Carr v Gallaway Cook Allan
[2016] NZHC 2065
•1 September 2016
IN THE HIGH COURT OF NEW ZEALAND
AUCKLAND REGISTRY
CIV-2013-412-332
[2016] NZHC 2065
BETWEEN EWAN ROBERT CARR
First Plaintiff
BROOKSIDE FARM TRUST LIMITED
Second PlaintiffAND
GALLAWAY COOK ALLAN
Defendant
Hearing: 9 May - 1 June, 3 June, 10 June, 13-14 June 2016 Appearances:
F M R Cooke QC, P J Dale and S Cottrell for the Plaintiffs
M Ring QC, A Foote, C Shannon and D Hills for the Defendant
Judgment:
1 September 2016
JUDGMENT OF THOMAS J
This judgment was delivered by me on 1 September 2016 at 3.00 pm pursuant to Rule 11.5 of the High Court Rules.
Registrar/Deputy Registrar Date:………………………….
Solicitors:
GCA Lawyers, Christchurch. Duncan Cotterill, Christchurch.
CARR v GALLAWAY COOK ALLAN [2016] NZHC 2065 [1 September 2016]
Table of Contents
Introduction.......................................................................................................... [1]
Factual Background......................................................................................... [3]
The BSF Claim............................................................................................... [19]
Other claims.................................................................................................... [27]
This judgment................................................................................................ [33]
Part I – Water on BSF........................................................................................... [37]
Water Sources..................................................................................................... [39]
The Sowburn....................................................................................................... [40]
The Carr/Beattie water right............................................................................... [44]
Findings.......................................................................................................... [52]
The Maniototo.................................................................................................... [54]
The Community Water Agreement..................................................................... [59]
A Effect of the CWA....................................................................................... [68]
B Findings on status of the CWA................................................................... [71]
McSkimming land.............................................................................................. [74]
Findings.......................................................................................................... [80]
Expert evidence on water availability................................................................. [84]
Dr Davoren......................................................................................................... [85]
A Water requirements for BSF....................................................................... [89]
B The Sowburn............................................................................................... [91]
C The Taeiri................................................................................................... [96]
D Maniototo.................................................................................................... [97]
E Assessment.................................................................................................. [99]
F Maximum hectares.................................................................................... [105]
G Irrigation equipment................................................................................. [112]
Dr Heiler........................................................................................................... [114]
A SoilWorks/Greenwood report and parameters.......................................... [118]
B AusFarm modelling................................................................................... [120]
C Relationship of dry matter production to milk solids production [127]
D Conclusion................................................................................................ [130]
Observations..................................................................................................... [132]
Mr Hamilton...................................................................................................... [138]
Dr Eger.............................................................................................................. [140]
Carr and others on water availability................................................................ [144]
A Mr Carr’s background evidence............................................................... [144]
B The Sowburn............................................................................................. [149]
C Water from the McSkimming land............................................................. [157]
D Milking Platform...................................................................................... [160]
E Production................................................................................................ [170]
Conclusion as to size of milking platform........................................................ [179]
Plaintiffs' submissions....................................................................................... [179]
Defence submissions......................................................................................... [185]Analysis............................................................................................................. [189]
Part II Market value of BSF as at 31 May 2007........................................... [206]
What was the state of BSF in 2002 - 2008?...................................................... [207]
Findings........................................................................................................ [228]
Production levels 2002 onwards....................................................................... [230]
Mr Mills............................................................................................................. [235]
A Average Efficient Production.................................................................... [246]
B Productive valuation assessment.............................................................. [257]
Mr Crighton’s peer review of Mr Mills............................................................. [261]
Mr Larmer......................................................................................................... [268]
Mr Armstrong................................................................................................... [283]
Average efficient production of BSF in 2007................................................... [301]
Submissions.................................................................................................. [302]
Analysis........................................................................................................ [309]
The Fonterra forecast announcement................................................................ [318]
Tenders 2007..................................................................................................... [325]
Findings........................................................................................................ [343]
Stationview....................................................................................................... [347]
Findings........................................................................................................ [352]
Tenders 2008..................................................................................................... [356]
Findings........................................................................................................ [365]
Conclusion as to market value as at 31 May 2007........................................... [368]
Submissions.................................................................................................. [368]
Analysis and findings................................................................................... [371]
Value of BSF in late 2007/2008........................................................................ [396]
Fonterra announcements post 31 May 2007................................................ [397]
Submissions.................................................................................................. [405]
The law......................................................................................................... [415]
Analysis........................................................................................................ [422]
Value of BSF to Mr Carr................................................................................... [440]
Did Mr Carr have a preferential position in relation to water? [441]
Findings........................................................................................................ [447]
Willowview.................................................................................................. [452]
Equity investors............................................................................................ [455]
Observations................................................................................................. [462]
Would Mr Carr have performed at least as well as his budget? [465]
Costs of production...................................................................................... [484]
Conclusion as to Mr Carr’s abilities.................................................................. [487]
Submissions.................................................................................................. [487]
Findings........................................................................................................ [492]
Mr Crighton on investment value..................................................................... [502]
Is investment value appropriate?....................................................................... [512]
Defence submissions.................................................................................... [512]
Plaintiffs’ submissions.................................................................................. [521]
Law.............................................................................................................. [527]
Calculations.................................................................................................. [546]
Conclusion as to the investment value approach......................................... [555]
Should damages be increased to reflect the value to Mr Carr of BSF? [569]
The defendant’s knowledge......................................................................... [573]
Value assessment.......................................................................................... [576]
Part III: Lost value of other ASA assets............................................................. [582]
Patearoa House.................................................................................................. [583]
Creek Block....................................................................................................... [586]
Farm plant and equipment................................................................................. [593]
Brookside Contracting/UDC plant and equipment [596]
Findings........................................................................................................ [601]
Additional equipment on BSF..................................................................... [609]
Findings........................................................................................................ [611]
ASA cows.......................................................................................................... [613]
Submissions.................................................................................................. [623]
Analysis and findings................................................................................... [629]
Part IV: Costs incurred as a result of the failed ASA....................................... [634]
Progressive cows.............................................................................................. [635]
Who suffered the loss?................................................................................. [643]
Causation and mitigation.............................................................................. [650]
Submissions.................................................................................................. [658]
Analysis and findings................................................................................... [662]
Consequential litigation costs............................................................................ [668]
Analysis and findings................................................................................... [674]
Other liabilities................................................................................................... [683]
Le Fleming debt........................................................................................... [684]
Herron debt.................................................................................................. [687]
Unpaid litigation costs....................................................................................... [689]
L Taylor and GCA lawyers........................................................................... [690]
Mr O’Connell............................................................................................... [694]
Arbitration costs................................................................................................ [717]
Analysis........................................................................................................ [724]
Conclusion.................................................................................................... [748]
Part V: Counterclaim, liabilities not assumed or incurred, general damages and interest............................................................................................................................... [749]
GCA/QBE payments........................................................................................ [749]
Advances for litigation and legal expenses.................................................. [751]
Paid share of arbitrator’s costs..................................................................... [758]
Liabilities not assumed or incurred/amounts received [759]
General damages............................................................................................... [763]
Law.............................................................................................................. [770]
Analysis and findings................................................................................... [776]
Interest............................................................................................................... [782]
Submissions.................................................................................................. [782]
Assessment................................................................................................... [791]
GCA payments............................................................................................. [801]
Result.................................................................................................................... [803]
Introduction
[1] This litigation was the result of a failed property transaction in 2007, in which the defendant, Gallaway Cook Allan, (GCA) represented the plaintiffs, Mr Ewan Carr, and Brookside Farm Trust Limited (Brookside). The plaintiffs claimed that they were entitled to around $33 million dollars from the defendant for various different types of losses suffered as a result of GCA’s failure to settle the transaction, and subsequent events and litigation stemming from that transaction.
[2] The plaintiffs’ claims in negligence and for breach of an implied contractual term were initially disputed. GCA conceded liability on the weekend prior to the commencement of the trial. The only question now to be determined is the quantum of damages due to the plaintiffs, and the types of losses to which they are entitled.
Factual Background
[3] The main asset of the transaction was a dairy farm known as the Big Sky Farm (BSF). BSF was situated in the south eastern corner of the Maniototo Basin at Patearoa, Central Otago. As a whole it encompassed one of the largest milking platform areas in New Zealand. Productive capability was centred on the easy contoured areas directly adjoining the Styx-Patearoa and Puketoi Roads and the connecting Carr Road.
[4] The climate was dominated by winters of 120-130 days, hot dry summers and a low rainfall. Winter was too cold for any pasture growth. Spring growth, by comparison to down country lower altitude properties, was late due to the extended cold winter period. Without irrigation, the climate was considered to be the major limitation on pastoral production.
[5] BSF was made up of three farming units, Alnwick at around 435 hectares, Saran at about 320 hectares and Tercio at about 420 hectares, in 2007 all irrigated with either K-Line spray irrigation or Briggs Rotary travelling irrigators (roto rainers).
[6] The adjacent McSkimming farm had about 320 hectares of irrigation and was used by BSF for winter grazing, heifer grazing and feed conservation through silage
harvesting and grain growing. The Taieri River fringe on BSF also contributed to winter grazing.
[7] Mr Carr was the fourth generation Carr to own and operate assets in the Maniototo. His great grandfather came to Central Otago and Mr Carr’s grandfather was a gold miner who was the first to acquire farm property. By the mid-1960s Mr Carr’s father was operating both the Alnwick and the Fairview (now called Tercio) farms. Mr Carr grew up on the farms. He always had a strong interest in engineering and was exposed to all sorts of engineering and maintenance challenges on the farms which played a significant role in forming his interests and pursuits to this day.
[8] Around 2000, Mr Carr was a participant in a joint venture with two other parties, Mr Humphries and Mr Paterson. The joint venture involved the shared ownership and operation of BSF through Big Sky Dairy Farms Limited (BSDF). Mr Humphries separately purchased a farm known as Awataieri which was developed as a harvested feed block for providing silage and crops to BSF. The joint venture included other properties and companies.
