136 Fanshawe Ltd v Wilson Parking New Zealand Ltd [2016] NZHC 1854

136 Fanshawe Ltd v Wilson Parking New Zealand Ltd [2016] NZHC 1854 [10 August 2016]IN THE HIGH COURT OF NEW ZEALANDAUCKLAND REGISTRYCIV-2016-404-240[2016] NZHC 1854IN THE MATTER of the Arbitration Act 1996ANDIN THE MATTER of an application by 136 FANSHAWELIMITED for leave to appealBETWEEN 136 FANSHAWE LIMITEDPlaintiffAND WILSON PARKING NEW ZEALANDLIMITEDDefendantHearing: 1 June 2016Appearances: W McCartney for PlaintiffA Barker for DefendantJudgment: 10 August 2016JUDGMENT OF TOOGOOD JThis judgment was delivered by me on 10 August 2016 at 4:30 pmPursuant to Rule 11.5 High Court RulesRegistrar/Deputy RegistrarIntroduction[1] On 1 June 2011, Wilson Parking New Zealand Limited (Wilson) entered into a deed to lease from Viaduct Square Limited an area of land at 135-142 Fanshawe Street, Auckland, including a minimum of 60 car park bays. The lease was for a six- year term at an annual rent of $200,000 plus GST.[2] It was an essential term of the lease that Wilson should be able to make use of the minimum number of car parks provided for in the lease. At the time the lease was entered into, however, the parties were aware that resource consent approval from the Auckland Council may result in a limitation on the number of car parks which could lawfully be provided in the leased area. It was agreed that, in the event of a reduction of the number of car parks by local authority decision, the leased area and the rental were to be reduced according to a formula set out in the lease.[3] The formula provided for the rent to be determined by reference to the daily average number of cars actually parked at the leased premises in a period immediately following the restriction coming into effect, and the daily average number of cars actually parked at the leased premises in a period immediately preceding the coming into force of the restriction.[4] The lease provided for Wilson to give notice of its calculation of the new rent according to the formula, and for the lessor to serve a Dispute Notice challengingWilson's calculation, if it wished to do so. In the event that the parties could not then reach agreement, the new annual rent was to be determined, applying the formula, by a single, qualified, registered valuer agreed by the parties. The lease provided thatthe valuer "shall act as an expert and his [sic] decision shall be final and binding on the parties."[5] On 15 May 2014, the Council gave resource consent approval which reduced the number of car park bays from 60 to 40. The car parks were re-marked at the beginning of October 2014, and on 2 December 2014 Wilson gave notice of the proposed rent reduction relying on the variation provision. Having subsequently become registered proprietor and, therefore, lessor of the land, 136 FanshaweLimited (136 Fanshawe) served a Dispute Notice. Unable to agree on new terms, the parties appointed a Mr Campbell Stewart, a duly qualified valuer, to determine the new annual rent. Mr Stewart provided his determination, calculating the rental payable from the relevant date on the basis that there were 40 spaces available for legal use by the lessee. He observed, however, as 136 Fanshawe had observed, that other parts of the leased area were being used for parking in breach of the resource consent; Mr Stewart said that he did not consider it was appropriate to count the illegal parking for the purposes of the rental determination. He fixed the new rent by reference to the maximum number of spaces available for use in accordance with the resource consent.[6] 136 Fanshawe says that Mr Stewart erred in law by failing to apply the formula in the lease using information about actual usage during the relevant periods. Asserting that Mr Stewart acted as a sole arbitrator appointed under clause 10.6 of the lease, 136 Fanshawe now seeks leave to appeal his decision.[7] Wilson argues that Mr Stewart's decision was correct but, more fundamentally, says that Mr Stewart was not acting as an arbitrator but as an agreed expert witness whose decision, in terms of the lease, is final and binding on the parties.[8] Two issues arise:(a) Was Mr Stewart merely an expert whom the parties agreed would be engaged to give a final and binding decision or was he an arbitrator appointed and acting pursuant to a submission to arbitration within the meaning of the Arbitration Act 1996, whose decision was accordingly subject to appeal on any question of law arising out of it?