Ex UCL Limited v Solarix Networks Limited [2016] NZHC 1303 (16 June 2016)

Last Updated: 12 October 2016

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

CIV-2015-404-2864 [2016] NZHC 1303

UNDER	The Arbitration Act 1996
IN THE MATTER	of an appeal against a further award of Mr W M Wilson QC
BETWEEN	EX UCL LIMITED Plaintiff
AND	SOLARIX NETWORKS LIMITED Defendant

Hearing:	4 May 2016
Appearances:	S D Munro and JWC Nicolle for the Plaintiff JEM Lethbridge for the Defendant
Judgment:	16 June 2016
Reissued:	20 July 2016

_{(INTERIM) JUDGMENT OF MUIR J}

This judgment was delivered by me on Thursday 16 June 2016 at 11.30 am.

Pursuant to Rule 11.5 of the High court Rules.

This judgment was recalled and reissued on Wednesday 20 July 2016 at 3.00 pm

Pursuant to Rule 11.5 of the High Court Rules.

Registrar/Deputy Registrar

Date:..............................

Counsel/Solicitors:

Anderson Lloyd Lawyers, Christchurch (S D Munro and JWC Nicolle)

Grove Darlow & Partners, Solicitors, Auckland (JEM Lethbridge)

EX UCL LIMITED v SOLARIX NETWORKS LIMITED [2016] NZHC 1303 [16 June 2016]

An appeal from an arbitral award

[1] This is an appeal from a further award relating to a dispute which turns exclusively on an issue of contractual interpretation. The first appeal (against an earlier decision), was remitted back to the arbitrator by Whata J pursuant to cl 5.5(4)(b) of the Second Schedule of the Arbitration Act 1996 (the Act).¹

[2] The plaintiff, formerly Unleash Computers Ltd (Unleash), asserts that the arbitrator has again erred in law in the contractual interpretation exercise he was required to undertake in light of Whata J’s judgment.

[3] The issues raised by the proceedings are, in my view, best dealt with in a two stage approach:²

(i) First, whether there is jurisdiction to consider the appeal. This issue turns on whether there is an issue of law as distinct from an issue of fact raised by Unleash.

(ii) Second, if there is jurisdiction, whether the arbitrator misstated or misapplied the principles of contractual interpretation in his further award.

Background

[4] On 20 March 2014 Unleash entered into an agreement for sale and purchase with the defendant (Solarix) whereby Unleash agreed to sell and Solarix to purchase Unleash’s “Business Assets”.

[5] Among the assets to be acquired were the accounts receivable of Unleash (referred to as its Trade Debts). In accordance with industry practice, Unleash billed for its services monthly in advance.

_{[6] Trade Debts were defined in cl 1.1(ccc) of the agreement as:}

¹ _{Ex UCL Limited v Solarix Networks Limited [2015] NZHC 1474.}

² Albeit I recognise the two issues ultimately merge.

... all amounts owing to the vendor by current Customers of the Vendor in connection with the Business as at the Effective Time (whether or not due and payable at that time) but excluding [non-active customers] and “Trade Debt” means any of those amounts.

[7] The agreed date for settlement was 31 March 2014 (defined throughout the

agreement as “the Completion Date” or “the Effective Time”).

[8] Clause 3.2 of the agreement required that, in addition to the purchase price and within 31 days of the Completion Date, Solarix would pay Unleash an amount for the Trade Debts calculated according to a formula in cl 3.2(a). That amount was known as the Trade Debts Payment Sum (TDPS).

[9] On 1 April 2014 Unleash informed Solarix that it had calculated the TDPS at

$234,144.24. That calculation was based on an interpretation of Trade Debts which included all amounts owing from current customers irrespective of whether the services had been provided at completion date (and were therefore services which Solarix was itself obliged to perform).

[10] On 2 May 2014 Solarix replied that it considered the TDPS was only

$57,047.85 on the basis that Trade Debts only included amounts owing from current customers where services had been provided at the Completion Date.

[11] Solarix paid $57,047.85 to Unleash and the parties agreed to remit their dispute concerning the remaining $177, 096.39, to arbitration.

