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CISG CASE PRESENTATION

New Zealand 19 December 1996 Court of Appeal (Attorney General v. Dreux Holdings) (Parcels of land sale case)
[Cite as: http://cisgw3.law.pace.edu/cases/961219n6.html]

Primary source(s) of information for case presentation: Henning Lutz

Case Table of Contents


Case identification

DATE OF DECISION: 19961219 (19 December 1996)

JURISDICTION: New Zealand

TRIBUNAL: Court of Appeal

JUDGE(S): Blanchard; Richardson; Keith; Thomas

CASE NUMBER/DOCKET NUMBER: CA 130/96

CASE NAME: The Attorney General and New Zealand Railway v. Dreux Holdings Limited

CASE HISTORY: Unavailable

SELLER'S COUNTRY: New Zealand (plaintiff)

BUYER'S COUNTRY: New Zealand (defendant)

GOODS INVOLVED: Sale of parcels of land


Classification of issues present

APPLICATION OF CISG: No. CISG cited in dicta

APPLICABLE CISG PROVISIONS AND ISSUES

Key CISG provisions at issue: Article 8(3)

Classification of issues using UNCITRAL classification code numbers:

8C [Interpretation in light of surrounding circumstances]

Descriptors: Intent

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Editorial remarks

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Citations to case abstracts, texts, and commentaries

CITATIONS TO ABSTRACTS OF DECISION

(a) UNCITRAL abstract: Unavailable

(b) Other abstracts

Unavailable

CITATIONS TO TEXT OF DECISION

Original language (English): Text presented below

Translation: Unavailable

CITATIONS TO COMMENTS ON DECISION

Unavailable

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Case text

Court of Appeal of New Zealand [CA 130/96]

The Attorney-General, First Appellant, and New Zealand Railways,
Second Appellant v. Dreux Holdings Limited, Respondent

[...]

19 December 1996

[Majority judgment
-  Introduction
-  Facts
-  The High Court judgment
-  Interpretation
-  Subsequent conduct [citation of CISG art. 8(3)]
-  Rectification
-  Tranching
-  Result

Judgment of Thomas J
-  [Introduction]
-  The surrounding circumstances and the contract
-  The interpretation of the contract
-  Pre-contractual negotiations
-  The admissibility of evidence of subsequent conduct [citation of CISG art. 8(3)]
-  Evidence of subsequent conduct
-  Postscript]

JUDGMENT OF RICHARDSON P, KEITH J AND BLANCHARD J
DELIVERED BY BLANCHARD J

Introduction

This appeal relates to the construction of an agreement for the sale of a large number of parcels of land found to be surplus to requirements on the restructuring of the railways. The primary issue is whether a call option given to the purchaser, Dreux Holdings Ltd ("Dreux"), was exercisable where the vendor, New Zealand Railways Corporation ("NZRC"), had elected not to require Dreux to purchase any of the properties under a prior put option. In the High Court an order was made under r.418 for the determination of some questions relating to liability prior to trial. Barker J has adjudged that on a proper interpretation of the contract Dreux was entitled to call upon NZRC to sell it the disputed properties and that, alternatively, if that were not so on the wording of the contract document, Dreux was entitled to rectification to make it so. Barker J's judgment is reported at (1996) 7 TCLR 82. NZRC and the Attorney-General, sued on behalf of the Crown in respect of NZRC (which was also sued separately) and the Department of Survey and Land Information ("DOSLI"), appeal against that decision.

Facts

In 1991 it was decided that NZRC should dispose of surplus land within two or three years and should do so in bulk. Some of the land was obviously of considerable value; other properties because of their size, geographical location or configuration were thought to be of little or no worth (e.g. strips of land between railway line and road). Many properties had no saleable title, simply being held as unregistered Crown land. Some required local authority consent and/ or survey for titling purposes. Where land had limited value titling costs were a significant factor. They might exceed the proceeds of realisation but it still remained desirable to dispose of the land in question so as to relieve NZRC of ongoing administration and occupancy costs. Many parcels were the subject of leases but in some cases those responsible for the selling exercise had limited knowledge of the terms upon which the lessees held their interests. For these reasons, traceable back to past poor administration by NZRC and its predecessor, the Railways Department, of its property portfolio, the land available for sale was described by those who negotiated for NZRC and Dreux as "the good, the bad and the ugly."

Most attention was necessarily paid to the "good" properties in the agreement which was eventually entered into. They were dealt with in Part I and the properties in question listed in Schedule A. But this litigation concerns "the bad and the ugly" in Part II and Schedule B (parcels with annual rents of less than $500) some of which has, as Dreux seems to have suspected all along, turned out to be far from unattractive. NZRC has belatedly woken up to the fact that Dreux has picked up some bargains and has declined to proceed with further transfers of Schedule B land despite already settling in respect of some properties.

NZRC initially sought tenders for bulk sale of 1056 Schedule A properties and 1622 Schedule B properties. Three serious offers emerged, including that of Dreux. The three tenderers were invited to attend what became known as the "beauty parade" which consisted of separate meetings between representatives of NZRC and each tenderer. On 8 June 1991 Dreux paraded, represented by Mr Green, who gave evidence, and Mr Wyborne who did not. For NZRC those present were Mr Murphy, a property officer with responsibility for the sale, Mr Keenan and Ms Godinet, respectively a partner and staff solicitor from NZRC'S solicitors, Chapman Tripp Sheffield Young, and Mr Bayley and Mr Johns from the firm of real estate agents who were advising NZRC.

As a result of that meeting it was decided that Dreux was the preferred purchaser of all the A and B properties. Using Dreux's tender document as a starting point Ms Godinet prepared a draft form of agreement which was the subject of negotiations between the solicitors for the parties. Eventually after various changes had been made from draft to draft the parties signed a contract on 16 October 1991 (though for some reason it was backdated to 17 September 1991).

Part I is in much greater detail than Part II and its provisions, subject to necessary changes, were incorporated by reference in Part II. The operation of the entire agreement in particular cases was made subject, among other things, to Ministerial consent to the sale of each property. The condition date in relation to that and to other clearances, including a procedure for ensuring that properties were being dealt with consistently with the Crown's duty of compliance with the Treaty of Waitangi, was 1 July 1996. There was also a provision enabling NZRC to withdraw properties from sale so as to be able to honour legal or moral obligations to transfer them to lessees.

Part II opened with the following provisions:

"1. Option to Purchase the B Properties

"The Purchaser agrees to buy, at the Vendor's sole option, the Schedule B Properties on the terms and conditions set out in this Part II and save as expressly modified by this Part II or where the application of any condition in Part I is limited to the Schedule A Properties the terms and conditions of Part I this Agreement shall apply to the Schedule B Properties mutatis mutandis.

"2. Exercise of Option

"The Vendor at its sole option may require the Purchaser to purchase all or any of the Schedule B Properties. Such option may be exercised by the Vendor by a single notice to the Purchaser in writing at any time on or before 20 June 1993 PROVIDED HOWEVER that the Vendor may not give such notice prior to settlement of the first Settlement Tranche of the Schedule A Properties."

There followed a clause setting the aggregate purchase price and stating a formula to arrive at the price of each separate B property, which was done by using a capitalisation rate of 13.5% of the rent as at the settlement date of the property concerned. Condition 5 provided for settlement of B properties to be in tranches of at least 100 properties, save for the last tranche. NZRC was to be entitled to elect the number of tranches but was not to require Dreux to settle tranches more frequently than every four months.

It was provided in condition 6 that NZRC was to be responsible for titling costs only where a B property was sold as a result of NZRC exercising its put option and not where "the sale has taken place as a result of the Purchaser's option in terms of condition 9" (which was obviously a misprint for 8 as there is no condition 9).

The final two conditions of Part II are at the heart of the case. They read:

"7. Failure to Exercise Option

"If the Vendor does not exercise the Option in relation to the Schedule B Properties by 20.6.93, Part II of this Agreement relating to the sale of the B Properties will be at an end. Whether or not the Option is exercised this Agreement will remain on foot and binding and enforceable in all respects in relation to the Schedule A Properties.

"8. Purchaser's Option

"In relation to those Schedule B Properties in respect of which the Vendor does not exercise her option the Purchaser may by written notice within twelve months of the non-exercise by the Vendor of its option to sell purchase any or all of such Properties other than those Properties which have been withdrawn pursuant to the terms of this Agreement or been sold prior to the exercise of this option by the Purchaser on the basis that the Purchaser shall pay in addition to the Purchase Price calculated in accordance with condition 3 of this Part II all costs incurred by the Vendor (including but not limited to survey and legal costs) of obtaining title for those Properties in respect of which the Purchaser exercises this option PROVIDED HOWEVER that such option in favour of the Purchaser shall expire in any event on 1 July 1996."

It was common ground that when the contract was negotiated both parties confidently expected that NZRC would exercise its put option in respect of all or some of the B properties. But that did not happen. Because of staff reductions after the contract was signed NZRC found itself with inadequate capacity to deal even with titling and conveyancing of the A properties during the term of the put option. It seems that NZRC's response to its difficulties was simply to do nothing about the B properties because it did not regard them as important. 20 June 1993, the date stipulated in condition 7, passed without NZRC having put any of them to Dreux. Indeed it was not until that same month that the settlement of the first tranche of A properties occurred.

