PUKEROA PROPERTIES (NO 2) LTD v ROTORUA HUNTING & FISHING NEW ZEALAND LTD [2019] NZHC 1367

PUKEROA PROPERTIES (NO 2) LTD v ROTORUA HUNTING & FISHING NEW ZEALAND LTD [2019]NZHC 1367 [17 June 2019]IN THE HIGH COURT OF NEW ZEALANDROTORUA REGISTRYI TE KŌTI MATUA O AOTEAROATE ROTORUA-NUI-A-KAHUMATAMOMOE ROHECIV 2018-463-122[2019] NZHC 1367UNDER Article 34 of Schedule 1 to the ArbitrationAct 1996IN THE MATTER of setting aside the Partial Award dated 29July 2018 and Arbitral Reasons dated 13August 2018UNDER Clause 6 of Schedule 2 to the Arbitration Act1996IN THE MATTER Of an application to vary the Final Awarddated 26 September 2018BETWEEN PUKEROA PROPERTIES (NO 2)LIMITEDApplicantAND ROTORUA HUNTING & FISHING NEWZEALAND LIMITEDRespondentHearing: 27 February 2019Counsel: D M Fraundorfer and M N Battersby for ApplicantV A Whitfield & M Majeed for RespondentJudgment: 17 June 2019JUDGMENT OF DUFFY JThis judgment was delivered by me on 17 June 2019 at 3.00 pm pursuant toRule 11.5 of the High Court Rules.Registrar/ Deputy Registrar[1] Pukeroa Properties (No 2) Limited (Pukeroa) seeks leave to appeal onquestions of law arising out of an arbitral award. It also brings originating applicationsto set aside the arbitral award and vary the arbitral costs award.Facts[2] Rotorua Hunting & Fishing Ltd (Hunting & Fishing) operates a businessselling products associated with hunting, fishing, camping, tramping and outdooractivities from premises located in a shopping complex in Rotorua known as "TradeCentral". Hunting & Fishing leases these premises from Pukeroa, which is thedeveloper/owner of Trade Central.[3] Hunting & Fishing learned that Pukeroa intended to lease store space in TradeCentral to Torpedo7, a store which Hunting & Fishing says is one of its maincompetitors. Hunting & Fishing viewed this as a breach of a term of its lease withPukeroa and so Hunting & Fishing sought interim relief restricting the letting toTorpedo7, and in accordance with the lease, referred the dispute to arbitration.The arbitral award[4] The first question the parties asked the arbitrator to answer was:Is Pukeroa Properties (No. 2) Limited entitled to lease space in the TradeCentral Shopping Precinct to Torpedo7 Limited or a person, company or otherentity conducting business as 'Torpedo7'?[5] The arbitrator answered the question in the negative. The finding was basedprimarily on interpretation of cl 1.7 of the lease which reads:Given the start-up nature of the development of the Centre at the date of theAgreement to Lease, the Landlord shall be entitled to vary the layout,configuration and tenancy mix plans of the centre, as long as such variation isnot materially detrimental to the Premises.[6] The arbitrator concluded that "premises" included the business of Hunting &Fishing, rather than just the physical shop premises. Further, that to lease to Torpedo7,a main competitor of Hunting & Fishing, would be materially detrimental to Hunting& Fishing. Accordingly, the arbitrator found that, Pukeroa was not entitled to lease toTorpedo7. He made a similar finding in relation to non-derogation from the grant.1Setting aside the award[7] Pukeroa argues the arbitral award should be set aside on the ground that it is inconflict with public policy. Pukeroa submits that the award has in effect permanentlyblocked it from asserting a future right, based on an unknown future detriment toHunting & Fishing, which essentially has the effect of a permanent injunction.Pukeroa contends that the arbitrator did not have the power to grant a permanentinjunction; that to do so was outside the scope of the arbitration agreement. Further,that in doing so, the arbitrator failed to apply any acceptable legal test for granting apermanent injunction.Relevant legislation[8] Article 34 of Chapter 7 of Schedule 1 to the Arbitration Act provides thegrounds for setting aside an arbitral award. It relevantly provides:Application for setting aside as exclusive recourse against arbitral award(1) Recourse to a court against an arbitral award may be made only by anapplication for setting aside in accordance with paragraphs (2) and (3).(2) An arbitral award may be set aside by the High Court only if—(a) (b) the High Court finds that—(ii) the award is in conflict with the public policy of NewZealand.