Clover Flats Dairy Farm Limited v Wilson

[2012] NZHC 957

IN THE HIGH COURT OF NEW ZEALAND TIMARU REGISTRY

CIV2010-476-000542 [2012] NZHC 957

BETWEEN  CLOVER FLATS DAIRY FARM LIMITED

Plaintiff

ANDMAX STUART WILSON AND CHERYL ANNE WILSON

Defendants

Hearing:         16 April 2012

(Heard at Christchurch)

Counsel:         I D Matheson for Plaintiff

B Nevell for Defendants

Judgment:      8 May 2012

JUDGMENT OF WHATA J

[1]      Clover Flats  Dairy Farm  Limited  (“Clover  Flats”) sold  142  cows  to  the Wilsons.  The Wilsons have not paid for them.  They say that the cows were blighted with mastitis.   Early last year Associate Judge Osborne entered judgment by default against the Wilsons.   They had not filed a statement of defence.   The Wilsons persuaded Associate Judge Matthews to set aside that judgment.   The Associate Judge accepted the Wilsons’ explanation, including that the Wilsons were under extreme pressure at the time of service of these proceedings.  Clover Flats seeks to review that decision, contending that it was obtained by deception.  It also says that there is  no  substantial  defence to  the claim  that  the  evidence before  the Court showed that there was no mastitis.  Overall Clover Flats contend that the Wilsons are so lacking in credibility that any discretion to set aside the default judgment ought to have been exercised against the Wilsons.  Finally, it is claimed that judgment as to

quantum should not have been set aside in any event.

CLOVER FLATS DAIRY FARM LIMITED V WILSON HC TIM CIV 2010-476-000542 [8 May 2012]

Background

[2]      The genesis to this matter is relatively simple  - the sale of cows to the Wilsons.  The essential dispute appears to be whether or not the cows were infected with mastitis.  For the purposes of this review, the relevant background concerns the reasons why Associate Judge Matthews set aside the earlier judgment by default. Associate Judge Matthews found that there were three matters which contributed to

the delay by the Wilsons in filing their statement of defence.  He stated: 1

...  The first was the Wilsons’ inaction because of the stress they were under due to the Stockco matter. The second was Mr Firth inadvertently removing the proceedings from the house. The third was the advice given by the registry. ...

[3]      Taking all of those matters into account Associate Judge Matthews found the delay in filing the statement of defence to be reasonably explained.

[4]      Associate   Judge   Matthews   then   specifically   addressed   whether   the defendants have a substantial ground of defence to the claim.  He observed that the defendants rejected the cows and refused to pay the purchase price as they contend that the cows were infected with mastitis at the time of purchase.  He recorded that on their evidence they had not experienced any significant problems with mastitis in their dairy herd prior to the plaintiff’s cows arriving on the property.  Their evidence is that almost immediately after their arrival it was found that the cows purchased had mastitis.   The cows were delivered on 18 and 20 August and on 22 August testing was undertaken at Mr Wilson’s request by the defendants’ veterinarian to establish  whether  the  cows  had  any  mastitis.    This  revealed  what  Mr  Wilson described as an alarming rate of mastitis requiring a large number of the cows to be treated.    The  Judge  further  recorded  that  Mr  Wilson  regarded  the  incidence  of mastitis as extremely high, but also that the proportion of mastitis caused by Staph aureus, a strain of mastitis which is very difficult to treat and more frequently results in the death of the cow concerned, was abnormally high.  The Judge also referred to

evidence  from  the  defendants’ veterinarian,  namely  that  of  the  15  cows  which

1      Clover Flats Dairy Farm Limited v Wilson HC Timaru CIV 2010-476-000542, 19 August 2011 at [15]

received rapid testing for mastitis, 13 showed mastitis with grades of 1 through to clinical.

