The Gama Foundation v Fletcher Steel Limited

[2021] NZHC 2514

IN THE HIGH COURT OF NEW ZEALAND CHRISTCHURCH REGISTRY

I TE KŌTI MATUA O AOTEAROA ŌTAUTAHI ROHE

CIV-2020-409-183

[2021] NZHC 2514

IN THE MATTER

the Arbitration Act 1996

UNDER

of an application for an order setting aside part of an arbitral award

BETWEEN

THE GAMA FOUNDATION

Plaintiff

AND

FLETCHER STEEL LIMITED

Defendant

Appearances:	A J Forbes QC and R A Hearn for Plaintiff/Applicant W R Potter and J M Phillips for Defendant/Respondent
Judgment:	24 September 2021
(Determined on the papers)

JUDGMENT OF OSBORNE J

[Leave to appeal to the Court of Appeal]

This judgment was delivered by me on 24 September 2021 at 3.30 pm pursuant to Rule 11.5 of the High Court Rules

Registrar/Deputy Registrar Date:

THE GAMA FOUNDATION v FLETCHER STEEL LIMITED [2021] NZHC 2514 [24 September 2021]

Introduction

[1]                 The plaintiff, The Gama Foundation (Gama), and the defendant, Fletcher Steel Ltd (Fletcher Steel), were respectively lessor and lessee of an industrial property in Christchurch. Issues between the parties relating to the lease were referred to Tómas Kennedy-Grant QC as sole arbitrator. His relevant award was dated 5 February 2020 (the award).

[2]                 By sch 2, cl 5(2), Arbitration Act 1996 (the Act), the High Court may by leave entertain appeals on questions of law arising from an arbitral award if it considers, having regard to all the circumstances, that the determination of the question of law concerned could substantially affect the rights of one or more of the parties.

[3]Gama applied to the High Court for leave to appeal on 10 listed questions.

[4]                 By this Court’s judgment on 26 March 2021 leave to appeal (on all questions) was refused (the judgment).1 The commercial background to the issues between the parties is traversed in the judgment.

This application

[5]Gama applies for leave to appeal the judgment to the Court of Appeal.

[6]                 Leave is sought in relation to four identified questions of law (one of which has four limbs).

The judgment at issue

[7]                 In the judgment, findings were made in relation to the 10 listed questions under four headings:

(a)five questions relating to the rule in Joyner v Weeks;2

(b)two questions relating to cl 5.1 of the lease;

1      The Gama Foundation v Fletcher Steel Ltd [2021] NZHC 633 [Judgment].

2      Joyner v Weeks [1891] 2 QB 31 (CA).

(c)one question relating to default interest payable on the landlord’s repair costs; and

(d)two questions relating  to the correct  test and onus of proof under     cl 8.1(a) of the lease.

[8]The judgment answered the 10 questions as summarised below.

The questions concerning the rule in Joyner v Weeks:

Question 1:

[9]                 Whether the rule in Joyner v Weeks created an absolute bar to consequential loss suffered by the landlord was moot because the arbitrator found that no consequential loss was established as a matter of fact. This point did not warrant leave.3

[10]This is not a subject of this leave application.

Question 2:

[11]             The arbitrator’s finding that the purpose of the rule in Joyner v Weeks is to avoid the decision-maker having to explore or attempt to determine the actual loss suffered by the landlord was in the context of consequential loss claims only (a moot point) and therefore did not warrant leave.4

[12]This is not a subject of this leave application.

Question 3:

[13]             The normal rules applying to damages for breach of contract, including the ability of the landlord to recover actual costs, including additional costs reasonably incurred by it in mitigation of the damage caused by the tenant’s breaches of lease, are

3      Judgment, above n 1, at [34]–[35].

4      At [36]–[39].

not applicable where the rule in Joyner v Weeks applies (Court of Appeal authority binding the High Court5) so that leave was not warranted.

