The Judicial Committee of the Privy Council Decisions

Privy Council Appeal No. 25 of 1996

 

Peng Aun Lim Appellant

v.

(1) Peter Andrew McLean and

(2) Robert David Wiley Respondents

 

FROM

 

THE COURT OF APPEAL OF NEW ZEALAND

 

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JUDGMENT OF THE LORDS OF THE JUDICIAL

COMMITTEE OF THE PRIVY COUNCIL,

Delivered the 4th March 1997

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Present at the hearing:-

Lord Browne-Wilkinson

Lord Mustill

Lord Nolan

Lord Nicholls of Birkenhead

Lord Clyde

  [Majority Judgment delivered by Lord Clyde]

 

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This appeal concerns the construction of a contract entered into between the appellant and the respondents on 26th May 1986.  The appellant owned a fish processing and packing company.  The respondents were fishermen and they were engaged in catching, among other species of fish, orange roughy. 

 The respondents were the sole suppliers of orange roughy to the appellant's company.  The respondents had started fishing in a new vessel named Endurance in the fishing season of 1983/1984.  The season for fishing runs from 1st October to 30th September.  The respondents had a quota of orange roughy which they were permitted to catch by virtue of a licence which had been allocated to their fishing boat under the Fisheries Act 1983.

 

1. As from 1st October 1986 a new system for the control of fishing was introduced.  This was under the Fisheries Amendment Act 1986 which was passed on 1st August 1986.   This system involved  the  allocation  to  the  holders  of  fishing  permits of individual quotas which unlike the earlier system were transferable.  They are referred to as individual transferable quotas, or ITQs.  The quota specified the number of tonnes of fish of each particular species which the particular fisherman was entitled to catch in each quota management area each year.  For the purpose of the new scheme a total allowable catch (TAC) for each species of fish had to be specified by the Minister of Fisheries.  He was also required to allocate under section 28E of the Act of 1983, as amended, a provisional maximum individual transferable quota (a PMITQ).  That was calculated by reference to the commercial fishing histories of each fisherman in relation to the species or class of fish in the quota management area.  The Minister was also required under section 28F to determine a guaranteed minimum individual transferable quota (a GMITQ) by, if necessary, reducing all the PMITQs so that the total did not exceed the TAC for the particular species of fish in the particular area.  Eventually, after an opportunity for certain adjustments, the Minister was required to notify every person concerned the ITQ allocated to that person under section 28O.  Sub-section (4) of that section provided that each individual transferable quota should enable the holder:-

"... to take in total within the quota management area concerned in any year fish of the species or class shown in the quota up to the tonnage shown in the quota".

 

2. The respondents had been dissatisfied with the quota allocated to them under the earlier regime for the year 1985/86.  On 14th October 1985 they had objected to their quota and their complaint went to a hearing on 6th December 1985.  It can be seen from the records that one of the complaints which they were then making was to the effect that they had not participated in a fishery survey which had been earlier carried out and if they had known that the catches taken during that survey would have counted towards quota they would have participated in it.  By letter dated 26th March 1986 they were informally notified that their quota of orange roughy had been allocated at 447 tonnes for the year then current.  That figure was based on their actual catch history and the claim based on their failure to participate in the survey was unsuccessful.  By letter dated 4th April 1996 they were informed by the ministry that their quota for among other fish, the orange roughy was for the year 1985 to 1986 only and would not automatically result in future individual transferable quotas.   The respondents lodged an objection to the quota and attended a hearing on 9th May 1986 before a committee which had been appointed to hear objections relating to ITQs.  At the hearing they again raised argument relating to their failure to participate in the earlier experimental fishing but their objections failed.  On 7th July 1986 the allocation of 447 tonnes orange roughy was confirmed as their PMITQ and on 1st October 1986 that was converted into their ITQ. The revised system did not come into effect until 1st October 1986 but there had been considerable discussion and preparation over a long period prior to that date.  The particular history of catches had to be established so that PMITQs could be allocated, GMITQs established and the eventual ITQs identified.  The appellant became concerned in light of the new regime to secure a continuity  of the supply of orange roughy from the respondents which he had been enjoying.  With that end in view he became interested in purchasing a share in the Endurance and in the ITQ to be granted to the respondents.  This led to negotiations between the parties in April and May 1986 and eventually the formal contract was drawn up by lawyers for each side and signed by the respective parties.   At that stage the appellant knew that the respondents' ITQ for orange roughy would be issued at about 447 tonnes.  It is to the sale of the ITQ in the contract which the parties signed in May 1986 that the present problem relates. 

