Cross v Rullo
[2012] VCC 506
•27 April 2012
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| IN THE COUNTY COURT OF VICTORIA | Revised Not Restricted |
AT MELBOURNE
CIVIL DIVISION
APPLICATIONS
Case No. 2009 00470
| DAVID CROSS | Plaintiff |
| V | |
| JOSEPH ANTHONY RULLO | Defendant |
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JUDGE: | JENKINS | |
WHERE HELD: | Melbourne | |
DATE OF HEARING: | 4, 5, 6, 7,10, 11, 12, 13 & 17 October 2011 | |
WRITTEN SUBMISSIONS | Plaintiff: dated 25 October, 17 and 18 November 2011 Defendant: Initial submissions undated; Reply dated 22 November 2011 | |
DATE OF JUDGMENT: | 27 April 2012 | |
CASE MAY BE CITED AS: | Cross v Rullo | |
MEDIUM NEUTRAL CITATION: | [2012] VCC 506 | |
REASONS FOR JUDGMENT
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Catchwords: Share Farming Agreement; Stone fruit orchard; Claim by owner for breach of agreement by sharefarmer: alleged mismanagement; misapplication of chemical sprays; and failure to account for proceeds of insurance; counterclaim for loss of profits and share of sale proceeds; compelling expert evidence for Plaintiff; extensive factual dispute; credit and reliability of parties.
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | Self represented | |
| For the Defendant | Mr J Evans | Voitin Lawyers |
TABLE OF CONTENTS
Background and Agreed Facts..................................................................................................... 3
Nature of Proceedings and Claims.............................................................................................. 3
Counterclaim...................................................................................................................................... 6
Evidence.............................................................................................................................................. 6
Overview......................................................................................................................................... 6
Witnesses....................................................................................................................................... 8
Assessment of Witnesses........................................................................................................... 8
The Plaintiff.............................................................................................................................. 8
David Pullar Agricultural Scientist and Consultant............................................................ 8
Steven Field Senior Chemical Standards Officer Department of Primary Industry (‘DPI’). 9
Heinz Schneider Horticultural Adviser DPI....................................................................... 10
The Defendant....................................................................................................................... 11
Anthony Reddrop.................................................................................................................. 11
Helen Williams....................................................................................................................... 12
David Bell Agricultural Consultant...................................................................................... 12
Defendant’s Objections to certain Evidence.......................................................................... 13
Initial Operation under Share Farming Agreement............................................................... 14
The Plaintiff’s Background................................................................................................... 14
The Defendant’s Background............................................................................................. 14
Preparation for and Composition of Share Farm............................................................. 15
Removal of Top Soil prior to Tree Planting...................................................................... 16
Defendant’s Account............................................................................................................. 17
Plaintiff’s Account.................................................................................................................. 19
The New Share Farming Agreement................................................................................. 22
Management of the Share Farm........................................................................................ 22
Packing Arrangements......................................................................................................... 25
2002/2003 Season..................................................................................................................... 27
2003/2004 Season..................................................................................................................... 28
2004/2005 Season..................................................................................................................... 28
2005/2006 Season..................................................................................................................... 28
Specific Heads of Claim................................................................................................................ 28
2006/2007 Season – Proceeds of Insurance Claim............................................................. 28
Basis of Plaintiff’s Claim....................................................................................................... 28
Defendant’s Response......................................................................................................... 34
Conclusion.............................................................................................................................. 39
2007/2008 Season – Share Farm Mismanagement Claim.................................................. 39
Summary of Indicators of mismanagement during 2007/2008 Season....................... 40
Depleted Top Soil and Inadequate Soil Preparation....................................................... 40
Inadequate Irrigation............................................................................................................. 41
Harvest Mismanagement..................................................................................................... 42
Inadequate Thinning............................................................................................................. 44
David Pullar............................................................................................................................ 46
Inspection of Share Farm on 16 December 2007.............................................................. 47
Ongoing Assessment.............................................................................................................. 51
Initial and Revised Assessment of Productive Capacity................................................... 51
Assessment of Loss of Productive Capacity and Estimate of Sale Prices.................... 56
IK Caldwell Data & Pack House Operator Reports........................................................... 56
David Bell............................................................................................................................... 63
2008/2009 Season - Claim for Chemical Spray Crop Damage.......................................... 67
Steven Field Senior Chemical Standards Officer, Department of Primary Industries (‘DPI’).................................................................................................................................................. 68
The Plaintiff’s Account......................................................................................................... 70
The Defendant’s Account.................................................................................................... 72
Anthony Reddrop Farm Manager...................................................................................... 73
Further Expert Evidence...................................................................................................... 75
Heinz Schneider Department of Primary Industries [DPI].............................................. 75
Mr Pullar’s Inspection of Share Farm during 2008/2009 Season................................. 82
Use of Biothin and Thin It..................................................................................................... 87
David Bell................................................................................................................................ 89
Conclusion............................................................................................................................. 90
2009/2010 Season Share Farm Mismanagement Claim..................................................... 92
Conclusion............................................................................................................................. 94
Counterclaim.................................................................................................................................... 95
Deficiencies in the Defendant’s Case....................................................................................... 97
Conclusion..................................................................................................................................... 100
Witness Costs............................................................................................................................... 102
Orders.............................................................................................................................................. 103
Annexure A.................................................................................................................................... 105
Share Farming Agreement...................................................................................................... 105
Annexure B.................................................................................................................................... 108
Section 49 of the Insurance Contracts Act 1984 (Cth)....................................................... 108
HER HONOUR:
Background and Agreed Facts
1 At all relevant times the Plaintiff and Defendant occupied adjoining properties in Dookie Road Shepparton, upon which an orchard business comprising stone fruit production was conducted.
2 In November 2001, the Plaintiff purchased approximately 23.67 hectares located at 545 Dookie Road Shepparton Victoria from the estate of Lionel Ball deceased. The Plaintiff and Mr Ball had been close friends for many years prior to Mr Ball’s death in October 2001. Prior to November 2001, the Defendant and Mr Ball had entered into a share farming agreement, pursuant to which Mr Ball, as owner, agreed to permit the Defendant, as sharefarmer, to plant, grow and harvest a variety of stone fruit trees, for their mutual benefit, on part of Mr Ball’s property (the ‘Share Farm’). In July/August 2001 fruit trees were planted on approximately 4 hectares only of the Share Farm.
3 In anticipation of the Plaintiff's purchase of Mr Ball’s property, the parties agreed, in principle, to continue with a share farming arrangement, on essentially the same terms and conditions as the original share farming agreement entered into between the Defendant and Mr Ball. Once the Plaintiff took possession of his property, the parties proceeded to act in accordance with the original share farming agreement, although a new written agreement between them was not executed until about 13 August 2003 (the “Share Farming Agreement”).
Nature of Proceedings and Claims
4 The Plaintiff alleges that the Defendant breached his contractual obligations under the Share Farming Agreement. As a consequence, the Plaintiff suffered loss and damage, quantified within four financial years as follows:
Season Insurance Proceeds/
Estimated Revenue
Proceeds Received by Plaintiff Claim 2006-07 227,520 Nil 113,760 2007-08 200,160[1] 39,134.74[2] 60,945.26 2008-09 200,160 8,000[3] 92,080 2009-10 200,160 45,274.35[4] 54,805.65 [1]Taking the revised estimated revenue for the Share Farm ($205,627), calculated by Mr Pullar, [Exhibit F] less an adjustment for Pizzazz plums ($5,467), conceded by Mr Pullar and relying upon the calculation made by Defendant’s Counsel in written submission at para 24.
[2]The Plaintiff agrees that he received the total net proceeds of the sale of the Share Farm fruit for the 2007/2008 season.
[3]Sale proceeds were received by the Defendant and previously adjusted in favour of the Plaintiff
[4]Exhibit J.
5 The nature of the specific claims are summarised as follows:
a) The 2006/07 claim, arises from a payout under a Policy of Insurance covering frost damage to trees on the Share Farm, and the adjoining orchard managed by the Rullo family.[5] The insurance payout referable to the Share Farm is $227,520[6] of which the Plaintiff claims 50% or the sum of $113,760 plus interest;
[5]The reference to the Rullo family refers to the Defendant and his parents.
[6]Being the insurance payout referable to the Share Farm, as confirmed by Mr Pullar.
b) The 2007/08 claim, arises from the shortfall in fruit sales revenue as a consequence of the Defendant’s alleged mismanagement. The Plaintiff claims the sum of $60,945.26, plus interest, representing the Plaintiff’s half share in the estimated revenue of $200,160, less the sale proceeds already received by the Plaintiff;
c) The 2008/09 claim, arises from the shortfall in fruit sales revenue as a consequence of the Defendant’s alleged misapplication of spray to the trees. The Plaintiff claims the sum of $92,080, plus interest, representing the Plaintiff’s half share in the estimated revenue of $200,160, less the sale proceeds already adjusted in favour of the Plaintiff; and
d) The 2009/10 claim, which is similar to the 2007/08, and arises from the shortfall in fruit sales revenue as a consequence of the Defendant’s alleged mismanagement. The Plaintiff claims the sum of $54,805.65, plus interest, representing the Plaintiff’s half share in the estimated revenue of $200,160 less the sale proceeds already received by the Plaintiff.
6 The Defendant denies all of the above claims. In summary, he denies:
a) any prior knowledge of the subject frost insurance for the 2006/2007 season; and denies receiving any benefit following claims and payout;
b) any mismanagement of the Share Farm at any stage; and states further that during the 2007/2008 season the Plaintiff was himself responsible for causing damage to harvested fruit and mismanaging the fruit packing and marketing process; and
c) any misapplication of chemical sprays during the 2008/2009 season; and states further that any damage to trees or fruit production, is attributable entirely to frost.
7 In addition the Plaintiff seeks:
a) A Declaration that the Share Farming Agreement is terminated; and
b) Reimbursement of certain Share Farm related expenses, which he has paid and for which the Defendant conceded that he is liable under the Share Farm Agreement, namely:
i. payment for the 2008 fire insurance premium, in the sum of $2,247.55[7] and
ii. payment for water rights, in respect of the 2007/2008 season, which had been transferred to the Defendant, in the sum of $7,413.38.[8]
[7]Exhibit L
[8]Exhibit S
8 There are two further components of alleged damage which the Plaintiff sought to include in his evidence and final submissions, namely:
a) A claim for a shortfall in fruit proceeds in the 2010/2011 season; and
b) Compensation for royalty infringements.
9 Neither of these additional claims were included in the Amended Statement of Claim and accordingly cannot form part of this proceeding.
Counterclaim
10 The Defendant claims the sum of $19,567.37, representing half the proceeds of fruit sales received by the Plaintiff for the growing season 2007/2008. This amount was conceded by the Plaintiff as owing by him to the Defendant, and is adjusted for in the above claim.
11 The Defendant further counterclaims loss of profits for the 2007/2008 season caused as a result of the Defendant being required to deliver the fruit to the Plaintiff’s shed from where it was transported to Anthony Rullo’s cool store for packing and marketing. The Defendant alleges that the fruit deteriorated significantly once he delivered the fruit by reason of prolonged delays in despatching the fruit to cool storage. The Plaintiff denies this allegation.
Evidence
Overview
12 In preparing these reasons I have read and reread the transcript of evidence and examined all tendered documents in detail. To the extent that evidence has been repetitive or clearly irrelevant or inadmissible, I have made no reference to it.
13 In the final analysis, I have found in favour of the Plaintiff in respect of the claims arising in the 2006/2007, 2007/2008, and 2008/2009 seasons. In doing so, I have substantially accepted the veracity and reliability of the account of events and observations made by the Plaintiff; and the evidence given by experts called on his behalf.
