McCollum v Thompson
[2019] NZHC 3090
•26 November 2019
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE
CIV-2014-404-1958
[2019] NZHC 3090
BETWEEN ALLAN ROY MCCOLLUM, NANCY MARGARET McCOLLUM and TERENCE NEIL WALKER
PlaintiffsAND
DAVID JOHN THOMPSON and JOSEPHINE RUTH MACBETH
Defendants
Hearing: 18 November 2019 Appearances:
B Gustafson for Plaintiffs C McLean for Defendants
Judgment:
26 November 2019
JUDGMENT OF LANG J
[on counterclaim by defendants for special damages following conversion of livestock]
This judgment was delivered by me on 26 November 2019 at 3.30 pm, pursuant to Rule 11.5 of the High Court Rules.
Registrar/Deputy Registrar Date……………
McCOLLUM v THOMPSON [2019] NZHC 3090 [26 November 2019]
[1] On 28 January 2016 I delivered a judgment determining a claim by the plaintiffs and several counterclaims by the defendants (the initial judgment).1 That judgment was subsequently the subject of a partly successful appeal to the Court of Appeal.2 The Court of Appeal remitted several issues back to this Court for determination.3
[2] On 16 February 2018 I delivered a supplementary judgment determining two of those issues.4 I am now required to determine the sole remaining issue remitted for further consideration in this Court. This relates to a counterclaim by the defendants for special damages to compensate them for consequential losses flowing from the conversion by the plaintiffs of livestock owned by the defendants.
Background
[3] In July 2011 the plaintiffs advanced funds to the defendants to enable them to refinance a bank loan. The terms of advance were recorded in a term loan agreement, and the defendants provided security for the loan by way of a general security agreement (GSA) dated 4 July 2011. This provided the plaintiffs with security over 342 head of livestock owned by the defendants as at the date they obtained the loan from the plaintiffs.
[4] The defendants were unable to repay the loan when it fell due on 4 July 2012. On 4 February 2013 the plaintiffs issued a demand for repayment of the sum of approximately $270,000. When this was not met the plaintiffs appointed receivers under the GSA on 13 February 2013.
[5] On the date of their appointment the receivers uplifted 201 cows and 47 two year old heifers that belonged to the defendants. These were pastured on a property situated on Onion Road, Horotiu (the Onion Road property). The defendants had been farming these under a sharemilking agreement that gave them the right to use the
1 McCollum v Thompson [2016] NZHC 28.
2 McCollum v Thompson [2017] NZCA 269.
3 At [86].
4 McCollum v Thompson [2018] NZHC 173.
Onion Road property in return for giving the owner of the property a share of the income derived from the sale of milk produced by the defendants’ herd.
[6] The receivers subsequently sold the livestock uplifted from the Onion Road property to the plaintiffs. The receivers set off the amount realised from the sale of the livestock against the balance then owing by the defendants to the plaintiffs.
[7] Subsequently, in September and October 2013, the plaintiffs went to a property leased by the defendants on Otonga Valley Road near Raglan (the Otonga Valley Road property). There they uplifted 14 rising two year old heifers, 27 yearlings and six bulls. These animals belonged to the plaintiffs but were not subject to the GSA. The evidence at trial did not disclose what the plaintiffs subsequently did with these animals.
Earlier judgments
[8] In the initial judgment I held that the 47 rising two year old heifers that the plaintiffs had uplifted from the Onion Road property were not subject to the GSA.5 This meant the plaintiffs were liable in conversion to the defendants for these animals. It was common ground that none of the livestock uplifted from the Otonga Valley Road property were subject to the GSA. I therefore also held the plaintiffs liable to the defendants in conversion for those animals.6
[9] The Court of Appeal took a different view in relation to the 47 two year old heifers uplifted from the Onion Road property. It held that the receivers initially uplifted those animals unlawfully because they were not subject to the GSA as at the date the receivers uplifted them. The Court of Appeal held, however, that on 11 April 2013 the plaintiffs validly required the defendants to provide them with further security for the outstanding advance. Thereafter the 47 heifers became subject to the GSA and the receivers were entitled to retain and sell them.7 The Court of Appeal therefore held that the plaintiffs were not liable to the defendants in conversion in
5 McCollum v Thompson, above n 1, at [49].
6 At [102].
7 McCollum v Thompson, above n 2, at [34].
relation to these animals other than during the period between 13 February 2013 and 11 April 2013.8
[10] I fixed the value of the livestock uplifted from the Otonga Valley Road property in the sum of $27,450. That aspect of my judgment is not in dispute. I did not, however, determine whether the defendants were entitled to special damages from the plaintiffs to compensate them for consequential losses caused by the conversion of the Otonga Valley Road livestock. This judgment deals with that issue.
