Ipsofactoj.com: International Cases  Part 6 Case 13 [NZCA]
COURT OF APPEAL, NEW ZEALAND
Antons Trawling Co Ltd
- vs -
18 DECEMBER 2002
(delivered the judgment of the court)
INTRODUCTION AND RESULT
These appeals are from two judgments delivered by Rodney Hansen J in the High Court at Auckland on 12 February and 20 September 2002. The first determined the liability phase of a split trial, the Judge holding the respondent plaintiff, Mr. Smith, entitled to 10 percent of certain orange roughy fish quota issued to the appellant defendants, Antons Trawling Company Limited and related companies (Antons). In the second the Judge struck out Antons’ plea of illegality sought to be advanced at a forthcoming hearing as to remedies.
We agree with two of the three conclusions of the Judge as to liability: those as to the construction of the contract asserted by Mr. Smith and as to alleged absence of consideration. But we respectfully disagree that the whole of the quota issued resulted from Mr. Smith’s contribution and consider that his share is limited to 10 percent of the increase in quota in respect of what is known as the Mercury-Colville Box. We accordingly allow the first appeal in part. Like the Judge we are satisfied that the illegality plea should not be permitted to be advanced as a belated defence to liability, but to the extent that Mr. Smith seeks equitable relief it may properly be advanced by Antons at the remedies hearing. We do not take the Judge to be of a different view but express the matter in this way in case there is doubt. It is unnecessary to say more about the second appeal. also is therefore allowed in part
New Zealand possesses the fourth largest exclusive economic zone recognised under the United Nations Law of the Sea Convention 1982 to which New Zealand became a signatory on 10 December of that year. Its fisheries resources have been of major economic importance to New Zealanders since before European contact. Determining how to allocate rights in a valuable and limited resource has presented acute difficulties in principle and practice.
By Part 2A of the Fisheries Act 1983, added by the Fisheries Amendment Act 1986, Parliament empowered the creation of permanent property rights in the resource, with far reaching consequences for all concerned with it.
The root of title is the issue under the quota management system (QMS) of Individual Transferable Quota (ITQ) which is a statutory chose in action comprising a fraction of the total of exclusive rights to fish commercially a particular species of fish within one of the 10 quota management areas into which the exclusive economic zone is divided. Rights to ITQ are codified by the relevant legislation, especially the Fisheries Amendment Act 1986 and the Fisheries Act 1996. The very high value of quota in favoured species has given rise to a market in which the ITQ are tradable. Because they confer the exclusive entitlement to engage in commercial fishing of each species brought within the statutory quota management system they are often closely and jealously held by the fishing companies whose life blood they are.
THE MAJOR ISSUES
There are three critical issues concerning the construction and operation of an alleged oral agreement said to have been made on 8 June 1994 between Antons, represented by its managing director Mr. Barbarich, and Mr. Smith who was the Master of one of Antons’ fishing vessels.
The first issue is what precisely was the promise the Judge found to be made by Antons in respect of a 10 percent share of any additional orange roughy ITQ issued to Antons in certain circumstances. Antons contend that it required proof by Mr. Smith of the existence of a commercial fishery; Mr. Smith that the issue to Antons of orange roughy quota would itself be sufficient.
The second is whether Mr. Smith performed the obligations required to entitle him to benefits.
The third is whether Mr. Smith’s claim to contractual rights is defeated by the absence of consideration.
Before turning to the evidence and the submissions it is necessary to describe the legal and factual setting in which the discussion, said to have led to the agreement, took place.
THE LEGAL SETTING
Orange roughy is a deep water species believed to have been unknown in New Zealand waters until discovery of the Chatham Rise resource by Soviet trawlers in 1977 in which year the Territorial Sea and Exclusive Economic Zone Act 1977 (TSA) was passed. It provided for a 200 mile exclusive economic zone, comprising areas of the sea, seabed and sub-soil that were beyond and adjacent to the territorial sea of New Zealand. By s11 the Minister of Fisheries was required from time to time to determine, in respect of every fishery within the exclusive economic zone, the total allowable catch. "Fishery" was defined as meaning:
One or more stocks of fish that can be treated as a unit for the purposes of conservation and management.
During the period relevant to this case "total allowable catch" (TAC) was defined by s2 with respect to the yield from any fishery as meaning:
.... the amount of fish that will produce from that fishery the maximum sustainable yield, as qualified by any relevant economic or environmental factors, fishing patterns, the interdependence of stocks of fish, and any generally recommended subregional, regional, or global standards.
We have emphasised the reference to maximum sustainable yield (MSY). The first issue in the appeal turns on whether, as Antons argue, the contract concerns the establishment of MSY; on Mr. Smith's argument it concerns not establishing MSY but securing ITQ.
The act was passed during the period of the Third United Nations Conference on the Law of Sea to which s30 directly refers, giving authority to the Governor-General by order in council to limit any provision of the Act relating to the exclusive economic zone so far as it is necessary to do so to give full effect to any convention adopted by the Third United Nations Conference on the Law of the Sea, a power that has not to date been exercised.
The following provisions of the resulting 1982 Convention (UNCLOS) provide the background to the QMS:
UNITED NATIONS CONVENTION ON THE LAW OF THE SEA (1982)
The States Parties to this Convention,
Prompted by the desire to settle, in a spirit of mutual understanding and co-operation, all issues relating to the law of the sea and aware of the historic significance of this Convention as an important contribution to the maintenance of peace, justice and progress for all peoples of the world,
Noting that the developments since the United Nations Conferences on the Law of the Sea held at Geneva in 1958 and 1960 have accentuated the need for a new and generally acceptable Convention on the law of the sea,
Conscious that the problems of ocean space are closely interrelated and need to be considered as a whole,
Recognising the desirability of establishing through this Convention, with due regard for the sovereignty of all States, a legal order for the seas and oceans which will facilitate international communication, and will promote the peaceful uses of the seas and oceans, the equitable and efficient utilisation of their resources, the conservation of their living resources, and the study, protection and preservation of the marine environment,
Bearing in mind that the achievement of these goals will contribute to the realisation of a just and equitable international economic order which takes into account the interests and needs of mankind as a whole ....
