Watson v Whitehead - [2014] NZHC 2992

No judgment structure available for this case.

IN THE HIGH COURT OF NEW ZEALAND WHANGAREI REGISTRY

CIV-2013-488-000359 [2014] NZHC 2992

BETWEEN
DENIS ERIC WATSON and MERYL JOY

WATSON (as trustees of the Salem

Charitable Trust) First Plaintiffs

WATSON & SON LIMITED Second Plaintiff

AND

JOHN EDWARD WHITEHEAD and ROSALEEN MARIE WHITEHEAD and EDWARD IVAN WHITEHEAD (as trustees of the J and R Whitehead Trust) First Defendants

SHILOH CHARITABLE TRUST Second Defendant

Hearing: 18-22, 25-29 August and 22 October 2014

Appearances:

K P Sullivan for the First and Second Plaintiffs
M C Black for the First and Second Defendants

Judgment:

27 November 2014

INTERIM [RESERVED] JUDGMENT OF WYLIE J

This judgment was delivered by Justice Wylie on 27 November 2014 at 4.30 pm
Pursuant to r 11.5 of the High Court Rules

Registrar/Deputy Registrar

Date:

WATSON & ORS v WHITEHEAD & ORS [2014] NZHC 2992 [27 November 2014]

INDEX

Paragraph Introduction ..............................................................................................................[1] The Factual Background .........................................................................................[7] Manuka honey...................................................................................................[8]

Mr Watson/Mr Whitehead............................................................................... [11] Shiloh and JRWT – the 2008 agreement ........................................................[18] Salem and JRWT – the 2009 agreement .........................................................[21] The key agreements.........................................................................................[25] The arrangements unravel ..............................................................................[31]
The Pleadings..........................................................................................................[46] The defendants’ counterclaim .........................................................................[48] The plaintiffs’ defence to the counterclaims ...................................................[52] The plaintiffs’ second amended statement of claim ........................................[56] The defendants’ statement of defence .............................................................[64] General ...........................................................................................................[65]

Analysis ...................................................................................................................[66] (i) The Agreements ..............................................................................................[67] Are the agreements properly signed? .............................................................[67]
Who owned the honey – what did the agreements provide? ...........................[75] Was the hive purchase price payable under the first to fourth agreements .......... to be offset by the supply of 2011 honey owned by Salem? ..........................[101]
Do the October 2010 and November 2011 agreements record the bargain ......... made between the parties?............................................................................[104] The Fair Trading Act ....................................................................................[107] Misrepresentation .........................................................................................[129] Estoppel ........................................................................................................[132] Rectification ..................................................................................................[137] The purchase price of the honey ...................................................................[142] The purchase price of the hives ....................................................................[145] Are the key agreements “interdependent”? ..................................................[150]
(ii)JRWT’s claims pursuant to the agreement for the sale and purchase of ............... honey and for additional honey supplied ......................................................[158]
(iii)Shiloh’s claims pursuant to the deed of arrangement and the third, first ............. and fourth agreements...................................................................................[190]

(iv) JRWT’s claims pursuant to the second agreement for the hire of hives ....... [211] (v) Any additional claims available to JRWT? ...................................................[214] (vi) Salem/WSL’s claims pursuant to the second agreement for the hire of................ hives ..............................................................................................................[217]
(vii) Salem’s/WSL’s claims pursuant to the deed of arrangement and the first,........... third and fourth agreements ..........................................................................[238] Summary ...............................................................................................................[268]

Introduction

[1] These proceedings arise out of a series of agreements entered into between two beekeepers. The key protagonist for the plaintiffs is Mr Denis Watson. He is a trustee of the first plaintiff, the Salem Charitable Trust (“Salem”), and a shareholder in and the managing director of the second plaintiff, Watson & Son Limited (“WSL”). The key protagonist for the defendants is Mr John Whitehead. He is a trustee of the first defendant, the J & R Whitehead Trust (“JRWT”), and until February 2010, he was a trustee of the second defendant, the Shiloh Charitable Trust (“Shiloh”).