[12] That dispute was summarised by the arbitrator in his interim award as follows:³

The issue for my determination is whether Solarix is required to pay for the accounts of Unleash for services which were invoiced but not performed at the completion date of the purchase (31 March 2014) and which Solarix itself was therefore required to provide.

³ Solarix Networks Ltd v Unleash (Interim Award) 22 October 2014 at [1].

[13] The arbitrator focused on the meaning of the word “owing” in cl 1.1(ccc). He held that:⁴

(i) Looked at “in isolation”, the definition of Trade Debts did not cover the accounts receivable of Unleash for services which were billed but not performed as at 31 March 2014 on the primary basis that he found it difficult to see “how payment for them could be said to be “owing” unless and until they were performed”.⁵

(ii) Taking into account the terms of the agreement for sale and purchase as a whole, the background to it, the post-contract conduct of the parties and the expert evidence (which in their totality he found to be “equivocal”) he was not justified in departing from his preferred interpretation of Trade Debts which he considered accorded with “commercial sense”.

(iii) Although acknowledging that the parties could have agreed the payments for invoiced but unperformed services were to go to Unleash thereby effectively inflating the purchase price, it was “more likely that they intended the payment for services provided by Solarix would go to that company rather than Unleash”.

[14] In the result, the interim award and second interim award confirmed Solarix’s

liability to Unleash in the amount of $57,047.85 only.

[15] Unleash appealed to the High Court for the first time, alleging three errors of law. Two (both of which were dismissed) are irrelevant for present purposes. The third alleged a failure to apply a correct approach to interpretation by erring in interpreting:

(i) the plain ordinary meaning of the word “owing” in cl 1.1(ccc) of the agreement;

(ii) the meaning of the word “owing” in the wider context of the

agreement as a whole; and

(iii) the meaning of the word “owing” in the wider context of the pre and

post contractual events.

[16] As to (i), Whata J found that it engaged a question of mixed fact and law that was not amenable to correction on appeal to the High Court.⁶ In respect of (iii), he found that the relevant findings of contextual fact were not obviously wrong and that, in any event, assessment of the significance of the factual matrix was an assessment of fact which was not amenable to appeal. Obiter at [75] and [76] nevertheless suggests some sympathy with Unleash’s perspective on the factual

context.

[17] As to (ii) – the meaning of the word “owing” in the wider context of the agreement as a whole – the Court focused on cls 13.1 and 13.2 which I set out below for convenience:

13.1 Trade Debts: Subject to Completion, the parties acknowledge and agree that from the Completion Date the Trade Debts will be the property of the Purchaser. For the avoidance of doubt, Trade Debts exclude amounts owing to the Vendor by persons that do not have an active service with the Vendor at Completion and the Vendor will continue to own all such debts and, accordingly, such debts will remain payable to the Vendor. The Purchaser acknowledges that it is not paying for nor taking ownership of any debtors of the Vendor that are not current customers.

13.2 Vendor to account to Purchaser: Where a payment in respect of Trade Debts is received by the Vendor after the Completion Date, the Vendor holds the amount received on trust for the Purchaser and the Vendor must, no later than five Business Days after receipt of the amount, account to and pay the Purchaser for any amounts in respect of Trade Debts received by the Vendor after the Completion Date.

[18] His Honour held that, plainly in his view, clauses 13.1 and 13.2 contemplated the transfer of all active accounts receivable to Solarix after completion date,⁷ and

that, for the purposes of cl 13, amounts for services not yet rendered were not excluded from the definition of Trade Debts.⁸ He also held that:

All things being equal, the interpretation of Trade Debts should cogently apply to [clauses 3.2 and 13].

[19] To that extent Whata J upheld the appeal. However, in terms of remedy he held:

[90] But the effect of my interpretation of clause 13 should be remitted back to the arbitrator to consider against the full matrix of fact. The arbitrator concluded that the full background was equivocal when it comes to the determination. Unleash has identified a problem with that determination in light of clause 13. But that is not a sufficient basis per se for concluding that the arbitrator was wrong. As the arbitrator does not refer to clause 13, I cannot be sure that he has weighed its intended effect in the mix, but I am not prepared to assume that he did not. I consider that the preferable approach in those circumstances is to refer the matter back to the arbitrator for him to reconsider the definition of Trade Debts in light of my construction of clause 13.

