Samson Corporation Limited v Macrennie Commercial Construction Limited
[2014] NZHC 1203
•30 May 2014
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
CIV-2013-404-002416 [2014] NZHC 1203
BETWEEN SAMSON CORPORATION LIMITED Plaintiff AND
MACRENNIE COMMERCIAL CONSTRUCTION LIMITED Defendant
AND
JAWA STRUCTURES LIMITED First Third Party
VERTRANZ ASSOCIATES (NZ) LIMITED
Second Third Party
SHANDONG TADA AUTO PARKING COMPANY LIMITED
Third Third Party
SUSAN NANETTE HERBERT and HG INDEPENDENT TRUSTEES LIMITED as trustees of the HERBERT FAMILY TRUST
Fourth Third Parties
Hearing: 11 March 2014 Counsel:
B O’Callahan for the defendant
I C Bassett for the fourth third partiesJudgment:
30 May 2014
(CORRECTED) JUDGMENT OF ASSOCIATE JUDGE SMITH
This judgment was delivered by me on 30 May 2014 at 3.30 pm, pursuant to r 11.5 of the High Court Rules
Registrar/Deputy Registrar
SAMSON CORPORATION LTD v MACRENNIE COMMERCIAL CONSTRUCTION LTD [2014] NZHC
1203 [30 May 2014]
Contents
Legal Principles for Summary Judgment ......................................................................... [4] Background Facts ............................................................................................................... [6] The issues ........................................................................................................................... [21] The Interpretation Issue ................................................................................................... [25] Determination on the Interpretation Issue ..................................................................... [37]
The Estoppel and Rectification Issues............................................................................. [46] The Herbert Trustees’ Submissions on the Estoppel Issue.............................................. [60] Macrennie’s Submissions on the Estoppel Issue .............................................................. [68]
Determination on the Estoppel Argument ...................................................................... [77] Novation or Variation Discharging the Guarantee ........................................................ [97] Conclusion ....................................................................................................................... [104]
[1] The plaintiff (Samson) has sued the defendant (Macrennie) for alleged breach of a head contract, under which Macrennie agreed to supply an automated car parking system (a car stacker) for installation in a building located on Karangahape Road in Auckland. Samson nominated Olympia Group Limited (Olympia) as sub- contractor to Macrennie for the supply of the car stacker. Olympia in turn sub- contracted with the third third party (Shandong Tada) for the manufacture of the car stacker in China.
[2] In its claim, Samson says that there were defects with the car stacker, as supplied. Macrennie has issued third party proceedings against Shandong Tada, and against the fourth third parties (who by Deed of Guarantee (the Deed) guaranteed to Macrennie and Samson certain matters relating to the manufacture of the car stacker).
[3] The fourth third parties, the current trustees of the Herbert Family Trust, now apply for summary judgment on the third party claim issued against them by Macrennie.
Legal Principles for Summary Judgment
[4] Under r 12.2 of the High Court Rules, the Court may give summary judgment against a plaintiff if the defendant satisfies the Court that none of the causes of action in the plaintiff’s statement of claim can succeed. For the purposes of the rule, the defendant in this case is to be treated as the “plaintiff” and the fourth third parties as “the defendant”.
[5] A defendant’s application for summary judgment is similar to a striking out application, in that the defendant has to show that the plaintiff cannot succeed. As in the case of an application for summary judgment by a plaintiff, if there are material disputes of fact which cannot be resolved on affidavit evidence, summary judgment will be refused. Generally, summary judgment should be given only where the defendant has a clear answer to the plaintiff which cannot be contradicted.1
Background Facts
v
1 Westpac Banking Corporation v M M Kembla New Zealand Ltd [2001] 2 NZLR 298 (CA).
[6]
suppl
Rele
y of th
(a)
ant terms of Olympia’s quote dated 8 April 2008 to Macrennie for the
e car stacker were:
25 per cent of the price was to be paid at the time both parties signed
the agreement; (b)
25 percent was to be paid on the inspection of the Equipment at
Olympia Group Manufacturers factory in China (the Factory) at least
7 days prior to the Equipment being packed in the containers in
readiness for shipment to Auckland, New Zealand, by irrevocable
letter of credit, drawn in US Dollars with such a letter of credit being
presented by the buyer to Olympia no more than 10 working days after the signing of this Agreement; (c)
30 per cent of the price was to be paid on delivery of the equipment to the designated wharf in New Zealand, and the final 20 per cent was to
be paid on completion of installation of the equipment;
(d)full insurance cover was to be arranged by Olympia at its cost, to cover the gross value of all equipment from the Chinese port of departure to the final completion and commissioning;
(e) the equipment was to be provided with a 24 month warranty from the date of installation against faulty workmanship and parts; and
(f) Olympia was to perform the installation to the standard of a competent tradesperson, and Olympia undertook that the equipment would be of merchantable quality, provided that Macrennie would examine the goods and no undertaking would apply as regards defects which such examination ought to have revealed.
[7] Macrennie had not previously dealt with Olympia.
[8] On 15 July 2008 the then trustees of the Herbert Family Trust (The Herbert Trustees) executed the Deed. The parties to the Deed were Samson, Macrennie, Olympia, the Herbert Trustees and Mr Glynn Jenkins, a director of Olympia.
[9] The “background” section of the Deed recorded that Samson and Macrennie were parties to a building contract (as principal and contractor respectively) for the construction of the Karangahape Road building, and that Samson had nominated Olympia to provide and install the car stacker system.
[10] The final paragraph of the background section recorded that Olympia required an initial upfront deposit and part-payment of up to NZD 671,250 (25 per cent less 3.5 per cent retentions and GST), to enable the car stacker to be manufactured in China.
