Caisteal an Ime Limited v Mount Cass Holdings Limited
[2024] NZHC 3706
•6 December 2024
IN THE HIGH COURT OF NEW ZEALAND CHRISTCHURCH REGISTRY
I TE KŌTI MATUA O AOTEAROA ŌTAUTAHI ROHE
CIV-2024-409-000096
[2024] NZHC 3706
UNDER the Arbitration Act 1996 IN THE MATTER OF
an appeal against an arbitral award
BETWEEN
CAISTEAL AN IME LIMITED
Appellant
AND
MOUNT CASS HOLDINGS LIMITED
Respondent
Hearing: 17 June 2024 Appearances:
K W Clay for Appellant
A N Riches and J J Gasson for Respondent
Judgment:
6 December 2024
JUDGMENT OF PRESTON J
This judgment was delivered by me on 6 December 2024 at 1.00 pm pursuant to r 11.5 of the High Court Rules
Registrar/Deputy Registrar Date……………
CAISTEAL AN IME LIMITED v MOUNT CASS HOLDINGS LIMITED [2024] NZHC 3706 [6 December 2024]
Introduction
[1] The appellant, Caisteal An IME Ltd (Caisteal) is the tenant of a commercial premises owned by the respondent, Mount Cass Holdings Limited (Mount Cass). The tenancy is recorded in a Deed of Lease (the Deed) including provision for a consumer price index (CPI) rent review.
[2] An issue arose when Caisteal disputed Mount Cass’ right to annually increase the rent in accordance with the CPI.
[3] The parties referred the dispute to arbitration. The arbitrator, Mr Wallace, determined the dispute in favour of Mount Cass in an award dated 17 December 2023 (the Award).1 He declared the landlord was entitled to conduct a CPI rent review annually on the anniversary of the commencement date of the lease.
[4] Caisteal appeals the Award and contends the appeal raises a question of law. In essence it says the arbitrator wrongly interpreted the contract.
[5]Mount Cass opposes the appeal.
[6] It contends there is no justiciable question of law, only a (further) challenge to the arbitrator’s determination of the facts by orthodox interpretation of the contract terms. Further, it says the arbitrator’s decision was substantively correct; both the (prior) Agreement to Lease and the Deed contain annual CPI rent review provisions and there is no other interpretation the arbitrator could have come to.
[7]The issues on appeal are first, whether there is jurisdiction to hear the appeal
— this turns on whether the appeal raises a question of law. Second, if the Court does find jurisdiction, was the arbitrator’s decision correct?2
1 The Award is interim solely as it makes no costs determination. Costs, if not able to be agreed, were recorded as to be dealt with (if necessary) in a subsequent award. An interim award is an award for purposes of the Arbitration Act 1996: s 2.
2 After Mount Cass served a Property Law Act 2007 notice on Caisteal for the difference between the initial rental and the CPI increase the appellant obtained on a without notice basis an interim injunction preventing Mount Cass from cancelling the lease until further direction was given by the Court. The injunction has since been withdrawn and replaced by undertakings from each party pending the outcome of this appeal.
Factual Background
[8] Pursuant to the Deed, the appellant is the tenant of the first floor of the property at 75 Beach Road, Akaroa.
[9] The Deed was preceded by an Agreement to Lease, which the parties executed in October 2021. The commencement date of the lease was 22 October 2021. The term of the lease is for five years, with a right of renewal of a further five years.
[10] Both the Agreement to Lease and the Deed were completed using the Auckland District Law Society ADLS 6th edition form. In the Agreement to Lease, the parties included a rent review provision at cl 10 of the First Schedule. This reads as follows:
10. RENT REVIEW DATES (Specify review dates for initia dates and r Unless dates are will be no r there is a confl market rent re
apply.)
type and insert 1.
Market rent review dates:l term, renewalenewal terms.
specified there 2. CPI rent review dates: eviews. Where
ict in dates, the Annually view date will
[11] As can be seen, the parties struck through the market rent review provision and inserted at the CPI rent review dates provision the word Annually.
[12] The parties also agreed to execute a deed of lease at a later date in accordance with usual commercial leasing practice. The Deed was completed in June 2023. It contained a mirror provision at cl 11, which was in identical terms as follows:
11. RENT REVIE W DATES (Specify revi insert dates for renewal dates terms. Unles specified ther reviews. Wher
conflict in dat rent review dat
ew type and
1. Market rent review dates:initial term,and renewal Nil s dates are
e will be no
e there is a 2. CPI rent review dates:
es, the market Annually
e will apply.)
