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Matapiro Olives (2008) Limited v The Olive Press Limited [2020] NZHC 1394 (19 June 2020)

Last Updated: 24 June 2020

JUDGMENT OF ASSOCIATE JUDGE JOHNSTON

[On the papers]

• [1] As I began my interim judgment dated 4 May 2020, in which the background to this proceeding was fully canvassed, by saying, this is an application by Matapiro Olives (2008) Ltd pursuant to s 290 of the Companies Act 1993 for an order setting aside a statutory demand dated 22 October 2019 served on it by The Olive Press Ltd.¹

• [2] In that judgment I concluded:

(a) the contract between the parties which was contained in an exchange of emails in April 2018 between The Olive Press’ Mr Rodney Lingard and Matapiro’s Mr John Arthur involved Matapiro committing itself to consigning at least 250 tonnes of olives to The Olive Press for

¹ Matapiro Olives (2008) Ltd v The Olive Press Ltd [2020] NZHC 876.

MATAPIRO OLIVES (2008) LIMITED v THE OLIVE PRESS LIMITED [2020] NZHC 1394 [19 June 2020]

processing on certain terms as to charges and other things during the 2018, 2019 and 2020 seasons;

(b) the dispositive question is the nature of The Olive Press’ remedy, given that Matapiro did not consign any olives for processing during the 2019 season;

(c) the issue is whether this was a take or pay contract, with the result that The Olive Press is entitled to recover as a debt the full amount it would have been entitled to charge had Matapiro consigned the minimum quantity of olives (250 tonnes) at the minimum contractual rate (45c per kg), or whether its remedy is a claim for damages for breach of contract which would involve an assessment of its net loss.

• [3] Because the basis for The Olive Press’ claim was not put in issue by Matapiro in its application or otherwise, and only emerged as an issue during the course of the hearing, in my interim judgment I invited both parties to file and serve further affidavit evidence and submissions on the point. The Olive Press filed and served a further affidavit sworn by one of its directors, Mr Bruce McCallum, and supplementary submissions on 19 May 2020. Matapiro filed and served a further affidavit sworn by Mr Arthur and supplementary submissions on 2 June 2020. For The Olive Press, Mr Gordon filed and served a brief submission in reply. Counsel’s supplementary submissions have helped to clarify the issue, which is more complex and nuanced than it first appeared.

• [4] I propose to summarise the supplementary evidence before turning to the parties’ submissions.

• [5] In his affidavit, Mr McCallum exhibits the operating statements for The Olive Press’ processing division for the 2018 and 2019 seasons (the four-month period ending 31 August in each year). As he deposes, these indicate that the company’s costs associated with employees and contractors remained static over those two years notwithstanding a 43 per cent (on my calculation) reduction in the tonnage of olives processed. Two categories of processing costs reduced materially between the two years, namely “Bladder and Plastic Jerry Can Purchases” ($4,599 reduction) and

“Trade Waste Treatment & Disposal” ($60,183 reduction). The only other noteworthy feature of The Olive Press’ operating statements for the two seasons is a significant increase ($11,832) in the cost of “Repairs & Maintenance – Plant & Equipment”.

• [6] On the basis of that information, Mr McCallum says:

Because TOPs’ processing, wages and contractor costs are largely fixed, the only costs savings from not processing Matapiro’s fruit in 2019 would have been a minor reduction in electricity and gas usage, and perhaps some other production costs such as lower usage of enzymes and talc. The amount of any such savings would have been in the order of a few hundred dollars at most.

• [7] He goes on to explain that the reduction in the item “Trade Waste Treatment & Disposal” reflects the introduction of a new treatment plant and process. I expect this may be relevant to the increase in “Repairs & Maintenance — Plant & Equipment.”

• [8] Mr McCallum continues:

The reality for Topp, as a direct result of Matapiro’s breach of contract, was not that we saved costs in 2019; but rather, we suffered a massive loss of productivity and efficiency.

• [9] He then provides a tabular analysis which he says illustrates “that Matapiro’s breach of contract in the 2019 harvest season did not result in any costs savings for The Olive Press”.

