Gladvale Farms Limited v Munro

[2014] NZHC 621

IN THE HIGH COURT OF NEW ZEALAND INVERCARGILL REGISTRY

CIV-2014-425-000017 [2014] NZHC 621

BETWEEN  GLADVALE FARMS LIMITED Plaintiff

ANDGLENNIS DOROTHY MUNRO AND CM LAW TRUSTEES (2011)

First Defendants

ANDGLENNIS DOROTHY MUNRO AND KIRK DONALD SCOTT MUNRO Second Defendants

Hearing:                   25 March 2014

Appearances:           J G French for the Plaintiff

R T Chapman for the Defendants

Judgment:                31 March 2014

JUDGMENT OF PANCKHURST J

Introduction

[1]      Gladvale Farms Limited (Gladvale) leases a large farm property from the Hillpoint Family Trust (Hillpoint).  The farm comprises 1076 hectares at Avondale, Southland. The owners of Gladvale and the trustees of Hillpoint have fallen out.

[2]      Two proceedings have been initiated in this Court.   One is an originating application by which Gladvale seeks relief against forfeiture following the service of notices to cancel the lease if certain fencing work was not undertaken.  In the second proceeding Gladvale claims damages  for the alleged deliberate  disruption of its farming activity.   The claim is for breach of contract, and in the alternative an

equitable estoppel is asserted whereby it is claimed Hillpoint cannot resile from

GLADVALE FARMS LIMITED v MUNRO AND CM LAW TRUSTEES [2014] NZHC 621 [31 March 2014]

arrangements allegedly made at the time the lease was concluded.  An amount of almost $500,000 in damages is claimed.

[3]      In the context of the damages claim Gladvale seeks an interim injunction requiring Hillpoint to allow access to the farm property via a timber treatment yard, to reconnect an electricity supply required for electric fencing on the property and to desist from entering the leased area and interfering with the farming operation.  The application is opposed.  Hillpoint maintains there is no serious question to be tried. Nor does Hillpoint accept that the grant of an interim injunction would meet the justice of the case.

The background

[4]      The    farm    lease    was    concluded    on    23    February    2010    between Mr Allan Munro,  his  wife  Glennis  and  a  farm  consultant  for  Hillpoint  and  by Mr Geoffrey Lindsay for Gladvale, he and his son being directors of the company. Tragically, Mr Munro died in an air accident in October 2010.  The present trustees of Hillpoint are the second defendants, Mrs Munro and her son Kirk Munro.

[5]      The term of the lease is 10 years and the base rental is $250,000 per annum. Gladvale is permitted to use the land for wintering dairy cows on crop; and grazing dairy dry stock, heifers, sheep and beef cattle.  Otherwise, the detailed terms of the lease appear to be fairly conventional for a property of this nature.

[6]      Extensive   negotiations   preceded   completion   of   the   lease,   including, according to Mr Lindsay, an understanding described by him in this way:

… it was agreed Gladvale would have the right at its option to clear at its expense certain areas of the farm which Gladvale selected.  The purpose of this was for Gladvale to develop those areas so they would be usable. Everyone was very enthusiastic as both parties would benefit from the work. Seeing the lease was for a 10 year term, there would be sufficient time for the areas so developed to earn income for Gladvale.  And at the end of the lease, the additionally developed land at Gladvale’s cost would benefit Hillpoint. The whole arrangement suited both parties.

[7]      Clause 3.5 of the lease under the heading “alterations” provided:

The Lessee will not make any alterations to any of the buildings or other improvements on the property or its subsoil or contours without the prior written consent of the lessor.  The lessor may impose any conditions when giving consent.

Further,  under  a heading “no  compensation”,  clause 5.8  provided that  Gladvale would not be entitled to compensation for any improvements made to the property unless this was specifically agreed to by Hillpoint prior to the commencement of work and the work was costed.

[8]      Despite Mr Lindsay’s observation that Gladvale would look to make good its capital outlay from farming returns over the term of the lease, I note that clause 5.4 granted Gladvale a right of first refusal should the lease be renewed in 2020, and clause 10 provided a similar right in the event that Hillpoint offered the farm for sale.

[9]      It is Gladvale’s case that in 2010 farm development work began, activity in which Mr Munro Snr participated enthusiastically until his death later in the year. To the present time Gladvale states it has developed 162 hectares into a usable state at an outlay of $1.3 million.

[10]     A further aspect of Gladvale’s case is that an abrupt change occurred after October 2010.  Mr Kirk Munro became a trustee.  He, and his mother, were not well disposed to Gladvale.   Mr Chapman noted in the course of submissions that the current trustees consider Gladvale has undertaken development work without the required approvals, planted cereal crops over the past four seasons when this is not a permitted use and has generally been a difficult lessee.

