King v PFL Finance Ltd
[2014] NZHC 250
•21 February 2014
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
CIV-2012-404-1734 [2014] NZHC 250
BETWEEN THOMAS FREDRICK MAZLIN KING
and JUDITH RUTH KING as partners of the TFM AND JR KING PARTNERSHIP First Plaintiffs
AND
HAVELOCK FARMS LIMITED Second Plaintiff
AND
PFL FINANCE LIMITED First Defendant
AND
CRAIG BEECROFT Second Defendant
Hearing: 10 - 14, 17 - 21 and 24 - 28 June 2013
5 - 6 August 2013
2 - 6 September 2013Appearances:
D G Chesterman and S R Carey for First Plaintiffs
K M Quinn and M H Tushingham for DefendantsJudgment:
21 February 2014
JUDGMENT OF PETERS J
This judgment was delivered by Justice Peters on 21 February 2014 at 4.45 pm pursuant to r 11.5 of the High Court Rules
Registrar/Deputy Registrar
Date: ...................................
Re-delivered at 4:30 pm on 13 May 2014 as per minute of Peters J of 7 May 2014
Solicitors: Holland Beckett, Tauranga
Heimsath Alexander, Auckland
Counsel: D G Chesterman, Auckland
S R Carey, Auckland
K M Quinn, AucklandM H Tushingham, Auckland
KING v PFL FINANCE LIMITED [2014] NZHC 250 [21 February 2014]
Contents
Introduction [2] Causes of action [10] Background [11] Factual issues [45] Credibility [61] Section 9 Fair Trading Act 1986 [75] Credit Contracts and Consumer Finance Act 2003 [91] Property Law Act 2007 [100] Service [102] Whether any loss arose from PFL’s failure to comply with s 121(1) PLA [117] PFL’s responsibility for the actions of the Second Defendant [140] Duties pursuant to s 18 Receiverships Act 1993 [142] Duties pursuant to s 19 Receiverships Act 1993 [194] Counterclaim [222] Result [227] Costs [230]
[1] I issued a results judgment in this proceeding on 19 December 2013, in which I entered judgment for the First and Second Defendants on all causes of action pleaded by the First Plaintiffs against the First and Second Defendants in the Fifth Amended Statement of Claim. These are my reasons, and my judgment on the Defendants Amended Statement of Counterclaim against the First Plaintiffs.
Introduction
[2] This proceeding arises from a loan of $3.385 million made by PFL Finance Limited (“PFL”) to Havelock Farms Limited (“Havelock”) in July 2011. The loan was secured by, amongst other things, memoranda of mortgage registered against farm land of which Havelock was the registered proprietor (“land”). The First Plaintiffs (“Mr and Mrs King”) guaranteed repayment of the loan.
[3] On or about 29 November 2011 PFL served a notice under s 119 of the Property Law Act 2007 (“PLA notice” and “PLA”), that notice following a failure by Havelock to pay interest to PFL on 15 November 2011. Havelock did not remedy the default within the time specified in the PLA notice.
[4] On 24 January 2012, PFL appointed the Second Defendant (“Mr Beecroft”)
as receiver of the assets of, amongst others, Havelock and Mr and Mrs King.
[5] Mr Beecroft brought the farming operation to a halt, and relocated all livestock and plant and equipment. Mr and Mrs King owned most, if not all, of the livestock and plant and equipment, which themselves were also security for the loan.
[6] On 30 March 2012 Havelock and the Kings commenced proceedings against PFL and Mr Beecroft and obtained an ex parte injunction preventing any disposal of the security. That injunction was subsequently set aside on 3 May 2012.1 The
Plaintiffs’ appeal to the Court of Appeal was dismissed on 28 August 2012.2 I
dismissed a further application the Plaintiffs made in September 2012.3 The case
1 King v PFL Finance Ltd [2012] NZHC 882.
2 King v PFL Finance Ltd [2012] NZCA 385.
3 King v PFL Finance Ltd [2012] NZHC 2414.
was to proceed to hearing in October 2012 but was adjourned on the parties’
application.
[7] Havelock was placed into liquidation in September 2012. It has not played any part in this proceeding since then.
[8] Mr Beecroft has now sold the livestock and plant and equipment, and most of the land. The sum realised by the disposals has been insufficient to pay all sums that PFL contends are due.
[9] The Defendants have counterclaimed in respect of three assets which are security for PFL’s loan and which Mr Beecroft has been unable to locate. I address the counterclaim at the end of this judgment.
Mr and Mrs King’s causes of action
[10] Mr and Mrs King plead the following causes of action which I address in this order:
Against PFL
(a) Breach of s 9 Fair Trading Act 1986 (“FTA”). Mr and Mrs King allege that on 31 October 2011 Mr Miles Purchase and/or Mr Blair Kirk, PFL’s principals, represented to Mr King that Havelock could defer paying the monthly interest due on the loan in each of November and December 2011, provided that all outstanding interest was paid in full by the end of January 2012. The issue which arises is whether any such representation was made and, if so, what relief if any should be granted.
(b) For relief under s 127 Credit Contracts and Consumer Finance Act
2003 (“CCCFA”). In particular, Mr and Mrs King contend that the terms of the loan from PFL and the manner in which PFL exercised its powers under the various security documents were “oppressive” within the meaning of s 120 CCCFA, giving the Court power to
reopen the loan. The issues which arise are whether the terms/manner of exercise were oppressive and, if so, what relief if any should be granted.
(c) For losses arising as a result of PFL’s failure to serve a copy of the PLA notice on Mr and Mrs King. A mortgagee is required to serve a copy of an s 119 notice on a guarantor.4 A mortgagee who fails to do
so is liable for any loss arising from non-compliance.5 The issues
which arise are whether PFL did serve the PLA notice on Mr and
Mrs King and, if not, whether any loss arose from its failure to do so.
(d)“Responsibility” as appointor for the actions of Mr Beecroft as receiver.
Against Mr Beecroft
(e) Failure to exercise his powers in accordance with s 18 Receiverships Act 1993 (“Receiverships Act”). Mr and Mrs King take issue with Mr Beecroft’s decision to cease farming on 25 January 2012 and the fees that he has charged in the receivership.
(f) Breach of obligation pursuant to s 19 Receiverships Act, that is to obtain the best price reasonably obtainable as at the time of sale for the livestock and plant and equipment. No issue arises as to the price obtained on the sale of the land.
Against PFL and Mr Beecroft
(g) For losses arising from Mr Beecroft’s alleged reckless exercise of his
powers.
4 Property Law Act 2007, s 121(1)(b).
5 Ibid, s 121(3).
Background
[11] Havelock’s land had been in Mr King’s family since 1873 (“Havelock land”). It comprised a 399 hectare “home block” (“home block”) used for dairying and, approximately four kilometres away, a 242 hectare dry stock and “run off” block, referred to as “Long Valley”. Havelock or Mr and Mrs King also leased a small block of land adjacent to the Long Valley block, known as the “Meads block”.
[12] At all material times prior to June 2011, the registered proprietors of the land were Mr and Mrs King in their capacity as the trustees of the JR King Family Trust and the TFM King Family Trust respectively (“trustees” and “family trusts”). In the course of the transaction giving rise to this proceeding, the trustees transferred the land to Havelock. The trustees, and then Havelock, leased the land to the TFM & JR King Partnership (“partnership”), Mr and Mrs King being the partners in the partnership.
Wakanui
[13] The loan from PFL was obtained to repay indebtedness to ASB Bank Limited (“ASB”). The indebtedness to ASB arose from a venture that Mr and Mrs King and their three sons, Alaistair, Malcolm and Brendon, undertook in Wakanui, near Ashburton, between June 2008 and 2010. The circumstances surrounding this venture have some significance for factual issues which arise in this proceeding, so it is necessary to refer to some of the detail.
[14] In June 2008, Kingloch Holdings Limited (“Kingloch”), a company owned and controlled by Mr and Mrs King, purchased 525 hectares near Ashburton for approximately $21 million (“Wakanui land”). The Kings intended to convert the Wakanui land to a substantial dairy farming operation. ASB advanced funds for the acquisition and the costs of conversion. ASB’s loan was secured against the Wakanui land, and against Havelock’s.
[15] The Wakanui venture was unsuccessful. ASB appointed receivers in October 2010 and subsequently served demands and notices under s 119 PLA in respect of both the Wakanui and Havelock land.
[16] In February 2011, Kingloch and Mr and Mrs King sought an injunction to prevent the sale of the Wakanui land. That application was dismissed in March 2011 and the land was sold.6
[17] There remained a shortfall due to ASB of approximately $10 million following the sale. ASB proposed to sell the Havelock land to reduce the shortfall.
Mr Brough
[18] Mr and Mrs King engaged In-Sync Trustees Limited (“In-Sync”) and its principal, Mr Murray Brough, a mortgage broker, to assist them with refinancing the ASB debt. Negotiations between Mr Brough and Mr King, and ASB took place in April 2011, in the course of which ASB agreed to accept $3 million in full and final settlement of all sums due to it.
[19] Mr Brough then set about trying to raise finance and sent proposals for funding to various “second tier” lenders, including PFL. Mr Brough’s evidence, which I accept, was that there was no prospect of any trading bank lending to Mr and Mrs King given the default to ASB and the prevailing economic climate.
[20] PFL itself borrows funds from third parties associated with Mr Kirk and Mr Purchase, that is members of their extended families and friends. Mr Kirk and Mr Purchase are PFL’s sole directors. Both have a background and experience in the banking and finance industry.
PFL offer
[21] By letter dated 19 May 2011, PFL offered to lend $3.360 million to Mr and Mrs King for a term of 12 months. It was a term of the offer that, on drawdown, PFL would retain from the principal an amount equal to the interest due on the loan for the first five months (being $167,300) and that it would also retain its fees and those due to In-Sync. Following that five months, the borrower was to make
monthly payments of interest of $33,460.
6 King v ASB Bank Ltd HC Christchurch CIV-2011-409-304, 30 March 2011.
[22] The parties agreed some revisions to the offer. The principal sum was increased from $3.360 million to $3.385 million, and the amount to be retained on drawdown was reduced to an amount equal to three months’ interest. Mr Purchase’s evidence was that the effect of these changes was to provide (in round terms) a further $90,000 to the borrower as at the date of drawdown. The identity of the borrower also changed to Havelock, due to the restructuring to which I referred above.
[23] PFL’s offer was subject to PFL conducting a site inspection and other due
diligence. Mr Kirk and Mr Purchase visited the farm at the end of May or early June
2011. It is common ground that Mr King told them that the family had devoted most of its efforts to Wakanui but, with that behind them, were now fully focused on the Havelock operation.
[24] On 3 June 2011 PFL advised that the due diligence condition in the offer was satisfied. As matters transpired, however, Havelock did not draw down the loan until
29 July 2011.
[25] One of the acts that Mr and Mrs King contend was oppressive was the delay between the date of the offer and drawdown. I am satisfied, however, that the delay was caused by Mr and Mrs King and their advisers, and not by PFL. For instance, it was during this period that Mr and Mrs King entered into the restructuring of the land holding arrangements. It is also apparent from the contemporaneous documents that Mr and Mrs King did not supply an accurate or comprehensive list of their plant and equipment and that they began to reconsider whether they should proceed with the loan from PFL.