• [10] In his affidavit, Mr Arthur levels a series of criticisms at Mr McCallum’s evidence. Many of these appear to me to be focussed on peripheral issues, but at paragraph 13 Mr Arthur refers to Mr McCallum’s evidence that The Olive Press’ wages and contractor costs are largely fixed, observes that Mr McCallum does not say exactly what that means, and continues:

13. ... Indeed it is difficult to assess too greatly what little information Mr McCallum has provided. How does the 2018 and 2019 position compare with previous years, which would likely give a more accurate assessment of any supposed loss of revenue?

14. My understanding also is that the wage cost referred to by Mr McCallum in his affidavit is largely related to one full time employee — what role therefore do contractors and/or casual employees play in meeting demand, and so how truly fixed are these fixed costs?
15. Mr McCallum says at paragraph 7(e) of his affidavit that TOP contractually commits to its staff in advance of the season, “which can be at a time when we are still uncertain of the total volumes of fruit to be harvested.” The nature of contractor and casual staff in our industry, likely as with many other industries, is that you are not required to commit to them, say for example, if subsequently there is no work for them to do. Mr McCallum makes the broad statement that TOP might commit itself to such staff when there is still some uncertainty as to the volume of fruit that might be harvested, but appears to not make the point that this is actually what occurred in the 2019 harvest season. Again, I would have great difficulty in accepting that that a business such as TOP would not commit itself to additional resources and costs if it was not required to. The normal agreement to process is usually a few days prior to harvest to take into consideration the effects of mother nature, such as a hard frost damaging crop. Mr McCallum acknowledges in his affidavit that harvest volumes can vary each year as a result of mother nature. I note also that in my discussions with Rod Lingard in February 2019, TOP were aware at that point that we would have an extremely small crop.

16. We also understand that TOP’s financial position in recent years has been affected by the loss of other customers to other processors. Again, it is difficult to truly assess what TOP’s actual financial position relative to Matapiro is on the basis of the little information provide by Mr McCallum.

17. I also note that TOP’s 2018 processing margin, on my estimate, and according to the table provided by Mr McCallum, was 11 cents per kg, even when we Matapiro were able to supply approximately 360 tonnes.

• [11] This evidence appears to me to be directed at establishing that whether or not, and if so the extent to which, The Olive Press suffered damages as a result of Matapiro’s failure to consign any olives to it for processing during the 2019 season is a matter which must go to trial. I accept that if that turns out to be the issue then it is not one that can be decided on the basis of affidavit evidence in the context of winding up proceedings.

• [12] I turn now to the arguments advanced by Mr Gordon and Mr Wano.

• [13] On The Olive Press’ behalf Mr Gordon’s primary contention is that the contractual arrangement between The Olive Press and Matapiro was of a take or pay nature with the result that The Olive Press was entitled to claim the amount it would have been able to charge had Matapiro consigned the minimum tonnage of olives it agreed to consign during the 2019 season at the minimum contractual rate as a debt.
• [14] Mr Gordon referred me to several comparatively recent English authorities concerning take or pay contracts.

• [15] These reinforce the point that emerged at the hearing, that is to say that the essential issue here, as in all such cases, is whether the contract is properly categorised as of a take or pay nature so that Matapiro was obliged to pay the agreed minimum amount, irrespective of whether or not it consigned 250 tonnes of olives for processing. The answer to this question will determine whether The Olive Press’ claim against Matapiro is a liquidated claim for a debt or a claim for unliquidated damages, and therefore whether its claim is capable of founding a statutory demand under s 289(2)(a) of the Companies Act and whether it is even relevant to consider The Olive Press’ net loss.

• [16] Mr Gordon also referred me to one New Zealand authority on the point, the recent judgment of Associate Judge Christiansen in Miraka Ltd v Milk New Zealand (Shanghai) Co Ltd.² In that case the Judge was dealing with an arrangement relating to the supply of UHT milk which was said to be of a take or pay nature. As to such contracts, his Honour said:³

The rationale for take and pay minimum obligations, is relatively routinely commercial. It means issues regarding quality and service do not override obligations to make payment if as much is clear from the contract terms. If a definite sum of money is required to engage the services of another then that obligation must be met within the timeframe required. Indeed even if the service has not been provided – if a contract anticipates that outcome, and even if the provider suffered no loss if claims as to damage and mitigation of loss are clearly excluded by contract terms.

