The Gama Foundation v Fletcher Steel Ltd
[2021] NZHC 633
•26 March 2021
IN THE HIGH COURT OF NEW ZEALAND CHRISTCHURCH REGISTRY
I TE KŌTI MATUA O AOTEAROA ŌTAUTAHI ROHE
CIV-2020-409-000183
[2021] NZHC 633
UNDER the Arbitration Act 1996 IN THE MATTER
of an application for leave to appeal an arbitral award
BETWEEN
THE GAMA FOUNDATION
Plaintiff
AND
FLETCHER STEEL LIMITED
Defendant
Hearing: 3 September 2020 Appearances:
A J Forbes QC and R A Hearn for Plaintiff W R Potter and J M Phillips for Defendant
Judgment:
26 March 2021
JUDGMENT OF OSBORNE J
This judgment was delivered by me on 26 March 2021 at 4.00 pm pursuant to Rule 11.5 of the High Court Rules
Registrar/Deputy Registrar Date:
THE GAMA FOUNDATION v FLETCHER STEEL LIMITED [2021] NZHC 633 [26 March 2021]
The application
[1] The plaintiff, The Gama Foundation (Gama) seeks leave to appeal parts of an award arising from an arbitration between Gama and the defendant, Fletcher Steel Ltd (Fletcher Steel).
[2] The arbitration was conducted by Tόmas Kennedy-Grant QC. The award is dated 5 February 2020.
[3] The arbitrator in his introduction to the award summarised the background and the issues thus:
1.55 Lunns Road is a large industrial property in Middleton, Christchurch. It was created in or about 1972 as part of a larger subdivision in Lunns Road. From shortly after its creation as a separate property until 31 August 2016 it was tenanted by a Fletcher company, most recently by Fletcher Steel Ltd (“Fletcher Steel”) under a lease (“the Lease”) entered into with effect from 1 September 2006 for a term of 10 years, with two rights of renewal each of five years.
2.Between 1972 and 2006 the property had on it:
... one large warehouse of 3,967m2 (the “Front Warehouse”), an amenities block with 88m2 and the main office block of 557m2 (“together “the Front Existing Buildings”). There was an asphalted parking area outside the well set back front fence, and an asphalted driveway to and from the Front Warehouse. The yard areas beside the Front Warehouse were hard filled and the rear half of the Property was unmowed grass.
…
3.As part of the negotiations for the Lease it was agreed that The Gama Foundation (“Gama”), as landlord, would construct a new warehouse on the rear of the Property (“the Rear Warehouse”) and asphalt the remaining parts of the property.
4.In common with many other buildings in the Christchurch area, the property, including the buildings on it, was damaged by the earthquakes of 4 September 2010 and 22 February 2011.
5.At the expiry of the Lease on 31 August 2016, in addition to there being an issue as to whether there was unrepaired earthquake damage, there was an issue between the parties as to whether Fletcher Steel had discharged its other obligations in respect of repair and maintenance under the Lease. It is these issues which are together the subject of this Arbitration.
[4] The arbitrator was appointed sole arbitrator in April 2017. The substantive hearing eventually took place in November 2019. Many of the claimed repair items
(in terms of number but not of value) were paid by Fletcher Steel prior to or during the course of the arbitration.1 For the purpose of the award, 50 claimed items remained in dispute. Of those the arbitrator awarded all or some of Gama’s claims in respect of 27 items and disallowed 23 items.2
The subject-matter of Gama’s intended appeal
[5] Mr Forbes QC, for Gama, explained there were three major repair items in relation to which the arbitrator found the repairs actually carried out by Gama could have been effected on a more restricted or cheaper basis. Mr Forbes’ explanation of those three items is here set out:
(a)Front warehouse floor. This was originally constructed in or about 1973 as an asphalt floor. Fletcher Steel subsequently installed a concrete drive-through and numerous concrete pads and a pit. The arbitrator found that the asphalt was contaminated to some extent with oils and cutting fluids because of Fletcher Steel’s steel manufacturing operations. Gama acted on advice from a consulting engineer and the construction company it had engaged after Fletcher Steel vacated the premises (on expiry of the lease) for the necessary repair work. In the absence of any input from Fletcher Steel, despite many requests for it to be involved in determining the repair strategy, Gama encapsulated the entire damaged floor with concrete. This was based on advice from the consulting engineer and the construction company that this would be both a better and cheaper option than replacement of all of the asphalt (including removal of concreted areas and disposal of contaminated soils and materials).
(b)Rear Warehouse floor. This was a new concrete floor that was built in 2006. It suffered impact and earthquake damage during the lease term (which were both the responsibility of Fletcher Steel under the lease due to Fletcher Steel taking out an insurance policy with a $10 million excess). The arbitrator allowed most of Gama’s claim as to this but did not award the full value of the repair work because he found that there was some fair wear and tear which could not be quantified on the evidence.
(c)Yard areas. The large yard areas at the premises were asphalted. There was extensive damage and extensive rust staining to the asphalt caused by Fletcher Steel as the tenant. It was a feature of Gama’s case that it made many requests to Fletcher Steel to have their expert or representative help determine the work to be done and to agree on the costs but these requests were ignored. Gama was advised by a consulting engineer after Fletcher Steel vacated that the entire yard
1 The arbitrator recorded at [100] of the Award that Fletcher Steel had paid in full 118 of the 193 claimed items of tenant damage and 29 of the 39 claimed items of earthquake damage.
2 Summarised in The Gama Foundation v Fletcher Steel Ltd (First Award) 5 February 2020 [Award] at [306].
area required replacement. However it only replaced part of the yard area and claimed the cost of that replacement. The arbitrator allowed only part of Gama’s claim, deciding that Fletcher Steel, as the tenant, could, under the lease, have replaced less than what was claimed for by Gama.
[6] There were more repair item claims disallowed by the arbitrator, which Gama asserts would be affected by a successful appeal.
[7] The arbitrator also disallowed Gama’s claim for interest on repair costs at the default rate under the lease. The question of interest, otherwise than at the default rate, is reserved by Gama pending the outcome of this application and any appeal.
[8] Part of Gama’s claim against Fletcher Steel was for items of consequential loss. The arbitrator dismissed the claim for consequential loss on the facts.3
Leave to appeal
The statutory regime
[9] By sch 2, cl 5(2), Arbitration Act 1996, 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.4 As explained by the Court of Appeal in Gold and Resource Developments (NZ) Ltd v Doug Hood Ltd (Doug Hood), the pre-condition in cl 5(2) is designed to ensure disputes will not be referred to the High Court if, as between the immediate parties, the matter is largely academic.5
[10] The Court further explained, once the cl 5(2) precondition is met, there remains a discretion whether leave to appeal should be granted which is to be exercised by the court in a disciplined way.6
3 At [307]–[314].
4 Arbitration Act 1996, sch 2, cl 5(2).
5 Gold and Resource Developments (NZ) Ltd v Doug Hood Ltd [2000] 3 NZLR 318 (CA) [Doug Hood] at [11].
6 At [54].
[11] The Court set out and discussed eight (non-exhaustive) considerations which should be taken into account in the circumstances of a particular case, explaining that they are guidelines, rather than governing criteria.7 The head-note to the report accurately summarises the considerations identified by the Court:8
(1) Where the question was a one-off point and of little precedent value the Court would not grant leave unless there were very strong indications of an error. Where the question was of precedent value the lower standard of a strongly arguable case that an error existed would be sufficient. Where conflicting decisions existed on the point in question this would weigh in favour of granting leave. This first consideration was the most important.
(2) If the question of law under consideration was the very reason for the arbitration this would weigh against exercising the discretion. Conversely where the question of law emerged incidentally during the arbitral process leave would be more readily granted.
