ALPINE SUN LTD v HORTIVENTURE LTD [2015] NZHC 278

ALPINE SUN LTD v HORTIVENTURE LTD [2015] NZHC 278 [25 February 2015]IN THE HIGH COURT OF NEW ZEALANDCHRISTCHURCH REGISTRYCIV 2014-409-866[2015] NZHC 278BETWEEN ALPINE SUN LIMITEDApplicantAND HORTIVENTURE LIMITEDRespondentHearing: 9 February 2015Counsel: G J C Carter for ApplicantJ S Morris for RespondentJudgment: 25 February 2015JUDGMENT OF BROWN J[1] On 25 July 2012 Alpine Sun Ltd and Hortiventure Ltd executed a Lease in respect of the property at 777 Halkett Road, R D 1, Christchurch comprising 29.6154 hectares of land (including irrigated land) and a residential house. A number ofpoints of dispute arose concerning Hortiventure's observance of the terms of the Lease which culminated in the filing by Hortiventure of a claim in the Disputes Tribunal on 17 October 2014 and the service by Alpine Sun of a Property Law Act 2007 (PLA) notice on Hortiventure on 20 October 2014.[2] On 4 December 2014, the same day that this proceeding was served by Alpine Sun, Hortiventure served a trespass notice on Mr Surja Yang who is a director of Alpine Sun. Subsequently Hortiventure filed its application in this litigation for an order to stay the proceeding and refer the dispute to arbitration.[3] The issues for determination are:(a) Did Hortiventure waive its right to rely on the dispute resolution clause in the Lease by filing the claim in the Disputes Tribunal?(b) Is there any bona fide dispute between the parties with regard to the matters of which complaint is made in the PLA notice?(c) Was the service of the trespass notice on Mr Yang a step by Hortiventure in the proceeding prior to its request to the Court to stay the proceeding?(d) If no order for a stay of the proceeding is made, should the Court:(i) grant an order to Alpine Sun under s 244(1) of the PLA for possession of the property? or(ii) grant to Hortiventure relief against forfeiture of the Lease under s 253 of the PLA?Relevant provisions of the Lease[4] The Lease provides for a three stage dispute resolution process, namely a meeting, a mediation and ultimately an arbitration. Clause 15 sets out that process as follows:15. DISPUTE RESOLUTION15.1 If any dispute or differences shall arise between the parties as to:(a) the meaning or application of any part of this Lease; or(b) any other matter in connection with, arising out of, or which may have an effect on, this Lease;then representatives of the Tenant and the Landlord shall meet within 14 days of the dispute or difference ("Issue") arising to endeavour toreach an agreement on the resolution of the issue.15.2 If the meeting referred to in 15.1 ("meeting") does not result in the resolution of the issue:(a) then the Tenant and the Landlord shall, within 14 days of the date of the meeting, appoint a mediator to mediate the issue;(b) if the parties are unable to agree upon the person to be appointed mediator, then the President of the New Zealand Law Society shall be asked to appoint the mediator;(c) the mediation shall be held within one month of the date of the meeting; and(d) The Tenant and the Landlord shall attend, and participate in, the mediation in good faith to negotiate towards achieving a settlement of the issue.15.3 If at the mediation the issue is not resolved, the issue shall be determined by arbitration.15.4 If the Landlord and the Tenant are unable to agree upon a single arbitrator within ten days of either party notifying the other in writing of their wish to have the issue arbitrated then either party("receiving party") require the issue to be determined by twoarbitrators (one to be appointed by the Landlord and one to be appointed by the Tenant) and their umpire (to be appointed by the arbitrators before proceeding to determine the issue). The notice to be given by the notifying party pursuant to this subclause shall:(a) nominate the arbitrator appointed by the notifying party; and(b) require the receiving party to nominate their arbitrator by a date not less than ten days after the date of service of the notice by the receiving party; and(c) warn the receiving party of the consequences under subclause 15.5 of failure to appoint an arbitrator by the date specified by the notifying party.15.5 If the receiving party fails to appoint their arbitrator by the date specified then the notifying party may by written notice to the receiving party have the issue determined solely by the notifyingparty's arbitrator.15.6 If any arbitrator appointed pursuant to this clause 15 refuses or fails to act (including appointing an umpire if necessary) within a reasonable time of their appointment then either the Landlord or the Tenant may (provided the defaulting arbitrator has first been given in writing a reasonable time in which to act) request the president of the New Zealand Law Society to appoint a replacement arbitrator or an umpire who shall act in lieu of the defaulting arbitrator or as the umpire as the case may be.