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Newfoundworld Site 2 (Hotel) Limited v Air New Zealand Limited [2018] NZCA 261 (20 July 2018)

Last Updated: 9 August 2018

IN THE COURT OF APPEAL OF NEW ZEALAND

I TE KŌTI PĪRA O AOTEAROA
CA341/2017
[2018] NZCA 261



BETWEEN

NEWFOUNDWORLD SITE 2 (HOTEL) LIMITED
Appellant


AND

AIR NEW ZEALAND LIMITED
Respondent
CA515/2017


BETWEEN

AIR NEW ZEALAND LIMITED
Appellant


AND

NEWFOUNDWORLD SITE 2 (HOTEL) LIMITED
Respondent

Hearing:

14 March 2018

Court:

Winkelmann, Asher and Gilbert JJ

Counsel:

N R Campbell QC and J S Learner for Newfoundworld Site 2 (Hotel) Limited
N S Gedye QC and J A MacGillivray for Air New Zealand Limited

Judgment:

20 July 2018 at 10.30 am


JUDGMENT OF THE COURT

  1. The appeal is dismissed.
  2. The cross-appeal is dismissed.
  1. Newfoundworld Site 2 (Hotel) Ltd must pay Air New Zealand Ltd costs for a standard appeal on a band A basis (reduced by 20 per cent to take into account the cross-appeal) and usual disbursements.

____________________________________________________________________

REASONS OF THE COURT

(Given by Winkelmann J)

Table of Contents
Para No.
Introduction
[1]
The High Court decision
Appeal
First issue: was agreement reached in July 2012 that Novotel could charge for early check ins?
Background facts
High Court judgment
Argument on appeal
Analysis
Second issue: did the July agreement form part of the 2013 Agreement?
Background facts
High Court judgment
Argument on appeal
Analysis
Third issue: is Air New Zealand estopped by reason of its conduct from recovering the payments for early check ins?
High Court judgment
Analysis
Fourth issue: is Air New Zealand entitled to recover reasonable indemnity costs from Novotel under clause 11.2 of the 2013 agreement?
Analysis
Result

Introduction

[1] Newfoundworld Site 2 (Hotel) Limited owns the Novotel Citygate Hotel in Hong Kong, located close to the Hong Kong International Airport. Like most hotels, Novotel Citygate has standard check in and check out times to enable the cleaning and turnover of rooms. While the hotel does allow early check ins, it usually charges an additional fee for it, which can be as much as the room’s daily rate.
[2] Air New Zealand Ltd is New Zealand’s national airline. In 2011, it entered into a formal agreement (the 2011 Agreement) with Newfoundworld (which we refer to as Novotel in this judgment) for the provision of hotel accommodation for its cabin crew in Hong Kong for the next 24 months. The terms of the 2011 Agreement included that Novotel would not charge for early check ins unless mutually agreed.
[3] At the time, Air New Zealand’s flight schedules allowed for the possibility of “back to backing” — an arrangement whereby one crew member checks out of the hotel very early in the morning, allowing time, with careful management by Novotel, for the room to be made up and available for the next (early) crew. The ability to backto-back made the inability to charge for early check ins more commercially palatable because Novotel was still able to charge for the room on each day.
[4] In March 2012, Air New Zealand’s flight schedule changed so that backtobacking was no longer possible. Following this change, a practice developed whereby Novotel would charge Air New Zealand, and Air New Zealand would pay, for early check ins. Novotel claimed an agreement was reached in July 2012 that it could charge for early check ins because of the change to the Air New Zealand schedule.
[5] In June 2013, following negotiations, a further contract was entered into between the parties for accommodation for a further period of two years (the 2013 Agreement). The written agreement executed by the parties stipulated that Novotel would not charge Air New Zealand for early check ins. Nevertheless from 16 June 2013, the start of the new contractual period, Novotel continued to invoice Air New Zealand for early check ins and Air New Zealand continued to pay on those invoices.
[6] Following termination of the 2013 Agreement, Air New Zealand sought recovery of the early check in charges it had paid after the 2013 Agreement came into force. It claimed it had been invoiced for these amounts in breach of contract and that it paid the invoices under the mistaken belief that the charges for early check ins were correctly invoiced. It sought recovery of the overpayments under four heads of claim: breach of contract; indemnity under the 2013 contract; breach of the Fair Trading Act 1986; and unjust enrichment (action for money had and received).[1]
[7] Novotel argued in response that it was either contractually entitled to charge those additional fees for early check ins, or that Air New Zealand was estopped from relying on the strict terms of the 2013 Agreement.[2]

The High Court decision

[8] In the High Court, Wylie J was satisfied that there was an agreement reached in July 2012 that allowed Novotel to charge for early check ins.[3] On appeal Air New Zealand challenges that factual finding.
[9] The Judge nevertheless rejected Novotel’s defence that the July 2012 agreement continued in force after the formal documentation of the 2013 Agreement.[4] It followed that Novotel had no contractual right to charge for early check ins and Air New Zealand had no contractual obligation to pay for those charges if invoiced.
[10] It also followed, the Judge found, that Air New Zealand paid the invoices under a mistake — the payment clerk mistakenly believed that Novotel was entitled to include charges for early check ins under the 2013 Agreement.[5] While Air New Zealand might have been careless in paying the invoices, carelessness on its part did not deprive it of its right to repayment of the amount paid — an amount by which Novotel had been enriched.[6]
[11] Wylie J was also satisfied that Novotel had breached its contract with Air New Zealand by levying the additional charges, and so it was contractually obliged to indemnify Air New Zealand for the breach. He entered judgment in favour of Air New Zealand for the sum of HKD 7,603,110 plus interest, calculated from the date the dispute was first raised by Air New Zealand — a date selected to avoid Air New Zealand receiving any interest benefit from its own carelessness. [7]
[12] The Judge rejected Air New Zealand’s contract-based claim for an award of indemnity costs.[8] Air New Zealand cross-appeals against this latter finding.

