Canterbury Golf International Ltd v Yoshimoto (New Zealand) [2002] UKPC 40

Judicial Committee of the Privy Council
Case No Privy Council Appeal No. 99 of 2001Venue FROM THE COURT OF APPEAL OF NEW ZEALAND
Between
Canterbury Golf International LtdAppellantYoshimoto (New Zealand)Respondent
Before
Lord Slynn of HadleyLord Nicholls of BirkenheadLord HoffmannLord Scott of Foscote TheDate 15 July 2002
[1]:- Lord Slynn of Hadley Lord Nicholls of Birkenhead Lord Hoffmann Lord Scott of Foscote The Rt. Hon. Justice Tipping [Delivered by Lord Hoffmann ] This appeal raises a question of construction on an agreement for the sale of shares. By a contract dated 14 March 1996 the plaintiff Mr Yoshimoto agreed to sell the entire issued share capital in New Zealand Plan International Ltd (“NZPIL”) to the defendant Canterbury Golf International Ltd (“CGI”). NZPIL owned a property on the outskirts of Christchurch known as The Lagoons, which it was intending to develop as a golf course with ancillary houses and tourist facilities.[2]The planning situation was complicated. Under the Christchurch Transitional District Plan (“the transitional plan”) the site was zoned Rural 2 and Rural 3. To alter the zoning to permit the development, NZPIL promoted Plan Change 11. Many objections were lodged by public authorities and individuals but after a five-day public hearing at the end of 1993 the Christchurch City Council approved the Plan Change with some variations.[3]The one important point on which NZPIL failed to persuade the Council concerned the access to the development from Johns Road, the main highway passing the site. NZPIL wanted access over an unformed but legally dedicated road which ran from Johns Road to the boundary of the site. This has been called “the paper road”. The planners wanted access to be from a cul-de-sac called Greywacke Road. NZPIL did not own the land between the end of Greywacke Road and the site and considered that the cost of buying it would make the project uneconomic. NZPIL therefore appealed (by making a reference to the Planning Tribunal) to have the decision on the means of access reversed. At the time of the contract, the appeal was pending.[4]A separate obstacle was a Flood Plain Management Scheme covering an area which included the site. This had been notified by the Canterbury Regional Council. If it was adopted, NZPIL would need resource consent for the development. It opposed the making of the Scheme and applied for resource consent if the Scheme was adopted. A major hearing on these issues was actually in progress at the time that the contract was signed.[5]A third obstacle was the proposed Christchurch City Plan notified by the City Council in June 1995 pursuant to the Resource Management Act 1991 (“the proposed plan”). It incorporated the zoning provisions contained in Plan Change 11. But it contained the same condition restricting access to Greywacke Road.[6]Section 9(1) of the 1991 Act provides:
“No person may use any land in a manner that contravenes a rule in a district plan or proposed district plan unless the activity is … expressly allowed by a resource consent granted by the territorial authority responsible for the plan.”
[7]NZPIL could not therefore use the paper road access unless it succeeded in its reference to the Planning Tribunal and also achieved a parallel change in the proposed plan or obtained the necessary resource consent from the Council. At the time of the contract it had made submissions to the Council seeking the necessary variation of the proposed plan.[8]This was the background to the provisions on resource consents and authorisations in the contract. The position was recorded in recital D:
“D. [NZPIL] 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.”
[9]The contract defined the “Development” as “a proposed development incorporating an 18 hole golf course” etc, specifically including “access to the above to be gained off Johns Road, Christchurch”.[10]The price was fixed as $3.4m, but subject to clause 6.3, which provided:
“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 [NZPIL] obtains all necessary authorisations or resource consents to the Development within 12 months of the date of this Agreement.”
[11]NZPIL was wholly successful at the hearing on the Flood Plain Management Scheme. In July 1996 the Canterbury Regional Council decided to withdraw it. It formally notified withdrawal on 26 October 1996. As for the access under the transitional plan, NZPIL persuaded the Christchurch City Council to change its mind. Others who had also made references (various individuals and the Christchurch Airport Authority, which was concerned about birdstrikes) were persuaded to withdraw them. As a result, the Environment Court (which had been substituted for the Planning Tribunal) made an order by consent on 20 February 1997 amending the transitional plan by deleting the condition requiring Greywacke Road to be used as the access and substituting the paper road.[12]That left only the corresponding condition in the proposed plan to be removed. NZPIL had made submissions to this effect but the formulation of the plan was a slow process. It would have taken far too long to wait for the submissions to be considered. So on 10 March 1997 it applied for resource consent under the proposed plan. As the City Council had already agreed to the consent order accepting the paper road as part of Plan Change 11, NZPIL thought there should be little difficulty. It applied on 10 March 1997 and asked for the application to be granted without public notification. But the Council required notification. Three submissions were received. After negotiations with the submitters (including an individual who was persuaded to remove his entire bungalow from the site of the road) there was an uncontested hearing on 21 July 1997 and consent was granted on 1 August 1997. This was four and a half months after the expiry of the twelve month period. If the consent was “necessary” for the purposes of clause 6.3, it was obtained too late to enable Mr Yoshimoto to claim the extra $1m.[13]The terms of clause 6.3 obviously created an incentive for CGI (which took control of NZPIL on completion) to delay the planning process so that it did not have to pay the extra $1m. Clause 6.5 was intended to protect Mr Yoshimoto against NZPIL dragging its feet:
“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.”
