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Yoshimoto v Canterbury Golf International Ltd [2000] NZCA 350; [2001] 1 NZLR 523 (27 November 2000)

Last Updated: 7 December 2011

IN THE COURT OF APPEAL OF NEW ZEALAND
CA 103/99


BETWEEN
HIDEO YOSHIMOTO


Appellant

AND
CANTERBURY GOLF INTERNATIONAL LIMITED


Respondent

Hearing:
22 March 2000


Coram:
Thomas J
Doogue J
Salmon J


Appearances:
F B Barton for Appellant

A J P More and L J Semple for Respondent
Judgment:
27 November 2000

JUDGMENTS OF THE COURT

THOMAS J

Introduction

[1] The Court faces a difficult question of interpretation. A commercial contract is in issue. A particular clause might be said to have a plain meaning, and was held to have such a plain meaning by the Judge at first instance. The context, the commercial objective of the contract and its contractual matrix, however, point away from that meaning. In addition, reliable extrinsic evidence is available which confirms that this plain meaning is not what the parties actually intended. The question of interpretation, therefore, involves an examination of the contract, the commercial objective of the contract and the contractual matrix. The extrinsic evidence and the admissibility of that evidence must also be considered. Finally, the question arises whether, having regard to the approach of the English courts and bearing in mind that this Court is not the final appellate Court in this jurisdiction, it is open to it to have regard to such evidence and so give effect to the actual intention of the parties.
[2] The appellant, Mr Yoshimoto, is a Japanese businessman. As from November 1995, he owned all of the shares in a company named New Zealand Plan International Limited (NZPIL). NZPIL was formed to promote and develop an international golf course known as “The Lagoons” on the outskirts of Christchurch. The respondent, Canterbury Golf International Ltd (CGI), developed an interest in buying the shares in NZPIL.
[3] On 14 March 1996, Mr Yoshimoto and CGI entered into a contract whereby Mr Yoshimoto agreed to sell all the NZPIL shares in return for a total sum of $3.4 million. This sum was payable in three instalments. Two million dollars was payable by 22 April 1996. This sum was duly paid. A further $1 million was payable provided the necessary planning authorisations or resource consents were secured within 12 months so as to enable the development to proceed. The final $400,000 was payable when CGI signed unconditional agreements for the sale of ten of the proposed 30 villas on the course.
[4] The main issue in this appeal is whether the condition precedent for the payment of the $1 million, that is, securing the necessary authorisations or resource consents within 12 months, was satisfied. There is no dispute as to the sum of $400,000 which is not yet due. Notwithstanding that the development can proceed, CGI rely upon what it claims are the plain terms of the contract to resist this claim. The second issue in this appeal is related to the first. It is whether CGI misrepresented to Mr Yoshimoto that the various consents would be obtained by approximately September 1996. It is alleged that this was an untrue statement about a present fact and that it induced Mr Yoshimoto to enter into the contract. CGI denies making any such misrepresentation and also denies that anything its representatives said induced Mr Yoshimoto to enter into the contract.

The factual background

[5] In the early 1990s, NZPIL acquired an area of roughly 160 hectares located near Johns Road, Christchurch. This site was only a “couple of kilometres” north-east of Christchurch International Airport. It could be easily approached from Johns Road. Johns Road is connected to State Highway 1.
[6] The site, however, did not have direct access to Johns Road. It fronted onto another road, Coutts Island Road, but the detour required to get from State Highway 1, and from the Airport, to the site via this road made it an unattractive option. For the project to be commercially viable access from Johns Road was essential. NZPIL proposed to achieve this access via an unformed paper road running direct from its property to Johns Road.
[7] By late 1995 NZPIL experienced considerable financial difficulties. In November of that year, Mr Yoshimoto, together with the two other shareholders in the company at the time, entered into negotiations with representatives of CGI. A sale and purchase agreement was completed on 22 November. Under this agreement control of the resource consent process passed to CGI, subject only to the requirement that it consult with Mr Yoshimoto. The agreement was also conditional on CGI completing due diligence to its satisfaction within 60 days.
[8] Due diligence was carried out at premises rented by CGI in Christchurch. It uplifted all NZPIL’s documents and plans. The project manager of CGI took positive steps to revive the resource consent process which had stalled under the management of NZPIL. Notwithstanding an agreed extension of the 60 day period, however, time for the completion of due diligence expired on 26 January 1996. In the result the agreement did not become unconditional. But CGI did not return NZPIL’s documents and plans to Mr Yoshimoto as negotiations continued.
[9] Two further meetings took place without any positive outcome being achieved. It was not until a meeting on 28 February at Mr Yoshimoto’s lawyers’ offices in Auckland that a heads of agreement was signed. Mr Yoshimoto was at this stage the sole shareholder in NZPIL. The meeting was apparently tense. The purchase price was the main bone of contention. Mr Yoshimoto wanted more for the land than CGI was willing to pay. His position throughout was that the land was worth $3 million. After Mr Yoshimoto slammed a notebook shut, the representatives of CGI left the meeting, but before doing so they advised Mr Yoshimoto of the departure time of their later flight to Christchurch and how they could be contacted. They were invited back at about 4.30 or 5 pm and duly returned. The impasse as to price continued until the CGI representatives stepped outside the meeting room and then returned to suggest a compromise whereby the value of the land would be linked to whether the project proceeded or not. Mr Yoshimoto agreed to this proposal.
[10] In the result, the heads of agreement provided for the manner in which the purchase price of $3,400,000 would be paid. Paragraph 1(c) reads as follows:

(c) The sum of $1,000,000 will be paid to the Vendor immediately upon NZPIL or its successors or assigns obtaining the necessary consents to proceed with the development of the Lagoons. The definition of “necessary consents” is to be acceptable to the Vendor. ... (Emphasis added).

[11] The heads of agreement was made subject to the execution of a formal contract. The formal contract went through numerous drafts, but was finally executed on 14 March 1996. On that day, the draft before them was amended in handwriting by both parties and signed.

The relevant contractual terms

[12] The relevant provisions of the contract may be set out. Although the critical provision is cl 6.3 of the contract, it is pertinent to first set out recital D.

D. The Company has made application for resource consents, has promoted plan change number 11 to the Christchurch City Transitional Plan, has made submissions on the proposed Christchurch City Plan and has applied for other consents as are necessary to enable the Development (as later defined) to proceed. (Emphasis added).

Clause 6.3 (a version of which had been agreed at the 28 February meeting) then reads:

6.3 It shall be a condition precedent to the Vendor’s right to demand payment of the sum of $1,000,000 being part of the balance of the Purchase Price owing under this Agreement that the Company [CGI] obtains all necessary authorisations or resource consents to the Development within 12 months of the date of this agreement. (Emphasis added).

“Development” is defined as follows:

“Development” means a proposed development incorporating:

an 18 hole golf course and amenity lakes which may be partly on the freehold land and partly on the leased land;

30 residential dwellings;

tourist and tourist accommodation (sic) and sporting and entertainment facilities;

access to the above to be gained off John’s Road, Christchurch;

or

any development in substantial accordance with the above. (Emphasis added).

For completeness, cl 6.5 of the contract may also be set out:

6.5 The Purchaser and the Guarantor undertake, covenant and agree with the Vendor that they shall take all practicable and reasonable steps and shall procure the Company or any associated party having responsibility for obtaining the necessary approvals to take all practicable and reasonable steps to procure the satisfaction of the conditions referred to in clause 6.3 above.

[13] On the face of it, the arrangement was a recipe for disaster. Making every allowance for the exigencies of the time, unknown facts or factors, and the beneficent perception of hindsight, it is difficult to understand how Mr Yoshimoto or his legal advisers ever came to contemplate accepting the format which was adopted. The $1 million was only payable if and when planning approval for the development was obtained. But responsibility for obtaining that planning approval was vested in the purchaser, CGI, and a strict finite time was fixed within which that approval had to be obtained. If the necessary approvals, which were under the control of CGI, were not obtained within that time CGI stood to save $1 million, roughly a third of the value of the land if the development was to proceed. The very oddness of the arrangement suggests that there is more to it than meets the eye.
[14] In the event, CGI did not obtain a resource consent under the Christchurch City Proposed District Plan within the 12 month period stipulated in cl 6.3. That consent was not obtained until some five months later. Mr Yoshimoto nevertheless demanded payment of the $1 million in October 1996. CGI disputed that the sum was due and owing, and Mr Yoshimoto commenced proceedings against CGI in January 1997.
[15] The dispute was heard by Panckhurst J in the High Court at Christchurch on 9 February 1999. In short, the learned Judge held that the condition precedent in cl 6.3 had not been met as the resource consent under the Proposed Plan was necessary for the development and had not been obtained within the time specified in the contract. CGI was therefore not liable for the extra $1 million. He also held that Mr Yoshimoto’s claim that he was induced to enter into the contract by a misrepresentation failed. The statement relied on by Mr Yoshimoto was a genuinely held opinion, albeit optimistic, and was proffered with a significant reservation.