[5] The following clauses are also relevant to the issues in dispute:6. TENANT'S FARMING OPERATIONS6.2 The Tenant will use the Land in accordance with commonly accepted good farm practice and in particular will:(b) take all reasonable steps in accordance with common accepted good farming practice to keep the Land clear from noxious weeds, rabbits and vermin;10. TENANT NOT TO PREJUDICE LANDLORD'S INSURANCEOR PREMIUM RATEThe Tenant shall not do anything on the Land whereby any insurance effected by the landlord may be rendered void or voidable or (exceptwith the Landlord's prior written approval) whereby the premiumsmay increase. The Tenant shall pay upon demand all extra premiums payable as a result of any breach to this clause.11. RESTRICTIONS ON USE OF LAND BY TENANTThe Tenant shall not:(c) do or permit to be done on the Land anything which in the opinion of the Landlord may become a nuisance, disturbance or obstruction or cause damage whether to the Landlord or to neighbouring owners or occupants, nor use the Land in any illegal noisy, noxious or offensive manner; orEvents leading to the litigation[6] On 17 April 2014 Alpine Sun's solicitors, Wynn Williams, wrote to Hortiventure giving formal notice under s 246 of the PLA of a list of breaches related to Hortiventure's alleged failures to maintain the residential house, to maintain the land, to occupy the residential house and to insure the house. Reference was also made to the fact of piles of branches representing a fire risk and to the issue of possession of a tractor. The letter advised that if the breaches were not remedied Alpine Sun might seek to cancel the Lease.[7] A meeting then took place on 2 May 2014 between Mr Yang and Mr Bernie Siew who was a representative of Hortiventure and the husband of Mei Fong Moh, the sole director of Hortiventure. That meeting was inconclusive. Alpine Sun's version of what transpired at that meeting is recited in Wynn Williams'letter of 5 June 2014 referred to below.[8] On 19 May 2014 Hortiventure's solicitiors, Parry Field Lawyers, replied tothe letter of 17 April 2014 addressed to Hortiventure. The letter addressed the alleged breaches of the Lease and disputed that Alpine Sun was entitled to cancel the Lease. The letter concluded in this way:Dispute resolution process3.5 Clause 15 of the Lease sets out the manner in which disputes regarding the Lease should be resolved. Our client will seek a stay of any application to have the Lease cancelled under section 244 of the PLA on the basis that the Lease procedure must first be followed. Costs will be sought against your client on an indemnity basis.3.6 Should there be any dispute regarding any matter in connection with the Lease, please advise and we will organise a meeting between Counsel, in accordance with clause 15 of the Lease, to attempt to resolve issues.[9] Wynn Williams replied on 5 June 2014. The letter traversed the several matters in dispute and responded in the following way on the issue of the dispute resolution process:3.5 At your client's behest, a representative of our client and arepresentative of your client met to discuss these matters on 2 May 2014. At that meeting, your client's representative suggestedthe following terms of settlement between the parties:a. That the house be surrendered by your client immediately, inan 'as-is' condition;b. That the land be surrendered by your client in July 2014; andc. That our client waives your client's obligations to re-grass the land.These terms were unacceptable to our client. On that basis, yourclient stated that there was "nothing more to discuss". Our clientdoes not wish to meet your client to discuss these matters any further.The letter advised that if the breaches recited in the letter were not fully remedied then Alpine Sun would seek termination of the Lease.