[26] Havelock’s registered office was at the offices of Ellis Law, Auckland. Mr Brian Ellis of that firm acted on the King side of the transaction, they having been introduced by Mr Brough. Havelock’s sole director was Mr Robert Campbell. Mr Campbell was/is a chartered accountant based in Nelson, had been Mr and
Mrs King’s accountant since 2005 and knew them and their affairs well.7
7 Brief of Evidence of RD Campbell dated 17 June 2013, at [3] – [5].
[27] The Kings had other creditors arising from the Wakanui venture. PGG Wrightson (“PGG”) were seeking payment of a debt of approximately
$434,000. PGG obtained summary judgment against Mr and Mrs King on or about
20 April 2011 and registered charging orders against the Havelock land. In or about May 2011 Waitaki Fuel Services Limited obtained judgment for more than $20,000. In July 2011, Rhodes & Co, solicitors, obtained judgment for more than $40,000. Mr Campbell’s firm was owed at least $35,000.
[28] Settlement of the PFL loan took place on 29 July 2011.
[29] PFL advanced $3.385 million to Havelock, of which PFL retained
$101,126.87 for payment of three months’ interest, and fees of $169,250 and
$37,500 which were to be paid to PFL and In-Sync respectively.8 Repayment was due on 10 June 2012. Interest was to be paid monthly in the sum of $33,708.96, the first such payment being due on 15 November 2011.
[30] The documents for the loan comprised:
(a) facility agreement (“agreement”) between PFL as lender, Havelock as
borrower and Mr and Mrs King and each of their sons as guarantors;
(b) first all obligations mortgages in favour of PFL registered against
Havelock’s land;
(c) guarantee and indemnity given by Mr and Mrs King and each of their sons in favour of PFL, with their sons’ liability limited to the assets of the family trusts;
(d)general security deeds between Havelock, Mr King, Mrs King and each of sons and PFL; and
8 Facility Agreement dated 29 July 2011, at CB 1.223.
(e) specific security deeds between Mr and Mrs King and PFL in respect of Fonterra shares, a water permit and livestock and plant and equipment.
Post settlement
[31] Settlement having taken place, Mr and Mrs King instructed In-Sync to continue to seek refinancing opportunities. Mr and Mrs King had little, if any, working capital and their principal source of income derived from milk supplied to Fonterra.
31 October 2011
[32] Fonterra paid for milk supplied on the 20th of the month but, as I have said, the monthly interest payments were due on the 15th. There was a meeting between Mr and Mrs King, Mr Blair Kirk and Mr Purchase at the farm on 31 October 2011. Mr Neil Kirk, Mr Blair Kirk’s father, was also present. At that meeting the parties discussed altering the date for interest payments to the 23rd of the month, given the date of the Fonterra payment. Mr and Mrs King allege that the representation referred to in [10](a) above, which PFL denies, was made at this meeting.
[33] Havelock did not pay interest on 15 or 23 November 2011.
PLA notice
[34] PFL served the PLA notice on Havelock on or about 29 November 2011. No issue arises as to service on Havelock but PFL was also required to serve Mr and Mrs King, which it did not. That omission has given rise to the claim referred to in [10](c) above.
[35] The PLA notice required Havelock to remedy its default “by no later than
20 working days from the date of service”. I raised with the parties whether the notice complied with s 120(1)(c) PLA, which requires that a mortgagor be given a period “not shorter than” 20 working days. Mr and Mrs King did not seek to pursue that point and, accordingly, I have proceeded on the basis that the notice was valid.
[36] Havelock or Mr and Mrs King paid $20,000 to PFL on 21 December 2011 and another $10,000 on 23 January 2012.
[37] On 18 January 2012, PFL’s solicitors emailed a copy of the PLA notice to Mr Ellis and copied that email to Mr King’s email address. The email said the entire loan was due, demanded payment from the guarantors and asked the guarantors to contact PFL directly. Mr King’s evidence is that this is when he first learned that PFL had served the PLA notice. He received a telephone call from his daughter-in- law, Ms Kelly Lopas, who had seen the email and he told her to send it to Mr Vinay Deobhakta. Mr Deobhakta is a former lawyer who was assisting Mr King.
Appointment of Mr Beecroft
[38] PFL appointed Mr Beecroft as receiver on 24 January 2012. Mr Beecroft’s evidence was that PFL first approached him regarding the possibility of his appointment as receiver prior to Christmas 2011. PFL had also engaged Mr Ewan Carr, an experienced dairy farmer, to advise them. Mr Carr familiarised himself with the Havelock land between 18 and 23 January 2012, by driving, cycling and walking the perimeter twice daily.
[39] Mr Beecroft arrived at the farm at about 8 am on 24 January 2012. Accompanying him were Messrs Grant and Khov from Waterstone Insolvency, Kirk and Purchase. Mr Carr and Mr Greg Roberts, another dairy farmer, were also present.
[40] Mr Beecroft required Mr and Mrs King and any of their sons in residence to leave the property. This they did, Mrs King having packed the household contents.
Decision to cease trading and destock the farm
[41] Mr Beecroft ceased trading, that is brought the farming operation to a halt, on
25 January 2012. The livestock, plant and equipment were relocated and sold. The Kings allege that in taking these actions Mr Beecroft breached duties imposed by ss 18 and 19 Receiverships Act.
Caveats
[42] On 1 February 2012 an associate of Mr and Mrs King’s, Elizabeth Mary Lambert, lodged caveats against the various Havelock titles pursuant to an agreement for sale and purchase between Havelock as vendor and Ms Lambert as purchaser and dated 27 January 2012. It transpired that Havelock had purported to sell the farm for $1. Ms Lambert then purported to grant a lease back to Mr and Mrs King. The caveats were registered against the titles, and only lapsed in March 2012 after Mr Beecroft had taken steps to have them removed.
[43] In February 2012, Mr Beecroft appointed PGG Wrightson Real Estate, Blenheim, to conduct the sale of the land by tender. Tenders closed on 30 March
2012. At the same time, Mr and Mrs King obtained the ex parte injunction referred to in [6] above.
[44] The home block was sold to Mr Roberts on 21 June 2012, that is the Mr Roberts who was part of the initial group assisting Mr Beecroft. Mr Roberts was also a witness in the trial. Long Valley was sold to a third party on or about
1 October 2012. The sale of the land was settled in late 2012, with the exception of land known as the “quarry block” which has not yet been sold.
Factual issues
[45] There were clear differences between the parties on two important factual issues. It is appropriate that I record my findings on these at the outset.
Late calving cows
[46] The parties are agreed that, as at the date of receivership, 184 cows were being milked and that a further 27 cows were in what was referred to as the “colostrum mob”. Mr Carr’s evidence is that the total number of dairy cows on the Kings’ property, whether being milked or not, was 244.
[47] Mr King’s evidence at trial was that, in addition to those cows, there was a herd of late calving “winter milking” cows. The existence of this alleged herd was relevant to the causes of action against Mr Beecroft under ss 18 and 19
Receiverships Act, and to the calculation of loss carried out by Mr Beal to whom I refer below. The evidence for Mr and Mrs King was that, after calving, these cows would come into production and increase the farm’s milk production and therefore income. Although Mr and Mrs King did not themselves have a contract to supply milk to Fonterra during the winter, their neighbour, Mr John Wratt, did have such a contract. Mr King’s evidence was that he envisaged this milk might be supplied to Fonterra under Mr Wratt’s contract.
[48] Mr and Mrs King’s case was that the herd was taken away after the receivership commenced and that Mr Beecroft had not accounted for it. Most, if not all, of the dairy stock that Mr Beecroft did relocate was transported by Heagney Brothers Limited (“HBL”), a local trucking firm. There was no record of HBL transporting the herd that Mr King alleged existed. In support of their case on this point, Mr and Mrs King called Mr Kelvin Slape, who was leasing a house near Long Valley at the relevant time. Mr Slape’s evidence was that he had seen two modern trucks in the vicinity of Long Valley and that these trucks were not sporting the livery of HBL or of any other local firm. The suggestion was that the missing herd had been taken away in these trucks.
[49] The Defendants denied that there was any herd of late calving cows. Their evidence was that they mustered the home block and Long Valley several times and did not locate any such herd.
[50] The Defendants drew my attention to inconsistencies in Mr King’s evidence as to the number of late calving cows. In an affidavit sworn on 16 April 2012, Mr King put the number at 50.9 In his brief of evidence for the trial, Mr King said it was approximately 100,10 in another part of the brief it was 11511 and in another
part it was 142.12 In another part of the brief,13 Mr King referred to 80 late calving
cows.
9 Affidavit of TFM King sworn 16 April 2012, at [33].
10 Brief of Evidence of TFM King dated 10 June 2013, at [90].
11 Ibid, at [173.2(b)].
12.Ibid, at [225].13 Ibid, at [241.1].
[51] The Defendants also referred to Mr King’s failure to mention any possibility of winter milking in any of the affidavits that he had sworn in support of the Plaintiffs’ application for interim relief.
[52] There was also an absence of any contemporaneous record of the late calving cows, such as veterinary records or pregnancy testing results.
[53] Taking all of these matters into account, I am not satisfied that any herd of late calving cows existed.
Communications to Mr and Mrs King
[54] The issue of whether Mr and Mrs King knew that the PLA notice had been served on Havelock was important in the context of their claim against PFL pursuant to s 121(3) PLA. There can be no dispute that Mr Ellis emailed and faxed a copy of the PLA notice to Mr and Mrs King on the day it was served, on 29 November 2011. Despite this, Mr and Mrs King denied knowing that a PLA notice had been served at any time prior to 18 January 2012. In this regard, their evidence was that neither email nor fax could be relied upon for communications with them. Mr King’s evidence was that he is computer illiterate, Mrs King only marginally better and that, in any event, they have a slow and intermittent “dial up” internet connection. Mr King’s evidence was they acquired an email address many years ago at Fonterra’s insistence but that even Fonterra had abandoned seeking to communicate by email with farmers in the district. Their evidence was that they relied on their sons, who had access to their email account, to let them know of anything of consequence that had been emailed to them.
[55] As for fax, Mr King’s evidence was that their fax machine used the same line as the telephone and that someone had to feed paper into the machine if a fax was to be received.
[56] Mobile phone coverage too was said to be notoriously poor. A telephone call to Mr King’s cellphone when he is outside is likely to be inaudible given the wind, noise from the milking shed and so on.
[57] In support of this evidence, Mr and Mrs King called evidence from Mr Lee Harper. Mr Harper is a specialist in the provision of computer and IT services and works in the Marlborough region. In his evidence, Mr Harper stated that many locations in the Havelock area are without effective broadband coverage and that dial up internet connections can be unreliable due to electrical interference,
arising from, for instance, electric fencing.14
[58] I accept that the location of the farm and the Kings’ fax machine may have made email and fax communications difficult. I consider, however, that Mr King grossly exaggerated the difficulties. Mr Ellis and Mr Brough regularly used email and fax to communicate with Mr King. That they continued to email and fax documents to Mr and Mrs King suggests that they had not previously had any real difficulty in doing so. For instance, on 14 December 2011 Mr Ellis emailed and faxed Mr King a draft letter to the solicitors for PGG Wrightson and the heading was “re: PGW v King – ok Tom?”. A handwritten note on the document suggests that
Mr King had approved the letter.15
[59] Another email from Mr Ellis to Mr King dated 17 December 2011 forwarded email correspondence from the solicitors acting for Waitaki Fuel Services.16 Another from Ellis Law to Mr King dated 19 December 2011 had the subject line “email as requested”.17 Also in evidence were emails from associates of Mr and Mrs King, namely Ms Lambert, Mr Deobhakta and Mr Crafar.18
[60] This evidence leads me to believe that Mr and Mrs King received and read emails and faxes that were sent to them at about the time they were sent.
