Samoa National Provident Fund v Apia Constructions and Engineering Ltd [2017] WSSC 11 (28 February 2017)

SUPREME COURT OF SAMOA
SNPF v ACEL [2017] WSSC 11

Case name:	SNPF v ACEL
Citation:	[2017] WSSC 11
Decision date:	28 February 2017
Parties:	SAMOA NATIONAL PROVIDENT FUND v APIA CONTRUCTIONS AND ENGINEERING LTD
Hearing date(s):
File number(s):
Jurisdiction:	CIVIL
Place of delivery:	Supreme Court of Samoa, Mulinuu
Judge(s):	CHIEF JUSTICE SAPOLU
On appeal from:
Order:
Representation:	T Toailoa and S Lafaialii-Koria for applicant J Goodall (of the New Zealand Bar) and G Stowers for respondent
Catchwords:
Words and phrases:	Arbitration – arbitrator - arbitral award – misconduct – error of law – error of law on the face of the award – loss of reputation – breach of contract – general damages – special damages -
Legislation cited:	Arbitration Act 1976 Arbitration Act 1908 (NZ) Arbitration Act 1908 (NZ)
Cases cited:	Airwork Holdings Ltd v Auckland Regional Reserve Bell-Boath Group Ltd v Attorney –General [1989] 3 BZKR 148M156 Foaminal Laboratories Ltd v British Artid Plastics Ltd [1941] 2 A11ER393, 399-400; Helicopter Trust [2006] NZHC 513 Gold and Resource Developments (NZ) Ltd v Doug Hood Ltd [2000] NZCA 131 Malik v Bank of Credit; Mahammed v Bank of Credit [1997] UKHL33; Manukau City Council v Fencible Court Howick Ltd [1991] 3 NZLR 410 Monarch S.S. Co v Koolshamns Oljefabriker [1949] AC 196 Mediterranean and Export Co Ltd v Fortress Fabrics (Manchester) Ltd [1948] 2 A11 ER 186 Samoa National Provident Fund v Apia Construction and Engineering Ltd [2008] WSSC 1 Smale and Brookbanks v Illingworth and Randerson (1994) Williams v Wallis and Cox [1914] UKLawRpKQB 53; [1914] 2 KB 478 Wilson v Glover [1969] NZLR 365 Zermalt Holdings SA v Nu-Life Upholstery Repairs [1985] 2 EGLR 14
Summary of decision:

IN THE SUPREME COURT OF SAMOA
HELD AT MULINUU

IN THE MATTER OF

an application pursuant to section13 and section 14 of the Arbitration Act 1976.

BETWEEN

SAMOA NATIONAL PROVIDENT FUND a body corporate established pursuant to section 4 of the National Provident Fund Act 1972.

Applicant

A N D

APIA CONSTRUCTION AND ENGINEERING LTD a duly incorporated company of Samoa.

Respondent

Counsel
T Toailoa and S Lafaialii-Koria for applicant
J Goodall (of the New Zealand Bar) and G Stowers for respondent

Judgment: 28 February 2017

JUDGMENT OF SAPOLU CJ

Introduction

1. These proceedings are concerned with a motion dated 28 August 2014 by the applicant to set aside an arbitral award dated 14 July 2014. The motion is strongly opposed by the respondent. The applicant is the Samoa National Provident Fund (SNPF) a body corporate established under the National Provident Fund Act 1972 and the respondent is the Apia Construction and Engineering Ltd (ACEL) a duly incorporated company having its registered office at Ululoloa.
2. There are four grounds in support of the applicant’s motion to set aside the arbitral award. These are:
   • (a) The Court would have come to a different decision from the arbitrator Vui Sebastian Mariner and the difference would be so great that it clearly, by itself, shows bias on the part of the arbitrator.
   • (b) The arbitrator made a decision on issues not mutually agreed between the parties to be referred to arbitration.
   • (c) The arbitral award had no evidence or material on which to base the amount of damages.
   • (d) The arbitrator erred in law as to the legal requirements to prove the damages awarded.

The grounds on which the Court may intervene to set aside an arbitral award

3. There are only two grounds under the current law of Samoa upon which the Court may set aside an arbitral award. These are the statutory ground of ‘misconduct’ provided in s.13 of the Arbitration Act 1976 and the common law ground of error of law on the face of the award: Samoa National Provident Fund v Apia Construction and Engineering Ltd [2008] WSSC 1 para 73.
4. Section 13 of the Arbitration Act 1976, insofar as relevant, provides:
   • “(2) Where an arbitrator or umpire has misconducted himself or the proceedings or any arbitration or award has been improperly procured, the Court may set the award aside”
5. In this connection, it must be noted that our Arbitration Act 1976 is based on the Arbitration Act 1908 (NZ). But the Arbitration Act 1908 (NZ) has been replaced by the Arbitration Act 1996 (NZ) which is based on the Model Law on International Commercial Arbitration adopted by the United Nations Commission on International Trade Law on 21 June 1985. As a result, the jurisdiction of the New Zealand Courts to set aside an arbitral award has been constrained. Caution is therefore required when reading New Zealand cases since 1996 in determining a motion to set aside an arbitral award under our Arbitration Act 1976 which is based on the Arbitration Act 1908 (NZ).
6. Be that as it may, there was already a bias towards finality in arbitral awards emerging in New Zealand under the Arbitration Act 1908 prior to the Arbitration Act 1996. This appears from Gold and Resource Developments (NZ) Ltd v Doug Hood Ltd [2000] NZCA 131, [43] where Blanchard J, in delivering the judgment of the New Zealand Court of Appeal, said:
   • “[43] Even under the Arbitration Act 1908 in this country, where the bases upon which a Court could embark upon an examination of an award were not constrained as they are by Article 34 of the First Schedule of the 1996 Act, a bias towards finality had already emerged. It is enough to refer only to Manukau City Council v Fencible Court Howick Ltd [1991] 3 NZLR 410, 412 in which Cooke P said that where parties have agreed to arbitration rather than Court proceedings, even where their contract has been dictated by a statutory regime (in that case the Public Bodies Leases Act 1969), the Court should not allow the finality of the award to be destroyed except by truly compelling reasons. In relation to an error of law, he said that the view should not be overlooked that a party who can show that there has been a truly significant error of law has a justifiable grievance for which the law should provide a remedy, unless he or she has freely contracted out of that right (p413)”
7. So even though a bias towards finality in relation to arbitral awards had already emerged in New Zealand prior to the Arbitration Act 1996, Cooke P said in Manukau City Council v Fencible Court Howick Ltd [1991] 3 NZLR 410, 412 that in relation to an error of law, the law should provide a remedy to a party who can show that there has been a truly significant error of law for which he has a justifiable grievance.