14 There were many facts in dispute in this case:
a) First, both the Plaintiff and Defendant gave extensive evidence as to alleged facts and circumstances which are irreconcilable. In determining which evidence I accept, it has been necessary to form a view as to their respective credibility and reliability, influenced in many instances by the evidence of one or other expert, and/or the probability of particular evidence in the overall context; and
b) Secondly, there is a marked difference of opinion between the experts called on behalf of the Plaintiff and the expert called on behalf of the Defendant.
15 In summarising the evidence, which was detailed and extensive, I have been necessarily selective. In doing so, I have attempted to reflect the substantive evidence given on behalf of the Plaintiff, which I accept; and those aspects of the evidence given on behalf of the Defendant, which I do not accept.
16 Relevant extracts from the Share Farming Agreement have been reproduced in Annexure A.
17 Section 49 of the Insurance Contracts Act 1984 (Cth) has been reproduced in Annexure B.
Witnesses
18 On behalf of the Plaintiff, evidence was given by David Cross; and expert evidence was given by Heinz Schneider; Steven Field; and David Pullar.
19 On behalf of the Defendant, evidence was given by Anthony Rullo; Ross Reddrop; and Helen Williams; and expert evidence was given by David Bell.
Assessment of Witnesses
The Plaintiff
20 The Plaintiff represented himself. Throughout the proceeding the Plaintiff conducted himself in a polite and respectful manner and demonstrated a good working knowledge of court protocol. However, his knowledge and understanding of evidentiary matters was understandably limited. In consequence, the court extended considerable leniency in receiving certain evidence in the first instance, which ultimately proved to be irrelevant or otherwise inadmissible.
21 In giving his own evidence, I found the Plaintiff to be both a credible and reliable witness. In particular, where appropriate, he was careful to qualify his recollection of events; and he remained consistent and resolute under cross-examination.
David Pullar Agricultural Scientist and Consultant
22 Mr Pullar’s qualifications and experience are set out in detail in his reports and were expanded upon in oral evidence. I mention only a few aspects of such experience which are particularly pertinent to this case:
a) He has had some 17 years experience of fruit growing in the Goulburn Valley, Ardmona and Cobram, where he operated properties from about 1988/89;
b) He has experience with closely planted fruit trees, as well as stone fruits similar to those grown on the Share farm;
c) He has observed the effects of the combination of ammonium thiosulphate with a wetting agent upon crops; and
d) His work as an horticultural consultant has included the preparation of loss assessments for insurers. [9]
[9]Transcript 377-378.
23 Mr Pullar prepared five reports in relation to the Share Farm, which were the subject of his visits on 16 December 2007; 14 April 2008; 16 September 2008; 18 October 2008 and 28 November 2008. In addition, he made a series of visits during harvesting between 16 December 2007 and 14 April 2008;[10] and thereafter visited the Share Farm every 2 to 3 weeks, until he relocated to Queensland in September 2009, after which he would visit every couple of months. He attended during the harvest of 2009 and 2010 and last attended the Share Farm during June/July 2011.[11]
[10]Tr 171.
[11]CB Volume 2, 179-231.
24 Mr Pullar gave extensive evidence and was also cross-examined at length. The accuracy and veracity of his evidence is clearly critical in support of the Plaintiff’s claims, particularly for the seasons 2007/2008 and 2008/2009.
25 In my view, Mr Pullar was an impressive witness. His timely observations were well documented; his evidence was detailed; and his explanations comprehensible. He was also prepared to make concessions where appropriate and adjust his assessment accordingly.
Steven Field Senior Chemical Standards Officer Department of Primary Industry (‘DPI’).
26 Mr Field’s evidence is relevant to the 2008/2009 claim. He was the lead investigating officer in offences prosecuted in the Magistrates' Court in Shepparton, involving the Defendant, his company and an employee.
Heinz Schneider Horticultural Adviser DPI
27 Mr Schneider’s evidence is particularly relevant to the 2008/2009 claim. In addition, he made certain observations about soil quality, lack of moisture, and size and health of trees, which are relevant to farm management generally.
28 Mr Schneider’s qualifications and experience are set out in detail in his oral evidence. I mention a few aspects only of such experience, which are particularly pertinent to this case:
a) His work as a horticultural adviser in various locations throughout Victoria, has involved particular expertise in orchard nutrition;
b) He has dealt with varieties of fresh stone fruits for about 30 years, where the maturity periods and the characteristics of the growth are the same as the new varieties grown on the Share Farm;
c) He has initiated programs designed to reduce the costs of orchard management by introducing the technologies of flower thinning, using various chemicals that were available;
d) He has observed and reported upon:
i. how the season was progressing, particularly during periods of drought and incidents of frost;
ii. the application of certain kinds of chemicals over a period of time, particularly the flower thinning chemicals; and
iii. the effects of varying weather conditions, including drought conditions or frost conditions; and their effect on foliage, flowering and crop production.
29 During the course of his evidence, Mr Schneider demonstrated extensive relevant experience to comment upon the effects of frost; the application of chemical thinning agents; and aspects of good farm management. In my view, his evidence was thoughtful, comprehensive and balanced. He also demonstrated an extensive understanding of stone fruit management and the relevant variables likely to impact upon fruit production.
30 In my view, both Mr Schneider and Mr Field were impressive witnesses who appeared to give their evidence in a measured and objective manner.
31 Overall, the expert evidence called on behalf the Plaintiff was detailed, comprehensive and compelling.
The Defendant
32 The Defendant described, in some detail, the establishment, operation and management of orchards under his management, including the Share Farm. He demonstrated a sound knowledge of orchard management. However, the content of his evidence, in relation to the Plaintiff’s specific claims, reflected serious deficiencies and improbabilities, which, in my view, raised serious concerns as to both his credibility and reliability.
33 In many instances, the Defendant either denied or could not recollect conversations about which the Plaintiff gave evidence. In my view, the Defendant's recollections were selective, in the context of the surrounding circumstances and other conversations, about which he appeared to have a clear recollection.
34 The Defendant also frequently gave non-responsive answers and at times was merely argumentative.
Anthony Reddrop
35 Anthony Reddrop is employed as an Orchard Manager on the Rullo and Share Farm Orchards and takes his instruction from the Defendant. He completed an apprenticeship and farm management course and has worked on orchards for 21 years. His evidence is particularly relevant to the claim for the 2008/2009 season.
Helen Williams
36 Helen Williams resides at a property which is located next door to the Plaintiff’s property. She gave evidence that she saw the Plaintiff removing top soil from the Share Farm and depositing it in his garden. Mrs Williams conceded that there has been conflict between her family and the Plaintiff in the past. I do not give any weight to her evidence, which otherwise conflicts with the Plaintiff in significant respects.
David Bell Agricultural Consultant[12]
[12]CB/2 59-80 Report dated September 2010; refer Appendix B for his CV; and CB/2 81-86 Report dated February 2011; CB/2 87-148 Report dated April 2011.
37 Mr Bell’s qualifications and experience are set out in detail in his reports and were expanded upon in oral evidence.[13] I mention only a few aspects of such experience which are particularly pertinent to this case:
[13]Transcript 1012-1016.
a) While an area manager for Shell Chemicals Australia, he marketed agricultural chemicals through distributors, used on a range of horticultural properties; as well as some research and development on new product trials;
b) While a manager with IK Caldwell & Co, he serviced orchardists on-farm; and
c) In his own agricultural consulting business since 2001, he has conducted insurance loss assessments.
38 However, for the purpose of this particular case, Mr Bell’s experience was more limited than experts Pullar and Schneider, in the following relevant respects:
a) He has not had specific experience marketing fruit or in the operation of a fruit packing house. He otherwise relied upon information supplied by the packing sheds when making assessments;
b) His direct experience of orchard management is limited to about one acre of apples in Cobram;
c) He agreed that he had never viewed harvested fruit from the Share Farm or fruit being delivered to a packing shed, but relied upon the data of IK Caldwell;
d) He agreed that he had never seen Anthony Rullo’s packing or the quality of fruit delivered to him;
e) He agreed that he did not have any expertise in particular varieties of stone fruit;
f) He could not comment on the profitability of particular varieties;
g) He could not give an opinion as to the likely annual operating costs or the likely gross earnings minus income costs, on a typical stone fruit orchard, on the basis that there were too many variables to consider; and
h) He has not had any particular experience with the products Biothin and Thin It, other than being aware of trials conducted in Shepparton on Taylor Queen peaches.
39 Mr Bell first attended the Share farm on 22 March 2011 and accordingly could not give an account of personal observations at relevant times, as could the Plaintiff's experts. In my view, this limitation severely restricted the reliability and relevance of his evidence.
40 Furthermore, while I do not question his expertise per se, as indicated during the course of the hearing, there were many aspects of Mr Bell’s written reports which were clearly inadmissible; and aspects of his oral evidence which were more consistent with him being an advocate rather than an expert.
Defendant’s Objections to certain Evidence
41 Defendant’s Counsel objected to the receipt of any evidence which purported to relate to the following claims, not otherwise contained in the Amended Statement of Claim[14]
(1) Allegations regarding the removal of topsoil from the Cross Share Farm land in 2002;
(2) Allegations regarding management of the soil on the Share Farm after 2002;
(3) Allegations regarding unpaid plant breeders rights royalties in respect of the fruit trees planted in 2002.
[14]Outline of Final Submissions for the Defendant para 3 undated.
42 As indicated during the course of the hearing, I accept that any evidence relating to item 3 above is irrelevant to this proceeding.
43 However, while items (1) and (2) above are not the subject of a separate discrete claim, I am satisfied that evidence relating to these matters is relevant, by way of background, to a pattern of behaviour of farm mismanagement in those seasons, the subject of claim in this proceeding.
Initial Operation under Share Farming Agreement
The Plaintiff’s Background
44 The Plaintiff operated a beef farm at Pine Lodge until 2001. He had no prior horticultural experience. Prior to purchasing the Share Farm he had discussions with the Defendant concerning the continuation of the share farming agreement, which had been in place between the Defendant and Mr Ball. The Plaintiff took occupation of the Share Farm in November 2001 and the property purchase was settled in January 2002.
The Defendant’s Background
45 The Defendant is 37 years old and the orchard manager for the Rullo family orchard situate at 470 & 555 Old Dookey Road East Shepparton. He has been working there since he undertook an orchard management course at 15 years of age. The Defendant currently manages about 340 acres, including the Share Farm. Prior to the Share Farm Agreement.
46 The Rullo orchard comprises predominately apples and pears, with about one third stone fruit, mostly apricots, plums and cherries. The Defendant was involved in establishing the stone fruit orchard.[15] The Defendant described the annual orchard management practices in some detail.[16]
[15]The Defendant described the various stages in some detail; see Transcript 702.
[16]Transcript 645 and following.
Preparation for and Composition of Share Farm
47 The Share Farm was divided into three planted blocks comprising 11 varieties of plums and white fleshed nectarines, covering an area of approximately 14 hectares:[17]
[17]Mr Pullar’s evidence, referring to the diagram which appears in CB/2, 203 which gives the area planted as 13.7 Ha cf Certificate of Insurance Crop Loss Details for Lots 5, 6, 7, 8 & 9 which adds up to 14.2 Ha: Exhibit G.
a) Lionel’s Block, planted in 2000/2001 [prior to the Plaintiff’s ownership], comprising Zephyrs, Bright Pearl, Pizzazz, Aussie Belle and Early Queen plums;
b) The Hut Block: comprising Kay Pearl, June Pearl, and Arctic Snow; and
c) The North or Back Block comprising Zephyr, Regal Pearl, Grand Pearl, and Early Queen.
48 The Hut and Back Blocks were both planted in 2002.
49 The Defendant gave evidence that when Lionel’s block was planted, the intention was to establish a low maintenance orchard yielding 8-10 kgs per tree, 2m apart and no more than 2m high, which were easier and safer to harvest, without relying upon ladders.[18] Not much was done to the land as it already had a natural fall to the south. It was deep ripped, both ways, ploughed, banked up, an irrigation system installed and trees planted.[19]
[18]CB/2 203 refer Attachment 1.
