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High Court of New Zealand Decisions |
Last Updated: 26 December 2018
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IN THE HIGH COURT OF NEW ZEALAND
AUCKLAND REGISTRY
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CIV-2015-404-218
[2016] NZHC 1270 |
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BETWEEN
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HULBERT DEVELOPMENTS LIMITED
Plaintiff
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AND
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TAIRUA MARINE LIMITED
Defendant
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Hearing:
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4 and 5 April 2016
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Counsel:
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H P Holland and L J Cole for Plaintiff G J Kohler QC for Defendant
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Judgment:
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14 June 2016
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JUDGMENT OF WHATA J
This judgment was delivered by me on 14 June 2016 at 4.30 pm, pursuant to Rule 11.5 of the High Court Rules.
Registrar/Deputy Registrar
Date: ...............................
Solicitors: Knight Coldicutt, Auckland
Burton & Co, Auckland
HULBERT DEVELOPMENTS LIMITED v TAIRUA MARINE LIMITED [2016] NZHC 1270 [14 June 2016]
[1] Hulbert Developments Limited (HDL) terminated its right to pursue a joint venture with Pacific Paradise Limited (PPL) to develop water space as a marine facility so that Tairua Marine Limited (TML) could take up that opportunity. The consideration for this is recorded in an agreement dated 23 September 1999 (the Exit Agreement) as follows:
[2] TML entered into the New Marina JVA as expected. After a lengthy consenting process a marina facility was constructed by TML, though not pursuant to the New Marina JVA, which had been terminated by agreement with PPL. HDL claims that a marina facility having now been completed, TML should have paid the
$250,000 pursuant to the Exit Agreement. As TML refused to pay that sum, HDL cancelled the Exit Agreement and now seeks relief pursuant to s 9 of the Contractual Remedies Act 1979. It also claims that TML’s purported termination of the New Marina JVA prior to Practical Completion breached an implied term that TML would use its best endeavours to complete the New Marina JVA entered into with PPL.
[3] TML denies liability, claiming that:
(a) A marina was never constructed in accordance with the expectations of the parties or the New Marina JVA – it was half the size of the marina that the parties expected to be built and the New Marina JVA was validly terminated;
(b) There was no implied term that TML would use its best endeavours to complete the New Marina JVA; and
(c) Practical Completion has not in fact been achieved.
[4] The key issues for me to resolve are therefore:
- (a) Did cl 2 require completion of a specified number of marina berths?
(b) Was TML required to use its best endeavours to complete any New Marina JVA?
(c) Has Practical Completion been achieved?
Background
[5] The full text of the agreement provides a useful summary of the immediate background:
BACKGROUND
AGREEMENT
(a) the valid cancellation of the 1998 Agreement being effected to the satisfaction of TML (and for the purposes thereof HDL will procure from PPL an acknowledgement to that effect).
(b) the execution by PPL and TML of the New Marina JVA and the New Land JVA and such agreements being made unconditional in all respects.
extent whereby it is able to be used for vessel berthage and marina berths sold and allotted to arms length parties have been settled.
The 1998 Agreement
[6] The 1998 Agreement between HDL and PPL defined “the Joint Venture” as the “operation and activities of the parties to develop and operate the Tairua Marina”. This agreement conferred on PPL the right to terminate the agreement after 10 years by payment of a termination fee, the details of which are not relevant. Schedule 2 of the agreement refers to an initial priority of development, including to develop a master plan and to develop the marina water area. This referred to an agreement to take all steps to obtain planning approval “for upgrading marina facilities for not less than the number of designed berths”.
A draft agreement
[7] Mr Hulbert of HDL set about developing a master plan and seeking the planning approvals. During this time, Mr Hulbert approached Mr Craig Watts (who would later become director of TML) about participating in the development of the marina. A draft joint venture agreement titled “Tairua Marina Berths Joint Venture” was drawn up. Preamble A refers to a joint venture for the development of “200+-” berths. PPL was to provide the water area and permits and rights for an area marked on an attached plan. “Tairua Marina – Berths” is defined as the water area and all improvements are shown outlined in blue on the plan. This plan identified approximately 227 berths. HDL was to provide its expertise in the development of a marina and marina village-type uses, as well as consultation for the resource consent application. Watts Group Investments Limited (through a subsidiary) was to pay for all planning costs. A development budget of $168,100 is noted.
