Air New Zealand Ltd v Newfoundworld Site 2 (Hotel) Ltd
[2017] NZHC 1131
•29 May 2017
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
CIV-2016-404-000516 [2017] NZHC 1131
BETWEEN AIR NEW ZEALAND LIMITED
Plaintiff
AND
NEWFOUNDWORLD SITE 2 (HOTEL) LIMITED
Defendant
Hearing: 27-29 March and 3 April 2017 Appearances:
N S Gedye QC and J A MacGillivray for Plaintiff
B J Upton and J S Learner for DefendantJudgment:
29 May 2017
JUDGMENT OF WYLIE J
This judgment was delivered by Justice Wylie
On 29 May 2017 at 11.30am Pursuant to r 11.5 of the High Court Rules Registrar/Deputy Registrar
Date:
Solicitors/counsel:
N S Gedye QC/Tompkins Wake, Auckland
Simpson Grierson, Auckland
AIR NEW ZEALAND LTD v NEWFOUNDWORLD SITE 2 (HOTEL) LTD [2017] NZHC 1131 [29 May 2017]
Introduction
[1] The plaintiff, Air New Zealand Ltd (“Air NZ”), sues the defendant, Newfoundworld Site 2 (Hotel) Ltd (“Newfoundworld”) pursuant to a contract entered into in May/June 2013.
[2] Newfoundworld owns the Novotel Citygate Hotel in Hong Kong. The hotel is located close to Hong Kong International Airport. It is managed by the Accor Hotels Group on Newfoundworld’s behalf and it trades under the Novotel brand. Newfoundworld accepts for the purpose of these proceedings that it is responsible for any act or omission of Accor Hotel Group as its hotel manager, and of the hotel’s management and staff. For the purposes of this judgment, I refer to the hotel and/or its management as “Novotel”.
[3] Air NZ is this country’s national airline. It carries on business as a commercial airline, and, relevant to the proceeding, at all material times it operated scheduled services between Auckland and Hong Kong. Up until 4 March 2013, it also operated scheduled services between Hong Kong and London. It required hotel accommodation in Hong Kong for its cabin crews from both services.
[4] Air NZ and Novotel entered into a contract in May 2011 in relation to the supply of hotel accommodation for the cabin crews. This contract commenced on 16
June 2011 and continued for a period of 24 months. In January 2013, Air NZ invited Novotel to renew the 2011 contract. Following negotiations, a further contract was entered into between the parties in May/June 2013. Novotel agreed to provide Air NZ with hotel accommodation for its cabin crews for a further period of two years as from 16 June 2013.
The parties’ respective positions
[5] Both parties accept that the required hotel accommodation was provided. What is in issue is how much Air NZ was required to pay for it, and in particular, whether it was required to pay for what are known as “early check ins”.
[6] Novotel’s standard advertised check in time is 2pm. If a guest wants to check in early, Novotel has to pre-hold the room, and, in common with most hotels, it
generally charges guests who want to check in early. The charge usually levied for an early check in is the daily rate for the particular room involved. This is because, but for the need to pre-hold the room, the room could have been available the previous night for another paying guest. Novotel also usually charges guests who check out later than its standard advertised checkout time of 12pm. However, hotel check out charges are not in issue in this case.
[7] The Novotel Citygate Hotel has 413 rooms. At all times relevant to the present dispute – 2011 to 2015 – the hotel had high occupancy rates, ranging from 92 to 94 per cent.
Air NZ’s position
[8] Air NZ seeks repayment of charges invoiced to and paid in full by it to Novotel pursuant to the 2013 contract. Air NZ says that its staff paid the invoices rendered by Novotel, which included charges for early check ins, under the mistaken belief that the charges for early check ins were properly rendered. It says that it was a term of the 2013 contract that Novotel would not render any extra charge for early check ins (or for late check outs) by its crews, except where an extra charge was mutually agreed and detailed in accordance with various provisions in the contract. It says that, despite this, throughout the term of the 2013 contract, Novotel included in its invoices to Air NZ extra charges, equal to one night’s extra accommodation at the contract rate for each room held for crew who checked in early. It seeks recovery of these extra charges on the basis that Novotel had no right to levy any of them under the contract.
[9] Air NZ advances its claims under four separate heads – namely breach of the
2013 contract, indemnity under the 2013 contract, breach of the Fair Trading Act
1986 and unjust enrichment. Mr Gedye QC, appearing for Air NZ, accepted that the first two causes of action are the same in substance, and that the latter two add little if the contract claims succeed.
Novotel’s position
[10] Novotel says that the contract entered into in 2013 was a renewal of the arrangements established under the 2011 contract. It says that the 2011 contract was
preceded by a detailed “Request for Proposal” (RFP) process. It says that its response to the RFP highlighted that, on the then applicable Air NZ scheduling, it was possible to “hot bed” or “back-to-back” crew rooms, and in these circumstances, it agreed that it would not charge for early check ins or late check outs. It says that its agreement was premised on the understanding that back to back arrangements were possible. It says that the 2011 agreement proceeded on this basis, and that on
24 July 2012, senior Air NZ management specifically acknowledged this arrangement.
[11] In relation to the 2013 contract, Novotel says that it was told that Air NZ was looking to renew the existing 2011 contract. It says that the approach of both parties to the negotiations in 2013 was that, other than an increase in the daily room rate and breakfast charges, nothing would change in any new contractual arrangements. It says that the 2013 contract was a renewal, and that once the 2013 contract was in place, the parties proceeded on the same basis as had applied under the 2011 contract. It says that on each occasion when it booked rooms for Air NZ crew, it communicated its position to Air NZ and/or its agent. It says that it would not have accepted an arrangement where an early check in charge could not be imposed unless back-to-back room bookings were possible, and that as a matter of good commercial practice, it made no sense for it to agree that such charges would not apply, and indeed no sense for Air NZ to insist that they ought to apply. It argues that Air NZ’s conduct throughout led it to assume that notwithstanding the wording of the 2013 contract, it was “business as usual”.