Credibility – Mr King
[61] Mr King was the principal witness of fact for Mr and Mrs King.
14 Brief of Evidence of LJ Harper dated 14 June 2013, Exhibit “A”.
15 Email B Ellis to T King with handwritten note dated 14 February 2011, at CB 3.105.
16 Emails B Ellis to T King and B Ellis to Wrigley Law dated 17 December 2011, at CB 3.112.
17 Emails Ellis Law to T King dated 19 December 2011, at CB 3.114.
18 Emails V Deobhakta to B Kirk; V Deobhakta to T King dated 19 and 20 January 2012, at CB 3.193; Email L Lambert to C Beecroft cc T King dated 2 February 2012, at CB 3.300; Emails C Beecroft to L Lambert, L Lambert to C Beecroft cc T King dated 2 February 2012, at CB 3.301; and Emails A Crafar to B Ellis, A Crafar to T King dated 7 and 8 February 2012, at CB 3.303.
[62] I did not consider Mr King a credible witness, for the following reasons.
[63] First, I was concerned by the allegation of the late calving herd and the very different numbers of cows said to be in that herd, which evidence Mr King gave under oath.
[64] Secondly, I was concerned at Mr King’s denial of receipt of the PLA notice on or about 29 November 2011, on the basis of difficulties in communications to which I have already referred. As I have said, I consider those difficulties were exaggerated.
[65] Thirdly, the Defendants subpoenaed Mr Matthew Harrington to give evidence. Mr Harrington was formerly an ASB rural manager, and in that role had represented the bank in dealings with Mr and Mrs King, and their sons, in respect of the Wakanui venture.
[66] Mr Harrington’s evidence was that in the course of legal proceedings in connection with the ASB’s recovery procedures, Mr King and/or his son Alaistair, had altered or fabricated correspondence and a budget passing between ASB had Mr and Mrs King. Counsel for the Defendants took Mr Harrington through four documents annexed to the affidavits for the Kings and which Mr Harrington said were different from those exchanged at the time. Although Mr King and Alaistair denied this, I am satisfied that Mr Harrington’s evidence was correct. For instance, Mr Harrington’s evidence was that it was his practice to show the day a letter was sent with the appropriate suffix as in ”1st”, “2nd” or “3rd”. None of the letters to which Mr Harrington referred recorded the date in that way. In addition, some parts of letters were written in different fonts. Mr Harrington was adamant that the documents included language that he, as a banker, would never use in a letter to a customer and that frequently his signature appeared to be an exact replica of a letter he had signed. Mr Harrington’s evidence was that his signature varies from day to
day.19
19 Notes of Evidence, at 785 – 789.
[67] Fourthly, the “sham” transaction with Ms Lambert should not have been undertaken. It was plainly an attempt to disrupt the receivership and the sale process. I also consider it regrettable that Mr and Mrs King withdrew $19,890 from their partnership account with the ANZ at Blenheim.
[68] Fifthly, important information that was supplied for provision to potential lenders was inaccurate and must have been known to be so at the time. For example on 14 September 2011 Alaistair King sent an email from Mr King’s email address to Mr Brough listing production of milk solids between 2006 and 2010.20 The production figures for 2006/2007 and 2007/2008 were advised to be 81,000 and
91,500 respectively. In fact, the actual figures (supplied by Fonterra) were 62,600 and 53,600. The explanation given for these discrepancies was that the figures were estimates and included milk that was produced and not supplied to Fonterra but used on the farm. I do not accept that evidence.
[69] Sixthly, when giving evidence Mr King appeared reluctant to give a straight forward answer to a straight forward question. The following is just one example:21
Q. ... Can you look please at 3.332. That’s 10 days later and again Heimsath Alexander are chasing for a date so that they can calculate, for your side, exactly how much would be required to refinance, correct?
A. Correct, yes.
Q. Was that information ever provided to them?
A. Yes that is at, what we were asking. Proposed refinance, which I was trying to get a figure on so I rang Blair Kirk and wanted to discuss it of him because I wanted to see what the figure was going to be and just wherever something could be arranged but I was told I wasn’t to talk to him, so that was the end of that. And what I was trying to achieve is a date that we could have some figures on because I’d also been told by Mr Ellis, on his return from wherever he’d been, that the legal fees and the cost of the receivership was something, was a moving target because what they wanted to know was and what the question was put to me, or the reason was put to me was, he didn’t know how much stock and plant had been sold at the time of the receivership because items were sold immediately and we were, he was asking to get an update as to what we could proceed with; no figures came back to us, we didn’t, that figure was,
20 Email to M Brough/In-Sync with 5 years’ production figures dated 14 September 2011, at
CB 3.020.
21 Notes of Evidence, at 470.
you previously mentioned Mr Quinn is the one that owed the PFL but we couldn’t get out of him, the figure for the what had been accredited to our outfit, to our dairy operation, we didn’t know.
[70] All of these matters have led me to doubt Mr King’s evidence on any matter in dispute.
[71] On the whole, I found Mr Purchase, Mr Kirk and Mr Beecroft reliable witnesses for the Defendants. I considered Mr Carr and Mr Roberts to be excellent witnesses. Their answers were to the point and both were knowledgeable in their fields.
Claim for loss
[72] Mr Glenn Beal, an accountant, gave evidence for Mr and Mrs King as to losses said to have been sustained as a result of the receivership and alleged breaches of duty by PFL and Mr Beecroft. As matters have transpired, it has not been necessary for me to address the claim as to loss in this judgment. That said, I record my concerns as to two aspects of Mr Beal’s evidence.
[73] First, the evidence assumed the existence of the late calving cows and the milk production contribution that they would make.
[74] Secondly, the milk production figures per cow did not reflect the performance of the farm in any recent year. The production figures in Mr Beal’s model were substantially higher. The weight of Mr Beal’s evidence would have been very much diminished by those two factors alone, had it been necessary for me to consider the matter of loss.
Section 9 Fair Trading Act 1986
[75] Mr and Mrs King’s cause of action for breach of s 9 FTA concerns the representation said to have been made by Mr Kirk and/or Mr Purchase at a meeting
on 31 October 2011, as follows:22
22 Fifth Amended Statement of Claim dated 20 May 2013, at [45](a).
[45] The First Defendant, through its directors/principals, made the representation to Mr Tom King on 31 October 2011 that:
(a) The first defendant would not require the November and December monthly interest payments to be fully met, as long as all outstanding interest was paid up by the end of January
2012.
[76] Mr and Mrs King allege that the representation was false, misleading and/or deceptive and in breach of s 9 FTA, giving rise to a right to relief under s 43(2) FTA.
[77] Section 9 provides:
9 Misleading and deceptive conduct generally
No person shall, in trade, engage in conduct that is misleading or deceptive or is likely to mislead or deceive.
[78] There is no dispute that at all material times PFL was in trade. The issues which arise are whether the representation was made and, if so, what relief if any should be ordered.
Discussion
[79] I am not satisfied that the alleged representation was made. The relevant evidence, and my view of it, is as follows.
[80] In about mid October 2011 Mr Brough advised PFL that Mr and Mrs King were seeking an advance for working capital. Mr King disputes that he asked Mr Brough to make that approach. Regardless, by letter dated 25 October 2011, PFL offered to advance a further $150,000, subject to an inspection of the farm.
[81] Mr Purchase, Mr Kirk and Mr Neil Kirk met Mr and Mrs King at the Havelock farm on 31 October 2011. Mr Purchase and Mr Kirk value Mr Neil Kirk’s advice on farming matters, hence his presence.
[82] Mr King’s evidence was that he proposed that, instead of taking a further
loan, PFL defer interest payments and that he would “catch up with my interest
payments after Christmas”,23 that Mr Neil Kirk thought this was “pretty fair” and
that the parties then went on to discuss the timing of the interest payments.24
[83] Mr King’s further evidence was that he and Mr Kirk spoke outside later in the day. Mr King’s evidence was that, instead of paying the full amount of interest each month, he proposed that they would pay what they could and that they would spend some of the money freed up as a result to increase production and to start construction of a bridge that was required to comply with an abatement notice that
had been served.25 Mr King’s evidence is that Mr Kirk said that “PFL were there to
help and my proposal sounded fair enough”.26
[84] It is common ground that the parties did discuss varying the due date for interest payments under the facility from the 15th to the 23rd of the month, as Fonterra paid for milk production on the 20th. PFL was willing to vary the due date and, in fact, their solicitors took up that point later in November 2011, although ultimately no change was made.
[85] Mr Kirk and Mr Purchase were adamant, however, that there was no discussion of deferral of interest payments to January 2012, let alone agreement reached to that effect. Their evidence, which I accept, was that no such discussion ever took place.
[86] Mr Kirk denies going outside with Mr King. Both he and Mr Purchase said that neither would have agreed to such an arrangement without first consulting the other. They also said that they would have documented any such agreement immediately. I accept that evidence. Mr Purchase and Mr Kirk are long standing and close business partners and, on the evidence before me, it was their practice to document matters promptly.
[87] Not only did Mr Purchase and Mr Kirk deny the arrangement, they were concerned by the state of the farm during this visit and by Mr King’s demeanour
23 Brief of Evidence of TFM King, above n 13, at [102].
24 Ibid.
25 Ibid, at [112].26 Ibid, at [113].
which they said had changed from their meeting in May/ June 2011. Mr Purchase’s evidence was that Mr King said he was “sick of finance companies” and that he was a “close friend of the Crafars” (who at that time were embroiled in litigation with receivers), and that he, Mr King, would make things “difficult for PFL” in the event of dispute, including “things going missing”. Mr Purchase took that to be a reference to items of plant and equipment which were security for the loan.
[88] These matters led PFL to make a revised offer, on 1 November 2011, of an advance of $65,000, on condition that the funds be paid directly to a fertiliser supplier. That offer was not accepted.
[89] I prefer Mr Kirk and Mr Purchase’s evidence as to the events that day to Mr King’s. They had a clear recollection of the meeting. I also consider it inherently improbable that a lender would say “we are here to help” or words to that effect. As Mr Kirk and Mr Purchase said, there was no advantage to PFL in delaying receipt of interest payments. Mr King’s evidence is also inconsistent with the revised offer of working capital that PFL sent after the meeting. The offer would have been unnecessary if PFL had agreed to forego interest payments so as to allow Mr and Mrs King to apply funds towards working capital.
[90] I dismiss this cause of action accordingly.
Credit Contracts and Consumer Finance Act 2003
[91] Mr and Mrs King plead that particular terms of the loan and the manner in which PFL exercised its powers under the loan and security documents were oppressive within the meaning of s 118 CCCFA and that, as a result, the Court may reopen the transaction pursuant to s 120 CCCFA. There is no dispute that the facility agreement and security documents to which I have referred constituted a credit contract within the meaning of s 7(1) CCCFA.
