Ipsofactoj.com: International Cases [2003] Part 10 Case 15 [NZCA]


COURT OF APPEAL, NEW ZEALAND

Coram

New Zealand Meat Board

- vs -

Paramount Export Ltd

KEITH J

ANDERSON J

FISHER J

10 SEPTEMBER 2002


Judgment

Keith J

MEAT COMPANIES CHALLENGE THEIR EUROPEAN SHEEPMEAT QUOTA

  1. Between 1991 and 1997, the period with which this appeal is concerned, Paramount Export Ltd (Paramount), the first respondent, carried on business as a meat works, and Ronnick Commodities (NZ) Ltd (Ronnick), the second respondent, an exporter, was its marketing company. They are now both in receivership and liquidation. Ronnick operated under meat export licences granted by the New Zealand Meat Producers Board (the Board), now the New Zealand Meat Board, the first appellant.

  2. The Board was established by s2 of the Meat Export Control Act 1921-22. Under s9A (enacted in 1981) it was unlawful to carry on business as a meat exporter except under the authority and in accordance with the terms of a licence granted by the Board under s9B. Section 9C set out matters to be considered in the grant of a licence and s9D authorised the Board to impose conditions on the grant, in particular in respect of the quantities, classes of meat and the countries to which it may be exported.

  3. New Zealand Meat Industry Association (the Association), the second appellant, is an association of meat exporters and members of the meat industry. Under amendments made to the Act in 1989 it was to be consulted by the Board in respect of its licensing decisions including, in particular, those imposing conditions about quantities, classes and markets.

  4. This case is about quotas granted for sheepmeat exports to the European Union (EU). It is common ground that meat exporters with EU quota obtained higher profit margins than those with quota for elsewhere. The respondents claimed that they did not receive the EU quota which they expected to receive in 1995/96 and 1996/97. The respondents sued the Board and the Association in negligence, under equitable estoppel and for breach of contract.

  5. Until the 1994/95 year the respondents had received EU quota on the basis of their current year production, either their total production or their total export production. For 1994/95 and later years a new basis of allocation was introduced. Current season production was replaced by historical performance based on a three year rolling average. Three percent of the total tonnage was held back for new entrants and allocation to existing participants disadvantaged by unforeseen circumstances. An independent tribunal was set up to decide applications for that reserve quota.

  6. For the 1995/96 year, the respondents applied for part of the reserved quota. They did this because in the qualifying period they were gearing up to be a significant export production house; while their export chain was operating by November 1993, the plant was not EC licensed until October 1994. They were, they say, unique in this: for everybody else the three year average and the discretionary top up system would fairly deliver "their proportionate share". For the 1995/96 year they received in total less than one third of the quota they expected. That decision, they say, plunged them into chaos and into panic mode. The Tribunal decision was not made until May 1996 and by then the respondents had already shipped in excess of their quota entitlement to Europe. They sued for the losses resulting from the various decisions made in 1995 and 1996 concerning the quota.

  7. After a fifteen day hearing Heron J found for the respondents against both appellants in contract and in negligence. He held that the elements of equitable estoppel were made out but said he was "more comfortable with the contract/negligence construct of this case and for that reason [he had] not extended [his] analysis of the estoppel cause of damages". He rejected defences of contributory negligence. He gave judgment in favour of both respondents against both appellants as follows:

    1. $2,150,400 for loss of the value of the business;

    2. an interim judgment of $3,188,901, for the deficiency on liquidation; there will be an inquiry into damages under this head and the figure might be varied either way;

    3. the costs of liquidation and receivership of the two companies, with leave to apply;

    4. $668,449.59 being interest at 6% on the sum in (a) above from 13 May 1996 to 17 July 2001, the date of judgment; and

    5. costs in accordance with category 3 to be fixed by the Court if required.

  8. The Board and the Association challenge each major finding made by the High Court.

    INTERNATIONAL AND NATIONAL CONTROLS ON EXPORTS

  9. The relationship between the two companies, particularly Ronnick as the licensee, and the Board and the Association is to be seen in the context of the international and national controls on the export of sheepmeat.

  10. From October 1980 until 1 July 1995 the export of New Zealand sheepmeat to the European Economic Community (later the EU) was governed by a Voluntary Restraint Agreement (VRA) between the Community (EU) and the New Zealand Government. The Government undertook to ensure that the total exports did not exceed the levels specified by the Agreement. The Board was nominated by the Government as the competent authority to issue export certificates for the purposes of the Agreement. One result of the GATT Uruguay round was that from 1 July 1995 the EU agreed to replace its various VRAs with country specific tariff rate quotas. By contrast to the 1980 Agreement, the new regime did not set an absolute limit on imports but provided for the imposing of tariffs if they exceeded specified levels. Once again the Board was designated as the New Zealand issuing authority. Those designations obviously relate to the licensing powers the Board has under the 1921-22 Act.

  11. There was no need for a national system to allocate the total among New Zealand exporters to Europe until 1988 when New Zealand’s exports to the EU began to exceed the quota allocation under the VRA. At that time and for some time after, the Board allocated quota on the basis of each company’s annual percentage of total sheepmeat kill for the current year by issuing export licences with appropriate conditions. The respondents in their submissions were inclined to suggest that the Board had no statutory power to allocate quota, but it plainly did in exercise of its power to impose conditions about quantities, classes of meat and markets (para [2] above).

    THE MEAT INDUSTRY: DIFFICULTIES AND RATIONALISATION

  12. In the late 1980s the New Zealand meat industry began a process of deregulation and rationalisation, following the removal of regulatory controls and a reduction of the role of the Board in the market place. According to Mr. David Frith, a member of the Board from 1983-95 and its chairman from 1987-95,

    The goal .... was to create a commercially orientated industry which could compete efficiently and effectively overseas. It was recognised that the effect of this move would be to alter the shape of the market, forcing uncompetitive producers to exit the industry. This process of deregulation was complicated by the fact that the international trade environment in which the meat industry operated was highly regulated. This situation underlies the problems which later arose in the devising, and administering of the quota allocation system.

    The Board, he said, had to make a number of significant changes in the way it operated.

  13. In his evidence, Mr. Frith provided the background about the difficulties faced by the meat industry from 1991 to 1995 "when the industry began to stabilise and slowly return to the profitability that is evident today". He identified and addressed three major causes of the difficulties of the early 1990s:

    1. over-capacity;

    2. the industry’s lack of coordination in export markets; and

    3. the production-driven quota allocation mechanism by which quota to volume constrained markets was allocated.

  14. To a large degree the over-capacity was the result of falling stock numbers. The second element was the advent of the Employment Contracts Act 1991 enabling the introduction of shift work in processing plants. A third was the building of new plants with new technology which made older plants extremely vulnerable. The system of coordination in export markets had broken down by 1991. Companies were reducing prices to unrealistic levels, traditional foreign markets were being over supplied, and farmers in those markets were lobbying their governments with considerable effect. On the production driven quota allocation system, he said this:

    [56]

    Allocation of quota on the basis of current season production had the effect of encouraging processors to concentrate on volume. This led to increased competition for livestock. This in turn fuelled the procurement price wars. It also encouraged individual companies to increase investment in killing capacity, resulting in a surplus of killing capacity in the industry. Additionally, because processors were focussing on volume, the industry was not producing the optimal product/ specification mix to maximise returns from overseas markets. This in turn led to financial pressures on meat exporters.

    [57]

    The difficulties in the industry culminated in 1994 when two of the industry’s largest meat processing companies, Weddel and Fortex, collapsed leaving creditors, including farmers, unpaid. By this time, the problem of over-capacity was of such severity that a group of meat processors formed a joint venture (using the company name "Trial Run Holdings Ltd") to purchase the defunct Weddel plants for the sole purpose of ensuring the plants were permanently closed. This initiative was a factor in the easing of procurement competition the following season.

  15. As a result of those problems, continued Mr. Frith, pressure on the Board for widespread industry reform began to mount. It came from meat processors, meat exporters, overseas importers, farmers, the Association, the Ministry of Agriculture and Fisheries, and especially the Government and the banking industry. The process of review led to the proposal for a central body responsible for coordinating the industry. That led to the 1991 Agreement, prepared by the Board and the Association, establishing the Meat Planning Council and the requirement by the Board that meat exporters adhere to the Agreement as a condition of their export licences. That Agreement is at the centre of this case.

  16. The Association was also heavily involved in the process leading to that Agreement and indeed in its implementation. Its Executive Director, Mr. Brian Lynch, in his oral evidence, put the matter even more dramatically than did Mr. Frith:

    Beyond question, [the years 1991-93] were the darkest days in the industry’s 120 year history. Without exaggeration the industry was a wilderness at that time, ravaged by six years of painful costly restructuring, the national flock falling in numbers precipitously, the work force halved. Almost all the companies that had been household names in the industry had disappeared.

  17. He listed some of the cases and mentioned that 1991 was the worst revenue year ever. Any prospective entrant should have taken a risk averse approach. That was the context in which the 1991 Agreement was fashioned, signed and implemented. Anyone, like the respondents entering the industry would have known it was not only hugely complex, but also fiercely competitive and "as compassionate as granite".

