IN THE HIGH COURT OF NEW ZEALAND
AUCKLAND REGISTRY
I TE KŌTI MATUA O AOTEAROA
TĀMAKI MAKAURAU ROHE
CIV 2019-404-19
[2020] NZHC 17
IN THE MATTER

of an alleged breach of a cross lease
convenant

AND
IN THE MATTER

of a claim for private nuisance

BETWEEN

IAN ALEXANDER McKENZIE, WF
TRUSTEES LIMITED and CRANMERE
TRUSTEES LIMITED
Plaintiffs

AND

ROGER EDWARD COURT MORTIMER,
SHERIN KAY MORTIMER and
HORROCKS HAMPTON TRUSTEE
COMPANY LIMITED
Defendants

Hearing:

17 December 2019

Appearances:

HC Matthews for the Plaintiffs
JD Turner and JA Harrop for the Defendants

Judgment:

17 January 2020

JUDGMENT OF ASSOCIATE JUDGE SMITH

This judgment was delivered by me on [
] at [
Pursuant to r 11.5 of the High Court Rules
Registrar/Deputy Registrar

Solicitors:
McVeagh Fleming, Auckland, jharrop@mcveaghfleming.co.nz
McKenzie v Mortimer [2020] NZHC 17 [17 January 2020]

]

 [1]

This is a dispute between the owners of two cross-lease flats. The defendants

say that they are entitled to have the dispute referred to arbitration in accordance with
an arbitration clause in the relevant cross-lease, and they apply for an order staying
the proceeding. The application is opposed by the plaintiffs.
[2]

There are three cross-lease flats at 43 Beach Road, Castor Bay (the property).

The plaintiffs are the registered proprietors of one of them, being Flat 3. The
defendants are the proprietors of Flat 2. Flat 1 is owned by Stewart Rundle, Pauline
Rundle, Deborah Rundle and Bronwyn Stone (together, the Rundles).
[3]

In the usual way with this form of land ownership, the plaintiffs, the

defendants, and the Rundles each own an undivided one third share in the freehold of
the property, and their rights and responsibilities in respect of the occupation of their
respective flats are defined by separate leases, naming the freehold owners jointly as
lessors and the owner of the particular flat as lessee. The forms of lease are materially
identical, save in respect of the identification of the particular flat.
[4]

In 2018, the defendants decided to undertake some alterations on Flat 2. They

obtained a building consent for the work from the Auckland Council on 13 August
2018, and subsequently their builder carried out the work. Before undertaking the
work, the defendants obtained the consent of the Rundles, but they did not obtain the
plaintiffs’ consent.
[5]

On or about 24 September 2018, the plaintiff Mr McKenzie found out that the

alteration work was under way. He sent an email to the defendant Mr Mortimer, saying
that he had not consented to the alterations.
[6]

The plaintiffs have since demanded that Flat 2 be reinstated to its condition

before the alterations were carried out. The defendants have refused to do that,
contending that the alterations were not structural alterations, and that no consent was
required under the cross-lease. Alternatively, they say that any necessary consent was
obtained.

 [7]

When the issue was not resolved, the plaintiffs issued the present proceeding.

They seek a final injunction requiring the defendants to remove all of the alterations
and to reinstate Flat 2 as it was prior to the commencement of the alteration work.
They also seek unspecified damages and costs.
[8]

In a second cause of action, the plaintiffs ask for a final injunction to prevent

what they say is a continuing nuisance caused by the defendants immediately outside
the property. One of the complaints is that the defendants have been using a sealed
berm immediately outside Flat 2 as a permanent carparking and/or car storage area,
for a car and a campervan. The other complaint relates to a gate on the area of land
immediately in front of Flat 2 on the Beach Road side, which is designated for the
exclusive use of the owner of Flat 2. The plaintiffs say that the gate opens outwards,
about two metres into and across the Council-owned berm, and the defendants leave
the gate in an open position, extending across the berm, for most of time, regardless
of whether they are entering or exiting Flat 2.
[9]

The plaintiffs say that exiting the driveway from Flat 3 has been made more

difficult and dangerous because of the defendants’ open gate and parked vehicles.They
say that the gate and vehicles block the view of pedestrians and other users of the berm
and of the traffic travelling either across the berm or along Beach Road. Reversing out
of the driveway in these circumstances is said to be more difficult.
[10]

The plaintiffs say that the open gate and the parked vehicles contravene

relevant bylaws, and constitute a nuisance under the Auckland Council Public Safety
and Nuisance Bylaw 2013. They seek a permanent injunction restraining the
defendants from continuing the alleged nuisance, together with damages and costs.
The defendants’ stay application
[11]

The defendants say the dispute must be referred to arbitration, in accordance

with an arbitration clause in the cross-lease.
[12]

The plaintiffs oppose. In respect of the alterations to Flat 2, they say that the

alterations are structural alterations for which consent of the other lessors was required
under clause 9 of the cross-lease. They say the defendants failed to follow the

 procedure set out in the cross-lease for obtaining consent. They say that the effect of
this failure is that the alterations have been carried out without the consent in writing
of the lessors (or at least a majority of the lessors), as required by the cross-lease. They
contend that the arbitration clause in the cross-lease does not apply where the question
or difference between the parties, arises from a failure to follow the agreed consent
procedure.
[13]

On their nuisance cause of action, the plaintiffs say their claims do not come

within the ambit of the arbitration clause in the cross-lease.
Relevant provisions of the cross-lease
[14]