The planning history

[16] The 12 months within which “all necessary authorisations or resource consents” had to be obtained expired on 14 March 1997.
[17] Such an ambitious project required a large number of resource consents and approvals. Many of these were routine. Since the early to mid-1990s, however, two major planning problems had beset the Lagoon’s project, neither of which had been resolved at the time the contract was completed in March 1996.
[18] The first problem arose from the fact that NZPIL intended building the resort on an area designated as a flood plain under the proposed Waimakariri River Flood Plain Management Plan promoted by the Canterbury Regional Council in 1994. That year, NZPIL had applied for a resource consent to erect buildings on the proposed flood plain. In an interim decision, a Commissioner appointed by the Regional Council granted the company the right to do so, subject to various conditions, on July 1996. CGI also advanced a case to the Council opposing the flood plain designation completely. It succeeded in this quest and the flood plain designation was withdrawn by public notice in October 1996. Consequently, there is no dispute about this consent.
[19] The second problem facing NZPIL was to ensure access to Johns Road via the paper road referred to above (para [6]). From the early 1990s, the operative planning document was the Christchurch City Transitional District Plan. Under this Transitional Plan, the zoning of the site did not permit the erection of a golf course and extensive accommodation. NZPIL therefore promoted a plan change, which came to be known as “Plan Change 11”, to change the zone from “Rural” to a “Special Resort and Recreation Zone”. “Plan Change 11” was publicly notified in 1993. The Council was inundated by submissions and held a five day hearing. In March 1994 the Council generally approved Plan Change 11 subject to various amendments.
[20] The only significant amendment was a requirement that vehicle access to Johns Road be had through Greywacke Road, a short cul de sac, and not the paper road. This option was not without its difficulties. To achieve access CGI would have to connect the paper road to Greywacke Road. But Greywacke Road and the paper road were separated by private land and CGI therefore needed to purchase private land in order to connect the two roads. The company entered into negotiations with a number of owners of land adjacent to Greywacke Road. All these negotiations were unsuccessful. In addition, the intersection of Johns Road and Greywacke Road was approximately one kilometre south of the point at which the paper road would exit on to Johns Road. As a result, connecting the paper road to Greywacke Road entailed a longer and more expensive route than would be the case if the paper road were connected directly to Johns Road. Finally, there were real problems with the increased traffic flow into Greywacke Road.
[21] CGI appealed to the Environment Court seeking to reverse this amendment and obtain access under the Transitional Plan via the paper road. The appeal was opposed by various parties, including the Christchurch City Council and the Transit New Zealand Authority, a statutory body having the principal objective of operating a safe and efficient State highway system. (See ss 5 and 6 of the Transit New Zealand Act 1989). Both the Council and Transit New Zealand eventually abandoned their opposition to CGI’s appeal to remove the amendment and consented to Plan Change 11, thereby permitting direct access to Johns Road via the paper road. The Environment Court made a Consent Order to this effect on 20 February 1997. The Order was sealed on 27 February 1997. The race to obtain all necessary consents and authorisations by 14 March 1997 seemed to have been won at the eleventh hour – with only 17 days to spare.
[22] But there was one other relevant document. The Christchurch City Proposed District Plan had been notified in June 1995. Under this Proposed Plan the paper road was proposed to be stopped. On 30 November 1995, more than three months before the final contract was executed, CGI had made submissions to the Council relating to this Plan, but it did not apply for a resource consent in respect of it. Planning advice sought by CGI relating to the Proposed Plan had focussed almost exclusively on the chances of the company succeeding in obtaining approval for Plan Change 11 to the Transitional Plan. It was thought that, if the appeal in respect of Plan Change 11 was rejected, the most realistic course would be to seek to have the land rezoned under the Proposed Plan, which by then would have proceeded further towards completion. In the result, CGI did not lodge the application for that consent until 10 March 1997, four days before the deadline.
[23] This application was discussed, however, immediately before that date. Transit New Zealand indicated by letter dated 6 March 1997 that it had assessed CGI’s proposed design for the intersection between the paper road and Johns Road. It understood, however, that a resource consent was required to enable the access to be formed and indicated that it would review the proposal upon receipt of the resource consent. But it confirmed in advance that it agreed to the location of the access road subject to certain technical conditions.
[24] CGI’s solicitors forwarded various applications to the Council on 7 March. These applications were described as “being necessary to give effect to the Environment Court’s final determinations on Plan Change 11 to the Christchurch City Transitional District Plan”. The solicitors expressed the thought that the Council would no doubt “immediately take steps to adopt Plan Change 11”. They recorded that both the Council and Transit New Zealand had been parties to the appeal in respect of Plan Change 11 to the Environment Court, and had consented to the Environment Court’s rulings. These rulings, critically, included the restoration of the wording of Plan Change 11 as publicly notified “in respect of access being gained from Johns Road along the route of the paper road shown on planning map 17 of the Proposed Christchurch City plan...”. The solicitors asked that the application be dealt with on a non-notified basis. They then observed that, although the consent of all affected parties had not been obtained, CGI wished to obtain all necessary approvals to give effect to the Environment Court’s determination on Plan Change 11, having regard to the obligation that consents be obtained by the deadline date under the contract. The solicitors asked that the Council address the applications with the utmost urgency.
[25] The formal application for resource consent was lodged with the Council on 10 March. The terms of the application were virtually identical to the original application which resulted in the successful appeal in respect of Plan Change 11. On 12 March the Council indicated to CGI that it wished the application to proceed on a notified basis. It advised CGI of a list of persons who had been identified as being potentially adversely affected by the development. These persons comprised Transit New Zealand, the Canterbury Regional Council and seven residents on Johns Road. In response, CGI’s solicitors reiterated by letter dated 13 March 1997 that the application sought to give effect to the determination made by consent by the Environment Court. Transit New Zealand and other named parties, they said, had either been parties to the consent order or had the statutory right to appear and be heard and had waived, or at least not exercised, that right.
[26] Active steps were also taken by CGI to obtain the formal approval of Transit New Zealand before 14 March. Transit New Zealand responded quickly by providing explicit written approval to the application for resource consent. This approval was received by CGI on that day, but too late to be dispatched to the Council. Hence, in a matter of only a few days, one of the two statutory bodies which had been involved in approving Plan Change 11 had approved the resource consent.
[27] Most, but not all, the land owners had also signified their approval. The only significant exception was a Mr Croft. Initially, the paper road was located partly over his property. An amended road layout was prepared so as to avoid his dwelling. CGI then notified the option which had the Environment Court’s backing on 15 May 1997. Only three submissions were received in respect of the application, being submissions by Transit New Zealand (only as to technical conditions), Mr Croft and a Ms Hedges. A hearing was held on 21 July 1997. The Council’s decision was given on 1 August 1997 granting consent to the proposed access road. It was almost five months too late.
[28] It is pertinent to here insert Panckhurst J’s perception of the resource consent under the Proposed Plan. The learned Judge concluded:

In these circumstances I am of the view that the resource consent under the proposed plan was necessary, in terms of cl 6.3. In real terms I suspect the Environment Court order relative to the transitional plan represented victory in the war, and the proposed plan resource consent was by comparison a minor battle. Moreover, one which CGI was almost bound to win because it had persuaded in particular the City Council and Transit that the paper road was a suitable means of access to the Lagoons site.

[29] My own perception of the material in the Case on Appeal confirms that consent under the Proposed Plan was pretty much a formality. The application for the resource consent under that Plan adhered to the relevant terms of the original application under the Transitional Plan and conformed with the consent order in the Environment Court relating to Plan Change 11. In no more than a few days Transit New Zealand was able to signify its approval in respect of the application. It is not suggested that Transit New Zealand was not conscientious in assessing the application. Rather, its quick response indicates that the essential decision had already been made with the adoption of Plan Change 11. No more was required than to record the technical conditions which had been notified by letter on 6 March, all of which were unexceptional. The Council quite properly required the application to be notified having regard to the rights of the public to participate in the planning process under the Resource Management Act. All but two of these persons approved the application in writing. It is quite unrealistic to think that the submissions of two landowners, including Mr Croft, would result in the application being refused having regard to the fact that Plan Change 11 had been endorsed by the Council as recently as 20 February 1997. Moreover, the Proposed Plan already provided for a special “Open Space 3D Zone”, which was similar to the Special Resort and Recreation Zone introduced by Plan Change 11. This Open Space 3D Zone accommodated the development. Only the removal of the designation of the road as a road to be stopped remained to be approved in line with Plan Change 11.

