New Zealand 27 March 2002 High Court, Auckland (Thompson v. Cameron)
[Cite as: http://cisgw3.law.pace.edu/cases/020327n6.html]
DATE OF DECISION:
CASE NUMBER/DOCKET NUMBER: AP 117/SW99 and B 12571M01
CASE HISTORY: Unavailable
SELLER'S COUNTRY: New Zealand
BUYER'S COUNTRY: New Zealand
GOODS INVOLVED: [-]
NEW ZEALAND: High Court, Auckland 27 March 2002 (Thompson v Cameron)
Case law on UNCITRAL texts [A/CN.9/SER.C/ABSTRACTS/131]
CLOUT abstract no. 1257
Reproduced with permission of UNCITRAL
The appellant and the respondent concluded a deed of settlement in respect of a conversion suit by the former against the latter. The appellant succeeded on appeal to the High Court, which remitted the case to the District Court for a rehearing. During the rehearing the parties negotiated and concluded a settlement. It required the respondent to pay the appellant the sum of $8000 over 3 instalments. Clause 2 stated that the payment was in full and final settlement of the conversion suit against the respondent. After this latter paid the sums owing in the settlement, the appellant issued bankruptcy proceedings against the respondent. This latter applied to have the bankruptcy proceedings annulled. The appellant appeals against that application.
The issue was whether the settlement agreement was in full and final settlement of all claims by the appellant, or whether other costs not satisfied by the settlement remained outstanding.
The High Court considered that a contract with ambiguous words is to be interpreted with regard to its background and circumstances (the “factual matrix”) at the time a contract is entered into. Therefore pre-contractual negotiations and subsequent conduct are traditionally inadmissible in ascertaining the meaning and purpose which parties intended to attribute to a contract. The judge did suggest that this traditional stance may need revision in light of Attorney-General v Dreux Holdings Ltd. In that case the Court of Appeal indicated that Article 8(3) CISG (which is incorporated into domestic New Zealand law by the Sale of Goods (United Nations Convention) Act 1994) expressly provides for consideration of pre-contractual negotiations and subsequent conduct in determining the intent of a party or the understanding a reasonable person would have had. While the Court of Appeal was able to construe the contract without considering subsequent conduct, it nonetheless expressed the view that New Zealand domestic contract law should be generally consistent with international best practice.
The High Court did not conclude on whether Article 8(3) CISG could apply to New Zealand domestic law, instead noting that the law is unclear either way. In the end its result was based on a traditional approach having regard to the “factual matrix” at formation. Evidence of the parties’ pre-contractual negotiations and subsequent conduct was adduced, but this was ignored when the High Court formed its final view. The respondent succeeded and the appellant’s application for annulment of the bankruptcy proceedings was dismissed.
APPLICATION OF CISG: No, dicta reference to CISG (see para. 20 of opinion)
APPLICABLE CISG PROVISIONS AND ISSUES
Key CISG provisions at issue:
Classification of issues using UNCITRAL classification code numbers:
8C [Interpretation in light of surrounding circumstances]
8C [Interpretation in light of surrounding circumstances]
Go to Case Table of Contents
Go to Case Table of Contents
CITATIONS TO OTHER ABSTRACTS OF DECISION
CITATIONS TO TEXT OF DECISION
Original language (English): Text presented below
CITATIONS TO COMMENTS ON DECISION
Go to Case Table of Contents
27 March 2002
(ORAL) JUDGMENT OF CHAMBERS J
Lawyers: A C Thompson, 302 Pine Valley Road, Silverdale, Auckland (in person) Sandi Anderson, 9 Redmond Street, Ponsonby, Auckland, for J M Cameron
The background to a bankruptcy
 In 1999, Anne Thompson commenced a proceeding in the District Court. The defendant was Judith Cameron. Ms Thompson sued Ms Cameron in the tort of conversion. She sought damages in the sum of $7187.00, being the alleged value of the items Cameron had allegedly taken. In addition, Ms Thompson sought exemplary damages in the sum of $30,000 and general damages for mental stress in the sum of $30,000.
