FARRAND ORCHARDS LTD v KERIKERI IRRIGATION COMPANY LTD [2022] NZHC 765

FARRAND ORCHARDS LTD v KERIKERI IRRIGATION COMPANY LTD [2022] NZHC 765 [13 April 2022]IN THE HIGH COURT OF NEW ZEALANDWHANGAREI REGISTRYI TE KŌTI MATUA O AOTEAROAWHANGĀREI-TERENGA-PARĀOA ROHECIV-2020-488-000013[2022] NZHC 765BETWEEN FARRAND ORCHARDS LIMITEDFirst PlaintiffKERRY ALFRED FARRAND andKRISTIN JAYNE FARRAND, as trustees ofthe FARRAND FAMILY TRUSTSecond PlaintiffAND KERIKERI IRRIGATION COMPANYLIMITEDDefendantHearing: 21-25 March, 29 March 2022Appearances: M Nicholls for PlaintiffsJ Anderson QC and J G A Day for DefendantJudgment: 13 April 2022JUDGMENT OF VENNING JThis judgment was delivered by me on 13 April 2022 at 11.00 am, pursuant to Rule 11.5 of the HighCourt Rules.Registrar/Deputy RegistrarDateSolicitors: Martin Nicholls Limited, KerikeriLaw North, KerikeriCounsel: J Anderson QC, AucklandIntroduction [1]Parties [3]The Laurenson Orchard [5]The Kerikeri Irrigation Scheme and KI [13]Supply of water to the Laurenson Orchard [16]The dispute with the Hows as background to the September 2016 meetingwith KI [18]KI discovers the easement issue [25]The first installation of and subsequent removal of, the second meter (1577) [31]The second installation in December 2017 of the second meter [41]The relocation of meter 476 to its current position [48]The plaintiffs' claim [52]The evidence [54]The pleaded claim [57]The issues [58]The 2010 WSA [59]The contracting parties – a preliminary issue for the plaintiffs [60]Undisclosed principal [65]Transferred loss [87]The 2010 WSA [106]Implied terms [134]The 2016 Agreement [154]The psi and restrictor valve issue [173]The compromise Agreement [188]Additional costs [191]The digger issue [193]Loss of production [196]Summary/result [228]Costs [229]Introduction[1] Kerry Farrand and his wife, Kristin Farrand, have a number of kiwifruitorchards at Kerikeri. The orchard in issue in this case is known as the LaurensonOrchard. The Farrands carry on the business of the orchard through a company, andhold the land on which the orchard is planted in a trust. Kerikeri Irrigation CompanyLimited (KI) supplies water to orchardists, such as the Farrands, in the Kerikeri area.[2] The plaintiffs in this case sue KI alleging that on three occasions between 6October 2016 and 14 January 2019 KI breached a contract to supply water to theLaurenson Orchard and caused them subsequent production losses. They claimdamages for loss of production of $401,488.00. They also seek to recover excess watercharges, costs they incurred in mitigating their loss, and an alleged overcharge relatingto a digger. In total they seek $435,455.32 from the defendant.1Parties[3] The first plaintiff is Farrand Orchards Limited (FOL). It carries on business asa kiwifruit orchardist. Mr Farrand is its director. FOL leases land from the secondplaintiffs, Kerry and Kristin Farrand as trustees of the Farrand Family Trust (FFT).The Laurenson Orchard is on land owned by the FFT which is leased to FOL. FOLoperates the Laurenson Orchard as a kiwifruit orchard. FFT is the majorityshareholder of FOL.[4] KI is a co-operative company. It was established in 1990 by Kerikerihorticulturists and farmers to purchase the assets of the Kerikeri Irrigation Schemefrom the New Zealand Government. The Kerikeri Irrigation Scheme had beenestablished by the Government in the early 1980s to supply water to orchardists inKerikeri to encourage the development of horticulture and farming in that area. TonyCorcoran is KI's current general manager.The Laurenson Orchard[5] The Laurenson Orchard is on part of land originally owned by Philip Barhamand John Laurenson. In the late 1970s kiwifruit was planted on the land.[6] Mr Farrand initially became involved in kiwifruit in 1976 when he purchaseda separate block of land at Kapiro Road, which is now known as the Home Block, anddeveloped that into a kiwifruit orchard.[7] In about 1994 Mr Farrand and his wife purchased land on Pukeko Lane fromLaurenson.[8] In 1996 FOL was incorporated and shortly thereafter the FFT was settled. MrFarrand and his wife then gifted their interests in the land and orchards to the FFT.1 That is the sum claimed in the amended statement of claim filed on 13 March 2022 shortly beforetrial. In closing Mr Nicholls calculated the plaintiffs' claim at $448,243.05. In addition theplaintiffs still seek to recover excess water charges of $5,000 and $919.14 for the cost of a digger.The original trustees of the FFT were Mr Farrand, his wife and Alan McLeod, theirlawyer. Mr McLeod died about six years ago and has not been replaced.[9] The legal description of the Laurenson Orchard is Lot 1 and Lot 3 onDP 174528. Although in two lots, the orchard land is held in one title. Farrand Lot 1is to the east side of Pukeko Lane and Farrand Lot 3 is to the west side. Pukeko Laneruns northwards from Kapiro Road. Physically Pukeko Lane is a metal roadway withearth drains on the side. There are three easement strips over Pukeko Lane in favourof the Venners, the Hows, and the Williams. Each strip is 3.5 m in width. KI haseasements over the Venners' and Hows' strips which enables it to carry water upPukeko Lane which it does through underground pipes. It does not have an easementover the Williams' strip.[10] Immediately to the south of Lots 1 and 3 owned by the FFT are two lots ownedby Curtis Interests described as Lot 3 DP 428938 (Curtis Lot 3) and Lot 2 DP 174528(Curtis Lot 2).[11] In about 1997 a land swap involving land previously owned by the Farrand andCurtis interests was carried out. As a result, Farrand Lots 1 and 3 were merged into asingle title owned by FFT and Curtis Lots 2 and 3 were also merged into a single title.Following the land swap Farrand Lots 1 and 3 were separated by Pukeko Lane, aswere the Curtis Lots, even though the land was held in one title in each case. At aboutthat time easements were created which enabled the FFT to convey water over twostrips of land on the boundaries of the Curtis land.[12] Farrand Lot 3 is split into four orchard blocks (Blocks 1–4). Farrand Lot 1 issplit into three separate orchard blocks (Blocks 5–7). In 2012 Mr Farrand convertedblock 1 of Farrand Lot 3 from green kiwifruit to G3 kiwifruit. The remaining blocks(2-7) were later converted from Hort 16a kiwifruit to G3 kiwifruit in 2015 because ofthe disease PSA. The grafting took place in about July/August of the relevant year.The blocks have 4.2 m row spacings and male kiwifruit vines planted in every secondrow. The bays are 5 m long, each bay containing two root stocks. The first root stockwas planted when the orchard was initially established and the second root stock wasplanted in 2015.The Kerikeri Irrigation Scheme and KI[13] As early as 1976, the Ministry of Works and Development (MOW) publisheda feasibility report proposing an irrigation scheme for Kerikeri in response to the watersupply constraints experienced by Kerikeri horticulturalists. The proposal wasimplemented and a Government sponsored scheme established. The Governmentfunded the construction of two storage dams, 50 per cent of the reticulation costs andprovided loans and subsidies to growers to encourage the orchard development.[14] In 1982 the MOW finished construction of the Sandy's Road Dam, which wasa major part of the Kerikeri Irrigation Scheme. Orchardists such as Mr Farrand hadshares in the Scheme, which were financed by a suspensory loan from the Rural Bank.Prior to the Scheme each grower and farmer had provided their own water. Once theScheme was established existing water rights ceased and water was provided by andunder the Scheme.[15] In 1990 KI was incorporated. The assets of the Scheme, including all pipework and the two dams were transferred to it. KI took over the supply of water toorchardists and other users. The water was supplied to users in accordance with theterms of water supply agreements (WSA) entered from time to time.Supply of water to the Laurenson Orchard[16] FOL irrigated the Laurenson Orchard on Farrand Lot 1 and Farrand Lot 3 usingwater supplied by KI to a water meter (number 476) installed on Farrand Lot 3. KIsupplied water to that meter under WSAs with FFT. The operative WSA in issue isdated 1 June 2010. To get the water to Farrand Lot 1, in 1997 Mr Farrand ran a pipeunder Pukeko Lane from Farrand Lot 3 to Farrand Lot 1.[17] Neither of the plaintiffs had an easement to run the pipe across Pukeko Lanefrom the meter on Farrand Lot 3 to Farrand Lot 1. The Farrand Interests relied on a"gentlemen's agreement" with the owners of the easement strips, the Venners, theHows, and the Williams, to enable them to run the pipe under Pukeko Lane and acrossto Farrand Lot 1.The dispute with the Hows as background to the September 2016 meeting withKI[18] In early 2016 Mr Hows and Mr Farrand fell out. As a consequence, in April/May 2016, Mr Hows ploughed up the pipe which the plaintiffs relied on to supplywater from Farrand Lot 3 to Farrand Lot 1 in two places. Mr Farrand reinstated thepipe. Mr Hows removed it again.[19] An impasse followed. A prolonged series of negotiations between the plaintiffsand the Hows involving lawyers failed to lead to any agreement. At one point theowners of the Hows' strip offered an easement in exchange for $95,000 but the FarrandInterests were not willing to pay that much for an easement.[20] Instead, Mr Farrand decided to ask KI to install a new water meter to supplywater to Farrand Lot 1. Mr Farrand proposed that the meter be installed at the pointthe Hows' strip touched the Williams' strip. Mr Farrand relied on the "gentlemen'sagreement" he had with the Williams to run a pipe from the meter under the Williams'strip to Lot 1.[21] Mr Farrand went to the offices of KI and met with Mr Corcoran in mid to lateSeptember 2016. Mr Corcoran had recently (May 2016) been appointed KI's generalmanager. There is a factual dispute about what occurred at that meeting. Mr Farrandsays he filled out an application form to have a new, second water meter permanentlyconnected to supply Lot 1 and that Mr Corcoran agreed a second meter would beinstalled within a couple of days. Mr Corcoran accepts that Mr Farrand asked for theinstallation of a new meter to service Farrand Lot 1 but says Mr Farrand did not fillout an application form for a new WSA. Mr Corcoran and KI say no agreement wasmade in relation to Mr Farrand's request for a second meter. No WSA was everprepared or executed.[22] Following the meeting, KI did start a process to consider the installation of asecond meter to service Lot 1 of the Laurenson Orchard directly as requested by MrFarrand. In the course of that process, KI generated a new connection checklist andissued an invoice for a standard connection charge which FOL paid on 4 October 2016.Mr Corcoran also began a review of the relevant easements.[23] In the meantime, Mr Farrand and his advisers continued to pursue a practicalresolution with the Hows. On 28 October 2016, FOL's then solicitor, Mr Dodds, wroteto the Hows' solicitors and claimed that FOL had an equitable easement over PukekoLane. He suggested that if that was disputed, FOL could commence proceedings tohave the issue resolved in Court, noting that if ultimately successful, it would beseeking damages from the Hows. Mr Dodds suggested a solution that would involveFOL installing a concrete culvert to carry the pipes at depth under Pukeko Lane at itscost and also advised that FOL was open to discuss a modest payment for the right.[24] Unfortunately, at about the same time as the letter was sent and without waitingfor the Hows' response, Mr Farrand commenced excavating a right-of-way to installthe pipes and culverts on Pukeko Lane. In the course of doing so, Mr Farrand also cuta telephone cable, affecting all the neighbours on Pukeko Lane. Mr Farrand's forayback into Pukeko Lane was not well received. He was arrested for trespassing and theHows rejected his lawyer's proposal.KI discovers the easement issue[25] On 24 November 2016 FOL's Mr Dodds wrote to Mr Corcoran noting that theHows disputed FOL had any easement (legal or equitable) to convey water overPukeko Lane and that any application to the Court to resolve that issue with the Howswould be expensive and involve delay. Mr Dodds proffered a "fix" through KI. Hesuggested two options. The first was for KI to install a meter on the eastern side ofthe lane on Farrand Lot 1 and allow access, effectively splitting the existing water takeallowance from the meter on Lot 3, with FOL agreeing not to access more than sevencubic metres per hour at any one time on both Lots 1 and 3. The second was to appointFOL as agent of KI to install, at FOL's expense, irrigation pipes under Pukeko Lane toenable water supply from the existing meter on Lot 3 to Lot 1. The letter wasapparently written on the misunderstanding that KI had an easement enabling it tocarry water over the entire width of Pukeko Lane. As noted above, KI did not have aneasement over the Williams' strip.[26] On 25 November 2016, Mr Corcoran replied and advised that KI wouldconsider a proposal under option one. Mr Dodds then sent a schematic plan outliningthe proposed pipe layout and meter site to Mr Corcoran on 2 December 2016. Whenprompted on 5 December for a response, Mr Corcoran advised that he was awaitingan easement plan for Pukeko Lane from a surveyor. He noted that he needed to knowthat KI had an easement all the way across the lane.