[11] In the operative part of the Deed of Guarantee, the Herbert Trustees and
Mr Jenkins provided separate guarantees, each as a principal covenanting party, in the following terms:2
2 Mr Jenkins’ guarantee was set out in cl 1., the Herbert Trustees’ in cl. 2.
…that the Car Stacker to be manufactured in China for Olympia will be manufactured in China in a proper and workmanlike manner and in full compliance with Olympia’s contractual obligations under its sub-contract with Macrennie, will be certified pursuant to para 2.12 of Olympia’s offer of
8 April 2008 and then loaded into a container for delivery to New Zealand, and insured in the names of Olympia, Macrennie and Samson for their respective interests…”.
[12] The reference to paragraph 2.12 of Olympia’s offer dated 8 April 2008 was presumably a mistaken reference to cl 2.1.2 of that letter, which is set out in full in paragraph [6](b) of this decision.
[13] The Herbert Trustees’ guarantee contained a cap, limiting their liability under the Deed to the amount of the initial upfront deposit and part-payment which Olympia had required, together with any costs of enforcement for breach.3
[14] Under cl 4 of the Deed, the risk in relation to the goods was to remain with
Olympia until delivery of the goods onto the site at Karangahape Road.
[15] Clause 9 of the Deed contained an acknowledgement by Samson and Macrennie that they would exhaust their remedies under the Deed first against Olympia and Mr Jenkins before taking any action against the Herbert Trustees. Clause 9 then provided:
It is further acknowledged that the Trustees will be released from any liability under this Deed immediately upon satisfaction of their obligations under clauses 1 and 2 hereof.4
[16] There is a dispute over the construction of cl 2 of the Deed. The Herbert Trustees say that their guarantor obligations in cl 2 of the Deed were to be discharged immediately upon shipment.5 Macrennie says that there was no such restriction on the ambit of cl 2 of the Deed. Macrennie contends that, on the plain wording of cl 2 of the Deed, the Herbert Trustees undertook to guarantee the manufacture in China of the car stacker system in a proper and workmanlike manner and in full compliance with Olympia’s contractual obligations under its sub-contract
with Macrennie.
3 Deed of Guarantee, cl 2.
4 Presumably, the reference intended was to cl 2 of the Deed of Guarantee: the Herbert Trustees had no obligations under cl 1.
5 Herbert Trustees’ amended Statement of Defence, para 10(g).
[17] Macrennie says that the question of whether the car stacker had been built in a workmanlike manner and in accordance with Olympia’s sub-contract could not be properly assessed until the car stacker was installed and operational in New Zealand. While there was no guarantee for anything that occurred after shipment from a Chinese port, it says that did not extinguish the guarantee in respect of events occurring prior to that time. Macrennie contends that the Deed is clear on its face: there was to be no discharge of the Herbert Trustees until all of the requirements specified in cl 2 of the Deed were satisfied.
[18] The car stacker was eventually installed on the Karangahape Road site in
2009. However there were problems with the car stacker and in May 2013 Samson commenced the present proceeding against Macrennie. Samson sought damages from Macrennie in the sum of $723,704 plus GST.
[19] Macrennie issued its third party claims on 11 July 2013. Against the fourth third parties, it pleads that, in the event of Samson establishing that the car stacker was not manufactured in a proper and workmanlike manner and in full compliance with Olympia’s contractual obligations under its sub-contract with Macrennie, the fourth third parties are in breach of their obligations under the Deed, and are liable to indemnify Macrennie (or contribute to any liability Macrennie might have to Samson, up to the maximum liability figure referred to in the Deed).
[20] Samson has not made any claim against the fourth third parties.
The issues
[21] In his written submissions, Mr Bassett identified the following four issues on the summary judgment application:
(a) Interpretation: what is the correct interpretation of the Deed?
(b)Estoppel: is Macrennie estopped (by certain email communications entered into shortly before the Deed was signed) from denying that the Herbert Trustees’ liability to Macrennie under the Deed was discharged upon shipment of the car stacker ex-China?
(c) Rectification: do the Herbert Trustees have a valid claim for rectification of the Deed to provide that their liability to Macrennie was discharged upon shipment of the car stacker ex-China?
(d)Novation or variation discharging the guarantee: irrespective of (a) and (c) above, did Macrennie, by novation or variation of its sub- contract with Olympia, discharge the Herbert Trustees from their obligations under the Deed?
[22] Mr Bassett submitted that any debate about interpretation, implied terms, surrounding circumstances and the wording of the Deed, is resolved by what he described as the unequivocal evidence relating to estoppel.
[23] The novation or variation issue referred to by Mr Bassett (issue (d) above)
was substantially based on two matters on which there is no dispute:
(a) Certain components of the car stacker were not manufactured in China at all. They were manufactured in Italy, and shipped direct from Italy to New Zealand for assembly and installation in Auckland with other car stacker components which were manufactured in China.
(b)Subsequent to the Herbert Trustees entering into the Deed, there were at least three variations in the contract between Macrennie and Olympia.
[24] The Herbert Trustees say that these variations or novations operated to discharge them from any continuing liability they may have had post-shipment from China under the Deed.
The Interpretation Issue
[25] The fourth third parties had pleaded an implied term that their liability would be discharged immediately on shipment of the car stacker ex-China, but that argument was not pressed at the hearing.
[26] Mr Bassett referred to the cases Vector Gas v Bay of Plenty Energy Ltd and
Boat Park Ltd v Hutchinson in support of the following legal propositions:6
(a) Interpretation of a written contract involves the Court ascertaining 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 they were in at the time of contracting.
