Dysart Timbers Ltd v Nielsen

[2008] NZCA 280

For a Court ready (fee required) version please follow this link

IN THE COURT OF APPEAL OF NEW ZEALAND

CA630/07
[2008] NZCA 280

BETWEENRODERICK WILLIAM NIELSEN

Appellant

ANDDYSART TIMBERS LIMITED

Respondent

Hearing:3 July 2008

Court:William Young  P, Arnold and Baragwanath JJ

Counsel:S P Bryers for Appellant

C F L Godinet for Respondent

Judgment:5 August 2008 at 2.30 pm

JUDGMENT OF THE COURT

A        The appeal is dismissed.

BThe appellant is to pay the respondent costs for a standard appeal on a band A basis and usual disbursements.

____________________________________________________________________

REASONS OF THE COURT

(Given by William Young P)

Background

[1]       Dysart Timbers Ltd sued Roderick William Nielsen and his brother Gregory Nielsen in relation to guarantee liabilities.  This claim came before Ellen France J who found for the Nielsens.  On a subsequent appeal by Dysart Timbers, this Court allowed the appeal and entered judgment for Dysart Timbers against the Nielsens for a total, inclusive of interest and costs, of $314,867.02.

[2]       On 13 July 2007, the Nielsens applied for leave to appeal to the Supreme Court.  On 6 August 2007, Dysart Timbers filed its submissions opposing leave and took a rather technical point that the leave application had not been served in a timely way at the address for service given by Dysart Timbers.  We say “rather technical” because the application had been served on counsel who had appeared for Dysart Timbers in this Court.  The company also commenced bankruptcy proceedings against the Nielsens.

[3]       The critical events in this case all took place on 9 August 2007.  At that stage the parties’ solicitors did not expect a decision on the leave application: they anticipated that the Nielsens would be required to apply formally for an extension of time.

[4]       At 9.23 am Mr Andrew Swan, the Nielsens’ solicitor, sent an email to Mr John Ropati, Dysart Timbers’ solicitor.  The subject matter of the email was:

Re: Dysarts v Rod & Greg Nielsen

The text of the email was as follows:

John,

“Without prejudice”

I have been instructed to put forward an offer of $250,000 in full and final settlement of the above matter. The sum can be paid on Monday at which time the leave application to the Supreme Court will be discontinued.

Can you please take urgent instructions.

Regards,

Andrew Swan

[5]       At 12.30 pm that day, the Supreme Court emailed its judgment on the leave application to the solicitors and counsel on both sides.  The judgment extended time for applying for leave and granted leave to appeal. 

[6]       At 1.12 pm Mr Ropati sent an email to Mr Swan:

Andrew

My client advises that it would be prepared to accept the payment of $250,000 in full and final settlement of this matter. 

Payment to be made on Monday 13 August 2007.

John Ropati

[7]       At 2.38 pm Mr Swan wrote back to Mr Ropati again by email:

… As a result [of the Supreme Court judgment] the condition on which the offer was made, namely that my client would withdraw the leave application, is no longer possible. Further, the offer was, of course subject to an implied term that leave application would be withdrawn before the Supreme Court made any decision in respect of the application. As the implied term has been broken prior to your client’s purported acceptance, the offer is now not capable of acceptance…

The proceedings in the High Court

[8]       This disagreement over whether the case had been settled resulted in a further hearing in the High Court on 31 October 2007 and a very promptly delivered judgment of Priestley J of 1 November 2007.  At the time of the hearing, the appeal had been granted a fixture in the Supreme Court and was to be heard on 4 December 2007, subject to the outcome of the case before Priestley J.

[9]       The competing arguments before Priestley J were simple enough.  Dysart Timbers maintained that the settlement offered was referable to the dispute between itself and the Nielsens and proposed that the dispute would be compromised by a payment of $250,000 to be made on the following Monday, 13 August 2007.  The reference to the leave application was merely a reference to what would be a necessary corollary of the case being settled.  Dysart Timbers accordingly contended that the offer remained capable of acceptance after the leave judgment became available.

[10]     The Nielsens, on the other hand, maintained that the discontinuance of the leave application was a fundamental part of the offer and that it was in any event implicit in the offer that it would lapse if leave to appeal were granted prior to acceptance. 

