Gibson v Mobil Oil New Zealand Limited
[2018] NZHC 41
•1 February 2018
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE
CIV-2017-404-001758
[2018] NZHC 41
BETWEEN BRENDON JAMES GIBSON AND GRANT ROBERT GRAHAM
Applicants
AND
MOBIL OIL NEW ZEALAND LIMITED
First Respondent
ANZ BANK NEW ZEALAND LIMITED, BANK OF NEW ZEALAND,
COMMONWEALTH BANK OF AUSTRALIA, WESTPAC NEWZEALAND LIMITED and DEUTSCHE BANK AG
Second Respondents
SOLID ENERGY NEW ZEALAND LIMITED (SUBJECT TO Deed of
Company Arrangement) Third Respondent
Hearing: 21 November 2017 (on papers) Appearances:
R B Stewart QC, L A OʼGorman and A L Harlowe for Applicants
J D Every-Palmer QC and J L W Wass for First Respondent D R Kalderimis for Second Respondents
J C Caird for Third Respondent
Judgment:
1 February 2018
JUDGMENT OF ASSOCIATE JUDGE J P DOOGUE
This judgment was delivered by me on
01.02.18 at 3.30 pm, pursuant to Rule 11.5 of the High Court Rules. Registrar/Deputy Registrar
GIBSON AND Anor v MOBIL OIL NEW ZEALAND LIMITED & Ors [2018] NZHC 41 [1 February 2018]
Background
[1] The applicants, Messrs Gibson and Graham, seek directions under s 239ADR of the Companies Act 1993 (“the Act”) as administrators of the Solid Energy group of companies. They wish to clarify the proper interpretation of part 11 of a deed of company arrangement (“DOCA”) of creditors entered into on 17 September 2015.
[2] Specifically, the issue is whether Mobil Oil New Zealand Limited, the first respondent, is entitled to receive catch-up payments as a contingent creditor pursuant to cl 11.11 of the DOCA. This is because Mobil’s claims have crystallised after 13 August 2015 (“the Restructuring Effective Date”) and Mobil has been entered onto the Participant Creditors Schedule.
[3] Mobil seeks these catch-up payments in respect of the period prior to being entered onto the Participant Creditors Schedule. It wants these payments to be made ahead of further distributions to other participant creditors. The administrators disagree. They take the view that, pursuant to cl 11.6 of the DOCA, contingent creditors have no entitlement to receive payments (including retrospective catch-up payments) for any period prior to being entered onto the Participant Creditors Schedule.
[4] The background to this dispute is set out in the submissions made for the second respondents by Mr Kalderimis and Ms Yesberg. Those submissions, in turn, referred to the fact that the description of the background to Solid Energy’s voluntary administration was summarised in Cargill International SA v Solid Energy New Zealand Ltd.1
[5] Briefly, Solid Energy’s financial deterioration began in early 2013, due in large part to falling international coal prices and a high New Zealand dollar. In late 2014, following a series of failed restructuring attempts, Solid Energy sought further support from the lenders and the Crown.
1 Cargill International SA v Solid Energy New Zealand Ltd [2016] NZHC 1817 at [6]-[9].
[6] DOCA negotiations began in early 2015 between Solid Energy, the Crown and the lenders. The administrators were at that stage engaged as monitoring accountants for the lenders and the Crown. The negotiations were challenging and complex: the Crown had made it clear that it would not provide further financial support to Solid Energy; Solid Energy’s directors were concerned about personal liability risk; and the lenders were not prepared to compromise their debt again (they had already done so under a part 14 compromise in 2013), unless the burden was shared with other creditors. In these circumstances, it was not at all clear that the parties could reach an agreement. Mobil was not a party to these negotiations.
[7] Ultimately, a preliminary deal was struck. Solid Energy was placed into voluntary administration on 13 August 2015, and the draft DOCA was circulated to creditors that day. Solid Energy and the administrators continued to negotiate with large trade creditors to secure support for the DOCA. On 17 September 2015, the DOCA was approved at a watershed meeting of creditors.
[8] Claims for both trading creditors and participant creditors were regulated by entry onto schedules. Here, the relevant schedule is the Participant Creditors Schedule. On 17 September 2015, Mobil’s contingent creditor claim was entered onto the original Participant Creditors Schedule, with the notation that the amount of its contingent claim was “[s]ubject to determination in accordance with clause 11.6 of the DOCA”.
[9] Mobil’s claims, arising as a consequence of Solid Energy’s failure to purchase any minimum-contracted volumes under any supply arrangements, were included within the definition of participant creditor claim. Further discussion of the nature of Mobil’s claim is set out in the “Discussion” section of this judgment. It is sufficient to note that under the contract Solid Energy was required to take minimum amounts of fuel and if it did not it agreed to pay compensation. The compensation was to be determined by means of a term in the contract which entitled Mobil to liquidated damages. However, the date when that was to occur was some time after the date when creditors generally were required to lodge their claims with the administrators. The DOCA, on the other hand, specifically envisaged that the Mobil claim would not “crystallise” in the sense that an entitlement to liquidated damages would not accrue
until some time after the creditors’ claims generally were required to be sent to the administrators.
[10] The payment of participant creditor claims is governed by cl 6.6 of the DOCA. By cl 6.6(b), where a participant creditor claim crystallises as an actual debt or claim during the Deed Period, the relevant participant creditor shall promptly submit a claim to the administrators, who then admit and determine the claim in accordance with cl 11.