• [17] The final sentence of that passage neatly summarises many of the other authorities in the area, all of which confirm that before a court can conclude that a contract is of a take or pay nature it must be satisfied that the parties’ objectively determined mutual intention was that the primary obligation of the relevant party was to pay a pre-determined amount for the goods or services whether or not that party availed itself of its entitlement to the same.⁴

² Miraka Ltd v Milk New Zealand (Shanghai) Co Ltd [2017] NZHC 2163.

³ At [75].

4. See also Air Tahiti Nui SAEML v Pounamu International Ltd [2001] NZCCLR 16 (HC) and Northern Crest Investments Ltd v Robert Jones Holdings Ltd [2009] NZHC 1542.

• [18] Mr Gordon submitted that key indicia of take or pay agreements are term arrangements for the supply of goods or services which have advantages for both parties, and that that describes the contract between The Olive Press and Matapiro. I accept that those are certainly common characteristics of take or pay contracts. However, it is necessary to take the analysis further than this before reaching any conclusion as to the nature of the contract.

• [19] In his submissions in reply, Mr Wano for Matapiro focussed his attention on the terms of the contracts in the reported cases. As I understood his submission it was effectively that in the reported cases the parties had expressly, and often in considerable detail, set out the nature of the take or pay obligations. He submitted that it could not be inferred in this case that the objectively assessed mutual intention of the parties was to enter into a take or pay arrangement, and that if the court were so to conclude it would be going well beyond any of the earlier cases.

• [20] It is true, certainly, that in some of the cases to which counsel referred the take or pay obligations might be said to have been explicit and detailed. Examples are to be found in:

(a) Amico (UK) Exploration Co & Ors v Teesside Gas Transportation Ltd:⁵

7.4 An amount (hereinafter referred to as the Send-Or-Pay Payment”) shall be payable by [TGTL] to the CATS Parties for each quarter effective from 6 am on the Commencement Date until 6 am on 1 October, 2013 ...”.

(b) Associated British Ports v Ferryways NV & Anor:⁶

If after the end of a Year the total number of Units discharged from and loaded to Services at the Port pursuant to this Agreement is less than the Minimum Throughput for the relevant Year then ABP will be entitled to be paid by Ferryways a sum equal to the amount ABP would have received had the Minimum Throughput been met provided that if the shortfall is less than 10% of the Minimum Throughput for the relevant Year no invoice will be issued therefor and the Minimum Throughput for the following Year will be increased by the amount of such shortfall and provided further that any shortfall which has been carried forward from a previous Year shall be

5. Amico (UK) Exploration Co & Ors v Teesside Gas Transportation Ltd [2001] UKHL 18; [2001] 1 ALL ER (Comm) 865.

⁶ Associated British Ports v Ferryways NV & Anor [2008] EWHC 1265 (Comm).

disregarded when calculating whether a short-fall in any Year is less than 10% of the Minimum Throughput.

(c) Port of Tilbury (London) Ltd v Stora Enso Transport and Distribution Ltd & Anor:⁷

Payment for Minimum Tonnage Not Taken

Subject to the terms of Clause 10 (Maintenance, Insurance and Destruction of, or Major Damage to, the Facilities) if in any Contract Year the aggregate tonnage of Cargo in respect of which the Freight Price is paid to POTLL is less than the Minimum Tonnage then with the payment in respect of the last month of that Contract Year SE shall pay to POTLL a sum calculated by reference to the formula.

((MT – T) x FP)

where:

MT is the Minimum Tonnage

T is the tonnage of Cargo (other than Cargo within Direct Transit Trailers) discharged at the Facilities in the relevant Contract Year

FP is the Freight Price per tonne for the Minimum Tonnage

• [21] On the other hand, in E-Nik Ltd v Department for Communities and Local Government,⁸ the clause which Burton J concluded amounted to a take or pay arrangement was not dissimilar from the relevant aspects of the contract here:

2.1 The authority hereby undertakes to purchase minimum of 500 days of Consultancy from the Supplier per year based on project requirement, additional days will be required once the purchased days have been exhausted.

• [22] Like Mr Gordon, Mr Wano referred to Associate Judge Christiansen’s judgment in Miraka, emphasising that his Honour’s observations quoted above reinforced the need for a careful examination of the contract. He also referred me to the line of cases exemplified by Air Tahiti and North Crest Investments that, although not concerned with take or pay arrangements, focussed on the types of claim capable of founding a statutory demand.

