Mustang Marine Nominees Pty Limited v The Vessel "Tuna to Go" (formerly named "Impact")

[2012] NZHC 778

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

CIV-2010-404-008522 [2012] NZHC 778

BETWEEN  MUSTANG MARINE NOMINEES PTY LIMITED

Plaintiff

ANDTHE VESSEL "TUNA TO GO" (FORMERLY NAMED "IMPACT") First Defendant

ANDDUGAL CRAWFORD MACFARLANE Third Defendant

Hearing:         5-8 September 2011

31 October 2011
1 November 2011
4 November 2011

Counsel:         M Heard and E D Nilsson for the Plaintiff

A M E Parlane for the Third Defendant

Judgment:      26 April 2012

RESERVED JUDGMENT OF ELLIS J

This judgment was delivered by me on 26 April 2012 at 3.30 pm, pursuant to r 11.5 of the High Court Rules

Registrar/Deputy Registrar

Solicitors:      Lee Salmon Long, PO Box 2026, Auckland 1140

Parlane Law, PO Box 1846, Auckland 1140

MUSTANG MARINE NOMINEES PTY LIMITED V THE VESSEL "TUNA TO GO" HC AK CIV-2010-404-

008522 [26 April 2012]

[1]     On 24 October 2008, the plaintiff, Mustang Marine Nominees Pty Ltd (“Mustang”), purchased the second defendant, a 37 foot Wellcraft launch named (at that time) Impact from a third party, Mr Shaw.  It is not in dispute that in late May

2009, Impact came into the possession of the third defendant, Mr MacFarlane and that he subsequently (re)named it and used it as his own.1

[2]      Mr MacFarlane says that he purchased the vessel from Mustang, through Mustang’s agent, Marcel White, for $20,000 plus the value of various work he had performed   for   Mustang/Mr   White   over   the   preceding   two   months   or   so. Mr MacFarlane also says that the vessel he purchased was, at the time, unnamed and unbranded and that he was told it was a 36 foot Sea Ray.

[3]      But Mustang alleges that Mr MacFarlane came into possession of the boat unlawfully and without its knowledge or consent.   To the extent there had been a purported sale of the vessel to Mr MacFarlane by Mr White, Mustang says that occurred without authority.

[4]      On 2 May 2010, other persons acting on Mustang’s behalf took the vessel from Mr MacFarlane’s  mooring in Whitianga.   Mr MacFarlane  then reported it stolen to the Police.  The Police located the vessel in Auckland and ordered that it be surrendered either to the Police or to Mr MacFarlane, notwithstanding Mustang’s protestations of legal ownership.   Mustang sought and obtained an order for the arrest of the vessel in late December 2010. The vessel remains under arrest.

[5]      Mustang claims damages in an amount equivalent to the value of the boat at the time it was taken by Mr MacFarlane (which Mustang says was $140,000).   It bases its claim for damages alternatively in the torts of conversion, trespass to goods and detinue.2

[6]      This  judgment  accordingly  relates  to  the  merits  of  these  claims,  of

Mr MacFarlane’s affirmative defences to them, and of a third party claim he has

1 Although the vessel has been renamed by the third defendant, for convenience I shall refer to it as

Impact throughout this judgment.

2 In the end the matter proceeded as a claim in conversion, and that is the only cause of action considered in this judgment.

alternatively brought against Mr White.  Mr White was not represented at the hearing before me and has taken no steps.  He was not called as a witness and appears now to live outside New Zealand, probably in Australia.

The parties and the relationships between them

[7]      Mustang  was  incorporated  in  Australia  in  2007.    Its  sole  director  and shareholder, Paul Scanlon, lives in Queensland and has visited New Zealand only occasionally.  Mustang was used by Mr Scanlon as an ownership vehicle for several boats, including not only Impact, but also a Pelin 40 known as Antares and a Riviera

3850 known as Sequel.  It is accepted on behalf of the plaintiff that Mr Scanlon was

acting as Mustang’s agent in relation to all matters relevant to these proceedings.

[8]      Prior to the events that are presently in issue, Mr Scanlon was also the CEO of Mustang Group Pty Ltd, a holding company for a group of related companies involved in the manufacture and worldwide sales of Mustang motor launches.  Those companies were placed in receivership in late 2007 and Mr Scanlon’s formal involvement with those companies  ceased  at that time.   Somewhat confusingly, Mustang,  the  plaintiff,  was  not  related  to,  or  legally  associated  with,  these companies.

[9]      Equally confusingly, there was at the same time a New Zealand Mustang dealership  which  operated  under  the  name  of  Mustang  Marine  NZ  Ltd.    That company was also legally unrelated to either the Australian Mustang Group or the plaintiff.  The New Zealand dealership was owned and operated by Graeme Doak, until early 2008.  Mr White was also a shareholder.  Notwithstanding the absence of formal legal relationships between the companies, it was through their mutual Mustang interests that Mr Doak and Mr White became business acquaintances with Mr Scanlon.

[10]     Mr Scanlon was also a director of a New Zealand company, MCI Holdings Ltd,  which  was  incorporated in  May 2008  and  owned  and  leased  a number of commercial properties in Auckland.  Throughout 2008 and 2009, the other director of MCI Holdings was Mr Edmond Dantes, who is said to be resident in Florida.  The

sole shareholder of MCI Holdings  Ltd  was Mr Dantes’ company, Monte Cristo Investment Holdings Ltd.  In March 2009, Mr Scanlon was replaced as director of MCI Holdings by Mr White.

[11]     Mr  Scanlon’s  evidence  was  that,  in  early  2008,  he  entered  into  an  oral retainer agreement with Mr White to arrange the marketing and advertising in New Zealand of the three boats referred to in [7] above.   Later, Mr Scanlon also used Mr White to perform property maintenance and management work on behalf of MCI Holdings  and  in  a  debt  collection  capacity  on  behalf  of  an Australian  finance company (James White Capital) with which Mr Scanlon was involved.  He said he paid Mr White a retainer of $2000 per month for these jobs.

[12]     A number of witnesses spoke of their assumption or belief that Mr Scanlon and  Mr White  were  business  partners.    For  example,  Hope  Crowley,  who  was Mr White’s girlfriend at the time said:

Paul Scanlon and Marcel operated three businesses together.  MCI Holdings Limited (which was the one that had a bank account that Marcel would get me to write out cheques from), Mustang Marine Nominees Pty Limited (mainly used for buying and selling boats) and James White Capital (their finance company).  It seemed to me that there was a lot of overlap between all three companies because Marcel and Paul Scanlon would mix up funds from each different business.  They also used email addresses reflecting each company name interchangeably and Paul and Marcel were always using the MCI bank account for cheques related to the boat company as well as the commercial property complex in East Tamaki.

Marcel was good at putting deals together but terrible with organising paperwork so Paul Scanlon would do that side of things ... .

[13]     It is, however, of some significance that in Mr MacFarlane’s statement to

Police (made after he had reported the vessel stolen) he said:

Marcel calls Paul Scanlon his partner.  I don’t know if he just works for him

of if they are partners.

[14]     Mr Scanlon was adamant that any authority that may have been possessed by Mr White to act on behalf of Mustang was specific rather than general in nature. Moreover, there was no evidence that Mr Scanlon ever made any direct representations about Mr White’s general authority to act on behalf of Mustang.  I accept,  however,  that  Mr  White’s  own  conduct,  the  name  of  the  plaintiff  and

Mr White’s historical involvement with Mustang Marine NZ Ltd may well have meant that his precise status and role in relation to Mustang was unclear to third parties with whom he had dealings.

[15]     Mr MacFarlane’s involvement in the events that are the subject of these proceedings  came  about  through  his  association  with  Mr White,  whom  he  had known since Mr White was a child, having been a close friend of Mr White’s father. Mr MacFarlane is also involved in the boat industry and was at the time, and still is, the majority shareholder and sole director of Tuna Fishing Company Ltd that catches tuna for export.

[16]     Mr MacFarlane’s evidence was that in March 2009, he started performing work for Mr White by moving Mustang’s boats from place to place and clearing out commercial premises that were owned by MCI Holdings.  His evidence was that he was not paid for this work.  It is common ground that Mr MacFarlane has never met Mr Scanlon.   Mr MacFarlane says they have spoken on the telephone, however Mr Scanlon denies this.

[17]     Lastly (in terms of parties), it is relevant to record that the claim as originally filed also contained a cause of action in conversion against the Attorney-General on behalf  of  the  New  Zealand  Police.    The  Attorney  was  named  as  the  second defendant.   The claim related to the order made by the Police (at the behest of Mr MacFarlane) for the surrender of Impact which was alleged to be an unlawful interference with the plaintiff’s ownership rights.  I elaborate further upon the part played by the Attorney-General in the proceeding below.