The cross-lease contains the following provisions:
No structural alterations
9. That the Lessee will not without the consent in writing of the Lessors or a
majority of them for that purpose on every occasion first had and obtained
make any structural alterations to the flat or to any partition walls therein or
to any passageway or stairways leading thereto nor take any action which
might constitute danger or risk to the said building AND will at all times
indemnify the Lessors and the Lessees of the other flat/s in the said building
against any loss or damage caused by or through the carrying out of any
structural alterations or the taking of such action.
…
Arbitration
18. That if any question or difference whatsoever shall arise between the
parties to this lease or their respective representatives or assigns or between
one of the parties hereto and representatives of the others of them touching
these presents or any clause or anything herein contained or the construction
hereof as to matter in any way connected with or arising out of these presents
or the operations thereof or the rights duties or liabilities of any party in
connection with the premises then and in every case except where the question
or difference arises from the observation of the procedure set forth in Clause
20 hereof the matter in difference shall be referred to arbitration in accordance
with the Arbitration Act 1908 and its amendments.
Appoint agent
19. That the Lessors or a majority of them shall from time to time appoint one
of their number or any other person or incorporated body as an agent
(hereinafter called “the Agent”) for the purposes of receiving, disbursing and
applying moneys under Clause 2 hereof and for the purposes specified in
Clause 20 hereof and for such other purposes as they shall from time to time
determine.
If three or more Lessors – procedure to make decision
20. (1) That if the Lessors shall be more than two in number then and in such
case in the event of any one or more (being fewer than all) of them desiring or
proposing that any act matter or thing be done by the Lessors which the

 Lessors are empowered or required to do whether under these presents or as
Lessees of the said land or Lessors of the said building or which may be
considered to be necessary or desirable for the efficient and harmonious
administration of the said land and/or the said building the following
procedure shall be observed:
(a)
Such proposing Lessor or Lessors shall give notice in writing
setting out the proposed action and shall serve a copy thereof
upon each of the other Lessors (and upon the Agent if the
Agent be not a Lessor);
(b)
Each of the Lessors so served as aforesaid shall within seven
days next after such service give notice to the Agent in writing
of his/her approval or otherwise of the proposed action. (The
notice of the proposing Lessor or Lessors under paragraph (a)
hereto shall constitute his/her/their approval for the purposes
of this present paragraph);
(c)
Any Lessor who shall neglect or fail within the period
aforesaid to give notice of his/her disapproval of the proposed
action shall be deemed to have approved thereof;
(d)
If the Lessors shall signify their approval as aforesaid the
proposed action shall forthwith thereafter be carried into
effect;
(e)
If fewer than all but being a majority (as hereinbefore defined)
of the Lessors shall signify their approval as aforesaid the
Agent shall forthwith give notice in writing to all the Lessors
of the majority decision and the proposed action may
thereafter be carried into effect in the name of and so as to
bind all the Lessors notwithstanding that one or more (being
fewer than the majority) of them shall not have signified
his/her/their approval as aforesaid;
(f)
If a majority of the Lessors shall within the period aforesaid
notify their disapproval of the proposed action or if the
Lessors shall be unable to arrive at a majority decision by the
means aforesaid then the proposed action shall be referred to
a single arbitrator in case the parties can agree upon one and
otherwise to two arbitrators (one to be appointed by the
approving Lessors and the other by the non-approving
Lessors) or their umpire in accordance with the provisions of
the Arbitration Act 1908; or
(g)
If no person be appointed as the Agent then:
(i)
the notice to be given to the Agent under subclause
(b) of this clause shall in lieu thereof be given to all
the other Lessors; and
(ii)
the notice to be given by the Agent under subclause
(e) of this clause shall be given by or on behalf of the
Lessors approving of the proposed action to all the
other Lessors.
If two Lessors disagree
(2)
If the Lessors shall be only two in number any proposed action on
which they shall fail to agree shall be referred to a single arbitrator in case the
parties can agree upon one and otherwise to two arbitrators (one to be
appointed by each party) or their umpire in accordance with the provisions of
the Arbitration Act.

 The evidence
The Defendants’ evidence in support
[15]

There were affidavits in support from Mr Roger Mortimer and from Mr Stewart

Rundle.
[16]

Mr Mortimer, his wife Sherin Mortimer, and the third-named defendant, are

trustees of a trust called the Infinity Trust. The Infinity Trust acquired Flat 2 in
December 2013.
[17]

The plaintiffs purchased Flat 3, in or about May 2015. The Rundles owned Flat

1 prior to the plaintiffs and the defendants purchasing the other two flats.
[18]

After some time, the defendants decided that they wanted to get more light into

the upper floor of Flat 2. They had plans drawn up for a proposed extension (a poptop) on the roof of Flat 2, and Mr Mortimer approached Mr McKenzie to seek his
consent to the proposed extension. Mr McKenzie refused.
[19]

In December 2016 the defendants approached Mr McKenzie with an

alternative plan: they would only change part of their existing iron roofing to glass.
Mr McKenzie again refused, stating that he would not agree to any roof-top
modifications.
[20]

In light of Mr McKenzie’s refusals, the defendants decided to undertake some

internal alterations instead. The internal alterations would not change the footprint of
Flat 2 and would not affect the plaintiffs. In about July 2018, the defendants
commissioned a firm of architects to prepare drawings and plans for the proposed
internal alterations. Buchanan Construction Limited was engaged to undertake the
proposed building work, and Engineering Design Consultants Limited was engaged
to prepare details and drawings for part of the work.