 

3. To understand the dispute the narrative of events must be carried forward.  In August 1986 the respondents sought to have their catch history revised and were advised to appeal in due course against their ITQ to the statutory body, the Quota Appeal Authority (QAA), to be established under the new legislation.  Settlement of the contract which was due on 31st July 1986 was deferred.  On 29th August 1986 the appellant became owner of a one-half share in the Endurance and in return for an undertaking by the respondents made payment of the purchase price.  In the undertaking the respondents undertook to transfer and assign to the appellant and his wife a one-half interest in the orange roughy quota forthwith upon such quota being allocated.  It may be noted that in the original text of the undertaking reference was made to the quota "of approximately 447 tonnes" but those words were deleted and substituted by the words "and other species quota".  No point however is now made of that alteration.

 

4. The respondents duly lodged an appeal with the QAA against their PMITQ.  In the meantime the appellant and his wife had entered into a partnership with the respondents and thereafter the Endurance and the quota had been worked on the basis of that partnership.  In May 1987 while the appeal before the QAA was still continuing there was an exchange of letters between solicitors respectively acting for the appellant and the respondents whereby it was agreed that the transfer of the half interest in the ITQ to the appellant would be made immediately the appeal in respect of the quota was finalised.  The appeal was heard by the QAA on 26th June 1987 but the decision was not given until 11th May 1990 when the QAA confirmed the ITQ and  rejected  the  claim made by the respondents for additional quota based on the notional catch they would have taken had they participated in the earlier survey.

 

5. The partnership however had not lasted very long.  It was dissolved in March 1989 and on the dissolution 50% of the ITQ of 447 tonnes of orange roughy was transferred to the appellant on 17th July 1989.  Thereafter the respondents continued with their appeal to the QAA and after that was refused they sought at their own expense a judicial review of that decision.  That was a course envisaged in section 28 I(3) of the Fisheries Act 1983 as amended by the Fisheries Amendment Act 1986 which declared that decisions of the QAA should be final unless challenged by an appellant for judicial review under the Judicature Amendment Act 1972 and required the authority so to inform parties when informing them of the authority's decision.  Judicial review was thus a step which was recognised by the Act as a possible further opportunity for challenge beyond a decision from the authority.  The respondents were successful in their application for judicial review.  On 15th May 1992 Heron J. decided that they were entitled to a further 130 tonnes of PMITQ of orange roughy and granted a declaration to that effect.  The effect of the decision  was that the respondents were allocated as at 1st October 1986 a total of 577 tonnes of orange roughy ITQ in addition to the ITQ which they had been allocated for other species.  After the appellant learnt of the decision by Heron J. he sought a half share of the additional 130 tonnes of ITQ.  His claim was sustained by Ellis J. but that decision has been reversed on appeal by the Court of Appeal.  It is not disputed that it is in the light of the surrounding circumstances that the contract must be construed and the intention of the parties ascertained.  The subsequent narrative serves to explain how the dispute arose but the later events were not founded upon as throwing light either on the construction of the contract nor on the substance of the parties' rights.  At the time when they entered into the contract in May 1986 they knew that the ITQ for orange roughy did not yet exist but they must have had every expectation that an ITQ would be allocated to the respondents.  What they did not yet know was what the quota would be.  They knew informally that the PMITQ for orange roughy would be 447 tonnes.  While the appellant did not have detailed knowledge of the grounds for the challenge which the respondents were making on their level of current quota it appears that he as well as the respondents were aware that the latter were dissatisfied with the figure.  However neither he nor the respondents anticipated that any very substantial increase in the level of ITQ would occur.  Against that background attention must now be paid to the terms of the contract into which the parties entered.