[9] Tensions developed in the relationship of the joint venture parties. Following the death of Mr Paterson in 2003, the relationship between Messrs Humphries and Carr broke down further. In an attempt to terminate the joint venture, Mr Carr and Mr Humphries reached an agreement by deed, the effect of which was to reduce Mr Carr’s shareholding in return for options to purchase BSDF’s assets, and two other properties, known as the Styx Lodge and the Danseys Pass Coach Inn. Due to disputes about the purchase price, Mr Carr exercised his option but did not complete the transaction.
[10] Mr Carr then applied to the High Court to appoint liquidators to BSDF to ascertain its value. In March 2007 Murray Frost and Michael Horne were jointly appointed by the Bank of New Zealand as receivers and managers of all of the assets of BSDF.
[11] A settlement notice was then issued requiring Mr Carr to settle the purchase of the BSDF assets under his option. Again, due to disputes over the purchase price, Mr Carr did not do so and there was ensuing litigation. Before mediation scheduled
for May 2007, a settlement was reached. This culminated in an Amended Settlement Agreement (ASA), executed on 16 May 2007. Its purpose was to settle the disputes between the parties, to bring an end finally to the joint venture.
[12]Under the ASA, Mr Carr agreed to purchase:
(a)all the assets of the Big Sky Group, including BSF, the land in the “Creek Block”, 1,147,583 Fonterra supply shares, irrigation entitlements, plant and equipment, and a house at Patearoa, for $19.7 million plus GST;
(b)2,500 cows from Jarcel, Awataieri and Consultant Management Services (in receivership) for $2 million plus GST;
(c)all of the assets of Anesyds (in receivership) for $1.87 million plus GST (which included the land, buildings, business, chattels, stock and plant of the Danseys Pass Coach Inn); and
(d)all the shares in Brookside Properties Ltd, which owned the Styx Hotel, for $220,000 plus GST.
[13] Essentially, the ASA allowed Mr Carr to purchase all of the property, land, buildings, dairy company shares, plant, stock, and all other assets owned by BSDF and Big Sky Livestock, based on payment of all of the debt owed by those companies. This meant that Mr Carr was buying the assets for debt rather than their value.
[14] Mr Carr nominated Brookside to be the purchaser of the ASA assets. Although the shareholding was held by various entities, the evidence was that, effectively, Mr Carr owned or controlled all the shares. As at May 2007, the director of Brookside was Mr Carr’s accountant, Stephen O’Connell. In 2008, Mr Carr replaced him as Brookside’s sole director.
[15] The ASA provided that settlement of all transactions was to occur by 4 pm on 31 May 2007, time being of the essence. Funding for the purchases was arranged from Hanover Finance Ltd (Hanover). In anticipation of settlement, Mr Carr ordered 642
cows from Progressive Livestock Ltd at a cost of $746,605, with additional transport and winter grazing costs, bringing the total cost to $935,151.
[16] Settlement did not take place by the time required and the ASA was cancelled by the Humphries' interests at 6.05pm on 31 May 2007. The High Court and Court of Appeal subsequently held that Mr Carr was in breach of the terms of the ASA by not completing settlement at the time stipulated and that the ASA was validly cancelled.1 GCA has now conceded that settlement did not occur because of failures on its part, and no counterclaims for contributory negligence are being pursued.
[17] BSF and all other assets the plaintiffs were to purchase pursuant to the ASA, excluding the Styx Hotel (which has been the subject of other litigation) are now owned by unrelated interests.
[18] At all relevant times, GCA acted for Mr Carr, including in drafting the original deed, and the ASA.
The BSF Claim
[19] In the Further Amended Statement of Claim, filed without opposition in the last week of the five week hearing,2 the plaintiffs said that the effective total price to be paid under the ASA was $20,187,054, which was the price set out in the ASA of
$19,700,000 plus the additional liabilities the plaintiffs were paying on settlement, including GCA’s fees ($265,000), liquidator’s fees ($49,977), rent owed to Mr McSkimming ($30,000), monies to be paid to clear a hire purchase agreement relating to farm bikes ($37,077) and the net UDC debt liability ($105,000 being an amount recovered by the plaintiffs from Mr Humphries following payment of the UDC debt).
[20] The price of the Fonterra shares under the ASA was $7,528,000, being at the set market price of $6.56 a share. No claim is made in relation to this element of the ASA.
1 Humphries v Carr HC Dunedin CIV-2007-412-507, 29 February 2008; Humphries v Carr [2008] NZCA 391.
2 Save as to one aspect discussed later.
[21] The claim in respect of BSF is for the difference between the total ASA price and “the true value” of BSF, “in light of”:
(a)the difference between the ASA price and the “investment value” of BSF, $27,453,946.3 This is derived from the value of BSF to Mr Carr, based on his estimated profit, claimed as $48,141,000 plus the Fonterra shares, less the total ASA price;
(b)the difference between the ASA price and the market value of BSF in the immediately following milking season, $15,812,946. This is based on the market value of BSF being $36,000,000 at that date, less the total ASA price. This valuation relies on evidence provided by a valuer, Paul Mills, in his affidavit sworn 3 April 2008.
(c)the difference between the ASA price and the market value of BSF at 31 May 2007, the date of the defendant’s breach, $8,107,946. This is based on the market value of BSF being $28,295,000 at that date. This valuation relies on Mr Mills’ valuation dated 30 June 2007, as revised following expert conferral.
[22] GCA said that the market value as at 31 May 2007 was the appropriate measure of the plaintiffs’ loss, and the appropriate range of values to adopt in calculating damages was about $20 - $22.5 million, including the Fonterra shares. On this basis, the difference between the ASA price and the actual value of BSF was about
$1,000,000.
[23] To assess market value, GCA said the Court needed to take into account whether there was enough water legally available to irrigate fully the 1200 hectare milking platform of BSF and whether the water was sufficiently reliably available such that it did not impact on market value. GCA said, as a result of BSF not having adequate reliable water supply, the average efficient production of milk solids estimated by the plaintiffs was not possible.
3 This figure was subsequently amended.
[24] By contrast, Mr Carr stated that the assets should be valued at the value they would have had in the hands of himself as the purchaser. Mr Carr claimed that he would have been able to make more profit from BSF because of certain water rights, personal to him, which would have allowed increased irrigation, and therefore increased productivity and value of BSF, as well as his historical involvement in BSF which gave him particular skills in exploiting its potential.
[25] Mr Cooke QC appeared for the plaintiffs. Nine years ago, he said, GCA assisted the plaintiffs to enter the ASA, including the process of assessing the value of the assets for financing purposes. Yet nine years later, GCA maintained the transactions it promoted, and the valuations it supported, were fundamentally flawed. Mr Cooke described GCA’s defence as seeking to isolate individual elements relevant to the value of BSF (such as the reliability of water and support land) and suggesting that each element should be applied to undermine the true value of the assets. In his submission, there was a lack of reality about the defendant’s approach to damages and it was an unrealistic and unreasonable approach.
[26] Mr Ring QC appeared for the defendant. In his submission, there was a need to step back and assess the reality of Mr Carr’s claim. Mr Carr had claimed Mr Humphries, a savvy businessman, was prepared to sell BSF to Mr Carr for a substantial discount in order to avoid an investigation into his business practices. However, by 31 May 2007, settlement did not take place because Mr Humphries would not agree to it. When put on that basis, the case simply did not make sense, in Mr Ring’s submission.
Other claims
[27] The plaintiffs also claimed for the value of the Patearoa House and Creek Block properties, and farm and equipment. They said these assets were to be transferred to the plaintiffs pursuant to the ASA but no specific cost was allocated to them. GCA accepted the claim for the Patearoa House but disputed the other claims.
[28] Under the ASA the plaintiffs were to purchase 2500 cows from the receiver. They claimed the difference in value between the ASA price, allegedly an under-
valuation of the cows, and their estimated “real value”, a loss of $1,375,000. GCA said that the ASA value of the cows was correct.
[29] The plaintiffs also claimed for money expended as a result of the ASA which was wasted following the failed settlement. In particular, the plaintiffs sought
$1,285,681 plus interest for cows purchased by Mr Carr’s interests on the basis of the ASA settling and subsequently sold at a loss, and the costs of all subsequent litigation attempting to resolve the ASA. GCA rejected these claims on a number of grounds.
[30] Mr Carr also sought to claim the wasted costs of an arbitration undertaken between his interests and GCA, attempting to resolve the question of the defendant’s liability for negligence. GCA said that as a matter of law, these costs could not be recovered and otherwise disputed the amounts claimed.
[31] Mr Carr sought $100,000 in general damages. GCA said that the appropriate award was no more than $40,000.
[32] GCA counterclaimed against Mr Carr for money had and received and claiming a constructive trust. The counterclaim is for the sum of $215,471, based on money that GCA’s insurer, QBE, lent to Mr Carr for litigation costs that it says was misapplied. GCA said that these advances were a loan and should be off-set against any damages award.
This judgment
[33] In contract and in tort, the successful plaintiff is entitled to be placed in the position in which he or she would have been had the contract been performed, or the duty of care not breached.4
[34] The plaintiffs claim expectation damages for the difference between what they would have received had the transaction settled and what they in fact received. In this part of the claim, the difference is between the value of the assets the plaintiffs would
4 Marlborough District Council v Altimarloch Joint Venture Ltd [2012] NZSC 11, [2012] 2 NZLR 726 at [23]; Attorney General v Geothermal Produce NZ Ltd [1987] 2 NZLR 348 (CA).
have acquired, less the money they did not in fact have to spend on acquiring them. There was no contention between the parties as to that measure.
[35] The key question for completing that assessment is, therefore, determining the value of the assets which the plaintiffs would have received under the ASA. Assessing the value of the assets as at 31 May 2007 requires evaluating their market value. The plaintiffs and defendant have offered competing expert evidence toward the value of the assets. I have already outlined the general factual context. I then assess the lost value of BSF, considering the evidence as to water, the size of the milking platform and the skills of Mr Carr, and considering the different bases offered for that assessment. I next determine the value of other assets which would have been acquired under the ASA, before assessing the damages for costs incurred as a result of the failure of the ASA and finally I examine the counterclaim.
[36] Most of these issues involve findings of fact. Where this is in the context of a legal question, I have incorporated the relevant law as part of the analysis.
