SCHULZ v MCARTHUR RIDGE INVESTMENTS LTD [2015] NZCA 298

SCHULZ v MCARTHUR RIDGE INVESTMENTS LTD [2015] NZCA 298 [10 July 2015]IN THE COURT OF APPEAL OF NEW ZEALANDCA488/2014[2015] NZCA 298BETWEEN ROBIN ANTHONY SCHULZAppellantAND MCARTHUR RIDGE INVESTMENTSLIMITEDRespondentHearing: 12 May 2015Court: Cooper, Mallon and Dobson JJCounsel: M J Wallace for the AppellantT J Shiels QC for the RespondentJudgment: 10 July 2015 at 11.30 amJUDGMENT OF THE COURTA The appeal is dismissed.B There is no order as to costs.____________________________________________________________________REASONS OF THE COURT(Given by Mallon J)Table of ContentsPara NoIntroduction [1]Background [4]The vineyard development and litigation [4]The winery development and litigation [8]Bankruptcy proceedings [12]The email exchange [14]Subsequent events [22]Other evidence [27]The High Court decision [29]Analysis [32]Intention to be bound [32]Certainty [47]Result [49]Introduction[1] The appellant (Mr Schulz) and the respondent (McArthur Ridge Investments Ltd) (MRIL) were engaged in litigation arising out of two Central Otago developments, one a vineyard and the other a winery, that had gotten into financial difficulty. Emails concerned with settlement of the litigation were exchanged and signed by the parties. The issue before us is whether those emails gave rise to an enforceable settlement agreement in relation to one set of proceedings between Mr Schulz and MRIL.[2] The issue came before the High Court as a preliminary question, in thefollowing terms: " whether the parties have concluded a settlement of the dispute between them by way of a settlement agreement".1[3] Mander J held that the parties had not concluded a settlement. That was because he concluded that Mr Rasmussen, a director of MRIL acting on its behalf, did not intend to be bound by the email communications so as to give rise to an enforceable agreement between the parties.2 That conclusion meant that it was not necessary to consider the further issue of whether the terms were sufficiently certain so as to be enforceable. Mr Schulz appeals against the High Court decision.BackgroundThe vineyard development and litigation[4] The vineyard development is a large one. The development is on an 808 ha property. The property has a plantable area of 235 ha, of which some 174 ha have been developed with pinot noir plantings. The property was developed by Central1 McArthur Ridge Investments Ltd v Schulz [2014] NZHC 1892 at [3].2 At [37].Otago Pinot Noir Estate Ltd (COPNEL), of which Mr Schulz is a director. McArthur Ridge Management Ltd (MRML), of which Mr Schulz is also a director, managed the property pursuant to a management agreement.[5] The vineyard development was largely sold by around 2006/07. A substantial part of the development was sold to Remarkable Estates Ltd (REL), an English investment company. McArthur Ridge Lot Owners Ltd (MRLOL) was established by the minority lot owners in the vineyard who purchased their interests between 2002 and 2006.3 In September 2008 REL failed to settle the agreement to purchase its interest in the development. Had it settled, COPNEL would have been able to clear all its debt, which included a mortgage held by Canterbury Mortgage Trust (CMT) which itself was in financial difficulty.[6] COPNEL and MRML held certain assets on trust for all the lot owners. The contracts acknowledging the trust provided for the assets to be transferred to the lot owners when the development was completed. Following REL's default, MRLOLbrought litigation against COPNEL, MRML, Mr Schulz and Mr McVicar (a formerdirector of COPNEL). We will refer to this as "the vineyard litigation". It wascontended that COPNEL and MRML had failed to meet their obligations under those contracts. It was also contended that MRML had failed to pay grape harvest proceeds to owners and had failed to perform other duties under the management agreement. These claims were disputed by the defendants in that litigation.[7] Discussions took place as to how the vineyard litigation might be settled. A deed was prepared by COPNEL's solicitor (Mr Odlin) providing for the terms onwhich a settlement might be reached (the Odlin Deed). This deed provided for the transfer from MRML to a newly established company, McArthur Ridge Trustee Ltd (MRTL), all its interest in the shares, water permits, easement rights, the management agreement, administration of the potable water system and other trust assets in relation to the vineyard development. MRTL would hold the assets on trust for all the lot owners. The transfer was subject to a number of issues, including an acknowledgement that it may involve a transfer for appropriate consideration and a3 This has since been renamed as Mount Dunstan Estates Ltd, but this judgment will refer to it as McArthur Ridge Lot Owners Ltd, or MRLOL.deed of compromise of the vineyard litigation. The litigation brought by MRLOL would be discontinued.The winery development and litigation[8] Unrelated to the above vineyard development, Mr Schulz had interests in a winery development. Central Otago Vintners Ltd (COVL) was established to own the winery and to develop it to process 600 t of pinot noir fruit. The funding for thedevelopment came from Mr Schulz's family interests and borrowings from SouthCanterbury Finance (SCF) of approximately $4.7 million. It was intended that the borrowings would be repaid following the settlement by REL of its purchase of the vineyard development.