[2] These proceedings have taken an unorthodox path.

[3] Initially, the plaintiffs sued only JRWT and then on a limited basis. They alleged that they were entitled to rely on an agreement for the hire of hives dated
29 November 2011 (which I deal with below), and that pursuant to this agreement, they had a right of first refusal to purchase all non-medical-grade manuka honey produced from 2,300 beehives which they had leased to JRWT. They asserted that JRWT had refused to sell the honey to them and had sought to impose unreasonable and non-commercial terms (including a demand for full payment of the purchase price before the honey was able to be uplifted). They asserted that they had the full purchase price ($1,140,000) available in cleared funds and that they would pay it without any deduction or set-off contemporaneously with the supply of the honey. They sought an injunction to prevent JRWT from selling the manuka honey to any other party and a declaration that they had exercised the right of first refusal to purchase the honey from JRWT.

[4] The matter was called before Heath J on 25 June 2013. Counsel then filed a joint memorandum. Inter alia, JRWT agreed not to sell the honey the subject of the claim pending further hearing. When the matter was next called before Brewer J on
11 July 2013, the Court was advised that the sale of the honey to WSL was shortly to occur, and that it was anticipated that the required payment would be made through the respective solicitors’ trust accounts that morning.

[5] While this dispute did settle, in the process, JRWT filed a statement of defence to the plaintiffs’ claim together with a counterclaim in which judgment was sought for:

(a) $690,694.04 together with interest at the rate of 18 percent for monies said to be owing for the supply of honey pursuant to various agreements entered into between 30 October 2011 and 1 December
2011 and pursuant to a deed dated 29 November 2011, and

(b)$495,912.75 together with interest at the rate of five percent for honey supplied between 4 April 2012 and 30 August 2012.

JRWT applied for summary judgment against the plaintiffs on their counterclaim. Timetable directions were put in place to bring this application on for hearing. Ultimately, however, JRWT did not proceed with it. Rather, the matter proceeded to a full hearing.

[6] In response to the counterclaim, two amended statements of claim have been filed by the plaintiffs, the first on 24 July 2013, and the second on 17 April 2014. The first amended statement of claim joined Shiloh to the proceedings, but the scope of the proceedings remained relatively narrow. Only two causes of action were then asserted – breach of contract and breach of the Sale of Goods Act 1908. The second amended statement of claim is a much more extensive pleading. The defendants have filed statements of defence to both amended statements of claim, and they have amended their counterclaim. They have also claimed a set off in the event that they are found to owe money to the plaintiffs. I deal with the pleadings in more detail below.

The Factual Background

[7] The various agreements at issue in these proceedings involve the sale and supply of honey – primarily manuka honey, the sale and purchase of the hives from which the honey was harvested and the sites on which those hives were placed, and the hire of those hives and sites.

Manuka honey

[8] As the name suggests, manuka honey is produced by bees which have access to wild manuka bush. It is only produced in New Zealand. It has long been considered to have antibacterial qualities and, according to Mr Watson, these were scientifically proven in 2000. As at 2009, the market for manuka honey was growing. However, there were not many suppliers of high-quality manuka honey.

[9] Manuka honey is harvested in late spring/summer. The weather can have a significant impact on production from season to season. Another key component to good manuka honey production is the availability of good hive sites in close proximity to manuka bush. Beekeepers seek to place hives on mono-floral sites that are capable of producing high quality honey. Due to land use changes, the majority of manuka sites now tend to be located in relatively remote areas. Beekeepers have to negotiate agreements with the land owners so that they can site their hives on their land. In 2009, agreements were often relatively informal, although the location of sites was required to be registered with a governmental entity – AgriQuality.

