McArthur Ridge Investments Limited v Schulz
[2014] NZHC 1892
•12 August 2014
IN THE HIGH COURT OF NEW ZEALAND CHRISTCHURCH REGISTRY
CIV-2011-409-1680 [2014] NZHC 1892
BETWEEN MCARTHUR RIDGE INVESTMENTS
LIMITED Plaintiff
AND
ROBIN ANTHONY SCHULZ Defendant
Hearing: 4 August 2014 Appearances:
T Shiels for Plaintiff
M J Wallace for DefendantJudgment:
12 August 2014
JUDGMENT OF MANDER J
[1] On a Sunday night, 3 February 2013, the defendant, Robin Schulz, sent an email to John Rasmussen, a director and shareholder of the plaintiff company, McArthur Ridge Investments Limited (McArthur Ridge). Mr Rasmussen was also at this time acting as a representative of other entities with which Mr Schulz was in legal dispute. The parties sought to record in the email matters about which agreement had been reached regarding the resolution of these disputes.
[2] There was urgency to have some agreement in place because Mr Schulz was the subject of a bankruptcy petition by the Inland Revenue Department which was to be heard on the Tuesday, 5 February 2013. Resolution of the unrelated bankruptcy proceeding was dependent on settlement of an agreement relating to at least part of the matters in dispute between Mr Schulz and the interests represented by Mr Rasmussen.
[3] The terms of the agreement concluded by Messrs Schulz and Rasmussen were contained in an email circulated and signed on the Monday afternoon,
MCARTHUR RIDGE INVESTMENTS LIMITED v SCHULZ [2014] NZHC 1892 [12 August 2014]
4 February 2013. It covered, under separate headings, three legal disputes which were the subject of Court proceedings. This judgment concerns one of those proceedings; specifically whether the email agreement of 4 February constituted a binding settlement of that dispute.
[4] Mr Schulz contends that the signed email exchange finally settled the present proceeding. This is disputed by McArthur Ridge which argues that what was agreed in the email did not constitute a contract between the parties. The issue of whether the parties have concluded a settlement of this proceeding comes before me as a preliminary question. Before examining that question some further factual background is required to be set out.
Factual background
[5] Mr Schulz and companies with which he was involved were responsible for the development of a large vineyard project in Central Otago. This development got into financial difficulties and as a result became the subject of legal action by persons who had purchased lots in the vineyard.
[6] Unrelated to that vineyard development, Mr Schulz had personally developed a vineyard in Cromwell which had been financed by loans obtained from a finance company. This project also ran into difficulties which culminated in a mortgagee sale of land held as security for the loans which Mr Schulz had also personally guaranteed. The outstanding debt and security rights were subsequently purchased by McArthur Ridge. It is acknowledged by McArthur Ridge that the debt was purchased from the finance company as a tactical step to apply commercial pressure to the resolution of the legal disputes arising out of the larger vineyard project.
[7] In respect of the present proceeding, application was made by McArthur Ridge for summary judgment to be entered against Mr Schulz for the outstanding debt purchased from the finance company. Judgment was entered for liability, however the application was dismissed in respect of quantum, with this Court finding arguable issues relating to the forced sale of the property, the price thereby
obtained, and the imposition of penalty interest.1 The matter thereafter progressed with a view to a trial in June 2013. In late January 2013, discussions between Messrs Schulz and Rasmussen resulted in the email “agreement” of 4 February. At this time, solicitors were also involved in the negotiation largely in relation to the other proceedings which also involved Messrs Schulz and Rasmussen.
[8] As a result of the imminent bankruptcy proceeding there was particular concern that agreement be reached in respect of one of the legal proceedings. This matter was the subject of a deed of agreement that was being circulated at the same time as the email exchange. Mr Schulz advised that it was imperative that the deed be settled by the Monday morning before the bankruptcy fixture on the Tuesday. The deed agreement was conditional on the bankruptcy proceeding being settled. In the event, the deed was signed and the dispute to which it related settled. Mr Schulz avoided bankruptcy.
[9] The other two disputes, including that the subject of the present proceeding, were respectively the subject of agreed positions under the second and third headings of the 4 February email agreement but remained extant. Both have since been the subject of correspondence between Messrs Schulz and Rasmussen and their legal advisors. Counsel in this proceeding have filed joint memoranda which advised that the parties were in settlement negotiations involving a number of interrelated parties and issues. As a result the June 2013 fixture was vacated.
