QST LTD v MOBIL OIL NZ LTD [2023] NZHC 518

QST LTD v MOBIL OIL NZ LTD [2023] NZHC 518 [21 March 2023]IN THE HIGH COURT OF NEW ZEALANDAUCKLAND REGISTRYI TE KŌTI MATUA O AOTEAROATĀMAKI MAKAURAU ROHECIV-2022-404-001809[2023] NZHC 518BETWEEN QST LIMITEDPlaintiffAND MOBIL OIL NZ LIMITEDDefendantHearing: 15 March 2023Counsel: L McEntegart and AJ Steel for PlaintiffJF Anderson KC and SJ Shanks for DefendantJudgment: 21 March 2023JUDGMENT OF DOWNS JThis judgment was delivered by me on Tuesday, 21 March 2023 at 11.30 ampursuant to r 11.5 of the High Court Rules.Registrar/Deputy RegistrarSolicitors/Counsel:Thompson Blackie Biddles, Auckland.Russell McVeagh, Auckland.JF Anderson KC, Auckland.The proposed appeal[1] QST Ltd1 and Mobil Oil NZ Ltd2 dispute the rent payable by Mobil to QST inthe wake of a review from 3 April 2021. QST contends clause 3.3 of the sublease isapplicable, whereas Mobil contends clause 3.2 is applicable. As required by thesublease, the parties submitted their dispute to arbitration. They agreed theHon Rodney Hansen KC be appointed by the Arbitral Tribunal3 to consider whichclause prevailed. He concluded clause 3.2 did, and the Tribunal accepted his opinion.QST seeks permission to appeal the issue to this Court.4[2] In Gold and Resource Developments (NZ) Ltd v Doug Hood Ltd, a Full Courtof the Court of Appeal emphasised the desirability of a "short judgment" in thiscontext.5 This judgment respects that observation and adopts the considerationsidentified in that case. But first, a little more about the sublease, which concerns landat Unit A, 8 Quay Street, Auckland, and the parties' competing contentions.The sublease and competing contentions[3] The critical clause is clause 3, which reads:3 Rent Reviews3.1 Subject to clauses 3.2, 3.3 and 3.4, the rental payable during the termof this Sublease may be subject to review by the Sublessor on theReview Dates set out in the Schedule.3.2 Subject to clauses 3.3 and 3.4, the rental payable may be reviewed bythe Sublessor to the higher of:(a) the current market rental; or(b) the rental incorporating an increase in the rent applicable atthe date of commencement or the last preceding review date(whichever is appropriate) equal to an increase based on thechange expressed as a percentage of the All Group Section ofthe Consumer Price Index as notified in the Monthly Abstractof Statistics (or other like index in the event of such index notbeing made available) published by the Department ofStatistics commencing on the last quarterly period1 QST.2 Mobil.3 The Tribunal.4 By clause 5(1)(c) of Schedule 2 to the Arbitration Act 1996.5 Gold and Resource Developments (NZ) Ltd v Doug Hood Ltd [2000] 3 NZLR 318 at [59].immediately preceding the last preceding review date andending on the last quarterly period immediately preceding thecurrent rent review date.3.3 Subject to clause 3.4, on the 15th anniversary of the Headleasecommencement date and each rent review date thereafter, the rentalpayable may be reviewed by the Sublessor to the higher of:(a) the rental as determined pursuant to clause 3.2; and(b) 9% per annum of the current freehold market undevelopedblock value of the Land. For rent review purposes, the areaof the Land shall be deemed to be 2,696m2.3.4 In no circumstances shall the rental payable from any Review Date beless than the rental payable during the 12 months immediatelypreceding the appropriate Review Date.[4] Clause 1.1.4 of the sublease and an associated schedule define "Review Date"as "Each succeeding third anniversary of the Commencement Date".6The Commencement Date is 3 April 1997.[5] The headlease is also relevant. Its Commencement Date is 2 August 1996.Clause 3.3 of it provides:7The Lessor may review the Rental for the time being payable under the Lease,such reviewed rent to be 6% per annum of the current freehold marketundeveloped, block value of the Land and such reviews to be carried out onthe 15th anniversary of the Commencement Date and, every seven yearsthereafter in the following manner [6] As observed, QST contends clause 3.3 of the sublease is applicable, whereasMobil contends clause 3.2 is applicable. Their respective contentions are helpfullysummarised by the Tribunal:8Mobil contends the rent review as at 3 April 2021, being a review on a defined"Review Date" under the Sublease, is to be undertaken in accordance with therent review mechanism in clause 3.2 of the Sublease. Accordingly, the annualrent to apply from 3 April 2021 is the higher of the "current market rental" ofthe land or a rental determined by multiplying the passing rent by the CPIformula in clause 3.2(b). Mobil says the clause 3.3 rent review mechanismapplies to any rent review undertaken by QST on each of the seven-yearly rentreview dates under the Headlease, the next of which is 2 August 2025, but hasno part to play in reviewing the rent as at 3 April 2021.6 Emphasis added.7 Emphasis added.8 Interim award as to preliminary question, 12 July 2022, at paras 9 and 10.QST's position is that clause 3.3 of the Sublease applies to the 3 April 2021review. It says that from 2 August 2011 (the 15th anniversary of theCommencement Date) rent under the Sublease became amenable to reviewunder clause 3.3 which enlarged the methodological options for three yearlyreviews to provide for the adoption of whichever of the two methods set outin clause 3.2 (via clause 3.3(a)) and clause 3.3(b) produced the higher rental.AnalysisA question of law?