Bagnall & Anor v. Mobil Oil New Zealand Ltd (New Zealand) [2001] UKPC 57

Judicial Committee of the Privy Council

Case No Privy Council Appeal No. 23 of 2001

Venue FROM THE COURT OF APPEAL OF NEW ZEALAND

Between

Bagnall & AnorAppellant

Mobil Oil New Zealand Ltd (New Zealand)Respondent

Before

Lord Bingham of Cornhill

Lord Hobhouse of Woodborough

Lord Scott of Foscote

Sir Martin Nourse

Sir Kenneth Keith

Date 11 December 2001

[1]:- Lord Bingham of Cornhill Lord Hobhouse of Woodborough Lord Scott of Foscote Sir Martin Nourse Sir Kenneth Keith [Delivered by Sir Kenneth Keith ] Mr Bagnall and Mr Maher (the appellants or the guarantors) were directors and shareholders of Promo Marketing International Limited (Promo). Promo had the rights from 1991 to 1995 to conduct car races on a Wellington water front street circuit and at the Pukekohe race circuit.

[2]The Wellington rights for 1994 and 1995 were available under an agreement of 13th October 1994 between the Wellington City Council, Promo and Lambton Harbour Management Limited (which controlled some of the land over which the races were run). Promo's rights were exclusive and it was obliged to stage and promote the event in the first weekend of December in each year. The Council and Promo could not assign the agreement without the consent of the other; the consent was not to be unreasonably withheld. The High Court and Court of Appeal did not have this agreement before them.

[3]Promo had sponsorship agreements with Nissan, a car company, and the respondent, Mobil, a petroleum company. Mobil, under its agreement signed on 15th January 1991, undertook to pay a sponsor's fee of $1,100,000. Proportions of that fee were to be refunded in the circumstances set out in clause 9. Under that clause, if the Pukekohe Event was not run in any year during the 1991/1995 term for any reason whatsoever the promoter (Promo) was to refund to the sponsor (Mobil) $70,000 plus goods and services tax (GST) (clause9.1 ). If the Wellington Event was not run in any year Promo was to refund to Mobil $150,000 plus GST (clause 9.3). If for any reason Promo lost the Pukekohe rights it was to refund an amount calculated in accordance with a formula which in effect required the payment of $70,000 plus GST for the number of occasions on which the event still remained to be run (clause

9.2 ). If for any reason Promo lost the Wellington rights the agreement would be automatically terminated and Promo was to refund to Mobil $150,000 for each of the remaining Wellington races and $70,000 for each of the remaining Pukekohe races, again plus GST (clause 9.4). The sums, if not paid, attracted interest calculated at the rate of a named bank's indicator lending rates plus two percent. It will be seen that the aggregate of the possible refunds – 5 x $70,000 for the Pukekohe races plus 5 x $150,000 for the Wellington races – equalled the sponsorship fee of $1,100,000 paid by Mobil.

[4]The races were run at both venues in each of the first four years of the Mobil sponsorship agreement, that is from 1991 to 1994. This appeal is concerned only with the 1995 races which were not in fact held. It might be thought, in terms of clause 9, that it does not matter in that final year whether Promo's "rights [were] lost" (under subclause (4)) or the final year races were "not run" (under subclauses (1) and (3)). In either event there was, on the face of it, an obligation to repay.

[5]The appellants signed deeds on the day the sponsorship agreement was signed guaranteeing Promo's obligations under the sponsorship agreement, including the due and punctual payment by Promo of all monies payable by it under or pursuant to the Sponsorship Agreement. They agreed, if Promo was in default in making such payments, themselves to make the payments if Mobil so demanded.

