Strathboss Kiwifruit Limited v Seeka Limited
[2021] NZHC 3260
•30 November 2021
IN THE HIGH COURT OF NEW ZEALAND WELLINGTON REGISTRY
I TE KŌTI MATUA O AOTEAROA TE WHANGANUI-A-TARA ROHE
CIV 2014-485-11493
[2021] NZHC 3260
IN THE MATTER OF an application by Strathboss Kiwifruit Limited and Seeka Limited for an order relating to distribution of funds BETWEEN
STRATHBOSS KIWIFRUIT LIMITED
First Applicant
AND
SEEKA LIMITED
Second Applicant
Teleconference: 30 November 2021 at 9 am Counsel:
M Heard and J P Cundy for applicants
Judgment:
30 November 2021
JUDGMENT OF MALLON J
(Distribution of funds)
Introduction
[1] In early November 2010 a virulent strain of the bacteria known as Psa was identified as present in two neighbouring kiwifruits in Te Puke. It quickly spread and caused significant losses to kiwifruit orchardists and others.
[2] A negligence claim was brought against the Crown by Strathboss Kiwifruit Ltd (Strathboss) (representing a class of orchardists) and Seeka Ltd (Seeka) (a post-harvest operator). They claimed that the incursion came from imported pollen negligently approved by the Ministry of Agriculture and Forestry (now known as the Ministry of Primary Industries). Substantial damages were claimed.
RE STRATHBOSS KIWIFRUIT LIMITED [2021] NZHC 3260 [30 November 2021]
[3] The High Court made orders approving the litigation funding arrangements, that the proceeding could proceed on a representative basis, and that the proceeding should be staged.1 Following the Stage 1 hearing, the High Court delivered judgment for Strathboss.2 The Court of Appeal reversed that judgment.3 The Supreme Court granted leave to appeal.4
[4] Prior to the Supreme Court hearing, the parties reached a settlement. Under the settlement, the Crown agreed to pay $40 million, and a notice of discontinuance was to be filed with no question as to costs. That notice has since been filed. The matter before the Court is now whether to approve the allocations and allocation methodology of the settlement sum as between the claimants. This is pursuant to the litigation funding representative arrangements approved by the Court, which included a Committee Agreement under which claimants authorised a committee of plaintiff representatives (the Committee) to conduct and settle their claims.
[5] The Committee Agreement includes a provision that requires the Committee, on settlement:
(a)to determine allocations of the settlement sum as between claimants in the Committee’s reasonable discretion;
(b)after making that determination, to seek directions from the Court confirming that the allocations and allocation methodology are fair and reasonable;
(c)if the Court finds that the Committee’s allocation methodology is fair and reasonable, to distribute the net proceeds of the settlement in accordance with that allocation methodology; and
(d)if the Court finds that an alternative methodology is fair and reasonable, to adopt that alternative methodology.
1 Strathboss Kiwifruit Ltd v Attorney-General [2015] NZHC 1596 at [87], [91].
2 Strathboss Kiwifruit Ltd v Attorney-General [2018] NZHC 1559.
3 Attorney-General v Strathboss Kiwifruit Ltd [2020] NZCA 98.
4 Strathboss Kiwifruit Ltd v Attorney-General [2020] NZSC 68.
Information before the Court
Cameron affidavit
[6] John Cameron is a director and shareholder of Strathboss. He is also a member of the Committee. He provided an affidavit in support of the application for an order from the Court confirming that the allocations and allocation methodology are fair and reasonable.
[7] His affidavit gives details of the claimants represented in the proceeding. He notes that the representative claim was an “opt-in” one. After the period for opting in closed in 2015, there were 214 claimants (once adjustments were made clarifying the proper claimant entities). They included Seeka which, in addition to being a post-harvest operator (whose claim in that capacity was dismissed by the High Court), has orchard operations. In 2021 two Gisborne claimants joined the claim (following a separate proceeding they had commenced against the Crown in May 2019).
