Kakara Estate Ltd v Savvy Vineyards 3552 Ltd [2013] NZCA 101; [2013] 3 NZLR 297 (12 April 2013)

Last Updated: 29 January 2018

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IN THE COURT OF APPEAL OF NEW ZEALAND

CA178/2012 [2013] NZCA 101

BETWEEN KAKARA ESTATE LIMITED First Appellant

AND WETA ESTATE LIMITED Second Appellant

AND SAVVY VINEYARDS 3552 LIMITED First Respondent

AND SAVVY VINEYARDS 4334 LIMITED Second Respondent

Hearing: 18 February 2013

Court: O'Regan P, Randerson and Asher JJ

Counsel: R E Harrison QC and W D Woodd for Appellants D P H Jones QC and C L Bryant for Respondents

Judgment: 12 April 2013 at 2.30 pm

JUDGMENT OF THE COURT

1. The appeal is allowed.
2. The declarations made in the High Court are quashed.

100. A declaration is made that the notices of termination issued by the appellants on 20 December 2010 are valid.

4. The respondents must pay the appellants costs for a standard appeal on a band A basis and usual disbursements.

5. Costs in the High Court should be resolved in that Court in light of this judgment.

____________________________________________________________________

REASONS OF THE COURT

(Given by O’Regan P)

Table of Contents

Para No
Introduction [1]
Factual background [9]
Issue one: Definition of “party” [21]
Issue two: Mere assignment or novation? [31]
Events leading to the alleged novation [38]
Hela Pharma [48]
Our analysis of this case [63]
Result [79]
Costs [80]

Introduction

[1] The first appellant (Kakara) owns a vineyard property in Marlborough. It is also party to agreements relating to the management of the vineyards it owns and the right to purchase grapes from the vineyards. The other party to those agreements was originally Goldridge Estate Limited (Goldridge) but Goldridge transferred its interest in the agreements to the first respondent (Savvy 3552). The second appellant (Weta) also owns vineyards in Marlborough and is party to essentially identical agreements with Goldridge. These were also transferred by Goldridge to the second respondent (Savvy 4334). We use the neutral term “transferred” in relation to these transactions because the precise legal effect of them (whether they were mere assignments or novations) is a key issue in the appeal.
[2] Kakara and Weta gave notices to Savvy 3552 and Savvy 4334 respectively terminating the agreements described above. The ultimate issue on the appeal is whether the notices of termination were effective.
[3] For simplicity, we will refer throughout this judgment to Kakara on the basis that its position vis-a-vis Savvy 3552 is identical to that as between Weta and Savvy 4334 unless any differences are specifically identified. As the relevant clauses in the grape supply agreements and the management agreements are materially the same, we will refer generically to “the agreements” rather than differentiating them. Where we refer to both Savvy 3552 and Savvy 4334, we will use the term “the Savvy companies”.
[4] The basis on which Kakara purported to terminate the agreements was that Goldridge had been placed in liquidation. There are provisions in all the agreements that specifically entitle either party to terminate if the “other party” goes into liquidation. We will refer to these provisions as the “termination clauses”.
[5] In order to determine the validity of the purported termination, two issues must be resolved. These are:

(a) Whether the terms “either party” or “other party” in the termination clauses referred to above refer only to “active” parties to the agreement (Kakara and Savvy 3552, in Kakara’s case) or whether an assignor of an interest under the agreement in the position of Goldridge also comes within the concept of “party”.

(b) Whether the transactions under which Goldridge transferred its interest under the agreements to Savvy 3552 amounted to a mere assignment or a novation.

[6] In the High Court, Andrews J determined on the first issue that an assignor was included within the concept of “party” under the agreements and therefore resolved the first issue in favour of Kakara and Weta. On the second issue, she held that the transactions involving the transfer of Goldridge’s interest in the agreements to Savvy 3552 and Savvy 4334 respectively amounted to a novation, and that Goldridge was substituted as a party to the agreements by Savvy 3552 or Savvy 4334. She entered judgment for the Savvy companies and made declarations that the termination notices issued by Kakara and Weta were invalid.^[1]
[7] Kakara and Weta appeal against the High Court decision, in particular the finding on the second issue. They seek the quashing of the declarations made in favour of the Savvy companies in the High Court and the making of a declaration in this Court that the notices of termination were valid. The Savvy companies cross-appeal against the High Court finding on the first issue.
[8] Before turning to the issues on the appeal and cross-appeal, we summarise the factual background.