[14]This is the subject of Gama’s proposed appeal question (a)(iii) (below at [33]).

Question 4:

[15]             The minimum performance or “minimum cost” rule represented by the rule in Joyner v Weeks requires the ascertainment of the hypothetical minimum reasonable repair cost rather than an enquiry as to the actual loss suffered by the landlord so that leave was not warranted.6

[16]             This is the subject of Gama’s proposed appeal questions (a)(i) and (ii) (below at [33]).

Question 5:

[17]             Where repairs have been effected by the landlord after the tenant’s breaches of repair covenants in the lease the onus of proof is on the landlord to prove that the repairs actually undertaken were reasonable in terms of minimum cost, scope and time, so that leave was not justified.7

[18]This is the subject of Gama’s proposed appeal question (a)(iv) (below at [33]).

Questions as to entitlement to interest on unpaid money under cl 5.1:

[19]Clause 5.1 of the lease provides:

Interest on Unpaid Money

5.1 IF the Tenant defaults in payment of the rent or other moneys payable hereunder for 14 days then the Tenant shall pay on demand interest at the default interest rate on the moneys unpaid from the due date for payment to the date of payment.

5      At [40]–[49], citing Maori Trustee v Rogross Farms Ltd [1994] 3 NZLR 410 (CA) at [100].

6      Judgment, above n 1, at [50]–[58].

7      At [59]–[63].

Question 6:

[20]             The arbitrator did not err in holding that costs incurred by the landlord in remedying breaches of the tenant’s covenants to repair were not “moneys payable” under the lease for the purposes of cl 5. Gama claimed their losses as “damages” which are not “moneys payable hereunder”.8 Leave was not warranted.

[21]This is the subject of Gama’s proposed appeal question (b) (below at [33]).

Question 7:

[22]             The arbitrator did not err in failing to make a decision as to whether cl 5.1 of the lease applied to amounts payable by Fletcher Steel for outgoings under cl 3.1 (and the First and Second Schedules to the lease). This issue was raised by Gama for the first time after the hearing and there was no question of law involved. Leave was not warranted.9

[23]This is not a subject of this leave application.

Questions as to default interest payable on landlord’s repair costs under cl 14.1

[24]             Clause 14.1 of the lease provided for the landlord’s entry upon the premises to execute repair works which the tenant failed to undertake. It states:

14.1 IF default shall be made by the Tenant in the due and punctual compliance with any repair notice given by the Landlord pursuant to this lease, or if any repairs for which the Tenant is responsible require to be undertaken as a matter of urgency then without prejudice to the Landlord’s other rights and remedies expressed or implied the Landlord may by the Landlord’s employees and contractors with all necessary equipment and material at all reasonable times enter upon the premises to execute such works. Any moneys expended by the Landlord in executing such works shall be payable by the Tenant to the Landlord upon demand together with interest thereon at the default interest rate from the date of expenditure to the date of payment.

8      At [68]–[87].

9      At [88] and [67].

Question 8:

[25]             The arbitrator did not err in holding that interest payable under cl 14.1 of the lease was unavailable because Gama had not exercised its entitlement to go onto the property to effect repairs and there is a “temporal limitation” under cl 14.1 limiting the payment of interest to repairs effected during the term of the lease.10

[26]This is the subject of Gama’s proposed appeal question (c) (below at [33]).

Questions as to the correct test and onus of proof under cl 8.1(a) of the lease:

[27]             Clause 8.1 of the lease provided for the maintenance and care of the premises, imposing obligations on Fletcher Steel as tenant. Clause 8.1(a) of the lease relevantly provides:

8.1THE Tenant shall … be responsible to:

(a)Maintain the premises

In a proper and workmanlike manner and to the reasonable requirements of the Landlord keep and maintain the interior of the premises including the Landlord’s fixtures and fittings in the same clean order repair and condition as they were in at the commencement of this lease and will at the end or earlier determination of the term quietly yield up the same in the like clean order repair and condition. In each case the Tenant shall not be liable for fair wear and tear arising from reasonable use …

