Farrand Orchards Limited v Kerikeri Irrigation Company Limited
[2020] NZHC 2840
•29 October 2020
IN THE HIGH COURT OF NEW ZEALAND WHANGAREI REGISTRY
I TE KŌTI MATUA O AOTEAROA WHANGĀREI-TERENGA-PARĀOA ROHE
CIV-2020-488-13
[2020] NZHC 2840
BETWEEN FARRAND ORCHARDS LIMITED
First Plaintiff
KERRY ALFRED FARRAND and KRISTIN JAYNE FARRAND
Second Plaintiffs
AND
KERIKERI IRRIGATION COMPANY LIMITED
First Defendant
ANTHONY G CORCORAN
Second Defendant
Hearing: 20 October 2020 Appearances:
M C Nicholls for the plaintiffs J G A Day for the Defendants
Judgment:
29 October 2020
JUDGMENT OF ASSOCIATE JUDGE R M BELL
This judgment was delivered by me on 29 October 2020 at 4:30pm
pursuant to Rule 11.5 of the High Court Rules
………………………….
Registrar/Deputy Registrar
Solicitors:
Martin Nicholls Limited, Kerikeri, for the Plaintiffs
Law North (Graham Day), Kerikeri, for the Defendants
FARRAND ORCHARDS LIMITED v KERIKERI IRRIGATION COMPANY LIMITED [2020] NZHC 2840
[29 October 2020]
Introduction
[1] The plaintiffs, kiwifruit orchardists at Kerikeri, receive water for irrigation from the Kerikeri Irrigation Company Ltd. Claiming damages, they sue it and its manager for disruption to their water supply on three occasions:
4 October 2016 to 30 January 2017;
2 November 2017 to 5 December 2017; and
1 October 2018 to 14 January 2019.
The defendants say that their claims are untenable and have applied for strike-out and summary judgment.
[2] I agree that the plaintiffs cannot succeed against the manager. While there are difficulties with aspects of their claims against the company, they may be cured by amending their pleading. Their claim against the company will continue.
An outline of the factual background
[3] The following account comes mainly from Mr Farrand’s affidavit. I have not set out everything he says. The irrigation company strongly contests some aspects of his evidence.
[4] With its volcanic soils, Kerikeri has been a centre for horticulture since the 1920s. While its annual rainfall is among the highest in Northland, the soils have low moisture-holding capacity. Irrigation is required for summer droughts. The government established an irrigation scheme in the 1980s. In the 1990s, the Kerikeri Irrigation Company Ltd, a co-operative company established by horticulturists and farmers, took over the scheme. Water is harvested in high rainfall times and stored in reservoirs for gravity-fed supply to farms and orchards in the district. The irrigation company has a standard form commercial water supply agreement with its customers. One of these agreements is with Mr and Mrs Farrand, the second plaintiffs, foundation
shareholders of the company. The Farrands signed their agreement with the company in 2010.
[5] The case concerns the supply of water to the Farrands’ kiwifruit orchard on the north side of Kapiro Road, Kerikeri.1 The orchard is on two lots, lots 1 and 3, but in one title. The total area is 7.14 hectares. Under the water supply agreement, the irrigable area is 5.5 hectares. Mr and Mrs Farrand own the land as trustees of their family trust. Farrand Orchards Ltd, the first plaintiff, is the operating company that runs the orchard. The lots do not have frontage to Kapiro Road. Instead, they are accessed by a private cul-de-sac, Pukeko Lane. Lot 3, with an area of 2.9131 hectares, is on the west side of the lane. Lot 1 with an area of 4.2279 hectares is on the east side. The lane separating the two lots is owned by neighbours whose properties are further along the lane: Venner, Hows and Williams. In panhandle fashion, each neighbour owns a strip 3.5 metres wide running from the road past the Farrand lots. Mr Farrand says that the carriageway on the lane is built on the Venner and Hows strips. The Farrands do not own the land separating their lots.
[6] The Farrands’ neighbours on the south side of their lots, the Curtises, also own an orchard on both sides of the lane. Like the Farrands, they are not registered proprietors of the land within the lane itself.