Factual background

[9] The vineyards to which the litigation relates are situated at 3552 State Highway 63 and 4334 State Highway 63 in the Awatere Valley in Marlborough. The vineyards were purchased by The Vines Development Management Company Limited (Vines) a company owned and controlled by Paul Vegar. The properties were subsequently purchased from Vines by Kakara and Weta. Kakara purchased 3552 and Weta purchased 4334. The directors of Kakara and Weta are the same individuals.
[10] As part of the transactions involving the transfer of the properties to Kakara and Weta, Kakara and Weta entered into vineyard management agreements and grape supply agreements relating to each property with Goldridge. The directors and shareholders of Goldridge were Peter Vegar (brother of Paul Vegar) and his wife, Helen Vegar.
[11] Under the terms of each of these agreements, either party could terminate the agreement if the other party entered into statutory management, was liquidated or placed into receivership.
[12] The agreements were first entered into by Vines and Goldridge. When Vines sold the property to Kakara, it entered into an agreement under which it transferred its rights and obligations under the agreements to Kakara. The agreement was called a deed of assignment and was dated 30 July 2007. Vines, Kakara and Goldridge were the parties. The deed provided that the assignee (Kakara) be substituted for the assignor (Vines) “as if the Assignee had originally been a party to the [agreement] instead of the Assignor, and all references in the [agreement] to the Assignor shall be read and construed as if they were references to the Assignee”. Thus, the transfer from Vines to Kakara was clearly a novation.
[13] For reasons which were not explained to us, however, the documentation relating to the transfer of rights and obligations under the agreements by Vines to Weta in relation to the vineyards at 4334 State Highway 63 was in completely different terms. The document was again called a deed of assignment and was again between Vines as assignor, Weta as assignee and Goldridge. It was dated 14 December 2007.^[2] However, the assignment clause in the Weta deed of assignment simply provided that “the Assignor conveys, transfers and assigns to the Assignor [sic: Assignee] all the Assignor’s estate, title and interest in and under each of the [agreements]”. In its terms, therefore, the assignment from Vines to Weta was a simple assignment rather than a novation.
[14] For ease of reference, we will refer to the deeds described in the previous two paragraphs as the 2007 Vines assignments.
[15] In 2009, Goldridge undertook a corporate reorganisation. It incorporated Savvy 3552 (this was originally called Goldridge Estate Vineyards 3552 Limited) and Savvy 4334 (originally Goldridge Estate Vineyards 4334 Limited). The shareholders and directors of Goldridge were also the shareholders and directors of the new companies.
[16] On 28 August 2009, Goldridge transferred the agreements relating to the vineyards at 3552 SH 63 to Savvy 3552, and the agreements relating to the vineyards at 4334 SH 63 to Savvy 4334. We will deal later with the transactions pursuant to which Goldridge transferred the agreements to the Savvy companies when we address the question as to whether the transactions involved are mere assignments or novations. For ease of reference we will refer to these transactions as the 2009 Goldridge assignments.
[17] Goldridge was put into voluntary liquidation on 21 November 2010. This was almost 15 months after the 2009 Goldridge assignments.
[18] During 2010 (but prior to the liquidation of Goldridge), the business relationship between Kakara and Weta and the Savvy companies had deteriorated. Kakara and Weta purported to terminate the agreements in February 2010, citing alleged breaches of the agreements. This led to proceedings in the High Court and eventually an injunction was granted restraining Kakara and Weta from taking steps to terminate the agreements.^[3]
[19] After the liquidation of Goldridge, on 20 December 2010 Kakara and Weta issued the termination notices which are in issue in the present proceedings.
[20] We now turn to the two issues raised above at [5].

Issue one: Definition of “party”

[21] As mentioned earlier, Kakara and Weta purported to terminate the agreements in reliance on a provision in each of the agreements that allows “either party” to terminate the agreement if the “other party” is liquidated, placed in receivership or wound up. The issue is whether the terms “either party” and “other party” are limited to the “active” parties to the agreements, or whether they encompass assignors. It was common ground that this issue is determinative only if we overturn the High Court Judge’s finding that the 2009 Goldridge assignments were novations.
[22] The termination provision relied on by Kakara and Weta is common to all the agreements:

Either party shall have the right, in addition to all other rights, which it may have in law or equity, to terminate this agreement forthwith:

...