[92] For the reasons given below, I am not satisfied that any of the matters relied upon by Mr and Mrs King are “oppressive” having regard to all the relevant circumstances.27
[93] The circumstances or events alleged to be oppressive are as follows:28
(a) The delay between 9 June 2011 and the draw down on 29 July 2011 reduced the available time to address pasture fertilization;
(b) There were no funds available following drawdown and payment of fees, for the first plaintiffs to spend on pasture fertilization;
(c) Failed to serve any written demand on the Plaintiffs or on the guarantors in terms of the loan facility until 18 January 2012 (and then only did so by email), when the time required to remedy the default specified in the PLA Notice had already expired;
(d) Failed to serve demand on any of the guarantors in terms of the service provisions of the guarantee and indemnity;
(e) Failed to serve the PLA Notice on the guarantors;
(f) Otherwise failed either in writing or in any oral communications to draw the PLA Notice to the attention of the Plaintiffs or to the attention of the other guarantors;
(h) By words or conduct of Mr Kirk on or about 19 January 2012, to Mr Vinay [Deobhakta], Mr Kirk did not indicate that there was any urgency to cure the then default.
(i) Participated in the planning and implementation of the enforcement by the Second Defendant of the securities including the removal of all livestock and equipment from the Forebank Farm, thus removing the Plaintiffs’ ability to pay to interest payments, or refinance, the loan facility; and
(j) Failed to provide the Plaintiffs and the guarantors with any meaningful opportunity to remedy the claimed default before taking action to appoint the Second Defendant as receiver;
(k) Conducted the receivership in a way that prevented the plaintiffs from remedying the default.
[94] In their closing submissions, Mr and Mrs King sought also to rely on the alleged agreement of 31 October 2011 and PFL’s actions in proceeding to enforce, notwithstanding that agreement. It is unnecessary for me to consider this point given
my finding that no such agreement was reached.
27 Credit Contracts and Consumer Finance Act 2003, s 124(a).
28 Fifth Amended Statement of Claim, above n 25, at [35].
[95] Section 120 CCCFA permits the Court to reopen a credit contract in the following circumstances:
120Reopening of credit contracts, consumer leases, and buy-back transactions
The Court may reopen a credit contract, ... if, in any proceedings ... it considers that—
(a) the contract, lease, or transaction is oppressive; or
(b) a party has exercised, or intends to exercise, a right or power conferred by the contract, lease, or transaction in an oppressive manner; or
(c) ...
[96] Section 118 CCCFA defines oppressive as follows:
118 Meaning of oppressive
In this Act, oppressive means oppressive, harsh, unjustly burdensome, unconscionable, or in breach of reasonable standards of commercial practice.
[97] With respect to Mr and Mrs King, I do not consider that the matters pleaded come close to establishing a case of oppression.
(a) I have already found that the delay between 9 June 2011 and 29 July
2011 was caused by Mr and Mrs King.
(b) There was a small surplus of funds available following drawdown.
The lack of funds post drawdown should not have been a surprise to Mr and Mrs King. They took legal advice and the fees were set out in PFL’s offer. It was open to Mr and Mrs King to seek to renegotiate the terms of the loan or to decline the offer.
(c) For reasons given below, I am satisfied that Mr and Mrs King were
not prejudiced by PFL’s failure to serve a copy of the s 119 notice.
(d)I do not consider that Mr Kirk was required to indicate any urgency to Mr Deobhakta (assuming that he did not). The PLA notice spoke for itself, Mr and Mrs King had previous experience of a lender serving
an s 119 notice, the conversation with Mr Ellis to which I refer below must have made it clear to Mr and Mrs King that the situation was urgent, and Mr Deobhakta is a former solicitor.
[98] The remaining matters on which the Kings rely go to the implementation and conduct of the receivership. In the circumstances of this case, to which I must have regard, I do not consider there can be any criticism of PFL for appointing a receiver when they did.29 Havelock had defaulted on its first interest payment. There had been no prior notice to PFL that it was going to do so. By 24 January 2012 Havelock had paid only $30,000 towards an interest obligation of more than $100,000 (November and December 2011 and January 2012), leaving aside default interest. Neither Mr and Mrs King, nor Mr Campbell nor Mr Ellis had addressed the matter
with PFL despite PFL’s repeated attempts to communicate about the matter.
[99] I am satisfied that there is no merit in this cause of action and I dismiss it accordingly.
Section 121(3) Property Law Act 2007
[100] Section 121(1)(b) PLA required PFL as mortgagee to serve a copy of its notice under s 119 on Mr and Mrs King as covenantors. Section 121 provides:
121Copy of notice under section 119 must be served on former mortgagor, covenantor, subsequent mortgagee, and caveator
(1) A copy of the notice served under section 119 must, as soon as possible, be served (whether by the mortgagee or receiver) on the following persons if either the mortgagee or receiver has actual notice of the name and address of the person:
(a) ...
(b) any covenantor: (c) ...
(2) A failure to comply with this section does not prevent—
(a) any amounts secured by the mortgage from becoming payable; or
29 Credit Contracts and Consumer Finance Act 2003, s 124(a).
(b) the exercise of the mortgagee's power to enter into possession of the mortgaged land; or
(c) the exercise of the receiver's power to manage the mortgaged land or demand and recover income from it; or
(d) the exercise of the mortgagee's or receiver's power to sell the mortgaged land.
(3) However, if there is a failure to comply with this section, the mortgagee is liable in damages for any loss arising from that failure.
[101] The issues which arise are whether PFL complied with its obligations and, if not, whether any loss arose from that failure and if so in what amount. For the reasons set out below, I consider that PFL did not serve the notice as required. On the face of it, Mr and Mrs King are entitled to bring a claim under s 121(3). I am also satisfied, however, that Mr and Mrs King were informed of service promptly and that no loss arose as a result of PFL’s failure to serve.
Service
[102] Section 121(1) requires a mortgagee to serve a copy of their PLA notice only if that mortgagee has “actual notice of the ... address” of the person to be served. No argument was made that those words are intended to require service to be effected at the said address. Accordingly, I have proceeded on the basis that those words identify the parties required to be served, but no more than that.
Sections 352 and 353 Property Law Act 2007
[103] I accept PFL’s submission that the copy notice required to be served by s 121(1)(b), is not required to be served in accordance with ss 352 and 353, but with s 354. Sections 352 and 353 provide:
352 Documents to which section 353 applies
Section 353 applies to a notice, cross-notice, or other document required or authorised to be given to, or served on, a person by any of the following sections:
...
(c) sections 119, 122, 128, and 132 (intention of mortgagee of land or goods to exercise power of sale, power to enter into possession, or
right to call up mortgage amounts under an acceleration clause, including a notice to covenantor):
...
353 How documents in section 352 to be given or served
(1) A document to which this section applies (see section 352) is not adequately given or served unless it is given to, or served on,—
(a) an individual person in a manner provided for in section
359:
...
[104] Section 353(c) does not refer to a copy notice to be served under s 121(1). I consider the reference to a “notice to a covenantor” to be a reference to the notice to covenantor required by ss 122(2) and 132(2) PLA.
Section 354 Property Law Act 2007
[105] If service is not governed by s 353, it is common ground that it is governed by s 354 which provides:
354 How other documents to be given or served
(1) This section applies to a notice or other document—
(a) required or authorised to be given to, or served on, a person by this Act; but
(b) that is not a document to which section 353 applies (see
section 352).
(2) A notice or other document to which this section applies is adequately given or served when it is given to, or served on, that person in accordance with section 353(1).
(3) Subsection (2) does not apply if it has been agreed that the notice or other document must be given or served in some other manner.
(4) ...
[106] PFL submits that cl 11.5 of the (facility) agreement (“cl 11.5”) constitutes an agreement that the document “must be served in some other manner” for the purposes of s 354(3), that it was so served and accordingly there was no lack of compliance for the purposes of s 121(3). Although s 354(3) does not say so
expressly, its import is that if such agreement has been reached, service should be effected in that manner.
[107] I am not able to construe cl 11.5 as PFL submits. Clause 11.5 provides:30
11.5 Service of Process
(a) Each Borrower and Guarantor irrevocably appoints the registered office of the Borrower as its registered office for the time being in New Zealand to receive, for it and on its behalf, service of process in any Proceedings in New Zealand and any notices under sections 119 and 121 of the Property Law Act 2007. Such service shall be deemed completed on delivery to the Borrower (whether or not forwarded to and received by the appointing Borrower or Guarantor).
(b) Nothing in this clause 11.4(e) shall affect the right to serve process in any other manner permitted by law.
[108] There is no cl 11.4(e) in the agreement. Presumably the reference to cl 11.4(e) should be to cl 11.5(a).
[109] Counsel for Mr and Mrs King submitted that cl 11.5(a) cannot be construed
as an “agreement” for the purposes of s 354(3) because:
(a) clause 11.5(a) could apply to a corporate guarantor only – an individual does not have a registered office;
(b) in any event, cl 11.5(a) permits service at Havelock’s registered office
but it does not make such service mandatory, as s 354(3) requires;
(c) the permissive nature of cl 11.5 is apparent from cl 11.5(b) and other clauses in the agreement concerned with the delivery and/or service of notices.31
[110] I accept the submissions in [109](b) and [109](c) particularly. I consider PFL
was required to effect service in accordance with s 354(2), and so in accordance with s 359(1).
30 Facility Agreement, above n 10, at CB 1.247.
31 Ibid, CB 1.246.
Section 123 PLA
[111] There is another possible argument against construing cl 11.5 as PFL
proposes. Section 123 PLA provides:
123 Instruments have no effect so far as they conflict with section
119, 120, 121, or 122
A term has no effect if it—
(a) is expressed or implied in an instrument; and
(b) conflicts with section 119, 120, 121, or 122.
[112] It is arguable at least that a provision which provides for service on a covenantor by service on the borrower might be ineffective as being in conflict with s 121.
Section 359 Property Law Act 2007
[113] Service under s 359(1) requires delivery by registered post to the person or their agent32 or by the person’s receipt in accordance with s 360.33 PFL submitted that Mr Ellis’s sending a copy to Mr and Mrs King by email and fax (referred to below) constituted receipt by Mr and Mrs King for the purposes of s 360(c).
[114] Section 360 provides:
360 Receipt for purposes of section 359
A notice, cross-notice, or other document is received by a person for the purposes of section 359 when—
...
(c) it is otherwise received in writing by that person.
[115] I do not accept this submission. Section 121 provides for service by the mortgagee or receiver. I do not consider onward transmission from a person in the mortgagor’s registered office constitutes service “by the mortgagee” for the purpose
of s 121.
32 Property Law Act 2007, s 359(1)(a).
33 Ibid, s 359(1)(b).
[116] To summarise, I consider that PFL was required to serve in accordance with s 354(2) and therefore s 359, that it failed to do so, and that the first limb of s 121(3) is satisfied.
Whether any loss arose from PFL’s failure to comply with s 121(1) PLA
[117] Mr and Mrs King’s case is that they suffered a loss arising from PFL’s failure to comply with s 121(1) PLA. Their case is that had PFL served them with a copy of the PLA notice, they would have ensured that Havelock remedied its default; and that this would have avoided PFL’s appointment of the receiver and the loss they contend they suffered as a result of that appointment.