[5]      The  plaintiff  responded  with  evidence  from  Mr  Holdt,  a  director  of  the plaintiff; Mr Taylor, the livestock agent who negotiated the sale; Mr Hill, the former owner of the cows; Mr Turnham, a livestock manager; and Mr Newton, a vet.  It is recorded in the judgment that witnesses for the defendants took issue with material portions of the evidence.   Further affidavit evidence was filed on behalf of the defendants.

[6]      A critical issue before Associate Judge Matthews was the contestability of the

opinions expressed by the Wilsons’ expert, Mr Holloway.  He observed:

[28]     ... I have no hesitation in accepting that in the end Mr Holloway’s evidence might not be accepted, after the plaintiff exercises its right to put to him opposing viewpoints.  As an example, at paragraph 10 of his affidavit dated 25 March, Mr Holloway has deposed that prior to 2008 he had never had any reason to be concerned with the levels of mastitis on the Wilsons’ farm.   That is a statement of fact.   Perhaps, at a trial, the plaintiff could establish that in fact Mr Holloway did have those concerns.  Perhaps, at trial, the plaintiff could establish that he should have held such concerns.  That may have as its foundation the evidence of the plaintiff’s witnesses that there were good reasons for such concerns to be held.   That, however, is well outside the realms of an inquiry as to whether or not the defendants can show that they have an arguable defence.

[7]      The  judgment  also  reveals  a  further  issue  related  to  the  hygiene  of  the

Wilsons’ farm. Associate Judge Matthews approached that issue in this way:

[29]     Mr Matheson submitted that there are documents before the Court showing that there were problems involving hygiene that the defendants have denied but which the plaintiffs now know to be true. A lack of hygienic operating conditions on a farm is a known factor in the spread of mastitis, so plainly this is an issue of some relevance.  However, even if the plaintiff’s position on this issue is ultimately found to be the correct one, it cannot be assumed on the material before me that any established lack of hygiene was in fact the cause of the mastitis, and that the cows did not bring the infection with them.  Put another way, if the cows were infected when they arrived, lack of hygiene at the receiving end cannot have been the cause;  it might exacerbate more rapid speed of the outbreak.  What will be required will be an overall analysis of precisely what occurred in the time span that I have indicated.  The potentially contributing causes of the mastitis outbreak are too complex to be determined without a full hearing of all the evidence by an oral testimony trial process.

[8]      Overall, Associate Judge Matthews concluded that the defendants have an arguable defence.

[9]      The  Associate  Judge  then  looked  at  whether  the  plaintiff  would  suffer irreparable injury if the judgment was set aside.   He concluded that taking into account the sum held at present for the judgment, the defendants have identified assets of around $950,000 and debts of $200,000 although possibly there are more. He observes that the extent of their disclosure of their financial position is less than candid.  Nevertheless, on the best information before the Court, the Associate Judge was satisfied that there was still some $500,000 as a buffer before the plaintiff’s ability to recover judgment, should they obtain one, would be in jeopardy.

[10]     The plaintiff’s final complaint that the application to set aside judgment was unduly late was not accepted by the Associate Judge.  He notes that the papers were not located in Mr Firth’s file until February, he was very unwell at the time, and it was necessary for the defendants’ solicitors to once again be  instructed and for documents to be prepared.

[11]     The outcome therefore was that the judgment was set aside and costs were ordered in favour of the defendants.   There was a postscript to Associate Judge Matthews’ judgment.  The plaintiff made an application seeking that the judgment be recalled.    In rejecting that  application  for  recall,  the Associate Judge  made the following observations (in summary):

(a)      The three matters identified by the Court, in combination, should have led the plaintiff to realise that there were strong grounds justifying the delay.

(b)There were no fewer than 14 affidavits canvassing a range of key factual issues.    While each of the elements traversed in conflicting affidavits might ultimately be relevant to the Court’s adjudication, the divergence of views not only of witnesses of fact but experts meant that the Court could not on any reasonable or just basis reject the prospect that an arguable defence might be established at trial.

(c)       On  the  issue  of  costs,  the  plaintiff  endeavoured  to  argue  the inarguable.

