Drake City Ltd v Tasman-Jones

• Jurisdiction: New Zealand
• Judge: Venning J
• Judgment Date: 05 May 2016
• Neutral Citation: [2016] NZHC 899
• Docket Number: CIV-2015-404-002810
• Court: High Court
• Date: 05 May 2016

BETWEEN

Drake City Limited

Plaintiff/Respondent

and

David Jonathan Tasman-Jones

First Defendant/Applicant

and

Omar Jovanny Barragan Merchan

Second Defendant/Applicant

[2016] NZHC 899

Judges:

Venning J

CIV-2015-404-002810

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

Application by the defendant guarantors to have an application for summary judgment dismissed or stayed — the plaintiff had applied for summary judgment against the defendants for rent and outgoings as guarantors under a lease — the defendants protested jurisdiction to hear the claim in reliance on an arbitration clause in a lease — clause 44.3 stated that the arbitration procedures did not prevent the landlord from taking proceedings for the recovery of any rent or other monies payable — consideration of the application of the Supreme Court decision in Zurich Australia Insurance Ltd t/a Zurich New Zealand v Cognition Education Ltd — the plaintiff had taken a reversion of the lease — the defendant guarantors sought to set off pre-contractual misrepresentations of the original lessor against the plaintiff — the principal debtor had been placed into liquidation — the defendant guarantors argued that the effect of the liquidators disclaimer of the lease was that it was terminated and the landlord could not sue for rent, but was restricted to a claim for damages, representing loss of bargain damages, so that cl 44.3 did not apply as it only related to claims for rent and other monies payable under the lease — whether there was a dispute which in terms of the lease was required to be referred to arbitration — whether the defendants could raise the pre-contractual representations of the original landlord against the plaintiff — whether the disclaimer of the lease by the liquidators meant that sums due following the date of disclaimer were not sums payable for rent as the lease had ended.

Appearances:

A J Steel for Plaintiff/Respondent

S Keall for Defendants/Applicants

JUDGMENT OF Venning J

Venning J

This judgment was delivered by me on 5 May 2016 at 2.15 pm, pursuant to Rule 11.5 of the High Court Rules.

Registrar/Deputy Registrar Date……………

1 Drake City Limited (Drake) seeks summary judgment against the defendants as guarantors under a lease. The defendants protest the jurisdiction of the Court to hear the claim and have applied to have it dismissed. 1 They rely on an arbitration clause in the lease.

2 On the basis of the Supreme Court decision in Zurich Australia Insurance Ltd t/a Zurich New Zealand v Cognition Education Ltd counsel agreed the defendants' application to dismiss the proceeding should be heard separate to and before the summary judgment application. 2

Background

3 On 21 September 2011 Victoria Quarter No. 1 Limited (Victoria Quarter) entered a deed of lease with BMTJ Limited (BMTJ) as lessee for restaurant premises within the Victoria Park Market complex. The defendants guaranteed the performance of BMTJ under the lease.

4 On 10 April 2012 Drake became the registered proprietor of the property and took a reversion of the lease.

5 On 17 September 2012 BMTJ, the defendants and Drake executed a variation to the lease relating to rental.

6 On 1 January 2014 BMTJ fell into arrears with the rent payable under the varied lease.

7 BMTJ was placed into liquidation by shareholders' resolution on 14 March 2014.

8 On 18 March 2014 the liquidators disclaimed the lease.

9 Drake re-leased the premises to a new tenant and determined the existing lease on 1 January 2015.

10 Drake issued these proceedings in November 2015 claiming rent and outgoings for the period 1 January 2014 to 1 December 2014.

The defendants' case

11 The defendants allege that BMTJ was induced to enter the lease (and they were induced to enter the guarantees) by misrepresentations from Victoria Quarter about the development and levels of occupancy of the Victoria Park development.

12 The defendants also claim that Drake breached cl 32.1, the quiet enjoyment covenant in the lease, from April 2012 to the middle of 2013.

13 The defendants seek to set-off the damages they say BMTJ sustained as a consequence of the misrepresentation and the breach of cl 32.1 against Drake's claim for rent. As guarantors they are entitled to raise any defence a principal could have raised: Hyundai Shipbuilding and Heavy Industries Co Ltd v Pournaras. 3 They argue that their claims raise a dispute which must go to arbitration in terms of the lease.