Conservation of the living resources
Utilisation of the living resources
CONSERVATION AND MANAGEMENT OF THE LIVING RESOURCES OF THE HIGH SEAS
Co-operation of States in the conservation and management of living resources
States shall co-operate with each other in the conservation and management of living resources in the areas of the high seas. States whose nationals exploit identical living resources, or different living resources in the same area, shall enter into negotiations with a view to taking the measures necessary for the conservation of the living resources concerned. They shall, as appropriate, co-operate to establish subregional or regional fisheries organisations to this end.
Conservation of the living resources of the high seas
[Blackstone’s International Law Documents edited by Malcolm D. Evans 1991]
We have again emphasised the reference to MSY.
The Fisheries Act 1983 responded to the Convention of the previous year, introducing by s2 the following definition which echoes Art 119 1 (a) of UNCLOS and closely follows s11 TSA:
total allowable catch, with respect to the yield from a fishery, means the amount of fish, aquatic life, or seaweed that will produce from that fishery the maximum sustainable yield, as qualified by any relevant economic or environmental factors, fishing patterns, the interdependence of stocks of fish, and any generally recommended sub-regional or regional or global standards.
That definition of total allowable catch (TAC), including the core component of MSY which we have again emphasised, remained unaltered by the 1986 Amendment Act, which effected radical reform. It repealed much of the 1983 Act and empowered the Minister by notice in the Gazette to declare that the taking of any species or class of fish any specified quota management area should be subject to the QMS established under Part IIA on and from a date specified in the notice (s28B). Such declarations were for practical purposes irrevocable and no area might be excluded from any quota management area except by act of Parliament (s28B(5)(6).
The Minister was empowered, after allowing for Maori and certain non-commercial interests, by notice in the Gazette to specify the total allowable catch to be available for commercial fishing (later known as "total allowable commercial catch" (TACC)) for each quota management area in respect of each species or class of fish subject to the quota management system (s28C(1)). Such notice could specify separate total allowable catches for separately defined parts of any quota management area (s28C(2)).
The Minister was also empowered to vary any total allowable catch for any quota management area in respect of any species (subs (6)) but in the event of reduction otherwise than by cancellation of Crown quota, the Crown was required to pay fair market value for individual ITQ so reduced (s28D(4)(a)).
The issue of ITQ was in proportion to the returns of the claimant to quota in respect of the species or class of fish in previous years (s28E).
An elaborate system of appeals to a new quota appeal authority was introduced (ss9 and 28H). The allocation of ITQ was affected by notification by the Director-General expressed in tonnes or part of a tonne (s28O). The Director-General was required to maintain in respect of each quota management area for each species or class of fish a register showing:
the total allowable catch;
the ITQ allocated to each person;
every transfer of an ITQ whether by operation of law or agreement of the parties; and
every lease of ITQ (s28P).
Section 28Q provided for the permanent transfer of quota by the holder of an ITQ to any other person or for leasing the holder’s rights to any other person for a specified period for a specified tonnage of fish (s28Q). The form of transfers and leases was provided for (s28R). Commercial taking of fish subject to ITQ was prohibited (s28Z(a)).
The Director-General was empowered by s64 to grant a special permit to take fish for inter alia, the purposes of investigative research.
The Fisheries Amendment Act 1990 removed the compensation right in respect of reduction of ITQ by converting the allocation of quota from a fixed tonnage to a proportion of the available TACC.
Both MSY and of ITQ are thus of fundamental importance within the QMS. The overall effect of the legislation was to require the Minister, before subjecting any species to the quota management system, to determine first the TAC based on MSY under s11 of the TSA and then the TACC under s28C of the Fisheries Act. Implicit in such exercise was the possession of sufficient information to be able to bring a reasonably informed mind to bear upon the decision. So in the case of a newly discovered fishery it was to be expected that a period of research would be undertaken before a more than nominal TAC and TACC, as the basis of the issue of ITQ, could be established.
Such was the legal context in which the discussion between Messrs Smith and Barbarich on 8 June 1994 took place.
THE FACTUAL SETTING OF THE DISCUSSION OF 8 JUNE 1994
In the mid-1980s Antons had become interested in the possibility of locating and exploiting orange roughy as a commercial fishing resource. During the previous decade orange roughy fisheries had been discovered in deep water in areas off the coast of the South Island. Those fisheries were exploited by large specially equipped factory freezer trawlers able to cover the long distances to the fishing grounds and preserve the catch during the return journey. Antons’ vessels were not equipped for such long distance operations and they decided to concentrate their efforts on waters off the coast of the North Island within range of their processing facilities in Auckland. They focused initially on an area then known as Fisheries Management Area 2 which covered an area south of East Cape off the east coast. Antons’ vessels Serenity II and Wanaka took part in surveys conducted by the Ministry of Agriculture and Fisheries, later the Ministry of Fisheries (MAF), and in research programmes to evaluate the potential for commercial fishing of the species in areas off the North Island of New Zealand. In 1985 Antons landed sufficient orange roughy to satisfy MAF that Area 2 could sustain a commercial orange roughy fishery. In 1985 and 1986 Antons participated in a similar MAF programme in Area 1, which covered waters north of East Cape and around the north of New Zealand, continuing to a point on the west coast south of Manukau Harbour.
The enactment in 1986 of the Fisheries Amendment Act raised the prospect of the issue of ITQ in respect of the orange roughy resource. Despite the absence of substantial evidence as to the quantity of the orange roughy biomass in Areas 1 and 2, the Minister included the orange roughy in notices issued under s28C so as to bring the resource within the quota management system by specifying a TACC. Antons received 100 tonnes of orange roughy ITQ in Area 2A as the result of its catch history, commitment to and reliance on the fishery and participation in the 1985 programme. In Area 1 a nominal quota of 190 tonnes was allocated, based on limited research data provided by surveys of the Wanaka chartered by MAF to carry out surveys on the east and west coasts. As there was little or no catch history in Area 1 most of the quota was retained by the Crown.
The 1990 amendment to the legislation, resulting in allocation of quota as a proportion of the available TACC rather than by way of fixed tonnage, offered quota holders the prospect of obtaining increased quota without having to pay for it.