Appeal

[13] The issues arising in this appeal are therefore as follows:

First Issue: Was agreement reached in July 2012 that Novotel could charge for early check ins?

[14] Although successful in resisting Novotel’s claims in the High Court, Air New Zealand nevertheless challenges the factual finding that in July 2012 it agreed Novotel could charge for early check ins. This factual finding has significance for Novotel’s appeal, because if there was no agreement in July 2012, it is much less likely such an agreement formed part of the 2013 Agreement.

Background facts

[15] In March 2011 Air New Zealand initiated a request for a proposal (RFP) in connection with cabin crew accommodation in Hong Kong. Novotel responded to the RFP with its proposed rates. In relation to early check ins, it stated that a check in before 10 am would result in one full overnight rate. As for late check outs, check out any time between 2 pm and 10 pm would incur a cost of 60 per cent of the agreed room rate. After 10 pm, it was one full overnight rate.
[16] Following negotiation, Novotel agreed to lower room rates and to abandon the proposed charges for early check ins and late check outs. Critical to Novotel’s agreement to forego these charges was that Air New Zealand’s flight schedules between Auckland, Hong Kong and London permitted outgoing and incoming crews to occupy rooms on a back-to-back basis. On 19 April 2011, Novotel’s then General Manager Mr Munro sent an email to the Supplier Relationship Manager, Ms Radovanovich, and another Air New Zealand representative, Mr Whaley, which reads as follows:

... Novotel Citygate remains very keen to secure the Air NZ crew, and so, we’re happy to remove the early check-in (and checkout) charges based on us being able to back-to-back crew, even with crew arriving at the hotel 2530 mins (we believe) early than estimate/scheduled (to HK Island and Kowloon) whilst keeping the crew hotel departing-times the same. Should these arrival and departure timings change, and we can’t physically backtoback crew rooms, we would need to re-consider this early checkin/checkout charge. This would be the case only for 2 weeks in June 2011 should we be successful in winning this contract, and we would be happy to waive this charge for 2011...

[17] By email dated 20 April 2011 Mr Munro confirmed Novotel’s revised offer, reiterating Novotel’s position as follows:

Early Check in and Late Check out Charge: no charge based on current arrival and departure pattern.

[18] A formal contract was then executed (the 2011 Agreement). It was to be for an initial term of 24 months but with rights of renewal for further terms of 12 months. Novotel undertook to provide Air New Zealand with hotel accommodation in accordance with the layover schedule provided to Novotel by Air New Zealand or its agent. Both parties acknowledged that Air New Zealand schedules might change during the term of the contract. Clause 3.3 provided that where Air New Zealand notified Novotel of a change to the layover schedule which represented a 30 per cent or more increase to either the weekly hotel accommodation, early check ins or late check outs required by Air New Zealand, then the parties may renegotiate the hotel accommodation rates and/or charges for early check ins and late check outs.
[19] Clause 5.4 of the 2011 Agreement stipulated “[t]he supplier will not charge the Airline for Late Check-outs or early Check-ins except where this has been mutually agreed and detailed in Item 8 of Schedule 1.” Item 8 in Sch 1 provided that early check in and late check out charges were not applicable.
[20] Finally, both parties agreed that any amendment to or variation of the contract was to be in writing, and executed by all the parties (cl 18.1).
[21] In June 2011, the Agreement came into operation. Novotel did not initially charge for early check ins or late check outs. The arrival and departure of cabin crews to and from the hotel allowed Novotel to utilise back-to-back arrangements, and so it did not need to prehold rooms. Air New Zealand’s ground handling agent — Jardine Airport Services Ltd (Jardines) — provided Novotel with the Air New Zealand flight schedules in advance. Room bookings were usually requested in four weekly blocks. Upon receipt, Novotel reservation staff would review the schedule, make the bookings and confirm room availability to Jardines.
[22] Sometimes things did not go in accordance with the usual pattern and early check in charges were levied. Wylie J put the matter thus:[9]

Occasionally there were additional bookings, for example, where additional crew required accommodation, or there was an unscheduled flight. In these situations, where back-to-back arrangements were not possible, Novotel would make and confirm the room bookings to Jardines and Air NZ by email. The emails had attached Excel spreadsheets, which showed the bookings that had been made. Where it was necessary to pre-hold rooms for additional bookings or unscheduled flights, there was a “pop up” message notation. The pop up message showed Novotel’s intention to pre-hold the room. It was, or should have been, obvious to a viewer that Novotel was intending to levy early check-in charges in these situations.

