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Moncrieff Pastoral Limited v Sim [2006] NZCA 277 (28 September 2006)

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Moncrieff Pastoral Limited v Sim [2006] NZCA 277 (28 September 2006)

Last Updated: 4 October 2006

IN THE COURT OF APPEAL OF NEW ZEALAND

CA79/05

BETWEEN MONCRIEFF PASTORAL LIMITED
Appellant

AND SHIRLEEN SHIA LING SIM
Respondent

Hearing: 25 May 2006

Court: O'Regan, Arnold and Ellen France JJ

Counsel: P J Reardon for Appellant
D Singh for Respondent

Judgment: 28 September 2006 at 2.15 pm

JUDGMENT OF THE COURT

A The appeal is dismissed.
B The appellant must pay the respondent costs of $3000, plus usual disbursements.

____________________________________________________________________

REASONS OF THE COURT

(Given by Arnold J)

Introduction

[1] This is an appeal from a decision of Associate Judge Sargisson refusing the appellant’s application for summary judgment.

Background

[2] The appellant, Moncrieff Pastoral Limited, is a dairy farming company owned by Mr and Mrs Tremewan. Early in 2002, Moncrieff acquired a 202 hectare property for conversion to a dairy farm. After undertaking some activity on the property, Moncrieff decided to put it on the market. Moncrieff listed the property with a real estate firm. Mr Hunter Doig was the agent responsible for marketing the property.
[3] The property went to auction in June 2002. It was passed in. Moncrieff therefore decided to retain the property and use it for dairying. To facilitate that, Moncrieff decided to drill for water.
[4] On 17 March 2003, Mr Doig received a telephone call from Mr Augustine Lau, the husband of the respondent, Ms Sim. Mr Lau asked Mr Doig whether the property was still available for sale and indicated that he was interested in purchasing it. Mr Doig provided Mr Lau with the legal description of the property and sent him a copy of the standard agreement for sale and purchase by facsimile.
[5] Later that same day, Mr Lau prepared an offer on the property and sent it by facsimile to Mr Doig. The offer identified Ms Sim as the purchaser. The price offered was $2.48 million, and the offer contained the following clause, handwritten by Mr Lau:

The purchaser has the right to investigate the property with the professional team, ie surveyor, well driller etc for further development with two working days notice to the vendor after this agreement goes unconditional.

[6] Later that same day, Mr Doig advised Mr Lau that Moncrieff had made a counter-offer at $2.8 million. He advised Mr Lau that Mr Tremewan had said that Moncrieff had spent $260,000 on drilling three wells on the property. The counter offer incorporated the clause drafted by Mr Lau concerning further investigation (clause 18) and a new clause, clause 20, which provided:

IRRIGATION WELLS
The vendor has established three 12" wells (70/200 metres) static water level approximately 20 metres, and guarantees production of at least 800 gallons per minute, as at 1^st November 2003.

[7] After further discussion between Mr Doig and Mr Lau the purchase price was increased to $2.9 million, to reflect the fact that, although the counter-offer provided for settlement 18 months later on 22 September 2004, Mr Lau wanted full access to, and use of, the property from 1 September 2003.
[8] On 18 March 2003, an agreement for sale and purchase of the property was concluded between Moncrieff and Ms Sim. The agreement contained clauses 18 and 20 (referred to at [5] and [6] above) and clause 21 which gave effect to the parties’ agreement that Ms Sim would have access to and use of the property from 1 September 2003.
[9] At the time of the agreement, Moncrieff’s well drilling activities were still in progress. Mr Burgess, a director of the company which undertook the well drilling, gave affidavit evidence that three wells were drilled. The first well was drilled on 7 December 2002 and completed on 18 February 2003. The second well was drilled on 25 February 2003 and was completed on 28 February 2003. The third well was drilled on 4 March 2003 and was completed on 28 March 2003.
[10] Accordingly, at the date of the agreement (18 March 2003), the third well had yet to be completed. The second well had been classified as "dry" as it was not capable of producing at the level sought by Moncrieff. Subsequent testing has shown, however, that it has a productive capacity of 54 gallons per minute. The first well produced 470 gallons per minute when it was tested on 18 February 2003 and the third well 349 gallons per minute when it was tested on 28 March 2003.
[11] Over the two days on which the agreement was negotiated, there were discussions between Mr Doig and Mr Lau about the availability of water on the property. Mr Doig says that he told Mr Lau about Moncrieff’s well drilling activities, and their cost, and advised him that the wells were still being evaluated for their productive capacity. The question of water rights for use of the water, on an ongoing basis, was not discussed.
[12] For his part, Mr Lau accepted that there was no explicit discussion of ongoing water rights, but said that he made it plain to Mr Doig that he was buying the property on behalf of overseas investors and that water was necessary for any of the developments which they had in mind (the options were dairying, viticulture or subdivision). Mr Lau said that Mr Doig assured him that there was water available on the property for use. He also said that Mr Doig assured him that the three wells were spread out over the property to, as Mr Lau put it, "enable each of the wells to service approximately one third of the property".
[13] Although Ms Sim was entitled by virtue of clause 18 of the agreement to conduct further investigations on the property for the purpose of development, no such investigations were undertaken prior to settlement. Further, although Ms Sim was entitled to have full use of the property from 1 September 2003, she did not make use of it but rather leased it back to Moncrieff. Finally, Ms Sim took no steps in late 2003 or early 2004 to check whether Moncrieff had complied with clause 20 of the agreement.
[14] In the event, Ms Sim did not settle in terms of the agreement. In early April 2004 Ms Sim’s solicitors contacted Moncrieff’s solicitors suggesting, initially, that Ms Sim pay $2 million on the settlement date, with Moncrieff taking a mortgage for the remainder of the purchase price. Later they suggested that settlement be deferred for one year and that Moncrieff continue to lease the property in the meantime. The reason given for these suggestions was that fluctuations in the exchange rate were causing difficulties for the overseas investors.
[15] Despite these suggestions, by letter dated 29 July 2004 Ms Sim’s solicitors wrote to Moncrieff’s solicitors in terms indicating that settlement would go ahead in accordance with the agreement.
[16] It appears from the material before the Court that Ms Sim’s solicitors had some discussion with Environment Canterbury on the question of water rights for the property in late August 2004. In particular, it appears that they sought advice on the question of whether the consents for the drilling of the three wells automatically conferred a right to draw water. A negative response must have been received because, in early September 2004, Ms Sim’s solicitors raised the question of water rights with Moncrieff’s solicitors, and said that the right to take water for the purposes of irrigation was "vital and fundamental to concluding the agreement". In a facsimile of 8 September 2004 Ms Sim’s solicitors said:

... our client is clear that the intention of clause 20 is to provide that right; merely having the assurance of productive capacity without a right to take water is of little value to our client taking into account our client’s intended use of the land.