Part I – Water on BSF
[37] In order to assess the market value of BSF, its productive capability must be considered. The productive capability of a farm is driven by the size of the milking platform, which in turn is governed by the amount of water legally and physically available to irrigate the land. Therefore, before assessing the valuation evidence, it is necessary to analyse the evidence about water availability to BSF.
[38] I first assess the different water sources available to BSF, before turning to evaluate the expert evidence.
Water Sources
[39]In 2007, what was regarded as the permitted water take for BSF was as follows:
·218 litres per second, (l/s) from the Sowburn Creek;
·55 l/s from the Taeiri River (Carr/Beattie right); and
·235 l/s from Maniototo East Side Irrigation.
The Sowburn
[40] BSF held a 59/60th share of consent 2001.382 for 222l/s from the Sowburn Creek, meaning it could take 218 l/s (59/60th of 22l/s) of water from it.
[41] The Sowburn supply race was an old mining race which was used to abstract irrigation water from the Sowburn Creek, about 3 km upstream of the Sowburn Bridge. Mr Carr had consistently worked on developing and maintaining the Sowburn race with his grandfather and father. John Beattie, a neighbouring farmer, gave evidence that, when Mr Carr returned from America in about 1983, he largely took over the management of the farms and began a very ambitious farm and irrigation development. He said that return flows to the Sowburn Creek from the race were lower due to Mr Carr’s increased maintenance and upgrading of the race. Mr Carr continued to develop and maintain the take until the spring of 2005.
[42] Mr McSkimming, another neighbouring farmer, described the Sowburn as being the most valuable water source in the area because it has a very big catchment from the south east where the rain comes from. Russell Pope, irrigation manager, said the Sowburn was a very good water right because water could be taken all year round, despite having some poor flows at times in summer.
[43] The defence raised issues about the reliability of the Sowburn water supply. This is addressed in detail below, in assessing the various expert witnesses’ evidence.
The Carr/Beattie water right
[44] BSF held a 50 per cent share of water permit 3518, which entitled it to take 200,000 l/hour (55.5 l/s) from the Taeiri River, forming approximately 13 per cent of the water available to the milking platform. There was an issue as to the legality of this water take as at May 2007.
[45] The original water right had been due to expire in 1999 and an application was not made to the Regional Council to renew the right in sufficient time. Eventually, in
April 2008, the Regional Council issued a supplementary right, meaning the permit lost priority (permit 2008.193). Mr Carr was ordered by the High Court to assign the right to the liquidator for the benefit of BSF.
[46] Mr Carr’s affidavits in various proceedings appeared to suggest that the right no longer existed as at May 2007 and therefore, the defence said, Mr Carr could not rely on it in valuing BSF. Despite the right not being renewed at the time, the Mills 2007 valuation of BSF (discussed below) assumed it was in existence. Mr Carr said he must have had an indication from the Regional Council that the right would be renewed and he would have relayed that information to Mr Mills. He did not accept there was any doubt the right would be granted at all, notwithstanding reference in one of Mr Carr’s affidavits that in 2007 the Regional Council was considering whether or not to grant the application. It is fair to observe that Mr Carr’s affidavit evidence in other proceedings had the objective of attempting to minimize the value of BSF.
[47] In any event, Mr Carr did not accept that, without the Carr/Beattie right, his forecasted production was not achievable. He said water supply was a dynamic system and other measures would have been taken, for example, storing water and providing additional feed. He said that for most of the year BSF could have a 1200 hectare milking platform even without the Carr/Beattie right, referring to the fact that the current owner of BSF does not have the benefit of that right and yet is exceeding Mr Carr’s forecasts.
[48] As the plaintiffs’ solicitor, GCA was asked as part of the loan offer by Hanover to Brookside to address water consents and entitlements in respect of BSF. By its letter dated 30 May 2007, GCA advised as follows:
The Borrower presently derives water via three separate mechanisms:
1.Beattie/Carr permit no. 3518;
2.Alnwick Dairy Limited permit, consent no. 2001.382 (the Sowburn permit);
3.Shares held in Maniototo Eastside Irrigation Company Limited.
…
We know of no reason why the relevant rights might not be renewed when they come up for expiry. If a right holder applies for a replacement right at least six months prior to the existing rights expiring, then such rights are automatically carried over the continued until any new application is determined (section 124 of the Resource Management Act 1991).
The situation with the Beattie/Carr permit is slightly more complicated. The existing permit is noted has having a term expiring on 1 April 1999. Yet, that permit is still being exercised by Beattie and Carr as if it were still current. An application to renew the Beattie/Carr permit was lodged prior to its expiry (8 February 1999)…
The Otago Regional Council has acquiesced in the right continuing to be exercised as if it were current…
The Maniototo Irrigation Company Limited, the Maniototo Irrigation East Side Company Limited, and Trustpower have all provided their written consent to the renewal of the Beattie/Carr permit under section 104(3) of the Resource Management Act 1991. It is almost inevitable that the Carr/Beattie permit will be renewed in some form, but it is not possible to predict at this time what conditions might accompany that renewal…
It is apprehended that Hanover’s concern is whether the Farm’s water supply can be relied upon for farm management purposes. All water rights are subject to conditions concerning drought or “low flow” situations. Regional Councils have additional powers that can be exercised in a drought emergency, even in respect of deemed permits (old mining privileges). Aside from the circumstances of the Beattie/Carr permit described above, we know of nothing unusual about the water rights in this case that affect their reliability.
[49] Hanover also sought advice about the potential for dividing the water rights, should BSF be subdivided into three properties. GCA engaged a Cromwell-based water consultancy, Water Resources Otago Limited, to address that issue. In its letter dated 30 May 2007, Water Resources Otago reported as follows:
Gallaway Cook Allan has supplied information concerning the renewal process for the Beattie/Carr water right. For the purposes of our advice to you, we have assumed that all of the rights are current and able to be exercised. We believe that assumption to be a reasonable one.
…
We may therefore report that ownership structures could be devised so that any of the three sources of water allocation may be legally applied to any of the land holdings should the farm be subdivided into three separate properties.
[50] Although Mr Mills had not seen this correspondence at the time of his 2007 valuation, it can be inferred that Mr Carr would have had that advice when he discussed the water situation with him.
[51] Mr Ring stressed that in 2007 the Carr/Beattie right was not legally available. He pointed to Mr Kirkwood’s conditional tender for BSF (discussed below) as evidencing the approach a prudent purchaser of BSF would take, that is, requiring satisfaction as to the availability of the right and reducing the tender price if the right were not available. Mr Ring submitted Mr Kirkwood’s approach, as a purchaser intending to farm the land was more reliable when assessing market value than Hanover, a short term financier.
Findings
[52] I accept Mr Carr’s evidence that the Regional Council never took any steps to stop the use of the water while the right was in the process being renewed, as the Regional Council accepted some responsibility for the time taken to process the application.
[53] I am therefore satisfied that the Carr/Beattie water right was in fact able to be used throughout the relevant period, even though it was undergoing a consent renewal process at the Regional Council. The lack of a permit was a risk factor to be weighed up by any prudent purchaser.
The Maniototo
[54] In 1975, construction of the Maniototo Irrigation Scheme (the Scheme) began under the control of the Ministry of Works to provide irrigation to farms located in the Maniototo Basin. The Scheme was officially halted in November 1984.
[55] Mr Carr then obtained all of the working drawings of the Scheme, and considered the possibility of privately completing the Scheme and irrigating the Beattie and Carr farms and a number of other smaller properties nearby. Mr Carr engaged an engineer and they designed the extensions to the Maniototo Eastside irrigation scheme as well as the Waipiata extension, flowing on from the section of the Scheme completed by the Crown.
[56] The private scheme had to be fully funded because very few of the farms had the ability to pay for the works up front. Two companies were formed, the Maniototo
Eastside Irrigation Company Limited (MEICL) and the Waipiata Irrigation Company (WICL) to own the respective developments and complete the works. Mr Carr underwrote the Eastside Scheme to allow construction to be completed. Mr Carr then sold the excess shares to other farmers, who subscribed for shares to obtain the water they wanted. The extension of the MEICL and WICL schemes was completed for 10 per cent of the original Government estimates, just over $1.65 million.
[57] Mr McSkimming told the Court that, initially, he and most of the other farmers were sceptical but eventually Mr Carr convinced them to back the project. Mr Beattie explained that Mr Carr spent a great deal of time on this project as it involved all the difficulties of co-ordinating 16 or 17 individual farms as well as convincing everybody that the work could be done for the estimated price. He said Mr Carr showed great tenacity in succeeding in pulling all the threads together in spite of much scepticism.
[58] Russell Pope managed the supply of water to shareholders of the companies and oversaw maintenance issues. Mr Pope said the Scheme had performed very well since its inception, with only three short lived occasions of rationing, in which the maximum allocation was reduced to 75 per cent. Between 2000 and 2010, the Maniototo East Side and BSF operated on a 20 day roster providing for a 200 day irrigation period between September and April. Peak demand was generally between December and the end of February but every year was different. The result of the Scheme was that a maximum of 60 per cent of a farm’s allocation was available over the peak period. Rights under the Scheme may be transferred.
The Community Water Agreement
[59] In order to facilitate the Scheme, Mr Carr entered into an agreement with neighbouring farmers which resolved arguments as to the use of the water in the Sowburn Creek. These arguments had arisen following the truncation of the Crown Scheme, and as a consequence of Mr Carr’s increased maintenance and capital works on his water supply. Messrs Beattie, Herlihy and Greer sought to resolve issues as to the priorities in the Sowburn Creek before the Scheme went ahead. Agreement to allow the construction of the Scheme over their properties was essential and was reached when Mr Carr agreed to surrender his main water right and apply to replace it
with an ordinary water permit under the Resource Management Act 1991 (RMA). The agreement became known as the “Community Water Agreement” (CWA), and was formalised by documentation in 1989 and 1990.
[60] The 1989 agreement, as set out in a letter dated 17 March 1989 from the law firm Ross, Dowling, Marquet and Griffin, recorded that the agreement was conditional upon construction of the east side extension of the Scheme. In essence:
·Mr Carr agreed to reduce or discontinue his abstraction of water pursuant to right 2570 or any right obtained in substitution, when asked to do so by Messrs Herlihy, Greer and McSkimming to ensure their water right 1457N was satisfied.