[19]Transcript 654.
50 The Hut and North blocks, were planted under the new Share Farming Agreement with the Plaintiff. The Defendant would have preferred apples and pears, which would have been better in the heavier soils, but the Plaintiff wanted stone fruit and nectarines for quicker returns.[20] The Defendant asserted that the discussion with the Plaintiff was always on the basis of expecting a return of no more than 8-10 kg per tree. He denied that they could ever produce an average 336 tonnes predicted by Mr Pullar for the 2007/2008 season.
[20]The Plaintiff did not recall insisting on nectarines and plums: Transcript 690; I note that this scenario was never put to the Plaintiff, who otherwise said that he relied upon the Defendant to choose the type of fruit trees and varieties.
51 The Defendant agreed that he selected the fruit varieties, which were preferred varieties at the time of planting.[21] However, this changed even before the first harvest, due to changed preferences of supermarkets. He could not recall when this occurred.[22] In my view, the Defendant’s evidence as to his method of selection and subsequent changed market preferences was vague;[23] and in any event did not accord with the returns he claimed to have received for the 2009/2010 season.
[21]Transcript 792.
[22]Transcript 691.
[23]For instance, the Defendant’s evidence ranged from taking local advice to conducting research in the USA. At one stage he did not remember when market preferences had changed and at another stage said Early Queen and Pizzazz were non preferred by their first harvest.
52 The Defendant described in some detail the process employed for deep ripping the Hut and North blocks and preparing the soil for planting. Following discussion as to soil levels and drainage he said that the Plaintiff became involved in the actual development of the layout of the land. [24] However, under cross-examination the Defendant agreed that he alone determined the fall of the land and the only difference was which way the water would flow, when it reached the end of each block.[25]
[24]Transcript 658.
[25]Transcript 686.
Removal of Top Soil prior to Tree Planting
53 There is an irreconcilable conflict in the evidence of each party concerning removal of top soil at the time when the Hut and North Blocks were being prepared for planting. The significance of the account given by the Plaintiff, which, in my view, is clearly more credible, lies in the conclusion that the Defendant knowingly refused or failed to properly or adequately prepare part of the Share Farm prior to tree planting. In consequence, the top soil was depleted from the outset;[26] and little or no effort was undertaken subsequently to restore the soil to an acceptable level of productive capacity.[27]
Defendant’s Account
[26]Both Defendant and Mr Reddrop acknowledged that the top soil was depleted.
[27] According to Mr Reddrop, since the trees were planted, the only thing added has been fertiliser through the water [fertigation] and sometimes the trees have had foliar fertilisers as well.
54 Prior to planting trees on the remaining two blocks in July and August of 2002, the Defendant engaged a contractor and paid for all earthworks. The soil was deep ripped in both directions and lasered.
55 Following discussions, the Plaintiff insisted on removing soil from where the Kay Pearl and June Pearl are now planted [in the Hut Block]:
Mr Cross came down and I wanted to change the course of the layout and he suggested that we take some of the soil away to make it easier and I said, "Look, I prefer not to do that, David", I said, "I don't like to do that. I need as much topsoil as possible for the trees." And he said, "It's my land - my soil - I do what I like with it." At that point he was for three weeks carting dirt out of that area between - not so much the Arctic Star block, but more predominantly in the June Pearl block. The Kay Pearl not as much. But three weeks - there was dirt leaving the property for about three weeks. So I had to deal with that afterwards… that all happened prior to laser grading the ground.[28]
[28]Transcript 656-657; and 693; cf the Plaintiff, who denied any piles of top soil having been created: Transcript 467 & 618.
56 The Defendant warned the Plaintiff to the effect that soil removal was bad:
…every time I said - wanted to say anything he'd sort of shut me down, it was his land - it's his farm, he'd keep referring to the share farming agreement.[29]
[29]Transcript 1033.
57 The Defendant further stated that:
… Ajax Fertilizers come in and do a soil sample. they advised us to put one tonne of lime, one tonne of gypsum, and 500 kilos of superphosphate per acre. Which was a very high rate at the time, to try and balance the soil the best way we can, to give the trees the best possible chance.[30]
[30]Transcript 658.
58 The Defendant denied that there was ever a build up of soil, on the north side of the Horse block, from where the Plaintiff says that he removed soil, with the Defendant’s permission.
59 The Defendant said that once the trees are planted the feeder roots start to take in the top 4 to 6 inches of soil from where they get their nutrients. If the topsoil is depleted it is very difficult for the tree to take properly. There is no way to remedy this. It would take 20 years to fix.[31] Consequently, the Defendant said that the bottom half of June Pearl block has been a problem from day 1, due to lack of top soil. This matter was discussed with the Plaintiff and the Defendant said he did the best he could.[32]
[31]The Defendant did not explain exactly what happens over 20 years.
[32]Cf evidence of both Mr Pullar and Mr Schneider, who said there were ways in which the top soil could be improved.
60 Mr Bell suggested that from his recent observations there is a large pile of rich topsoil adjacent to the Plaintiff’s house which he estimated would comprise 125 to 150 cubic metres of top soil, [he later said at least 150 cubic metres][33] which he believes was removed from that part of the orchard now depleted of top soil and would account for the area where the trees are relatively poor.[34] The pile of soil at the Plaintiff’s house still contains large boulders and clods consistent with it having been taken after the Hut block was deep ripped, before lasering.[35] Mr Bell rejected the suggestion that the soil was removed from the Horse block on the basis that there would not be enough room in that location to accommodate such a large quantity of soil.[36]
[33]Transcript 986.
[34]Transcript 945 and 975-977.
[35]Transcript 981.
[36]Transcript 987.
61 The Plaintiff put to Mr Bell that he had in fact only removed about half of the built up soil from an area referred to as the Horse block, a vacant block next to Lionels’ Block. The Plaintiff described a substantial bank of soil remaining.[37] Mr Bell had no recollection of there being any such pile of topsoil.
[37]Transcript 980 The Plaintiff describes location by reference to sketch map.
62 When asked why the Defendant’s preparation of the soil prior to planting was not adequate to restore the quality of the soil, Mr Bell responded that it would take many years and if it is still not improved over the nine intervening years there is not much else that can be done. In conclusion, he agreed that normally topsoil would be returned, if it has been removed, before planting trees.[38]
Plaintiff’s Account
[38]Transcript 1021; the Plaintiff alleges that the Defendant never raised the issue of topsoil or complained to the Plaintiff about its removal.
63 The Plaintiff was not aware of any soil having been removed from the Share Farm prior to his occupation; and during his occupation he was not responsible for the removal or sale of any soil from where trees were planted. In particular:[39]
[39]Transcript 467and following.
a) He denied moving topsoil from the Share Farm with an earthmover and creating a pile of topsoil near his house;
b) He denied advertising such topsoil for sale;[40]
[40]Transcript 618; Although the Plaintiff was cross-examined about advertising soil for sale, the Defendant gave no evidence to this effect.
c) He denied ever having a conversation with the Defendant in which he was told not to remove the top soil or saying words to the effect: “it's my land and I will do with it what I want”;
d) He denied ever moving or removing any top soil from the Share Farm, where trees are now planted, at any time. He was not aware of what any member of the Rullo family did in that regard; and
e) At no time did he determine which way the fall of the land would go by reason of the lasering.
64 Shortly after the tree planting, the Plaintiff complained to the Defendant:[41]
What happened to the topsoil?" It was quite evident it had a clay topping … particularly in the middle block…. why didn't you take it off and put it back after you'd finished lasering it?", which is the normal practice, whether you were doing it on a beef farm or any irrigation layout. That's just common practice. I've seen it done many times in the past. …He replied, "It was going to cost too much to do that, and as the roots of the trees go into the clay, it isn't a problem".[42]
[41]This conversation was denied by the Defendant.
[42]Transcript 468 & 621.
65 The Plaintiff would walk his dog twice a day through the orchard and he did not observe any soil removal by the Defendant. However, following the lasering he did observe the clay surface indicating that the topsoil had not been replaced. His only explanation is that the topsoil was effectively buried in the deep ripping process.[43]
[43]The Defendant said that the process of deep ripping with a large vehicle did not disturb the surface soil.
66 At no stage did the Defendant or anyone else associated with him comment upon the quality of the soil or lack of topsoil, or that crop production would be less than optimal because of the quality of the soil, or that something needed to be done to improve its quality.
67 In about 2004 or approximately 2-3 years after in the tree planting, the Plaintiff asked the Defendant if he had any objection to his removing some soil, for his garden, from the edge of the block which had not been developed, referred to as the Horse block. The soil, of heavy clay content, obstructed proper drainage from the block. With the Defendant’s permission, he moved some of this soil with his front-end loader.[44] He made about 40 trips, each comprising about one cubic metre.
[44]The Plaintiff said about half of the soil still remains at the bottom of the Horse’s block: Transcript 693.
68 In his final written submissions, the Plaintiff noted that the area identified as having had soil removed was largely confined to the “Hut Block”, which has a total area of 5.2 ha. The aerial photographs in Mr Bell's report suggest that about one third of the block was affected by topsoil removal, or an area of about 1.73 ha. Assuming topsoil was removed to 100 mm, this would amount to 1,730 cubic metres or more than 10 times the volume of topsoil which the Defendant claimed that the Plaintiff had removed.
69 When the Court resumed on 2 November 2011 to hear final submissions, the Plaintiff produced two sets of photographs[45] taken by him on 20 and 21 October 2011, which he said indicated that soil had been removed from the Horse block from precisely the location where the Plaintiff gave evidence that there was a residual embankment of soil [following his removal of soil from this location]. Defendant’s Counsel responded that he was instructed that soil was removed to allow truck access. In my view, the residual embankment, which is clearly evident from the photo taken on 20 October and clearly absent in the photo taken on 21 October, is consistent with the account given by the Plaintiff.
[45]Exhibit T.
70 Helen Williams gave evidence that she had a full view of the Share Farm from her living room, except the Plaintiff’s house. She could see earthworks and planting works taking place on the Share Farm.
71 She recalled that the Plaintiff took occupation in early 2002. Straight after he moved in, she thought in the middle part of 2002, she observed the Plaintiff moving soil in a JCB front end loader, over a few weeks, on a total of at least 30 occasions:
The JCB when it was loaded was heading south and transferring from the north side of the channel, coming down the laneway and then gong down in the vicinity of Mr Cross' house and when it returned it was empty.[46]…
[46]Transcript 715.
72 She said there was only one block in trees at that stage and the earth would have come from the block to the north of that. She did not remember the Plaintiff moving soil at any other time. She said that there is still a stockpile of soil on the southern part of his property. She remembered the Plaintiff using soil to build up a vegetable patch.
73 Under cross-examination Mrs Williams agreed that on 13 April 2007, police attended her home following a neighbour reporting that a shotgun had been fired in the vicinity. She also agreed that the Plaintiff had previously complained to her husband, asking that their son refrain from firing in the direction of the Plaintiff's house.
74 In response to questions from the Bench, Mrs Williams said that she may have been wrong about the year when the Plaintiff transported soil, but she remembered that it was straight after he took over the property, when the developments were happening.[47] The soil was taken from the area to the north of the existing block of trees, which were already in existence.[48]
[47]Transcript 720.
[48]Transcript 720.
75 As indicated above, I cannot give any weight to the evidence of this witness. Her recollection after over nine years, is surprisingly detailed for an event which did not concern her directly. Furthermore, her evidence is potentially tainted by reason that she is also closely aligned to the Defendant, as a neighbour and from past property dealings; and she admits to a troubled incident with the Plaintiff.
