Mastagard Plastic Recycling Limited v CCC Two Limited

[2012] NZHC 619

IN THE HIGH COURT OF NEW ZEALAND CHRISTCHURCH REGISTRY

CIV2010-409-001012 [2012] NZHC 619

BETWEEN  MASTAGARD PLASTIC RECYCLING LIMITED

Plaintiff

ANDCCC TWO LIMITED Defendant

Hearing:         26, 27 and 28 March 2012

Counsel:         DJC Russ for Plaintiff

N H Soper for Defendant

Judgment:      4 April 2012

JUDGMENT OF WHATA J

[1]      Mastagard   Plastic   Recycling   Limited   (“Mastagard”)   recycles   plastic. Ecocentral   receives   bottles   from   the   Christchurch   City   Council’s   recycling collections and supplies them to Mastagard.   The price of the bottles is set by an agreed price index.  The agreed price index is “the market price for each grade based on current sales, achieved locally between a willing seller and willing buyer”.

[2]      Mastagard claims that the reference to “achieved locally” means the price achieved between local (domestic) suppliers and purchasers.  Ecocentral argues that “achieved locally” means the price achieved in the local market conditions, including any offers by local brokers on behalf of international customers.

[3]      I must therefore resolve what the parties meant by “achieved locally”.

MASTAGARD PLASTIC RECYCLING LIMITED V CCC TWO LIMITED HC CHCH CIV 2010-409-001012 [4 April 2012]

Background

[4]      In April  2008  Mastagard  entered  into  negotiations  with  Meta  Processing Limited (“Meta”) for the exclusive supply of HDPE plastic.  Meta was a company that had acquired the sole rights to collect Christchurch City Council’s plastic waste. Meta was also in the process of constructing a sorting plant to separate the different types of plastic for on-sale or disposal.  Mastagard had a large waste collection and disposal business. It wanted to move into the plastic recycling business and saw the opportunity  to  work  with  Meta  as  a  logical  extension  of  a  substantial  existing business relationship. They executed an agreement to purchase baled recycled plastic bottles on 21 July 2008.

[5]      A key issue for both Mastagard and Meta was the mechanism for setting the price for the supply of the plastic.  In the result, the parties agreed to the following charging mechanism:

(e)       “Charges” means the charges payable for Recycled Plastic supplied by Meta to MPRL [Mastagard] being $X + GST per kilogram where:

X = API x 1.05

API = the [Agreed Price Index] per kilogram or as mutually agreed,

The API “Agreed Price Index” is to be set every three months on the

following basis.

The agreed price index is to represent the market price for each grade based on current sales, achieved locally between a willing seller and a willing buyer. (Emphasis added)

[6]      The contract also provides a mechanism for setting and agreeing a price.  It provides that Meta and Mastagard shall meet in advance of payment to set the price for each preceding three month period.  Meta will propose the new rate to reflect any increase or decrease in the market price.  Meta shall supply three examples of bona fide purchase price quotes “locally” to support the proposed price.

[7]      If Mastagard is not in agreement with the proposed rate it shall be entitled to supply three bona fide examples and the average of the six will be taken to produce the new rate.   Prices put forward by the parties shall not include prices extremely

low or high due, or as a result of once off circumstances, to poor quality or over aggressive buying behaviour not in conformity with the market.

[8]      Relevantly the agreement at clause 10 also contemplates a review of the charging mechanism every three years after the commencement date. This may then involve arbitration if necessary.  In the case of disputes arising from the agreement, there is also provision for an independent mediation process.

[9]      In June/July the following year Meta began supplying the HDPE plastic to Mastagard and then on 4 August 2009 Meta assigned its contractual  rights and obligations to CCC Two Limited. (For present purposes, Ecocentral is the key party in place of CCC Two Limited). Then in the same month, Mastagard raised issues as to the price supplied by Meta.  In April the following year the parties agreed to an interim arrangement pending resolution of the interpretation issue.