[8] The draft agreement was never signed, but Mr Hulbert and Mr Watts met on a number of occasions over the period beginning early June 1999 to end of July 1999 to discuss the marina development. Experts, Boffa Miskell and Beca Engineering, had been retained to assess, among other things, the feasibility of the marina,
including the number of berths that might be consented and developed. The minutes of a meeting dated 19 June 1999 refer to a marina berth mix, indicating 244 berths. The 23 June 1999 minutes refer to a marina layout and two concept plans to be drawn up. A preferred marina berth layout is recorded as “BCHF Option 2 plan” with approximately 236 berths, as well as an “Option 3” layout for 250 berths. A project budget estimate includes 240 berths. More specifically the minutes of the latter meeting record:
It is agreed that the preferred marina berth layout is the one shown on the BCHF Option 2 plan (approx 236 berths). This berth layout to be increased to 250 berths for the Option 3 layout which includes a larger marina basin with the northern part dredged to 1 metre below Chart Datum.
[9] At the following meeting, on 7 July 1999, Beca Engineering indicated that it now preferred Options 1 and 2, with modifications. Those present at the meeting agreed to produce a summary report and drawings of two modified options in preparation for the next meeting. The report was prepared by Beca that same month and contains within it the plans for Options 1B and 2B, for 237 and 245 berths respectively. The plans make their way into the Schedule 1 of the New Marina JVA (see [14] below).
Approval for land based activities
[10] On 1 August 1999 HDL obtained consents in respect of the “Master Plan” for land based activities at Tairua Marina. This included consent for esplanade strips, travellers’ accommodation, earthworks and car parks. Consents required to establish comprehensive housing on specified lots were put off for consideration on another date.
The Exit Agreement and the New JVAs
[11] At about this time Mr Hulbert decided he wanted to return to the United States and raised the prospect of HDL exiting the Joint Venture. This culminated in
the Exit Agreement. It was also at this point in time that TML was brought in as the
entity to hold the Watts Group’s share of the development.
[12] The New Marina JVA referred to in the Exit Agreement was signed in November 1999 by TML and PPL. The purpose of the agreement is recorded at cl 2.1, namely:
...acquiring occupancy rights to the Marina and Carparking Area by the best means available... securing Rights, developing the Marina Facility in accordance with the Development, allocating and selling Marina Berths and carparks and establishing or appointing an entity to manage the operation of the Marina Facility.
[13] The Agreement defines the following key terms as follows:
(a) Marina:
The area of water space forming part of the Marina Facility (including all pilings, jetties, pontoons, walkways and other improvements for the purposes of establishing Marina Berths delineated blue on the Plans and Specifications.
(b) Marina Facility:
The Marina and Carparking Area together with all improvements from time to time erected or placed thereon and all facilities to be used in conjunction therewith.
(c) Plans and Specifications:
Those preliminary plans and specifications in relation to the Development attached as Schedule 1.
[14] Schedule 1 is attached. It refers to Option 1 and Option 2. These refer to 237 and 245 berths.
[15] The Development is described at cl 4 which records that the parties will enter into such contracts and do all things as may be necessary to complete the Joint Venture Project, including preparing detailed plans and specifications for the Marina Facility based on the Plans and Specifications and obtaining all necessary Rights (including all resource consents).
[16] Clause 14 of the agreement also provided for termination, including by negotiation or on default.
[17] The New Land JVA was also executed in November. It provided for the development of a complex involving residential accommodation, commercial and retail use and marina type industry to support the proposed adjoining marina facility at Tairua Harbour. The JVA related to Investment and Sale Land as described in a Schedule
The consenting process
[18] The first resource consent applications for a 253 berth marina were lodged by the PPL/TML joint venture in September 2000. Both Environment Waikato and the Thames Coromandel District Council sought further information. Amended consent applications for the same number of berths were lodged on 17 September 2001. But the consent applications were withdrawn following the advice from TML’s consultants that the application would not be successful.
