Desmone Limited v University of Auckland Senior Common Room Incorporated HC Auckland Cp231-Sw01

[2002] NZHC 57

IN THE HIGH COURT OF NEW ZEALAND
AUCKLAND REGISTRY CP231-SW01

BETWEEN DESMONE LIMITED
Plaintiff

AND UNIVERSITY OF AUCKLAND SENIOR COMMON ROOM INCORPORATED
Defendant

Hearing: 27-31 August 2001 and 17-18 October 2001

Counsel: E J M Rawnsley for Plaintiff
S J Mills and P J Nevill for Defendant

Judgment: 8 February 2002

JUDGMENT OF RODNEY HANSEN J

Solicitors:
Sellars & Co, DX AA25008, Wellsford for Plaintiff
Chapman Tripp Sheffield Young, DX CP24029, Auckland for Defendant

Introduction

[1] The plaintiff (“Desmone”) has provided food and catering services to the Senior Common Room of the University of Auckland since 1998. The defendant (“SCR”) is an unincorporated society which has responsibility for the management of the facility. In early 2001 it took steps to terminate Desmone’s contract and to evict it from the premises. This followed longstanding dissatisfaction with aspects of Desmone’s performance. Desmone obtained an interim injunction to prevent SCR acting on the notice of termination until its entitlement to terminate had been substantively determined. This judgment concerns that issue.

Background

[2] SCR is the University of Auckland staff club. Membership is open to academic, administrative and general staff of the University. It has been given the right to use Old Government House under a deed with the University of Auckland which owns the property. Old Government House is a venue for relaxation and for access to food and beverages. It also provides a meeting place for the University community. Its facilities include a cafe, sometimes known as the Servery, and a bar called the Buttery. It also has function rooms which are available for hire to members of the University community as well as outside organisations.

[3] Since January 1998 Desmone has provided catering services to SCR under a contract dated 19 November 1997 (“the contract”). Under the contract it is responsible for providing food and beverages in the Servery and has the first right of refusal to cater for functions held in Old Government House.

[4] The contract gives Desmone the right to occupation and use of premises rent-free. They include a commercial kitchen, the Servery and associated equipment and furniture. SCR meets electricity, gas and water charges and is responsible for the maintenance and insurance on kitchen equipment. Desmone is able to use the facilities to prepare food for outside functions in other parts of the University and elsewhere. It also uses part of the premises as its office.

[5] The contract was agreed to commence with effect from 19 January 1998 and to continue for an initial term of three years. Clause 5(a) of the contract went on to provide:

“Thereafter, the Caterer has two further rights of renewal of three years each.”

On 9 October 2000 Desmone gave notice of renewal for a further three years commencing in January 2001. Although dissatisfied with Desmone’s performance under the contract SCR did not object, believing that the contract gave Desmone the unilateral right to extend the contract.

[6] The principals of Desmone are a husband and wife team, Terry and Cindy Austin. They were both actively involved in the administration of the contract although Terry Austin had most of the dealings with SCR and gave evidence on behalf of the company at the hearing.

[7] SCR is run by a committee, headed by its president. It employs staff to deal with day to day operations. The person with overall administrative responsibility is the secretary/manager. At the commencement of the contract the position was held by Christine Brown. She was succeeded by Timothy Biggs. He and Mr Austin were the key figures in the events leading up to this litigation and the principal witnesses on each side.

[8] The relationship between the contracting parties has never been entirely cordial. Over the life of the contract there have been disagreements on a range of issues. There have been recurring expressions of dissatisfaction by SCR with the style and quality of the food provided by Desmone. Other complaints have included Desmone’s claimed failure to follow agreed procedures for booking and catering functions for outside organisations. For its part, Desmone has been critical of SCR’s failure to provide and maintain adequate kitchen facilities. It has also complained of the conduct and competence of SCR personnel with whom Desmone staff were required to work.

[9] At one point, in November 1999, relations deteriorated to the point of each party giving the other formal notice of breach under the contract. These were addressed at a meeting between Mr Austin and senior members of the SCR Committee on 23 December 1999 which both sides felt would lead to a better understanding and an improved working relationship. The record of the meeting includes a commitment by Mr Austin to improve the quality and presentation of food for the lunch service.

[10] For a short time relations improved but, within a matter of months, divisions reappeared. A survey of members by SCR in April/May 2000 revealed considerable discontent with the catering services. Apart from criticisms of the quality of food and service, some members expressed dissatisfaction with the opening hours of the Servery and the lack of food towards the end of the lunchtime period. The results of the survey were passed onto Mr Austin who was upset that he was not advised that the survey was being undertaken or consulted about its terms.

[11] Desmone introduced some changes to its service and proposed others but dissatisfaction remained. There were renewed strains in relations between Mr Austin and Mr Biggs. A meeting between senior members of the SCR Committee and Mr Austin in November 2000 sought to address these difficulties. One outcome was a further survey of members in December which showed an increased level of dissatisfaction among members. A further meeting between Mr Austin and members of the committee failed to resolve differences between the parties. The committee concluded that Desmone had no real commitment to improving its service. Mr Austin felt the committee had been unsympathetic to his grievances, including his call for better facilities, and unresponsive to his suggestions for improving the quality of the fare on offer.

