Case involved an apple orchard converted into a vineyard
The High Court has upheld an arbitrator’s interpretation of “fair market value” in a dispute arising from terminating a lease contract.
In Bolitho v Walter Robert Investments Limited [2022] NZHC 3596, Benjamin and Anna Bolitho leased a portion of bare agricultural land from Benjamin's grandparents under a lease agreement. The property had been known as the "Wells Block" for over 30 years, and it was an apple orchard until Benjamin and Anna took the lease.
The Bolithos converted the apple orchard into a vineyard planted with sauvignon blanc grapes. They also owned and managed other vineyards in the area. The first vintage was in 2008, and grapes from the property formed part of a blend for a top-label wine that won numerous awards.
After Benjamin's grandparents died, Walter Robert Investments Ltd. purchased the agricultural land. A termination clause under the lease agreement provides that the lessors must pay Benjamin and Anna for the improvements to the land. The parties appointed experienced professional valuer Blue Hancock as an arbitrator to value the improvements. After a hearing and a site visit, Hancock issued an award.
The Bolithos challenged the arbitral award, arguing that the arbitrator failed to correctly interpret the contractual provision requiring him to provide a ruling on "the fair market value" of the improvements. As a result, they alleged that Hancock undervalued the improvements. The Bolithos appealed before the High Court, asking for the correct interpretation of the term "fair market value" in the lease agreement.
Interpreting 'fair market value'
The high court found that the arbitrator made no error in setting out the legal position and approach to interpreting the lease agreement. The contract required the arbitrator to conduct a "fair market value" assessment. The court said the arbitrator applied the relevant approaches to valuation to the particular property and circumstances.
The Bolithos argued that they were not challenging the facts on which the valuation exercise was based, nor the valuation exercise itself, but rather the arbitrator's interpretation of "fair market value" and the methodology he adopted resulting from that interpretation. They asserted that the questions posed were questions of law, not of fact.
The court disagreed. The court explained that the Bolithos raised issues directed at the arbitrator's application of the valuation methodology to the subject property. Those issues were squarely for determination by the valuer.
The court did not find any error of law in the arbitrator's application of valuation methodologies and principles to the property and evidence before him. The court further found that the "fair market value" assessment required in the lease agreement was intensely fact and property specific. The award required consideration of the evidence and the application of specialist expertise and experience.
The court concluded that the arbitrator approached his determination appropriately, applying the correct interpretation of the termination clause in the lease agreement. The arbitral award presented a careful and appropriate analysis with reasons for the findings clearly outlined. Accordingly, the court dismissed the Bolithos' appeal.