[10] Towards the end of 2013, Mr Schulz gave notice of his view that this proceeding had been the subject of a settlement recorded in the 4 February email agreement. In early 2014, he sought to progress settlement of that agreement by requiring details of what McArthur Ridge considered to be fair and reasonable legal costs, which the parties had agreed to negotiate in good faith as part of that
settlement of the proceeding.
1 McArthur Ridge Investments Ltd v Schulz [2012] NZHC 423.
The issues
[11] The question of whether this proceeding was settled by the signed email exchange of 4 February 2014 is dependent upon resolution of the following two issues. Firstly, did the parties intend to be legally bound? In order for the agreement to have contractual force the parties must have intended to have made a binding agreement. If the Court determines that the 4 February email exchange does constitute a contract, the Court will endeavour to give effect to that contract if it can. That gives rise to the second issue, namely whether the email agreement was sufficiently certain to be given contractual effect. Whether it can will turn on whether there is sufficiently objective criteria or machinery in the contract to give effect to the parties’ contractual intentions.
Was there an intention to be legally bound?
[12] Mr Schulz in his Sunday night email of 3 February 2013 refers to what had previously been discussed by him with Mr Rasmussen. He states:
As discussed I summarise what the process is to enable a settlement to take place by tomorrow (Monday).
(Emphasis added)
He concludes the email with the following:
John, the above I think summarises our discussion. Can you please review and advise.
It is imperative that the first agreement is settled by tomorrow morning. Look forward to your comments.
[13] On Monday morning, both Mr Rasmussen and Mr Schulz made amendments. Mr Rasmussen in the afternoon sent the following email.
Hi Robin,
Sharon agrees that this is the best we can do given the timeframe and that it really represents an agreement to try to negotiate a settlement that will then be more detailed. Meanwhile we reserve our positions.
If, you and GM sign I will countersign and return. Regards, John
[14] The reference to “Sharon” is to Ms Sharon Knowles, a solicitor acting for Mr Rasmussen in respect of the other matters the subject of proceedings also referred to in the February email agreement. The uncontradicted evidence of Mr Rasmussen is that at the time he sent his email no one had signed the 4 February email agreement.
[15] After providing this advice to Mr Schulz, the email agreement was signed by Mr Rasmussen who then forwarded it to Ms Knowles. He did not personally return the signed document to Mr Schulz. Ms Knowles, early on Tuesday morning, sent the signed 4 February email agreement to solicitors acting for parties in the other proceedings with which Mr Schulz was involved and to which the email agreement also related. That included the proceeding which was the subject of the deed agreement. In her covering email, Ms Knowles stated:
John Rasmussen has asked me to forward on the attached document – which outlines various matters which the parties are discussing. Our client remains committed to negotiating resolution as soon as possible.
[16] Mr Rasmussen submits that the wording of his email on the afternoon of Monday 4 February made it plain that he was not binding himself to any contract. Indeed, it is submitted that the objective intention, clear on the face of his email, was not to contract. Mr Rasmussen submits that the email exchange of 4 February was a commitment to a process but nothing more. Mr Rasmussen expressly reserved his position and that the document represented an agreement to try and negotiate a settlement. It did not of itself represent a settlement.
[17] Mr Rasmussen relies on Electricity Corporation of New Zealand Ltd v Fletcher Challenge Energy Ltd.2 Delivering the majority judgment of a full bench of the Court of Appeal, Blanchard J held that the prerequisites to formation of a contract include an intention to be immediately bound (at the point when the bargain is said to have been agreed).3 His Honour observed:4
Whether the parties intended to enter into a contract and whether they have succeeded in doing so are questions to be determined objectively. In considering whether the negotiating parties have actually formed a contract,
2 Electricity Corporation of New Zealand Ltd v Fletcher Challenge Energy Ltd [2002] 2 NZLR
433 (CA).
3 At [53], per Richardson P, Keith, Blanchard and McGrath JJ.
4 At [54].
it is permissible to look beyond the words of their “agreement” to the background circumstances from which it arose - the matrix of facts. This can include statements the parties made orally or in writing in the course of their negotiations and drafts of the intended contractual document.
