Forest Holdings Ltd v Mangatu Blocks Incorporation
-by Sarah Redding
The High Court recently considered an appeal against an arbitral award including the ability to adduce further evidence on appeal. In his decision to dismiss the application for leave to appeal, Heath J confirmed the Court’s reluctance to interfere in the arbitration process where parties have contractually agreed to arbitrate.
Background Mangatu Blocks Incorporation (Mangatu) owns indigenous forestry land in the Gisborne area. In 2003, Mangatu and Forest Holdings Limited (Forest Holdings) entered into a contract under which Mangatu granted Forest Holdings a registered Forestry Right to manage, protect, harvest and carry away and otherwise utilise trees, timber and logs growing or to be grown on the forest land[1]. The Forestry Right was granted for a maximum duration of 50 years, provided Forest Holdings continued to comply with the agreed terms of contract. Forest Holdings began operating in accordance with the Forestry Right and continued operations for approximately 10 years. In July 2013, Mangatu sent a letter to Forest Holdings purporting to cancel the Forestry Right “with immediate effect” alleging breaches of contract. Forest Holdings initially opposed the termination questioning its validity, however in August 2013 Forest Holdings accepted the repudiation and elected to cancel the Forestry Right.[2]. Forest Holdings sought relief for cancellation of the Forestry Right, claiming damages in the sum of what they purported the market value of the Forestry Right was at the date of repudiation – some $10.75 million dollars. Mangatu denied its termination was unlawful or in the alternative, that Forest Holdings was only entitled to nominal damages. The parties entered arbitration to resolve the dispute. The arbitrator concluded that Mangatu had wrongfully terminated the Forestry Right. The arbitrator considered Mangatu’s cancellation was premature and that Forest Holdings should instead have been granted 120 days to remedy the alleged breaches before termination could become effective. However, the arbitrator confirmed that Mangatu’s lack of notice did not affect Forest Holding’s ability to claim minimal damages only. In reaching this conclusion, the arbitrator determined Forest Holdings would not have been able to remedy the breaches within 120 days. The arbitrator’s approach to assessing Forest Holding’s damages claim for capital loss centered on two issues: first, that it would be necessary to determine what was a real possibility to happen at the date of repudiation, and second, quantum. Forest Holdings appealed against the arbitrator’s damages decision, and was successful in the High Court. The High Court allowed the appeal against the arbitrator’s damages award, holding that the arbitrator was wrong to say that Forest Holdings was unlikely to recover other than nominal damages on its claim for capital loss[3]. Heath J remitted all questions of damages back to the arbitrator.