Bathurst Resources Ltd v L & M Coal Holdings Ltd

JurisdictionNew Zealand
CourtSupreme Court
JudgeGlazebrook,O'Regan J,Ellen France J,O'Regan
Judgment Date14 July 2021
Neutral Citation[2021] NZSC 85
Docket NumberSC 29/2020

[2021] NZSC 85

IN THE SUPREME COURT OF NEW ZEALAND

I TE KŌTI MANA NUI

Court:

Winkelmann CJ, Glazebrook, O'Regan, Ellen France and Williams JJ

SC 29/2020

Between
Bathurst Resources Limited
First Appellant
Buller Coal Limited
Second Appellant
and
L & M Coal Holdings Limited
Respondent
Counsel:

J E Hodder QC, R J Gordon and D P MacKenzie for Appellants

A R Galbraith QC, D R Kalderimis and N K Swan for Respondent

Contract — appeal against a Court of Appeal decision which found in favour of the respondent in a dispute over the proper interpretation of a contract for the sale of coal mining rights — meaning of “shipped” — principles of contract interpretation — good faith — test for implication of terms in a contract — approach to the admissibility of extrinsic evidence

The issues were: what extrinsic evidence could be admitted in a contract interpretation dispute; the definition of “shipped”; whether the first performance payment obligation had been triggered and whether cl 3.10 required royalty payments to be made as and when the royalty deed required them.

The Court held that the approach to interpretation of written contracts was governed by the law of contract and was an objective task. The admissibility of extrinsic evidence was an evidential issue to be determined in accordance with the law of evidence in light of the substantive law of contract. The parol evidence rule did not govern the admissibility of extrinsic material as the interpretation of a contract did not involve any change of the written terms. As New Zealand's evidence law was governed by the Evidence Act 2006 (“EA”), relevance and probative value were the standards for admissibility. Applying s7 EA (fundamental principle that relevant evidence admissible) in the context of contractual interpretation, evidence was prima facie admissible if it had 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 at the time the contract was entered into. Evidence of the content of prior negotiations and subsequent conduct would be inadmissible to the extent that it proved 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. Evidence that tended to prove that the parties had agreed upon a word having a particular meaning (the private dictionary principle) was admissible.

The word “shipped” should be given the generic meaning “transported”. The subjective and uncommunicated declarations of intent as to the meaning were inadmissible. Therefore, the first performance payment had been triggered.

The implication of a term was part of the construction of the written contract as a whole. An unexpressed term could only be implied if it was strictly necessary, in that the term would spell out what the contract, read against the relevant background, must be understood to mean.

Clause 3.10 correctly interpreted required royalty payments to be made as and when the royalty deed required them. It did not impose any new requirement in relation to a certain minimum level of royalties, or any obligation on the part of Bathurst to develop and exploit the mine. The requirements for the implication of a term to that effect were not met. Bathurst's deferral of its obligation to pay the performance payment while suspending mining operations had not created an actionable breach. Bathurst could only rely on the right to deferral if it was paying royalties at a level consistent with a productive mine. Since Bathurst was not doing so, L&M had become entitled to be paid the debt owing to it. If it had been necessary, the majority would have implied a term that Bathurst ceasing to mine on a level equating to that which triggered the obligation to make the performance payment (while, at the same time, refusing to pay the payment that had become due) was a breach of contract, entitling L&M to compensation.

The appeal was allowed. The judgments of the HC and CA were set aside and judgment.

  • A The appeal is allowed. The judgments of the High Court and Court of Appeal are set aside and judgment is entered for the appellants.

  • B The application to adduce further evidence is dismissed.

  • C The respondent must pay the appellants costs of $30,000 plus usual disbursements. We certify for second counsel.

  • D Costs should be re-determined in the Courts below in light of this judgment.

JUDGMENT OF THE COURT
SUMMARY OF RESULT

(Given by the Court)

1

This appeal concerns the proper interpretation of a contract for the sale of coal mining rights. How to interpret the words of a written contract is a perennial issue in the law, and while over time the test to be applied to find the meaning of those words has become settled, the issue of what evidence outside the words of the contract should be allowed to assist with this task continues to be debated. So too the nature of the test for implication of terms in a contract.

