By Catherine Green, Arbitrator and Mediator, Executive Director at NZDRC
During the course of a commercial tenancy, disputes often arise between landlords and tenants in relation to the parties’ obligations under the lease to maintain and repair premises, fixtures and fittings.
The end of a tenancy also often gives rise to disputes between landlord and tenant as to the extent of the tenant’s obligations to ‘make good’ or ‘reinstate’ the premises to the same condition as they were in at the commencement of the lease, the repair and/or maintenance of the landlord’s fixtures and fittings which the tenant was responsible to undertake, and claims by landlords for unpaid rent and outgoings.
These disputes may be resolved by direct negotiation, but all too often the dispute will escalate with the parties taking irreconcilable positions and unable to move forward without engaging in a formal determinative dispute resolution process.
The New Zealand Dispute Resolution Centre (NZDRC) is often approached in such circumstances to provide private dispute resolution services and invariably the initial enquiry will start with the same question: which process is best?
There is of course no one right answer and NZDRC routinely provides mediation, arbitration and expert determination services to parties for the resolution of such disputes. However, our overall experience indicates that arbitration clearly comes out on top as the process of choice for resolving landlord tenant disputes for three primary reasons: cost and time efficiencies (proportionality), choice of decision maker, and finality and enforceability.
Keeping the process proportionate
It is not unheard of to hear complaints of arbitration simply mirroring high court litigation with the additional cost of a private judge. However, and in NZDRC’s view, the objective of arbitration must be to provide a flexible and efficient means of resolving disputes quickly, cost effectively, privately and confidentially without necessarily adhering to the formalised, technical procedures of litigation.
Arbitration certainly has the potential to provide disputing parties with a credible, effective and proportionate process to resolve their dispute if approached sensibly. The success of the process is largely dependent on the arbitration procedures adopted by the parties and the extent to which the arbitral tribunal is able to control the process.
It is with this approach in mind that NZDRC developed a suite of Arbitration Rules that are robust and certain, yet innovative in their commonsense approach to the arbitration process. Published in 2018, NZDRC’s latest suite of arbitration rules provide parties with a fair, prompt and cost effective process for the determination of their dispute. The new rules provide for three expedited processes starting with a 45 working day process where the dispute is dealt with entirely on the documents, then moving to 60 or 90 working day processes which are predicated on a hearing of up to three and five days respectively.
Given the relatively limited scope of disputes arising out of lease related obligations, parties commonly adopt either the 45 or 60 day process dependent on their desire to have a hearing (or not). In our experience, in the vast majority of cases, there is simply no need for a lengthier process which can only result in greater cost to the parties for no relative gain.
The desirability of arbitration as compared to litigation has only increased in recent years with the rise in court fees (both filing and hearing fees) and delay in getting a judgment.
NZDRC’s arbitration rules provide for either fixed or capped fees which provide disputing parties (and their legal advisers) with greater certainty as to the likely cost prior to engaging in the process.
Moreover, in terms of time (and time is certainly money in the legal world), parties can have an arbitrator appointed and the process completed with an award published in less time than it may take to even get a first case management conference scheduled before the courts – certainly before any final trial and judgment.
Choice of decision maker
A key benefit often associated with any private dispute resolution option is the ability to select a third party neutral who rather than being a generalist, has significant experience in dealing with disputes arising in, for instance, a particular industry or sector such as property. This gives parties the confidence that the facilitator or decision maker (depending on the process selected) is already up to speed in terms of having a working understanding of the matters in dispute in the specialist context in which they have arisen.
Of course, an arbitrator is not appointed to conduct an investigation or to bring his or her own experience to bear when publishing an award. However, there is a certainty security in knowing that the decision maker has a base level of understanding of the matters in dispute. There are also likely to be cost savings in that parties do not necessarily need to ‘educate the decision maker’ as a preliminary step to determining the issues in dispute.
Finality and enforceability
This final key benefit also in part relates to the first.
Any arbitral award is final and binding, with only limited rights of appeal available, those appeal rights being restricted to appeals on questions of law (as compared with the multiple levels of appeal related proceedings in the court system).
This gives parties certainty that their dispute will be finally resolved without the risk and cost associated with multiple levels of appeal. The practical benefit of this is that parties can have their dispute determined as quickly as possible (and therefore as cost effectively as possible) in a manner that is final and binding.
An award can also be enforced quickly and easily in the High Court by entry as a judgment in terms of the award, or by action, subject only to the provisions of articles 35 and 36 of the First Schedule to the Arbitration Act 1996. This might be compared with a settlement agreement or even an expert’s determination (where the parties to the expert determination have agreed that the determination is to be binding), as both of these processes result in an outcome that may only be enforced as a matter of contract with all the attendant problems that brings.
The ease of enforcement of an arbitral award is vastly superior to the alternative options that apply to purely contractual processes. Whilst it is always hoped that parties to a voluntary private dispute resolution process will abide the outcome of that process, it is certainly not guaranteed and, for that reason, the enforceability of an arbitral award will always be a major benefit of arbitration which should carefully be considered when looking at dispute resolution options.
There are of course many other benefits to be gained by using arbitration as a dispute resolution process, the most often cited being that it is private and confidential.
In commercial landlord and tenant disputes however, our experience shows that parties consistently put the highest premium on the time and costs efficiencies and certainty provided by our expedited processes as well as the finality and enforceability of arbitral awards.
Arbitration, particularly under the NZDRC Arbitration Rules, provides a solution that is credible, proportionate and effective, and it is no surprise that arbitration’s popularity has steadily increased over time with both disputing parties and their legal counsel.