[11]     In November 2013 Hillpoint served notices of its intention to cancel the lease if  fencing  work  was  not  undertaken  at  four  areas  on  the  property.    Gladvale responded by filing an originating application seeking relief against forfeiture.  The facts of this fencing dispute are contentious. The same situation applies in relation to this proceeding.   In relation to the essential issues the affidavits filed conflict at every turn; indeed, there is a factual gulf between the respective cases.

[12]     The lease requires that disputes be referred to mediation.1     In early 2013

Gladvale invoked the mediation provision; a mediator was appointed and a one day mediation occurred.  Resolution, particularly of access issues, was not achieved on day one, but despite Gladvale proposing a resumption of the mediation this has not occurred.

The issues

[13]     As  noted,  the  subject  matter  of  the  interim  injunction  application  is Gladvale’s right of access to the leased area, its right to an electricity supply for electric fences and the defendants’ right of entry onto the leased land. The injunction sought is framed by reference to six elements, to which I shall refer shortly.  But, it is convenient to consider the application by reference to three headings: lessee access, electricity supply and lessor entry.

Lessee access

Background

[14]     Access to the farm is via a road named Munro Road.  On reaching the farm property Munro Road forks adjacent to a large woolshed.   The left-hand fork immediately past the woolshed provides access to the northern and less developed part of the property. There is no dispute concerning access via this route.

[15]     The right-hand fork provides access, through a timber treatment yard, to the more southern parts of the property which are also the most developed parts of the farm.   The source of the current dispute is that the timber-yard is not part of the leased area.   It is expressly excluded from the lease, because Hillpoint operates a processing plant in the yard for tanalising fence-posts.

[16]     Gladvale,  however,  is  dependent  upon  access  through  the  timber-yard  to reach the southern area of the lease, and also to access a silage pad and diesel tank installed just beyond the yard itself.   There is an established farm track into the

timber-yard, and the track forks to provide access in separate directions to these two

1 Clause 5.10.

areas.  There are gates at the entry to the timber-yard (the entry gate), at the exit to the  silage/diesel  tank  area  (the  silage  gate)  and  to  the  southern  farm  area  (the southern gate).

[17]     The lease does not expressly confer on Gladvale a right of access through the timber-yard.   Gladvale maintains that this reflects that it was taken as read – the tracks are established, were in use during its inspections of the property and throughout the course of the negotiations.  Moreover, initially while Mr Munro Snr was alive, the tracks were used without incident or disagreement.

[18]     Access problems arose in the context of Kirk Munro’s grazing sheep in the timber-yard area.   Previously, Hillpoint conducted a sheep/cattle operation on the property.  When the lease was concluded Hillpoint sold off its stock, save for about

100 sheep.   These were retained to keep grass growth down in the timber-yard. Electric fencing was used to control and contain the sheep within the grazeable areas of the yard.   This also led to Mr Munro closing particularly the entry, silage and southern gates at various times.  He maintains this was only done where necessary to control  sheep  movements.    Gladvale  disputes  this.    Its  case  is  that  Hillpoint embarked on a deliberate campaign to disrupt its farming operation.

[19]     The allegations include that gates were closed without need,  sheep  were moved into the timber-yard when Gladvale’s vehicle traffic was heavy as a pretext to justify gate closures, vehicles were waylaid for alleged speeding, gates were locked using chains without good reason, trespass notices were served on Gladvale employees and contractors for speeding and/or leaving gates open, and fence-posts and Hillpoint vehicles were placed across the access tracks to prevent vehicle movements.

[20]     Hillpoint denies these allegations.  Mr Munro maintains that gates were only shut as and when grazing required it, and to prevent Gladvale cattle straying into the timber-yard from where stock could stray to house curtilages as well.

[21]     I cannot  resolve  the conflicting evidence.    I can,  however,  form  a view concerning whether there is a serious question to be tried.  I will return to this issue in a moment.

[22]     In April 2013 the access issue came to a head and a solicitor’s letter was sent

from Hillpoint to Gladvale.  It contained this:

Clause 3.40 of the lease provides that certain areas on the property are excluded from the lease.  We attach an aerial photograph which shows the excluded area marked in green.

We are instructed that you have previously accessed the leased area through farm tracks through the excluded area which are marked in yellow on the aerial photograph.  Please take note that effective immediately you are not permitted to use the farm tracks/roads marked in yellow on the excluded area nor are you permitted to enter onto the excluded area for any reason whatsoever.

