Wai-iti Developments Limited v General Distributors Limited
[2019] NZHC 1656
•17 July 2019
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE
CIV-2018-404-1458
[2019] NZHC 1656
UNDER the Declaratory Judgments Act 1908 IN THE MATTER
of s 231 of the Property Law Act 2007 and s 28 of the Commerce Act 1986
BETWEEN
WAI-ITI DEVELOPMENTS LIMITED
First Plaintiff
FOODSTUFFS NORTH ISLAND LIMITED
Second PlaintiffAND
GENERAL DISTRIBUTORS LIMITED
First Defendant
WOOLWORTHS NEW ZEALAND LIMITED
Second Defendant
Hearing: 13 March 2019 Appearances:
I J Thain and A L Sweeney for the Plaintiffs
M Dunning QC and M Eastwick-Field for the Defendants
Judgment:
17 July 2019
JUDGMENT OF ASSOCIATE JUDGE SMITH
This judgment was delivered by me on 17 July 2019 at 11.00am, pursuant to r 11.5 of the High Court Rules
Registrar/Deputy Registrar
Solicitors / Counsel:
DLA Piper, Auckland
Russell McVeagh, Auckland M Dunning QC, Auckland
WAI-ITI DEVELOPMENTS LTD v GENERAL DISTRIBUTORS LTD [2019] NZHC 1656 [17 July 2019]
[1] In July 2018 the plaintiffs commenced this proceeding, in which they seek declarations that the first plaintiff (Wai-iti) is not bound by a certain lease covenant. The defendants (collectively, "GDL") filed an appearance under r 5.9 of the High Court Rules 2016 objecting to the jurisdiction of the Court to hear and determine the proceeding. They contend that the relevant lease contains a binding arbitration clause, and that the plaintiffs are bound by Article 8(1) of Schedule 1 to the Arbitration Act 1996 (the Act) to refer the subject matter of their claims to arbitration.1
[2] On 16 November 2018 GDL applied for an order staying the proceeding, until the differences between the parties had been resolved by arbitration in accordance with the arbitration provision in the lease. The stay application is opposed by Wai-iti.
[3]I now give judgment on GDL's stay application.
The parties
[4] The second plaintiff (Foodstuffs) carries on business as an operator and franchisor of supermarket and grocery store businesses, including those operated under the "Pak'nSave" and "New World" banners. Foodstuffs is the sole shareholder of Wai-iti.
[5]Wai-iti carries on business as a property owner and developer.
[6] The second defendant (Woolworths) was until 22 June 2018 named Progressive Enterprises Ltd. Woolworths carries on the businesses of owner and franchisor of supermarket and grocery store businesses, including under the banners "Countdown" and "FreshChoice". Woolworths is the sole shareholder of GDL. GDL
1 Article 8(1) of Schedule 1 to the Arbitration Act 1996 provides:
8 Arbitration agreement and substantive claim before court
(1)A court before which proceedings are brought in a matter which is the subject of an arbitration agreement shall, if a party so requests not later than when submitting that party’s first statement on the substance of the dispute, stay those proceedings and refer the parties to arbitration unless it finds that the agreement is null and void, inoperative, or incapable of being performed, or that there is not in fact any dispute between the parties with regard to the matters agreed to be referred.
carries on business as a developer, owner and operator of supermarkets and grocery stores (including under the Countdown banner).
The substantive dispute
[7] Wai-iti wishes to develop a new Pak'nSave supermarket on a piece of land immediately adjacent to a Countdown supermarket operated by GDL at the Highland Park Shopping Centre, in Pakuranga. For convenience, I will refer to the two pieces of land as "the proposed Pak'nSave site", and "the Countdown site".
[8] On 29 June 2018 Wai-iti acquired both the proposed Pak'nSave site and the Countdown site. GDL was and remains the lessee of the Countdown site, under a deed of lease going back to 1998 (the Lease).
[9] Wai-iti acquired the Countdown site subject to the Lease, but there was never any formal transfer or assignment of the lessor's interest in the Lease to it.
[10] The plaintiffs' plan is to develop a full service supermarket and carpark on the proposed Pak'nSave site, to be operated by Foodstuffs or a Foodstuffs franchisee.
[11] GDL says that there is a covenant in the Lease that precludes Wai-iti developing a supermarket on the proposed Pak'nSave site that would exceed in area 20 per cent of the gross lettable area of the specialty shops that are currently on the proposed Pak'nSave site. The plaintiffs accept that there is such a covenant in the Lease, and there is no dispute that the area of the proposed new Pak'nSave supermarket would exceed 20 per cent of the gross lettable area of the specialty shops. The plaintiffs' argument is that Wai-iti never agreed to the covenant, and is not bound by it.
[12] In July 2018 Wai-iti and Foodstuffs commenced this proceeding. In it, they seek a declaration that the covenant relied upon by GDL is not binding on Wai-iti or on any of its successors in title. In their first cause of action they rely on common law principles relating to when the burden of a lessor's covenant in a lease will pass to someone who purchases the land from the lessor. In their second cause of action they
seek relief under the Commerce Act 1986, including a declaration that the relevant covenant contravenes s 28 of that Act and is not enforceable on that account.
The background to the dispute
[13] The history of the events leading to the present dispute goes back to 1990. On 5 December 1990 the Countdown site was owned by a company called Gildex Systems Ltd (Gildex). The proposed Pak'nSave site was owned by Highland Village Ltd (Highland Village).
[14] Gildex and Highland Village entered into a "deed to grant easements" dated 5 December 1990 (the Deed).
[15]The Deed contained the following provisions:
HIGHLAND VILLAGE covenants with Gildex, its successors and assigns, the registered proprietor or proprietors of the [Countdown site] and its or their Authorised Persons to observe those restrictive stipulations outlined in Schedule V to the intent that such covenant will be forever appurtenant to the [Countdown site].2
Highland Village will not carry out or permit to be carried out on the [proposed Pak'nSave site] any business or activity which involves or predominantly involves the retail of foodstuffs or dry groceries in competition with the business of Gildex or its lessee from time to time having a Gross Lettable Area equal to or exceeding 20% of the Gross Lettable Area of the Specialty Shops situated on the [proposed Pak'nSave site] PROVIDED that this provision will not prevent Highland Village from leasing or permitting to be leased any part of the buildings on the [proposed Pak'nSave site] for use as a dairy or delicatessen.3
[16] In cl 2.1 of the Deed, Highland Village and Gildex agreed to take all necessary steps to facilitate registration of the easements and covenants contained in the Deed. And by cl 2.4 they agreed to enter into a memorandum of encumbrance, to be registered against the respective titles to the Countdown site and the proposed Pak'nSave site, to secure each party's obligations under the Deed, including the covenant (which I will refer to as "the Deed covenant") set out at paragraph [14] above.
