Wilson McKay Trustee Company Ltd v Van den Anker Construction Ltd
[2023] NZHC 3475
•16 December 2022
IN THE HIGH COURT OF NEW ZEALAND INVERCARGILL REGISTRY
I TE KŌTI MATUA O AOTEAROA WAIHŌPAI ROHE
CIV-2022-425-000001
[2022] NZHC 3475
BETWEEN NEW ZEALAND’S BLUFF OYSTER COMPANY (2013) LIMITED
Appellant
AND
MAASS MUSSELS & OYSTERS LIMITED
Respondent
Hearing: 31 May 2022 Appearances:
B J Marten and T W R Lynskey for the Appellant R G R Eagles for the Respondent
Judgment:
16 December 2022
JUDGMENT OF NATION J
Introduction
[1] The respondent (MMO) had a coastal permit allowing it to engage in mussel and oyster farming activities in an area in Big Glory Bay, Stewart Island/Rakiura (the marine farm) until 1 January 2025. In 2014 and 2015, the appellant (NZBO) entered into a contractual arrangement with MMO through which NZBO would be able to carry on oyster farming at the marine farm potentially with rights of renewal until 2034.
[2] NZBO had to pay rent for the use of the marine farm of only $1 plus GST per year but had to provide the spat from which oysters would grow for MMO alongside NZBO’s own oyster farming operation.
NEW ZEALAND’S BLUFF OYSTER COMPANY (2013) LTD v MAASS MUSSELS & OYSTERS LTD [2022] NZHC 3475 [16 December 2022]
[3] In 2015 and 2016, the relationship between the parties became difficult. In November 2016, they varied their contractual arrangements through a Heads of Agreement (the HoA). As a result, NZBO had to begin paying a commercial rent for the marine farm but no longer had to provide spat and farm oysters for the benefit of MMO. NZBO had to pay $280,000 plus GST over seven years, payable quarterly in instalments of $10,000 plus GST. The first payment was due on 1 February 2017. In the HoA, this obligation was described as “additional rent”.
[4] In May 2017, the oyster parasite Bonamia ostreae was detected in Big Glory Bay. From 1 June 2017, the Ministry for Primary Industries (MPI) took steps which effectively prohibited oyster farming at Stewart Island and required the removal and disposal of all the oysters and associated equipment.
[5] Judge Tuohy in the District Court held the contractual arrangements between the parties had been brought to an end by frustration but said NZBO’s obligation to pay $280,000 could be severed from the rest of the contractual arrangements.1 NZBO were liable to MMO for the instalments of “additional rent” then due. NZBO appealed the Judge’s decision that the provisions could be severed from the contractual arrangements and that NZBO was liable for the outstanding payments.
Factual background
[6] The factual background is comprehensively but succinctly set out in the District Court judgment. Given the issues on appeal, it is not necessary for me to set out that background in full.
[7] MMO was a family company owned by Mr and Mrs Maass-Barrett. The company began mussel farming in Big Glory Bay in 1995. In 2003, it started farming flat (Bluff) oysters.
[8] NZBO was also a family company with four shareholders, Rodney, Darryl, Dee and Carol Clark. Rodney (Mr Clark) was NZBO’s general manager. His wife, Dee Clark (Mrs Clark), was also a director of the business. NZBO had a marine farm
1 Maass Mussels and Oysters Ltd v New Zealand’s Bluff Oyster Company (2013) Ltd [2021] NZDC 22543.
in Bluff Harbour and a land-based facility at Bluff where oyster spat were grown from larvae in a hatchery/nursery.
[9] In November 2014, the parties entered into a Deed of Licence by which MMO remained the sole holder of both the marine farm permit and the coastal permit required to undertaken marine farming on the marine farm. The licence granted to NZBO the exclusive right to farm the species permitted by the permits subject only to a right for MMO to farm its own stock. The licence also entitled NZBO to exclusive use of MMO’s equipment as listed, subject only to MMO’s right to also use that gear. NZBO had to pay the licence fee payable by MMO to MPI but otherwise only had to pay a peppercorn rental for the licence. With rights of renewal, the licence could continue until the final expiry date of 31 July 2034.
[10] MMO relinquished its right to sell the marine farm, associated permits and gear until 31 July 2019. After that, if it wished to sell the farm, NZBO had an option to purchase at a value to be calculated by a valuer based on the parties’ proceeds of sale for their businesses. In the event of MMO having the right to sell to a third party, NZBO would have a right of first refusal.
[11] The licence thus gave NZBO the right to farm the species covered by the permits while allowing MMO to continue farming its existing stock of oysters.
[12] The parties entered into a management agreement in early 2015 (the Management Agreement) built on the same foundation. That agreement recorded that the two parties intended to create an operational process where they would work together to use the marine farm for their mutual benefit. Their intention was for NZBO to breed oysters and transfer spat to the marine farm and grow them to marketable sizes. MMO was also to buy spat from NZBO and NZBO would raise the spat into oysters. The agreement recorded the specific rights and obligations of the parties as to NZBO’s use of MMO’s gear, and a specific arrangement for NZBO to rear 250,000 oyster spat to harvest for MMO annually for the first two years and, after that, up to 500,000 oysters annually.
[13] MMO was required to pay NZBO a management fee of $75,000 plus GST per annum for the first two years. After that, no management fee was payable but NZBO had a continuing obligation to rear oysters for MMO. Clause 9 of the Management Agreement recorded this was in recognition of NZBO being able to obtain an income from the use of the marine farm for production of its own oysters while only paying a peppercorn rental.
[14] Consistent with the management agreement, MMO purchased spat from NZBO for 250,000 fish2 for each of the first two years, 2014 and 2015. It paid $10,000 in 2016 as a first instalment for 500,000 fish. MMO also made two payments of
$75,000 each for the management fees due in 2014 and 2015.
[15] Potentially, these arrangements would be for the mutual benefit of both parties. The Maass-Barretts could reduce their involvement in the marine farm management and work. MMO’s marine farm was in deep, clean water where oysters could be raised and sold directly after harvest without having to go through the cleaning or depurating process which was required of oysters in NZBO’s Bluff Harbour oyster farm.
[16] For the relationship to work, the people involved had to cooperate with and trust each other. Mr and Mrs Maass-Barrett lived on Stewart Island and were providing infrastructure and gear that was being used on the marine farm. Mr Maass- Barrett had considerable experience in managing a marine farm and his evidence would indicate he had clear views as to how things should be done.
