Hulbert Developments Limited v Tairua Marine Limited [2017] NZCA 418 (20 September 2017)

Last Updated: 29 September 2017

IN THE COURT OF APPEAL OF NEW ZEALAND
CA325/2016 [2017] NZCA 418
BETWEEN	HULBERT DEVELOPMENTS LIMITED Appellant
AND	TAIRUA MARINE LIMITED Respondent

Hearing:	29 June 2017
Court:	Brown, Dobson and Brewer JJ
Counsel:	C T Patterson and B E Cran for Appellant G J Kohler QC for Respondent
Judgment:	20 September 2017 at 3.00 pm

JUDGMENT OF THE COURT

1. The appeal is dismissed.
2. The appellant must pay the respondent costs for a standard appeal on a band A basis and usual disbursements.

____________________________________________________________________

REASONS OF THE COURT

(Given by Dobson J)

[1] This appeal arises from a contractual dispute where the appellant, Hulbert Developments Ltd (HDL), had exited a joint venture formed to develop a marina in Tairua in the Coromandel. HDL was unsuccessful in its claim under s 9 of the Contractual Remedies Act 1979 after it alleged a breach by its successor in the development, the respondent (Tairua Marine Ltd (TML)), of an obligation to make a payment to HDL on practical completion of the marina.^[1]
[2] For reasons similar to those given by Whata J in the High Court, we agree that HDL cannot establish a breach of the contractual obligation alleged, and its appeal must accordingly be dismissed.

Factual background

[3] In 1998 HDL entered into a joint venture with Pacific Paradise Ltd (PPL), the owner of waterfront land in Tairua, to develop a marina. The arrangement was for PPL to provide the land and water rights and for HDL to do the development work, including obtaining consents and constructing the marina and adjoining landbased facilities. HDL and PPL were to share the profits.
[4] In 1999 Mr Watts, director of Watts Group Investments Ltd (Watts Group) and its wholly-owned subsidiary TML, was invited by the director of HDL, Mr Hulbert, to take part in the marina development. Mr Watts stated that he was invited to join the venture because, along with his personal links to the Tairua community, his financial resources could provide working capital for the consenting and construction phases of the development. Mr Watts said Mr Hulbert was the participant who would bring expertise for obtaining all necessary consents and supervising the development, by virtue of claimed prior experience in the development of marinas.
[5] By May 1999 the prospects of a tripartite joint venture between HDL, Watts Group and PPL had advanced to the point of a draft joint venture agreement. That draft anticipated the respective contributions as we have described them. That agreement was never completed. Despite the absence of any written agreement between them, HDL, Watts Group and PDL took steps in June and July 1999 to advance an assessment of the viability of the marina. Consultants Beca Carter Hollings & Ferner Ltd (Beca Carter) and Boffa Miskell Ltd (Boffa Miskell) were retained, and reports received from them. Four meetings of the three proposed joint venturers were held during June and July 1999.
[6] Mr Hulbert then announced his intention to return to the United States of America. He raised with Mr Watts the prospect of selling HDL’s share in the original joint venture agreement with PPL to Watts Group. It was at this stage that TML was brought in as the entity to hold the Watts Group share of the development. Accordingly, TML and HDL entered into an exit agreement, the terms of which are at the heart of this litigation. At the time the exit agreement was completed it was contemplated that TML would enter two new joint venture agreements with PPL: one for the development of the marina facilities; and one for the development of the shorebased facilities intended to service the marina.
[7] The exit agreement was dated 23 September 1999. It provided for TML to pay HDL $6,000 conditional on the cancellation of the 1998 joint venture agreement to the satisfaction of TML, and the execution by TML and PPL of joint venture agreements to develop the marina (the New Marina JVA) and the land (the New Land JVA). HDL’s present claim relies on a provision for further consideration in the following terms:

TML will pay to HDL the sum of $250,000.00 plus GST upon Practical Completion of the marina facility pursuant to the New Marina JVA. For the purposes hereof 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.