[19] TML then made a second application for resource consents on 28 February 2003. This was for a 150 berth marina. Those resource consent applications were unsuccessful before the commissioners. TML appealed to the Environment Court. It was unsuccessful.1 TML further appealed to the High Court. It was also unsuccessful.2
[20] TML decided to scale back the development further and applied for consents to construct a 95 berth marina on 8 March 2007. The Commissioners granted consents on 23 June 2009. Opponents to the marina, the Guardians of Paku Bay, unsuccessfully appealed to both the Environment Court3 and the High Court.4 The
3 Tairua Marine Ltd & Anor v Waikato Regional Council & Anor [2010] NZEnvC 398.
4 Guardians of Paku Bay Association Inc v Waikato Regional Council [2011] NZHC 1013; [2012] 1 NZLR 271 (HC).
final decision of the Environment Court was issued on 1 August 2011 confirming the resource consents.5
The (purported) termination of the JVAs
[21] On 26 November 2012, TML and PPL signed an agreement recording the exit arrangements of PPL from the joint venture agreements and to their dissolution. Both joint ventures were purportedly dissolved as from 26 November 2012. TML bought the land required for both the land-based and the marina-based developments from PPL.
The construction of the Marina
[22] TML commenced construction of a marina facility in accordance with the resource consents in June 2013. The physical works for 95 berths have been now been completed. But a final practical completion certificate has not been issued for the facility as a whole.
The evidence
[23] Mr Hulbert gave evidence for HDL. Mr Watts and Mr Flynn gave evidence for TML. I have found all the evidence helpful as to context and reasonably credible. The differences between them in the evidence given are, in my view, simply matters of perspective and reflect the natural limitations of recall after a significant elapse of time.
[24] Mr Hulbert described his background in project development, having previously had some success in land development and consenting. He relayed his dealings with PPL (including the 1998 JVA agreement) and with Mr Watts, including the negotiations towards a joint venture to develop a marina. He refers to his decision to return to the United States and the discussions with Mr Watts about selling his shares in the 1998 JVA with PPL. In his evidence in chief he noted that the number of expected berths was discussed, but no numbers were certain and that
5 Tairua Marine Ltd & Anor v Waikato Regional Council & Anor [2011] NZEnvC 218.
the negotiations extended to land based activities with an open canvas as to how to proceed. He accepted under cross examination that the number of berths recorded in the New Marina JVA were the same as the number of berths discussed prior to the exit negotiations and that there were never any plans for anything less than 200 berths. Mr Hulbert also referred to calls made to TML in the years following Exit Agreement to remind TML that he was expecting payment. He records TML’s refusal to pay the anticipated fee on 28 February 2014.
[25] Mr Watts presented his recall of the key events. The history is essentially the same and as recorded above at [7] - [22], though he complains that he was led to believe that the consenting process was further along than it actually was (a matter which has not had any bearing on my evaluation). He describes the lengthy consenting process then undertaken by TML – a 12 year arduous journey culminating in a grant of consents for 95 berths. He notes that, by the end of it, the directors of PPL wanted to terminate the New JVA and this was effected by agreement dated 26 November 2012. He also notes that TML sold the marina assets to Tairua Marine Charitable Trust Board on 8 August 2012. Construction of the marina is said by him to have commenced in about June 2013 and is not yet fully complete, though the marina was officially opened on 16 April 2014.
[26] Mr Flynn is the property development manager for TML. He describes the lengthy consenting process and the gradual reduction in the size of the marina berthage. He also refers to the construction of the marina, noting that a practical completion certificate was issued for the retaining walls on 12 March 2014 and that the marina was opened on 16 April 2016, noting that the berths were able to be used, but that the facility as a whole was not yet complete. He also notes that the land- based development has just begun. He responds to Mr Hulbert’s evidence about discussions with TML since the Exit Agreement. He denies that Mr Hulbert reminded him about the fee until about 2012.
The interpretative frame
[27] Contractual interpretation is about objective assessment of intention; that is:6
...to ascertain “the meaning which the document would convey to a reasonable person having all the background knowledge which would reasonably have been available to the parties in the situation in which they were at the time of the contract”. This objective meaning is taken to be that which the parties intended. While there is no conceptual limit on what can be regarded as “background”, it has to be background that a reasonable person would regard as relevant. Accordingly, the context provided by the contract as a whole and any relevant background informs meaning.
(Footnotes omitted and emphasis added).
[28] Further:7
While context is a necessary element of the interpretive process and the focus is on interpreting the document rather than particular words, the text remains centrally important. If the language at issue, construed in the context of the contract as a whole, has an ordinary and natural meaning, that will be a powerful, albeit not conclusive, indicator of what the parties meant. But the wider context may point to some interpretation other than the most obvious one and may also assist in determining the meaning intended in cases of ambiguity or uncertainty.
(Footnotes omitted).