[27] The proposal for the installation of a second meter on Lot 1 stalled at aboutthis time because it became apparent to Mr Corcoran that the plaintiffs did not havean easement to enable them to carry water from the existing meter on Farrand Lot 3across Pukeko Lane to service Lot 1 and did not have any formal right to lay pipesacross the Venners', Hows' and Williams' strips. Further, and more importantly forKI, while KI had an easement which enabled it to convey water up Pukeko Lane onthe Venners' and Hows' strips, it did not have an easement over the Williams' strip toenable it to take pipes across it to a new meter on Lot 1.[28] Mr Corcoran did not consider KI could install a water meter or run pipes to ameter where it had no legal right of access. KI was not prepared to rely on the"gentlemen's agreement" between the Farrands and the Williams. It required securityfor the installation of its water meter and associated pipe work.[29] To advance the matter, KI instructed its solicitors to engage with the Williams'solicitors regarding the preparation of a formal easement that would enable KI toinstall pipes and run water across the Williams' strip. Although agreement in principleappeared to have been reached late in December 2016 and a draft easement wasprepared and approved by Land Information New Zealand, ultimately the Williamswould not agree to sign a formal easement. On 13 January 2017, the Williams' lawyersformally confirmed the Williams had decided not to proceed with the easement infavour of KI.[30] Despite their earlier falling out, in order to enable FOL convey water to Lot 1during the dry summer season, on about 15 December 2016 the Hows granted FOLpermission to pipe water over the top of the Hows' strip between the hours of 12midnight to 6.00 am. From 15 December 2016 until 30 January 2017 Mr Farrandferried water between Farrand Lot 3 (sourced from the existing meter number 476) toFarrand Lot 1 by trailer during the day and supplied Lot 1 between the hours of 12midnight and 6.00 am through a pipe laid across Pukeko Lane.The first installation of and subsequent removal of, the second meter (1577)[31] Mr Farrand kept pressing KI to install the second water meter to enable theplaintiffs to directly irrigate to Lot 1.[32] Despite the fact KI had no easement over the Williams' strip, it installed asecond meter on it adjacent to Farrand Lot 1 on 30 January 2017. There is a disputebetween the parties as to why it was installed, but FOL accepts that from 30 January2017 it was able to access water from that second meter (number 1577) and directlyirrigate Farrand Lot 1.2[33] During the 2016/2017 irrigation season, the plaintiffs exceeded the waterallocation permitted under the existing WSA. KI issued invoices for the excess watercharge and also for the cost of the installation of the second meter.[34] That led to further issues between the parties. Mr Farrand objected to thecharges. He considered the extra water used had been necessary to sustain the vineswhich had been stressed from lack of water. He considered the situation had arisen asa direct result of KI's failure to supply the second connection to Lot 1. Nor did heaccept all the costs claimed for the installation of the second meter were properlypayable by the plaintiffs.[35] During 2017 the legal position regarding both issues remained unresolved. Theprospect of arbitration was raised. KI took advice about the outstanding accounts andwas advised that the second meter, number 1577, that it had installed on the Williams'accessway, was there illegally and should be removed.2 Mr Farrand considered that KI only installed the meter because Richard Curtis, at the time theChair of KI's board, asked for a meter for the Curtis lots. Mr Curtis and Mr Corcoran deny that.Mr Curtis' evidence, which I accept, is that he had no pressing need for the meter at the time asthe Curtis Orchard was in citrus. It was only later, in March 2017 it was planted in kiwifruit. MrCurtis explained that when the work was being done to install the meter for the plaintiffs he tookadvantage of that and asked that a meter be installed for his block. It was only by chance his meterwas ultimately connected a few days before the plaintiffs' one. I regard this issue as a red herringand not relevant.[36] The Farrand Interests and KI also remained in dispute about the excess watercharges of $5,358.31 and the other unpaid account owing to KI for the costs ofinstallation of meter 1577 of $2,986.55.[37] On 12 October 2017 KI's lawyers wrote to FOL's lawyers, addressing bothissues. KI's lawyers first noted that the connection to Lot 1 was illegal because itcrossed the Williams' property without any legal right to do so:Simply put, [KI] is, at the date of this letter, committing a trespass (on yourclients' behalf) and this must now end.Notice was given that KI was going to take steps to remove the illegal connectionfollowing the expiry of five working days.[38] The letter then went on to make an offer to address the outstanding invoices KIhad issued to K and K Farrand. The letter concluded:Please note this offer to settle the dispute concerning the invoices has nothingto do with the illegal connection. We suggest your client take steps – rightnow – to sort out how he will get the water over, or under, Pukeko lane.[39] KI then removed the second water meter number 1577 on 2 November 2017.[40] Later in November the parties settled the outstanding invoices issue. FOLeffectively paid $5,300 in full settlement of the excess water charge.3 As well asaccepting that sum in settlement of the charge, KI wrote off its invoice for $2,986.55in relation to the installation of meter 1577.The second installation in December 2017 of the second meter[41] The supply of water to Lot 1 remained an issue for the plaintiffs, particularlyas they faced the prospect of being unable to supply water to Lot 1 over anothersummer.[42] On 29 November 2017 FOL's lawyer attended Mr Corcoran at KI's office andleft a completed application form for an additional WSA to service Lot 1. Mr Corcoran3 FOL paid $5,000 and agreed that a cheque for $300 which had been tendered previously but notbanked by KI, could be banked as part of the settlement.reviewed the application and advised FOL's lawyers by email of 1 December 2017that there already was a WSA for meter 476 to supply both Farrand Lots 1 and 3. MrCorcoran advised that he considered there was no precedent or obligation on KI toinstall multiple water meters on the same property to resolve what were "on property"reticulation issues. Mr Corcoran said that, while KI had bent the rules for the Farrandsto alleviate what was becoming a significant "on property" issue during the previousdry summer, that had been a spectacularly unsuccessful and expensive decision by KIand would not be repeated.[43] Mr Corcoran went on to suggest that one possibility would be for KI to acceptthe advice from Thomson and King Limited Surveyors there was an easement thatallowed title holders in Pukeko Lane to cross the lane to convey services at or arounda point further up the lane towards Kapiro Road. Mr Corcoran suggested the FarrandInterests install a pipe down from meter 476, around and over Pukeko Lane at the pointE where FFT had an easement and back up the lane to service both Lots 1 and 3 fromthe existing meter (this became known as the down and around option).[44] The down and around option would also involve the use of the FFT's existingeasements over the Curtis' land. As noted, FFT had an easement over both Curtis Lots2 and 3 which had been created at the time of the land swap. The easement enabledthe FFT to convey water both sides of Pukeko Lane over the Curtis property. FFT alsohad an easement on a small area of the Williams' strip adjacent to its easement on thesouth-eastern corner of the eastern Curtis easement at point E. That easement wouldenable the linking up of the "down and around" option.4[45] Alternatively, Mr Corcoran proposed that KI could utilise its, KI's easement,to access part way across Pukeko Lane and the FFT could use their easement rights toallow KI to convey services from that point onwards to a practical (not in the roadway)point where KI was legally entitled to install above ground fixed assets such as a watermeter.4 The attached survey plan identifies the FFT's easements over the Curtis property and point E, theFFT's easement over the Williams' strip in red.[46] Mr Farrand did not accept the proposals and the parties remained unable toagree on a resolution.[47] Instead, Mr Farrand approached the then chairman of KI, Carl Muller, directly.On 3 December 2017 Mr Muller directed Mr Corcoran to reinstate meter 1577. It wasreinstated on 5 December 2017 but was relocated approximately 1.5 m to the west ofwhere it had been installed in January 2017 so that it was on the boundary of theWilliams' and Hows' strips.The relocation of meter 476 to its current position[48] During the winter of 2018 Mr Farrand decided to simplify and improve theirrigation supply to Farrand Lots 1 and 3. Mr Farrand applied for the removal of theexisting meter 476 from Lot 3, and installation of a meter at the south-eastern cornerat point E.[49] The work was carried out in late September 2018. At the time KI installed themeter it also installed a precision (restrictor) valve.[50] FOL says that the restrictor valve reduced the pressure available to FarrandLots 1 and 3 to 8 psi so that its sprinkler system, which had been set up to run with aminimum pressure of 35 psi, was unable to operate.[51] The restrictor was removed on 15 January 2019 when KI's policy regardingrestrictor valves changed. By that time, as KI was able to rely on the data from smartmeters to track excess water usage, it was considered unnecessary to install and relyon restrictor valves. Mr Farrand says that once the restrictor was removed hisirrigation system worked as it should.The plaintiffs' claim[52] The plaintiffs say they suffered lost production of kiwifruit as a consequenceof the failure of KI to supply water to Farrand Lot 1. They claim a total of $401,488.00for lost production during the 2016/17, 2017/18 and 2018/19 seasons. The plaintiffsidentify three relevant periods of non-supply: 6 October 2016 to 30 January 2017, 2November 2017 to 5 December 2017, and then 1 October 2018 to 14 January 2019(while the pressure was restricted).[53] The plaintiffs also seek the return of the $5,000.00 paid for the excess watercharges. Then, they seek $16,639.31, for Mr Farrand's labour costs and the costs oftransporting water to Lot 1 during the 2016/2017 season. In closing, Mr Nichollsrecalculated that additional claim for legal and surveying costs at $46,755.05. Finallythe plaintiffs also claim $919.14, the costs charged by KI relating to a digger usedwhen the meter was relocated in September 2018.The evidence[54] The plaintiffs called five witnesses:(a) Mr Farrand as director of FOL and one of the two trustees of the FFT;(b) Roger Barber, a retired research scientist with expertise in growingkiwifruit and background knowledge of the irrigation scheme. InDecember 2017 Mr Barber observed the state of the vines on Lot 1 andadvised Mr Farrand to flood the vines on Lot 1;(c) the evidence of Bob Donaldson, a surveyor, regarding the easements onPukeko Lane was read;(d) the evidence of David Skinner, an experienced kiwifruit grower,regarding the origins and purpose of the Scheme, was also read; and(e) Ms Chelsea Downey, a registered accountant, who has accountingexperience in the horticulture industry, gave evidence of her estimateof losses sustained by FOL for loss of production.[55] The defendant called six witnesses:(a) Tony Corcoran, the general manager of the defendant. Mr Corcorangave evidence of his dealing with Mr Farrand from 2016 on;(b) William (Bill) Hunter, the former general manager of KI until mid-early2016. Mr Hunter gave evidence of the general irrigation scheme, hisadministration of it, his understanding of the history of the Pukeko Lanearrangements, and his dealings with Mr Farrand prior to his retirementin 2016;(c) Richard (Rick) Curtis, a board member of the defendant and owner ofthe adjacent land in Pukeko Lane;(d) Jason Bennett, a service technician employed by KI. Mr Bennett gaveevidence about the connection of the new water meter for the plaintiffsin September 2018 and the installation and subsequent removal of thepressure flow valve;(e) Anthony Bryce, a technical director at Tonkin Taylor. Mr Bryce gaveevidence of the hydraulics of the defendant's irrigation scheme; and(f) Sandra Scarrow, a registered horticultural consultant, and expert inkiwifruit horticulture. Ms Scarrow gave expert evidence about thedegree of harm to the plaintiffs' kiwifruit vines that would have beencaused by the lack of water in the relevant periods with reference to theweather, ET data and other evidence. She also gave evidence of therelevance of the plaintiffs' recent conversion of their kiwifruit vines tothe gold variety and other orchard management issues.