(3) Where the arbitrators were legally qualified it would be more difficult to obtain leave to appeal the arbitral decision on a question of law.
(4) Where the dispute was of great significance to the parties this would weigh in favour of exercising the discretion.
(5) Where a very substantial amount of money was involved it might be somewhat easier for the parties to obtain leave.
(6) Where the likely amount of delay consequent on granting leave was disproportionate to the significance of the dispute, or if the issue was urgent, the discretion was less likely to be exercised.
(7) If the parties had agreed that the arbitral award was final this, while not determinative, would weigh against the exercise of the discretion.
(8) If the dispute was of an international nature and the parties had expressly opted in to cl 5 (the appeal provisions of the Arbitration Act 1996, Second Schedule) this would weigh in favour of exercising the discretion (see para [54]).
Gama’s proposed questions of law
[12]Gama’s proposed questions of law fall into four categories:
(a)the effect of the rule in Joyner v Weeks9 (five questions);
7 At [54].
8 At 318–319.
9 Joyner v Weeks (1891) 2 QB 31.
(b)whether moneys payable to Gama for breach of repair covenants are moneys payable under the lease (for interest purposes) in terms of cl
5.1 of the lease (two questions);
(c)whether there is a time limitation on when repairs must be effected under the repair notice contemplated by cl 14.1 of the lease (one question); and
(d)the correct test and onus of proof under cl 8.1(a) of the lease (in relation to the rear warehouse floor) (two questions).
The original articulation of the rule
[13] The rule in Joyner v Weeks, as articulated by Lord Esher MR in a decision of the English Court of Appeal, was stated thus as a rule of law:10
The rule is that, when there is a lease with a covenant to leave the premises in repair at the end of the term, and such covenant is broken, the lessee must pay what the lessor proves to be a reasonable and proper amount for putting the premises into the state of repair in which they ought to have been left.
[14] The approach to the rule in Joyner v Weeks in New Zealand, which is binding upon this Court, is that stated by the Court of Appeal in Maori Trustee v Rogross Farms Limited (Rogross Farms), where Tipping J, delivering the judgment of the Court, recorded:11
We would therefore state the law as follows. The rule in Joyner v Weeks is not an absolute rule. It is, however, the prima facie rule which will be applied unless the lessee can show by sufficiently cogent evidence that in both the short and the long term the lessor will definitely suffer no loss or will suffer a loss which can definitely be assessed at less than the prima facie measure.
The competing positions before the arbitrator
[15] Gama argued the only effect of the rule in Joyner v Weeks is that where a tenant has breached its repair obligations and the landlord has not carried out those repairs, then the landlord is nevertheless entitled to damages for that breach.12
10 At 43.
11 Maori Trustee v Rogross Farms Ltd [1994] 3 NZLR 410 at 420 (CA) [Rogross Farms].
12 Award, above n 2, at [44].
[16] Fletcher Steel submitted before the arbitrator that the rule in Joyner v Weeks is far more wide-reaching. It submitted, notwithstanding that a landlord does not have to have carried out the required repair work in order to recover its value, the landlord must also prove in respect of each item of its claim that the expenditure claimed was or is necessary and proper (whether expenditure has been already incurred or is yet to be incurred). Fletcher Steel submitted the normal contractual rules allowing the recovery of costs reasonably incurred in the course of mitigating damage do not apply where the rule in Joyner v Weeks applies.13
The arbitrator’s findings
[17] The arbitrator (at [47d.] of the award) identified five issues raised by the submissions in relation to Joyner v Weeks:14
These submissions raise the following issues:
a.Is the decision in Joyner v Weeks limited in its effect as argued for by Gama?
b.If not, what is its scope and effect?
c.By what standard is the cost of necessary repairs to be judged?
d.Does the answer to (b) mean that the rule normally applying that cost incurred as a result of action reasonably taken in the course of attempting to mitigate the damage suffered as a result of the other party’s breach of contract is recoverable does not apply in a case such as this?
e.Which party bears the onus of proof?
[18]The arbitrator then set out his answers to those five questions as follows:
a.The effect of Joyner v Weeks is not limited in the way argued for by Gama;
b.The rule in Joyner v Weeks applies in respect of all repairs necessary at the end of a lease, including repairs that have been carried out, and requires payment of “a reasonable and proper amount for putting the premises into the state of repair in which they ought to have been left”;
c.While the standard of repair is the repair necessary to put the premises into the state of repair in which they ought to have been left, the tenant is not obliged to execute the repair in a manner advantageous to the
13 At [45].
14 At [46].
landlord if, by executing the repair in a manner which is less advantageous to the landlord but still sufficient to meet the tenant’s obligations under the lease, the tenant is able to reduce the cost of repair;
d.While none of the authorities referred to by Counsel deals specifically with the question of whether the rules relating to mitigation of damage apply in a case such as this, the conclusion I draw from my finding as to the scope and effect of Joyner v Weeks (see sub-paragraph (b) above) is that the rule normally applying, i.e. that cost incurred as a result of action reasonably taken in the course of attempting to mitigate the damage suffered as a result of the other party’s breach of contract is recoverable does not apply in a satiation such as the present;
e.The onus of proof is on Gama.
[19] The arbitrator then undertook a detailed review of the authorities which had led him to the five answers he had stated.15
Is there settled New Zealand authority in relation to Joyner v Weeks?
[20] The application for leave to appeal requires the Court to consider the strength of the question of law. Accordingly, it is appropriate before considering the questions of law which Gama proposes to pursue to first consider the state of New Zealand authorities in relation to the rule in Joyner v Weeks.
[21] Before Joyner v Weeks was decided, the law appears not to have been settled in relation to a lessor’s remedies where there was a breach of the covenant to repair at the end of the term. One approach would have been to allow the lessor the diminution in the value of the reversion. The alternative, upheld in Joyner v Weeks, was to allow the landlord to recover the entire cost of the remedial works (whether or not the diminution in value of the reversion was lower or the cost of remedial works had either not been incurred or would not be incurred).
[22] The rule in Joyner v Weeks, as stated by Lord Esher in the case (set out at [13] above), was an adoption of what his Lordship referred to as “inveterate practice” in relation to what were and are known as dilapidation cases.16
15 At [48]–[54].
16 Joyner v Weeks, above n 9, at [43].
[23] It was recognised by Lord Esher that there was an issue as to whether the rule was an absolute rule. But his Lordship went on to require the avoidance of “the subtle refinements” which the basic principle of damages for compensating a claimant’s loss would introduce.17
[24] The rule in Joyner v Weeks has subsequently attracted criticism both judicially and academically.18 The rule was seen as creating anomalies such as through the lessor obtaining windfall or excessive recoveries. In the United Kingdom, s 18(1) Landlord and Tenant Act 1927 was enacted not to replace the common law measure under the rule in Joyner v Weeks, but instead to prescribe limits on the amount recoverable. The rule itself remained good law.
[25] As observed by the authors of the 2018 edition of Dowding & Reynolds; Dilapidations: The Modern Law in Practice (Dilapidations):19
… it seems tolerably clear that (up to the level of the Court of Appeal, at any rate) the common law measure remains that laid down by Joyner v Weeks.
[26] The leading authority in New Zealand in relation to the rule is the decision of the Court of Appeal in Rogross Farms.20 The Court recognised the standing of Joyner v Weeks in New Zealand had never risen for direct consideration by that Court. It therefore extensively reviewed the New Zealand case law from 1927 and considered the case law in other jurisdictions.
