Kauapepe Forest Limited v Scott
[2021] NZHC 1215
•27 May 2021
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE
CIV-2020-404-000004
[2021] NZHC 1215
BETWEEN KAUAPEPE FOREST LIMITED
Plaintiff
AND
PETER WILFRED SCOTT
Defendant
Hearing: 3, 4 and 5 May 2021 Appearances:
J Baguley for the Plaintiff
A Gilchrist for the Defendant
Judgment:
27 May 2021
JUDGMENT OF WOOLFORD J
This judgment was delivered by me on Thursday, 27 May 2021 at 3:30 pm pursuant to r 11.5 of the High Court Rules.
Solicitors:Atlas Legal Limited (J S Baguley), Kerikeri Kiely Thompson Caisley, Auckland
Counsel: A Gilchrist, Auckland
KAUAPEPE FOREST LIMITED v SCOTT [2021] NZHC 1215 [27 May 2021]
[1] In this proceeding, the putative grantee of a forest right over a 488 hectare block of land in Mangamuka, Northland, (the land) seeks damages against the putative grantor after the putative grantor was unable to provide a valid registerable instrument formalising the grant.
Factual background
[2] On the record of title under the Land Transfer Act 2017, issued on 7 February 1986, the original registered owner of the land is recorded as the defendant, Peter Wilfred Scott (also known as Peter Wilfrid Scott).
[3] On 14 November 1985, Mr Scott had granted a forestry right within the meaning of the Forestry Rights Registration Act 1983 to Northern Forest Investments Partnership for a term of 35 years. The forestry right was registered on the record of title on 15 August 1989.
[4] The forestry right was subsequently sold to the plaintiff, Kauapepe Forest Limited (KFL). The transfer of the forestry right was registered on the record of title on 23 November 2010.
[5] On 6 February 2014, one of the two directors of KFL, Murray Charles Ferris, advised the solicitor acting for Mr Scott, Anthony Vlatkovich, that KFL would finish felling the trees on the land in a couple of weeks and was nearly at the clean-up stage. Mr Ferris also advised Mr Vlatkovich that the trees for replanting had to be ordered and the helicopter spraying needed to be done as soon as possible if the land was to be replanted. Mr Ferris told Mr Vlatkovich that he would be prepared to look at renewal of the forestry right or a joint partnership with Mr Scott.
[6] After some further email correspondence, Mr Vlatkovich wrote to Mr Ferris in an email dated 9 April 2014 at 9.11 am:
Hi Murray
Thanks for the phone call. I confirm that Peter [Mr Scott] has agreed to extend out a minimum of 27 years, in addition to the 7 years left on the existing right.
I will finalise the draft and get that to you and Peter, whom I have copied in on this e-mail. Happy planting.
Regards.
[7]Mr Ferris replied two days later, on 11 April 2014:
Hi Roz [Mr Vlatkovich’s assistant]
I have been away. We require 27 years in total which includes the 7 years left on the existing right. We are replanting this winter.
Cheers.
[8] Unbeknown to Mr Ferris, less than hour after the email sent to him by Mr Vlatkovich on 9 April 2014, the land was transferred to the trustees of the Peter Scott Family Trust, Mr Scott himself and a second trustee, Thomas Cowlishaw, following settlement of a relationship property dispute between Mr Scott and his ex- wife. The transfer was registered on the record of title at 9.59 am on 9 April 2014. The effect of the transfer of the land to the trustees was that for any extension of the forestry right to be registered, both trustees had to agree to its extension. Mr Cowlishaw never did, and the extension informally granted by Mr Scott in Mr Vlatkovich’s email at 9.11 am on 9 April 2014 was never registered on the record of title. No formal documentation was ever fully executed, although Mr Scott never resiled from the indication that was given by Mr Vlatkovich to Mr Ferris on 9 April 2014 that an extension would be granted.
[9] Mr Ferris clearly relied on that representation because KFL started spraying, replanting and roading from April to October 2014 at considerable cost. Over the course of the next four years, Mr Ferris continued to request formal documentation from Mr Vlatkovich and Mr Scott.
[10] In 2015, Mr Vlatkovich prepared a Memorandum of Variation of Forestry Right and sent it to Mr Ferris for signature. Mr Ferris and his fellow director signed and dated it 6 May 2015 before returning it to Mr Vlatkovich. It was not, however, signed by Mr Scott or by Mr Cowlishaw and was never in registerable form. In evidence, Mr Vlatkovich said he could not register it because you needed the consent of the registered proprietors, which at that stage were the trustees. Unfortunately for reasons Mr Vlatkovich had never been able to understand, Mr Cowlishaw wanted to embark on due diligence. Mr Vlatkovich said that he and Mr Scott were frustrated at their inability to actually register an extension to the forestry right.