[29] Within this frame, I adopt the approach taken to the interpretative exercise recently affirmed by the Court of Appeal, that is by ascertaining:8
...(i) the natural and ordinary meaning of the clause, (ii) any other relevant provisions of [the contract], (iii) the overall purpose of the clause and the [contract], (iv) the facts and circumstances known or assumed by the parties at the time that the document was executed, and (v) commercial common sense, but (vi) disregarding subjective evidence of any party’s intentions.
[30] I simply add that relevant context may also include post-contractual conduct.9 But:10
6 Firm PI 1 Ltd v Zurich Australian Insurance Ltd [2014] NZSC 147, [2015] 1 NZLR 432 at [60].
7 At [63].
9 Gibbons Holdings Ltd v Wholesale Distributors Ltd [2007] NZSC 37, [2008] 1 NZLR 277 at
... claims of undeclared intent (what the parties were thinking, in contrast to what they are saying) are excluded because, unlike communications between the parties, they cannot possibly assist in ascertaining objective intent.
Did cl 2 require practical completion of a specified number of marina berths?
[31] Ms Holland contends that the parties never agreed to a specified number of berths:
(a) The New Marina JVA had not been executed at the time of the execution of the Exit Agreement.
(b) Mr Watts’s evidence that “Mr Hulbert and I agreed that the $250,000 would be payable once all berths in the 228 berth marina had been sold and settled” breaches the parole evidence rule, and in any event is inconsistent with various figures identified by Mr Watts in the preceding draft and subsequently finalised JVA agreements – 200, 237 and 245.
(c) Mr Hulbert’s evidence, that there was no discussion about the number
of berths, is to be preferred.
(d) Subsequent utterances by Mr Watts in internal TML meetings accord with Mr Hulbert’s understanding – namely the following entry in the minutes of a TML meeting:
John Hulbert
(e) Mr Hulbert’s evidence as to telephone conversations with Mr Flynn (of TML) in which payment was discussed is also to be preferred over Mr Flynn’s evidence to the contrary – why else would he call TML?
[50]–[63] (per Tipping J) and at [111]–[122] (per Thomas J); Vector Gas Ltd v Bay of Plenty Energy Ltd, above, at [30] (per Tipping J) and [122] (per Wilson J).
10 Vector Gas Ltd v Bay of Plenty Energy Ltd, above n 8, at [19]–[20] (per Tipping J). See also
Arnold v Britton, above n 8, at [21].
(f) The absence of evidence from Jim and Val Mason of PPL to substantiate TML’s version of events should lead to an inference that they could not support it.
(g) HDL forfeited not only an opportunity to build a marina, but also to develop the land-based activities.
[32] Mr Kohler QC submits (in short) that:
(a) The New Marina JVA referred to in cl 2 of the Exit Agreement defines with precision the joint venture development in issue;
(b) “the marina facility pursuant to the New Marina JVA” has not been
completed.
(c) It cannot be seriously contended that the as-built development is sufficiently close in substance to amount to completion of the contemplated and defined marina facility. Mr Hulbert conceded in cross-examination that, at the time the Exit Agreement was drawn up, the parties anticipated the size of the marina development to be around 200 berths.
Assessment
[33] There is little doubt that a marina facility comprising more than 200 berths was in focus in the period leading up to the execution of the Exit Agreement. This is recorded in the draft joint venture agreement and in the minutes of meetings between the parties. The inclusion of the Options 1 and 2 in the New Marina JVA was not coincidental. On the contrary, it aligns with the preceding documented discussion.
[34] The primary issue in this case is the extent to which pre-contractual negotiations should guide the interpretation of a simply worded agreement requiring payment of $250,000 to HDL on practical completion of “the marina facility pursuant to the New Marina JVA”. I have come to the view that they must for the following reasons.
Plain language
[35] The plain language of the Exit Agreement contemplates “the” marina facility “pursuant to” the New Marina JVA. “The” is defined by the Shorter Oxford Dictionary as follows:11
Designating one or more persons or things already mentioned or known, particularized by context or circumstances, inherently unique, familiar or otherwise sufficiently identified.
[36] The phrase “pursuant to” is defined to mean “consequent and conforming to; in accordance with”.12
[37] It can be assumed therefore from the language used that Mr Hulbert and Mr Watts had in mind a facility that had already been mentioned and was known, and that it would be completed in accordance with the New Marina JVA. It is necessary therefore to go to the wider context to understand what was known to the parties.