[8] His affidavit explains the costs and fees to which the litigation funder was entitled under the litigation funding arrangements. After those payments the net proceeds of the settlement is $25.28 million.
[9] Mr Cameron explains that following the settlement, and as soon as the Covid-19 alert levels allowed it, a meeting was held in Te Puke to discuss the settlement. At the meeting growers offered views on the allocation. Individual growers also communicated with the Committee about allocations. A common theme was for the distribution to happen quickly.
[10] He explains that the Committee considered a number of alternatives and reached the conclusion that a fair allocation could be achieved by a simple approach that grouped growers into two groups, and that a more complex allocation would not necessarily alter individual recoveries greatly, but would erode the amount of money required to achieve them.
[11] He explains that, at a general level, the Committee believes that the largest differentiating factor in the extent of growers’ per hectare losses is whether or not they
removed all their vines. This involved high costs and had revenue impacts over time. The Committee considers this criteria (with modifications and adjustments) is the best means of differentiating between growers. Achieving a perfect allocation of the settlement funds would incur cost and time that would be counterproductive. The overwhelming sentiment of growers was that too much time and money should not be spent on figuring things out to the last dollar.
[12] Mr Cameron notes that all Hort16A vines in regions with the virulent Psa strain had to be cut out. Most were replaced with G3 which was more resistant to Psa. It was several seasons before the new G3 vines were established and became productive. Some growers were paid compensation for cutting out their vines by Kiwifruit Vine Health (KVH) but did not receive full compensation for their losses.5
[13] Mr Cameron advises that the Committee’s determination has been made with the benefit of legal and accounting advice, tax advice and valuation advice.
McKinstry affidavit
[14] The proposed allocation methodology is set out in an affidavit of Stuart McKinstry. He is a chartered accountant, the Chief Financial Officer of Seeka and a member of the Committee. Exhibited to his affidavit is a “distribution methodology” memorandum authored by the Committee. The following discussion is from that memorandum.
[15] At the time of starting the High Court process, it was estimated that claimants had suffered losses of more than $400 million. The court process began in late November 2014 and continued until a settlement was reached with the Committee on 12 February 2021.
[16] From the settlement sum of $40 million, after payment of costs and a service fee to the litigation funder, the balance available for distribution to claimants is
$25,278,488. This represents an amount available for distribution of around $10,000
5 KVH was established after the Psa outbreak. It was involved in administering a limited compensation fund that was funded 50:50 by the industry and the Government.
per hectare for the claimants and approximately $0.063 in the dollar of the original estimated losses.
[17] A meeting took place between the Committee and claimants on 30 March 2021.6 The purpose of the meeting was to explain the process leading to the settlement and the reasons for accepting it. It was well attended by claimants. Lawyers involved in the proceeding were also present. The overriding view of claimants present was for a quick and simple distribution process.
[18] The Committee established guiding principles for its distribution process and methodology. They were:
(a)to endeavour to be fair to claimants as a group;
(b)to pay only claimants who could verify their right to a distribution;
(c)to acknowledge it was impractical and expensive to research and verify all the details and circumstances of each claimant’s total losses;
(d)to establish a simple method of apportioning the funds between claimants;
(e)that the process should maximise the total funds available for distribution and minimise spending settlement funds unnecessarily on consultants on each individual claimant;
(f)the distribution methodology should also allow for any funds or compensation already received by claimants from KVH or other sources; and
(g)to complete the distribution in 2021.
6 The meeting in Te Puke referred to by Mr Cameron.
[19] The Committee considered that if each claimant was paid $10,000 per hectare, that would be an unfair reflection of the loss incurred by different groups of claimants.
[20] Seeka’s position as a post-harvest claimant was considered by the Committee. Its claim in that capacity was under appeal at the time of the settlement. It was agreed with Seeka that, provided their orchard losses were treated the same as for all other claimant growers, they would forego their claim for post-harvest losses. That claim was for around $90 million of the total estimated $400 million claim.
