Galbraith v Global Metal Solutions Limited
[2024] NZHC 2983
•14 October 2024
IN THE HIGH COURT OF NEW ZEALAND HAMILTON REGISTRY
I TE KŌTI MATUA O AOTEAROA KIRIKIRIROA ROHE
CIV-2023-419-273
[2024] NZHC 2983
BETWEEN ANTHONY PHILLIP GALBRAITH and GALBRAITH TRUSTEE 2018 LIMITED as
trustees of the HUNUA HOLDINGS TRUST
Applicants
AND
GLOBAL METAL SOLUTIONS LIMITED
Respondent
Hearing: 23 September 2024 Appearances:
M D Branch for the Applicant J Long for the Respondent
Judgment:
14 October 2024
Reissued:
6 November 2024
JUDGMENT OF BLANCHARD J
This judgment was delivered by me on Monday, 14 October 2024 at 3.30 pm pursuant to r 11.5 of the High Court Rules 2016.
Registrar/Deputy Registrar
Solicitors:Braun Bond & Lomas Limited (J Long), Hamilton Harkness Henry (M Branch), Hamilton
GALBRAITH v GLOBAL METAL SOLUTIONS LIMITED [2024] NZHC 2983 [14 October 2024]
[1] On 9 September 2019, the parties entered into an agreement to lease part of land owned by Hunua Holdings Trust (HHT) in Papakura. They are in dispute over issues relating to this lease.
[2] Their disputes have been referred to Royden Hindle for arbitration. The arbitration was split into two hearings. The first hearing took place in March and April last year, with a further day of hearing on 26 June 2023. On 9 August 2023, Mr Hindle issued an award in relation to that hearing. He corrected this on 18 September 2023. The second hearing took place between 8 and 12 July 2024, with closing submissions on 12 and 13 August 2024. The arbitrator has yet to release an award in relation to that hearing.
[3] The first hearing and first award cover many issues. One aspect related to HHT’s claim for payment of rent. That claim totalled $270,000 plus GST. Global Metal Solutions Ltd (GMS) denied that this sum was owing. Ultimately, the arbitrator held GMS owed rent of $120,172.44 plus GST.
[4] HHT applies to set aside aspects of the award and for leave to appeal certain aspects of the award.
[5]The issues that HHT has with the award are as follows:
(a)the arbitrator ordered GMS to pay GST exclusive rent amounts;
(b)the arbitrator refused to award contractual interest on the GST component of the rent;
(c)the arbitrator calculated contractual default interest from the 11th working day after default rather than the date of default;
(d)the arbitrator found that HHT must give GMS a credit for rent for the warehouse on the site paid by the previous tenant, J Swap Ltd, from 1 November 2019 to 16 December 2019, during which time J Swap remained on site; and
(e)the arbitrator accepted GMS’s argument that there should be partial abatement of the rent due to disruption from agreed landlord works.
[6] The application to set aside relates to issues (a)–(d). The application for leave to appeal relates to all five issues.
Application to set aside
[7] The application to set aside is made under arts 34(2)(a)(iii), 34(2)(b)(ii) and 34(6)(b) of sch 1 of the Arbitration Act 1996. These articles permit setting aside of an award that deals with matters outside the scope of the dispute submitted or if the award was contrary to public policy for breach of natural justice.
[8] The Court retains a residual discretion not to set aside even though a ground for setting aside may be made out. This is evident from the use of the word “may” in the opening text of art 34(2) and the drafting history of art 34. In exercising the discretion, the Court may take into account considerations of materiality. It may consider the magnitude of the defect and whether the arbitrator might have reached a different conclusion had it adopted the correct approach.1
Leave to appeal
[9] Under cl 5(1)(c) of sch 2 of the Act, the Court may grant leave to appeal in respect of questions of law. Clause 5(2) provides that the Court must not grant leave unless it considers that the determination of the question of law concerned “could substantially affect the rights of” a party.
