Craggy Range Vineyards Limited v Campbell
[2008] NZCA 96
•24 April 2008
IN THE COURT OF APPEAL OF NEW ZEALAND
CA254/07
CA462/07
[2008] NZCA 96BETWEENCRAGGY RANGE VINEYARDS LIMITED
Appellant
ANDI A CAMPBELL, J HUGHES AND
S C BISS
Respondents
Hearing:1 April 2008
Court:Chambers, Robertson and Arnold JJ
Counsel:D J Goddard QC and L Theron for Appellant
H B Rennie QC and G J Allan for Respondents
Judgment:24 April 2008 at 11 am
JUDGMENT OF THE COURT
AThe appeal by Craggy Range Vineyards against the order for payment of an additional sum under cl 20.2 of the Agreement for Sale and Purchase in respect of the right to take 8 litres/second of river water is allowed and the order made in the High Court is quashed.
BThe cross-appeal of Messrs Campbell, Hughes and Biss against the refusal to make a further order under cl 20.2 in respect of the right to take river water is dismissed.
CThe orders for interest and costs made in the High Court are quashed. Failing agreement as to costs in respect of the High Court hearing, they are to be determined in the High Court.
DCraggy Range is entitled to costs of $10,000 together with normal disbursements to cover both the appeal and the cross-appeal. We certify for second counsel.
____________________________________________________________________
REASONS OF THE COURT
(Given by Robertson J)
Introduction
[1] Two appeals and a cross-appeal were heard together. They all arise out of the proper construction of an agreement for sale and purchase dated 24 June 1999 (“the agreement”) for just on 167 hectares of land near Martinborough between the respondents, trustees of the Drylands Trust as vendors (“the Trustees”) and the appellant, Craggy Range Vineyard Limited (“Craggy Range”) as purchaser.
[2] On 17 May 2007 MacKenzie J, in a reserved judgment (HC WN CIV 2004-441-392), held that Craggy Range owed the Trustees an additional sum of $317,020 under the agreement because of a second water consent Craggy Range had obtained, but owed nothing in respect of a consent to take water directly from the Huangarua River during winter months.
[3] On 28 August 2007, the Judge made orders in respect of interest on the sum owing and costs in favour of the Trustees plus disbursements.
[4] Craggy Range has appealed against the order that they pay the Trustees in respect of the second water consent and against the orders for interest and costs. The Trustees have cross-appealed against the refusal to order Craggy Range to make a payment in respect of the right to take water from the river.
[5] It is common ground between the parties that there was an arithmetic error in the High Court judgment and that the sum due and owing on MacKenzie J’s reasoning was $291,500, not $317,020. This has consequential effects on the interest payments.
[6] The substantive issue before us, as it was before the High Court, is the proper construction of terms in the agreement specifically included to deal with alterations to the purchase price consequent upon Craggy Range obtaining consents for adequate water supplies to enable vines to be grown on the property.
Background facts
[7] The effect of the agreement was to divide the land into discrete parcels, ordered according to their suitability for grape growing subject to the availability of water. The parcels were identified in cl 20.1, as follows:
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: $13,900.
(e) For a trees area: $42,000.
(f) Improvements: $3,010.
Total: $2,288,725.
[8] As the proposed viticulture enterprise was dependent upon access to an adequate water supply, the agreement was conditional upon Craggy Range:
18.1Obtaining all consents necessary to take water at a minimum rate of 25 litres per second which (in the sole opinion of the purchaser) is adequate for irrigation of the property to the extent required for planting and growing 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 the taking of surface water or underground water.
…
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.
[Emphasis added]
[9] In addition, the agreement provided for an additional payment by Craggy Range if it was able to obtain consent to source water sufficient to irrigate an additional block of land. In other words, the purchase price of the land was calculated in accordance with an algorithm in which the main variable was the nature and quantity of water consents which could be obtained by Craggy Range to irrigate the land:
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.
…
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 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 purchaser’s 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 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 [sic] 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.
…
[Emphasis added]
[10] Clause 20.2 provided that if during the timeframe stipulated in cl 19.1 the purchaser obtained further consents for water which, “in the sole opinion of the purchaser”, were adequate to irrigate the part of the property described in cl 20.1(c), then the purchaser must make a payment additional to the purchase price. This contingent additional sum was to be paid for each hectare for which additional irrigation was available and adequate. The quantum deemed adequate by cl 20.2(b) was 0.4 litres/second.