(b)A court will treat as admissible the factual matrix of surrounding circumstances known to the parties at or before the time of contracting if relevant to the way in which the words in the agreement would have been understood by a reasonable person.7
(c) Although a court will disregard any evidence of the subjective intentions of the parties, a court will admit evidence to establish:
(i)agreement as to meaning, to the extent that such is an objectively determinable fact;
(ii)estoppel by convention of the parties based upon a common assumption whether involving a special meaning or not, to prevent unfair departures from common understandings; and
(iii)estoppel by representation, including as to meaning or derogation from strict legal rights.
[27] Mr Bassett submitted that the provisions in cl 2 of the Deed for manufacture in China “in a proper and workmanlike manner” were provisions which appeared in a wider context, including a provision for inspection and certification in China before shipment. He noted that the Herbert Trustees’ guarantee was limited to the
same figure which represented the upfront deposit required by Olympia.
6 Vector Gas v Bay of Plenty Energy Ltd [2010] NZSC 5, [2010] 2 NZLR 444 (SC); Boat Park Ltd v Hutchinson [1999] 2 NZLR 74 (CA).
7 Investors Compensation Scheme Ltd v West Bromwich Building Society [1998] 1 All ER 98; [1998] 1 WLR 896.
[28] Looking at those provisions together, Mr Bassett submitted that the Herbert Trustees’ guarantee was limited in time so that they would be released from all liability under the document at a specific point in time. He referred to the cl 9 provision that the Herbert Trustees would be released from any liability immediately upon satisfaction of their obligations under cl 2 and submitted that the provision is consistent with an intention that they were to be discharged from all liability at the time of shipment. In Mr Bassett’s submission, an enduring guarantee of the kind contended for by Macrennie would render redundant cl 9. On Macrennie’s interpretation, the Herbert Trustees would never be released from liability, except eventually by time limitation.
[29] For Macrennie, Mr O’Callahan submitted that if the guarantee was intended to be discharged upon the goods being loaded onto the ship, wording to that effect would have been used in the Deed. In his submission, such a release would not have been consistent with the first of the obligations being guaranteed, namely the manufacture of the car stacker to a proper and workmanlike standard.
[30] Turning to the “factual matrix”, there was a measure of agreement between counsel as to what material in the affidavits can be considered. The parties were agreed on the following:
(a) The genesis of the Deed was that the guarantee was requested by Samson and Macrennie and Olympia in April/May 2008 as security for Samson’s/Macrennie’s proposed initial deposit of about $700,000. The concern was that the initial deposit might be irrecoverable from Shandong Tada if it was paid and Shandong Tada did not then build the car stacker.
(b)A previous nominated sub-contractor for the supply and manufacture of the car stacker had not been able to perform, and Olympia was a replacement contractor.
(c) Olympia could not provide insurance cover or a performance bond in respect of the first deposit.
(d)The risk which prompted the request for a guarantee was thus the risk of loss of the initial deposit before shipment ex-China.
[31] Macrennie acknowledged that while item (d) above may have been the starting point or the “genesis” of the Deed, the thinking of the parties evolved, and Macrennie later required a guarantee in relation to the product being manufactured in a proper and workmanlike manner.
[32] Mr Bassett submitted that certain other communications could be regarded as part of the factual matrix. These included an email from Mr Richard Herbert, then one of the Herbert Trustees and also the accountant acting for Olympia, dated 2 July
2008, in which Mr Herbert confirmed that the Herbert Trustees would “give a back- up guarantee in respect to the first drawdown”. The email proposed that the guarantee would be discharged “upon the successful review and sign-off for loading of the goods ex-factory in China”. Mr O’Callahan objected to this email being read on the contract interpretation issue, submitting that it was merely a proposal made by Mr Herbert which contradicted the Deed as it was eventually drawn.
[33] Mr Bassett also sought to refer to an email by Mr Creemers, the general manager of Samson, advising the other parties that the terms of Mr Herbert’s email dated 2 July 2008 were acceptable to Samson, and that Macrennie’s solicitors were to draft the guarantees. The email from Mr Creemers did not suggest that the contents of Mr Herbert’s email were also then acceptable to Macrennie.
[34] In answer to Macrennie’s submissions on the interpretation issue, Mr Bassett submitted that the sub-contract provision providing for a certification process in China was designed to address the risks perceived by Macrennie. That certification process, understood by all parties, was a prerequisite for payment of the second payment by Macrennie to Olympia, and the object of the certification was clearly to eliminate the risk for Macrennie when making that second payment.
[35] Mr Bassett also argued that Macrennie was the author of its own inability to adequately check the car stacker in China.
[36] He also contrasted the Herbert Trustees’ guarantee obligations with those of Mr Jenkins, whose guarantee extended to the assembly and installation work in New Zealand.
Determination on the Interpretation Issue
[37] Starting with the natural meanings of the words used in the Deed, it seems to me that effect has to be given to the first two undertakings provided by the Herbert
Trustees at cl 2 of the Deed, namely that:
(i) the car stacker would be manufactured in China in a proper and workmanlike manner; and (ii)
it would be manufactured in full compliance with Olympia’s
contractual obligations under its sub-contract with Macrennie.
[38]
On the plai
n words of cl 2, these provisions are additional to the requirement
for certification.
[39] It seems unlikely that the parties would have intended the additional cl 2 obligations to have no practical function, but without looking beyond the Deed, that would appear to be the result if the Herbert Trustees’ interpretation was correct.