[9] Following REL's default, SCF appointed a receiver of COVL in October2008. The receiver sold the winery assets to another party for a price that Mr Schulz was unhappy with, being well below an independent valuation he obtained and below a valuation subsequently carried out by SCF. This left a substantial sum owing by COVL to SCF in respect of which Mr Schulz was a personal guarantor.[10] MRIL purchased the residual debt from SCF. The face value of the debt purchased was $1.17 million. The sum paid by MRIL was $30,000. Mr Schulz understood that MRIL, whose shareholders were the individual lot owners in the vineyard development,4 acquired the SCF debt and brought proceedings in respect of it to pressure him in respect of the vineyard litigation. MRIL accepts that this was the position.[11] MRIL demanded payment of $1.17 million from Mr Schulz. Mr Schulz failed to pay this sum and MRIL brought summary judgment proceedings against him. In a decision delivered on 15 March 2012 judgment on liability was granted inMRIL's favour. Quantum was directed to be determined at trial.5 In April 2012 COVL filed a counterclaim. In November 2012 a three day fixture commencing on4 We do not have details as to whether the shareholders were precisely the same as the shareholders in MRLOL but it appears that there was at least substantial crossover and/or that their interests were aligned.5 McArthur Ridge Investments Ltd v Schulz [2012] NZHC 423. Liability was not an issue in the summary judgment application, with counsel for Mr Schulz focusing on issues of quantum.10 June 2013 was set for the quantum hearing. We will refer to this as "the winery litigation".Bankruptcy proceedings[12] In late 2012 the Inland Revenue Department applied for Mr Schulz to bemade bankrupt. CMT joined the IRD's bankruptcy petition. Mr Schulz sought toresolve this. There were extensive discussions between Mr Schulz and Mr Rasmussen about this in late January 2013. From Mr Schulz's perspective, hewanted to achieve settlement of matters prior to committing to payment of a substantial sum of money to the IRD and CMT. If settlement could not be achieved he would not be able to resist the bankruptcy petition.[13] In his evidence in the High Court, Mr Rasmussen accepted that he understood this, and understood that Mr Schulz considered it was urgent to resolve the two sets of litigation in order to settle the bankruptcy proceeding. He accepted that if Mr Schulz were made bankrupt on 5 February 2012, the entities with which Mr Rasmussen was involved would not receive the benefits involved in an overall settlement.The email exchange[14] Against that background, Mr Schulz sent an email to Mr Rasmussen on Sunday 3 February 2013 at 9.52 pm with what he described as a summary of "what the process is to enable settlement to take place by tomorrow (Monday)". The emailset out a number of points under three headings. These headings were: "Settlement re MRML/MRTL/MRIGL etc" (the first heading); "MRLOL v MRML, COPNEL etc" (the second heading); and "MRIL v R A Schulz (ex Sth Canterbury Finance Ltd)" (the third heading). There was a space for the parties to sign. The email concluded:John the above I think summarizes our discussionCan you please review and adviseIt is imperative that the first agreement is settled by tomorrow morningLook forward to your commentsRegardsRobin Schulz[15] Mr Schulz and Mr Rasmussen discussed the email by telephone the next morning. Mr Schulz emailed Mr Rasmussen at 11.35 am with amendments to the 3 February 2013 email marked in red (made under both the second and third headings) which took into account that discussion. Mr Schulz asked for Mr Rasmussen to get back to him as soon as possible and then he would "re run past Graeme [McVicar] for his sign off". At 11.46 am Mr Rasmussen replied withadditions to the email (under both the second and third headings) marked in magenta. At 2.25 pm Mr Rasmussen sent another email with one further amendment. At 3.52 pm Mr Rasmussen sent a further email, copied to Sharon Knowles (a solicitor), which stated:Hi Robin,Sharon agrees that this is the best we can do given the timeframe and that it really represents an agreement to try to negotiate a settlement that will then be more detailed, meanwhile we reserve our positions.If you and [Graeme McVicar] sign I will counter sign and return.Regards,John[16] By this stage, Mr Schulz's original summary of the process to enablesettlement provided as follows:6Hi JohnAs discussed I summarize what the process is to enable a settlement to take place by tomorrow (Monday)6 The italicised parts of the email correspond to the "red" additions referred to by Mr Schulz in his 11.35 am email. The underlined parts of the email correspond to the "magenta" additionsreferred to by Mr Rasmussen in his 11.46 am and 2.25 pm emails. At the hearing there was discussion about which additions were the "magenta" ones and which were the "red" ones. Theconfusion is solved with reference to Mr Rasmussen's email on 4 February 2013 at 11.46 am, because in referring to his "magenta" additions he has used the colour that corresponds with the words underlined in the email we have set out. The bold parts of the email are in the original.Settlement re MRML/MRTL/MRIGL etc1/ You and I will circulate to all parties tonight our acceptance of the terms of the agreement (as per Mark Odlins critic @6.49pm Friday)(subject to below2/ All lawyers will confirm they hold a signed Counter copy of the agreement by their client by 10.00am Monday 4th Feb and an undertaking they will exchange copies by 3.00pm 4th Feb, conditional only on 4 below3/ CMT signing the settlement agreement between CMT and R A Schulz by 12 noon 4th Feb4/ Settlement is only conditional on the matters before the Court re IRD and CMT v R A Schulz being settled in full on Tuesday morning 5th FebMRLOL v MRML,COPNEL etc1/ MRML will review and update all invoices re Melview/REL/COPNEL and make details available to JR to establish max revenue possible2/ MRML, GM and JR will undertake to conduct open and genuine discussions re recovery of funds ex Melview and REL and COPNEL and as to how they will be dispersed3/ Security against MRMLa/ GML first ranking GSA (existing) quantum to be confirmed as @September 2008 and GMLs priority shall include any proper and accountable payment made to MRML by GML for the operation of the vineyard on behalf of defaulting parties, which has not been recovered by the way of grape proceeds or offset of lease on Lot 38. Further for the 2011 / 2012 / 2013 seasons GM has taken the commercial risk of paying for the running of the vineyard in return for harvest proceeds.b/ ex Goldband second ranking GSA (existing)c/ MRLOL third ranking GSA (existing)d/ All other GSAs to be removed4/ All parties agree to the above priority5/ Upon total recover (if any) of funds ex Melview and REL and COPNEL third ranking GSA removed6/ Upon this agreement being accepted by both parties, the legal proceedings between the parties will cease, with each accepting costs where they lie7/ MRML confirm that grape payments due and payable pursuant to the Management Agreement have not been completed for the 2008 year. MRML will undertake to use its best endeavours to obtain payment of suchoutstanding payment due to MRML and complete payment to all lot owners who are due and payable such sums as provided for in the Management Agreement when such funds are recovered.8/ The counter claim by MRML as per the legal action will be dropped and excluded from calculation of aboveMRIL v R A Schulz (ex Sth Canterbury Finance Ltd)1/ All security and guarantee to be transferred to a nominated party2/ Payment of $30,000 in full settlement of the debt3/ Payment of fair and reasonable legal expenses It is agreed between the parties that both shall fully disclose their legal costs to date and negotiate in good faith a settlement of between $30,000 and $300,0004/ All legal proceedings to cease upon agreement and settlement5/ Each party meet their own legal expensesSigned as agreed by:Robin Anthony Schulz on behalf of McArthur Ridge Management Limited, Central Otago Pinot Noir Estates Limited, Personally __________________Graeme Alan McVicar on behalf of Graeme McVicar Limited ___________John Rasmussen on Behalf of McArthur Ridge Lot Owners Ltd and McArthur Ridge Investments Ltd __________________________________[17] At 4.11 pm Mr Schulz sent an email to Mr Rasmussen, which attached the above chain of emails sent between 9.52 pm on Sunday 3 February to 3.52 pm on Monday 4 February 2013. Mr Schulz noted that both he and Mr McVicar had signed that email attachment. He asked for Mr Rasmussen to sign on behalf of MRLOL and MRIL and to return a signed copy to him. Mr Rasmussen signed the email at that time and forwarded it to Ms Knowles. She in turn forwarded it to Mr Odlin(COPNEL and MRML's solicitor) and Mr Burke (Mr McVicar's solicitor) on5 February 2013 at 8.15 am commenting that it "outlines various matters which theparties are discussing. Our client remains committed to negotiating resolution assoon as possible".[18] The above sequence of events meant that as at 5 February 2013 the email chain (incorporating the red and magenta amendments made back and forth on 4 February 2013) was signed by Mr Rasmussen, Mr Schulz and Mr McVicar.[19] In their evidence in the High Court Mr Schulz and Mr Rasmussen were agreed that the matters under the first heading related to the Odlin Deed which was ready to be signed. Further, Mr Schulz and Mr Rasmussen were agreed that the matters under the second heading also related to the vineyard litigation. Ms Knowles was the solicitor acting for MRLOL in that litigation.