·Mr Carr was to buy Mr Beattie’s share of water right 2170N.
·Mr Carr was to surrender right 2570 and the others would not oppose his application for a replacement right.
·Messrs Carr and Herlihy were to apply for a joint water right. Mr Herlihy was to surrender water right 2554N.
·Mr Beattie was to give necessary easements as required for the Scheme.
[61] The 1999 document, dated 12 January 1999, between the holders of water right 1457N and Maniototo Dairy Farms Holding Limited (MDFHL) recorded:
·MDFHL acknowledged water right 1457N (McSkimming, Greer and Herlihy) had priority over water right 3606.
·Due to water efficiency considerations, rather than release water at the end of intake 3606 for the superior privilege, Mr Carr was to supply the holders of WR1457N with water from the Eastside Irrigation race to make up the full supply.
·The agreement was without prejudice to any future action by the holders of WR 1457N to exercise priority.
[62] A memorandum of agreement dated November 2009 was entered into, apparently because the 1989 agreement could not be located. It recorded the background to the competing priority claims in respect of water rights and the Scheme, and the key elements of the 1989 and 1999 agreements (although it erroneously stated that Mr Carr’s ability to take from the Sowburn and replenish the holders of WR1457N from the Scheme was recorded in the 1989, not the 1999 agreement). The document recorded that the 1999 agreement related only to domestic water quality for the Greer family and that it ceased to have effect when MDFHL sold its assets in 2000.
[63] The memorandum provided that the 1989 agreement remained operative if Mr Carr or entities directly associated with him acquired ownership of BSF. The rights were not capable of assignment without the express agreement of Messrs Herlihy and McSkimming.
[64] The parties also agreed they would act towards each other in good faith and continue the agreement “for as long as it remains reasonably in the interests of the respective parties to do so”.
[65] MDFHL was a party to the 1999 CWA, not Mr Carr himself. It was put to Mr Carr that, as at May 2007, his preferential rights did not include the 1999 Agreement and those rights belonged to BSF regardless of Mr Carr’s involvement. Mr Carr would not accept that proposition, saying the agreement was personal to him to reflect all his efforts in getting the water system up and running.
[66] Mr Carr also rejected the notion that some priority holders were not parties to the CWA. He said they may not have signed it but all attended the meetings and there had been no issue. Mr Carr said he had had retained Water Right 2170 in order to protect his position. He explained that right 2170 was the second in priority after 1457N. He purchased it but did not intend to use it. He retained it for use if anyone who was not party to the CWA, wanted to challenge the CWA.
[67] Mr McSkimming recalled the 1989 and 1999 arrangements but did not sign or appear to have seen the 2009 Agreement.
A Effect of the CWA
[68]Three situations were discussed:
[1]BSF without the CWA: Mr Carr said this would allow sufficient Sowburn flow to the downstream permit owners before it could be used by BSF. It was, therefore, for BSF, an unreliable take but would allow BSF to keep its Maniototo share and the Carr/Beattie Right.
[2]BSF plus CWA: This would mean that BSF could use water from the Sowburn without in practice having to worry about the 1457N water right holders or any other right holders. If BSF took in priority into the 1457N water right holders, it had to replace that water from its share of the Maniototo supply.
[3]BSF with the McSkimming land and its water rights: This would allow 1/3 of 1457N to be used by BSF with any shortfall being topped up from the Maniototo.
[69] In Mr Carr’s opinion, all farmers in the Scheme and the parties benefitted from this arrangement greatly and it worked without any major issues from 1989 through to 2007 when BSF was placed into receivership. Mr McSkimming considered that the arrangement was a good solution for everybody as it provided a reliable source of water for all the farmers in the Eastside irrigation scheme. He did not recall there being any major issues.
[70] Troy Pope was involved with the BSF irrigation systems from 2000 through until 2004, working for the receiver from August 2007 until BSF was sold to Harvard in 2010 and then remained as irrigation manager until December 2012. He was responsible for the maintenance, operation and development work associated with the irrigation systems. While he was irrigation manager to BSF until the 2007/2008 and
the 2008/2009 irrigation seasons, to the best of his knowledge there was never a problem with the CWA or with the ability of BSF to use water from the Sowburn race.
B Findings on status of the CWA
[71] I agree with Mr Cooke’s description that, rather than an “agreement”, the community water situation is best termed an “arrangement”. This is confirmed by the fact that there were various changes to the arrangement and inconsistencies in the way in which it was expressed at different times. The point is that all those involved agreed that they were bound by the arrangement which they had reached with Mr Carr. I have no doubt that, had Mr Carr purchased BSF, the arrangement would have continued. Having heard from almost all those involved in the CWA, I am satisfied that Mr Carr had the necessary relationships with the other water right holders that the position he asserted could, had the circumstances required it, have been properly documented and made of legal effect.
[72] It was, in my assessment, very much a personal arrangement reflecting longstanding relationships between the parties. That included their ability to work through contentious issues. Mr Carr had retained one of the priority rights “up his sleeve” for use should there be any issues surrounding the CWA.
[73] The question is whether the CWA should be taken into account in assessing the open market value of BSF. Mr Mills took the CWA into account in valuing BSF but conceded he had not actually viewed any of the documents. The two other valuers did not taken the CWA into account and the defence position was that it should not be taken into account in assessing market value. In Mr Cooke’s submission, a vendor of BSF would seek to assign the CWA. However, given the loose wording and that the agreement was expressed to continue as long as it was in the interests of the parties, in my assessment any purchaser would allot quite some considerable risk to the concept of having the benefit of the CWA. The current owner of BSF, The Harvard Endowment Fund (Harvard), has reached some form of arrangement with the relevant parties and, on a practical level, a third party purchaser might well be able to do the same. However, when it comes to assessing the value of BSF, in my assessment, a
prudent purchaser would bid for BSF on the assumption that the CWA would not be available, with any later arrangement being considered a bonus.
McSkimming land
[74] Mr McSkimming’s farm is immediately adjacent to BSF and comprises 426 ha (the McSkimming land). He leased it to BSDF in 2000.
[75] The McSkimming land had access to two water sources from the Sowburn Creek, being rights WR1457N and WR 3548N. WR1457N was a joint right originally shared between the Greer, Herlihy and the McSkimming families, holding one third of the shares each. It permitted the take and use of water at a rate of 111.2 l/ per second. It is now held 2/3 by the Herlihys and 1/3 by McSkimming Farms Limited. WR3548N was a right held 50-50 by McSkimming Farms Limited and the Hall family which allowed a take and use of water at a rate of 41.1 l/s. The respective rights were issued in 1874 and 1912.
[76] McSkimming Farm Limited held 150 shares in MEICL with that water being used alongside the above rights to irrigate about 320 hectares of the McSkimming land.
[77] The lease of the McSkimming land included the McSkimming water rights, although there was an issue as to whether the water could be used on BSF, or solely on the McSkimming land. Mr McSkimming was of the opinion that the water should be used on the McSkimming land although he understood the reality, expecting his water rights to be used to benefit BSF and he confirmed that could occur. It was clear that, in practice, BSF used the McSkimming water rights.
[78] The lease of the McSkimming land to BSDF was due to expire in March 2008. In 2007, Mr McSkimming and Mr Carr agreed to a two-year extension, with two year rollovers. The lease still operates for the benefit of the current owners of BSF.
[79] There was considerable discussion about the McSkimming land and the fact that the position as at 31 May 2007 was that the lease would expire on 31 May 2010, with no security of renewal after that. The McSkimming and Carr families’
community relationships and friendships dated back to the late 1900s, with Mr Carr and Mr McSkimming’s grandparents. Those associations endure to this day. Mr Carr was confident that he would always have that land available. Furthermore, he and Mr McSkimming agreed that he had a right of first refusal on any sale. Mr Carr accepted that his operation of BSF was dependent on the McSkimming land for water and as support land for BSF for wintering cows and crop growth.
Findings
[80] The dependence of BSF on the McSkimming land was by no means unusual and indeed common practice in farming. The impact of it was a cost of the business.
[81] I have no doubt that Mr Carr would have been able to secure a long-term lease from Mr McSkimming. He also had a first right of refusal to purchase the land. I am also satisfied that, if there were any real issue in this regard, Mr McSkimming would have agreed to the McSkimming water being used on BSF.
[82] I also accept that any prudent third party purchaser would seek to secure a lease of the McSkimming land for grazing, crops and water purposes. Mr Kirkwood did so when he tendered for BSF in 2007, as discussed below.
[83] I accept there was a real prospect of a third party purchaser being able to secure a lease of the McSkimming land, at least in similar terms to the leases previously granted. This possibility was evidenced by both the receiver and Harvard obtaining a renewal of the lease, and Mr Kirkwood’s evidence that he reached an agreement with Mr McSkimming prior to his 2007 tender. I accept that, in the circumstances of the benefit offered by the McSkimming land both in terms of land and water rights and its proximity to BSF, it would be entirely logical for a BSF owner and Mr McSkimming to come to a suitable arrangement. It is also reasonable to infer that, had Mr McSkimming sought to sell his property, any owner of BSF would have used considerable endeavours to purchase it. Again, in my assessment, it would be a matter of risk assessment for a third party purchaser.
Expert evidence on water availability
[84] In considering the expert evidence on irrigation of BSF, the following technical terms were used:
·Profile Available Water (PAW): the term used to describe the water in the soil profile that can be accessed by the plant cover. It is usual in the design of irrigation systems to ensure that PAW is not depleted below a trigger point. The assumption is that maintaining soil moisture levels above these levels will not result in production loss from soil moisture stress.
·Return Periods (days): the time that is taken to return to the start of an irrigation block from the date when irrigation started on that block. Irrigation systems can be designed to have return periods which are longer that the optimum return period, but there will be some penalty in reduced production from time to time. The return period adopted is a choice made by the operator.
·Peak demand (mm/dd): depending on climatic conditions, the potential water use by the crop or pasture will vary. Where possible, the rate at which water is supplied to the irrigation system should match the peak demand. If not, some production loss will occur.
