Ironsands Investments Ltd v Cheung Kong Infrastructure Holdings Ltd v Toward Industries Ltd v New Zealand Steel Ltd

JurisdictionNew Zealand
CourtHigh Court
JudgeEllis J
Judgment Date08 Jun 2012
Neutral Citation[2012] NZHC 1277
Docket NumberCIV-2011-404-1289 CIV-2011-404-6843

[2012] NZHC 1277

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

Court:

Ellis J,

CIV-2011-404-1289

CIV-2011-404-2012

CIV-2011-404-6843

Under the Arbitration Act 1996

BETWEEN
Ironsands Investments Limited
First Applicant

And

Cheung Kong Infrastructure Holdings Limited
Second Applicant
and
Toward Industries Limited
First Respondent

And

New Zealand Steel Limited
Second Respondent
Counsel:

F Cooke QC, M Colson and F Tregonning for Applicants

J Hodder SC, D Alderslade and J Graham for Respondents

FMR Cooke QC, PO Box 1530, Wellington 6140

Application to strike out applications to have arbitral interim liability award and corresponding quantum award set aside — agreement between parties to purchase shares in mining company — purchaser under obligation to make reasonable endeavours to obtain consent of Overseas Investment Office (“OIO”) but advised OIO would close mining operation once business acquired — OIO refused consent — arbitration found purchaser had not used all reasonable endeavours and vendor had breached vendor warranties in regards to disclosure — purchaser applied to set aside liability award on ground that it was induced by “(equitable) fraud and corruption (of process)”, and quantum award on grounds that the resale costs assessment was made without evidence, and the ruling that purchaser's counterclaim could not be offset breached natural justice as not given opportunity to make submissions on issue and no reasons given for the finding — whether in strike out proceedings involving arbitral awards Court did not have to accept at face value allegations of fact which could be tested against the record — whether applications to set aside liability and quantum awards were clearly untenable.

The issues were: whether in strike out proceedings involving arbitral awards the Court did not have to accept at face value allegations of fact which could be tested against the record — whether CKI's applications to set aside the liability award and quantum award were clearly untenable and should therefore be struck out.

Held: Where the proceedings sought to be struck out concerned an attack on a reasoned decision issued by a body acting judicially, the Court did not have to accept at face value allegations the truth of which could be tested against the record. The Court would be entitled to test an allegation about whether there was an evidentiary basis for a finding contained in an award against what was said in the award itself ( Downer-Hill Joint Venture v Government of Fiji). Further where a plaintiff sought the setting aside of a judgment on the grounds of fraud, the traditional strike out principles (namely the requirement that the Court treat the allegations in the statement of claim as true) did not apply (Shannon v Shannon). There was no reason to differentiate between cases where fraud was alleged as a basis for setting aside a judgment of the Court and a case where fraud was alleged as the basis for setting aside an arbitral award.

Insofar as CKI's challenge to the liability award was concerned, it might be significant that CKI had taken no steps to put evidence before the Court to show that its claim had a reasonable prospect of success. It might, for example, be expected that some or all of the documents alleged to have been withheld would be in evidence, but they were not. At the very least this deficiency entitled the Court to interrogate with some robustness CKI's assertions that those documents were relevant to the liability issue.

CKI's ability to have the Court interfere with the awards was limited to the grounds set out in art 34 sched 1 Arbitration Act 1996 (“AA”) (application for setting aside as exclusive recourse against arbitral award). No appeal on a question of law was available to CKI. It was not in dispute that the documents with which CKI were concerned were not disclosed until after the liability hearing. However there was an inference to be drawn from the material before the Court that the documents were not disclosed by NZS at the liability stage because they were not regarded as relevant to that issue.

Further, documents that recorded NZS's own plans for the business after CKI's failure to settle could have no bearing on whether CKI's earlier actions breached its reasonable endeavours obligation. Importantly G made it clear that the question of breach did not turn on whether CKI's resolution to close the operation was an objectively reasonable business decision. CKI's breach arose by virtue of the fact that its conduct prior to settlement had shifted the distribution of risk under the contract. It was also difficult to see how documents that were said to show that NZS knew that it had suffered no loss could have had any bearing on the liability hearing, which was not concerned with quantifying NZS's losses.