[11]Another three years passed. On 19 June 2018, Mr Ferris wrote to Mr Scott:
Hi Peter,
…
We need to get the forestry right sorted … This offer will be available until the end of July. If we fail to proceed then I will be seeking my costs back for the replant, roads and maintenance of roads.
Cheers
[12] Immediately before the end of July, on 30 July 2018, Mr Vlatkovich wrote to Mr Ferris attaching a further draft Deed of Extension of Forestry Right, as follows:
Dear Murray …
Please find attached the Deed of Variation of Forestry Right which reflects the earlier agreement entered into between Peter and Kauapepe Forest Limited.
…
I have simplified the document to reflect the period of time that Murray suggested in his email in 2017.
Peter has advised that if you wish the period to go from 28 to 30 years that he would be agreeable to that.
To endeavour to finalise matters, I have inserted a clause so that the agreement can be concluded by both parties signing the agreement and scanning a copy back.
Peter has done that so that all that remains is Kauapepe Forest Limited to sign. This is, what he said to Murray, would be completed by end of July.
If not, then the original agreement will have to remain in place.
…
Kind regards
[13] The draft Deed of Extension of Forestry Right sent to Mr Ferris by Mr Vlatkovich was dated 28 July 2018. It was signed by Mr Scott as grantor but was not signed by the other registered proprietor of the land, Mr Cowlishaw. As such, it could not be registered. Mr Ferris did not sign the draft deed. He told me:
Sir, I waited six years now for this forestry right extension, six years. It’s a considerable period in anyone’s life. The forestry right in my, our company’s position is that it has never been granted. It’s been spoken about over and over and over and dilly-dallied and shilly-shallied. I come from the north. Up there we talk straight. You either give someone something or you don’t. Usually it’s on a handshake. I still wait to this day to receive the forestry right.
[14] Without the assistance of a lawyer, Mr Ferris sent a letter to Mr Scott advising him that because of his failure to provide a proper extension of the forestry right, KFL would file proceedings against him in the High Court of New Zealand. Mr Ferris’ letter is as follows:
Date 8 -5 2019
This is to give notice that Kauapepe Forest ltd intends to file in the High court of New Zealand a claim against Peter Wilfed Scott unless there can be a settlement entered into Between the Parties.
It is stated that Peter Wilfed Scott failed to produce a signed and witnessed Document as to the extension of the Forestry Right number C.0228784.2 currently held by Kauapepe Forest ltd. The address of such forest land is 288 Kauapepe Road Mungamuka Northland.
The extension was applied for on the drafted form prepare by Peter Scotts lawyer A Vlatkovich of Auckland. 6th May 2015. The application date was 20th March 2014. Over a year earlier. To this date 7th may 2019 no proper extension has been received by Kauapepe Forest ltd.
The extension Document was signed and witnessed by the directors of Kauapepe Forest ltd as requested by A Vlatkovich..
Due to the ever changing nature of business and the lack of a signed contract which did not allow the normal rights associated with such Forestry Right such as sale of said Forestry Right. As at April 1st 2018 Kauapepe stopped paying rent on the above property. Kauapepe Forest was clear felled and the property tidied up on 20 Feb 2014. This would have been the end of the Term of Forestry Right. The Right Holder had no replanting possibility see clause. 5.2
Cost to replace 90 ha of prepared forest land.
$1500 per ha Govt rate
$135,000 Cost to build access road at industry standard
1 kilometer
$110,000
Value of 5 years growth at 10% Of net value $7.30 x
540000 jas
$394,200
Overpayment of rent as at 20th Feb 2014 – April 2018 $98,900 $738,100
Signed M C Ferris Director
Course of dealings 2014 – 2019
[15] From the outset, Mr Scott and his solicitor, Mr Vlatkovich, represented that they would provide KFL with a legal document evidencing the extension of the forest right. On 9 April 2014, Mr Vlatkovich emailed Mr Ferris: “I will finalise the draft and get that to you”. On 16 June 2014, Mr Ferris emailed Mr Vlatkovich:
I was informed that the renewal of the forestry right was agreed to by Tony [Cowlishaw] so I went ahead and authorised the above [expenditure]. Can we please see some paper work on this as to progress on the renewal. All up this involves an expense of around $700,000. This year alone.
[16]The same day, Mr Vlatkovich replied:
As I stated before and confirmed by Peter [Scott] there is agreement on the renewal period. I will try and get some paperwork to you to consider as a draft has already been prepared.
[17] On 6 May 2015, the two directors of KPL signed and returned a “Memorandum of Variation of Forestry Right” prepared by Mr Vlatkovich. It is never signed by either Mr Scott or Mr Cowlishaw as trustees of the Peter Scott Family Trust.1
[18] On 28 February 2016, Mr Scott emailed Mr Ferris: “It is expected that a trustees meeting [will] be held in the near future”. On 20 March 2017, Mr Ferris emailed Mr Vlatkovich: “Can you please send me a copy of the forestry right extension from Peter Scott”. Mr Vlatkovich replied on 23 March 2017: “I have forwarded your email to Peter Scott and will leave him to respond to you”. On 29 March 2017, Mr Ferris emailed Mr Scott: “You will recall that the forestry right has been extended by a further 20 years from the current expiry date. Can you please send me a copy of this as I need to place in my records.”
