Earnscleugh Vineyards Limited v McNeill Drilling Company Limited
[2020] NZHC 2545
•30 September 2020
IN THE HIGH COURT OF NEW ZEALAND DUNEDIN REGISTRY
I TE KŌTI MATUA O AOTEAROA ŌTEPOTI ROHE
CIV-2020-412-000002
[2020] NZHC 2545
BETWEEN EARNSCLEUGH VINEYARDS LIMITED
Appellant
AND
MCNEILL DRILLING COMPANY LIMITED
Respondent
Hearing: 4 June 2020 Appearances:
L A Andersen QC for the Appellant A D G Hitchcock for the Respondent
Judgment:
30 September 2020
JUDGMENT OF NATION J
EARNSCLEUGH VINEYARDS LTD v MCNEILL DRILLING COMPANY LTD [2020] NZHC 2545 [30
September 2020]
Background 3
The District Court judgment 20
The appeal 30
Approach on appeal 36
The Court’s task 38
Was McNeill deceptive in advising Mr Johnston he would be unlikely to find a supply of water suitable for irrigation in the flat/aquifer area of
the Earnscleugh property? 39
Did McNeill engage in deceptive conduct through not telling Mr Johnston of the existence of the aquifer beneath the flat area of the Earnscleugh
property? 95
Was it within the scope of the contract between EVL and McNeill that McNeill would advise Mr Johnston whether it was appropriate to drill on the schist hillside and was it on the basis of such advice that
Mr Johnston engaged McNeill to drill the disputed bore on that site? 108
Would EVL have been entitled to judgment on its counterclaim even if McNeill did advise EVL it would be unlikely to obtain the flow of water required from a bore on the flat area and it would be better
to drill on the schist hillside? 132
Was McNeill liable to EVL for deceptive conduct in making
representations as to the yield from the disputed bore? 154
Was the evidence sufficient to prove that EVL had suffered a loss
through McNeill’s alleged deceptive conduct? 179
Alleged error by the Judge as to his determination that the losses
claimed by EVL were untenable 219
Conclusion as to the appeal by EVL against the judgment for McNeill on
EVL’s counterclaim 220
Appeal against the judgment for McNeill on the McNeill claim 221
Result 240
Costs 241
[1] In 2016, the appellant Earnscleugh Vineyards Ltd (EVL) contracted the respondent McNeill Drilling Company Ltd (McNeill) to drill a bore for water (the disputed bore) on EVL’s land in Central Otago (the Earnscleugh property). McNeill claimed $8,996.64 for an unpaid portion of its invoiced costs of $25,696.64. EVL counterclaimed $201,375.69 for payments it had made in connection with the disputed bore and damages for a share of claimed orchard production loss.
[2] On 29 November 2019, Judge A P Christiansen gave judgment for McNeill on both the claim and counterclaim.1 EVL appeals that judgment.
Background
[3] Since 2002, EVL has owned the Earnscleugh property bordering Blackman Road near Alexandra. The area is hot and dry in summer. The Earnscleugh property comprises a hill area and a flat area, with the flat area over part of what is known as the Earnscleugh Terrace Aquifer.
[4] EVL’s business was conducted in all respects relevant to this judgment by Hayden Johnston.
[5] McNeill is a well-drilling business. Over the relevant period, it had more experience of drilling bores for water in the Earnscleugh area than any other business.
[6] In 2009, Mr Johnston spoke with Graeme Stewart, the then Alexandra-based manager of McNeill, about obtaining a suitable quantity of water for irrigation. Mr Stewart advised Mr Johnston that the flat area of the Earnscleugh property was an area McNeill had not been successful in producing irrigation bores. Mr Stewart discussed with Mr Johnston various options for obtaining water for irrigation. One of those options was that Mr Stewart ask Michael Simmons, then working with McNeill, to divine the Earnscleugh property to see what might be possible.
[7] On 8 March 2016, McNeill provided a quotation “for the drilling of a water bore for irrigating and frost fighting at your property” and said “[t]he estimated depth
1 McNeill Drilling Company Ltd v Earnscleugh Vineyards Ltd [2019] NZDC 23744.
of the selected location is 70 metres based on the divining work of Mike Simmons”. The selected site was on the schist hill area of the Earnscleugh property.
[8] On 11 April 2016, Mr Johnston emailed McNeill asking it to proceed with the work.
[9] Drilling took place on 12 April 2016. Water was found at 70 m. McNeill drilled to a depth of 88.7 m to see if a better quantity of water could be established. The following day, the bore was tested and a flow of 3.1 litres per second (lps) was established.
[10] On 14 April 2016, McNeill sent EVL an invoice for drilling the disputed bore for $25,696.64, including GST.
[11] On 22 April 2016, Mr Johnston emailed McNeill and said he was not happy about being charged for 88.7 m.
[12] On 19 December 2016, McNeill filed a statement of claim in the District Court for $25,696.64 for the unpaid drilling costs.
[13]On 29 December 2016, EVL paid $10,700 to McNeill.
[14] On 6 March 2017, EVL filed a statement of defence denying liability and claimed McNeill was in breach of its agreement with EVL in that:
(a) it was known to McNeill at the time the drilling work was carried out that the site proposed by Michael Simmons was not the most suitable on the Earnscleugh property for the drilling of a water bore suitable for EVL’s purposes;
(b) the drilled water bore provided an insufficient volume of water for EVL’s purposes; and
(c) McNeill had charged EVL for drilling work in excess of 70 m when EVL had not instructed it to do so.
[15] On or about 25 October 2017, after a judicial settlement conference in the District Court in Dunedin, EVL paid another $6,000. The District Court referred the matter to the Disputes Tribunal in Invercargill. No resolution was achieved.
[16] On 10 August 2018, EVL filed a counterclaim in the District Court. EVL alleged:
(a) if McNeill had drilled into the Earnscleugh Terrace Aquifer, it could have obtained sufficient water to irrigate the Earnscleugh property and provide potable water for household use;
(b) when initially consulted, McNeill advised EVL against drilling on the flat area and failed to disclose the existence of the Earnscleugh Terrace Aquifer;
(c) through McNeill carrying out the drilling on the hill area of the property rather than the flat area, EVL obtained a water supply that was insufficient for its requirements and McNeill obtained a five-fold increase in revenue because of the increased depth of drilling required;
(d) McNeill, in trade, had engaged in conduct that was misleading or deceptive, or likely to mislead or deceive EVL in:
(i)failing to tell EVL of the existence and extent of the Earnscleugh Terrace Aquifer;
(ii)advising EVL there was no viable source of water on the flat area of the property when that was the obvious source of water to meet EVL’s requirements; and
(iii)misrepresenting the yield from the actual drilling carried out on the hill to make it falsely appear as if the flow could be used for EVL’s requirements when they knew the rate was not sustainable.
(e) as a result of McNeill’s misleading conduct, EVL employed McNeill to drill on the hill area, to purchase a pump and an electrical supply to the
bore and EVL had suffered the loss of one year’s production on its proposed orchard as it did not have water that met EVL’s requirements.
[17] Under s 43(3)(f) Fair Trading Act 1986, EVL claimed damages for losses suffered as a result of McNeill’s deception:
(a) payments made for the bore of $16,700;
(b) payment for power to the bore of $5,981.45;
(c) payment for pump and installation $17,173.24; and
(d) loss of one year’s orchard production being $161,521.
[18] McNeill filed a fully particularised defence to the counterclaim on 21 September 2018 denying its conduct had been misleading or deceptive and asserting EVL was not misled or deceived in the manner alleged.
[19]The proceedings went to a hearing in the District Court on 10 October 2019.
The District Court judgment
[20] The Judge accepted that in 2009 McNeill’s manager, Mr Stewart, advised Mr Johnston that McNeill had not been successful in producing irrigation bores on the flat areas of his property and had only been able to establish domestic bores in that area because the tertiary clay had low transmissivity. The Judge accepted Mr Stewart told Mr Johnston that one of his options was to obtain an easement agreement to establish a bore on a neighbouring property closer to the Clutha River where McNeill had obtained better quantities of water. He said this suggestion had been endorsed as sensible by an expert witness called for EVL, Mr Rekker.
[21] The Judge accepted Mr Stewart had also recommended Mr Johnston contact the local irrigation company to obtain surface water. He accepted Mr Stewart did not tell Mr Johnston there was no water on the flat, rather there would likely be low volumes, insufficient for irrigation, and said this had been accepted by Mr Johnston under cross-examination.
[22] The Judge accepted evidence from Michael Simmons that, when Mr Johnston first contacted him, Mr Johnston said he wished to establish a vineyard on the hillside. For that purpose, Michael Simmons did some divining on the flat section of the property but was unsuccessful in finding a suitable bore site. The Judge accepted Michael Simmons’ evidence that he advised Mr Johnston on two occasions in April 2009 it was unlikely he would be able to establish a successful flow on the flats as they consisted of silty ground and clay which would not allow for good flows.
[23] The Judge did not accept Mr Johnston’s claim that McNeill had advised EVL there was no available source of water on the flat area of his property when it was an obvious source of water to meet EVL’s requirements.
[24] The Judge did not accept McNeill had made the expressions of opinion detailed in EVL’s counterclaim and said it was Mr Johnston and Michael Simmons who determined where McNeill would be instructed to drill.
[25] The Judge also held the evidence had not established that those expressing the opinions, which EVL referred to in its counterclaim, were wrong in the opinions expressed. He accepted the statements of Brydon Hughes, a hydrogeologist who gave evidence on behalf of McNeill, indicating the prospects of establishing an irrigation quantity of water in the flat area was relatively low. He referred to evidence from Mr Rekker, also a hydrogeologist, who had placed reliance on one domestic bore close to the Earnscleugh property that Mr Rekker thought could have the potential to be developed into an irrigation bore. He noted the bore was just outside the boundary of the Earnscleugh property and there was evidence suggesting the proximity of dry bores nearby.
[26] The Judge held the evidence established that EVL would have been unlikely to find an irrigation “quality” of water in the flat aquifer area of the Earnscleugh property. The Judge also held the evidence did not establish that the disputed bore would not be sustainable for EVL’s purposes. He held the evidence did not establish there had been misleading or deceptive conduct on the part of McNeill.
[27] The Judge appeared to accept that EVL had not established there had been an intention to plant an apple orchard. He noted any such purpose was supplementary to EVL’s purpose of subdividing its property. The Judge also accepted McNeill’s submission that EVL’s costs, including estimates provided in support of its claimed losses, were clearly unreliable.
[28] The Judge held that McNeill performed its drilling exercise properly and competently and had established a productive bore on the hillside site EVL had chosen and had directed McNeill to drill.
[29] On that basis, he gave judgment for McNeill on both the claim and counterclaim.