[13] Again, the parties struck through the market rent review provision, here entering the word Nil below also, and again inserted the word Annually under the CPI rent review dates provision.
[14] It is not necessary for present purposes to record the breakdown between the parties, other than to note that Caisteal subsequently refused to pay any CPI increases on the rent.3 It disputed Mount Cass had the ability to annually increase the rent by reference to CPI.
[15] The parties referred their dispute to arbitration. The parties agreed the dispute for determination by the arbitrator Mr Wallace, as follows:
Does the Landlord have a right to a rent review under the Deed of Lease dated 23 June 2023?
[16] The arbitrator found in favour of the respondent. He made a declaration that Mount Cass was entitled to conduct a CPI rent review annually on the commencement date of the lease (22 October 2021).
3 The evidence was that after executing the Agreement to Lease, in December 2022 when Caisteal initially executed the Deed Mr Angus struck out the word Annually, however this was later corrected and the clause was as set out in [12], above. The evidence also demonstrated that when Mount Cass purported to exercise a CPI rent review on 6 April 2023, Caisteal’s immediate response asserted the landlord was attempting to undertake this exercise too late. Further, at that time Caisteal set out its own calculation of what the appropriate CPI rent review would be. They subsequently obtained legal advice and asserted there was no right to undertake a CPI rent review at all.
The Award
[17]By consent of the parties, the arbitrator’s award was determined on the papers.4
[18] After recording the procedural background and the dispute for determination, Mr Wallace captured the parties’ positions in summary.
[19] The question for him to determine was one of contractual interpretation: what is the meaning of clause 11 of the Deed?5 He noted that both parties accepted that the starting position was what is recorded in the Agreement to Lease (clause 10).
[20] Caisteal’s primary submission referred to the requirement that an actual date be inserted for rent reviews, contending that no CPI rent review date was specified and that the word “annually” is not a date. Mount Cass’ case was that the Lease clearly included a CPI rent review provision annually on the anniversary of the lease, given that the market rent review provision was struck out and the word Nil written below, the CPI rent review provision was not crossed out and it had the word Annually added.
[21] An email was in evidence from a real estate agent which recorded that as at 18 October 2021 Mr Angus, director of Caisteal was about to sign a Lease for “$65,000 plus GST a year for 5 plus 5 years with a CPI clause”. While recording that is what indeed occurred, Mr Wallace did not consider the email was evidence of the tenant’s intention given it was from a third party.
[22] The arbitrator found it could not be disputed that the word annually must have been inserted into the document prior to execution: it does not appear in the standard form and Mr Angus recorded it as an annotation (while denying it was a specific date). However, the question remained whether the insertion of that word had any legal effect given the other words in the document.
4 Interim Arbitration Award dated 17 December 2023, issued 19 December 2023 (Award). By consent the determination was made on the papers.
5 At [9].
[23] To the extent that the parties’ conduct at the time of executing the Agreement to Lease or subsequently might be relevant to the interpretation issue, the arbitrator did not find any of the evidence particularly compelling.6 Nor did he accept that clause 2.5 of the Deed, which provides inter alia for a mechanism for determining CPI rent review quantum, assisted on the dispute before him.
[24] The arbitrator applied the law relating to contractual interpretation informed by the approach set out by the Supreme Court in Bathurst Resources Ltd.7 Mr Wallace acknowledged the interpretation of the terms of the Agreement to Lease and the Deed required an objective assessment, recording “I do approach the interpretation issue on an objective basis as to the meaning of the words that I have found were deliberately used by the parties.”8
[25] After noting the competing arguments for the parties as to the commercial realities of the rent review provision (or its absence), the arbitrator considered but rejected Caisteal’s contention that an ADLS seminar paper precluded the use of the word “annually” in this context. He did not agree the paper’s explanation of the Subcommittee’s provision of alternative methods of rent review and guidance on use of the ADLS form was definitive in determining the question before him.
[26] Mr Wallace ultimately determined that the only objective conclusion to be drawn is that the parties intended that there would be CPI rent reviews annually. Had that not been so, the parties would have either not inserted anything into the Agreement to Lease or they would have struck out the CPI rent review clause as they did for the Market Rent Review clause. The arbitrator concluded:9
46.There remains the question of what does annually mean in terms of whether it is a specified date as required.
47.In the Deed of Lease the insertion of annually under the words CPI review date, can be contrasted with the insertion of the word Nil under the crossed-out words Market rent review dates.