[12] SCR consulted solicitors and on 27 March 2001 gave formal notice requiring Desmone to remedy specified breaches of contract. The breaches alleged were Desmone’s failure to produce and present food to the required standard, to serve food for the required period each day and to obtain SCR’s consent to the preparation of food on the premises for functions elsewhere. The letter specified the steps required to be taken by Desmone to remedy the breaches and gave notice that unless those steps were taken within thirty days, SCR would exercise its right to terminate the contract.

[13] On 23 April Desmone’s counsel wrote enclosing a detailed refutation by Desmone of the alleged breaches. However, it took no steps within the thirty day period to meet the demands of SCR. On 4 May SCR’s solicitors gave notice of termination of the contract, to take effect immediately. SCR proposed introducing new caterers straight away.

[14] Desmone issued proceedings including an application for an interlocutory injunction to restrain SCR from giving effect to its notice of termination. I granted the application on balance of convenience considerations on 23 May. Since then Desmone has continued as catering contractor.

Causes of action

[15] Desmone pleaded two causes of action. The first, as is to be expected, relied on the contract, claiming that there had been no breaches which would entitle SCR to terminate. SCR by its defence and counterclaim asserts that breaches by Desmone of the contractual provisions as to food quality and opening hours entitled it to terminate.

[16] The second cause of action claimed that the notices of breach and of termination were a breach of the Fair Trading Act 1986 (“the Act”). Immediately before the hearing SCR applied to strike out this cause of action. The Courts are normally unsympathetic to an application filed at such a late stage. I was prepared to entertain it because, if successful, it would significantly reduce the scope of the evidence. After hearing submissions, I granted the application for reasons to be given later. It is convenient to incorporate them into this judgment and I do so at this point.

Fair Trading Act cause of action

[17] Mr Mills for the defendant argued that the conduct complained of was not capable of being misleading or deceptive because it contained no representation of past or present fact. Alternatively, he submitted that the plaintiffs could not have been deceived or misled by any such representation.

[18] Although not part of the defendant’s argument, there is a threshold issue as to whether SCR’s actions constituted conduct “in trade” as required by s 9. “Trade” is defined is s 2 as:

“. . . any trade, business, industry, profession, occupation, activity of commerce, or undertaking relating to the supply or acquisition of goods or services or to the disposition or acquisition of any interest in land.”

[19] I doubt that the mere exercise or purported exercise of a legal right can be characterised as an act in trade. The term “in trade” is the principal means of defining the scope of the Fair Trading Act regime. Its underlying purpose is to protect the consumer and to encourage fair and honest dealings in commercial matters. I have difficulty with the notion that the assertion of legal rights, even if it turns out to be ill-founded, should be regarded as conduct in trade. Barker J made much the same point in Malayan Breweries Ltd v Lion Corp Ltd (1988) 4 NZCLC 64,344 when he commented at 64,377:

“. . . a major shareholder in asserting its statutory and equitable rights against a company or complaining about a company to a regulatory agency, is not in any way involved in trade, as to come within the provisions of the Fair Trading Act . . .”

[20] In this case, it may be that entering into the contract was an act in trade, as would be the pre-contractual negotiations of the parties. But the mere exercise of perceived contractual rights as between two parties to a contract is quite different. Those rights may be acquired by actions in trade, and the motivation behind their exercise may be commercial, but the assertion of the rights falls outside the purview of the Fair Trading regime.

[21] Assuming, however, that the conduct was in trade, I proceed to consider the arguments advanced on behalf of SCR. Mr Mills identified the elements of misleading and deceptive conduct from AMP Finance Ltd v Heaven (1997) 8 TCLR 144 (CA) at 152 as:

“[a] The conduct must be capable of being misleading or deceptive;

[b] The plaintiff was in fact misled or deceived; and

[c] It was reasonable for the plaintiff to have been misled or deceived.”

[22] He submitted that in giving notice of the alleged breaches and terminating the contract, SCR was not making any representation of fact. The conduct is therefore objectively incapable of being either misleading or deceptive. In addition, he submitted that the conduct had not misled Desmone.

[23] Conduct will not be misleading or deceptive unless it involves a misrepresentation: Bonz Group Pty Limited v Cooke [1994] 3 NZLR 216 (CA). The misrepresentation may be communicated direct or by clear and necessary implication: Marcol Manufacturers Limited v Commerce Commssion [1991] 2 NZLR 502 at 506. The notice of breach represented that SCR believed Desmone to be in breach in the respects stated. The notice of termination represented that the defendant believed it had the right to terminate. Both notices implied that there were reasonable and substantial grounds to support the belief.

[24] Even if the notices are construed as representations that Desmone was in fact in breach of the contract, they are not capable of being misleading or deceptive. The representations were made solely to Desmone. They purported to state the legal consequences of Desmone’s conduct. As Desmone was in as good a position as SCR to judge the consequences of its conduct, it would be logically impossible for it to be misled by anything that SCR said about it. SCR’s conduct could not therefore have misled Desmone and on that account the plaintiff could not make out a case under the Fair Trading Act.

[25] It follows that Desmone would also have been unable to make out the second element required to prove misleading and deceptive conduct under the Fair Trading Act, namely that it was in fact misled or deceived. By disputing the notice at an early stage, Desmone made it clear it had not been misled into believing that breaches had occurred. Nor could it have been misled by the purported notice of termination which relied on the breaches, the subject of the earlier notice.