On 3 December 1993 Dreux's solicitor, Mr Burton, gave notice of exercise of its option under condition 8 in respect of all B properties in the North Island and certain B properties in the South Island. He did this by letter to Chapman Tripp Sheffield Young addressed to Mr Keenan and Mr Mitchell who was now looking after the conveyancing aspects of the transaction. The exercise of option was acknowledged without comment. By now, administration of the properties had passed from NZRC to DOSLI. On 9 May 1994 Mr Burton exercised the option in respect of further South Island properties. Chapman Tripp acknowledged without comment on 2 June. In May settlement had occurred in respect of five South Island B properties which were transferred to Dreux. Clearly this was done pursuant to the contract of 17 September 1991 and Dreux's purported exercise of option.

On 28 June 1994 Chapman Tripp advised Mr Burton that NZRC considered that its obligation to settle the sale of the Schedule B properties did not arise until it was in a position to give notice of settlement of a tranche of at least 100 B properties. This was presumably a reference to condition 5 of Part II of the contract. It was not until 22 August 1994 that for the first time they asserted that Dreux's call option had lapsed under condition 7 when NZRC's put option expired without having been exercised. That argument continues to be advanced; but if it does not succeed, then the appellants say that NZRC is entitled to rely on condition 5.

The High Court judgment

Barker J was able to deal with the matter quite briefly. He noted the inconsistency between conditions 7 and 8. He was satisfied on the evidence that at the "beauty parade" meeting of 6 June 1991 it had been agreed in principle that Dreux would have the opportunity of purchasing all or any B properties which NZRC chose not to retain for itself. The Judge thought that condition 8 is quite clear in itself. It refers to

"Those Schedule B properties in respect of which the vendor does not exercise the option..."

and Barker J saw this as clearly a reference to all or any of the properties:

"If the vendor elects to retain none, then all will be open to the exercise of the purchaser's option."

The Judge correctly instructed himself that it is the duty of the Court to discover and give effect to the real intention of the parties as ascertained from the factual matrix, the background, object and commercial purpose of the contract viewed in an objective way (Prenn v Simmonds [1971] 3 All ER 237 and Codelfa Construction Pty Ltd v State Railway Authority (1982) 149 CLR 337) and that if different parts of a contract are inconsistent with one another effect should be given to that part calculated to carry into effect the real intention of the parties (Walker v Giles (1848) 6 CB 662; 136 ER 1407).

He referred to the subsequent conduct of DOSLI in acknowledging the exercise of the options and settling the purchase of some B properties as being explicable only on the basis of a shared belief that Dreux's option was not conditional on the prior exercise by NZRC of its option. But he noted that this Court has left open the question of whether subsequent conduct of the parties can be used as an aid to interpretation and recorded that he had not found it necessary to rely on subsequent conduct as a guide. He concluded that the proper reading of the contract was that condition 7 was subordinate to condition 8. But even if he were wrong in this view, Barker J said that it was hard to think of a clearer case for rectification. The insertion of a few words in condition 7, to make it subject to the rights conferred on Dreux by condition 8, would accord with the common intention of the parties. He referred to the requirements for the exercise of a power of rectification as stated by Tipping J in Westland Savings Bank v Hancock [1987] 2 NZLR 21. The Judge thought that the proof was "overwhelming" that there had been a common intention that Dreux should have the right to purchase such B properties as NZRC did not wish to retain, that intention being present from the time of the meeting on 8 June 1991 until DOSLI sought to resile from the arrangement in mid-1994. He noted that Dreux had called as witnesses almost all those involved in the making of the contract (Mr Green from Dreux itself, Ms Godinet from NZRC's solicitors, Mr Murphy, its principal officer involved in the transaction, and Mr Bayley, NZRC's real estate agent).

On the question of whether the appellants could rely on the tranching condition, the Judge accepted Mr Green's evidence that it had been inserted basically for Dreux's convenience. It was easier for Dreux to deal administratively with small properties in bulk and easier for it to raise finance over a large number of properties. But for NZRC too there could have been disadvantages in dealing piecemeal with small properties of little or no value for which all Dreux would pay would be the titling expenses. So Barker J was unable to hold that the tranching provision was inserted purely for Dreux's benefit and could be waived by Dreux. However, NZRC could not rely on the clause to justify refusing to settle in respect of the properties nominated by Dreux because it had made no effort to assemble even one tranche of B properties since the exercise of the option in December 1993. It could not rely on a situation bought about by its own default. Alternatively, the Judge said, the clause had been waived by NZRC's acceptance of the exercise of the option.

Barker J also found that Dreux could establish its case based on estoppel by convention. In this Court, however, Mr Galbraith has conceded that on the facts of the case this ground can take the matter no further than the rectification argument because it was pleaded only in relation to pre-contractual events.

Interpretation

The submissions made for the appellants have not persuaded us that the Judge wrongly interpreted the contract. It was said that Barker J failed to take account of conditions 1 and 2 which establish the vendor's put option. Mr Wild QC laid some emphasis on the statement therein that the purchaser is to buy and the vendor may require it to purchase at the vendor's sole option. This was said to indicate that the purchaser was not independently to have the right to exercise its call option; that the option in condition 8 was not "stand alone." It is, however, not uncommon to find an option described as a "sole option" where there are no co-relative rights of put and call. The adjective does no more than reinforce the fact that the right to put the properties is the exclusive right of NZRC; that Dreux is obliged to purchase them if NZRC wishes it. We find nothing in conditions 1 and 2 which sheds any light on whether condition 8 creates a stand alone call option if the put option is allowed to expire.

Barker J was therefore right to concentrate upon conditions 7 and 8. The former, read alone, does appear to bring to an end all rights of either party in relation to B properties if the put option is not exercised by 20 June 1993 but, against that view, there is nothing in condition 8 limiting its opening words which the Judge quoted: "Those Schedule B Properties in respect of which the Vendor [Her Majesty the Queen] does not exercise her option" can extend to all the B properties other than, as condition 8 says, those already withdrawn from sale or already sold to third parties.

The purchaser is to have the right to give notice in respect of the properties in question within 12 months of the "non-exercise" by the vendor of the put option. The choice of the expression "non-exercise" instead of "exercise" is of some significance. It obviously contemplates time running from an event which may not amount to an exercise of the put option. There are only three possible situations: that the vendor exercises the put option in respect of all B properties; that it is exercised in respect of some only; or that there is no exercise at all. It is only the third of these which is a "non-exercise" in respect of all the properties. Under the terms of condition 2 NZRC may give only a single notice requiring Dreux to take B properties. That notice, if given, is its exercise of the put option, though it is also a signal of non-exercise in respect of the remaining B properties. Non-exercise can relate to some or all of the properties.

There are accordingly some indications within condition 8 that it can operate independently of the vendor's actions or non-actions. That view is strongly reinforced upon a consideration of the commercial setting of the transaction. NZRC had protected itself against "cherry picking" by Dreux of any "good" properties which it might find in the B Schedule. It did this by giving itself a two year period under the put option for assessment of the properties. Having identified any of actual or potential value disproportionate to the individual purchase prices derived from capitalisation of rent actually receivable, it might then, in effect, withdraw them by ensuring that the Minister did not grant consent to their sale or it might choose to sell them to a third party on a more favourable basis. Mr Wild told the Court that it is common ground that NZRC was free to sell any B property in this way - out from under the call option - by virtue of the words "or been sold prior to the exercise of the [call] option" in condition 8 itself.

On the other hand, Dreux might wish to take properties not put to it by NZRC but unsold to third parties and in respect of which Ministerial consent was available. Given the protection already available to NZRC, there would seem to be no commercial reason why Dreux's subordinated call option should be exercisable only after the additional step of some exercise of NZRC's put option. Mr Galbraith submits for Dreux that the vendor's argument would require a minimum exercise in respect of one B property only; that the tranching provision relates to settlement and contemplates a last (or single) settlement of less than 100 properties. Whether this argument is right or not, it would seem to make no commercial sense to make Dreux's call option dependent on a put of 1 or 100 B properties. Mr Wild was not able to suggest any rationale for such an arrangement other than an unnecessary additional protection to NZRC against "cherry picking" by Dreux.

Dreux had not initially sought a call option when it submitted its tender. It asked for one during the "beauty parade" meeting and that was agreed to. It was added on to the end of the put option provisions and for that reason does not completely harmonise with them, though it is (inaccurately) mentioned in condition 6. After studying condition 8 in the setting of the contract document and in its general context, it appears to us that the parties would not have intended that Dreux would lose its option in what then seemed to be the unlikely event of non-exercise by NZRC of the put option. We therefore view condition 7 as intended only to cancel Part II in respect of any obligation by Dreux to take the properties against its will. Condition 8 operates independently, albeit requiring the incorporation by reference of some of the mechanisms established under Part I and the remainder of Part II, and confers on Dreux the right to call for B properties notwithstanding the absence of any exercise of the put option.

Subsequent conduct

This interpretation in no way depends upon the subsequent conduct of the parties. It is therefore unnecessary to consider the submissions made by counsel for Dreux who suggested that where a contract is ambiguous and the subsequent conduct of the parties in its implementation is unequivocal and reliable, that conduct should be taken into account in interpreting the meaning of the contract. Mr Galbraith urged the Court to adhere to its decision in New Zealand Diving Equipment Ltd v Canterbury Pipe Lines Ltd [1967] NZLR 961 notwithstanding the different position trenchantly taken by the House of Lords in two later cases, Whitworth Street Estates (Manchester) Ltd v James Miller & Partners Ltd [1970] AC 583 and L Schuler AG v Wickman Machine Tool Sales Ltd [1974] AC 235. Their Lordships deprecated any idea that post-contractual conduct should be admissible as an aid to construction of the contract. In Australian Mutual Provident Society v Chaplin (1978) 18 ALR 385 and Narich Pty Ltd v Commissioner of Pay-Roll Tax [1984] ICR 286 the Privy Council took the same view.