Jurisdiction

[12]     This is an application for review pursuant to s 26P(1) Judicature Act 1908. The principles of review are well known.2   I will proceed on the basis that in order for the review to succeed there must be an error of law, failure to give regard to a relevant matter, regard given to an irrelevant matter, or procedural impropriety.   I may also review the decision if in my view it was plainly wrong.   Ultimately a decision to review is discretionary.   Given that this review relates to the default

procedure, broad interests of justice must be the key consideration.

The issues

[13]     Given the shape of the argument, the key issues are: (a)         Did the Wilsons mislead the Court?

(b)       Do the defendants have a substantial ground of defence?

Misleading statements

[14]     Turning to the alleged misleading statements, the plaintiff’s submissions and

evidence on this are prolix. At their core are the following key allegations:

(a)       Mr Wilson first misled the Court at the telephone conference on 24

January 2011 when he said that he had no recollection of any event when he and his wife were served with the documents in the proceedings.

(b)       Mr Wilson later misled the Court when he said he and his wife were

2      McGechan on Procedure (looseleaf ed, Brookers) at J26P.05 citing Gregory v Gollan HC Auckland CIV 2005-404-3485, 4 July 2007

going through  some  difficult  times  with their dairy herd’s  owner,

StockCo, at the time of service.

(c)      Mr Wilson misled the Court when he said they were fully occupied both mentally and time wise trying to resolve the StockCo matter.

(d)Mr Firth (in support of Mr Wilson) misled the Court when he said he received a telephone call from Mr Wilson on 19 November 2010 in a distressed state advising that agents for StockCo had arrived on his farm to seize the stock the Wilsons leased from StockCo.

(e)       Mr  Firth  further  lied   when  he  said  that  on  the  morning  of

25 November  2010  he  visited  the  defendants  to  obtain  details  of various items of plant the Wilsons could use as security for lending required to deal with the StockCo matter.

(f)       A related misleading statement was that Mr Firth said StockCo had agreed on Friday, 19 November 2010, to return their cows but had then changed the terms of what was agreed.

[15]     Mr Matheson submits that these deceptions have now been exposed by the

evidence in Mr Foote’s affidavit.  In particular:

(a)      Mr Foote confirmed that on 23 November 2010 the defendants were represented by Webb Farry and thus were not self-represented at the date of service.

(b)The dispute with StockCo was actually settled by a payment made by the defendants through Webb Farry on 23 November 2010, two days before Mr Firth’s alleged visit.  The defendants have now disclosed a letter from Webb Farry dated 23 November 2010 sending a settlement cheque to StockCo.

(c)       The documentary evidence reveals that the agreement to settle the

StockCo  debt  had  in  fact  been  reached  seven  days  earlier  on

16/17 November 2010.

(d)      The evidence from Mr Foote established that the herd was seized from Mr Wilson’s property on 29 October 2010, some three and a half weeks before service of the proceedings.

[16]     Mr Matheson therefore submits that the story put forward by the defendants justifying their delay in filing the statement of defence was contrived.

[17]     For the defendants, Mr Nevell submits:

(a)       Mr Wilson’s  statement  at  the telephone  conference  on  24 January

2011 at most gives rise to an issue of credibility, but that is not a sufficient  basis  for  setting  aside  the  decision  of Associate  Judge Matthews who appropriately weighed the relevance of that statement.

(b)       If the Wilsons’ evidence was misleading, it was not intentionally so.

(c)       It  is  accepted  that  the  stock  were  actually  uplifted  on  or  before

29 October 2010 but the critical evidence is that settlement did not actually take place until 23 November 2010 and that the stress around that settlement was real, and that the Wilsons did not have their cows in their possession at the time of service.  To the extent there are any inaccuracies in the evidence given by Mr Firth and Mr Wilson, these go to matters of detail rather than substance.

(d)It is further submitted that an allegation of deliberately attempting to mislead the Court requires more evidence than that which the plaintiff has put forward.