(6) For the avoidance of doubt, and without limiting the generality ofparagraph (2)(b)(ii), it is hereby declared that an award is in conflict with thepublic policy of New Zealand if—(a) the making of the award was induced or affected by fraud orcorruption; or(b) a breach of the rules of natural justice occurred—(i) during the arbitral proceedings; or1 This finding was subsidiary to his answering of the question.(ii) in connection with the making of the award.Analysis[9] I have difficulty accepting Pukeroa's characterisation of the arbitral award as apermanent injunction. The arbitrator has done no more than what the parties asked ofhim: namely, to declare the meaning of cl 1.7 of the lease. The arbitrator'sinterpretation of cl 1.7 simply means that if Pukeroa proceeds to lease other premisesin Trade Central to Torpedo 7 Pukeroa will be in breach of its lease with Hunting &Fishing. The usage of an "unknown future detriment" to make this finding is similarlyorthodox, following naturally from the arbitrator's conclusion that Torpedo7 is acompetitor of Hunting & Fishing.[10] Second, I do not see the award as a permanent impediment on Pukeroa's abilityto lease to Torpedo 7. The award presently has that effect through the relationshipPukeroa has with Hunting & Fishing under their lease, the award would becomeineffective in the event that Hunting & Fishing no longer leased from Pukeroa.[11] Next, Pukeroa argued that the arbitrator lacked the power to grant a permanentinjunction, and as such the award was against public policy. I have already found theaward is not a permanent injunction, but putting that finding to the side I note thatunder the Arbitration Act an arbitrator has the power to grant injunctions. Section 12of the Arbitration Act 1996 provides:12 Powers of an arbitral tribunal in deciding disputes(1) An arbitration agreement, unless otherwise agreed by the parties, isdeemed to provide that an arbitral tribunal –(a) may award any remedy or relief that could have been ordered by the highCourt if the dispute had been the subject of civil proceedings in that court:..[12] Green & Hunt consider it uncontroversial, and state it without reference thatthis includes "declarations, injunctions and orders for specific performance".2 Further,one source of the powers of an arbitral tribunal is the arbitration agreement. If, as2 Green & Hunt on Arbitration Law & Practice (online ed, Thomson Reuters) at [DA111.1].Pukeroa claims, the question submitted to arbitration forms part of the arbitrationagreement, it would itself have consented to an injunction by virtue of havingsubmitted the question of whether it is entitled to lease to Torpedo7 to arbitration. Ifnot already, the availability of injunctive relief is made clearer by the LawCommission's 1991 report of arbitration, which eventually led to the passage of the1996 Act:3We believe that equitable rules and remedies are an integral part of the law ofNew Zealand and thus available to an arbitral tribunal if the law applicable tothe substance of the dispute is that of New Zealand[13] In support of its submission that the award made should be set aside as contraryto public policy, Pukeroa quotes the Court of Appeal in Amaltal Corp Ltd v Maruha(NZ) Corp Ltd, which stated that "public policy" includes:4that the enforcement of an award will be contrary to public policy where theintegrity of the court's processes and powers will thereby be abused. An awardwhose confirmation can be seen to damage the integrity of the court systemwill not be enforced[14] However, I do not consider that this is what the Court of Appeal envisagedwhen speaking of "public policy". The surrounding paragraphs give the requiredcontext. The UNICITRAL Model Law, from which the public policy ground for notenforcing awards is adopted, was considered in the Amaltal case. Preceding the quoteused by Pukeroa is the following analysis, which I consider better shows what is meantby 'public policy':[43] Interestingly, the travaux preparatoires [of the model law] reflect aconcern of delegates that the expression [public policy] might be restricted tosubstantive questions only. The United Nations Commission on InternationalTrade Law therefore expressly stated, in its report of 21 August 1985, that thewording "the award is in conflict with the public policy of this State" was notto be interpreted as excluding instances or events relating to the manner inwhich an award was arrived at. The report also stated at para 297 thecommission's understanding that the term "public policy" as used in the NewYork convention and many other treaties covered "fundamental principles oflaw and justice in substantive as well as procedural respects".