 [21]

The proposed alterations, on the upper floor of Flat 2, included new carpets, a

new kitchen bench and re-positioning of the master bedroom and walk-in wardrobe.
The party walls between Flat 2 and Flats 1 and 3, and the shared passageway and
stairwell, would not be affected by the work.
[22]

The defendants showed a plan for the internal alterations to the Rundles, and

they got the Rundles to sign a form of consent on the plans. However, no similar
approach was made to the plaintiffs.
[23]

Mr Mortimer and his wife considered that they were entitled to exclusive use

and enjoyment of the interior of Flat 2, and that the internal alterations would not affect
Flat 3 or the neighbouring properties in any way. Also, they knew from their past
contact with him that Mr McKenzie would be unlikely to give his consent.
[24]

The work on the interior of Flat 2 commenced, and in the course of it the

builder found deterioration and weather leakage issues with window framings. The
builder recommended that the two lower damaged opening windows on the north side
be removed and weather-boarded over. On the south side, the builder recommended
that a single window be removed and replaced with a new matching window. The
builder also drew to the defendants’ attention deterioration around the skylights, which
would need to be replaced.
[25]

Auckland Council granted consent to the necessary minor variations to the

building consent for those external alterations, and the Rundles also consented to the
external alterations.
[26]

The plaintiffs were not happy when they found out about the work on Flat 2.

Mr McKenzie wrote to Mr Mortimer on 25 September 2018 saying:
“Regardless of what the builder found when making the alterations, all the
exterior windows, frames and colours must remain exactly the same as
previously installed. I reiterate I do not agree to any exterior alteration changes
to your unit”.

 [27]

The defendants continued with the work. They did not believe the alterations

were “structural” under clause 9 of the cross-lease, and the windows, skylights etc had
to be replaced at their cost anyway. They say there was no loss or damage of any kind
to the building or structures or boundary/party walls between the Flats, and that the
plaintiffs have not lost their view from Flat 3.
[28]

Solicitors became involved for the parties, and there followed correspondence

between the plaintiffs’ solicitors, and the defendants’ solicitors and their counsel, Mr
Tim Jones.
[29]

On 9 October 2018, the plaintiffs’ solicitors wrote to the defendants’ solicitors

requesting copies of plans or drawings relating to the alterations currently (and
previously) undertaken on Flat 2. Mr Jones replied on 18 October 2018, attaching pdf
copies of the plans, building consent form, internal alterations, structural drawings and
two forms of consent signed by the Rundles. Mr Jones expressed the view that the
defendants had the requisite consent required by clause 9 of the cross-lease, as the
Rundles had agreed and all that was required was to obtain the consent of a majority
of the flat owners.
[30]

The plaintiffs’ solicitors looked at the material Mr Jones had provided, and they

concluded that there had been significant internal alterations. The work included
demolition of internal walls on the upper floor, propping of the existing roof structure
prior to removal of walls, replacement of bracing elements on the upper floor, and the
replacement of structural beams. In an email dated 24 October 2018, the plaintiffs’
solicitors enquired if it was accepted by the defendants that the work they had
undertaken on Flat 2 did qualify as “structural alterations to the Flat or to any partition
walls therein”.
[31]

On 25 October 2018 Mr Jones replied by email, stating that Mr Mortimer

acknowledged that the internal repairs were in part structural. He contended that clause
9 required consent of the majority of the owners only, and that consent had been
obtained.

 [32]

In a later email, dated 12 November 2018, Mr Jones said:
2. It is accepted by the Infinity Trust that some of the internal work is, or may
be structural, but the Trustees point out quite rightly that the work has no
impact at all on your client, your clients’ flat or the use and benefit of his flat.
3. Notwithstanding your focus, on the process under clause 20, the Trustees
take the view that your clients’ approach is one of form rather than substance.

[33]

In his affidavit, Mr Mortimer expressed the view that the acknowledgement

given by Mr Jones that the internal work carried out on Flat 2 was partly structural,
was based on some misunderstanding or confusion regarding the alterations and the
nature of Flat 2 at the time. He said that he never acknowledged or authorised Mr
Jones to send any acknowledgement that any of the alterations were structural in
nature. Mr Mortimer maintained that the alterations were not structural – they did not
change the external building line, nor did they lower the load-bearing capacity of the
walls within Flat 2. The new beams and bracing recommended by the engineering firm
in fact supplement, or improve, Flat 2. Mr Mortimer said the works had been inspected
by Auckland Council and passed, in part in reliance on a Producer Statement.
[34]

Turning to the nuisance allegations, Mr Mortimer said that Mr McKenzie

approached him some time in the middle of 2017 and asked him to remove the
motorhome from the Flat 2 driveway, and keep the front gate closed. Mr Mortimer
said the gate and 50cm of the rear of the motorhome were then protruding onto the
berm. Mr Mortimer considered that parking the motorhome on the roadside was not
practicable, and would present a high accident risk on the street.
[35]

Mr Mortimer discussed the matter with a representative of Auckland Council,

and was told that the Council had no issue with the gate or the motorhome. However,
in an attempt to avoid an ongoing dispute, Mr Mortimer stopped parking the
motorhome in the driveway from about August 2018. Since then, it has only been
parked in the driveway for loading and unloading when the defendants are undertaking
long trips.
[36]

Mr Mortimer said the gate was there when the defendants purchased Flat 2.