(b) if in respect of the other party an order is made or a resolution is effectively passed for the appointment of an official manager or a provisional liquidator or for the winding up of the other party (other than for sole purpose of reconstruction) or the other party ceases or threatens to cease to carry on business or a receiver or receiver and manager is appointed of the whole of any part of the assets and undertaking of the other party.

[23] Clause 1.2(c) of each agreement is also relevant:

Interpretation

1.2 In this agreement:

...

(c) any reference to any of the parties includes that party’s executors, agents, administrators or permitted assigns, or if a company, its successors or permitted assigns or both;

[24] As it was the liquidation of Goldridge that was the basis for the notices of termination, Kakara’s and Weta’s case depends on Goldridge being a “party” for the purposes of the termination provisions in the agreements.
[25] The two parties named at the beginning of each agreement are Vines and Goldridge. As a result of the 2007 Vines assignment Vines has been replaced by Kakara in the agreements relating to 3552, and under the 2009 Goldridge assignments Goldridge has assigned its interest to Savvy 3552. The Savvy companies submit that the term “party” in the termination clause means Kakara and Savvy 3552 and no-one else. They emphasise that when interpreting a contract the Court should look not only at the ordinary meaning of the contract, but also at the factual matrix of the contract.
[26] In the High Court, Andrews J held that the terms “either party” and “other party” in the termination provisions includes assignors who have assigned the benefit of the contract to another party. She saw this conclusion as flowing naturally from the definition of a party in cl 1.2(c) of the agreements. On that interpretation, assuming no novation, Goldridge remained a party after the 2009 Goldridge assignments.
[27] Taking the supply agreements for 3552 vineyards as an example, Vines is defined as the “Grower” and Goldridge as the “Buyer”. The essence of the Savvy companies’ submission is that the parties to the agreements are the “Grower” and the “Buyer”. The identity of the entity that fills the “title” of Grower or Buyer can change over time, and it is only the current holders of the “title” of Grower and Buyer that are intended to be bound by the agreements. To hold that assignors remain parties to the agreements goes against the meaning and purpose of the agreements and leads to an outcome that flouts business common sense. Counsel for the Savvy companies, Mr Jones QC, said it would be absurd if the liquidation of a former “Buyer” could give rise to a right of termination. If the liquidation of an assignor gave rise to a right to termination the intended benefit of a right of assignment would be lost.
[28] Counsel for Kakara and Weta, Mr Harrison QC, argued that the starting point was that the terms “other party” and “either party” in the termination provision refer to each named original party in the agreements. That would have been the position when the agreements were signed. Clause 1.2(c) then provides that “any reference to any of the parties” (being the named original parties) “includes ... its successors or permitted assigns or both”. Clause 1.2(c) is plainly intended to expand the scope of the parties to the contract, so that assigns are included in addition to, and not in substitution for, the original named parties. There is nothing in the agreements that reveals an intention to create an exception to the general rule that assignments do not remove the assignor as a contracting party. It was in the commercial interests of the Grower to retain assignors as parties, as it meant that Goldridge as assignor would remain a contracting party in the background, as an effective guarantor of the assignee’s performance.
[29] In our view, cl 1.2(c) is ambiguous in its use of the word “includes”. But, if it was intended that “party” excluded the assignor, one would have expected that the word “means” would have been used and also that the assignment clause would have provided for full substitution of the assignor by the assignee. Otherwise, as Mr Harrison argued, clause 1.2(c) would modify the impact of an assignment made in accordance with the assignment provision in the contract, effectively turning it into a novation. It is true that the reference to “the other party” in a number of clauses in the agreement implies that there will always be only two parties. However the agreement provides that the singular includes the plural and that any reference to the plural includes each one of them, so this cannot be a decisive factor either.
[30] We conclude, in agreement with the High Court Judge, that cl 1.2(c) includes the original contracting parties as well as their assigns within the meaning of “party”. Clause 1.2(c) expands the class of parties beyond the original contracting parties, to include the original parties’ successors and assigns. The clause does not limit the class of parties to only the successors or assigns, or to the currently “active” parties.

Issue two: Mere assignment or novation?