[8] In November 1999 TML and PPL entered into the New Marina JVA to construct and operate a marina facility of approximately 200 berths, and the New Land JVA to develop a complex adjoining the marina with residential accommodation and premises for commercial, retail and marinerelated industries. The scale and design of the marina contemplated by the New Marina JVA was consistent with the development that had been in contemplation in the middle of 1999 when the three prospective joint venturers had met to progress the development.
[9] Extremely protracted endeavours to obtain the required resource consents followed. An initial resource consent application for a 253 berth marina was lodged in September 2000. That application was withdrawn on the advice of consultants retained that it would not be successful. In February 2003 a further application was pursued for a 150 berth marina. That was unsuccessful before Commissioners and on subsequent appeals to the Environment Court and the High Court. Those processes took until June 2006. In October 2006 the Minister of Conservation declined the application for restricted coastal activity permits on the basis of the Environment Court and High Court decisions.
[10] In March 2007 TML made a fresh application for consent to construct a 95 berth marina. In June 2009 Commissioners granted that application, but opponents pursued appeals to the Environment Court and subsequently to the High Court. Those appeals were unsuccessful. In August 2011 the Environment Court issued orders that confirmed resource consents for the development as proposed in March 2007.
[11] Before any physical works were undertaken, PPL negotiated with TML to withdraw from both joint venture agreements. Accordingly, the New Marina JVA and New Land JVA were dissolved, TML purchased the land that PPL was to have contributed to the ventures and, in June 2013, TML commenced construction on the marina facility. Physical works were completed for the 95 berths that resource consent had been given for and, by the time of the hearing in the High Court, the development had been completed to the stage of berths being available for sale and to be used. However, a final certificate of practical completion had not been issued for the facility as a whole.
[12] In 2003 HDL had been struck off the Companies Register, but it was reinstated in August 2014 and thereafter brought the proceedings. In early 2014, prior to HDL being restored to the register, Mr Hulbert pressed TML for payment of the amount he considered outstanding under the exit agreement. By letter dated 28 February 2014 TML refused to pay the $250,000. On the basis that the refusal constituted a breach of contract, HDL cancelled the exit agreement and sued for relief under s 9 of the Contractual Remedies Act.

The High Court judgment

[13] Whata J attributed to the parties the intentional use of the definite article “the” when referring to the marina. Drawing on a definition from the Shorter Oxford Dictionary, he interpreted it as referring to an item that was already mentioned or known, something with which the parties were familiar or that was otherwise sufficiently identified. The Judge took into account the point that had been reached in progressing the development when the exit agreement was completed. At that time, all three of the parties involved had met to consider the options for development that had been reported on by the consultants they had retained. In all options, the scale of the development was a material factor in their assessments. Whata J found that the identified or identifiable marina development that was in contemplation when the exit agreement was completed was one that contained 200 or more berths. It was that identifiable concept that the Judge held to be “the marina” for the purposes of the obligation assumed by TML under the exit agreement.
[14] The Judge considered numerous arguments that might influence that interpretation. These were unsuccessful and, for the most part, were repeated in argument before us so it is sufficient to review them in the course of explaining our own reasons.
[15] Thus, the ultimate determination in the High Court was that the completed marina with 95 berths was a different marina from that contemplated in the exit agreement. It did not constitute “the marina facility” which triggered TML’s obligation to make the payment. Therefore TML had not breached its obligations under the exit agreement in refusing to pay HDL the sum of $250,000.
[16] Whata J was also asked to determine whether the exit agreement included an implied obligation for TML to use its best endeavours to complete the marina that was contemplated at the time the exit agreement was completed. The Judge found that there was such an implied term, but that it had been more than adequately discharged by the extensive efforts TML had undertaken to obtain resource consents for a marina of the scale that would conform to that contemplated in the exit agreement.
[17] If wrong in his determination that there was no breach by TML of its contractual obligation, Whata J considered that the quantum of relief to which HDL would be entitled under s 9 of the Contractual Remedies Act ought to be reduced by 50 per cent, namely to $125,000. This was to reflect the smaller scale of the development that had been completed.

The approach to interpretation

[18] The approach to interpretation of contractual provisions is wellsettled. Guidance is provided by the Supreme Court in its approach exemplified by the following reasoning of Tipping J in Vector Gas Ltd v Bay of Plenty Energy Ltd:^[2]

[19] The ultimate objective in a contract interpretation dispute is to establish the meaning the parties intended their words to bear. In order to be admissible, extrinsic evidence must be relevant to that question. The language used by the parties, appropriately interpreted, is the only source of their intended meaning. As a matter of policy, our law has always required interpretation issues to be addressed on an objective basis. The necessary inquiry therefore concerns what a reasonable and properly informed third party would consider the parties intended the words of their contract to mean. The court embodies that person. To be properly informed the court must be aware of the commercial or other context in which the contract was made and of all the facts and circumstances known to and likely to be operating on the parties’ minds.

