Keller v Daisley
[2021] NZCA 351
•29 July 2021
| IN THE COURT OF APPEAL OF NEW ZEALAND I TE KŌTI PĪRA O AOTEAROA |
| CA271/2020 [2021] NZCA 351 |
| BETWEEN | PAUL GERRARD KELLER AND KAREN ELIZABETH KELLER |
| AND | MALCOLM JAMES DAISLEY |
| CA30/2021 | ||
| BETWEEN | MALCOLM JAMES DAISLEY | |
| AND | ARK CONTRACTORS LIMITED | |
| CA31/2021 | ||
| BETWEEN | MALCOLM JAMES DAISLEY | |
| AND | ARK CONTRACTORS LIMITED | |
| Hearing: | 29–30 June 2021 |
Court: | Cooper, Collins and Goddard JJ |
Counsel: | J A Browne for Appellants in CA271/2020 and Respondents in CA30/2021 and CA31/2021 |
Judgment: | 29 July 2021 at 3.00 pm |
JUDGMENT OF THE COURT
CA271/2020
AThe appeal in CA271/2020 is allowed.
BThe award of damages/equitable compensation to Mr Daisley is set aside.
CThe cross-appeal in CA271/2020 is dismissed.
DThe respondent must pay the appellants costs in respect of the appeal and cross-appeal, in each case for a standard appeal on a band A basis, with usual disbursements.
CA30/2021
EThe appeal in CA30/2021 is allowed in part. The damages awarded are increased by $577.50. The appeal is otherwise dismissed.
FThe appellants must pay the respondents 90 per cent of the costs for a standard appeal on a band A basis, with usual disbursements.
CA31/2021
GThe appeal in CA31/2021 is dismissed.
HThe appellants must pay the respondent costs for a standard appeal on a band A basis, with usual disbursements.
____________________________________________________________________
Table of contents
Para no
Introduction
The main proceedings (CA271/2020)
The Depot proceedings (CA31/2021)
The chattel conversion proceedings (CA30/2021)
Background
The Daisleys face significant financial pressure
The Kellers come onto the scene
The Ark agreement
Claim that the Ark agreement was entered into under duress
The January 2010 agreement
Claim that the January 2010 agreement was entered into under duress
The lease of the Depot
The Daisleys leave the Depot
The removal of the office buildings
The Daisleys’ chattels left at the Depot
Subsequent events
Proceedings are issued
The main proceedings
The pleaded claims
The pleaded defences and counterclaims
High Court judgment in main proceedings
Appeal in relation to main proceedings
Issue 1: Was it open to the Judge to award compensation for failure to issue shares in Ark?
The issue
Discussion
Issue 2: Merits of claims for breach of contract/fiduciary duty
The issues
Discussion
Issue 3: Mr Daisley’s claim for interest
The Depot proceedings — office conversion claim
High Court judgment — office conversion claim
Issue 4: Conversion of office buildings
The issue
Discussion
The Depot proceedings — HPL Distribution’s liability for rent
High Court judgment — HPL Distribution’s liability for rent
Issue 5: HPL Distribution’s liability for rent
The issue
Discussion
The chattel conversion proceedings
High Court judgment — chattel conversion proceedings
Issue six: Chattel conversion issues
The forklift
Excavator parts
Fence panels
Steel beams
Hydraulic press and toolbox
Tractor and trailer
Summary
Costs
Result
REASONS OF THE COURT
(Given by Goddard J)
Introduction
A business transaction between the Daisley interests and the Keller interests in 2009/2010 quickly turned sour. It spawned three sets of proceedings, which were heard before Walker J in the High Court over some three weeks in 2019 and 2020. From each of those decisions, the unsuccessful parties appeal to this Court.
The main dispute concerns the performance of agreements entered into on the eve of the first of four mortgagee sales of four properties owned by the Daisley interests. As contemplated by that arrangement, the Kellers established Ark Contractors Ltd (Ark). Ark purchased the four properties, using equity provided by the Kellers and bank funding. Ark was to be owned by the Kellers and the Daisleys, with shareholdings set by reference to initial equity contributions (the funds introduced by the Kellers, and the Daisleys’ remaining equity in the properties).
The parties signed an agreement setting out the essential elements of this arrangement on 2 December 2009 (the Ark agreement). Shortly afterwards, Mr Daisley claimed that this agreement had been entered into under duress. There was a re-negotiation in the period leading up to the date by which Ark needed to complete a purchase of the properties, to avoid a mortgagee sale. An agreement was reached to enable the transaction to proceed (the January 2010 agreement). That agreement included the terms of a shareholders agreement for Ark. Ark purchased the properties.
The Kellers then claimed that the January 2010 agreement was entered into under duress, and purported to set it aside, restoring the original terms.
The duress allegations — running both ways — occupied a significant part of the hearing time in the High Court. The Judge rejected these allegations.[1] Those findings are not challenged on appeal. Thus the parties’ mutual rights and obligations are governed by the Ark agreement, as modified by the January 2010 agreement.
[1]Daisley v Ark Contractors Ltd [2020] NZHC 793 [Main proceedings judgment] at [148] and [159].
Further differences arose. The Daisley interests were to rent one of the properties, known as “the Depot”. They continued to occupy it. But they did not pay the agreed rent, and in August 2010 they moved out. They removed two office buildings from that property, and were in the process of removing more buildings when they were prevented from doing so by the Kellers. The Kellers say that the Daisleys converted those two buildings. The Kellers then locked the Daisleys out of the Depot. The Daisleys say that the Kellers converted various chattels which the Daisleys had not yet removed from the property before they were locked out. They say they were denied the opportunity to recover those chattels.
As a result of the various disputes that arose between the parties, Mr Daisley never received the shareholding in Ark that he had been promised. The Kellers have consistently taken the position that they are willing to issue those shares to Mr Daisley, once certain pre-conditions are met.
The main proceedings (CA271/2020)
The primary claim brought by the Daisley interests against the Keller interests alleged (as well as duress) breaches of contract, breaches of fiduciary duty and a constructive trust. The Judge did not accept any of those claims as pleaded. But the Judge found that the Kellers and Ark had breached a contractual obligation to issue shares to Mr Daisley.[2] The Judge found that this was also a breach of fiduciary duty.[3] She made an award of equitable compensation/damages of $541,721 against Ark and the Kellers. This was the amount that Mr Daisley was treated as contributing to Ark by way of equity in the properties, under the Ark agreement as amended.[4] Effectively, the Judge ordered that he be repaid his initial investment.
[2]At [233]–[234].
[3]At [222]–[228].
[4]At [229].
No claim for breach of an obligation to issue shares in Ark had been pleaded, and no formal application to amend the pleadings was made at trial — indeed the Daisleys’ claim was only framed in this way in closing.
The Judge declined to award interest to Mr Daisley on the compensation/damages awarded, on the basis that no claim for interest had been pleaded.[5]
[5]At [238]–[240].
