Martelli v Liow
[2024] NZHC 968
•29 April 2024
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE
CIV-2023-404-460
[2024] NZHC 968
UNDER the Arbitration Act 1996 IN THE MATTER
of an arbitration
BETWEEN
BRETT MARTELLI and SUSANNAH KEITH
Appellants
AND
SUE LYNN LIOW and SAI HO TAN
Respondents
Hearing: 28 November 2023 Appearances:
C Walker KC for the Appellants
ARB Barker KC and H P Short for the Respondents
Judgment:
29 April 2024
JUDGMENT OF GAULT J
This judgment was delivered by me on 29 April 2024 at 4:00 pm pursuant to r 11.5 of the High Court Rules 2016.
Registrar/Deputy Registrar
……………………………………
Solicitors / Counsel:
Mr C Walker KC, Barrister, Auckland
Mr A Yaqub (appellants’ instructing solicitor), Martelli Yaqub Lawyers Ltd, Auckland Mr ARB Barker KC and Ms H P Short, Barristers, Auckland
Ms B Lee (respondents’ instructing solicitor), Loo & Koo, Auckland
MARTELLI and KEITH v LIOW and TAN [2024] NZHC 968 [29 April 2024]
TABLE OF CONTENTS
Factual background [3]
The arbitration [11]
Two-stage inquiry as to reasonableness [15]
Smallfield v Brown [16]
Discussion [24]
Contractual interpretation of clause 10 in the lease [29] Other New Zealand cross-lease cases on unreasonably withholding consent [43] Academic commentary on Smallfield [50]
Unreasonably withholding consent in other lease contexts [55]
Conclusion [67]
Remittal [73]
Result [80]
Costs [82]
[1] This dispute between neighbours on cross-lease sites in Auckland concerns the requirement that consent to structural alterations “shall not be unreasonably withheld”. This is a common requirement in cross-leases.
[2] On a question of law appeal from an arbitration award, the appellants seek to revisit this Court’s 1991 decision in Smallfield v Brown.1 Pursuant to leave to appeal granted by Anderson J on 30 June 2023,2 the question of law arising has been posed as:
… whether, in the context of cross-leases for residential properties, consent in respect of alterations will be unreasonably withheld … only where the benefit to the party seeking change will be substantial and the proposed alteration would produce only trifling detriment to the cross-lessor, as held in Smallfield v Brown …
Factual background
[3] In 2011, the appellants purchased 80 Waiatarua Road, Remuera. Their property is on a cross-lease title comprising a half share in the fee simple estate of 832m2, with an exclusive occupation area of 434m2 and a residential dwelling of 114.5m2 (flat 1) nearest to the road.3 It has a single-storey weatherboard house with a separate double garage.4
[4] In 2017, the respondents purchased 80A Waiatarua Road. Their property is on the same cross-lease title comprising a half share in the fee simple estate, with an exclusive occupation area of approximately 307m2, and a residential dwelling of 127m2 (flat 2).5 It has a single-storey brick house with an internal garage.
[5] Each cross-lease included a “clause 10” prohibiting structural alterations or erecting structures without consent with a proviso that such consent shall not be unreasonably withheld. The respective clauses were in slightly different terms but
1 Smallfield v Brown (1992) 2 NZ ConC 191,110.
2 Martelli v Liow [2023] NZHC 1678.
3 CT 571260, formerly NA 74B/105 and NA 74B/106. The cross-lease is for a term of 999 years commencing on 1 October 1988.
4 The garage and an area of decking are not shown on the plan attached to the title.
5 Instrument 8927485.3. The cross-lease is for a term of 976 years commencing on 1 December 2011.
nothing turns on the difference. The actual clauses were as follows, with the words in brackets added into the clause for flat 2:
10. NOT TO MAKE STRUCTURAL ALTERATIONS
The Lessee shall not make any structural alterations to the [Flat which shall have the effect of altering the external dimensions thereof] said building nor erect on any part of the said land any building, structure or fence without the prior consent of the Lessors first had and obtained on each occasion PROVIDED HOWEVER that such consent shall not be unreasonably withheld.
[6] The memoranda of lease also provides that the parties shall refer any dispute to arbitration.
[7] In 2018, the respondents demolished a smaller uncovered deck at the northern end of flat 2, built a 24.6 m2 covered deck less than 1 m from their northern boundary, and built a lower, uncovered deck toward the appellants’ property.6 The respondents did not seek or obtain the appellants’ consent to these works.7
[8] In 2021, the appellants sought the respondents’ consent to proposed alterations of flat 1 (and proposed subdivision to convert their title to freehold). The appellants want to develop flat 1 by:
(a)increasing the size of the existing 114.5 m2 house by 54 m2 to 169 m2, bringing it closer to the boundary with flat 2 (1.4 m rather than over 6m from the boundary);8
(b)adding an in-ground swimming pool of 27.2 m2 1 m from the boundary;
6 This area of decking is also not shown on the plan attached to the title.
7 This is the subject of separate determination. It is also suggested that as soon as the respondents are in a position to do so, they intend to expand their house by 56 m2 by adding a 30 m2 bedroom on the northeast and a 24 m2 extension to the west. This too is not for determination in this proceeding.
8 The proposed alteration envisages the side of flat 1 that is facing flat 2 being approximately 6.7m wide and around 4m high (although the roofline will be “hipped” at a height of 2.7m). The extended area will convert what was once a kitchen, laundry and dining area into the main living space for the house. The old living room will become a fourth bedroom. The new lounge and dining area will open into the backyard through large sliding doors.
(c)adding new decking of 28.8 m2 to connect the house to the swimming pool;9 and
(d)removing the separate garage (in order to avoid taking what might be regarded as the respondents’ site coverage).
[9] All of the proposed alterations will take place at the back of the appellants’ property, in the area between their house and the boundary with the respondents’ property.
[10]After some positive interaction, the respondents refused to consent.
The arbitration
[11] The appellants referred the dispute to arbitration by Mr Royden Hindle. The issue in the arbitration was whether the respondents had acted “unreasonably” in refusing to provide consent.
[12] In his award dated 7 December 2022, the arbitrator applied Smallfield v Brown. He said:
[25]The starting point is the 1992 [sic] decision of Fisher J in Smallfield v Brown.10 The case is important not only for the way in which the test for assessing what is unreasonable in the context of cross lease cases is articulated, but also because it had facts which are – at least in some respects – not dissimilar from the present.
…
[31]As Mr Colthart submitted, although the case is perhaps most often referred to for the phrase ‘trifling detriment’, that overlooks the fact that the assessment of detriment is part of a balancing exercise. The benefit to the party seeking change is a material factor.
