Alusi Ltd v G J Lawrence Dental Ltd
[2020] NZHC 739
•9 April 2020
IN THE HIGH COURT OF NEW ZEALAND WELLINGTON REGISTRY
I TE KŌTI MATUA O AOTEAROA TE WHANGANUI-A-TARA ROHE
CIV-2019-485-585
[2020] NZHC 739
IN THE MATTER of article 5 of Schedule2 of the Arbitration Act 1996 and Part 26 of the High Court Rules 2016 BETWEEN
ALUSI LIMITED
First Plaintiff
AND
OPENYD LIMITED
Second Plaintiff
AND
RUDAYNA IBRAHIM, ABDULAH ABDULQADIR and OMAR JASSIM
Third Plaintiffs
AND
G J LAWRENCE DENTAL LIMITED
First Defendant
AND
GARY JOHN LAWRENCE and JASON PETER SILK and DIANE SHERYL LAWRENCE and JASON PETER SILK
Second Defendants
Hearing: 9 December 2019 Counsel:
C J Griggs for Plaintiffs A Skelton for Defendants
Judgment:
9 April 2020
JUDGMENT OF ELLIS J
ALUSI LIMITED & ORS v GJ LAWRENCE DENTAL LIMITED & ORS [2020] NZHC 739 [9 April 2020]
Table of Contents
Paragraph No.
BACKGROUND [5]
Relationships deteriorate [13]
The first arbitration [22]
The sale of Creative to Alusi and its aftermath [25]
Proceedings in the High Court [41]
THE SECOND ARBITRATION [43]
The Preliminary Question Award [46]
The arbitrator’s answers to the PQs [51]
THRESHOLD FOR GRANTING LEAVE [57]
ALUSI’S APPLICATION FOR LEAVE: THE QUESTIONS
OF LAW SAID TO ARISE FROM THE AWARD [64]
DISCUSSION [71]
PQ 3 (the pre-emptive rights issue) [72]
Question one [76]
Question two [89]
Question three [93]
Question five [96]
Question six [100]
PQ four (the voting rights issue) [101]
Questions seven to nine [101]
PQ five (the occupation isue) [105]
Question 10 [111]
PQ six (the termination issue) [115]
Question 11 [115]
Other considerations [117]
Substantial effect on the rights of the parties [118]
The nature of the arbitral process and the qualifications
of the arbitrator [121]
Delay [122]
Result [123]
[1] This judgment represents another chapter in a longstanding dispute about the occupation and management of a dental centre at Raumati Beach (the Centre). Currently, Dr Gary Lawrence and Dr Rudayna Ibrahim are carrying on their practices there.
[2] G J Lawrence Dental Ltd (Lawrence Dental) is the company through which Dr Lawrence operates his business. Alusi Ltd (Alusi) serves the same purpose for Dr Ibrahim. Openyd Ltd (Openyd—pronounced “Open Wide”) is the company through which the Centre is managed. Lawrence Dental and Alusi are the current shareholders in Openyd. Openyd leases the premises where the Centre is situated from two Family Trusts associated with Dr Lawrence.
[3] In late 2018, two disputes between the persons and entities just mentioned were referred to arbitration. The Hon Paul Heath QC was appointed as arbitrator. In early 2019, Mr Heath identified a number of preliminary questions (PQs) the answers to which, he thought, would potentially resolve a number of aspects of the disputes and, at the very least, provide a useful platform for any further arbitration.1 Later in the year he issued a partial award in which he answered those PQs.2 The applicants (referred to in this judgment collectively as Alusi) now seek leave to appeal on what they say are 11 “sub questions” of law arising from four of his answers.3
[4] I have determined that leave should be declined on all questions. Rule 26.18 of the High Court Rules requires me to give reasons. Regrettably, due to the number of questions on which leave was sought and the need, in order to understand them, to canvass the quite complex background to the dispute (which was not summarised by
1 Interim Award (Preliminary Question Application) dated 28 March and varied on 8 April 2019.
2 (Revised) Partial Award dated 22 November 2019.
3 It has previously been agreed (and directed) that a companion application to set aside part of the award for breach of natural justice be heard and determined later, together with the substantive appeal (if leave is granted).
counsel4), those reasons have not proved short (or quick) to write. I begin with the background.
BACKGROUND
[5] In 1995, Dr Lawrence employed two dentists, Dr Singleton and Dr Henderson. Each wished to commence practice on his own account. With the help of a consultant based in Auckland, Dr Lawrence devised a structure whereby each of the three dentists could practise individually from the Centre, while sharing expenses.
[6] The relationship between the dentists and their practices was governed by a two-pronged structure: the Openyd company and a Deed of Association.
[7] The Openyd company was incorporated in late 1995. Each of the three dentists was to hold one-third of the share capital in that company and each would nominate one director to sit on its board. Openyd is, in the ordinary way, governed by its Constitution, cl 15 of which contained rights of pre-emption in relation to the shares held by each of the three shareholders. In January 1996, Openyd entered into a lease of the premises—from which the Centre operated—with two Family Trusts associated with Dr Lawrence.
[8] The Deed of Association, which was designed to govern the relationships between the three individual dentists, was also executed in January 1996. The Deed also contained a clause (also cl 15) conferring pre-emptive rights on the parties to it— which would operate in the event that one wished to sell his practice—and an arbitration clause.
[9] In 2000, Dr Al-sabak acquired Dr Henderson’s practice. A new Deed of Association (but on the same terms as before) was entered between Dr Al-sabak and the remaining two dentists.
4 I was provided with a copy of an agreed summary of facts prepared for the purposes of the PQ arbitration but, like the award itself, the summary arranges the facts by reference to the individual PQs, rather than chronologically.
[10] In 2005, a Dr Silk acquired Dr Singleton’s practice. He did this through a company, Elky Ltd. As I understand it, this prompted both Dr Lawrence and Dr Al-sabak also to form companies—Lawrence Dental and Creative Dentistry (Creative).5 The parties to the new (2005) Deed of Association became the three companies, rather than the individual dentists.
[11] Then, in 2012 Dr Ibrahim acquired Elky’s/Dr Silk’s interest through her company, Alusi Ltd. A further Deed of Association was executed, again on materially similar terms (the 2012 Deed). It is that Deed which is relevant to the present dispute.
[12] I interpolate at this point that while Openyd was an important part of the arrangements between the three practices, no mention was made of the company in any of the Deeds of Association. Both Openyd’s Constitution and the 2012 Deed fail to specify which document was to have primacy in terms of the management arrangements for the Centre; the arbitrator identified this as the critical reason why disputes about control of the Centre have arisen.
Relationships deteriorate
[13] In June 2016, Dr Lawrence advised Dr Ibrahim and Dr Al-sabak that he intended to retire. Shortly afterwards, Dr Lawrence sent Dr Ibrahim a memorandum in which he set out the financial position of his practice in some detail. Dr Lawrence indicated that he was prepared to sell it at a nominated price.
[14] Despite the pre-emptive provisions in the 2012 Deed, Dr Lawrence did not offer his practice for sale to Creative. It seems that he was aware that Creative’s solicitor had advised that Dr Al-sabak’s preference was for Alusi to acquire both the Lawrence Dental practice and Creative’s. That would have left Alusi as sole shareholder of Openyd and with full control over the business of the Centre.
[15] Alusi regarded Dr Lawrence’s 1 July 2016 memorandum as an offer to sell his practice. Alusi purported to accept it on 25 July.