In North America it is, however, a well established practice to consider subsequent conduct, as illustrated by Montreal Trust Company of Canada v Birmingham Lodge Ltd (1995) 24 OR(3d) 97 in Canada and by Article 2-208 of the Uniform Commercial Code and Article 202 (4) of the Restatement (2nd) "Contracts" in the United States. That conforms with international practice. It should not go unnoticed that the United Nations Convention on Contracts for the International Sale of Goods, known as the Vienna Sales Convention, is now, by virtue of the Sale of Goods (United Nations Convention) Act 1994, part of New Zealand law. It governs international trading contracts made under New Zealand law or the law of another State Party unless otherwise stipulated and provides in article 8(3):

"In determining the intent of a party or the understanding a reasonable person would have had, due consideration has to be given to all relevant circumstances of the case including the negotiations, any practices which the parties have established between themselves, usages and any subsequent conduct of the parties." [emphasis added]

There is something to be said for the idea that New Zealand domestic contract law should be generally consistent with the best international practice. The United Kingdom position may need to be re-thought in view of developments elsewhere. Lord Denning MR has criticised the approach taken by the House of Lords as being "contrary to the rule in every other civilised country, including the other countries of the Common Market": Port Sudan Cotton Co v Govindaswamy Chettiar & Sons [1977] 2 Lloyds Rep 5, 11.

In Australia, our major trading partner, the question appears to remain open: see the review by Priestley JA in Hide & Skin Trading Pty Ltd v Oceanic Meat Traders Ltd (1990) 20 NSWLR 310, 326-328 and the survey by Stephen Charles QC (as he then was) in Interpretation of Ambiguous Contracts by Reference to Subsequent Conduct (1991) 4 Journal of Contract Law 16. Australia has also ratified the Vienna Sales Convention, as have several others of New Zealand's major trading partners: see the Law Commission's report The United Nations Convention on Contracts for the International Sale of Goods: New Zealand's Proposed Acceptance (1992) NZLC R.23. On the other hand, in FAI Traders Insurance Co Ltd v Savoy Plaza Pty Ltd [1993] 2 VR 337 the Appeal Division of the Supreme Court of Victoria determined that the conduct of a party subsequent to the making of a contract was not relevant to the interpretation of the contract. Whichever view ultimately prevails in Australia, New Zealand Courts will need to consider questions of consistency with Australian domestic law: see generally Professor John Farrar, Closer Economic Relations and Harmonisation of Law Between Australia and New Zealand in Essays on the Constitution (ed. Philip A Joseph) 158.

In the present case the subsequent conduct of NZRC would perhaps not have been a particularly strong indicator of what the parties meant by their contract because by the time Dreux exercised its option there had been a change in personnel on the NZRC side. Mr Keenan had no recollection of seeing the exercise of option. Mr Mitchell had newly entered the scene and took instructions from DOSLI which was also a latecomer.

Before leaving this topic we draw attention to Professor D W McLauchlan's article Subsequent Conduct as an Aid to Interpretation (1996) 2 NZBLQ 237 which came to hand after the draft of this judgment was prepared.

Rectification

Were it necessary to do so, we would join Barker J in ordering rectification of the contract. As he said, the evidence was overwhelming that those who negotiated it intended that Dreux should have an option notwithstanding the nonutilisation of the NZRC put option. The clearest indication came from Mr Murphy, who led the NZRC negotiating team but gave evidence for Dreux. In his brief of evidence, which constituted his evidence in chief, he said:

"It was my understanding at all times, and up until the date of execution of the contract, that this clause related only to the vendor's option which preceded it, and not to the purchaser's option which followed it, that is, Part II of the contract would be at an end as it related to the vendor's option but would remain on foot as it related to the purchaser's option. It was always intended that the put option would be exercised. At the time I left Railways, it had 18 months left in which to exercise the put option or to sell any of the B properties which could be sold at a better price to a third party. I do not know why the option was not exercised. I am most surprised that it was not, given that the Railways' board directive was to sell all the properties in as short a time frame as possible and the B properties were contained in the tender.

"I cannot recall any objection being taken to Dreux having the option to purchase all or any remaining Schedule B properties that had not been sold to third parties. The option was entirely consistent with the agreement reached between Railways and Dreux on 8 June 1991. I recall that the option was granted at Dreux's request. The aim of the contract was to dispose of Railways' surplus leasehold property assets as soon as possible. The B properties were perceived as being difficult to dispose of because of the liabilities attaching to them. If Railways could dispose of them at Dreux's cost, it would make a profit, from those properties from which it was deriving an income and would free itself from a burden for properties from which it was deriving minimal income."

In re-examination there was the following:

"In acting as the Railways manager in relation to this negotiation and finalising the contract did you act on the basis that Dreux could only exercise the option if Railways dumped some rubbish in schedule on it?...No I did not."

The schedule being referred to is plainly Schedule B. Mr Bayley's recollection was that Dreux was to have an option "if Rail didn't put them but Dreux decided that they could see value that Rail couldn't." Ms Godinet took a note of what transpired at the "beauty parade" and a minute of the meeting was made from it. The latter, consistently with the note and with Mr Murphy's evidence, read:

"B Properties

"The offeror said they could see some potential in the B properties even if uneconomic to them. Accordingly it was accepted that they would facilitated [sic] in being given the opportunity at their cost if they required the B properties even if uneconomic."

There is nothing here to suggest that the option was to operate only after an exercise of the put option. Mr Wild drew attention to the call option clause as it appeared in Ms Godinet's first draft. There the proviso read:

"PROVIDED THAT such option to purchase the balance Schedule B property shall be exercised before 20 June 1993."

Counsel said that the reference to the "balance" of the properties showed that the purchaser's option was to have all or any of the balance which the Crown did not require Dreux to buy. In her evidence Ms Godinet accepted that the choice of language was consistent with her mind being directed to a situation where the Crown had exercised its option but there was a residue of unput uneconomic properties. No doubt that is what she was thinking of, for no-one at that time envisaged as a practical reality that NZRC would fail to make a put. Significantly, however, in the final version of the condition all reference to a balance disappears. (The date has also changed. 20 June 1993 was obviously inappropriate because the put and call options could not be simultaneous. The substitute date, 1 July 1996, is puzzling because the call option exercise date could never have been later than 20 June 1994, but is explicable if the proviso is taken to relate to expiry of an exercised option where conditions such as Ministerial consent have not been met. It is the same date as appears in the condition and statutory clearances provision in Part I.) Mr Wild referred also to some alterations to the text as one draft succeeded another but generally we do not find that these shed any light on the question. Particular reliance was placed on a request made by Mr Burton at the draft 5 stage for an option exercisable at any time by Dreux. (The notes of evidence refer to draft 4 but Ms Godinet's letter of 8 July 1991 is discussing draft 5.) Mr Murphy gave a firm "No" to that suggestion; understandably so, since any such call option as worded in draft 5 would pre-empt NZRC's right to withdraw properties. It is not an indication that a subordinated call option was not to operate in the event of a total non-exercise of the put option. Mr Murphy's evidence was that he did not have that situation in contemplation during the negotiations.

Lastly on the question of rectification, Mr Wild submitted that even if Dreux has made out a case for rectification, it is an equitable remedy and the Court should in its discretion withhold it. There had been an exhaustive drafting process conducted by experienced and competent advisers. If the parties did not intend condition 7 to mean exactly what it says, it is highly improbable that the clause would have remained in its final form. Mr Wild was unable to point to any authority for this proposition. This is not surprising because in order the reach the conclusion that the case for rectification has been made out, the Court must already have concluded that, no matter how experienced and competent the lawyers involved, a mistake has been made in the recording of the agreed bargain. Their experience and competence is a matter to be weighed when looking at whether a mistake has been made. If it has, then rectification will be ordered unless the party seeking it has so conducted itself afterwards as to give rise to an estoppel preventing it from raising the issue of the error in the recorded contract. There is no such conduct here on the part of Dreux.

Tranching

The last question determined by Barker J was his rejection of the appellants' submission that NZRC could refuse settlement in respect of the properties nominated by Dreux in its exercise of option because condition 5 of Part II applied and provided for settlement in minimum tranches of 100 properties. Like the Judge, we have difficulty with this submission. The language of condition 5 is directed towards settlement after exercise of NZRC's option. It gives the vendor the right to select the properties for settlement. Assuming that such an arrangement was intended to apply where the purchaser elected to buy properties, we agree with the Judge that the vendor could not rely upon it unless it had taken steps to assemble a tranche of 100 properties (or such lesser number as had been included in the purchaser's exercise of option - there is nothing in condition 8 requiring exercise in any minimum quantity). Chapman Tripp advised Dreux's solicitor on 28 June 1994 that its client took the view that the vendor's obligation to settle did not arise until it was in a position to give notice of settlement of a tranche of at least 100 properties. It was not yet in a position to do so but was "proceeding with all reasonable speed to compile a tranche." There is nothing in the evidence to show that the tranche was ever compiled in the two months which then elapsed before NZRC announced its view that the Dreux option no longer existed. The appellants are therefore not in a position to resist settlement on this ground.

Result

The Court being unanimous as to the result, the appeal is dismissed. The appellants are to pay to the respondent costs on the appeal of $3,500 together with reasonable disbursements, including travel and accommodation costs of two counsel, as fixed by the Registrar.

[...]