[19] And more recently in Firm PI 1 Ltd v Zurich Australian Insurance Ltd:^[3]

[63] 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.

HDL’s principal argument

[20] HDL’s interpretation of the operative clause in the exit agreement was that the marina facility was only qualified by it being the one that was completed pursuant to the New Marina JVA. On this approach the reference to “the marina facility” did not contemplate any particular marina at the time the exit agreement was signed, but rather any marina, so long as it was completed pursuant to the New Marina JVA that was to be entered into.
[21] Mr Patterson submitted that HDL was paid nothing under the exit agreement until a new joint venture agreement had been signed. It qualified for the first $6,000 payment once that point had been reached because the New Marina JVA would preclude the prospect of HDL reentering the development, to the possible exclusion of TML or at least to the exclusion of TML’s involvement in the form contemplated when the exit agreement was completed.
[22] On this approach the size of any marina completed did not matter and HDL’s entitlement to be paid arose once practical completion of a marina of any size was completed pursuant to the New Marina JVA. Use of the definite article “the” in identifying the marina facility was inconsequential, or perhaps accidental. Although more accurate drafting consistent with this interpretation would have had it described as “a marina” or “any marina”, Mr Patterson urged that this difference was immaterial.
[23] We do not agree. We are satisfied the definite article “the” preceding both “marina facility” and “New Marina JVA” in the first sentence of the operative clause was used intentionally to refer to identifiable entities. The parties must be objectively taken to have intended the ordinary and natural meaning of the words they used, in the absence of clear evidence to the contrary. Here there was no such evidence. It is entirely consistent with the terms used in the structure of the exit agreement that the marina facility, the completion of which would trigger an obligation to pay $250,000, was a construction on the scale of that being contemplated at the time.
[24] Looking beyond the terms of the operative clause itself, the background to the exit agreement was described in its recitals, as follows:

1. HDL is a party to a Joint Venture Agreement dated 6 August 1998 with Pacific Paradise Limited (“PPL”) (“the 1998 Agreement”) for the purposes of developing certain land and adjoining waterspace as a marina facility.
2. TML is in the course of negotiating with PPL two new joint venture agreements, one in relation to the development of waterspace (including as to part that referred to in the 1998 Agreement) (“the New Marina JVA”) and the other in relation to the development of land (to be held as a joint venture asset) including that referred to in the 1998 Agreement (“the New Land JVA”).

100. To enable TML the opportunity to complete the New Marina JVA and the New Land JVA, HDL has agreed to effect a termination of the 1998 Agreement upon the terms and conditions set out in this Agreement.

[25] That background reflected the initial joint venture between HDL and PPL. It also reflected the knowledge shared by HDL and TML of the then state of development of proposals for the marina, and the contemplation that TML would take HDL’s place in the joint venture with PPL. It limited the exit agreement to the preceding joint venturers’ agreement, and those which the parties anticipated would replace it. The purpose of doing so was to pursue the completion of the development as conceived, and as the parties were then contemplating was achievable. The terms of the recitals treat this business opportunity as a relatively well defined concept. It is implicit that the parties were contemplating a marina of the type that had been designed by consultants at that time, and the viability of which had been assessed by them.
[26] Moving beyond the terms of the exit agreement, the dealings between the parties in the period prior to completion of the exit agreement, including the input on behalf of PPL, is admissible in assessing the factual context. By April 1999 an environmental consultancy had produced what its authors called a “master plan” of the landbased development that was to occur together with the marina at TML. The draft joint venture of the following month between PPL, HDL and Watts Group included as its first recital:

1. The parties have expertise and experience in property development and wish to form a joint venture for the development, construction and operation of a 200+- berth marina and related facilities in the Tairua Harbour and specifically in the areas shown outlined in blue on the attached map.