On appeal, the Kellers challenge the award of equitable compensation/damages. The Daisleys challenge the Judge’s refusal to award interest.
The Depot proceedings (CA31/2021)
Ark brought proceedings against Mr Daisley for conversion of the two office buildings. Ark also claimed against two companies owned by the Daisleys — Action Fencing Ltd (Action Fencing) and HPL Distribution Ltd (HPL Distribution) — for unpaid rent in respect of the Depot. There was also a claim for reimbursement for certain expenses which Ark had met on behalf of the Daisleys. Those claims were largely successful.[6]
[6]Ark Contractors Ltd v Daisley [2020] NZHC 3508 [Depot proceedings judgment] at [88]–[89], [106], [115] and [118]–[121].
Mr Daisley appeals in relation to the conversion finding, and HPL Distribution appeals in relation to liability for rent.
The chattel conversion proceedings (CA30/2021)
Action Fencing, HPL Distribution and Mr Daisley claimed for conversion of property left behind at the Depot, which they say they were not permitted to remove, and some of which was delivered to third parties rather than to them. That claim was partly successful in the High Court.[7] They appeal from the Judge’s decision dismissing their conversion claim in respect of a number of other items of property.
Background
The Daisleys face significant financial pressure
[7]Action Fencing Ltd v Ark Contractors Ltd [2020] NZHC 3509 [Chattel conversion proceedings judgment].
Mr Malcolm Daisley (known as Jimmy Daisley) is a contractor, company director and businessman in the Whangārei district. At the relevant time, he was living at the Depot: a property in Maungakaramea, about 10 kilometres south of Whangārei. Mr Daisley also ran his businesses from the Depot.
Mr Daisley’s son, Scott Daisley, works with him in his contracting business. Scott Daisley was closely involved in the events giving rise to the parties’ litigation with the Kellers. He was also a director of SDD Ltd (SDD), one of the parties in the High Court (but not before this Court).
In late 2009 Mr Daisley and his companies were under significant financial stress. He was facing a mortgagee sale of four properties:
(a)the Depot at 1 Maungakaramea Road (NA61B/263) — a one-hectare property owned by Mr Daisley;
(b)Tangowahine Valley Road (NZ30A/927) — a 45-hectare rural property located between Whangārei and Dargaville, owned by SDD;
(c)Knight Road (NZ 1949/37) — a 47-hectare property located out of Whangārei; owned by Mr Daisley; and
(d)Valley View Road (Lot 4 NA 130B/848; Lot 5 identifier 39602; Lot 6 identifier 39602) — three properties owned by Mr Daisley totalling about 19 hectares.
Mr Daisley and SDD owed Westpac New Zealand Ltd (Westpac) approximately $1.5 million. Mr Daisley also owed around $110,000 to a solicitor’s trust company which held second mortgages over a number of the properties.
The Kellers come onto the scene
The Kellers lived across the road from Mr Daisley. In the course of a visit to Mr Daisley to follow up work done by one of his companies, Mr Keller learned of Mr Daisley’s financial predicament. Mr Keller suggested that he and his wife had savings, and might be able to help to refinance the bank debt and securities.
Discussions took place between the Kellers and the Daisleys. Scott Daisley provided the Kellers with a “Finance Proposal” dated November 2009, which had been prepared for Kiwibank as part of the Daisleys’ refinancing efforts. That Finance Proposal included valuations of each of the four properties. The valuation of the Depot is relevant to one of the disputes before this Court, and is discussed in more detail below.
On 27 November 2009 the Kellers and their accountant, Mr Lay, met with Mr Daisley, Scott Daisley and Mr Daisley’s then-lawyer, Mr Jackson. A proposal was discussed which would enable the mortgagee sales to be avoided. A new company (Ark) would be formed. Ark would buy the four properties, with funding from the Kellers’ savings of approximately $800,000 and bank borrowing. The shareholding in Ark would be in proportion to the respective contributions of the Kellers and the Daisley interests. The property values to be used for the purchase of those properties, and to value the Daisleys’ contribution, would be the registered valuations included in the Finance Proposal, less a 25 per cent discount to reflect the mortgagee sale context and the passage of time since the valuations were done.
There were further discussions, and some email correspondence. Additional issues emerged, including Mr Keller learning for the first time about the second mortgage over the properties. In light of the further information received, the Kellers became concerned about the proposed arrangements. At a further meeting on 30 November 2009, the Kellers told Mr Daisley that they were backing out. The Kellers say that Mr Daisley’s response was a persuasive pitch to keep them in. They were persuaded to continue with the proposal.
On 1 December 2009 the Kellers incorporated Ark, with themselves as sole directors and shareholders.
The Kellers’ solicitor, Mr Badham, was engaged to put the arrangement together. He communicated with Westpac, with the solicitors holding the second mortgages, and with the Daisleys’ lawyer, Mr Jackson. On 2 December 2009 Westpac, through its solicitors, confirmed that it would agree to a sale of the properties to Ark subject to a number of conditions, including payment of a $200,000 non-refundable deposit on execution of the sale and purchase agreements.
The Ark agreement
On 2 December 2009 a further meeting took place at Mr Badham’s office, attended by the Kellers, Mr Daisley and Scott Daisley, and Mr Badham. The purpose of the meeting was to execute various documents, including an overarching agreement in relation to the arrangement (the Ark agreement). Mr Badham had drafted the Ark agreement with input from Mr Lay. The draft Ark agreement was sent to Mr Jackson at 12.31 pm on the day of the meeting. The meeting itself took place at 2.00 pm. The context of that meeting is important. There was significant time pressure if a deal was to be done: the first mortgagee auction was due to take place the next day. The Kellers remained wary about the proposal, and had not made a final decision about whether or not they would proceed. The new information obtained about the Daisleys’ indebtedness under the second mortgages had implications for Ark’s funding needs, and for the parties’ interests in Ark.
Against that backdrop, Mr Badham presented three agreements to the parties at the 2 December 2009 meeting. The first was the Ark agreement, to be entered into by Ark, Mr and Mrs Keller, SDD, Mr Daisley and Scott Daisley. It was accompanied by two agreements for sale and purchase in relation to the properties. One agreement for sale and purchase named Mr Daisley as vendor and Ark as purchaser. The other named SDD as vendor and Ark as purchaser.
At the meeting, Mr Badham explained that the proposal set out in the three agreements was the Kellers’ only offer. Due to time constraints imposed by the imminent mortgagee sale, it was effectively a “take it or leave it” proposal. If the offer was not acceptable, it was likely the mortgagee sale would proceed. Mr Badham went through the three contracts clause by clause, explaining them to all present.
Mr Daisley and Scott Daisley signed the agreements. They say they did so under immense pressure, without the benefit of independent advice.