[32]Mr Colthart also referred to an observation by Professor Thomas, an acknowledged expert in this area:11
“It is respectfully suggested, however, that this test is too restrictive. It does not invite consideration of issues such as
9 This decking would cover most of the remaining backyard area.
10 Smallfield v Brown (1992) 2 NZConvC 191,110 at 191,118.
11 Rod Thomas (Elizabeth Toomey and John Burrows (eds)) New Zealand Land Law (3rd ed, Thomson Reuters, Wellington, 2017) at 1181.
the reasonable expectations of the owner seeking consent to the alterations. Also, the use of the expression ‘trifling’ is perhaps unfortunate. The Shorter Oxford Dictionary (1993) identifies ‘trifle’ as ‘a matter of little value or importance, a trivial, paltry or insignificant affair’. As a result, any balancing exercise of the respective rights of the parties (which Fisher J acknowledges is appropriate) will usually result in consent being withheld for anything having any more than an insignificant detrimental effect on neighbouring owners. There will be few alterations so negligible as to be merely ‘trivial, paltry or insignificant’ and such restrictions cannot be easily read back into a requirement that consent cannot be unreasonably withheld.”
…
[42]In the end, Smallfield is still the leading authority in this area of the law. Even acknowledging that it calls for a balancing of interests, the inescapable reality is that it places the fulcrum of the balancing exercise considerably closer to an objecting owner’s end of the scales than it does to the perspective of a cross-lease owner who wants to make changes.
[43]Nor is that surprising. There are good reasons to prioritise the perspectives of a cross-lease owner who objects to changes. After all, cross-lease owners buy their properties in a known condition, and on the understanding that the characteristics, amenities and value of what they are buying will not be vulnerable to the unwanted unilateral actions of a co-owner – no matter how desirable the proposed work might be from the co-owners’ point of view. If the law were otherwise, cross lease ownership would be far less attractive.12
…
[45]I have therefore approached the evidence with these points in mind:
(a)the assessment I am asked to make is a comparative exercise, in which the perspectives of both parties are to be considered;
(b)there are no hard and fast rules: for example, the fact that a proposal will increase the size of a dwelling is of itself unlikely to be sufficient to justify withholding of consent. Everything will depend on the details of what is proposed;
(c)at the same time, the assessment of reasonableness requires a particular focus on the impact of the proposed alterations for the objecting party;
12 This footnote is in the Award: “To make the same point in a different way: if Parliament were to legislate in this area it is difficult to imagine that any new test would be altogether different from the Smallfield test. It would, for example, be untenable if a cross-lease co-owner could unilaterally impose changes on another co-owner simply on the basis that the benefit to the former outweighs the detriment to the latter.”
(d)consent can reasonably be withheld where, objectively viewed, the detriment(s) to the objecting party are more than ‘trifling’. That is so even if the benefits to the other party may be significant;
(e)the factors to be taken into account in making the assessment will always depend on the facts of each case, and may include things like interference with light and air, appearance, domination of one flat over another, impact on views, privacy, noise, visual intrusion, changes in use, likely ‘before and after’ property values, possible restrictions on options for future development, nuisance in construction, uncertainty of impact, and no doubt many other factors besides.
[13] On the facts, the arbitrator found that there would be very substantial benefit to the appellants in going ahead with their plans: what they wanted to achieve would represent a far better use of their exclusive occupation area.13 In relation to detriment to the respondents, I adopt the summary of the arbitrator’s factual findings from the submissions of Mr Barker KC for the respondents:
(a)The proposed alterations will bring the bulk of the appellants’ property significantly towards the respondents’ house and create a “tunnel-like feeling” in the common area.14 The respondents’ concerns about the bulk and location of the proposed alterations were “legitimate” and could not be characterised as “trivial, or mere trifles”, as what is proposed “would be a substantial development on the fee simple title”.15
(b)The redevelopment of the appellants’ property, including the new outdoor areas, would involve a “real change in the way the areas are used” and would “become the focal area for socialising”.16 The respondents were entitled to raise this concern, as what was proposed was not “in any sense a minor alteration or adjustment”.17
13 At [49](c).
14 At [70]. I add that, in the preceding paragraph the arbitrator said that when he stood in the driveway and looked at the properties to try to visualise what would be in place, he found himself unable to reach a confident conclusion that the respondents’ concerns in respect of the bulk and location of the extensions to flat 1 could fairly be described as trifling.
15 At [72]-[73].
16 At [75].
17 At [77].
(c)The concerns the respondents had for the possible loss of value of their property could not be dismissed as being unfounded and/or based on purely subjective fears that have no real basis.18 The respondents’ concerns about the impact of the proposed work on the value of their property “fell beyond the Smallfield threshold of that which is ‘trifling’, and by a reasonably clear margin”.19
(d)Concerns about the potential impact of alterations on the respondents’ ability to develop their own property, the impacts of construction, and concerns around the building plans changing as construction took place were concerns that were not sufficient in themselves to justify a withholding of consent but were nevertheless factors that could be added to the overall mix of concerns.20
[14]In conclusion, the arbitrator said:
SUMMARY
[110]I have sympathy for the claimants. The extensions they propose, including the new deck and pool area, make perfect sense from their point of view and are highly desirable. They have invested both time and money to identify what they propose, and to get to the point of bringing this claim. I understand why they may regard the respondent’s [sic] objections as being misplaced.
[111]If the law placed the fulcrum of assessment in the middle between the two competing sets of interests and concerns, I would have had no hesitation in finding in their favour.
[112]But that is not the test. The law places the fulcrum of assessment a long way towards the respondent’s [sic] perspective. While I am ambivalent about some of the aspects of the respondents’ concerns, in combination I am not persuaded that they can be dismissed as being mere trifles.
[113]I conclude that the balance ultimately falls in favour of the respondents.
AWARD
[114]I find that the respondents’ withholding of consent to the claimant’s proposals is not unreasonable.
18 At [83].
19 At [85].
20 At [97], [101] and [109].
Two-stage inquiry as to reasonableness
[15] There is no dispute that an inquiry as to whether consent was unreasonably withheld in a contractual setting generally involves a two-stage inquiry, first into the actual basis for withholding consent and secondly as to whether that basis provides reasonable grounds for withholding consent.21 The latter is an objective inquiry.
Smallfield v Brown
[16] It is next convenient to refer to Smallfield. A property in Devonport with a mature house at the front and a vacant area at the back was subdivided by cross-lease in 1984. The house at the front and its immediate surrounds became the subject of one lease (flat 1) and the area at the back became the subject of the other lease (flat 2). A new house was erected upon the area at the back. In 1986 the plaintiffs purchased flat 2. In 1989 the defendant purchased flat 1. The defendant decided to make various changes to flat 1, including interior changes together with the construction of a deck and access to it through french doors, which were to replace an existing smaller window. The deck and the intended french doors were to face the rear of the property, lying between the main house constituting flat 1 and the newer house, flat 2. Construction began without consent.
