ATTORNEY-GENERAL V FEARY HC WN CIV-2006-485-610

ATTORNEY-GENERAL V FEARY HC WN CIV-2006-485-610 16 June 2006IN THE HIGH COURT OF NEW ZEALAND WELLINGTON REGISTRY CIV-2006-485-610UNDER the Arbitration Act 1996 IN THE MATTER OF a challenge to jurisdiction under Article 16 of the First Schedule BETWEEN THE ATTORNEY-GENERAL (COMMISSIONER OF CROWN LANDS) Plaintiff AND MARK STAFFORD FEARY AND KAREN ANNE FEARY Defendants Hearing: 16 May 2006 Appearances: M T Parker for Plaintiff W J Palmer for Defendants Judgment: 16 June 2006 In accordance with r 540(4) I direct the Registrar to endorse this judgment with a delivery time of 3.00pm on the 16 th day of June 2006.JUDGMENT OF CLIFFORD J The issue[1] The issue in these proceedings is whether an agreement to arbitrate a dispute as to the "correct interpretation" of a clause in a settlement agreement gives the arbitrator jurisdiction to consider claims that the clause, correctly interpreted, includes implied and oral terms.These proceedings[2] The plaintiff, the Commissioner of Crown Lands (represented in these proceedings by the Attorney-General) and the defendants, Mark and Karen Feary, have since 1984 been involved in a dispute relating to Mt Oxford, a North Canterbury high-country property, formerly farmed by the Fearys. [3] The agreement to arbitrate, which is at issue here, was part of an attempt to settle that dispute. [4] That attempted settlement is recorded in an agreement between the parties dated 30 August 2004 ("the 2004 Settlement Agreement"). The 2004 Settlement Agreement followed a previous attempted settlement of the same dispute, the terms of which had been recorded in a deed dated 17 April 2002 ("the 2002 Settlement Deed"). [5] Clause 2 of the 2004 Settlement Agreement provides for arbitration of the parties' dispute as to the correct interpretation of clause 4 of the 2002 Settlement Deed, and the compensation payable to the Fearys under that clause by the Commissioner. [6] That arbitration is now underway. Mr Hugh Rennie QC has been appointed Arbitrator. The Fearys filed a Statement of Claim, setting out their position on the correct interpretation of clause 4 of the 2002 Settlement Deed. As now relevant, that Statement of Claim contains three causes of action based on: (a) The express words of clause 4 of the 2002 Settlement Deed; (b) Certain claimed implied terms; and (c) Certain claimed oral terms.[7] The Commissioner's position is that the causes of action based on the claimed implied and oral terms are outside the scope of the agreement to arbitrate the "correct interpretation" of clause 4 of the 2002 Settlement Deed, and are therefore outside Mr Rennie's jurisdiction. The Commissioner applied to Mr Rennie for a ruling to that effect, relying on Article 16 of the First Schedule to the Arbitration Act 1996, and in particular Article 16(2). [8] In his ruling of 3 March 2006, the eighth to date in the arbitration, Mr Rennie - it is said in an affidavit filed in support of the Commissioner's proceedings - "accepted jurisdiction as regards to the claim of implied terms, but was unable to decide the jurisdictional question as regards to the claim of oral terms and decided to hear evidence and then make a ruling". This description of the outcome of that ruling appears to have been accepted by both counsel. [9] The Commissioner then commenced these proceedings by way of an originating application under r 458D(1)(a)(xxiii) of the High Court Rules, seeking a declaration that the Fearys' second and third causes of action are outside Mr Rennie's jurisdiction.Factual background[10] The factual background to this dispute relates first to the 2004 Settlement Agreement. It also includes the circumstances relating to the 2002 Settlement Deed and the parties' dispute about Mt Oxford more generally. Given the lengthy nature of that dispute, the factual background is both detailed and complex. In the following paragraphs, and on the basis of the information available to me – including a reserved judgment of Associate Judge Thomson in the High Court in Christchurch on a dispute as to the terms of an earlier deed of settlement between the parties - I endeavour to summarise that background as succinctly as possible for the purposes of these proceedings. [11] The Feary family farmed Mt Oxford for quite some time, since the 1920s according to the Fearys – but only from the 1960s as admitted by the Commissioner. Mt Oxford comprised an area of approximately 160 hectares of freehold land ownedby the Fearys, supplemented by an area of approximately 1,700 hectares of hill and high country run-off land occupied by the Fearys under a lease and a licence from the Crown. [12] From 1984 onwards disputes arose relating to the lease and the licensed run- off land. These disputes appear to have related to the management of that land, to efforts by the Fearys to freehold that land, to the Fearys' ongoing right to farm that land and – in more general terms – to the suitability of that land for farming as opposed to its retention for conservation purposes. [13] In 1998 the Commissioner forfeited the Fearys' lease and licence of the run- off land for non-payment of rent. [14] Since then, and up until the present, the dispute has continued. Six sets of legal proceedings, excluding these, have been issued: three by the Commissioner and three by the Fearys. [15] The parties have made various attempts to resolve their dispute. As early as 1994 the Commissioner paid the Fearys $133,936.80 pursuant to an initial and partial settlement. [16] The 2002 Settlement Deed was entered into following mediation in April of that year. It recorded the parties' agreement to settle "all issues between themselves". The principal elements of that agreement were that the Commissioner would: (a) Pay a further $598,000.00 to the Fearys (Clause 1); (b) Meet the further reasonable legal costs of the Fearys in implementing the terms of the settlement (Clause 2); and (c) Use his best endeavours to grant the fee simple of Mt Oxford to the Fearys on the basis set out in paras (a)-(e) of clause 4 and, importantly, subject to the Crown Pastoral Land Act 1998 and the Land Act 1948 (Clause 4).