[23] Ms Lee, Air New Zealand’s Manager for Asia Airports, gave evidence at the High Court hearing. Ms Lee said she did not open the Excel spreadsheets but also agreed she did not advise Novotel that she was not looking at them.
[24] From March 2012, the ability to charge for early check ins became more of an issue after a change to the Hong Kong/London flight-departure time meant that backtoback arrangements could no longer occur. Outbound crews needed their rooms longer, and inbound crews were arriving earlier. We adopt Wylie J’s summary of the evidence as to what happened at that point:

[26] On 2 March 2012, when Novotel became aware through Jardines of the change in Air NZ’s schedule, its Airline Accounts Manager, Mr Lung, sent an email to Ms Lee. The email advised that Novotel would need to pre-hold crew rooms in order to provide for early check ins, and that the contract rate would apply. The email requested confirmation from Ms Lee that this was acceptable. Ms Lee responded on 2 March 2012, accepting Novotel’s position. Much the same process was followed again later in March, when Novotel again advised Ms Lee that it would need to pre-hold rooms, and that it intended to charge for the same. Again, Ms Lee accepted this.

[27] Novotel did not expressly request Air NZ’s approval for pre-holding rooms in accordance with flight schedules sent between early May 2012 and early July 2012. Rather it confirmed the bookings, and sent through its spreadsheet in the usual format ...

[25] The critical exchange of emails began on 16 July 2012. Mr Lung sent an email to Ms Lee in response to receipt of the August and September accommodation reports for Air New Zealand cabin crews. The Novotel email noted two things. First, that the back-to-back arrangements could not be applied for the August crew accommodation plan so rooms would need to be prereserved, and secondly, that due to high demand on Fridays and Saturdays in August any additional crew rooms would be charged out at the superior room rate rather than the contracted room rate.
[26] Ms Lee forwarded that to Ms Radovanovich, who responded by email dated 24 July 2012:

I would accept that where we cannot “hot bed” the crews then we would have to pay extra to block out the rooms from the night before.

However our contracted rate is HKD$810 and I don’t think we should be paying extra if they have no standard rooms left. The contract recognises that our layover schedule changes from time to time and the parties can only renegotiate the rate if it is a change of more than 30% to the weekly accommodation requirements.

[27] Ms Lee then forwarded that email to Novotel along with a note:

Karyn share same view as mine and the extra one night charge due to not able to meet back to back is fine. The only disagree of the superior room charge and this pattern advise with sufficient notice as in the contract.

High Court judgment

[28] Throughout these proceedings Air New Zealand has contended that in the email of 24 July 2012, Ms Radovanovich only agreed to a charge for early check ins in a specific situation on a specific occasion. Wylie J rejected that argument.[10] He was satisfied that the parties had agreed they would not require strict adherence to the contractual provisions, and that from July 2012 onwards, Novotel was entitled to make an extra charge for rooms pre-held where back-to-back arrangements were not possible because of Air New Zealand’s altered schedule. He said the contract proceeded on that basis and “it is noteworthy that Air NZ does not seek to recover any of the early check in charges it paid pursuant to the 2011 contract”.[11]

Argument on appeal

[29] Air New Zealand rehearses the same argument on appeal. It says the July 2012 email was just another in a series of emails making ad hoc arrangements to render charges outside the 2011 Agreement and did not amount to a variation of the terms of the contract. Air New Zealand points to cl 18.1 of the 2013 Agreement which, as noted, provided that a variation was not valid and binding unless made in writing and executed by all parties. While Air New Zealand accepts the clause does not preclude the possibility of informal variation, it argues the formalities contemplated by the clause make it more likely the email was an arrangement to pay the charges on one occasion and not an agreement to vary the basis on which the parties dealt with each other on an on-going basis.
[30] Air New Zealand also relies upon the fact that following this alleged agreement, Novotel continued to ask for approval to charge early check ins in response to receipt of cabin crew accommodation reports from Air New Zealand. It points to the evidence of Mr Kam, Director of Sales and Marketing at Novotel, that Novotel did this to “play safe”. It follows, Air New Zealand argues, Novotel did not have anything clear enough from Air New Zealand to cause them to stop asking after July 2012.

Analysis

[31] We find the Judge’s reasoning persuasive. As the Judge observed, while Mr Lung’s email of 16 July 2012 was notifying an intention to charge for early check ins for a particular period only, Ms Radovanovich’s and Ms Lee’s emails in reply were not so limited.[12]
[32] Air New Zealand relies upon Mr Kam’s concession that Novotel continued to ask for permission to charge for early check ins after the July email exchange. We do not see this as significant. Mr Kam’s explanation that it was good business practice to play it safe is plausible. Mr Kam was tested about his understanding of the email exchange in cross-examination:

Q. ... can you see any words in Ms Lee’s email which indicate that she intended to reach a permanent agreement with you?

A. Well I think the most important message is from [Ms Radovanovich], I think also the period from the beginning of 2012 to approximately in July, there’s been quite a number of extra flights that we have sought through the assistance from [Ms Lee] from Hong Kong office then we could see slowly the flight change and getting some flights are not able to be back to back, so that’s obviously for clarification and eventually we get a confirmation from [Ms Radovanovich] as well as [Ms Lee] as well, basically they were agreed to the concept that if back to back is not possible they wouldn’t pay for the pre-hold, so that’s the key message.

Q. And is that the key message you took from this email from Ms Lee?

A. Yes.

...

Q. Would you not accept that you made a request for specific dates and you got a response in respect to those specific dates?