[17] Rodney Clark rejected a number of criticisms and resented what he thought was Mr Maass-Barrett’s unwillingness to accept any responsibility for things that had gone wrong. There was a serious deterioration in the relationship after March 2016. Mr Maass-Barrett had been involved in a process where growing oysters in the cages were split so that some could be put in another cage to allow the oysters more room to grow. Mr Maass-Barrett decided that a considerable proportion of the oysters, which should have been growing for MMO from spat they had purchased from NZBO, were missing. NZBO considered that any such loss had resulted from an accident that had occurred when Mr Maass-Barrett had been involved in a process by which growing
2 “Fish” is defined in the HoA as meaning mussels, oyster spat and oysters.
oysters in cages were cleaned. NZBO claimed that small oysters had been smashed and killed in what was referred to as the dipping incident.
[18]As the Judge aptly summarised:
[20] In the months following various emails were exchanged and meetings held between the parties which failed to resolve their differences. Personal relationships reached the point where it was obvious that the close working relationship envisaged by the Licence and Management Agreement was no longer practicable.
[19] An agreement was reached after a meeting in Queenstown on 13 October 2016. The parties initially met face-to-face but the evidence was that agreement was reached through their respective lawyers with those lawyers communicating separately with their respective clients.
[20] The agreement reached was ultimately recorded in the HoA. It was dated 11 November 2016 and was signed by the four directors of NZBO and Mr Maass-Barrett as director of MMO.
[21]As the Judge recorded, the most important provisions of the HoA were:3
· the parties agreed to vary the Licence in the manner set out in the HoA and cancel the Management Agreement. A New Licence was to be signed incorporating the changes.
· the rent under the Licence was increased for the nine months commencing 1 November 2016 to $50,000 plus GST per annum; then to $75,000 plus GST per annum for the following year after which rent would be reviewed to a market rent but with a floor of $180,000 per annum, all rent payable monthly in arrears
· for seven years commencing on 1 February 2017, NZBO would pay ‘additional rent to MMO, in consideration of the provisions of clause 4 of (the) agreement’ at the rate of $40,000 plus GST per annum payable quarterly with the first payment on 1 February 2017
· under cl 4, all of MMO’s fish on MMO’s lines/strings (i.e. its ‘old stock’ under the Licence) were declared the property of MMO. All other fish on the farm, specifically including ‘fish sold by NZBO to MMO under the Management Agreement’ were declared to be the property of NZBO. MMO had the right to harvest its fish on or before 30 June 2017 but any fish not harvested by that date would become the property of NZBO.
3 Maass Mussels and Oysters Ltd v New Zealand’s Bluff Oyster Company (2013) Ltd, above n 1, at [22].
· The option to purchase in cl 11 of the Licence (referred to in the HoA as the option ‘in the nature of [a] first refusal’) was cancelled. The right of refusal in cl 12 of the Licence continued in force but if not exercised, any sale to a third party would be subject to the Licence as varied by the HoA.
· NZBO would continue to have the use of MMO’s plant, equipment and other infrastructure (except certain specified items) during the term of the New Licence (with no obligation to insure) following which it would be returned to MMO’s possession ‘fair wear and tear excepted’. The barge, however, would be purchased by NZBO for $150,000 plus GST with settlement on 30 June 2017. The whole price was to be advanced by MMO on a loan secured against the vessel. Prior to that the barge could be used by both parties but was to be insured by NZBO. MMO was to retain ‘ownership’ (probably ‘possession’ was also intended) of its fizz boat and some other specified items of equipment.
· It was specifically provided that MMO would have no right to enter MF365 except for the purposes of harvesting its stock as provided or inspection but Jim Barrett was specifically prohibited from carrying out any inspection.
· A New Licence was to be entered into by 18 November 2016 at the latest which incorporated the terms of the HoA, with details to be determined by the lawyers or failing agreement by arbitration.
[22] A draft new licence and documentation required by the HoA were drafted by NZBO’s lawyers and sent to MMO’s lawyers on 3 February 2017 but initial approval of the documents by MMO’s lawyers was quickly withdrawn. Both parties treated the HoA as binding on them. NZBO paid the rent and instalments of “additional rent” referred to in the HoA. MMO was preparing to harvest its existing stock before 30 June 2017 as it was permitted to do under the HoA.
[23] In May 2017, the oyster parasite Bonamia ostreae was detected in Big Glory Bay. In accordance with MPI requirements, between 26 June and 10 July 2017, NZBO removed all its oysters (including those being reared for MMO) and associated materials from Big Glory Bay as part of an MPI-controlled operation. These were then disposed of by MPI. MMO’s old oyster stock growing on lines was removed by another company, Sanford, and disposed of. It has not been possible for NZBO to carry out oyster farming of any sort at either Bluff or Stewart Island since June 2017, nor has it been possible for MMO to do this although it did begin to farm mussels at the marine farm from about November 2017.
Relevant pleading
[24] In a statement of claim of 23 October 2019, MMO claimed interest on overdue payments in accordance with the parties’ original deed of licence on amounts due from NZBO to MMO, referred to as “additional rent” in the HoA for the period from 1 February 2017 to 1 October 2019.
[25] In a statement of defence of 17 December 2019, NZBO relied on the full text of the HoA and said the object of the HoA was to facilitate ongoing oyster farming by NZBO at the marine farm. It pleaded it stopped paying rent after July 2017 due to the frustration of the contract and denied any ongoing payments or sums were owed to MMO. It made a number of specific allegations as to the defence of frustration of contract.
[26] In a reply to the affirmative statement of defence dated 15 May 2020, MMO denied the defence of frustration was available to NZBO and, in connection with that, pleaded:
4. The additional rent was the sum of $280,000.00 plus GST for which the Defendant was obliged to reimburse the Plaintiff in buying back all fish (oysters) which the Plaintiff had purchased through the management agreement together with cost to the Plaintiff with having the Defendant grow the oysters to harvest size (the management fee).
5. As at this time the Defendant was short of funds and did not and could not pay in a lump sum the moneys due being described as Additional Rent, negotiation between the parties led to an agreement to pay in [sic] back in 28 instalments of $10,000.00 plus GST over seven years.
[27] In an amended statement of claim of 30 October 2020, MMO referred to NZBO’s obligation under the Management Agreement to rear 250,000 oyster spat annually to harvest in the first two years of the agreement and for up to 500,000 in subsequent years, and for MMO to pay $75,000 plus GST per year to MMO. It referred to cl 2.1(b) in the HoA, providing for rent to be paid under the licence from 1 August 2017 to 31 July 2018, and cl 2.3 which referred to “additional rent”. It pleaded:
The expression “Additional Rent” was an expression adopted by all parties and agreed to by the Plaintiff’s accountants, Malloch McClean, Chartered Accountants, Invercargill. It comprised a total sum payable of $280,000.00 made up as follows:
a) $50,000.00 for spat returned to, but not paid for by the Defendant, in 2014
b) $50,000.00 for spat returned to, but not paid for by the Defendant, in 2015
c) $10,000.00 for spat returned, but not paid for by the Defendant, in 2016
d) $150,000.00 for previously agreed upon management fees for 2014 and 2015, not paid for by the Defendant
e) $10,000.00 for work which the Plaintiff had undertaken but for which he had not been reimbursed
f) $10,000.00 as a contribution by the Defendant to legal fees of the Plaintiff
[28] MMO also maintained its claim for interest on overdue payments at the rate of 12 per cent per annum and made 13 miscellaneous claims for around $18,000 plus GST.