[10] Parry Field Lawyers' response of 20 June 2014 addressed the issue of dispute resolution as follows:7. Dispute resolution: - clause 15 sets out a clear process for resolving disputes. That process has not been followed. Our client has a different interpretation of the discussions you refer to.We hereby give notice under clause 15.1 of the Lease of a dispute or difference arising between the parties in respect of the above matters, as well as the remaining issues detailed in your letter. We propose that the parties and their representatives meet at our offices in the week beginning 7 July at a time to be agreed between the parties.8. Should your client seek to cancel the Lease in contravention of clause 15, our client will seek a stay of any such application, together with costs on an indemnity basis.9. We attach a draft agenda for the meeting for your comment.The letter concluded in this way:15. We await your prompt response, bearing in mind that if matters are not resolved at a meeting between the parties the next step is to proceed to mediation in accordance with clause 15.2 and, failing resolution, arbitration.A draft agenda for a proposed meeting pursuant to cl 15.1 was enclosed with the letter.[11] Wynn Williams responded on 2 July 2014 stating that Alpine Sun disagreedwith all of Hortiventure's responses and advising that instructions had been receivedto issue a PLA notice for the remedy of the breaches of the Lease without further notice.[12] The next formal step was the filing by Hortiventure of a claim in the Disputes Tribunal in Christchurch on 17 October 2014. That claim alleged a number of breaches by Alpine Sun, the first of which under the heading "Dispute Resolution"stated:"- Clause 1.5 (sic) from Deed of Lease sets out a clear process or resolution for resolving disputes. That process has not been followed. Landlord has been threatening with a few letters on 17 April 2014, 5 June 2014, 2 July 2014 and 7 Oct 2014, to issue notice of intention to cancel the lease under section 248 of the property law act 2007. The issues raised in the letters, even if correct, are all minor in nature or untruth without facts. There are undisclosed reasons as to why the landlord wishes us to leave the property- We have proposed the parties and representatives to meet for to resolve the disputes or issues arising to endeavour to reach an agreement on the resolution of the issue. However, the landlord had rejected and disagreed with all our responses on letter dated 2 July 2014."[13] Three days later Alpine Sun served a notice of intention to cancel the Lease pursuant to s 246 of the PLA which specified the following particulars of breaches:A. You are in breach of clause 10 of the Lease because the policy of insurance effected by the Landlord has been rendered void as a result of your failure to occupy the house at the premises. You were notified of this possibility by letter on 17 April 2014.B. You are in breach of clause 6.2(b) of the Lease because you have failed to take all reasonable steps in accordance with commonly accepted good farming practice to keep the Land clear from noxious weeds. In particular:i. You have allowed the land around the water race, pump house, the pond and the fences to become badly overgrown with noxious weeds and other plants.ii. You have allowed the lawn and flower garden surrounding the house to be extensively dug up by your dog and to become overrun with noxious weeds.C. You are in breach of clause 11(c) of the Lease because you have left dead branches around the pump house (and elsewhere) which increasethe risk of fire and will cause damage to the Landlord's property in theevent of a fire.[14] Having received no response to the PLA notice, Alpine Sun filed the current originating application on 3 December 2014. Service was effected on the following day. Also on 4 December 2014 Mei Fong Moh signed a trespass notice directed to Mr Surja Yang. There was no formal evidence as to when that notice was served. However, without objection from Mr Carter, from the Bar Mr Morris handed up a New Zealand Post tracking report which recorded that the trespass notice wasdelivered to New Zealand Post at 2.57 p.m. on 4 December 2014 and that delivery was effected on 5 December 2014 at 9.42 a.m.[15] In a memorandum of counsel dated 15 December 2014 Hortiventure recorded its position that the dispute should have followed the dispute resolution process set out in cl 15 of the Lease and it sought a stay of proceedings in accordance with art 8(1) of Schedule 1 of the Arbitration Act 1996.[16] Alpine Sun did not dispute that cl 15 was an arbitration agreement within the sense of that term in art 8(1) or that the matters constituting the alleged breaches in the PLA notice came within the ambit of the cl 15.1(b). However Alpine Sun contended that the power to refer the matter to arbitration should not be exercised for three reasons:(a) Hortiventure had waived its right to rely on the dispute resolution clause by filing its claim in the Disputes Tribunal;(b) Hortiventure's arguments did not amount to a bona fide dispute;(c) Hortiventure's protest to jurisdiction was not its first response to theoriginating application.Did Hortiventure waive its right to rely on the dispute resolution clause in the Lease by filing the claim in the Disputes Tribunal?