[11]     In the High Court Priestley J resolved the dispute in favour of Dysart Timbers.  He saw Mr Swan’s email as an unequivocal offer to settle all outstanding issues between the parties comprehensively by a payment of $250,000 on 13 August 2007.  He accepted that the granting of leave by the Supreme Court did to some extent change the balance of advantage between the parties but considered that this was not of controlling significance:

[31]     I do not consider that Mr Swan’s inclusion in his settlement offer of [the] words “at which time [payment of the settlement figure on Monday] the leave application will be discontinued” can fairly be construed as an express term of the settlement offer.  Mr Godinet is correct to construe those words as a mere statement of the consequence of the offer being accepted or a machinery provision.  The settlement offer was a comprehensive settlement offer.  It was not an offer expressly conditional on the leave application remaining afoot and being undetermined.

[32]     I test that conclusion by a hypothetical factual scenario.  Assume that the emails of Messrs Swan and Ropati were exchanged in identical terms but the Supreme Court’s leave judgment had arrived 3 days later, on the Monday, 2 hours before settlement was to take place.  In that situation I do not consider it could seriously be contended that the parties’ concluded settlement agreement was no longer binding because the leave application had been determined by the Supreme Court and could no longer be discontinued.  Faced with that situation, in my judgment, the concluded settlement would oblige the Nielsens to abandon their substantive appeal to the Supreme Court.

[12]     He then dealt with an alternative submission in this way:

[33]     The second and more subtle limb to Mr Bryers’ submission is that the context of Mr Swan’s settlement offer justifies the incorporation of an implied term that the offer would automatically lapse if leave to appeal was granted by the Supreme Court prior to acceptance.  Mr Bryers’ alternative implied term was that the offer was conditional on the leave application being withdrawn prior to the Supreme Court determining it.

[34]     I disagree with the submission.  The subject matter of Mr Swan’s offer was the global dispute between the parties.  There were (supra [8]) a number of components of that dispute.  Mr Swan was aware the leave application was pending, opposed, and undetermined.  The Nielsens’ offer was clear and unambiguous.  It was not expressly tied to either the leave application or its result.  Had Mr Swan wanted to place a temporal restriction on his settlement offer, leaving it open for acceptance up to the time of the Supreme Court’s leave judgment but not beyond, then the offer could have been expressed in those terms.  If the arrival of the Supreme Court’s judgment (which I infer was unexpected) on 9 August altered the Nielsens’ perception of their situation then their appropriate course of action would have been to withdraw their offer, thus removing the risk of it being accepted.  This they failed to do.

[13]     Then he wrapped up his reasons in this way:

[40]     What is at issue here is whether the Nielsens’ settlement offer, proposed by Mr Swan and accepted by Mr Ropati on behalf of Dysart, became incapable of acceptance on the arrival of the Supreme Court’s judgment.  The offer was not withdrawn.  The express reference to discontinuing the leave application was not, for the reasons I have stated, an integral part of the settlement offer.  Nor, for the reasons stated, do I consider that an implied term should be incorporated to limit the settlement offer in the manner proposed by Mr Bryers.  I consider there is a concluded settlement between the parties, binding on both of them, which obliges the Nielsens to pay $250,000 to Dysart in full and final settlement of all outstanding matters, including the pending substantive appeal to the Supreme Court.

Our evaluation

[14]     The arguments presented to us were broadly similar to those which were in issue in the High Court.  Mr Bryers primarily relied on the second of the two arguments addressed to Priestly J.  In his submission, the reference to the discontinuance of the leave application in the email supported the contention that the offer was subject to the application not having been determined before acceptance.  He went as far as to describe the emailed acceptance as an ambush.

[15]     We agree with Priestley J, for the reasons which he gave, that discontinuance of the leave application was not a fundamental part of the contract of settlement that was proposed by the Nielsens.  As Priestley J noted, if acceptance of the offer had been followed by a grant (or dismissal) of leave prior to the time fixed for payment, there would still have been a concluded settlement.  In oral argument before us, Mr Bryers accepted that in these circumstances the contract would not be frustrated but contended that this was not determinative of the present case which turns on whether the offer remained open for acceptance.