[6]After the 1994 races the other sponsorship agreement, with Nissan, ended. By August 1995 Promo had not been able to find an acceptable replacement sponsor for the races which were due to be held in December. On 13th September 1995 Mobil and Promo agreed to a "Super Series Sponsorship Agreement". Mobil agreed to pay an additional sponsorship fee of $220,000. The new agreement was to be read in conjunction with the 1991 sponsorship agreement. Its purposes were "to clarify and supplement the rights and obligations of Mobil and Promo under the Sponsorship Agreement …". To the extent of any inconsistency, the new agreement was to apply but otherwise the provisions of the sponsorship agreement continued to apply. Clause 9 of that agreement was among the non-exhaustive list of Promo's obligations and warranties identified as continuing. Further, the guarantees provided by the appellants under the 1991 deeds were to "remain in full force and effect and shall be deemed to secure the performance of Promo's obligations under this letter [setting out the new agreement] and the Sponsorship Agreement". The new agreement was signed by the two appellants as well as being signed for Mobil and Promo.

[7]The new agreement included particular provisions about the cars which were to participate in the races and gave Mobil related rights of termination:- "RACE PARTICIPANTS9.1 Promo undertakes to secure at Promo's cost the attendance and participation of a minimum of six (6) 5 Litre Level I Touring Cars (from the teams listed in Attachment A) at the Wellington Event and the Pukekohe Event.

9.2 Each Team shall participate in two (2) races each of a maximum 35 minutes duration (together with practice and qualifying) at Wellington from Friday 1 December 1995 to Sunday 3 December 1995 inclusive AND two (2) races each of a maximum 35 minutes duration (together with practice and qualifying) at Pukekohe from Friday 8 December 1995 to Sunday 10 December 1995 inclusive.

9.3 In each race, Promo shall ensure a minimum size field of 11 racing cars of which at least six Group 3A cars shall be from the teams listed in Attachment A.

9.4 Promo shall arrange for the attendance and participation of cars for the support races at Wellington and Pukekohe.

9.5 Promo shall consult with Mobil with respect to the type of vehicles racing, the duration of races and the order of races and Mobil's views will be acted upon before any decision or announcements are made by Promo. CONDITIONS PRECEDENT

10.1 This agreement is subject to and conditional upon Promo satisfying the following conditions to Mobil's reasonable satisfaction on or before 1 October 1995.

(a) Written confirmation from Motorsport Association of New Zealand ('MANS') and Federation Internationale de Sport L'Automobile ('FISA') that the organisations will grant Promo a licence to conduct the Sponsored Events (subject to final track inspection).

(b) Independent written confirmation of commitment to race at least six Group 3A Touring Cars in the races as set out in clause 9.2.

10.2 In the event one or more of the conditions in 10.1(a), (b) or (c) have not been satisfied (time being of the essence), Mobil may elect to terminate this agreement without prejudice to any of its rights under this agreement, the Sponsorship Agreement or the Existing Securities.

10.3 Upon termination under 10.2, Promo shall unconditionally and immediately assign to Mobil or its nominee all rights held by Promo to promote and conduct motor car races at Wellington or Pukekohe.

10.4 For the purposes of clause 10.3, Promo hereby appoints Mobil as its attorney to sign any documents or perform any act on behalf of Promo that may be reasonably necessary to give effect to the assignment of rights referred to in 10.3."

[8]By 1st October 1995, Promo had not confirmed that it had satisfied the three conditions in clause 10.1 of the 1995 agreement. On 4th October Mobil wrote to Promo pointing out that failure and indicating that it was willing to extend the time for compliance to 9th October. Promo responded on 4th October reporting on what it saw as considerable progress towards satisfying the conditions and requesting further time extensions. Mobil agreed to further extensions, in particular to 11th October in respect of clause 10.1(b), requiring the confirmed commitment to race the six designated cars. On 12th October at 3.35 p.m. Mobil sent a fax to Promo serving notice of its failure "to fulfil the conditions precedent set out in clause 10.1(b)" and stating that it was currently reviewing its options.