Other provisions and object
[38] The preamble to the Exit Agreement refers to the 1998 Agreement and negotiations between TML and PPL. The 1998 Agreement refers to “not less than the number of designed berths”.
[39] The preamble also refers to providing TML with “the opportunity to complete the New Marina JVA and the New Land JVA”, and that “HDL has agreed to effect a termination of the 1998 Agreement upon the terms and conditions set out in this Agreement.”
[40] Clause 1 states that TML will pay $6000 to HDL on valid cancellation of the
1998 Agreement and the execution of “the New Marina JVA and New Land JVA”.
11 Lesley Brown (ed) The Shorter Oxford Dictionary (4th ed, Oxford) at 3269.
12 At 2411. See also Black’s Law Dictionary, which defines the term as “in compliance with; in accordance with; under”: Bryan A Garner (ed) Black’s Law Dictionary (10th ed, Thompson Reuters, St Paul (Minesota), 2014) at 1431.
[41] These provisions make plain that the 1998 Agreement and the negotiations with PPL form part of the background and that the object of the Exit Agreement was to provide TML with the opportunity to “complete” the New Marina JVA. This reinforces the inference to be drawn from the words used that the subject matter of the New Marina JVA was known and referable to the previous agreement and the ongoing negotiations.
The background to the Exit Agreement
[42] Plainly Mr Hulbert and Mr Watts expected that the New Marina JVA would include plans and specifications to develop a marina of more than 200 berths. This is shown in the background narrative at [7]-[9]. As Mr Kohler noted, Mr Hulbert conceded that a marina with this number of berths was in contemplation. I acknowledge that Mr Hulbert may not have had in mind a specific number of berths. But the documentary record leading up to the Exit Agreement clearly suggests that Mr Hulbert and Mr Watts envisaged a new joint venture to achieve a 200 plus berthage.
[43] That the New Marina JVA did not exist at the time is a complicating factor, but in the just explained context (including the preamble to the Exit Agreement), that does not make the Exit Agreement uncertain or ambiguous. Further, based on the clear documentary trail, the pith and substance of the New Marina JVA, including specifications for “the marina”, incorporating the reference to the two Beca options, was almost inevitable.
[44] Balanced against this, the parties did not, and yet could have, specified that the payment was contingent on the practical completion of a specified number of berths. The agreement was also drafted by TML’s solicitors, so it cannot complain about the absence of specificity. But, I am unable to sensibly construe the meaning of the words “the marina pursuant to the New Marina JVA” in the light of the background other than referring to a marina facility of 200 plus berths.
Commercial commonsense
[45] I am not persuaded “commercial common sense” sheds light on the meaning of the words used in this context. Mr Hulbert could validly claim that it did not make sense for him to give up his rights to develop and assume the risk that TML might not in fact achieve the full 200 plus berthage, a risk with which he would have been familiar given his experience with the consenting process. But equally, Mr Watts might validly claim that it makes no commercial sense to pay for an opportunity simply complete a commercially unviable marina of indeterminate size.
[46] Finally on this aspect, I accept that the commercial consideration for the Exit Agreement is not limited to the marina opportunity. HDL also forfeited the opportunity to pursue the land-based activities. But the salient part of the Agreement is plainly concerned with the value of the opportunity to develop the marina facility.
Post-contractual conduct
[47] The internal TML minutes dated 14 June 2004, 23 September 2005 and 31 October 2005 (which contain the statement referred to at [31](d) above) do not persuade me to reach a different conclusion. On one construction of it, TML did not consider itself bound to pay the full amount if consent for the full expected berthage was not granted. Given this ambiguity, I do not consider that these minutes helpfully assist me to resolve the interpretative issue one way or another. Similarly, evidence about subsequent telephone discussions dealing with the Exit Agreement is equally not compelling.
The parol evidence and contra proferentem rules
[48] Finally, and for completeness, I address Ms Holland’s argument that the parol evidence rule, in combination with the contra proferentem rule, prevents TML from admitting oral evidence that adds to, varies or contradicts the Exit Agreement.13 The
13 Citing Newmans Tours Ltd v Ranier Investments Ltd [1992] 2 NZLR 68 (HC).
purpose of the parole evidence rule is helpfully explained by Professor Richard Calnan:14
The idea behind the parole evidence rule is simple. If the parties have gone to the trouble of writing down their agreement, then the courts should give effect to that agreement without being distracted by other things which the parties may have said or done. The contract stands and falls with the document.
