A forestry company has had a NZ$2.89 million debt set aside by the High Court after failing to harvest on deadline for a contract written on bad advice from the Marlborough District Council in New Zealand. Sources: Stuff NZ, Timberbiz
Zindia Limited signed the contract in 2016, to harvest pine trees on Arapaoa Island, previously known as Arapawa Island, between Tory Channel/Kura Te Au and Cook Strait in the Marlborough Sounds.
The trees were owned by Arapawa Island Forestry Partnership, which leased the steep, difficult property and planted the trees in 1986. The lease expired on 31 August 2020.
The trees matured by 2009, but one harvester backed out of the difficult job so before contracting Zindia, the partnership gained consents to get the forest “harvest-ready” when log prices improved in 2016. That did not include resource consent to harvest, the High Court decision issued last week said.
Zindia’s consultant had actually asked the council if consent was needed for harvesting, and a staffer replied by email “the answer is no”, on 1 July 2016. Five days later the staffer emailed again, saying “the opinion given below should not be acted upon until I get back to you [as there is] divergence of opinion here”.
But when the partnership’s solicitor emailed two days later, the staffer said harvesting could go ahead without consent, and when Zindia’s consultant heard about this and emailed again, the staffer confirmed no consent was required.
Zindia and the partnership then signed the contract. That included “considerable negotiation” to reach a harvest deadline of 30 June 2019, giving Zindia nearly three years to harvest, and the partnership extra time before the lease ran out.
Zindia would pay for trees harvested by weight, and paid a NZ$500,000 bank bond up front, and a deposit of NZ$250,000.
The contract said if Zindia left any trees unharvested, it would still have to pay the partnership for them, but at a double rate, unless health and safety risk prompted agreement to leave them. Any trees remaining when the lease ran out would then become the property of the landowner.
Zindia notified the Marlborough District Council it intended to start harvesting in May 2018. Zindia did not explain the reason for the delay, but the partnership said Zindia lacked funding.
But the council then ordered Zindia to stop with an abatement notice, saying it needed consent.
Zindia went to the Environment Court to get the notice suspended, but by that point the contractor doing the harvesting had taken another job and no replacement could be found. When log prices were high, demand for contractors increased.
When Zindia’s 2019 deadline arrived, many trees had not been harvested. The partnership then invoiced Zindia at the double rate for the trees, demanding NZ$2.89m.
Zindia appealed the council’s abatement notice through the Environment Court and won, but the council appealed that decision to the High Court which found in the council’s favour, in October 2019. Zindia dropped an appeal of that decision late last year.
At a separate hearing in December, Zindia asked the High Court to set aside the NZ$2.89m debt for the unharvested trees.
Zindia’s lawyers Quentin Davies and Joshua Marshall said the court was able to grant relief if both parties had entered into a contract by the same mistake, under the Contract and Commercial Law Act.
But the partnership’s lawyer claimed the consent issue had not affected the partnership’s decision to enter the contract, so there was no mutual mistake, he said.
Associate Judge Dale Lester said he accepted both parties thought no consent was necessary, in his decision issued on 27 January. Both parties were told as much by the council, and the contract never mentioned the need to obtain one.
Judge Lester said the partnership was under real pressure to get the trees harvested before the lease expired, so ensuring Zinda was actually allowed to harvest was clearly in its interest. That explained the partnership’s own enquiries to the council about consent, he said.
“It is now clear as a result of this court’s upholding the council’s abatement notice, that the advice given [by the council staffer] was incorrect,” Judge Lester said.
In order to grant Zindia relief from the debt, Judge Lester had to find the mistake would result in a “disproportionate obligation” or “substantially unequal exchange” for the company.
Zindia would lose its pre-paid bond and cash deposit, and would have to pay the partnership double for the unharvested trees.
Judge Lester ruled it was an unequal exchange, and having established the mistake, granted Zindia’s application and set aside the partnership’s claim.