[10] The antibacterial and anti-inflammatory characteristics found in manuka honey come from a naturally occurring organic compound called methylglyoxal (MGO). At the times in issue in these proceedings, the characteristics of manuka honey were measured by reference not to its MGO levels, but rather by reference to its non-peroxide activity (NPA) levels. Any manuka honey with an NPA level greater than 15 was considered to have a relatively high level of antibacterial and anti- inflammatory benefits. It could reach higher levels, for example, 20+. The level of bioactivity in the honey determined its value, and the returns which could be generated from its sale.

Mr Watson/Mr Whitehead

[11] Mr Watson is an experienced beekeeper and honey trader based in Masterton. He and his company, WSL, deal primarily in manuka honey and Mr Watson has been at the forefront in the development of the New Zealand bee and honey industry generally. He, through WSL, has significant beekeeping operations around the North Island including in Northland. As at 2009, WSL had approximately 5,000

hives. The business has expanded markedly in recent years and WSL now has approximately 16,000 hives. In its most recent financial year, WSL sold approximately $35 million of honey, mainly to overseas buyers.

[12] Mr Watson and Mr Whitehead knew each other. Mr Watson had previously employed, through another entity, two of Mr Whitehead’s brothers, who are also beekeepers.

[13] Mr Whitehead is an experienced beekeeper. He is based in Kerikeri and he has been involved in the honey industry in the Northland area for over 10 years. He and his wife run their business through JRWT. It is a trading trust and it carries on business as a honey producer and supplier. Mr Whitehead and his wife have a strong social conscience and they wanted to advance monies to various charitable causes. In July 2006, they settled Shiloh. It was incorporated as a trust board under the provisions of the Charitable Trusts Act 1957. Mr and Mrs Whitehead and a Mr Ellis were the initial trustees. In June 2009, Mr and Mrs Whitehead appointed their solicitor, Mr Hockly, and an associate in his firm, a Mr Evans, as trustees. Mr and Mrs Whitehead and Mr Ellis retired as trustees as from February 2010.

[14] Both Mr Watson and Mr Whitehead gave evidence before me. I regret that I did not find either of them to be a particularly credible witness. Mr Watson struck me as an “ideas man”, who paid little attention to detail. Mr Whitehead struck me as being the more astute businessman, but he was a difficult witness. He was inflexible in his views and unwilling to accept even the most obvious proposition unless it could be backed up by documentation. Further, he took almost every opportunity open to him to discredit Mr Watson.

[15] As the evidence unfolded, it became clear to me that the relationship between Mr Watson and Mr Whitehead had deteriorated significantly. Both were keen to and did take any point they thought might advantage their respective cases. Put bluntly, both had lost whatever objectivity they may initially have had in relation to the matters in dispute in this case.

[16] As a result of my reservations about the evidence given by both Mr Watson and Mr Whitehead, I have focussed my attention primarily on the agreements which

were entered into, on other contemporaneous documents, and on the evidence of less partisan witnesses.

[17] Before discussing the agreements in issue, I outline the background agreements involving first Shiloh and JRWT, and then Salem and JRWT. They set the scene for the agreements which followed.

Shiloh and JRWT – the 2008 agreement

[18] The Whiteheads wanted to create a regular source of income for Shiloh. To this end, in May 2008, JRWT and Shiloh entered into an agreement whereby Shiloh purchased 3,000 beehives from JRWT for $3.9 million (plus GST). This equated to a purchase price of $1,300 (plus GST) per hive. Ownership of the hives passed to Shiloh on 1 June 2008. No monies changed hands however. Rather, JRWT advanced the purchase price to Shiloh, and it entered into a deed of acknowledgement of debt. The deed recorded that the purchase price was to be repaid over a term of 25 years, and that no interest would be payable. At the same time, Shiloh entered into an agreement whereby it leased the hives back to JRWT for five years, with various rights of renewal thereafter. The rental payable was $200 per hive per year.