5 Creative Dentistry was originally called Raumati Dental Care Ltd.
[16] It is not necessary to set out what happened during the remainder of 2016 in any detail. It suffices to note that on 21 February 2017, Lawrence Dental denied any binding arrangement had been reached. They suggested that a meeting of all “three members of the practice be convened with a view to an overall resolution of issues”.
[17] That meeting, on 15 March, took the form of a mediation. The mediation resulted in an agreement recorded in an email (the email agreement) drafted by Lawrence Dental’s lawyers. The email agreement was intended to resolve all outstanding issues among the parties. It provided that:
1.Alusi Limited [Dr Ibrahim] and [Lawrence Dental] shall sign the agreement for Sale and Purchase drafted at the meeting.
2.That Creative Dentistry Ltd [Dr Al-sabak] will provide financial records to [Dr Ibrahim] with respect to his practice by 5pm, Friday 17 March 2017.
3.That [Dr Al-sabak] may now market his practice for sale to third parties [not party to the Deed of Association].
4.[Dr Al-Sabak] shall prior to accepting any offer for his practice offer his practice to [Dr Ibrahim] on the same terms.
5.[Dr Ibrahim] shall have three working days to make an offer on the same terms failing which [Dr Al-sabak] may sell his practice to that third party on the terms recorded in the original offer.
6.Subject to 5 above, in consideration for the above, [Dr Ibrahim] shall waive any right of pre emption pursuant to the Deed of Association and the constitution of Openyd Limited and consent to such sale.
7.In the interim [Dr Ibrahim] and [Dr Al-sabak] shall negotiate in good faith regarding the sale of [Dr Al-sabak’s] practice to [Dr Ibrahim].
8.[Dr Al-sabak] shall give further consideration to consenting to the sale of [Lawrence Dental] practice to Alusi Limited and shall confirm his position by 5pm Monday 20th March 2017.
9.[Dr Al-sabak’s] consent to the sale of [Lawrence Dental] to Alusi Limited shall be deemed to be given if he enters into an unconditional contract for the sale of his practice.
[18] The signed sale and purchase agreement referred to in cl 1 (the Lawrence ASP) was attached to the email.
[19] On 24 March, Dr Al-sabak accepted a conditional offer to buy his practice made by a Dr Singh. As I understand it, the fact of this agreement (but not its detail) was advised to Alusi and Lawrence Dental at around this time.
[20] On 31 March 2017 Alusi’s solicitors wrote to the solicitors for Lawrence Dental, saying that they regarded the Lawrence ASP as unconditional. They forwarded a cheque for the deposit. Lawrence Dental’s response was non-committal; the cheque was not banked. A threat of proceedings by Alusi seeking specific performance from Lawrence Dental at the end of April had no effect—the threatened proceedings were never filed.
[21] On 7 April, Creative gave notice in terms of cl 20 of the 2012 Deed (the arbitration clause) alleging that Lawrence Dental had entered “into a contract for the sale of the dental practice to Alusi” without complying with cl 15 of the Deed of Association (the pre-emptive rights provision). The first arbitration duly followed.
The first arbitration
[22] This arbitration took place in July 2017, before Mr Matthew Sherwood King. His subsequent award is dated 25 August 2017.6 It recorded an agreement that the arbitration should determine two preliminary points:
(a)The interpretation and operation of cl 15 of both the 2012 Deed and Openyd’s Constitution, together with issues of alleged waiver; and
(b)The effect and enforceability “of the contract dated 15 March 2017”, which was agreed to mean the Lawrence ASP.
[23] Mr Sherwood King found that the Lawrence ASP was conditional on Dr Al- Sabak’s consent, because it had been agreed that if the sale of either Lawrence Dental or Creative to Alusi went ahead, the third party had to agree. Creative’s consent had not been forthcoming: the Lawrence ASP was of “no effect and is not enforceable”.
6 In the preliminary questions award (the PQ Award) which Alusi currently seeks leave to appeal, it explains that the position Alusi took in the 2017 arbitration is different from the argument it now makes as regards pre-emptive rights (see PQ Award at [67]).
[24]No challenge was made to this award.
The sale of Creative to Alusi and its aftermath
[25] As I understand it, very shortly after the conclusion of the first arbitration, Dr Al-sabak’s solicitors wrote to the solicitors for Lawrence Dental and for Alusi notifying them that Dr Al-sabak wanted to retire and that he wished to sell his practice to Dr Singh. They requested that Alusi and Lawrence Dental waive their pre-emptive rights under the 2012 Deed and the Constitution in order that he might do so.7
[26]The following day:
(a)The solicitors for Lawrence Dental wrote:
(i)to Creative’s solicitors reserving Lawrence Dental’s position in all respects in relation to that notice; and
(ii)to Alusi’s solicitors, returning the cheque it had received at the end of March as a deposit for the Lawrence ASP, saying:
The contract has been determined as unenforceable by the arbitrator’s decision of 25 August 2017. The contract therefore is at an end, but for the avoidance of any doubt, our client cancels the contract on the grounds of its unenforceability.
(b)The solicitors for Alusi wrote to Creative’s solicitors, saying that the email agreement required Dr Al-sabak to offer his practice to Dr Ibrahim on the same terms as he had offered it to Dr Singh before any sale to to Dr Singh could be concluded.
[27] On 4 September Creative’s solicitors responded, attaching a copy of the sale and purchase agreement between Creative and Dr Singh. They also made it clear that its position was that the email agreement was “irrelevant, defunct and not now contractually binding” and that cl 15 of the 2012 Deed and the Constitution continued
7 The reasons for this (as far as I can ascertain) is that Dr Al-sabak had, at that point, entered into a conditional contract for the sale of his practice to a Dr Singh.
to govern the parties. They advised that both Lawrence Dental and Alusi were, accordingly, being “offered the practice in terms of clause 15”, giving them seven days to reply.
[28] For reasons which I do not fully understand (given that Alusi had just been given the opportunity to buy Dr Al-sabak’s practice), on 6 September Alusi commenced proceedings in this Court to stop Creative’s sale to Dr Singh, relying on the email agreement. Lawrence Dental sought and was granted leave to intervene.
[29] On 28 September Lawrence Dental’s solicitors wrote a letter making it clear that:
(a)their view was that the proposed sale of Creative to Alusi could not proceed under the email agreement;
(b)Lawrence Dental did not wish to buy Creative’s practice “at this present time”; and
(c)Lawrence Dental would likely agree to the sale if Alusi agreed to a number of matters including that following the sale, the shareholding in Openyd be held equally between Alusi and Lawrence Dental, together with various (pro-Lawrence Dental) amendments to the Deed of Association.
[30] The High Court proceedings were subsequently discontinued, as a result of the sale of Creative to Alusi, which was executed on 1 November 2017.8 Notwithstanding that a form had been executed the day before for the transfer of 25 shares in Openyd, (valued at $4,000 each), cl 16.1 of the agreement provided:
… The agreement is conditional on the vendor obtaining the approval of the other shareholders in Openyd limited to the transfer of shares to the purchaser and any other requirements relating to the transfer of such shares within 20 working days of the date of this agreement.