Issues

[18]   As I have noted above, Mustang’s claim against Mr MacFarlane is in conversion,  trespass  to  goods  and  detinue.     As  I  have  also  said,  even  on Mr MacFarlane’s evidence, there is no question that he took the vessel on or about

22 May 2009 and used it as his own since that date until its repossession and arrest. There can therefore also be no issue that, in the event that he did not obtain title to

the vessel, Mr MacFarlane intentionally denied Mustang’s right to exclusive possession of it, and thus is liable for conversion.3

[19]     Mr Heard submitted, and I accept, that the central issue is therefore whether Mr MacFarlane can prove he has obtained legal title to the vessel.   On the basis of the pleadings and evidence before me, whether or not Mr MacFarlane obtained such title essentially depends on:

(a)      whether there was an agreement for sale and purchase entered into between him by Mr White; and if so

(b)      whether -

(i)Mr  White  had  Mustang’s  actual  authority  to  enter  that agreement; or

(ii)Mr White had the Mustang’s ostensible authority to enter that agreement; or

(iii)notwithstanding Mr White’s lack of authority, he can be said to have been acting as a mercantile agent in terms of s 3 of the Mercantile Law Act 1908 when he purported to sell the vessel;

(c)      if  the  answer  to  any  of  those  3  questions  is  “yes”,  whether  the agreement was nonetheless not sufficient in law or was not performed sufficiently, for title to pass to Mr MacFarlane.

[20]     If Mr MacFarlane is unable to establish that title passed to him then it follows that Mustang will be entitled to damages in an amount equivalent to the value of Impact assessed at the date of Mr MacFarlane’s possession/conversion of it.  There is an issue about the appropriate valuation in that respect.  The question of interest and

costs would also arise.

3 Club Cruise Entertainment and Travelling Services BV v The Department for Transport [2008] EWHC 2794 (Comm) , [2009] All ER (Comm) 955 at [40] citing Lancs and Yorks Rly v McNicholl (1918) 88 LJKB 601 at 605.

[21]     In the event that Mr MacFarlane is found tortiously liable to Mustang further issues then arise about:

(a)      Whether he has a legally or factually tenable claim for contributory negligence against the plaintiff;

(b)The quantum of damages payable by him to Mustang (Mustang does not seek return of the vessel); and

(c)      The merits of his third party claims against Mr White, which have been pleaded in deceit and breach of the Fair Trading Act 1986.

Procedural, pleadings and evidentiary matters

[22]     It  is  fair  to  say  that  certain  procedural  aspects  of  this  proceeding  were somewhat vexed. The reasons for this seem to me to include:

(a)      The fact that Mustang is an Australian company and Mr Scanlon lives in Australia;

(b)      The fact that Mr White was not called as a witness;

(c)      The rapidity with which the proceeding moved from initial filing to trial.   In particular, although it was never formally allocated to the swift track:

(i)the proceeding was allocated a four day trial date at the first case management conference.  The trial date allocated was less than seven months after the date of that conference.   In the event,  four  days  proved  to  be  inadequate  for  the  hearing (which in the end spanned nearly seven days over a period of three months);

(ii)the setting down date was 11 July 2011, at which point there were    still    interlocutory   matters    outstanding,    including

applications by the third defendant for further and better discovery  (as  to  the  origins  of  which  see  below)  and  for joinder of Mr Scanlon and Mr White as third parties.   The joinder of Mr White was ordered on 21 July.

(d)The comparatively low dollar value of the claim.  Although of some considerable monetary consequence to Mr MacFarlane, the amount at stake necessarily had a bearing on the extent to which:

(i)Mr MacFarlane was able prudently to pursue certain matters, particularly in terms of calling or subpoenaing witnesses who live in Australia;

(ii)The Court was prepared to sanction certain interlocutory steps, regardless of their underlying merit.    For example, an application for further discovery by the third defendant was expressly  declined  by  Lang  J  on  a  “pragmatic”  basis  on

21 July 2011.

[23]     The difficulties outlined above were further compounded by the documentary and evidentiary issues that arose as a result of the involvement of the Attorney- General at the earlier stage of the proceedings, as I explain in the paragraphs which follow.

[24]     On 12 April 2011, Mr Scanlon swore Mustang’s affidavit of documents in the proceedings.   It was in orthodox form and in Part 1 he listed approximately 60 relevant, unprivileged, documents.   No emails, faxes or letters addressed to or received from Mr White were listed.  In Part 4, Mr Scanlon referred to “Documents that are no longer in the control of Mustang Marine” in the following terms:

(a)       Originals and service copies of pleadings and other documents filed by Mustang Marine in this proceeding were filed on or about their respective dates.

(b)      Documents lost or destroyed in the ordinary course of business.

[25]     On 29 April 2011, the Attorney General (who was still at that point a party) filed an application for further and better discovery from Mustang.  The application referred to the existence of a “trans-Tasman criminal investigation” into the actions of Mr Scanlon and Mr White in relation to dealings with both Impact and Antares.  It said that, as a consequence of that investigation, the Attorney-General had been made  aware  that  relevant  correspondence  between  Mr  Scanlon  and  Mr  White relating to Impact was held by the Queensland Police and noted that this correspondence had not been discovered by Mustang.   The information said to be disclosed by these documents (copies of which were not then in the Attorney’s possession) was essentially that:

(a)       on 16 June 2009 Mr Scanlon reported the vessel Impact stolen to the

New Zealand Police;

(b)on 30 June 2009 Mr Scanlon made an insurance claim for the vessel with Vero Insurance New Zealand Limited;

(c)       on about 5 August 2009 Australian Police executed a search warrant at

Mr Scanlon’s home;

(d)      on about 7 August 2009 Mr Scanlon withdrew his insurance claim;

(e)       on 8 August 2009 Mr Scanlon was arrested in Brisbane by Australian

Police;

(f)       on 9 August 2009 Mr Scanlon withdraw his theft complaint.

[26]     The affidavit went on to state that these documents showed (inter alia) that:

(a)       Mr  Scanlon  had  told  Vero  Insurance  that  his  claim  was  being withdrawn because Mr White knew where the vessel was;

(b)      Mr Scanlon was aware of, and authorised, the sale of Impact in New

Zealand.

[27]     On 6 May 2011, Mr Scanlon swore an affidavit in response in which he stated that:

4.Based on the material that has been filed by the Attorney-General it appears that the Queensland Police hold correspondence that I am advised appears to be relevant.

5.I do not have copies of the material the Queensland Police have that they obtained from me.  That material was obtained under a search warrant. My computer hard drives and mobile phones were removed during the search.  The hard drives have since been returned with all contents deleted. The mobile phones have not been returned to me.

[28]     Mr Scanlon maintained this position when he was cross-examined at trial about the adequacy of his discovery.

[29]     On  12  May 2011  (the  same  day  that  Mr  Scanlon’s  affidavit  was  filed), Mustang also filed a discontinuance of its claim against the Attorney-General.  The requirement for leave was raised by Mr MacFarlane and on 16 May 2011 leave was granted by Andrews J.  In her minute, she noted:

In light of the plaintiff’s discontinuance against the second defendant, the

second defendant’s application [for further discovery] is now moot.

However, an application has been filed on behalf of the third defendant, Mr MacFarlane, requiring the plaintiff to give further and better discovery.  The application seeks an order for particular discovery of documents from the Queensland Police’s investigation into the theft of three vessels.   Counsel may like to give consideration to the possibility of material from the Queensland Police being made available in this proceeding, through the offices of the Attorney-General.

[30]     On 20 May 2011, counsel for the Attorney-General (by then no longer a party) filed an affidavit from Constable Stone of the New Zealand Police which annexed to it a large quantity of material obtained from the Queensland Police.  The admissibility issues arising are discussed further between [35] and [47] below.

The theory of Mr MacFarlane’s defence

[31]     One of the (numerous) difficulties faced by Mr MacFarlane was that it seems clear beyond doubt that the price that he says he paid for the vessel was considerably less than it was worth.  While it is conceivable that Mr White might have purported

to enter such a transaction on his own account (i.e. with a view to taking the money for himself), it is more difficult to explain why Mustang would have agreed to sell the vessel at grossly under value.

[32]     It was largely (but not wholly) as a result of receiving the documents from the Queensland Police that the theory of Mr MacFarlane’s defence developed.   That theory essentially was that Mr Scanlon and Mr White had contrived to sell Impact to him at considerably under-value because they had been unable to sell it at market value  and  were  planning  then  to  report  the  vessel  stolen  and  to  make  a  false insurance claim for its insured value ($185,000).  It was only after the Queensland Police became involved that the claim was withdrawn and it became necessary to pursue Mr MacFarlane.