The operative provisions of the Ark agreement read as follows:
OPERATIVE PART:
1. Once settlement of the Sale and Purchase Agreements has taken place, the debts owed by Ark to SDD under clause 20.0(b) of the SDD Agreement, and to [Mr Daisley] under clause 20.0(b) of the Daisley Agreement shall be repaid by the issue to SDD and [Mr Daisley], of shares in Ark, such that the resulting shareholdings of [Mr and Mrs Keller] (or their nominees), and SDD and [Mr Daisley] (or their nominees) shall be determined in accordance with Schedule B.
2. In the event that settlement of the Sale and Purchase Agreements does not occur as a result of any default by SDD or [Mr Daisley] in their obligations as vendors under those agreements, then [Mr Daisley] and SDD acknowledge liability to [Mr and Mrs Keller] for all costs and losses incurred by [Mr and Mrs Keller] in relation to the Sale and Purchase Agreements (including the negotiation and preparation of the agreements and all related documentation), including accountancy and legal fees, lost deposit moneys, and interest thereon at the interest rate for late settlement in the Sale and Purchase Agreements.
3. Prior to the issue of shares in Ark to [Mr Daisley] and SDD in accordance with clause 1, Ark will adopt a constitution in usual form, subject to the following specific provisions, some of which may, in the absolute discretion of [Mr and Mrs Keller], be provided for in a Shareholders Agreement that will be signed by all of the shareholders of Ark at the time of the issue of the shares to SDD and [Mr Daisley].
4. There shall be two classes of shares. [Mr and Mrs Keller]’s shares shall be A shares. [Mr Daisley] and SDD’s shares shall be B shares.
5. The A shares shall have all the usual rights and powers, including voting powers, provided that the A shares shall not entitle the holders to make any changes to the company’s constitution without the prior written consent of the holders of all of the B shares. The A shares shall entitle the holders to appoint two directors.
6. The B shares shall have no voting rights or powers but shall have all other usual rights and powers. The B shares shall entitle the holders to appoint one director.
7. A quorum for a directors’ meeting shall be two directors.
8. Interest shall be payable by Ark on shareholders’ advances at the ASB Bank Ltd residential first mortgage variable interest base rate plus a margin of 6%. The interest rate as at 1 December 2009 will apply initially, subject to a six monthly review.
9. The Shareholders Agreement shall otherwise be in usual form.
The Kellers paid a deposit of $200,000 to Westpac. They also paid $50,000 to the solicitors’ trustee company to enable the second mortgages to be removed.
The parties continued to discuss other aspects of the arrangement, including a proposal that Mr Daisley have a right to re-purchase the Depot.
Claim that the Ark agreement was entered into under duress
Around this time, Mr Daisley engaged a new lawyer, Mr Skeates. On 9 December 2009 Mr Skeates wrote to Mr Badham asserting that the Daisleys had signed the agreements under duress, without adequate opportunity for independent advice. He proposed a renegotiation of the arrangements. Mr Badham denied the allegations of duress, but proposed a meeting to resolve all outstanding issues.
The first renegotiation took place by telephone conference on 22 December 2009. Mr Keller, Mr Badham, Mr Daisley and Mr Skeates participated. Various agreements reached at that telephone conference were recorded in a letter from Mr Badham to Mr Skeates dated 23 December 2009. Mr Skeates confirmed by email later that day that the letter accurately recorded the discussion and “appear[ed] to [him] to meet [the Daisleys’] bottom line requirements”. The parties proceeded on the basis that these were agreed variations to the Ark agreement.
Further meetings took place in December 2009 and early January 2010, mostly focussed on practical matters in relation to the proposal.
The January 2010 agreement
On 15 January 2010, Mr Badham sent a draft shareholders agreement to Mr Skeates for review.
By 19 January 2010, the day before the intended settlement of the property transactions, Mr Daisley had not signed certain documents needed to enable Ark to drawdown funds from its lender, Kiwibank. That delayed settlement. Various explanations for delay were proffered by the Daisley interests. However it appears that the explanation was that the Daisleys were playing for time, while exploring alternative options. For example, Mr Daisley was in discussion with a potential third party buyer of one of the properties.
On 22 January 2010, a week before Westpac’s deadline for settlement of the property purchases, Mr Skeates wrote to Mr Badham seeking to renegotiate aspects of the Ark agreement. He also commented on specific clauses of the draft shareholders agreement.
On 25 January 2010 Mr Badham responded to Mr Skeates’ letter. He accepted many of the points made by Mr Skeates in relation to the draft shareholders agreement, and asked for specific proposed wording in relation to some points.
On 28 January 2010, the day before the Westpac deadline, Mr Skeates responded to Mr Badham’s letter of 25 January 2010. His response proposed further variations to the Ark agreement. Some were commercially significant. He also proposed some more mechanical amendments to the agreement.
This put the Kellers under considerable pressure. In their briefs of evidence the Kellers said they considered they were faced with a stark choice: agreeing to these further demands in order to achieve settlement of the property transfers, or pulling out and losing the approximately $285,000 they had already put into the venture. However in the course of giving evidence at trial Mr Keller struck a somewhat different tone, conceding that the variations sought to the Ark agreement were not objectionable.
In any event, early on the morning of 29 January 2010 Mr Badham faxed Mr Skeates confirming acceptance of all the amendments sought “including the substantive matters specified on page 2 of [the 28 January 2010] letter”.
Settlement of the property transactions took place on 29 January 2010.
Claim that the January 2010 agreement was entered into under duress
A few weeks later, however, the apparent consensus unravelled. Mr Badham wrote to Mr Skeates on 11 February 2010, advising that the Kellers considered that they had been subject to duress in entering into the agreement reflected in the correspondence in late January 2010 (that is, the January 2010 agreement). They advised that they “hereby exercise their option to void that contract”. Thus, Mr Badham said, matters should continue by reference to the original Ark agreement of 2 December 2009.
Mr Skeates responded on 15 February 2010, rejecting any right to avoid that contract.
The lease of the Depot
Around the same time, the Kellers and the Daisleys discussed arrangements for the proposed lease of the Depot. As contemplated by the parties, Mr Daisley and his companies had continued to occupy the Depot. The parties agreed informally to the property being rented on the basis that it was divided into three separate lettable areas: one area containing the house (from which Mr Daisley also ran his various businesses), a second area containing a half-round barn, large office and small office, and a third area containing a large shed. The area containing the house was to be rented by “HPL”. (A number of companies controlled by Mr Daisley had names incorporating the acronym “HPL”. Some confusion arose about which company was intended to be the tenant, as discussed in more detail below.)
Mr Badham, on behalf of the Kellers, prepared a draft one-year lease of the Depot and sent it to Mr Skeates for execution. The tenants named in the draft lease were two of Mr Daisley’s companies: Action Fencing and HPL Northland & North Harbour Ltd (HPL Northland & North Harbour).
That draft lease was never signed. The version discovered by the Daisley interests had “HPL Northland & North Harbour Ltd” crossed out, and “HPL Distribution Ltd” substituted. The Judge considered that it was likely that this change was made by Mr Skeates.[8] As explained in more detail below, HPL Northland & North Harbour was no longer trading at this time. HPL Distribution was. It seems likely that the parties intended that HPL Distribution would be the tenant.