As a relatively small player without the resources to buy large amounts of quota Antons saw the change in policy as a commercial opportunity to invest in fisheries that were not commercially proven, of which they saw the orange roughy fisheries in Areas 1 and 2 as examples. They exchanged 35 tonnes of valuable snapper quota and certain other quota for 126 tonnes of orange roughy quota in Area 1 (ORH 1) treated as worth some $700,000. They bought two vessels, a 30 metre stern trawler Seamount Enterprises and a 25 metre stern trawler Margaret Philippa, each of which was upgraded to fish for orange roughy and other deepwater species in depths greater than 800 metres.
Between 1986 and 1991 Antons successfully fished to the limit of their quota in ORH1. In 1986 and on three occasions in 1989 the Serenity II caught small quantities of orange roughy in Area 1; from July 1992 the returns of the catch were almost 10 tonnes. Following her replacement by the Margaret Philippa and Seamount Enterprise Antons concentrated on Area 2 but from time to time caught modest quantities of orange roughy in Area 1. During 1993 and into 1994 the Seamount Enterprises and Margaret Philippa fished mainly in Area 2, from time to time taking by catch of orange roughy and other species in Area 1. A total of 27 tonnes was caught in Area 1 between 1986 and 1993, four catches exceeding a tonne and the biggest being 5.7 tonnes.
The big catches occurred in waters adjacent to undersea features known as sea mounts or knolls. The Wanaka surveys had shown signs of orange roughy at or near such features, which self evidently present particular difficulties for managing nets in deep water at a considerable distance from the vessel. Dr Clark, a marine scientist who had been responsible for the Wanaka surveys and was called by Mr. Smith, advised that from about the mid-1980s continuing improvements in navigational aids and net technology greatly enhanced the ability to explore and exploit fish stocks in the vicinity of undersea features.
In April 1994 Antons engaged Mr. Smith as the Master of the Seamount Enterprise. He had begun work as a 15 year old and been a commercial fisherman for 27 years. His early experience included work on trawlers, catching orange roughy in the Chatham Rise when that fishery was first opening up. Antons engaged Mr. Smith on its usual terms expressed in the standard Auckland Share of Catch fishing agreement. Under such agreement the Master and crew are paid a percentage of the value of the catch after deduction of specified costs, the Master receiving 53 percent which he shares with his crew, he usually retaining about 28 percent. Mr. Smith had not previously fished out of Auckland and prior to the first voyage raised with Mr. Barbarich the question of a daily rate of pay while performing exploratory fishing in Area 1 as he might be directed under the agreement:
SAILING/LANDING DAYS/AREAS TO BE FISHED
Sailing details, landing days, areas to be fished, and Quota availability will be at the direction of the Owner.
Mr. Barbarich told Mr. Smith that Antons’ policy was not to pay daily rates. He said to Mr. Smith that there were fish out there and it was up to him to go out and find them. Mr. Smith responded that that was fine and he would go out and find fish. Mr. Barbarich expected that Mr. Smith and his crew would catch orange roughy as the spawning season was approaching. He was provided with research data of the previous fishing Area 1 including the records of the Serenity II, the Margaret Philippa and the Seamount Enterprise. He was also given charts and sounding records of some of the permanent under sea features in Area 1.
From 23 April 1994 to 25 August 1996 Mr. Smith served as Master of the Seamount Enterprise making a total of 109 trips. The first two were to Area 2. On a third voyage to Area 2 he also fished in Area 1 catching four tonnes of orange roughy. On the fourth, between 26 May and 2 June 1994, he fished a site known as the Mercury Knoll, off the Mercury Islands in Area 1 in the Bay of Plenty. He landed a total of 10 tonnes, the largest quantity that was taken in Area 1 to that time.
Mr. Smith said that following that trip he met with Mr. Barbarich who he said was excited about the size of the catch. He claimed that Mr. Barbarich told him that he could continue exploring Area 1 and, if he were able to prove a commercial orange roughy fishery there, Antons would get him a percentage of any additional quota issued to them for orange roughy or its cash value. Mr. Smith said that no percentage was mentioned at that meeting. Mr. Barbarich denied that any such discussion took place.
THE MEETING OF 8 JUNE AND THE ORAL AGREEMENT
There immediately followed a return to the Mercury Knoll from where Mr. Smith returned with a catch of 69 tonnes. According to the evidence of Mr. Smith and a fellow crew member, Mr. Sims, on 8 June 1994 they met Mr. Barbarich at Antons' premises in Mt Wellington. There was a direct conflict of evidence between their account and that of Mr. Barbarich who denied any agreement to give quota to Mr. Smith.
Antons did not challenge the Judge’s decision to prefer the evidence of Messrs Smith and Sims. Their account was that there was discussion about the quota which was a matter of considerable importance as Mr. Smith’s catches had already used up 85 of the 126 tonnes of orange roughy quota held by Antons for Area 1. Mr. Barbarich was anxious to involve MAF in the future fishing in Area 1 in order to assemble the information needed to establish that a commercially viable fishery existed. Additional quota could result only from an increase in the TACC and that required the presence of a MAF scientist or observer to verify fishing locations and results. Mr. Smith’s account was as follows:
Milan and I agreed that an extensive search programme was needed – to be undertaken in Area 1 to establish the fishery to MAF’s satisfaction in order that quota might be issued in respect of it. Milan told me that if I was willing to undertake that exploratory fishing, Antons would sign over 10% of any quota allocated by the company as a result of my find. Milan said to me:
or words to that effect.
Mr. Smith pleaded that:
.... the plaintiff would explore Area 1 for a commercial orange roughy fishery using the Seamount Enterprise.
If the plaintiff could prove a commercial fishery, then he would be entitled to .... 10% of any additional orange roughy ITQ issued to the defendants for orange roughy in Area 1.
The Judge found that the pleaded contract was established. The underlined passage of the pleaded contractual terms:
the plaintiff would explore Area 1 for a commercial orange roughy fishery using the Seamount Enterprise.
If the plaintiff could prove a commercial fishery, then he would be entitled to .... 10% of any additional orange roughy ITQ issued to the defendants for orange roughy in Area 1.
received extensive analysis in argument.
We have no doubt that, considered in context, it was the common contemplation of the parties that, to secure an increase in the TACC sufficient to result in the allocation to Antons of significant further ITQ, a substantial exercise of exploratory fishing and research would be required.