[33]     Even without all the difficulties noted in [22] above, however, this hypothesis was not an easy one to pursue.  And those difficulties were further compounded by the well-established rule that an allegation of fraud,4 (a) is not to be made lightly and (b) requires particularly cogent or strong evidence, albeit that the civil standard of proof still pertains.5     As the trial unfolded, that requirement indeed proved problematic because:

(a)      Mr Scanlon categorically denied the existence of any such dishonest arrangement and said that all criminal charges against him had been dropped;

(b)      Mr  MacFarlane  did  not  call  any  direct  evidence  to  contradict

Mr Scanlon’s     evidence     on     these     matters.        In     particular, Mr MacFarlane did not:

4 Although the amended statement of defence does not use the word “fraud” that is plainly the

allegation that is made. The relevant paragraphs state:

28. On 30 June 2009, Paul Scanlon made an insurance claim with Vero Insurance for the vessel Impact.

29. The claim made with Vero was made by Paul Scanlon with knowledge of the disposition of the vessel to Mr MacFarlane.

5 Back v National Insurance Co of NZ Ltd [1996] 3 NZLR 363 (HC).

(i)seek  to  call  Mr  White,  who  would  presumably  have  been costly to (Trans-Tasman) subpoena.  However, he was unlikely to have been helpful, and was in any event elusive;

(ii)presumably for reasons of cost, did not seek to call a witness from the Queensland Police who could (subject to any contest about relevance) give evidence about the fraud investigation and its outcome.

[34]     Mr MacFarlane was therefore compelled to invite the Court to draw very serious negative inferences indirectly, from a disparate range of documentary and other evidentiary sources.   The admissibility of a good deal of this material was vigorously contested.  A summary of these admissibility issues, and my approach to them, are recorded below.

Admissibility and other evidentiary matters

[35]     As I have said, the plaintiff made a considerable number of admissibility objections   to   the   evidence   that   was   proposed   to   be   called   on   behalf   of Mr MacFarlane.  A number of the issues raised by the objections had their origin in the pre-trial and procedural circumstances I have set out above.   Others were the result of the way in which the witness statements had been written and in particular an apparent willingness to permit witnesses to give their opinions and comment on the ultimate issue or matters that were strictly outside the scope of their knowledge. Ms Parlane’s view of relevance was also rather more liberal than that of Mr Heard.

[36]     As a result of objections raised, large passages from a number of the third defendant’s witness statements were excised before the evidence was given, at my direction.  Other passages were permitted to be read and were received in evidence de bene esse.  There are, however, some specific points that need to be recorded here about my approach to certain key evidentiary matters.  I set them out in no particular order.

[37]     First, I have taken no particular account of the investigation by Australian police  into  Mr  Scanlon  and  Mr  White  beyond  the  (undisputed)  facts  that  an insurance claim was made and dropped by Mr Scanlon following the laying of criminal charges against him.  The complaint that had earlier been made to the New Zealand Police was also dropped at that time. As I have said, however, Mr Scanlon’s evidence was that the charges laid against him were eventually dropped and there is no admissible evidence before me to the contrary.

[38]     Secondly, although I accept as admissible the evidence from Mr Bradley (a claims investigator employed by Vero Insurance) about his communications with Mr Scanlon about his claim (while it remained on foot), I do not accept as admissible his opinions about the bona fides of the claim.   Mr Bradley was not in any event called as an expert witness.

[39]     Thirdly,  all  emails  made  available  by  the  Queensland  Police  to  which Mr Scanlon was a party and which were put to him are plainly admissible and I did not understand Mr Heard to argue otherwise.  Accordingly, Ms Parlane’s attempt to have  admitted  the  affidavit  of  Constable  Stone  and  the  sworn  statement  of Emma McCallum of the Queensland Police which each annexed or referred to these documents was, to that extent unnecessary, as was Constable Stone’s oral evidence in which he referred again to these documents.   But to the extent that Ms Parlane sought to rely on:

(a)      any of the documents referred to by the Police Officers that were not put in evidence through Mr Scanlon or another witness, or referred to by her in opening; or

(b)any expression of opinion by either of the Police Officers in their earlier affidavits or statements about (for example):

(i)       the merits of the Australian prosecution;

(ii)      the motivation or bona fides of Mr Scanlon and/or Mr White;

(iii)     whether or not the hard drives returned to Mr White by the

Police had in fact been wiped; or

(c)      any opinion about matters such as the above expressed by Crown Counsel acting for the Attorney-General in letters or documents filed in Court -

I agree with Mr Heard that they are not admissible and I have not taken them into account.

[40]     Fourthly, to the extent that (notwithstanding the swinging excisions to which I have already referred) the third defendant’s witnesses were permitted to make statements that went to the ultimate issue, to express opinions, to speculate or to say things  that  may strictly  have  been  irrelevant,  that  evidence  has  of  course  been disregarded.

[41]     Fifthly, the statements made in the documents to the effect that Mr Scanlon’s hard drives had not in fact been wiped when they were returned to him by the Australian Police are inadmissible (and were, in any event, not put to him).   That said,  however,  I  consider  that  Mr  Scanlon’s  approach  to  discovery  could  be described as somewhat cavalier, and take that into account (albeit in a very limited way) later in this judgment.

[42]     Sixthly, I have not accepted Mr Heard’s submission that Ms Parlane breached her obligation under s 92 of the Evidence Act 2006 or contravened the rule in Browne v Dunn by failing to put the fraud allegation directly to Mr Scanlon.6   In my view, it is enough that:

(a)       she put the documents she was relying on in that respect to him; and

(b)      Mr   Scanlon    was   well    aware   of    the   nature    of   the    defence

Mr MacFarlane  was  running  and  he  was  not  deprived  of  any opportunity to explain matters.   The possibility that he would have

6 Browne v Dunn (1893) 6 R 57 (HL).

answered any more direct questions other than with a bare denial is, in my view, non-existent.

[43]     Lastly, there is an issue about the “expert” valuation evidence.

[44]     An expert boat valuer (Mr Rees) was called by Mustang.  He said that he had read and understood the Code etc.  His opinion was that, on the assumption that the vessel was in good condition, the value of Impact as at May 2009 would have been around $140,000.

[45]     Prior to the trial, it seems that Ms Parlane’s intended to call her own expert who would, presumably, have put the value much lower.  In the end she did not do so, and preferred to rely on the evidence of Mr Walker who was called principally as a witness of fact and who said inter alia that he had advised Mr White in May 2009 that the boat was worth approximately $80,000.  He also took issue with aspects of Mr Rees’s evidence.

[46]     I begin by recording, but rejecting, Mr Heard’s submission that I should draw an adverse inference from Ms Parlane’s decision not call her proposed expert.  But I am unable to accept Ms Parlane’s submission that I should accept Mr Walker’s opinion on the basis that he was an “expert” as defined in the Evidence Act 2006. Section 26 of that Act makes it clear that the evidence of an expert (as defined) who has not complied with the applicable rules of court relating to the conduct of experts may only be given with the permission of the Judge.  And in respect of those rules, r 9.43(2) stipulates that:

...

(2)      An expert witness must—

(a)     state in any written statement of the proposed evidence of the witness served under rule 9.2 or 9.3, or at the time of giving any oral evidence, or in any affidavit containing the evidence of the expert witness, that the expert witness has read the code of conduct and agrees to comply with it:

(b)     comply with the code of conduct in preparing any written statement of the proposed evidence of the witness to be served under rule 9.2 or 9.3 or in giving any oral or affidavit evidence in any proceeding.

(3)      The evidence of an expert witness who has not complied with subclause (2)(a)

may be offered only with the leave of the court.

[47]     Leave to offer that part of Mr Walker’s evidence that expressed an opinion on the value of the vessel was neither formally sought nor granted.  Thus, while I am prepared to accept his factual evidence about the value advised to Mr White, I am unable to give weight to it as an expert opinion.

Facts and evidence

[48]     It is against the above rather byzantine procedural background that I now set out what I have found to be the established facts and relevant evidence.

[49]     As noted at the beginning of this judgment, Mustang purchased a Wellcraft

37 launch named Impact from Allan Shaw in October 2008 as part of a trade in deal whereby Mr Shaw paid $80,000 and obtained another vessel.   The transaction is notable because the relevant agreements for sale and purchase were prepared and executed by Mr Scanlon in Australia and were detailed in their content.  As well, the evidence was that the $80,000 paid by Mr Shaw was deposited into the bank account of MCI Holdings Ltd.

[50]     Following the purchase, arrangements were made for Impact to be taken to Picton, where it was listed for sale at Vinings Ship Brokers.   In December 2008, Mr Scanlon insured Impact for $185,000 with Vero Insurance Ltd.  The name Impact was written on the side of the vessel in very large, clear lettering.

[51]     On 12 January 2009, Mr Scanlon emailed Mr White a list of jobs that he (Mr White) was to undertake in New Zealand.   One of these was described in the following terms:

2.        Sell Impact – not much to do here, I am chasing NZ guys with genset ... Broker can do the selling. ....

[52]     Impact did not sell and in early 2009 Mr Scanlon began to make inquiries about shipping it, and the two other vessels owned by Mustang in New Zealand, to Australia where they could be sold at auction.  The other vessels were the Riviera

(Sequel) and the Pelin (Antares).  In the course of these inquiries, Mr Scanlon stated that the value of Impact was $65,000.

[53]     In late March 2009 Mr White travelled to Picton and arranged to have Impact driven to Auckland by a truck.  It arrived in Auckland on about 8 April 2009 and was berthed  at  Pier  21,  Westhaven,  next  to  the  office  of  GI  Marine,  a  local  boat brokerage.

