General Distributors Ltd v Melanesian Mission Trust Board HC Auckland CIV 2008-404-4436
[2008] NZHC 2548
•29 August 2008
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IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
CIV-2008-404-4436
UNDER the Arbitration Act 1996
BETWEEN GENERAL DISTRIBUTORS LIMITED Applicant
ANDMELANESIAN MISSION TRUST BOARD
Respondent
Hearing: 28 August 2008
Appearances: Mr R M Crotty for Plaintiff
Mr B Morley for Defendant
Judgment: 29 August 2008 at 12 noon
JUDGMENT OF LANG J
[on application for leave to appeal under Arbitration Act 1996]
This judgment was delivered by me on 29 August 2008 at 12 noon, pursuant to Rule
540(4) of the High Court Rules.
Registrar/Deputy Registrar
Date……………
Solicitors:
Hesketh Henry, AucklandRussell McVeagh, Auckland
GENERAL DISTRIBUTORS LTD V MELANESIAN MISSION TRUST BOARD HC AK CIV-2008-404-4436
29 August 2008
[1] The applicant, General Distributors Limited, operates the Foodtown chain of supermarkets throughout New Zealand. One of those supermarkets is situated at
120 Valley Road, Mt Eden.
[2] General Distributors rents the premises from which it operates its supermarket in Mt Eden. The owner of those premises is the respondent, the Melanesian Mission Trust Board.
[3] The lease provides for three yearly rent reviews, the most recent of which fell due on 29 May 2006. The parties have been unable to agree upon the fair market rental to be paid in relation to that review. For that reason they have invoked provisions within the lease that enabled them to submit their dispute to arbitration.
[4] During the interlocutory process leading up to the arbitration the parties were unable to reach agreement regarding the scope of discovery. As a result, they referred that issue to the arbitral tribunal for determination. In a decision that it described as a “Discovery Ruling”, the tribunal ordered General Distributors to provide some of the information that the Board sought to obtain. General Distributors believes that that decision was based on an error of law, namely the test to be applied for discovery in this context. It seeks leave to appeal the ruling to this Court under the provisions of the Arbitration Act 1996.
The approach to be taken
[5] In hearing and determining the application I adopt the approach recommended by the Court of Appeal in Gold and Resource Developments (NZ) Ltd v Doug Hood Ltd [2000] 3 NZLR 318. In that case the Court said:
[57] The hearing of the application should be kept brief. It should be merely an opportunity for the Judge to ensure that he or she has a grasp of the arguments and so enabling a determination to be made of whether the applicant has, in light of the nature of the point of law and the factors to be considered, established a sufficiently strong case to justify the grant of leave. As Lord Donaldson of Lymington MR said in Ipswich Borough Council v Fisons Plc at p 722:
“. . . a decision on whether or not to grant leave to appeal to the High
Court should be arrived at after only brief argument. It is not the
function of the judge to hear the putative appeal, before deciding whether or not to grant leave.”
[58] If the Judge decides to grant leave, reasons should ordinarily not be given. It is undesirable that the Judge who is to hear the substantive argument should be embarrassed or influenced by the existence of written reasons.
[59] If leave is not granted, the Judge should deliver a short judgment for the benefit of the parties indicating, where necessary, whether the matter in issue is considered to be one-off, and why the case did not meet the required standard. A detailed analysis of the alleged error of law is not required.
Issues
[6] The first issue to be determined is whether General Distributors can establish that this Court has the necessary jurisdiction to determine the proposed appeal. This requires me to determine whether the appeal is in respect of an “award” as that term is defined by the Act. If General Distributors can satisfy me regarding that issue. I must go on to consider whether, taking into account the statutory criteria, leave should be granted.
Can General Distributors establish that this Court has jurisdiction to determine the proposed appeal?
The principles
[7] Rights of appeal to this Court in the present context are governed by Clause 5 of the Second Schedule to the Arbitration Act 1996. Clause 5 provides:
Appeals on questions of law
(1) Notwithstanding anything in articles 5 or 34 of Schedule 1, any party may appeal to the High Court on any question of law arising out of an award—
(a)If the parties have so agreed before the making of that award; or
(b)With the consent of every other party given after the making of that award; or
(c) With the leave of the High Court.
(2) The High Court shall not grant leave under subclause (1)(c) unless it considers that, having regard to all the circumstances, the determination of the question of law concerned could substantially affect the rights of one or more of the parties.
…
[8] The Act defines “award” as follows:
award means a decision of the arbitral tribunal on the substance of the dispute and includes any interim, interlocutory or partial award:
[9] The issue for present purposes is whether the tribunal’s decision in relation to the issue of discovery amounts to an “award” in terms of the Act.