[11] Clause 20.3 provided that if the purchaser obtained water rights at 43 litres/second, it would be deemed to have the full amount of water required for the whole property, and therefore required to pay the full additional sum.
The scope of the dispute
[12] In February and March 1999, two test bores were sunk on the land to investigate groundwater potential.
[13] On 25 August 1999, resource consent (applied for on the basis of data from the test bores) was granted to take water for irrigation at a rate of 18 litres/second, 24 hours per day, seven days per week, from October – April. This water was to be taken from the second of the test bores – which had become a “production” bore.
[14] In a letter of 31 August to the Trustees’ solicitors, Craggy Range’s solicitor said special condition 18.1 had been satisfied, and accordingly that the agreement was unconditional.
[15] On 23 March 2000, the other test bore was developed into a production bore. A resource consent was granted to take water for irrigation from it at a rate of 8 litres/second, 24 hours per day, seven days per week from October – April.
[16] It was this resource consent that gave rise to the first dispute between Craggy Range and the Trustees. The Trustees sought additional payment under cl 20.2 of the agreement, claiming that Craggy Range, with the further 8 litres/second consent, now had irrigation sufficient for an additional 20 hectares (since under cl 20.2(b), 0.4 litres/second was deemed adequate to irrigate 1 hectare). Craggy Range responded that the additional payment requirement had not been triggered, since cl 19.3 stated that the flow deemed adequate for the purpose of triggering additional payment was 10 litres/second. Further, it had only a total of 26 litres/second available (18 litres/second plus 8 litres/second). So, this was the initial required flow of 25 litres/second (attributable to the 60 hectare parcel) and one extra litre.
[17] In May 2000, pursuant to its obligation under cl 19.2, Craggy Range drilled three additional test bores, and reported to the Trustees that those bores were dry. In a letter to the Trustees, it was contended that it had thereby discharged its obligation under cl 19.2, and as Craggy Range had obtained less than 25 litres in total (so that the 43 litres/second level identified in cl 19.3 was not met), there was to be no additional payment due.
[18] In June 2001, Craggy Range constructed a dam which was available to store water (taken pursuant to the two resource consents) that was not immediately required for irrigation. With the dam, Craggy Range had enough water to irrigate all of the plantable property and in fact all of the plantable property was planted in grapes. Further, in September 2001 Craggy Range obtained consent to draw water at a rate of 50 litres/second from the Huangarua River from May – October although, because of community controversy, this consent was not utilised.
[19] The Trustees claimed that since the dam allowed Craggy Range to store surplus water for use later, the actual total water take would balance out to be at least 43 litres/second. The total volume of water available from the two consented bores was 480 million litres, being 25 litres/second, 24 hours per day, seven days a week for 32 weeks.
[20] The Trustees asserted that Craggy Range was required to make additional payment to them, pursuant to cl 20.2. Craggy Range responded that the dam was not a “source” of water, but a storage mechanism, and therefore the additional payment provision was not triggered.
The litigation in the High Court
[21] In their statement of claim filed in the High Court, the Trustees relied on three causes of action:
(a)by the consent to take 50 litres/second from the Huangarua River, Craggy Range procured water rights at a rate exceeding 43 litres/second and therefore cl 19.1 (via cl 19.3) was engaged);
(b)consents were obtained by Craggy Range for adequate and suitable water. [The particular consent relied on was not disclosed in the Trustees’ pleadings. In opening in the High Court, counsel for the Trustees said that both the 50 litres/second river consent and the 8 litres/second groundwater consent were relied on, although if only the 8 litres/second consent met the condition, then only part of the sum would be payable.]; and
(c)boring by Craggy Range after September 2001 triggered cl 19.12, which had implications under cl 20.2.
[22] Craggy Range responded that:
(a)The take from the Huangarua River did not enable water to be taken during the summer months, which is when it was needed to irrigate grapes. Since the agreement pertained to prospective grape-growing land, it was proper to construe the water take levels as pertaining to take available during the summer months. Further, Craggy Range did not consider the water was adequate to irrigate the extra land, since it was winter water, and irrigation is required in the summer. The fact that the water could be stored in the dam was irrelevant, since the agreement did not provide for the effect of storage, or provide for it in the purchase price provisions.
