Finzco Limited v Mathews HC Wellington CIV-2011-485-1380

[2011] NZHC 789

IN THE HIGH COURT OF NEW ZEALAND WELLINGTON REGISTRY

CIV-2011-485-1380

UNDER  the Fisheries Act 1996

BETWEEN  FINZCO LIMITED Plaintiff

ANDJOHN EDWARD MATHEWS STEPHEN GERARD FLORENTINE KEVIN MICHAEL MATHEWS Defendants

Hearing:         18 July 2011

Counsel:         THA Spear for Plaintiff

D G Dewar for Defendants

Judgment:      22 July 2011 at 12:30 PM

I direct the Registrar to endorse this judgment with a delivery time of 12.30pm on the 22nd day of July 2011.

RESERVED JUDGMENT OF MACKENZIE J

[1]      The  plaintiff  applied  on  a  without  notice  basis  for  an  order  “that  an originating application be made in respect of the lodgement of a caveat on the quota register, a statutory register under the Fisheries Act 1996”.   That application was considered by Miller J on 14 July 2011.  He made an order in the terms set out above and directed that the papers were to be served forthwith and reserved leave to either party to apply on 48 hours notice.  He directed that the application be called in the Chambers list on 18 July.   By then, the defendant had been served and Mr Dewar

appeared, to oppose the granting of relief.

FINZCO LIMITED V MATHEWS HC WN CIV-2011-485-1380 22 July 2011

[2]      The plaintiff asserts that it has entered into a contract to purchase that quota from the defendants.  It alleges that there was a verbal contract to that effect entered into between Mr Scheerhoorn for the plaintiff and Mr Mathews for the defendant in the course of a telephone conversation on Monday 11 July.

[3]      There is a complication in that the defendants are the trustees of a family trust for Mr Mathews’ brother.  That trust holds certain paua quota.  Mr Mathews deposes that the quota with which he was dealing in his conversation with Mr Sheerhoorn was owned by his own family trust, which has different trustees.   The plaintiff accordingly applies to substitute the trustees of the correct family trust as defendants.

[4]      Section 149(1) of the Fisheries Act 1996 (the Act) provides as follows:

If—

(a)       The owner of the quota shares or annual catch entitlement concerned and any other person jointly lodge a caveat in the approved form with [the chief executive]; or

(b)       A court directs or orders that a caveat be lodged; or

(c)       The chief executive directs that a caveat be lodged under section 58 or section 61 or section 214 or [section 268] of this Act,—

[the chief executive] shall register under section 159 of this Act that caveat against the quota or annual catch entitlement if the caveat meets all the requirements of this Act for registration.

[5]      The essence of the relief which the plaintiff seeks is a direction by the Court under  s 149(1)(b)  that  a  caveat  be  lodged  against  the  paua  quota  held  by  the defendants.

[6]      The Act does not contain any provision as to the circumstances in which the Court might exercise the power under s 149(1)(b).   In essence, what the plaintiff seeks is an order prohibiting the defendant from dealing with the relevant quota pending the issuing of proceedings for, and a hearing of, a claim by the plaintiff for specific performance of the contract for sale which the plaintiff alleges was entered into.

[7]      It is a requirement of an application for interim relief that an undertaking as to damages be filed by the plaintiff, under r 7.54 of the High Court Rules.  There is no similar requirement for an application for a direction that a caveat be lodged under r 149(1)(b).  Section 152 provides:

Any person who lodges a caveat and who, when that caveat is no longer needed  to  protect  any  interest  of  the  caveator,  fails,  without  reasonable cause, to withdraw that caveat as soon as reasonably practicable after having been requested to do so by any person prejudicially affected by the caveat, is liable in damages for any loss or damage suffered by any person as a result of the failure to withdraw the caveat.

[8]      In my view, there may be doubt as to whether s 152 would in this case provide equivalent protection to the defendants as an undertaking as to damages.  I therefore indicated at  the hearing that  I would,  before issuing judgment  on  the application, require an undertaking as to damages.   The plaintiff has subsequently filed an undertaking.

[9]      Both counsel accepted that the appropriate test to be applied by the Court on this application was the usual test for the granting of an interim injunction, as set out in Klissers Farmhouse Bakeries Ltd v Harvest Bakeries Ltd.[1]I agree that is the appropriate test.  It involves two inquiries:

[1] Klissers Farmhouse Bakeries Ltd v Harvest Bakeries Ltd [1985] 2 NZLR 129 (CA) at 140.

(a)      Whether there is a serious question to be tried;  and

(b)      Where does the balance of convenience lie?

[10]     The plaintiff must in this case show that it has a serious question to be tried on two issues:

(a)      Whether  an  oral  contract  was  made  between  Mr Sheerhoorn  and

Mr Mathews;  and

(b)Whether the appropriate remedy for breach of that contract would be an order that the contract be specifically performed.

[11]     On  the  first  issue,  Mr Sheerhoorn  has  filed  an  affidavit  setting  out  the dealings  between  him  and  Mr Mathews.    He  says  that  Mr Mathews  contacted Mr Sheerhoorn’s wife on Monday morning 11 July and told her he had paua quota for sale.  Mr Sheerhoorn was interested and followed that up by a return phone call to Mr Mathews.  He says that they discussed the price and that a price of $310,000 per tonne was agreed.  Mr Sheerhoorn wanted to buy 1050kgs, but Mr Mathews did not want to split the parcel on offer which was 1250kgs.  Mr Sheerhoorn’s affidavit continues:

9.        At this time I said a calculation should be done on the total price.

Mathews did the calculation and stated that the entire package, at

$310,000 per tonne, would equate to $387,500.

