THE MALTHOUSE LIMITED v RANGATIRA LIMITED [2018] NZCA 621

THE MALTHOUSE LIMITED v RANGATIRA LIMITED [2018] NZCA 621 [20 December 2018]IN THE COURT OF APPEAL OF NEW ZEALANDI TE KŌTI PĪRA O AOTEAROACA276/2018[2018] NZCA 621BETWEEN THE MALTHOUSE LIMITEDAppellantAND RANGATIRA LIMITEDRespondentHearing: 8 November 2018Court: Miller, Lang and Moore JJCounsel: H N McIntosh for AppellantSCDA Gollin and J E Standage for RespondentJudgment: 20 December 2018 at 10.00 amJUDGMENT OF THE COURTA The appeal is allowed. Judgment is entered for the appellant on its claim.B The respondent must pay the appellant costs for a standard appeal on aband A basis and usual disbursements.C Costs in the High Court are quashed and should be fixed in light ofthis judgment.____________________________________________________________________REASONS OF THE COURT(Given by Miller J)[1] This case tests the limits of a court's willingness to read words into a contractto make what the court thinks is commercial common sense of it.The facts[2] The appellant, The Malthouse Ltd (TML), represents the foundingshareholders of Tuatara Brewing Company Ltd, a successful craft brewer.The respondent, Rangatira Ltd, is a private equity firm which the foundingshareholders introduced in 2013 to provide management expertise and capitalthe business needed for expansion. They wanted to make the company an attractivepurchase for a major brewer. The dispute concerns the price payable by Rangatira forthe 35% shareholding it acquired under an investment agreement dated 30 June 2013.[3] It is common ground that the parties could not agree price. The vendorsbelieved the company was worth $12 million as at the date of the transaction andwanted Rangatira to pay $4.5 million for its stake. Rangatira asserted that thecompany was worth no more than $10 million and sought to pay $3.5 million for itsstake. The parties avoided an impasse by settling on a contractual mechanism underwhich Rangatira would pay the lesser sum on settlement and pay the difference ifthe company proved to be worth $12 million. The additional payment would berequired should either of two events happen.[4] The first triggering event was Tuatara achieving before a sunset date,30 December 2015, earnings that implicitly valued the company at $12 million.That target was earnings before interest, tax, depreciation and amortisation (EBITDA)of $2 million over any period of 12 consecutive months. It was an all or nothingobligation, meaning that the payment would not be scaled if the company fell short ofthe target. Through a change of accounting policy, which the founding shareholdersresent but do not challenge, this target was not met before the sunset date.[5] The second triggering event, which is in dispute, was the sale of Tuatara for aprice exceeding $12 million. The question is whether Rangatira's obligation to paythe balance arose only if that event happened before the sunset date. No words to thateffect appear in the clause creating the obligation. Rangatira would have us read themin.[6] On 31 January 2017, the parties sold Tuatara to Dominion Breweries for a pricefar in excess of $12 million.[7] The parties agree that should the appeal be allowed the amount payable (aftercertain adjustments that do not concern us) is $920,282.86.The contract[8] The transaction involved the issue of new shares, for which Rangatirasubscribed, and the sale of existing ones. Nothing turns on the fact that the transactionwas structured in that way, except that Rangatira paid the company for the new sharesand the founding shareholders for the existing ones.[9] The agreement provided that consideration for the shares was the "total"purchase and subscription prices. That total was defined as the "initial" prices if thetriggering events did not happen, and the sum of the initial and "contingent" prices ifeither of them did:(a) The initial purchase and subscription prices were $2,722,206.58 and$328,505.42 respectively. That is a total of $3,050,712. (We ignoreGST throughout.) On payment of those sums the shares weresubscribed and transferred.(b) The contingent purchase price and subscription prices were$777,788.18 and $222,230.94, a total of $1,000,019.12.[10] The clauses dealing with the issue and purchase of shares provided that:3.5 Contingent Subscript Price: The Purchaser shall pay to theCompany the Contingent Subscription Price upon the EBITDAHurdle being met as agreed or determined in accordance with clause 9and within the timeframe specified in clause 9.1.4.5 Contingent Purchase Price: The Purchaser shall will pay eachVendor its proportionate entitlement to the Contingent Purchase Priceupon the EBITDA Hurdle being met as agreed or determined inaccordance with clause 9 and the timeframe specified in clause 9.1.