[28]             It was common ground between the parties that the “fair wear and tear” exception in cl 8.1(a) applied to the interior of the rear warehouse on the premises.11 The arbitrator had dismissed Gama’s claims in relation to floor cracks in the rear warehouse.12

Question 9:

[29]             The arbitrator did not err and in particular did not exclude the “reasonable use” qualification from the “fair wear and tear” exception, so leave was not warranted.13

10     At [89]–[105].

11 At [108].

12 At [109].

13     At [106]–[126].

[30]This is not a subject of this leave appeal.

Question 10:

[31]             While it was arguable that the arbitrator had incorrectly identified the onus of proof (to show the damage claimed did not amount to fair wear and tear) leave was not warranted having regard to the evidential basis for the arbitrator’s finding, the low precedential value, and the settled state of the law.14

[32]This is not a subject of this leave application.

The questions proposed by Gama for (second) appeal

[33]             The four questions proposed by Gama for appeal are identified in the following terms:

(a)Did the arbitrator err in his interpretation of the scope and effect of the rule in Joyner v Weeks 15 In particular, where a landlord has effected repairs to a property after termination or expiry of a lease, in respect of items damaged or inadequately maintained by the tenant in breach of lease covenants to maintain and repair, does that rule:

(i)limit losses claimable by a landlord to the hypothetical notional reasonable costs of such repairs, notwithstanding the landlord’s actual reasonable repair costs were higher?

(ii)limit claimable repair costs to the minimum repairs required to address the tenant’s breaches of the lease notwithstanding that a range of reasonable repair options were available?

(iii)oust the normal rules relating to the calculation of contractual damages, in particular the ability to claim costs reasonably incurred in mitigation of loss?

14     At [106]–[126].

15     Joyner v Weeks, above n 2.

(iv)place the onus of proof on the landlord to show that the repairs it carried out to remedy the tenant’s breach of such covenants were no more than the bare minimum required under the lease?

(b)Are damages payable by a tenant for breaches of lease covenants to repair or maintain the leased premises “moneys payable under the lease” for the purposes of cl 5.1?

(c)Is interest only payable under cl 14.1 of the lease when the repairs which are the subject of the repair notice have been effected by the landlord during the term of the lease?

(d)Did the High Court err in its assessment of whether leave to appeal should be granted on the putative questions of law in terms of the relevant factors stated in Gold and Resource Developments (NZ) Ltd v Doug Hood Ltd.16

[34]For Gama it is asserted that:

(a)the questions of law are capable of bona fide and serious argument; and

(b)the public and private interests in determination of the questions of law outweigh the costs and delay of the intended appeal.

[35]Gama invokes sch 2, cl 5(5) of the Act.

[36]             Fletcher Steel opposes the granting of leave. It asserts that none of the putative questions of law posed by Gama are capable of bona fide and serious argument. It also asserts that the questions, in the context of this dispute, are not of sufficient importance either generally or to the parties to justify further litigation. It refers to the parties’ choice of arbitration as their means of settling disputes under the lease.

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

[37]             Gama relies on affidavit evidence of Grant Nelson filed in 2020 in the High Court proceeding while Fletcher Steel relies upon the affidavit of Rebecca Cotter filed in the same proceeding.

The test for leave to appeal from the High Court to the Court of Appeal under sch 2, cl 5(5) Arbitration Act

[38]             The Court of Appeal considered the test for leave to appeal under sch 2, cl 5(5) of the Act in Downer Construction (New Zealand) Ltd v Silverfield Developments Ltd (Downer Construction).17 In Downer Construction the Court of Appeal endorsed the principles identified by Randerson J in Cooper v Symes:18

(a)The appeal must raise some question of law or fact capable of bona fide and serious argument in a case involving some interest, public or private, of sufficient importance to outweigh the cost and delay of the further appeal.