 [37]

In March 2019, Mr Mortimer obtained the relevant parking/traffic file for Flat

2 from Auckland Transport. He found numerous complaints from Mr McKenzie, and
responses from Auckland Transport to the effect that the vehicles at Flat 2 were legally
parked. Auckland Transport’s legal team was quoted as advising that the area of road
reserve where the vehicles were being parked was not defined as a footpath or berm –
it was an area provided for the purpose of the occupants of the property to gain access
to and from the property. Nor did Auckland Transport consider that the vehicles were
obstructing the driveway to Flat 3. Mr Mortimer denied the allegations of nuisance.
[38]

In February 2019, the defendants’ solicitors drew to the plaintiffs’ solicitors’

attention the arbitration clause 18 in the cross-lease. The defendants maintained the
view that the dispute should be referred to arbitration.
[39]

Mr Rundle’s affidavit generally confirmed that the Rundles had given consent

to the internal and external alterations to Flat 2.
[40]

Mr Rundle also confirmed that, to the best of his knowledge, the motorhome

had not been parked in the driveway since about August 2018, other than when the
Mortimers briefly parked it to load and unload their belongings for long trips. He also
confirmed that the gate in the Flat 2 driveway has been there since about 2009 and has
never been an issue for the Rundles.
No evidence in opposition
[41]

The plaintiffs elected not to file any evidence in opposition.

Stay applications – legal principles
[42]

The Court and the arbitral tribunal both have the power to rule on the issue of

whether the plaintiffs’ claims are covered by the arbitration clause. Article 16,
Schedule 1, to the Arbitration Act 1996 (the Act) relevantly provides:
16 Competence of arbitral tribunal to rule on its jurisdiction
(1) The arbitral tribunal may rule on its own jurisdiction, including any
objections with respect to the existence or validity of the arbitration agreement
…

 [43]

The Court’s jurisdiction to grant a stay is confirmed by Article 8(1), Schedule

1 to the Act. Article 8 materially provides:
8 Arbitration agreement and substantive claim before court
(1) 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.

…

[44]

The Supreme Court has held that the court is required to grant a stay of a court

proceeding under the latter part of Article 8(1), unless it is immediately demonstrable
that the defendant has not been acting bona fide in asserting that there was a dispute,
or that there was, in reality, no dispute.1 There is no suggestion in this case there is no
bona fide dispute between the parties, or that the arbitration clause is "incapable of
being performed". The issue is simply whether the arbitration clause applies to the
particular disputes raised by the plaintiffs’ statement of claim.
[45]

The Court dealing with an application for stay under Article 8(1) would appear

to have three choices:2
(i)

immediately refer the matter to the arbitral tribunal to decide whether
the arbitration clause applies;

(ii)

undertake a prima facie assessment, and if there appears to be a valid
arbitration clause that applies, refer the matter to the arbitral tribunal;
or

(iii)

undertake a full analysis and make its own decision on whether the
arbitration clause applies.

1
2

Zurich Australian Insurance Ltd v Cognition Education Ltd [2014] NZSC 188; [2015] 1 NZLR
383 at [52].
Tamihere v Mediaworks Radio Ltd [2014] NZHC 2082, at [20].

 [46]

In Tamihere v Mediaworks Radio Ltd, Simon France J was content to follow

the approach of Associate Judge Abbott in Ursem v Chung, where the Associate Judge
applied the "prima facie review" test. In Ursem v Chung, the Associate Judge said: 3
[32]
There is a range of views in the various jurisdictions that have adopted
the Model Law as to whether a court faced with an application for stay should
adopt a "full review" approach and rule on the jurisdiction challenge in detail,
or should refer the issue to the arbitral tribunal for determination (having
regard to art 16 of sch 1 which gives the arbitral tribunal power to rule on its
jurisdiction), or should refer the issue to the arbitral tribunal if it finds a prima
facie case for the existence of a valid arbitration agreement (the "prima facie
review" approach). Common law countries historically have adopted a "full
review" approach, but in recent time there has been a shift towards the "prima
facie review" approach.
…
[34]
… case authority in other common law jurisdictions where the prima
facie review approach has been applied to disputes about whether there is a
binding agreement to arbitrate between the parties to the court proceeding, or
a dispute as to the scope of that agreement (whether a dispute falls within it),
still appears to leave open the court's power to determine the point in clear
cases:
…
[35]
I adopt the "prima facie review" approach, as better reflecting the
policy that the courts will endeavour to give effect to the intention of parties
to refer their disputes to arbitration but still recognising the Court’s ability to
assume jurisdiction in clear cases.
[Footnotes omitted.]

[47]

The approach in Ursem v Chung was also followed by Williams J in Donaldson

v Donaldson, where the learned Judge said:4
[18]
Although common law jurisdictions have historically taken a "full
review" approach to the question of whether there is an agreement to arbitrate,
in more recent times the less intrusive European "prima facie review"
approach has found greater favour in Commonwealth Courts. Reference is
made in Ursem to the British Columbia Court of Appeal decision in Gulf
Canada Resources Ltd v Arochem International Ltd. In that case the Court
said:
[43]
Considering s 8(1) in relation to the versions of s 16 and the
jurisdiction conferred on the arbitral tribunal, in my opinion, it is not
for the Court on an application for a stay of proceedings to reach any
final determination as to the scope of the arbitration agreement or
whether a particular party to the legal proceedings is a party to the
3
4

Ursem v Chung [2014] NZHC 436, [2014] NZAR 1123 at [32]-[35].
Donaldson v Donaldson [2015] NZHC 3093; [2016] NZAR 199 at [18]-[20].

