Potts v Anderson (No 1) HC Wanganui CIV 2003-483-304
[2005] NZHC 1641
•5 April 2005
IN THE HIGH COURT OF NEW ZEALAND WANGANUI REGISTRY
CIV 2003-483-304
BETWEEN WILLIAM POTTS
Plaintiff
ANDDEAN STEWART ANDERSON, JENNIFER MARIE ANDERSON & PEACH CORNWALL TRUSTEES LIMITED
Defendant
Hearing: 21, 22 & 23 February 2005
Appearances: H T Macdonald & E J Unsworth for Plaintiff R Goldsbury for Defendants
Judgment: 5 April 2005
RESERVED JUDGMENT (NO.1) OF MILLER J
WILLIAM POTTS V DEAN STEWART ANDERSON, JENNIFER MARIE ANDERSON & PEACH CORNWALL TRUSTEES LIMITED HC WANG CIV 2003-483-304 [5 April 2005]
CONTENTS
Introduction Factual background The pleadings
Whether the plaintiff had previously leased the land to Clayton Potts so as to bring the easement to an end
Factual setting
Identity of the dominant tenement
Whether the land was leased to Clayton Potts
Breach of contract
Whether defendants took title in 1999 free of the easement
Indefeasibility of title
Personal obligations of registered proprietor unaffected Supervening fraud
Whether the defendants’ actions in 2003 were fraudulent
Was an equitable easement granted by agreement in 1999/estoppel
Creation of a second equitable easement Estoppel
Damages
The losses claimed Causation
(i) The dominant tenement
(ii) Was the plaintiff in the dairy grazing business in 2003
(iii) Could the plaintiff have resumed dairy grazing after the trespass notices
(iv) Would the plaintiff have had sufficient water to graze dairy stock in 2003 and 2004 in any event
Mitigation of losses
(i) Plaintiff’s failure to join Nukumaru water scheme
(ii) Should credit be given for winter beef grazing in 2003 and 2004
(iii) Failure to accept access offer
Result
[1]
[5]
[31]
[35]
[38]
[42]
[49]
[59]
[63]
[64]
[66]
[69]
[71]
[85]
[86]
[92]
[98]
[99]
[101]
[102]
[106]
[108]
[109]
[111]
[117]
[120]
[121]
Introduction
[1] Mr Potts farms 110 acres at Nukumaru, near Waverley. He says the defendants refused to allow him to enter their adjoining property to pump water from a reservoir to a storage tank on his property, for reticulation to stock water troughs. He seeks damages for lost income from winter grazing of dairy cows in 2003 and 2004.
[2] The Andersons are sued as parties to an agreement for sale and purchase with Mr Potts, under which he sold their land to them in 1991 on terms that they were to
grant an easement to take water from the reservoir if called on. It was common ground that the agreement created an equitable easement. Mr Potts relied on it from 1991 until the defendants issued trespass notices in 2003 following a conflict over the parties’ use of water from the reservoir.
[3] The Andersons and Peach Cornwall Trustees Limited are also sued as registered proprietors following a transfer registered in 1999. The Andersons transferred the land to themselves and Peach Cornwall as trustees of the Andersons’ family trust. The easement remained unregistered, and Mr Potts was not told of the transfer. He continued to take water undisturbed. After the trespass notices were issued and Mr Potts sued, the defendants, on legal advice, asserted indefeasibility of title. Mr Potts claims the defendants’ title is affected by fraud; alternatively, that a new equitable easement was created in 1999, or the defendants are estopped from denying an easement.
[4] The issues are: whether the Andersons’ conduct breached the easement; whether the Andersons’ conduct was fraudulent for purposes of the Land Transfer Act; whether a new equitable easement was created by conduct after 1999; whether the Andersons and Peach Cornwall are estopped from denying the existence of an easement; and damages.
Factual background
[5] Around 1972, Mr Potts acquired a farm at Nukumaru. Ten years later he bought an adjoining dairy farm using a ten-man company, W Potts Limited, of which he is the controlling shareholder. The company was used because legislation then controlling land aggregation precluded Mr Potts from buying the second farm in his own right. Mr Potts farmed the property by taking crops, including hay and silage, from it in summer and supplying winter grazing to dairy farmers for their cows during the off-season between May and September.
[6] The land comprised three blocks. The first was what was described as the northern block, which was owned by Mr Potts personally. The northern block included the 19.22 hectares subsequently sold to the Andersons. It also included a
house. For the remainder, I will adopt Mr Potts’ preferred measure and speak in acres. The middle block comprised 110 acres, of which Mr Potts owned 22 and W Potts Limited owned the balance. The southern block comprised 222 acres, of which the company owned 22 and he owned the balance.
[7] All of the middle block and that part of the southern block owned by Mr Potts took drinking water for stock from a reservoir on the northern block, which is fed reliably by two streams that originate in a spring. It is good quality water suited for human and stock use. Mr Potts had installed a pump at the reservoir that fed a 5,000-gallon tank on the middle block. From there, stock water was piped to a series of troughs on the middle block and the southern block. The same pump also fed water to a 300-gallon holding tank on the land sold to the Andersons. It was reticulated to a house (which also relied on rainwater) and a stock water trough.
[8] Around 1991, Mr Potts decided to subdivide the northern block and middle block into lifestyle blocks. The northern block was divided into three lots.
[9] The Andersons wished to move from Wanganui to a lifestyle block. They approached the real estate agents appointed by Mr Potts to negotiate the purchase of the lot in the northern block that included the house and reservoir. An agreement for sale and purchase was entered into on 13 June 1991. In the space provided for the vendor’s name, William Potts had been crossed out and the name W Potts Limited substituted. However, that was an error. Mr Potts owned the northern block. The solicitors must have realised the error quickly because a landless declaration signed by Mrs Anderson on 28 June 1991 recorded that the vendor was William Potts the younger of Nguturewa, farmer. Mr Potts duly transferred the land to the Andersons around January 1992, when settlement took place following completion of the subdivision. The defendants no longer deny that Mr Potts was the vendor.
[10] The agreement reserved a water easement in the vendor’s favour. Two provisions are relevant. Clause 17 provided that:
The Purchasers will at their own cost and expense with effect from the possession date connect the property to the Nukumaru Water Scheme.
[11] The Nukumaru water scheme had been established by the local authority several years previously. It is common ground that the parties had it in mind that the Andersons would take water from it for their domestic and farm water supply. However, the agreement did not preclude them from taking water from the reservoir, or entitle Mr Potts to any given quantity of water from it. In normal circumstances there was enough water for both.
[12]Clause 18 provided:
The Purchasers will if required by the Vendor grant Easement to draw water from the spring on the property from which water is now drawn by the Vendor in favour of the existing land of the Vendor now served by that spring. The costs of preparing the document to record that Easement shall be borne by the Vendor which shall also be liable for the costs of electric power supplied to the relative pump and also for the maintenance of the pump and the pipe line through which water is now drawn. Such easement to be effective only in favour of land while still in the vendors possession and to expire immediately after the last of that land is sold, leased or otherwise disposed of by the vendor.