[11] It will be seen that these provisions refer to cl 9.1, which established howthe EBITDA Hurdle would be calculated and also set the timeframe within which itmust be met to trigger the contingent payment obligation. That provided:9.1 EBITDA Hurdle: The:9.1.1 Contingent Subscription Price shall be payable tothe Company in immediately available funds; and9.1.2 Contingent Purchase Price shall be payable to the Vendors inimmediately available funds,Within seven (7) days of the Company, the Purchaser and the VendorRepresentatives agreeing, or it being determined pursuant to this clause 9, thatthe Company has met the EBITDA Hurdle, provided that the EBITDA Hurdleis met on or before the Contingent Sunset Date. For clarity, it is acknowledgedthat determination of whether the EBITDA Hurdle has been met need notnecessarily occur prior to the Contingent Sunset Date.The Contingent Sunset Date was 31 December 2015 or such other date as the partiesmight agree. No other date was ever agreed.[12] The alternative triggering event, a sale of the business, is provided for in cl 9.8(the intervening sub-clauses were machinery provisions dealing with the EBITDAcalculation). Clause 9.8 provides:9.8 Exit event: If any Exit event occurs which actually or by implicationvalues the Business or the Company at greater than $12,000,000, thenthe Contingent Payments shall become immediately due and payable.The sale to Dominion Breweries is an exit event as defined.The judgments below[13] This case first came before the High Court by way of a summary judgmentapplication pursued by TML. Associate Judge Smith declined that application on31 August 2017.1 The Associate Judge reasoned that, if TML's interpretation of theagreement was correct, several "odd" results seemed to arise, notably that Rangatirawould be left with a contingent liability that might not crystallise for many years (aconclusion that lacked a plausible commercial rationale).2 He concluded by sayingthat there was "a serious question as to whether experienced commercial parties suchas these could have intended the result for which [TML] now contends",3 and that1 The Malthouse Ltd v Rangatira Ltd [2017] NZHC 2070.2 At [92].3 At [96].Rangatira's meaning of cl 9.8 was reasonably arguable without considering externalevidence beyond the agreement.4[14] The case then proceeded to trial. In a judgment dated 27 April 2018,Churchman J dismissed TML's claim.5 We discuss his reasoning in more detail below,but for present purposes his key findings were that: cl 9.8 was intended by the partiesto be subject to the sunset clause in cl 9.1, and cl 9.8 was only intended by the partiesto operate if Tuatara was acquired before the EBITDA hurdle could be met;6 that themost sensible commercial interpretation of the clauses was that they were intended tovalue Tuatara at the time of the contract, not some future date;7 and that, if it werenecessary, he would imply words into cl 9.8 to make it subject to the sunset clause.8He also made a factual finding that a conversation took place during the negotiationswhich evidenced an agreement that the parties intended cl 9.8 to be subject to thesunset clause, a finding which assumed some importance in argument and which weaddress at [26] below.9The pleadings[15] TML pleaded two causes of action: one in debt and one for breach of contract.Both turn on the correct interpretation of the agreement so we focus on the cause ofaction for breach of contract:12. In breach of the Agreement, Rangatira has:(a) erroneously claimed that clause 9.8(i) is inoperative beyond 31 December 2015, described inthe Agreement as the "Contingent Sunset Date";(ii) is subject to the Contingent Sunset Date; and/or(iii) expired with the expiry of clause 9.1;(b) failed to pay the Contingent Payments (as varied); and(c) thus failed to pay:4 At [113].5 The Malthouse Ltd v Rangatira Ltd [2018] NZHC 816 [HC judgment].6 At [90]–[91], [98] and [102].7 At [98], [104]–[106] and [108].8 At [140]–[143].9 At [82]–[91].(i) the Total Subscription Price (as varied); and(ii) the Total Purchase Price.Accordingly TML claims:(a) Declarations:(i) As to the correct interpretation of the Agreement as varied,namely that clause 9.8 is not subject to the ContingentSunset Date, and/or remains operative after that date and/orthe expiry of clause 9.1(ii) That following the Sale:(aa) the Total Subscription Price and the Total PurchasePrice included the Contingent Payments (as varied);and(bb) the Contingent Payments (as varied) therefore wereand are payable.That in consequence, pursuant to the Deed of Amendmentand Partial Termination dated 21 January 2017,the Contingent Payments (as varied therein) areimmediately payable in full by Rangatira to the Vendors.