[16]     This brings us on to the second of the two arguments identified by Priestley J, an argument which has caused us more difficulty.

[17]     In the ordinary course of events, Dysart Timbers would not have accepted the offer if the leave decision had gone the other way.  We qualify this by the phrase “in the ordinary course of events” because, conceivably, the offer might have been accepted despite a refusal of leave if, by some accident, Mr Ropati had not been aware of that refusal.  If this had happened, there would, we think, be no contract because the offer of settlement presupposed a continuing legal issue as to liability.  The conclusion that it would have lapsed on dismissal of the application for leave follows from the judgments which we are about to mention.

[18]     Krupp Handel GmbH v Intermare Transport GmbH [1986] Lloyd’s LR 176 (QB) concerned an arbitration between the owners and charterers of a ship. Primarily in issue was responsibility for the ship having collided with a wreck. There were also secondary issues as to the extent of the deductions which the charterers had made from the contractually agreed hire charges. At the end of the first day of the two-week arbitration hearing, the charterers had offered to settle the entire dispute. The time set aside for the arbitration proved to be only sufficient to address the primary issue, which was resolved in favour of the charterers. The owners then (over three months later) purported to accept the offer. Bingham J held that no concluded contract had resulted. He found that the offer was addressed to a settlement of the whole dispute and therefore lapsed when the primary issue had been resolved.

[19]     Krupp emphasises the need for a contextual analysis of the circumstances associated with the offer.  In that case, an offer made in one context (prior to determination of the primary issue between the parties) was accepted in another (after the offeree had, in substance, lost the case).  Although there remained some loose ends to be resolved between the parties, the difference between the two contexts was fundamental.  Also relevant was that the offer had been made for costs purposes, effectively on a Calderbank basis, a purpose which became spent when the charterers won on the primary issue.  Further, there had been a substantial delay between the making of the offer and its purported acceptance and Bingham J was able to hold, as an alternative basis for his conclusion in favour of the charterers, that the offer had lapsed as it was not accepted within a reasonable time.  In this case, the charterers could not be taken sensibly to have intended that their offer could be accepted after the primary issue had been determined in their favour.

[20]     Issues of construction and the associated need to impute an intention to the drafter of a document raise particular difficulties where the problem which later arises was not anticipated by the drafter.  This is the situation here as Mr Swan did not anticipate a judgment on the leave application prior to the resolution of the extension of time issue.  This might be taken to suggest that the offer should be confined to the circumstances which he did have in mind (involving unresolved leave and extension of time applications).  Such an approach, however, would be simplistic because it does not pay regard to the significance or otherwise of the change brought about by the grant of leave.  And there is a countervailing argument that since the granting of leave was not anticipated, it is unreal to read into the offer a condition that it lapse if leave were granted prior to acceptance.  We therefore do not see Krupp as being of great assistance to the Nielsens on this appeal.

[21]     There are a number of Scottish cases in which settlement offers have been held to lapse where, prior to acceptance, there has been a material change in the circumstances associated with the underlying litigation, see for instance Macrae v Edinburgh Street Tramways Co (1885) 13 R 265 (Ct of Sess) (where the claimant accepted a settlement offer only after it became clear that he had been awarded less), Bright v Low 1940 SC 280 (where a settlement offer made before trial was accepted by the claimant after the delivery of judgment under which she had been awarded less than had been offered) and Somerville v National Coal Board 1963 SC 666 (where an offer made before the death of the plaintiff in personal injury litigation was accepted after the plaintiff’s death – a death which extinguished the claim for loss of future earnings).

[22]     With all due respect to losing counsel in these cases, the results seem reasonably obvious.  In each case the offer was intended to settle an entire controversy between the parties.  In each case the offer was not accepted until either the controversy had been completely or substantially resolved by arbitral or judicial determination, or in Somerville by the death of the plaintiff, which rendered unrecoverable what must have been a substantial portion of the claim which was the subject of the settlement offer. 