The plaintiff’s case

[10]     The    plaintiff’s   contentions   may   be   reduced   to   the   following   core propositions:

(a)      The reference to "achieved locally" should be given its natural and ordinary meaning - the market price should be set by reference to sales that can be achieved within the local market without regard to international pricing;

(b)There is no ambiguity in this language - any ambiguity is introduced by   the   defendant   paradoxically   describing   local   conditions   as including international demand;

(c)      In any event, if the wider context is examined, there is a local or sub market and an international market – and the parties have agreed on the local market setting the price;

(d)     Any  alleged  inclusion  of  international  pricing  is  rebutted  by  the

conduct of the parties in the lead up to the execution of the contract, with the rejection of an international price index as a mechanism for fixing supply price.

[11]     The plaintiff’s case is supported by the independent evidence of Mr Johns and the evidence of Mr Stapleton, General Manager for Mastagard.  Mr Johns had about 18 years experience in the plastics recycling industry. He was Chief Operating Officer for Astron Plastics Limited and sourced plastics from a range of suppliers for the  purpose  of  selling  recycled  resins  and  recycled  plastic  products.    His  key evidence was:

(a)      That there was a market for recycled plastics at locally set prices well below international prices for the same product, including for used milk bottles - he had direct experience of at least two such suppliers of milk bottles;

(b)There  were  several  reasons  for  this,  including  corporate/ environmental policy and the nature of the supply (usually smaller and irregular);

(c)      He would source supply under both local and international prices in order to satisfy his supply needs;

(d)     He was able to find a good supply at reduced prices.

[12]      Mr Johns also observed that it is not viable in New Zealand to process plastic and buy product at international pricing levels. The margins are simply too tight.

[13]     Mr Stapleton gave evidence about the background to the execution of the agreement, including the commercial circumstances surrounding the agreement. He referred to the evolution of the Mastagard business into a large waste management company and recycling business and then its extension into plastic recycling. He observed that this was  a logical extension of the pre-existing business and that developing an already substantial relationship with Meta was equally logical.  Some

of his evidence referred to his subjective intentions.  For example he explained that he removed the reference to an international pricing mechanism from an earlier draft of the agreement because it would not be viable for Mastagard to buy plastic at international   prices.   I   deal   with   the   admissibility   of   this   evidence   below. Nevertheless his budgeting assumed prices in the range of $380-$523/tonne for the year June 2008 - May 2009.  This estimate included other forms of plastic.  It was based on information he had about local sales, including from NZ Plastic Recycling Ltd.  He described the process leading up to and the cost of the construction of the processing plant (@$4m).   He stressed that in commercial terms the pricing mechanism sought by the defendant is not feasible, especially in light of this sunk cost.     He  also  said  that  there  are  local  suppliers  who  offer  product  below international prices, including an invoice from one such supplier who he said is representative of a class of similar suppliers.

[14]      In these circumstances, Mr Russ submitted that there was a local market and therefore the clause that fixed price against the operation of this local market made commercial sense.

The defendant’s case

[15]     The defendant contends that:

(a)      “Achieved locally” simply means that the price is based on sales currently achievable by suppliers in Christchurch and that this may include both domestic and international sales;

(b)The plaintiff’s construction involves equating the term locally with domestically, when the plain and usual meaning can embrace a Christchurch based supplier and an international purchaser through a Christchurch based broker.  It is not accepted that a “local market” is the same as a “domestic market”;

(c)       It would have been commercially absurd for Meta (now Ecocentral)

to agree to domestic prices only, given that the plastics can be easily

sold on the international market;

(d)The various drafts of the contract are of very little assistance in the interpretative exercise, but if relevant so are other documents recording, for example, an instruction from Mr Stapleton to include an international price index in the charging clause; and

(e)       Post contractual conduct confirmed that Mastagard accepted that the

Agreed Price Index included international purchasers.

[16]     Messrs Fowler and Maddaford gave independent evidence in support of the defendant. Mr Fowler is the Managing Director of Compounding Specialists Limited (“Comspec”)  which  is  a  plastics  recycling  business.  He  has  about  32  years experience  in  the  plastics  industry.     Mr  Maddaford  is  the  General  Manager Recycling of Transpacific Industries Group (NZ) Limited (“Transpacific”).  He has

24 years experience in waste management and recycling.