[7] Kerikeri Irrigation Company Ltd has an easement in gross to convey water down Pukeko Lane on the Venner and How strips. That easement runs past the Farrands’ orchard. The easement does not allow it to convey water on the Williams strip.
[8] The Farrands’ lots 1 and 3 are the dominant tenement for various easements, including rights-of-way, electricity and telecommunications and also the dominant tenement for a water easement along the sides of the Curtis lots that front Pukeko Lane and a water easement over part of the Williams strip at the southern end of the Curtis frontage on the east side. Mr Farrand says these were created in the 1990s. The Farrands do not, however, have a registered easement allowing them to convey water
1 They have other orchards.
between lots 1 and 3. Similarly, the Curtis lots do not have a registered easement allowing them to convey water across Pukeko Lane between their lots.
[9] Until 2016, the start of the troubles leading to this case, the connection between the irrigation company’s pipes running along Pukeko Lane and the Farrands’ own pipes was a water meter on lot 3 on the west side. The Farrands irrigated lot 1 on the east side through pipes that ran under Pukeko Lane. While they did not have a registered water easement, Mr Farrand says that he had an understanding with the owners of the lane that he could do so. His lawyers later described this as an equitable easement, but this case does not require a decision whether the arrangement was legally enforceable.
[10] Mr Farrand says that while he was away overseas in April-May 2016, the owner of the Hows strip ploughed up the Farrand pipe across Pukeko Lane in two places. The owner assured Mr Farrand that that had been an accident and Mr Farrand had the pipe repaired. Soon afterwards, the owner ploughed the pipe up again. This time, the owner, through his lawyers, told Mr Farrand that he had no right to convey water across his strip. Mr Farrand says that he repaired the pipe again and laid the pipe in a concrete culvert well below the ground. Soon afterwards Mr Hows used a digger at night to remove the concrete culverts and the pipe and to reinstate the lane. Mr Farrand was told that he could obtain a right to convey water across the Hows strip if he paid $95,000. He looked for an alternative.
[11] His alternative would involve installing a new meter on the east side of Pukeko Lane, outside the carriageway and on the Williams strip. Unlike the Hows, Mr Williams had told the Farrands that he did not object to their using his strip to convey water, even though he would not grant a registered easement. That was acceptable to the Farrands.
[12] Mr Farrand made arrangements with the irrigation company for a new water meter to be installed and paid the $650 new connection fee. Mr Corcoran, the manager, assured him that there would be no problem. The job would be done in a couple of days. Mr Corcoran told Mr Farrand that the new water meter would be installed on the edge of the Hows and Williams strips.
[13] The irrigation company did not, however, install the second water meter as planned. It told Mr Farrand that it would not do so until he obtained a registered easement to convey water under the Williams’ strip. He told them that was not necessary because he had the Williams’ permission. He pressed the company to install the meter but it would not do so. It did not accept Mr Farrand’s assurance that he could lay a pipe on the Williams’ strip notwithstanding the absence of a registered legal easement. The matter became serious, because there was a severe drought in the district from October 2016 to February 2017 and there was no water supply to lot 1 on the east side of Pukeko Lane. Eventually, on 30 January 2017, the irrigation company installed a water meter on the Williams strip, although not exactly where Mr Farrand wanted it. That came about because Mr Curtis, the neighbour to the south, had the same problem as the Farrands. He was chairman of the irrigation company. He obtained a water meter on his eastern lot, even though he also did not have a registered water easement to supply water to that meter. Mr Farrant claims that it was hypocritical of the company to take the point about a lack of a registered easement for him, but not for Mr Curtis.
[14] Because lot 1 had no water until the end of January 2017, many kiwifruit vines on that lot withered and died. Mr Farrand says he spent countless hours at night ferrying water from lot 3 to lot 1 to keep the vines alive. He consulted an industry expert, a scientist who had worked at the nearby Horticulture Research Centre, on how to save the vines. The advice was that to save the surviving vines, as soon as the irrigation water was reconnected, Mr Farrand should flood the surviving vines on lot 1 with water and bring the ground moisture level back to where it should be. In trying to mitigate the damage on lot 1, Mr Farrand went over his water allocation.