[44] In the United States a "narrow reading" had been given to the publicpolicy defence under the New York Convention by the Court of Appeals forthe Second Circuit which said .. that enforcement of foreign arbitral awardsmight be denied on the basis of that defence only where enforcement "would3 Law Commission Arbitration (NZLC R20, 1991) at [382].4 Amaltal Corp Ltd v Maruha (NZ) Corp Ltd [2004] 2 NZLR 614 (CA) at [46].violate the forum state's most basic notions of morality and justice".Likewise, the English Court of Appeal said that although considerations ofpublic policy could never be exhaustively defined, it had to be shown thatthere was some element of illegality or that the enforcement of the awardwould be clearly injuries to the public good, or possibly, that it would bewholly offensive to the ordinary reasonable and fully informed member of thepublic on whose behalf the powers of the state are exercised.[45] A narrow construction has also found favour in the Courts of Ontariowhere the Court of Appeal said ... that the common ground of all expressedreasons for imposing the doctrine of public policy was "essential morality"cautioning however that it must be "more than the morality of some personsand must run through the fabric of society to the extent that it is not consonantwith our system of justice and general moral outlook to countenance theconduct, no matter how legal it may have been where it occurred[15] When the arbitrator's award here is seen in the light of the above statementsthe award cannot be viewed as being in conflict with public policy.[16] Accordingly, I find the arbitral award was neither contrary to public policy norinvalid for any other reason.[17] It follows that the application to set the arbitral award aside is declined. Thisfinding necessarily deals with the ancillary application to vary the arbitral costs award.Leave for appeal on question of law[18] Pukeroa submits the following questions of law for appeal:(a) did the arbitrator err in construing clause 1.7 of the agreement to leaseso as to disentitle the Pukeroa from entering into a lease with Torpedo7?(b) did the arbitrator err in his conclusion that entry by Pukeroa into a leasewith Torpedo7 would derogate from the grant of the lease?(c) in determining (a) and (b), did the arbitrator err in failing to considerwhether Mr Parker was in law an agent of the plaintiff, and the meaningof cl 2.3 of the lease?(d) did the arbitrator err in interpreting cl 1.7 without taking account of cl17.1 (lease of premises) and 50 (expansion or rebuilding)?(e) whether the question for determination set out at paragraph [1] of thearbitral reasons was capable of settlement by arbitration?[19] Clause 5 of Schedule 2 Arbitration Act 1996 provides rules for appeals fromarbitration awards on questions of law. For leave to appeal to be granted, theretherefore must be a question of law which, having regard to all the circumstances,could substantially affect the rights of one or more of the parties.[20] The Court of Appeal have stated that hearings on applications for leave toappeal should be brief, and that if the Judge decides to grant leave, reasons shouldordinarily not be given.5 If leave is not granted, the Court should deliver a shortjudgment for the benefit of the parties indicating, where necessary, whether the matteris considered to be one-off and why the case did not meet the required standard. Adetailed analysis of the alleged error of law is not required.6[21] The granting of leave is discretionary, and the Court of Appeal has prescribedguidelines for exercising that discretion:7(a) The strength of the challenge or nature of the point of law. This is themost important factor. A high threshold is envisaged. The Court shouldconsider the strength of the case; a strongly arguably case wouldnormally be required for leave to be granted. The Court shouldconsider the nature of the points of law raised; whether they are one-off points unlikely to occur again or have any precedential valuegenerally or to the parties. When there is such a case, leave will veryrarely be granted absent very strong indications of error.