New Zealand 27 November 2000 Court of Appeal Wellington (Hideo Yoshimoto v. Canterbury Golf International Ltd)
[Cite as: http://cisgw3.law.pace.edu/cases/001127n6.html]
DATE OF DECISION:
CASE NUMBER/DOCKET NUMBER: 2000 NZCA 350
CASE HISTORY: 1st instance High Court Christchurch (CP 7/97) 17 March 1999
SELLER'S COUNTRY: Japan (plaintiff)
BUYER'S COUNTRY: New Zealand (defendant)
GOODS INVOLVED: Shares of company
NEW ZEALAND: Court of Appeal Wellington
Hideo Yoshimoto v. Canterbury Golf International Ltd., 27 November 2000
Case law on UNCITRAL texts (CLOUT) abstract no. 702
Reproduced with permission of UNCITRAL
This case involved the interpretation of a commercial contract, i.e. whether a particular clause of a contract should be interpreted according to its plain meaning or the context, and other circumstances of the contract, should also be considered in the interpretation.
A Japanese seller and a New Zealand buyer entered into a contract for the purchase of shares of a third company. The company had been formed to develop an international golf course. All of the shares of the company were owned by the Japanese seller. The purchase sum was to be paid in three instalments. The second instalment was only payable if and when the buyer would obtain the "necessary planning authorizations" and within a time frame of 12 months of the date of the contract.
The dispute arose when the Japanese seller demanded the payment of the second instalment arguing that, according to the plain meaning of the contract clause, the buyer had fulfilled the required conditions. After the High Court had rejected the seller's claim, the case was heard by the New Zealand Court of Appeal.
The Court of Appeal acknowledged the relevance of CISG, in particular of article 8. The Court noted that article 8 provides more latitude than the Common Law of New Zealand (and England) in admitting extrinsic evidence to interpret contracts. While at Common Law, the words of the contract are given their plain meaning unless some ambiguity is apparent (taking into account the whole document in question), the Court noted that the CISG provides for a range of extrinsic circumstances to be consulted in interpreting the meaning of a contract. This more liberal interpretation would also be supported by 1994 UNIDROIT principles of International Commercial Contracts.
The Court also noted that England has not adopted the CISG and that, except to allow for New Zealand's local conditions, New Zealand law must not deviate from English law. Therefore while the Court would consider to "bring the law in New Zealand into line with these international conventions", it decided to interpret the contract clause according to its plain meaning. The New Zealand Court of Appeal, in fact, was not the final appellate Court in the jurisdiction and the Privy Council in London would not permit a more liberal interpretation of the contract.Go to Case Table of Contents
APPLICATION OF CISG: No, dicta reference to CISG
APPLICABLE CISG PROVISIONS AND ISSUES
Key CISG provisions at issue:
Classification of issues using UNCITRAL classification code numbers:
8C [Interpretation in the light of surrounding circumstances]
8C [Interpretation in the light of surrounding circumstances]
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Excerpt from case text
 1 NZLR 523
 The Court faces a difficult question of interpretation. A commercial contract is in issue. A particular clause might be said to have a plain meaning, and was held to have such a plain meaning by the Judge at first instance. The context, the commercial objective of the contract and its contractual matrix, however, point away from that meaning. In addition, reliable extrinsic evidence is available which confirms that this plain meaning is not what the parties actually intended. The question of interpretation, therefore, involves an examination of the contract, the commercial objective of the contract and the contractual matrix. The extrinsic evidence and the admissibility of that evidence must also be considered. Finally, the question arises whether, having regard to the approach of the English Courts and bearing in mind that this Court is not the final appellate Court in this jurisdiction, it is open to it to have regard to such evidence and so give effect to the actual intention of the parties. [page 525]
 It is accepted that for reasons of commercial convenience the law insists on an objective theory of contract. Lord Steyn, writing extra-judicially, has pointed out that this involves adopting an external standard given life by using the concept of the reasonable person. Thus, in contract law effect must be given to the reasonable expectations of honest people. The expectations which will be protected are those that are, in an objective sense, common to both parties. Generally the law of contract is not concerned with the subjective expectations of a party. Thus, the function of the law of contract is to provide an effective and fair framework for contractual dealing, a function which requires an adjudication based on the reasonable expectation of parties (Johan Steyn, "Contract Law: Fulfilling the Reasonable Expectations of Honest Men" (1997) 113 LQR 433 at pp 433-434).
