Construing Commercial Contracts - The Background, the Purpose or the Words? Part 3

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High Court

In the High Court, Justice Pankhurst rejected the submissions by Mr Yoshimoto. The court held that recital D could not be read as restricting the plain meaning of 6.3. The resource consent on the proposed plan was a necessary consent because an essential part of the development (access) could not lawfully proceed without it. The access was not a mere matter of detail. The judge also held that there was nothing in the “foregone conclusion” argument because the test was not whether the consents would certainly be obtained, but whether they were obtained in the 12 month period.

Court of Appeal

The Court of Appeal reversed the judgment of Justice Pankhurst. Justice Thomas accepted both arguments which Justice Pankhurst had rejected. He said that the commercial objective of the contract was to provide a differential purchase price depending on whether the development potential of the land was realisable or not. The fact that there had been a consent order made in the Environment Court meant that the potential was realisable. Once that order had been made it was unrealistic to conclude that the resource consent under the proposed plan would not be forthcoming. He also said that the resource consent would have been mentioned in recital D if it was a “necessary” consent. Justice Doogue in the Court of Appeal reached the same conclusion by a slightly different route. He found that the necessary consent was one which achieved appropriate access from John’s Road by the paper road. The parties would have only contemplated that this would be achieved by Plan Change 11.

Privy Council

The Privy Council noted that the Court of Appeal had not commented on the uncontradicted expert evidence which was to the effect that the resource consent was, by no means, assured. The Privy Council was, however, content to proceed on the basis that the grant of the consent was assured. They nevertheless held that the judge in the High Court was correct. While the general commercial objective was to agree to an increase in the price if the development potential proved to be realisable, the parties had chosen a specific, express criterion by which to establish that this was the case. The words were that all necessary consents had to be obtained. Their Lordships did not think that it was possible, given the words in the bargain, to substitute different criteria on the ground that this would better satisfy the apparent commercial objective. This would be to rewrite the bargain. Their Lordships found that the use of the paper road access would have been unlawful without the consent under the proposed plan. On that basis the consent was necessary. Clause 6.3 did not require NZPIL to obtain every consent which would be necessary for the construction and, to that extent, their Lordships, and Pankhurst J, did not construe the clause literally, but consents to the principle of constructing the golf course and buildings and the access to the course were “necessary”.

Their Lordships could not see how the words of the contract could be read down in accordance with a particular view of the purpose of the contract. They did not believe that the Court of Appeal could qualify the words effectively to substitute a different provision ruling out one consent which was necessary. Their Lordships rejected six matters from the matrix of fact which Thomas J said would support his conclusion. Their Lordships also rejected an attempt to rely on an earlier version of clause 6.3.

That earlier version had apparently been that either acceptance of the submissions on the proposed plan or acceptance of plan change 11 within 18 months would give rise to the obligation to pay $1m. This, it was said, showed that the parties had, in fact, contracted on the basis that either consent would be enough to trigger the obligation to pay $1m. Their Lordships said on this point:

Their Lordships do not think it is helpful to try and construe the earlier version of clause 6.3 because it was dropped and the present clause substituted. It seems pointless to try and speculate on why the change was made. No doubt each party had their reasons for proposing it on the one hand and accepting it on the other. All a court can do is to decide what the final contract means. Their Lordships do not think that negotiations cast any doubt upon what Pankhurst J regarded as a plain and obvious meaning of “necessary consent”.

This decision represents a strong conventional approach to the interpretation of a contract. It does not allow a particular view of purpose to lead to the disregard of the contractual provisions and their natural and ordinary meaning. The decision as has been criticised as not being “purposive” enough . (17) However, it can be seen as a clear principled approach which keeps background and purpose, or a view of purpose, in their proper place and upholds the meaning of the words used by parties in their bargain.

It is important that, as far as possible, parties who have chosen to express their bargain in a particular way which has a clear meaning, are held to that bargain. This does not, of course, mean that, if an interpretation of the contract will create a commercial nonsense given the background to the transaction, the literal meaning of the words will be followed. That is not the right approach. It does mean that where the words of a bargain are clear and can be given a perfectly sensible meaning (as was the case in Yoshimoto), then that meaning, and not some other which the judge sees as arising from the background or a view of the purpose, should be preferred.

International carriage of goods - contractual limitation of liability in bills of lading

New Zealand courts only rarely interpret contracts for the international sale and carriage of goods. Such cases are the grist for the courts in major trading centres like the Commercial Court in London. A good deal of the work of that court will concern the interpretation of charterparties and bills of lading and similar contracts.

The main reason our New Zealand courts do not see many cases in this area is the presence of jurisdiction clauses in the contracts in which the parties choose to litigate or arbitrate in major trading centres like London (and, to a lesser extent, New York).

In this area the need for an approach which creates confidence and certainty of outcome and upholds the reasonable expectation of merchants is paramount. Documents like bills of lading are negotiable and are transferred rapidly between commercial parties who will be bound by their terms.

Dairy Containers Ltd v The Ship “Tasman Discoverer" (18)

In the Tasman Discoverer a bill of lading was issued for the carriage of 70 coils of electrolytic tin plates from Bussan in Korea to Tauranga in New Zealand aboard the Tasman Discoverer. When the vessel arrived, 55 of the coils were discovered to have been damaged by sea water which had entered the hold. The carrier accepted liability but there was a dispute as to the amount which the carrier could limit liability to. The shipment was from Korea and there was no compulsory liability regime for shipments from that country (on a shipment from New Zealand the Hague-Visby Rules would apply as a matter of law). The question of the limit applicable to the claim had to be decided by construing contract evidenced by the bill of lading. The contract was contained in the bill of lading issued by the carrier.

17. See Whatever is happening to contract law. Andrew Beck NZLJ Nov 2002; 391-392; Contract NZ Law Review 2002 Beck
18. Supra note 6.

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