Manea Beach Body Corporate No. 1864 v Kia Orana Management Ltd [2008] CKHC 22; Plaint 27.2008 (12 November 2008)

IN THE HIGH COURT OF THE COOK ISLANDS
HELD AT RAROTONGA
(CIVIL DIVISION)
PLAINT NO. 27/2008

BETWEEN:

MANEA BEACH BODY CORPORATE NO. 1864 a body corporate established under the Unit Titles Act 2005
First Plaintiff

AND:

ROBERT MONTGOMERY and GLENDA
MONTGOMERY as trustees of the
MONTGOMERY FAMILY TRUST a duly
constituted trust in accordance with the
laws of New Zealand
Second Plaintiff

AND:

PETER MICHAEL MAKEA PINI LINEEN
and VIVIENNE KAYE LINEEN both of
Auckland, New Zealand.
Third Plaintiff

AND:

TIPANE HOLDINGS LIMITED a duly
Incorporated company having its registered
Office at Lower Hutt, New Zealand
Fourth Plaintiff

AND:

RICHARD KAYE, RAEWYN PUDSY and DAVID DOVEY as trustees of the PUDSEY KAYE TRUST a duly constituted
trust in accordance with the laws of New
Zealand and DAVID DOVEY, KAREN
DOVEY and RICHARD KAYE as trustees
of the DOVEY TRUST a duly constituted
trust in accordance with the laws of New
Zealand trading as DKP PROPERTY
PARTNERSHIP
Fifth Plaintiff

AND:

RICHARD DALES PETERSON and
PAULINE COLMAR as trustees of the
STARIN TRUST a duly constituted trust
in accordance with the laws of New Zealand
Sixth Plaintiffs

AND:

KIA ORANA MANAGEMENT LIMITED
a duly incorporated company having its
registered office at Rarotonga
First Defendant

AND:

KIA MANUIA MANAGEMENT LIMITED
a duly incorporated company having its
registered office at Rarotonga
Second Defendant

AND:

TEPAKI HOLDINGS LIMITED a duly
incorporated company having its registered
Office at Rarotonga
Third Defendant

AND:

TEPAKI NOOAPII (TIM) TEPAKI of
Rarotonga
Fourth Defendant

Mr Little for Plaintiffs
Mr Vakalalabure for Defendants
Date: 12 November 2008

JUDGMENT OF WESTON J

1. On 12 September 2008 the Defendants applied to strike out a Statement of Claim filed in this proceeding on the basis of dispute resolution provisions in various contracts that were said to be relevant. On 3 October 2008 I directed the Defendants to amend the application to set out relevant particulars. The amended application was filed on 6 October.
   
2. In this proceeding the First Plaintiff is a body corporate. The Second to Sixth Defendants are five individual unit owners at the Manea Beach Resort. The Plaintiffs between them sue the First Defendants as Manager. There are in total 8 different types of money claim made, some of which are also directed at Defendants other than the First Defendant.
   
3. The Defendant say that three types of contracts are relevant. The first is a management contract. The second is a series of leases entered into between individual unit owners and the First Defendant. A third agreement is also said to be relevant but I am satisfied that it is not. This third agreement is only potentially relevant to one of the eight claims and that claim is directed towards rent guarantees. But it is not the actual agreement which can be found in a series of separate deeds which do not contain any of the relevant dispute resolution provisions.
   
4. There are two complications that I need to address briefly before putting them to one side. First, there is the issue of whether the management contract and leases have come to an end by 1 May 2008. It appears that they have. Nevertheless, I am satisfied that any dispute resolution provisions contained in those documents will continue to have currency. Secondly, the First Defendant, although struck off the register, has now been reinstated and I proceed on the basis that it has been the manager throughout.
   
5. Both of the management contract and the various leases contain dispute resolution clauses. For convenience I will rely on clause 15 in the management contract which is an identical terms to that contained in clause 16 of the various leases. I set out clause 15:
   
   15. Dispute Resolution
       
   • 15.1 If a dispute arises between the parties in connection with the agreement then that dispute must be dealt with in accordance with this clause.
     
   • 15.2 If:
     

(a) a party has given to the other party notice of a dispute in connection with this agreement; and

(b) a party has given to the other party notice of a dispute within 14 days after notice under sub-clause (a) has been received by the other party,

Then the dispute may be submitted by either party to such person as may be nominated by the president or vice-president for the time being of the Cook Islands Chamber of Commerce. The person nominated is to act as an expert and not as an arbitrator.

15.3. Both parties are entitled to make written submissions to the expert so appointed upon the matter the subject of the dispute.

15.4. The expert's decision is final and binding upon the parties and the cost of the expert's decision will be borne by the parties in such shares as the expert may determine."