A question of interpretation

[30] The essential question is whether cl 6.3 is to be construed to include, as a necessary consent, approval for the deletion of the notation showing the paper road as a road to be stopped under the Proposed Plan.
[31] Panckhurst J cannot be criticised for concluding that he was obliged to interpret and give effect to what he perceived to be effectively the plain meaning of the clause. The operative words in cl 6.3 are; “obtains all necessary authorisations or resource consents to the development”. The learned Judge held, however, that the clause, as finally drafted, required a pragmatic approach. Payment of the extra $1 million was not dependent upon CGI obtaining every authorisation or consent but only those which were required to enable the project “in essence” to proceed. More technical authorities or consents relating to the detail of the project, as opposed to its broad essential character, need not be in hand. Noting that the definition of the development in the contract (para [12] above) included access off Johns Road, the learned Judge concluded that a resource consent under the Proposed Plan was essential if the development project was to proceed. Notwithstanding that he suspected that this consent was assured, it was a “necessary authorisation or resource consent to the development”.
[32] I approbate Panckhurst J’s pragmatic approach and readily agree that payment of the extra $1 million was not dependent upon CGI obtaining every authorisation or consent. In my view, while the resource consent was necessary in the sense that the development could not commence without it being in place, it was not “necessary” within the meaning of that term in the contract. In other words, as at 14 March 1996 the parties did not contemplate or intend that a consent under the Proposed Plan was “necessary” before the obligation to pay the further $1 million arose. The consent fell on the other side of the literal divide.
[33] It may be noted in passing that no convincing reasons were advanced in evidence as to why consent under the Proposed Plan was necessary in the sense of being “in essence” necessary to proceed. The suggestion that it was not inevitable that the Proposed Plan would be brought into line with Plan Change 11 as that Plan Change was based on different objectives and policies may be true as a general proposition. But it is simply unrealistic to think that once Plan Change 11 had been endorsed, and endorsed so recently, the unfavourable designation of the road would not be removed in the absence of some very good or unexpected reason to the contrary. Nor was any indication given as to which objectives and policies of the Proposed Plan might preclude the development or place approval of the removal of the notation relating to the road in doubt. The parties, I believe, were correct to anticipate that if Plan Change 11 were approved any changes required to the Proposed Plan would realistically follow.
[34] In my view, therefore, the parties did not intend that consent to the removal of the designation under the Proposed Plan was a necessary consent to the development before the $1 million became due and payable. As a result, whilst CGI may seek to morally justify its retention of that sum on various extraneous grounds, as it has done, this sum represents a windfall to the company. It has obtained the land for the sum of $2.4 million having agreed that the value of the land with its development potential affirmed was $3.4 million.
[35] I believe that the meaning which I have identified is indicated by the contract, the commercial objective of the arrangement, and the matrix to the contract. Each may be examined in turn.

(1) Assistance from the contract

[36] It is to be emphasised at the outset that, notwithstanding his perception that the clause could be given a plain meaning, Panckhurst J himself did not give cl 6.3 a literal construction. A literal construction would mean that all authorisations and resource consents required for the development would need to be obtained before the additional sum became payable. The development could not proceed if any authorisation or consent, however routine, had not been obtained. Yet, the learned Judge recognised that this literal meaning was not tenable. Indeed, Mr More, appearing for CGI, did not seek to maintain this construction. He accepted that, although certain of the outstanding authorisations and consents were of “fundamental importance”, they would prove to be attainable, even though terms and conditions which attached to them might dictate some amendments to the project generally. In agreeing that not every authorisation was necessary, but only those which were required to enable the project “in essence” to proceed, the Judge held that the contractual formula was not rigid and that every consent or authorisation need not be in hand. The test was whether in essence the project was viable.
[37] I have already accepted that it is necessary to introduce this flexibility into the construction of cl 6.3. But at once it cannot be said that the plain meaning is the literal meaning. The literal meaning is being modified to make sense of the provision. An assessment is required as to whether the resource consent was “necessary to the essence of the project”, or required to enable the project “in essence” to proceed, or whether it “in substance” became viable, or the like. It seems to me that once this point is reached the Court should be reluctant to impose a meaning on to the clause which may not accord with the parties’ actual intention. The question is not whether the Court considers the resource consent “necessary”, but whether a reasonable person in the position of the parties would have considered it necessary and therefore within the commercial arrangement which they had entered into for the payment of the full purchase price. It therefore becomes imperative to have regard to the context in which the clause appears and the commercial objective which the parties sought to achieve.
[38] The parties’ perception of what was to be considered “necessary” is apparent from the wording of recital D. Of course, the recital does not override the terms of the contract. Argument on that issue was largely unhelpful. Rather, reference to the recital is of assistance in indicating what cl 6.3 means. The recital states that NZPIL “has made application for resource consent... and has applied for other consents as are necessary to enable the development (as later defined) to proceed”. (Emphasis added). Thus, the recital explicitly referred to applications for consent which had been made at that time and described them as applications which were “necessary” for the development to proceed. The use of the word “necessary” in conjunction with the reference to the applications which had been made, at least to some degree, points to the meaning to be attributed to that word in cl 6.3. Although, as stated in the recital, submissions had been made on the Proposed Plan, no application for a resource consent had then been made in respect of it. The suggestion must be that the parties did not perceive the application to be one which was “necessary” to enable the development to proceed.

(2) The commercial objective

[39] Further, I consider that the commercial objective can be inferred from the overall structure of the arrangement underlying the payment of the purchase price. The commercial objective was to provide a differential purchase price depending on whether the development potential of the land was realisable or not. If the project were able to proceed the parties accepted that the value of the land was worth $1 million more than would be the case if it could not proceed. Certainly, the parties stipulated a 12 month period within which the necessary authorisations and consents had to be obtained. But that short time limit in itself suggests that the parties were addressing applications which were extant. In short, the commercial objective was to recognise the development potential of the land and the assumption (correct as it turned out) was that, with CGI using its best endeavours, that potential would be realised if and when the outstanding consents were obtained. This objective is substantially confirmed by reference to the contractual matrix.
(3) Assistance from the matrix
[40] A number of matters can be fairly said to be part of the matrix to the contract. The first has just been mentioned, that is, the commercial objective of the arrangement. But that objective may now be dealt with on a broader basis. It is clear that Mr Yoshimoto regarded the value of the land for the purposes of a development as being $3 million. That was the purchase price in the conditional agreement which did not proceed. An impasse then resulted as to the purchase price to be inserted in the heads of agreement. This impasse was resolved by recognising that the value of the land would be linked to whether or not the development potential of the land was realised. One million dollars was accepted by the parties as the difference in value with the parties expressly agreeing in the heads of agreement that the definition of “necessary consents” was to be acceptable to Mr Yoshimoto. This arrangement, then, represented the essence of the bargain which the parties had agreed. If the parties had intended that the consents to which cl 6.3 related would be open-ended, they would have had to contemplate the real possibility that the fundamental arrangement as to price could be thwarted and that CGI would obtain a windfall. Realistically speaking, any such notion is so improbable that it can be safely concluded that it was beyond the parties’ contemplation.
[41] Secondly, NZPIL had already advanced the planning process before CGI assumed responsibility for that process. NZPIL had made the essential application to change the Transitional Plan and it had lodged submissions in respect of the Proposed Plan. CGI did not start the planning process afresh. In effect, it took over the procedures which had been initiated by NZPIL, together with the relevant plans and documents. Planning advice then obtained by CGI focused almost exclusively on the flood plains issue and the change required to the Transitional Plan. The Proposed Plan was to be left to one side. The relatively short period of 12 months within which to obtain full approval to Plan Change 11 was not unreasonable. Indeed, that proved to be the case, if only by 17 days. In short, CGI was effectively stepping into NZPIL’s shoes, and it was believed that what NZPIL had begun could be completed by CGI in 12 months.
[42] Thirdly, it is to be noted that the consent required under the Proposed Plan did not require approval for a zoning change to permit the project as such. As recited by Panckhurst J, the Proposed Plan was favourable in relation to the Lagoons site in that it contained a special “Open Space 3D Zone” which was similar to the Special Resort and Recreation Zone introduced by Plan Change 11 into the Transitional Plan. Submissions to the Proposed Plan were required to ensure only that there were no “loose ends” and that the zoning matched the zone introduced by Plan Change 11. In substance, all that was required under the Proposed Plan was the removal of the notation of the paper road as a “road to be stopped” so that access to the site would be brought into line with that which had been agreed to in Plan Change 11. Hence, the nature of the consent required under the Proposed Plan is not to be overstated.
[43] Fourthly, I have already pointed out that the arrangement under which CGI became responsible for obtaining the necessary consents and on which the payment of $1 million depended, was a recipe for disaster. Notwithstanding its obligation under cl 6.5 to take all practical and reasonable steps to obtain the consents, CGI had a $1 million incentive to prolong the process for which it was responsible beyond the year. It is virtually inconceivable that NZPIL would deliberately place such power in the hands of CGI, or that CGI could reasonably expect such control, unless it was thought by both parties that all “necessary” applications for the purposes of cl 6.3 had been identified and, indeed, were in train.
[44] Fifthly, while for the reasons given by Panckhurst J, Mr Yoshimoto must fail in his claim that CGI misrepresented to him that the outcome of the various consents would be obtained by approximately September 1996, that does not mean that the allegation is irrelevant to the question of interpretation. It is not denied that at the critical meeting on 28 February 1996 a representative of CGI indicated that the necessary approvals would or could be obtained by “September approximately”. Nor can it now be questioned that this assurance was not a genuinely held opinion. But such a statement could only have been made if the parties accepted that all “necessary” consents had been identified. A period of no longer than seven months would elapse from the date of the meeting until the end of September. To contemplate that the necessary consents could be obtained within that time without being alert to what those consents were would have been unrealistic.
[45] Finally, the reference to the making of submissions in respect of the Proposed Plan in recital D shows that this Plan was not overlooked. Submissions were being made in respect of it. Yet, if it had been intended that the consent under the Proposed Plan was a necessary consent, it could be expected that the reference to the submissions on the Proposed Plan would have been replaced by a reference to an application for a resource consent under that Plan. Moreover, CGI were required by cl 6.5 to use its best endeavours to obtain the necessary consents. It is unlikely that the company would have been prepared to expose itself to liability under this provision without a clear understanding as to what it had to do in the ensuing year.
[46] All in all, therefore, the contractual matrix would suggest that the parties did not intend to include a consent under the Proposed Plan within the purview of cl 6.3.
[47] Since writing and circulating a draft of this judgment, Doogue and Salmon JJ have written concurring judgments agreeing with this conclusion. This being the case, the appeal will be allowed. I wish to go further, however, and examine the argument that reliable extrinsic evidence confirms that the parties did not intend a consent under the Proposed Plan to be a “necessary” consent for the purposes of cl 6.3.

