Pukeroa Properties (no.2) Limited v Rotorua Hunting & Fishing New Zealand Limited

[2019] NZHC 1367

IN THE HIGH COURT OF NEW ZEALAND ROTORUA REGISTRY

I TE KŌTI MATUA O AOTEAROA

TE ROTORUA-NUI-A-KAHUMATAMOMOE ROHE

CIV 2018-463-122

[2019] NZHC 1367

UNDER

Article 34 of Schedule 1 to the Arbitration Act 1996

IN THE MATTER

of setting aside the Partial Award dated 29 July 2018 and Arbitral Reasons dated 13 August 2018

UNDER

Clause 6 of Schedule 2 to the Arbitration Act 1996

IN THE MATTER

Of an application to vary the Final Award dated 26 September 2018

BETWEEN

PUKEROA PROPERTIES (NO 2) LIMITED

Applicant

AND

ROTORUA HUNTING & FISHING NEW ZEALAND LIMITED

Respondent

Hearing:	27 February 2019
Counsel:	D M Fraundorfer and M N Battersby for Applicant V A Whitfield & M Majeed for Respondent
Judgment:	17 June 2019

JUDGMENT OF DUFFY J

This judgment was delivered by me on 17 June 2019 at 3.00 pm pursuant to

Rule 11.5 of the High Court Rules.

Registrar/ Deputy Registrar

PUKEROA PROPERTIES (NO 2) LTD v ROTORUA HUNTING & FISHING NEW ZEALAND LTD [2019] NZHC 1367 [17 June 2019]

[1]                 Pukeroa Properties (No 2) Limited (Pukeroa) seeks leave to appeal on questions of law arising out of an arbitral award. It also brings originating applications to set aside the arbitral award and vary the arbitral costs award.

Facts

[2]                 Rotorua Hunting & Fishing Ltd (Hunting & Fishing) operates a business selling products associated with hunting, fishing, camping, tramping and outdoor activities from premises located in a shopping complex in Rotorua known as “Trade Central”. Hunting & Fishing leases these premises from Pukeroa, which is the developer/owner of Trade Central.

[3]                 Hunting & Fishing learned that Pukeroa intended to lease store space in Trade Central to Torpedo7, a store which Hunting & Fishing says is one of its main competitors. Hunting & Fishing viewed this as a breach of a term of its lease with Pukeroa and so Hunting & Fishing sought interim relief restricting the letting to Torpedo7, and in accordance with the lease, referred the dispute to arbitration.

The arbitral award

[4]The first question the parties asked the arbitrator to answer was:

Is Pukeroa Properties (No. 2) Limited entitled to lease space in the Trade Central Shopping Precinct to Torpedo7 Limited or a person, company or other entity conducting business as ‘Torpedo7’?

[5]                 The arbitrator answered the question in the negative. The finding was based primarily on interpretation of cl 1.7 of the lease which reads:

Given the start-up nature of the development of the Centre at the date of the Agreement to Lease, the Landlord shall be entitled to vary the layout, configuration and tenancy mix plans of the centre, as long as such variation is not materially detrimental to the Premises.

[6]                 The arbitrator concluded that “premises” included the business of Hunting & Fishing, rather than just the physical shop premises. Further, that to lease to Torpedo7, a main competitor of Hunting & Fishing, would be materially detrimental to Hunting

& Fishing. Accordingly, the arbitrator found that, Pukeroa was not entitled to lease to Torpedo7. He made a similar finding in relation to non-derogation from the grant.1

Setting aside the award

[7]                 Pukeroa argues the arbitral award should be set aside on the ground that it is in conflict with public policy. Pukeroa submits that the award has in effect permanently blocked it from asserting a future right, based on an unknown future detriment to Hunting & Fishing, which essentially has the effect of a permanent injunction. Pukeroa contends that the arbitrator did not have the power to grant a permanent injunction; that to do so was outside the scope of the arbitration agreement. Further, that in doing so, the arbitrator failed to apply any acceptable legal test for granting a permanent injunction.