[27]The review led Tipping J, delivering the judgment of the Court, to state:21
In the High Court the potential injustice of an absolute application of the rule has several times been pointed out but at no stage has it been clearly held that the rule must be applied absolutely in New Zealand. It can also be said that the trend of authority in the High Court, until the decision under appeal, has been to acknowledge the existence of the rule. But in some cases the rule has not been applied on grounds of pragmatism rather than principle. The rule has been distinguished in those cases where the lessee was entitled to compensation for improvements and where the covenants in question were impossible of performance.
17 At [43].
18 See D W McMorland and others, Hinde, McMorland and Sim Land Law in New Zealand (looseleaf ed, LexisNexis) at [11.126.]; Nicholas Dowding, Kirk Reynolds and Alison Oakes Dowding & Reynolds; Dilapidations: The Modern Law in Practice (6th ed, Sweet & Maxwell, London 2018) at [29-07]–[29-09] [Dilapidations].
19 Dilapidations, above n 18, at [29-09]. (Footnote omitted).
20 Rogross Farms, above n 11.
21 Rogross Farms, above n 11, at 417.
For completeness we note the views expressed in Garrow’s Law of Real Property (5th ed, 1961) at p 654 and in Hinde, McMorland and Sim’s Land Law (1978) at p 515 (para 5.098), Garrow states the rule as being absolute and applicable even where the landlord will lose nothing through the breach of the covenant. Hinde similarly states the rule in absolute terms, saying, for example, that it applies even though the landlord proposes to demolish the premises. However some of the decisions which have commented unfavourably on the rule, at least in its absolute form, are noted.
[28] The Court then referred to the report of the New Zealand Law Commission “Aspects of damages: The Rules in Bain v Fothergill and Joyner v Weeks”.22 The Commission considered policy arguments in favour of and against the abolition of the rule in Joyner v Weeks. The Law Commission recommended abolition of the rule.23
[29] In its judgment in Rogross Farms, the Court determined the rule in Joyner v Weeks continued to apply in New Zealand. In doing so it rejected aspects of the criticism made against the rule but recognised that criticisms as to the apparent inflexibility of the rule could be met by holding that the rule is not absolute. Tipping J explained that solution in this way:24
It should be said at the outset that the rule is not as inconsistent with general principles in relation to the assessment of damages for breach of contract as has on occasions been suggested. Damages in tort are designed to reflect what the plaintiff has lost by reason of the wrong. Damages in contract are designed
… to put the injured party, as nearly as possible, and so far as money can do it, into the position he would have been in if the contract had been performed.
Thus, if a lessee fails to perform a covenant and the term has expired a sum of money must replace the performance of the covenant. That sum of money will ordinarily equate the cost to the lessor of having the covenant performed. It is when the lessor is unable or does not wish, for whatever reason, to have the covenant performed that the difficulties said to be inherent in the rule arise. It follows that there is justification for holding that the rule is not absolute. But on a prima facie basis the rule fits comfortably with the purpose of damages for breach of contract.
[30]Tipping J went on to further explain:25
In this instance a prima facie rule would, in our view, adopt the advantages but avoid the disadvantages identified by the Law Commission and others in the rule in Joyner v Weeks. With respect to Greig J and the Law Commission, we do not consider that it is in the overall interests of justice to abolish the
22 Law Commission Aspects of Damages: The rules in Bain v Fothergill and Joyner v Weeks (NZLC R19, 1991).
23 At [83].
24 Rogross Farms, above n 11, at 418–419.
25 At 420.
rule in Joyner v Weeks altogether. There is a strong case for holding that it is not an absolute rule but there is also a strong case for retaining the rule on a prima facie basis, if only because people who have agreed to do something should, prima facie at least, be required to do it.
We would therefore state the law as follows. The rule in Joyner v Weeks is not an absolute rule. It is, however, the prima facie rule which will be applied unless the lessee can show by sufficiently cogent evidence that in both the short and the long term the lessor will definitely suffer no loss or will suffer a loss which can definitely be assessed at less than the prima facie measure.
[31] In short, the rule in Joyner v Weeks will be rendered inapplicable in one circumstance. That is in the windfall situation where a lessee establishes that the lessor will in fact suffer no loss or less than the prima facie measure.
[32] The Court of Appeal has subsequently, in Cornwall Park Trust Board Inc v Chen, refused to review its decision in Rogross Farms, following a direct request by counsel to do so.26
The five proposed questions relating to the rule in Joyner v Weeks
[33] Gama seeks leave to pursue an appeal on five questions of law relating to the effect of the rule in Joyner v Weeks on which the arbitrator is said to have erred.
Question 1: Did the arbitrator err in holding that the rule in Joyner v Weeks is in scope and in effect a sui generis regime which both prescribes and proscribes the losses claimable by a commercial landlord, including it being an absolute bar to consequential loss suffered by the landlord beyond rental and operating expenses during the repair time period?
[34] This question is a somewhat extended way of asking whether the arbitrator erred in finding (at [64] of the award) that the rule in Joyner v Weeks creates an absolute bar to a claim in respect of the reduction in the market sale value of a property. The arbitrator found there was such an absolute bar.27 But the arbitrator also found that Gama’s claim for consequential loss (had it been permitted by law) had not been proved as a matter of fact.28
26 Cornwall Park Trust Board Inc v Chen [2016] NZCA 65, [2016] 2 NZLR 637 at [100].
27 Award, above n 2, at [64]–[66].
28 At [335]–[365].
[35] This proposed question is accordingly moot. It cannot warrant the grant of leave to appeal.
Question 2: Did the arbitrator err in holding that the purpose of the rule in Joyner v Weeks is to avoid the decision-maker having to explore an attempt to determine the actual loss suffered by the landlord?
[36] This proposed question refers to one aspect of the arbitrator’s reasoning in relation to the unavailability of damages for consequential loss. The arbitrator found the case law clearly indicates the purpose of the rule in Joyner v Weeks is to avoid the court or arbitrator having to explore or attempt to determine the actual loss suffered by a landlord, with all the complications that such an inquiry may involve.29
[37] The relevant point in the judgment of the Court of Appeal in Rogross Farms is the passage in which Tipping J (for the Court) explained that a prima facie Joyner v Weeks rule “… gives clear general guidance and thereby tends to avoid disputes except in cases which are truly out of the ordinary”.30
[38] The arbitrator’s discussion of the purpose of the rule was in the context of the consequential loss claims only. It did not form part of the arbitrator’s reasoning in relation to the scope of the rule as it relates to Gama’s actual costs. Furthermore, even if the purpose of the rule was relevant, it was not part of Gama’s case here that its costs were “truly out of the ordinary”, to adopt the Rogross Farms’ test.
[39] The purpose of the rule is not an appropriate subject-matter for appeal in the circumstances of this case.
Question 3: Did the arbitrator err in holding that the normal rules applying to damages for breach of contract, including the ability of the landlord to recover actual cost, including additional cost reasonably incurred by it in mitigation of the damage caused by the tenant’s breaches of the lease, are not applicable in claims to which the rule in Joyner v Weeks applies?
[40] Gama submitted to the arbitrator that the normal rules applying in actions for damages for breach of contract (including the rule that cost incurred as a result of
29 At [65](b).
30 Rogross Farms, above n 11, at 420.
action reasonably taken in the course of attempting to mitigate damage suffered as a result of the other party’s breach of contract is recoverable) apply in this case, subject only to one extension. The extension identified by Gama was that aspect of the rule in Joyner v Weeks which means that a landlord is entitled to recover damages for breach of the tenant’s repair covenants even in respect of repairs which the landlord does not carry out.31
[41] The arbitrator answered the issue raised by that set of submissions at [47d.] of the award (as set out at [17] above).