[20] At footnote 30 his Honour identified that the parties “understandably wanted some finality to this dispute” but he said that “given the composite nature of the inquiry into the meaning of the contractual terms, the arbitrator [was] best placed, in accordance with the arbitration agreement, to resolve the definitional dispute”.

[21] On 21 August 2015 the arbitrator delivered a further award in which he confirmed the interpretation in the interim and second awards. In so doing he did not re-address any of the background to the contract, the post-contractual conduct or the expert evidence.⁹ His relevant findings were at paras [16] – [19] in terms:

16. As to the wording, the definition of “Trade Debts” in clause 1.1(ccc) is imported into both clause 13.1 and clause 13.2 by the use of that phrase. Accordingly, there is plainly no inconsistency of wording.

17. Nor, in my view, is there any inconsistency of effect. In the case of services provided and invoiced by Unleash, Unleash would in the absence of a contractual provision to the contrary have been entitled to retain payments received in response to invoices for those services. Because however Solarix was required, pursuant to clause

3.2(a) of the ASP, to pay for the “Trade Debts” in addition to the

purchase price otherwise payable, the provisions of clause 13 were required to ensure that Unleash did not obtain a double payment.

⁸ _{At [89].}

⁹ Solarix Networks Limited v Ex UCL Limited (Further Award) 21 August 2015.

18. That reasoning does not apply, however, to services which were invoiced by Unleash but provided by Solarix after the completion date. In a situation where the payments for those services formed part of the assets of the business which Solarix had acquired from Unleash, it was not reasonably foreseeable by Solarix that Unleash would claim that it was entitled to retain payment for the services which Solarix had provided. It is therefore understandable that Solarix did not require the protection of Clause 1.3 in that respect.

19. Accordingly, in my view, both the wording and the effect of clause

13 are consistent with my interpretation of clause 1.1(ccc). That interpretation is also, with respect, consistent with Justice Whata’s conclusion that the meaning and effect of clause 13 was to transfer Unleash’s active accounts receivable to Solarix from the Completion Date. But, unsurprisingly, that transfer was to be effected in a way that ensured that Unleash did not receive a double payment for the services it provided and also that Unleash did not receive payment for services provided by Solarix.

[22] From this further award Unleash brings a second appeal. It says that the arbitrator erred in law by failing to apply the correct interpretation of Trade Debts in cl 13 of the agreement (as determined by the High Court) to the meaning of Trade Debts in cl 1.1(ccc) and cl 3.2 of the agreement. It says in particular:

(i) The interpretation of Trade Debts should cogently apply across all relevant clauses in the contract.

(ii) The High Court’s interpretation of Trade Debts in cl 13 of the agreement is evidence of the meaning the parties objectively intended those words to bear and is a ruling of law by which the arbitrator was bound.

(iii) The arbitrator’s interpretation of Trade Debts in cl 1.1(ccc) of the agreement was inconsistent with the High Court’s interpretation of Trade Debts for the purposes of cl 13.

The first issue: is there an issue of law on appeal?

[23] The first issue is one of jurisdiction: can this court entertain the plaintiff’s appeal? The answer is it can, provided there is a potential error of law identified by the plaintiff, as distinct from an error of fact. I first address the preliminary objections made by the defendant.

[24] The defendant raises issues of res judicata and estoppel based on the decision of Whata J. Ms Lethbridge emphasises Whata J’s apparent assumption that finality would be achieved on reference back to the arbitrator whom he recognised as undertaking a “composite inquiry” – that is an interpretation exercise informed by the relevant factual matrix as found by the arbitrator. She emphasises what she says are strong policy grounds for constraining the nature of appeals from arbitral awards.

[25] Despite Whata J’s belief that the arbitrator was best placed to resolve the definitional dispute, I do not consider his observations in this regard preclude a second right of appeal if an error of law is established in the context of the further award. The parties have agreed that, in respect of such errors, a right of appeal arises to the High Court. Despite the lengthy history of this matter, to deny an appeal in the interests of finality would in my view be to elevate such policy considerations (laudable although they are) over the greater policy consideration that the parties should be permitted to pursue the rights that they have contractually agreed to.