[8]Depot proceedings judgment, above n 6, at [35].
By May 2010, Mr Daisley’s companies were seriously behind with their rent. This in turn put Ark in a difficult financial position, as it needed to service its bank borrowings.
The Daisleys leave the Depot
In March and April 2010, three of Mr Daisley’s companies were placed in voluntary liquidation. The liquidation reports record that they were hopelessly insolvent. Further correspondence between the solicitors and the parties continued between May and August 2010, but no resolution was reached.
Mr Daisley then proposed an exit from the overall arrangement, on terms which the Kellers rejected. The Daisleys then moved out from the Depot in late August 2010. However they still had various items of property on the site. On 26 August 2010, following a meeting, Mr Daisley emailed Mr Keller confirming that the house would be cleaned out by the weekend. He asked for three to four weeks with no charge to remove “all our gear from the yard”.
The removal of the office buildings
On 1 September 2010 an event occurred which led to an irretrievable breakdown in the relationship between the Daisleys and the Kellers. The Daisleys arranged to remove two office buildings from the Depot. The Daisleys say they believed they had the right to remove those buildings. The Kellers say the buildings formed part of the land, and had been purchased by Ark.
Scott Daisley, on behalf of his father, had sought legal advice from Mr Skeates about whether the Daisleys could take these buildings from the Depot. Privilege was waived in respect of that correspondence. The answer given by Mr Skeates on the afternoon of 1 September 2010 was:
If the sheds are on skids and not attached to the land and have no building permits then I believe they are chattels that belong to your businesses or to [Mr Daisley] personally and do not belong to Ark.
That same evening, Scott Daisley, with some assistance, removed the two buildings from the Depot by loading them onto transporters. Mr Keller was not present. He had not been warned in advance that this would happen. He learned of it overnight. He returned to the Depot the following day. He went to the Whangārei police station. On returning to the Depot, he found Scott Daisley in the process of lifting another shed onto a truck. Mr Keller phoned the police and Mr Badham, who came to the site. The police advised Scott Daisley that he could remove items from the yard, but the sheds and container had to stay until the matter was sorted. Mr Keller’s evidence, which the Judge accepted, was that he told Scott Daisley that he had until Sunday, 5 September 2010 to remove his things from the site.
Mr Keller soon located the offices removed from the Depot. The larger “front office” was located in Ngāruawāhia, where Mr Daisley was setting up new business premises. It appears that Mr Daisley was at the Ngāruawāhia site, awaiting the arrival of the building, at the time when it was removed from the Depot.
The smaller “back office” was located in the yard of Tracta Tranz Ltd, an equipment hire business.
The Kellers’ lawyers wrote to the Daisleys’ lawyers about the taking of the offices. An exchange of correspondence followed. Mr Badham pointed out that the valuation of the Depot had included an amount in respect of the two office buildings that had been removed — so the price Ark had paid Mr Daisley included an amount in respect of those buildings. In a letter dated 21 September 2010, Mr Skeates wrote:
Our client was actually totally surprised to find that [the two offices] were included in the valuation. On a completely without prejudice basis our client is prepared to recognise that because the valuer had included them in his calculation of the price of that property, then our client recognises that your client believed that Ark had purchased them. Rather than trying to rely on various aspects of mistake under the Contractual Mistakes Act our client is prepared to acknowledge that 3/4 of the value of the items may be deducted from the value for the purposes of calculating our client’s shareholding interest.
The Daisleys’ actions in removing the offices marked a point of no return for the parties’ relationship. The locks on the gates were changed, to prevent the Daisleys continuing to access the Depot. On 7 September 2010, with the encouragement and assistance of the liquidators of Daisley Contracting Ltd, Ark issued a trespass notice to the Daisleys.
The Daisleys’ chattels left at the Depot
A number of items of property remained at the Depot at this time. The Daisleys say that Ark and the Kellers converted these chattels. This topic is discussed in more detail below.
Subsequent events
An attempt to resolve all of these issues was made in September and October 2010. But no resolution was reached.
Shares in Ark were never issued to Mr Daisley. Mr Daisley has had no involvement in running Ark. The Kellers have continued to operate Ark. Three of the four properties have been sold. Ark retains one of the properties.
Proceedings are issued
In November 2015 the Daisley interests issued proceedings (the main proceedings) against Ark, the Kellers and Thompson Wilson Law (the Kellers’ lawyers). The timing seems likely to have been influenced by the imminent expiry of the six-year limitation period for certain types of claim.
That in turn led to the issue of two further sets of proceedings. Ark brought proceedings against Mr Daisley, Action Fencing and HPL Distribution in relation to the removal of the two offices, unpaid rent for the Depot, and various debts which Ark had paid on behalf of the Daisley interests (the Depot proceedings). And Mr Daisley, HPL Distribution and Action Fencing brought proceedings against Ark and the Kellers claiming that they had converted the various items of property left at the Depot in September 2010 (the chattel conversion proceedings).
The main proceedings
The Kellers argue on appeal that the Judge erred by awarding equitable compensation/damages for claims that were not pleaded. It is therefore necessary to review in some detail the pleadings in the main proceedings.
The pleaded claims
The plaintiffs in the main proceedings were Mr Daisley and SDD, the vendors of the land purchased by Ark. They pleaded five causes of action.
The first cause of action alleged that the Ark agreement was entered into under duress or undue influence. Mr Daisley sought an order that the Ark agreement be avoided, and that he receive compensation including return of his initial equity in the land and a “refund” of the 25 per cent discount from the property valuations in the Finance Proposal. He also sought compensation for increases in the value of the land, and an accounting of profits, since entry into the transaction.
The second cause of action was a claim by Mr Daisley for breach of the Ark agreement as amended by the January 2010 agreement. He alleged that the Ark agreement (as amended) had been breached by the Kellers when they purported to avoid the January 2010 agreement on the grounds of duress. He claimed that the Kellers’ breach of the Ark agreement had caused him loss, but did not give any particulars of that loss. He sought the same relief as in the first cause of action.
The third cause of action was based on an alleged constructive trust. Both plaintiffs pleaded that the Kellers had repudiated the terms of the Ark agreement, and the “joint venture” had failed. The Kellers had asserted “unconditional rights to the land”, including selling some of the land and transferring other land to a family trust associated with the Keller family (the Keller Family Trust). The plaintiffs sought imposition of a constructive trust requiring Ark and the Kellers to disgorge any benefit they derived from their dealings with the land, account for the current market value of the properties, and reconvey to Mr Daisley the land which had been conveyed to the Kellers’ family trust.