2 Clause 5.2 of the Deed.
3 Clause 4 of Schedule V to the Deed.
[17] Highland Village and Gildex completed the memorandum of encumbrance (the Memorandum of Encumbrance) on 7 March 1991. The Memorandum of Encumbrance was registered against the title to the proposed Pak'nSave site on 30 May 1991, and it remains so registered.
[18]The Memorandum of Encumbrance contained the following cl 1:
[Highland Village] will for itself and the successor in title to the [proposed Pak'nSave site] keep and perform all the covenants contained and set out in the Deed ("the Secured Covenants") provided that the Secured Covenants shall be enforceable only against the owners and occupiers for the time being of the [proposed Pak'nSave site] (and not otherwise against Highland Village and its successors in title at such time as they cease to be the owners or occupiers of the [proposed Pak'nSave site]).
[19] The Deed Covenant was one of the "Secured Covenants" for the purposes of cl 1 of the Memorandum of Encumbrance.
[20] There have been a number of changes in the ownership of the Countdown site and the proposed Pak'nSave site. Through the various transfers, the owner of the proposed Pak'nSave site remained bound by the Deed Covenant not to carry out on the proposed Pak'nSave site the retail of foodstuffs or dry groceries in competition with the business of the owner of the Countdown site or its lessee, in any premises having a gross lettable area equal to or exceeding 20 per cent of the gross lettable area of the specialty shops.
[21] GDL acquired the Countdown site in 1993, and on 16 February 1998 it created the Lease, naming itself as both original lessor and original lessee. On the same day, GDL executed a transfer of the freehold in the Countdown site to a company called Iraklis Twenty Three Ltd. GDL has since remained in occupation of the Countdown site, operating the Countdown supermarket under the Lease. Since Wai-iti purchased the Countdown site on 29 June 2018, GDL has dealt with Wai-iti as its lessor.
[22]The Lease contains the following cl 2.6:
2.6.1The Lessor [now Wai-iti], as registered proprietor of [the Countdown site], shall:
…
2.6.1.2 ensure that the registered proprietor of [the proposed Pak'nSave site] complies with all of its obligations under [the Deed] …
The Lessor further agrees that it will not consent to any waiver of, amendment or addition to the Deed without the Lessee's [now GDL's] prior written approval.
The arbitration clause
[23]The Lease contains the following arbitration clause ("the arbitration clause"):
3.22 That if there shall be any difference dispute or disagreement as to the interpretation, application or extent of this lease or any clause thereof then the matter shall be determined by arbitration and any reference in this lease to arbitration shall mean a reference to two arbitrators or their umpire in the manner provided and with the powers conferred by the Arbitration Act 1908.
Wai-iti says that it is not bound by the arbitration clause
[24] Wai-iti contends that it has never agreed to arbitrate with GDL, and as with the burden of the lessor's obligations under cl 2.6 in the Lease, the arbitration clause did not run with the land. It says it is therefore not bound by the arbitration clause, and is entitled to have the proceeding continue in this Court. For those reasons, Wai-iti contends that Article 8(1) of Schedule 1 to the Act does not apply.
[25] GDL contends that the arbitration clause constituted a covenant "touching and concerning" the Countdown site, and, in accordance with common law principles concerning such covenants, it ran with the land, so as to bind Wai-iti. It says that is the position notwithstanding the absence of any formal transfer or assignment of the reversionary interest in the Lease from the previous registered proprietor to Wai-iti.
The law relating to covenants that run with the land
[26]There was little dispute between counsel over the relevant law.
[27] At common law, the burden of any covenant entered into by the vendor of a reversionary interest would only bind transferees of that interest if and to the extent the covenant could be said to "touch and concern" the land. The enactment of the Property Law Act 2007 (the PLA) did not alter that position, at least in respect of
leases entered into prior to 1 January 2008: the burden of a lessor's covenant is only transferred to the purchaser of the reversion if the covenant "refers to the subject matter of the lease" (in other words, touches and concerns the land).4
[28] In this case, the Lease was entered into in 1998, so the position on whether the arbitration clause ran with the land (so as to bind Wai-iti) falls to be decided under the common law.
[29] The most commonly cited decision on when a covenant will be considered to "touch and concern the land" is the decision of the House of Lords in P & A Swift Investments v Combined English Stores Group.5 According to that case, a covenant will touch and concern the land:
(i)if it benefits only the landlord for the time being, and if separated from the land ceases to be of benefit to the covenantee (or as applied to the lessor's covenant, "if it benefits only the lessee for the time being, and if separated from the term ceases to be of benefit to the covenantee"6);
(ii)if it affects the nature, quality, mode of user or value of the land; and
(iii)it is not expressed to be personal.
[30] There was a fourth limb of this test, but it was concerned with covenants to pay a sum of money, something with which the Court is not presently concerned.
[31] The test was considered by the Court of Appeal in this country in Mayhew v Robert Jones Investments.7 In Mayhew, the Court of Appeal confirmed that the principles stated by the House of Lords in P & A Swift Investments represent the law in New Zealand.
[32]Cheshire & Burn formulate the "touch and concern" test as follows:8
4 Property Law Act 2007, s 231.
5 P & A Swift Investments v Combined English Stores Group [1989] AC 632 (HL) at 642.
6 The formulation of this part of the test from the lessee's perspective was formulated by the Court of Appeal of Victoria in Specialist Diagnostic Services Ltd v Healthscope Ltd [2012] VSCA 175, (2012) 41 VR 1.
7 Mayhew v Robert Jones Investments (1993) 2 NZ ConvC 191, 719.
8 Cheshire & Burn Modern Law of Property (Oxford University press, 18th ed) at 304.
If the covenant affects the landlord in his normal capacity as landlord or the tenant in his normal capacity as tenant, it may be said to touch and concern the land.
[33] P & A Swift Investments was a case which concerned a lessee's covenant. In Specialist Diagnostic Services Pty Ltd v Healthscope Ltd, the covenant in issue was a lessor's covenant. Adapting the P & A Swift Investments test to apply to a lessor's covenant, the Court in Specialist Diagnostic Services said:9
A lessor's covenant touches and concerns the land if:
(1) the covenant benefits only the lessee for the time being, and if separated from the term ceases to be of benefit to the covenantee (lessee);
(2) the covenant affects the nature, quality, mode of user or value of the demised premises; and
(3) the covenant is not expressed to be personal.
Submissions for GDL
[34]Mr Dunning made the following submissions.
[35] There is really only one issue — is the arbitration clause binding on Wai-iti? If it is, questions over whether the subject matter of the substantive dispute fall within the ambit of the arbitration clause should be referred to the arbitrator, and the proceeding stayed.