Relevant legislation

[8]                 Article 34 of Chapter 7 of Schedule 1 to the Arbitration Act provides the grounds for setting aside an arbitral award. It relevantly provides:

Application for setting aside as exclusive recourse against arbitral award

(1)   Recourse to a court against an arbitral award may be made only by an application for setting aside in accordance with paragraphs (2) and (3).

(2)  An arbitral award may be set aside by the High Court only if—

(a)  …

(b)  the High Court finds that—

(ii) the award is in conflict with the public policy of New Zealand.

(6)     For the avoidance of doubt, and without limiting the generality of paragraph (2)(b)(ii), it is hereby declared that an award is in conflict with the public policy of New Zealand if—

(a)   the making of the award was induced or affected by fraud or corruption; or

(b)  a breach of the rules of natural justice occurred—

(i)  during the arbitral proceedings; or

1      This finding was subsidiary to his answering of the question.

(ii)  in connection with the making of the award.

Analysis

[9]                 I have difficulty accepting Pukeroa’s characterisation of the arbitral award as a permanent injunction. The arbitrator has done no more than what the parties asked of him: namely, to declare the meaning of cl 1.7 of the lease. The arbitrator’s interpretation of cl 1.7 simply means that if Pukeroa proceeds to lease other premises in Trade Central to Torpedo 7 Pukeroa will be in breach of its lease with Hunting & Fishing. The usage of an “unknown future detriment” to make this finding is similarly orthodox, following naturally from the arbitrator’s conclusion that Torpedo7 is a competitor of Hunting & Fishing.

[10]             Second, I do not see the award as a permanent impediment on Pukeroa’s ability to lease to Torpedo 7. The award presently has that effect through the relationship Pukeroa has with Hunting & Fishing under their lease, the award would become ineffective in the event that Hunting & Fishing no longer leased from Pukeroa.

[11]             Next, Pukeroa argued that the arbitrator lacked the power to grant a permanent injunction, and as such the award was against public policy. I have already found the award is not a permanent injunction, but putting that finding to the side I note that under the Arbitration Act an arbitrator has the power to grant injunctions. Section 12 of the Arbitration Act 1996 provides:

12 Powers of an arbitral tribunal in deciding disputes

(1)    An arbitration agreement, unless otherwise agreed by the parties, is deemed to provide that an arbitral tribunal –

(a)   may award any remedy or relief that could have been ordered by the high Court if the dispute had been the subject of civil proceedings in that court:

..

[12]             Green & Hunt consider it uncontroversial, and state it without reference that this includes “declarations, injunctions and orders for specific performance”.2 Further, one source of the powers of an arbitral tribunal is the arbitration agreement. If, as

2      Green & Hunt on Arbitration Law & Practice (online ed, Thomson Reuters) at [DA111.1].

Pukeroa claims, the question submitted to arbitration forms part of the arbitration agreement, it would itself have consented to an injunction by virtue of having submitted the question of whether it is entitled to lease to Torpedo7 to arbitration. If not already, the availability of injunctive relief is made clearer by the Law Commission’s 1991 report of arbitration, which eventually led to the passage of the 1996 Act:3

We believe that equitable rules and remedies are an integral part of the law of New Zealand and thus available to an arbitral tribunal if the law applicable to the substance of the dispute is that of New Zealand

[13]             In support of its submission that the award made should be set aside as contrary to public policy, Pukeroa quotes the Court of Appeal in Amaltal Corp Ltd v Maruha (NZ) Corp Ltd, which stated that “public policy” includes:4

that the enforcement of an award will be contrary to public policy where the integrity of the court’s processes and powers will thereby be abused. An award whose confirmation can be seen to damage the integrity of the court system will not be enforced