 The proceeding was heard in the District Court in July that year. In September that year, the judge delivered a reserved decision. She dismissed Ms Thompson's claim. MS Thompson appealed to the High Court. The appeal was heard in February 2000. The appeal was successful. Williams J remitted the case to the District Court for a rehearing. He reserved costs pending the outcome of that rehearing.
 Ms Cameron was dissatisfied with Williams J's decision. She applied for leave to appeal to the Court of Appeal. Williams J declined that application on 18 April 2000. Ms Cameron was still dissatisfied. She applied to the Court of Appeal itself for special leave to appeal. The Court of Appeal dismissed her application on 19 June 2000. The Court of Appeal ruled that Ms Thompson was entitled to costs in the sum of $1500 plus disbursements to be fixed by the registrar.
 On 13 July 2000, Williams J fixed costs on Ms Cameron's application for leave which he had heard. He awarded Ms Thompson $850.
 On 16 August, the registrar of the Court of Appeal fixed the disbursements.
 The rehearing in the District Court took place on 18 September 2000 before Judge Buckton. Ms Thompson gave evidence. After she had given her evidence, Judge Buckton asked to see counsel in chambers. Following that, there were settlement discussions between the parties. Those negotiations resulted in a written agreement. The agreement is brief. I set out its terms in full:
DEED OF SETTLEMENT
BETWEEN: ANNE COLLEEN THOMPSON (ACT)
AND: JUDITH MARYANN CAMERON (JMC)
The parties agree:
a. The sum of $4000 on or before 4 pm Sunday 22 September 2000;
b. The sum of $2000 on or before 4 pm Sunday 22 December 2000;
c. The sum of $2000 on or before 4 pm Thursday 22 March 2000.
 So far as I am aware, Ms Cameron paid the sums referred to in clause 1.
 Up until this time, Ms Thompson was represented by counsel, Mr John Mather. After this time, Ms Thompson became dissatisfied with Mr Mather and ultimately she dismissed him. From that time on, she has represented herself.
 In March last year, she arranged to have the Court of Appeal's judgment sealed. She also sought to have Williams J fix the costs on the original appeal he had heard. Mr Vickerman, who has acted for Ms Cameron throughout, did not file any submissions. Williams J then fixed costs in a judgment he delivered on 10 September last year. Shortly after that, Ms Thompson had that judgment sealed. At about the same time, she also had sealed Williams J's costs order from the application for leave to appeal.
 By early October last year, therefore, Ms Thompson had in her possession 3 sealed judgments, each awarding costs in her favour. Armed with these, she then commenced bankruptcy proceedings against Ms Cameron. Ms Thompson asserted that she did not know where Ms Cameron lived. Accordingly, she applied ex parte to this court for an order for substituted service. Orders for substituted service in respect of both the bankruptcy notice and the bankruptcy petition were made. Ms Thompson was permitted to serve by means of advertisement in the New Zealand Herald.
 On 16 January this year, Ms Thompson's bankruptcy petition came before Master Anne Gambrill. Ms Cameron was not represented. Master Anne Gambrill made an order of adjudication. Shortly after that, Ms Cameron received a letter from the Official Assignee advising that she had been adjudicated bankrupt. Ms Cameron says that she was stunned to receive that letter as neither the bankruptcy notice nor the bankruptcy petition had been brought to her attention. She immediately took steps to have the adjudication annulled. She says she owes Ms Thompson nothing. She also took steps to prevent the sealing of the order of adjudication. The master ruled that the order must not be sealed pending determination of MS Cameron's application for annulment.
 What I am dealing with in this case is that application for annulment.
 The issues in this case come down to one: was the settlement agreement in full and final settlement of all claims by Ms Thompson? Ms Cameron says that it was. Ms Thompson says that it resolved only the District Court matters under NP186/99. It left open, she says, her claims for costs in the High Court and the Court of Appeal.
