|
|
Home
| Databases
| WorldLII
| Search
| Feedback
High Court of New Zealand Decisions |
Last Updated: 20 November 2019
|
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE
|
|
CIV-2018-404-2433
[2019] NZHC 2713 |
|
UNDER
|
the Arbitration Act 1996
|
|
IN THE MATTER
|
of an appeal against an Arbitral Award
|
|
BETWEEN
|
MILK NEW ZEALAND (SHANGHAI) CO. LIMITED
Plaintiff
|
|
AND
|
MIRAKA LIMITED
Defendant
|
|
Hearing:
|
29 May 2019
|
|
Appearances:
|
J Anderson, L H Mau and S J Jones for Plaintiff
L A O'Gorman and A N Birkenshaw for Defendant
|
|
Judgment:
|
23 October 2019
|
JUDGMENT OF WALKER J
This judgment was delivered by me on 23 October 2019 at 2.30 pm Pursuant to Rule 11.5 High Court Rules
Registrar/Deputy Registrar
MILK NEW ZEALAND (SHANGHAI) CO. LIMITED v MIRAKA LIMITED [2019] NZHC 2713
[23 October 2019]
TABLE OF CONTENTS
Introduction [1]
Factual background [5]
Approach to Appeal [43]
The Jurisdictional Threshold [43]
Standard of review [60]
Issue One – Does the UHT Agreement exclude any right to common law damages?
[63]
Does this constitute an appealable question of law? [64]
How was this issue dealt with in the Award? [66]
Did the Arbitrator make an error of law? [88]
Conclusion on Issue One [100]
Issues Two and Three – What is the relationship between the notification
regime and Minimum Volume obligations in the UHT Agreement? [101 Does this constitute an appealable question of law? [103]
How was this issue dealt with in the Award? [104]
Did the Arbitrator make an error of law? [115]
Conclusion on Issues Two and Three [137] Issue Four – Is contractual interest payable on damages? [139] Does this constitute an appealable question of law? [139]
How was this issue dealt with in the Award? [143]
Did the Arbitrator make an error of law? [148]
Conclusion on Issue Four [169]
Summary of conclusions [172]
Costs [173]
Introduction
[1] Milk New Zealand (Shanghai) Co. Limited (MNZ) appeals a Partial Award of the Hon Robert Fisher QC delivered on 2 August 2018 (Award).1 The Award determined a contractual dispute between MNZ and the defendant, Miraka Limited (Miraka), arising from a supply and purchase agreement for UHT milk (UHT Agreement).
[2] The essential dispute before the Arbitrator can be shortly stated: which party was responsible for failure to meet the Minimum Volume obligations under the UHT Agreement and what was the appropriate remedy?2 After a hearing which occupied five days, the Arbitrator found:
(a) MNZ had breached the Minimum Volume obligations in cl 3.2;
(b) Miraka was entitled to damages for actual loss suffered in two seasons rather than liquidated damages for breaches in certain months;
(c) neither party had complied with the contract scheme for annual and monthly notices required by cls 5.1 and 5.3 of the UHT Agreement;
(d) once MNZ knew that Miraka had completed construction of the UHT Plant extension, and that it was fully operational, MNZ did not require further notice or information from Miraka to make the contract work. The initiative moved to MNZ alone;
(e) the lack of adequate notice from MNZ reduced Miraka’s obligation to one which only required it to use its best endeavours to meet MNZ’s orders, after due allowance for any difficulties attributable to lack of adequate notice from MNZ;
REDACTED
would have produced and supplied litres of UHT in Season
REDACTED
REDACTED
REDACTED
Two, and litres in Season Three (which is less than the
Minimum Volumes of respectively);
and
million litres
(g) MNZ was obliged to pay contractual interest on the actual damages (calculated by the parties after delivery of the Award) from 12 October 2016 and 13 September 2017 (for Season Two and Three respectively).
[3] A second Award dated 30 October 2018 calculated the damages sum to Miraka for Seasons Two and Three, plus interest at the contractual interest rate, and costs.
[4] No leave to appeal is required, as the parties reserved the right to appeal on questions of law in an arbitration agreement.3 MNZ submits that the Arbitrator has erred in his interpretation or application of the UHT Agreement in respect of the Minimum Volume obligations, the available remedies and applicability of the contractual interest rate.
Factual background
[5] To provide the necessary background understanding I gratefully adopt the Arbitrator’s concise summary of the factual background.
[6] Miraka was a New Zealand company which owned and operated a dairy processing plant near Taupō.
[7] A corporate group in China, variously known as the Shanghai Pengxin Group and the Dakang Farming Group (the Pengxin Group), bought dairy farms in New Zealand. The farms were acquired in the name of a company incorporated for the purpose, MNZ Dairy. MNZ Dairy was wholly owned by another member of the
3 Arbitration Act 1996, sch 2 cl 5(1)(a).
Pengxin Group, MNZ. MNZ was incorporated in China to carry on business there as an importer and distributor of dairy products.
[8] In late 2011, discussions began between Miraka and the Pengxin Group over the supply of milk from MNZ Dairy to Miraka. Discussions developed into the additional proposal that Miraka would produce and supply UHT milk which MNZ would sell in China. The project required Miraka to construct a new UHT facility with
REDACTED
a production capacity of litres per year at an estimated cost of REDACTED .
While MNZ did not know the business model by which Miraka expected to receive an adequate return on its capital outlay, it was aware that volumes were required to be at certain levels since the investment in the factory and pricing of the product was based
REDACTED
on this. The investment was justified over a -year period. Consequently,
REDACTED
the volumes were specified in the UHT Supply Agreement for
a REDACTED -year notice period to ensure the minimum contract period is years.
years, with
REDACTED
[9] Apart from the peak months of October and November, the parties knew that with adequate warning, Miraka should be able to divert milk that had been ordered in anticipation of MNZ orders to its own dried milk power production or, at some cost, to other dairy producers.
REDACTED
MNZ was committed to spending to market MNZ dairy products
in China over the first five years. However, there was known to be a substantial risk that MNZ would be unable to build its market in time to meet Minimum Volumes in the early years.
[11] The New Zealand dairy season runs for 10 months from 1 August to 31 May. Miraka needed to secure its milk supplies from farmers by 31 May, up to which date cease of supply notices to Fonterra could be withdrawn.
[12] During the given season the availability of raw milk from suppliers rises and falls in the shape of a bell curve. The maximum availability of milk is in the peak months of October and November. During the peak months Miraka’s spray dryer, used
to produce milk powder, ran at maximum capacity. There was, therefore, special treatment in the UHT Agreement for the peak months.
[13] The product needed to be supplied to MNZ in packages of a size and design to be designated in advance by MNZ. It would normally require 10-12 weeks to go through the full process from design to delivery of packaging to the Plant.
[14] Ideally, three to four months would be taken to recruit and train staff to man the UHT production lines. However, Miraka had a basic level of trained staff in the lead-up to, and during, the first season. The training of staff could be reduced to six weeks if necessary, but a fall-off in line efficiency could result.
[15] Shipping would need to be booked about four weeks before product was shipped to China. Because the product had a limited shelf life, Miraka needed to deliver it to the port for immediate shipment within two weeks of production. It would not be practicable to stockpile significant quantities in anticipation of possible orders.
REDACTED
The parties agreed in principle that Miraka would construct a
extension to its existing Plant to enable it to produce the UHT milk MNZ required. In return MNZ would commit to purchasing a Minimum Volume of the product in each
REDACTED
of the annual Production Seasons of the Agreement’s initial term. Given
the various constraints within which the dairy industry had to operate, a system would be needed to ensure that Miraka received adequate notice of the product required from time to time by MNZ.
[17] By November 2012, discussions had progressed to the point that drafts of the proposed agreement were exchanged between the solicitors of the respective parties.
[18] The first few drafts of the Agreement contained the Minimum Volumes to be purchased by MNZ, without reference to a remedy if it fell short of those volumes.
[19] The parties were aware of two areas of particular risk. One was MNZ’s concern that it would need time to build its market in China. That risk was catered for
REDACTED
by agreeing that the Minimum Volume for the first season would be litres,
REDACTED
rather than the per annum envisaged in the longer term. The second season
was also reduced to REDACTED .
[20] The other was Miraka’s concern that during the peak months of each season (October and November) it would have little opportunity to divert any surplus milk to dried milk or other dairy plants if MNZ failed to order sufficient product. That was catered for by agreeing that during the peak months MNZ would need to take not less
REDACTED
than per cent of the total purchase for the whole season.
[21] As a consequence of these concerns, the parties discussed possible remedies if MNZ failed to take the Minimum Volumes. MNZ initially proposed the compensation be equal to Miraka’s actual loss, and then later in the negotiations, actual loss capped
REDACTED
at per cent of the price for any shortfall over the entire season.
[22] Miraka resisted reliance on actual loss. In a letter of 19 December 2012, Miraka’s solicitors forwarded a revised draft which would entitle Miraka to liquidated damages based on a percentage of the prevailing price. This was to apply to both failure to attain the Minimum Volume in the first season, and failure to reach the Minimum Volumes in the peak months for each season.
[23] After further negotiation the parties agreed on the liquidated damages that would apply. Both in the first season, and for peak months thereafter, the liquidated damages would be a stated percentage of the price prevailing at the time.
[24] The Agreement was ultimately signed on 13 February 2013. On 12 April 2013, the parties signed a Supplementary Agreement which had no bearing on the matters in dispute.
[25] Following the agreement, Miraka constructed the UHT Plant, engaged and trained additional staff, contracted with suppliers to purchase additional raw milk and, in collaboration with MNZ, ordered the necessary packaging.