[26] Desmone could not have established the critical elements of a claim under s 9 of the Act. That cause of action was therefore struck out.

Right to terminate under the contract

[27] There is a threshold issue as to the scope of the contractual right to terminate. It is convenient to address this first as it affects the question of whether, regardless of whether Desmone was in breach, SCR was entitled to terminate.

[28] This issue requires an examination of cls 5 and 6 of the contract which provide as follows:

“5 TERMS OF AGREEMENT

(a) This agreement shall commence with effect from 19 January 1998 and continue for an initial term of three (3) years. Thereafter, the Caterer has two further rights of renewal of three years each.

(b) If any breach of the Contract is not corrected by the party in breach within 30 days after a notification of the breach, the non-defaulting party may terminate this agreement by notice in writing to the other party.

6 DISPUTES

(a) Should the parties be unable to reach agreement on question of power/gas consumption charges, level of service and plant maintenance or any other matter arising under this contract, a dispute shall be deemed to exist.

(b) In cases where a dispute remains unresolved after fourteen (14) days, both parties shall submit the dispute to arbitration.

(c) The arbitrator shall be appointed by mutual agreement of the parties . . .”

[29] For Desmone it was submitted that cl 5(b) may be invoked only where there is, to use Mr Rawnsley’s words, an “unequivocal breach”. That, he said, is a breach which could not on any reasonable basis be disputed. He submitted that any other alleged breach must be referred to arbitration pursuant to cl 6.

[30] SCR’s position is that cls 5 and 6 operate independently and are intended to serve different purposes. Mr Mills argued that the right to have disputes referred to arbitration pursuant to cl 6 does not prevent either party terminating where there is failure to remedy a breach within thirty days of notice being given. He pointed out that s 5 of the Contractual Remedies Act 1979 permits the parties to a contract to agree what will constitute a basis of termination and how that termination is to be effected. In appropriate cases the contract may provide for termination in the event of a non-repudiatory breach which would not justify cancellation under s 7 of the Act or recission at common law: Cash Handling Systems Limited v Augustus Terrace Developments Limited (1996) 3 NZ ConvC 192,398 at 192,416.

[31] Although, on the face of it, cls 5(b) and 6 stand uneasily together, they can be reconciled and given workable effect without the need to create two classes of breach as Mr Rawnsley’s argument requires. In my view, there is nothing fundamentally inconsistent in the operation of the two provisions. Both can be made to work without doing violence to the plain meaning of the words used. The parties’ obligation to invoke the disputes resolution procedures in cl 6 is not confined by the exercise of the right to terminate in cl 5(b). A party seeking to terminate pending the completion of arbitration procedures under cl 6 would simply have to accept the risk of an adverse finding and a possible claim for repudiation if the disputes procedure is subsequently invoked.

[32] On the other hand, to restrict the operation of cl 5(b) in the way contended on behalf of Desmone, requires introducing words into the contract which simply are not there. There is nothing to suggest the parties contemplated two categories of breach. Moreover, restricting the right to terminate to non-contentious breaches would leave it open to the alleged wrongdoer to obstruct termination procedures simply by claiming that a dispute exists.

[33] Although I do not think there is any ambiguity which requires consideration of extrinsic evidence, I was invited to consider the factual matrix consistent with the principles discussed in Boat Park Limited v Hutchinson [1999] 2 NZLR 74 and Yoshimoto v Canterbury Golf International Limited [2001] 1 NZLR 523. Among the material which can be properly considered is the commercial purpose of the contract and also other facts which were in mutual contemplation of the parties (McLaren v Waikato Regional Counci [1993] 1 NZLR 710 at 725) and evidence which points to the existence of a common assumption as to the effect of the contract or the meaning of a word - Air New Zealand Limited v Nippon Credit Bank Limited [1997] 1 NZLR 218 (CA).

[34] The contract was based on the agreement which SCR had with its former caterer. It gave either party the right to terminate after one year on the giving of two months notice. SCR wanted a similar arrangement with Desmone. It wanted to ensure it could end the relationship if things did not work out. Mr Austin pressed for a longer term with rights of renewal. SCR said that if it were to agree to a lengthy term, there had to be a clear procedure for ending the relationship if problems arose. Mr Austin, for Desmone, suggested the thirty day notice period which would enable SCR to give notice of breach and terminate the contract if the breach was not remedied. He suggested the insertion of a clause - which became cl 5(b) - taken word for word from a catering contract which Desmone had had with another organisation.

[35] SCR accepted the general tenor of his proposal both as to term and the procedure for termination. On this basis, the contract ended up providing for a three year term with Desmone having the unilateral right to extend it for two further periods of three years. Clause 5(b) was introduced. The arbitration clause remained substantially in the form in which it appeared in the earlier contract.

[36] These background facts tell against any interpretation which would cut down the plain meaning of cl 5(b). A right to terminate for any breach was plainly contemplated by both parties. It was never intended to be qualified or confined by the alternative dispute resolution procedure in cl 6.

