Business / Commercial
Arbitration Act 1996 – cross leases – appeal on question of law from arbitral award – applicable principles – application of Smallfield v Brown (1992) 2 NZ ConC 191 - “whether, in the context of cross leases for residential properties, consent in respect of alterations will be unreasonably withheld…only where the benefit to the party seeking change will be substantial and the proposed alteration would produce only trifling detriment to the cross-lessor, as held in Smallfield v Brown…”– analysis of legal test – whether substantial benefit – whether trifling detriment – whether undue restriction - balancing exercise – appropriate focus - precedent – academic commentary – appeal allowed - question of law answered as “no” – award remitted to arbitrator for further consideration in light of judgment
Martelli v Liow [2024] NZHC 968 (Gault J)
The appellants, (M), were in dispute with their neighbours, (L), in relation to the requirement of a cross lease that consent to structural alterations “shall not be unreasonably withheld” – L had previously built two decks on their property and not sought consent from M – M subsequently sought consent from L for proposed alterations M wanted to make to their property, including extending the size of their home, adding a swimming pool and a deck, and removing a separate garage – informal neighbourly discussions were ultimately unsuccessful and the dispute was referred to arbitration pursuant to an arbitration clause in the cross-lease – the issue at arbitration was whether L had acted unreasonably in refusing consent – the arbitrator applied Smallfield v Brown (1992) 2 NZ ConC 191 – concepts considered by the arbitrator include: the assessment of detriment, the phrase “trifling detriment”, the applicable legal test and “reasonableness”, the property-owner’s/lessee’s reasonable expectations, the benefit to the property-owner/lessee, the detriment to the other property owner/lessee, the assessment of these as a comparative exercise, the extent of the changes proposed, property use (including potential increased socialising in areas facing the other home) fact-dependent detail, principles of contractual interpretation, and policy reasons – the arbitrator had sympathy for M’s position, however ultimately found that L’s withholding of consent was not unreasonable – M then appealed to the High Court on a question of law, being: “whether, in the context of cross leases for residential properties, consent in respect of alterations will be unreasonably withheld…only where the benefit to the party seeking change will be substantial and the proposed alteration would produce only trifling detriment to the cross-lessor, as held in Smallfield v Brown…” – M sought the following answer to the question on appeal: “in the context of cross leases for residential properties, consent in respect of alterations will be unreasonably withheld depending on the alterations and the circumstances of each case” – applicable principles – extensive discussion and consideration of “reasonableness” including reference to precedent and academic commentary, particularly about Smallfield v Brown – reference to Law Commission recommendations (1999) – assessment of academic commentary where it is noted that “trifling does not equate to insubstantial” – the Court considered: what would the reasonable landlord do when asked to consent in the particular circumstances – whether the conclusion was one that could be reached by a reasonable landlord – L argued that even if the arbitrator had erred, an amended question of law would bring the same result Held: the arbitrator erred in considering himself bound to apply only a trifling detriment test – M’s appeal allowed – the question of law answered as “no” – the award is remitted to arbitrator for further consideration in light of the judgment.