[118] PFL’s defence to this cause of action is twofold.
[119] First, it says that Mr and Mrs King knew that PFL had served notice under s 119 on Havelock and knew that PFL was entitled to appoint a receiver if the default were not remedied. Accordingly, any loss suffered did not arise as a result of non-compliance.
[120] Secondly, and alternatively, PFL contends that Mr and Mrs King did not suffer any loss as a result of non-compliance.
Discussion
[121] I accept PFL’s submission that any loss that Mr and Mrs King suffered did not arise from PFL’s failure to comply with s 121(1). The evidence is that by early December 2011 at the latest Mr and Mrs King knew that PFL had served the PLA notice.
[122] Mr Purchase began pursuing the overdue interest payment on 25 November
2011. He telephoned the Kings’ landline on 25 November 2011, left a message referring to the unpaid interest and asked for his call to be returned. Mr Purchase made a note of this telephone call and his cellphone records show a call to the Kings’ landline shortly after 9 am that morning.
[123] Mr Purchase also sent an email to the Kings shortly after 10 am that morning
with the subject line “Unpaid Interest” and asked Mr King to call him or Mr Kirk.34
At the same time Mr Purchase sent an email to Mr Brough informing him that the interest payment had not been made and saying that the Kings were not returning his telephone calls.
[124] Mr Purchase telephoned the Kings’ landline again on 28 November 2011. His evidence is that he spoke to Mrs King, that she apologised for the failure to pay, said that her son would pay the interest online that day and that Mr Purchase asked that Mr King call him. Mr Purchase made a file note of the conversation but his evidence is that Mr King did not telephone him.
[125] Mrs King acknowledged this conversation but said that it was limited to Mr Purchase asking that Mr King telephone him. I accept Mrs King’s evidence that the Kings were not (and are not) registered for online banking so how that confusion arose I do not know.35
[126] Mr King’s evidence was that he tried to telephone Mr Purchase more than once, that he could not get through, that he left a message on Mr Purchase’s voicemail and heard nothing further.36 I cannot accept this evidence. I am satisfied that Mr Purchase would have responded to any such message. It is apparent from the contemporaneous documents that Mr Purchase was pursuing payment as a matter of urgency.
[127] Mr Brough’s evidence was that he telephoned the Kings’ landline three times on 28 November 2011. These calls are shown in Mr Brough’s cellphone records. Mr Brough’s evidence was that he told Mr King that PFL would issue a PLA notice if the default were not rectified immediately, and that Mr King told him the default could not be remedied because any available funds would have to be paid to another
creditor.
34 Email M Purchase to T King dated 25 November 2011, at CB 3.074.1
35 Letter from ANZ dated 31 July 2012, at CB 4.113.
36 Brief of Evidence of TFM King, above n 13, at [128].
Ellis documents
[128] PFL also relies on evidence of communications between Mr Ellis and Mr King on 29 November 2011. These comprise an email dated 29 November 2011 (“email”), a fax of that email sent the same day, and a handwritten note made by Mr Ellis of what appears to be a telephone conversation he had with Mr King, also on 29 November 2011. Mr Ellis’s telephone records show a nine minute telephone call to the Kings’ landline at approximately 5.20 pm on 29 November 2011, some
45 minutes or so after the PLA notice was served.
Waiver of privilege
[129] An issue arose at trial as to whether these documents were admissible, that is whether they were privileged communications between a solicitor and client. For the following reasons I considered that, by the time of trial, Mr and Mrs King had waived any privilege that they might have had in the documents.
Disclosure
[130] First, the email was disclosed to the Defendants as early as April 2012. Mr Ellis sent a copy of it to Mr Brough, Mr Brough sent it to PFL and PFL relied on it when seeking to set aside the Plaintiffs’ injunction. Both the High Court and the Court of Appeal judgments quote the email in full. Both Courts clearly regarded the email as the end of any suggestion by Mr and Mrs King that they did not know the PLA notice had been served. I agree.
[131] The email reads:37
Dear Tom
How did you get on with UDC today?
Notwithstanding a request to PFL regarding the interest payment, it all fell on deaf ears. Please see enclosed a Property Law Act Notice just received.
As you will see you are required to pay the interest at $33,708.96 and costs of $1,100.00 within 20 working days otherwise PFL will have the right to take matters further including calling for a mortgagee sale. Even though you
37 Email B Ellis to T King dated 29 November 2011, at CB 3.080.
have 20 working days to make the payment you would be well advised to pay it as soon as possible.
I will shortly send to you a stroppy email from the solicitors for PGG Wrightsons. They want payment in full within the next few days otherwise
…!
[132] The fax of the email and the file note of the telephone call were disclosed shortly before the (proposed) October 2012 trial date. The Plaintiffs served a signed brief of Mr King’s evidence in which he said:38
8.1I know now, but I did not know at the time that a notice under s 119 of the [PLA] was served on Brian Ellis’ offices on 29 November as registered office of the company. ...
8.2I had a meeting with Brian Ellis in early August 2012 and he took me through his file and he showed me those documents ... and also a file note he made of a conversation he had with me in respect of the notice. I accept that it appears from his records he must have had a discussion with me. If I had spoken to Brian Ellis the first thing I would have said was “put it in the post to me” (I don’t use email myself). I am busy so why didn’t he post it. He always posts his “client engagement” letters to us, which he must regard as important, so if he received a PLA notice he should have posted that.
8.3Anyway I have no recall of this. I accept that the document appears to have been sent by Brian Ellis to our email address and fax. However I didn’t actually see the Notice until after 24 January 2012.
[133] The Plaintiffs’ solicitors subsequently supplied copies of the email (which PFL already had), and the fax and file note to which Mr King referred. The transmission records for the fax show that it was sent to Mr and Mrs King’s fax number at 5.10 pm on 29 November 2011, together with another four pages. It is a fair assumption that those four pages included the PLA notice.
[134] The Plaintiffs had already disclosed Mr Ellis’s telephone records in Part 1 of
their list of documents.39 It is inconceivable that Mr Ellis would not have discussed service of the PLA notice during the nine minute telephone call at 5.20 pm on
38 Brief of Evidence of TFM King dated 11 September 2012, at [8.1] – [8.3].
39 B Ellis Phone Records Callista and Telecom, at CB 4.191.
29 November 2011. Mr Ellis’s handwritten file note confirms that and reads:40
29/11/11 5.15 pm
Tom
Just getting emails from
me – Valuer coming tomorrow –
Will get it done.
Went over PLA & PFL Genl discuss
[135] Given these disclosures and the contents of the documents, I was satisfied that any privilege that may have existed had been waived, and that Mr and Mrs King were informed of service of the PLA notice on 29 November 2011.
[136] The Defendants also sought to call Mr Ellis to give evidence of his discussions with Mr and Mrs King. I upheld the objection of counsel for Mr and Mrs King that such evidence continued to be privileged.
Other evidence
[137] Aside from the documents to which I have referred, PFL also relied on evidence from Mr Campbell. Mr Purchase and Mr Campbell were in regular communication in December 2011 regarding the interest payment that was due. Mr Campbell’s evidence is that he told Mr King on 2 December 2011 that payments would need to be brought up to date to avoid PFL taking action. Mr Campbell’s recollection was that Mr King “was not too perturbed about it”.
[138] As I have said, Mr and Mrs Kings’ evidence is that they learned of the PLA notice on 18 January 2012. They did not, however, communicate with PFL immediately and ask for more time. A guarantor who is taken by surprise and/or who expects to be able to rectify the default would contact the creditor immediately. Mr and Mrs King’s experience with ASB would also have alerted them to the need to
act quickly.
40 File Note B Ellis dated 29 November 2011, at CB 3.086.
[139] I am satisfied on all of this evidence that this cause of action cannot succeed. Any loss that Mr and Mrs King may have suffered was not caused by PFL’s failure to comply with s 121(1).
PFL’s responsibility for the actions of the Second Defendant
[140] By this cause of action, Mr and Mrs King allege that: PFL intervened in, and/or directed, the conduct of the receivership; failed to intervene (sic) despite knowledge that Mr Beecroft breached the duties pleaded in the statement of claim; and that PFL appointed the Second Defendant for improper purposes.
[141] I am satisfied that PFL appointed Mr Beecroft for a proper purpose, namely the recovery of the debt which had become due when Havelock defaulted on its obligation to pay interest on 15 November 2011. I am satisfied that PFL did not intervene in the receivership or direct its conduct. For the reasons set out below, I am also satisfied that Mr Beecroft did not breach the duties pleaded in the statement of claim.
Failure to exercise powers in accordance with duties pursuant to s 18 Receiverships
Act 1993
[142] I turn now to consider the causes of action brought against Mr Beecroft.
[143] The first is brought under s 18(1) Receiverships Act. Mr and Mrs King plead that:41
37. At all material times the receiver owed duties to the plaintiffs to:
(a) Exercise his powers in good faith and for a proper purpose; (b) To the extent consistent with the duties expressed in s18(1)
and (2) of the Receiverships Act 1993, exercise his powers
with reasonable regard to the interests of the plaintiffs;
(c) Not charge excessive and unreasonable fees.
(“the second defendant’s duties”).
[144] The matter of fees is addressed below.
41 Fifth Amended Statement of Claim, above n 25, at [37].
[145] The duties pleaded [37](a) and (b) of the statement of claim derive from ss 18(1) and (3) Receiverships Act. There is no dispute that they were owed. The issues that require determination are whether Mr Beecroft breached either or both and, if so, what loss was caused by that breach.
[146] Section 18 provides:
18 General duties of receivers
(1) A receiver must exercise his or her powers in good faith and for a proper purpose.
(2) A receiver must exercise his or her powers in a manner he or she believes on reasonable grounds to be in the best interests of the person in whose interests he or she was appointed.
(3) To the extent consistent with subsections (1) and (2) of this section, a receiver must exercise his or her powers with reasonable regard to the interests of—
(a) The grantor; and
(b) Persons claiming, through the grantor, interests in the property in receivership; and
(c) Unsecured creditors of the grantor; and
(d) Sureties who may be called upon to fulfil obligations of the grantor.
...
[147] Although Mr and Mrs King allege numerous breaches of s 18 in their amended statement of claim, with respect to them it did not appear that much consideration had been given as to which of the alleged breaches, if proved, might constitute the exercise of a power and also lead to an award of damages. The pleading is as follows:42
(a) Failed to make proper enquiries leading up to the receivership or on commencement of the receivership, before making the decision to shut down the farm operation;
(b) Followed instructions from the first defendant to shut down the farm operation, without taking steps to form any independent or informed view on this decision;
42 Ibid, at [38].
(c) Failed to consider any viable alternatives to the conduct of the receivership other than shutting down the farm operation;
(d) Conducted the receivership in such a way that removed from the Plaintiffs any reasonable opportunity to remedy the default;
(e) Removed income streams available to the fund the debt owed by the Plaintiff by shutting down the farming operation;
(f) Neglected to consider that the best price for the assets in receivership would be obtained as a farm in production rather than selling items for scrap or “dumping” livestock at auction;
(g) Failed to consider that the plaintiffs would be more likely to be able to repay the indebtedness through refinancing should the farm have continued in production;
(h) Removed the first plaintiffs from their home within hours of commencing the receivership on 24 January and acted in an unnecessarily heavy handed manner.