[26] So in my view the relevant inquiry reverts to whether an issue of law is engaged on the appeal and if so whether the alleged error of law is made out. In argument Ms Lethbridge ultimately accepted as much.

Is a question of law engaged?

[27] The parties’ agreement to arbitrate is governed by the Second Schedule to the Act. All the additional optional rules in the Second Schedule apply with the exception of Articles 1, 2 and 3(1)(a). The parties further agreed, for the purposes of clause 5.1(a) of the Second Schedule, that an appeal may arise to the High Court on any question of law arising out of an award.

[28] Clause 5(10) of the Second Schedule provides that:

(10) For the purposes of this clause, question of law –

(a) includes an error of law that involves an incorrect interpretation of the applicable law (whether or not the error appears on the record of the decision); but

(b) does not include any question as to whether –

(i) the award or any part of the award was supported by any evidence or any sufficient or substantial evidence;

(ii) the arbitral tribunal drew the correct factual inferences from the relevant primary facts.

[29] The issue therefore is broadly whether the arbitrator’s interpretation of the contract gave rise to an error of law, sufficient to engage the jurisdiction of this Court.

[30] I take guidance from the recent Court of Appeal decision in Air New Zealand Limited v New Zealand Airline Pilots Association IUOW Inc.¹⁰ In that case the appeal was from a judgment of the Employment Court and was governed by the Employment Relations Act 2000 which provides for appeals on questions of law only under s 214. The Court of Appeal defined the jurisdictional issue in terms:

[23] We see the position thus: if the Employment Court correctly states and applies orthodox principles of contractual interpretation, this Court cannot intervene. But if the Employment Court misstates the principles, or misapplies them, this Court will intervene to ensure the law is correctly applied.

[31] This clearly identifies how the Court approaches an error of law relating to contractual interpretation. In summary, in order for this Court to have jurisdiction on the appeal the appellant must establish that the arbitrator either made an error of law:

(i) in the way in which he articulated the law of contractual interpretation; or

(ii) in the way in which he then interpreted the contract i.e. an error of application.

¹⁰ Air New Zealand Limited v New Zealand Airline Pilots Association IUOW Inc [2016] NZCA

131.

Contractual interpretation principles

[32] In New Zealand the law of contractual interpretation is governed by the majority judgments in Vector Gas Ltd v Bay of Plenty Energy Ltd¹¹ which, on a combined reading, reflect an objective approach to the words of the contract interpreted in light of the context. The judgment of Tipping J in particular has often been cited.¹²

[33] At [19] he stated the overarching objective as being to:

.. establish the meaning the parties intended their words to bear.

[34] And, in order to assess the intended meaning:

The necessary inquiry therefore concerns what a reasonable and properly informed third party would consider the parties intended the words of their contract to mean. The court embodies that person. To be properly informed the court must be aware of the commercial or other context in which the contract was made and of all the facts and circumstances known to and likely to be operating on the parties’ minds.

[35] At [23] his Honour added:

Context is always a necessary ingredient in ascertaining meaning. You cannot claim to have identified the intended meaning without reference to context.

[36] In the subsequent decision of Firm PI 1 Ltd v Zurich Australian Insurance

Ltd the Supreme Court further held:¹³

[63] While context is a necessary element of the interpretative process and the focus is on interpreting the document rather than particular words, the text remains centrally important. If the language at issue, construed in the context of the contract as a whole, has an ordinary and natural meaning, that will be a powerful, albeit not conclusive, indicator of what the parties meant. But the wider context may point to some interpretation other than the most obvious one and may also assist in determining the meaning intended in cases of ambiguity or uncertainty.

¹¹ Vector Gas Ltd v Bay of Plenty Energy Ltd [2010] NZSC 5, [2010] 2 NZLR 444 at [4] per

_{Blanchard J, at [23] per Tipping J, at [64] per McGrath J and at [151] per Gault J.}

¹² See for example, i-Health Ltd v iSoft NZ Ltd [2011] NZCA 575; [2012] 1 NZLR 379 (CA) per Randerson J at [23] and Trustees Executors Ltd v QBE Insurance (International) Ltd [2010] NZCA 608; (2010) 16 ANZ Insurance Cases 61-874 per Glazebrook J.

