ReSolution Issue 15, November 2017 | Page 26

www.nzdrc.co.nz

25 ReSolution | Nov 2017

-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.

Mangatu then sought leave to appeal to the Court of Appeal against that judgment, on grounds including that the judgment failed to identify any error of law in the damages award, and wrongfully concluded that the arbitrator had pre-determined damages. Mangatu also sought permission to adduce further evidence relating to the arbitrator’s actions following the previous damages appeal decision, in support of its application for leave to appeal.

Case in Brief

Forest Holdings Ltd v Mangatu Blocks Incorporation

Employee of a party allowed as ‘arbitrator’ in proceedings... - CONT.

Era Infra vide letter dated 29 July 2015 sought appointment of an arbitrator, being a retired judge of the High Court, for adjudication of disputes which had arisen between the parties on account of delay in completion of the contract by disputing the arbitration agreement, inter alia, on the ground that “nobody can be a judge in his own cause” and sought reference to an independent tribunal. Aravali Power, while refuting the contentions raised by Era Infra, proceeded to appoint its chief executive officer as the sole arbitrator on 19 August 2015. Accordingly, the parties appeared before the sole arbitrator on 7 October, 2015 and thereafter Era Infra on 4 December, 2015 sought extension of time to file its statement of claim. However, Era Infra did not raise any dispute regarding the appointment or continuation of the arbitration proceedings. According to the record, the sole arbitrator granted one month’s time, as prayed for.

On 12 January, 2016, Era Infra sought to challenge the appointment of the arbitrator and raised an objection regarding constitution of the arbitral tribunal. The sole arbitrator ruled on his jurisdiction and rejected Era Infra’s contention on the ground that it had participated in the arbitral proceedings on 7 October, 2015 without raising any protest. Era Infra was then intimated to attend proceedings in the arbitration scheduled to be held on 16 February 2016. Era Infra however, approached the Delhi High Court by filing petitions as aforesaid, seeking termination of the mandate of the arbitrator and for appointing an independent arbitrator.

The Delhi High Court by its common judgment and order dated 29 July 2016 set aside the appointment of the arbitrator primarily on the grounds that “justice should not only be done but it must also seen to be done” and that appointment of the CEO as arbitrator is likely to give rise to justifiable doubts as to his neutrality. The Delhi High Court directed Aravali to suggest names of three panel arbitrators from different departments to Era

Infra who could thereafter choose any one of them to be the arbitrator in the matter. It was directed that in the event of failure by Aravali Power to suggest an appropriate arbitrator, Era Infra would be at liberty to revive the petitions, in which case the Court would appoint a sole arbitrator from the list maintained by Delhi International Arbitration Centre. It was also observed that the arbitrator was CEO of Aravali Power and was previously involved in cases/contract works similar to the one involved in the present case and it could not be disputed that the decisions of part cancellation were taken at the highest level of Aravali Power. In the circumstances, the Delhi High Court found that the apprehension entertained by Era Infra was reasonable and not a vague or general objection.

In the above background, Aravali Power preferred a Special Leave Petition before the Supreme Court of India challenging the said order dated 29 July 2016 passed by the Delhi High Court on the ground that the appointment of the arbitrator was completely in tune with Clause 56 of the GCC and there was no occasion for the Delhi High Court to exercise any power or jurisdiction and that the 1996 Act contemplated clear and definite procedure for challenging the arbitrator, and even if such challenge were to fail the remedy under Section 13 of the 1996 Act was specific and of different nature. To the extent the Delhi High Court had directed Aravali Power to submit three names from its panel of arbitrators from which list Era Infra was to select the sole Arbitrator, Aravali Power challenged that part of the judgment by filing SLP (Civil) Nos.503-504 of 2017.

Judgment

The Supreme Court, at the very outset, observed that the parties invoked arbitration on 29 July, 2015, the arbitrator was appointed on 19 August, 2015 and the parties appeared before the arbitrator on 7 October, 2015, well before 23 October 2015 i.e. the date on which the 2015 Amendment was deemed to have come into force. It was prima facie held that the statutory provisions that would therefore govern the present controversy are those that were in force before the 2015 Amendment came into effect. The Supreme Court further relied on the judgment in the matter of Indian Oil Corporation Ltd. and Others v. Raja Transport Private Ltd.[2] while holding that the fact that the named arbitrator happens to be an employee of one of the parties to the arbitration agreement has not by itself, before the 2015 Amendment came into force, rendered such appointment invalid and unenforceable. It was observed that the sole arbitrator undoubtedly was an employee of Aravali Power but so long as there is no justifiable apprehension about his independence or impartiality, the appointment could not be rendered invalid and unenforceable.

...so long as there is no justifiable apprehension about his independence or impartiality, the appointment could not be rendered invalid...