[13] The last sentence of clause 18 had been added in handwriting. Words to the effect that the easement was to be a permanent easement granted to the vendor or its nominee had also been deleted.
[14] The subdivision of the middle block did not proceed, because Mr Potts learned after the agreement with the Andersons was signed that there were problems with water. The middle block lots would have been dependant on the Nukumaru water scheme and scheme water had to be boiled for human consumption. This problem also resulted in the Andersons choosing not to join the scheme, so they depended principally on the reservoir for domestic and stock water.
[15] The Andersons took possession late in 1991. They took water from the reservoir. It was pumped initially to their holding tank by Mr Potts using his pump and the existing reticulation.
[16] The Andersons then installed a ram pump in the reservoir to supply their domestic and stock needs. There was a disagreement about when they did this, and why. Mrs Anderson said they installed the ram after settlement, because their connection to Mr Potts’ pump was removed. Mr Potts said he supplied them without
cost until the ram appeared without warning around February 1993. Nothing turns on the point, however. For purposes of this chronology, the evidence establishes that the ram was installed by February 1993.
[17] The reservoir is small, only 5m x 2m and little more than 1m in depth. Accordingly, it offers little storage. Inflows were usually enough to keep Mr Potts’ pump running, but the two pumps could not run simultaneously for any length of time. Conflict arose partly because, on the Andersons’ side, Mr Potts was in the habit of leaving his pump off, so allowing his large storage tank to run dry before re- filling it by running his pump continuously for up to two days. During those periods there was insufficient water for their pump. Their holding tank was small. On Mr Pott’s side, he was concerned that the Andersons’ ram wasted water. Ram pumps rely on water pressure to power them, and the water used to provide power was spilled. His undisputed evidence was that 90% of the water taken by the ram was wasted in this way. He was also concerned that when both pumps ran the reservoir dry, his pump would take in air, which damaged it.
[18] In a memorandum of 10 February 1993, the Andersons’ solicitor suggested to Mr Potts’ solicitor, who was in the same firm, that it was unnecessary and expensive for the Andersons to join the Nukumaru water scheme and for Mr Potts to arrange an easement. It will be necessary to return to this document.
[19] The parties met, with solicitors in attendance, on 23 February 1993. The following day, Mr Potts’ solicitor sent a memorandum to the Andersons’ solicitor, in which he recorded his instructions that Mr Potts would not lower his intake and wanted the ram removed.
[20] Shortly afterwards the parties agreed to partition the reservoir. That was duly done. The partition was arranged so that Mr Potts had first call on the water, which entered the reservoir on the side of the partition containing his pump. When the water level was high, water would spill over the partition to the Andersons’ side. The Andersons drew water from their side. They did not join the Nukumaru water scheme. Mr Potts was unaware of that, but he acquiesced in them taking water from the reservoir. This arrangement ensured his pump would not run dry when both
pumps were operating, but it did not resolve either party’s concerns about the other’s water usage. However, the arrangement continued uneasily until 2003.
[21] In October 1999, the Andersons transferred the land to themselves and Peach Cornwall for estate planning and taxation reasons. Mr Potts was not told of this, and he continued to take water undisturbed. In 2002, the southern block was sold, and the water supply to that block disconnected, leaving only the middle block enjoying the benefit of the easement.
[22] The summer of 2002/3 was affected by drought. Tension rose. Mr Potts’ son Clayton, who routinely entered the Andersons’ property to operate his pump, believed the partition was being interfered with to divert water to the Andersons’ side. The Andersons deny interference. On 19 January 2003 he confronted Mr Anderson, in the presence of the Andersons’ children. Mrs Anderson claims Clayton directed abuse to the children. He denies it. Trespass notices were promptly served on Mr Potts and Clayton Potts. It is not disputed that the effect of the notices was to deny the Potts access to operate their pump.
[23] The trespass notices led to a letter of 3 February 2003 from Mr Potts’ solicitor, asserting access rights under the easement and demanding that the Andersons join the Nukumaru water scheme. The Andersons’ solicitor replied on 10 February, stating that the Andersons did not deny access. They had issued trespass notices because of personal abuse by the Potts and unreasonable exercise of access. The Andersons offered access between 7 am and 7 pm, on the basis that Mr Potts would not tamper with the reservoir or the flow of water. A meeting was suggested.
[24] The proposal met with a firm response. Mr Potts’ solicitor insisted by letter of 13 February that the Andersons join the Nukumaru scheme for stock water purposes, although it was accepted that they could take domestic water from the reservoir. Mr Potts required that they alter the ram so that each side could draw ‘an equitable amount’ of water. He added that the Andersons’ conditions were not accepted, nor did Mr Potts intend to meet with them. Despite this stance, it appears from a letter of 20 March that the Potts did enter the Andersons’ property between 7 am and 7 pm to operate the pump for a time.
[25] However, the Andersons issued a further trespass notice on or about 7 March, this time addressed to W Potts Limited and its representatives. Mrs Anderson’s explanation was that she had been told a fresh notice had to be issued after an arrangement for access had been made. There was no reference to any such arrangement in the trespass notice.
[26] Mr Potts took the notice as a continuation of hostilities. He renewed his demand for access, threatening an injunction. That met with the response that there was no easement as the land was no longer in Mr Potts’ possession. He was told to remove his pump by 28 March 2003. The allegation that the defendants held the land free of the easement under sections 62 and 182 of the Land Transfer Act was raised during the ensuing litigation, on legal advice.
[27] W Potts Limited sought an interim injunction in the District Court. Mr Potts was quickly substituted as plaintiff and the proceeding was transferred to this Court. In a reserved judgment dated 20 February 2004, MacKenzie J ordered that the defendants not hinder or prevent the plaintiff and his representatives from entering the land for the purposes of taking water, and not impede the flow of water from the spring to the plaintiff’s pump.
[28] On 14 March 2004, Mrs Anderson contacted the local electricity lines company, Powerco, to complain about the safety of the electricity supply to the pump. It appears that there may have been genuine safety issues; Powerco did some remedial work on a meter box and lifted the lines to a safer height. The power was cut off for some days. During that period Mrs Anderson denied Powerco access to the property for a time. There is an issue whether the power was cut off at Mrs Anderson’s request or, as she maintained in an affidavit that was the subject of cross- examination at trial, Powerco made the decision. This and other incidents resulted in an application for a writ of arrest.
[29] In a judgment dated 24 May 2004, Gendall J adjourned the application for a writ of arrest, saying that Mrs Anderson had undertaken to comply with the injunction. He recorded an admission that she had twice refused access to Mr Potts and Powerco representatives.
[30] The defendants have since sold their land to a third party with whom Mr Potts has arranged an easement.
The pleadings
[31] There are two causes of action. The first seeks a declaration and damages for breach of contract. The breach is said to comprise refusing access and stopping the supply of water since January 2003. Although Peach Cornwall is a defendant, Mr Macdonald did not suggest that it became party to the 1991 agreement. He approached the first cause of action on the basis that it was brought against the Andersons alone.
[32] The second cause of action is brought against the defendants in their capacity as registered proprietors since 1999. It asserts an equitable easement arising out of the agreement for sale and purchase and the meeting in February 1993, at which it is said the Andersons convinced the plaintiff that a registered easement was unnecessary and there was no reason to change the informal arrangement for access and water supply. It is also said that the defendants are estopped from denying the easement.