[26] The first season following the agreement ran from 1 August 2014 to 31 May 2015. MNZ’s market in China did not grow as rapidly as hoped. MNZ was
REDACTED
unable to order the litres Minimum Volume required for Season One.
Miraka issued an invoice for the shortfall, which MNZ duly paid.
[27] In preparation for Season Two (1 August 2015 to 31 May 2016) Miraka said to MNZ:
What we need to understand from you is what sort of volume do
you think SP/Mengeniu (effectively MNZ) will get to next season given
we
have
REDACTED
litres in the contract for 15/16?
[28] On 22 April 2015, Miraka representatives attended a meeting in China with MNZ representatives. MNZ stated at the meeting that all it could forecast for Season
REDACTED
Two at that time was litres.
REDACTED
A month later, MNZ gave Miraka its best estimate of
forthcoming season (an estimate which turned out to be broadly correct).
litres for the
[30] On various dates, Miraka exhorted MNZ to provide more explicit forecasts for Season Two. Miraka noted that although MNZ had indicated that it hoped to take as
REDACTED
close to litres as possible, this had not been reflected in its forecast to date.
Miraka pointed out to MNZ that the lack of accurate forecasts for MNZ created real difficulties for Miraka in planning and resourcing for milk and staff. Miraka said that based on current information regarding forecasts, staff and milk, it believed that it
REDACTED
REDACTED
could produce litres. If MNZ required a 3.8 per cent spec for
litres Miraka would consider sourcing from other companies and would revert to what it believed to be possible.
[31] On 28 August 2015, Miraka advised MNZ by email:
The amount we can produce is determined by three key factors,
staff, line efficiency, and milk availability. [Miraka] needs to reiterate
that
when we visited you in China the key objective was to get a forecast so that we
can plan
REDACTED
around staff. We can manufacture litres over 10 months, but we
need additional shifts to achieve this. We have actioned below.
There followed further details as to how Miraka could achieve the contractual
REDACTED
minimum of litres.
[32] Beyond those communications neither party provided the annual notices contemplated by the agreement. Nor did either party provide rolling forecasts. Instead, individual orders were placed by MNZ on an ad hoc basis and responded to by Miraka in kind.
[33] From time to time during Season Two there were difficulties in the quality of the product provided by Miraka. The problems included sour milk, fat separation, swollen or blown packs, gelling milk, bitter milk and smudged or missing dates on packages. In those cases where MNZ made complaints to Miraka, Miraka paid compensation in accordance with cl 19.4 of the Agreement. In addition, in most cases Miraka paid for MNZ’s additional out-of-pocket expenses.
[34] In several cases Miraka also failed to deliver the volumes ordered by MNZ due to unstable milk protein, incorrect products and recall due to a missing part. The parties referred to these as “short shipments' to distinguish them from MNZ’s failure to order the Minimum Volumes.
REDACTED
REDACTED
By the end of Season Two, MNZ had ordered only about litres.
REDACTED
This was about
litres for that season.
litres short of the contractual minimum of
[36] Season three ran from 1 August 2016 to 31 May 2017. In preparation for the season Miraka provided its pre-season notification on 29 April 2016. This forecast a
REDACTED
production capacity of litres for each month of season three, a total of
REDACTED
litres. As in earlier years, MNZ did not provide a pre-season notification.
[37] Neither party provided rolling forecasts in accordance with the Agreement. MNZ’s ordering continued on an ad hoc basis.
[38] From time to time there were also quality issues during Season Three. As in Season Two, Miraka paid MNZ compensation when complaints were made.
[39] In October and November 2016, Miraka was unable to produce the product ordered by MNZ due to unexpected machine failure.
REDACTED
By the end of the season, MNZ had purchased litres. This was
REDACTED
about litres short of the contractual minimum of REDACTED .
[41] Miraka issued invoices for the annual shortfalls in Seasons Two and Three. MNZ declined to pay. At the end of 2016, Miraka referred the dispute about Season Two to arbitration. When that process did not result in any award within the specified period, it applied for summary judgment. MNZ objected both to the forum and the appropriateness of the summary judgment procedure where the contract depended on extrinsic factual matrix matters for its interpretation. The High Court proceeding was stayed pending arbitration.4
[42] The resulting arbitration dealt with product volume shortfalls in both Seasons Two and Three.
Approach to Appeal
[43] Only questions of law can be appealed under the Arbitration Act 1996 (the Act). The Act does not define what a question of law is except that it excludes any question as to whether:5
(a) the award or any part of the award was supported by any evidence or any sufficient or substantial evidence; and
(b) the arbitral tribunal drew the correct factual inferences from the relevant primary facts.
[44] The first issue is therefore a threshold one. This Court must determine whether the questions identified by MNZ are issues of law, issues of fact, or issues of mixed law and fact. If they are mixed law and fact, this Court must determine the extent to which they are appealable and the appropriate standard of review.
4 Miraka Ltd v Milk New Zealand (Shanghai) Co Ltd [2017] NZHC 2163.
5 Arbitration Act 1996, sch 2 cl 5(10).
[45] MNZ’s Notice of Appeal identifies the following purported questions of law:
(a) Whether the Arbitrator erred in his interpretation of the UHT Agreement in finding:
(i) the UHT Agreement did not exclude the right to common law damages although the parties had agreed a liquidated damages framework and compensation based on actual damages was expressly rejected during negotiation of the contract;
(ii) the investment return required by Miraka was accepted by both parties as the basis for the Minimum Volumes clauses of the UHT Agreement and established a contractual intention to allow for common law damages for breach of those clauses;
REDACTED
the email of of 22 December 2012 could be used as
the basis for the finding in (ii) above while, at the same time, the fact that Miraka had refused to include any provision in the agreement measuring damages on the basis of actual loss was not taken into account as an aid to interpretation;
(iv) Miraka was entitled to choose between common law damages or liquidated damages (despite not pleading a right to elect);
(v) an implied term that Miraka’s Minimum Volume obligation became a “best endeavours” obligation to meet MNZ orders;
(vi) Miraka’s Minimum Volume obligation is conditional on MNZ’s compliance with the notification procedures;6
(viii) Miraka was entitled to contractual interest on common law damages.
[46] The distinction between questions of law and questions of fact is succinctly summarised in the Canadian case of Canada (Director of Investigation and Research) v Southam Inc:7
Briefly stated, questions of law are questions about what the correct legal test is; questions of fact are questions about what actually took place between the parties; and questions of mixed law and fact are questions about whether the facts satisfy the legal tests.
[47] The term ‘mixed question’ most commonly refers to a question of application.8 Such questions involve two component parts. The first is the factual underpinning and the second is the legal consequence of those facts. In my view, the questions are mixed only in so far as the assessment depends on both a factual inquiry and application of a legal test. Only the application of the legal test is appealable.
[48] Ms Anderson (who did not appear at the arbitration) submits for MNZ that construction of a contract is an orthodox question of law. She acknowledges the developments in Canadian jurisprudence but says this Court is bound by the decisions of the Supreme Court in Bryson v Three Foot Six Ltd and New Zealand Air Line Pilots’ Association Inc v Air New Zealand Ltd.9 She notes that the orthodoxy is well illustrated by recent New Zealand decisions.10
[49] Ms O’Gorman for Miraka submits that Bryson only applies to construction of a written document where that question is determined by the text. It does not apply
7 Canada (Director of Investigation and Research) v Southam Inc [1997] 1 SCR 748 at [35].
10 Busby v Sargent HC Wellington CIV-2009-435-215, 4 March 2010; Ex UCL Ltd v Solarix Networks Ltd [2016] NZHC 1303; Todd Petroleum Mining Co Ltd v Vector Gas Trading Ltd [2017] NZHC 1166.
when oral exchanges and conduct are necessary to determine the objective intention of the parties. She supports this interpretation with two primary policy arguments. First, as recognised by the Supreme Court of Canada in Sattva Capital Corporation v Creston Moly Corporation, the rationale for treating contract interpretation as a special case is outdated.11 Secondly, there is no good reason to undermine party autonomy and the parties’ choice that matters be determined by arbitration.12
[50] Blanchard J, delivering the decision of the Court in Bryson stated:13
The construction of a document is a question of law. That rule has its origins in trial by jury in medieval times when juries were illiterate and most of the documents which came before a jury were deeds drafted by lawyers.... It does not apply when the intention of the parties, objectively ascertained, has to be gathered partly from documents, but also from oral exchanges and conduct. Then the terms of the contract are a question of fact. (emphasis added).
[51] Although arguably obiter, this has been accepted as orthodoxy in New Zealand.14 However, Bryson also recognises that many contracts of employment before the Court are not cases governed by comprehensive written contracts and involve “mixed fact and law”.15 I conclude that Blanchard J was referring to issues where the terms of the contract need to be ascertained through documents and oral exchanges, rather than merely construing already ascertained terms. My view is reinforced by the words “the terms of the contract” in the ultimate sentence of the passage quoted above.
[52] In my view, nothing in Bryson opens the door to the modern Canadian approach in which questions of construction of contracts are treated as questions of mixed law and fact outside the appellate jurisdiction for arbitral awards.
11 Sattva Capital Corp v Creston Moly Corp [2014] SCC 53; [2014] 2 SCR 633; approved in Teal Cedar Products Ltd v British Columbia [2017] SCC 32, [2017] 1 SCR 688.
12 There is another policy consideration at stake however which is that the parties should be permitted to pursue the rights they have contractually agreed to. Refer Ex UCL Ltd v Solarix Networks Ltd [2016] NZHC 1303, at [25].