[7] An appeal against an arbitral award is permissible only if a question of lawarises, determination of which could substantially affect the rights of one or more ofthe parties.9 It is common ground the jurisdictional threshold is met for reasons thatare self-evident.The strength of the challenge/nature of the point of law[8] This consideration is the "most important", albeit the assessment is"preliminary" in nature.10[9] QST's contention is expanded in its submissions:The plain and ordinary meaning of the words "each rent review datethereafter" refer, in the scheme of clause 3, not to Headlease review dates, butto review dates in the Sublease. The clause enabling rent reviews under theSublease, on each of the Review Dates, is clause 3.1. Clauses 3.2 and 3.3 thengo on to provide two interdependent bases upon which such reviews may becarried out. Clause 3.2 provides for the rent to be reviewed every 3 years tocurrent market rental or CPI (while not expressed in the clause 3.2 to be every3 years it could not be otherwise given the terms of clause 3.1 and theSchedule). Clause 3.3 plays no part in the rent review scheme until QSTbecomes liable for a rent above peppercorn level (the 15th anniversary of theHeadlease), on which date and on every 3 yearly Sublease review datethereafter the rent is reviewed to the higher of that resulting from theclause 3.2 method (via clause 3.3(a)) and clause 3.3(b). Both such bases ofreview are then subject to the ratchet contained in clause 3.4. Clauses 3.2 and3.3 differ only in their temporal application – the former is available on every3 yearly review date over the course of the Sublease but is the exclusive pointof reference until 2 August 2011, at which time clause 3.3(b), previouslyunavailable, becomes an available method for review, but only employed if itproduces a rent higher on each succeeding third anniversary than thatproduced under the continuing clause 3.2 method (via clause 3.3(a)). The textof clause 3.3 admits, accordingly, of no real ambiguity when construed in thecontext of the language and scheme of clause 3 as a whole.9 Arbitration Act 1996, cl 5(1)(c) of sch 2.10 Gold and Resource Developments (NZ) Ltd v Doug Hood Ltd, above n 5, at [54].[10] The contention attracts difficulty. First, when referring to three-yearlyrent reviews based on the commencement date of the sublease, clause 3 uses thecapitalised term "Review Date(s)" in clauses 3.1 and 3.4, in turn linking to clause 1.1.4of the sublease and an associated schedule of terms. Second, when referring toseven-yearly rent reviews based on the commencement date of the headlease, or, inomnibus fashion, to both types of review, the sublease uses non-capitalised terms"rent review date" or "review date" in clauses 3.2(b) and 3.3. Third, clause 3 thereforeappears to contemplate two distinct types of rent review: three-yearly reviews fromthe sublease's commencement date employing the methodology in clause 3.2; andseven-yearly reviews from the headlease's commencement date employing themethodology in clause 3.3. Unsurprisingly, that was the conclusion of the Tribunal.[11] QST argues the sublease capitalises terms in "random fashion", so thisreasoning is inapt. But, even if this were true of the sublease beyond clause 3, aboutwhich I express no view, it does not follow clause 3 should be read as QST contends.The distinctions apparently drawn by clause 3 present as logical and intentional.Therein lies the point.[12] QST also argues the opening phrase of clause 3.3—"Subject to clause 3.4"—tells against provision of seven-yearly rent reviews. The Tribunal addressed thisargument:11 But we see those words as intended to ensure that clause 3.4 applies for thepurpose of determining rental under clause 3.3(a). Arguably that outcomecould have been achieved without making clause 3.3 subject to clause 3.4 butthe incorporation of the clause 3.2 mechanism into clause 3.3 made it sensibleto do so and to put the position beyond doubt. On the other hand, theinterpretation urged on us on behalf of QST would have the opening words ofclause 3.3 overriding the ordinary and natural meaning of the words whichfollow.[13] The Tribunal considered QST's analysis "wholly uncommercial andinconsistent with business common sense", as (a) a rental rate of nine percentper annum (see clause 3.3(b)) is "very high by any standards and certainly by referenceto the rental rate applicable to the Headlease"; and (b) QST would "undoubtedly11 Interim award as to preliminary question, 12 July 2022, at para 22.receive a windfall benefit if it were able to secure a rent review based on 9% everythree years while subject itself to reviews based on 6% every seven years".12[14] QST contends these observations are unsupported by evidence, andunwarranted, particularly in light of the rent actually paid by Mobil to QST. The point,however, is that the Tribunal was entitled to consider commercial imperatives whenconstruing the sublease, including any apparent benefit to QST given differencesbetween headlease and sublease.