[15] The irrigation company sent the Farrands a bill for $5,358.31 for excess water use. He disputed it. The irrigation company said that it would cut off the water supply unless the bill was paid. To resolve the differences arbitration was proposed, but did not go ahead. On 2 November 2017 the irrigation company turned off the water supply to the Farrand’s lot 1 because the bill had not been paid. To get the supply resumed, Mr Farrand paid the bill. Notwithstanding that, the company declined to supply, this time saying that the meter on the east side required a registered water easement. Mr Farrand points out that he had been receiving water from 30 January 2017 to
2 November 2017 without any problems. Eventually supply was started again in early December. Mr Farrand says that because the vines did not have enough water from 2 November 2017 to 5 December 2017, production suffered.
[16] In response to a point taken by the irrigation company, he says that in his dealings with it, it did not ever suggest that it could not supply them with water through more than one water meter. He gave an undertaking not to irrigate through more than one meter at the same time.
[17] In the winter of 2018, while irrigation was not required, he had the water supply reconfigured with a single water meter in a new place. He complains that the irrigation company overcharged him and that the work took only two and a half hours. He did most of the preparatory work and had a digger on site to finish the job. Since then water has been supplied under that new configuration without any point being taken about the absence of a registered water easement over Pukeko Lane.
[18] During the 2018/2019 summer Mr Farrand found it increasingly difficult to get the sprinklers on both lots to work. He discovered that the pressure out of the meter, which now supplied both lots, was 8 psi. He says that is too low to run a kiwifruit irrigation system. All the irrigation systems are set up to run with a minimum pressure of 35 psi. Men from the irrigation company came to check the problem on 15 January 2019. Mr Farrand says that a 12 millimetre restrictor was found at the meter. Once it was removed, the entire irrigation system worked as it should.
The statement of claim
[19]The plaintiffs sue the irrigation company for breach of contract:
(a)for refusing “to supply any water to the plaintiffs where the first defendant’s right to convey water reached the plaintiffs’ right to convey water” for two periods, 2 October 2016 to 30 January 2017, and 2 November 2017 to 5 December 2017.
(b)for fitting a flow-restrictor to the water supply which restricted flow to
7.5 litres per minute from 1 October 2018 to 14 January 2019.
[20] They claim costs of $27,209.31 in mitigating the damage: legal and surveying costs plus labour costs to carry water to vines. They also plead that they lost
$355,048.00 in reduced production.
[21]They say that the irrigation company overcharged them:
(a)in January 2017, $5,000 for water supplied and
(b)in August 2018, for $1,528.84 for the new water connection.
While they paid, that was under duress to avoid supply being cut off.
[22] They sue Mr Corcoran for inducing breach of contract. They plead that he was motivated by malice and showed contempt for the plaintiffs’ rights. They claim compensatory damages:
For non-supply of water from 2 November 17 to 5 December 2017 $87,884.00 For the flow-restrictor: $50,000.00
Overcharging: $6,525.84
Total: $144,409.84
They also claim exemplary damages against Mr Corcoran.
[23] While the plaintiffs plead that the irrigation company was required to supply under the water supply agreement, they do not go into specific provisions of the agreement. On the other hand, the defendants rely on the terms of the agreement to support some of their arguments for strike out and summary judgment. Their case is that under the agreement, the company was required to supply water only as far as the water meter in the Farrands’ orchard, it never ceased supply, and it was not responsible for distribution of the water beyond the water meter. There was therefore no refusal to supply. As to the overcharging, it says that there was a negotiated settlement. It
says that there was a flow restrictor installed, but that restricted flow to the contractual limit of 132 litres per minute. It did not restrict flow to the rate claimed by the plaintiffs: 7.5 litres per minute.
The commercial water supply agreement
[24] The commercial water supply agreement dated 1 June 2010 is between the irrigation company and the Farrand trustees, the second plaintiffs. The front page of the agreement sets out certain variables:
(a)the parties and their addresses,
(b)the water meter number,
(c)the address of the orchard,
(d)the orchard’s legal description, area and irrigable area,
(e)the water allocation: 16,500 cubic metres per annum, and
(f)the maximum draw-off rate: 132 litres per minute.