The appeal
[30] EVL submitted the Judge erred in failing to find that McNeill engaged in deceptive conduct. In its notice of appeal, EVL contended:
The Learned District Court Judge failed to find that [McNeill] engaged in deceptive conduct when that was the only conclusion reasonably available on the evidence:
(i) The Earnscleugh Terrace Aquifer was under the [Earnscleugh] property but its existence was not disclosed and instead [McNeill] actively discouraged [EVL] to drill into the Aquifer;
(ii) There was no evidence of failed attempts to find water on ground over the Aquifer;
(iii) The Learned Judge failed to understand the significance of the distinction between irrigation water and water for household use and the fact that irrigation water was generally not required for properties over the Earnscleugh Terrace Aquifer;
(iv) The expert evidence established the likelihood of obtaining water drilling on the flat of the [Earnscleugh] property and it would be logical to drill on the flat before attempting to drill on the hill.
[31] Consistent with those particulars, EVL submitted the Judge erred in fact and in law in:
(a) misinterpreting the terms and scope of the contract;
(b) making a finding of fact that was not available on the evidence, namely that EVL would have been unlikely to find an irrigation quality of water in the flat (the aquifer) surrounding its property;
(c) failing to understand the significance of the expert evidence as to the Earnscleugh Terrace Aquifer;
(d) finding the losses claimed by EVL were quite clearly untenable;
(e) not finding McNeill had misrepresented the yield from the disputed bore; and
(f) finding EVL had not proven it was intending to establish an apple orchard.
[32] EVL contended the Judge made incorrect findings of law and fact relating to both the claim and the counterclaim. On those grounds, EVL contended it was entitled to judgment on its counterclaim.
[33] EVL submitted the Judge erred in fact and in law in misinterpreting the terms of the contract and in particular its “limitation to drilling to 50 [sic] depth” and erred in either finding the terms of the contract permitted the drilling of an extra 18.7 m below the 70 m quoted or that consent was given by EVL for such drilling when neither conclusion was available on the evidence.
[34] On those grounds, EVL submitted it was entitled to judgment on McNeill’s claim.
[35] Mr Andersen QC said the overall essence of the appeal was that the Judge had failed to properly understand the evidence, including the expert evidence called on behalf of EVL, meaning his findings were not available on the evidence.
Approach on appeal
[36] This appeal proceeds by way of rehearing.2 I am therefore required to make my own assessment of the evidence the District Court Judge had to consider. I must form my own opinion “even where that opinion is an assessment of fact and degree and entails a value judgment.”3
[37] I will deal with the merits of each party’s position against the evidence provided through considering the grounds of appeal advanced by Mr Andersen.
The Court’s task
[38] In major respects, in EVL’s defence to the McNeill claim, its counterclaim and on its appeal, EVL allege McNeill acted dishonestly and deceptively in the way it did business with Mr Johnston and EVL. In considering such allegations, the Judge in the District Court and now this Court has had to make determinations as to the credibility, that is the honesty and reliability, of key witnesses regarding evidence they gave in the District Court. Those witnesses included people associated with both McNeill and Mr Johnston. As is appropriate with issues of credibility, I have carefully considered the detail of the evidence before the District Court with the benefit of submissions made before me from counsel for both parties. That consideration is necessarily reflected in the length of this judgment.
Was McNeill deceptive in advising Mr Johnston he would be unlikely to find a supply of water suitable for irrigation in the flat/aquifer area of the Earnscleugh property?
[39] EVL submitted the evidence was insufficient to allow the Judge to determine that EVL would have been unlikely to find an irrigation quality of water in the flat aquifer area surrounding its property. Had that finding not been made, the evidence would have established McNeill engaged in deceptive conduct.
[40] In support of that submission, Mr Andersen referred to maps which showed that the Earnscleugh Terrace Aquifer was under the northern part of the Earnscleugh
2 District Court Act 2016, s 127.
3 Austin, Nichols & Co Inc v Stichting Lodestar [2007] NZSC 103, [2008] NZLR 141 at [16].
property. He said the fact only domestic supply bores had been established in the aquifer could be explained through water for irrigation having been available from a pond which sourced water from the Earnscleugh irrigation scheme, a source no longer available because Mr Johnston had sold that pond.
[41] Mr Stewart was McNeill’s operations manager based in Alexandra between July 1994 and February 2016. It was his evidence that McNeill had attempted to establish bores in that area of the Earnscleugh Terrace Aquifer including the flat area of the Earnscleugh property but low transmissivity meant low bore extraction flows and poor quality water had been the general if not invariable result.
[42] Michael Simmons, the diviner, confirmed that a bore on the alluvial flats near the Earnscleugh property had been drilled by McNeill in 1986 and had yielded 2.1 lps at a depth of 14 m. McNeill had drilled a bore on the alluvial flats close to the Earnscleugh property that was pumped at 0.37 lps. There was no dispute that was a very low output and of no use for irrigation. He said he had also undertaken a substantial amount of divining work at various properties in the area, in the region of 30 instances of divining. It was his evidence that the alluvial flats in the area did not produce good bores for irrigation purposes because the underlying ground has a lot of silt and clay which does not conduct water well.
[43] Mr Laraman, McNeill’s general manager, had discussions with Mr Johnston after Mr Johnston objected to paying the drilling invoice. Under cross-examination, Mr Laraman said McNeill’s experience was that water would not be available and abundant from the aquifer. He said there had been more than two dry bores in the area but there were two he specifically remembered.
[44] Under re-examination, Mr Laraman said he was aware there had been a lot of dry holes drilled in the aquifer generally. The expert witness, Mr Hughes, acknowledged that the Regional Council does not necessarily have a record of dry bores that have been drilled.
[45] Mr Hughes is a hydrogeologist called as an expert witness for McNeill. It was his evidence:
The hydraulic properties of the Earnscleugh Terrace Aquifer reflect the overall texture of the alluvial sediments. Course, sandy gravels along the margins of the Clutha River/Mata-Au typically exhibit very high permeability. … Due to an increasing amount of fine sediment (silt) in the gravel matrix, the permeability of the unconfined aquifer generally decreases with distance from the Clutha River/Mata-Au. In particular, the permeability of the alluvial materials appears to reduce significantly along McIntosh Road and south of Blackmans [sic] Road where the alluvial sediments are thin and dominated by locally derived, fine-grained colluvial sediments.
Attachment 1 [a map of the area] shows a plot of specific capacity values for bores in the Earnscleugh Terrace Aquifer. The figure generally shows high specific capacities (> 500 m3/m/day) across the northern section of the aquifer system and to the east of Earnscleugh Road further south.
Specific capacity values reduce significantly across the southern section of the aquifer, to the west of Earnscleugh Road. In particular, bores located south of Blackmans Road [sic] and along McIntosh exhibit very low values (< 30 m3/day/m) which indicates bores in this area are typically low yielding.
[46] Mr Hughes noted this observation was consistent with the evidence of both Mr Stewart and Michael Simmons outlining their experience of bores constructed on Earnscleugh Terrace at the base of the hills to the south of Blackman Road as being very low yielding.
[47] Mr Hughes said drilling records from the Otago Regional Council and McNeill include four bores constructed in the Earnscleugh Terrace Aquifer (that is at the base of the hill) in the vicinity of 25 Blackman Road. Recorded bore yields ranged from zero lps (the bore is recorded as “dry”) to a maximum of 1.8 lps (in G42/0731).
[48] Mr Hughes noted, because of this, it was not unreasonable to infer in general that well yields will decline around the periphery of the Earnscleugh Terrace. He said, for that reason, few existing resource consents for groundwater extraction, other than for domestic and/or stock water supply, are recorded to the west of Earnscleugh Road. (The Earnscleugh property on the Terrace is to the west of Earnscleugh Road.)
[49]On its appeal, EVL relied on the evidence of its expert witness Mr Rekker.
[50] Both Mr Hughes and Mr Rekker agreed about the general nature of the Earnscleugh Terrace Aquifer. To the north, closer to the Clutha River (thus including the area to the north of Earnscleugh Road), the gravels are more “washed”, giving
greater transmissivity of the water in the sub-strata and thus are more likely to provide well performing bores. The land to the south towards the base of the hills has more gravels with more silt and clay leading to lower transmissivity and poorer performing bores.
[51] Mr Rekker accepted the validity of McNeill’s experience of obtaining more high yielding wells from the aquifer the further they went towards the river. He agreed with Mr Hughes’ evidence that this could be explained through the increased amounts of fine materials (silt) associated with the gravels further away from the river.
[52] Mr Rekker was not aware of any water permits for irrigation in the area south of Blackman Road, the area in which EVL suggested McNeill should have drilled. He accepted that McNeill was the predominant driller in the aquifer and it would have a fairly good practical understanding of where to find water.
[53] In his evidence and on appeal, EVL made much of a bore that McNeill had drilled on the flat close to the boundary of the Earnscleugh property. The bore is identified as G42/0731. Mr Rekker said, although the yield from the bore was 1.8 lps, the actual capacity of the bore was 18.3 litres per metre of drawdown which meant 6 lps from the bore would be feasible.
[54] Specific capacity is a measure of the volume of water able to be pumped from a bore for each metre of drawdown. It provides a useful measure to illustrate the relative permeability of different parts of an aquifer system. It is also related to the yield (that is the maximum amount of water that can be pumped from an individual bore) which is equivalent to the specific capacity, multiplied by the amount of drawdown available within the bore.
[55] EVL argued that Mr Rekker’s evidence as to bore G42/0731 should have satisfied the Judge that an irrigation supply of water could have been obtained from a similar bore drilled on the flat area of the Earnscleugh property. EVL argued the Judge was wrong to reject Mr Rekker’s evidence because of what the Judge said was a strong reliance on one domestic bore close to the Earnscleugh property and his
noting it was just outside the boundary of the Earnscleugh property and evidence suggesting the proximity of dry bores nearby.
[56] Mr Andersen said the bore referred to was 50 m from the eastern boundary of the Earnscleugh property but the two properties shared the same physiographic landform, an alluvial flat.
[57] Mr Hughes noted the way Mr Johnston and Mr Rekker highlighted the presence of an apparently “high yielding” bore G42/0731 on the Earnscleugh Terrace approximately 50 m from the Earnscleugh property. Mr Hughes said, from a review of the data available to him, he considered the indicated specific capacity of this bore was somewhat anomalous with respect to local hydrogeological conditions because:
(a) the indicated specific capacity was appreciably higher than that observed in two nearby bores;
(b) the few specific capacity values comparable to that from G42/0731 were typically observed in coarse, reworked alluvium along the margin of the Clutha River/Mata Au; and
(c) the indicated specific capacity was extremely high given its construction and was usually recorded in larger diameter bores with longer screens.
[58] Mr Hughes said McNeill’s drilling records show the installation of two test bores before construction of G42/0731. The first, drilled at a location approximately 70 m south of G42/0731, was recorded as dry. The second, drilled at the same location as G42/0731, recorded subsurface geology as comprising silty sand and sandy gravel overlying schist. The log from the second test bore noted a yield of 0.4 lps from the test bore which was utilised to confirm the location as suitable for the final production bore.
[59] The geology of the screened interval in G42/0731 was recorded as “sandy gravels”. Other nearby bores, screened in similar sediments, exhibited appreciably lower specific capacity values. Mr Hughes concluded there was significant
uncertainty as to whether the high capacity recorded in G42/0731 was representative of hydrogeological conditions across the surrounding area.