[36] The following general principles are relevant to the application of Article 8(1) of the Act:
(i)Article 8(1) is mandatory — the Court must stay a proceeding in respect of a matter in which the parties have agreed to refer to arbitration (unless certain factors exist which are not present here).10
9 Specialist Diagnostic Services Pty Ltd v Healthscope Ltd, above n 6 at [178].
10 Zurich Australian Insurance t/a Zurich New Zealand v Cognition Education Ltd [2014] NZSC 188; [2015] 1 NZLR 383 at [52]; Sure Care Services Ltd v At Your Request Franchise Group Ltd [2010] 3 NZLR 102; Tamihere v Mediaworks Radio Ltd [2014] NZHC 2082 at [18].
(ii)An arbitral tribunal can rule on its own jurisdiction. If on a prima facie assessment the arbitration agreement is valid or applies, the case should be referred to arbitration.
(iii)There is a strong policy favouring the enforcement of contractual arbitration provisions.
[37] If the plaintiffs' position were correct, the arbitration clause would only operate for the brief period of time when GDL was both the original lessor and the original lessee (ie in the instant before the freehold was transferred to the first of the subsequent owners). That could not be correct. An agreement requiring GDL to arbitrate any disputes with itself would have made no sense. The original intention must have been that the arbitration clause would bind successors in title.
[38] The test in P & A Swift Investments is applicable in New Zealand, and the Court should have regard to Cheshire & Burns' formulation of the "touch and concern the land" test as set out in paragraph [31] of this judgment. Mr Dunning also referred to the High Court decision in Bates v Vasey and Milne in New Zealand,11 the decision of the English Court of Appeal in Kumar v Dunning,12 and the decision of the Court of Appeal of Victoria in Specialist Diagnostic Services Pty Ltd v Healthscope.13 In Bates, the Court considered that a covenant does not need to be for the performance of some act on the leased land in order to run with it. A covenant may touch and concern the land if it is "connected with and dependent on some act which the tenant might do giving value to the land and which it might have been induced to do by reason of the covenant".14
[39] In Kumar, the Court of Appeal held that a covenant by sureties of the lessee's obligations touched and concerned the land, because the covenant was beneficial to the owner for the time being of the covenantee's land and to no one else, and the existence of the covenant and the right to payment thereunder increased the value of the reversion.
11 Bates v Vasey and Milne (1915) 34 NZLR 714, 721.
12 Kumar v Dunning [1989] 1 QB 193.
13 Specialist Diagnostic Services Pty Ltd v Healthscope Ltd, above n 6.
14 Bates v Vasey and Milne, above n 11, at 721.
[40] In Gumland Property Holdings v Duffy Bros Fruit Market (Campbelltown) Pty Ltd & Ors, a lessor's right to pursue a lessee for loss of bargain damages following termination of a lease was held to be a right that touched and concerned the land.15
[41] Mr Dunning referred to two decisions of Courts in the United States which have considered the issue of whether a covenant in a lease to submit disputes to a particular dispute resolution mechanism can be said to "touch and concern the land". He submitted that the effect of these cases is that the "touching and concerning" rule should not be applied in an overtechnical manner, and that regard should be had to whether the average person taking a lease as assignee would assume that he or she was bound by the dispute resolution covenant.16
[42] Parties to a commercial contract would not ordinarily be expected to submit only some of their disputes to the jurisdiction they have selected,17 and that principle is also relevant to the question of whether parties to a lease would have intended to submit disputes to arbitration only as long as privity of estate remained between the original parties to the lease. Applying that "one stop adjudication" principle, it would make little sense for the parties to have agreed to a dispute resolution mechanism that would have effect while privity of estate remained between the original parties, but would have no application if one party sold its interest to a successor.
[43] The arbitration clause supports the performance of the lessor's and the lessee's covenants throughout the term of the Lease, and it is inextricably related to the performance of the other covenants in the Lease. It cannot be divorced from them. Obligations that relate to and support a covenant which itself touches and concerns the land should also be regarded as touching and concerning the land.
[44] The arbitration clause, functioning as it does to support the performance of the various covenants in the Lease, creates rights and obligations accruing for the duration
15 Gumland Property Holdings v Duffy Bros Fruit Market (Campbelltown) Pty Ltd & Ors [2008] HCA 10.
16 Abbott v Bob's U-Drive (1960) 22 Or. 147, 352 P.2d 598 and Kelly v Tri-Cities Broadcasting Inc
(1983) 147 Cal. App. 3d 666.
17 Referring to Tamihere v Mediaworks Radio Ltd, above n 10 at [23], and Fiona Trust & Holding Corp v Privalov [2007] UKHL 40, [2007] 4 All ER 951.
of the lessor/lessee relationship — the covenant affects the lessor in its normal capacity as lessor, and the lessee in its normal capacity as lessee.
[45] The arbitration clause also affects the value of the leasehold estate. It provides certainty as to the mechanism through which disputes can be determined, and arbitration offers a number of advantages (including confidentiality, the ability to select the decisionmaker, flexibility of process, the potential to reduce cost, and speed). Together, those factors make the right to refer disputes to arbitration a valuable right affecting the enforcement of the terms of the Lease.
[46] If the plaintiffs are correct in their submissions, any lessor wishing to circumvent a requirement to submit disputes to an agreed dispute resolution mechanism could simply transfer the freehold to a related entity.
[47] On the question of whether the arbitration clause (assuming it to be binding on the parties) extends to the matters in dispute, Mr Dunning's principal submission was that the Court need not be concerned with the issue. Deciding whether the disputes raised in the statement of claim come within the four corners of the arbitration clause is a task the Court should leave to the arbitrators. However, if the Court considers that it should deal with the issues raised over the scope of the arbitration clause Mr Dunning submitted that the Courts should strive to give effect to the intention of the parties to submit disputes to arbitration,18 and construe the arbitration clause on the basis that commercial parties are likely to have intended any dispute arising out of their relationship to be decided by the same tribunal.19 Both causes of action in the plaintiffs' statement of claim fall within the wording of the arbitration clause.
[48] The fact that parties to the proceeding may not all be parties to the arbitration clause will not preclude a stay in favour of arbitration.20
18 Marnell Carrao Associates Inc v Sensation Yachts Ltd (2000) 15 PRNZ 608 (HC) at [61].
19 Referring to Fiona Trust & Holding Corp v Privalov, above n 17, at [13], and Openyd Ltd v G J Lawrence Dental Ltd [2018] NZHC 1618 at [33].
20 Sure Care Services Ltd v At Your Request Franchise Group Ltd, above n 10, at [37].
Submissions for Wai-iti and Foodstuffs
[49] Mr Thain's first point was that the arbitration clause would not cease to be of benefit to GDL as lessee if it were separated from GDL's ownership of a term of years in the Lease. That follows from the principle of separability of arbitration clauses. A general application arbitration clause is in effect a separate agreement, ancillary or collateral to the principal contract.21 The arbitration clause will remain for the benefit of the parties after their ownership or tenancy of the Countdown site has ended (unlike typical covenants in leases which do touch and concern the land, such as a lessor's covenant to provide quiet enjoyment under a lease). Procedural and substantive rights under the arbitration clause arise over the period when a claim is brought and pursued, whether or not the claimant is still the lessor or lessee at any time during that period.