[17] Ms Sim’s solicitors also asked for details of the "dry" well. There was then further correspondence between the parties. That resolved nothing, however, and settlement did not proceed.

Application for summary judgment

[18] Accordingly, on 27 September 2004, Moncrieff issued proceedings against Ms Sim for:
(a) a declaration that Ms Sim was in breach of the agreement;
(b) an order for specific performance of the agreement;

(c) an order that Ms Sim pay the sum of 12% per annum on the balance of the purchase price from 22 September 2004 until settlement was completed;
(d) as an alternative to specific performance, an order that Ms Sim pay damages for breach of contract and that a fixture be allocated to quantify the damages;

(e) costs.
[19] This was accompanied by an application for summary judgment.
[20] By the time that the matter came on for hearing before Associate Judge Sargisson on 24 March 2005, Moncrieff had advised Ms Sim that it elected to cancel the agreement and put the property up for sale again. It maintained its claim for damages against Ms Sim, however. On 4 February 2005 Ms Sim had also purported to cancel the agreement, on the ground that Moncrieff had failed to comply with clause 20, which she characterised as an "essential term".
[21] The application for summary judgment was opposed. The grounds of opposition were that:

(a) Ms Sim was not personally liable under the agreement as she signed as an agent only for overseas investors;
(b) Ms Sim was not in breach of the agreement being ready, willing and able to settle if the disputed conditions of the agreement were satisfied, namely that Moncrieff provided the wells and water rights as guaranteed under the agreement;
(c) an order for specific performance should not be granted as Ms Sim believed she was deceived/misled into signing the agreement by Moncrieff "falsely guaranteeing the use and availability of water for the property agreed to be sold";
(d) in the alternative, Ms Sim was mistaken "about the meaning of an essential term of the contract being the meaning of the guarantee relating to water rights and production in clause 20 of the agreement";

(e) to order specific performance would be unfair and oppressive;

(f) damages should not be ordered on the grounds previously noted, or alternatively they should be limited as a result of:

(i) "deceit/misleading conduct" by Moncrieff;
(ii) a mistake as to what was contracted for by Ms Sim.

The Associate Judge’s decision

[22] In her judgment of 28 April 2005 the Associate Judge noted that there was a dispute about the meaning of clause 20 of the agreement. She determined, however, that it was unnecessary for her to resolve that issue. The question for her, she said, was whether Ms Sim had a reasonably arguable defence to Moncrieff’s claim. The Associate Judge said that she would proceed on the assumption that Moncrieff’s interpretation of clause 20 was correct.
[23] The Associate Judge held that Ms Sim had made a tenable case that there was an actionable misrepresentation in terms of the Contractual Remedies Act 1979 and had raised the possibility of a breach of the Fair Trading Act 1986. The Associate Judge said:

[32] For the following reasons, I accept that the defendant has advanced a tenable basis for a misrepresentation:

(a) The misrepresentation concerns a matter of present fact, namely, the availability of water rights around the time of the agreement;
(b) Mr Lau has deposed as to Mr Doig’s assurance that water was available but his failure to disclose that a resource consent was required. Arguably, these circumstances may constitute a material distortion as to the availability of water;
(c) The alleged misrepresentation was made by Mr Doig as the defendant’s agent, to Mr Lau (who had been conducting the negotiations) as husband of Ms Sim, the purchaser;
(d) Given the materiality of the availability of water to Mr Lau and the fact that he insisted on the inclusion of a contractual guarantee, it is at least arguable that the alleged misrepresentation induced entry into the contract; and
(e) While the available evidence perhaps does not disclose an actual intention to adduce, constructive intention to induce can only be determined after trial when all relevant facts are available. For this reason, I am not prepared to predetermine here whether constructive intention to induce can be established.
[24] The Associate Judge was also satisfied that Ms Sim had a tenable defence based on a unilateral mistake in terms of s 6 of the Contractual Mistakes Act 1977. The Associate Judge identified the relevant mistake at [36] as "one of present fact on the part of Mr Lau (and hence Ms Sim) as to the availability of water for abstraction, and the absence of any legal impediment to doing so".
[25] Finally, the Associate Judge accepted that Ms Sim may have a right of set-off against Moncrieff, on the basis that Moncrieff had not met its obligations under clause 20 to establish three wells producing at least 800 gallons per minute as at 1 November 2003.
[26] The Associate Judge did, however, reject the agency defence raised by Ms Sim as untenable.
[27] The application for summary judgment was accordingly declined. Costs were reserved pending the outcome of the trial.
[28] On this appeal Moncrieff seeks summary judgment on liability and an order that the matter be remitted to the High Court on the issue of damages.