[17]     They both said that all pricing is influenced by the international market. Mr Fowler  said  that  the  price  of  virgin  resin  sets  the  price  for  recycled  resin. Mr Fowler accepted that there may be instances where supply is achieved at less than international prices, but that this is exceptional and very fact specific – e.g. a small volume from a remote area.  He referred to other examples, including supply from Fonterra, but observed that these types of offer were usually associated with supply of other less attractive waste, so that any price comparison with milk bottle sales per se is not appropriate.

[18]     Mr Maddaford stressed that bottle plastic is an international commodity and it does not make commercial sense to exclude international demand from price setting. He says that suppliers have no difficulty selling their plastic milk bottles overseas. The price of HDPE is dictated by the prevailing export price attainable from an export port.  He refers to this as the “export parity pricing model”.  While there are local sales, in his experience they are inevitably affected by overseas prices.   He gave evidence that there was little discernible difference in prices for local sales and overseas sales.  He has no direct experience of domestic sales at prices substantially

less than international prices. He accepted however that he could not comment on

Mr John’s experience.

[19]     Corporate evidence was also proffered by Mr Trotter (Commercial Manager for  the  defendant),  Mr  Hay  (CEO  of  Meta  at  the  time  of  the  contractual negotiations), and Mr Gerrie (General Manager of Ecocentral).   Mr Trotter was unable to present his evidence, but it was adopted by Mr Hay.  In combination, they reject suggestions that there is a local supply market independent of international pricing for plastic milk bottles.

[20]     In response to Mr Stapleton’s evidence, Mr Hay (and Mr Trotter) said that the reference to an international price index was removed from the earlier drafts of the agreement because none existed for HDPE plastic. The reason he says for the reference to “achieved locally” was to ensure that the prices reflected the operation of the local market and not an overseas market. I deal with the admissibility of this subjective intent evidence below.  Mr Hay said there is no commercial justification for a so-called local price and all of Meta’s internal budgeting was premised on the market value of the bottles, including international pricing.  A review of the budgets indicated that the prices relied upon related to mixed plastics, with the result that the budget figures were substantially less than the figures for milk bottle plastics at the

time.1 He referred to the significant sunk cost (@$11m) associated with building the

sorting plant.  He also rejected the suggestion that commercial decisions were driven by the environmental and social objectives of the owner Trust.  He said the primary driver was to maximise profit for the owner, who could then use those funds to achieve its social objectives.

[21]     Mr Gerrie described the conduct of the parties post contract and stated that Ecocentral benchmarked its pricing by reference to offers from locally based brokers for international customers from the outset.   He said that he is not aware of any purely local or domestic market. He noted that he purchased plastics from other suppliers (usually councils) and that his experience was that he simply paid the

market price “at the door”. He accepted under cross examination that he would do

1      Mr Hay’s figures for the years 2012-2015 were similar to current prices, but presumably those figures include inflation.

this on the basis that the price at the door might be less than the international price he can obtain for on sale.   But the starting point for negotiation was always the international price.

Principles of interpretation

[22]     I may have regard to any material that sheds light on the meaning attributable

to the words “achieved locally”.2   More specifically, as stated by Tipping J:3

The necessary inquiry therefore concerns what a reasonable and properly informed third party would consider the parties intended the words of their contract to mean.   The court must be aware of the commercial or other context in which the contract was made and all the facts and circumstances known to and likely to be operating on the parties’ minds.”

[23]     The commercial or other context is commonly referred to as the matrix of fact or factual matrix.4    The boundaries of this factual matrix are not amenable to bright line definition.  The factual matrix has been held to incorporate not only the context to the agreement at the time or before it was executed, but also to post contractual conduct.5

[24]     Nevertheless I think it can be fairly said that the anchor for interpretation remains that the words of an enforceable contract should be given their ordinary meaning unless it can be reasonably concluded from the background that something must have gone wrong with the language used.6

[25]     Further:7

... claims of undeclared intent (what the parties were thinking, in contrast to what they are saying) are excluded because, unlike communications between the parties, they cannot possibly assist in ascertaining objective intent.