[23]     The Scottish cases stand for the proposition that where there is a “material” or an “important” change in circumstances after an offer is made, the offer is to be regarded as lapsing.  This was explained in Macrae by Lord President Inglis in this way (at 269):

It may, in my opinion, as a general rule in the law of offer and acceptance, be stated that, when an offer is made without a limit of time being stated within which it must be accepted, it may become inoperative by reason of any important change of circumstances, without any formal withdrawal of the offer being made.  It may have been made in such circumstances as to be a reasonable offer as between both parties, but after it is made circumstances may so alter as to make it utterly unsuitable and absurd, and I do not suppose that it can be disputed that when the change of circumstances is so important the offer would not remain binding.

[24]     Conceivably Macrae, Bright v Low and Somerville represent a peculiarity of the Scottish law of contract under which material change of circumstance is recognised as a particular basis upon which an offer may lapse, see for instance McBryde The Law of Contract in Scotland (3ed 2007) at [6-62] – [6-65]).  In Krupp, as we have noted, Bingham J decided the case primarily on the construction of the language used in the settlement offer.  We are inclined to think, however, that there is not necessarily a difference between the two approaches.  Obviously an offer lapses if something happens which, on the true construction of the offer, is a terminating event.  And obviously as well, it is not difficult to imply into an offer a condition that it lapse on the occurrence of a change of circumstances which, in the language of Lord President Inglis, “make[s] it utterly unsuitable and absurd”. 

[25]     What does not emerge so clearly from the cases is the significance of a change of circumstances that is material (in the sense of making the offer more favourable from the point of view of the offeree) but not of the order of magnitude postulated by Lord President Inglis.

[26]     In approaching this question, we take the view that:

(a)The existence of a contract must be determined objectively;

(b)An offer remains capable of acceptance unless, on its true construction, it has lapsed;

(c)An offer will usually be subject to an implied condition that it lapse if there is a change of circumstances of such significance that it cannot fairly be regarded as still open for acceptance.

[27]     In applying this approach to the present case, we must allow for the reality that there are many circumstances which may affect the desirability (from the point of view of the offeree) of a particular settlement offer.  A withdrawal of legal aid may be the critical factor that induces acceptance by an impecunious plaintiff of an offer of settlement which would otherwise have been rejected.  An order to provide security for costs might have a similar effect.  The same is true of events which are external to the litigation.  The financial pressure a plaintiff is under from third parties or the financial circumstances of the defendant (in particular as to whether the defendant would be able to meet a judgment) may all be influential factors in terms of the willingness of one or other of the parties to settle a dispute at a particular figure.

[28]     We accept that the balance of advantage between Dysart Timbers and the Nielsens at the time the offer was accepted was more favourable to the Nielsens than it had been at the time the offer was made.  But the difference was not nearly as fundamental as those in Krupp and the Scottish cases.  The dispute between Dysart Timbers and the Nielsens remained unresolved.  There was thus still something to settle and the Nielsens were paying less than the judgment awarded against them in this Court.  When the Nielsens were granted leave to appeal that undoubtedly improved their position.  But the “worth” of Dysart Timbers’ judgment against the Nielsens might be thought to have largely depended on its underlying merit (or lack of merit) which in turn was material to the decision of the Supreme Court to grant leave to appeal.

[29]     We have come to the conclusion that Priestley J was right.  In particular we conclude:

(a)Once it is accepted that the reference to the discontinuance of the leave application is simply a reference to the consequence of the offer being accepted rather than part of the offer, the language of the offer cannot be construed as containing a terminating condition as to lapse in the event that leave to appeal were granted prior to acceptance; and

(b)The change of circumstances brought about by the grant of leave was insufficiently material to justify the conclusion that the offer lapsed given that the underlying dispute remained fully alive.

[30]     Although we regard the issue between the parties as depending on an objective assessment of the circumstances, it is worthy of note that when leave to appeal was granted, Mr Swan could have revoked the offer but choose not to do so pending receipt of instructions from his client.  This suggests that the asserted inapplicability of the offer to the circumstances as they obtained after leave was granted was not so obvious at the time as it is now said to be.

Disposition

[31]     The appeal is dismissed.  The appellant is to pay the respondent costs for a standard appeal on a band A basis and usual disbursements.

Solicitors:
Ross & Whitney, Auckland for Appellant
John Ropati, Auckland for Respondent