 arbitration agreement because those are matters within the jurisdiction
of the arbitral tribunal. Only where it is clear that the dispute is
outside the terms of the arbitration agreement or that a party is not a
party to the arbitration agreement or that the application is out of time
should the Court make any final determination in respect of such
matters on an application for stay of proceedings.
[44]
Where it is arguable that the dispute falls within the terms of
the arbitration agreement or where it is arguable that a party to the
legal proceedings is a party to the arbitration agreement then, in my
view, the stay should be granted and those matters left to be
determined by the arbitral tribunal.
[19]
Judge Abbott adopted that prima facie approach in Ursem. I also
consider that approach to be consistent with the purpose and intent of the
Arbitration Act.
[20]
Where it is arguable that the parties have agreed to refer a matter to
arbitration, then it will be for the arbitral tribunal in the first instance to resolve
that question if there is now a contest about it. It is only where it is clearly not
arguable that the parties intended to refer the dispute to arbitration, that this
Court should pre-empt such reference.
[Footnotes omitted.]

Counsel’s submissions
The defendants
[48]

For the defendants, Mr Turner submitted first that the alterations to Flat 2 were

not structural alterations, so that no consent under clause 9 of the cross-lease was
required. That will be the first issue for the arbitral tribunal – the dispute over whether
the alterations were structural or not is a “question or difference” covered by clause
18 of the cross-lease.
[49]

Secondly, Mr Turner submitted that clause 20 of the cross-lease was not

engaged at all in respect of the alterations to Flat 2. Clause 9 provides its own “track”
for situations where a lessee wishes to carry out structural alterations to his or her flat,
and all that was required was the consent of at least one of the other two owners. That
consent was obtained when the Rundles consented to the defendants’ plans.

 [50]

Mr Turner submitted that, contrary to the view expressed by Perry J in Wood v

Elrick,5 the vote of the lessor wishing to carry out the structural alterations on his or
her flat does count in determining whether a “majority of lessors” consent under clause
9. He referred in support to the following definition of the expression “majority of
lessors” at clause 24(1)(c) of the cross-lease:
The expression “majority of lessors” and “majority of them” shall mean any
number of Lessors for the time being who and/or whose personal
representatives together own more than an undivided one-half share or interest
in the fee simple and the expression “a majority decision” shall mean a
decision of the majority of the Lessors as so defined.

[51]

That provision is consistent with the analyses of this Court in Hoffey v

Parkinson,6 and in Smallfield v Brown,7 on the question of what is meant by “majority
of Lessors”.
[52]

In those circumstances, the plaintiffs cannot bring themselves within the

exception “… except where the question or difference arises from the [sic] observation
of the procedure set forth in clause 20 …”, in clause 18 of the cross-lease. Clause 20
does not apply, and the plaintiffs are not in any event seeking damages for alleged
failure to comply with the clause 20 procedure.
[53]

Thirdly, Mr Turner submitted that clause 20 could have no application to the

alterations in any event, as it is limited to actions for the common benefit of all of the
lessors. The alterations to Flat 2 were not carried out for the benefit of all the lessors,
so the matter does not fall under the clause 20 exception contained in clause 18.
[54]

Fourthly and in the alternative, Mr Turner submitted that if clause 20 did apply

(denied), the defendants complied with it in substance. They did notify the Rundles of
the proposed works, and they also had the prior objection by the plaintiffs to any
proposed works (clause 20(1)(b)). Under clause 20(1)(e), where two-thirds of the
Lessors approved of the “proposed action”, the proposed action could thereafter be
carried into effect in the name of the defendants, so as to bind all Lessors
(notwithstanding that the plaintiffs had not signified their approval).
5
6
7

Wood v Elrick (1978) 1 NZ CPR 19 at [19].
Hoffey v Parkinson (1995) 3 NZ ConvC 192, 272 at [7].
Smallfield v Brown (1992) 2 NZ ConvC 191, 110 at 7.

 [55]

Mr Turner referred to the similar circumstances which were before the Court

in Roe v Stevenson, where the defendant had deliberately embarked on the works
without the consent of the plaintiff, while the plaintiff was away. While Blanchard J
noted that in those circumstances the plaintiff might say that the defendant was trying
to steal a march on him, the evidence of Mr Stevenson was that both his own legal
advisers and the Auckland City Council had taken the view that the works in issue
were not structural alterations, and thus did not require consent.8 In this case, the
defendants also had good grounds to believe that they were not making structural
alterations.
[56]

Blanchard J also observed in Roe v Stevenson that it was highly desirable that

a dispute between neighbours, such as that before the court, should be resolved by
arbitration, rather than by substantive hearing in the High Court.9
[57]

On the plaintiffs’ second cause of action, based on nuisance, Mr Turner

submitted that the claims are covered by the arbitration clause. The claims are
concerned first with the defendants’ (historic) parking of their motorhome on the
driveway of Flat 2, and secondly with the position and function of the gate on Flat 2’s
driveway. Mr Turner submitted that both issues involve factual disputes which qualify
as questions or differences between Lessors, covered by clause 18.
[58]

Mr Turner noted that clause 7 of the cross-lease does contain a clause (clause

7) headed “Not Cause Nuisance”. The clause prohibits “disturbances”, or “noise”, that
may cause a nuisance to other Lessees. The cross-lease therefore applies to the alleged
nuisances, and where the cross-lease expressly governs a matter the plaintiffs cannot
avoid the operation of the arbitration clause by making a parallel, but unnecessary,
claim in tort. Also, the cross-lease is relevant to the defendants’ defence. The
defendants rely on their right to exclusive occupation of Flat 2 under clause 11 of the
cross-lease, and on clause 25 of the cross-lease, which expressly extends the exclusive
area appurtenant to Flat 2 to the road on the Beach Road side.10
8
9
10

Roe v Stevenson HC Auckland, CP 1356/92 16 February 1993 at [9-10].
At [8].
Clause 25 was added by a 1982 registered variation of the cross-lease. Clause 25 conferred on the
Lessee of Flat 2 the exclusive right to enjoy and occupy pieces of land at the front and rear of the
Lot 2 building, respectively designated “C” and “B” on a plan attached to the Memorandum of
Variation of Lease.