[33] The defendants deny these claims and rely on indefeasibility of title following the 1999 transfer, pleading they took without fraud. There is no pleading from the plaintiff that the defendants acted fraudulently, presumably because indefeasibility was raised as an affirmative defence, but it was signalled in argument before MacKenzie J, addressed in evidence, and pursued at trial without objection. Defences based on misrepresentation arising out of abandonment of the middle block subdivision, absence of privity of contract, and laches were abandoned during the trial.
[34] The plaintiff gave evidence, as did Clayton Potts and their accountant, Mark Hughson. For the defendants, Mrs Anderson gave evidence as did Robert Gollan, a farm consultant, and Murray Haitana, a neighbour who had sought to lease the middle block. The parties also filed a statement of agreed facts.
Whether the plaintiff had previously leased the land to Clayton Potts so as to bring the easement to an end
[35] Relying on clause 18 of the agreement, the defendants contended that the easement was brought to an end by the plaintiff leasing the middle block to Clayton Potts. That clause provided that the easement would be granted in favour of ‘that land of the vendor now served by’ the spring on the property from which the vendor drew water. It would expire immediately the last of ‘that land’ was ‘sold, leased or otherwise disposed of by the vendor’.
[36] The question whether the easement was brought to an end calls firstly for identification of the ‘land of the vendor’ that was served by the spring when the contract was signed. It is then necessary to consider whether the last of that land had been sold, leased, or otherwise disposed of by the vendor to Clayton Potts by 2003, when the losses the subject of the litigation are said to have been suffered.
[37] In Potter v Potter [2003] 3 NZLR 145 (CA), the Court set out at [34] four principles of construction governing admissibility of extrinsic evidence as to the parties’ intentions:
The first is that although a contract is to be interpreted in its factual setting, there is no justification for invoking rules which exist solely to resolve ambiguities in order to create an ambiguity which, according to the ordinary meaning of the words used in the document, is not there: Melanesian Mission at p 395. The second is that extrinsic facts can be relevant only if within the mutual contemplation of the parties. Even an objective view of meaning is irrelevant if based on facts within the contemplation of one party alone. The third is that with the exception of known unilateral mistake, non est factum, and rectification, the subjective intentions of the parties are irrelevant. The fourth is that pre–contract negotiations are irrelevant except when used for the very limited purpose of ascertaining what objectively observable facts, as distinct from intentions, must have been within the contemplation of both parties: Eastmond v Bowis [1962] NZLR 954 (CA) at pp 959 and 960.
Factual setting
[38] I have already referred to the parties’ confusion regarding the owner of the servient tenement – the land sold to the Andersons – when the contract was signed. The contract was prepared in the name of Mr Potts, but his name was struck out and
the name W Potts Limited typed in its place. It was executed in that form. The error was quickly discovered and Mr Potts completed the transaction. It is now accepted that he was the vendor.
[39] However, Mr Potts owned (and owns) only 22 of the 110 acres in the middle block. Accordingly, that land at least is ‘existing land of the vendor now served by’ the spring. W Potts Limited owns the rest. Mr Potts’ evidence was that he leased the land from W Potts Limited. The arrangement was informal but Mr Potts recorded lease payments in his annual accounts. Mr Hughson confirmed the payments related to the middle block. I accept that Mr Potts leased the company’s land. I also accept that he farmed it at the time the contract was entered into.
[40] There are five water troughs on the middle block. Only two of them are on the land owned by Mr Potts.
[41] As I have mentioned, Mr Potts planned to subdivide and sell the entire middle block. I accept that the Andersons knew that when they negotiated the contract. Mrs Anderson explained that there was a sign advertising the subdivision when they inspected their property before purchase. It was common ground that they also knew that the storage tank on the middle block serviced all of the troughs on that block.
Identity of the dominant tenement
[42] The construction of clause 18 is not without difficulty, reflecting the drafter’s evident inattention to the identity of the registered proprietor of the dominant and servient tenements.
[43] The dominant tenement is described as ‘the existing land of the vendor now served by that spring’. The middle block was served by the spring at the time. Mr Potts owned part of it, and I find that all of it was in his possession. The question is whether the land that he leased from W Potts Ltd was ‘existing land of the vendor’.
[44] The sentence that was added to clause 18 provided that the easement was “to be effective only in favour of land while still in the vendors possession and to expire immediately after the last of that land is sold, leased or otherwise disposed of by the vendor”. I interpret the first reference to “land” to mean land of the vendor now served by the spring. The first part of the sentence confines the reach of the easement to land that is still in the vendor’s possession at any given time. It follows from the word ‘still’ that the dominant tenement was in the vendor’s possession at the time of the contract. The second part of the sentence deals with termination of the easement, which occurs when the last of ‘that land’ is sold, leased or otherwise disposed of by the vendor.
[45] Clause 18 as a whole accordingly suggests that “land of the vendor” referred to land that was in the vendor’s possession at the time of sale and which the vendor had the power to sell, lease or otherwise dispose of. The power of sale is normally an incident of ownership, as is the power to ‘dispose of’ land. However, the phrase should be read disjunctively; it is enough if the vendor parts with possession by leasing the land. There was no dispute that as a lessee of the W Potts Limited land, and the controlling shareholder of the company, Mr Potts had the power to sub-lease the company’s land. (Indeed, the defendants’ case was that he had done so by leasing the entire middle block to Clayton Potts.)
[46] Accordingly, I conclude that ‘land of the vendor’ was not confined to land owned by Mr Potts. It included land that he had the power to lease, so long as it was land that was in his possession at the time of the contract. It follows that the entire middle block was land of the vendor and therefore part of the dominant tenement.
[47] The parties’ confusion over the vendor’s identity lends a degree of support to my conclusion that the dominant tenement included the entire middle block. Neither party appears to have paid attention to the identity of the vendor. However, both parties knew the vendor intended to subdivide the middle block. It is a reasonable inference from the planned subdivision of the middle block and the terms of clause 18 that the parties envisaged the easement would not survive the planned subdivision and sale of the middle block, but would subsist until it was all disposed of.
Accordingly, I conclude that the parties both understood that all the land was under the vendor’s control.
[48] The planned subdivision may also explain why clause 18 provided only that the Andersons would grant an easement if called on. (At the time, an easement for purposes of the Land Transfer Act was granted by memorandum of transfer, in a case where the easement certificate procedure in s.90A of the Land Transfer Act was not used: Sutton v O’Kane [1973] 2 NZLR 304, 337.)
Whether the land was leased to Clayton Potts
[49] As already noted, the easement expired after the last of the vendor’s land was leased or otherwise disposed of by the vendor. The defendants contended that the entire middle block was leased to Clayton Potts by 2003. It was common ground that by then, Clayton grazed his own beef cattle on the property from time to time, took hay from it, kept the proceeds of these activities, and maintained the property at his own expense. He paid rates. He also made arrangements for dairy grazing with the farmers concerned and sent out invoices for grazing in his father’s name. There was no price agreed for either his use of the land or the services he provided by way of payment.
