Ipsofactoj.com: International Cases [2005] Part 5 Case 6 [NZCA]




- vs -

Grey District Council




19 DECEMBER 2003


McGrath J

  1. This appeal has been heard on the papers at the request of the parties. The relevant materials, including written submissions, have been considered by the members of the Court who have conferred, and agreed upon this judgment.


  2. The appeal is against declarations by the High Court that the appellant, who was appointed as an arbitrator by parties to a rental dispute, was not "competent in valuation" in terms of the Public Bodies Leases Act 1969 (the 1969 Act) and not an "impartial or independent" arbitrator in terms of the Arbitration Act 1996 (the 1996 Act). The Court held that the particular challenge to the appellantís appointment which was before it was time-barred under the 1996 Act. The appellant also appeals against the Courtís order reserving costs and takes issue with observations in the High Court judgment suggesting that she should voluntarily step down as an arbitrator. The respondent, the Grey District Council, supports the declarations made and has not cross-appealed against the finding that the proceeding is time-barred.


  3. The Grey District Council owns some four hundred freehold properties, of which around three hundred are leased for residential purposes under the 1969 Act. We are advised that the leases of the residential properties, which are at the heart of this appeal, are for an initial term of 21 years with perpetual rights of renewal. Ground rent was set for the first seven years and thereafter is fixed, under the First Schedule to the 1969 Act, with rent reviews at periodic intervals. Section 22 of the 1969 Act and clause 7 of its First Schedule provide that, on a rent review, if the parties cannot agree then the rent is to be determined by arbitration. It is provided in particular that each party is to appoint an arbitrator, and the arbitrators an umpire, to constitute the arbitral tribunal.

  4. The High Court judgment records that the ground leases the subject of this litigation were in Blaketown and that a rent review fell due on 1 November 2000. Having resolved to adopt a market-driven approach to rental reviews of its leased land, the Council proposed rent increases to the residential lessees which did not meet with their approval. After unsuccessful attempts by the residents to persuade the Council to reconsider its policy the parties agreed on arbitration. A group of 34 residents informally appointed the appellant as their arbitrator. She is a resident of Blaketown whose property is leased from the Council and is subject to a rent review effective from 1 November 2000.

  5. The Council sought legal advice concerning the appointment of the appellant as an arbitrator. It was advised on 14 May 2001 by counsel that she lacked qualifications for the role, as required by statute, and that she was also disqualified because of her personal interest. The Council then wrote to the lessees and asked them to appoint a different arbitrator. Over time most lessees did so. A number took up an opportunity to acquire the freehold interest in the land, while others resolved their individual rental figures by negotiation.

  6. The Council filed an originating application in the High Court in May 2002, which was served on the appellant and her husband, who is co-lessee. The application sought declarations as to whether the appellant was able to act as arbitrator for herself and her husband, and as to what steps had to be taken to ensure arbitral determination of the revised rent in accordance with the law. (The position of two other lessees who had appointed the appellant as their arbitrator was not made specifically the subject of the proceedings.) A further declaration was sought as to whether the arbitration was to be conducted under the Arbitration Act 1908 or the 1996 Act.

  7. In a judgment delivered on 14 February 2003, reported at [2003] NZAR 487, Panckhurst J first considered whether the dispute was to be determined under the 1996 Act or its 1908 predecessor. This question turned on the transitional provisions of the 1996 Act and in particular s19(3). Faced with a conflict of authority the Judge followed the judgment of Master Venning in Con Dev Construction Ltd v Financial Shelves No 49 Ltd Christchurch CP179/97, 22 December 1997, held that the 1996 Act applied, and that it governed the arbitral process. No issue arises in the appeal concerning the correctness of this finding.

  8. The Judge next considered whether the appellant was a person "reasonably believed by the (parties) appointing (her) to be able to make the valuation" as required by clause 7 of the First Schedule to the 1969 Act. He held that the appellant lacked sufficient experience in valuation of urban sections to found such a reasonable belief. This was despite her close knowledge of the area in which the properties concerned were situated and the demand for and prices paid for sections in the locality. The Judge also rejected an argument for the appellant that it was only the umpire who required special expertise in valuation under the 1996 Act.

  9. The Judge accepted a submission from the respondent that an appointment as arbitrator could be challenged by the party which had not made the appointment because of the arbitratorís personal interest in the subject of the dispute. Article 12(2) of the 1996 Actís First Schedule provides that an appointment may be challenged where there are circumstances that give rise to justifiable doubts concerning the arbitratorís impartiality or independence. As the appellant had a direct personal financial interest in the outcome of the arbitration there were grounds for challenging her appointment under Article 12.