[10] If the statutory threshold is met, the Court has a discretion to grant leave. In Gold and Resource Developments (NZ) Ltd v Doug Hood Ltd the Court of Appeal provided a non-exhaustive list of guidelines.2
[11] The most important factor is the strength of the challenge and the nature of the point of law. Where the question is a one-off point and of little precedent value the
1 David Williams and Amokura Kawharu Williams and Kawharu on Arbitration (2nd ed, LexisNexis, Wellington, 2017) at 484.
2 Gold and Resource Developments (NZ) Ltd v Doug Hood Ltd [2000] 3 NZLR 318 (CA) at [54].
Court will not grant leave unless there are very strong indicators of an error. Where the question is of precedent value, the lower standard of a strongly arguable case that an error existed is applied. Where conflicting decisions exist on the point in question this would weigh in favour of a grant of leave. Other relevant factors include the importance of the dispute to the parties and the amount of money involved.
Issue (a) — GST
[12] In reality issue (a) is not an issue at all. The arbitrator ordered GMS to pay the rent “excluding GST”, but it is clear that what he meant by this was that GMS must pay the amounts “plus GST”. It is unarguable that GST is payable on the rent under the lease. This is plainly what the arbitrator intended. GMS does not dispute this, and it paid the GST. Accordingly, I will put issue (a) to one side and deal with the remaining issues.
Issue (b) — Interest on GST
[13] The arbitration hearing was conducted under a general arbitration clause that relates to matters in dispute under the lease. The scope of the arbitration was therefore determined by the pleadings of the parties for the hearing.
[14] HHT’s points of claim sought interest on the rent amounts including GST. The GMS points of defence simply denied that any amount was payable at all.
[15] Thus, the issue was not expressly referred to in the pleadings. However, I think Mr Long is correct to submit that it was within the scope of the pleadings and therefore the arbitrator did have jurisdiction to determine it. The issue is therefore whether there was a breach of natural justice.
[16] The parties did not make any submissions regarding the issue of whether interest should be ordered on the GST payable. Nor is there any discussion about it in the award. The arbitrator calculated the interest that was payable using GST exclusive amounts. But he did not provide any explanation as to why he did this.
[17] On receipt of the arbitrator’s award both parties applied under art 33(1)(a) of sch 1 of the Act. This is the “slip rule” that applies in arbitrations. HHT sought to have this matter corrected as an “error”. The arbitrator ruled that he could not alter his award because the matter was not an error in the relevant sense. Essentially this was because he had said in the award what he intended to say. He acknowledged that he had not heard submissions about the point and that it was conceivable that his interpretation of the lease was incorrect, but he considered he was not able to revisit the matter under the slip rule.
[18]The clauses in the lease dealing with the issue are as follows:
Goods and Services Tax
4.1The Tenant shall pay to the Landlord or as the Landlord shall direct the GST payable by the Landlord in respect of the rental and other payments payable by the Tenant under this lease. The GST in respect of the rental shall be payable on each occasion when any rental payment falls due for payment and in respect of any other payment shall be payable upon demand.
4.2If the Tenant shall make default in payment of the rental or other moneys payable under this lease and the Landlord becomes liable to pay Default GST then the Tenant shall on demand pay to the Landlord the Default GST in addition to interest payable on the unpaid GST under subclause 5.1.
Interest on Unpaid Money
5.1 If the Tenant defaults in payment of the rent or other moneys payable under this lease for 10 working days then the Tenant shall pay on demand interest at the default interest rate on the moneys unpaid from the due date for payment to the date of payment.
[19] In the arbitrator’s ruling in relation to the slip rule applications, he said the following regarding why he calculated the interest on the GST exclusive amounts:
[11]When I approached the assessment of interest, I did so without the benefit of any calculation by the parties. I did not think it necessary to go back to them for submissions on the method of calculation because – rightly or wrongly – it did not occur to me that I was being asked to take what I regard as the unusual step of awarding interest on GST. Unless I have overlooked something, clause 4.2 of the Deed and its potential implications had not been addressed.