[20] The matters under the third heading related to the winery litigation. There was evidence at the High Court hearing about the additions at point 3 under the third heading. Mr Schulz explained that in their discussions, Mr Rasmussen had told him his legal fees in the winery litigation were $300,000. Mr Schulz told Mr Rasmussenthat he considered this to be totally unreasonable as Mr Schulz's own costs were under $30,000. Mr Rasmussen told him that he had to get extra witnesses for the winery litigation. Mr Rasmussen was insistent on the $300,000 figure and Mr Schulz considered he had no other option but to include it. He said that figure would need to be justified. He suspected that it included costs in the vineyard litigation and he was confident that reasonable costs in the winery litigation would be significantly less than $300,000.7[21] Mr Rasmussen did not dispute Mr Schulz's account of the discussion they had on this point in cross-examination. He confirmed that costs were in respect of the winery litigation only and said that during the telephone negotiations he wanted at least his actual legal costs in the winery litigation and some recognition of the fact of the debt. He said that Mr Schulz wanted it phrased the way it was. He said that Mr Schulz did not want any more money paid for the debt because he was concerned that it would go back to SCF.7 As at the date of the hearing before Mander J, MRIL's legal and professional costs in the winerylitigation were $250,000 including GST.Subsequent events[22] On the morning of 5 February 2013 the Odlin Deed was signed by all parties (as contemplated under the first heading). Mr Schulz avoided bankruptcy. Over the ensuing months there was ongoing work to implement the Odlin Deed. The steps contemplated under the second heading were also underway. While that was occurring, two joint memoranda of counsel were filed in the winery litigation referring to possible resolution of the proceeding. The second memorandum, dated28 February 2013, stated further time was needed due to "inter-related parties andissues" and the "complexity of the issues". This led to vacation of the June fixturethat was to have determined quantum.[23] By the end of 2013 Mr Schulz considered that he had completed all the steps required of him under the Odlin Deed and under the second heading. He was in a position to complete point 3 under the third heading. On 2 December 2013 hislawyer wrote to MRIL's lawyer in the winery litigation, enclosing the signed email agreement and requesting MRIL's position on what it considered to be fair andreasonable expenses in the litigation. Mr Schulz's lawyer wrote a further letter dated17 December 2013 noting what he considered to be an omission from the signed email agreement in not making it clear that it covered COVL (the winery development company) as well. It was proposed that the wording of the secondpoint under the heading "MRIL v R A Schulz (ex Sth Canterbury Finance Ltd" be amended to read: "Payment of $30,000.00 in full settlement of the issues raised inthe proceedings", with Mr Schulz signing on behalf of COVL.8[24] MRIL's lawyer responded by letter dated 14 January 2014 as follows:1 We refer to your letters dated 17 and 2 December 2013.2 Your comments in respect of Central Otago Vintners Limited (COVL) counterclaim not being specifically included in the agreement are noted.3 MRIL's position in relation to the part of the emailed SettlementAgreement of 4 February 2013 (Agreement) entitled "MRIL v R ASchulz (ex South Canterbury Finance Ltd)" (attached) is that Agreement was reached on the basis of:8 The correction of the omission was in MRIL's favour.(a) payment of $30,000.00 from Mr Schulz to MRIL;(b) payment by Mr Schulz of MRIL's fair and reasonable legalexpenses:(i) MRIL has been required to obtain independent valuation and accounting advice to prepare for the proceedings and is of the view that these costs are recoverable (in addition to reasonable legal expenses) under the Agreement;(c) all proceedings are to cease (including any counterclaim from Mr Schulz or COVL against MRIL); and(d) the intention was to reach a settlement somewhere between $30,000.00 and $300,000.00 to be paid by Mr Schulz to MRIL once legal and professional costs have been disclosed, such payment to be contemporaneous with the payment in 3(a).4. In addition, we are instructed that before MRIL will consider settlement of the Agreement and the attached undated deed (Deed):(a) the remainder of the terms of the Agreement need to be fully implemented;(b) all relevant assets need to be transferred to MRTL as per the Deed;(c) McArthur Ridge Management Limited (MRML) needs to sign a deed of acknowledgement of debt with the Small Lot Owners including an approved compensation/payment plan.5. Please confirm your client's understanding accords with the above. Once we have received your client's confirmation, we suggest we draft a deed to properly record the Agreement and have it signed by the relevant parties (including COVL).