W. & R. Jack Ltd v Fifield CA 53/96 [1998] NZCA 110; [1999] 1 NZLR 48; (1998) 3 NZ ConvC 192,795 (11 June 1998)

Last Updated: 23 May 2011

IN THE COURT OF APPEAL OF NEW ZEALAND CA 53/96

BETWEEN W & R JACK LIMITED Appellant

AND E & J FIFIELD Respondents

Coram: Keith J Gallen J Doogue J

Hearing: 23 April 1998

Counsel: G W Allan for the Appellant

D J G Cox for the Respondents

Judgment: 11 June 1998

_{JUDGMENT OF THE COURT DELIVERED BY KEITH J}

The plaintiff (the tenant) applied to the High Court for an order for the appointment of an arbitrator to determine the rents of two buildings leased to it by the defendants (the landlords).

Barker J in a judgment given as long ago as 15 December 1995 declined to make the order sought, W & R Jack Ltd v E & J Fifield [1996] 2 NZLR 105. The tenant appeals. The landlords cross appeal against the order for costs made against them. We were told that part of the lengthy delay since the filing of the appeal over two years ago is to be explained by related summary judgment proceedings brought by the landlords for rent which were subject to an appeal by the tenant to this court but not pursued; compare now Rule 10 of the Court of Appeal (Civil) Rules 1997.

Under the leases the landlords had power to give notice specifying what they

dispute the proposed figures and to require the rents to be fixed by arbitration. The rents were not to be reduced by such a process.

The landlords gave notices on 30 June 1989 received on 5 July 1989 advising of increases effective retrospectively, as from 1 October 1988. The leases and the notices related to two separate buildings with separate rents. The tenant does not challenge the Judge’s finding, made on the landlords’ counter claim, that the rent for one of the two buildings was agreed in January 1992 in the course of a voluminous exchange of correspondence between the parties, [1996] 2 NZLR at 107-108. This appeal accordingly relates only to the other building.

So far as that building is concerned, the tenant did not dispute the proposed rent within the 28 day period provided for in the lease and the landlords accordingly contend that the tenant is not entitled to initiate the arbitral process and is also bound by the rent they stated in their notice. In a letter of 15 September 1989 the tenant did in fact disagree with figures proposed by the landlords as a compromise on 6 September and it then asked that the matter be settled by arbitration. It returned to that request a number of times in the many letters it wrote to the landlords.

In its amended statement of claim filed in December 1995 the tenant, contending that the time for it to dispute the proposed rent was not of the essence, asked for an order that the court appoint an arbitrator under s6 of the Arbitration Act 1908 or in the alternative direct that the defendant nominate an arbitrator for the purpose of an arbitration before two arbitrators who were to appoint an umpire. If time were held to be of the essence, the tenant contended that it was entitled to such an order on the basis of estoppel. Finally, again if time were of the essence and there had been no estoppel, the tenant, contending that undue hardship would be caused to it and referring to other matters, asked the court to extend the time for filing the notice disputing the rent to 17

September 1989 or to such other date as the court determined, under s18(6) of the Arbitration Amendment Act 1938, as well as making the order for the appointment of an arbitrator.

tenant to give notice of dispute was of the essence, as decided in his (then) recently reported judgment Mobil Oil NZ Ltd v Mandeno [1995] 3 NZLR 114. (That matter was also not in issue before us.) Accordingly, he went on to consider the second and third causes of action based on estoppel and the statutory power. As already indicated, he rejected those claims.

Given the view which we take about the exercise of the power under s18(6) of the Arbitration Amendment Act 1938, we need not enter into the issues about estoppel and election. We would do no more than note that it is difficult to see in the lengthy correspondence any action (including inaction) of the landlords in which they acknowledge that the tenant had a right under the lease to require an arbitration, notwithstanding its failure to make that request in time. One difficulty in the way of the tenant’s argument is that the principal thrust of the correspondence between the parties was about possible alternative rents (a process which eventually led to agreement on one of the two buildings in question, as noted earlier). The course of the parties’ dealings had essentially moved away from the original rent review notice and the formal process for questioning that notice.

We turn to the statutory power to extend time for requesting an arbitration. Section 18(6) of the Arbitration Amendment Act 1938 read as follows:

Where the terms of an agreement to refer future disputes to arbitration provide that any claims to which the agreement applies shall be barred unless notice to appoint an arbitrator is given or an arbitrator is appointed or some other step to commence arbitration proceedings is taken within a time fixed by the agreement, and a dispute arises to which the agreement applies, the Court, if it is of opinion that in the circumstances of the case undue hardship would otherwise be caused, and notwithstanding that the time so fixed has expired, may, on such terms, if any, as the justice of the case may require, but without prejudice to the foregoing provisions of this section, extend the time for such period as it thinks proper.