[14]             However, I do not consider that this is what the Court of Appeal envisaged when speaking of “public policy”. The surrounding paragraphs give the required context. The UNICITRAL Model Law, from which the public policy ground for not enforcing awards is adopted, was considered in the Amaltal case. Preceding the quote used by Pukeroa is the following analysis, which I consider better shows what is meant by ‘public policy’:

[43]   … Interestingly, the travaux preparatoires [of the model law] reflect a concern of delegates that the expression [public policy] might be restricted to substantive questions only. The United Nations Commission on International Trade Law therefore expressly stated, in its report of 21 August 1985, that the wording “the award is in conflict with the public policy of this State” was not to be interpreted as excluding instances or events relating to the manner in which an award was arrived at. The report also stated at para 297 the commission’s understanding that the term “public policy” as used in the New York convention and many other treaties covered “fundamental principles of law and justice in substantive as well as procedural respects”.

[44]   In the United States a “narrow reading” had been given to the public policy defence under the New York Convention by the Court of Appeals for the Second Circuit which said .. that enforcement of foreign arbitral awards might be denied on the basis of that defence only where enforcement “would

3      Law Commission Arbitration (NZLC R20, 1991) at [382].

4      Amaltal Corp Ltd v Maruha (NZ) Corp Ltd [2004] 2 NZLR 614 (CA) at [46].

violate the forum state’s most basic notions of morality and justice”. Likewise, the English Court of Appeal … said that although considerations of public policy could never be exhaustively defined, it had to be shown that there was some element of illegality or that the enforcement of the award would be clearly injuries to the public good, or possibly, that it would be wholly offensive to the ordinary reasonable and fully informed member of the public on whose behalf the powers of the state are exercised.

[45]   A narrow construction has also found favour in the Courts of Ontario where the Court of Appeal said ... that the common ground of all expressed reasons for imposing the doctrine of public policy was “essential morality” cautioning however that it must be “more than the morality of some persons and must run through the fabric of society to the extent that it is not consonant with our system of justice and general moral outlook to countenance the conduct, no matter how legal it may have been where it occurred

[15]             When the arbitrator’s award here is seen in the light of the above statements the award cannot be viewed as being in conflict with public policy.

[16]             Accordingly, I find the arbitral award was neither contrary to public policy nor invalid for any other reason.

[17]             It follows that the application to set the arbitral award aside is declined. This finding necessarily deals with the ancillary application to vary the arbitral costs award.

Leave for appeal on question of law

[18]Pukeroa submits the following questions of law for appeal:

(a)did the arbitrator err in construing clause 1.7 of the agreement to lease so as to disentitle the Pukeroa from entering into a lease with Torpedo7?

(b)did the arbitrator err in his conclusion that entry by Pukeroa into a lease with Torpedo7 would derogate from the grant of the lease?

(c)in determining (a) and (b), did the arbitrator err in failing to consider whether Mr Parker was in law an agent of the plaintiff, and the meaning of cl 2.3 of the lease?

(d)did the arbitrator err in interpreting cl 1.7 without taking account of cl

17.1 (lease of premises) and 50 (expansion or rebuilding)?

(e)whether the question for determination set out at paragraph [1] of the arbitral reasons was capable of settlement by arbitration?

[19]             Clause 5 of Schedule 2 Arbitration Act 1996 provides rules for appeals from arbitration awards on questions of law. For leave to appeal to be granted, there therefore must be a question of law which, having regard to all the circumstances, could substantially affect the rights of one or more of the parties.

[20]             The Court of Appeal have stated that hearings on applications for leave to appeal should be brief, and that if the Judge decides to grant leave, reasons should ordinarily not be given.5 If leave is not granted, the Court should deliver a short judgment for the benefit of the parties indicating, where necessary, whether the matter 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.6

[21]             The granting of leave is discretionary, and the Court of Appeal has prescribed guidelines for exercising that discretion:7

(a)The strength of the challenge or nature of the point of law. This is the most important factor. A high threshold is envisaged. The Court should consider the strength of the case; a strongly arguably case would normally be required for leave to be granted. The Court should consider the nature of the points of law raised; whether they are one- off points unlikely to occur again or have any precedential value generally or to the parties. When there is such a case, leave will very rarely be granted absent very strong indications of error.