[40] The obvious reason for including such additional provisions would be to cover the situation where the car stacker was manufactured in China with defects which were either latent or for some other reason might not be picked up on the inspection required under the certification provision. Assuming that such a defect existed, and it was not picked up on the certification inspection, the guarantee of manufacture “in a proper and workmanlike manner and in full compliance with Olympia’s contractual obligations” would have been of little value to Samson and Macrennie if the intention was that the Herbert Trustees would be released from liability in respect of any such defect as soon as the car stacker left China. Macrennie would effectively have been dependent on the efficacy of the inspection required by the certification process.
[41] The fact that the liability of the Herbert Trustees was capped at the amount of the upfront deposit which Olympia required, suggests that the apparent purpose of the guarantee was to ensure that Samson and Macrennie would receive full value for the upfront payment they were about to make to Olympia. But the possibility of Shandong Tada pocketing the money and defaulting on its manufacture obligations was not the only way Samson and Macrennie might have received nothing of benefit in exchange for the payment. It might also have been the result if the manufacture had not been carried out in a proper and workmanlike manner, or in some significant way did not comply with Olympia’s contractual obligations to Macrennie.
[42] Accordingly, I do not believe that the fact that the Herbert Trustees’ liability was capped at the same figure as the upfront deposit is sufficient to compel the interpretation for which the Herbert Trustees contend, at least without going beyond the apparently plain wording in the first four lines of cl 2 of the Deed.
[43] Nor do I believe that cl 9 of the Deed points to any other conclusion. It states that the Herbert Trustees are to be released from their liability under the Deed, but that was only to occur upon satisfaction of their obligations under cl 2. Without looking beyond the wording of the Deed itself, I think that can only be taken as referring to all of their obligations in cl 2, including the guarantee that the car stacker would be manufactured in a proper and workmanlike manner, and in full compliance with Olympia’s contractual obligations to Macrennie. Clause 9 only takes us back to the same interpretation issue which arises in respect of cl 2.
[44] On the question of the admissibility of the emails dated 2 July 2008 of Mr Herbert and Mr Creemers, I agree with Mr O’Callahan that neither email is admissible on the pure question of interpretation of the Deed of Guarantee (i.e. without resorting to the doctrines of estoppel by convention or representation). The emails do no more than set out particular positions taken by two of the parties some
13 days before the Deed was executed, and Macrennie was not party to them. Given the apparent disparity between these emails and the Herbert Trustees’ obligations as set out in the first part of cl. 2 of the Deed, I do not think it can be said that the emails on their own shed any objective light on the meaning of the Deed as finally executed.
[45] I find that the Herbert Trustees have failed to show that the defendant has no arguable case based on the interpretation of the Deed as written. I also find that without recourse to arguments based on estoppel or rectification, their obligations as guarantors under the Deed were not discharged on shipment ex-China.
The Estoppel and Rectification Issues
[46] A proposal for a personal guarantee to cover the initial payment on the Olympia subcontract appears to have first emerged in discussions between Mr Creemers of Samson and Mr Jenkins on or about 23 June 2008.8 Mr Herbert proposed a guarantee which would have covered the payment of the initial 25 per cent to Olympia, and would have remained in force until the second 25 per cent payment had been made. It would then have been discharged.
[47] Mr Herbert later followed up with an email dated 2 July 2008, in which he confirmed that the Herbert Trustees would provide the guarantee, and proposed that the guarantee would be discharged “upon the successful review and sign off for loading of the goods ex factory in China”. Samson then advised Macrennie that Mr Herbert’s proposal relating to guarantees was acceptable to Samson. Mr Warren of Macrennie followed up with Mr Jenkins in an email dated 3 July 2008, referring to the proposed guarantees in the context of discussing the security against the initial
$700,000 deposit payment.
[48] On 7 July 2008, Macrennie wrote to Olympia formally accepting Olympia’s
8 April 2008 quotation. Macrennie asked Olympia to place its order for the completion of the design and off-site fabrication with Shandong Tada immediately. It advised that the formal contract would be completed on the Master Builders’ Federation sub-contract form, and would include a head contract agreement, and plans and specifications which were available for inspection at Macrennie’s premises.
[49] On 8 July 2008, Macrennie’s solicitor, Mr Carter, prepared a draft form of guarantee. The draft, which was sent to Macrennie, Samson and Mr Herbert,
8 Mr Herbert’s affidavit, exhibit S.
provided at cl 1 that the Herbert Trustees and Mr Jenkins would jointly and severally guarantee (as principal covenanting parties) that the car stacker to be manufactured in China for Olympia would be manufactured in a proper and workmanlike manner, and in full compliance with Olympia’s contractual obligations to Macrennie. The clause went on to provide for full assembly and testing of the car stacker, and certification by the manufacturer, before disassembly and loading on ship at a Chinese port for delivery to New Zealand. In a covering email, Mr Carter noted:
… I have drawn clause 1 of the agreement sufficiently wide so that it covers the second payment and to ensure that the guarantee applies until the car stacker is loaded on ship.
[50] Mr Carter also noted that Olympia’s commitment to insure only appeared to
commence once the car stacker was loaded on board ship; once the second
25 per cent had been handed over, Samson and Macrennie would have a double vulnerability.
[51] Mr Herbert wrote to Samson and Mr Jenkins on 8 July 2008, noting that, under clause 1 of Macrennie’s draft guarantee, the Herbert Trustees would be providing a guarantee in the event Olympia did not perform in ensuring the goods were ready for loading ex factory. Mr Herbert went on to say:
It is inappropriate to expect my trustees to guarantee the manufacture and certainly can have nothing to do with guaranteeing the product is assembled and tested. Simplistically we are merely required under guarantee in the event the goods as ordered are not loaded. Further, this clause should be clear on the discharge of the guarantee – here it is not. I believe it is discharged once goods are loaded for transport ex factory because at that stage the insurance policy kicks in.