[19] There were tax advantages to both JRWT and Shiloh from these arrangements, and when Shiloh sought to claim a GST refund in respect of the purchase of the hives, the Inland Revenue Department refused to accept that the arrangements were bona fide. The IRD’s primary concern related to the purchase price attributed by the parties to the hives. It considered that it was excessive. By mid-October 2009, the IRD was taking the view that the agreements were a tax avoidance arrangement under s BG1 of the Income Tax Act 2007. It was threatening to impose shortfall penalties on the transactions, which would have had significant financial consequences for both Shiloh and JRWT.

[20] In late 2009, Mr Whitehead approached Mr Watson and told him about the difficulties he was facing with the IRD. Mr Whitehead was keen to find someone who would purchase hives from him at a price which would assist in justifying to the

IRD the price which JRWT and Shiloh had put on the 3,000 hives sold/purchased between them in 2008.

Salem and JRWT – the 2009 agreement

[21] Mr Watson was prepared to assist, and, in the event, Salem and JRWT entered into an agreement for the sale and purchase of an additional 500 hives owned by JRWT, at a purchase price of $1,350 per hive. The agreement is dated 30 November
2009. It was not signed by one of the trustees of JRWT, a Mr Edward Whitehead. None of the parties, however, sought to make a point of this. All treated the agreement as being binding as between Salem and JRWT. In the agreement, a hive was defined to mean a two-box beehive, and the definition extended to include “the livestock” contained in the hives and the rights to the sites on which the hives were placed. There was a schedule to the agreement listing those sites. Possession of the hives was given on 1 November 2009 but settlement was not due until 10 March
2010. Risk passed to Salem on the possession date. The agreement recorded that any honey which had not been removed from the hives prior to the date of the agreement – 30 November 2009 – belonged to Salem as the purchaser. The honey was to be harvested and extracted by JRWT. If the honey was sold, it was to be sold by JRWT as agent for Salem, and the sale proceeds were to be applied towards the amount payable by Salem to JRWT for the hives. Salem agreed to pay a fee of $100 (plus GST) to JRWT for each hive from which JRWT extracted honey.

[22] This agreement proceeded satisfactorily from both Salem’s and JRWT’s perspectives. JRWT harvested and extracted the honey on Salem’s behalf, and it then sold it to WSL. WSL paid for the honey. The monies received by JRWT from the sale of the honey were credited by it against the purchase price for the hives payable by Salem. Salem paid JRWT the management/harvesting fee.

[23] The value of the honey supplied was, however, only sufficient to cover 400 hives, rather than the 500 the subject of the agreement for sale and purchase. The parties resolved this potential difficulty amicably. The agreement for sale and purchase was varied by JRWT taking back 100 hives and site placements. A credit note was issued by JRWT. The end result was that Salem acquired 400 hives and the accompanying sites.

[24] WSL was keen to build up its own supply of hives in the Masterton area, and in the event, Salem decided to remove the hives from the sites in Northland which it had acquired. In August/September 2012, the hives were transported down to Masterton for use in WSL’s beekeeping operations in that area.

The key agreements

[25] Buoyed by the relative success of the initial 2009 agreement, Messrs Watson and Whitehead decided to enter into a series of further agreements. This time, they involved Shiloh and the 3,000 hives JRWT had sold to Shiloh in 2008.

[26] Negotiations commenced in early 2010 and on 11 October 2010, Shiloh and Salem entered into four separate agreements for, in total, 3,000 hives.1 They were referred to by the parties as the first, second, third and fourth agreements. I adopt the same terminology and summarise each briefly.

(a) “The first agreement”

Shiloh agreed to sell, and Salem to buy, 400 hives, at a price of $1,350 per hive – a total purchase price of $540,000 (plus GST). The hives were defined to mean three-box beehives, together with the livestock in the hives and the rights to the sites on which they were placed. Possession date was 15 October 2010, and as from that date, risk passed to Salem and it had the right to lease the hives and sites to JRWT. Settlement date was 1 March 2011. The agreement recorded that, prior to 11 October 2010, Shiloh had the right to remove any honey from the hives. It then went on to provide (cl 4.1) as follows:

Any honey not removed from the hives prior to that date shall belong to the purchaser or party leasing the hives.