[50] Mr Goldsbury called an experienced farm advisor, Mr Gollan. His evidence was that the characteristics of a lease included an obligation to keep buildings, fences, races, culverts, and gateways in good repair, to topdress and to stock the land in accordance with good husbandry practices. A lessee may plant crops but may not sell or remove hay without permission. Payment for a land lease is ‘an agreed sum per year’. He said that if a person apparently occupying the land was carrying out maintenance and repairs and farming his own stock on the land, his opinion would be that these were characteristics of a lease rather than grazing.
[51] Mr Goldsbury also called Mr Haitana, who explained he had called Clayton Potts around 2002 to inquire about leasing the middle block. He was told that Clayton was already farming it and it was not available.
[52] The evidence of both Potts was that there was no lease between them. Both were credible and generally reliable witnesses. However, the question whether a lease existed is one of fact and law.
[53] The essential terms of an agreement for lease are identification of landlord and tenant, the subject premises, the commencement and duration of the term, and rent or other consideration to be paid. The agreement ordinarily includes covenants to pay rent, to maintain the premises and deliver them up in good repair, a covenant for quiet enjoyment (reflecting the lessee’s right to exclusive possession), and provision for re-entry on non-payment of rent: Halsburys Laws of England (4th ed, 1994) 27(1) at [60-61].
[54] I deal firstly with the question of rent. The income from dairy grazing in the middle block was paid to Mr Potts, as Mr Hughson confirmed, but Mr Goldsbury contended that was a form of rent for the property.
[55] I do not accept that receipt of dairy grazing revenue by Mr Potts can be characterised as rent paid by Clayton Potts, for several reasons. First, dairy grazing was inconsistent with use of the land by Clayton. It required that the land be shut up not long after Christmas then grazed intensively by the dairy cattle from May until September. Nor do the payments bear any relationship to his use of the land; the more dairy grazing, the less he would use the land for his own stock yet the more he would ‘pay’.
[56] Second, Mr Potts’ accounts show that he and Clayton Potts were in the habit of accounting for rent when land was leased within the family. He paid rent to W Potts Limited for that part of the middle block owned by the company. His accountant, Mr Hughson, confirmed that when Clayton farmed the southern block before its sale in 2002, he paid rent, which was recorded in his father’s accounts. By contrast, there is no evidence of Clayton paying rent for the middle block. Clayton may have given Mr Haitana the impression that he leased the middle block, but I consider that Mr Goldsbury attached too much significance to the conversation. It seems he did not actually say he was leasing the land. Clayton Potts was telling Mr
Haitana that the land was unavailable. He did not need to go into the details of family business dealings for that purpose.
[57] Third, Clayton’s work on the properties and payment of outgoings are more readily characterised as payment for grazing and cropping, or simply assistance to his father, than as rent. His contributions to the middle block were variable in kind, frequency, and value. His payments for land he did lease were also variable, but less so. With a lease comes a right to exclusive possession, and in those circumstances one would expect a clearer obligation to pay since the term of the lease would have been the subject of agreement. The nature of his contributions is consistent with occasional use of the land for grazing or hay, as a secondary activity to the dairy grazing business.
[58] I conclude that the middle block was not leased to Clayton Potts at any time before the trespass notices were issued. Mr Potts conducted the dairy grazing business, and retained possession of the land for that purpose. The evidence does not establish that Clayton ever had exclusive possession, let alone for any given term. He appears to have made somewhat greater use of the land after the trespass notices were issued, but without changing the nature of his arrangements with Mr Potts.
Breach of contract
[59] The next question is whether the Andersons’ actions in January 2003 and subsequently breached the agreement for sale and purchase.
[60] There was no dispute that Mr Potts needed access to the land to operate and maintain his pump and associated equipment. Clayton Potts was in the habit of going to the pump to switch it on and off whenever water was required. It also required regular maintenance. It is necessarily implicit in the right to draw water from the land by means of a pump and pipes that Mr Potts might enter the land to operate or maintain the equipment. Some support for that proposition may be found in Gaunt and Morgan (eds) Gale on Easements 16th ed (1997) at 269.
[61] Nor was there any dispute that the trespass notices had the effect of denying Mr Potts and Clayton Potts access. They were unable to operate the pump or reinstate a pipe that was cut. It appears that the first set of notices quickly resulted in an arrangement under which the Potts gained access between the hours of 7 am and 7 pm, but it was short-lived. The notice of 7 March, although addressed to W Potts Limited, and its agents, had the effect of bringing that arrangement to an end. At that time, both parties mistakenly thought the company was the vendor under the agreement for sale and purchase. When Mr Potts repeated his call for access, the Andersons took the position that the easement had come to an end because the land had been leased to Clayton, and demanded that Mr Potts remove his pump. I address subsequently the question whether he could have resumed dairy grazing during the litigation.
[62] I conclude that the Andersons’ actions breached the easement. I date the breach from 7 March 2003, on the basis that the evidence indicates they allowed access to some extent until then, such that Mr Potts may have been able to maintain water to his troughs.
Whether defendants took title in 1999 free of the easement
[63] The next issue is the effect in law on the equitable easement of the 1999 transfer from the Andersons to themselves and Peach Cornwall. The defendants say that on the transfer in 1999 the Andersons and Peach Cornwall took title indefeasibly, such that under sections 62 and 182 of the Land Transfer they were ‘absolutely free’ of the equitable easement, which is an ‘encumbrance’ for purposes of s.62.
Indefeasibility of title
[64]Sections 62 and 182 of the Land Transfer Act provide:
Estate of registered proprietor paramount
Notwithstanding the existence in any other person of any estate or interest, whether derived by grant from the Crown or otherwise, which but for this Act might be held to be paramount or to have priority, [but subject to the
provisions of Part 1 of the Land Transfer Amendment Act 1963], the registered proprietor of land or of any estate or interest in land under the provisions of this Act shall, except in case of fraud, hold the same subject to such encumbrances, liens, estates, or interests as may be notified on the folium of the register constituted by the grant or certificate of title of the land, but absolutely free from all other encumbrances, liens, estates, or interests whatsoever,—
(a) Except the estate or interest of a proprietor claiming the same land under a prior certificate of title or under a prior grant registered under the provisions of this Act; and
(b) Except so far as regards the omission or misdescription of any right of way or other easement created in or existing upon any land; and
(c) Except so far as regards any portion of land that may be erroneously included in the grant, certificate of title, lease, or other instrument evidencing the title of the registered proprietor by wrong description of parcels or of boundaries.
Purchaser from registered proprietor not affected by notice
Except in the case of fraud, no person contracting or dealing with or taking or proposing to take a transfer from the registered proprietor of any registered estate or interest shall be required or in any manner concerned to inquire into or ascertain the circumstances in or the consideration for which that registered owner or any previous registered owner of the estate or interest in question is or was registered, or to see to the application of the purchase money or of any part thereof, or shall be affected by notice, direct or constructive, of any trust or unregistered interest, any rule of law or equity to the contrary notwithstanding, and the knowledge that any such trust or unregistered interest is in existence shall not of itself be imputed as fraud.