[54]     Sometime between 8 and 13 April 2009, arrangements were made to move the  vessel  to  a  swing  mooring  on  Waiheke  Island.    On  13 April,  Mr  Scanlon instructed Mr White to obtain confirmation from the owner of the mooring that the mooring satisfied the relevant insurance requirements.   The vessel was moved to Waiheke in April.  Mr Scanlon received confirmation of that on 6 June 2009.

[55]     After Impact was moved to Waiheke the keys were left with a shipping agent in Auckland.

[56]     In late April and early May 2009, Mr Scanlon sought quotes for motoring, rather than shipping, Impact, Antares and Sequel to Australia.  On 6 May Mr Scanlon said in an email that due to the costs involved it was becoming uneconomic to move Impact to Australia.

[57]     On 13 May 2009, Mr MacFarlane drove Antares to Waiheke with Mr White and viewed Impact at the mooring off Surfdale.   While there, photographs were taken  of  Impact,  it  seems  with  a  view  to  using  them  in  sale  advertisements. Mr MacFarlane denied knowledge of this occurring.  In any event, the photographs show  that  the  name  “Impact”  written  on  the  starboard  side  had  been  partially obscured by a towel that was suspended between two fenders.   On the port side, however, the name of the vessel can quite clearly be seen.

[58]     On 14 May 2009, the photographs taken the previous day were emailed by Mr Scanlon both to Mr Doak and to  a broker in Australia with instructions to photoshop out the name of the vessel.  Mr Scanlon said that this was to make the

vessel appear more saleable and was common practice.  Ms Parlane submitted that it

formed part of Mr Scanlon’s trail of deception.

[59]     According to Mr MacFarlane, it was on or just before this trip to Waiheke (which Mr MacFarlane thought took place on 15 May) that Mr White offered to sell him a “Sea Ray 36” vessel.  He said that the boat he saw at Waiheke was unnamed and unbranded and that, although he now knows it to be a Wellcraft 37, he agreed with Mr White to purchase it, believing it to be a Sea Ray 36.

[60]     Mr MacFarlane said in his evidence in chief that the agreed price for the vessel was $20,000 together with the value of the work that he had done for Mustang and for MCI Holdings Ltd over the previous two months.  He was cross-examined at some length about the purchase price, in the course of which there was the following exchange:

Q        Okay.  You are saying Mr White offered to sell you the vessel for

$20,000?

A        He told me “20,000 plus the work I had done,” and they were happy

with that.

QWhat were the exact words he used?  What were the exact words he used, Mr Macfarlane?

ABasically something like, “You give us $20,000 plus the work you have done, that's basically what the boat owes us.”  At that time, I was on the assumption that the vessel was repossessed and I know repossessed property gets sold for half its value or less or whatever it owes who is ever owed the money on it, you know, so I was comfortable enough with that.   At that point, I mean, I’d known Marcel since he was a kid and I had no problem with him and certainly not his family.  I still have no problem with his family now. They’re great.  I just had no reason to doubt what he was offering me.

Q        You said “basically $20,000”?

A        Plus the work I’d done.

Q        Plus the work.  But were those exact – his exact words? A In round figures, yes.

Q        Round figures?

AOh, round numbers.  I can't say the exact words because it's two and a half years ago.  I can't remember that.  But that was the meaning of it, yes.

...

Q        And you say that Mr White said the boat was worth a lot more? A  That's right.

Q        What did he say it was worth?

AOh, I don’t really recall, I mean, Marcel is quite a yap-yap broker and you know, he talks a million dollars, Marcel.   I mean, everything’s a bit over-inflated with you talk with him.  It's just the way he is.

QIt would have been a pretty important thing in your mind though, wouldn't it? When you are talking about the price of a boat and what you are going to pay for it?

A        Oh, I mean, I could see once I’d listened to the engines and that that

the value was there.  I didn't have to do a lot more investigation.

QThat wasn't my question, though, Mr Macfarlane.  What did he tell you the boat was worth?

AHe just told me it was worth a lot more than that – what we’d negotiated.  I don’t think he put a specific figure on it.

Q        What did you think it was worth?

AI probably thought it was worth in that $80,000 bracket.  It wasn’t a tidy vessel.   The Genset, as Mr Shaw said yesterday or the day before, wasn’t going.  The cost to fix it was worth more than it was worth which meant a lot of electrics couldn't work without it.  Um, there's a lot of other electrics as everybody has said through the thing that weren't working on the boat.  It's – it wasn’t a –

Q        But you, you, you thought -

Ait wasn’t a pressed-edge boat and the brokers that – what was his name that was here this morning?  He said that same thing.

Q        You thought it was worth $80,000?

AThat's  what  it  would  have  been  worth  at,  at  its  time,  I  would imagine.  Tidied up and going, you know, I mean and it wasn’t tidy and going, so if you are buying a vessel for half of that value or a bit less, there you go.  By the time you spend the money on it.

Q        It wasn’t tidy and going?

AIt was going, but I mean not much internally in it was going.  The engines were all going all right, but all the other electrics are – if you

have anything to do with the marine industry, costs a lot of money when you start repairing things like that or replacing things like that.

Q        So how did you get to 80?

AOh, it was a figure that I had in my head.   I mean, you generally know valuations of things you are involved with.

Q        But you’ve just said earlier you, you’re not really somebody who has

had a pleasure craft for many years?

ANo, but I mean over the – over the years while I didn't, while we bought these commercial vessels, I used to always look at broker’s magazines – Trader Boat was a big thing in those days.  Then the Internet came along and you still always look at those things in the spare time.

Q        So you thought it was maybe 80?

A        That's how I saw the vessel in the condition it was in. Q     But you insured it for 160?

AWell, that was the price that the brokers came up with when I spoke to them about the figures of the boat and what was – what was on it?

Q        Which brokers? A         Steve Law.

Q        Steve Law who’s?

A        With AON Insurance.

Q        Right the insurance broker?

A        He's the broker we use for our commercial vessels.

[61]     On  18  May 2009,  Impact  was  provisionally registered  with  the  relevant

Australian authority as an Australian ship.

[62]     On 19 May, the skipper who was to conduct the transport to Australia was confirmed to be seriously ill and the voyage postponed.  By 22 May, a new skipper and crew had confirmed arrangements to transport Impact and Antares to Brisbane. Arrangements were made to have Sequel shipped on a container ship.

[63]     Mr MacFarlane said that on 22 May he, his son and Mr White again went to Waiheke where Mr White handed over the keys to the vessel that he still believed was a Sea Ray.  After driving it to Whitianga, he then spent some weeks fixing up

the boat at a cost of approximately $9000.  He named it Tuna2Go and later insured it for approximately $160,000.

[64]     In terms of the contractual formalities, Mr MacFarlane said in the course of cross-examination:

Q        But ... did you say, settle on a price and then Marcel was going to get

Paul to prepare a written sale and purchase contract?

AThat’s what he kept telling me yes, and I had no doubt to disbelieve that you know, knowing that Paul was operating the major part of their business from Surfers Paradise and Marcel was going back there in a very, very short time.   Um, it wasn’t really bugging me that he was going back without me having the sale and purchase agreement but you know, because that can be sent on email any day of the week but I didn't see it as a problem.

Q        Didn't see it as a problem, so on the day that you –

A        I had nobody to distrust at that point, I – no problem.

Q        – on the day that you say you agreed to buy the boat, he says that’s

fine I'll get Paul to draw up the deal. A     Sorry?

Q        He says on that day –

A        Which day?

Q–  the  day  that  you  agreed  to  purchase,  you  say  you  agreed  to purchase the boat he says –

A        Yeah, ah, -

Q–  he  says,  okay  I'll  get  Paul  to  draw  up  a  sale  and  purchase agreement?

A– that’s, well I dunno if it happened on that day.  I don’t think at the time when I agreed to purchase a boat that we actually discussed the purchase agreement right there and then.  We did over the next few days.

Q        But you would've expected one? A         Oh yeah, yeah.

Q        Definitely expect one?

AAnd that’s why I continued to ask for one.  I mean my accountant I thought would've asked for one when I did my books up at the end of the financial year.

QAnd he had to ask Paul for that agreement because Paul was the guy that signed off and things like that?

AI don’t really know, I just presume so.   He said it was coming, it would come from Surfers Paradise and he palmed me off with a couple of excuses but I did, I had no doubt it would come at that point.

QSo you presumed that it was Paul Scanlon that had to prepare the contract for sale?

A        Oh I dunno who prepared them but –

Q        Presume that it was?

A– I mean Marcel only had a little office on the "Riviera,” he didn't have an office with printers and things in it that he could do everything with.

Q        So he told you it was coming from Surfers Paradise? A     Coming from Australia yeah.

QSo you knew it was coming from – well Marcel – you would've known, you said his business partners were Paul Scanlon, right?

A        As far as I was concerned he was telling me all the time or for years

he’d tell me he was a business partner with Paul.

Q        So if there was a written agreement coming, it was coming from

Paul Scanlon in Australia?