[29] In a statement of defence to the amended statement of claim of 12 November 2020, NZBO denied the specific allegations as to what “additional rent” referred to. NZBO said the term “additional rent” meant “additional rent” and said it relied on the HoA in its entirety.
Judgment in the District Court
[30]The Judge set out the background to the dispute.
[31] The Judge, with reference to authority, summarised what was required to prove when a contract had been frustrated. He concluded that:
[52] The need to remedy injustice to the parties is the ultimate measure in assessing frustration. I consider that it would not be just to hold the parties to all their contractual obligations in the circumstances which arose here.
[32] The Judge then referred to MMO’s claim for “additional rent” up to the date of the hearing. He said MMO had relied on s 68 of the Contract and Commercial Law Act 2017 (the Act). He said:4
The section requires the Court, in appropriate circumstances, to sever part of a contract which has been frustrated and treat it as a separate contract which has not been frustrated.
4 At [55].
[33] He said the crucial issue was whether s 68(1)(b)(ii) of the Act applied and whether the part of the contract which contains the obligation to pay “additional rent” had been wholly performed apart from that obligation.5 He referred to evidence from MMO that the $280,000, although called “additional rent”, was to reimburse MMO for amounts paid to NZBO to rear oysters.6 He said NZBO’s case was that “additional rent” meant nothing more than an extra amount of rent, being a periodic payment for the continuing right to occupy the marine farm and use MMO’s gear. He referred to Mr Clark’s evidence that he had never seen a document headed “MMO/NZBO Restructure”, which Mrs Maass-Barrett said had been produced at the meeting which resulted in the HoA, until a few days before the hearing. Mr Clark’s evidence that, as far as NZBO was concerned, the payment was agreed to simply as something which had to be paid in order to achieve its objective of removing MMO and Mr Maass- Barrett from any future involvement in farming at the marine farm, leaving NZBO with full control of the area.7
[34] The Judge said it was not possible on the evidence to reach a conclusion that there was any mutual understanding of the reason for the additional rent clause.8 He said it was neither necessary nor possible to go behind the wording of the HoA itself. He said the sum in question was “additional rent” but more significantly was payable “in consideration of the provisions of clause 4 of this agreement”.
[35] The Judge said the background and circumstances surrounding the making of the HoA included the fact that, as well as having paid NZBO $110,000 for the spat NZBO was rearing for MMO, MMO had also paid management fees totalling
$150,000 to NZBO for the two preceding years for rearing oysters to their current size. The Judge concluded that an objective reader of the HoA, aware of the background and circumstances surrounding its making, would conclude that the reference in the additional rent clause to cl 4 was a reference to cl 4.1 (and not the other subclauses) under which ownership of the fish being reared for MMO by NZBO passed to NZBO.9 The Judge said it followed from this that the payment for “additional rent” in cl 2.3
5 At [56].
6 At [57].
7 At [59].
8 At [60].
9 At [62].
was not a payment for rental in the usual sense of the word, that is for the right to occupy and use the marine farm for the following seven years. Rather, the consideration for the payment was that stated in cl 2.3 itself, for ownership of all the fish on the marine farm owned by MMO except MMO’s stock being grown on strings and lines.10
[36] The Judge said there was a textual indication that the periodic payments for “additional rent” were not for rent in the true sense in that they were not simply added into the amounts payable for rent under cl 2.1.11 They were payable at different intervals and were not subject to the rent review provisions. The Judge accepted there was an explanation for the use of the term “additional rent” in the evidence of Mr and Mrs Maass-Barrett that it was to avoid an anticipated taxation problem.12 He considered the evidence from Mr and Mrs Maass-Barrett as to this was admissible in terms of the Supreme Court judgment in Bathurst Resources Ltd v L&M Coal Holdings Ltd.13
[37] The Judge said the evidence confirmed the term “additional rent” was introduced into the clause for a reason unrelated to the nature of the payments.14 He said there was no reason for a reasonable person, having all the background knowledge available to the parties, to conclude that the consideration for the payments under the additional rent clause was anything other than that stated in it.
[38] The Judge found the ownership of the fish in cl 4.1 passed to NZBO when the HoA was executed based on the wording of the clause,smirk the additional rent payments starting on 1 February 2017 and NZBO’s subsequent conduct.15 On that basis, he concluded the additional rent clause and cl 4.1 could be severed from the frustrated contractual arrangements and, except for the completion of payment, had been wholly performed.16 He held that NZBO was liable for the payments due under
10 At [63].
11 At [64].
12 At [65].
13 Bathurst Resources Ltd v L&M Coal Holdings Ltd [2021] NZSC 85, [2021] 1 NZLR 696.
14 Maass Mussels and Oysters Ltd v New Zealand’s Bluff Oyster Company, above n 1, at [72].
15 At [73].
16 At [74].
the additional rent clause up to the date of hearing, being $195,000, and interest of 12 per cent per annum.17
[39] The Judge then dealt with the various miscellaneous claims. There is no appeal from that part of his judgment.
Submissions for NZBO
[40] NZBO did not challenge the Judge’s finding that the HoA was frustrated. It challenged the finding that the additional rent clause was severable from the rest of the HoA under s 68 of the Act.