[18] When the issue is one of contract formation, evidence of negotiations and all other surrounding circumstances will be received. Blanchard J observed that in examining such an issue it is:5
… permissible to prove that one party told the other that the otherwise apparently binding contract was not in fact to be binding…
And:6
It is also permissible when considering contract formation (or rectification) to look at subsequent conduct of the parties towards one another, including what they have said to each other after the date of the alleged contract.
[19] The Court of Appeal contrasted the approach of a Court to the issue of whether the parties intended to enter into a contract and its approach, where, being satisfied the parties intended to make an immediately binding contract, questions of uncertainty and incompleteness arise. Blanchard J observed:7
The Court has an entirely neutral approach when determining whether the parties intended to enter into a contract. Having decided that they had that intention, however, the Court's attitude will change. It will then do its best to give effect to their intention and, if at all possible, to uphold the contract despite any omissions or ambiguities.
[20] The Court cited with approval the position expressed by Anderson J in
Anaconda Nickel Ltd v Tarmoola Australia Pty Ltd:8
… the principle that courts should be the upholders and not the destroyers of bargains, which is the principle that underlies this approach, is not applicable where the issue to be decided is whether the parties intended to form a concluded bargain. In determining that issue, the court is not being asked to enforce a contract, but to decide whether or not the parties intended to make one. That inquiry need not be approached with any predisposition in favour of upholding anything. The question is whether there is anything to uphold.
5 At [55].
6 At [56], citing Australian Broadcasting Corporation v XIVTH Commonwealth Games Ltd (1988)
18 NSWLR 540 at 550.
7 At [58], citing Hillas & Co Ltd v Arcos Ltd (1932) 147 LT503, [1932] All ER Rep 494;
Demptster (R & J) Ltd v Motherwell Bridge and Engineering Co Ltd 1964 SC 308, 1964 SLT
113; Attorney-General v Barker Bros Ltd [1976] 2 NZLR 495 (CA).
8 Anaconda Nickel Ltd v Tarmoola Australian Pty Ltd (2000) 22 WAR 101, at 132-133.
[21] The Court of Appeal summarised the position as follows:9
The intention of the parties, as discerned by the Court, to be bound or not to be bound should be paramount. If the Court is satisfied that the parties intended to be bound, it will strive to find a means of giving effect to that intention by filling the gap. On the other hand, if the Court takes the view that the parties did not intend to be bound unless they themselves filled the gap (that they were not content to leave that task to the Court or a third party), then the agreement will not be binding.
[22] Mr Rasmussen submits that his email to Mr Schulz disavowed any intention to be bound by the terms of the email exchange of 4 February in settlement of the multiple legal disputes that existed between them. To the contrary, his email of Monday afternoon expressly reserved McArthur Ridge’s and other related parties’ positions.
[23] Mr Schulz however submits that the “force” of the statement set out in Mr Rasmussen’s Monday afternoon email was overtaken by subsequent events. He refers to the signing of the deed as required by the first “head of settlement”, and submits that the parties having given effect to that part of the email exchange which McArthur Ridge can rely and benefit from, it cannot now deny an intention to be bound by the other parts of the email exchange.
[24] That first so-called “head of settlement” reads as follows:
Settlement re MRML/MRTL/MRIGL etc
1/ You and I will circulate to all parties tonight our acceptance of the terms of the agreement (as per Mark Odlins critic @6.49pm Friday)(subject to below
2/ All lawyers will confirm they hold a signed Counter copy of the agreement by their client by 10.00am Monday 4th Feb and an undertaking they will exchange copies by 3.00pm 4th Feb, conditional only on 4 below
3/ CMT signing the settlement agreement between CMT and R A Schulz by 12 noon 4th Feb
4/ Settlement is only conditional on the matters before the Court re IRD
and CMT v R A Schulz being settled in full on Tuesday morning 5th Feb
9 Electricity Corporation, above n 2, at [60].
[25] As is apparent from what is recorded under this heading, settlement of this dispute was well advanced and was the subject of specific terms of agreement contained in a deed that was currently being circulated amongst the parties. This part of the email relates to the mechanics by which the deed would be signed off and its interrelationship with the bankruptcy proceeding set to proceed on the Tuesday morning. Agreement and settlement of this dispute was more advanced than those the subject of the legal proceedings under the other two headings set out in the email exchange.