[17] In support of the proposition that the filing of the Disputes Tribunal claim was a clear and unequivocal waiver of cl 15 of the Lease, Mr Carter relied on the decisions of the Privy Council in Neylon v Dickens and of the Court of Appeal inConnor v Pukerau Store Ltd.1 Those authorities were cited for the proposition that a waiver of a condition of a contract would occur where:1 Neylon v Dickens [1978] 2 NZLR 35 (PC); Connor v Pukerau Store Ltd [1981] 1 NZLR 384 (CA).(a) there is a distinct act by a party to the contract;(b) that act intentionally treated the condition of the contract as not existing; and(c) the act is done with knowledge that it is a waiver.[18] Alpine Sun submitted that that threshold was met in the present case because:(a) the Disputes Tribunal claim was filed prior to the service of the PLA notice and well prior to the filing of the current proceeding;(b) clause 15 of the Lease does not contemplate a Disputes Tribunal claim and hence Hortiventure ignored the procedure prescribed under the Lease;(c) Hortiventure was clearly aware of cl 15 especially as its claim in the Tribunal referenced that very clause.[19] As the Privy Council observed in Neylon v Dickens the word "waiver" has been used by Judges in various senses, some of which overlap with "estoppel" or "variation" or "election".2[20] In the present case Alpine Sun's submission could be construed as acontention that there had been a variation of the Lease by the deletion of cl 15. If that were the contention then I do not consider that it would be sustainable. Just as an election to refrain from invoking the right in art 8(1) in response to a proceeding could not be viewed, in my opinion, as an election to, in effect, amend the Lease by abandoning any future reliance on the dispute resolution clause, similarly the instigation of a dispute process in a tribunal on one occasion could not amount to an agreement to vary the Lease for the future.2 Neylon v Dickens, above n 1, at p 37.[21] An argument likely to gain greater traction is that there was a "waiver" byHortiventure specific to those aspects of the current dispute which were the subject of the preceding correspondence and the claim to the Disputes Tribunal. In effect the argument would be that by reason of having filed the claim in the Disputes Tribunal, Hortiventure was estopped from invoking art 8(1) in response to the proceeding which Alpine Sun subsequently filed in the High Court.[22] The difficulty which I see for Alpine Sun in that latter contention is that in its application to the Disputes Tribunal Hortiventure made clear that it continued to assert, and was not resiling from, the contention that Alpine Sun had not followed the dispute resolution process in the Lease.3 While it is not apparent to me what relief Hortiventure anticipated might be obtained in the Disputes Tribunal concerning the alleged failure by Alpine Sun to observe the dispute resolution process, the fact remains that on its face the application made it clear that Hortiventure had not abandoned its complaint about Alpine Sun's non-compliance.[23] It follows that in the particular circumstances I do not consider that the filingof the claim in the Disputes Tribunal amounted to a "waiver" of cl 15 such that Hortiventure was precluded from relying upon art 8(1) in response to the filing of proceedings by Alpine Sun in the High Court.[24] In its written submissions Alpine Sun made the point that the claim in the Disputes Tribunal had never been withdrawn by Hortiventure. Subsequent to the hearing Mr Morris filed a memorandum dated 13 February 2015 which stated:2. The Respondent agreed to discontinue its Disputes Tribunal claim if the dispute before the High Court was referred to arbitration in accordance with the arbitration clause (15) in the lease. The rationale being that all disputes could then be dealt with together.3. Counsel confirms that Hortiventure Limited has now discontinued its claim in the Disputes Tribunal.3 At [12] above.Is there any bona fide dispute between the parties with regard to the matters about which complaint is made in the PLA notice?[25] Alpine Sun's argument is based on the italicised words4 in art 8(1):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 requestsnot 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.