(b) If Mr Stewart was an arbitrator, should leave to appeal be granted?Arbitrator or expert witness?The plaintiff's argument[9] Mr McCartney referred to judicial definitions of arbitration, relying particularly on elderly, if not ancient, judgments of Lord Esher MR in Re Dawdy and Hartcup and Re Carus – Wilson and Greene,1 the essence of which is that the court is likely to find that a person is an arbitrator rather than an expert if he or she was required to act judicially. That will be indicated if the person is required to hold an inquiry in the nature of a judicial inquiry, hearing the respective cases of the parties and deciding on evidence made before him.[10] Mr McCartney also referred to the more contemporary New Zealand judgments in Forestry Corporation of New Zealand Ltd (in rec) v Attorney-General2and Methanex Motonui Ltd v Spellman.3 Mr McCartney argued that, as those cases hold, whether the parties have agreed upon an expert determination or an arbitration is a matter of contractual intention and that the words used by the parties may be persuasive but not conclusive. He argued that, although the lease provided that Mr Stewart should act as an expert, he was required to receive evidence from the parties of actual usage and to make a determination which did not call for the application of expert knowledge as a valuer.Discussion[11] I agree that the answer to the question of whether Mr Stewart acted as an expert or as an arbitrator turns on the wording of the lease. The applicable principles of the contemporary approach in New Zealand to contractual interpretation are well understood. In that regard, I observe that the decisions of Harrison J in Forestry Corporation and Fisher J in Methanex Motonui Ltd were made in 2003. While worthy of respect, they were not founded on principles derived from contemporary appellate judgments on contractual interpretation, the most recent and authoritative1 Re Dawdy and Hartcup (1885) 15 QBD 426 at 430; Re Carus-Wilson and Greene (1886) 18 QBD 7 at 9.2 Forestry Corporation of New Zealand Ltd (in rec) v Attorney-General [2003] 3 NZLR 328 (HC) at [11].3 Methanex Motonui Ltd v Spellman [2004] 1 NZLR 95 (HC) at [50]-[51].of which is the decision of the New Zealand Supreme Court in Firm PI 1 Ltd v Zurich Australian Insurance Ltd.4[12] While emphasis is placed on the text, it is no longer the position that a"purposive approach, where the circumstances surrounding the making of the agreement are considered, is only required if the words of the contract are unclear orambiguous".5 A court's task is to ascertain the meaning which the document would convey to a reasonable person having all the background knowledge which would reasonably have been available to the parties in the situation in which they were at the time of the contract.6 The text remains centrally important and the natural and ordinary meaning of the language used will be a powerful indicator of what the parties meant.7[13] The relevant provisions of the Deed are these:Minimum Capacity of Car Park6.06 The lessor warrants that the leased premises has at the commencement of this lease the minimum capacity on a self-park basis specified in Item 2 of the Schedule.*[* a minimum of 60 car park bays .]Compliance with Legislation and Notices9.01 The Lessee shall comply with and observe at its own expense all present and future legislation, regulations, by-laws or orders of any competent authority affecting the use of the Leased Premises provided that nothing herein contained shall require the Lessee to effect any structural or material alterations, additions, renovations or repairs to the Leased Premises.Arbitration10.6(a) In the event of any dispute or difference in relation to this Lease, such dispute or difference shall be referred to the arbitration of a single arbitrator. Every reference shall be deemed to be a submission to arbitration within the meaning of the Arbitration Act 1996 and its amendments. Any issue whatsoever arising out of, connected with, touching or related to this Lease and all pre-4 Firm PI 1 Ltd v Zurich Australian Insurance Ltd [2014] NZSC 147, [2015] 1 NZLR 432.5 Forestry Corporation of New Zealand Ltd (in rec) v Attorney-General, above n 2, at [11].6 Firm PI 1 Ltd v Zurich Australian Insurance Ltd, above n 4, applying Investors Compensation Scheme Ltd v West Bromwich Building Society [1998] 1 WLR 896 (HL) and Chartbrook Ltd v Persimmon Homes Ltd [2009] 3 WLR 267 (HL).7 Firm PI 1 Ltd v Zurich Australian Insurance Ltd, above n 4, at [63].contractual issues (including any tortuous, equitable or Fair Trading Act issues) and any issues relating to the existence, validity or termination of this Lease shall be referred to and finally resolved by arbitration in accordance with the Arbitration Act 1996 and the express provisions of this clause which shall prevail in the event of any inconsistency with that Act, to the extent permitted by law. Any arbitration will be by sole arbitrator to be agreed upon between the Lessor and Lessee or failing agreement within fourteen (14) days to be appointed by the President of the New Zealand Law Society or his/her nominee on the application of either party.