[37] As it happens, however, neither party suggested a reference to arbitration following SCR giving notice of breach and termination. Desmone issued Court proceedings in order to prevent implementation of the notice of termination. Neither party sought to stay the proceedings pending a reference to arbitration. Both were content for this Court to adjudicate on all issues in dispute including any which may have been amenable to arbitration.

Breach of clause 2(d) - Trading hours

[38] Clause 2(d) of the contract provides as follows:

“2(d) The hours of trade will be flexibly based on and be open Monday to Friday 0900 to 1500 hours (Public and University holidays excepted) but with the provision by arrangement with the Staff Common Room to provide such service for additional hours and days.”

[39] It is accepted that Desmone did not habitually open the Servery between the hours of 9 a.m. to 3 p.m. Mr Austin claimed opening hours were agreed to be 8 a.m. to 2.00 p.m. although often, if requested, customers were served after 2.00 p.m. He contended that there was no contractual obligation to remain open beyond 2.00 p.m. For Desmone it was submitted that cl 2(d) of the contract should not apply to the Servery and that, in any event, there had been discussions both before and after the contract was signed which agreed opening hours at 8.00 to 2.00 p.m.

[40] Mr Rawnsley argued that cl 2(d) was a general provision covering all of the catering activities Desmone was required to undertake. I am unable to accept that submission. The provisions of cl 2 are clearly directed to the operation of the food services for SCR members. Desmone’s rights and responsibilities in respect of catering for other functions are set out in cl 4. Such functions can, in any event, take place at any time. It would make no sense to confine Desmone’s hours of trade to the times set out in cl 2(d).

[41] Alternatively, Mr Rawnsley argued that the contract had been varied by oral agreement to provide for opening hours of 8.00 a.m. to 2.00 p.m. He relied on the evidence of Mr Austin who said that on three occasions he was told by representatives of SCR that opening hours were to be from 8.00 a.m. until 2.00 p.m. According to his evidence-in-chief, the then SCR Secretary, Mrs Christine Brown, said to him in September and again in December 1997 that opening hours would be from 8.00 a.m. to 2.00 p.m. He said he was told the same thing at a meeting with the committee set up by SCR to oversee the engagement of a new caterer. That meeting was said to have taken place later in 1997 before the second discussion with Mrs Brown.

[42] Mrs Brown had no recollection of discussing opening hours with Mr Austin. She denied making any agreement with him. She said that, in any event, she had no authority to bind SCR. That was the function of the committee which was set up specifically to appoint a new caterer and to negotiate the contract.

[43] Professor Patricia Bergquist was the President of SCR at the time and headed the committee. She said that the idea of a 2.00 p.m. closing time was never mooted. The committee wanted the contract to provide for a 3.00 p.m. closing time so that food would continue to be available past the normal lunch period for those who were detained by meetings and other commitments.

[44] I am satisfied that those responsible for appointing Desmone never considered providing for an earlier closing time than that provided for in the written contract. I accept the evidence of the SCR witnesses that it was never suggested the Servery should close at 2.00 p.m. I found both Mrs Brown and Professor Bergquist to be highly credible witnesses. Their accounts make sense. Mr Austin’s does not. There is no apparent reason why the contract would provide for a 3.00 p.m. closing time if the contracting parties had agreed it should be 2.00 p.m. I believe Mr Austin’s recollection to events to be largely shaped by self-interest. It became convenient for Desmone to close at the earlier time and Mr Austin was not prepared to countenance any other view of his contractual obligation.

[45] Even if there were substance to Mr Austin’s version of events, Desmone would face formidable legal obstacles to establish a variation of the written contract. The first two of the three alleged discussions took place before the written contract was entered into. The third was said to have occurred shortly afterwards. Although characterised as a variation of the written contract, Desmone is in substance asserting that the contract did not record the agreement reached by the parties. Even if I had accepted the evidence of Mr Austin, it would not have been admissible to contradict the written contract unless one of the recognised exceptions to the parol evidence rule applied, as to which see Burrows Finn and Todd, Contract Law in New Zealand (1997) para 6.2.1(d).

[46] Notwithstanding the terms of the agreement, the Servery was never routinely kept open until 3.00 p.m. Generally Desmone opened at 8.00 a.m. - an hour earlier than required by the contract - and closed at 2.00 p.m. or soon after. It suited Desmone to be open earlier as staff were present preparing food but it was inconvenient to stay open once the normal lunchtime demand had past.

[47] It appears that SCR did not protest this unilateral action until June 2000 when the results of the first survey of members revealed dissatisfaction about food not being available after 2.00 p.m. Mr Biggs said he raised the question of opening hours with Mr Austin at this time and instructed him to stay open until 3.00 p.m. as required by the contract. Mr Austin flatly denied that the issue of opening hours had ever been raised with him. He maintained there was no agreement to stay open past 2.00 p.m., that there was no demand for food past that time and that SCR were attempting “to create the appearance of a technical breach of the Agreement when none exists”.

[48] I accept Mr Biggs’ evidence that in June 2000 he raised the question of opening hours and instructed Desmone to keep the Servery open until 3.00 p.m. It is clear that opening hours never became a major issue - the subject was not raised again until the second survey disclosed continuing dissatisfaction by members - but it was not contended that SCR acquiesced in the breach or waived compliance with the contractual duty. Despite being told that SCR expected the hours provided for in the contract to be observed, Mr Austin held firm to the view that he was not legally obliged to provide food past 2.00 p.m. and was not prepared to do so. He maintained that stance even after he was given notice to remedy the breach. He did so at his peril. Although the breach may be seen as in a sense technical, it is a breach nonetheless and Desmone must accept the contractual consequences of failing to remedy it.