    THE MEAT PLANNING COUNCIL AGREEMENT 1991

  18. By a circular of 7 October 1991 to all holders of meat export licences, the Board advised that it had resolved as follows:

    (1)

    That the Board directs, pursuant to s.14 of the Meat Export Control Act, that meat for export to which the agreement establishing the Meat Planning Council (Agreement) applies shall be handled, pooled, stored, shipped, sold, disposed of and dealt with only by the parties to, and in accordance with the Agreement, or in accordance with such other direction as shall from time-to-time be given by the Board.

    (2)

    That pursuant to s.12 of the Act no contract for the carriage by sea or by air of any meat to be exported from New Zealand, which is the subject of the Agreement, shall be made except in accordance with the Agreement or in conformity with such other conditions as may from time-to-time be approved by the Board.

  19. In the following month the Board advised Ronnick of new licence conditions one of which was that the licensee was to adhere to the terms of the Agreement by its effective date. Ronnick did sign but objected that it did so "under duress". Its Agreement was one of a number of identical agreements between the Board, the Association and about 80 meat exporters. The separate agreements were all deemed to be a single agreement. They did not come into force until they had been executed by companies which in aggregate exported 80% by volume of sheepmeat in the 1990/91 season.

  20. Notwithstanding the concern about quota being based on current production, the Agreement carried forward essentially the existing method of allocation, that is a method based on current year production. The provision central to this appeal was as follows:

    8.3.2

    The Council shall request the MPB to allocate VRA for the European Community from time to time, and to adjust VRA allocations from time to time, on the basis of the figures which the MIA advises from time to time represent each Meat Company’s share of the total national mutton, lamb and goat meat kills for the season (as revised from time to time), and the Council will monitor each Group’s marketing performance in relation to those allocations and amend suggested VRA allocations if it considers that to be appropriate.

  21. In their cause of action for breach of contract, the respondents claimed that under that provision the Meat Planning Council was required to procure the granting of European quota by the Board to them on the basis of figures which the Association advised represented their share of the total kill for the season in question; and the Board was required to allocate quota accordingly. The respondents also alleged an express or implied term that the Board and Association would exercise their contractual rights and duties so that the quota would be allocated on a fair and equitable basis between the meat companies which were parties to the agreement. That term was supported by recital E of the preamble to the Agreement:

    E.

    It is the intention of the parties that this agreement should operate to promote fair and equitable relationships between the Meat Companies in respect of their various activities relating to the export marketing of New Zealand meat, and to preserve the ability of all the parties to this agreement to trade efficiently and profitably in the export of New Zealand meat within the boundaries set by considerations of public interest and the provisions of the Act.

    The respondents pleaded that the Board and Association had breached those obligations.

  22. Recital E should be seen in the context of the other provisions of the preamble:

    A.

    The parties believe that the export returns to meat companies and to New Zealand may be improved by a co-ordinated approach to the export marketing of New Zealand meat.

    B.

    The parties agree that the establishment of a Meat Planning Council on the terms and with the powers set out in this agreement will provide for such a co-ordinated approach to the export marketing of New Zealand meat.

    C.

    It is intended that other Meat Companies shall also enter into an agreement with the MPB and the MIA, on the same terms as this agreement.

    D.

    The MPB, the MIA and the Company have accordingly agreed to enter into this agreement to record their commitment to the establishment of such a council, and to record the Council’s objectives and powers, and to the intent that the Council shall be established by this agreement and by those executed by other Meat Companies in the same terms

    ....

    F.

     

    It is the intention of the parties that this Agreement should relate exclusively to the meat export market.

  23. The expectation indicated in the preamble that the Council (and through it the Board and Association) and the meat exporters which were party to the Agreement would take steps to coordinate export marketing, to promote fair and equitable relationships between the meat companies and to preserve the ability of all the parties to trade efficiently and profitably consistently with the public interest and the Act is carried through in the provisions of the Agreement. Under those provisions the parties establish the Council; state its objects and powers; regulate its meetings; provide for the establishment of an export franchise system in particular market regions; facilitate the formulation and revision of market policy and plans for sheepmeat; agree to specific provisions in respect of certain regions for sheepmeat (the provision particularly in issue); agree to a scheme for marketing plans for beef; fix a five year term for the Agreement from 1 October 1991, a period which the Council could extend or shorten; and agree to general provisions for consultation, amendment and other matters.

  24. The structure and detail of the Agreement and the institution and mechanisms it established show that the export arrangements were expected to evolve by reference to developments both in New Zealand and in the overseas markets. That is plain in the first place from the statement of the Objects and Powers of the Council in cl 3:

    3.1

    The primary object of the Council shall be to investigate and promote the implementation and operation of proposals and polices which enhance the international marketing, export sales and general international competitiveness of New Zealand meat, to the ultimate benefit of Meat Companies, producers and the New Zealand economy

    3.2

    Without detracting from that primary objective, the Council shall have the following functions and powers:

    (a)

    to consider and deliberate on export market plans in accordance with this agreement;

    (b)

    to establish and operate an export Franchise system in accordance with this agreement;

    (c)

    to liaise with other bodies and persons involved in the export of meat from New Zealand, and to make recommendations to any appropriate authority as to the role and powers of any such other bodies;

    (d)

    to consider and make recommendations from time to time as to the terms of trade, export pricing and export volumes that are likely to achieve the Council’s primary objective from time to time;

    (e)

    to consider and make appropriate recommendations as to marketing systems and structures, including as to the role currently performed by the Special Access Committee of the MPB, and as to export market development initiatives and the international promotion of meat;

    (f)

    to make recommendations from time to time to the MPB as to the exercise of its relevant powers under the Act;

    (g)

    to keep under review the terms of this agreement and to report to Meat Companies as to any amendments to this agreement that may from time to time appear desirable to enable the Council to best achieve its primary objective.

    3.3

    In addition, the Council shall have and exercise the powers and rights that are given it by this agreement, and the parties acknowledge that any exercise by the Council of those powers shall be binding on each Meat Company that is a party to an agreement in this form, and shall be complied with accordingly.

    Clause 3.3 underlines that the Council had the power to adopt decisions binding on all the meat companies party to the agreement.

  25. The Council initially had up to 11 members, four nominated by the Board and seven by the Association, each of whom was to be the chief executive of a meat company. One consequence of that composition was that over 70 meat companies were not represented on the Council. They had the right under the meetings clause of the agreement to appoint a single observer who had the right to attend and speak but not vote at a meeting.

  26. One of the potentially relevant powers of the Council was the power, in cl 7, to assist in formulating and revising market policy and plans for sheepmeat. That process could lead to the Council approving a global market plan with the consequence that each company was then obliged to comply with the global plan and each company’s own plan. The Council also had the power to approve pricing guidelines which became binding on the companies. Those powers are not directly in issue in this case.

  27. What is in issue are the provisions of cl 8 which began by recognising the plans provided for in cl 7:

    8.1

    In addition to the sheepmeat market plans that are to be approved from time to time by the Council pursuant to clause 7, the parties agree to the following specific provisions in respect of the following Market Regions.

  28. Clause 8 then made provision for the United Kingdom market (cl 8.2.5 being similar to cl 8.3.2, the provision in dispute; the relationship between the two provisions was not a matter before us); for Continental Europe; for North America; for the Middle East; and for other markets.

  29. Finally, parts of cl 11 and in particular cl 11.2 regulating amendment are significant for this appeal:

    11.1

    All powers given [to] the Council by this agreement shall, to as great a degree as is practicable, be exercised by the Council in consultation with those Meat Companies that are affected by the relevant exercise of the Council’s powers. However, failure of the Council to consult with any one or more Meat Companies shall not invalidate any action taken by the Council pursuant to this agreement, or prevent any such action or decision from being binding on any Meat Company.

    11.2

    (a)

    The provisions of this agreement may be amended from time to time if the Council determines, after consultation with the MPB, the MIA, the Company and all Meat Companies that have signed an agreement in the same form as this agreement, that amendment is desirable. If so amended, the amendment shall be binding on all Meat Companies that hold export licences at that time; and

    (b)

    The process of consultation required by this clause of this Agreement shall be as follows:

    (i)

    The Council shall give notice in writing to the MPB, the MIA and all Meat Companies that have signed an agreement in the same form as this agreement, setting forth the provisions of the proposed amendments and requiring a written response within a period of not less than 14 days. The response shall set forth any objections to the proposed amendments and provide particulars as to how those objections might be met.

    (ii)

    The respondent of the notice shall if they so request be entitled to appear before the Council at its next available meeting and may make submissions orally or in writing to the Council regarding the proposed amendments.

    (iii)

    The Council shall consider all responses or written and oral submissions made to it and such other information or submissions as it shall consider relevant, and shall thereafter make a decision as to the desirability, and the form and content of the amendment, and shall advise its decision in writing to the MPB, the MIA and all Meat Companies that have signed an agreement in the same form as this agreement.

    (iv)

    If the Council considers that the proposed amendments or any variation thereof should proceed, then the provisions of this Agreement shall be amended [with] effect from the date of the advice given pursuant to clause 11.2(b)(iii) of this agreement.

    11.3

    The provisions of this agreement shall in any event be reviewed annually by the Council, with a view to identifying any amendments to it that may be appropriate.

    ....