[11] Mobil’s contingent claim crystallised in May 2017. The administrators admitted the claim on 16 May 2017 and the Participant Creditors Schedule was amended on 19 May 2017 to assign a crystallised value of $3,617,550.34 to Mobil’s claim.
[12] The argument in this case brings into focus three key parts of the DOCA: cls 11.6, 11.8 and 11.11.
Relevant provisions of the DOCA
[13] At this point of the judgment reference will be made to some of the key provisions of cl 11.0.
[14]Clause 11.6 provides as follows:
11.6Crystallisation of Participant Creditor Claims
In accordance with clause 6.6(b) (Participant Creditors) and 9.4(b) (Termination of agreements with Secured Creditors), where a Participant Creditor Claim crystallises as an actual debt or claim following the Restructuring Effective Date, then the relevant Participant Creditor shall promptly submit a Claim to the Deed Administrator for admission and determination of the Claim as a Participant Creditor Claim by the Deed Administrator. For the avoidance of any doubt:
(a)any such Claim shall be determined in accordance with this clause 11 (Proof and Admission of Claims);
(b)any such Claim is not a late Claim to which clauses 11.8 (Late entry of Claims) and 11.9 (Payment of late Claims) applies;
(c)the relevant Participant Creditor shall be entitled to payments in respect of such Claim as a Participant Creditor under the Restructuring Documents only from the date on which the Deed Administrators enter the Claim on the Participant Creditors Schedule; and
(d)the relevant Participant Creditor shall have no entitlement to any payments paid to the Participant Creditors prior to the date on which the Deed Administrators enter the Claim on the Participant Creditors Schedule.
[15] Clauses 11.7, 11.8, 11.9 and 11.10 read:
11.7Amendment of Claims
The Deed Administrators shall enter a Claim by a Creditor on either the Trading Creditors Schedule or the Participant Creditors Schedule in accordance with their determination or, as appropriate, amend the Trading Creditors Schedule or the Participant Creditors Schedule in accordance with any such order of a Court as the case requires. If the Trading Creditors Schedule or the Participant Creditors Schedule is amended at any time, any affected Creditor will be a Trading Creditor or a Participant Creditor to the extent of its amended Claim.
11.8Late entry of Claims
The Deed Administrators may in their absolute discretion accept a written notification of a Claim from a person at any time after the Restructuring Effective Date and irrespective of whether any payments have been made to Trading Creditors or Participant Creditors. If the Deed Administrators are satisfied that the Claim (or part of it) is a valid Claim, they may enter it (or that part) on the Trading Creditors Schedule or the Participant Creditors Schedule.
11.9Payment of late Claims
(a)If the Deed Administrators admit a Claim under clause 11.8 (Late entry of Claims) and enter it on the Trading Creditors Schedule, then Solid shall pay the amount owing to that Trading Creditor on the Payment Date following entry of the Claim on the Trading Creditors Schedule.
(b)Subject to clause 11.6 (Crystallisation of Participant Creditor Claims) if the Deed Administrators admit a Claim and enter it onto the Participant Creditor Schedule then while that person will have the benefit of any payment made under the Restructured Debt Deed after the time of entry of the Claim (or part of it) on the Participant Creditors Schedule, Solid will, so far as possible, adjust any subsequent distribution to take account of the amount the person would have received had the Claim been entered on the Participant Creditors Schedule at the time that such Claim could have been
entered on the Participant Creditors Schedule if the Claim had been notified and admitted in accordance with clause 11 (Proof and Admission of Claims) immediately prior to Solid making payment to the Participant Creditors pursuant to the Restructured Debt Deed.
11.10Correction of errors
If the Deed Administrators consider that a Claim or any part of it has been incorrectly entered on the Trading Creditors Schedule or the Participant Creditors Schedule, then they must notify the relevant Creditor and the Claim will thereupon be removed in whole or in part from the Trading Creditors Schedule or the Participant Creditors Schedule as may be determined by the Deed Administrators. The Deed Administrators shall not have any personal liability to any person in respect of any incorrect entry on the Trading Creditors Schedule or the Participant Creditors Schedule.
[16]Clause 11.11 states:
11.11Payments after Court order or correction of errors
Subject to clause 11.6 (Crystallisation of Participant Creditor Claims) if, at the time of any entry on, or amendment to, the Trading Creditors Schedule or the Participant Creditors Schedule, any payments have been made to Creditors, the following provisions will apply:
(a)if the effect of that entry or amendment is to extinguish the amount of a person’s Claim, that person must at once repay to Solid on demand, by way of restitution, the total amount paid in respect of that Claim;
(b)if the effect of that entry or amendment is to reduce the amount of a person’s Claim, that person must at once repay to Solid on demand, by way of restitution, the amount paid that exceeds the amount the person would have been entitled to receive if that person’s Claim had been originally admitted for the reduced amount;
(c)if the effect of that entry or amendment is to cause a person to become a Creditor, the person is entitled to be paid out of any subsequent money available for payment pursuant to the Restructured Debt Deed, before the available money is applied to pay other Participant Creditors, the payment that the person would have been entitled to receive if the person’s Claim had been originally admitted in accordance with this clause 11 (Proof and Admission of Claims); and
(d)if the effect of that entry or amendment is to increase a person’s Claim, the person is entitled to be paid out of any subsequent money available for payment pursuant to the Restructured Debt Deed, before the available money is applied to pay other Participant Creditors, any additional payment the person would have been entitled to receive if
all of the person’s Claim had been originally admitted in accordance
with this clause 11 (Proof and Admission of Claims).
