Campbell v Craggy Range Vineyard Limited HC Wellington Civ-2004-441-392

[2007] NZHC 1734

IN THE HIGH COURT OF NEW ZEALAND WELLINGTON REGISTRY

CIV - 2004-441-392

BETWEEN  IAN ALEXANDER CAMPBELL, JOHN HUGHES AND SIMON CHARLES BISS AS TRUSTEES OF THE DRYLANDS TRUST

Plaintiffs

ANDCRAGGY RANGE VINEYARD LIMITED

Defendant

Hearing:         26-28 February 2007

Appearances: H B Rennie, QC, with G J Allan for the plaintiffs

D J Goddard, QC, with L Theron for the defendant

Judgment:      17 May 2007 at 4.00 p.m.

In accordance with r 540(4) I direct the Registrar to endorse this judgment with the delivery time of 4.00 p.m. on 17 May 2007.

JUDGMENT OF MACKENZIE J

[1]      In this action the plaintiffs, who were the vendors of what was at the time a farm property near Martinborough, seek payment of an additional sum claimed to be owing under the contract as an additional purchase price to reflect the additional value  of  the  land  arising  from  its  potential  for  development  as  a  vineyard,  as provided for in the special conditions of the agreement for sale and purchase.

Background

[2]      The plaintiffs are the trustees of the Drylands Trust, which was the owner of

166.9985 hectares  of  land  situated   at  Te   Muna   Road,   Martinborough   (“the

CAMPBELL & ORS V CRAGGY RANGE VINEYARD LTD HC WN CIV - 2004-441-392 17 May 2007

property”).  By an agreement dated 24 June 1999, the trustees as vendors contracted to sell the property to the defendant (“Craggy Range”) or its nominee for the sum of

$2,288,725.  Craggy Range was interested in the potential of the land as a vineyard. That potential was dependent upon the availability of sufficient water for irrigation. The contract contained special conditions for investigation of the availability of water, and for the payment of an addition to the purchase price in the event that water was available.

[3]     The parties had for some months prior to signing that agreement been investigating the possibilities for obtaining water.  They had entered into an earlier contract dated 6 October 1998 for the sale of the property (to a related company, but nothing turns on that) for the sum of $2,850,000.  That agreement was conditional upon the purchaser obtaining all consents necessary to take water which in the sole opinion of the purchaser was adequate and suitable for irrigation of the property.  In February and March 1999, two test bores were sunk to investigate the groundwater potential,  and  in  April  1999  an  application  for  consent  to  take  water  from  the adjacent Huangarua River was lodged with the Wellington Regional Council.  That application encountered significant local opposition, to the extent that the parties agreed not to proceed with that application.   The sale and purchase agreement accordingly did not become unconditional, and the parties re-negotiated a new agreement, being that signed on 24 June 1999.  That contained a number of special conditions dealing with the water issue:

18.      AGREEMENT CONDITIONAL

18.1This  agreement  is  conditional  upon  the  purchaser  obtaining  all consents  necessary  to  take  water  at  a  minimum  rate  of  25 litres/second which (in the sole opinion of the purchaser) is adequate for irrigation of the property to the extent required for planting and growing of 60 hectares of grapes and is suitable as to its source, quality and condition.   The consents may, at the discretion of the purchaser, relate to taking of surface water or underground water.

18.2The purchaser shall not be required to sink more than one bore and/or pursue the purchaser’s and the vendor’s joint present application for water rights for the purpose of satisfying clause 18.1. The vendor agrees that the vendor shall permit the  purchaser  to pursue the present joint application in the purchaser’s own name.

18.3The condition in clause 18.1 is inserted for the sole benefit of the purchaser.

18.4If the condition in clause 18.1 is not satisfied or waived by the purchaser on or before 30 August 1999 then either party may cancel this agreement by notice in writing to the other.

19.      FURTHER WATER RIGHTS

19.1The  purchaser  shall,  during  the  period  from  the  date  of  this agreement to the date two years following settlement date, proceed to investigate further or alternative sources of water for irrigation which would be adequate for irrigation of the area of land identified by the purchaser as suitable for further growing of grapes and to apply for all consents necessary to take such water for further irrigation of the property.

19.2The purchaser shall  have  discharged  its  obligation  to  investigate alternative sources of water and apply for consents for the purpose of clause 19.1 if the purchaser has carried out the following:

(a)Drilled two production bores on the property in addition to the production bore drilled for the purpose of the application pursuant to clause 18.1.

(b)      The bores shall be drilled to a maximum depth of 50 metres. (c)     The purchaser shall have applied to the Wellington Regional

Council for all consents necessary to take the water.   The

purchaser  shall  not  be  required  (but  may  at  its  own discretion proceed) to appeal any decision of the Wellington Regional Council.

19.3The volume of water permitted to be taken by consent of the local authority for the purpose of clause 19.1 shall be deemed adequate for planting of further grapes if the established flow of each bore is 10 litres/second or the combined volume of water permitted to be taken by consent of the local authority for the purposes of clauses 18.1 and

19.1 is 43 litres/second.

19.4The purchaser may, at the purchaser’s own discretion, elect to apply for consents to take the required water from the Huangarua River in substitution or in addition to the underground sources.

….