[56] Both parties took exception to aspects of the opposing evidence-in-chief,principally in relation to the evidence of Mr Farrand and Mr Corcoran. I have takenthose objections into account when considering the evidence the Court can properlyadmit and rely on.The pleaded claim[57] In the amended statement of claim the plaintiffs plead two causes of action:(a) breach of contract with reference to the 2010 WSA; and(b) breach of contract with reference to the 2016 Agreement.The issues[58] The claim raises the following principal issues:(a) What were the obligations of Kerikeri Irrigation under the 2010 WSAand who were they owed to?(b) Was there a separate contract concluded in September/October 2016 forthe installation of a second water meter?(c) Is there a term to be implied into the WSA(s) that KI would supplywater at a certain minimum psi?(d) If so, what pressure did KI supply the water at?(e) Has FOL sustained a loss of production in any one of the three periodsclaimed?(f) Has FOL or FFT sustained the other losses claimed?The 2010 WSA[59] The WSA in issue is dated 1 June 2010. The contracting parties are thedefendant, KI, and KA and KJ Farrand & AD McLeod as trustees of the FFT. Themeter is identified as number 476. The property is described as Kapiro Road, Kerikeri,Lot 1 and Lot 3, DP 174528. The title area is 7.2086 ha (the total of both Lots 1 and3) and the irrigable area is 5.5 ha. The water allocation is 16,500 cubic metres perannum (calculated at 3,000 cubic metres per irrigable ha) with a maximum draw-offrate of 132 litres a minute.The contracting parties – a preliminary issue for the plaintiffs[60] As pleaded the plaintiffs' claim raises a preliminary issue. The principal claimby the plaintiffs is for damages for loss of production caused by KI's breach ofcontract. FOL carries on the business of operating the orchard. It is FOL that hassustained the loss of production (if any). However the WSA, under which anycontractual obligations arose, was made between KI and the FFT. FOL was not a partyto the 2010 WSA.[61] Mr Nicholls' first response to that issue was to suggest that if the FFT was theonly party able to sue for breach of contract, it had sustained loss in any event, becauseKI's breach of contract had caused loss to FOL which had led to a diminution in thevalue of FOL. As FFT owned virtually 100 per cent of the shares in FOL then FFThad suffered a loss.[62] There is a fundamental flaw with that proposition. A shareholder (such as FFT)cannot recover damages merely because the company, (FOL) in which they areinterested has suffered damage.5 The loss is the loss of the company, in this case FOL.[63] As Lord Bingham observed in Johnson v Gore Wood & Co:6(1) Where a company suffers loss caused by a breach of duty owed to it,only the company may sue in respect of that loss. No action lies at the suit ofa shareholder suing in that capacity and no other to make good a diminutionin the value of the shareholder's shareholding where that merely reflects theloss suffered by the company.[64] Further, any consequential loss FFT may have suffered can only be thediminution in the value of its shares in FOL, which, even if such loss was recoverableat law, is a quite different claim from the one pleaded and before the Court.Undisclosed principal[65] Mr Nicholls then submitted that, when dealing with KI, and particularly whenexecuting the 2010 WSA in his capacity as trustee of the FFT, Mr Farrand did so onthe basis FFT was acting as agent for FOL. Mr Farrand said as much in his evidence-in-chief in his witness statement.5 Prudential Assurance Co Ltd v Newman Industries Ltd (No 2) [1982] Ch 204 (CA) at 222-223;Johnson v Gore Wood & Co [2002] 2 AC 1 (HL) at 35; and Jojaro Investments Ltd v ASB BankLtd [2012] NZHC 980 at [105] and [108].6 Johnson v Gore Wood & Co, above n 5, at 35.[66] Mr Nicholls suggested in closing that KI was aware FFT was acting as agentfor FOL so there was no impediment to FOL suing for breach of the WSA. But neitherthe relevant documentation nor the evidence supports the proposition that FFTdisclosed it was entering the WSA as agent for FOL or that KI was aware that wasFFT's position at the time the 2010 WSA was made.7[67] The WSA makes no reference to FOL. The contracting parties are the FFT andKI. Mr Farrand signed as duly authorised agent for the Water User which wasidentified in the WSA as the trustees of the FFT.[68] Nor does the evidence suggest that KI knew that FFT was acting as agent forFOL in its dealings regarding the WSA. Mr Corcoran did not accept that propositionwhen it was put to him in cross-examination:Q. Now, it would be fair to say that most of the time you dealt with MrFarrand or his lawyers, they held themselves out to be acting forFarrand Orchards?A. Well, we didn't make a distinction –I have never, until this case, made a distinction between KerryFarrand, Farrand Orchards and the Farrand Trust, it's just theFarrand's place, I just assume that it was Farrand's place. Not makinga distinction about who was legally speaking.[69] On the basis of that evidence it does not appear Mr Corcoran turned his mindto the issue. It cannot be said he was aware that the FFT was acting as agent for FOLor that it had entered the WSA on FOL's behalf.[70] Further, Mr Corcoran was, of course, only appointed general manager in May2016. Mr Hunter, who was the manager at the time the WSA was entered, was notcross-examined on the point.[71] For his part, Mr Farrand effectively accepted in cross-examination that he hadnever advised KI that in entering the WSA the FFT did so as agent for FOL. When7 Peter Watts and F M B Reynolds Bowstead and Reynolds on Agency (22nd ed, Thomson Reuters,London, 2021) at [1-039(1)]. See also Hamilton v Hull (1896) 19 NZLR 49 (HC) at 55; Daviesv Ernest Adams Ltd CA7/83, 9 February 1984; Papanui Timber Co Ltd v Parsons HCChristchurch CP19/86, 9 April 1987; and Rothwell v Mawhinney [1998] 2 NZLR 87 (HC) at 98.questioned by Ms Anderson QC whether his evidence was that, at the time the WSAwas signed the correct party was FOL, rather than the Trust, Mr Farrand's evidencewas somewhat different to that in his prepared statement:A. I see where you're coming from but the fact is the water is an assetthat belongs to the property.Q. And the Trust owns the property, correct?A. Yes, it'd be, to me, from a layman's perspective, to me it makes sensethat this is handled by the Trust, not by the orchard, I stand to becorrected.When the matter was pursued:Q. And you're asking his Honour to find that this agreement's really with[FOL], do you understand that's what you're asking his Honour to do?A. This particular agreement?Q. Yes.A. Is with [FOL]? This particular agreement is with the [FFT], it's[FFT's] name there, it clearly it has to do with the [FFT], doesn't it?[72] Ms Anderson returned to the matter later when discussing the application forthe new WSA that the plaintiffs' lawyer left with KI on 29 November 2017. She putto Mr Farrand:Q. Now, this is an application drawn for [WSA], and as I understood yourevidence yesterday, it's the Trust that deals with property matters withrespect to its water, so, the Trust applies for water agreements andsigns water agreements, that's correct, isn't it?A. Yep.Q. So, you're approaching the company on behalf of the Trust to say: "Iwant a new water connection."?A. It appears that way, yes.[73] Mr Nicholls made the point that there was no change in the way KI dealt withthe Farrands after the FFT was established. KI continued to invoice K and K Farrandfor the supply of Scheme water even after the establishment of the Trust. Further, henoted that FOL paid the invoices due under the contract, not the Trust. He also notedthat correspondence from the plaintiffs' former lawyer, Mr Dodds, identified the issueof non-supply as being an issue for FOL.[74] However, as Ms Anderson noted, payment of the invoices by FOL is legallyirrelevant. KI cannot be taken to know what arrangements existed between FFT andFOL. The lease terms between FFT and FOL are not in evidence. More relevant isthe fact not a single invoice was directed by KI to FOL for the supply of water. Further,the correspondence referred to from Mr Dodds post-dates both the entry of the 2010WSA and the meeting in September 2016 which the second alleged contract is basedon.[75] In summary, the evidence does not support the plaintiffs' submission that KIwas aware FFT was acting as FOL's agent.[76] Assuming for the present that Mr Farrand as a trustee of FFT had authority toenter the 2010 WSA in the trustees' name on behalf of FOL (as Mr Farrand was botha trustee of the FFT and a director of FOL), the issue is whether FOL can rely uponthe doctrine of the undisclosed principal to sue for its losses.[77] In Teheran-Europe Co Ltd v S T Belton (Tractors) Ltd Diplock LJ summarisedthe law to undisclosed principal as:8Where an agent has actual authority and enters into a contract with anotherparty intending to do so on behalf of his principal, it matters not whether hediscloses to the other party the identity of his principal, or even that he iscontracting on behalf of a principal at all, if the other party is willing or leadsthe agent to believe that he is willing to treat as a party to the contract anyoneon whose behalf the agent may have been authorised to contract. In the caseof an ordinary commercial contract such willingness of the other party may beassumed by the agent unless either the other party manifests his unwillingness,or there are other circumstances which should lead the agent to realise that theother party was not so willing.[78] In Siu Yin Kwan v Eastern Insurance Co Ltd the Privy Council reviewed themain features of the law relating to recovery by an undisclosed principal. Lord Lloydsummarised the position as follows:98 Teheran-Europe Co Ltd v S T Belton (Tractors) Ltd [1968] 2 QB 545 at 555.9 Siu Yin Kwan v Eastern Insurance Co Ltd [1994] 2 AC 199 (PC), at 207.The main features of the law relating to an undisclosed principal have beensettled since at least at the end of the 18th century. A hundred years later, in1872, Blackburn J. said in Armstrong v. Stokes (1872) L.R. 7 Q.B. 598, 604that it had often been doubted whether it was originally right to hold that anundisclosed principal was liable to be sued on the contract made by an agenton his behalf, but added that "doubts of this kind come now too late."For present purposes the law can be summarised shortly. (1) An undisclosedprincipal may sue and be sued on a contract made by an agent on his behalf,acting within the scope of his actual authority. (2) In entering into the contract,the agent must intend to act on the principal's behalf. (3) The agent of anundisclosed principal may also sue and be sued on the contract. (4) Anydefence which the third party may have against the agent is available againsthis principal. (5) The terms of the contract may, expressly or by implication,exclude the principal's right to sue, and his liability to be sued. The contractitself, or the circumstances surrounding the contract, may show that the agentis the true and only principal.[79] The particularly relevant issues in the present case are:(a) in entering the 2010 WSA, did FFT intend to act on behalf of FOL;10and(b) do the terms of the WSA expressly or by implication exclude FOL'sright to sue.11As noted, for present purposes, given Mr Farrand's dual roles as trustee of the FFTand director of FOL, I accept that if the above considerations are satisfied in theplaintiffs' favour it can be taken he was acting within the scope of his authority.[80] Despite Mr Farrand's evidence-in-chief the above extracts from his cross-examination do not support a finding that FFT intended to enter the contract on FOL'sbehalf, rather they suggest the reverse is the case. Taken overall the evidence suggestsMr Farrand considered FFT was the contracting party and entered the WSA for itself.[81] Nor does the wording of the WSA assist the plaintiffs' case on this point. Thewording of the WSA contemplates the contract will be between the water user and KI.User must, as a matter of construct of the contract, be the owner of the property, in this10 Schrimshire v Alderton (1743) 2 Stra 1182; Burrows, Finn and Todd, Law of Contract in NewZealand (5th ed, LexisNexis, Wellington, 2018) at [16.3.2].11 Dillicar v West [1921] NZLR 617 (SC); Siu Yin Kwan v Eastern Insurance Co Ltd, above n 9;and Shogun Finance Ltd v Hudson [2003] UKHL 62, [2004] 1 AC 919.case the FFT. Clause 1.3 of the WSA confirms KI may terminate the WSA by givingthree months' notice in writing to the user if:(b) the User is not the owner of the property described in this Agreement.The property must be the land described in the WSA. In the present case the actualuser of the water is FOL rather than the FFT. The user of the water is not, in this case,the owner of the property. The importance of the user under the WSA being thelandowner is confirmed by cl 2.5(b) which provides that:The Water Allocation may only be used on the Land, as it is described in theAgreement if the User owns the Land. [82] Clause 2.5(c) does permit of the possibility another person may occupy theland, but it does not affect the contractual relationship which remains between KI andthe land owner.