[50] Although an assignment of a lessee's interest will end privity of estate, privity of contract will remain, and an original lessor can claim against the original lessee for breaches committed before or after the assignment.22 Thus the benefit of an arbitration agreement to the original lessee does not cease when the original lessee no longer holds the leasehold interest.
[51] Mr Thain next submitted that the arbitration clause also fails to satisfy the second part of the P & A Swift Investments/Specialist Diagnostic Services test — the arbitration clause does not affect the "nature, quality, mode of user or value of the demised premises".
[52] In relation to value, Mr Thain submitted that the test is whether the arbitration clause per se, and not merely from collateral circumstances, affects the value of the leased land.23 The value test is not whether or not the clause in issue has some value to the covenantee — the relevant value must be a value to the leased property, and the question must be considered from the perspectives of both lessor and lessee.
21 Arbitration Act 1996, Schedule 1, Article 16(1), codifying the common law as expressed by the House of Lords in Heyman v Darwins Ltd [1942] AC 356 (HL) at 374, and Fiona Trust & Holdings Corp v Privalov, above n 17.
22 Wholesale Distributors Ltd v Gibbons Holdings Ltd [2008] 1 NZLR 277, [2007] NZSC 37, at [10].
23 Congleton Corporation v Pattison [1808] 103 ER 725 (KB).
[53] The American cases referred to by Mr Dunning24 did not apply the principles from P & A Swift Investments as approved for New Zealand in Mayhew v Robert Jones Investments. In Abbott, the Oregon Court applied a quite different test, namely whether the parties as laymen, and not lawyers, would naturally regard the covenant as intimately bound up with the land.25 And in Kelly, the Court of Appeal for the Fourth District in California simply followed the Oregon Court in Abbott. The United States decisions do not assist.
[54] Mr Thain's next argument was that, even if the Court concludes that the arbitration clause does touch and concern the land, the matters in dispute between the parties would not in any event come within the arbitration clause. The arbitration clause applies only to matters "as to the interpretation, application or extent" of the Lease or any clause thereof. The wording is relatively narrow. The issue raised by the first cause of action is not over the meaning of the words of cl 2.6 of the Lease, or how they should be applied or how far they should extend. It is simply whether, given the clear meaning of cl 2.6, the clause touches and concerns the land. That might be a matter arising "in connection with" the Lease, but it is not a matter as to the "interpretation, application or extent" of the Lease.
[55] Similarly, in Wai-iti's cause of action under the Commerce Act, there is no dispute as to the meaning, application or extent of the Lease or any clause in it. The dispute is simply whether the purpose or effect of cl 2.6 is prohibited by s 28 of the Commerce Act.
Discussion and conclusions
[56]The following issues fall to be decided:
(1)Should the Court address at all the question of whether Wai-iti is bound by the arbitration clause, or should that issue be left for the arbitrators to determine?
24 Abbott v Bob's U-Drive and Kelly v Tri-Cities Broadcasting Inc, above n 16.
25 At [10].
(2)If the Court does deal with Issue (1), should it conduct a "full review" of the evidence and submissions, or is it sufficient for the Court to conduct only a "prima facie review" (on the basis that if the arbitration clause is prima facie binding the issue would be referred to the arbitrators for final determination)?
(3)If the answer to Issue (1) is "yes", is the arbitration clause binding on Wai-iti (whether on a "full review" basis or on a "prima facie review" basis)?
(4)If the answer to Issue (3) is "yes", should the Court decide (on a "full review" basis or a "prima facie review" basis) if the disputes raised in the statement of claim are covered by the arbitration clause, or should that question be left to the arbitrators?
(5)If it is appropriate for the Court to address Issue (4), are the disputes covered by the arbitration clause?
(6)Having regard to the answers to Issues (1) – (5), should the Court exercise its discretion to stay the proceeding while one or more of the issues is/are referred to arbitration?
[57]I will deal with the first two issues together.
Issue (1) — Should the Court address at all the question of whether Wai-iti is bound by the arbitration clause, or should that issue be left for the arbitrators to determine?
Issue (2) — If the Court does deal with Issue (1), should it conduct a "full review" of the evidence and submissions, or is it sufficient for the Court to conduct only a "prima facie review" (on the basis that if the arbitration clause is prima facie binding the issue would be referred to the arbitrators for final determination)?
[58] Both the Court and the Arbitral Tribunal have the power to determine whether there is a valid arbitration agreement between the parties. Article 16, Schedule 1, to the Act relevantly provides:
16 Competence of arbitral tribunal to rule on its jurisdiction
(1) The arbitral tribunal may rule on its own jurisdiction, including any objections with respect to the existence or validity of the arbitration agreement. …
[59] The Court's jurisdiction arises under Article 8(1), Schedule 1 of the Act, which I reproduce for convenience:
8 Arbitration agreement and substantive claim before court
(1)A court before which proceedings are brought in a matter which is the subject of an arbitration agreement shall, if a party so requests not later than when submitting that party’s first statement on the substance of the dispute, stay those proceedings and refer the parties to arbitration unless it finds that the agreement is null and void, inoperative, or incapable of being performed, or that there is not in fact any dispute between the parties with regard to the matters agreed to be referred.
…
[60] The Supreme Court has held that the Court is required to grant a stay of a Court proceeding under the latter part of Article 8(1), unless it is immediately demonstrable either that the defendant has not been acting bona fide in asserting that there was a dispute, or that there was, in reality, no dispute.26 However, there is no suggestion in this case that there is no bona fide dispute between the parties. Nor is there any question of the arbitration clause being "incapable of being performed". The Article 8(1) issue is simply whether the arbitration clause, as between these two parties, is null and void or inoperative.
[61] The Court dealing with an application for stay under Article 8(1) would appear to have three choices:27
(i)immediately refer the matter to the arbitral tribunal;
(ii)undertake a prima facie assessment, and if there appears to be a valid arbitration agreement that applies, refer the matter to the tribunal; or
(iii)undertake a full analysis and decide the issue.
26 Zurich Australian Insurance Ltd v Cognition Education Ltd, above n 10 at [52].
27 Tamihere v Mediaworks Radio Ltd, above n 10, at [20].
[62] In this case neither party has suggested that the Court should not address at all the question of whether Wai-iti is bound by the arbitration clause. The issue between them is whether the Court should conduct a "full review" of the issue, and make a determination one way or the other on it (the position for which the plaintiffs contend), or whether the Court need only decide if a prima facie case that Wai-iti is bound has been made out (in which case the determination on the point would be made by the arbitrators). GDL submits that the latter approach is the correct one.