[31] We now turn to the question as to whether the transfer from Goldridge to the Savvy companies was a mere assignment or a novation. Again, we will use the assignment of the Kakara supply agreement as the paradigm case.
[32] It was common ground that, if there were a novation, the effect of that would be that Goldridge was superseded as a party by Savvy 3552 and was therefore no longer a party to the agreements. In that event its liquidation could not have been a trigger for termination. Determining whether there was an assignment from Goldridge to Savvy 3552 or a novation is therefore determinative of the validity of the termination notices.
[33] The essential difference between assignment and novation for the purposes of this case is that under an assignment, the assignor is not relieved of the burden of a contract as regards the other original contracting party, and the assignment can take place by agreement between the assignor and the assignee without the consent of the other contracting party, unless the terms of the original contract provide otherwise. In contrast to this, a novation is a transaction that creates a new contract that is substituted for the original contract. In order to create this new contract, the consent of all the parties to the original contract is required. The following definition from Chitty on Contracts, cited in the decision of this Court in Hela Pharma AB v Hela Pharma Australasia Ltd, summarises the essential elements of a novation:^[4]

Novation takes place where the two contracting parties agree that a third, who also agrees, shall stand in the relation of either of them to the other. There is a new contract and it is therefore essential that the consent of all parties shall be obtained: in this necessity for consent lies the most important difference between novation and assignment.

[34] Halsbury’s Laws of England also emphasises that it is essential for the consent of all parties to be obtained to effect a novation, but adds the following qualifier:^[5]

Consent to novation may, however, be inferred from conduct without express words. Thus a company, by registering a transfer of shares, agrees to discharge the contract with the old shareholder and accept the new one in his place; and the consent of a creditor to a transfer of liability from an old to a new firm may be inferred from the fact that he continues to deal with the new firm after notice of the change of partners. Slight acts of recognition of the existence of the new firm which are not incompatible with a determination to continue to look solely to the old firm as responsible for the debt are not, however, sufficient to constitute novation; and the position is similar with regard to the transfer of business between insurance companies.

[35] Thus, the three elements for a novation identified by this Court in Hela Pharma are:^[6]

• (a) the consent of all parties (that is, the original parties and the new party) is required;
• (b) consent may be inferred from conduct and need not be express;
• (c) there must be consideration (mutual promises can amount to consideration).

[36] We would add to (a) that the consent of all parties is required because a new contract whereby the new party is substituted for one of the original parties is required.
[37] As Hela Pharma is the most recent authority of this Court and both parties relied on it, we will analyse it in some depth later. But in order to provide context for that analysis, we first set out the factual background to the claim that a novation occurred.

Events leading to the alleged novation

[38] There was no dispute that Goldridge had transferred the agreements relating to the 3552 vineyards to Savvy 3552. This transfer was effected by a document called a deed of assignment dated 28 August 2009. Because this document purported to create a novation, we will call it the deed of novation. In each case the deed of novation was signed on behalf of Goldridge and Savvy 3552, but not Kakara.
[39] The deed of novation listed three parties: Goldridge, Savvy 3552 and Kakara. Provision was made for the deed of novation to be signed by each of those parties. The transfer would, if the deed of novation had been executed by all parties, have amounted to a novation because cl 1.2 of the deed provided that the parties agreed that the assignee “shall be substituted for the Assignor under the Agreement as if the Assignee had originally been a party to the Agreement instead of the Assignor, and all references in the Agreement to the Assignor shall be read and construed as if they were references to the Assignee”.
[40] Although the deed of novation was signed by Goldridge and Savvy 3552 on 28 August 2009, it was not sent to Kakara until 11 September 2009. The accompanying letter to Kakara from Peter Vegar as managing director of Goldridge was in the following terms:

We write to notify you that Goldridge Estate Limited is selling its business to [Savvy 3552] Limited. This is a related company with the same directors and same shareholders. The assignment took effect on the 28^th August 2009.

Although the [agreements] each state that Goldridge Estate Limited is not required to obtain your consent to assign the agreements to a related company, we have prepared assignment documents that will require execution.

[41] The letter ended with a request that Kakara arrange for execution of the documents.
[42] The letter correctly stated that the agreements provided that Goldridge was permitted to assign its interest under the agreements to a related party such as Savvy 3552 without obtaining the consent of Kakara. The relevant provision provided as follows:

Control of Assignment

25.1 Subject to the provisions of this section, the Buyer must not assign the Buyer’s interest in this agreement to any party that is not a related company of the Buyer or Goldridge Estate Limited without first obtaining the consent in writing of the Grower.