[42] On this application, Mr Forbes referred to a case which he submitted illustrated the application of standard breach of contract principles concerning the costs of mitigation. This was the first instance judgment of the United Kingdom Queen’s Bench Division in Sunlife Europe Properties Ltd v Tiger Aspect Holdings Ltd (Sunlife Europe).32 In that case, Mr Forbes observed, the landlord’s replacement of obsolete air-conditioning units with a cheaper but better model (so that there was no extra cost to the tenant) was held to be appropriate mitigation of loss and limited the landlord’s ability to claim the higher cost of repairing the existing units.
[43] In Sunlife Europe Edwards-Stuart J dealt with the dilapidations claim of the lessor of commercial premises. The first conclusion of law on which his Lordship based his judgment was that “the tenant is entitled to perform his covenants in the manner that is least onerous to him”.33 He continued that a landlord’s claim for the cost of repairs is subject to the general rule that he cannot recover for a loss which, by acting reasonably, he could have avoided.34
[44] I do not read his Lordship’s observations in Sunlife Europe as suggesting that general contractual principles in relation to mitigation (such as recovery of costs for action reasonably taken in mitigation) have effect where the rule in Joyner v Weeks applies. Rather, the focus of the case was upon the extent of the lessee’s liability by
31 Award, above n 2, at [44].
32 Sunlife Europe Properties Ltd v Tiger Aspect Holdings Ltd [2013] EWHC 463 (TCC) [Sunlife Europe].
33 At [46](1)].
34 At [46(5)].
reason of what is called the rule of minimal performance. In a passage quoted by the arbitrator in the award (at [50b.], Edwards-Stuart J said:35
… Mr Wonnacott relies heavily on what he referred to as the rule of minimal performance, that is to say the rule that where a contract can be performed in more than one way, the performing party can choose the way that is least onerous to him. He is under no obligation to perform the contract in some other more time-consuming or expensive manner, simply because the other party would like it, if there is a more economic and compliant means of doing so. I did not understand Mr Hutchings to challenge the rule as a matter of principle, which I regard as correct …
[45] Flowing on from this approach, Edwards-Stuart J concluded, in relation to the air handling units:
[158] Accordingly, although the prima facie measure of damage is the cost of this work, Sunlife has mitigated its loss by adopting a less expensive solution. The cost of this alternative solution therefore represents the amount recoverable. It is irrelevant, as Mr Wonnacott appears to contend, that the solution actually adopted in order to mitigate the loss is not one that would have been open to Tiger.
However, Tiger is entitled to take the benefit of the mitigation. …
[46] The arbitrator, in citing Sunlife Europe clearly had in mind this last-cited passage from the judgment of Edwards-Stuart J — referring as the arbitrator did to “the reasonableness of the amount spent not the reasonableness of the landlord’s action in spending it”.36
[47] The Court of Appeal’s enunciation (in Rogross Farms) of the rule in Joyner v Weeks requires the rule to be applied, except in one specified instance which does not bring into play the usual mitigation considerations relating to the reasonableness of the claiming party’s actions taken in mitigation.37 To the extent that mitigating conduct was taken into account in Sunlife Europe, the authors of Dilapidations recognise the observations of Edwards-Stuart J in relation to mitigation as being explicable in terms of the “minimal performance” rule cited earlier in the judgment. The authors observe:38
35 At [28].
36 Award, above n 2, at [51].
37 Rogross Farms, above n 11, at [100].
38 Dilapidations, above n 18, at [29-10]. (Footnote omitted).
It may therefore be that all the judge meant was that where there are two possible ways of remedying the disrepair, damages are to be assessed by reference to the lesser cost.
[48] Sunlife Europe does not provide a basis for suggesting there should be a further exception (relating to costs of mitigation) to the rule in Joyner v Weeks. There is no New Zealand authority to support such an exception. The Court of Appeal authorities which bind this Court are against such an exception.
[49]There is no basis for leave in relation to this issue.
Question 4: Did the arbitrator err in holding the rule in Joyner v Weeks is also a minimum cost rule which requires the ascertainment of the hypothetical minimum reasonable repair cost, rather than in an enquiry as to the actual loss suffered by the landlord and so the landlord is therefore not entitled to recover the reasonable repair costs that were actually incurred by it?
[50] In considering the previous proposed question in relation to mitigation, I referred at [44] above to the discussion by Edwards-Stuart J in Sunlife Europe of “the rule of minimal performance, that is to say the rule that, where a contract can be performed in more than one way, the performing party can choose the way that is least onerous to him”.39 Mr Forbes refers to this as the “minimum cost” rule.
[51] The arbitrator, consistently with the view that there is a rule of minimal performance, held (at [47c.] of the award) that the tenant is not obliged to execute repairs in a manner advantageous to the landlord if the tenant, by executing the repair in a manner which is less advantageous to the landlord but still sufficient to meet the tenant’s obligations under the lease, is able to reduce the cost of repair.
[52] The arbitrator supported that conclusion by reference to the passage I have quoted from Sunlife Europe but also by reference to the discussion by the authors of Dilapidations which occurs under a heading “[w]here there are several different ways of performing the covenant”.40 The passages from the text, as set out by the arbitrator in the award, serve to identify and illustrate the principle applied by the arbitrator:41
39 Sunlife Europe, above n 32, at [28].
40 Dilapidations, above n 18, at [29-12] and [29-13].
41 Award, above n 2, at [50a.].
In practice there may be a number of different ways of performing a covenant to repair. For example, it may be equally appropriate to repair a defective roof either by carrying out patching repairs, or by completely replacing it. For the purposes of applying the common law measure, it is necessary to identify what works the tenant might be assumed to be liable to carry out.
The general principle of damages is that where the defendant has the option of performing the contract in alternative ways, damages must be assessed on the assumption that he will perform it in the way most beneficial to himself and not in that most beneficial to the claimant. The effect of this is that where there are a number of different ways of performing the covenant to repair, damages will, in the ordinary case, be assessed at common law by reference to the cost of the lesser, and cheaper, work. ....
…
On this approach, the court must ask itself, as a matter of fact, how in practice the tenant would have remedied the defect had he elected to do so. That will usually be at the least expense to him. Consistently with this, in Hammersmatch Properties (Welwyn) v Saint-Gobain Ceramics and Plastics, Ramsey J said:
Where a reasonable surveyor might advise either repair or replacement, damages are to be assessed by reference to the cost of repair unless replacement would be cheaper.
... It should be noted that the principle referred to above (i.e. that damages are to be assessed by reference to the lesser work) will only apply where the lesser work constitutes a performance of the covenant: if it does not, it is irrelevant for the purposes of assessing damages. Where it applies, the principle is not affected by the fact that the landlord has actually carried out more extensive works; he will not be entitled to the cost of those works if the tenant could have performed the covenant by doing less extensive, and cheaper, work.
[53] The authors of Dilapidations cite examples of cases where the damages have been assessed at common law by reference to the cost of the lesser, cheaper, work. In Carmel Southend Ltd v Strachan & Henshaw Ltd, the roof of an industrial unit could have been repaired at the expiry of the lease either by patch repairs or by over-cladding with new profile metal sheeting.42 The Court held the damages were to be assessed on the basis of the cost of the lesser work.