It will be apparent that the concept of MSY is the kernel of the definition of total allowable catch, expressed in very similar terms in Article 119 1 (a) of UNCLOS, s2 of the Territorial Sea Act and s2 of the Fisheries Act. It was not defined in the 1983 Act but is now defined in the 1996 Act as:
In relation to any stock [MSY] means the greatest yield that can be achieved over time while maintaining the stock’s productive capacity, having regard to the population dynamics of the stock and any environmental factors that influence the stock.
In New Zealand Fishing Industry Association (Inc) v Minister of Fisheries (CA 82/97, 22 July 1997) this Court held that the definition of TAC in the 1983 Act (page 13):
.... both alone and informed by the relevant articles of the United Nations Convention on the Law of the Sea (UNCLOS) cast on the Minister a prima facie duty to move the ministry towards MSY, but not already there, by such means and over such periods of time as the Minister directed. That prima facie obligation was subject to the so-called qualifiers i.e. those factors introduced by the words "as qualified by". Those qualifiers were matters which the Minister was required to address when considering how to implement his prima facie duty and, if the qualifiers were cogent enough, whether the prima facie duty was for the moment overtaken by one or more of those factors. The qualifiers were relevant to whether, and if so, by what means and over what time the prima facie duty should be implemented.
The concept of "maximum sustainable yield" carries the notion confirmed by the definition in the 1996 Act of sustainability over time.
Given the high potential value of any significant orange roughy resource in Area 1, viewed against the experience with the South Island orange roughy fisheries, it is unsurprising that the Minister thought it wise to bring the species within the control of the quota management system by establishing an essentially nominal TACC. That would serve the dual purpose of protecting the resource by confining authorised fishing by quota holders within narrow limits while affording sufficient economic incentive for quota holders to perform some exploration of the potential of the resource. But it was reasonably to be expected by members of the industry like Messrs Smith and Barbarich, who had experienced both the practical operation of the legislation since 1986 and the difficulties of securing the data required to establish a substantial orange roughy TAC, that much effort would be required by way of exploration before MAF could be satisfied as to the MSY so that an increase in TACC and consequential issue of further significant quota could be achieved.
Such was, we are satisfied, the common expectation of the parties at the time of the agreement of 8 June 1994 and for the bulk of the period of Mr. Smith's subsequent trips on the Seamount Enterprise which concluded on 25 August 1996, during which period it caught almost 1m kgs of orange roughy from Area 1 as detailed in the Appendix.
The difficulty in the case is presented by an unforeseeable change in MAF policy which took effect from 1 October 1995 with a major increase of TACC and consequential ITQ made not as the end result of intense study of the resource and sustained catch histories over time under the authority of temporary special permits so as to establish the MSY, but as a prior stage in the exploratory process, under an extra statutory arrangement known as Adaptive Management Programme (AMP), without establishing the MSY. On 1 October 1995 the TACC for orange roughy in Area 1 was increased from 190 tonnes to 1190 tonnes, Antons receiving 663.157 tonnes representing some 66 percent of that increase. As the Judge put it:
The AMP made possible the issue of quota before fish stocks had been ascertained to the level of certainty which would otherwise be required before a TACC level was established or increased.
The Mercury-Colville box is the only area of ORH 1 to have proven fish stocks and to have been systematically exploited. In that sense, it may be the only recognised fishery, although to describe it as sustainable is questionable given the dramatic and continuing decline in catches.
The conventional system, employing special permits under s64(1)(a) without the issue of ITQ, had been continued by MAF up to and including its issue to Antons on 14 June 1995 of such a permit valid to 30 June 1995 authorising the taking of up to 200 tonnes of orange roughy within an area embracing the Mercury-Colville and neighbouring knolls, known as the Mercury Colville "box". That permit, like its predecessors, required Antons and Mr. Smith as its Master to co-operate fully with MAF fishery staff and to fish only when such staff were on board. They were to address the following objectives:
Description of the distribution of spawning orange roughy associated with the Mercury-Colville and neighbouring knolls and other features in the western Bay of Plenty.
To measure the relative abundance of orange roughy associated with such features.
To collect biological data on size structure and reproduction for the determination of pre- recruit/recruited biomass, gonad development and time of spawning.
The permit stipulated that:
The taking of any fish while fishing under this permit shall not entitle the holder to any advantage or privileges in respect of any future fishing right or permit.
The operation of a vessel shall be under the control of the Ministry .... subject at all times to the decision of the vessel's master on matters concerning navigation and the safety of the vessel and personnel on board ....
On 10 October 1995 there was a radical change of policy. The Ministry notified Antons in writing that:
The Minister of Fisheries, acting pursuant to s28OB of the Fisheries Act 1983 .... has increased the total allowable commercial catch (TACC) for .... orange roughy .... in certain areas. This increase is effected by the Fisheries (Quota Management Areas, Total Allowable Catches, and Catch Histories) Notice 1986, Amendment number 13 1995/196 that came into force on the first day of October 1995.
Details of the increases are as follows:
Pursuant to s280E(5) the Chief Executive notified Antons of the increase in their quota holdings to 789.157 tonnes.
The increase in TACC came about in the following way. On 16 May 1995 the industry had made a "proposal for adaptive management of ORH 1" which was largely adopted by the Minister. It included the following passage:
Commercial fishing in 1994 and subsequent exploratory fishing under special permit indicated that there is considerable potential for the expansion of the TACC in ORH 1 from its current level of 190 tonnes. At present, however, there is no indication of how large the long-term sustained yield may be for this Fishstock. The following proposal has been developed through the stock assessment process and has been discussed at the Stock Assessment Plenary held in May 1995. It has also been reviewed and agreed to by all the major quota holders in ORH 1. This proposal consists of two parts: 1) a proposal for a special permit to fish this winter in ORH 1 as most of the available quota has already been taken as a by-catch in a black cardinal fish fishery (at least 130 tonnes); and 2) a proposal for a five-year TACC increase under the provisions of the "Adaptive Management Programme".