A. From this onward?

Q. No, on this occasion [Ms Lee] was responding to a specific request wasn’t she?

A. Um, she did not specific to answer that message —

Q. Mmm.

A. — but she and [Ms Radovanovich] basically giving us all full picture of what the concept’s going to be and it matches our requirement instead of every time we seek for their approval and it takes a few days now I assume it’s a clear picture that if whatever reason that it cannot be back to back they’re willing to pay.

[33] In cross-examination, Ms Lee also confirmed her understanding of the position, an understanding which mirrored that of Mr Kam’s:

Q. And so what you wanted to convey to the hotel [by sending the email] was that in general terms if back to backing was not available to the hotel it could pre-hold rooms, well if it had to pre-hold a room it should charge an extra night –

A. That’s correct.

...

Q. ... So at this time in July [2012] would you accept that yourself and [Ms Radovanovich] had accepted that if the hotel could not back to back rooms on scheduled flights that the hotel was entitled to charge an extra night if it had to pre-hold a room?

A. That is correct.

[34] Air New Zealand contends the cl 18.1 formalities were not complied with, and this shows an intention not to be bound by the variation. On its own terms this is not a very persuasive argument. Air New Zealand accepts it agreed to vary the terms of payment — the only issue is for how long.
[35] It seems to us, there may also be an issue as to whether the cl 18.1 formalities were in fact complied with — whether the exchange of emails could constitute a written agreement executed by the parties. But no argument was addressed to this issue and we therefore do not further address it.
[36] To conclude on this point, we are satisfied that Wylie J was right to find that agreement was reached in July 2012 that Novotel could charge for early check ins.

Second issue: did the July agreement form part of the 2013 Agreement?

[37] Novotel argues that the 2013 Agreement, objectively assessed, was intended to be a renewal of the 2011 contract, so that the informal July agreement reached under the 2011 contract continued to apply to the 2013 Agreement. Alternatively, Novotel argues that the July agreement continued to operate under an express term of the 2013 Agreement. Accordingly, Novotel says, the trial Judge should have rejected Air New Zealand’s claim.

Background facts

[38] Clause 2 of the 2011 Agreement dealt with the agreement’s term. It provided:
  1. TERM

2.1 This Agreement commences on the Effective date and will continue for the Initial Term, subject to earlier termination as provided under Clause 10 or at law.

2.2 This Agreement may be renewed for further terms of twelve (12) months each (Renewal Term(s)) following expiry of the Initial Term subject to both parties agreeing each Renewal Term in writing.

2.3 If this Agreement is not renewed in accordance with Clause 2.2 it shall remain in full force and effect until terminated by either party not less than 30 days prior written notice of termination.

[39] Negotiations towards a new agreement began in early 2013. By this point in time, the new flight schedule, under which back to backing was not possible, had been in operation for some time. Negotiations began with an email from Ms Radovanovich to Mr Kam on 11 January 2013 which read as follows:

... I have noted that our crew contract ends on 15 June 2013.

Would you be interested in extending the contract for another term? If so, could you please give me an indication of rates?

[40] Mr Kam replied that Novotel wished to keep Air New Zealand’s crew at the hotel. He asked for timeframes to submit Novotel’s new proposal. Ms Radovanovich suggested a timetable but said that once she had the new rates she would probably have to initiate a “market review”.
[41] On 26 February 2016, Mr Kam responded proposing a room rate of HKD 950 for the next 12 months. Ms Radovanovich replied that was a huge increase, she would “have to go to RFP and carry out a full review of the market”. She asked Mr Kam whether he would consider a twoyear term, which of course, was a year longer than the renewal term allowed for in cl 2 the 2011 Agreement. Mr Kam responded that the rate he had proposed was very competitive and for any second year, Air New Zealand should “make a provision of 10% increases”.
[42] Air New Zealand undertook the market review, but not the full RFP. It sought indications from a range of Hong Kong hotels, and contacted Accor Hotel Group to assist it with this process. Amongst other tasks performed for Air New Zealand, Accor led discussions with Novotel which eventually led to Novotel reducing the rates it was offering Air New Zealand. On 6 March 2013, Mr Berglind, Director of Sales and Distribution for Accor Australia, emailed Ms Radovanovich to advise of the rates offered by Novotel for both the first and second year of any new contract. His email recorded that “other terms remain unchanged”. Air New Zealand provided a draft contract to Novotel. Mr Kam sent that draft to Head Office. As a result of Head Office’s review, Novotel suggested a number of amendments to the draft contract.[13] Mr Kam’s evidence was that he checked through the document to make sure it was identical to the 2011 Agreement and requested changes to ensure that.
[43] The new agreement was executed for Novotel in May 2013 and took effect from 16 June 2013. It was largely, but not completely, identical to the 2011 Agreement: the same term, the same required services, the same limitation upon a right to vary the contract and the same stipulation that early check ins and late check outs were not to be charged to the airline other than as mutually agreed and detailed in the schedule. The schedule expressly provided that they were not to be charged.
[44] As with the 2011 Agreement, the 2013 Agreement contained cl 7 which provides:

7 EXISTING SUPPLY ARRANGEMENTS

7.1 This Agreement and any Crew Accommodation Specification entered into between the Parties contains the entire agreement between the Parties with respect to the supply of Hotel Accommodation and supersedes all prior agreements and understandings between the parties in connection with it.