[54] In coming to discuss the onus of proof, the arbitrator also referred to the decision of the Appeals Division of the Supreme Court of Victoria in Telecom & CPS Community Credit Co-operative Ltd v Heberg Pty Ltd (Telecom & CPS).43 Fullager J
42 Carmel Southend Ltd v Strachan & Henshaw Ltd [2007] EWHC 1289. (TCC).
43 Telecom & CPS Community Credit Co-operative Ltd v Heberg Pty Ltd [1993] ANZ ConvR 312 (VSC) [Telecom & CPS].
referred to the common law authorities from the time of Joyner v Weeks and explained what the Court must do to apply that measure of damages. His Honour stated:44
To apply this measure of damages, the Court looks at the state of the premises at the end of the term. It then has to consider what it is that a landlord - a hypothetical and reasonable landlord wishing to put the premises into the state of repair in which the tenant was bound to leave them - would have to expend in money in order to put the premises into the latter state of repair. I shall call this sum of money the “essential expenditure”. I have called the person concerned a hypothetical landlord because it is immaterial whether the actual landlord wishes to repair the premises or not, and immaterial whether they ever will be repaired by anybody. Save in one respect, it is immaterial to know that the actual landlord has repaired the premises. In a case where the actual landlord has done the breach - necessitated repairs or some of them by the time of the trial, all the repairs he has actually done and the cost of them are material only because they may afford reliable (or unreliable) evidence of what the relevant repairs would have cost a reasonable landlord to do. I have called the person concerned a reasonable landlord, because when the Court is seeking to determine what is the essential expenditure, breach necessitated, it must bear in mind that the hypothetical landlord would be bound to mitigate his loss, in that he would be bound to do the repairs in a reasonable way for a reasonable price and within a reasonable time.
[55]Later in his judgment, Fullager J continued:45
At the risk of repetition, in order to recover damages for breach of the covenant to repair the landlord must prove what it would cost a hypothetical landlord to do in a reasonable way such repairs as are necessary to put the premises into the condition in which they would have been had there been no breach.
[56] For Gama, Mr Forbes submits there is a real question as to whether the enquiry should be as to the reasonable and actual repair costs incurred by the landlord rather than upon the ascertainment of a hypothetical minimum reasonable repair cost.
[57] Mr Forbes did not refer to authority, in relation to the rule in Joyner v Weeks, which would place the first focus of enquiry on the costs actually incurred by the landlord, rather than on an assessment of the cost to the hypothetical landlord identified by Fullager J in the Telecom & CPS case.46 The conclusion reached by the authors of Dilapidations bears repetition:47
44 At 2.
45 At 8.
46 At 2.
47 Dilapidations, above n 18, at [29-13], citing Sunlife Europe, above n 32; Carmel Southend Ltd v Strachan and Henshaw Ltd, above n 42; and Soward v Leggatt (1836) 7 Car & P 613, 173 ER 269 (HC).
… [w]here the principle applies, it is not affected by the fact that the landlord has actually carried out more extensive works; he will not be entitled to the cost of those works if the tenant could have performed the covenant by doing less extensive, and cheaper, work.
[58] Gama has not established the existence of an appropriate question in this regard.
Question 5: Did the arbitrator err in holding that the rule in Joyner v Weeks means that, 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?
[59] In these situations, it is the landlord who makes the claim (for damages). The arbitrator concluded there is no reason that the normal rule — whereby the claimant bears the onus of proof — should apply in these situations.
[60] Mr Forbes did not present written submissions in relation to the proposed question concerning the onus of proof. Nor did he develop written submissions on the topic.
[61] The arbitrator, in his award, referred not only to the normal rule concerning the onus but also to authority. He quoted the passage in the judgment of Fullager J in the Telecom & CPS case which expressly identifies the onus of proof upon the landlord.48 The arbitrator referred also to the judgment of Blackburne J in Mason v TotalFinaElf UK Ltd in which it was common ground that the burden of proof was upon the landlord.49 The arbitrator cited also Dilapidations in which the authors reached the same conclusion, observing:50
Prima facie, therefore, he must show not only that the tenant was in breach of covenant on the term date, but also the nature and reasonable cost of any necessary remedial work.
[62] In short, no authority can be referred to for the proposition that the onus of proof is different (from the usual) where a claim of the present kind is involved. That
48 Telecom & CPS, above n 43.
49 Mason v TotalFinaElf UK Ltd (2003) EWHC 1604 (Ch) at [46]–[48].
50 Dilapidations, above n 18, at [29-20].
is not to say that, where the landlord has actually done repairs, the cost of the repairs is irrelevant. As Fullager J explained in the Telecom & CPS case, the cost of repairs actually done may be material because they may afford reliable (or unreliable) evidence of what the relevant repairs would have cost a reasonable landlord to do.51
[63] As it is, there is no established basis on which to grant leave in relation to a question as to the onus of proof as determined by the arbitrator.
Questions relating to an entitlement to interest on unpaid money
[64]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.
[65] In the arbitration, Gama pursued interest on its costs incurred in remedying Fletcher Steel’s breaches of covenants to repair.
[66]Gama’s proposed sixth question relates to the arbitrator’s decision on this.
[67] Gama proposes a seventh question, closely related. Gama refers to Fletcher Steel’s obligation under cl 3.1 of the lease to pay “outgoings”. This particular argument had not been pursued by Gama at the arbitration hearing but was instead raised for the first time in supplementary submissions filed after the hearing. Fletcher Steel asserts that it had no opportunity to respond. Gama proposes as its seventh question whether the arbitrator erred in failing to make a decision in relation to the cl
3.1 argument. As Mr Potter submits, there is not a question of law involved in the proposed question. What occurred quite simply was that the arbitrator did not deal at all with an issue raised after the hearing. For that reason alone, leave will not be granted in relation to the proposed seventh question.
51 Telecom & CPS, above n 43, at [3].
The two proposed questions relating to cl 5.1 interest
Question 6: did the arbitrator err in holding that costs incurred by the landlord in remedying breaches of the tenant’s covenants to repair are not moneys payable under the lease for the purposes of cl 5 of the lease?
The arbitrator’s ruling
[68] The arbitrator recorded (at [315]–[318] of the award) that Gama relied upon (amongst others) cl 5.1 of the lease in its claim for interest at the default interest rate specified in the First Schedule to the lease.
[69] It appears, in both the opening and closing submissions for Gama, that brief submissions were made as to an entitlement to such interest by reason of the wording of cl 5.1.52
[70] Counsel for Fletcher Steel made detailed submissions, by reference to High Court authority, as to the default interest rate not being applicable to sums awarded as damages because such sums are not “moneys payable hereunder” (meaning under the lease). The arbitrator quoted verbatim (at [326b.] of the award) the submissions made for Fletcher Steel, which focused on a series of four decisions of this Court beginning in 1991.53 In Puhinui Farms Ltd v IH Wedding & Sons Ltd, the defendant (lessee) had been ordered to pay damages for breach of the lease between the parties, through failing to reinstate a quarry upon the expiry of the term of the lease.54 The plaintiff subsequently applied for interest at the default interest rate provided in cl 7.4 of the lease (or, alternatively, interest at the rate prescribed under the Judicature Act 1908. Potter J, while allowing interest at the prescribed rate under the Judicature Act rejected the primary submission that the lessor was entitled to interest at the default interest rate under the lease.55 In particular, her Honour recorded:
52 See Award, above n 2, at [326(c)].
53 Irvine v Shaw HC Auckland CP621/89, 8 July 1991; Puhinui Farms Ltd v IH Wedding & Sons Ltd HC Auckland CIV-2006-404-771, 5 June 2008 [Puhinui Farms – interest on damages judgment]; Culted Ltd v Wikeley HC Auckland CIV-2008-404-2488, 28 November 2008; and Jansen Ltd v Petra Holdings Ltd [2013] NZHC 1620. Reference may also be made to Robt. Jones Holdings Ltd v Northern Crest Investments Ltd (2010) 11 NZCPR 206 (HC) at [72], in which the decision in Culted Ltd v Wikeley was applied.