19.6     Following the purchaser:

(a)       having been granted water rights for surface water to be taken from the Huangarua River; and

(b)obtained water rights to take underground water from the property; and

(c)       satisfied itself that the quantity and quality of the water is sufficient for the purchasers purpose in planting and growing

105 hectares of grapes,

then the  purchaser  shall  give  written  notice  to  the  vendor  as  to whether the purchaser holds surplus rights to take surface water from the Huangarua River.

….

19.12In the event the Purchaser is unable to locate sufficient underground water supplies suitable for irrigation within the time specified in Clause 19.1 hereof, the Purchaser agrees that for a further period of five years commencing on the date specified in Clause 19.1, not to undertake further investigation into alternative sources of irrigation water, not to develop alternative sources of water for irrigation nor to apply for consents to take irrigation water.  Provided always that if the Purchaser elects not to comply with the provisions of this Sub Clause and decides to investigate and/or develop alternative source of irrigation water and applies and obtains a consent therefore at any time during the said five year period, the provisions of Clause 20.2 shall apply.

20       PURCHASE PRICE

20.1The parties agree that the purchase price for the property has been calculated on the following basis:

(a)The area of 60 hectares identified for initial planting of grapes with water rights the subject of clause 18.1 at

$27,000 per hectare  $1,620,000

(b)      The clay area of 21.7 hectares    $  141,050

(c)      An area of 69.3485 hectares                 $  450,765 (d)     For an area of 15.95 hectares at

$2,000 per hectare  $   31,900

(e)      For a trees area  $   42,000

(f)       Improvements  $    3,010

Total  $2,288,725

20.2     In the event that at any time during the period referred to in clause

19.1 the purchaser obtains consents to take water which (in the sole opinion of the purchaser) is adequate for irrigation of the part of the

property described in clause 20.1(b) [clause 20.1(c)] and which is

suitable as to its source quality and condition then the purchaser shall make a payment to the vendor in addition to the purchase price which shall be calculated in the following manner:

(a)Payment shall be made for each additional hectare for which there is adequate water.

(b)The water deemed to be adequate for one hectare is 0.4 litres/second.

(c)The rate of payment in excess of the purchase price shall be as follows:

(i)For up to 12.1 hectares at the rate of $20,500 per hectare (being the difference  between  $6,500  and

$27,000).

(ii)      For up to a further and maximum 57.25 hectares at the rate of $5,500 per hectare (being the difference between $6,500 and $12,000).

20.3The parties acknowledge that upon procuring water rights for the property at 43 litres/second the purchaser will have obtained the full amount of water it requires for irrigation of all its planned vineyards and the full payment required under clause  20.2  shall  then  become  payable  with  the consequential repayment of the mortgage pursuant to clause

30 and termination of the lease pursuant to clause 31.

20.4Any payment to be made by the purchaser to the vendor pursuant to clause 20.2 shall be made within 10 working days of the purchaser receiving written notice of the grant of all consent pursuant to clause 20.2, subject to receipt of a tax invoice from the vendor.

In clause 20.2, it is common ground that the reference to clause 20.1(b)

should be to 20.1(c).

[4]      In August 1999, a second resource consent application was filed with the Wellington Regional Council.  That sought consent to take water for irrigation, at the rate of 18 litres per second, 24 hours per day, seven days per week in the period October to April from a first production bore, developed from the second of the test bores which had been drilled in February/March.   That consent was granted on

25 August 1999.  By letter dated 31 August 1999 (a day later than specified in the agreement, but no point is taken about that), Craggy Range’s solicitors advised the Drylands Trust’s solicitors :

“that special condition 18.1 has been satisfied and accordingly the contract is unconditional”.

Settlement of the transaction took place on 14 September 1999.

[5]      In December 1999, the first test bore which had been drilled in February

1999 was developed into a second production bore.   A third resource consent application was made, for consent to take water for irrigation from that bore at the

rate of eight litres per second, 24 hours per day, seven days per week in the period

October to April.  That consent was granted on 23 March 2000.

[6]      On 5 April 2000, the solicitors for the Drylands Trust sought payment of an additional sum by way of purchase price under the contract.  The letter said:

1.Our client has passed on to us a copy of the Resource Consent to take water dated 23 March 2000 obtained by your client pursuant to Clause 20.2 of the Agreement for Sale and Purchase.

2.The Consent (No. 000232) provides for water to be taken at the rate of 8 litres per second.

3.Clause 20.2(b) states 0.4 litres per second is adequate to irrigate 1 hectare.

4.        Accordingly 8 litres per second is adequate for irrigating 20 hectares.

5.Clause 20.2(c) provides the formula for rate of payment in excess of the purchase price

(i)Clause 20.2(c)(I) is satisfied, 12.1 hectares at $20,500.00 per hectare, $248,050.00 plus GST

(ii)      Pursuant  to  Clause  20.2(c)(ii)  a  further  7.9  hectares  at

$5,500.00 per hectare, $43,450.00 plus GST.

6.Please find enclose herewith our client’s GST Invoice pursuant to Clause 20.2 and our Settlement Statement as at 14 April 2000, being the ten working days provided for in Clause 20.4 (31 March 2000 being the date our client delivered the Notice to us).