JUDGMENT OF THOMAS J

[Introduction]

I have had the benefit of reading the draft judgment of Blanchard J and agree that the appeal should be dismissed. The contract in issue means that Dreux Holdings Ltd is entitled to exercise the option conferred on it in condition 8 of the contract, notwithstanding the conflicting terms of condition 7. But I propose to write a separate judgment as I find it necessary to refer to the subsequent conduct of the parties in arriving at that interpretation. That conduct confirms the true meaning of the contract.

I believe that there are a number of other reasons why this course should be adopted. In the first place, a decision by this Court as to whether postcontractual conduct is admissible as an aid to interpretation would seem to me to be long overdue. The Court has referred to the issue, but expressly declined to rule upon it, in seven previous cases spanning a period of 23 years. See Trailways Motel (PN) Ltd v Commissioner of Inland Revenue [1973] 2 NZLR 537, at 547; Poole v Neely [1976] 1 NZLR 529, at 541; Devonport Borough Council v Robbins [1979] 1 NZLR 1, at 24; James Wallace Pty Ltd v William Cable Ltd [1980] 2 NZLR 187, at 195; International Ore & Fertiliser Corporation v East Coast Fertiliser Company Ltd [1987] 1 NZLR 9, at 18; Offshore Mining Co Ltd v The Attorney-General, 28/4/88, CA116/86, at 30; McLean and Wiley v Lim, 29/11/95, CA57/95, at 20. In the High Court there are many conflicting decisions on the point. See, for example, Adaras Developments Ltd v Marcona Corporation [1975] 1 NZLR 324, at 335, and Catley Farms Ltd v ANZ Banking Group (NZ) Ltd [1982] 1 NZLR 430, at 442, on the one hand, and McLaren v Waikato Regional Council [1993] 1 NZLR 710, at 730-732; The National Mutual Life Association of Australasia Ltd v Coal Corporation of New Zealand Ltd (1992) 6 NZCLC 67,722, at 67,730; and Auckland City Council v Auckland Regional Services Trust, 29/6/94, Auckland Registry and New Zealand Post Ltd v ASB Bank Ltd [1995] 2 NZLR 508, at 511, to name but a few, on the other.

Secondly, resolution of the issue would serve a public interest. Contracts are fundamental to the ordering of the affairs of the community, especially the commercial community. Having regard to the innate imperfection of language and the limitations of the parties and their advisers to express themselves adequately, differences will certainly arise as to what contracts mean. It is therefore important that parties and their advisers know with as much certainty as possible the principles and rules which apply to the interpretation of those contracts. With seven, and now eight, decisions of this Court leaving the issue open, and numerous conflicting decisions in the High Court, they are denied even a semblance of certainty.

Thirdly, the repeated postponement of the issue has a number of adverse consequences. It seemingly creates its own momentum. Excluding subsequent conduct as an aid to interpretation continues to be the proclaimed rule and repeated avoidance of the issue tends to reinforce its authority. Repeated deferral also suggests that the issue is much more difficult than is the case. Absent the conflicting authority, the issue is reasonably straight-forward. Ultimately, repeated deferments may reach the point where the law and the administration of justice, including the Court, is brought into disrepute. It will be said that the Court cannot make up its mind or that it is side-stepping the issue.

Finally, an awkward discrepancy has developed between the Court's current proclaimed allegiance to the principle and the practice which is prevalent in the Courts. The fact of the matter is that evidence of subsequent conduct is regularly introduced in evidence. Almost invariably the Court needs to examine the events which occurred after the contract was completed leading up to the alleged breach. Then, extrinsic evidence is frequently adduced to support a claim for an implied term, or an assertion of a supplementary, collateral or subsequent oral contract, or a claim for rectification, or a plea of estoppel, or any other cause of action or argument which ingenious counsel may devise to ensure that the evidence is before the Court. I will comment on the effect of such evidence on the Court's construction of the contract later. Suffice to say for present purposes that this discrepancy between the rule and practice will undoubtedly continue for as long as the issue is left open.

For these reasons, and because I believe that it is necessary to do so in order to properly construe the present contract, I will in due course refer to the subsequent conduct of the parties. First, however, I will examine the relevant terms of the contract itself having regard to the matrix or surrounding circumstances leading up to the formation of the contract. In carrying out that examination I have sought to be determinedly objective, divorcing from my mind the extrinsic evidence which is available. Because I conclude that the contract is elementally ambiguous and that it is difficult to definitively determine the true meaning of the contract from the terms of the contract itself, I will then advert to the extrinsic evidence for assistance. As I conclude that the negotiations of the parties prior to the contract are equivocal on the point in issue, my focus will be directed at the subsequent conduct of the parties.

I wish to clarify that I am not in this judgment seeking to depart from the cardinal presumption of contractual interpretation that the parties have intended what they have in fact said, and that their words must be construed objectively without recourse to evidence of their subjective intentions. Nevertheless, the objective, enshrined in ancient authority, is to discover from the written agreement the intention of the parties. See, for example, Cholmondeley (Marquis of) v Clinton (1820) 2 Jac. & W.,1, at 91. Hence, the suggestion that the subsequent conduct of the parties should be openly referred to where it will assist that objective is not a radical suggestion. As Wigmore has said: "The history of the law of Interpretation is the history of a progress from a stiff and superstitious formalism to a flexible rationalism". ( 9 Wigmore, Evidence, (Chadbourne rev. 1981) para 2461).

Under the rubric of such formalism much that is artificial has crept into the interpretative function so that the basic object of giving effect to the party's intention is at times in danger of being befogged. But while "stiff and superstitious" formalism is to be rejected, care must be taken not to destroy the utility of the law relating to the interpretation of contracts. Much of that utility stems from the readiness of Judges to at times accept a fiction, that is, that the parties have addressed the situation which has arisen and formed an intention in respect of it. Frequently, however, the parties have not contemplated the circumstances which have developed at all. In such cases the Courts construe a contract in such a way as to arrive at the presumed intent of the parties. Unless, as Lord Denning has advocated, the Courts are prepared to apply a term when it is reasonable so to do in order to do what is fair and just between the parties, the doctrine of presumed intent is the law's method of giving some meaning to any number of contracts where the events giving rise to the dispute were not anticipated at the time the contract was made. In this way the doctrine of presumed intent provides the community with a universal law of contract which could otherwise founder on the impossible task of ascertaining the parties intention when in reality they had none.

Having said that, however, I believe that the Courts should be able to use every aid available to reach an interpretation which gives effect to the true intention of the parties where that intention can be discovered from the words they have used, the contract read as a whole and in the context of the surrounding circumstances, and by reference to reliable extrinsic evidence. As I will explain later, I consider that this objective can be achieved in this case. It is not necessary to presume the parties intent. Although ambiguous, the contract is open to a construction which is confirmed by the parties later conduct.

The surrounding circumstances and the contract

Lord Wilberforce's dictum in Prenn v Simmonds [1971] 1 WLR 1381, at 1385 is invariably quoted. Shortly stated, in construing the contract regard must be had to the "surrounding circumstances", but the circumstances are "restricted to evidence of the factual background known to the parties at or before the date of the contract, including evidence of the 'genesis' and objectively the 'aim' of the transaction". The surrounding circumstances in this case can be stated in short compass.

Since the mid-1980s in New Zealand successive governments have pursued a policy of transferring assets from the public to the private sector. The policy was accelerated in 1987. Outlined among the criteria for the sale of government assets in the July 1988 Budget Statement was the requirement that the Government receive more from the sale of an asset than it would by retaining ownership, including risk. See Jonathan Boston, John Martin, June Pallot, Pat Walsh - Eds, Reshaping the State (Oxford University Press - 1991) at p 43. The decision to sell the railways land was made pursuant to this policy.

In 1990, the Railways Department was restructured pursuant to the New Zealand Railways Corporation Restructuring Act of that year and, in early 1991, it was decided to sell all the land owned by the new Corporation (NZRC) which was not required for the operation of a modern railway service. The Chief Executive of the Corporation and his senior managers wished to sell the properties over a period of seven years, but the Minister of Railways directed that they be sold within two years. Pressure to liquidate as much of the NZRC surplus property portfolio as possible was pervasive. Ultimately, the Board of the Corporation determined upon a time frame of two to three years. In order to achieve this aim the properties were to be sold in bulk. In other words, prospective purchasers would be required to take "the good, the bad and the ugly" - to use the phrase which was coined from the outset. To acquire the "good", the purchasers must take the "bad and the ugly" as well.

The properties were extremely varied. Some, such as urban properties, were of considerable value. Others, because of their size, configuration, remoteness or location, such as strips of land between the railway line and a road, or lack of road access, such as land between the railway line and the sea, were of much lesser value. Moreover, the property portfolio inherited from the Railways Department by NZRC was in disarray, and there were a significant number of properties receiving little or no rental return. The property records were in some cases inadequate and the identity of the lessee, or the terms on which the lessee's interest was held, could not be readily ascertained. Providing titles for many properties was also a problem. Before a sale could proceed some properties, being unregistered Crown land, required title to issue, some had to be surveyed, and some required local body or other consents. There was also the possibility of Maori land claims, particularly in the South Island. The cost of producing title to properties of limited value was therefore a significant factor as the cost of obtaining title could well exceed the value of the land. Even if this was not the case, a sale could still be commercially justified in that it relieved NZRC of ongoing administration costs. (Shaping the State, supra, at pp 43-44). Dreux Investments Ltd is an investment company. An associated company had successfully bid for some 71 surplus Railways properties in 1990. Becoming aware of NZRC's intention to sell further properties its directors approached the Corporation. After some discussion Druex made an offer to purchase certain properties, but this offer was declined by NZRC as the proposed purchase price was considered too low. Instead, NZRC decided to conduct a limited public tender for the sale of all its surplus properties.