(b)Upon a second appeal, the Court of Appeal is not engaged in the general correction of error. Its primary function is then to clarify the law and to determine whether it has been properly construed and applied by the Court below.

(c)Not every alleged error of law is of such importance either generally or to the parties, as to justify further pursuit of litigation which has already been twice considered and ruled upon by a Court.

[39]These principles have been consistently applied by the Court of Appeal.19

[40]             In Downer Construction the Court of Appeal noted a trend in the United Kingdom to reverse the steady increase in the numbers of second appeals reaching the Court of Appeal and so to free up valuable and expensive resources to give more

17     Downer Construction (New Zealand) Ltd v Silverfield Developments Ltd [2007] NZCA 355, [2008] 2 NZLR 591 [Downer Construction].

18     Cooper v Symes (2001) 15 PRNZ 166 (HC) at [12].

19     See for example Alusi Ltd v G J Lawrence Dental Ltd [2021] NZCA 87 at [13].

effective attention to hearing first appeals.20 In Chief Executive of Land Information New Zealand v Luke the Court of Appeal again noted that trend and observed:21

These general principles, relating as they do to the fundamental role of this Court and the need for proportionality in civil litigation, must underlie any leave decision under s 18A [Land Valuation Proceedings Act 1948].22

[41]             Additionally, it has been recognised by this Court — in particular in the judgment of Chambers J in Cullen Investments Ltd v Lancaster — that, where grounds for leave are made out on some questions leave may be more readily granted in relation to others.23

The questions on which leave is sought — discussion

[42]             Gama’s primary focus in its submissions was on the ambit and application of the rule in Joyner v Weeks.24 The matters determined at arbitration and then through the leave application to this Court are said to involve four questions of law (set out at [33(a)] above) capable of bona fide and serious argument.

[43]             Leave is sought also in relation to the ambit and application of the interest clauses (cls 5.1 and 14.1) under the lease.

[44]             Finally, leave is sought in relation to a question as to whether this Court erred in its assessment of whether leave to appeal should be granted — this is in the nature of a catch-all, turning on whether the test for granting leave was made out.

[45]             The submissions of counsel for Gama in relation to the rule in Joyner v Weeks amount to a substantial re-visiting of the detailed arguments presented on the leave application to this Court as to why the law in New Zealand is not settled in the way found by the arbitrator, and then again by this Court. For the reasons expressed in the judgment, I found each of the questions in relation to the rule in Joyner v Weeks to

20     Downer Construction, above n 17, at [36].

21     Chief Executive of Land Information New Zealand v Luke [2008] NZCA 43 at [18].

22     Section 18A Land Valuation Proceedings Act 1948 permits appeals by leave from any award or order of the High Court (on appeal from the Land Valuation Tribunal).

23     Cullen Investments Ltd v Lancaster HC Auckland CIV-2001-404-4236, 12 June 2003 at [26].

24     Joyner v Weeks, above n 2.

either be not seriously arguable or moot. My opinion has not changed in light of the detailed, further submissions now presented.

[46]             The position concerning the two proposed questions relating to interest is similar. In relation to the matter under cl 14.1 the leave application failed primarily due to the arbitrator’s factual finding that the costs being claimed by Gama had not been incurred under the cl 14.1 procedure. My opinion has not changed in relation to these two questions.

[47]             That being the case, it follows that I also conclude that Gama’s proposed final question as to whether the test for granting leave was made out is not seriously arguable.

Outcome

[48]Leave to appeal is declined.

Costs

[49]             The plaintiff is to pay to the defendant the costs of the application on a 2B25 basis, together with disbursements to be fixed by the Registrar.

Osborne J

Solicitors:

A J Forbes QC, Christchurch Corcoran French, Christchurch Meredith Connell, Auckland

25     High Court Rules 2016, Category 2 under r 14.3(1) and band B under r 14.5(2).