The excluded area included the timber-yard.   The letter stated that a route on the leased land immediately adjacent to the timber-yard must be used for access.  It is now accepted that this route is unsuitable for heavy farm vehicles, particularly at a point where a bridge is situated and during adverse weather.

Is there a serious question to be tried?

[23]     Gladvale claims there was a verbal agreement, or, alternatively, it was an implied term of the lease that the company had “unrestricted access” via the tracks through the timber-yard and that gates would be “left open at all times”.  In a further cause of action Gladvale asserts that if relief is not available in the contract, it is in equity by virtue of estoppel.  Representations attributed to Mr Munro Snr, reliance on those representations by Gladvale in entering into the lease and the fact of initial unrestricted access in 2010 are said to found the estoppel, such that Hillpoint cannot resile from the arrangement.

[24]   Mr Chapman, however, submitted that Gladvale’s factual argument was extremely weak.  He focused particularly on the assertion that it was represented and agreed the gates would be left open at all times.  Counsel suggested there is scant evidence to substantiate this assertion, and that it also defied common sense.   He argued that farmers are required to keep stock within farm boundaries.   Here, the

entry, silage and southern gates comprised parts of the natural farm boundary to this part of the farm.   Mr Chapman submitted it would be wrong to preclude their closure, although he accepted that the gates should only be closed when necessary to control cattle or sheep grazing in the vicinity.

[25]     I am satisfied there is a serious question to be tried.  In part I am influenced by the evidence of two deponents.  Mr Terry Forde was the real estate agent retained by Hillpoint to arrange a lease of the farm.  He was involved throughout the lengthy negotiations with Gladvale.   Mr Forde has filed an affidavit in which he supports Gladvale’s  claim  that  unrestricted  access  through  the  timber-yard  was  to  be available.

[26]     A second  witness,  Mr  Dennis  Cairns,  was  retained  in  2012  to  assist  in attempting to resolve the impasse between the parties.   Mr Cairns has a lengthy farming background, as well as experience in local body politics.  He is related to the Munro family and knew Mr Lindsay and his son at the time of his engagement.  He was involved over several months during which he made “strenuous efforts” to resolve the disputed issues, which to his mind “seemed relatively trivial”.  He could make no progress.  Mr Cairns’ affidavit contains an assessment of Kirk Munro.  He found him “unbending” and “unreasonable”.   In his view Hillpoint’s actions had compromised the opportunity to improve the productivity of the property and its long-term value.  He saw his ongoing involvement as “a waste of time”, and retired from the role in January 2013.

[27]     Neither Mrs Munro nor Mr Kirk Munro responded to this evidence.

[28]     In my view, there is a serious question to be tried.  Particularly with regard to the existence of an agreed right of access through the timber-yard the threshold is met.  The requirement that the gates be kept open at all times is less straightforward, and an issue to which I will return in the context of relief.

The balance of considerations (convenience)

[29]     This inquiry is directed to deciding whether granting or refusing an interim

injunction will best enable adjustment of the parties’ rights in light of the substantive

outcome.  The aim is to determine which course will likely avoid an injustice in the long run.2

[30]     The primary consideration is the adequacy of damages as a remedy if the plaintiff is  successful,  and  vice versa.    Hillpoint  maintains  that damages  would adequately compensate Gladvale if it is successful.  Gladvale’s case is supported by accountancy evidence, including a projected loss calculation relating to a 30 hectare area not developed into pasture because of the dispute.  The accountant concluded that Gladvale’s inability to bring this area into production will cause a net loss of about $225,000 over the balance of the lease.  Other calculations endeavour to show the cost from disrupted access based on a time and cost analysis and from other disruptions, including the impact of trespass notices and a loss of staff morale.

[31]     In  my  view,  reference  to  the  nature  of  these  calculations  indicates  the difficulty of assessment of damages in this case.  Upon entry into the lease Gladvale intended to establish new pasture on a significant part of the leased area.   It has provided evidence that it has been frustrated in relation to farm development since late 2010.   Particularly if this continues I consider that there will be significant difficulty in projecting the loss, assuming Gladvale is successful at trial.  There will be room for debate concerning the area able to be converted to pasture, the cost of conversion, the timing of conversion and the resultant loss of productivity until

2020.

[32]     A related consideration is the farming context of the case.   Gladvale and Hillpoint are in a long-term relationship.  Absent an injunction, there must be real scope for Gladvale to suffer ongoing disruption.   On the other hand Hillpoint is protected by the terms of the lease, including in relation to future development work on the property.  Lease conditions govern how Gladvale must proceed, and if it acts

in breach of these requirements Hillpoint has available remedies.