A        Or coming from Australia, I don’t know that he actually mentioned

Paul but I would've naturally assumed that.

Q        And it coming from someone aside from Marcel White?

AYeah, yeah.  I mean he could've gone back to Australia and done it when he went but it wasn’t concerning me, long as it came.

[65]     Notwithstanding Mr MacFarlane’s expectations, no written sale and purchase agreement was sent to him or signed by him either at that time or subsequently. Other witnesses with experience in the boat industry all confirmed that they would have expected a written agreement in relation to such a purchase.

[66]     On 27 May 2009, Mr MacFarlane withdrew $12,000 in cash from the ANZ bank at Thames while en route to Auckland.  He said that he paid only $10,000 of that money to Mr White but could not recall what he had done with the remaining

$2000.   Mr Heard contended that Mr MacFarlane’s evidence about paying only

$10,000 (rather than $12,000) had been “tailored” by him after he had seen the email

to which I refer at [70] below.

[67]     Mr MacFarlane’s evidence about the $10,000 cash payment is also somewhat at odds with what he initially said in his statement to Police, namely that payment for the boat had been made by his partner into two different accounts nominated by Mr White  by  way  of  internet  banking  (as  to  which  see  further  [84]  below). Moreover, the corresponding cheque butt for the $12,000 withdrawal records that the

$12000 cheque that was cashed was related to a payment for a quota lease made to “Longman Trust”.   Mr MacFarlane’s explanation was that the butt had been filled out by him some time after the event for “accounting purposes”.

[68]     Mr  White’s  then  girlfriend,  Hope  Crowley  (whom  I  found  to  be  a disarmingly frank witness), said in her evidence that a “wad of cash” was handed by Mr MacFarlane to Mr White in the marina car-park at around this time.

[69]     On  27  and  28  May  2009,  there  was  an  exchange  of  emails  between Mr Scanlon  and  Mr  White,  the  latter  of  which  assumed  some  importance  in Mr MacFarlane’s defence.  Just before midnight on 27 May, Mr Scanlon had written:

The deposit into the account today wasn’t over $9k, it was $7,420.  Can you please outline what happened to the rest of the amount up to $15k less $1100 for Dougal.

[70]     In the early hours of the morning on 28 May, it seems that Ms Crowley typed an email response, the contents of which were dictated by Mr White.   That email stated (inter alia):

This is the break down for Dougal money

$10,000 You know what

$5000 = 5x rods @ $1000 each

= $15,000

Less

$600 wages = 3 x $200

$1100 Pelin pick up

...

= $7580

$15000

-

$7580 =

$7420

That is how it worked out.

...

[71]     Mr  MacFarlane  relied  on  this  email  as  evidencing  that  Mr  White  and Mr Scanlon were communicating about the $10,000 that he (“Dougal”) had recently paid for the vessel (“You know what”). And Ms Crowley in her evidence said:

Not long after Dugal gave Marcel the cash, I’m pretty sure I wrote an email to  Paul  on  Marcel’s  behalf  accounting  for  the  money  Dugal  had  given Marcel.   The email is dated 28 May 2009. ... The $10,000 was certainly Dugal’s cash payment for the boat.  I have no doubt about this.

[72]     Mr Scanlon, however, denied this under cross-examination when he said:

A         No, he refers to $10,000 being received, but I don’t accept it’s from

Dugal.

QWell, he says, “This is the breakdown for Dugal money.”   So that sounds like it’s for Dugal, doesn’t it?

ANo, because he’s responding to my email where I ask him, “The deposit into the account today wasn’t over nine K, it was $7,420, can you please outline what happened to the rest of the amount up to

$15,000 less $1100 for Dugal.”  The email continues but that’s the relevant part so when he responds about Dugal money he’s referring

to the $1100 cash that he had told me had to pay Dugal.

[73]     In the early evening of 30 May 2009, Mr White sent Mr Scanlon an email in which he said he was resigning from his position at Mustang but saying that he would work the week out and could move a boat that Mr Scanlon wanted moved within that period.  After a phone conversation with Mr Scanlon, Mr White sent a further email upon which Mr MacFarlane also relied.  It stated:

I will be picking up the Wellcraft.  You may need to show that email to your insurance people when they can’t get hold of me, do you know what I mean. It will just show them that I do not work for you any more and think you are a prick. [do you understand me now].

[74]     On 5 June 2009, Mr Scanlon emailed Mr White saying:

I know tomorrow was supposed to be your last day but could you please move Impact to Westhaven tomorrow morning.

[75]     On 7 June 2009, Mr White sent Mr Scanlon an email in which he said:

I went out to get the boat, I cannot find it, it is not on the mooring or in the bay you said it is in.  Thanks for wasting my time.  I booked a berth at west haven so I will cancel it you will need to pay them if they decide to charge you.  I will drop the keys off to your lawyers in the morning.

[76]     Mr Scanlon said that on receipt of this email he asked Mr White to search for the vessel.  He said Mr White confirmed in subsequent days that he had looked but could not find it.  But the owner of the Waiheke mooring, Mr Dudek, said that he was never asked whether he had seen the vessel (or seen it being driven away) and that in fact a mooring fee was paid on 29 June by Mr White.

[77]      On 15 June 2009, Mr Scanlon reported Impact stolen to the New Zealand Police, although he also told an Australian marine auctioneer (Mr Lawrence) by email that the boat had been sold in New Zealand.   The following day he also emailed the insurance broker who had been involved in his plans to ship the three vessels to Australia saying that Impact would be staying in New Zealand.

[78]     On 29 June 2009, Mr Scanlon sent an email to Mr White entitled “Money to

collect” which contained a list, including:

...

4.        Boats

a.        Riviera $375k b.  Pelin $150 k

c.         Wellcraft $140k

5.        Other

a.         D man $10k

...

[79]     Mr Scanlon denied that “D man $10k” was a reference to the remainder of the purchase price for the vessel that was payable by Mr MacFarlane but accepted that “Wellcraft $140k” was a reference to the money he hoped to get from Vero Insurance for the boat.

[80]     On 30 June 2009, Mr Scanlon lodged an insurance claim for Impact with

Vero.

[81]     On  30  June  and  1  July  2009,  there  was  an  email  exchange  between Mr Scanlon  and  Mr  Lawrence  upon  which  Mr  MacFarlane  also  relied.    The exchange concerned  what  should  be said  to  those  people in Australia  who had expressed   an   interest   in   buying   Impact   after   seeing   advertisements   for   it. Mr Lawrence sent Mr Scanlon a draft of the email he proposed to send, which said that the risks of bringing a 37 footer from New Zealand were too great, and that a decision had been made to sell the vessel in New Zealand.

[82]     Mr Scanlon’s response to this email was to say:

Thanks Andrew, please make phone calls on this, don’t send in email form.

[83]     Mr Scanlon denied that he said this because he did not want a “paper trail” that contradicted the insurance claim he had filed the previous day.  He said that he simply asked Mr Lawrence to deal with the prospective buyers by telephone as a matter of good business practice.

[84]     Also on 1 July 2009, Mr MacFarlane’s partner, Ms Fraser, made internet payments totalling $400 to two bank accounts nominated by Mr White.  These bank accounts were not associated with Mustang or Mr Scanlon.   Ms Fraser’s evidence was that Mr White had advised her that it would be “easiest, rather than paying the money into Mustang’s bank account ... to make the payments to some people he owed money to.”

[85]     Mr MacFarlane said that on the same day he gave Mr White a further cash cheque for $9,300.   Bank records confirm that a cash cheque in that amount was subsequently banked into the MCI Holdings Ltd bank account,7 although the cheque in question was dated 10 July 2009.  The corresponding cheque butt filled out by

Mr MacFarlane  states  that  the  cheque  had  been  paid  to  a  company  named

7 By this point Mr White had taken over from Mr Scanlon as the director of MCI Holdings and the only shareholder in the company was Mr Dantes.

“Blacksmith Enterprises Ltd” and was for a Genset.  Mr MacFarlane again said he

had filled this out later to “keep the accountant happy”.

[86]     On Mr MacFarlane’s evidence, therefore, the monetary payments made by

him for the vessel totalled $19,700.

[87]     On 3 July 2009, Mr White left New Zealand for the Gold Coast.

[88]     Mr MacFarlane said that at some time in June or July 2009 he received a telephone call from Mr Scanlon in Australia inquiring if he was “happy with the Sea Ray”.  Mr Scanlon denies making such a call.  No telephone records were produced in evidence.

[89]     On  5 August  2009,  the  Queensland  Police  executed  a  search  warrant  at Mr Scanlon’s home.  The following day Mr Scanlon withdrew the insurance claim and emailed Vero saying:

... I’ve been in touch with Marcel again and he confirms he knows where the

boat is, so I can withdraw the claim.

[90]     When this email was put to Mr Scanlon he said that the statement was untrue but that:

... at the time that wasn’t the foremost thought in my mind, I’d just been, my house had just been attended to by quite a number of police, my personal life had been turned upside down and I was extremely upset by the fact that the police were making criminal allegations against me and were about to charge me with fraud and this, you know, my life was turning upside down, um, I ... certainly wasn’t thinking particularly clearly.