[18]     I can deal with this issue succinctly.   In a review context, an intention to deceive the Court must be proven to a high level of surety given the potential for injustice.  I am not in a position to determine whether or not the Wilsons or Mr Firth

lied, the extent of any lies, and whether they were sufficiently relevant to the Associate Judge’s decision.   I accept that Mr Matheson’s “new evidence” reveals inconsistency, but that goes to a question of credibility.   It does not make the statements incontrovertibly misleading in the sense of being deliberately designed to deceive the Court.  This also illustrates an underlying or deeper flaw in the plaintiff’s approach. Issues of credibility are not readily amenable to the review procedure.

[19]     Moreover, this case is not like those cited by Mr Matheson where assertions raised by a defendant were obviously without merit.3    In this case the critical representation by the Wilsons was that they were under considerable stress at the time of service due to the StockCo matter.  The evidence reveals that the Wilsons were wrong about the timing of key matters. But the evidence also provides an ostensible basis for the assertion that they were under considerable stress because at

the key time they still did not have their cows back.  The cows were their livelihood. Whether the Wilsons were in fact under stress is a live matter and it would be wrong for me to conclude on review and in the absence of cross examination that they lied about their level of stress.

[20]     Accordingly I dismiss this ground of review.

Substantial ground of defence

[21]     With respect to Mr Matheson’s very detailed exposé, this ground appears even less justified than the first. There is expert evidence asserting that there was a

serious mastitis issue within the herd sold by the plaintiffs based on testing done

3      Mr Matheson cited various cases, but his point was most aptly illustrated by the following statement in ED&F Man Liquid Products Ltd v Patel [2003] EWCA Civ 472, [2003] All ER (D)75, per Potter LJ:

10.   It is certainly the case that under both rules, where there are significant differences between the parties so far as factual issues are concerned, the court is in no position to conduct a mini-trial: see per Lord Woolf MR in Swain v Hillman [2001] 1 All ER

91 at 95 in relation to CPR 24.  However, that does not mean that the court has to accept without analysis everything said by a party in his statements before the court. In some cases it may be clear that there is no real substance in factual assertions made, particularly if contradicted by contemporary documents.  If so, issues which are dependent upon those factual assertions may be susceptible of disposal at an early stage so as to save the cost and delay of trying an issue the outcome of which is inevitable:  see the note at 24.2.3 in Civil Procedure (Autumn 2002) Vol 1 p.467 and Three Rivers DC v Bank of England (No. 3) [2011] UKHL 16, [2001] 2 All ER

513 per Lord Hope of Craighead at paragraph [95].

shortly after the herd arrived.4 There is expert evidence saying that there is no basis upon which to conclude that there was a mastitis problem out of the ordinary.5 On its face this dispute is simply not resolvable summarily.

[22]     Nevertheless Mr Matheson invited me to read all of the expert evidence because in doing so it will become clear that there is no substantial  ground of defence. I do not agree. The respective positions of the parties are supported by suitably qualified independent expert opinion.6 I have not located a material error of incontrovertible fact.  As far as I can tell there is no logical fallacy.  Accordingly, I am not able to say with surety that the plaintiff ’s expert is right and the defendant’s expert is wrong without the experts being heard and cross examined.

[23]     Mr Matheson however submitted that the evidence is so clear that only one conclusion can be reached – the herd did not have mastitis when sold to the Wilsons. He stressed that there was no evidence that the herd suffered from mastitis prior to sale (beyond the prevalence that would be expected in any herd in New Zealand),7 and conversely there was clear evidence that the defendants did not maintain a hygienic farm (contrary to what the Wilsons claimed), with the result that the most likely cause of any elevated levels of mastitis was farm operations.8     He is also highly critical of the fact that the defendant has steadfastly refused to produce all documentation that might show the health of the cows on the Wilson farm prior to and after the introduction of the plaintiff’s herd.  He says that this must infer that the farm was the most likely cause of mastitis.

