Poutu v Attorney-General
[2021] NZHC 723
•1 April 2021
IN THE HIGH COURT OF NEW ZEALAND WELLINGTON REGISTRY
I TE KŌTI MATUA O AOTEAROA TE WHANGANUI-A-TARA ROHE
CIV-2019-485-545
[2021] NZHC 723
BETWEEN LIANA HUIA POUTU, WHAREHOKA CRAIG ROBERT WANO, TANYA KIM SKELTON, SHELLEY JANE KOPU, AMOKURA HUIA ANGELINE PANOHO, DAMON PAUL RITAI AND HOWARD KEVIN TAMATI
Plaintiffs
AND
ATTORNEY-GENERAL
Defendant
Hearing: 14-15 September 2020 Appearances:
R J B Fowler QC for Plaintiffs
C Tyson and A Goosen for Defendant
Judgment:
1 April 2021
JUDGMENT OF CLARK J
Introduction
[1] The plaintiffs are the current trustees of Te Kotahitanga o Te Atiawa Trust, the lawfully mandated post-settlement governance entity for the iwi of Te Atiawa (the Trust). The trustees bring this proceeding to implement a deed of settlement of a Treaty claim. Specifically, the trustees seek to enforce the terms of the deed which on its face applies a 20 per cent reduction from market value on all 51 properties that the trustees may elect to purchase under the deed.
[2] The Crown’s case is that properly interpreted the 20 per cent adjustment in the deed applies to a single property, the unimproved land on which the New Plymouth Courthouse is situated (the New Plymouth Courthouse or Courthouse). That is what
POUTU, WANO, SKELTON, KOPU, PANOHO, RITAI AND TAMATI v ATTORNEY-GENERAL [2021] NZHC 723 [1 April 2021]
the parties negotiated, and agreed, and Te Atiawa is estopped from advancing any contrary interpretation. Alternatively, the Crown seeks rectification.
[3] Te Atiawa concedes that with the exception of the New Plymouth Courthouse the 20 per cent adjustment did not feature in the settlement negotiations. Nevertheless, Te Atiawa says the provisions in the deed are unambiguous and it seeks enforcement of their terms. Te Atiawa resists the Crown’s estoppel defence and argues further that while the facts make the deed amenable to rectification, there are factors telling against the Court’s discretion to do so.
Overview
[4] The material facts are uncontested. Further specific matters the trustees do not contest are set out at [14].
[5] On 9 August 2014 Te Atiawa, the trustees and the Crown signed a Deed of Settlement of Historical Claims (settlement deed). The Te Atiawa Claims Settlement Act 2016 gave effect to certain provisions in the settlement deed.1
[6] In their respective submissions counsel refer throughout to “Te Atiawa”. Te Atiawa is “the collective group composed of individuals who are descended from 1 or more Te Atiawa tūpuna”.2 The trustees are the plaintiffs. They are also the persons upon whom the settlement deed confers obligations, powers and rights, such as the right to elect to purchase properties described in the deed. Nevertheless, to be consistent with the parties, by and large, I too will refer to “Te Atiawa” rather than “the trustees”.
[7] Under the terms of the settlement deed the trustees can elect to purchase certain properties at market value, less 20 per cent. The schedule of properties to which the 20 per cent reduction is said to apply lists 52 Ministry of Justice properties. One of
1 Te Atiawa Claims Settlement Act 2016, s 3(b).
2 Section 13 — meaning of Te Atiawa.
the properties is the New Plymouth Courthouse. The other 51 properties are landbank properties.3 The 53rd property is the Police Station at New Plymouth.
[8] On 21 March 2017 the trustees gave notice of their interest in purchasing the Courthouse and Police station. Between 24 October 2017 and 11 December 2017 Te Atiawa gave notice of its interest in purchasing 16 further properties. Elections to purchase six of those properties were made on 19 June and 26 July 2018. At no point when notices of interest were given, or when elections to purchase were made, was a 20 per cent reduction mentioned or sought.
[9] Meanwhile, in June 2018 Land Information New Zealand advised the Office of Treaty Settlements (OTS) of a possible error in one of the schedules to the settlement deed. OTS investigated the issue with the assistance of its legal advisors, Buddle Findlay. Buddle Findlay had drafted the documents.
[10] From 29 August 2018, Te Atiawa began to claim a 20 per cent reduction on the landbank properties.
[11] On 12 September 2018, in advance of a meeting with them, the Ministry wrote to Liana Poutu and Hemi Sundgren respectively, the Trust’s Chair and Chief Executive. The letter explained how the error in the settlement deed had occurred. The weeks prior to the parties initialling the deed of settlement on 4 June 2014 had been a period of intense activity for Te Atiawa, OTS and Buddle Findlay as a number of issues were “brought to a resolution”. New draft deeds had been provided pursuant to drafting instructions and in its final reviews of the settlement deed, OTS had not picked up the discrepancy in the labelling of the landbank properties. Apparently, OTS received the final draft of the deed only hours before the parties initialled it on 4 June 2014.
[12] The letter further advised that in relation to the sale of several landbank properties due to settle on 28 September 2018 a 20 per cent reduction could not be
3 Land banking is a process by which properties meeting criteria for protection are bought by the Office of Treaty Settlements and held until the claims in the area concerned have been resolved. Landbank properties are properties bought by the Crown for the purpose of ensuring they are available for inclusion as financial redress in Treaty settlements.
applied. There had been no appropriation for such “loss on sale” and if the Crown took that step it would be in breach of the Public Finance Act 1989.
[13] I add at this point that the Crown calculates a cost to it of $9,960,000 if a 20 per cent reduction is applied to the 51 landbank properties. That sum represents 20 per cent of the $49,800,000 book value of the properties.