[63] In Tamihere v Mediaworks Radio Ltd, Simon France J was content to follow the approach of Associate Judge Abbott in Ursem v Chung, where the Associate Judge applied the "prima facie review" test. In Ursem v Chung, the Associate Judge said: 28
[32] There is a range of views in the various jurisdictions that have adopted the Model Law as to whether a court faced with an application for stay should adopt a "full review" approach and rule on the jurisdiction challenge in detail, or should refer the issue to the arbitral tribunal for determination (having regard to art 16 of sch 1 which gives the arbitral tribunal power to rule on its jurisdiction), or should refer the issue to the arbitral tribunal if it finds a prima facie case for the existence of a valid arbitration agreement (the "prima facie review" approach). Common law countries historically have adopted a "full review" approach, but in recent time there has been a shift towards the "prima facie review" approach.
…
[34] … case authority in other common law jurisdictions where the prima facie review approach has been applied to disputes about whether there is a binding agreement to arbitrate between the parties to the court proceeding, or a dispute as to the scope of that agreement (whether a dispute falls within it), still appears to leave open the court's power to determine the point in clear cases:
…
[35] I adopt the "prima facie review" approach, as better reflecting the policy that the courts will endeavour to give effect to the intention of parties to refer their disputes to arbitration but still recognising the Court’s ability to assume jurisdiction in clear cases.
[Footnotes omitted.]
[64] The approach in Ursem v Chung was also followed by Williams J in Donaldson v Donaldson, where the learned Judge said:29
28 Ursem v Chung [2014] NZHC 436, [2014] NZAR 1123, at [32]-[35].
29 Donaldson v Donaldson [2015] NZHC 3093; [2016] NZAR 199, at [18]-[20].
[18] Although common law jurisdictions have historically taken a "full review" approach to the question of whether there is an agreement to arbitrate, in more recent times the less intrusive European "prima facie review" approach has found greater favour in Commonwealth Courts. Reference is made in Ursem to the British Columbia Court of Appeal decision in Gulf Canada Resources Ltd v Arochem International Ltd. In that case the Court said:
[43] Considering s 8(1) in relation to the versions of s 16 and the jurisdiction conferred on the arbitral tribunal, in my opinion, it is not for the Court on an application for a stay of proceedings to reach any final determination as to the scope of the arbitration agreement or whether a particular party to the legal proceedings is a party to the arbitration agreement because those are matters within the jurisdiction of the arbitral tribunal. Only where it is clear that the dispute is outside the terms of the arbitration agreement or that a party is not a party to the arbitration agreement or that the application is out of time should the Court make any final determination in respect of such matters on an application for stay of proceedings.
[44] Where it is arguable that the dispute falls within the terms of the arbitration agreement or where it is arguable that a party to the legal proceedings is a party to the arbitration agreement then, in my view, the stay should be granted and those matters left to be determined by the arbitral tribunal.
[19] Judge Abbott adopted that prima facie approach in Ursem. I also consider that approach to be consistent with the purpose and intent of the Arbitration Act.
[20] Where it is arguable that the parties have agreed to refer a matter to arbitration, then it will be for the arbitral tribunal in the first instance to resolve that question if there is now a contest about it. It is only where it is clearly not arguable that the parties intended to refer the dispute to arbitration, that this Court should pre-empt such reference.
[Footnotes omitted.]
[65] Mr Thain submitted that the question posed by Issue (1) is purely one of law, and the Court should deal with it on a "full review" basis. He referred to the decision of the Supreme Court of Canada in Dell Computers Corp v Union des Consommateurs,30 where the majority of the Court acknowledged the following exception to the rule that any challenge to the arbitrator's jurisdiction must first be resolved by the arbitrator in accordance with the "competence — competence" principle: the court should depart from the rule of systemic referral to arbitration only if the challenge to the arbitrator's jurisdiction is based solely on a question of law. The exception was said to be justified by the court's expertise in resolving such questions,
30 Dell Computers Corp v Union des Consommateurs [2007] 2 SCR 801.
by the fact that the court is the forum to which the parties apply first when requesting referral, and by the rule that an arbitrator's decision regarding his/her jurisdiction can be reviewed by a court. If the challenge requires the production and review of factual evidence, the majority considered that the court should normally refer the case to arbitration, as arbitrators have, for this purpose, the same resources and expertise as the courts. And where questions of mixed law and fact are concerned, the court must refer the case to arbitration unless the questions of fact require only superficial consideration of the documentary evidence in the record.
[66] I am not satisfied that Dell Computers applies in this case. First, Tamihere, Ursem, and Donaldson all adopted the "prima facie review" approach. Secondly, it is by no means clear to me that the questions posed are solely questions of law. For example, if the question of whether the arbitration clause ran with the land were to be determined by applying the "value" aspect of the second limb of the P & A Swift Investments/Specialist Diagnostic Services test, there would seem to be a factual question as to whether the arbitration clause does or does not affect the value of the land and/or the leasehold estate.
[67] Thirdly, I am mindful of the fact that the arbitration clause provides that disputes or disagreements (including as to the arbitrator's competence) are to be resolved by two arbitrators or their umpire, not by one judge. The importance of party autonomy under the Act was recognised by the Supreme Court in Zurich Australian Insurance Ltd, where the Court said:31
[42] Second, the interpretation is consistent with the purposes of the 1996 Act, in that it recognises the importance of party autonomy and limits the scope for curial intervention in the arbitral process. Often parties will decide to adopt arbitration to resolve disputes because they want to have the ability to choose an arbitral tribunal with expertise in the particular area. Accordingly, while issues of, for example, contractual interpretation may raise questions of law, the parties' decision to arbitrate may well reflect their desire to have such questions resolved by a tribunal that they are able to select as being appropriate to the task.
[68] I conclude that the answer to Issue (1) is "yes", the Court should address the question of whether Wai-iti is bound by the arbitration clause. The answer to Issue (2)
31 Zurich Australian Insurance Ltd v Cognition Education Ltd, above n 26 at [42].
is that the "prima facie review" approach to the evidence and submissions is all that is required — unless it is clearly not arguable that the arbitration clause binds both GDL and Wai-iti, the question of whether it does or does not should be referred to the arbitrators for determination.
Issue (3) — If the answer to Issue (1) is "yes", is the arbitration clause binding on Wai-iti (whether on a "full review" basis or on a "prima facie review" basis)?
[69] The question is simply whether the arbitration clause in the Lease ran with the land, so as to bind Wai-iti, or whether it did not. While this decision will not affect leases entered into after 1 January 2008, when the new provisions of the PLA came into force, it is nevertheless important: there will be a substantial number of leases containing arbitration clauses entered into before that date, and in many cases the lessor and/or the lessee will not be the parties who signed the lease.