[10] The scope of the definition of “award” under the Act was the subject of discussion in McConnell Dowell Constructors Ltd v Pipeflow Technology Ltd HC AK M2029/98 25 March 1999. In that case Paterson J (who, by coincidence, is also the arbitral tribunal in the present case) said at 7:
There was no definition of the term “award” in the previous legislation and the definition in the Act is the definition which appeared in the draft Act as prepared and recommended by the Law Commission in 1991. The Law Commission in commenting on the definition, said at para 202 of its report:
“A definition of award has been included, for the purposes both of the Act itself and Schedules 1 and 2, following precedents set in the legislation adopting the Model Law in British Columbia and California. The definition we recommend is taken from s 1297.21 of the California legislation and differs from the British Columbia legislation only in the inclusion of the words “interlocutory, or partial”. This definition makes it clear that an arbitral tribunal may issue an interim award. It also reflects a distinction between an award on the substantive merits of a dispute as against a procedural order, although our recommendation for a new article
17(2) involves a pragmatic departure from that distinction. (That departure does not expand the meaning of the term “award” but, for the purposes mentioned in that article, assimilates orders made by an arbitral tribunal for interim measures to an award on an “as if” basis.)
The term “substance of the dispute” as it appears in the Act’s definition of “award”, in my opinion, distinguishes between procedural and practical matters on the one hand, and substantive matters which affect the rights of the parties on the other. Substantive law defines, creates or confers legal rights or legal status or imposes and defines the nature and extent of legal duties. The function of practice and procedure is to provide the machinery
for the manner in which legal rights or legal status and legal duties are recognised or enforced by the properly constituted tribunal, in this case, the Arbitrator. An order of an arbitrator which determines practice and/or procedure is not a decision on the substance of the dispute in accordance with the definition of “award” in s 2(1) of the Act. It is an order regulating the procedure which is to be followed in determining the appropriate legal rights and duties of the parties on the matters referred to arbitration. The right of appeal to this Court on any question of law arising out of an award, as given by clause 5 of the Second Schedule to the Act, is a right in respect of awards which touch on the legal rights or duties which arise from the dispute between the parties which has been referred to arbitration. There is no right of appeal in those cases where the award is a procedural award which does not cover the substance of the dispute. The reference in the definition in s 2(1) of the Act to “any interim, interlocutory or partial award” does not extend the meaning of the term “substance of the dispute” and refers to any “interim, interlocutory or partial award” which relates to the legal rights and duties of the parties arising from the dispute between them. (Emphasis added in bold).
[11] I respectfully agree with this analysis. I consider that Parliament has made it plain that parties to an arbitration may only appeal to this Court against an interim or final decision of an arbitral tribunal that effectively decides the actual dispute that the tribunal has been asked to decide. Moreover, the parties do not have a right of appeal in respect of every point of law raised or decided by such a decision. The right to appeal applies only to those issues of law that substantially affect the rights of one or more parties to the arbitration.
The present case
[12] The Tribunal described its decision in the present case as a “discovery ruling”. The nomenclature of a decision obviously does not determine its true nature. Nevertheless, I consider that the description that the tribunal itself applied to its decision aptly describes the true nature of the decision. It was a decision that the Tribunal made to determine the interlocutory and procedural issue of discovery.
[13] Counsel for General Distributors laid emphasis on the fact that in McConnell Dowell Paterson J said that substantive law “creates and confers legal rights or imposes and defines the nature and extent of legal duties.” Counsel submitted that the ruling of the tribunal in the present case had precisely that effect, because it “necessarily involves a determination by the arbitral tribunal that the documents and information are relevant to the subject matter of the dispute”.
[14] The ruling of the Tribunal makes it clear, however, that it has not yet finally determined the issue of relevance. In its ruling the Tribunal said:
The tribunal has formed views as to the possible relevance of the documents and materials sought. As the information is in the control of one party, it is not possible to assess absolute relevance at this stage.
[15] The situation may therefore be similar to that in Urban Small Space Limited v Burford [1990] 2 EGLR 120. In that case the Court was asked to determine an application for leave to appeal against a decision of an arbitrator directing a party to an arbitration to provide discovery of certain documents. In dismissing the application the Vice-Chancellor, Sir Nicholas Browne-Wilkinson, said at 121:
Therefore, I do not think that the exact point which has been decided will necessarily arise again at the hearing. It may do, but it may not. The disclosed documents may not be tendered in evidence or [may be] used only for cross-examination. I am, therefore, far from satisfied that it is a case in which the decision of the point could substantially affect the rights of the parties. I think it is important that this kind of interim appeal should not be brought. The arbitrator should decide the substance of the matter as quickly as possible, saving delay and substantial expense. It has taken six months from the date of the interim award to get this application before this court. That is not right.
[16] As the above passage demonstrates, it is far from clear that a ruling by an arbitral tribunal in relation to the issue of discovery creates legal rights and duties at all. It is, in fact, distinctly arguable that orders in relation to matters such as discovery have no immediate effect on the legal rights and obligations of parties to the arbitration.
[17] Moreover, the Act does not contain any mechanism by which a party or the tribunal may directly enforce any directions that the tribunal might make in relation to the issue of discovery. A party seeking to enforce such orders must instead apply to the Court for orders under Clause 3 of Schedule 2 of the Act. Those orders can then be enforced as orders of the Court. It may be that, until the Court makes an order, directions given by the arbitral tribunal do not affect the legal rights and obligations of the parties.