 By and large, Lord Steyn continues, the objective approach to questions of interpretation serves the needs of commerce. It tends to promote certainty in the law and predictability in dispute resolution. The rule that evidence of the precontractual negotiations of the parties or their subsequent conduct cannot be used in aid of the construction of a written contract follows from the primary rule that the task of the Court is simply to ascertain the meaning of the language of the contract. But, the distinguished jurist adds, the rationality of the law is important, and if this rule was absolute and unqualified it would sometimes defeat the reasonable expectations of commercial men. There has been, he observes, a shift away from a black-letter approach to questions of interpretation. The literalist methods of Viscount Simmonds are in decline. The purposive approach of Lord Reid and Lord Denning MR has prevailed (ibid at p 440). [page 539]
 This Court is not a final Court of appeal. A right of appeal remains to the Privy Council sitting in London. It may not therefore be open to this Court to have regard to the extrinsic evidence to which I have referred.
 Lord Hoffmann's summary in the West Bromwich case is the most up-to-date and progressive statement of the principles applicable to the interpretation of a contract. Yet, even though it is acknowledged that the boundaries of the exception are in some respects unclear, Lord Hoffmann holds that the rule is absolute if the evidence relates to prior negotiations. The Bromarin case illustrates the reluctance of the English Courts to look at extrinsic evidence as an aid to interpretation. I therefore suspect that the principles as enunciated by Lord Hoffmann will be as far as Their Lordships in London will be prepared to go. They will not displace the curt reminder to this Court of the correct approach in Melanesian Mission Trust Board v Australian Mutual Provident Society  1 NZLR 391. Lord Hope of Craighead stated at pp 394-395:
"The approach which must be taken to the construction of a clause in a formal document of this kind is well settled. The intention of the parties is to be discovered from the words used in the document. Where ordinary words have been used they must be taken to have been used according to the ordinary meaning of these words. If their meaning is clear and -unambiguous, effect must be given to them because that is what the parties are taken to have agreed to by their contract. Various rules may be invoked to assist interpretation in the event that there is an ambiguity. But it is not the function of the Court, when construing a document, to search for an ambiguity. Nor should rules which exist to resolve ambiguities be invoked in order to create an ambiguity which, according to the ordinary meaning of the words, is not there. So the starting point is to examine the words used in order to see whether they are clear and unambiguous. It is of course legitimate to look at the document as a whole and to examine the context in which these words have been used, as the context may affect the meaning of the words. But unless the context shows that the ordinary [page 547] meaning cannot be given to them or that there is an ambiguity, the ordinary meaning of the words which have been used in the document must prevail."
 Nor, in line with this approach, will ambiguities be lightly recognised. In the present context, for example, the fact that the word "necessary" may mean "necessary to proceed", or "necessary as identified" or "necessary to complete in essence . . . the development" will not be universally accepted as constituting an ambiguity. In the result, notwithstanding the genuine controversy surrounding the words used in cl 6.3, the language is likely to be vested with a "plain meaning" and extrinsic evidence excluded from consideration.
 If that is the case, the rule against the admission of evidence relating to prior negotiations will be applied without qualification. I do not have any presentment that English law is about to revisit this rule.