¹³ Firm PI 1 Ltd v Zurich Australian Insurance Ltd [2014] NZSC 147, [2015] 1 NZLR 432.

[37] In Air New Zealand Limited v New Zealand Airline Pilots Association IUOW Inc¹⁴ the following passage from the judgment of Lord Neuberger in the United Kingdom Supreme Court’s decision of Arnold v Britton was cited with approval:¹⁵

[15] When interpreting a written contract, the court is concerned to identify the intention of the parties by reference to “what a reasonable person having all the background knowledge which would have been available to the parties would have understood them to be using the language in the contract to mean”, to quote Lord Hoffmann in Chartbrook Ltd v Persimmon Homes Ltd [2009] UKHL 38; [2009] AC 1101, para 14. And it does so by focussing on the meaning of the relevant words ... in their documentary, factual and commercial context. That meaning has to be assessed in the light of (i) the natural and ordinary meaning of the clause, (ii) any other relevant provisions of the lease, (iii) the overall purpose of the clause and the lease, (iv) the facts and circumstances known or assumed by the parties at the time that the document was executed, and (v) commercial common sense, but (vi) disregarding subjective evidence of any party’s intentions...

A potential error in articulating the principles of contractual interpretation?

[38] In this case the principles of contractual interpretation the arbitrator applies are relevantly set out in his interim award of 22 October 2014.¹⁶ The two subsequent awards are both informed by that analysis.

[39] In that respect the arbitrator stated that the exercise must be looked at “in the context of the contract as a whole and, as required by the judgments of the majority of the Supreme Court in Vector Gas Ltd”.¹⁷ He also noted that the background of the contract must be considered and that post-contract conduct may be relevant citing Gibbons Holdings Limited v Wholesale Distributors Limited.¹⁸ This was an orthodox statement of principle. As such, no error of law arises in this respect. Nor

_{indeed has it been alleged.}

¹⁴ Air New Zealand Limited v New Zealand Airline Pilots Association IUOW Inc, above n 10 at

_[35].

¹⁵ Arnold v Britton [2015] UKSC 36, [2015] AC 1619 (with which Lord Sumption and Lord

_{Hughes concurred).}

¹⁶ _{Solarix Networks Ltd v Unleash (Interim Award), above n 3.}

¹⁷ _{Vector Gas Ltd v Bay of Plenty Energy Ltd, above n 11.}

¹⁸ Gibbons Holdings Limited v Wholesale Distributors Limited [2007] NZSC 37; [2008] 1 NZLR 277 (CA).

A potential error in applying the principles of contractual interpretation?

[40] I take as a starting point in this respect the observations of McKenzie J in

Busby v Sargent,¹⁹ as approved by Whata J in the present case.²⁰

[10] A court or arbitral tribunal which is faced with the task of interpreting a contract in its factual matrix must necessarily make findings of fact as to the factual matrix. Such findings are findings of fact, not of law. The interpretation of the contract in the light of that factual matrix is a question of law. Since an appeal under cl 5 of the Second Schedule to the Arbitration Act is limited to an appeal on a question of law, an appeal may relate to the way in which the arbitrator has applied his factual findings in interpreting the contract but an appeal will not lie against the factual findings themselves.

[41] As this extract indicates, the proper interpretation of a contract is, in the final analysis, a question of law. It may be informed by factual findings which, in an arbitral context, will themselves be unappealable, but that does not derogate from the character of the underlying issue. Whata J remitted the matter to be considered “against the full matrix of fact”²¹ – an exercise which he identified as involving a

“composite inquiry”²² but one which in my view produces an ultimate result (being

the final interpretation arrived at) which is amenable to appeal. It seems to me that this is especially so in a case such as this where the arbitrator had already found that the background to the contract, the post-contract conduct of the parties and the expert evidence were, in their totality, “equivocal” and where therefore the context in which he was invited to reconsider his interpretation was primarily limited to the terms of the ASP as a whole²³ (or as Lord Neuberger referred to it in Arnold v Britton; the “documentary context”).