[41] NZBO submitted the HoA must be interpreted in accordance with the approach explained by the Supreme Court in Firm PI 1 Ltd v Zurich Australian Insurance Ltd.18 It submitted that interpreting the section, in light of the purpose and context of the legislation, s 68 was not intended to provide a discretionary catch-all tool for separating out parts of contracts on the basis this would be “fair” or “just” to keep them on foot following a frustrating event. The Court must be satisfied the relevant provisions could “properly be severed” on an objective interpretation of the agreement. NZBO contended that, for part of the contract to be severable in terms of s 68(1), the balance of the frustrated contract would have to be a coherent standalone contract that remained enforceable. They sought support for that approach in the New Zealand Court of Appeal’s 2020 judgment in Montgomerie v Montgomerie.19 They referred to the circumstances in the English case of Pioneer Shipping Ltd v BTP Tioxide Ltd as illustrating how parts of a contract were severable because they were concerned with circumstances independent of those dealt with in the balance of the contract.20
[42] NZBO submitted the Judge erred in holding the “additional rent” was not “rent” because of the clear wording of the clause. NZBO submitted that the HoA established a forward-looking obligation on NZBO to pay MMO additional rent. It
17 At [75]-[76].
18 Firm PI 1 Ltd v Zurich Australian Insurance Ltd [2014] NZSC 147, [2015] 1 NZLR 432 at [60]-[63].
19 Montgomerie v Montgomerie [2020] NZCA 3, [2020] NZCCLR 16.
20 Pioneer Shipping Ltd v BTP Tioxide Ltd [1982] AC 724 (HL).
was styled as rent and located within the rent clause. It submitted the additional rent brought the total amount of rent payable in the first few years under the HoA closer to the market level. It was to be at least $180,000 per annum from 1 August 2018 onwards. Additional rent of $40,000 per annum was to be paid until 31 January 2023. It submitted it never saw MMO’s document quantifying what the $280,000 represented, so there was no objective basis to accept MMO’s argument that the payment was backwards-looking compensation.
[43] NZBO submitted the obligation to pay “additional rent” was in consideration of the provisions of cl 4. It submitted cl 4.1 confirmed that MMO would be retaining its own fish and growing equipment but NZBO would be retaining oysters sold by NZBO to MMO under their previous agreements. NZBO submitted cl 4.2 stated that MMO will harvest all its fish by 30 June 2017 or else forfeit the remainder to NZBO.
[44] It was submitted the additional rent clause and cl 4 were inextricably linked with the broader HoA, which reflected an agreement between the parties to move from the failed Management Agreement to NZBO having exclusive possession of the marine farm.
[45] Looking to the wider commercial context of the HoA, the payment of additional rent made objective sense only in the context of NZBO being prepared to pay a significant sum to get vacant possession of the marine farm. Consistent with that, Dee Clark, one of NZBO’s directors, had said the $40,000 represented what they had to pay for Mr Maass-Barrett “not to be involved on the farm or in our business”. It would not make commercial sense for NZBO to pay $280,000 for the fish grown from spat purchased by MMO because MMO paid NZBO $110,000 for that spat.
[46] NZBO contended the Judge’s conclusion appeared to have been reached on the basis it would be fairer given the overall background of the parties’ relationship and the HoA but, in adopting that approach, he had failed to adequately consider how the HoA was to be interpreted for the severability provisions in s 68 to apply.
[47] Alternatively, NZBO argued, if an agreement represented by cls 2.3 and 4 were separated out, that agreement had not been wholly performed by MMO as required by
s 68(1)(b)(ii) of the Act. NZBO accepted, for this argument to be advanced, the Court has to find that the reference to cl 4 in cl 2.3 meant “cl 4” and not “cl 4.1” as the District Court Judge held.
[48]NZBO submitted cl 4 contained the following benefits and burdens:
(a) NZBO obtained ownership of all fish on the marine farm that were not on MMO’s lines/strings;
(b) MMO was entitled to harvest its own fish on or before 30 June 2017, failing which any fish not harvested would be deemed to be NZBO’s property;
(c) MMO was entitled exclusively to use the barge to harvest its fish, but only on the weekends;
(d) NZBO was entitled to have a representative present during MMO’s harvest;
(e) EEC (another marine farming company) would harvest the mussels on the marine farm owned by MMO;
(f) both parties would have access to the barge through a secure lockbox; and
(g) NZBO was to keep the barge insured.
[49] NZBO submitted that, for the severed agreement to be wholly performed, MMO would have had to harvest all its own fish on or before 30 June 2017 or to have agreed to forfeit them to NZBO. NZBO would then have obtained vacant possession of the marine farm. Neither happened because of the arrival of Bonamia ostreae.
Submissions for MMO
[50] MMO submitted the District Court Judge had correctly interpreted what “additional rent” referred to in the HoA and had correctly applied s 68 of the Act.
[51] MMO pointed out there was very little, if any, case law where the Court had to consider how s 68 was to be applied or whether there could be severance in terms of the predecessor provision in s 4 of the Frustrated Contracts Act 1944.
[52] MMO referred to evidence as to how the term “additional rent” came to be used in the HoA. It also referred to the evidence of Mr and Mrs Maass-Barrett that the payment for additional rent was a payment on account of a previously agreed debt to settle old claims and grievances rather than a payment connected to future obligations and entitlements. It covered management fees and what MMO originally paid for the spat, which NZBO would acquire under the HoA.
[53] MMO also submitted it was inconceivable for NZBO not to have known what claims and grievances the $280,000 covered.
[54] It could not be said that the only way in which there could be objective commercial sense for the further payment of $280,000 was for it to have been in return for obtaining vacant possession of the marine farm. MMO contended cl 4 did not provide for this. The HoA limited MMO’s involvement to three of the 26 lines on the marine farm for seven or so months until harvesting of the oysters was complete but there was nothing in cl 4 requiring MMO to provide vacant possession of the farm. There was no reference in cl 4 to Mr Maass-Barrett having to leave the farm or have no involvement with it.
[55] To the extent the HoA did give NZBO the right to operate the marine farm to the exclusion of MMO, this was through other clauses in the HoA, not the other subclauses of cl 4. For example, cl 7.2 provided MMO would have no right to be on the area, except for the right of inspection and the right to harvest its oysters provided for in the licence.
[56] NZBO submitted the Judge’s conclusions were evidence-based and it was reasonable for him to find that, except for the completion of payment, all the factual events to which it related had occurred before the frustrating event which ended the contract.
Relevant law
[57]Relevantly, subpt 4 of the Act provides:
Money paid or payable
61 Money paid may be recovered and money payable ceases to be payable
(1) All money paid to a party (A) under the contract before the time of discharge is recoverable from A as money received by A for the use of the party who paid it.
(2) All money payable to a party under the contract before the time of discharge ceases to be payable.
…
68 Court must treat performed part of contract that can be properly severed as separate contract
(1) This section applies if—
(a)the court considers that a part of a contract to which this subpart applies can properly be severed from the remainder of the contract; and
(b)that part of the contract was—
(i)wholly performed before the time of discharge; or
(ii)wholly performed before the time of discharge except for the payment, in respect of that part of the contract, of money that is or can be ascertained under the contract.
(2) The court must treat—
(a)the part of the contract described in subsection (1) as if it—
(i)were a separate contract; and
(ii)had not been frustrated; and
(b)sections 60 to 66 as applying only to the remainder of the contract.
…
[58] Section 68 replaced s 4 of the Frustrated Contracts Act. The newer Act applied despite the HoA predating the Act.21
21 Contract and Commercial Law Act 2017, sch 1, cl 5.
[59] In Carr v Gallaway Cook Allan, the Supreme Court was concerned with severability when deciding whether an arbitration agreement was valid.22 It included a clause which permitted the parties to appeal to questions of law and fact under the Arbitration Act 1996, sch 2, cl 5. This clause permits appeals against arbitral awards, but only on questions of law. The relevant clause was thus unlawful.