7. Port of Tilbury (London) Ltd v Stora Enso Transport and Distribution Ltd & Anor [2009] 1 CLC 35 (CA).

⁸ E-Nik Ltd v Department for Communities and Local Government [2012] EWHC 3027 (Comm).

• [23] In the end, the issue comes down to the construction of the agreement in order to discern whether the parties’ mutual intention was to contract on take or pay terms.

• [24] It may be helpful at this point to refer to the long standing and well understood (though recently reconsidered and revised) principle that in a breach of contract claim the innocent party is entitled to recover damages reflecting his, her or its loss flowing from the breach, but that the law will not sanction the recovery of a penalty. The prevailing view has always been that the rule against penalties does not apply to take or pay provisions in contracts. This is because, in such contracts, the failure of the relevant party to take the goods or services in question is not a breach of contract. It is a course open to that party, in the knowledge that he, she or it will have to pay for the goods or services not taken in any event. To superimpose the rule against penalties on such arrangements would be to interfere with that party’s contractual right to elect not to take but to pay, and in doing so constrain the financial freedom of commercial parties to protect themselves against the risks associated with contracts involving up-front establishment costs.

• [25] That this remains the law was recently confirmed by the United Kingdom Supreme Court in Cavendish Square Holdings BV and Another v Talallel Makdessi⁹ (though that case is better known for its reformulation of the law relating to when liquidated damages provisions in contracts will be treated as penalties, and the departure from Lord Dunedin’s formulation of this principle in Dunlop Pneumatic Tyres v Selfridge & Co Ltd).¹⁰ Earlier this month, in 127 Hobson Street Ltd v Honey Bees Preschool Ltd¹¹ the Supreme Court also reconsidered the law relating to contractual penalties, concluding that an unenforceable penalty exits where the consequence of enforcement would involve the imposition of obligations that are out of all proportion to the legitimate interests of the innocent party.

• [26] In Cavendish the United Kingdom Supreme Court explained that there was a difference in principle between the law stepping in to review the fairness of contractual obligations on the one hand and regulating the remedy for breach of the same on the other. It said that the common law did not review the fairness of bargains, and

⁹ Cavendish Square Holdings BV and Another v Talallel Makdessi [2015] UKSC 67.

¹⁰ Dunlop Pneumatic Tyres v Selfridge & Co Ltd UKHL 1, AC 847.

¹¹ 127 Hobson Street Ltd v Honey Bees Preschool Ltd [2020] NZSC 53 at [56]

therefore that the rule against penalties ought only to regulate “the remedies available for breach of a party’s primary obligations, not the primary obligations themselves”.¹²

• [27] In their judgment, Lords Neuberger and Sumption said:¹³

Where a contract contains an obligation on one party to perform an act, and also provides that, if he does not perform it, he will pay the other party a specified sum of money, the obligation to pay the specified sum is a secondary obligation which is capable of being a penalty; but if the contract does not impose (expressly or impliedly) an obligation to perform the act, but simply provides that, if one party does not perform, he will pay the other party a specified sum, the obligation to pay the specified sum is a conditional primary obligation and cannot be a penalty.

• [28] Focussing on that passage from their Lordships’ judgment, the essential issue is whether, as is submitted on The Olive Press’ behalf, Matapiro’s primary obligation was to pay for the processing of at least 250 tonnes of olives at the agreed rate.

• [29] If so then The Olive Press has a liquidated claim for a debt. If not then it has an unliquidated claim for damages, and it is elementary that the latter cannot support a statutory demand.

• [30] In the end, I am satisfied that the arrangement reached between The Olive Press and Matapiro in April 2018 in respect of the 2018 and 2019 seasons was intended by the parties to be of a take or pay nature (the position in relation to the 2020 season may well be different because, at the very last moment, the parties left the rate for that season unresolved). The considerations which have influenced me in reaching that view are:

(a) The circumstances in which The Olive Press and Matapiro entered into this contract are such that it was attractive to both to achieve certainty for a period of time. Furthermore, it is clear from their exchanges that both appreciated the other’s objectives. For The Olive Press, the attraction was securing certainty of revenue. For Matapiro, the attraction was securing the certainty of a competitive rate for the processing of its olives. Those admittedly slightly different, but mutually compatible, objectives, by their nature, lent themselves to a

¹² Cavendish Square Holdings BV and Another v Talallel Makdessi, above n 9, at [13].