[60] The Judge did not ignore the potential significance of bore G42/0731. The Judge referred to evidence from Mr Rekker and his reliance on one domestic bore close to the Earnscleugh property. He noted the bore was just outside the boundary of the Earnscleugh property and there was evidence suggesting the proximity of dry bores nearby. There was evidence of failed attempts to find water in the area of the aquifer.
[61] Mr Andersen submitted under cross-examination that both Mr Hughes and Michael Simmons had accepted the output obtained from bore G42/0731 would be achievable from a similar well on the Earnscleugh property.
[62] It was put to Mr Hughes in cross-examination that Mr Rekker considered the capacity for bore G42/0731 could be a minimum of 6 lps and this would be achievable in a similar well on the Earnscleugh property. Mr Hughes said:
I accept that. Although I would qualify that because that infers that the aquifer is uniform in hydraulic properties which obviously it is not so because you have a certain yield in one bore doesn’t mean you’re going to get the same yield in a bore that’s even, maybe quite close.
In response to a further question from the Judge, he said that within a matter of metres you can go from a high yielding bore to a low yielding bore.
[63] Mr Hughes referred to a bore drilled on 29 November 1985 on Blackman Road for Marshall that had a 23.750 m depth and pumped at 0.37 lps. This was very close to the Earnscleugh property and was a very poorly performing bore. Mr Hughes said the contrast to what had been recorded as the output from G42/0731 was indicative of the variability that could exist in an area of alluvial deposits, as was the situation with the Earnscleugh Terrace. He explained how it was possible to have a small area of high permeability through the way a stream could be channelled across the landscape leaving better sorted gravel materials of a uniform size washed clear of the fine materials which reduce transmissivity.
[64] On a careful reading of Mr Hughes’ response to the question asked of him and the evidence in his reply brief, it could not be said the Judge had to conclude Mr Hughes was accepting that, if 6.5 lps could be obtained from bore G42/0731, a minimum of that output would have been achievable on the Earnscleugh property.
[65] Mr Rekker considered the maximum yield in the vicinity of bore G42/0731 could have been 6 lps, more than the 1.8 lps recorded after pumping for one and a half hours.
[66] Mr Rekker accepted that, if bore G42/0731 had been test pumped at a higher rate, the specific capacity would have fallen. He said the bore had never been developed. It had just been used as a domestic bore.
[67] Mr Rekker said he accepted Mr Hughes’ evidence about the way the gravels were laid down. He accepted there can be some areas where you have very clear gravel and can get good permeability and other areas which have silt and tertiary clay, and that could explain the anomalously high production of G42/0731.
[68] On re-examination, Mr Rekker did not disagree with Mr Hughes’ opinion that the recorded output from G42/0731 appeared to be anomalous. When asked to comment on Mr Hughes’ opinion, he said only that he considered the experts were hampered in expressing opinions as to whether the apparent good supply of water from G42/0731 was anomalous through a lack of documentary evidence.
[69] Mr Andersen referred to the evidence from Michael Simmons, where Michael Simmons was referred to Mr Rekker’s evidence that the bore would have been able to produce a drawdown of 6.3 lps. Mr Andersen submitted Michael Simmons accepted in cross-examination there was no reason why such an output would not have been achieved if McNeill had drilled in a similar position on the Earnscleugh property. Michael Simmons did appear to accept this, however, he qualified it by saying every bore can be different, even when two bores are close by. Under re- examination, Michael Simmons referred to a bore that was within 50 m of the Earnscleugh property boundary but closer to the toe of the hill than G42/0731. The
bore log indicated, although it was put into gravel, the bore was clay-bound and no water was obtained.
[70] Wells established in that part of the aquifer, with a sub-strata similar to the Earnscleugh property, provided sufficient water only for domestic supply. That was also consistent with the evidence of the experts, Michael Simmons and Mr Stewart as to the way the transmissivity of the sub-strata was reduced through the presence of clay and silt with the gravels in that area. Mr Johnston and Mr Rekker suggested perhaps the successful bores produced only enough for domestic supply because landowners in the area had been able to obtain water for irrigation from the local irrigation company which provided water from a storage facility via water races.
[71] I attach little weight to that explanation. It was not a proposition put to McNeill’s witnesses who had the experience of drilling nearly all the bores in this area. There was no evidence as to why local landowners had to rely on that scheme for a supply of water sufficient for irrigation purposes. One possible inference is this would have been necessary because they were unable to obtain a sufficient supply from bores on their properties.
[72] I also have some regard to Michael Simmons’ assessment, as to the prospect of obtaining a suitable supply of water from the flat, through water divining in that area. He said he began water divining in about 1994. He acknowledged that no formal training was required to become a water diviner and the work is far from either exact or a science. He said, in divining for water, he also assesses the geological features above ground and utilises his knowledge of the areas in which he has previously divined for water sources. He said his success rate for drills yielding water in the Central Otago area was approximately 85 per cent. Neither his claimed success rate nor the way water divining might assist in establishing a worthwhile source of water were challenged in cross-examination.
[73] Neither the Judge nor I would have to infer from that evidence that, in all the circumstances of this case, McNeill had been wrong to drill where they were directed to on the schist hillside. Nor did Mr Hughes’ evidence, about the steps which might appropriately be taken to establish the best potential source of water, mean Michael
Simmons had been wrong in suggesting, in all the circumstances he knew of, the prospects of obtaining an irrigation supply of water from a well on the flat area of the Earnscleugh property were poor.
[74] With its practical knowledge and experience from drilling in the area, McNeill, through Mr Stewart, thought it could be worthwhile for Mr Johnston to have Michael Simmons divine for potential water sources on the Earnscleugh property.
[75] Mr Johnston also considered it worthwhile and engaged Michael Simmons to divine for the best spot for a bore in an area on the hillside where it appeared there could have been a spring.
[76] As referred to earlier, Michael Simmons had divined extensively for water in the area of the aquifer around the Earnscleugh property. Those investigations indicated bores in the alluvial flats would not produce good supplies of water for irrigation purposes.
[77] In his decision, the Judge accepted the evidence of Mr Hughes indicating the prospects of establishing an irrigation quantity of water on the flat area of the Earnscleugh property were relatively low.
[78] On my assessment of all the evidence, it cannot be said the Judge failed to understand the significance of the expert evidence as to the Earnscleugh Terrace Aquifer.
[79] There was nothing in the Judge’s decision to indicate he did not understand there was a distinction between the water required for domestic use and the quantity required for irrigation, or the significance of the distinction.
[80] The Judge referred to the discussions that took place in 2009 regarding the possibility of establishing bores for irrigation purposes. He noted Mr Johnston accepted that Mr Stewart’s advice had initially been about the likelihood of finding water sufficient for irrigation.
[81] The Judge expressly referred to EVL pleading that it used McNeill to locate and drill for water sufficient to irrigate the Earnscleugh property and provide potable water for household use. He referred to EVL pleading it had paid an amount which sufficiently reflected the value “of the bore for household purposes only” and its pleading that, had McNeill drilled into the aquifer, it “would have obtained sufficient water to irrigate [the Earnscleugh] property and provide potable water for household use”.
[82] The Judge referred to Mr Rekker’s evidence “that a large diameter irrigation bore with a larger capacity properly installed would have been more likely to have met EVL’s requirements than looking outside of the Aquifer into schist on the hill”. He said EVL did not accept McNeill’s expert evidence that finding an irrigation quantity of water in the adjacent aquifer land was unlikely. In his consideration of the competing position, the Judge referred to the evidence that, in 2009, Mr Stewart had spoken about “getting a suitable quantity of water for irrigation” and Mr Stewart’s advice about McNeill not having been successful in producing “irrigation bores”.
[83] In his conclusions, the Judge found, on the evidence, EVL would have been unlikely to find “any irrigation quality of water” in the flat aquifer area of the Earnscleugh property.
[84] Having read the evidence and the judgment, I am well satisfied the Judge understood the distinction between what was required for a domestic and irrigation supply of water. His conclusion that EVL would have been unlikely to obtain an irrigation supply of water from the bore was, for the reasons I have already stated, properly available to him.
[85] For reasons I have already articulated, I do not accept the expert evidence established it would be likely to obtain the water EVL required for irrigation from drilling on the flat. Nor could that be determined with reference only to the expert evidence. EVL’s expert, Mr Rekker, acknowledged the value of McNeill’s experience of drilling for water in the area.
[86] In his evidence, Mr Johnston claimed the establishment of a bore and well capable of supplying water sufficient for his irrigation requirements would have been of significant value to him. His counterclaim was based on what he says was his strong belief he would have been able to obtain the water he needed from a bore drilled on the flat area of the Earnscleugh property, to a depth significantly less than was necessary on the hillside, and at a cost significantly less than he was charged for the disputed bore. If he was so sure of being able to obtain the supply of water he wanted on the flat area of the Earnscleugh property, it would be reasonable to expect he would have drilled for water in that area at some point between April 2016 and when the trial of these proceedings took place in October 2019. He had not done so.
[87] It was suggested to Mr Hughes in cross-examination that, in looking for water on the Earnscleugh property, it would be reasonable to look in the aquifer first, and then in the land above the aquifer and, thirdly, in the schist area.
[88] Mr Hughes explained that the schist basement makes an important contribution to base flow in many hill catchments in the Central Otago area. The schist basement is a fracture roof rock aquifer system which is recharged by the slow percolation of water from the land surface via discontinuities within the rock mass. If the rock mass is particularly intact, insufficient water may be encountered to provide a viable water supply whereas, if more extensive fracture zones are encountered, higher yields may be secured.
[89]Mr Rekker said with the schist rocks of Otago:
… post metamorphosis, flexure and fracturing has opened up voids as cracks, and joints and foliation partings within the rock-mass. Fault and fracture zones may also concentrate these ‘secondary porosity’ features. Consequently, water can enter the rock mass via the discontinuities and be transmitted by cross connections under gravitational gradients.
He thus accepted that drilling efforts in schist could be successful.
[90] Both experts spoke of the possible sequence in which investigations might be made to establish the best place to drill for water on the Earnscleugh property and of that sequence beginning with an investigation through putting a bore down on the
flat of the Earnscleugh property. Mr Rekker said the Earnscleugh Terrace Aquifer should have been explored before the schist rock hillside was drilled for water.
[91] Reading all the evidence presented at trial, I am satisfied they were speaking of a theoretical approach which might be taken, not one that would have to be taken, in all the circumstances of this case. Mr Johnston’s decisions as to how to proceed began with his discussion with Mr Stewart when Mr Stewart spoke of the likely difficulties that would be encountered in obtaining an irrigation supply of water from the flat area of the Earnscleugh property.
[92] Instead of incurring the expense of having McNeill put down an exploratory bore on the flat, Mr Johnston asked Michael Simmons to divine for water and, based on Michael Simmons’ advice, chose to put a bore on the hillside area. His reasons for wanting it there were not just to do with the potential supply of water but were also because of the way a bore in that location would have been of value in the context of a development on the hillside area for a subdivision and vineyard. The evidence satisfies me that, with what he had been told about the potential for inadequate supply of water for irrigation from a bore on the flat, Mr Johnston chose to have McNeill drill a bore on the hillside site chosen by Mr Johnston in consultation with Michael Simmons.