6 Award at [35].
7 Bathurst Resources Ltd v L&M Coal Holdings Ltd [2021] NZSC 85.
8 Award at [39].
9 At [46]-[48].
48.Given that I have found the parties must have intended that a CPI rent review would occur by the insertion of the word annually into the Agreement to Lease prior to execution, the only rational conclusion is that this was to occur annually on the anniversary of the commencement date of the Lease.
(emphasis added)
[27] Accordingly, the arbitrator declared that the landlord was entitled to conduct a CPI rent review on each anniversary of the commencement date of the lease, namely 22 October 2021.
Issues on the appeal
[28] By agreement between the parties, it is only if the appeal raises a question of law that there is jurisdiction for the Court to hear the appeal.10 Caisteal submits there is a question of law on appeal, that is:
[Is there] a rent review under the [Deed] when [it] states at clause 11 of the First Schedule that unless dates are specified there will be no reviews and no dates were specified.
[29] Mount Cass opposes the appeal on the ground it discloses no question of law but simply seeks to relitigate the issue before the arbitrator.
[30] Should I determine otherwise, Mount Cass says the arbitrator did not err: the only logical conclusion is that it was intended by the parties there would be CPI rent reviews annually.
Is there a question of law on the appeal?
[31]This is the jurisdictional issue.
[32] The definition of a question of law for purposes of an appeal from an arbitrator’s award is defined in the Arbitration Act 1996:11
(10)For the purposes of this clause, question of law—
10 Arbitration Act 1996, sch 2, cl 5(a).
11 Schedule 2, cl 5, s 10(b)(ii).
(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 any part of the award was supported by any evidence or any sufficient or substantial evidence; and
(ii)the arbitral tribunal drew the correct factual inferences from the relevant primary facts.
[33] No appeal lies where a fact-finding court has merely applied the law correctly understood to the facts of an individual case.12 In Nixon v Walker, the Court declined leave to appeal, finding the appellant was not challenging the legal test used and instead was asking the Court to “re-examine the facts in the hope that there will be a different result to the one reached by the arbitrator”.13
[34] In my view there is force in Mr Riches’ submission for Mount Cass that the appeal does not engage a question of law, but simply a challenge to the arbitrator’s conclusions applying orthodox principles of contractual interpretation.
[35] However, I accept there is divergence in the authorities whether a question of mixed fact and law is capable of founding an appeal under cl 5 of the Act.14
[36] Given this divergence, I consider the better course is to consider the appeal on its merits, on the second issue, taking Mr Clay’s case at its highest on the jurisdictional issue.
Was the arbitrator’s decision correct?
[37] The appellant’s proposed question of law imports the mixed legal and factual question determined by the arbitrator. That turned on the interpretation of the Deed, specifically whether the wording of cl 11 created a CPI rent review.
12 Bryson v Three Foot Six Ltd [2005] NZSC 34 at [25].
13 Nixon v Walker, HC Auckland, CIV 2007-404-1372, 13 July 2007 at [37].
14 See, for example: Bryson v Three Foot Six Ltd, above n 12; Lambe v Jacobsen [1970] NZLR 1008 (CA); Carlson-Turnwald & Anor As Trustees and Executor of the Estate of RS Carlson v Walling HC Hamilton CIV-2008-419-1094, 5 May 2009; Nixon v Walker, above n 13; Milk New Zealand (Shanghai) Co Ltd v Miraka Ltd [2019] NZHC 2713; Trustees of Rotoaira Forest Trust v Attorney General [1998] 3 NZLR 98 (HC); Lipp v Chaney [2012] NZHC 1761.
Legal framework
[38] As the arbitrator identified and is common ground on the appeal, at the heart of this case is an issue of contractual interpretation.
[39] Nor is there any dispute as to the settled principles which the arbitrator acknowledged and applied, involving an objective assessment of the wording chosen and used by the parties. The arbitrator was required to determine the meaning the contract would convey to a reasonable person having all the background knowledge reasonably available to the parties in the situation they were in at the time of the contract.15 While there is no conceptual limit on what can be regarded as “background knowledge” or “context”, it must be background that a reasonable person would regard as relevant.16
[40] The observation of the Supreme Court in Firm PI 1 Ltd v Zurich is here apposite:17
“if the language at issue, construed in the context of the contract as a whole, has an ordinary and natural meaning, that will be a powerful, albeit not conclusive, indicator of what the parties meant.”
Submissions for Caisteal
[41] Caisteal’s argument on appeal seeks to relitigate the issue before the arbitrator: contending that insertion of the word ‘annually’ did not specify dates, as necessary, to create a CPI rent review obligation. The argument is in effect that there was no sufficient specification of a date by use of that term.