[83] The Constitution of KI itself confirms that only a current water user can haveshares in the company and only a shareholder has rights to the water.12[84] The express wording of the contractual documentation does not support theapplication of an undisclosed principal recovering losses for breach of the WSA.[85] The contractual documentation and Mr Farrand's evidence, taken together,supports the conclusion that, at the times he entered the WSA in 2010, and sought thesecond meter in 2016, Mr Farrand was acting on behalf of the FFT not FOL.[86] I conclude that FOL cannot pursue the damages claimed for the loss ofproduction on the basis it was an undisclosed principal to the WSA and the 2016agreement.Transferred loss[87] Mr Nicholls then submitted that the principle of transferred loss could applyso that the FFT had standing to sue KI for the loss that FOL had suffered because it12 Clauses 3 and 4.2 of the Constitution of KI.could be foreseen by KI at the time the contracts were entered into that a breach ofeither the 2010 WSA or the 2016 Agreement would cause a significant loss to FOL.[88] The concept of a plaintiff being able to recover on the basis of transferred losswas discussed recently by the United Kingdom Supreme Court in Lowick Rose LLP(in liquidation) v Swynson Ltd where Lord Sumption said:13The principle of transferred loss is a limited exception to the general rule thata claimant can recover only loss which he has himself suffered. It applieswhere the known object of a transaction is to benefit a third party or a class ofpersons to which a third party belongs, and the anticipated effect of a breachof duty will be to cause loss to that third party. It has hitherto been recognisedonly in cases where the third party suffers loss as the intended transferee ofthe property affected by the breach. The paradigm case is the rule which hasapplied in the law of carriage of goods by sea ever since the decision of theHouse of Lords in Dunlop v Lambert (1839) 2 Cl & F 626, that the shippermay sue the shipowner for loss of or damage to the cargo notwithstanding thatthe loss has been suffered by the consignee to whom property and risk (butnot the rights under the contract of carriage) have passed. In Albacruz (CargoOwners) v Albazero (Owners) [1977] AC 774, 847 Lord Diplock, with whomthe rest of the Appellate Committee agreed, expressed the rationale of thecarriage of goods rule as being that:"in a commercial contract concerning goods where it is in thecontemplation of the parties that the proprietary interests in thegoods may be transferred from one owner to another after thecontract has been entered into and before the breach which causesloss or damage to the goods, an original party to the contract, if suchbe the intention of them both, is to be treated in law as having enteredinto the contract for the benefit of all persons who have or mayacquire an interest in the goods before they are lost or damaged, andis entitled to recover by way of damages for breach of contract theactual loss sustained by those for whose benefit the contract isentered into."The party recovering is accountable to the third party for any damagesrecovered: ibid, p 844.[89] In Linden Gardens Trust v Lenesta Sludge Disposals Ltd the rationale wasextended to a commercial construction contract.14[90] As Lord Sumption acknowledged in Lowick Rose v Swynson Ltd the principleof transferred loss is an exception to the fundamental principle of the law ofobligations and not an alternative to the principle. It is driven by legal necessity. It is13 Lowick Rose LLP (in liquidation) v Swynson Ltd [2017] UKSC 32, [2018] AC 313 at [14].14 Linden Gardens Trust v Lenesta Sludge Disposals Ltd [1994] 1 AC 85 (HL).an essential feature of the principle that the recognition of a right in the contractingparty to recover the third party's loss should be necessary to give effect to the objectof the transaction and to avoid a "legal black hole". Where a third party has a directright of action for the same loss it will not be available.15[91] The concept has been considered in New Zealand in a limited number ofcases.16 In McKinlay Hendry Ltd v Tonkin & Taylor Ltd, Tonkin & Taylor had carriedout a geotechnical investigation into the proposed site for a coolstore on reclaimedland at the Wellington waterfront. It reported the site required improvement toincrease its density and recommended a technique known as dynamic compaction.Kings Wharf Holdings Limited were the building owners. Kings Wharf entered afixed price contract for the construction of the coolstore. Ultimately, therecommended site treatment was not needed. Kings Wharf and McKinlay Hendry,which had promoted the project, sued to recover the sum allowed in the contract forthe cost of dynamic compaction. Miller J accepted Tonkin Taylor had been negligentbut held McKinlay Hendry could not recover because it did not suffer the loss andKings Wharf, the company that suffered the loss, was not owed a duty of care.[92] Miller J considered the rule of transferred loss did not apply in that casebecause at the time the contract was made the parties did not envisage that it wasentered into for the benefit of Kings Wharf, the party which had suffered the loss.[93] In the course of the decision Miller J considered both the narrow and widerformulations of the rule. The narrow formulation would restrict it to cases where theparties contemplated that ownership of the property, the subject of the contract, mightbe transferred to another during the currency of the contract before breach. The widerformulation would enable the plaintiff to recover its own loss, although the measureof damages remained the cost of substitute performance. In such a case the plaintiff'sloss takes the form of performance or expectation interest in the contract.1715 Lowick Rose LLP (in liquidation) v Swynson Ltd, above n 13, at [16].16 McKinlay Hendry Ltd v Tonkin & Taylor Ltd HC Wellington CIV-1999-485-78, 22 March 2004;Cedenco Foods v Akiaki Ltd (formerly Circle Pacific Ltd) HC Napier CIV-2007-441-439, 21November 2007; and Napier Tool & Die Ltd v Oraka Technologies Ltd [2016] NZCA 554, [2017]2 NZLR 611 for example.17 Darlington Borough Council v Wiltshier Northern Ltd [1995] 1 WLR 68 (CA); and AlfredMcAlpine Construction Ltd v Panatown Ltd [2001] 1 AC 518 (HL).[94] Miller J favoured the narrow formulation. He concluded that the narrowformulation corresponded to the purpose of the rule in Dunlop v Lambert18 asexplained in Albacruz (Caro Owners) v Albazero (Owners)19 and enlarged upon inLinden Gardens Trust v Lenesta Sludge Disposals Ltd.20[95] In Cedenco Foods v Akiaki, Cedenco appealed a District Court judgmententering summary judgment for Akiaki.21 The District Court had rejected Cedenco'sproposed counterclaim on the basis that it lacked mutuality. Cedenco supplied squashto Circle for processing. Circle processed it in accordance with specificationsprovided by Sunrise, a wholly owned subsidiary of Cedenco. The processed squashwas sold by Sunrise to a Japanese buyer, Life Foods. Life Foods rejected theconsignment on the basis the squash was uncooked. Cedenco withheld payment toCircle on the basis that it had suffered loss as a result of Life Foods withholdingpayment. One of the issues considered by Potter J on appeal was whether Cedencocould rely on the principle of transferred loss. The Judge reviewed the authorities,including the decision of Miller J in McKinlay Hendry. In the event, Potter J heldCedenco was not entitled to rely on the principle because no matter which formulationof the rule applied, the relevant contractual context must include the parties'contemplation of the effect of the contract on a third party. In the case before her,Circle had not contemplated the possibility of Sunshine sustaining the loss. ThereforeCedenco was unable to rely on the above authorities to recover that loss.[96] Napier Tool & Die Ltd v Oraka Technologies Ltd involved consideration ofwhich party had the right to sue on a copyright. Although the Court did not expresslyrefer to the transferred loss principle it did consider the relevant authorities whichdiscussed that principle.22 The Court of Appeal rejected the "expansive approach"taken in the High Court to recovery of the third party's loss. The Court cited withapproval the following statement of Lord Millett in McAlpine Construction Ltd v18 Dunlop v Lambert (1839) 6 Cl & F 600 (HL).19 Albacruz (Cargo Owners) v Albazero (Owners) [1977] AC 774 (HL).20 Linden Gardens Trust v Lenesta Sludge Disposals Ltd, above n 14.21 Cedenco Foods v Akiaki Ltd, above n 16.22 Dunlop v Lambert (1839) 6 Cl & F 600 (HL); Albacruz (Cargo Owners) v Albazero (Owners),above n 19; St Martins Property Corporation Ltd v Sir Robert McAlpine Ltd [1994] 1 AC 85(HL); and Darlington Borough Council v Wiltshier Northern Ltd, above n 17.Panatown Ltd and confirmed that the pursuit of justice in an individual case must beprincipled:23Compensation is compensation for loss; its object is to make good a loss. It isinherent in the concept of compensation that only the person who has sufferedthe loss is entitled to have it made good by compensation. Compensation fora third party's loss is a contradiction in terms. It is impossible on any logicalbasis to justify the recovery of compensatory damages by a person who hasnot suffered the loss in respect of which they are awarded unless he isaccountable for them to the person who has.[97] In the present case Mr Nicholls submitted that the principle of transferred lossin its narrower form applied and the FFT had standing to sue KI for the loss that FOLhad suffered because it could be foreseen by KI both at the time the WSA was enteredin 2010 and at the time the 2016 agreement was made that a breach of either wouldcause significant loss to FOL. He argued that KI had always known that the Schemewater supplied to Laurenson Orchard was to irrigate kiwifruit vines owned by FOL.He submitted that FOL had made itself known to KI and held itself out as being theuser of the Scheme water, again relying on Mr Farrand's evidence and Mr Dodds'correspondence.[98] Mr Nicholls suggested that if that was not the case then FOL could haveclaimed damages from the FFT for not supplying it with water. FFT could have settledthat claim and then claimed from WSA. Applying the principle of transferred loss, inhis words, allowed "the true nature of the claim to be determined by the Court". Itwould also avoid a legal black hole.[99] Like Miller J I favour the more restrictive approach to the application of thetransferred loss principle, noting Lord Sumption's comments in Lowick Rose LLP (inliquidation) v Synson Ltd that it is an exception to the well-established generalprinciple that contractual damages and compensation relate to loss sustained by theparty to the contract.24 However, even applying the broader view the principle is notapplicable on the facts of the present case.23 Alfred McAlpine Construction Ltd v Panatown Ltd, above n 17, at 580.24 Lowick Rose LLP (in liquidation) v Synson Ltd, above n 13.[100] As emphasised in the Albacruz25 decision and confirmed by both Miller J inMcKinlay Hendry and Potter J in Cedenco, for the principle to apply it must have beenthe intention of both contracting parties at the time of the contract that the FFT wasentering the WSA for the benefit of FOL. The known object of the contract must beto benefit the third party. For the reasons discussed above the evidence in this casedoes not support that proposition. As Ms Anderson submitted, there is no evidencethat KI knew FOL would be harmed by a breach of the 2010 WSA (or, for that matterof any later agreement in 2016).[101] Further, if the plaintiffs' proposition was correct, even though KI's WSAs areall made with the land owner, KI would potentially have liability under its WSAs toall lessees and other occupiers of the land to which it supplied water. KI would haveto inquire into the background of all contractual arrangements that the land owningcontracting party may be involved in. Such a major change in contractual obligationswould require clear evidence that was the intended result.[102] For the above reasons, neither the undisclosed principal nor the transferred lossprinciple enables FOL to recover damages for any production losses sustained by itcaused by breach of the 2010 WSA or any 2016 agreement between FFT and KI.[103] The WSA is with FFT. Any breach of the WSA or a later 2016 agreement byKI cannot lead to a recovery by FFT as FFT has not suffered any loss of production.Any production loss has been sustained by FOL. But FOL is unable to recover forbreach of the 2010 WSA or any 2016 agreement as it was not a party to them. That issufficient to dispose of the principal claim by the plaintiffs for damages for loss ofproduction.[104] The other alleged breaches are, in context, relatively minor and are dealt withbelow.