10.      I agreed to that price, and stated to Mathews that my finance for

1050kg was immediately available but I would need to confirm with my bank that it would provide finance for the extra 200kgs.

11.       That condition was agreed to by Mathews and I said I would contact the bank forthwith.

[12]     He says that he immediately contacted his bank to have the funds approved and by late afternoon the bank had “all but agreed to provide finance, on the basis of my company’s balance sheet”.  The bank wanted to see a copy of the 2010 balance sheet before approval of the loan and Mr Sheerhoorn arranged to deliver that the next day.  That evening Mr Mathews telephoned Mr Sheerhoorn and said that he had sold the quota to somebody else.

[13]     Mr Mathews’ version of events is different.   He confirms Mr Sheerhoorn’s version of events up to the point where the amount of quota was discussed.   His affidavit describes the discussions from that point on in these terms:

12.Mr Sheerhoorn did confirm that he would buy only 1050kgs.  It was then I told him that I was only interested in selling the parcel of

1250kgs or nothing.  He told me that he could not do that, that he

would need to talk to his bank to see if he could get funding before he could make an offer at that level.

13.Mr Sheerhoorn did not agree to buy the paua I was selling.   He simply said he would have to talk to his bank and would come back to me, and I told him that he would need to do that.  I suggested he do so that night or the following morning, as my note says.

[14]     It is not appropriate to make any factual findings on this issue at this stage. In determining whether there is a serious question to be tried as to the existence of a contract, I consider it appropriate to have regard principally to Mr Sheerhoorn’s affidavit and to consider whether, if his version were accepted, the plaintiff is likely to succeed.

[15]     Putting  it  at  its  highest,  his  affidavit  might  suggest  that  there  was  a conditional contract for the sale of 1250kgs of quota for a total price of $387,500, conditional upon the plaintiff being able to obtain finance from its bank.   No time limit was fixed for satisfaction of that condition, beyond Mr Sheerhoorn’s statement that he would contact the bank forthwith.   A time limit for the satisfaction of the condition would have been a necessary term of the contract.  Unless that was agreed (or able to be implied) there would be no contract.  Mr Sheerhoorn’s affidavit does not provide any basis for finding that an express term was agreed.  The usual test for

the implication of terms necessary to give business efficacy[2] is stringent, and it is not

seriously arguable that it could be met.   The Courts may sometimes fill in gaps without applying that strict test if it finds that the parties did intend to contract.[3]

Such  a  finding  is  not  possible,  based  on  Mr Sheerhoorn’s  evidence,  and  that

conclusion is reinforced by Mr Mathews’ evidence.

[2] BP Refinery (Westernport) Pty Ltd v Shire of Hastings (1977) 16 ALR 363 at 376.

[3] Fletcher Challenge Energy Ltd v Electricity Corporation of New Zealand Ltd [2002] 2 NZLR

433 (CA) at [58].

[16]     The alternative analysis of the effect of the conversation, in contractual terms, is that the parties had reached the position where there was an offer of 1250kgs of quota  at  a  total  price  of  $387,500,  which  Mr Sheerhoorn  had  indicated  that  he wished to accept, but would not be in a position to accept until his bank had agreed to  provide  finance.     That  view  of  the  arrangement  is  not  inconsistent  with Mr Sheerhoorn’s  version,  and  is  consistent  with  Mr Mathews’ version.    On that analysis, there was no contract.

[17]     In the circumstances, I do not regard the plaintiff ’s claim that a contract was

entered into is sufficiently tenable to reach the threshold of a serious question to be tried.

[18]     The next question is whether, if I am wrong in that conclusion, there is a serious question to be tried over whether the remedy of specific performance may be available.  Under the Act, quota is transferable.  Counsel were not able to refer me to any authority on the question of whether specific performance is an appropriate remedy for breach of a contract to sell quota.   For the sale of land, specific performance is a usual remedy.  For the sale of goods, it is not.  Land is unique, but most goods are not.  Ordinarily, damages will be a sufficient remedy for a breach of contract to sell goods, because the purchaser may go into the market and purchase replacement goods.   That option is, at least in theory, available to a purchaser of quota.  The position might be different if there were evidence that the availability of quota on the market is limited.  There is no evidence before the Court at this stage on that issue.   In the absence of some evidence to that effect, I do not consider the potential availability of specific performance is such that I could properly reach the conclusion that there is a serious question to be tried on this issue.

[19]     The next matter is the balance of convenience.  The defendants have entered into a contract to sell the quota to a third party.   The ability of the defendant to perform  that  contract,  and  consequently the  rights  of  the  third  party,  would  be affected if a caveat were ordered.  The competing claims of both purchasers need to be considered.  If a caveat were ordered, the other purchaser would necessarily be embroiled in these proceedings.  I do not consider that the balance of convenience favours that course.

[20]     For these reasons, the plaintiff’s application for an order that the Court direct

that a caveat be lodged is dismissed.

[21]     The defendants are entitled to costs, which I fix on a 2B basis.

Solicitors:           Spear Law, Nelson for Plaintiff

Thomas Dewar Sziranyi Letts, Lower Hutt for Defendants

“A D MacKenzie J”