54 Puhinui Farms Ltd v IH Wedding & Sons Ltd HC Auckland CIV-2006-404-771, 15 February 2008 [Puhinui Farms].
55 Puhinui Farms Ltd – interest on damages judgment, above n 53, at [24].
[11] I do not consider that damages awarded to Puhinui for Weddings’ failure to reinstate are included within the meaning of “royalties or any other moneys payable under this lease” in terms of cl 7.4.
[12] The lease provided in clauses 5 to 8 for Weddings to pay royalties, rates, contributions in respect of an easement of right of way and other liquidated amounts, and also provided in cl 7.4 for the rate of interest to be paid on any such amounts that Weddings failed to pay on time. I do not consider the meaning or intent of cl 7.4 extends to include an amount of damages which is required to be assessed by the Court. Neither the plain words of the clause nor its context in the lease indicates that this was the intention of the parties.
Submissions for Gama
[71] In his written submissions, Mr Forbes submitted the identified cases dealing with interest are all distinguishable because “damages payable for breach(es) of a contract are just as much an obligation under the contract as the primary obligations which were breached”. Mr Forbes referred to the House of Lords’ decision in Photo Production Ltd v Securicor Transport Ltd (Photo Production).56 Mr Forbes cited particularly Lord Diplock’s discussion of what his Lordship referred to as “primary obligations” and “secondary obligations”.57 His Lordship stated in that context:58
Every failure to perform a primary obligation is a breach of contract. The secondary obligation on the part of the contract breaker to which it gives rise by implication of the common law is to pay monetary compensation to the other party for the loss sustained by him in consequence of the breach; …
[72] It is unnecessary to consider in any detail the reliance initially placed by Gama on Lord Diplock’s analysis. Mr Forbes did not place reliance upon it in his oral submissions after Mr Potter had responded that the Photo Production judgments have no relevance to the interpretation of clause 5.1 in the lease in question. The issue Lord Diplock was discussing was simply the existence of obligations under a contract for services.
[73] Mr Forbes, at the hearing, instead developed a submission that it was arguable that the sums awarded for Fletcher Steel’s breaches of its repair and maintenance
56 Photo Production Ltd v Securicor Transport Ltd [1980] 1 All ER 556, [Photo Production].
57 At 565–567.
58 At 566g.
obligations constituted claims for debt which are in turn “moneys payable under the Lease” in terms of cl 5.1 of the lease.
[74] Mr Forbes referred to a footnoted commentary in Hinde, McMorland & Sim Land Law in New Zealand.59 The authors there observe that the lessor’s remedy for a breach of the covenant to repair is usually a proceeding for damages against the lessee (unless the lease contains a power to cancel applicable to the covenant to repair).60 There is then a footnote to that commentary in which the authors record:61
Where the lessor is entitled to undertake the work upon the default of the lessee, a claim by the lessor to recover the amount expended is, however, a claim for a debt, and not for damages for breach of covenant: Jervis v Harris [1996] Ch 195; [1996] 1 All ER 303 (CA).
[75] An issue arose in Jervis v Harris as to whether a landlord’s right to enter a property so as to effect repairs himself and then to recover the costs from the tenant is a claim for damages for breach of a covenant by the tenant.62 Millett LJ (with whom the other members of the Court agreed) found that the landlord’s claim was not a claim for damages, explaining.63
The short answer to the question is that the tenant's liability to reimburse the landlord for his expenditure on repairs is not a liability in damages for breach of his repairing covenant all. The landlord’s claim sounds in debt not damages; and it is not a claim to compensation for breach of the tenant’s covenant to repair, but for reimbursement of sums actually spent by the landlord in carrying out repairs himself.
[76] His Lordship then noted the distinction in the law of contract between a claim for payment of a debt and a claim for damages for breach of contract. His Honour referred to authority as to a debt being a definite sum of money fixed by the agreement of the parties as payable by one to the other and observed that the plaintiff who claims payment of a debt need not prove anything beyond the occurrence of the event or condition on the occurrence of which the debt became due.64
59 McMorland, Hinde, McMorland & Sim Land Law in New Zealand, above n 18.
60 At [11.126].
61 At [11.126], see footnote 6.
62 Jervis v Harris [1996] Ch 195; [1996] 1 All ER 303 (CA).
63 At 307.
64 At 307-308.
Submissions for Fletcher Steel
[77] At the hearing, Mr Potter was prepared to respond immediately to the new argument based on Gama’s claim being for interest on a debt.
[78] Mr Potter observed Gama had not bought its claim in the arbitration as a debt claim. Gama’s claim was expressly for damages (“damages in the total amount of
$2,464,810.63”), and Gama particularised as “damages” the items of direct loss and damage which it had allegedly sustained.
Discussion
[79] The arbitrator was required to determine Gama’s claim for interest upon the basis of Gama’s claim as pleaded. It was a claim for interest upon what Gama asserted in its pleadings to be damages. A party is bound by its pleadings unless and until such pleadings are amended. Gama did not seek to amend the pleading.
[80] In these circumstances it is not arguable that the arbitrator erred in law by failing to treat Gama’s claim as a claim for interest on a debt.
[81] There is a further obstacle to Gama’s reliance upon Jervis v Harris.65 There, the Court of Appeal was dealing with a claim for reimbursement of sums actually spent by a landlord in carrying out repairs. Millett LJ’s finding that the claim in that case was for a debt arose from the fact that there was a definite sum of money fixed by the agreement between the parties (which became payable the moment the landlord incurred the costs). There was nothing more that the landlord was required to prove.66
[82]Such is not the situation in this case where the rule in Joyner v Weeks applies.
[83] Accordingly, even had Gama brought its claim alternatively in debt, the arbitrator would have been correct to reject that characterisation.
65 Jervis v Harris, above n 62.
66 See, at 308.
[84] There was no arguable error involved in the arbitrator’s treating Gama’s claim as one for damages rather than debt (when considering whether cl 5.1 of the lease applied).
[85] That leaves for consideration the broader argument identified by Mr Forbes in his initial written submissions for Gama. That is the argument that because payment of compensation for breach of repair covenants was specifically provided for in the lease then the moneys payable were “payable hereunder” in terms of cl 5.
[86] The arbitrator determined that matter in accordance with authority.67 The decision of this Court in Puhinui Farms is directly on point.68 The explanation of Potter J — that her Honour did “not consider the meaning or intent of cl 7.4 extends to include an amount of damages which is required to be assessed by the Court” — is likely to be generally applicable in New Zealand where (as in this case) the rule in Joyner v Weeks applies.69 As Mr Potter noted in his submissions, counsel for Gama were unable to point to any contrary authority in New Zealand.
[87] Gama has not met the threshold for leave to appeal on this point. Leave will be declined.
Question 7: did the arbitrator err in failing to make a decision as to whether cl 5.1 applied to amounts payable by Fletcher Steel for outgoings under cl 13.1 and the First and Second Schedules to the lease?
[88] This proposed question is dealt with at [67] above. For the reasons there stated, leave will not be granted in relation to it.
67 See footnote 48 above.
68 Puhinui Farms Ltd – interest on damages judgment, above n 53.
69 At [12].
Question relating to default interest payable on landlord’s repair costs
Question 8: Did the arbitrator err in holding that interest payable under cl 14.1 of the lease only where the repairs required under a repair notice given by the landlord had been effected by the landlord during the lease term and so this clause does not apply to damages claimed for repair works undertaken after the lease has terminated?
[89] Clause 14.1 of the lease provides for the landlord’s entry upon the premises to execute repair works which the tenant has failed to undertake. It provides:
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.
