Lease — Rent review — Reference to arbitration — Expert evidence yielding range of new rentals — Arbitrator making award at bottom of range — Lessor seeking to set aside award — New Zealand Court of Appeal holding that award not in principle immune to attack but no error of law disclosed — Privy Council dismissing appeal against that decision.
A lease of a plot of land at Takapuna, North Auckland, was made on July 1 1987 between Pupuke Service Station Ltd as lessor and North Harbour Travel and Rental Car Co Ltd as lessee. Pupuke had been operating a small service station on the land for some years. The lease was for 12 years. The contract provided for biennial rent reviews according to a stipulated formula, and for a reference to arbitration in the event of dispute. The lessees did not prosper and on December 20 1988 assigned the benefit of the lease to Caltex Oil (NZ) Ltd. The first rent review took place in the summer of 1989 and resulted in an increase in rent from the original NZ$90,000 pa to NZ$110,769 pa. By an agreement dated November 23 1990 Caltex secured the consent of Pupuke to a major redevelopment of the service station. By the time of the next rent review, which covered the period from July 1 1991 to June 30 1993, the project was completed. No agreement could be reached on the values to be assigned to the variables contained in the review formula, and the resulting dispute was referred to arbitration. The award of the arbitrator was almost at the bottom of the range establishing a rental of NZ$122,552.62 pa. Pupuke sought to have the award set aside. Having failed in the New Zealand courts, Pupuke appealed to the Privy Council.
Held The appeal was dismissed.
1. The reference in the rent review clause to the minimum rate applicable recognised that there might be a range of rates which different experts would propose, and directed that the bottom of the applicable range was to be taken. That rate was thereafter to be used in the formula to determine the new rent at each review.
2. Having entrusted a valuation to an arbitrator the parties should abide by the result, unless the arbitrator had employed a method clearly outwith the contemplation of the contract.
3. The court should be hesitant to intervene where the disappointed party alleged an error of law on the face, for on a matter of valuation the award was likely to consist largely of a rehearsal of the evidence of rival valuers and the reasons why the arbitrator preferred one rather than another. That material was superfluous to any power of review by the court and hindered the identification and decision of any question of law which might exceptionally arise.
4. Since the arbitrator had no reason to draw a sharp distinction between evidence, findings and principles, the court was faced with the task of sifting out those parts of the award which were not subject to review to see whether there was anything which could properly be regarded as a debatable issue of law.
5. Having performed that sifting in the present case, their Lordships found that there was nothing left. There was no sign of an error of principle by the arbitrator.
Patrick Finnigan (of the New Zealand Bar), Wayne Mapp (of the New Zealand Bar), and TM Pryde (of the New Zealand Bar) (instructed by Alan Taylor & Co) appeared for Pupuke; Murray Gilbert (of the New Zealand Bar) (instructed by Davies Arnold Cooper) appeared for Caltex.