13 Bryson v Three Foot Six Ltd [2005] NZSC 34, [2005] 3 NZLR 721 at [20] (citations omitted).
14 Commerce Commission v Harmoney Ltd [2017] NZHC 1167, (2017) 23 PRNZ 644 at [48].
15 Bryson v Three Foot Six Ltd [2005] NZSC 34, [2005] 3 NZLR 721 at [22].
[53] MNZ also relies, to a more limited extent, on the Supreme Court decision in New Zealand Airline Pilots’ Association Inc. v Air New Zealand Limited.16 The Supreme Court held, by a majority, that a question of law can encompass errors in interpretive principle or errors in the application of those principles. This is so even when the statutory framework excludes questions of construction of an agreement from the appellate jurisdiction:17
It would be an odd result in the current statutory framework for the supervisory appellate jurisdiction to be removed by a recitation of the principles where one or more of the principles was then misapplied or not applied at all, with an operative effect on the outcome.
[54] This supports the proposition that a decision is appealable if the decision- maker relies, for example, on the subjective intention or negotiating stance of one party, or fails to consider the background of the contract, or overlooks the text itself. A question of law also potentially arises if one or more of the principles was misapplied or not applied at all.
[55] While I have reached the view that Bryson precludes reliance on the ratio of Sattva, it is still useful to turn to the decision.18 Rothstein J, for the Court, held that construction of an agreement is a question of mixed fact and law.19 The Court recognised that this represented an abandonment of the traditional approach. It justified this based on consistency with the importance of the factual matrix in the modern approach to contractual interpretation.
[56] Rothstein J accepted that it is possible to identify an extricable question of law in an interpretation case, such as the application of an incorrect principle, failure to consider a required element of a legal test, or failure to consider a relevant factor. He pointed however to the difficulty inherent in the close relationship between selection and application of principles of contractual interpretation and construction which makes extraction of a legal question rare.20
17 New Zealand Airline Pilots’ Association Inc. v Air New Zealand Limited [2017] NZSC 111 at [51].
18 Sattva Capital Corp v Creston Moly Corp [2014] SCC 53; [2014] 2 SCR 633.
19 At [50].
20 At [55].
[57] A differently constituted Supreme Court of Canada re-examined the issue in Teal Cedar Products v British Columbia.21 The majority added two glosses to the Sattva judgment. First, they held that an extricable legal question arises if there is some alteration of the legal test in its application as this amounted to a “covert form of legal question”. Secondly, they pointed out that identifying a question, broadly, as one of contractual interpretation does not necessarily resolve the nature of the question at issue:22
Contractual interpretation involves factual, legal, and mixed questions, and characterising the nature of the specific question before the court requires delicate consideration of the narrow issue actually in dispute. In general, contractual interpretation remains a mixed question, not a legal question, as it involves applying contractual law (principles of contractual law) to contractual facts (the contract itself and its factual matrix).
[58] I turn back now to New Zealand decisions dealing with the appellate jurisdiction from arbitral awards. Perhaps one of the most helpful, having been decided after Sattva, is Todd Petroleum Mining Company Limited v Vector Gas Trading Limited.23 The dispute related to the terms of sale and purchase of petroleum products from the Kapuni gas field. Williams J began his judgment with the gateway question of whether there was a question of law, the determination of which could substantially affect the rights of one or more of the parties.24 He cited the orthodox position that contractual interpretation is essentially a question of law. However, he noted the need to carefully look at the factual context of the contract:25
That means the interpretation of the contract, while generally seen in New Zealand as an exercise in legal interpretation, can quickly become about finding facts. Just how the division between fact and law should be drawn given the terms of cl 5(10) of Sch 2 is a matter of some controversy.
He went on to say:26
And that in turn necessarily now makes contractual interpretation a mix of fact finding and word interpretation. Findings of fact, one might expect, will routinely underpin the court’s perspective on the meaning of contractual terms. This will then require courts hearing applications for leave to appeal
21 Teal Cedar Products v British Columbia [2017] 1 SCR 687, [2017] 1 SCR 688.
22 Teal Cedar at [47].
23 Todd Petroleum Mining Company Limited v Vector Gas Trading Limited [2017] NZHC 1161.
25 At [54].
26 At [57].
from arbitral awards to give careful consideration to whether the real matter is issue is the meaning of the contract, or the facts upon which that meaning is wholly or partly based. The former may raise a question of law. The latter will not. So, a debate about whether a fact said to affect meaning is proved, will not raise a question of law. Nor, to my mind, will a debate about whether a proved fact is capable of supporting an inference going to contractual intention.
[59] Although the issue of whether questions of mixed fact and law are amenable to appeal has received inconsistent treatment in New Zealand case law, my review of those cases still guides my approach.27 The starting point is that the interpretation of contract terms raises a question of law, but it does not follow that all errors in interpretation are properly characterised as errors of law. A more nuanced approach is required to ensure that the identified error is not in reality a challenge to factual inferences or sufficiency of evidence.
[60] Appeals of this kind are by way of rehearing under r 26.13(1) of the High Court Rules 2016. Once the threshold for appeal is met, this Court’s role is to determine whether the tribunal erred in law within the terms of the questions of law on the appeal. This Court has a discretionary power to confirm, vary or set aside an award. If the Court sets aside an award it may, among other things, remit the award to the original tribunal for reconsideration.28
[61] Ms O’Gorman submits that the standard for review is only satisfied when “the law requires that a certain answer be given because the facts permit only one answer” or “the true and only reasonable conclusion” to be drawn from the evidence is different from the determination reached by the decision. She relies on the dicta in Bryson:29
It is for the Court to weigh the relevant facts in the light of the applicable law. Provided that the Court has not overlooked any relevant matter or taken account of some matter which is irrelevant to the proper application of the law,
27 Trustees of Rotoaira Forest Trust v Attorney-General [1998] 3 NZLR 89 at 101; Turnwald v Walling HC Hamilton CIV-2008-419-1094, 5 May 2009 at [13]; Nixon v Walker HC Auckland CIV-2007-404-1372, 13 July 2007 at [26]; Busby v Sargent HC Wellington CIV-2009-435-215, 23 April 2010 at [10].
28 Arbitration Act 1996, sch 2 cl 5(4).
29 Bryson v Three Foot Six Ltd [2005] NZSC 34, [2005] 3 NZLR 721 at [25]. Ms O’Gorman also cites Sattva Capital Corp v Creston Moly Corp [2014] SCC 53, [2014] 2 SCR 63, [2014] 2 RCS 633 at [106].
the conclusion is a matter for the fact-finding Court, unless it is clearly unsupportable.
[62] I consider that this statement supports a narrow appellate approach when the challenge is to the application of the law to the facts. That it relates to such questions is evident in the next paragraphs of the Bryson judgment where Blanchard J discussed the instance of a conclusion of a fact-finding body which is so insupportable as to amount to an error of law. It is this situation which Blanchard J says presents a “very high hurdle” for an appellant. In the arbitration context, an appellant must also confront the express exclusion from the jurisdiction of any question about whether the tribunal drew the correct factual inferences from the relevant primary facts.
Issue One – Does the UHT Agreement exclude any right to common law damages?
[63] MNZ’s first challenge is to the Arbitrator’s determination that common law damages were available to Miraka for breach of cls 3.2(b) and (c) and 3.3 of the UHT Agreement. These clauses set out the obligations on MNZ to purchase Minimum Volumes in Season Two and following.
Does this constitute an appealable question of law?
[64] MNZ’s Notice of Appeal particularises the purported errors of law. During the hearing, I understood Ms Anderson to recast the extricable question of law at a higher- level: whether the liquidated damages provisions of the UHT Agreement are a comprehensive code to the exclusion of common law damages or, put another way, whether the UHT Agreement gave Miraka a remedy for whole season shortfalls.30
[65] In my judgment this is an issue which squarely turns on the construction of the UHT Agreement and is therefore an appealable question of law. The pleaded particulars in the Notice of Appeal are however better described as challenges to the Arbitrator’s reliance on aspects of the factual matrix in that exercise of interpretation.
How was this issue dealt with in the Award?
[66] I begin with the Award.
[67] The Award sets out those facts and commercial objectives known to both parties by the date of the UHT Agreement. This is the factual matrix against which the objectively ascertained intention of the parties is to be assessed. These findings are unassailable.
[68] Although they are not expressed in any hierarchy, it may be relevant that the first identified objective is the commercial return to justify Miraka’s considerable investment in a new UHT facility. The Arbitrator also found that the parties knew that, apart from the peak months and with adequate warning, Miraka should be able to divert milk ordered in anticipation of MNZ orders to its own dried milk production or, at some cost, to other dairy producers.
[69] The Arbitrator identified the parties’ awareness of two areas of particular risk
– the risk that in the first season MNZ may not be able to sufficiently build its China market and the peak month issue. The first risk was catered for by agreeing a reduction in first year Minimum Volume obligations. Special treatment of peak month volumes was largely justified by the fact that during the period of maximum availability of milk, Miraka’s spray drier that produced milk powder ran at maximum capacity. Thus there would be no opportunity to divert surplus milk.
[70] He pointed out that it was against the background of these two particular areas of risk that the parties discussed remedies for failure to take the stipulated Minimum Volumes.
[71] The Arbitrator then turned to the significant features of the UHT Agreement, highlighting three areas: the Minimum Volumes clauses; the notice provisions or system; and the express remedies provision.
[72] Clauses 3.2, 3.3 and 3.6 of the UHT read:
3.2 Minimum Volumes
The Vendor shall produce, and the Purchaser shall purchase and take delivery of at least the following Minimum Volumes in the following Production Seasons:
(a)
REDACTED
Season;
litres of Produce in the first Production
(b)
REDACTED
Season;
litres of Produce in the second Production
(c)
REDACTED
Season;
litres of Product in the third Production
(d) During any subsequent Production Season, notwithstanding
any other provision in this agreement to the contrary and subject
to sub-clause
3.5 below, the Minimum Volume for each Production Season shall be the minimum
purchase volume specified in the Purchaser’s
Pre-Season Notification,
provided that the Minimum Volume in any given Production Season will be no less
than the Minimum Volume
in the previous
REDACTED
Production Season or at least litres for each
Production Season after the third Production Season.