2      Vector Gas Limited v Bay of Plenty Energy [2010] 2 NZLR 444, per Tipping J at [29].

3 Ibid at [19].

4      Investors Compensation Scheme Limited v West Bromwich Building Society [1998] 1 WLR 896 at 912-913 per Hoffman LJ; Reardon Smith Line Ltd v Hansen-Tangen [1976] 1 WLR 989 (HL) at 997 per Wilberforce LJ.

5      Vector Gas per Wilson J at [122].

6 Ibid; see also McGrath J at [77].

7      Ibid per Wilson J; See also Tipping J at [19] and [30].

Admissibility of evidence

Subjective intentions

[26]     Those parts of the evidence dealing with subjective intention are inadmissible because, as I have said, they are irrelevant to the interpretative exercise.  I include within this the respective indications of why the reference in earlier drafts of the agreement to an international pricing index was removed.  While evidence about or relating to the fact of the changes may be admissible, the asserted subjective reasons

for them are not.8

Opinion evidence

[27]     The   opinion   evidence   about   commercial   viability   given   by   party representatives was not the kind of impartial opinion evidence normally qualifying for exemption under the Evidence Act.9     I disregard it.   However, I accept that elements of that evidence relate to matters of fact capable of verification and testing in the usual way, for example budgets prepared prior to the agreement and sales figures. Those elements are admissible.

Independent experts

[28]     Mr Russ raised doubts about the independence of the evidence of Mr Fowler given that his company operates in direct competition with Mastagard. The evidence is that his company was in negotiations for supply from Meta immediately prior to the Mastagard negotiations.   With the benefit of having viewed his testimony (including cross examination), I consider that Mr Fowler’s evidence is sufficiently independent and reliable to be admissible.  He gave answers in a forthright manner, including reasonable concessions.   I see no reason to discount his evidence on the

account of his status as a competitor.

8      Vector Gas per McGrath J at [70]-[78]; Tipping J at [29].

9      Evidence Act 2006, ss 23-25.

[29]     I initially had concerns about the independence of Mr Maddaford given the commercial  relationship  Transpacific has  with  Christchurch  City Council.  But  I consider that his position is sufficiently remote from the Council (and thus Ecocentral) that it is admissible and I need not discount the weight of his evidence on this account.  He, like Mr Fowler, was also a forthright witness and very helpful to the Court.

The issues

[30]     This is not a case where an obvious, single plain meaning stands out. The words “achieved locally” are not inherently ambiguous, but they can reasonably mean different things, as the parties contend. To resolve the meaning of “achieved locally”, I must address the following key issues:

(a)       Are  the  suggested  meanings  of  “achieved  locally”  linguistically

available?

(b)       If so, are they factually plausible?

(c)       If so, what is the preferable meaning?

Available and plausible?

[31]     In my view “achieved locally” at least means the price that could be achieved within the local plastics market as opposed to an international plastics (commodities) market.  As Mr Russ noted, the reference to “locally” would be emasculated of all value if the price that can be achieved on the international commodities market could be used to set price. There was nothing in the evidence to dissuade me from this basic starting point.  But this leaves open the question of what is meant by “locally” beyond simply not international.

[32]     I accept that “achieved locally” can linguistically have the different meanings

sought by the parties:

(a)       Achieved  under  local  market  conditions,  including  all  potential

suppliers and customers (the defendant’s position);

(b)       Achieved  by  local  (domestic)  suppliers  and  customers  only  (the

plaintiff’s position).

[33]     When regard is had to the wider context of supply of plastics, locality, or local market conditions  or local suppliers  and  customers could reasonably refer geographically to Christchurch or to the South Island or to New Zealand.

[34]     In   line   with   Mr   Soper’s   position,   my   initial   preference   was   that geographically, “locally” is referring to the South Island, as this is the most likely source of alternate supply to Meta (now Ecocentral). This accords best with the independent  expert  evidence  about  how  processors  of  recyclable  milk  plastic operate.   They source reasonably accessible supplies of plastics at this geographic scale. No example of inter island sourcing was provided, while direct evidence was given about sourcing supply regionally or within the North or South Islands.   But given the small number of large suppliers and customers for plastics within the South Island, it would not make sense for the parties to set their prices within this geographic limitation. Indeed, in the South Island, apart from Mastagard, it appears that Comspec is the only other major processor of recyclable plastic. That would appear to provide an unrealistically small pool from which to draw prices. I therefore prefer to approach the reference to “locally” as meaning domestically.