[17] Unfortunately, but perhaps by now not surprisingly, that was not to be an end to this matter. Further disputes arose as to the implementation of the 2002 Settlement Deed. The Fearys issued proceedings in late 2002 with respect to the extent of the Commissioner's costs obligations and to the confidentiality (or otherwise) of the 2002 Settlement Deed. There were also disagreements as to the implementation of clause 4. A further mediation in 19 April 2003 attempted to address these issues. [18] In December of 2003 the Commissioner advised the Fearys that no land would be transferred to them pursuant to clause 4. [19] Following a hearing before Associate Judge Thomson in the High Court in Christchurch on the costs issue, another mediation was held in August 2004. This meditation focused on the costs issue, the confidentiality dispute, and also included issues relating to clause 4 of the 2002 Settlement Deed. At the end of that mediation a further settlement agreement, the 2004 Settlement Agreement, was entered into. [20] The 2004 Settlement Agreement provided for the discontinuance of proceedings then on foot, for the payment of a further $134,000.00 by the Commissioner to the Fearys in respect of costs (making a total of $865,936.80 paid by the Commissioner to date), an agreement by the Fearys not to pursue the fee simple of Mt Oxford or any judicial review challenge to the validity of the Commissioner's processes under the Crown Pastoral Lands Act, and in clause 2, an agreement to arbitrate in relation to clause 4 of the 2002 Settlement Deed. [21] Clause 2 of the 2004 Settlement Agreement provides as follows:2. In relation to clause 4 of the Deed of Settlement dated 17 April 2002: (a) The issues in dispute are: (i) The correct interpretation of clause 4; and (ii) The compensation payable under clause 4. (b) The parties will submit to arbitration in respect of the issues in (a) above.(c) The award/s shall be final and binding with no right of appeal. (d) The parties will agree upon an arbitrator.[22] The Fearys and the Commissioner subsequently entered into an Agreement as to the Terms of Reference for Arbitration dated 6 May 2005. Clause 1 of that agreement repeated clause 2 of the 2004 Settlement Agreement, as set out above, with the balance of that agreement addressing the arrangements and procedures for the arbitration. [23] As set out above, these proceedings have been brought to determine a dispute as to the extent of the arbitrator's jurisdiction pursuant to that agreement to arbitrate "the correct interpretation of clause 4 of the 2002 Deed". [24] Mr P A Jackson, an Officer of Land Information New Zealand and responsible for managing the liability which arose from the 2002 Settlement Deed, provided an affidavit in support of the Commissioner's originating application to determine jurisdiction. In addition to annexing various documents and providing background information, Mr Jackson recorded his understanding of the implication of what he described as the "single issue" of the interpretation of clause 4, and how he might have taken a different view on the arbitration proposal if he had known the defendants wanted to argue for the existence of implied and oral terms. [25] The Fearys also filed an affidavit. Their affidavit set out the details of the dispute in far greater detail. They stated, in particular, that the 2002 Settlement Deed had been prepared in haste at the conclusion of the four day mediation and that they did not consider the express written words of clause 4 allowed for its correct interpretation. They noted, in particular, that at the time the 2004 Settlement Agreement was entered into they did not know what Mr Jackson was thinking, and if they had known the Commissioner was intending to argue that the interpretation dispute was limited to the express written words of clause 4, they also would probably not have agreed to an arbitration, at least an arbitration without appeal rights.The parties' submissions[26] Before me, counsel for the Commissioner, Mr Parker, and for the Fearys, Mr Palmer, were in agreement that: (a) The jurisdiction of an arbitral tribunal is both conferred and limited by the relevant agreement to arbitrate. (b) The issue in dispute is therefore the correct interpretation of clause 2 of the 2004 Settlement Agreement. (c) That dispute, being one of contractual interpretation, was to be approached on the basis of the principles in Investors Compensation Scheme Ltd v West Bromwich Building Society [1998] 1 WLR 896 (HL), as adopted in New Zealand by the Court of Appeal in Boat Park Ltd v Hutchinson [1999] 2 NZLR 74. [27] In terms