 

6. The contract between the respondents (the vendors) and the appellant (the purchaser) was made subject to a number of terms and conditions set out in it.  Its principal provision was in the following terms:-

"THE VENDOR AGREES TO SELL AND THE PURCHASER AGREES TO PURCHASE a one half share of the vessel together with the incidental gear and equipment described in Schedule I (hereinafter called `the Fishing Boat') together with the permits, licences and rights attaching to or granted in respect of the Fishing Boat described in Schedule II, and together with a one half share of the individual transferable catch quota described in Schedule III (called `the ITQ') to the intent that the Purchaser shall own a one half share as tenant in common on the terms and conditions following ..."

 

7. Schedule III stated:-

"Individual transferable quota issued by the Ministry of Agriculture and Fisheries granting the right to catch not less than 447 tonnes orange roughy per annum".

 

8. The terms of the Schedule give rise immediately to problems.  No ITQ of course had been issued by the Ministry but as will be later noted the impression that an existing ITQ is intended is modified by the opening part of clause 9.  The concluding words of Schedule III are more troublesome.  In accordance with the terms of section 28 O(4) of the Fisheries Act as amended an ITQ enables the holder of the ITQ to catch fish up to the tonnage shown in the quota.  It is not a right to catch not less than a stated tonnage, as a permitted minimum weight.  The Court of Appeal sought to find a construction of the words in Schedule III which accorded with section 28 O(4) but that section is describing a right to take not more than the amount stated in the quota whereas the Schedule in the contract is referring to a right to take not less than the stated amount.  The view which the Court of Appeal took was that the parties intended to  transfer a quota of the order of 447 tonnes of orange roughy.  They referred to the allocation of the PMITQ and the GMITQ as support for this view.  But, as they had already held, it was only on 7th July 1986 that the respondents were formally advised of their PMITQ and their GMITQ.  The letter of 26th March 1986 may have served as an informal notification of the PMITQ but while it may have helped to identify the figure of 447 it can hardly as a maximum have justified reference to a quota of not less than that figure.  Had the parties intended to refer to an ITQ of the order of 447 or an ITQ of 447 more or less, which is the construction adopted by the Court of Appeal, they could easily have said so.  However, it seems to their Lordships that Schedule III is not put forward as a definition of the subject matter of the contract but only as a description of it.  On a strict view of its terms it might be regarded as a mis-description but it is reasonable to construe it as identifying the ITQ for orange roughy to be issued in the future having the tonnage which for the purpose of identification is to be for at least the 447 tonnes which had been notified in March and was likely to be the figure on which the ITQ would be based.  The subject matter of the contract then appears to be a one half share of the future ITQ of orange roughy the tonnage of which was then uncertain but was believed at the time to be at least 447 tonnes.  Having agreed merely to a description of a future ITQ by reference to their expectation of its lowest amount, they must have intended to leave open the eventual amount of the quota to the chances and uncertainties of the future.  What they intended to be transferred was a half share of the quota, the particular tonnage of which was not identified  and was not built in to any definition.  They did not limit the extent of the variation which might be made from the figure of 447 and, while they may in their thinking have anticipated that the variation would not be very significant, they did not within the terms of contract exclude the possibility that such a variation might eventually occur.  It is impossible to know what the parties would have agreed had they known what the eventual outcome of the appeal process was going to be.  It may be that the price would have been different.  But it is not by what they might have said nor by what they thought in their minds at the time that the present contract must be resolved but rather by what they have in fact said in their contract.