(b) How the question arose before the arbitrators. The Court shouldconsider whether the question of law appealed was the very point of thearbitration. Where the parties have chosen, with full knowledge thatthe dispute centres on a question of law, to submit that dispute to5 At [57]-[58].6 At [59].7 Gold and Resource Developments (NZ) Ltd v Doug Hood Ltd [2000] 3 NZLR 318 (CA) at [54].arbitration rather than asking a Court to determine the question, theyshould generally be held to their choice.(c) The qualifications of the arbitrator. Where the arbitrator chosen by theparties is legally qualified, it will be harder to obtain leave to appeal thearbitral decision on a question of law. The Court quotes from LordDonaldson MR in Ipswich Borough Council v Fisons plc that "if thechosen arbitrator is a lawyer and the problem is purely one of law, theparties must be assumed to have had good reason for rely on thatlawyer's expertise.(d) The importance of the dispute to the parties. Where the dispute hasgreat significance to the parties, it may be easier to obtain leave toappeal, because the effect on them of an incorrect ruling will be all thegreater. Specific attention is drawn to disputes involving more than justmoney.(e) The amount of money involved. The Court remarks that where a verysubstantial sum of money is involved, it may be easier to obtain leaveto appeal to ensure an incorrect ruling is not left intact.(f) The amount of delay involved in going through the Courts. The Courtconsidered this factor should be balance against the previous one.(g) Whether the contract provides for the arbitral award to be final andbinding. The Court notes that this factor is not determinative, but isindicative of the parties not considering litigation to be a properoutcome for disputes.(h) Whether the dispute before the arbitrators is international or domestic.Guideline (a)[22] The arbitrator interpreted the word "premises" in clause 1.7 to include not justthe physical premises, but also the business of Hunting & Fishing. He subsequentlyfound that Pukeroa leasing property to Torpedo7 would constitute a "materialdetriment" to the business of Hunting & Fishing. The second finding is plainly one offact, and as such is unassailable on an appeal. However, the interpretation thearbitrator gave to "premises" is a legal finding, the correctness of which raises aquestion of law. This question subsumes the second and third potential questions oflaw as well as. In this regard question (b) is simply a separate way of considering theinterpretation of cl 1.7 and question (c) is linked to the determination of questions (a)and (b); the arbitrator considered the point on derogation from the grant to rest on "asubstantial interference with Hunting & Fishing's rights under the lease",8 the relevantright of course being contained in cl 1.7. There is plainly no strongly arguable questionof law in question (e) for the reasons given at [9]. Accordingly, I propose to focusonly on question (a).[23] The first step is to determine the nature of this legal question; whether it is aone-off question or an issue of ongoing importance. As remarked by the Court ofAppeal:9The Court should consider in a preliminary way the strength of theargument that there has been an error of law and the nature of that point. If itis a one-off point, in the sense that it is unlikely to occur again and cannot beseen as having any precedent value, either generally or to the parties onanother occasion, then unless there are very strong indications of error leaveshould rarely be given. In other cases, the Court will be looking for asomewhat less stringent assessment. In those cases a strongly arguable casewould normally be required for leave to be granted.[24] In determining whether the particular questions of law them before were "oneoff" questions of law, the Court of Appeal made the following remarks:10This is a one-off dispute: it is a question of the construction of several relatedcontractual documents. Although one of them (the New Zealand StandardConditions) is in general use, the particular relationship between it and theother contractual documents is not a matter of interest to anyone other thanthe present parties. The arbitrators were not required to construe one of thestandard conditions, merely to say how it applied (or not) in the uniquecontractual setting Because the parties are no longer contractually involvedwith one another, the resolution of the questions of law will not be of futureapplication even to them.8 Rotorua Hunting & Fishing New Zealand Ltd v Pukeroa Properties (No 2) Ltd (Reasons forPartial Award (Substantive Issues)) 13 August 2018 at [100]9 Gold and Resource Developments (NZ) Ltd v Doug Hood Ltd [2000] 3 NZLR 318 (CA) at [54].10 At [61].