[25] A schedule sets out water charges. The rest of the agreement has standard terms that apply to all the company’s water supply agreements. These include:
Clause 1.6:
Subject to the terms of this Agreement, water from the Scheme shall be supplied by the Company to the land during the irrigation season from the 1st day of October in one year to the 30th day of April the immediate following year (“Season”).
Clause 2.1:
Subject to the terms of this Agreement, the Company shall supply water to the User in the manner described in this Schedule (“Water Allocation”).
Clause 2.2:
Provided there is sufficient water available, and the Company agrees, the Company may supply water in excess of the Water Allocation by agreement
with the User, and at the charges detailed in the Schedule No. 2 (“Water Charges”).
Clause 2.3(a):
The maximum rate of draw-off as detailed in the Schedule shall not be exceeded by the User, and the Company may install a flow control valve for this purpose. …
Clause 2.4:
The company shall supply water to the boundary of the Land, or at such more distant point as the Company’s distribution system and rights of access shall extend.
Clause 2.5:
a) Water shall be supplied through a measuring device (called the “Water Meter”) to be maintained by the Company. The User shall not nor allow any person to alter or interfere with the Water Meter. Nor shall the User take, or attempt to take or allow any person under its control to take or attempt to take any water from the Scheme other than through the Water Meter, and in accordance with the terms of this Agreement.
b) The Water Allocation may only be used on the Land, as it is described in the Agreement, if the User owns the land. The Water Allocation may not be used on any part of the Land which the User does not own, or on any other property.
c) The User must comply with all obligations in this Agreement, whether or not another person is occupying the Land or using the water on the Land.
Clause 2.6:
The Company by its agents or employees shall operate the supply of water through the Water Meter.
Clause 2.7:
The User shall be responsible for the distribution of water from the Water Meter, and takes all liability with respect to the water from that point.
Clause 2.8:
Notwithstanding the other terms contained in this Agreement, the Company shall be under no obligation to construct or replace any water supply works.
Clause 4.1:
(a) If, for any reason (including the fault of the Company), the water supply to the Users is diminished or shall fail, then:
(1)No person shall, by reason of such diminished supply or failure, have any claim or right of action against the Company; and
(2)The water shall be divided amongst those users with a Water Allocation under a signed commercial water supply agreement with the Company on a pro rata basis in accordance with their signed up allocation.
(b) If the water supplied to the User is diminished or shall fail because of the fault of the Company, the User shall not be entitled as of right to a proportionate reduction in, or refund of, the charge which he has paid or is required to pay with respect to the water not supplied.
Clause 4.3:
At such time that the water demand exceeds the supply, those Users with a Water Allocation under a signed Commercial Water Supply Agreement with the Company shall receive priority for that allocation ahead of water to a User not contracted, to be supplied pursuant to a Water Supply Agreement.
Clause 4.4:
Without limiting any other clause in this Agreement, the Company will have no liability when an event beyond its control, such as a flood, earthquake, failure of electricity or breakdown or accident to the Scheme prevents it from fulfilling its obligations under this Agreement.
Clause 6.1:
In the event that the Company has reasonable grounds to suspect that the User is in breach of any of the terms under this Agreement the Company may suspend the supply of the water to the User with immediate effect for a period, sufficient at the Company’s discretion, to enable the Company to determine whether the User is in breach of the terms of this Agreement or not.
Clause 6.2:
If the User is in breach of any of the terms of this Agreement, the Company may, at its discretion:
(a)If the breach is capable of remedy, give the User notice of the breach specifying a period within which the User must remedy the breach to the satisfaction of the Company, and may suspend the supply of the water to the User during that period; or
(b)If the breach is not capable of remedy or the Company has given the User notice of the breach and the User has failed to remedy the breach within the specified period or to the satisfaction of the Company, terminate the Agreement with immediate effect.
Clause 6.3:
Suspension of supply of the water or terminations of the Agreement is without prejudice to the rights and obligations of the Parties accrued up to and including the date of the suspension or termination.
Clause 8.5:
The User shall be solely liable for and shall indemnify the Company against any actions, claims, damages and proceedings whatsoever arising out of the User’s use of the water.