In respect of paragraphs (c) and (d), the person is not entitled to disturb any payments to Creditors made before the relevant entry or amendment to the Trading Creditors Schedule or the Participant Creditors Schedule is made by the Deed Administrators.
Discussion
[17]This proceeding involves the resolution of several points which are in dispute.
Before delving into these, I will set out the basis of Mobil’s claim.
The basis of Mobil’s claim
[18] The claim which Mobil brings is heavily dependent upon the contention that it had an equal claim to participate in any surplus which came into the hands of the administrators along with the other participant creditors. Mobil contends that the construction which the administrators and the other participant creditors place on the DOCA would result in Mobil being effectively relegated to a position which is inferior to that of the other participant creditors. Mobil’s argument in substance is that the DOCA should not be construed in a way which would have this effect.
[19] The contract upon which Mobil bases its claim was a long-term one involving Mobil supplying fuel to Solid Energy (“the Mobil contract”). It was an important aspect of the Mobil contract that it dealt with not only costs per unit of fuel supplied, but also minimum quantities that Solid Energy would take under the contract. Mobil’s pricing was linked to the quantities to be taken. Prior to the appointment of the administrators, it appeared that Solid Energy had not been taking the minimum amounts that it was required to under the Mobil contract. This eventuality had been attended to by the parties when establishing the Mobil contract. Were this to occur, Solid Energy would pay liquidated damages which represented an agreed assessment of the compensation that would be forthcoming.
[20] The effect of the form of the Mobil contract in the circumstances of the case was that Solid Energy was in breach of its contract because it did not take the minimum
quantities required under the Mobil contract.2 However, cl 52 of the Mobil contract also provided that the first respondent’s remedy, that of liquidated damages, did not come into effect until the termination of the contract, either by the effluxion of time or because of earlier termination.3 To summarise, while breaches of contract occurred, for which the first respondent was entitled to compensation, as is any party to a contract which has been breached by the counterparty, the remedy did not accrue until after the appointment of the administrators. Further, the remedy did not accrue until after the time at which the DOCA envisaged creditors’ claims would have been lodged with the administrators.
[21] A significant element of the case which Mobil puts forward is that its entitlement to catch-up payments appears from the terms of the contract, once those terms have been subject to proper interpretation. But, as the opposing parties pointed out, it is necessary to isolate a particular provision of the contract which, when properly interpreted, brings the result that the claimant party puts forward.
[22] The point links to the further consideration that interpretation of contracts does not authorise the court to insert into the contract a completely additional provision which the parties did not mention, but the existence of which can be extrapolated from a consideration of the matters that they actually did agree on, viewed in the overall context in which the contract was entered into.
[23] In response to this point, Mobil identified the source of the claim which it brought as arising from cls 11.6 and 11.11.
[24] However, there was provision in cl 11.8 for the administrators in their absolute discretion to accept a notification of claim at any time after the Restructuring Effective Date, that is to say 13 August 2015. That clause contained a mechanism for catch-up payments. That is to say, even though a claim might be late in being put forward,4 cl
2 The submission of the first respondent says that at the point when Solid Energy disclosed its proposal to enter voluntary administration (or when it did so), liquidated damages would have been approximately $5,000,000. However, the draft deed would have extinguished Mobil's claim to liquidated damages entirely.
3 If Solid Energy became insolvent or rented a creditor arrangement.
4 In the sense that it came to hand after the date fixed in the deed for notifying claims to the administrators.
11.8 provided for any disadvantage to a late claimant who would have missed out on distributions made to date to be offset by the administrators adjusting future payments to be made out to the participant creditors by making disproportionately larger payments to the late claimant. However, cl 11.9 which mandated this approach did not apply to contingent creditors.5
[25] The way in which the DOCA was structured contemplated that Mobil would have to wait until the date when its supply contract with Solid had run its course before the extent of the breach of the minimum-take provision could be determined. By that time, there could potentially have been substantial distributions to the other parties which Mobil would not participate in because it fell outside the late claimant adjustment mechanism in cl 11.9.
Parties’ contentions about Mobil’s claim being a contingent one
[26] There was a dispute between the parties as to whether Mobil’s claim was a contingent claim. This may have relevance to the question of whether Mobil ought to be entitled to be treated in accordance with the pari passu principle.
[27] Classes of claims which are admissible in an administration are the same as those which can be proved in a liquidation generally. The position as described in Morrison states the position in the liquidation:6
[53.40] Admissible claims
Section 303 provides that any debt or liability, present or future, certain or contingent, ascertained or a liability for damages, may be admitted as a claim against the company in liquidation, and specifically excludes fines, monetary penalties, and costs to which s 308 applies.
(a) Future claims
Under s 303, a creditor may prove in respect of future claims. A claim in respect of a debt that, but for the liquidation, would not be due and payable until 6 months or more after the commencement of the liquidation, is to be treated as a claim for the present value of the debt, which is determined by deducting interest at the s 87(3) of the Judicature Act 1908 rate from the amount of the debt for the period from the date on which the company is put into liquidation to the date when the debt is due.
5 Clause 11(b).
6 Morison's Company Law (NZ) (online looseleaf ed, LexisNexis) at [53.40].
If a contract provides for a fixed sum to be paid to a party by way of liquidated damages for early termination, that party is entitled to prove for that sum.
…
(b) Contingent claims
…
Liquidators are obliged to accept contingent claims. It is not necessary for the cause of action to have accrued at the date of liquidation. So future tort claims, for example, are capable of being admitted in a liquidation. Section 307 provides for the liquidator to estimate the amount of a claim subject to a contingency, or refer it to the court.