Extrinsic evidence

[48] I am mindful that the question whether there is sufficient indication in the contract, the commercial purpose of the differential price, and the contractual matrix as discussed above to conclude that the necessary consents referred to in cl 6.3 are those which had already been contemplated is not an open and shut question. Along with the other members of the Court I consider that this meaning emerges securely enough. But it is a question on which I imagine judicial opinions could differ. It could still be asserted that the use of the word “necessary” gives cl 6.3 a “plain meaning” which would include the consent in issue. If reference is made to certain extrinsic evidence, however, there cannot be any real doubt that this view is at odds with the parties’ actual intention. The scope of cl 6.3 was intended to be restricted to those consents which the parties had identified and which CGI had taken over from NZPIL. I therefore wish to confront the question whether regard may be had to that extrinsic evidence.
[49] This Court is fully aware of the problems associated with evidence of the parties’ precontractual negotiations. Precontractual negotiations may not be unequivocal. They may simply indicate the changing thinking and position of the parties up to the time a final consensus is reached and the contract is executed. I will therefore approach the evidence which was adduced by both parties relating to their conduct prior to 14 March 1996 with considerable caution. No evidence which can be said to be simply evidence of the parties’ subjective intention need be considered. For this reason, I have confined my consideration to the earlier draft contracts, the changes made to cl 6.3, and an earlier recital relevant to that clause.
[50] At least five draft contracts were prepared and considered before the final contract was executed at the end of the meeting on 14 March. Until part way through this meeting every draft contained a much more detailed condition precedent clause than cl 6.3 as it appears in the final contract. For example, the preceding draft contract which was exchanged on 8 March 1996 contained a comprehensive clause which made the $1 million payable on either CGI’s proposals as to the zoning of the resort being adopted in the Proposed Plan or CGI succeeding with its appeal under the Transitional Plan, together with obtaining other “resource consents” as might be needed. The full text of the clause reads as follows:

6.3 It shall be a condition precedent to the Vendor’s right to demand payment of the sum of $1,000,000 being part of the balance of the Purchase Price owing under this Agreement that the Development is authorised by one or more of the following applications at present being pursued by the Company:

  1. a. The Company’s objections to the proposed Open Space 3D (Lagoons Resort) Zone being a special zone applying to approximately 160 hectares of land north of Johns Road, west of the “Groynes Reserve” and generally north-west of Christchurch city as contained in the proposed District Plan for the city of Christchurch publicly notified on 24 June 1995 shall be adopted by the city and included in the District Plan when it becomes operative, to such an extent as will enable the Company to proceed with the Development; or
    1. The Company’s appeal to the Planning Tribunal in respect of the decision of the Christchurch City Council adopting proposed change number 11 (Lagoons) and proposed variation number 1 to change number 11 to the Christchurch City Transitional District Plan (Waimairi and Eyre sections) being upheld within 18 months of the date of this Agreement to such an extent as will enable the Company to proceed with the Development; and
    1. Either 6.3a or 6.3b together with all other necessary controlled activity consents as may be needed to enable the Company to proceed with the Development whether from the Christchurch City Council or the Canterbury Regional Council but nothing in this clause 6.3 shall require the Purchaser to pay the additional sum of $1,000,000 if the resource consent approval process for the Development requires the commencement afresh of the process whether by way of private plan change or resource consents for discretionary or non complying activities.
    1. In the event that no one of the above events (6.3a, b or c) is achieved within a reasonable time having to the state of the proceedings, appeals to the Planning Tribunal (subject to the requirement that such be disposed of within 18 months of the date of this Agreement but not to the High Court or other appellate jurisdictions) the Purchase Price shall be deemed to have been reduced by the sum of $1,400,000.00; and
    2. The obligations of the Purchaser (under clause 6.4) and of the Guarantor (under clauses 6.4 and 7.1) of this Agreement shall be at an end. (Emphasis added).
[51] It will be noted that the draft clause did not require the consents under both the Transitional Plan and the Proposed Plan. They were seen as alternatives. The hand-written amendments which reduced the clause to its present form, and which then became the clause in the contract which was signed, did not change this perception. Indeed, the representatives of CGI confirmed in evidence that they did not consider the hand-written amendments to cl 6.3 to signify a change in the basic deal.
[52] Thus, the Proposed Plan was addressed, but it was not thought that any more was required than that the planning authority allow the company’s objections (submissions) so that it would be incorporated in the District Plan when it became operative. The focus was on the appeal to the Planning Tribunal in respect of Plan Change No 11.
[53] This approach is confirmed by recital E which remained in the contract after the handwritten amendments had been made to cl 6.3 and the contract had been signed. (It was later removed; see para [54] below). Recital E reads as follows:

The property (as later defined) is agreed to be worth 7,500.00 a hectare. The purchaser acknowledges that inherent development potential justifies the sum of $2 million for the shares. If the consents, or other planning authorisations presently applied for by the company allow the defendant to proceed, the purchaser acknowledges that that defined development potential will justify a further premium over land value of 1,400,000. (Emphasis added).

No sensible meaning can be attributed to this recital other than that the consents or other planning authorisations which were a condition precedent to the payment of the $1 million were limited to those consents which had been already applied for.

[54] The contract was executed by both parties with this recital included. But at Mr Yoshimoto’s request, the recital was removed the following day. He wanted it removed, not because it did not reflect the agreement reached but, on the contrary, because it was seen as being superfluous and commercially sensitive. Hence, on 15 March his lawyers sent CGI’s lawyers a freshly typed copy of the contract with the reason for the deletion explained in a covering letter and accompanying fax. They asked CGI’s lawyers to note that they had “deleted introduction paragraph (e)”, and noted that the deletion had not been discussed the previous afternoon as the paragraph was merely a recital and of no substantive effect. They did not anticipate any controversy. Nor was there any controversy. The deletion of the recital was accepted.
[55] It is significant that recital E was deleted after the contract had been executed. Clearly, the parties did not think that they were altering the effect of their completed agreement. The defined development potential which justified the payment of the premium related to the applications already made.
[56] Recital D, which I have dealt with above (para [38]), had been included in the draft and remained in the same form. Read together with recital E it leaves little room for doubt but that the consents which were considered “necessary” were those “presently applied for”.
[57] This perception is wholly consistent with the parties’ known understanding of the situation at that time. Mr Yoshimoto appears to have approached the negotiations on the basis that the only outstanding application related to the flood plains issue. Mr Prain, the General Manager of CGI, proceeded on the basis that the Transitional Plan and Proposed Plan were alternatives; that is, a consent would only be required under one or other of these Plans, but not both. The Lagoon’s project would be protected by approval under whichever Plan was operative. Thus, the parties approached their negotiations as to the terms of the contract on the basis that the relevant applications had been identified and were in process. CGI would carry on where NZPIL had left off.
[58] In summary, it seems tolerably clear that there was no change in the direction of the parties’ thinking or in their position. The $1 million was intended to be paid as a “further premium” in consideration of the “defined development potential”. Both parties accepted or assumed that this point would be reached when the consents “presently applied for” had been granted. In effect, the necessary consents, the definition of which in the earlier heads of agreement was to be Mr Yoshimoto’s prerogative, had been defined. As at 14 March 1996 an application for a resource consent under the Proposed Plan, in addition to the submissions already being made under that Plan, was not seen to be necessary for the purposes of the additional payment. Although there might be other authorisations required and “loose ends” to tie up, and possibly even a “minor battle” to be won, once the consents applied for had been obtained the project was effectively assured and the development potential of the land had been realised. By 14 March 1997, the flood plains issue was resolved and Plan Change 11 had been approved. Hence, only an unforeseen calamity or a voluntary decision on the part of the developer would prevent implementation of the project. The relevant planning authorities had resolved the essential issues, including the required road access, and the steps which remained were those which any developer readily takes in its stride. While modestly speculative, it is relatively safe to predict that had CGI decided to sell the land with the consents already obtained under the Transitional Plan, but without approval to remove the notation stopping the road in the Proposed Plan, the price asked would have reflected the full development potential of the land in relation to the Lagoon’s project. As in fact proved to be the case, CGI had been given the “green light”.