of relevant legal principles, for the Fearys Mr Palmer also relied, on the interpretation point, on certain principles specific to arbitration agreements. These included, in particular, the principle that the courts assume that the parties to an arbitration agreement intend that all disputes relating to one transaction should be resolved by one tribunal. Mr Palmer also relied on elements of the 2004 Settlement Agreement which supported that conclusion. Mr Palmer sought further to argue by analogy to the rules applying to applications for the consolidation of proceedings and, in contrast, for claims and defences on counterclaims to be heard separately. Finally, he argued that this Court did not have jurisdiction with respect to the question as to whether the claim for the inclusion of oral terms came within Mr Rennie's jurisdiction, because Mr Rennie had not ruled on that matter. [28] In my view, this dispute is essentially one of contract interpretation, and the approach to be followed is that set out in Boat Park. I do not think it is necessary, nor particularly relevant, to rely on the other matters raised by Mr Palmer, although I will refer to them briefly.[29] Mr Parker's submission, applying the Boat Park approach, was that the words "the correct interpretation of clause 4" limited the arbitration to the meaning of clause 4 as it was written in the 2002 Settlement Deed. His point was that if it had been intended to include oral and/or implied terms in the ambit of the arbitration, clause 2 of the 2004 Settlement Agreement would have been expressed by reference to "the nature of the obligations imposed on the Commissioner under clause 4 and whether clause 4 records the whole agreement or includes any additional or oral terms". He pointed to the agreement that there would be no appeal from the arbitrator's determination to support his position. He also noted the different scope of an arbitration concerned not only with the interpretation of express words, but also with the possibility of implied and oral terms to support that view. Mr Parker accepted during argument that if such implied or oral terms did exist, they would have to be established and enforced by separate proceedings. He did acknowledge, however, that the Fearys could assert terms to be implied, or deduced by implication, from the express written words of the contract, in distinction to terms to be implied to give the agreement efficacy, citing Vickery v Waitaki International Ltd [1992] 2 NZLR 58, at 64 (CA), in support of the latter proposition. [30] Based on the Boat Park approach, Mr Palmer's submission was that in order to give the words in clause 2 of the 2004 Arbitration Agreement their natural meaning, one must import all the usual mechanisms of interpreting a clause in a contract, including considering the existence of implied and oral terms. [31] Clause 4 of the 2002 Deed recorded the agreement between the Commissioner and the Fearys as to how the dispute between them relating to Mt Oxford might be resolved. Clause 2 of the 2004 Settlement Agreement, and its reference to "the correct interpretation of clause 4" were essentially a shorthand reference to the primary issue between the parties, which was the Fearys' entitlement to certain lands and compensation in lieu or otherwise, as set out in clause 4. The surrounding factual circumstances were relevant to the agreement recorded in clause 4, particularly the circumstances surrounding the signing of the 2002 Settlement Deed. In entering into the 2004 Settlement Agreement, the parties were agreeing to the process that would resolve the most significant issue between them, which was the Fearys' rights to Mt Oxford, including compensation.[32] Mr Palmer therefore concluded that the plain words of the agreement, interpreted in the manner in line with Boat Park and similar authorities, supported the conclusion that clause 4 was not to be given a restrictive or technical reading, limited to the process whereby the express words written down on the paper were to be "interpreted", but rather that clause 4 was an agreement between the parties and the "interpretation" of that agreement could properly involve the Fearys' claims of implied and oral terms. [33] In support of the proposition, Mr Palmer also argued that if the result of Mr Parker's argument was that the Fearys retained the right to claim – albeit in separate proceedings - that such implied and/or oral terms were binding between the parties, then that was inconsistent with the general approach taken to arbitration agreements. That is, an arbitral tribunal should resolve all relevant disputes relating to the matter the subject of the arbitration.Application of the relevant principles[34] In my view, this dispute does involve a question of contractual interpretation, and the principles to be applied are those set out in Boat Park, and similar cases. Somewhat in summary, as those principles were not in dispute between the parties, I think they may be stated in the following way. a) The meaning to be ascertained was that which the document would have conveyed to a reasonable person having all the background knowledge which would reasonably have been available to the parties at the time of the contract. b) Subject to the requirement that it should reasonably have been available, the background included absolutely anything which would have affected the way