[21] The Committee undertook a verification process whereby all registered claimants had to complete a claim form and provide independent verification of their orchard at the time of the Psa outbreak, along with any information on orchard sales, orchard cut out and any third party compensation they had received. A claim form was provided for that basis.
[22] The Committee considered and assessed the types of losses for claimants based on this data. These types of losses fell into seven categories and these were assessed in terms of their severity and the variety impacted at a general level. The seven categories of losses were:
(a)loss in value of existing plants, and Hort16 licence;
(b)the cost of cutting out dead plants and regrafting with a more tolerant variety;
(c)the cost of buying a G3 licence under Zespri’s process to trade a Hort16A licence for a G3 licence;
(d)growing costs and lost income while re-establishing an orchard destroyed by Psa;
(e)lost production during the early years of Psa while growers found ways to control Psa;
(f)additional an ongoing costs to control Psa, including hygiene, chemicals, additional plant girdles, and plant replacement; and
(g)loss of orchard value when sold during the period after the Psa outbreak, until orchard values fully recovered in 2015.
[23] Claimants were able to use their orchard gate return (OGR) forecasts from harvest 2010 through to 2013, along with orchard maps, to verify the orchard’s existence, plant area, variety and ownership. Claimants were also asked to give the Committee authority to seek details of any KVH compensation paid in relation to their orchard, other than the initial spray subsidy. The Committee then worked through the information and followed up where information was missing or unclear.
[24] The Committee then considered the information and guiding principles. It determined that all claimants should be repaid their initial claimant registration fee and that those who joined the claim early should receive a return on their joining fee. It also determined the balance of the distribution should be paid as a fixed dollar amount per hectare. Because not all varieties had the same economic value before the Psa outbreak and not all varieties incurred the same loss, the Committee determined that orchard varieties should be categorised into groups of similar loss type and economic value (called “loss groups”).
[25] The Committee further determined that a claimant’s distribution was to be adjusted to reflect any previous compensation or funds received from KVH or from other sources (while recognising that they were not fully compensated). If a claimant did not provide consent to verify compensation from KVH, they were to be treated as if they had received compensation. If a claimant failed to provide verification of their claim, they would not qualify for a distribution payment. All claimants would be required to supply a Final Discharge to the Committee for any claims before being paid any distribution.
[26]The Committee determined that the distribution would be in three parts:
(a)the initial distribution would be 70 per cent of a claimant’s entitlement along with each claimant’s initial registration fee at a defined registration fee rate;
(b)the second distribution would be of the remaining 30 per cent of their entitlement, to be paid once all claimants had provided their Final Discharge and all costs paid, and to be subject to adjustment if required; and
(c)any balance of funds available would be distributed on a pro-rata basis to claimants.
[27] The Committee determined that there would be two loss groups. Loss Group One included hectares of Hort16A Gold, whether redeveloped, removed or sold, and hectares of Hayward Green where an orchard was fully cut out. The Committee determined that Loss Group One would receive the highest level of compensation. All Hort16A was removed following Psa, and prior to Psa, Hort16A generated high orchard returns and held high orchard values. Growers that removed Hayward Green in the height of the Psa outbreak suffered large losses as Hayward orchards have continued to generate good returns and Hayward orchard values have rebounded.
[28] Loss Group Two included all remaining hectares, that is all varieties other than Hort16A Gold, whether redeveloped, removed or sold. Varieties other than Hayward Green and the newer Sungold G3 have not generated high returns to growers.
[29] The Committee had a range of data on orchard income and expenses from before, during and after the period of the Psa outbreak. The data was analysed to assess typical income and expense impacts with a focus on redevelopment costs and revenue loss, Psa mitigation costs and capital loss. From this data, the Committee established a representative loss value per hectare for the main Hort16A Gold and Hayward Green varieties. The Hayward Green variety was considered to be an appropriate proxy for all varieties, other than Hort16A Gold, within the claim.