[12]I accept, as Mr Branch submits, that 15% of a known value is easy to calculate. Even so, I am not persuaded that these parties must have
intended that GMS would be obliged to pay HHT interest on the GST component of late paid rent unless HHT actually incurs a cost.
[13]Clause 4.2 makes it clear that, if there is an actual cost to HHT in the form of default GST, then that must be reimbursed by GMS. In that case, it follows that there will have been unpaid GST amounts giving rise to the default liability. GMS is obliged by clause 4.2 to cover those as well as the default amount. But if there is no default GST, and HHT have not incurred or accounted to the IRD for GST (perhaps because they have not received the rent) then allowing interest on a hypothetical GST element yields a windfall gain to HHT. I think that very clear wording would be required to achieve that. I consider that it is at least arguable that the liability to pay interest on unpaid GST under clause 4.2 only arises in circumstances where HHT is liable to pay default GST.
[14]In this case there is no evidence as to what HHT have done to account for the unpaid rent in terms of their (HHTs’) GST returns. There is no evidence that HHT have incurred any default GST.
(Footnotes omitted).
[20] Mr Branch submitted that the arbitrator was clearly wrong to have calculated the interest on the GST exclusive amounts. He relied on Avondale Hotel No 1 Ltd v Portage Licensing Trust which makes the point that claims for rent are not damages claims but debt claims.3 For this reason, Mr Branch submitted the arbitrator’s view that interest should run from the date the GST was paid by HHT was incorrect. The contractual obligation is to pay the GST inclusive sum on the due date.
[21] But the issue is not whether the arbitrator’s reasoning was correct. It is whether there was a breach of natural justice.
[22] I agree with Mr Long that there was not. The relevant clauses in the lease were open to more than one conclusion. As Avondale Hotel shows, this issue has come up before. Accordingly, the arbitrator’s reasoning was reasonably foreseeable.4 HHT did not make submissions on the point, but it had the opportunity to do so. In the circumstances, there was no breach of natural justice.
3 Avondale Hotel No 1 Ltd v Portage Licensing Trust HC Auckland CIV-2001-404-3129, 25 October 2006 at [19].
4 Trustees of Rotoaira Forest Trust v Attorney-General [1999] 2 NZLR 452 (HC) at 463.
[23] The amount at issue here is only $15,718.45. If I were to set aside the arbitrator’s decision on this point that would not be the end of the matter. The parties would have to go back to the arbitrator to have the issue re-determined.5
[24] I decline the application to set aside in relation to this issue. Because the amount at stake is small, I also decline leave to appeal.
Issue (c) — Default interest date
[25] This issue makes a difference of $590.11. GMS has paid this amount to avoid having to argue about it. Accordingly, the issue is moot. In the circumstances, I decline both the application to set aside and for leave to appeal in relation to this issue.
Issue (d) — J Swap credit
[26] The commencement date of the lease was 1 November 2019. At the time the lease commenced J Swap continued to occupy the warehouse at the property. On GMS paying the deposit HHT was required to give J Swap three months’ notice to vacate. The deposit was paid on 16 September 2019. J Swap should therefore have vacated the warehouse on 16 December 2019. But it did not vacate until significantly after that date. During the hearing the parties agreed that it did not vacate and give possession of the warehouse until 17 February 2020.
[27] HHT’s position before the arbitrator was that GMS was required to pay full rent from 1 November 2019 until 17 February 2020 despite the fact it did not have exclusive possession of the premises and HHT was also receiving rent from J Swap.
[28] As I have said, the scope of the arbitration was determined by the pleadings of the parties for the hearing. The relevant part of the pleadings was two counterclaims by GMS. The first was a claim in which it sought to rectify the lease to change the commencement date of the lease from 1 November 2019 to 1 January 2020.