[26] Other parts of the agreement deal with (1) duration of the agreement and the season, (3) payment of water charges, (5) rights of access, (7) subdivision, assignment and sale of land, (8) use of water, (9) review of water charges, (10) interpretation, (11) arbitration, but neither side relied on these provisions.
Principles on strike-out applications and defendants’ summary judgment applications
[27] Rule 15.1 of the High Court Rules 2016 allows the court to strike out a pleading on well-known grounds: that it does not disclose a reasonably arguable cause of action or defence, that it is likely to cause prejudice or delay, that it is frivolous or vexatious or that it is otherwise an abuse of process. On strike-out, it may also stay or dismiss a proceeding. While the rule is concerned with the soundness of pleadings, attacks on pleadings may go to substantive or procedural matters. A pleading may be substantively defective because on the facts pleaded it cannot succeed at law, or it does not show a recognised cause of action,2 or there is a clear affirmative defence on the merits.3 A pleading may also be struck out for procedural defects, but as many
2 See the well-known test recognised in Attorney-General v Prince [1998] 1 NZLR 262 (CA).
3 For example, limitation, as in Murray v Morel & Co Ltd [2007] NZSC 27, [2007] 3 NZLR 721 at [33].
procedural defects may be repaired, the court will in appropriate cases give a party the opportunity to amend.4
[28] The Court of Appeal laid down the principles for defendants’ summary judgment applications in Westpac Banking Corporation v MM Kembla (New Zealand) Ltd.5 They do not require repetition. The defendants required leave when they applied for summary judgment, which I granted.6
[29] The defendants relied on broadly the same matters to seek both strike out and summary judgment. I note one matter that the defendants did not raise. Only the Farrand trustees are parties to the water supply agreement. While they own the orchard, the first plaintiff, Farrand Orchards Ltd, the operating entity, appears to have suffered the losses claimed in the statement of claim. The defendants have not however objected that the Farrand trustees cannot sue for losses they have not suffered and the company cannot sue for breach of an agreement which it is not a party to. That is properly a matter for trial. It may involve questions whether there can be recovery for transferred loss.7
The refusal to supply claim
[30] The defendants say that the plaintiffs’ claim of breach of contract for refusal to supply is misconceived once the terms of the water supply agreement are applied. It says that the Hows cut the Farrands’ pipes under Pukeko Lane. The company did not. It was required to supply water through its pipes only as far as the water meter on lot
3. It was none of its concern what became of the water after that. Getting the water over Pukeko Lane to lot 1 was not its problem, but the Farrands’. Clauses 2.4 and 2.6 set out the parties’ respective responsibilities and cl 2.8 made it clear that it was not required under the contract to install any additional irrigation infrastructure. In addition it submitted that clause 2.5 the agreement contemplated that water would be
4 See Tipping J’s dictum in Marshall Futures Ltd v Marshall [1992] 1 NZLR 316 (HC) at 207, distinguishing between a pleading “which is a total write-off and one which is deficient but is capable of effective repair.”.
5 Westpac Banking Corporation v M M Kembla New Zealand Ltd [2001] 2 NZLR 298 (CA) at [58]– [64].
6 Minute of 7 September 2020.
7 See the discussion in Jeremy Finn, Stephen Todd and Matthew Barber Burrows, Finn and Todd on the Law of Contract in New Zealand (6th ed, LexisNexis, Wellington, 2018) at 579-582.
supplied through only one meter – meter 476 specified in the agreement. There could not be a second meter under the agreement.
[31] On the last point, Mr Farrand disagrees on the facts and says that there are other cases in the district where a property is served by water supplied through more than one meter. That aside, the defendants’ reliance on the contract terms does show difficulties in the claim of breach of the water supply agreement from October 2016 to January 2017. But that is not enough to warrant strike out or summary judgment. The court must also be alive to possible amended pleadings. In this case Mr Farrand’s evidence shows another possible claim.
[32] He describes how he arranged for the irrigation company to install another meter on the other side of the lane and paid it the quoted price with the work to be done soon afterwards. That is consistent with his having contracted with the irrigation company that it would install a second meter for him. That contract is independent of the water supply contract and is not subject to its terms. After all, clause 2.8 makes it clear that the company does not install irrigation pipes and meters under its water supply contract. If it does so, it is under a different contract.