The New Share Farming Agreement
76 The protracted delay between the Plaintiff taking possession of the Share Farm and the signing of a new Share Farming Agreement in August 2003, is a further indication of problematic relations between the parties. Again, the parties each gave a different account:
a) the Plaintiff said that the parties met at his home and they went through the draft agreement in detail;
b) the Defendant could only recall meeting with their joint lawyer; and could otherwise not recall why the signing of the Agreement was delayed for over 12 months, other than trying to get trees into the ground.[49]
[49]Transcript 725.
Management of the Share Farm
77 F&M Rullo Pty Ltd[50] was registered as a proprietary company on 21 August 1996 and is recorded as the owner of Rullo Orchards, which was registered as a business name from 26 September 1996. The ‘Nature of Business’ was recorded as “Fruit Packing and Sales”.[51]
[50]ABN 075 328 826. ASIC Search PCB 46-52.
[51]Exhibit 10.
78 Francesco Rullo [the Defendant’s father] and Maria Rullo [the Defendant’s mother], are recorded as the initial Directors from 21 August 1996. On 8 January 2009, the Defendant replaced his mother as a Director. Shareholders of the company comprise the Defendants’ parents, the Defendant and his wife Silvana Rullo, each as to one ordinary share.
79 Throughout the period of the Share Farming Agreement, the Plaintiff said to the effect that the Defendant and his parents did not distinguish between their various entities for the purpose of operating their respective farming ventures. There was a blurring of boundaries between the Defendant's parents, any partnership between the parents (F&M Rullo); the company F&M Rullo Pty Ltd; the business name Rullo Orchards; and the Defendant, in his capacity as sharefarmer. Consequently, there was no clear differentiation between the Defendant’s work as sharefarmer and his work for the Rullo orchard. There were a number of scenarios where this merging of operations was apparent:
a) The transfer of water rights to ‘F&M Rullo’;[52]
[52]The Plaintiff said he was required to transfer 75% of the Share Farm’s water rights allocation to the Defendant’s parents, even though he objected to a transfer other than to the Defendant: Transcript 505 & 625; see also letter of Plaintiff’s solicitor date 7 December 2007 paragraph 6: CB1/120.
b) All paperwork in relation to the packing and dispatch of Share Farm fruit was generated by F&M Rullo, such that the packed fruit of the Share Farm was effectively recorded as fruit of the Rullo orchard;[53]
[53]The Defendant gave evidence that these documents merely reflected the agreed arrangement under the Share Farming Agreement whereby F&M Rullo bought the fruit and on sold it to the market.
c) All share farm expenses appeared to be paid for by F&M Rullo; and
d) The insurance for frost damage for the 2006/2007 season, was taken out in the name of ‘F&M Rullo’ for all fruit trees encompassed within both the Rullo orchard and the Share Farm.
80 In my view, the Defendant did not give a satisfactory or convincing account of the above scenarios. In addition, he gave non-responsive answers in relation to questions about his operating company, Country Harvest Pty Ltd.[54] He eventually agreed that he was a Director; although he could not recall who else were Directors;[55] and admitted that the company employed all piecework and contract labour for both the Share Farm and Rullo orchards.
[54]Exhibit Q.
[55]Ex Q: A company search dated 20 October 2009 produced by Defendant’s Counsel indicated that the Defendant had been a sole Director since 2002.
81 The Defendant insisted that he is not a beneficiary of any of the farming business entities.[56] He stated that he has always been paid a wage by F&M Rullo[57] and has not received any other type of payment. When appointed a Director of the family company[58] he did not believe that he received any Director’s fees. He could not recall his annual salary without referring to his tax returns.
[56]Ex Q: A company search produced for Country Harvest Pty Ltd shows the Defendant as the sole shareholder; a company search of F&M Rullo Pty Ltd shows the Defendant as one of four shareholders
[57]Query whether the Defendant was referring to his parents or F&M Rullo Pty Ltd.
[58]8 January 2009, CB/1 47.
82 The Defendant said that he paid all the Share Farm expenses by borrowings from F&M Rullo. The Defendant acknowledged that the expenses were paid by F&M Rullo directly by cheque:
It was a transaction simply between F & M Rullo and myself personally… However the payment was made it was borrowed by me to pay for whatever had to be paid for [59]
[59]Transcript 843.
83 The Defendant confirmed that there was no documented loan agreement drawn up, but merely a verbal agreement between himself and his father Frank Rullo.[60]
I had the support from F & M Rullo because they were - clearly had an incentive to do that, so they would get all the packing - as per agreed on the share farming agreement when you and I discussed it …they didn't have to have a contractual arrangement, because in the share farming agreement as it states, it was my obligation to have the fruit packed. So I had that arrangement between myself and F & M Rullo.[61]
[60]Transcript 848.
[61]Transcript 848; Note, there is no such arrangement provided for in the Share Farming Agreement.
84 The Defendant was given the opportunity to produce any income tax returns or other financial records which might verify:
a) the loan agreement between himself and his parents;
b) his sources of income; and the expenses of the Share Farm; and
c) his net taxable income.
85 The only records tendered were copy a Notice of Assessment for 2007, which indicates a taxable income of $24,274; and unsigned taxation estimates for 2006 and 2007, apparently prepared by the Defendant’s Tax Agent.[62]
[62]Exhibit 12
86 In my view, the Defendant struggled to give any sensible explanation of the financial and business management arrangements between himself and his parents (and their business entities). He provided no objective evidence in support. His account was not credible.
87 I accept the Plaintiff’s evidence as to the manner in which the Share Farm was managed. In essence, the Share Farm became part of the overall management of the Rullo orchard, with no proper financial demarcation or accountability in terms of operating expenses or income.
Packing Arrangements
88 The initial and ongoing arrangements for the packing of the Share Farm fruit was another source of particular frustration and concern for the Plaintiff. Again, each party gave markedly differing accounts of the initial agreement and ongoing problems encountered.
89 There is no express provision in the Share Farming Agreement nominating a Packer for the fruit. Indeed clause 9 of the Agreement provides:
All fruit and produce from the land shall:
9.1. be the absolute property of the Owner;
9.2. be sold in the name of and on behalf of the Owner;
9.3. be delivered by the Sharefarmer in good order and condition to the company, factory or agents nominated by the Owner;
90 However, from the outset, once harvested, the fruit from the Share Farm was packed by F&M Rullo, being a packing business conducted by the Defendant's parents. In relation to this arrangement, the Defendant said:
it's in the Share Farming agreement[63]
[63]Transcript 660. There is no such reference in the Share Farm Agreement.
91 The Plaintiff soon had a range of accountability issues as a result of this arrangement; and as a result of his alleged inability to obtain documentation from the Defendant, relating to expenses incurred on behalf of the Plaintiff. In particular:[64]
[64]Transcript 465 and following.
a) The Plaintiff asked the Defendant on several occasions for a list of varieties of trees planted, together with receipts for the purchase of such trees. When this was not forthcoming he asked their joint solicitor to approach the Defendant;[65]
[65]Transcript 900. I note that the Defendant denied receiving such requests until approached by the solicitor.
b) In about December 2002, the Plaintiff asked the Defendant, on at least three occasions, to observe the fruit packing of a small number of bins comprising fruit picked, from the first trees planted. The Defendant agreed but then subsequently advised the Plaintiff that the packing had already taken place. In his evidence, the Defendant said he did not remember such requests, and in any event it was a matter between the Plaintiff and his parents;[66]
[66]Transcript 728 cf obligation placed upon sharefarmer by clause 6.5 of the Share Farming Agreement.
c) The Defendant handed to the Plaintiff a sheet headed “David and Joseph[67] which purported to be an invoice for the sale of fruit to F&M Rullo for the 2002 season. The Defendant confirmed that this had been handed to him by F&M Rullo and he passed it on to the Plaintiff. The Plaintiff said he queried why this showed a sale transaction in favour of F&M Rullo, who were merely packing and selling the fruit on behalf of the sharefarmers. In response the Defendant said:
[67]Exhibit N contains two sheets dated 24/12/2002 and 13/02/2003.
as far as I was concerned at the time with the agreement, that was the idea. That F & M Rullo purchase the fruit, and they on sold - they were the middle agent. So that was what was discussed at the very beginning, and that's all I know of. And then after that in 2007 onwards…
… the whole reason why we entered into the share farming agreement in the very beginning. We both agreed to sell the fruit to F & M Rullo, and then whatever happened after that, it's not our problem [68]
[68]Transcript 729; see also 741-743.
d) The Defendant failed to produce the initial sales dockets for the 2002/2003 harvest;
e) The picker slips which recorded the number of bins picked each day were not forthcoming for some time and could not be reconciled with the pack out sheets; and
f) The fruit comprised in the number of bins appeared to exceed the fruit recorded in the pack out sheets, giving rise to concerns that not all fruit sales were being accounted to the Plaintiff.
92 As a consequence of these and other concerns, the Plaintiff was anxious to engage an independent packer. However, he was unable to find anyone prepared to take on the work until the 2007/2008 season. In the meantime, the Plaintiff continued to experience similar problems with the Defendant to those circumstances outlined above.
2002/2003 Season
93 While the Plaintiff made his own estimate of bins picked he never received a proper accounting for proceeds received. Accordingly, he could not verify the accuracy of the share of the revenue paid to him .
2003/2004 Season
94 There was a small amount of produce for the 2003/2004 season which was otherwise destroyed by frost. The Plaintiff received no accounting for any produce and no share of revenue.
2004/2005 Season
95 The Plaintiff was advised that the harvest was packed and sold by F&M Rullo but he does not believe that he was ever provided with a proper accounting of fruit picked, packed and sold. Accordingly, he could not verify the accuracy of the share of the revenue paid to him.
2005/2006 Season
96 For the 2005/2006 season the Plaintiff unsuccessfully attempted to engage another packer, but F&M Rullo again ended up packing and selling the fruit. The Plaintiff does not believe he received a proper accounting for sales and the advices he did receive could not be verified. The Plaintiff was told by the Defendant that he was never paid for the fruit.
Specific Heads of Claim
2006/2007 Season – Proceeds of Insurance Claim
Basis of Plaintiff’s Claim
97 Under the Share Farming Agreement, the only reference to insurance and trees is contained in clause 7 which provides:
The Sharefarmer at his own expense shall:
7.5.insure the trees for fire;
98 The First Schedule to the Share Farming Agreement provides that the Sharefarmer shall bear 100% of the costs of insurance for:
Fruit trees, buildings, public liability.
99 The Plaintiff gave evidence to the effect that upon enquiry of the Defendant, he was told that the Defendant had taken out the requisite insurance as required by the Share Farming Agreement. However, the Plaintiff was never provided with any Certificates of Insurance cover.[69]
[69] Defendant’s Counsel acknowledged that fire insurance in respect of the Share Farm trees was not in fact taken out until the 2008/2009 season. No reason was given by the Defendant for failing to do so.
100 During the 2006/2007 season, there was a total crop failure owing to frosts which occurred on 26 August and 25 September 2006. The Plaintiff claims half the proceeds of that proportion of an insurance payout which is referable to frost damage on the Share Farm. In essence, the Plaintiff claims that the Policy of Insurance,[70] taken out in the name of F & M Rullo, was in fact taken out on account of the Defendant, as sharefarmer under the Share Farming Agreement.
[70]Exhibit G: Certificate of Insurance No. ORC06-29803/1.
101 The Plaintiff first learned of the subject insurance policy when advised by Anthony Rullo [the Defendant’s brother], when he was engaged to perform packing for the Share Farm in 2007.