[105] However, in the event I am wrong in the above analysis, I turn to considerationof the merits of the claims for breach of contract.2625 Albacruz (Caro Owners) v Albazero (Owners), above n 19.26 In the discussion that follows I refer to the plaintiffs generally as that is the way their case waspresented.The 2010 WSA[106] The plaintiffs plead in the first cause of action that, either by express words orby terms implied by custom, the 2010 WSA included terms:(a) KI would continue to supply water to the FFT's land where KI's rightto convey water touched the plaintiffs' right to convey water;(b) the plaintiffs agreed to pay for the water supplied by KI to the land;(c) so long as the plaintiffs paid for the water and there was not an eventbeyond its control KI guaranteed to supply water to the land;(d) the water supplied to the land was to be supplied through one or more50 mm pipes where the water supplied in each 50 mm pipe had apressure of at least 35 psi; and(e) any works carried out by KI would be charged to the plaintiffs at marketrate.[107] The plaintiffs plead that, in breach of the 2010 WSA the defendant:(a) refused to supply any water to Lot 1 of the plaintiffs' land from 6October 2016 to 30 January 2017 and 2 November 2017 to 5 December2017;(b) in August 2018 charged FOL $2,178.84 for a new connection when themarket price was $1,121.83; and(c) from no later than 1 October 2018 to 14 January 2019 supplied waterto the plaintiffs' land at a pressure of about 8 psi in a 50 mm pipe.[108] In his closing submissions for the plaintiffs Mr Nicholls suggested that underthe WSA, KI was obliged to supply water to the Laurenson Orchard via two watermeters, one servicing Lot 1 and the other servicing Lot 3. On Mr Nicholls' analysisKI was in breach of that obligation from the time the 2010 WSA was concluded (andindeed prior to that) but the plaintiffs mitigated it by piping water to Lot 3 and did nottake issue with that breach until the events of 2016. He submitted that KI was put onnotice of its breach from the time of the meeting between Mr Farrand and Mr Corcoranin mid to late September 2016 when Mr Farrand requested the installation of a secondmeter to service Lot 1.[109] Mr Nicholls referred to the general principles relating to the contractualinterpretation as recently considered by the Supreme Court in Firm PI 1 Ltd v ZurichAustralian Insurance Ltd and the Court of Appeal in Bathurst Resources Ltd v L & MCoal Holdings Ltd.27 In Firm PI 1 Ltd the Supreme Court declined to reconsider theprinciples of contractual interpretation which it had previously discussed in Vector GasLtd v Bay of Plenty MG Ltd.28[110] In Firm PI 1 Ltd the Court confirmed:29[60] the proper approach is an objective one, the aim being to ascertain"the meaning which the document would convey to a reasonable personhaving all the background knowledge which would reasonably have beenavailable to the parties in the situation in which they were at the time of thecontract". This objective meaning is taken to be that which the partiesintended. While there is no conceptual limit on what can be regarded as"background", it has to be background that a reasonable person would regardas relevant. Accordingly, the context provided by the contract as a whole andany relevant background informs meaning.[63] While context is a necessary element of the interpretive process andthe focus is on interpreting the document rather than particular words, the textremains centrally important. If the language at issue, construed in the contextof the contract as a whole, has an ordinary and natural meaning, that will be apowerful, albeit not conclusive, indicator of what the parties meant. But thewider context may point to some interpretation other than the most obviousone and may also assist in determining the meaning intended in cases ofambiguity or uncertainty.[111] Mr Nicholls submitted the purpose of the Scheme which was to supplyhorticulturalists and farmers with irrigation water was important background. He27 Firm PI 1 Ltd v Zurich Australian Insurance Ltd [2014] NZSC 147, [2015] 1 NZLR 432; andBathurst Resources Ltd v L & M Coal Holdings Ltd [2021] NZSC 85 at [60].28 Vector Gas Ltd v Bay of Plenty MG Ltd [2010] NZSC 5, [2010] 2 NZLR 444.29 Firm PI 1 Ltd v Zurich Australian Insurance Ltd, above n 27 (footnotes omitted).referred to the arrangements that had existed prior to the Scheme and the incorporationof KI. The plaintiffs and others had given up the right to take water from their ownresources to become members of the Scheme and shareholders in KI. He submittedthat the WSA was for the supply of a utility. There was no other realistic supply ofirrigated water in Kerikeri because orchards cannot now draw commercial suppliesfrom any other source. Mr Nicholls submitted it would be common knowledge to anyperson that if the Scheme has water available and it does not affect the hydraulicintegrity of the Scheme then water should be offered to a water user. It was alsocommon knowledge that a water user is reliant on the supply of water.[112] Mr Nicholls further submitted that the WSA bound KI to supply water to bothLots 1 and Lot 3 and that as the Lots were separated by Pukeko Lane, it was necessaryfor the supply to be by way of two meters. I note that was a refinement of the pleadingthat KI was obliged to supply water to the FFT's land where KI's right to convey watertouched the plaintiffs' right to convey water.[113] In determining KI's contractual obligations to the plaintiffs the starting pointmust be the wording of the WSA.[114] Clause 1.6 confirms that KI's supply of water from the Scheme is subject tothe terms of the WSA.[115] Clause 2 of the first schedule to the WSA sets out KI's obligations in relationto the supply of water. Clause 2.1 provides:2.1 Subject to the terms of this Agreement, the Company shall supplywater to the User in the manner described in this Schedule ("WaterAllocation").Clause 2.1 provides for the general obligation to supply water. Then cls 2.4 and 2.5(a)specifically provide how and where the water is to be supplied:2.4 The Company shall supply water to the boundary of the Land or atsuch more distant point, as the Company's distribution system andrights of access shall extend.2.5 (a) Water shall be supplied through a measuring device (calledthe 'Water Meter') to be maintained by the Company. TheUser shall not nor allow any person to, alter or interfere withthe Water Meter. Nor shall the User take, or attempt to take,or allow any person under his control to take, or attempt totake, any water from the Scheme other than through the WaterMeter and in accordance with the terms of this Agreement.[116] The clauses confirm that KI has an obligation to supply water to the boundaryof the user's land or at such more distant point as KI's distribution system and rightsof access shall extend. The "more distant point" must mean a point further from theboundary of the user's land if KI's rights of distribution and access do not extend tothe boundary of the user's land. That makes practical and commercial sense. KI couldnot be obliged to supply water to a point when it had no right of access to that point.[117] The express terms of the Agreement are not ambiguous. They are clear. Thereis no basis for the amended and expanded term argued for by the plaintiffs, that KIwould supply water to the FFT's land where KI's right to convey water touched theplaintiffs' right to convey water. KI's obligation was to supply water to the boundaryof the FFT's land (or at some more distant point) depending on KI's rights of access.In this instance, KI had no right to install a meter on the Williams' strip on PukekoLane as it had no right of access to it.[118] Importantly, cl 2.7 then provides:2.7 The User shall be responsible for the distribution of water from theWater Meter and takes all liability with respect to the water from thatpoint.[119] The clause makes it clear it was the responsibility of the plaintiffs to distributethe water from the water meter to their land, which under the WSA was both Lots 3and 1.[120] The submission made on behalf of the plaintiffs for an expanded obligation onKI is not supported by Mr Farrand's evidence. Mr Farrand said in his evidence-in-chief that he made it plain to KI that "what happened after the water meter was notKI's concern". Under cross-examination he accepted that "the scheme's responsibilityends where their easement ends" and when talking about the "equitable easement"said:I don't believe that's the worry of the scheme, or it's not the responsibility butthey do have a right to supply water on the boundary between where they havean easement and where I have access to that easement.[121] In any event, the short answer to the plaintiffs' claims against KI for breach ofcontract (which is a failure to supply water) is that, at all times KI supplied water toFFT's land under the terms of the WSA because it continuously supplied water towater meter 476. The meter was situated on Lot 3 of the FFT land until, at MrFarrand's request, meter 476 was relocated to point E in September 2018 and FarrandLots 1 and 3 were supplied by the meter from that point. At no time did KI ceasesupplying water under the 2010 WSA to the FFT. Indeed, the FFT took more waterthan it was entitled to under the WSA.[122] The WSA defined an irrigation season as running between 1 October and 30April. FFT was allocated 16,500 cubic metres per annum. KI's data base records thatfrom 11 October 2016 to 31 May 2017 (when the meter was read), 25,320 cubic metreswas supplied through meter 476. In addition, the second meter 1577 installed on 30January 2017 supplied 6,833 cubic metres between 1 February 2017 and 31 May 2017.In total then, against an obligation under the WSA to supply 16,500 per annum to theFFT property, KI supplied 32,153 between 11 October 2016 and 31 May 2017.[123] There is nothing in the wording of the WSA to support the plaintiffs'submission that KI was obliged to supply water by means of two separate watermeters, one on Lot 3, one on Lot 1. Rather, the WSA wording supports a contraryconclusion.[124] The references in the WSA to land is to the property described as Lot 1,DP174528 and Lot 3, DP174528. The titled area under the WSA is the combined7.2086 ha of both lots and the irrigable area is the total irrigable area of both lots. Themaximum volume of water and maximum flow of water supplied under the agreementare both calculated on the basis of the total irrigable hectares. KI's obligation underthe WSA was to supply water to that land which it has done. As noted, its obligationended at the meter. It was for the plaintiffs to solve any "on property" distributionissues.[125] Mr Hunter was clear in his evidence that Mr Farrand's suggestion he wouldnever question a grower's right to reallocate their existing water allocation betweenblocks on one orchard by way of adding new meters was "completely untrue". Fromhis evidence a second meter would require a second WSA and would generally onlyapply where there were two titles. There were only a very limited number ofexceptions to that rule.[126] The practice of one meter per title is also consistent with cl 7 of the WSA,which deals with subdivision, and assignment and sale of land. It provided:7.2 If the User subdivides the property and retains ownership of the lot onwhich the Water Meter is located or which is supplied directly by theWater Meter, and any lots adjoining that lot, the Company will amendthis agreement by:(a) inserting the new legal description of that lot or lots;(b) determining the new area of irrigable hectares in that lot orlots;(c) determining the revised Water Allocation for that lot or lots,provided that if the number of irrigable hectares is less than two inthat lot or lots, this Agreement will terminate on the date of thesubdivision.7.3 The Company will consider entering into a Commercial Water SupplyAgreement with each owner of a subdivided lot, including with theUser in respect of any lots not covered by this Agreement as amendedunder clause 7.2, on the basis of the Company's policy and criteria forentering into such a Commercial Water Supply Agreement.[127] The above clauses confirm that if the land is subdivided into separate lots withseparate ownership, then the company will "consider" entering a WSA with eachowner of the subdivided lot. Importantly, the wording confirms there is no absoluteright to water without a WSA.[128] Mr Nicholls submitted that the supply of scheme water between Lots 3 and Lot1 could not be an "on property" issue because Pukeko Lane was not "on property" asit is not part of either Farrand Lot 1 or Farrand Lot 3. He submitted that if KI maintainsit was contractually precluded from assuming responsibility for scheme water after thewater left its water meter then there was no option but for KI to supply both FarrandLots 1 and 3 via two separate water meters. But as noted, Mr Farrand's own evidencedoes not support that submission.[129] Mr Nicholls next sought to support his argument that KI was obliged to providetwo meters by referring to other examples where properties taking scheme water havemore than one water meter per title.[130] Mr Nicholls referred to the Farrands' experience with their home block wherethe packhouse was leased out to a third party and two separate meters were installed.[131] However, in that example there were two separate WSAs. Further, while therewas a typographical error in one of the WSAs which referred to the same lot numberas the other WSA, it was clarified during the evidence that the property had beensubdivided and there were two separate titles. Mr Farrand accepted that in cross-examination:A. The packhouse?Q. Is on a separate title?A. Yes it is.Although some time was spent during Mr Hunter's cross-examination about thematter, the documentary records confirm there were two titles and two separate WSAs.The example of the packhouse does not assist the plaintiffs at all.