¹³ At [14].

take or pay arrangement which would provide the necessary certainty for both parties. That, it seems to me, is an important contextual feature of the case.

(b) It seems to me to follow that the commercial efficacy of the contract from the perspective of both parties would be maximised by take or pay arrangements, so that if what the parties said they were agreeing to was in any sense ambiguous I would be inclined to favour an interpretation by which the parties achieved the certainty they were both looking for

— which, again, would tend to favour an interpretation that this was a take or pay contract.

(c) Standing back and looking at the parties’ contractual arrangements as a whole, and bearing in mind that, as I said in my interim judgment, the primary terms are those in the exchange of emails between Mr Lingard and Mr Arthur because The Olive Press’ standard operating conditions were only to apply to the extent that they were not inconsistent with the unique terms of the arrangement, I can see nothing in the contract as a whole that is inconsistent with a take or pay arrangement. All this means is that the focus falls — as in the end it must — on the words which the parties chose to use in their email exchange.

(d) It is a fair point for Mr Wano to have made on Matapiro’s behalf that the contract does not use the phrase take or pay or any comparable terminology. However, the search here is for the objectively determined common intention of the parties, and no particular terminology is necessary. So much is clear from Burton J’s analysis of the contract under consideration in E-Nik Ltd¹⁴ where, not only was the key clause in the contract — as quoted above — less obviously a take or pay arrangement than the words used by the parties here, there were aspects of the contract which apparently contradicted the plaintiff’s contention that it was a take or pay arrangement (such as a right of termination on notice during the term).

¹⁴ E-Nik Ltd v Department for Communities and Local Government, above n 8.

(e) Focussing on the words which the parties used to capture their mutual intention, they strike me as clearly directed at achieving to the maximum extent the certainty to which I have referred. Matapiro was to commit to consign its production to The Olive Press for processing during the seasons in question. It was obliged to consign a minimum of 250 tonnes in each year for those seasons. In recognition of those commitments, The Olive Press agreed to a flat rate that the evidence indicates was particularly competitive.

• [31] In summary then, on the basis of the joint commercial objectives of these parties, the terms of the contract as a whole; and having regard to the language they used to express their arrangements, I am satisfied that The Olive Press and Matapiro intended to contract on a take or pay basis. The reasonable person, if asked what would happen if Matapiro decided not to consign any olives to The Olive Press for processing in 2019, might be expected to have replied: “Well, that is up to Matapiro, but of course it will have to pay for the processing of 250 tonnes of olives anyway”. In other words, it was a matter for Matapiro what tonnage of olives (if any) it consigned to The Olive Press for processing (which, incidentally, need not have been from its own olive groves, as it could have elected to take advantage of the low rate it had negotiated and acquired olives from elsewhere for consignment). However, in my view, Matapiro’s failure to consign any olives in the 2019 season means that it was obliged to pay for the processing of 250 tonnes of olives at the agreed rate.

• [32] For those reasons, in my judgement, The Olive Press has a claim for a debt for a liquidated amount and a proper basis for its statutory demand.

• [33] On The Olive Press’ behalf Mr Gordon invites the Court to move directly to an order winding up Matapiro.

• [34] I am not prepared to adopt that course. It appears to me that the more appropriate course is to dismiss Matapiro’s application for an order setting aside the statutory demand, leaving it to The Olive Press to proceed with winding up proceedings. Pre-emptively to wind up Matapiro at this point would deprive that company of the opportunity to resolve the outstanding issues between the parties in

one way or another, and advance whatever arguments it may have available to it in the context of winding up proceedings.

• [35] I dismiss Matapiro’s application for an order setting aside The Olive Press’ statutory demand dated 22 October 2019. Pursuant to s 291 of the Companies Act I order Matapiro to pay the debt within 15 working days of the date of this judgment. In default of payment The Olive Press may make an application to put the company into liquidation.

• [36] Not having heard from counsel in relation to costs I reserve these. My preliminary view is that The Olive Press is entitled to its costs on a 2B basis. If counsel are unable to resolve costs, as I would expect them to be able to do, they may come back to me by memorandum in the usual way and I will deal with them on the papers.

Associate Judge Johnston

Solicitors:

Govett Quilliam, New Plymouth for applicant

Minter Ellison Rudd Watts, Wellington for respondent