[65] It has been said that these sections are the cornerstone of the land transfer system, because on them rests the principle that the registered proprietor’s title is paramount: Bunt v Hallinan [1985] 1 NZLR 450, 457.
Personal obligations of registered proprietor unaffected
[66] However, it has never been the law that section 62 defeats an equitable interest granted by the registered proprietor. Indefeasibility does not interfere with the registered proprietor’s personal obligations in law or in equity: Frazer v Walker [1967] NZLR 1069, 1078. In Sutton v O’Kane [1973] 2 NZLR 304, Turner P noted (at 320) that the purchaser O’Kane held an equitable right that he might have enforced against the Sutton’s predecessors in title, who granted it to him. In CN & NA Davies v Laughton [1997] 3 NZLR 705, 712, the Court of Appeal held:
In our view, therefore, indefeasibility of title does not interfere with the personal obligations of a registered proprietor, and the principle that contracts, or trusts, or any personal equity can be enforced against the registered proprietor merely serves to indicate the limits of the doctrine. The Privy Council’s reference in Oh Hiam v Tham Kong, (approving a statement from Wilkins v Kannamal [1951] MLJ 99) to the Torrens system being a system of conveyancing which does not abrogate the principles of equity, is entirely appropriate. The Board emphasised that it alters the application of particular rules of equity only so far as is necessary to achieve its own special objects. The Land Transfer Act is a conveyancing enactment giving greater certainty of title but not an enactment which in any way destroys the fundamental doctrines by which Courts of equity may enforce, as against registered proprietors, the “conscientious obligations entered into by them”. The Courts retain their jurisdiction in equity.
[67] The first cause of action rests on an equitable obligation admittedly assumed by the Andersons. Indefeasibility of title protects from equitable encumbrances a registered proprietor who has no personal liability in respect of them. Mr Goldsbury contended that the enforceability of the easement in equity was affected by the change in the Andersons’ capacity from beneficial owners to trustees. But there was no evidence of competing equities in the form of conflicting obligations to beneficiaries of the family trust. In any event, the Andersons transferred the land to the trustees with knowledge of Mr Potts’ interest and the intention of honouring it. There was no suggestion that it was not within their power to comply with the easement after 1999.
[68] The defence founded on indefeasibility accordingly fails. It is not necessary to deal with the question whether there was fraud in fact, but the allegation was made and in fairness to the parties I should record my conclusions.
Supervening fraud
[69] To begin with, the allegation in this case is one of supervening fraud. During trial, Mr Macdonald conceded that the 1999 transfer was not fraudulent. The concession was rightly if belatedly made. Mrs Anderson’s evidence that it was done for tax and succession planning reasons was not impeached. On the contrary, the Andersons transferred the property on legal and accounting advice and without knowledge that the transfer might defeat Mr Potts’ interest. Nothing changed in practice. They made no attempt to terminate the easement. The trespass notices were issued nearly four years later following the altercation between Mr Anderson
and Clayton Potts. Only after litigation began was the indefeasibility issue raised. It was pleaded in the first statement of defence, filed on 18 August 2003.
[70] The question whether supervening fraud is fraud for purposes of s62 remains unsettled in New Zealand following Sutton v O’Kane, in which Turner P and Richmond J took opposing views on the point, and Wild CJ did not address it.
[71] Richmond J reasoned (at 344) that as a matter of construction s62 conferred on the Suttons a title absolutely free from Mr O’Kane’s interest, since they acquired their title without fraud. If a subsequent decision to rely on the Suttons’ registered title was held to be fraudulent, s62 would have the paradoxical consequence of conferring a title free of the equitable interest so long as they recognised it but defeasible in the event they ceased to do so.
[72] Turner P relied on Webb v Hooper [1953] NZLR 111, the judgment of Salmond J in Wellington City Corporation v Public Trustee [1921] NZLR 423, 433, 434, and Merrie v McKay (1897) 16 NZLR 124, all of which held that supervening fraud may defeat the registered proprietors’ title. He was not willing to overrule Webb v Hooper, in which the point arose directly. He held that it was no less culpable to change one’s mind after registration and do a dishonest act, than to resolve to do that act before registration.
[73] For my purposes, it is sufficient to note that this is not a case in which it is said that the registered proprietor took without notice of the equitable interest. Rather, the defendants took with notice and the intention of honouring Mr Potts’ easement. Only later did they resolve to defeat it. To that extent, the case is on all fours with Sutton v O’Kane. I will assume in the plaintiff’s favour that in such a case, supervening fraud is fraud for purposes of the Land Transfer Act.
Whether the defendants’ actions in 2003 were fraudulent
[74] It is well settled that fraud in this context means actual dishonesty, and that dishonesty must not be assumed merely by reason of knowledge of the unregistered instrument: Assets Co Ltd v Mere Roihi [1905] AC 176, 210; Waimiha Sawmilling
Co Ltd v Waione Timber Co Ltd [1923] NZLR 1137, 1173 per Salmond J; Sutton v O’Kane [1973] NZLR 304; Bunt v Hallinan [1985] 1 NZLR 450.
[75] Fraud may take many forms. The Court’s task is to assess the registered proprietor’s conduct in any given case to see whether it amounts to fraud in the sense of dishonesty: Bunt v Hallinan at 459, 461; Waimiha Sawmilling Co Ltd v Waione Timber Co Ltd [1926] AC 101, 106-7.
[76] The authorities show that fraud may be sufficiently established if it is shown that the registered proprietor took with knowledge of the unregistered interest and the intention of defeating it: Waimiha Sawmilling Co Ltd v Waione Timber Co Ltd [1923] NZLR 1137. There Salmond J held (at 1174):
Where a purchaser actually knows for certain of the existence of an adverse right which will be destroyed by his purchase he is, as already indicated, guilty of fraud.
[77] Mr Macdonald naturally urged this passage on me. However, Salmond J was there concerned with the degree of knowledge that the registered proprietor must have before the Court may infer fraud. Elsewhere in his judgment (at 1173) he held that fraud “means dishonesty – a wilful and conscious disregard and violation of the right of other persons.” The question in any case is whether the evidence establishes actual dishonesty. In this case, indefeasibility of title was asserted on legal advice to the effect that a registered interest prevails over an equitable one. Can it be said that such a defendant was dishonest, merely because she asserted in litigation what she had been told were her rights in law?
[78] In Bunt v Hallinan, the Court of Appeal held that a purchaser who took title knowing of an equitable interest but in reliance on legal advice that he would take title free of it, was not fraudulent. The majority held (at 462) that he did not acquire title with a view to depriving the equitable encumbrancers of their rights, for he had been advised they had none. Eichelbaum J, dissenting on the facts, held that notwithstanding the legal advice, the totality of the knowledge available to the purchaser suggested he knew of the equitable interest. Further, neither he nor his solicitor made more than perfunctory inquiries into the equitable interest. There was also evidence that, knowing of the equitable interest, the purchaser was prepared to
gamble that he would succeed. The trial Judge had been entitled to conclude that the purchaser’s reliance on the legal advice was not absolute.