1 In their pleadings, the plaintiffs asserted that there was an agreement entered into on 2 August

2010 in relation to sale/purchase of 750 hives. The defendants accepted that there were negotiations in this regard, but denied that any agreement was concluded. I agree with the defendants. Mr Watson’s evidence was that, by mid-August 2010, there had been significant discussions about “a more substantial arrangement”. A draft agreement was prepared. A copy was produced in evidence. There was no evidence suggesting that it was ever signed. Rather, the evidence suggested that the draft was part of the ongoing negotiations and that they culminated in the various agreements which were signed on 11 October 2010.

The agreement also provided (cl 4.2):

Prior to settlement date, hives and sites will be leased to JRWT from 15 October 2010 to March 2011. Any lease or honey in lieu of rental received by the purchaser for hives and sites will be paid to vendor immediately towards the [purchase price].

(b) “The second agreement”

The second agreement related to 700 hives and the total purchase price was $945,000 (plus GST). Possession date was again
15 October 2010. The settlement date was 15 March 2011.

(c) “The third agreement”

The third agreement related to 900 hives, and the total purchase price was $1,215,000 (plus GST). Possession date was also 15 October
2010, but settlement date was 15 September 2011.

(d) “The fourth agreement”

The fourth agreement related to 1,000 hives, at a total purchase price of $1,350,000 (plus GST). Possession date was also 15 October 2010, and settlement date was 5 October 2011.

Except as noted the second, third and fourth agreements were in the same terms as the first agreement.

[27] On the same day – 11 October 2011 – Salem and JRWT entered into an agreement for the hire of the 3,000 hives which Salem was purchasing from Shiloh and the 400 hive sites which Salem had already purchased from JRWT (“first agreement for the hire of hives”). The agreement commenced on 15 October 2010. It was for a term of five months through until March 2011. Rental for the hire of the hives over that period was $917,000 (plus GST). It was payable in cash, or “in the equivalent value of honey”. JRWT was responsible for maintaining the hives and taking care of the livestock contained in them over the term of the agreement.

[28] The second agreement was settled. On 31 March 2011, Gaze Burt, acting for Shiloh and JRWT, transferred $1,086,750 to Salem’s and WSL’s solicitor. This was the rental payable pursuant to the first agreement for the hire of hives as well as an additional sum owing to Salem/WSL for some honey boxes and trays.2 On the same day, Salem’s solicitors paid $1,086,750 to Shiloh’s solicitors to settle the purchase of the 700 hives ($945,000 plus GST of $141,750). A few months later, Salem uplifted
the 700 hives and transported them down to Masterton.

[29] Salem failed to settle the first, third and fourth agreements. A meeting was held at the offices of Gaze Burt (Shiloh’s and JRWT’s solicitors) on 5 October 2011 to address this issue. This was followed by a series of negotiations between the parties' respective advisors, and ultimately, a series of further agreements, all dated
29 November 2011, were entered into. I summarise each in turn.

(a) “The deed of arrangement”

This deed was between Shiloh and Salem. It recorded in its recitals the detail of the first, second, third and fourth agreements. It noted that Salem had paid the purchase price under the second agreement, and that it had taken title to the hives the subject of that agreement, but went on to record that it had not paid the monies due under the first, third and fourth agreements. It recorded that the parties had agreed that it was in their mutual interests to negotiate a satisfactory arrangement to settle the expectations of each party under the first, third and fourth agreements, and it set out how those remaining
agreements were to be settled. The third agreement was to be settled