102 Exhibit G contains documents relevant to the Policy of Insurance and claims, pursuant to which such payouts were made. The Certificate of Insurance, issued by Agricola Crop Insurance, reveals the following particulars, in part:
The Insured: Rullo F&M
Postal Address 555 Old Dookie Road, Shepparton Vic 3631
Client Reference No. Rullo F&M
Date of Acceptance 18 Aug 2006
Expiry Date 1 Sep 2007 at 4.00pm
Commencement Date All events except frost 20 Aug 2006 at 4.00pm; frost 25 Aug 20006 at 4.00pm
Premium Details
Property Rullo Orchards $47,995.20 [including GST]
Orchard Details
Orchard Name Rullo Orchards
Orchard Address 555 Old Dookie Road, Shepparton Vic 3631
Cover Options
Main Events Selected Frost Only
Other Events Covered Transit
Cover Selected
Sum Insured of produce $808,000 20% Orchard Excess
Transit (limit on all claims) $50,000 Claims over $500…paid in full
Increased Costs Sums Insured Not Taken
Future Loss of Profit Sums Insured Not Taken
Future Loss of Profit Total Sum Insured Not Taken
Ancillary Property Sum Insured Not Taken
Crop Details
103 Under Crop Details, the Policy sets out a table which lists Block 1 to 13 inclusive and includes: Crop Type; Age [8 in all instances]; Area (Ha); Yield [Not Applicable in all instances]; Agreed Value ($/Ha); and Sum Insured. In all instances the Sum Insured equals the total Agreed Value.
104 The Defendant’s signature appears on an Orchard Quotation Acceptance for Insurance dated 18/08/06.[71]
[71]Exhibit P.
105 An Orchard insurance loss notification form was lodged in respect of each date of loss as follows:
a) Loss notification form dated 28/8/06, in relation to a loss caused by frost on 26/8/06. The claim includes a claim for frost damage to Block Numbers 5, 6, 7, 8 and 9 comprising a total area of 17 Ha.[72] This form appears to be signed by Frank Rullo [the Defendant’s father]; and
b) Loss notification form dated 25/9/06 in relation to a loss caused by frost on 25/9/06. The claim includes a claim for frost damage to Block Numbers 5, 6, 7, 8 and 9 comprising a total area of 16 Ha. This form appears to be signed by Joseph Rullo [the Defendant].
[72]The parties acknowledge that this area is incorrect.
106 The Plaintiff alleges that the Share Farm comprised in the Policy is reflected in Block Numbers 5, 6, 7, 8, and 9. The Orchard – Crop Loss Details prepared under Agricola letterhead sets out the following corresponding areas: 5 (Plums – 2.23 Ha), 6 (Plums-1.44 Ha), 7 (Nectarines-5.35Ha), 8 (Plums-1.51 Ha) and 9 (Nectarines-3.68Ha), which gives a total area of 14.21 Ha. In all instances, the Agreed Value is $20,000 per hectare, giving a total Sum Insured referable to the Share Farm of $284,200. The amount actually recognised as the gross loss for these Lots is $284,400.[73]
[73]The overestimate by $200 appears to have been made in the calculation for Lot 7.
107 Accordingly, after deducting the applicable 20 percent excess of $56,880, the Plaintiff claims 50% of the net proceeds of $227,520 or the sum of $113,760.
108 By letter dated 16 August 2007, addressed to Rullo F&M, the claims manager for Agricola Crop Insurance confirmed that the sum of $461,312 had been transferred by EFT, although it does not specify the recipient bank account.[74]
[74]Two payments were made: the first in November 2006; and the second in March 2007.
109 A Release Form dated 30 March 2007, under the letter head of Agricola Crop Insurance, appears to be signed by Frank Rullo on behalf of Rullo F&M, whereby the sum of $461,312 is accepted in full and final settlement of all claims on or about 26/8/2006, caused by frost to crops grown on the property Rullo Orchards 555 Old Dookie Road Shepparton.
110 By letter dated 13 August 2007, addressed to the Plaintiff's then solicitor, the claims manager for Agricola Crop Insurance confirmed as follows:
a) The insured under Policy number ORC06-29803 was F&M Rullo; and Agricola did not know the relationship between F&M Rullo and Joseph Anthony Rullo;
b) The claim under the Policy was accepted by Agricola and related to losses on 26 August and 25 September 2006; and
c) The sum of $461,312 was paid to the insured grower pursuant to the claims, representing a loss of crop yield across 13 orchard blocks totalling 34.16 Ha, as a result of frost events and does not cover the fruit trees.
111 By email dated 23 July 2007 to Agricola, the Loss Assessor confirmed that in their view Lots 5, 6, 7, 8 and 9 shown on the insurance schedule are to the north of the irrigation channel [and therefore comprise the Share Farm], which have a measured planted area of 14.22 hectares.[75]
[75]Exhibit O.
112 The Defendant denied any liability pursuant to this head of claim. In addition, the Defendant claimed that the Share Farm did not include Lot 6, as described in the Policy.
113 Mr Pullar confirmed having examined the Share Farm in detail and calculated about 17,000 trees of the varieties specified in his prepared plan. Upon examining the diagram prepared by the Loss Assessor, he identified blocks numbered 5, 6, 7, 8, and 9[76] as encompassed within the Share Farm.[77] He also considered that the level of cover specified at $20,000 per hectare, net of all the packing, transport and packaging costs, was a reasonable estimate of the likely value of the Share Farm crop.
[76]All of which are free standing trees as distinct from trellised trees, comprised in the Defendant’s home block.
[77]CB 31.
114 On the basis of an almost 14 hectare property, this Policy valued a total crop failure at approximately $280,000:
…which is generally in line with the expected crop value of …$246,000 as assessed in my work, which gave me confidence that that would be the expected value for a well managed orchard and presumably the reason why one would insure to that level.[78]
[78]Transcript 160.
115 Mr Pullar further confirmed that Lot 6 marked on the plan, prepared by the Assessor, does not relate to plums but is a nectarine plantation comprising the Zephyr and Bright Pearl nectarines, in an area of about 1.44 hectares.
116 Mr Pullar calculated the entitlement of Mr Cross under the insurance payout to be $113,760, inclusive of Lot 6.[79] I accept Mr Pullar’s evidence and note that the aggregate areas for Lots 5 to 9 inclusive, shown on the Crop Loss Details, is comparable to the area of the Share Farm.
[79]Transcript 390.
117 In relation to agricultural insurance generally, Mr Pullar said that he had been an insured on many occasions; made a number of claims in agricultural matters; and has been engaged by insurance companies to make loss assessments under insurance claims. On the basis of his experience in this latter respect in particular, and his agricultural expertise generally, I accept that Mr Pullar is qualified to give an expert opinion as to the prevalence or otherwise of insurance in the context in which the subject frost insurance was taken out:
I've certainly had plenty of experience in how insurance policies apply in a practical sense to both crops affected by frost and post-harvest claims involving packed fruit and other areas.[80]
[80]Transcript 211.
118 Mr Pullar described most family fruit businesses as vertically integrated. They may encompass one or more of the following activities: a nursery; planted trees; harvesting of the fruit; cool storage; a packing operation; a transport operation; and possibly an export licence. Legal structures may vary. When asked whether a purely packing house operation would take out an insurance policy to cover it for the likelihood that the region has a severe frost, he answered:
My knowledge of each of the larger pack houses in the Goulburn Valley and certainly in New South Wales, I can give you no example of anyone taking out an insurance policy for frost…They might take out a loss of profits cover, but I know of no examples in any of the larger pack houses, who I know well and operate with, where an insurance company (sic) is taken out in order to overcome the loss of raw product, broken fruit[81]
[81]Transcript 215.
119 In my view, the evidence of Mr Pullar is entirely consistent with the subject insurance, to the extent to which it relates to the Share Farm, having been take out on account of the Defendant as sharefarmer, under the Share Farming Agreement.
Defendant’s Response
120 In relation to Insurance on the Share Farm, and frost insurance in particular, the Defendant: [82]
[82]Transcript 806-814.
a) agreed that under the Share Farming Agreement he was obliged to take out fire insurance on the trees, but did not explain why he did not do so until late 2007/2008 onwards;
b) could not remember whether he had taken out any insurance under the Share Farming Agreement;
c) did not recall the Plaintiff asking on several occasions over the years whether he had taken out that insurance;
d) identified his signature on the Acceptance of Quote for insurance with a commencement date of 18 August 2006, but could not remember signing it;[83]
[83]Exhibit P: Orchard Quotation Acceptance dated 18/08/06 with purported signature of Defendant.
e) agreed that his father Frank completed a frost notification form for the first frost; and that he signed a form for the second frost;
f) did not take out any frost insurance in relation to the Share Farm;
g) was not a party to the subject policy of insurance;
h) said that the insured party “F&M Rullo” refers to the company F&M Rullo Pty Ltd;
i) did not receive anything under any such policy;
j) did not request anyone to take out insurance on his behalf;
k) knew nothing about any amount paid out under such policy;
l) was not obliged to take out frost insurance under the Share Farming Agreement, which by clause 7.5 only obliges the Sharefarmer to insure the trees against fire;
m) could not recognise the Share Farm on the plan prepared by the Loss Assessor because the numbers were not the same as those used for the Share Farm;
n) agreed that the areas for blocks numbered 5,6,7,8 and 9[84] totalled 14.22 hectares and that the blocks numbered 1 to 4 comprised his home block;
[84]Exhibit N: This appears on a plan appearing in the Agricola file from Ian Bryce Loss Assessor: Transcript 820.
o) did not know how the block numbers correlated with areas on the Share Farm;
p) had nothing to do with the plan endorsed:
Attention Steve, farm block plan
q) agreed that the policy appeared to be an Orchard Crop Policy but said he had no input into any aspect of the policy particulars.
121 In my view, the Defendant’s evidence in relation to the Policy of Insurance, and his alleged lack of knowledge and participation in it , is simply not credible. It is also contrary to the objective evidence of the Defendant’s signatures on two relevant insurance documents. The naming of ‘F&M Rullo’ as the insured party is otherwise consistent with the pattern of conduct by the Defendant as sharefarmer, whereby the management undertaken and expenditure incurred on account of the Share Farm was consistently merged with that of the Rullo orchard.
122 Defendant’s Counsel further submitted that:
a) Even if Joseph Rullo had taken out the Agricola Crop Insurance in respect of the 2006-2007 season, there was no obligation under the Share Farming Agreement that he do so in respect of frost damage; or that he share the proceeds of such insurance with the Plaintiff;
b) The obligation to share proceeds of insurance policies for damage to fruit trees was limited to the obligation to insure the fruit trees in respect of fire. Furthermore, proceeds of an insurance policy against crop damage would not amount to income from “Sale of Crops”;
c) It is not part of the Plaintiff’s case that the policy taken out by “F & M Rullo” with Agricola Crop Insurance in 2006-2007 was taken out either in part or in whole on behalf of Joseph Rullo and Mr Cross as sharefarmers;
d) Clause 62 of the Policy of Insurance provides that cover extends only to persons noted on the Insurance Certificate as being insured and does not cover the interests of any other persons; and
e) The amount received by F & M Rullo Pty Ltd[85] in respect of the insurance payment for the Share Farm was $204,480 (being 80% of the gross loss of $255,600). The premium of $47,995 prorated across the Rullo orchards and the Share Farm means that $21,221.14 of premium was applicable to the Share Farm. There was no premium refund despite the miscalculation of area which was to be insured. If, contrary to the Defendant’s denial of any claim, an amount was required to be paid by the Defendant to the Plaintiff, then the correct amount would be half of ($204,480 - $21,221.14), or $91,629.43.
[85]There is no evidence as to which account the insurance proceeds were paid.
123 In my view, the fact that there was no specific obligation under the Share Farming Agreement for the sharefarmer to take out frost insurance is irrelevant. In particular, it does not bear upon whether:
a) the insurance was in fact taken out for the benefit of the parties to the Share Farming Agreement;
b) the Defendant’s parents or any business entity associated with them had any insurable interest in the produce of the Share Farm; or
c) the Plaintiff is entitled to share in the proceeds of any insurance payout, referable to the Share Farm.
