THE GAMA FOUNDATION v FLETCHER STEEL LIMITED [2022] NZCA 314

THE GAMA FOUNDATION v FLETCHER STEEL LIMITED [2022] NZCA 314 [13 July 2022]IN THE COURT OF APPEAL OF NEW ZEALANDI TE KŌTI PĪRA O AOTEAROACA625/2021[2022] NZCA 314BETWEEN THE GAMA FOUNDATIONAppellantAND FLETCHER STEEL LIMITEDRespondentCourt: Courtney and Dobson JJCounsel: A J Forbes QC for AppellantW R Potter and J M Phillips for RespondentJudgment:(On the papers)13 July 2022 at 3.30 pmReissued: 30 August 2022JUDGMENT OF THE COURTA The application is granted in part.B Special leave to appeal is granted on the questions set out at [8].C The appellant is entitled to costs on a standard application, on a band Abasis with usual disbursements.____________________________________________________________________REASONS OF THE COURT(Given by Courtney J)Introduction[1] The Gama Foundation (Gama) and Fletcher Steel Limited (Fletcher) were,respectively, landlord and tenant of an industrial property in Christchurch. The leaseran from 1 September 2006 for a period of 10 years. Fletcher was obliged to repairand maintain the premises and yield them up in good condition at the expiry of thelease. It failed to do that. The premises were left in a damaged state. Gama wasfacing a loss of rental of approximately $100,000 per month. On engineering advice,it undertook repair work itself and then sought reimbursement from Fletcher togetherwith interest. Fletchers disputed the extent of its liability.[2] The dispute was the subject of an arbitration before Mr Kennedy-Grant QC in2019.1 Mr Kennedy-Grant found that Fletcher had breached its obligations under thelease and awarded Gama $327,959.10 for repair costs in respect of about half the itemsclaimed, disallowing the remainder. He also refused Gama's claim of interest atcontractual rates.[3] Gama applied for leave to appeal parts of the award. Osborne J declined thatapplication.2 Osborne J also declined Gama's application for leave to appeal to thisCourt.3 Gama now applies under sch 2, cl 5(6) of the Arbitration Act 1996 for specialleave to appeal.[4] In Downer Construction (New Zealand) Ltd v Silverfield Developments Ltdthis Court addressed the criteria for special leave under cl 5(6):4Obviously that should not be a second bite at the same cherry. This Court willbe very mindful of why the High Court declined leave, and will grant specialleave only if the High Court Judge's decision was plainly wrong or if the testset out above was not applied or was misapplied. We would hesitate to saythat the test under subclause (6) is different from the test under subclause (5).It is simpler to say the test is the same, but this Court will exercise its powerssparingly and mindful of why the High Court declined leave.The test referred to is that set out in Cooper v Symes: 5(a) The appeal must raise some question of law capable of bona fideand serious argument in a case involving some interest, public orprivate, of sufficient importance to outweigh the cost and delay of thefurther appeal.1 The dispute as arbitrated included other complaints of breach by Fletcher but they are not relevantto the present application.2 The Gama Foundation v Fletcher Steel Ltd [2021] NZHC 633 [first leave judgment].3 The Gama Foundation v Fletcher Steel Ltd [2021] NZHC 2514 [second leave judgment].4 Downer Construction (New Zealand) Ltd v Silverfield Developments Ltd [2007] NZCA 355,[2008] NZLR 591 at [35].5 Cooper v Symes (No 2) (2001) 15 PRNZ 166 (HC) at [12].(b) Upon a second appeal, the Court of Appeal is not engaged in thegeneral correction of error. Its primary function is then to clarify thelaw and to determine whether it has been properly construed andapplied by the Court below.(c) Not every alleged error of law is of such importance either generallyor to the parties as to justify further pursuit of litigation which hasalready been twice considered and ruled upon by a court.[5] Gama identifies the following questions of law that it would wish to advance,if granted special leave to appeal:(a) Did the arbitrator err in his interpretation of the scope and effect of therule in Joyner v Weeks?6 In particular, where a landlord has effectedrepairs to a property based on professional engineering andconstruction advice after termination or expiry of a lease, in respect ofitems damaged or inadequately maintained by the tenant in breach oflease covenants to maintain and repair, does that rule:(i) Limit losses claimable by a landlord to the hypothetical notionalreasonable costs of such repairs, notwithstanding the landlord'sactual reasonable repair costs were higher?(ii) Limit claimable repair costs to the minimum repairs required toaddress the tenant's breaches of the lease, notwithstanding thata range of reasonable repair options are available and that theminimum possible cost may only have been identified with thebenefit of hindsight.