Hughes v Fea
[2016] NZHC 3043
•14 December 2016
IN THE HIGH COURT OF NEW ZEALAND
INVERCARGILL REGISTRY
CIV-2016-425-13
[2016] NZHC 3043
UNDER The District Courts Act 1947 IN THE MATTER OF
an appeal pursuant to section 72 of that Act
BETWEEN
JOHN STANLEY HUGHES AND IRMA AINSLIE HUGHES
Appellants
AND
DUNCAN VARNAM FEA AND PETER HEENAN
Respondents
Hearing: 23 August 2016 Appearances:
C S Withnall QC and C J G Lucas for Appellants D M Lester and J N P Young for Respondents
Judgment:
14 December 2016
INTERIM JUDGMENT OF NICHOLAS DAVIDSON J
Background
[1] The background to this appeal lies in the commercial bulb growing business in Southland.
[2] Mr and Mrs Hughes were long established bulb growers at Tapanui where they grew tulip, daffodil and other varieties. They wanted to exit the business and structured an arrangement whereby Global Bulbs Ltd (Global) leased the bulb stock owned by them.
HUGHES v FEA & HEENAN [2016] NZHC 3043 [14 December 2016]
[3] They retained ownership of the bulbs leased to Global, and their replacements, so that stock equivalent to the bulbs leased at the commencement of the lease would revert to them at the end of the five year term.
[4] Global was not successful. It did not pay Mr and Mrs Hughes under the lease. It went into liquidation, and the defendants were appointed receivers. They wrongly denied the appellants ownership of some of the bulb stocks on hand, and sold or otherwise disposed of them, or did not harvest them.
[5] There were some litigation excursions before the appellants’ claim to damages for conversion by the receivers came before Judge MacAskill whose judgment was delivered on 17 December 2015.1 That judgment is under appeal to this Court.
[6] The receivers first took the view that Mr and Mrs Hughes lost any interest they held in the bulb stocks as they failed to register such interest under the Personal Property Securities Act 1999 (PPSA).
[7] Mr and Mrs Hughes challenged that in the District Court. By judgment delivered on 30 May 2013, Judge Callaghan found in favour of the receivers and Mr and Mrs Hughes took their case on appeal before Lang J in this Court.2
[8] Lang J concluded that to establish the existence of a security interest in terms of s 17(1)(a) of the PPSA, the receivers had to prove that the transaction gave Mr and Mrs Hughes an interest in personal property and in substance that interest secured an obligation.
[9] The lease referred to different forms of personal property, beginning with the bulbs first leased to Global and particularised in the lease, then the bulbs acquired to replace those bulbs sold by Global in the ordinary course of business, and the proceeds of sale of such bulbs where there was no such replacement. In essence, Global was to maintain bulb stock equivalent to the bulbs originally leased. No exactitude could be brought to this but the broad intent was quite clear.
1 Hughes v Fea DC Invercargill CIV-2010-025-348, 17 December 2015.
2 Hughes v Fea DC Invercargill CIV-2010-025-348, 30 May 2013; Hughes v Fea [2013] NZHC 2863 [The PPSA appeal].
[10] Lang J held that Mr and Mrs Hughes were the owners of the bulbs leased to Global. Nothing in the lease affected their status as owners other than that Global could sell those bulbs in the ordinary course of business, provided that it replaced them promptly.
[11] The lease did not have to bestow any interest upon Mr and Mrs Hughes in the bulbs first leased because they owned them anyway, independently of the lease. The replacement bulbs were different. Clause 6.2 of the lease provided that Mr and Mrs Hughes would own bulbs that Global acquired to replace those it sold in the ordinary course of business. That gave Mr and Mrs Hughes an interest in property which they would not have otherwise held. This inevitably required differentiation of the replacement bulbs, and those which Global otherwise planted. It also created a commercial risk that Global might not perform its obligations, including payment of rent.
[12] The question for Lang J was whether the interest that Mr and Mrs Hughes acquired as owners of the replacement bulbs secured an obligation on the part of Global. The receivers argued that it secured Global’s obligation to promptly replace all bulbs sold in the ordinary course of its business. However, once Global acquired replacement bulbs there remained no further obligation to secure the stock. When Global sold more bulbs it had to replace them promptly. Mr and Mrs Hughes simply became owners of those replacement bulbs.
[13] The proceeds of sale by the receivers were not argued in the same way. Lang J addressed whether Mr and Mrs Hughes had an equitable right to trace the proceeds of any sale of bulbs that they owned, even though Global had the contractual right to sell them in the ordinary course of business. Clause 6.3 of the lease gave Mr and Mrs Hughes a contractual right to ownership of the proceeds of sale if Global did not comply with its obligation under the lease to promptly replace any bulbs sold in the ordinary course of business. That was an interest that they otherwise would not have held. In that way, Mr and Mrs Hughes’ ownership of the proceeds of sale secured Global’s contractual obligation, which they could apply to off-set losses they might suffer from Global’s default. Hence the lease created a security interest in the proceeds of sale for the purposes of s 17(1)(a) of the PPSA.
[14] In short, Lang J held that the original or replacement bulbs belonged to Mr and Mrs Hughes, but the lease created a security interest in respect of the proceeds of sale of the bulbs in circumstances where Global did not honour its obligation to replace those sold.
[15] Both parties succeeded to some degree. That was reflected in Lang J’s preliminary view that costs should lie where they fall. This appeal focuses on damages payable for the goods (the bulbs) that were converted by the receivers, being those which Mr and Mrs Hughes owned under the lease.
An appeal to this Court
[16] A general appeal, which this is, proceeds by way of re-hearing.3 The Supreme Court has given guidance on the role of an appellate court (albeit in the context of a particular tribunal below), in terms of its assessment of the evidence and the case before it:4
The appeal court may or may not find the reasoning of the tribunal persuasive in its own terms. The tribunal may have had a particular advantage (such as technical expertise or the opportunity to assess the credibility of witnesses, where such assessment is important). In such a case the appeal court may rightly hesitate to conclude that findings of fact or fact and degree are wrong. It may take the view that it has no basis for rejecting the reasoning of the tribunal appealed from and that its decision should stand. But the extent of the consideration an appeal court exercising a general power of appeal gives to the decision appealed from is a matter for its judgment. An appeal court makes no error in approach simply because it pays little explicit attention to the reasons of the court or tribunal appealed from, if it comes to a different reasoned result. On general appeal, the appeal court has the responsibility of arriving at its own assessment of the merits of the case.
[17]Elias CJ said:5
Those exercising general rights of appeal are entitled to judgment in accordance with the opinion of the appellate Court, even where that opinion is an assessment of fact and degree and entails a value judgment. If the appellate Court's opinion is different from the conclusion of the tribunal appealed from, then the decision under appeal is wrong in the only sense that matters, even if it was a conclusion on which minds might reasonably differ.
3 High Court Rules, r 20.18.
4 Austin, Nichols & Co Inc v Stichting Lodestar [2007] NZSC 103, [2008] 2 NZLR 141 at [5] (footnotes omitted) (emphasis added).
5 At [16].
Judgment under appeal
[18] Judge MacAskill concluded that while the tort of conversion, or unlawful interference with goods, was established, Mr and Mrs Hughes had not proved the loss which they claimed.6 They adduced evidence of loss, in particular through Mr Michael Harrison, a veteran of the bulb growing business, who valued the bulbs based on those first leased to Global, and their replacements, at $278,642, to reflect prices he would have paid for some stock. He first valued them at April 2010 at $272,000.
[19] The Judge conducted a detailed review of the extensive evidence. This judgment on appeal reaches a different view as to the correct approach to damages which creates difficulties in reaching a concluded view, as I did not hear the evidence and there was limited discussion on appeal about the facts surrounding the sale of bulbs by the receivers. The facts, and the narrative, are as follows.
[20] When Mr and Mrs Hughes wanted to quit the bulb growing business, they were instrumental in Global being incorporated, effectively to take over their business.
[21] Their bulb stock had been built up over two generations, some 70 years. The stock was grown on some 50 acres including crocus, English bluebell, hyacinths, snowdrop, Dutch iris, English iris, narcissus (daffodils) and tulips. There were others, but these are reflective of the range.