[14]Mr Yoshimoto does not suggest that CGI was in breach of this clause. It took all practical and reasonable steps to obtain the necessary approvals. But he contended that, upon its true construction, clause 6.3 had been satisfied. He said that the resource consent under the proposed plan was not a “necessary ... resource consent” within the meaning of the clause. This was for two reasons. The first was that Recital D said that all necessary authorisations and consents had been applied for. But no application for the resource consent under the proposed plan had been made when the contract was signed. This showed, he said, the parties did not regard it as a “necessary consent”. The second reason was that once the Council had agreed to the consent order by the Environment Court, the granting of resource consent under the proposed plan was a foregone conclusion. The Council would have had no grounds for changing its mind. NZPIL’s application for consent to be granted without notification showed that it also thought it had become a formality.[15]Panckhurst J rejected both these submissions. He said that recital D did not restrict the plain meaning of clause 6.3. The resource consent under the proposed plan was a necessary consent because an essential part of the development could not lawfully proceed without it. The access was not a mere matter of detail. It was commercially important and specifically mentioned in the definition of the Development. As for the argument that success was a foregone conclusion, the judge said that the test was not whether the obtaining of all necessary consents was assured but rather that they were obtained.[16]The Court of Appeal reached a different conclusion. Thomas J accepted both of the arguments which Panckhurst J had rejected. He said the commercial objective of the contract was to provide a differential purchase price “depending on whether the development potential of the land was realisable or not”: see p. 14. The consent order of the Environmental Court demonstrated that it was realisable. Once that order had been made, it was unrealistic to suppose that the resource consent under the proposed plan would not be forthcoming. He also said that if it had been intended that the resource consent was a “necessary consent”, one would have expected it to be mentioned in recital D.[17]Doogue J said that when the parties signed the agreement, the “necessary” consent was one which achieved appropriate access off Johns Road. But they would have contemplated that this could be achieved by Plan Change 11 alone. Once this had been approved, a consent under the proposed plan was “technically necessary” but no more. It was “inconceivable” that it would not be granted. Not to grant such consent would be “contrary to principle”. Salmon J gave a short judgment in similar terms. Their Lordships note that the members of the Court of Appeal made no comment on the uncontradicted expert evidence of Ms Sarah Dawson, to the effect that consent was by no means assured. But they are content to proceed on the assumption that, as a matter of law or judicial notice, the Court of Appeal were entitled to take a contrary view.[18]Their Lordships nevertheless respectfully think that, even on this assumption, Panckhurst J was right. It is true that in general terms the commercial objective was to agree an increase in the price if the development potential proved to be realisable. But the parties chose a specific criterion for demonstrating this to be the case. That criterion was that all necessary consents had been obtained. It is not for the courts to substitute a different criterion on the ground that it would satisfy the commercial objective equally well or better.[19]The effect of section 9(1) of the Resource Management Act is that without the consent under the proposed plan, use of the paper road access would have been unlawful. It appears to their Lordships to follow that such consent was necessary. The development could not proceed without it. Panckhurst J accepted that clause 6.3 did not require NZPIL to have obtained, within the 12 month period, every consent which would be required during the course of construction. In that sense, he did not construe the words literally. But he qualified the literal meaning by reference to the act for which consent was required. Consent to the principle of constructing the golf course and buildings or the use of the access was “necessary”. Consent to details such as the use of a particular form of construction was not. It could be obtained ambulando in the course of the project.[20]The qualification made by the Court of Appeal is quite different. It is not by reference to the act requiring consent but rather by reference to the likelihood of the consent being obtained. Their Lordships consider that the Court of Appeal was in error when they said that because Panckhurst J qualified the literal words of clause 6.3 in one way, it followed that they were at liberty to qualify them in an altogether different way. The question is whether the language used by the parties, construed against the admissible background, can be given that meaning. The distinction made by Panckhurst J is a reasonable construction of what the parties meant by “necessary” in the light of what Thomas J identified as the commercial objective of the provision. But the construction adopted by the Court of Appeal would in effect substitute a different provision. The fact that a consent is very likely to be obtained cannot affect the question of whether it is necessary. In their Lordships' opinion, what the Court of Appeal has done is to construe “obtains” as meaning “is very likely to obtain”. They agree with Panckhurst J that this is not what the contract says.