14 The defendants rely on the Supreme Court decision in Zurich to support their argument to stay the plaintiff's claim for summary judgment. 4

Issues

15 The defendants' application raises the following issues:

• (a) the application of Zurich to the facts of this case;

• (b) the effect of the sale of the freehold and consequent transfer of the reversion to Drake; and

• (c) the effect of the disclaimer of the lease by the liquidators.

Zurich Australian Insurance Ltd t/a Zurich New Zealand v Cognition Education Ltd

16 In Zurich the Supreme Court addressed the approach the Court should take where an application for summary judgment was met with a challenge to jurisdiction on the basis of an agreement to arbitrate.

17 In the High Court Associate Judge Bell, after reviewing relevant authorities, had held that, subject to three qualifications, the question of the Court's jurisdiction was to be decided on the summary judgment basis: whether the plaintiff could show the defendant did not have a tenable defence to the plaintiff's cause of action. 5 Because the test for stay was the inverse of the test for summary judgment, it was convenient for the two matters to be heard together subject to the following qualifications:

• (a) the Court should only give summary judgment if satisfied that there would be no benefit in requiring the parties to take the matter to arbitration;

• (b) the Court has a discretion to refuse an application for summary judgment. While that would ordinarily be exercised only rarely there may be greater reason to exercise the discretion where arbitration had been agreed by the parties as the preferred method of dispute resolution; and

• (c) international arbitrations might be treated differently.

18 The Judge entered summary judgment. The Court of Appeal dismissed the appeal. 6 The Supreme Court granted leave to appeal. The Supreme Court ultimately rejected the proposition the applications were different sides of the same coin and

upheld Zurich's argument that the Court should take a narrow approach to the interpretation of art 8 of Schedule 1 to the Arbitration Act 1996 holding: 7

… 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.

19 In coming to that conclusion the Supreme Court cited with approval the following passage from Lord Mustill's decision in Channel Tunnel Group Ltd v Balfour Beatty Construction Limited: 8

• [22] In recent times, this exception to the mandatory stay has been regarded as the opposite side of the coin to the jurisdiction of the court under RSC Ord 14 to give summary judgment in favour of the plaintiff where the defendant has no arguable defence. If the plaintiff to an action which the defendant has applied to stay can show that there is no defence to the claim, the court is enabled at one and the same time to refuse the defendant a stay and to give final judgment for the plaintiff. This jurisdiction, unique so far as I am aware to the law of England, has proved to be very useful in practice, especially in times when interest rates are high, for protecting creditors with valid claims from being forced into an unfavourable settlement by the prospect that they will have to wait until the end of an arbitration in order to collect their money. I believe however that care should be taken not to confuse a situation in which the defendant disputes the claim on grounds which the plaintiff is very likely indeed to overcome, with the situation in which the defendant is not really raising a dispute at all. It is unnecessary for present purposes to explore the question in depth, since in my opinion the position on the facts of the present case is quite clear, but I would endorse the powerful warnings against encroachment on the parties' agreement to have their commercial differences decided by their chosen tribunals, and on the international policy exemplified in the English legislation that this consent should be honoured by the courts, given by Parker LJ in Home and Overseas Insurance Co Ltd v Mentor Insurance Co (UK) Ltd (in liq) [1990] 1 WLR 153 (CA) at 158–159 and Saville J in Hayter v Nelson and Home Insurance Co [1990] 2 Lloyd's Rep 265 (QB).

20 Mr Keall submitted that there was a dispute about the pre-contractual representations made on behalf of Victoria Quarter before BMTJ and the defendants entered the lease and guarantees and also in relation to Drake's alleged breach of

cl 32.1 after it took the reversion of the lease. He submitted that those disputes had to be determined at arbitration in terms of the lease and so Drake's claim for summary judgment should be stayed because the defendants' claims raised equitable set-offs against Drake's claim for rent and outgoings

21 The underlying rationale for staying legal proceedings pending arbitration is to give effect to the parties' agreement to have their commercial disputes...