Forest Holdings Ltd v Mangatu Blocks Inc.
| Jurisdiction | New Zealand |
| Judge | Goddard J |
| Judgment Date | 04 June 2020 |
| Neutral Citation | [2020] NZCA 212 |
| Court | Court of Appeal |
| Docket Number | CA71/2020 |
| Date | 04 June 2020 |
Clifford and Goddard JJ
CA71/2020
IN THE COURT OF APPEAL OF NEW ZEALAND
I TE KŌTI PĪRA O AOTEAROA
Arbitration, Damages — application for special leave under the Arbitration Act 1996 to appeal from a judgment of the High Court which dismissed appeal from an arbitral award — standard of proof to be applied to a defendant in a loss of chance case
M D Branch and K F Shaw for Applicant
Z G Kennedy and M D Toulmin for Respondent
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A The application for special leave to appeal to this Court is declined.
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B The applicant must pay the respondent costs on a band A basis, with usual disbursements.
(Given by Goddard J)
Forest Holdings Ltd (FHL) seeks special leave under cl 5(6) sch 2 to the Arbitration Act 1996 to appeal to this Court from a judgment of the High Court 1
dismissing FHL's appeal from an arbitral award. 2 Leave to appeal to this Court was refused by the High Court. 3The dispute between the parties has a lengthy history.
In 2003 Mangatu Blocks Inc (Mangatu) entered into an agreement with FHL which granted FHL a forestry right on land owned by Mangatu (the Agreement). On 10 July 2013 Mangatu purported to terminate the Agreement with immediate effect because FHL was in breach of certain obligations under the Agreement relating to compliance with the Resource Management Act 1991 (RMA) and reporting to Mangatu. However, Mangatu was not entitled to give such a notice. Rather, Mangatu was required to give FHL 120 days' notice requiring it to remedy those defaults. Mangatu was entitled to terminate the Agreement only if FHL failed to remedy the defaults within that 120-day period. FHL treated the notice as a repudiation of the Agreement, and cancelled.
FHL claimed damages for wrongful repudiation of the Agreement. The parties referred the claim to arbitration before the Hon B J Paterson QC. On 8 June 2016 the arbitrator delivered an award in which he concluded that: 4
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(a) Mangatu had wrongfully repudiated the Agreement.
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(b) FHL accepted the repudiation and cancelled.
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(c) FHL was entitled to have its damages claim considered.
The arbitrator also found that FHL could not have remedied, within 120 days of 10 July 2013, certain breaches of the Agreement arising out of breaches of the RMA
On 29 July 2016 the arbitrator delivered a further award in which he held that “the prospects of FHL obtaining other than a nominal damages award on its capital loss claim appear to be minimal”. 5
FHL sought permission to appeal from this award to the High Court. Heath J granted leave to appeal on the following issue: 6
Having regard to binding findings of fact set out in the [award] of 8 June 2016, did the arbitral tribunal correctly determine the legal basis on which Forest Holdings Ltd was entitled to seek damages resulting from [Mangatu's] unlawful termination of the forestry right?
On 15 March 2017 Heath J allowed the appeal by FHL and set aside the arbitrator's further award dated 29 July 2016. Questions of damages were remitted to the arbitrator. 7 The Judge considered that a factual inquiry was required into what would have happened if Mangatu had not repudiated, but instead had given the 120-day notice to FHL to remedy its breaches as provided for in the Agreement. He said:
[38] Although the arbitrator has found that Forest Holdings could not have remedied the breach within the period of 120 days for which notice was required, the commercial dynamics between two contracting parties are very different during a period of notice than those that pertain when one party has decided to end the contractual relationship and has asserted an immediate termination. Even assuming (which has not yet been the subject of a finding of fact) that Mangatu had issued a notice on 10 July 2013, there was still time for Forest Holdings to negotiate.
[39] By way of example:
(a) If Forest Holdings had begun negotiations with Mangatu immediately after receipt of the notice, it might have been possible for some solution to have been reached which meant that Mangatu agreed to withdraw its notice.
(b) If Mangatu had not withdrawn the notice, Forest Holdings might have gone into the market to find a solvent assignee prepared to acquire the bundle of rights that it held for value.