Specific matters not disputed by the plaintiffs
[14] Before turning to the relevant facts, I set out further specific matters that counsel, Mr Fowler QC, helpfully advised in opening submissions the plaintiffs do not dispute. The plaintiffs accept the following:
(a)With the exception of the Courthouse, a 20 per cent diminution (adjustment) to the 51 properties in respect of which the Ministry of Justice was recorded as the landholding agency in Part 3 of the settlement deed, did not feature in the settlement negotiations.
(b)The “mistake” which the Crown pleads in its statement of defence and counter-claim, is attributable to drafting error by the Crown or its agents.
(c)The consequences of that error were not noticed or relied on by the plaintiffs prior to the initialling of the deed or during its subsequent ratification. Mr Fowler recalibrated his written submission to submit that Te Atiawa cannot point to any evidence to show the mistake was noticed or relied on.
(d)The effect and implications of the deed in respect of the erroneously drafted provisions were first apprehended by the plaintiffs on 17 July 2018.
Relevant facts
[15] The settlement negotiations, the exchanges of draft settlement deeds, and the conduct of the parties after settlement was set out in the evidence of the Crown witnesses. The Crown’s evidence was not contested.
Pre-settlement negotiations
[16] Negotiations between Te Atiawa and the Crown commenced after terms of negotiation were agreed in March 2010. Following Cabinet approval on 12 November 2012 the Crown offered financial redress in the sum of $87million. On 5 December 2012 Cabinet approved the balance of the Te Atiawa settlement package. The settlement package included:
(a)52 “OTS landbank sites” as deferred selection properties
(b)five potential sale and leaseback properties (being three school sites, the Courthouse and Police Station).
[17] In December 2012, Te Atiawa and the Crown entered into an agreement in principle (AIP) by which they agreed that the nature and scope of settlement was to be as provided in the AIP and that they would work together in good faith to develop a deed of settlement based on the AIP.
[18]Under cl 6.7 of the AIP, the settlement deed would give Te Atiawa the right —
…at any time from the settlement date until the end of the deferred selection period, [to] purchase any or all of the potential deferred selection properties described in schedule 3 that the parties agree are to be deferred selection properties.
[19] Deferred selection properties are properties owned by the Crown that are of interest to the claimant group but are not transferred as part of the settlement quantum. Instead they are purchased post-settlement by the group within a deferred selection period.
[20] Under the AIP the Crown offered to explore the availability of potential “sale and leaseback properties” listed in schedule 3 of the AIP, for purchase by Te Atiawa as deferred selection properties. Under a sale and leaseback mechanism the Crown agrees to sell to the claimant group the underlying land exclusive of improvements, subject to the land being leased back to the Crown for continued public use. The properties identified for sale and leaseback were the Courthouse, the New Plymouth Police Station and three unidentified school sites.
[21] Under the AIP, if the parties agreed that the potential sale and leaseback properties were to be deferred selection properties, then the deed of settlement would provide that Te Atiawa could purchase the deferred selection properties at an agreed transfer value subject to a leaseback to the Crown —
6.10.1on the terms and conditions provided by a registrable ground lease for that property (ownership of the improvements remaining unaffected by the purchase) incorporated in the deed of settlement; and
6.10.2if the Crown leaseback is to a department other than the Ministry of Education, at an initial market rental determined in accordance with the valuation process generally used in Treaty settlements; or
6.10.3if the Crown leaseback is to the Ministry of Education, at an initial annual rental based on an agreed rental package of the agreed transfer value in accordance with the Crown leaseback (plus GST if any);
…
[22] Schedule 3 of the AIP listed as “Potential deferred selection properties” a number of landbank properties. The OTS was recorded as the agency responsible for the landbank properties.
[23] In the schedule 3 list of “Potential sale and leaseback properties” the landholding agency:
(a)for the Courthouse was recorded as the “Ministry of Justice”;
(b)for the Police Station was recorded as “New Zealand Police”; and
(c)for three unidentified school sites was recorded as “Ministry of Education”.
[24] In Treaty settlements, properties within the landbank are transferred at market value. An exception to this standard policy would be an expense for the purpose of the Public Finance Act 1989 and an appropriation to cover the loss would be required. A different approach to valuation is applied in relation to school sites included in a settlement as sale and leaseback properties. Under what is termed the “Ministry of Education approach”, the market value of the land is adjusted downwards by 20 per cent in recognition of the fact that the lease prevents the site being used for its highest potential (often sub-division) and the rental is calculated at six per cent of the purchase value, meaning the 20 per cent adjustment is reflected in the rent payable.
[25] The benefits of the Ministry of Education approach are seen in the reduced transfer value for iwi and the rental for the Ministry of Education.
[26] Following the AIP, the parties negotiated towards a deed of settlement and draft deeds were exchanged from September 2013.
[27] On 17 February 2014 Cabinet approved the Te Atiawa settlement package which included:
(a)a sum of $87 million;
(b)a right of deferred selection of the 51 landbank properties; and
(c)sale and leaseback of the Courthouse “subject to the Crown being able to negotiate lease terms with Te Atiawa that limit the fiscal impact at rent reviews”.
[28] On 5 March 2014, Te Atiawa was advised of Cabinet’s approval of the settlement package. The summary of the settlement package that had been sent earlier to Te Atiawa on a confidential basis could now be distributed.
[29] On 28 March the then current draft version of the settlement deed including the associated Property Redress Schedule (PRS) was sent to Te Atiawa and its legal advisers, Kensington Swan. In relation to the 51 landbank properties, in place of
“Office of Treaty Settlements”4 the Ministry of Justice was recorded as the land holding agency, and the land holding agency for the Courthouse was recorded as “Ministry of Justice (Courts)*”. The asterisk was to indicate “the property is a leaseback property”.
