Commercial Metals Limited v Wright

[2015] NZCA 450

IN THE COURT OF APPEAL OF NEW ZEALAND

CA556/2014
[2015] NZCA 450

BETWEEN	COMMERCIAL METALS LIMITED Appellant
AND	HADLEY JOHN WRIGHT Respondent

Hearing:	18 August 2015
Court:	French, Simon France and Asher JJ
Counsel:	P F Dalkie for Appellant K T Glover and C P Hallowes for Respondent
Judgment:	21 September 2015 at 10.00 am

JUDGMENT OF THE COURT

AAn order is made substituting Commercial Metals Ltd for the original appellant, All Metals Trading Company Ltd.

BThe appeal is dismissed.

CThe appellant must pay the respondent costs for a standard appeal on a band A basis, and usual disbursements.

____________________________________________________________________

REASONS OF THE COURT

(Given by Simon France J)

Introduction

1. The respondent, Mr Wright, is guarantor of a lease entered into between the appellant and a company with which Mr Wright is associated.  Rent and outgoings due under the lease are unpaid.  Commercial Metals Ltd brought proceedings against Mr Wright pursuant to the guarantee.  The amount sought is $405,577.01.  This is the equivalent of 12 months’ rent and outgoings and is the maximum amount Commercial Metals Ltd says it can recover from Mr Wright pursuant to the guarantee.  Mr Wright disputes the quantum.  Resolution of the dispute depends on the correct interpretation of the guarantee.  Commercial Metals Ltd’s application for summary judgment was largely dismissed by Associate Judge Smith.[1]  Commercial Metals Ltd now appeals against that refusal.[2]

   [1]Mr Wright accepted some liability, albeit for a figure much lower than that being sought.  Judgment was entered for this lesser sum.

   [2]All Metals Trading Ltd v Wright [2014] NZHC 2136.

2. The principles applicable to a summary judgment application are not in dispute and were recently summarised in Sociedad Agricole Topagri Ltda v BBC Technologies Ltd:[3]

   (a)The question on a summary judgment application is whether the defendant has no defence to the claim; that is, that there is no real question to be tried.

   (b)The onus is on the plaintiff, but where the plaintiff’s evidence is sufficient to show that there is no defence, the defendant will have to respond if the application is to be defeated.

   (c)The Court will not normally resolve material conflicts of evidence or assess the credibility of deponents.  But it need not accept uncritically evidence that is inherently lacking in credibility, as for example, where the evidence is inconsistent with undisputed contemporary documents or other statements by the same deponent, or is inherently improbable.

   (d)In the end, the Court’s assessment of the evidence is a matter of judgment.  The Court may take a robust and realistic approach where the facts warrant it.

   (Footnotes omitted).

   [3]Sociedad Agricole Topagri Ltda v BBC Technologies Ltd [2014] NZCA 253 at [9].

3. In dispute in this case is the meaning of the limitation component of a guarantee clause added to the standard Auckland District Law Society agreement to lease.  It is common ground that the limitation was intended to cap Mr Wright’s liability, but the way by which it did this is contested.  The relevant part of the clause reads:

   … the guarantee of Hadley John Wright shall be limited to 12 months rent and outgoings …

4. Commercial Metals Ltd contends this is a quantum cap — Mr Wright’s liability is limited to a sum the equivalent of 12 months’ rent and outgoings.  Mr Wright contends it is a temporal cap — his liability only existed for any defaults occurring in the first 12 months of the lease.

5. The primary contention on which the summary judgment application was based was that the meaning of the words is plain, and if that is accepted, liability cannot be disputed.  It is further submitted that even if resort is had to contextual material, the plain meaning remains the correct interpretation.

6. Resolution of the dispute involves interpreting a clause in a contract.  The correct approach to this task has been considered by the Supreme Court in Vector Gas v Bay of Plenty Energy Ltd and Firm PI 1 Ltd v Zurich Australian Insurance Ltd.[4]  The following passage from Firm PI 1 Ltd sufficiently identifies the applicable principles:

   [60]     Given the issues in the case, it is not necessary that we discuss the approach to contractual interpretation in any detail.  It is sufficient to say that the proper approach is an objective one, the aim being to ascertain “the meaning which the document would convey to a reasonable person having all the background knowledge which would reasonably have been available to the parties in the situation in which they were at the time of the contract.”  This objective meaning is taken to be that which the parties intended.  While there is no conceptual limit on what can be regarded as “background”, it has to be background that a reasonable person would regard as relevant.  Accordingly, the context provided by the contract as a whole and any relevant background informs meaning.