[70] Neither party was able to refer me to any New Zealand, Australian, or United Kingdom authority in which the P & A Swift Investments/Specialist Diagnostic Services test has been applied to an arbitration clause. And even the test in P & A Swift Investments was described by Lord Oliver as no more than a "satisfactory working test", in which his Lordship was not "claiming to expound an exhaustive guide".32 The New Zealand Court of Appeal in Mayhew v Robert Jones Investments Ltd 33 simply applied P & A Swift Investments (and decisions to similar effect in Kumar v Dunning 34 and Coronation Street Industrial Properties Ltd v Ingall Industries plc 35), without detailed discussion. I think the result is that the test in P & A Swift Investments/Specialist Diagnostic Services is to be treated as a generally satisfactory working test, but not as if it were a provision in a statute. The facts of a particular case might call for a degree of common sense flexibility.
[71] I accept Mr Dunning's submission that the arbitration clause is ancillary to, and supportive of, the other covenants in the Lease. And, I consider it clearly arguable for GDL that if a covenant sufficiently relates to and supports a covenant which itself touches and concerns the land, that supporting covenant should also be regarded as
32 P & A Swift Investments v Combined English Stores Group, above n 5, at 642.
33 Mayhew v Robert Jones Investments Ltd, above n 7, at 191, 723-3.
34 Kumar v Dunning [1987] 2 All ER 801 (CA).
35 Coronation Street Industrial Properties Ltd v Ingall Industries plc [1989] 1 All ER 979 (HL).
one that touches and concerns the land. The obligations under the supporting covenant in such a case will be interlinked with the obligations under the primary covenant.
[72] Certain provisions in the Lease in this case expressly provide for arbitration in the event of a dispute between the parties, and those provisions have to be read with the arbitration clause. For example, cl 3.10 deals with possession when part or all of the leased premises is being repaired or reinstated following an event causing damage or destruction. Under cl 3.10(b), the lessor may in certain circumstances require the lessee to vacate the necessary part of the premises to enable repairs or reinstatement to be effected, on the basis that all or part of the rent and expenses payable for the affected part of the premises is to be suspended for so long as the lessee is out of possession. Clause 3.10(b) continues:
Should there be any dispute as to that proportion of rent and expenses that should have been suspended or for how long then such dispute shall be referred to arbitration, with the arbitrators to be directed to take into account and consideration the extent to which the lessee is able to carry on business.
[73] That provision in cl 3.10(b) cannot be read separately from the arbitration clause, which defines the kind of arbitration required by the Lease (two arbitrators or their umpire). And the arbitration clause is effectively incorporated into cl 3.10(b) by the words: "any reference in this Lease to arbitration shall mean …".
[74] There is a similar reference to arbitration, again requiring reference to the arbitration clause, in paragraph 3.10(c) of the Lease.
[75] I think these examples support the view that it is unrealistic to look at the arbitration clause as a covenant separate and apart from other covenants in the Lease (many of which must be covenants running with the land).
[76] The view that the arbitration clause is inextricably linked with substantive clauses in the Lease is arguably also supported by what the arbitration clause is designed to achieve. The arbitration clause is concerned with the "interpretation, application or extent" of the Lease or any clause within it, and it provides the necessary machinery to clarify the parties' primary obligations under the Lease.36 Individual
36 As well as their secondary obligations arising from any breach.
covenants in the Lease create rights and obligations which, in case of doubt, are to be defined by the arbitral tribunal.
[77] Mr Dunning's submission that if a particular (substantive) covenant ran with the land it would be a strange result if the agreed means for defining the extent of the parties rights and obligations under that covenant did not also run with the land, also seems to be clearly arguable if the arbitration clause is interlinked with the parties' primary obligations under the Lease, and inextricably bound up with them.
[78] I think that view is supported by the approach taken by the learned authors of Modern Law of Real Property, where the following simple test is proposed: if a covenant affects the landlord in his normal capacity as landlord of the subject land or the tenant in his normal capacity as tenant, it should be regarded as touching and concerning the land.37 If a substantive covenant in a lease met that test, I think it must be arguable that any ancillary provisions in the lease that provided the machinery necessary to determine the meaning of the covenant in case of doubt, would equally affect the landlord and/or the tenant in their respective capacities as such.
[79] I note that the learned authors of Modern Law of Real Property also refer to a covenant by either party to pay a sum of money to the other as being "merely collateral", unless it is "inextricably bound up" with other covenants that touch and concern the land.38 And in Gumland Property Holdings Pty Ltd v Duffy Bros Fruit Market (Campbelltown) Pty Ltd, the High Court of Australia rejected a submission for the lessee that "a legal obligation designed to secure performance of some other obligation which touches and concerns the land does not necessarily take on from that relationship the same characteristics as regards transmissibility to or against successors in title".39 And in Bates v Vasey and Milne the Court considered that a covenant may touch and concern the land if it is "connected with and dependent on" some act which the tenant might do giving value to the land and which it might have
37 Cheshire & Burn Modern Law of Real Property above n 8 at 304. That simple test was adopted and applied by the Privy Council in Hua Chiao Commercial Bank Ltd v Chiaphua Industries Ltd [1987] 1 AC 99 at 107.
38 Cheshire & Burn Modern Law of Real Property, above n 8 at 306, referring to Moss' Empires Ltd v Olympia (Liverpool) Ltd [1939] AC544.
39 Gumland Property Holdings Pty Ltd v Duffy Bros Fruit Market (Campbelltown) Pty Ltd, above n 15, at [73]-[74].
been induced to do by reason of the relevant covenant.40 So the general concept of a covenant which might not in itself qualify as a covenant touching and concerning the land doing so when it is seen to be "inextricably bound up" with other covenants which do touch and concern the land is, I think, acknowledged in the authorities.
[80] Mr Dunning's submissions that a covenant in a lease must be either a personal covenant or one running with the land,41 and that the arbitration clause simply does not "fit" as a personal covenant (GDL obviously did not intend to arbitrate with itself), are also in my view arguable. A personal covenant is one intended to operate only between the contracting parties, and in this case GDL was effectively contracting with itself when the Lease was signed. (The context when the Lease was negotiated appears to have been one where there was to be an immediate sale of the freehold to Iraklis Twenty Three Ltd.) I note also that the Lease expressly provided (at cl 3.21) that the parties' successors were intended to be bound.
[81] If the arbitration clause is inextricably bound up with some covenants in the Lease that clearly do touch and concern the land (and the leasehold estate therein), as I have held to be arguable, then I think it must also be arguable that the arbitration clause touches and concerns the land (and the leasehold estate). That would arguably be so whether or not a dispute arising after the reversion had been transferred (or the Lease assigned) related to a provision in the Lease that itself ran with the land (and/or with the leasehold interest in it) — the alternative would appear to be that the arbitration clause would be applicable to some disputes that might arise under the Lease but not to others.