    11.9

     

    This agreement shall not be enforceable against the MPB if or to the extent that to so enforce it would involve any restriction on the exercise of any of the MPB powers under the Act, it being recognised that the MPB shall at all times be at liberty to exercise its powers under the Act freely and to the same extent as if it had not been a party to this agreement.

    WAS THE AGREEMENT AMENDED?

  30. A critical issue relating to the contract cause of action is whether cl 8.3.2 was amended in December 1993. Under the purported amendment the Council was given the power to request the Board to allocate the VRA allocations from time to time on the basis decided by the Council, after due consultation with the Council signatories. This was a major change. Instead of exporters receiving quota on the basis of their current production, the Council would have a broad authority to decide from time to time the basis on which the Board should make its allocations. The apparently clear entitlements of the old were to be replaced by a broad discretion – subject to the respondents’ contention that the Council was bound by contract to accord equitable treatment by reference to the Agreement and in particular preambular recital E.

  31. In purported exercise of this newly conferred power, the Council in December 1994 adopted an Historical Rolling Average proposal under which quota in general was allocated by reference to the kill over the previous three years. Provision was made for some adjustment by a Tribunal of the quota calculated that way. Given the circumstances of the respondent companies, that method was, potentially at least, greatly to their disadvantage.

  32. If however the original cl 8.3.2 remained unamended, the Board acknowledges that it is in breach of the terms of cl 8.3.2. (Questions of causation and measurement of damages would remain.) The Association has a distinct defence that since only the Board and not the Association (nor the Council for that matter) had the power to authorise quota exports to the EU, any breach of cl 8.3.2 by the Association was not causative of the alleged loss. We come back to that.

  33. We should note certain pleading or procedural issues relevant to the amendment issue. The respondents, accurately, point to the fact that the Board and the Association did not in their statement of defence plead the alleged amendment. The matter was however the subject of the brief of evidence, served some time before the trial, of Mr. Frith, who had chaired the Council as well as the Board at the relevant time, and the trial Judge, in response to the respondents’ objection made at the outset of the trial, allowed the appellants to contend that the Agreement had been amended. The issue was the subject of evidence, including cross-examination of the appellants’ witnesses. The matter has also been fully canvassed before us. We can see no prejudice to the respondents on this account.

  34. Secondly, members of the bench raised the question whether the appellants might not have a defence based on waiver, estoppel or variation by conduct. The Council, the Tribunal and, it appeared, meat companies had operated for three years as if the amendment was in force and the Historical Rolling Average method was to be applied. But, as Mr. Cooke for the respondents properly pointed out, not only had this possible defence not been pleaded, it had not been the subject of evidence, cross-examination or submission in the High Court nor indeed of any attention in this Court from counsel in their points on appeal or written or oral argument until it was raised from the bench. It would be a breach of due process for this Court to pursue this matter at this late stage.

  35. A third related pleading point may also be mentioned here. Clause 11.9 of the Agreement usefully reminded the parties that the Board could not unlawfully fetter the powers conferred on it by the 1921-22 Act (para [29] above). The Board pleaded an affirmative defence based on that subclause; if it did breach the Agreement in the two respects pleaded (which was denied) it did so in the exercise of its powers under the Act. There was some question whether that defence had effectively been pursued in the High Court. Whether that was so or not this part of the appeal was argued essentially as a contract case with only very limited reference to the statutory powers of the Board. For what it is worth we cannot in any event see that the Board would be inhibited by the broad terms of the 1921-22 Act from working out schemes like those in the 1991 Agreement and its 1994 decision.

  36. Rather, we return to the matter of the amendment. Was the Agreement amended? Heron J said it was not. He set out the proposed amendment as circulated to Council Members of the MPC on 25 November 1993. That proposal was presented in the form that it would, if approved by Council Members, be sent to signatories under cl 11.2. The Judge recalled the procedure required by that provision. He then reviewed the evidence about the amendment process and concluded:

    In the end, having regard to the minutes which suggest that all signatories had been circulated and no submissions had been received, it is difficult to say that such a routine procedure would not have been followed. For the minute to record what it did, the committee of the MIA [actually the Council] would have had to have been misled, if in fact the notices had not gone out. In the end, reluctant as I am to disallow the fact that this change to the agreement was not made, on the evidence I find it had not been properly made and so cannot assist the defendants accordingly.

  37. We now examine the detail of the evidence, against the procedural requirements of cl 11.2 (para [29] above). Later we consider cl 11.1 and the possibly mitigating effect of its second sentence.

  38. Clause 11.2(a) required consultation not just with the Board and Association, but also with "all Meat Companies that have signed an agreement in the same form as this agreement". If the Agreement were amended under that clause, all companies with export licences became bound by the amendment. Clause 11.2(b) then set out the process of consultation "required" by this clause. Written notice was to be given to the Board, the Association and all meat companies which were signatories and allowing at least 14 days for a response. A respondent was entitled on request to appear before the Council at its next available meeting and to make oral or written submissions regarding the proposed amendments. (Compare the usual provision for just one person to represent all non Council meat companies at regular meetings, para [25] above.) The Council was to consider all responses and submissions and other relevant information and was then to decide and advise the Board, the Association and all signatory meat companies of its decision on the amendment. The Agreement was amended with effect from the date of that Council advice.

  39. The proposed amendment (dated 23 November) distributed in the first instance to the Council on 25 November (with a request for comments by 29 November) begins by referring to the recent decision to determine quota by reference to current exported production and indicating that there might as a consequence be a problem in the wording of cl 8.3.2:

    Following the MPC decision to request allocation of quotas on the basis of exported production, it has been suggested to the Council that it might be possible to read clause 8.3.2 of the Agreement in a way which is inconsistent with that decision.

    Clause 8.3.2 of the Agreement in effect states that the MPC will request allocation of VRA (sheepmeat) by the Board on the basis of national mutton, lamb and goat kills.

    Clearly, under both the 1992/93 system of quota allocation and the 1993/94 system this clause is unsatisfactory as it includes local abattoir kills as part of the national kill.

    The MPC has taken legal advice that suggests that the clause must be read in conjunction with the balance of the MPC Agreement and hence can be interpreted to allow the 1993/94 system to operate.

    However, the Council believes it is appropriate to tidy up any uncertainty in regard to this clause and accordingly proposes the following amendment which, in effect, will allow a range of allocation systems to be adopted.

    8.3.2 The Council shall request the New Zealand Meat Producers Board to allocate VRA allocations from time-to-time, on the basis decided by the Council after due consultation with Meat Planning Council signatories. The Council will monitor .... etc

    [emphasis added]

    The underlined words indicate that the proposed amendment had an important possible consequence – which in fact happened – which ran far beyond simply "tidying up".

  40. The proposed notice then set out the steps provided for in cl 11.2(b) for considering and adopting amendments. The dates for response and for the Council meeting had not been included.

  41. The next document to which we were referred is essentially the same notice addressed to the parties to the 1991 Agreement, now dated 30 November 1993, and now requiring responses by 13 December (the 14 days required by cl 11.2(b)(i) not being allowed) and stating that the meeting was to be held on 14 December. It was in fact held on 22 December. The critical matter of dispute is whether that notice was given to all the parties including in particular Ronnick.

  42. The evidence bearing on that question is surprisingly limited. Mr. Ronald Russell, the sole shareholder and managing director of the two respondent companies, in his reply evidence under the heading Alleged contractual variation mentions Mr. Frith’s evidence that cl 8.3.2 was varied. He does not accept that:

    I have no recollection of receiving the notification dated 23 November 1993 [that dated 30 November was not before the Court until later in the hearing], and it is not amongst the file of documents that I maintained with the communications relating to the MPC Agreement. If it had been sent to me, it is most unusual that it has not been retained on the file. In any event, the nature of the 23 November document referred to by Mr. Frith would not have indicated to me that the Agreement was being amended to allow the MPC to be completely free to allocate EU quota however they liked. On the contrary, prior to this alleged notification the proposal had been made to alter the basis of allocation. I had written indicating that if the proposed change was proceeded with, proceedings would be commenced .... By memorandum dated 3 December 1993, the MPC said that those proposals would not be proceeded with, and the status quo system for allocation would be maintained.

  43. He accepts that he did receive copies of the amended minutes of the 22 December meeting and a memorandum of 18 March 1994 which notified the parties of a number of amendments including that to cl 8.3.2. We come back to those two documents.

  44. In cross-examination (still by reference to the draft dated 23 November rather than the alleged actual notice of 30 November) he said that he could not confirm or deny that the notice was received. It was not on the file. He had no recollection of having received it. It was not on the file which indicates it was received and misfiled or never received, one of the two.

  45. The minutes of the Council meeting of 30 November do not record any resolution to notify the signatory companies of the proposed amendment. They do however record a resolution about the allocation of quota based on total qualifying export graded production for the current season, that is for the 1994 year. That was to be notified to MPC signatories as soon as possible, and no later than 3 December, as it indeed was.

  46. Two of the appellants’ witnesses gave evidence relating to the notice: Mr. Frith, the chairman of the Council at the time, and Mr. Lynch, the Executive Director of the Association. The Secretary of the Council did not give evidence, nor did any other person directly involved in the Council’s day to day administration. Mr. Frith however referred only to the draft of 23 November and not to the alleged actual notice of 30 November. He said in cross-examination that although they did not have the actual document, he was satisfied that it would have been circulated. He would have anticipated that the Council would have had on its files a copy of a notice that had gone to the signatories. That notice was not included in the discovery by the appellants. We agree with Mr. Cooke, for the respondents, that Mr. Frith’s evidence to this point does not help establish that the amendment was made.