The law
[11] The plaintiffs do not challenge the ability of the Court to award special damages to compensate a claimant for consequential losses suffered following conversion of an income earning asset. The learned authors of Laws of New Zealand put the matter in this way:9
265. Consequential damage
Apart from the general value of the goods, the plaintiff in proceedings for conversion or detinue may be able to show that special or consequential damage has been suffered by the detention or conversion of the goods; as a general rule such damage is recoverable if it is a reasonably foreseeable result of the defendant’s unlawful acts.
As with the assessment of the general value of the goods, recovery in respect of particular value to the plaintiff depends on the defendant having knowledge of that particular value or being able to foresee the particular loss suffered. For example, where the defendant has converted the plaintiff’s chattels, the plaintiff may recover the cost of hiring a substitute during the period of detention. Again, a defendant who has converted goods normally used by the plaintiff for the purposes of trade may be liable for loss of trade profits. Where the goods are normally let out for hire, the plaintiff may recover loss of profits which would have been earned by their hiring. If the defendant uses the goods, a reasonable hiring fee is recoverable, and it is not necessary to show an available market in which the owner would have hired them out. In other cases it is open to the plaintiff to show actual loss of earnings; if, however, the plaintiff is unable to show such a loss, he or she may still recover general damages for loss of use of a commercial asset. Proof of such loss may be shown by establishing a real possibility of profit earning, and then discounting the full amount of profit that could have been earned to allow for the degree of improbability; however there is no calculation capable of universal application, and the correct answer is found by attempting to assess the real loss suffered by the plaintiff owner.
8 The defendants have not pursued any claim for consequential losses sustained during this period.
9 Stephen Todd Laws of New Zealand Wrongful Interference with Goals (online ed) at [265].
(footnotes omitted and emphasis added)
[12] The authorities cited in the passage above from Laws in New Zealand in relation to damages for loss of trade profits are Hadley v Senk10 and Mrs Eaton’s Car Sales Ltd v Thomasen.11 In Hadley v Senk, livestock was moved from the plaintiff’s property to the defendants’ property. They were replaced with inferior animals. The plaintiff contended that this ruined his milk supply and he suffered loss as a result. Stout CJ observed:12
Both the defendants knew that Hadley had purchased both farm and stock for dairy purposes, and they have therefore prevented him from carrying on his dairying as he should have been able to; moreover, they have caused him special damage; and, such being the case, there is authority for an award of special damages.
[13] In Mrs Eaton’s Car Sales Ltd v Thomasen, the owner of a motor vehicle purported to sell it to both the plaintiff and the defendant. The plaintiff sued the defendant in detinue for the return of the car or its value, as well as damages for wrongful detention of the vehicle. Mahon J held that a plaintiff may recover damages for loss of profits caused by the unlawful detention of trading stock provided it can prove the defendant had knowledge of the consequences to the plaintiff of the wrongful detention of the item in question and the damage claimed is not too remote.13 The Judge held that the defendant must have been aware he had acquired part of the plaintiff’s stock in trade and that it formed part of the plaintiff’s circulating capital. The damage was therefore not too remote to be recoverable. This entitled the plaintiff to recover “the loss of profit over the period of unlawful detention which can accurately be related to his being deprived of a chattel representing stock in trade which by its conversion into money represents part of his circulating capital”.14
[14] During oral argument Mr McLean for the defendants sought to rely on the decision of Ellis J in Beale v Lucky Fishing Ltd.15 That case was an appeal against special damages awarded to the owner of fishing equipment that had been converted
10 Hadley v Senk [1919] GLR 122
11 Mrs Eton’s Carsales Ltd v Thommasen [1973] 2 NZLR 686.
12 At 124.
13 At 692.
14 At 693.
15 Beale v Lucky Fishing Ltd HC Tauranga CIV 2011-470-3, 28 June 2011.
and used by another. The statement of claim sought damages based on the loss of profits sustained by the owner of the equipment or, alternatively, on an account to be taken of the profits earned by the defendant when it used the equipment. The Judge at first instance had awarded damages based on the loss of profits sustained by the owner of the equipment. On appeal the defendant argued the award should have been based on the profit it had earned when it used the equipment. Justice Ellis held that this was not possible because the defendant had provided no evidence to establish the profit it had made when it used the equipment.16 The Judge at first instance was accordingly correct to award damages based on the loss of profits sustained by the owner of the equipment as a result of being unable to use it. Furthermore, the plaintiff was entitled to elect to be compensated for its loss of profits.17
[15] I do not consider Beale to be of any assistance in the present case because the defendants have never advanced their claims for special damages on the basis of the profits earned by the plaintiffs through their use of the converted animals. The defendants have always sought damages to compensate them for the profits they say they lost as a result of being denied the use of the animals.