Misconduct

8. As already mentioned, the only two grounds upon which the Court may set aside an arbitral award are ‘misconduct’ which is a statutory ground and error of law on the face of the award which is a common law ground. I have already dealt at length with both grounds in my judgment in Samoa National Provident Fund v Apia Construction and Engineering Ltd [2008] WSSC 1, paras 58-72. However, it would be helpful to refer again to some of the things that I said in that judgment for the purpose of any future motion to set aside an award under s.13 of the Arbitration Act 1976.
9. In the case of Williams v Wallis and Cox [1914] UKLawRpKQB 53; [1914] 2 KB 478, 484, Lush J said:
   • “Misconduct is not necessarily personal misconduct. If an arbitrator for some reason which he thinks good declines to adjudicate upon the real issue before him, or rejects evidence which, if he had rightly appreciated it, would have been seen by him to be vital, that is within the meaning of the expression ‘misconduct’ in the hearing of the matter which he has to decide, and misconduct which entitles the person against whom the award is made to have it set aside”
10. At p.485 of the same case, Atkin J said:
    • “The term [‘misconduct’] does not really amount to much more than such mishandling of the arbitration as is likely to amount to some substantial miscarriage of justice, and one instance that may be given is where the arbitrator refuses to hear evidence upon a material issue”.
11. In 4 Halsbury’s Laws of England vol 2, para 622, the learned authors gave the following as examples of what amounts to ‘misconduct’ in the context of an arbitration:

(a) where the arbitrator fails to decide all matters which were referred to him,

(b) where the arbitrator purports to decide matters which were not referred to him,
(c) where the arbitrator has failed to act fairly towards both parties, or
(d) where the arbitrator refuses to state a special case himself or allow an opportunity of applying to the Court for an order directing the statement of a special case.

12. In the context of the Arbitration Act 1950 (UK), the learned authors of Mustill & Boyd Commercial Arbitration (1989) 2nd ed (cited by counsel for the respondent) noted that it is impossible to give a definition or an exhaustive list of what constitutes ‘misconduct’ but noted the following examples at p.551:
    • “1. Failure to conduct the reference in the manner expressly or impliedly prescribed by the submissions will (unless both parties consent) always amounts to misconduct, although not to misconduct which will lead the Court to intervene.
    • “2. Whatever provisions of the submissions, it is misconduct to behave in a way regarded by the Courts as contrary to public policy.
    • “3. Unless the submissions expressly or impliedly permits, or unless the parties consent, it is misconduct to behave in a way which is, or givens the appearance of being, unfair.
    • “4. For this purpose, fairness does not necessarily involve conducting the proceedings in the same way as an action in Court; regard must be had to the identity of the parties, and the chosen arbitrator, and to the nature of the subject matter.
    • “5. There are, however, certain minimum requirements – notably the hearing of both parties, and abstention from receiving evidence or argument in the absence of one party – which are regarded as essential to the fair conduct of the reference.
    • “6. Against this, specific grounds on which the applicant alleges that the arbitrator misconducted the arbitral proceedings must be considered.
13. It is clear from 4 Halsbury’s Laws of England vol 2, para 622 and Mustill & Boyd Commercial Arbitration 2nd ed p.551 that breach of the rules of natural justice would constitute ‘misconduct’ in arbitral proceedings. This also appears from the case of Wilson v Glover [1969] NZLR 365, 372 where Moller J said:
    • “It would certainly appear that, if what Mr White says is correct, the allowances made by the arbitrator may well be greater than they should have been. But that is a question of fact for decision by the arbitrator, and in my view I should not interfere with the award i n this particular instance, merely on the ground that I might have come to a different decision from that at which the arbitrator arrived. I would at least have to find, on the way this case was presented, that the difference was so great that it clearly, by itself, showed bias on the part of the arbitrator or that it was of such nature and amount, that taken in conjunction with all other matters, bias was sufficiently evident to justify setting the award aside. I do not think that the evidence of overcharging at present before me does, when taken by itself, justify me in finding bias as alleged by the applicant”.
14. The rule against bias on the part of a decision-maker is one of the rules of natural justice and it appears from Wilson v Glover [1969] NZLR 365, 372 that whilst a mere over-statement or under-statement in the amount of an arbitral award may not amount to ‘misconduct’, the amount of an award that is greatly over-stated or under-stated may in itself be bias which constitutes ‘misconduct’ on the part of an arbitrator so as to justify setting aside an award.
15. What must be borne in mind here is that simply because an alleged ground does not amount to ‘misconduct’ does not mean that is necessarily the end of the matter. One may also have to consider whether the same ground amounts to an error of law on the face of the award. It would also be helpful in framing the grounds of a motion to set aside an award to show which grounds relate to misconduct and which grounds (if any) relate to error of law on the face of the award.