[19] On 3 September 2017, Mr Scott emailed the other director of KFL, Jacob Mannothra: “The original agreement was made 14 November 1985 for a period of 35 years – thus presently another 3 years to run and with extension “pending” and depending”. On 17 September 2017, Mr Mannothra emailed Mr Scott: “ … please advise as to how we will be able to resolve the forest rights going forward”.
[20] On 23 December 2017, Mr Ferris emailed Mr Scott: “I have not heard back from you for a while. I am still waiting to receive the signed extension of the forestry right. Please can you get done and send to me at the above mail address”. Mr Scott replied on 30 December 2017: “Not yet through with everything, and effort will resume after the New Year”. On the same day, Mr Ferris emailed Mr Scott: “Due to
1 See above at [10].
delays in getting new “forestry right”, I would ask now for an extension out to 30 years from now.”
[21] On 5 June 2018, Mr Ferris emailed Mr Scott: “I also need movement on the extension of the forestry right this cannot be allowed to continue much longer”. On 19 June 2018, Mr Ferris emailed Mr Scott:
We need to get the forestry right sorted … This offer will be available until the end of July. If we fail to proceed than I will be seeking my costs back for the replant, roads and maintenance of roads.
[22]On 23 July 2018, Mr Vlatkovich emailed Mr Ferris:
As I see the position it is as follows:
(1) Kauapepe Forest Limited through you requested that Peter extend the period of time under the Forestry Right.
(2) You advised that you wished to know so that you would then be in a position to undertake replanting and associated work.
(3) That Peter confirmed that an extension was granted and on that basis Kauapepe Forest Limited commenced replanting and associated work with those extension conditions. In due course it was the intension that the extension would be recorded in writing.
(4) That Peter has proceeded on the clear basis that having permitted you to undertake work he was able then to rely on the agreed extension period for the future. Also were able to rely on that extension for replanting kauapepe Forest Limited.
(5) That the only matters that has not been completed is the documentation of the agreed extension which is between Kauapepe Forest Limited and Peter. It is then for the family trust as owner to sign as well so that ‘extension’ is registered. The agreement for extension has been in existence since your request and Peters approval. Both of you are bound by that agreement.
(6) The relationship has always been Kauapepe Forest Limited as grantee and Peter Wilfred Scott as grantor. These are the two parties that it directly involved.
(7) That it is hoped that matters can be documented by ‘the end of July” or soon thereafter but as we have said the agreement to extend has been agreed on and both parties have acted in reliance of that.
(8) At no stage has Peter himself ever suggested that he would cancel that agreement. In fact he has always pushed towards completion of formalities and extension.
Hope this clarifies the position and we can move forward.
[23]Mr Ferris responded on 25 July 2018, as follows:
In reply to this email. You are right in the first three points and the 6th.
You sent me a draft and then a document to sign for the renewal of the forestry right this was signed and sent back to your office in 2015. The document was signed by myself and Jacob.
This document was never signed by the other side being Peter Scott and others. 3 years has gone by and I have tried to get it signed and nothing has happened. It would be considered a long stretch to say that we have to stand by this now.
What I understand now is that there are costs that have been created by the planting and extra road wo[r]ks associated with is.
…
I appreciate your part in this and thank you for your help.
[24] On 30 July 2018, Mr Vlatkovich sent Mr Ferris another draft, “Deed of Extension of Forestry Right C028764.02”, which he said: “reflects the earlier agreement entered into between Peter and Kauapepe Forest Limited”. The draft deed was described as being between Peter Wilfred Scott as grantor and Kauapepe Forest Limited as grantee. It was signed by Mr Scott. However, Mr Cowlishaw was not a party and there was no provision for his signature, notwithstanding that he was an owner of the land. Even if the draft deed was signed by the directors of KPL, it was ineffective to create a forestry right in terms of S 2A of the Forestry Rights Registration Act 1983. It was therefore not signed by Mr Ferris or returned by him to Mr Vlatkovich.2
[25] On 13 December 2018, Mr Vlatkovich emailed Mr Ferris advising him that Mr Scott wished: “that we finalise and sign off the forest right extension as agreed”. On 13 February 2019, Mr Vlatkovich emailed Mr Ferris:
The position is as we see is very clear. Kauapepe Forest Limited acquired the forest right from Northern Partnership and was granted an extension by Peter as requested. In reliance of that agreement Kauapepe Forest Limited was granted permission to replant on the land and did so. Peter therefore altered his position in reliance of the agreement. We regard the extensions as requested by the company is already in place.