[132] Reference was also made to a subdivision of the FFT's land at Kapira Road in2008. But the FFTs solicitors at that time wrote to KI acknowledging that water wouldnot automatically be supplied to the subdivided block. That example does not supportthe plaintiffs' proposition.[133] Next, while Mr Hunter accepted there were some exceptions and KI hadinstalled two meters to a limited number of properties, that was because the propertieswere large operations, such as beef or dairy farms or were very intensively plantednurseries or with multiple road frontages served by multiple pipes. He thought therewere about five of about 50 or 60 ha. The second meters were installed where KIcould not provide sufficient flow through one meter to the properties. That is not thecase here.Implied terms[134] Mr Nicholls submitted that in addition to the express terms of the contract theterms the plaintiffs relied on could be implied into the contract. He noted that previousiterations of the WSAs or at least extensions of the WSAs had referred to impliedterms. For example, one extension of the WSA used wording such as "except as variedby this deed, the covenants and conditions contained and implied in the SupplyAgreement shall continue and remain in full force and effect".[135] To recap, the plaintiffs plead that the terms meant the following terms were tobe implied by custom:(a) KI would continue to supply water to the land where KI's right toconvey water touched the plaintiffs' right to convey water and so longas the plaintiffs paid for the water and there was not an event beyondKI's control;(b) KI guaranteed to supply water; and(c) the water supplied to the land was to be supplied through one or more50 mm pipes where the water would have a pressure of at least 35 psi.[136] In Forivermor Ltd v ANZ Bank NZ Ltd the Court of Appeal confirmed thecriteria to apply to the implication of a term by custom:30[42] The circumstances in which a court may imply a term in a commercialcontext are governed by the question of what a reasonable person wouldconsider both parties must have meant to happen in circumstances notexpressly addressed by the contract. The importation of terms by usage orcustom rests on the assumption that it represents the intention of the parties,unless they expressly depart from it. A term will be implied by custom if thealleged custom:(a) has acquired such notoriety that the parties must be taken to haveknown of it and intended that it form part of the contract;(b) is certain and reasonable;(c) is proved by clear and convincing evidence; and30 Forivermor Ltd v ANZ Bank NZ Ltd [2014] NZCA 129 (footnotes omitted).(d) is not inconsistent with any other terms of the contract.[137] Importantly, the custom must be proved by clear and convincing evidence andmust not be inconsistent with the express contract.[138] There is no clear and convincing evidence of the terms the plaintiffs seek toimply into the contract. Further, the proposed terms that the plaintiffs seek to haveimplied are inconsistent with the express terms of the WSA.[139] The suggestion that KI was required to provide water to the land, namely bothLot 1 and Lot 3 where KI's right to convey water touched the plaintiffs' right to conveywater is, as noted, contrary to the express wording of cl 2.4 of the contract. Further,the suggestion that provided the plaintiffs paid for the water and there was not an eventbeyond the defendant's control, the defendant guaranteed to supply water to the land,is inconsistent with cl 4 of the Agreement which provides for failure of supply. Itexpressly provides:4.1 (a) If for any reason (including the fault of the Company) the watersupply to the Users is diminished or shall fail, then:(i) No person shall have any claim or right of action against[KI].[140] Clause 4.1 confirms that supply was not guaranteed under the WSA.[141] There is a further difficulty for the plaintiffs with their allegation that as amatter of custom, there was an implied term providing for a minimum pressure atwhich the water would be supplied. The plaintiffs' pleaded allegation was that it wasto be a minimum of 35 psi. But in closing Mr Nicholls submitted that the term to beimplied was that the minimum pressure would be 15 psi.[142] In his evidence-in-chief Mr Farrand was clear that he considered the minimumpsi required was 35 psi:I know that all of the irrigation systems operating on the kiwifruit orchardsthat were developed by Laurenson and Barham were designed, and set up, torun with a minimum pressure of 35psi, .[143] It appears the change in the plaintiffs' approach followed Mr Barber's evidencethat he understood the scheme was set up for 15 psi and the Feasibility Report of 1976which noted the committee had adopted criteria for the supply of irrigation waterwhich included:4.3 3. The minimum supply pressure will be 100 KPa (14.7 p.s.i.).31[144] The public notification of the scheme also referred to the scheme being capableof delivering water to all properties at a minimum pressure of 15 p.s.i.[145] Mr Farrand's change in position is hardly consistent with the argument for theimplication of a customary term for minimum pressure. It cannot be said the term hasacquired such notoriety that both parties to the agreement knew of it given that changein position.[146] The WSA makes no mention of a minimum psi. It provides for supply of waterby volume and flow rate. Both are calculated on the irrigable area. Minimum pressureis such a variable and specific provision if it was to be a term of the WSA, then itwould need to be expressly set out as the volume and flow rates are. The only exampleof a reference to a minimum term of pressure referred to the Court was on a WSA withan unrelated third party where the pressure was known to be low. The user was alertedto that on the WSA.[147] Next, there is a difficulty with the suggestion a term providing for minimumpressure should be implied as it was necessary to operate sprinklers given that thereare two means of irrigating the orchards: sprinklers/spray or by trickle irrigation. Thedifferent systems require different pressure.[148] The evidence does not support the proposed implied term as to the supply ofwater at a minimum pressure of 35 (or 15) psi or through 50 mm pipes.31 I note that the same criteria refers to there being one connection per orchard.[149] During the course of closing submissions Mr Nicholls also raised thepossibility of terms being implied generally. While Ms Anderson objected to that onthe basis the plaintiffs had expressly pleaded reliance on terms implied by custom,reliance on implication of terms on the basis of an omission in the express terms of theWSA does not advance the plaintiffs' case in any event.[150] In Bathurst Resources Ltd v L & M Coal Holdings Ltd32 the majority of theSupreme Court discussed the recent decision of Attorney General of Belize v BelizeTelecom Ltd33 and the impact of that decision, particularly Lord Hoffman's commentson the commonly cited authority of BP Refinery (Westernport) Pty Ltd v President,Councillors and Ratepayers of the Shire of Hastings34 in relation to the implication ofterms, and particularly the requirement that to be implied the term must be:(a) reasonable and equitable;(b) necessary to give business efficacy to the contract;(c) so obvious as to go without saying;(d) capable of clear expression; and(e) must not contradict any express terms.[151] The majority declined to enter into the debate as to whether Belize had changedthe law in relation to the implication of terms, save to acknowledge that in their viewthe Privy Council did not set out to change the law. The Court of Appeal confirmedthe continuing role of BP Refinery in New Zealand law.[152] In summary, the Court concluded:35[116] To conclude, the principal points that govern the implication of termsare as follows:32 Bathurst Resources Ltd v L & M Coal Holdings Ltd, above n 27.33 Attorney General of Belize v Belize Telecom Ltd [2009] UKPC 10, [2009] 1 WLR 1988.34 BP Refinery (Westernport) Pty Ltd v President, Councillors and Ratepayers of the Shire ofHastings (1977) 180 CLR 266 (PC).35 Bathurst Resources Ltd v L & M Coal Holdings Ltd, above n 27.(a) The legal test for the implication of a term is a standard of strictnecessity, a high hurdle to overcome.(b) The starting point is the words of the contract. If a contract does notprovide for an eventuality, the usual inference is that no contractualprovision was made for it.(c) While the task of implication only begins when the court finds thatthe text of the contract does not provide for the eventuality, theimplication of a term is nevertheless part of the construction of thewritten contract as a whole. An unexpressed term can only be impliedif the court finds that the term would spell out what the contract, readagainst the relevant background, must be understood to mean.(d) As with the task of interpreting a contract, the inquiry for the courtwhen considering the implication of a term is an objective inquiry – itis the understanding of the notional reasonable person with all of thebackground knowledge reasonably available to the parties at the timeof contract that is the focus of this assessment. The court is taskedwith the role of constructing the understanding of that reasonableperson.(e) Thus, the implication of a term does not depend upon proof of theparties' actual intentions, nor does it require the court to speculate onhow the actual parties would have wanted the contract to regulate theeventuality if confronted with it prior to contracting.(f) The BP Refinery conditions are a useful tool to test whether theproposed implied term is strictly necessary to spell out what thecontract, read against the relevant background, must be understood tomean. Whilst conditions (4) and (5) must always be met before a termwill be implied, conditions (1)–(3) can be viewed as analytical toolswhich overlap and are not cumulative. The business efficacy and the"so obvious that 'it goes without saying'" conditions are both ways,useful in their own right, of testing whether the implication of a termis strictly necessary to give effect to what the contract, objectivelyinterpreted by the court, must be understood to mean.[153] The clauses that the plaintiffs seek to have implied into the contract in thepresent case fail to meet a significant number of the above tests. Principally, theproposed implied terms either directly contradict the express terms of the contract orat least are inconsistent with them. In addition, they are not necessary to give businessefficacy to the contract and are not so obvious so as to go without saying. On anyobjective inquiry the proposed implied terms cannot be sustained.The 2016 Agreement[154] The plaintiffs also argue that a concluded agreement was made inSeptember/October 2016 for the installation of a second meter. Mr Nicholls submittedthat the plaintiffs' preferred analysis of the position was that the 2016 Agreement wascollateral to the 2010 WSA.[155] The plaintiffs plead that, either by express words or by terms implied bycustom the 2016 Agreement included terms:(a) FOL would pay a new connection fee of $650.00 and pay for the watersupplied by KI to Lot 1;(b) within a couple of days after payment of the connection fee KI wouldsupply water to FFT's land being Lot 1 where KI's right to conveywater touched the plaintiff's right to convey water;(c) so long as the plaintiffs paid the new connection fee and paid for thewater supplied and there was not an event beyond KI's control, KIguaranteed to supply water to Lot 1;(d) the water supplied to Lot 1 was to be supplied through a 50 mm pipewhere the water supplied in the 50 mm pipe had a pressure of at least35 psi; and(e) any works carried out by KI would be charged to the plaintiffs at marketrates.[156] The plaintiffs allege that in breach of the 2016 Agreement the defendantrefused to supply any water to Lot 1 of the plaintiffs' land where the defendant's rightto convey water touched the plaintiffs' right to convey water from 6 October 2016 to30 January 2017 and from 2 November 2017 to 5 December 2017.[157] There is a conflict of evidence between Mr Farrand and Mr Corcoran as towhat took place at the meeting in mid to late September 2016 at the KI's offices. MrFarrand says that he filled out an application form for the installation of a second watermeter to service Lot 1 and that Mr Corcoran agreed a second meter would be installedwithin a couple of days.[158] Mr Nicholls suggested there was a low probability Mr Farrand would have leftKI's office on 23 September unless he had been told that a new meter would besupplied. He noted that an invoice was generated on 23 September for a new meterand paid by FOL on 4 October 2016. He argued that the new meter could be installedat short notice as had occurred when the meter was reinstalled on 5 December 2017following Mr Muller's direction to Mr Corcoran on 3 December 2017.