Error of law on the face of the award

16. As pointed out in Samoa National Provident Fund v Apia Construction and Engineering Ltd [2008] WSSC 1, para 69, there are two types of error of law one of which if it appears on the face of the award would make the award liable to be set aside whilst the other would not. In F R Absalom Ltd v Great Western (London) Garden Village Society Ltd [1933] A C 592, 607, Lord Russell of Killowen explained:
    • “[It] is, I think, essential to keep the case where disputes are referred to an arbitrator in the decision of which a question of law becomes material distinct from the case in which a specific question of law has been referred to him for decision. I am not sure the Court of Appeal has done so. The authorities make a clear distinction between these two cases, and, as they appear to me, they decide that in the former case the Court can interfere if and when an error of law appears on the face of the award, but in the latter case no such interference is possible upon the ground that it so appears that the decision upon the question of law is an erroneous one”.
17. In Absalom, Lord Wright, the other number of the Court, referred in his judgment at p.616 to In re King Duveen [1913] UKLawRpKQB 40; [1913] 2 KB 32, 36, where Channell J said:
    • “It is equally clear that if a specific question of law is submitted to an arbitrator for his decision, and he does decide it, the fact that the decision is erroneous does not make the award bad on its face so as to permit of its being set aside”.
18. In Smale and Brookbanks v Illingworth and Randerson (1994) (judgment of the New Zealand Court of Appeal delivered on 12 May 1994), Richardson J said:
    • “If the parties have asked the arbitrators to decide a specific question of law then, save for matters of illegality not in point here, the proper inference is that the parties put the question of law to the arbitrators on the footing that their own decision would be binding on the parties. Further, if the parties have asked a series of questions one of which is a specific question law, the exception from curial review of answers to questions of law will apply to the answer to that question”.
19. More recently in Gold and Resource Development (NZ) Ltd v Dough Hood Ltd [2000] NZCA 131 which was decided after the enactment of the Arbitration Act 1996 (NZ), Blanchard J said at para [54] (2):
    • “The Court should consider whether the question of law arose incidentally, or whether it was the very point of the arbitration. Although it may be undesirable for an arbitrator who is not legally qualified to deal definitely with the law, to submit that dispute to arbitration other than asking a Court to determine the question, they should generally be held to their choice. The parties in that situation clearly took the risk that the arbitrator would not get the law completely right”.
20. It would therefore appear from the authorities that the common law jurisdiction of the Courts is excluded if a specific legal question is referred to the arbitrator for decision. See also Attorney General v Offshore Mining Co Ltd [1983] NZLR 418.
21. What constitutes an error of law on the face of an arbitral award was also discussed in Samoa National Provident Fund v Apia Construction and Engineering Ltd [2008] WSSC 1, paras 146 – 155. For completeness of this judgment, I will repeat some of the things that I said in that other judgment.
22. An error of law that does not appear on the face of an award is not recognised as a ground for setting aside an award. Only an error of law which appears on the face of an award is. Such an error was explained in United Sharebroker Ltd v Landsborough Estates Ltd (1990) (unreported judgment of the New Zealand High Court) where Tipping J said:
    • “For there to be an error of law on the face of the award there must be such an error by express exposition not merely by inference. The error must appear either in the award itself or in a document actually incorporated therein, for instance, a note appended by the arbitrator stating the reasons for his decision: Champsey Bhara & Co v Jivraz Baloo Spinning and Weaving Co Ltd [1923] AC 480, P. C. and Wellington City v National Bank of New Zealand Properties Ltd [1960] NZLR 660 per North P”.
23. In the subsequent case of Airwork Holdings Ltd v Auckland Regional Reserve Helicopter Trust [2006] NZHC 513, [24] – [27], Asher J explained what is an error of law which appears on the face of the award as follows:
    • “[24] In Champsey Bhara & Co v Jivraz Baloo Spinning and Weaving Co Ltd [1923] AC 430, 487, it was stated:
      • ‘An error in law on the face of the award means, in their Lordships view that you can find in the award or a document actually incorporated thereto... some legal proposition which is the basis of the award and which you can say is erroneous’
    • “[25] It was put this way in Canada (Director of Investigation and Research) v Southam Inc (1977) 144 DLR (4th) at [35]:
      • “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 fact and law are questions about whether the facts satisfy the legal tests’.
    • “[26] The distinction between errors of law and errors of fact has a sound common sense purpose in the area of review of arbitral awards. The general rationale for arbitration is the adoption of a speedy, confidential and efficient process of resolution. Often this is done by choosing as arbitrator a person who has particular skill and knowledge in the area of fact that is subject of the dispute’.
    • “[27] It is clear that the application of legal principles, the interpretation of statutes and regulatory documents, can all involve errors of law”. (emphasis mine)
24. With reference to 4 Halbury’s Laws of England vol 2, p.59, counsel for the respondent submitted that the expression “errors on the face of the award” suggests a patent, obvious error in law. Further, the error must appear on the face of the award.

Relevant submissions by counsel

25. Ms Toailoa for the applicant submitted that this Court should apply the Arbitration Act 1976 to a motion to set aside an arbitral award instead of the case law based on recent legislations in overseas jurisdictions such as the United Kingdom, Australia and New Zealand as noted in Gold and Resources Development (NZ) Ltd v Doug Hood Ltd [2000] NZCA 131. That is because unlike those overseas jurisdictions, the Samoan parliament has not indicated an intention to restrict the jurisdiction of the Courts to intervene in an arbitral award by preferring finality, certainty and party autonomy over other considerations. Those other considerations are that arbitrators do not always have legal knowledge and may apply the law incorrectly, the parties will expect a fair and reasonable result and may consider that they should have a right of recourse if such a result is not forthcoming because the law has been incorrectly stated or applied, and there is a public interest in ensuring that appropriate standards are met in arbitrations. There is no submission from counsel for the applicant opposing the application to a Samoan arbitral award of New Zealand case law on the Arbitration Act 1908 (NZ) upon which our Arbitration Act 1976 is based. Counsel for the respondent ACEL did not address this issue in their submissions.
26. I agree with counsel for the applicant SNPF that our Arbitration Act 1976 is the law to be applied in this case. However, as noted by Blanchard J in Gold and Resources Development (NZ) Ltd v Doug Hood Ltd [2000] NZCA 131, [43], even under the Arbitration Act 1908 (NZ), a bias towards finality of arbitral awards had already emerged in New Zealand; the Court was not to allow the finality of the award to be destroyed except for truly compelling reasons referring to Manukau City Council v Fencible Court Howick Ltd [1991] 3 NZCA 410, 412.