 [59]

Mr Turner referred generally to the desirability of avoiding parallel

proceedings (this proceeding, and an arbitral proceeding). He submitted it would be
inefficient and inappropriate to separate the causes of action, allowing the nuisance
cause of action to proceed in this Court, while the first cause of action is referred to
arbitration. He submitted that the stay order sought would be just and equitable.
The plaintiffs
[60]

For the plaintiffs, Mr Matthews referred to the correspondence from the

defendants’ legal advisers, in which it was acknowledged that the internal repairs to
Flat 2 were in part structural. He also observed that, if the defendants did not regard
the alterations as structural, there would have been no need for them to approach the
Rundles for consent.
[61]

Mr Matthews submitted that the defendants made a conscious decision not to

involve the plaintiffs in the process of obtaining the necessary consent. They believed
this exclusion was valid in terms of the cross-lease. The defendants were not entitled
to do that. They were obliged to go through the procedures set out in clause 20 of the
cross-lease if they wanted to obtain valid consents to the alterations. The consequence
of their failure to do so is that they did not have the consent in writing of the Lessors
(or a majority of them), as required by clause 9.
[62]

If the defendants had followed the clause 20 procedure, the plaintiffs would

have objected. At that point, the Lessors, “so served as aforesaid”, would have been
unable to arrive at a majority decision. The matter would then have been referred to
arbitration under clause 20(1)(f).
[63]

Mr Matthews referred in support to Wood v Elrick, where the court was

concerned with a cross-lease which appeared to have contained clauses very similar
to clauses 9 and 20 in the present case.11 Referring to the equivalent of clause 20 in
Wood v Elrick, Perry J expressed the view that the defendants should have given notice
of the proposed work to both of the other Lessors. His Honour considered that only
the other two Lessors had the power to give or refuse their approval to the proposal,

11

Wood v Elrick, above n.5.

 and if the other two Lessors took opposite views there would be a stalemate.12 In that
event, the parties had to invoke the reference to arbitration in the clause. Mr Matthews
submitted that Wood v Elrick is applicable in this case.
[64]

Mr Matthews sought to distinguish Smallfield v Brown. He submitted the case

was concerned only with the second part of clause 20(1), referring to steps Lessors
might consider necessary or desirable for the efficient and harmonious administration
of the land and/or the building.13 Mr Matthews accepted that this part of clause 20(1)
might reasonably be construed as directed to administrative steps to be taken jointly
by the Lessors, such as maintenance and the like. But he submitted clause 20(1) is
broader than that: the first part of the clause covers any decision which the Lessors are
empowered or required to make, including the clause 9 situation. It is not limited to
administrative steps to be taken by the Lessors.
[65]

Mr Matthews then submitted that an arbitration under clause 20(1)(f) can only

occur if the procedure under clause 20(1) has been carried out, and that has not
occurred in this case. The plaintiffs should have received notice of the defendants’
proposed action but they did not. This is exactly the situation targeted by the exception
in clause 18 of the cross-lease. The question of the non-observance of clause 20 (in
this case how that clause will impact on the “consent obtained” under clause 9), is
squarely within the clause 18 exception. There is no jurisdiction to refer the matter to
arbitration.
[66]

Mr Matthews also referred to the decision of Priestly J in Walsh v Studd, where

this Court considered that, in a situation where [the equivalent of clause 20] applied,
there must be proper compliance with the clause before the majority would be able to
impose their will on the minority. Property rights were at stake, and the clause
constituted a significant inroad into the position of any cross-lease owner. A minority
owner might not only have to accept some action or exercise of Lessors’ powers to
which he or she was opposed, but might also be contractually obliged to assume some
financial obligation.14

12
13
14

Wood v Elrick above n.5, at 22.
Smallfield v Brown, above n.7, at 6-7.
Walsh v Studd (2003) 5 NZCPR 1 at [97]-[100].

 [67]

Finally, on his clients’ first cause of action, Mr Matthews submitted that the

policy reason for clause 20 is obvious. If it were not construed as requiring each Lessor
to receive notice of the proposed structural alterations, one owner could effectively be
excluded altogether from relevant decisions affecting its interests as Lessor and/or as
Lessee.
[68]

On the nuisance claims, Mr Matthews submitted that, although the claims do

arise because the plaintiffs and the defendants live next door to each other, the
ownership structure of their respective dwellings (and thus the cross-lease) has no
relevance to the plaintiffs’ nuisance claims. Those claims relate to actions or
circumstances outside the property and have been framed without reference to the
cross-lease.
[69]

There is no challenge to the defendants’ right to the exclusive occupation of

Flat 2 and/or the land adjacent to it in which they have exclusive occupation rights.
The issue is over the defendants’ use of the Council berm outside the defendants’
property, and there is no provision in the cross-lease which touches on a claim of that
sort.
[70]