[7]      By letter dated 7 April 2000, Craggy Range’s solicitors responded, asserting that at that stage no further payment was to be made.  They said:

Clause 19.3 of the agreement stipulates that the volume of water  under clause  19.1  is  deemed  adequate  for  further  planting  of  grapes  if  the established flow of each of the two additional bores is 10 litres/second, or the combined volume of water permitted for the purposes of both clauses

18.1 and 19.1 is 43 litres/second.  Clearly this first additional bore is not a productive bore as stipulated in clause 19.3.

[8]      In May 2000, three additional test  bores  were  drilled  by Craggy Range. Sufficient water to justify converting those test bores to production bores was not obtained from any of those three bores.  Craggy Range’s solicitors wrote to Drylands Trust’s solicitors on 23 May 2000 as follows:

The second additional bore drilled by our client is dry.   Accordingly our client has achieved less than 25 litres per second in total.  Our client has now discharged its obligation pursuant to clause 19.2 in the agreement for sale and purchase.

Our client at its own discretion has also drilled a third additional bore which is also dry.

Your client has received copies of the bore logs from the first two bores. Copies for the second two bores will be forwarded by our client.

Under the terms of the agreement for sale and purchase no further payment under the purchase price provisions is required to be made.

[9]      In April 2001, Craggy Range commenced construction of a storage dam on the property, for the purpose of storing water taken under the resource consents for the two production bores, surplus to that immediately required for irrigation.   The total volume of water able to be taken under the two consents is 480 million litres, being 25 litres per second, 24 hours per day, seven days a week for 32 weeks.  The volume of water required to irrigate the vineyard is about one-third of that. Accordingly, the volume of water is sufficient to irrigate all of the property which can be planted in vineyard.   All of the property which is suitable for planting has now  been  planted.    Specifically,  the  area  of  69.3485  hectares  referred  to  in clause 20.1(c)  of  the  agreement  for  sale  and  purchase  has  all  been  planted  in vineyard.

[10]     On  5 June  2001,  Drylands  Trust’s  solicitors  wrote  to  Craggy  Range’s solicitors in the following terms:

We are instructed that your client has constructed a dam, which will provide it with the necessary forty three litres per second for irrigation purposes.

Accordingly pursuant to Clause 19.12 the additional payments specified in

Clause 20.2 will become payable when the Mortgage is repaid in September

2001.

[11]     Craggy Range’s solicitors replied as follows:

The relevant provisions of the agreement for sale and purchase refer to “sources” of water.  In this case a dam is only a method of storage, and is not a “source” of water.  A relevant source would either be from underground or from the river.

On  that  basis  there  are  no  additional  payment  [payments]  under  the agreement for sale and purchase.

[12]   On 6 June 2001, application was made for consent to build the dam (construction of which had already commenced) and to take up to 50 litres per second of water from the Huangarua River, from May to October when river flow exceeded 1,000 litres per second.  Consent was granted on 6 September 2001.  That consent was subject to a condition, to which Craggy Range objected, requiring the inside of the dam to be lined with an impervious material.  It gave notice by letter dated 20 September 2001 to the Wellington Regional Council of its wish to appeal the decision in respect of that condition.   That notice was treated as an objection under   s 357   of   the   Resource   Management   Act   1991.      Following   further correspondence and negotiations between Craggy Range and the Regional Council, which led to a statement by the Council as to its interpretation of what was required by the condition, Craggy Range indicated its acceptance of the condition.   At the same time, Craggy Range surrendered that part of the consent relating to the taking of water from the river, so that the dam would be used for the storage of water from the existing underground sources.

[13]     Construction of the dam was completed in April 2003, and filling of the dam was started.  On 9 April 2003, Craggy Range made application to take river water at peak flow in winter for frost protection purposes, and that consent was granted on

12 June 2003.  That consent is not relevant to the present proceedings.  The filling of the  dam  was  completed  on  3  September  2003.    On  28 June  2004,  the  present proceedings were issued.

The claim, and the defences

[14]   On those facts, which are not substantially in issue, the question for determination is whether the provisions as to payment of an additional purchase price contained in clause 20 of the contract have been triggered, and, if so, what is the amount of the additional payment required.   The plaintiffs rely upon three alternative propositions, pleaded as separate causes of action in the statement of claim.    The  first  cause  of  action  relies  upon  the  resource  consent  granted  on

6 September 2001, to take up to 50 litres per second of water from the Huangarua

River from May to October when river flow exceeded 1,000 litres per second.  The

plaintiffs assert that by that consent the defendant procured water rights for the property at a rate exceeding 43 litres per second and the full amount of the additional payment, namely $562,925 plus GST, is payable.  In the second cause of action, the plaintiffs plead clause 20.2 of the agreement and assert that the defendant has obtained consent to take water which is adequate for irrigation and suitable as to its source quality and condition for the irrigation of the whole of the relevant area.  The third cause of action relies upon clause 19.12 of the agreement and asserts that the defendant did within the prescribed five year period undertake further investigation into alternative sources of irrigation water and did develop alternative sources of water  for  irrigation,  with  the  result  that  the  whole  of  the  additional  amount  is payable.

