Restaurant Brands Ltd v QST Ltd
[2016] NZHC 2226
•21 September 2016
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
CIV-2016-404-001790 [2016] NZHC 2226
UNDER Clause 5(1)(c) of Schedule 2 of the
Arbitration Act 1996
IN THE MATTER
of an application for leave to appeal against an arbitral award
BETWEEN
RESTAURANT BRANDS LIMITED Plaintiff
AND
QST LIMITED Defendant
Hearing: 20 September 2016 Counsel:
M T Davies for Plaintiff
L McEntegart and L Keen for DefendantJudgment:
21 September 2016
JUDGMENT OF DOWNS J
This judgment was delivered by me on Wednesday, 21 September 2016 at 1 pm pursuant to r 11.5 of the High Court Rules.
Registrar/Deputy Registrar
Solicitors/Counsel:
Meredith Connell, Auckland.
Martelli McKegg, Auckland. L McEntegart, Auckland.
RESTAURANT BRANDS LTD v QST LTD [2016] NZHC 2226 [21 September 2016]
The issue
[1] The plaintiff and defendant are at loggerheads over how the rent review clause of their lease should be interpreted; their dispute arose in 2011. The dispute was the subject of arbitration. The Tribunal found for the defendant. The plaintiff seeks leave to appeal on a question of law arising out of the Tribunal’s award. The defendant opposes leave.
[2] I have concluded the plaintiff should have leave to appeal. Rule 26.17 of the High Court Rules provides reasons are not required unless the Court “thinks reasons are required in the circumstances”. This judgment contains brief reasons for my decision.
Background
[3] The defendant leases land at Quay Street in Auckland from the Ngati Whatua O Orakei Maori Trust Board (the Trust Board). It subleases some of the land to the plaintiff, which operates a fast-food chain there. Clause 3.3 of the defendant’s lease with the Trust Board (the headlease) provides that from 2 August
2011, “and at each rent review thereafter (every seven years)”, the rental payable by the defendant to the head lessor is “six per cent per annum of the current freehold market undeveloped block value of the Land”.
[4] Clause 4.2 of the lease between the defendant and plaintiff (the sublease) provides that from 2 August 2011 and at each rent review date thereafter (again, recorded as being every seven years), the plaintiff is required to pay the defendant nine per cent per annum “of the current freehold market undeveloped block value (as defined in the Headlease) of the Land”.
[5] It is common ground the headlease contains no definition of “current freehold market undeveloped block value”. Therein lies the problem.
[6] On 24 June 2016, the Tribunal appointed B J Paterson QC, a retired High Court Judge, to provide expert advice on the correct construction of cl 4.2. The plaintiff contended cl 4.2 should be understood as a reference to the current freehold
market undeveloped block value as determined under the headlease, so that the figure (of which rent is a percentage) would be the same in both agreements. The defendant contended that as the land governed by the headlease was greater than that governed by the sublease, the apparent elegance of the symmetry of the plaintiff's argument was misconceived; what was intended was a common valuation methodology as opposed to a common figure; and the plaintiff’s construction rendered the respective contracts unworkable.
[7] This dense précis of the arguments is just that. Each party developed its construction of cl 4.2 by reference to the clause and the surrounding contracts (the sublease and headlease). And the defendant invited attention to the broader commercial context in which those contracts were entered into.
[8] Mr Paterson concluded the defendant’s position was correct. The Tribunal “unanimously accept[ed] and confirm[ed] the opinion provided by the appointed expert” on the issue. It did not conduct its own analysis.
[9] As observed, the plaintiff now seeks leave to appeal the Tribunal’s award on the basis a suitable question of law arises from it: the Tribunal erred in its interpretation of cl 4.2 through misapplication of settled principle in relation to contractual construction.
Analysis
[10] It is common ground the applicable principles are to be found in the Court of Appeal’s Full Court decision of Gold & Resource Developments (New Zealand) Ltd v Doug Hood Ltd.1 It is also common ground the Tribunal’s determination could substantially affect the rights of the parties in terms of cl 5(2) of Sch 2 of the Arbitration Act 1996.
[11] However, the defendant contends no question of law arises out of the award because Mr Paterson’s advice is not amenable to appeal in that it is no different from
a report from any other expert. Put more directly, the defendant contends any
1 Gold & Resource Developments (New Zealand) Ltd v Doug Hood Ltd [2000] 3 NZLR 318 (CA).
question of law arises from Mr Paterson’s advice, not the award itself. The defendant also contends the plaintiff’s case is not strongly arguable and even if it is, leave should not be granted in light of the other considerations identified by the Court of Appeal in Gold & Resource Developments (New Zealand) Ltd.
The preliminary issue
[12] I am satisfied that the interpretation of the cl 4.2 gives rise to a question of
law which “arises out of the award”:
(a) The interpretation was central to proceedings before the Tribunal.
(b)For this reason, the Tribunal appointed Mr Paterson to provide advice on the issue.
(c) That advice was exclusively legal in nature.
(d)The Tribunal adopted that advice as its own reasoning without further analysis.