[42] Addressing the appellant’s arguments in turn, I am not persuaded any error is disclosed.
15 Firm PI 1 Ltd v Zurich Australian Insurance Ltd v Anor [2014] NZSC 147, [2015] 1 NZLR 432 (SC) at [60]; Bathurst Resources Ltd v L & M Coal Holdings Ltd [2021] NZSC 85, [2021] 1 NZLR 696.
16 At [60].
17 At [63].
[43] First, as noted Caisteal nowhere identifies an error in the arbitrator’s application of legal principle. Rather, Mr Clay submitted that it is clear that there is no rent review under the Deed as no dates are specified in the Deed. This argument simply reiterates the central issue addressed by arbitrator based on the wording used by the parties including their election to leave in the provision for a CPI rent review and to identify that that should occur annually.
[44] Next, Mr Clay submitted that the lease clearly conveys to a reasonable person that, in the absence of a specified date(s) there is no rent review. That submission however begs the central question considered and determined by the arbitrator: what was the meaning and purpose of cl 11 as executed by the parties — who nominated a CPI rent review and inserted the word ‘annually’ in relation to that provision.
[45] I do not accept that this entails, as submitted, the court “go[ing] beyond the express and clear words of the [lease]”. Consistent with the authorities, the arbitrator considered the wording of the Deed as a whole and in light of the parties’ decision to include — by not striking through — a CPI rent review provision and their nomination that should occur annually. The arbitrator had regard, as this court also must on appeal, to the language at issue, that is all the material words construed in the context of the contract as a whole.
[46] Caisteal next submits that it is not the court’s role to re-write the contract under the guise of interpretation, but that did not occur. The arbitrator simply interpreted the Deed and cl 11 in particular as it had been mutually completed by the parties. I observe that nowhere in the standard form document, or the earlier Agreement to Lease does the ADLS form prescribe any format in which dates are to be specified.
[47] Further, there is no risk the arbitrator’s decision creates uncertainty about rent reviews in the ADLS form. Cases will be determined on their facts and in accordance with principles of contractual interpretation, necessarily informed by the actual words used by the parties in any instance. As Mr Riches for Mount Cass observes, the arbitrator engaged with the policy reasons for requiring the specification of a date for rent reviews in his reasoning. No error is disclosed in his analysis.
[48] Mr Clay further submitted that a third party to the Deed, for example, following assignment, must be able to rely on the express words of the lease and in the absence of dates being specified, counsel submits, it is clear there would be no rent review and any such third part assignee would be prejudiced by a finding otherwise. However, again this argument is flawed for the reasons traversed above: as the arbitrator found, the only objective conclusion available from the express wording including the retention of the CPI rent review provision nominated to occur annually can only indicate that such was to occur annually on the anniversary of the commencement date of the lease. In other words, I consider there is no risk of prejudice to a third-party assignee given the mutually agreed terms of the contract which make plain that there is to be a once yearly CPI adjusted rent review, on the anniversary of the commencement date of the lease.
[49] Whereas Mr Clay raised two further points relating to the evidence, the arbitrator disregarded the evidence of a real estate agent about emails to which Mr Angus the director of the appellant had not been party. Similarly, Mr Wallace did not consider the evidence of Ms Rosa Gould as material to the issues before him, which were able to be determined on the documents and submissions before him.18 No error is disclosed, accordingly.
[50] Finally, I accept as Mr Clay observes the ADLS standard form contemplates that there may be no rent review provided by parties in an agreement. However, that does not assist Caisteal in the circumstances here. As the arbitrator noted, the parties could have but did not strike-out the CPI rent review mechanism provision, as they had done with the provision for a market rent review. That they did not do so and instead inserted the word “[a]nnually’’ can only rationally indicate, as the arbitrator found, their mutual intention for an annual CPI rent review on the anniversary of the commencement date of the lease.
18 While the arbitrator recorded that, after receiving the copy of the initial Agreement of Lease the appellant had struck-out the word ‘Annually’, it was common ground that the document was re- executed with the word, which had been inserted upon the document at outset, re-inserted in the Deed as executed.
The status of the words in brackets in clause 11
[51] Although neither party advanced argument in this respect, the arbitral award is further supported having regard to the bracketed words in cl 11 of the lease.
[52] The First Schedule to the ADLS Lease contains a number of what might be called marginal or explanatory notes or prompts to the person completing the Schedule. In addition to the passage in brackets in cl 11, the remaining bracketed notes are directions (perhaps reminders) to the draftsperson to delete alternatives in the Schedule, some providing what will happen if an alternative is not selected.