[15]     The second cause of action asserts that the defendant obtained consents for adequate and suitable water, and that the whole of the additional amount is payable. The consent relied upon is not specified.  In opening, Mr Rennie indicated that both the 8 litre consent and the 50 litre consent were relied on.  He acknowledged that, if only the 8 litre consent were held to meet the condition, only part of the sum would be payable.

[16]     The third cause of action relies upon clause 19.12 of the agreement.   The plaintiff asserts that the combined effect of steps taken after 14 September 2001 constituted actions to investigate and develop alternative sources of water for irrigation.  The steps relied upon include those taken with respect to the storage dam.

[17]     The defendant’s response to each of these causes of action, as enunciated by

Mr Goddard in his submissions, may be summarised as follows:

(a)      As to the first cause of action based on the September 2001 river take consent, the defendant submits that that consent did not trigger the payment provisions for two primary reasons:

(i)       The specified rates to which the agreement refers are, on the proper construction of the agreement, rates at which water can be taken in the period when irrigation is required, that is the summer

months.  The 2001 river take consent, which did not enable any water to   be   taken   during   summer   months,   was   on   the   defendant’s submission not relevant for the purpose of calculating the available water take rate under the agreement; and

(ii)      The water was not considered by the defendant to be adequate or suitable for irrigation of additional land as this was winter river take   at   high   flows   and   irrigation   is   required   in   summer. Consequently, the water was not adequate or suitable without storage and the scheme of the contract does not treat the possibility of storage of water as relevant when assessing adequacy or calculating payments to be made under clause 20.2.

(b)      As to the argument based on the eight litre per second bore consent, the defendant says:

(i)       That is not pleaded in the statement of claim and is not open to the plaintiffs;

(ii)      The eight litre per second bore consent went towards meeting the 25 litre per second flow required to irrigate the initial 60 hectares plantable area and was not a “further or alternative source of water” for the purposes of clause 19.1;

(iii)     Craggy Range  was  not  of  the  opinion  that  this  water  was adequate for irrigation of additional land over and above the initial 60 hectares, because Craggy Range considered that this water was required for the initial 60 hectares; so clause 20.2 did not apply;

(iv)      By virtue of clause 19.3 the flow of this bore was too low to be treated as adequate for the planting of further grapes, even if it were treated as a “further or alternative source”.

(c)       As  to  the  argument  based  on  clause  19.12  of  the  agreement,  the defendant submits that both the eight litre per second bore consent and the

2001 river take consent were granted during the period specified in clause

19.1; so clause 19.12 is irrelevant.

Principles of construction of the contract

[18]     The case depends to a large extent upon the proper construction of the special conditions of the  agreement,  in  particular clauses  18,  19  and  20.    The  modern approach to the interpretation of contracts and commercial documents is a purposive one.   A much cited formulation of that proposition is that of Lord Hoffmann in Investors Compensation Scheme Ltd v West Bromwich Building Society [1998] 1 All ER 98, which was applied in New Zealand in what has become the leading authority on the question, Boat Park Ltd v Hutchinson [1999] 2 NZLR 74, at 81-82:

Such an argument is based on an outdated approach to contractual interpretation.  It  is  worth reiterating in  full what  Lord  Hoffmann  felt it necessary to spell out when delivering the judgment of the majority in the recent decision of the House of Lords in Investors Compensation Scheme Ltd v West Bromwich Building Society [1998] 1 All ER 98 at pp 114 – 115. The learned Law Lord stated:

My Lords, . . . I think I should preface my explanation of my reasons with some general remarks about the principles by which contractual documents are nowadays construed. I do not think that the fundamental change which has overtaken this branch of the law, particularly as a result of the speeches of Lord Wilberforce in Prenn v Simmonds [1971] 3 All ER 237 at 240 – 242, [1971] 1 WLR 1381 at 1384 – 1386 and Reardon Smith Line Ltd v Hansen-Tangen, Hansen-Tangen v Sanko Steamship Co [1976] 3 All ER 570, [1976]

1 WLR 989, is always sufficiently appreciated. The result has been, subject to one important exception, to assimilate the way in which

such  documents  are  interpreted  by  judges  to  the  common  sense

principles by which any serious utterance would be interpreted in ordinary life. Almost all the old intellectual baggage of ‘legal’ interpretation has been discarded. The principles may be summarised as follows.

(1) Interpretation is the ascertainment  of the  meaning which  the document would convey to a reasonable person having all the background knowledge which would reasonably have been available to the parties in the situation in which they were at the time of the contract.

(2) The background was famously referred to by Lord Wilberforce as the ‘matrix of fact’, but this phrase is, if anything, an understated

description of what the background may include. Subject to the requirement that it should have been reasonably available to the parties and to the exception to be mentioned next, it includes absolutely anything which would have affected the way in which the language of the document would have been understood by a reasonable man.

(3) The law excludes from the admissible background the previous negotiations of the parties and their declarations of subjective intent. They are admissible only in an action for rectification.  The law makes this distinction for reasons of practical policy and, in this respect only, legal interpretation differs from the way we would interpret utterances in ordinary life. The boundaries of this exception are in some respects unclear. But this is not the occasion on which to explore them.