Breach of clause 2(f) - Food quality

[49] The second of the breaches relied on by SCR to terminate the contract is of cl 2(f) which provides as follows:

“The Caterer acknowledges that in the attempt to continually inject flair, variety and potential profitability in the food service at the Staff Common Room, the following will occur:

(i) not withstanding this advice the Caterer will always ensure that the food selection produced and presented will reflect:

(1) variety

(2) balanced nutrition

(3) value for money

(4) current trends

(5) varying service styles

(ii) prices will be set in consultation with the Staff Common Room Committee but will reflect the variable nature of the business on account of University holidays.

(iii) The Caterer and the Staff Common Room Committee or its delegated representatives) will agree to meet bi-monthly for exchange of information.”

[50] SCR relied on continuing breaches of sub-clauses (i) and (ii). In its notice of breach SCR claimed that Desmone had failed to produce and present food with variety, balanced nutrition, value for money in accordance with current trends and to vary service styles. It further claimed that Desmone had failed to inject flair and variety into the food service. Survey results were referred to and the food described as “old fashioned and of poor quality”. The steps which Desmone was required to take to remedy the breach were:

[a] To bring salads up to the standard commonly found in inner city cafes in Auckland.

[b] To provide food reflecting balanced nutrition. Specific examples were given.

[c] To provide food which reflected continual variety and flair. Again examples were given.

[d] To provide fresh brewed coffee of a high standard and to ensure that food was served hot and properly cooked.

[51] At the heart of SCR’s complaints about the quality of food was the contention that the contractual obligation to reflect current trends introduced a requirement to provide a style and standard of food which would match that offered by inner city cafes in Auckland. Mr Mills relied on evidence that Desmone was engaged expressly on the basis it would replace the cafeteria style of service provided by the incumbent caterer with a modern style of service generally to be found in inner city cafes in Auckland. There were discussions about the type and standard of food the committee had in mind. Members of the committee visited the Shortland Street cafe which Desmone was then operating. The quality of the food and the style of service was found to be just what the committee had in mind. Mr Austin agreed that both parties contemplated the introduction of a lunch service of the standard he was offering at his Shortland Street cafe.

[52] Mr Rawnsley argued that there was no justification for embellishing the written contract by reference to Auckland inner city cafes or any other external standard. He submitted that the words of cl 2(f) were clear and unambiguous and provided the sole standard against which the food service should be judged.

[53] I am satisfied that the criteria set out in cl 2(f) cannot be given their full intended meaning or practical effect without reference to the factual matrix in which the contract was negotiated. The contract gives no indication of the food or style of service which the caterer is required to provide. Without reference to the expectations of the parties, the standards in cl 2(f)(i) do not provide any workable guide to the type and quality of food to be provided. Some of the criteria, such as the requirements for variety, balanced nutrition and value for money, could be met by anything from smorgasbord to silver service. The requirement to reflect current trends, a critical deficiency from SCR’s point of view, has no utility without some understanding of what sort of trends the parties had in mind.

[54] These ambiguities are readily resolved when reference is made to the knowledge available to the parties when the contract was entered into in accordance with the principles laid down in Prenn v Simmonds [1971] 3 All ER 237, Investors Compensation Scheme Limited v West Bromwich Building Society [1998] 1 All ER 98, Boat Park Limited v Hutchinson (supra) and Yoshimoto v Canterbury Golf International Limited (supra). Both parties contemplated an operation which was in the style of, and to be measured against, the standards of the service generally available in inner city cafes in Auckland.

Was there a breach?

[55] SCR called as a witness Ms Phillipa Duncan who has specialist qualifications in food nutrition and food safety. She visited the Servery at Old Government House on six occasions in May, June and July 2001. She reviewed the food available on the day of each visit and sampled a selection of the food on offer. In addition, she visited the kitchen on three occasions after the cafe had closed. Ms Duncan was accompanied on her lunchtime visits by persons associated with SCR and familiar with the food generally on offer. They were able to confirm that the range and standard of food available at the time of her visits was generally in keeping with what had been on offer at the beginning of 2001 and more generally over the period that Desmone had been the SCR caterer.

[56] Ms Duncan was critical of the food and service provided by reference to each of the criteria in cl 2(f)(ii). She said the food lacked variety and gave a number of examples to substantiate this. In her view the food did not provide a nutritional balance. She was particularly critical of the hot food as having a high fat content. She considered the food offered, having regard to the prices charged, to be distinctly substandard. By comparison to the Auckland University Student Association Cafe and another cafe in the locality, she found the SCR cafe to be selling items of lesser quality at an equivalent price to the other establishments. Having regard to Desmone’s lower operational and occupancy costs, she concluded the prices charged to be excessive. Ms Duncan also thought that the SCR cafe did not reflect current trends, both in the quality and the style of food presented. She was critical of the quality of the coffee. She thought the food selection did not look inviting or smell appetising. It was not pleasing with regard to flavour, seasoning or texture. She saw no evidence of thought being given to provide balanced meals and meal options. She concluded that the food lacked variety, flair, balanced nutrition, was out of line with current trends and poor value for money.