3.3 Orders to be for at least the Minimum Volume
The Purchaser shall:
(a) Not issue a Rolling Purchase Forecast containing a Binding Order, Confirmed Order and Expected Order that would, when taken together with the amount of Product purchased in that Production Season to date, and the amount of Product expected to be purchased in the remaining months of the Production Season as detailed in the Pre-Season Notification (excluding the three months covered by the Rolling Forecast) result in the Purchaser purchasing less than the Minimum Volume in that Production Season;
(b) Purchase monthly volumes equal to the total annual Minimum Volume for any season divided by 10 during each of the months of October and November of each season.
3.6 Purchaser does not purchase Minimum Volume
In the event that the Purchaser does not purchase:
(a) The Minimum Volume of Product in the first Production Season at the expiry of that Production Season it shall be
REDACTED
liable to pay to the Vendor an amount equal to of the Prevailing Price of the shortfall
volume of Product purchased compared to the Minimum Volume in that first Production Season; and
(b) The Minimum Volumes to be produced in each of the months of October and November in each Production Season (determined by the provisions of paragraph 3.3), at the expiry of that Production Season it shall be liable
REDACTED
to pay to the Vendor an amount equal to of
the Prevailing Price of the shortfall volume of Product purchased compared to the Minimum Volume to be purchased in each of October and November in that Production Season; provided that the payment shall be at the rate of REDACTED , rather than at the rate of
REDACTED , if the Vendor can resell or redirect the shortfall volume of milk purchased but not yet processed into Product to another process or processor on normal commercial terms before it is manufactured into Product.
[73] The Arbitrator summarised the chronology of performance issues. Relevantly,
REDACTED
by the end of Season Two, MNZ’s orders were about litres short of the
REDACTED
contractual minimum and by the end of Season Three, MNZ’s orders were about litres short of the contractual minimum.
[74] The Arbitrator began his analysis on Issue One with the general principle that breach of a contractual term entitles the aggrieved party to damages. The principle is displaced if the contract expressly or impliedly addresses the consequence of breach.
This is an uncontroversial principle.31
[75] He illustrated this proposition by referring to the liquidated damages provision in cl 3.6(b). The implication of that clause was that breach of the obligation was not intended to permit common law damages in addition to, or in substitution for, the prescribed remedy. He stated:32
The position is less obvious where, as here, the cause of action arises from the breach of a different provision in the contract for which no remedy has been expressly prescribed. In those circumstances everything turns on the intention to be elicited from the agreement as a whole.
32 Award at [88].
[76] He said that the ultimate question was “what was intended on an objective assessment of the particular document and its surrounding circumstances”.33
[77] The Arbitrator traversed MNZ’s arguments in favour of the proposition that cl
3.6 left no room for any other remedy for failure to attain Minimum Volumes. He agreed that the heading and introductory phrase of that clause was more consistent with the “exhaustive formula” proposition. I respectfully disagree. I do not consider that the heading can be relied on in this way. The UHT Agreement expressly stipulates in the interpretation section that “Headings are for convenience only and do not affect interpretation.” MNZ’s written submissions acknowledge this but suggest that reference may still be had to a clause heading if it is consistent with the substance of the clause, relying on Citicorp International Ltd v Castex Technologies Ltd.34 I am not persuaded that the dicta in Citicorp has application in this case. Whether the heading is consistent or not essentially begs the question.
[78] The Arbitrator also agreed that, all else being equal, the fact that there is a liquidated damages scheme at all implies the exclusion of other remedies. At the same time, he acknowledged that cl 3.6 might be regarded as incomplete because it does not address the consequences of failure to meet the minimums for the whole season.
[79] He agreed that the desire for certainty was one of the expressed aims of the parties and that liquidated damages is a way of achieving this. He expressly referred to Miraka’s rejection in negotiations of a remedy based wholly or in part on actual loss. However, he also found, as a matter of fact, that negotiations over the nature of the remedy arose in the context of discussing the two particular risks – the first season risk and lack of outlets for excess milk during the peak months. He found that “the parties did not necessarily turn their minds to the question of remedies in areas where they did not foresee an equivalent level of risk”.35
[80] He was less persuaded by MNZ’s argument that liquidated damages for months other than the peak months would have been unnecessary because of the ability to
33 At [90].
34 Citicorp International Ltd v Castex Technologies Ltd [2016] EWHC 349 (Comm) at [30].
35 Award at [91(e)].
redirect milk elsewhere. As the Arbitrator stated, MNZ could scarcely have thought that an assumed ability to redirect milk could be equated with the expectation of profit if the milk were used to supply its original purpose of selling UHT to MNZ.
[81] The Arbitrator also rejected MNZ’s argument that Miraka’s interpretation requires an implied term, pointing out that if there is a right to damages for full season shortfalls, it stems directly from the contractual obligation itself.
[82] Finally, he rejected an argument that there was a lack of evidence that the parties mutually believed that actual damages were necessary to keep Miraka whole. In response to the submission that during the negotiations Miraka was not sure whether a failure to order would have a detrimental effect “on it”, the Arbitrator pointed out that actual belief of a party is not relevant to the proper interpretation of a contract.
[83] He then turned to Miraka’s arguments. The first was that MNZ’s interpretation would mean that cls 3.2(b) and (c) and 3.3(a) became redundant after the first season since the liquidated damages formula had no application to full season Minimum Volumes after the first year.
[84] Miraka next emphasised the known requirement that full season Minimum Volumes were needed to ensure an adequate return on investment, relying on a statement from the Miraka representative, shared with MNZ, and which expressed the rationale for the Minimum Volume approach.
[85] Finally, he referred to Miraka’s argument about the lack of mutuality in any interpretation which saw Miraka being liable for failure to supply the seasonal Minimum Volume throughout the term but MNZ’s own seasonal liability limited to the first season.
[86] The Arbitrator identified the relevant breach as not a breach in respect of peak monthly requirements but a different provision in respect of which no remedy has been expressly prescribed. Whether the usual right to damages was displaced depended on
whether there was an express or implied intention to displace it as determined by an objective assessment of the UHT agreement and its surrounding circumstances.36
[87] In his view, the arguments for Miraka’s interpretation were overwhelming for two primary reasons. First, the reasonable assumption that a term in a contract is intended to have a legal consequence, by which I understand to mean a remedial consequence. A right to terminate was a hollow remedy in circumstances where Miraka needed a return on its original investment and specific performance was not practicable.37 Secondly, displacing a right to a damages remedy for seasonal under- ordering would produce an inequality between cls 3.4 and 3.6 for which there was no explanation.
Did the Arbitrator make an error of law?
[88] Before this Court, both parties acknowledged that the Arbitrator correctly identified and stated the relevant principles of contractual interpretation.38
[89] MNZ submits that the carefully negotiated liquidated damages framework in the UHT Agreement limits Miraka’s right to compensation for breach to the shortfall volume of Produce in the Peak months. As such, any shortfall volume for the whole Season does not entitle Miraka to any compensation.
[90] In terms of identifying purported errors of law in the Award, MNZ says that the Arbitrator gave too much weight to one element of the pre-contractual negotiations, permitting this evidence to overwhelm the text. In doing so, he reached a conclusion as to what the parties “must have meant” from a rational commercial perspective rather than reaching an objective and relevantly informed reading of the agreement. MNZ contends that an assessment of the proper weight to be accorded to evidence of pre-contractual negotiations between the parties is a question of law, relying on Foodstuffs (Wellington) Co-operative Society Ltd v Holden.39 However, by my reading of the judgment of Woolford J, the case does not provide this support. The
36 Award at [90].
37 A finding of fact which is unimpeachable in this appellate jurisdiction.
39 Foodstuffs (Wellington) Co-operative Society Ltd v Holden [2013] NZHC 3379 at [14].
conclusion that Woolford J reached was that the background context in the circumstances of that case was not, “as a matter of proof” evidence of the parties’ intention. I read this as a suggestion that the conclusion reached was “effectively outside the realm of reasonable outcomes” and therefore appealable.40 It does not suggest that assessments as to the proper weight to be given to pre-contractual negotiations inherently raise extricable questions of law.
[91] In a similar vein, MNZ says that no real weight was given to Miraka’s express rejection of its suggestion during negotiations that damages for breach of cls 3.2 or 3.3 be measured by reference to actual loss. The submission is that by taking one contextual factor into account but not the other, the Arbitrator fell into error, contributing to a conclusion that was incorrect as a matter of law.
[92] I reject this ground of the challenge for two related reasons. First, I disagree that no real weight was given to this aspect of the pre-contractual negotiations. The Arbitrator expressly referred to Miraka’s rejection and qualified its significance by reference to the specific context. Secondly, the conclusion is primarily fact dependent and far from clearly unreasonable. It was open for the Arbitrator to reach this conclusion.
[93] MNZ contends that the Arbitrator erroneously implied a right to elect between liquidated and common law damages for breach of cl 3.2 for the full season, contrary to the clear wording of cl 3.6 and the parties’ clear intention to promote certainty of outcome. It says that this too had the effect of substantially rewriting the agreement, an obviously impermissible outcome.41
[94] I disagree. Rather than implying an entitlement to common law damages, the converse was true; the Arbitrator rejected any implication that the general principle of entitlement to damages was displaced in the UHT Agreement. I apprehend that at the hearing, Ms Anderson subtly shifted ground. She rightly disavowed any reliance on a technical pleading point and accepted that the common law right to damages would
have to be excluded expressly or by implication. Her point was that was exactly what transpired here; the liquidated damages clause by its terms codified the remedial response by implication. Further, she said that the background negotiations cement this construction because they illustrate that the common intention was to produce a set of known outcomes against the background of the two particular identified areas of risk.