(4) The meaning which a document (or any other utterance) would convey to a reasonable man is not the same thing as the meaning of its words. The meaning of words is a matter of dictionaries and grammars; the meaning of the document is what the parties using those words against the relevant background would reasonably have been understood to mean. The background may not merely enable the reasonable man to choose between the possible meanings  of words which are ambiguous but even (as occasionally happens in ordinary life) to conclude that the parties must, for whatever reason, have used the wrong words or syntax (see Mannai Investment Co Ltd v Eagle Star Life Assurance Co Ltd [1997] 3 All ER 352, [1997] 2

WLR 945).

(5) The ‘rule’ that words should be given their ‘natural and ordinary meaning’ reflects the commonsense proposition that we do not easily accept that  people have  made  linguistic  mistakes,  particularly  in formal documents. On the other hand, if one would nevertheless conclude  from  the  background  that  something  must  have  gone wrong with the language, the law does not require judges to attribute to the parties an intention which they plainly could not have had. Lord  Diplock made  this  point  more  vigorously when  he  said  in Antaios Cia Naviera SA v Salen Rederierna AB, The Antaios [1984]

3 All ER 229 at 233, [1985] AC 191 at 201:

“. . . if detailed semantic and syntactical analysis of words in a commercial contract is going to lead to a conclusion that flouts business common sense, it must be made to yield to business common sense.”

[19]     In applying those principles to the facts of this case, it is worth noting at the outset that it is clear that there is a sufficient volume of water available, at the times when that water is needed for irrigation, to irrigate vineyards planted on the total plantable area of the property.   The whole of the plantable area has in fact been planted in grapes.   That the volume of water available is sufficient results from a combination of two facts:

(a)      That there are available to the property water take consents for the two bores; and

(b)      That Craggy Range is able to store water from those bores in the dam for use at times when it is needed.

[20]     I  mention  those  features  at  the  outset,  because  they  are  relevant  to  a purposive approach to interpretation, and to ascertaining the commercial purpose of the parties.  On one view of the arrangements, the commercial purpose of the parties was to ensure that, if there was sufficient water to enable the whole of the property to be planted in grapes, the additional payment which the parties agreed would reflect its additional value as a potential vineyard would be made.  On another view of the matter, the commercial purpose of the parties was to define with precision certain parameters as to sources and quantities of water which would be determinative of whether the additional payment was required, with the question whether the whole of the property was able to be planted as vineyard not being the determining consideration.

[21]     Either of those purposes might be viewed as perfectly rational commercial choices.  If one were to identify one or other of those, or some refinement of them, as the commercial purpose of the parties, and interpret the words used in the light of that purpose, then different answers might well be obtained depending upon which view of the purpose was taken.   That is not what is required by the purposive approach to interpretation.  The purpose of the parties is not to be determined in the abstract, and the words of the document construed in the light of that purpose; rather, the purpose of the parties is to be determined from the circumstances as a whole, and those circumstances include both the background matrix  of fact  and the overall context of the agreement as a whole, including the words which the parties have used.  That is to say, the purposive approach to interpretation involves ascertaining and giving effect to the true commercial intention of the parties by ascertaining the meaning which the document would convey to a person having all the available background knowledge, rather than an exercise in interpreting the language used so as to best accord with a commercial purpose gleaned from the background independent of the language used.

Application of the contract to the relevant consents

[22]     It is necessary to consider the application of clauses 18 and 19 of the sale and purchase agreement in relation to each of four matters:

(a)      The consent dated 25 August 1999, for 18 litres per second in the period October to April;

(b)      The consent dated 23 March 2000, for 8 litres per second in that same period;

(c)      The consent granted on 6 September 2001 to take up to 50 litres per second from the Huangarua River, from May to October when river flow exceeded 1,000 litres per second; and

(d)      The construction of the dam, and the ability to store water in the dam.

(a)      The 18 litres per second consent

[23]     That consent was granted shortly before the date by which clause 18 was to be satisfied.  Notice declaring the contract unconditional was given shortly after.

[24]     In terms of clause 18.1, the purchaser had, by that consent, all consents necessary to take water at 18 litres per second.  That is less than the minimum rate of

25  litres  per  second  specified  in  clause  18.1.     The  contract  was  declared unconditional at that point.   That sequence of events establishes that the 18 litre consent is attributable to clause 18.  That consent is not to be taken into account in the calculations provided for in clause 19.

(b)      The 8 litre per second consent

[25]     This consent was granted in respect of the first test bore which had been drilled in February 1999.   That was developed into a second production bore in December 1999, some three months after the contract had been declared unconditional.  The consent was granted on 23 March 2000.

[26]     Counsel  for  the  defendant  submits  that  that  particular  consent  is  to  be attributed to the 25 litres per second provided for in clause 18, and so not to be included in the calculations provided for in clause 18.

[27]     I  do  not   accept   that   submission.      The   contract   had   been   declared unconditional and the defendant had stated that condition 18 had been satisfied.  The decision whether to declare the contract unconditional had to be made by the purchaser at a time before that consent was available.  The potential availability of the water supply was known from the drilling of the test bore at that stage, but that had not been put into production and no consent had been obtained in respect of it. Clause 18 was expressed to be for the sole benefit of the purchaser and could be waived by it.  The defendant was therefore able to adopt the course which it did, and declare the contract unconditional notwithstanding that the requirements of the condition had not been met.  In doing that, it was required to take the circumstances as they were, and could not insist upon further compliance with clause 18.   To allocate the 8 litre consent to the 25 litres provided in clause 18 would be to give clause 18 on-going effect, after a point at which it had been declared to be satisfied. The stipulation that 25 litres per second was to be available for the first 60 hectares was  waived  by  the  purchaser.     The  purchaser  cannot  thereafter  insist  upon compliance with it.  From the point at which clause 18 was declared to have been satisfied, it can have no further water allocated to it.