[90] The arbitrator found that Gama had issued a valid repair notice under cl 14.1.70 The arbitrator nevertheless found Gama did not have a right to default interest under cl 14.1, upholding Fletcher Steel’s “strongest argument”, namely that no work was done by Gama under the clause 14.1 procedure.71
The arbitrator’s decision
[91] Fletcher Steel, relevantly to the proposed question, made two submissions to the arbitrator. Those were that:
(a)not all of Gama’s claim falls within the repair notice; and
(b)no work was done by Gama under the cl 14.1 procedure.72
[92] The arbitrator found (without doubt) some of the items claimed by Gama were not within the repair notice — implicitly that was because the arbitrator accepted that,
70 Award, above n 2, at [87]–[97], [319]–[320].
71 At [322]–[323].
72 At [319].
on the evidence, most of the items claimed by Gama were not completed during the term of the lease.73
[93] The arbitrator found Gama had done no work under the cl 14.1 procedure. He explained that finding by setting out the closing submissions made on behalf of Fletcher Steel and then adopting them:
322.Fletcher Steel’s strongest argument in relation to clause 14.1 of the Lease is its fourth argument, viz that no work was done by Gama under the clause 14.1 procedure. Its argument in this respect is well put in paragraphs 15.3-15.6 of its Closing Submissions
15.3Clause 14.1 does not (unlike clause 5.1) deal primarily with default interest. Its main function is to provide for a specific procedure, whereby “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” certain works.
15.4Clause 14.1 is therefore a self-help mechanism, allowing the landlord to come in and do what the tenant has failed to do. This is a procedure that can only apply during the term of the lease. After the lease ends, of course, the landlord enjoys the full right to enter the property and do whatever it wants, so the permission provided by the clause would be redundant.
15.5If the landlord exercises its rights under clause 14.1, then default interest is payable on the monies expended by it “in executing such works”. But the amounts claimed by Gama in this case were not incurred by it pursuant to the clause 14.1 procedure. There is some debate about whether Fletcher Steel denied Gama access to the property, in breach of the lease, or whether the works were deferred by mutual arrangement or by necessity (with Gama reluctantly acquiescing). But what is not in dispute is that most of the items now claimed were not completed by Gama during the term of the lease.
15.6Clause 14.1 can therefore have no application to those works. Gama is not claiming costs that it incurred under the clause 14.1 procedure. Costs incurred under that procedure would be liquidated amounts arising for payment by the tenant during the lease term, and so appropriately clause 14.1 provides for default interest to be paid on. them. But clause 14.1 does not apply to a damages claim for disputed works undertaken by the landlord after the end of the lease.
323.That clause 14.1 has the meaning argued for by Fletcher Steel is clear when one considers the plain wording of the clause.
73 At [321]–[322].
Submissions for Gama
[94] For Gama, Mr Forbes first noted the arbitrator had determined that there is a “temporal limitation” to cl 14.1, namely that the right to recovery in terms of cl 14.1 applies only such work as is completed during the term of the lease.
[95] Mr Forbes submitted such a construction of cl 14.1 is incorrect. He submits the right to default interest under cl 14.1 arises whenever the lessor has had to incur expenses to repair the premises after the tenant had failed to comply with a notice to do so.
[96] Mr Forbes further submitted the lessor’s right under cl 14.1 to enter the premises to effect the repairs during the term of the lease (whether after the lessee’s failure to comply with the repair notice or in the case of emergency) does not qualify the right to default interest. Mr Forbes submitted the entitlement to enter the premises is an additional right of the landlord in order to enable the landlord to have the repairs done during the course of the lease. He submits it is unnecessary that the landlord exercise the right of re-entry for default interest to become payable under cl 14.1. Mr Forbes submits the cl 14.1 entitlement in relation to moneys expended “in executing such works” is not restricted to works executed as a result of the exercise of the right to enter and repair or otherwise during the term of the lease.
[97] In his oral submissions, Mr Forbes emphasised (regardless of the time at which Gama entered the premises), it was clearly the case that Gama had entered the premises and carried out works. If the “temporal limitation” does not apply, then Gama ought to have been found entitled to default interest by reason of cl 14.1.
Submissions for Fletcher Steel
[98] Mr Potter, for Fletcher Steel, observed that the arbitrator had heard detailed evidence as to the correspondence and negotiations which followed Gama’s repair notice. The evidence in that regard is touched upon in the arbitrator’s quotation at
[322] of the award where reference is made to the debate (implicitly in the evidence) as to whether Fletcher Steel denied Gama access to the property (in breach of the lease) or whether the works were deferred by mutual agreement or by necessity (Gama
reluctantly acquiescing). The arbitrator then went on to find (adopting Fletcher Steel’s submissions) that Gama was not claiming costs which it had incurred under the cl 14.1 procedure, it not being disputed that most of the items claimed were not completed by Gama during the term of the lease.
[99] Mr Potter submitted, as the arbitrator’s decision was a factual determination, there is no question of law which could be the subject of appeal.
[100] To the extent that the arbitrator’s construction of cl 14.1 involves the “temporal limitation” referred to by Mr Forbes, Mr Potter noted counsel for Gama have not cited any authority to support an interpretation contrary to that of the arbitrator, who (at
[323] of the award) relied for his construction upon “the plain wording of the clause”.
Discussion
[101] The predominant finding which led the arbitrator to not apply the default interest rate pursuant to cl 14.1 is a factual finding that Gama was not claiming costs it had incurred under the cl 14.1 procedure. It is clear from the submissions quoted by the arbitrator (at [322] of the award) that he accepted as a matter of fact that Gama (for whatever reason) had not exercised its entitlement to go on to the property to effect repairs (at least in relation to most of the items claimed). In other words, Gama’s repair of those items was effected in its capacity as owner of the premises (unaffected by any lease) rather than as a landlord entering while the term of the lease subsisted.
[102] That was a factual determination available to the arbitrator whether or not he accepted Gama’s “temporal limitation” submission.
[103] Even had the “temporal limitation” construction constituted an indispensable part of the arbitrator’s reasoning, I am not satisfied that the discretion to grant leave should be exercised in relation to the question of interpretation involved in this case. The present case, in relation to this interest point, is substantially fact-specific. There has been no indication that the construction of the specific clause is a matter which has previously caused issue or created the need for legal precedent. There are no strong indications of an error. The arbitrator, a very experienced arbitrator in the area, viewed the construction which he adopted as flowing from “the plain wording of the
clause”. Such accords with my own independent assessment and reading of cl 14.1. Notwithstanding Mr Forbes’ submissions as to the significance of the reference back in cl 14.1 by the use of the specific words “such works”, the plain meaning is that the default interest rate will be claimable by the landlord under cl 14.1 if there have been works carried out in terms of cl 14.1 (that is, leaving aside urgency matters) where there have been the four cumulative steps:
(a)default by the tenant in relation to repairs; and
(b)a repair notice given by the landlord; and
(c)entry upon the premises pursuant to the repair notice; and
(d)moneys expended executing repair works covered by the repair notice.
[104] If repairs are carried out by the landlord after the expiry of the term of the lease (that is, they are repairs carried out quite simply by the owner of the property and not by a landlord pursuant to a specific right under a lease to enter the premises in order to carry out repairs) the plain meaning of cl 14.1 is that the works (subsequently carried out) are not “such works” as are referred to in cl 14.1.
[105] Gama has not established this is an appropriate case in which to grant leave on the proposed question relating to cl 14.1 of the lease.
Questions relating to the correct test and onus of proof under cl 8.1(a)
Question 9: Did the arbitrator err in holding, in respect of the rear warehouse floor that the correct test under clause 8.1(a) is only the extent of fair wear and tear, as opposed to fair wear and tear arising from reasonable use?
Question 10: Did the arbitrator err in holding, in respect of the rear warehouse floor that the onus of proof was on Gama, as the landlord, to show the damage claimed did not amount to fair wear and tear.