(b)How the question arose before the arbitrators. The Court should consider whether the question of law appealed was the very point of the arbitration. Where the parties have chosen, with full knowledge that the dispute centres on a question of law, to submit that dispute to

5      At [57]-[58].

6 At [59].

7      Gold and Resource Developments (NZ) Ltd v Doug Hood Ltd [2000] 3 NZLR 318 (CA) at [54].

arbitration rather than asking a Court to determine the question, they should generally be held to their choice.

(c)The qualifications of the arbitrator. Where the arbitrator chosen by the parties is legally qualified, it will be harder to obtain leave to appeal the arbitral decision on a question of law. The Court quotes from Lord Donaldson MR in Ipswich Borough Council v Fisons plc that “if the chosen arbitrator is a lawyer and the problem is purely one of law, the parties must be assumed to have had good reason for rely on that lawyer’s expertise.

(d)The importance of the dispute to the parties. Where the dispute has great significance to the parties, it may be easier to obtain leave to appeal, because the effect on them of an incorrect ruling will be all the greater. Specific attention is drawn to disputes involving more than just money.

(e)The amount of money involved. The Court remarks that where a very substantial sum of money is involved, it may be easier to obtain leave to appeal to ensure an incorrect ruling is not left intact.

(f)The amount of delay involved in going through the Courts. The Court considered this factor should be balance against the previous one.

(g)Whether the contract provides for the arbitral award to be final and binding. The Court notes that this factor is not determinative, but is indicative of the parties not considering litigation to be a proper outcome for disputes.

(h)Whether the dispute before the arbitrators is international or domestic.

Guideline (a)

[22]             The arbitrator interpreted the word “premises” in clause 1.7 to include not just the physical premises, but also the business of Hunting & Fishing. He subsequently

found that Pukeroa leasing property to Torpedo7 would constitute a “material detriment” to the business of Hunting & Fishing. The second finding is plainly one of fact, and as such is unassailable on an appeal. However, the interpretation the arbitrator gave to “premises” is a legal finding, the correctness of which raises a question of law. This question subsumes the second and third potential questions of law as well as. In this regard question (b) is simply a separate way of considering the interpretation of cl 1.7 and question (c) is linked to the determination of questions (a) and (b); the arbitrator considered the point on derogation from the grant to rest on “a substantial interference with Hunting & Fishing’s rights under the lease”,8 the relevant right of course being contained in cl 1.7. There is plainly no strongly arguable question of law in question (e) for the reasons given at [9]. Accordingly, I propose to focus only on question (a).

[23]             The first step is to determine the nature of this legal question; whether it is a one-off question or an issue of ongoing importance. As remarked by the Court of Appeal:9

The Court should consider in a preliminary way … the strength of the argument that there has been an error of law and the nature of that point. If it is a one-off point, in the sense that it is unlikely to occur again and cannot be seen as having any precedent value, either generally or to the parties on another occasion, then unless there are very strong indications of error leave should rarely be given. In other cases, the Court will be looking for a somewhat less stringent assessment. In those cases a strongly arguable case would normally be required for leave to be granted.

[24]             In determining whether the particular questions of law them before were “one off” questions of law, the Court of Appeal made the following remarks:10

This is a one-off dispute: it is a question of the construction of several related contractual documents. Although one of them (the New Zealand Standard Conditions) is in general use, the particular relationship between it and the other contractual documents is not a matter of interest to anyone other than the present parties. The arbitrators were not required to construe one of the standard conditions, merely to say how it applied (or not) in the unique contractual setting … Because the parties are no longer contractually involved with one another, the resolution of the questions of law will not be of future application even to them.