[16] In its statement of defence, Rangatira responded as follows:8. It admits that the price paid for the Tuatara shares in the Sale was over$12 m and otherwise denies paragraph 8. It says further that:(a) on a proper interpretation in light of the Investment Agreement as awhole, business common sense, and the context in which the InvestmentAgreement was entered into:(i) clause 9.8 only applies if the Exit event occurred before31 December 2015, the time frame set out in clause 9.1(the Contingent Sunset Date); and(ii) as the Sale occurred after 31 December 2015, clause 9.8 did notapply; and(iii) the Contingent Payments did not become payable.Particulars(A) the Agreement was entered into in the context of:a. an investment in shares, by way of purchase andsubscription, measured by reference to the value of theshares in 2013 when the transaction was entered into, anddiffering views between the parties as to what the value ofthose shares was at that time;b. the Vendors having previously received an investment offerfrom another party at a price which valued Tuatara at thetime higher than the value placed on the company byRangatira, although with conditions regarding distributionrights which were not acceptable to the Vendors; andc. the Vendors' communications with Rangatira regarding theneed to protect against the EBITDA Hurdle being avoideddue to a sale of shares before the EBITDA Hurdle was met.(B) On 27 March 2013, a draft copy of the Agreement included adrafting note by the defendant's solicitor to what becameclause 9.8 stating in relating to the Exit event that it was "notanticipated but inserted for completeness."(b) In the alternative, that it was an implied term of the Agreement that:(i) the mechanics of payment and the timeframe specified in clauses 3.5and 4.5 (the Contingent Sunset Date) must apply to the Exit event inclause 9.8; and(ii) this implied term is either necessary for business efficacy or is soobvious that it goes without saying because if there is no linkbetween the Exit event in clause 9.8 and clauses 3.5 and 4.5, thereis:(aa) no payment mechanic for the Contingent Payments; and(bb) no end date for the obligation to pay the Contingent Payments.(Emphasis in original.)[17] It will be seen that Rangatira's pleading responded to TML's arguments aboutthe plain meaning of the agreement by referring to several pieces of evidence (whichwe discuss below), and by alternatively pleading an implied term argument. Rangatiradid not plead rectification and conceded at the hearing that it was unavailable.The law on contractual interpretation[18] The correct approach to contractual interpretation has been authoritativelyestablished for present purposes in two judgments of the Supreme Court: Vector GasLtd v Bay of Plenty Energy Ltd (Vector),10 and Firm PI 1 Ltd v Zurich AustralianInsurance Ltd (Firm PI).11[19] Briefly, these authorities confirm that New Zealand courts take an objectiveapproach to contractual interpretation which does not limit the background materialavailable to interpret the contract. That material must however be reasonably relevant,and it must be objective; evidence of a party's individual subjective intentions isinadmissible to interpret the contract.12[20] Vector established that there need not be any ambiguity in the meaning of acontract before regard can be had to extrinsic evidence to shed light on its meaning.That conclusion put to bed the need for counsel to prove that contracts had suchambiguities, and instead emphasised the need for courts to take a contextual approachthat inquired into the meaning of contracts against the background information knownto the parties.13[21] As the Supreme Court later clarified in Firm PI, the text of the contract remains"centrally important".14 The Court there noted that:If the language at issue, construed in the context of the contract as a whole,has an ordinary and natural meaning, that will be a powerful, albeit notconclusive, indicator of what the parties meant.(Footnote omitted.)