[30] The formal “record of negotiation” that took place on 23 April 2014 shows the Crown proposed to take a Ministry of Education approach in relation to the Courthouse that is, an “approach which involved a 20% discount on the purchase price and setting a 6% yield when working out the rental price”.5
[31] On 28 April the Crown sent a draft Courthouse lease to Te Atiawa. Reflecting the adoption of the Ministry of Education approach to valuation, the draft included the following provisions:
1.00 DEFINITONS AND INTERPRETATION
1.08 “Value of the Land” means the market value of the freehold interest in the Land as at the relevant rent review date, as vacant land in an unsubdivided state assessed in accordance with its then current underlying zoning or a courthouse, whichever is the greater, LESS a discount of twenty percent (20%) to reflect the terms and conditions of this Lease while the Ministry of Justice remains the Lessee.
…
4.05RENT REVIEW
(a)The Annual Rental payable as from each review date shall be determined as follows:
(i)Either party may not earlier than three (3) months prior to review date and not later than one (1) year after any review date (time being of the essence) give written notice to the other party specifying the annual rent proposed as the current market annual rent as at the relevant review date, subject to the provisions of clause 2.01(a); which shall be equal to six percent (6%) of the Value of the Land as defined in clause 1.08.
[32] On 19 May 2014, on behalf of Te Atiawa, Kensington Swan sent to the Crown version three of the draft settlement deed along with schedules. The covering email
4 See [22] above.
5 See [24] above.
explained that where Te Atiawa was in agreement, the Crown’s tracked changes had been accepted. Further, the changes tracked in red indicated changes required by Te Atiawa. The upshot was that the 19 May 2014 version returned to the Crown by Kensington Swan:
(a)accepted the deletion of the provisions relating to school sites;
(b)accepted that the transfer price for all deferred selection properties was to be the market value as agreed or determined under the PRS; and
(c)did not include any definition of “Ministry of Justice property” in the definitions schedule.
[33] On 29 May 2014 an updated copy of the Courthouse lease and covering letter was emailed to Kensington Swan for urgent review. If the lease was acceptable it would need to be finalised for insertion into the settlement deed the following day. The covering letter referred to advice to Te Atiawa in April 2014 as to the Ministry’s approach to valuation of the Courthouse, namely —
… to set the initial rent and the rent on all subsequent rent reviews by assessing the value of the land which is to be arrived at by reducing the current market value by 20% and fixing the rent at a yield of 6% of the resulting value. The 20% reduction is reflective of the designation and use of the land as Courthouse. By way of example, if the valuers assess the current market value of the Land at $1 million, the value for the rent calculation will be $800,000 and the resulting annual rent will be $48,000, plus GST.
[34]The relevant schedule to the lease stated:
Establishing Rental on Rent Reviews
1The parties acknowledge and agree that in establishing the Agreed Transfer Value for the purpose of transferring the Land from the Lessee to the Lessor on … the transfer price is to be established by assessing the current market value of the Land less a twenty per cent (20%) adjustment to reflect the designation and associated use of the Land as a Courthouse by the Lessee.
2 …
3… the parties shall ensure that on each rent review, the respective valuers are instructed to assess the rent payable by the Ministry of Justice by assessing the current market value of the Land less an
adjustment of twenty per cent (20%) to recognise the designation and use of the Land as a Courthouse, on the same basis as which Agreed Transfer Value was established at the outset of the Lease, … and assessing the annual rental as six per cent (6%) of the reduced value.
[35] On 29 May 2014 and in anticipation of Te Atiawa accepting the terms of the draft lease,6 the Crown instructed Buddle Findlay to make the related amendments to the PRS as the parties had agreed the Courthouse would not be transferred at market value. The email to Buddle Findlay included the following instruction:
Property Redress Schedule
13) The Ministry of Justice is wanting to adopt the MoE process for assessing transfer value and rental for the courthouse lease.
This means we need to amend the property redress schedule to put all the MOE school site valuation provisions back into Part 5. However, we will need to change every reference to “school site” to “Ministry of Justice property”.
[36] Buddle Findlay amended the PRS on 29 May 2014. The school site provisions from the 28 March 2014 draft were reinstated with references to “school site” replaced by references to “Ministry of Justice property”.
[37] To illustrate the nature and effect of the reinstatement of the previously deleted clauses, I reproduce, by way of example two clauses from the PRS as deleted and after reinstatement and amendment. The emphases are mine.
(a)The deleted cl 4.23:
EFFECT OF DELIVERY OF ONE VALUATION REPORT FOR A PROPERTY
…
4.23 If only one valuation report for a separate valuation property that is a school site is delivered by the required date, the transfer value of the property is the market value as assessed in the report (based on highest and best use calculated on the zoning of the property in force at the valuation date, less 20%).
Clause 4.23 reinstated (as cl 4.15) with substituted wording:
6 On 26 May 2014 just before 10 pm the Chief Crown negotiator had passed on that the Courthouse lease had been referred to Kensington Swan for a final check as, except for one point, Te Atiawa “was ready to sign off”.
EFFECT OF DELIVERY OF ONE VALUATION REPORT FOR A PROPERTY
…
4.15 If only one valuation report for a separate valuation property that is a Ministry of Justice property is delivered by the required date, the transfer value of the property is the market value as assessed in the report (based on highest and best use calculated on the zoning of the property in force at the valuation date, less 20%).
(b)The deleted cl 4.15(1)(b):
NEGOTIATIONS TO AGREE A TRANSFER VALUE AND INITIAL ANNUAL RENT FOR A SEPARATE VALUATION PROPERTY
…
if the separate valuation property is a school site, the transfer value (being the agreed market value based on highest and best use calculated on the zoning of the property in force at the valuation date, less 20%);
Clause 4.15(1)(b) reinstated (as cl 4.16(1)(b) with substituted wording:
if the separate valuation property is a Ministry of Justice property, the transfer value (being the agreed market value based on highest and best use calculated on the zoning of the property in force at the valuation date, less 20%);
[38] Buddle Findlay also added to Part 7 of the PRS, the “Definitions” section, the following definition:
Ministry of Justice property means a deferred selection property in respect of which the land holding agency is the Ministry of Justice.