Receipt of the extrinsic evidence?

[59] It is accepted that for reasons of commercial convenience the law insists on an objective theory of contract. Lord Steyn, writing extra-judicially, has pointed out that this involves adopting an external standard given life by using the concept of the reasonable person. Thus, in contract law effect must be given to the reasonable expectations of honest people. The expectations which will be protected are those that are, in an objective sense, common to both parties. Generally the law of contract is not concerned with the subjective expectations of a party. Thus, the function of the law of contract is to provide an effective and fair framework for contractual dealing, a function which requires an adjudication based on the reasonable expectation of parties. (Johan Steyn, “Contract Law: Fulfilling the Reasonable Expectations of Honest Men” (1997) 113 LQR 433, at 433-434).
[60] By and large, Lord Steyn continues, the objective approach to questions of interpretation serves the needs of commerce. It tends to promote certainty in the law and predictability in dispute resolution. The rule that evidence of the precontractual negotiations of the parties or their subsequent conduct cannot be used in aid of the construction of a written contract follows from the primary rule that the task of the court is simply to ascertain the meaning of the language of the contract. But, the distinguished jurist adds, the rationality of the law is important, and if this rule was absolute and unqualified it would sometimes defeat the reasonable expectations of commercial men. There has been, he observes, a shift away from a black-letter approach to questions of interpretation. The literalist methods of Viscount Simmonds are in decline. The purposive approach of Lord Reid and Lord Denning MR has prevailed. (Ibid, at 440).
[61] This shift away from the black-letter approach in the interpretation of contracts is most noticeably evident in the recent decision of the House of Lords in ICS Investors Compensation Scheme Ltd v West Bromwich Building Society Ltd [1997] UKHL 28; [1998] 1 All ER 98. In what must be regarded as a landmark statement - or restatement - of the law relating to the construction of contracts, Lord Hoffman begins by observing that a fundamental change has overtaken this branch of the law, particularly as a result of the speeches of Lord Wilberforce in Prenn v Simmonds [1971] 3 All ER 237, at 240-242, and Reardon Smith Line Ltd v Hansen-Tangen, Hansen-Tangen v Sanko Steamship Co [1976] 3 All ER 570, which is not always sufficiently appreciated. Subject to an important exception, the result has been to assimilate the way in which such documents are interpreted by judges to the common-sense principles by which any serious utterance would be interpreted in ordinary life. Almost all the old intellectual baggage of legal interpretation has been discarded. The five principles which Lord Hoffman articulated are now so well known that it is not necessary to set them out. They were repeated and adopted by this Court in Boat Park Ltd v Hutchinson [1999] 2 NZLR 74, at 81-82.
[62] I doubt that Lord Hoffman would have claimed that the application of the principles in a particular case would always be simple or straight-forward. For instance, the boundaries of the contractual matrix referred to in the second principle will frequently be unclear. Defining that phrase to include “absolutely anything which would have affected the way in which the language of the document would have been understood by a reasonable man” obviously assists in determining those boundaries. In the present case this definition would undoubtedly include evidence of the precontractual draft. Making that definition subject to the exception that “the law excludes from the admissible background the previous negotiations of the parties and their declarations of subjective intent”, however, necessarily reintroduces an area of uncertainty. As Lord Hoffman acknowledges, the boundaries of this exception are in some respects unclear (at 114-115).
[63] The difficulty which exists in deciding the boundaries of the admissible surrounding circumstances was recognised by this Court in Air New Zealand v Nippon Credit Bank Ltd [1997] 1 NZLR 218. In delivering the judgment of the Court, Gault J stated (at 224) that there is a -

fine line... between evidence showing that the parties proceeded on a common assumption as to the effect of their contract or the meaning of a word in it, which may be admitted, and evidence of their precontract negotiations (unless they otherwise evidence the common assumption just referred to) and subjective intentions, which may not.

[64] The principles enunciated by Lord Hoffman were considered in Bromarin AB v Ind Investments Ltd (1999) STC 301. The facts of that case were fearfully complex. The question before the Court of Appeal, however, was clear enough: to what extent can the Court have regard to factors which are external to the contract rather than adopt a literal interpretation? While the Court acknowledged that the commercial purpose of the contract is an important consideration when construing its terms, it emphasised that there was no need to have regard to any evidence which is extrinsic to the contract to determine this purpose if it is apparent from the terms of the contract itself. Chadwick LJ, giving the judgment of the Court, stated (at 310-311) that it is commonplace that problems of construction in relation to commercial contracts arise where the circumstances which actually exist at the time the contract falls to be construed are not the circumstances which the parties foresaw at the time they made the agreement. The task of the court is to decide, in the light of the agreement the parties made, what they must have been taken to have intended in relation to an event which they did not contemplate. The Court acknowledged that it was, of course, an artificial exercise because it required an intention to be attributed to the parties which they did not as a matter of fact have because they did not appreciate the problem which needed to be addressed. It concluded by observing that it is essential that the court can be confident, from the other provisions of the agreement and an understanding of its commercial purpose, the meaning which the parties intended the words to bear. This may lead to the conclusion, the Court continued, that the words used do not express the meaning which the parties intended. But that would, the Court thought, be an exceptional case. The Court concluded that the commercial purpose for which the agreement in that case was made emerged plainly from the agreement itself, and that it was therefore unnecessary to resort to any outside facts. (It would appear that this case is not proceeding on appeal to the House of Lords).
[65] The reference to the Bromarin case illustrates how critical the basic analysis is in determining the interpretation which is finally adopted. In that case the Judge at first instance relied primarily upon the fourth of the principles enunciated by Lord Hoffman to the effect that the background may lead to the conclusion that the parties have used the wrong words or syntax. The Court of Appeal did not consider that principle applicable and thereby arrived at a different interpretation. So, too, in this case, if it is decided that the matrix permits reference to the precontractual conduct referred to above, the Court would be clearly justified in departing from the purported plain meaning of the language used. If the precontractual conduct is held not to be part of the negotiations as such, and so outside the exception in the third principle, a different interpretation may ensue. Or if, again, the precontractual evidence is perceived as evidence which can properly shed light on the meaning of the contractual provision rather than evidence of the subjective intention of the parties, a different interpretation may also result.
[66] Many Judges will acknowledge the problematic nature of the required analysis and its impact on the interpretation of the provision in dispute. Yet other Judges will adopt a particular analysis with confidence and treat the resulting interpretation as plain and obvious. To outsiders to the law, the latter phenomenon broaches arrogance in cases where the parties’ solicitors, their counsel, and the judges in one or more lower courts have genuinely differed on the interpretation of a contractual provision but the language is finally held to be plain and unambiguous on appeal. Commentators have also expressed scepticism at the courts’ ability to at times find a plain and unambiguous meaning which is difficult to objectively justify, but which happens to accord with the extrinsic evidence which has been overtly rejected. The suggestion of rationalisation does not add to the perception of the law of contract as a coherent framework for the resolution of disputes relating to interpretation.
[67] It should be noted in passing that the Bromarin case is not on all fours with the present case. The present case is not one where it can be said that there is a literal interpretation. As I have already pointed out, Panckhurst J did not adopt the literal meaning of cl 6.3. (paras [31] and [36]). He accepted that, notwithstanding its terms, the clause did not apply to consents other than those which were essential to the “essence” of the development even though it could not proceed without all consents. Nor did the parties in the present case fail to contemplate the event which occurred in the way in which the parties in the Bromarin case failed to contemplate the event (the change in the legislation) which occurred in that case. Here the question of what was required under the Proposed Plan was addressed. It is not necessary to go beyond recital D which remained in the contract to confirm that the parties had the Proposed Plan in mind. While it might be said that they did not contemplate that a resource consent application would be necessary under the Proposed Plan, this omission does not leave a gap to be filled by attributing “to the parties an intention which they did not have (as a matter of fact)” as in the Bromarin case (at 310). Rather the parties’ understanding led them to form an intention as to what consents were “necessary”, and these excluded a consent under the Proposed Plan.