 

9. The uncertainty about the eventual amount of the quota can be seen in the provisions of clause 4 of the contract.  Clause 4 provided as follows:-

"4.  NOTWITHSTANDING anything hereinbefore contained the Vendor shall transfer to the Purchaser on the settlement date a one half share in the ITQ and all such fishing permits, licences and rights attaching to or granted in respect of the Vendor and the Fishing Boat and thereupon one half share in the ITQ, permits, licences and rights shall attach to the Purchaser PROVIDED THAT if for any reason the ITQ and the permits licences and rights or any of them are not able to be transferred on the settlement date or the parties consider that it is unwise or unnecessary to transfer the ITQ  the permits licences and rights or any of them the Vendor will until the transfer takes place, make available to the parties for the exclusive use of the parties in connection with the fishing operations of the fishing boat, the ITQ permits licences and rights or any of them as the case may be PROVIDED  ALWAYS  that a one half share in the said ITQ

and the permits licences and rights shall be transferred to the Purchaser immediately the ITA is capable of being legally transferred and the Vendor shall upon being requested so to do by the Purchaser immediately sign all necessary transfers to enable the Purchaser to obtain title to a one half share in the said ITQ and the other permits licences and rights."

 

10. Clause 3 dealt with the transfer of the fishing boat and to an extent their permits, licences and rights attaching to or granted in respect of it.  Transference of the half share of the ITQ is dealt with in clause 4.  The date of the transfer is put first at the settlement date, which by virtue of clause 2 of the contract may itself be altered by agreement,  but then by virtue of the first proviso in clause 4 may be further deferred if it is unwise or unnecessary to do so.  The second proviso requires it to be transferred immediately it is capable of being legally transferred.  An ITQ is in its nature a transferable right and at least among the circumstances which might justify its retention in the hands of the vendors in the present case is the prosecution of an appeal by them directed at increasing the initial allocation.

 

11. Clause 3 (b) gives rise to some difficulty.   It stated that:-

"If the Fishing Boat is lost or destroyed or any permit licence or right attaching to or granted in respect of the Fishing Boat (excluding, however, the ITQ) are cancelled before settlement then this contract shall be at an end and any deposit paid by the Purchaser shall be returned to the Purchaser immediately and neither of them shall have any claim on the other". 

 

12. The clause is certainly clumsily worded since ITQ is not a "permit licence or right attaching to or granted in respect of the Fishing Boat".  The solution suggested by the Court of Appeal was that the sub-clause has sought to provide for the possibility that the ITQ would not be available as at the date of settlement.  But the sub-clause is dealing here with cancellation not unavailability and it is clause 9 which deals with unavailability at the date of the settlement.  The intention here appears to have been that the contract to purchase the half share of the ITQ should survive despite the specified calamities which may befall the boat or the permits licences and rights.  But however that may be it does not materially assist the problem raised in the present case.  Nor is any significant assistance to be obtained from clause 12.

 

13. The Court of Appeal place particular significance on clause 9.  It provided as follows:-

 

"NOTWITHSTANDING that Schedule III provides that the Vendor has an ITQ of 447 tonnes of orange roughy per annum no representation or warranty is given by the Vendor that on the settlement date that the ITQ will be available.  If the ITQ is more or less than the amount specified in Schedule III the purchase shall still proceed and the purchase price shall not be adjusted.  The Vendor will use their best endeavours to retain the amount of the ITQ specified in Schedule III PROVIDED ALWAYS that the Purchaser shall not be required to complete settlement unless at the time of settlement, all necessary licences permits and approvals (excluding however the ITQ) are available to enable the Vendor to carry on from the Fishing Boat the business of Commercial Fisherman".