[60] The Supreme Court was unanimous as to the approach to be taken to severability.23 This was summarised by McGrath J:
[62] The overall approach to severability that emerges from these decisions is one that is founded on core contractual principles. The significance of severance of an invalid contractual provision is evaluated in the course of examination of what the parties are to be taken to have agreed in the words they used. This is an issue of construction of the contract. It is likely to be permissible to sever an invalid promise which is subsidiary to the main purpose of the contract, but severance may not destroy the main purpose and substance of what has been agreed.24 Severance cannot be permitted to alter the nature of a contract. …
[61]The Court also said the approach:25
… does not reduce severability to a question of whether the parties would have entered into the agreement had the relevant words been severed. The approach is one way of establishing whether applying the doctrine of severance would leave the subject matter of the contract and the primary obligations of the parties unchanged …
[62] They said the first stage of enquiry into severability was that referred to in the Privy Council judgment in Carney v Herbert.26 In commenting on what the Privy Council said as to the difficulty with questions of severability, McGrath J said the statements of the Privy Council “highlights the necessity for the courts when addressing severability to exercise judgment, with regard to the circumstances of particular cases”.27
22 Carr v Gallaway Cook Allan [2014] NZSC 75, [2014] 1 NZLR 792.
23 At [90] per Arnold J.
24 MP Furmston, GC Cheshire and CH Stuart Cheshire, Fifoot and Furmston’s Law of Contract (16th ed, Oxford University Press, Oxford, 2012) at 530, citing Goodinson v Goodinson [1954] 2 QB 118 (CA).
25 At [66].
26 Carney v Herbert [1985] AC 301 (PC).27 At [53].
[63] Here, the issue as to severance arose in considering frustration and the Act, but there is no reason for the approach to be different because of that.
[64] In Montgomerie v Montgomerie, the Court of Appeal referred to the statement in Burrows, Finn and Todd on the Law of Contract in New Zealand:28
… frustration operates in an all-or-nothing fashion. If the contract is not frustrated it remains on foot, and both parties remain liable for its non- performance. If it is frustrated it falls completely and neither party can continue with performance. Generally, there is no such thing as selective frustration whereby individual terms are severed: the contract stands or falls as a whole.
But, the Court acknowledged that the authors noted there were certain exceptions to this at common law. The Court of Appeal said these were:29
… where a contract contains severable parts, each of which provides for one party’s performance and the other party’s corresponding payment for that performance, it may be possible for one of those stand-alone parts to be frustrated although the balance of the contract remains valid and enforceable.
[65] The Court of Appeal said s 68(1) and (2) of the Act appeared to limit the operation of that common law principle to cases where a severable part has been performed before the frustrating event occurs.
[66] As to contract interpretation principles, Arnold J, in Firm PI 1 Ltd v Zurich Australian Insurance Ltd, for the majority of the Supreme Court, said:30
[60] Given the issues in the case, it is not necessary that we discuss the approach to contractual interpretation in any detail. It is sufficient to say that the proper approach is an objective one, the aim being to ascertain “the meaning which the document would convey to a reasonable person having all the background knowledge which would reasonably have been available to the parties in the situation in which they were at the time of the contract”. This objective meaning is taken to be that which the parties intended. While there is no conceptual limit on what can be regarded as “background”, it has to be background that a reasonable person would regard as relevant. Accordingly, the context provided by the contract as a whole and any relevant background informs meaning.
28 Montgomerie v Montgomerie, above n 19, at [35] citing Jeremy Finn, Stephen Todd and Matthew Barber (eds) Burrows, Finn and Todd on the Law of Contract in New Zealand (6th ed, LexisNexis, Wellington, 2018) at 810 (footnote omitted).
29 Montgomerie v Montgomerie, above n 19 at [36] (footnotes omitted).
30 Firm PI 1 Ltd v Zurich Australian Insurance Ltd, above n 18.
[61] The requirement that the reasonable person have all the background knowledge known or reasonably available to the parties is a reflection of the fact that contractual language, like all language, must be interpreted within its overall context, broadly viewed. Contextual interpretation of contracts has a significant history in New Zealand, although for many years it was restricted to situations of ambiguity. More recently, however, it has been confirmed that a purposive or contextual interpretation is not dependent on there being an ambiguity in the contractual language.
(footnotes omitted)
[67]In Bathurst Resources v L&M Coal Holdings Ltd, the Supreme Court said:31
The approach to be taken to contractual interpretation is governed by the law of contract, but it is the law of evidence that ensures the trial court’s inquiry focusses only on evidence that will materially assist in applying that test.
[68]The Supreme Court also said:32
Applying s 7 [of the Evidence Act 2006] in the context of contractual interpretation, evidence is prima facie admissible if it has a tendency to prove or disprove anything of consequence to determining the meaning the contractual document would convey to a reasonable person having all the background knowledge reasonably available to the parties in the situation in which they were at the time of the contract.
[69] In discussing how that test would be applied, the Supreme Court said oral evidence to be given at a hearing as to a party’s subjective intent or understanding of the contract would:33
… not be admissible if that was not communicated to the other party prior to contract formation. An undeclared understanding or intention as to the meaning of a contract is not evidence that would have been available to the notional reasonable person having all of the information reasonably available to the parties at the time. It is not therefore relevant to the task of contractual interpretation.
[70] The Supreme Court also discussed the relevance of evidence of conduct or statements during negotiations that tended to prove a party’s subjective intent as to what the contract should mean. The Court referred to the statements in the four
31 Bathurst Resources Ltd v L&M Coal Holdings Ltd, above n 13, at [55].
32 At [62] (footnote omitted).
33 At [68].
different judgments in Vector Gas, noting that courts had tended to follow Tipping J’s approach.34 They referred to Tipping J’s conclusion that:35
… extrinsic evidence is admissible if it tends to establish a fact or circumstance capable of demonstrating objectively what meaning both or all parties intended their words to bear.
[71]In Bathurst, the Court said:36
The issue for a judge is whether evidence of prior negotiations tends to prove anything relevant to the notional reasonable person. Evidence of the content of prior negotiations will be inadmissible to the extent that it proves only a party’s subjective intention or belief as to the meaning of the words, or what their undeclared negotiating stance was at the time.
[72]And later:37
However, if evidence shows what a party intended the words to mean, and that this was communicated, it may tend to show a common mutual understanding as to the meaning of the contract. Logically, the party who claims to have communicated their intention would have to be able to point to something – even if just silence (in circumstances where a reply might be expected) – on the part of the other party to bring that intention into the realm of mutual understanding. Such an understanding is relevant to the objective search for meaning.