[12] In the alternative, Novotel argues that Air NZ is estopped from relying on the strict terms of the 2013 agreement, and from seeking repayment of the early check in charges paid. It also denies that Air NZ paid the early check in charges under a mistake.
Quantum
[13] There is no dispute as to quantum. The extra charges paid by Air NZ to
Novotel for early check ins over the term of the 2013 contract totalled (HK)
$7,603,110 (approximately (NZ) $1,415,000). With interest at the rate of 5 per cent, calculated under the Judicature Act 1908 from the date that each invoice was paid to
the date of commencement of the hearing – 27 March 2017 – the total claim was then for (HK) $8,542,885.29 (approximately (NZ) $1,590,000).
The issues
[14] The issues are broadly as follows:
(a) What was the position under the 2011 contract?
(b)What did the 2013 contract provide in relation to charges for early check ins?
(c) Was the 2013 contract a new contract or a renewal of the 2011 contract?
(d) Is Air NZ estopped from relying on the terms of the 2013 contract?
(e) Was there a mistake by Air NZ when it paid the early check in charges?
(f) Was there misleading conduct under the Fair Trading Act by Novotel and is Air NZ entitled to relief pursuant to that legislation?
(g) Is Air NZ entitled to restitution for unjust enrichment? [15] I consider each matter in turn.
What was the position under the 2011 contract?
The RFP
[16] Prior to June 2011, Air NZ’s cabin crew were accommodated in the Hong Kong Century Hotel. It proposed a significant increase in its room rates, and as a result, Air NZ initiated the RFP. It was in a standard Air NZ format setting out the terms on which Air NZ was prepared to offer a crew accommodation contract to tenderers. It gave details of the supply contract being tendered for, a draft copy of the proposed contract, a crew accommodation specification which set out Air NZ’s
requirements, a summary sheet on which the hotel could set out the key details of its tender, and a copy of the proposed crew layover schedule detailing flight details and the number of rooms required. It stated that rooms needed to be available immediately on check in, except where there was a mutually agreed waiting period “to assist hot bedding arrangements”.
[17] Suppliers were required to agree to negotiate any supply agreement with Air
NZ in good faith. The RFP expressly stated as follows:
The agreement will incorporate significant proportions of [the] RFP, the supplier’s proposal, and any other documentation and correspondence containing significant representations.
[18] Novotel responded to the RFP on 16 March 2011. It advised its proposed rates. In relation to early check ins, its proposal stated: “Check in before 10.00 hours – one full overnight rate”, and for late check outs – “14.00 to 22.00 hours – 60 per cent of the crew agreed rate. After 22.00 hours – one full overnight rate”.
[19] On receipt of Novotel’s response, Air NZ entered into negotiations with Novotel. Novotel was prepared to agree lower room rates. There were also negotiations about the proposed charges for early check ins and late check outs. The crew layover schedule provided by Air NZ indicated that, from late June 2011, flight schedules between Auckland, Hong Kong and London would permit outgoing and incoming crews to occupy rooms on a back-to-back basis. Hotel rooms could be cleaned in the time between one crew checking out and the next checking in, and there was no need to pre-hold any rooms for crew who required early check ins.
[20] On 19 April 2011, Novotel’s then General Manager, Mr Munro, sent an email to the person responsible for Air NZ managers – Ms Radovanovich and Mr Weatley. The email read as follows:
… [Novotel] remains very keen to secure the Air NZ crew, and so, we’re happy to remove the early check-in (and check out) charges based on us being able to back-to-back crew, even with crew arriving at the hotel 25-30 minutes (we believe) earlier 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 back-to- back crew rooms, we would need to reconsider this early check-in/check out charge. We would be happy to waive this charge for 2011. …
When Mr Munro confirmed Novotel’s revised offer, with the negotiated lower room
rates, in an email on 20 April 2011, he reiterated his stance as follows:
Early Check in and Late Check out Charge: no charge based on current arrival and departure pattern.
The 2011 contract
[21] The 2011 contract was entered into on 25 May 2011. Under the contract:
(a) Novotel agreed to provide Air NZ hotel accommodation in accordance with a layover schedule to be provided by Novotel to Air NZ from time to time during the term of the contract;
(b)Novotel agreed that it would not charge Air NZ for early check ins or late check outs except where mutually agreed, and as detailed in item
8 of schedule 1 to the contract – clause 5.4. Item 8 of schedule 1 specified that early check ins and late checkout charges were “not applicable”;
(c) both parties acknowledged that Air NZ’s schedules might change during the term of the contract. Clause 3.3 provided that, where Air NZ notified Novotel of a change to the layover schedule which represented a 30 per cent or more increase to the weekly hotel accommodation or early check ins or late check outs required, then the parties could negotiate the hotel accommodation rates and/or charges for early check ins or late check outs. If a dispute arose between them in this regard, dispute resolution provisions in the contract were to apply;
(d)both parties agreed that any amendment to or variation of the contract was to be in writing, and executed by all parties – clause 18.1.