[24]     I am unable, at this stage, to accept Mr Matheson’s contentions. The first proposition is directly contradicted by the Wilsons’ expert based on the testing done soon after the cows arrived at the farm.  More specifically, Mr Holloway has been the vet for the Wilsons for many years.   He says that prior to the purchase of the cows, the incidence of mastitis had been within industry averages.  There was only

one identified incident of Staph aureus mastitis infection in 2004.  The first sample

4      Affidavit of Ivan Holloway at paragraphs 8, 28-31, 36-37, 58

5      Affidavit of Hamish Newton at paragraphs 14, 17

6      I do not accept that Mr Holloway is disqualified by virtue of his long association with the

Wilsons. On the evidence before me he was always acting in an independent consultant capacity.

7      Newton at paragraphs 38, 39, 40 (a) and (d)

8      Ibid at paragraphs 19, 21 - 23

of 15 of the plaintiff’s cows that were rapid mastitis tested, showed that seven were infected with mastitis.  Three of these involved Staph aureus, this being 20% of the sampled group. An available inference is that the cows brought the mastitis with them.

[25]     The plaintiff responds by observing that there is no documentary evidence to corroborate these expert assertions.  It is problematic that the defendants appear to be withholding information that might clearly demonstrate that the expert opinions were invalid.  While I have some sympathy for the plaintiff’s position, the fact remains that an expert has given evidence of only one incident of the relevant mastitis until the arrival of the purchased cows.  I am unable to test the accuracy of that evidence. Although I have some doubts about it given the documentary evidence and the evidence of the unhygienic operation of the farms, I consider that this evidence provides a prima facie defence of sufficient substance to warrant the matter going to trial.   I am not prepared to deprive the defendant the opportunity to present a full case based around the expert opinion and advice that it has received, namely that the purchased cows suffered from abnormally high levels of Staph aureus.

A comment about “substantial ground of defence”

[26]     Mr  Matheson  stressed  that  Associate  Judge  Matthews  erred  by  using “arguable” as a threshold for establishing a substantial ground of defence.  After the hearing Mr Matheson filed a memorandum referring to ED&F Man Liquid Products Ltd v Patel for its discussion of the requirements in the UK.9    The Civil Procedure Rules there require a “real prospect of successfully defending the claim” before judgment is set aside or varied.   Referring to previous cases, the Court of Appeal discussed the nuances of terminology and concluded that a merely arguable case was not sufficient.

[27]     I do not accept Mr Matheson’s complaint.     The Judge’s analysis,10  with respect, identifies a potential defence of sufficient substance and cogency to warrant

a full trial - and in my view that was all that was needed.

9      ED&F Man Liquid Products Ltd v Patel [2003] EWCA Civ 472, [2003] All ER (D)75

10     Recorded at [6] and [7] and [11] above.

[28]     Moreover, there is a plethora of authority which strongly indicates that when deciding whether a substantial ground of defence is established, the Courts will ask whether the defence is  arguable.   Andrew Beck in his recent textbook on civil procedure states:11

Where the judgment has been regularly obtained, it has often been said that the party seeking to set it aside will need to demonstrate an arguable case on the  merits,  good  reason  for  the  failure  to  appear  and  the  absence  of irreparable prejudice.

[29]     There  are  numerous  cases  involving  applications  to  set  aside  default judgments that use the wording of  “arguable defence” without questioning it.12

[30]     The Courts similarly ask whether a defence is arguable in the context of setting aside summary judgments.13

[31]     In these circumstances, I see no error in the way that the Judge approached the assessment.  This is not surprising given that these assessments are part of the daily diet of Associate Judges and I am not prepared to assume without more that the Judge has made an error in this regard.

Sales of Goods Act 1908

[32]     Mr Matheson also contended that the Sales of Goods Act, relied upon by the defendants, does not apply because the plaintiff was not in the business of selling cows as required by s 16(a) of that Act.  Mr Matheson asserts that Clover Flats was incorporated on 27 March 2008, purchased a farm and stock as a going concern on

30 May 2008 and sold the entire herd after settlement as surplus to requirements. This sale, he says, was not part of a routine business activity.  In my view, Associate Judge Matthews was right that this is an issue of fact to be determined at trial.