[57] Desmone called two witnesses with expertise in the restaurant food services industry. Both took issue with Ms Duncan’s major findings. Mr Martin Harrap visited the cafe on one occasion by arrangement with Mr Austin. He did not taste the food but found it to be well presented, of good quality and of satisfactory nutritional value. He considered the pricing of the food to be “incredibly cheap”, having regard to prices for similar food in the central business district. He was critical of Ms Duncan’s failure to consult with management and to take into account the clientele being serviced who he identified as “largely senior and usually older members of the university staff, and more likely to be conservative in their tastes”. He thought the SCR café was required to cater for a wider range of tastes than inner city cafes and was producing food at “the very bottom of the possible economic range”.

[58] Mr Anthony Adcock visited the cafe twice. He sampled the food on one of those occasions. He thought there was a good variety of food on offer. Although not an expert on nutrition, he thought the selection enabled customers to achieve a balanced diet. In his view, they were getting exceptional value for money, in some cases 45% under market price. He considered the lower occupancy costs enjoyed by Desmone were being passed on to customers. Mr Adcock shared Mr Harrap’s view that SCR customers were generally conservative in their eating habits. He thought that would constrain the caterer’s ability to meet current trends. Generally he was of the view that a better service could not be provided within the current pricing structure.

[59] The divergent views of the expert witnesses reflect their differing areas of expertise and expectations of what the SCR operation required. Mr Adcock and Mr Harrap had had somewhat greater hands-on involvement in the hospitality industry than Ms Duncan but lacked her qualifications and experience as a dietician. She laid down more exacting standards of quality and nutrition than Desmone’s witnesses who based their judgments on their own perception of what the customers wanted. Understandably, in view of Desmone’s position as to its contractual obligations, they did not place great stock on the practises and standards of inner city cafes, preferring to judge the operation on the basis that fundamentally it was providing what the customers wanted.

[60] There was also a striking dissimilarity in the way the experts conducted their investigation. Ms Duncan had much greater exposure to the food on offer. She visited the premises more times than Desmone’s witnesses. She also sampled the food on many more occasions. Mr Harrap relied solely on visual examinations carried out on his single visit and Mr Adcock ate once only. There is no doubt Ms Duncan had a much better opportunity to judge the food on offer. Mr Harrap accepted that, even for experts, the proof of the pudding is in the eating.

[61] I derived greater assistance from Ms Duncan’s evidence, partly because of the more extensive research she undertook, but also because her opinions were more directly related to the standard of service available in inner city cafes. The opinions of Desmone’s expert witnesses owed more to their assessment of what was good value for money than to the quality of service which Desmone contracted to provide.

[62] The question of whether Desmone was in breach of cl 2(f) is not, however, one which can be determined by experts alone. The experience of individual diners who gave evidence for SCR must also be given weight, particularly those like Professor Bergquist and her successor as president, Dr Marcus Wilson, who were involved in the appointment of the caterer and the administration of the catering contract. Their evidence establishes that dissatisfaction with the quality and variety of the food offered at the cafe began soon after Desmone took over the catering contract. As early as February 1998 the SCR Management Committee was fielding complaints about catering standards. These were to recur over the ensuing three years. When complaints were raised with Desmone, there was often an improvement. Usually, however, these were short-lived. Dr Wilson, who I found to be a careful and truthful witness, referred to a pattern of variable performance with improvements in the quality of fare, often following complaints, followed by a return to poor quality service. He said SCR persisted as long as it did with Desmone because there was always a hope that it would meet its concerns.

[63] In November 1999 SCR felt driven to give formal notice of breach of, among others, cl 2(f) of the contract. Mr Austin was said by Mr Biggs to often be belligerent and unresponsive to complaints but on this occasion he gave assurances that he would bring the lunch service up to a professional level of both cooking and presentation. Again there was an improvement but Mr Biggs said quality fell away again and by May 2000 there was a further flow of complaints from members.

[64] Tastes in food are, of course, notoriously subjective. Food consumers are demanding and often fickle. It would be wrong simply to rely on a pattern of complaints or on the opinion of a few individuals. It would also be wrong to be too pernickety about food standards. In a catering business lapses are inevitable. There will be good days and bad days. Desmone’s performance must be assessed in a common sense way and not by reference to a single bad experience or even a few.

[65] Putting together into a composite picture the evidence of the experts, the anecdotal evidence of SCR members and what I was told about the history of the catering contract, I have come to the clear view that, at the time notice of breach was given, Desmone’s lunchtime service fell well below the standard required by the contract. In style, quality and nutritional value, it failed to meet the standards of service generally available in Auckland inner city cafes. The complaints of SCR have proved to be fully justified. The particular breaches relied on have been made out.

[66] Mr Austin did not, of course, accept a contractual obligation to meet the inner city cafe benchmark but by his response to complaints, such as prompted the November 1999 notice, and in his evidence, he accepted the lunchtime service sometimes fell short of even the lesser standard to which he subscribed. He attributed this to SCR’s defaults, however, in failing to provide adequate equipment and facilities and in failing to approve prices and menus which would have achieved the desired improvement in variety and quality of food. It is necessary to examine each of these issues to see whether they provide any legal justification for Desmone’s breach.