The operation of the 2011 contract
[22] From June 2011, Novotel provided rooms for Air NZ’s crew members. It did
not initially charge for early check ins or late check outs. The arrival and departure
of cabin crew to and from the hotel allowed Novotel to put in place back-to-back arrangements. It did not need to pre-hold rooms.
[23] Air NZ’s ground handling agent – Jardine Airport Services Limited (Jardines)
– provided Novotel with the Air NZ flight schedules in advance. Room bookings were requested in four weekly blocks. The schedules recorded the nights on which cabin crew would expect to stay in the hotel and showed flight arrival and departure times. The number of rooms required varied between 20 and 30 per night. Upon receipt, Novotel’s reservation staff would review the schedule, make the bookings and confirm room availability to Jardines. 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.
[24] Air NZ’s Manager – Asia AirPorts – a Ms Lee, gave evidence. She said that she did not open the Excel spreadsheets. However, she also confirmed that she did not advise Novotel that she was not looking at them. Another Air NZ witness – a Mr Rutgers – who was Air NZ’s Senior Manager, Procurement – accepted that the spreadsheets indicated to Air NZ where Novotel was unable to back-to-back rooms, where it needed to pre-hold rooms, and its intention to charge for any pre-holding.
[25] As from 24 March 2012, there was a change to the Hong Kong/London flight departure time. It was put back from 8.30am to 10am. This meant that the crew for that flight left the hotel later. The arrival time for inbound flights from Auckland and London also changed so that crew from those flights arrived 40 minutes earlier. As a result of these schedule changes, back-to-back arrangements could no longer occur. The outbound crews needed their rooms longer, and the inbound crews were arriving earlier.
[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. However, later in July, following receipt of the schedules for the period 30
July 2012 to 26 August 2012, Novotel (Mr Lung) in an email dated 16 July 2012 confirmed the booking, but noted Novotel’s concerns regarding the schedules and the proposed arrangements. Mr Lung expressly advised that, because back-to-back arrangements were not possible, the rooms would need to be pre-held for early arrival of the crews the following morning.
[28] Ms Lee contacted Ms Radovanovich to ascertain her view of Novotel’s
advice. Ms Radovanovich responded on 23 July 2012 as follows:
I would accept that where we cannot “hot bed” the crews then we will have
to pay extra to block out the rooms from the night before.
On 24 July 2012, Ms Lee communicated to Novotel Air NZ’s agreement to the pre- booking of the rooms, to guarantee that they would be available where cabin crew were arriving early in the morning. Ms Lee’s email stated as follows:
[Ms Radovanovich] share same view as mine and the extra one night charge
due to not able to meet back to back is fine. …
[29] Mr Kam, Novotel’s Director of Sales and Marketing, was cross examined
about this exchange of emails. He said as follows:
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.
[30] In cross examination, Ms Lee confirmed her understanding of the position. It
mirrored Mr Kam’s understanding:
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 he 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.
[31] As from 4 March 2013, Air NZ ceased operating the Hong Kong to London flight altogether. The arrival and departure times of the Auckland-Hong Kong- Auckland flights did not allow back-to-back arrangements either.
[32] Up until February 2013, Air NZ needed sometimes 10, sometimes 20 and sometimes 30 rooms per night. From February 2013, Air NZ generally needed only
10 rooms per night.
[33] Mr Upton, for Newfoundworld, argued that the arrangements set out in the July 2012 emails were mutually agreed between Air NZ and Novotel as required by clause 5.4 of the 2011 agreement, and that all the parties failed to do was update schedule 8 to the contract. Mr Gedye pointed to clause 18.1, which, as noted, provided that no amendment or variation to the agreement was valid and binding unless made in writing and executed by all parties. He accepted that clauses of this
type do not absolutely preclude the possibility of an informal variation,1 but asserted
that they do call into question whether the parties intended to be bound by the emails.
[34] It is curious that neither party – and in particular Novotel – sought to invoke clause 3.3 of the 2011 contract. Both would have had the right to do so. I do not, however, accept Mr Gedye’s submission that the 24 July 2012 email was a one-off email, agreeing a specific situation. Mr Lung’s email of 16 July 2012 was directed to the crew accommodation requirements for the period 30 July – 26 August 2012. The emails in reply were not so limited. Regardless of the contract, it seems to me that both parties had agreed that 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 NZ’s altered schedules. 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.
1 Globe Motors Inc v TRW Lucas Varity Electric Steering Ltd [2016] EWCA Civ 396.
What did the 2013 contract provide in relation to charges for early check ins?
[35] The 2013 contract is substantially similar, but not identical, to the 2011 contract. Relevantly, it provided as follows:
(a) Novotel was to provide Air NZ with hotel accommodation in accordance with a layover schedule to be provided by Air NZ or its agents from time to time during the term of the contract;
(b)the layover schedules could change from time to time during the term of the contract;
(c) where Air NZ or its agents notified Novotel of a change to the layover schedules, and the schedule change represented a 30 per cent or more increase to the weekly hotel accommodation or early check ins or late check outs required by the airline, then the parties could renegotiate the hotel accommodation rates and/or charges for early check in and late checkout, and if a dispute arose between them, refer the same to the disputes resolution process – clause 3.3;
(d) hotel accommodation rates were set out;
(e) Novotel agreed that it would not charge Air NZ for late check outs or early check ins, except where this had been mutually agreed and detailed in terms of item 7 of schedule 1 – clause 5.4. Item 7 in schedule 1 recorded as follows: “early check in: not applicable; late checkout: not applicable”;
(f) clause 7.1 provided as follows:
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.