[33] The plaintiffs have an arguable claim that the company delayed in installing the meter on the east side of the lane. Whether it can prove the delay is a matter for trial. The company will say that it was trying to obtain a formal easement for the new meter but could not do so, and when it did put the meter in, that was only a temporary expedient. The plaintiffs point out that there was never any difficulty over installing the meter on the Williams’ strip. These factual matters cannot be decided in the defendants’ favour in a strike out or summary judgment application.
[34] In 2017 the company did cut off supply, initially to get Mr Farrand to pay excess use charges and next because there was not a registered easement for the meter on the east side. Mr Farrand contests the claim for excess use charges, saying that the only reason he used excess water earlier in 2017 was to mitigate the effects of the lack of supply from October 2016, for which the company is responsible. Both sides’ evidence agrees that the Farrands paid the company $5,000 in full settlement of the excess water charge. The defendants say that bars the Farrands from suing for that
payment. However, there is another way that the plaintiffs can pursue that. They have a possible case that the excess water charges are part of the extra costs they incurred because of the delay in installing the meter in the last summer. That cost may be recoverable as damages, even if the company was entitled to charge for excess water use under its water supply contract and to suspend supply until it was paid.
[35] The other aspect is the company’s continued refusal to supply after the excess water supply charge was paid. It justifies this saying that there was not a registered easement for the meter. The water supply agreement is silent on whether the company could refuse to supply to a customer when the customer had no more than an unregistered right to install a water meter on the property of a third party. The defendants did not present any arguments that under the agreement the supply had to be to land in which the customer had a registered interest. The Farrands can point to the supply during 2017, the Curtis example and the Williams’ concurrence in the arrangement as going against the company.
[36] To sum up on this part, the plaintiffs may be able to replead the non-supply of water in 2016 as a breach of an agreement to install a meter on the east side of the lane in reasonable time. The damages for that breach may include not only the pleaded losses, but also the excess water charges paid in November 2017. The refusal to supply water in 2017 after the excess water charge was paid may be actionable as a breach of the water supply contract.
The claim for restricted water flow in 2018
[37]The plaintiffs plead that the irrigation company:
fitted a flow restrictor to the plaintiff’s water, which restricted the water supplied to the plaintiffs to approximately 7.5 litres per minute from 1 October 2018 to 14 January 2019.
[38] In response the defendants’ evidence was directed at showing that the only flow restrictor was for 138 litres per minute. It was installed to hold the customer to the contracted flow rate of 132 litres per minute (on a baker’s dozen approach). Its evidence includes photographs said to show the 138 l/sec restrictor and a smaller 12 l/sec restrictor.
[39] Faced with that, the Farrands tried another approach. It was not so much a matter of water flow as water pressure. Water had to be supplied at sufficient pressure to ensure that their vines could be irrigated. A dribble was useless. This new approach does not depend on proving that a particular sized restrictor was fitted, but instead that even in the absence of an express term the company was required to supply water at sufficient pressure to allow effective irrigation of kiwifruit vines. It was submitted that such a term could be implied on the basis of custom, because the scheme had been designed to deliver water at 35 psi and orchardists had arranged to irrigate their orchards with water supplied at that pressure and because the scheme would not be workable without it. I was not given a draft pleading. Nevertheless, the suggested implied term has some plausibility and cannot be dismissed out of hand. The plaintiffs are entitled to replead this part of their case.
Clause 4.1(a)(i)
[40] The company pleads the exclusion from liability under this clause as an affirmative defence. Clause 4 has the heading “Failure of Supply”.
[41] The clause deals with failure of supply to users generally. That is clear from “Users”, the provision for pro rata allocation in cl 4.1(a)(ii) and the priority given to users with signed agreements in cl 4.3. It does not fit the circumstances of this case – non-supply to one user.
[42] The phrase “any reason (including the fault of the Company)” may be adequate to exclude liability for negligence, but under the contra proferentem principle, it would not extend to deliberate steps taken to stop supply. The plaintiffs have pleaded that the company’s refusal to supply was motivated by malice and with an intent to cause significant hardship and loss.