[22]The Judge said:7
Any grower wanting to acquire stock, such as they had, would have to either spend a considerable amount of time and money building stock up over a number of seasons or purchase stocks at a price that reflected a similar past effort by some other grower.
[23] Stock which is free from disease is “clean”, and the evidence was that the stock leased to Global was “in excellent, clean condition”.8
6 Hughes v Fea, above n 1, at [123].
7 At [7].
8 At [10].
[24] The idiosyncrasies of the bulb growing business were referred to. There is a limited seasonal window for harvesting. Once harvested and dried, bulbs must be replanted or they will perish. Some bigger bulbs are known as “saleables”, purchased by retail and wholesale customers mainly for spring flowers. The smallest bulbs are discarded. The rest are kept and stored for the next year’s planting. Sometimes stock is left in the ground.
[25] Mr and Mrs Hughes could not find a buyer for their business and they had taken some steps, including leasing their land, to cut down on their workload. Global was incorporated for the 2005/2006 season. Mr Hughes, with a Mr Smak and a Mr MacDonald, held a third of the shares each. Mr and Mrs Hughes could step back a little from the business, and share the workload.
[26] The list of bulbs leased to Global is in evidence and is the foundation upon which Mr and Mrs Hughes base their claim to damages.9
[27] Mr Smak was the main working director of Global, assisted by Mr Hughes, and he grew, harvested and managed the bulb stocks and marketed Global’s crop. Mr MacDonald handled the financial side of the business. Global leased land from Tulip International Ltd (TIL), associated with Mr Smak, and leased other land.
[28] Most of Global’s focus was on tulips. It grew tulip stock under contract for Dutch exporters. Global used a consistent planting rate and spacing between rows so it knew how many bulbs had been planted, what harvest could be expected, and it kept harvest records.
[29] At the inception of the lease the bulbs could not individually be “counted”, but the list provided by Mr Hughes estimated the quantities of bulbs planted and the directors accepted that list. This fixed the quantities to be maintained and returned to Mr and Mrs Hughes at the end of the lease. There was no cause to question the accuracy or fairness of the list according to Mr Smak, who said some stocks grew in number, some reduced over several years.
9 Schedule A to this judgment.
[30] Based on Mr Smak’s evidence, the Judge concluded that the receivers had for their disposal well in excess of 83,000 kilograms of bulbs planted, at the beginning of the 2009/2010 season.10 The quantity of daffodil bulbs on hand at harvest was 1,738,000, with the “minor” bulb types likely to be in the numbers estimated by Mr Smak.
[31] Global went into liquidation on 23 September 2009 and the receivers were appointed on 2 November 2009. Mr Smak worked through until April 2010, but not as manager. He said that the receivers sold some saleables and bulb stock at a discount, harvested other bulbs and discarded them, did not harvest some bulbs, or harvested them only to remove planting nets from the grounds. He disagreed with their decisions as to which stock should be harvested, and to discard some stock that was harvested. He said that the receivers undertook no systematic audit of the stock on hand. His evidence was contested by Mr Heenan, one of the receivers.
[32] Mr Harrison gave evidence for Mr and Mrs Hughes as a veteran of the bulb growing business. He had competed with, but also did business with them over the years. His business became larger than that of Mr and Mrs Hughes. The Judge noted Mr Harrison’s explanation that there were “no open markets for bulbs in New Zealand” and growers have to develop their own marketing channels and contacts over time.11 The reputation of the individual supplier for quality bulbs is a big part of the business. Mr Harrison said that Mr and Mrs Hughes had an excellent reputation and he valued their bulb stock based on Mr Smak’s evidence of the stock likely to have been on hand in April 2010 at $272,000, although the bulbs identified do not seem to square with Mr Smak’s evidence.
[33] Mr Harrison’s valuation was based on information about the bulbs provided by Mr Hughes, although he did make some changes.
[34]Mr Harrison articulated the primary bases on which he reached his valuation:
31.I have been asked to comment on what a grower with stocks of bulbs of the same types and quantities that belonged to the Hughes would expect to sell them for, and what a grower would be prepared to pay:
10 Hughes v Fea, above n 1, at [37].
11 At [45].
a.I assume for this purpose that the seller is not in distressed circumstances or under any compulsion to sell.
b.I also assume that the buyer is aware of the quality and history of the bulbs in question.
32.In my judgement $278,642 represents a fair value for the stock. My calculations are set out in the attached schedule
[35] There were further bases on which Mr Harrison refined and qualified his valuation. He made his valuation on a conservative basis, and assuming that the bulbs would be sold as planting stock, not saleables. As to the qualitative aspects of the Hughes’ bulbs, he said:
I had a fair idea about the size and quality of the Hughes’ bulbs and took this into account when determining the valuations.
[36] He considered the types of bulbs which he understood the Hughes to have leased to Global. Referring to supply and demand factors for certain bulbs in the market, he made the observation that:
The size of the market for particular types has an impact on the supply and demand, and these factors were generally taken into account in the valuation that I completed in 2010.
[37] He therefore made reductions in valuation for certain “minor bulbs”, the full quantity of which he did not consider would have been purchased by the hypothetical purchaser.
[38] Mr Harrison said that the “old industry rule of thumb” when purchasing stock from other growers was to calculate one-third purchase costs, one-third growing costs, and one-third profit. Mr Hughes applied a more conservative figure of 25 per cent for profit which Mr Harrison thought fair.
[39]Mr Harrison stood by his revised value of the bulb stock in the 2010 market of
$278,624. He acknowledged that the numbers of each type on hand in 2010 were beyond the scope of his evidence. He gave evidence that Mr and Mrs Hughes could never replace the stocks which they owned in the 2009/2010 season with identical bulbs.
[40] Mr Harrison’s evidence was not contradicted as such by evidence for the defendants. He was asked about the effect of conducting an urgent sale of the entire trading stock at harvest time when the seller is known to be in a distressed situation, and he said that such a sale, without resorting to growers’ established sales channels, would negate most of the value of the stock. This emphasises the vagaries of the particular market, that it was susceptible to a very poor sale if conducted with urgency and outside the usual sales channels.
[41] Mr Harrison gave evidence of that in his own dealings with Mr Hughes and Global in February 2010. He said that Mr Heenan (one of the receivers) sold some bulbs to him. He did not want them. This was described by the Judge as:12
… an urgent sale, late in the season, between a receiver who was desperate to sell immediately, and a buyer who did not really need the bulbs.
[42] This is an example of the dynamics of the sale process undertaken by the receivers. Mr Harrison emphasised that he would never sell his own bulbs this way. In his opinion the “distress” factor would have been avoided if the stock had been carried over and sold when the market allowed for it.
[43] Mr Harrison acknowledged that lapse of time could have diminished the value of the stock, but it “might have been resurrected”. This also reflects the uncertainty and susceptibility to loss of value by a delayed sale. He said that it is very hard to put a valuation on bulb stock.
[44] The Judge said that it must be recognised the bulb stock in question was planting stock of interest to growers, not saleable stock of interest to wholesalers and retailers, and ultimately the consumers.13 There are very few growers and there is limited demand for the planting stock. He addressed what he called the “obvious limitations and deficiencies” of Mr Harrison’s valuation evidence, which becomes central to this appeal.14 The Judge did not consider that an assumption should be made that the seller was not in distressed circumstances or under compulsion to sell. He said whether sold by the receivers or Mr and Mrs Hughes, the sales would not have
12 At [62].
13 At [64].
14 At [65].
been made in the ordinary course of business, because Global’s business had failed and there were no proved orders for the bulbs, or a ready market. Nor were the likely buyers, or the timing of sales, identifiable. As the Judge said:15
Any sales at that time (including the plaintiffs’ sale to Mr Harrison) were, or would have been, forced sales. (emphasis added)
[45] Although Mr Harrison conceded an urgent sale would have negated most of the value of the stock and the distress factor would have been avoided if the stock was carried over and sold when the market allowed, the Judge said value relates to the date that the receivers converted the stock.16
[46] The receivers had to assess the saleability of the stock on hand and for their purposes conduct sales quickly. The timing in the market was such that the bulbs had to be sold, if at all, under time pressure. Mr and Mrs Hughes would have been in the same position according to the Judge. This means that while the receivers wanted to realise assets more quickly than might Mr and Mrs Hughes, the market available was for sales at that time.