[148] Mr and Mrs King did not pursue an allegation that the manner in which Mr Beecroft marketed assets for sale constituted a breach of s 18(1) and/or s 18(3). Also, I do not propose to address the allegation in sub-paragraph (h). I accept of course that the commencement of the receivership was distressing. Unfortunately a level of distress and disruption is inevitable in such situations. I am not satisfied that what occurred in this case went beyond that which might be expected. I also consider that such distress and disruption was short lived. Accordingly, even if I were to hold that the allegation in [37](h) of the statement of claim were proved, I would not make an award of damages in favour of Mr and Mrs King.
[149] The critical decisions that Mr Beecroft made were to remove all livestock from the farm, including all milk producing dairy cows, and to remove all plant and equipment. The consequences of these decisions that might conceivably result in a loss to Mr and Mrs King were that:
(a) destocking the farm of the dairy herd meant that milking ceased before the end of the season, thereby causing a loss of income;
(b) the removal of stock meant the farm ceased to be “a going concern”.
Mr and Mrs King contend that this deprived them of any possibility of refinancing the debt owed to PFL; and
(c) the stock in particular were not sold “off the farm” but by other means, that is slaughtered at meat works, sold at auction or by private sale, or dealt with in some other way.
Discussion
[150] I would have been assisted by a more thorough analysis of s 18 and how it is to be applied if a debtor challenges a receiver’s decision to cease trading, which is at the heart of this part of the case. I record that I have proceeded on the basis that Mr Beecroft’s decisions to destock and cease farming constituted “the exercise of a power” for the purpose of s 18.
[151] That said, I am satisfied that this part of the case falls to be decided on its facts, and not on the finer points of s 18.
[152] Section 18(1) imposes a duty to exercise powers in good faith and for a proper purpose. The starting point in considering the nature of these duties is the Privy Council’s decision in Downsview Nominees Ltd v First City Corporation Ltd.43
In that case, decided prior to the passing of the Receiverships Act, the Privy Council held that a receiver does not owe a general duty of care but an equitable duty to exercise powers in good faith for the purpose of obtaining repayment of the debt owed to the appointing creditor:44
... But since a mortgage is only security for a debt, a receiver and manager commits a breach of his duty if he abuses his powers by exercising them otherwise than “for the special purpose of enabling the assets comprised in the debenture holders’ security to be preserved and realized” for the benefit of the debenture holder.
43 Downsview Nominees v First City Corporation [1993] 1 NZLR 513 (PC).
44 Ibid, at 523.
[153] Moritzson Properties Ltd v McLachlan45 is to similar effect. It was decided after the passing of the Receiverships Act, but in proceedings commenced prior. The case was concerned with the price that the receiver had achieved on a sale of assets and today would be determined under s 19 Receiverships Act. The case is of wider relevance however because it makes it clear that the Court will take a broad view when required to consider whether a receiver has met their obligations under s 18:46
[54] ... Whether the duty to act in good faith is discharged will depend upon the circumstances of the case. Where the power of sale has become exercisable, the mortgagee or receiver is entitled to decide if and when to sell according to his own interests ... It is not enough to establish want of good faith to show that a higher price might have been obtained if the sale had been deferred or accelerated.
...
[58] In deciding whether a receiver or mortgagee has fallen short of the duty to take reasonable precautions in a sale, the facts must be looked at broadly and it is proper to allow some margin for business and risk assessment by the receiver or mortgagee in the realisation of the security. That margin is reflected in the language of “recklessness” or “sacrifice” referred to in some of the authorities. In Cuckmere Brick Co Ltd (at 968-969) Salmon LJ made the point:
“I accordingly conclude, both on principle and authority, that a mortgagee in exercising his power of sale does owe a duty to take reasonable precautions to obtain the true market value of the mortgaged property at the date on which he decides to sell it. No doubt in deciding whether he has fallen short of that duty the facts must be looked at broadly, and he will not be adjudged to be in default unless he is plainly on the wrong side of the line. ”
...
(footnotes omitted)
[154] In Taylor v Bank of New Zealand,47 various allegations were made as to the conduct of the receiver. Pankhurst J confirmed that the observations of Elias CJ in Moritzson at [58] “remain apposite” and that her approach applies equally to cases to
be considered under the Act.48
45 Moritzson Properties Ltd v McLachlan (2001) 9 NZCLC 262,448 (HC).
46 Ibid, at [54] and [58].
47 Taylor v Bank of New Zealand [2011] 2 NZLR 628 (HC).48 Ibid, at [177].
[155] Section 18(2) requires the receiver to exercise their powers in a manner (paraphrasing) believed to be in the best interests of their appointing creditor. This too is consistent with Downsview which makes it clear that the receiver’s primary purpose must be to recover the debt owed to the appointing creditor.
[156] The obligation imposed by s 18(3), on which Mr and Mrs King rely, is secondary. It requires the receiver to have “reasonable regard” to the interests of those standing behind the appointing creditor and then only to the extent consistent with the duties imposed by ss 18(1) and (2). The interests of the appointing creditor have priority to the interests of the parties specified in s 18(3).
Risks to receiver
[157] I turn now to a decision to cease trading. There is risk to the receiver in continuing to trade after appointment. The business may not be able to trade profitably. That must be an immediate concern if the reason for appointment is a failure to pay a sum that has fallen due, as in this case. Neither a receiver nor their appointing creditor is required to make further advances to a debtor. The business may deteriorate further if the receiver trades on, and that in turn would affect the interests of the appointing creditor or those standing behind them. In the present case, Mr Beecroft’s evidence was that in making the decision to cease trading he took into account the advice of Mr Carr, who I accept was an expert. The evidence was that, aside from issues arising from the farm’s financial performance, other risks were also present, being matters going to security of assets, animal welfare and breaches of resource management legislation. It is essential that a receiver take such matters into account when considering whether or not to continue trading.
[158] In Re B Johnson & Co (Builders) Ltd49 a shareholder of the company in receivership took issue with the receiver’s decision to cease trading. The following passage from the judgment of Jenkins LJ is relevant to the present case:50
The duties of a receiver and manager for debenture holders are widely different from those of a manager of the company. He is under no obligation to carry on the company's business at the expense of the debenture holders.
49 Re B Johnson & Co (Builders) Ltd [1955] Ch 634; [1955] 2 All ER 775 (CA).
50 Ibid, at 662.
Therefore he commits no breach of duty to the company by refusing to do so, even though his discontinuance of the business may be detrimental from the company’s point of view. ...
[159] Counsel for Mr and Mrs King referred me to Medforth v Blake.51 In that case the owner of a business brought proceedings in respect of the manner in which the receiver had traded after appointment. The primary issue in the case was the nature of the duty owed by a receiver who continues to trade. In coming to that issue, the Court stated that a receiver is under no obligation to carry on the debtor’s business but must act diligently if he or she does so.52
[160] To conclude, as appears from Moritzson, it is necessary to consider all the circumstances of the case, to take a broad view and to allow some margin for business and risk assessment by the receiver.
Reasons for decision to halt farming operation
[161] The fundamental difference between the parties’ cases on this cause of action concerned the state of the farm as at the date of the receivership. In broad terms Mr Beecroft’s case was that he made the decision to destock and cease trading because the farm was in a poor state, not trading profitably and that risks arose if the farming operation continued. The case for Mr and Mrs King was that the decision was made in haste and without adequate investigation, that the farm was in reasonable condition, was going to improve, and the problems that Mr Beecroft and others referred to were exaggerated.
[162] I heard evidence on this issue principally from Mr Beecroft, Mr Carr, Mr Roberts and Mr King. I accept Mr Beecroft’s evidence that he made his own decision to close the operation but that in doing so he took into account Mr Carr’s advice. I considered Mr Carr to be an excellent witness. He was clearly experienced in all aspects of dairy farming including milk production and financial performance. He made concessions where appropriate. He expressed sympathy for the Kings as fellow farmers but was firm in his view that the decision to destock and cease
farming was the correct and indeed obvious one in the circumstances. Several
51 Medforth v Blake [2000] Ch 86 (CA); [1999] 3 WLR 922 (CA) at 937.
52 Ibid, at 928.
witnesses called by Mr and Mrs King, including Mr Greg Sheppard, a farm management consultant, suggested that Mr Carr’s experience was of limited value because he had not previously farmed in Havelock. I did not consider that diminished the weight of Mr Carr’s evidence on the matters I was required to determine.
[163] Mr Beecroft’s evidence as to the reasons for the decisions he made may be
summarised as follows.
Profitability
[164] First, Mr Beecroft did not consider that continuing the farming operation was likely to be profitable.
[165] Prior to his appointment Mr Beecroft had compared a forecast that Mr and Mrs King had provided to PFL in support of their application for funding against a summary of the partnership’s actual income and expenditure for the four months ending 31 October 2011. Mr Campbell, the Kings’ accountant, had provided this to PFL in early December 2011.
[166] There were substantial and adverse differences between the partnership’s forecast and actual income and expenditure. For instance, forecast income from milk sales for the four month period ending 31 October 2011 was $171,000. Actual income was $91,000. Additional income of some $30,000 had been earned from sales of livestock, all of which were subject to PFL’s security. Forecast expenses for the corresponding period were $55,000 which included approximately $32,000 expenditure on fertiliser. The information provided by Mr Campbell listed expenses over the same period of more than $86,000. That sum did not include any expenditure on fertiliser.
[167] This information indicated to Mr Beecroft that it was:53
63. ... unlikely that even normal operating costs could have been met let
alone PFL’s monthly interest cost of approximately $33,000.
53 Brief of Evidence of CJ Beecroft dated 28 June 2013, at [63] and [64].
64. So, prior to arriving at the property I already had reason to be very concerned about the financial viability of the farming operation. There was also the obvious point that the Kings had received the benefit of capitalised interest for the first three months of the loan which should have (according to their own forecasts) provided them with a substantial surplus in funds through this period ...
[168] As to current production, Mr Beecroft had a series of discussions with Mr Carr on 24 and 25 January 2012. The gist of those discussions was that production was poor and likely to cease “well before winter”. Under cross examination Mr Carr said that it was apparent from the Fonterra milk docket issued
on 21 January 2012 that production for the season was “appalling”.54 It was put to
Mr Carr that he had been too hasty in reaching this conclusion. Mr Carr’s response, which I accept, was that the docket told him everything he needed to know as to the production for the season, and that continued production was not likely to be worthwhile given anticipated monthly operating costs of $30,000 to $40,000. Those operating expenses excluded any costs that might be incurred if the farm operation were to continue but in receivership, for instance security and management.
[169] I accept the evidence for Mr and Mrs King that not all milk produced was supplied to Fonterra and that some was being used for calves or the colostrum mob. That milk was not, however, generating income. I have already rejected the evidence for Mr and Mrs King that there was a herd of late calving winter milking cows.
Lack of available feed
[170] Mr Beecroft was concerned that there was a lack of feed available for the animals. His observation was that the pastures were poor and depleted, and he knew that there were no funds available to purchase feed. Mr Carr’s evidence, and Mr Roberts’ for that matter, confirmed this. Mr Carr was concerned that the pastures, grasses and soil quality were poor, and that there was no milking quality conservation feed, such as silage, on the property but only poor quality bales of hay. There was no feed available for the weaned calves. Under cross examination
Mr Roberts’ evidence was that there were:55
54 Notes of Evidence, at 1558.
55 Ibid, at 1166.
... 20 or 30 [calves] ... out in the paddock bellowing their rings off.
