Tenant goes rogue
The material facts of the dispute between YMIL and HAL are fairly routine. YMIL was the landlord of Ascot Motor Lodge in Hamilton. HAL was the tenant and managing the lodge when it undertook unconsented building works on the property and also used the lodge as emergency housing without obtaining the consent of YMIL. The matter ended up in the High Court, which largely upheld YMIL’s complaint and held that there was enough evidence to justify the termination of the lease.
However, the Court was also forced to comment on the conduct of HAL throughout the proceedings and its unwillingness to engage in arbitration.
The agreement to arbitrate
The lease agreement between HAL and YMIL included a provision, clause 3.8, mandating arbitration for the resolution of disputes. The clause specified that all disagreements between the parties must be submitted to arbitration in accordance with the Arbitration Act 1908 or any relevant statutory provisions.
Initially the parties entered into discussions regarding attending arbitration. However, according to the High Court judgment this was cryptically unable to be scheduled.
Mr Delic, representing HAL, argued that there was no outright refusal to attend arbitration but rather a delay due to circumstances beyond HAL’s control, including YMIL’s alleged failure to promptly engage with the arbitrator. HAL asserted its willingness to participate in arbitration, contending that any breach resulting from delays was minor and could be rectified.
In contrast, Ms Rawcliffe, representing YMIL, presented a different narrative. She contended that HAL had consistently evaded arbitration despite YMIL’s repeated requests spanning over a year. Ms Rawcliffe emphasised HAL’s email in October 2022, where HAL explicitly stated that arbitration was not agreed to, signalling a deliberate and serious breach of the lease terms. She argued that HAL’s conduct undermined the contractual relationship and necessitated judicial intervention.
Court concludes that the gravity of breaches by HAL was high
The High Court, in its assessment, examined clause 3.8 of the lease and the sequence of events leading to the dispute. It noted YMIL’s documented efforts to initiate arbitration and HAL’s documented refusals or delays.
For instance, between October 2021 and October 2022 there were 16 occasions where YMIL requested HAL’s attendance at arbitration. Not only did HAL fail to engage with this process but HAL’s position was that it was not in breach of the terms of the lease, that YMIL’s claims could not succeed and, as such, arbitration was not agreed to.
The Court highlighted this circular argument in its judgment by stating:
That is a highhanded response to a difference in views. A difference in views between landlord and tenant is precisely what an arbitration process addresses.
Effectively, HAL’s position has been that if it did not think there was a breach or a dispute then it did not need to attend an arbitration to have it dealt with. This is an outright disregard for the lease and the position of the landlord.
The Court held that failing to attend arbitration was a clear breach of the lease.
The Court went on to note the conduct of HAL when, in writing to YMIL’s solicitors, one of HAL’s directors, Mr McGuire, wrote to YMIL arguing that arbitration was an expensive process and that we can afford these fees. What about you?
It was also noted that Mr McGuire had previously argued that the District Council can prosecute for any consent breaches if they want because it will be the owners who get prosecuted.
The Court also noted an earlier correspondence where Mr McGuire wrote:
We note that your rent is about $72,000 per year. Your senseless provocation will feed your Lawyers rice bowl and benefit you not the slightest. Remember that. I enjoy fighting landlords and we destroyed the last one we dealt with.
Mr McGuire concluded by saying: Whatever your decision in future, we will enjoy the journey that follows and we will enjoy the expensive road that results.
The Court held that the gravity of the breach was high as the refusal to enter into a process to resolve disputes undermines the contractual relationship. The Court found that YMIL did not contribute to the breach in any way and that HAL’s position now saying it will attend arbitration can be viewed cynically as an attempt to simply boost its ability to get relief.
In dismissing the case the Court held that the application by HAL for relief against cancellation of the lease pursuant to section 253 of the Property Law Act 2007 was refused and ordered HAL to pay YMIL’s legal fees, to be assessed if not agreed.
Conclusion
Ultimately, the Court’s decision refused HAL’s application for relief against lease cancellation, citing HAL’s repeated breaches, including the refusal to attend arbitration. This case underscores the importance of honouring contractual obligations and participating in alternative dispute resolution mechanisms promptly. For landlords and tenants alike, it serves as a reminder of the legal and strategic implications of failing to engage in arbitration as stipulated in lease agreements and is a cautionary tale about tempering comments during the course of any dispute.