in which the language of the document would have been understood by a reasonable person, except the previous negotiations of the parties and their declarations of subjective intent.c) The meaning of the document was not the same thing as the meaning of its words, but what the parties using those words against the relevant background would reasonably have understood them to mean. [35] Applying those principles, with reference to clause 2 of the 2004 Settlement Agreement, I think it is helpful to consider first what the reference to "clause 4" means. [36] Clause 4 records the agreement reached between the Fearys and the Commissioner as to how they were to resolve the key issue between them, namely the future of Mt Oxford, the possibility that the freehold of Mt Oxford might be transferred to the Fearys, and the further possibility of compensation for the Fearys, depending on whether, and if so the terms on which, that transfer would occur. [37] In my view, therefore, clause 2 of the 2004 Settlement Agreement calls for the arbitration of a dispute as to the "interpretation" of that agreement. [38] The plain meaning of the word "interpret" is to explain the meaning of something, and in a contractual sense it can be equated, in my view, to the word "construe". [39] Therefore, clause 2 of the 2004 Settlement Agreement provides for the arbitration of a dispute about the construction of the agreement the parties reached as recorded by clause 4 of the 2002 Settlement Deed. [40] Chitty, Chitty on Contracts (29 ed 2009) at para 12-041 describes the process of construction in the following terms:The word "construction" refers to the process by which a Court determines the meaning and legal effect of a contract. As such, it will embrace oral contracts as well as those in writing and implied terms as well as those that are expressed.[41] There is, I note, a narrower legal understanding to be given to the phrase "the interpretation of a contract", in effect the one contended for by Mr Parker in thisinstance, namely the construction or interpretation of the express written words used. In that, Mr Parker's argument can be seen as one that a reference to the "express written words of" clause 4 is to be implied into clause 2 of the 2004 Settlement Agreement. In the same extract of Chitty referred to, the author goes on to refer to just that meaning, immediately following the text cited. In my view, however, the context makes it clear that construction, when limited to the meaning to be given to the language used by the parties in the express terms of a written agreement, is a subset of the process whereby the Court determines the meaning and legal effect of a contract. [42] So far this is to take a very legal approach to the "plain meaning" of clause 2 of the 2004 Settlement Deed. [43] As noted in Boat Park, at 82, the object of interpretation is to ascertain the meaning which the document would convey to a reasonable person having all the background knowledge reasonably available to the parties in the situation they were in at the time the contract was executed. As the Boat Park decision goes on to note, the reference to all the background knowledge reasonably available to the parties is a reference to the relevant factual matrix, including anything which would have affected the way in which the language of the document would have been understood by such a reasonable person. This is, of course, subject to the inadmissibility of evidence of the background of previous negotiations of the parties and their declarations of subjective intent. [44] In this instance, the relevant factual matrix can in my view be summarised as follows: (a) There had been a long dispute between the parties which focused, in particular, on the Fearys' wish to farm and/or freehold Mt Oxford, including the leased and licensed run-off land, and a dispute as to the extent of any entitlement they might have had to do so.(b) In the 2002 Settlement Deed the parties recorded their agreement as to how that dispute was to be resolved. In clause 10 of the 2002 Settlement Deed, they also acknowledged: That this Deed has been prepared in haste at the conclusion of a full day's mediation. In the event that there are any issues arising out of the construction and of any of the terms of this Deed or that any issues have been overlooked/and or not properly recorded, the parties shall, acting in good faith towards each other, use their best endeavours to resolve those issues and in the event they are unable to agree they shall return to mediation in respect of that issue, again acting on good faith and using their best endeavours to resolve the issue/s that may arise.As I have noted, it was the intention of the 2002 Deed of Settlement that it would settle "all issues" between the parties. (c) The purpose of clause 4 of the 2002 Deed of Settlement was to record that agreement, noting the context provided by clause 10. [45] Therefore, when in the 2004 Settlement Agreement the parties agreed to arbitrate their dispute as to the interpretation of clause 4, in my view they were agreeing to arbitrate all aspects of that dispute, including whether there were oral and/or implied terms to that agreement. Clause 10 of the 2002 Deed of Settlement is an acknowledgement of the possibility of such terms, and reflects the reality of the situation. That is, at the end of a long day's mediation and