All this is required is if necessary to document extension.
2 See above at [12] – [13].
[26]On the same day, Mr Ferris replied, as follows:
Have just had a quick review on the costs re the replanting. Replanting
$108,000. Extra roading $120,000. 1.2 k/m. loss on value of 90 ha. $270,000. Total $498,000. – rates. would be 5 years if Applicable. As we understand the situation there is a Trust which owns the forest land and no signed agreement ever came from them.
[27] On 8 May 2019, Mr Ferris formally advised Mr Scott of the intended court action.3
Arbitral award
[28] It was during the course of discussions between the parties over formalisation of the extension of the forestry right that the issue of the reimbursement of rates paid by Mr Scott arose. In an email dated 23 March 2016, Mr Vlatkovich wrote to Mr Ferris as follows:
Peter has included for your information a summary of rates that he has paid
… Peter believes that he is entitled to be reimbursed for the rates previously and in the future. It we cannot reach agreement, it would appear that clause 8 to resolve matters by arbitration will be necessary.
[29] Clause 3.9 of the registered forestry right provided that the grantee of the forestry right covenanted with the grantor “to pay rates that may be levied or payable in respect of the
forestland”.
[30] The issue of rates eventually did go to arbitration before R.V. Eades. In his award dated 2 October 2019, the arbitrator noted that a dispute had arisen as to the liability for rates “on all or part of the land contained in the grant”. The obligation to pay rates contained in the forestry right was originally drafted as applying to the “forest land”. The forest occupied only part of the land. The word “forest” had, however, been crossed out leaving the obligation to pay rates as applying to the land, which was specifically defined as the entire 488 hectares. The arbitrator found:
While it might originally have been contemplated that only part of the land in the title (“the forest land”) be subject to the grant, the original parties entered into a grant which showed not only that it related to all the land in the title but that any limitation to part only of the land had been foregone.
3 See above at [14].
[31] The arbitrator rejected the submission that KFL’s obligation under the grant should be limited to the Information Memorandum for Forest Sale prepared in June 2010 for Northern Forest Investments Partnership. The arbitrator found that the content of the Information Memorandum did not in some way retrospectively vary and restrict the grant.
[32]The arbitrator concluded:
So my award is that Kauapepe should, from the effective date of the transfer to it of the grant, pay rates on all of the land contained in the grant. That obligation continues so long as the grant itself continues.
Plaintiff’s claim
[33] Two causes of action are pleaded against Mr Scott. The first is misrepresentation. KFL alleges that by emails dated 20 March 2014 and 9 April 2014 from his agent and advisor, Mr Vlatkovich, Mr Scott misrepresented to KFL that he would agree to a renewal of the forestry right for a period of 20 years. KFL relied on the representation in carrying out the replant of the land and investing in roading. KFL alleges that as a result of the misrepresentation it has incurred various losses for which a claim is made.
[34] Secondly, KFL alleges that a contract was entered into between KFL and Mr Scott following the offer contained in the emails dated 20 March 2014 and 9 April 2014. KFL alleges that it accepted the offer to extend the forestry right by email dated 11 April 2014 and by conduct on completing the replant. Together the offer to extend the forestry right and acceptance constituted a binding contract where Mr Scott agreed:
(a) to extend the forestry right for a term of 20 years; (b) to execute all necessary documents to give effect to the extension of the forestry right; and (c) (as an implied term) that the documents to give effect to the renewal would be completed within a reasonable time.
[35] KFL alleges that Mr Scott breached the contract by failing to give effect the renewal. As a result of the breach, the plaintiff has incurred losses and claims damages pursuant to s 49 of the Contract and Commercial Law Act 2017.
Defence position
[36] Mr Scott admits that he made a representation about an extension of the forest right and that KFL was entitled to, and did, place reliance on the representation. However, any misrepresentation is denied. Mr Scott also accepts that the statements made by him or Mr Vlatkovich were of a binding contractual nature between him and KFL and did not require documentation to be perfected. KFL acted at all times on the basis of the renewal and at no time did he ever take a position contrary to the representation or contract that the forestry right had been extended for a further term of 20 years. Mr Scott contends that, at all times from the granting of the extension on 9 April 2014 by Mr Vlatkovich’s email, both parties have conducted their affairs on the basis that the extension was granted.
[37] Mr Scott also raises two affirmative defences. First, the issue of extension of the forestry right has already been determined by the arbitral award, which is binding on the parties. It is res judicata. Mr Scott points to the following two paragraphs of the award:
25Kauapepe refers to the “extension” of the forestry right. The grant itself was for a fixed term to 14 November 2020 and the rights and obligations of Kauapepe already ran and continue to run to that date.
