Winiata v Steedman
[2022] NZHC 502
•17 March 2022
IN THE HIGH COURT OF NEW ZEALAND WHANGANUI REGISTRY
I TE KŌTI MATUA O AOTEAROA WHANGANUI ROHE
CIV-2021-483-16
[2022] NZHC 502
BETWEEN LEWIS WINIATA,
PETER WAIREHU STEEDMAN,
TAMA WIPAKI, JAMES HEMI BARRETT and STEVEN ARTHUR STONEY as
trustees of the Aorangi Awarua Trust Plaintiffs
AND
DAVID WAAKA STEEDMAN
First Defendant
MĀORI CARBON COLLECTIVE LIMITED
Second Defendant
Hearing: 22 February 2022 Appearances:
S Jeffs and T Refoy-Butler for Plaintiffs
S Cogan and J Oliver-Hood for Defendants
Judgment:
17 March 2022
JUDGMENT OF ASSOCIATE JUDGE JOHNSTON
Introduction
[1] This is an application pursuant to r 15.1 of the High Court Rules for an order striking out a counterclaim, which raises a narrow issue of contractual interpretation.
[2] The plaintiffs are the responsible trustees of the Aorangi Awarua Trust, under pt 12 of the Te Ture Whenua Māori Act 1993. The first defendant is a former responsible trustee. The second defendant, Māori Carbon Collective Ltd (MCC), is a private company.
WINIATA v STEEDMAN [2022] NZHC 502 [17 March 2022]
Background
[3] The Trust is a participant in the New Zealand Emissions Trading Scheme established under the Climate Change Response Act 2002. Between December 2019 and February 2020, the trustees, then the plaintiffs and the first defendant, on the one hand, and MCC, on the other hand, entered into contractual arrangements, to which they referred as a partnership. Essentially, they agreed that land owned by the trustees would be planted out in forestry. The area of land involved was a little over 5,000 hectares of Māori Freehold Land in two titles.1 The forest was to be established and managed by MCC. The overarching objective was to generate carbon credits. The net loss or profit from the venture was to be shared equally. The term of these contractual arrangements was to be thirty years.
[4] The parties’ arrangements were recorded in a heads of agreement and a carbon right agreement in the form of an instrument registered pursuant to s 109 of the Land Transfer Act 2017 as an easement to grant profit à prendre (a right to extract valuable material from land).
[5] In their statement of claim the trustees plead that during the last quarter of 2020 the first defendant unlawfully appropriated 13,425 units owned by them, transferring these to MCC. They say that MCC was a party to this unlawful appropriation. They say that the units had a value of a little over $300,000. They sue both defendants in relation to their alleged losses.
[6] More significantly for present purposes, on 14 April 2021, the plaintiffs, the first defendant having by this point been removed as a trustee, gave notice cancelling the contractual arrangements with MCC for breach.
[7] MCC entered a defence in the proceeding, denying any breach, treating the trustees’ cancellation as a repudiation and counterclaiming.
[8]Here is how MCC has pleaded its counterclaim:
1 Land with the status of Māori freehold land is defined by s 129 of the Te Ture Whenua Māori Act 1993 as land which“the beneficial ownership of which has been determined by the Maori Land Court by freehold order”.
57.Accordingly, the Trust’s purported cancellation was a repudiation of the CRA.
58.As a result of the Trust’s repudiation, the Second Defendant has suffered, and is continuing to suffer, loss, including but not limited to:
(a)Lost profit under the CRA in an amount to be particularised prior to trial but conservatively estimated at present to be approximately $43,705,000.00, based on:
(i)2,000 hectares to be planted.
(ii)852 units per hectare over 30 years.
(iv)Equal sharing of credits between the Trust and the Second Defendant.
(v)Estimated costs of approximately $7.5 million comprising:
(aa)$3 million to plant ($3,000 per hectare for 1,000 hectares); and
(bb)$4.5 million in ongoing forest management expenses.
(b)Wasted costs incurred in relation to land assessments, seedlings, mobilising and demobilising forestry consultants.
[9]In its prayer for relief MCC claims:
(a)Specific performance of the CRA;
(b)In the alternative, damages for lost profit under the CRA in an amount to be particularised prior to trial but presently estimated to be approximately $43,705,000.0;
(c)Interest under s 10 of the Interest on Money Claims Act 2016 on the judgment sum to the date of payment; and
(d)Costs.
[10] The trustees move to strike out MCC’s claim for loss of profits (sub-para (b) above) on the basis that future profits are unrecoverable.
Rule 15.1
[11]Rule 15.1 provides:
15.1 Dismissing or staying all or part of proceeding
(1)The court may strike out all or part of a pleading if it—
(a)discloses no reasonably arguable cause of action, defence, or case appropriate to the nature of the pleading; or
(b)is likely to cause prejudice or delay; or
(c)is frivolous or vexatious; or
(d)is otherwise an abuse of the process of the court.