(b)The Trustees did not include the 8 litres/second consent in the pleadings, but even if that issue were open to the Trustees, the 8 litres/second went towards the cl 18.1 25 litres/second requirement, and therefore was not “additional”. Further, Craggy Range did not think that this flow was adequate (relying on the qualifier, “in the sole opinion of the purchaser”); and
(c)Clause 19.12 was not relevant because all consents at issue were granted within the allowable period.
[23] In the High Court, four matters were at issue and fell to be assessed in terms of the agreement:
(a)The effect of the consent granted on 25 August 1999 to take 18 litres/second October – April, following which Craggy Range declared the contract to be unconditional.
(b)The effect of the consent granted on 23 March 2000 to take 8 litres/second October – April.
(c)The effect of the consent granted on 6 September 2001 to take 50 litres/second from the Huangarua River May – October; and
(d) The effect of the construction and capacity of the dam.
[24] In essence, MacKenzie J concluded:
(a)The 18 litres/second consent was to be examined solely in terms of cl 18.1. That was the consent pursuant to which Craggy Range declared the contract to be unconditional, and was therefore the consent that, according to Craggy Range, would provide adequate irrigation for the first 60 hectares of grapes.
(b)The 8 litres/second consent cannot be attributed to the threshold volume (ie 25 litres/second) stipulated in cl 18.l, since Craggy Range declared the contract unconditional before acquiring the rights to the extra 8 litres/second. As the condition in cl 18.1 was declared to be for the sole benefit of the purchaser, it was not necessary that the full 25 litres/second be acquired: it was open to Craggy Range to deem a lesser amount to be adequate, which it did, when it confirmed the agreement having acquired only the 18 litres/second consent. And Craggy Range’s submission that, because the 8 litres/second consent was less than the 10 litres/second provided for in cl 19.3, it should not count as adequate to plant additional land could not be sustained: cl 19.3 says that 10 litres/second is deemed to be adequate, but it does not say that a lesser take is not adequate.
(c)The Huangarua River take consent was problematic because cls 18 and 19 refer only to the “rate” of water take, without reference to the period of the year for which the water must be available. Expert evidence indicated that the flow – to have any commercial efficacy – would need to be available at least during the summer months, possibly all year long. The Judge concluded that a proper construction of the contract yielded the interpretation that the water must be available over the summer months, and that the Huangarua consent in this case was therefore not a consent to which cl 19 of the agreement applied.
(d)The dam made it possible for Craggy Range to have access to adequate irrigation all year long. The ability of Craggy Range essentially to stockpile water meant that in fact it would never be unable to irrigate. The formula in cl 20.2(a) and (b) for calculating additional payment “depends upon rates of flow of water during the summer months, not volumes of water available for irrigation.” Because the contract referred expressly to rates of flow (and not volume stored or some equivalent) the agreement simply did not envisage storage of water. The scope of the additional payment provisions was limited to the obtaining of water, not its subsequent disposal, whether by storage or by use. The agreement did not provide for additional payment in the event that the purchaser was enterprising in its storage of the water. The agreement did not purport to enquire that far. It simply provided for Craggy Range’s ability to source water. It was within Craggy Range’s discretion – and not within the purview of the agreement – to manage its water take as it wished. In short, the contract was concerned with the mandatory investigation by Craggy Range of further sources of water, and thereby provided for additional payment to the Trustees, contingent upon the outcome of those investigations. Craggy Range’s enterprising construction and use of the dam was its business, and did not obligate it to make further payment to the Trustees; and
(e)The Judge also made findings about the two year period in cl 19.12, but that was no longer an issue in this Court.
The appeal issues
[25] In substance there were two issues before us. First, was the 8 litres/second consent part of, or in addition to, the 25 litres/second referred to in cl 18.1? Secondly, did the consent for winter take from the Huangarua River entitle the Trustees to additional payments under cl 20.2?
The applicable legal regime
[26] The Judge found, and the parties did not dispute, that the proper approach to the interpretation of the document was as enunciated in Investors Compensation Scheme v West Bromwich Building Society [1998] 1 WLR 896 (HL), where Lord Hoffman said at 912 – 913:
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.