For those reasons, and notwithstanding the breadth of the arbitration clause,

the nuisance claims do not fall within clause 18 of the cross-lease.
Discussion and conclusions
[71]

First, I will approach the stay application on the “prima facie review” basis, as

I did in Wai-iti Developments Ltd v General Distributors Ltd.15
[72]

Approaching the matter on that basis, I am satisfied that the issues raised in the

plaintiffs’ first cause of action arguably do constitute questions or differences arising
between the parties touching the construction of the cross-lease, and in particular
clauses 9 and 20. The issues raised by the first cause of action are arguably also matters
“connected with or arising out of” the cross-lease or the operations thereof, and “the
rights, duties or liabilities of the parties in connection with the premises”. In my view,

15

Wai-iti Developments Ltd v General Distributors Ltd [2019] NZHC 1656 at [61-68].

 the defendants have also made a sufficient prima facie showing that the exception in
clause 18 relating to the observance of the clause 20 procedure does not apply.
[73]

Clauses 9 and 20 arguably address different situations. Clause 9 appears to be

concerned with the situation where a single lessee wishes to take a particular step
(make structural alterations to his or her own flat). In such case, the lessee must first
obtain the consent in writing of a majority of the lessors. Clause 20, on the other hand,
appears to be concerned with the situation where one of the lessors desires or proposes
that any act, matter or thing “be done by the lessors”. On its face, the clause appears
to be concerned with the situation where it is proposed that something be done by the
lessors as a group. If the “act matter or thing” is the carrying out of the structural
alterations themselves, that will not be an act, matter or thing “done by the lessors” –
it will be done by the lessee wishing to alter his or her flat.
[74]

That view is arguably consistent with the latter part of the introductory

paragraph in clause 20(1), relating to the situation where one of the lessors desires or
proposes that something be done (by the lessors) which may be considered to be
necessary or desirable for the efficient and harmonious administration of the land or
the building. This wording arguably supports the view that clause 20 is concerned only
with decisions which the Lessors are required or empowered to make collectively. The
latter part of the introductory paragraph in clause 20(1) seems to be no different from
the first part of the introductory paragraph in this respect.
[75]

Nor does it appear that one Lessee carrying out structural alterations could

reasonably be described as something which the Lessors are empowered or required
to do, whether under the cross-lease or separately as Lessors or Lessees. I did not note
anything in the cross-lease that would “empower”, or “require”, the carrying out of
structural alterations.
[76]

An alternative interpretation possibility is that the clause 20 “act, matter or

thing to be done by the lessors” might be the granting of consent to the defendants to
carry out their structural alterations. But the structure of clause 20, and particularly
clause 20(1)(e), seems inconsistent with any construction which would effectively
equate the “proposed action” with the giving of approval by the lessors. Clause

 20(1)(e) makes it clear that “the proposed action” is something that happens after the
majority of the lessors have “signified their approval as aforesaid”.
[77]

It follows from the foregoing that it is at least prima facie arguable for the

defendants that clause 20 is simply not engaged when a Lessee seeks the consent in
writing of the Lessors (or a majority of them) under clause 9. If that is right, it must
be equally arguable for the defendants that the question or differences they have with
the plaintiffs do not arise from the observance of the procedures set out in clause 20.
[78]

I did not find any of the authorities referred to by counsel particularly helpful.

Wood v Elrick seemed superficially similar, but the case appears to have been decided
on a different point, which is not applicable in this case. In Wood v Elrick, Perry J
considered that the vote of the Lessee wishing to carry out the structural alterations
should be not be counted in determining whether a majority was in favour. However,
that interpretation does not appear to be available on the wording of the cross-lease in
this case. Mr Turner drew attention to the definition of the expression “majority of the
Lessors”,16 and counting the defendants’ vote is consistent with both that definition
and the wording of clause 20(1)(b) of the cross-lease (which makes it clear that the
notice of a proposing Lessor under clause 20 may constitute his or her approval of the
proposed action).
[79]

The judgment of Priestly J in Walsh v Studd is also consistent with the prima

facie view to which I have come, in that the judge considered the structural alterations
clause and the “decisions of the Lessors” clause were essentially unrelated.17
[80]

Counsel for the plaintiff in Hoffey v Parkinson made some criticisms of the

judgment in Wood v Elrick, submitting that the case was wrongly decided. Counsel
referred to the failure of the judge in Wood v Elrick to take into account or accord due
weight to the provision in the lease agreement (clause 20(b)) which stated the “notice
of the proposing lessor or lessors under paragraph (a) hereof shall constitute
his/her/their approval for the purposes of this”. Counsel also referred to definition of
16
17

The definition is set out at paragraph 50 of this judgment.
Although the provision prohibiting structural alterations in that case was absolute – there was no
provision for the lessee to proceed with the work if he or she could obtain the consent of a majority
of the lessors.

 the expression “majority of lessors”, which appears to have been the same in Wood v
Elrick as it is in this case.
[81]

The judge in Hoffey v Parkinson did not take up counsel’s invitation to find

that Wood v Elrick was wrongly decided: Morris J considered that he did not need to
conclusively decide whether the decision was correct. His Honour said:18
For the abundance of caution may I say it does not seem possible to state
categorically a lessor’s voting rights in every case either attached to the
individual person or derived from ownership of the underlying fee simple
estate. Voting allocation in each case will depend on a proper construction of
the lease agreement before the Court with a view to achieving justice between
the parties.