2

All members of the Court have agreed on the approach to the admissibility of extrinsic evidence in cases of contractual interpretation. 1 The Court has also agreed on the test for the implication of terms. 2

3

The Court is unanimous on the interpretation of cl 3.4 of the contract between the parties. 3 Members of the Court have taken different views on the construction of cl 3.10 of the contract. The majority have found in favour of the appellants on this point, which is dispositive. 4 Accordingly, the appeal is allowed. The respondent must pay the appellants costs of $30,000 plus usual disbursements. Costs in the Courts below should be re-determined in light of this judgment. Winkelmann CJ and Ellen France J would have dismissed the appeal. 5

4

The reasons of the Court for this result are given in the separate opinions delivered by:

REASONS

Winkelmann CJ And Ellen France J

Table of Contents

Para No.

Winkelmann CJ and Ellen France J

[5]

Glazebrook, O'Regan and Williams JJ

[232]

Introduction

[5]

Factual background

[11]

Summary of the parties' submissions

[31]

Evidence available to assist in contractual interpretation

[40]

Parties' submissions on the admissibility of extrinsic evidence

[50]

The approach to admissibility in New Zealand

[54]

Declarations of subjective intent

[67]

Prior negotiations

[69]

Specialised meanings

[81]

Subsequent conduct

[84]

Test for implication of terms: the same as interpretation?

[91]

Parties' submissions

[103]

Our approach to the test for implication of terms

[106]

Was the first performance payment under cl 3.4 triggered?

[119]

Parties' submissions

[121]

Bathurst

[121]

L&M

[129]

High Court decision

[131]

Court of Appeal decision

[132]

Our analysis

[134]

The text of the contract

[134]

Commercial purpose

[139]

Subsequent conduct

[149]

Evidence as to the meaning of the word “shipped”

[152]

Conclusion

[158]

The construction of cl 3.10

[159]

The relevant provisions

[165]

The approach in the Courts below

[167]

Overview of submissions

[170]

Our assessment

[174]

Discussion

[175]

An implied term?

[201]

Proper purposes

[224]

Good faith

[227]

Result

[230]

Introduction
5

The dispute between the parties to this appeal arises in the context of the sale of coal exploration permits over parts of the Denniston and Stockton Plateaus. These plateaus lie within the Buller Coalfield, which is an historic mining area in the South Island of New Zealand.

6

In June 2010, Bathurst Resources Ltd (Bathurst) agreed to purchase coal exploration rights and mining-related applications from L & M Coal Holdings Ltd (L&M). Two performance payments, each of USD 40 million, were agreed to be payable when 25,000 tonnes, and then one million tonnes, of coal had been “shipped from the Permit Areas”. Then, in 2012, Bathurst and L&M entered into a deed (the Third Deed) varying the original written Agreement for Sale and Purchase (the Agreement) to provide that payment of the first performance payment could be deferred at Bathurst's election while Bathurst continued to pay royalties under a related royalty deed.

7

After more than 25,000 tonnes of coal was mined and trucked out, Bathurst suspended mining and stopped paying royalties, apart from royalties on a small amount of stockpiled coal. It has yet to pay the first performance payment. Bathurst says that without mining, no royalties are due and so, since it is continuing to pay the royalties due under the royalty deed (which are none), it can continue to defer payment of the first performance payment.

8

Bathurst and L&M dispute the proper interpretation of the Agreement and the amending Third Deed. There are two core issues between them. The first is as to whether the first performance payment obligation has been triggered in terms of the Agreement, an issue which turns on the interpretation of the expression “shipped from the Permit Areas” in cl 3.4 of the Agreement. The second issue is whether, if the first performance payment obligation has been triggered, Bathurst is contractually entitled to continue to defer that payment when it is not paying any royalties.

9

In the High Court, in order to support their respective cases for a particular interpretation, the parties produced extensive evidence which was extrinsic to the written contractual documents. This included evidence of pre-contractual negotiations; of what the parties intended the agreements should mean; of surrounding circumstances, both before and after execution of the two documents, which are said to show the commercial purpose of the agreements; and evidence of the parties'...

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