8 Mr Heath found that the terms had been agreed earlier, on about 14 September.
[31] But it appears that, on the same day, a resolution was purportedly passed by Dr Ibrahim (Alusi) and Dr Al-sabak (Creative), as two of the three directors of Openyd, which provided for the transfer of the shares owned by Creative to Alusi. The resolution stated that “The directors are satisfied that the pre-emptive provisions in para 15 of the companies [sic] constitution have been complied with, or waived, as applicable”.
[32] When this resolution was sent to Alusi’s solicitors, they advised it would be preferable to have it signed by all three directors, noting that Dr Lawrence might wish to seek legal advice before signing. Dr Al-sabak then sent the resolution to Dr Lawrence, saying “they want to have this signed before they settle”. Dr Lawrence said this was the first he had heard about Alusi purchasing Creative. He did not sign the resolution. The shares were, in any event, transferred.
[33] Then, on 13 November, Lawrence Dental gave notice of an intention to retire from the association, thereby triggering Alusi’s rights (as the owner of two-thirds of the shares) to seek to purchase that practice.9
[34] On 10 December the solicitors for Alusi responded to Lawrence Dental’s notice, contending that it was invalid because of the existence of “an unconditional concluded agreement” for the sale of Lawrence Dental’s practice to Alusi for the sum of $400,000.10 They also suggested that the notice could be construed independently as one given under cl 15.3 of the Constitution. Alusi also expressed an interest in the purchase of Lawrence Dental’s shares in Openyd.
[35] On 13 December, Lawrence Dental’s solicitors rejected both those suggestions. They made it clear that they regarded the 13 November 2017 notice as valid, in terms of cl 15 of the 2012 Deed. It followed, the solicitors said, that the letter of 10 December 2017 should be treated as a refusal to exercise the right of purchase under that notice, with the consequence that Lawrence Dental was free to sell.
9 Lawrence Dental nominated a price of $550,000, plus GST if any.
10 The arbitrator noted that he was unsure as to what this was intended to refer.
[36] On 22 December, Alusi gave notice of an Openyd shareholders’ meeting, which was to be called for the purpose of removing Dr Lawrence as a director—and appointing Dr Ibrahim’s son, Mr Abdulqadir, in his place.11
[37] At this time, the shares transferred by Creative to Alusi had not been registered in Openyd’s share register. But that same day, Dr Ibrahim (on behalf of Creative12) signed an instrument appointing Mr Abdulqadir as Creative’s proxy for the purpose of voting at any such meetings over the following 12 months. Alusi thus, effectively, had the majority vote.
[38] Unsurprisingly, the shareholders’ meeting on 25 January 2018 saw Dr Lawrence removed as a director and chair of Openyd and Dr Ibrahim’s son appointed in his stead. Subject to the validity of the process just described, the present directors of Openyd are therefore Dr Ibrahim and her son. Further steps were taken by Dr Ibrahim’s interests in early February 2018 to advance Alusi’s position at the expense of Dr Lawrence’s.
[39] On 12 February the solicitors for Lawrence Dental wrote to Alusi alleging various breaches of the 2012 Deed. They asserted that Openyd did “not have any independent governing role in the operation of the Centre” but was instead “used as a custodian or administration vehicle for the association”. The solicitors said that the breaches amounted to a repudiation of “the terms and conditions of the association forming the Raumati Dental Centre as contained in the deed of association” and gave notice of cancellation of the Deed, effective immediately.
[40] On 28 February Openyd issued a notice to Lawrence Dental purporting to terminate its “statutory tenancy as a sub-lessee” of the Raumati premises.
Proceedings in the High Court
[41] On 14 February 2018, Lawrence Dental filed two proceedings in the High Court:
11 The relevant documents do not appear to have been served on Dr Lawrence until 17 January 2018.
12 As part of the 1 November settlement of the Creative/Alusi sale, Dr Ibrahim had been given a Power of Attorney which authorised her to provide that proxy.
(a)An application for declarations concerning the status of the 2012 Deed (seeking affirmation that it had been cancelled on 12 February 2018) and an application that a receiver of the “association” be appointed under cl 14 of the 2012 Deed.
(b)An application to place Openyd into liquidation, based on both the cancellation of the 2012 Deed—which Lawrence Dental said removed Openyd’s purposes—and the fact that Alusi was operating Openyd in an oppressive, unfair, and prejudicial manner.
[42] Alusi filed a protest to jurisdiction saying that both disputes were covered by the arbitration clause in the 2012 Deed. A stay of proceedings was subsequently granted on that basis.13
THE SECOND ARBITRATION
[43] The dispute was then referred to arbitration. As noted earlier, Mr Heath was appointed as the arbitrator. There were two claims.
[44] The first was the claim by Lawrence Dental against Alusi (and Dr Ibrahim, Mr Abdulah Abdulqadir, Mr Omar Jassim) and Openyd (the Lawrence Dental Arbitration). The claim sought various forms of relief, including liquidation of Openyd, and challenged:
(a)Alusi’s contention that it had acquired a controlling interest in Openyd on 1 November 2017 when it purchased Creative; and
(b)the use of Alusi’s voting rights on 25 January 2018 to remove Dr Lawrence as a director of Openyd and replace him with Mr Abdulqadir.
[45] The second was by Openyd (acting through its present directors, Dr Ibrahim and Mr Abdulqadir) against the trustees of the Lawrence Family Trusts as lessors of
13 G J Lawrence Dental Ltd v Alusi Ltd [2018] NZHC 1342.
the land and buildings from which the Centre operates (the Openyd Arbitration). Openyd alleged that the Lawrence Family Trusts had breached the covenant of quiet enjoyment contained in the 2011 Lease. Initially, damages were sought, but in a counterclaim filed in the Lawrence Dental Arbitration, Openyd also sought an order for possession of the rooms occupied by Lawrence Dental.
The Preliminary Question Award
[46] As noted earlier, the arbitrator first issued an interim award identifying six PQs, the resolution of which would provide a basis on which the parties could attempt to negotiate settlement of their dispute—or at least narrow the scope of any further arbitration. As he later explained:14
[8] The need to answer preliminary questions arises out of the fundamentally different positions taken by the parties in relation to the structure chosen by the dental practices to regulate their affairs. Lawrence Dental asserts that the 2012 Deed is the controlling document. That document was executed in late August 2012, on the assumption that Dr Ibrahim would commence her separate dental practice with effect from 31 August 2012. On the other hand, Dr Ibrahim’s interests contend that the 2012 Deed must be interpreted in a manner consistent with the original parties’ decision in 1996 to incorporate Openyd, and to use that company to manage the Centre’s business.
[9] On Dr Lawrence’s view, all dental practices operating out of the Centre at any given time were intended to have an equal say in the operation of the Centre. On Dr Ibrahim’s approach, once Alusi acquired two thirds of the shares in Openyd, it had the right to direct how the Centre should be managed.
