Fiji’s International Arbitration Act 2017 On 15 September 2017. Fiji passed the International Arbitration Act 2017 (the Act) [link to Fiji Act on NZDRC website], implementing its commitments under the Convention on Recognition and Enforcement of Foreign Arbitral Awards 1958 (the New York Convention). The Act only applies to international arbitrations, with the Fiji Arbitration Act 1965 continuing to apply to domestic arbitrations. The enactment of this piece of legislation can only assist to raise the profile and credibility of arbitration in the Asia-Pacific region, which, given New Zealand’s strong connections to the Pacific Island nations and the availability of NZIAC’s administered arbitration services, may also lend itself to the promotion of New Zealand as a key seat of international arbitration in the region. Scope to make Investor State Dispute Settlement claims narrowed in new iteration of TPP The APEC summit in Da Nang, Vietnam, was the forum this month for negotiations between the remaining eleven-member countries of the TPP (after the departure of the United States) on the newly-renamed Comprehensive Progressive Trans Pacific Partnership (CPTPP) agreement. Minister for Trade and Export Growth David Parker has welcomed the eleven-member Comprehensive and Progressive Agreement for the Trans-Pacific Partnership (CPTPP) which incorporates the TPP. A Ministerial Statement issued by all eleven Ministers in Da Nang confirmed the core elements of the deal are now agreed, with just four issues requiring further technical work and discussion. David Parker said one of the issues that has caused the Labour government concern was the Investor-State Dispute Settlement (ISDS) clauses as it could allow foreign corporates to sue the New Zealand government in an international tribunal if they felt they had been disadvantaged by New Zealand law or changes to those laws, and gave as an example, a tobacco company potentially suing New Zealand for lost income if tobacco became illegal. The previous provision that would have allowed overseas investors to sue governments for breach of an investment agreement or an investment authorisation has been suspended. Investors will only be able to sue governments for an alleged breach of the obligations set out in the Investment chapter itself. These are tightly circumscribed to the extent that it would be very difficult to mount a successful action in respect of regulations on matters of public interest such as health or the environment. On TVNZ’s 12 November 2017 Q&A programme, Mr Parker said “[A]s the text stood, if a big multinational was building a big infrastructure project in New Zealand under contract with the Government and they became dissatisfied and had a dispute, until the narrowing, they could have used these ISDS clauses to take that dispute to an international tribunal - they now no longer can.” "If they've got a breach of a contract like that, they've got to sue the New Zealand government in the New Zealand courts - just like a New Zealand company would have to,” Mr Parker said. Mr Parker said consensus around a considerable narrowing of the ISDS clauses has now been achieved, including a "side-deal" with Australia which completely eliminates ISDS clauses between Australia and New Zealand, which makes up 80 per cent of potential CPTPP trade. He says New Zealand will continue to seek similar agreements with the other countries in this new Agreement. In addition, the scope to make ISDS claims has also been narrowed. Court of Appeal dismisses challenge from winery owners In Resolution Issue No 12 (February 2017) we published an article by Timothy Lindsay and Jay Shaw titled ‘Expert Determination: High Court takes a wine tour’ in which expert determination was discussed in the context of High Court proceedings brought by the trustees of the Greg Hay Family Trust (the Trustees), seeking specific performance (by way of summary judgment) of Peregrine Estate Limited’s (PEL) obligation to buy its shares in Peregrine Wines (PWL), pursuant to a standard form share transfer mechanism in PWL’s constitution at the valuation fixed by the ‘expert’ in accordance with the valuation procedure in PWL’s Constitution. The High Court upheld the Trustee’s application for summary judgment finding that PEL had no arguable defence and was bound by the valuer’s valuation. His Honour accordingly granted summary judgment and ordered PEL to perform its obligation to buy the Trust’s shares at the valuer’s valuation of $2.62 million. Associate Judge Mathews rejected PEL’s argument that because the valuer’s “fair value” was substantively wrong on an objective assessment, it could not be binding for the purposes of s 149 of the Companies Act. PEL’s strongest criticism of the valuation report was that the valuer did not apply a minority shareholding discount to the value of the Trust’s (minority) shareholding. However, the Court found that this amounted to no more than a challenge to the merits of the expert’s conclusion, which was not a reviewable error. His Honour found that the valuer had not exceeded her mandate and therefore there was no basis to conclude that the valuer had not determined the “fair value” of the Trust’s shares. In turn, there was no basis not to enforce her valuation for the purposes of s 149.
That case had its sequel earlier this month when the Court of Appeal dismissed a challenge by PEL and upheld the earlier High Court decision. The issue arising on appeal was whether the parties were bound by the expert’s independent assessment of “fair value” for the purposes of a transfer of shares in exercise of pre-emptive rights in accordance with the company’s constitution.
The answer largely depends on whether the expert’s assessment complied with the mandate in the constitution.
At [25] the Court noted in relation to the process of expert determination agreed to by the parties as the method for determining fair value for the purpose of shareholder buy-outs that:
The process for fixing fair value if an expert is appointed is intended to be expeditious, final and binding. Unlike an arbitration, there is no right of recourse to the court for error of law in the event that either party is dissatisfied with the price fixed by the expert. However, because the expert undertakes his or her task as an expert, not as an arbitrator, he or she is not immune from suit for negligence. The plain intention is that the parties will be bound by the price fixed by the expert as the fair value of the shares for the purposes of the sale.
After analysing the relevant authorities, the Court observed at [33] that the critical question is always whether the valuation has been carried out in accordance with the terms of the particular contract. Errors on the part of the expert in carrying out the valuation assessment will not invalidate the determination unless the error was one the expert was not entrusted to make.
At [41] the Court observed:
In the present case the expert’s mandate under the constitution was to fix fair value as between the shareholders, not fair market value or current market value. No particular valuation approach was prescribed. Nor were any particular valuation principles specified. The only requirement in the mandate was for the expert to assess the fair value of the particular shares. The parties entrusted the expert to carry out the valuation and agreed to be bound for the purposes of the share transfer by the fair value assessed in the exercise of the expert’s independent skill and judgment, acting honestly and in good faith. If the valuation was carried out incompetently, the affected party would have a remedy against the expert but no right to resist the share transfer at the price fixed.
The Court, while noting that PEL may have grounds to disagree with the valuer’s analysis and conclusion, found that the valuer did not step outside her mandate under the constitution and that Associate Judge Mathews was correct to find that PEL had no arguable defence to the Trustee’s claim. The appeal was dismissed accordingly.
The Peregrine judgments provide important guidance for both the lawyers drafting expert determination clauses in shareholder agreements, and experts themselves in discharging their valuation mandates. To quote the authors of the earlier article “Peregrine highlights the main feature of expert determination, which is its final and binding nature. This means greater commercial certainty for the parties to the process; a faster process by reducing avenues of challenge to excess of mandate; lower costs; and flexibility and certainty over timing. However, it is precisely because of its binding nature that parties should be aware that once a share valuation process is underway, there is little way back—even if there is fundamental disagreement with the valuer’s conclusions.”