8      Rotorua Hunting & Fishing New Zealand Ltd v Pukeroa Properties (No 2) Ltd (Reasons for Partial Award (Substantive Issues)) 13 August 2018 at [100]

9      Gold and Resource Developments (NZ) Ltd v Doug Hood Ltd [2000] 3 NZLR 318 (CA) at [54].

10 At [61].

[25]             The interpretation of the word “premises” is plainly not a one off dispute. At the very least, it governs the remainder of the commercial relationship between Hunting & Fishing and Pukeroa. Under the arbitrator’s interpretation of clause 1.7 Pukeroa would have to consider the potential for material detriment to Hunting & Fishing arising from any potential leases. Further, the interpretation has additional significance to Pukeroa. Clause 1.7 is a standard clause used in Pukeroa’s leases. The arbitrator found as much.11 It therefore has the potential to be generally significant to Pukeroa on other occasions.

[26]             I consider the following is strongly arguable. First, that “premises” must be interpreted in the context of cl 1.7 and in the wider context of the entire lease.12 Secondly, that when “premises” is viewed in those lights there is a sound basis for concluding that the term was intended to be limited to physical premises and that assessment of whether a proposed variation of layout, configuration or tenancy mix would be “materially detrimental” to the premises is restricted to an assessment of whether such variation would be materially detrimental to a tenant’s enjoyment of the physical premises. Such interpretation is consistent with the term which the law of Landlord and Tenant generally implies into all leases: namely, that a tenant shall have quiet enjoyment of the premises. Such interpretation would protect Hunting & Fishing from Pukeora leasing other premises in the “centre” to tenants who might have a materially detrimental effect on Hunting & Fishing’s enjoyment of its premises. Something that has a nuisance impact on an incumbent tenant springs to mind. Possible examples of potential tenancies that might have this effect could include: tenants whose business produced: (a) loud, persistent or unpleasant noise; (b) noxious and unpleasant smells; or (c) flashing lights or laser lights that could adversely impact on other tenants’ ability to enjoy their premises. The meaning might even go so far as to include tenants whose business attracted unattractive and unpleasant elements for example a tattoo studio that focussed predominantly on persons who were threatening to other tenants and their customers, and who regularly attracted police attention. The disruption such persons might cause could spread to and have a materially detrimental impact on other tenants’ premises in the centre.

11 Above n 9 at [91].

12     See Vector Gas Ltd v Bay of Plenty Energy Ltd [2010] NZSC 5; [2010] 2 NZLR 444.

[27]             However, a tenant whose business that did no more than pose a competition threat to an incumbent tenant is not going to have any impact on the incumbent tenant’s ability to enjoy its premises. For an incumbent tenant to find itself running a business in proximity to its competitor, this may bring financial worries relevant to the business, but those do not impact on the tenant’s enjoyment of its premises.

[28]             There is also strength in what Pukeroa says regarding the location of cl 1.7 being under the heading “Landlord’s works and Handover Date”. The phrase “material detriment” is not the usual terminology for a clause protecting from competition. Moreover, the presence of other provisions in the lease indicating there was no intent for Hunting & Fishing to have any control over to whom Pukeroa leases, namely, clauses 17.1 and 53, contradict any notion that Hunting & Fishing would have this type of control.

[29]             Accordingly, I am satisfied that here guideline (a) favours the grant of leave to appeal.

Guideline (b)

[30]             When a question of law was the very reason for the arbitration, leave to appeal will be granted less readily.13 Here, the parties agreed to resolve a discrete point of contractual interpretation of their lease by arbitration. It assumed prominence in the arbitration, with the arbitrator discussing the interpretation of clause 1.7 for some three pages of his award.14 The arbitrator answered their question in the negative. Now, various challenges Pukeroa wants to make go to the heart of the very decision the parties agreed ought to be resolved finally by arbitration. This weighs against the grant of leave.

Guideline (c)

[31]             The nominated arbitrator was an experienced legal practitioner. When the parties have chosen a legally qualified arbitrator to determine a problem which is

13 Above n 11 at [54].

14     Above n 9 at [82]-[94].

purely one of law, the parties must be assumed to have had a good reason for doing so.15 This weighs against the grant of leave.