(c) The parties agree that any party may appeal to the High Court on any question of law arising out of an award where the total amount in dispute (exclusive of interest and costs) exceeds $100,000.00.Essential Term10.7 This lease is made subject to the Lessee having or during the term of this Lease being able at any time to obtain the approval of the relevant local territorial or government authority and any other authority having jurisdiction in the matter to the use of the leased Premises as a public commercial fee paying carpark with the minimum capacity set out in Item 2 of the First Schedule hereto and to include unreserved parking bays and reserved parking bays for use by building tenants or the public and otherwise to the establishment and operation of such carpark thereon on terms and conditions satisfactory to the Lessee. The Lessor shall ensure that such approval, if required, is available prior to the Commencement Date of this Lease.Variation10.8(a) If at any time during the term of this Lease, or any extension orrenewal thereof, the Lessee's trade or business carried on in or from the Leased premises is restricted by reason of any law or action of the relevant local, territorial or government authority or any other authority having jurisdiction in the matter the Lessee may elect thereafter to either determine this Lease upon fourteen (14) days written notice to the Lessor or to continue this Lease but to pay during the period of such restriction in lieu of the Annual Rent then payable by the Lessee a rent calculated in accordance with the following formula namely:Y x R = New Annual RentAWhere:Y is the daily average number of cars actually parked at the Leased Premises over the calendar month immediately following the coming into effect of such restriction OR such other period as agreed between the Lessor and the Lessee (being a period which is reasonably calculated to give a fair indication of the operation of thecar parking situation following such restriction) (herein called "the Agreed Period"); andA is the daily average number of cars actually parked at the Leased Premises over the calendar month immediately preceding the coming into force of such restriction OR such period as equal in time to the Agreed Period but immediately preceding such restriction.R is the Annual Rental payable immediately prior to the application of this formula.(b) (i) The above formula shall be applied by the Lessee givingnotice in writing to the Lessor (herein called the "Lessee's Notice") of the Lessee's application of the formula and ofthe Lessee's calculation of the New Annual Rent as alteredby application of the formula.(ii) The Lessor shall be deemed to have agreed to the Lessee'scalculation of the New Annual Rent as altered by such application of the formula on the date fourteen (14) daysafter receipt of the Lessee's Notice (time being of theessence) unless the Lessor serves a notice of dispute (hereincalled "the Dispute Notice") on the Lessee within fourteen (14) days of the lessor's receipt of the Lessee's Notice (timebeing of the essence).(iii) If the Lessor serves a Dispute Notice the Lessor shall thereupon confer immediately with the Lessee to agree upon such application of the formula and the New Annual Rent as altered by such application. If the parties fail to reach agreement at the conference then the New Annual Rent shall be the amount determined by the application of the formula for the Leased Premises as determined by a single qualified registered valuer, as agreed by the parties. The valuer shall act as an expert and his decision shall be final and binding on the parties.If the parties fail to agree on a registered valuer such appointment shall be made by one of the parties applying to the President of the New Zealand Property Institute.All costs incurred in the valuation and the determination of the New Annual Rental as aforesaid shall be borne in equal shares by the Lessor and the Lessee..[14] While the requirements for Mr Stewart to act on the basis of information provided to him and to apply a formula set out in the lease are arguably indicia of an arbitration, I consider it to be inarguable that the parties did not seek to resolve the issue of the new rental by recourse to the arbitration provisions of cl 10.6.