  10. Finally the Judge decided that the respondentís challenge to the appointment of the appellant had been made too late under the terms of Article 13 of the First Schedule. There was a time limit for bringing a challenge of 15 days after the party concerned had become aware of a ground for challenge and it had not been observed. On the facts, he rejected an argument, based on observations by DAR Williams QC in Laws of New Zealand, Arbitration, para 42, that the time limit did not apply when the challenge was based on an arbitratorís lack of impartiality. The appointment of the appellant was known to the respondent by 18 January 2001, but it was not until 24 May 2001 that it had written to lessees asking that they appoint a new arbitrator. The Councilís challenge was accordingly one that was out of time and it could not invoke the challenge procedure. This finding was not made the subject of a crossappeal by the respondent and we make no comment concerning it.

  11. The Judge left open the further question of whether the Council could have had any award made by a tribunal including the appellant set aside, despite its lack of compliance with the 15 day time limit, because the right to an impartial and independent arbitrator is mandatory, and because she had refused to disqualify herself. He concluded his judgment by observing that voluntary withdrawal by the appellant would be a more appropriate course than her continuation in the role of arbitrator.

  12. We also prefer in this judgment to leave open the question whether any award might be amenable to setting aside, not just for any actual bias which might be evinced, but also because circumstances, of which the impugned status is part, might amount to apparent bias.


  13. The appellant has personally filed lengthy and detailed submissions. Written submissions have also filed by Mr Davidson QC on behalf of the respondent. For the purposes of this appeal, the arguments advanced by the appellant can be summarised under four heads:

    1. Declarations could not properly be made by the High Court, in view of its finding that the Councilís challenge was time-barred. Article 5 of the First Schedule to the 1996 Act precluded that form of court intervention because it was not one provided for in that schedule.

    2. The declaration that the appellant was not competent to be an arbitrator, under the 1969 Act was based on an erroneous interpretation of clause 7 of the First Schedule to the 1969 Act, which requires no more than that the appointing party "reasonably believed" the arbitrator to be competent to make the valuation;

    3. The Judge also erred in declaring that there were "justifiable doubts as to (the appellantís) impartiality or independence" in terms of Article 12(2) of the First Schedule to the 1996 Act, given that impartiality and independence were not necessary in this particular context (there being an umpire). Furthermore only the appointing party could make such a challenge to the appointment.

    4. Given the operation of the time-bar under Article 13 of the First Schedule to the 1996 Act, the Judge should not have commented as he did concerning the inappropriateness of the appellantís continuing to act as an arbitrator. Such comments, and the order reserving costs, have resulted in the appellant being improperly subjected to pressure to step down.


    We consider each ground of appeal in turn.

    The Courtís ability to make declarations under the Declaratory Judgments Act

  14. The appellant takes issue with the High Court making the declarations it did, in relation to her competence under the 1996 Act to be an arbitrator and as to whether she is disqualified by reason of personal interest. She referred to Article 5 of the First Schedule to the 1996 Act, which states:


    Extent of court intervention

    In matters governed by this Schedule, no court shall intervene except where so provided in this Schedule.

    Article 13 provides for the procedure for challenging an arbitration:


    Challenge procedure


    The parties are free to agree on a procedure for challenging an arbitrator, subject to the provisions of paragraph (3).


    Failing such agreement, a party who intends to challenge an arbitrator shall, within 15 days after becoming aware of the constitution of the arbitral tribunal or after becoming aware of any circumstances referred to in article 12(2), send a written statement of the reasons for the challenge to the arbitral tribunal. Unless the challenged arbitrator withdraws from office or the other party agrees to the challenge, the arbitral tribunal shall decide on the challenge.


    If a challenge under any procedure agreed upon by the parties or under the procedure of paragraph (2) is not successful, the challenging party may request, within 30 days after having received notice of the decision rejecting the challenge, the High Court to decide on the challenge, which decision shall be subject to no appeal; while such a request is pending, the arbitral tribunal, including the challenged arbitrator, may continue the arbitral proceedings and make an award.

  15. The appellantís argument is that the procedure for the making of the declaration was an intervention prohibited by Article 5 as being a challenge to an arbitrator that was not in accordance with the Schedule. In this case the Court held that resort to that procedure was time-barred. Accordingly, there was no jurisdiction for the Court to intervene by making declarations.

  16. The declarations sought from the Court by the respondent were concerned with whether the appellant was entitled to act as the arbitrator appointed by herself and her husband in respect of the dispute over the revised ground rent for their property; if so, how the arbitration to be conducted by her and the arbitrator appointed by the respondent should proceed; and if not as to what steps were required to be taken by the parties to see the process of arbitration through to completion. The High Court decided that the challenge had come too late so that the respondent could not invoke the challenge procedure under the 1996 Act in the instant case. The proceeding however being one under the Declaratory Judgments Act, the Judge decided he was able to make declarations on legal questions that had arisen in order to clarify for the parties their underlying rights and obligations. He made it plain that his declarations would not apply to determine the instant dispute, unless the appellant voluntarily chose to apply them. Implicitly they would have future binding effect if the issues concerned arose in the future between the same parties. The question is whether this amounted to an intervention of the kind which s5 of the 1996 Act precludes.