Background

27. On 12 January 2004, the applicant SNPF and the respondent ACEL executed a contract for the ACEL to construct two tenancy units and for the redevelopment of two tenancies at the Molesi Food Court owned by the SNPF. The contract price was $429,253.63 and the contract period was fifty five working days. On 8 June 2004, the SNPF terminated the contract when the works had still not being completed and paid to the ACEL the value of the works that had been completed and retained the sum of $118,501.86 for what it claimed to be the estimated value of the incomplete portion of the works.
28. The ACEL claimed that the contract was unfairly and wrongfully terminated and the issues in dispute were jointly referred by the parties to arbitration pursuant to the arbitration clause in the contract. It then took over a period of eleven months before arbitration took place. The ACEL blames the SNPF for this delay. Finally, arbitral proceedings were held before Mr Bill Gordon, a civil engineer, as arbitrator in June 2005. This was the first arbitration. On 27 July 2006, Mr Gordon handed down his award in favour of the ACEL finding the SNPF liable. The award was for a total sum of $167,748.50 being for outstanding monies, damages and costs which was to be paid within 14 days.
29. The response by the SNPF when the ACEL tried to enforce the award in Court was to file a motion to set aside the award alleging misconduct and error of law on the face of the award. By a judgment dated 30 January 2008, this Court set aside the award and remitted the matter back to the arbitrator to deal with it again on specified conditions. Unfortunately that did not happen and the ACEL puts the blame on the SNPF.
30. It was not until 24 October 2011 that a new arbitration was held before Mr Peuta Ufi Tone, another civil engineer, as arbitrator. This was the second arbitration. Unfortunately, Mr Tone unexpectedly passed away in February 2013 before handling down his award. Here again, the ACEL puts the blame on the SNPF for the delay in finalising the arbitral proceedings before Mr Tone. A replacement arbitrator therefore had to be appointed.
31. The parties, however, could not reach agreement on who the replacement arbitrator should be. So this matter ended up in Court again before Vaai J. Following the decision of Vaai J, Mr Vui Sebastian Mariner, another civil engineer, was appointed as replacement arbitrator and arbitral proceedings recommended on 26 November 2013. The parties resubmitted to Mr Mariner all their submissions previously submitted to Mr Tone together with the transcripts of the evidence placed before Mr Tone.
32. On 25 March 2014, Mr Mariner handed down his award for liability in favour of ACEL having found the SNPF liable for wrongful termination of contract. Time was then given to the parties to file submissions on damages and costs. ACEL in its submissions sought an award in the total sum of $4.6 million including costs and the SNPF responded that a reasonable award in the circumstances would be $417,000. Mr Mariner made a final award of $2 million in favour of ACEL on 14 July 2014 to be paid in 30 days. On 29 August 2014, the SNPF filed a motion to set aside the award. After preliminaries, this matter was set down for a judicial settlement conference before Aitken J in 2015 but that was also unsuccessful as the parties could not arrive at a settlement. The matter was then returned to Court for hearing the SNPF’s motion to set aside the award.

Grounds of the applicant’s motion to set aside the arbitral award

(a) First ground: The Court would have come to a different decision from the arbitrator and the difference would be so great that it clearly, by itself, shows bias on the part of the arbitrator
(i) Costs to finance/interest

33. The submissions for the SNPF in relation to the award for costs of finance/ interest are not clear to me. It is clear from the award that the sum of $159,554.82 was awarded in favour of the ACEL under this heading and not $229,420.32 as shown in the submissions for the SNPF. The award shows that this award was for financing/interest based on the principal amount of $118,501.86 which is the amount still owing by the SNPF to the ACEL from 8 June 2004 to 8 June 2015. This amount must have increased as up to now the principal amount of $118,501.86 has still not been paid. I am not prepared to set aside this part of the award but the amount of $159,554.82 would have to be revised in view of the passage of time.

