OMV New Zealand Ltd v Precinct Properties Holdings Ltd

• Jurisdiction: New Zealand
• Judge: Ellis J
• Judgment Date: 06 July 2018
• Neutral Citation: [2018] NZCA 240
• Docket Number: CA35/2018
• Court: Court of Appeal
• Date: 06 July 2018

Between

OMV New Zealand Limited

Appellant

and

Precinct Properties Holdings Limited

Respondent

[2018] NZCA 240

Court:

French, Ellis and Woolford JJ

CA35/2018

IN THE COURT OF APPEAL OF NEW ZEALAND

I TE KŌTI PĪRA O AOTEAROA

Arbitration, Leases — Appeal against a decision of the High Court (“HC”) which denied the appellant's application for a stay of the HC proceedings — appellant leased two floors in a building owned by the respondent — the building was damaged in an earthquake — the appellant claimed the damage had rendered it untenantable and the lease had automatically terminated — whether the claim relating to tenantability must be referred to arbitration before resolution of the rental arrears claim

Counsel:

A M Stevens and E P P Maclaurin for Appellant

R J Gordon and N J G Smith for Respondent

• A The appeal is dismissed.

• B Costs are to be fixed in accordance with [35] of this judgment.

JUDGMENT OF THE COURT

REASONS OF THE COURT

(Given by Ellis J)

1 Precinct Properties Holdings Ltd (Precinct) is the owner of Deloitte House, in Wellington. Since 2009, Precinct has leased the ninth and tenth floors to OMV New Zealand Ltd (OMV).

2 The building was damaged in the 2016 Kaikoura earthquake. OMV says the damage has rendered it untenantable, and the lease has automatically terminated. Precinct denies that and has claimed for unpaid rent, seeking summary judgment in the High Court.

3 OMV now appeals a decision of Associate Judge Smith denying its application for a stay of the High Court proceedings. 1 A stay would have the effect of halting the progress of Precinct's application for summary judgment pending reference of the wider dispute between the parties to arbitration. Leave to appeal was granted by the High Court. 2

4 In the event that OMV's appeal is allowed, there is a subsidiary issue as to whether it has submitted to the jurisdiction of the High Court. 3

Background

5 The lease began in 2009 and was renewed in both 2012 and 2015. It was due to expire on 30 November 2020. The lease is in the standard ADLS form.

6 The Kaikoura earthquake hit on 14 November 2016. The building was damaged and was closed on 17 November 2016 until further notice. Following the earthquake, Precinct excluded OMV and other commercial tenants from the premises until at least 13 March 2017. On 20 March 2017 written engineering clearance supporting resumption of occupation was received.

7 Prior to that, on 2 February 2017, OMV gave notice that, due to the earthquake damage, the premises were untenantable and termination had been triggered in accordance with cl 26(a) of the lease, which provides:

26. Total Destruction

IF the premises or any portion of the building of which the premises may form part shall be destroyed or so damaged:

(a) as to render the premises untenantable then the term shall at once terminate or…

8 Precinct did not accept cl 26(a) had been engaged. On 8 June 2017, Precinct filed a statement of claim together with an application for summary judgment in the High Court. The claim referred to OMV's non-payment of rent and sought a declaration that the property was not untenantable. Precinct later filed an amended statement of claim and an amended summary judgment application in which Precinct directly claimed a total of $258,243.36 for unpaid rent said to have been due on 13 March, 1 April, 1 May, 1 June and 1 July 2017. Credit was given for the compulsory closure of the premises prior to 13 March 2017. Costs on an indemnity basis were sought in accordance with the terms of the lease.

9 OMV's position has always been that the issue of untenantability, together with further complaints it has which are said to justify the cancellation of the lease (including alleged misrepresentations by Precinct as to the earthquake rating of the building) must be referred to arbitration under cl 44.1 before Precinct can progress its summary judgment application. Clause 44 is headed “Arbitration” and materially provides: 4

44.1. UNLESS any dispute or difference is resolved by mediation or other agreement, the same shall be submitted to arbitration of one arbitrator who shall conduct the arbitral proceedings in accordance with the Arbitration Act 1996 and any amendment thereof or any other statutory provision relating to arbitration.