[95] Attractive though the argument may be at first blush, it does not answer Ms O’Gorman’s submission that the peak month and seasonal shortfall obligations did not necessarily overlap. It did not follow that a shortfall in the Peak months necessarily led to a seasonal shortfall. Similarly, a seasonal shortfall did not necessarily mean there had been a shortfall in the peak months. Rather, MNZ’s purchasing obligations in the peak months are independently stipulated in cl 3.3, in respect of which the liquidated damages clause applies. MNZ’s obligations in respect of ordering for the whole season are stipulated in cls 3.2(b) and (c) and 3.3(a). Miraka is entitled to liquidated damages for shortfalls in the peak months even if there was no shortfall over the whole season. In that scenario, there can be no entitlement to common law damages because the breach event falls within the ambit of the prescribed remedy. In the event of a shortfall over the whole season, but no shortfall over the peak months, Miraka is entitled to common law damages for the season shortfall but not liquidated damages in respect of the peak months. In the event of breaches in the same season of both the peak season shortfall and shortfall over the whole season, it is entitled to one or other remedy. The only limiting principle is that double recovery must be avoided.
[96] I consider that this is not the same as electing between two available remedies for the same breach. It does not strip cl 3.6 of any utility and it does not mean that Miraka would always need to calculate and prove its actual loss. Rather, as Ms O’Gorman submits, Miraka was suing for an event which did not fall within the ambit of the liquidated damages provision.42
42 James Edelman McGregor on Damages (20th ed, Sweet & Maxwell, London, 2018) at [16-024].
[97] MNZ submits that the wording of cl 3.6 is clear and definitive in its statement of the consequences of the failure to purchase and leaves no room for any other damages. It points to the fact that cls 3.6(a) and (b) provide that MNZ becomes liable to pay such sums at the expiry of the relevant season as supportive of its proposition. I disagree. At best it is equivocal. The fact that the obligation to pay liquidated damages for the peak season shortfall is triggered at the end of the relevant season is equally consistent with the view that it is only then that the position in respect of the whole season obligation is known. At that point Miraka has to decide what recovery it seeks.
[98] I consider there is no ambiguity about the ambit of the liquidated damages clause in the UHT Agreement; both the text and the documentary context support the same interpretation. I am satisfied that cl 3.6(a) covers only the consequences of a failure to order the relevant Minimum Volumes in Season One and cl 3.6(b) only covers the peak months of any season.
[99] It seems to me that the concerns of the parties in respect of Minimum Volumes in the peak seasons and over the whole season were different. As the Arbitrator found, the seasonal volume requirements were a mechanism to justify the investment of
REDACTED
constructing the UHT Plant over a minimum -year period. I agree that in
the circumstances of this case redundancy of the Minimum Volume obligations could not have been the parties’ intention. While arguments against reading a contractual clause in a particular way that would render the clause redundant are often of limited value, in this instance, the particular clauses go to the heart of the commercial deal.43
[100] I find no error of law in the Arbitrator’s determination and confirm the Award in respect of Issue One.
43 Beaufort Developments (NI) Limited v Gilbert-Ash NI Limited [1998] UKHL 19; [1999] 1 AC 266 (HL) at 274. The case at hand is not one where the choice is which clause to render redundant, cf Totara Investments Ltd v Crismac Ltd [2010] NZSC 36, [2010] 2 NZLR 285.
Issues Two and Three – What is the relationship between the notification regime and Minimum Volume obligations in the UHT Agreement?
[101] The second ground in MNZ’s Notice of Appeal challenges the Arbitrator’s determination that:
(a) Miraka’s Minimum Volume obligations were conditional on MNZ’s compliance with the notification regime; and
(b) without MNZ’s compliance with the notification regime, Miraka’s obligations reduced to an obligation to use “best endeavours” to meet MNZ’s orders.44
[102] The second ground is closely related to the third – whether the Arbitrator erred in holding that MNZ’s obligation to order the Minimum Volume was not conditional on Miraka’s ability to produce compliant product. Indeed, MNZ has described the third issue as the flipside of the second ground of appeal.
Does this constitute an appealable question of law?
[103] During the hearing, Ms Anderson was content to describe the purported question of law more broadly than is pleaded, namely whether the Arbitrator erred in his interpretation of the Minimum Volume obligations. I therefore approach the second and third grounds together. I consider the question of law which these issues engage is the extent to which (if at all) the parties’ respective Minimum Volume obligations are interdependent or amount to promissory condition precedents and what consequences flow from this assessment. I am satisfied that, expressed at this level, there is an appealable question of law on any orthodox approach. However, there are also elements of (at best) mixed fact and law along with critical facts which are not capable of being disturbed on appeal. These have a material bearing on the analysis and, potentially, the review threshold.
44 MNZ’s Notice of Appeal also challenged the determination that Miraka was not in breach of cl
3.2 and not liable for liquidated damages. This aspect was not pursued on appeal.
How was this issue dealt with in the Award?
[104] As a precursor to his analysis, the Arbitrator examined the contractual notice regime. He described the regime as an elaborate series of annual ‘pre-season notifications’ followed by monthly ‘rolling forecasts’ throughout the term. He found that the regime’s purpose was to ensure that each party would receive the information it required in time to carry out that party’s obligations under the contract. Had this sequence been followed, Miraka would have been able to plan its production for the entire season before it began.45 The sequence was not in fact followed since the parties “largely failed to give effect to the contractual notice system.”46
[105] Despite the break-down in the notice system, the Arbitrator found that the parties continued to regard the agreement as binding in all other respects. They did not treat it as releasing them from their other obligations. MNZ placed orders for product on an ad hoc basis and Miraka generally met the orders except for small periods of short supply due for various explained reasons.47
[106] He concluded that the parties therefore “obviously intended that in these circumstances a more informal system would operate”.48 Factually, this conclusion was based on the evidence of the actual conduct of the parties. Conceptually, this conclusion was derived either from the implication of a term/terms or through a contractual variation inferred by subsequent conduct. The former was the preferred analytical route of the Arbitrator but both routes placed reliance on the subsequent conduct of the parties. Although not expressed as such, it seems to me that the analysis also contributed to the Arbitrator’s conclusions as to which party bore responsibility for the under-ordering in Seasons Two and Three.
[107] The implied term found, and the start point, was that each party had to do whatever would be reasonably required to keep the UHT Agreement working at a commercial level.49 Whether justified on the basis of business efficacy or to achieve commercial or practical coherence, such an implied term is hardly controversial in a
45 Award at [46].
46 At [47].
47 Miraka paid compensation to MNZ for short supply or quality issues in respect of these periods.
48 Award at [53].
49 Award at [53].
commercial contract.50 Clause 5.4(e) of the UHT Agreement requires the parties to jointly attend to and actively attempt in good faith to resolve any problems or issues that may arise during the currency of the Agreement. While the expression might be different, the intent of this clause is similar to the identified implied term.
[108] I consider it is unnecessary in the circumstances of this case to try to resolve any question about the proper approach to implication of terms following a perceived departure from tradition in Attorney-General of Belize v Belize Telecom Ltd and the reassessment of the issue in Marks and Spencer plc v BNP Paribas Securities Services Trust Co (Jersey) Ltd.51 In any event, I am bound by the decision in The Malthouse Limited v Rangatira Limited, which I read as endorsing the BP Refinery test.52
[109] Similarly, whether the criteria set out in BP Refinery are alternative bases for implication of terms, a collection of methods to assess contractual meaning or composite requirements is not dispositive in this case as I consider that all five of the traditional BP Refinery criteria or elements are satisfied.
[110] Next, the Arbitrator sought to identify what was reasonably required to keep the Agreement working. He relied on the purpose of the formal notice system – to ensure that each party received the information it needed to carry out its obligation – and made several key findings of fact based on the evidence before him. These facts are unimpeachable on appeal:
(a) Before it committed to ordering product, MNZ needed to know that Miraka would be in a position to provide it;
(b) MNZ knew that with adequate notice Miraka could secure the necessary raw milk for the forthcoming season. Suppliers did not need
50 Marks and Spencer plc v BNP Paribas Securities Services Trust Co (Jersey) Ltd [2015] UKSC 72, [2016] AC 742 at [21].
51 Attorney-General of Belize v Belize Telecom [2009] UKPC 10, [2009] 2 All ER 1127, [2009] 1 WLR 1988; Marks and Spencer plc v BNP Paribas Securities Services Trust Co (Jersey) Ltd [2015] UKSC 72, [2016] AC 742.
52 The Malthouse Limited v Rangatira Limited [2018] NZCA 621; BP Refinery (Westernport) Pty Ltd v President, Councillors and Ratepayers of the Shire of Hastings (1977) 180 CLR 277 (PC).
to commit to either Miraka or Fonterra until 31 May. Miraka could outbid Fonterra where required;53
(c) In the normal course it would take Miraka six to 13 weeks to recruit and train extra staff. It must have been clear by the second season that Miraka already had a core of trained staff. The training of additional staff could be reduced to six weeks if necessary and packaging could be ordered in time once MNZ advised what it required;54
(d) MNZ knew that Miraka had a fully operational UHT Plant and that, with adequate warning, it could source the milk, staff and packaging, to meet orders from MNZ;
(e) The limitations in Miraka’s capacity later were due to inadequate notice from MNZ, not the inherent unavailability of resources at Miraka’s end;55
(f) At all times the price was independently ascertainable by either party. In addition, quarterly spreadsheets regularly passed between the parties on the topic of price;56
(g) MNZ was not reliant on annual or monthly notices from Miraka as a precursor to the ordering of product. It already knew the capacity of the Plant and, with adequate warning, Miraka’s capacity to supply;
(h) There were three matters within the exclusive control of MNZ: MNZ’s actual annual requirement as distinct from its contractual commitment; how the annual quantity was to be allocated between individual months; and the packaging sizes and specifications it required within any given month.57
53 Award at [57].
54 At [57].
55 At [58].
56 At [59].
57 At [62].
[111] Most significantly for the purposes of this appeal, the Arbitrator found that lack of compliant notices from Miraka was not the reason for MNZ’s under-ordering. The failure was due exclusively to unanticipated slowness in the development of a market for MNZ in China and hence, MNZ’s unwillingness to commit to the Minimum Volumes.