[79] In Sutton v O’Kane, Wild CJ held (at 314) that the Suttons took advantage of the discovery of a mistake - that O’Kane’s right of way was found to be equitable rather than legal in nature - but their actions were not fraudulent. It is not fraudulent for a person to stand on his rights when he discovers their true nature. The judgment of Richmond J (at 347) is to similar effect. He held that there was nothing in the evidence to suggest that, having received legal advice, the Suttons did not honestly believe O’Kane had no legal right to use the right of way. Their conduct might be inconsiderate, unreasonable and selfish, but it was not dishonest. By contrast, Turner P found that the facts established fraud. He considered (at 335) that the fact that the Suttons took title unaware that the right of way was unregistered was irrelevant to the question whether their subsequent repudiation of it was honest or dishonest. What it was necessary for the Suttons to know was not whether the right of way was registered but its ‘existence and nature and quality, and the fact that it had been validly granted, albeit in equity, so as to be binding on the vendors from whom they were taking’ (at 331). On his approach, it is circular to reason that it is not fraudulent to stand on one’s legal rights under s.62, since the section confers legal rights subject to an exception for fraud.
[80] Following Bunt v Hallinan and the majority in Sutton v O’Kane, I approach the evidence on the basis that, as s182 expressly states, fraud may not be imputed to a registered proprietor by reason only of the fact that he or she took with knowledge of an equitable encumbrance. If the registered proprietor then claims to be free of such an encumbrance, she may meet an allegation of fraud by pointing to an honest belief, on legal advice, that she is exercising a right conferred by s62. However, reliance on such legal advice does not preclude a finding of fraud. The registered proprietor is not entitled to ignore her own knowledge of material facts that would make the legal advice suspect: Bunt v Hallinan at 462.
[81] Mr Macdonald sought to distinguish Bunt v Hallinan on the ground that in this case, the registered proprietor took legal advice regarding s62 only after taking title and after issuing trespass notices. However, I have found that the initial transfer
was not fraudulent, and the defendants did not intend to affect the easement at that time. The trespass notices were issued before the Andersons took legal advice, but the immediate cause was the altercation between Clayton Potts and Mr Anderson. I record at this point that Mrs Anderson did not hear the beginning of the altercation, and Mr Anderson was not called. I prefer Clayton Potts’ evidence that he did not abuse the children. But it was common ground that there was a heated argument resulting from Clayton’s belief that the Andersons were interfering with the partition. That argument led to the trespass notices. Underlying the conflict was competition for water in circumstances where the easement did not settle priority of entitlements or prescribe how water would be taken. I see nothing dishonest in the Andersons’ behaviour. The dispute was understandable, because the easement and partition arrangement did not clearly define entitlements. It might have been avoided had both sides co-operated fully in sharing the resource, since the evidence showed there was ordinarily enough water for both, but on the evidence before me they did not, preferring to stand on their respective rights. The partition helped to ensure Mr Potts’ pump did not run out of water when both pumps were operating but did not limit either party’s usage.
[82] Lastly, the Andersons took the stance that the easement had come to an end only after taking legal advice, initially on the lease issue and subsequently on indefeasibility. It suited them to terminate the easement, but I find that Mrs Anderson honestly accepted the advice she was given. Indeed, there was no suggestion to the contrary in cross-examination. There are several respects in which I did not accept her evidence, but she gave it in a straightforward way and on this point I found her credible. The point was taken in litigation. Nothing about the circumstances should have suggested to the Andersons, as lay people, that they acted dishonestly merely by asserting what they took to be their legal rights. I have held the advice was wrong but that does not mean it was dishonest to rely on it.
[83] Apart from the existence of the easement, the only material fact that might have led the Andersons to question the advice was their solicitor’s memorandum of 10 February 1993, suggesting that it was unnecessary for Mr Potts to register the easement and for the Andersons to join the Nukumaru water scheme. However, I accept Mrs Anderson’s evidence that they did not know of the memorandum until
their new solicitors uplifted their file some years later, and the evidence did not establish that she knew of the memorandum at the time the indefeasibility point was taken. If she did, it is a reasonable inference that the new solicitors took it into account in their advice, since they must have shown it to her.
[84] In any event, the evidence does not satisfy me that the memorandum ought to have been interpreted as a commitment. It contained a proposal. There followed a meeting on 23 February 1993, which did not result in agreement, and a subsequent arrangement to partition the reservoir. There is no evidence that either of the solicitor’s suggestions found their way into that arrangement. It was a notable feature of Mr Potts’ evidence that he said nothing about the 23 February meeting, although the amended statement of claim pleaded that the assurances about non- registration were given at that meeting. The memorandum of 24 February is clear evidence that no agreement was reached there. Rather, Mr Potts referred in evidence to the 10 February memorandum, which invites the inference that the proposal was a package, in that non-registration was linked to the Andersons not joining the Nukumaru scheme. But in correspondence from Mr Potts’ solicitor during February 2003, he insisted that the Andersons comply with their obligation to join the scheme. That invites the inference that no understanding about non-registration was reached in February 1993. I reached the conclusion that there was an element of hindsight to Mr Potts’ evidence that he had relied on the memorandum.
Was an equitable easement granted by agreement in 1999/estoppel
[85] I have found that the original easement survived the transfer in 1999. The allegation that a fresh easement arose following registration, when the defendants continued to allow Mr Potts to take water, assumed that the first easement had been defeated by registration. So did the alternative allegation of estoppel. Accordingly, it is strictly unnecessary to deal with the second cause of action in light of my conclusions on the first, but I will do so briefly for completeness.
Creation of a second equitable easement
[86] Counsel were agreed that an equitable easement may be created by an agreement, which must be for valuable consideration and must satisfy the requirement of writing under the Contracts Enforcement Act 1956, or be evidenced by a sufficient act of part performance. They referred me to Henwood and others (eds) Brookers Land Law at 9.5.02
[87] Mr Macdonald relied on the 1991 agreement for sale and purchase and the solicitor’s memorandum of 10 February 1993 to establish the agreement. The difficulty with this approach is that the second cause of action proceeds on the assumption that the registered proprietors took title in 1999 absolutely free of the earlier easement. Accordingly, the plaintiff must point to a fresh agreement with the registered proprietors, entered into after 1999.
[88] Mr Goldsbury contended that there was no agreement and no consideration moving from Mr Potts. He certainly continued to take water, and the Andersons allowed him access for that purpose. But it follows from my findings above that the parties did not intend to assume any obligation or grant any benefit after 1999. They were not conscious of the legal significance of the transfer. It is not possible to infer from their behaviour that they intended to enter a new agreement, because they continued on the understanding that Mr Potts was exercising rights granted in 1991.
[89] Valuable consideration is required: Wellington City Corporation v Public Trustee [1921] NZLR 1086, 1099-1100, Sutton v O’Kane [1973] 2 NZLR 304. Mr Macdonald pointed to the 1991 agreement and associated transfer of land to the Andersons as consideration moving from Mr Potts. But as I have said, the premise of the second cause of action is that a new agreement was required after 1999. Fresh consideration was required. Mr Macdonald was unable to identify it.