[16] There can be no dispute in the present case that the plaintiffs knew the livestock on the Otonga Valley Road property was capable of being used by the defendants to produce milk in the 2013/2014 dairy season and in seasons thereafter. Special damages are therefore available to the defendants provided they can prove the plaintiffs’ actions have caused them real loss.
The defendants’ claim
[17] The defendants advance their claim on the basis that, had the plaintiffs not converted the 41 animals from the Otonga Valley Road property, they would have been able to derive income through milk produced by the 14 heifers during the 2013/2014 dairy season. They would also have been able to derive income in subsequent dairy seasons from the milk that would have been produced both by the 14 heifers and the 27 yearling heifers. In addition, milk would have been produced by the progeny of
16 At [19].
17 At [19], citing Anglia Television Ltd v Reed [1971] 3 All ER 690 at 692 (CA).
both sets of animals. As will be evident, this constitutes a claim for special damages to reflect loss of trade profits.
[18] There appears to be no dispute that the 14 heifers would have produced milk during the 2013/2014 dairy season after they were converted by the plaintiffs. By the date on which they were uplifted by the plaintiffs those animals had finished calving. They would, however, have produced further progeny during 2014 and in following seasons. It is likely that any male progeny would immediately have been destroyed because male calves are of little or no value. The defendants say, however, and again there appears to be no dispute, that they could reasonably expect the 14 heifers to produce approximately seven female progeny during the next year. Of these, at least some would be retained for the purpose of both milk production and the production of further progeny. The 27 yearling heifers would likewise begin to produce progeny in the years following 2014.
[19] The defendants therefore base their claim on a repeating cycle involving the production of additional progeny and increased milk production during each of the dairy years following the 2013/2014 dairy season. In total, the plaintiffs claim the sum of $25,678 for the loss of income from milk production that the 14 heifers and their progeny would have produced between the 2013/2014 and the 2018/2019 dairy seasons. In addition, the plaintiffs claim the sum of $32,937 for loss of income from milk production from the 27 yearlings uplifted from the Otonga Valley Road property between the 2014/2015 and the 2018/2019 dairy seasons.
Decision
[20] The issue to be determined is the extent to which, if any, the defendants have suffered real loss as a result of the conversion of the livestock from the Otonga Valley Road property. That issue must necessarily be considered in light of the defendants’ circumstances when the plaintiffs converted the livestock.
[21] By September 2013 the receivers appointed by the plaintiffs had already uplifted and lawfully sold the livestock from the Onion Road property. That particular farming operation, together with its associated sharemilking agreement, was therefore effectively at an end. This left the defendants in possession only of the stock pastured
on the Otonga Valley Road property. That property had no milking facilities so it could not be used for milk production.
[22] Furthermore, Mr Kalev Crossland, the owner of the Otonga Valley Road property, was alleging he had terminated the defendants’ lease because they were in default with the payment of rent and had also breached other covenants in the lease. These issues had prompted Mr Crossland to issue trespass notices against the defendants prohibiting them from entering the Otonga Valley Road property. In an email dated 24 March 2014 Mr Crossland advised the defendants’ then counsel of the following matters:
Prior to the intervention of the secured creditor your clients were offered the opportunity to meet me at the property to uplift stock, pay arrears of rent and address numerous breaches of the lease; summarised below. Your clients instead did not do this but came during the night and early morning and removed stock instead. Your client failed to respond to phone calls and emails. Neighbours will attest to this conduct in removal of stock. The lease was then terminated and your clients failed to show to uplift stock. They also failed to care for them. There was no water on the property and barely any feed for reason explained in the next paragraph.
It was also a term that your clients were to maintain the stock and pasture with good husbandry. On at least two occasions MPI [the Ministry for Primary Industries] were called out because of stock in dreadful condition. A local vet living the area called me in Auckland about dying stock and calves going hungry without milk. I had to travel to Hamilton to address the situation and head off liability for the company as the landowner from MPI. Local neighbours, the vet and MPI representatives will attest to this. The current lessee will attest to the state of the pasture your clients left it in. It had to be left fallow for a couple of months to recover. It was fortuitous that the secured creditor was able to take the remaining stock away. I am aware that your clients engaged in some dialogue on the property with the secured creditors and the Police at this time. The secured creditors were licensed by the company to enter onto the property to retrieve animals that they satisfied me were the subject of security. Your clients at that time had no permission to enter onto the property as the lease had been terminated for their failure to pay rent. The company also faced prosecution action from MPI as landowner where uncared for stock were held.