The fourth cause of action, alleging breach of fiduciary duty, was pursued by Mr Daisley against the Kellers alone. The allegation was that the parties’ relationship under “the JV Agreement” — a defined term used in the pleadings to refer to the arrangements entered into orally in November and early December 2009 — was characterised by trust, reliance and confidence, which gave rise to fiduciary duties of loyalty and good faith. They alleged that the Kellers breached their fiduciary duties to Mr Daisley by placing themselves “in conflict of interest”. The particulars given of those breaches of duty were as follows:
44.1. misleading [Mr Daisley] by indicating that they were prepared to re‑negotiate the JV Contract as to contentious issues;
44.2. misleading [Mr Daisley] that they agreed to proposals to settle issues of contention arising out of the draft shareholder agreement;
44.3. agreeing to [Thomson Wilson Law] presenting to [Mr Daisley] the take it or leave it JV Contract which was materially different to the JV Agreement, whereby the differences materially improved the [Kellers’] position at the expense of [Mr Daisley’s] interest in the JV;
44.4. being party to duress and or undue influence to coerce [Mr Daisley] to sign the JV Contract
Mr Daisley pleaded that the Kellers’ breach of fiduciary duties had caused him loss. The relief sought was essentially the same as the relief sought in the first and second causes of action.
The fifth cause of action was brought against Thompson Wilson Law, Mr Badham’s firm, alleging breach of a fiduciary duty owed to Mr Daisley.
The pleaded defences and counterclaims
Ark and the Kellers denied that they owed any fiduciary obligations to the Daisley interests. They pleaded that the Daisleys were, and remain, entitled to be issued shares in Ark once the contractual pre-conditions to issuing those shares have been satisfied. They pleaded that those conditions had never been satisfied as a result of the Daisleys’ various defaults. They denied the Daisleys were induced to enter into the Ark agreement by duress or undue influence. They say that in any event the Ark agreement was affirmed by the Daisleys.
The Kellers in turn claimed that they were induced to enter into the January 2010 agreement by duress, and had lawfully avoided those variations to the Ark agreement. They pleaded that the Daisleys’ entitlement to a shareholding in Ark should be determined by reference to the Ark agreement as it stood before the January 2010 agreement.
The Kellers also pleaded a limitation defence in relation to aspects of the claim.
Thompson Wilson Law denied that there was ever any solicitor/client relationship between them and the Daisley interests. They only ever acted for the Kellers, and subsequently Ark. They did not owe any fiduciary duties to the Daisley interests.
High Court judgment in main proceedings
The main proceedings were heard by Walker J over two weeks in September 2019.[9]
[9]Main proceedings judgment, above n 1.
The claim brought by the Daisley interests underwent a number of shifts in direction at trial. The Kellers say this resulted in the proceeding going off track, and relief being awarded against them that had not been properly pleaded, which they did not have a fair opportunity to address at trial. Because of the importance of the issue, we set out the Judge’s description of this “change in course”:
[21] Ms Smith, who inherited the case after the filing of the second amended statement of claim, opened the case for the plaintiffs on a different basis. There was no application to amend the pleadings. She submitted that the asserted cancellation of the “joint venture agreement” by the Kellers in February 2010 amounted to:
(a) a breach of the “joint venture agreement” resulting in an entitlement to compensation for the loss of the initial investment and loss of rights that would have been enjoyed as a result; or
(b) a complete rescission of the transaction, resulting in a right of the parties to be restored to their pre-contractual position; or
(c) a unilateral waiver by the defendants of the requirement for a collateral agreement to issue shares in settlement of the debt, resulting in an obligation to settle the debt recorded in the sale and purchase agreements on commercially reasonable terms.
[22] Ms Smith also recast the constructive trust claim. The property transferred to the Kellers’ family trust was no longer the focus of the constructive trust claim. Rather, she submitted that all the rights, title and benefits which ought to have flowed to the plaintiffs under the Ark Agreement are held on constructive trust by Ark. This includes all dividends, income, interest or distributions and the loss of the contractual option to acquire the Depot from Ark. In this context, Ms Smith expressly disavowed any constructive trust in respect of the shareholding entitlement, on the basis that there could not be a constructive trust in respect of non-existent property.
[23] By closing, there was a further evolution in the plaintiffs’ case. The plaintiffs elected compensatory relief rather than an accounting. More materially, the plaintiffs now allege that Ark breached its obligations under the Ark Agreement by failing to issue the shares, failing to adopt a company constitution and by using the plaintiff’s contribution to Ark “to balance the equity position of Ark without issuing shares”. This was to reshape the breach of contract cause of action which faced vigorous opposition.
[24] In summary, the relief claimed by the end of the case is:
(a) An order that the commercial arrangements be set aside;
(b) Damages of $541,721 (representing the equity in the properties transferred or ‘vendors’ advance’) plus a contractual rate of interest;
(c) An institutional constructive trust over Ark property to the extent of the Daisley interests;
(d) Damages for loss of opportunity.
[25] The shifts in approach are unsurprising. Ark’s asset position today is markedly different. Only one of the properties transferred by the plaintiffs is still owned by Ark. Mr Daisley’s preferred remedy does not necessarily lend itself easily to established causes of action. He has no interest in a shareholding in Ark. Instead he is looking for financial compensation, effectively in lieu of his shareholding entitlement.
[26] Mr [Browne] objected to the plaintiffs straying from the pleaded case. He submitted that the defendants’ case should not be prejudiced by allowing the plaintiffs to take advantage of deficiencies or generalities in their own pleadings to justify arguing points not specifically pleaded.
[27] Mr [Browne’s] point is valid. Where the basis for the relief sought, or the precise manner in which it is alleged that contractual breaches have occurred, is recast, careful assessment and comparison against the pleaded case is necessary to ensure the interests of justice are met. I return to this point later in my judgment.
(Footnotes omitted.)
The Judge identified six issues which the Court needed to determine.
Issue one was whether Ark and the Kellers had legitimately avoided the January 2010 agreement on the basis of duress. The Judge found that there had been no duress.[10] A binding shareholders agreement was entered into by the parties as at 29 January 2010, recorded in the following documents:[11]
(a)the draft shareholders agreement sent by Mr Badham to Mr Skeates on 15 January 2010;
(b)the letter of 22 January 2010 from Mr Skeates to Mr Badham;
(c)the letter of 25 January 2010 from Mr Badham to Mr Skeates;
(d)the letter of 28 January 2010 from Mr Skeates to Mr Badham; and
(e)the letter of 29 January 2010 from Mr Badham to Mr Skeates.
[10]At [148].
[11]At [149].
Issue two was whether the Ark agreement itself was liable to be avoided by the Daisleys for duress or undue influence. The Daisleys’ position at trial was that if issue one was determined in their favour, it was not necessary to deal with issue two. They did not seek to set aside the Ark agreement, provided it had been modified by the January 2010 agreement. So the Judge did not need to decide this issue. However she observed that if she had been required to do so, she would have found that the Daisleys were not induced to enter into the Ark agreement by duress or undue influence. And in any event, they had affirmed the Ark agreement so could no longer seek to avoid it.[12]
[12]At [159].
Issue three was whether a constructive trust should be imposed. The Judge found that there was no basis for imposition of any form of constructive trust in relation to the properties transferred to Ark.[13]
[13]At [184].