[29] The second claim was that HHT was required to give it exclusive possession of the premises by 1 January 2020, and that HHT breached this obligation because
5 Williams and Kawharu, above n 1, at 521.
J Swap did not vacate until “late February” and HHT did not give exclusive access until 1 March 2020. The reason why GMS said HHT was required to give possession by 1 January 2020 was because this was the date that it alleged the lease commenced. This was on the assumption that its rectification claim would succeed. If it failed, then the relevant date was 1 November 2019. The relief that GMS sought for breach of this obligation was damages of an amount “equivalent to the rent due under the lease from the commencement date of the lease (as determined by the arbitrator) to 1 March 2020”.
[30] By means of these two counterclaims GMS was effectively seeking to pay no rent in the period from 1 November 2019 to 1 March 2020. If its rectification claim had succeeded it would have had to pay no rent between 1 November 2019 and 1 January 2020, because the lease would not have commenced until the latter date. If its damages claim had succeeded in full it would have effectively paid no rent between whichever date the lease commenced and 1 March 2020 because it would have received damages equal to the rent that was payable in the relevant period.
[31] During the hearing an intermediate position emerged. This was that GMS should receive a credit of an amount equal to the rent paid by J Swap in the period from 1 November 2019 to 16 December 2019. The suggestion was that it was necessary for GMS to receive this credit to avoid HHT receiving a “double recovery” during the relevant period as a result of receiving rent for the whole of the property from GMS and also rent for the warehouse from J Swap.
[32] The witnesses were asked about this by Mr Long, Mr Branch and the arbitrator. The two witnesses for HHT who gave evidence about this were Mr Galbraith and Mr Middlemiss. In answer to questions from the arbitrator, Mr Galbraith agreed that HHT would not have intended to make a double recovery. In cross-examination from Mr Long and in answer to questions from the arbitrator, Mr Middlemiss said that he did not turn his mind to the fact there would be a double recovery, but it was a “valid point”.
[33] Both parties made submissions about the double recovery in their closings. They did so in the context of addressing the issue of rectification. HHT acknowledged
Mr Galbraith’s concession but submitted that the lease should not be rectified to avoid the double recovery because there was not the necessary common intention. GMS made reference to Mr Galbraith’s concession but maintained the position taken in its pleaded counterclaims that it was not required to pay any rent at all in the relevant period.
[34] The arbitrator did not accept the claim for rectification of the lease. However, he did accept that GMS was entitled to damages as a result of failure by HHT to give GMS access to the warehouse.
[35]Earlier in the award, the arbitrator had said:
For all that, I think an appreciation emerged during the March/April hearing that it would not be right for HHT to have payment of rent from J Swap for the warehouse as well as payment of the whole of the amount of the rent under the lease including the area comprising the warehouse. That would be a double recovery to HHT. I am not sure that any formal concession was made, but it did seem to be accepted by HHT that some adjustment in GMS’ favour on that account is inevitable.
[36]In the context of discussing GMS’s damages claim, the arbitrator said:
I will begin with the J Swap issue. I am not entirely sure that this fits into an analysis of a claim for damages, but I am sure that HHT cannot look to GMS to pay rent for the warehouse while J Swap was still there. I think Mr Galbraith accepts that. At a minimum, the amount of rent payable by GMS must be reduced by the amount of rental payable by J Swap in the period 1 November 2019 to 17 February 2020. …
[37]The arbitrator did not otherwise accept GMS’s damages claim.
[38] The arbitrator calculated GMS should receive a credit for $59,827.56 plus GST. This is the rent that J Swap paid to HHT during the period from 1 November 2019 to 17 February 2020.
[39] HHT only seeks to set aside the award in so far as it relates to the rent received from J Swap in the period from 1 November to 16 December 2019. It does not challenge the arbitrator’s decision in so far as it gives GMS a credit for the amount received from J Swap from 17 December 2019 to 17 February 2020. Mr Long
calculated that the J Swap rent over this period was $28,945.58. My understanding is this is because HHT accepts that J Swap should have been out of the premises after 17 December 2019.