  47. In the course of Mr. Frith’s re-examination a letter of 6 December from Mr. P J Egan of Greenlea Premier Meats was produced. It was headed Proposed Amendment to the MPC Agreement, quoted from the proposed amendment to cl 8.3.2, criticised it as too broad and undefined and made recommendations relating to it. One of his recommendations called for "due consultation" to be clearly defined in the Agreement. We cannot accept the Board’s written submission that Mr. Egan did not make any substantive submission, rather a general plea. There is no evidence whether that letter is a response to the draft or the actual notice. The appellants make the point that Mr. Egan was not a member of the Council and would not have received the draft in that capacity. But, as the Judge said, it is possible that the letter was in response to the initial draft notice to Council members. Mr. Egan was not called to give evidence and without his evidence or any direct evidence from those in the Council secretariat we cannot know which document he was responding to.

  48. Mr. Lynch, in his evidence in chief, referred to inquiries he had made about the actual notice, after the issue had arisen in the course of the trial. He produced, he said, a copy of the document as it appeared in the files of Alliance Group Ltd. The document produced at that stage was however another copy of the draft dated 23 November which Alliance’s chief executive would have received as a member of the Council.

  49. In re-examination, Mr. Lynch did produce a notice dated 30 November, addressed to all signatories of the proposed amendment. He said that this was also from the Alliance office and that he had no doubt that it was sent to all signatories. As the Judge suggests, this piece of evidence gives some support for saying that the notice was given to all the meat companies.

  50. We now come to the amended minutes of the meeting of 22 December 1993. They are as follows:

    6.3

    Proposed Amendments to MPC Agreement Clause (8.3.2)

    The Secretary advised that the proposed amendment to the Agreement had been circulated to all MPC Signatories within the terms and conditions of the Agreement and that no submissions had been received. Sir David [Beattie] advised that the MIA Council had considered the proposed amendment and felt that, as per Clause 11.3 of the Agreement (which states that provisions of the agreement be reviewed annually by the Council with a view to identifying any amendments that seem appropriate) that the Chief Executives of the MIA and MPB should undertake a review of the MPC Agreement and report to Council initially and jointly to the two Chairmen. It was also proposed that the question of alternates for Council members should be amongst the aspects reviewed.

    Sir David suggested that the review committee’s report be available for the April meeting of the Council. Agreed by Council.

    It was agreed to approve the proposed changes to Clause 8.3 of the MPC Agreement, as circulated to signatories to the Agreement for consultation in terms of Clause 11.3[sic], to read as follows:

    8.3.2

    The Council shall request the New Zealand Meat Producers Board to allocate VRA allocations from time to time, on the basis decided by the Council, after due consultation with Meat Planning Council signatories. The Council will monitor .... etc. Moved by Sir David Beattie, Seconded by Mr. Bettle.

  51. As Heron J says (see para [36] above), in the face of that minute it is difficult to say that the routine procedure had not been followed. On the other hand, in one respect the Secretary’s advice to the Council is not accurate since, although the Egan letter plainly is a submission, the Secretary does not recognise it as such; and there is a remarkable lack both of direct evidence from those who could have been expected to establish that that routine procedure had been followed and, it appears, of relevant records. In addition to one or more of the Council’s administrative staff, others who may have been able to prove the procedure had been followed include Mr. Egan and one or more of the 80 companies which would have received the notice. In fact the managing director and owner of a meat processing plant was called by the appellants after Mr. Frith had given his evidence and the sending of the notice was plainly in issue, but he was not asked about the matter.

  52. The final relevant document is the notice to signatories of 18 March 1994 setting out amendments to four clauses made in 1992 and 1993. That was the first advice of the amendment to cl 8.3.2. The amendment accordingly took effect on 18 March 1994. Mr. Russell acknowledged that he had received that notice. We do not however consider that any significance can be given to this. The appellants, we recall, had not presented a defence based on waiver, estoppel or variation by conduct. And as Mr. Russell points out in his evidence, on 3 December 1993, following consultation, his and the other companies were notified that the allocation for the following year was based on export production in the current season (the change from total production being the reason given for "tidying up" cl 8.3.2). In no way was he put on notice by the March 1994 circular of a change to an historical base method of calculation. That was still in prospect.

  53. As their counsel stressed, the appellants have a general right of appeal, on fact as well as law. The dispute about the notice is primarily to be determined on the documents and in that respect we are in as good a position as the trial Judge to reach a conclusion on the facts. The Judge, with his great experience, did however see Mr. Frith and Mr. Lynch give their evidence relating to this issue, in the course of presiding over a lengthy trial.

  54. The appellants have to show that the Judge’s finding was wrong. The matter is not before us on a de novo basis. Further, it was and is for the appellants to establish on the balance of probabilities that the Council did amend the Agreement in accordance with the procedure laid down in cl 11.2. We conclude that the appellants have failed to show that the amendment was made and the Judge’s finding was wrong. We briefly recapitulate our reasons. The evidence that was called by the appellants was remarkably slight, particularly given the extensive record of the routine procedure that should have been available to them. The appellants did not call one of the several witnesses who should have been available to testify directly on this matter. And the second notice produced by Mr. Lynch is to be balanced against the evidence from Mr. Russell suggesting that the procedure was not followed. At the best, looking at the issue from the appellants’ point of view, the evidence produces a neutral result. But originally and on appeal, they have to do better than that. We accordingly uphold the Judge’s finding that cl 8.3.2 remained in its original terms.

  55. Notwithstanding that conclusion, does cl 11.1 resolve the issue in favour of the appellants? They contend that it does. The Judge disagreed. We set the provision out again:

    11.1

    All powers given [to] the Council by this agreement shall, to as great a degree as is practicable, be exercised by the Council in consultation with those Meat Companies that are affected by the relevant exercise of the Council’s powers. However, failure of the Council to consult with any one or more Meat Companies shall not invalidate any action taken by the Council pursuant to this agreement, or prevent any such action or decision from being binding on any Meat Company.

  56. The appellants argue that, if there was a failure to consult, "this waiver applied by its express terms .... [A]s a clause in a commercial contract, [it should] be applied according to its plain and unambiguous terms". The respondents contend to the contrary that cl 11.1 is a general provision concerned with the Agreement as a whole. By contrast, cl 11.2 creates express obligations when the amendment of the Agreement is in prospect. Those preparing the Agreement plainly thought that in that latter context detailed obligations requiring notice (including a specified period), the according of the opportunity to respond and to attend meetings, the considering of all the responses and the notifying of the result should all be expressly required. The general obligation of cl 11.1 did not go far enough.

  57. We agree with the respondents. The ameliorative provision in cl 11.1 relates only to the general obligation in its first sentence. In context, the wording and special requirements of cl 11.2 are clear and commercial considerations weigh in favour of compliance, given the great potential importance for the signatory companies of amendments to the Agreement, as indeed was the case here.

  58. We accordingly conclude that the appellants’ attack on the Judge’s finding on the amendment fails. There remains the Association’s contention that it is not liable for breach of the original cl 8.3.2 since none of its actions were causative of loss.

    WAS THE ASSOCIATION LIABLE IN CONTRACT GIVEN THAT IT HAD NO POWER TO AWARD QUOTA?

  59. The Association submits that the only allegation of breach of contract which might be said to be causative of the alleged loss is that the Board did not grant quota on the basis alleged. Even if the Association had performed the duties it allegedly owed under the original cl 8.3.2, allocation would still have been a decision for the Board under the Act and in terms of the Government’s designation of the Board under the agreements with the EU.

  60. The companies respond that Heron J was right in interpreting the Association’s contractual liability as parallel to the Board’s. Both were responsible for establishing the Council Agreement system. The Council was controlled by both and they were jointly liable for its acts. Further, the Association was in breach of its obligation under the original cl 8.3.2 to advise the Board what the companies’ share of the market was.

  61. On the final point the Association pointed to the evidence given by one of its employees at the relevant time that the Association between 1994 and 1997 did continue to advise the Board of the production figures, including the respondents’. That does not however meet the respondents’ real point which is about the use to which the figures were being put, to the knowledge and with the agreement of the Association and Board. Earlier they were being used for the current year calculation of quota while later they were being assembled, audited and passed as correct for the purposes of operating the historical rolling average system which was being introduced at that time.

  62. The essential point on this aspect of the claim is that the Association, along with the Board, was still bound by cl 8.3.2 of the Agreement in its original form and that required the Association, through the Council, to request the Board to allocate EU quota on the basis of current production. The Association did not do that and the alleged loss was consequently suffered. We also recall that the Association had had since 1989 a statutory role in respect of the issue of licences: the Board was to consult it.

  63. We accordingly agree with Heron J that the Association is liable in contract equally with the Board. That conclusion, along with the conclusion that cl 8.3.2 was not amended, disposes of both appellants’ appeals on liability – leaving aside causation and the calculation of damages. We do however go on to consider the other matters relating to liability raised in the appeal.

    WAS THERE AN OBLIGATION IN CONTRACT TO ALLOCATE QUOTA ON A FAIR AND EQUITABLE BASIS?