[73] The Supreme Court also said the approach to the admissibility of subsequent conduct should be the same as the approach to the admissibility of prior negotiations:38
Applying the provisions of the Evidence Act, the court must ask itself whether the subsequent conduct tends to prove anything relevant to the objective approach to interpretation. Subsequent conduct need not necessarily be mutual, but non-mutual conduct is more likely to be relevant to a claim of estoppel. Further, in assessing the relevance of subsequent conduct, it must not be forgotten that the court is interpreting the contract as at the time it was made.
34 At [70]-[74] citing Vector Gas Ltd v Bay of Plenty Energy Ltd [2010] NZSC 5, [2010] 2 NZLR 444.
35 At [71], citing Vector Gas, above n 34, at [31].
36 At [75] (footnote omitted).
37 At [76].
38 At [89] (footnote omitted).
Analysis
[74] The Judge was correct in deciding use of the term “additional rent” did not refer to the usual meaning of that term, being a payment for the right to occupy the marine farm over the seven years those payments were to be made.
[75] Details of the agreement as to rent in the normal sense of the word were set out in cls 2.1 and 2.2 of the HoA. Clause 2.1 prescribed the rent payable per annum plus GST for the period from 1 November 2016 to 31 July 2017, and then from 1 August 2017 to 31 July 2018. It specified that, from 1 August 2018, rent would be determined under the rent review provisions set out in cl 2.2. Clause 2.1(d) said rent would be payable calendar-monthly in arrears with the first such payment being on 1 December 2016. There were then the rent review provisions in cl 2.2 of the HoA with details as to the process to be followed and for the determination of any dispute. Clause 2.2(f) stated that no determination of rent pursuant to that clause, and thus for the period from 1 August 2018, would operate to reduce the rent payable by NZBO to below
$180,000 plus GST per annum.
[76]Clause 2.3 of the HoA stated:
2.3 For seven years, commencing on 1 February 2017, NZBO will pay additional rent to MMO, in consideration of the provisions of clause 4 of this agreement. That rent will be $40,000 plus GST per annum payable quarterly as to $10,000.00 plus GST, with the first such payment on 1 February 2017.
[77] There was also no error in the Judge referring to evidence he had heard as being consistent with that interpretation. He referred to the explanation from Mr and Mrs Maass-Barrett that the term “additional rent” was used to avoid an anticipated taxation problem where both parties would have to reconcile the payments with earlier years’ accounts. As referred to earlier, he considered their evidence as to this was admissible in terms of the Supreme Court judgment in Bathurst Resources Ltd v L&M Coal Holdings Ltd.39
39 Bathurst Resources Ltd v L&M Coal Holdings Ltd, above n 13.
[78] Mrs Clark had not been present during the negotiations but had signed the HoA. It was of some relevance and consistent with the evidence from Mr and Mrs Maass-Barrett that, in her initial brief of evidence of 17 August 2021, Mrs Clark said “[t]he term ‘additional rent’ and the amount were selected and put forward by MMO for inclusion in the agreement, and accepted by NZBO”.
[79] Under cross-examination, Mr Clark said the proposal for the use of the words “additional rent” had been put forward during the settlement discussions by the lawyer for MMO and “we [NZBO] didn’t care what it was called”.
[80] Mr Clark said, from his perspective, the payment was an incentive for Mr Maass-Barrett to leave the farm and a way of resolving all the issues they were dealing with. That evidence was consistent with his understanding at the time the HoA was entered into that the payment of $280,000 was not for the payment of rent in the normal sense.
[81] In his evidence as briefed, Mr Maass-Barrett said the upshot of the meeting was:
… reconfigured agreements, a Heads of Agreement providing [MMO] with a market monthly rental, cancellation of the oyster spat purchasing and growing agreement, and a buy back of all of that stock by NZBO plus reimbursement of the management fees. The latter effectively became the “additional rent”, which [MMO] are now claiming from NZBO.
[82]Mr Maass-Barrett said:
… “additional rent” was really a misnomer but constituted reimbursement for expenses and management fees which had been incurred previously.
[83]Mr Maass-Barrett explained the $280,000 was broken up into payments of:
(a) $100,000 for two years of oyster spat MMO purchased from NZBO and paid them to raise, which MMO contended never existed or went missing;
(b) $10,000 was a reimbursement for the amount MMO paid NZBO for the purchase and raising of oyster spat for the third year of the parties’ arrangement;
(c) $150,000 for management fees;
(d) $10,000 for work Mr Maass-Barrett did for NZBO; and
(e) $10,000 for legal fees.
[84] Mr Clark said the oysters MMO were claiming payment for (as referred to in para [83](a)) were missing because of some fault on MMO’s part. The dispute as to that was acknowledged in correspondence between MMO’s then barrister and NZBO’s then solicitors in September 2016 before the settlement negotiations.
[85] There was some evidence that, during the negotiations, a document headed “MMO/NZBO Restructure” was prepared. There may have been notes made by MMO on that document consistent with what Mr and Mrs Maass-Barrett understood the
$280,000 was for, as they discussed in their evidence. The notes made were not in evidence. There was no evidence from either of them that their contemplated components of the $280,000 had been conveyed to NZBO representatives or their lawyer during the settlement discussion.
[86] Mr Clark had been involved in the settlement negotiations for NZBO. It was his evidence that he had not seen the MMO/NZBO restructure document during the negotiations. He said he saw it for the first time only a few days before the hearing in the District Court. Mrs Clark had been overseas at the time of the settlement discussions. She first learnt of the payment of $280,000 on seeing the HoA.
[87]Clause 4 of the HoA stated:
4. Fish
4.1 All of the fish (MMO’s Fish) on MMO’s lines/strings are the property of MMO. All other fish on the Area are the property of NZBO. This includes all the fish in or on the trays known as the modules and the fish sold by NZBO to MMO under the Management Agreement (and any such fish are deemed to be the property of NZBO).
4.2 MMO is entitled to harvest MMO’s Fish:
(a)On or before 30 June 2017, any fish not harvested by that date will be deemed to be the property of NZBO;
(b)MMO will use its own staff for the harvest. The harvesting shall be done on weekends and MMO shall have the use of the barge on weekends to the exclusion of NZBO;
(c)The parties acknowledge acknowledges [sic] that they shall enter the discussions in good faith to ensure that MMO can complete the harvesting of MMO’s Fish by 30 June 2017 and NZBO is not adversely affected in managing the area;
(d)During the harvest, a representative of NZBO (at NZBO’s cost
and
risk, provided MMO complies with New Zealand Law in the
operation of the vessel) may be on the vessel used by MMO provided the representative is not Rodney or Darryl Clark;
(e)EEC will harvest the mussels owned by MMO. MMO will instruct EEC to liaise with NZBI to effect the harvest. In the event EEC is unable or unwilling to harvest the mussels then MMO shall at its own cost and using its own equipment.