Bias and loss of reputation

34. Bias as a ground for setting aside an arbitral award is ‘misconduct’. This is because it is misconduct on the part of the arbitrator if he has failed to act fairly towards both parties: 4 Halsbury’s Laws of England vol 2, para 622. What is alleged by the SNPF is that the amount of $782,000 for loss of reputation awarded by the arbitrator in favour of the ACEL is far greater than any amount the Court might have awarded that it shows bias on the part of the arbitrator: Wilson v Glover [1969] NZLR 365, 372. This is an allegation of ‘misconduct’. It is also alleged by the SNPF that the arbitrator erred in law in awarding damages for loss of reputation when the SNPF was not responsible for the loss of reputation claimed by the ACEL. This would be an allegation of error of law on the face of the award because it suggests a misapplication of legal principles: Airwork Holdings Ltd v Auckland Regional Reserve Helicopter Trust [2006] NZHC 51, [27].
35. Before going further, it is necessary to deal with two important legal issues which arise from the submissions of counsel. The first is the distinction between general and special damages and the second is the availability of damages for loss of reputation. As to the first, the learned author of McGregor on Damages (2003) 17th ed paras 1-030 state:
    • “1-030: The first meaning of general and special damages concerns liability: it relates principally to contract, coinciding with the distinction between the well-known first and second rules in Hadley v Baxendale (1854) 9 Ex. 341... It is best expressed by Lord Wright in Monarch S.S. Co v Koolshamns Oljefabriker [1949] AC 196, 221, where he said:
      • “The distinction there drawn [in Hadley v Baxendale] is between damages arising naturally (which means in the normal course of things) and cases where there were special and extraordinary circumstances beyond the reasonable prevision of the parties. In the latter-event it is laid down that the special facts must be communicated by and between the parties. The distinction between these types is usually described in English law as that between general and special damages”.
    • “And Lord Macnaghten said in Stroms Bruks Aktie Bolag v Hutchison [1905] UKLawRpAC 52; [1905] AC 515, 526: ‘in cases of contract special or exceptional damages cannot be claimed unless such damages were within the contemplation of both parties at the time of the contract”
36. In Prehn v Royal Bark of Liverpool (18700 LR 5Ex.92,99-100, which was a contract case, Martin B stated the distinction between general damages and special damages in these words:
    • “General damages... are such as the jury may give when the judge cannot point out any measure by which they are to be assessed, except the opinion and judgment of a reasonable man. Special damages are given in respect of any consequences reasonable and probably arising from the breach complained of.”
37. As to the second legal issue, it is clear from the authorities that damages for loss of reputation can arise not only from defamation but also from breach of contract. In Foaminal Laboratories Ltd v British Artid Plastics Ltd [1941] 2 A11 ER 393,399 – 400, Hallett J said:
    • “A claim for mere loss of reputation is the proper subject of an action for defamation, and cannot ordinarily be sustained by means of any other form of action... [but] if pecuniary loss can be established, the mere fact that the pecuniary loss is brought about by the loss of reputation caused by a breach of contract is not sufficient to preclude the plaintiffs from recovering in respect of that pecuniary loss”.
38. More recently in the House of Lords decision in Malik v Bank of Credit; Mahmud v Bank of Credit [1997] UKHL 23, Lord Nicholls of Birkenhead said:
    • “I agree that the cause of action known to the law in respect of injury to reputation is the tort of defamation. With certain exceptions this tort provides a remedy, where the necessary ingredients are present, whether or not the injury to a person’s reputation causes financial loss. No proof of actual damage is necessary, and damages are at large. If as a result of the injury to his reputation the plaintiff does in fact suffer financial loss, this may be recoverable in a defamation action as ‘special damage’.
    • “All of this is commonplace. It by no means follows that financial loss which may be recoverable as special damage in a defamation action is unrecoverable as damages for breach of contract. If a breach of contract gives rise to financial loss which on ordinary principles would be recoverable as damages for breach of contract, those damages do not cease to be recoverable because they might also be recoverable in a defamation action. There can be no justification for artificially excising from the damages recoverable for breach of contract that part of the financial loss which might or might not be the subject of a successful claim in defamation. Hallett J summarised the position in Foaminal Laborateries Ltd v British Artid Plastics Ltd [1941] 2 A11 ER 393, 399 – 400:
    • • “... a claim for mere loss of reputation is the proper subject of an action for defamation, and cannot ordinarily be sustained by means of any other form of action... However .... if pecuniary loss can be established, the mere fact that the pecuniary loss is brought about by the loss of reputation caused by a breach of contract is not sufficient to preclude the plaintiffs from recovering in respect of that pecuniary loss”
    • “Furthermore, the fact that the breach of contract injures the plaintiff’s reputation in circumstances where no claim for defamation would lie is not by itself, a reason for excluding from the damages recoverable for breach of contract compensation for financial loss which on ordinary principles would be recoverable. An award of damages for breach of contract has a different objective: compensation for financial loss suffered by a breach of contract, not compensation for injury to reputation”.
39. Lord Steyn in the same case said:
    • “The dicta in Spring v Guardian Assurance Plc [1995] 2 AC 296 show that there is no rule preventing the recovery of damages for injury to reputation where that injury is caused by a breach of contract. The principled position is as follows:
      • “Provided that a relevant breach of contract can be established, and the requirements of causation, remoteness and mitigation can be satisfied, there is no good reason why in the field of employment law recovery of financial loss in respect of damage to reputation caused by breach of contract is necessarily excluded”
40. In Bell-Booth Group Ltd v Attorney [1989] NZCA 9; [1989] 3 NZLR 148, the New Zealand Court of Appeal was concerned with an appeal in relation to an action by the plaintiff in both defamation and negligence. The Court was not concerned with an action for breach of contract. So what was said in that case was confined to the relationship between defamation and negligence. As Cooke P said at p.156:
    • “The common law rules, and their statutory modifications, regarding defamation and injurious falsehood represent compromises gradually worked out by the Courts over the years, with some legislative adjustments, between competing values. Personal reputation and freedom to trade on the one hand have to be balanced against freedom to speak or criticise on the other... The important point for present purposes is that the law as to injury to reputation and freedom of speech is a field of its own. To impose the law of negligence upon it by accepting that there may be common law duties of care not to publish the truth would be to introduce a distorting element”. (emphasis mine)
41. Further on at pp.157-158. Cooke P said:
    • “For these reasons in our opinion justice does not require or warrant an importation of negligence into this class of case. Where remedies are needed they are already available in the form of actions for defamation, injurious falsehood, breach of contract or breach of confidence”. (emphasis mine)