 

14. The first sentence of the clause recognises that the ITQ may not have been allocated by the settlement date which is consistent with the descriptive nature of Schedule III.  The clause then proceeds to recognise that the ITQ may be more or less than the specified 447 tonnes.  This might appear to be in direct conflict with the phrase in the Schedule "not less than 447 tonnes".  But if the phrase in the Schedule is of the descriptive nature already suggested then there is no real inconsistency.  The parties anticipated and no doubt hoped that the quota of orange roughy would be at least 447 tonnes but as is explained in clause 9 that was not guaranteed and so express provision is made for an increase or decrease in the figure.  The requirement that the contract is to proceed even though there could be a substantial departure from the 447 tonnes involves an element of commercial risk for either party.  If indeed the price had been calculated in the way which was worked out by Ellis J. in the lower court, the extent of financial consequence could well be beyond any difference which the parties anticipated.  That neither anticipated the scale of the departure is no good reason for not accepting a construction which gives effect to the language used and accords with the recognition by both that a departure from the amount specified could occur.  It is correct to say, as was pointed out by Thomas J. in the Court of Appeal, that the clause only refers to the vendor retaining this specified amount of ITQ and imposes no obligation to increase it or pursue any appeal rights and remedies.  But when the expectation was that the quota would be for no less than 447 tonnes it is reasonable to understand this provision as an obligation on the respondents to use their best endeavours in any dealings regarding the ITQ, including an appeal to secure that even if they could not achieve an increase in the figure of 447 then they should at least not let it drop below that amount.

 

15. Counsel for the respondents argued that the Court of Appeal had stood back from the terms of the contract and viewed it as a

realistic commercial transaction.  If this course is taken the picture which emerges is one of a joint venture in which the whole interests in the vessel, the relevant rights and permits and licences and the ITQ were to be shared in two equal proportions.  The ITQ was based on the history of the respondents' catches.  The appeal process to the QAA and the subsequent application for a review were concerned with the propriety of including in the calculation a recognition of the catches which might have been obtained in the survey.  What was being explored was the need to rectify the basis of the calculation for the substance of the rights which the parties had agreed to share equally.  Thus what eventually occurred is not fairly to be described as a windfall as at one stage of the argument was suggested.  Nor was it something which occurred quite outside or separate from the contract into which the parties had entered.  It was simply the rectification of the substance of the rights which had been the subject of the contract.  The eventual outcome of the process of appeal and review may not have been what either party expected but the means by which the rectification came about was not outside their contemplation.

 

16. The respondents pursued the appeal and the review on the argument that the PMITQ of 447 tonnes was too low.  But the appellant had a right to a half share of the quota.  The correction of the figure by the addition of 130 tonnes should not be attributed only to the one half which was retained by the respondents following on their sale but should be shared equally between the appellant and the respondents.  On a proper construction of the contract the appellant is entitled to the balance of his one half share of the total ITQ quantified, as that quota has now come to be quantified, with the addition of the further 130 tonnes. 

 

17. Their Lordships will accordingly humbly advise Her Majesty that the appeal ought to be allowed, the judgment of the Court of Appeal set aside and the judgment of Ellis J. restored.  The respondents must pay the appellant's costs in the Court of Appeal and before their Lordships' Board.

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Dissenting Judgment delivered by Lord Nolan

 

18. I have had the advantage of reading in draft the dissenting judgment prepared by Lord Nicholls of Birkenhead.  Like him, I regret that I find it necessary to express my dissent from the majority judgment of their Lordships' Board.  I have reached this conclusion for the reasons given by Lord Nicholls, and for an additional, though complementary, reason which may be expressed as follows.

19. The critical question is whether the property agreed to be sold by the May 1986 agreement included a one half share of the additional 130 tonnes of individual transferable quota allocated to the respondents as a result of the decision of Heron J. on 15th March 1992.  The decision upheld a challenge by the respondents to the decision of the Quota Appeal Authority disallowing the respondents' claim for the additional 130 tonnes.  The challenge was made pursuant to the provisions of section 28I(3) of the Fisheries Act 1983 as amended, and consisted of an application for judicial review of the Authority's decision.

 

20. Having upheld the challenge in principle, Heron J. had to decide which (if any) of the discretionary remedies available in judicial review proceedings was appropriate.