  64. Heron J held that, if the Agreement were amended, it had to be replaced by a system that did not adversely discriminate against one particular group having regard to their circumstances. A system equitable and fair in itself but with disadvantages for the industry could not be replaced by a system which removed the industry concerns but in the process affected a meat producer’s proportionate right to quota. He referred to "the fundamental obligation" which was reflected in the background to the agreement, cl 8.3.2 and recital E (para [21] above). The respondents, he said, depended on the wider factual context in support of their case that the appellants promised to allocate to them their fair share of the quota based on their proportion of the qualifying export production; they relied on cases requiring the essential nature of the bargain to be inquired into, by reference to recitals, the underlying commercial objectives of the Agreement and other factors.

  65. The appellants contend that the Judge’s construction of the Agreement cannot be supported by the provisions of the Agreement. To the extent that the construction relies on recital E it misconstrued that recital and placed undue and inappropriate reliance on it without adequately recognising the framework and content of the Agreement. The respondents accept that argument in part: the Judge’s conclusion and the respondents’ case arose from the obligation in the Agreement to allocate on an equitable basis as between all of the companies so that each received a pro rata share of the available European quota. This "fundamental tenet" of the Agreement, say the respondents, was the only substantive promise the Board and Association made to the companies. These conclusions arose from the terms of the Agreement and the surrounding circumstances.

  66. We turn to the Agreement itself. The Council, under cl 2.1, represented not just the Board and Association but also the meat companies which became signatories. Seven of the initial 11 members were to be chief executives of a Meat Company. They were to be nominated by the Association, the members of which are engaged in meat processing and exporting. That is to say the signatory meat companies are themselves involved directly or indirectly in the Council, their representative.

  67. The objects, powers and procedures also emphasise that connection. Those provisions contemplate as well continuing review and the prospect of change which, as seen when the Agreement was being prepared in the midst of major difficulties, could well be extensive. The Council under cl 3 was to promote policies enhancing international marketing, sales and competition, through export market plans, an export franchise system, recommendations about terms of trade, pricing, volume, and marketing systems and structure. The Council had a general power to make recommendations to the Board about the exercise of its statutory powers and to keep the Agreement under review with an eye to appropriate amendments (see also cl 11.3). The Agreement was explicit that the Council had powers to make certain decisions binding on all parties, including the power to amend the Agreement. The Agreement did provide the basis (current production) for the allocation of sheepmeat quota for Europe, but it provided no predetermined basis for exports to other markets, where quotas might be necessary. Clause 9, concerned with beef, did contemplate that a beef marketing plan would become binding on the meat companies if the Council determined that the allocation of volumes would be necessary to meet the requirements of voluntary restraints imposed by the United States Government.

  68. The Agreement conferred extensive powers on the Council. They included powers to establish marketing schemes and to amend the initially agreed bases for allocating quota. Such steps could be taken without the consent of the parties directly affected and could become binding on them against their objections. The exercise of the powers was to be restrained, as appropriate, by the representative character of the Council, by its composition, and by the procedures it was to follow. The lengthy efforts throughout the early 1990s to bring stability to the industry showed that these and related processes placed real practical restraints on the introduction of new policies. There was also the restraint, were a matter to have arisen in an appropriate way, arising from the limits on the statutory powers of the Board to grant export licences and in particular to place conditions on the licences about quantity, product and market, and from judicial enforcement of those limits. But what is the basis for finding in that Agreement, in its historical context, a substantive obligation to allocate on a fair, equitable, pro rata basis? What indeed is the measure of fairness or equity and by reference to what facts are proportions to be fixed? So far as proportionality is concerned, both the old and the new methods of allocating quota were based on the production of each company. What changed was the period to be considered, from the current year to earlier years. As the respondents appear to recognise, that change was to be clearly related to the Council’s and the wider industry’s wish to escape from the procurement wars. One strongly held view was that the continued allocation of quota on the basis of current production could only add to the problems in the industry.

  69. We turn however to the first question. On what basis is an obligation to allocate on a fair, equitable and pro rata basis to be established? The respondents stress the lack of

    1. a statutory, or

    2. contractual power to discriminate between applications for quota,

    3. the appellants’ contractual promise to allocate quota fairly between companies as the only reciprocating provision of substance made by them in the Agreement,

    4. the necessity of access to the EU quota for companies to be able to operate in the export business,

    5. equality of treatment as spelled out in the terms of the Agreement,

    6. the plain intention to maintain the proportionate basis,

    7. the backdrop of the Commerce Act 1986,

    8. the compulsion to enter the Agreement giving rise to a principle akin to contra proferentem,

    9. the inaptness of the literal wording of an amended cl 8.3.2 at the relevant times since there was no longer a VRA, and

    10. the recital E which in effect reiterated the other factors.

  70. According to the respondents, these factors were to be considered for the purpose of giving business efficacy to the contract and to determine the meaning that the parties, against the relevant background, would reasonably have understood it had; see e.g. Rod Milner Motors Ltd v Attorney-General [1999] 2 NZLR 568 and Investors Compensation Scheme v West Bromwich Building Society [1998] 1 All ER 98 (HL).

  71. We consider the ten listed factors. The 1921-22 Act conferred broad powers on the Board to grant licences and to impose conditions. Its object was to ensure to meat producers the best possible long term returns. It had an extensive array of functions relating to the marketing and sale of New Zealand meat. If a particular market was subject to a maximum quota and the New Zealand producers would over supply it, then limits on individual exporters were the likely outcome. The limits were likely to have been required by the relevant international arrangement. The Board had power to impose conditions on particular licences relating to quantity – that is to fix quota. In allocating the quantities between different exporters, it would, in other words, have had to make choices or to discriminate. No doubt some of the possible grounds on which the allocation might have been based might be impugned, but no rational criticism can in general be made of schemes based on past production. Certainly we were not taken to any provision of the Act which even began to hint at such a limit. The same is true of the Agreement. Given the width of the powers conferred on the Council (along with the procedural restraints on its operation), a provision preventing allocations on the basis used would have to be identified were the respondents’ contention under this head to have weight.

  72. The third and sixth matters – the claimed promise to allocate fairly (whatever that may require) and the intention to maintain the proportional basis – again face the problem that the operative provisions of the Agreement contain no such promise. It is the case, as the respondents stress, that Mr. Lynch accepted that the method of allocation of quota could not have been left out of the 1991 Agreement. Without it, he agreed, there would have been no agreement. He went on to say that the industry needed to know on what basis future VRA allocations would be determined. That was a fundamental part of the agreement, pending knowledge of the likely outcome of the Uruguay Round. That reference to the potential impact on the allocation system of that ongoing negotiation, along with his following evidence about the various proposals for change being considered in 1993 (including the introduction of tradable rights), emphasises the prospect that significant changes could well be made to the method of allocation. And, to repeat, the Agreement provided mechanisms to allow that to happen.

  73. No doubt – to turn to (iv) – EU access was important for some exporters but by no means all. In 1993 only 17 of the 80 exporters had EU quota. But there was no guarantee of that access and there was a real prospect that some producers and exporters would not survive, as indeed proved to be the case.

  74. The equality of treatment referred to in (v) is based on the existence of 80 "identical" agreements which were to be read together as one. But that of course did not require equal treatment between the 80 and that would not have been proportionate to current or earlier production in any event. It could not possibly be the case that 17 exporters who had EU quota in 1993 would be obliged to share it with all the others.

  75. Assuming that the Commerce Act (point (vii)) had a role in respect of the Board and overseas markets (see also s44(1)(g)) there is no basis in the record for seeing any action taken by the appellants as raising issues for that Act. The Council was in fact careful to clear the 1991 Agreement and its 1994 scheme with the Commission.

  76. On (viii), the contra proferentem principle applies where there is some doubt about the meaning of the text, but here there is none.

  77. It is true that the wording of the amended cl 8.3.2 would have become inapt with the completion of the GATT process (point (ix)), but that was also true of the original cl 8.3.2 (which as well referred to the European Community rather than the Union), and in practice there would not have been any problem and was not.

  78. A recital, to turn to the final point, may well inform the interpretation of the operative provisions of a contract. But again what are the "fair and equitable relationships" which are to be promoted? How is that broad phrase to be understood? We can see no basis in the Agreement as a whole for saying that allocation based on current production was to be maintained. And to what uncertainty or ambiguity in the operative provisions is the "fair and equitable" standard to be applied?

  79. When we move away from that text to the wider context we must agree with the submissions of the Association that it was inconceivable that the Agreement set in stone, at least for its five year term, the current production allocation system which even at the Agreement’s commencement was known to be at the root of procurement war and a major factor jeopardising the future of the industry.

  80. Accordingly, we do not consider that there is a basis for reading the Agreement as requiring allocation on a fair, equitable and pro rata (current) basis. It follows that we respectfully disagree with the Judge’s alternative ground for finding the appellants in breach of the contract. That has, of course, no consequence for our finding on the other contractual ground.

    DID THE BOARD AND ASSOCIATION OWE A DUTY OF CARE AND BREACH IT?