[25] The interpretation of the word "premises" is plainly not a one off dispute. Atthe very least, it governs the remainder of the commercial relationship betweenHunting & Fishing and Pukeroa. Under the arbitrator's interpretation of clause 1.7Pukeroa would have to consider the potential for material detriment to Hunting &Fishing arising from any potential leases. Further, the interpretation has additionalsignificance to Pukeroa. Clause 1.7 is a standard clause used in Pukeroa's leases. Thearbitrator found as much.11 It therefore has the potential to be generally significant toPukeroa on other occasions.[26] I consider the following is strongly arguable. First, that "premises" must beinterpreted in the context of cl 1.7 and in the wider context of the entire lease.12Secondly, that when "premises" is viewed in those lights there is a sound basis forconcluding that the term was intended to be limited to physical premises and thatassessment of whether a proposed variation of layout, configuration or tenancy mixwould be "materially detrimental" to the premises is restricted to an assessment ofwhether such variation would be materially detrimental to a tenant's enjoyment of thephysical premises. Such interpretation is consistent with the term which the law ofLandlord and Tenant generally implies into all leases: namely, that a tenant shall havequiet enjoyment of the premises. Such interpretation would protect Hunting & Fishingfrom Pukeora leasing other premises in the "centre" to tenants who might have amaterially detrimental effect on Hunting & Fishing's enjoyment of its premises.Something that has a nuisance impact on an incumbent tenant springs to mind.Possible examples of potential tenancies that might have this effect could include:tenants whose business produced: (a) loud, persistent or unpleasant noise; (b) noxiousand unpleasant smells; or (c) flashing lights or laser lights that could adversely impacton other tenants' ability to enjoy their premises. The meaning might even go so far asto include tenants whose business attracted unattractive and unpleasant elements forexample a tattoo studio that focussed predominantly on persons who were threateningto other tenants and their customers, and who regularly attracted police attention. Thedisruption such persons might cause could spread to and have a materially detrimentalimpact on other tenants' premises in the centre.11 Above n 9 at [91].12 See Vector Gas Ltd v Bay of Plenty Energy Ltd [2010] NZSC 5; [2010] 2 NZLR 444.[27] However, a tenant whose business that did no more than pose a competitionthreat to an incumbent tenant is not going to have any impact on the incumbent tenant'sability to enjoy its premises. For an incumbent tenant to find itself running a businessin proximity to its competitor, this may bring financial worries relevant to the business,but those do not impact on the tenant's enjoyment of its premises.[28] There is also strength in what Pukeroa says regarding the location of cl 1.7being under the heading "Landlord's works and Handover Date". The phrase"material detriment" is not the usual terminology for a clause protecting fromcompetition. Moreover, the presence of other provisions in the lease indicating therewas no intent for Hunting & Fishing to have any control over to whom Pukeroa leases,namely, clauses 17.1 and 53, contradict any notion that Hunting & Fishing would havethis type of control.[29] Accordingly, I am satisfied that here guideline (a) favours the grant of leave toappeal.Guideline (b)[30] When a question of law was the very reason for the arbitration, leave to appealwill be granted less readily.13 Here, the parties agreed to resolve a discrete point ofcontractual interpretation of their lease by arbitration. It assumed prominence in thearbitration, with the arbitrator discussing the interpretation of clause 1.7 for some threepages of his award.14 The arbitrator answered their question in the negative. Now,various challenges Pukeroa wants to make go to the heart of the very decision theparties agreed ought to be resolved finally by arbitration. This weighs against the grantof leave.Guideline (c)[31] The nominated arbitrator was an experienced legal practitioner. When theparties have chosen a legally qualified arbitrator to determine a