(iii) Oust the normal rules relating to calculation of contractualdamages, in particular the ability to claim costs reasonablyincurred in mitigation of loss?(iv) Place the onus of proof on the landlord to show that the repairsit carried out to remedy the tenant's breach of such covenantswere no more than the bare minimum required under the lease?6 Joyner v Weeks [1891] 2 QB 31 (CA).(b) Are damages payable by a tenant for breaches of lease covenants torepair or maintain the leased premises "moneys payable under thelease" for the purposes of cl 5.1 of the lease that was the subject of thearbitration?(c) Is interest only payable under cl 14.1 of the lease when the repairswhich are the subject of the repair notice have been effected by thelandlord during the term of the lease?[6] Fletcher opposes the application on the ground that none of the questions raisedare capable of bona fide and serious argument.Issue 1: the rule in Joyner v Weeks[7] We consider that the case raises issues relating to the rule in Joyner v Weeks ofgeneral importance that warrant appeal. It is unnecessary to canvas the reasons.[8] However, the questions framed by Gama could be simplified as follows:(a) Did the arbitrator err in finding that the rule in Joyner v Weeks precludesrecovery of costs reasonably incurred in mitigation?(b) If yes, which party bears the onus of proving the reasonableness of thecosts incurred in mitigation?(c) In all the circumstances, did the arbitrator err, when considering thereasonable and proper amount required to put the premises into the stateof repair in which they ought to have been left, in failing to have regardto the prevailing circumstances at the time the lessor undertook therepair work?Issue 2: interest under cl 5.1 and cl 14.1[9] Gama had sought interest at contractual rates on the costs incurred for repairs,relying on cls 5.1 (which allowed interest on moneys "payable under the lease") and14.1 (which allowed interest on repair costs following a failure by the tenant to appearfollowing the issue of the repair notice). The arbitrator disallowed both claims.Clause 5.1[10] The issue on the claim under cl 5.1 was whether the interest Gama sought wasmonies payable "under" the lease. The arbitrator and the Judge both concluded thatcl 5.1 did not apply. That conclusion relied on authorities to the effect that damagesfor breach of a lease and interest on such damages are not amounts payable under thelease itself.7[11] Gama wishes to argue that these decisions are incorrect and should not beadopted. The argument to be advanced is that a contract is just as much a source ofthe secondary obligation to pay damages for breach as it is the source of the primaryobligations.8 We agree with the Judge that this is not an arguable point and does notwarrant leave being granted to appeal.Clause 14.1[12] Clause 14.1 provides that, in the event of default by the tenant, the landlordcan issue a notice requiring certain repairs to be undertaken and if the tenant fails tocomply with the notice, the landlord can enter the premises and undertake the works.It can then claim interest on the costs incurred in undertaking the works. The arbitratorheld that Gama could not claim under cl 14.1 because none of the work was donepursuant to the procedure specified under cl 14.1.[13] Gama wishes to argue that the arbitrator wrongly interpreted cl 14.1 as havinga temporal limitation that the repair work be done during the term of the lease. Itinterprets the clause as creating a right to default interest whenever the lessor has hadto incur repair costs because the tenant has failed to comply with a repair notice.7 Irvine v Shaw [1992] ANZ CnvR 83 (NZHC); Puhinui Farms Ltd v IH Wedding & Sons Ltd, HCAuckland, CIV-2006-404-771, 15 February 2008.8 Relying on Photo Production Ltd v Securicor Transport Ltd [1980] AC 827 at 848.[14] The arbitrator's interpretation of cl 14.1 was based on the plain meaning of thetext. Gama did not offer any authority for the alternative interpretation. We do notconsider that this point is reasonably arguable.[15] Gama also wishes to argue that, even on the arbitrator's own interpretation,some of the work claimed for had been done during the term of the lease. We acceptthat the arbitrator found that "very little" repair work had been undertaken beforeFletcher had vacated the premises. But, while the arbitrator acknowledged that facthe was satisfied that none of the work was done pursuant to the procedure specified incl 14.1. The fact that a small amount of work was done during the term of the leasedoes not overcome this finding. We do not think that is a reasonably arguable point.Result[16] The application is granted in part.[17] Special leave is granted to appeal on the questions set out at [8] above.[18] Gama is entitled to costs for a standard application on a band A basis, withusual disbursements.Solicitors:Corcoran French, Christchurch for AppellantMeredith Connell, Auckland for Respondent