26.The extension is recorded in a “memorandum of variation of forest right” dated 6 May 2015, which:
(a)extended the rights under C028764.2 for twenty years;
(b)gave Kauapepe a right of first refusal;
(c)confirmed “in all other respects therefore all the other terms of C028764.2”;
and appears to have been implemented notwithstanding that Kauapepe did not require any other documentation. That document continues the rights and obligations of both parties and does not derogate from the obligation of the grantee to pay rates on all the land.
[38] Second, and in the alternative, that because of the conduct of the parties, KFL is now estopped from asserting that there is no renewal contract.
Discussion
[39] Having reviewed the course of dealings over five years from 2014 to 2019, I am satisfied on the balance of probabilities that Mr Scott either by himself or through his solicitor, Mr Vlatkovich, represented to KFL that he would provide KFL with a valid registerable instrument formalising the grant of an extension to the forestry right within a reasonable time.
[40] As explained by Mr Vlatkovich in his email to Mr Ferris dated 23 July 2018 (more than four years after the informal grant of an extension to the forestry right): “In due course it was the intension that the extension would be recorded in writing” and “The only matters that has not been completed is the documentation of the agreed extension” and “At no stage has Peter himself ever suggested that he would cancel the agreement. In fact, he has always pushed towards completion of formalities and extension.”
[41] Similarly, it was an express or implied term of the contract entered into between Mr Scott and KFL to extend the forestry right for a term of 20 years that Mr Scott would provide KFL with a valid registrable instrument formalising the grant of an extension to the forestry right within a reasonable time. He has never done so. In evidence, Mr Scott said that he was contemplating making an application to court to remove Mr Cowlishaw as a trustee of the Peter Scott Family Trust because of Mr Cowlishaw’s refusal to sign the documentation necessary to formalise the grant of an extension to the forestry right.
[42] Apart from the course of dealings, two further factors support the finding of a misrepresentation or breach of implied contractual term. First, the original grant of the forest right in 1985 was registered on the record of title to the land as was the transfer of the right from Northern Forest Investments Partnership to KFL. It would naturally follow that any extension of the forestry right (in effect, the grant of a new forestry right as there was no right of renewal in the original forestry right) would also be registered on the record of title.
[43] Second, without registration of the extension of the forest right on the record of title, it could not realistically be sold to anyone else. Mr Scott’s solicitor,
Mr Vlatkovich, accepted that if a forestry right was not in registrable form, it would be much less valuable.
[44] As to the affirmative defences, I am of the view that the issue of extension of the forestry right has not been determined by the arbitral award. The actual finding of the arbitrator is that KFL should, from the effective date of the transfer to it of the grant, pay rates on all of the land contained in the grant. The arbitrator concluded that that obligation continued “so long as the grant itself continues”. He did not make a specific finding that the forest right had been extended. Such a finding was not necessary for his decision. The key issue for determination was whether the obligation to pay rates extended to all the land or just the area of the forest (the forest land).
[45] The arbitrator referred to the “extension” using quotation marks indicating that he used the word with some reservation. He also said that the extension is recorded in a “memorandum of variation of forestry right” dated 6 May 2015, again, using quotation marks to indicate some reservation. The document to which he refers was not signed by Mr Scott or his fellow trustee, Mr Cowlishaw, and was not in registrable form. The arbitrator goes on to state that the “memorandum of variation of forestry right” appears to have been implemented, notwithstanding that Kauapepe did not require any other documentation. The arbitrator’s use of the word “appears” also indicates some reservation, while his comment that Kauapepe did not require any other documentation is factually incorrect. In fairness to the arbitrator, it is obvious he was not provided with the documents now available to this Court relating to the course of dealings between the parties between 2014 and 2019.
[46]The affirmative defence of res judicata must fail.
[47] As to the affirmative defence of issue estoppel, Mr Scott says he relied to his detriment on the representation by KFL that it would renew the forestry right, put in roading and plant a new crop of trees on the land. The detriment to Mr Scott was that he did not seek to sell or lease the land because it was subject to an extended forestry right. Counsel for Mr Scott submits it would now be unconscionable for KFL to depart from the belief or expectation that they would be operating the land as a forest for the extended period.
[48] In the circumstances, I am of the view that it is not unconscionable for KFL to treat the agreement to extend the forest right as at an end given the inability of Mr Scott to provide a valid registrable instrument formalising the grant of an extension to the forestry right. Mr Scott is the author of his own misfortune. The affirmative defence of issue estoppel must also fail.
[49] Given the failure of the affirmative defences, I am of the view that KFL was justified in treating the agreement to extend the forestry right as at an end because of the failure of Mr Scott to provide a valid registerable instrument formalising the grant. It was either a misrepresentation, albeit an innocent one, or an implied breach of contract to either expressly or impliedly promise that he would. Mr Scott had five years to provide such documentation. Mr Vlatkovich acknowledged that he and Mr Scott were frustrated at their inability to actually register an extension to the forestry right. Given that Mr Scott’s inaction lead KFL to justifiably end the agreement, I find both causes of action proved. KFL is entitled to damages for its proven losses.