[35]     I also consider that the reference to locally is capable of referring to the local market for plastics, uninfluenced by international demand. This makes linguistic sense given the focus also on “achieved” locally. It contemplates the attainment of a price within the locality and by local suppliers and purchasers.

[36]     I am also satisfied on the evidence that such a local or domestic market exists. We are not dealing with a fiction. All witnesses accepted that there were examples  of  trading  at  peculiarly  local  price  levels,  driven  by  local  conditions (remote location) or for local policy reasons (environmental) or for local commercial imperatives such as Fonterra’s desire to offload all its waste.

[37]     Plainly the view of the defendant’s experts was that any such local market was the exception or as Mr Fowler put it under questioning from Mr Soper, at the exceptional end of the spectrum. But this does not negate the existence of such a local market or what might in fact be achieved at a local scale.

[38]     I accept, however, that another meaning of “achieved locally” might simply be the price achieved in the local or domestic market for plastics. This employs a more  orthodox  meaning  of  market,  namely  the  interaction  of  suppliers  and consumers for plastics in light of prevailing economic conditions. Arguably, this can be drawn in contradistinction to an international commodities market (if one exists), where prices are set without regard to specific domestic influences in any particular country (though the prices set will reflect the accumulation of domestic influences).

[39]     Regrettably no evidence was given by an independent economics expert who was qualified to define the plastic market or markets in a technically sound sense. It might be that on closer expert analysis, there is or no such thing as a local or sub- market operating independently of international demand. Conversely it might be technically flawed to draw a theoretical distinction between a local/domestic market and an international commodities market when dealing with plastics, so that local must mean something other than simply prevailing market conditions in New Zealand.    But  I  must  proceed  on  the  evidence  before  me.    There  is  evidence describing  local  (domestic)  supply  and  local  demand  for  milk  bottles.     The distinction drawn by the defendant is not illogical, though  the defendant’s own evidence strongly suggests domestic markets do not operate in isolation of international pricing.

[40]     Accordingly I am satisfied that both definitions of “achieved locally” are

linguistically available and factually plausible.

The preferred meaning?

[41]     I prefer the plaintiff’s construction because it is reasonable and realistic, having regard to the price setting regime in the agreement, the commercial dealings between the parties and wider commercial efficacy.

[42]     Dealing first with the price setting regime; the Agreed Price Index (“API”) is the price per kilogram or as mutually agreed.  It represents “the market price for each grade based on current sales, achieved locally between a willing seller and willing buyer”. The current sales must therefore be achieved locally. It plainly excludes current sales achieved overseas. It then refers to a price setting regime whereby Meta will “supply 3 examples of bona fide purchase price quotes locally to support the proposed price” (italics added). This repeats the emphasis on local, not overseas, sales. The effect of the defendant’s construction would mean that local and locally can include international offers, provided that they are made by local brokers. While as I say it may be theoretically plausible to include overseas offers within a local market, the inclusion of international offers via brokers appears discordant with the natural emphasis of the price setting method to exclude overseas sales.

[43]     Further the reference to achieved “locally” must mean something. On the evidence before me, if I adopt the defendant’s construction, the practical result is that offers can be obtained from brokers for international clients, usually out of China. In my view this denudes the reference to “locally” of any real or practical force or content. Indeed, on the defendant’s interpretation, the words “achieved locally” in effect become meaningless, given the dominant influence of the Chinese market internationally.

[44]     Finally  on  this  aspect,  the  references  to  “achieved  locally”  and  “quotes locally” reasonably connote, as I have said, the attainment of outcomes locally.10

The sale of an item to a person in China is not, in normal parlance, a local sale or achieved locally – it is an overseas sale, an export.11   Similarly the sale of land to an overseas resident is not commonly (nor legislatively) understood as a local sale.