[39] As with all definitions in the PRS, the definition of “Ministry of Justice property” was subject to the rider “unless the context otherwise requires”.
[40] The unwitting effect of the definition is that on the face of the PRS a 20 per cent reduction is applied not exclusively to the Courthouse as the parties intended, but to all 52 deferred selection properties. The implications of this last minute addition to the PRS were not picked up by officials, Te Atiawa or their legal advisers.
[41] On 30 May 2014 Te Atiawa confirmed its acceptance of the Courthouse lease, which included the 20 per cent adjustment to the value of the land.
[42] Clean versions of the PRS and document schedule, as amended by Buddle Findlay, were emailed to Te Atiawa during the evening on 30 May 2014. The Ministry of Education approach now applied in respect of a “Ministry of Justice property”. For example, the valuation instructions in appendix 1 of the PRS state:
MARKET VALUE OF A MINISTRY OF JUSTICE PROPERTY
For the purposes of these instructions the intention of the parties in respect of a Ministry of Justice property is to determine a transfer value to reflect the designation and use of the land for justice purposes.
The market value of a Ministry of Justice property is to be calculated as the market value of the property, exclusive of improvements, based on highest and best use calculated on the zoning of the property in force at the valuation date, less 20%.
Initialling and Ratification
[43]The settlement deed, with schedules, was initialled on 4 June 2014.
[44] After initialling, the next step in the settlement process involved the mandated negotiators seeking the support of the claimant community for the settlement. During June and July 2014, the settlement deed went through the process of ratification. The Te Atiawa Iwi Authority, mandated by Te Atiawa to negotiate a deed of settlement, distributed a booklet, Te Atiawa Deed of Settlement 2014 Ratification Booklet, outlining the nature of the settlement, the settlement deed and how the ratification process was to operate. Te Atiawa members were urged to read the booklet carefully, discuss it with whānau and hapu members and “make an informed decision”. The 39- page booklet which outlined the settlement to the claimant group, made no mention of a 20 per cent discount or adjustment in the purchase price for the 51 landbank properties.
[45] On 4 August 2014 Te Atiawa emailed the Crown’s settlement manager Kensington Swan’s comments on the initialled deed. One of the comments related to cl 4.15 of the PRS. Kensington Swan commented: this clause was added by OTS at a late stage without agreement or consultation from KS”.
[46] Clause 4.15 is set out above at [37](b). It is not clear why Kensington Swan said cl 4.15 was added without its agreement or consultation. The evidence shows the
clauses relating to the 20 per cent adjustment were added as a result of the parties’ agreement to the terms of the Courthouse lease. Kensington Swan was involved in the Courthouse lease negotiations, and was sent the version of the PRS reflecting the 20 per cent adjustment the parties agreed five days before the deed was initialled. In any event the Ministry responded to the effect that the “… lease and sale back regarding this property was agreed to just before deed was initialled”.7
[47]The settlement deed was signed on 9 August 2014.
Post-settlement activities
[48] The two sale and leaseback deferred selection properties (the Police Station and the Courthouse) were transferred to Te Atiawa under the process provided in the PRS:
(a)Te Atiawa gave notice of its interest in purchasing the Courthouse land on 21 March 2017. Valuations were undertaken. The purchase value of the land was adjusted by 20 per cent to reflect is designation for justice purposes. Te Atiawa elected to purchase the Courthouse land on 28 July 2017. Settlement was concluded on 13 August 2017.
(b)Te Atiawa gave notice of its interest in purchasing the Police Station on 21 March 2017. Valuations were undertaken. They did not include a discount or adjustment. Purchase of the property settled on 8 August 2018.
[49] Eight of the landbank deferred selection properties had progressed to valuation prior to the discovery of the issue with the deed. In relation to all eight properties, valuations were conducted for both parties. No valuation in relation to any property included a discount or adjustment.
[50] Te Atiawa elected to purchase four of the eight properties with no mention being made of a 20 per cent adjustment.
7 In her brief of evidence the witness explained the reference to “lease and sale back” was a typographical error and obviously should have read “sale and lease back”.
[51] On 17 July 2018 during a meeting between the parties’ valuers in relation to one of the properties Te Atiawa had given notice of interest in purchasing, an issue arose as to whether the PRS included a 20 per cent adjustment for the 51 landbank properties.
[52] From 29 August 2018 Te Atiawa claimed a 20 per cent discount on all 51 landbank properties notwithstanding they were not held for justice purposes, or subject to a sale and leaseback and were not “land only” sales.
[53] Although the parties had attempted to resolve the issue, resolution could not be reached and Te Atiawa was offered the opportunity to purchase the properties without the 20 per cent discount, on a without prejudice basis. On 4 June 2019, Te Atiawa accepted that offer.
Issues arising from the pleadings
[54] The broad issue raised by the statement of claim is whether the plaintiffs are entitled to the 20 per cent adjustment to the market value they seek in relation to the six deferred selection properties that are the subject of their claim.
[55] The answer to that question will determine whether Te Atiawa is entitled to a 20 per cent reduction from the market value of the 45 other landbank deferred selection properties it has notified an interest in purchasing.
[56]The Crown formulates the specific issues arising in the following way:
7.1whether, as a matter of interpretation of the Deed, Te Atiawa is entitled to a 20% adjustment on the market value of the 51 Landbank properties (being the 51 deferred selection properties (land and buildings) listed in part 3 of the Property Redress Schedule (PRS) in respect of which the land holding agency is specified as “Ministry of Justice”), or whether the 20% adjustment only applies to the land (excluding the building) on which the Courthouse is built, which is leased to the Ministry of Justice for justice purposes;
7.2whether, given the uncontested evidence that the parties proceeded on the common assumption/ agreement that the 20% adjustment applied to the Courthouse alone, Te Atiawa is estopped by convention from relying on a contrary interpretation;
7.3in the alternative, whether the Court can grant relief by way of rectification in light of s 15 of the Settlement Act. This need only be addressed if the Court considers the Deed cannot be interpreted to reflect the parties’ intentions.