[26] As observed by Mr Rasmussen, McArthur Ridge was not a party to the deed and has not relied on it, or taken any benefit under it, therefore no issue of “approbating and reprobating” arises as contended for by Mr Schulz. Insofar as Mr Rasmussen was representing the interests of the parties that were to be signatories of the deed, his willingness to proceed in the manner outlined in the email exchange, and have the deed executed prior to the calling of Mr Schulz’s bankruptcy proceeding does not alter Mr Rasmussen’s communicated view of the status of the 4 February email.
[27] Mr Schulz placed reliance on the efforts of the parties to pursue settlement in respect of the second head of the email agreement of 4 February. He referred to McArthur Ridge’s solicitors’ reliance on letters invoking the terms of the 4 February email agreement and the absence of any attempt by either party to revisit or amend the terms that had been agreed to.
[28] The fact that McArthur Ridge sought to follow the process agreed to as a means to achieve settlement does not however ex post facto transform its position to one of now being bound by the 4 February email agreement. Subsequent conduct and representation may be used to deduce a party’s intention at the time of the formation of the agreement but the focus remains on the party’s intention at the time. In any event, in the same correspondence relied upon by Mr Schulz as evidence of a binding agreement there is reference by McArthur Ridge’s solicitors to a “negotiation process” as a descriptor of what the parties had agreed to enter into in early February. This is consistent with Mr Rasmussen’s description of what he was agreeing to at the time of his email of 4 February 2013.
[29] Mr Rasmussen submits that Mr Schulz’s argument that a binding contract had been entered into in respect of this proceeding does not stand scrutiny against the joint memorandum filed by counsel in February and August 2013. In the joint memorandum of 14 February 2013, the parties advise in relation to whether a fixture will be required, that:
3.Other legal issues involving the defendant have recently been resolved and parties to these present proceedings are parties to heads of agreement which may lead to a resolution of these proceedings.
4.There are complicated multiparty issues and regrettably the parties are not yet in a position to advise the court of whether this fixture is required.
Similarly, in joint memorandum of 28 February 2013, counsel for the parties’ state:
2.The parties advise that they have [sic] are progressing negotiations, which will hopefully see this litigation resolved.
3.The settlement negotiations involve a number of interrelated parties and issues. The complexity of the issues means that it is likely to be six months before it is clear whether or not these proceedings can be settled.
In August 2013, the parties advised:
3.Settlement negotiations are ongoing and the parties are currently exchanging information with a view to understanding the global picture in coming to a resolution.
[30] Mr Rasmussen submits that the joint memoranda is consistent with his position that what he was agreeing to with Mr Schulz in February 2013 was a “three- step process” whereby before there could be settlement of this proceeding, agreement had to have been reached in relation to the second dispute as it had been in relation to the first. He argues that any other interpretation runs counter to McArthur Ridge’s manifest intention to apply commercial pressure to Mr Schulz in relation to the present matter to obtain resolution of the other dispute. It would make no sense to settle the current proceeding without linkage to that other matter.
[31] Mr Schulz however can rightly point to the lack of any express statement in the email exchange of 4 February which renders agreement to settle this proceeding conditional upon the settlement of the other disputes the subject of the first and
second headings. Mr Schulz is able to rely upon explicit terms of the 4 February email which make reference to settlement being conditional on other events taking place and contrast that with the absence of any express linkage in the document referring to any order in which the disputes had to be settled.
[32] In my view, what was being communicated to the Court in counsels’ joint
memorandum was consistent with the intentions of the parties in entering into the
4 February email agreement whereby all matters between them would ultimately be the subject of resolution. I am not convinced that either of the parties turned their minds to the interrelationship between the three heads of agreement. The negotiation that had been entered into between Messrs Schulz and Rasmussen was required to be recorded and signed up to by the Monday because of the time exigencies imposed on the parties as a result of the bankruptcy proceedings on the Tuesday. As a result the remainder of the email agreement essentially represented a work in progress.
[33] The immediate concern was the settlement of the first dispute which was the subject of a separate deed. That was essential in order for Mr Schulz’s bankruptcy to be avoided. It is not clear on the evidence the extent to which, if any, the parties needed to exhibit a level of agreement in relation to the other two outstanding legal disputes for the purposes of the bankruptcy proceeding. Be that as it may, the fact remains that prior to signing the 4 February email exchange, Mr Rasmussen made it clear to Mr Schulz that what he was agreeing to was an attempt to try to negotiate a settlement and that he specifically reserved his position in respect of what may ultimately be achieved.
