Easton Agriculture Limited v Manawatu-Wanganui Regional Council HC Palmerston North Civ-2008-454-31

[2011] NZHC 266

IN THE HIGH COURT OF NEW ZEALAND PALMERSTON NORTH REGISTRY

CIV-2008-454-31

BETWEEN  EASTON AGRICULTURE LIMITED First Plaintiff

ANDEVELEIGH FARMING COMPANY LIMITED (IN RECEIVERSHIP) Second Plaintiff

ANDMANAWATU-WANGANUI REGIONAL COUNCIL

Defendant

Hearing:         29 March 2011

Counsel:         J O Upton QC and M S Dobson for plaintiffs

D J Heaney SC for defendant

Judgment:      29 March 2011

JUDGMENT OF DOBSON J (Applications for further discovery)

[1]      I heard by way of telephone conference this morning, a contested application brought on behalf of the defendant (the Council) for further discovery from the plaintiffs.  The claim relates to losses suffered by the plaintiff farming entities as a result of flooding of parts of their properties in February 2004.  Among other isues, the  Council  contests  the  quantum  of  losses  which  are  claimed  as  otherwise anticipated from crops grown on the flooded land.

[2]      The  Council’s  advisers  have  retained  an  accountant  with  expertise  in analysing claims for loss of profits, to test all the components of the accounting exercise undertaken to quantify the claimed profits.   The Council has sought the

subsequent years’ accounts for the plaintiffs’ farming operations for the periods up to

EASTON AGRICULTURE LIMITED v MANAWATU-WANGANUI REGIONAL COUNCIL HC PMN CIV-

2008-454-31 29 March 2011

and including March 2007, as a source of comparative data for the components on

the relevant expenditure and income for the plaintiffs’ farming operations.

[3]      The plaintiffs have resisted discovering the subsequent years’ accounts on the ground that they are irrelevant.  First, the accounts for each of the plaintiffs relate to farming operations on substantially larger areas than those in respect of which their claim for losses arising from the flooding relate.  Because there was no rationale for the accounts to separately address the expenditure or income derived from the area subject to flooding in 2004, the plaintiffs argue that the more abstracted level of itemised expenditure and income reflected in the accounts cannot assist an analysis of the loss of profits’ claim.

[4]      Secondly, there are material variations in the farming operations from year to year.  Certain cost items such as fuel, contracting and supplies are likely to fluctuate inconsistently with general inflationary trends, different areas of the farms might be utilised for different crops from year to year, the rate of production may be affected by climatic changes, and there is no consistency in the prices achieved for what is produced.

[5]      Thirdly, in the case of the first plaintiff, the accounts produced in the years in question are treated as materially wrong, to an extent that the first plaintiff has brought proceedings against the accountant responsible for those accounts, claiming negligence for the consequences of material errors in them.  Because of those errors, Mr Upton QC expressed concerns that any reliance on them by the defendant’s expert would likely produce misleading results, and unnecessarily expand the scope of issues at trial because of the need for the plaintiffs to then call rebuttal evidence correcting the misapprehensions relied on.

[6]      Notwithstanding all these qualifications to the reliability or utility of the accounts,  Mr Heaney SC  was  insistent  that  they  are  a  relevant  source  of  basic accounting data that the defendant is entitled to have, and has thus far not received. He cited the pattern of rates, insurance, depreciation costs for farm equipment and irrigation costs as examples of items in respect of which an expert would customarily do year by year comparisons, as part of testing the calculations on which the loss of

profits claim is based.   Mr Heaney accepted that subsequent years’ accounts for farming operations in the present circumstances could not have the same utility as, for example, in relation to a manufacturing business or a professional practice, but that nonetheless they are a basic source of relevant data for testing the components of the plaintiffs’ loss of profits claim.   It is a situation in which more guidance is likely to be gained on expenditure than on revenue.

[7]      I accepted  Mr Heaney’s  concerns,  and  have  accordingly ordered  that  the plaintiffs produce the accounts for the plaintiffs’ farming operations for the years from 2004 to 2007.   The order is made with the caveat that reliance on those accounts without having due regard for the distinguishing differences between the years, and without regard to the claims by Mr Easton of errors in the accounts for his business, would very likely lead to an unnecessary expansion of the evidence at trial. Mr Heaney accepted that any reliance by his accounting expert on content of the accounts that is said to be in error or misleading would entitle the plaintiffs to call evidence in rebuttal addressing such points.  Cost consequences are likely to follow from pursuit of challenges found not to have been warranted to the extent they rely on content of the accounts that ought to have been accepted as either being in error, or not an appropriate comparator for the farming operation in the year of the flood.

Plaintiffs’ outstanding requests

[8]      Mr Dobson raised the defendant’s solicitor’s refusal to discover certain leases that he had identified as relevant.  Mr Heaney took the point that these documents were not the subject of an application, but nonetheless agreed that the further documents requested on behalf of the plaintiffs will be discovered, and copies provided to Mr Dobson.

Costs

[9]      Mr Heaney sought costs on his application.

[10]     Although I have ordered discovery of the accounts he sought, the concerns expressed for the plaintiffs are reasonable and the use to be made of the accounts was appropriately the subject of argument.

[11]     Accordingly, there is to be no order as to costs on the applications.

Dobson J

Solicitors:

Wadham Goodman, Palmerston North for plaintiffs

Heaney & Co, Auckland for defendant