[47]The arbitrator articulated the six PQs as follows:15
(a)Did the 2012 Deed create an unincorporated body of persons that is capable of holding property in its own right? If not, what is the legal effect of the 2012 Deed? (the 2012 Deed interpretation issue)
(b)Does Openyd hold the Lease or any other property right (including rights and obligations arising out of employment agreements and agreements for the provision of services into which it has entered) in its own right (ie as legal and beneficial owner), or as trustee (legal owner) in equal shares for the beneficiaries, being those persons who make up the unincorporated body of persons? If Openyd does not hold the Lease or other property rights in its own right or as a trustee, on what basis does it hold that property? (The role of Openyd issue)
14 PQ Award at [8] – [9].
15 PQ Award (footnotes included).
(c)In the event that Lawrence Dental and Alusi were each to remain the owner of a practice under the 2012 Deed, has Lawrence Dental at any time waived or forfeited its pre-emptive rights under the Constitution of Openyd, or its rights and protections under the 2012 Deed?16 (The pre-emptive rights issue)
(d)If the answer to (c) is yes, absent invocation of the pre-emptive rights set out in the Constitution of Openyd, has Alusi, since settlement of the sale of the practice of Creative Dentistry from Creative Dentistry to Alusi on 1 November 2017, lawfully exercised voting rights in Openyd derived from the shares held by Creative Dentistry? (The voting rights issue)
(e)On what legal basis do:
(i)Lawrence Dental and
(ii)Alusi
(respectively) occupy the rooms in the Centre that are used by each of them? (The occupation issue)
(f)Has the 2012 Deed been terminated? If so, was that effected:
(i)on 12 February 2018 by Lawrence Dental’s letter of cancellation; or
(ii)on 13 February 2018 by operation of clause 15 of the 2012 Deed (three months after the notice of intention to retire given by Dr Lawrence)? (The termination issue)
[48] The arbitrator explained how these questions had been formulated to address the fundamental legal differences between the parties. More specifically:17
(a)PQs one and two were designed to determine how the 2012 Deed and Openyd’s constitution could be read together to provide a “workable means by which the Centre was to be managed for the benefit of the dental practices in occupation at any given time”;
(b)PQ three and four were designed to determine what (if any) “shareholder” rights Alusi secured when it purchased Creative’s practice on 1 November 2017;
16 The arbitrator recorded that this question was intended to incorporate all issues relating to the status and effect of the March 2017 email agreement.
17 I elaborate on these purposes as necessary in my analysis later in this judgment.
(c)PQ five was designed to determine occupation rights attaching to individual rooms used by the two dental practices in the Centre; and
(d)the purpose of PQ six was to identify the date on which the 2012 Deed was terminated.
[49] A hearing was held in early June 2019 and, on 18 September 2019, Mr Heath issued an award answering the six PQs (the PQ Award). The Award was subsequently amended on 21 October, and reissued on 22 November.
[50] The present application for leave to appeal is said to relate to the answers given to PQs three, four, five and six. The answers to the first and second nonetheless remain relevant and so are also set out below.
The arbitrator’s answers to the PQs
[51] In response to question one (the 2012 Deed interpretation issue), the arbitrator noted that the 2012 Deed states that the dental companies intended to bind themselves together in an “association”. He said that so far as the operation of the Centre is concerned, Openyd and the “association” are to be treated as equivalents. The linkage between Openyd and the association is emphasised by the existence of the 2011 Lease and the fact that payments from each dental company’s income were made to Openyd, through which business expenses were paid and distributions of amounts payable following adjustments were made. Openyd was the entity through which the business of the “association” was carried on. Once a company is chosen as the vehicle through which an enterprise is undertaken, the rules relating to the operation of the company come into play—for better or worse. He found that all three dental companies intended that the 2012 Deed would modify obligations otherwise owed among themselves through the Openyd constitution. Accordingly, to the extent that the Openyd constitution differs from the 2012 Deed, the 2012 Deed prevails. The “business” of the association to which the 2012 Deed refers is that undertaken by Openyd on behalf of the dental companies. Liquidation of Openyd would achieve the same purpose as appointment of a receiver to realise assets of the “association”.
[52] As to question two (the role of Openyd issue), the arbitrator similarly held that while Openyd was to be regarded as an independent company in its own right, it was also to be operated in accordance with the agreement reached by all shareholders and recorded in the 2012 Deed.
[53] In response to question three (the pre-emptive rights issue), the arbitrator held that Lawrence Dental had not waived its pre-emptive rights either before or after Alusi purported to purchase Creative and its shares in Openyd.
[54] The answer to question three meant that it was strictly unnecessary to consider question four (the voting rights issue). But out of an abundance of caution, the arbitrator nonetheless considered the fourth question and held that, if Lawrence Dental had waived its pre-emptive rights, then Alusi was entitled to use the voting rights attaching to Creative’s shares to remove Dr Lawrence as a director of Openyd.18
[55] As to question five (the occupation issue), the arbitrator held that both Lawrence Dental and Alusi occupied areas within the Centre under an implied licence—granted as part of the bundle of rights stemming from the 2012 Deed and Openyd’s Constitution. He held that the licence was not revocable at will and must be regarded as being subject to a term preventing its termination until either one party had sold its practice to the other, or the affairs of the association were wound up under the 2012 Deed.
[56] As to question six (the termination issue), the starting point was that counsel were agreed the 2012 Deed had been terminated. The dispute lay in the date on which that occurred. The arbitrator held it was not terminated on 13 February 2018, which was three months from the date on which Dr Lawrence gave notice of his intention to retire. Instead, he held that Alusi’s failure to comply with its obligations under the pre-emptive provisions19 before it purchased Creative constituted a repudiation of that
18 Notwithstanding that there had been non-compliance with s 84 of the Companies Act 1990; and notwithstanding that Creative remained the legal owner of the shares (because the share register could not be found and because Lawrence Dental would not join in a resolution confirming the transfer).
19 Of both the 2012 Deed and Openyd’s Constitution.
Deed. That repudiation gave Dr Lawrence valid grounds for cancellation, which was clearly communicated by Dr Lawrence’s solicitors’ letter of 12 February 2018.
THRESHOLD FOR GRANTING LEAVE
[57] Before turning to consider the specific questions on which Alusi seeks leave to appeal it is useful to address the principles governing such applications.
[58] Clause 5(1)(c) of the second Schedule to the Arbitration Act 1996 (the AA) permits appeals to the High Court on “any question of law arising out of an award” either by agreement or with leave of the Court.20 The Court may not grant leave unless “it considers that, having regard to all the circumstances, the determination of the question of law concerned could substantially affect the rights of 1 or more of the parties”.21 Leave may be granted on any conditions as the Court sees fit.22
[59]Clause 5(10) stipulates that for the purposes of cl 5, a 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 part of the award was supported by any evidence or sufficient or substantial evidence; and
(ii)the arbitral tribunal drew the correct factual inferences from the relevant primary facts.
[60] Leave may not be granted in relation to new issues that were not “on the arbitrators’ table”.23
[61] If leave is granted and an appeal is heard and determined, art 5(4) provides that the Court may, by order—
(a)Confirm, vary, or set aside the award; or
20 If leave to appeal is refused, the High Court may grant leave for the party to appeal that refusal to the Court of Appeal: sch 2, cl 5(5). If the High Court declines to do so, the Court of Appeal may grant special leave: sch 2, cl 5(6).
21 Arbitration Act 1996, sch 2, cl 5(2).
22 Schedule 2, cl 5(3).23 Nixon v Walker [2010] NZCA 273 at [73] – [83].
(b)Remit the award, together with the High Court’s opinion on the question of law which was the subject of the appeal, to the arbitral tribunal for reconsideration …
[62] In Gold & Resource Developments (New Zealand) Ltd v Doug Hood Ltd the Court of Appeal held that:24
The Court should consider in a preliminary way… the strength of the argument that there has been an error of law and the nature of that point. If it is a one-off point, in the sense that it is unlikely to occur again and cannot be seen as having any precedent value, either generally or to the parties on another occasion, then unless there are very strong indications of error leave should rarely be granted. In other cases, the Court will be looking for a somewhat less stringent assessment. In those cases, a strongly arguably case would normally be required for leave to be granted. The existence of conflicting decisions will also be relevant.