[17] In relation to the need for consent, a preliminary issue arose as to whether the equivalent of cl 10 in that lease applied to a situation of separate buildings given the description of “flat”:
Flat 1 on Deposit Plan ... (hereinafter called “the Flat”) which is part of a building erected on the said land comprising flats Nos 1 and 2 as shown on the said plan (hereinafter called “the said single building”).
[18] In his oral judgment, Fisher J said that until 1979 it was apparently not possible to use cross-leasing for detached buildings distinct from different parts of the same building. He said that perhaps the draftperson had in an unthinking manner perpetuated a precedent which was no longer entirely appropriate. Fisher J did not
21 Greymouth Gas Kaimiro Limited v GXL Royalties Limited [2010] NZSC 117, [2011] 1 NZLR 289 (involving assignment of a royalty deed relating to a petroleum exploration permit) at [10]-[11]; Louis Vuitton New Zealand Ltd v Prince’s Wharf Property Fund Ltd (2005) 5 NZ ConvC 194,073 (HC) (involving a landlord’s consent to a change of use) at [30].
accept the argument that the clause may not apply to detached buildings.
He considered that the clause applied in this situation.22
[19]As to whether consent was unreasonably withheld, Fisher J said:23
Clause 10 of the lease stated that although consent would be required “such consent shall not be unreasonably withheld”. Whether or not consent has been unreasonably withheld requires first that some proposition is put to the relevant lessee for the purpose of triggering an obligation not to unreasonably withhold consent and secondly that after due balance of the interests of the two parties the withholding of the consent is found to be unreasonable. Although the latter involves a comparison between the interests of both parties I think that a consent will be unreasonably withheld only where the benefit to the party seeking change will be substantial and the proposed alteration would produce only trifling detriment to the neighbour.
(my emphasis)
[20] There was no further analysis or citation in support of this statement. This is the passage which the arbitrator said is routinely relied on in cross-lease cases.
[21]On the facts, Fisher J said:24
… it does seem to me that this particular deck and associated french doors leading through into the principal living area was likely to result in some loss of privacy, some increased noise and as Mr Farrant put it, “a strong sense of visual intrusion”. I think it constituted a sufficient detriment to outweigh the corresponding benefits to the defendant. Consequently I do not consider that consent was unreasonably withheld even if, as I suppose must be the case, there had eventually come a time when a clear and definite proposition to build or retain the existing structure and alterations in their existing state was put to the plaintiffs for consent. No one has ever quite identified when that proposition was put but it would probably be idle to deny that it was on the table for most of the last 18 months.
[22] Fisher J also referred to other propositions that had been put to the plaintiffs which essentially involved the retention of the existing deck and doors but with various additional features to mitigate their effect on the plaintiffs. The Judge addressed whether they were unreasonable in withholding their consent to those propositions. The Judge said the plaintiffs had no right to reject out of hand some proposition which would involve a deck of some sort, and by their blanket refusal to consider anything the plaintiffs took a position which was legally untenable. However, there was not a
22 That was common ground in this case.
23 Smallfield v Brown (1992) 2 NZConvC 191,110 at 191,118.
24 At 191,118.
clearly defined proposition upon which it could be said the plaintiffs had breached their obligations under cl 10. The Judge said he was left with no way of defining in advance what would satisfy the test for the purposes of cl 10.
[23] Accordingly, the Judge concluded that the french doors and deck represented a continuing breach of (inter alia) cl 10 of the lease.
Discussion
[24] The question of law in this case is framed by reference to the statement in Smallfield suggesting a test of substantial benefit to the party seeking change and only trifling detriment to the neighbour. In particular, it is the arbitrator’s reliance on Smallfield’s reference to “only trifling detriment” to the neighbour that is in issue.
[25] I first observe that Mr Walker KC, for the appellants, acknowledged that it may be that Fisher J in Smallfield did not intend to lay down anything in the nature of a rule of law, but he submitted the highlighted statement (at [19] above) has been taken as such, referred to with approval in subsequent decisions in this Court and applied by arbitrators. I agree it may be doubted that Fisher J intended this reference to be a statement of law of general application. There was no further discussion of the statement and the Judge’s analysis of the proposed deck and french doors which followed referred instead to “a sufficient detriment to outweigh the corresponding benefits to the defendant”. There was no other reference to “trifling detriment”.
[26] Thus, whatever the reference to “trifling” was intended to convey, the reason for the Judge’s conclusion in Smallfield that consent was not unreasonably withheld was that the particular deck and associated french doors constituted a sufficient detriment to outweigh the corresponding benefits to the defendant. On that basis, the earlier statement that “a consent will be unreasonably withheld only where … the proposed alteration would produce only trifling detriment to the neighbour” may be considered obiter. Indeed, Mr Barker’s characterisation was that all the Judge was saying was that the lessor is entitled to refuse consent if the alterations are substantial.
[27] If substantial benefit and trifling detriment is, or has become, the test, Mr Walker submitted it is wrong in law. He submitted it prejudges what is reasonable
in the circumstances of the particular case, places an unnecessary gloss on “unreasonably withheld” in the clause, and empowers lessors to thwart any structural development of the lessee’s flat where the benefit is not substantial or the effect is more than trifling, however reasonable it may be in the particular circumstances. He submitted that such a test is not justified by the cross-lease’s own terms or by any strictures of planning law. It prevents developments which may accord with planning expectations in the area and the respective interests of cross-lessor and cross-lessee.
[28] Mr Barker submitted that Smallfield has been settled law for the last 30 years. He submitted that if criticisms can be made of the test, it should nevertheless be endorsed because of the importance it has assumed as a precedent in this area.
Contractual interpretation of clause 10 in the lease
[29] I turn to address cl 10 of the lease itself, set out at [5] above. As it is contractual in nature, it must be interpreted according to the principles of contractual interpretation.
[30] The approach to contractual interpretation is not in dispute. It was set out by the Supreme Court in Firm PI 1 Ltd v Zurich Australian Insurance Ltd,25 and more recently summarised in Savvy Vineyards 4334 Ltd v Weta Estate Ltd:26
[24] There is no dispute as to the approach to interpretation applicable. The approach is that set out by this Court in Firm PI 1 Ltd v Zurich Australian Insurance Ltd. The Court in that case said the approach was an objective one. The Court went on to accept that “in interpreting commercial contracts the courts should have regard to their commercial purpose and to the structure of the parties’ bargain, to the extent that they can reliably be identified”. The Court also said:
[63] While context is a necessary element of the interpretive process and the focus is on interpreting the document rather than particular words, the text remains centrally important. 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. But the wider context may point to some interpretation other than the most obvious one and may also assist in determining the meaning intended in cases of ambiguity or uncertainty.