[26] In filing its proceeding Alpine Sun proceeded on the basis of its belief thatHortiventure's stance in respect of the alleged breaches of the Lease would not satisfy the summary judgment threshold of amounting to an arguable defence. However after the proceeding was commenced the judgment of the Supreme Court was delivered in Zurich Australian Insurance Ltd t/a Zurich New Zealand v Cognition Education Ltd.5[27] The Supreme Court there considered two competing approaches, namely:(a) whether the italicised words meant that a stay could be granted only where an applicant could show it had an arguable defence sufficient to withstand an application for summary judgment; or(b) whether it was sufficient simply that the applicant was acting bona fide in disputing the claim and its defence was not one that could immediately and obviously be dismissed as untenable.4 The provenance of the "added words" is explained in David Williams and Amokura Kawharu (eds) Williams & Kawharu on Arbitration (online ed, LexisNexis, Wellington, 2011) at [4.13.5].5 Zurich Australian Insurance Ltd t/a Zurich New Zealand v Cognition Education Ltd [2014] NZSC 188.[28] The Court concluded:[52] In the result, then, we accept the appellant's contention that thenarrow meaning should be given to the added words. Under art 8(1), a stay must be granted unless the court finds that the arbitration agreement is null and void, inoperative or incapable of being performed or it is immediately demonstrable either that the defendant is not acting bona fide in asserting that there is a dispute or that there is, in reality, no dispute. It follows from this that an application for summary judgment and an application for a stay to permit an arbitration to take place are not different sides of the same coin. In principle, the stay application should be determined first and only if that is rejected should the application for summary judgment be considered.[29] Alpine Sun maintains that, even applying the narrower test accepted by the Supreme Court in Zurich, Hortiventure has no defence to its claim. Hortiventure contests that.[30] In response to the breaches alleged in the PLA notice Hortiventure submits:(a) clause 10: Alpine Sun's insurance is not void. The policy has reverted from a replacement policy to a nominated replacement policy but the house is still insured. Furthermore the contention that the property has been unoccupied for more than 60 days6 is disputed;(b) clause 6.2(b): When the issue of noxious weeds was raised in the 17 April 2014 letter, Hortiventure immediately cut back the gorse to levels present at the start of the Lease. It sought permission to spray the gorse in order to eradicate it, that being commonly accepted good farming practice, a request which Alpine Sun declined. Then in June/July 2014 Hortiventure had all the gorse cut completely. It claims that there are no noxious weeds growing on the property;(c) clause 11(c): Alpine Sun cut branches and agreed to move them if Hortiventure moved them to the middle of a paddock. Hortiventure did so but Alpine Sun then failed to remove them. Any other branches on the property (including those around the pump house) are so minimal that they are not a fire risk.6 The relevant clause from Alpine Sun's insurance policy was not in evidence.[31] Having observed Mr Siew under cross-examination I consider that it cannot be said that Hortiventure is not acting bona fide in asserting that the various alleged breaches are disputed. Nor do I consider on the evidence as filed that there is in reality no dispute between the parties on the issues the subject of the PLA notice. Consequently I am required to stay the proceeding under art 8(1) unless Alpine Sun can demonstrate that Hortiventure took a disqualifying step in the proceeding before requesting the stay.Was the service of the trespass notice on Mr Yang a step by Hortiventure in the proceeding prior to its request to stay the proceeding?[32] When a defendant to a proceeding submits in that proceeding a statement on the substance of the dispute, the entitlement to seek a stay of the proceeding and a reference to arbitration is lost. The reason as explained in Russell on Arbitration is that, by taking such a step, the defendant is submitting to the Court's jurisdiction in respect of the claim and accordingly is treated as having elected to have the dispute dealt with by the Court rather than insisting on the contractual right to arbitrate.7[33] In New Zealand it has been held that the right to a stay will not be lost either by accepting service of documents8 or by joining in a consent memorandum in respect of a procedural matter9 because such steps do not amount to the submission of a statement on the substance of the dispute. In my view by the service