[25] By letter dated 29 April 2014 Mr Schulz's lawyer again asked MRIL toadvise what it considered to be fair and reasonable costs in the winery litigation, andasserted that each of the "settlements" in the signed email were independent of each other. By letter dated 5 May 2014 MRIL's lawyer responded that it did not acceptthat the winery litigation was settled by the signed email and advised that MRIL was proceeding to have that litigation set down for hearing.[26] Because of the dispute about whether a settlement of the winery litigation had been reached by the signed email, it was decided that there would be a hearing onthis issue by way of a preliminary question. We have set out the terms of the preliminary question in our introduction above.9Other evidence[27] Both Mr Schulz and Mr Rasmussen purported to give evidence of what they each intended in respect of the email agreement.10 Mr Schulz contended that he did not understand Mr Rasmussen to be agreeing only to negotiate a set of points. He also said that he did not understand a negotiation under the third heading to depend on the matters under the first and second headings being fully completed. He said that he understood Ms Knowles to be acting only in relation to the matters under the first and second headings. Mr Schulz said that he considered that by the signedemail, they had reached an agreement, "period", and all that was required was to settle it.[28] Mr Rasmussen said that he understood the signed email was a three-step process and that he made this clear to Mr Schulz. He said that Ms Knowles provided advice to him on the email. He said that, because the SCF debt had been purchased to apply commercial pressure on Mr Schulz to obtain resolution of other matters, it would not have made sense to settle that proceeding without any link to the other proceedings. He said that, having obtained legal advice, he understood that the email was only an agreement to negotiate.The High Court decision[29] The Judge approached the preliminary question, of whether the parties had concluded a settlement of the dispute between them by way of a settlement agreement, by considering two questions. The first of those was whether the parties intended to be legally bound. In considering that question the Judge was not9 At [2].10 In Fletcher Challenge Energy Ltd v Electricity Corporation of New Zealand Ltd [2002] 2 NZLR 433 (CA) at [55] it was noted that the established rule in interpreting a contract is that statements of subjective intention must be disregarded. At [56] it was said, on the issue of whether partiesintended to be legally bound, that the admissibility of "internal memoranda, communications ofone party with a third party or statements of subjective intention made by individuals in thecourse of giving evidence" was "by no means clear" and, though proceeding on the basis thatsuch evidence was admissible, expressed a particular reservation on direct expressions of subjective intent.convinced that the parties had turned their minds to the "interrelationship" of thethree heads of agreement in the email.11 He noted that it was necessary that the negotiation was recorded and signed by the Monday because of the bankruptcy proceedings on the Tuesday. He considered the immediate concern, essential to avoiding bankruptcy, to be settlement of the dispute dealt with under the first heading of the agreement. The resolution of this dispute, which the Judge noted was the subject of a separate deed, was more advanced than the second and third disputes.12[30] The Judge considered that the matters under the third heading were capable of constituting a discrete agreement. He considered it was unclear whether the parties needed to exhibit a level of agreement about the matters under the second and third headings for the purposes of settling the bankruptcy proceeding. These matters"essentially represented a work in progress".13 The Judge concluded that Mr Rasmussen, on behalf of MRIL, did not intend to be legally bound by the signed email. He considered that a commitment to achieve settlement of the first dispute for the bankruptcy proceeding, as demonstrated by the execution of the Odlin Deed"cannot legitimately be interpreted as a manifestation of an intention to be irrevocably bound by the remainder of the contents of the email."14 This was particularly so given Mr Rasmussen's statement in signing the email "that it reallyrepresents an agreement to try to negotiate a settlement that will then be moredetailed, meanwhile we reserve our positions." He considered that nothing in the parties' subsequent conduct eclipsed that caveat placed by Mr Rasmussen.