[112] These matters persuaded the Arbitrator that the critical notices needed to come from MNZ, not Miraka, and that MNZ needed to give Miraka annual and monthly notices sufficiently far in advance to enable Miraka to meet those orders. Since it was implied that the parties will do whatever is reasonably necessary to make the contract work, it was consequently implied that Miraka would have to use its best endeavours to meet orders as and when received. Any failure by it to meet orders was not a breach if it came about due to inadequate notice from MNZ.58
[113] In my judgment, while framing Miraka’s obligation as a “best endeavours” obligation may not have been necessary, the analysis achieved commercial coherence. The essential point to emerge was that MNZ would have no right to assert breach for Miraka’s failure to supply ordered product if late notice prevented Miraka’s performance. I will return to this point later in this judgment.
[114] Having established what was reasonably required, the Arbitrator rejected the argument that Miraka’s failure to comply with the formal notification system barred it from compensation. He also rejected MNZ’s argument that Miraka had to establish that it was “ready, willing and able” to supply the Minimum Volumes before MNZ’s own obligation was triggered.59 He held that Miraka’s performance ability was not a promissory condition precedent and there was no basis to imply a term to this effect.60 On the contrary, MNZ’s obligation to provide annual and monthly notices created a promissory condition precedent to Miraka’s obligation to produce and Miraka’s capacity was only relevant to assessment of the extent of loss caused by MNZ’s breach.61
58 Award at [64]-[65].
60 Award at [76].
61 At [80].
Did the Arbitrator make an error of law?
[115] MNZ’s argument, as developed by Ms Anderson before me, has three main limbs. She says that the Arbitrator erred:
(a) by implying a term or terms in a manner inconsistent with legal principle;
(b) by construing Miraka’s Minimum Volume obligation as conditional on or altered by MNZ’s lack of compliance with the notice regime; and
(c) by construing MNZ’s Minimum Purchase obligation as existing independently of Miraka’s ability or willingness to produce that volume.
[116] She contends that the implied term fails to meet the BP Refinery criteria as it contradicts the express terms of the UHT Agreement. The parties had provided for what was to happen regarding forecasting without a “back-up” framework in the event of a failure to observe the express notification terms. This submission is effectively an assertion that the Arbitrator unjustifiably rewrote the UHT Agreement.
[117] I disagree that there is any contradiction or inconsistency. The primary implied term is an obligation to do what was reasonably required to keep the Agreement working at a commercial level. This is not inconsistent with any express term. On one view of it, the ‘reasonable requirements’ filled an unintended gap which only arose once the parties failed to meet their notice obligations. Those reasonable requirements were driven by the provisions of the UHT, understood in its context and with reference to its commercial purpose.
[118] On the related point of the nature of the volume obligations on each party, Ms Anderson submitted that the literal text in the UHT Agreement supported the proposition that Miraka’s Minimum Volume obligation was independent of MNZ’s compliance with the notice scheme. She went so far as to say that, as neither party complied with the notification regime, both were discharged from their respective Minimum Volume obligations (although, as I understand it, not from other obligations
under the UHT Agreement). This submission relied on a decision of the Supreme Court of Queensland, McConnell Dowell Constructors (Aust) P/L & Anor v QCLNG Pipeline P/L, and the line of authorities cited in that case.62 These authorities had not been referred to the Arbitrator.
[119] On behalf of Miraka, Ms O’Gorman placed only light reliance on the implied term approach in either her written or oral submissions. She submitted that the Arbitrator’s approach was entirely reasonable in the matrix circumstances and that to the extent that the Arbitrator used the concept of implied terms, the result was appropriate regardless of which test properly applies.63
[120] Instead, Ms O’Gorman relied on the Arbitrator’s finding that MNZ’s failure to order the Minimum Volumes was due exclusively to unanticipated slowness in the development of a market for MNZ in China and its consequent unwillingness to meet its Minimum Volume obligations.
[121] I apprehend that Ms O’Gorman’s approach is primarily one of interpretation. I do not accept that, properly understood, Miraka had an independent obligation to supply the Minimum Volumes. I prefer Ms O’Gorman’s submission that to construe the UHT Agreement as requiring Miraka to be “ready, willing and able” to produce
REDACTED
REDACTED
or litres of UHT on demand, in the absence of forecasts or
orders, is untenable and commercially far-fetched. I accept that cl 3.1 is telling. It only obliges Miraka to sell and deliver all the “Product Ordered”. The prefatory words of cl 3.1 “Notwithstanding any other provision in this agreement to the contrary”, underscores the importance of this clause. I consider that the design of the forecasting and ordering regime in cls 5.1 to 5.3 supports this view.
[122] I accept Ms O’Gorman’s submission that it is reasonable to understand Miraka’s commitment to producing the Minimum Volumes assumed that such volumes were notified, forecast and ordered by MNZ in compliance with MNZ’s obligations under the UHT Agreement. I also accept that this assumption was
62 McConnell Dowell Constructors (Aust) P/L & Anor v QCLNG Pipeline P/L [2014] QSC 157.
predicated on the practical requirements for producing UHT milk which were largely known to MNZ’s negotiating representative. Those requirements related to recruitment of milk, processing of milk within a window, packaging and shipping of the product and MNZ’s own planning requirements.
[123] Although Ms O’Gorman does not express this point in the language of promissory condition precedent, it seems to me that the conceptual approach for which she argues is that MNZ’s compliance with its notification obligations (and therefore with its ordering obligations) was a condition precedent to Miraka’s Minimum Volume commitments. Properly understood, Miraka had no obligation to supply the contractual Minimum Volumes in circumstances of MNZ’s default; neither did it have to establish its own ability to meet the Minimum Volume requirements. It follows that “back-up” provisions in the event of a break-down in the notification system were unnecessary. I accept Ms O’Gorman’s argument that Miraka’s performance ability in the circumstances are matters of mitigation and that it would be irrational and a waste
- “a commercial nonsense” - to recruit milk for UHT production, let alone supply product, in the absence of forecast orders when MNZ did not want the product anyway.
[124] Another route to the same answer is that both parties had Minimum Volume obligations. The Arbitrator did not interpret MNZ’s obligation to purchase as independent or having no relationship to Miraka’s obligation to supply. The liability for the annual volume shortfall falls on the party who caused the shortfall, in this instance, MNZ. Where the shortfall was the responsibility of MNZ (as the Arbitrator found), and not in any way contributed to by Miraka, Miraka was excused from its performance.
[125] The case of McConnell Dowell, relied on by Ms Anderson, was an application for leave to appeal an arbitral award relating to a construction contract. The defendant, QCLNG, was in breach for failing to obtain relevant regulatory authorisations within a reasonable time. This held up the start of works and led to McConnell Dowell incurring wasted costs. Though QCLNG was in breach, the Arbitral Panel declined to award damages attributable to the delayed start of works. Their reasoning was that the delayed start was not solely due to QCLNG’s breach. Rather, McConnell Dowell was itself in breach by failing to provide timely assistance in the exchange of information
needed to obtain the authorisations. That failure led to QCLNG’s default. The Arbitral Panel relied on a principle they expressed as an inability to take advantage of one’s own breach of a contractual promise to obtain redress from the other party. citing Alghussein Establishment v Eton College and Cheall v APEX.64
[126] McConnell Dowell sought leave to appeal on a question of law. The pleaded grounds were that there is no such principle precluding recovery where a claimant is found to have breached the contract, or alternatively, that such principle does not operate where the claimant’s breach was only one of the causes for the defendant’s breach.
[127] While doubting that the principle expressed in the authorities was as wide as the Arbitral Panel had described it, Jackson J ultimately found it unnecessary to address its scope. He stated:65
MCJV’s claim for damages is not concerned with a question of the proper construction of a contract where a party has taken advantage of its own breach of contract to bring about a state of affairs where it claims a benefit under the terms of the contract.
In argument, I raised whether there might be a relevant cognate principle, which precludes a party that is not ready and willing to perform their contractual obligations from claiming damages for breach of contract from the other party, in accordance with Macquarie International Health Clinic Pty Ltd v Sydney South West Area Health Service, Foran & Anor v Wight & Anor and Hensley v Reschke.
The line of authority Jackson J was referring to in this passage concerns contracts where the obligations of the parties are mutually dependent and concurrent. The Australian High Court case of Foran concerned a contract for sale of land to be performed by an exchange of the purchase price for a conveyance of land.66 When the vendor informed the purchaser it would not be able to complete on the appointed day for settlement, the purchasers did not tend the money. The question was whether the purchasers were required to prove they were ready and willing to perform the contract
64 See Cheall v APEX (1983) 1 All ER 1130; Alghussein Establishment v Eton College (1991) 1 All ER 267.
65 McConnell Dowell Constructors (Aust) P/L & Anor v QCLNG Pipeline P/L [2014] QSC 157 at [30]- [31] (footnotes omitted).