...

I was certainly making a bad decision to tell them something that was wrong but I was ending it and I thought I needed to give them a reason, which was a mistake, I probably didn’t need to give them a reason for withdrawing the claim, but I didn’t want to deal with them or New Zealand anymore given the experience that those charges had arisen out of New Zealand and my entire focus shifted to dealing with those criminal charges and I didn’t want to deal with other matters so I wrote to them ... to end the claim.

...

I thought it would be the end of the matter and so it wouldn’t matter.  I had

previously made two statements, one that I wanted to make an insurance

claim and the boat was missing, you know, I perhaps wrongly, considered when I withdrew the claim that I needed to make two corresponding statements, one that I was withdrawing it, in relation to the first angle and secondly, a reason why it was no longer missing and I probably didn’t need to do that, in hindsight, the quickest way I thought was to find some reason why it wasn’t missing and I, that’s what I wrote.  As I said, a bad error of judg – a bad judgment by me.

[91]     Messrs Scanlon and White were arrested on 8 August 2009.  On 9 August, Mr Scanlon withdrew the Police complaint, telling them that he would use private investigators to locate the vessel.  To that end, he asked Mr White to retain a firm named “Confidential Collections” (that had been used for vehicle repossessions in Australia by James White Capital) to locate and repossess Impact.

[92]     Mr MacFarlane visited Australia in October 2009 and stayed with Mr White. His evidence was that at that time Mr White told him about the insurance claim made by Mr Scanlon but that he (Mr Scanlon) had now withdrawn the insurance claim and that everything was “sorted”.

[93]     On 1 May 2010, the private investigators engaged by Mr Scanlon located and took possession of the vessel in Whitianga, Mr MacFarlane’s home town.   It was driven to Auckland where, on 2 May, Mr Doak took possession for the purposes of preparing it for sale by Mustang.  Mr White’s credit card was used to pay for petrol.

[94]     On 3 May 2010, Mr MacFarlane made a complaint to the Police that the vessel had been stolen, and on 4 May 2010 the Police ordered Mr Doak to return possession to Mr MacFarlane.   From that time until December 2010, Mr Scanlon asked the Police to take possession of the vessel, and have ownership determined under the Summary Proceedings Act 1957. The Police refused.

[95]     This proceeding was commenced on 22 December 2010.  As I have said, the vessel was arrested on 23 December 2010 at Whitianga, where it remains.

Discussion

[96]     Although I do not regard Mr MacFarlane as a witness of unblemished probity (certain key aspects of his account has  changed over time and his  approach to accounting matters seems to me to be casual at best), I am nonetheless satisfied that:

(a)      Mr MacFarlane believed that Mr White was offering to sell him the Wellcraft vessel (whether or not it was offered as a Wellcraft or as a Sea Ray is, in my view, ultimately immaterial);

(b)      Mr MacFarlane paid Mr White approximately $20,000 for the vessel;

(c)      Mr MacFarlane then believed that he owned the boat and renamed it accordingly.

[97]     In my view, however, Mr MacFarlane also knew that the price he had paid was considerably less than Impact was worth.  I say this because:

(a)      he paid the first instalment in cash and mis-recorded the payment in his cheque-book;

(b)he paid  the  bulk  of the remainder by cash  cheque  and  also  mis- recorded that payment in his cheque book;

(c)      after spending  what  he  said  was  approximately $9000  on  repairs, Mr MacFarlane insured Impact for $160,000.

(d)on his own evidence, the vessel was nameless and brandless when he purchased it.

[98]     Mr MacFarlane’s belief that he had purchased, and owned, the vessel does not of course mean that he came into possession of it lawfully.  As indicated earlier in  this  judgment,  that  question  is  answered  only  by  examining  whether  the transaction entered into by him and Mr White resulted in title to the vessel passing to

him, and turns essentially on the issue of Mr White’s authority to act.   It is to that issue that I now turn.

Actual authority

[99]     The issue of whether Mr White’s offer was made with the actual authority, or on behalf, of the plaintiff (i.e. Mr Scanlon) is not entirely clear cut.  Mr Scanlon of course said that no such authority was given and there is, of course, no written agency agreement.  Rather, (and as I understood it) Ms Parlane submitted that:

(a)       Mr Scanlon’s email dated 12 January 2009 (see [51] above) conferred express actual authority on Mr White to “Sell Impact”; or

(b)      An inference of actual authority can be drawn from:

(i)The general nature of the relationship between Mr Scanlon and Mr White and the nature of the activities in which they were more generally engaged; and

(ii)The other email exchanges to which I have referred, together with the making and withdrawal of the insurance claim, give rise to an inference that Mr Scanlon and Mr White were jointly engaged in an insurance fraud of which the sale of Impact to Mr MacFarlane was an integral part.

[100]  In light of Mr Scanlon’s evidence on the issue, all of these contentions necessarily involved asking the Court to find that Mr Scanlon was not a credible witness.

[101]   As to the first submission, I do not read the email of 12 January 2009 as conferring actual authority to sell on Mr White.  The email was in the form of a “to do” list and at the time of writing Impact remained listed with a marine broker.  The email makes it clear that the selling would be done by Vinings.

[102]   As regards any finding of implied actual authority to sell arising from the general nature of the relationship between Mr Scanlon and Mr White, the evidence seems to me to be against Ms Parlane’s position.   More particularly, the evidence was  that,  in  the  ordinary  run,  Mr  White  was  not  authorised  to  conclude  any significant transaction without reference back to Mr Scanlon and that such a transaction would not be complete without documentation that would be prepared by Mr Scanlon.   It was accepted by Mr MacFarlane that there was no such reference back in the case of Impact.

[103]   As regards the other matters relied on by Ms Parlane, however, I accept that they do raise a question mark over Mr Scanlon’s involvement in the relevant events and give rise to the possibility that he did indeed authorise Mr White to transact as he did with Mr MacFarlane.   And I am also prepared to accept that Mr Scanlon’s approach to discovery, together with his (admitted) untruth to Vero about the reasons for the withdrawal of his insurance claim (notwithstanding his later explanation for it) necessarily means that his credibility is not completely untarnished.

[104]   The difficulty is,  however, that  an  acceptance of the  fraud hypothesis is central to the inferences that Ms Parlane asked me to draw.8    Bearing in mind the need for the evidence in such a respect to be “clear and convincing”,9 it is important to cast a particularly critical eye over the evidence relied upon.

[105]   A fair reading of Mr Scanlon’s email to Mr White of 27 May (see [69] above) is that Mr White had received on behalf of Mustang (and possibly MCI Holdings) approximately $15,000 of which only $7,420 was deposited into a bank account. Mr Scanlon was asking Mr White to account for the $7580 remainder, less the $1100 which was a payment “for Dougal”.   Mr Scanlon therefore knew about (and necessarily approved) the receipt of the $15,000.

[106]   But the “for Dougal” reference, together with Mr White’s reply the following

day (which stated that $1100 was paid out for “Pelin pick up”), arguably suggests

8 The hypothesis is central because if Mr Scanlon did authorise the sale then his subsequent insurance claim was necessarily fraudulent.

9 Back (above n4) at 370 - 371. Hammond J also noted there that it would be difficult to obtain judgment in such a case in the absence of direct evidence.

that Mr MacFarlane was paid $1100 for moving the Pelin.  I merely record that that would have been consistent with Mr MacFarlane’s evidence that the principal work he undertook for Mr White was moving boats, but inconsistent with his evidence that he received no payment for that work, which was instead taken into account in negotiating the purchase price for Impact.

[107]   Moreover the reference in that email to “break down for Dougal money” suggests (if anything) that $15,000 may have been received from “Dougal” ($10,000 for “You know what” and $5000 for “5x rods”).  There was, however, no evidence that Mr MacFarlane had purchased rods from Mr White or that he had paid him

$15,000.

[108]   Similarly, although there is a temporal coincidence in terms of the date of this email  and  the  evidence  that  Mr  MacFarlane  handed  over  a  ‘wad  of  cash”  to Mr White on 27 May, that must in turn be weighed against Mr MacFarlane’s failure to mention making any large cash payment either at that time or subsequently when he reported the theft of the vessel to Police some time later.

[109]   Notwithstanding  these  difficulties  and  inconsistencies,  I  accept  the  email creates (for whatever reason) an air of secrecy over the origins and purpose of the

$10,000 payment.

[110]   When the emails are scrutinised in this way it is clear that it they are an insufficient foundation upon which to found a conclusion that authority was given by Mr Scanlon to Mr White in relation to the transaction at issue.  Given both the onus of proof that lies on Mr MacFarlane to establish the existence of actual authority, and the standard of proof (given that a finding of such authority would necessarily give rise to the conclusion that Mr Scanlon later made a false insurance claim), the email exchange is simply too opaque and equivocal in its terms.

[111]   Similarly, I do not consider that an inference of authority can properly be drawn from the reference in the email of 29 June to there being “$10k” to collect from “D Man” and I do not consider that the subsequent depositing of the $9,300 cheque into the bank account of MCI Holdings Ltd directly implicates Mr Scanlon.