[45] The parties continued to operate under the 2013 Agreement in the same way as the 2011 Agreement. Air New Zealand sent layover schedules to Novotel. Novotel prepared booking spreadsheets. For any early check-ins where backtobacking was not possible, Novotel preheld rooms, showing these on the spreadsheet. Until October 2014, Novotel emailed the spreadsheets to Jardines and/or Air New Zealand. Thereafter Novotel did not email the spreadsheets but its emails stated that the rooms were being preheld, sometimes saying that the preholding was “as per the previous arrangement”.
[46] The invoices included additional charges for early check ins from the outset, and were paid without objection. Air New Zealand says that these two methods of marking the charges for early check ins did not sufficiently draw it to their attention. An Air New Zealand witness, Ms Drew, explained that prior to the 2013 Agreement she had manually doubled the number of nights in the Bednight Accommodation Report for the Auckland-based crew to produce a match with the invoice information provided by the hotel. She was not advised by anyone that different terms had been put in place from June 2013 and continued with this practice. Wylie J accepted the evidence of Ms Drew that she had made a mistake.[14] That finding is not challenged on appeal.
[47] The initial term of the 2013 Agreement was due to expire on 16 June 2015. In advance of that, Air New Zealand conducted another market review. It decided not to renew the contract with Novotel and gave notice of termination on 18 June 2015. On that same day, and for the first time, it raised with Novotel its concern that Novotel had been charging for preholding rooms in breach of the terms of the contract.

High Court judgment

[48] Wylie J considered that the steps both parties took in early 2013 strongly suggested that a new contract, rather than a renewal, was contemplated. Air New Zealand undertook a market review indicating the possibility that it would take its business elsewhere, the parties entered into unfettered negotiations, and the contract ultimately concluded was based upon fresh documentation which was reviewed and altered by Novotel. The Judge attached particular weight to the last point. He said:[15]

In my judgment, the fact that Air NZ sent Novotel a new contract document with a new term and a new schedule, and containing an entire agreement clause excluding all prior agreements, is very strong evidence that a fresh contract was intended and was made.

[49] He also noted that there were different clauses in the contract suggesting it was a new contract not a renewal.[16] He was satisfied that the July 2012 agreement was not part of the 2013 Agreement and Novotel was not entitled to charge for early check ins or late check outs.

Argument on appeal

[50] Novotel argues that, objectively assessed, the parties intended when entering into the 2013 Agreement, that the terms that applied under the 2011 Agreement would continue to apply under the 2013 Agreement other than where expressly agreed otherwise. This intention is evident from the following:

Analysis

[51] Novotel’s argument entails us accepting the proposition that, notwithstanding the effort taken by the parties in 2013 to formally document contractual terms to regulate their business dealings over the next 24 months, their intention was simply to renew the pre-existing 2011 Agreement as amended by the 24 July 2012 email. We find that proposition implausible.
[52] We see nothing in Novotel’s reliance upon cl 2 of the 2011 Agreement. As Wylie J held, there was no contractual right of renewal of the 2011 Agreement on its existing terms and conditions, and so no right of renewal was exercised. There is no doubt that the 2011 Agreement came to an end — while there was no notice of termination, the parties clearly agreed it was at an end when the 2013 Agreement came into effect. We also note that while the 2011 Agreement provided the parties could agree a further one-year term, the new written agreement was for two years, not one.
[53] While largely identical, the new contract did contain different terms, such as the addition of clauses relating to construction works, reporting of inappropriate behaviour and further terms of confidentiality. The parties then signed the agreed form of written contract as a record of the terms to which they committed. Having taken care to document their agreement in this fashion, there is a powerful inference to be drawn that it recorded the terms on which the parties had agreed to do business.[17] It does not matter how close to the terms of the 2011 Agreement the new document was, it is by the new written agreement they have agreed to be bound.
[54] We also do not consider that the negotiations are admissible to assist Novotel with this argument of the contract. Evidence of contractual negotiations is not generally admissible to assist with the construction of the contract ultimately formed. While there are exceptions to this rule, they do not apply. Novotel has not sought to argue for a rectification of the written agreement, the usual grounds for the admission of evidence of negotiation.
[55] We also do not consider that the arguments based on those negotiations (even if properly admissible) or the other matters raised by Mr Campbell, can stand in the face of these express terms. Mr Campbell points to the absence of detailed conditions of service in the new agreement. While we accept that the parties seem to have proceeded on the basis that the existing terms of service from the 2011 Agreement would continue to apply, we see no logical connection between that aspect of the 2011 Agreement being carried forward and Novotel’s argument that the right to charge for early check-ins should also be carried forward. The conditions of service are consistent with the terms of the new written contract. However, the right to charge for early check ins is in direct conflict with those terms.
[56] As to the notion that Ms Radovanovich would not have expressed surprise at the increased cost, when the cost was a reduction from the pernight charge including early check ins, again this argument has its difficulties. A room rate of HKD 950 is a significant increase over the standard room rate being charged under the 2011 Agreement of HKD 780.
[57] Clause 7.1 is a further obstacle to Novotel’s argument. It provides:

7 EXISTING SUPPLY ARRANGEMENTS

7.1 This Agreement and any Crew Accommodation Specification entered into between the Parties contains the entire agreement between the Parties with respect to the supply of Hotel Accommodation and supersedes all prior agreements and understandings between the Parties in connection with it.