25 Firm PI 1 Ltd v Zurich Australian Insurance Ltd [2014] NZSC 147; [2015] 1 NZLR 432.
26 Savvy Vineyards 4334 Ltd v Weta Estate Ltd [2020] NZSC 115; [2020] 1 NZLR 714 (footnotes omitted).
[31] Mr Barker also emphasised the Privy Council’s earlier judgment in Melanesian Mission Trust Board v AMP Society,27 a case concerning a deed of lease:
The approach which must be taken to the construction of a clause in a formal document of this kind is well settled. The intention of the parties is to be discovered from the words used in the document. Where ordinary words have been used they must be taken to have been used according to the ordinary meaning of these words. If their meaning is clear and unambiguous, effect must be given to them because that is what the parties are taken to have agreed to by their contract. Various rules may be invoked to assist interpretation in the event that there is an ambiguity. But it is not the function of the Court, when construing a document, to search for an ambiguity. Nor should rules which exist to resolve ambiguities be invoked in order to create an ambiguity which, according to the ordinary meaning of the words, is not there. So the starting point is to examine the words used in order to see whether they are clear and unambiguous. It is of course legitimate to look at the document as a whole and to examine the context in which these words have been used, as the context may affect the meaning of the words. But unless the context shows that the ordinary meaning cannot be given to them or that there is an ambiguity, the ordinary meaning of the words which have been used in the document must prevail.
[32] Although prior to these cases, Winkelmann J in Louis Vuitton New Zealand Ltd v Prince’s Wharf Property Fund Ltd also said that in considering whether a landlord’s refusal of consent (to a change of use) was unreasonable, the Court should look first at the covenant in the context of the lease and ascertain the purpose of the covenant in that context.28
[33] Clause 10 is essentially a prohibition on any structural alterations or new structures without the consent of the lessor (the other lessee). However, the text states that consent shall not be unreasonably withheld. It does so without being at all prescriptive as to the cross-lessor’s assessment. The text of the clause does not include any words suggesting a substantial benefit and trifling detriment test.
[34] Mr Barker submitted that the balancing exercise that Smallfield requires simply expresses the balancing inherent in any reasonableness inquiry. He submitted it favours the position of the consentor because that is what clause 10 does – it does not
27 Melanesian Mission Trust Board v AMP Society [1997] 1 NZLR 391 (PC) at 394-395, applied in the cross-lease context in Walsh v Studd (2003) 5 NZCPR 1 (HC) at [86].
28 Louis Vuitton New Zealand Ltd v Prince’s Wharf Property Fund Ltd (2005) 5 NZ ConvC 194,073 (HC) at [37](1).
give the consentee any right to undertake alterations; it gives the consentor the right to consent or object on reasonable grounds.
[35] As the arbitrator indicated, the question of whether consent is being withheld reasonably or unreasonably should not be conflated with whether an alteration is reasonable or unreasonable. In that sense, as Mr Barker submitted, there is no general right for the consentee to undertake “reasonable” alterations. I will return, however, to his submission that the only way that the interests of the consentee could become relevant is through the obligation on the consentor to act reasonably; i.e. in acting reasonably it may be necessary to consider the benefit to the consentee from the alterations. In this respect, Mr Barker also takes issue with the reference to substantial benefit in Smallfield.
[36] The commercial purpose and context of such a requirement for consent and limitation on refusal in a residential cross-lease involving separate dwellings may differ slightly from a single building context where structural alterations may compromise the integrity of the building. In any event, other detrimental effects – including site coverage constraints on future development of the neighbouring site – are no doubt relevant permissible considerations.
[37] The length of the cross-lease – here it has over 960 years to run – and the local planning environment at the time it was entered are also relevant commercial context. Perhaps more debatable is the relevance of subsequent changes to the local planning environment, such as a move towards increased density. This may be relevant context when new purchasers enter into a cross-lease albeit on existing terms. In any event, in this case the planning environment likely changed even between 1984 (the date of the cross-lease in Smallfield) and 2011 (the date of flat 2’s cross-lease in this case), leaving aside any local differences there might be between Devonport and Remuera.
[38] I also note in this regard that the Law Commission in 1999 recommended phasing out cross-leases, making the point that there is no genuine difference from a town planning point of view between cross-leasing and a straightforward subdivision.29 While phasing out has not occurred, Mr Walker submitted that, in
29 Law Commission Shared Ownership of Land NZLC R59 1999.
assessing whether consent is unreasonably withheld under cl 10, a court should not start from the premise that a cross-lease gives the cross-lessor carte blanche to restrict development of the cross-lessee’s flat, even where such development is of exactly the kind that the cross-lessor might reasonably want permission to undertake in respect of its flat, and which neighbours on fee simple lots can undertake as of right or subject only to obtaining resource consent. While not saying that a proposed renovation’s compliance with planning regulations and affinity with development in the area means a cross-lessor could not have a reasonable objection, Mr Walker submitted these must be matters to be taken into account in deciding whether consent is unreasonably withheld, according them due weight in the balance along with all other relevant factors.
[39] Accepting that certainty has a commercial advantage, the context and commercial purpose of clause 10 in this cross-lease do not suggest that the reasonableness of withholding consent should be determined by a substantial benefit and trifling detriment test.
[40] Thus, focusing on detriment since substantial benefit is common ground, neither the text nor the context and commercial purpose of cl 10 suggest that reasonableness should be determined by the extent of the detriment required, whether such bar be “only trifling”, “insubstantial”, “no more than minor” or otherwise. Such terms would be a gloss on cl 10.
[41] Further, it appears at least in this arbitration (and in the academic commentary referred to below) that “trifling” is not equated with insubstantial. This is evident in the arbitrator’s conclusion at [111] and [112] set out above at [14].
[42]I turn next to consider other cases and academic commentary.
Other New Zealand cross-lease cases on unreasonably withholding consent
[43] Despite the prevalence of cross-leases including cl 10 or similar clauses – and the prevalence of alterations and new structures – there are, as the arbitrator observed, comparatively few cases that deal with the question of consent in a cross-lease
situation but it is impossible to say what results are generally being arrived at behind the closed doors of arbitration.