… we think it is better to say that what must be shown, on a preliminary view, is that the applicant has a very strongly arguable case that the arbitral tribunal has erred in law.
So, instead of speaking of a ‘strong prima facie case that the arbitrator was wrong’ or ‘obviously wrong’, which are only labels intended to indicate that there is a high or very high threshold, we would, without intending any lowering of the barrier faced by an applicant for leave, substitute a test of strongly or very strongly arguable case.
[63] The Court of Appeal also identified a number of other factors relevant to the exercise of the discretion to grant leave and made the particularly relevant observation that:25
Where the arbitrator chosen by the parties is legally qualified, it will be harder to obtain leave to appeal the arbitral decision on a question of law. As Lord Donaldson of Lymington MR stated in Ipswich BC v Fisons plc [1990] Ch 709, [1990] 1 All ER 730 (CA)], at p 724; p 734, if the chosen arbitrator is a lawyer and the problem is purely one of law, the parties must be assumed to have had good reason for relying on that lawyer’s expertise.
ALUSI’S APPLICATION FOR LEAVE: THE QUESTIONS OF LAW SAID TO ARISE FROM THE AWARD
[64] As noted earlier, thee questions of law on which leave is sought are said by Alusi to arise out of the arbitrator’s answers to PQs three to six which, to reiterate, were that:
24 Gold & Resource Developments (New Zealand) Ltd v Doug Hood Ltd [2000] 3 NZLR 318 (CA) at [54(1)].
25 At [54(3)].
(a)Lawrence Dental’s pre-emptive rights were not waived;
(b)if (contrary to (a)) the rights were waived, Alusi properly exercised Creative’s voting rights;
(c)Lawrence Dental and Alusi occupy the premises under an implied licence; and
(d)the 2012 Deed was cancelled by the letter from Lawrence Dental’s solicitors on 12 February 2018.
[65] Initially, Alusi articulated 11 questions of law said to arise. But the fourth of these has since been abandoned—Alusi accepted that it was a question of fact, not law.26
[66] It is useful to divide the remaining questions by reference to which of the four PQs each is said to relate. In doing so I have redrafted some of the questions slightly, in an attempt to enhance their clarity.
[67] First, the finding that Lawrence Dental’s pre-emptive rights were not waived is said to give rise to the following questions:
(a)Question one: Whether the arbitrator was wrong to find that, notwithstanding s 41 of the Contract and Commercial Law Act 2017 (the CCLA), the Lawrence ASP was cancelled prior to the communication of that cancellation.
(b)Question two: Whether Lawrence Dental’s status as a party to the email agreement and/or the Lawrence ASP meant that—in the context of Alusi’s purchase of Creative—it had waived its pre-emptive rights.
26 The question was “Whether in all the circumstances a reasonable time had expired for the fulfilment of the condition in the Lawrence ASP before 1 November 2017, namely the consent or deemed consent of Creative, given the finding of the arbitral tribunal that the Lawrence ASP was wrongfully repudiated by Lawrence Dental on 29 August 2017.”
(c)Question three: Whether the email agreement was a conditional contract.
(d)Question five: To the extent that any of Lawrence Dental’s pre-emptive rights survived the email agreement and the Lawrence ASP, whether the letter written by its solicitors on 28 September 2017 constituted an effective waiver of such rights and thus created a promissory estoppel as to their subsequent exercise.
(e)Question six: Whether, on the basis of answers to all or any of the above questions, Lawrence Dental is deemed by operation of law to have waived its pre-emptive rights in respect of Alusi’s purchase of Creative.
[68] Secondly, the alternative finding that (if Lawrence Dental’s rights were waived) Alusi had properly exercised Creative’s voting rights is said to give rise to the following questions:
(a)Question seven: Whether, for the purposes of s 84(2)(a) of the Companies Act 1993, a share transfer form is delivered to a company when it is delivered to any person named as a director of the company on the New Zealand register under ss 387(1)(a) and 388(1)(a) of that Act.
(b)Question eight: Whether, in the context of the answers to the foregoing questions, Openyd was obliged to register the transfer to Alusi of Creative’s shares in Openyd when Dr Ibrahim received the share transfer form from Dr Al-Sabak on 1 November 2017, pursuant to s 84(4) of the Companies Act, in the absence of any directors’ resolution refusing to do so.
(c)Question nine: Whether Dr Ibrahim was lawfully entitled to exercise the proxy vote of Creative at shareholders’ meetings, regardless of
whether the legal or beneficial interest in the relevant parcel of shares had been validly transferred.
[69] Thirdly, the finding that Lawrence Dental and Alusi occupy the premises under an implied licence is said to give rise to the following question:
(a)Question ten: Whether the licence to occupy the premises held as tenant by Openyd—and enjoyed by Lawrence Dental as a party to the 2012 Deed—terminated when Lawrence Dental purported to cancel the Deed.
[70] And lastly, the finding that the 2012 Deed was cancelled by the letter from Lawrence Dental’s solicitors on 12 February 2018 is said to give rise to the following question:
(a)Question eleven: Whether the letter sent by the solicitors for Lawrence Dental to the solicitors for Alusi on 12 February 2018 constituted repudiation of the 2012 Deed and, if so, whether the 2012 Deed was cancelled when Alusi accepted the repudiation by lodging its statement of defence on 12 November 2018, or by conduct at some earlier date.
DISCUSSION
[71] I propose to conduct my analysis on a question by question basis, under the broader headings of the PQ to which they are said to relate.
PQ 3 (the pre-emptive rights issue)
[72] It is necessary to begin by explaining a little more about PQ 3 itself. As noted earlier, its purpose was to determine what (if any) rights Alusi acquired as a result of its purchase of Creative’s business on 1 November 2018. Whether or not Alusi acquired any such rights depended on whether Lawrence Dental had waived its pre- emptive rights under the 2012 Deed and the Constitution as at that date. In the absence of an operative waiver, Alusi’s purchase of Creative’s business and shares would breach those pre-emptive rights.
[73] Alusi’s position was that the email agreement constituted the relevant waiver by Lawrence Dental and that the email agreement remained in force, notwithstanding the findings of the first arbitrator, and notwithstanding Lawrence Dental’s purported cancellation by letter dated 28 August 2017. Alusi said that this letter was a wrongful repudiation of the email agreement—a repudiation that Alusi had not accepted.
[74] The arbitrator agreed with Alusi about the first three points. But he found that Alusi had accepted Lawrence Dental’s repudiation and, had itself, cancelled the email agreement, by 14 September 2017 at the latest. The basis for this finding was a costs memorandum filed by Alusi’s senior counsel following the discontinuance of the High Court injunction proceedings. The arbitrator’s summary of the relevant parts of what counsel had said in that memorandum was that:
(a)the Creative/Alusi agreement was reached within seven days of the filing of the injunction proceedings, on 14 September 2017;
(b)the email agreement and the Lawrence Dental ASP “were dead and buried” by “the time [Creative] and [Alusi] entered into their contract on 14 September 2017 (in fact well before then)” and that there was (by that time) “no extant contract of sale and purchase in existence as between [Lawrence Dental] and Alusi”.