 It would, of course, be open to this Court to seek to depart from the law as applied in England on the basis of this country's implementation in 1995 of the United Nations Convention on Contracts for the International Sale of Goods 1980. Liberal provisions for the interpretation of international sales contracts are included in this convention. Article 8(1) provides that statements made by a party "are to be interpreted according to his intent where the other party knew or could not have been unaware what that intent was." Article 8(2) stipulates that, if the latter provision is inapplicable, a party's statements "are to be interpreted according to the understanding that a reasonable person of the same kind as the other party would have had in the same circumstances." Under art 8(3) "In determining the intent of a party or the understanding a reasonable person would have had, due consideration is to be given to all relevant circumstances of the case including the negotiations, any practices which the parties have established between themselves, usages and any subsequent conduct of the parties." Professor McLauchlan has correctly pointed out that it is odd that evidence of the parties' negotiations are admissible to aid the interpretation of international sales agreements but not commercial or other domestic contracts (see D W McLauchlan, "A Contract Contradiction" at p 193).
 Reference may also be made to the "UNIDROIT Principles of International Commercial Contracts" published in 1994. This document, which is in the nature of a restatement of the commercial contract law of the world, refines and expands the principles contained in the United Nations convention. Particularly relevant for present purposes is art 4.3. Having stipulated that a contract is to be interpreted according to the common intention of the parties (art 4.1), and that the statements and other conduct of a party shall be interpreted according to that party's intention if the other party knew or could not have been unaware of that intention (art 4.2), art 4.3 provides that, in applying these general principles, regard should be had to all the circumstances including "preliminary negotiations between the parties". Clearly, it is desirable that the approach of the Courts in this country to the interpretation of statutes should be consistent with the best international practice (see Attorney-General v Dreux Holdings Ltd (1996) 7 TCLR 617 at pp 627 and 642).
 But while this Court could seek to depart from the law as applied in England and bring the law in New Zealand into line with these international conventions, I do not think it would be permitted to do so by the Privy Council. England has not yet adopted the United Nations convention and has shown [page 548] little readiness to allow the Courts in this country any latitude in the interpretation of contracts. (As Professor McLauchlan points out, between June 1996 and December 1997, six decisions of this Court, none of which raise issues of general principle, were the subject of appeals to the Privy Council. Of these, four were successful and one was dismissed by a bare three to two majority (see "A Contract Contradiction" at p 190).) This Court has, of course, been allowed considerable latitude in certain areas. See eg Invercargill City Council v Hamlin  1 NZLR 513; W v W  2 NZLR 1; and Lange v Atkinson  1 NZLR 257. Certainly, the contractual environment in New Zealand is significantly different from that which prevails in England. In this country, no less than nine statutes have been enacted since 1944 which impinge upon the traditional common law rules relating to the formation and performance of contractual undertakings. In England the common law remains dominant. But other, perhaps, than fostering a different judicial approach, I am not certain that this different contractual environment bears upon the present point. Being realistic, the law of contract in this country, other than as specifically reshaped by statute, is likely to remain the law of England. Indeed, in 1985 the Privy Council made it clear that, apart from cases involving considerations peculiar to New Zealand or questions of local policy, the Courts of New Zealand must adhere to the law which is of general application as the common law of England. See O'Connor v Hart  1 NZLR 159, esp at pp 165 and 174. [page 549]
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CITATIONS TO OTHER ABSTRACTS OF DECISION
English: Unilex database <http://www.unilex.info/case.cfm?pid=1&do=case&id=828&step=Abstract>
CITATIONS TO TEXT OF DECISION
Original language (English):  NZLR 523; Australasian Legal Information Institute <http://www.austlii.edu.au/>; Unilex database (excerpt) <http://www.unilex.info/case.cfm?pid=1&do=case&id=828&step=FullText>
CITATIONS TO COMMENTS ON DECISION
English:  Schlechtriem & Schwenzer ed., Commentary on UN Convention on International Sale of Goods, 2d (English) ed., Oxford University Press, Art. 7 para. 30Go to Case Table of Contents