(Citations omitted)
[28] It is correct that at the date of the commencement of the administration Mobil did not have a claim which could be proved as a debt. There was a fairly high level of certainty, though, that there would be a liquidated damages claim under the Mobil contract that Mobil had with Solid Energy but as at 13 August 2015, when the administrators were appointed, back-claim could not be measured exactly. It was expected that it would be transformed into such a claim in due course but the point had not yet arrived.
[29] Difficulties of this kind do not trouble the insolvency laws. In Stein v Blake, a case involving a bankruptcy, Lord Hoffmann gave the following explanation:7
How does the law deal with the conundrum of having to set off, as of the bankruptcy date, “sums due” which may not yet be due or which may become owing upon contingencies which have not yet occurred? It employs two techniques. The first is to take into account everything which has actually happened between the bankruptcy date and the moment when it becomes necessary to ascertain what, on that date, was the state of account between the creditor and the bankrupt. If by that time the contingency has occurred and the claim has been quantified, then that is the amount which is treated as having been due at the bankruptcy date. An example is Sovereign Life Assurance Co.
v. Dodd [1892] 2 Q.B. 573, in which the insurance company had lent Mr. Dodd £1,170 on the security of his policies. The company was wound up before the policies had matured but Mr. Dodd went on paying the premiums until they became payable. The Court of Appeal held that the account required by bankruptcy set-off should set off the full matured value of the policies against the loan.
But the winding up of the estate of a bankrupt or an insolvent company cannot always wait until all possible contingencies have happened and all the actual
7 Stein v Blake [1996] AC 243, [1995] 2 All ER 961 (HL) at 965.
or potential liabilities which existed at the bankruptcy date have been quantified. Therefore the law adopts a second technique, which is to make an estimation of the value of the claim. Section 322(3) says:
“The trustee shall estimate the value of any bankruptcy debt which, by reason of its being subject to any contingency or contingencies or for any other reason, does not bear a certain value.”
This enables the trustee to quantify a creditor's contingent or unascertained claim, for the purposes of set-off or proof, in a way which will enable the trustee safely to distribute the estate, even if subsequent events show that the claim was worth more. There is no similar machinery for quantifying contingent or unascertained claims against the creditor, because it would be unfair upon him to have his liability to pay advanced merely because the trustee wants to wind up the bankrupt's estate.
[30] The claim which Mobil brought for liquidated damages was unavoidably a contingent claim up until the point where the Mobil contract ended, at which point Mobil had a claim for shortfalls of fuel purchased by Solid Energy. When that point was reached, the claim was not a contingent claim. The value of the claim still needed to be assessed, but that is not an aspect which had the consequence of rendering the Mobil claim a contingent debt. When the point was reached where Mobil had a claim, namely 3 May 2017, it is clear that the claim then “crystallised” to use the wording of cl 11.6 of the DOCA. There is no argument that Mobil promptly made a claim under cl 11.6. What effect the delay had on the validity of the Mobil claim will be considered below.
Opposing parties’ arguments in summary
[31] The opposing parties, though, are of the view that although Mobil’s claim when it ultimately crystallised gave rise to equal rights for Mobil as a creditor, Mobil’s rights did not extend to the point where an adjustment should be made in regard to payments which the opposing parties, but not Mobil, had received prior to such crystallisation occurring. Their approach reflects the view that the parties were free to negotiate with each other and, if they so decided, to reach an agreement which was inconsistent with the general law. The opposing parties make the point that they would be disadvantaged if the administrators were to wait until the Mobil claim was in before they would commence distributing the surplus assets to the participant creditors. They are content to accept that after the point when the Mobil claim had crystallised it would participate equally in future distributions. However, the DOCA did not contain any
provision which would justify a party with a late-crystallising claim being entitled to an adjustment that recognised that the other non-participant creditors had already received partial distributions.
[32] As already noted, the opposing parties referred to the fact that cl 11.6(b) explicitly stated that Mobil was not to be treated as a late creditor and therefore, it followed, that the equalisation mechanism contained in cl 11.9 could not be invoked by Mobil. The opposing parties also made reference to the adjustment provision contained in cl 11.11 but said that that was a provision which was inserted to cover the position of errors that had occurred in compiling the schedule of participant creditors. There had been no such error in this case which meant that cl 11.11 was not applicable to the case of Mobil. The need for adjustment, on Mobil’s case, arose from the fact that it was inherent in Mobil’s claim that it would not accrue until after the date when the creditors were required to notify claims.
The process of interpreting the DOCA
[33] The primary issue is whether the terms of the DOCA can be interpreted in the way which Mobil submits it should. The court cannot achieve this result by creating a provision of the contract which is not there. Such a technique could only be adopted in cases where the parties had argued the dispute on the basis that a term which they had not expressed should nonetheless be devised by the court and added to the terms which the parties explicitly agreed upon when adopting the language of their contractual document. However, Mobil’s case was not put forward on the basis of an implied term.
[34] The task of the court is to be guided primarily by the language which the parties used when reducing their contract to writing. The relationship between the various parts of the agreement to each other and the structure of the agreement are matters conventionally taken into account. It is, however, relevant to consider matters of background and the commercial objectives of the parties when entering into the contract. Those last matters will be considered in due course but before that stage is reached it is necessary to refer to authorities establishing the limits of the legitimate use of such material.