[47] The Judge said Mr Harrison had not proved that there was any market for such planting stocks. His valuation of the stock assumed potential buyers and assumed a market, but he did not identify any such buyers.17 Mr Harrison assumed that Mr and Mrs Hughes’ former business had been consistently profitable, but the Judge did not think that was a relevant factor in the business because a purchaser could not have expected to obtain Mr and Mrs Hughes’ goodwill.18
[48] While Mr Harrison suggested that Mr Hughes could have given a potential buyer helpful information, and other assistance, the Judge doubted the value of such assistance given the time since which Mr Hughes had been out of the day-to-day business.
[49]In essence, the Judge’s conclusion is contained in the following passage:19
15 At [65](a) (emphasis added).
16 At [65](b). See also [121], citing Gardiner v Metcalf [1994] 2 NZLR 8 (CA).
17 At [65](c).
18 At [65](d).
19 At [65](f).
Mr Harrison gave the overall impression that he was attempting to arrive at a “fair value” of the plaintiffs’ interest in the planting stock but that his assessment assumed a willing buyer in a non-existent market. The question is not what value would have been ‘fair” but what the market would have yielded.
[50] Looking back to 2005, although Mr Hughes did not expressly say so, the Judge said that the inference was that Mr Hughes would have sold the bulbs for a reasonable price at the time, if such sale had been available. The Judge concluded:20
The reality is that in 2005 [the] plaintiffs were seeking to salvage what they could of the value of their plant and stock by entering into the Global venture, which carried obvious risk.
[51] The inability to sell stocks in 2005 was carried forward by the Judge to conclude that in 2010 Mr and Mrs Hughes’ position would have been worse “in the circumstances of the receivership”.21 That in my view does not test the realisable value of the bulb stock which should have been available to Mr and Mrs Hughes as owners if Global was not going to carry on business, and meet its obligations under the lease, as it was not. Global would be out of business, but the bulb stocks would still be in play, in whatever market was available.
[52] Mr and Mrs Hughes were thought to be in a weaker bargaining position in 2010 because they had been out of the bulb business for some years and the planting stocks which had been in Mr and Mrs Hughes’ own land in 2005, were by 2010 in land leased by Global. As any potential buyers would be privy to this information, the Judge thought the Hughes would be selling from a position of distress.22
[53] A lack of urgency in Mr and Mrs Hughes’ position was identified by the Judge when he referred to a letter sent by their solicitors, Sumpter Moore, to Global’s liquidators when they asserted ownership of the bulbs but said:23
Our clients are not asking that the bulbs be delivered up as yet, but reserve the right to do so in future.
20 At [66].
21 At [67].
22 At [67].
23 At [68], citing letter from Sumpter Moore (9 October 2009).
[54]The Judge also said:24
The plaintiffs’ hesitation before claiming possession of the bulbs is easily understood. In order to sell the stocks, they would have had to have paid the cost of harvesting any unharvested bulbs and storing them, with the risk that insufficient economic sales may be achieved.
[55] Mr Withnall QC had submitted that Mr Harrison’s evidence indicated a market as he sold stock to his own son and he knew of other sales, and the receivers had made sales albeit in distressed circumstances. But the Judge said that did not support the existence of a market in which “fair value”, as Mr Harrison called it, would be achieved.25 He recognised that Mr Harrison’s valuation was postulated between industry insiders, but said that did not satisfy the need for proof of a market in which such value would reasonably be available.
[56] What Mr Hughes would pay was not seen as relevant because he was not interested in buying the stocks. Ongoing costs would be wasted expenditure if there was no market to justify those costs. However, the Judge plainly regarded the urgency of sale as a factor that should properly influence the court’s assessment of value. He thus equated the receivers’ position with that of the Hughes, and the receivers’ sales were visited on the Hughes as reflecting the value of their interest.
[57] The Judge came to what this judgment holds is the correct question, leaving aside the correct answer, when he said:26
The Court does not discount Mr Harrison’s evidence by reason of any perception that the plaintiffs are seeking a windfall. However, the plaintiffs are not entitled to recover more than they would have recovered if the defendants had immediately yielded to them possession of the residual planting stock (harvested or unharvested) and they had sold it. The issue is what prices the stock would have produced, what was its true market value.
[58]The Judge’s answer was:
[70] I conclude that Mr Harrison’s valuation is not a true market valuation at all, but simply an assessment of what a hypothetical willing buyer would be prepared to pay a hypothetical willing seller for planting stocks in,
24 At [68].
25 At [69](a).
26 At [69](i).
erroneously, a purely hypothetical market. Any valuation must relate to an actual market. No such market has been proved.
[59] Mr Heenan’s evidence was that at the time of receivership, Global owned about nine hectares of planted tulip bulbs, and other bulbs, planted on five different leased sites. They were grown alongside the bulbs owned by Mr Van der Gulik and Mr Schouten, and others grown on contract for different parties.
[60] The advice given the receivers by Mr MacDonald and Mr Smak was that, given the value of the bulb varieties and costs of harvesting, the tulip bulbs and some of the daffodil bulbs were the only bulbs worth harvesting. The receiver for TIL, a company associated with Global, said there was difficulty in selling TIL’s bulbs. The receivers understood they had a small window of opportunity to sell the bulbs. The receivers also took advice from Dutch growers who said that many varieties that Mr and Mrs Hughes grew were obsolete in the markets, or that they did not need them. They approached a number of growers, but only the Harrisons showed interest and they were reluctant purchasers, particularly of planting stock.
[61] The receivers sold planting stock for $25,000 and saleables for $37,000. Mr Heenan said he believed they sold 14,542.99 kilograms of tulip bulbs in which Mr and Mrs Hughes held a proprietary interest. A further two sales were made, but Mr Heenan said these did not relate to bulbs identified in the lease. The buyers were interested in only some of the Global varieties, and of the total nine hectares of bulbs, about six hectares were of lesser varieties, generally only marketable within New Zealand, not Holland where Global had placed its focus. Some varieties were dumped as they were understood not to be saleable.
[62] Mr Heenan did not accept that Mr Hughes would have been able to leverage his contacts within the industry and did not consider the stock could have been carried over as the cost of replanting would have outweighed the revenue achievable. He sold bulbs in his possession for a total of $74,000, together with plant and equipment for a total of $320,000. (The total sale price achieved for the bulbs does not line up easily with the evidence of what bulbs were owned by the appellants and is addressed further in this judgment).
[63] There seems to be no disagreement with Mr Smak’s estimate that there were 83,000 kilograms of tulip planting stock in the ground. Mr Heenan was not in a position to dispute Mr Smak’s calculation of the planting stock of daffodils at the time of receivership.
[64] The Judge said that judgment should include the assumption Global had intended to comply with its obligations under the lease even if it did not keep explicit records. No inference should be drawn against Mr and Mrs Hughes in this regard. The uncontradicted evidence was that in November 2010, when the defendants were appointed as receivers, Global had more than enough planting stock in the ground to meet Mr and Mrs Hughes’ ownership under the lease. As the Judge said, “[the] real issue in the case is whether that planting stock had any value”.27
[65] The Judge treated conversion as including the alternative tort of damage to the reversionary interest because he considered that approach and the conclusion would be the same.28 He reserved the position for further argument if necessary and he doubted that mere storage of bulbs amounted to conversion. It was arguable that leaving the bulbs in the ground would not amount to conversion because the receivers were not under any obligation to harvest and store the bulbs at their cost to protect Mr and Mrs Hughes’ interest, and that Mr and Mrs Hughes by not demanding possession of the bulbs, abandoned them. The Judge left this point to one side.