Interpretation of the settlement deed
Parties’ respective positions
[57] Mr Fowler argued that on the plain wording of the PRS, the 20 per cent adjustment or “discount” applies to all Ministry of Justice properties and not just the Courthouse. Mr Fowler took issue with the Crown’s argument that the deed provisions make no sense if so interpreted. Further, the settlement deed has been entrenched in statute. The Crown “error” in initiating a change to the wording of the PRS that extended the 20 per cent adjustment “across the board” does not create an interpretation issue. It is an error.
[58] Broadly speaking, the Crown’s approach is that the modern, contextual approach to interpretation allows for fallibility in the drafting process and does not seek to attribute to the parties an intention they did not have. As the plaintiffs accept that a 20 per cent adjustment to the 51 landbank properties (being the properties in relation to which Part 3 of the PRS records the Ministry of Justice as the landholding agency) did not feature in the settlement negotiations, and that a drafting error has occurred, the error may be remedied by the way the Court interprets the settlement deed.
[59] Mr Tyson advanced detailed legal submissions as to the contemporary approach to interpreting a contract. In relation to the admissibility of pre-contractual negotiations, he submitted the weight of authority favours the view that pre- contractual negotiations are admissible if they provide objective evidence of the meaning to be attributed to the contract. In support of that submission Mr Tyson cited Burrows, Finn and Todd and the judgment of Tipping J in Vector Gas Ltd v Bay of
Plenty Energy Ltd.8 Mr Tyson cited many instances of courts correcting the contractual text by using language quite different from that used by the parties.9
[60] Mr Tyson argued that the fact a term is defined in the contract is a factor in its construction but not a decisive factor. Starlight Shipping Co v Allianz Marine and Aviation was said to illustrate the point. There, the contract defined “underwriters” as meaning only the corporate entities themselves but the Court interpreted the term as encompassing servants and agents of the underwriters: “[o]bjectively, that literal construction cannot be what the parties intended and must yield to business common sense”.10
Assessment
[61] I have shorn my judgment of its original analysis of the law governing the admissibility of pre-contract communications and negotiations. I have done so because it is significant, if not determinative, that the plaintiffs effectively concede the parties’ common intention, accord and agreement at settlement that the 20 per cent adjustment applied only to the land on which the Courthouse was situated.
[62] That being the case, it seems to me that I would pointlessly extend the length of this judgment were I to include a detailed analysis of the cases and the position (as it seems to me) now reached in relation to the admissibility of pre-contract negotiations.
[63] Before moving on however, I note the trend in New Zealand favouring Tipping J’s approach in Vector Gas.11 His Honour distinguished between prior negotiations encompassing “all conduct and circumstances associated with negotiations towards the formation of a contract” and evidence showing “objectively the meaning the parties intended their words to convey”:12
8 Burrows, Finn and Todd, Law of Contract in New Zealand (6th ed, LexisNexis, Wellington 2018) at 191; Vector Gas Ltd v Bay of Plenty Energy Ltd [2010] NZSC 5, [2010] 2 NZLR 444, at [29].
9 For example, Chartbrook Ltd v Persimmon Homes Ltd [2009] UKHL 38, [2009] 1 AC 1101; Mannai Investment Co Ltd v Eagle Star Life Assurance Co Ltd [1997] AC 749; and Investors Compensation Scheme Ltd v West Bromwich Building Society [1998] 1 WLR 896 (HL).
10 Starlight Shipping Co v Allianz Marine and Aviation [2014] EWHC 3068 at [51].
11 Vector Gas Ltd v Bay of Plenty Energy Ltd, above n 8.
12 Vector Gas Ltd v Bay of Plenty Energy Ltd, above n 8, at [27].
[27] … Such evidence includes the circumstances in which the contract was entered into, and any objectively apparent consensus as to meaning operating between the parties.
…
[29] There is no problem with objective evidence directed to the context, factual or linguistic in which the negotiations were taking place.
[64] Blanchard J was prepared to put “oneself in the position of the parties” in the circumstance in which they were negotiating.13 His Honour went on to state:14
… The traditional view has been that it is impermissible to have regard to negotiations when interpreting a contract. The House of Lords has recently confirmed that view in Chartbrook and it continues to hold sway in Australia. It is not, however, an absolute rule of exception. It has no application when the negotiations are considered “not in order to provide a gloss on the terms of the contract, but rather to establish the parties’ knowledge of the circumstances with reference to which they used the words in the contract”.
[65] I note that more recently in Bathurst Resources Ltd v L&M Coal Holdings the Court of Appeal’s exposition of contract interpretation principles signalled that even had pre-contract evidence existed it would not have been admitted.15 Professor David McLauchlan subsequently wrote:16
[T]he judgment of the Court proceeds on the basis that the exclusion of evidence of prior negotiations and so-called “common subjective intention” is axiomatic and, surprisingly, it contains no reference to the contrary views expressed by Tipping and Wilson JJ in Vector Gas ...