[93] McNeill had not breached any agreement with Mr Johnston or EVL in proceeding to drill at that point rather than on the flat as the first step in a sequenced investigation for the best water supply site.
[94] To establish its case, EVL had to prove on the balance of probabilities that an irrigation quantity or quality of water would likely be found on the flat area of the Earnscleugh property. I have carefully considered all the evidence and the detailed and thorough submissions of Mr Andersen. I consider the Judge was correct in finding the evidence was insufficient to prove that aspect of EVL’s case.
Did McNeill engage in deceptive conduct through not telling Mr Johnston of the existence of the aquifer beneath the flat area of the Earnscleugh property?
[95] In his brief of evidence, Mr Johnston said the northern end of the Earnscleugh property was at the southern end of the aquifer:
I did not know of the aquifer at the time and I was completely misled by the deceitful statements made to me that water needed to be drilled for on the hills. The drilling on the hill unnecessarily increased the depth that was required to be drilled to reach water and the water did not have a satisfactory flow or quality.
The site that was drilled by McNeill Drilling was not only unsuitable but was known to be unsuitable by the drilling crew who nevertheless proceeded with the drilling. I believe the reason that McNeill Drilling said to drill on the hills (assisted by Mike Simmons) was that it benefited financially from a contract to drill 70 metres instead of the 10 to 20 metres which is all that would have been required on the flat.
[96] When cross-examined, Mr Johnston said he only found out about the Earnscleugh Terrace Aquifer after the settlement conference.
[97] There was no dispute that the Earnscleugh property is in an area which is hot and dry. There was no dispute as to Mr Stewart’s evidence that water for irrigation makes a significant impact on the value of rural properties in the area and, because water is a focal issue, most of the rural landowners in the Earnscleugh area are well aware of the Earnscleugh Terrace Aquifer, including its limitations. It was Mr Johnston’s evidence that EVL had owned land in the area since 2002 and EVL’s principal activity on the land was cherry growing. It seems most unlikely that he would not have had any information about the aquifer even before discussing potential drilling sites with McNeill in 2009 and 2014.
[98] It was Mr Stewart’s evidence that he told Mr Johnston the flat area of his property was over part of the Earnscleugh Terrace Aquifer which comprised gravels, sand, silts and clay, meaning that area of the aquifer had low transmissivity. He said he told Mr Johnston about McNeill’s attempts to establish bores in that area and advised Mr Johnston how the nature of the aquifer changed significantly north of Earnscleugh Road so that one of his options was, with an easement agreement, to obtain water from the bore in that area. He said he explained how McNeill had been
able to establish good water bores in the gravel and sand part of the Earnscleugh Terrace Aquifer.
[99] Under cross-examination, Mr Johnston accepted Mr Stewart had talked to him about the difficulty of obtaining water sufficient for irrigation from the flat area of the property. He accepted Mr Stewart also spoke to him about obtaining water from a neighbour’s property north of Earnscleugh Road and the prospect of obtaining better results from that area. He said Mr Stewart encouraged him to speak with the diviner and to seek alternative ways of obtaining the water he required.
[100] Mr Stewart’s explanation as to the difficulties Mr Johnston would likely face in obtaining an adequate supply of water from a bore on the flat area of the EVL land was such that Mr Johnston said “by deduction” he considered it would be necessary to look at the hill.
[101] I note, in its statement of defence of 6 March 2017, denying liability to McNeill for the amount claimed, EVL pleaded:
It was known to the Defendant [sic] at the time the drilling work was carried out that the site proposed by Mike Simmons was not the most suitable site on the Defendant’s property for the drilling of a water bore suitable for the Defendant’s purposes.
[102] There was no allegation in the statement of defence that McNeill had failed to advise Mr Johnston or EVL of the existence of the Earnscleugh Terrace Aquifer under EVL’s land.
[103] Mr Stewart was however carefully cross-examined as to this issue when his evidence was taken before a Registrar. Mr Stewart accepted at the commencement of cross-examination that the aquifer was under the flat area of the Earncleugh property but said this was with “lower volumes of water”. There was then this exchange with counsel:
Q. Yes. Now, when you were discussing what Mr Johnston should do, you didn’t ever mention the fact that the aquifer existed did you?
A. I was aware it was weakening as you went further up, up the Blacklands [sic] Road. The best options was towards Earnscleugh Road or across the road.
Q. I want to be quite particular about what I’m asking you. You didn’t actually refer to the Earnscleugh Terrace aquifer when you were talking to Mr Johnston did you?
A. I don’t recall mentioning it.
[104] In the exchange that followed, counsel accepted Mr Stewart had told Mr Johnston there were “problems with the composition of the ground” which led him to say Mr Johnston was likely to obtain only low volumes of water from that area of the Earnscleugh property. In the exchange between counsel and Mr Stewart, it was also accepted the explanation for this had related to saturation gravels and the clay content within them.
[105] Although Mr Stewart could not recall mentioning the aquifer with the discussion he clearly had with Mr Johnston, it is hard to see how he would not have done so. The fact remains that, despite his evidence as briefed, he could not recall mentioning the aquifer. There was no re-examination of Mr Stewart to explain the concession he made which was at odds with the clear statements in his evidence as briefed. Mr Johnston said Mr Stewart did not mention the aquifer. I deal with the evidence on that basis.
[106] Any failure on the part of Mr Stewart to mention there was an aquifer underlying the flat area of the Earnscleugh property did not mislead or deceive Mr Johnston. He was seeking advice from Mr Stewart as to whether EVL would be able to obtain a supply of water sufficient for irrigation from the flat area of the property. The advice as to that depended on what Mr Stewart knew of the supply of water to that area and the underlying ground conditions. The information he provided was consistent with the evidence of Michael Simmons and the expert witnesses. EVL was unlikely to obtain the required supply of water from a bore in that area because of the nature of the underlying ground, the clay and silt-laden composition of the gravels in the area. The information Mr Stewart provided as to that was accurate.
[107] McNeill was accordingly not liable to EVL for misleading or deceptive conduct through not telling Mr Johnston of the existence of an aquifer beneath the flat area of the Earnscleugh property before Mr Johnston, together with Michael Simmons, chose the site on the hillside for the disputed bore.
Was it within the scope of the contract between EVL and McNeill that McNeill would advise Mr Johnston whether it was appropriate to drill on the schist hillside and was it on the basis of such advice that Mr Johnston engaged McNeill to drill the disputed bore on that site?
[108] The judgment in the District Court was under a number of headings: Background; The evidence; Considerations; Conclusions; Judgment.4 Under the heading “Considerations”, there was a paragraph which began:
[29] It is clear from the submissions on behalf of EVL that MDC’s contract was not solely to drill a bore, but where by itself or through another its obligations involved locating a suitable spot to provide a drilling service…
[109] Mr Andersen suggested this was a determination made in the District Court against which there had been no cross appeal.
[110] The sentence could have been worded more carefully but I am satisfied, from its context and what followed, the Judge was referring to this as a submission that had been made and not his determination of what the evidence established.
[111] In 2009, Mr Johnston spoke with Mr Stewart about obtaining a suitable quantity of water for irrigation. Mr Stewart was then the Alexandra-based manager of McNeill. Mr Stewart spoke of the difficulty of obtaining a supply of water sufficient for irrigation from the aquifer area of the Earnscleugh property and suggested two other possible ways of obtaining water. Neither Mr Johnston nor Mr Stewart said, in the context of those conversations, that Mr Stewart advised Mr Johnston to put down a bore on the hill. Mr Stewart did suggest Mr Johnston might seek the assistance of Michael Simmons, the water diviner.
[112] Michael Simmons has a degree in drilling and experience in drilling through 33 years of working for McNeill. He retired in November 2013. He began water divining in about 1994. The work he did as a water diviner was invariably done directly for the client.
4 McNeill Drilling Company Ltd v Earnscleugh Vineyards Ltd, above n 1.
[113] Michael Simmons said the success rate for drilling for water after his divining was 85 per cent in the Central Otago area. He told Mr Johnston of this when Mr Johnston sought his advice in 2009. He had experience drilling bores on sites close to EVL’s land and had previously undertaken a substantial amount of divining work in the area.
[114] Michael Simmons undertook divining work for Mr Johnston in 2009. Mr Johnston told Michael Simmons he wanted to establish a vineyard on the hillside and wanted to establish a site suitable for drilling for water connected with that. Mr Johnston was keen for Michael Simmons to undertake divining work on the alluvial flats adjacent to the hill. Michael Simmons did some divining work there but did not find a suitable bore site. He told Mr Johnston it was not likely he would be able to establish a successful bore on the flats as they consisted of silty ground and clay which would not allow good flows. Michael Simmons advised the best option would be to look for water on the hillside.
[115] In May 2014, Mr Johnston had Michael Simmons divine again for water on the Earnscleugh property. Michael Simmons gave evidence as to meeting Mr Johnston at his old house on the flat in 2014, having a look at the bore around there and then driving up to the base of the hill. He said Mr Johnston asked him to see if he could find something at the base of the hill, which he did not.
[116] Michael Simmons then divined four spots he considered suitable for drilling for water. This was in the same hillside area as the disputed bore was subsequently drilled.
[117] On 19 February 2016, Mr Johnston again instructed Michael Simmons to divine an area of the Earnscleugh property including the site of the disputed bore. Mr Johnston instructed Michael Simmons to divine near but below a fence in that area. Mr Johnston accepted, as Michael Simmons had said, that because Michael Simmons was not able to get over a fence, he divined below the fence.
[118] Michael Simmons recorded the GPS coordinates of two locations he believed would yield good water and marked both sites with white pegs. Michael Simmons
produced a document outlining details of the area divined, including estimated depth of water. He indicated his preference was for the second location.
[119] Michael Simmons was adamant that in 2016 Mr Johnston was not interested in drilling on the flat. He said Mr Johnston took him to the hill area, asked him to walk along the base of the hill and near a garage which is slightly higher.
[120] Michael Simmons’ report was provided to Mr Johnston on a form headed and addressed “Mike Simmons” and “groundwater locating”.
[121] Mr Johnston said he first approached McNeill prior to the requirement for irrigation. He said he dealt with Mr Stewart and enquired as to whether water might be obtained on the hill because he thought there could be a spring there. He said Mr Stewart referred him to Michael Simmons. Michael Simmons divined that area, they subsequently drilled and found water around the area of that spring.