Background matters relevant to interpreting the Mobil contract
[35] It has been said that the proper approach when interpreting a contract is an objective one, with 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 the contract”.8 The background in question is that which a reasonable person would regard as relevant.9 A recent statement of the New Zealand Supreme Court was to the effect that:10
[60]… Accordingly, the context provided by the contract as a whole and any relevant background informs meaning.
[36] In the interpretive process, language must be construed in the context of the contract as a whole and if it has an ordinary natural meaning, that will be a powerful, albeit not conclusive, indicator of what the parties meant.11 Further, the fact that the document being construed in this case is a record of detailed negotiations that were carried on by the parties differentiates it from other statements or utterances.12 Such documents “will attempt to record in a formal way the consensus reached and will have the important purpose of creating certainty, both for the parties and third parties
…”13 I read this last comment as meaning that departure from the literal wording of the negotiated contract will not be undertaken lightly. Nonetheless, it is also necessary to bear in mind that the instrument must be interpreted as a whole in the context of the commercial intention, which may be inferred from the face of the instrument and from the nature of the parties’ business, and that detailed semantic analysis must give way to business common sense.14
[37] While context is a necessary element of the interpretive process and the focus is on interpreting the document rather than the particular words, the text remains
8 Firm PI 1 Ltd v Zurich Australian Insurance Ltd [2014] NZSC 147, [2015] 1 NZLR 432 at [60]; citing Investors Compensation Scheme Ltd v West Bromwich Building Society [1998] 1 WLR 896 (HL) at 912 per Lord Hoffmann.
9 Firm PI 1 Ltd v Zurich Australian Insurance Ltd, above n 8, at [60].
10 Firm PI 1 Ltd v Zurich Australian Insurance Ltd, above n 8, at [60].
11 Firm PI 1 Ltd v Zurich Australian Insurance Ltd, above n 8, at [63].
12 Firm PI 1 Ltd v Zurich Australian Insurance Ltd, above n 8, at [62].
13 Firm PI 1 Ltd v Zurich Australian Insurance Ltd, above n 8, at [62].
14 Re Sigma Finance Corp [2009] UKSC 2, [2010] 1 All ER 571 at [37] per Lord Collins.
centrally important.15 The court can depart from the literal wording of the contract even where there is no genuine ambiguity.16 If it is clear that the parties used the wrong words to give effect to what is unarguably their contractual intention, then the court will not be constrained by the meaning that would follow from a straightforward construction of the terms actually used.
[38] In Mobil Oil New Zealand Ltd v Development Auckland Ltd, the Supreme Court made observations concerning the distinction between interpretation of contracts and the implication of terms:17
[81] Under Belize Telecom, implication arguments are to be determined as a matter of interpretation. This approach [has] been referred to with approval in this Court but has been significantly qualified by the recent decision of the Supreme Court of the United Kingdom in Marks & Spencer plc v BNP Paribas Securities Services Trust Co (Jersey) Ltd. There is thus scope for argument whether adoption of the undiluted version of Lord Hoffmann’s interpretation approach is appropriate. That said, however, we regard the present issue as most sensibly addressed by way of interpretation. This is because the primary argument for Development Auckland rested on the clean and tidy condition – a generally expressed provision which could have, but has now not, been construed so as to address contamination. In concluding that the clean and tidy condition does not require remediation, we took into account the same contextual considerations as are relied on by Development Auckland in support of its implied term argument. Our conclusion that those contextual considerations do not warrant construing the clean and tidy condition as applying to contamination is necessarily inconsistent with the implication of a term which would supplement the clean and tidy condition.
(Citations omitted)
[39] In Marks & Spencer plc v BNP Paribas Securities Services Trust Co (Jersey) Ltd,18 the United Kingdom Supreme Court made it clear that the processes were different; while the New Zealand Supreme Court in the passage referred to above appears to have recognised that there is doubt about the unified approach which Lord Hoffmann spoke of in his speech in Attorney General of Belize v Belize Telecom Ltd.19 In Mobil Oil New Zealand Ltd v Development Auckland Ltd, the Supreme Court did
15 Vector Gas Ltd v Bay of Plenty Energy Ltd [2010] NZSC 5, [2010] 2 NZLR 444 at [20] per Tipping J.
16 Vector Gas Ltd v Bay of Plenty Energy Ltd, above n 15, at [22] per Tipping J.
17 Mobil Oil New Zealand Ltd v Development Auckland Ltd [2016] NZSC 89, [2017] 1 NZLR 48.
18 Marks & Spencer plc v BNP Paribas Securities Services Trust Co (Jersey) Ltd [2015] UKSC 72, [2015] 3 WLR 1843.
19 Attorney General of Belize v Belize Telecom Ltd [2009] UKPC 10, [2009] 1 WLR 1988.
not have to come to a final view on the question because in that case they were able to dispose of the central issue in dispute by recognising the case as a conventional case of contractual interpretation.
[40] The decision in Marks & Spencer states the case for keeping the two processes separate. As the judgment in that case states, it is not possible to embark upon an enquiry rationally as to whether an implied term is necessary until it has first been decided what the explicit terms of the contract mean:20
[27]... When one is implying a term or a phrase, one is not construing words, as the words to be implied are ex hypothesi not there to be construed; and to speak of construing the contract as a whole, including the implied terms, is not helpful, not least because it begs the question as to what construction actually means in this context.
[41] As I have already noted, Mobil did not seek to argue for the existence of an implied term in this case. It is, however, helpful to bear in mind the distinction between the process of interpretation simpliciter, on the one hand, and implication of terms, on the other, when approaching the question which is before the court.