[18] It is also wrong to view excerpts from the judgment in McConnell Dowell in isolation. The whole of the passage cited above needs to be taken into account.
When that is done, it is clear that Paterson J considered that a right of appeal was only available in respect of decisions “which touch on the legal rights or duties which arise from the dispute between the parties which has been referred to arbitration”. In the present case the parties did not refer their dispute regarding discovery to arbitration. Rather, they referred their dispute regarding the rental to be paid in respect of the Mt Eden premises to arbitration.
[19] Other cases, albeit not within the context of proceedings under the 1996 Act, also demonstrate that the Court is reluctant to become involved in issues such as discovery. In McKenzie v Toogood HC AK CL 11/02 27 March 2002 Williams J contrasted at [17] a determination as to the jurisdiction of a tribunal with “procedural orders and directions covering such matters as admissibility of evidence and discovery”. The former will give rise to a right of appeal, whilst the latter will not.
[20] Counsel for General Distributors also submitted that a determination at the interlocutory stage regarding the discoverability of documents and/or information will necessarily impact on the evidence at the substantive hearing. As a consequence, he submitted that the ruling “has the potential to affect the outcome of the dispute”.
[21] This submission demonstrates, in my view, the difficulty that General Distributors faces. It does not have a right of appeal in respect of a decision that may have the potential to affect the outcome of the dispute. Rather, it must show that the decision is actually on the substance of the dispute. The issue, therefore, is whether an interlocutory decision in relation to the issue of discovery can amount to a decision on the substance of the dispute in the present case.
[22] The answer, in my view, must plainly be no. The substance of the dispute in the present case relates squarely to the fair market rental to be paid under the lease. An interlocutory determination in relation to the issue of discovery does not amount to a decision determining, even on an interim or interlocutory basis, that issue. Although a ruling in relation to discovery may affect the rights and obligations of the parties in relation to the documents that they must discover, that is not enough to give rise to a right of appeal.
[23] I am therefore satisfied that the decision of the Tribunal in the present case does not amount to a decision on the substance of the dispute between the parties. The Tribunal has not yet issued any decision in relation to that particular issue.
[24] For this most basic of reasons I am satisfied that General Distributors has failed to establish the statutory threshold necessary to permit it to proceed with its appeal to this Court.
A reminder
[25] In the present context it is also necessary to bear in mind the purposes of the
Act. These are set out in s 5 and include the following:
(a)To encourage the use of arbitration as an agreed method of resolving commercial and other disputes; and
…
(d)to redefine and clarify the limits of judicial review of the arbitral process and of arbitral awards; and
…
[26] As the Court of Appeal noted in the Gold and Resource Developments case at [14], it is apparent from s 5 that Parliament intended to encourage the use of arbitration to resolve disputes between parties. It also intended to limit the High Court’s involvement in reviewing arbitral decisions. Parliament’s intention in this regard can be discerned not only from the plain wording of the Act but also from comments made during debates on the Arbitration Bill in the House of Representatives, and the reports submitted by the Select Committee in relation to that Bill: see the excerpts set out at [14] in Gold and Resource Developments.
[27] It is important that the Court ensures that it construes the legislation in light of the clear purposes of the Act. If it does not, it runs the risk that it will undermine or subvert the purposes for which Parliament passed the legislation.
[28] I consider that the issue that General Distributors seeks to have the Court determine in the present case is precisely the type of issue that Parliament intended
to prevent parties from referring to the High Court. Issues such as the scope of discovery in disputes being determined by arbitration remain, in my respectful view, solely within the province of the arbitral tribunal charged with determining the dispute.
[29] Moreover, General Distributors is a sophisticated and experienced commercial operator. It operates New Zealand’s largest supermarket chain, and can be taken to be thoroughly familiar with the issues that are likely to arise in relation to commercial leases. It can therefore be taken to have an intimate understanding of the consequences that were likely to flow from its decision to refer the present dispute to arbitration.
[30] In electing to tread the path of arbitration rather than litigation General Distributors obviously concluded that arbitration was the most appropriate method of resolving the dispute regarding the issue of what constitutes a fair market rental. It must therefore be taken to have known and accepted the disadvantages, as well as the advantages, of the arbitral process. One of the potential disadvantages of that process is the strict statutory limit on the extent to which parties may have recourse to this Court in relation to decisions made by an arbitral tribunal. This includes the complete absence of any right of appeal in relation to purely procedural decisions of the tribunal.
[31] General Distributors also agreed to the appointment of a tribunal whose qualifications, it accepts, cannot be impeached. They comprise a silk, who was formerly an experienced High Court Judge, and two members chosen for their expertise within the field of commercial valuations. General Distributors obviously had confidence in the ability of that tribunal to determine the legal issues that were likely to arise in the interlocutory process. As a consequence, General Distributors is now required to accept the tribunal’s decisions in relation to procedural issues even if it does not agree with them.
Result
[32] For these reasons the application for leave to appeal is dismissed.
Lang J
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