Approach to summary judgment

[29] McGrath J delivering the judgment of this Court in Jowada Holdings Ltd v Cullen Investments Ltd CA248/02 5 June 2003 summarised at [28] what a plaintiff must show to succeed in a summary judgment application in the following terms:

[28] In order to obtain summary judgment under Rule 136 of the High Court Rules a plaintiff must satisfy the Court that the defendant has no defence to its claim. In essence, the Court must be persuaded that on the material before the Court the plaintiff has established the necessary facts and legal basis for its claim and that there is no reasonably arguable defence available to the defendant. Once the plaintiff has established a prima facie case, if the defence raises questions of fact, on which the Court’s decision may turn, summary judgment will usually be inappropriate. That is particularly so if resolution of such matters depends on the assessment by the Court of credibility or reliability of witnesses. On the other hand, where despite the differences on certain factual matters lack of a tenable defence is plain on the material before the Court, to the extent the Court is sure on the point, summary judgment will in general be entered. That will be the case even if legal arguments must be ruled on to reach the decision. Once the Court has been satisfied there is no defence Rule 136 confers a discretion to refuse summary judgment. The general purpose of the Rules however is the just, speedy and unexpensive determination of proceedings, and if there are no circumstances suggesting summary judgment might cause injustice, the application will invariably be granted. All these principles emerge from well known decisions of the Court including Pemberton v Chappell [1987] NZLR 1, 3-4, 5; National Bank of New Zealand Ltd v Loomes (1989) 2 PRNZ 211, 214; and Sudfeldt v UDC Finance Ltd [1987] NZCA 138; (1987) 1 PRNZ 205, 209.

[30] A Court determining a summary judgment application is not bound to accept uncritically every assertion made in a defendant’s affidavit. This Court has previously adopted the words of Lord Diplock in Eng Mee Yong v Letchumanan [1980] AC 331 at 341 (PC):

Although in the normal way it is not appropriate for a Judge to attempt to resolve conflicts of evidence on affidavit, that does not mean that he is bound to accept uncritically, as raising a disputed fact which calls for further investigation, every statement on an affidavit however equivocal, lacking in precision, inconsistent with undisputed contemporary documents or other statements by the same deponent, or inherently improbable in itself it may be.

The meaning of clause 20

[31] The application for summary judgment in the present case raised the question of the meaning of clause 20 of the agreement for sale and purchase. The Associate Judge did not find it necessary to address the dispute as to the meaning of that clause. Rather, she assumed that Moncrieff’s interpretation was correct, and went on to determine whether Ms Sim had any tenable defence.
[32] For our part, we think it necessary to address the dispute as to the meaning of clause 20. In our view, that consideration may be relevant to the availability of defences.
[33] The approach to be taken to the interpretation of contractual language was set out by Lord Hoffman in Investors Compensation Scheme Ltd v West Bromwich Building Society [1998] 1 All ER 98 at 114-115 in a passage containing five propositions. This passage was adopted by this Court in Boat Park Ltd v Hutchinson [1999] 2 NZLR 74, at 81-2, and has been quoted in numerous other judgments. We need not repeat it here.
[34] At various points in his evidence Mr Lau set out his understanding of the meaning of clause 20 and deposed that he would never have allowed his wife to enter into the agreement had he not had that understanding. Similarly Mr Tremewan set out his (different) understanding of the meaning of clause 20. As Lord Hoffman noted in the third of his five propositions in Investors Compensation Scheme, in determining the meaning of a contract "the law excludes from the admissible background the previous negotiations of the parties and their declarations of subjective intent."
[35] As is apparent from Ms Sim’s notice of opposition to the application for summary judgment, there are two areas of dispute as to the meaning of clause 20:

(a) Does the clause simply guarantee the productive capacity of the wells at the specified date (as Moncrieff contends) or does it also guarantee a right to use water at the specified level for development purposes (as Ms Sim contends)?
(b) Must all three wells contribute to the guaranteed level of production (as Ms Sim contends) or is it sufficient that only one or two wells contribute (as Moncrieff contends)?

We address each question in turn.

Does clause 20 guarantee simply productive capacity?

[36] Approaching the first issue on the basis of the principles summarised by Lord Hoffman, we consider that the meaning of clause 20 contended for by Moncrieff is the only tenable meaning for the clause, namely, that it simply guaranteed a particular productive capacity from three wells at a particular point in time. It did not guarantee a right to use water from the wells at the specified level on an ongoing basis for some future development on the land. We draw this conclusion essentially for three reasons.
[37] First, the wording of the clause refers to productive capacity at a particular point in time. The language does not readily lend itself to an interpretation that the clause guarantees a right to use water at the specified rate for an unlimited period and for an unspecified purpose.
[38] Second, part of the background against which the clause must be interpreted is the regulatory regime governing the use of the land, principally the Resource Management Act 1991. Under that regime, a resource consent was needed for the drilling of the wells and a further resource consent was needed for the ongoing use of water (above any amount permitted as of right under the relevant regional plan). That resource consent would have addressed the volume of water that could be taken on a daily or weekly basis and the rate at which it could be taken. Plainly this would be relevant to development possibilities. The general requirements of the Resource Management Act as they impact on rural land intended to be developed for dairying, viticulture or similar purposes are, in terms of Lord Hoffman’s second principle, "reasonably available to the parties" and influence the way in which the language of clause 20 would be understood by a reasonable person.
[39] It may be implicit in a particular contractual provision that particular resource consents have been obtained. For example, in the present case Moncrieff’s obligations under clause 20 could only be fulfilled if Moncrieff had the resource consent(s) necessary to drill and test the three wells. It is implicit in clause 20 that the appellant either had or would obtain those consents. We also accept that a vendor might undertake contractually that it has or will obtain the resource consent(s) necessary to permit a particular form of development, for example, dairying. But there is nothing in the language of clause 20, or in any of the relevant background, to indicate that that is the case here.
[40] Third, Mr Lau said that he advised Mr Doig that his overseas investors had in mind developing the land for dairying, for viticulture or for subdivision. He deposes that he understood that clause 20 provided him with a guarantee of the ongoing use of water for development purposes. But any resource consent authorising extraction of water on an ongoing basis would necessarily have related to a specific use, and Mr Lau and his investors were not committed to a specific use as at the date of the agreement.
[41] In an effort to overcome this difficulty counsel for Ms Sim, Mr Singh, argued that clause 20 meant that consents were in place enabling the use of water from the wells for dairying, given that dairying was the purpose for which Moncrieff proposed to use the land.
[42] That approach is untenable. We consider that the meaning of clause 20 is clear in this respect. It simply guaranteed that the wells would produce a specified water flow at a particular date. It said nothing about the ongoing use of that water at the specified (or at any other) rate.