The 1908 Act and its amendments (including that of 1938) were repealed by the Arbitration Act 1996 with effect from 1 July 1997. The transitional provision in that Act provides that the new Act applies to every arbitration agreement, whether made

before or after its commencement, and to every arbitration under such an agreement, s19(1). That transitional provision is subject to an exception that “where the arbitral proceedings were commenced before the commencement of this Act” the old law remains applicable. Under subs(4), arbitral proceedings are to be taken as having commenced on the date of the receipt by the respondent of a request for the dispute to be referred to arbitration. The parties in this case disagree whether that has happened, the tenant claiming that its letter of 15 September 1989 was such a notice, and the landlords denying that. That is however of no immediate consequence since counsel agreed that nothing turns on which Act applies. They considered that in the present context clause 7 of the Second Schedule to the new Act is essentially to the same effect as s18(6) of the 1938 Amendment. The new provision reads:

7. EXTENSION OF TIME FOR COMMENCING ARBITRATION PROCEEDINGS—

(1) Where an arbitration agreement provides that no arbitral proceedings are to be commenced unless steps have been taken to commence the proceedings within the time specified in the agreement the High Court or a District Court, as the case may be, may, notwithstanding that the specified time has expired, extend the time for such period as it thinks fit, if, in its opinion, undue hardship would otherwise be caused to the parties.

(2) An extension may be subject to any such conditions as the justice of the case may require.

(It will be seen that the triggering condition for the operation of the new power is worded apparently more widely than it was in the 1938 Act. The old expression, “claims ... shall be barred”, is replaced by the expression “no arbitral proceedings are to be commenced”. But in this case nothing turns on that. The matter in issue and resolved in S I Pension Trustees Ltd v Williams Hudson Ltd (1977) 35 P & CR 54, applied by Barker J in the present case, [1996] 2 NZLR at 109, appears to have been substantially if not completely removed from contention.)

There are as well no significant differences in the present context between the powers of the court in relation to the appointment of an arbitrator under the old legislation (s6 of the 1908 Act being invoked by the tenant in this case in its original

and amended statement of claims) and the new; see article 11 of the First Schedule and clause 1 of the Second Schedule to the 1996 Act.

The only difference between the parties in respect of extension under the statutory powers relates to the appropriateness of the exercise of the power in the circumstances of this case. Was there “undue hardship” to the tenant (for the reference “to the parties” in the new provision, if applicable, is to be read as covering “one of the parties”)? And, if so, should or should not the court exercise the power to extend the time (for it has a discretion even if undue hardship is established)?

Barker J (at 109-110) reviewed cases on the equivalent United Kingdom provision and the relevant New Zealand cases, especially Lower Hutt City v New Zealand Municipalities Co-operative Insurance Co Ltd [1965] NZLR 24. In the concluding paragraphs of his judgment (at 110) he stressed the delay of the tenant as overcoming any possible undue hardship to it:

I think it would constitute hardship to the lessee to allow the lessors to rely on the strict terms of the lease. The lessors, quite unreasonably, did not reply to the offer of the lessee to settle the claim in respect of no 196 but chose instead to reply only in respect of no 194 [the premises in respect of which he held that agreement had been reached] and then to temporise for several years over 196. Viewed overall, the conduct of the lessors in failing to reply to reasonable letters from the lessee could constitute hardship to the lessee. But I do not consider it undue hardship considering the lessee's delay in applying to the Court under the subsection.

The late application of the lessee under the section is fatal to its application. It did not apply until an amended pleading on 4 December

1995, after giving notice of the amendment about a month previously. Altogether, a delay of over six years. None of the cases shows a delay of anything like that length. The lessee should have filed its application by the latest in January 1992 when the lessors deliberately chose to accept the lessee's offer in respect of one building and to say nothing about the other building.

Mr Cox for the landlords accepted, as partly indicated by Barker J in the last sentence of that passage, that at its longest the delay was a little under four years, beginning in January 1992 and ending in November or December 1995 when leave was

given to amend the statement of claim to include the application under s18(6) and the amended claim was filed. Mr Allan for the tenant by contrast put the delay at either

12 weeks (to the date of the original legal proceedings), or a little more than a year (to the amended proceedings including the application under s18(6)), the period beginning in September 1994 when the landlords’ solicitors wrote to the tenant’s solicitors.