Guideline (d)

[32]             Hunting & Fishing took possession in September 2013. The lease is for eight years with two four year rights of renewal. For its duration the parties will each have to live with the arbitrator’s conclusion if leave to appeal is not granted. The dispute has wider relevance for Pukeroa because the dispute may also arise with its other tenants. Also, it has been prevented from leasing other premises in the complex to a tenant of its choice. The dispute has limited if any significance for Hunting & Fishing beyond the fact it currently enjoys protection from competitors that would have a materially detrimental impact on its business. If leave is granted all that will happen is that either the arbitrator’s decision will be upheld (in which case Hunting & Fishing’s position will remain the same), or an alternative interpretation of the lease will be imposed, (in which case Hunting & Fishing will be held to the correct legal interpretation of the lease). The minimal impact on Hunting & Fishing coupled with the adverse impact on Pukeroa weighs in favour of leave being granted.

Guideline (e)

[33]             The sum of money in issue is relevant to determining whether to grant leave. Assessment of the figure involved must be done in the wider contractual context.16 This factor often overlaps with (d).17 As it does here. The nature of the dispute, namely the nature of rights under the lease, makes this sum difficult to quantify.

[34]             Pukeroa have not made it clear how much money is involved. However, as discussed above, it has clear significance to Pukeroa considering its widespread usage of clause 1.7.

15     Ipswich Borough Council v Fisons plc [1990] 1 All ER 730 (CA) at 726.

16     Kiwi Property Holdings Ltd v Fletcher Construction Company Ltd [2018] NZHC 1745 at [16].

17     David AR Williams and Amokura Kawharu Williams & Kawharu on Arbitration (2nd ed, LexisNexis,Wellington, 2017) at 546.

[35]             The arbitrator considered the introduction of Torpedo7 to be likely to cause significant interference to Hunting & Fishing’s business.18 Indeed, this was the basis of his finding that leasing to Torpedo7 would constitute a “material detriment” to the premises. Hunting & Fishing itself has provided evidence that there is significant overlap between the products sold by Torpedo7 and the products it sells. It estimates 50% of its business turnover would be at risk from the introduction of Torpedo7.

[36]I consider this factor favours granting leave to appeal.

Guideline (f)

[37]             The amount of delay in granting leave to appeal is to be balanced against the sum in dispute. If the delay consequent on granting leave and submitting the question of law to the Court is disproportionate to the sum in dispute, it is more difficult to obtain leave. I do not consider this factor is engaged.

Guideline (g)

[38]             Where the parties have agreed that an award is to be final and binding, this will count strongly against granting leave to appeal.19 The parties have not specified in their arbitration agreement that the award is to be “final and binding”, and thus it is not contended that this factor is engaged.

Guideline (h)

[39]             In an international arbitration, where the parties have opted into cl 5 of schedule 2, it is a clear indication that appeals on points of law were intended, and as such is a factor in favour of granting leave.20 This is a domestic arbitration and so this factor is inapplicable.

18 Above n 14 at [81].

19 Above n 8 at [54].

20 At [54].

Conclusion

[40]             The application is finely balanced. However, when looked at overall, I consider the combined weight of the factors favouring the granting of leave (factors (a), (d) and (e)) outweigh those to the contrary. Accordingly, I am satisfied the application for leave to appeal should be granted.

Result

[41]The application to set the arbitral award aside is declined

[42]             The application for leave to appeal the arbitral award is granted. Leave is granted to appeal on the following question:

(a)Did the arbitrator err in interpreting the word “premises” in clause 1.7  of the Agreement to Lease to include the business interests of Hunting & Fishing?

[43]The parties have leave to file memoranda as to costs.

Duffy J

Solicitors/Counsel:

Holland Beckett, Tauranga

Gurnell Harrison Law Ltd, Hamilton Victoria Whitfield, Barrister, Hamilton