Failure to provide adequate equipment and facilities

[67] The alleged failure of SCR to meet its contractual obligations to provide equipment was not pleaded in relation to the contractual cause of action and perhaps for this reason was not really pressed by Mr Rawnsley in closing. However, as it was at the forefront of Mr Austin’s evidence, I prefer to dispose of it on its merits.

[68] Under the contract SCR undertook to provide and maintain in good repair specified kitchen equipment and dining room furniture and furnishings. Mr Austin said that from the outset there were problems with the kitchen and Servery equipment which frustrated his attempts to achieve a high quality of food and service. He claimed the equipment to be obsolete, unsuitable, in poor condition and prone to breakdown.

[69] There is no doubt there were defects in some of the equipment and breakdowns which from time to time affected Desmone’s ability to perform. But I am satisfied that these did not cause or contribute in any material way to the breaches of cl 2(f). Any major breakdowns were repaired within a reasonable time of their occurring. It was not suggested that any of the equipment was not functioning at the material times in 2001 including the period during which the experts visited the premises. Significantly, the equipment did not prevent Desmone achieving consistently high standards in its catering for functions, the food for which was prepared in the SCR kitchen. There was high praise for the way Desmone carried out its catering functions, even from those who were critical of the lunchtime fare.

[70] In any event, Desmone was free to provide further or replacement equipment if it saw the need. Clause 4(d) of the contract makes clear that Desmone could use its own equipment. In fact, Mr Austin offered to do so even before the contract was signed. I do not accept his evidence that the offer was declined by the committee.

[71] SCR witnesses spoke of Mr Austin’s tendency to respond to complaints by complaining about the equipment. This may well have deflected him from addressing SCR’s concerns on their merits.

Failure to approve prices and menus

[72] Clause 2(f)(ii) provides:

“Prices will be set in consultation with the Staff Common Room Committee but will reflect the variable nature of the business on account of University holidays.”

There was therefore a contractual obligation to consult on prices for food although not on menus. However, in giving notice of breach to Desmone in November 1999 SCR had purported to extend the requirement to consult to menus. The letter stated in part:

“Desmone is required to comply with cl 2(f) including, but without limiting Desmone’s obligations, the provision of current menus in consultation with the SCR Committee or its delegated representative(s) immediately in respect of the menus.”

[73] Mr Rawnsley submitted that this created a bona fide belief on the part of Mr Austin that he could not introduce new menus without the approval of SCR and that over a lengthy period prior to notice of breach being given SCR had failed to approve or to permit consultation to take place on proposed new menus. He contended this constituted a breach by SCR of an interdependent obligation which denied it the right to terminate or of an implied obligation not to prevent the other party from performing its contractual obligation. In short, it was submitted that if SCR had approved the new menus proposed by Desmone, it would have met the higher contractual standard for food.

[74] The new menus referred to comprise some suggestions for new food lines and prices in a letter from Desmone dated 15 March 2000 and suggested a la carte and breakfast menus enclosed with a letter of 14 June 2000. Copies of the menus were sent again on 20 November 2000. Mr Austin says these letters were sent or handed to Mr Biggs. Mr Biggs denies having received them. He denies also receiving the full text of a letter dated 5 December 2000. The version he says he received omitted a reference to the menus said to have been earlier provided. The same dispute arises over a fifth letter dated 5 March 2001 from Mr Austin to Mr Biggs which encloses and refers to the two menus.

[75] Mr Biggs acknowledges he was handed a copy of the proposed a la carte menu in November 2000 which he distributed to Committee members in April 2001. He is adamant he did not receive any of the other correspondence.

[76] For SCR Mr Mills submitted the five letters claimed to have been sent by Mr Austin (in the case of the 5 December 2000 letter, the particular version Desmone relies on) were concocted at a later date in an attempt to show that Mr Austin’s efforts to introduce new menus had been ignored and frustrated by SCR. There is the less likely possibility that the letters were written at the time but never sent. Whatever the explanation, I am required to determine whether or not those letters were received by Mr Biggs.

[77] I am satisfied that they were not. I found Mr Biggs to be a credible witness. His employers spoke highly of him. They commended him for his efficiency. In particular, he was said to be meticulous in referring any important correspondence to the committee. There seems to be no reason why he would have chosen to keep letters of this importance from the committee. On their face they indicated a genuine desire on the part of Desmone to meet one of SCR’s key concerns.

[78] Mr Austin, on the other hand, has shown himself to be seriously lacking in scruples when it comes to protecting his personal interests. He admitted opening and keeping a letter to Mr Biggs from an SCR member which advocated legal action to terminate the contract with Desmone. He was shown to my satisfaction to have falsely claimed to have sent a self-serving letter to Dr Wilson in November 1999 when termination was threatened. He claims he handed that letter to Mr Biggs also. I am satisfied that is not true. I accept Dr Wilson’s evidence that at the subsequent meeting on 23 December 1999 he asked Mr Austin why he had not written in response to the letter giving notice of breach. Mr Austin made no reference to the letter, referring instead to a phone call he made in response. A note of the meeting corroborates Dr Wilson’s evidence. I reject Mr Austin’s contrary account.