[58] As Wylie J observed, entire agreement clauses generally take effect according to their terms, particularly where clear and ambiguous as the clause is here and where the contract has been negotiated between parties of equal negotiating strength.[18]
[59] We therefore address Novotel’s alternative argument. If the Court finds that the 2013 Agreement stands alone, Novotel argues that cl 5.4 gives operative effect to the July 2012 mutual agreement. Novotel relies upon the use of past tense in cl 5.4. It will be remembered that cl 5.4 provides “[t]he Supplier will not charge the Airline for Late Check-outs or Early Check-ins except where this has been mutually agreed and detailed in Item 7 of Schedule 1.” Novotel argues cl 5.4 is to be read as an agreement that Novotel would not charge, except where it had already been mutually agreed that they would charge. Because there was an agreement in place which continued on from the earlier period, being the agreement of 24 July 2012, past tense is used in the clause to incorporate that earlier agreement into the contract.
[60] That argument cannot succeed in light of the plain wording of cl 5.4. It is to be remembered that the 2013 Agreement was negotiated after Air New Zealand had changed its flight schedules with the effect that back to backing was not possible. It was in that context that the parties agreed there were to be no charges for early check ins. It is inherently improbable that the parties would commit to a written agreement recording that that there would be no charge, if they had in fact agreed that there would be a charge which, because of the schedule, would frequently, if not, invariably apply.
[61] While the clause may contemplate the existence of agreement to allow charging in certain circumstances outside the formal contract, it also provides that if there is such agreement, it will be detailed in Item 7 of Sch 1. Item 7 of Sch 1 simply states that charges for early check in and late check out are not applicable.
[62] For these reasons, we find that the informal agreement reached in July 2012 did not form part of the 2013 Agreement. Accordingly, this ground of appeal must fail.

Third issue: is Air New Zealand estopped by reason of its conduct from recovering the payments for early check ins?

[63] Novotel advances a further alternative argument — that Air New Zealand was estopped from denying that Novotel was entitled to charge for early check ins where back to backing was not possible.[19] The estoppel arose because:
[64] Novotel argues that it reasonably believed that if it preheld rooms to allow early check ins where back to backing was not possible, it was entitled to charge for those early check ins. It also argues that belief was created by Air New Zealand’s conduct. Novotel emailed booking spreadsheets to Jardines which were often copied to Air New Zealand. Those spreadsheets showed that rooms were being booked for the night prior to early check in. Each such booking had a pop up: “Rooms prehold for early arrival due to cannot back to back.” The spreadsheets emailed on 22 August and 30 September 2014 did not have the pop ups, but did show that the rooms were booked for the night prior to early check in. From 10 October 2014, Novotel no longer attached the spreadsheets to their emails to Jardines and Air New Zealand. But the email that day said, “I would like to RE-CONFIRM that since hotel normal check-in time is from 2:00pm, each set of crew accommodation will be prehold 1 day prior to their actual arrival, ie 2 nights rental will be levied”. All subsequent emails said, “[a]s per the previous arrangement, each set of crew accommodation will be pre-holding 1 day prior to their actual arrival for an early check-in, therefore, 2 nights rental will be applied”.
[65] Novotel argues from this it would have been obvious to Air New Zealand that Novotel believed it could charge the preheld room as an early check in. At no point did Air New Zealand object to that or query that assumption. Moreover, Novotel invoiced Air New Zealand on the basis that it was entitled to charge for early check ins with the invoices itemising a second night’s accommodation. Against this conduct, which continued over years, Novotel argues it was reasonable for it to rely on the representation that it was entitled to charge for early check ins.
[66] As to detrimental reliance, Novotel says that it was not contractually obliged to provide early check ins without charge because, while it was obliged to provide the accommodation, there was no contractual stipulation that it was obliged to provide the accommodation immediately upon the crew’s scheduled arrival at the hotel. As already noted, the 2013 Agreement did not include a Crew Accommodation Specification.

High Court judgment

[67] Wylie J rejected the notion that Air New Zealand’s payment of the invoices without demure could amount to representation. He said:[20]

[69] Similarly, I do not consider that the fact that Air NZ paid Novotel’s invoices under the 2013 contract creates an estoppel preventing Air NZ from recovering charges levied in breach of the contract. At no point during the term of the 2013 contract was Air NZ’s agreement sought or obtained for payment of the extra charges levied, and payment of the invoices rendered under the 2013 contract was not clear and unequivocal conduct that Novotel could reasonably rely on as indicating an acceptance by Air NZ of legal liability for the additional charges for early check ins. Payment by Air NZ was in direct conflict with the contract.

[68] The Judge found that Novotel could not point to any detrimental reliance based upon those payments of invoices.[21] That was because once the parties entered into the 2013 Agreement, Novotel had no option but to provide accommodation at the contract rate.

Analysis

[69] We see no error in Wylie J’s reasoning. The payment by Air New Zealand of amounts in response to invoices for charges which were not payable in terms of the written contract cannot amount to an unambiguous representation by conduct that Air New Zealand agreed to pay those amounts.
[70] Novotel emphasises the information it provided to Air New Zealand in emails and pop up notifications in spreadsheets which it says showed that early check ins were being charged. Novotel puts the case that Air New Zealand should have known Novotel was charging these amounts when it paid the invoice. It puts these facts together and says payment by Air New Zealand in those circumstances was a representation by Air New Zealand that it accepted a contractual obligation to pay for early check ins.
[71] We, however, agree with Air New Zealand that the fact of payment in such circumstances was intrinsically ambiguous. Air New Zealand stipulated as a term of its contract that early check in charges were not to be made in circumstances where there was no possibility of back to backing. Air New Zealand staff simply paid in response to invoices which on occasions were accompanied by material which could, if considered carefully, have alerted Air New Zealand to the fact that it was frequently being charged for early check ins. This conduct seems to us to be more consistent with a mistaken payment, rather than a representation that the contract was now varied to allow the charging of early check ins.
[72] It follows that Novotel cannot make out the first and critical element of an estoppel; that there must be a belief or expectation which has been created or encouraged.[22] This ground of appeal must therefore fail. We do not therefore proceed to consider the other elements Novotel would need to prove to succeed in its claim to an estoppel.