[28]     Craggy Range also submits that it was not of the opinion that this water was adequate for irrigation of additional land over and above the initial 60 hectares, because it considered that this water was required for that initial 60 hectares.  I do not accept that submission.  Whether or not the 8 litres was to be taken into account in respect of the initial 60 hectares is a question of interpretation of the contract. Craggy Range cannot impose its view as to the interpretation of the contract by reference to the issue of adequacy of water.

[29]     Craggy Range further submits that, because the flow from this bore was less than the 10 litres per second provided for in clause 19.3, it cannot be treated as adequate for planting additional grapes.  I do not consider that clause 19.3 has that effect.  That clause provides that 10 litres per second shall be deemed adequate.  It

does not say that a quantity less than 10 litres per second  cannot be adequate. Adequacy is a matter reserved for the sole opinion of the purchaser, by clause 20.2. That provision means that the purchaser cannot be required to take into account water which it does not consider adequate.  But it does not enable Craggy Range to use water for irrigation, but at the same time purport to determine that the water is not adequate for irrigation.   The evidence clearly establishes that the 8 litre per second consent water is in fact used for irrigation, either directly or by means of the dam.

[30]     The final submission of Craggy Range on this consent is that it is not open to the plaintiffs to rely on it, as it has not been pleaded.  I consider that the second cause of action is wide enough to encompass it.  The claim could with advantage have been pleaded with greater particularity.  However, no further particulars were sought, and the relevance of this consent was clearly in issue, and the defendant was not taken by surprise by the argument about it.   A claim should not be allowed to fail on a pleading point, if there has been no prejudice.  I consider that there is none here.  I hold that the relevance of the 8 litres per second consent is properly put in issue by the pleadings.

[31]     For the reasons I have given, I consider that the 8 litre consent falls to be taken into account under clause 19.   The plaintiffs’ second cause of action must succeed to that extent.

(c)      The 50 litres per second consent

[32]     This consent authorised the taking of water only during the winter months, and at times when water flows exceeded 1,000 litres per second.  That raises an issue of interpretation, namely the meaning to be ascribed to the references in clauses 18 and 19 of the sale and purchase agreement to the rate at which water is taken.  All references in those clauses are to rates of flow, expressed in litres per second.  There is no express statement as to the period of time for which that rate of flow must be available.    Experts  were  called  on  each  side  to  give  evidence  concerning  the adequacy of the water available from the consents and related matters.  Mr Phillips, called by the plaintiffs, has postgraduate qualifications in agricultural engineering,

specifically in the disciplines of soil and water.  He has undertaken design work for many dam, drainage, water supply and irrigation projects throughout the Wairarapa region and has undertaken ground water hydrology assessments in the Wairarapa and other areas.   He had been asked to review the water resource consents granted to Craggy Range and determine whether, and, if so, when, the water available from such consents would in aggregate have been adequate for the irrigation of the property for its use as a vineyard as intended by the defendant.  In his evidence in chief, he reviewed the relevant water consents.  He did not specifically address the question, from a vineyard management point of view, of the period of the year over which a supply of irrigation water is needed.  His evidence was that he would have adopted a different approach to the specification of water requirements.  He said that he  would  have  understood  a  requirement  expressed  in  litres  per  second  to  be available 24 hours a day.  He personally would not have felt compelled to limit that to the dry summer months so that he would make no assumptions as to whether the rate of flow was intended to apply to just the summer period or a period longer than that because there is no period specified.  When it was put to him that the practical test of adequacy of water available under a consent is whether the consent gives the prescribed flow rate in litres per second 24 hours a day during the dry summer period when irrigation is required, he said that it would be at least that, but he did not perceive that it would need to be constrained to that.  He agreed with the proposition that the flow rates expressed in clauses 18 and 19 should be understood as references to peak requirements and that to meet those requirements supply at the specified level would need to be available at least during the summer months and perhaps longer.    It  was  put  to  him  that  any  sensible  person  with  an  understanding  of viticulture would take from a reference of that kind that it must be available at least during the summer months, and he agreed that if the water is to be used for irrigation it must be available during the time that it was needed.

[33]     Dr Jordan was called to give evidence for the defendant.  He is a viticulturist with a PhD in viticulture who works as a consultant to the wine industry.  He said that the majority of his vineyard clients irrigate their vines so he has a good understanding of the biological and commercial requirements for irrigation in vineyards.  His evidence was that the peak maximum water demand for individual vines is typically assessed at between 8 and 12 litres per vine per day and that this

demand  occurs  during  summer.    It  was  therefore  common  ground  between  the experts that the requirement for irrigation water is in the summer months.

[34]     There are essentially three options for filling the gap which exists in the contract, in specifying rates of flow, as to the period over which the flow must be available.  They are:

(a)      That the flow is to be available continuously all year;

(b)      That any flow at any time, even for a short period, would suffice;

(c)      That  the  flow  is  to  be  available  over  the  summer  months  when irrigation is required.