Quantum of damages
[50] In closing, counsel for KFL submitted that KFL had suffered losses as a result of Mr Scott’s breach of contract, as follows:
(a)
Cost of replanting
$134,999.63
(b)
Cost of building an access road
$110,000.00 (approx)
(c)
Northland Forestry Manager’s valuation of KFL forest in 2021
$162,065 (ex GST)
(d)
Loss of opportunity to plant and harvest a further 50 ha (only 90 ha of 140 ha has been replanted),
(e)
Loss of mature forest profit expected in 2040
[51] A claim for overpayment of rent from 20 February 2014 (when KFL says it finished felling the trees on the land) to April 2018 of $98,900 was rightly abandoned. KFL relied on a statement in an information memorandum prepared on behalf of Northern Forest Investments Partnership for the sale of the forestry right then owned by Northern Forest Investments Partnership. The information memorandum stated that the term of the forest right was “35 years or till all trees have been harvested”. However, a disclaimer in the information memorandum stated:
Bidders should validate and otherwise satisfy themselves of the accuracy, relevance or correctness of any information used to prepare any tendered bid for purchase of the Forest.
[52] While there was some ambiguity about the term of the forestry right as set out in the information memorandum, any such ambiguity was cleared up by the explicit wording in the registered forest right itself. Clause 5.2 stated:
5.2The rights hereby granted shall terminate at the expiry of the term hereof or when all the forest on the land shall have been clear felled whichever is the later notwithstanding that the term hereby granted may then have expired…
[53] Notwithstanding that KFL finished felling trees on the land in February 2014, the forestry right remained operative and binding on the parties until the expiry of its 35-year term on 14 November 2020.
Cost of replanting
[54]The cost of replanting is said to have been $134,999.63.
COST TO REPLANT KAUAPEPE FOREST Apr-14 Twin Coast $17,048.75 Helicopter Spraying Apr-14 Ag Pro $15,297.88 Chemicals Oct-14 Kawene $16,000.00 Planting Oct-14 Kawene $12,000.00 Planting Oct-14 Forestry Nursery $31,050.00 Trees Oct-14 Access $18,603.00 Roading Jan-Dec 14 Kauapepe Forest Ltd $25,000.00 Management Fee $134,999.63
[55] KFL has provided invoices for the first five items listed in the table. There is no dispute about them. The sixth item claimed is a roading cost for access of $18,603. KFL has provided an invoice from Northland Mobile Crushing Limited in the sum of
$26,082, which sum has been crossed out and replaced with a handwritten sum of
$18,603 and the notation “Roading Access”. The invoice describes the work undertaken as “Crushing as required at Kauapepe Road quarry”. This work may well have led to the stockpiling of gravel for roads in the forest. However, the invoice is
dated 30 April 2012, which is 21 months prior to Mr Ferris emailing Mr Vlatkovich on 6 February 2014 saying that he would be prepared to look at renewal of the forestry right. In those circumstances, KFL has not persuaded me that the gravel crushing (and stockpiling) was work undertaken as a consequence of any representation made by Mr Scott or contract entered into and relating to an extension of the forest right.
[56] There is no invoice for the seventh and final item listed — a management fee of $25,000. Although there is no documentation, I accept the evidence of Mr Ferris as a credible and reliable witness, that he undertook a number of months’ work throughout the replanting process for which he was either paid or credited the sum of
$25,000 as a management fee.
[57] I therefore find as a matter of fact that the cost of replanting by KFL amounted to $116,396.63 (being the claimed amount of $134,999.63 less the sum of $18,603 for the crushing of gravel two years earlier).
[58] The cost of replanting of $116,396.63 was incurred in 2014. The Interest on Money Claims Act 2016 provides for the award of interest as compensation for delay in the payment of debts, damages and other money claims in respect of which civil proceedings are commenced.4 Interest is to be paid from the day on which the money claim is quantified until the dates of payment.5 The interest rate used for the purposes of the Act is intended to be a fair and realistic reflection of the cost to a creditor of the delay in payment of a money claim by a debtor. In particular, the rate is assessed in accordance with the retail six-month term deposit rate published by the Reserve Bank of New Zealand, and will fluctuate to ensure a true reflection of the relevant rates. Interest is then compounded to yield the per annum simple rate over one year, and calculated on a Ministry of Justice Internet site calculator.6 The Act imposes a mandatory duty on the Court to make an award of interest where a money claim is successful.7
4 Section 3(1).
5 Sections 3(2)(b) and 9(1).
6 Sections 3(2)(c), 12 and 13.
7 Section 10(1).
[59] Splitting the costs between helicopter spraying completed by 30 April 2014 ($32,346.63) and replanting completed by 30 September 2014 ($84,050.00) and using the calculator to calculate interest on both sums from those dates to the commencement of trial on 3 May 2021 arrives at a total of $144,511.46 (including interest of
$28,114.83).