…

44.3. THE procedures prescribed in this clause shall not prevent the Landlord from taking proceedings for the recovery of rent or other monies payable hereunder which remains unpaid or from exercising the rights and remedies in the event of such default prescribed in clauses 28 and 29 hereof.[ 5]

10 When OMV filed documents in response to the High Court proceedings it expressly did so under protest to jurisdiction. More specifically, OMV applied for a stay of the summary judgment proceedings and referral of the dispute to arbitration.

Associate Judge Smith's judgment

11 Associate Judge Smith denied the application for stay and refused to refer the claim to arbitration. He held that:

• (a) cl 44.3 applies regardless of whether the landlord's claim for rent is disputed by the tenant; 6

• (b) a construction limiting cl 44.3 to circumstances where there is no bona fide defence for the tenant would “unjustifiably water down the intended effect of cl 44.3”; 7 and

• (c) staying the claim for rent while the other matters raised by OMV are referred to arbitration would undermine the intention behind cl 44.3. 8

12 The Associate Judge also distinguished the circumstances of the present case from those in Hi-Tech Investments Ltd v World Aviation Systems (Australia) Pty Ltd on the ground that in that case there was a dispute about the quantification of the rent said to be owing. 9 The Associate Judge accepted that so long as the lessor is pursuing recovery for rent or other monies identified in the lease as being payable by the tenant, the lessor's claim may be brought in court. 10

13 Precinct's application for summary judgment was then scheduled for 4 December 2017, but has been adjourned pending the outcome of this appeal. 11

Grounds of appeal

14 OMV challenges the Associate Judge's decision on the grounds that he:

• (a) failed to give sufficient effect to cl 44.1 and art 8(1) of the first schedule to the Arbitration Act 1996;

• (b) wrongly applied cl 44.3 notwithstanding that it does not override the mandatory arbitration cl 44.1; and

• (c) failed to apply the approach adopted in Hi-Tech Investments and (wrongly) preferred the approach in Drake City Ltd v Tasman-Jones. 12

15 Alternatively if the Court does have jurisdiction, OMV submits that the Associate Judge erred in suggesting the “pay now, argue later” principle applies to preclude OMV from contending that the lease does not remain in force and that no rent is therefore “payable”.

Ancillary issue — jurisdiction

16 On 2 February 2018, Precinct filed a memorandum indicating its intention to support the decision of Associate Judge Smith on other grounds, relying on r 33 of the Court of Appeal (Civil) Rules 2005. If necessary, Precinct wishes to argue that by filing its substantive opposition to the summary judgment application, OMV submitted to the jurisdiction of the High Court. 13

17 OMV's position on that issue is that Associate Judge Smith has twice ruled that there has been no such submission to jurisdiction and that, absent an appeal, those rulings cannot now be contested by a side wind. 14

18 On 19 March 2018, Cooper J issued a minute indicating that this issue could be dealt with at the hearing of the substantive appeal.

Discussion

19 OMV says the dispute about whether the premises were untenantable is properly captured by cl 44.1, and must be determined by arbitration before the determination of a claim for rent under cl 44.3. Mr Stevens, counsel for OMV, effectively submits that the words “monies payable hereunder” in cl 44.3 mean that the clause could not operate if there was a dispute about whether the rent was payable at all (as there is here). He also calls in aid the Supreme Court's observations in Zurich Australian Insurance Ltd v Cognition Education Ltd about the operation of art 8(1) of the first schedule to the Arbitration Act. Article 8(1) provides:

A court before which proceedings are brought in a matter which is the subject of an arbitration agreement shall, if a party so requests not later than when submitting that party's first statement on the substance of the dispute, stay those proceedings and refer the parties to arbitration unless it finds that the agreement is null and void, inoperative, or incapable of being performed, or that there is not in fact any dispute between the parties with regard to the matters agreed to be referred.

20 And in Zurich, the Supreme Court observed: 15

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.

21 We have little hesitation in rejecting that submission. The “arbitration agreement” here must be seen as cl 44 as a whole. It expressly carves out rent disputes. The more absolutist premise of art 8(1) (and of Mr Stevens' submissions) is predicated on there being no such exception. The only issue is whether the cl 44.3 exception applies here.

22 And as to that issue, the purpose of cl 44.3 seems to us to be quite clear. It is a reflection of the primacy that leases generally place on the covenant...