42. Included in the award of $782,000 for loss of reputation are loss of profit, interest on loss of profit, a family loan, foreclosure on ACEL by the National Bank of Samoa (NBS), SNPF proceedings in respect of ACEL for unpaid contributions, and ACEL’s bankruptcy proceedings. It appears from the award that all these losses to ACEL were considered to have resulted from what was said by the then Deputy Prime Minister in his speech at the opening of the Molesi Food Court Complex owned by the SNPF. According to the submissions dated 1 April 2014 made by ACEL to the arbitrator, the then Deputy Prime Minister during his speech at the opening of the Molesi Food Court Complex had said that the ACEL had been terminated on the Food Court project and replaced by another contractor to complete the contract. The opening of the Food Court complex, which must have been towards the end of 2004 or beginning of 2005, was publicised in the media. But even if it is assumed for present purposes that the then Deputy Prime Minister in his speech said the words alleged by ACEL and it caused injury to the reputation of the ACEL, the speech was that of the Deputy Prime Minister, not of the SNPF. The SNPF therefore should not be liable for any loss that might have flowed from a speech it did not make. Even though counsel for the ACEL in their written submissions claim that what was said during the speech by the then Deputy Prime Minister at the opening of the Molesi Food Court Complex and publicised in the media caused the losses to ACEL, they also say that the ‘root cause’ of all this ‘chaos’ (not losses) was the wrongful termination of the contract by the SNPF. They do not claim that the root cause was the speech by the Deputy Prime Minister or the publicity given to the opening of the Molesi Food Court Complex by the media.
43. I have already said that the speech by the then Deputy Prime Minister was not a speech given by the SNPF. Likewise, the publicity given by the media to the opening of the Molesi Food Court was not publicity of that event by the SNPF. The SNPF therefore should not be liable for something it did not say or did not do.
44. Following the speech by the Deputy Prime Minister, Mr and Mrs Craig of the ACEL put a notice in the newspaper to tell the public that the termination of their contract with the SNPF is nothing to do with ACEL’s workmanship and they do not accept the termination. The matter was with their lawyers as they believe it was unfair for the SNPF to terminate its contract with the ACEL. This notice in the newspaper must have been published towards the end of 2004 or early 2005. Arbitration proceedings were held in June 2005 and on 25 July 2006 the arbitrator Mr Gordon handed down his award in favour of ACEL having found the SNPF liable for wrongful termination of contract. So at that time the ACEL must have been vindicated and its reputation, if it had been injured, restored. It is therefore difficult to see how SNPF can be liable for injury to reputation for any loss alleged to have occurred after that time for the reasons given by ACEL in its submissions.
45. Counsel for the SNPF also submitted that there was no evidence on which the award of $782,000 for loss of reputation was based. In reply, it was submitted for the respondent ACEL that the arbitrator whose award is being challenged was appointed because of his skill and experience as a civil engineer and the he was entitled to use his professional knowledge in making his assessment on the quantum of damages to be awarded to the respondent. Reliance was placed on the English case of Mediterranean and Export Co Ltd v Fortress Fabrics (Manchester) Ltd [1948] 2 A11 ER 186, 187 where Lord Goddard CJ said:
    • “The more serious question that was argued was that neither side had tendered evidence with regard to damage and, therefore, the arbitrator had no material before him on which he could fix the amount which the sellers were entitled to receive. This would be a formidable, and, indeed, fatal, objection in some arbitrations. If, for instance, a lawyer was called on to act as arbitrator on a commercial contract he would not be entitled, unless the terms of the submission clearly gave him power so to do, to come to a conclusion as to the amount of damages that should be paid without having evidence before him as to the rise or fall of the market, as the case may be, or as to other facts enabling him to apply the correct measure of damages, but, in my opinion, the case is different where the parties select an arbitrator, or agree to arbitrate under the rules of commerce under which the arbitrator is appointed for them, and the arbitrator is chosen or appointed because of his knowledge and experience of the trade. There can be no doubt that with regard to questions of quality and matters of that description an arbitration of this character can always act on his own knowledge”
46. Further on at p.188, Lord Goddard CJ said:
    • “It is well known in the experience of the Courts that many trades have their own tribunals of arbitration – the Corn Trade, the Produce Brokers Association are instances – and no one has doubted – certainly not in modern times – that it is open to an arbitrator skilled in the trade to use his own knowledge and experience on many matters, such as quality, without having witnesses called before him. One of the reasons why commercial men like to go to arbitration before arbitrators of this description is because it saves the expenses of calling witnesses and hearing the conflicting views of experts thrashed out and decided on. The parties are content and intend to accept the judgment of a man in their own trade on whose judgment they know they can rely”
47. It is clear from the judgment of Lord Goddard CJ in Mediterranean and Eastern Export Co Ltd v Fortress Fabrics (Manchester) Ltd [1948) 2 A11 ER 186 that with regard to ‘questions of quality and matters of that description’, which are questions of fact, an arbitrator chosen because of his knowledge and experience of the trade can always act on his own knowledge without having witnesses called before him. In the present case, we are not concurred with matters of quality or the like. We are concerned with the question of whether the SNPF should be liable for the alleged consequences of what was said in a speech that it did not make or for the publicity of the opening of the Molesi Food Court Complex by the media which it did not carry out.
48. Perhaps it would also be of some relevance at this junction to refer again to Gold and Resources Developments (NZ) Ltd v Doug Hood Ltd [2000] NZCA 131 where Blanchard J discussed the approach to be taken by the New Zealand Courts on an application for leave to appeal an arbitral award under the Arbitration Act 1996. His Honour said that after satisfying the statutory threshold requirement, the factors to be considered in the exercise of the Court’s discretion whether to grant leave to appeal include the strength of the challenge/nature of point of law which is the most important factor, how the question arose before the arbitrators, the qualifications of the arbitrators, the importance of the dispute to the parties, the amount of money involved, the amount of delay involved in going through the Courts, whether the contract provides for the arbitral award to be final and binding, and whether the dispute before the arbitrators is international or domestic.
49. In respect of the “importance of the dispute to the parties” factor, Blanchard J said at para [54] (4):
    • “Where the dispute is of great significance to the parties, it may be easier to obtain leave to appeal, because the effect on them of an incorrect ruling will be all the greater. In this context it is to be remembered that some disputes referred to arbitration may involve more than just a question of money.
50. In respect of the “amount of money involved” factor, Blanchard J said at para [54] (5):
    • “Where a very substantial amount of money is involved in the arbitration, the cost of an arbitrator’s mistake is obviously much greater. In that situation, it may be somewhat easier for the parties to obtain leave to appeal in order to ensure that an injustice is not done by leaving intact an incorrect ruling”.
51. Approaching this matter on the assumption that the sum of $782,000 for loss of reputation is special damages arising from the wrongful termination of the contract by SNPF, it appears from Prehn v Royal Bank of Liverpool (1870) LRS Ex 92, 99-100, which was a contract case, that “special damages are given in respect of the consequences reasonably and probably arising from the breach complained of”. But the special facts to support special damages “must be communicated by and between the parties”: Monarch SS Co v Koolshamns v Oljefabriker [1949] AC 196, 221.
52. From the award and the evidence that was placed before the arbitrator, there was no evidence of any special facts before the arbitrator which had been communicated by and between the parties to support an award of special damages as a result of the termination of the contract. The award for loss reputation does not appear to be a reasonable and probable consequence of the termination of contract. Such an award cannot therefore be for special damages. Counsel for the ACEL in their own submissions do not directly attribute loss of reputation to the termination of the contract but simply say that the termination of the contract is at the root of all the chaos. I am therefore of the opinion that the award for loss of reputation which appears in the award cannot be sustained.
53. For all those reasons, the award of $782,000 for loss of reputation should be set aside.