66 Foran & Anor v Wight & Anor [1989] HCA 51; (1989) 168 CLR 385, 400-401, cited and approved in New Zealand in Property Ventures Investments Ltd v Regalwood holdings Ltd [2010] NZSC 47 at [82] per Blanchard J.
to succeed in a declaration that they had validly terminated the contract for the vendor’s breach.
[128] Although only declaratory relief was in issue, there was obiter discussion as to whether readiness and willingness of the plaintiff to perform the mutually dependent and concurrent conditions is an element of a cause of action for damages. Two of the three judges treated the matter as one of proof of damages or causation rather than as an element of the cause of action. The dissenting judgment of Mason CJ expressed the view that it was an element of the cause of action. As Jackson J observed, Foran supports the principle that “it is necessary in proof of damages for a cause of action for damages for breach that a plaintiff must be ready and willing to perform mutually dependent and concurrent conditions or obligations to the defendant’s breach of contract” (emphasis added).
[129] Jackson J noted a similar point is made in Macquarie:67
... for [the claimant] to be entitled to any more than nominal damages, it would be necessary that, but for the breach, some benefit to which they were entitled under the contract, and did not receive, would have been received. This is because otherwise they would have suffered no loss. This in turn means that, if they were entitled to such a benefit only if they for their part afforded substantial performance, they are not entitled to more than nominal damages unless they did provide, or would but for the breach have provided, substantial performance on their part.
... a plaintiff seeking to obtain damages for breach of contract referable to its not receiving a benefit under the contract must prove that it did or would but for the breach have done what was required of it to become entitled to that benefit. That is, in general terms, if the plaintiff has not afforded substantial performance of the contract, it must prove it was ready, willing and able to do so..”
[130] Relevantly, one of the issues for the Court on the leave application was whether the obligation to obtain the approvals operated as a conditional obligation, triggered only when the other party took certain steps, or an obligation which existed independently. If conditional, the question was whether a party that is not ready and willing to perform their contractual obligations was precluded from claiming damages from the other party.
[131] Jackson J held that the Foran principle operates in relation to mutually dependent and concurrent conditions, bypassing the question of whether it is limited to such conditions.68 He held that the obligations in the construction contract were interdependent. Where a reason for the breach of contract was the claimant’s failure to give the required assistance, consistent with the concurrent nature of the operation of the obligations, the claimant was not entitled to claim damages.
[132] In my judgment, neither McConnell Dowell, nor the line of authorities represented by Foran assists MNZ. The Foran principle is limited to mutually dependent and concurrent conditions, or potentially concurrent conditions. It does not concern a breach of a condition or obligation by the plaintiff which is a condition precedent to the relevant performance obligation of the defendant. In that instance, if the condition precedent has not been satisfied, a dependent subsequent performance obligation will not arise.
[133] It seems to me that where contractual obligations operate interdependently the relevance to recovery is twofold; either because proof of damages requires that the claimant is ready and willing to perform mutually dependent and concurrent conditions (otherwise there is no loss) or because it is not possible to disentangle the causes of breach or to attribute fault to one party or another.
[134] To the extent it is relevant, McConnell supports Ms O’Gorman’s submission that Miraka’s ability to perform is properly an aspect of mitigation of damages. Any inability to be ready, willing and capable of producing the Minimum Volume does not prevent Miraka from being able to sue but is properly taken into account in the damages assessment. This is because, while Miraka’s Minimum Volume obligations under the UHT Agreement are not independent, neither are they mutually dependent and concurrent in the same way that a contract for the sale of land or even sale of shares may generally be.69
[135] Neither of these conditions are met in the case at hand. The Arbitrator clearly found that the shortfall in the annual Minimum Volumes was solely caused by MNZ;
68 At [41].
69 See Doherty v Fannigan Holdings Ltd [2018] 2 BCLC 623 (EWCA).
no conduct or default by Miraka caused the shortfall. Moreover, I agree with the Arbitrator that MNZ’s obligation to provide annual and monthly notices created a promissory condition precedent to Miraka’s obligation to produce. In short, these were not obligations meeting the character of mutually dependent and concurrent conditions.
[136] It is also clear that the Arbitrator found, as a matter of fact, that the inability by Miraka to meet its Minimum Volume obligation was caused by MNZ’s conduct. This causation finding is critical. Another way of viewing the Arbitrator’s analysis of the notification regime was as a means of ascertaining which party was responsible for the volume shortfalls. I accept Ms O’Gorman’s submission that it makes no commercial sense for Miraka to be obligated to produce product which MNZ has not ordered; once it was on notice that MNZ would not order the Minimum Volumes for the season, the proper course must have been to mitigate its position. To the extent that it was not able to show an ability to produce to the level of Minimum Volume (although arguably it did establish substantial performance) the impact is only as to the level of damages. It is not a precondition to a cause of action.
Conclusion on Issues Two and Three
[137] I find no error in the result reached by the Arbitrator. Whether the route is by implied term or through construction of the nature of the respective obligations of the parties under the UHT Agreement, I conclude, as did the Arbitrator, that Miraka is entitled to damages in respect of MNZ’s under-ordering for Seasons Two and Three.
[138] In conclusion, I confirm the Award in respect of Issues Two and Three.
Issue Four – Is contractual interest payable on damages?
Does this constitute an appealable question of law?
[139] The final challenge by MNZ to the Arbitral Award is in respect of the Arbitrator’s determination that Miraka is entitled to contractual interest on common law damages. This raises an issue of interpretation which is a question of law.
[140] The respective positions of the parties may be shortly summarised. MNZ contends that the contractual interest clause in the UHT Agreement is not applicable to an award of common law damages. Interest on common law damages may only be awarded under s 12 of the Act, which provides that every arbitration agreement is deemed to empower an Arbitral Tribunal to award interest unless it expressly provides otherwise. The period from which interest is payable and the rate is within the Tribunal’s discretion, which must be exercised in accordance with established principles.70 If the arbitration agreement, or the contract under scrutiny, does not specify an interest rate, an award of interest is restricted to the Judicature Act 1908 rate, that being the relevant legislation before amendment by the Interest on Money Claims Act 2016.71
[141] MNZ further contends, that the rate of interest applicable should be no more than five per cent based on rates available under the Judicature Act 1908. Also, it contends that because no claim for actual damages was made until Miraka filed its points of claim and its entitlement to compensation could not be quantified until either the hearing or the date of the Award, interest commences running only from the date of the Award and not the date of breach.
[142] In response, Miraka supports the decision of the Arbitrator that cls 8.2 and 8.3 of the UHT Agreement operate. It submits it is irrelevant whether the underlying trigger for MNZ’s liability is classified as a “debt” or “damages”, and the fact that the amount invoiced by Miraka under cl 8 differed from the amount ultimately held by the Arbitrator to arise from the contractual breach does not extinguish the contractual right to interest.
How was this issue dealt with in the Award?
[143] Clause 8 of the UHT Agreement is titled “Payment and Invoicing”. Clause 8.1 sets out the letter of credit provisions. The effect of cl 8.1 is that Miraka was expressly not exposed to any credit risk in connection with supplying product to MNZ.
[144] Clause 8.2 reads:
8.2 Miscellaneous Invoices
Any amount which one party is liable to pay the other party under this Agreement and which does not arise from the sale and delivery of Product to the Purchaser shall be invoiced by the other party to the owing party on the last day of the month in which the liability arises, and shall be payable by the owing party within 10 Business Days of receipt, without set-off or deduction, in New Zealand dollars by electronic transfer to the account of the other party as it shall advise to the [sic] owing in writing from time to time.
8.3 Interest payable
The Purchaser must pay interest on any amount more than 30 days overdue for payment under this clause 8 (but subject to sub-clause 8.4) at an annual interest rate of REDACTED %. Upon payment of the outstanding amount in full, the Vendor shall invoice the Purchaser separately for the interest outstanding. Payment of that invoice is to be made in accordance with sub-clause 8.2.
[145] Clause 8.4 is headed “Dispute as to amount of invoice”. It relates solely to disputes regarding invoices rendered by the vendor (Miraka) for the supply of product.
[146] After setting out the respective clauses, the Arbitrator acknowledged that the invoices, issued by Miraka for failure to meet Minimum Volume obligations for Seasons Two and Three, were for sums larger than those eventually claimed in the arbitration. He described the sums invoiced as “take or pay” calculated sums rather than damages. However, he construed the “implied purpose” of cl 8.2 as simply being to give the other party notice that a claim is made, and an opportunity to pay it, before interest starts to run.
[147] The Arbitrator considered that the notification purpose of the clause had been broadly fulfilled by the issuing of invoices.72 Despite the differences between the amounts invoiced and their categorisation, and the damages ultimately awarded, he considered that cls 8.2 and 8.3 had been triggered. It followed that interest at the contractual rate was applied to the sums awarded, calculated by reference to the period of 10 business days after receipt of each invoice date for Season Two and Three.73
72 Partial Award at [121].
Did the Arbitrator make an error of law?
[148] Whether the award of contractual interest is an error of law depends on the interpretation of cls 8.2 and 8.3, within the context of the UHT Agreement as a whole. The first step is to unpick the elements of cl 8.2. Only if these elements are satisfied is there an entitlement to issue an invoice and only where an invoice is properly issued is the obligation to pay contractual interest triggered.
[149] The required elements of cl 8.2 are:
(a) Is there any amount which one party is “liable” to pay the other?
(b) Is the liability to pay “under this agreement”?
(c) Does the liability arise from the sale and delivery of Product to the purchaser?
(emphasis added)
[150] If the first two questions are answered affirmatively, and the third negatively, then cl 8.2 is applicable. A party is then entitled to raise an invoice on the last day of the month in which the liability arises, which is payable without set-off or deduction by the owing party within 10 business days of receipt.