(g)a change in layover schedules did not give Novotel the right to terminate the agreement – clause 10.1;
(h)Novotel agreed that it was liable for, and that would indemnify Air NZ from and against losses, damage and costs incurred by Air NZ 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 the contract – clause 11.2;
(i) there were dispute resolution provisions – clause 15; (j) clause 18.1 provided as follows:
No amendment or variation of this Agreement is valid or binding on a Party unless made in writing and executed by all Parties.
(k) both parties agreed that the agreement was governed by the laws of
New Zealand – clause 18.4.
[36] The terms of the 2013 contract are clear. Under clause 5.4, Novotel agreed that it would not charge Air NZ for either early check ins or late check outs, except where mutually agreed and detailed in item 7 of schedule 1.
[37] There is no claim by Novotel seeking rectification of the 2013 contract. In its initial statement of defence, Novotel did seek rectification, asserting that it was the common intention of the parties that early check ins would be able to be charged under the 2013 contract. However, in its amended statement of defence, Novotel abandoned this claim.
[38] Nor is there any claim under s 4 of the Contractual Remedies Act 1979 alleging that there were representations, promises or statements made in the course of negotiations which constituted a representation or term of the contract. Rather, and as noted above, Novotel’s defence to Air NZ’s contract claim is to assert that the
2013 contract was a renewal of the 2011 contract which had been varied to permit early check in charges. In the alternative, it asserts estoppel.
Was the 2013 contract a new contract or a renewal of the 2011 contract?
The factual sequence
[39] The starting point in relation to this issue is clause 2.2 of the 2011 agreement. It provided as follows:
This Agreement may be renewed for further terms of twelve (12) months each … following expiry of the Initial Term subject to both parties agreeing each Renewal Term in writing.
This clause did not give either party a right of further renewal and there was no mechanism which either party could unilaterally invoke to secure a renewal. Clause
2.2 essentially recorded an agreement to agree.
[40] Ms Radovanovich sent an email to Mr Kam on 11 January 2013. It 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? …
Mr Kam replied advising that Novotel wished to keep Air NZ’s crew at the hotel, and asking when Air NZ wanted Novotel to submit a new proposal. Ms Radovanovich requested that the new rates should be sent to her by the end of January and advising that she would probably have to initiate a “market review”. Mr Kam responded that he would be able to comply with that timeframe. In the event, Mr Kam did not reply by the end of January, and, on 26 February 2013, Ms Radovanovich sent him a follow up email. Mr Kam responded on the same day, giving Novotel’s indicative rates for a 12 month period starting 16 June 2013. Ms Radovanovich responded on the following day, indicating that Mr Kam’s proposal was “a huge increase” for Air NZ, and advising that she would have to go to “RFP” and carry out a “full review” of the market. She then asked Mr Kam whether he would consider a two year term. Mr Kam responded, advising that for any second year, Air NZ should “make a provision of 10% increases”. He advised that the rate he had proposed was very competitive in the marketplace.
[41] Ms Radovanovich thereafter undertook a market review, although she did not commence a formal RFP process. Air NZ sought rate indications from 16 other Hong Kong hotels. Air NZ contacted Accor Hotel Group to see if it could assist with discussions regarding room rates. Novotel became aware of the rates being quoted by some of the other hotels who were also in the Accor group, but otherwise it did not know what was being quoted by other hotel operators. In the event, Novotel, after discussions with Accor head office staff, agreed to reduce the rates it was prepared to offer Air NZ as from June 2013. On 6 March 2013, a Mr Berglind, who was the director of sales and distribution for Accor Australia, emailed Ms Radovanovich to advise the rates that would be offered by Novotel for both the first and second year of any new contract. His email recorded “other terms remain unchanged”.
[42] There was no discussion in the course of those negotiations regarding early check ins or late check outs between Novotel, or anyone acting on its behalf, and Air NZ, or anyone acting on its behalf.
[43] Ms Radovanovich prepared a table summarising her market review. It set out the rates quoted by each hotel and detailed, for many but not all of the hotels, whether or not it proposed to charge for early check ins or late check outs, and if so, at what rate. For Novotel, it was recorded that there would be no additional charges for early check ins or late check outs.
[44] On 19 April 2013, Ms Radovanovich sent an email to a Ms Swarbrick, who was the Manager of International Cabin Crew, advising her that she had renegotiated the contract for another two years with Novotel, setting out its rates and advising that no additional charges for early check in or late checkout would be levied.
[45] Ms Radovanovich sought approval from Air NZ management to renew the contract. Her internal report recorded that she was seeking to “renew” the Hong Kong cabin crew accommodation with Novotel for a two year period. She stated that there was an opportunity to extend the current contract with Novotel for another two year term, and that there would be no additional charges for early check ins or
late check outs. She recommended that Air NZ should “renew” the contract with
Novotel for another two year term.
[46] On 1 May 2013, the renewal was approved by Air NZ’s senior management team, including Mr Rutgers. Mr Rutgers, in evidence, confirmed that the intention was to “renew” the 2011 contract.
[47] Ms Radovanovich then advised Mr Kam that her business case had been approved, and that the parties could proceed to contract. She provided a draft contract to Mr Kam to check. Novotel staff reviewed the new contract provided by Ms Radovanovich, and compared its terms to the earlier 2011 contract. Mr Kam gave evidence that he wanted to make sure that the document was identical to the
2011 contract because he thought that the contract was just being renewed, and not replaced. He said that he considered that the only item which needed to be updated was pricing, and that he assumed that charges could be imposed for early check ins, if back-to-back arrangements were not possible. He confirmed, however, that he did not discuss this issue with Ms Radovanovich during his dealings with her in relation to the 2013 contract.