  17. The prohibition in Article 5 is on intervention, other than as is provided for in the First Schedule, which authorises agreement on the manner of challenge to an arbitrator and stipulates a default procedure for challenge in the absence of such agreement. The declarations made do not interfere with or affect the course of the arbitration of the particular dispute. As the case will not have any legal effect in relation to the arbitration of the present particular dispute, we do not regard the making of them by the High Court as an intervention which is precluded by Article 5.

  18. The question however is whether it was appropriate to make the declarations sought. There is of course an overriding discretion to refuse to grant a declaration under s10 of the Declaratory Judgments Act. In most cases, the general policy of the 1996 Act in relation to curial intervention is likely to persuade the Court not to intervene where the statutory time limit for intervention under the Arbitration Act has not been complied with. But it may in some circumstances be appropriate to grant a declaration where the must fundamental norms under that Act are in issue. The requirement of impartiality is such a norm.

  19. It was inappropriate, however, to grant formal declarations in these particular circumstances. It is well established that the Courts do not normally grant a declaration to answer an academic or hypothetical question. Accordingly they do not readily grant declarations where no consequential remedy or relief can be granted concurrently or in the future. The Court generally exercises the jurisdiction only where there is a right in issue requiring protection or enforcement Re Chase [1989] 1 NZLR 325, 334 per Cooke P and 343 per Henry J. As we have said, because of the time-bar on intervention, the declarations made could have no legal effect on the present dispute concerning the appellantís role. Nor would it necessarily have such effect in the future, because any declaration would be limited to the particular factual context. By the time the issue arises again, if it ever does, the appellantís position may have changed materially. We are satisfied that in such circumstances formal declarations served no useful purpose, and that they should not have been made. It follows that the appeal against the granting of the declarations must succeed.

  20. Having said that we add that it was open for the Court to express views as to the underlying legal position even though they did not form part of the Courtís decision. The error was not that such views were expressed but that they were made the subject of declarations. In view of the importance of the issues to the parties we venture on that basis to make some comments of our own on the appellantís other grounds of appeal.

    Whether the appointors "reasonably believed" the appellant to be competent

  21. We turn first to the challenge to the declaration concerning the appellantís lack of competence. Clause 7 of the First Schedule to the 1969 Act provides:


    Where the valuation of the rent payable under a renewal lease is to be determined by arbitration, that valuation shall be made by 2 persons as arbitrators, each such person being reasonably believed by the party appointing him to be competent to make the valuation, one of whom shall be appointed by the lessor and the other by the lessee:

  22. The appellantís argument is that what the appointing parties (essentially herself, her husband and some other ground lessees) "reasonably believed" as to her competence to make the valuation, when they appointed her, is to be determined subjectively by reference to what in fact they in fact believed. We accept that the appointing partyís reasonable belief under clause 7 must be one genuinely held by the appointing party. It must also however be a belief which is reasonable. This imports an objective standard in the assessment of which the actual beliefs and interests of the appointing party carry little if any weight. Here the Courtís inquiry is not into whether the belief is correct but whether it is rationally supportable. Whether this standard is met is a question which the Court in properly constituted proceedings will be called on to decide independently of the view taken by the parties. All this follows from the importance which the 1969 Act places on the competence in valuation to the quality of the arbitration process.

  23. The appellant advanced several arguments in support of the reasonableness of the appointing lesseesí beliefs in her competence as a valuer.

    • First, she says she provided valuations to the lessees, which each lessee considered and approved.

    • Secondly, she says that in the course of her work she compiled a set of procedural rules which were agreed to by all the arbitrators involved.

    • Thirdly, she points to what she says was the apparent initial acceptance by the lessor of her valuations, and says this demonstrates that they were comfortable with her efforts.

    • Fourthly, she says that she has lengthy experience as a lessee and a close knowledge of her community including matters relevant to the appraisal of residential sections in the relevant locality.

  24. It may well be that the appellant has been able to apply herself to the arbitral role with diligence and perceptiveness. Valuation however is a complex technical task. Although the appellantís organisational ability, practical familiarity with valuation matters, and knowledge of the community provides a starting point for undertaking that task, objectively it can be no more than that. Without technical valuation experience coupled with formal knowledge of valuation techniques it cannot be said, objectively, that the appellant was sufficiently proficient to act competently as arbitrator in the dispute. Evidence that she was performing a particular role successfully even if undisputed cannot be determinative for the reasons given above. The positive feedback she received might be explained by personal loyalty to her of lessees and the determination of the Council to try and make a difficult process work. Such subjective views do not give significant assistance in providing an objective picture.