In terms of assessing the non-disclosure on the legal merits, the issue was whether innocent, negligent or “unexplained” non-disclosure of documents that were (assumed to be) relevant to the liability award gave rise to a tenable claim that the award was induced or affected by fraud or corruption as per art 34(6) sched 1 AA. Equitable fraud was not sufficient (Redcliffe Forestry Venture Ltd v Commissioner of Inland Revenue). The fraud threshold should be the same for judgments and for arbitral awards (The Ampthill Peerage). The concept of “fraud”, as used in art 34(6), connoted fraud in the strict legal sense which meant that actual dishonesty was required. This coincided with English case law. There was no obvious justification for adopting a more liberal attitude and to do so would defeat one of the fundamental and express objects of the Act, which was to promote international consistency in arbitral regimes.

The contended “corruption of process” could not suffice for art 34(6). The definition of corruption involved the perversion of personal (rather than procedural) integrity. There were no such allegations of undue influence in this case The concept of corruption of process was not known to New Zealand Law. A narrow interpretation was consistent with the fact that the otherwise strict time limit for applying to set an award aside in art 34(3) did not apply to the “fraud or corruption” ground. That underscored the exceptional nature of the ground. If the word “corruption” admitted a meaning that included mere deficiency of process then those wishing to apply to have an award set aside for breach of natural justice could avoid the statutory time limit for doing so by simply clothing the application as a “corruption of process” claim. There was no tenable claim of fraud or corruption.

There was authority for the setting aside of an award where relevant documents had subsequently come to light, even though they had not been dishonestly withheld. It depended on the demands of justice in the individual case which, in turn, depended on a range of competing considerations including the materiality of the documents concerned and the reasons for their non-disclosure. But the “interests” or “demands” of justice had no bearing on the proper content of the words “fraud or corruption” in art 34(6). It might be arguable that, based on these and other similar cases, an arbitral award could liable to be set aside under art 34(2) for being contrary to public policy in some wider sense if it was made without the benefit of highly pertinent documents that had only been discovered after the event. But that did not assist CKI as the time for mounting any such broader “public policy” based challenge in the present case was well past. The art 34(3) exception to the three month time limit was confined to cases of fraud or corruption. The application to set aside the liability award had no prospect of success and should be struck out.

Rotoaira Forest Trust v Attorney-General was the leading NZ case concerning natural justice in the arbitration context. CKI's complaints about the quantum award had to be considered against that decision. There was evidence before G about the losses that had been incurred by NZS as a result of its resale efforts. G expressly recorded CKI's contention that this evidence was insufficient but he did not agree. The weight G chose to give the evidence was a matter for him and could not now be second guessed. Even if G's finding of loss was not supported by the evidence there would not have been a breach of natural justice in this case. There was no absolute rule that natural justice required an arbitrator's findings to be based on probative evidence in the orthodox sense (Rotoaira:). Parliament's enactment of cl 5(10) Schedule 2 AA (appeals on questions of law) had to be taken into account and the effect was to expressly prohibit any appeal which raised the issue of whether the award or any part of it was supported by any evidence or any sufficient or substantial evidence. This told in favour of excluding a Re Erebus: type breach of natural justice as a ground for setting aside an arbitral award.

Strike out applications granted.

RESERVED JUDGMENT OF Ellis J

This judgment was delivered by me on 8 June 2012 At 4 pm, pursuant to r 11.5 of the High Court Rules

Registrar/Deputy Registrar

1

This judgment relates to further challenges brought by Cheung Kong Infrastructure Holdings Ltd and its subsidiary Ironsands Investments Ltd (together, “;CKI”) to two awards made by Alan Galbraith QC as a result of an international arbitration conducted by him during 2010 and 2011. Earlier challenges by CKI to Mr Galbraith's interim liability award and to ancillary rulings made by him were largely struck out by Courtney J on 8 July 2012.

2

The arbitration related to a 2008 agreement by CKI to buy the shares in New Zealand Steel Mining Ltd, then owned by Toward Industries Ltd and, ultimately, by New Zealand Steel Ltd (“;NZS”). The business operated by NZS involved an iron mining operation situated at Taharoa, south of...

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