[42] In that respect the judgment of Whata J had already identified that the arbitrator’s definition of Trade Debts was not the definition intended for the purposes of cl 13 and that “all things being equal” the interpretation given to the phrase should

_{“cogently apply” to cls 13 and 3.2.}²⁴

¹⁹ _{Busby v Sargent HC Wellington CIV-2009-435-215, 4 March 2010 at [10].}

²⁰ _{Ex UCL Limited v Solarix Networks Limited, above n 1.}

²¹ _{Above n 1 at [19].}

²² _{Above n 1 at Whata J’s fn 30.}

²³ While recognising that the arbitrator could also consider the overall purpose of clause 3.2 and the ASP and “commercial commonsense” in the six step process envisaged by Lord Neuberger in Arnold v Britton, above n 15 at [15].

²⁴ Above n 1 at [83].

[43] As Whata J said:

[83] I do not agree that I should defer in this way to the arbitrator on the interpretation of other provisions of the ASP (as distinct from the wider factual matrix). Unlike the Key Terms agreement, the plain meaning of the ASP clauses is an assessment of law not fact. “Trade Debts” is a defined term. Its meaning is central to the contractual effect of clause 3.2 and clause

13. ...

[44] Likewise, in my view, the question of whether the arbitrator’s interpretation of Trade Debts (based on his plain meaning of the word “owing”) was sustainable in light of the documentary context (as interpreted by the High Court) is an assessment of law not fact and is thus potentially amenable to appeal. I am therefore satisfied that, in terms of the jurisdictional threshold, the plaintiff has identified a potentially appealable error of law. This approach also accords with the Court of Appeal’s recent decision in Air New Zealand, as cited above at [30].

Issue two: has there been an error in application of the law?

[45] I start in this respect by setting out the key findings of Whata J in respect of cl 13. He said:

[85] Plainly, in my view, clauses 13.1 and 13.2 contemplate the transfer of all active accounts receivable to Solarix after the Completion Date, being

31 March 2014.

[86] By contrast, the arbitrator’s definition of “Trade Debts” literally

means that:

(a) The invoiced amounts to current customers for services which were billed but not performed as at 31 March 2014 are not “Trade Debts” and so do not transfer to Solarix pursuant to clause 13.1; and

(b) Payments in respect of the accounts receivable of current customers for services which were billed but not performed as at 31 March 2014 are not “Trade Debts” and so are not received on trust for Solarix, or payable to Solarix pursuant to clause 13.2.

[87] Furthermore, as a consequence of the arbitrator’s second interim award, the amounts owing for services rendered by Unleash prior to the Completion Date were apportioned to Unleash, not Solarix, contrary, it appears, to clause 13.1.

[88] With respect to the arbitrator, these outcomes are difficult to

reconcile with the overt objective of Clause 13 to transfer all of the Vendor’s

accounts receivable to Solarix from the Completion Date. Furthermore, Clause 13.1 reserved to Unleash “amounts owing” from persons who do not have an active service as at Completion Date. The reservation of such amounts is not concordant with the arbitrator’s premise that “amounts owing” related only to services rendered.

[89] What is the significance of this? I do not think that the parties intended, on the words used, to exclude amounts owing for services not yet rendered from the meaning of Trade Debts for the purpose of clause 13. This conclusion accords with clause 5 of the Key Terms Agreement and the evidence of the expert accountants for both parties in dealing with the sale of a going concern.

(Footnotes omitted)

[46] It is clear therefore that his Honour regarded the interpretation of Trade Debts which the arbitrator had adopted for the purposes of cl 3.2 as irreconcilable with the meaning of that phrase within the context of cl 13. That finding was not appealed.

[47] The arbitrator did not purport to say that different meanings could be applied to the respective clauses. Given that the phrase was a defined term in a formal contract, to have done so would have required something compelling in the wider documentary, factual or commercial context and such was not suggested. As Whata J said, all things being equal, the same meaning should cogently apply to both clauses.