Rather it is an overseas investment.12

10     Mr Soper helpfully referred to the dictionary meaning of achieved as ‘to bring to a successful conclusion.’

11     Mr Soper drew an analogy to an overseas athlete coming first at a local sports event.  The win, he says was ‘achieved locally’, even though the athlete was from overseas.   But that is so because all elements of the event took place locally, unlike the sale of plastics to a Chinese resident.

[45]     Turning then to the commercial relationship between the parties, including their pre-existing relationship, the commercial negotiations and the post contractual conduct. First, Mastagard was already in a good commercial relationship with Meta. Mr Russ calculated that Mastagard was paying about $1.2m in dumping fees to Meta. There is no need for precision about this quantum. The key point is that both Meta and Mastagard had good reason to maintain a solid commercial relationship, built  on  good  faith.    Conversely,  there  is  no  reason  to  suspect  that  the parties intended anything but a mutually sensible outcome.

[46]     Second, the evidence discloses that there was some discussion about a price setting  mechanism  using  an  international  price  index,  including  a  request  by Mr Stapleton that the first draft include an international price index. Plainly also the parties signed an agreement without referring to an international price index and instead referred to market price based on current sales achieved locally. Objectively assessed, it is logical to infer that the parties did not intend to use an international price index. But beyond that, the evidence surrounding the negotiations is neutral for the purposes of construction. For example there is the evidence of budgets based on assumed prices for the plastic. Mr Stapleton based his budgets on mixed plastics, well below the then current price for milk bottles.   Mr Hay’s budgets assumed different figures for plastics, also below the then current price for milk bottles. Neither budget was directed specifically to the agreement. I therefore gain little assistance from this information for the purposes of interpretation.

[47]     Third, there is evidence that Mr Stapleton appeared, initially at least, happy to accept offers from MIB  International Pty Limited as a proxy of price setting.13

There  are  minutes  of  a  meeting  dealing  with  potential  flaws  in  the  pricing mechanism.     They  appear  to  show  that  the  parties  were  happy  to  consider

internationally based offers.  But Mr Stapleton explained that he was not alert to the

12     Overseas  investment  transaction  is  defined  in  the  Overseas  Investment  Act  2005  as  “a transaction that results in an overseas investment in sensitive land, an overseas investment in significant business assets or an overseas investment in fishing quota” – s 6.

13     There is also email correspondence setting the price at US$546 without apparent complaint from

Mr Stapleton.

significance of all of this until later (and within two to three months or so of the first round of supply).  I accept his explanation.  In addition, the minutes are not entirely clear on  what  was  envisaged  or why.    Moreover the evidence of post  contract conduct is sparse. It is insufficient to shed light on the meaning of the words “achieved locally”.

[48]     Overall therefore, the evidence about the commercial dealings between the parties before, during and after the execution of the agreement is at most neutral in terms of shedding light on the preferable meaning of “achieved locally”.  It confirms that the parties did not wish to resort to an international price index but not much else.

Commercial efficacy

[49]     Both  parties  stressed  that  their  respective  meanings  were  necessary as  a matter of commercial common sense.   There is considerable force in Mr Soper’s observation that it does not make sense for Meta (now Ecocentral) to discount its prices by on average 40%.   That would be the effect if international prices were disregarded completely.   But that misconstrues the effect of the plaintiff’s construction of the words “achieved locally”.   As the evidence of Mr Fowler and Mr Maddaford makes plain, the majority of domestic arrangements are governed by international prices in any event.   Indeed Mr Maddaford produced monthly sales records (averages) for HDPE from November 2007 (spanning about 50 months) and observed that they “reflect very little difference between the prices obtained from wholly local purchasers and international companies or brokers.”

[50]     There was no challenge to the accuracy of this information. It aptly illustrates that Ecocentral should not be overly exposed if the plaintiff’s interpretation is employed.  There is nothing in the agreement preventing Ecocentral producing those or similar sales figures as part of the price setting process.  In this way, there is no automatic discounting of the price.

[51]     Mr Soper says that Ecocentral could not have intended to tie itself to the local market  and  the  risk  that  the  local  market  might  substantially  diverge  from

international prices. I do not accept that this risk is real.  As I have said, the evidence from Messrs Fowler and Maddaford make the prospect of complete divergence very unlikely. Both emphasised that the primary domestic market for plastics is greatly influenced by the Chinese market for plastics.   In reality, even on the plaintiff’s interpretation, based on the evidence before me, there is a high probability that the API will reflect international pricing.   The position might be influenced by the averaging exercise contemplated when the parties come to negotiate a price for the preceding three months.  But any material price reduction arises from the averaging process per se, where low local prices are averaged with high local prices.