[66] Rather, the Court outlined the modern contextual approach to contractual interpretation from Firm P I Ltd (in which the issue of pre-contractual negotiations did not arise) before stating:17
Some leading commentators argue, vigorously, that a more liberal view as to the reception of common subjective intent should be taken — both in the ultimate question addressed by the Court and in the evidence it receives in answering that question.18 But that view over-expands the role of interpretation…
13 At [7].
14 At [13] (footnotes omitted).
15 Bathurst Resources Ltd v L&M Coal Holdings Ltd [2020] NZCA 113.
16 David McLauchlan “A new conservatism in contract interpretation?” [2020] NZLJ 273 at 274.
17 Bathurst Resources Ltd v L&M Coal Holdings Ltd, above n 15, at [36].
18 For instance, David McLauchlan “Contract Interpretation: What is it about?” (2009) 31 Syd L Rev 5.
[67] In saying this, the Court appeared to equate allowing evidence of pre- contractual negotiations with adopting a subjective approach to contractual interpretation — or at least being inconsistent with the objective approach. The Court said the objectivity principle “immediately swerves away” from inquiring into the common subjective state of mind of the contracting parties.19
[68] Receiving evidence of a “common subjective intention” is not necessarily inconsistent with an objective approach. As Professor McLauchlan writes:20
… no-one has suggested that each party to an interpretation dispute should be able to go into the witness box and, with the benefit of hindsight, simply say: “the interpretation I now contend is what I intended to agree to”. The position is entirely different, however, where there is reliable evidence of conduct or communications between the parties which supports a conclusion that, at the time of the contract, the parties had agreed or formed a common understanding as to the meaning of the words in dispute.
[69] As Professor McLauchlan states, the task of a court when resolving an interpretation dispute must be to give effect to what the parties actually intended the words to mean.21 Where it is clearly demonstrated that the parties reached an agreed understanding about what a particular provision in the contract required, there is no sound justification for not giving effect to the intended meaning as a matter of interpretation.22
[70] Sir Andrew Tipping has also recently (re)entered the debate.23 Sir Andrew notes that while inadmissibility of negotiations remains the position in England, the situation in New Zealand is not as clear cut and awaits a definitive ruling from the Supreme Court.24 Despite this uncertainty, Sir Andrew states that:25
When there is objective evidence, such as an exchange of correspondence, showing as a fact that the parties have actually agreed on the meaning of a word or phrase, it seems rather perverse to be concerned with what they appear to have meant. It is the reality we should be looking for, not what may appear to be the reality. The same applies if the evidence falls short of showing an
19 Bathurst Resources Ltd v L&M Coal Holdings Ltd, above n 15, at [35].
20 David McLauchlan “A new conservatism in contract interpretation?”, above n 16, at 275.
21 David McLauchlan “Contract Interpretation: What Is It About?”, above n 18, at 50.
22 David McLauchlan “A new conservatism in contract interpretation?”, above n 16, at 336.
23 Rt Hon Sir Andrew Tipping “The subjective and objective dimensions of contract interpretation” (2020) NZLJ 338.
24 At 389.
25 At 390.
agreement about meaning but objectively suggests what the parties probably intended as their meaning.
[71] Evidence derived from pre-contract communications should therefore be admissible when relevant. Sir Andrew continued:26
To be relevant the evidence must concern objective facts or circumstances apparent from the communications that tend to prove with what intention the parties were using the language in question. The inquiry is thus to discover, by objective means, the meaning actually intended by the parties. This combination of the subjective and the objective is our best way forward.
[72] Sir Andrew offers a compelling policy justification for considering evidence of pre-contractual negotiations:27
All that is happening is that the pool of evidence available to the third-party interpreter is increased. The court, through the third party, still takes an objective approach; subjective evidence of intention is still inadmissible. Judges are well able to exclude inadmissible subjective evidence contained in pre-contract communications.
[73] Were the outcome to rest solely on the interpretation of the contract I would have concluded that the objective evidence showed a common intention and an agreement between the parties to apply the Ministry of Education approach, that is, a 20 per cent deduction in the market value, to a single property, the New Plymouth Courthouse, and that the relevant provisions in the settlement deed are to be interpreted accordingly.
[74] As the position in New Zealand is not clear cut, and a definitive ruling as to the admissibility of pre-contract conduct is awaited from the Supreme Court, it is not fruitful to determine the plaintiffs’ case solely on the basis of the parties’ respective approaches to interpretation of the settlement deed. Nor, therefore, is it necessary to address the Crown’s estoppel argument beyond noting the following definition of estoppel by convention which, in Vector Gas, McGrath J set out from a leading text:28
When the parties have so acted in their relationship upon the agreed assumption that the given state of facts or law is to be accepted between them as true, that it would be unfair on one for the other to resile from the agreed
26 At 390.
27 At 391.
28 Vector Gas v Bay of Plenty Energy Ltd, above n 8, at [67] citing Feltham, Hochberg, and Leech,
Spencer Bower: Estoppel by Representation (4th ed, 2004), p 180.
assumption, then he will be entitled to relief against the other according to whether the estoppel is as to a matter of fact, or promissory, and/or proprietary.
[75] Citing the judgment of Tipping J in National Westminster Finance New Zealand Ltd v National Bank of New Zealand Ltd, McGrath J said that “mutual assent or a common assumption as to the relevant fact” is the essence and distinguishing characteristic of estoppel by convention:29
… both parties are thinking the same; they both know that the other is thinking the same and each expressly or implicitly agrees that the basis of their thinking shall be the basis of the contract.
Rectification
[76]The Crown counterclaims and seeks rectification.
[77] Mr Fowler accepted a mistake in a contract may be corrected by interpretation but this case involves a solemn Treaty settlement, resulting in a settlement deed “reinforced” in legislation. Citing Lord Hoffmann in I.C.S v West Bromwich B.S. to the effect that one does not “easily accept that people have made linguistic mistakes, particularly in formal documents”, Mr Fowler submitted this Treaty settlement deed is “as formal as it gets”.30
[78] I did not take Mr Fowler to resist the proposition that the ultimate objective in a contract interpretation dispute is to establish the meaning the parties intended their words to bear.31
[79] While acknowledging the House of Lords’ disinclination to accept linguistic mistakes that have been made in formal documents, in Chartbrook Ltd the House of Lords recognised that in a case where “something must have gone wrong with the language” “the law did not require the Court to attribute to the parties an intention which a reasonable person would not have understood them to have had”.32
29 At [68] citing National Westminster Finance New Zealand Ltd v National Bank of New Zealand Ltd partially reported at [1996] 1 NZLR 548.