(2)If the court strikes out a statement of claim or a counterclaim under subclause (1), it may by the same or a subsequent order dismiss the proceeding or the counterclaim.
(3)Instead of striking out all or part of a pleading under subclause (1), the court may stay all or part of the proceeding on such conditions as are considered just.
(4)This rule does not affect the court’s inherent jurisdiction.
[12] In his submissions in support of the trustees’ application Mr Jeffs summarised the law relating to r 15.1(1) in these terms:
5.Rule 15.1(1) of the High Court Rules provides, insofar as relevant: The court may strike out all or part of a pleading if it—
(a)discloses no reasonably arguable cause of action, defence, or case appropriate to the nature of the pleading; or […]
(c)is frivolous or vexatious; or
(d)is otherwise an abuse of the process of the court.
6.The principles under r 15.1(1)(a) are well-established: pleaded facts are assumed to be true, unless they are speculative and without foundation; the cause of action must be clearly untenable; and the jurisdiction should be exercised sparingly.
7.Rules 15.1(1)(c) and (d) concern misuse of the Court’s processes: a “frivolous” pleading trifles with the Court’s processes; a “vexatious” one contains an element of impropriety; and one that is “otherwise an abuse of the process of the court” includes any other type of procedural misconduct.
8. Rule 15.1(1) permits the Court to strike out part of a claim. [Footnotes omitted.]
[13] For MCC, Mr Cogan did not differ materially as to the way in which the rule applies.
[14] I could not improve on Mr Jeffs’ summary, although for completeness I mention the guidance provided by the Supreme Court in Couch v Attorney General2 [2008] NZSC 45, endorsing the Court of Appeal in Attorney General v Prince.3
The competing arguments
[15] The argument advanced on behalf of the plaintiffs by Mr Jeffs is not complicated.
[16] The relevant aspect of MCC’s counterclaim is the claim for loss of profits, that is to say the profit it says it would have earned over the term of the contract.
[17] Putting aside as irrelevant in the context of the current application, issues about the proper scope of such claims and the obligations on a claimant to mitigate loss, Mr Jeffs submits that a claim for loss of profits is not recoverable by reason of the terms of the parties’ contractual arrangements.
[18] In this regard, he points to pt 6 of the carbon right agreement entitled “Liability”, and particularly cl 6.3.1 which is in these terms:
No Consequential Loss: Nothing expressed or implied in this Carbon Right will confer any liability on any party (referred to in this clause as the First Party) in respect of any:
6.3.1 indirect, consequential or special loss, damage, cost or expense suffered or incurred by the other party as a direct or indirect result of a breach of the First Party of any of its obligations under this Carbon Right …
[19]The contention then is that cl 6.3.1 excludes any claim for loss of profits.
[20]Of course, Mr Jeffs’ argument was more nuanced than that.
2 Couch v Attorney General [2008] NZSC 45.
3 Attorney General v Prince [1998] 1 NZLR 262.
[21] His starting point was a review of the law relating to contractual interpretation. In relation to this he referred me to the leading case which is the Supreme Court’s judgment in Bathurst Resources Ltd v L & M Cole Holdings Ltd4 reaffirming the principles set out in Firm Pl 1 Ltd v Zurich Australian Insurance Ltd.5
[22]Mr Jeffs summarised the relevant principles in these terms:
25.The approach to contractual interpretation is objective. The Court must ascertain the meaning the contract would convey to a reasonable person having all the background knowledge available to the parties at the time of contracting. The contract must be interpreted within its overall context, including by reference to any relevant background material. The text remains of central importance, and the ordinary and nature meaning will be a powerful indicator of what the parties’ meant. However, a contract need not be ambiguous to be interpreted purposively.
26.The same approach to interpretation applies to exclusion clauses. Although the Court will look for clear language before concluding a party has agreed to waive or limit its rights, the Court must ultimately ascertain the objective meaning of the exclusion clause. If the clause is ambiguous, that ambiguity will generally be resolved against the party who proffered the clause.
[Footnotes omitted.]
[23] There is nothing unorthodox about that summary, and I did not understand Mr Cogan to demur from any aspect of it. It is a fair summary of where the law has got to with contractual interpretation (although of course it excludes a number of subtleties such as the relevance of evidence of pre and post contractual behaviour).