The correct interpretation of cl 11
[42] My intention at this point in the judgment is to consider the structure and wording of cl 11 generally with a view to assessing whether the interpretation put forward by Mobil can be accepted without doing violence to the language of the provisions of that clause. Following that step, I will consider the issues of background to ascertain in which direction they point the court when carrying out the interpretation exercise.
Use of headings as aid to interpretation
[43] Before considering that issue further, it is necessary to deal with a contention that was put forward by the participant creditors about the use of the heading to cl
11.11 as an aid to interpretation. The participant creditors pointed to the fact that the heading made it clear that cl 11.11 was concerned with payments after the making of court orders and the correction of errors. This would suggest that the clause applied
20 Marks & Spencer plc v BNP Paribas Securities Services Trust Co (Jersey) Ltd, above n 18.
in those circumstances where the list of creditors had changed as a result of a court order which included or deleted a creditor or where the administrators corrected an error.
[44] This matter can quickly be resolved in my view because as Mr Every-Palmer QC pointed out, cl 1.2 provides that headings appear as a matter of convenience and do not affect the construction of the DOCA.
The drafting notes
[45] An affidavit was provided on behalf of the banks, which were the other participant creditors, by Mr Sare (who was one of the negotiators). In the affidavit, he gives evidence explaining the reasons behind certain drafting decisions made by Chapman Tripp, who produced an early draft of the DOCA in July 2015.
[46] I agree with the submission of Mr Every-Palmer for Mobil that material is not admissible in a contractual interpretation exercise to the extent that it shows what one (or more) participants subjectively intended or understood their words to mean at a particular time, or what their negotiating position was.21 I further agree with the submission that what Chapman Tripp and/or the banks intended or understood is irrelevant. In any case, the Chapman Tripp advice and draft DOCA were not supplied to Mobil or all other creditors.
[47]I will, therefore, disregard the drafting notes.
How the different provisions of cl 11 relate to each other
[48] One of the central provisions of the DOCA is cl 11.6. It was common ground that the Mobil claim was a claim that would “crystallise as an actual debt for claim following the Restructuring Creditor Claim”. The agreement may not accurately record the legal nature of the Mobil claim but that is not of importance at this point in the discussion. The significant point is that the parties agreed that the claim fell within
21 Vector Gas Ltd v Bay of Plenty Energy Ltd, above n 15, at [19] per Tipping J. See also at [14] per Blanchard J.
the provisions of cl 11.6 and is therefore to be dealt with in accordance with its provisions.
[49] One of the key aspects of cl 11.6 that needs to be dealt with at the outset is the provision of cl 11.6(b) which provides that the claim is not a “late claim” which falls within cl 11.8. For that reason, the Mobil claim does not attract the catch-up provisions which are applicable to late claims and which are set out in cl 11.9.
[50] On the other hand, cl 11.6 states that crystallisation of a debt is to be decided in accordance with the provisions of cl 11. Therefore, all of the provisions of cl 11 are potentially applicable to claims that crystallise after the Restructuring Effective Date, including cl 11.11.
[51] The non-inclusion of crystallising or contingent claims with late claims under cl 11.8 is logical. A contingent claim is not a late claim because it has an existence of its own even before the contingency which converts it into an actual claim occurs. However, while the existence of the contingent claim was known in this case, the amount that the claim would ultimately reach was not. There needed to be provision in the DOCA for the contingent claim which Mobil had but it is understandable that the draughtsperson saw it as being generically different from late claims. While it had some similarity to such claims there were distinguishing features of the kind that I have been making reference to. Because cl 11 included subclause 11.11, a mechanism was to hand which would give authority to the administrators to enter the debt on an appropriate schedule once liability for the debt and the amount of the debt were known. Until those items of information were to hand, plainly a contingent debt could not be entered on the schedules. That proposition can be verified by counterfactually enquiring what amount the administrators ought to have included in the schedules immediately after the DOCA was executed but before the local claim had crystallised and was quantified.
[52] Once a claim crystallises, the schedule upon which it is relevantly to be entered will need to be amended. It is not violating the language of cl 11.11 to say that when a contingent event occurs which causes a claim to crystallise, that event will trigger a requirement for amendment of the schedule. Clause 11.11 recognises that there will
be situations where “amendments” to the relevant payment schedule may be required. The alteration is not restricted to those which are necessitated by errors of entry in the first place. An amendment required because of a change of circumstances would seem to qualify.
[53] But cl 11 contains not only a power to amend the schedules but also other machinery which might be described as having a rather more substantive effect of providing for catch-up payments. I consider that there is a good argument available to Mobil that if it comes within the provisions of cl 11.11 for one purpose (the amendment of the schedules to reflect its claim), it should also have available to it the substantive catch-up remedies that the same provision provides.
[54] To summarise, the fact that crystallising claims of the kind which Mobil was bringing are explicitly excluded from the category of late claims (and therefore not carrying an entitlement to invoke the mechanisms provided for adjusting the amounts of late claims with those of other claimants) does not mean that rights of adjustment were not made available in other parts of cl 11. There was a good reason for distinguishing between contingent claims such as the Mobil claim and late payment claims. That is the explanation, I consider, for why crystallising claims were excluded from the purview of cl 11.8.