Building an access road
[60]The cost of building an access road is said to have been $110,617.72.
COST TO BUILD ROAD FOR REPLANT AND ACCESS TO EASTERN SIDE OF PROPERTY
RE: EXTENSION OF FOREST RIGHT
DATE SUPPLIER AMOUNT
inclusive of GST
Sep-13
J Julian
$1,638.75
Roading
Sep-13 Promax $1,856.10 Culverts Oct-13 J Julian $4,424.62 Roading Oct-13 J Julian $5,704.00 Roading Oct-13 Lines $6,382.50 Roading Nov-13 Lines $43,240.00 Roading Nov-13 J Julian $1,546.75 Roading Nov-13 J Julian $2,972.50 Roading Nov-13 Lines $3,852.50 Roading Nov-13 Nthld Mobile Crushing $14,000.00 Metal Aug-Nov 13 Kauapepe Forest Ltd $25,000.00 Design and Construct $110,617.72
[61] KFL has not provided an invoice for the first item (J Julian - $1,638.75 roading) but has provided invoices for the next nine items. The invoices are dated 3 October 2013, 31 October 2013, 31 October 2013, 2 October 2013, 30 October 2013, 30 November 2013, 30 November 2013, 2 December 2013, and 30 April 2012. Apart from the last invoice from Northland Mobile Crushing Limited (see above), which is 18 months before the others, the remaining invoices all date from a two-month period in October and November 2013. This is, again, at least two months prior to Mr Ferris
emailing Mr Vlatkovich on 6 February 2014, saying he would be prepared to look at renewal of the forestry right. In that email, Mr Ferris told Mr Vlatkovich that they would finish felling the trees on the land in a couple of weeks. It appears, therefore, that the invoices from October and November 2013 relate to activity undertaken by KFL to facilitate the felling of the trees on the land and not to facilitate the replanting a year later, in October 2014.8
[62] J Julian has described the work he undertook on the other four invoices he submitted to KFL as “metal road to skid 8”,9 “clear slips from road”, “remove spoil from skid road”, and “clear drain skid road”. Lines Contracting Limited has described the work it undertook as “Fix road for Havler. Build skid site and load out bays. Cart rock into site” and “Form new road, retain slip banks, dig two new skid sites, metal road” and “Fixed slipped road, unblocked culvert, rocking up wall, benching in road above corner”.
[63] The last invoice provided is the same invoice, dated 30 April 2012, from Northland Mobile Crushing Limited in the sum of $26,082 for “Crushing as required at Kauapepe Road quarry”. Again, the sum of $26,082 has been crossed out and replaced with a handwritten sum of $14,000 and the notation “14k of this invoice applied to Eastern Access”.
[64] In those circumstances, KFL has not persuaded me that the work described in the various invoices, including that from Northland Mobile Crushing Limited, was work undertaken as a consequence of any representation made by Mr Scott or contract entered into by him relating to an extension of the forestry right. That being the case, I also disallow the claim for $25,000 by KFL for design and construction of a road for replant and access to the eastern side of the property.
8 KFL’s records disclose that 3982 Japan agricultural standard (jas) tonnes were harvested in October 2013 and 4640 jas tonnes harvested in November 2013. The tonnages harvested in these two months considerably exceed the tonnages harvested in any other month between November 2010 and December 2019.
9 A skid is an area within a forest where harvested logs are processed and loaded on to trucks for transport to port or mill.
Valuation of replanting as at 2021
[65] The value of the replanting as at 2021 is said to be $162,065. Neil Robert Geerkens, the General Manager of Northland Forest Managers (1995) Limited, was asked to calculate the value of the seven-year-old trees planted by KFL on the land. He visited the land on 22 February 2021 and confirmed the planted area by means of a drone. He applied a compounded cost-based analysis which involved accumulating actual costs to provide an estimate of value to the current point in time. He says that cost-based analyses are commonly used in the forestry industry to value trees under 10 years old.
[66] Mr Geerkens used a base cost of $115,176 (ex GST), which is very similar to the cost of replanting I have determined of $116,396.63. Mr Geerkens’ expert evidence is that the compounding of the actual costs of planting in 2014 of $115,176 (ex GST) results in a value of the trees in 2021 of $162,065. Mr Scott did not dispute either the valuation method or result.
Loss of opportunity to plant a further 50 hectares
[67] Although counsel for KFL submitted in closing that, alongside other losses, KFL had suffered a loss of opportunity to plant and harvest a further 50 hectares on the basis that only 90 hectares of 140 hectares had been replanted, the statement of claim contained no such allegation nor did the brief of evidence from Mr Ferris. In cross-examination, Mr Ferris did say that he was waiting to go to the Ministry of Primary Industries and see if they could put more of the land in trees because KFL were paying all the rates and paying a full rental on a small portion of the land. Apart from this oblique reference, Mr Ferris said nothing more about any loss of opportunity.