[151] Where any amount invoiced under cl 8.2 is more than 30 days overdue for payment, cl 8.3 provides that the outstanding amount is subject to an annual interest rate. The remainder of cl 3 prescribes the mechanics for the invoicing of interest and the requirements for payment of that interest.
[152] MNZ’s primary point is that none of the elements in cl 8.2 existed. Ms Anderson focused on the unascertained and unliquidated nature of the ‘liability’ and contends that these clauses apply only to sums payable under the contract for ascertained amounts. In contrast, the liability amount in respect of damages was only
there is no amount due for payment under cl 8 on which contractual interest could be payable under cl 8.3 and no other claim for interest was pleaded by Miraka.
fixed once the Arbitrator determined the key factual inputs of the agreed model for the damages calculation.
[153] This submission is predicated on the traditional distinction between debts and unliquidated amounts. Ms Anderson says that it follows that the invoices invoiced by Miraka were for sums without any basis in the contract. She adds that the nature of the clause itself also lends weight to the notion that the UHT Agreement was intended to be a code which prescribed all remedies for non-performance.
[154] The purported errors of law which MNZ identifies are that the Arbitrator:
(a) misconstrued the UHT Agreement; or
(b) incorrectly implied a term to find that cls 8.2 and 8.3 applied to common law damages; or
(c) erred in his application of the correct interpretation of cls 8.2 and 8.3.
[155] I accept that the invoiced amounts were calculated on a basis other than as common law damages. In my view, this is not necessarily fatal. Mischaracterisation of the conceptual basis for an amount owing does not answer the question as to whether there is “any amount which one party is liable to pay the other party”. The introductory words of cl 8.2 – “any amount” are indicative of an intent to spread the net widely rather than being limited to a debt, or a liquidated sum. I reach this view notwithstanding the cogency of Ms Anderson’s submission that a clause like this was never intended to relate to damages, which are unliquidated and eventually ascertained on a completely different basis than the basis for the issue of the invoice.
[156] I do not accept that the Arbitrator’s finding depended on importation of a term. He relied on “implied purpose” to construe meaning rather than implication of a term. MNZ’s reliance on a purported error of law derived from an implication of term falls at the first hurdle.
[157] I prefer the submission by Ms O’Gorman that a liability to pay an amount accrued when MNZ breached the agreement under cl 3.2 to purchase and take delivery
of at least the Minimum Volume in each of Production Seasons Two and Three. Given the breadth of the words “any amount which one party is liable to pay”, the characterisation or conceptual nature of that liability – whether debt or damages – may not be material. However, in my view, this does not provide the answer to the question of entitlement to contractual interest either. The real question of construction as I see it is whether the liability to pay an amount accrued “under this Agreement”.74
[158] Is a claim to common law damages a liability “under this Agreement”? It is certainly a liability deriving from the terms of the Agreement in that the primary obligations are defined by the terms of the Agreement; it is a liability which “results from” or “in connection with” or even “arises out” of the Agreement. However, is the scope of cl 8.2 narrower than these concepts?
[159] One context in which this sort of inquiry arises is in the interpretation of dispute clauses. By way of illustration, in Fiona Trust & Holding Corporation and Ors v Privalov and Ors the Court had to decide whether an arbitration clause was apt to determine a dispute about whether the charter party was lawfully rescinded for fraud.75 This fell in part to be determined by whether the words “any dispute arising under this charter” were wide enough to encompass a question as to whether an owner ever made the contract because they had not truly consented to the terms. If so, the clause gave the Arbitrator jurisdiction over the disputes.
[160] Morison J held that the dispute clause should be read so that the word “under” was equivalent to “arising out of”.76 He was primarily influenced by the notice provisions of the charter party agreement which required a party exercising its option to go to arbitration to serve a written notice of dispute stating that “a dispute has arisen out of this charter”, using this phrase interchangeably with the dispute clause’s use of the word “under”. It is likely that he was also influenced to adopt a ‘generous’ interpretation of dispute resolution clauses to apply a presumption in favour of one- stop adjudication.
76 At [21].
[161] Another context is illustrated by M Van der Wal Builders & Contractors Ltd v Walker & Anor.77 This was an application for summary judgment to enforce payment of an award of damages made by an adjudicator under the Construction Contracts Act 2002 (CCA). The question that arose was whether or not a liability to pay damages for breach of contract is a liability to “make a payment under” that contract. The question arises because the Act differentiates between determinations as to “a liability to make a payment under the relevant construction contract” and determinations as to “parties’ rights and obligations under the relevant construction contract”. Only the former is enforceable as a debt.
[162] The Court expressed the view that a liability to pay damages for a contract breach is not the same as a liability to “make a payment under” the contract. A claim for damages falls within the scope of a “rights and obligations determination” and is not a claim for payment under a construction contract.78:
The differentiation between liability to pay a debt and liability for damages is a well-established one. I agree with Mr Price’s submission that for a damages for breach of contract determination to come within s48(1)(a) one would either need to treat an award of damages as being an obligation to pay money under the contract (which could not be the case) or to treat “under the contract” as meaning “arising out of” which would be contrary to the distinction between matters “under” and “arising out of” an agreement.
[163] In a similar building contract dispute context, one party appealed the entry of summary judgment against him for a sum which the Building Disputes Tribunal determined he owed.79 The construction contract stipulated that the contractor was entitled to recover certain costs, expense and damages if the owner refused access to the property. The adjudicator determined the sum the owner was liable to pay under this provision, expressly holding that his determination was made under s 48(1)(a) of the CCA. An amount determined by an adjudication under s 48(1)(a) can be recovered as a due debt in any Court under the terms of the CCA.
[164] The owner resisted entry of summary judgment on the basis that the determination was really a finding as to damages which could only be made under
78 At [98].
79 Clark v Central Lakes Homes Limited [2016] NZHC 1694.
s 48(1)(b) and was not enforceable as a debt. Mander J disagreed. He held that under the terms of the contract meant, the owner became liable under the contract if the conditions which trigger the liability are met. The liability arises independently of any common law right of action for breach of contract. He distinguished between damages under the contract and damages for breach of the contract, relying on Keating on Construction Contracts.80 At [33], he said:
The liability of the owner for the specified items of restitution or indemnification, whether described as payments owing, damages, or expenses, arise under the contract and is an entitlement provided for by the contract itself. While analogous to damages at common law for breach of contract, the liability for payment is not dependent on proof of breach but the establishment of the stipulated conditions precedent.”
[165] The Court distinguished Van der Wal Builders v Walker on the basis that the Court was there concerned with a prospective liability to pay damages at common law for a contractual breach which clearly could not be categorised as a claim for payment under the construction contract.
[166] While these cases are in very different contexts, they illustrate the difference between liability for payments under a contract and liabilities arising out of or in connection with a contract. In my judgment, the plain, ordinary meaning of a liability for payment under a contract or “an amount which one party is liable to pay the other party under this Agreement” is a payment obligation stipulated by a contractual term. The obligation or liability arises when the stipulated conditions arise, or some stipulated event triggers the obligation. The obligation does not depend on proof of a breach of contract but may coincidentally also represent a breach of contract.
[167] In the case of the UHT agreement, amounts which one party could become liable to pay the other under “this Agreement”, in respect of which there is an entitlement to render an invoice under cl 8 include:
(a) Amounts equal to REDACTED % of the Prevailing Price of the shortfall of Product produced, payable by the Vendor under cl 3.4 if it does not supply the Minimum Volume in any given Production Season;
(c) Amounts equal to REDACTED % of the Prevailing Price of the shortfall of Product purchased compared to the Minimum Volume to be purchased in each of October and November (reduced in certain
circumstances), payable by the Purchaser under cl 3.6(b);
(d) Amounts equal to REDACTED % of the prevailing price of the Product
not delivered against the binding order for any period, payable by the Vendor if it fails to provide Samples by the stipulated due dates causing shipping delays, under cl 3.7.
[168] The question is then whether there is anything in the factual matrix or context of the UHT agreement which suggests that the plain, ordinary meaning was not intended by the parties. I am not persuaded. While the UHT Agreement, objectively construed, intended that Miraka not take any credit risk, the fact that the miscellaneous invoice provisions applied to any amounts either party is liable to pay under the Agreement dilutes the force of Ms O’Gorman’s argument.
[169] I am satisfied that the Arbitrator’s determination that contractual interest is payable on an award of common law damages is an error of law.
[170] I set aside the award of interest to Miraka. For the avoidance of doubt, this does not affect the Arbitrator’s conclusion that Miraka is entitled to damages and interest.
[171] Although I have power to vary the Award, I consider it more appropriate to remit to the Arbitrator both the question of the reasonable rate of interest payable on the award of damages to Miraka, and the determination of the appropriate period for the calculation of interest. Whether or not interest ought to be payable from the date of breach to reflect the use of money advantage enjoyed by MNZ is a fact-based matter which the Arbitrator is best placed to determine.
Summary of conclusions
[172] In summary, for the reasons set out:
(a) I confirm the Award in respect of Issue One;
(b) I confirm the Award in respect of Issues Two and Three;
(c) I set aside the Award in respect of Issue Four and remit to the Arbitrator both the questions of the reasonable rate of interest payable on the award of damages to Miraka and the determination of the appropriate period for the calculation of interest.
Costs
[173] I will hear the parties on costs if they cannot resolve the question. Any memorandum on costs is to be made within 21 days of the date of this Judgment. Any memorandum in response is to be filed and served within a further 10 days thereafter. The memoranda are not to exceed 5 pages in length.
......................................................
NZLII:
Copyright Policy
|
Disclaimers
|
Privacy Policy
|
Feedback
URL: http://www.nzlii.org/nz/cases/NZHC/2019/2713.html