Dialogue: UK court ignores the way things are

The second of three columns by TED THOMAS* on the controversy over the abolition of the right of appeal to the Privy Council.

In my time as a judge, I held fast to the view that the law is not a sport for lawyers and judges. It is there to serve the community, including the commercial community. Such an approach involves an appreciation of commercial realities and a desire to ensure that the law recognises those realities.

Take one obvious example of the law's neglect. The great majority of commercial contracts are what are called relational contracts; contracts of supply, agencies, distributorships, franchise agreements, maintenance agreements, managerial agreements, and the like.

But the English law of contract is virtually dedicated to the one-off single transaction. Often there is a mismatch between the requirements of the law and the requirements of commerce.

I have despaired that our law will ever do a better job of meeting the needs of commerce under the Privy Council. In one case, the Privy Council rejected the unanimous reasoning of the Supreme Court of Canada with a curt wave of its judicial hand, saying that the reasoning was not the English approach (and therefore not the approach in New Zealand).

No explanation was proffered as to why or where the Canadian Supreme Court's reasoning was wrong. Many see this sort of response as imperially arrogant.

Yet, all too often the English approach is unduly legalistic, literal or mechanical. The traces of a formalism which has long been discarded in other common law jurisdictions persists.

Just one case will illustrate what I mean. Readers can decide for themselves whether they would wish to continue to tap into the traditional English approach to commercial matters.

The owners of a fishing vessel and transferable quota of about 447 tonnes of orange roughy sold a half-share in the vessel and the quota to a vendor for $1 million. The quota of 447 tonnes was provisional and subject to variation by MAF. (The quota was duly confirmed at the figure of 447 tonnes.)

In the agreement for the sale, the quota was described as the quota issued by MAF "granting the right to catch not less than 447 tonnes of orange roughy per annum". The sale was duly completed.

Some years later, the High Court ruled that, because of a change in Government policy, the original vendors were entitled to a further 130 tonnes of orange roughy. The purchaser, however, claimed a half-share in this additional quota pursuant to the contract relying on the words "not less than 447 tonnes ... ". He argued that these words included the additional 130 tonnes.

Our Court of Appeal unanimously rejected the purchaser's interpretation. The court held that, in the context of the contract, it was plain that additional tonnage of this quantity was not contemplated by the parties and that it fell outside the terms of the agreement.

The parties, the court held, intended to transfer a quota of the order of 447 tonnes of orange roughy. The variation contemplated would be the not uncommon adjustment to the provisional figure resulting from a recalculation or reassessment by MAF. But not the additional and unexpected quota which eventuated as a result of the High Court proceeding.

The words "not less" when read in context, did not convey an open-ended tonnage of indefinite quantity.

The Court of Appeal was influenced by the fact that no provision was made in the contract for an adjustment of the purchase price should the quota vary. Nor was there any provision requiring the original owners to pursue the High Court proceedings. Decisive in the court's thinking, however, was the fact that, after making an allowance for the value of the vessel, the purchase price equalled half the value of one tonne of orange roughy multiplied by the 447 tonnes referred to in the agreement. This analysis confirmed that the purchase price related to a half-share in the quota of 447 tonnes or thereabouts.

The Privy Council took a different view. It adopted an uncompromising literal approach. The agreement spoke of the right to catch "not less than 447 tonnes". It did not speak of 447 tonnes of quota more or less. Even if the additional quota had been double or triple or tenfold greater than the 447 tonnes, the purchaser would have been entitled to a half-share in it. This, even though he was not obliged to adjust the purchase price to pay for it!

Admittedly, Lord Nicholls dissenting said that to attribute to an ambiguously drawn document a meaning which required the owners to sell for no additional payment a half-share in the extra 130 tonnes made "no sense commercially". But the majority's literal view prevailed.

The Privy Council's approach reflects the historical assumption in English law that if the courts persist in interpreting contracts literally, commercial parties will eventually somehow manage to draw up their contracts with complete prescience as to all possible contingencies and without a trace of the ambiguity which linguists today accept is inherent in the use of the English language.

Parties do not have the foresight of prophets nor language the precision of physics. Certainty and predictability in the law is important, but it is a goal which must be pursued pragmatically with a full measure of commonsense.

It is, of course, well established that in interpreting a contract the courts can have regard to the surrounding circumstances when the contract was formed. Yet, irrespective of, or despite the context, the contract was interpreted by the Privy Council in a way the parties clearly did not intend. The original owners were deprived of a quota to which the court had held they were entitled and the purchaser obtained a substantial windfall for which he had not paid a single cent.

The commercial community is not well served by this sort of legalism. No other common law country persists with such an approach. Yet, as long as New Zealand retains its link to the Privy Council, this is the approach which will be followed. Eventually, the English courts will change, particularly with the new orientation towards Europe - but when?

The commercial community in this country deserves better. It deserves a law more responsive to the realities and requirements of commerce and to the reasonable expectations of business men and women.

* The Rt Hon E. W. Thomas, QC, is a recently retired Judge of the Court of Appeal.