·Dry matter: a measure of the fibre containing the carbohydrates, proteins and other trace elements that are available after the moisture content is removed from grasses or any other crops.
Dr Davoren
[85] Dr Anthony Davoren was an expert witness for the defence. He has a PhD in engineering science, and 30 years’ experience in soil moisture, irrigation management, groundwater and surface water research and other related consulting.
[86] Dr Davoren’s overall opinion was that BSF did not have access to sufficient water to irrigate the dairy platform effectively, because what he said was the available water, 508 l/s, was 187 l/s less than the required 695 l/s to meet peak demand in
November to February. Even if this total take were available, BSF could effectively irrigate only 878 ha, in Dr Davoren’s opinion. His assessment was based on the assumption that the CWA was enforceable and that the milking platform was 1200 ha, as the plaintiffs maintained.
[87] Furthermore, Dr Davoren considered the Sowburn and Taeiri (the Carr/Beattie right) takes were unreliable – the Sowburn because of other permits with priority, and because it naturally ran dry in the summer months, and the Taeiri because of doubts in 2007 that the consent would be renewed. The result, he said, was that BSF had only 235 l/s of reliable irrigation water coming from the Maniototo, sufficient to fully irrigate about 406 ha, about 1/3 of the milking platform.
[88] Finally, Dr Davoren concluded that the irrigation infrastructure in 2007 was inadequate to irrigate BSF effectively, noting that the largest irrigated area was irrigated with K-line irrigation which he considered had a very low potential efficiency.
A Water requirements for BSF
[89] Dr Davoren calculated that there needed to be a return period of 4-5 days, based on 5 mm of water use by pasture per day during periods of peak demand. This required an instantaneous take of water of 695 l/s, during, at least, November to February.
[90] Dr Davoren explained that if the peak demand were not met from either soil moisture storage, rainfall and/or irrigation, the pasture would be subject to moisture stress, pasture growth rates would decline, and milk solid production might not reach optimum levels unless additional (supplementary) feed were brought in.
B The Sowburn
[91] Dr Davoren obtained all the flow data for the period 24 January 2007 to 9 May 2012 from the Otago Regional Council for the Sowburn Creek to analyse the reliability of the take(s), given the resource consent conditions and the flow required for the McSkimming take.
[92] Dr Davoren concluded that, of the six seasons for which flow data was available and considering the 2014/2015 season when there was a full flow restriction on both the Sowburn and Taieri Rivers, there was not a single season when the Sowburn was not restricted. The number of days of restriction varied from 19 in 2011- 2012 to more than 119 days in 2014-15. This meant, he said, that 100 per cent of the Sowburn take was available on average 53 per cent of the time between the irrigation season, 1 November to 31 March.
[93] For the same seven seasons, there were three when there was insufficient flow for the McSkimming land permit, where the flow would have to be supplemented from BSF’s Maniototo supply. The number of days varied from 1 to 84 days.
[94] In Dr Davoren’s opinion, there was between 527.3 1/s and 471.3 1/s of higher priority water before BSF could access water through its consent. He concluded that BSF’s ability to use 218 l/s from the Sowburn was as a result of goodwill, favourable growing season(s), good luck or lack of understanding by the deemed permit holders.
[95] Dr Davoren raised concerns regarding the CWA, and the availability of rights under it did not alter his assessment. He was of the opinion that Sowburn water was not a reliable source, and could not be relied upon to provide sufficient water for the effective irrigation of BSF.
C The Taeiri
[96] Dr Davoren interpreted the relevant water permit as requiring the Taeiri River to be flowing at a rate greater than 1056 l/s before water could be taken. From his analysis of the records held by the Otago Regional Council in relation to the Taeiri River flow rates, Dr Davoren noted brief periods during which such flow was unavailable, and concluded that the consent allowed BSF to irrigate reliably a further 95 ha of the milking platform.
D Maniototo
[97] Dr Davoren calculated that the Maniototo East Side Irrigation shares permitted BSF to use the equivalent of 356mm over 1200 ha, sufficient to irrigate about 612ha, or about 50 per cent of the planned milking platform.
[98] Dr Davoren noted that Harvard planned to build a 1,000,000m3 storage pond to provide water when the Sowburn and Taeiri River water was restricted, at a cost he estimated of around between $3.5 to $5 million. This, he said, would overcome to a large extent the unreliability of the Sowburn.
E Assessment
[99] Mr Carr’s permitted take was any flow over 121 l/s with priority given to water right 1457N owned two-thirds by Mr Herlihy and one-third by Mr McSkimming.
[100] Dr Davoren produced graphs showing when, in his opinion, water in the Sowburn would not have been available for BSF because of priority takes. The graph included the provision of 70 l/s for the fishscreen flow, although that water was not extracted and was therefore available to satisfy other takes. He was referred to Mr Carr’s evidence that he could elect not to take the McSkimming land water (to which he would have access through the lease). Dr Davoren accepted that, in that case, his graphs would require amendment to reduce the occasions on which the full BSF allocation was unavailable.
[101] Dr Davoren was of the opinion that the Sowburn water supply was particularly precarious because there were permitted takes in priority to BSF’s resource consent. He referred to eight priority rights. However, the second, he conceded, was not operated; the third was owned 2/3 by Mr Herlihy and one-third by Mr McSkimming; and the fourth was Mr Carr’s “insurance policy”. Dr Davoren accepted that the fifth to seventh rights, owned by Mr Herlihy and located further down the river where, most of the time, the Sowburn runs dry, could not be considered operative. The eighth priority was jointly owned by Mr Hall and Mr McSkimming.
[102] Dr Davoren produced a table analysing the number of days when the full take was not available between the seasons 2006/2007 and 2014/2015. However, as seasons 2012/2013 and 2013/2014 were unavailable, those years were not included, but the 2014/2015 season, a particularly dry one, was. I accept the criticism of the analysis as an averaging tool because two seasons were omitted.
[103] Dr Davoren’s table showed an average of 52.9 percent of the irrigation season 1 November to 1 April when the flow was greater than 343.2 l/s. The table was not a true picture of the season because it excluded October, when there was no water shortage, although it did paint a picture of the stress months.
[104] There was also the issue that, with the exception of 2006/2007, all the data related to time after the critical date of 31 May 2007. If the issue is the value of BSF as at 31 May 2007, it is questionable how much weight should be given to evidence of water availability subsequent to that date.
F Maximum hectares
[105] Mr Cooke challenged Dr Davoren’s conclusion that, because on average only 684 ha of BSF could be irrigated, a maximum production of 877,000 kg of milk solids (kg/ms) per year was possible. Essentially, Dr Davoren’s conclusion was that Mr Carr’s projected production of 1.25 million kg/ms pa could not be produced by the pasture on BSF alone.
[106] It was put to him that, based on his analysis of the amount of dry matter necessary to produce 877,000 kg/ms, the production of 1.2 kg/ms would require about 4 million kg of dry matter (kg/dm). Dr Davoren conceded he had not checked whether that was, in fact, the amount of dry matter required by the farmers to achieve the production on BSF they had over the years.
[107] It was then put to Dr Davoren that, on his evidence, it was impossible to achieve more than 877,000 kg/ms per year. Dr Davoren was then asked to consider the actual annual production figures from BSF against his assessments. He considered that his projection of 877,000 was not far from 927,000 kg/ms achieved in 2006/2007, and 953,000 kg/ms, the production in 2007/2008. Dr Davoren accepted that the actual
production figures were inconsistent with his estimate and speculated that water which was not consented was being used or a great deal of dry matter was being brought on to BSF.
[108] The experts agreed that, assuming there was sufficient irrigation infrastructure to cover 1200 ha, the “AusFarm” modelling procured by Dr Heiler, expert for the plaintiffs, accurately modelled dry matter production from BSF with restricted irrigation. Dr Davoren was asked about the AusFarm model results showing that a soil PAW of 45 mm and watering at 3.7 mm/d by K-line produced 12,059 kg/dm, and with roto rainers produced 12,120 kg/dm per ha.
[109] Taking the lower of those two production figures across the proposed 1200 ha results in 14,470,800 kg/dm. In contrast, if water were used over 878 ha on an unrestricted basis, which was Dr Davoren’s comparison, it would result in 11,759,932 kg/dm. This is almost 3,000,000 kg/dm less than if the water were used over the larger platform. Dr Davoren conceded the point and agreed that a farmer would, in those circumstances, not confine himself to a platform of only 878 ha.
[110] Dr Davoren’s calculations used 45 mm PAW on the basis of the Grow Otago S Map, a macro-scale assessment not based on actual testing of BSF. In contrast, Dr Eger, expert for the plaintiffs, took soil samples from BSF at three locations. The actual PAWs were 93.5 over 6.7 per cent; 59.7 over 18.5 per cent; and 77.8 over 62 per cent.
[111] Dr Davoren emphasised that his conclusion as to effective irrigation of 878 hectares was similar to other reports - Mr Greenwood in 1997 (850 hectares), the Irricon Report (878 hectares), and Mr Hamilton’s evidence for the plaintiffs that approximately 1,000 hectares could be effectively irrigated.
G Irrigation equipment
[112] Dr Davoren’s analysis assumed, based on a document from the 2007 tender process, that there was sufficient equipment on BSF in 2007 to irrigate only 710 hectares. He did not check it against the actual equipment on site (understandably, as he did not visit BSF until 2010); nor did he check it with those involved at the time.
Troy Pope’s evidence was that there was plenty of equipment to cover 1200 hectares; the sharemilkers said there was always enough equipment; and the tender documents were, in any event, different from the schedules attached to Mr Mills’ valuation, which were relied on by Dr Davoren for other matters.
[113] Dr Davoren accepted the reality that a prudent farmer would do his best to have equipment available to irrigate the maximum amount of land in circumstances where water was an issue and that not to do so would be a failure.
Dr Heiler
[114] Dr Heiler is a professional water resources engineer with a PhD in agricultural engineering. He has over 40 years’ experience in large and small scale water resource development projects, many involving irrigation. He was an expert witness for the plaintiffs.