   [61]     The requirement that the reasonable person have all the background knowledge known or reasonably available to the parties is a reflection of the fact that contractual language, like all language, must be interpreted within its overall context, broadly viewed.  Contextual interpretation of contracts has a significant history in New Zealand, although for many years it was restricted to situations of ambiguity.  More recently, however, it has been confirmed that a purposive or contextual interpretation is not dependent on there being an ambiguity in the contractual language. 

   (Footnotes omitted).

   [4]Vector Gas v Bay of Plenty Energy Ltd [2010] NZSC 5, [2010] 2 NZLR 444; Firm PI 1 Ltd v Zurich Australian Insurance Ltd [2014] NZSC 147, [2015] 1 NZLR 432.

7. Concerning the plain meaning, Commercial Metals Ltd emphasises that Mr Wright’s interpretation requires the addition of the words “the first” in order to be credible.  We agree those words, if included, would have made that interpretation plain, but this does not particularly assist the appellant.  One can always redraft so as to make the dispute go away.  It could equally be observed Commercial Metals Ltd requires the addition of “a sum the equivalent of” to make its interpretation beyond dispute.  The task is to interpret the words that were used.

8. We agree with Associate Judge Smith that whilst Commercial Metals Ltd’s interpretation may appear more likely, the other is not untenable.

9. The agreed purpose of the clause was to cap Mr Wright’s liability.  Mr Wright’s suggested interpretation achieves greater certainty than does that of Commercial Metals Ltd, and so in that sense is more consistent with the purpose.  The quantum interpretation advanced by Commercial Metals Ltd extends Mr Wright’s potential liability to the life of the lease, and leaves the quantum subject to variables such as rent reviews and fluctuations in outgoings.

10. There are other matters that suggest the hearing of evidence may be relevant.  An unusual background factor is that the rent and outgoings for the first six months of the lease were to be paid not by the lessee but by a government agency responsible for the lessee having to move premises.  Each side takes support from this.  Commercial Metals Ltd submits it makes it less likely it would take what is effectively just a six month guarantee.  Mr Wright counters by noting that originally the guarantee term was indeed only six months but it was then changed to 12.  He seeks to draw a link between the payment arrangements and this extension.  There is also an issue raised as to Commercial Metals Ltd’s financial situation at the time, and the impact this may have had on its willingness to take a less advantageous guarantee in order to get the premises leased.

11. Finally we note two other items of evidence that Mr Wright will seek to rely on at trial.  The first is evidence from an accountant who was present at the negotiations, and who details, somewhat vaguely at this point, what was allegedly said.  His version of events is favourable to Mr Wright.  Second, there is an email from Commercial Metals Ltd’s lawyer that accompanied one version of the lease.  Its contents arguably assist Mr Wright in that it recorded Commercial Metal Ltd’s understanding of the arrangements in this way:

    1.The lease commencement and condition dates are now 5 October 2010;

    2.        The personal guarantee of Hadley Wright is for 12 months;

    …

    (Emphasis added).

12. On behalf of Commercial Metals Ltd, Mr Dalkie made submissions about the consistent wording of the clause through four iterations of the lease, and the lack of any objection to it.  Consistent with this he emphasises what he claimed was a lack of any documentary support for Mr Wright’s position.  These are points that can be made at the substantive hearing but do not advance the case for summary judgment.  For example, the lack of comment from Mr Wright across the four iterations may just reflect his consistently different understanding of the meaning of the clause.  These are matters for trial.

13. In conclusion, returning to the principles articulated earlier, we are not satisfied that the interpretation of the clause is sufficiently beyond dispute that Mr Wright can have no defence to the claim.  Further there are matters of context that would benefit from the hearing of evidence.  We do not accept the submission of Commercial Metals Ltd that a robust realistic approach is sufficient to set the defendant’s position aside.  The summary judgment application was correctly declined.

Result

1. Subsequent to the High Court hearing, the lessor amalgamated with another company.  Pursuant to s 225(f) of the Companies Act 1993, the proceedings of All Metals Trading Company Ltd may be continued by the amalgamating company.  Without opposition, we make an order substituting Commercial Metals Ltd for the original appellant, All Metals Trading Company Ltd.

2. Essentially for the reasons given by Associate Judge Smith, we dismiss the appeal.  The respondent is entitled to costs for a standard appeal on a band A basis, and usual disbursements.

Solicitors:
Dyer Whitechurch, Auckland for Appellant
Schnauer & Co, Auckland for Respondent