[22] The provisional meaning derived from the language of the contract iscross-checked against the contractual context.15 As Tipping J explained in Vector:[24] In some recent cases it has been suggested that contractual contextshould be referred to as a "cross-check". In practical terms that is likely to bewhat happens in most cases. Anyone reading a contractual document willnaturally form at least a provisional view of what is words mean, simply byreading them. That view is, in a sense, then checked against the contractualcontext. This description of the process is valid, provided the initial view is10 Vector Gas Ltd v Bay of Plenty Energy Ltd [2010] NZSC 5, [2010] 2 NZLR 444 [Vector].11 Firm PI 1 Ltd v Zurich Australian Insurance Ltd [2014] NZSC 147, [2015] 1 NZLR 432[Firm PI].12 Vector, above n 10, at [19]–[20] per Tipping J; and Firm PI, above n 11, at [60] per McGrath,Glazebrook and Arnold JJ.13 Vector, above n 10, at [5]–[6] per Blanchard J, [22] per Tipping J and [56]–[57] per McGrath J.14 Firm PI, above n 11, at [63].15 Vector, above n 10, at [24].provisional only and the reader is prepared to accept that the provisionalmeaning may be altered once context has been brought to account.The concept of cross-check is helpful in affirming the point made earlier thata meaning which appears plain and unambiguous on its face is alwayssusceptible to being altered by context, albeit that outcome will usually bedifficult of achievement (Footnote omitted.)[23] It follows that, though there is in principle no limit to the amount of "red ink"a court can use in interpreting a contract (as Lord Hoffmann famously said inChartbrook Ltd v Persimmon Homes Ltd),16 there is a practical need for the partyseeking to rely on the red pen to point to clear evidence justifying its use.17As Tipping J explained in Vector, the exercise "is and remains one of interpretation".18There are limits to what the courts can do under the guise of interpretation, and wordscan only be construed with meanings that they can reasonably bear (subject, asTipping J recognised, to considerations of rectification, private dictionary use by theparties, and similar).19[24] Finally, the authorities also establish that, where there is a natural and ordinarymeaning to the term in issue, departing from it for reasons of commercial commonsense should only occur "in the most obvious and extreme of cases".20 It also bearsemphasis, as the Supreme Court noted in Firm PI, that the commercial context mayincrease the weight to be placed on the provisional view formed from the words of thecontract. That is because many commercial contracts have features that ordinarylanguage lacks (particularly that they are negotiated in a detailed and formal mannerthat attempts to record consensus), may be relied on by third parties, or because of thenature of the particular contract at issue (such as a security document or an insurancecontract).2116 Chartbrook Ltd v Persimmon Homes Ltd [2009] UKHL 38, [2009] AC 1101 at [25].17 As Tipping J noted in Vector, above n 10, at [26], the parties could also contract such that, forthem, "black means white", but the likelihood of them doing so "will no doubt be a powerfulfactor when it comes to questions of proof".18 At [23].19 At [23].20 Firm PI, above n 11, at [93] per McGrath, Glazebrook and Arnold JJ.21 At [62] per McGrath, Glazebrook and Arnold JJ.The issues[25] The appeal raises three issues:a) Was Churchman J correct to find that Messrs Murrie, Bradshaw andFrame discussed the possibility of a sale of the company before theEBITDA Hurdle had been attained and agreed that cl 9.8 would beconfined to that eventuality?b) Is the correct interpretation of the Agreement that the operation of cl 9.8is limited by the Contingent Sunset Date?c) If not, is it an implied term of the Investment Agreement that theoperation of cl 9.8 is limited by the Contingent Sunset Date?The pre-contractual conversation[26] As noted at [15] above, Rangatira pleaded that its interpretation of the contractwas supported by "the Vendors' communications with Rangatira regarding the need toprotect against the EBITDA Hurdle being avoided due to a sale of shares before theEBITDA Hurdle was met". This refers to communications between Mr Murrie, oneof the founding shareholders of Tuatara (and a director and shareholder of TML), andMessrs Bradshaw and Frame, who led the negotiations on behalf of Rangatira; andin particular, an alleged conversation between them as to the detail of what becamecl 9.8. In his brief of evidence, Mr Murrie denied ever discussing cl 9.8 withMessrs Bradshaw and Frame, and the lawyer who negotiated the agreement forTuatara, Mr Bordignon, recalled only discussing it with Mr Murrie. In contrast, bothMessrs Bradshaw and Frame deposed to multiple conversations about the point withMr Murrie, with Mr Frame deposing that:[Mr Murrie] was concerned that Rangatira might try to take advantage of aquick sale of shares to another buyer before the EBITDA Hurdle was met aconcern which [Mr Murrie] referred to frequently [27] The Judge found that such conversations did happen, making adversecredibility findings against Mr Murrie in the process. He referred to an email sent byMr Murrie which, in his view, indicated that Mr Murrie likely was alive to the prospectof Tuatara being bought out before the EBITDA Hurdle