Fourth issue: is Air New Zealand entitled to recover reasonable indemnity costs from Novotel under clause 11.2 of the 2013 agreement?

[73] Clause 11.2 of the 2013 Agreement reads as follows:

[Novotel] shall indemnify [Air New Zealand] from and against all losses, damage and costs incurred by [Air New Zealand] (excluding any consequential or indirect losses, damages or costs) arising out of or related to a breach by [Novotel] of any of the warranties or any undertaking given by [Novotel] or breach by [Novotel] of any term or condition of this Agreement.

[74] Air New Zealand seeks recovery of indemnity costs pursuant to that clause. At issue in the High Court was whether the cost to Air New Zealand of the legal proceedings was a loss, damage or costs arising out of Novotel’s breach, and if it was, whether it was consequential or indirect.
[75] Wylie J began his analysis, citing the case of Boswell v Millar in support of the following principle:[23]

Costs are not damages, and they do not arise out of the breach of a contract. Rather, costs “are losses flowing from steps taken by [persons] to enforce [their] contractual rights, rather than flowing from the breach itself”.

[76] While the costs claimed by Air New Zealand did not arise or flow out of the breach, Wylie J was satisfied there was a clear connection between the cost of the legal proceedings and the breach.[24] Wylie J noted that the indemnity provided under cl 11.2 extends to costs that are related to the breach, not just those arising out of the breach. Accordingly, but for the proviso, he would have considered Novotel obliged to indemnify Air New Zealand for the costs.
[77] As to the application of the proviso, the Judge noted an ambiguity in cl 11.2.[25] While it extended the indemnity to costs that do not arise from the breach but which are related to it, the proviso excludes consequential or indirect costs. These, the Judge observed, are by definition costs that do not arise from the breach, but are related to it.[26] He said, “[e]ffectively the indemnity gives with the one hand but takes away with the other.”[27]
[78] The Judge regarded the contra proferentum rule as the tie-breaker of the ambiguity, construing the clause against Air New Zealand as the party who drafted it. He concluded that the solicitor/client costs which Air New Zealand was seeking to recover are consequential or indirect costs, excluded from the indemnity put in place by cl 11.2.[28]
[79] Air New Zealand argues the Judge erred in holding that cl 11.2 was ambiguous. It is not genuinely ambiguous, it says, because the parties agreed that Air New Zealand is to be indemnified against legal costs that arise out of, or are related to, a breach of the contract by Novotel. Legal costs incurred in taking action against the other party to the contract to enforce legal rights under the contract are the most direct type of costs that can be envisaged in this context; they are directly related to the breach. If those costs are excluded, then no legal costs could be recoverable under cl 11.2 which would rob the clause, as it relates to costs, of any meaning and effect. It would be inconsistent with the overall purpose of the clause, which is that, subject to some limits, Air New Zealand is to be indemnified following a breach of contract in respect of all damages, losses and costs.
[80] Air New Zealand says therefore that there was no ambiguity and no need to have regard to the contra proferentem rule. But in any event, cl 1.2(h) of the contract provides that nothing in the agreement “is to be interpreted against a Party solely on the ground that the Party put forward this Agreement or any part of it”.
[81] Air New Zealand also argues that the Judge was wrong to base his decision that legal costs were consequential or indirect on the case of Boswell v Millar because that was a case dealing with a claim for costs as damages flowing from a breach in contract.[29] It has, on Air New Zealand’s argument, no application to a claim for costs under an indemnity clause.