[159] Mr Corcoran's evidence is that there was no application form filled outalthough he accepts Mr Farrand asked for the installation of a second water meter andsuggested a split of the take between the two lots.[160] At this point I note that Mr Nicholls submitted in closing that KI should haveinstalled the meter at point 'E' where meter 476 was ultimately relocated to inSeptember 2018. However, that is not the way the case was pleaded or indeed whatMr Farrand said in his evidence. In his evidence-in-chief Mr Farrand said that heclearly remembers it was agreed between Tony (Mr Corcoran) and myself that theapplication was for a new water meter which "would be positioned on the boundaryof the Williams' and Hows' strips in line with my existing pipe which supplied FarrandLot 1". That is a reference to a point at the northern end of the Curtis land, rather thanthe southern end of the Curtis land where point E is.[161] Further, despite Mr Farrand's evidence that he clearly remembered it wasagreed the job was to be done within a couple of days neither his own correspondencenor the correspondence of his solicitors written shortly afterwards on his behalf refersto such a binding agreement, despite the fact that the lack of water supply to Lot 1would have been a pressing issue for the plaintiffs.[162] Mr Dodds' letter to the Hows' solicitor on 28 October 2016, in which he soughta resolution involving the provision of pipes from Lot 3 to Lot 1 is inconsistent with asuggestion that KI had agreed to resolve the issue by supplying water directly to Lot1 within a couple of days of the meeting in September. Obviously the second meterhad not been installed by that date. If it had been, there would have been no need forMr Farrand to deal with the Hows.[163] Next, on 24 November 2016, when Mr Dodds wrote to KI suggestingalternative ways of resolving the issue there was no suggestion that KI had committeditself to supplying Lot 1 through the installation of a second meter and was in breachof the agreement. The letter was a request for assistance.[164] Further, when Mr Farrand himself wrote on 13 July 2017 to KI complainingabout its actions he said:With [KI's] existing branch off the eastern side of the main line, that has beenthere for 40 years, in the appropriate location, one would assume my secondsupply would have been available within a few days.[165] Where there is a conflict, I prefer the evidence of Mr Corcoran. It is moreconsistent with the contemporaneous documents. I do not consider that Mr Farranddid complete an application in September/October 2016. But in any event, little turnson whether Mr Farrand completed an application form. On any view of it, anapplication to complete the water meter is not a contract for the supply of water. Thecontract for the supply of water is the WSA which contains the terms and conditionsupon which the water is to be supplied, including the important details of flow andvolume. There is no binding obligation to supply water (or in this case to install asecond meter to supply water) until a WSA is completed.[166] Mr Farrand completed an application for a water meter the following yearwhen meter 476 was relocated. Relevantly, that application included the followingterms which set out the process KI followed for the installation of a meter:1. On receipt of application form we will check that sufficient water isavailable in the pipeline in your area.2. If the supply is sufficient and we are able to connect you to the watersupply a quotation will be provided for the cost of installation.3. On receipt of payment and signing of a Water Supply Agreement wewill proceed with the connection.[167] The invoice issued for a connection was an initial administrative step and nomore than that. Once the practicalities of installation had been considered, a detailedquote/invoice for the installation followed (as was the case in August/September 2018)when meter 476 was relocated at Mr Farrand's request.[168] Mr Corcoran's contemporaneous notes on the back of a meter checklist areconsistent with that process. They record that:MT 476Kerry Farrandhalve Allocation 16500 m³ and Flow 132 L/m(and hectares)Add new (additional) meterother half of allocation and Flowand hectaresnew connection fee[169] It is also consistent with commercial and practical common sense that KIwould need to consider the practical and legal implications of where it might installits water meter before completing a WSA under which it committed itself to supplyingwater through that meter.[170] Mr Hunter confirmed that when he was manager, KI would not install a newconnection/meter without entering a new WSA and amending the original WSA.Importantly, he also said that if a customer had come to him with the request MrFarrand made in September 2016 he would have had a look at the property and KI'seasements. If there was any doubt he would get a survey drawn up. That is the processthat Mr Corcoran followed in this case.[171] I find that there was no agreement concluded in September/October 2016 thatKI would install a second meter to supply water to Lot 1 either at the point Mr Farrandsaid in his initial evidence-in-chief or at point E where Mr Nicholls suggested inclosing that KI was obliged to install it.[172] Mr Corcoran did suggest the plaintiffs could utilise the easements they had atpoint E and over the Curtis land (the down and around option) to supply Lot 1 fromthe existing meter on Lot 3 but Mr Farrand did not accept that suggestion.The psi and restrictor valve issue[173] The plaintiffs also allege that when the water meter 476 was relocated to pointE in September 2018 and the restrictor valve installed, the water flow was limited to8 psi. Mr Farrand said his sprinkler system would not operate at that pressure.[174] For the reasons given above the WSA did not contain an implied term therewould be a minimum psi.[175] In any event the evidence supports the conclusion that the water supplied byKI to the plaintiffs was supplied at an adequate pressure. Quite some time in theevidence was taken with a discussion as to the size of the restrictor valve installed byKI. Mr Farrand took a photograph of the restrictor valve that was removed from themeter installation in January 2019. He considers that the photograph shows that therestrictor valve was 12 mm.[176] As an aside Mr Farrand took issue with the restrictor valve being installedwithout his knowledge, but it is apparent his lawyer was aware of the issue as he soughtto have the cost of the restrictor valve removed from the price quoted for the relocationof meter 476 in September 2018. While Mr Farrand suggested that he was not awarea restrictor valve was to be installed, his lawyer attempted to negotiate the quote byremoving the price for the digger work and the precision valve. I infer that was on thebasis of Mr Farrand's instructions. KI declined to reduce the quote.[177] KI called evidence from Jason Bennett, the field operations manager (servicetechnician) with KI who installed and removed the restrictor valve in issue. MrBennett said he installed the smart water meter and a Maric 138 lpm, 32 mm precisionflow control valve. He took a photograph of the relevant restrictor valve. Themarkings on the valve clearly identify it as a Maric 138 lpm flow control valve. Therate of 138 lpm was chosen because the WSA provided for a flow rate of 132 lpm.[178] Mr Bennett was clear that he has never installed a 12 mm valve on acommercial connection. The company instals 20 mm valves but only for non-commercial operations.[179] I accept the evidence of Mr Bennett. His evidence was clear and compelling.He was not seriously challenged in cross-examination.[180] Mr Bennett also gave evidence about the pressure available once the meter andrestrictor valve were installed at point E. Following the installation of the flow controlvalve he checked the water pressure available through the meter on the day ofinstallation. It was equivalent to 66 psi. He also checked the flow rate. That showedthe flow through the meter and restrictor valve was capable of producing 160 litres perminute. He explained that a 138 lpm restrictor valve can have 160 lpm forced throughit if the pressure is high enough as the valves allow a 10 per cent greater flow but witha loss of pressure due to the valve trying to restrict the flow.[181] Again Mr Bennett was not seriously challenged in cross-examination on thesepoints.[182] There is no significance in the fact KI removed the restrictor in January 2019.Mr Corcoran confirmed the meter was removed as the current policy (confirmed byMr Curtis) is that there is no need for manual restriction of the flow as flow data canbe recorded accurately from the smart meters. Mr Bennett's evidence was that 100 ofthe 300 commercial users now had smart meters installed.[183] The plaintiffs' case on this issue is based in part on the fact that once the meterwas removed then the sprinkler system worked as Mr Farrand considers it should.However the data from the smart water meter shows that once the restrictor valve wasremoved the plaintiffs regularly exceeded the maximum flows that they were entitledto. That may well explain why, from Mr Farrand's point of view, the sprinkler systemworked well after it was removed. The plaintiffs were taking more water than theywere entitled to.[184] Mr Bennett's evidence, supported by the evidence of the hydraulic engineer,Mr Anthony Bryce, was that there are a number of reasons for a drop in water pressure"on property". They can include the use of the wrong type of filtration system, the useof pipes that are too small (the friction will be higher and the pressure will drop), or ifthe area being irrigated is too large for the flow rate.[185] Taken as a whole the evidence supports the conclusion that any issues withpressure that the plaintiffs may have experienced were due to their "on property"issues.[186] Even if the plaintiffs had established an implied term water would be suppliedat a minimum of 15 psi, the plaintiffs fail to satisfy the Court that KI supplied water ata pressure of less than that to the Laurenson Orchard through meter 467.[187] The remaining claims are based on the premise KI was in breach of its contract.I have found it was not in breach. The claims can be dealt with briefly.The compromise Agreement[188] The plaintiffs allege they are entitled to be reimbursed for the excess watercharge because this was a cost incurred by them due to KI's breach of the 2010Agreement.[189] Quite apart from the fact I have found there was no breach, the claim ismisconceived. The $5,000 was paid as a compromise following an exchange oflawyers' correspondence on the issue and is the subject of an accord and satisfaction.The payment was not made with a reservation of rights.[190] Apart from the bare assertion that the plaintiffs are entitled to be reimbursedthe plaintiffs have not attempted to analyse the basis for any such reimbursement.There can be no suggestion of duress or the fact that the payment related to the removalof the trespassing second water meter as KI's solicitors' letter made it clear that theywere two separate issues. Further, the trespassing water meter was removed beforethe compromise was formally agreed.Additional costs[191] As to the claim for reimbursement for the costs paid to KI as a contributiontowards the surveyors' costs, the surveyors' costs were incurred by KI in its attempt toobtain an easement over the Williams' strip, which would have enabled KI to theninstall a water meter on Lot 1 as requested by the plaintiffs. There is no principledreason why the plaintiffs should not pay a contribution towards those costs.[192] Mr Farrand's costs for transporting the water to Lot 1 duringDecember/January 2016/17 are not recoverable.The digger issue[193] In August 2018 the plaintiffs requested meter 476 be relocated. KI provided aquote for the work which included the installation of the precision (restrictor) valveand a cost for the hire of a digger.[194] Mr Farrand complained that he had been charged the full amount for the diggerwhen he had his own digger on site and that could have been used. He argued therewas no need for KI to hire a digger and operator. Mr Corcoran's response was thatgiven KI's responsibilities to staff and others under the Health and Safety at Work Act2015 they could not use the digger that Mr Farrand suggested was available. KI couldnot have its people working underneath a digger Mr Farrand was driving, and theywould not use Mr Farrand's digger themselves because of the legal issues if it brokedown.[195] KI was entitled to hire a digger and charge for it. It was a cost properly incurredas part of the relocation of meter 476.Loss of production[196] Mr Nicholls accepted that quantification of the damages claimed by theplaintiffs was difficult because there was no effective control block and there weregaps in the data. However, he submitted it was reasonable to infer from the evidencethat the lack of water to Farrand Lot 1 from 6 October 2016 to 30 January 2017 duringa very dry summer or drought had a significant impact on production from FarrandLot 1 in the April 2017 harvest season, and in the two succeeding seasons, the 2018and 2019 harvest seasons.