[27] This approach has been applied in New Zealand in Boat Park v Hutchinson [1999] 2 NZLR 74 at 81 – 82.
[28] Mr Rennie QC, for the Trustees, did caution the Court against substituting its view on commerciality for that of the parties as evidenced by their agreement in the way noted in Yoshimoto v Canterbury Golf International Ltd [2004] 1 NZLR 1 (PC) at [18]:
It is true that in general terms the commercial objective was to agree an increase in the price if the development potential proved to be realisable. But the parties chose a specific criterion for demonstrating this to be the case. That criterion was that all necessary consents had been obtained. It is not for the Courts to substitute a different criterion on the ground that it would satisfy the commercial objective equally well or better.
The setting of the agreement
[29] The context of this agreement is clear and unequivocal:
(a)access to irrigation waters in dry summer months was in fact critical to determining the value of various parts of the land;
(b)the agreement itself reflected this, by ascribing discrete values to discrete parts of the land depending on the potential availability of water to irrigate;
(c)there had been test bores and other investigations over many months which provided realistic optimism as to the availability of water in the summer; and
(d)there was the potential for water from the river in winter, but this was useless for irrigation (which was only required in summer) without storage capacity.
[30] The bargain between the parties was on the basis of water flows, not stored capacity. The agreement was not explicit that the references to water flow were to be read as relating to summer flows, but the parties accepted this was the only sensible interpretation of the requirements. Each side called experts who clearly reinforced the appropriateness of this interpretation, which is therefore essentially common ground before the Court.
The 8 litres per second consent
[31] This dispute has its genesis in the letter of 31 August 1999 from the solicitors for Craggy Range to the solicitors for the Trustees. It provided:
We refer to the agreement for sale and purchase dated 24 June 1999.
We write to advise that special condition 18.1 has been satisfied and accordingly the contract is unconditional.
Settlement date will be 14 September 1999 being the date 14 days from today.
The contract requires a further deposit payment of $90,000 and our client will arrange for deposit into your trust account directly. Please let us have a copy of your trust account deposit slip for that purpose.
We will write to you separately regarding arrangements for settlement including the mortgage from the vendor, and the lease.
[32] The Trustees’ contention (and the finding of the Judge) was that once Craggy Range asserted that “special condition 18.1 had been satisfied”, any water consents thereafter were in addition to what it required for the initial 60 hectares and therefore additional payments had to be made.
[33] Clause 18 was specifically declared to be for the sole benefit of the purchaser and therefore Craggy Range was able to waive that benefit on any terms which it saw fit. The Trustees placed substantial emphasis on the letter referring to the condition being “satisfied”. This is not the most precise means of expression, but the case does not come to be determined on the particular verb used, but on an evaluation of the entire context and particularly the pricing mechanism for various parts of the land in respect of which the agreement was clear and unequivocal.
[34] The parties agreed that the 60 hectares would be worth $1.62 million only if there was adequate water available, which was agreed to be water at a minimum rate of 25 litres/second in the summer months. There had been a long history of negotiation including an earlier common application for consent to obtain water.
[35] By the end of August, Craggy Range was required to make a decision. Read in context, the letter indicates that Craggy Range was committed to the deal whether additional consents were obtained or not. In other words, Craggy Range took the risk on this point. With respect to MacKenzie J, we do not accept that this step meant Craggy Range waived the underlying bargain as to the water flow required for the initial 60 hectares. In the now unconditional contract, Craggy Range was accepting it had to pay for 60 hectares as if it were satisfactorily irrigated land whether further consent was obtained or not.
[36] Under the agreement, Craggy Range was further committed to pay $450,760 for another 69.3485 hectares. In other words, it was paying $6,500 per hectare for that part of the land as compared to the $27,000 per hectare it was paying for the initial 60 hectares.
[37] The agreement provided that if, in addition to the proper irrigation of the 60 hectares, additional water was available within the relative timeframes to irrigate more land, then an additional $20,500 per irrigable hectare was to be paid for the first 12.1 hectares (which meant it converted to the same price as the first parcel of land), and a further $5,500 per irrigable hectare for the remaining 57.25 hectares.
