BATHURST GOES TO THE SUPREME COURT

In April I commented on the Court of Appeal’s judgment in Bathurst Resources Ltd v L&M Coal Holdings Ltd(1). The Supreme Court has, perhaps unsurprisingly, granted leave to appeal(2).

In doing so, the Supreme Court has given a strong steer as to the issues it considers should be addressed in the case. It has stated that it will “not revisit” the principles of contractual interpretation in Firm PI(3), but instead wishes to hear argument on: (a) the admissibility of prior negotiations and subsequent conduct in contract interpretation cases; and (b) the distinction between the interpretation and implication of terms, and “the appropriate test for the latter”. This leave judgment is cause for optimism for those seeking commercial certainty.

By refusing to hear argument on Firm PI, the Court has given a signal that, at least for now, it considers those principles settled. This is welcome given the history of conflict over the correct approach, a history vividly embodied in the five separate, and conflicting, judgments in Vector Gas(4).

Second, the Supreme Court has not addressed for some time the admissibility of prior negotiations or subsequent conduct. In Vector Gas the judges broadly agreed prior negotiations were admissible but disagreed as to when they could be used.

There is much controversy over whether these documents should be admissible in contractual interpretation. Debate has raged for a long time overseas and in academic circles about the correct approach, and practitioners are well aware of the additional cost created by a need to trawl through the significant volumes of paper involved. The Court now appears to be looking to re-evaluate and perhaps resolve some of these debates.

Third, the Court has indicated a willingness to provide definitive guidance on the correct approach to the implication of terms in contracts. For a long time, the test was settled by the Privy Council in BP Refinery(5), and involved multiple factors which required consideration of whether the alleged term was necessary to make the contract work as intended, and was “so obvious as to go without saying”.

The Privy Council arguably relaxed that test in Belize Telecom(6), which our Supreme Court subsequently adopted. The United Kingdom Supreme Court then returned to a stricter approach in Marks & Spencer(7), throwing uncertainty as to not only what the correct test was in New Zealand but how strict that test was.

Our Supreme Court has referred to this debate but has not endorsed either approach. The leave judgment in Bathurst indicates a willingness to resolve this point, which will hopefully provide greater certainty for commercial lawyers. The more relaxed a test for implied terms, the harder it is to say whether the express written words of the contract are what the contract means, and clarity on this point would be welcome.

1 [2020] NZCA 113. 2 [2020] NZSC 73. 3 [2015] 1 NZLR 432. 4 [2010] 2 NZLR 444. 5 (1980) 180 CLR 266. 6 [2009] 1 WLR 1988. 7 [2015] 3 WLR 1843