[122] Relevantly, Mr Johnston accepted a number of matters put to him in cross- examination. He accepted that, when he spoke to Mr Stewart about the Earnscleugh property, Mr Stewart advised it was unlikely they would obtain water sufficient for irrigation purposes on the flat area of the property. Mr Stewart mentioned one option might be to have an easement agreement with the neighbour north of Earnscleugh Road to form a bore in that area where he would get better results. He also seemed to accept that Mr Stewart had suggested another option was to contact the local irrigation company to obtain surface water. Mr Stewart had not said there was no water on the flat. Mr Stewart had said it was likely water from there would be of low volumes, not useful for Mr Johnston’s requirements. He said Mr Stewart encouraged him to speak to the diviner and seek alternatives. Mr Stewart had not directed him to look on the hill for water. When he first sought advice from Michael Simmons, he told him he wanted to establish a vineyard on the hillside, which was why he wanted to establish a spot suitable for drilling for water.
[123] Mr Johnston accepted he entered into a contract with Michael Simmons to do the divining work in 2016. He accepted that he instructed Michael Simmons to divine on the hill approximately 300 to 400 m above the site where the disputed bore was
ultimately drilled. Mr Johnston said this was an area where Michael Simmons had previously identified there could be water.
[124] Mr Johnston confirmed Michael Simmons had identified two locations for a bore with white pegs but Mr Johnston ruled out one of them because it was on a building platform. Mr Johnston was initially uncertain as to whether the second location was on the Earnscleugh property but later confirmed with Michael Simmons it was. He said this was how he came to decide on the spot on the hill that was drilled.
[125] McNeill’s quotation for drilling the disputed bore was based on it being at the site already decided upon between Mr Johnston and Michael Simmons.
[126] The evidence also did not establish that, at the relevant time in 2016, McNeill actively discouraged EVL from drilling into the aquifer. Certainly, in 2009 when Mr Stewart was working with McNeill, he indicated Mr Johnston was unlikely to find sufficient water for irrigation on the flat area of the Earnscleugh property.
[127] The disputed bore was however drilled in 2016. Mr Johnston decided on the site for the bore in consultation with Michael Simmons after he had engaged Michael Simmons to further divine for water in the hill area. At that time, Michael Simmons was no longer working with or as an agent for McNeill. He was engaged directly by Mr Johnston. The invoice for the work he did was under the name Michael Simmons. Mr Johnston paid it on that basis.
[128] Mr Johnston accepts there was nothing in the quotation from McNeill for the drilling to suggest McNeill was being asked to locate the best place to bore. He accepted the quotation was for drilling based on the divining work of Michael Simmons.
[129] McNeill quoted a cost for the establishment of the bore at the chosen site. Mr Johnston had some discussion with the then branch manager of McNeill’s Alexandra officer, Mr Maguire, about the quote. Mr Maguire was not employed by McNeill at the time of the trial and was working outside New Zealand. Mr Andersen made much of the fact he was not called to give evidence at trial.
[130] Under cross-examination Mr Johnston confirmed, when he asked Mr Maguire if they were looking in the right location, Mr Maguire was not willing to give him any alternative view and kept deferring to Michael Simmons. In the absence of anything else, Mr Johnston “went with the advice of Mr Simmons”.
[131] The evidence satisfies me that McNeill was not engaged to advise Mr Johnston and EVL of the best site for the bore. It did not give him advice as to what would be the best site given his particular requirements. There was thus nothing deceptive in McNeill’s conduct which led to Mr Johnston engaging McNeill to drill the disputed bore.
Would EVL have been entitled to judgment on its counterclaim even if McNeill did advise EVL it would be unlikely to obtain the flow of water required from a bore on the flat area and it would be better to drill on the schist hillside?
[132] I have held there was no error in the Judge concluding that McNeill was not liable to EVL for advice it gave as to the prospect of obtaining water for irrigation on the flat of the Earnscleugh property, or through any advice Mr Johnston received that the best site for an irrigation bore would be on the schist hillside. Because this appeal proceeds by way of a rehearing, I also consider whether McNeill could have been held liable under the Fair Trading Act even if it had advised Mr Johnston as he claimed.
[133] In 2009, Mr Stewart told Mr Johnston McNeill had been unsuccessful in obtaining a suitable quantity of water for irrigation from bores around the area of the aquifer, including the Earnscleugh property. Later, Michael Simmons was asked to divine for water on the flat area adjacent to the hillside section of the property. Michael Simmons failed to find a suitable bore site. He told Mr Johnston it was not likely he would be able to establish a successful bore in that area because the sub- strata consisted of silty ground and clay, which would not allow good flows.
[134] In 2016, Michael Simmons divined again for water on the hillside area and identified the two best potential sites for what he understood were Mr Johnston’s purposes, one of those sites being used for the disputed bore.
[135] EVL’s claim under the Fair Trading Act was that McNeill had engaged in deceptive conduct in failing to tell EVL of the existence and extent of the Earnscleugh Terrace Aquifer, in the particular ways detailed in the counterclaim.5
[136] Counsel for both parties accepted the authority for what is required for an expression of opinion or advice to amount to misleading or deceptive conduct so as to result in liability under the Fair Trading Act is the Court of Appeal judgment in Premium Real Estate Ltd v Stevens.6 The Court of Appeal said:
[51] The orthodox or narrow view is that there must be some misrepresentation of a past or current fact to found liability. So, consistently with the common law as to misrepresentation, a person is liable as a result of the expression of an opinion which subsequently proves to be incorrect only where he or she does not honestly hold the opinion at the time it is expressed or (possibly) if there is no reasonable basis for it. That is, an expression of opinion may be said to involve two representations of fact – one that it is honestly held and another that there is a reasonable basis for it. The wider view is that s 9 should be approached in accordance with its terms, untrammelled by concepts such as “misrepresentation” imported from the law of tort or contract. The focus should simply be on asking whether in all the circumstances the impugned conduct was misleading or deceptive.
[137]The Court of Appeal rejected the wider view stating:
[54] While the wider view has the attraction of simplicity, there are difficulties in applying it in an unconstrained way to the expression of opinions. A person may, in trade, express an opinion that is honestly held and reasonably based at the time it is expressed or relied upon but which subsequent events show to be wrong. In this respect, an expression of opinion may be unlike a misrepresentation of fact, which will be capable of being shown to be wrong at the time it is made. It is difficult to see why an honestly held, reasonably based opinion should be actionable under s 9 simply because it is not borne out by subsequent events.
[138] In accordance with that authority, McNeill would not be liable for expressing an opinion which was honestly held and reasonably based at the time it was expressed or relied upon, even if subsequent events show it was incorrect.
[139] Mr Johnston’s brief of evidence should not have included statements of opinion or submission as to what he contended were the reasons for McNeill’s personnel or others acting or speaking as they did. Nevertheless, it is apparent from
5 At [95] above.
6 Premium Real Estate Ltd v Stevens [2008] NZCA 82, [2009] 1 NZLR 148.
his brief of evidence that Mr Johnston was contending McNeill’s personnel had acted dishonestly in discouraging him from drilling for water on the flat. He claimed they did this for financial gain because they would be able to charge more for the deeper bore on the schist hillside. His allegation was essentially of fraudulent conduct on the part of McNeill.
[140] When approached by Mr Johnston in 2009, Mr Stewart told Mr Johnston of the difficulties McNeill had encountered in establishing successful irrigation bores and the reasons for that.
[141] Mr Johnston accepted, in that discussion, Mr Stewart told him that one possibility for obtaining the water he wanted would be to obtain an easement and put a bore in the gravel and sand part of the Earnscleugh Terrace Aquifer north of the Earnscleugh Road. Mr Stewart told Mr Johnston that McNeill had been able to establish good water bores in that part of the aquifer. Both Mr Rekker and Mr Hughes accepted Mr Stewart’s advice was consistent with the way they considered ground conditions in that area would be likely to allow a greater flow of water than was the case on the part of the aquifer under the Earnscleugh property.
[142] It seems self-evident, in suggesting that as a possibility, Mr Stewart’s motivation must have been to provide genuine advice as to what he considered would allow Mr Johnston to obtain the water he wanted, rather than to simply have Mr Johnston engage McNeill to do a drilling job for EVL. The option he suggested would have required Mr Johnston and EVL to engage in negotiations with a neighbour, to face uncertainty as to the outcome of such negotiations and then the expense of surveying and registering an easement over that neighbour’s land. Mr Stewart also suggested another option might be to obtain water from the Earnscleugh irrigation scheme. That option would not have required McNeill to drill for water at all.
[143] In his evidence, Mr Johnston accepted that Mr Stewart had spoken of the options in this way. Mr Stewart’s advice was entirely consistent with his wanting to give Mr Johnston the best advice or information he could as to how Mr Johnston might obtain the supply of water he wanted, rather than to simply persuade Mr
Johnston to engage McNeill to drill for water in a way that would be profitable for McNeill.
[144] The advice Michael Simmons gave was based, in part, on his experience in drilling through 33 years of working for McNeill. Mr Rekker acknowledged the value of McNeill’s experience in drilling in the area. When Michael Simmons was unsuccessful in finding a likely suitable supply of water on the flat adjacent to the hill when asked to divine in that area in 2009, he told Mr Johnston it was not likely he would be able to establish a successful bore on the flats in that area as they consisted of silty ground and clay which would not allow good flows. His explanation for that opinion was consistent with what he and the hydrogeologists understood to be the nature of the ground in that area and with the way the experts agreed the presence of clay and silt would result in reduced transmissivity and lesser flows of water under the ground.
[145] Michael Simmons suggested to Mr Johnston there would be better prospects of obtaining water on the schist hillside. The experts agreed, because of the fracturing of schist in this area of Central Otago, suitable supplies of water can be found even in hillside areas of schist. Consistent with both the reasonableness and honesty of the opinions Michael Simmons expressed, a reliable supply of water was obtained from the disputed bore.
[146] In advising Mr Johnston as to potential sites for drilling, Michael Simmons also relied on his water divining observations. It was not suggested in cross- examination that it was unreasonable of him to do this. In engaging Michael Simmons to divine for water, Mr Johnston had indicated he saw value in Michael Simmons investigating the sources of water in this way. Michael Simmons said his divining had been successful in 85 per cent of the instances he had been engaged to divine for water in Central Otago after 1994. Through divining, he identified the site of the disputed bore from which water was also found.
[147] Michael Simmons gave detailed evidence about how he came to divine for water where he did in 2016 and how he came to agree on a particular site with Mr
Johnston. It was not suggested in cross-examination of Michael Simmons that he proposed that site because drilling there would be more profitable for McNeill.
[148] McNeill was a business with a well-established and obviously good reputation for drilling and meeting the expectations of land-owning clients in this area over many years. It is hard to see how it could have retained that reputation if it had acted deceptively out of self-interest to the detriment of a client in the way Mr Johnston has alleged.
[149] Neil Simmons is the son of Michael Simmons who did the water divining for EVL. Neil Simmons was in charge of the McNeill’s crew who drilled the disputed bore on 12 April 2016.
[150] Neil Simmons spoke candidly to Mr Johnston about the sense he thought there might have been in having a bore on the flat for an apple orchard. This suggests he had no thought or idea that either his father or anyone at McNeill had tricked Mr Johnston into having a bore put down on the hillside, in essence, the allegation Mr Johnston was making.7
[151] At the time Michael Simmons divined for water and he and Mr Johnston decided on the site of the disputed bore, Michael Simmons was no longer employed by McNeill. He had no financial interest in the company. There is no evidence he stood to gain financially from McNeill drilling a bore at the site he identified.