[43] However, the letter did not make it clear that the reason that Kakara’s execution of the deed of novation was required was that the assignment would be converted into a novation, and that Goldridge would thereby be released from any further liability under the agreement.
[44] Kakara did not sign the deed of novation, so, while it was effective to provide for a simple assignment from Goldridge to Savvy 3552, it did not operate as a novation.
[45] However, Savvy 3552 argues that the subsequent conduct of Kakara amounted to consent to the novation, bringing into effect a valid novation contract that was binding on Kakara. This argument was accepted by Andrews J.
[46] The High Court Judge was of the view that the objective evidence clearly pointed to Kakara having accepted that the Savvy companies were substituted as parties to the agreements in place of Goldridge. In brief, her reasons were as follows:

• (a) Kakara did not respond to the request to sign the deed of novation enclosed with the Goldridge letter of 11 September 2009 and, in particular, did not alert Goldridge to the fact that it regarded Goldridge as a party and saw it as important that Goldridge remained as a party.
• (b) The assignment was to other members of the Goldridge corporate group, controlled by the same shareholders, and no outsider was introduced to the transaction.
• (c) If Kakara had dealt with Savvy 3552 only as an assignee and only because it was required to do so, it would be expected that it would have voiced some discontent with the assignment and sought clarification as to whether Goldridge continued to be a party, but this did not happen.
• (d) The conduct of Kakara after September 2009 showed an unequivocal acceptance of Savvy 3552 as a party in substitution for Goldridge. Kakara paid invoices issued by Savvy 3552. It engaged as a defendant in proceedings issued by Savvy 3552 shortly after Kakara purported to terminate the agreements in February 2010 and raised no issue that the proceedings ought to have been brought by Goldridge. Kakara issued notices to remedy to Savvy 3552. Kakara engaged in contractual dispute resolution processes and did not require that Goldridge be involved. Kakara was dealing with Savvy 3552, and only Savvy 3552, as the other contracting party.

[47] In this Court, Mr Harrison argued that the conduct construed by the Judge as evidencing consent to a novation was, in fact, consistent with both a novation and a simple assignment, and that consent could not be properly inferred from the factors mentioned by the Judge. In order to evaluate that submission, it is necessary for us to deal with each of these factors in turn. Before we do that, however, it is necessary to focus attention on the decision of this Court in Hela Pharma, because it provides important context to the analysis.

Hela Pharma

[48] The facts of Hela Pharma are complex and it is necessary to set them out in some detail.
[49] In June 1996 Hela i Falkoping AB (Hela AB), a Swedish company, entered into a distribution agreement with Hela Pharma Australasia Ltd (Hela Australasia), a New Zealand company. The distribution agreement was signed by Mr Rabe, President of Hela AB, on behalf of Hela AB. The distribution agreement provided for either party to the agreement to terminate it without notice if the other party became insolvent or a receiver was appointed. The agreement also contained an arbitration clause.
[50] On 31 March 1998, a new company was registered in Sweden called Hela Pharma AB (Hela Pharma).
[51] On 6 April 1998, Hela AB changed its registered name to Stenen IVGL AB (Stenen). This change of name was not made known to Hela Australasia, and communications between the parties continued to be conducted in Stenen’s former name of Hela AB. A fax dated 28 May 1999 transmitted on Hela Pharma’s letterhead advised Hela Australasia that it “must deal with Hela International” in relation to all future business outside Sweden.
[52] On 11 January 2000, Stenen went into voluntary liquidation. Hela Australasia did not know that Hela AB had changed its name or that it had gone into voluntary liquidation.
[53] During this time the relationship between Hela AB and Hela Australasia was deteriorating. The companies had been in dispute since early 1998. In April 2000, Hela Australasia advised Hela AB (now, unbeknownst to Hela Australasia, called Stenen) that arbitration proceedings were being commenced.
[54] On 13 December 2000, Mr Rabe gave written notice to Hela Australasia that “Hela AB/Hela Pharma AB” intended to terminate the distribution agreement with effect from 9 June 2001 due to its overall dissatisfaction with the performance of Hela Australasia. The termination notice was written on “Hela” letterhead and bore the address and registered number of Hela Pharma. The notice was signed by Mr Rabe as “Managing Director” of “Hela AB/Hela Pharma AB”. At this time Mr Rabe was not a director of Hela AB/Stenen.
[55] Also in December 2000, the parties signed a reference to arbitration pursuant to the arbitration clause in the distribution agreement. The parties to the reference were stated as “Hela Pharma Australasia Ltd” and “Hela AB”. They were described in the recitals as “parties to a contract dated 18 June 1996”. Mr Rabe signed the reference to arbitration on behalf of “Hela AB”, even though no company currently existed in that name, and Hela AB was now operating under the name of Stenen.
[56] On 31 May 2001, Stenen was dissolved. This was unknown to Hela Australasia at the time, and also to Hela Pharma’s New Zealand counsel. It was not until October 2001 that counsel for Hela Pharma became aware that Stenen had been dissolved. Mr Rabe gave evidence that there was no disclosure because “the liquidation of Hela [AB] is completely unrelated to this arbitration”.
[57] Following the revelation that Stenen had been dissolved, the arbitrator issued a minute on 19 October 2001 stating that the dissolution of Stenen meant that the arbitration was at an end:

By fax dated 15 October 2001 Mr Fardell [counsel for Hela Pharma] enclosed what appears to be a certificate from the Agency of Patent and registration, Department of Companies in Sweden confirming that Hela AB [Hela AB] was dissolved on 31 May 2001. The name of the company referred to in the certificate is Stenen IVGL AB but Mr Fardell states that he has been instructed that there was a name change from Hela AB [Hela AB] to Stenen AB. ... I advised counsel that as a result of my research it appeared that the dissolution of Hela AB [Hela AB] meant that the arbitration was at an end.

[58] On 22 February 2002 Hela Australasia applied to the arbitrator for a preliminary determination of the identity of the party to the arbitration agreement described as “Hela AB”. The arbitrator came to the conclusion that Hela Pharma had taken over Hela AB’s rights under the distribution agreement and had become a party to the arbitration when Mr Rabe signed the reference to arbitration. Therefore, the parties to the arbitration were Hela Australasia and Hela Pharma, and the arbitration could continue.
[59] Hela Pharma appealed to the High Court. On the issue of whether Hela Pharma had assumed the benefits and burdens of the distribution agreement from Hela AB, Goddard J held:^[7]

[44] It is correct that neither [Hela Australasia] nor the Arbitrator were given notice of the transfer of [Hela AB’s] assets to [Hela Pharma], or notice of the effective demise of [Hela AB], until the arbitration was well advanced. However, in the factual context of this case, that does not impel the conclusion that the arbitration was a nullity from the point in time at which [Hela AB] was dissolved, which was midway through the arbitration. In those circumstances it must be open to imply a novation, if it can reasonably and logically be inferred that [Hela Australasia] would have consented to [Hela AB] assigning its obligations under the distribution agreement to [Hela Pharma], had it known of [Hela AB’s] true situation.

[45] In my view it was open to the Arbitrator to find as a fact that [Hela Pharma] as the party that had signed the Reference to Arbitration had assumed responsibility under the distribution agreement. Having found that, it would then be logical and reasonable to find, by implication, that [Hela Australasia] would have consented to this assumption of responsibility, had it been frankly informed of it.

...

[49] ... I have accepted [counsel’s] argument on appeal that once such findings are made all of the facts necessary to establish (at least by implication) a novation will be present.

[60] Hela Pharma then appealed to this Court. In a judgment delivered by Hammond J, the Court held that there had been a novation and that a new contract had been formed whereby Hela Pharma took the place of Hela AB in the distribution agreement.
[61] The Court was satisfied that there was “ample evidence” for consent to the novation to be inferred from the conduct of all three parties.^[8] In summary, this evidence was: the contextual evidence of the restructuring of the Hela companies; the transfer of assets from Hela AB to Hela Pharma as part of that restructuring; the circumstances and timing of the events leading up to the arbitration agreement; the ways in which correspondence from Mr Rabe showed that what had been Hela AB should now be seen as Hela Pharma; and the finding that the reference to arbitration was between Hela Pharma and Hela Australasia.
[62] The Court accepted that Hela Australasia did not have full knowledge of all the circumstances of the Hela companies at the time of execution of the reference to arbitration agreement, but found that it had sufficient knowledge for consent to be inferred.^[9] In essence, Mr Rabe (who was involved in the restructure of the Hela companies) gave evidence that Hela AB had been superseded by Hela Pharma, and while Hela Australasia was not fully aware of this it “was plainly content to deal with the matter on the footing actually presented to it by Hela Pharma as the superseding entity.” ^[10]