was met, and he foundMr Murrie's claim that the email was related to another offer by Rangatira lacking incredibility.22[28] Mr McIntosh, who appeared for TML, accepted that he could not realisticallychallenge the Judge's credibility findings before us given the deference this Courtgives to such findings on appeal.23 However, he submitted that the Judge had drawnan impermissible inference from his finding that a conversation (or conversations) hadtaken place. It was one thing to find that a conversation about the issue addressed bycl 9.8 occurred; but quite another to reason that the conversation must inevitably havecontained an understanding on the part of both sides that cl 9.8 was subject to theconditional sunset clause. He emphasised that it is the parties' objective understandingabout cl 9.8 that matters.[29] We accept this submission. There is nothing in the evidence ofMessrs Bradshaw and Frame to indicate that the conversations they recalledspecifically addressed the issue whether what became cl 9.8 would be temporallylimited to the same timeframe as the EBITDA Hurdle, the conditional sunset clause.Rather, they depose generally to concerns Mr Murrie had about not being able to reachthe EBITDA Hurdle because of Tuatara being bought out before that date.[30] There are indications that there was no discussion about a temporal limit.Mr Murrie said that he had limited knowledge or expertise in the mechanics of howthe agreement operated and relied on his lawyers for such details, and Mr Bradshawaccepted that had there been such a conversation it would have led to discussions abouthow cl 9.8 would operate. He could not recall any such discussions.[31] For Rangatira, Mr Gollin submitted that the conversation was relevantobjective background evidence, because "an objective person knowing [of theconversation] would assume that cl 9.8 was intended solely to deal" withMr Murrie's concern that Tuatara could be bought out before the EBITDA Hurdle wasmet. We do not accept this submission. The clause may have been intended to protect22 HC judgment, above n 5, at [82]–[92].23 Green v Green [2016] NZCA 486, [2017] 2 NZLR 321 at [31]–[32].the original shareholders in the event of a buy-out, but it does not follow that it musthave been temporally limited in the way Rangatira now contends.The correct interpretation of cl 9.8Clause 9.8 itself[32] We begin with the wording of cl 9.8, which we repeat for convenience:9.8 Exit event: If any Exit event occurs which actually or by implicationvalues the Business or the Company at greater than $12,000,000, thenthe Contingent Payments shall become immediately due and payable.[33] We make two observations. First, the only obvious link cl 9.8 has to any otherterm in the agreement is that it uses the defined term "exit" event (found in cl 1.1).Once that is known, the clause operates clearly enough on its own terms: if an exitevent occurs which values the business at $12 million, the contingent paymentsbecome immediately due and payable. The definition does not have a temporalelement.[34] Secondly, there is no need to gloss the mechanism adopted in the clause.In submissions before us, Mr Gollin submitted that the phrase "immediately due andpayable" operated to accelerate the payment mechanisms in other parts ofthe agreement. That is a strained interpretation. The phrase "immediately due andpayable" has a simple and orthodox meaning, namely that the contingent payment isto be made at once.Clause 9.8 in the agreement as a whole[35] Clause 9.1 sets out the alternative way the contingent payments can be paid,by reaching the EBITDA Hurdle before the contingent sunset date:9.1 EBITDA Hurdle: The:9.1.1 Contingent Subscription Price shall be payable to the Companyin immediately available funds; and9.1.2. Contingent Purchase Price shall be payable to the Vendors inimmediately available funds;within seven (7) days of the Company, the Purchaser, and the VendorRepresentatives agreeing, or it being determined pursuant to clause 9,that the Company has met the EBITDA Hurdle, provided thatthe EBITDA Hurdle is met on or before the Contingent Sunset Date.For clarity, it is acknowledged that determination of whetherthe EBITDA Hurdle has been met need not necessarily occur prior tothe Contingent Sunset Date.