[24] From that starting point Mr Jeffs moved on to consider the parties’ carbon right agreement which he described as “complex and lengthy”. He began by summarising its general effect. Insofar as pt 6 is concerned, Mr Jeffs observed that cls 6.1 and 6.2 contained indemnities granted by the parties to each other in relation to breach. He then referred to cl 6.3 which he described as an exclusionary clause included for the benefit of both parties. He submitted that it operates so that the First Party does not have any liability for the matters in cl 6.3.1 and 6.3.2. It prevails, Mr Jeffs contended, over any other clause in the parties’ agreement, whether express or implied, purporting
4 Bathurst Resources Ltd v L & M Cole Holdings Ltd [2021] NZSC 85.
5 Firm Pl 1 Ltd v Zurich Australian Insurance Ltd t/a Zurich New Zealand [2014] NZSC 147.
to confer liability on the First Party for matters within the scope of 6.3. He submitted that sub-cls 6.3.1 and 6.3.2 are discrete, applying as they do to different things.
[25]He concluded this aspect of his submissions in the following terms:
37.Read together, pt 6 of the CRA provides that the First Party can be liable to the other party for any direct losses caused by a breach of the CRA, must indemnify it for any consequences of that breach, but otherwise cannot be liable to it.
[26] That submission appears to me to do no more than beg the question, that is to say whether cl 6.3.1 excludes a claim for loss of profits.
[27] Mr Jeffs approached that question through the prism of Hadley v Baxendale,6 a case that has been familiar to contract law students throughout the common law world for generations.
[28]In that case, Alderson B said:
Where two parties have made a contract which one of them has broken, the damages which the other party ought to receive in respect of such breach of contract should be such as may fairly and reasonably be considered either as arising naturally, i.e. according to the usual course of things, from such breach of contract itself, or such as reasonably be supposed to have been in the contemplation of both parties, at the time they made the contract, as the probable result of the breach of it. Now, if the special circumstances under which the contract was actually made were communicated by the plaintiffs to the defendants, and thus known to both parties, the damages resulting from the breach of such a contract, which they would reasonably contemplate, would be the amount of injury which would ordinarily flow from a breach of contract under these special circumstances so known and communicated. On the other hand, if these special circumstances were wholly unknown to the party breaking the contract, he, at the most, could only be supposed to have had in his contemplation the amount of injury which would arise generally, and in the great multitude of cases not affected by any special circumstances, for such a breach of contract.
[29] As Chitty7 says, it has become common to refer to the two categories of damages identified in Hadley v Baxendale as the first and second limb — the first limb being regarded as covering direct damage (losses arising naturally from the breach itself) and the second limb being regarded as covering other types of losses.
6 Hadley v Baxendale [1854] EWHC J70.
7 Beale (ed), Chitty on Contracts Vol 2, (31st ed, Thomson, 2012) at [15–009].
[30] Hadley v Baxendale has remained a leading case concerning contractual damages since it was decided in 1854, but not without periodic modification in other well known cases such as Victoria Laundry (Windsor) v Newman Industries Ltd8 and Koufos v C. Czarnikow Ltd (The Heron II).9
[31] As Mr Jeffs submits there is a line of English cases that equate the second limb of Hadley v Baxendale with consequential losses.
[32] This has recently been criticised both in England and elsewhere. The Australian courts have expressly departed from this position. In this country, the position has not been resolved, the Court of Appeal having declined to deal with it definitively in Rolls Royce New Zealand Ltd v Carter Holt Harvey Ltd.10 Mr Jeffs helpfully referred me to two judgments of this Court, Oceania Furniture Ltd v Debonaire Products Ltd11 and Heard v Haines,12 neither of which are definitive.
[33] In the end, Mr Jeffs submitted that this Court need not regard itself as obliged to follow the English authorities but rather, recognising that the issue has not been finally resolved in this country, apply general contractual interpretation principles to the provision with which the parties, in the Court, are confronted in this case. I agree, particularly as an application for an order striking out a counter-claim is not the appropriate forum in which to take a definitive position in relation to an unresolved issue such as this. As to this, I refer to the view articulated by the Chief Justice in Couch v Attorney General13 that “[p]articular care is required in areas where the law is confused or developing”.
[34] Mr Jeffs’ referred to dictionary definitions of the key adjectival terms in cl 6.3.1 — “indirect” and “consequential”. Very broadly speaking, these definitions seem to coalesce around the idea of something that flows indirectly. I am not at all sure how much assistance that is.
8 Victoria Laundry (Windsor) v Newman Industries Ltd [1949] 2 KB 528.
9 Koufos v C. Czarnikow Ltd (The Heron II) [1969] 1 AC 350
10 Rolls Royce New Zealand Ltd v Carter Holt Harvey Ltd [2005] 1 NZLR 324 (CA).
11 Oceania Furniture Ltd v Debonaire Products Ltd [2009] NZHC 1139.
12 Heard v Haines [2017] NZCA 201.
13 Couch v Attorney General [2008] NZSC 45 at [33].
[35] Mr Jeffs suggests that cl 6.3.1 has been drafted “broadly” with wide and overlapping terms which he suggests obscure the issues of causation.