We agree that that letter was significant. It was written in response to a proposal by the tenant’s solicitors that disputes about the lease agreements be resolved by an arbitrator in accordance with the general arbitration provision in the lease agreements. (That provision was separate from that for rent reviews.) The reply on behalf of the landlords was to the effect that there was no valid dispute arising out of the two deeds of lease for the premises. “The fixing of the rental for the premises applicable for the period from 1 October 1988 was clearly agreed as at January 1992”. The letter then proceeded to document that proposition. It is a proposition which, as noted earlier in this judgment, was accepted by Barker J in respect of one but not the other of the two premises. The letter then moved on to consider the rent review mechanism contained in the lease. It described its terms, including the requirement that the tenant give notice within 28 days if it disputed the rent and required arbitration. The solicitors recalled that both parties had obtained valuations, the landlords on 12 April 1989, and said “we have found no correspondence at all from W & R Jack Ltd either disputing the proposed rent or requesting arbitration of the rental, and certainly no correspondence to this effect within 28 days after the date of the [landlords’] valuation.” We would note first that the date of the landlords’ valuation, 12 April 1989, is not the decisive one. The relevant date is the presumed date of receipt of the landlords’ notice, at the beginning of July

1989. We also rule that the tenant’s letter of 15 September 1989 (not mentioned in the September 1994 letter) is an objection in terms of the requirements of the lease, although, of course, out of time. It disputes a proposed new rent and asks that the rent be determined by arbitration, essentially the two requirements of the relevant provision of the lease.

It is clear that from at least September 1994 the tenant was on notice about its failure to meet the time limits. Because the earlier references by the landlords to the dispute procedure laid down in the lease had not made any reference at all to the time

limits or to the tenant’s failure to comply with them, we agree with Mr Allan that it was only from that date that the tenant’s delay should be measured. The tenant took issue with the landlords’ legal position only 12 weeks later by commencing the Court proceedings. At the most the tenant’s delay was only a little over a year, until the time it amended its statement of claim by including the application under s18(6). But because the principal remedy - the initiation of the arbitration process - remained unchanged the delay, in our view, was only 12 weeks and not six years as Barker J held.

We return to the exchanges between the parties later, after considering the particulars of undue hardship pleaded by the tenant. The amended statement of claim includes the following relevant paragraphs:

16. The particulars of the undue hardship are:

(a) That the plaintiff will have been denied the right to have a current market rent determined by arbitration.

(b) That the plaintiff could be bound to pay the difference between the amount determined in the landlords’ notice and what may be payable as a current market rent which even subject to the ratchet clause could be an amount in excess of $100,000.

17. That the justice of the case requires a extension of time for the following reasons:

(a) The inequity between what could be payable if the order is not made, an amount in excess of $100,000.

(b) The unjust enrichment to the defendant.

(c) The fact that the value of the defendant’s investment has been preserved by the ratchet clause in the lease.

(d) The delays and lack of co-operation by the defendant in responding to correspondence in the plaintiff’s endeavour to resolve this matter.

Paragraph 16(a) by itself cannot be enough. That fact goes without saying in any application to invoke an extension of a period which has expired. Subparagraphs (a) and (b) of paragraph 17 essentially put in other words the hardship pleaded in paragraph 16(b). But that having been said the amount in issue is probably a significant

one. The pleaded figures of course relate to both properties. For the one still in issue the initial rent was $47,000, the landlords’ proposed rent was $71,484 (an increase of over 50%), the tenant’s valuation at about that time was $65,724 and the landlords’ compromise offer of 6 September 1989 was $69,000. The possible range in any arbitration appears to be between $47,000 and $71,484 (although a higher figure is not forbidden by the lease) and would perhaps be nearer the higher end given the tenant’s valuation. In any event, to repeat, a significant amount is in issue, given as well that the tenant cannot initiate a review and that the rent fixed is the minimum for the term of the lease. We should stress that the possibilities just mentioned are not intended in any way to indicate what the outcome of an arbitration might be. That matter is not before us. We have no basis on which to make any estimate at all. Rather we are attempting to assess the hardship which the tenant would be caused if it did not have the opportunity to arbitrate the rent.

