The Malthouse Ltd v Rangatira Ltd

JurisdictionNew Zealand
CourtCourt of Appeal
JudgeMiller J
Judgment Date20 December 2018
Neutral Citation[2018] NZCA 621
Date20 December 2018
Docket NumberCA276/2018

[2018] NZCA 621




Miller, Lang and Moore JJ


The Malthouse Limited
Rangatira Limited

H N McIntosh for Appellant

SCDA Gollin and J E Standage for Respondent

Contract — interpretation — whether terms should be implied for commercial sense

New Zealand courts took an objective approach to contractual interpretation which does not limit the background material available to interpret the contract. That material must however be reasonably relevant, and it must be objective; evidence of a party's individual subjective intentions is inadmissible to interpret the contract. Where there was a natural and ordinary meaning to the term in issue, departing from it for reasons of commercial common sense should only occur “in the most obvious and extreme of cases”. The commercial context may increase the weight to be placed on the provisional view formed from the words of the contract.

The clause operated clearly enough on its own terms: if an exit event occurred which valued the business at $12 million, the contingent payments became immediately due and payable. The definition did not have a temporal element. There was no need to gloss the mechanism adopted in the clause. The absence of any reference in cl 9.8 to the Contingent Sunset Date appeared deliberate. The natural meaning of the agreement was that cl 9.8 was not limited in time to the Contingent Sunset Date. The background evidence did not help on the meaning of cl 9.8.

The contract was intended to value the company at 2013, when it was entered. Allowing for a sale at any date in the future would be inconsistent with this premise, it would allow for an open-ended term which would make no commercial common sense. The better commercial view was simply that cl 9.8 protected Tuatara in the event of an early sale.

It was not appropriate to imply a term “in the timeframe specified in clause 9.1” after “if an Exit event occurs” in cl 9.8. Implying a term to that effect would change the balance of the bargain the parties struck. When analysing the natural meaning of cl 9.8 in the agreement as a whole, there was no need for additional machinery such as the term sought to make cl 9.8 efficacious. The implied term was far from being so obvious as to go without saying.

The appeal was allowed.

  • A The appeal is allowed. Judgment is entered for the appellant on its claim.

  • B The respondent must pay the appellant costs for a standard appeal on a band A basis and usual disbursements.

  • C Costs in the High Court are quashed and should be fixed in light of this judgment.


(Given by Miller J)


This case tests the limits of a court's willingness to read words into a contract to make what the court thinks is commercial common sense of it.

The facts

The appellant, The Malthouse Ltd (TML), represents the founding shareholders of Tuatara Brewing Company Ltd, a successful craft brewer. The respondent, Rangatira Ltd, is a private equity firm which the founding shareholders introduced in 2013 to provide management expertise and capital the business needed for expansion. They wanted to make the company an attractive purchase for a major brewer. The dispute concerns the price payable by Rangatira for the 35% shareholding it acquired under an investment agreement dated 30 June 2013.


It is common ground that the parties could not agree price. The vendors believed the company was worth $12 million as at the date of the transaction and wanted Rangatira to pay $4.5 million for its stake. Rangatira asserted that the company was worth no more than $10 million and sought to pay $3.5 million for its stake. The parties avoided an impasse by settling on a contractual mechanism under which Rangatira would pay the lesser sum on settlement and pay the difference if the company proved to be worth $12 million. The additional payment would be required should either of two events happen.


The first triggering event was Tuatara achieving before a sunset date, 30 December 2015, earnings that implicitly valued the company at $12 million. That target was earnings before interest, tax, depreciation and amortisation (EBITDA) of $2 million over any period of 12 consecutive months. It was an all or nothing obligation, meaning that the payment would not be scaled if the company fell short of the target. Through a change of accounting policy, which the founding shareholders resent but do not challenge, this target was not met before the sunset date.


The second triggering event, which is in dispute, was the sale of Tuatara for a price exceeding $12 million. The question is whether Rangatira's obligation to pay the balance arose only if that event happened before the sunset date. No words to that effect appear in the clause creating the obligation. Rangatira would have us read them in.


On 31 January 2017, the parties sold Tuatara to Dominion Breweries for a price far in excess of $12 million.


The parties agree that should the appeal be allowed the amount payable (after certain adjustments that do not concern us) is $920,282.86.

The contract

The transaction involved the issue of new shares, for which Rangatira subscribed, and the sale of existing ones. Nothing turns on the fact that the transaction was structured in that way, except that Rangatira paid the company for the new shares and the founding shareholders for the existing ones.