6. In essence, there are three steps contained within clause 15. First, there is the giving of notice of a dispute. Secondly, there is process of negotiation to be undertaken in good faith with a view to settling the dispute and, thirdly, and presumably on the basis there is no settlement, either of the parties may then submit the dispute to resolution by an expert to be appointed.
   
7. I need to assess the contractual provisions in the context of various communications between the parties. That is, first, a letter from the body corporate dated 29 February 2008; secondly, an email acknowledgment dated 7 March 2008; thirdly, a chase up from the body corporate on 30 March 2008; fourthly, a letter from Mr McFadzien dated 23 April 2008. In between the third and fourth steps in this sequence the Plaintiffs issued proceedings, that is, on 16 April 2008. Mr Tepaki through counsel advised from the Bar that he first learnt of the dispute on 23 April 2008. I note that the 30 March email that I have referred to was sent to him. I am not able to resolve this issue on the materials before me. Nevertheless, it seems abundantly clear there was no formal response from the Defendants prior to the proceeding being issued on 16 April.
   
8. I am satisfied that the 29 February 2008 letter is a formal notice of dispute in terms of clause 15.2(a). While it does not use the exact language of the contractual provision, the whole tenor of the letter is that of a notice of dispute. The current state of affairs is said by the writer of the letter to be "totally unacceptable". A threat to issue proceedings is made if the moneys claimed due are not paid. In those circumstances it would seem entirely unrealistic to say that this was not a notice of dispute.
   
9. I now need to address the second and third aspects of Clause 15. In order to do so I set out some further narrative. Following Mr McFadzien's letter of 23 April 2008 there was a meeting on 30 April 2008. This is recorded in a letter from Mr Petero dated the same day. Paragraphs 1 and 2 of that letter say:
   

"1. That the lease agreement and management agreements between Kia Orana Management for Units B,C,C,E and F for Manea Beach Resort ("Manea") have been terminated effective from today 30 April 2008.

2. That new management agreements for Manea will need to be formalized and will be effective from 1 May 2008."
   
10. The letter did not specifically refer to and resolve the litigation that was then under way. There was an oblique reference in paragraph 4(g) to the parties arranging a debt repayment schedule. As it happens, the sum of $43,000 was subsequently paid – some months later – but that sum has since been returned to the Defendants. Other than that, though, there was no other reference to the litigation.
    
11. Following that letter, the strike out application was issued in September as I've already noted.
    
12. The second aspect of clause 15 requires the parties to endeavour to settle the dispute within 14 days. Clearly that did not happen. As a consequence I do not need to get into the meaning of "good faith" used in that provision. There was no resolution of the dispute within the contemplation of clause 15.2(b).
    
13. I now turn to the third aspect which was whether either party submitted the dispute to the expert. Mr Little's clients clearly did not. Other than the application to strike out filed in September, the Defendants did not either. That leaves the essential contest between me as follows: First, do I follow Mr Little's view and take a relatively strict interpretation of clause 15 or, in the alternative, do I take a very loose interpretation which is the approach that must be taken in order to accommodate the circumstances facing the Defendants?
    
14. A dispute resolution provision must be interpreted in a purposive way so as not to defeat its intentions. Plainly, it should be interpreted so as to allow the parties to arrange their own dispute resolution mechanisms. At the same time, though, it cannot be entirely open-ended. In reaching that conclusion I have drawn assistance from Clause 15.4 which provides that the expert's decision is to be final and binding. The finality of such a provision clearly suggests that clause 15 should not be given an entirely open- ended interpretation.
    
15. On balance I am satisfied that I should not adopt the interpretation argued by the Defendants. If I was to do so, it would effectively require a significant rewriting of the clause. Therefore, I reject the application to strike out the claim. Even if I had been minded to grant the application, I would have done so only in relation to four of the eight money claims. Moreover, I would not have struck out the claim. At best, I would have stayed the proceeding and given a short time-frame within which the alternative dispute resolution process was to be followed. Obviously if that process was completed that might well then resolve the four claims but that is something that could only be addressed at some future date. Of course, all of that is speculative, and I set it out only in case it is of assistance should this matter go further.
    
16. As a result of my decision it will be necessary to make directions as to the future conduct of this proceeding. Before I do so, I want to commend to the parties the desirability of undertaking a mediation as soon as possible. It seems to me there is real scope for the cost of this proceeding to spiral out of control which will benefit no one. There was some discussion of mediation during the course of the argument and I repeat my strong recommendation that the parties explore that.
    
17. I have given consideration to the question of costs. Usually costs follow the event. In the circumstances, I think it appropriate that I should reserve costs to be considered at a future time. For various reasons I do not believe it appropriate the question of costs be resolved today.
    

..........................
Weston J

Editorial Note: Derived from the Court's electronic records and believed to be correct and final.