[75] The arbitrator found that these statements were made known to both Creative and Lawrence Dental at the time of service of that memorandum on them (that is, on or about 13 December 2017), but were evidence of an earlier cancellation by Alusi, prior to 1 November 2017. That meant there was no waiver of Lawrence Dental’s pre- emptive rights under the 2012 Deed or the Constitution was operating as at the date of sale (1 November.)
Question One
[76] Central to the conclusion just noted was the arbitrator’s finding that s 41 of the CCLA did not require that Lawrence Dental receive notice of Alusi’s election to accept the Lawrence Dental’s August repudiation and cancel the contract, prior to 1 November. At [115] of the award he explained:
Two parts of s 41 of the Contract and Commercial Law Act assume significance:
(a)The first is the means by which cancellation may be effected. Section 41 (2) makes it clear that this “may be made known by words or by conduct showing an intention to cancel. or both”. No particular form of words is required, as long as an intention to cancel is made known.
(b)The second is that cancellation is ineffective unless known to the repudiating party in one of the two ways set out in s 41 (1) of the Contract and Commercial Law Act. The cancelling party’s intention to cancel can be made known explicitly to the other party. Alternatively, if, before the time at which the cancelling party shows “by some clear means that is reasonable in the circumstances” that it intends to cancel the contract, cancellation will be effective if either it is not reasonably practicable for the cancelling party to communicate with the other or the other party cannot reasonably expect to receive notice because of its conduct in relation to the contract.
[77]Then, at [120], he said:
Notwithstanding the way in which s 41 of the Contract and Commercial Law Act is expressed, I consider that notice of cancellation can be valid and effective even if given some time after the intention to cancel has been formed but not communicated. In reaching that conclusion, I hold that the Court of Appeal’s decision in Chatfield v Jones remains good law, notwithstanding the addition of (what is now) s 41(1)(b)(ii) in 2002. In Chatfield v Jones, the Court of Appeal held that a communication of cancellation of a contract after the event could be effective as conveying an election to cancel at an earlier time.
[78] The import of question one is Alusi’s contention that whether or not this finding is correct is an eligible question of law.27 In particular, Mr Griggs said that the arbitrator has misinterpreted s 41 and misread the decision in Chatfield v Jones.28 He says the ruling has precedential value both for the parties and more generally—which warrants the intervention of this Court.
27 Alusi also takes issue with the accuracy of the arbitrator’s summary of the memorandum and says that this part of the award was made in breach of natural justice. But those are not matters goimg to the existence of a qualifying error of law.
28 Chatfield v Jones [1990] 3 NZLR 285 (CA). The facts of that case were that there was an agreement for the sale of shares in a company for $875,000. The purchasers subsequently refused to pay for the shares. The vendors, in financial trouble, then resold the shares for a lesser amount and sued the purchasers for loss of bargain. The purchasers resisted the claim, saying they were not notified of the cancellation of contract. The Court held that the vendor's statement of claim— which elected damages over specific performance and disclosed the resale—was sufficient notification.
[79] I am inclined to accept that this does constitute a question of law which could substantially affect the rights of one or more of the parties and will (at least insofar as the continuing arbitration is concerned) have significant precedential value. It is, after all, a cornerstone of the finding of breach by Alusi. The question for me therefore is whether it is strongly arguable that the arbitrator was wrong on this point.
[80] The starting point is that, as the arbitrator noted, s 41 of the CCLA is materially similar to s 8 of the Contractual Remedies Act 1980 (the CRA), which was the provision under consideration in Chatfield.29 Indeed, the CCLA expressly states (in ss 3 and 4) that its purpose is to re-enact (in an up-to-date and accessible form) certain legislation relating to contracts (amongst other things) and that it is a “revision Act” for the purposes of s 35 of the Legislation Act 2012.30
[81] Consistent with that purpose, the similarity between s 8 of the CRA and s 41 of the CCLA could not be clearer. Section 8 relevantly provided:
8 Rules applying to cancellation
(l)The cancellation of a contract by a party shall not take effect—
(a)before the time at which the cancellation is made known to the other party; or
(b)before the time at which the party cancelling the contract evinces, by some overt means reasonable in the circumstances, an intention to cancel the contract, if—
(i)it is not reasonably practicable for the cancelling party to communicate with the other party; or
(ii)the other party cannot reasonably expect to receive notice of the cancellation because of that party’s conduct in relation to the contract.
(2) The cancellation may be made known by words, or by conduct evincing an intention to cancel, or both. It shall not be necessary to use any particular form of words, so long as the intention to cancel is made known.
[82]And s 41 now provides:
29 No issue is taken with the arbitrator’s finding that the Contract and Commercial Law Act 2017 applies in this case.
30 Which states that revision Acts are not intended to change the effect of the law, except as expressly provided.
41 When cancellation may take effect
(1)The cancellation of a contract by a party does not take effect—
(a)before the time at which the cancellation is made known to the other party; or
(b)before the time at which the party cancelling the contract shows, by some clear means that is reasonable in the circumstances, an intention to cancel the contract, if—
(i)it is not reasonably practicable for the cancelling party to communicate with the other party; or
(ii)the other party cannot reasonably expect to receive notice of the cancellation because of that other party’s conduct in relation to the contract.
(2) The cancellation may be made known by words or by conduct showing an intention to cancel, or both. It is not necessary to use any particular form of words, so long as the intention to cancel is made known.
[83] So in my view there can be no real argument that an appellate decision about the interpretation and application of s 8 would not continue to be authoritative in relation to the same issue arising under s 41.
[84] The second issue—the meaning and application of Chatfield—is less clear-cut. On my reading of that case it is only the judgment of Hardie Boys J that makes it plain that communication or notice of cancellation is not a prerequisite to an effective cancellation under s 8. He said:31
Cancellation requires more than a mental process, the formation of an intention. Indeed it may not even require that. Essential to it is the evincing of an intention, an objective matter. This may be done by word or conduct. The resale of the subject matter following repudiation will be strong if not compelling evidence of cancellation: …. Clearly that was so here. However there was no communication until some considerable time later. It would be a simple approach to say that the contract was not cancelled until there had been communication, and that the vendors had to remain ready and willing to settle until there was communication. But such an approach can have an element of unreality about it, and can readily lead to injustice. (Consider for example where there may be an unforeseen delay in communication and the vendor, believing it to have been effected, resells.) There is no good reason to conclude that communication of cancellation must always precede resale. Indeed so to hold would render purposeless the concept that cancellation may be evidenced by conduct.
31 At 297 (citations omitted; emphases added).
Whatever may have been the true position at common law …, I think that the wording of s 8 of the Contractual Remedies Act points to a sensible and just resolution of the difficulties. I see s 8 as drawing a distinction between cancellation and its effectiveness as it concerns the other party. Communication is treated as a consequence of cancellation not a necessary component of it. Subsection (l)(b) recognises that there may be no communication, but the cancellation is nonetheless rendered effective. While in the usual case the words or conduct evincing the cancellation will also constitute the necessary notification of it, the section contemplates that there may be a time lapse between the one and the other. The contract will be cancelled, but the other party will not be affected by the cancellation.