2 In the second amended statement of claim, the plaintiffs asserted that WSL, instead of paying JRWT for honey supplied, made payments of equivalent sums to Salem who paid the purchase price of the hives to Shiloh. It was alleged that JRWT paid to WSL the sum of $1,086,750 for honey extracted from WSL’s hives. These assertions were not borne out by the evidence or the contemporaneous documentation. Rather, the evidence established that WSL paid JRWT approximately $1.7 million for honey supplied between 15 October 2010 and 31 March 2011. There was no evidence to suggest that it made any payments to Salem. Invoices and statements were prepared which recorded that JRWT paid $1,086,750 to Salem for rental due and for the supply of honey boxes and plastic trays by WSL. There was a separate agreement signed by Mr and Mrs Watson in regard to the honey boxes and plastic trays. WSL did not have a proprietary interest in the hives the subject of the second agreement. They were purchased by Salem.

first. The deed required Salem to pay $200,000 on 30 November

2011, and to then pay further instalments of $150,000 each on the twentieth days of December 2011, January, February, March, April, May and June 2012, with a final payment of $147,250 on 25 July
2012. Title to the hives the subject of the third agreement was then to pass to Salem. The deed went on to provide that if Salem settled the third agreement, the parties were to settle the first and fourth agreements. The total amount owing under those agreements was
$2,173,500 (inclusive of GST). The sum of $600,000 was to be paid by Salem on 30 July 2012 (the settlement date) and $1,573,500 was to be paid by way of a loan back from Shiloh to Salem and an exchange of funds between the respective solicitors. The terms of the loan were set out in some detail. Security for the loan was to be by way of “a specific security agreement” over the 1,400 hives the subject of the first and fourth agreements. In consideration of Shiloh granting Salem further time to settle the purchase of the hives, Salem agreed to pay Shiloh interest on the outstanding sale price under the first, third and fourth agreements, at the rate of four percent, with interest calculated on a daily basis. It was also recorded that Salem could assign its rights under the deed.

(b) “Assignment of the deed of arrangement”

Salem assigned its rights and obligations under the deed of arrangement to WSL. WSL covenanted with Salem to meet Salem’s obligations under the deed of arrangement, and to indemnify Salem against any liabilities that Salem might incur as a result of WSL’s default. WSL also covenanted with Shiloh to make all payments required under the deed of arrangement. In consideration of Shiloh consenting to the assignment, Salem guaranteed to Shiloh the “due and punctual future payments” to be made under the deed of arrangement by WSL.

(c) “The second agreement for the hire of hives”

Salem and JRWT entered into an agreement for the hire of the 2,300 hives being purchased pursuant to the first, third and fourth agreements. The agreement recorded that Salem either owned the hives, or had a possessory interest in them. The term “hives” was defined to include the sites on which they were positioned and “may include all sites” previously owned by JRWT or Shiloh that had been purchased by Salem. Salem let and JRWT hired the hives as defined. The lease commenced on 1 April 2011, and was for an initial term of one year and four months. Rental was calculated at $300 per hive per annum, and the annual rental was $690,000 (plus GST). Rental was payable at the rate of $57,500 per month in arrears, as follows:

(i)Rental for the months of January 2012 to July 2012 was to be paid on the last day of each month for that month;

(ii)Rental for the months April 2011 to December 2011 was to be paid on 30 July 2012 (that is, in one lump sum);

(iii)If the lease was renewed, then rent from thereon was to be paid monthly in arrears on the last day of each month.

In consideration of the rent being paid at the end of the term, JRWT agreed to pay Salem interest on the rent on a monthly basis from the end of each monthly period to 30 July 2012. The interest rate was six percent per annum, calculated on a daily basis. JRWT had the right to renew the lease for five further terms, each of one year, commencing on 1 August 2012. Rental was to be reviewed annually by agreement. The parties expressly agreed that the hives were in good and acceptable condition, that the livestock was in good health, and to the siting of each hive. It was recorded in the agreement that all honey produced from the hives was the property of JRWT as the lessee. The agreement also went on to provide that Salem would purchase annually from JRWT up to 50 tonnes of medical-grade manuka honey, and JRWT granted to Salem a right of first refusal to purchase all non-

medical-grade manuka honey from the hives. The agreement recorded that JRWT acknowledged that Salem’s rights to grant the lease were subject to the prior rights of Shiloh.

