … it is impossible to say that there is any assessible loss resulting from the breach”. 9

12 The...