[115] Dr Heiler explained that design of an irrigation system takes account of the water supply, and systems designed to meet extreme conditions are able adequately to irrigate larger areas in the shoulder seasons (prior to and after mid-summer) but cannot keep up with the requirements of larger areas in the middle of the growing season.
[116] Dr Heiler advised the plaintiffs to commission a modelling investigation of irrigation scenarios on BSF to make estimates of irrigation water requirements and consequential dry matter production under irrigation and dryland conditions. He considered that the modelling using AusFarm was vital because it could realistically simulate the effects of soil and climate on irrigation water requirements, accommodate different levels of water supply and types of irrigation equipment, and produce estimates of grass dry matter production over a long sequence of climate records (1972-2015), thereby capturing the year to year variation in these parameters.
[117] The model was also able to characterise the operational features of different types of irrigation equipment used in the irrigation operation, and to capture the significance of any constraints imposed by the equipment or adequacy of water supplies.
A SoilWorks/Greenwood report and parameters
[118] Dr Heiler addressed the Greenwood/SoilWorks report (SoilWorks) which Mr Carr had used in the early development of what became BSF. That report used a daily soil moisture modelling approach to estimate irrigation water requirements and to assess adequacy of water supplies. The modelling carried out by SoilWorks used slightly different data from AusFarm, including water availability and requirements, and did not have the same capability of estimating dry matter production in different scenarios. It also used a different evapotranspiration rate.
[119] The SoilWorks modelling found that the estimated annual water requirement to satisfy needs in 90 per cent of the seasons was between 600 and 645 mm dependent on soil type; the seasonal availability of water was sufficient for 1200 ha; the number of irrigations per year ranged from 12/13 in dry years to 9/11 in wet years; equipment should be designed for an irrigation return period of nine days; the return period needed to cover 1200 ha had to be extended to 13 days, and there would be some effect on production in some years; and a choice had to be made as to whether to irrigate 850 ha with no production penalty or to irrigate the 1200 ha and accept some per hectare production losses.
B AusFarm modelling
[120] The data inputs to the AusFarm model included a period of simulation 1 June 1972 to 31 May 2015; daily rainfall time series from Waipiata; reference evapotranspiration from Ranfurly; three soil PAWs – 45, 80 and 110 mm (the lowest PAW has the highest annual irrigation demand); 600 ha of K-line irrigation and 600 ha of roto rainer irrigation; two assumed irrigation system capacities – 4.5 and 3.7 mm/day; application depth at each irrigation varied depending on equipment; return periods assumed were 14 days for the K-line and 12 days for the roto rainer.
[121] The selected PAWs of 45, 80 and 110 mm used for modelling covered the range of likely values, with 45 mm representing soils which are shallow and difficult to irrigate, 80 mm being based on the PAW estimate in the SoilWorks report (65 and 85 mm); and the 110 mm referenced in the Irricon Report, which used estimates of PAW of 105 and 102 mm.
[122] The AusFarm model assumed a permitted take of 512 l/s whereas the SoilWorks model assumed 497 l/s. Dr Heiler concluded that the difference was inconsequential in terms of model estimates. The AusFarm model was run again with the lower total take of 497 l/s, and confirmed his conclusion.
[123] The two system capacities of 4.5 mm/day and 3.7 mm/day were selected to represent a situation where system capacity was adequate (4.5 mm/day, requiring a water supply rate of 625 l/s) and compare that to the actual system capacity that reflected the available water supply (3.7 mm/day with a water supply rate of 512 l/s) and to assess the sensitivity of the results to these two figures.
[124]The results were:
[125] The AusFarm simulations addressed whether it was better to irrigate to a level where growth was not affected by moisture stress, or to irrigate a larger area and accept lower per hectare production. The results showed that the high system capacity (4.5 mm/day) produced higher dm estimates than the lower system capacity (3.7 mm/day), but the differences were less for higher PAWs. The model estimated average dm production (K-line), with a system capacity of 3.7 mm/day, of between 11,000 and 13,000 kg dm/ha, depending on PAW5. In Dr Heiler’s opinion, these estimates lined up with the potential identified for drybread soils by Rex Dolby of AgroScience Consultancy Services Limited in his 1997 report on BSF of 11,600 to 12900 kg dm/ha (the Dolby report).
5 The lower figure of 11,000kg/dm/ha came from Dr Heiler’s Table 9 which was the estimated 1- in-10 year pasture production.
[126] In Dr Heiler’s opinion, the AusFarm model outputs in terms of annual water requirements and estimated dry matter production were realistic, but said the test was whether it aligned with actual production data from BSF.
C Relationship of dry matter production to milk solids production
[127] Dr Heiler explained that estimates of dry matter production can be converted to estimates of milk solids. The conversion factor is dependent on how efficiently the dry matter was utilised, so the range of conversion factors will vary from farm to farm and within years on the same farm subject to different management. The production of milk solids from a farm in any one season will clearly depend on a number of factors.
[128] After considering two academic sources, Dr Heiler adopted a figure of 10.5 kg/dm per kg/ms. Given the range of dry matter estimates from the AusFarm modelling of BSF (11,000 – 13,000 kg/dm per ha) he concluded:
(a)Total annual dm production from the 1200 ha BSF would be between
13.2 million kg/dm and 15.6 million kg/dm;
(b)The equivalent milk solid production would be in the range of 1,260,000 to 1,480,000 kg/ms from the 1200 ha.
[129] Dr Heiler noted the actual production from BSF over the period 2002/2003 to 2013/2014 ranged from a low of 930,000 to 1,516,000 kg/ms,6 and averaged 1,150,000 kg/ms. He concluded that the estimation of milk solid production from the AusFarm modelling compared reasonably well with actual production from BSF, given that the former came from 43 year model simulation and the latter from a 12 year production period.
6 This figure has been adjusted from reported production of 1,636,000 kg/ms in the 2013/2014 season on the basis that the reported figure included production of 120,000 kg/ms from an additional property (Willowview).
D Conclusion
[130] Dr Heiler concluded, from the reasonable agreement between model estimates and other estimates of water requirements, that the model realistically estimated the water requirements on BSF. He further concluded that the model estimates of dry matter aligned well with independent expert estimates specific to BSF and the region. Finally, in his opinion, the model estimates of milk solids were in reasonable agreement with the actual production from BSF.
[131] Dr Heiler therefore concluded that, as at May 2007, the 1200 ha milking platform on BSF was capable of full and reasonable irrigation under the assumptions of water availability and equipment available, albeit at levels that were less than optimum than if all of the inputs were unlimited.
Observations
[132] The main difference between Dr Heiler and Dr Davoren was the return period adopted by each. Dr Davoren adopted a return period of five days which, in Dr Heiler’s opinion, was out of line with practice. Dr Heiler noted that a 14 day return period seemed to be used by farmers in the area and by Troy Pope. He considered that to be industry practice and was, therefore, why he undertook his model on that basis.
[133] Evapotranspiration is the rate at which moisture is lost through growing plants and soil and it varies depending upon the climatic environment. Dr Heiler explained that in the Maniototo, evapotranspiration can be as high as 7.8 or 9 mm per day, but that models are never designed for those rates. In essence, he said that the level adopted depended upon what was being designed for, which would depend on management objectives. He said that it can be expected that, if water is spread more thinly over a larger area, more grass will be grown than if the amount of water is confined to a smaller area, depending upon the response of the grass to the water and the degree of shortfall.
[134] Dr Heiler explained that it was very unusual for water resources to be 100 per cent reliable in terms of irrigation supplied to large schemes in the international context. The AusFarm model assumed 512 l/s water was available every day when
irrigation was needed and was 100 per cent reliable. Dr Heiler said, if that were not the case, the results would depend upon the quantum of the reduction and its timing.
[135] The AusFarm model allowed for 1,500 kg/dm per ha to be unharvested and left behind for regrowth. Dr Heiler was cross-examined about actual cow consumption as opposed to available consumption. Dr Heiler referred to the anecdotal evidence of high grass usage in the Maniototo as compared to other areas because it was not as wet and there was less trampling of the grass. Mr Carr said that 95 per cent food utilisation was the rate in the Maniototo because the ground was hard and generally dried in winter.
[136] The defence suggested that the industry standard approach was that only 75 per cent of grass grown was actually consumed by the cow, and that, of the unused 25 per cent, 15 per cent loss was attributable to inefficient consumption. Dr Heiler could not comment on the industry standard, but accepted that, if the 15 per cent figure was correct, then his conclusion of annual production of between 1.068 to 1.260 million kg/ms would require reduction by 15 per cent. Dr Heiler observed that 15 per cent for consumption inefficiency seemed high.
[137] Although, outside the 2012/2013 and 2013/2014 seasons, actual production was not within 100,000 kg/ms of the bottom of his range, Dr Heiler was of the opinion that the numbers were close in the circumstances. The bottom of Dr Heiler’s range was 1,260,000 and the closest actual production was 1,150,000, around a 10 per cent difference which Dr Heiler considered remarkably accurate.
Mr Hamilton
[138] Mr Hamilton, consulting engineer, was an expert witness for the plaintiffs. He has worked in river, flood and erosion control, irrigation water supply, engineering hydrology and water resources for 46 years. Mr Hamilton concurred with Dr Heiler’s statement that “it is rarely economic to supply water at the rate needed to meet isolated very high daily demands; and in some cases the water supply itself is not adequate to meet these high daily demands.”
[139] Mr Hamilton explained that half a litre per second per ha is the generally accepted standard in Otago, but depended upon each farmer’s risk profile. This equates to 4.3 mm a day which, assuming reliable water flow of 508 l/s for BSF, would lead to a milking platform of 1,016 hectares. Mr Hamilton stressed this was dependent on the farmer and that it might be better to spread the water more thinly as a slightly stressed platform might result in an overall higher production.
Dr Eger
[140] Andre Eger is a soil scientist/pedologist at Landcare Research and was an expert witness for the plaintiffs. He undertook an analysis of the three soil types located on the BSF. In the expert conferral with Dr Davoren, he agreed that it was appropriate to treat BSF as having an effective soil depth of 40 cms.