2 Congoleum Corporation Ltd v Poly-Flor Products (NZ) Ltd [1970] 2 NZLR 560 [CA] per Somers J

at [571].

[33]     Both after balancing the competing considerations, and upon standing back and asking where overall justice lies, I am of the view that the grant of an injunction in relation to access is appropriate.

The terms of the injunction

[34]     Gladvale seeks a widely drawn injunction whereby Hillpoint is restrained from impeding in any manner whatsoever, including by the closing and locking of any gates, Gladvale’s use of the access tracks through the timber-yard.  The company also seeks the withdrawal of all extant trespass notices issues against Gladvale’s employees or contractors.  I am not persuaded that an injunction in such wide terms is justified.   Before turning to the terms of the injunction I record that vehicles passing through the timber-yard are to be driven in a manner and speed suitable to the conditions, and not to exceed 20 kph.  This is a maximum speed, not the speed to apply as a matter of course.

[35]     Gladvale is granted an interim inunctions as follows:

(a)      The  defendants   are  restrained  from   denying   Gladvale   and   its authorised agents access through the timber-yard, including by securing or locking gates, save when this is genuinely essential for stock control and notice thereof has been provided to Gladvale’s farm manager, and

(b)the  defendants  are  required  to  withdraw  the  four  extant  trespass notices issued against Gladvale employees or agents.

Electricity supply

The factual background

[36]     Gladvale’s case is that prior to conclusion of the lease electricity supply, and the use of electric fencing, was discussed with Mr Munro Snr.  This resulted in an arrangement whereby Gladvale could utilise Hillpoint’s electricity supply at two points.  The first was the woolshed and the second the pump house.  Both buildings

are in areas excluded from the lease.   The electricity supply arrangement was not included as a term of the lease.

[37]     When the lease commenced in March 2010 Gladvale used the woolshed supply to power electric fencing on the northern side of the property, and the pump house (situated within the timber-yard) to supply fencing in the southern side of the property.   Apparently there were no problems at first.   In mid-2011, a new farm manager commenced working for Gladvale and new power units were installed in the woolshed and the pump house.  These increased the capacity to store energy and also the maximum output, with the result that a significantly increased distance of electric fencing could be maintained.

[38]     In September 2013 Mr Kirk Munro cut, or disconnected, the power supply to the woolshed.   He did not discuss this with the farm manager or otherwise warn Gladvale of his intentions.  Mr Munro then connected the fences on the northern side of the property to a Hillpoint power unit situated in another building, the workshop, also situated in the timber-yard area.  The Hillpoint power unit is of less capacity and unable to fully service the electric fencing on the northern side of the property.

[39]     At  about  the same time Mr Munro began  connecting  Hillpoint’s  electric fencing to the Gladvale power unit in the pump shed.   This fencing was in the timber-yard, the hangar paddock or home paddocks, which are excluded from the lease.   Previously he had used a power source, and unit, somewhere else on the property.

[40]     These actions, initiated without consultation, are said to have compromised Gladvale’s electric fencing on the southern side of the property.  As I understand it there have been two problems.   Firstly, when Gladvale has been using its electric fences to control stock the fencing, capacity has been diminished as a result of Mr Munro’s use of the power unit.  Secondly, when only some of Gladvale’s electric fencing is in use while crops are being grown, Mr Munro’s use of the power unit to control his sheep has resulted in shorting in areas where crops are under cultivation. Without grazing there is growth to the level of the electric fence wires and this gives rise to shorting.   The shorts compromise the effectiveness of Gladvale’s electric

fencing in service to other parts of the property.  Gladvale considers that Mr Munro’s actions are part of a campaign of disruption.  It maintains there is no reason why he cannot service the minimal amount of electric fencing required for 100 sheep from another power supply and using Hillpoint’s own power unit.

[41]     Mr  Munro  has  deposed  that  he  disconnected  the  power  supply  to  the woolshed because “Gladvale does not pay anything for the electricity supply” and the line rental cost for the woolshed connection is $1300 per annum.  He states that the  power  supply to  the  workshop  is  the  same  as  that  to  the  woolshed.    This explanation does not confront the different power unit in the workshop, one owned by Hillpoint, and said to be of significantly less capacity than Gladvale’s power unit in the woolshed.

[42]     With reference to using the power supply in the pump shed, I understand Mr Munro to say that this is a matter of convenience because his electric fencing can be  conveniently  linked  in  with  Gladvale’s  fencing  to  the  southern  side  of  the property.   He does not respond to the concerns that his actions compromises the capacity of Gladvale’s electric fencing and also causes shorting to fence-lines which would otherwise be non-operative during cropping.