[48] The email correspondence shows that Novotel signed the contract forwarded by Air NZ, but only after making some alterations to it. Mr Kam notified Ms Radovanovich of this on 8 May 2013. Air NZ executed the contract on 17 June
2013.
New contract/renewal of old contract?
[49] The terminology used by individuals within either Novotel or Air NZ is not determinative of the issue of whether there was a renewal of the 2011 contract, or a new contract in 2013. In some situations, what might in general parlance be referred to as a renewal of a contractual relationship will in law be a new agreement, and in others, simply the extension of the existing agreement. In my judgment, the focus must be on the outcome, and not the process employed or the terminology used. In
this regard, I note and adopt the observations of Mallon J in PAE (New Zealand) Limited v Brosnahan, as follows:2
I consider that a renewal is different from a replacement. A contract is replaced where there was a contract but something different has been put in its place. A contract is renewed where there was a contract and that old contract has started again. I consider that it is not enough that the new contract is similar to the old. To be “restored”, “re-established”, “re- affirmed” or “reinstituted” it must be the same or not materially different from what went before. …
[50] The steps that both parties took in early 2013 strongly suggest that a new contract was then contemplated:
(a) The parties entered into unfettered negotiations. Mr Kam in cross examination conceded that there was a full competitive negotiation, which could have resulted in another hotel securing the 2013 contract. He accepted that Air NZ was going to “shop around”;
(b)Air NZ undertook a market review. It was free to take its business elsewhere and the fact that it undertook the review indicates that it was prepared to do that if it could obtain more favourable terms elsewhere;
(c) The negotiations between Novotel and Air NZ concluded with a decision to award the contract to Novotel. Air NZ sent Novotel a new contract document. Novotel made changes to that document and then signed. The changes were not only to the schedules but also to the body of the contract; and
(d)Novotel did not seek to alter clause 5.4, nor item 7 of the first schedule. Nor did it seek any alterations to clause 7.1. Pursuant to this latter clause, it agreed that the agreement it was signing, and any crew accommodation specification entered into between it and Air NZ, contained the entire agreement between the parties with respect to
the supply of hotel accommodation, and that it superseded all prior
2 PAE (New Zealand) Ltd v Brosnahan HC Wellington CIV-2005-485-843, 10 September 2008 at
[332]; upheld on appeal, [2009] NZCA 611, (2010) 9 NZBLC 102,862.
agreements and understandings between the parties in connection with it.
[51] 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.
[52] The outcome of the negotiations also points to a new contract and not a renewal. It was central to Novotel’s argument that the 2011 contract and the 2013 contract were identical, save as to room rate. They were not. I note the following material differences. There was:
(a) a new clause 3.9, relating to construction and renovation works at the hotel and requiring Novotel to safeguard the interests of Air NZ crew during any works;
(b)a new clause 6.3, which required that any inappropriate behaviour by crew members be reported by Novotel to Air NZ;
(c) a new clause 16.6, prohibiting Novotel from discussing the commercial or other arrangements contained in the contract with cabin crew; and
(d)a number of changes in the schedules. Some items which were in the schedule to the 2011 contract were removed. Others were moved or renumbered.
[53] I conclude that the 2013 contract was not a simple renewal of the 2011 contract, but rather was a new contract. It was clear in its terms. Novotel was not entitled to charge for early check ins/late check outs.
Is Air NZ estopped from relying on the terms of the 2013 contract?
[54] Novotel asserts that, because of the ongoing course of conduct under the
2011 contract, which amounted to mutual agreement between the parties, it was
entitled to charge Air NZ for early check ins and late check outs, where back-to-back arrangements could not operate, and that Air NZ is estopped from denying that such mutual agreement exists.
Estoppel by representation
[55] Novotel pleaded estoppel by representation.
[56] Unconscionability is at the heart of estoppel.3 The basic principles required to establish an estoppel by representation are well established:4
(a) there must be a belief or expectation which has been created or encouraged;
(b) reliance on that belief or expectation;
(c) detriment as a result of that reliance; and
(d)it must be unconscionable for the party against whom the estoppel is alleged to go back on his or her word.
The clearer and more explicit the assurance given by the promisor is, the more likely it is that the Court will be willing to grant expectation-based relief. This is because a clear assurance is more likely to engender an expectation by the promisee that it will be fulfilled. The Courts will, however, be reluctant to grant equitable relief to commercial parties of equal bargaining strength dealing on an arm’s length basis.5 A representation that is not sufficiently clear to amount to a variation of contract will almost always be too uncertain to amount to an estoppel.6
[57] Novotel is saying that, in entering into the 2013 contract, it was encouraged to believe that Air NZ agreed to it charging for early check ins under the contract,
3 National Westminster Finance NZ Ltd v National Bank of NZ Ltd [1996] 1 NZLR 548 (CA) at
549.
4 Wilson Parking v Fanshawe [2014] NZCA 407, [2014] 3 NZLR 567; And see John Burrows “Consideration” in John Burrows, Jeremy Finn and Stephen Todd Law of Contract in New Zealand (5th ed, Lexis Nexis, Wellington, 2012) at 145.
5 James Every-Palmer “Equitable Estopel” in Andrew Butler (ed) Equity & Trusts New Zealand
(2nd ed, Thomson Reuters, Wellington, 2009) at [19.2.4(5)].