(f)The keys to the barge shall be left on the barge in a secure lock box to enable both parties to have ready access to the barge as and when needed and also to comply with insurance provisions.
4.3 Each party when using the barge will provide their own fuel.
4.4 NZBO will keep the barge insured, as required in the Agreement. MMO and NZBO respectively shall be liable for any insurance excess for damage to the barge while in use by the party causing the damage. Implementation of this agreement shall be deferred and access by NZBO to the barge and the Area shall be deferred until certified evidence of the insurance policy and payment of the premium is provided by NZBO to MMO.
4.5 MMO and NZBO will at all times use the barge in accordance with and will not breach any provisions of Fisheries and Maritime Law and the Healthy [sic] and Safety at Work Act 2015.
4.6 MMO and NZBO will not do or omit anything whereby any policy of insurance in respect of the barge or any of the equipment on the barge may be invalidated or become void or voidable.
[88] The parties agreed that, through cl 4.1, all oysters that had previously been growing on the marine farm for MMO, other than those fish on MMO’s lines or strings, were to be the property of NZBO. Nor was there any issue that the oysters on MMO’s lines or strings had to be harvested before 30 June 2017 and any not harvested by that date would then be deemed to be the property of NZBO.
[89] Apart from saying the payments in cl 2.3 were in consideration of the provisions of cl 4, the HoA did not say precisely what the payments were for.
[90] The Judge had to determine what the payment of $280,000 referred to in cl 2.3 was for. In the end, the Judge had no regard to evidence from Mr and Mrs Maass- Barrett as to what was comprised in the $280,000 they sought in the negotiations. There was no error in the Judge finding that the Maass-Barretts had not communicated what the $280,000 was for during the negotiations. Accordingly, consistent with the judgment of the Supreme Court in Bathurst Resources, it was not relevant to the interpretation of the contract.40
[91] There was no error in the Judge’s conclusion that it was neither necessary nor possible to go behind the wording of the HoA itself to determine what the parties had agreed to with cl 2.3 of the HoA.
[92] The evidence indicated the parties had differing reasons for the overall settlement reached through the HoA. Important to Mr and Mrs Maass-Barrett was that they were recovering costs they incurred with the failed Management Agreement. Important to NZBO was the fact that, with the HoA, they would be free to use the marine farm without what they regarded as undesirable interference from Mr Maass- Barrett. The terms of the HoA were not however to be interpreted in accordance with the subjective motivation of the two parties when their motivations were not mutual or consistent. The Judge had to decide what the parties had agreed to with reference to the text of the HoA. In their submissions for the parties, counsel did not suggest otherwise.
[93] The Judge concluded that, where cl 2.3 refers to the payment of $280,000 being in consideration for the provisions of cl 4, cl 4 was a reference to only cl 4.1 where ownership of MMO’s oysters being reared by NZBO was to pass to NZBO. He said the other subclauses of cl 4 were not logically related to cl 2.3 because they were about MMO needing to harvest its oysters on or before 30 June 2017 and the terms for the parties using the barge.
[94]The Judge made no error in this regard.
40 Bathurst Resources Ltd v L&M Coal Holdings Ltd, above n 13.
[95] NZBO received a number of benefits or rights under the HoA. The agreement provided for the licence to continue with rent for their use of the licence, and thus the marine farm, on the terms set out in cl 2 of the HoA. Clause 3.1 of the HoA provided NZBO would retain its right of first refusal under cl 12 of the licence, but its option to purchase under cl 11 would be deleted. NZBO agreed to purchase the barge for
$150,000 plus GST with the benefit of a loan on terms as set out in cl 6 under the heading “Barge”. Under cl 7, the management agreement, by which NZBO had to manage the marine farm in conjunction with protecting MMO’s interest in its oysters on the farm, was cancelled and MMO’s right to be on the marine farm was severely limited. There were further specific provisions in cl 7.5 protecting NZBO from MMO interference in the marine farm.
[96] Clause 2.3 however only stated the payment of the $280,000 was in consideration of cl 4. Clause 4 was headed “Fish”.
[97] I do not consider it was essential to the Judge’s decision that cl 4, as referred to in cl 2.3, should be limited to refer to cl 4.1. The crucial benefit or consideration NZBO was obtaining under cl 4 was its acquisition of all fish belonging to MMO not on MMO’s lines/strings. MMO’s right to retain ownership of its fish on lines and strings was conditional on MMO harvesting those fish on or before 30 June 2017 with agreement as to when and how that harvesting could take place. The payment required of NZBO of $280,000 was not in consideration of NZBO benefiting from those clauses in cl 4 concerning interim use of the barge or the way and time within which MMO had to harvest its fish. Consistent with that, payment of the first $10,000 plus GST on account of the $40,000 plus GST payable per annum was to be made on 1 February 2017, before the 30 June 2017 deadline for MMO to harvest its fish.
[98] It was not suggested for NZBO that allowing for payment of the $280,000 to be made over seven years was indicative of the payment being made in return for NZBO’s almost exclusive use of the marine farm in future years, nor could it have been. As to that, there was evidence from Mr Maass-Barrett that the payments were structured in that way because both parties understood at the time that NZBO did not have the ability to pay $280,000 promptly in one lump sum. Consistent with that understanding, MMO had agreed it would advance the $150,000 plus GST which
NZBO had to pay for the barge with monthly payments beginning 1 December 2018. In his evidence, Mr Clark referred to MMO’s agreement to payments being made over seven years as “a gift”.
[99] The Judge thus decided that, through cl 2.3 with its reference to cl 4, NZBO had agreed it would pay $280,000 over seven years for MMO’s oysters that were not on MMO’s lines.
[100] In applying s 68, the Judge then had to decide if the part of the contract to which that agreement applied could properly be severed from the remainder of the contract.
[101]This is the crucial issue on this appeal.
[102] NZBO submitted the part of the HoA that provided for that agreement could not properly be severed because NZBO would never have entered into that agreement without having the benefit of certain other parts of the agreement, particularly those parts that ensured it would have sole access to the marine farm. NZBO submitted, without the benefits of their future exclusive use of the farm, there would have been no commercial basis for them to buy the MMO fish.
[103] It was NZBO’s submission that there was nothing in the relevant documents, or the evidence before the District Court, that could properly displace the clear meaning of the words that were used.
[104] The relevant law as to severability is summarised above at [59]-[65]. Severance cannot be used to alter the nature of a contract.