If the proposed assignee fell within the category of person in respect of whom Mangatu could not “unreasonably withhold” consent, Forest Holdings might have realised some benefit.[40] I am not saying that Forest Holdings could or could not establish the type of factual foundation that I have mentioned. The point is that it must have the right to explore those issues and to adduce evidence to support any options available to it to maximise its recovery. In other words, Forest Holdings is entitled to adduce evidence of the value of the rights of which it was deprived by the repudiation. While the two aspects of the business dynamics to which I have referred are not intended to be exhaustive, they illustrate that Forest Holdings might have been able to extract value from its asset before the contract was cancelled. From a practical point of view, apart from anything else, Mangatu could not have evicted Forest Holdings from the forest land until the notice had expired in circumstances where the defaults had not been remedied.
[41] On the face of it, there appears to be room for a respectable argument that Forest Holdings possessed an asset of value to it at the time notice ought to have been given. In those circumstances, I do not think it can be said, on a “first principles” analysis that Forest Holdings was unlikely to obtain more than nominal damages for Mangatu's wrongful repudiation of its contract.
(Footnotes omitted).
The case returned to the arbitrator. On 7 September 2017 he delivered an Amended Ruling on Damages Issue in which he set out the task that he understood he was required to undertake in light of the decision of Heath J:
12. In general terms, the task now is to determine damages on the basis:
(a) What would have happened if Mangatu had not repudiated; and
(b) What would have happened as a consequence of any action which Mangatu or FHL may have then taken?
13. Because of the second issue it is not possible as Mangatu submits to resolve damages on the basis of whether Mangatu would have given a notice to remedy and then terminated for non-compliance with such notice.
14. Even if it were to be determined that notice would have been given and the licence lawfully terminated, it does not then follow that damages would be nominal. FHL is entitled to have the right to discharge the onus of establishing on the balance of probabilities that it could have got value from the licence.
On 7 March 2018 the arbitrator delivered the Damages Award. He held that FHL had not suffered loss caused by Mangatu's repudiation. He found Mangatu was very dissatisfied with FHL's performance and would have terminated on notice in any event. Among other things, FHL had illegally logged some trees, a source of tension between it and Mangatu.
The arbitrator found that if FHL had been given 120 days' notice that Mangatu intended to terminate the Agreement, it would have considered its options to seek to retain the forestry right or extract some commercial value from it during the 120-day notice period. Those options included attempting to persuade Mangatu to withdraw the notice, and seeking to sell the forestry right or 50 per cent of the shares in FHL. FHL submitted all of these were realistic options that had a value that was lost as a result of Mangatu's repudiation. Mangatu should be required to pay damages representing the value of FHL's lost rights, having regard to the existence of these options.
The arbitrator discussed a number of authorities concerning damages for loss of a chance, and set out the parties' competing arguments about how he should approach contingencies affecting the value of the rights that FHL had lost as a result of Mangatu's breach. In relation to the issues that bore on whether Mangatu would have withdrawn the notice, the arbitrator said: 8
29. I will determine the above issues on the balance of probability test. Because of the confusion in the authorities as referred to above, I will also consider what the position would have been on a degree of probabilities and possibilities basis.
The authorities referred to by the arbitrator included the decision of this Court in Benton v Miller & Poulgrain (a firm). 9 The arbitrator set out the following passage from that decision: 10
[50] In making a “loss of chance” assessment, broad judgments are called for. At one end of the spectrum, very low probabilities are unlikely to be reflected in an award of damages. So if the chance of avoiding an adverse event is as low as say one in ten, a Court will probably reject the claim rather
than fix damages at ten per cent of the cost to the plaintiff associated with those adverse events. At the other end of the spectrum that approach is sometimes, but not always, adopted. So a 90 per cent chance of avoiding an adverse event may result either in complete recovery of all losses associated with that adverse event (on the theory that the chance of not avoiding those losses was sufficiently speculative to be able to be ignored) or alternatively a discount of ten per cent for contingencies.
The arbitrator held that FHL had not established on the balance of probabilities that a notice given by Mangatu would have been withdrawn. 11 He went on to say: 12
If I was required to assess this matter on the degree of probabilities and possibilities, my...
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