124 It was submitted by the Defendant, and apparently conceded by the Plaintiff, that the reference to ‘F&M Rullo’ was in fact a reference to F&M Rullo Pty Ltd. However, there is no objective evidence to confirm that F&M Rullo, as the named insured, was a reference to the corporate entity either at all or exclusively. The registered business name owned by F&M Rullo Pty Ltd was not ‘F&M Rullo’ but ‘Rullo Orchards’. The company’s ACN does not appear on any of the tendered documents relating to the Policy of Insurance. It is also not apparent in what capacity ‘F&M Rullo’ [which is more likely a reference to the Defendants parents Frank and Mary Rullo] derives an insurable interest in the land otherwise identified in the Policy of Insurance. Exhibit R discloses that the land referred to as the Defendant’s home block, prior to its transfer to the Defendant, had been registered in the names of the Defendant’s parents. There is no evidence before the Court as to the registered proprietors of other land comprised in the Rullo orchards. The Plaintiff was the registered owner of land which included the Share Farm. Accordingly, the reference to ‘F&M Rullo’, although an imprecise term, can only have been used in a representative capacity or as undisclosed agent for all interests encompassed within the orchards managed by the Defendant.
125 Counsel also objected to the Plaintiff seeking to rely upon s 49 of the Insurance Contracts Act 1984 (Cth), (‘ICA’)[86] the basis for which had not been pleaded. Furthermore, no evidence has been sought to be adduced in respect of the application of s 49 to the present case, with regard to whether the exclusion in s 49(1)(c) and s 49(1)(d) of the ICA applies — namely that the contract of insurance did not provide insurance cover in respect of an interest in the property that was not the insured’s interest. Clause 62 of the policy expressly excluded cover of any interests other than that of the insured.
[86]Section 49 is set out in Annexure B.
126 Finally, Defendant’s Counsel submitted that even if s 49 of the ICA could have application, it would, at best, have provided the Plaintiff with a remedy against F & M Rullo Pty Ltd, not the Defendant.
127 The effect of s 49 is that where an insured person recovers from an insurer an amount exceeding the extent of insurance cover for the insured’s interest in the property, then the insured is obliged to account to the person holding the interest in the property insured proportionately. A similar duty to account applies at common law.[87]
[87]Goldsborough Mort & Co v Maurice (1937) 58 CLR 773 @ 798 per Dixon J.
128 In my view, the Plaintiff does not need to resort to s 49 of the ICA to establish an entitlement to the insurance proceeds. To do so may involve an implication that the Defendant’s parents, either directly or through their corporate business entity or other business associate, knowingly took out insurance where the insured party did not have an insurable interest. In turn, such a scenario may imply an element of deceit or fraudulent behaviour. There is no evidence to support this scenario. Equally, there is no evidence to support an insurable interest, referable to the Share Farm, in any person other than the parties to the Share Farming Agreement.
129 The Defendant’s position in regard to the Policy of Insurance was simply to deny any knowledge, involvement or resultant benefit. At the same time, Defendant’s Counsel appeared to characterise such Policy as one not referable to tree damage but a policy to cover the risk of loss of yield, implying that the Rullo interests had an insurable interest by reason of the packing arrangement. There is no evidence to support such an interest. There is no evidence to support any contractual arrangement, between the parties to the Share Farming Agreement and any party associated with the Rullo interests, for the packing of Share Farm fruit. The Share Farming Agreement vested the right to determine packing arrangements in the Plaintiff, as Owner. He could determine such arrangement at any time, and finally did so for the 2007/2008 season. Significantly, there was no objection taken by the Defendant at the relevant time, that the Plaintiff thereby breached the Share Farming Agreement or any other contract.
Conclusion
130 Having now reviewed all the facts and circumstances of the Policy of Insurance and the conduct of the Defendant under the Share Farming Agreement generally, I agree with the Plaintiff’s claim that the Policy of Insurance, to the extent referable to trees and loss of produce on the Share Farm, was taken out in the name of F & M Rullo, on behalf of the Defendant as sharefarmer, under the Share Farming Agreement.
131 All fruit and produce from the Share Farm remained the absolute property of the Owner. The Defendant had no entitlement to any income or benefit relating to the Share Farm other than his right to share equally with the Owner. The expenses for which the Plaintiff was liable are clearly set out in the Agreement, and they do not extend to any insurance premiums. Accordingly, I find that the Plaintiff is entitled to claim half the sum of $227,520, representing the proceeds of the insurance payout referable to the Share Farm.
2007/2008 Season – Share Farm Mismanagement Claim
132 For the 2007/2008 season, the Plaintiff alleges that as a consequence of poor management practices, in breach of the Share Farming Agreement, the crop production achieved on the Share Farm and the quantity of marketable fruit, was significantly reduced. The fruit generally was small and of inferior quality.
133 Despite the Plaintiff’s repeated requests, the Defendant failed or refused to produce records of the operation of the Share Farm including: sales dockets, pack out reports, varietal information and operating expenses.[88]
[88]Contrary to clause 24 of the Share Farm Agreement.
134 By reason of increasing concerns about mismanagement and lack of accountability, the Plaintiff engaged Mr Pullar to monitor the crop and advise as to each different facet of the management and the marketing of the fruit.
135 The Plaintiff had previously made unsuccessful attempts to engage an alternative packer. Eventually, Anthony Rullo, brother of the Defendant, approached him, offering to do the packing. At that stage the Plaintiff was unaware of the animosity between Anthony Rullo and his family.
312 In conclusion,[257] Mr Pullar considered that during the 2008/2009 season the overuse or incorrect use of ATS was the cause of damage to blossoms, fruitlets, laterals and trees. It was his strong contention that the damage was not caused by frost and in this respect he strongly disagrees with Mr Bell’s conclusions. This damage resulted in a loss of productive capacity from more than 600 bins to 133 bins.
[257]Refer also Mr Pullar’s report at CB/2 230.
313 Mr Pullar noted that the first two reports of Mr Bell were prepared well after the frost of 23 October 2008, and that Mr Bell's conclusions are drawn from chemical records, Bureau of Meteorology, or IK Caldwell weather records, but no actual inspection of the orchard.[258]
David Bell
[258]Transcript 218.
314 Mr Bell agreed that:
a) the Agral advisory label did not recommend the use of this product in conjunction with a blossom thinner; and
b) the Biothin label refers only to the addition of Horti Wet 370 wetter spreader and that this is different from Agral, having different active ingredients and different loadings.
315 Nevertheless, Mr Bell considered that Agral would be an acceptable substitute.
316 In my view, Mr Bell did not demonstrate adequate experience or expertise to comment upon the proper use, application or affects of mis application of the subject chemicals.
317 Both the Defendant and his expert Mr Bell attribute any damage to fruit during the 2008/2009 season to frost. Furthermore, they contended that the frost event, following the chemical applications, would have caused a re-wetting which would have further activated and exacerbated the fruit thinning effect of the chemical.
318 The Defendant and Mr Bell further claim that the frost event of 23 October was the real cause of the loss of production.
319 Significantly, Mr Bell did not inspect the Share Farm until March 2011 and accordingly had no opportunity to inspect the damaged fruit during the 2008/2009, other than from the tendered photographs.
320 In light of the contemporaneous observations and comprehensive expert analyses of both Mr Schneider and Mr Pullar, I do not afford any weight to the evidence of Mr Bell.
Conclusion
321 I have again chosen to include quite a lot of detail from the evidence of Mr Schneider and Mr Pullar in particular, whose evidence, in my view, is comprehensive, insightful and compelling, in support of the Plaintiff’s claim.
322 Having regard to the admissions made by Mr Reddrop and the evidence of the DPI officers and Mr Pullar, I reject the evidence of the Defendant and the conclusions drawn by Mr Bell. In particular, the preponderance of evidence supports a finding that:
a) Both chemical agents, Biothin and Thin It, were applied to the Share Farm;
b) Both chemical agents were mixed with Agral;
c) The concentration of Agral used was 10 times the prescribed rate;
d) The mis application of chemicals caused the damage described by Messrs Schneider and Pullar and consequent loss of fruit production; and
e) Such damage was not caused or materially exacerbated by frost; and
f) Both Messrs Schneider and Pullar rejected the suggestion that damage was attributable to any dew and frost on 17 September, following a spray application on 16 September.
323 Defendant’s Counsel further submitted that the Plaintiff’s claim must fail by reason that, putting aside any question of chemical spray damage, the Share Farm would have suffered a devastating loss of fruit production as a result of the frost event on 23 October 2008. To that end, the Court must be satisfied that the 23 October frost event is not likely to have devastated the Share Farm crop and thus extinguished the Plaintiff’s prospect of a reasonable crop.
324 In my view, the effect upon the Share Farm trees, if any, of the 23 October frost event, is entirely speculative. While Mr Schneider conceded that there ‘could have been’ extensive damage, he said it was a difficult question and one needed to know the precise circumstances.[259] Mr Pullar also agreed that around 23 October 2008, most of the varieties of nectarines and plums were at shuck fall, which meant that they were potentially at the most vulnerable fruitlet stage to frost. However, there is no evidence of the precise weather conditions which may have affected the Share Farm trees on this day, particularly given that it was acknowledged that frost can affect neighbouring properties quite differently and even trees within the same property, depending upon topography, size of tree and the growth stage of the fruitlets, which can also vary within varieties.
[259]Transcript 88.
325 Mr Pullar also questioned the relevance of the temperature records on 23 October 2003 to the location of the Share Farm where: the IK Caldwell automatic weather station at Grahamvale, which is the nearest point to the Rullo orchard and Share Farm,[260] shows a minimum temperature of minus 1.2 degrees;[261] whereas the official Bureau of Meteorology, record for Shepparton airport,[262] shows a minimum temperature of minus 0.4 degrees. Furthermore, Mr Pullar considered that a temperature of -1.2 would have caused some damage; but a temperature of -0.4 would have caused very little damage, depending on the health of the trees.
[260]CB 404-405.
[261]Being the same lowest temperature recorded there for 17th September 2008.
[262]Exhibit D.
326 Mr Bell referred in his report and oral evidence to the differential crop production of fruit trees on the Rullo orchard, which he suggested demonstrated the impact of the 23 October frost [where loss had occurred] or the effects of frost control measures [where a normal crop occurred]. In my view no weight can be given to this evidence. Mr Bell made no timely observations of Share Farm or Rullo orchard fruit or trees during any part of the 2008/2009 season. His opinions rely wholly upon the instructions of the Defendant and/or third party records, which have not been objectively proven.
2009/2010 Season Share Farm Mismanagement Claim
327 For the 2009/2010 season the Plaintiff again alleges that as a consequence of poor management practices, in breach of the Share Farming Agreement, the crop production achieved on the Share Farm and the quantity and quality of marketable fruit was significantly reduced.
328 The parties agreed to apportion the harvested crop equally and allow the Plaintiff to select a pack house for the packing and sale of his share.
329 A production report shows that 854 bins were taken off the Share Farm at 300 kg each, which equates to about 256,000 kgs, which the Defendant said met his target.[263] I note that this level of production equates to about 15 gm per tree which is significantly above the Defendant’s previously stated target of 8-10 kg; and significantly exceeds the projected estimate of Mr Bell of 195.9 tonnes
[263]CB/1 361; Transcript 674-5.
330 The Plaintiff said that the same mismanagement occurred as previously in relation to: inadequate irrigation; inadequate pruning, including failing to prune back the root stocks; inadequate thinning of fruit; failing to cover bins of picked fruit in the sun;[264] minimal slashing of grass between the trees; and failing to improve the soil.
[264] Exhibit K also contains photos of over filled bins taken during the 2009/2010 season.
