The New Zealand Supreme Court has released its decision in Bathurst Resource Ltd v L&M Coal Holdings Ltd [2021] NZSC 85. The Supreme Court has unanimously held that pre-contract negotiations and post-contract conduct are admissible in contract interpretation under New Zealand law.  

What does this mean for in-house counsel in practice? 

First, that your filing system is more important than ever! Briefings to suppliers, requests for proposals and quotes, and emails to and from your counterparty with markups and explanations on draft documents may well be admissible as evidence in future contract interpretation disputes. In some situations, this extend even to declarations of subjective intent, subsequent conduct and specialised industry and “private dictionary” meanings. Such evidence will still have to satisfy the Evidence Act’s standards of relevance and probative value, but as a general rule, much more evidence may be admissible in contract disputes in the future. This means being able to store and readily retrieve such extrinsic evidence may be critical in the future. 

Second, the Bathurst case also demonstrates the fundamental importance of saying what you mean in your contracts. The expanded admissibility of extrinsic evidence under Bathurst won't apply if your contract doesn't need interpretation by the court. Despite adopting a much more liberal approach to admissibility in principle, the Supreme Court did not actually seem place any significant reliance on extrinsic evidence in splitting 3-2 when interpreting the clauses at issue. A bit of imaginative pessimism in drafting the contracts could have prevented the dispute entirely.  

A good contract should reflect the transaction at hand, the business environment in which you contract, your other risk mitigants and your organisation’s appetite for risk. Get this right, and most contract disputes won’t make it to court. But if they do, it may be critical to be able to show that early drafts of the contract included express statements about what a clause was trying to achieve. 

If you’d like to add your thoughts to this discussion (or challenge ours) or want to explore further how your contracting approach, policies or templates, or legal filing systems might need review in light of this decision, please feel free to get in touch.