Our analysis of this case

[63] The striking feature of the present case that was absent from Hela Pharma is that Savvy 3552 addressed the issue of novation with Kakara and asked Kakara to agree by signing the proposed deed of novation, which Kakara did not do. Kakara did not, however, inform Savvy 3552 that it was refusing to do so. Counsel for both parties called this factor in aid of the respective parties’ cases.
[64] Mr Harrison cited it as a distinguishing factor from Hela Pharma, because Savvy 3552 had tried to turn the assignment into a novation by having the deed of novation signed by Kakara, but had failed to achieve its objective and had apparently acquiesced in the position that Savvy 3552 was an assignee only. He said the Court should be slow to find that conduct of Kakara that occurred a long time after the deed of novation was presented for signing amounted to the agreement of Kakara when Kakara had clearly not agreed in the manner that Savvy 3552 had asked it to (that is, by signing the deed of novation). He emphasised that Savvy 3552 bore the burden of proving that a novation had occurred.
[65] Mr Jones argued that the clear request by Savvy 3552 to Kakara to agree to a novation (by the presentation of the deed of novation for signing) meant that Kakara was fully informed of Savvy 3552’s intent. This contrasted with Hela Pharma where Hela Australasia was unaware of the corporate restructuring taking place in Sweden. Thus, he argued, Kakara’s later conduct in which it treated Savvy 3552 as a party to the agreements should be seen in the context of its awareness that Savvy 3552 was intended to replace Goldridge as a party to the agreements.
[66] We see Mr Harrison’s argument as more compelling. Having asked for Kakara’s formal agreement to novation but not having received it, Savvy 3552’s burden in establishing that Kakara’s later conduct amounted to agreement to novation is considerable. In effect, it is arguing that, by its conduct, Kakara agreed to the very thing that it declined to do by refraining from signing the deed of novation.
[67] We accept that Kakara did not respond to Goldridge’s request in Goldridge’s letter of 11 September 2009 to sign the deed of novation and did not alert Goldridge to the fact that it regarded Goldridge as a party and saw it as important that Goldridge remained as a party. However we do not attribute the same significance to those factors as the High Court Judge did. She saw this as evidence that Kakara had accepted a novation. We see it as evidencing that Kakara, when asked to accept the novation, did not do so.
[68] The Judge also considered it was significant that the assignment by Goldridge of its interests in the agreements was to other members of the Goldridge corporate group, controlled by the same shareholders, and no outsider was introduced to the transaction. While there is again some similarity with the situation in Hela Pharma, we do not consider that this factor lowers the bar of what is required for a novation. It does perhaps exemplify the opportunistic nature of Kakara’s position, but we do not see that as affecting the legal test that we must apply.
[69] We turn now to the conduct said by Savvy 3552 to amount to agreement to a novation. The Judge accepted that this conduct did indicate an acceptance by Kakara of a novation.^[11]
[70] We accept that Kakara’s payment of invoices issued by Savvy 3552 from September 2009 to December 2010 could be seen as consistent with a novation. But it is also consistent with the reality that Savvy 3552 was providing the services for which the invoices were issued, and with the position that would apply in the event of an assignment under the clause in the agreements that provided that that Goldridge could assign its interest in the agreements to a related party without the need to obtain the consent of Kakara. So we see this as neutral.
[71] Kakara and Weta engaged with the proceedings issued by Savvy 3552 and Savvy 4334 after Kakara and Weta purported to terminate the agreements in February 2010 and did not take the point that Goldridge should be a party. We accept this has echoes of Hela Pharma, but again we do not see it as decisive. Kakara and Weta were defendants responding to proceedings initiated by Savvy 3552 and Savvy 4334. It could have applied to have Goldridge added as a party but that was not a necessary step given the nature of the proceedings. It would have strengthened Kakara’s case if it had done so but we do not see its failure to do so as an indication of consent to a novation that it had not earlier agreed to when asked to do so.
[72] We see greater force in the Judge’s finding that the fact that Kakara issued notices to remedy defaults to Savvy 3552 on 10 September 2010 supported Savvy 3552’s case. That is because the notices were formal legal documents prepared by lawyers and they not only omitted any reference to Goldridge but that stated that Kakara and Savvy 3552 were “the present parties” to the agreements and invoked the dispute resolution provisions of the agreements in a manner which suggested that Savvy 3552 was party but Goldridge was not, because Kakara did not require that Goldridge be involved. Mr Harrison accepted that this was the high water mark of the case for Savvy 3552 and we agree.
[73] Mr Harrison argued that the notices of default could be seen as being consistent with mere assignments because, under s 11 of the Contractual Remedies Act 1979, remedies for pre-assignment breaches can be sought against an assignee. That is only partly true because the remedies that can be sought are limited to damages (subject to a statutory limitation) and cancellation, and those remedies were not what was sought in the notice of default. He also argued that most of the defaults noted in the notices of default were post-assignment defaults so it made sense to engage with the actual defaulting party, Savvy 3552. Under cl 1.2(c) of the agreement, Savvy 3552 was included as a party, so there was no impediment to invoking the dispute resolution clause against it. Again that is only partly correct because some of the defaults predated the assignments.
[74] Ultimately, however, we do not see the features of the notices to remedy defaults highlighted at [72] above as sufficient to constitute agreement to the novation arrangement that had been proposed to Kakara a year earlier and not then agreed to. This Court’s decision in Concorde Enterprises Ltd v Anthony Motors (Hutt) Ltd recognises the orthodox position that where a party has declined to execute a written contract sent to it by the other party, the normal inference is that the declining party did not intended to be bound, unless there is clear evidence to t[12] contrary.¹² While each case will turn on its facts, a party that chose not to execute an agreement has a strong argument that it should not be bound to that very agreement because of its later conduct.
[75] There were also a number of letters between Kakara and Weta and the Savvy companies that did not refer to Goldridge as a continuing party to the agreements. These may have been inaccurate but on their own they do not indicate that Kakara had agreed to the novation it had declined to agree to earlier.
[76] We accept that on the approach adopted in Hela Pharma, this is a finely balanced case. In our view, Hela Pharma should be seen as imposing the absolute minimum requirement for a novation and we would be loath to extend it further. It needs to be remembered that a novation is the formation of a new contract, and so the agreement of all parties to the new contract is essential. The Hela Pharma decision may have been influenced by the finding in the High Court that if Hela Australasia had been aware of the restructuring in Sweden and had been asked to agree to a novation it would have done so. That cannot be said in this case because Kakara was asked to agree to a novation and refrained from doing so.
[77] We see the context in which the actions said to constitute acceptance by Kakara of a novation as significant. By presenting a formal deed to Kakara for execution in order to effect a novation, Goldridge and the Savvy companies set the contractual framework. This followed on from the 2007 assignments, which had been formally (albeit inconsistently) documented. When Kakara did not sign the deed that was presented to it, Goldridge and Savvy 3552 must have realised that they did not have Kakara’s agreement to their proposed course. They did nothing about this. The parties then carried on their rather fractious business relationship in a way that was broadly consistent with both the assignment effected as of right by Goldridge and Savvy 3552 and the novation that Goldridge and Savvy 3552 wanted. We do not see Kakara’s conduct in that context as sufficiently clear to amount to consent to the novation or, more correctly, agreement to a new contract substituting Savvy 3552 for Goldridge.
[78] The same analysis applies to the assignments to Savvy 4334.