[9]Two hours later, at 5.46 p.m. on 12th October, Mobil wrote to Promo terminating the 1995 agreement:- "WELLINGTON STREET RACE SPONSORSHIP AGREEMENT 1. We refer to the Street Race Promotion Agreement dated 13 September 1995 ('Agreement'). We confirm that Promo Marketing International Limited has verbally advised Mobil that Promo is unable to fulfill the condition contained in Clause 10.1(b) of the Agreement. 2. Accordingly, Mobil hereby terminates the Agreement with immediate effect pursuant to clause 10.2. This termination is without prejudice to any of Mobil's rights under the Sponsorship Agreement dated 15 January 1991, or the securities granted pursuant to it. 3. Mobil now requires you to assign your rights to hold the Wellington Street Race pursuant to clause 10.3 of the Agreement. Attached is a deed of assignment assigning the Street Race Agreement between, Promo Marketing International Limited, Wellington City Council & Lambton Harbour Management, dated 13 October 1994 to Mobil. Could you please sign this deed of assignment and return it to us within 24 hours. 4. Pursuant to clause 7.5 of the 15 January 1991 Agreement, Mobil requires you to immediately discontinue publicizing any material relating to the Wellington street race or Pukekohe race that refers in any way to Mobil, its products or logos, including the Mobil Super Series logo." The draft deed of assignment was in fact not signed by any of the proposed parties which included the Wellington City Council.

[10]Mobil on 15th December 1995 wrote to Promo, for the attention of Mr Maher, referring to the 1991 agreement and its obligation to run two car race events in 1995, one being in Wellington and the other in Pukekohe as defined in the agreement:

"Following the failure of your company to hold the Pukekohe and Wellington Events this year, your company is now required to refund to Mobil the sponsorship fee calculated in accordance with Clause 9 of the Agreement. The amount due to be paid to Mobil is $247,500.00 (inclusive of GST) calculated as follows: Failure to run the Pukekohe Event (Clause 9.1) $70,000 plus GST $8,750 $78,750 Failure to run the Wellington Event (Clause 9.3) $150,000 plus GST $18,750 $168,750 $247,500 We require payment of the abovementioned amount on or before Thursday 21 December 1995 failing which we shall be forced to pursue recovery action against your company and/or exercise our rights under the securities we hold which include the personal guarantees we hold from yourself and J A Bagnall. We trust this action will not be necessary. We draw your attention to Clause 9.5 of the Agreement with respect to your company's liability to pay interest on overdue moneys."

The sum was not paid and Promo was later put into liquidation. In January 1998 Mobil elected to enforce the undertakings given by the guarantors in the 1991 deeds. It sought the payment of $127,824 from each of them calculated in accordance with the deeds. The guarantors refused to pay and Mobil brought the present proceedings and sought summary judgment.

[11]The critical part of Mobil's statement of claim read as follows:- "7. The Super Series Agreement was additional to the Sponsorship Agreement and provided, amongst other things:(a) The Deeds would remain in full force and effect and would secure Promo's performance under both the Super Series Agreement and the Sponsorship Agreement (clause 2.1).

(b) The Super Series Agreement was to be subject to a number of conditions precedent including that Promo would by 1 October 1995 provide independent written confirmation of commitment to race at least six Group 3A Touring Cars in the Races (clause

10.1 (b)).

(c) Failing fulfilment of any condition precedent contained in clause 10.1, the plaintiff was entitled to terminate the Super Series Agreement (clause

10.2 ).

(d) On termination of the Super Series Agreement, Promo was to assign its rights under the Sponsorship Agreement to the plaintiff and appoint the plaintiff as its agent to execute the assignment (clauses