Issue four was whether Thompson Wilson Law had breached any fiduciary obligations owed to the Daisley interests. The Judge found that Thompson Wilson Law never acted for the Daisleys, and did not owe them any relevant obligations. The claim against Thompson Wilson Law was dismissed.[14]
[14]At [189]–[201].
Issue five was whether the Kellers breached any fiduciary obligations to the plaintiffs. The Judge did not accept that the Kellers had the particularised fiduciary duties in the period up to and including 2 December 2009.[15] That was sufficient to dispose of the allegations that fiduciary duties had been breached by the Kellers in connection with the take it or leave it offer made on 2 December 2009, entry into the Ark agreement in December 2009, and the renegotiations in January 2010.
[15]At [217].
However the Judge considered that on execution of the Ark agreement the relationship between the parties changed fundamentally. It was arguable that once the Daisleys were contractually bound to transfer properties as their contribution to the joint venture, and once the property settlements had taken place, the Kellers had equitable or fiduciary obligations until issue of the contractually promised shareholding.[16] The Judge considered that four factors supported this conclusion:[17]
(a)Mr Daisley and SDD were particularly vulnerable before any issue of shares because of the imbalance of power through their lack of participation in Ark.
(b)The nature of the Ark agreement required the Daisley interests to repose trust in the Kellers. The Kellers had an absolute discretion to determine which of the specific provisions stipulated in the Ark agreement would be provided for in the shareholder agreement, which “compounded the imbalance”.
(c)Once the properties were transferred, the relationship had advanced to the implementation stage of the venture. There was a common purpose and goal to develop the properties for joint profit.
(d)The venture was one in which both were intended to participate, despite the evidence that the Daisleys’ participation was in fact fleeting. “While characterising the venture as a ‘joint venture’ is not determinative of the question of whether fiduciary obligations are owed, it informs the analysis”.
[16]At [218].
[17]At [219]–[221].
The Judge summarised her view on the fiduciary nature of the obligation as follows:
[222] Once matters were agreed as at 29 January 2010, the obligation on the Kellers was to issue shares to the Daisley interests reflecting their proportionate contribution to assets in Ark. Once issued, the obligations of each shareholder to the other would have been of a different character. Until that point, in my judgment, the relationship was a fiduciary one. The Kellers were in an analogous position to Mr Fay in Chirnside notwithstanding they considered they had a legitimate reason to withhold the issue of shares. The result of not issuing shares was a de facto appropriation of the venture.
[223] The fiduciary obligations each owed to the other party once the venture had commenced after 29 January 2010 included duties of loyalty and a duty of good faith. …
[224] I also consider that each party had obligations to the other to act equitably to bring the affairs of the joint venture to a conclusion in a way fair to all parties once the point of no return was reached.
[225] I am not in a position to apportion responsibility for the failure of the parties to settle their claims in September/October 2010. I suspect that both were worn down by the vicissitudes of the ongoing dispute. However, in my assessment, the Kellers’ failure to issue shares to the Daisley interests by 29 January 2010 was a breach of fiduciary duty. While there were ongoing disputes and it might be said that neither party negotiated in good faith, the Kellers were not entitled to avoid their obligation to issue shares. The allegation of duress and the conjoining of the dispute over rent with the shareholder issues operated as a form of “in terrorem” strategy and a breach of the duty of good faith.
(Footnote omitted.)
Thus the Judge found for Mr Daisley in respect of this cause of action. She considered that her analysis of the nature of the fiduciary obligation “amounts to a development of the second particular pleaded in this cause of action and thus has a pleaded basis”.[18] We return to this below.
[18]At [228].
The Judge recorded that Mr Daisley had “elected compensation rather than an account of profit for practical reasons”.[19] She awarded damages of $541,721 as equitable compensation against the Kellers and Ark. The Judge considered that this was the value of Mr Daisley’s contribution of equity to the venture, which had been retained by Ark and thereby enriched the Kellers without benefit to Mr Daisley. The measure of Mr Daisley’s loss “equates to disgorgement of the benefit to [Ark and the Kellers]”.[20]
[19]At [229].
[20]At [229].
Issue six was whether Ark and/or the Kellers were in breach of contract. The only pleaded breach of contract was the Kellers’ purported voiding of the January 2010 agreement. The Judge held that this was not a breach. It may have been a repudiation. But the Daisleys did not accept that repudiation. So the only pleaded breach of contract was not made out.[21]
[21]At [232].
However Ms Smith, counsel for the Daisleys, submitted on closing that the failure to issue shares on the basis of the position as at 29 January 2010 amounted to an ongoing breach of the Ark agreement. The Judge agreed. She said:
[234] I agree. I note that there was no application to amend the pleading to incorporate this breach. [Ark and the Kellers] with some justification, resist this recasting of the breach of contract cause of action. In the alternative, they maintain that [Mr Daisley] has failed to prove any loss. They remain entitled to the shareholding for which they contracted, being a minority shareholding in Ark. There have been no dividends paid by Ark to shareholders and there is no evidence of any diminution in value of the company by virtue of the management decisions that the Kellers have made.
[235] In the ordinary course, I would be reluctant to permit such a shift in the case to the extent implicitly sought. However, in the unusual circumstances of this case, I do not accept that there is any material prejudice to the defendants by permitting this approach to the breach of contract cause of action. It is obvious that, once the claim to duress does not succeed, the failure to issue shares to the Daisley interests amounts to unjustified non‑performance of contractual obligations. This view does not depend on new and different facts but rather, a different legal characterisation as to the effect of my finding that the Kellers were not induced to enter into the January 2010 Variations by duress.
(Footnote omitted.)
The Judge found that the failure to perform the promise to issue shares had caused loss to Mr Daisley. She did not consider that an ongoing entitlement to a shareholding in Ark still represented the bargain he entered into. Mr Daisley sought return of the “failed consideration” for entry into the joint venture on the basis he had never received the benefit contracted for, and that benefit is no longer available to him. The Judge saw this as equivalent to his equity contribution on settlement of the property transactions of $541,721.[22]
[22]At [236].
The Judge considered that another way to look at this was to examine what Mr Daisley would have been entitled to as at 29 January 2010 had the contract been performed:[23]
The answer is the shares representing the proportionate value of his contribution so that the award of damages is thus the value of those shares at that point in time.
[23]At [237].
The Judge considered that given her findings of breach of fiduciary obligation, it was unnecessary to determine the question of appropriate remedy for breach of contract.[24]
[24]At [241].
At trial Mr Daisley also sought interest on his equity contribution, effectively treating it as a shareholder advance. The Judge rejected this aspect of his claim for three reasons. First, the Ark agreement did not contemplate payment of contractual interest for initial shareholder contributions. Second, a contractual rate of interest was not pleaded. Nor was a claim to statutory interest. The High Court Rules 2016 require a statement of claim to state specifically the basis of any claim for interest, and the rate at which interest was claimed. That had not been done. Third, the way in which the contributions were treated in the Ark financial statements (as shareholder advances) was presentational only, and did not provide a basis for a substantive claim to interest.[25] The Judge concluded that “there is no entitlement to an award [of] interest on damages, there being no claim to interest in the prayer for relief”.[26]
[25]At [239].