[44] Counsel referred to Hogg v Edwards,30 a case in this Court before Smallfield. Ms Hogg’s house was purpose-built to take advantage of limited views of the sea. The Edwards wanted to extend the second storey of their house, immediately in front of Ms Hogg’s house. Ms Hogg refused to consent. Doogue J said:31
I would not regard that as unreasonable withholding of consent because I accept the evidence of Mr Fisher and Mrs Peake that when the plaintiff's property was purpose-built for the purpose of having the advantage of views from the windows and the outlook from the north-west façade of the house, that the present alterations of the defendants constitute such an intrusion that no reasonable owner of the plaintiff's property could be expected to consent to it.
[45] There was no reference to requirements of substantial benefit or trifling detriment.
[46] As indicated, there is no reference to “trifling” in cl 10. It is inapt therefore to seek to define that word as though it appeared in the clause. Insofar as it was used in Smallfield only to mean insubstantial as Mr Barker suggested, it may reflect the earlier case of French v Bickerton.32 In that case, in response to an argument that a clause requiring consent to structural alterations (without a not to be unreasonably withheld proviso) only applied to substantial structural alterations, Tompkins J said:33
It may well be that clause 9 should be interpreted to refer only to substantial structural alterations. It may be able to be argued that the parties did not intend that consent under clause 9 would be required for structural alterations that could be regarded as trivial, but I am left in no doubt that there is at least an arguable case that the alterations proposed here … is a structural alteration that could not be regarded as trivial or minimal.
[47] In Wellington v Hickling,34 Master Thomson referred to Smallfield. The case concerned appointment of an arbitrator. In the context of whether the matter would necessarily come back to the Court, he referred to the possible outcomes:35
30 Hogg v Edwards HC Rotorua CP 142-86, 19 April 1989.
31 At 9.
32 French v Bickerton HC Auckland A1646/85, 14 April 1986.
33 At 4-5.
34 Wellington v Hickling HC New Plymouth M19/95, 1 August 1995.
35 At 5-6.
First the arbitrator may find that consent has not been unreasonably withheld. A consent will be unreasonably withheld only where the benefit to the parties seeking change will be substantial and the proposed alteration would produce only minimal detriment to the neighbour Smallfield v Brown [1992] 2 NZ Conv C 19110. If that is the test to be met it is by no means assured that an arbitrator will find in favour of the plaintiffs.
[48] Mr Barker relied particularly on Ferguson (Deceased) v Walsh.36 In that case, the defendant carried out alterations to the basement of his flat, creating a separate unit suitable for living accommodation (a bedroom, living room, bathroom and kitchenette) which had the potential to intrude on the privacy of the other flat owners. Potter J held that the plaintiffs were entitled to withhold their consent. In doing so, the Judge appeared to adopt the words of Smallfield, although without express reference:37
The possibility that relief or assistance in relation to breaches of the cross lease may be available from elsewhere, does not serve to relegate the consequences of breach to trifling detriment, such as would render unreasonable the plaintiffs’ withholding of consent to the structural alterations.
(my emphasis)
[49] These were the only cases referred to me considering trifling (or trivial) detriment as a test for unreasonably withholding consent in this cross-lease situation. Thus, the so-called test in Smallfield has received little substantive attention in this Court. Mr Barker may be correct, however, that it will have been applied in countless arbitrations, such as the arbitration at issue here, and that people have purchased houses on the basis that it is the test. Without speculating as to Smallfield’s impact beyond this arbitration, I accept that a cautious approach is to be taken before concluding that the so-called test should be abandoned.
Academic commentary on Smallfield
[50] Mr Walker adopted the comments of the learned authors of New Zealand Land Law in relation to Smallfield’s reference to substantial benefit and trifling detriment:38
It is respectfully suggested that this test in Smallfield is unduly restrictive. It does not invite a consideration of issues such as the reasonable expectations of the owner seeking consent to the alterations. Also the use of the expression “trifling” may be unfortunate. The Shorter Oxford English Dictionary (1993)
36 Ferguson (Deceased) v Walsh (1999) 4 NZConvC 193,032 (HC).
37 At 12. Potter J addressed Smallfield in relation to a prior issue of whether the alterations were structural.
38 Thomson Reuters Property - A to Z of New Zealand Law (online ed) at [48.R.11.9.05].
defines “trifle” as “a matter of little value or importance: a trivial, paltry, or insignificant affair”. As a result of this test, any balancing exercise of the respective rights of the parties (which Fisher J acknowledges is appropriate) will almost invariably result in consent being withheld for anything having more than an insignificant detrimental effect on neighbouring owners.
In Smallfield Fisher J also set out relevant criteria in establishing the basis for withholding consent. Although these were clearly relevant to the issues before him, some practitioners have subsequently taken them at face value, seeing them as an exclusive list of relevant matters. The criteria consisted of the effect of changes on light, air, view and appearance. Although these issues may be relevant to many disputes, it is suggested that the use of these criteria do not provide a justification for the exclusion of more general concerns. Matters within a larger compass, such as the nature of comparable developments in the neighbourhood, and the reasonable expectations of the owner seeking consent, must surely also be relevant.
It is suggested that a court can also consider a broader spectrum of issues so long as the raised issues can be referred back to the effect of the intended works. For obvious limitations to what will be relevant, see the comments of Blanchard J in Roe v Stevenson.39 His Honour considered the allocation of garages and laundries unlikely to be a good reason for refusing consent to a proposed rearrangement of decks and staircases.40
The weighting given to each concern should sensibly also vary from case to case. A likely increase in value to the improving owner resulting from the proposed development proceeding may be given weight where it is common for alterations of the envisaged nature to be undertaken in the locality, or where a reasonable cross lease neighbour would consider the proposed changes acceptable. On the other hand, consent may be reasonably withheld where the changes will result in a tangible diminution of property values or a reduction in the disaffected owner’s physical enjoyment of the property in a manner not reasonably acceptable. It is hoped the issue of when it is reasonable to withhold consent comes up for further judicial consideration.
The issue of withholding consent is increasingly the subject of disputes between owners in cross lease developments, but not (as of yet) the subject of further judicial consideration. This is a consequence of cross lease disputes being made the subject of private arbitral awards, which are not then appealed to the High Court in this matter, as an issue of law, enabling this issue to be developed further.
[51]Mr Walker submitted that this analysis:
(a)sets out why the Smallfield test is unduly restrictive and inappropriate;
(b)describes well the broad range of circumstances in which a court or arbitrator may have to consider the reasonableness of withholding
39 Roe v Stevenson HC Auckland CP1356/92, 16 February 1993.
40 At 7.
consent, the range of factors which may be relevant, and how the weighting of such factors may change according to circumstance; and
(c)rightly emphasises that the Court’s assessment should concentrate on whether the alterations will materially affect the cross-lessor’s amenity or interests, in a way that is not sufficiently justified by the benefit to the cross-lessee.