[40] There is an inconsistency here. Logically if the arbitrator did not have jurisdiction, then the whole of the period from 1 November 2019 to 17 February 2020 should be affected.
[41] Having set out what occurred, I can state my conclusions briefly. I do not consider that the arbitrator’s decision regarding J Swap was outside of his jurisdiction as it was defined by the pleadings. Nor do I consider that there was a breach of natural justice.
[42] The arbitrator’s decision was within the scope of the pleadings. Although the arbitrator said he was not entirely sure how J Swap fitted into an analysis of a claim for damages, in my view the arbitrator’s decision on the credit for rent can be seen as being within the scope of the claim for damages.
[43] GMS’s rectification claim failed. This meant that its claim for damages was a claim that HHT breached the lease by failing to provide exclusive possession of the property between 1 November 2019 and 1 March 2020. The $59,827.56 that the arbitrator awarded to GMS can be seen as representing damages awarded by the arbitrator as a result of it not having possession of the warehouse during that period.
[44] I acknowledge that there are some potential difficulties with the arbitrator’s approach. The arbitrator himself was aware of this and hence he placed reliance on Mr Galbraith’s concession. First, HHT was not required to give GMS possession of the warehouse in the period from 1 November to 16 December 2019. Second, the amount of rent that HHT received from J Swap may not be a good proxy for the loss that GMS suffered as a result of not having possession of the warehouse. However, the issue is not whether the arbitrator’s decision was right. It is merely whether it was within the scope of the pleadings, and therefore the jurisdiction of the arbitrator. For the above reasons, in my view it was.
[45] It follows from what I have said above that I also do not accept that there was any breach of natural justice. The J Swap issue was within the scope of the pleadings, there was cross-examination and questions from the arbitrator about it, and both parties discussed it in their closing submissions.
[46] I also decline leave to appeal in relation to this issue. $28,945.58 is too small a sum of money to justify further examination of this issue.
Issue (e) — Abatement
[47] The parties agreed that HHT would carry out “Landlord Works”. Specifically, it was to construct a concrete pad and associated drainage.
[48] This was governed by cl 11 in the Third Schedule of the Agreement to Lease, which contained the special conditions agreed by the parties. Under cl 11.1, HHT agreed to build the concrete pad and drainage at its cost. Clause 11.2 then said:
11.2Both the landlord and the tenant will work together on applying for and obtaining the appropriate consents for this works to commence. Both parties understand that these works will not be completed by the commencement date however the landlord agrees to use his best endeavors to complete the works by 31st March 2020. All works are to be completed in a workman like manner and in accordance with local body regulations.
[49] GMS argued that the Landlord Works were subject to cl 15 of the Second Schedule of the Deed of Lease, which contained the Auckland District Law Society standard lease terms.6 Clause 15.1 required the tenant to give the landlord reasonable access to carry out works to the premises. Clause 15.2 then provided:
Access for Works
15.2 If the Tenant’s business use of the premises is materially disrupted because of the Landlord’s works provided for in subclause 15.1, then during the period the works are being carried out a fair proportion of the rent and outgoings shall cease to be payable but without prejudice to the Tenant’s rights if the disruption is due to a breach by the Landlord of the Landlord’s obligation, under subclause 15.1, to cause the least possible inconvenience to the Tenant.
6 Sixth Edition 2012 (5).
[50] GMS argued before the arbitrator that it was not required to pay rent in the period from 1 March to 1 May 2020 because it only had restricted access to the premises due to the Landlord Works, and therefore it was entitled to an abatement of a fair proportion of the rent pursuant to cl 15.2.
[51] The arbitrator accepted that GMS was entitled to an abatement. He considered that the two clauses worked together. He concluded that a fair abatement was 100 per cent of the rent for March 2020 and 50 per cent of the rent for each of May and June 2020, a total of $90,000 plus GST.