[36] It will be seen that, in contrast to cl 9.8, cl 9.1 expressly refers to and iscontingent on the Contingent Sunset Date being met. So the drafters of the contractturned their minds to making the Conditional Sunset Date an explicit requirement incl 9.1, and equally could have (but did not) do so in cl 9.8. Importantly, as cl 9.1recognises, there may be some difficulty in determining whether the EBITDA Hurdlehas been met, which is addressed in the balance of cl 9. Clauses 9.2 and 9.3 set outthe basic mechanisms for determining whether the EBITDA Hurdle has been met,with cl 9.4 setting out a detailed process for Rangatira to assess Tuatara's claim that ithas met the target. If the parties disagree, an outside expert is appointed to make thedetermination. Clause 9.7 links the Contingent Sunset Date to the EBITDA Hurdle:9.7 Protection of Parties: Each Party agrees that from the CompletionDate to the Contingent Sunset Date (or earlier agreement ordetermination of the EBITDA Hurdle being met):9.7.1 it will act in good faith and in the best interests of the Companyin respect of the Contingent Payments and will not take anyaction with the intent of reducing the EBITDA (or any otherrelevant inputs) of the Company for the purpose of reducingthe Contingent Sunset Payments;9.7.2 it will use all reasonable steps to promote the Business;9.7.3 it will not take any steps with the intention of manipulatingthe application or circumventing the terms of this clause 9 toreduce the EBITDA and that it will comply with the spirit aswell as the letter of these provisions of this clause 9; and9.7.4 unless otherwise agreed (which may include dealing with howthe departure will be treated for the purposes of determiningthe EBITDA Hurdle), it will not unreasonably depart from theassumptions underlying the Business Plan in relation to theterritorial scope or nature of the Business or in a mannerinconsistent with this clause 9.7.It will be seen that the parties assumed specific obligations that continued untilthe EBITDA Hurdle was met or the Contingent Sunset Date had passed, whicheverwas earlier.[37] In contrast, and as cl 9.8 recognises by its silence on the point, neitherthe obligations in cl 9.7 nor any of the other processes in cl 9 are necessary to valuethe company on an exit event. Clause 9.8 does not refer to the balance of cl 9, as cl 9.1does, and it comes after those detailed machinery provisions. In oral argument,Mr McIntosh argued that this was because cl 9.8 was "bolted on" after the rest ofthe clause was drafted. Whether or not that is so, we agree that, when read inthe context of cl 9 as a whole, cl 9.8 clearly operates independently.[38] Mr Gollin sought to link cl 9.1 and cl 9.8 in two other ways. First, he arguedthat the use of the word "contingent" in both "Contingent Payments" and "ContingentSunset Date" indicated that the contingent payments were always intended to operateon the basis of that date. We do not agree. The work "contingent" was used becauseliability to pay the additional sums was contingent on meeting the EBITDA hurdle ora sale of the company for more than $12 million, as the case may be.[39] Secondly, Mr Gollin argued that the payments could only be made through thepayment mechanisms in cls 3.5 and 4.5 in the agreement. Clause 3.5 states that thecontingent payments were payable "upon the EBITDA Hurdle being met [as]specified in cl 9.1", and cl 4.5 states that Rangatira "will pay each Vendor itsproportionate entitlement to the Contingent Payment Price upon the EBITDA Hurdlebeing met [as] specified in cl 9.1". The short answer to that submission is that cl 9.8itself provided that the additional payment had to be made immediately and it is clearfrom the agreement itself to whom the payment was due. There is no lacuna inthe agreement.[40] It follows that, when considered in the context of this carefully-negotiatedagreement, the absence of any reference in cl 9.8 to the Contingent Sunset Dateappears deliberate. The natural meaning of the agreement, on this considered reading,is that cl 9.8 is not limited in time to the Contingent Sunset Date.The objective background evidence[41] We have already referred to the Judge's finding about the conversation betweenMr Murrie and Messrs Bradshaw and Frame, and at [29]–[31] above we explained thatwe consider it provides no relevant evidence on this interpretation issue. The partiesreferred to other potential objective background evidence however and to that we nowturn by way of cross-check.[42] First, Mr Gollin referred us to evidence, accepted by Messrs Murrie andBordignon, that the purpose of cl 9 as a whole was to "bridge the gap on value".This refers to the fact that, during the negotiations, Tuatara and Rangatira were at animpasse as to how valuable the company was, and tying the Contingent Payments tothe EBITDA Hurdle was a compromise designed to achieve a higher sale price ifthe company performed as well as Tuatara expected it would. The difficulty with thissubmission is that it simply directs us to the purpose of cl 9.1 and the EBITDA Hurdle,not cl 9.8.