[68] Towards the end of Mr Ferris’ cross-examination, counsel for Mr Scott turned to the quantum of KFL’s claim and took Mr Scott to the four different heads of loss set out in his brief of evidence. These did not include any loss of opportunity or any calculation of such a loss. In any event, in re-examination, Mr Ferris acknowledged that the normal procedure in any large forest was to stage the plantings over three or four years to spread the marketing risk.
[69] In those circumstances, KFL has not persuaded me that there was a loss of opportunity to plant a further 50 hectares. Nor is there any attempted calculation of such a loss.
Loss of mature forest profit expected in 2040
[70] The loss of the mature forest profit expected in 2040 is said to be $237,900. KFL maintains that this sum should be added to Mr Geerkens’ cost-based analysis of
$162,065 to reach a total loss of $399,965.
[71] Mr Ferris calculates KFL’s loss of value by projecting the likely tonnage the replant can achieve per hectare in 2040 and then applying KFL’s expected profit margin to that projected 2040 production. Mr Ferris used the tonnage per hectare and grades of logs achieved in the original harvest to forecast the replant production in 2040.
[72] The original harvest produced 73,462 Japanese agricultural standard (jas) tonnes of logs from 123 hectares or 600 jas per hectare. The original harvest also produced the following log grades:
A grade 62 per cent K grade 22 per cent K1 grade 10 per cent KI55 grade 6 per cent
[73] Mr Ferris maintains that a similar tonnage per hectare and similar log grades will be achieved in the 2040 harvest. KFL operates on a five per cent profit margin per jas. The five per cent profit can be calculated at $5 because the average price of jas KFL achieved in the original harvest was $100.
[74] Mr Ferris therefore projects the 2040 crop to be 47,500 jas, which at $5 per jas equates to a loss of profit of $237,900.
[75] There are two immediate difficulties with this claim. The projected loss of profit of $237,900 cannot be added to the present value of the trees of $162,065. That would be double claiming. Secondly, a discount needs to be applied to the projected
profit of $237,900 in 2040 if it is to be paid now. This was accepted by both Daran Nair, KFL’s accountant, and by Mr Geerkens, the valuer from Northland Forest Managers (1995) Ltd. Mr Geerkens accepted that five per cent was a reasonable time value of money or capitalisation rate. He acknowledged that there are companies who undertake valuation at higher rates. However, using an assumed average annual interest rate of five per cent, the present value of $237,900 in 2040 is $91,063.
[76] Counsel for Mr Scott was unable to rigorously challenge Mr Ferris on his calculation of a loss of profit of $237,900 in 2040 as the only source documentation disclosed was a list of the jas tonnages harvested between November 2010 and December 2014. However, as already noted, Mr Ferris was a credible and reliable witness. Mr Nair also stated that he thought the profits were calculated extremely conservatively. Nevertheless, a substantial discount is necessary if a claim for loss of profit in 2040 is upheld now.
Result on quantum
[77]There are three alternative routes for determining the quantum of KFL’s losses
— the actual costs of replanting plus interest ($144,511.46), the value of the trees now ($162,065), or the discounted loss of profits when the trees are finally harvested in 2040 (say $91,063). These three are alternatives and cannot be aggregated. The third route is quite uncertain. It has not been possible for counsel to challenge this alternative rigorously. It may be extremely conservative. Prices for timber may be much higher in 2040. A different discount rate may be more appropriate. There was no expert evidence called to substantiate the calculations made by Mr Ferris.
[78] It is then a choice between the first two routes — the actual costs of replanting plus interest or the value of the trees now. I am of the view that the value of the trees now is the appropriate measure of damages. This measure represents the actual gain achieved by Mr Scott through his failure to provide KFL with an extension of the forestry right in registrable form. The value of this benefit has been clearly established during the proceeding. KFL called expert evidence from Mr Geerkens, who inspected the trees, and made his calculations in accordance with standard industry practice. The question of interest does not arise as he calculates the value of the trees at the present
time by using a compounded cost-based analysis. Once these trees reach maturity, they can be harvested for a much higher sum. All the benefit of this harvest will belong to the Peter Scott Family Trust as owners of the land. It is only just that Mr Ferris is paid in full for the current value of the trees, at the point when the relationship between KFL and the Trust comes to an end.
Decision
[79] KFL has proved both causes of action. Mr Scott is to pay damages of $162,065 to KFL. Costs are to follow the event. If the parties are unable to agree, memoranda of no more than five pages are to be filed by 30 June 2021. I will then make a decision on the papers.
Woolford J
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