10.3 and

10.4 ). 8. Promo failed to provide written confirmation by 1 October 1995 that it had fulfilled the conditions precedent in the Super Series Agreement. 9. On 4 October 1995, the plaintiff extended the time for fulfilment of the conditions precedent in the Super Series Agreement to 9 October 1995, Promo having failed to fulfil the conditions precedent as at 4 October 1995. On 5 October 1995 at the request of Promo, the plaintiff again extended the time for fulfilment of two of the conditions precedent in the Super Series Agreement to 11 October. 10. Promo failed to notify the plaintiff on 11 October 1995 that it had fulfilled the conditions precedent of the Super Series Agreement. 11. On 12 October 1995, the plaintiff terminated the Super Series Agreement by sending to Promo (by way of facsimile) a termination notice and deed of assignment. The termination notice and deed of assignment were also couriered to Promo on 13 October 1995. 12. The Races were not held in 1995. Accordingly, Promo became obliged to pay the plaintiff the sums of money referred to in clause 9 of the Sponsorship Agreement." The statement of claim then referred to the demand made on Promo, its failure to pay, its being placed in liquidation, the demands made on the guarantors and their failure to pay.

[12]The application for summary judgment was refused by Master Thomson who concluded that Mobil had not persuaded him that the guarantors had no arguable defences, that being the accepted test for summary judgment as stated in Pemberton v Chappell

[1987] 1 NZLR 1

CA. Mobil appealed to the Court of Appeal (Blanchard, McGechan and Doogue JJ) and succeeded. It held unanimously that there were no arguable defences and entered summary judgment in favour of Mobil against each appellant for the sums claimed. The guarantors appealed against that decision to Her Majesty in Council.

[13]In the course of the hearings before the Master, the Court of Appeal and their Lordships' Board a wide range of issues has been raised.

[14]Their Lordships consider that the matter can however be addressed and resolved directly in terms of Mobil's rights under clause 10.2 of the 1995 Super Series Agreement and under clauses 9.1 and 9.3 of the 1991 agreement.

[15]The guarantors do not now question in any way the right of Mobil to give notice, as it did on 12th October, of termination of the 1995 agreement under its clause 10.2. They accept that Promo did not meet the conditions stated in clause 10.1(b) requiring the confirmed commitment to race of at least six Group 3A Touring cars. Mr Maher for Promo had also accepted that in exchanges with Mr Bodger of Mobil on 11th and 12th October 1995. That notice of termination led to a press release by Mobil on 13th October 1995 in which it said that the Mobil Super Series "looks unlikely to proceed … Event promoter Promo Marketing has been unable to confirm cars and drivers of sufficient quantity and quality by a mutually agreed deadline …". The press release referred to Promo not being able to meet its commitment to secure at least six of the top V8 Australian touring car drivers. Mobil confirmed that it hoped to work with the Wellington City Council to organise a high quality event in Wellington at a time suitable to all parties. On the previous day Mobil had in fact met representatives of the Council and following the meeting had written to the mayor of Wellington asking for consent to the assignment of Promo's agreement with the City Council and for certain variations of that agreement. The letter contained this passage:- "As you are aware Mobil Oil New Zealand Limited is gravely concerned about the standard of the Mobil sponsored races held on the Wellington waterfront each year. In particular we seriously doubt that any kind of suitable race could be held which reflected the standards that both Mobil and the Council have sought to uphold for the race for 1995. We have requested that Promo meet certain criteria to ensure the basic standard for this year's race and it is with regret that Promo has been unable to satisfactorily meet these contractual conditions. Therefore Mobil has the option under its Agreement with Promo to assign the rights that Promo currently holds from the Wellington City Council in the Agreement dated 13 October 1994." Mobil then requested the Council's consent to the assignment of the 1994 agreement between the city and Promo and to five variations in the agreement. One of the proposed variations was to delay the "1995 Race" to 1996 and to extend the term of the agreement accordingly. Those proposed amendments help explain why Mobil did not exercise the power of attorney conferred by clause 10.4 of its 1995 agreement with Promo to assign to itself the agreement completely unchanged. Mobil would in any event have had to get the Council's consent to that assignment in terms of the relevant clause of the 1994 agreement.