[66] Given the evidential absence of a real (rather than hypothetical) market, the Judge suggested that a more appropriate measure of their loss might be the loss of opportunity to sell the bulb stocks. His Honour cited a Court of Appeal judgment in which Cooke P referred to the general rule that a plaintiff in conversion is entitled to the value of the property at the date of the tort.29
[67] The Judge summarised the facts of Gardiner v Metcalf as follows.30 The plaintiffs had been growing squash on leased land. Sheep escaped from the defendant’s adjoining farm and ate or damaged some of the unharvested crop. The
27 At [107].
28 At [113].
29 At [118], citing Gardiner v Metcalf, above n 16.
30 At [118](a).
defendant was liable in cattle trespass and the issue on appeal was the measure of damages. South Canterbury Export Packers Ltd (SCEPL) had agreed to buy the crop and the plaintiffs claimed from the defendant the loss of revenue under the agreement resulting from the damage to the crop. SCEPL had gone into liquidation and could not have paid anything to the plaintiffs. The plaintiffs were unaware of SCEPL’s financial difficulties and would not have sought to sell their crop otherwise than to SCEPL.
[68] However, even allowing for flexibility in the approach to damages, the Judge held that where the value of the goods to the plaintiff is their market value, and there is a non-existent market, then that measure of loss cannot be applied.31
[69] The Judge focused on one of the critical issues in this appeal, namely the date at which to measure any damages. The general proposition is that the time for measurement of loss is the date of conversion. The Judge concluded that the appellants’ claim in conversion failed because Mr Harrison’s valuation was “fundamentally flawed in that there was no market for the bulbs at the time of the conversion of stocks by the defendants”.32
[70] All the Judge could identify of a market was Mr Heenan’s evidence that the defendants sold planting stock to Mr Van der Gulik and Mr Schouten for $25,000 and Mr and Mrs Hughes would be entitled to recover that sum less the (unproved) costs of harvesting and sale. This does not explain the further sale for $37,000 and a total of
$74,000 in sales mentioned in the judgment, addressed under Discussion, which Mr Heenan says did not relate to bulbs owned by the appellants, as to which I am left in doubt.
[71] This is a short analysis of the long and carefully considered judgment under appeal. For reasons which follow it is necessary to comprehend the evidence before the Judge regarding the bulb stocks that were converted by the receivers and the attempt to find a market for them at the time, together with the evidence of what market may have been available to Mr and Mrs Hughes and what it might have yielded.
31 At [119].
32 At [123].
Damages for conversion
[72] Usually, the law will allow a plaintiff to recover the value of converted property at the market value of that property when the damage is done, rather than the contract value of the goods to the plaintiff.33
[73] Mr Withnall QC submits that the measure of damages for conversion is that stated in Stephen Todd’s The Law of Torts in New Zealand:34
The principle that the normal measure of damages in conversion is the market value of the goods [at the date of conversion] is consistent with the idea that the plaintiff is effectively forced to sell the goods to the defendant by virtue of the conversion. The judgment for the plaintiff, once satisfied, divests the plaintiff of his or her title to the goods and vests it in the defendant, the defendant being obliged to pay the value of the goods.
[74] The Court will look at the market in which the plaintiff could replace the goods, rather than the market in which he or she could sell them, but that is not universally the approach taken.35 The costs of replacement to put the appellants in the position but for the loss should, in circumstances such as these, reflect the market value of goods.
[75] The principle of restitutio in integrum is fundamental to an award of damages for the tort of conversion. Mr and Mrs Hughes should receive compensation to put them in the same position as they would have been had the tort of conversion not been committed.36 Mr Withnall says that means they should have the value of the bulbs which on the balance of probabilities they would have achieved by sale in due course, rather than by forced sale.
[76] In the setting of the lease to Global, which was in liquidation and receivership, that means determining what the bulbs were worth to the Hughes had they exercised an unchallenged right to ownership. Global was already in default under the lease as it had not paid rent.
33 Gardiner v Metcalf, above n 16, at 11.
34 Stephen Todd (ed) The Law of Torts in New Zealand (7th ed, Thomson Reuters, Wellington, 2016) at 655 (footnotes omitted).
35 Furness v Adrium Industries Pty Ltd [1996] 1 VR 668 (VSC).
36 Livingstone v Rawyards Coal Co (1880) 5 App Cas 25 (HL) at 39; Anscombe v Paul Christie Ltd
[1991] 2 NZLR 176 (CA) at 178.
[77] Mr Withnall puts the approach to damages for conversion on the basis of “three discrete and contingent steps” which provide a graduated inquiry as to valuation. The first is the price which would have to be paid to purchase identical goods on an extant market, which is their prima facie value. Without such a market or where that price is not truly reflective of the value, then as the second step the Court may have resort to the price which the owner could have obtained for the goods. If neither test is applicable, the third step is to apply some other principled valuation method.37
[78] The correct approach to damages in my view reflects a flexibility to achieve restitution.38 McGregor on Damages says that:39
The value of the goods is, however, the basic criterion, this being most commonly and most simply calculated by taking the market value. Calculation becomes more difficult where there is no market value. It is sometimes said that the value to the owner must then be looked to, but this term, thought in one sense correct, is not in itself clear and is, therefore, likely to lead to inaccuracy.
[79] As an example of such difficulty, the authors cite the valuation of converted unroadworthy vehicles due to be made roadworthy by the claimant vehicle repairer.40
[80] In R (on the application of Checkprice (UK) Ltd (in administration)) v Revenue and Customs Commissioners, alcoholic beverages were seized by Revenue and Customs, which converted them.41 By then they had passed their sell-by dates and had to be destroyed. The claimant was held entitled to damages based on market value as if duty had been paid and the goods still saleable, but no entitlement existed for the market value of other detained beverages because it had not been established that Customs duty had been paid on them. In respect of those goods, the “loss” was the loss of the opportunity to prove such payment to the Magistrates Court, rather than the right to have the goods back. The chances of doing so were held to be speculative, therefore no loss was proved for which compensatory damages could be awarded.
37 Furness v Adrium Industries Pty Ltd, above n 35, at 669; Systems Engineering Technology Ltd v Marken Services Ltd (2000) 4 NZ ConvC 193, 226 (HC) at [8].
38 Law of Torts in New Zealand, above n 34, at 653 and 656; Gardiner v Metcalf, above n 16, at 12.
39 Harvey McGregor McGregor on Damages (19th ed, Sweet and Maxwell, London 2014) at [36-007] (citations omitted).
40 Cumberbatch v Lambeth London Borough Council, [2005] EWCA Civ 1103, [2006] RTR 21.
41 McGregor on Damages, above n 39, at [36-009]; R (on the application of Checkprice (UK) Ltd (in administration)) v Revenue and Customs Commissioners [2010] EWHC 682 (Admin).
[81] The value of the goods at the time of conversion is one thing, “but it does not follow that that sum is the measure of the plaintiff’s loss. The question is what is the plaintiff’s loss, what damage he has suffered, by the wrongful act of the defendants”.42
[82] In New Zealand there is no single tort of unlawful interference with goods and no equivalent of the Torts (Interference with Goods) Act 1977 (UK). The essential feature of conversion is the “denial by the defendant of the possessory interest or title of the plaintiff in the goods”.43 The authors of Law of Torts in New Zealand comment that the measure of damages for conversion is:44
… generally the value of the goods themselves, with the result that judgment for the plaintiff in such a case, once satisfied, operates as effectively a forced sale; the plaintiff who is deprived of the interest in the goods receives their value from the defendant, entitlement to the goods is thereby invested in the defendant.
[83] Although an intentional wrong, conversion does not require fault or dishonest intention. An innocent purchaser may be liable in conversion. The learned authors say that:45
The law governing the assessment of damages for conversion is flexible and depends to a considerable extent on the facts and circumstances of the individual case… the purpose of damages in conversion, as with other torts, is to provide just compensation for the loss which has been suffered.