[52] The concern that the test is unduly restrictive may reflect a narrower view of benefit and detriment than was intended in Smallfield. In any event, this case does not raise issues about the relevance of a particular consideration, whether benefit or detriment.
[53] The concern about limiting the relevant criteria to those addressed in Smallfield (the effect of changes on light, air, view and appearance) is valid, but Fisher J did not suggest they were an exclusive list of relevant matters. Nor did Mr Barker. Indeed, he submitted that the Smallfield test allows for a detailed consideration of the facts and circumstances of each request for consent to alterations to any structure. The criteria addressed in Smallfield were simply the matters that existed and were relevant in that case.
[54] I agree with the authors’ concern, at least if the expression “trifling” is used as a test, that any balancing exercise of the respective rights of the parties will almost invariably result in consent being withheld for anything having more than an insignificant detrimental effect on neighbouring owners. As they say, the weighting given to each concern should sensibly also vary from case to case. That weighting in the assessment of whether the cross-lessor’s consent was reasonably or unreasonably withheld should be assessed in the circumstances of each case.
Unreasonably withholding consent in other lease contexts
[55] Both counsel referred to other lease cases involving terms requiring the consent of a party and for that consent not to be unreasonably withheld, which are common. In particular, counsel referred to cases from the Courts in England and Wales on
unreasonably withholding consent in the context of assignment of leases and seeking resource consents.
[56] Acknowledging that care must be taken in transposing determinations about withholding consent unreasonably from one context to another, Mr Walker submitted the Courts in England and Wales have consistently warned against raising cases into propositions of law because a ‘one size fits all’ test would lead to inappropriate rigidity. Instead, he submitted that decisions should be used as precedents of fact rather than law.
[57] Mr Barker submitted that Smallfield is consistent with the authorities relating to the reasonableness of refusals to provide consents under a lease. If anything, he submitted that case law suggests that the approach in Smallfield may be too permissive in allowing for a balancing of the interests of both parties rather than a primary focus on the interests of the lessor. He submitted that the consentor is not required to consider the benefit to the consentee of granting the consent (albeit the arbitrator here was in no doubt there was a substantial benefit).
[58] In Ashworth Frazer Ltd v Gloucester City Council,41 Ashworth Frazer had a lease of the Council’s land which contained a clause preventing Ashworth Frazer from assigning the lease without the permission of the Council; “such consent not to be unreasonably withheld in the case of a respectable and responsible assignee being proposed …”. Ashworth Frazer sought the Council’s permission to assign the lease to a metal recycling company. The Council refused consent on the basis that the proposed assignee’s use of the land would violate the user clause in the lease. One of the issues before the House of Lords was whether the Council had withheld its consent unreasonably. On this aspect of the case, the main speeches were delivered by Lord Bingham of Cornhill and Lord Rodger of Earlsferry. Lord Bingham said:
[3] When a difference is to be resolved between landlord and tenant following … a withholding of consent, effect must be given to three overriding principles. The first, as expressed by Balcombe LJ in International Drilling Fluids Ltd v Louisville Investments (Uxbridge) Ltd [1986] Ch 513, 520 is that
41 Ashworth Frazer Limited v Gloucester City Council [2001] UKHL 59, [2001] 1 WLR 2180.
a landlord is not entitled to refuse his consent to an assignment on grounds which have nothing whatever to do with the relationship of landlord and tenant in regard to the subject matter of the lease …
The same principle was earlier expressed by Sargant LJ in Houlder Bros & Co Ltd v Gibbs [1925] Ch 575, 587:
in a case of this kind the reason must be something affecting the subject matter of the contract which forms the relationship between the landlord and the tenant, and … it must not be something wholly extraneous and completely dissociated from the subject matter of the contract.
While difficult borderline questions are bound to arise, the principle to be applied is clear.
[4] Secondly, in any case where the requirements of the first principle are met, the question whether the landlord’s conduct was reasonable or unreasonable will be one of fact to be decided by the tribunal of fact. There are many reported cases. In some the landlord’s withholding of consent has been held to be reasonable (as, for example, in Pimms Ltd v Tallow Chandlers Company [1964] 2 QB 547 and Bickel v Duke of Westminster [1977] QB 517), in others unreasonable (as, for example, in Bates v Donaldson [1896] 2 QB 241, Houlder Bros [1925] Ch 575 and International Drilling [1986] Ch 513). These cases are of illustrative value. But in each the decision rested on the facts of the particular case and care must be taken not to elevate a decision made on the facts of a particular case into a principle of law. The correct approach was very clearly laid down by Lord Denning MR in Bickel v Duke of Westminster [1977] QB 517, 524.
[5] Thirdly, the landlord’s obligation is to show that his conduct was reasonable, not that it was right or justifiable. As Danckwerts LJ held in Pimms Ltd v Tallow Chandlers Company [1964] 2 QB 547, 564: “it is not necessary for the landlords to prove that the conclusions which led them to refuse consent were justified, if they were conclusions which might be reached by a reasonable man in the circumstances …” Subject always to the first principle outlined above, I would respectfully endorse the observation of Viscount Dunedin in Viscount Tredegar v Harwood [1929] AC 72, 78 that one “should read reasonableness in the general sense”. There are few expressions more routinely used by British lawyers than “reasonable”, and the expression should be given a broad, common sense meaning in this context as in others.
[59]Similarly, Lord Rodger said:
[67] The test of reasonableness is to be found in many areas of the law and the concept has been found useful precisely because it prevents the law becoming unduly rigid. In effect, it allows the law to respond appropriately to different situations as they arise. This has to be remembered when a court is considering whether a landlord has “unreasonably withheld” consent to the assignment of a lease. In this context I would follow Viscount Dunedin's advice in Viscount Tredegar v Harwood [1929] AC 72, 78 that one “should read reasonableness in the general sense”. I have derived the greatest assistance, however, from the comments of Lord Denning MR in a passage in Bickel v Duke of Westminster [1977] QB 517. The Grosvenor Belgravia Estate
had refused to consent to the assignment of the head lease of a house in Burton Mews off Chester Square to a lady who, if she had become tenant under the head lease and had remained so for five years, would have been entitled to buy the freehold from the Estate. Having referred to a number of earlier cases, Lord Denning MR said, at p 524:
If those cases can properly be regarded as laying down propositions of law, I would agree that we ought to hold the landlords' refusal to be unreasonable. But I do not think they do lay down any propositions of law, and for this reason. The words of the contract are perfectly clear English words: ‘such licence shall not be unreasonably withheld.’ When those words come to be applied in any particular case, I do not think the court can, or should, determine by strict rules the grounds on which a landlord may, or may not, reasonably refuse his consent. He is not limited by the contract to any particular grounds. Nor should the courts limit him. Not even under the guise of construing the words. The landlord has to exercise his judgment in all sorts of circumstances. It is impossible for him, or for the courts, to envisage them all. When this lease was granted in 1947 no one could have foreseen that 20 years later Parliament would give a tenant a right to buy up the freehold. Seeing that the circumstances are infinitely various, it is impossible to formulate strict rules as to how a landlord should exercise his power of refusal. The utmost that the courts can do is to give guidance to those who have to consider the problem. As one decision follows another, people will get to know the likely result in any given set of circumstances. But no one decision will be a binding precedent as a strict rule of law. The reasons given by the judges are to be treated as propositions of good sense—in relation to the particular case—rather than propositions of law applicable to all cases. It is rather like the cases where a statute gives the court a discretion. It has always been held that this discretion is not to be fettered by strict rules: and that all that can be properly done is to indicate the chief considerations which help to arrive at a just conclusion: see Blunt v Blunt [1943] AC 517; Ward v James [1966] 1 QB 273.
