NDA ENGINEERING LIMITED v OXFORD GROUP LIMITED [1999] NZCA 270 (22 November 1999)

IN THE court of appeal of new zealand

ca148/99

	between	NDA ENGINEERING LIMITED
		Appellant

	AND	oxford group limited
		Respondent

Hearing:	16 November 1999
Coram:	Blanchard J McGechan J Paterson J
Appearances:	K G Parker for Appellant J Sutton for Respondent
Judgment:	22 November 1999

judgment of the court delivered by mcGECHAN J

[1] This is an appeal against summary judgment for professional fees claimed by a merchant bank.

[2] The central issue is the correct interpretation of letters of appointment ("mandate"), but proper understanding requires some background.

[3] Through 1997-1998 defendants in the High Court sought to effect a management buyout of NDA Industries Limited.The First Defendant Mr Mollard and Second Defendant Mr Fisher led the way.The Defendants engaged the Respondent ("Oxford") in relation to their proposal.This engagement led to a series of mandate letters dated 27 May 1997, 25 November 1997, and 16 March 1998.The texts are set out in the judgment below.It is sufficient for present purposes to quote the opening portion of the first mandate letter dated 27 May 1997:

Re:Management Buyout ("MBO") of NDA International Limited ("NDA")

Further to our previous discussions, we are pleased to offer our assistance ("the Assistance") to you and your management team (collectively termed "Management") to purchase either the assets of NDA or the shares of NDA and its subsidiaries.

The Assistance would be as Adviser and Arranger of the MBO of NDA by Management and the Assistance would encompass the following tasks:

1. Analysis of the financial position of NDA.

2. Conduct due diligence of NDA.

3. Create a financial structure for the MBO.

4. Prepare an information memorandum to source debt funding from the bank.

5. Raising the debt funding from an acceptable bank/financial institution.

6. Negotiate the subordinated debt structure with vendors of NDA.

7. Assist Management in the raising of half their equity contribution ($1m) for the MBO by way of borrowing from financial institutions, secured over their shares in NDA.

8. Assist the Management with the sale of assets to repay acquisition debt funding.

9. Any other financial affairs related to the completion of the MBO.

In consideration for providing the Assistance, Oxford Group Limited ("Oxford") will be remunerated as follows.

[4] The letter stipulated for "reasonable expenses" and an "advisory fee" on settlement date.As modified over the two succeeding mandate letters, the "advisory fee" became $500,000 plus GST, of which $400,000 was payable on the business day after settlement of the management buyout, and $100,000 on the earlier of settlement of the sale of certain land and buildings acquired, or 12 months after settlement.By the time of the third mandate letter of 16 March 1998 (accepted 20 March 1998) original proposals for subordinated debt within item 6 had modified so as to involve a specialised form of preference share plus third debenture.Item 6 undoubtedly was so understood as at the date of the third mandate letter.

[5] Appellant says that Oxford did not fulfil all the tasks.It does not allege that Oxford is in breach of contract, far less that it has cancelled the contract on that account, or has suffered compensatable loss.Nor does it assert that if Oxford was to receive any fee it had to perform all the tasks; in other words, it does not say that this was an entire contract.What it says is that the fee was either by the express terms of the mandate, or even impliedly, divisible between the tasks, so that Oxford is entitled to be paid only a fair proportion of $500,000 for what it has actually done by way of "Assistance."The Appellant, while not alleging non performance at earlier relevant times or giving prior notice of dissatisfaction, made an offer in full settlement one day before payment of the $400,000 was due, and after judgment saw fit to pay $200,000 on account.

[6] Appellant disputes the adequate provision of services by Oxford within the terms of items 5 and 6.An earlier dispute as to services within item 9 has dropped away.Put briefly, Appellant seeks to interpret the letter as imposing an obligation on Oxford itself to raise funding within item 5 and to negotiate itself within item 6: an obligation to "do", not merely to "assist".Appellant contends Oxford did not in fact do so, and thus is not entitled to fees claimed.Oxford seeks to interpret the letter as imposing no more than an obligation to "assist" Appellant so far as required; contending on the facts Oxford did so.

[7] As to the level of services provided within item 5 the Master found:

(i) That the Second Defendant (Mr Fisher) "was responsible for the actual arranging of the BNZ finance."Oxford had made preliminary efforts, and had recommended the approach to BNZ.However "no request as such for additional assistance in the arranging of finance through the BNZ was made by the management buyout team".

(ii) The introduction to Marac was made by Oxford.There was "no specific request to follow through in the sense of actually arranging the finance".

[8] As to the level of services provided within item 6, the Master found it established:

(iii) That Oxford attended meetings on 20 March 1998 and later in December 1998 before settlement; and offered to attend others in between.Moreover, Oxford corresponded with the Appellant on the topic and drafted letters some of which the Appellant utilised.As the Master put it "...the Defendants have taken advice including advice from [Oxford] and have then acted themselves in getting agreement from the vendors as to the appropriate means by which vendor finance could be retained".

[9] The Master then made findings as to interpretation which bear quotation in full:

[50] The letters specify that it is "assistance" which is being provided.In my view, the obvious and inescapable conclusion is that it could not be expressed in any other way.The actual finance must necessarily involve the thirteenth defendant and its officers.They must be involved in the obtaining of that finance.They will dictate precisely how they wish it to proceed.It is only if they nominate that they want the plaintiff to assist in a particular way that assistance can, in fact, be provided.Assistance is defined in the Shorter Oxford Dictionary as:

The action of helping or aiding.