6 Lim v Ward McCulloch Solicitors Nominees Ltd (1999) 8 NZCLC 261, 922 (CA) at [17]-[25].
because Air NZ paid for early check ins without demure during the course of the
2011 contract.
[58] In my judgment, Air NZ’s conduct under the 2011 contract cannot reasonably
be said to have created or encouraged any belief or expectation by Novotel. The
2011 contract had been entered into when back-to-back arrangements were possible on the schedules then operated by Air NZ. By the time the 2013 contract came to be negotiated, Air NZ had changed its schedules. It was only operating flights from Auckland to Hong Kong and return. Back-to-back arrangements were not possible. They had not been possible since March 2012. There is no sensible basis on which Novotel can contend that arrangements put in place when “back-to-backing” was possible still applied. Nor can Novotel point to any representation by words or conduct in the course of the negotiations for the 2013 contract that could have led it to believe or expect that Air NZ would pay charges for early check ins despite the express terms of the 2013 contract. All it can point to is the fact that Air NZ did not raise the issue of early check in charges in the course of the negotiations – effectively estoppel by silence.
Estoppel by silence
[59] A belief or expectation can be created or encouraged by silence. Silence can give rise to an estoppel either because it amounts to a genuine misrepresentation in itself, or because the silent party was under a duty to speak.7
[60] As the commentators have noted, silence rarely amounts to a genuine representation because silence and inaction are of their nature equivocal, and will not generally actively create a belief or expectation.8
[61] Here, there was no indication given by Mr Kam or Mr Berglind, who were negotiating the new contract for Novotel, to the effect that Novotel was conducting the negotiations on the basis that the issue of charging for early check ins was settled, or that Novotel considered that the parties did not need to address the issue.
This is notwithstanding that the ability to charge for early check ins was an issue of
7 Butler, above n 5 at [19.5.2].
8 At [19.5.2]. And see Angus Group Ltd v Industrial Buildings Ltd CA67/89, 26 October 1989.
some significance to the prices proposed to be charged. Novotel knew that Air NZ was canvassing the market for competing offers. Other hotel operators, including operators who were part of the Accor Hotel Group, had responded to Air NZ’s request for indicative rates with proposals, many of which set out whether or not the hotel operators intended to levy charges for early check ins or late check outs. Novotel was privy to some of these tenders through its relationship with Accor. Notwithstanding this, Novotel remained silent.
[62] Air NZ also said nothing about the issue, but it was not for it to decide whether or not a proposal should either exclude or include extra charges for early check ins or late check outs. Air NZ’s silence in the negotiation phase cannot have amounted to a representation leading to a belief or expectation by Novotel.
[63] Nor was Air NZ under any duty to speak. The essence of estoppel by silence is that the party estopped should, in good conscience, have spoken up to correct an evident misapprehension on the part of the other party. The evidence is that both Ms Radovanovich and Mr Rutgers believed that Novotel’s proposal was that it would not charge for early check ins. They did not know that Novotel thought the opposite. In those circumstances, there can be no duty to speak up.
[64] In any event, Air NZ did not remain silent. It sent Novotel a draft contract that reflected its position. Novotel did not disagree. The draft contract was a direct communication from Air NZ to Novotel of what Air NZ was proposing in relation to early check ins and late check outs. The sending of the draft contract broke any suggestion that there was an estoppel by silence on the issue. It was sent before the contract was concluded, and Novotel had the opportunity to both raise the issue and to negotiate further in relation to it. Novotel cannot say that it relied on Air NZ’s silence when Air NZ broke that silence and made its position clear before the contract was concluded.
[65] In my judgment, a reasonable person in Novotel’s shoes at the time would have treated the draft 2013 contract forwarded by Air NZ as a formal commercial contract intended to be binding. At all relevant times Novotel knew that Air NZ’s schedules had changed, and that “back-to-backing” was no longer possible. It must
have been obvious to Novotel that, if the 2013 contract was to reflect what it says was the agreed position, the terms of the 2013 contract needed to be changed. Novotel did not request any changes to the relevant provisions. Rather, it accepted and executed the contract. Viewed objectively, no reasonable party in Novotel’s position, after receiving the draft 2013 contract, would have failed to raise a red flag if it considered that the terms of the deal were fundamentally different from those recorded in the document.
The entire agreement clause
[66] There is also considerable force in Air NZ’s submission that the entire agreement clause is an insurmountable hurdle in the way of Novotel establishing that it reasonably relied on an assumption as to Air NZ’s position that was inconsistent with the contract.
[67] A commonly cited explanation for entire agreement clauses is that given
Lightman J in Inntrepeneur Pub Co v East Crown Ltd, where he stated: 9
The purpose of an entire agreement clause is to preclude a party to a written agreement from threshing through the undergrowth and finding, in the course of negotiations, some (chance) remark or statement (often long forgotten or difficult to recall or explain) upon which to found a claim, such as the present, to the existence of a collateral warranty … for such a clause constitutes a binding agreement between the parties that the full contractual terms are to be found in the document containing the clause and not elsewhere …
Generally speaking, an entire agreement clause will take effect according to its terms,10 particularly if they are clear and unambiguous.11 Entire agreement clauses are not necessarily absolute or conclusive, and s 4(1) and (2) of the Contractual Remedies Act identify circumstances where the Court can consider whether representations or conduct outside the contract can be said to constitute a
representation or a term of the contract.12
9 Inntrepeneur Pub Co v East Crown Ltd [2000] 2 Lloyd’s Rep 611 (Ch) at 614.
10 Harris v GTV Holdings Ltd [2016] NZHC 3123 at [26].
11 Aldridge v Boe HC Auckland CIV-2010-404-7805, 10 January 2012 at [260]; Dorchester
Finance Ltd v Deloitte [2012] NZCA 226, (2012) 3 NZTR 22-012 at [33].