Must all three wells contribute to the guaranteed level of production?

[43] The other issue concerning the meaning of clause 20 is whether it required that all three wells contribute to the guaranteed level of production or whether that level of production could come from one or two wells only. Mr Singh argued that the clause means that all three wells must be "wet" and contribute to the guaranteed level of production.
[44] On that issue we think that Mr Singh is correct. The clause says that the vendor has "established" three wells at depths between a specified range, and identifies a static water level of approximately 20 metres (a static water level is the level of water in the well when the pump is not operating). The word "establish" means to set up on a permanent basis. This quality of permanence is not conveyed by "drill", another verb that could have been used. "Drill" refers to the activity of boring a hole in the ground. It implies nothing about whether the hole will produce water. By contrast, "establishing a well" implies permanence, which in turn implies that the well is capable of producing water over the long term. We consider that the use of the word "establish", and the fact that the reference to static water level is unqualified (ie it applies to all three wells), indicate that clause 20 contemplated that all three wells would be operational (ie would be "wet").
[45] The clause does not indicate, however, what the level of contribution from each well must be. In this case, all three wells did produce, although well 2 produced at a significantly lower level than wells 1 and 3. Whether there was a breach of clause 20 in this respect is a matter on which we express no opinion at this stage.

Misrepresentation

[46] Although the position is not as clear from the court documents as it should be, it appears that Ms Sim argues that there were two misrepresentations, one going to the availability of water for ongoing use, and one going to whether all three wells would contribute to the volume of water to be produced. We deal with each in turn.

Alleged misrepresentation as to availability of water for ongoing use

[47] Ms Sim has not filed a statement of defence. However, in her notice of opposition she alleges that Moncrieff falsely guaranteed "the use and availability of water for the property". That allegation is supported by Mr Lau’s affidavit evidence. He states that Mr Doig told him told that there was water available on the property, and that Mr Doig knew that the water was required for development purposes. Counsel for Ms Sim argued that, as Mr Doig had made no mention of the need to obtain a water right to enable water to be used for whatever development Ms Sim finally chose for the property, there was misrepresentation by silence, as in Thompson v Vincent [2001] 3 NZLR 355 (CA).
[48] Counsel for Moncrieff argued that "available" in this context meant "physically present and accessible" via the wells and not "legally accessible". He relied on the decision of Potter J in Ladstone Holdings Ltd v Leonora Holdings Ltd HC AK CP308/SD00 Potter J 17 May 2004. On this basis, he said, there was no misrepresentation. He argued that Moncrieff was not under any obligation to advise Ms Sim of the steps that she would have to take to develop the property. He also argued that if there was a misrepresentation it merged with clause 20.
[49] We deal first with Moncrieff’s submission on merger. The Associate Judge considered that the fact that a matter was the subject of a contractual provision did not necessarily mean that it could not also be the subject of a pre-contractual misrepresentation. We agree. It is true that at common law the doctrine of merger applied where a representation inducing a contract was later embodied in a provision in a written agreement. In that case the representation was merged into the express contractual term and only that term could be relied upon in a subsequent claim.
[50] However, the common law position has less relevance now as s 6 of the Contractual Remedies Act 1979 treats a pre-contractual misrepresentation as if it were a term of the contract. Furthermore, a pre-contractual representation may be broader in scope than a written term ultimately incorporated into an agreement. The existence of the term in the written agreement will not necessarily mean that the oral misrepresentation is no longer actionable. That will depend upon the circumstances. The existence of the specific contractual term may mean that there could not, reasonably, have been reliance on the misrepresentation. But in other circumstances that outcome may not follow.
[51] As Thompson v Vincent shows, misrepresentation by silence can arise in relation to contracts for sale and purchase. But those cases will be relatively unusual. Generally, "buyer beware" will apply. In the absence of special circumstances, Moncrieff was not obliged to advise Ms Sim of the steps that she had to take under the Resource Management Act to develop the property. We consider it unlikely that any such circumstances existed in this case.
[52] Mr Lau deposes that he would never have allowed Ms Sim to enter into the agreement without a guarantee that there was water available for (ongoing) use, and that his Chinese investors refused to settle because there were no water rights. There are strong reasons to doubt this evidence.
[53] First, the agreement was negotiated over a very short time frame. Mr Lau made a substantial offer for the property on the basis that the purchaser would undertake water exploration activities (clause 18), ie, Mr Lau made the offer without any knowledge of whether there was water on the property. The price offered was increased by approximately 10%, following discussions between Mr Lau and Mr Doig, to compensate Moncrieff for the drilling activities that it was carrying out at the time. It is understandable that a guarantee of productive capacity would be given in such circumstances. It is much less likely that any representation would have been made that any water produced could be used for whatever development was ultimately pursued.
[54] Second, the dealings between the parties before settlement cast some doubt on Mr Lau’s version of events. It is clear from the correspondence between the parties that prior to settlement Ms Sim was concerned about her ability to settle, and was looking to Moncrieff for some form of accommodation. It was very late in the piece that the issue of water rights came up.
[55] Neither of these factors enable us to conclude, however, that Ms Sim has no tenable argument on this point. Accordingly we turn to a third factor.
[56] Mr Lau says repeatedly that his understanding of clause 20 was that it guaranteed both production of a specified volume of water, and the availability of that volume of water for the uses his investors had in mind for the property. He says that he regarded clause 20 as accurately reflecting the representations made to him.
[57] Ms Sim’s solicitors had a similar view of the effect of clause 20. In a facsimile dated 1 September 2004 to Moncrieff’s solicitors they said:

Further to your letter to us of 27 August 2004 in relation to the irrigation wells, we are given to understand that the drilling right does not automatically confer water rights i.e. the right to draw water which is quite obviously the intent and purpose of what clause 20 of the agreement was meant to achieve. As such please let us have evidence of the water rights having been granted before settlement.