As I have said, by that stage Mr White had replaced Mr Scanlon as one of the two directors of that company.   While I accept that it is quite possible that “Edmond Dantes” was not the real name of the other director of the company it is drawing too long a bow to infer from that name’s literary origins (as Ms Parlane asked me to do) that that name was an alias used by Mr Scanlon.10

[112]   Lastly, I agree that it is possible to interpret the other emails relied on by Ms Parlane  as  suggesting  that  a  degree  of  subterfuge  underlay  them  and  that Mr White  and/or  Mr  Scanlon  each  specifically  expected  subsequent  third  party scrutiny.     But  in  each  case,  there  seem  to  me  to  be  plausible,  alternative, explanations.  Equally, Mr Scanlon’s explanations of his reasons for withdrawing the insurance claim and the Police complaint were not, by themselves, in-credible.

[113]   I have borne in mind that it is necessary to consider the weight of the separate strands of evidence discussed above in combination, as well as individually.  While doing so may marginally tip the balance further in Mr MacFarlane’s favour, it does not do so sufficiently to change my conclusion.  Looked at overall, and in light of the applicable onus and standard of proof, the evidence relied on by Ms Parlane does not persuade me that Mr White sold the vessel to Mr MacFarlane with Mr Scanlon’s actual authority.

Ostensible authority/ Companies Act 1993, s 18

[114]   The amended statement of defence dated 12 August 2011 also pleaded an affirmative defence of ostensible authority.   In the course of closing submissions, Ms Parlane also sought separately to rely on s 18 of the Companies Act 1993 or, in the  alternative,  the  common  law  rule  in  Turquand’s  case  (upon  which  s  18  is based).11

[115]   Mr Heard objected to the introduction of a new defence at that late stage.  I

nonetheless heard submissions from Ms Parlane on the operation of s 18 on the basis

10 Edmond Dantes is the name of the protagonist in the Dumas novel The Count of Monte Cristo. Dantes operates under a variety of aliases during the novel in order to exact revenge on those who have wronged him. As recorded earlier in this judgment the sole shareholder of MCI Holdings Ltd was Monte Monte Cristo Investment Holdings Ltd.

11 Royal British Bank v Turquand (1856) 6 E & B, 119 ER 886.

that Mr Heard would, if necessary, be given the opportunity to make further submissions on the issue.

[116]   In the event, however, I consider that Ms Parlane’s late reliance on s 18 added nothing material to her earlier pleading.   As French J has recently made clear in Levin Meats Ltd v Perfect Packaging Ltd, s 18(1)(c) and (d) “are in large part based on common law concepts of apparent or ostensible authority”.12     The extent of overlap is evidenced in the present case by the fact that both the ostensible authority argument and the s 18 defence must fail for the same reasons, which I set out below.

[117]   As far as the common law of ostensible authority is concerned, French J

recorded in the Levin Meats judgment that:

[45]   It was common ground that before the doctrine could apply to bind a company to a contract which its agent has entered into without authority, four pre-requisites or conditions must be satisfied:

(i)      the making of a representation to the contractor that the agent has the authority to enter on behalf of the company into a contract of the type sought to be enforced;

(ii)     the representation must be made by a person or persons who had actual authority to manage the business of the company either generally or in respect of those  matters to which the contract relates;

(iii)    the third party was induced by the representation to enter into the contract, ie relied on it;

(iv)    that in its constitution, the company has not either restricted its capacity to enter into a contract of that type or to delegate authority to enter into a contract of that type to an agent.

(footnotes omitted)

[118]   Then, she said:

[46]   As noted in Savill v Chase Holdings, the essence of the doctrine of ostensible authority is that it is the principal‘s representation that creates the authority, not the agent‘s assertion that he has that authority. Or to put it another way, the representation of apparent authority must flow from the company and not the agent.

12 Levin Meats Ltd v Perfect Packaging Ltd HC Christchurch CIV-2011-409-000018, 1 August 2011 at [43]. As I understood it, Ms Parlane relied on s 18(1)(c).

[119]   Section 18 arguably goes further.  It relevantly provides:

18 Dealings between company and other persons

(1)    A company… may not assert against a person dealing with the company… that—

…

(c)     A person held out by the company as a[n]… employee… of the

company—

…

(ii)     Does not have authority to exercise a power which a[n]… employee… of a company carrying on business of the kind carried on by the company customarily has authority to exercise:

(d)     A person held out by the company as a[n]… employee… of the company with authority to exercise a power which a[n]… employee… of a company carrying on business of the kind carried on by the company does not customarily have authority to exercise, does not have authority to exercise that power:

(e)     A  document  issued  on  behalf  of  a  company  by  a[n]… employee… of the company with actual or usual authority to issue the document is not valid or not genuine—

unless the person has, or ought to have, by virtue of his or her position with or relationship to the company, knowledge of the matters referred to in any of paragraphs (a), (b), (c), (d), or (e), as the case may be, of this subsection.

(2)     Subsection (1) of this section applies even though a person of the kind referred to in paragraphs (b) to (e) of that subsection acts fraudulently or forges a document that appears to have been signed on behalf of the company,  unless  the  person  dealing  with  the  company  or  with  a person  who  has  acquired  property,  rights,  or  interests  from  the company has actual knowledge of the fraud or forgery.

[120]   I am prepared to find that Mr White was, in a general way, held out by Mr Scanlon/Mustang as Mustang’s employee or agent.  For all intents and purposes, Mr White appears to have been Mustang’s New Zealand presence.   The essential question is therefore the scope of his apparent authority in those roles and, more specifically, whether:

(a)      Mr Scanlon/Mustang represented to Mr MacFarlane or to the world at large that Mr White had authority to enter an agreement for the sale and purchase of Impact (common law ostensible authority);

(b)the entry by Mr White into an agreement for the sale and purchase of Impact involved the exercise of a power which an employee or agent of a company such as Mustang customarily has the authority to exercise (s 18(1)(c)); or

(c)      the entry by Mr White into an agreement for the sale and purchase of Impact involved the exercise of apparent authority to sell notwithstanding that an employee or agent of a company such as Mustang would not customarily have such authority (s 18(1)(d)).

[121]   In the Levin Meats case (upon which Ms Parlane relied), a combination of factors persuaded French J that Levin Meats had implicitly held out or represented to the world at large that its CEO (Mr Grey) did have the authority to enter into a contract  of the type  at  issue.   Thus  the operation  of s  18(1)(d) meant  that  the company could not assert his absence of actual authority as a defence to a breach of contract claim. Amongst the matters that French J took into account was the fact that Mr Grey enjoyed significant autonomy, appeared to be in “complete control” and “very significantly” had previously negotiated and signed contracts for the purchase of valuable capital items.   She also noted his ability to pay the deposits on the

contracts and the “obvious lack of supervision and monitoring”.13

[122]   These matters are, in my view, in fairly sharp contrast with the facts of the present case.   There was no evidence before me that Mr White enjoyed any real autonomy and indeed it is tolerably plain that he was required to report back to Mr Scanlon on any matter of significance.   There was no evidence that suggested that Mr White appeared to be in “control” of Mustang or  that Mr Scanlon left anything important or final to him.  Moreover, the evidence of both Mr MacFarlane himself and others in the boat industry was that there was a general industry expectation that any agreement of the kind at issue here would be in formalised

writing  and  (in  the  present  case)  would  emanate  from  Australia  (necessarily, Mr Scanlon).  No such formalities eventuated here.

[123]   Thus in my view, neither the doctrine of ostensible authority nor the terms of s 18 can assist Mr MacFarlane.  The ostensible authority defence (whether based on s 18 or otherwise) must fail.

Mercantile Law Act 1908

[124]   Section 2 of the Mercantile Law Act 1908 (MLA) defines “mercantile agent”

as:

... an agent having in the customary course of his business as such agent authority either to sell goods, or to consign goods for the purpose of sale, or to buy goods, or to raise money on the security of goods:

[125]   Section 3 of the MLA then relevantly provides:

(1) Where  a  mercantile  agent is,  with the  consent  of the  owner,  in possession of goods or of the documents of title to goods, any sale, pledge, or other disposition of the goods made by him when acting in  the  ordinary  course  of  business  of  a  mercantile  agent  shall, subject to the provisions of this Part of this Act, be as valid as if he were expressly authorised by the owner of the goods to make the same; provided that the person taking under the disposition acts in good faith, and has not at the time of the disposition notice that the person making the disposition has no authority to make the same.

...

(4) For the purposes of this Part of this Act the consent of the owner shall be presumed in the absence of evidence to the contrary.

[126]   In order for the disposition of the vessel to Mr MacFarlane to be validated by s 3 it is necessary first to establish that Mr White was a “mercantile agent” as defined.  This is problematic because both Mr Scanlon and Mr Doak gave evidence that Mr White was not practicing as a marine broker on his own account at the time and had not for some 16 months.  In my view, it is therefore questionable whether he was acting a mercantile agent as defined.