The questions
[106] The two questions proposed by Gama in relation to fair wear and tear relate to claims made by Gama for the cost of works and fees in dealing with the floor cracks
in the rear warehouse on the premises. Clause 8.1 of the lease provided for the maintenance and care of the premises, imposing obligations on Fletcher Steel as tenant.
[107]Clause 8.1(a) of the lease relevantly provides:
8.1THE Tenant shall … be responsible to:
Maintain the premises
(a) 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 …
[108] At the arbitration, 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.74
[109] The arbitrator dismissed Gama’s claims in relation to the rear warehouse floor cracks.75
[110] Arising from this ruling, Gama proposes the two questions identified above in relation to cl 8.1(a).
The arbitrator’s findings
[111] The arbitrator found Gama’s claim for damages for breach of the cl 8.1(a) maintenance covenant must fail by reference to seven identified matters, summarised as:76
(a)the parties’ acceptance that the question of the extent of fair wear and tear was relevant on this issue;
74 At [68].
75 At [292]–[296].
76 At [294].
(b)the fact that neither the building surveyors nor the engineers were able to agree on the extent to which the damage was the result of fair wear and tear;
(c)the conflicting evidence of the building surveyors;
(d)the conflicting evidence of the engineers;
(e)answers given by Stephen Barrow, a structural engineer called by Gama;
(f)similar answers given by Andrew Hall and Samuel Polson, engineers called respectively by Gama and Fletcher Steel;
(g)the onus of proof upon Gama.
Submissions for Gama
[112] The relevant exceptional category of condition under cl 8.1(a) is expressly “fair wear and tear arising from reasonable use…”.
[113] Mr Forbes submitted the arbitrator had erred in treating the exception as being “fair wear and tear” rather than “fair wear and tear arising from reasonable use”. This submission appeared to flow from the arbitrator’s reference to “the extent of fair wear and tear”.77
[114] Mr Forbes further submitted the arbitrator erred in terms of onus. Mr Forbes submitted it was for the tenant to prove that the condition of the premises falls within the fair wear and tear exception. Mr Forbes cited the decision of the House of Lords in Regis Property Co Ltd v Dudley.78 In particular, Mr Forbes relies upon the judgment of Viscount Simonds in which his Lordship adopted an earlier statement made by Talbot J in relation to a reasonable wear and tear exception, observing: “If any want
77 At [294a.] and [294b.]
78 Regis Property Co Ltd v Dudley [1958] 3 All ER 491 (HL).
of repair is alleged and proved in fact, it lies on the tenant to show that it comes within the exception”.79
Submissions for Fletcher Steel
[115]For Fletcher Steel, Mr Potter noted, in relation to the rear warehouse floor, only
$41,000 as in issue. He submitted there was no true precedent value in either of the proposed questions of law. He further submitted Gama had not established a strongly arguable case as to an error of law.
[116] In relation to the extent of the fair wear and tear exception, Mr Potter observed the references by the arbitrator (at [294]) in his award fall to be read in the context of the arbitrator’s earlier discussion of “fair wear and tear” at [67]–[71] of the award. There, the arbitrator, having set out in full the provisions of cl 8.1(a) including the words “arising from reasonable use”, quoted extensively from the commentary in Hinde, McMorland & Sim Land Law in New Zealand, which in turn quoted the relevant passage concerning the meaning of “reasonable wear and tear” in Haskell v Marlow.80
[117] The arbitrator made findings (at [71] of the award) in relation to fair wear and tear, including as to the reasonableness of Fletcher Steel’s use of the premises.
[118] Mr Potter further noted, in the arbitrator’s subsequent review of the surveyor’s evidence, the building surveyors have expressly acknowledged that the tenant was not responsible for fair wear and tear arising from reasonable use.
[119] Turning to the onus of proof, Mr Potter submitted it was incorrect to suggest, as Gama asserts, that the arbitrator misstated the onus of proof.
[120] Mr Potter referred to the arbitrator’s reliance (at [294d.] on the expert evidence, particularly that of the engineers. The four engineers had agreed that there was damage beyond fair wear and tear and that cost of repairs needed to be shared. The
79 At 498, citing Haskell v Marlow [1928] 2 KB 45 at 58. See also Hinde, McMorland & Sim Land Law in New Zealand, above n 18, at [11.121], footnote 8.
80 McMorland, Hinde, McMorland & Sim Land Law in New Zealand, above n 18, at [11.121], citing
Haskell v Marlow, above n 79, at 59.
engineers, in their joint report, recorded they could not agree on the percentage of damage that would be considered fair or unfair.
[121]Mr Potter noted (as recorded by the arbitrator) that Fletcher Steel had paid
$86,000 (plus GST) of the $127,488 (plus GST) claimed for the repair works.81
[122] The arbitrator further recorded (at [294e.] passages from the evidence of Gama’s witness, Mr Barrow, in which the witness stated that it was difficult to judge how much repair cost related to matters beyond fair wear and tear.
[123] Mr Potter submitted that the arbitrator’s determination that Gama’s balance claim ($41,488) beyond the $86,000 already paid by Fletcher Steel must fail was inherently factual, as reflected in the detail of evidence reflected by the arbitrator at [294c.–e.] of the award. Mr Potter, acknowledging the arbitrator had gone on (at [292g.] of the award) to state that “the onus of proof is on Gama”, submitted that having regard to the expert evidence reviewed by the arbitrator, the arbitrator’s determination was justified whether or not his concluding observation as to the onus of proof involved an error.
Discussion
[124] In relation to the extent of the fair wear and tear exception, I accept Mr Potter’s submission that the arbitrator did not (as submitted by Mr Forbes) exclude the “reasonable use” qualification from the fair wear and tear exception. When the award is read as a whole, including the important discussion at [68]–[71], it is clear that the arbitrator applied the relevant aspects of cl 8.1(a) in accordance with the full test and not one which excluded the “reasonable use” qualification.
[125] In relation to the onus of proof, I find it uncertain whether (at [294g.] of the award) the arbitrator was referring (incorrectly) to the onus of proving that a want of repair falls within the fair wear and tear exception or was instead referring more generally to the onus upon Gama to establish the level of repair expenses it had incurred. I view it as arguable, on the face of the award, that the intended meaning of
81 Award, above n 2, at [292] and [295].
the onus of proof statement was in error. But in the context of this leave application, that is not decisive. For the reasons developed by Mr Potter, this is not a case in which it would be appropriate to grant leave to appeal on this point. There was a basis on the evidence for the finding made by the arbitrator. In terms of the considerations identified in Doug Hood,82 the question involved is appropriately viewed as a one-off point, of little precedent value. As counsel both recognise, the onus of proof is correctly identified in the judgment of Talbot J in Haskell v Marlow.83 If the award is correctly interpreted to misstate the onus of proof, it is not likely in any way to unsettle the established understanding of the law.
[126] Gama has not established this is an appropriate case in which to grant leave relating to the final two questions.
Outcome
[127] The application will be dismissed. Costs must follow the event. There is a certificate for the reasonable travelling and accommodation costs of counsel (with the certificate for second counsel). In the event that the parties cannot agree on the quantum costs and disbursements, the quantum will be determined by the Court on the progress, the respondent to file its memorandum first and the applicant to file within five working days thereafter (four page limit in each case).
Orders
[128]I dismiss the application.
[129] I order the applicant to pay to the respondent the costs and reasonable disbursements of the proceeding, with the quantum reserved.
Osborne J
Solicitors:
A J Forbes QC, Christchurch Corcoran French, Christchurch Meredith Connell, Auckland
82 Doug Hood, above n 5.
83 Haskell & Marlow, above n 79.
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