[171] The lack of feed would not only affect production but raised issues of animal welfare.
[172] Mr King’s evidence was that these concerns were overstated. The pastures could be irrigated by an irrigator gun and, if required, feed was available at minimal cost from local grape and vegetable processors. Similar views were expressed by Mr Garry Keen who farmed nearby and who was a prospective purchaser of the home block. As Mr Carr put it, however, if such feed were available and if it were of any quality, there was no evidence of it on the home block.
Stock in poor health
[173] Mr Carr’s advice to Mr Beecroft was that some of the stock were in poor, in some cases very poor, health and that there was a lack of stock water. Mr Carr’s assessment was that nearly two thirds of the property had no effective water for the stock. Stock were wading through and drinking directly from the Kaituna River.
Environmental concerns
[174] The fact that stock were crossing the river raised environmental concerns in Mr Carr’s mind, as did the state of the farm’s effluent pond which he described as “overflowing”, when it should have been empty at that time of the year.56 Stock movement through the river was a breach of the Fonterra “Clean Streams Accord”, for which Fonterra might have refused collections.
[175] In fact, in March 2011 the Marlborough District Council had served an abatement notice requiring the cessation of stock movement in the river by
28 February 2012. To achieve this would have required fencing the river boundaries and a bridge across the river, construction of which had not commenced. Mr and Mrs King’s response to this evidence was that they were still within the period allowed for compliance with the abatement notice and that local authorities tend to
delay action if progress to rectify is being made. With respect, that response does
56 Ibid, at 1477.
not begin to address the issue. The breach was ongoing and there was no prospect of compliance with the notice by the required date, even if funds had been available, which they were not.
[176] Mr and Mrs King contest much of this evidence. For instance, counsel referred to marketing brochures produced by PGG as part of the sale process. The brochure in respect of the home block was complimentary about the state of the farms and the pastures.57 Mr Beecroft’s response was that the agents were doing the best to present the farm in the best possible light. For my part, the content of the marketing brochures does not counter the evidence of Mr Beecroft and Mr Carr as to the state of the farm on appointment.
Security
[177] Mr Beecroft was concerned as to security of assets if he continued to operate. He could not locate assets in the receivership, such as a 12 tonne excavator, a truck, a tractor and a “bale wrapper”. The excavator alone had an estimated value of
$70,000.
[178] Mr Beecroft summarised the position as follows:58
82.Mr Carr’s clear advice to me was that he did not believe that the property should continue to be operated. This was on the basis of it not being commercially viable, having poor and depleted pasture, animal welfare concerns including poor general animal health, mastitis and crippled stock, and environmental concerns including the effluent pond and general concern about stock crossing the river.
83.I did consider whether to continue operating the farm for a few months until milk production declined to the extent that operating costs would be shown to be definitely higher than milk sales, and then cease the operation, but I rejected this option. Mr Carr had told me that it would not be a long or productive season. It appeared that it was already the case that operating costs were probably not being covered, and all the signs were that matters would only deteriorate.
57 PGG Wrightson Advertising for 159 ha Dairy Farm, at CB 7.014; PGG Wrightson Advertising for Long Valley, at CB 7.015; PGG Wrightson Advertising for Forestry Run Off, at CB 7.018; PGGW Limited “Property Details” Document for a property of 404.85 ha at CB 7.022; PGGW Limited “Property Details” Document for 247 ha at 335 SH 6, at 7.032; and Screen Dumps from PGGW website advertising, at 7.047.
58 Brief of Evidence of CJ Beecroft, above n 51, at [82] and [83].
Sale
[179] Although no issues arise as to the price at which land has been sold, Mr Beecroft’s evidence was that he did not believe that the price achieved on a sale of the land would be affected by the decision to cease the dairy farming operation. This view was confirmed by Mr Norman Blakiston, one of the agents appointed to sell the land. Mr Blakiston’s evidence, and he was not cross examined on this point, was that the farm was best marketed for sale on a land value basis and that to have
marketed the property in production:59
... would have been detrimental. The production levels were so poor that milk production was not an attractive basis upon which to attempt to sell the property.
Refinancing
[180] I accept that Mr Beecroft’s decision to cease trading may have removed any prospect of Mr and Mrs King refinancing the debt due to PFL. As I have said, however, Mr and Mrs King’s interests were secondary to PFL’s. In any event, the prospect of Mr and Mrs King refinancing was already remote, given the farm’s financial performance and the defaults to ASB and PFL.
[181] All of the matters to which Mr Beecroft referred were clearly of great relevance to a decision as to whether or not to continue the farming operation following appointment and I am satisfied that Mr Beecroft did not breach the duties imposed on him by ss 18(1) and (3) Receiverships Act. Given that it is unnecessary for me to consider the claim for damages.
Fees
[182] On the matter of Mr Beecroft’s fees, Mr and Mrs King allege:
39.In addition the Second Defendant incurred costs and charged fees as a receiver which were excessive and unreasonable.
[183] I am not persuaded that this is an issue to be addressed under s 18. An application pursuant to s 34 Receiverships Act would, in my view, have been more
59 Brief of Evidence of NJB Blakiston dated 27 June 2013, at [12].
appropriate, as that provision empowers the Court to review a receiver’s
remuneration. Section 34(2) of the Act provides:
34 Court supervision of receivers
(2) The Court may, on the application of a person referred to in subsection (3)
of this section,—
(a) In respect of any period, review or fix the remuneration of a receiver at a level which is reasonable in the circumstances:
...
[184] In any event, I am not satisfied that the fees charged are unreasonable or excessive.
[185] Mr Beecroft produced a detailed time sheet recording his attendances and a general description of the matters to which he attended on any given day. Mr Beecroft recorded a total of 1,518.7 hours in the receivership in the period between 16 January 2012 and 22 May 2013. For this his fees were $294,360 plus GST, equating to an hourly rate of $193.80 plus GST.60
[186] Mr Beecroft’s evidence was that he spent the vast majority of his time in the period January 2012 to September 2012 dealing with receivership issues, with Mr and Mrs King’s litigation and their “interference, and ... constant requests for information” and the sale and purchase of assets. His assessment was that the most time consuming matters were the injunction and associated litigation, and the Kings’ interference in the receivership. Mr Beecroft’s estimate was that some 50 to 70 per cent of his recorded time was spent addressing such matters.
[187] Mr Beecroft was appointed receiver of Havelock and Mr and Mrs King pursuant to the terms of the General Security Deed each executed as security for the loan. Clause 9.3 of both Deeds permitted PFL to determine or vary the remuneration of the receiver, subject to the Receiverships Act 1993.
[188] At the outset Mr Beecroft had agreed an hourly rate of $400 with PFL.
60 Brief of Evidence of CJ Beecroft, above n 51, at [243].
[189] Mr and Mrs King called evidence from Mr Grant Graham, a partner of KordaMentha, Chartered Accountants and the Defendants from Mr Anthony McCullagh. I accept that both Mr Graham and Mr McCullagh are experts in the matter of receiverships and I accept the evidence of both.
[190] Mr Graham gave evidence as to fees his firm charged on four receiverships of farms in 2011 and early 2012. The average hourly charge ranged from $260 to $313 per hour, excluding GST.61
[191] Mr McCullagh gave evidence that the fees charged by directors in his firm range from $350 to $375 per hour. Mr McCullagh’s evidence was that he considered Mr Beecroft’s initial proposed hourly rate of $400 plus GST to be high. He considered an appropriate hourly rate for a “first time” receiver was $200 plus GST. This is slightly more than has, in fact, been charged. Accordingly, whilst there may well have been something in this point if Mr Beecroft had charged all attendances at
$400 per hour, in fact the hourly rate charged is marginally less than other evidence suggests was reasonable.
[192] Mr McCullagh confirmed that attendances in litigation are properly chargeable to the receivership. Mr Graham acknowledged that legal action by a debtor could increase the receivership costs substantially.
[193] Counsel for Mr and Mrs King cross-examined Mr Beecroft regarding his time sheet. I accept their submission that there are occasions where the hours recorded seem excessive or Mr Beecroft has recorded time for a matter that perhaps another receiver would not have. I am not satisfied, however, that these were any more than isolated occurrences. In the scheme of this proceeding any such errors are immaterial.
Failure to exercise powers in accordance with duties pursuant to s 19 Receiverships
Act 1993
[194] Mr and Mrs King allege that, in selling or disposing of the livestock, plant, machinery and equipment Mr Beecroft “failed to obtain the best price obtainable at
61 Brief of Evidence of GR Graham dated 19 June 2013, at [24].
the time of sale”.62 This pleading is intended as a reference to the duty imposed on a receiver by s 19, which provides that a receiver exercising a power of sale owes a duty to obtain the best price “reasonably obtainable” as at the time of sale.
[195] Section 19 provides:
19 Duty of receiver selling property
A receiver who exercises a power of sale of property in receivership owes a duty to—
(a) The grantor; and
(b) Persons claiming, through the grantor, interests in the property in receivership; and
(c) Unsecured creditors of the grantor; and
(d) Sureties who may be called upon to fulfil obligations of the grantor—
to obtain the best price reasonably obtainable as at the time of sale.
[196] Mr and Mrs King’s pleading of the alleged breach is as follows:
42.In selling or disposing of the livestock and items of plant, machinery and equipment the second defendant has failed to obtain the best price obtainable at the time of sale.
Particulars:
(a) In relation to the livestock, much of the livestock was sold for “works value” and/or inappropriately dumped on the market at auction, which was unsuitable for the purposes of selling dairy livestock and in the case of the 152 cows to Mr Roberts at
$1,200.00/head as against a fair value of $1,350.00.
(b) In relation to the plant, equipment and machinery sold at an undervalue.
[197] Mr and Mrs King seek an award of damages, which in the case of the stock they estimate to be $530,600 and they seek an enquiry into damages in respect of the
plant, machinery and equipment.
62 Fifth Amended Statement of Claim, above n 25, at [42].
Plant and Equipment
[198] Mr Beecroft’s evidence was that plant and equipment was located on the home block. As a first step, Mr Beecroft had the valuable moveables transported to secure locations, namely the “March Yard” and a secure storage container on the property of a Mr Ron Gardener. These items remained there pending sale. There can be no dispute that a poor job was done of keeping an inventory of the items removed. I am not satisfied, however, that anything turns on that.
[199] Mr Beecroft had this plant and equipment valued by two local dealers, Marlborough Tractor Services Limited (“MTS”) and FMR Group (“FMR”). Both MTS and FMR supplied Mr Beecroft with indicative pricing.63
[200] Mr Beecroft’s evidence was that he discussed different sale processes with Mr Clifford. Mr Clifford’s advice was that an auction would only attract “bargain hunters”. He advised Mr Beecroft that the best approach was to list the items for sale individually on Trade Me,64 Mr Beecroft accepted this advice and FMR listed the items accordingly.
[201] Mr Beecroft included in his brief of evidence a list of the various items sold, the valuations for those items that had been given by MTS and FMR (where a value had been given) and the prices obtained. Some of those prices exceeded the valuations, others were less than the valuations. I am not satisfied that any breach of s 19 in respect of these items is proved.