[13] Self-evidently, these circumstances are distinguishable from a tribunal calling for expert advice on a matter of fact.2 Moreover, if the defendant were correct on this issue, the possibility of an appeal to the High Court could be stymied by a tribunal essentially contracting out the task appointed to it. That conclusion should not be reached lightly. The defendant was unable to offer any authority to support its proposition.
The Gold & Resource Developments analysis
The strength of the challenge and nature of the point
[14] By virtue of its nature, the rent review clause is recurring. Moreover, I gather two other lessees may be affected by the same or similarly worded clauses with the
2 As for example, in Airwork Holdings Ltd v Auckland Regional Rescue Helicopter Trust HC Auckland CIV-2005-404-6808, 16 May 2006.
defendant. The underlying issue may well have precedent value, and beyond the parties.
[15] The plaintiff has a strongly arguable case. This is not to prejudge the appeal or more particularly, the correctness of Mr Paterson’s advice as adopted by the Tribunal. Rather, it is to recognise the correct construction of cl 4.2 is far from obvious.
[16] Mr Paterson appears to have recognised as much, for, he accepted it was “possible to read clause 4.2 in different ways which would support each party’s contentions”. That is often true of a contract, and it would be wrong to hold—or appear to hold—nothing more was required in order for the losing party to have a basis for an appeal against an arbitral award. However, Mr Paterson also concluded the plaintiff’s interpretation was available looking at the clause itself, that is, upon its language, at least in isolation from the balance of the contract.
[17] Mr Paterson concluded, or appears to have concluded, the balance of the contract and its commercial context favoured the construction advanced by the defendant. Or put another way, factors other than the clear and ordinary meaning of the clause favoured the defendant’s construction. In Firm PI 1 Ltd v Zurich Australian Insurance Ltd (not referred to by the expert, or necessarily, the Tribunal) the Supreme Court made the following observation about the interpretation of a
contract:3
[63] While context is a necessary element of the interpretative 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.
[18] To borrow the language of Elias J (as her Honour then was) in Rotoaira
Forest Trust,4 “real doubt” attaches to the correctness of the Tribunal’s conclusion in
3 Firm PI 1 Ltd v Zurich Australian Insurance Ltd [2014] NZSC 147, [2015] 1 NZLR 432 (emphasis added).
4 Trustees of Rotoaira Forest Trust v Attorney-General [1998] 3 NZLR 89 (HC) at 102-103.
relation to the interpretation of cl 4.2, particularly given the extent to which the context of the agreement was relied on.
[19] Unsurprisingly, the Court of Appeal has held the strength of the appeal is “the
most important consideration”.5
How the question arose before the arbitrators
[20] This consideration counts against leave because, as the Court of Appeal observed in Gold & Resource Developments, where the parties have chosen to submit their dispute to arbitration rather than asking a Court to determine it, “they should generally be held to their choice”.6
The qualifications of the arbitrators
[21] This consideration also counts against leave in that while the arbitrators were not legally qualified, Mr Paterson clearly was. Moreover, his advice was sought for that reason and because of his (considerable) familiarity with this area.
The importance of the dispute to the parties and the amount of money involved
[22] These aspects favour leave. The dispute is of importance to the parties. A not inconsiderable sum is at stake. In monetary terms, the difference between the respective interpretations of cl 4.2 is approximately $600,000 and perhaps as much as $1.7 million over a 26-year period.
[23] The defendant contended these sums are not great given the commercial context in which the parties operate. That may be true. But the difference is
sufficient to have driven this dispute for five years.
5 Gold & Resource Developments, above n 1, at [54].
6 At [54](2).
The amount of delay in going through the courts
[24] Obviously, an appeal would entail further delay. However, the dispute is already five years old and curial determination would provide finality. So, in context, this consideration is a dual-edged sword.
Standing back
[25] The proposed question of law is directed at a recurring contractual term and one of likely precedent value beyond the parties. And as observed, the plaintiff’s case is strongly arguable; the issue is important to the parties; and a not insignificant sum is at stake. Against this must be placed the plaintiff’s election to arbitrate rather than litigate, from which it now seeks to resile; Mr Paterson’s qualifications and experience; and to some extent, further delay.
[26] I conclude leave is warranted because the strength of the challenge and nature of the proposed point count powerfully in favour of leave in circumstances in which the remaining factors yield no decisive answer.
[27] This discussion is not meant to convey the plaintiff will or should succeed on appeal; the point is merely it has made out the case for leave to appeal.
Other matters
[28] The plaintiff’s written submissions allege no fewer than seven discrete errors of law on the part of the Tribunal in relation to its construction of cl 4.2.7 As I observed at the hearing, that list is at best “over-cooked”. Mr Davies acknowledged as much. Refinement is called for.
[29] The relevant question of law is:
(a) Did the Tribunal err in concluding cl 4.2 does not require the adoption the current freehold market undeveloped block value as determined
under the headlease?
7 Plaintiff ’s submissions at para 7.5.
[30] This question is in essence that identified by the plaintiff in its notice of application for leave to appeal, albeit as refined by me into a single question.
[31] This judgment has been delivered promptly on the expectation the parties will do likewise in relation to the hearing and conduct of the appeal; five years is a long time to argue about a rent review clause.
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Downs J
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