    Whether the respondent can challenge the appointment of the appellant on grounds of bias

  25. Turning to the question of the appellantsí impartiality and independence, it is well established that a person appointed as an arbitrator must be impartial. As Gresson P put it in Attorney-General v Wellington Harbour Board [1959] NZLR 150, 154

    it is a general rule of law that inasmuch as an arbitrator is in a quasi-judicial position he must be a person from whom there can be expected complete impartiality and indifference both as between the parties to the arbitration and in regard to the matters which are to be the subject of the arbitration.

  26. The appellantís primary submission that the process is a partisan one, where each arbitrator can legitimately represent a side, leaving the umpire to make the actual decision independently of them, overlooks the fact that the process may be completed without the appointment of an umpire at all. It also overlooks the important point that arbitration differs from negotiation through agents as each arbitrator has a fundamental duty to act fairly and impartially. This duty is at the essence of arbitration, and extends to party-appointed arbitrators. The observation of Tompkins J in Tolmarsh Developments Ltd v Stobbs [1990] LVC 835, 828 is in point:

    At the stage when the two arbitrators have entered upon the reference and are endeavouring to reach agreement, it is essential that they must be, and must be seen to be, acting impartially, objectively and with an absence of bias.

  27. It is unnecessary for the purposes of this judgment to consider how that duty of independence may be affected by the involvement in the process of an umpire following disagreement between party-appointed arbitrators. There is an observation in Russell on Arbitration (22ed 2003) at para 4-008 that:

    Where there is a tribunal of two arbitrators and the third member is not the chairman but is to act as an umpire, the arbitrators may, once they have been replaced as the tribunal by the umpire, become advocates for the parties who appointed them and argue the dispute before the umpire.

    A footnote, however, suggests that while this was previously traditional practice before the Arbitration Act 1996 (UK), specific agreement may now be needed under s15 of that Act. It is unnecessary for us to consider in this judgment whether the principle has application under New Zealand legislation in the context presently being considered.

  28. The appellantís next argument is that under Article 12(2) only the party appointing the arbitrator may challenge him or her. Article 12(2) states:

    An arbitrator may be challenged only if circumstances exist that give rise to justifiable doubts as to that arbitratorís impartiality or independence, or if that arbitrator does not possess qualifications agreed to by the parties. A party may challenge an arbitrator appointed by that party, or in whose appointment that party has participated, only for reasons of which that party becomes aware after the appointment has been made.

  29. The appellantís point is that because the article makes explicit reference to challenge to an arbitrator by the party appointing, it follows that there can be no challenge to the appointment of the other partyís arbitrator. Such a highly restrictive interpretation of Article 12 would produce bizarre and unfair results. The right to challenge arbitral appointments is a conferred as a safeguard to arbitral impartiality. In the normal course the party seeking to uphold that value will be the nonappointing party. Such an interpretation cannot stand against the natural and ordinary meaning of the words in their context and having regard to the purpose of the provision for challenge. Read in this way Article 7 provides that a challenge can be brought by the appointing party only when that party discovers new information about its appointee after the appointment. By implication, this restriction does not apply to the other party, who is not limited to information discovered after the arbitratorís appointment as he or she has no control over when that appointment is made. For these reasons, the appellantís argument on this point seems untenable.

    The Judgeís comments

  30. Lastly, the appellant objected to the Judgeís suggestion that she should voluntarily step down. She claimed that this, combined with the order reserving costs, amounted to improper pressure. We can dispose of this point quickly. There is no evidence that the costs order was in any way intended to exert pressure on the appellant. It is a common practice for the Court to reserve costs to allow the parties if they wish, to reach agreement between themselves as to whether one party should pay costs to the other and if so in what sum.

  31. As to the Judgeís suggestion that the appellant might stand down, we have reiterated that the comment carries no legal force. We add that in our opinion the suggestion was properly made, the appellantís position as arbitrator being preserved by reason only of a failure to invoke the challenge process within the set time. That is still the position even though this Court has held that the issue of formal declarations was inappropriate.


  32. For these reasons the appeal is allowed and the declarations granted by Panckhurst J are quashed. We make no order as to costs.


Con Dev Construction Ltd v Financial Shelves No 49 Ltd Christchurch CP179/97, 22 December 1997; Re Chase [1989] 1 NZLR 325; Attorney-General v Wellington Harbour Board [1959] NZLR 150; Tolmarsh Developments Ltd v Stobbs [1990] LVC 835


Public Bodies Leases Act 1969

Arbitration Act 1996

Authors and other references

Russell on Arbitration, 22nd ed, 2003

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