[38] It confuses two separate issues to conclude that, in declaring the agreement unconditional, Craggy Range was asserting that it did not need more than 18 litres/second to irrigate the 60 hectares. There is nothing said or done to suggest that was the position of Craggy Range. There is nothing in the words of the letter that requires such an interpretation. Craggy Range was taking the risk that further water would be available, but the agreement between the parties as to the minimum standard Craggy Range was paying for in the pricing approach adopted for those 60 hectares remained unaltered. Further, there was no pleading by the Trustees of an estoppel or misrepresentation based on Craggy Range’s statement that cl 18.1 was “satisfied”.
[39] The risk that Craggy Range chose to run was not unreasonable in light of its knowledge as to water potential from bores. It does violence to the totality of the contract to hold that, because Craggy Range confirmed its commitment to the purchase, there was an alteration in the basis of payment set out in detail in the special conditions.
[40] We therefore hold that the 8 litres/second consent is properly attributable to the requirement under cl 18 for the 25 litres/second for the first 60 hectares. The second consent does not give rise to an additional obligation, which arose only if there was the ability to irrigate other land.
[41] From the consents to take water via the two production bores, Craggy Range had consents for 26 litres/second during the periods when water for irrigation was required.
[42] We have not overlooked that in simple mathematical terms there were 26 litres/second, not 25 litres/second. But an expert witness said that in fact the likely take available from the first consent was only 17 litres/second. Further, there was no pleading that the two bores together led to a flow greater than that required for the prime 60 hectares if they were both applicable to it. No argument was advanced that, in practical terms, any further payment would be justifiable on the combination of the two consents, both of which were attributable to the first block of land.
[43] Accordingly, the appellant’s appeal on this ground is successful and the order for a further payment by Craggy Range to the Trustees is quashed.
The consent to take from the Huangarua River
[44] Mr Rennie argued that MacKenzie J was in error when he disallowed the Trustees’ first cause of action, which relied on cl 20.2 of the agreement. He submitted that the necessary factual premise was satisfied when, on 6 September 2001, Craggy Range obtained the right to take 50 litres/second from the river.
[45] The Judge indicated three options (at [34]) as to the meaning to be attributed to the words “water rights over the property at 43 litres/second” in cl 20.3. He rejected two of them and adopted a third. It was not argued that the rejection of the first two was in error, but it was submitted that there were other options for interpretation which were identified in the High Court and which would have led to a different outcome.
[46] In essence, the Trustees contended that the triggering provision was satisfied once Craggy Range “obtained water rates” at a level totalling 43 litres/second over a sufficient period so there was enough water to deliver an annual volume adequate to irrigate another part of the vineyard. It was argued that the water supply could be direct or from water earlier taken and stored, or both, at the total discretion of Craggy Range.
[47] Mr Rennie submitted that this alternative (which he advanced in the High Court) was not considered by the Judge but in fact provided a complete justification for the Trustees’ claim.
[48] Mr Rennie noted the structure of the special conditions and the fact that in May 2001 the appellant completed construction of a 10,000m3 water storage dam on the vineyard. At about the same time Craggy Range applied for a water take consent the elements of which were set out in a report accompanying the application:
(a)Craggy Range sought authority to take and use water for irrigation purposes from surface water from the Huangarua River;
(b)the water would only be taken when the river flow was above a specified minimum; and
(c)it sought to take water between May and October in each year, with a maximum take volume of 50 litres/second, 24 hours a day, seven days a week.
[49] In September 2001, Craggy Range was granted the water permit on the terms it had sought. A land use permit was granted in respect of a storage dam (which by then had already been built) although this was subject to a condition that it be lined, about which there was controversy.
[50] In this context, Mr Rennie acknowledged the general principles of construction referred to in [25] and [26]. He stressed the warning of McGechan J in WEL Energy Group Ltd v Electricity Corporation of New Zealand Ltd [2001] 2 NZLR 1 at [23]:
It may seem old fashioned, but the first step in interpreting words in a document is to read the words concerned. They are the central focus, and the point of departure. Boat Park principles do not require anything different. The question is the meaning of the words used, in light of surrounding circumstances. Reference to surrounding circumstances is particularly appropriate where words used give rise to ambiguity or literal meaning gives rise to unreasonable outcomes. One does not start from surrounding circumstances and on that basis invent wording which might have made more sense but which does not exist. The task is interpretation, not reconstruction.