[49] The Court of Appeal in Prattley Enterprises Ltd v Vero Insurance New Zealand Ltd15 recently reaffirmed that the contra proferentem rule “survives as part of the court’s interpretive toolkit” (in the context of exclusionary clauses).
[50] Central to Ms Holland’s thesis is that the Exit Agreement was drafted by TML’s solicitor and it is now impermissible for Mr Watts to seek to go behind it and add terms that are not expressly included. But since the 1970s the Courts have looked to the matrix of fact to assist with, rather than change, the meaning of contractual terms.16 Furthermore, even on the strictest approach, evidence of pre- contractual negotiations will be admissible in order to establish the relevant background facts known to the parties, or to ascertain their knowledge of the circumstances with reference to the words that they have used in the contract.17 In any event, it has always been a general rule of the common law that pre-contractual negotiations are admissible to identify the subject matter of the contract.18 That is what has been required here.
14 Richard Calnan Principles of Contractual Interpretation (Oxford University Press, Oxford, 2013) at [2.14].
15 Prattley Enterprises Ltd v Vero Insurance New Zealand Ltd [2016] NZCA 67, [2016] 2 NZLR 750 at [62]
16 Prenn v Simmonds [1971] 1 WLR 1381 (HL); Reardon Smith Line v Yngvar Hansen-Tangen [1976] 1 WLR 989. See also Calnan, above n 14, at [2.32]; Kim Lewison The Interpretation of Contracts (6th ed, Sweet & Maxwell, London, 2016) at 133.
17 New Zealand Carbon Farming v Mighty River Power Ltd [2015] NZCA 605 at [99] referring to
Vector Gas v Bay of Plenty Energy Ltd, above n 8, at [13] (per Blanchard J), at [27] (per Tipping
J) and at [67] (per McGrath J).
18 Vector Gas v Bay of Plenty Energy Ltd, above n 8, at [13]–[14] (per Blanchard J) and at [59]–
[60] (per McGrath J). McGrath J referred to the classic case that illustrates this principle: MacDonald v Longbottom [1859] EngR 635; (1859) 1 E & E 977. The plaintiffs were sheep farmers. The defendant, Mr Longbottom, was a wool dealer who employed Mr Stewart to purchase wool for him. Mr Stewart wrote to the second plaintiff offering to purchase to buy “your wool” for a certain price. The expression “your wool” was not defined. At the Court of Queen’s Bench and on appeal in the Court of Exchequer, the judges were agreed that the parties’ pre-contractual negotiations were admissible to identify the subject matter of the contract (the wool) and to quantify the amount of wool for sale.
[51] Accordingly, the parole evidence and contra proferentem rules do not assist HDL insofar as it concerns what the parties meant by “the marina facility pursuant to the New JVA”.
Outcome of interpretation
[52] The words “the marina pursuant to the New Marina JVA” referred to a
marina of 200 plus berths. It follows that TML is not required to pay to HDL
$250,000 pursuant to cl 2 of the Exit Agreement because “the marina” was never
constructed as expected.
Implied Terms
[53] As I have found that there was no obligation on TML to pay the $250,000, it is not necessary for me to address the second cause of action based on the breach of an implied term at any length. Ms Holland contends, in short, that the Exit Agreement contained a condition to the effect that TML would use its best endeavours to complete any marina JVA with PPL. The well settled frame for implying terms is set out by the Privy Council in BP Refinery (Westernport) Pty Ltd v Shire of Hastings:19
Their Lordships do not think it necessary to review exhaustively the authorities on the implication of a term in a contract which the parties have not thought fit to express. In their view, for a term to be implied the following conditions (which may overlap) must be satisfied: (1) it must be reasonable and equitable; (2) it must be necessary to give business efficacy to the contract, so that no term will be implied if the contract is effective without it; (3) it must be so obvious that “it goes without saying”; (4) it must be capable of clear expression; (5) it must not contradict any express term of the contract.
[54] While the elements in BP Refinery are not fixed tests that must be satisfied before a term can be implied, they remain useful indicators relevant to the ultimate question of what a reasonable person would have understood the contract to mean.20
19 BP Refinery (Westernport) Pty Ltd v Shire of Hastings (1977) 180 CLR 266 (PC) at 282–283.
20 Attorney-General of Belize v Belize Telecom [2009] UKPC 10; [2009] 1 WLR 1988 (PC); Hickman v Turn and Wave Ltd [2010] NZCA 100, [2011] 3 NZLR 318 at [248]; Manukau Golf Club Inc v Shoye Venture Ltd [2012] NZCA 154 at [29]; Gardiner v Westpac New Zealand Ltd [2014] NZCA 537, [2015] 3 NZLR 1 at [68].