[152] One of Mr Johnston’s complaints was that McNeill had not given him the benefit of their practical knowledge and years of experience in the well drilling business. He however had the benefit of that experience when he consulted with Mr Stewart and Michael Simmons in 2009. Mr Rekker acknowledged that McNeill had been the predominant driller in the aquifer, having put in almost every bore or well.
[153] The evidence in this case establishes quite clearly that, to the extent views were expressed by Mr Stewart and Michael Simmons as to the difficulties that would likely be encountered in obtaining the required supply of water on the flat area of the
7 See [173] below.
Earnscleugh property, those views were honestly held and reasonably based, whatever might have been achieved or achievable from bore G42/0731. What they said thus could not have constituted an actionable misrepresentation in terms of the Fair Trading Act.
Was McNeill liable to EVL for deceptive conduct in making representations as to the yield from the disputed bore?
[154] EVL pleaded McNeill was liable for deceptive conduct in misrepresenting the yield from the disputed bore to make it falsely appear as if the flow could be used for EVL’s requirements when it knew the rate was not sustainable.
[155]Again, this is an allegation of fraudulent conduct.
[156] Neil Simmons was instructed to drill a 150 mm wide hole at a defined location to a depth of around 70 m. The crew drilled to that depth and were successful in finding water. The flow at 70 m was estimated at 1.75 lps. Neil Simmons was of the opinion they should go a bit deeper. Relying on his experience, he thought if they went a bit deeper the depth of water over the pump would result in a higher yield. McNeill drilled to a depth of 88.7 m where the flow increased to an estimated 2.5 to 3 lps.
[157] The evidence did not establish McNeill had misrepresented the yield from the bore it drilled on the Earnscleugh property. The site chosen was on the schist hillside. The experts explained that, because water from a bore in schist comes from water stored within rock fractures, but ultimately from surface water, it is possible that when water is pumped from the bore the water available to the bore may well diminish, reducing the output initially obtained from the well. Consistent with this, in his evidence Michael Simmons said, when he talked to Mr Johnston about the option of looking for water on the hillside, he told Mr Johnston that, when you get up into the rock, water flow can drop off by 50 per cent from its originally tested flow rate after drilling.
[158] In his evidence, Mr Hughes explained why the yields from bores in a rock mass can diminish over time. As a result, he said:
Yields indicated by drillers tests undertaken immediately following bore completion can be higher than those able to be pumped from a bore over an extended period. However, again, there is no way of establishing the long- term yield of such bores without long term pumping.
[159] Neil Simmons said, to check on the sustainable flow available from the disputed bore, they pumped it for four and a half hours to establish what they considered would be the maximum sustainable yield. Cross-examined on the point, he was clear that the sustainable rate of output from the disputed bore at that time had been established through the testing of the output at the end of four and a half hours of pumping. The log recorded that an output of 3.1 lps had been obtained with the bore at 88.7 m depth. After four and a half hours of pumping, the water in the bore was static at 46.92 m.
[160] Neil Simmons was satisfied they had established that as a sustainable yield through doing a “pump test”.
[161] Consistent with it being sustainable, the result of the bore was recorded at the time as being:
draw down from SWL [static water level] at 1.25 lps - 6.12 m draw down from SWL at 3.1 lps – 46.92
[162] Even if that measured yield turned out not to be sustainable, there would have been no misrepresentation as to the output obtained from the well. Mr Johnston was told correctly what had been achieved from the bore after four and a half hours pumping.
[163] Mr Rekker acknowledged that well records for the disputed bore recorded pumping over four and a half hours established a discharge rate of 3.1 lps.
[164] Mr Rekker said the log indicated, after four and a half hours pumping, the water level dropped to 74.6 m, about five metres above the submersible pump unit. Water rested at 27.6 m below ground level. This would indicate the pumping for four and a half hours had significantly impacted the stored water supply available to the pump. The water then stabilised at that level.
[165] Mr Rekker did not say in his evidence that the output measured after four and a half hours of pumping would not be sustainable.
[166] There was no evidence that a yield of 3.1 lps was not sustainable. There was no evidence that a yield at that level would not have been sufficient for Mr Johnston’s purposes if, for instance, water could be pumped to a storage facility such as a pond until it was needed.
[167] There was no evidence that the output from the bore had subsequently been tested to establish what the yield was at any time after it had been drilled.
[168] The evidence did however indicate that, potentially in the longer term and dependent on the extent to which water was generally present in that area, there was the potential for the yield from the bore to reduce in the future. Sensibly, without the need for any specialist knowledge on the subject, no reasonable person could have thought otherwise. Even long established springs can run dry in very hot dry climatic conditions.
[169] Mr Johnston said he had not tested the long term production capacity of the bore but said Waterforce installed a 2.2 kilo watt pump. The pump had not however been commissioned. The manual for the pump says it does a four hour cycle at 24,000 litres which works out at 1.67 lps. Mr Johnston suggested that was all the well was capable of delivering on a sustainable basis. In his evidence he suggested a pump of this capacity was installed by Waterforce, with advice from McNeill that a pump of that size should be installed given the sustainable yield from the bore.
[170] If Mr Johnston’s evidence as to how McNeill advised Waterforce is true, then, at that time, McNeill indicated a pump should be installed on the basis the bore could be relied on generally to provide an output of 1.67 lps, as opposed to 3.1 lps which Neil Simmons had recorded as being the yield after four and a half hours pumping the day after the bore had been drilled.
[171] There was however no cross-examination of McNeill’s witnesses as to any advice McNeill might have given Waterforce about the likely sustainable yield from
the bore or the size of pump suitable for such a yield. There was no evidence about precisely what advice might have been sought by Waterforce from McNeill or the basis on which any such advice was sought. Mr Johnston’s evidence, about what McNeill told Waterforce, was hearsay evidence and inadmissible. It was not evidence on which the Judge in the District Court or I could find McNeill had misrepresented the sustainable yield from the bore after it was completed. It is possible that, in the long term or in different circumstances in the future, the yield from the bore might be less than it was when first fully tested. It may be, to allow for that, it was sensible to install a pump which could operate with a lesser flow. There was however no evidence to suggest Neil Simmons or McNeill misrepresented the output obtained from the well after it was drilled. There was also no evidence that Neil Simmons or anyone from McNeill told Mr Johnston the yield then achieved would be sustainable in all future circumstances.
[172] There was also no evidence that anyone from McNeill told Mr Johnston the yield obtained would be sufficient for his purposes.
[173] In his evidence, Mr Johnston referred to a comment made to him by Neil Simmons. When Neil Simmons told him what the bore had been pumped at and the water that had been found with the bore, Mr Johnston said something about needing water for an apple orchard on the flat. Neil Simmons said, if that was the case, he should have been drilling for water on the flat. What Neil Simmons said was not of any weight to the issue of whether McNeill was likely to obtain an irrigation supply of water from a bore on the flat. Neil Simmons was a driller. At the time he made that comment he had no knowledge of the clay and silt that was in parts of the aquifer. He obviously did not have the same experience or knowledge as his father or Mr Stewart did of drilling in the area of the aquifer generally and the outputs that had been achieved from wells there. There was no suggestion from Mr Johnston that Neil Simmons told him during that conversation that the output would be sufficient for his needs.
[174] On 14 April 2016, Mr Maguire of McNeill sent Mr Johnston the invoice for the drilling work, referring to the result achieved, saying:
We had a good result at the Earnscleugh Vineyard. Not quite the 6 l/s you had hoped for but in rock 3.1 l/s is a good result. Would you like me to price a pump and its installation? If so please provide me with your intentions for its duty. Eg just filling a dam, also feeding tanks on a hill for domestic, locations of these etc.
[175] With that email, McNeill acknowledged the bore had not produced the yield Mr Johnston had hoped for. While Mr Maguire said it was a good result, there was no representation that the yield would be sufficient for EVL’s requirements.
[176] On 15 April 2016, Mr Johnston emailed Mr Maguire and asked him to “size a pump”.
[177] The evidence did not establish, even on the balance of probabilities, that there had been any deceptive conduct by McNeill as to the yield from the disputed bore or whether it would be sufficient for EVL’s requirements.
[178] There was also no evidence that Mr Johnston or EVL suffered any loss or incurred any expense as a result of being told the established yield from the bore after the pump test or about how what they were told of the yield caused them to incur any expense. The bore had been drilled without any guarantee that a particular supply of water would be obtained. It was an exploration bore. EVL had incurred the expense of having the bore drilled before Mr Johnston was told of the yield from the pump.
Was the evidence sufficient to prove that EVL had suffered a loss through McNeill’s alleged deceptive conduct?
[179] Consistent with the judgment in the District Court, I have held the evidence did not establish there was deceptive conduct as claimed by EVL.
[180] In its notice of appeal, EVL contended the Judge erred in fact and in law in finding the losses claimed by EVL were untenable.
[181] To succeed on its counterclaim for the particularised expenses incurred and the loss of one year’s orchard production, EVL also had to prove such losses were incurred as a result of McNeill’s deception.
[182] Under s 43(3)(f) Fair Trading Act, through the submissions on appeal, EVL claimed damages for losses suffered as a result of McNeill’s deception:
(a) payments to McNeill on account of invoiced costs for drilling the disputed bore - $16,700;
(b) payment to the Aotea Electric/NES for power to the bore - $9,112.61;8
(c) payment to Waterforce for pump and installation - $14,371.08;9 and
(d) loss of one year’s apple orchard production - $161,521.
[183] As to EVL’s claim for payment for power, the evidence established that a useful supply of water had been obtained from this bore. To utilise that water there had to be a pump at the bore and an electricity supply to that pump.
[184] On 22 March 2016, before McNeill had drilled the disputed bore, NES Central Ltd quoted $22,630.90 plus GST for supply of electricity and materials to three lots Earnscleugh Vineyards Ltd. The quotation was addressed to EVL and Mr Johnston, and said it was “[i]n response to your request, NES Central Ltd is pleased to provide our quotation for a new supply to 3 Lots and 1 x Bore Pump”. It was a condition of the quotation there would be a payment of 30 per cent deposit. The balance of the contract price was to be invoiced upon “livening of the Network Installation”. The documents showed that EVL was invoiced for the deposit on 30 April 2016. There was no evidence as to when that was paid. The invoices from NES Central Ltd were both referenced “Blackman Road Earnscleugh – Sypply [sic] to 3 Lot Subdivision”.
[185] It is apparent from the correspondence that by August 2016 Mr Johnston was complaining about the invoice and saying McNeill should have given him the option of drilling on the flat as that would have provided a cheaper and better chance of obtaining the water he wanted. EVL was not invoiced by NES Central Ltd for the balance of the quoted price until 24 February 2017.