12 PAE (NZ) Ltd v Brosnahan [2009] NZCA 611, (2010) 9 NZBLC 102,862 at [15].
[68] Here, Novotel cannot point to any statement, promise or undertaking that was made or given in connection with or in the course of the negotiations leading to the making of the 2013 contract. Both Novotel and Air NZ were sophisticated commercial entities. Neither was legally represented, although both could have been. There was no disparity in their respective bargaining strengths. I do not consider that there is anything unfair or unreasonable in holding the parties to the terms of their entire agreement clause. In its terms it is clear. The 2013 contract supersedes all prior agreements and understandings; this must include the 2011 contract, and any understandings under that contract.
Payment of invoices under the 2013 contract
[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.
[70] Further, and in any event, Novotel cannot point to any detrimental reliance based on Air NZ’s payment of invoices under the 2013 contract. Once the parties entered into the 2013 contract, Novotel had no option but to provide accommodation at the contract rate. Had Air NZ protested the charges for early check ins, Novotel would still have been bound to provide accommodation, without payment of the early check in charges. Novotel had no right, apart from seeking to renegotiate under clause 3.3 if the circumstances arose which permitted it to do so, to review the contract arrangements. Similarly, it had no right to terminate the contract. The issue of overpayment by Air NZ was not picked up until after the contract had come to an end, but that does not assist Novotel. There is no evidence that Novotel’s position has been prejudiced by the fact that the issue was only identified relatively late in the day. Its position under the 2013 contract is no better or worse than it would have been had the issue been identified at the outset.
[71] Detrimental reliance is a fundamental requirement of any estoppel, and in my judgment, Novotel can point to no more than disappointment that it will be required to disgorge moneys it should never have been paid.
Estoppel by convention
[72] Novotel also raised in its closing submissions estoppel by convention.
[73] The requirements of estoppel by convention are set out in National Westminster Finance NZ Ltd v National Bank of NZ Ltd.13 This type of estoppel arises where the parties have entered into legal relations on the basis of a shared assumption on a matter of fact or law of sufficient certainty to be enforceable. Each party has, to the knowledge of the other, to have accepted the assumption as being true for the purpose of the transaction. Both parties must have intended that the shared assumption would be acted on and that it would govern the legal position
between them.
[74] Here the parties did not enter into the 2013 contract on the basis of any shared assumption either of law or of fact. It is clear that Air NZ entered into the contract believing that no charges for early check ins would apply; Novotel says that it entered into the contract on the opposite assumption. Air NZ did not know of Novotel’s assumption and it did nothing to convey to Novotel that it accepted Novotel’s assumption as being true. Novotel did nothing to convey its assumption to Air NZ, and it did not enquire as to Air NZ’s assumption prior to receiving the draft contract.
[75] Air NZ put forward the draft contract conveying its assumption to Novotel. The draft contract was a clear statement by Air NZ of its position. It was inconsistent with any assumption that Novotel may have made that early check in charges could be levied under that contract.
[76] For the above reasons, I conclude that Air NZ is not estopped from relying upon the terms of the 2013 contract.
13 National Westminster Finance NZ Ltd v National Bank of NZ Ltd, above n 3, at 550.
Was there a mistake by Air NZ when it paid the early check in charges?
[77] If a person pays money to another under a mistake of fact or law which causes him or her to make the payment, he or she is prima facie entitled to recover it as money paid under a mistake.14 The issue is whether, but for the mistake, the
payment would have been made.15
[78] Here, the mistake was made by a Ms Drew, a payments clerk employed by Air NZ. Air NZ’s crew management division produced a report called the bednights accommodation report. When a crew hotel, including Novotel, emailed its invoice to Ms Drew, she checked the hotel invoice against this report. In or around February
2012, she received an invoice from Novotel which showed double the number of nights contained in the report for the same period. She made enquiries from Novotel about the discrepancy, and was advised by the hotel that it had approval from Ms Lee at Air NZ to charge the extra nights because early check ins had been required and no back to back arrangements had been possible. In cross examination, she said that the hotel sent her Ms Lee’s email. Ms Drew did not discuss the issue with Ms Radovanovich, nor did she personally check with Ms Lee. Rather, based on Novotel’s advice and Ms Lee’s email, Ms Drew entered into a template spreadsheet double the number of nights shown in the bednights accommodation report. She did this for all invoices received from Novotel thereafter. It was not Ms Drew’s responsibility to approve payments. Rather, she entered them into Air NZ’s computer system, which in turn produced a voucher. That voucher was sent on to another person with approval authority. That person would then consider the voucher and either reject or approve it.
[79] Ms Drew said that at no stage was she advised by anybody that different terms had been put in place as from June 2013, and that accordingly she did not change her practice. She continued to manually double the figures in the bednights accommodation reports throughout the period of June 2013 to September 2015. She had access to the contract, but she did not look at it, other than to check the hotel’s
rates set out in the contract.
14 Commissioner of Inland Revenue v Stiassny [2012] NZCA 93, [2013] 1 NZLR 140 at [84]-[104], upheld on appeal, Stiassny v Commissioner of Inland Revenue [2012] NZSC 106, [2013] 1
NZLR 453.