 I say that the case comes down to one issue for the following reasons. If the interpretation of the settlement agreement advanced by Mr Vickerman is correct, then Ms Thompson accepts that the adjudication for bankruptcy must be annulled. Nothing is owing by Ms Cameron. She fulfilled all her obligations when she completed the payment of $8000. If, on the other hand, the agreement means what Ms Thompson contends, then Mr Vickerman accepted that the outstanding costs must be paid. (There is an error in one of the sealed judgments, an error which Ms Thompson acknowledges.) Ms Cameron would pay the correct outstanding amount witbin a fortnight. Clearly, in that event, the appropriate course would be to adjourn the bankruptcy proceeding for a fortnight in order that the sum might be paid.
 By consent of both parties, we turned, therefore, today to a consideration of the one issue requiring determination. Mr Vickerman did not wish to cross-examine any of Ms Thompson's deponents. He did, however, wish to call Mr Mather. Mr Mather appeared under subpoena. After due consideration, Ms Thompson decided to waive legal professional privilege with respect to her dealings with Mr Mather. Mr Mather gave oral evidence. Ms Thompson cross-examined him. Ms Thompson did not seek to cross-examine any of Ms Cameron's deponents.
 Following the taking of evidence, both sides made submissions to me as to the meaning of the agreement.
The meaning of the agreement
 The crucial clause in the settlement agreement is clause 2. It must, however, be interpreted in the light of the other terms of the written agreement. How a written contract is to be interpreted is clear where the terms of that written contract are plain and unambiguous. In those circumstances, the words of the contract must speak for themselves and extrinsic evidence will not be admitted to show that the parties intended something different: see Burrows Finn & Todd, Law of Contract in New Zealand (8th NZ ed) para 6.2.1 (b).
 In this case, the words of the contract are not plain and unambiguous. Both the interpretation advanced by Mr Vickerman and the interpretation advanced by Ms Thompson would be available on the words of the contract considered in isolation. Where a contract is ambiguous, the traditional approach has been that the court, in interpreting the contract, is entitled to put itself in the 'factual matrix' in which the parties were at the time they entered the contract. That is to say, the court may have regard to the background to the contract and the circumstances surrounding its formation so that it is better able to appreciate the parties' purpose in contracting and the meaning they must have attributed to the words and phrases in the contract: see Burrows, para 6.2.1(b). Lord Wilberforce, in Reardon-Smith Line v Yngvar Hansen- Tungen  1 WLR 989 at 995-7, said that one is permitted to know 'the genesis of the transaction, the background, the context in which the parties are operating'.
 That is all clearly accepted law. What is more controversial is the extent to which the court may have regard to pre-contractual negotiations and post-contract conduct. The traditional view has been that, in the absence of a claim for rectification, pre-contractual negotiations are inadmissible for the purpose of interpreting the contract. In addition, the traditional view has been that post-contract conduct is also inadmissible. Fisher J, for instance, has said that the subjective intentions of the parties, whether evinced by pre- or post-contractual behaviour, are irrelevant and that a contract is to be construed as at the date it was made: see McLaren v Waikato Regional Council  1 NZLR 7 10 at 73 1.
 The traditional stance of the law on this topic may need revision in light of the Court of Appeal's decision in Attorney-General v Dreux Holdings Ltd (1996) 7 TCLR 617. In that case, the Court of Appeal had to construe an agreement for the sale of a large number of parcels of land found to be surplus to requirements on the restructuring of the railways. Counsel for Dreux urged the court when construing the contract to take into account subsequent conduct of the parties in its implementation. In the end, the majority was able to construe the contract without considering the parties' subsequent conduct. Nonetheless, the court did express views as to whether recourse to subsequent conduct was permissible. While not expressing a firm view, the majority noted the United Nations Convention on Contracts for the International Sale of Goods, known as the Vienna Sales Convention, which is now, by virtue of the Sale of Goods (United Nations Convention) Act 1994, part of New Zealand law. It governs international trading contracts made under New Zealand law or the law of another State Party unless otherwise stipulated. It provides in article 8(3) that 'in determining the intent of a party or the understanding a reasonable person would have had, due consideration has 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'. The majority noted that there was something to be said for the idea that New Zealand domestic contract law should be generally consistent with the best international practice. The majority went on to observe that in Australia, our major trading partner, the question as to the extent to which subsequent conduct of the parties could be looked at appears to remain open. The court noted authorities going both ways on this topic.
