Pennell v The Yacht "Premier"

IN THE HIGH COURT OF NEW ZEALAND
AUCKLAND REGISTRY
CIV 2004-404-3654

BETWEEN KERRY PENNELL
Plaintiff

AND THE YACHT 'PREMIER'
Defendant

Hearing: 28 October 2004

Appearances: J McTavish for Plaintiff
R Hart for Defendant

Judgment: 2 November 2004 at 12.15 am

JUDGMENT OF SALMON J

[1] This is a strike out application in respect of proceedings brought in the Admiralty jurisdiction of the Court seeking an order for specific performance of a charter agreement or, in the alternative, damages totalling $17,410.00.

[2] Only the ship is sued. Neither the former owner of the ship, who it is accepted entered into a charter agreement with the plaintiff, or the present owner have been joined as defendants. It is clear, however, that an action in rem is in reality an action against the owner of the vessel (see Republic of India v India Steamship Company (No 2) [1998] AC 878).

[3] It is appropriate therefore to treat these proceedings as an action against Scott Lindsay Gardner who at the time the proceedings were issued was the owner of the defendant vessel.

[4] Section 5 of the Admiralty Act 1973 applies. Sub-section 2(b) of that Act as amended provides:

(2) In addition to the rights conferred by subsection (1) of this section, the admiralty jurisdiction of the [High Court] may be invoked by an action in rem in respect of all questions and claims specified in subsection (1) of section 4 of this Act [ ]: Provided that—

(a) …

(b) In questions and claims specified in paragraphs (d) to (r) [ ] of subsection (1) of section 4 of this Act arising in connection with a ship where the person who would be liable on the claim in an action in personam was, when the cause of action arose, the owner or charterer of, or in possession or in control of, the ship, the jurisdiction of the [High Court] may (whether the claim gives rise to a maritime lien on the ship or not) be invoked by an action in rem against-

(i) That ship if, at the time when the action is brought, it is beneficially owned as respects all the shares therein by, or is on charter by demise to, that person; or
(ii) Any other ship which, at the time when the action is brought, is beneficially owned or on charter by demise as aforesaid.

[5] The plaintiff’s cause of action arises as a result of an alleged termination by Mr Gardner of a charter agreement relating to the vessel. There is no dispute that at the time when Mr Pennell was told by Mr Gardner that he could no longer charter the vessel, Mr Gardner beneficially owned all the shares in it. The question then is whether at that time Mr Gardner would have been liable on the claim in an action in personam. The issue is whether Mr Gardner became liable to Mr Pennell in respect of a written charter agreement entered into between Mr Pennell and the former owner of the vessel, Mr John Sneddon.

[6] As this is an application to strike out the Court must be satisfied before granting the application that the plaintiff’s causes of actions are so clearly untenable that they cannot possibly succeed: Attorney-General v Prince and Gardner [1998] 1 NZLR 262 (CA). For the purpose of an application to strike out the Court assumes that the facts pleaded are true but is not required to assume the truth of pleaded allegations if they are entirely speculative and without foundation: Collier v Pankhurst (CA136/97, Judgment 6 September 1999). The jurisdiction is to be exercised sparingly and only in a clear case where the Court is satisfied it has the requisite material: Gartside v Sheffield Young and Ellis [1983] NZLR 37. As a matter of practice the Court will not strike out where it seems that a defect in the pleadings can be cured by an amendment.

Background

[7] In December 2000 a Mr John Sneddon, then the owner of the defendant vessel, sought parties interested in entering into agreements to charter the vessel. Agreements were entered into with a number of people including Mr Gardner and Mr Pennell.

[8] In December 2001 Mr Pennell entered into a second agreement with Mr Sneddon to charter the vessel. The term of that charter was for two calendar years from the 13 December 2001 with an option to renew for a further period. The terms of the agreement allowed the plaintiff to have the vessel available for sailing for a total of 37 days per year. Any unused entitlement during the period of the charter could not be carried forward and the charter agreement could be terminated for serious breach or if the vessel became unavailable for use for any reason. The agreement had no provision relating to the consequences of the sale of the vessel.

[9] The plaintiff paid for the first year of the term. The payment for the second year was expressed to be “contra for Kerry’s time and attendances in obtaining small ships management certificates”. Those certificates were necessary before the ship could be chartered. It is accepted by the plaintiff that all of his time and attendances in relation to the obtaining of these certificates occurred before Mr Gardner acquired an interest in the vessel.

[10] The charter agreement between Mr Sneddon and Mr Pennell is quite an extensive document covering the obligations of the parties. It provides in para 19 that:

No modification, alteration or addition to this agreement shall be binding on the parties unless in writing and signed and acknowledged by each of them.

[11] In January 2002 Mr Gardner agreed to purchase a 50% shareholding in the Premier. He says that it was not his intention to be any sort of business partner with Mr Sneddon nor to try and make a profit from the hiring out of the vessel. Indeed, he was aware that such a venture was not commercially viable.