[15] QST also contends the sublease could not have intended to imposeadministrative burdens and potentially "anomalous outcomes" associated with twodifferent types of rent review. On behalf of QST, Mr McEntegart offers theseexamples:• In the space of 3 years from 3 April 2018 there could be 3 clause 3.2reviews (or two clause 3.2 reviews and one clause 3.3(b) review) –one under the first concurrent review (4.10(a)) on 3 April 2018, asecond four months later on 2 August 2018 under the secondconcurrent review (4.10(b)), and a third on 3 April 2021 under the firstconcurrent review.• Similarly, over the 3 years from 3 April 2024 there would be threereviews (at least two pursuant to clause 3.2 but potentially all threeunder that formula) – one under the first concurrent review on 3 April2024, a second on 2 August 2025 under the second concurrent review,and a third on 3 April 2027 under the first concurrent review.• The same pattern would occur between 3 April 2030 and 3 April 2033(again two pursuant to clause 3.2 but potentially all three), with a firstconcurrent review on 3 April 2030, a second concurrent review on2 August 2032, and a first concurrent review on 3 April 2033.• From 3 April 2018 to the last review (being a three yearly review firstconcurrent review) on 3 April 2036, there would be 10 reviews – oneon average every 21 months.[16] The likely answer is that offered by Ms Anderson KC on behalf of Mobil: thisis "not reason to override the natural and ordinary meaning of the words ofclause 3.3", particularly as QST has "the discretion whether it wishes to invoke areview on any particular rent review date".12 Interim award as to preliminary question, 12 July 2022, at para 23.Nature of the point of law[17] The point could, of course, arise again between the parties with each rentreview. That arguably supports permission. As against this, the point is confined tothe parties; no issue of general precedential value arises.Summary in relation to this consideration[18] I summarise by making explicit what is hitherto implicit: QST's case does notreach the standard of "strongly arguable", still less "very strongly arguable", standardsendorsed by the Court of Appeal in Gold and Resource Developments.13 Approachedanother way, the Tribunal's decision appears correct for the reasons it gave. Again, noissue of general precedential value arises.How the question arose before the Arbitrator[19] The question addressed by the Tribunal, and which QST wishes the Court tohear, "was the very point of the arbitration".14[20] QST and Mobil agreed to submit their competing contentions to the Tribunal,and to the Tribunal appointing an expert to address them. Each party identifiedMr Hansen KC as a suitable expert.15 Each party offered full argument, includingwritten submissions, to him. The Tribunal accepted his opinion.The qualifications of the Arbitrator[21] The Tribunal comprised three senior valuers. Mr Hansen is a retiredHigh Court Judge with considerable commercial experience.The importance of the dispute to the parties and amount of money involved[22] The dispute is significant to both parties. Much money is involved.13 Gold and Resource Developments (NZ) Ltd v Doug Hood Ltd, above n 5, at [54](1).14 At [54](2).15 On a list submitted by each.Delay in going through the courts[23] The rent review concerns a period beginning 3 April 2021. QST contends itsuffers most from delay, and it is prepared for more in what it perceives to be theinterests of justice.[24] I do not agree QST's position occupies the field. The dispute is almost twoyears old. There is a public interest in the prompt resolution of disputes, particularlyin a court-system afflicted by a pandemic-related backlog.Whether the contract provides for the arbitral award to be final and binding[25] The sublease does not provide for the arbitral award to be final and binding.QST contends "lack of agreement to that effect" favours permission being granted.[26] I am not sure this is so, as against merely neutral. Gold and ResourceDevelopments says when "there is such a clause", this is "an importantconsideration".16 This is not the same as saying the absence of a clause favourspermission.Conclusion[27] Jurisdiction exists for an appeal, and two considerations favour one:the importance of the dispute to the parties and amount of money involved. However,with the exception of a neutral consideration,17 all remaining considerations tellagainst an appeal, including the most important: strength of the challenge. QST's caseis not strongly arguable. Consequently, its proposed appeal has little prospect ofsuccess. No issue of general precedential value arises. The question QST wishes tolitigate was "the very point of the arbitration" and determined by a formerHigh Court Judge.18 Furthermore, the case is already just shy of two years old. Themix weighs heavily against permission, which I decline.16 Gold and Resource Developments (NZ) Ltd v Doug Hood Ltd, above n 5, at [54](7).17 See [26].18 Gold and Resource Developments (NZ) Ltd v Doug Hood Ltd, above n 5, at [54](2).Result[28] The application is dismissed.Costs[29] There is no obvious reason why Mobil should not have costs. If agreement isnot reached, the parties may file and serve memoranda of not more than five pages:(a) QST on or before 18 April 2023.(b) Mobil on or before 2 May 2023...Downs J