[141] Dr Eger was asked about the AusFarm model. He said that, if a PAW of 45 mm were used, in fact the water would spread down to around 60 cms although unevenly. If the soil depth were changed to 40 cms, the PAW would be less than 45 mms. Dr Eger explained that soils hold water as long as they have a depth of around 30 cms, and that PAW is important as it represents water stored in soil, but provided there was a soil depth of 20 to 30 cms, soil depth was irrelevant. Within a depth of between 20 and 30 cms, a PAW of at least 60 mm is achievable, he said.
[142] In his opinion, the table produced by Dr Heiler did not represent reality and a PAW of 80 mm would be realistic for BSF. If a PAW of 45 mm were assumed, readily available water was at 22.5 mm.
[143] Dr Eger accepted the PAW of soil can change as irrigation is applied over time. However, there was insufficient data to predict changes. Irrigation improves PAW as organic matter builds up (as Mr Carr said in his evidence) although it is possible for irrigation to lead to decomposition of organic matter.
Paid share of arbitrator’s costs
[758] GCA paid 100 per cent of the costs of the arbitrator and is entitled to deduct from any award of damages the plaintiffs' 50 per cent liability for the arbitrator's costs, being a deduction of $97,198.
Liabilities not assumed or incurred/amounts received
[759] Finally, the defence pointed to liabilities not assumed or incurred and amounts received due to the failure of the ASA to settle, claiming the plaintiffs were better off by $919,054. As a result, GCA was entitled to a credit in this sum, offsetting the damages that it had to pay.
[760] The parties agreed that GCA is entitled to a credit of $487,054, being liabilities not assumed or incurred, and amounts received, by the plaintiffs because the ASA did not settle. These amounts are:
(a)Sum received from Mr Humphries as co-obligor of UDC debt -
$105,000;
(b)Finance on farm equipment and plant - $37,077;
(c)Arrears of rent and rates for McSkimming land - $30,000;
(d)Liquidators fees - $49,977;
(e)GCA unpaid attendances - $265,000.
[761] If the ASA had settled, the plaintiffs would also have been required to pay facility fees to Hanover totalling $432,000. I cannot see how this is in a different category from the other costs. It was a payment the plaintiffs would have had to make in order to settle the ASA.
[762]The total of $919,054 is to be offset from the damages.
General damages
[763] Mr Carr claimed that as a result of GCA’s negligence, he suffered stress, anxiety and disruption as a consequence of the on-going litigation with the Humphries’ interests, his serious financial challenges (including bankruptcy), the uncertainty as to when the litigation would end, and eviction from his home and holiday home, being the Danseys Pass Coach Inn and the Styx Hotel respectively.
[764]Mr Carr summarised the impact as including:
(a)the impact of the resumed litigation with Mr Humphries;
(b)the effect on his general health, including insomnia;
(c)the enormous stress and anxiety of his inability to continue to support his family and his inability to settle with his ex wife;
(d)the end of his relationship with his previous partner;
(e)the strain on his relationship with his sisters because he still owed them from their share of the farms from the 1980s;
(f)the view that his family holds that he has squandered generations worth of work;
(g)his struggle to obtain funding from any of the normal sources, and only at punitive rates.
(h)his loss of reputation and self esteem, as a result of community and media speculation, and at times ridicule. He described the scrutiny as intense, humiliating, and relentless; and
(i)his inability to make a fresh start in life.
[765] Mr Cooke also pointed to Mr Carr’s life being dominated by this litigation over the last 9 years, and the harm and destruction of his reputation as a businessman. This was evidenced by online articles, available through Google searches, which detailed that Mr Carr faced bankruptcy in the High Court, with references to articles in publications such as the National Business Review. In Mr Cooke’s submission, this demonstrated the extent to which Mr Carr’s reputation as a businessman had been detrimentally affected.
[766] On this basis, Mr Carr sought $100,000 in general damages. The effect on Mr Carr was said to be comparable to the effect on the plaintiffs in Heslop v Cousins and Arthur Andersen & Co v Gibson in which the plaintiffs were awarded $100,000 and $70,000 in damages respectively.103 Mr Cooke compared leaky building cases and said Mr Carr actually lost his family home and properties entirely as a result of the negligence.
[767] GCA accepted that Mr Carr should be entitled to general damages, but said the appropriate award was no more than $40,000, given the traditional emphasis of the Courts on limiting this head of damages to a moderate level. General damages must be kept within reasonable limits.104
[768] This case, in Mr Ring’s submission, was less serious than other cases in which high end stress damages have been sought. He pointed out that Mr Carr was not bankrupted, partially due to QBE advancing payments to him on GCA’s behalf, and that, although the effect was great and prolonged, he did regain some of his properties in 2012. Furthermore, while Mr Carr referred to the impacts on his health, there was no corroborative medical evidence, and, although there were also adverse effects on his family and domestic relationships, he had a new domestic relationship.
[769] Mr Ring also referred to the fact that Mr Carr was able to obtain payments from other sources for living and non-compensable expenses, which alleviated the factors relevant to the damages claim.
Law
[770] This claim is for general damages in tort, to compensate Mr Carr for the negligence of GCA and the effects of that loss which cannot be objectively quantified. In particular, a plaintiff may receive damages for general inconvenience, distress, and disruption where those consequences were reasonably foreseeable consequences of
103 Heslop v Cousins, above n 23; Arthur Andersen & Co v Gibson HC Auckland CP1633/91, 10 July 2002.
104 O'Hagan v Body Corporate 189855 (Byron Ave) [2010] NZCA 65, [2010]3 NZLR 445 (CA) at [111], citing Mouat v Clark Boyce [1992] 2 NZLR 559 (CA) at 569.
the defendant's negligence.105 In this case, there is no dispute that general damages are warranted. The only question is the appropriate level.
[771] In leaky building negligence cases, the Court of Appeal has given guidance that the usual award should be around $25,000 per unit to occupiers.106 However, in other negligence cases there is not such an established and clear scale.
[772] In Mouat v Clark Boyce , the Court of Appeal analysed the difference between damages for stress in contract and in tort, saying that stress damages for breach of ordinary commercial contracts would be unusual, given that stress is an ordinary incident of commercial life.107 However, the Court “by contrast” saw one of the very purposes of imposing duties on professional persons to take reasonable care to safeguard the interests of their clients is to enable the clients to have justified faith in them.108 In that case, $25,000 was awarded to the plaintiffs as a result of the defendant’s breach of fiduciary duty.
[773] The plaintiffs relied on the cases of Heslop v Cousins and Arthur Andersen & Co v Gibson. Arthur Andersen, a 2002 case, bears some resemblance to the current case, being a solicitor’s negligence case in which advice from a solicitor was a factor in the collapse of a company. Laurenson J found that the collapse was primarily due to a systemic fault in the company. He awarded general damages anyway to compensate for the behaviour of the firm following the claim against them. The litigation took over ten years, and the firm failed to understand their fiduciary duties, and adopted a litigation strategy which meant that the dispute was “extraordinarily long, complex and costly”. Laurenson J fixed costs at $70,000 or $7,000 per year of litigation and stated:109
The defendant was not being deprived of an additional benefit … he was seeking to recover, in effect, his entire financial worth. His determination to pursue his claim has resulted in the loss of his marriage and other significant relationships. The stress arising from this litigation has been extreme and it should not have been so.
105 Laws of New Zealand Negligence (online ed) at [102], citing Chase v de Groot [1994] 1 NZLR 613 (HC) and Chase v de Groot HC Dunedin CP141/90, 6 September 1993.
106 Byron Avenue, above n 104, at [153].
107 Mouat v Clark Boyce , above n 104.
108 At 569.
109 Arthur Andersen, above n 103, at [253].
[774] In Heslop, Chisholm J awarded $100,000 in general damages, which appears to be the highest general damages award in New Zealand. The litigation ensued over a property deal which, due to breaches on the part of their solicitor, resulted in the plaintiffs losing the chance to sell their property and retain a valued option to buy back a related family orchard. Instead, they were bankrupted. Chisholm J considered that general damages for the stress of litigation due to the conduct of defendant could not succeed, as it would be covered in a costs award. However, general damages were appropriate considering the exacerbation of the defendants’ existing depression and stress symptoms, and the anxiety, humiliation, pain and suffering caused by the solicitor’s breaches including being bankrupted which was something particularly devastating to them. The husband and wife plaintiffs received $50,000 each.
[775] I have also considered other cases in which general damages have been awarded, with awards ranging from $10,000 to $30,000, although in some cases divided between two plaintiffs.110
Analysis and findings
[776] There is no clear scale for awarding general damages. The level of general damages which is appropriate is essentially at my discretion, taking into account the level of stress and general impact the defendant’s negligence has had on Mr Carr.
[777] I acknowledge the significant impact on Mr Carr from the loss of BSF and his consequential struggles. The impact on Mr Carr appeared to have been overwhelming. Although the delay in this case being determined, and the consequent delay in regaining some of his losses was not due to litigation tactics (unlike Arthur Andersen), the delayed resolution clearly aggravated the effect on Mr Carr. His entire life has been disrupted for a significant period of time. Liability was conceded by the defendant only in the weekend before the trial was due to commence.
[778] In keeping with the other cases at the higher end of the damages range, the loss to Mr Carr involved not only in essence his entire livelihood (rather than a discrete
110 Brouwers v Street [2010] NZCA 463, [2011] 1 NZLR 645; Steffensen v BGW Investments Ltd (formerly Broadbase Otago Ltd) [2014] NZHC 1828; MacLean v Annan & Co HC Tauranga CIV 2009-470-868, 18 November 2011.
investment), but also had a personal dimension given his connection to BSF and his personal desire to retain it in his family.
[779] He was not bankrupted, as occurred to Mr Heslop, and neither did he provide specific medical evidence of particular harms to his health other than the general strain and stress of ongoing negotiations with lawyers and financial institutes which can be readily recognised. It was also evident that there had been a great deal of personal pressure on Mr Carr as a result of borrowing from friends and family to cover his debts. As well, coming so close to bankruptcy was likely highly stressful and embarrassing.