[84] Care must be taken to ensure that the loss which the owner would have suffered if he or she retained the goods is not regarded as “caused” by the conversion. Put another way, losses suffered by the plaintiff must have been caused by the defendant.46
[85] The normal rule for assessing damages is general and not immutable. The rule is understood to yield to the overriding requirement that damages compensate for loss actually suffered.47 This recognises that the purpose is generally to compensate a
42 Sachs v Miklos [1948] 2 KB 23 (CA) at 39.
43 Law of Torts in New Zealand, above n 34, at 626.
44 At 627.
45 At 653 (citations omitted).
46 Glenmorgan Farm Ltd (in rec and in liq) v New Zealand Bloodstock Leasing Ltd [2011] NZCA 672, [2012] 1 NZLR 555 at [74] – [78], citing Kuwait Airways Corp v Iraqi Airways Co (Nos 4 and 5) [2002] UKHL 19, [2002] 2 AC 883.
47 At [64], citing Kuwait Airways Corporation v Iraqi Airways Co (Nos 4 & 5), above n 46, at [67].
plaintiff permanently deprived of his or her property.48 Therefore the rule is flexible and the measure “may vary infinitely according to the individual circumstances of any particular case”.49 This is reflected in the editorial commentary as to stock in trade:50
If converted goods are the stock in trade of the plaintiff, the measure of damages will depend on whether substitute goods are readily obtainable, for if the plaintiff can simply obtain more goods at the same price, the loss suffered would simply be the purchase price of the goods. If however, there is no such ready market, the loss will be assessed by reference to the actual costs of obtaining or manufacturing goods to replace those which have been converted.
The argument on appeal
[86] Mr Withnall submitted the Judge erred in his approach by concluding that no market was available other than that which the receivers found. They had to realise the stock as best they could through a forced sale. The correct approach to damages is submitted to lie in the market which Mr and Mrs Hughes might have found, other than by forced sale.
[87] Mr Hughes gave evidence that it is viable to leave bulbs in the ground, into a second season, and in 2005, when the lease to Global was entered into, that was the case. He rejected any suggestion that leaving the bulbs in the ground would degrade the stock. He said that if harvested bulbs and dried bulbs had been returned to him they would have had to have been planted or they would have perished. So he would have had to sell the stock, or replant, and as he had been a bulb grower, that was a judgment to be made.
[88] There is no evidence, says Mr Withnall, that had the bulbs been returned to Mr Hughes, he would not have had the time or funds to get them to market. He could have sold them or held onto the bulbs for a subsequent season, or utilised them for cut flowers. However, the Judge concluded that any valuation should be made on a “fire” or “forced” sale basis, which was how the receivers proceeded.
48 At [65].
49 At [66], citing Brandeis Goldschmidt & Co Ltd v Western Transport Ltd [1981] QB 864 (CA) at 870.
50 Law of Torts in New Zealand, above n 34, at 660.
Mr Harrison’s valuation
[89] Although there is evidence from Mr Smak critical of the receivers’ decisions regarding sale, Mr Harrison gave the only expert evidence of market value and Mr Withnall says his use of the word “fair value” does not derogate from the rigour of his analysis. Mr Withnall put it that his was a reasoned valuation based on an intimate knowledge of bulbs, the trade, and the market.
[90] Mr Harrison gave evidence of the industry “rule of thumb” about the relative values between planting stock and saleables. His evidence was unchallenged in that regard. He explained how sales of planting stock take place in the context of particular commercial relationships, which are triggered by the buyer’s particular needs at any given time. Sales might be slow, and Mr Harrison agreed that any attempt to part with the bulbs on an urgent basis would secure a poor return, as the receivers discovered.
[91] Under the lease to Global, the bulbs were to be replaced if harvested. Mr and Mrs Hughes did not argue for replacement value because the stocks converted could not be replaced with identical bulbs, given their unique biological origin. Mr Harrison agreed that was the case, and Judge MacAskill confirmed that such a measure of loss would have been inappropriate.51
[92] Mr Withnall says that the market value based on the sale of the goods in the ordinary course of business must be found and that task is not undone by the fact that the bulbs could not readily be replaced in the market. That does not mean that the bulbs could not be sold. There was clearly a market for some stock, as it was sold.
[93] Mr Withnall submits that the evidence shows that planting stocks are tradeable goods. Mr Hughes tried to sell his business, including the bulbs, in 2005 and he received offers. There were examples of sales of bulbs by the receivers and others were referred to in evidence. Mr Harrison sold bulbs to his son in 2015. However, the Judge made these findings:52
Mr Harrison’s valuation is not founded on any comparable sales other than his own purchase from the receivers in February 2010. He has not shown that
51 Hughes v Fea, above n 1, at [120].
52 At [65](c).
there was any market for such planting stocks. He refers to no potential buyers who might have been interested in such stocks at that time. His valuation is dependent on assumed potential buyers, and, consequently, an assumed market…
[94] The lens through which the Judge considered the market is said to have artificially and wrongly shrunk the market, so Mr Withnall submits.
[95] Where there is no ready market for all the bulbs, as here, Mr and Mrs Hughes would have to find a buyer and get the bulbs to the market in which such buyer exists, and is ready to transact. Given the nature of the bulb market, that takes time. I asked Mr Withnall whether Mr Harrison’s valuation brought into account the costs of realisation of the bulbs converted or still available to be harvested. His answer was Mr Harrison’s evidence of “a third, a third, a third”, the rule of thumb which includes the cost of continuing to lease land for the purpose of holding stock until it can be sold. Here the question is what the converted bulbs would have fetched in a conventional unforced market and the Hughes would have had to incur costs. Global had failed so the burden of getting the bulbs to market fell on Mr and Mrs Hughes. Mr Harrison referred to Mr Hughes’ estimate of value, which he said provided an even more conservative measure of profit:
I judged John’s 25% discount to be appropriate and more than fair. I also commented that the per unit valuation amounts that I had adopted in this instance were more likely to be around 20-25% of the wholesale value. This was another cross check that my valuation was fair and conservative.
[96]Mr Withnall cites Australian authority defining market value as:53
… the estimated amount for which an asset should exchange on the date of valuation between a willing buyer and a willing seller in an arm’s length transaction, after proper marketing, wherein the parties had each acted knowledgeably, prudently and without compulsion.
[97] The Judge regarded Mr Harrison’s evidence as his “attempting to arrive at a fair value” of the appellants’ interest but fatally assuming a willing buyer in a non-existent market.54 On this basis, the Judge concluded that Mr Harrison’s
53 Hill v Reglon Pty Ltd [2007] NSWCA 295 at [151].
54 Hughes v Fea, above n 1, at [65(f)] and [70].
valuation was not a true market valuation at all, and did not prove the existence of a market.55
[98] This last sentence is pivotal to the appeal. Put another way, the question on appeal becomes whether the appellants prove to the civil standard that there was a realisable market in the way Mr Harrison’s valuation assumes.
[99] The Judge said that where the value of the goods to the plaintiff is the market value, “the non-existence of a market means this measure of loss cannot be applied”.56 Mr Withnall’s submission is that the Judge did not recognise the flexible approach available in law to reflect the value of goods in a market which is notionally available. Mr Withnall submits that the Judge was wrong in law, and in fact, to find that the plaintiff had to prove actual potential purchasers ready to buy the stocks at the date of conversion. Further, Mr Withnall submits there is sufficient evidence of market value in this case to assess the price that would have been reached in a notional market sale.
[100] Alternatively, Mr Withnall says that even if the appellants were required to prove an “actual market” and failed to do so, that is not enough to find no loss proved because as Furness demonstrates, “no market” does not mean “no enquiry”.57 In that case, some other indicator of value must be found. Mr Withnall maintains that the test in Hill provides the answer.58 He submits that the Court should enquire into what price the appellants could have sold the bulbs for had the opportunity for a transaction arisen, albeit in a notional setting.
[101] By reference to the Law of Torts in New Zealand, Mr Withnall says that the plaintiff has been effectively forced to sell the goods to the defendant by virtue of the conversion.59 Judgment for a plaintiff divests the plaintiff of his or her title to the goods and vests it in the defendant, the defendant being obliged to pay the true value of the goods. Mr Withnall says that the Judge was correct in saying that the measure of damages relates to the date of conversion, but the conceptual requirements of
55 At [70].
56 At [119].
57 Furness v Adrium Industries Pty Ltd, above n 35.
58 Hill v Reylon Pty Ltd, above n 53, at [151].
59 Law of Torts in New Zealand, above n 34, at 655.
restitution in integrum can and should be met without imposing the injustice of a forced sale on the appellants.