[48] Clearly in light of Whata J’s judgment the arbitrator could not maintain his interpretation for the purposes of cl 13. To have done so would, in any event, have defeated the very commercial rationale which appears to have underpinned his plain meaning analysis. That is for the reason identified by Whata J in [86(a)] – applying the arbitrator’s meaning of Trade Debts to cl 13 would mean that the invoiced amounts for services which were billed but not performed as at 31 March 2014 never transferred to Solarix pursuant to cl 13.1. So, although Solarix would be required to undertake the pre-billed work, it would not have been entitled to the relevant account receivable – the very opposite of what the arbitrator intended should occur.

[49] In the absence of reasons justifying a different interpretation in the context of the two clauses, the arbitrator was therefore, in my view, obliged to reconsider his plain meaning and adopt an interpretation consistent with cl 13. In Vector Gas Tipping J referred to the concept of a “cross check” against the “contractual context”

by which I infer he was referring to the full “documentary, factual and commercial

context” later invoked by Lord Neuberger in Arnold v Britton.²⁵ Tipping J said:²⁶

[24] In some recent cases it has been suggested that the contractual context should be referred to as a cross check. In practical terms this is likely to be what happens in most cases. Anyone reading a contractual document will naturally form at least a provisional view of what its words mean simply by reading them. That view is, in a sense, then checked against the contractual context. This description of the process is valid, provided the initial view is provisional only and the reader is prepared to accept that the provisional meaning may be altered once context has been brought to account....

[50] By contrast, what the arbitrator does is focus on what cl 13 would mean under his own interpretation of Trade Debts.²⁷ I accept the plaintiff ’s submission that there was no point in attempting to rationalise how cl 13 could be read in a way consistent with the arbitrator’s meaning of Trade Debts since the assumed intention of the parties in respect of the operation of cl 13 would always be inconsistent.

[51] Further, that he embarks on such inquiry seems to me difficult to reconcile with his prior acknowledgement that he was bound by the determination of the High Court which had already determined that the parties did not intend to exclude amounts owing for services not yet rendered from the meaning of Trade Debts for the purposes of cl 13. I cannot in that context see how the arbitrator’s comment in para [19] that his interpretation is consistent with Whata J’s conclusion can be supported. The arbitrator’s definition is simply impossible to reconcile with the parties’ intended meaning of Trade Debts within the cl 13 context as determined by

Whata J.²⁸ The failure to alter his provisional view on the meaning of “Trade Debts”

_{based on the documentary context (which, as the High Court had determined, was}

²⁵ _{Arnold v Britton, above n 15 at [15].}

²⁶ _{Vector Gas Ltd v Bay of Plenty Energy Ltd above n 11 at [24].}

²⁷ _{The inherent difficulties with which I refer to in [48] above.}

²⁸ Whata J described how cl 13 would operate under the arbitrator’s definition of Trade Debts in

[86]. By contrast he held that on its proper interpretation cl 13 meant:

(a) The invoiced amounts to current customers for services which were billed but not performed as at 31 March 2014 were Trade Debts and did transfer to Solarix pursuant to cl 13.1; and

(b) Payments in respect of the accounts receivable of current customers for services which were billed but not performed as at 31 March 2014 were Trade Debts and so were received on trust for Solarix or payable to Solarix pursuant to cl 13.2.

The literal meanings of how cls 13.1 and 13.2 would operate under the differing interpretations of Trade Debts are simply inconsistent with each other.

what the parties had objectively intended the words to mean), was, in my view an error of law.

[52] I also consider the arbitrator to have placed undue emphasis on the concept of “commercial sense”. Reviewing paras [17] – [19] of his further award, he seems again to have been influenced by these considerations in the same way that they underpinned his interim award.²⁹ In particular, I interpret the reference in para [18] to it not being “reasonably foreseeable by Solarix that Unleash would claim that it was entitled to obtain payment for the services which Solarix had provided” as

importing such concepts into his interpretation of the term “Trade Debts” for the purposes of cl 3.2.

[53] I accept that any assessment of “commercial sense” is properly considered a finding of fact, or at least mixed fact and law, and that Ms Lethbridge is correct that such finding is not itself amenable to appeal.³⁰ But the proper interpretation of a contractual provision remains a question of law, as does the weight to be given to any such assessment of “commercial sense”.

