Northash Ltd v Zeff Farms Ltd - [2022] NZHC 645

IN THE HIGH COURT OF NEW ZEALAND WHANGAREI REGISTRY

I TE KŌTI MATUA O AOTEAROA WHANGĀREI-TERENGA-PARĀOA ROHE

CIV-2021-488-96

[2022] NZHC 645

UNDER The Arbitration Act 1996

IN THE MATTER

of an application for leave to appeal against an arbitral tribunal award dated 17 August 2021

BETWEEN

NORTHASH LTD

Applicant

AND

ZEFF FARMS LTD

Respondent

Hearing: 3 February 2022

Counsel:

T S Burtenshaw for Applicant R C Mark for Respondent

Judgment:

31 March 2022

JUDGMENT OF BREWER J

This judgment was delivered by me on 31 March 2022 at 4 pm pursuant to Rule 11.5 High Court Rules.

Registrar/Deputy Registrar

Solicitors:
Argyle Welsh Finnigan (Ashburton) for Applicant Richard Mark (Kerikeri) for Respondent

NORTHASH LTD v ZEFF FARMS LTD [2022] NZHC 645 [31 March 2022]

Introduction

[1] The applicant (Northash) seeks leave to appeal an arbitral award made by Ms Penny Mudford on 17 August 2021 (the Arbitrator).1

Background

[2] Northash leased a dairy farm from the respondent (Zeff). Northash breached the lease by not maintaining the farm, and in particular failed to reinstate pasture. Zeff gave notice of arbitration. Zeff subsequently sold the farm in an unremediated state.

[3] The issue for the Arbitrator was the quantum of damages Zeff was entitled to as a result of Northash’s (admitted) breaches of the lease.

[4] The Arbitrator found that damages arising from breaches of the lease amounted to $536,524.50, being the sum of:

(a)The cost to reinstate 73 hectares of pasture was $93,184.50 including GST;

(b)The cost to clean the drains and replace 40 culverts was $36,340 including GST; and

(c)The lost future milk production was $407,000.

[5] However, the Arbitrator also found that the proper measure for damages in this case was the loss of value of the farm when it was sold by Zeff in its unremediated state. The Arbitrator held the loss of value to be $490,000. Since the loss of value was less than the damages claim, the arbitrator’s award was for the lesser sum.

[6] In summary, Northash wants to argue on appeal that the proper measure of damages is the cost of reinstatement, and that that cost does not include lost future milk production.

1 Arbitration Act 1996, sch 2 cl 5(1)(c).

The proposed appeal

[7] Leave may be granted only in respect of a question of law. This is defined in the Arbitration Act 1996:2
For the purposes of this clause, question of law—

(a)includes an error of law that involves an incorrect interpretation of the applicable law (whether or not the error appears on the record of the decision); but

(b)does not include any question as to whether—

(i)the award or any part of the award was supported by any evidence or any sufficient or substantial evidence; and

(ii)the arbitral tribunal drew the correct factual inferences from the relevant primary facts.

[8] Northash sets out the questions of law on which it seeks leave to appeal as follows:

(a)Whether the arbitrator erred in the consideration and application of the law (including Maori Trustee v…

Grounds of appeal

[14] The appellant contends that the primary judge erred in finding that the respondent had discharged the onus of establishing the matters required under the relevant provision.

[15] It was submitted that his Honour failed to give adequate weight to the evidence of the second witness, and that the findings of fact were not reasonably open on the material before the Court.

[16] The respondent, for its part, submits that no error is disclosed, and that the conclusions reached were well within the range of outcomes available to the primary judge.

Consideration

[17] It is convenient to deal first with the question of construction, as the resolution of that issue informs the remaining grounds advanced by the appellant.

[18] For the reasons that follow, we are of the view that the appeal should be allowed in part and the matter remitted for further determination.

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Details

Case: [2022] NZHC 645
Decision Date: 31 March 2022

CaseChat Overview and Summary

Northash Ltd, the applicant, seeks leave to appeal against an arbitral award made by Ms Penny Mudford, the arbitrator. The respondent, Zeff Farms Ltd, opposes the application. The applicant leased a dairy farm from the respondent, but breached the lease by failing to maintain the farm, specifically by not reinstating the pasture. The respondent gave notice of arbitration and subsequently sold the farm in its unremediated state. The issue for the arbitrator was the quantum of damages the respondent was entitled to as a result of the applicant's breaches of the lease. The arbitrator found that the damages arising from breaches of the lease amounted to $536,524.50. However, the arbitrator also found that the proper measure for damages in this case was the loss of value of the farm when it was sold by the respondent in its unremediated state, which was $490,000. Since the loss of value was less than the damages claimed, the arbitrator's award was for the lesser sum.

The applicant seeks leave to appeal on the basis that the arbitrator erred in the consideration and application of the law by awarding loss of value of land as the measure of damages for failure to deliver up a lease in a certain condition rather than reinstatement costs. The applicant also argues that the arbitrator erred in determining that potential future lost milk production was a reasonable and proper reinstatement cost of the lease. The applicant further argues that the arbitrator erred in considering whether the respondent had suffered loss or had mitigated its loss. The applicant also argues that the arbitrator erred in considering any deductions available to the reasonable and proper reinstatement costs. Finally, the applicant argues that the arbitrator erred in the application of the onus and burden of proof in relation to the valuation evidence.

The court found that the applicant's arguments were not strongly arguable. The court held that the cost of lost milk production during the period of reinstatement ought to be recoverable as a cost of the reinstatement. The court also held that the fact that the respondent chose to sell rather than reinstate the farm does not mean that it suffered no loss. The court held that the award of $490,000 to the respondent representing the diminution in value of the property was available to the arbitrator. The court found that the arbitrator appropriately considered the competing evidence from the valuers engaged by the parties and that the applicant had not raised a strongly arguable case that the arbitrator erred in accepting the respondent's valuation or that she failed to apply the appropriate burden or standard of proof.

The court held that leave to appeal should not be granted. None of the questions of law raised by the applicant provided a strong basis upon which to seek leave to appeal. The court held that the remaining factors which influence the court's discretion did not materially alter the equation. The application for leave to appeal was declined, and the respondent was successful in opposing the application for leave and is entitled to an award of costs.

Orders