[102] The judgment in Hill is to the effect that the valuation is to be fixed in the context of proper marketing, where the parties act knowledgeably, prudently and without compulsion. That assumes that in the lead up to conversion, and not afterwards, the requisite marketing has been carried out and that the potential buyer and seller had found each other and negotiated to conclude an agreement. In other words, that is the market in which the goods are normally sold. Mr Withnall submits that this is based on a notional seller, but not a notional forced sale, or forced sale equivalent. The quantum of damages sought is $278,624.20, based on the sole and unchallenged evidence of Mr Harrison, necessarily reduced to $200,000.60
The respondents’ position
[103]It is striking that the only loss from conversion found to have been proven is
$25,000 for the proceeds of one sale by the receivers when the stock leased was agreed to be worth in excess of $400,000, and the most valuable bulb varieties were valued at $278,000 by Mr Harrison.
[104] The respondents’ position, put by Mr Lester with Mr Young, is to refute outright the notion that the bulbs had any greater value than that achieved, because there was “no market” other than that found by the receivers at the time of conversion, when they attempted to find buyers. They contend that the appellants failed in the District Court because they cannot prove the loss claimed.
[105] Mr Harrison’s evidence is contested because it is submitted not to disclose a market for the bulbs at the time of the conversion. They say that is the basis on which damages for conversion are usually measured.61 Counsel cites Greer LJ in J&E Hall v Barclay:62
60 Taking into account the jurisdictional claim limit of $200,000 imposed by s 29 of the District Courts Act 1947, for claims originating in that court.
61 McGregor on Damages, above n 39, at [36-006].
62 J&E Hall Ltd v Barclay [1937] 3 All ER 620 (CA) at 623.
Where you are dealing with goods which can be readily bought in the market, a man whose rights have been interfered with is never entitled to more than he would have to pay to buy a similar article in the market.
[106] That statement has the premise of an identifiable and immediate market. Mr Lester submits that the Judge concluded correctly that the case for Mr and Mrs Hughes was that any loss is the value of the stock based on what a willing buyer would pay and a willing seller would accept at the date of conversion. However, if there was no market beyond that found by the receivers, as the Judge concluded, then no further enquiry is warranted.
[107] Mr Lester responded to the appellants’ case that if there is no market for the goods (at the relevant time), the Hill test should be applied to achieve a notional sale. His submission is that the Judge was right to hold that in the absence of a market, no value can be assessed, even on a notional sale basis. Put succinctly, Mr Lester said “there cannot be expert evidence about a market that does not exist”.
[108] I pause to observe that Mr Harrison’s evidence that there was “no open public market for bulbs in New Zealand” was not, in my view, evidence that there was “no market”. That is not what Mr Harrison was saying. He was saying that there was no immediate market available to realise cash for all the bulbs at any particular date, because that is not the way the commercial bulb business works. There was a market as the receivers proved by their sales, but that does not mean it was the only market.
[109] Mr Lester was correct in recognising that the filter of the hypothetical buyer and seller would usually apply, supported by evidence of comparable transactions. But if there is “no market”, he submits there are no hypothetical buyers and sellers and these cannot be “conjured into existence”.
[110] Mr Lester adopted the following passage from McGregor on Damages, referring to Hall v Barclay:63
There was no current market price at which the goods could have been bought or sold, and the Court of Appeal held that the claimant was not limited to the selling value the goods possessed, i.e. the scrap value, but could recover the cost of obtaining replacements in the absence of a market in which such goods
63 McGregor on Damages, above n 39, at [36-008].
could be bought ready made. There was evidence that the claimant would want to use such replacements so that he could not be said to be claiming on the basis of replacement value just in order that the defendant should pay him damages.
[111] His submission is that the test is not what Mr Harrison describes as the operation of the commercial bulb market, nor what Mr and Mrs Hughes could have sold the bulbs for in that way. A lot of the stock would have to be held before the market would emerge. He submits that the reality of the evidence is that at the time of conversion only a forced sale price could have been achieved, and that was acknowledged when Mr Harrison was asked to value most of the stock. Mr Lester rests his submission on the fact that damages for conversion are to be assessed at the date of conversion, thus effectively freezing assessment of the available market.
[112] Mr Lester also said it was significant that Mr and Mrs Hughes did not argue for replacement value as the measure of loss since that is often an alternative measure of loss available when there is no market value proved. That is to say all the bulbs could not be replaced as they were not available in the market for a reason – there was no, or a limited, market for them. However, that was implicit in what they did argue as to the price they would have received if they had marketed the goods for sale as Mr Hughes contemplated.
Discussion
[113] Mr and Mrs Hughes were wrongly denied ownership of the bulbs. It remains to be determined whether they proved the loss they assert as the result of the conversion.
[114] A starting proposition is that any gross sale proceeds which may have been obtained at or after the date of conversion will not reflect their actual loss, since notwithstanding the conversion, there was much still to be done to realise any value and there must be contingencies brought to account.
[115] The Judge concluded that the “forced” or “distressed” sale price achieved was the market value of the bulbs and the appellants could thus recover that sum for bulbs which under the lease belonged to them, less the (unproved) costs of harvesting and
sale.64 The Judge referred only to $25,000 for the sale of some bulbs. Beyond ascertaining the existence of a market and the bulbs’ value, I have had to delve further into evidence to see whether all of the bulbs sold belonged to the appellants, as my reading of Mr Heenan’s evidence leaves me uncertain, and whether the Court’s approach to damages means that the sales made have been at a price which understates the true value available to the Hughes.
[116] The value of a “forced sale” by the receivers does not to me ring true as a proper compensatory measure unless it was on analysis the only market available. It would mean that by the wrongful act of the receivers, by the tort of conversion, they were able to achieve a sale price, coupled with their abandonment or discarding of bulbs in or above ground, which conceptually is the sum payable to the appellants.
[117] I conclude that it is artificial and contrary to principle to simply apply the forced sale value of the bulbs achieved by the receivers and then say that is what it would cost the appellants to acquire the bulbs in the market, under that forced sale, and that such sale is otherwise the only market for these bulbs. The appellants did not bring about a forced sale. To say that the forced sale value reflects all that the appellants would have received on sale by them in the ordinary course does not seem to me to have any element of justice or flexibility about it at all. It would be to say that the Hughes must bear the consequences of the way the receivers conducted themselves for their purposes as receivers. This in principle denies the purpose of damages for conversion: the just compensation for permanent deprivation of one’s property.65
[118] I consider that while the usual principle is to calculate loss at the date of conversion, that does not mean that a “forced” or “fire” sale by receivers is the “extant market” referred to in Furness as indicative of prima facie value.66 Crucial to the Hill definition of market value is an exchange between willing parties without compulsion.67 That approach may do a real injustice to the owner of a property interest
64 Hughes v Fea, above n 1, at [124].
65 Glenmorgan Farm Ltd (in rec and in liq) v New Zealand Bloodstock Leasing Ltd, above n 46, at [64]-[65].
66 Furness v Adrium Industries Pty Ltd, above n 35, at 669.
67 Hill v Reglon Pty Ltd, above n 53, at [151].
which has been converted, and provide an advantage to the wrongdoer when called to account. The authorities do not come to this.
[119] Such conclusion does not dispose of the appeal because all the evidence as to the market for the converted goods and what bulb stock might have been sold by the Hughes must be considered, and tested against the proof required of a plaintiff, on the balance of probabilities, as to the loss they claim. It is not just the evidence of Mr Harrison that is to be brought to account, but analysis of that for whether it proves loss, and all the evidence before the Court.
Was there a market for the bulbs, beyond the forced sale?
[120] The bulb stocks transact in an illiquid and seasonal market with its idiosyncrasies. The fact that Mr and Mrs Hughes had been less involved in bulb growing in recent years does not mean that the stock did not have realisable value if made available to them at the time when they asserted ownership. Mr Harrison and Mr Hughes provided unrefuted evidence of various transactions, which meant there was a market, but without those transactions necessarily proving the value that should apply here. Indeed, they were transactions which reflected an unenthusiastic attitude to purchase at the time, and later, in early 2010.