[31] The second question that the Judge considered relevant to the preliminary question was whether the agreement was sufficiently certain to be given contractual effect. The Judge said that whether examining the email as a whole or only inrespect of the matters under the third heading, it was likely to be called a "process contract".15 He noted that agreements couched in terms of a negotiation in good11 McArthur Ridge Investments Ltd v Schulz, above n 1, at [32].12 At [25] and [33].13 At [32].14 At [36].15 At [38].faith, where the content of the obligations are left for future determination on a purely subjective basis, will fail for want of certainty. The Judge added:16 Where however the objective of the best endeavours and the steps neededto be taken to obtain that objective are able to be prescribed by the Court, a best or reasonable endeavours obligation may be enforceable. When the parties intend that an essential obligation is to be determined by some objective criterion, the Court may supply the answer if the parties cannot agree.The Judge did not decide whether the gap left by the parties in respect of their stated commitment to negotiate in good faith to agree fair and reasonable legal expenses was capable of objective determination. Due to the fact he had already found that the parties did not intend to be immediately bound by the email (a "fundamental prerequisite") there was no contract for the Court to uphold, and so this question didnot need to be considered.17AnalysisIntention to be bound[32] The appellant in this Court submitted that the appellant and respondent intended to enter into a binding legal agreement, the terms of which were recorded in the 4 February email. There was a submission in oral argument that it was an agreement as to the process, and it was sufficiently certain to be enforceable. The respondent submitted that the email exchange contemplated resolution of legal expenses by good faith negotiation and agreement. The email was not capable of being a contract and, in the alternative, it was at its highest a process contract and not a contract for an outcome.[33] The issue that concerned the Judge was whether Mr Rasmussen's wordsmeant that there was no intention to be legally bound. If the email is viewed in terms of an agreement to settle the disputes (that is, the substantive agreement16 At [38] (footnote omitted).17 At [41].intended to be achieved from the process) we agree that Mr Rasmussen did not intend to be bound to achieve the outcome envisaged by the email.18[34] However, if the focus is on what the parties agreed to try in order to achieve possible settlement, a different conclusion follows.[35] It is well established that a contract to negotiate may be enforceable. Whether it is depends upon its terms and their specificity. That question is separate from whether the substantive agreement, if reached, is sufficiently certain. If the contract specifies the way in which negotiations are to be conducted with enough precision for a court to be able to determine what the parties are obliged to do, it is enforceable. For example, an agreement simply to negotiate in good faith is unenforceable because those terms are subjective and a court cannot apply an objective test to assess whether the parties have done so. On the other hand an agreement to use best endeavours to obtain a defined object (for example, to obtain planning permission) may be enforceable. Where there is an enforceable process contract, the breach lies in failing to follow the process, not in failing to achieve the objective.19[36] We agree with the Judge that, if the signed email gave rise to an enforceable agreement, it was an agreement to follow a process. Objectively assessed, we consider that in signing the email the parties did intend to be bound to follow the process which the email set out. That follows from what each of Mr Schulz and Mr Rasmussen recorded in the email exchange about the matters under the three headings. As quoted above,20 Mr Schulz said he was summarising "what the process is to enable a settlement to take place by tomorrow (Monday)". Mr Rasmussen made it clear that "it really represents an agreement to try to negotiate a settlementthat will then be more detailed, meanwhile we reserve our positions."18 We expect that the Judge approached it this way because Mr Schulz was advocating a position that the third heading in the email was independent of the other headings and was a settlement of the winery litigation. We discuss this below at [46].19 These points are all set out in Wellington City Council v Body Corporate 51702 (Wellington)[2002] 3 NZLR 486 (CA).20 At [14]–[16].