We now turn to the factors which have been weighed by courts in England in favour of applicants for exercise of the discretion conferred by the arbitration statute. In doing that we agree with Barker J that there is no reason to adopt the narrower reading which had been adopted in earlier cases, including the New Zealand decision to which we have referred. That approach has since been abandoned in England following the majority decision of the Court of Appeal in Liberian Shipping Corporation “Pegasus” v A King & Sons Ltd [1967] 2 QB 86, 98-99, 103-104 and 107. As well, this is not the kind of case to which Lord Denning referred in that case of commercial people knowing where they stand with the consequence that once the time limit is up they are entitled to consider that all claims are barred save in very exceptional circumstances. His court was concerned with a shipping dispute between the charterers and the owners involving particular delays and disasters, matters in the past. Here by contrast there is a continuing relationship between the landlords and tenant with no obvious problem, for instance, of relevant information and evidence becoming stale.

Among the matters which English courts have weighed in favour of an extension of time, as most helpfully summarised in Mustill & Boyd, Commercial Arbitration (2d ed 1989) 212-215, are:

(1) The substantial size of the sum in issue.

(2) The existence of a misunderstanding about whether the time bar is being relied upon, more particularly if the defendant has contributed to or shared in that misunderstanding.

(3) The fact that the parties were in negotiation during the relevant period.

We have commented on the first matter. So far as the second is concerned, we recall that the landlords did not make explicit their contention about the non-availability of arbitration because of delay until September 1994, three months before the present proceedings were launched. As Mustill and Boyd note (213 n15), facts which would not sustain a plea of waiver or estoppel may found an application for an extension.

The final matter bears directly on the argument which weighed so heavily with Barker J - the delay. In this case the parties, particularly the tenant (for as the Judge notes, the landlords were at times delinquent in failing to respond to the tenant’s proposals), were in continuing correspondence about the rents to the premises. This was not a case in which in the broadest sense time ever appears to have been of the essence. The matter has dragged on over an inordinately long period.

As well the landlords knew from the outset that the tenant questioned any large increase in rent. Before they sought their valuation their property adviser had discussions with the tenant’s representative about a possible rental increase. The property adviser said that there was a substantial rental increase overdue for the property because of rental movement since the last review. The tenant’s agent expressed surprise that it should be substantial as there were so many dozens of empty buildings in the area. Within a month of receiving the landlords’ notice of rental adjustment the tenant obtained a valuation and there were discussions in the following month between the parties’ agents concerning the rental levels. In September the landlords proposed their compromise in respect of both premises. Within nine days the tenant had replied that that compromise was not acceptable and had asked that the matter be settled by arbitration. (The tenant has accepted that it could not treat that

September proposal, rather than the June notice, as the landlords’ action initiating the rent review.) From then on the extensive correspondence has continued, leading among other things to the January 1992 agreement in respect of one of the premises.

This is not a case in which it can be said, to refer to a principal matter which would weigh against extension of time, that the landlords have in any real sense been prejudiced. They continue, in terms of the lease, to be entitled to the rent at the level at which they determined in their notice of 30 June 1989. There is no indication of any real problem in terms of the production of evidence for the purposes of an arbitration, even although the period in issue is now a very long time ago.

To summarise, we consider that the tenant would suffer undue hardship, in terms of the lack of the opportunity to obtain a substantially lower rent than that notified on 30

June 1989; that the hardship would be out of all proportion to its fault, given especially its actions before and after the landlords’ actions of June and September 1989; that the brief delay does not seriously prejudice the landlords; and that for the other reasons mentioned we should exercise our power to extend the time for the tenant to give notice of its requirement that the rent for the premises in dispute be settled by arbitration until

18 September 1989. We decide that by that date the landlords had received notice from the tenant of that requirement in terms of the deed of lease.

Given that conclusion, in terms of the relevant statutory powers, we are prepared to make an order relating to the appointment of an arbitrator. The statement of claim proposes alternative orders, depending on whether there is to be one arbitrator or three. Counsel may submit memoranda on the form of the order sought, if necessary. In the event of the parties not being able to agree within 28 days of this judgment, the tenant’s memorandum is to be filed and served within 14 days of that date, the landlords’ memorandum within seven days and any reply within a further seven days.

The appeal is allowed in the terms indicated. In all the circumstances we make no order for costs in this Court and vacate the costs order made in the High Court. That is to say the landlords’ cross appeal against the costs order is also allowed.

Solicitors:

Pitt & Moore, Nelson for Appellant

Rennie Cox Garlick & Sparling, Auckland for Respondents