[52] On 9 July 2008, Mr Creemers of Samson told Mr Herbert that he had no problems with Mr Herbert’s comments, and would talk to Mr Carter.
[53] A further draft Deed of Guarantee was circulated by Mr Carter on 9 July
2008. In this draft, the guarantees provided by the Herbert Trustees and by Mr Jenkins were dealt with in separate paragraphs. However the obligation remained on the Herbert Trustees to guarantee the manufacture of the car stacker in China in a proper and workmanlike manner, and in full compliance with Olympia’s contractual obligations to Macrennie.
[54] In a covering email, Mr Carter thanked Mr Herbert for his email, and thanked Mr Creemers for his comments on Mr Herbert’s email. Mr Carter made no specific comment in this email on what Mr Herbert had said about the time at which The Herbert Trustees would be discharged from their liability under the Deed, but in a postscript to his email, Mr Carter said:
P.s: Richard, assuming everything is in order, we still need the details to complete…[there followed references to clauses in the draft deed which have no relevance to the present dispute].
[55] A final draft of the Deed was sent by the Herbert Trustees’ solicitor Mr Snedden, to Mr Creemers at Samson at 6.38 pm on 9 July 2008. Mr Snedden said in his covering email:
My understanding is that the Trustees’ guarantee is only limited to the first payment and expires at the time the goods have been inspected in China and packed in the container in readiness for shipment to Auckland. At that point, the insurance for the goods kicks in and any loss after that will be covered by the insurance policy and will not be a loss recoverable from the Trustees. The amendments made are based on the above assumption.
[56] This draft retained the obligation on the Herbert Trustees to guarantee the manufacture of the car stacker in China in a proper and workmanlike manner and in full compliance with Olympia’s contractual obligations to Macrennie, and added the provision (in cl 9) that the Trustees would be released from any liability under the Deed “immediately upon satisfaction of their obligations under clauses 1 and 2 hereof” (the same formula used in the Deed as executed).
[57] At 9.08am on 10 July 2008, Mr Creemers noted in an email to Mr Snedden:
… there seems to be an issue with the Guarantee expiring before the insurance kicking in, as this seems to only kick in when the goods are on the ship. If the insurance kicks in once the goods have been inspected and packed into the container then this is okay, however if not then the Guarantee will have to remain until the goods are on the boat.
[58] At 10.26 am on 10 July 2008, Mr Carter sent an email to Mr Snedden’s firm:
So long as [Mr Creemers] is happy with the changes I am and on the basis that Olympia gets insurance cover in place as soon as loaded into container I am okay with changes …
[59] On 10 July 2008 the solicitors for the Herbert Trustees forwarded to the other parties copies of the Deed executed by Olympia, the Herbert Trustees and Mr Jenkins.
The Herbert Trustees’ Submissions on the Estoppel Issue
[60] For the Herbert Trustees, Mr Bassett submitted the evidence is unequivocal that all parties to the Deed understood that the Herbert Trustees’ guarantee was to expire whenever the insurance cover commenced, whether that was when the car stacker was loaded in a container for shipment to New Zealand or when it was loaded onto the vessel. He submitted that Macrennie is estopped from denying that the guarantee expired on shipment, and is precluded from suing as if there were an enduring guarantee.
[61] Mr Bassett described the kind of estoppel relied upon as either estoppel by representation, by a common understanding or assumption, or by agreement reached between the parties before executing the Deed, namely that the guarantee provided by the Herbert Trustees would be discharged immediately upon shipment ex-China.
[62] Mr Bassett submitted that estoppel can operate as to meaning, whether private dictionary meaning or other meaning.9
[63] Citing the Vector Gas case, Mr Bassett noted that Blanchard J held that it is open to a party to a contract to show that, despite the words used in the contract, the parties intended their words to have some special meaning, being a meaning that the relevant words would not normally bear. Blanchard J stated that this can be regarded as a linguistic example of estoppel by convention, and went on to say:10
The estoppel prevents the accepted special meaning from later being disavowed. Estoppels can also arise in interpretation cases not involving a special meaning. They are then normally based on a common assumption or a representation as to meaning.
[64] It is this “common assumption or representation as to meaning” on which the
Herbert Trustees rely in this case. They say that the assumption was that the effect of
9 Citing Vector Gas v Bay of Plenty Energy Ltd, above n 6 at [23].
10 Vector Gas v Bay of Plenty Energy Ltd, above n 6, at [25].
the Deed was that the guarantees given by the Herbert Trustees were to expire on shipment.
[65] They also say it would be unconscionable for Macrennie to be permitted to go back on what was a clear acceptance that the guarantee would be discharged at latest on shipment.11
[66] To the extent that the Herbert Trustees rely on estoppel by representation, they adopt the same formulation.
[67] Mr Bassett submitted that, at the time Mr Creemers sent his email at 9.08 am on 10 July 2008, all the parties appeared to be in agreement. In the context of the series of email exchanges, there was sufficient assent by Macrennie to the understanding of the amended deed.
Macrennie’s Submissions on the Estoppel Issue
[68] The essence of Macrennie’s case on the estoppel issue was that, when Mr Carter said on 10 July 2008 that he was happy with Mr Snedden’s changes, he was referring only to the changes to the draft deed, and not to Mr Snedden’s comments in his covering email. Macrennie says that, on an objective interpretation of the exchange of emails, the Court can only conclude that Mr Carter ignored Mr Snedden’s view of the meaning of the document. Mr O Callahan noted that a busy legal practitioner might just look at the document, and say that he was happy with it (assuming that to be the case) without paying too much attention to the covering email.