Indeed, Mr Matheson did not seriously dispute that large dairy farms are in the

11     Andrew Beck Principles of Civil Procedure (Brookers, Wellington, 2012) at 426, citing Russell v

Cox [1983] NZLR 654 (CA)

12     Norwich Winterthur Insurance (NZ) Ltd v Erikson CA370/91, 2 October 1992;  Crow v Calvista

Australia Pty Ltd HC Auckland CIV-2010-404-2295, 8 September 2010;   Takanini Feeds Ltd v Grunbaum HC Auckland CIV-2009-404-1307, 1 March 2010;  Laurence Farms Ltd v Chapman HC Wellington CP182/01, 6 November 2001;   Padden v Fidelity Life Assurance Co Ltd HC Whangarei CP2/00, 6 March 2001.

13     Refer Equiticorp Finance Group Ltd v Cheah [1989] 3 NZLR 1

routine business of selling cows surplus to requirements.  However, he contends that “there is no evidence the plaintiff traded in cows at the time of the sale.”   With respect to Mr Matheson, that statement is a non sequitur.

[33]     In any event, as I say, the critical issue is one of fact rather than law, namely whether at the time of the sale it could be said that the plaintiff was in the business of selling cows.  There is then the further contention that the defendants cannot show how they relied on the plaintiff’s skill and judgment in relation to the issue of mastitis.   There is evidence that Mr Wilson undertook an inspection prior to his purchase.   I accept that this is strong evidence against reliance on the skill of the

seller.14   However, what inspections were carried out, the condition of the cows from

this point on and what was said to the Wilsons by the representatives of the plaintiff, are all questions of fact that need to be determined at trial.  I see no obvious error in the Associate Judge’s approach to this issue.

[34]     Given all of the above I also do not see any flaw in setting aside judgment as to liability and quantum.  Both aspects need to be tried.

Summary of the result

[35]     The  application  to  review  the  decision  of Associate  Judge  Matthews  is declined.  There was a proper basis for finding that the Wilsons had a good reason for missing the time for filing a statement of defence.  There was also a sound basis for finding that there was a substantial ground of defence.  However, I do have some concerns about the award of costs especially with the benefit of additional material which suggests that:

(a)      The  defendants’ explanations  for  their  failure  to  comply with  the requirements to file a statement of defence contain potentially misleading errors;

(b)The   defendants   may   have   been   less   than   forthcoming   with documentary evidence adverse to their position, whether dealing with

their explanation for delay or on the substantive issues that are before the Court.

[36]     This latter aspect is particularly concerning. The new discovery rules dealing with adverse and tailored discovery are designed to avoid this situation.  It is further my view that there are strong policy considerations requiring a party seeking to set aside a default judgment to pay costs, especially where the defendant is not entirely transparent.

[37]     I was rightly reminded, however, that the Associate Judge’s decision to award costs is discretionary and I should only reverse that decision in circumstances where it is plainly wrong. I am not prepared to say that Associate Judge Matthews was plainly wrong on the information that was before him.  In cases where there is disputed expert evidence, it will be very rare for a Court to in effect strike out a defence for want of substance.  Where experts are involved, and provided that they demonstrably comply with the requirements of the Code of Conduct for Expert

Witnesses,15 the merits of their opinions would in most cases, if not inevitably, have

to go to trial.  The plaintiff was testing the patience of the Court by spending a day arguing the matter.

[38]     In these circumstances I am not prepared to set aside the costs order. Rather, to indicate the Court’s disquiet with the approach taken by the Wilsons to production of all relevant information, I will stay the order on costs pending the resolution of the substantive proceedings.

Costs on this application

[39]     I reserve costs on this application. There are issues of credibility that need to

be resolved and it would not serve the overall interests of justice to pre-empt the outcome of that inquiry.

Solicitors:

Reeves Middleton Young, New Plymouth, for Plaintiff

Webb Farry, Dunedin, for Defendants