A common-sense approach

[68] Lord Hoffman’s speech in West Bromwich is welcome not only because of its clarity and attempt to rationalise and bring up-to-date the courts’ approach to contractual interpretation, but also because it undoubtedly presages a common-sense approach to that task. The difficulties in analysis which I have traversed cannot be avoided but are, I would think, to be confronted with the same common-sense as is enjoined in that statement. If the language of cl 6.3 read in the context of the contract as a whole, in the light of its commercial objective, and having regard to the contractual matrix do not bring one to the conclusion that a resource consent under the Proposed Plan was effectively a foregone conclusion, it would seem sensible to have regard to the precontractual drafts referred to above. It is only by having regard to that evidence that the situation can be avoided whereby the Courts’ risk adopting a meaning which is not what the parties actually intended.
[69] Yet, the rule that evidence of precontractual negotiations is not receivable is seemingly absolute. On this basis the evidence of the prior draft must be excluded. The draft was part of the negotiations between the parties using the term “negotiations” in its ordinary sense. For reasons I will give shortly, I am not convinced that the rule is or should be absolute. Certainly, for present purposes, the rule can stand as the general rule, but it can surely enjoy sufficient flexibility to permit of a departure where a departure would enable the Court to arrive at a meaning of the contract which accords with the ascertainable intention of the parties.
[70] It is appropriate to here list the factors which I consider warrant a departure from the rule in this case.

The intention of the parties

[71] While it may be presumed that the parties have intended what they have in fact said in the contract, the objective, enshrined in ancient authority, is to discover from the written agreement the intention of the parties. See, for example, Cholmondeley (Marquis of) v Clinton [1820] EngR 550; (1820) 2 Jac & W 1, at 91. To refer to extrinsic evidence to assist that objective would not seem to be a radical suggestion. As Wigmore has said: “The history of the law of interpretation is the history of a progress from a stiff and superstitious formalism to a flexible rationalism” (Wigmore on Evidence, (1981, Chadbourne rev., Boston) Vol 9, at para 2461). I agree. The cardinal rule of contractual interpretation must be to ascertain the intention of the parties. To the extent this rule is not implemented, the courts must incur the criticism of failing to give effect to the reasonable expectations of the parties. Surely the parties are reasonably entitled to expect that the courts will strive to ascertain their true intention or, certainly, not to arrive at a meaning of their contract which is at variance with their actual intention. They cannot expect that the judicial exercise of construing their contract will be buried under a stockpile of excessive formalism.
[72] Professor McLauchlan of the Law Faculty of Victoria University of Wellington has been in the vanguard of jurists urging a more realistic and mature attitude to contractual interpretation on the part of the courts. In a series of outstanding articles, he has urged that the courts should never enforce an agreement in accordance with a meaning which reliable evidence may show is contrary to the actual intention of the parties. (See D W McLauchlan “The Plain Meaning Rule of Contract Interpretation” (1996) 2 NZBLQ, at 80; “A Contract Contradiction” (1999) 30 VUWLR 175 and “Subsequent Conduct as an Aid to Interpretation” (1996) 2 NZBLQ, at 237; “Common Assumptions and Contract Interpretation” (1997) 113 LQR 237.) The distinguished Professor points out that any notion that words have a “plain” meaning, a “proper signification” or a “fixed meaning not susceptible of explanation” and that, as a consequence, parol evidence should not be admitted to alter that meaning, has been exploded so often in the past that it is almost tedious to repeat the arguments. He backs up his claim by citing a considerable number of publications on the point (“The Plain Meaning...”, supra, at 84). The plain meaning rule has, of course, been criticised by any number of leading commentators. See e.g., AL Corbin Corbin on Contracts (1st rev ed, 1960, West Publishing Co, St Paul) vol 3 at 157; and “The Interpretation of Words and the Parol Evidence Rule” (1965) 50 Cornell LQ 161; Farnsworth “‘Meaning’ in the Law of Contracts” (1967) 76 Yale LJ 939; and Contracts (2ed, 1990, Little Brown, Boston) at chapter 7; Wigmore, supra, at para 2462; and Lord Steyn, “Contract Law”, supra, at 439.
[73] The truth is that no words have a fixed or settled meaning. Language is inherently uncertain. The plain meaning of a writing can almost never be plain except in a context. This point was made graphically by Holmes J in Towne v Eisner [1918] USSC 6; 245 US 418, 425 (1918) when he stated: “A word is not a crystal, transparent and unchained, it is the skin of the living thought and may vary greatly in colour and content according to the circumstances and the time in which it is used”. Professor McLauchlan therefore argues with undeniable logic that it cannot be said that extrinsic evidence varies or contradicts the terms of a written contract until, through the process of interpretation itself, it has been determined what the words actually mean. Consequently, if parol evidence is admitted merely as an aid to interpretation, it does not vary or contradict the written terms but goes to determine what, in fact, the terms are which cannot be varied or contradicted. (“The Plain Meaning...”, supra, at 87).
[74] The Professor makes the point that the rule by which extrinsic evidence is excluded in a dispute relating to the interpretation of a contract is inconsistent with the equally well-established principles relating to the formation of a contract. His thesis is that the interpretation process required to determine whether a contract was formed should not differ fundamentally from the process required to determine the meaning of that contract. (See “A Contract Contradiction”, supra, at 182). The Professor does not for one moment suggest that the parties should be able to go into the witness box and, with the benefit of hindsight, give their different and unsubstantiated versions of what they each meant. The point, he claims, is entirely different where there is reliable evidence of conduct or communications between the parties, within the course of the negotiations or afterwards, which lends support to the conclusion that they attached a particular meaning to the words in dispute at the time of the contract, or at least that one of them did and the other knew or had reason to know of that meaning. (Ibid). Thus, the parties’ actual intention, if clearly proven, he insists, ought to prevail regardless of the formal manner in which that intention happens to be manifested. The court should never bind the parties to a meaning if it is satisfied that they attached a different meaning to the provision in dispute, or one of them did and the other had reason to know of this intended meaning. (Ibid, at 187).
[75] Before going further, I would expressly clarify that I am not suggesting that the presumption that the parties generally intend the words of their contract to mean what they say should be displaced. Self-evidently in most formal contracts this will be the case. In most cases, therefore, the plain meaning rule will continue to apply. The rule would be only departed from in cases where the court cannot be confident that the words used in the contract convey the meaning intended by the parties and reliable extrinsic evidence is available to confirm the parties’ actual intention.
[76] I would also reiterate that, for the purposes of this case, I am not seeking to entirely abrogate the rule that evidence of prior contractual negotiations is not receivable to ascertain the meaning of a contract. What I am suggesting is that the rule should not be treated as an absolute and rigid rule to the point where the court is called upon to impose an interpretation which does not accord with the parties’ actual intention. The objective basis would remain. But that basis would be enhanced by approaching the task of determining what the contract would convey to a reasonable person without artificially restricting the background knowledge available to the parties at the time they completed the contract. Subject to the caution which I will shortly stress, that background knowledge should be able to include reference to matters that might otherwise come under the general heading of negotiations where such a reference would undoubtedly assist to ascertain the true meaning of the parties’ contract. Thus, in this case, the clause in the draft agreement and the deleted recital E would assist the reasonable person reading the words of the contract to determine what the parties intended cl 6.3 to mean, as distinct from their subjective intentions divorced from the wording used.
[77] Nor is it remotely suggested that such evidence be received without caution. Obviously, the evidence must be reliable. No doubt documentary evidence will tend to be more reliable than oral evidence. The reason usually given to justify the exclusion of prior negotiations is that the parties’ position will change with each passing communication until the final agreement which records a consensus. That reason is essentially a generality. Whether or not this is so and, if so, the extent to which it is so, will depend on the particular circumstances of each case. Those particular circumstances can be taken into account in determining the weight, if any, to be given to the evidence of the prior negotiations.
[78] In so far as what I have urged is not a total rejection of the rule excluding evidence of prior negotiations, it is unnecessary to address the perceived policy reasons for that rule. Relaxing the absolute and rigid nature of the rule can be done without corroding the underlying policy. It may be helpful, however, to consider the validity of the policy considerations specifically in relation to the circumstances of this case.
[79] First, I take the charge of uncertainty and unpredictability in dispute resolution. It is difficult to see how rejecting extrinsic evidence in a case such as the present assists the parties to know where they stand. It can hardly be said that the admission of extrinsic evidence to assist in ascertaining the meaning to be given to the contract would create uncertainty when that evidence is as strong as it is in the present case. As shown above, the language used is uncertain to the sense that it cannot be applied literally. Then, having regard to cl 6.3 in context, it cannot be said that the plain meaning emerges so clearly that certainty is achieved. Self-interest in contract prevails and each party can be expected to take a different view as to the meaning of the words used. One party will contend for a meaning which would accord with what he or she firmly believes was agreed and will not lightly yield to another interpretation and accept that it is certain. The other party will wish to rely on what it claims is the plain meaning of the words used, irrespective of his or her real belief. Whether greater certainty or predictability results is, at least, doubtful. Indeed, CGI in this case might have been less inclined to assert what it claims to be the plain meaning if it realised that extrinsic evidence could be received to determine the parties’ true intention. Of course, it is to be accepted that parties will often genuinely take a different meaning from their contract, but this will always be so, and is a factor which would not be exacerbated if the plain meaning rule were held to be less than absolute.
[80] Secondly, other reasons given for not permitting parol evidence to be admitted in aid of interpretation when the courts consider that a plain meaning can be ascertained relate to considerations of convenience and efficiency. Kirby P (as he then was) summed up this reason in these terms: “The social purpose ... is to discourage litigation, with the time consuming, costly and dilatory exploration of detailed facts and the resolution of conflicts of recollection and testimony. It is to discourage curial exploration of the unfathomable depths of subjective intentions.” See B & B Constructions (Aust) Pty Ltd v Brian A Cheeseman & Associates Pty Ltd (1994) 35 NSWLR 227, at 234. But considerations of convenience and efficiency should not be lightly permitted to defeat the true intentions of the parties. In this case the extrinsic evidence is limited in scope and assists to elucidate the meaning which the parties intended the contract to bear rather than plumbing the “unfathomable depths of subjective intentions”. Further, as Professor McLauchlan points out, Kirby P’s statement ignores the reality that many interpretation disputes will be accompanied by alternative claims for rectification, misrepresentation, or estoppel in respect of which extrinsic evidence will be admitted. No or little time or cost is saved. (See McLauchlan, “A Contract Contradiction”, supra, at 191). I do not know what the position is in England, but I can recall few contractual interpretation disputes in which such evidence is not before the Court in this country. Indeed, that was so in this case as rectification was initially sought. The reality is that there would be little or no saving in time or cost in all but a few cases.
[81] Nor, thirdly, is this a case where third parties might seek to rely on the literal wording of the contract not knowing of the evidence external to the contract which would change its apparent meaning. Why third parties may be thought to be entitled to hold the parties who are privy to the contract to a meaning which is not their meaning is difficult to see. But in this case it is indisputable that, say, any purchasers from CGI would clarify in their agreement what they were purporting to purchase. It is not an issue in this case.
[82] Let me briefly recapitulate the reasons why in this case the rule could be departed from to the extent of permitting consideration of the extrinsic evidence in point.
[83] For these reasons I would prefer to accept that the extrinsic evidence in issue is both receivable and reliable. It serves to put beyond serious argument the indications already evidenced in the contract and the contractual matrix that the parties intended the necessary consents on which the further payment depended to be those consents which had been applied for and which were in train.