[69] Mr O’Callahan submitted that an estoppel has to be unequivocal, and that the confusion and equivocation in the relevant part of Mr Snedden’s email was such that it cannot be concluded that a clear proposition was set out to which Mr Carter later
agreed.
11 Referring to National Westminster Finance NZ Ltd v National Bank of New Zealand Ltd [1996]
1 NZLR 548 at 549, where Tipping J noted that the broader rationale of estoppel is to prevent a party from going back on its word (whether express or implied) when it would be unconscionable to do so.
[70] In Mr O’Callahan’s submission, the starting point on the estoppel argument is to consider the form of guarantee circulated by Mr Carter on 8 July 2008. It contained a complete guarantee by the Herbert Trustees of Olympia’s contractual obligations under its sub-contract with Macrennie.
[71] The next step is to look at Mr Herbert’s response circulated on 8 July 2008: Mr Herbert, at least, was clearly aware of the concept of “discharge”, and used that very expression. While Mr Herbert’s views were accepted by Mr Creemers for Samson, Mr O’Callahan submitted that the understanding set out in Mr Herbert’s email dated 8 July 2008 was never accepted by Macrennie.
[72] The proposed third step is to look at Mr Carter’s 9 July 2008 email to Mr Herbert and Mr Creemers. He submitted that this email simply did not deal with Mr Herbert’s points, and that the only fair interpretation of the email is that Mr Carter was accepting some of Mr Herbert’s points but not others.
[73] Mr O’Callahan noted that in Mr Snedden’s email of 9 July 2008 attaching what turned out to be the final version of the draft deed, Mr Snedden did not use language such as “discharge”, or “release”, which would have been apt if the intention had been that no claims against the Herbert Trustees under the Deed would be possible after the stipulated time (when the insurance “kicked in”). Instead, Mr Snedden used the word “expires”, an expression which Mr O’Callahan submitted is not normally used in guarantees to achieve that object.
[74] Mr O’Callahan submitted that the relevant paragraph was concerned to ensure that there would be someone on risk throughout the process (i.e. before and after the shipment of the car stacker ex-China). He submitted that, in the face of Macrennie’s requirement for a full guarantee of workmanship and compliance with Olympia’s sub-contract obligations, Mr Snedden’s response making some amendments to the earlier draft, but leaving intact the wording requiring a guarantee of workmanship and compliance with Olympia’s sub-contract obligations, with an unclear covering email, was not sufficient to support the estoppel for which the Herbert Trustees now contend.
[75] Mr O’Callahan did acknowledge that, in appropriate cases, there can be a “representation by silence”. In the circumstances of this case, the question would be whether Mr Carter’s omission to engage with Mr Snedden’s commentary in his 9
July email was sufficient to be judged “acceptance by silence”. Mr O’Callahan
submitted that it was not.
[76] Macrennie was negotiating through Mr Carter, and there was nothing in any of Mr Carter’s correspondence to suggest that he held the common assumption alleged by the Herbert Trustees.
Determination on the Estoppel Argument
[77] In Vector Gas, Tipping J noted that an estoppel would usually arise from the adoption of a special meaning, but it is in cases where words are capable of bearing more than one meaning that estoppel is likely to have its primary application.12
There are possibilities of one party to a contract being estopped from denying one of two possible meanings, or that the parties may have made an agreement, outside the four corners of the contract itself, as to some aspect of its meaning.
[78] Tipping J referred to the decision of Kerr J in the Karen Oltman where the issue was whether the words in a break clause “after 12 months trading” meant “on the expiry of 12 months” or “at any time after the expiry of 12 months”.13 Kerr J admitted evidence of negotiations in the form of telex exchanges.
[79] Tipping J noted that the case involved interpretation of an expression with two possible meanings. Tipping J said:14
If the parties agreed or represented to each other in the telexes that the word “after” meant “on the expiry of” and the agreement or representation was relied on when they entered into the time charter, the parties were each estopped by the agreement or representation from contending that the word “after” bore the alternative meaning. Indeed…they were bound by any such definitional agreement.
12 Vector Gas v Bay of Plenty Energy Ltd, above n 6, at [34].
13 Partenreederei MS Karen Oltmann v Scarsdale Shipping Co Ltd (Karen Oltman) [1976] 2
Lloyd’s Rep 708 (QBD).
14 Vector Gas v Bay of Plenty Energy Ltd, above n 6, at [36]-[37].
Of course, the court must be satisfied that an agreement or representation as to meaning reached or made during negotiations, was still operating at the time the contract was formed and represented a linguistic premise on which it had been formed…[In The Karen Oltman] the parties had consensually resolved which meaning was to apply, or an estoppel had been created, and evidence to that effect was admissible.
[80] McGrath J also considered the question of estoppel by convention in Vector Gas. He accepted that where lawyers are involved in framing contractual terms, strong and unequivocal evidence is required to warrant an inference of a common understanding that is inconsistent with what is expressly recorded in their contract.15
On the facts, McGrath J considered that the parties had conducted themselves at all
times on the basis of a common assumption that they were both referring to a gas energy price. In those circumstances, he concluded that it would be unconscionable to allow Bay of Plenty Energy to depart from the mutual assumption on which the parties had based their dealings through to the relevant acceptance by Bay of Plenty Energy of the offer by Vector Gas.