[82] I do not consider that Mr Thain's arguments relating to the status of the arbitration clause as a "separate contract" provide a clear knock-out blow to GDL's arguments. The answer might be that the "separate" nature of the arbitration clause would simply apply as between the current parties (between whom there would be privity of estate but no privity of contract).
40 Bates v Vasey and Milne, above n 11, at 721.
41 Cheshire & Burn, Modern Law of Property, above n 8, at 304. See also Vyvyan v Arthur [1823] 107 ER 152 at 155, per Best J.
[83] Mr Thain submitted that although an assignment of a lessee's interest will end privity of estate as between the original lessor and the original lessee, privity of contract will remain between those parties. An original lessor can still claim against the original lessee for breaches of the lease committed by the lessee before or after the assignment. Likewise, the lessee would remain entitled to require that any dispute under the lease be referred to arbitration (if that is what the lease provided). In such circumstances, Mr Thain submitted that the benefit of the arbitration covenant to the original lessee does not cease when the original lessee no longer holds the leasehold interest, and the arbitration clause fails to meet the first part of the test for a covenant running with the land, as set out in Specialist Diagnostic Services:
(1) The covenant benefits only the lessee for the time being, and if separated from the term ceases to be of benefit to the covenantee (lessee). (Emphasis added.)
[84] Again, the submission does not succeed in showing that GDL's arguments cannot succeed. The rights and obligations which would be the subject of arbitration in the circumstances referred to by Mr Thain would arguably be rights and obligations arising during the time the lessee was "the lessee for the time being", as that expression is used in the first limb of the Specialist Diagnostic Services test, and the arbitration clause might be regarded by the arbitrators as supportive of and "interlinked" with those rights and obligations, in the sense to which I have referred above. In that sense the arbitration clause might be held to affect the landlord in its normal capacity as landlord, and the tenant in its normal capacity as tenant. For the same reason, the arbitration clause might not be regarded as having been "separated from the term" of the Lease in the required sense, after the lessee had assigned its interest. (It was not suggested that this case is like some of the "collateral benefit" cases, where the covenantor's promise is not necessarily connected with the parties' relationship as landlord and tenant — it is clearly arguable here that the right and obligation to arbitrate arises only because of and with respect to that relationship.)
[85] Mr Thain also submitted that there may be good reasons why an arbitration clause should not be regarded as running with the land. He submitted that the relationship is essentially personal, and while party A might be prepared to arbitrate with (known) party B, it would not necessarily wish to arbitrate with (possibly
unknown) party C (party C being an assignee or transferee from party B). That might be so as far as it goes, but again I do not think the argument demonstrates that GDL's position is not reasonably arguable. Arbitration clauses are commonplace in commercial leases, and it may be that the evidence to be given before the arbitrators will show that many commercial parties see an arbitration clause as a valuable means of resolving, privately and promptly, issues over the interpretation or application of substantive provisions in the lease, regardless of who the other party to the relationship might be.
[86] I conclude, on a "prima facie review" basis, that it is arguable for GDL that the arbitration clause touches and concerns the land (i) solely because it is ancillary to, supportive of, and "interlinked with" other covenants in the Lease that themselves touch and concern the land, or (ii) because the arbitration clause affects the landlord in its normal capacity as landlord and the tenant in its normal capacity as tenant.
[87] If it is necessary for GDL to persuade the arbitrators that the first limb of the P & A Swift Investments/Specialist Diagnostic Services test is satisfied (a point that I do not need to decide), it is by no means clear that GDL, advancing the arguments described at paragraph [84] of this judgment, will be unable to do so.
[88] On the second part of the P & A Swift Investments/Specialist Diagnostic Services test, again I cannot say that GDL's case is beyond reasonable argument. The question would be whether "the covenant affects the nature, quality, mode of user, or value of the demised premises", and if the arbitration clause were seen as buttressing, and inextricably linked with, substantive covenants in the Lease that did affect one or more of those aspects, I consider it would be reasonably arguable for GDL that it had met limb two of the test.
[89] In my view it is arguable that the arbitration clause does affect the value of the land and/or the leasehold estate. I accept that there was no expert evidence as to the nature or extent of the effects of the arbitration clause on value, but it seems to me to be at least arguable that the features of arbitration referred to by Mr Dunning that are often described as benefits (confidentiality, the ability to select the decision-maker, flexibility of process, the potential to reduce cost, and speed) are capable of being
matters affecting the value of the demised premises. At least it has not been shown that it is clearly not arguable42 that those features of arbitration affect the value of the land and/or the leasehold estate.
[90] There is no issue over the third aspect of the P & A Swift Investments/Specialist Diagnostic Services test. The arbitration clause is clearly not expressed to be personal.
[91] Having regard to the foregoing considerations, the answer to Issue (3), considered on a "prima facie review" basis, is "yes" — the arbitration clause is arguably binding on Wai-iti.
Issue (4) — If the answer to Issue (3) is "yes", should the Court decide (on a "full review" basis or a "prima facie review" basis) if the disputes raised in the statement of claim are covered by the arbitration clause, or should that question be left to the arbitrators?
Issue (5) — If it is appropriate for the Court to address Issue (4), are the disputes covered by the arbitration clause?
[92]I will address these two issues together.
[93] For the reasons set out in my discussion of Issues (1) and (2), I conclude on Issue (4) that the Court should decide on a "prima facie review" basis if the disputes raised in the statement of claim are covered by the arbitration clause.
[94] Turning to Issue (5), Mr Dunning submitted that the Courts adopt a liberal approach when interpreting arbitration clauses. The Courts should uphold arbitration by striving to give effect to the intention of the parties to submit disputes to arbitration, and not allow uncertainties in the wording or operation of the arbitration clause to thwart that intention.43 He submitted that the construction of an arbitration clause should start from the assumption that the parties, as rational business people, are likely to have intended any dispute arising out of their relationship to be decided by the same tribunal. The clause should be construed accordingly, unless the language makes it
42 Adopting the expression used by Williams J in Donaldson v Donaldson, above n 29 at [20].
43 Marnell Carrao Associates Inc v Sensation Yachts Ltd (2000) 15 PRNZ 608 (HC) at [61].
clear that certain questions were intended to be excluded from the arbitrator's jurisdiction.
[95] Mr Dunning further submitted that, where some of the disputes in the proceeding are the subject of the arbitration clause, and some are not, it would be inconsistent with the intentions of the parties to hold that some of their disputes are to be resolved in Court and others through arbitration (particularly where arguments relating to some of the disputed issues may affect the outcomes of others).
[96] Mr Dunning then submitted that the fact that the parties to the proceeding may not all be parties to the arbitration agreement, will not necessarily preclude the making of a stay order. 44
[97] On the plaintiffs' first cause of action the issue is whether cl 2.6 of the Lease, insofar as it purports to require Wai-iti to procure compliance by the owner of the proposed Pak'nSave site with the Deed, is not a covenant that touches and concerns the land. Mr Dunning submitted that the cause of action can fairly be described as a difference, dispute or disagreement between Wai-iti and GDL as to any of the interpretation of cl 2.6, the application of cl 2.6, or the extent of cl 2.6.