The tender process was initiated by a letter from NZRC's solicitors dated 8 May 1991. The properties were divided into two groups, namely, 1,056 properties with annual rentals in excess of $500 and 1,622 properties with annual rentals of less than $500. Three valid tenders were received, one of which was submitted by Dreux. NZRC conducted negotiations with each tenderer and a number of meetings took place. On 13 June 1991, NZRC advised Dreux that it was the successful purchaser.

A considerable number of meetings then took place between NZRC, its real estate agents, its solicitors and representatives of Dreux. Draft agreements were exchanged. Various terms were the subject of negotiation and were amended. Finally, the agreement in issue was executed on 16 October 1991. The contract is divided into two parts. Part 1 applies to the properties with an annual rental of $500 or over and these are listed in Schedule A. The Schedule A properties were reasonably identifiable and the details of the leases were known. They were sold to Dreux outright. Part 11 relates to the Schedule B properties which had a rental of less than $500 per annum. These were also the properties which were generally not well identified and where details of the leases relating to them were often insufficiently known or unknown altogether. NZRC retained a put option and Dreux took a call option in respect of them.

Under the agreement, NZRC agreed to sell and Dreux agreed to purchase the properties on the conditions set out in the agreement. The purchase price of all properties was estimated at $54,810,000 allocated, as to the Schedule A properties, the sum of $51,850,000 and to the Schedule B properties the sum of $2,960,000. A deposit of $2,740,000 was payable by Dreux. Conditions in Part I provide that the purchase price of the Schedule A properties which Dreux agreed to purchase was calculated on the basis of the rental (plus GST) multiplied by 13.5%, but these prices were subject to adjustment should various contingencies occur. A later condition provides that the sale of the properties is to take place in three tranches as nominated by NZRC, but with a maximum of four tranches.

The Crown's put option in respect of the Schedule B properties is stipulated in the first two conditions in Part II. Those conditions read as follows.

"1. Option to Purchase the B Properties

"The Purchaser agrees to buy, at the Vendor's sole option, the Schedule B Properties on the terms and conditions set out in this Part II and save as expressly modified by this Part II or where the application of any condition in Part I is limited to the Schedule A Properties the terms and conditions of Part I this agreement shall apply to the Schedule B Properties mutatis mutandis.

"2. Exercise of Option

"The Vendor at its sole option may require the Purchaser to purchase all or any of the Schedule B Properties. Such option may be exercised by the Vendor by a single notice to the Purchaser in writing at any time on or before 20 June 1993 PROVIDED HOWEVER that the Vendor may not give such notice prior to settlement of the first Settlement Tranche of the Schedule A Properties."

The price at which Dreux was required to buy all of the Schedule B properties if NZRC exercised its option to that effect is calculated by aggregating the purchase price payable for each property. The purchase price is then calculated by multiplying the rent (plus GST) by 13.5%. Various conditions in Part I relating to the adjustment of the price, due diligent testing, and the like, apply to the Schedule B properties. Settlement of the Schedule B properties is to be in tranches of at least 100 properties, save for the final tranche. NZRC is responsible to meet the costs of obtaining title only where the Schedule B properties are sold as a result of NZRC exercising its option to sell the properties to Dreux. Where the sale takes place pursuant to the exercise of Dreux's option, Dreux must obtain title at its own cost.

The key conditions then follow. Condition 7 provides that if NZRC does not exercise its option by 20 June 1993, Part II of the agreement is to be at an end. It reads:

"7. Failure to Exercise Option

"If the Vendor does not exercise the Option in relation to the Schedule B Properties by 20.6.93, Part II of this Agreement relating to the sale of the B Properties will be at an end. Whether or not the Option is exercised this Agreement will remain on foot and binding and enforceable in all respects in relation to the Schedule A Properties."

Condition 8 then provides for Dreux's option. It is to take effect within 12 months of the non-exercise by NZRC of its option, and reads:

"8. Purchaser's Option

"In relation to those Schedule B Properties in respect of which the Vendor does not exercise her option the Purchaser may by written notice within twelve months of the non-exercise by the Vendor of its option to sell purchase any or all of such Properties other than those Properties which have been withdrawn pursuant to the terms of this Agreement or been sold prior to the exercise of this option by the Purchaser on the basis that the Purchaser shall pay in addition to the Purchase Price calculated in accordance with condition 3 of this Part II all costs incurred by the Vendor (including but not limited to survey and legal costs) of obtaining title for those Properties in respect of which the Purchaser exercises this option PROVIDED HOWEVER that such option in favour of the Purchaser shall expire in any event on 1 July 1996."

The ambiguity is clear. In short, NZRC claim that the non-exercise of its put option by 20 June 1993 brought Part II of the agreement, including condition 8 containing Dreux's call option, to an end. Dreux contend that condition 8 is not extinguished. Its call option came into effect as at 20 June 1993 when NZRC failed to exercise its option in terms of the previous condition.

The interpretation of the contract

Conditions 7 and 8 are in clear conflict. Essentially, the question of construction is which of the two provisions prevails.

To support NZRC's claim that the non-exercise of its option brought the contract, including condition 8, to an end, Mr Wild first emphasised that the option is described as a "sole option". He urged the Court to accept that the use of the word "sole" indicated an intention to confer a "stand-alone" option on NZRC. It is true that the word "sole" is not used in condition 8 to describe Dreux's option. But nor is such a use to be expected. The expression "sole option" in respect of NZRC's put option is appropriate to confirm that Dreux is obliged to purchase the properties nominated by NZRC if and when it exercises its option. In other words, the decision whether to exercise the option and, if so, what properties it will include in that option, is at NZRC's sole decision. Dreux is to have no part in that process. Nor, interpreted in this manner is the use of the word "sole" inconsistent with Dreux having a "stand-alone" call option if NZRC does not exercise its option.

The more critical wording is to be found in condition 7 itself. The condition plainly states that, if NZRC does not exercise its option by 20 June 1993, Part II of the agreement relating to the sale of the Schedule B properties will be at an end. It is then clarified that the agreement in relation to the Schedule A properties is to remain in force. Condition 8, however, equally plainly provides that Dreux may purchase "any or all" of the Schedule B properties by giving written notice to that effect "within 12 months of the non-exercise by... [NZRC] of its option" to sell. The conflict is clear, and the question is whether that conflict can be resolved having regard to the contract read as a whole and in the context of the surrounding circumstances.

The agreement as a whole provides little assistance in determining which of the competing interpretations should prevail. The thrust of the contract is not inappropriate for a contract including both put and call options. The latter can be exercised either after NZRC has exercised its put option or where it has not exercised it at all. Similarly, Dreux's call option could apply only to those properties remaining after NZRC has exercised its put option or to all the properties if it does not.

Although it might be the purport of the literal meaning of the words, I do not consider the expression "non-exercise by... [NZRC] of its option" means, or can mean, that Dreux's option in condition 8 only comes into effect if NZRC does not exercise its option at all. Such an interpretation would deprive Dreux of the ability to exercise an option to purchase any or the balance of Schedule B properties if NZRC in fact exercised its option. This restriction was clearly not intended. Nor can the argument be accepted that, if NZRC failed to exercise its option so that the contract came to an end, there would be no contractual provisions extant to govern Dreux's purchase of the Schedule B properties. Such an argument begs the question. If condition 8 prevails, the agreement does not come to an end.

The contract read in context and having regard to the surrounding circumstances offers more assistance, but again does not point conclusively to one interpretation rather than the other. As Blanchard J in the draft judgment says, the agreement must be considered in its commercial setting, and he ably articulates the commercial sense of the construction sought by Dreux. NZRC is able to avoid the situation where Dreux purchases the more valuable properties in Schedule B - what Mr Wild called "cherry picking" - by exercising its option within the two year period. It obtains a further safeguard in being able to withdraw properties from Schedule B prior to the exercise of Dreux's option. There is, therefore, no commercial reason why Dreux's option should be dependent on NZRC first exercising its put option.

The problem to my mind is that it is possible to advance a tenable argument that NZRC's interpretation also makes commercial sense. It is common ground that the agreement was intended to put Dreux in the position of having to purchase the "bad and the ugly" with the "good". Most of the "good" properties were in Schedule A but some were in Schedule B and these could be included in NZRC's put option along with the "bad and the ugly" which Dreux would be then required to purchase. It does not make commercial sense that Dreux should be put in the position of being able to purchase the "good" properties leaving NZRC with the "bad and the ugly". Not exercising its option would simply leave NZRC holding the properties and free to negotiate a sale with another party or even renegotiate a deal with Dreux. Barker J refers in his judgment in the Court below to the fact that the purchase price for some Schedule B properties under the formula in the agreement may be far less than market value as being Dreux's good fortune. This may be so, but conferring the good fortune of being able to take the more valuable properties and leave NZRC with uneconomic properties is hard to reconcile with the perceived commercial advantages of corporatisation and the implementation of its associated policies. Not only is it doubtful whether such a deal would meet the criteria laid down by the Government for the sale of assets, but NZRC would end up having sold the more desirable Schedule A properties and being left with inferior properties which are uneconomic to administer.