[36] That tends to confuse two different concepts. The first concept is causation. For Party A to recover damages from Party B in respect of a breach of contract by the latter, Party A must be able to establish that the actions of Party B about which Party A complains caused the relevant loss. The second concept is whether the loss in question is properly recoverable at law. This is generally referred to as the issue of remoteness, the principle that was in issue in cases such as Hadley v Baxendale, Victoria Laundry and The Heron II. Some categories of damage are sufficiently proximate to be recoverable. Others are not. The two principles — causation and remoteness — ought not to be conflated.
[37] This case does not concern causation. As far as I am aware Mr Jeffs does not contend on behalf of the trustees that MCC will not be able to establish that the trustees’ cancellation of the contract caused MCC’s loss of the opportunity to make a profit. What is said in this case is that the loss being claimed is not one that is unrecoverable. Of course the subtlety of the case is that it is not a matter of it being within a category of damage which the law regards as unrecoverable, but rather whether it is within a category which the parties have elected themselves to exclude in their contract.
[38] Mr Jeffs’ next invited the Court to consider the way in which the parties addressed risk in their contract. Here is how Mr Jeffs developed the argument:
49.As explained, the HOA and the CRA provide that MCC has the risk of funding the carbon forests until such time as they generate enough NZUs for MCC to recover the forest project costs. The trust has few responsibilities and little risk. But it does provide MCC with land, obviating the need for MCC to acquire land itself.
50.The HLA explains that the rationale for this division of responsibilities. The partnership is about preserving and protecting the Trusts’ whenua, while realising its economic potential, and creating opportunities for whānau. MCC stood to gain financially while promoting its wider goals of developing a Māori carbon economy.
51.This background supports interpreting cl 6.3.1 broadly: the Trustee tended to limit its risk — and a risk to its whenua; and MCC too, intended to limit its risk.
[39] Whilst aspects of that submission may be questioned, for example the proposition that the trustees were taking little risk ignores the opportunity cost of handing over vast tracts of land to MCC for thirty years, it is certainly fair to say that the parties have been careful in terms of allocating risk.
[40] The point can certainly be made that the agreement was that MCC was entitled to recover its outlay in establishing the forest before any assessment was made of profit to be divided equally between the partners. But I do not see that that is germane to anything other than the calculation of loss.
[41]Mr Jeffs concluded his analysis of the interpretation of cl 6.3.1 in these terms:
52.Clause 6.3.1 is linguistically clear. The First Party can be liable for
direct losses caused by its breach of the CRA but it cannot be liable for indirect and consequential losses. The CRA and the HOA support a broad interpretation of cl 6.3.1 but not otherwise change the ordinary and actual meaning of direct and consequential.
[42] So, in the end, we arrive back at the starting point. What do the terms “indirect” and “consequential” mean?
[43]Mr Jeffs’ submission on this point is that these terms cover loss of profits.
[44] In other words, the argument is that loss of profit is a subset of indirect or consequential loss.
[45]I reject that submission.
[46] The time has long past when the law draws fine distinctions between physical and economic loss. The law reports are replete with breach of contract cases where the courts have treated an innocent party as entitled to recover loss of profits which it can prove have flowed from the breach. I am unaware of any case within the last quarter of century in this country where such a claim has been dismissed because such losses are said to be unrecoverable because they are indirect or consequential. Indeed,
in many cases loss of a chance or loss of profit is the only obvious measure of damage; the way to put the innocent party in the position he, she or it would have been in had the other party performed the contract. In addition, the discretionary power of a court to grant relief pursuant to s 43 of the Contract and Commercial Law Act 2017 appears unfettered by such considerations.
[47] Certainly, I am not prepared to accept in the context of an application for an order striking out an aspect of the claim that there is no prospect of MCC demonstrating at trial that loss of profit was a direct result of any breach of contract.
[48] For those reasons, I do not accept the argument advanced on behalf of the trustees.
[49] Of course, none of that analysis should be taken as suggesting that the losses claimed by MCC in this case as necessarily recoverable.
[50] It appears to me that there are serious issues as to causation, the value of the chance involved and mitigation — in relation to the latter MCC has thirty years over which to mitigate any loss by taking steps which the law will expect to do. However, the view I take is that MCC’s claim for loss of profits is not an argument which is so lacking in merit that it should be struck out at this stage.
Conclusion
[51]The application is dismissed.
[52] As I have not heard from counsel in relation to costs, I reserve these. I would expect counsel to be able to resolve costs. However, if they are unable to do so they may file memoranda in the usual way. If it assists, my preliminary view is that the trustees as the successful parties are entitled to a costs award on a 2B basis.
Associate Judge Johnston
Solicitors:
Mackenzie Elvin Law, Tauranga for plaintiffs Walters Law, Auckland for second respondent
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