[81] Wilson J also addressed the question of estoppel in his judgment in Vector Gas, concluding that the correspondence between the parties prior to the relevant letter sent by the solicitors for Vector Gas, viewed objectively, admitted of only one construction. He held that there was no indication that the basis of pricing was intended to change between the previous correspondence and the relevant contract letter, and that:16
… It must follow that, although the wording of that letter when looked at in isolation indicates that the price was inclusive of transmission costs, BoPE is estopped from contending that that was so because to do so would be contrary to the common assumption upon which the contract had been negotiated.
[82] In National Westminster Finance, the Court of Appeal noted the following requirements for an estoppel by convention to arise:17
15 At [96]; referring to Air New Zealand Ltd v Nippon Credit Bank Ltd [1997] 1 NZLR 218 (CA) at
225 per Gault J.
16 Vector Gas v Bay of Plenty Energy Ltd, above n 6, at [144].
17 National Westminster Finance NZ Ltd v National Bank of New Zealand Ltd, above n 11, at 550.
(a) The parties have proceeded on the basis of an underlying assumption of fact, law, or both, of sufficient certainty to be enforceable (the assumption).
(b) Each party has, to the knowledge of the other, expressly or by implication accepted the assumption as being true for the purposes of the transaction.
(c) Such acceptance was intended to affect their legal relations in the sense that it was intended to govern the legal position between them.
(d) The proponent was entitled to act and has, as the other party knew or intended, acted in reliance upon the assumption being regarded as true and binding.
(e) The proponent would suffer detriment if the other party were allowed to resile or depart from the assumption.
(f) In all the circumstances, it would be unconscionable to allow the other party to resile or depart from the assumption.
[83] Applying the principles of both Vector Gas and National Westminster Finance to the present case, I am of the view that the Herbert Trustees have sufficiently made out their case that there was a common assumption between the Herbert Trustees, Samson, and Macrennie that the effect of the Deed was that the guarantees given by the Herbert Trustees were to be discharged on shipment.
[84] I note first that Samson appears to have accepted that that is the position. On
8 July 2008 Mr Herbert made it very clear to Mr Creemers and Mr Carter that he considered it inappropriate for the Herbert Trustees to guarantee the quality of the manufacture of the car stacker, and that the Herbert Trustees should not be required to guarantee that the product was assembled and tested. He expressly stated his belief that the discharge should occur once the car stacker was loaded for transport ex factory. The following day, one day before the Deed was signed by the Herbert Trustees, Mr Creemers confirmed that he had no problem with Mr Herbert’s comments. Subsequently, Samson has taken no step to pursue the Herbert Trustees under the Deed.
[85] That of course does not mean that Macrennie was operating under any such assumption. However, when the email communications leading up to the signing of the Deed are considered, it seems to me that Macrennie too has either been a party to
the same assumption or has represented to Mr Herbert that it was contracting on the basis of the assumption.
[86] The starting point in that respect is Mr Carter’s covering email to the other parties dated 8 July 2008, with which he enclosed a draft form of Deed. At this stage, the guarantees to be given by the Herbert Trustees and Mr Jenkins were included within the same cl 1, and Mr Carter noted in the covering email that the clause would ensure the guarantee applies until the car stacker is loaded on ship.
[87] I think the clear corollary of that statement was that the guarantee would not apply after the car stacker was loaded on ship.
[88] The next step is that Mr Carter did not completely ignore Mr Herbert’s objection in his 8 July email to the Herbert Trustees’ guarantee having any effect after the date of shipment ex-China. In the postscript to his reply email to Mr Herbert and Mr Creemers, Mr Carter said (in a comment specifically directed to Mr Herbert) he was “assuming everything [was] in order”.
[89] Although the further draft which accompanied Mr Carter’s email separated the guarantees of Mr Jenkins and the Herbert Trustees into two paragraphs, there was no apparent departure or resiling from the position stated in Mr Carter’s email sent with his first draft, namely that the guarantee would apply “until the car stacker is loaded on ship”. Given that statement in Mr Carter’s email dated 8 July 2008, and the strong statements in Mr Herbert’s response later the same day on the question of when the discharge would occur, Mr Carter’s email dated 9 July 2008 did not in my view effect any departure or resiling from the statement in his email dated 8 July
2008 that the guarantee would apply only until the car stacker was loaded on ship.
[90] In my assessment, Mr Snedden’s email sent at 6.38 pm on 9 July 2008 may not have been happily worded on the time of discharge point, but I think it is consistent with the earlier statements from Mr Carter that the guarantee would apply until the car stacker was loaded on ship, and Mr Herbert’s strong statement that the “discharge” should occur at that time. In that context, I think it clear that Mr Snedden’s 9 July 2008 reference to “expires” meant that the Herbert Trustees’
guarantee would expire at the time the goods had been inspected and packed in the container in readiness for shipment to Auckland. Furthermore, Mr Snedden made it clear that the amendments he had made to the Deed, which included the introduction of the new cl 9 provision that the Herbert Trustees would be released from any liability under the Deed immediately upon satisfaction of their obligations under cl 2 of the Deed, were made on the (interpretation) assumption as to the discharge of the Herbert Trustees’ guarantor liability set out in his email.
[91] Mr Carter’s 10 July 2008 email does not suggest that he was working on any different understanding or assumption. As Mr Snedden had made it clear in his covering email that his changes to the draft Deed were made on particular assumptions, including as to the timing of the discharge of the Herbert Trustees guarantee, I am satisfied that Mr Carter’s acceptance of “the changes” must be taken as an acceptance of the assumptions set out in Mr Snedden’s email (which were consistent with the relevant email correspondence from 8 July 2008), and not merely of the changes made to the draft Deed itself.