[43] The clause applies only to claims for breaches of the water supply agreement. It does not give it a defence to the Farrands’ alternative claim for delay in installing the meter on the east side of Pukeko Lane.
[44] These matters show that the application of the clause in this case is not so clear that the matter can be decided now in favour of the company.
Clause 4.4
[45] The clause says that the company will not be liable for non-performance in the case of force majeure: “an event beyond its control, such as flood, earthquake, failure of electricity or breakdown or accident to the Scheme.”
[46] The only possible force majeure event is the Hows’ destruction of the Farrands’ pipes under the lane, but that did not involve any failure of supply on the part of the company. Besides, the plaintiffs are not suing the company for what the Hows did. There is no evidence of any other matters outside the control of the company preventing it performing under the water supply agreement. The clause does not apply to the separate contract for the installation of water meter on the east side of the lane. Accordingly, this clause does not give the company a defence at this stage.
Clause 8.5
[47] This indemnity clause applies when the company is sued on account of the Farrands’ use of the water. It comes in a part of the agreement headed “Use of Water”. Other provisions in that part require the Farrands to use water only on their land, to do so efficiently and without waste, warn that the water is not potable or suitable for drinking, food preparation or domestic use, and require the water to be treated if it is used domestically.
[48] Here there is no suggestion that the company is being sued by a third party for something done by the Farrands, (for example, adverse effects from drinking water supplied by the company). The clause does not apply in this case, where the Farrands are suing the company for alleged breaches of the water supply agreement that caused them losses. Further, the clause does not apply to the Farrands’ claim under the separate contract to install the water meter.
The claim against Mr Corcoran for inducing breach of contract
[49] The plaintiffs plead that Mr Corcoran knew of the existence of the water supply agreement and its terms; he induced the company to breach the agreement by not supplying water in November-December 2017, by having a 7.5 l/sec flow restrictor fitted and by overcharging $5,528.84; and he knew that his conduct would cause the company to breach the water supply agreement.
[50] In the hearing I suggested that the claim against Mr Corcoran was not tenable. After taking instructions, Mr Nicholls advised that the plaintiffs would not pursue that cause of action. Leaving aside that concession, I am satisfied that the plaintiffs cannot hope to show that Mr Corcoran is liable for inducing the company to breach its water supply contract with the Farrands.
[51] I assume that the plaintiffs may prove the usual requirements for a claim for inducing a breach of contract, that is:
(a)there must be a legally enforceable contract in existence,
(b)the defendant must have engaged in conduct which in fact induced a breach of the contract,
(c)the defendant must have known that his or her conduct would induce the breach, and
(d)the defendant’s conduct inducing the contract must have caused loss or
damage to the plaintiff.
[52] The question here is whether Mr Corcoran as manager can be liable for inducing his employer to break its contract with the plaintiffs. The usual rule is that he cannot. In Said v Butt McCardie J said:8
But the servant who causes a breach of his master’s contract with a third person seems to stand in a wholly different position. He is not a stranger. He is the alter ego of his employer. In such a case it is the master himself, by his
8 Said v Butt [1920] 3 KB 497 at 505-506.
agent, breaking the contract he has made, and in my view an action against the agent under the Lumley v Gye principle must therefore fail, just as it would fail if brought against the master himself for wrongly procuring a breach of his own contract.
[53]Similarly in Thomson (DC) & Co Ltd v Deakin Lord Evershed MR said:9
I have referred to cases where the intervener procured or persuaded a servant. The difficulty of carrying the matter so far may be to some extent illustrated by considering what would be the position of the servant, if he were persuaded to do something within the terms of his contract but (to his knowledge) directed to procuring a breach of his master’s contract. For in such case a claim might be said to arise not only against the intervener but also against the servant. As was pointed out by Mr Gardiner, so long as the servant acted within the scope of his authority, the master would be responsible for the act of the servant; in other words the servant’s acts would be the master’s acts, and the curious situation would then result that the master would be inducing a breach of his own contract. Quite plainly, he could not be sued both for breach of contract and also for inducing his own breach — in the latter event the damages being at large. So much, I think, emerged from the case of Said v Butt, which was approved by this court in the case of G Scammell & Nephew Ld v Hurley.