Neither of the first two options is, in my view, a reasonable one to attribute to the parties.   In the light of all the evidence,  I consider that the third option is the appropriate interpretation.  That accords with the evidence as to the requirements of vineyard management.

[35]     A consent to take water which is not available during the summer months is not a consent to which clause 19 applies.   The contemplation of the parties, in expressing clause 19 in terms of rates of flow per second, must have been that those rates of flow would be available during the summer months.   Without the storage capacity provided by the dam, the 50 litres per second river consent did not provide a source of water for irrigation.  With the dam, this source of water was unnecessary. This consent is not a consent which is to be taken into account in respect of the calculations required by clause 19.

[36]     For the foregoing reasons, I consider that the plaintiffs’ first cause of action, which relies solely upon the 50 litre per second consent, must fail.  The second cause of action, to the extent that it relies upon that consent, must also fail.

(a)      The dam

[37]     The effect of the construction of the dam was to lessen the dependence on water taken from available sources during the summer months.   It enabled water which could be taken under the various consents to be taken and stored, to the extent that the volume of water exceeded immediate requirements, so that it would be available when required for irrigation.  As I have noted at paragraph [9], the ability to store water drawn from the underground sources covered by the two relevant consents has meant that the total quantity of water available to the defendant is in fact sufficient to provide the rates of flow necessary during the summer months to irrigate an area of vines covering the whole of the plantable area of the property. The question is whether that ability to store water and use it when required for irrigation, the effect of which has been that the water supply is sufficient for the irrigation of the whole of the vineyard area, is to be taken into account for the purposes of clause 19.

[38]     On this question, the way in which the additional purchase price is to be calculated under clause 20 is relevant.  That provides that payment is to be made for each additional hectare for which there is adequate water, and the water deemed to be adequate for one hectare is 0.4 litres per second.  The effect of clause 20.2(a) and (b) is to create a formula for calculating the number of additional hectares for which payment is to be made.  That formula depends upon rates of flow of water during the summer months, not volumes of water available for irrigation.  In determining how the  contract  is  to  apply  to  water  storage  capability  provided  by  the  dam,  it  is necessary to bear in mind that the provisions as to additional payment have been formulated  so  as  to  depend  upon  rates  of  flow,  not  volumes  of  water,  as  a determinant in the calculation of the additional payment.

[39]     Counsel for the plaintiffs submit that the effect of the contract, as it was structured following the withdrawal of the joint application for consent to take from the river in summer, and the consequent cancellation of the first contract, was to place the whole of the cost and risk of what might be involved in the location and development of further water solely on the defendant.  Counsel further submits that the possibility that a dam might be used was within the contemplation of the parties from before the contract was entered into.

[40]     The extent to which the cost and risk of the location and development of further water supply were placed on the defendant was the subject of very precise provisions in the contract.   There was an obligation to investigate further or alternative sources of water in clause 19.1, and the extent of that obligation was defined in clause 19.2.  Those obligations related specifically to the drilling of bores and the obtaining of consents, with flexibility provided by clause 19.4, to substitute or add water take from the river.  Those obligations related to obtaining sources of water,  not  to  the  storage  of  water  from  those  sources.    Further,  the  payment provisions in clause 20 were structured in a way which was appropriate only to sources of water, expressed in rates of flow, and not to storage of water, which would be more naturally expressed in some other way, such as volume.   The agreement was not drafted in a way which was apt to provide for the situation where water for irrigation could be derived not from a flow of water from a particular source, but from storage of a volume of water obtained from a particular source.

[41]     The  agreement  did  not  provide  for  a  mechanism  for  calculation  of  an additional  payment  if  additional  vine  plantings  could  be  achieved  by  better utilisation of water through storage.  That was an option available to the defendant. It was not a contractual requirement; nor did the contract provide for it in terms of additional payment.  The use of that option for storage did not relieve the defendant of its obligations to make the investigations required by clauses 19.1 and 19.2.  It is not  in  issue  that  the  defendant  did  comply  with  those  obligations.     Beyond compliance with those obligations, it was a matter for the defendant to determine how to manage the water supply.  The structure of the contract was to provide for certain  obligations  on  the  defendant  to  investigate sources  of  water  in  the  way specified in clause 19, and for payments to the plaintiff based on the outcome of those investigations.  The contract did not provide for payments to the plaintiff based upon water supply measures other than those provided for in clause 19.

[42]     For these reasons, I find that the additional irrigation ability provided by the dam does not entitle the plaintiffs to any additional payment pursuant to clause 20.2.

[43]     A further question concerning the dam is whether the construction and use of the dam constitute an alternative source of irrigation water, to which clause 19.12

applies,  so  as  to  trigger  the  payment  provisions  in  clause  20.2  in  the  manner specified in clause 19.12.   The plaintiffs submit that, if their primary case that adequate water was obtained in the initial two year period specified in clause 19.1 is not accepted, then the defendant did not obtain the consent in respect of the dam until more than two years after the settlement date, so that clause 19.12 applies.

[44]     The first issue under clause 19.12 is whether a means of storing water drawn from another source is to be regarded as a source of irrigation water.  For the reasons that I have given, I find that, on the proper interpretation of the contract, the dam does not provide an “alternative source of irrigation water” in terms of clause 19.12.