[53] Mr Clay’s submission is based on the proposition that the words in brackets in cl 11 prohibit the parties agreeing to use the term “annually” when describing when rent reviews will occur. In short, Mr Clay’s submission amounts to saying the parties were not free to agree to use the term “annually” to describe when the rent review would take place. But how could that be the case?
[54] The words in brackets in cl 11 are not a bar to the parties using the terms they wish. They are not a superior or “supreme” provision. Unless and until the lease was signed, the words in brackets in cl 11 are of no effect whatsoever — the same of course being true for the other terms in the lease. In other words, there is no contractual or other barrier to the parties shaping their bargain as they saw fit. Once they agreed to use the term “annually” it overrode whatever effect the words in brackets in cl 11 may have.
[55] Further, Mr Clay’s submission assumes the words in brackets in cl 11 have contractual effect once the contract is signed even if the parties have used annually to describe when rent reviews will occur. Some contracts expressly provide that marginal or similar notes are not part of the agreement, for example, the ADLS 7th Edition Agreement for Sale & Purchase of Real Estate contains such an exclusion. That contract was discussed in Starrenburgh v Mortre Holdings Ltd.19 The issue in the case was whether the appellants had to pay GST on their purchase from the respondent. On the last page of the Agreement for Sale & Purchase are a number of printed statements
19 Starrenburgh v Mortre Holdings Ltd CA52/04, 10 August 2004.
and bullet points under the heading “Before signing the Agreement”, the last of which reads:20
If the property is sold as a “going concern”, the vendor should ensure the purchase price is stated on the front pages as “PLUS GST (if any)”.
[56] While the contract recorded that these notes were not part of the Agreement, the Court of Appeal said at [47]:
We add that we agree with Mr Carter’s argument that no interpretative assistance is to be derived from the note recommending that the vendor should delete the “PLUS GST (if any)” option where the sale is of a going concern. The notes are not part of the contract as the printed form correctly states.
(emphasis added)
[57] The last words of [47] above suggest that even had the contract not recorded that the notes were not part of the contract, the Court would have reached the same conclusion.
[58] The high point for the effect of the words in brackets in cl 11 is that they apply in default of there being an entry in cl 11 at all, that is, the words in brackets are a true default provision but such is not the case here. This is reinforced by cl 47.1(s) of the Lease which provides:
If any inserted term (including any Further Term in the Third Schedule) conflicts with the covenants in the First, Second and Third Schedules, the inserted term will prevail.
[59]The Lease provides that:
THE LANDLORD AND TENANT covenant as set out in the First, Second and Third Schedules.
20 At [9].
[60] Accordingly, even if Mr Clay’s submission that the words in brackets had a continuing contractual effect and are in conflict with the inserted term was correct, cl 47.1 directs the inserted term prevails. This reflects the approach taken when the parties had added their own terms to the printed form.21
[61] The above points are alternative ways of expressing the fundamental proposition that the parties were free to express their agreement in any way they saw fit. Their use of a standard form Agreement for Sale & Purchase did not prevent them modifying that Agreement as they saw fit. Once the drafting prompt represented by the word in brackets had been heeded and the word “annually” inserted, the role of the words in brackets was over.
[62] That left the arbitrator to determine what the parties meant by using the term “annually”. Accordingly, and for the reasons traversed at [42] – [50] above, no error is disclosed in the arbitrator’s determination.
Result
[63]The appeal is dismissed.
[64]I order:
(a)The arbitral award dated 17 December 2023 be entered as a judgment of this Court.
Costs
[65] There is no reason why costs should not follow the event, in the ordinary course on a 2B basis with disbursements as fixed by the registrar.
21 H G Beale (ed) Chitty on Contracts (35th ed, Sweet & Maxwell, London, 2023) at [16.079] provides: “Where the contract is contained in a printed form with writing superadded, the written words, if there should be any reasonable doubt about the sense and meaning of the whole, are to have greater effect attributed to them than the printed words, inasmuch as the written words are the immediate language and terms selected by the parties themselves for the expression of their meaning…”
[66] Unless memoranda are filed within five working days of this judgment, that shall be the order of the Court.
………………………………………
Preston J
Solicitors:
Layburn Hodgins Ltd, Christchurch for Appellant Saunders & Co, Christchurch for Respondent
Copy to counsel:
K W Clay, Barrister, Christchurch for Appellant
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