That statement of the general approach to be taken was endorsed by Roskill and Lawton LJJ, with whom Megaw LJ concurred, in West Layton Ltd v Ford [1979] QB 593, 604h, 606c–d. I would respectfully adopt it. In International Drilling Fluids Ltd v Louisville Investments (Uxbridge) Ltd [1986] Ch 513 Balcombe LJ distilled a number of propositions from the earlier authorities on covenants of this kind but then, under reference to Bickel and West Layton, added, at p 521D:
“Subject to the propositions set out above, it is in each case a question of fact, depending upon all the 2202circumstances, whether the landlord's consent to an assignment is being unreasonably withheld
…”
…
[69] I accept that, as Mr Lewison stressed, in proceedings such as the present the court is not concerned with whether or not the terms of the contract are reasonable as between the parties. The court is concerned only with the assignment and with whether or not it is reasonable for the landlord to
withhold consent to that assignment. But in determining that matter, as Bickel shows, the correct approach is to consider what the reasonable landlord would do when asked to consent in the particular circumstances. The rule of law derived from Killick introduces a rigidity which makes it impossible to apply that approach. It should, for that very reason, be rejected.
[60] These speeches emphasised the factual nature of the inquiry in the context of criticising the earlier case of Killick v Second Covent Garden Property Co Ltd,42 which Lord Bingham said had purported to treat as a question of law what was in truth a question of fact. As Mr Barker submitted, these cases, and Bickel, were rejecting as propositions of law statements limiting the scope of the matters relevant to the landlord’s refusal. As indicated, here there is no issue about the scope of relevant considerations. Although they concerned that different context, I consider these cases support Mr Walker’s submission that decisions in this area should be used as precedents of fact rather than law. They tell against the use of Smallfield’s reference to substantial benefit and only trifling detriment as a statement of law, a legal test against which the reasonableness of withholding consent is to be assessed. I note that although Bickel preceded Smallfield, it does not appear that the parties referred it to Fisher J.
[61] In this Court, Winkelmann J in Louis Vuitton New Zealand Ltd v Prince’s Wharf Property Fund Ltd also emphasised that what is reasonable in each case is a question of fact depending on all the circumstances,43 referring to Ashworth Frazer and Bickel.
[62] Ashworth Frazer was endorsed more recently by the United Kingdom Supreme Court in Sequent Nominees Ltd v Hautford Ltd,44 where a 100-year lease prohibited the lessee from seeking resource consents in relation to the leasehold property without the lessor’s consent, which was not to be unreasonably withheld. The lessee sought the lessor’s consent to apply for resource consents for a change of use of the first and second floors from commercial to residential. The lessor withheld its consent, alleging that this would substantially increase the risk that the lessee could compulsorily
42 Killick v Second Covent Garden Property Co Ltd [1973] 1 WLR 658, [1973] 2 All ER 337 (CA).
43 Louis Vuitton New Zealand Ltd v Prince’s Wharf Property Fund Ltd (2005) 5 NZ ConvC 194,073 (HC) at [36] and [38].
44 Sequent Nominees Ltd (formerly Rotrust Nominees Ltd) v Hautford Ltd [2019] UKSC 47, [2020] AC 28.
acquire the freehold reversion under the relevant statutory scheme. Lord Briggs for the majority referred to the three overriding principles condensed in Ashworth Frazer.45 While noting that Ashworth Frazer was about refusal of consent to an assignment, Lord Briggs said the general statements of principle were equally applicable to a refusal of consent to an application for planning permission.46 After referring to Bickel and Norfolk Capital Group Ltd v Kitway Ltd,47 Lord Briggs said:
[32] It is over-simplistic, and contrary to the principles as laid down in the Ashworth Frazer case, to approach this question in any rigid or doctrinaire way, still less solely by reference to original purposes of the covenant in cl 3(19) which may have been within the contemplation of the parties when the lease was granted. It will in every case be a question of fact and degree measured as at the date upon which the relevant consent is sought by the tenant…
[63] Applying Lord Bingham’s first principle in Ashworth Frazer, Lord Briggs concluded that it could not possibly be said that seeking to avoid a significant increase in the risk of enfranchisement, with consequential damage to the reversion, was something extraneous to or dissociated with the landlord and tenant relationship created by the Lease.48 Applying the second principle, Lord Briggs concluded that a down-to-earth factual analysis of the economic consequences to the landlord of giving or refusing the requested consent in the present case plainly suggested that a refusal was reasonable.49
[64] Sequent Nominees also emphasises that reasonableness must be a question of fact and degree in every case and not approached in a doctrinaire way. This too tells against the use of Smallfield’s reference to substantial benefit and only trifling detriment as a statement of law, a legal test against which the reasonableness of withholding consent is to be assessed.
45 Sequent Nominees Ltd (formerly Rotrust Nominees Ltd) v Hautford Ltd [2019] UKSC 47, [2020] AC 28 at [21]-[25]. These derived from the seven propositions of law stated in International Drilling Fluids Ltd v Louisville Investments (Uxbridge) Ltd [1986] 1 Ch 513 (EWCA).