On this analysis, the vendors in the present case had to be ready and willing to settle up until the time they resold; and this they were. By their resale, they sufficiently evinced their intention to cancel. The contract however did not come to an end until the purchasers were notified of the cancellation. …
[85] My reading of these dicta is that a contract can be cancelled by the words or conduct of one party despite the absence (at that stage) of notification. The qualification is that, unless and until notification is given, the cancellation will not affect the rights of the other party. Implicitly, at least, the cancellation would be operative against the cancelling party from the date of the relevant words or conduct— ie before notification. If that is right, then there is authority contrary to the position Alusi wishes to advance on appeal.
[86] That said, however, the other two members of the bench in Chatfield do not seem to go quite so far.32 Both Cooke P and Somers J seem only to hold that under the CRA a cancellation could not take effect until it was made known to the other party.33
[87] In the end I accept that there is room for debate about the proper application of Chatfield to the facts of the present case. But regardless of the strengths of the competing arguments, the underlying factual point counts against Alusi here. The arbitrator found that Alusi’s senior counsel has previously advised this Court (in the context of seeking to further Alusi’s position on costs) that, from Alusi’s perspective, the email agreement was at an end by 14 September 2017 at the latest. As the arbitrator
32 The Court was quite plainly unanimous on the underlying and determinative issue, namely that notice of the cancellation of the contract in question was effected by way of service of the plaintiff’s statement of claim.
33 Chatfield, above n 28, at 290–291 (per Cooke P) and 294 (per Somers J).
said, it must be assumed that this advice was based on instructions from Alusi. It therefore seems quite wrong in principle that Alusi should now be permitted to found an appeal based on a position which is diametrically opposed to that. In my view, that point of principle—together with the other general matters discussed at the end of this judgment—overwhelms any legal merit in the argument now sought to be advanced.
[88]I decline leave to appeal on question one, accordingly.
Question two
[89] Question two, which is also concerned with the question of waiver, can be dealt with quickly. The starting point is (again) that the arbitrator found that, regardless of whether the email agreement constituted a waiver of Lawrence Dental’s pre-emptive rights,34 by the critical date (1 November 2017) the email agreement had been cancelled.
[90]As I understand it, Alusi now seeks to argue that:
(a)the Lawrence ASP included a “representation” by Dr Lawrence that he was retiring from practice;
(b)Alusi relied on the Lawrence ASP and the representation when purchasing Creative; and
(c)the Lawrence ASP and the representation were inconsistent with an intention by Lawrence Dental to retain its pre-emptive rights and gives rise to a promissory estoppel.
[91] The first and fundamental point is that any question of promissory estoppel was not raised during the arbitration, was not considered by the arbitrator, and therefore does not arise out of the award. But in any event, the argument would also seem to fail at the same hurdle as question one: any purported reliance by Alusi (as at 1 November 2017) is belied by its lawyer’s subsequent statements to this Court.35
34 On my reading of the award, the arbitrator did not in fact determine that issue.
35 Namely those statements noted at Error! Reference source not found. above.
[92] The application for leave to appeal on question two is also declined, accordingly.
Question three
[93] This question relates to the findings at [127] to [132] of the award. Put simply, Alusi seeks to argue that the arbitrator was wrong in his alternative finding that—even if he was wrong on the cancellation point—the email agreement was (as at 1 November) of no effect due to the effluxion of time. As I understand it, this depended on whether it could be said that Alusi/Dr Ibrahim had taken reasonable steps to achieve fulfilment of the condition as to entering into good faith negotiations with Dr Al-sabak within a reasonable time.36 The arbitrator found that they had not.
[94] I confess I do not understand the argument that Alusi wishes to pursue under question three in any detail. I think the argument is that the email agreement was somehow not conditional. But in any event it does not matter. That is because (as the arbitrator made quite clear) this was an alternative finding to his finding that the email agreement had, by 1 November, been cancelled. Given I have held that leave to appeal should not be granted in relation to the primary finding it follows that this question is moot.
[95]Leave to appeal on question three is declined.
Question five
[96] Alusi wishes to contend that, even if Lawrence Dental’s pre-emptive rights survived the email agreement and the Lawrence ASP, the letter dated 28 September 2017 made it clear that Lawrence Dental did not want to exercise those rights in relation to the sale of Creative, and thus constitutes a waiver giving rise to a promissory estoppel.
[97] The import of the 28 September letter was addressed by the arbitrator at [107] of the award, where he said:
36 The condition in issue is not entirely clear from the award, but I infer that it is cl 7 of the email agreement.
The 28 September 2017 letter made it clear that Lawrence Dental did not accept that the Creative Dentistry/Alusi sale could proceed under the 15 March 2017 email agreement. It also advised the solicitors for both Alusi and Creative Dentistry that Lawrence Dental “at this present time does not wish to purchase” (my emphasis) Creative Dentistry’s dental practice. I take this as a response to the offer set out in the … separate email of 4 September 2017 from the solicitors for Creative Dentistry. This indication is something on which Alusi relies to demonstrate that Lawrence Dental waived the pre- emptive rights conferred by clause 15 of the 2012 Deed and clause 15 of the Constitution. The way in which Lawrence Dental’s position was expressed is consistent with a pattern of conduct whereby rights were generally reserved and options kept open for the future.
[98] Putting to one side the point that the arbitrator did not address this issue in terms of promissory estoppel,37 I consider that the arbitrator’s interpretation of the 28 September letter was not only a finding of fact, but one which was entirely open to him. Indeed, my own reading of the letter is that Lawrence Dental was, in fact, standing on its pre-emptive rights—not waiving them.
[99]Leave to appeal on question five is declined.
Question six
[100] Question six is merely a catch-all which adds nothing to questions one to three and five. Leave to appeal on that question is accordingly, and necessarily, declined.
PQ four (the voting rights issue)
Questions seven to nine
[101] There are two fundamental problems with the three questions that Alusi draws from PQ four.
[102] First, it was only necessary to answer PQ four if the arbitrator had found (under PQ three) that Lawrence Dental had waived its pre-emptive rights. Given his finding that there was no waiver, he addressed PQ four out of an abundance of caution. For the same reason, questions seven to nine could only be relevant—in the sense of being capable of making a difference to the outcome—if the arbitrator was found to be wrong in his answer to PQ three. So, given that I have declined leave in relation to the
37 As to the difficulty of which, see question two.
questions said to arise from the answer to PQ three, any issues said to arise from PQ four must (again) be moot.
[103] And secondly, the answer to PQ four was in Alusi’s favour. The answers to questions seven to nine could make no difference to that result. Even if it could be said that the questions posed might have some wider precedential value or interest, I am unable to see how the answer to them could have any bearing on the rights of the parties. As cl 5(2) of Sch 2 to the AA makes clear, that fact by and of itself precludes the grant of leave.
[104]I decline leave to appeal on questions seven, eight and nine, accordingly.
PQ five (the occupation issue)
[105] It is necessary to say a little more about the context for the question sought to be raised in relation to PQ five.
[106] As noted earlier, on 28 February 2018 Openyd purported to give notice terminating Lawrence Dental’s “statutory tenancy” of the premises owned by the Lawrence Family Trusts and out of which the practices operated. PQ five was therefore aimed at ascertaining the legal basis on which Lawrence Dental and Alusi each exclusively occupied parts of the Centre. As the arbitrator noted at [21](e) of his interim award:
The answer to this question will inform a decision on whether Alusi is entitled (assuming it has the legal ability to use its voting rights previously held by Creative Dentistry) to exercise a majority shareholding in Openyd in a manner contrary to Lawrence Dental’s interests.