[12] Mr Gardner’s evidence is that he was motivated to purchase an interest in the vessel by his desire to ensure his continued use of it. He says that he was aware that if Mr Sneddon did not pay his bills the vessel would be seized and sold by a finance company and that if Mr Sneddon failed to properly manage the charter arrangements there was a risk that the charterers would cease paying their contributions.

[13] The agreement entered into between Mr Sneddon and Mr Gardner at the time of the purchase of the 50% interest recorded that:

Scott and John will also pay ongoing costs on an equal basis to make up the short fall in the money paid by the time share users contribution of operating costs and maintenance.

[14] Mr Gardner advised all the charterers including Mr Pennell shortly after he acquired his 50% interest that he had “gone into partnership with John” and “that financial problems have been eliminated so we are now assured access to the boat on a long term basis.”

[15] From then on in his communications with Mr Pennell, Mr Gardner acted as though he were involved in the charter contract. He made arrangements with Mr Pennell as to the times when he could use the vessel. Mr Pennell’s evidence is that all arrangements and dealings for the charter of Premier from January 2002 were made through Mr Gardner and he acted in all respects as though he were the owner of the yacht. However, he knew of course that Mr Gardner and Mr Sneddon were joint owners of the vessel.

[16] Mr Pennell continued to charter the boat during 2002. Mr Pennell raised with Mr Gardner certain issues that he had with Mr Sneddon. A firm of solicitors acting on behalf of Mr Sneddon and Mr Gardner responded to Mr Pennell’s concerns in terms which suggested that that response was a joint one on behalf of Mr Gardner and Mr Sneddon. But I note that in a claim to the Disputes Tribunal dated April 2002, Mr Pennell refers to the charter arrangement/contract that he has with Mr Sneddon. In one of Mr Gardner’s affidavits he deposes that at the Disputes Tribunal hearing on the 17 May 2002 he specifically denied that he had assumed responsibility for Mr Sneddon’s obligations under his contract with the plaintiff.

[17] Mr Gardner says that in August 2002 Mr Sneddon admitted to him that he was in extreme financial difficulty and that contrary to assurances given when Mr Gardner purchased a 50% shareholding in the vessel, he (Mr Sneddon) owed money to the vessel’s previous owner. The previous owner’s solicitor wrote alleging an agreement with Mr Sneddon that the previous owner would retain an interest in the vessel which gave him the right to seize and sell it. In this situation Mr Gardner and Mr Sneddon decided that the best way to resolve the situation was for Mr Gardner to purchase Mr Sneddon’s share and to assume responsibility for paying the previous owner. This occurred in November 2002. On the 27 November Mr Gardner emailed Mr Pennell in the following terms:

Recently due to ongoing financial difficulties John sold his remaining share in Premier to myself. I now have a 100% ownership … John should have advised you of this and that Premier is no longer available to you as per the contract that you have with him.

Discussion

[18] Looking at the whole of the evidence I am left in no doubt that Mr Gardner took over the management of the charter contracts largely, it seems, because of the illness of Mr Sneddon.

[19] The question for the purpose of these proceedings is whether Mr Gardner assumed the obligations of Mr Sneddon under the contract with Mr Pennell or whether he was just managing the contract on Mr Sneddon’s behalf and for the benefit of them both and for the benefit of the charterers. An assumption of obligation under the charter agreement could only result from the novation of the contract or by the application of the principles of estoppel.

[20] The proceedings in their present form make no allegation under either of these heads. In their present form they fail to disclose a cause of action because they provide no basis for a conclusion that Mr Gardner had an in personam liability to continue with the chartering arrangements. The closest the pleading comes is in paragraph 5 which says:

At the time Mr Gardner became co-owner of the ship he aware (sic) of the plaintiff’s right to charter the ship and raised no objection about the plaintiff continuing to do so.

Such an allegation is not sufficient to raise an in personam liability in this case.

[21] As mentioned earlier the practice is not to dismiss proceedings if they could be remedied by amendment. I have therefore given consideration to whether the quite extensive affidavit evidence provides a foundation for a submission either that there has been a novation of the contract or that Mr Gardner is estopped from denying that he is obliged to continue with the chartering arrangements.

Novation

[22] It is well established that novation is the only method by which an original obligator can be effectively replaced by another. See, e.g. Burrows Finn and Todd Law of Contract in New Zealand, 2nd Ed, para 17.2.1. The authors refer to National Trust Company v Mead (1990) 71 DLR (4th) 488 at 500-501 where Wilson J maintained that because assent is the crux of novation, then, in the absence of express agreement, the Court should be loath to find novation unless the circumstances are really compelling. Important to this case is the requirement that the creditor must have accepted the new contract in full satisfaction and substitution for the old contract.

[23] It is, of course, possible for a contracting party to arrange with a third person to undertake the work which the contracting party has agreed to do. To some extent that is what happened in this case. Mr Gardner accepted the duty of organising the chartering arrangements. However he was not the only charterer to undertake some obligations on behalf of Mr Sneddon. According to the evidence another charterer undertook the preparation of accounts and Mr Pennell also it seems took some steps which strictly speaking were the responsibility of Mr Sneddon. However, such vicarious performance does not relieve the principal to the contract from the obligation to ensure due performance of it.