There followed a description of proposed objectives for a special permit covering the period between May and August 1995 and a proposal for the issue of exploratory quota of 200 tonnes to embrace the Mercury-Colville "box". With the fishing year due to begin on 1 October 1995 the proposal continued:
Proposal for Adaptive Management increase in TACC beginning 1 October
It is proposed that the TACC for ORH 1 be increased under the "Adaptive Management Programme" as defined by MAF and Industry in 1991. It is felt that this Fishstock qualifies to be included in the above programme for the following reasons:
Proposed Adaptive Management Programme
Then followed detailed provisions as to the probability distributions for the biomass which the "decision rule" should achieve.
The Minister's response, by letter dated 21 September 1995, was as follows:
ORH 1 – Auckland and Central (Egmont)
The adaptive management proposal for this fishery met all the criteria required for implementation. I have therefore increased the ORH 1 TACC from 190 to 1 190 tonnes on the condition that 1 000 tonnes is to be used exclusively in the Mercury-Colville area under the provisions of the adaptive management programme proposed by industry, and that the remaining 190 tonnes is used outside of the Mercury-Colville area in the rest of ORH 1.
I have considered industry's request to allow exploratory fishing in the rest of ORH 1 and would encourage them to develop proposals with appropriate controls for consideration by the Chief Executive of the Ministry of Fisheries, pursuant to S64(1)(a). Following confirmation of significant new aggregations of orange roughy industry can put forward an adaptive management proposal, similar to Mercury-Colville, for consideration by the Fishery Assessment Working Group. This procedure provides the incentive for industry to undertake or fund research to allow increases in TACCs, a principle I believe is appropriate for all fisheries.
The increase of Antons' ITQ was the result. The Appendix shows that that initial increase occurred after a year of substantial returns from the Mercury-Colville box.
It is however to be emphasised that the increase was granted "to allow exploratory fishing" (see para  above), not on the basis of allocation of "a proved commercial fishery".
As the process of exploration continued it was ultimately realised that the 1000 tonne allowance for the Mercury-Colville box was wholly unrealistic. The result of "fishing down" the virgin biomass in the Mercury-Colville box to its MSY was that on 24 September 2001 the then Minister reduced the catch limit of the box to 30 tonnes. The material part of his letter is reproduced:
Orange Roughy 1 (ORH 1)
Commercial fishing and results of fishing under the special permit regime suggest there is potential for the ORH 1 fisheries to develop, at least in the short term. Exploratory fishing indicates additional fishing grounds within ORH 1, but there is little information on yield. Some parts of the fishery are believed to be in a near virgin state. I intend to encourage further investigative fishing and research in the fisheries. I consider that this is best achieved by placing ORH 1 in the AMP and spreading catch across .... four sub-areas ....
To recognise the lack of yield estimates, seamount feature limits are proposed to ensure populations of orange roughy associated with seamount are not depleted before there is sufficient information to assess yields. The AMP proposes monitoring by sub-area based catch rates. If catch rates fall below a threshold, seamount feature limits in the area concerned would reduce in the following fishing year ....
In the short-term, I want industry to work with Mfish to confirm and document a compliance and monitoring plan that will apply for the 2001-02 fishing year before fishing commences in this fishery .... ORH 1 is to be included in the AMP for the coming five years and the TACC increased from 800 to 1400 tonnes. I specifically note that the catch limit of the Mercury-Colville box is to be set at 30 tonnes. I understand there is no quantitative information on which to base any allowance for customary or recreational fishers and Mfish considers it is unlikely that they are active participants in the fishery. An allowance of 70 tonnes is to be set for other sources of fishing related mortality .... the TAC will therefore be set at 1,470 tonnes.
Although the permissible catch in the box was radically reduced, the result of the 1 October 2001 quota increase for the whole of Area 1 was the increase of Antons' share by 138 tonnes.
MR. SMITH'S CLAIM AND THE HIGH COURT DECISION
Mr. Smith claimed entitlement to 10 percent of the 663.157 tonnes allocated to Antons in September 1995 and a further 13.8 tonnes of the 1 October 2001 increase, making approximately 80 tonnes in all. He sought a declaration that the 80 tonnes of quota are held upon trust for him and an order requiring Antons to transfer the quota to him. Alternatively he sought an inquiry for the current market value of such quota and damages in lieu of specific performance. He also sought an inquiry into the losses suffered as a result of Antons failure to transfer the quota to him at an earlier date and judgment for the amount of his loss.
The Judge held Mr. Smith entitled to a tenth of the total increase.
ANTONS' CHALLENGE ON APPEAL AND MR. SMITH'S RESPONSE
Antons submits that the TACC increases did not constitute proof of a commercial fishery as pleaded by Mr. Smith as the condition of his 10 percent. The purpose of issue of the TACC was not to record the existence of a fishery with a sustainable yield justifying that figure but a mere authority to fish in order to explore whether any, and if so what, increase in the maximum sustainable yield could be justified.
They claim that the oral contract was never performed because Mr. Smith never proved a fishery having the characteristics contemplated by the parties on 8 June 1994, that is possessing such MSY as to justify the establishment of a TAC after the conventional experiments required to prove it had been performed satisfactorily.
Mr. Smith contends that while such experimental processes were contemplated they were not the goal of the contracting parties: that goal was the issue of quota, which duly occurred as a result of his proving a commercial fishery.
Issue 1: the construction of the contract
We have no doubt that the agreement about the issue of quota was a unilateral contract. Mr. Smith did not assume the obligation of achieving the goal so as to expose himself to liability if he failed. (Treitel, The Law of Contracts (10th edition) pages 35-7; Chitty on Contracts (28th edition) Volume 1 paragraphs 2-071–2; Burrows Finn & Todd, The Law of Contract in New Zealand (2nd ed) (2002) pages 73-75). We are satisfied that one condition of his reward was achievement of quota by Antons. What else Mr. Smith had to do to secure his reward is a further question of some difficulty, considered under Issue 2.
A point of cardinal importance is that it is necessary for us to decide this case on the premise that the quota issued on 1 October 1995 was issued lawfully. It was not in the interests of either Antons or Mr. Smith to argue otherwise. We therefore refrain from any attempt to analyse how a TACC, required by s11 TSA, Art 119(1)(a) of UNCLOS and s2 of the Fisheries Act to be founded on a TAC based on MSY, could be justified in the absence of evidence to substantiate it.