[58] However, as we have said, the meaning of clause 20 is clear. The clause simply guarantees the productive capacity of the wells at a particular point in time – it says nothing about the ongoing use of water for any particular development. Mr Lau’s misunderstanding of the effect of clause 20 is strong evidence that he misunderstood the representations that were made to him as he saw the clause and the representations as being identical.
[59] Having considered the affidavit and documentary evidence, we think it most unlikely that any representation of the type alleged by Mr Lau was made, and we think it unlikely that Mr Doig committed misrepresentation by silence. Rather, our strong impression is that if Mr Lau misunderstood the position, he did so through his own error, and that the water rights issue was a convenient justification for Ms Sim’s refusal to settle.
[60] Despite that, however, we are not prepared to rule at this stage that Ms Sim has no tenable argument. In part, this is because we have concluded that the matter must go back to the High Court in any event. It is also because there is one allegation in this context that is not denied and which may provide some support for a misrepresentation argument. Mr Lau deposes that he told Mr Doig that he needed to use the water (for one of the developments his investors had in mind) by 1 November 2003. Mr Doig does not deny that Mr Lau said this. If that was said, it may provide some support for a misrepresentation by silence argument.

Alleged misrepresentation as to number of contributing wells

[61] Mr Lau deposed:

It will be noted that the agreement provided for three wells throughout the property and I had discussed this with the agent who assured me that the wells were roughly equal distances over the property spread out from each other to enable each of the wells to service approximately one third of the property. The reasons for this are obvious, in order to save on pumping equipment, piping and other associated costs. And to provide back up if there were problems with one of the wells. Therefore, it was an essential term of the contract that there were three wells capable of delivering at least 800 gallons per minute.

[62] It is not clear from the last sentence of this extract whether Mr Lau is saying that there was a representation that each of the three wells would, on its own, be capable of producing 800 gallons per minute, or whether he is saying that the representation was that the wells would contribute to the total in roughly equal proportions. The second interpretation is more likely, given the reference to each well servicing approximately one third of the property.
[63] The difficulty for the Court is that Mr Doig’s affidavit evidence does not address this aspect of Mr Lau’s evidence. Mr Lau’s evidence is, accordingly, uncontested.
[64] As we have said above, we consider that clause 20 does mean that all three wells must be capable of contributing to the 800 gallon total. On the evidence before us, all three wells were capable of contributing, although one of them at a very much lower level than the other two. However, in light of what Mr Lau deposes that he was told, we do not consider that we can resolve this issue - further evidence and submissions will be required. We cannot rule out the possibility that Mr Lau may be able to mount a claim against Moncrieff, on the basis that the wells did not perform as he was told they would.
[65] Accordingly, this matter will have to go back to the High Court for resolution at trial.

Unilateral mistake

[66] The Associate Judge considered that Ms Sim had a tenable defence based on unilateral mistake. As we have decided that this matter must go back to the High Court on the misrepresentation issues, we do not propose to express a concluded view on this aspect.
[67] We do make two observations, however. First, it is clear from the evidence that Mr Lau was mistaken as to the effect of clause 20. That mistaken understanding cannot form the basis of an application for relief on the ground of unilateral mistake (s 6(2)(a) of the Contractual Mistakes Act). The Associate Judge has characterised Mr Lau’s mistake as one of present fact (see [24] above). The risk of such a characterisation in this case is that it may disguise what appears to have been the operative mistake, namely the mistake as to the meaning of clause 20. Second, on the facts of this case it is unlikely that Ms Sim could establish that she was entitled to relief on the basis of unilateral mistake if she is not able to establish a misrepresentation as to the right to take water from the wells for on going use. Ultimately, however, these are matters for trial.

Conclusion

[68] We have concluded that:

(a) Clause 20 simply guarantees that the wells will produce the specified volume of water at the specified date. It does not guarantee a right to use water at the specified rate on an on going basis for dairying or any other development.
(b) Clause 20 requires that all three wells contribute to the specified volume of production. We make no finding as to whether or not this clause was breached.
(c) While we think it unlikely that there was any misrepresentation of the type alleged by Mr Lau as to water rights, we cannot properly, on the material before us, rule out the possibility that misrepresentation could be established.
(d) We cannot rule out the possibility of misrepresentation in relation to the positioning and comparative productive capacity of the wells given the unanswered allegation made by Mr Lau.
(e) Although we think it unlikely that Ms Sim could establish a basis for relief on the ground of unilateral mistake, we are not prepared to rule that possibility out at this stage.

Decision

[69] The appeal is dismissed. Moncrieff must pay Ms Sim costs of $3000 in this Court, plus usual disbursements.

Solicitors:
Cooper Rapley, Palmerston North for Appellant
Shean Singh, Auckland for Respondent

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[2]	The appellant, Moncrieff Pastoral Limited, is a dairy farming company owned by Mr and Mrs Tremewan. Early in 2002, Moncrieff acquired a 202 hectare property for conversion to a dairy farm. After undertaking some activity on the property, Moncrieff decided to put it on the market. Moncrieff listed the property with a real estate firm. Mr Hunter Doig was the agent responsible for marketing the property.
[3]	The property went to auction in June 2002. It was passed in. Moncrieff therefore decided to retain the property and use it for dairying. To facilitate that, Moncrieff decided to drill for water.
[4]	On 17 March 2003, Mr Doig received a telephone call from Mr Augustine Lau, the husband of the respondent, Ms Sim. Mr Lau asked Mr Doig whether the property was still available for sale and indicated that he was interested in purchasing it. Mr Doig provided Mr Lau with the legal description of the property and sent him a copy of the standard agreement for sale and purchase by facsimile.
[5]	Later that same day, Mr Lau prepared an offer on the property and sent it by facsimile to Mr Doig. The offer identified Ms Sim as the purchaser. The price offered was $2.48 million, and the offer contained the following clause, handwritten by Mr Lau:

[7]	After further discussion between Mr Doig and Mr Lau the purchase price was increased to $2.9 million, to reflect the fact that, although the counter-offer provided for settlement 18 months later on 22 September 2004, Mr Lau wanted full access to, and use of, the property from 1 September 2003.
[8]	On 18 March 2003, an agreement for sale and purchase of the property was concluded between Moncrieff and Ms Sim. The agreement contained clauses 18 and 20 (referred to at [5] and [6] above) and clause 21 which gave effect to the parties’ agreement that Ms Sim would have access to and use of the property from 1 September 2003.
[9]	At the time of the agreement, Moncrieff’s well drilling activities were still in progress. Mr Burgess, a director of the company which undertook the well drilling, gave affidavit evidence that three wells were drilled. The first well was drilled on 7 December 2002 and completed on 18 February 2003. The second well was drilled on 25 February 2003 and was completed on 28 February 2003. The third well was drilled on 4 March 2003 and was completed on 28 March 2003.
[10]	Accordingly, at the date of the agreement (18 March 2003), the third well had yet to be completed. The second well had been classified as "dry" as it was not capable of producing at the level sought by Moncrieff. Subsequent testing has shown, however, that it has a productive capacity of 54 gallons per minute. The first well produced 470 gallons per minute when it was tested on 18 February 2003 and the third well 349 gallons per minute when it was tested on 28 March 2003.
[11]	Over the two days on which the agreement was negotiated, there were discussions between Mr Doig and Mr Lau about the availability of water on the property. Mr Doig says that he told Mr Lau about Moncrieff’s well drilling activities, and their cost, and advised him that the wells were still being evaluated for their productive capacity. The question of water rights for use of the water, on an ongoing basis, was not discussed.
[12]	For his part, Mr Lau accepted that there was no explicit discussion of ongoing water rights, but said that he made it plain to Mr Doig that he was buying the property on behalf of overseas investors and that water was necessary for any of the developments which they had in mind (the options were dairying, viticulture or subdivision). Mr Lau said that Mr Doig assured him that there was water available on the property for use. He also said that Mr Doig assured him that the three wells were spread out over the property to, as Mr Lau put it, "enable each of the wells to service approximately one third of the property".
[13]	Although Ms Sim was entitled by virtue of clause 18 of the agreement to conduct further investigations on the property for the purpose of development, no such investigations were undertaken prior to settlement. Further, although Ms Sim was entitled to have full use of the property from 1 September 2003, she did not make use of it but rather leased it back to Moncrieff. Finally, Ms Sim took no steps in late 2003 or early 2004 to check whether Moncrieff had complied with clause 20 of the agreement.
[14]	In the event, Ms Sim did not settle in terms of the agreement. In early April 2004 Ms Sim’s solicitors contacted Moncrieff’s solicitors suggesting, initially, that Ms Sim pay $2 million on the settlement date, with Moncrieff taking a mortgage for the remainder of the purchase price. Later they suggested that settlement be deferred for one year and that Moncrieff continue to lease the property in the meantime. The reason given for these suggestions was that fluctuations in the exchange rate were causing difficulties for the overseas investors.
[15]	Despite these suggestions, by letter dated 29 July 2004 Ms Sim’s solicitors wrote to Moncrieff’s solicitors in terms indicating that settlement would go ahead in accordance with the agreement.
[16]	It appears from the material before the Court that Ms Sim’s solicitors had some discussion with Environment Canterbury on the question of water rights for the property in late August 2004. In particular, it appears that they sought advice on the question of whether the consents for the drilling of the three wells automatically conferred a right to draw water. A negative response must have been received because, in early September 2004, Ms Sim’s solicitors raised the question of water rights with Moncrieff’s solicitors, and said that the right to take water for the purposes of irrigation was "vital and fundamental to concluding the agreement". In a facsimile of 8 September 2004 Ms Sim’s solicitors said:

[18]	Accordingly, on 27 September 2004, Moncrieff issued proceedings against Ms Sim for:
(a)	a declaration that Ms Sim was in breach of the agreement;
(b)	an order for specific performance of the agreement;

(e)	costs.
[19]	This was accompanied by an application for summary judgment.
[20]	By the time that the matter came on for hearing before Associate Judge Sargisson on 24 March 2005, Moncrieff had advised Ms Sim that it elected to cancel the agreement and put the property up for sale again. It maintained its claim for damages against Ms Sim, however. On 4 February 2005 Ms Sim had also purported to cancel the agreement, on the ground that Moncrieff had failed to comply with clause 20, which she characterised as an "essential term".
[21]	The application for summary judgment was opposed. The grounds of opposition were that:

(a)	The misrepresentation concerns a matter of present fact, namely, the availability of water rights around the time of the agreement;
(b)	Mr Lau has deposed as to Mr Doig’s assurance that water was available but his failure to disclose that a resource consent was required. Arguably, these circumstances may constitute a material distortion as to the availability of water;
(c)	The alleged misrepresentation was made by Mr Doig as the defendant’s agent, to Mr Lau (who had been conducting the negotiations) as husband of Ms Sim, the purchaser;
(d)	Given the materiality of the availability of water to Mr Lau and the fact that he insisted on the inclusion of a contractual guarantee, it is at least arguable that the alleged misrepresentation induced entry into the contract; and
(e)	While the available evidence perhaps does not disclose an actual intention to adduce, constructive intention to induce can only be determined after trial when all relevant facts are available. For this reason, I am not prepared to predetermine here whether constructive intention to induce can be established.
[24]	The Associate Judge was also satisfied that Ms Sim had a tenable defence based on a unilateral mistake in terms of s 6 of the Contractual Mistakes Act 1977. The Associate Judge identified the relevant mistake at [36] as "one of present fact on the part of Mr Lau (and hence Ms Sim) as to the availability of water for abstraction, and the absence of any legal impediment to doing so".
[25]	Finally, the Associate Judge accepted that Ms Sim may have a right of set-off against Moncrieff, on the basis that Moncrieff had not met its obligations under clause 20 to establish three wells producing at least 800 gallons per minute as at 1 November 2003.
[26]	The Associate Judge did, however, reject the agency defence raised by Ms Sim as untenable.
[27]	The application for summary judgment was accordingly declined. Costs were reserved pending the outcome of the trial.
[28]	On this appeal Moncrieff seeks summary judgment on liability and an order that the matter be remitted to the High Court on the issue of damages.