(iii) Legal fees

54. The other item of the award which is challenged by the applicant SNPF under the first ground that the Court would have come to a greatly different decision from the arbitrator so as to show bias on the part of the arbitrator is the legal fees awarded to the lawyers for the ACEL. As it appears from the award, the ACEL’s lawyers claimed $1,680.512.48 for legal fees. The arbitrator awarded $800,512.48.
55. The award shows that the following costs were awarded to the ACEL by way of legal fees: $54,850 for the foreclosure proceedings by the NBS, $54,850 for the outstanding NPF contributions proceedings and $54,850 for the ACEL’s bankruptcy proceedings. Counsel for the SNPF in their submissions also refer to a claim of $42,150 by the ACEL’s lawyers for legal work done for a replacement arbitrator. This must have been in relation to the Court proceedings by the ACEL seeking to have the original arbitrator Mr Gordon reappointed as arbitrator to replace Mr Tone when he passed away. This was not successful as it was Mr Mariner who was appointed as arbitrator.
56. The award also shows that the following legal fees were claimed for the ACEL’s lawyers: $196,650.00 for the arbitral proceedings before Mr Mariner as arbitrator for the period up to 10 April 2015; $50,789.00 for the proceedings to appoint a replacement arbitrator; $530,334.00 for the arbitral proceedings before Mr Tone as arbitrator (Part A) and $627.842.50 for the arbitral proceedings before Mr Tone (Part B) for the period up to 19 February 2012; $23,721 for the enforcement of the award by Mr Gordon as arbitrator; and $88,175.98 for the first award made by Mr Gordon for the period up to 26 July 2005. An amount of $163,000 was also claimed for additional legal costs. The total amount claimed by the ACEL for legal fees over a period of eleven years was $1,680,512.48. As earlier mentioned, the arbitrator awarded only $800,512.48.
57. There are several complaints made by the SNPF in respect of this part of the award. As submitted for the SNPF, the award for the period of up to 26 July 2003 in respect of Mr Gordon should not have included any costs for the Court proceedings in 2007 and 2008 because in those proceedings the Court ordered each party to bear its own costs. I must say that it is not obvious to me from the award by the arbitrator whether it includes any award for legal fees in relation to those Court proceedings. If there was, then the Court in its judgment of 30 January 2008 had ordered that each party was to bear its own costs and there was no appeal against that order. The second complaint by the SNPF relates to the legal fees in respect of the appointment of a replacement arbitrator when Mr Tone passed away. As submitted for the SNPF, the motion by the ACEL to have Mr Gordon reappointed as arbitrator was unsuccessful. The ACEL therefore should not have claimed costs in respect of those proceedings. Counsel for the SNPF also expressed concern about what they claim are discrepancies in the figures shown in the timesheets submitted by counsel for the ACEL to the arbitrator Mr Mariner.
58. Apart from the above, I am of the respectful view based on the material before the Court that there should not have been an award for legal fees in respect of the following matters: foreclosure proceedings by the NBS, proceedings for outstanding SNPF contributions, and the ACEL’s bankruptcy proceedings. Those events did not arise as special damages from the loss of reputation or wrongful termination of contract as claimed on behalf of the ACEL.
59. It is difficult to be more specific about this part of the award in respect of legal fees because the global sum of $800,512.48 is without particulars to show how that global sum was arrived at. I can quite understand why the arbitrator did not find this part of the case an easy task and I have full sympathy for him.
60. Finally on legal fees, it is the practice of the Courts in civil litigation to order the unsuccessful party to pay around two thirds of the costs of the successful party as a reasonable contribution to those costs. It is uncommon to order the unsuccessful party to pay the full costs of the successful party.

(b) Second ground: The arbitrator made a decision on issues not mutually agreed to between the parties to be referred to arbitration

61. Counsel for the SNPF say in their written submissions that the submissions by the ACEL to the arbitrator Mr Mariner included a claim for costs for proceedings outside the present arbitration without any mutual agreement between the parties to refer such an issue to the arbitrator for decision. This issue relates to the claim by the ACEL for costs for the foreclosure proceedings by the NBS, proceedings for outstanding SNPF contributions, bankruptcy proceedings, and Court proceedings for the 2007 / 2008 case. Counsel for the SNPF further say that these costs were not within the ambit of the issues submitted by the parties to the arbitrator but it is very likely that the arbitrator has included these costs in his award. It is not explicit from the face of the award whether the award for legal fees included costs for the Court proceedings in respect of the foreclosure by the NBS, outstanding SNPF contributions, bankruptcy, and the case in 2007/2008. However, it is clear that it would have been much more appropriate for the ACEL’s lawyers to seek those costs from the Court in respect of those Court proceedings rather than to seek such costs several years later from the arbitrator who did not take part in any of those Court proceedings. In addition, the Court in the 2007/2008 case did not award costs but ordered each party to pay its own costs.
62. I accept that there was no mutual agreement between the parties to refer the costs complained of by the SNPF to the arbitrator for decision. The award should also be set aside on this basis on the ground of ‘misconduct,’ a term which the authorities show is not entirely appropriate in this context. These costs also relate to matters in previous Court proceedings and should have been sought from the Court in those proceedings. In any event, I have already decided to set aside the award in respect of the foreclosure proceedings by the NBS, the proceedings for outstanding SNPF contributions, and the bankruptcy proceedings.