[55] If the analysis which I have previously put forward is correct, the interpretation does not result in an effect being attributed to cl 11.11 which brings it into conflict with cl 11.6. The only possible conflict is that cl 11.6 rules out the use of the catch- up mechanisms for late claims and states that they are not applicable to contingent claims of the kind dealt with in cl 11.6. It does not, however, go further and prescribe the application of the catch-up mechanisms in cl 11.11. Viewed in this way, the provisions of cl 11.6(b) are understandable and explicable. They are not designed to categorically rule out any catch-up mechanism being available to Mobil under other parts of cl 11. Their purpose is to differentiate contingent claims and late claims. That distinction is defensible as I have attempted to explain in earlier passages of this judgment.
[56] The further provision of the DOCA which needs to be considered is cl 11.6 which states that the “relevant Participant Creditor” (that is Mobil in this case) “shall be entitled to payments in respect of [its] claim … from the date on which the Deed Administrators enter the Claim on the Participant Creditors Schedule”.
[57] I do not consider that this provision has the effect of barring the payment of catch-up payments. Catch-up payments relate to distributions which were made before the “relevant Participant Creditor” reached the point where its claim had crystallised and from which point it was entitled to be entered on the schedule. Such a provision does not rule out the possibility that after the claim has been entered on the schedule, the creditor under the crystallised debt can receive catch-up payments.
Background matters affecting interpretation of the Mobil contract
[58] In this part of the judgment I will consider whether relevant parts of the background, namely the circumstances in which the parties entered into the DOCA, are consistent with the conclusions that I adopted about the probable meaning of cl 11 which were based upon aspects of the structure discussed in the last section of this judgment.
[59] I have already referred to the obligation of the court to have regard to “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 the contract”.22
Arguments based upon the pari passu doctrine
[60] A central element of the argument for Mobil was that the general requirement of insolvency law that creditors of the same class ought to participate equally, the pari passu rule, was applicable in circumstances where a company had been placed into statutory administration.23 The applicability of the doctrine was not disputed by any
22 Firm PI 1 Ltd v Zurich Australian Insurance Ltd, above n 8, at [60]; citing Investors Compensation Scheme Ltd v West Bromwich Building Society, above n 8, at 912 per Lord Hoffmann.
23 The applicants bases this submission on, amongst other things, s 313(2) of the Companies Act 1993.
of the opposing parties. The contention which the applicants put forward would seem to be correct.
[61] The analysis of the Mobil claim in terms of whether it was or was not a contingent claim does not advance matters. It is clear that in line with the general law applicable to corporate insolvencies a contingent claim ranks equally with extant claims. If the argument for Mobil that the DOCA should be construed consistently with the general law of corporate insolvencies is correct, then Mobil would be entitled to be treated equally with the other participant creditors, notwithstanding that its debt was a contingent one.
[62] This is an important aspect of the present case because the distribution which the applicants and the second respondents propose will result in the first respondent receiving a smaller pro rata dividend than the other participant creditors.
[63] If the submission for Mobil is correct in this regard, then, in assessing the intentions of the parties to the DOCA, the court should be slow to adopt an interpretation which would lead to an unequal distribution amongst these creditors of the same class unless there is some compelling reason of policy why that should occur (for example, if the wording of the contract makes it so plain that that was their express or explicit intention). If it were, then it would seem likely that the court would be required to give effect to that intention notwithstanding that it is out of step with the requirements of general insolvency law.
[64] It would seem to be legitimate to take into account aspects of the policy underlying the statutory background to the adoption of the DOCA in this case. Part 15A of the Act is designed to provide the creditors with a statutory regime which enables them to agree on a scheme that represents the most advantageous means, in their view, for recovering debts owed by an insolvent company. It provides an alternative to liquidation. While the insolvency laws are not simply concerned with the interests of the creditors, they are a paramount consideration. It is fitting therefore that if the majority of creditors is of the view that the immediate appointment of liquidators to a company would be disadvantageous to them as a whole, then they should be able to adopt a scheme under pt 15A. However, the mechanisms and that
part of the Act do not give a majority of the creditors an unconditional right to impose a scheme on the minority creditors. The court has the power to terminate a deed where the deed or anything proposed to be done pursuant to it, amongst other things, is oppressive or unfairly prejudicial to, or unfairly discriminatory against, one or more of the creditors.24 No doubt the powers which the court are vested with under this particular provision would be exercisable in accordance with the general objectives of the Act, which are set out in the Long Title and which envisage provision of “straightforward and fair procedures for realising and distributing the assets of insolvent companies”. While this does not mean that the creditors were bound to distribute the surplus pari passu, it does mean that all aspects of the arrangement which are at variance with the policy of the Act need to be looked at closely. It seems unlikely as a matter of contractual intention that the parties’ objective intention was to put forward an arrangement which did not reflect the quality of creditors of the same class.
[65] The DOCA appears to have actually adopted an arrangement which on its face assumes that there will be equal division between the participant creditors of any surplus left over after realisation of assets and payment of secured obligations.
[66] However, having agreed upon such an arrangement, the case for the second respondents involves the proposition that the DOCA actually had the effect that a contention creditor whose debt crystallised later than the debts owing to the other participant creditors, which vested at an earlier point of time, would have to defer to the latter. The reasonable person armed with the same knowledge as the court would be unlikely, having considered the background, to understand why there should be a radical difference in treatment between vested creditors and the contention creditor.
[67] The detriment to be suffered by a contingent creditor would seem to be no different from that suffered by a creditor whose debt has vested. The only discernible difference between the two classes is one of timing. Contingent debts have a delay built into them. The general law of insolvency has not allowed that aspect of their claims to defeat the rights of contingent creditors.25 A reasonable person armed with
24 Section 239ADD(2).
25 Stein v Blake, above n 7.
the knowledge that that is so would question why an arrangement that would have exactly that effect and which carried with it a real risk of discrimination against the contingent creditor, Mobil, could be justified in the circumstances of this case.