[31]	The application for summary judgment in the present case raised the question of the meaning of clause 20 of the agreement for sale and purchase. The Associate Judge did not find it necessary to address the dispute as to the meaning of that clause. Rather, she assumed that Moncrieff’s interpretation was correct, and went on to determine whether Ms Sim had any tenable defence.
[32]	For our part, we think it necessary to address the dispute as to the meaning of clause 20. In our view, that consideration may be relevant to the availability of defences.
[33]	The approach to be taken to the interpretation of contractual language was set out by Lord Hoffman in Investors Compensation Scheme Ltd v West Bromwich Building Society [1998] 1 All ER 98 at 114-115 in a passage containing five propositions. This passage was adopted by this Court in Boat Park Ltd v Hutchinson [1999] 2 NZLR 74, at 81-2, and has been quoted in numerous other judgments. We need not repeat it here.
[34]	At various points in his evidence Mr Lau set out his understanding of the meaning of clause 20 and deposed that he would never have allowed his wife to enter into the agreement had he not had that understanding. Similarly Mr Tremewan set out his (different) understanding of the meaning of clause 20. As Lord Hoffman noted in the third of his five propositions in Investors Compensation Scheme, in determining the meaning of a contract "the law excludes from the admissible background the previous negotiations of the parties and their declarations of subjective intent."
[35]	As is apparent from Ms Sim’s notice of opposition to the application for summary judgment, there are two areas of dispute as to the meaning of clause 20:

[36]	Approaching the first issue on the basis of the principles summarised by Lord Hoffman, we consider that the meaning of clause 20 contended for by Moncrieff is the only tenable meaning for the clause, namely, that it simply guaranteed a particular productive capacity from three wells at a particular point in time. It did not guarantee a right to use water from the wells at the specified level on an ongoing basis for some future development on the land. We draw this conclusion essentially for three reasons.
[37]	First, the wording of the clause refers to productive capacity at a particular point in time. The language does not readily lend itself to an interpretation that the clause guarantees a right to use water at the specified rate for an unlimited period and for an unspecified purpose.
[38]	Second, part of the background against which the clause must be interpreted is the regulatory regime governing the use of the land, principally the Resource Management Act 1991. Under that regime, a resource consent was needed for the drilling of the wells and a further resource consent was needed for the ongoing use of water (above any amount permitted as of right under the relevant regional plan). That resource consent would have addressed the volume of water that could be taken on a daily or weekly basis and the rate at which it could be taken. Plainly this would be relevant to development possibilities. The general requirements of the Resource Management Act as they impact on rural land intended to be developed for dairying, viticulture or similar purposes are, in terms of Lord Hoffman’s second principle, "reasonably available to the parties" and influence the way in which the language of clause 20 would be understood by a reasonable person.
[39]	It may be implicit in a particular contractual provision that particular resource consents have been obtained. For example, in the present case Moncrieff’s obligations under clause 20 could only be fulfilled if Moncrieff had the resource consent(s) necessary to drill and test the three wells. It is implicit in clause 20 that the appellant either had or would obtain those consents. We also accept that a vendor might undertake contractually that it has or will obtain the resource consent(s) necessary to permit a particular form of development, for example, dairying. But there is nothing in the language of clause 20, or in any of the relevant background, to indicate that that is the case here.
[40]	Third, Mr Lau said that he advised Mr Doig that his overseas investors had in mind developing the land for dairying, for viticulture or for subdivision. He deposes that he understood that clause 20 provided him with a guarantee of the ongoing use of water for development purposes. But any resource consent authorising extraction of water on an ongoing basis would necessarily have related to a specific use, and Mr Lau and his investors were not committed to a specific use as at the date of the agreement.
[41]	In an effort to overcome this difficulty counsel for Ms Sim, Mr Singh, argued that clause 20 meant that consents were in place enabling the use of water from the wells for dairying, given that dairying was the purpose for which Moncrieff proposed to use the land.
[42]	That approach is untenable. We consider that the meaning of clause 20 is clear in this respect. It simply guaranteed that the wells would produce a specified water flow at a particular date. It said nothing about the ongoing use of that water at the specified (or at any other) rate.

[43]	The other issue concerning the meaning of clause 20 is whether it required that all three wells contribute to the guaranteed level of production or whether that level of production could come from one or two wells only. Mr Singh argued that the clause means that all three wells must be "wet" and contribute to the guaranteed level of production.
[44]	On that issue we think that Mr Singh is correct. The clause says that the vendor has "established" three wells at depths between a specified range, and identifies a static water level of approximately 20 metres (a static water level is the level of water in the well when the pump is not operating). The word "establish" means to set up on a permanent basis. This quality of permanence is not conveyed by "drill", another verb that could have been used. "Drill" refers to the activity of boring a hole in the ground. It implies nothing about whether the hole will produce water. By contrast, "establishing a well" implies permanence, which in turn implies that the well is capable of producing water over the long term. We consider that the use of the word "establish", and the fact that the reference to static water level is unqualified (ie it applies to all three wells), indicate that clause 20 contemplated that all three wells would be operational (ie would be "wet").
[45]	The clause does not indicate, however, what the level of contribution from each well must be. In this case, all three wells did produce, although well 2 produced at a significantly lower level than wells 1 and 3. Whether there was a breach of clause 20 in this respect is a matter on which we express no opinion at this stage.