 

21. He could have directed the Authority to reconsider the matter.  Alternatively, following the lead given by the Court of Appeal in Fiordland Venison Limited v. Minister of Agriculture and Fisheries [1978] 2 N.Z.L.R. 341, he could simply make a declaration that the plaintiffs were entitled to an increase of 130 tonnes in their provisional maximum individual transferable quota.  Having regard to the prejudice already suffered by the respondents as a result of the delay which had occurred, he chose the latter course.  It was by this route that the respondents ultimately became entitled to the additional 130 tonnes of individual transferable quota which is the subject of the present appeal.

 

22. The nature of the judicial process by which this result was achieved seems to me to reflect the nature of individual transferable quota as the product of an executive act of allocation by the Ministry, subject to variation by the Quota Appeal Authority.  If the initial allocation by the Ministry (and/or the Quota Appeal Authority) is legally flawed, it may be set aside in judicial review proceedings and a fresh allocation made.  The 130 tonnes of additional individual transferable quota cannot, as I see it, be said to have come into existence until after the decision of Heron J. on 15th May 1992.  Judicial review of executive action can achieve many things, but I do not think that it can have the effect either of rectifying or of giving retrospective effect to an executive decision.

 

23. It follows, that with respect, I am unable to accept the statement of Ellis J., at pages 14-15 of his judgment, that the effect of Heron J.'s decision was that the additional 130 tonnes were allocated to the respondents as at 1st October 1986.  It was not part of the informal allocation of 447 tonnes which the parties evidently had in mind when the May 1986 agreement was made.  It was no more than a remote and speculative possibility for which the agreement did not provide.

 

Dissenting Judgment delivered by

Lord Nicholls of Birkenhead

 

24. I regret that I find myself constrained humbly to advise Her Majesty that this appeal should be dismissed.  The question for decision is what was the property agreed to be sold by the May 1986 agreement under the heading of "a one half share of the individual transferable catch quota described in Schedule III".  Schedule III reads:-

"Individual transferable quota issued by the Ministry of Agriculture and Fisheries granting the right to catch not less than 447 tonnes orange roughy per annum."

 

25. The 447 tonnes is a reference to the revised amount of quota for the year 1985/86 informally notified to the sellers shortly before the contract was signed.  There are two possible interpretations of this description of the property being sold.  The first is that this is a reference to whatever amount of ITQ was eventually allotted to the sellers.  The second is that this is a reference to whatever amount of ITQ was eventually allotted to the sellers in respect of the 1985/86 quota of 447 tonnes already notified. 

 

26. In agreement with the Court of Appeal I prefer the second interpretation.  (1) The first interpretation makes no sense commercially.  ITQs were much in demand, and they were fetching between $2,500 and $4,000 per tonne.  The overall contract price makes sense in the context of a sale of half of an ITQ of about 447 tonnes.  Consistently with this, the sellers agreed to use their best endeavours to retain the amount of the ITQ specified in Schedule III (clause 9).  But the agreement was silent about their pursuing claims to any further amount of ITQ, even though they had lodged an objection and were claiming an additional 100 tonnes in respect of the missed survey.  The court should be slow to attribute to an ambiguously drawn document a meaning which would require the sellers to sell, for no additional payment, a half share in an extra 130 tonnes.

 

(2)  The first interpretation gives no meaning to the reference to 447 tonnes in Schedule III.  Contrary to the language of the Schedule, this was not a minimum amount.  Clause 9 explicitly states that if the ITQ is more or less than the amount specified in the Schedule the purchase shall still proceed without any price adjustment.

 

(3)  The first interpretation is not required by the language.  The orange roughy quota allocation of 447 tonnes already made might have led to an ITQ of more than that amount, or less than that amount.  This was the ITQ the parties had in mind when they  entered  into  the agreement.  An ITQ resulting from the

claim for a substantial increase, based on the survey point, can sensibly and fairly be regarded as distinct and separate and outside the described property.

 

© CROWN COPYRIGHT as at the date of judgment.