[37] As this Court has said it is:21 very important, in considering the intention of the parties to be bound, tobear in mind the dynamics of the negotiation process and the internalinterrelationship of the terms of a commercial bargain. [38] In this case there were imperatives on both sides to reach an agreement before the hearing on the bankruptcy petition.22 Mr Schulz wanted to know if he had an agreement before deciding whether to make a commitment to paying the money he owed to the IRD and CMT. It is apparent that an agreement with MRLOL (in respect of the vineyard litigation) and MRIL (in respect of the winery litigation) was important to that decision: with Mr Schulz in financial difficulty and struggling to meet his obligations to his creditors, a settlement with IRD and CMT would not necessarily stave off bankruptcy in circumstances where he was facing a $1.17 million claim in the winery litigation and whatever compensation or other orders were being sought in the vineyard litigation.23[39] As Mr Rasmussen accepted in his evidence, if Mr Schulz were declared bankrupt, Mr Rasmussen and the lot owners would lose the leverage they had obtained over him through acquiring the SCF debt. That leverage was apparently intended to achieve an outcome in the vineyard litigation whereby the lot owners would obtain control of the assets and remove Mr Schulz from the management of the vineyard development. It is apparent from the terms of the Odlin Deed and the matters stated in the email under the first and second headings, that the Odlin Deed was the beginning of this process, but it did not ensure a settlement because there were matters left unresolved. In order to settle the vineyard litigation, the Odlin Deed needed to be signed (as provided under the first heading), but further steps were also envisaged (as provided under the second heading). If those steps were fulfilled the vineyard dispute would be resolved and MRIL's original motivation forpursuing Mr Schulz on the SCF $1.17 million debt would fall away. It can be21 Fletcher Challenge Energy Ltd v Electricity Corporation of New Zealand Ltd, above n 10, at [57].22 Fletcher Challenge Energy Ltd, above n 10, at [55]: Evidence of negotiations, surrounding circumstances, and evidence that one party told the other an otherwise apparently binding contract is not in fact to be binding is permissible in the context of determining an issue as to contract formation.23 The pleading in that litigation is not before us.inferred that when MRIL purchased that debt for $30,000 it was recognised that Mr Schulz was unlikely to be in a position to repay it all.[40] We consider that this factual matrix supports a conclusion that the parties did intend to reach an agreement by which they would be bound. However, due to the urgency in which the agreement was negotiated, they agreed upon steps to be taken which might result in a settlement. As Mr Rasmussen put it in his evidence, it was"only an agreement to negotiate involv[ing] a 3-step process."24 And, as he hadsaid in his email, it was "the best we can do given the timeframe".[41] In addition to the factual matrix, other matters indicate that the parties intended to be bound by the process set out in the email. The original terms of the email reflected a discussion between Mr Schulz and Mr Rasmussen. They discussed the contents of that email and made additions to it. Mr Schulz had to then "re run"the email past Mr McVicar for his approval. The terms provided for each party to sign the email, as representatives of those parties involved in the vineyard and winery litigations. They each did so.[42] Thereafter the parties each took steps to follow the process envisaged by the email. The Odlin Deed was signed immediately. The steps under the second heading got underway. We note that in one of the emails to Mr Schulz about those steps, sent on 19 February 2013, Mr Rasmussen said he was "following up on thenegotiations we agreed to regarding MRLOL Vs MRML / COPNEL" (our emphasis)and sought various information from Mr Schulz. Only once Mr Schulz believed he had performed what was required of him under the second heading, did he seek to carry out the steps under the third heading.25[43] An intention to be bound by the process set out in the email is also apparentin the letter from MRIL's lawyer dated 14 January 2014.26 That letter stated that:2724 Although this is a subjective assertion, it is consistent with the words he used at the time and the context which gave rise to the steps under the three headings.25 There is a dispute between the parties, which is not before us on the current appeal, as to whether Mr Schulz had performed all that was required of him under this heading.26 See above at [24] for the full extract.27 Bold emphasis is in the original. The italics are our emphasis.MRIL's position in relation to the part of the emailed Settlement Agreementof 4 February 2013 (Agreement) entitled "MRIL v R A Schulz (ex South Canterbury Finance Ltd)" (attached) is that Agreement was reached on the basis of:.In addition, we are instructed that before MRIL will consider settlement ofthe Agreement and the attached undated deed (Deed):[44] In this letter the lawyer distinguished between having reached an agreement (as per the signed email) and the carrying out of that agreement (that is, the settlement of it), as indicated in our emphasis above. The lawyer made it clear that, before the steps under the third heading of the email were to be carried out, the steps required under the remainder of the agreement in the email needed to be fully implemented. We consider that this letter is