[21]Thomas J said that the construction he favoured was supported by six matters which were part of the matrix of the contract. First, the parties could not reasonably have intended that the consents to which clause 6.3 related “would be open-ended”. They had to be restricted to those specifically in the contemplation of the parties. Secondly, the proposed plan had been “left to one side” while NZPIL tackled Plan Change 11 and the Flood Plain Scheme. Thirdly, the only consent in substance required under the proposed plan concerned the access. Fourthly, the provision under which payment of the $1m depended upon NZPIL obtaining the consents was a “recipe for disaster”. It put Mr Yoshimoto in the hands of NZPIL and the planners. Fifthly, a representative of the purchasers had expressed the opinion that all necessary approvals could be obtained by September 1996. Sixthly, recital D referred to the proposed plan and the submissions which NZPIL had made but said nothing about an application for resource consent.[22]Their Lordships do not consider that any of these matters of background support the conclusion that the parties did not regard some form of consent to the access under the proposed plan as necessary. The question of access was clearly regarded as important. As Panckhurst J pointed out, treating it as a necessary consent does not commit one to the proposition that the necessary consents are “open-ended”.[23]The fact that NZPIL tackled Plan Change 11 and the Flood Plain Scheme before dealing with the proposed plan or that an officer of CGI thought that all necessary consents could be obtained by September throws no light on whether consent under the proposed plan was necessary. The express reference to the proposed plan in recital D suggests that it was. It is true that the recital records the submissions which had been made rather than an application for resource consent. But this change of tack is not challenged as unreasonable. If NZPIL had waited for its submissions to be considered, it would still be without consent. The application for resource consent was the most expeditious way of dealing with the matter. But what the recital suggests is that, one way or another, consent under the proposed plan had to be obtained.[24]It is true that the arbitrary limit of 12 months for obtaining the consents introduced, as the parties must have been well aware, a certain aleatory element into the contract. But that is a neutral consideration in deciding which consents had to be obtained.[25]In a separate section of his judgment, Thomas J expressed the view that his construction was supported by two provisions in earlier drafts of the contract. He said that the normal rule which excludes evidence of pre-contractual negotiations, authoritatively stated by Lord Wilberforce in Prenn v Simmonds [1971] 1 WLR 1381, should be relaxed or departed from. Their Lordships do not think that this is a suitable occasion for re-examining the law because they consider that in this case the evidence is, as Lord Wilberforce predicted, unhelpful.[26]The first provision relied upon is a deleted recital E: “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 $2,000,000 for the Shares. If the consents, or other planning authorisations presently applied for by the Company allow the Development to proceed, the Purchaser acknowledges that that defined development potential will justify a further premium over land value of $1,400,000."[27]This recital is said to show that the parties contemplated that if the consents and other authorisations applied for at the time of the contract were granted, the Development could proceed. That is true. If Plan Change 11 to the transitional plan and the corresponding submissions on the proposed plan had been accepted, the desired access could lawfully have been constructed. But a consent in accordance with the submissions on the proposed plan was not obtained. The only significance of the recital is that it presupposes that some form of consent under the proposed plan was necessary. But in this respect it added nothing to recital D, which survived into the actual contract.[28]The other provision relied upon was an earlier version of clause 6.3. It said that acceptance of NZPIL's submissions on the proposed plan or acceptance of Plan Change 11 within 18 months were to be alternative conditions for payment of the $1m. This is said to show that the achievement of consent under one or the other plan (but not both) was regarded by the parties as enough. Their Lordships do not think that it is helpful to try to construe the earlier version of clause 6.3 because it was dropped and the present clause 6.3 substituted. It seems to them pointless to try to speculate upon why the change was made. No doubt each party had their reasons for proposing it on the one hand and accepting it on the other. All a court can do is to decide what the final contract means. Their Lordships do not think that the negotiations cast any doubt upon what Panckhurst J regarded as the plain and obvious meaning of “necessary consent”. They will therefore humbly advise Her Majesty that the appeal should be allowed and the judgment of Panckhurst J restored. Mr Yoshimoto must pay CGI's costs in the Court of Appeal and before their Lordships' Board.

Cited in 2 later judgments