  81. Heron J held that the Board and the Association owed a duty of care to the companies and had breached the duty. There was sufficient proximity, the damage was reasonably foreseeable, and the imposition of a duty on the Board and the Association was just and reasonable. Referring to a number of New Zealand and English authorities he quoted this test expounded by Lord Browne-Wilkinson in X (Minors) v Bedfordshire County Council [1995] 2 AC 633, 639 as helpful in its simplicity:

    Was the damage to the plaintiff reasonably foreseeable? Was the relationship between the plaintiff and the defendant sufficiently proximate? Is it just and reasonable to impose a duty of care?

    And continued:

    I have read the many submissions to the MPC and others that the plaintiffs made in this case. Mr. Russell’s persistence in drawing attention to those people who were formulating the policy, must have heightened the proximity aspect and alerted them to the foreseeability of damage. There was an inevitable damage once the plaintiffs received less quota than they had previously received in relation to other competitors.

  82. In discussing possible elements of the duty and the acts in breach, the Judge mentioned a duty to ensure that the allocation system was fair to all meat companies; that the system in particular was fair to the respondents and did not confer a discretion to give or not give quota to the respondents; and that the system would not interfere with the respondents’ existing rights.

  83. According to this part of the judgment, while the historic rolling average system could be set up and operated without infringing rights overall, it must not, at the level of practical implementation, leave inadequate quota to meet special cases; further, the failure of the Board and Association to resort to a backstop relief provision (cl 42 of the 1994 system) and restore equitable distribution could be negligence.

  84. This ground of liability assumes that cl 8.3.2 had been amended. The ground attacks both the introduction of the historical rolling average system under the amended cl 8.3.2 and its implementation so far as the respondents are concerned in the 1995/96 year. It proceeds, as did the second limb of the contract ground, on the basis that the appellants had a duty to give the respondents their proportionate share. The respondents also present their case in this way: their special circumstances had to be catered for to ensure that they still got their fair share in the same way as everyone else.

  85. The negligence claim, insofar as it is concerned with the introduction of the new scheme (as opposed to its implementation), we consider, faces an insurmountable hurdle given the contractual relationship between the parties. We can see no basis for a duty of care (in terms of an obligation moreover to produce a particular result) which contradicts the contract. The Agreement allows for amendment and for the alteration of the bases for the allocation of quota. That alteration might have been either to the actual text of the Agreement or by power being conferred in the way proposed in the suggested amendment to cl 8.3.2. The situation is comparable to that in RM Turton & Co Ltd (in liquidation) v Kerslake & Partners [2000] 3 NZLR 406, 417 [32] and 418 [36].

  86. The statement of claim, the appellants stress, was limited to alleged breaches in respect of the introduction of the scheme rather than its implementation. But they say the judgment depends on the latter. The respondents say there is no substance in the pleading point since they did challenge the design of the system, "introduction" can include the ongoing implementation of the scheme, and the pleadings had no impact on the evidence or arguments at trial. The evidence was concerned, for instance, with the possible use of the backstop relief provision.

  87. We consider the particular breaches alleged by the respondents. We do that on the assumption that a duty of care existed, even although it ran beyond the Agreement, and that proximity and foreseeability were established.

  88. The first alleged breach was the failure to make adequate provision to cater for the respondents’ position in the three year rolling average system introduced at the end of 1994. But the respondents were catered for out of the reserve tonnage in the first year of operation and had no complaint about it.

  89. A second, related alleged breach was the fixing of the reserve tonnage at only 3%, a figure, to repeat, which was adequate in the first year. The fixing of that figure had to take account of the companies in the general pool, all of which had invested significant funding and resources with establishing their plant, distribution systems and markets. The need to keep within the overall EU figure was also critical. Mr. Lynch testified that the volume of tonnage of new entrants over 3-4 years was between 2 and 2.4% of the total. (There was also evidence that the amount of quota traded each year was about 3 or 4%.) While recognising that fixing the figure was not a matter of science, the discussions about the figure, Mr. Lynch said, were quite robust and all the participants knew what the rules were. Opening the total reserve tonnage for determination by the Tribunal would, he said, have unleashed a holy war. Mr. Frith testified that at an early stage the Board thought that the reserve amount should be 3% and the Association 1%:

    135.

    The divergent views of the NZMIA and the Board reflected the conflicting policy considerations that underpinned the concept of reserved quota. These included:

    (a)

    the need to reconcile the "rights" of existing exporters which had made a long term commitment to the industry (spending time developing quota markets), with the "rights" of new entrants (who wished to enter the industry and obtain access to volume constrained export markets on the same terms as existing exporters);

    (b)

    the desire of many (including the banks) to restrict the ability of new entrants to enter the market so as to arguably address the problem of over-capacity and to increase the stability of the industry;

    (c)

    the desire of farmers to ensure that there was a degree of competition for procurement to ensure they received competitive prices for their stock; and

    (d)

    the desire to ensure that new entrants entered the industry to encourage competition for market share, and innovation and technological development amongst processors.

    136.

    Previous research conducted by the Board for the purposes of the tradable rights proposal had indicated that 2.5% of quota was sufficient to cover new entrants on the basis of historical data.

  90. Following a process of consultation in which Mr. Russell participated, both the Association and the Council settled on the 3% figure. The process followed shows the conflicting interests being considered and assessed. In the end, a rationing system based on earlier activity in the industry may have uneven effects. But we cannot see any failure to exercise due care in the process that led to the new scheme. That is, unless the duty is to produce a particular result, but, to repeat, such a duty is not included in the contract and indeed would contradict it.

  91. A third alleged breach concerned the claimed failure to take any action under cl 42 of the new system – the backstop relief power of the Council. (On the overall merits of the matter the respondents noted that their total deficiency was about 1% of the zero tariff European quota.) After the Tribunal confirmed its 1996 decision, Ronnick asked the Council to consider their position and have regard to cl 42. While that application was pending, Ronnick’s lawyers wrote to the Council indicating that its client had reflected on the procedure and was concerned that the persons on the Council nominated by the Association would be its competitors. Any increase in its quota would be at the expense of other meat companies. Those representatives should not be involved in the decision. The Board had the ultimate statutory authority, and the responsibility for dealing with the issue "must" revert to it. A copy of the letter was sent to the Board to ensure that it was informed of Ronnick’s view that the Council was unable to act to decline the application and responsibility reverted to the Board. Mr. Russell then asked to attend the next Board meeting. In the meantime the Council did in fact discuss the situation in relation to Ronnick and resolved to "receive and support the decision of the Tribunal" relating to Ronnick. The Board, having considered the matters raised by Mr. Russell and a colleague, saw "no reason to interfere with the decision of the Independent Tribunal".

  92. It follows that the Council and Board did consider Ronnick’s position. They decided to make no change. There is no basis in the evidence for saying that they were in breach of any duty of care in the way they considered those matters – unless, again, they breached a duty requiring a particular result. It may be that there was some prospect of judicial review of the Tribunal decision as well as those of the Council and Board, and an application seeking that relief was indeed filed. But we have no possible basis for commenting on that and even a successful application would, we imagine, have required reconsideration of the application under cl 42 or the Act rather than the actual allocation of a particular tonnage.

  93. A fourth alleged breach concerned the timing of the Tribunal decisions. The critical decision in this case was not released until May, the eighth month of the production year. The terms of reference which had been the subject of consultation provided that the Tribunal was to give its decisions by 30 June and an Association witness referred to the need for each company’s individual production to be audited. We cannot see how that timing, under the published rules, can give rise to a breach of duty. In any event, there is no demonstrated linkage between the timing and the contents of the decision.

  94. Finally, the respondents refer to alleged representations and communications by the appellants’ representatives to the effect that the respondents’ position would be catered for. These allegations are better considered under the estoppel heading, considered next.

  95. None of the particular grounds for establishing breach of a duty of care is made out. Further, all of the respondents’ arguments under this cause of action in the end require a duty to achieve a result – a fair, proportional share of the quota. But the respondents and the Judge have not identified a duty of care that extends so far, and the 1991 Agreement imposes no such duty.

  96. Accordingly we hold that the respondents do not succeed in negligence.

    WERE THE BOARD AND ASSOCIATION LIABLE IN ESTOPPEL?

  97. The respondents in their statement of claim alleged that

    111.

    .... [they] acted to their detriment on the basis of a basic assumption concerning the continuation of a practice established by the MPB, and on the basis of assurances and other conduct of the defendants giving rise to a legitimate expectation that the plaintiffs would receive EC quota on the status quo basis.

    ....

    112.

    The MPB and MIA were both well aware at the time of the adoption of the 7 December 1994 regime and thereafter that the plaintiffs had acted in reliance on the status quo system.

    113.

    The conduct of the MPB and MIA in introducing or allowing or participating in the introduction of the new system without ensuring that the plaintiffs’ legitimate interests were protected was unconscionable conduct such that they were estopped from permitting the 7 December 1994 regime to be implemented in such a way as to cause detriment to the plaintiffs and are liable to pay damages to compensate the plaintiffs for the loss which they have sustained.

    The Judge found this cause of action established, concluding

    [132]

    For the reasons given, I would find that the representations which were made were acted on by Paramount. I find also that they acted to their detriment in not issuing proceedings to challenge the method of allocation before it occurred and they were in the middle of production when the representations were not delivered on. All the elements of equitable estoppel are made out but I prefer and am more comfortable with the contract/negligence construct of this case and for that reason have not extended my analysis of the estoppel cause of damages.