One could go on to consider the number of cases, whether in the criminal or civil law, where the word "assistance" is used.That is unnecessary. All embody the notion of helping or aiding, or taking part in. What is significant is that the helping or aiding is something done for a third party. Mr Parker submitted that the agreement defines assistance.By that I took him to mean that the word "assistance" was exclusively defined in the contract itself.If that approach is adopted then it seems to me the word "assistance" is totally superfluous.The contract would have been written as simply

The plaintiff will advise on and arrange the necessary finance.

The contract does not so provide.It provides that assistance in those areas will be given.

[51] When construed in that light, it seems to me, that provided there has been no refusal on the plaintiff to perform one of the specified tasks, where the plaintiff has done what has been required of it by the defendants the contractual term will have been met.I am reinforced by that conclusion by the further words used in the contract.In particular, the contract states that

the assistance would encompass

and then lists the tasks.It seems to me that that indicates a definition of the area to be covered.In other words, and to put it very generally, assistance outside tasks which are legal, financial and accounting are not covered by this particular contract.The definition is used in that limiting sense rather than imposing a positive obligation to perform in a circumstance where there is no request by the defendants to enter into the particular subject-matter.

[52] Such an interpretation gives effect to the plain and ordinary meaning of the words used.No ambiguity or inconsistency is created by that use.When looked at in that light there is no specific obligation cast on the plaintiff that it has not performed.In short, there is no breach.

[53] I therefore conclude as a matter of construction, that this contract involves the giving of assistance in the defined task areas and in those situations where it is specifically requested by the defendants.In this case there was no specific request for further assistance in the areas covered by tasks 5 and 6 and, if need be, task 9 in circumstances that might amount to a breach of contract by the failure to render that assistance.

[10] In substance, we agree with this interpretation, adding only that in the case of a professional advisor such as a merchant bank the attitude should be proactive.The advisor should offer advice and assistance if the advisor thinks such is needed, not merely awaiting request.We have reached that view after due allowance for the recent decision in this Court in Boat Park Limited v Hutchinson [1999] 2 NZLR 74 in relation to the role of surrounding circumstances; guidance not available to the Master at the time. Counsel for Appellant submitted further evidence as to merchant banking practice should be received to assist with interpretation.We do not see a likelihood that surrounding circumstances evidence of that character, so far as admissible, would affect outcome.The letter, read realistically, is clear. Our reasons for the preferred interpretation can be put quite shortly.

[11] The letter of 27 May 1997 offers to provide "assistance".An offer, on a commercial basis, to "assist" presupposes that the assistance will be sought or at the very least accepted by the offeree.No-one in a commercial context offers to provide assistance of some forced character which is not wanted.The assistance would be as "advisor" (a very clear status) and "arranger".An "arranger" - presumably one who makes arrangements - has functions going rather further than the status of mere advisor, but the term equally carries through the concept of desired assistance.One does not offer to "arrange" matters where participation of that sort is not wanted.The letter then says that the "assistance" (as advisor and arranger) would encompass nine sequential stated tasks.The first six of these-including presently crucial 5 and 6-are worded in a positive-action sense, e.g. "conduct due diligence", "raising the debt funding", and "negotiate the subordinated debt" (later modified).In some contrast, succeeding numbers 7 and 8 are prefaced by the word "Assist (the) management...".It has been argued the contrast between the positive/action formulation in numbers 1-6, and the "assist" formulation in 7 and 8, points to an individual obligation to act and achieve in 1-6 as contrasted with mere "assistance" in relation to the latter.We do not think the matter falls to be resolved on a semantic basis of that sort, particularly in a business letter not drawn by a lawyer.The overall sense and expectation of "assistance" carries through all categories including 5 and 6.All will require a degree of action by both parties, sometimes indeed joint action.Oxford could not carry out even items 1-4 without some input by NDA, and certainly could not discharge 5 and 6 without involvement of NDA.The obligation can only sensibly be construed as one to assist as advisor and arranger so far as called upon by NDA to do so.As remarked earlier, Oxford was required to be proactive in the sense of offering advice and being willing to "arrange" where needed and wanted, but that was the extent of its obligation.If the position were otherwise, then any essential involvement at all on the part of a client in raising money or negotiating subordinated debt would preclude contractual performance.That cannot have been intended.In our view, so long as Oxford offered advice and made itself available as and when needed and wanted, it met its obligations under 5 and 6.Those did not require some purely solo achievement on its part.

[12] We concur with the Master's view that, on the evidence, a good deal of which is not in conflict, obligations so identified were met by Oxford.This was a case where the Appellant, particularly through Messrs Mollard and Fisher, deliberately sought to front the management buyout, with Oxford kept rather in the background.It is a case where as a matter of commercial policy, and desire on Appellant's part, those involved with the Appellant played a leading role.That does not alter the nature of the fee obligation assumed, with open eyes, on 20 March 1998, nor Oxford's actual availability and entitlement.If there was to be a reduction in fee, that was a matter for NDA to endeavour to renegotiate.NDA did not do so.Indeed, there is at least an appearance that NDA studiously avoided doing so.

[13] In those circumstances, it is not necessary for us to enter into some interesting and potentially difficult questions as to any entitlement Oxford might have on the basis of quantum meruit, or questions of cancellation, or breach.Appellant chooses not to argue the contract was an entire contract, and chose to pay $200,000.The latter was wise, but neither controls construction or outcome of the mandate letters.

[14] We dismiss the appeal.The Respondent is awarded costs of $5,000 plus disbursements to be fixed by the Registrar.

Solicitors

Tompkins Wake, Hamilton, for Appellant

Rudd Watts & Stone, Wellington, for Respondent