 Because of the view tentatively expressed by the majority in that case, I permitted Mr Mather to give evidence both on pre-contractual negotiations and on subsequent conduct. I did this because the parties themselves had covered such matters extensively in their affidavits. I thought it prudent to allow such evidence in on a contingent basis so that, should it become necessary to consider such evidence, and should I ultimately determine that such evidence was admissible, it would be available. In addition, I considered it prudent that the evidence should be available should this matter go further.
 Because the state of the law is, however, still uncertain, I have decided first to look at this matter utilising only evidence about which there can be no dispute as to its relevance and admissibility. If, having considered such evidence, the answer is still not clear, then I intend looking at the additional evidence I have received, both in affidavit form and orally, as to pre-contractual negotiations and post-contract conduct.
 The following matters form part of the factual matrix under which the settlement agreement was negotiated.
 First, it is relevant that the agreement was entered into mid-hearing. Clearly, Judge Buckton put pressure on both sides to try to reach a resolution of a matter which had taken a tortuous course all the way to the Court of Appeal and back. Judge Buckton was clearly conscious of the extraordinary costs which both parties must have already incurred over a comparatively small dispute. What he had urged the parties to do was try to resolve the dispute in an overall way.
 Secondly, it is highly relevant to note the value of the property which had allegedly been taken by Ms Cameron. Ms Thompson put that value at $7187.00. I am aware that there was also a claim for exemplary damages and mental stress. Any lawyer advising on this matter would, I am sure, have told his respective client that these damages were grossly inflated and that the chance of recovering them, given the state of law in both areas, was remote. At best, if any sum was recovered, it was likely to be very small.
 Thirdly, it is highly relevant that at the time the settlement agreement was entered into, there were already in existence costs orders. The parties would have been aware of that. It is inevitable that the parties would have turned their minds to those costs orders in formulating any settlement. If the settlement sum agreed was not intended to deal with the costs orders already made, then surely the parties would have specified when those costs orders were to be paid.
 Fourthly, it is also relevant as part of the factual matrix that the costs orders, although in two cases already made, had in one case not been fmalised as to quantum and in all cases had not been sealed. If costs were not to form part of the agreement, then it was inevitable that both sides would face further legal costs in order to have the outstanding costs order quantified and in all cases the costs orders sealed. That would be very unusual. People generally entering into settlements resolving their dispute do so in the expectation that it will bring to an end the cost of lawyers. It is very unlikely that the parties envisaged further arguments, with the attendant cost, in any court.
 Fifthly, it is relevant, I think, to bear in mind that settlement agreements always focus on what it is they are settling. In this particular case, the parties adopted as the description of the dispute being settled the claim's District Court number. True, they did not mention the proceeding's appeal numbers in the High Court and Court of Appeal, but this was always a single proceeding. The proceeding had gone on appeal to the High Court and the Court of Appeal, and in those courts, for reasons of court administration, different numbers had been allocated. But the proceeding was, at all times, one proceeding. It was one dispute, one claim.
 When I consider all those matters as part of the 'factual matrix', 'the background, the context in which the parties are operating', I am driven to a clear conclusion that the settlement agreement resolved all matters concerning the conversion dispute between Ms Thompson and Ms Cameron. The settlement agreement was intended to end all future legal expenses. It is inconceivable that Ms Cameron would have wanted to leave open the prospect of further legal costs in determining costs in the High Court or the Court of Appeal. In addition, if costs were left to be later resolved, it makes a nonsense of the carefully crafted timetable for the payment of the $8000. The suggestion that costs might be outstanding also does not sit neatly with the second (wrongly named) clause 3 in the settlement agreement. By that clause, the parties agreed that, if Ms Cameron failed to make the payment of $8000 or any part of that, Ms Thompson could enter judgment for the balance which had not been paid. There is no suggestion in that clause that she could also enter judgment for outstanding costs.