[121] The Hughes did not argue for replacement value and have not adduced evidence to show prima facie value based on the price that would be paid to purchase identical goods on an existing market.68
[122] Regardless, Mr and Mrs Hughes should have been able to test the market. They should have been able to take possession of the bulbs, decide what and when to sell, what to discard, what to abandon, what to replant, what to leave in the ground. There was a market of some sort but the forced sale achieved was not necessarily reflective of the value of the stock approached in this (correct) way, thus (per Furness) the enquiry becomes what price they could have obtained in a realistically assessed and proven market, bringing all costs and contingencies to account, and thus what they were denied by the conversion.
68 Furness v Adrium Industries Pty Ltd, above n 35, at 669.
What, then, have the appellants proved they lost?
[123] The question then is whether it is shown on the evidence that the loss which is claimed based on Mr Harrison’s valuation, adjusted to fall within the jurisdiction of the District Court, is proved on the evidence. I conclude, not without anxious consideration, that it is not, but with some residual reservations which remain to be addressed in a pragmatic and cost-effective way.
[124] The fact that the receivers were “desperate” to sell is not to bear on Mr and Mrs Hughes in this case, unless that one sale (or other sales which should are to count) reflect the only market that was available for these bulbs, then or in the near future. That means the evidence and attempted sale must be analysed further.
[125] The receivers through Mr Heenan said they made considerable efforts to market and sell the planting stocks but that the market was very limited. Mr Heenan said:
22.GBL directors, Alan MacDonald and Roy Smak advised the receivers that in their view the tulip bulbs and some of the daffodil bulbs would be the only ones that would be worth harvesting in that they could attract a price higher than the cost of harvesting. These directors were experienced in the bulb industry and had every interest in the receivers obtaining as much as possible from the sale of assets given that they had given personal guarantees for some of GBL’s debts.
23.The receivers had no funds to pay for the services of VG and S to have their bulbs harvested. VG and S were aware of this but were reluctantly continuing to tend the bulbs primarily because they were planted adjacent to their own bulbs and would have transmitted disease if left unattended.
[126] Mr Harrison’s evidence was what he considered the bulbs would be worth in the market to someone paying the entry price for planting stock, rather than for saleables. Much of the work had been done in the seasonal cycle, but there was still harvesting and thus cost. The Hughes owned the replacement bulbs, and any which remained of those first leased, and they took without cost to them the benefit of Global’s work to reach their condition and numbers in late 2009.
[127] The Judge correctly made no assumption of loss through diminution in the number of bulbs by any failure by Global to replace the bulbs (which may well have
been the case). There is evidence of variation in the stock numbers that might have been expected, given by Mr Smak, but seemingly not brought to account in Mr Harrison’s valuation, as he used different figures.
[128] In all, some bulbs were abandoned in the ground by the receivers, some discarded, some sold. The sales are said by the Hughes to have been at a discount but not by an amount that I can quantify. There is no evidence as to whether Mr and Mrs Hughes could or should have retrieved those left in the ground, for sale, storage or otherwise and what they might have yielded. There were replacement bulbs under the lease and thus valued by Mr Harrison.
[129] With one exception, there does not seem to have been any attempt to get hold of those bulbs or others which the receivers abandoned or discarded. Their fate is on the evidence unknown to me. There is evidence that Mr Hughes took delivery of tulip stock which was to be dumped. There were approximately 700 boxes, but not all of these were full. Mr Hughes sold this stock to Mr Harrison for $10,991.82 (plus GST). Judge MacAskill referred to this at paragraph [78] of his judgment.
[130] To have sold the bulbs and to have recovered something in the order claimed would have required continuing lease payments to other landowners and harvesting. That was required to get to the point of sale. That would have been a cost to Mr and Mrs Hughes. As Hardie Boys J said in Gardiner v Metcalf, if the plaintiff would have had to incur expenditure in order to realise the market value, credit must be given for that expenditure in assessing its loss.69
[131]Mr Heenan at paragraphs [47] and [48] of his evidence said:
47.It will be immediately apparent that there is a considerable and significant difference in the quantity of bulbs claimed by the Plaintiff as compared to the quantity sold by the receiver.
48.The explanation for this is that in part, a considerable number of bulbs were sold that according to the company records, did not form a part of the original alleged lease. However, the explanation is more complex than that. (emphasis added)
69 Gardiner v Metcalfe, above n 16, at 13.
[132] That indicates to me some potential mistake as to the contractual identity and status of the bulbs sold by the receivers, which seem to have fetched approximately
$62,000 (or $74,000).
[133] The Judge concluded that only the sale of stock to Mr Van der Gulik and Mr Schouten for $25,000 was of planting stock belonging to the appellants. He said that the appellants were prima facie entitled to recover that sum less the unproved costs of harvesting and sales.70 He reserved leave to have that addressed.
[134] In Attorney-General v Geothermal Produce NZ Ltd, the Court of Appeal upheld the plaintiff’s claim for economic loss based upon the anticipated profits from an expanding enterprise summarily halted by the negligent spraying of herbicide.71 McMullin J said that the measure of any award of damages depends on the foreseeability of the loss for which they are claimed, and what sum of money would compensate for this. His Honour clarified that:72
These questions involved an assessment of the various witnesses and the making of proper allowances by way of discount for the chances which may or may not have occurred. It is commonplace that businesses damaged by wrongdoers, like chattels, are apt to be seen after the event in a glowing light. At that point a plaintiff's lost prospects may become his best prospects. Hence the need to approach claims with care and to make appropriate discounts where necessary.
[135] As Judge MacAskill acknowledged, Mr Harrison’s evidence “must be assessed according to the usual criteria; the Court is not bound to accept it without question”.73 So too, on appeal, this Court is required to assess all evidence and make appropriate discounts for hypothetical chances and for conceded realities. To avoid assessing the converted bulbs in an artificially “glowing light”, it is entirely appropriate, then, to assess Mr Harrison’s evidence critically and with care.74
70 Hughes v Fea, above n 1, at [124].
71 Attorney-General v Geothermal Produce NZ Ltd [1987] 2 NZLR 348 (CA).
72 At 359.
73 Hughes v Fea, above n 1, at [69](h).
74 Attorney-General v Geothermal Produce NZ Ltd, above n 71, at 359.
[136] In the circumstances of this case, were I to accept Mr Harrison’s stock valuation as evidence of market value, it would be appropriate to discount his calculations for elements such as:
[137]the deterioration over time in desirability and value of the bulbs, given the industry changes Mr Harrison described (in the market as at 2010, purchasers valued price competitiveness over the grower’s reputation for quality);
[138]the receptivity of a closed market to sales of major and minor bulb varieties;
[139]the costs of marketing on a quiet market, and/or of re-planting and re-harvesting for sale in a more favourable market, and leasing to do so;
[140]the chance of sale, over time; and
[141]bulbs not sold by the receivers and retrievable by the Hughes would not be part of the valuation.
[142] In the end, and with some sympathy for Mr and Mrs Hughes, I consider that Mr Harrison’s evidence does not prove a realisable market value. The requisite discounts detract further from its certainty. Being a market there are always incentives of supply and demand, crop success, the financial settling of the market.
[143] All the bulbs sold clearly had at least the value which the receivers obtained. That is the minimum to which the appellants are entitled. There is evidence that these quick sales were at a discount. The evidence leaves an impression that the sales were marked with a discount, the product of what was, and was seen to be, a distressed sale. That clearly drove down the price achieved. There were sales to a buyer who did not really want them. However, there is no evidence on which the court can reach a calculable discount, at least not without hearing further argument.
[144] There is simply insufficient evidence of who the buyers might be based on sales before, at, or after the acts of conversion, or of when and what sales might have been made. Evidence of sales in the market must have been available if there were any comparable. Nor is there adequate evidence regarding the costs which the Hughes would incur in an unforced sale. Further, the seemingly leisurely or hands off approach to mitigation meant that some stock was not harvested, not sold, or otherwise discarded. Mr and Mrs Hughes could have in practical terms undertaken that exercise for all but the bulbs sold by the receivers.