Without, I hope, succumbing to Wigmore's "flexible rationalisation", I admit to leaning towards the construction pressed upon the Court by Dreux. The contract was an agreement for the sale and purchase of both Schedule A and Schedule B properties. Certainly, the sale of the latter properties was subject to the exercise of the options in issue. But this put and call arrangement was part of the overall bargain. The purchase price was calculated in terms of the total properties and allocated between the total Schedule A and Schedule B properties respectively. The consideration in the agreement embraced the sale and purchase of the Schedule B properties, and that must include the call option Dreux could exercise should NZRC not exercise its option in whole or in part. The deposit related to the whole agreement. By and large the Schedule B properties were inferior yielding less than $500 per year in rental. They were as a group an unwanted administrative burden for NZRC. Also by and large the cost of obtaining title and other consents in respect of these properties was difficult for NZRC to justify. Dreux was required to bear the cost of doing so if it exercised its call option. In all, the inference is that the parties intended to complete an agreement which would result in the disposition of the properties specified in Schedule A and all or most of the properties listed in Schedule B within the time-frame directed by the Minister and specified in the agreement. As Dreux's exercise of its call option will be limited to the better properties in Schedule B, NZRC will, of course, be left with a property portfolio of inferior properties adding to its administrative burden, but this may be seen as a consequence of the non-exercise of its put option, an outcome it was competent to avoid under the contractual arrangement which it had entered into. But as I have said, this is not a construction I find I can adopt with confidence in the absence of a reference to the parties subsequent conduct.

If on a determinedly objective appraisal a confident construction of the contract is as illusive as appears to be the case, it must be asked whether the situation which has arisen was outside the contemplation of the parties altogether. In such circumstances only the application of the doctrine of presumed intent could save the contract. The question is important in the context of this case as, unless the parties have addressed the situation which has arisen, their subsequent conduct cannot be taken into account. In other words, the parties cannot be thought to have acted on a shared meaning of the contract at the time it was completed if, in fact, there was no shared meaning at that time.

I believe that it must be accepted, however, that the question of what would happen if NZRC did not exercise its option at all was in fact addressed by the parties. But for a faint attempt by Mr Wild at one stage in argument, the parties accepted that the situation in issue was covered by the contract, albeit with differing interpretations as to what was meant. The parties confidently expected that NZRC would exercise its option by 20 June 1993 but that expectation does not mean that they did not consider what would happen if the NZRC did not exercise the option within that time. Indeed, it would have been remiss for them not to have done so. The very fact that a time limit is placed on the exercise of NZRC's option raises the question of what is to happen if the option is not exercised by that time. The question may not have been discussed at length, and may have been in the nature of an assumption developed by the parties in the course of focusing on other aspects of their bargain, but I do not doubt that the question would have been addressed and that a mutual understanding or intention existed at the time the contract was completed.

I turn, therefore, to the extrinsic evidence.

Pre-contractual negotiations

I do not propose to deal with the issue of the admissibility of pre-contractual negotiations at any length as they were clearly equivocal. The short reason for this equivocality is the parties expectation that NZRC would be able to investigate the Schedule B properties and exercise its put option before 20 June 1993. It was anticipated that the necessary work would be completed in respect of both Schedule A and Schedule B properties before that date. Everything that was said or done in negotiations is consistent with this confident expectation and does not necessarily point to an intention to confer a "stand-alone" option on Dreux.

For example, at the initial meeting called by NZRC for the purpose of seeking to improve the tender offers, the discussion focused on Dreux's preparedness to take the properties which NZRC did not want. A minute taken by a Ms Godinet, one of the solicitors acting for NZRC who attended the meeting, reads:

"The offeror said that they could see some potential in the B properties even if uneconomic to them. Accordingly it was accepted that they would facilitated (sic) in being given the opportunity at their cost if they required the B properties even if uneconomic."

While it is true that there is nothing in the minute to suggest that Dreux's option was conditional on the exercise of NZRC's put option, there is nothing to suggest the opposite either. The minute is equally consistent with an intention on NZRC's part to permit Dreux an option over the properties in Schedule B which it did not wish to retain.

Mr Murphy, the officer who led NZRC's negotiating team, confirmed in evidence that the aim of the agreement was to dispose of railway's surplus leasehold property assets as soon as possible and free itself from the burden of owning properties from which it was receiving minimal income. But at the same time he clarified that it was at all times anticipated NZRC would exercise its put option within the two year period. He negotiated on that basis.

Ms Godinet was responsible for drafting the agreement. It underwent nine drafts before being completed. She said in evidence that her choice of language was directed to the situation where the Crown had exercised its option but where there was a residue of "unput" uneconomic properties. Indeed, the first draft agreement included a provision (eventually to become condition 8) relating to "those Schedule B properties in respect of which the vendor does not exercise the option", but a proviso then stipulated that Dreux's option to purchase "the balance" of the Schedule B properties had to be exercised by 20 June 1993. These words are clearly consistent with NZRC exercising its option first so that there would then be a balance of properties available to which Dreux's option could attach. The proviso was omitted in a later draft, but with the number of drafts exchanged and amended it cannot be suggested that its deletion indicated a change in the parties thinking.

Another note made by Ms Godinet in respect of a later draft was also mentioned in argument. In this exchange Dreux sought to make its option exercisable within 12 months of the exercise of NZRC's put option. Ms Godinet noted; "They must have 12 months after we've exercised option". Again, the language is not conclusive. It is capable of being taken to indicate that Dreux's option would only arise after NZRC had exercised its option. On the other hand, the words "we've exercised option" equally could have been used in the sense, "exercised or not exercised - as the case may be".

Dreux's attempt to obtain an independent option at the stage the fourth and fifth drafts were being considered was also rejected by NZRC. It was explained to Mr Murphy that Dreux were seeking an option which could be exercised, notwithstanding that NZRC had not exercised its option, on the basis Dreux would pay the costs of obtaining title. Mr Murphy responded with a firm "No". While his response is consistent with the sale of the Schedule B properties being limited to the balance of the properties available after NZRC had exercised its option, he explained in evidence that his real concern was that Dreux should not have the ability to decline to take the properties which NZRC put to it. Hence his emphatic "No".

In short, reference to the negotiations does not help with the task of interpreting the agreement. The drafting of the agreement went through an "exhaustive" negotiating process. Throughout the whole of that time the parties negotiated on the basis of a firm expectation that the Crown would exercise its put option in relation to at least some of the Schedule B properties and that it would do so on or before 20 June 1993. This expectation was the underlying premise of the negotiations. It is not therefore surprising that everything which was said or done by the parties is equivocal in relation to the issue before the Court. The pre-contractual negotiations provide no sound assistance in construing the terms of the contract finally completed.

Nor, I am bound to say, do the pre-contractual negotiations provide a basis for rectification. For the reasons I have given, no common intention emerges. In this judgment, however, I am not concerned to address that issue. The more decisive evidence as to what the parties intended by their agreement is the conduct which followed its execution.

But is evidence of that conduct admissible?

The admissibility of evidence of subsequent conduct

I am of the view that, as a matter of principle, the Courts should be able to have regard to the subsequent conduct of the parties when construing the meaning of an ambiguously written contract. The evidence would be admissible as an aid to the interpretation of the agreement. To be accepted as being of assistance it must necessarily support the construction for which the party contends. This support will be present if the mutual conduct of the parties or, possibly, the conduct of the party denying the interpretation contended for only, points to the proposed meaning. In other words, the consistency of the parties conduct provides a relevant and reliable basis for the inference that the contract had that particular meaning.

No hard and fast line can be drawn as to what conduct will be acceptable. Ideally, the evidence should be unequivocal, but as Lord Cooke pointed out in Offshore Mining Co Ltd v Attorney General (28/4/88, CA 116/86, at 30), subsequent conduct will rarely provide unequivocal support. It almost always will be open to the party resisting the construction to proffer an explanation, whether of ignorance, inadvertence, or mistake, designed to vitiate the apparent consistency of the conduct with the meaning sought. Such considerations, however, bear upon the weight of the evidence rather than its admissibility. Considered together with other factors it may lead the Court to the conclusion that the particular meaning in issue was in fact the meaning accorded to the contract at the time it was completed.

The above formulation refers to an ambiguously written contract. As the contract in this case is clearly ambiguous it is not necessary to consider whether evidence of subsequent conduct should be admitted as an aid to interpretation in contractual disputes where it may not be possible to readily classify the contract as "ambiguous". The arguments put forward in this judgment, particularly that relating to the inherent imprecision of language, might suggest that such a development would not be unhelpful. But it is not necessary to decide the point and it may be left open.

The formidable impediment to the admission of evidence of subsequent conduct are the decisions of the House of Lords in James Miller & Partners Ltd v Whitworth Street Estates (Manchester) Ltd [1970] AC 583 and L Schuler AG v Wickman Machine Tools Sales Ltd [1974] AC 235. These decisions were endorsed by the Privy Council in obiter dicta and without discussion in Ashton v Commissioner of Inland Revenue [1975] 2 NZLR 217, at 722; Australian Mutual Providence Society v Allan (1978) 52 ALJR 407, at 411; and Narich Pty Ltd v Commissioner of Payroll Tax (1983) 58 ALJR 30, at 32. The House of Lords decisions have engendered widespread critical comment. There is, however, no need to repeat the various criticisms of their Lordships' reasoning in this judgment. Because of the earlier decision of the Privy Council in Watcham v Attorney-General of the East Africa Protectorate [1919] AC 533 and the number of subsequent decisions in New Zealand culminating in New Zealand Diving Equipment Ltd v Canterbury Pipelines Ltd [1967] NZLR 961, it is accepted that it is open to this Court to depart from the prohibition proclaimed by the House of Lords. (See the cases referred to above). What is important are the substantive reasons why that departure should be undertaken. Those reasons may be addressed in turn.