[30] Having reviewed the types of losses, potential variation in losses for individual claimants within a loss group, feedback from claimants at the March meeting, and the ability of claimants in each loss group to recover since Psa, the Committee determined that the settlement for Loss Group One would be $16,000 per hectare and for Loss Group Two would be $8,500 per hectare. A small number of claimants received substantial payments from KVH in the initial months as KVH attempted to contain the Psa outbreak. To be fair to all claimants, the Committee determined that a claimant’s per hectare payment was to be reduced in proportion to the per hectare amount received from KVH using a “compensation ratio”.
[31] This resulted in the Committee determining the following distribution amounts:
(a)Initial claimants will be paid back their registration fee at a rate of $1.32 for each dollar paid, in recognition that their registration fees were paid in 2015.
(b)The two Gisborne claimants will be paid their registration fee at a rate of $1 for each dollar paid.
(c)Loss Group Two will be paid at the base rate of $8,500 per hectare.
(d)Loss Group One will be paid at a rate of $16,000 per hectare.
(e)Any balance after all costs have been paid will be distributed pro-rata to claimants.
Per hectare amounts paid to claimants will be reduced by the estimated average compensation ratio where those claimants have received compensation.
Independent expert review
[32] The Committee’s determination has been reviewed by Stephen Cammish, a chartered accountant. The Committee instructed Mr Cammish to provide an expert
opinion on whether its methodology is fair and reasonable. Mr Cammish had access to the Committee’s calculations. His opinion is as follows:
I confirm that on the basis of the information I have received, considering the similarity between the claimants, the Committee’s desire to use a simple, cost- effective and timely method to distribute the compensation monies and the fact that it would likely be prohibitively expensive to assess each individual claimant’s loss, I conclude that the principles and methodology used in allocating the compensation is fair and reasonable to the claimants.
Court procedure
[33] On 20 September 2021 Strathboss and Seeka made an application for orders relating to distribution of the settlement funds. Claimants were served pursuant to directions made by the Court on 13 October 2021. Pursuant to those directions, any claimants who wished to be heard on the application were to file and serve documents in response to the application within 15 working days of service of the application. A telephone conference was then to be scheduled before me.
[34] No claimant has filed and served papers seeking to be heard. The teleconference took place this morning with counsel for the applicants. The process and methodology was discussed with counsel. The Committee’s approach is to a degree “broad brush”. The goal has not been to replicate an allocation that is as close as possible to a claimant’s proportionate actual loss. Rather, the benchmark for compensation is an assessment of typical losses. The methodology inevitability involves a pragmatic, but nevertheless fair, assessment in light of the desire not to incur unnecessary cost or delay that would further diminish the settlement funds.
[35] I am satisfied that the proposed allocation methodology is fair and reasonable. A sensible set of guiding principles was utilised. A careful and fair process has been followed. That it is fair and reasonable has been confirmed by an independent expert. There is nothing that suggests to me that it is not fair and reasonable in all the circumstances.
[36] I understand the Committee wishes to proceed with the distributions as soon as possible.
Orders
[37]Accordingly, I make the following orders:
(a)the allocation methodology proposed by the Committee in respect of the net proceeds of the settlement between the applicants/claimants and the Crown is approved as fair and reasonable; and
(b)the Committee is directed to procure the distribution of the net settlement proceeds to the applicants and claimants in accordance with the proposed allocation methodology.
[38] Exhibit “A” to the affidavit of Stuart McKinstry is subject to a confidentiality order. Any request for access to that exhibit on the Court file will require leave of the Court. It contains data that is commercially sensitive and confidential and was provided by Seeka to assist with the types of loss and expenses that growers have typically suffered in order to inform the distribution methodology.
[39] I make the further order that the applicants are given access to the audio recording of Don Hyland’s evidence in chief. His evidence in chief was read on his behalf by his wife (Judith Hyland). Sadly, she has since died and the audio is sought by the applicants on behalf of Mr Hyland. The Crown consents to the application. Access is granted (there are no grounds that count against the request). Counsel are to liaise with the Registry to obtain the audio recording.
Mallon J
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