[54] As Lord Neuberger said in Arnold v Britton³¹ in a further passage cited with approval by the Court of Appeal in Air New Zealand Limited v New Zealand Airline Pilots Association IUOW Inc:³²

... a court should be very slow to reject the natural meaning of a provision as correct simply because it appeared to be a very imprudent term for one of the parties to have agreed.

[55] The same principle must, I consider, apply to the assumed meaning of a provision at stage 2 of the analysis – that is within its full documentary context. In my view, any assessment of commercial reasonableness or likelihood in this case had to be made within the context of the High Court’s earlier finding as to the meaning

_{of Trade Debts in cl 13 and the appropriateness of a like interpretation across the}

²⁹ _{Solarix Networks Limited v Ex UCL Limited (Interim Award), above n 3 at [15].}

³⁰ _{Adopting the observations of What J at [70].}

31. Arnold v Britton above n 1, at [20]. Similar injunctions appear Firm Pl 1 Ltd v Zurich Australian Insurance Ltd, at [89] – [90] per Arnold J who cited with approval: Skanska Rashleigh Weatherfoil Ltd v Somerfield Stores Ltd [2006] EWCA Civ 1732 at [22]; and Chartbrook Ltd v Persimmon Homes Ltd [2009] 1 AC 110 (HL) at [15] per Lord Hoffman.

³² Air New Zealand Limited v New Zealand Airline Pilots Association IUOW Inc above n 14, at

[67].

whole contract. Against an “equivocal” factual background I consider there was a particular need for care in any resort to “commercial sense” as, ex hypothesi, the prospect that what might seem unusual arrangements in relation to payment for Trade Debts were otherwise captured in a reduced purchase price for the business, is no less likely than the alternative. If para [18] of the further award is to be considered a re-invocation of the principles of commercial reasonableness and common sense then, in my respectful view, the arbitrator has placed excessive weight on that feature in the context of the analysis required. Again I consider this qualifies as an error of law.

[56] I also have difficulty with the suggestion that, because it was not in the reasonable contemplation of Solarix that Unleash would make such a claim for billed but not performed accounts, it was “understandable that Solarix did not require the protection of cl 13 in that respect”. But Whata J had previously held cls 13.1 and

13.2 contemplated the transfer of “all active accounts receivable to Solarix after the

Completion Date” so such protection must, in fact, be assumed.³³

[57] I therefore find that the further award contains an appealable error of law both with regards to the failure to cross check the initial plain meaning of the term against the documentary context (in this case clause 13) and insofar as excessive weight was given to the concept of “commercial common sense”. On its proper construction cl 3.2 in my view required Solarix to pay for services which were invoiced but not performed as at the Completion Date and the appeal is therefore allowed.

Result

[58] I set aside the further award dated 21 August 2015.

[59] I give judgment to the plaintiff in the amount of $177,096.39.

[60] I award costs on a 2B basis in the amount of $12,265 together with disbursements of $2,711.93 in favour of the plaintiff.³⁴

³³ _{Ex UCL Ltd v Solarix Networks Ltd, above n 1 at [85].}

³⁴ I record that this excludes the costs of sealing the judgment if required.

Costs before the arbitrator and interest on judgment

[61] In his final award dated 2 February 2015 the arbitrator fixed costs of $17,250 as payable by Unleash to Solarix, that being the quantum of Solarix’s contribution to the arbitrator’s fees.

[62] Although the plaintiff’s appeal was against the further award dated 21 August

2015, the relief sought included an order that the previous costs award be set aside.

[63] By agreement this issue has been reserved for further submission in the event no prior resolution is possible.

[64] Likewise by agreement the parties seek to make further submissions in relation to how interest is appropriately calculated on my judgment.

[65] For these reasons it is appropriate that the present judgment be issued on an interim basis. The further submissions of the parties are to be filed and served on the following timetable:

(a) The plaintiff by Tuesday 26 July 2016. (b) The defendant by Friday 8 August 2016.

(c) The plaintiff in reply by Wednesday 10 August 2016.

[66] At that point I will issue a final judgment on the papers as invited to do by the parties.

Muir J