8 This figure was different to that initially referred to in the pleaded counterclaim.
9 This figure was different to that initially referred to in the pleaded counterclaim.
[186] The documents show Waterforce has invoiced what would appear to be another of Mr Johnston’s companies, Tarras Wines Ltd, for the installation of a pump and associated equipment. Those invoices thus do not prove the costs were incurred by EVL. This does not appear to have been raised as an issue at trial. It was not raised as an issue on appeal. I proceed on the basis the invoices should have been made out to EVL and thus relate to costs incurred by EVL.
[187]The invoices from Waterforce were:
(a) 28 August 2017 - $8,263.38 including GST
(b) 26 September 2017 - $4,958.03 including GST
(c) 21 June 2018 - $3,305.35 including GST.
[188] In May 2018 Aotea Electric invoiced EVL for “Blackman Road pump power supply” $2,040.45.
[189] The invoices from NES Central Ltd indicate Mr Johnston went ahead and incurred their quoted expenses knowing what output had been achieved when the bore was drilled. The final invoice from NES Central Ltd, the invoice from Aotea Electric and the invoices from Waterforce show that Mr Johnston went ahead with the installation of the pump and the supply of electricity to it when Mr Johnston claimed the output from the bore would not be sufficient for horticultural purposes. The invoices from NES Central Ltd also show that, at the time McNeill drilled the bore on the hillside, EVL was committed to a major subdivision in that area, the reason both Michael and Neil Simmons understood McNeill was asked to drill the disputed bore.
[190] Mr Johnston has proceeded with a housing subdivision in the area. At the trial he said, although the pump had not been used yet, it would be commissioned very soon. He thus intended to utilise the bore. The expenses he incurred were necessary to do this. Mr Johnston has thus not established that EVL suffered a loss through incurring the expenses needed to use the disputed bore.
[191] In its notice of appeal, EVL claimed the Judge had made an error of fact in finding “that any proposal for an apple orchard concerned a purpose that was supplementary to MDC’s [sic] purpose of subdividing its property”.10 EVL contended the Judge should have found “the whole purpose of the drilling was to irrigate the proposed apple orchard”.
[192] The District Court Judge gave judgment for McNeill on the whole of EVL’s counterclaim. In doing so, he accepted the submission for McNeill that Mr Johnston’s evidence, that he intended to plant an apple orchard, was quite significantly overstated.
[193] Mr Johnston calculated and claimed for a loss of $161,520.78 on the basis this was the present value of the net profit that would have been obtained from the apple orchard in its ninth year of production. Mr Johnston’s calculations began with a reference to year one costs in 2017 for ground preparation and irrigation set up of
$58,825. He estimated that, allowing for establishment costs and operational expenses, the orchard would have been producing profits from year four through to year nine, beginning at $54,497 per year, and in year nine an estimated $335,343.
[194] EVL has incurred costs in installing a pump on the disputed bore but EVL’s claim is that this bore does not provide a supply of water sufficient for an apple orchard. Mr Johnston’s claim is that he would have been able to obtain such a supply sufficient for his requirements from a bore on the flat area of the Earnscleugh property. Despite his claimed confidence as to that and the profits he claims are obtainable, he has done nothing to obtain the water he says he needed for an apple orchard between the time the disputed bore was drilled in April 2016 and the hearing in the District Court in October 2019. There was no evidence he had taken any step towards actually establishing an orchard over that time.
[195] On 14 April 2016, Mr Maguire sent Mr Johnston the invoice for the bore drilling and confirmed the 3.1 lps output. In his email, he asked if Mr Johnston would like to price a pump and its installation. In doing so, he indicated he would need
10 The Notice of Appeal was correct in the way it referred to the Judge’s finding. The Judge’s reference to “MDC” was obviously a slip. He was referring to EVL’s purpose.
information as to how the water from the bore was to be stored and distributed, “E.g just filling a dam, also feeding tanks on a hill for domestic, locations of these etc”. His enquiry was consistent with Mr Maguire having no knowledge the bore was to be used to supply water for an apple orchard.
[196] As already referred to, the invoices from NES Central Ltd to EVL were with reference to the subdivision. The major cost of obtaining the electricity supply to the area was for the subdivision.
[197] Mr Johnston said Michael Simmons came to the property and identified a hillside as the most suitable site for the drilling of the water bore. He said that, after Mr Stewart left McNeill, Mr Johnston dealt with Mr Maguire. He said he told Mr Maguire of requiring water for agricultural use and questioned Mr Maguire about where to drill to have the best chance of meeting the requirements. It was in the context of that request Mr Maguire kept deferring to the advice Mr Johnston had been given by Michael Simmons.
[198] In referring to the conversation he said he had with Mr Maguire, Mr Johnston said he told Mr Maguire of requiring water for “agricultural use” and questioned Mr Maguire about where to drill to have the best chance of meeting those requirements.
[199] Michael Simmons said in 2016 Mr Johnston told him he wanted a bore on the hill so he could gravity feed the pond and he was going to run power past the bore site for a subdivision on the hill. Michael Simmons said, when he visited the site with Mr Johnston in 2016, Mr Johnston talked about wanting the water for a vineyard and subdivision. Michael Simmons said he was not told about an apple orchard.
[200] I do not consider Mr Johnston would have spoken of intending to use the water for agriculture if he had been intending to use the water for an apple orchard.
[201] Mr Johnston accepted that in 2009 he directed and indicated to Michael Simmons that he was interested in water from the hill for viticulture on the hill. Mr Johnston said that when Michael Simmons came back in 2014 it was for a rechecking of his earlier findings relating to that.
[202] Mr Johnston accepted that in 2016 he directed Michael Simmons to divine in the area of the hill, an area he had identified in his previous work. This led to Michael Simmons being asked to divine for water on the hillside below a fence. This was where ultimately Michael Simmons identified two potential sites, including the site of the disputed bore.
[203] In talking about his involvement with Michael Simmons over that time, there was no evidence Mr Johnston told Michael Simmons he was intending to develop an apple orchard on the flat. When it was put to Mr Johnston that he wanted water from a bore on the hillside because of an intended subdivision, Mr Johnston’s response was:
[t]hat was part of the requirement but it was a minor part of the requirement. The major part of my requirement that I made clear to McNeill at the time was that I needed it for frost fighting and irrigation.
[204] He did not at that point say he needed it for frost fighting and irrigation of an apple orchard. When that was pointed out to Mr Johnston, he said “he believed” he had told McNeill he needed water for an apple orchard. Mr Michael Simmons was adamant he was told the well was for a vineyard and subdivision.
[205] Neil Simmons’ evidence was that he understood they had been drilling to obtain water for a subdivision. Neil Simmons said, when he talked to Mr Johnston about what had been obtained from the bore, Mr Johnston said he wanted a flow of 10 lps for fruit trees. Mr Johnston also said he was going to run power past the bore site for a subdivision on the hill. In response to Mr Johnston’s statement Neil Simmons commented, in that case, they should have drilled on the flat. Neil Simmons’ comment was made in ignorance of the difficulties of obtaining water on the flat. However, the fact he made that comment was consistent with Neil Simmons not knowing, when he was in charge of the drilling operation, that McNeill was drilling to supply a planned apple orchard.
[206] There was nothing in the email correspondence that occurred between Mr Johnston and McNeill after McNeill had provided its quote of 8 March 2016 to indicate a well was to be bored to provide water for irrigating an apple orchard.
[207] In his briefed evidence, Mr Johnston said he contacted McNeill, as the local expert on drilling, to locate and drill for water on the Earnscleugh property sufficient to irrigate for apple production and provide potable water for household use. He said the water was supplementary irrigation and frost fighting water for the planned apple orchard on the flat, together with the more minor demand of domestic potable water for a subdivision above the orchard.
[208] McNeill’s quotation of 8 March 2016 did say “[t]his is for the drilling of a water bore for irrigating and frost fighting at your property”. In the context of all the evidence as to how Mr Johnston came to determine the site in consultation with Michael Simmons, I do not consider those words were with reference to a planned apple orchard.
[209] In his evidence, Mr Stewart explained that water for irrigation in this area makes a significant difference to the value of rural properties as it can lift production in dry or hot times of the year and provides frost fighting opportunities. There was a clear distinction between bores required to produce water for domestic purposes and bores that might produce water for irrigation and frost fighting purposes. McNeill’s quotation indicated they were to drill by way of exploration for a water supply sufficient for irrigation and frost fighting purposes. It could not be inferred from the inclusion of those words in the quotation that McNeill knew it was to try to obtain water sufficient for an apple orchard.
[210] EVL’s claim for damages was under the Fair Trading Act. Under s 43 of the Act, a court can order a party to pay to a plaintiff the amount of the plaintiff’s loss where that plaintiff has suffered loss by reason of the defendant’s misleading conduct in terms of the Act.11
[211] I have held there was no misrepresentation on the part of McNeill rendering it liable to pay damages to EVL under the Fair Trading Act. However, had there been such conduct, to be liable for damages, EVL would have had to establish a loss had been suffered and “by conduct” of McNeill. As Richardson J said in a judgment of
11 Fair Trading Act 1986, ss 43(1) and 43(3)(e)-(f).
the Supreme Court, there must be a “clear nexus between the conduct and the loss or damage suffered”.12
[212] The evidence did not establish Mr Johnston and EVL decided to have McNeill drill the bore with the intention of promptly establishing an apple orchard or that McNeill was told of such an intention.
[213] It may be that Mr Johnston hoped the output from the disputed bore would be sufficient to also irrigate an apple orchard on the flat, if and when he proceeded to develop such an orchard. The evidence did not establish on the balance of probabilities that, at the time he had McNeill drill the disputed bore, he was committed to developing an orchard to such an extent that the failure to obtain the water he wanted delayed the establishment of an orchard by a year. Mr Johnston cannot be entitled to damages for loss of production from what might have been obtained from such an orchard in 2026.
[214] Furthermore, McNeill’s obligations under its contract, as set out in accordance with the quotation, were to drill a bore at the site selected by Mr Johnston in conjunction with Michael Simmons. It was a condition of the quotation there would be “no guarantees to the quality or the quantity of the water once bore is commissioned”. The quotation also recognised the bore could potentially be dry. It said, if this was the case, the cost of casing and the screen referred to in the quotation would not be invoiced and the per metre rate would be that for a dry hole. There was thus no representation on the part of McNeill that the water obtained from this bore would be sufficient to irrigate an apple orchard. EVL engaged McNeill to drill the disputed bore on that basis.
[215] EVL had thus not established either a legal or evidential basis on which McNeill could have been liable for the claimed loss of one year’s profit from an apple orchard.
12 Red Eagle Corporation Ltd v Ellis [2010] NZSC 20, [2010] 2 NZLR 492 at [29].
[216] In its counterclaim, EVL also claimed that, as a result of McNeill’s deception, it had suffered a loss through paying $16,700 for a bore that did not meet its requirements.
[217] I have held there was no deception on McNeill’s part that would render it liable to repay the $16,700 EVL had paid for the bore. McNeill also could not have been liable on the basis the bore did not meet EVL’s requirements. As just discussed, McNeill was engaged to drill the bore on the basis there was no guarantee any particular quantity of water would be obtained from it.