 I am satisfied that what the parties objectively agreed was that, provided Ms Cameron paid $8000 on or before the stipulated dates, that would be the end of the matter. That sum incorporated costs orders either made or potentially to be made. The payment of $8000 settled Ms Thompson's proceeding, including the claim for damages and costs at whatever level in the court structure the claim had been dealt with.
 In this case, I have found it unnecessary to look at pre-contractual negotiations between the parties or at post-contract conduct. I did have evidence from Mr Mather that he had discussed the very question of costs with Mr Vickerman in the course of his negotiations with him on 18 September 2000 and that it was clearly understood by him and Ms Thompson that the settlement sum included costs at every level. I have ignored that evidence in forming my view.
 Given my finding on the one issue in this case, it is now clear, as Ms Thompson accepted, that the adjudication for bankruptcy must be annulled. The fact is, and always has been since 22 March 2000, that Ms Cameron owes Ms Thompson nothing further. She has paid the debt. Accordingly, I am satisfied that this is an order of adjudication which should not have been made. In terms of s 119(l)(a) of the Insolvency Act 1967, I annul the order for adjudication.
 Ms Cameron had also sought an order staying execution of the costs orders. I do not think that is quite the correct procedure. By her fulfilment of the settlement agreement, Ms Cameron satisfied the judgments. The correct procedure now, I believe, is for me to order, under r 544(3) of the High Court Rules, that a satisfaction be entered with respect to the 3 court orders. I so order.
 I appreciate that one of those costs orders was made after the settlement agreement. In my view, Ms Thompson was acting in breach of the settlement agreement in asking Williams J to fix costs on the original appeal. It is perhaps regrettable that Mr Vickerman did not file submissions explaining to Williams J that the matter had been settled with the consequence that a costs judgment was inappropriate. I do not know the explanation for why Mr Vickerman did not take that step. It may be that Ms Cameron did not wish to incur any further costs. If that is the explanation, I can understand her attitude given that the purpose of the settlement agreement was to avoid legal fees on both sides thereafter. Be that as it may, that judgment should also be regarded as 'satisfied'.
 Mr Vickerman seeks costs on Ms Cameron's application to have the adjudication of bankruptcy annulled. He seeks costs on a 2B basis. I have explained to Ms Thompson the costs regime applicable in the High Court. I order that Ms Thompson pay costs to Ms Cameron on a 2B basis calculated on the basis of a single application. Hearing time of the application is three-quarters of a day. I also allow .2 of a day for the appearance before Master Anne Gambrill. Preparation time and the like will be as set out in the Schedule to the High Court Rules. If Ms Cameron has incurred disbursements, I direct the registrar to fix them. Ms Thompson must pay disbursements as fixed by the registrar.
 I am also bound to consider the application by the Official Assignee for his costs. Under s 119(7) of the Insolvency Act, the court is empowered, on making an order of annulment under subs (l)(a), to order, in addition to any costs that may be awarded, the payment of such fee by way of remuneration of the Assignee's services as the court considers reasonable. The Official Assignee was served with a copy of the application for annulment, as required by s 119(2). In response, the Official Assignee filed a report setting out what steps he had taken since the adjudication and his costs. His total costs and disbursements, which were detailed, come to $666. The Official Assignee was aware of today's hearing but elected not to take part. He indicated that he would abide the decision of the court. He did, however, seek to have his costs paid in the event that the adjudication was annulled.
 I have explained the law to Ms Thompson. The position is that she has wrongly proceeded on the course of having Ms Cameron declared bankrupt. She had no right to commence the bankruptcy proceedings. It is appropriate that she should have to meet the Official Assignee's costs. I order that, in addition to the costs she must pay to Ms Cameron, she must also pay $666 in terms of s 119(7)(a) of the Insolvency Act. That sum should be forwarded to the Official Assignee for payment into the Crown Bank Account.Go to Case Table of Contents