[197] Essentially the plaintiffs' case is that the lack of water at the relevant timewould have had a deleterious effect on the vines and would have affected the harvestin the 2017, 2018 and 2019 years as the effect would be cumulative and ongoing.[198] Mr Nicholls submitted that, up until the April 2015 harvest season LaurensonOrchard had performed at or above the Kerikeri Orchard averages in terms ofproduction. Apart from dealing with the effects of PSA and planting an extra G3 plantevery five metres in each bay the management of Laurenson Orchard did not changebetween pre 2015 and post 2015. While there was no exact control block the bestmethod to determine loss was to compare Laurenson Orchard's performance withKerikeri averages.[199] The plaintiffs rely on the evidence of Mr Barber and Mr Farrand of the on-sitewater deprivation and its effect on the vines. They also rely on Ms Downey's evidenceto quantify the loss of production. Mr Barber visited the Laurenson Orchard on 7December 2017. In his opinion the vines were under extreme stress at the time. Thetest holes he dug confirmed the soil in blocks 5, 6 and 7 on Lot 1 were extremely dry.[200] Ms Downey is a member of the Chartered Accountants of Australia and NewZealand (CAANZ) with over 10 years' experience specialising in horticulturalcompliance and reporting. She formerly held the position of finance manager atTurners and Growers (now Seeka) at Kerikeri.[201] Ms Downey approached the quantification of loss by using block 1 on Lot 3 asa control block to compare the orchard's specific performance to that of regionalproduction, taking account of:(a) the grafting programme; and(b) that the Laurenson Orchard had 4.2 m row spacing whereas the typicalspacing was 3.5 m. To weigh this factor in, Ms Downey applied a 15per cent lower yield for that factor.[202] On that basis, Ms Downey's opinion, based on her experience and observeddata, was that the production in Farrand Lot 1 would be expected to be:(a) zero in the first year after the graft;(b) 65 of 85 per cent of the Kerikeri average for eventual full production inthe second year after the graft;(c) 93 per cent of 85 per cent of the Kerikeri average for eventual fullproduction in the third year after the graft; and(d) 85 per cent of the Kerikeri average for eventual full production in thefourth year after the graft.[203] Ms Downey's workings were:WORKINGSREVENUE LOSS ANALYSIS – 2017Kerikeri 2017 Average Production (trays per hectare) 13,372Laurenson Orchard Yield to Average 85%Laurenson Orchard 2017 Total Expected trays per hectare 11,367Block 1 Block 2-7Area (hectares) 0.33 ha 4.97 haX Production Percentage 100% 65%X Laurenson Orchard expected trays per hectare 11,367 11,367Blocks' Expected Trays 3,751 36,720Laurenson Orchard's Expected Trays 40,471Less: Actual Trays (22,433)Total Tray Deficit 18,038Laurenson Orchard NET OGR per tray $10.1002Less: Additional Picking costs per tray (estimated) -$0.8500NET Profit per tray $9.25022017 REVENUE LOSS $166,851REVENUE LOSS ANALYSIS – 2018-20202018 2019 2020Kerikeri Average production (trays per hectare) 13,517 12,745 13,856Laurenson Orchard Yield to Average 85% 85% 85%Laurenson Orchard Expected trays per hectare 11,489 10,833 11,778Total Canopy Hectares 5.30 ha 5.30 ha 5.30 haTotal Expected Trays 60,894 57,416 62,421Less: Actual Trays (55,789) (51,329) (52,399)Total Tray Deficit 5,105 6,087 10,022Zespri Industry Average OGR $10.89 $11.86 $12.46Less: Additional Picking Costs per tray (est) -$0.85 -$0.85 -$0.85NET Profit per tray $10.04 $11.01 $11.61REVENUE LOSS $51,258 $67,020 $116,359[204] Ms Downey summarised the losses as:SUMMARY OF LOSSESYEAR Tray Deficit Revenue Loss2017 18,038 trays $166,8512018 5,105 trays $51,2582019 6,087 trays $67,0202020 10,022 trays $116,359Total 39,252 trays $401,488[205] KI called Ms Scarrow on the issue of loss. Ms Scarrow is a horticulturalconsultant employed by Fruition Horticulture (BOP) Limited. She has been employedas a horticultural consultant since May 1987. Before her current position with Fruitionshe formerly worked as a consultant with Agriculture New Zealand Limited and theMinistry of Agriculture and Fisheries. Overall, Ms Scarrow has 35 years' experienceworking as a horticultural consultant. Ms Scarrow is registered through theAgricultural and Horticultural Registration Board. She holds a Bachelor ofHorticulture, Science and a postgraduate Diploma in Business and Administration(Management). She is contracted to the Ministry for Primary Industries as a policyagent and has prepared expert evidence for both this Court and the Environment Court.She is familiar with the Kerikeri horticultural region as she travels frequently to thatarea and personally owns a kiwifruit orchard, including 1.5 ha of Gold 3 and two haof Hayward.[206] Ms Scarrow considered the expected production after grafting to be:(a) zero in the first year after the graft;(b) 35 per cent of eventual full production in the second year after the graft;(c) 75 per cent of full production in the third year after the graft; and(d) 100 per cent of full production in the fourth year.[207] Ms Downey applied Ms Scarrow's figures and on her estimate, even using MsScarrow's figures across the four years and to full production that still resulted in arevenue loss of about $218,000.00.[208] However, Ms Scarrow considered that the more appropriate comparator wasbetween the Laurenson Orchard performance and Northland averages for the yearspost conversion to the Gold 3 crop. Ms Scarrow considered that on that basis theLaurenson Orchard performed well, particularly if one used the 15 per cent differentialapplied by Ms Downey to take account of the extended row width of the LaurensonOrchard.[209] In Ms Scarrow's opinion the production from the Laurenson Orchard for therelevant years fell within the normal distribution for Gold 3 vines post grafting.Further, other orchards owned by the FFT (and operated by FOL) which wereunaffected by the alleged lack of water in 2016/17 and again in late 2018 producedsimilarly poor results. In her opinion there was no evidence to support a claim forfinancial loss as a result of the alleged disruptive water supply.[210] Ms Scarrow considered that if the data showed an impact on production for the2017 and 2018 harvest years in particular, most of that impact was likely to result fromthe regrafting in 2015. In her opinion the evidence just did not establish what effectthe lack of water had. A good comparator would have been if block 1 on Lot 3 (whichhad been previously converted to G3) had been sent separately to the packhouses.That had not been done.[211] Relevantly, both Ms Scarrow and Ms Downey saw it as rather counterintuitivethat there was more of a differential between Laurenson Orchard and the Kerikeriaverage for the 2019 and 2020 years, the third and fourth years following conversion,which suggested that something other than water loss was affecting production.[212] Ms Scarrow rejected Ms Downey's conclusion. In summary she concluded:• the summer of 2016/17 was a particularly dry summer and kiwifruitvines would have benefitted from irrigation to replace the water lost inevapotranspiration;• the soil moisture reserves and rainfall in November 2017 were likely tohave been sufficient to provide for the needs of the vines on Lot 1 forthe period 2 November 2017 to 5 December 2017;• the FFT had failed to produce any data to show the impact on the yieldfor blocks 1–4 when compared to blocks 5–7, the area alleged to havebeen affected. The information would have been relatively easy toobtain by setting up maturity areas grouping blocks 1–4 and blocks 5–7;• the production from the orchard in 2017 and 2018, the years where thevines were potentially impacted by the lack of water, followed a typicalpattern for vines that had been converted to Gold 3 in 2015.[213] I prefer the evidence and approach of Ms Scarrow to that of Ms Downey. Asan aside, I also note that the loss now claimed is significantly different to the lossesthat Mr Farrand first suggested in his letter of 17 November 2017 when he claimed$11,270 for the impact of the lack of water for the first year.[214] With respect to Ms Downey, who was quite candid in giving her evidence, herexperience is limited and is not as broad as Ms Scarrow. Ms Downey had spent threeyears working with Turners and Growers some time ago. Ms Scarrow has 35 years'experience as a horticultural consultant. Also, rather than a horticulturalist such as MsScarrow, Ms Downey is an accountant.[215] Although not particularly material, Ms Downey also based her assumptions forthe 2016 year, on the basis that the relevant area was .33 ha. However the correct areawas .63 ha. She accepted she had taken the total number of vines for the whole .63area as being what had been produced over a .33 ha area.[216] Ms Downey's approach was to assume an industry average for full producingorchards and then to take a percentage of that depending on the time relative toconversion. Ms Scarrow looked at the averages for an orchard in its first year ofproduction post conversion rather than taking the industry average based onsubsequent years.[217] A further difficulty with Ms Downey's evidence is that she used block 1 as acontrol block when that was not apposite because it was converted from Haywardrather than Hort 16A which was the variety on the relevant blocks. Further, block 1'svines were not subject to PSA. Next, block 1 did not produce at all in 2014. Theproduction of the subsequent year following low or no production may obviously havebeen higher as a result. That could have skewed the 2015 figures as representative ofthe performance that year.[218] On the evidence of Ms Scarrow, which the Court prefers to Ms Downey on theissue, the Laurenson Orchard produced quite well compared to other orchards in theNorthland area following conversion to G3 kiwifruit.[219] Further, the evidence is that in the 2016/17 season Lot 3 was supplied withwater, albeit at some trouble by Mr Farrand from mid-December until the installationof the second meter, and also that substantial amounts of water, well in excess of theallocated volume, were supplied during that season.[220] As part of her evidence, Ms Scarrow took into account the rainfall data forKerikeri over the relevant summers of 2016/17 and 2017/18. She concluded that the2016/17 season was particularly dry and irrigation water would have been required tosupplement rainfall during that season. However, the soil reserves would have beenrecharged during the winter of 2017 and rainfall was likely to have been sufficient tomeet the needs of the vines during the spring and early summer of 2017/2018.[221] The Court accepts the evidence of Ms Scarrow based on the information andreports she referred to that the natural soil reserves from the winter rain of 2017 wouldhave been sufficient to sustain any shortage in water between the period of Novemberand December 2017.[222] The onus is on the plaintiffs to establish the damage they have sustained. MrNicholls referred to the case of Wordsworth v Purdie36 where Wylie J confirmed thatwhere the Court has some difficulty with a claim for damages and uncertainty makesit difficult to calculate the damages the Court must simply do the best it can in thecircumstances, referring to the case of Butler v Countrywide Finance Ltd.37[223] In Butler Hammond J referred to the general rule that a court must not letdifficulties of translating an economic loss into monetary terms stand in the way of anassessment of damages.38 The Court must simply do the best it can.39[224] However, the present case is not one where it is necessarily difficult for theCourt to assess damages. It would be possible to calculate a reduction in productionand calculate the damages accordingly.[225] The difficulty for the plaintiffs in the present case is that, taken overall, theevidence falls short of establishing that any loss of production sustained by them forthe relevant years was caused by a lack of water supply to blocks 5 to 7 on Lot 1 duringthe relevant time periods.[226] Given that the Court has rejected any reduction in pressure and supply due tothe application of the restrictor valve in 2018, the plaintiff fails to establish a causativelink between any claimed loss of production and the actions of KI in relation to itsobligation under the WSA to supply irrigation water to the plaintiffs.[227] The evidence does not support the plaintiffs' claim for damages for loss ofproduction.36 Wordsworth v Purdie HC Auckland CIV-201-404-001933, 25 October 2011, at [28].37 Butler v Countrywide Finance Ltd [1993] 3 NZLR 623 (HC).38 At 625.39 Chaplin v Hicks [1911] 2 KB 786 (CA); McRae v Commonwealth Disposals Commission (1951)82 CLR 377; Naylor v Yorkshire Electricity Board [1968] AC 529 (HL).Summary/result[228] For the above reasons, the plaintiffs' claims against KI fail. I enter judgmentfor the defendant.Costs[229] Costs on a 2B basis would seem appropriate. However, in the event there maybe correspondence on the issue of costs which the Court is unaware of, I reserve costs.If there is no relevant correspondence costs can be fixed on the 2B basis. I certify forsecond counsel. The Registrar is to fix disbursements, including witness expenses.__________________________Venning J