(c) Third ground: The arbitral award had no evidence or material on which to base the amount of damages

63. It was further submitted for the SNPF that there was no evidence to support the awards for costs to finance / interest, loss of reputation, and legal fees or to satisfy the legal tests for those awards. In view of the conclusions I have already reached to set aside the award in relation to damages for loss of reputation and for legal fees but not to set aside the award for costs to finance/interest, it is perhaps not necessary to deal with this ground of the motion by the SNPF. However, because of the importance of the issue raised I will go on to deal with it.
64. Counsel for the ACEL submitted that there was evidence of damages given before the arbitrator by the witnesses for the ACEL. I accept this was so. Counsel for the ACEL then submitted that an arbitrator appointed because of his skill and experience is entitled to use his professional knowledge when he makes his assessment on the quantum of damages to be awarded. Counsel relied on the English case of Mediterranean and Export Co. Ltd v Fortress Fabrics (Manahester) Ltd [1948] 2 A11 ER 186, 187-188 and the passages from the judgment of Lord Goddard CJ already cited in this judgment at paras 45-46. Counsel also referred to the New Zealand case of Wilson v Glover [1969] NZLR 365, 372 where Moller J said that the Judge would not interfere with the award merely on the ground that he might have come to a different decision from that which the arbitrator had arrived at. But the Judge would interfere if the difference was so great that it clearly, by itself, showed bias on the part of the arbitrator or that it was of such a nature and amount that taken in conjunction with all other matters, bias was sufficiently evident.
65. It is also to be noted that damages is not a simple area of the law. It is a complex area of the law. The assessment of damages involves both questions of law and fact. It involves the identification of the correct legal tests to be applied, a determination of the facts, and the application of the legal tests to the facts. In the New Zealand case of Airwork Holdings Ltd v Auckland Regional Reserve Helicopter Trust [2006] NZHC 513 at [25], Asher J cited the case of Canada (Director of Investigation ad Research) v Southam Inc (1997) 144 DLR (4^th) at [35] where the Court said that “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.”
66. Given that the assessment of damages involves questions of law, namely, the identification of the correct legal tests to be applied and questions of fact, namely, a determination of the facts, and then the application of the legal tests to the facts, I have reservations whether an arbitrator who is a non-lawyer can be said to be entitled to rely on his professional skill, experience, and knowledge in the assessment of damages. On questions of fact the arbitrator would be so entitled; but not on questions of law because he is a non-lawyer. If the arbitrator applies a wrong legal test then that would be an error of law and provided it appears on the face of the award, the Court will interfere with the award. If, however, the arbitrator commits an error of fact then it appears from the authorities that the Court is unlikely to interfere unless the error of fact is so great that, by itself, it shows bias on the part of the arbitrator. In my respectful view, the same should apply in a situation where there is no evidence to support an award as the arbitrator relies on his professional skill, experience and knowledge for which he was appointed as the arbitrator. The Court would not interfere merely on the ground that it might have come to a different decision from the arbitrator+-: Wilson v Gluer [1996] NZLR 365, 372. But if the difference is too excessive so as to show bias on the part of the arbitrator, then the Court would interfere with the award on the ground of ‘misconduct’. In this case, even if I were to accept that an arbitrator appointed for his professional skill and experience is entitled to rely on his professional knowledge on questions of fact without the necessary supporting evidence, the award is too excessive and should be set aside.
    • (d) Fourth ground: The arbitrator erred in law as to the legal requirements to prove the damages awarded
67. I have effectively dealt with this ground in what has already been said. Firstly, damages for loss of reputation can arise not only from defamation but also from breach of contract: Foaminal Laboratories Ltd v British Artid Plastics Ltd [1941] 2 A11ER393, 399-400; Malik v Bank of Credit; Mahammed v Bank of Credit [1997] UKHL33; Bell-Boath Group Ltd v Attorney –General [1989] 3 BZKR 148M156,157-158. I therefore accept the submission by counsel for the ACEL that damages arising from loss of reputation caused by a breach of contract can be claimed as special damages. However, the legal tests for such damages already referred to in this judgment have not been satisfied. Furthermore, it is a fundamental legal principle that no person should be liable for the alleged consequences of words he did not say or for the publicity of such words which he did not carry out.

Additional comments

68. By way of additional comments, I must say that the use of the term ‘misconduct’ in the context of arbitration is rather unfortunate when referring to the arbitrator. But it is the term that is used in s.13 of our Arbitration Act 1976. As Bingham J (as he then was) said in Zermalt Holdings SA v Nu-Life Upholstery Repairs [1985] 2 EGLR 14;
    • “The jurisdiction of the Court under section 23 rests on what is, most unfortunately called ‘misconduct’. That gives the impression that some impropriety or breach of professional conduct or lack of integrity or incompetence is involved. In 99 cases out of 100 an application under section 23 involves nothing of the kind. It involves, usually, merely a procedural lapse of a kind that any arbitrator or magistrate or judge may be guilty of.”
69. Secondly, I have full sympathy for the arbitrator in this case. Damages is a complex area of the law. It is not simple. Likewise, the assessment of legal costs is not always straight forward. I can fully understand what is noted in the award by the arbitrator, who is not a lawyer, that the assessment of damages was not an easy task. Perhaps, for future arbitrations involving construction contracts, two arbitrators should be appointed – a civil engineer or other similarly qualified person, and a legally qualified person with the necessary experience. I note from the history of this case that there had been suggestions to appoint a civil engineer or a lawyer as arbitrator. It seems to me that both should have been appointed. I am supported in this view by the case of Gold and Resource Development (NZ) Ltd v Doug Hood Ltd [2000] NZ CA 331 which involved an arbitration for termination of a works contract. The arbitrators that were appointed were a retired Judge, an experienced legal practitioner, and a senior engineer.

Conclusions

70. (a) The award of $782,000 for loss of reputation is set aside.

(b) The award of $800,512.48 for legal fees is also set aside.

(c) The matter is referred back to the arbitrator to reconsider only the award for legal fees in view of what is said in this judgment regarding that part of the award.

71. It is still open to the parties and their lawyers to settle this longstanding matter in view of what is said in this judgment and bring it to an early resolution without going back to the arbitrator.
72. Counsel to file submissions as to costs in 10 days if agreement cannot be reached.

CHIEF JUSTICE