[780] The level of harm to Mr Carr was evidently at the high end of the spectrum. I agree that it went beyond the harm to those involved in leaky buildings litigation. However, it appears that the top end of the general damages range is infrequently used. An award of $100,000 would be significantly higher than the types of awards given previously for general damages, especially given that the $100,000 award in Heslop was for two separate plaintiffs’ stress. The damage to Mr Carr, although comparable to Arthur Andersen, did not involve the flagrant behaviour on the part of the solicitors in that case which was clearly a strong reason for the high award.
[781] In all the circumstances, I am satisfied that an award of $50,000 in general damages is appropriate.
Interest
Submissions
[782] The defence challenged the plaintiffs’ claim for interest. The plaintiffs aggregated the individual heads of loss pleaded, and claimed interest on the global amount under the Judicature Act 1908 from 31 May 2007. In Mr Ring’s submission, this was too simplistic. Each head of loss had to be considered separately, and separate discretions had to be exercised on a principled basis in relation to each, taking into account and giving due weight to the relevant factors.
[783] Mr Ring described the justification for an award of interest as that "the defendant should have admitted the claim when made and offered a proper sum by way of damages."111 However, in Mr Ring’s submission, the underlying origins of this principle were cases where, because of the defendant's wrongful conduct, the plaintiff has been deprived of the use of money which he or she would otherwise have enjoyed. For that reason, the usual starting date for interest is the date on which the cause of action accrued.112 It loses much of its logic and force when the plaintiff has not been deprived of money but an asset which the plaintiff would have kept, said Mr Ring.
[784] In particular, the defence took issue with the interest calculations running for the period between January 2010 and June 2014, which was the period in which the parties embarked on the ultimately unsuccessful arbitration. The plaintiffs issued the current proceeding during that period to avoid the time-bar, but they remained effectively stayed until October 2014. In Mr Ring’s submission, interest should not accrue during that period, for essentially the same causation argument relied on by GCA in respect of its liability for the arbitration costs. This would mean that a 4 ½ year period from January 2010 to the end of June 2014 would not attract interest.
[785] GCA proposed that, for convenience, in relation to heads of loss for which interest might otherwise be justified from 2007, the Court should award interest for the remaining 4½ years period, at a blended interest rate of 6.5 per cent to account for the changes in interest rates since that period.
[786] Where the plaintiffs have actually expended money, GCA accepted that, in principle, the plaintiffs were entitled to interest from that date. However, where no payments have yet been made, in Mr Ring’s submission, no interest was warranted as they have not lost the benefit of that money.
[787]The heads of loss in this category are:
·SCF – interest on $35,000 at 5 per cent from 3 March 2015.
111 Worldwide NZ LLC v NZ Venue and Event Management Ltd [2014] NZSC 108, [2015] 1 NZLR 1 (SC) at [23], citing Law Revision Committee Second Interim Report (March 1934) (UK), at [8] – [9].
112 Day v Mead [1987] 2 NZLR 443 (CA) at 463.
·Mr Le Fleming – not yet paid, so no interest.
·Mr O’Connell's schedule of services – not yet paid, so no interest.
·GCA & Les Taylor invoices – not yet paid, so no interest.
·arbitration invoices – not yet paid, so no interest.
·Arbitration experts' costs (if any damages awarded) – interest on $83,740, at 5 per cent, from 23 November 2010, being the date of the last payment.
[788]In respect of other specific assets, GCA said:
(a)BSF, plant and equipment, and the ASA cows: because the claim was for loss of the difference in value as at 31 May 2007, the amalgamated
6.5 per cent interest rate should apply over the 4 and a ½ year period, excluding the delay for the arbitration.
(b)Patearoa House and the Creek Block: because Mr Carr intended to give away these properties shortly after 31 May 2007, he had not been deprived of their value for more than a de minimis period and therefore damages were not appropriate. If the Court rejected that submission, the Creek Block should be treated in the same way as BSF. As noted above, I have rejected the suggestion that the Creek Block was to be given away.
(c)General damages: Mr Ring referred to what he described as the accepted principle that interest is awarded from the date the proceedings are issued. He said the date should be 21 October 2014, the date of the pleading which signalled the commencement of this stage of proceeding, following the stay. 5 per cent interest was applicable at that time.
[789] In Mr Cooke’s submission, there was no disentitling conduct on the plaintiffs’ part and interest should run at the statutory rate from the date of breach down to the
date of payment, including for general damages. He said that, had the defendant immediately admitted liability, damages would either have been fixed shortly after 31 May 2007, or after the judgment of the Court of Appeal (February 2009).
[790] The fact that both parties might have been responsible for the arbitration misfiring is irrelevant, in Mr Cooke’s submission. Had GCA admitted liability, it would never have been needed. It was subject to rights of appeal which were frustrated by GCA, not the plaintiffs, taking the point that the appeal right was unenforceable.
Assessment
[791] The discretion to award interest is unfettered,113 and to be exercised as the justice of the case requires.114 I accept there is flexibility to award a blended interest rate, and apply interest over a reduced period if appropriate.
[792]As the Court of Appeal said in Day v Mead:115
In the end it is a question of what the justice of the case requires. There are no inflexible rules as to the rate to be awarded or the date from which it should run.
[793] GCA has acknowledged it was negligent. It could have done so from the outset and, had it done so, there would have been no arbitration and nine year period during which the plaintiffs were deprived of their money. The source of the delay was the failure to acknowledge, not the failure of the arbitration. I agree with the plaintiffs that there is no reason for interest to be suspended for the period of the arbitration and subsequent appeals. As Mr Cooke said, had the defendants acknowledged liability from the outset, the arbitration, its costs and the delay would not have been incurred.
[794] Furthermore and significantly, GCA, or its insurers, has had the benefit of the funds for the whole of the 9 year period. I agree with Mr Cooke that it would not be right for GCA to retain the benefit of those monies without paying interest at the statutory interest rate. Lord Denning in Jefford v Gee, in the context of a case on
113 BP Exploration Co (Libya) Ltd v Hunt (No 2) [1979] 1 WLR 783 (QB) at 846.
114 Worldwide NZ LLC v NZ Venue and Event Management Ltd, above n 111, at [70]; Judicature Act 1908, s 87(1).
115 Day v Mead, above n 112, at 464.
personal injury damages and general damages, quoted from the Law Revision Committee and said:116
In practically every case a judgment against the defendant means that he should have admitted the claim when it was made and have paid the appropriate sum for damages. There are of course some cases where it is reasonable that he should have a certain time for investigation, and in most cases the Court may well award interest only from the date when such reasonable time had expired … .
[795] I do not accept the defendant’s reasoning in respect of the Patearoa House. Mr Carr might have had the intention of giving it to Mr O’Connell but it was part of recognition for services rendered. The interest in that property has been lost for nine years.
[796] I accept that interest can be awarded in respect of liabilities which the plaintiffs have incurred but which they have not yet paid. Some of the costs incurred have been invoiced but not paid, and some, for instance Mr O’Connell’s fees, have not yet been invoiced. The reason for that is clear. Mr Carr did not have the means to pay the invoices, a factor which is, at least to some extent, also attributable to the defendant’s breach and its effect on Mr Carr. Mr Carr will have an additional liability to his creditors to pay interest and for that reason, interest at the Judicature Act rate cannot be criticised. It may be that the plaintiffs should have specifically addressed this in the statement of claim but it cannot be said that the defendant has been prejudiced by that failure.
[797] The prescribed rate has changed several times since 2007.117 The change in the prescribed rate over the period works out at 6.5 per cent on average. I accept the submission that this should be the rate which applies for ease of calculation.
[798] For these reasons, the plaintiffs are entitled to interest at 6.5 per cent from the date of breach in respect of the assets, from the date of expenditure in the case of money already expended, and from the date of invoice or date when the work would have invoiced in the case of money not yet expended.
116 Law Revision Committee Second Interim Report (March 1934) (UK) at [8]; cited with approval in Jefford v Gee [1970] 2 QB 130 at 144.
117 From 1 August 2002 to 30 June 2008 - 7.4 per cent; 1 July 2008 – 30 June 2011 - 8.4 per cent; from 1 July 2011 - 5.0 per cent.
[799] General damages should also attract interest as from the date of breach. There is no fixed rule as to the commencement date for interest, although it is not uncommon in tort cases to delay the commencement of interest until the date of issue of the proceedings.118 However, the date of accrual approach is also often used and seen as required by justice, since that is the date from which the obligation to pay damages stems.119 This general principle was recognised by the Court of Appeal in Jefford v Gee, as noted in the extract above, specifically in the context of general damages in personal injury cases.
[800] Given that the general damages are to acknowledge Mr Carr’s suffering over the last nine years of his life as a result of GCA’s negligence, it is just and fair that interest runs from the date of breach.
GCA payments
[801] GCA accepted that it should not be entitled to an offset in respect of the advances made for the purpose of funding past and future litigation expenses, and to help secure ASA assets. However, GCA sought an offset to the extent of the plaintiffs' misapplication of their advances, and interest on the misappropriated funds. The funds were misappropriated the day after payment.
[802] In respect of the counterclaim, GCA is also entitled to interest at the same rate, from the date of the misapplication of funds.
Result
[803]For the reasons given, the plaintiffs are awarded damages as follows:
Loss of BSF $8,595,144 Patearoa House $136,000 Creek Block $647,150 ASA cows $458,100 Plant and Equipment $250,000 Litigation and other costs $628,171 118 Wilson & Horton Ltd v Attorney-General [1997] 2 NZLR 513 (CA) at 530.
119 Westdeutsche Landesbank Girozentrale v Islington London Borough Council [1996] AC 669 (HL) at 717; Worldwide NZ LLC v NZ Venue and Event Management Ltd, above n 111, at [23].
General damages $50,000 Sub total $10,764,565 Less: ASA expenditure $919,054 Counterclaim $215,471 50% arbitrator’s costs $97,198 $9,532,842
[804] The plaintiffs are entitled to interest at the prescribed rate from the dates set out above. The defendant is entitled to interest on the counterclaim.
[805] If there is any issue as to calculations, leave is given to refer the matter back to me.
[806] The issue of costs might involve some complexity. If agreement cannot be reached, the parties are to file memoranda within 40 days addressing the issues where there is not agreement and with submissions as to whether the issues can be dealt with on the papers or whether hearing time will be required.
Thomas J
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