First, reference to subsequent conduct as an aid to interpretation in appropriate cases furthers the objective of giving effect to the intention of the parties. Mutual assent is the key to the formation of a valid contract. It follows that the interpretative function must be directed at ascertaining the mutual intention of the parties. What did they mean by their contract at the time they entered into it? At once, however, it is necessary to sound a note of caution. While the objective is to give effect to the mutual intention of the parties, evidence of subsequent conduct is not directed at ascertaining the parties subjective intention. Rather, it is tendered to support the particular meaning which one party alleges was adopted at the time the contract was completed. The evidence is admitted, not for the purpose of importing an intention which was not expressed in the contract, but with a view to elucidating the meaning which the parties intended their contract to have when they entered into it. It is admitted as an aid to the interpretation of the written instrument and not for the purpose of establishing an intention independent of or apart from the contract itself.

It is for this reason that Lord Reid's observation in James Miller v Whitworth (supra, at 603) is inappropriate. The distinguished Law Lord observed that it is not legitimate to use anything which the parties said or did after the contract was made as an aid in the construction of the contract because it might "have the result that a contract meant one thing the day it was signed, but by reason of subsequent events meant something different a month or a year later". With respect, this is to misconstrue the purpose of the evidence. It is admitted for the purpose of persuading the Court that it provides a reliable guide to the meaning which the parties attributed to the contract when it was signed. The proper construction is assisted and not changed by the subsequent conduct. In this manner, the Court's ability to give effect to the mutual intention of the parties is undoubtedly furthered.

Nor should the admission of evidence of subsequent conduct be perceived as a breach of the "parol evidence" rule, at least, as that rule is strictly formulated. The rule provides that evidence may not be given to add to or subtract from or qualify the written contract. But, again, evidence of subsequent conduct is not elicited for the purpose of adding to, subtracting from or otherwise qualifying the contract. Rather, it is admitted to help confirm what the parties meant by their written contract at the time it was completed.

Secondly, the admission of evidence of post-contractual conduct in appropriate cases is surely a matter of common sense. Why should a party be permitted to depart from the mutual intention of the parties when what they intended is confirmed by their actions after completing the contract? Why should the reasonable expectations of the parties to the contract be defeated by attributing a meaning to the contract which their subsequent conduct demonstrates they did not intend? The point has been succinctly put by an Australian Judge: "...justice requires that the parties should be held to the bargain in the sense to which they have agreed." See Cocks v Maddern [1939] SASR 321, per Napier J at 327. When their subsequent conduct dependably points to the sense of their agreed bargain it surely should be taken into account.

Thirdly, a measure of realism is also required. It is more widely recognised today than has previously been the case, that words do not have a settled or precise meaning independent of the way in which they are used. Wigmore described the earlier "judicial belief in the possibility of perfect verbal expression" as "a remnant of a primitive faith in the inherent potency and inherent meaning of words". See 9 Wigmore, Evidence, (Chadbourne rev. 1981) para 2461. Yet Justice Oliver Wendell Holmes observed as early as 1889 that "[i]t is not true that in practice (and I know no reason why theory should disagree with the facts) a given word or even a given collocation of words has one meaning and no other. A word generally has several meanings, even in the dictionary." He added, "A word is not a crystal, transparent and unchanged, it is the skin of a living thought and may vary greatly in colour and content according to the circumstances and the time in which it is used." See Towne v Eisner 245 US 418, 425 [1918], cited by Margaret N Kniffin, "A New Trend in Contract Interpretation: The Search for Reality as Opposed to Virtual Reality", 74 Oregon LR, 643, at p 647. For a recent article on the topic, see D W McLauchlin, "The Plain Meaning Rule of Contract Interpretation" [1996] 2 NZBLQ 80.

The inherent imprecision of words extends to their use. Realism again forces us to recognise the limitations of the parties and their advisers. As Lord Denning has said: "We no longer credit a party with the foresight of a prophet or his lawyer with the draftmanship of a Chalmers. We realise that they have their limitations and make allowances accordingly." (Lord Denning, The Discipline of Law, (Butterworths - 1979), at p 42). The corollary of recognising that language is imperfect and that the meaning of words take their colour from the way in which they are used or read by the parties to the contract, and the limitations of the parties and their advisers in then using those words to express their true intention in the contract, is that subsequent conduct should be available to the Court to confirm that at the time the contract was entered into the parties shared a particular meaning.

Fourthly, it is clearly desirable that the approach of the Courts in this country to the interpretation of contracts coincides, as far as is possible, with international practice. In a global economy the need for harmonisation in the law is self evident. In this respect Article 8(3) of the United Nations Convention on Contracts for the International Sale of Goods accepts that in determining the intent of a party due consideration is to be given to, among other things, "any subsequent conduct of the parties." As from 1 October 1995, this Convention became part of the law of New Zealand by virtue of the Sale of Goods (United Nations Convention) Act 1994 and the Sale of Goods (United Nations Convention) Act Commencement Order 1995. Similarly, Article 4.3(c) of the Unidroit Principles of International Commercial Contracts published in 1994 permits regard to be had to "the conduct of parties subsequent to the conclusion of the contract". Reference may also be made to Article 2-208 of the Uniform Commercial Code (1978) and Article 202(4) of the Restatement (2nd) "Contracts" in the United States which also authorise reference to conduct following the contract to assist in the task of interpreting it.

The issue is the subject of much case law in Canada. Although the restriction adopted in the United Kingdom has been preferred in some cases such as, for example, Paddon-Hughes Development Co Ltd v Chiles Estate [1992] 3 WWR 519, a number of Canadian Courts have refused to follow the House of Lords dicta. See, by way of example, Manitoba Development Corporation v Columbia Forest Products Ltd [1974] 2 WWR 237; Re Canadian National Railways and Canadian Pacific Ltd (1978) 95 DLR (3d) 242; Scurry-Rainbow Oil Ltd v Galloway Estate [1993] 4 WWR 454; Erewon Exploration Ltd v Northstar Energy Corporation [1994] 3 WWR 488; and Montreal Trust Company of Canada v Birmingham Lodge Ltd et. al 24 O.R. (3d) (1995) 97.

In Australia the position is less clear. The weight of the authority would appear to be against the admissibility of evidence of post-contractual conduct. See The Administration of the Territory of PNG v Daera Duba [1973] 130 CLR 353, at 405, 446, and 459; and Codelfa Construction Pty Ltd v State Railway Authority of New South Wales [1982] 149 CLR 337, at 348. But the conclusion of Mason J (as he then was) in the Codelfa Construction case may point to the future direction of the High Court on the issue. Mason J questioned the wisdom of carrying the exercise of interpreting the contract by taking into account what reasonable men in the situation of the parties would have intended to convey by the words chosen, to the point of placing on the words of the contract a meaning which the parties were reunited in rejecting. He queried whether it is possible that evidence of mutual intention amounting to concurrence should not be receivable to negative an inference sought to be drawn from surrounding circumstances (at 352-353). In the same manner, it may be suggested that evidence of subsequent conduct amounting to concurrence as to the meaning of the contract should be receivable to negative any contrary inference.

More recently, in Skin Trading Pty Ltd v Oceanic Meat Traders Ltd [1990] 20 NSWLR 311, at 315-316, Kirby J, then the President of the Court of Appeal of New South Wales, after a comprehensive but concise review of case law in Australia, the United Kingdom, New Zealand and the United States of America, said; "The extent, if any, to which regard may be had to post contract conduct must await another day". There is, however, no need for this Court to await that clarification. It would be a condign tribute to the jurisprudence of this country if, when the issue falls to be determined by the High Court of Australia, the law was brought into harmony with the law in New Zealand.

Fifthly, the Courts are already influenced by evidence of subsequent conduct. I have mentioned above the fact that in any proceeding where a question as to the correct interpretation is in issue the Court is more often than not confronted with extrinsic evidence. It is adduced to support a claim that the written document does not contain all the terms of the agreement, or that there is a collateral contract, or that there is no valid contract where, for example, a party claims to have contracted under a mistake, or that the document was not intended to give rise to legal relations, or that the contract requires the importation of an implied term, or that there is a want of consideration, or for the purpose of proving fraud, illegality, duress, or of seeking recession or specific performance, or the like. Chitty on Contracts (27th Ed - 1994) at 12-080, lists some ten or more other exceptions to the rule against extrinsic evidence, most of which, to a greater or lesser extent, provide counsel with a vehicle to put evidence of the parties subsequent conduct before the Court. In such circumstances, it would be unrealistic to suggest that the Courts are not influenced by this evidence in arriving at a construction of the contract. Lord Denning recognised the difficulty any Judge faces in putting such evidence out of his or her mind when construing the contract. He pointed out that, if the words are not clear, the Judge will be unwilling to treat conduct as a breach when the parties themselves did not consider it to be so. (See Denning, supra, at p 55). If, as is to be accepted, the Courts are influenced by the extrinsic evidence in this manner it is appropriate to make that influence overt.

Finally, it is well-established that evidence of subsequent conduct is relevant to the question whether there is an antecedent common intention for the purpose of a claim for rectification. Tipping J summarised the position in Westfield Savings Bank v Hancock [1987] 2 NZLR 21, at 31, in holding that; "both on principle and on authority... the fact that a party has acted as if the document stood in the form into which it is sought to be rectified is strong evidence of the existence of an intention on the part of that party to contract in those terms". It is difficult to see why evidence of subsequent conduct should be admissible to assist in ascertaining the common intention of the parties at the time they completed the contract but not admissible to assist in ascertaining whether they shared a common meaning or construction of the contract at that time. As Barker J said in the Court below: "Both in the interpretation context and in the rectification context there is much to be said for the Court having regard to subsequent conduct".

For these reasons, I consider that it is permissible to have regard to the evidence of the conduct of the parties following the completion of the contract. I turn to that evidence.