The agreement provided that consideration for the shares was the “total” purchase and subscription prices. That total was defined as the “initial” prices if the triggering events did not happen, and the sum of the initial and “contingent” prices if either of them did:

  • (a) The initial purchase and subscription prices were $2,722,206.58 and $328,505.42 respectively. That is a total of $3,050,712. (We ignore GST throughout.) On payment of those sums the shares were subscribed and transferred.

  • (b) The contingent purchase price and subscription prices were $777,788.18 and $222,230.94, a total of $1,000,019.12.


The clauses dealing with the issue and purchase of shares provided that:

3.5 Contingent Subscript Price: The Purchaser shall pay to the Company the Contingent Subscription Price upon the EBITDA Hurdle being met as agreed or determined in accordance with clause 9 and within the timeframe specified in clause 9.1.

4.5 Contingent Purchase Price: The Purchaser shall will pay each Vendor its proportionate entitlement to the Contingent Purchase Price upon the EBITDA Hurdle being met as agreed or determined in accordance with clause 9 and the timeframe specified in clause 9.1.


It will be seen that these provisions refer to cl 9.1, which established how the EBITDA Hurdle would be calculated and also set the timeframe within which it must be met to trigger the contingent payment obligation. That provided:

9.1 EBITDA Hurdle: The:

9.1.1 Contingent Subscription Price shall be payable to the Company in immediately available funds; and

9.1.2 Contingent Purchase Price shall be payable to the Vendors in immediately available funds,

Within seven (7) days of the Company, the Purchaser and the Vendor Representatives agreeing, or it being determined pursuant to this clause 9, that the Company has met the EBITDA Hurdle, provided that the EBITDA Hurdle is met on or before the Contingent Sunset Date. For clarity, it is acknowledged that determination of whether the EBITDA Hurdle has been met need not necessarily occur prior to the Contingent Sunset Date.

The Contingent Sunset Date was 31 December 2015 or such other date as the parties might agree. No other date was ever agreed.


The alternative triggering event, a sale of the business, is provided for in cl 9.8 (the intervening sub-clauses were machinery provisions dealing with the EBITDA calculation). Clause 9.8 provides:

9.8 Exit event: If any Exit event occurs which actually or by implication values the Business or the Company at greater than $12,000,000, then the Contingent Payments shall become immediately due and payable.

The sale to Dominion Breweries is an exit event as defined.

The judgments below

This case first came before the High Court by way of a summary judgment application pursued by TML. Associate Judge Smith declined that application on 31 August 2017. 1 The Associate Judge reasoned that, if TML's interpretation of the agreement was correct, several “odd” results seemed to arise, notably that Rangatira would be left with a contingent liability that might not crystallise for many years (a conclusion that lacked a plausible commercial rationale). 2 He concluded by saying that there was “a serious question as to whether experienced commercial parties such as these could have intended the result for which [TML] now contends”, 3 and that

Rangatira's meaning of cl 9.8 was reasonably arguable without considering external evidence beyond the agreement. 4

The case then proceeded to trial. In a judgment dated 27 April 2018, Churchman J dismissed TML's claim. 5 We discuss his reasoning in more detail below, but for present purposes his key findings were that: cl 9.8 was intended by the parties to be subject to the sunset clause in cl 9.1, and cl 9.8 was only intended by the parties to operate if Tuatara was acquired before the EBITDA hurdle could be met; 6 that the most sensible commercial interpretation of the clauses was that they were intended to value Tuatara at the time of the contract, not some future date; 7 and that, if it were necessary, he would imply words into cl 9.8 to make it subject to the sunset clause. 8 He also made a factual finding that a conversation took place during the negotiations which evidenced an agreement that the parties intended cl 9.8 to be subject to the sunset clause, a finding which assumed some importance in...

To continue reading

Request your trial
2 cases
  • Corbett v Vero Insurance New Zealand Ltd
    • New Zealand
    • High Court
    • 30 Julio 2019
    ...NZSC 147, [2015] 1 NZLR 432 (SC) at [60]. 11 At [63]. See also the Court of Appeal's recent decision in Malthouse Ltd v Rangatira Ltd [2018] NZCA 621, at [21]–[23], where the Court reinforced the central importance of the contract's 12 Firm PI 1 Ltd v Zurich Australian Insurance Ltd, above......
  • Focus Construction Interiors Ltd v Spaceworks Design Group Ltd
    • New Zealand
    • Court of Appeal
    • 1 Julio 2020
    ...Ltd [2010] NZSC 5, [2010] 2 NZLR 444, in particular at [19]–[20], [22]–[23], [27], [29] and [33]. 12 Malthouse Ltd v Rangatira Ltd [2018] NZCA 621 (footnotes ...

VLEX uses login cookies to provide you with a better browsing experience. If you click on 'Accept' or continue browsing this site we consider that you accept our cookie policy. ACCEPT