331 The Plaintiff agreed that he did not call any specific expert evidence in relation to this season but he relied upon his own observations and the expert evidence which had been given in relation to earlier seasons.
332 I note that Mr Bell’s earliest inspection of the Share Farm took place in March 2011, which is well beyond the period for which claims are made.
333 The Plaintiff’s half share of fruit comprising 419 bins[265] were transported to Mattina & Co Fresh for cool storage, packing and marketing. Nobody wanted to pack the fruit and this was the most convenient marketing exercise. The Plaintiff said that the fruit was of poor quality, small and in many cases overly mature. The total proceeds from sale by Mattina & Co was $45,274.35.[266] Accordingly, the Plaintiff claims for the shortfall in the expected revenue, based upon Mr Pullar’s calculation for the 2007/2008 year.
[265]Query, not half of the figure shown in the production report.
[266]Transcript 623-624 cf net proceeds which Defendant says he received for his half share of $146,202.
334 In response, the Defendant said that he sold his half share of the crop for about $140,000, because he packed the fruit in cartons rather than sell by the bin.[267] The Plaintiff rejected this evidence on the basis that to achieve a revenue of $140,000 for 416 bins would require an average price of about $334 per bin which in turn would require 100% of the fruit to be sold at $24 per 10kg carton, less deductions for commission, freight and handling.
[267]The Defendant relies upon Packout sheets and remittance notices appearing in CB/1 361-402.
335 Upon reviewing the sales returns contained in the Court Book, the Plaintiff contended that the sales which purport to relate to the Share Farm indicating a gross return of $137,219 cannot be confidently related to the Share Farm varieties. In addition, no allowance has apparently been made for the cost of freight to market and the cost of packing, cool storage and packaging materials, which can range from $6 to $8 per carton. The Plaintiff's estimate of the Defendant's receipts, after allowing for these costs is $73,889 at best and more likely in the range $45,000 to $50,000 after unrelated sales have been deducted.
336 In the 2009/2010 season the Defendant said he followed the usual harvesting practices. Production levels for the Share Farm were as expected and this was their best year.
337 Packing sheets and payment advices for the Defendant’s half share of the Share Farm fruit for 2009/2010[268] show, for instance, that the Defendant’s half share of Kay Pearl Nectarines were packed into 10 kg boxes and sold for a total of approximately $46,626 compared to the Plaintiff’s corresponding share which yielded a return of $4,104.[269]
[268]CB/1 362-402.
[269]CB/1 360.
338 The Plaintiff’s fruit was sold in bins. The Defendant said that was not the best method for him to achieve a return on that fruit. Rather he should have contracted out to a packing shed and on sold to retailers, as he did.
Conclusion
339 The evidence in relation to this head of claim is inadequate in a number of respects:
a) There is no evidence from any expert who could provide contemporaneous observations of the management of the Share Farm trees or the harvesting process;
b) While I accept the veracity of the Plaintiff's evidence, it is generalised;
c) The level of production achieved for the 2009/2010 season, which has not been contested by the Plaintiff, was significantly higher than any previous year; and
d) The discrepancy between revenue achieved by the Plaintiff and the Defendant for their respective shares has not been satisfactorily explained.
340 I do not accept that the records contained in the Court Book adequately identify fruit sold by the Defendant as originating from the Share Farm. I accept the concerns raised by the Plaintiff, in this respect. However, the evidence is inadequate for me to determine any other figure, as representing the revenue achieved by the Defendant. Furthermore, I am unable to determine whether the revenue achieved by the Plaintiff was indeed diminished, as alleged by the Defendant, by reason that the Plaintiff utilised an inappropriate sales method.
341 Accordingly, even if the Defendant committed similar breaches under the Share Farming Agreement during the 2009/2010 season, I am unable to determine whether, or to what extent, these were a causative factor to any diminished production; and I am unable to exclude the likelihood that the sales revenue achieved by the Plaintiff was caused by the manner in which his share of the fruit was packaged to the market.
342 Accordingly, this head of claim must fail.
Counterclaim
343 The Defendant’s counter claim relates to the 2007/2008 season when he says that he was required to deliver the fruit to the Plaintiff’s shed from where it was transported to Anthony Rullo’s cool store for packing and marketing. The Defendant alleges that the fruit deteriorated significantly once he delivered the fruit by reason of prolonged delays in despatching the fruit to cool storage.
344 The Plaintiff strongly rejects this claim:
we did the very best we could and the fruit was despatched as often as was possible to Anthony Rullo's packing shed and to my knowledge it was put into a cool store just as soon as was possible.[270]
[270]Transcript 583.
345 Again, the evidence given by each party is in direct conflict. I will refer to a sample only.
346 The Plaintiff advised the Defendant that he had appointed Anthony Rullo to pack the fruit that season and that the fruit should be packed in plastic bins supplied by the Plaintiff and delivered to his [veiling] shed.[271] The Defendant initially refused, saying he would use his own wooden bins and deliver them to his own packing shed. The Plaintiff then arranged for a letter from his solicitors to be sent. On the first day of picking the Plaintiff said he attended the orchard and observed uncovered wooden bins of fruit having been left in the sun until at least 3.30 pm[272] which were not delivered to the Plaintiff’s shed until 5 pm. The Plaintiff immediately contacted Anthony Rullo to arrange for the fruit to be transferred to his cool store. When the fruit came out of the cool store he observed that the top three layers were blistered and cooked.[273] Fruit did not remain in the Plaintiff’s shed any longer than necessary. As soon as the picked fruit was delivered to his shed in sufficient quantities he would arrange for transportation to Anthony Rullo, which could be twice per day.
[271]Exhibit 7.
[272]Exhibit K contains photos taken by the Plaintiff of uncovered bins of Early Queen on the first day of picking.
[273]In his evidence the Defendant said that this was impossible as the sun will not blister fruit below the top layer of fruit: Transcript 682.
347 The Plaintiff also said that under the arrangement whereby F&M Rullo were responsible for the packing, the bins of picked fruit were first delivered to the Defendant's shed where they would normally remain to the end of the day before being transported to the F&M Rullo cool store.[274] The Plaintiff denied that the picked fruit was taken directly to the Rullo cool store.
…they did at one time used to take the trailers direct from - or the Share Farmer's I think, as well as his own property at that time - direct to the cool store. But I think they had issues with the RTA or VicRoads, and they were not roadworthy vehicles, or considered as such. And so the practice was stopped, largely
…I've seen them transport it into his shed - unload it into his shed. To the best of my knowledge, his own shed is not - on his property behind his house, on his home block - doesn't have air conditioning or cooling. And that was a regular practice. I know because I live right next door.[275]
[274]Transcript 586.
[275]Transcript 614.
348 The Plaintiff agreed that his shed was not air-conditioned. He agreed that he would close the door to the shed for security, but this was only for short periods while he was away. He denied that the bins were always delivered to his shed as soon as there were sufficient full bins. He denied that the fruit was only transferred to the cool store at the end of the day and usually after 8 pm. The last transfer of fruit would usually have been by 6 pm, and if no driver was available he would drive the truck himself.[276]
[276]Transcript 612-613.
349 I accept the Plaintiff’s account of events, which is also consistent with the observations made by Mr Pullar. Accordingly, I find no basis for the Defendant’s counterclaim.
Deficiencies in the Defendant’s Case
350 As indicated during the Hearing and in many parts of these reasons, in my view, the Defendant’s evidence was unsatisfactory in material respects, frequently comprising non responsive, evasive or simply improbable answers. The following are some examples:
a) Notwithstanding the substantial evidence of complaint and queries which the Plaintiff said he raised,[277] virtually from the commencement of the Share Farming Agreement, the Defendant insisted that ‘everything was going fine’ until he received a letter from the Plaintiff’s solicitors in December 2007, concerning changed fruit packing arrangements; [278]
[277]Including the Plaintiff’s queries concerning depleted top soil.
[278] Transcript 661; The Defendant denied that the Plaintiff had previously tried to make other packing arrangements; the Plaintiff asserted that he was very dissatisfied with the packing arrangement and he had been trying to change it as early as 2003.
b) He was vague about the remuneration which he derived from his farming endeavours, although he acknowledged that his home block [comprising about 37 hectares] was transferred to his name, without monetary consideration,[279] with an estimated value of about $1 million;[280]
[279]Exhibit R: Instrument of transfer between the Defendant’s parents and the Defendant [Consideration being ‘for natural love and affection’] dated September 2005 and registered on 4 October 2006.
[280]Transcript 908; Exhibit R.
c) He could not recall his salary; denied any other benefit or income from associated corporate entities; and gave confusing and non responsive answers concerning the Share Farm costs;[281] and the funding of those costs;[282]
[281]Initially saying that the expenses were: ‘At least $100,000 year after year;’ then later saying: ‘it depends on so many things I can't tell you’, and then finally giving a figure of ‘perhaps $70,000’.
[282]When pressed he suggested about $20,000 or about $400-500 per week: Transcript 843.
d) He could not put an annual figure on the amount which he borrowed from F&M Rullo, without referring to the farm’s accounting records;
e) He failed to produce any financial records evidencing the loan agreement between himself and F & M Rullo Pty Ltd or his parents or his father, referable to the financing of Share Farm costs;
f) As the Farm Manager, in charge of all farming operations, appointment and deployment of staff, the Defendant had a surprisingly poor command of certain key financial management criteria. In particular, without reference to his accountant or the tax returns of the family business or other farm records, he could not say:[283]
[283]Transcript 784-785.
i. What was the overall turnover of Rullo orchards;
ii. What was the turnover for stone fruit;
iii. What was the production per hectare - having insisted that the trees were not designed to produce more than 10kg, which would have yielded a potential gross of 170,000 kgs, the 2009/2010 harvest amounted to 256,000 kgs., which he said achieved his target;[284];
[284]Transcript 674-675.
iv. What were the establishment costs per hectare for the Share Farm [which he estimated were $20,000 per hectare];
v. What was the revenue per hectare of the Share farm;
vi. What were the production costs for the Share Farm – which he variously stated would have been over $100,000 per year and more in drought years;[285] and on another occasion estimated at about $70,000; or
[285]Transcript 684.
vii. What was the pack out rate per bin.
g) He agreed there was no contractual arrangement between the sharefarmers and F&M Rullo to pack fruit, but he insisted that the Plaintiff had known and approved the Defendant taking responsibility for packing arrangements and the appointment of F&M Rullo from the outset;[286]
[286]Transcript 849; 878-879.
h) He gave confusing responses to questions about a document which the Plaintiff said had been given to him by the Defendant, bearing the names of F&M Rullo and Woolworths. He said he was not familiar with such a document being produced by F&M Rullo, but then said a similar document might be produced, which reflected the sale of Share Farm fruit to F&M Rullo;[287]
[287]Transcript 862-868.
i) Up until 2007/2008, when the packing arrangement changed, he said that all fruit was sold to F & M Rullo, who produced documents to him about that transaction; and then both he and the Plaintiff received a cheque;[288]
[288]Transcript 869.
But if they sold it for a higher or lower price, it didn't affect what the share farm got?---Exactly….I can say an example of that is that - it was brought to my attention that in one year F & M Rullo never got paid for a certain amount of fruit, but still paid out the owner and the sharefarmer in that year.[289]
[289]Transcript 869.
The Defendant could not identify which year in which this occurred;
j) I note that the Plaintiff strongly rejected the Defendant’s assertion that the fruit of the Share Farm was sold to F&M Rullo. He did not agree to or know anything about such arrangement;[290]
k) In relation to pack out sheets for 2004/2005 and 2005/2006 supplied by F&M Rullo, the Defendant could not explain why there were references to named varieties not planted on the Share Farm;[291] and
l) In relation to the application of the chemical Thin It, the Defendant gave evidence to the effect that, notwithstanding that he gave certain answers in the record-of-interview with Mr Field, to the effect that Thin-It and Agral was used on the Share Farm; and notwithstanding that the spray records relating to four applications on the Share Farm indicate that Agral was used in each case, referring to Biothin and Thin-It; the Defendant says that the spray records were inaccurate; and in his record-of-interview he was either confused or he had the wrong information given to him;
[290]Transcript 858-859.