[27] Between 2 June and 7 July 1999 four meetings of the “Project Control Group” for the marina development were convened. The attendees of those meetings were Messrs Hulbert and Watts, Mr Mason of PPL and representatives of Boffa Miskell and Beca Carter. The minutes of the first of those meetings recorded the imminent distribution of a modified layout plan for a marina based on 220 berths.
[28] The minutes of the second meeting on 16 June 1999 recorded that the three parties then interested in the development were to develop their preferred marina layout prior to production of the next set of plans by the experts retained. Those minutes record consideration by Messrs Watts and Hulbert of increasing berth numbers to 250 and modifying the mix of the types of berths to be constructed.
[29] The minutes of the third meeting on 23 June 1999 recorded that Beca Carter tabled two marina layouts, which were labelled option two and option three. These were preferred layouts at that stage. Those minutes recorded that the Project Control Group’s preferred marina berth layout was as shown in option two, which provided approximately 236 berths. The consultants had provided cost estimates for option two of between $5 million and $7.5 million. Option three was projected to cost a further $500,000.
[30] At the final meeting on 7 July 1999 both options were being treated as drafts for the purposes of consultation with affected interests.
[31] In September 1999 Beca Carter produced a discussion report for the marina and a report on geotechnical investigations. In all of that work the contemplated development was of a marina having between approximately 240 and 250 berths. That work was undertaken on the assumptions that resource consent could or was likely to be granted for a development of that scale, and that it could be developed for a price that was economically viable in terms of the sale of berths in the marina.
[32] Those meetings and the state of the contemplated development informed the relatively welldefined nature of the marina project that was being worked on at the time the exit agreement was completed. There was certainly a sufficiently identified concept for the parties to refer to it as “the marina”. In using that phrase, they were referring to the concept that had been worked on by the parties and the consultants retained in the previous months.
[33] Mr Patterson drew our attention to a qualification in Beca Carter’s July 1999 report that indicated material details, including the preferred marina layout and the mix of berths, were still to be selected and would need to be further progressed at the resource consent stage. He argued that this indicated that the parties appreciated the scale of the marina development could not be settled at that stage, which was inconsistent with their having a definite proposal in mind.
[34] The sensible reservation in the July report does not detract from the identity of the marina that the parties were working towards in the following months up to completion of the exit agreement. We do not discern anything in the dealings between the parties and the documents produced by them or on their behalf in the period of months before completion of the exit agreement that would justify attributing any different, or wider, interpretation to “the marina” in the operative clause in the exit agreement.

Other arguments

“200 plus berths”

[35] Mr Patterson submitted that there was no evidence to support the Judge’s finding that the marina referred to in the exit agreement was one of 200 or more berths. The Judge interpreted that indication of scale of the development by reference to the background. The original 1998 joint venture agreement, for example, had referred to “not less than the number of designed berths” and the progression of design and planning documents thereafter all addressed options for a scale of development materially in excess of 200 berths. Dealings between the parties prior to the exit agreement being completed were all consistent in their focus on the scale of a development of more than 200 berths. There was no evidence up to the time of the exit agreement of any options contemplated at a number of berths less than 200.
[36] It may be that the precision in defining the marina as a development that was to contain 200 plus berths could not be justified. However, in its place there would be an implied requirement for the new marina to be of a scale comparable to that which was being planned at the time of the exit agreement, with the scale of the development being important to projections of its potential viability. Accordingly we see no substance in this point on appeal.

Commercial viability not an influence on size of the marina

[37] Mr Patterson questioned the evidentiary basis for TML’s submission that the much smaller marina that had been completed was not viable. Mr Patterson argued the commercial viability had to be seen on a combined analysis of the marina and the landbased development adjoining it. Further, he argued it was premature to dismiss the prospect of the whole venture being a profitable one. Mr Kohler QC for TML responded that all assessments of viability up to the completion of the exit agreement were of the marina as a standalone project.
[38] In any event, Mr Patterson argued that the prospect that a 95 berth marina could not be a financial success ought not to influence an interpretation that excluded a marina of that size from “the marina” as referred to in the exit agreement.
[39] These submissions, however, had to deal with Mr Watts’ evidence that the marina was not viable. He projected a loss in excess of $1.75 million on the marina. The marina venture was transferred to a charitable trust in 2012. Estimates in June 1999 put costs for resource consent and administration at $4,122.45 per berth based on 245 berths, whereas the resource consent and administration costs on the completed marina of 95 berths have been $39,923 per berth. Those costings reinforce how different the completed marina was from anything contemplated in September 1999.
[40] A variant of the argument disputing the relevance of commercial viability is the proposition that TML’s payment obligation attached to any new marina that the parties to the New Marina JVA decided to proceed with. This is consistent with the interpretation of the obligation Mr Patterson contended for. At the time of the exit agreement, HDL could reasonably expect TML and PPL to assess the viability of a development of whatever scale they eventually obtained resource consent for. Arguably once TML and PPL elected to proceed on their assessment of viability at that time, and that development achieved practical completion, then it triggered TML’s obligation to pay the $250,000. Arguably, too, TML ought to have factored in its obligation to pay HDL $250,000 as a cost of completing whatever marina they agreed to proceed with.
[41] That approach does not justify adopting a wider definition of “the marina” than the natural and ordinary meaning of the expression as used in the clause and in the wider context of the whole agreement. The protracted history of attempts to obtain resource consents means that TML’s decision to proceed with a 95 berth marina was sufficiently distanced from the development in contemplation at the time of the exit agreement for the decision to proceed not to be seen as one in respect of the marina referred to in the exit agreement. We confirm that interpretation notwithstanding Mr Patterson’s argument to call in aid postcontractual conduct, which we consider next.