[82]

In Smallfield v Brown, Fisher J, referring to clause 27 of the relevant cross-

lease (which had some similarities, at least in purpose, to clause 20 of the cross-lease
in this case), said:19
… it seems to me that when clause 27 refers to a lessee or lessor “requiring
any matter or thing to be done by the lessors which the lessors are empowered
to do pursuant to the terms of this lease or pursuant to their rights and powers
as owners” the clause was addressed to physical or administrative steps for the
purpose of improvements, maintenance or other steps of a like nature to
protect the common interests of the lessors. I do not think it was ever intended
to have any bearing upon the vindication of the rights of one individual crosslessee against the other. Alternately the question must come back to what the
parties meant by their deed. As with all such documents the aim is to ascertain
the intention of the parties based upon an objective appraisal of what they
recorded.

[83]

Again, the issues in Smallfield were not the same as the issue in this case, and

there were differences between clause 27 in Smallfield and clause 20 in this case. For
what it is worth, however, Smallfield appears to be consistent with the view that
clauses such as clause 20 in this case are targeted at matters relating to the common
interests of the lessors, rather than to the wish of one lessee to carry out alterations to
his or her flat that may have no effect on the other lessees.

18
19

Hoffey v Parkinson, above n.6, at 8.
Smallfield v Brown, above n.7, at 7.

 [84]

Finally, on the plaintiffs’ first cause of action, I refer to Mr Matthews’

submission that the interpretation for which the defendants contend could see a Lessor
not consulted at all about structural alterations that might affect him or her. I
acknowledge the point, and in particular the fact that, if the clause 20 procedure is not
followed, a Lessor who has not received any notice of the proposed action will be
deprived of the opportunity of conferring with other Lessors, and possibly persuading
them to decline to approve the proposed action. But the possibility of a Lessor having
to accept a proposed action with which he or she does not agree exists anyway under
clause 20.20 The only arguable right lost is the loss of the claimed right to be consulted
in accordance with the clause 20 procedure. However, I think it is at least arguable for
the defendants that clause 9 was intended to operate on a separate track, where the
clause 20 procedures were not engaged. If that is right, there would be no right to be
consulted in a clause 9 situation.
[85]

In the foregoing circumstances, I conclude, on a “prima facie review” basis,

that the claims made in the plaintiffs’ first cause of action are covered by clause 18 of
the cross-lease, and should be referred to arbitration under that clause. It will be for
the arbitral panel to finally determine, under Article 16 of Schedule 1 to the Act,
whether or not it has jurisdiction.
[86]

Turning to the plaintiffs’ second cause of action, I think it is clear that the Court

should adopt a liberal approach when interpreting arbitration clauses. The Court
should uphold arbitration by striving to give effect to the intention of the parties to
submit the disputes to arbitration, and not allow uncertainties in the wording or
operation of the arbitration clause to thwart that intention.21

20

21

In the situation where a majority of the lessors who have been served with notice under clause
20(1) signify their approval of the proposal, clause 20(1)(e) provides that the proposed action
“may thereafter be carried into effect in the name of and so as to bind all the Lessors
notwithstanding one more (being fewer than the majority of them) shall not have signified
his/her/their approval aforesaid.
Marnell Carrao Associates Inc v Sensation Yachts Ltd (2000) 15 PRNZ 608 (HC) at [61].

 [87]

I refer also to the decision of House of Lords in Fiona Trust Corp v Privalov,

where Hoffmann LJ said:22
… the construction of an arbitration clause should start from the assumption
that the parties, as rational businessmen, are likely to have intended any
dispute arising out of the relationship into which they have entered or
purported to enter to be decided by the same tribunal.

[88]

The arbitration provisions at clause 18 of the cross-lease in this case are

particularly broad. They catch questions or differences arising out of matters “in any
way connected with or arising out of these presents or the operations thereof”, and the
rights, duties or liabilities of any party “in connection with the premises”.
[89]

In my view it is reasonably arguable for the defendants, on a prima facie review

basis, that obtaining safe access and egress from the plaintiffs’ Flat 3 is a matter “in
any way connected with or arising out of … the operations” of the cross-lease. I think
it equally arguable for the defendants that the plaintiffs’ safe vehicular egress from
Flat 3 raises an issue over the plaintiffs’ “… rights in connection with the premises”.
[90]

I have little doubt that, even although the cross-lease cannot be regarded as a

commercial contract like the contract at issue in the Fiona Trust case, the parties,
properly advised, would have expected and intended that all differences or issues
associated with their ability to access their flats, and safely leave them, would be
covered by the arbitration clause.
[91]

I find that it is sufficiently arguable for the defendants that the issues raised by

the plaintiffs’ second cause of action are also covered by the arbitration provisions in
clause 18.
Result
[92]

I grant a stay of the proceeding, to permit the parties to refer the disputes in the

plaintiffs’ statement of claim to arbitration in accordance with clause 18 of the
sublease. Leave is reserved to the parties to apply by memorandum to lift the stay in
the event that either party considers that the other is not promptly co-operating in the

22

Fiona Trust Corp v Privalov [2007] 4 All ER 951 at [13].

 steps necessary to appoint an arbitral tribunal, or thereafter is not diligently
prosecuting its case before the arbitral tribunal (or is otherwise improperly delaying
the arbitration process).
[93]

The defendants, having succeeded in their application, are entitled to costs.

Costs are awarded on a 2B basis, plus disbursements as fixed by the Registrar.

Associate Judge Smith