[43]     With  regard  to  payment  for  power  usage  Gladvale  maintains  that  an allowance for electricity was built into the initial annual rental of $250,000 when the lease was negotiated, which figure has now increased to in excess of $270,000.

Is there a serious question to be tried?

[44]     I am satisfied that the threshold is met.  The fact that Gladvale enjoyed an effective power supply via the woolshed and the pump house under September 2013, and  without  charge,  lends  some  support  to  its  version  of  events.    Mr  Munro’s affidavit does not respond to some of the concerns raised by Gladvale.

The balance of considerations

[45]     The analysis in the context of farm access applies equally in relation  to electricity supply. Accordingly, I am satisfied that the balance of considerations, and overall justice, favours Gladvale and that injunctive relief is justified.

Relief

[46]     Gladvale seeks orders that the defendants are required to reconnect the power supply to the woolshed, to discontinue using electricity from Gladvale’s power unit in the pump shed and, more generally, are restrained from otherwise interfering with Gladvale’s electric fences and its power supply from Hillpoint.

[47]     I am satisfied that Gladvale is entitled to an injunction on the following terms. The defendants are:

(c)      Required forthwith to reconnect the electricity supply to Gladvale’s

power unit in the woolshed,

(d)required to desist from using the electricity supply, and Gladvale’s power unit, in the pump shed to service Hillpoint’s electric fencing, and

(e)      are otherwise restrained from taking any action to cause interference with Gladvale’s access to power supplies in the woolshed and the pump  house,  and  interference  to  the  operation  of  the  its  electric fences.

Lessor’s right of entry

The factual background

[48]     Clause 8.4 of the lease provides:

The lessor together with its invitees and employees shall have access to the property at all times.  Such access is not to interfere with the permitted use of the lessee.

This clause also reserves to the lessor exclusive use of the duck ponds during the duck shooting season.  Clause 8.12 provides that the lessor may have free access to the property at reasonable times to remove rock, as this remains the lessor’s property.

[49]     Despite these terms of the lease, Gladvale seeks an injunction restraining the defendants and their agents from entering the farm save for the purposes of  an annual inspection and duck shooting.  Presumably Gladvale accepts that entry for the sole purpose of rock removal should also be allowed.

[50]     It seems that relief is sought principally in relation to Mr Munro.  The farm

manager’s affidavit includes this:

Kirk Munro also makes a habit of driving round the farm on his four-wheeler quad bike.  There's no justifiable reason for this.  I have seen four-wheeler marks over our crops in different places.   I have seen marks of a four wheeler (which must be his) as far up as the Darcy block.  He travels over the whole farm.  There is no valid reason for him to be on the farm at all. His excursions are potentially unsettling for livestock.  As well, he appears to thrive on confronting, abusing and giving orders to Gladvale staff and contractors.  Kirk Munro is causing a serious hindrance and nuisance to the successful running of the farm. All of this is deliberate …

[51]     Mr Kirk Munro deposed that the lessor’s right of access to the land was essential because of the need to supervise and maintain a number of forestry blocks, to remove rocks from the property for sale and for duck shooting.  He also stated that there had been no interference with Gladvale’s farming operation.  His affidavit does not directly respond to the assertions contained in the farm manager’s affidavit.

Analysis

[52]     Gladvale’s evidence in support of this aspect is relatively slight.  However, I consider there is sufficient evidence to meet the threshold of a reasonable question to be tried.  The evidence alleges access for purposes other than those recognised in the lease, particularly the evidence alleging that Gladvale’s employees and contractors have been harangued.

[53]     In the circumstances I am satisfied that the granting of an interim injunction is appropriate, although not in the broad terms sought in the application.  In my view the injunction should be limited to enforcing the terms of the lease: that is endorsing

that access at any time must be confined to the authorised purposes.  This will meet the justice of the case.

Relief

[54]     For the above reasons it is ordered that:

(f)      The defendants’ right of access to the leased land at all times may only be exercised for the purposes of annual and periodic inspections, duck shooting and rock gathering, and subject to the condition that such access  must  not  interfere with  Gladvale’s  farming operation, including the work activities of employees and contractors.

Conclusion

[55]     The application for an interim injunction in granted in terms of the orders made in paragraphs [35], [47] and [54] of this judgment.   Leave is reserved to counsel to revert to the Court in relation to the drafting of the orders.

[56]     My present  view is  that  costs  on  a 2B basis  for a  half-day hearing  are appropriate.  If this indication is not accepted, memoranda may be filed.

Solicitors:

French Burt Partners, Invercargill

Cruickshank Pryde, Invercargill