notwithstanding the best efforts of the parties, given the length and complexity of the dispute about Mt Oxford they were simply not confident that clause 4 had, in the express written words used, recorded all the terms of their agreement. [46] By the same token, in the context of the 2004 Settlement Agreement itself, I think it would be taking an overly restrictive and technical approach to the interpretation of the phrase "the correct interpretation of clause 4" to limit the exercise of those aspects of contractual interpretation which, in a very legal sense, and as reflected in the second extract from Chitty referred to above, can in some contexts be understood by a reference to the process whereby the express written words of a contract or of a particular term of the contract are interpreted. Rather, and in light of the factual matrix as outlined above, I think the reference in this instance to arbitrating their dispute as to the correct interpretation of clause 4 is a reference toarbitrating the dispute as to the nature and extent of the agreement reached between them, and recorded in clause 4 of the 2002 Settlement Deed. In other words, what were the respective rights and obligations of parties: (i) as regards Mt Oxford; (ii) pursuant to the process whereby the Commissioner was to use his best endeavours to transfer the freehold of Mt Oxford to the Fearys; and finally (iii) what rights of compensation would the Fearys have, depending on whether, and to what extent in terms of productive land, that transfer occurred? [47] On that basis, I think that the determination of that dispute can properly extend to claims by the Fearys, as set out in their Statement of Claim, that their agreement with the Commissioner as recorded in clause 4 includes implied and oral terms. [48] In this context, many of the arbitration clauses referred to in the cases cited by Mr Palmer were ones which, as Mr Rennie acknowledged, referred to disputes generally arising out of agreements to arbitrate. Nevertheless I think there is force in Mr Palmer's submission that, where as here a clause in a settlement agreement records a broad agreement as to how a central element of a complex dispute is to be resolved, to suggest that the parties had agreed a process whereby disputes over express written terms would be arbitrated, but arguments over implied or oral terms would fall outside the arbitration, is one that is at odds with the general approach to the interpretation of arbitration agreements that Mr Palmer noted. [49] I turn now to Mr Palmer's submission that Mr Rennie did not reach a finding on the question of whether oral terms were subject to his arbitral jurisdiction, and therefore that that is not an issue which can be referred to this Court. [50] I have carefully considered the terms of Mr Rennie's Eighth Ruling. To the extent that it was said in counsel's submissions, and in the affidavit filed on behalf of the Commissioner, to have left the question open, I do not agree. In my view, this misconstrues the way Mr Rennie determined this matter. On this point, Mr Rennie ruled as follows:While the third cause of action appears on its face to be an argument that the agreement between the parties was partially written and partly oral, on theStatement of Claim filed this contention appears to be limited to an argument that there was oral agreement in respect of some of the implied terms. I am at this time unclear how a term would be said to be necessary and so implied, if it had to be supported by oral evidence about agreement that it be intended to be a term. However, whilst it appears to me to be unlikely that a claim of the type outlined in the third cause of action could be sustained at the hearing of the interpretation arbitration hearing, I am not willing to make a ruling which might prejudice one or both parties by imposing a more limited scope on my jurisdiction than in fact arises under the 30 August 2004 agreement. I hold that it is open to the Fearys to pursue the third cause of action as it is presently pleaded and within the constraints of that pleading and I reserve for determination at the close of the interpretation hearing whether the issues raised, as they are then established, are within my jurisdiction.[51] In my view, what Mr Rennie was pointing to here was that the difficulty the plaintiffs may have, as a matter of logic, in arguing at one and the same time that a particular term was to be implied, but if not implied then was the subject of oral agreement. [52] I do not think Mr Rennie was saying that as a matter of principle the Fearys could not claim that oral terms were part of their agreement with the Commissioner. Rather, Mr Rennie was anticipating difficulties in their being able to establish such oral terms, given the way the pleadings referred to those oral terms. [53] On this basis, I uphold Mr Rennie's ruling of Friday, 3 March 2006. In so doing, I can only record, as Associate Judge Thomson has already recorded, that the time must really have come for the dispute between the Fearys and the Commissioner to be resolved. Arbitration, on the terms agreed between the parties, would appear to be an effective way of reaching such a resolution. I only hope that arbitration will now proceed expeditiously. ______________________Clifford JSolicitors: Crown Law Office, Wellington for Plaintiff Buddle Findlay, Christchurch for Defendants