[105] On my assessment of the HoA, the central purpose of the HoA was to sever the previous management agreement between the parties, and to permit NZBO to have the almost exclusive use of the marine farm in return for payment of a market rental in contrast to a peppercorn rental. Ancillary to that purpose was that, pursuant to cls 2.3 and 4, NZBO would acquire the oysters which had previously been the property of MMO.
[106] NZBO submitted it would not have agreed to pay $280,000 in consideration for oysters which it previously owned without the wider bargain in play. Whether the parts of the contract concerned with NZBO’s acquisition of MMO’s oysters can be severed is not however to be determined by NZBO’s subjective intention. The determination as to severability must be based on the construction of the contract. On such a construction, the agreement with regard to purchase of the oysters was ancillary to the main purpose of the HoA. That main purpose could remain intact with those parts of the HoA concerning the purchase of oysters severed from the balance of the HoA.
[107] Accordingly, I consider the Judge was right to proceed on the basis the agreement, in cls 2.3 and 4 of the HoA for NZBO to acquire MMO fish for $280,000, was severable from the balance of the contract, thus establishing the first threshold for severance referred to in s 68(1)(a).
[108] Next, for there to be relief in respect of severed parts of the HoA, the Judge had to find that part of the contract was:41
(a) wholly performed before the time of discharge; or
(b) wholly performed before the time of discharge except for the payment, in respect of that part of the contract, of money that is or can be ascertained under the contract.
[109] For reasons referred to by the Judge, he found that property, and therefore risk, in those fish passed to NZBO on the making of the HoA, that is 16 November 2016. As the Judge referred to, consistent with that, NZBO made the quarterly payments due under cl 2.3 on 1 February and 1 May 2017. Consistent with that, after MPI required the removal and destruction of all oysters from the marine farm, NZBO submitted claims for compensation to MPI as to the oysters they had acquired from MMO.
[110] This was a situation where MMO had transferred property in its fish to NZBO and NZBO had possession of the fish on the marine farm. The only part of the
41 Contract and Commercial Law Act, s 68(1)(b).
agreement for the purchase of the fish which had not been performed when the contract was frustrated was NZBO’s payment of the whole of the $280,000. The balance then due could be readily ascertained.
[111] Accordingly, as the Judge said, pursuant to s 68(2) of the Act, the Court had to treat that part of the HoA concerned with NZBO’s acquisition of MMO fish as a separate contract which had not been frustrated. NZBO were therefore liable to MMO for that portion of the $280,000 that remained unpaid at the date of judgment. The Judge ordered NZBO to pay $195,000 for the additional rent payments.
[112] In submissions, NZBO claimed the Judge’s award had failed to take account of a $10,000 payment made in October 2021, due date 1 August 2017, for the “additional rent” for the period of May 2017 to July 2017.
[113] In her brief of evidence of 21 September 2021, Mrs Maass-Barrett said payments for additional rent of $11,500 had been made on 1 February 2017 and 1 May 2017. Mrs Clark’s evidence of 17 August 2021 was that NZBO had paid monthly rent for the marine farm for February, March, April, May and June 2017 and made a final payment of rent in October 2017. She said the October payment was to represent the money due for July 2017 because NZBO was still removing stock during that month.
[114] In a supplementary brief of evidence dated 12 October 2021, Mrs Clark said NZBO mistakenly did not pay MMO rent for July 2017 as the payment in October 2017 was actually for rent for June 2017. NZBO made a $16,291 payment in October 2021 for rent in July 2017 and an “additional rent” payment for the period between May 2017 and July 2017.
[115] MMO had sought judgment for unpaid “additional rent” for the period to the date of judgment. Taking into account the extra payment made in October 2021, there were 17 outstanding payments of additional rent plus GST. That amounted to
$195,500. There was accordingly no error in the Judge’s calculations.
Interest
[116] In their amended statement of claim of 30 October 2020, MMO claimed interest at the rate of 12 per cent for both unpaid rent and unpaid additional rent up until 31 October 2020.
[117] The Judge gave judgment for interest at 12 per cent on unpaid additional rental. He said counsel for MMO should file a memorandum calculating the interest to the date of judgment.
[118] In its notice of appeal, NZBO said there was an error in the Judge applying the default interest rate of 12 per cent because that was an interest rate to apply under the parties’ licence agreement and was not applicable to part of the HoA if the Judge treated part of the HoA as a severable contract.
[119] NZBO submitted the interest rate of 12 per cent was drawn from cl 6.1 of the 2014 deed of licence. That interest rate attached to any default by the licensee to make payments due under the licence. These were either rent or licence fees.
[120] NZBO submitted, with the Judge’s construction of the HoA, the term “additional rent” did not refer to rent in the ordinary sense. It was therefore logically inconsistent to apply the default interest rate for non-payment of rent to any outstanding sum due for “additional rent”.
[121] MMO submitted that no new deed of licence had been completed after the HoA so the original deed of licence remained in effect. Clause 6.1 of the original deed of licence provided “[i]f the Licensee fails to pay any payment due to the Owner under this licence on due date the Licensee will pay interest on the amount in arrears at the rate of 12% per annum”. MMO argued that, because of this, the interest rate had been correctly applied by the Judge.
Analysis as to interest issue
[122] The Judge’s award of interest was not for interest on ordinary rent due under the deed of licence.
[123] The “additional rent” was not an amount due under the licence. It was an amount due under the HoA and was not for the use of the licence. It was for the fish NZBO were acquiring under the lease.
[124] MMO were thus entitled to judgment for interest under the Interest on Money Claims Act 2016 for additional rental only for such time as rental was outstanding, as from the time proceedings were first filed on 23 October 2019 to the date of judgment.
[125] NZBO’s appeal as to the judgment for interest on overdue additional rental at 12 per cent is thus allowed. As to that, the judgment is quashed. Counsel should use their best endeavours to file a joint memorandum as to the amount for which judgment should be given for interest. Such a memorandum must be filed by 27 January 2023. If the amount due has not been agreed, a memorandum as to the amount MMO claims for interest and how that is calculated is to be filed by 3 February 2023. A memorandum in reply for NZBO is to be filed by 17 February 2023. The amount due for interest will be determined on the papers.
Costs
[126] MMO has been the more successful party on this appeal. It is entitled to costs on a 2B basis. If these are not agreed, a memorandum as to costs is to be filed for MMO by 3 February 2023. A memorandum in reply from NZBO is to be filed by 17 February 2023. Any memorandum in reply for MMO is to be filed by 3 March 2023. The memoranda are to be no longer than four pages. Any costs issue will be determined on the papers.
Solicitors:
Izard Weston Lawyers, Wellington
Eagles, Eagles and Redpath, Invercargill.
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