Foodstuffs disappointed as Countdown case moved to arbitration

Foodstuffs wants to open a Pak'nSave in Auckland's Highland Park mall. Photo / File

Pak'nSave owner Foodstuffs said it is disappointed a fight over lease covenants will likely play out in secret, following a High Court ruling.

Whether arbitration clauses with lessees transfer onto a new property owner was the key issue in a recent court decision involving the supermarket and its rival Countdown.

Foodstuffs and associated companies brought the case against General Distributors, a property company for Countdown, over whether Pak'nSave can open up in a mall in Auckland's Pakuranga.

According to the judgment of Associate Judge Warwick Smith released last month, in 2018 Foodstuffs purchased property at Highland Park mall to develop a Pak'nSave supermarket.

At the same time, it bought the adjacent property Countdown has rented at the mall since 1998, becoming its rival's landlord.

While Foodstuffs acquired the Countdown site subject to the lease, there was never any formal transfer or assignment of Countdown's interest in the lease to Foodstuffs.

Countdown says there is no way Pak'nSave can build its supermarket because there is a condition preventing any supermarket bigger than 20 per cent of the gross lettable area of speciality shops at the mall from opening.

Pak'nSave said while there is a covenant and their development would breach it, it never agreed to the covenant. It also said that an agreement to arbitrate didn't run with the land, so didn't apply.

Pak'nSave tried to get court declarations saying it's not bound by the lease covenants, while Countdown said the matter must go to arbitration.

The matter ended up in the High Court, which discussed at length property law and arbitration.

"While this decision will not affect leases entered into after 1 January 2008, when the new provisions of the Property Law Act came into force, it is nevertheless important; there will be a substantial number of leases containing arbitration clauses entered into before that date, and many cases the lessor and/or the lessee will not be the parties who signed the lease," associate judge Smith wrote.

Foodstuffs lawyer Iain Thain had said that there were good reasons for an arbitration clause to not run with the land, and be passed onto a new owner. For example, while a party might want to arbitrate with the original contracting party, it might not want to with an assignee.

However, the judge thought on an initial basis it was arguable that the arbitration clause touches and concerns the land because it affects the landlord and the tenant in their normal capacities. This meant the conditions passed onto the new owner.

"If [Foodstuffs] is correct in their submissions, any lessor wishing to circumvent the requirement to submit disputes to an agreed dispute resolution mechanism could simply transfer the freehold to a related entity," the judge wrote.

He sent the matter to arbitration, which means the result is likely to be kept secret.

In a statement, Foodstuffs North Island general manager for property Lindsay Rowles said the supermarket brought the action because it wanted the dispute to be determined in public, saying "we believe the public has the right to know about the benefits of increased competition."

Rowles claims to want to set a legal precedent for allowing more competition at Highland Park. In his email did not address questions on when the new supermarket would open or who the owner-operator would be.

Countdown said it had no update since the decision was delivered.