of the trespass notice Hortiventure did not lose the entitlement to seek a stay of the proceeding because not only was the trespass notice not a statement on the substance of the dispute, it did not in fact constitute a step in the proceeding itself. Indeed, so far as the action of Ms Mei Fong Moh in signing the notice is concerned, that took place prior to the proceeding being served on Hortiventure.7 David Sutton, Judith Gill and Matthew Gearing Russell on Arbitration (23rd ed, Sweet & Maxwell, London, 2007) at [7-043].8 Allan Scott Wines and Estates Ltd v Eurowine Fine Wines (1990) Limited HC Wellington CIV 2007-485-1728, 30 January 2008 at [28].9 Marnell Corrao Associates Inc v Sensation Yachts Limited (2000) 15 PRNZ 608 (HC) at [66].Conclusion[34] Because I have rejected Alpine Sun's contentions on issues (a), (b) and (c)10 I am required by art 8(1) to stay this proceeding and refer the parties to arbitration. In those circumstances I do not consider that this is a case where, in the event that my conclusions on these aspects of the matter might be found to be wrong, I should proceed to consider issue (d). If I were to do so then that could inappropriately influence the conclusions of the arbitrator.[35] However two further issues need to be considered. First, Hortiventure submits that a reference to arbitration necessitates the pursuit of the entire three stage process provided for in cl 15.11 It argues that it is not open to the Court to bypass the meeting and mediation steps and proceed directly to an arbitration.[36] Alpine Sun argues that the matter should be referred directly to arbitration. It submits that a meeting has already taken place between the parties' representatives on 2 May 2014, pointing out that at that meeting Mr Siew had stated that there was"nothing more to discuss".12 Alpine Sun further noted that neither party had proceeded to institute the mediation process provided for in cl 15.2.[37] While I recognise that Hortiventure does not accept that the meeting on 2 May 2014 was a meeting for the purposes of cl 15.1 and that its lawyers' letter of20 June 2014 provided a draft agenda for a proposed meeting, it is apparent that Alpine Sun does not wish to participate in a further meeting: the letter of 5 June 2014 made that perfectly clear.[38] Given the apparently entrenched views of Mr Yang and Mr Siew which were demonstrably plain during the course of their cross-examination, I consider that it is preferable that the issues in dispute be determined as soon as possible and that that end is best achieved by proceeding directly to an arbitration.10 At [3] above.11 At [4] above.12 At [9] above.[39] The second issue concerns the constitution of the arbitral tribunal and the process for its appointment. Clause 15.4 provides that if the parties are unable to agree upon a single arbitrator, then each is to appoint an arbitrator and the arbitrators are to then appoint an umpire. Although cl 15.6 provides a process for the appointment by the President of the New Zealand Law Society of a replacement arbitrator if an appointed arbitrator refuses or fails to act, that procedure does not explicitly apply in the current scenario. Consequently I invited the parties to consider both the question whether an arbitral tribunal composed of three persons was desirable, having regard to the associated cost, and a process for the appointment of an arbitrator.[40] The parties have filed a memorandum which, having recited their positions as described above, states:4. If the Court does grant a stay and sends the matter directly to arbitration, then the parties agree that the process for the election of arbitrators under clause 15.4 could result in significant cost to both parties. Accordingly, they submit that if an order were to be granted it should be on the following terms:If the landlord and the tenant are unable to agree upon a single arbitrator within ten days of this judgment, then a single arbitrator shall be appointed by the President of the New Zealand Law Society.[41] In light of that intimation by the parties, the following orders are made:(a) the application for an order to stay the proceeding is granted and the dispute is referred directly to arbitration;(b) if the parties are unable to agree upon a single arbitrator within 10 working days of this judgment, then a single arbitrator shall be appointed by the President of the New Zealand Law Society;(c) Hortiventure is entitled to costs on its interlocutory application for a stay of proceedings on a 2B basis.___________________________Brown JSolicitors:Parry Field Lawyers, ChristchurchWynn Williams, Christchurch