30 Investors Compensation Scheme Ltd v West Bromwich Building Society, above n 9, at 912.
31 Vector Gas v Bay of Plenty Energy Ltd, above n 8, at [19].
32 Chartbrook Ltd v Persimmon Homes Ltd, above n 9, at [14].
[80] Where the parties have agreed a contractual arrangement but the arrangement is not recorded accurately to reflect the parties’ agreed terms, rectification will be ordered.33 As McGrath J put it:34
Rectification involves an assertion that there is a defect in the recording of the agreement, so that it has been expressed in terms that neither party intended.
[81] The principles governing rectification are commonly sourced to Swainland Builders Ltd v Freehold Properties Ltd.35 I note that the New Zealand Court of Appeal recently stated that at some point it will be necessary to consider whether rectification requires only a common intention that is objectively apparent or “whether an outward expression of accord is essential for rectification of a common mistake”.36
[82] I proceed on the basis of the several Court of Appeal decisions in which the Swainland principles have been applied.37 In Hanover Group Holdings Ltd the prerequisites for the grant of rectification were summarised:38
[30] … Oral evidence may be given to show that the recorded terms do not reflect the true agreement between the parties. In Chartbrook Ltd v Persimmon Homes Ltd Lord Hoffman approved the following passage from the judgment of Peter Gibson LJ in Swainland Buildings Ltd v Freehold Properties Ltd:
The party seeking rectification must show that:
(1)the parties had a common continuing intention, whether or not amounting to an agreement, in respect of a particular matter in the instrument to be rectified;
(2)there was an outward expression of accord;
(3)the intention continued at the time of the execution of the instrument sought to be rectified;
(4)by mistake, the instrument did not reflect the common intention. The burden is on the party seeking rectification to show that there was a common intention which was not properly recorded. Evidence of subsequent conduct is
33 Hanover Group Holdings Ltd v AIG Insurance New Zealand [2013] NZCA 442, (2013) 13 TCLR 702 at [30].
34 Vector Gas Ltd v Bay of Plenty Energy Ltd, above n 8, at [84].
35 Swainland Builders Ltd v Freehold Properties Ltd [2002] EWCA Civ 560 at [33].
36 Kaimai Properties Ltd v Queen Elizabeth the Second National Trust [2021] NZCA 10 at [56].
37 Davey v Baker [2016] NZCA 313, [2016] 3 NZLR 776 at [37]; and Hanover Group Holdings Ltd v AIG Insurance New Zealand Ltd [2013] NZCA 442, (2013) 13 TCLR 702 at [30].
38 Hanover Group Holdings Ltd v AIG Insurance New Zealand Ltd, above n 33, at [30] (footnotes omitted).
admissible to show that the recorded terms do not reflect the agreed terms
[83] In this case the plaintiffs accept that a 20 per cent adjustment to the 51 landbank properties in respect of which the Ministry of Justice was recorded as the landholding agency, did not feature in the settlement negotiations except in relation to the Courthouse. While the plaintiffs accept “the facts would be amenable to the application of the equitable doctrine”39 they raise two barriers to rectification:
(a)the “entire agreement” clause in the settlement deed; and
(b)the privative provision in s 15 of the Act.
“Entire agreement” clause
[84] Two schedules accompanied the settlement deed. The PRS (the property redress schedule) has been discussed at length. The second schedule was titled “General Matters”. Part 5 is headed “miscellaneous”. Clause 5.2 provides:
ENTIRE AGREEMENT
5.2This deed, and each of the settlement documents, in relation to the matters in it:
5.2.1constitutes the entire agreement; and
5.2.2supersedes all earlier representations, understandings, and agreements.
[85] Mr Fowler submitted the existence of the “entire agreement” clause together with the “entrenchment” of the settlement deed in legislation tells against rectification.
[86] In my view, the “entire agreement” clause in the General Matters schedule does not, of itself, operate as a bar to rectification. In Vector Gas the Court of Appeal considered a similar provision in a letter containing an offer that was accepted. The letter stated: “… For the avoidance of doubt the terms of the proposal are set out in full below …”.40
39 Refer above at [3].
40 Vector Gas, above n 8, at [54].
[87]McGrath J stated:41
The force of these criticisms of a general exclusionary rule is, however, lessened by the recent confirmation by the House of Lords that the rule does not exclude evidence of relevant background facts known to the parties. Nor does it exclude evidence that supports a claim for rectification or estoppel. Rectification and estoppels are seen as “legitimate safety devices” which mitigate against effects of rigid application of the rule and, in most cases, prevent it from causing injustice. Such evidence is not directed at proving terms additional to or differing from those in the written agreement. It is directed at proving that it would be unconscionable in the circumstances to allow a party to rely on those terms. The distinction remains valid even if, as in the present case, the agreement provides that the terms are set out “in full”.
(emphasis added)
[88] The short point is that the entire agreement clause, which travelled with the draft and which the parties did not negotiate or discuss,42 does not preclude the Court from ensuring the settlement deed reflects the parties’ common intention and agreement. As the High Court held in the English case of Milton Keynes BC v Viridor (Community Recycling MK) held:43
… where there is a strong case for rectification, the agreement which constitutes "the entire agreement" is to be found in the contract as rectified and not in the contract which, hypothesi, does not reflect the true intention or agreement of the parties. I consider that that is the position here. Thus the entire agreement clause is immaterial.
[89] Where an entire agreement clause may affect the Court’s consideration of what the parties intended, in this case the plaintiffs concede the common intention point. Even if they did not, the evidence shows objectively what the parties intended, and agreed. The evidence further shows their post-settlement conduct was consistent with their common intention.
Te Atiawa Claims Settlement Act 2016
[90]Section 15 of the Act provides:
15 Settlement of historical claims final
(1)The historical claims are settled.