  98. The only matters before us under this head are the following three categories of representation identified by Heron J:

    [124]

    .... Those surrounding the 1991 MPC agreement, the reconfirmation of the status quo method in the December 1993 paper, and the [representations] made by the defendants in connection with the December 1994 quota allocation system.

  99. On the first, the Judge appears to rely on his finding regarding the second limb of the contract cause of action. We have already indicated why we disagree with that.

  100. The 3 December 1993 system was for allocation for the 1994 year. It stated explicitly that "Allocation will apply for the current year only". It also said that each year the need for a quota allocation system for each market "will be considered in July/August". We accordingly cannot agree with the Judge’s statement that

    [125]

    .... I am inclined to accept the plaintiffs’ allegations that in so far as the 1993 proposal was a representation it was on the basis that it would be a quota which would remain in existence for more than one year, or at least it had the characteristics of a system that would remain in force for more than one year.

  101. It is true, as the respondents point out, that the document setting out the scheme carried forward from year to year much of the same format and wording indicating that the system was to have ongoing application. They point to several provisions supporting that indication. But that is sensible and understandable administrative practice. It does not prevent major changes later being introduced, either within that structure and wording or with a new format. Because this is a matter to be determined on the documents themselves, we do not see as significant the evidence relating to this matter given by Mr. Russell and an Association employee.

  102. The respondents also call attention to the process followed by the Council in the final months of 1993 when it proposed a new system of tradable rights – a proposal which was strongly opposed among others by the respondents who wrote to every member of Parliament. The MPC then proposed that allocation be on the previous year’s production. Again there was strong opposition, the respondents threatening legal action. The appellants did not proceed with any fundamental change at that time. Rather they issued the 3 December 1993 notice which, say the respondents, continued the status quo. The fact that the proposals were not proceeded with and were not adopted does not however establish that they could not have been, in accordance with the cl 11.2 procedure. The events are no more than part of a complex process. They do not, in our view, give rise to any kind of estoppel.

  103. On the December 1994 allocation system, the Judge said that "representations made concerning the Tribunal’s terms of reference are an important part of the narrative". There was a question whether the respondents’ situation fell within the Tribunal’s jurisdiction and Mr. Russell, said the Judge, was assured there were wide discretionary powers to deal with special cases. "I think these assurances were very important ....". The Tribunal did hold that it could consider the respondents’ application – a decision which was by no means inevitable. But more importantly, in this context, the assurances or representations invoked under this heading did not require a fully proportionate result or indeed any particular result. That the respondents’ special case would be "properly catered for" similarly did not require any particular result, including proportionate quota.

  104. The Judge’s other references to assurances in this part of the judgment are general: "assurances [were] being given", assurances "that the system would take care of [the respondents]", assurances that, the respondents "being out of the square, .... the system would cope with it", and "there were misrepresentations made". Because of this very generality we do not see those findings as advancing the matter.

  105. We accordingly conclude that the appellants did not make out an actionable representation or assurance. We therefore need not consider whether the respondents acted to their detriment in response to the representation. On that matter we simply note that the appellants contended that the respondents were irrevocably committed to the development of its Piriaka plant in 1992 and assurances after that date were irrelevant. The only prior "assurance" was the 1991 Agreement which could not, on the appellants’ view, constitute an actionable assurance as it was capable of amendment.

  106. It follows that we do not find that the cause of action based on equitable estoppel is established.

    CAUSATION, CONTRIBUTORY NEGLIGENCE AND DAMAGES

  107. Heron J, by dealing with causation under the Damages and Contributory Negligence headings, recognised the link in the circumstances of this case between those two matters and causation. The evidence and argument also treated the matters together and we do too.

  108. The Judge reviewed the evidence given by the expert witnesses, Mr. AR Isaac and Mr. MP Stiassny, called by the Board, and Mr. MJ Lazelle, called by the respondents. All three are chartered accountants and Mr. Isaac for a short time was one of the two provisional liquidators of Paramount. Relevant evidence was also given by Mr. Russell, his son Mr. Mark Russell and Mr. NG Kirk, both of whom were involved in the respondents’ businesses, the former as development manager of Paramount and the latter as company accountant for both companies.

  109. The Judge summarised Mr. Isaac’s view in these words:

    [143]

    Ronnick and Paramount collapsed because their traditional business of horsemeat was declining, and together they consistently exceeded their plant and administration expense budget. The decline in European prices significantly altered the marketing climate in 1997, aggravated by excess expenditure on plant, over and above budget. Borrowing short term and general under capitalisation were also factors. Mr. Isaac joins issue with the suggestion that one factor, namely the failure to have access to EU quota, was the major difficulty. Mr. Isaac says that the fall in the market for sheep meat was as equally as disastrous as the failure to obtain the quota.

  110. In his summary of evidence Mr. Isaac said this:

    By May 1996 Paramount was in a weak financial position and it was more likely than not that, if the company was not radically restructured, the business of Paramount would have proceeded into receivership and as a result Ronnick would have also been placed into receivership regardless as to whether Ronnick had received a higher quota allocation.

  111. Mr. Stiassny concurred with Mr. Isaac’s view that Paramount was in a weak financial position as at May 1996. He thought that the chance of the business failing would have remained high at any level of quota allocation.

  112. By contrast, Mr. Lazelle, while acknowledging a number of factors giving rise to the change in financial fortunes of the company after May 1996 said that the receipt of quota was by far the most significant. In particular Mr. Lazelle, in his reply brief to those of Mr. Isaac and Mr. Stiassny, mentioned the buoyancy of the trading environment throughout 1996. Had the quota been provided as expected, the companies’ balance sheets would in May 1997 have been in a much stronger position than at May 1996 and "there is simply no evidence on the basis of their position that they were exposed in any way to receivership".

  113. On the question of causation, the Judge concluded as follows:

    [154]

    I do not accept that the company would have collapsed whether or not the quota had been issued. It seems to me that the loss of quota carrying, as it did, a significant profit margin must have had a paralysing effect on Paramount such that its ultimate receivership and liquidation, it seems to me, were substantially caused by the absence of quota.

  114. In support of that conclusion he said this:

    [155]

    I have the distinct impression that Mr. Russell and his son were running a robust business which had been trading profitably so far as its horse meat business was concerned, and that that situation was likely to have been repeated, so far as sheep meat was concerned. It had increased its production in a way which I find unexceptional. Other companies were running double shifts when the demand required it. There would seem to be no reason why this company should not do the same. Some companies chose to exercise some restraint in that respect, but if a substantially greater proportion of quota had been made available, on the basis that that was the company’s entitlement, the company was obliged to exploit it.

    [156]

    I am concerned at what was a lack of full disclosure in some of the submissions made [by Mr. R L Russell] to the banks for finance. Positions were plainly overstated and a picture was painted to the bankers that could not really be justified. Mr. Lazelle is inclined to say that in the straightened circumstances in which the plaintiffs were, that this was to be expected, and there is some truth in that I suppose. On the other hand, if these figures were significantly overplayed in dealing with the bankers, it gives one less confidence in accepting future forecasts when it comes to the calculation of damages.

    The reference to double shifting is relevant to one of the arguments emphasised by the appellants before us.

  115. The Judge came back to the matter of causation later in his judgment:

    [170]

    The questions of whether the plaintiffs would have failed notwithstanding the conduct for which the defendants are liable, are questions of causation and I have generally answered them on the basis that such was the loss of revenue from the quota that it could not have been other than a contributing factor. To that extent it seems to me the defendants have to take the plaintiffs as they find them, and if they were vulnerable by virtue and nature of their business, and their fledging status, then it seems to me that the defendants remain liable nonetheless. However, if they were doomed to failure in any event, then it seems that there is no loss. I consider that Mr. Isaac’s evidence in that respect lacks conviction and in cross-examination I did not understand him to be completely conclusive in that regard. It seems to me with the additional revenue and the possibility of further capital injections, that this company would have kept going. As to its ultimate fate that is really difficult to say in this particular industry and having regard to further events, including the somewhat weaker market in 1997. Those are all future considerations and I have to deal with the reality of the events at that time.

  116. He returned to the question of the respondents’ vulnerability under his contributory negligence head:

    [177]

    The defendants allege contributory negligence. Some of the allegations are to do with the plaintiffs’ reliance or expectation of what the status quo system would deliver to them. To that extent the allegations of contributory negligence are defeated by the findings that those expectations were justified. As to its mismanaging its affairs by being under-capitalised, to some extent the particulars of negligence are merely a recognition of the plaintiffs’ vulnerable position, should it be not given the quota to which it was entitled. I do not see that as contributing to its losses. The matter is best dealt with under causation and whether the company would have survived in any event.

    And he then repeated his overall conclusion on causation:

    [178]

    On the preponderance of evidence, I am not satisfied that the company was fatally wounded by virtue of what it had been doing irrespective of the quota. In general terms I think the allegations of contributory negligence are closely related to causation, but standing on their own I do not think any award needs to be reduced for the various ways in which the company went about its business heavily influenced as it was by the anticipation, which I have found justified, to receive an appropriate amount of quota consonant with its entitlement. I have endeavoured to explain that the plaintiffs’ position was unique. It was outside the frame and it had to be dealt with in a manner consistent with the proper and fair sharing of quota, amongst all those who were in the meat business.