subsequent conduct entirely consistent with an intention to be bound by the agreed process in the email.28[45] We have not overlooked the email that Ms Knowles sent to Mr Odlin and Mr Burke at the time the email was signed.29 Ms Knowles described the email as"outlin[ing] various matters which the parties are discussing." We do not place anyweight on this because it is not clear that it accurately reflected the intentions of either Mr Rasmussen or Mr Schulz at that time.30[46] We therefore agree with the Judge that the agreement under the third heading was not a settlement of the winery litigation but for different reasons. We disagree with the Judge that the email agreement was unenforceable on the ground that the parties did not intend to be legally bound by it. In our view they intended to be legally bound to follow the process set out in the email. Therefore, the agreement under the third heading would only achieve a settlement of the winery litigation if the parties carried out the steps required of them in the email. Contrary to the position taken by Mr Schulz in the High Court, in this Court it was acknowledged28 See Fletcher Challenge Energy Ltd v Electricity Corporation of New Zealand Ltd, above n 10, at [56], where it was noted that such evidence is admissible. To the extent that MRIL is now seeking to resile from being bound by the process in the email, it is conduct on behalf of that party that is contrary to what is now asserted by that party.29 See above at [17].30 We put this evidence in the same category as that described above at n 22.that the steps under each heading were implicitly linked. The parties recognised this by their conduct. They did so by first completing the steps under the first heading, then proceeding to carry out the steps under the second heading, with Mr Schulz only calling for performance under the third heading when he believed he had carried out all that was required of him under the second heading. The interdependence of the steps under the three headings was also recognised in the joint memoranda of counsel filed in the winery litigation.31Certainty[47] We do not have concerns about the certainty of the process terms under the third heading:(a) Steps 1 and 2 are clear on their face and can be enforced by a court. In context it is clear that the payment of $30,000 in step 2 is to be made by Mr Schulz to MRIL (which would mean that MRIL would recover the money it paid for the debt).(b) Step 3 was discussed but not determined in the High Court. Keeping in mind that this is a process contract, we consider it is sufficiently certain for a court to be able to determine what the parties are to do. It is not disputed that this envisages a payment by Mr Schulz to MRIL for its legal expenses in the winery litigation. They are agreed that"fair and reasonable legal expenses" are to be paid. The parties are toattempt to reach agreement about fair and reasonable expenses through a good faith negotiation once the parties have disclosed their legal costs. The agreement is to be somewhere between $30,000 and $300,000. That is an objective measure with defined parameters which a court is able to assess in the absence of agreement between the parties.31 See above at [22].(c) Step 4 is clear in its context: the winery litigation will be discontinued once agreement is reached on costs and steps 1, 2 and 3 have been carried out.(d) Step 5 is clear in its context: in carrying out these steps each party is to bear their own costs.[48] The parties are required to carry out these steps if the steps under the first and second headings are also carried out. We understand that the steps under the first heading have been completed,32 but the steps under the second heading have stalled. Because of the way this issue came before the Court we did not hear argument about whether there was any issue with the enforceability of the steps under the second heading. Assuming (without deciding) that they are enforceable, a party in breach of the process could be sued for that breach.Result[49] The parties have not concluded a settlement of the dispute between them byway of a settlement agreement so the answer to the preliminary question is "no".However they have agreed to follow a process. That process agreement is enforceable, subject to the enforceability of the steps under the second heading.[50] The appeal is formally dismissed. However, recognising that Mr Schulz can be seen as having achieved partial success, we consider that costs should lie where they fall.Solicitors:Cordner Hill, Christchurch for AppellantVan Aart Sycamore, Dunedin for Respondent32 We were informed by counsel for the respondent that the liquidators of MRML have given notice of an intention to set aside the Odlin Deed as a voidable transaction. Counsel for the appellant responded by providing an email which noted that new liquidators had been appointed and their intentions were unknown. The consequences of any such notice, if pursued, are outside of the issue that is before us.