[26]At [240].
The Judge summarised the result of the various claims advanced in the main proceedings as follows:
[242] In summary, I:
(a) dismiss the claim of duress against all defendants (first cause of action).
(b) award damages to [Mr Daisley] against [Ark and the Kellers] jointly and severally for breach of contract (second cause of action).
(c) dismiss the claim for a constructive trust (third cause of action).
(d) award equitable compensation to [Mr Daisley] against the [Kellers] for breach of fiduciary duty (fourth cause of action).
(e) dismiss the claim against [Thomson Wilson Law] (fifth cause of action).
[243] I award damages/equitable compensation to [Mr Daisley] of $541,721 in total. I make no award of interest as interest has not been pleaded.
Appeal in relation to main proceedings
We begin by considering the appeal and cross-appeal from the judgment in the main proceedings, before describing in more detail the judgments in the two other proceedings and addressing the appeals from those judgments.
The key issues raised by the appeal and cross-appeal are:
(a)Was it open to the Judge to award compensation for failure to issue shares in Ark?
(b)Did the Judge err in awarding relief for breach of contract and breach of fiduciary duty, if those claims were properly pleaded?
(c)Should the Judge have awarded interest on the equitable compensation/damages?
Issue 1: Was it open to the Judge to award compensation for failure to issue shares in Ark?
The issue
In the main proceedings, Mr Daisley succeeded in a claim against the Kellers and Ark for failure to issue shares in Ark. The Judge held that this amounted to a breach of fiduciary duty, and a breach of contract. The Kellers say that these claims were not properly before the Court. They were not pleaded. They were not raised until Ms Smith’s closing submissions. They had no opportunity to respond to them by calling relevant fact and expert evidence, and advancing submissions on the issues raised by those claims.
Mr Browne, counsel for the Kellers, emphasises that the Judge accepted that these claims were not squarely raised on the pleadings, and recorded that they were only advanced in closing. No application to amend the pleadings to add these claims was made at any stage.
Mr Browne submits that in these circumstances, claims for failure to issue the shares in Ark were not properly before the Court. And as a result, the hearing was procedurally unfair. Because he closed first, with Ms Smith closing after him, the only opportunity he might have had to respond to these claims would have been in a reply. But the hearing had already run over time, and the Judge made it clear that a reply would not be welcome. In any event, he says, the more fundamental problem is that key issues relevant to these claims were not addressed in evidence, or in argument by either party.
In particular, Mr Browne says that if these claims had been properly pleaded, the Kellers would have defended them on the basis that the Ark agreement and the shareholders agreement only required shares to be issued to Mr Daisley once certain pre-conditions had been met. Those pre-conditions, in particular the completion of a signed shareholders’ agreement, had never been satisfied. So the obligation to issue shares had not yet fallen due. The Kellers have always acknowledged that when the pre-conditions were met, shares in Ark would need to be issued.
Mr Browne also points to the absence of any pleading in relation to the loss claimed to have been caused by the non-issue of the shares. If there had been an obligation to issue the shares on a particular date, and if there had been a wrongful failure to do so, then the appropriate measure of loss would presumably be the value of the shares as at that date. But as a claim of this kind was not pleaded, the Keller interests had not had the opportunity to call evidence and make submissions in relation to the value of Ark, and thus of the promised shareholding in Ark.
Mr Browne also submits that the relief awarded — return of an amount representing the Daisley interests’ initial equity contribution to Ark — could only be awarded for breach of contract if the contract had been cancelled. But it was not pleaded that the contract had been cancelled. The question of cancellation was not addressed by the Judge, which was unsurprising in circumstances where it was not squarely before the Court. Nor did the Judge engage with the availability of this measure of damages in the absence of cancellation. Again, that was unsurprising in circumstances where Mr Browne had not had an opportunity to make submissions on this issue. The result of the significant change in the way the claim was presented in closing was that critical issues were not the subject of submissions, and were not addressed in the judgment.
Mr Browne also says that if an application had been made to amend the pleadings at trial to allege a failure to issue shares in Ark in April 2010, that application could have been successfully opposed on limitation grounds. A pleading cannot be amended to add a time-barred claim. But because no formal application was made to amend the pleadings, there had been no opportunity to raise that issue.
Ms Smith says that the failure to issue shares was adequately pleaded. Paragraph 26 of the second amended statement of claim, which was located in the background section relevant to all causes of action, read as follows:
Following [Ark and the Kellers] voiding the JV Contract, [Ark and the Kellers] have retained for themselves all of the benefits of the JV, in particular [Mr Daisley’s] equity in the land conveyed to [Ark], and they have not issued or caused to be issued to [Mr Daisley] any shares in Ark; nor have they accounted to [Mr Daisley] any dividend from Ark, howsoever earned.
Ms Smith also pointed out that the fact that shares had not been issued to Mr Daisley was not disputed. Although the statement of defence denied para 26 of the claim, it went on to say:
They accept that the plaintiffs are entitled to a shareholding in [Ark] based on the formula set out in the 2 December 2009 agreement but the plaintiffs have not attempted to reach agreement with the [Kellers] as to quantifying that nor met the pre-conditions to the issue of shares.
Ms Smith submitted that the claims for failure to issue the shares were implicit in the breach of contract and breach of fiduciary duty causes of action, in light of para 26 of the second amended statement of claim.
Discussion
We accept Mr Browne’s submission that no claim for failure to issue shares in Ark was pleaded, whether as a breach of contract or as a breach of fiduciary duty.
The contract cause of action pleaded only one breach: the purported “voiding” of the agreement entered into by correspondence in January 2010:
33. On 11 February [2010], the defendants purported to void the “agreement” made on 28 January 2010, on the grounds of duress.
34. The defendants voiding of their agreement given on 28 January 2010 was:
34.1. A breach of the terms of the JV Contract as varied by the agreements of 23 December 2009 and 28 January 2010; and/or
34.2. The completion of an unconscionable ruse to trick the plaintiffs into believing that the defendant was willing to agree variations to the contract, when the defendants had no intention of creating new legal obligations over and above those contained in the JV Agreement.
Ms Smith is right to say that it was alleged — and was common ground — that shares in Ark had not been issued. But nowhere was it alleged that this was a breach of contract. There is no reference to the failure to issue shares in the second cause of action alleging breach of contract. The pleaded breach cannot be read as extending to the non-issue of shares in Ark. The date on which the shares should have been issued is not pleaded. There is no pleading of the loss caused by any such breach.