The absence of such evidence became apparent when after two profitable years of harvesting the virgin biomass the recoveries from the box plummeted to such an extent as to require the Minister to reduce the TACC in respect of the box to 30 tonnes.
Neither Antons nor Mr. Smith could have contemplated on 8 June 1994 that the TACC could possibly issue before rather than after the MSY had been proved. That is what they must have had in mind when Mr. Smith said that he and Mr. Barbarich:
.... agreed that an extensive search programme was needed – to be undertaken in Area 1 to establish the fishery to MAF's satisfaction in order that quota might be issued in respect of it.
That point was picked up in the words we have emphasised in Mr. Smith's pleading - that he would:
.... explore Area 1 for a commercial orange roughy fishery .... if [he] could prove a commercial fishery, then he would be entitled to .... 10 percent of any orange roughy ITQ issued to the defendants ....
As the AMP document recognised, the short-term results of fishing a virgin biomass provide no real guide to its ultimate maximum sustainable yield which is the statutory basis for TAC and its derivatives TACC and ITQ. And it is well established that a process of "fishing down" the virgin biomass is required before its MSY can be satisfactorily determined. There will in the interim be a rich harvest for those fishing the resource but the relationship between the virgin biomass and the MSY is a matter of speculation. Dr Clark deposed:
The initial allocation of 1,000 tonnes was based on the premise that a level of catch for 1,000 tonnes would not pose a major risk for the stock unless stock size was very very small, much smaller than we had estimated for any other spawning orange roughy stock in New Zealand waters. So therefore the 1,000 tonnes was seen to be a hopefully low risk yet a large enough amount of catch to show a signal to force a change in our indices, in our trawl survey results over that five year period.
In fact, the MSY for the box proved to be not 1000 but 30 tonnes.
As Mr. Cooke submitted, our task on construction is not to analyse the record of the oral words recalled as though they were a written contractual document but to construe them in the way they would have been understood by the parties at the time in the factual setting of which each was aware.
In this context, it is necessary to identify what precisely it was that the parties agreed. While that is conventionally expressed as "the intention of the parties" (Chitty para 12-042) it is in fact the meaning of the agreement appraised objectively, as by an informed independent bystander familiar with the circumstances (cf ibid. para 12-043). That requires the Court to educate itself as to those circumstances in order to reach a conclusion that conforms with business common-sense (ibid. para 12-055).
Mr. Cooke's argument was that Mr. Smith did not "establish a fishery" because in the end no "fishery" was found to exist. This is a crucial issue.
This case concerns the true meaning to be ascribed to an agreement between a fishing company and its skipper. To anyone familiar with the operation of the quota management system and the significance and value of ITQ, it would be apparent that to secure the issue to Antons of ITQ was a vital element; Antons’ interest was not in the stocks as such but in the ITQ that would result from proof of their existence. Equally however it was not contemplated that acquisition of quota in some other fashion, as by unexpected windfall, would ensure to his benefit. Antons had put up the vessel, its supplies , equipment and crew; they are not to be treated as agreeing to pass to Mr. Smith ITQ that were not the product of his contemplated labours and application of skills.
We consider that the contract was directed to rewarding Mr. Smith to the extent that he "proved a commercial fishery" so that Antons secured additional ITQ. There is thus a double requirement: that Mr. Smith "prove a commercial fishery" and that Antons thereby secure additional ITQ.
We turn to those questions of fact.
Issue 2: (1) did Mr. Smith "prove a commercial fishery" and (2) did Antons thereby secure additional ITQ?
For the claim to succeed it was necessary for Mr. Smith to establish that the issue of quota derived from a material contribution by him: the increase in quota must in some way be the result of his "proving a commercial fishery". But what did that condition entail? And was it performed?
We respectfully agree with the Judge’s finding:
The Mercury-Colville box is the only area of ORH 1 to have proven fish stocks and to have been systematically exploited. In that sense, it may be the only recognised fishery, although to describe it as sustainable is questionable given the dramatic and continuing decline in catches.
The extent of those "proven fish stocks" was the 30 tonnes of ITQ within that box. The ITQ issued above that figure was referable not to "pro[of of] a commercial fishery by anyone; but to MAF’s decision to create quota in terms of the AMP without proof. We are satisfied that quota issued for experimental purposes did not satisfy the contractual term of "prov[ing] a commercial fishery".
That 30 tonnes therefore represents the ceiling figure for consideration of Mr. Smith’s claim. The next question is whether he can be said to have "proved [that] commercial fishery". That is a question of causation, as to which in Environment Agency v Empress Car Co Ltd  2 AC 22, 29 Lord Hoffmann observed that:
common-sense answers to questions of causation will differ according to the purpose for which the question is asked.
Here the context was of providing an incentive to the master of a trawler to exert himself to provide such evidence of fish stocks by the exercise of his arduous profession as would result in Antons’ securing additional ITQ.
There can be no doubt that Mr. Smith was greatly assisted by what Mr. Barbarich described as "the extensive research material gathered from my vessels in the ORI fishery". Mr. Ingram QC's cross-examination of Mr. Smith brought out the significance of the previous catch history in the area of the Mercury-Colville box. A schedule produced by Mr. Barbarich contained information of obvious importance to a Master wishing to fish for orange roughy in Area 1 in the customised vessel provided by Antons. In July 1992 9711 kg had been taken from the Mayor Sea Valley, in the Bay of Plenty but outside the Mercury-Colville box. In May 1993 the Seamount Enterprise had taken 470 kg from the Mercury-Colville box. On 13 August 1993 the Seamount Enterprise had taken 5730 kg from the Mercury and Papamoa Knolls.
Mr. Smith deposed that the reason he went to Mercury Knoll was "for testing the winches" and, having towed for 10 minutes, "to our amazement I landed 160 kilos of orange roughy. This .... came as a complete surprise as there was not supposed to be any orange roughy in this area." Further fishing yielded catches of 55 kg, 135 kg, 7800 kg and 4100 kg after which the vessel returned to Auckland to unload.
Mr. Smith denied in cross-examination that a factor in the decision to choose the Mercury Knoll for testing the winches was the Seamount Enterprise's catch there in August 1993 of 5730 kg. The Judge made no explicit finding on this point. We think it incredible that Mr. Smith, having the information as to the earlier catch and the charts on which its position could be or was plotted, should have got to the same position simply by coincidence.