[52]     A further issue then emerged that the pricing mechanism could become a convenient vehicle for Mastagard to obtain plastics at a lower price simply for on- sale. Mastagard can resell the plastic on the international market under clause 4.6, which states:

4.6Disposal  of  Baled  Recycled  Plastic  Bottles:    MPRL  shall  be entitled  to  retain  and/or  dispose  of  the  Baled  Recycled  Plastic Bottles as it sees fit.  MPRL may not dispose of any Baled Recycled Plastic Bottles in a landfill.

[53]     Meta has therefore, if the plaintiff’s interpretation is correct, transferred the right to dispose the plastics to Mastagard at a price likely to be less than the price it could command on the international plastics market.   But that again is a likely outcome of the price setting mechanism whatever interpretation is used.  Ultimately a current sales index based on an averaging exercise will produce a figure less than the price that would be commanded on the international plastics market (assuming that this market trades at higher than domestic prices).

[54]     As it happens Mastagard does not assert such an unqualified right.  It is on- selling the plastic products because the processing plant was affected by the earthquake.   Furthermore, the ostensible intention of the parties through the agreement was to enable Mastagard to process the plastics, not simply to act as a wholesaler/retailer of the plastic bottles themselves.  The agreement is premised on Mastagard processing the plastics.   This is envisaged at clause 3.1(b). This clause links supply of PET bottles to Mastagard’s processing capacity.   Plainly also Mastagard invested a significant sum in building a process plant on the premise that

it will process the bottles.  Processing of plastics within New Zealand in turn accords with the stated environmental and social objectives of Meta’s owner.14   Therefore Ecocentral could, in my tentative view, rightly complain if the pricing mechanism was used to place Mastagard in a superior position than Ecocentral for the purpose of simply wholesaling/retailing HDPE bottles and PET bottles overseas over the long term.   If Mastagard is unable or unlikely to recommence processing in the future,

then that might provide a proper basis for reviewing the charging mechanism as part of any review and arbitration under clause 10.

[55]     Concerns were also expressed about the small pool of buyers and sellers on the domestic scene.  That is a valid concern.  Indeed Mr Russ indicated that the small pool of buyers and sellers meant that his client was having difficulty producing offers.   But I am not satisfied that this practical problem is such as to warrant departing from the more natural emphasis in the agreement on sales achieved domestically rather than sales achieved internationally (including via local brokers). Certainly Mr Maddaford had reasonably extensive “local” sales data.  There is also a remedy through the review and arbitration process.

[56]     Accordingly, when regard is had to the full context, including the full price setting mechanism, the commercial relationship between the parties and commercial efficacy, the plaintiff’s construction of the agreement remains preferable.   On that basis  I find that current sales “achieved locally” means domestic sales, without regard to international quotes.

Result

[57]     The Agreed Price Index is to represent the market price for each grade based on current sales, achieved between domestic suppliers and domestic consumers.

14     I was advised by counsel that this was the Recovered Materials Foundation. The charitable purposes of the Foundation included:

To advance the sustainable management of recovered materials to create community and commercial opportunity for the inhabitants of the Canterbury region; To promote research, development and study of products made from recovered materials; The advancement of education about the benefits to the community and the individual from using recovered materials and the development of a waste minimalisation culture in the community;

The encouragement of skill, industry and thrift.

This does not include sales to brokers for overseas persons.  However nothing in this prevents the API including domestic sales to domestic consumers based on international prices.  If sales figures or quotes cannot sensibly be obtained, then that should be a matter for review and arbitration in accordance with clause 10.   As I observe at [54], if Mastagard is unable or unlikely to recommence processing in the future, then that might also provide a proper basis for review of the charging mechanism.

Solicitors:

Fletcher Vautier Moore, Nelson, for Plaintiff

Anderson Lloyd, Queenstown, for Defendant