[90] I record that had the plaintiff being able to point to an agreement supported by consideration following the 1999 transfer, the original agreement might have satisfied the requirement of writing for purposes of the Contracts Enforcement Act, since the new agreement presumably would have been on the same terms.
Alternatively, the parties’ actions in taking water and allowing access for that purpose might have been a sufficient act of part performance: TA Dellaca Ltd v PDL Industries Ltd [1992] 3 NZLR 88.
[91] However, the second cause of action must fail so far as it is based on a new equitable easement, for want of an agreement supported by valuable consideration.
Estoppel
[92] Counsel relied on Burbery Mortgage Finance and Savings Limited v Hindsbank Holdings Limited [1989] 1 NZLR 356, in which the Court of Appeal held (at 361 per Richardson J) that the principle of equitable or promissory estoppel applies where one party has by words or conduct made to the other a clear and unequivocal or unambiguous promise or assurance intended to affect the relations between them and to be acted on accordingly. Once the other party has taken him at his word and acted on it, the one who gave the promise or assurance is bound by that assurance unless and until he has given the promisee a reasonable opportunity of resuming his position.
[93] Mr Macdonald contended that the representation arose from the agreement for sale and purchase and the solicitor’s memorandum of 10 February 1993, in which it was suggested that Mr Potts need not register the easement and the Andersons need not join the Nukumaru water scheme. Thus framed, the case confronts several difficulties.
[94] The first is that, as I have already indicated, the second cause of action assumes that the registered proprietors since 1999 took title free of the equitable easement created in 1991. Accordingly, any representation must have been by or on behalf of the new registered proprietors.
[95] The second difficulty is that the agreement for sale and purchase did not represent that the Andersons would give Mr Potts notice before doing anything that might affect the equitable easement. It was simply an agreement to grant a legal easement if called upon. Mr Goldsbury took the point in this context that it
contained no provision requiring notice in the event that the Andersons proposed to transfer the property to a new registered proprietor.
[96] Third, for reasons already outlined, I do not accept that Mr Potts relied on the solicitor’s memorandum of 10 February 1993 by choosing not to insist upon a legal easement. Nor was the memorandum a sufficiently clear and unequivocal assurance. Rather, it was a suggestion offered in consideration for agreement that the Andersons need not join the Nukumaru water scheme. I have found that there is no evidence that either suggestion was adopted in the agreement to partition the reservoir that followed the memorandum and the parties’ meeting of 23 February 1993.
[97]The claim based on estoppel accordingly fails.
Damages
[98] Mr Macdonald contended that the normal expectation measure of damages in contract is appropriate under the first cause of action. I did not understand Mr Goldsbury to disagree.
The losses claimed
[99] The plaintiff says he was without reliable stock water from 19 January 2003, with the result that he was unable to offer dairy grazing.
[100] Mr Hughson, the plaintiff’s accountant, quantified the lost income by reference to Mr Potts’ average annual income from dairy grazing of $36,000 and his balance date of 30 June in each year. He took it that Mr Potts had been without grazing from the period 1 July 2003 to 30 June 2004, and 1 July 2004 to the end of the 2004 winter. Accordingly, no claim was made for the first half of the 2003 winter. The sum of $54,000 thus claimed is a gross figure, on the basis that the costs of earning it (such as rates) would have been incurred in any event. No issue was taken with Mr Hughson’s calculations, or his use of an annual average income. Nor was remoteness in issue. Rather, the parties joined issue on causation and mitigation.
Causation
(i)The dominant tenement
[101] The losses calculated by Mr Hughson relate to the middle block as a whole or, more accurately, the 85-90 acres used for dairy grazing. Of that area, 22 acres is owned by Mr Potts, and only two of the five water troughs are on the 22 acres. The losses may be said to be caused by the Andersons’ breach only to the extent that the middle block enjoyed the benefit of the easement. I have already identified the dominant tenement as the entire middle block. Accordingly, all the losses may be claimed.
(ii)Was the plaintiff in the dairy grazing business in 2003
[102] Mrs Anderson contended that Mr Potts had ceased dairy grazing around 1998. She said she knows the difference between dairy and beef stock, and she observed dairy stock were not wintered on the middle block after about 1998. The point was that Mr Potts would not have earned income from dairy grazing in 2003 and 2004 in any event.
[103] I am satisfied that Mrs Anderson was mistaken. I accept Mr Potts’ evidence that he continued to graze dairy cows on the property until 2003. Clayton Potts initially said in cross-examination that dairy cows were grazed on the land until 2000, but he later corrected himself. Mr Hughson confirmed that Mr Potts had received income from dairy grazing in the year to 30 June 2003 (being income received for the second half of the 2002 winter). He was able to confirm that the money treated as grazing income in Mr Potts’ accounts had been paid to him by other farmers.
[104] I also accept Mr Potts’ evidence that he intended to graze dairy cows on the property in the 2003 and 2004 winters, and chose not to do so only because of his concerns about water. The middle block has a creek running through it, but it becomes muddy and even in winter dairy cattle require a good supply of quality drinking water. The paddocks are also subdivided with break-fencing for dairy
grazing, which is intensive and also requires that each farmer’s herd be kept intact. Break-fencing was not possible without water troughs.
[105] Mrs Anderson also disputed Mr Potts’ need for water. She said he had only filled the storage tank once since the injunction was granted. However, I do not accept that evidence. In cross-examination she conceded that she had said in an earlier affidavit that the Andersons had heard the pump going many times after Powerco did its work on the electricity supply in March 2004.
(iii)Could the plaintiff have resumed dairy grazing after the trespass notices
[106] The question here is whether Mr Potts could have resumed use of the Andersons’ reservoir in 2003 or 2004. I address the question of using an alternative supply below, as an aspect of mitigation.
[107] Mr Goldsbury referred to an access arrangement agreed during the litigation. An arrangement was recorded in a consent memorandum of 28 April 2003, but it was an interim arrangement pending a callover on 28 May, and it was entered in anticipation of settlement. There was no evidence of any other arrangement. I do not consider it realistic to suggest that Mr Potts ought to have entered into grazing commitments in those circumstances. His injunction application was pending from April 2003 until January 2004, and thereafter there were breaches of the injunction that led to the judgment of Gendall J in May 2004. I have accepted his evidence that dairy grazing is arranged early in the year, and that he could not reasonably commit to it without an assured water supply to the troughs. On the evidence, the litigation did not secure that until May 2004.
(iv) Would the plaintiff have had sufficient water to graze dairy stock in 2003 and 2004 in any event
[108] The difficulties regarding shortage of water related principally to the summer period. There was no evidence of likely water shortages during the 2003 or 2004 winters that would have affected Mr Potts’ income from dairy grazing independently of the Andersons’ breach. Occasionally there was insufficient water to feed both pumps in winter, but only when they were operating together.