Further, on the day prior to the meeting of 8 June 1994 Mr. Krynicki, who had skippered the Seamount Enterprise at the time of its 5730 kg catch at the Mercury and Papamoa Knolls in August 1993, was on board the Cedric Albert when she landed a catch of approximately 70 tonnes of orange roughy taken at the Mercury and Colville Knoll. That catch was performed under Antons' quota and must have been well-known to Mr. Barbarich when on 8 June Mr. Smith landed 69 tonnes from the Mercury Knoll and the meeting took place.
On 15 June 1994 there was issued a special permit valid to 15 July 1994, authorising Antons to take up to 75 tonnes within what became known as the Mercury-Colville box. There followed successive special permits and the issue of quota to Antons on 1 October 1995 and 1 October 2001, under which Mr. Smith made his catches of the 1m kg of orange roughy up until the time of his departure from Antons after 25 August 1996.
Dr Clark deposed:
As a result of the data information derived from the excursions on Seamount Enterprise, it was ultimately established that there was a commercial orange roughy fishery in Area 1 .... early exploratory fishing had proved fruitless in this regard. For that reason, I would say that the discovery of the potential fishery of Mercury Knoll was instrumental in developing the fishery in that region.
The significance as I see it of the Seamount Enterprises work in the Mercury-Colville area is that there was the first real sign of a commercial fish anywhere in ORH 1 and I think that has to have had an effect on fishermen's thinking yes there are orange roughy here .... since then there have been the new fishing grounds providing some good catches and catch rates in four or five other regions of ORH 1.
It can be argued with force that Mr. Smith did not discover the potential fishery at Mercury Knoll. We are satisfied that he went there because of Antons' records of its history. And the catch by the Cedric Albert undoubtedly contributed to establishing the Mercury-Colville box as a commercial resource.
But there is a powerful argument that he played a significant role in proving the Mercury-Colville fishery. The pattern of sustained returns by Mr. Smith from 22 May 1994 shown in the Appendix, recording his catches in Area 1, as is formidable. While part only was from Mercury-Colville, adopting a broad common-sense approach it cannot in our view be doubted that his efforts contributed so materially to the process of MAF thinking that led to the establishment of the 30 tonne figure for the Mercury-Colville box that he is to be taken to have "proved it", even though not without assistance.
It cannot be said that until that limit for the Mercury-Colville box was set by the Minister on 24 September 2001 (para ) Mr. Smith had "prove[d] a commercial fishery". We are however satisfied that at that point he did so and it was thereby established that as a result Antons secured additional ITQ. For the reasons stated in paras [71-3] the relevant ITQ is that referable to the Mercury-Colville box. Antons’ proportion of the increase of TAAC in Area 1 on 1 October 1995 had been 66.3157 percent (para  above). We think it appropriate to treat Antons as receiving that proportion of the 30 tonnes, equals 19.89471 tonnes, of which 10 percent is 1.989471 tonnes, with effect from 1 October 2001.
But no further part of Antons’ ITQ, before or since, can be attributed to Mr. Smith’s having "prove[d] a commercial fishery".
It follows that the quantum of Mr. Smith’s quota must be limited to 1.989471 tonnes.
Issue 3: the claim of absence of consideration
There remains for consideration Antons' third major argument, that the agreement between Messrs Smith and Barbarich was unenforceable as entailing no consideration. It is of the nature of a unilateral contract that entitlement to the reward follows performance.
Burrows Finn & Todd state at page 118:
It has traditionally been said that there is no consideration if all that the plaintiff is to perform, or to promise to perform, an obligation already imposed upon him or her by a previous contract between him or her and the defendant.
The cases cited in support of the proposition include Stilk v Myrick (1809) 2 Camp 317 where a seaman sued for wages alleged to have been earned on the voyage from London to the Baltic and back. In the course of the voyage two sailors had deserted and, as the captain could not find substitutes, he promised the rest of the crew extra wages if they would work the shift home short-handed. In an earlier case Harrison v Watson (1791) Peake 102 Lord Kenyon had rejected a similar claim as savouring of blackmail; but Lord Ellenborough in Stilk v Myrick, though agreeing that the action did not lie, preferred to base his decision on the absence of consideration. The crew were already bound by the contract to meet the normal emergencies of the voyage and were doing no more than their duty in working the shift home. Had they exceeded their duty, or if the course of events, by making the ship unseaworthy, had relieved them from its performance the case would have been different. On the other side of the line is Hartley v Ponsonby (1857) 7 E&B 872 where the shortage of labour was so great as to make the further prosecution of the voyage exceptionally hazardous, and, by discharging vital members of the crew from their original obligation, left them free to enter into any contract.
Stilk v Myrick was followed by Mahon J in Cook Islands Shipping Co v Colson  1 NZLR 432 where a shipping company contracted to carry goods at a set rate. On encountering difficulties it indicated it would only be prepared to proceed if the other party paid an additional sum over and above the freight. The other party agreed. It was held (at 434-5) that the promise was not binding because the shipping company was doing no more than it was already obliged to do under the original contract.
Burrows Finn & Todd go on to say:
A decision of the English Court of Appeal in 1990 [Williams v Roffi Bros & Nicholls (Contractors) Ltd  1 QB 1], which has attracted much attention, breaks new ground. It suggests that if a promise to raise a contract price is made in the spirit of a genuine attempt to resolve difficulties which have arisen during performance of a contract, and if there is nothing in the nature of extortion, duress or improper pressure, the court will be willing to enforce the new promise even if that involves a rather artificial "manufacturing" of consideration.
In Attorney General for England & Wales v R  2 NZLR 91, 109 this Court endorsed the approach that the practical benefit to the owner of obtaining completion on time, rather than having to deal with another contractor, was to be treated as consideration moving from the building contractor to the owners. Tipping J observed:
The provision of such benefit by the building owner was a legally recognised and sufficient price for the owners' promise to pay more. That approach to consideration appropriately pays attention to practical realities of the parties' circumstances rather to legal niceties. A practical benefit will qualify as consideration as well as the legal benefit of an enforceable promise.