[51] The Trustees’ position was that the agreement was structured on the basis that Craggy Range would pay a farmland price for farmland and a vineyard price for vineyard. Craggy Range, on acquiring the land, was responsible for meeting all development costs including those incidental to the sourcing of water under any resource consent. The full risk and all the costs of obtaining the necessary water for a vineyard were on Craggy Range, and it was free to obtain water in any way it chose; the Trustees argued that the test for payment arising under cl 20.2 was “general”.
[52] Craggy Range had contended that the dam was not within the purview of the agreement and this was the view adopted by MacKenzie J. The Trustees say that such an exclusionary interpretation would require the clearest of language and there was no such exclusion in this agreement.
Discussion
[53] We are satisfied that MacKenzie J was right in his interpretation of the contract. The difference of approach between the parties comes down to a very narrow point. The question is whether the words used by the parties in the agreement meant that the Trustees would (within the stipulated time period) share in the increase of the value of land however additional water was obtained.
[54] Mr Goddard QC’s fundamental argument for Craggy Range was that cl 20.3 was not freestanding, but was to be read in conjunction with cl 20.2. He contended that the right to take 50 litres/second from the river did not trigger a further payment obligation under any provisions of cl 20 because it only allowed river take during winter.
[55] We agree with MacKenzie J that of critical importance in the wording of the contract are the constant references to flow rates. That focus can only make any sense if it is treated to mean flow rates in the dry months when irrigation is required.
[56] The obligation to pay additional sums only arises if there is a simple and relatively inexpensive means of taking water (namely through a bore). Any proposal or approach which involved storage before irrigation could occur does not come within the words of the agreement.
[57] The consent to take 50 litres/second during the winter did nothing to assist in the irrigation of further land. Unless there was a storage capacity created, winter water did not assist in irrigation.
[58] If storage capacity is taken into account, then the two consents for bore waters allowed for more than sufficient water to irrigate the whole plantable area as, during the period in which the water could be taken, there was more than was immediately required, so some could be stored for subsequent use. This in fact is what has occurred.
[59] The uncontroverted evidence of the expert valuer in the High Court was that a consent to take water during the winter would only increase the value of the land if there was a suitable storage facility. The 50 litres/second from the river take consent did not increase the value of the land because it provided no water at the time it was required. The valuer’s evidence was that such a winter consent could only be utilised (and the value of the land increased above its dry value) if the land owner was prepared to undertake the cost and risk of building a storage facility such as a dam.
[60] We are satisfied that the agreement critically was predicated on water flows at times it was needed and not on total water capacity as a result of the construction of storage facilities.
[61] There was contention between the parties as to the actual cost of an appropriate dam, but no argument that substantial capital costs were accounted for in the agreement. It makes no commercial sense to suggest that the capital value of the land had merely been exploited (which was the rationale for the additional payment provisions in the agreement) when a substantial injection of further capital was essential for that potential to be captured. The fact that water was uniformly referred to in terms of flow and never by reference to available capacity means that, had the positive consequences of an expensive dam – which was in the event constructed entirely by Craggy Range – been intended to be shared, there would need to have been clear and unequivocal words to that effect in the agreement. There were none.
[62] For completeness, we note that there were other water rights which were related to a requirement for frost protection (see MacKenzie J’s judgment at [13]) which had no impact on the issues in this Court.
[63] There was an inevitable logic in Mr Goddard’s argument that the 50 litres/second take from the river in winter did not, in and of itself, enable irrigation of any additional land. If storage was involved, then the river take was not necessary because the bores provided all that was required. If potential storage was disregarded, the consent did nothing to increase the number of hectares which could be irrigated, since the river water was taken in winter.
[64] The cross-appeal is accordingly dismissed.
Conclusion
[65] The subsidiary question with regard to the calculation of interest and the determination of costs no longer requires attention. There is no sum owing by Craggy Range to the Trustees and therefore no interest can accrue.
[66] The costs order against Craggy Range in the High Court is quashed. If the parties are unable to agree on costs in respect of hearings in that Court, they will have to seek a determination from MacKenzie J.
[67] In respect of the hearing in this Court, Craggy Range is entitled to costs of $10,000 together with normal disbursements to cover both the appeal and the cross-appeal.
Solicitors:
Brown & Sargent, Auckland, for Appellant
Major Gooding & Partners, Masterton, for Respondents
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