[16]There has been much discussion at various stages of this proceeding about the question whether there was an assignment of the Promo-Council agreement to Mobil but on the facts it is clear that there was not. It is also clear that the matter is not of practical importance for the disposal of this appeal. The mayor replied to Mobil's letter on 13th October in generally positive terms but stressing that she could not unilaterally provide Council consent to the assignment or to the proposed variations of the existing agreement. She certainly intended to make a strong recommendation to the incoming Council that the assignment and variations be accepted. On the following day, 14th October, the City Council through the mayor made a public announcement carried by national media that the Wellington street race would not proceed. According to Mr Maher these announcements led to the withdrawal of the racing teams that had previously confirmed they would compete, the loss of major hospitality sales, the loss of track side signage sales and irreparable damage to Promo's credibility. All its planning and organisation for the Wellington street race was brought to a halt.

[17]By that stage there was no prospect of the races being held in 1995 and they were not held. On the face of it, the conditions of clauses 9.1 and 9.3 came into play. "If the Pukekohe event is not run in any year during the term for any reason whatsoever" and "if the Wellington event is not run in any year" the promoter was to refund $70,000 in the one case and $150,000 in the other plus GST and, in the event of delay, interest under clause 9.5. No significance is to be seen in the circumstances of this case in the inclusion of the phrase "for any reason whatsoever" in the Pukekohe clause but not in the Wellington clause.

[18]Mr Dale, who argued the case for the appellants carefully and comprehensively, contended that Mobil's right of recovery under clauses 9.1 and 9.3 of the 1991 agreement was not available if the races were not run because of Mobil's wrong. And it had, he said, acted wrongly. In support of that submission he could refer their Lordships only to the correspondence and discussions with the city and to Mobil's press release. Their Lordships can see nothing wrong in the exchanges with the city. If the Wellington race was to be run on some future occasion Mobil would require the Council's agreement. Such discussions were, in particular, needed if Mobil was to take over Promo's rights under its 1994 agreement with the Council in some amended form.

[19]So far as Mobil's press release is concerned, Mr Dale referred to clause 7 of the 1991 agreement and in particular to clauses7.1 and 7.2:- "7.1 The parties will act in good faith and use their best endeavours to co-operate with each other to maximise the positive public relations impact of the sponsorship arrangements provided by this agreement and to enhance the Sponsor's objectives as set out in the introduction to this agreement.

7.2 The Sponsor and the Promoter shall consult with each other with regard to press releases and other publications from time to time."

[20]In its context clause 7.2 is to be seen as being concerned with the promotion of the races to the advantage particularly of Mobil as sponsor. Mobil's objectives to which clause 7.1 refers are as follows:- "D. The Sponsor markets various petroleum, petroleum based and other products throughout New Zealand and seeks to increase sales of its products by obtaining brand name and product recognition by providing financial support to the staging and promotion of the Sponsored Events. E. The Sponsor seeks to promote and advertise the Sponsor's logo and brand names from time to time in the New Zealand market and to present its products in a favourable light as products of quality. F. In pursuance of the Sponsor's objectives, the Sponsor and the Promoter have agreed to enter into this agreement."

[21]Their Lordships cannot see an announcement by the sponsor, Mobil, that the final Wellington race in the series is unlikely to proceed as a breach of clause 7.2. Mobil had the right to terminate the 1995 agreement with its particular requirements for the final races. The promotional purpose of the 1991 agreement had by that time been exhausted.

[22]Their Lordships accordingly conclude that Mobil's rights under clause 9.1 and 9.3 arose at that time. The two events were "not run" in 1995 and accordingly Mobil had the right to the refund from Promo of the amounts set out in those provisions, as Mobil pleaded in paragraph 12 of its statement of claim. Given Promo's default, the guarantors became liable under their deeds. They have no possible arguable defences against the claims made against them.

[23]It follows that it is not necessary to consider the alternative ground, accepted by all members of the Court of Appeal, for the grant of summary judgment, that is that Promo had "lost" its rights to the Wellington race and, as a consequence, was obliged to make the payments under clause 9.4.

[24]Their Lordships will humbly advise Her Majesty that the appeal should be dismissed. The appellants must pay the respondent's costs before their Lordships Board.