[98] In their second cause of action, the plaintiffs contend that enforcement of the Deed Covenant, whether through cl 2.6 of the Lease or by way of the associated registered encumbrance, is prohibited by s 28 of the Commerce Act. The contention is that enforcement would have the purpose or effect, or be likely to have the effect, of substantially lessening competition in the market. Mr Dunning first submitted that there is no question that Commerce Act matters can be determined by arbitration in New Zealand.45 Mr Dunning submitted that this dispute also arises out of the Lease. While the underlying arrangements in the Deed and in the associated encumbrances are also relevant, the principal question as between Wai-iti and GDL is whether GDL's enforcement of cl 2.6 is prohibited by s 28 of the Commerce Act. That is a question as to the interpretation, application and/or extent of cl 2.6. Also, ascertaining the
44 Sure Care Services Ltd v At Your Request Franchise Group Ltd, above n 10, at [37] and [80].
45 Sure Care Services Ltd v At Your Request Franchise Group Ltd, above n 10, Attorney-General v Mobil Oil New Zealand Ltd [1989] 2 NZLR 649 (HC) at 665-668, and Clear Communications Ltd v Telecom Corporation of New Zealand Ltd HC Wellington CP46-94, 4 November 1994.
purpose and effect of cl 2.6 and the underlying documents is an exercise in interpretation of the Lease. That question is inextricably tied to the business of the lessee and the inter-related rights and obligations under the Lease.
[99] Mr Thain submitted that the arbitration clause is limited in its terms: the language is to be contrasted with the language of the corresponding clause in Attorney-General v Mobil Oil New Zealand Ltd — "any dispute under this agreement".
[100] Mr Thain submitted that the true debate on the first cause of action is not as to the meaning of the words of cl 2.6 or how the clause would apply or its extent. The issue is simply whether, given its clear meaning, the clause touches and concerns the land in terms of the P & A Swift Investments/Specialist Diagnostic Services test. While that is a matter arising in connection with the Lease, it is not a matter as to its interpretation, application or extent.
[101] Mr Thain also submitted that the second cause of action is not covered by the arbitration clause. The issue on the second cause of action is whether the purpose or effect of cl 2.6 is prohibited by s 28 of the Commerce Act. There is no dispute as to the meaning, application, or extent of cl 2.6.
[102] I accept that GDL's submissions on this issue are arguable. On a "prima facie review" approach, I think it is clearly arguable for GDL that the question of whether Wai-iti is bound by cl 2.6 is a difference, dispute or disagreement over the application or extent of cl 2.6. Does cl 2.6 apply to transferees of the reversion, or extend to a situation where the lessor was not the original contracting party? I accept Mr Dunning's submissions on the "liberal" approach the courts should take to the interpretation of arbitration provisions, and adopting that approach I do not believe that GDL's position on this point is beyond reasonable argument. The question of whether the arbitration clause covers the first cause of action should be left to the arbitrators to determine.
[103] Turning to the cause of action under the Commerce Act, again in my view it should be left to the arbitrators to determine if the arbitration clause applies. The substantial issue appears to be whether giving effect to a particular clause in the Lease
would be unlawful, and I think it must be at least arguable for GDL that that is a question relating to the application of cl 2.6 (does the clause apply in circumstances where discharge of a party's obligations under it would, in the particular circumstances, contravene the Commerce Act?). I agree with Mr Thain that the cause of action probably does not raise any issue over the interpretation of cl 2.6, but in my view the issue of legality arguably does raise the "application" issue.
[104] The answer to Issue (5) is that, on a "prima facie review" approach, the issues raised in both causes of action are arguably covered by the arbitration clause.
Issue (6) — Having regard to the answers to Issues (1) – (5), should the Court exercise its discretion to stay the proceeding while one or more of the issues is/are referred to arbitration?
[105] The answer to this Issue follows from the answers I have given to Issues (1) – (5). As Williams J noted in Donaldson v Donaldson, it will only be where it is clearly not arguable that the parties intended to refer the disputes to arbitration that the Court should pre-empt such reference.46 In this case, I consider it arguable that Wai-iti is a party to an agreement to refer the disputes raised in the statement of claim to arbitration, and in those circumstances it should be for the arbitral tribunal in the first instance to resolve the question if there is a contest about that. The Court should grant the stay sought.
[106] While Foodstuffs is not the lessor under the Lease, and is accordingly not directly bound by the arbitration clause, its claims in the proceeding appear to stand or fall with Wai-iti's claims, and its position is dependent on the rights and liabilities of Wai-iti under cl 2.6 of the Lease (and under the Deed Covenant) and the application or otherwise of s 28 of the Commerce Act. I have held that GDL is entitled to have the jurisdiction of the arbitral tribunal determined by the tribunal itself in the first instance, and if the arbitrators were to accept jurisdiction but Foodstuffs were left free to proceed with its claims (in respect of the Commerce Act issue) in this Court, there would be an obvious and unnecessary risk of conflicting findings of fact as between the Court and the arbitral tribunal. Foodstuffs' claims cannot practicably be advanced independently from Wai-iti's claims.
46 Donaldson v Donaldson, above n 29, at [20].
[107] I accept that there is jurisdiction to order a stay against Foodstuffs in those circumstances, pending the outcome of the arbitration between Wai-iti and GDL,47 and I am of the view that a stay order should be made.
Result
[108]I make the following orders:
(1)Under Article 8(1) of Schedule 1 of the Act, staying the claims of Wai-iti and referring its claims (including its contention that it is not bound by the arbitration clause) to arbitration in accordance with the arbitration clause.
(2)Staying the claims of Foodstuffs, pending further order of the Court (not to be made prior to the arbitral tribunal's determination of Wai-iti's claims in the proceeding, or any earlier determination by the arbitral tribunal that Wai-iti is not bound by the arbitration clause or that its claims do not raise a "difference dispute or disagreement" covered by the arbitration clause).
(3)GDL is entitled to costs. My impression is that there is no reason why costs would not be fixed on a 2B basis, but I did not hear submissions from counsel on costs. If counsel are unable to agree on costs, they may file memoranda. Any memorandum from GDL is to be filed and served within 15 working days. Any memorandum from the plaintiffs in response is to be filed and served within 10 working days of service of GDL's memorandum.
Associate Judge Smith
47 Sure Care Services Ltd v At Your Request Franchise Group Ltd, above n 10, where the Court stayed claims brought by one plaintiff even though they were not a party to the arbitration agreement in issue, as the claims of that party were dependent on the claims brought by the other plaintiffs who were obliged to go to arbitration.
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