The reasoning in Roffi Bros, accepted by this Court in Attorney-General for England & Wales, has been trenchantly criticised by Professor Coote in (1990) 3 JCL 23. He argues with force that mere performance of a duty already owed to the promisee under a contract cannot constitute consideration and that the only principled way to such a result is to decide that consideration should not be necessary for the variation of contract. That is the approach of the Uniform Commercial Code, s.2-209(1) and it is vigorously supported by Reiter in Courts, Consideration and Common-Sense (1977) 27 U. Toronto L. J. 439 especially at 507, observing that a rigid requirement of consideration in the context of modern commercial contract modifications fails to recognise:
The illogicality of equating modifying with originating promises or to see that, insofar as consideration serves to exclude gratuitous promise, it is of little assistance in the context of on-going, arms-length, commercial transactions where it is utterly fictional to describe what is being conceded as a gift, and which there ought to be a strong presumption that good commercial "consideration" underlie any seemingly detrimental modifications.
(see also Cheng-Wishart, The Enforceability of Additional Contractual Promises: A Question of Consideration? (1991) 14 NZULR 270; Chitty on Contracts Vol 1 (1999) Para 3-062 – 3-064.)
As Professor Coote observes, such approach is not too dissimilar from that adopted by the High Court of Australia in Trident General Insurance Co Ltd v McNiece Bros Ltd (1988) 165 CLR 107.
We are satisfied that Stilk v Myrick can no longer be taken to control such cases as Roffi Bros, Attorney-General for England & Wales and the present case where there is no element of duress or other policy factor suggesting that an agreement, duly performed, should not attract the legal consequences that each party must reasonably be taken to have expected. On the contrary, a result that deprived Mr. Smith of the benefit of what Antons promised he should receive would be inconsistent with the essential principle underlying the law of contract, that the law will seek to give effect to freely accepted reciprocal undertakings. The importance of consideration is as a valuable signal that the parties intend to be bound by their agreement, rather than an end in itself. Where the parties who have already made such intention clear by entering legal relations have acted upon an agreement to a variation, in the absence of policy reasons to the contrary they should be bound by their agreement. Whichever option is adopted, whether that of Roffi Bros or that suggested by Professor Coote and other authorities, the result is in this case the same.
We therefore accept Mr. Smith's argument on the consideration point.
The liability appeal is accordingly allowed in part, to the extent of substituting for the 80 tonnes of quota awarded by the Judge the very much reduced figure of 1.989471 tonnes.
THE SECOND APPEAL
Antons challenged the Judge's decision to strike out an illegality plea advanced by Antons in relation to Mr. Smith's disqualification to command a vessel. We are satisfied that the point goes to liability and is not of such a character that the Court should permit it to be raised after conclusion of the liability trial.
We have already recorded that insofar as it goes to the defence of Mr. Smith's claims to equitable relief Antons should be permitted to advance it.
Both parties having succeeded in part we make no order for costs.
A P P E N D I X
Extract from schedule produced by Mr. Barbarich recording orange roughy catches by Mr. Smith in Area 1.
22 May 1994
2 Jun 1994
8 Jun 1994
13 Jun 1994
8 Jul 1994
14 Jul 1994
22 Jul 1994
11 Sep 1994
19 Sep 1994
28 Sep 1994
8 Oct 1994
17 Oct 1994
2 Nov 1994
16 Nov 1994
22 Nov 1994
27 Nov 1994
2 Dec 1994
10 Dec 1994
14 Dec 1994
19 Dec 1994
10 Jan 1995
14 Jan 1995
20 Jan 1995
26 Jan 1995
1 Feb 1995
7 Feb 1995
15 Feb 1995
15 Mar 1995
23 Mar 1995
31 Mar 1995
25 Apr 1995
17 Jun 1995
21 Jun 1995
26 Jun 1995
5 July 1995
13 Jul 1995
19 Jul 1995
25 Oct 1995
30 Oct 1995
7 Nov 1995
13 Nov 1995
23 Nov 1995
29 Nov 1995
4 Dec 1995
8 Dec 1995
14 Dec 1995
17 Dec 1995
17 Jan 1996
24 Jan 1996
30 Jan 1996
6 Feb 1996
17 Feb 1996
6 Apr 1996
14 Apr 1996
23 Apr 1996
20 Apr 1996
2 May 1996
13 May 1996
15 May 1996
19 May 1996
28 May 1996
21 May 1996
6 Jun 1996
11 Jun 1996
16 Jun 1996
21 Jun 1996
26 Jun 1996
2 Jul 1996
17 Jul 1996
1 Aug 1996
15 Aug 1996
25 Aug 1996
New Zealand Fishing Industry Association (Inc) v Minister of Fisheries (CA 82/97, 22 July 1997); Environment Agency v Empress Car Co Ltd  2 AC 22; Stilk v Myrick (1809) 2 Camp 317; Harrison v Watson (1791) Peake 102; Hartley v Ponsonby (1857) 7 E&B 872; Cook Islands Shipping Co v Colson  1 NZLR 432; Attorney General for England & Wales v R  2 NZLR 91; Trident General Insurance Co Ltd v McNiece Bros Ltd (1988) 165 CLR 107
Fisheries Act 1983: s.2, s.28B, s.28C, s.28D, s.28E, s.28H, s.28O, s.28P, s.28Q, s.28Z, Part 2A
Fisheries Amendment Act 1986
Fisheries Act 1996
Territorial Sea and Exclusive Economic Zone Act 1977: s.2, s.11
Authors and other references
Third United Nations Conference on the Law of Sea (1982)
Treitel, The Law of Contracts (10th edition)
Chitty on Contracts (28th edition) Volume 1
Burrows Finn & Todd, The Law of Contract in New Zealand (2nd ed) (2002)
Reiter in Courts, Consideration and Common-Sense (1977) 27 U. Toronto L. J. 439
Professor Coote in (1990) 3 JCL 23
Cheng-Wishart, The Enforceability of Additional Contractual Promises: A Question of Consideration? (1991) 14 NZULR 270
NW Ingram QC, FMR Cooke and MJ Logan for Appellants (instructed by Vlatkovich & McGowan)
PJK Spring and SO McAnally for Respondent (instructed by Keegan Alexander, Auckland)
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