[55] I am satisfied that a “best endeavours” condition as claimed by HDL is obvious, reasonable and efficacious, particularly in light of the background facts and the exchange of valuable consideration.21 The parties agreed that HDL would relinquish its existing contractual rights on the basic premise that TML would carry out the development in accordance with the New Marina JVA. The prospect that TML would simply cancel the New Marina JVA without using its best endeavours to complete the marina pursuant to it would have been utterly discordant with that premise.
[56] Turning to the facts, it is Ms Holland’s contention that TML did not use its best endeavours to obtain the necessary approval for the marina. She says that the requirement of “best endeavours” includes the issuing of proceedings to achieve the desired result. But I am in no doubt that TML did not breach the implied term given the steps taken by it to give effect to the New Marina JVA. These steps not only accorded with, but went well beyond the reasonable (and actual) expectations of the parties to the Exit Agreement. I am fortified in this view having regard to the following factors:
(a) The New Marina JVA contained a clause requiring the parties to “do all such things as may be necessary to complete the Joint Venture project...”22
(b) The JVA partners expended $3,792,751.12 in obtaining consents to give effect to the agreement.
(c) The New Marina JVA remained in existence for 12 years and in the face of multiple major setbacks.
(d) The New Marina JVA was only cancelled at the conclusion of this lengthy delay and only in relation to a marina with less than 50 per cent of the anticipated berthage.
21 I acknowledge that there is some judicial reluctance to imply “good faith” conditions – see John Burrows, Jeremy Finn & Stephen Todd The Law of Contract in New Zealand (5th ed, LexisNexis, Wellington, 2016) at 200–202 and the cases cited therein. But for the reasons stated above, an implied condition inheres with the nature of the agreement.
22 Clause 4.1.
[57] In reaching this view I have not relied on evidence as to the subjective position of the PPL directors (who Mr Watts says had requested cancellation given among other things the cost, delay and their age).
Practical completion
[58] It is also unnecessary for me to resolve the issue of whether practical completion has been achieved. It may however assist the parties for them to have my findings on this.
[59] Practical completion is defined in cl 2 and that definition is repeated here for ease of reference:
Practical Completion shall be deemed to have occurred when the marina facility has been developed to an extent whereby it is able to be used for vessel berthage and marina berths sold and allotted to arms length parties have been settled.
[60] The only evidence of practical completion in the formal technical sense is the production of a practical completion certificate for the construction of the new perimeter and internal sheet pile and steel pile retaining walls for the marina. But it is reasonably clear that the berths are able to be used, the marina having been opened and about a third of the berths sold.
[61] TML submits that “all” marina berths had to have been sold in order to trigger the payment of the $250,000. But this misconstrues the plain meaning of practical completion. The clause triggers payment when “the marina facility has been developed to the extent that it is able to be used for vessel berthage and marina berths sold and allotted”. The focal point is completion of the “marina facility” in the way defined, not the actual sale of the berths. It does not literally require the sale of any of them and certainly not all of them. Rather TML must be in a position to sell them. That makes sense too in light of the exchange of valuable consideration – the relinquishment of a right to develop in exchange for the opportunity to successfully develop a marina facility.
What if I am wrong about the requirement for a specified number of berths?
[62] Finally, had I found that the Exit Agreement required payment by TML to HDL irrespective of the size of the marina, I would have exercised my jurisdiction in terms of s 9 of the Contractual Remedies Act 1979 to award damages to HDL of no more than $125,000 plus GST to reflect the 50 per cent reduction in the size of the marina built, an outcome that was unanticipated by the parties at the time they entered into the Exit Agreement.
Result
[63] HDL’s claim for relief under s 9 of the Contractual Remedies Act 1979 is unsuccessful. The “marina” referred to in cl 2 was a marina with 200 plus berths.
Costs
[64] TML is entitled to costs on a 2B basis. In reaching this view I have applied the usual principle that costs follow the event and for that purpose, the partial success of the plaintiff in terms of implied terms and practical completion is not sufficient to warrant a different outcome. In the event of disagreement among the parties as to costs, they are to be calculated by the Registrar.
Schedule 1 to the New Marina JVA
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