Uncertainty would result from the interpretation put forward by the opposing parties
[68] Another feature of the construction which the opposing parties put forward as an answer to Mobil’s claim is that if adopted, it would result in uncertainty about the extent of recovery which Mobil would be able to make and would make that issue dependent upon questions of timing. If that contention is correct, then a serious question arises as to whether a reasonable person would agree that that was the intention of the parties.
[69] The point arises because on the construction which the opposing parties put forward, the amount that Mobil would ultimately receive would be affected by the timing of payments made by the administrators to the participant creditors. The larger the proportion of the funds paid out by the administrators before the Mobil debt crystallised, the greater the difference between the pro rata amount of return that Mobil would receive and what the participant creditors would receive. Further, and obviously, the extent of this difference would not have been able to be fixed at the time when the DOCA was entered into. It may be that at that point there was a draft program according to which the administrators would realise the assets of Solid Energy. But it cannot have been concluded that the parties knew in advance of the execution of the DOCA what pro rata return Mobil would receive on its debt. The outcome for Mobil under such an arrangement could range from receiving nothing to receiving most of the amount of its claim. Of course, even if the interpretation suggested by Mobil was adopted, Mobil could still end up in a less advantageous position than the other Participant Creditors. That is because it may have turned out that by the time the Mobil claim was entitled to participate, there were insufficient assets left to offset wholly or even partially the gap in the benefits available to Mobil, on the one hand, and the other participant creditors, on the other. While some uncertainty may have been unavoidable, an arrangement which provided for Mobil to receive adjustment payments (or catch-up payments as the parties described them)
would at least offer the possibility that Mobil would move towards a position of equality with the other parties.
[70] Looking at matters from the point of view of the other participant creditors, the construction which they put forward meant that they were likely to end up in a position where they recovered more per dollar for each dollar of debt which they claimed than Mobil would. It turns out, with hindsight, that that is exactly what happened. I do not consider that what actually happened in hindsight is a matter that could be taken into account by a reasonable reader of the contract standing in the shoes of the parties at the time when they were contracting. I, therefore, ignore that fact but the point remains that it would have been obvious from the outset that the structure of the agreement on the interpretation put forward by the participant creditors was loaded in their favour and it has been explained why that should be so. The only difference between the parties was that the participant creditors knew what the extent of the debt was when the DOCA was entered into whereas Mobil would have to wait.
[71] It would not seem reasonable to suppose that the parties deliberately contemplated such an outcome. No doubt it was to the advantage of the opposing parties that they not have to wait for the occurrence of the contingency upon which the Mobil debt depended before they receive their first payments under the DOCA. But there are two answers to that consideration. The first is that the court does not restrict itself to consideration of the unilateral advantages that accrue to one party rather than the other. It may be that a result which is advantageous to one party will be accepted by the other because of some offsetting advantage which accrues to it from other parts of the agreement. But there is no evidence in this case that as a quid pro quo for these arrangements Mobil received some such offsetting advantage. The second point is that the interests of the opposing parties could be accommodated by providing that they received such payments as they were entitled to at the earliest possible date, so long as there was a balancing mechanism which ensured that Mobil would not be disadvantaged because of the timing of entry of its claim on the Participant Creditors Schedule.
Conclusion
[72] I agree that the DOCA can be construed in such a way that Mobil obtains an entitlement to catch-up payments. I accept that there is merit to Mobil’s claim. It was plainly intended to rank equally with the claims of the participant creditors. While it is understandable that the participant creditors might wish to obtain distribution of funds from the administration at the earliest date possible, there is no reason why a creditor which belongs to the same class as the participant creditors ought not to be treated to the maximum extent possible as entitled to the same benefits as the participant creditors. It may well be fair that Mobil’s rights be limited so that it does not claw back or disturb existing distributions, but it is difficult to see the justice in it being deprived of the right to catch-up payments made out of future distributions.
[73] I do not agree that the grounds which the opposing creditors put forward in support of the opposite view, arguments that are largely textual in nature, are decisive. I consider that while the DOCA as drafted is not entirely straightforward, a sound argument can be put forward that the position of Mobil as a contingent creditor is protected by the provisions of cl 11.11. This protection may not have been written into the agreement in the most obvious way, but there are clear indications from the background that the parties were not intending to agree on an arrangement under which Mobil would be deprived of catch-up payments for no sufficient reason. It is more likely that the parties intended that Mobil would be treated to the greatest extent possible as a pari passu creditor and the provisions of cl 11.11 can be read as providing a mechanism which will ensure that result without doing violence to the language of the DOCA.
Result
[74] The question which the court is required to answer pursuant to paragraph 1(a) of the originating application is answered in the affirmative. Mobil is entitled to catch- up payments.
[75] In accordance with the consent arrangements that the parties have made, a draft copy of this judgment is to be released to the parties for comment on any necessary
redactions in order to maintain business confidentiality. The parties should, if possible, reach agreement on that issue so that a consent order can be made subsequently. The parties are to respond on this aspect of the matter within 15 working days of the date of this judgment. The parties should also address the matter of costs and, again, it would be desirable if a consent arrangement could be reached. If not, submissions are to be filed and served within the same timeframe as those relating to the confidentiality question.
J.P. Doogue
Associate Judge
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