[202] In addition, on 1 February 2012, Mr Beecroft, Malcolm and Brendon King met at the farm. Mr Beecroft’s evidence was that they discussed all items of equipment remaining on the property, as a result of which Mr Beecroft had a clear understanding of what was scrap. Following that, Mr Clifford returned to the farm, took away items which he believed he could sell and he advised Mr Beecroft that the remaining items should be scrapped. Mr Beecroft took a second opinion from a
Mr Dick Campbell, a farm auctioneer. Mr Campbell advised Mr Beecroft that it
63 Email Marlborough Tractor Service to C Beecroft dated 8 February 2012, at CB 3.305; Emails C Beecroft to FMR Group, FMR Group to C Beecroft dated 8 and 9 February 2012, at CB 3.314; and Email G Clifford with values for machinery dated 16 February 2012, at CB 9.186.
64 Brief of Evidence of CJ Beecroft, above n 51, at [224] and [225].
would not be worthwhile to conduct a sale on the farm. Mr Campbell did not consider the proceeds of sale would cover the cost of advertising, let alone other expenses. Those remaining items were sold for scrap and, again, I am not satisfied that any breach of s 19 in respect of these items is proved.65
[203] Residual plant and equipment was sold to Mr Roberts as part of the sale of the home block, for a purchase price of $75,000. No issue arises as to the sale of those items.
[204] On the face of this evidence, I am not satisfied that Mr Beecroft breached the duty imposed by s 19 in respect of plant and equipment.
Livestock
[205] I turn now to the matter of the livestock, which comprised sheep and cattle.
[206] Mr Beecroft’s decisions as to the manner in which stock should be sold or otherwise disposed of were made on the advice of Mr Carr, who himself was in consultation with Mr Leighton Nichol, a local stock and station agent.
Sheep
[207] Mr Carr’s evidence was that 326 lambs, ewes and rams were sold to
Campbell Livestock Limited on 9 February 2012. A trucking docket dated
8 February 2102 suggests that 330 sheep were transported.66 Mr Carr’s view is that the difference is likely to be a counting error when the truck(s) were loaded. Mr Carr is not aware that any sheep mustered from the farm were not sold. There is no suggestion that the price obtained for the sheep was not the best reasonably obtainable at the time of sale. Mr and Mrs King do assert that the sheep belonged to one or more of their sons. It has, however, been open for Mr and Mrs King’s sons to
bring proceedings asserting that claim and they have not done so.
65 Ibid, at [230] to [232].
66 Heagney Brothers Limited Stock Consignment Notes dated 8 February 2012, at CB9.076.
Cattle
[208] Mr Carr’s evidence was that 629 cattle were mustered from the farm (Long Valley and home block). The number derives from contemporaneous handwritten notes and trucking dockets. I accept Mr Carr’s evidence that the stock did not have identification tags and that made it impossible to be exact. The stock comprised producing and non producing dairy cows, beef and dairy heifers, steers, bulls, bull calves and dairy calves. Some of the stock was sent to the works, some sold at auction, some set off against grazing or other costs, some killed on the farm and some sold to Mr Roberts, the purchaser of the home block.
[209] In support of their case under s 19 in respect of disposals of stock, Mr and Mrs King called evidence from Mr Paul Brown, the Managing Director of South Island Dairy Farmers Limited. I accept that Mr Brown is an expert in matters relating to the sale and purchase of stock. That said, the weight that I was able to give Mr Brown’s evidence was limited as he had not seen the stock. Mr Brown’s fundamental complaint as to the method of disposals was to the sale of dairy stock at auction.
[210] Mr Carr said that there were a number of general difficulties which affected prices obtained. First, there was a lack of breeding records and, in the case of the dairy cows, herd testing records. Mr Brown and Mr Keen agreed that the price which the stock would fetch would be diminished by the lack of such records.67
Mr Carr also gave evidence that there were few clear lines of saleable stock as the
animals were of various ages.68 The lack of records made it impossible to say what had been born when. Mr Carr also gave evidence that, in addition, the steers, bulls, and “a good number of the heifers and cows were long horned and displayed comparatively wild behavioural characteristics”.69
[211] 100 stock were sent to the works, being Central Meat Processors. The price paid was a reflection of weight. 27 were slaughtered within the first 10 days of the
receivership. I accept Mr Carr’s evidence that the disposals at this time were
67 Notes of Evidence, at 275 and 322.
68 Brief of Evidence of ER Carr dated 2 September 2013, at [121].
69 Ibid.
required due to the condition of the animals.70 Others sent to the works at a later time were always destined for the works. Some cows were also culled and sent to the works. On Mr Carr’s evidence, and he had seen the stock, this was unavoidable.
[212] 156 dairy cows were sold to Mr Roberts at $1,200 per head in August 2012. Mr Brown’s evidence was that under market conditions pertaining in January/February 2012 a milk producing dairy cow would have a value of $1,350 (excluding GST). I accept the submission of counsel for Mr Beecroft that the price that Mr Roberts paid some six to seven months later was sufficiently proximate to Mr Brown’s assessment of market value to meet the requirements of s 19.
[213] 316 non-milk producing or “carry over” cows, beef heifers, steers (beef), bulls, bull calves and jersey bulls were sold at auction by Rural Livestock Limited (“RLL”) at various times between February 2012 and February 2013.71 Mr Carr was
satisfied that all this stock was sold at fair market value.72 As I have said, the Kings
challenge the sale of dairy cows at auction in this manner. Mr Brown’s evidence is that dairy cows are best sold by private treaty, as occurred in the case of those sold to Mr Roberts. Mr Carr’s evidence, however, was that the cows sold at auction in this manner were “carry over” cows (which had not produced a calf in the previous
season)73 and that a decision was made to sell them by auction in Canterbury as there
was reasonable demand due to feed supplies. Mr Brown did not object to other non- dairy stock being sold at auction, and confirmed that such stock would have been sold on the basis of its weight.
[214] Some stock were set off to Mr Vince Fearns and Mr Adams-Rudd in lieu of costs.
[215] A number of cows and calves had been sent to Mr Fearns’ farm for grazing in January 2012. This was expected to be a short-lived and temporary arrangement, pursuant to which Mr Fearns would have the benefit of milk production in return for
feeding and attending to any animal health issues. In fact, as a result of the litigation
70 Supplementary Brief of Evidence of ER Carr dated 2 September 2013, at [6](a).
71 Brief of Evidence of ER Carr dated 2 September 2013, at [120].
72 Ibid, at [122].73 Ibid, at [120].
the stock remained on Mr Fearns’ property beyond the end of the season, and far longer than had been anticipated.74 Mr Fearns offered to retain the remaining stock (some had been culled and sent to the works) in lieu of charging for grazing and other costs incurred beyond the season. Mr Carr’s evidence was that, on his calculations and having made enquiries of Wrightsons, the grazing and other costs that would have been charged would have exceeded the price to be obtained on a
sale by approximately $4,000 to $6,000. Mr Fearn’s offer was accepted accordingly.
[216] Mr Adams-Rudd was a musterer who assisted in the early days of the receivership. Three steers were set off to him in lieu of charges he would have rendered.
[217] It is improper for a receiver to set off stock against costs incurred in the receivership, as was done in this case. I am not persuaded, however, that the receiver’s actions have had any material effect on the recoveries because undoubtedly the absence of a set off would have led to expenses in the receivership.
[218] Having considered this evidence and bearing in mind that the matter is to be assessed broadly, I am not persuaded that Mr Beecroft was in breach of his obligations pursuant to s 19 as alleged in disposing of the livestock.
Losses arising from Mr Beecroft’s reckless exercise of his powers
[219] By this cause of action, Mr and Mrs King plead that Mr Beecroft was reckless in the exercise of his powers.75 Their case is that Mr Beecroft had no proper regard to his duties, failed to consider the possibility of trading on after his appointment, ignored the advice of advisors such as Waterstone Insolvency, followed the directions of PFL without exercising independent judgment, departed from the standard practice of insolvency practitioners in the agricultural sector and charged costs and expenses in excess of what was reasonable.
[220] For this an award of damages is sought, together with an order that
Mr Beecroft repay at least part, if not all, of his fees and costs.
74 Notes of Evidence, at 1481.
75 Fifth Amended Statement of Claim, above n 25, at [40].
[221] For the reasons set out at length above, I am not satisfied that Mr Beecroft breached any of the duties owed to Mr and Mrs King or that he was reckless in the exercise of his powers. I dismiss this cause of action accordingly.
Counterclaim
[222] The Defendants have counterclaimed in respect of assets and chattels subject to security in favour of PFL, and which the Defendants have been unable to locate. The items are:
(a) Hitachi 2004 12 tonne excavator EX120;
(b) Nissan truck, model PK205, number plate WX8781; and
(c) Farm Ute LN06 – 0031668.
[223] The Defendants are entitled to these assets, as all are listed in the specific security deed referred to in [30](e) above. Mr King acknowledged at trial that he knows where the excavator is located. In their statement of defence, Mr and Mrs King allege that the Nissan truck is owned by Brendon King and that it was
included as security “by mistake”.76 Mr and Mrs King plead that the farm ute was
last seen being driven by Mr Grant of Waterstone Insolvency.77
[224] PFL seeks damages in a sum not exceeding $115,000, alternatively orders pursuant to s 12(1)(a)(b) and (c) Receiverships Act. Section 12 provides:
12 Obligations of grantor
(1) A grantor and, in the case of a grantor that is a body corporate, every director of the grantor, must—
(a) Make available to the receiver all books, documents, and information relating to the property in receivership in the grantor's possession or under the grantor's control:
76 First Plaintiffs’ Statement of Defence to Amended Statement of Counterclaim dated 24 May 2013,
at [12].
77 Ibid, at [5](c).
(b) If required to do so by the receiver, verify, by statutory declaration, that the books, documents, and information are complete and correct:
(c) Give the receiver such assistance as he or she may reasonably require:
(d) If the grantor is a body corporate that has a common seal, make the common seal available for use by the receiver.
(2) On the application of the receiver, the Court may make an order requiring the grantor, or if the grantor is a body corporate, a director of the grantor to comply with subsection (1) of this section.
[225] There can be no objection to the orders sought pursuant to s 12 to which I have referred. I make those orders and reserve leave to apply if necessary. Mr and Mrs King are to comply by 4 pm, 14 March 2014.
[226] I am not satisfied as to the value of the items and I make no orders in terms of the Defendants’ claim for damages. I do, however, reserve leave to apply should further orders be required including as to the return of the items and/or damages in lieu.
Result
[227] The result in respect of all causes of action pleaded by the First Plaintiffs against the First and Second Defendants in the Fifth Amended Statement of Claim is recorded in [1] of this judgment.
[228] I enter judgment for the First and Second Defendants on the second cause of action in the Amended Statement of Counterclaim against the First Plaintiffs dated
20 May 2013. The particular orders referred to are those set out in [225] above. [229] I also reserve leave in respect of issues raised in the counterclaim.
Costs
[230] Mr and Mrs King have been in receipt of legal aid. It may be, however, that
PFL and/or Mr Beecroft wish to make submissions on costs in which case they may
do so by filing and serving a memorandum no later than 4 pm, 21 March 2014. Further directions as to submissions will be made after receipt of any memorandum.
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M Peters J
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