[54] In support the defendants put Mr Corcoran’s job description in his employment contract in evidence. He is the chief executive with a wide range of responsibilities. Everything alleged against him occurred in the course of his employment.
[55] There is however an exception. The employee may be liable for inducing breach of his employer’s contract if he acted in bad faith and not in the interests of his employer.10 The Farrands have pleaded that Mr Corcoran was motivated by malice, displayed contempt for their rights under the agreement and acted with intent to cause them significant hardship and loss. That pleading is not adequate. Under r 5.17 of the High Court Rules 2016 a party alleging a state of mind of a person must give particulars of the facts relied on in alleging that state of mind. Often when particulars are missing, they should be ordered. But in this case Mr Farrands has sworn an extensive affidavit giving details of the plaintiffs’ claims. While his affidavit refers to Mr Corcoran critically, his complaints go to Mr Corcoran’s alleged incompetence, but not to anything worse. Managerial incompetence is not enough to show malice or acting against his employer’s interests. If there were really any ground for believing
9 DC Thomson & Co Ltd v Deakin [1952] Ch 646 (CA) at 680.
10 Official Assignee v Dowling [1964] NZLR 578 (SC) at 581, Cook Strait Skyferry Ltd v Dennis Thompson International Ltd [1993] 2 NZLR 72 (HC) at 78.
that Mr Corcoran was acting in bad faith, I would expect to see it in Mr Farrands’ affidavit. The allegation is serious and should not have been made without a proper foundation. It is clear that the allegation cannot be sustained and accordingly the normal rule applies that Mr Corcoran cannot be liable for inducing breach of contract. The claim against him should be struck out.
[56] Mr Day advised that the company was indemnifying Mr Corcoran for any liability he may be found liable for in this case. If the Farrands’ motivation for suing Mr Corcoran was to prevent the burden of any judgment falling on their fellow shareholders, that has not worked. Dismissing the claim against Mr Corcoran will not make any practical difference, except to reduce the number of defendants.
Outcome
[57] I sum up. On the claim about not being able to supply water to lot 1 in the 2016-2017 summer, the Farrands may have an alternative claim against the irrigation company for delay in carrying out a works contract. The excess water charges paid in 2017 may be part of the damages they can claim for that breach of contract. The irrigation company’s refusal to supply in 2017 because the Farrands did not have a registered water easement for the new water meter may be actionable. The claim about the restricted water flow may be amended to allege breach of an implied term as to water pressure. The irrigation company’s defences based on clauses 4.1, 4.4 and 8.5 of the water supply agreement do not give grounds for dismissing the Farrands’ claims at this stage.
[58] The Farrands will need to file and serve an amended statement of claim. As well as addressing their proposed amendments, they will need to tidy up some procedural aspects. The current statement of claim sets out all allegations against the irrigation company as a single cause of action. Instead there are distinct claims for each year of alleged disrupted supply and they should be pleaded separately.11 The damage may be different for each alleged breach of contract and the prayers for relief for each cause of action should reflect that.
11 High Court Rules 2016, r 5.17(1).
[59] It would be helpful for the Farrands to show in their pleading how they can claim for losses suffered by Farrand Orchards Ltd. At some stage the defendant will want to know how the Farrands have calculated their losses. They should give particulars.
[60] Mr Corcoran’s strike out application succeeds. The pleading against him is unsound for not showing clearly that he is liable for inducing breach of contract while acting in the course of his employment and there is no prospect of the plaintiffs curing the pleading. The claim against him is struck out and accordingly it is not necessary to deal with his summary judgment application.
[61]I make these orders:
(a)The irrigation company’s strike out and summary judgment applications are dismissed;
(b)The plaintiffs are to file and serve an amended statement of claim against the irrigation company by 17 November 2020;
(c)The plaintiffs’ claim against Mr Corcoran is dismissed;
(d)There will be a telephone case management on 30 November 2020 at
11.00 am. That will give further directions, including as to further pleadings and discovery; and
(e)Leave is reserved to apply for further directions.
[62] My provisional view is that each side has had roughly equal success and there should be no order as to costs. If either side considers that costs should be awarded, they should file a memorandum and the other side should file a response within a further week.
Associate Judge R M Bell
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