[43] Mr Gollin argued that, in light of this context, cl 9.8 was intended to have"financial equivalence" with cl 9.1. This was so, he said, because the $12 millionreferred to in the wording of cl 9.1 was the value placed Tuatara placed on its business,and since either reaching the EBITDA Hurdle or a sale for that amount would valuethe company at $12 million, the objective purpose of the clause was to allow Tuatarato prove its business was worth as much as it said it was.[44] It does not follow, however, that financial equivalence required thatthe valuation must occur within the same timeframe specified in cl 9.1 (the ContingentSunset Date). Mr Gollin pointed to evidence, again accepted by Messrs Murrie andBordignon under cross-examination, that Tuatara subjectively only agreed to the$12 million valuation if the EBITDA Hurdle was met "promptly". That might be so,but it says nothing about the timeframe the parties agreed on for cl 9.8.[45] Mr Gollin also referred to an exit terms sheet that stated: "Deferred paymentPayable when 12 month moving average EBIT is $2.0 million or more and subject tothis be achieved before 31 March 2015". This is evidence of how the parties intendedcl 9.1 to operate, not cl 9.8. Mr Gollin also stressed that no party mentioned thatthe Contingent Payments were payable at any time if Tuatara was sold for more than$12 million, but that silence is weak evidence at best in favour of Rangatira'sinterpretation.[46] Finally, he referred us to a drafting note inserted alongside the original versionof cl 9.8 by Mr Bordignon that said: "Drafting note: not anticipated but inserted forcompleteness". The obvious explanation for this is that that the Tuatara side (for whichMr Bordignon was negotiating) expected to reach the EBITDA threshold, so wouldnot expect to need to rely on what became cl 9.8. We respectfully disagree withthe Judge's view that "not anticipated" refers to the likelihood of a sale beforethe EBITDA Hurdle being met.24[47] It follows that we do not consider any of the background evidence pointed toby the parties sheds any real light on the meaning of cl 9.8. We also emphasise that,even if we are wrong in those findings, we would have expected clear explicitobjective evidence on this timing issue to balance the natural, well-drafted meaningwe have attributed to cl 9.8 above. We have not been directed to any such evidence.The commercial objectives of the agreement[48] The first commercial objective pointed to by Rangatira, and relied on bythe Judge, was that the contract was intended to value the company at 2013, when itwas entered. Allowing for a sale at any date in the future would be inconsistent withthis premise; it would allow for an open-ended term which would make no commercialcommon sense. Instead, the better commercial view was simply that cl 9.8 protectedTuatara in the event of an early sale. Mr Gollin explained in his submissions that"reaching a value of $12 million in two years is a very different return on investmentfrom reaching a value of $12 million in 10 or 15 years".[49] The Judge agreed with this analysis, reasoning that:[106] The reason that the earn-out provision was subject to a Sunset Datewas so that it captured the value of the company at a point in time that had aconnection with the date that the value of the company was to be ascertained.It would make no commercial sense at all, in terms of ascertaining the valueof the company in mid-2013, for an Exit event at a date far in the future toautomatically trigger liability. There would be a disconnect between such anevent and the parties' commercial objective of providing a mechanism toascertain a fair value of the company as at 2013.24 At [97].[108] The critical commercial objective of this transaction was to establisha fair value of the shares to facilitate the sale. Ascertaining the fair valuehad to be linked to the value at a particular date — in this case the value at orrelatively soon after mid-2013.[50] As noted above, only in a very clear case should a court depart from the plainmeaning of a closely negotiated commercial contract to achieve a commercial purpose.We respectfully disagree that it was appropriate to do so here. The commercialpurpose contended for by Rangatira is far from self-evident.[51] Mr McIntosh pointed to a plausible alternative commercial purpose.He explained that, from Tuatara's perspective, cl 9.8 would operate as a backstop toprotect it if the EBITDA Hurdle was not met, it being an "all or nothing" hurdle whichwould not be met if the EBITDA was even $1 less than the target. Though open-ended,the longer it took for a sale to arrive, the lower the cost (in real terms) of the $1 millionin contingent payments Rangatira would have to pay, because the payment was notadjusted for use of money.