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Elite Underlay Ltd v Eco Rubber Industries Ltd [2017] NZDC 13334

Published 10 August 2017

Contract interpretation — contra proferentum rule — unilateral termination of a clause — meaning of clause — lease to own contract. The plaintiff and defendant entered into a "lease to own" contract. The contract was commercially disadvantageous to the plaintiff who held the stronger bargaining position during the negotiation. A fire interrupted the business of the defendant, and following a valuation the defendant decided not to finish repairing the damage or carry out further production on site. The plaintiff invoice the defendant for management fees which he considered payable. The only payment made from that month onwards by the defendant was the monthly lease to buy, with no contribution made for management costs. The defendant claimed that there was no staff left to manage and so the management fee would not be paid for that. The plaintiff asserted that the defendant was not able to unilaterally cancel the management aspect of the agreement. The agreement did not contemplate the defendant ceasing production of payment of management fees. The plaintiff argued that the management agreement was an instrumental part of the purchase price as without it, the agreement defied commercial sense. The court found that to succeed the plaintiff would need to demonstrate an ambiguity in the contract that would show that interpretation, and that the commercially disadvantageous nature of the agreement was not of any moment if the agreement was freely reached. The court found that the contract was not drafted by one party, but was revised as a result of negotiations, and that a "contra proferentum" rule could not apply as the words bore only one meaning. The plaintiff's claim was found to have failed and judgment was entered for the defendant. Judgment Date: 17 July 2017.

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