Result

[79] We conclude therefore that the Judge erred in finding that a novation had occurred substituting Savvy 3552 and Savvy 4334 for Goldridge under the respective agreements with Kakara and Weta. We therefore allow the appeal, quash the declarations made in the High Court and substitute a declaration in favour of Kakara and Weta that their notices of termination were valid. Counsel indicated that some issues remain outstanding and that these will need to be resolved in the High Court. If that is correct, counsel should seek a telephone conference in that Court to make arrangements for the determination of those issues.

Costs

[80] The respondents must pay the appellants costs for a standard appeal on a band A basis and usual disbursements. Costs in the High Court should be resolved in that Court in light of this judgment.

Solicitors:
Boyle Mathieson, Auckland for Appellants
Hesketh Henry, Auckland for Respondents

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^[1] Savvy Vineyards 3552 Ltd v Kakara Estate Ltd [2012] NZHC 416.

^[2] The deed of assignment is dated 14 December 2008, but the evidence was that it was executed in 2007.

^[3] Goldridge Estate Vineyards 3552 Ltd v Kakara Estate Ltd HC Auckland CIV-2010-404-2838, 3 August 2010.

^[4] Hela Pharma AB v Hela Pharma Australasia Ltd CA165/03, 17 February 2005 at [56] [Hela Pharma].
^[5] Halsbury’s Laws of England (5th ed, 2012) vol 22 Contract at [604].
^[6] Hela Pharma at [63]–[65].

^[7] Hela Pharma AB v Hela Pharma Australasia Ltd HC Wellington CIV-2002-485-201, 1 August 2003.
^[8] Hela Pharma, above n 4, at [66].
^[9] At [68].
^[10] At [69].
^[11] At [59], referring to the conduct she had described at [40] of her judgment.
^[12] Concorde Enterprises Ltd v Anthony Motors (Hutt) Ltd [1981] 2 NZLR 385 (CA).