[79] There are oddities and incongruities about the five letters in issue which were never satisfactorily explained. The letter of 14 June 2000 refers to the results of the first survey but, according to Mr Biggs, those results were not given to Mr Austin until five days later. The June letter was said to have enclosed a quite separate undated letter referring to, among other things, “the previous survey”. Mr Austin initially claimed the enclosed letter to have been included with his letter of 15 March. When the reference to the survey was pointed out to him, he retracted that evidence. It was not explained why it should have been included with the 14 June letter. Its date of origin and authenticity remains a mystery.

[80] I find it difficult to understand why, if these letters had been sent with the genuine intention that they be acted on, Mr Austin did not follow up the lack of response with a member of the committee. He had meetings with representatives of the committee on 30 November and 21 December 2000. There was a near verbatim record kept of the first meeting. Mr Austin claims he asked for feedback on the proposed a la carte and breakfast menus at that meeting but that is not how he was understood by Professor Bergquist who was present, nor what is suggested by the record which was made. The record refers to “feedback on how the new menu is perceived by members”, followed by the words in brackets “okay, will send out questionnaires”. I believe the reference to “the new menu” is to changes which had been introduced shortly before, including a blackboard menu of specials. Those present agreed to a further survey being carried out to test reaction to the changes. This is an unlikely outcome if, as Mr Austin would have it, the discussion had been about menus yet to be introduced. There is no dispute that the question of alternative menus was not raised at the 21 December meeting despite a wide-ranging discussion on many aspects of the catering contract.

[81] In response to the notice of breach sent in March 2001, Mr Rawnsley sent SCR’s solicitors a detailed letter of refutation. Twelve points were made in relation to the alleged breach of cl 2(f). The last referred to the proposed a la carte menu given to Mr Biggs. There were no mention of the series of letters and menus said to have been sent beginning in March 2000. I find this a curious omission. I would have expected the claimed failure of SCR to respond to those proposals to have featured prominently in Desmone’s response.

[82] Following the completion of evidence, Mr Rawnsley sought leave to recall Mr Austin to produce a computer disc for the purpose of establishing that the letters which Mr Biggs had disputed receiving had been generated on or about the dates they were claimed to have been sent. I was informed that shortly before the resumed hearing SCR had been given access to the disc pursuant to a request made by its solicitors after the hearing was adjourned part-heard. I was told that SCR had been unable to obtain any intelligible information on the issue. I declined the application for Mr Austin to be recalled for reasons which I summarise as follows:

[a] The question of the authenticity of the letters had been in issue since Mr Biggs gave evidence at the beginning of the trial.

[b] Mr Austin had been cross-examined on the issue the previous day and had said he was unable to access the letters in his computer because of a virus.

[c] It was apparent that Mr Austin’s evidence alone would not be determinative of the issue. Expert evidence from both sides would be necessary. That would result in significant further delays.

[d] Even if the evidence established that the letters had been generated at the time they were dated, it would not have affected my finding that they were not handed to Mr Biggs.

[83] The history of the dealings between the parties shows that the committee was ever willing to discuss catering issues with Mr Austin. There is no doubt that communications were hampered by his poor relationship with Mr Biggs. I attribute that largely to Mr Austin’s resistance to working within the administrative structure which Mr Biggs attempted to introduce on his appointment. Professor Bergquist saw Mr Austin as undermining, unresponsive and deceptive. Despite that, the door to the committee room was always open.

[84] I am satisfied that any genuine and committed attempt by Mr Austin to improve and innovate would have been willingly facilitated by the committee. I am also satisfied that an increase in prices would not have been an obstacle. I accept Dr Wilson’s evidence that, subject to the availability of a low price meal option, Desmone was not constrained by pricing considerations. That was shown by its later decision to introduce the a la carte menu without approval.

Conclusion under clause 2(f)

[85] I believe the changes belatedly proposed by Desmone by way of the a la carte menu would not, in any event, have been any more than a palliative. I think continuing dissatisfaction with food quality would have been inevitable. There was nothing in the evidence of Desmone to persuade me that its past patterns of conduct would change. Desmone had persistently failed to heed the legitimate concerns of SCR over food style and quality. Mr Austin had adopted a high-handed and confrontational approach to a contract which depended for its success on a high level of cooperation and goodwill between the parties. He may have felt free to disregard the grievances of SCR because of the highly advantageous terms of the contract he had negotiated. It may also be, as Mr Mills suggested, that Mr Austin decided to put greater efforts into the more profitable catering side of the business and gave low priority to the lunchtime service. Whatever the reasons, there were persistent and substantial shortfalls in the service provided by Desmone which fully justified termination of the contract.

Result

[86] [a] Desmone’s claim for injunctive and other relief is dismissed.

[b] The order made on 23 May 2001 restraining SCR from evicting Desmone from the premises occupied by it at Old Government House and from taking any further steps to give effect to the cancellation of the contract is discharged.

[c] I make declarations as sought by SCR that:

[i] Desmone has breached cls 2(d) and 2(f) of the contract.

[ii] The contract has been validly cancelled.

[iii] The notice dated 4 May 2001 requiring Desmone to quit the premises is lawful.

Costs

[87] SCR is entitled to costs. If the parties are unable to agree, I will consider memoranda filed by SCR within twenty-one days and by Desmone with a further fourteen days.