41 At [73] (footnotes omitted).
42 Or, to be perfectly accurate, there is no evidence that the parties discussed the entire agreement clause.
43 Milton Keynes BC v Viridor (Community Recycling MK) [2017] EWHC 239 (TCC) at [78].
(2)The settlement of the historical claims is final, and, on and from the settlement date, the Crown is released and discharged from all obligations and liabilities in respect of those claims.
(3)Subsections (1) and (2) do not limit the deed of settlement.
(4)Despite any other enactment or rule of law, on and from the settlement date, no court, tribunal, or other judicial body has jurisdiction (including the jurisdiction to inquire or further inquire, or to make a finding or recommendation) in respect of—
(a)the historical claims; or
(b)the deed of settlement; or
(c)this Act; or
(d)the redress provided under the deed of settlement or this Act.
(5)Subsection (4) does not exclude the jurisdiction of a court, tribunal, or other judicial body in respect of the interpretation or implementation of the deed of settlement or this Act.
[91] Mr Fowler submitted that, by definition, rectification involves an inquiry as to whether or not the deed of settlement accurately records the terms of the contract and a finding that it does not. Rectification cannot be saved by the exceptions in s 15(5) because what is involved here is neither a matter of interpretation nor implementation. Accordingly, Mr Fowler submitted, a claim for rectification cannot succeed in the face of s 15(4).
[92] The first point to note is the consequence of the plaintiffs’ approach: any party to any future deed of settlement, would be bound to give effect to its terms even if the terms do not reflect the parties’ common intention. More fundamentally, the legislative intent behind s 15 is clear. The effect of s 15 and in particular subs (4), is to protect the finality of the settlement of Te Atiawa’s claims.
[93] I take support for that proposition from Port Nicholson Block Settlement Trust v Attorney-General where Williams J considered s 10 of the Taranaki Whānui Settlement Act 2009. Section 10 is in materially identical terms to s 15 of the Te Atiawa Claims Settlement Act. Williams J characterised subs (4) as a “boilerplate provision
to be found in most modern Treaty settlement deeds”.44 Williams J’s description of the overall intent of s 10 is equally applicable to s 15:
[44] The overall intent of s 10 when the five subsections are taken together, seems self-evidently to be to confirm the full and final settlement of Taranaki Whānui’s historical claims, to prevent any re-litigation of those claims, or any attempt to revisit the redress package provided in settlement of them. But the parties can still go to court in the event of dispute over what the Settlement Deed or Settlement Act mean, and whether their terms are being given proper effect.
[94] In this proceeding, Te Atiawa seeks implementation of the settlement deed. Te Atiawa’s proceeding does not seek to disturb the finality of the settlement of its historical claims. Further, subs (4) expressly preserves the jurisdiction of the Court to consider the issue of implementation underlying Te Atiawa’s statement of claim.
Decision
[95] The Crown says it has at all times acted in good faith. Mr Tyson submitted that as soon as the ambiguity in the settlement deed was identified the Crown communicated to Te Atiawa its position, met with Te Atiawa and provided a detailed explanation of how the drafting unfolded. When Te Atiawa declined to interpret the deed in accordance with the negotiated settlement the Crown agreed to Te Atiawa continuing to purchase properties on a without prejudice basis.
[96] Mr Fowler was instructed to say that Te Atiawa was put in a very difficult position. Confronted with an entitlement on the face of the settlement deed, the trustees were obligated to extract the entitlement.
[97] In terms of weighing the competing equities,45 I am satisfied they lie in favour of granting rectification. Te Atiawa has suffered no loss. Nor is there any evidence that Te Atiawa noticed or relied upon the mistake. As I have set out at [48]–[53] above, Te Atiawa notified its interest in purchasing, and proceeded to purchase, properties in accordance with the parties’ common intention and their understanding that the settlement deed accurately reflected their intention.
44 Port Nicholson Block Settlement Trust v Attorney-General [2012] NZHC 3181.
45 Robb v James [2014] NZCA 42 at [21].
[98]The Crown on the other hand would incur financial cost of almost $10 million.
[99] The Crown has met the burden on it to show there was a common intention that was not properly recorded. The Crown has established that the PRS, by mistake, does not in certain respects accurately represent the agreement reached between the parties. Due to this mistake, cls 4.15, 4.16 and Part 4 Appendix 1 (“Valuation instructions”) of the PRS incorrectly reflect an agreement that all of the deferred selection properties held by the Ministry of Justice identified in the PRS could be acquired by the plaintiffs at market value less 20 per cent when the agreement was that the 20 per cent adjustment was to apply only to the Courthouse.
Result
[100] The Crown’s application to rectify the settlement deed by amending the definition of “Ministry of Justice property” in Part 7 of the PRS by adding “(Courts)”, is granted. Accordingly, I order that the definition of “Ministry of Justice property” cl 7.2 of the PRS is replaced with the following definition:
Ministry of Justice property means a deferred selection property in respect of which the landholding agency is the Ministry of Justice (Courts).
[101] The Crown seeks a declaration that the plaintiffs have acquired the properties listed in [7] of their statement of claim at the correct price in accordance with the agreement reached between the parties and recorded in the rectified settlement deed. A declaration in those terms is made.
[102] There can be no doubt that the settlement deed, as rectified, reflects the parties intentions and agreements at settlement. But I also acknowledge Te Atiawa’s frustration at getting to the point of execution after years of negotiation. As did Mr Sundgren, Ms Poutu gave evidence and spoke of the settlement process as “a long, fraught and bitter journey crossing decades and generations”.
[103] While the Crown has succeeded in its counterclaim, in all the circumstances I consider that costs should lie where they fall.
Karen Clark J
Solicitors:
Kahui Legal, Wellington for Plaintiffs
Crown Law Office, Wellington for Defendant
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