Postcontractual conduct

[42] HDL relied on a recurring item in minutes of meetings concerning the New Marina JVA held in June 2004, September 2005 and October 2005. As mentioned above,^[4] during that period TML and PPL were pursuing various stages of the resource consent application for a marina development of 150 berths. The minutes of each of those meetings record, under a heading “John Hulbert”: “Discussions to be held with John to reduce his expected payment of $250,000.00 to say $125,000.00 to reflect the reduction in size of the marina.”
[43] The repetition of the statement in precisely the same terms suggests it was an item in the form of a “to do list”. There is no evidence of any dialogue with Mr Hulbert during that period.
[44] Mr Patterson relied on the minutes as evidencing TML’s interpretation of the obligation as one that would apply to any marina that the New Marina JVA parties brought to practical completion.
[45] Evidence of mutual subsequent conduct is admissible as an aid in interpreting contractual provisions.^[5] Such evidence must, however, be objectively capable of shedding light on a shared intended meaning of the disputed contractual term at the time it was agreed to.
[46] We consider that the 2004 and 2005 minutes concerning the joint venture are not objectively capable of assisting with the interpretation of the exit agreement. The minutes in question reflect a subjective impression of how TML might interpret the exit agreement in the event that a marina of 150 berths proceeded. They could, for example, reflect an intention in 2004 and 2005 to negotiate on an ex gratia basis with Mr Hulbert rather than face a dispute with him, particularly in circumstances where publicity might adversely affect the project. The minutes cannot reliably reflect the objective interpretation of the exit agreement at the time it was completed.

Contra proferentem

[47] Mr Patterson also sought to invoke the contra proferentem rule on the basis that, because the exit agreement had been drafted by TML’s lawyers, any ambiguity in its terms ought to be construed strictly against TML. That influence on the interpretation of contractual provisions is generally confined to the scope of limitation of liability and exclusion of liability clauses, most often where the spectre of unequal bargaining power arises against a party seeking to enforce such provisions.^[6]
[48] The circumstances of completion of the exit agreement have none of the indicia of circumstances in which contra proferentem might appropriately be applied. The evidence suggests Mr Hulbert was an experienced businessman and, if he did not refer the agreement for perusal and advice by advisers, there can be no suggestion that he was not able to do so. Nor was he presented with anything in the nature of standard terms on a “take it or leave it” basis.
[49] There is nothing in the approach we have adopted to interpreting the scope of the obligation that lends itself to a different interpretation because the wording has exploited an advantage for the party that drafted the agreement.

Result

[50] For the foregoing reasons we are satisfied that the interpretation adopted by Whata J was correct. It follows that the marina as constructed was not a marina that triggered an obligation to make the payment under the exit agreement.
[51] In those circumstances it is unnecessary to consider the Judge’s fallback finding as to an apportioned entitlement to relief under s 9 of the Contractual Remedies Act.
[52] Accordingly, the appeal is dismissed.
[53] The appellant must pay the respondent costs for a standard appeal on a band A basis and usual disbursements.

Solicitors:
Knight Coldicutt, Auckland for Appellant
Hornabrook Macdonald Lawyers, Auckland for Respondent

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^[1] Hulbert Developments Ltd v Tairua Marine Ltd [2016] NZHC 1270.

^[2] Vector Gas Ltd v Bay of Plenty Energy Ltd [2010] NZSC 5, [2010] 2 NZLR 444 (footnote omitted).

^[3] Firm PI 1 Ltd v Zurich Australian Insurance Ltd [2014] NZSC 147, [2015] 1 NZLR 432 (footnote omitted).

^[4] At [9].

^[5] Gibbons Holdings Ltd v Wholesale Distributors Ltd [2007] NZSC 37, [2008] 1 NZLR 277.

^[6] See generally Laws of New Zealand Contract (online ed) at [133]; and John Burrows, Jeremy Finn and Stephen Todd Law of Contract in New Zealand (5th ed, Lexis Nexis, Wellington, 2016) at [7.3.1].