The lease also required your clients to keep tracks in good order and troughs and waterlines and fences in order. Your client was also responsible for upkeep of the water pump (which was freshly installed for this lease). Your client left the property with numerous detached troughs, broken waterlines and fences and gates in disrepair. The contractor I engaged who has worked for the company for over a decade and has over the last few months being progressively repairing the damage and ignored maintenance will attest to this in Court. The tracks were left ungraded. As yet the company has not had [sic] addressed this.
Your clients also had several repairs carried out to the water pump (having left it to run whilst hot) and charged those up to Waikato Pump Services in the company’s name using my former wife as the reference person as ordering the repairs. This of course was utterly false. The company has since had to pay an ex gratia payment to Waikato Pump Services despite not having ordered the work. That company will be interested to learn that your clients have resurfaced.
…
[23] When the plaintiffs arrived to uplift the livestock from the Otonga Valley Road property Mr Crossland would not allow them to uplift the animals until they had paid the sum of $6,200 by way of outstanding rental.
[24] Mr Thompson denies that Mr Crossland’s claims have any validity, but it is obvious that he would not have willingly surrendered the stock to the defendants if they had sought to uplift them. They would have needed to reach some form of accommodation with him before he would allow them on his property to uplift the stock.
[25] In addition, the defendants would have needed to find an alternative property on which to graze the livestock and milk the 14 cows. There is no evidence to suggest that any other property was available to them. Mr Thompson also accepted that a herd of the size that was left at the Otonga Valley Road property would be completely uneconomic. It would only have any value in terms of milk and progeny production if it could be combined with a much larger herd. There is no evidence to suggest the defendants were in a position to achieve that outcome. Mr Thompson frankly acknowledged in answer to questions from me that the lack of an alternative property on which to pasture and milk the Otonga Valley livestock would have been a problem.
[26] The artificiality of the defendants’ claim is further demonstrated by the data on which it is based. In order to assess likely milk production of the converted livestock the defendants have used a herd testing report dated 27 May 2009. This relates to testing carried out on the plaintiffs’ herd on 25 May 2009. In other words, the defendants seek to rely on data obtained four years prior to the date on which the plaintiffs converted the animals that are subject to the present claim. The defendants have not explained why they were not able to produce any data from their herd during 2012 or 2013. In addition, the data relates to different animals pastured on a different
property. Questions must therefore arise as to the reliability of that data when applied to the animals pastured on the Otonga Road property in 2013.
[27] In addition, the defendants have used figures taken from annual surveys carried out by DairyNZ to assess the likely price they would have obtained each year from Fonterra for milk produced by the converted livestock. In doing so the defendants have included dividends paid by Fonterra to its shareholders in each of those years. There is, however, no evidence that the defendants owned shares in Fonterra. Mr Petterson, the forensic accountant called for the plaintiffs, said in evidence that Fonterra shares were generally held by landowners who had a contract to supply Fonterra and not by sharemilkers or, I infer, lessees. This means it is unlikely that the defendants would have been entitled to receive dividends from Fonterra.
[28] The defendants have also used the figures contained in the NZDairy surveys to calculate the likely costs they would have incurred in producing the milk they would have obtained from the converted livestock. Mr Petterson considers the actual costs the defendants would have incurred are likely to have been considerably greater. Mr Petteron concludes that in all probability the defendants would have operated at a loss if they had continued to farm the animals from the Otonga Road property after the 2013/2014 dairy season.
[29] It is not necessary for me to reach any firm conclusion on this particular issue. It is clear, however, that the formula the defendants have used to calculate their losses is unreliable in several important respects.
[30] More importantly, I find as a fact for the reasons given earlier that by the time the plaintiffs converted the Otonga Valley Road stock the defendants had to all intents and purposes ceased to trade. Furthermore, there is no evidence that they had any viable means of deriving the income they say they would have earned had they retained possession of the animals after September and October 2013. They would therefore have been left with no realistic alternative other than to sell them. This means that the true measure of the defendants’ loss is the capital value of the livestock, credit for which has already been given.
Result
[31]The claim for special damages is dismissed.
Costs
[32] As I understand the position the defendants are legally aided. For the purposes of ss 45(5) and 46 of the Legal Services Act 2011 I make an order specifying that, if the defendants had not been legally aided, I would have awarded costs against them on a category 2B basis together with disbursements as fixed by the Registrar.
[33] I reserve leave to the plaintiffs to file any further memorandum they consider may be necessary to deal with the issue of costs.
Lang J
Solicitors:
Morrison Mallett, Auckland McLean Law Ltd, Waitakere
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