Mitigation of losses
[109] Mr Potts accepted he was obliged to take reasonable steps to mitigate his losses. In British Westinghouse Electric & Manufacturing Company Limited v Underground Electric Railways Company of London Limited [1912] AC 673, 689, Viscount Haldane LC held that a plaintiff entitled to pecuniary loss naturally flowing from a breach of bargain is under a duty to take all reasonable steps to mitigate that loss and may not claim any part of the loss that is due to failure to do so. The onus of proving the plaintiff failed to take reasonable steps is on the defendant: Blake v Melrose [1968] NZLR 1085, 1089. The plaintiff may recover the reasonable costs of mitigation: Lloyds & Scottish Finance Limited v Modern Cars & Caravans (Kingston) Limited [1964] 2 All ER 732, 741. It may be considered reasonable to accept an alternative offer of performance from the wrongdoer: Sotiros Shipping Inc v Sameiet Solholt [1983] 1 Lloyds Rep 605.
[110] The defendants contended that Mr Potts failed to mitigate his losses in three respects. The first was that he failed to join the Nukumaru water scheme when he could have done so at minor cost and so secured dairy grazing income. The second was that he failed to obtain alternative income in the form of winter grazing of beef cattle or other stock for which a reliable supply of trough water was less problematic. The third was that he refused the Andersons’ offer of access between 7 am and 7 pm.
(i)Plaintiff’s failure to join Nukumaru water scheme
[111] The evidence established that Mr Potts’ storage tank is a short distance (he said 2-3 chains) across a road from one of the supply lines on the Nukumaru water scheme. He could have joined the scheme for $1,000 together with the costs of any physical work and fittings required, such as a meter. He would also have been required to pay for water consumed. There was no evidence of the price to be paid for water or the cost of work and fittings.
[112] Mr Potts was initially inclined to contend that joining the water scheme would have required upgrading of the pipes from his storage tank to his troughs to
satisfy the requirements of the scheme, but he later acknowledged that would not be necessary.
[113] I find that Mr Potts did not consider joining the scheme, although he knew it was an option. He made it clear in evidence that his stance was that he had the right to water from the Andersons’ land. In the result, he did not turn his mind to mitigation.
[114] Mr Macdonald pointed out that when the dispute began at the beginning of 2003, Mr Potts was not to know that matters would remain unsettled until now. There is force in that submission. However, I have accepted Mr Potts’ evidence that he could not offer dairy grazing unless he knew early in the year that water would be available, because arrangements are made with dairy farmers some months before the stock arrive. That being so, Mr Potts must be taken to have known after the breach on 7 March 2003, if not before, that he would lose that season’s grazing unless alternative arrangements were made without delay. He explained that he had established clients, and Clayton Potts confirmed they went elsewhere because of the water problem. Mr Potts also said he was also unwilling to enter into grazing commitments early in 2004, notwithstanding the injunction, because he could not rely on receiving water from the Andersons, due to the risk of “tampering or court decisions”. I have accepted that he acted reasonably in taking that stance until May 2004, with the result that causation is established for the 2003 and 2004 winters. However, joining the Nukumaru scheme would have dealt with his concern about security of supply. Had steps been taken to join the scheme in March 2003, he would have had some months in which to complete the connection and it is a reasonable inference that no income would have been lost.
[115] The onus is on the defendants to prove that Mr Potts failed to take reasonable steps to mitigate his losses. On the evidence before me, it was reasonable to join the Nukumaru water scheme. That would have avoided all the losses, at minimal risk to Mr Potts since he had an established clientele and connecting to the scheme undoubtedly would have solved the water problem. His personal conviction that he was in the right does not render reasonable his failure to mitigate, especially since mitigation did not require further dealings with the Andersons.
[116] However, the evidence identified other expenses of mitigation without quantifying them. The cost of joining the scheme was only $1,000, but he would also have incurred costs of connection to the storage tank and water consumed. To attempt to fix these costs would be pure guesswork. It would be unjust to conclude that Mr Potts’ mitigation expenses are confined to the costs of joining the scheme. Nor, in light of the conclusions I have provisionally reached, am I prepared to find that the defendants have failed to discharge the burden of proving a failure to mitigate. I will give the parties an opportunity to call further evidence on the expenses of this form of mitigation. That necessarily requires further reserving my decision on the question whether he ought to have joined the scheme, since it is possible that the costs will turn out to be substantial.
(ii)Should credit be given for winter beef grazing in 2003 and 2004
[117] The evidence established that Clayton Potts grazed beef cattle, and perhaps sheep, on the middle block in 2003 and 2004. Mr Potts said ‘I gave him the grazing’. He was able to do so notwithstanding the absence of a reliable supply to the water troughs because of the creek on the middle block. Beef grazing was possible for two reasons. First, it was much less intensive. The paddocks were not break-fenced as they would be for dairy cattle. On the contrary, gates were left open so the cattle all had access to the creek. Second, Clayton considered the creek supply adequate for beef grazing. There is competition for dairy grazing, and dairy farmers ordinarily insist on clean trough water for their animals. The creek is apt to become a bog as cattle drink from it.
[118] Clayton Potts did not pay his father for grazing such stock although he continued to meet outgoings and to manage and maintain the property. The question is whether winter grazing had a value that ought to be credited to the Andersons.
[119] I conclude that winter grazing of non-dairy stock was a reasonable alternative use of the land that might substitute for some of the foregone income. To the extent that Clayton Potts paid in money or services for his winter grazing, Mr Potts received value for it. On the face of it, he ought to have credited the Andersons with that value or with the market value of such grazing, whichever is higher.
Unfortunately, the evidence does not establish what the market value was. Nor does it establish the value of Clayton Potts’ contribution, or of any costs caused by grazing. Accordingly, the parties will also have leave to call further evidence to establish the value of such grazing.
(iii)Failure to accept access offer
[120] Mr Goldsbury relied on what he characterised as the Potts’ rejection of the Andersons offer of access between 7 am and 7 pm. That offer was made in a letter of 10 February 2003. But the sequence of events establishes that the offer was not rejected. It appears it was put into effect for a short time. Rather, I have found that the second trespass notice brought the parties to an impasse. When Mr Potts renewed his demand for access, through his solicitor, he was told that the easement was at an end. The interim arrangement that was recorded in the consent memorandum on 28 April 2003 appears to have endured only for one month. This submission fails.
Result
[121] The plaintiff has succeeded (against the Andersons only) on the first cause of action but failed on the second. There will be a declaration that the Andersons breached the agreement for sale and purchase by denying Mr Potts access to their land between 7 March 2003 and 24 May 2004 for purposes of drawing water under the easement.
[122] I am satisfied that the losses claimed of $54,000 were caused by the Andersons’ breaches of the easement. However, I have provisionally concluded that Mr Potts failed to mitigate his losses by joining the Nukumaru water scheme and obtaining alternative (non-dairy) winter grazing or crediting the Andersons with the consideration paid in money or money’s worth by Clayton Potts for winter grazing of his stock. The parties will have leave to call further evidence on those mitigation expenses if they cannot be agreed. If required, I will hear argument on the question whether, in light of those expenses, Mr Potts ought to have mitigated his losses. The
Registrar is to convene a telephone conference before me to timetable the exchange of evidence.
[123] The plaintiff has succeeded in substantial part and is entitled to costs, which should be fixed after damages have been determined.
Delivered at 1.00 pm this 5th day of April 2005.
F Miller J
Solicitors:
Horsley Christie, Wanganui for PlaintiffGraham Takarangi & Co, Wanganui for Defendants
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