[127]   Even   if   that   were   not   the   case,   there   are   further   difficulties   for

Mr MacFarlane.   The English Court of Appeal has said that the term “ordinary

course of business of a mercantile agent” imports the notion that the disposition

occur while the mercantile agent was:14

... acting in such a way as a mercantile agent would act; that is to say, within business hours, at a proper place of business, and in other respects in the ordinary way in which a mercantile agent would act, so that there is nothing to lead [the purchaser] to suppose anything wrong is being done, or to give him notice that the disposition is one which the mercantile agent had no authority to make.

[128]   I agree with Mr Heard that the transaction in this case does not sit easily with this notion.  In particular:

(a)      all the relevant witnesses, including Mr MacFarlane, agreed that an ordinary sale process for vessels of this type would involve a written sale and purchase agreement, payment of a deposit, settlement and title transferring only on final payment, which is on a set date, and no unsupervised possession given to the intended purchaser.   Mr Doak and Mr Scanlon gave evidence that that was also Mr White’s practice;

(b)Mr MacFarlane confirmed in cross examination that the transaction was highly unusual as a result of his close personal relationship with Mr White.

[129]   And  lastly,  I  also  accept  Mr  Heard’s  submission  that  it  is  questionable whether it can be said that, in taking under the disposition, Mr MacFarlane was acting in good faith as required by s 3(1).  In my view, the unduly low (and vague) purchase price and the other circumstances surrounding the sale (absence of usual requirements and formalities, payment made in cash in a car park) should have put Mr MacFarlane on notice that matters were not in order and/or that Mr White was acting without authority.   Moreover, I consider that there is an inference of actual knowledge to be drawn from Mr MacFarlane’s subsequent falsification of the cheque butts.

[130]   For  all  these  reasons,  I  consider  that  s  3  of  the  MLA  cannot  avail

Mr MacFarlane.

[131]   Because of the conclusions I have reached above, it is strictly unnecessary for me to consider whether the agreement reached by Mr White and Mr MacFarlane was sufficient (or sufficiently performed) to effect a transfer of title to the vessel. Accordingly, I do no more that note that, again, there are considerable obstacles to Mr MacFarlane’s position on this issue.  It is in my view strongly arguable on the facts and evidence set out above that:

(a)       There was insufficient certainty on the issue of price for there to be a concluded sale and purchase agreement;

(b)      To the extent there was sufficient certainty around price (presumably

$20,000 plus work done) payment of the price was an essential term that was not met (because Mr MacFarlane’s evidence was that only

$19,700 was paid);

(c)      The agreement was subject to contract (which did not eventuate).

Contribution

[132]   Ms   Parlane   submitted   that,   in   the   event   that   I   were   to   hold   that Mr MacFarlane came into possession of the vessel unlawfully (which is the effect of my findings above), the damages payable by him should be reduced or apportioned on account of Mustang’s contributory negligence.   The negligence alleged was essentially that Mr Scanlon had failed to institute an appropriate system of checks and balances to ensure that Mr White did not go off on a frolic of his own.

[133]   Section  3(i)  of  the  Contributory  Negligence Act  1947  (CNA)  relevantly provides:

Where any person suffers damage as the result partly of his own fault and partly of the fault of any other person or persons, a claim in respect of that damage shall not be defeated by reason of the fault of the person suffering the damage, but the damages recoverable in respect thereof shall be reduced

to such extent as the Court thinks just and equitable having regard to the claimant's share in the responsibility for the damage:

...

[134]   Section 2 of the CNA defines “fault” as:

... negligence, breach of statutory duty, or other act or omission which gives rise to a liability in tort or would, apart from this Act, give rise to the defence of contributory negligence.

[135]   The cases which deal with the relationship between that definition and s 3(1) are discussed in Todd’s Law of Torts in New Zealand (which was referred to me by Ms Parlane).15    That discussion makes it clear that there are conflicting authorities both  in  New  Zealand  and  elsewhere  as  to  whether  contributory negligence  can operate as a defence to intentional torts such as conversion, or to reduce the damages otherwise payable in that respect.

[136]   Understandably, Ms Parlane relied in particular on the decision in  Dairy Containers Ltd v NZI Bank Ltd, in which Thomas J held contributory negligence as a defence in an action for conversion.16   A contrary conclusion was, however, reached by Prichard J in an earlier decision,17 and by the House of Lords in a later decision.18

And significantly (and as the learned authors of Todd note), the House of Lords decision has been “applied without debate” by the New Zealand Supreme Court in Amaltal Corporation Ltd v Maruha Corporation.19 (That case involved a defence of contributory negligence in relation to a claim for deceit).  While acknowledging the possible need for reform, the authors of Todd note the interpretation of the relevant provisions taken in those contrary decisions “represents a far more natural reading of the statute”.20   I respectfully agree.  In my view, a defence of contributory negligence

is not available to Mr MacFarlane as a matter of law in the present case.

15 Stephen Todd (ed) Law of Torts in New Zealand (5th ed, Brookers, Wellington) at [21.2.04].

16 Dairy Containers Ltd v NZI Bank Ltd [1995] 2 NZLR 30,112 (HC).

17 Rowe v Turner Hopkins & Partners [1980] 2 NZLR 550, 555 (HC). An appeal was allowed on different grounds in Turner Hopkins & Partners v Rowe [1982] 1 NZLR 178 (CA).

18 Standard Chartered Bank v Pakistan National Shipping Corporation [2003] 1 AC 959 (HL).

19 Amaltal Corporation Ltd v Maruha Corporation [2007] 3 NZLR 192 at [23] (SC).

20 Law of Torts in New Zealand at [21.2.04].

[137]   In  order  to  succeed  in  its  claim  that  Mr  MacFarlane  converted  Impact, Mustang must satisfy me that it had possession or an immediate right to possession, and that Mr MacFarlane committed an intentional act that deprived Mustang of use and possession of Impact.21

[138]   I am so satisfied.  There is no question that Mustang was the legal owner of the boat immediately prior to the events in question and, there being no evidence that the rights associated with ownership were in any way limited, therefore had an immediate  right  to  possession  of  it.     Similarly,  there  is  no  question  that Mr MacFarlane deprived Mustang of its use and possession when he (intentionally) took Impact from Waiheke in May 2009 and remained in possession of it subsequently.

[139]   The fact Mr MacFarlane may have considered himself entitled to take the boat is immaterial.  Whatever arrangement was reached between Mr MacFarlane and Mr White, I have found that Mustang did not authorise (either actually or apparently) a sale.  Mr MacFarlane’s taking and continued possession of the vessel was therefore unlawful.   Mustang is therefore entitled to damages calculated by reference to the value of the vessel at that time.

[140]   The only admissible expert evidence was that the value of the vessel at that time was $140,000.  I take some comfort from the fact that this valuation appears to me to be not inconsistent with Mr MacFarlane’s own view (or the view of his insurance broker) when he insured it for around $160,000.  Mr MacFarlane said that that is what it would cost to replace the vessel.

[141]   Accordingly, I give judgment for the plaintiff in the sum of $140,000 together with interest from the date of conversion (namely 22 May 2009) at the rate that has since that date from time to time been prescribed pursuant to s 87 of the Judicature

Act 1908.

21 Wilson v New Brighton Panelbeaters Ltd [1989] 1 NZLR 74; Kuwait Airways Corpn v. Iraqi

Airways Co (Nos 4 and 5) [2002] UKHL 19, [2002] 2 WLR 1353.

[142]   The tort of deceit requires:

(a)       A false representation as to a past or existing fact made by a person

(i)who knew it to be untrue or had no belief in its truth or was reckless as to its truth; and

(ii)      with the intention that it be acted upon by the plaintiff. (b)     Action on the representation by the plaintiff.

(c)       Damage suffered by the plaintiff as a result.22

[143]   It follows from my conclusions above that these elements have been made out on the evidence before me, without of course the advantage of hearing submissions to the contrary.  In short, I find that:

(a)      Mr White represented to Mr MacFarlane that he had the authority to sell Impact, knowing that representation to be untrue but intending it to be acted upon by Mr MacFarlane;

(b)      Mr  MacFarlane  acted  on  that  representation  by  paying  Mr White

$19,700; and

(c)      Mr MacFarlane has suffered both direct and consequential losses as a result, those losses comprising the judgment debt owed by him to Mustang as a result of this judgment, together with the $19,700 he paid to Mr White, minus the value of the vessel today (which Mr Rees put at $75,000).

[144]   Mr MacFarlane is therefore entitled to judgment against Mr White in that amount.

22 Amaltal Corporation Ltd v Maruha Corporation [2007] 1 NZLR 608 (CA).

[145]   As between Mustang and Mr MacFarlane, Mustang has succeeded and is entitled to costs in the usual way.  Memoranda may be filed if agreement cannot be reached.   I record that, while Mr Heard signalled the likelihood of receiving instructions  to  seek  increased  costs,  such  an  award  is  unlikely  in  all  the

circumstances I have set out above.

Rebecca Ellis J