15 Commissioner of Inland Revenue v Stiassny, above n 14, at [87].
[80] In my judgment, the extra charges for early check ins were paid by Air NZ pursuant to a mistake. The employee processing the invoices – Ms Drew – mistakenly believed that Novotel was entitled to include charges for early check ins under the 2013 contract, and she processed the invoices acting on that mistaken belief. There is a direct causal link. But for Ms Drew’s mistake, payment of the extra charges would not have been made. Air NZ did not intend that Novotel should have the money at all, and the payments were not made for good consideration given the terms of the 2013 contract. Nor, for the reasons I have set out in discussing estoppel, has Novotel altered its position in reliance on the validity of the payments
made.16
[81] It may well be that Air NZ was careless, but carelessness on its behalf does not deprive it of its right to repayment of the amount by which Novotel has been unjustly enriched.17
Was there misleading conduct under the Fair Trading Act by Novotel and is Air
NZ entitled to relief pursuant to that legislation?
Is Air NZ entitled to restitution for unjust enrichment?
[82] I am not persuaded that either of these causes of action advances matters.
[83] I do not consider that there is a cause of action under the Fair Trading Act. There was no misleading or deceptive conduct by Novotel. There was a breach of contract, but I do not consider there was any conduct by Novotel sufficient to engage the provisions of the Fair Trading Act.
[84] Air NZ’s cause of action in unjust enrichment was a secondary alternative to its primary contractual claim. Mr Gedye accepted that if Air NZ’s contract claim succeeded, then no relief in equity was necessary. It is unnecessary to take unjust enrichment any further because there was a contractual relationship between the
parties which governed the payments in question.
16 Judicature Act 1908, s 94B.
17 Dextra Bank & Trust Co Ltd v Bank of Jamaica [2001] UKPC 50 at [45]; Saunders & Co v
Hague [2004] 2 NZLR 475 at [121].
Result
[85] In my judgment, the 2013 contract is clear. Novotel was not entitled to render an extra charge for early check ins under the contract. The 2013 contract was a new contract, in different terms than the 2011 contract. It was not simply a renewal. Air NZ is not estopped from relying on the terms of the 2013 contract, and the payments made by it under the 2013 contract, to the extent that they incorporated additional charges for early check ins. The additional charges for early check ins were paid by mistake.
[86] Novotel has breached the contract by levying the additional charges. It is required, pursuant to clause 11.2 of the 2013 contract, to indemnify Air NZ for this breach.
[87] For the reasons I have set out, I hold that Air NZ is entitled to recover the extra charges paid by it for early check ins over the term of the 2013 contract. As I have noted above, those charges came in total to the sum of (HK) $7,603,110. I give judgment in favour of Air NZ for that sum.
Interest
[88] Air NZ seeks interest at the rate of 5% from the date of each payment, pursuant to s 87 of the Judicature Act.
[89] Interest under the Judicature Act is not intended to be punitive. Its purpose is to recognise that one party has had the use of the money that the other party has been denied.18
[90] The power to award interest under s 87 is discretionary, and it can be exercised as the circumstances of the case require. Relevantly, interest can be denied to a party who has slept on his or her rights without justification.19
18 Day v Mead [1987] 2 NZLR 443 (CA) at 462-464, cited with approval in Worldwide NZ LLC v
NZ Venue and Event Management Ltd [2014] NZSC 108, [2015] 1 NZLR 1 at [23].
19 Andrew Beck and others McGechan on Procedure (looseleaf ed, Thomson Reuters) at
[J87.02(3)].
[91] Novotel resists the payment of interest. It argues that the mistake made by Air NZ was obvious, and that it ought to have been identified far sooner, probably by Jardines, as Air NZ’s agent. It says that Novotel/Newfoundworld was only notified of the dispute in June 2015, after termination of the 2013 contract, and that by leaving it so long to raise the issue, Air NZ is belatedly seeking to benefit from an inflated interest claim. It argues that it is inappropriate to award interest on any sums ordered to be repaid from the date of payment, and that interest should accrue only from the date that the dispute was raised – 18 June 2015 – or from the date that Novotel/Newfoundworld refused Air NZ’s request to repay the sums sought – 30
June 2015.
[92] Air NZ’s response is that once the issue was discovered and the dispute arose, it acted diligently to pursue its claim.
[93] I have some sympathy for Novotel’s position. While it did not set out its position under the 2013 contract clearly, nor did it seek to hide its position from Air NZ. It dealt with Jardines on the basis the extra charges could be levied. It raised invoices showing the additional charges for early check ins from the outset. They were paid by Air NZ by mistake, but in my judgment, Air NZ was careless. Air NZ’s agent, Jardines, should have picked the discrepancy up much earlier. Air NZ was careless in its payments process. The mistake should have been obvious and it ought to have been identified much sooner. In my view, the appropriate date for the commencement of any award of interest is the date that the dispute was first raised –
18 June 2015.
[94] I direct that interest is to be calculated as from 18 June 2015 at the rate or rates prescribed from time to time under s 87 of the Judicature Act.
Costs
[95] Air NZ is entitled to costs and disbursements. I anticipate that it will seek to rely on clause 11.2 of the 2013 contract. If there is any dispute as to costs, I make the following directions:
(a) any claim for costs/disbursements is to be by way of memorandum, to be filed within 10 working days of the date of this judgment;
(b)any reply is also to be by way of memorandum, to be filed within a further 10 working day period;
(c) memoranda are not to exceed 10 pages in length.
I will then deal with the issue of costs/disbursements on the papers unless I require the assistance of counsel.
Wylie J
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