But is this evidence available?

[84] This Court is not a final court of appeal. A right of appeal remains to the Privy Council sitting in London. It may not therefore be open to this Court to have regard to the extrinsic evidence to which I have referred.
[85] Lord Hoffman’s summary in West Bromwich case is the most up-to-date and progressive statement of the principles applicable to the interpretation of a contract. Yet, even though it is acknowledged that the boundaries of the exception are in some respects unclear, Lord Hoffman holds that the rule is absolute if the evidence relates to prior negotiations. The Bromarin case illustrates the reluctance of the English Courts to look at extrinsic evidence as an aid to interpretation. I therefore suspect that the principles as enunciated by Lord Hoffman will be as far as their Lordships in London will be prepared to go. They will not displace the curt reminder to this Court of the correct approach in Malanesian Mission Trust Board v Australian Mutual Providence Society [1977] 1 NZLR 391. Lord Hope stated (at 394-395):

The approach which must be taken to the construction of a clause in a formal document of this kind is well settled. The intention of the parties is to be discovered from the words used in the documents. Where ordinary words have been used they must be taken to have been used according to the ordinary meaning of these words. If their meaning is clear and unambiguous, effect must be given to them because that is what the parties have taken to have agreed to by their contract. Various rules may be invoked to assist interpretation in the event that there is an ambiguity. But it is not the function of the Court, when construing a document, to search for an ambiguity. Nor should rules which exist to resolve ambiguities be invoked in order to create an ambiguity which, according to the ordinary meaning of the words, is not there. So the starting point is to examine the words used in order to see whether they are clear and unambiguous. It is of course legitimate to look at the document as a whole and to examine the context in which these words have been used, as the context may affect the meaning of the words. But unless the context shows that the ordinary meaning cannot be given to them or that there is an ambiguity, the ordinary meaning of the words which have been used in the document must prevail.