[107]In the relevant part of the PQ award, the arbitrator began by noting:
The Lawrence Family Trusts are the owner and head lessor of the Centre. Openyd is the tenant. … [it] is common ground that Openyd currently occupies the Centre on a periodic tenancy, pending a decision on the part of the landlord whether to renew the 2011 Lease. That decision will be made after the current disputes have been resolved.
[108]After considering the relevant legal principles, the arbitrator concluded:38
38 At [180].
In my view, Lawrence Dental’s and Alusi’s occupation rights are such that they may be terminated “for reasons extraneous to the occupation of the land” and, therefore, cannot amount to a sub-tenancy. The right to occupation could be terminated through the dissolution provisions of the 2012 Deed, if one of the parties withdrew.39
[109]And then, the arbitrator said that the licence:40
… was granted as part of the bundle of rights stemming from the 2012 Deed and the Constitution, and must be regarded as subject to a term preventing its termination until one party has sold its practice to the other, or completion of whatever process may be necessary to wind up the affairs of the association under the 2012 Deed, whether by liquidation of Openyd or otherwise.
[110]And so I turn to the question of law said to arise from this conclusion.
Question 10
[111] What Alusi now seeks to have this court answer is whether Lawrence Dental’s licence to occupy (as found by the arbitrator to exist) was terminated when Lawrence Dental “purported to” cancel the Deed in February 2018.
[112] Although Mr Griggs’ reasoning is not entirely clear to me, this question appears to be predicated on Alusi being permitted to assert that Lawrence Dental’s February 2018 cancellation of the Deed was in fact a wrongful repudiation which “must have terminated” the licence to occupy. That proposition is, in turn, predicated on Alusi’s ability to contest the finding that Lawrence Dental had not waived its pre-emptive rights.41 And if that is so, and given I have declined leave to challenge the arbitrator’s finding that those pre-emptive rights were not waived, this issue must also be moot.
[113] Even if I am wrong in that, it seems to me that Alusi’s position on the point is not strongly arguable. As the arbitrator made clear at [184] (set out above) he found that the licences possessed by Alusi and Lawrence Dental were subject to a term preventing their termination until completion of whatever process may be necessary
39 Clause 14 of the 2012 deed provides (inter alia) that, in the event of the dissolution of the business, any assets of the association (which the arbitrator held was synonymous with Openyd) “including in particular the lease or tenancy agreement” were to be sold by a receiver.
40 At [184].
41 That is made clear by the quotation from the award set out at [106] above.
to wind up the affairs of the association under the 2012 Deed, whether by liquidation of Openyd or otherwise.42 Quite plainly, that has not yet occurred.
[114]Leave to appeal on question 10 is declined.
PQ six (the termination issue)
Question 11
[115] By question 11 Alusi seeks to contend that the 12 February 2018 letter sent by the solicitors for Lawrence Dental to the solicitors for Alusi constituted a repudiation of the 2012 Deed and, if so, that the 2012 Deed was cancelled by Alusi accepting the repudiation by lodging its statement of defence on 12 November 2018, or by some earlier conduct.
[116] I confess I do not think I understand the import of this question which—by and of itself—counts against the grant of leave. But in any event (and as just noted), permitting Alusi to argue that Lawrence Dental’s February 2018 letter constituted a wrongful repudiation is necessarily predicated on its ability to contest the finding that Lawrence Dental had not previously waived its pre-emptive rights. I have already held that it should not be permitted to do so. It follows that question 11 is also moot and leave to appeal on that question is declined.
Other considerations
[117] My conclusion is that leave to appeal should be declined on each of the questions articulated by Alusi for the reasons already given. For completeness, however, I briefly address the other matters which I consider would (otherwise and also) count against the grant of leave.
Substantial effect on the rights of the parties
[118] As I have indicated earlier, I am inclined to accept Alusi’s submission that the answers to at least some of the questions identified would substantially affect the rights
42 The wider point was made by the arbitrator at [39] where he said “Termination of the 2012 Deed did not operate to affect any provisions that were to regulate conduct after termination”.
of all parties to the arbitration. Indeed, that was the very point of the PQs; the answers to them are likely to dictate the final outcome of the arbitration to quite a significant extent. And although I do not need to get into any detail about financial impact on the parties (which is the subject of dispute), I am also inclined to accept that, from the parties’ perspectives at least, the interests in question are of not insignificant commercial value. In particular, I accept that determination of (at least some of) the questions would determine the parties’ respective rights to continue practising dentistry in their current premises.
[119] But there is force in Mr Skelton’s submission that—regardless of the answers to the questions sought to be posed—there is no prospect of both parties continuing to operate their practices out of the Centre or under the Openyd umbrella. I understand that Alusi’s position is that, if it were to prevail on the core issues on appeal, it would be in charge and could (through its control of Openyd) get rid of Lawrence Dental— that is, undoubtedly, its end game here.
[120] I also agree with Mr Skelton that it is relevant that Alusi has not sought to challenge the arbitrator’s answers to PQs one and two. That suggests it accepts (by virtue of the primacy of the 2012 Deed over the Constitution) that unanimity is required in respect of all decisions made at management meetings.43 And given that it is indisputable that there has been an irretrievable breakdown of relationships between the parties, there is no prospect of unanimity being achieved by the parties on any matter to do with the management and operation of Openyd. And so (as Mr Skelton says) it is all but inevitable that the operation of Openyd and the present arrangement between the dental practices at the Raumati Dental Centre will be brought to an end.44
43 Because Openyd’s constitution must (where necessary) “yield” to the 2012 Deed, cl 9 of which requires such unanimity.
44 Consistent with the orders sought by Lawrence Dental seeks in its substantive claim. As Mr Skelton says, if it is subsequently contended that the arbitral tribunal does not have jurisdiction to liquidate Openyd, an application has already been filed by Lawrence Dental in the High Court but is stayed pending the arbitration: Lawrence v Alusi [2018] NZHC 1342.
The nature of the arbitral process and the qualifications of the arbitrator
[121] It is trite that the use and usefulness of an arbitral process as an alternative to litigation is undermined by the too ready grant of leave to appeal. And here, the identity and qualifications and expertise of the arbitrator (an experienced and highly regarded former High Court judge) particularly militates against the exercise of the leave discretion in Alusi’s favour here.
Delay
[122] And lastly, the reality here is that the parties have been in dispute since 2016 and in either litigation or arbitration since 2017. The dispute has become increasingly acrimonious and is (no doubt) financially draining. I am therefore unable to accept Alusi’s submission that the further delay in having the Court consider and determine some or all of the questions should not be regarded as significant. The fact that (as Mr Griggs submitted) the arbitrator expressly acknowledged the likelihood of an appeal45 has no bearing on the matter. Rather, the only rational position is as the arbitrator put it at the end of the award:46
… I urge the parties to consider finding a way to bring these long outstanding disputes to an end. I sense that the cost involved in progressing these proceedings might well now be disproportionate to any economic benefit that either party may receive, particularly if the arbitral (and possibly curial) processes continue.
Result
[123] Leave to appeal in relation to each of the questions identified by Alusi is declined accordingly.
[124] Lawrence Dental is entitled to its 2B costs in the usual way. I trust they can be agreed without the need for judicial intervention.
45 At [17] of the Award.
46 At [195].
Rebecca Ellis J
Solicitors:
Lawler & Co, Auckland for Plaintiffs
Gillespie Young Watson, Lower Hutt for Defendants
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