Nor is it pleaded that any relevant contract was cancelled. At the hearing we asked Ms Smith whether the Daisleys claimed that the Ark agreement had been cancelled. She confirmed that the Daisleys considered that the contract was still on foot — hence her response to the Kellers’ limitation argument that this was a continuing obligation. As we explain below, this suggests that Mr Daisley is still entitled to the Ark shares, and any claim would be confined to loss caused by delay in issuing the shares. But the pleading is silent on all of this.
Similarly, nothing in the fourth cause of action for breach of fiduciary duty identifies the non-issue of shares in Ark as a breach of a fiduciary duty owed to Mr Daisley. The sole allegation of breach read as follows:
44. The [Kellers] breached their fiduciary duties to [Mr Daisley] when they placed themselves in conflict of interest:
Particulars
44.1. misleading [Mr Daisley] by indicating that they were prepared to re-negotiate the JV Contract as to contentious issues;
44.2. misleading [Mr Daisley] that they agreed to proposals to settle issues of contention arising out of the draft sharehol[d]er agreement;
44.3. agreeing to [Thomson Wilson Law] presenting to [Mr Daisley] the take it or leave it JV Contract which was materially different to the JV Agreement, whereby the differences materially improved the [Kellars’] position at the expense of [Mr Daisley’s] interest in the JV;
44.4. being party to duress and or undue influence to coerce [Mr Daisley] to sign the JV Contract
Ms Smith submits that an allegation of breach by failing to issue shares was implicit in para 44.2. The Judge described the allegation as an “extension” of this particular.[27] However this particular must be read in context. It is clear that the complaint of “conflict of interest” in para 44 relates to the “take it or leave it” contract presented on 2 December 2009, and a complaint that Mr Daisley was misled by the suggestion that the Kellers were willing to renegotiate that contract in January 2010. The purpose of a pleading is to show the general nature of the plaintiff’s claim to the relief sought, and to give sufficient particulars to “inform the court and the party or parties against whom relief is sought of the plaintiff’s cause of action”.[28] A defendant reading para 44 of the second amended statement of claim could not be expected to discern from it that the complaint was that shares had not been issued in Ark, and that relief was sought for loss caused by the failure to issue those shares. We do not consider that this paragraph can reasonably be read as pleading a claim that Mr Keller and Ark had breached fiduciary duties owed to Mr Daisley by failing to issue shares in Ark.
[27]Main proceedings judgment, above n 1, at [228].
[28]High Court Rules 2016, r 5.26(a) and (b).
Mr Keller’s evidence was that he had agreed with Mr Whimp that he would purchase these items from Daisley Contracting Ltd, through his company. He said he has the toolbox. If HPL Distribution had a right to possession of these items at the time the Daisleys left the Depot, those dealings would amount to a conversion.
However as the Judge said, ownership of these items was unclear. The hydraulic press appeared in the depreciation schedule of HPL Northland & North Harbour. There was also some suggestion it was owned by another Daisley company, Parts 2009 Ltd. It could equally well have been on site at the Depot in the possession of some other Daisley entity, through the Daisleys, given the confusion surrounding dealings with the assets of those entities. The evidence is insufficient to persuade us that HPL Distribution had a sufficient possessory interest to support a claim for conversion in respect of the hydraulic press.
The position in relation to the toolbox is, if anything, less clear. The Judge considered that it was likely that HPL Distribution had a possessory right in respect of the toolbox. But the claim alleged that it was owned by, and in the possession of, Action Fencing. There was also some evidence that the toolbox had been in the possession of Daisley Contracting. Again, the evidence is insufficient to persuade us that HPL Distribution or Action Fencing had a sufficient possessory interest to support a claim for conversion in respect of the toolbox. This claim also fails.
Tractor and trailer
The items left at the Depot also included a tractor and trailer. As noted above, on 17 October 2010 Scott Daisley emailed Mr Keller to make arrangements to pick up the trailer and other items. Mr Keller replied denying that he had any Action Fencing equipment. He made no mention of the trailer.
Mr Keller’s evidence was that the tractor was moved to his home along with the trailer, to enable the Depot to be let out. It was removed from there by unknown persons. Shortly before that, Mr Keller said he had seen Scott Daisley driving his ute up the Keller driveway. Scott Daisley denied taking the items, or being aware of the items in the Kellers’ paddock.
The Judge found that it was more likely than not that Scott Daisley had removed the tractor and trailer from the Kellers’ property. There had been no unqualified refusal to hand over either of them. Removal of those items from the Kellers’ property, whether by Scott Daisley or some other person, did not amount to conversion by the Kellers. She therefore dismissed that claim.
We accept Ms Smith’s submission that there was little evidence that Scott Daisley had taken the tractor and trailer. Mr Keller did not suggest that in his evidence. That finding was not supported by the evidence.
However there was no unqualified refusal to permit the Daisleys to remove these items. Mr Keller did not convert the tractor and trailer merely by moving them to his property.[82] The taking of those items by unknown persons does not amount to a conversion by any of the Keller interests. The Judge was therefore right to dismiss the claim in respect of this item.
Summary
[82]See above at [272].
In summary, we have found that the appeal by Action Fencing and HPL Distribution in relation to the chattel conversion claims succeeds in just one respect: the damages in respect of the fence panels should be increased by $577.50.
Costs
The parties agreed that each of the appeals should be treated for costs purposes as a standard appeal falling within band A.
The Keller interests have succeeded in relation to the appeal and cross‑appeal in CA271/2020. They are entitled to costs in respect of the appeal and cross-appeal.
The Keller interests have succeeded in the Depot proceedings appeal (CA31/2021). They are entitled to costs in respect of that appeal.
The Daisley interests had a minor degree of success in relation to the chattel conversion appeal (CA30/2021). The damages awarded were increased in respect of one item by a very small amount, which was not contested by the Kellers in their submissions. The appeal failed in relation to all other items, including all the items in respect of which significant sums were claimed. In those circumstances, we consider that — adopting an approach that is generous to the Daisley interests — the costs of this appeal should be awarded to the Keller interests subject to a 10 per cent deduction.
Result
CA271/2020
The appeal in CA271/2020 is allowed.
The award of damages/equitable compensation to Mr Daisley is set aside.
The cross-appeal in CA271/2020 is dismissed.
The respondent must pay the appellants costs in respect of the appeal and cross‑appeal, in each case for a standard appeal on a band A basis, with usual disbursements.
CA30/2021
The appeal in CA30/2021 is allowed in part. The damages awarded are increased by $577.50. The appeal is otherwise dismissed.
The appellants must pay the respondents 90 per cent of the costs for a standard appeal on a band A basis, with usual disbursements.
CA31/2021
The appeal in CA31/2021 is dismissed.
The appellants must pay the respondent costs for a standard appeal on a band A basis, with usual disbursements.
Solicitors:
Henderson Reeves Lawyers, Whangarei for Appellants in CA271/2020 and Respondents in CA30/2021 and CA31/2021
Tailored Legal Solutions Ltd, Dargaville for Respondents in CA271/2020 and Appellants in CA30/2021 and CA31/2021
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