[52] Mr Branch made three alternative arguments in support of the application for leave.
[53]The first is that the Landlord Works under cl 11 are not subject to cl 15.
[54] The second argument is that, if cl 15 does apply, GMS should be denied a remedy under the clause because GMS could not lawfully operate at the premises as it did not have a resource consent for its business use of metal recycling. GMS should not be able to benefit from its own unlawful activity.7 Had GMS acted lawfully, it would not have been conducting its business use at the site at any time during the relevant period because it did not have a resource consent. On that basis, any delay did not cause any material disruption to GMS’s business use.
[55] The third argument is that the arbitrator accepted that for GMS to succeed with its claim for an abatement, GMS was required to show “unreasonable or unnecessary extended disruption”, but the arbitrator did not apply this legal test or he applied it incorrectly. Specifically, GMS had to show that HHT had failed to use their best endeavours to complete the works by 31 March 2020 and unless a lack of best endeavours could be established there could not be “unreasonable or unnecessary extended disruption”.
[56] The first and third arguments involve one-off points with no precedent value. In my view, there is nothing that very strongly indicates that the arbitrator was in error.
7 Woolley v Fonterra Co-operative Group Ltd [2021] NZHC 2690 at [482]–[488].
There are reasonable submissions that can be made in favour of the two arguments, but there are equally reasonable submissions that can be made against them.
[57] The second argument may have precedent value. I will therefore assume the lower standard of a strongly arguable case applies. However, this is still a high standard, and, in my view, the argument does not reach it.
[58] In Patel v Mirza the Supreme Court of the United Kingdom adopted a new framework in relation to the doctrine of illegality, which was summarised as follows by Lord Toulson:8
120. The essential rationale of the illegality doctrine is that it would be contrary to the public interest to enforce a claim if to do so would be harmful to the integrity of the legal system (or, possibly, certain aspects of public morality, the boundaries of which have never been made entirely clear and which do not arise for consideration in this case). In assessing whether the public interest would be harmed in that way, it is necessary (a) to consider the underlying purpose of the prohibition which has been transgressed and whether that purpose will be enhanced by denial of the claim, (b) to consider any other relevant public policy on which the denial of the claim may have an impact and (c) to consider whether denial of the claim would be a proportionate response to the illegality, bearing in mind that punishment is a matter for the criminal courts. Within that framework, various factors may be relevant, but it would be a mistake to suggest that the court is free to decide a case in an undisciplined way. The public interest is best served by a principled and transparent assessment of the considerations identified, rather by than the application of a formal approach capable of producing results which may appear arbitrary, unjust or disproportionate.
[59] In Slessor v Commissioner of Police, the Court of Appeal quoted this passage and said that the new approach was helpful, especially its placement of proportionality at the heart of the inquiry.9 The Court said that the approach provides a principled and transparent assessment of the considerations relevant to application of the illegality doctrine.
[60] GMS’s failure to obtain a resource consent is at the lower end of seriousness of illegality. I therefore do not think that the approach laid down in Patel v Mirza
8 Patel v Mirza [2016] UKSC 42, [2017] AC 467.
9 Slessor v Commissioner of Police [2023] NZCA 612 at [30]–[31]. The Supreme Court refused leave to appeal in Slessor v Commissioner of Police [2024] NZSC 48.
(with its focus on proportionality) is likely to produce the outcome that Mr Branch argues for. I do not think the standard of strongly arguable is reached.
[61] I also have doubt whether $90,000 plus GST is sufficiently significant to warrant leave being granted.
[62]I decline leave to appeal in relation to this issue.
Result
[63]The applications are dismissed.
[64] GMS is entitled to costs in relation to the appeal. To that end, I categorise the appeal as a Category 2 proceeding. Time allocation B is appropriate in relation to each step taken in the appeal. Reasonable disbursements are also payable.
Blanchard J
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