[291]Transcript 896-897.
351 In other instances the Defendant’s evidence was simply not credible, for instance:
a) His assertion that there was an agreement at the outset for the sale of fruit to F&M Rullo;[292]
[292]The Plaintiff was adamant that there was never any such arrangement and never any discussion about sale prices, about which the Defendant gave no evidence.
b) His assertion that that F&M Rullo generally paid above market prices for the Share Farm fruit;[293]
[293]Transcript 801.
It was a better option for us to sell the fruit to Rullo Orchards because they actually paid better than what some of the market agents were going to pay for the product[294]
[294]Transcript 850.
c) His assertion that he had no recollection of having signed the ‘Orchard Insurance Loss Notification Form’ dated 25 September 2006[295] or the Orchard Quotation Acceptance;[296] and had no knowledge of their contents.[297] The Defendant also denied any knowledge of or input into any component of the Quotation, including, area covered; additional cover options; increased costs etc;
[295]Exhibit G.
[296]Ex P.
[297]Transcript 804; 830-833.
d) He gave no satisfactory explanation as to why the Plaintiff was denied the opportunity to observe the packing of the first harvested crop in December 2002, alleging that this was a matter between the Plaintiff and F&M Rullo; and
e) His suggestion that the whole Share Farm should now be bulldozed and replanted.[298]
[298]Transcript 705.
Conclusion
352 I accept the Plaintiff’s evidence to the effect that prior to the periods, the subject of specific claims in this proceeding, the Defendant failed or refused to properly account to the Plaintiff for fruit picked, packed and sold on behalf of the Share Farm. This became the pattern of behaviour by the Defendant from the commencement of the Share Farming Agreement.
353 Furthermore, I am satisfied that the Plaintiff's dissatisfaction with the Defendant’s performance of his obligations under the Share Farming Agreement was the primary motivation for him to seek an alternative packing arrangement; and ultimately to engage Mr Pullar.
354 In relation to the initial establishment of the Share Farm, I accept the Plaintiff's evidence to the effect that he was guided entirely by the Defendant in both the choice of fruit trees and specific varieties, having admittedly no prior experience with fruit trees or orchard management. In particular, I do not accept the Defendant’s evidence to the effect that he advised the Plaintiff that apples and pears would have been more suitable.
355 I note the objections taken by Defendant’s Counsel in his final written submissions to the methodologies used by Mr Pullar in assessing the quality of Share Farm fruit; and calculating estimated productive capacity and consequent loss of revenue. There was clearly a marked difference in approach and opinions given by Mr Pullar and Mr Bell. I have not attempted to summarise the evidence of either expert in detail but merely focus upon certain key points in their analysis. While there were significant areas of agreement between the two experts, as acknowledged in Mr Bell’s report, in the end I preferred Mr Pullar, whose evidence I found to be more comprehensive, thoughtful, balanced and compelling in his conclusions.
356 I am satisfied that:
a) the Policy of Insurance, particulars of which are contained in Exhibit G, was taken out, so far as it related to the Share Farm, on behalf of the Defendant, as sharefarmer; and
b) the Defendant breached the terms of the Share Farming Agreement in failing to account to the Plaintiff for a half share in the proceeds of insurance, referable to the Share Farm
357 I am further satisfied, in relation to the 2007/2008; and 2008/2009 seasons, that the Defendant breached the terms of the Share Farming Agreement, as outlined above, and that such breaches were causative of: the reduced productive capacity of the trees; the reduced quality of fruit actually produced; and the marketability of fruit actually harvested and processed for the market; with consequent loss and damage to the Plaintiff.
Witness Costs
358 I am now in receipt of written submissions, as requested, detailing the costs claimed on behalf of David Pullar, Henry Schneider and the Department of Primary Industries, on account of Steven Field, respectively.
359 In relation to Mr Pullar, I confirm that the costs, including disbursements, claimed by him, totalling $8,300 are costs properly and necessarily incurred by him in attending Court to give expert evidence and are otherwise within the range of costs prescribed for expert witnesses. Accordingly, I propose to order costs in his favour.
360 In relation to Mr Schneider, I confirm that the costs, including disbursements, claimed by him, totalling $1,025.45 are costs properly and necessarily incurred by him in attending Court to give expert evidence and are otherwise within the range of costs prescribed for expert witnesses. Accordingly, I propose to order costs in his favour.
361 In relation to the Department of Primary Industries, I accept that the disbursements incurred for Mr Field’s attendance to give evidence, in the sum of $789.29, were properly and necessarily incurred. I further note that the Department has claimed costs on an indemnity basis, in relation to the collation of documents, obtaining legal advice in relation to the subpoenaed documents and Counsel’s fees, totalling $6,950 (including $2,600 for the cost of photocopying). In my view indemnity costs are not warranted. I accept that the Department is entitled to reasonable costs in responding to the subpoena and instructing Counsel for that purpose. I fix those costs at $3,000. Accordingly, I propose to order costs in favour of the Department, fixed in the sum of $3,789.29.
Orders
362 Judgment for the Plaintiff
363 The Defendant pay to the Plaintiff the sum of $$368,454.41 comprised as follows:
a) The sum of $113, 760, in respect of the claim for 2006/2007;
b) The sum of $60,945.26, in respect of the claim for 2007/2008;
c) The sum of $92,080 in respect of the claim for 2008/2009;
d) The sum of $7,413.38 by way of water rates refund;
e) The sum of $2,247.55 by way of insurance premium refund; and
f) Interest on the above amounts fixed at $92,008.22.
364 The Plaintiff pay the costs of the following witnesses:
a) David Pullar’s costs fixed at $8,300;
b) Henry Schneider’s costs fixed at $1,025.45; and
c) Department of Primary Industry costs fixed at $3,789.29.
365 The Defendant pay the Plaintiff’s costs, including expert witness costs and reserve costs, on a party party basis, together with the costs specified under paragraph 364 above, such costs to be assessed by the Costs Court in default of agreement.
366 The Counterclaim is dismissed.
Annexure A
Share Farming Agreement
1. Set out below are relevant extracts of the Share Farming Agreement.
2. Recitals", section B,
"The Share Farmer is an experienced orchardist and wishes to plant, grow and harvest a variety of trees".
4. Sharefarmer to Provide Labour
4.1. The Sharefarmer shall, in conjunction with adjoining orchard property owned by the sharefarmers family, give the whole of his working time to the working and management of the land.
4,2. The Sharefarmer shall provide all labour to complete the working and management of the land. Any costs referred to as the Owner’s responsibility do not include the labour component which is to be provided by the Sharefarmer.
4.3. If for any reason the Sharefarmer is unable to personally provide the labour to farm and manage the land then:
4.3.1. it will be the Sharefarmer’s responsibility and cost to provide suitable substitute labour;
4.3.2. all substitute labour shall be employed by the Sharefarmer and shall not be an employee of the Owner;
4.3.3. details of all substitute labour shall be submitted to and require the consent of the Owner prior to engagement.
5. Care of Land
The Sharefarmer shall have the complete and sole responsibility for the care of the trees and orchard and the maintenance thereof.
6. Farm Work
Unless otherwise stated in the 1st schedule the Sharefarmer, at his own cost, shall do all irrigating, ploughing and harvesting required for carrying out this agreement at the proper times and in a proper and efficient manner and to the satisfaction of the Owner and in particular the Sharefarmer shall:
6.1. plant, cultivate, grow, fertilize and harvest the trees on the land;
6.2. at all times comply with the provisions of all statutes and regulations for the time being in force relating to the destruction of vermin and noxious weeds and all environment protection authority requirements and
6.3. keep all fences on the farm in good order and keep all existing drains cleaned out and in good order.
6.4. shall not remove any fencing without the prior written consent of the owner.
6.5. give the owner 24 hours notice prior to grading of all fruit taken from the land to enable the owner to inspect the fruit prior to grading.
7. Maintain Trees
The Sharefarmer at his own expense shall:
7.1. at usual and suitable times when required during the year spray the trees (all sprays shall be supplied by the Sharefarmer);
7.2. at usual and suitable limes prune the trees;
7.3. at usual and suitable times harvest the fruit from the trees;
7.4. supply water from the Sharefarmers adjoining property for the purposes of watering the trees on the land;
7.5. insure the trees for fire;
7.6. supply all equipment necessary for the purposes of operating the land as an orchard.
8. Owner to supply
The Owner shall, when requested by the Sharefarmer, supply the trees set forth in the 1st Schedule for the purposes of this agreement. Such trees shall at all times remain the property of the owner.
9. Produce property of Owner
All fruit and produce from the land shall:
9.1. be the absolute property of the Owner;
9.2. be sold in the name of and on behalf of the Owner;
9.3. be delivered by the Sharefarmer in good order and condition to the company, factory or agents nominated by the Owner;
9.4. be maintained by the Sharefarmer at the premium level of quality; and
9.5. the Owner shall have the right at all times to assist and direct the Sharefarmer to correct any fruit problems and it is agreed by the parties hereto that this sub- clause goes to the essence of this agreement.
10. Share of Income
10.1. The Owner and Sharefarmer shall share the gross proceeds of crops in the proportions set forth in the 1st schedule. All other income, unless otherwise agreed between the Owner and the Sharefarmer, shall belong to and be paid to the Owner.
10.2. The Owner shall direct the companies to which the fruit is supplied or such other company as from time to time the Owner shall nominate to pay direct to the Sharefarmer or his nominated bank account the percentage set forth in the 1St schedule of the gross proceeds of the fruit sold and delivered to that company.
10.3. The entitlement to any other share of income by the Sharefarmer shall be determined and paid within 14 days of the end of each calendar month, after aking into account all other expenses that the Sharefarmer is required to pay under this agreement.
Section 25. "Management"
Subject to any directions given by the owner, or any farm or agricultural consultant or advisor employed by the owner, the Share Farmer shall be free to manage the land in the best interests of all parties. However, the Share Farmer shall from time to time consult with the owner and at least once during the term hereof consult with the owner as to the directions, management and condition of the farm.
Annexure B
Section 49 of the Insurance Contracts Act 1984 (Cth)
Section 49 provides:
Where sum insured exceeds value of insured's interest
49. (1) This section applies where-
(a)a loss occurs in respect of property that is the subject-matter of a contract of general insurance; and
(b)the insured and some other person each have an interest in the property,
but does not apply where-
(c)the contract of insurance does not provide insurance cover in respect of an interest in the property that is not the insured's interest; and
(d)before the contract was entered into, the insurer clearly informed the insured in writing that the insurance cover provided by the contract would not extend to such an interest.
(2) A reference in this section to the amount of the insurer's notional liability is a reference to the amount for which the insurer would have been liable to the insured if the insured had been the only person who had an interest in the property.
(3) Where-
(a)the amount of the insurer's notional liability exceeds the amount of his liability to the insured in respect of the loss; and
(b)within 3 months after the day on which the loss occurred, a person who is not the insured but has an interest in the property gives to the insurer a notice in writing informing the insurer of his interest,
the insurer is liable, at the expiration of that period, to pay to that person an amount equal to the amount by which the amount of the insurer's notional liability exceeds the amount of the insured's loss.
(4) Where 2 or more persons have served notices under this section, the amount ascertained under sub-section (3) shall be divided between them in proportion to the values of their interests in the property.
(5) Nothing in sub-section (3) renders the insurer liable to pay to a person an amount exceeding the amount of the loss suffered by that person.
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