[218] I also do not consider EVL has suffered any loss in having paid $16,700 for the bore. As already discussed, it has a bore which did produce water that was tested to provide 3.1 lps after four and a half hours pumping. It is not a dry well. On Mr Johnston’s evidence, the well is to be used to provide water to a subdivision. McNeill drilled the bore where Mr Johnston directed. It is of value to Mr Johnston. EVL has not established it suffered a loss to the extent of $16,700 through having already paid McNeill that amount for drilling the disputed bore.
Alleged error by the Judge as to his determination that the losses claimed by EVL were untenable
[219] Given my conclusion that McNeill could not be liable for the losses claimed as to an apple orchard, I do not need to deal with the submissions made for both parties as to whether there was any error in the conclusion the Judge came to about the quantum of EVL’s counterclaim.
Conclusion as to the appeal by EVL against the judgment for McNeill on EVL’s counterclaim
[220] Accordingly, for various alternative reasons, there was no error in the Judge dismissing EVL’s counterclaim.
Appeal against the judgment for McNeill on the McNeill claim
[221] In the notice of appeal, EVL contended the Judge had erred in fact and in law in finding that McNeill was entitled to be paid for the drilling work done, on the basis:
(i) he misinterpreted the terms of the contract both in respect of the scope of the contract and its limitation to drilling to 50 [sic] m depth, and
...
(iii) he either found the terms of contract permitted the drilling of an extra
18.7 m below the 70 m quoted for, or that consent was given by EVL for such drilling when neither conclusion was available on the evidence.
[222] Mr Johnston decided on the site for the bore in consultation with Michael Simmons. On 8 March 2016, McNeill provided the following quotation for drilling at the selected site:
QUOTATION No. 2866
8th March 2016
Hayden Johnston
[email protected]
We have pleasure in submitting our unit rate quotation for the work detailed below. This is for the drilling of a water bore for irrigating and frost-fighting at your property. The estimated depth of the selected location is 70 metres based on the divining work of Mike Simmons. Due to the depth and nature of strata your billing will be dependent on the outcome. The hole will need to be cased to determine the water make, however if the hole is deemed to be dry the casing will not be installed and you will not be billed for the screen and the per metre rate will be that of a dry hole. A separate quote will be provided for the supply and install of a pump to meet your needs. We are able to assist in the design of your frost fighting using the irriCAD software.
Scope of Works –
·150mm dia bore cased (Per Metre) $227.00
·150mm dia bore uncased (Per Metre) $170.00 (Dry rate)
·3m 150mm dia s/s screen if required. $1,320.00
·Water test $250.00
·Sealing of bore-head – Clay & Steel cap (lockable) $125.00
·Developing per hour if required $290.00
·Test pumping per hour plus generator hire if
required (~2hr) $200.00
All rates detailed in this quotation are exclusive of GST. This quote has been based on the following
1.Suitable access has been provided to the bore site and overhead & underground services have been checked.
2.Removal of spoil or excessive water flow during test pumping
3.No guarantees to the quality or the quantity of the water once bore is commissioned.
4.Unforeseen ground conditions may incur additional costs
5.This quote stands for 30 days due to market price increases beyond our control.
6.That payment in full will be made by the 20th of the month following the date of invoice, and if payment is not made then interest maybe charged.
7.Please look at terms and conditions attached. Accepting this quote binds the terms and conditions.
When your consent arrives please contact us and we will come and drill for you. If you have any questions please do not hesitate to contact us at our office.
I take this opportunity to offer our pumping service that include system design, supply and installation as required. The pump department will contact you once the flows and water quality are known.
Yours faithfully
[Signature of Brad Maguire] OPERATIONS MANAGER
Alexandra
McNeill Pumping and Drilling
[223] Following Mr Johnston’s receipt of that quote there was email communication between Mr Maguire and Mr Johnston over the estimate of pumping costs for a 70 m well. On 11 April 2016, Mr Johnston emailed McNeill “for drilling Earnscleugh vineyards”, stating “Please go ahead with the bore as discussed”.
[224] I referred earlier to Neil Simmons’ evidence as to how the bore was drilled to 70 m but, to obtain a higher yield, he continued drilling to a depth of 88.7 m where an increased flow of an estimated 2.15 to 3 lps was obtained. Because the bore did provide water, the bore was cased. McNeill invoiced EVL for the cost of a cased bore at the quoted per metre rate for a bore drilled to a depth of 88.7 m.
[225] Neil Simmons said at trial he would not have drilled the extra depth without specific instruction. He acknowledged that before the judicial settlement conference he had provided a “will say statement” in which he said he phoned Mr Johnston, who was travelling to the site, and got authority to drill another 20 m or so.
[226] Mr Johnston was clear in his evidence he had not been telephoned by Neil Simmons. Mr Johnston produced telephone records which he said showed this. Neil Simmons said he could only assume he got authority to drill the extra 20 m or so when Mr Johnston arrived on site but he said, because of the time that had passed and the number of drill exercises he was involved in on an almost daily basis, he could not be precise as to how or when he got authority to drill the extra distance. Mr Johnston said, on the day of the drilling, he arrived as the crew was packing up. He said he could not have authorised it, was adamant he did not give approval in a telephone conversation and the drilling team had finished when he turned up on site.
[227] Mr Anderson suggested Neil Simmons had been dishonest in his will say statement in referring to a telephone conversation and said this reflected in some way the dishonesty of McNeill generally. Under cross-examination, Neil Simmons accepted he could not prove that Mr Johnston made a phone call. He said he could not remember. He accepted that he was presuming he must have obtained authority for the extra drilling through Mr Johnston turning up at the site, but said it was so long ago he could not remember.
[228] There are various possibilities as to why Neil Simmons may have initially thought he phoned Mr Johnston. From Mr Johnston’s evidence and telephone records, it appeared he was not at the property at the time of the drilling so any contact would have been by telephone. Neil Simmons may have thought he obtained authority, as it was his normal practice to obtain such authority. It may be that, because he was confident drilling deeper would be for Mr Johnston’s benefit but could not contact Mr Johnston to discuss going deeper, he decided to do so anyway.
[229] There are documents that suggest Mr Johnston may have had some discussion with McNeill before the extra drilling about at least the possibility of drilling beyond the initially projected 70 m. In its initial statement of defence EVL pleaded:
Although the specified depth was 70 meters, the Plaintiff’s standard policy was to drill below the specified depth for its own records and to give the client the option to pay for the extra depth if the client wanted to use the extra depth for full flow and the Defendant would not be charged for drilling below 70 meters without specific instructions from the Defendant.
[230] It was not suggested in cross-examination of Neil Simmons that McNeill had such a policy. Mr Laraman firmly denied that McNeill had such a policy, stating:
Drilling equipment is extremely expensive and prone to being damaged. The plaintiff has no interest in undertaking expensive explorations of its clients properties. There is no upside to the plaintiff and significant cost to such an exercise.
He was not challenged as to that evidence.
[231] There was no evidence in Mr Johnston’s brief or when he was cross-examined as to the assertion he made in EVL’s statement of defence about McNeill’s alleged policy in drilling beyond an estimated necessary depth.
[232] On the evidence, I am not able to find Neil Simmons was dishonest in the evidence he gave but he could well have been mistaken. Given the dispute over what happened, Neil Simmons’ lack of any record such as a diary note and his lack of memory as to precisely what occurred, his evidence did not establish that McNeill had express authority to drill an additional 20 m below the 70 m mentioned in the quote.
[233] The issue is whether McNeill was entitled to charge for that additional 20 m given the contract they had with EVL.
[234] The Judge referred to it being EVL’s position that McNeill had acted improperly in drilling and charging for almost 20 m beyond the quoted 70 m and in advising EVL to drill on the hill. He also referred to Mr Johnston being firm in saying he had not authorised McNeill to go a further 20 m beyond what he had authorised. The Judge did not discuss the dispute over the further 20 m, other than to say in his conclusion:
It is clear that [McNeill] performed its drilling exercise properly and competently and that it established a productive bore that [EVL] had chosen on the hillside site that [McNeill] had been directed to provide that service.
[235] The quote was presented on the basis of it being for a depth of 70 m, but in the quote this was referred to as “the estimated depth of the selected location”. The quote further said, “Due to the depth and nature of strata your billing will be
dependent on the outcome.” The outcome clearly referred to the depth that was required because it was clear on the quote that the billing would not be dependent on the outcome in terms of water production. The scope of works costed the drilling on a per metre basis, not on the basis it would be for 70 m.
[236] In his evidence, Mr Johnston said he explained to Mr Maguire his requirement for a high volume of water. The record indicates he was hoping for 6.5 lps from the well. The evidence establishes quite clearly that the bore was drilled the extra length, not for McNeill’s purposes but because Neil Simmons thought, with a greater depth, the supply of water from the well would be better. That proved to be the case. With the bore drilled to a depth of 70 m the flow obtained was estimated at 1.75 lps. After the bore was drilled to 88.7 m the flow increased to an estimated 2.5-3 lps. The day after the drilling was completed, after four and a half hours pumping, the output was measured at 3.1 lps. As already discussed, the bore’s output at that depth is going to be utilised by EVL and is of value to them.
[237] In all the circumstances and given Mr Johnston’s need for the best output reasonably possible from the bore, in terms of the contract as reflected in the quote, McNeill was entitled to drill to a depth of 88.7 m and to charge for that drilling on a per metre basis. It was entitled to charge accordingly because it was consistent with the outcome of the bore and on the per metre basis specified in the quotation.
[238] Even if obtaining EVL’s consent before drilling beyond 70 m was a condition of the contract, the fact McNeill did drill the extra depth would not have disentitled it to payment for that work. As the Judge held, McNeill did that work competently for the purpose for which they were drilling the bore. As a result, EVL obtained a better supply of water. EVL have accepted the work that was done by retaining the screen and pump in the bore, taking advantage of the depth to which the bore had been drilled. EVL is thus utilising or about to utilise the capacity of the well drilled to that extra depth. It should thus pay for McNeill’s work on at least a quantum meruit basis. The amount it was charged on a per metre basis for the additional depth of the well was fair given it was a rate that had been agreed for the drilling of the disputed bore on the directed site to see if and what water could be obtained.
[239]There was thus no error in the Judge giving judgment for McNeill on its claim.
Result
[240] EVL’s appeal against the District Court judgment for McNeill on both the claim and counterclaim is accordingly dismissed.
Costs
[241] McNeill is entitled to costs on a 2B basis. If there is any dispute as to what those costs are to be, McNeill is to file a memorandum as to the costs they seek by 28 October 2020. EVL is to file a memorandum in response by 11 November 2020. McNeill may file a memorandum in reply by 18 November 2020. The memoranda are to be no longer than four pages. If necessary, I will determine any dispute as to costs on the papers.
Solicitors:
L A Andersen QC, Barrister, Dunedin AWS Legal, Invercargill.
This judgment was delivered by me on 30 September 2020 at 4.30 pm Pursuant to Rule 11.5 of the High Court Rules
Registrar/Deputy Registrar 30 September 2020.
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