(d) “Assignment of the second agreement for the hire of hives”

By deed of assignment dated 29 November 2011, Salem transferred its rights and obligations under the second agreement for the hire of hives to WSL, with the consent of JRWT. The terms of the assignment were the same as those which are noted in (b) above.

(e) “The agreement for the sale and purchase of honey”

JRWT and WSL entered into an agreement for the sale and purchase of honey. It was recorded that JRWT had delivered to WSL various supplies of honey pursuant to certain numbered invoices. It was also recorded that WSL wished to purchase further shipments of manuka honey from JRWT. It was agreed that the total sum due once all of the honey was delivered would be $1,980,610. WSL was required to test the honey at its cost, and to be satisfied that the honey met all of its requirements before it was transported from JRWT’s warehouse. It was recorded that the act of transporting the honey would “deem [WSL] to have accepted the honey”. A payment regime was put in place. WSL had to pay $173,691.82 on execution of the agreement,
$173,691.82 on 5 December 2011, $70,000 on 10 January 2012, and then nine consecutive payments of $173,691.82 on the twentieth day of each month, commencing on 20 January 2012. It was recorded that if there was any default by WSL, then WSL was to pay JRWT interest on any overdue sum at the rate of 18 percent per annum, calculated daily from the due date until the date of actual payment. WSL was also to pay JRWT’s costs of enforcing payment of the debt, including its solicitor/client costs. It was recorded that JRWT had entered into the agreement with WSL at the request of Mr Watson, and that he personally guaranteed WSL’s obligations under the agreement.

[30] It is these key November 2011 agreements which are at the heart of these proceedings.

The arrangements unravel

[31] Initially, all went well. JRWT supplied honey to WSL and WSL paid for honey supplied. As at 13 October 2011, WSL had paid all outstanding amounts owing in respect of honey supplied, and its account with JRWT had a nil balance. Substantial supplies of honey were made thereafter. As at 31 October 2011, WSL owed approximately $1.4 million to JRWT. As I discuss shortly, WSL made various payments in reduction of that amount, as required by the agreement for the sale and purchase of honey. JRWT continued to supply honey, and the amount owing by WSL to JRWT fluctuated, ranging from a high of approximately $1,630,000 as at
30 December 2011 to a low of $945,000 in May 2012. As at 31 July 2012, WSL

owed JRWT approximately $1,289,000 for honey supplied.

[32] Under the second agreement for the hire of hives, JRWT paid rental to Salem/WSL for the months of January, February, March and April 2012 by or before the dates fixed for payment. There was, however, a delay in the payment of rental for the months of May, June and July 2012. Rental for those months was not paid until the end of July 2012. The lump sum payment of $595,125 (GST inclusive) due for the months April to December 2011 was due for payment on 30 July 2012. It was not paid by JRWT.

[33] Salem/WSL paid to Shiloh $812,500 as required by the deed of arrangement to meet its cash commitment in respect of the third agreement, although some of the payments were made late. The balance of the purchase price required to complete the third agreement came from the rental payments made by JRWT to Salem/WSL. However, Salem/WSL failed to pay the $600,000 which was due to be paid on
30 July 2012 in respect of the first and fourth agreements, and neither Salem nor WSL entered into the loan documentation with Shiloh in respect of the balance of the purchase price ($1,573,500).

[34] Once matters came to a head in late July/early August 2012, there were numerous discussions between Mr and Mrs Watson, Ms Mitchell, (an accountant and

WSL’s chief financial officer), and Mr Whitehead, regarding the supply of honey and monies owing between the various entities. JRWT owed a significant amount to the IRD for GST. It was looking to secure cash. Mr Whitehead spoke to Ms Mitchell and told her that he needed to generate cash as quickly as possible. Mr Watson was not prepared to allow WSL to pay any more to JRWT until he could be sure that Shiloh would release the 900 hives Salem/WSL had purchased under the third agreement. Various proposals were discussed, but little progress was made.