Analysis

[82] We see several difficulties with Air New Zealand’s argument. First, as the Judge held, the costs of legal proceedings to enforce a breach of contract are properly understood as indirect or consequential. They do not flow directly out of the breach, but are the result of the actions of a party taken to seek redress for that breach. Boswell may have been a case about the recovery of costs as damages rather than costs under an indemnity clause, but the observations in that case as to causative distance are useful. We are satisfied that the costs in question are consequential or indirect, and therefore fall within the proviso.
[83] We accept Novotel’s submission that there is no ambiguity in the clause in need of resolution and therefore no need to have resort to the contra proferentem principle. Even if the general indemnity was broad enough to extend to legal costs, the fact the proviso takes that entitlement away does not create an ambiguity. It is in the general nature of a proviso that it takes away or qualifies in some way a rule which would otherwise apply.
[84] In any case, we are not persuaded that a general right to be indemnified for “costs” associated with a breach of contract extends to solicitor/client costs even if such costs could be categorised as “related”. The clause refers to costs, not legal costs. And it does not extend the indemnity to solicitor/client costs. The latter point is relevant because in New Zealand, legal costs are as a rule recoverable on a party/party basis, calculated by reference to the High Court Rules 2016. Rule 14.6(4)(e) provides that the court may order a party to pay indemnity costs if “the party claiming costs is entitled to indemnity costs under a contract or deed”. However, such an entitlement must be “plainly and unambiguously expressed”.[30]
[85] There are cases in which an indemnity has been held to extend to solicitor/client costs, but they are on rather different facts to the present. In Suttie v Bridgecorp Ltd, the indemnity was for “all costs and expenses (including but not limited to legal fees) incurred by the Lender”.[31] Significance was attached to the language of “legal fees”, not costs. In ANZ Banking Group (NZ) Ltd v Gibson, the indemnity included costs and expenses “computed as between solicitor and own client”.[32]
[86] Likewise, in Watson & Sons Ltd v Active Manuka Honey Assoc, the indemnity was against all “actions and damages that may result from the licensees’ operations”.[33] This Court said that the use of the term “actions or damages” plainly contemplated the possibility of court proceedings which might result in the Association incurring legal costs.[34] The Court was satisfied that, as a matter of construction, the recovery of solicitor/client costs was necessarily implied.[35] In reaching that view, the Court relied upon the decision in Beecher v Mills which involved a claim for legal costs under an indemnity given to the vendor in an agreement for sale and purchase of shares in a company.[36] As with the clause in Watson, the clause in Beecher referred specifically to the possibility of a claim by a named party but made no specific reference to legal costs. The Court was satisfied in that case that it was a necessary implication of the clause that solicitor/client costs did fall within the indemnity.[37]
[87] In the current matter, cl 11.2 makes no reference to legal costs, nor is there anything in the words that suggest such an indemnity was contemplated.
[88] We therefore see no error in Wylie J’s conclusion that cl 11.2 does not entitle Air New Zealand to recover indemnity costs.

Result

[89] The appeal is dismissed.
[90] The cross-appeal is also dismissed.
[91] Newfoundworld Site 2 (Hotel) Ltd must pay Air New Zealand Ltd costs for a standard appeal on a band A basis (reduced by 20 per cent to take into account the cross-appeal) and usual disbursements.




Solicitors:
Simpson Grierson, Auckland for Newfoundworld Site 2 (Hotel) Limited
Tompkins Wake, Hamilton for Air New Zealand Limited

[1] Air New Zealand Ltd v Newfoundworld Site 2 (Hotel) Ltd [2017] NZHC 1131 [High Court judgment] at [9].

[2] At [10]–[12].

[3] At [34].

[4] At [51].

[5] At [80].

[6] At [81], citing Dextra Bank & Trust Co Ltd v Bank of Jamaica [2001] UKPC 50, [2002] 1 All ER (Comm) 193 at [45]; and Saunders & Co (a firm) v Hague [2004] 2 NZLR 475 (HC) at [121].

[7] High Court judgment, above n 1, at [87].

[8] Air New Zealand Ltd v Newfoundworld Site 2 (Hotel) Ltd [2017] NZHC 2016 at [20] [Costs judgment].

[9] High Court judgment, above n 1, at [23].

[10] At [34].

[11] At [34].

[12] At [34].

[13] Email 8 May 2013 from Henry Kam to Karyn Radovanovich.

[14] High Court judgment, above n 1, at [80].

[15] At [51].

[16] At [52].

[17] Krukziener v Hanover Finance Ltd [2008] NZCA 187, [2010] NZAR 307 at [35].

[18] See Brownlie v Shotover Mining Ltd CA181/87, 21 February 1992 at 31–33.

[19] In the High Court Novotel also argued estoppel by convention based upon conduct prior to the 2013 Agreement, including the circumstances preceding entry into the 2011 Agreement, and conduct during the 2011 contract period, including the 24 July email. Wylie J rejected that argument finding that the parties did not enter into the 2013 Agreement on the basis of any shared assumption either of law or fact. He said that Air New Zealand put forward the draft contract conveying its assumption to Novotel. The draft contract was a clear statement by Air New Zealand of its position and that position was inconsistent with any assumption that Novotel may have made that early check in charges could be charged. That finding was not challenged on appeal.

[20] High Court judgment, above n 1.

[21] At [70].

[22] Wilson Parking New Zealand Ltd v Fanshawe 136 Ltd [2014] NZCA 407, [2014] 3 NZLR 567 at [44]. See also John Burrows, Jeremy Finn and Stephen Todd Law of Contract in New Zealand (6th ed, LexisNexis, Wellington, 2018) at [4.6.2].

[23] Costs judgment, above n 8, at [12] (footnotes omitted), citing Boswell v Millar [2014] NZCA 314, [2014] 3 NZLR 332 at [50].

[24] At [14].

[25] At [15].

[26] At [16], citing Bryan Garner (ed) Black’s Law Dictionary (10th ed, Thomson Reuters, Minnesota, 2014) at 472 and 1087–1088.

[27] At [18].

[28] At [20].

[29] Boswell v Millar, above n 23.

[30] Re Adelphi Hotel (Brighton) Ltd [1953] 1 WLR 955 at 961 (Ch).

[31] Suttie v Bridgecorp Ltd HC Auckland CIV-2006-404-3667, 8 December 2006 at [3].

[32] ANZ Banking Group (NZ) Ltd v Gibson [1986] 1 NZLR 556 (CA) at 565.

[33] Watson & Son Ltd v Active Manuka Honey Assoc [2009] NZCA 595 at [10].

[34] At [22].

[35] Costs judgment, above n 8, at [25].

[36] Beecher v Mills [1993] MCLR 19 (CA).

[37] At 24–25.

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