[86] Nor, in line with this approach, will ambiguities be lightly recognised. In the present context, for example, the fact that the word “necessary” may mean “necessary to proceed”, or “necessary as identified” or “necessary to complete in essence ... the development” will not be universally accepted as constituting an ambiguity. In the result, notwithstanding the genuine controversy surrounding the words used in cl 6.3, the language is likely to be vested with a “plain meaning” and extrinsic evidence excluded from consideration.
[87] If that is the case, the rule against the admission of evidence relating to prior negotiations will be applied without qualification. I do not have any presentment that English law is about to revisit this rule.
[88] It would, of course, be open to this Court to seek to depart from the law as applied in England on the basis of this country’s implementation in 1995 of the United Nations Convention on Contracts for the International Sale of Goods. Liberal provisions for the interpretation of international sales contracts are included in this Convention. Article 8(1) provides that statements made by a party “are to be interpreted according to his intent where the other party knew or could not have been unaware what that intent was”. Article 8(2) stipulates that, if the latter provision is inapplicable, a party’s statements “are to be interpreted according to the understanding that a reasonable person of the same kind as the other party would have had in the same circumstances”. Under Article 8(3) “[i]n determining the intent of a party or the understanding a reasonable person would have had, due consideration is to be given to all relevant circumstances of the case including the negotiations, any practices which the parties have established between themselves, usages and any subsequent conduct of the parties.” Professor McLauchlan has correctly pointed out that it is odd that evidence of the parties’ negotiations are admissible to aid the interpretation of international sales agreements but not commercial or other domestic contracts. (See McLauchlan, “A Contract Contradiction”, at 193).
[89] Reference may also be made to the Unidroit Principles of International Commercial Contracts published in 1994. This document, which is in the nature of a restatement of the commercial contract law of the world, refines and expands the principles contained in the United Nations Convention. Particularly relevant for present purposes is Article 4.3. Having stipulated that a contract is to be interpreted according to the common intention of the parties (4.1), and that the statements and other conduct of a party shall be interpreted according to that party’s intention if the other party knew or could not have been unaware of that intention (4.2), Article 4.3 provides that, in applying these general principles, regard should be had to all the circumstances including “preliminary negotiations between the parties”. Clearly, it is desirable that the approach of the Courts in this country to the interpretation of statutes should be consistent with the best international practice. (See Attorney General v Dreux Holdings Ltd (1997) 7 TCLR 617, at 627 and 642).
[90] But while this Court could seek to depart from the law as applied in England and bring the law in New Zealand into line with these international conventions, I do not think it would be permitted to do so by the Privy Council. England has not yet adopted the United Nations Convention and has shown little readiness to allow the Courts in this country any latitude in the interpretation of contracts. (As Professor McLauchlan points out, between June 1996 and December 1997, six decisions of this Court, none of which raise issues of general principle, were the subject of appeals to the Privy Council. Of these, four were successful and one was dismissed by a bare three to two majority. (See “A Contract Contradiction”, supra, at 190). This Court has, of course, been allowed considerable latitude in certain areas. See e.g., Invercargill City Council v Hamlin [1996] 1 NZLR 513; W v W [1999] 2 NZLR 1; and Lange v Atkinson [2000] 1 NZLR 257. Certainly, the contractual environment in New Zealand is significantly different from that which prevails in England. In this country, no less than nine statutes have been enacted since 1944 which impinge upon the traditional common law rules relating to the formation and performance of contractual undertakings. In England the common law remains dominant. But other, perhaps, than fostering a different judicial approach, I am not certain that this different contractual environment bears upon the present point. Being realistic, the law of contract in this country, other than as specifically reshaped by statute, is likely to remain the law of England. Indeed, in 1985 the Privy Council made it clear that, apart from cases involving considerations peculiar to New Zealand or questions of local policy, the Courts of New Zealand must adhere to the law which is of general application as the common law of England. See Hart v O’Connor [1985] 1 NZLR 159, esp. at 165 and 174.
[91] If there were any doubt as to whether the preferred approach is open to this Court, I believe that it is put to rest by the decision of the Privy Council in Lim v McLean [1997] UKPC 10; [1997] 1 NZLR 641. At issue in that case was the construction of a contractual provision in an agreement for the sale of a one-half share of a fishing vessel along with a one-half share of the individual transferable quota (ITQ) allocated to the vendors under the Fisheries Amendment Act 1986. Although it was not known what the exact amount of the quota would be, the parties knew informally that it would be issued at about 447 tonnes. The agreement purported to sell the fishing boat together with the half-share of the ITQ described in Schedule III to the agreement. Schedule III described the ITQ as that issued by the relevant Ministry “granting the right to catch not less than 447 tonnes of orange roughy per annum”. Sometime prior to the agreement the vendors had issued judicial review proceedings against the Ministry claiming a greater allocation of ITQ. Subsequent to the agreement, and indeed much later, the High Court ruled that the original vendors were entitled to a further 130 tonnes of orange roughy. The purchaser claimed a half-share in this increase.
[92] This Court unanimously took the view that the parties to the agreement intended to transfer a half-share of the quota of the order of 447 tonnes. Highly influential in the Court’s thinking was the fact that the contract contained no provision for an adjustment of the purchase price in the event that there was a substantial variation to the ITQ. The Judge at first instance had been able to confirm that the purchase price represented an approximation of the value of the vessel and the then market value of the quota. The market value of one tonne of quota was known. This value had been multiplied by the parties to arrive at the value of the 447 tonnes referred to in the Schedule. Half that value added to half the value of the fishing vessel gave the purchase price. This analysis, while well within the bounds of the contractual matrix, provided the clearest possible evidence that the parties intended to sell a half-share in the ITQ of the order of 447 tonnes.
[93] Thus, the parties’ actual intention was readily discernible. The overall contract price made sense in the context of a sale of half the ITQ of the order of 447 tonnes. Any significant increase in the tonnage over and above 447 tonnes represented a windfall to the purchaser.
[94] But the Privy Council took a different view and reversed this Court’s decision. The majority of their lordships (Lord Browne-Wilkinson, Lord Mustill and Lord Clyde) adopted a literal interpretation. The agreement spoke of the right to catch “not less than 447 tonnes” of the fish. It did not speak of 447 tonnes of ITQ more or less. Lord Nolan and Lord Nicholls dissented, the latter observing that the majority’s interpretation made “no sense commercially” and that the Court should be slow to attribute to an ambiguously drawn document a meaning which would require the vendors to sell, for no additional payment, a half-share in an extra 130 tonnes. But the majority’s view prevailed.
[95] The decision is comparable to the present case in that it resulted in a construction contrary to the actual intention of the parties and a substantial windfall to the purchaser. It is true that the decision of the Privy Council was a majority decision and may have been different with a different composition of the Board. But it would be foolhardy to ignore the clear tenor of the decisions of the English Courts to press for a plain meaning, even in the face of controversy, and to attribute an intention to the parties which they may not have had and which may, indeed, be contrary to their actual intention. For the moment, therefore, this Court must accept that, until the rule is reviewed by the Privy Council (or, possibly, the House of Lords) the extrinsic evidence relating to the draft agreement must be disregarded as part of the negotiations. The cautious flexibility in the application of the rule which would seem sensible to ensure effect is given to the reasonable expectations of commercial men or women is lacking. This Court must therefore be content with its earlier finding that, having regard to the context of the clause, the commercial objective of the provision, and the contractual matrix a resource consent under the Proposed Plan does not come within the purview of cl 6.3.
[96] For this reason, the appeal is allowed.
[97] The Court heard no argument on the question of interest. There does not appear to be anything in the contract touching on the topic, and the amended statement of claim seeks interest under the Judicature Act 1908 only. Not having heard argument the Court considers that, if the appellant’s claim for interest cannot be settled by the parties, it should be determined in the High Court. If necessary, the proceeding is remitted to the High Court for that purpose.
[98] Costs in this Court are awarded against the respondent in the sum of $5,000, together with all reasonable disbursements, including travelling and accommodation expenses, which failing agreement are to be fixed by the Registrar. The order for costs in the High Court is vacated. If the parties cannot agree upon the costs to be paid to the appellant in lieu thereof, the question of costs in that Court is to be determined by the High Court in the light of this judgment.

DOOGUE J

[99] I have had the opportunity of reading the judgments of Thomas and Salmon JJ in draft. I specifically agree with those parts of the judgments upholding the appeal, the reasons for such a conclusion and the result proposed. I have read that part of Thomas J’s draft judgment dealing with the appropriate use of extrinsic evidence with interest. As Thomas J indicates, it is not essential to the judgment and for that reason I prefer to express no view upon it. As we are disagreeing with a well-reasoned judgment by Panckhurst J, however, I add a few words of my own.
[100] Like Thomas J, I agree with the approach of Panckhurst J to the meaning of clause 6.3 of the contract of 14 March 1996. As Thomas J records, CGI did not take issue with that view. However, like Thomas J, I find it necessary to disagree with Panckhurst J’s classification of the consent under the Proposed Plan as being “necessary”.
[101] We are differing from Panckhurst J in what is largely a value judgment as to what is a “necessary” consent for the purposes of clause 6.3 at the time the parties entered into their contract on 14 March 1996. The difference reflects a different appreciation of the realities of the resource management process, perhaps, as Salmon J suggests, because of the nature of the argument before us.
[102] When the parties signed their agreement on 14 March 1996, the “necessary” consent was one which achieved appropriate access to the site off Johns Road. It clearly was, and would have been, within the contemplation of the parties that the appropriate actions in respect of Plan Change No. 11 in relation to the Christchurch City Transitional District Plan could achieve that result. By that time the Proposed District Plan had been notified. It was inconceivable in resource management terms that a different substantive conclusion could be reached at or about the same time in respect of the appeal in relation to Plan Change No. 11 to the Transitional Plan and the application in respect of the Proposed Plan. A consent under the Proposed Plan may have been technically necessary, but in substantive terms, if the requisite access could be achieved through the appeal to Plan Change No. 11, not only was the war won but the necessary consent for the purposes of clause 6.3 of the agreement had been achieved. The consent in respect of the Proposed Plan became a “wash up” consent technically necessary but no more.
[103] It was understandable that Panckhurst J should take the view that the Proposed Plan consent was “necessary” to the development. However, from my perspective it was inconceivable that that consent would not be achieved under the Proposed Plan when in the same period of time it was achieved in respect of the Transitional Plan. If the issue of access to the property for the development had to be determined by the Environment Court at any time after the agreement, it is inevitable that that Court in respect of an issue with considerable flow-on consequences would have reached a decision consistent with both plans. To do otherwise would have been contrary to principle. Therefore, in my approach to the matter, which I believe is, to a large extent, borne out by the manner in which CGI itself approached the matter, the parties had to contemplate that consent under the Proposed Plan was not “necessary” to the development if the consent could be achieved under the Transitional Plan, as in fact occurred. Hence my agreement with the judgment of Thomas J on this essential issue.

SALMON J

[104] I too have had the opportunity of reading the judgment of Thomas J in draft. I have also read the draft judgment of Doogue J. I agree that the appeal should be upheld and I agree that the reason why it should be upheld is that on a proper construction of the contract the resource consent under the proposed district plan in relation to access to the site off Johns Road was not a “necessary” consent.
[105] Panckhurst J recognised that the word “necessary” could not be given its literal meaning. We have perhaps had the advantage of a more concentrated focus on the consent pursuant to the proposed plan than was available to Panckhurst J. Once approval had been given to the access to the site in terms of plan change no.11, it would be necessary for there to be significant objective or policy changes in the proposed plan before it could be said that consistency in decision making would allow a decision under that plan that was different to that made on proposed change no.11.
[106] There was no evidence of such a significant objective or policy change.
[107] Like Thomas and Doogue JJ I consider it to be inconceivable in the circumstances of this case that a proper application of the Resource Management Act would allow consent to be refused under the proposed plan so soon after it had been granted in terms of the provisions of the transitional plan. In fact, of course, consent was granted and that result had an inevitability about it.
[108] Once that conclusion is reached, then by adopting the same approach to the meaning of the word “necessity” as commended itself to Panckhurst J it followed that the access consent under the proposed plan was not a “necessary” one.

Solicitors
Caudwells, Dunedin for Appellant
Anderson Lloyd, Dunedin for Respondent

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