Evidence of subsequent conduct

Following the completion of the contract, NZRC at once experienced delays in obtaining and clearing titles for the properties. Its staff and resources were restricted and priority was given to preparing the more valuable properties in Schedule A for outright sale. It was not until June 1993 that the first tranche of Schedule A properties was settled. The 20th of June 1993 came and went and NZRC had not exercised its put option in respect of the Schedule B properties. On 3 December 1993, Dreux purported to exercise its option to purchase all the Schedule B properties located in the North Island and certain Schedule B properties in the South Island. On 1 January 1994 NZRC transferred the management of its obligations under the contract to the Department of Survey and Land Information (DOSLI). Priority continued to be given to the sale of the properties in Schedule A. DOSLI acknowledged the exercise of the option by letter dated 15 February 1994. In the following month the responsible officer advised Dreux that he intended to expedite the sale of the Schedule B properties included in the Dreux option. He said that steps were being taken to settle the remaining Schedule A properties and the nominated Schedule B properties. Pursuant to an inquiry from DOSLI, Dreux revised and increased the number of Schedule B properties subject to its option on 9 May 1994. This further exercise of Dreux's option was again expressly acknowledged by DOSLI's solicitors on 2 June with express reference being made to condition 8 in Part II of the agreement.

Considerable correspondence was exchanged between the parties solicitors; the precise identity of the properties in the South Island which were subject to the option was clarified, the requirement in condition 5 affecting Schedule B properties was waived, and Dreux was advised that DOSLI was reviewing its position in regard to lessees of Schedule B properties which had expired or terminated. There was no recognition in this correspondence or in any discussions between the parties that Dreux's option to purchase the Schedule B properties was conditional on NZRC first exercising its option. It was clearly accepted that it had been exercised in accordance with the contract. Possibly the clearest conduct of the meaning which the parties attributed to the contract at the time it was completed would be the actual transfer of Schedule B properties to Dreux pursuant to its option. This was in fact what happened. Five Schedule B properties in the South Island were included in the tranche on 19 May 1994 and subsequently transferred to Dreux. Settlement of a further five Schedule B properties included in the third tranche was later delayed and overtaken by events.

In or about the beginning of June 1994, the relationship between the parties soured. The tender in respect of the five Schedule B properties in the third tranche was rejected. NZRC's solicitors advised Dreux's solicitors that NZRC's obligation to sell the Schedule B properties did not arise until it was in a position to give notice of entitlement to a tranche of at least 100 Schedule B properties. Dreux threatened legal proceedings. Finally, on 24 August 1995, NZRC's solicitors wrote to Dreux's solicitors informing them that DOSLI's inquiries had revealed that NZRC had never exercised its option under condition 2 of Part II of the agreement and that Dreux therefore had no right to exercise the option. It appears from the evidence that this belated construction evolved at a training session for DOSLI staff in 1994. One matter examined at the training session was the agreement between NZRC and Dreux. Two staff members examined the contract closely and came to the view that Dreux did not have an option to exercise. They conveyed this opinion to their superiors.

I consider that, in itself, the subsequent conduct is patently unequivocal. For a full year after Dreux had exercised its option the parties proceeded on the basis that the option had been validly exercised. It transferred five of the properties to Dreux and included a further five in another tranche. In short, it acknowledged by word and by conduct the meaning which had been ascribed to the contract. I agree with Mr Galbraith's submission to the effect that parties are much less likely to be mistaken as to the meaning of their contract when they are working in harmony than when subsequent differences have impelled them to resort to the law and a construction is sought which is at variance with their earlier performance.

While it may not necessarily be appropriate to have regard to the subsequent conduct of the party who seeks confirmation that the contract bears the meaning for which that party contends, as such evidence is obviously self-serving, it is to be noted that Dreux's own actions were wholly consistent with its interpretation of the contract. It exercised the option within a relatively short time after NZRC's option had lapsed. What is perhaps more significant is that there is no suggestion that Dreux pressed NZRC to accelerate its investigation and assessment of the Schedule B properties prior to 20 June 1993. Such pressure might have been expected if its own option was dependant on NZRC exercising its option by that time.

In respect of NZRC, it could be argued that its concentration on the properties in Schedule A and its apparent preparedness to allow the time within which it was obliged to exercise its option to lapse is consistent with the interpretation of the contract which it now advances. Its omission to do so would simply mean that it retained all the properties in Schedule B. But the evidence is clear that NZRC's resources were stretched. It was in difficulty in obtaining an appropriation of funds from Treasury. The simple truth is that at no time prior to 20 June 1993 was it in a position to exercise its put option. The necessary investigation and assessment had not been undertaken.

NZRC's much stronger argument is that its subsequent conduct can be explained as a mistake brought about by the change in personnel handling the matter. DOSLI had taken over the management of the sale of the properties from NZRC. Moreover, although the same firm of solicitors was retained throughout, the solicitors handling the sale were not the same solicitors who had been responsible for the preparation of the agreement. It is suggested that everyone either assumed that the properties were to be sold or, if the contract was referred to, it was mistakenly interpreted as conferring an unconditional option on Dreux. I acknowledge that the subsequent conduct of a party to a contract where the party is a corporation and the acts relied upon are the acts of officers or employees of that corporation may pose a difficulty in many cases. But is a difficulty which goes to the weight which the evidence will carry rather than to its admissibility. Indeed, it is not necessary that any weight should be given to evidence of subsequent conduct at all. The conduct must be carefully assessed in each case before determining what weight can be given to that conduct. See Re Canadian National Railways v Canadian Pacific Ltd (1978) 95 DLR (3d) 242, per Lambert JA at 262. But in this case I consider that it is right to accord the acknowledgements and actions of NZRC decisive weight.

In the first place, the experienced trial Judge who heard the evidence was in little doubt that the evidence of the parties conduct after the contract had been completed pointed to the interpretation contended for by Dreux. He declined to have regard to that evidence as an aid to interpretation, not because he considered it unhelpful, but because this Court has left the question whether the evidence could be used as an aid to interpretation open.

Secondly, NZRC was still responsible for the sale of the properties when, first, the final date for the exercise of its option came and went and, secondly, the date on which Dreux exercised its option, that is, 3 December 1993. At that time, less than two years had elapsed since the execution of the contract. A reduction in personnel had occurred and a smaller unit pressed ahead with the sale of Schedule A properties under the same contract that related to the Schedule B properties. In such circumstances it is difficult to accept that there was a break in the continuity of those responsible for the management of the contract at the critical time, namely, when Dreux's option was received and any question of its validity would have arisen. The function of managing the contract had yet to be transferred from NZRC to DOSLI.

Thirdly, when that function was transferred to DOSLI on 1 January 1994, it is inconceivable that DOSLI was not briefed as to NZRC's obligations in respect of the sale of the Corporation's surplus assets. In taking over the function, DOSLI necessarily will have adopted NZRC's perception and understanding of the contract. Moreover, as Dreux's option had been exercised on 3 December, the sale of the Schedule B properties was a current matter. It would surely have been discussed. Clearly, no doubts were raised by NZRC as to Dreux's ability to exercise its option or either NZRC or DOSLI would have obtained a legal opinion on the point. In fact, no reservations were expressed and DOSLI acknowledged the exercise of the option some six weeks later.

Fourthly, after the relationship between the parties had deteriorated, the solicitors acting for NZRC claimed in writing that Dreux's option had to be exercised in respect of a tranche of at least 100 Schedule B properties. Such a claim obviously necessitated reference to the contract and a consideration of what it meant. This was done by the same firm of solicitors who prepared the contract.

Had it not been agreed at the time the contract was entered into that Dreux's option was not dependent on NZRC exercising its option first, it might have been expected that this point would have been taken at that time.

Finally, it must be a telling factor that no one from NZRC, or DOSLI, or the solicitors, came forward and explained in evidence that a mistake had been made. There is no suggestion in the evidence that NZRC, DOSLI, or the solicitors were mistaken in the interpretation which they had acted upon in respect of Dreux's option to purchase the Schedule B properties. Yet, if it was a mistake, someone or some persons made that mistake, or acted in ignorance, or on an erroneous assumption. It is therefore surprising that not one witness sought to actually confirm how the mistake had been made or how an erroneous assumption had come to be adopted and then acted upon. Where conduct is overtly as unequivocal as the conduct in this case, it is not enough to press the possibility that there could be an explanation; the party asserting the explanation must be expected to adduce affirmative evidence to support the explanation. That evidence was not adduced in this case.

For these reasons I regard the parties subsequent conduct as confirming the meaning or construction of the contract which they intended at the time the contract was completed. Condition 8 prevails over condition 7. Dreux's offer was validly exercised in terms of the contract. NZRC's appeal must therefore fail.

Postscript

I wish to take a leaf out of Lord Goff's book and add a postscript along the lines adopted by that eminent Judge in Spiliada Maritime Corporation v Cansulex Ltd [1987] 1 AC 460, at 488. I, too, feel that I cannot conclude without expressing my appreciation of the contributions of jurists on this topic. Even when I have differed from them in my thinking, their writings have been of immense assistance to me in the preparation of this judgment. I, too, wish to single out for special mention one outstanding work. It is the recent article by D W McLauchlan, "Subsequent Conduct as an Aid to Interpretation", published in [1996] 2 NZBLQ 237. Professor McLauchlan may disagree with me on any number of points, and no doubt will, but I have found his article invaluable. In Lord Goff's words: "For jurists are pilgrims with us on the endless road to unattainable perfection; and we have it on the excellent authority of Geoffrey Chaucer that conversations among pilgrims can be most rewarding".

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