[92] For those reasons, I am satisfied that there was a common understanding that the guarantees given by the Herbert Trustees were to expire (be discharged) at latest on shipment, and that it would be unconscionable to permit Macrennie to resile from that common assumption.
[93] In case I am wrong in that, I would also say that the statement in Mr Carter’s email dated 8 July 2008 that “the guarantee applies until the car stacker is loaded on ship” was a representation as to the meaning to be attributed to the relevant part of the Deed, which remained in effect up to and including the time of execution of the Deed by the Herbert Trustees.
[94] There was nothing before me that suggested that further evidence might be available at trial which could produce a different result. The communications between the Herbert Trustees and their solicitor on the one hand, and Macrennie on the other, all appear to have been in writing: there were apparently no meetings or telephone discussions during the relevant period. Accordingly, there does not appear to be any prospect of Macrennie presenting a stronger case at trial on the estoppel
issue. I am satisfied that Macrennie has no answer to the Herbert Trustees’ argument on the estoppel by common assumption or representation point, and that the fourth third parties are entitled to summary judgment.
[95] In those circumstances it is unnecessary to consider the fourth third parties’
claim that the Deed should be rectified.
[96] There will accordingly be judgment for the fourth third parties on their application.
Novation or Variation Discharging the Guarantee
[97] For completeness, I add that I would not have been prepared to enter summary judgment on the fourth third parties’ claim that the alteration to the Olympia/Macrennie subcontract under which some of the car stacker components were to be manufactured in Italy (and shipped to New Zealand from that country), constituted a sufficient novation or variation that the Herbert Trustees were released from their obligations under the Deed.
[98] The principle on which the Herbert Trustees relied in this part of their case is essentially the principle as set out in Egbert v National Crown Bank:18
The true view, in my opinion, is that if there is any agreement between the principals with reference to the contract guaranteed, the surety ought to be consulted, and that if he has not consented to the alteration although in cases where it is without enquiry evident that the alteration is unsubstantial or that it cannot be otherwise than beneficial to the surety, the surety may not be discharged; yet that, if it is not self-evident that the alteration is unsubstantial, or one which cannot be prejudicial to the surety, the Court will not, in an action against the surety, go into an enquiry as to the effect of the alteration, or allow the question whether the surety is discharged or not to be determined by the finding of the jury. As to the materiality of the alteration, or the question whether it is to the prejudice of the surety, but will hold that in such a case the surety himself must be the sole judge whether or not he will consent to remain liable, notwithstanding the alteration, and that if he has not so consented he will be discharged.
[99] In Triodos Bank NV v Dobbs, the English Court of Appeal noted that a material variation in a contract between a creditor and a principal debtor will
18 Egbert v National Crown Bank [1918] AC 903 at 908 – 909.
discharge the guarantor, unless the variation is one to which the guarantor assented or which was provided for in the contract of guarantee.19 The assent, whether previous or subsequent to a variation, will only render the surety liable for the contract as varied where it remains a contract within the general purview of the original guarantee. If a new contract is to be secured, there must be a new guarantee.
[100] The Deed and the July 2008 and August 2008 versions of the Macrennie/Olympia sub-contracts all stipulated manufacture and inspection of the car stacker in China before shipment. Macrennie does not dispute that some of the car stacker components were shipped ex-Italy, and were not available for pre- shipment inspection with the rest of the components in China.
[101] Mr O’Callahan accepted that there had been some changes to the initial Macrennie/Olympia sub-contract, and that the changes would result in a discharge unless they were obviously unsubstantial, or were for the benefit of the Herbert Trustees. Mr O’Callahan further accepted that, if the Herbert Trustees established that such changes did occur, the law does not require any enquiry into the materiality of the changes. Absent consent from the guarantors, there will be a discharge if the change cannot be characterised as either obviously unsubstantial or for the benefit of the guarantor.
[102] In essence, Mr O’Callahan’s contention was that his client should not be deprived of the opportunity to argue at trial that the change providing for shipping of the electronic components from Italy was unsubstantial, and could not have affected the Herbert Trustees. The car stacker was to be shipped to New Zealand in components, and Macrennie says that if the Herbert Trustees’ obligations extended beyond the point of shipment ex-China it can make no difference that the electronic components would not be inspected until they reached New Zealand. Macrennie also says that the electronic components have not in any event proved to be
defective.
19 Triodos Bank NV v Dobbs (No 2) [2005] 2 Lloyd’s Rep 588, at 592.
[103] While it might not have been an easy task for Macrennie to show that the (admitted) change was “unsubstantial”, or was for the benefit of the Herbert Trustees, it seems to me that those questions would be better left for trial, where all the evidence could be considered. On the limited evidence available in the context of a summary judgment application, I think it would be dangerous to conclude that Macrennie’s argument that the change was “unsubstantial”, or was for the benefit of the Herbert Trustees, would be beyond reasonable argument.
Conclusion
[104] Accordingly, the application for summary judgment for the fourth third parties is granted.
[105] If the parties are unable to agree upon costs, they may file memoranda. Any memorandum from the fourth third parties is to be filed within fourteen days of the date of this judgment, and any reply memorandum for Macrennie is to be filed
within fourteen days after its receipt of the fourth third parties’ costs memorandum.
Solicitors:
Davies Law, Auckland for Fourth Third Parties
Carter Kirkland Morrision, Auckland for Defendant
Associate Judge Smith
N.B. The wording of the second sentence of paragraph [45] of this judgment was corrected by order made on 12 June 2014, inserting the word “not” between the words “were” and “discharged” in the second sentence of that paragraph. Otherwise the judgment has remained the same.
2
0
0