[45]     The second issue is whether the consent for the dam was obtained before or after 14 September 2001, being two  years  after  settlement  date.    The  plaintiffs submit that the consent was not obtained until Craggy Range’s objection, to which I have referred in paragraph [12], was resolved, so that it falls outside the two year period.   Craggy Range submits that consent was obtained on 6 September 2001, within the two year period.

[46]     On this issue, it is relevant to note that the plaintiffs first took the stance that the construction of the dam entitled the plaintiffs to an additional payment in the letter dated 5 June 2001 to which I have referred.  That letter invoked clause 19.12, although at that stage the two year period in clause 19.1 had not expired.   The plaintiffs’ submission is that, because a final acceptable consent for the dam was not available until after the two year period had expired, clause 19.12 applies.   I do not consider that the date on which the consent is obtained is the relevant date for the application  of  clause  19.12.    The  contract  enables  the  purchaser  to  take  such measures as it thinks fit to investigate sources of water within the first two years. Clause 19.12 deals with investigations conducted after that initial two year period. The construction of the dam commenced, and was essentially completed, within that two year period, so clause 19.12 does not apply.  The obtaining of a final consent for the dam is therefore not relevant.  The timing of a consent is relevant only in respect of investigations commenced after the initial two year period, and the relevant issue as to timing is whether the consent is obtained within the five year period in clause

19.12, not whether it is obtained within the initial two year period.  If, contrary to the

finding which I have made, namely that the dam is not an alternative source of water, the dam is to be taken into account, I find that that is not a measure taken after the initial two year period had expired, so that clause 19.12 can have no application. The third cause of action, which is based upon clause 19.12, must fail.

Calculation of additional payment

[47]     It is necessary to calculate the amount of the additional payment due, in the light of my conclusion that a further sum is payable in respect of the 8 litres per second consent.  Under clause 20.2(b), at the rate of 0.4 litres per second per hectare

8 litres per second is deemed to be adequate for 20 hectares.  A distinction needs to be made between hectares of plantable area and total hectares of land area.   The contract clearly makes that distinction.  Clause 19.6 provides for the situation where surplus water rights were available, and refers to a quantity of water sufficient for the purchaser’s purpose in planting and growing 105 hectares of grapes.   That clearly indicates the parties’ intention that the total plantable area of the land was 105 hectares.  As Mr Goddard points out in his submissions, that is consistent with the figure of 43 litres per second specified in clause 20.3.   That figure, at the rate of

0.4 litres per hectare, is sufficient for 107.5 hectares.  Allowing for rounding in the figures, that is consistent with an assessment that the total plantable area was 105 hectares.  The total area of land identified for the potential planting of grapes was, however, larger than that.  The total area was 129.3485 hectares, being the initial 60 hectares provided for in clause 20.1(a) and the additional area of 69.3485 hectares identified in clause 20.1(c).   The total potential additional payment, of $562,925, represents payment at the rates in clause 20.2(c) for the whole of that area of 69.3485 hectares.  The clear intention of the parties in this regard is clearly that in multiplying the available water, at the rate of 0.4 litres per hectare, by the number of hectares, the number of hectares is to be calculated so as to reflect total area, as the additional payment applies to the total area, not only to the plantable area.  Taking the ratio of

105 to 129.3485, the plantable area represents 81.2% of the total area.

[48]     Accordingly, the calculation pursuant to clause 20.2, to reflect the 8 litre per second consent, is as follows:

Plantable area = 8 litres per second x 0.4 litres per hectare = 20 hectares

20 hectares plantable area = 24.64 hectares total area

Accordingly,  the  additional  amount  to  be  paid  pursuant  to  clause  20.2(c)  is

24.64 hectares.  Of that, 12.1 hectares is to be paid at a rate of $20,500, a total of

$248,050, and 12.54 hectares is to be paid at the rate of $5,500, a total of $68,970. Those figures total $317,020.  That is the additional purchase price payable by the defendant.  In reaching the conclusion that the total area involved in the additional payment is the 24.64 hectares total area rather than the total hectares plantable area, I do not overlook that, in their letter of 5 April 2000 making the initial demand for an additional payment, set out in paragraph 6, the solicitors for the plaintiffs had based the claim on an area of 20 hectares.  That letter, being an action taken subsequent to the execution of the contract, is not available as an aid to interpretation of the contract.  I consider that the correct view of the total area is as I have described it.

[49]     The  contract  provided  when  the  additional  payment  was  due,  and  the plaintiffs seek interest at the contractual rate, 14% per annum, from 8 October 2001. Counsel did not address in any detail in their submissions the issue of interest.   I consider that is best reserved for further submissions in the light of this judgment. Further, the submissions did not address any question of GST which might affect the amount for which judgment should be given.  Both of those issues are reserved, for further submissions by memoranda.

Result

[50]     There will be judgment for the plaintiff in the sum of $317020, together with interest and GST if applicable to be determined.

[51]     Costs are reserved, and the parties may also submit memoranda as to costs.

“A D MacKenzie J”

Solicitors

Major Gooding & Partners, Masterton, for the plaintiffs

Brown & Sargent, Auckland, for the defendant