[47]	Ms Sim has not filed a statement of defence. However, in her notice of opposition she alleges that Moncrieff falsely guaranteed "the use and availability of water for the property". That allegation is supported by Mr Lau’s affidavit evidence. He states that Mr Doig told him told that there was water available on the property, and that Mr Doig knew that the water was required for development purposes. Counsel for Ms Sim argued that, as Mr Doig had made no mention of the need to obtain a water right to enable water to be used for whatever development Ms Sim finally chose for the property, there was misrepresentation by silence, as in Thompson v Vincent [2001] 3 NZLR 355 (CA).
[48]	Counsel for Moncrieff argued that "available" in this context meant "physically present and accessible" via the wells and not "legally accessible". He relied on the decision of Potter J in Ladstone Holdings Ltd v Leonora Holdings Ltd HC AK CP308/SD00 Potter J 17 May 2004. On this basis, he said, there was no misrepresentation. He argued that Moncrieff was not under any obligation to advise Ms Sim of the steps that she would have to take to develop the property. He also argued that if there was a misrepresentation it merged with clause 20.
[49]	We deal first with Moncrieff’s submission on merger. The Associate Judge considered that the fact that a matter was the subject of a contractual provision did not necessarily mean that it could not also be the subject of a pre-contractual misrepresentation. We agree. It is true that at common law the doctrine of merger applied where a representation inducing a contract was later embodied in a provision in a written agreement. In that case the representation was merged into the express contractual term and only that term could be relied upon in a subsequent claim.
[50]	However, the common law position has less relevance now as s 6 of the Contractual Remedies Act 1979 treats a pre-contractual misrepresentation as if it were a term of the contract. Furthermore, a pre-contractual representation may be broader in scope than a written term ultimately incorporated into an agreement. The existence of the term in the written agreement will not necessarily mean that the oral misrepresentation is no longer actionable. That will depend upon the circumstances. The existence of the specific contractual term may mean that there could not, reasonably, have been reliance on the misrepresentation. But in other circumstances that outcome may not follow.
[51]	As Thompson v Vincent shows, misrepresentation by silence can arise in relation to contracts for sale and purchase. But those cases will be relatively unusual. Generally, "buyer beware" will apply. In the absence of special circumstances, Moncrieff was not obliged to advise Ms Sim of the steps that she had to take under the Resource Management Act to develop the property. We consider it unlikely that any such circumstances existed in this case.
[52]	Mr Lau deposes that he would never have allowed Ms Sim to enter into the agreement without a guarantee that there was water available for (ongoing) use, and that his Chinese investors refused to settle because there were no water rights. There are strong reasons to doubt this evidence.
[53]	First, the agreement was negotiated over a very short time frame. Mr Lau made a substantial offer for the property on the basis that the purchaser would undertake water exploration activities (clause 18), ie, Mr Lau made the offer without any knowledge of whether there was water on the property. The price offered was increased by approximately 10%, following discussions between Mr Lau and Mr Doig, to compensate Moncrieff for the drilling activities that it was carrying out at the time. It is understandable that a guarantee of productive capacity would be given in such circumstances. It is much less likely that any representation would have been made that any water produced could be used for whatever development was ultimately pursued.
[54]	Second, the dealings between the parties before settlement cast some doubt on Mr Lau’s version of events. It is clear from the correspondence between the parties that prior to settlement Ms Sim was concerned about her ability to settle, and was looking to Moncrieff for some form of accommodation. It was very late in the piece that the issue of water rights came up.
[55]	Neither of these factors enable us to conclude, however, that Ms Sim has no tenable argument on this point. Accordingly we turn to a third factor.
[56]	Mr Lau says repeatedly that his understanding of clause 20 was that it guaranteed both production of a specified volume of water, and the availability of that volume of water for the uses his investors had in mind for the property. He says that he regarded clause 20 as accurately reflecting the representations made to him.
[57]	Ms Sim’s solicitors had a similar view of the effect of clause 20. In a facsimile dated 1 September 2004 to Moncrieff’s solicitors they said:

[58]	However, as we have said, the meaning of clause 20 is clear. The clause simply guarantees the productive capacity of the wells at a particular point in time – it says nothing about the ongoing use of water for any particular development. Mr Lau’s misunderstanding of the effect of clause 20 is strong evidence that he misunderstood the representations that were made to him as he saw the clause and the representations as being identical.
[59]	Having considered the affidavit and documentary evidence, we think it most unlikely that any representation of the type alleged by Mr Lau was made, and we think it unlikely that Mr Doig committed misrepresentation by silence. Rather, our strong impression is that if Mr Lau misunderstood the position, he did so through his own error, and that the water rights issue was a convenient justification for Ms Sim’s refusal to settle.
[60]	Despite that, however, we are not prepared to rule at this stage that Ms Sim has no tenable argument. In part, this is because we have concluded that the matter must go back to the High Court in any event. It is also because there is one allegation in this context that is not denied and which may provide some support for a misrepresentation argument. Mr Lau deposes that he told Mr Doig that he needed to use the water (for one of the developments his investors had in mind) by 1 November 2003. Mr Doig does not deny that Mr Lau said this. If that was said, it may provide some support for a misrepresentation by silence argument.

[62]	It is not clear from the last sentence of this extract whether Mr Lau is saying that there was a representation that each of the three wells would, on its own, be capable of producing 800 gallons per minute, or whether he is saying that the representation was that the wells would contribute to the total in roughly equal proportions. The second interpretation is more likely, given the reference to each well servicing approximately one third of the property.
[63]	The difficulty for the Court is that Mr Doig’s affidavit evidence does not address this aspect of Mr Lau’s evidence. Mr Lau’s evidence is, accordingly, uncontested.
[64]	As we have said above, we consider that clause 20 does mean that all three wells must be capable of contributing to the 800 gallon total. On the evidence before us, all three wells were capable of contributing, although one of them at a very much lower level than the other two. However, in light of what Mr Lau deposes that he was told, we do not consider that we can resolve this issue - further evidence and submissions will be required. We cannot rule out the possibility that Mr Lau may be able to mount a claim against Moncrieff, on the basis that the wells did not perform as he was told they would.
[65]	Accordingly, this matter will have to go back to the High Court for resolution at trial.