[24] Section 11 of the Contractual Remedies Act 1979 provides that if a contract or the benefit or burden of a contract is assigned, the remedies of damages and cancellation shall be enforceable against the assignee. There is, however, no evidence of an assignment by Mr Sneddon of his contractual obligations nor is there any allegation that this occurred.

[25] The furthest Mr Pennell’s evidence goes is to allege that from the time he purchased the 50% shareholding Mr Gardner acted as though the yacht was in his possession and control. He relies heavily on the email which Mr Gardner sent to all charterers advising them that because he had gone into partnership with John “we are now assured access to the boat on a long term basis”. Mr Gardner was of course including himself in that statement and it was based upon the fact that his intervention had resulted in Mr Sneddon’s financial problems which were threatening the availability of the vessel being resolved.

[26] The classic statement in relation to novation is that of Lord Collins MR in Tolburst v Associated Portland Cement Manufacturers (1900) Limited [1902] 2 KB 660 at 668:

It is, I think, quite clear that neither at law nor in equity could the burden of a contract be shifted off the shoulders of a contractor on to those of another without the consent of the contractee. A debtor cannot relieve himself of his liability to his creditor by assigning the burden of the obligation to somebody else; this can only be brought about by the consent of all three, and involves the release of the original debtor.

[27] There is certainly no evidence of any agreement to this effect. Arguably the provision in the contract between Mr Pennell and Mr Sneddon requiring any modification or alteration to the agreement to be in writing would apply. There is no evidence of any such document.

Estoppel

[28] Ms McTavish argued that the principle of promissory estoppel applied. She submitted that Mr Gardner held himself out as bound by the agreement between Mr Pennell and Mr Sneddon and that it would be unjust, inequitable or unreasonable to deny that he was bound, as he did by cancelling the agreement once he became a 100% owner. She submitted that Mr Pennell had suffered detriment because he took no action to enforce his charter rights and that as a consequence he has suffered loss.

[29] I invited Ms McTavish to specify the loss which Mr Pennell had suffered as a result of Mr Gardner’s alleged holding out. She could point only to the fact that he wasn’t able to exercise the balance of his rights under his contract with Mr Sneddon. She submitted that it was unconscionable that Mr Gardner should obtain the vessel without the charter agreement obligation.

[30] Ms McTavish relied on the Limitation by Conduct section of Civil Remedies in New Zealand (para 18.4) to support her submission that “detriment” is no longer a requirement of the doctrine of equitable estoppel. The author of that section relies primarily on Waltons Stores v Maher [1988] 76 ALR 513 in support of that proposition. In this country, however, the law is that stated in Gillies v Keogh [1989] 2 NZLR 327 (CA). A more complete statement of the doctrine appears at para 4.7 of the 2nd Ed of Law of Contract in New Zealand.

[31] In my view the law is correctly stated by Hammond J in Rodney Aero Club Inc v Moore [1998] 2 NZLR 192 at 197 where that Judge said after referring to Waltons Stores:

However, I think it is sufficient for the purposes of this case to note that the general principles of estoppel in New Zealand require:

(1) the encouragement of a belief or expectation;
(2) reliance on such belief or expectation; and
(3) consequential detriment.

Gillies v Keogh is referred to as supporting that statement of the law.

[32] Put at its highest from the plaintiff’s point of view there must be a factual situation which makes it inequitable or unconscionable to allow a promissor to go back on his or her word. That may be because of some detriment of the promissee or it may be that the promissee has altered his or her position in reliance on the promise. Whatever way it is described there is nothing in the facts of the present case which makes it inequitable or unconscionable for Mr Gardner to refuse to honour the contractual obligations of Mr Sneddon.

[33] But the plaintiff’s difficulty goes further than that. The starting point for the establishment of an estoppel is that there must be a clear unambiguous representation or promise by one party to the other. That does not exist in this case. All that happened was that Mr Gardner ensured during the period of joint ownership that the obligations that Mr Sneddon had undertaken to the charterers (which of course included Mr Gardner) were fulfilled. There is no clear unambiguous promise to continue to do so and there was certainly no promise of any description made once Mr Gardner became the sole owner of the vessel. I am satisfied that the doctrine of estoppel does not assist the plaintiff.

Conclusion

[34] The statement of claim does not disclose a cause of action against Mr Gardner and the plaintiff has not satisfied me that it would be possible to amend the statement of claim in such a way as to include such a cause of action. Accordingly the defendant’s application is granted and the statement of claim is struck out. The defendant is entitled to costs to be assessed on the basis of Category 2 Band B.

Solicitors:
Graham & Co, P O Box 8793, Symonds St, Auckland for Plaintiff
Chapman Tripp, P O Box 2206, Auckland for Defendant