[145] There may well have been some further value in the bulb stocks, above that realised by the receivers, but to what degree is unknown, and unproven. The Hughes have not proved to the requisite standard what price they could have obtained for the bulbs. Nor can I find evidence sufficient to calculate market value by some other principled valuation method.75
[146] I therefore reach the view that other than evidence of the stock that was sold, which is evidence of value, but quite possibly discounted, no further loss has been proven to the necessary standard.
[147] The Judge was right to contemplate the loss of a chance.76 That is what the Hughes in truth lost. Evaluation of the chance would require the same analysis undertaken here. Had the bulbs been available to the Hughes they would have been able to make some choices. They would have had to face the reality that Global had failed to pay rent and failed as a commercial enterprise. Their only means of recovery turned on the very existence of the bulbs leased, and their replacements, and what they night do to recover their investment. If Global had failed to meet its obligations to maintain the stock then that was an unfortunate truth. Mr Smak said some bulb stocks had decreased in number, some increased, and the market had changed with new preferences and prices. Both Global and TIL had failed in that setting. Decisions had to be taken whether to harvest, defer harvest, maintain leases, attempt sales or discard bulbs redundant to the market.
75 Furness v Adrium Industries Pty Ltd, above n 35, at 669.
76 Hughes v Fea, above n 1, at [117].
Outcome
[148] I can see no reason in principle why the receivers should not pay damages to Mr and Mrs Hughes for the sale price of all the stock that belonged to them. I am not satisfied the sales made were not replacement bulbs. This is something I cannot determine at this point, but observe the following.
[149] The fact that some of the stock is represented by cash receipt does not, in a claim for damages, mean that the Hughes should not have full recovery from the receivers. This is not the product of security over the proceeds of sale, but a requirement that the receivers should pay for the consequences of the conversion.
[150] Global leased approximately 9 hectares of planted tulip bulbs and other bulbs, on five different sites, and its operations were conducted by Mr Van der Gulik and Mr Schouten. The Hughes’ bulbs were planted on leased land. Global’s plight was such that the receivers had no funds to have the bulbs harvested and Mr Van der Gulik and Mr Schouten reluctantly tended the bulbs only because their own bulbs were throughout the plantings and disease would have developed had they not done so.
[151] To the extent that the planted tulip and other bulbs were a replacement for those leased to the Hughes, they did not belong to Global. Mr MacDonald and Mr Smak said the tulip bulbs and some of the daffodil bulbs were the only bulbs worth harvesting and the Judge plainly accepted that evidence. The receivers for Tulip International Ltd (TIL) said they had difficulty in selling that company’s available bulbs and the receivers understood there was a window of opportunity to harvest the bulbs and sell them. The receivers approached other growers, including the Harrisons, only they showed interest and were reluctant.
[152] Some three hectares of planting stock were sold to Mr Van der Gulik and Mr Schouten for $25,000 and $37,000 for saleables. Mr Heenan said that from this sale, some 14,542.99 of tulip bulbs belonged to the appellants. That represented a little more than half in weight of the 25 tons of planting stock sold (25 tonnes).
[153] The interest of Mr Van der Gulik and Mr Schouten was only in some global varieties as others were not compatible with those they were exporting to Holland, and
some six of the nine hectares were lesser varieties that were generally only marketable within New Zealand, in which Mr and Mrs Hughes largely traded. They had, however, traded in that market personally some years before.
[154] Mr Van der Gulik and Mr Schouten dumped some varieties as not saleable, and Mr Hughes, according to the judgment, took delivery of some of the tulip bulbs. The judgment recorded that the receivers had limited time to harvest the tulips and the price received was the market price for planting stock, influenced by the fact that others were aware of a distressed sale. The Judge noted there was no effort made by the appellants or their solicitors to identify the bulbs owned by them, those which belonged to Global, and those which belonged to third parties, and instead Mr Hughes claimed that all the bulbs sold by the receivers belonged to the appellants.77
[155] Mr Heenan gave evidence that he had taken advice from Mr Smak and Mr MacDonald and was told the cost of harvesting the bulbs for most of the varieties would have exceeded their values. He also took advice from Dutch growers who said many of the varieties that Mr Hughes had grown were obsolete on the markets or they were not needed. Mr Heenan did not believe the stock could have been carried over as the cost of replanting would have outweighed anticipated revenue.
[156] Mr Heenan did not disagree with Mr Smak’s estimate that at the time the receivership commenced there were 83,000 kilograms of tulip planting stock in the ground and Mr Hughes’ claim was for 46,000 kilograms of tulip bulbs. He did not dispute Mr Smak’s calculation of the planting stock of daffodils at the time of receivership.
[157] The residual issue for this judgment is to allow argument on what bulbs were sold and whether the Hughes are entitled to the proceeds of their sale in their entirety. I have read the evidence in this regard, and would readily reach a conclusion on appeal if I thought I could confidently do so. My reading of the evidence leaves me in doubt as to whether the sales made by the receivers were of the appellants’ bulbs, constituted by replacement, or the bulbs originally leased.
77 Para [80].
[158] The Judge concluded that the bulbs sold in the second and third sales did not relate to bulbs identifiable in the lease. Being identifiable in the lease is not the key determinant, as if these were contract replacement bulbs, then they belonged to Mr and Mrs Hughes. Mr Heenan’s evidence was that it was extremely unlikely that any of Mr Hughes’ original bulbs existed by the time of the receivership. But that is not the point. They had to be replaced. If they had not been replaced of course then that would be a different matter, but the Judge did not make that assumption against the appellants, and on the evidence there is no basis to do so. In other words, the breach of obligation by Global as to replacement of the bulbs should not influence the outcome. There should be no such assumption.
[159] The appeal should be finally determined based on the payment of a sum which represents the proceeds of sale of all bulbs by the receivers which belonged to the appellants on the civil standard of proof. I have reviewed the evidence in this regard but cannot reach judgment as to what bulbs belonging to the appellants were sold.
[160] I do not want this case to become a further burden on the parties, and in particular, the appellants. I need to hear argument regarding the provenance of the bulbs that were sold. If they belonged to the appellants, then they should have the entire proceeds of sale and interest. The costs of sale by the receivers that would not have fallen on the appellants should not be brought to account.
[161] I therefore propose to hear argument on the limited issue of the sales made as set out below should the appellants wish me to do so, in order to reach a concluded judgment. I take this course rather than referring the matter back to the District Court, to promote a swift and economic conclusion to this case.
[162]I conclude that there should be a further hearing as to:
(a)whether the Hughes’ bulbs sold by the receivers lie within the $25,000 which the receivers allege, and the Judge accepted;
(b)whether discounting of the price of the bulbs by the receivers sold can be assessed on the evidence; and
(c)whether and if so how the costs of harvesting and sale should be brought to account against any damages awarded.
[163] I will ask the Registry to contact counsel to arrange a teleconference to discuss whether the appellants wish to argue for the sale price for which the receivers sold all bulbs, and whether that requires further argument or reference back to the District Court. Given the sums involved, counsel may be able to reach agreement which negates the Court’s further involvement.
[164] Costs are reserved. Whether the appellants gain by this appeal remains open. They have succeeded as to the required approach to damages for conversion.
………………………………………………….
Nicholas Davidson J
Solicitors:
Lucas and Lucas Limited, Dunedin Preston Russell Law, Invercargill
cc: CS Withnall QC, Dunedin
DM Lester, Barrister, Christchurch
SCHEDULE A
Bulb Numbers and Estimated values: Bulb Numbers Cents Each Total Brodiaea 40,000 .03 $1200 Camissia 15,000 0.95 $1425 Colchicum 200,000 .10 $22000 Crocus 200,000 .046 $9200 Blue Bells 110,000 .053 $5830 Fritillaria 20,000 .072 $1400 Dutch Iris 60,000 .04 $2400 English Iris 150,000 .068 $10200 Juno Iris 50,000 .05 $2500 Leucojum 30,000 .091 $2730 Narissus 5,000,000 .045 $225000 Tulips 46116kgs $4 $184464 Total $468349
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