46 At [26].
47 Norfolk Capital Group Ltd v Kitway Ltd [1977] QB 506 (EWCA).
48 Sequent Nominees Ltd (formerly Rotrust Nominees Ltd) v Hautford Ltd [2019] UKSC 47, [2020] AC 28 at [41].
49 At [42].
[65] There is also force in Mr Barker’s submission that the statement in Smallfield may be criticised on the basis that it requires consideration of the benefit to the tenant within the scope of matters relevant to the landlord’s refusal and that such benefit be substantial. As indicated, substantial benefit was found by the arbitrator and is not in issue here, but Mr Barker submitted that benefit may not need to be considered, referring to Balcombe LJ’s observation in International Drilling Fluids Ltd v Louisville Investments (Uxbridge) Ltd that:50
… while landlords need usually only consider their own relevant interests, accepting there may be cases where there is such a disproportion between the benefit to landlord and the detriment to the tenant if the landlord withholds consent that it is unreasonable to refuse consent.
[66] Mr Barker also submitted that such a comparison between the interests of the landlord and tenant is not that different from Smallfield. Even accounting for the way the comparison is expressed (benefit and detriment if consent is withheld rather than if it is granted), I consider the difference is twofold. First, that observation in International Drilling was in the context of reconciling authorities as to whether it is permissible to have regard to the tenant if consent is withheld. As indicated, the scope of relevant considerations is not in issue here and it is unnecessary to address the relevance of benefit in the abstract. Secondly, aside from referring to disproportion, the observation does not purport to set the bar for either benefit or detriment in terms of a legal test. In any event, the approach in the subsequent cases referred to – emphasising that what is reasonable in each case is a question of fact depending on all the circumstances – would apply equally to treating “substantial benefit” as a component of a legal test.
Conclusion
[67] Having considered the text, context and purpose of cl 10, Smallfield and the other cases referred to, I consider that the terms “substantial” in relation to the benefit to the party seeking change and “only trifling” in relation to the detriment to the neighbour should not be used as a legal test for determining whether the cross-lessor has unreasonably withheld consent. Despite the desirability of certainty, using those
50 International Drilling Fluids Ltd v Louisville Investments (Uxbridge) Ltd [1986] 1 Ch 513 (EWCA) at 521.
terms as a test would add a gloss to the quintessentially fact specific assessment of unreasonableness required under cl 10. Unreasonableness is not, as a matter of law, limited to cases where the benefit to the party seeking change will be substantial and the proposed alteration would produce only trifling detriment to the cross-lessor.
[68] To be clear, I am not saying it is inappropriate to assess unreasonableness by reference to the benefit to the party seeking change and the detriment to the cross- lessor. Nor am I saying that other considerations are necessarily relevant or irrelevant. Rather, I am saying that, subject to Lord Bingham’s first principle (not refusing consent on grounds which have nothing whatever to do with the relationship of landlord and tenant in regard to the subject matter of the lease), factual assessment of the reasonableness of the refusal to consent should not be constrained by a legal test that quantifies the extent of the benefit and the detriment in the abstract. All cross- lessors need do is act reasonably, including when taking into account their own concerns.
[69]Mr Walker sought the following answer to the question on appeal:
In the context of cross leases for residential properties, consent in respect of alterations will be unreasonably withheld depending on the alterations and the circumstances of each case.
[70] As Mr Barker submitted, this is not really a test at all. Rather than answer the question as sought by the appellants, I record that the answer to the question of law posed at [2] above is “no”.
[71] I add that the correct approach when considering whether the basis for withholding consent was reasonable is to consider what the reasonable landlord would do when asked to consent in the particular circumstances,51 and whether the conclusion was one that could be reached by a reasonable landlord.52 As Winkelmann J said in the change of use context in Louis Vuitton New Zealand Ltd
51 Ashworth Frazer Limited v Gloucester City Council [2001] UKHL 59, [2001] 1 WLR 2180 at [69] per Lord Rodger of Earlsferry.
52 Louis Vuitton New Zealand Ltd v Prince’s Wharf Property Fund Ltd (2005) 5 NZ ConvC 194,073 (HC) at [69]-[70] per Winkelmann J.
v Prince’s Wharf Property Fund Ltd, if the landlord reasonably believes that the proposed use would injure its interest, then the landlord may refuse its consent.53
[72] It follows that I must conclude the arbitrator erred in considering himself bound to apply an only trifling detriment test.
Remittal
[73] The appellants seek to have the matter remitted to the arbitrator, pursuant to cl 5(4)(b) of the Second Schedule to the Arbitration Act 1996, for reconsideration in light of the Court’s decision.
[74] Mr Barker submitted that, even if I find that the arbitrator made an error of law, I should not set aside the award or remit it back to the arbitrator for further determination because, even with an amended direction on the law, the result will be the same.
[75]As Gilbert J said in Lipp v Chaney:54
The Court has a discretion whether or not to interfere with an award, even if an error of law is established. This is made clear by Article 5(4) of Schedule 2 of the Act, which provides that the Court may confirm, vary or set aside the award; or remit the award for further consideration by the arbitrator. The Court will not interfere if the error of law is immaterial and is unlikely to remit an award where it appears that the same outcome is likely to be confirmed by the arbitrator.
[76] As indicated, I accept Mr Barker’s summary of the arbitrator’s factual findings at [13] above. The arbitrator’s findings of fact cannot be challenged on this appeal.
[77] Those specific findings, however, need to be read in the context of the arbitrator’s approach to the test and it is clear from his summary that what was determinative was that he could not dismiss the respondents’ concerns as being “mere trifles”.55 On that basis, I do not consider that I should refrain from exercising my
53 Louis Vuitton New Zealand Ltd v Prince’s Wharf Property Fund Ltd (2005) 5 NZ ConvC 194,073 (HC) at [37](2).
54 Lipp v Chaney [2012] NZHC 1761 at [35]. See also David Williams and Amokura Kawharu (eds) Williams & Kawharu on Arbitration (2nd ed, LexisNexis, Wellington, 2017) at [18.9.4].
55 At [112].
discretion to remit. I am not sufficiently confident that, in light of this decision, the arbitrator’s result would be the same. As Mr Walker submitted, references to trifling dominated the award.
[78] The arbitrator also found that there would be a very substantial benefit to the appellants in going ahead with their plans. Mr Walker submitted that the arbitrator should be entitled to take into account that the respondents evidently considered that their own alterations, for which they did not seek consent, were reasonable and that the appellants should put up with it even though it would not satisfy the Smallfield test. Subject to applying Lord Bingham’s first principle referred to, that is a matter for the arbitrator.
[79] This is a question of law appeal. Whether the respondents were entitled to refuse consent is best re-considered by the arbitrator in light of this judgment.
Result
[80]The answer to the question of law is “no”.
[81] The appeal is allowed. I remit the award for further consideration by the arbitrator in light of this judgment.
Costs
[82] If costs cannot be agreed, I will receive memoranda not exceeding three pages within 20 working days and determine costs on the papers.
Gault J
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