[15] At all times, the parties acted in accordance with the specific variation provisions of cl 10.8 which were included in the lease specifically to meet thecircumstances which had arisen, namely the reduction in the number of available car parks by the terms of the resource consent. In the introductory paragraph to his determination, Mr Stewart indicated that he was providing his "rental determination in accordance with clause 10.8(a)(iii) of the lease dated 1 June 2011." He quoted therelevant provisions in cl 10.8 and observed that the rental determination did not provide for an assessment of the market rental for the carparks but a simple adjustment to the annual rental based on the proportionate reduction in parking spaces available for use by the lessee subsequent to the restriction.[16] I acknowledge but put aside for the moment Mr McCartney's point that Mr Stewart's description of what he was required to do is evidence that he erred in law in the approach which he took. It is clear that he was applying – as the parties had jointly requested him to do – the variation provisions of the lease. Nowhere in his determination does he indicate that he was acting as an arbitrator providing an award under the provisions of the Arbitration Act 1996, and there is nothing in the evidence to indicate otherwise.[17] Most compelling on this point, however, is the correspondence between the parties, and their correspondence with Mr Stewart, which refer to the application of the formula in cl 10.8(a). On 19 June 2016, in responding to the requests to confirmhis availability, Mr Stewart said he was available "to act as a third party expert" andhe confirmed in his letters setting out his terms of engagement that he was"determining valuer in accordance with clause 10.8(iii) of the lease agreement."[18] It is clear that the parties intended, in the knowledge that the Council'sresource consent might limit the number of parks available under the lease, to establish a dedicated procedure for resolving the new rental in the event that Wilson did not elect to cancel the lease because of the reduction. A relatively simple formula for calculation of the new rental was provided; it did not require the full trappings of a judicial process such as arbitration. Had the parties intended to act in such circumstances under the arbitration provisions of cl 10.6 they could easily have said so.[19] I am satisfied that it was not the intention of the parties to consider Mr Stewart's determination to be susceptible to appeal under cl 10.6(c) of the lease. Because the determination of the new rental was a relatively straightforward exercise, it was reasonable and predictable that the parties would, as they did, consider that the valuer would "act as an expert" and that his decision would be final and binding on the parties.[20] It would be wholly unrealistic to disregard the wording of the lease and hold that the parties intended Mr Stewart to act as an arbitrator under clause 10.6. It follows, therefore, that 136 Fanshawe's application for leave to appeal falls at the first hurdle; the proposed appeal is not one which can be brought under the provisions of the Arbitration Act 1996.The second issue – leave to appeal[21] Because of my conclusion that Mr Stewart was acting throughout as an expert valuer and not as an arbitrator, it is strictly unnecessary for me to consider whether the requirements for leave to appeal the decision of an arbitrator are met. Nevertheless, for completeness, I observe that it is unlikely that I would have granted leave to appeal had I come to the contrary view about Mr Stewart's status. I consider it to be clear that the references in the rent revision formula to the actual use of the leased premises must be subject to an implied term that the actual use is lawful and consistent with the restrictions imposed by the relevant local authority. The leased premises were those which were authorised for the intended use, as cls 6.06, 10.7 and 10.8 make clear.[22] I would have refused leave to appeal accordingly.Result and costs[23] I dismiss the application for leave to appeal.[24] Wilson is entitled to costs on a Category 2B basis and disbursements. Any application for costs shall be by way of memorandum filed and served by 31 August2016. The plaintiff shall have until 21 September 2016 to file and serve any memorandum in reply. Costs shall then be determined on the papers unless the Court directs otherwise..Toogood J