  117. The Judge did reject a claim for over $200,000 for loss of production when the plant was closed down following publication of the 1994 quota system, no doubt as a gesture. That was premature and in any event the 1995 allocation did meet the respondents’ requirement. That matter is not before us.

  118. If causation was established and there was no issue of contribution, on what basis were damages to be fixed? The Judge records the parties as agreeing on the methodology for calculating damages. The value of the businesses immediately before the losses were suffered was to be compared with their value after. The value should be assessed by the discounted cash flow method. The three expert witnesses also agreed on that method which in broad terms was the basis on which the statement of claim proceeded.

  119. The appellants’ witnesses expressed concern about the inadequacy of the financial records of the companies, the Judge commenting:

    [163]

    It does seem some financial documentation was lost and this was really a matter that was not fully explored in the evidence and does not appear to have surfaced at any interlocutory stage, as far as I can see.

    He went on

    [165]

    Doing the best I can with the information I have, and reflecting on the expertise of witnesses such as Mr. Isaac, Mr. Lazelle and Mr. Stiassny, I do not think there is an easy middle road. In some respects I was concerned at Mr. Russell’s apparent lack of candour when he was writing letters to the bank which really were presenting a picture far from the reality. But I am driven to the view, that despite that, this was a vibrant and successful business, no doubt accompanied by major problems in relation to financing, which was severely affected by the quota decision. I think a large number of the difficulties that were faced financially would have been overcome had trading continued through, until the end of the year when all the quota had been availed of. It was this year, which was to be the year which would take the company onto another level, and hopefully consolidate its financial position.

    [166]

    I intend as a cautionary measure and as a discount against contingencies to reduce the plaintiffs’ claim on this head by 30%.

  120. He applied that 30% discount to Mr. Lazelle’s pre-loss valuation of $3,072,000 (see para [7] above). That valuation was determined on the agreed cashflow basis. That valuation is taken from Mr. Lazelle’s initial brief. In his reply brief he reduced the figure to $2,637,300. He also reduced the provisional deficiency on liquidation in his reply brief and it is that lower figure which the Judge adopted: see the next paragraph. While nothing was made of this in written and oral submissions to us we do reserve leave to apply to the High Court in respect of this matter.

  121. To that sum was to be added the deficiency on liquidation. On the basis of the liquidator’s statement of affairs, Mr. Lazelle had reached a figure of $3,188,901 in his reply brief; that figure might be greater since not all proofs of debt had been filed. The Judge had not heard evidence from the liquidator about how the figure was arrived at. There were some other uncertainties and the Judge was invited, he said, to enter a judgment for a provisional amount and to order an inquiry whether any further amount was outstanding. As already indicated (para [7] above), he entered judgment in those terms – although the respondents, according to their counsel in this Court, were surprised at the possibility of the specified sum being reduced. The Board challenged the interim judgment on the deficiency where on the Judge’s own findings there were fundamental issues of proof such that an inquiry into losses should be ordered. Since the inquiry which he did order may lead to a reduction, the appellants may not be prejudiced by his interim finding. But given that an inquiry has been ordered and that either an increase or a decrease is possible it is preferable, we think, for the judgment to be varied by removing the interim amount and simply leaving the order for the inquiry.

  122. The appellants challenge the Judge’s findings on causation (including contributory negligence) and the Board challenges the legal basis on which the damages were fixed.

  123. As indicated (para [114] above) both appellants placed major emphasis on the respondents’ decision to go to double shifting in 1996. Connected with that was their failure when they did not get the full quota they expected to pursue judicial review or buying quota or selling their product elsewhere. The real effective cause of the collapse was their own decision to expand production on the assumption that they would get the increased quota. They highlight the evidence of Mr. Mark Russell that had they not gone to double shifting in 1996 they could have survived, with economic disadvantage, on the quota they actually received.

  124. Causation must however be assessed on the basis that the respondents were entitled to the quota based on current production in accordance with the unamended cl 8.3.2. On that basis we return to the analysis by the Judge who presided over a lengthy trial and saw the witnesses, including especially the expert witnesses, questioned on causation (see paras [108] to [116] above). On that matter, the appellants place against his assessment that Mr. Russell was running a robust business, the conflicting evidence of Mr. Isaac and the application for finance from a reluctant financier (where the Judge was understandably concerned at the lack of full disclosure). But the appellants give no reason why we should find error in the Judge’s preferring of Mr. Lazelle’s evidence and that of other witnesses called by the respondents to Mr. Isaac’s. Further, the Judge did consider the evidence about Mr. Russell’s approach for finance. The Association also contends that the Judge gave no or insufficient weight to the evidence that the losses were contributed to by the companies committing themselves to substantial expansion without any assurance that the necessary quota, finance or both would be available. But again we must proceed on the basis that the quota would be available in accordance with the unamended cl 8.3.2. And this submission did not take us to any compelling evidence on financial needs, given the Judge’s overall finding in which he preferred Mr. Lazelle’s evidence.

  125. Accordingly the appellants’ attack on the finding of causation fails.

  126. The Board submits that damages would have been fixed on the basis of a scope of duty analysis which this Court adopted in Bank of New Zealand v New Zealand Guardian Trust Co Ltd [1999] 1 NZLR 664. The result would be that the damages would be limited to the value of quota not allocated. On one basis, the loss would be $46,500 and on another $280,000. The Association abandoned the challenge to quantum foreshadowed in its grounds of appeal.

  127. The respondents’ first answer is that the parties, like their expert witnesses, were agreed on the method for calculating damages: to compare the value of the businesses before and after the breach (see para [118] above). Next, they challenged the calculations of the value of the quota. Finally, they say, the approach adopted by the experts is the standard approach to damages in this category of case.

  128. We have no difficulty in adopting that final point. It would have been within the reasonable contemplation of the parties that the failure to grant the respondents the quota based on their current year’s production would result in loss of value in the companies. Unlike the situation in the Guardian Trust case we are not concerned here with losses "unconnected" with the appellants’ breaches ([1999] 1 NZLR at 686). And we have already indicated that we see no reason to disagree with the findings on causation made by the trial Judge.

  129. Accordingly the challenges to the findings on damages fail, subject to the point mentioned in para [121] above.

  130. The Board also asserts that Paramount is not entitled to recover since it is not the recipient of the quota. The respondents submit that this point cannot now be advanced on appeal, quoting this passage from early in the High Court judgment:

    [4]

    Paramount Export Ltd (Paramount) was the operative meat producing company, but Ronnick Commodities New Zealand Ltd (Ronnick) is also joined as a plaintiff, and acted effectively as its sales and commission agent at all material times. No contest was made as to the relationship between the two, and their entitlement to sue in respect of this action was not put in issue. Mr. R L Russell was the sole shareholder and managing director of both companies.

    We agree with the respondents’ submissions:

    The appellants cannot now open a factual issue such as this on appeal. Whilst Ronnick was the holder of the licence, and the party entering the MPC Agreement, it did so as Paramount’s agent. Mr. Russell described this in his evidence, and the agency agreement was also introduced as an exhibit. Moreover, when it came to quota entitlements, the appellants accepted that whilst Ronnick was the licence holder, it could be allocated the quota generated as a result of Paramount’s production. Effectively the companies were treated as one for the purposes of quota allocation – it was just that Ronnick was the sales and marketing arm of Paramount’s business. If any contest was to be taken in relation to that, it needed to be taken at trial.

    RESULT

  131. It follows that the appeal fails. We recall the matter reserved for the High Court in para [120] above. Point (b) of the judgment (para [7] above) relating to the deficiency on liquidation is amended by deleting the interim judgment so that the point provides only for the inquiry (see para [121] above).

  132. The respondents are entitled to costs of $20,000 plus reasonable disbursements, including the travel and accommodation costs of counsel, to be fixed by the Registrar in the absence of agreement.[a]


Cases

Rod Milner Motors Ltd v Attorney-General [1999] 2 NZLR 568; Investors Compensation Scheme v West Bromwich Building Society [1998] 1 All ER 98 (HL); X (Minors) v Bedfordshire County Council [1995] 2 AC 633; RM Turton & Co Ltd (in liquidation) v Kerslake & Partners [2000] 3 NZLR 406; Bank of New Zealand v New Zealand Guardian Trust Co Ltd [1999] 1 NZLR 664

Legislations

Meat Export Control Act 1921-22: s.9A, s.9B, s.9C, s.9D

The Meat Planning Council Agreement 1991: recital A, B, C, D, E, F, cl.3, cl.8.3.2, cl.11

Representations

C R Carruthers QC and J Sutton for the First Appellant (instructed by Rudd Watts & Stone, Wellington)

W M Wilson QC for the Second Appellant (instructed by T P Cleary, Wellington)

G J Judd QC and F M R Cooke for the Respondents (instructed by Short & Co, Auckland)

Notes:-

[a] The Meat Board appealed the decision. The Privy Council (Lord Hoffmann, Lord Hutton & Lord Scott of Foscote, Lord Nicholls of Birkenhead & Lord Walker of Gestingthorpe dissenting) on 26 July 2004 allowed the appeal. See New Zealand Meat Board v Paramount Export Ltd @www.ipsofactoJ.com/international/index.htm [2005] Part 5 Case 2 [PC]


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