[34] It is permissible when considering contract formation to look at the subsequent conduct of the parties towards one another after the date of the alleged contract.10 There is however nothing in the subsequent conduct of the parties which eclipses or overtakes the caveat which Mr Rasmussen placed on what was being agreed to when he emailed Mr Schulz on the afternoon of 4 February. The subsequent actions of both parties are not inconsistent with the position
Mr Rasmussen communicated at that time.
10 At [56].
[35] The terms set out under the third heading to the 4 February email agreement may have been capable of constituting a discrete agreement. Mr Rasmussen however expressly reserved his position on behalf of the parties he represented. I am satisfied that he did not intend to be bound by what was set out in the 4 February email, except insofar as its terms represented a commitment to try to negotiate a settlement.
[36] The urgency of the bankruptcy proceeding required a different level of commitment from the parties as demonstrated by the deed executed on the Monday. A commitment by Mr Rasmussen to achieve that settlement within the tight timeframe set out in the email agreement of 4 February cannot legitimately be interpreted as a manifestation of an intention to be irrevocably bound by the remainder of the contents of the email. This is particularly so when, prior to signing the email agreement, Mr Rasmussen expressly communicated to Mr Schulz what the parties he represented understood the agreement meant, namely an agreement to try to negotiate a settlement that will be more detailed. In the meantime they reserved their positions.
[37] Accordingly, I have concluded that Mr Rasmussen on behalf of McArthur Ridge did not intend to be legally bound by the email agreement of 4 February. It did not therefore constitute a binding contract between the parties.
Whether the email agreement which relates to the present proceeding was sufficiently certain to be given contractual effect
[38] Determination of the second issue focuses on whether the agreement in question provides sufficient certainty to be given contractual effect. Whether examined as a whole or only in respect of the terms listed under the third heading relating to the present proceeding, what is described is likely to be labelled a process contract. The email exchange of 4 February refers to negotiation in good faith and the conduct of open and genuine discussions. Agreements couched in such terms where the content of the obligations are left for future determination on a purely
subjective basis will fail for want of sufficient certainty.11 Where however the
11 Wellington City Council v Body Corporate 51702 (Wellington) [2002] 3 NZLR 486 (CA) at [29]- [31].
objective of the best endeavours and the steps needed to be taken to obtain that objective are able to be prescribed by the Court, a best or reasonable endeavours obligation may be enforceable.12 When the parties intend that an essential obligation is to be determined by some objective criterion, the Court may supply the answer if the parties cannot agree.
[39] Mr Schulz submitted that the parties agreed to “payment of fair and reasonable legal expenses”. The agreement contemplated the parties attempting to agree legal expenses against that criteria which could, as expressly stipulated, be between $30,000 and $300,000. In the absence of the parties being able to make such a determination or in the event of failure to provide the necessary disclosure to negotiate such a determination, the Court having been provided with sufficient objective criteria could determine the costs issue.
[40] It may have been necessary for the purposes of this part of the argument to examine more closely the competing views of whether the email agreement dealt with a group of disputes in an overall way, or could be approached in terms of separate agreements to discrete disputes. The involvement of the Court however to assist the enforceability of a process contract is premised on a finding that the parties intended to make a final and binding contract in the first place. In such a situation the Court will do its best to give effect to their intention if that is possible and seek to
uphold the contract despite any omissions or ambiguities.13
[41] I have already determined that Mr Rasmussen on behalf of McArthur Ridge did not intend to enter into a concluded bargain and be immediately bound by the terms of the email agreement of 4 February. In the absence of such a fundamental prerequisite. I am not able to assess whether the gap left by the parties in respect of their stated commitment to negotiate in good faith to agree fair and reasonable legal expenses is capable of objective determination. Consideration of whether this part of the agreement is able to be enforced does not arise because there is no contract for
the Court to uphold.14
12 Above at [26]-[27]; Electricity Corporation, above n 2, at [114]-[115].
13 Electricity Corporation, above n 2, at [58].
14 At [58], citing Anaconda Nickel Ltd above n 8, at 132-133.
Decision
[42] The preliminary question, as framed in the minute of Gendall J of 6 May
2014, is whether the parties have concluded a settlement of the dispute between them by way of a settlement agreement. I have concluded that they did not.
Costs
[43] The parties are agreed that costs are to be reserved.
Solicitors:
Van Aart Sycamore Lawyers Ltd, Dunedin
Cordner Hill, Christchurch
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