1 | 2 | 3 | 4 I will now review two recent cases. The first strongly underlines an orthodox approach to construction.
An orthodox approach to the construction of a commercial contract was adopted by the Privy Council on Canterbury Golf Ltd v Hideo Yoshimoto (“Yoshimoto”) . (14) The Privy Council showed itself unwilling to allow consideration of background or purpose to deflect from the primary task of construing the words of the agreement.
In the Court of Appeal, Justice Thomas had invited the Privy Council to take up his suggestion that reference to the background to the transaction should include evidence of earlier negotiations and draft agreements. He suggested that the time to depart from the approach set out by Lord Wilberforce in Prenn v Simmonds (15) had arrived. In Prenn v Simmonds Lord Wilberforce had said that evidence of pre-contractual negotiations was generally unhelpful in construing an agreement and should not be considered as part of the background. Such evidence would often reflect the view of one party or the other and, in any event, the parties had chosen to express their agreement in the contract. Earlier negotiations and drafts had been overtaken by the agreement actually entered into.
In allowing the appeal, the Privy Council expressly refused to enter into any debate about evidence of pre-contractual negotiations, although Justice Thomas had found support for his interpretation of the agreement in two provisions in earlier drafts of the contract. Their Lordships said that they did not think that this was a suitable case for re-examining the law because, in the Yoshimoto case, the evidence was, as Lord Wilberforce had predicted it would be in Prenn v Simmonds, unhelpful. (16) FactsMr Yoshimoto had agreed to sell shares in a company, NZPIL, to CGI. The company owned land which was to be developed as a golf course.
The planning situation under the relevant legislation and local plans was complicated. NZPIL faced various planning issues. NZPIL had promoted a change to the Christchurch Transitional District Plan (“Plan Change”) allowing, among other things, access over a paper road. They needed approval for it. The Council did not approve this part of the Plan Change. At the time of the contract the council had said that access had to be through an existing road, not a paper road as NZPIL wanted. An appeal in the Planning Tribunal was pending from this at the time of the contract.
A second planning problem was the flood plan management scheme which the local council was promoting. If the scheme was to be applied, a resource consent would be needed. At the time of the contract, NZPIL had opposed the scheme and a hearing was pending.
A third area of difficulty lay in the Christchurch City plan. This plan also provided for entry, as the district plan did, to the golf course through an existing road, not the paper road proposed. Access to the land by the paper road was unlawful under section 9(1) Resource Management Act 1991 and NZPIL had to succeed in its reference of the Planning Tribunal and also achieve a change in the City plan or obtain a resource consent.
The result of all this was, at the time of the sale of the land, that there were three areas where NZPIL had to win out to allow the development to proceed as it envisaged. The contractThe contract sought to provide for this. Recital D provided as follows: D. NZPIL has made application for resource consents as 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.
The contract defined “development” as “a proposed development incorporating an 18 hole golf course” specifically including “access to the above to be gained off Johns Road, Christchurch”. This was a reference to the paper road which NZPIL wanted to be the access to the course.
The price was fixed at $3.4m. This was subject to clause 6.3 which was the important clause in the dispute. Clause 6.3 provided: It shall be a condition precedent to the vendor’s right to demand payment in the sum of $1m being part of the balance of the purchase price owing under this agreement that NZPIL obtains all necessary authorisations or resources consent to the Development within 12 months of the date of this agreement.
After the agreement, NZPIL was successful in opposing the flood plan management scheme and it was withdrawn. Under the transitional plan, NZPIL persuaded the Christchurch City Council to change its mind. As a result the Environment Court made an order by consent amending the transitional plan by deleting the requirement that access be through an existing road and substituted the paper road which NZPIL wanted to use.
The only remaining matter was the condition concerning access in the proposed city plan. This aspect proved a slow process. The City Council had already agreed to a consent order accepting the paper road as part of the plan change 11 and NZPIL no doubt thought there would be little difficulty in this parallel process. However, the council required public notification of NZPIL’s application. To cut a long story short, the consent was only granted some 4½ months after the 12 month period in clause 6.3. There was no dispute that CGI had taken all practical steps to obtain the approvals in accordance with its obligations under clause 6.5 of the agreement.
Mr Yoshimoto contended that the resource consent under the proposed plan was not a “necessary” resource consent under 6.3 so that he was entitled to be paid under clause 6.3. He based this argument on recital D which said that necessary consents and authorisations had been applied for. No application for the resource consent in the proposed plan had been made when the contract was signed. Accordingly, it was not a “necessary” consent. The other 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 something of a “foregone conclusion”. 14. [2002] UKPC 40
15. [1971] 1 WLR 1381.
16. See paragraph 25 of judgment
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