problem which is13 Above n 11 at [54].14 Above n 9 at [82]-[94].purely one of law, the parties must be assumed to have had a good reason for doingso.15 This weighs against the grant of leave.Guideline (d)[32] Hunting & Fishing took possession in September 2013. The lease is for eightyears with two four year rights of renewal. For its duration the parties will each haveto live with the arbitrator's conclusion if leave to appeal is not granted. The disputehas wider relevance for Pukeroa because the dispute may also arise with its othertenants. Also, it has been prevented from leasing other premises in the complex to atenant of its choice. The dispute has limited if any significance for Hunting & Fishingbeyond the fact it currently enjoys protection from competitors that would have amaterially detrimental impact on its business. If leave is granted all that will happenis that either the arbitrator's decision will be upheld (in which case Hunting &Fishing's position will remain the same), or an alternative interpretation of the leasewill be imposed, (in which case Hunting & Fishing will be held to the correct legalinterpretation of the lease). The minimal impact on Hunting & Fishing coupled withthe adverse impact on Pukeroa weighs in favour of leave being granted.Guideline (e)[33] The sum of money in issue is relevant to determining whether to grant leave.Assessment of the figure involved must be done in the wider contractual context.16This factor often overlaps with (d).17 As it does here. The nature of the dispute,namely the nature of rights under the lease, makes this sum difficult to quantify.[34] Pukeroa have not made it clear how much money is involved. However, asdiscussed above, it has clear significance to Pukeroa considering its widespread usageof clause 1.7.15 Ipswich Borough Council v Fisons plc [1990] 1 All ER 730 (CA) at 726.16 Kiwi Property Holdings Ltd v Fletcher Construction Company Ltd [2018] NZHC 1745 at [16].17 David AR Williams and Amokura Kawharu Williams & Kawharu on Arbitration (2nd ed,LexisNexis,Wellington, 2017) at 546.[35] The arbitrator considered the introduction of Torpedo7 to be likely to causesignificant interference to Hunting & Fishing's business.18 Indeed, this was the basisof his finding that leasing to Torpedo7 would constitute a "material detriment" to thepremises. Hunting & Fishing itself has provided evidence that there is significantoverlap between the products sold by Torpedo7 and the products it sells. It estimates50% of its business turnover would be at risk from the introduction of Torpedo7.[36] I consider this factor favours granting leave to appeal.Guideline (f)[37] The amount of delay in granting leave to appeal is to be balanced against thesum in dispute. If the delay consequent on granting leave and submitting the questionof law to the Court is disproportionate to the sum in dispute, it is more difficult toobtain leave. I do not consider this factor is engaged.Guideline (g)[38] Where the parties have agreed that an award is to be final and binding, this willcount strongly against granting leave to appeal.19 The parties have not specified intheir arbitration agreement that the award is to be "final and binding", and thus it isnot contended that this factor is engaged.Guideline (h)[39] In an international arbitration, where the parties have opted into cl 5 ofschedule 2, it is a clear indication that appeals on points of law were intended, and assuch is a factor in favour of granting leave.20 This is a domestic arbitration and so thisfactor is inapplicable.18 Above n 14 at [81].19 Above n 8 at [54].20 At [54].Conclusion[40] The application is finely balanced. However, when looked at overall, Iconsider the combined weight of the factors favouring the granting of leave (factors(a), (d) and (e)) outweigh those to the contrary. Accordingly, I am satisfied theapplication for leave to appeal should be granted.Result[41] The application to set the arbitral award aside is declined[42] The application for leave to appeal the arbitral award is granted. Leave isgranted to appeal on the following question:(a) Did the arbitrator err in interpreting the word "premises" in clause 1.7of the Agreement to Lease to include the business interests of Hunting& Fishing?[43] The parties have leave to file memoranda as to costs.Duffy JSolicitors/Counsel:Holland Beckett, TaurangaGurnell Harrison Law Ltd, HamiltonVictoria Whitfield, Barrister, Hamilton