[52] Mr McIntosh did not submit that this was the commercial objective of cl 9.8,and it may not be. It sufficed for his purposes that Rangatira cannot show that theobjective for which it contends is plainly correct. That being so, the inquiry as tobusiness common sense takes us no further. We accept this argument.[53] In any event, and as this Court recently explained in Ward Equipment Ltd vPreston, there is nothing troubling about a potentially open-ended contractualobligation, because on inquiry it is unlikely to cause trouble in practice.25 In that case,the contract at issue (a license agreement) had a natural life despite being open-ended,because it was for patents that would eventually expire. In this case, both partiesexpected that Tuatara would be sold; that was the ultimate objective of theiragreement.[54] Mr Gollin argued that to find cl 9.8 was not dependent on the ContingentSunset Date would be to convert "contingent" payments into guaranteed payments,which would flout business common sense. The short answer to that point, as25 Ward Equipment Ltd v Preston [2017] NZCA 444, [2018] NZCCLR 15 at [73].Mr McIntosh submitted, is that the Contingent Payments still depend on the companygrowing and achieving a sale at or above $12 million.[55] Accordingly, we do not consider that the interpretation we have adopted iscontrary to the evident commercial purpose of the agreement. We respectfullyconsider that the Judge was wrong to take a contrary view.Rangatira's implied term argument[56] As noted above at [17], Rangatira contended in the alternative that a termshould be implied into cl 9.8 to make it subject to the Conditional Sunset Date. It isunnecessary for us to consider the law in implied terms in detail; the Supreme Courtin Mobil Oil New Zealand Ltd v Development Auckland Ltd (Mobil) has left openwhether recent developments in England should be followed here.26 In that casethe Court noted that it had addressed similar "contextual considerations" applicable tothe implication argument in that case when dealing with the interpretation arguments,but "for the sake of completeness" addressed some of the factors from the classicstatement of Lord Simon of Glaisdale in BP Refinery (Westernport) Pty Ltd v Shire ofHastings (BP Refinery).27 We accordingly apply the BP Refinery test.[57] The BP Refinery test sets out five conditions for implying a term: it must bereasonable and equitable; it must be necessary to give business efficacy to the contract;it must be so obvious as to "go without saying"; it must be capable of clear expression;and it must not contradict any express term of the contract.28 In this case Rangatirawould have us add "in the timeframe specified in clause 9.1" after "if an Exit eventoccurs" in cl 9.8.[58] We do not consider that it would be appropriate to imply such a term. First, asthe reasoning above demonstrates, to imply a term to that effect would change thebalance of the bargain the parties struck. Rangatira contended that not having cl 9.826 Mobil Oil New Zealand Ltd v Development Auckland Ltd [2016] NZSC 89, [2017] 1 NZLR 48at [81].27 At [81]–[82], citing BP Refinery (Westernport) Pty Ltd v Shire of Hastings (1977) 180 CLR 266(PC).28 BP Refinery (Westernport) Pty Ltd v Shire of Hastings, above n 27, at 283.depend on the Contingent Sunset Date would change the nature of Rangatira'sinvestment. That is to argue for rectification.[59] Secondly, and as we indicated when analysing the natural meaning of cl 9.8 inthe agreement as a whole, there is no need for additional machinery such as the termsought to make cl 9.8 efficacious. On the contrary, it operates comfortably as written.Rangatira pointed to similar arguments to those it made under its interpretationargument (for example it referred to the payment mechanisms in cls 3.5 and 4.5), butwe have addressed those.[60] Thirdly, for the reasons already given the implied term is far from being soobvious as to go without saying. It is unnecessary to consider the other BP Refineryfactors.Result[61] The appeal is allowed. Judgment is entered for the appellant on its claim.[62] The respondent must pay the appellant costs for a standard appeal on a band Abasis and usual disbursements.[63] Subsequent to the delivery of its substantive judgment, the High Court hasissued a costs judgment awarding costs to Rangatira based on its success inthat Court.29 That judgment cannot stand in light of the outcome of this appeal.Accordingly, costs in the High Court are quashed and should be fixed in light of thisjudgment.Solicitors:Dew & Company Ltd, Blenheim for AppellantMinterEllisonRuddWatts, Auckland for Respondent29 The Malthouse Ltd v Rangatira Ltd [2018] NZHC 1293.