[35] On 29 August 2012, a letter was signed by Mrs Watson and Mr Whitehead recording a partial agreement which had been reached. WSL agreed to pay JRWT
$280,000 (GST inclusive) on 3 September 2012 to secure the supply of a further

23 tonnes of honey. WSL was to immediately on-sell that honey. It anticipated receiving payment for the honey in the week of 21 September 2012, and agreed that at that point, it would pay a further $100,000 to JRWT to reduce the amount owing.

[36] On 31 August 2012, JRWT sent WSL a statement, advising that the total amount then outstanding for honey was $1,562,405.54.

[37] On 5 December 2012, WSL’s and Salem’s solicitor, Mr Bale, wrote to JRWT’s and Shiloh’s solicitor, Mr Hockly. Mr Bale recorded that rental was in arrears under the second agreement for the hire of hives, and that the total amount required to bring the rental up to date as at December 2012 was $925,750 (GST inclusive). He also recorded his instructions that no notice of intention to renew the second agreement for the hire of hives had been received. He asserted that JRWT was in default. He recorded that Shiloh/JRWT was holding onto the 900 hives purchased by Salem/WSL and refusing to release them. He also expressed concern that the sites, which were part of the sale and purchase agreements, were not legally controlled by Shiloh, and that Shiloh had failed to provide evidence of its right to the same. It was acknowledged that WSL owed money for honey supplied by JRWT, but Mr Bale recorded that WSL was reluctant to pay any more money for honey supplied until JRWT paid the outstanding rental owing. It was also recorded that WSL considered that JRWT had had the benefit of harvesting honey from the 900 hives that were owned by WSL, and that a conservative estimate of the market value of that honey was $675,000. WSL gave notice that the agreement for the hire of hives

had come to an end. Notice was also given that unless Shiloh provided evidence that the sites sold pursuant to the second and third agreements were, in fact, legally owned or controlled by it, Salem would be making demand on Shiloh for repayment of part of the purchase price, and, if necessary, suing Shiloh for breach of contract. Concern was expressed that JRWT had sold non-medical grade manuka honey to parties other than WSL, in breach of WSL’s first option over that honey.

[38] Mr Hockly replied on 19 December 2012. He advised that JRWT was exercising its right to renew the hire agreement for a further one-year period. It was proposed that rental should reduce to $150 per hive. It was acknowledged that JRWT had not made the rental payments. It was noted that JRWT would like to pay the rental owing prior to Christmas, and it was proposed that the transactions set out in the deed of arrangement should still proceed. It was denied that the second agreement for the hire of hives had come to an end, and it was asserted that the rental had not been paid by JRWT, because WSL had failed to pay for honey supplied to it.

[39] On 7 January 2013, Mr Bale replied. He repeated his assertion that the amount outstanding in respect of hive rental was $925,750 as at the end of December
2012. He asserted that JRWT’s attempt to renew the second agreement for the hire of hives could not succeed, and repeated that notice had been given and that the agreement would not be renewed. He also asserted that there was no right of set off between the various agreements.

[40] There was further without prejudice correspondence. Copies were produced. Although the defendants waived privilege, the plaintiffs did not do so. I do not refer to it and I have not taken it into account in determining this matter.

[41] In late-March 2013, Shiloh demanded from JRWT payment of the rent payable under the second agreement for the hire of hives. It sent an invoice to JRWT in that regard dated 22 March 2013. The total amount of the invoice (GST inclusive) was $966,000. The invoice was paid by JRWT in two payments – the first payment of $644,000 was made on 22 March 2013 and the balance of $322,000 on 9 April
2013.

[42] On 28 March 2013, Mr Whitehead wrote to Mr Watson advising that JRWT no longer wished to lease any hives from WSL, and asking WSL to uplift the 900 hives which Salem had purchased pursuant to the third agreement. He also offered to pay the rental due on the 900 hives to WSL up to 31 March 2013. On 4 April 2013, Mr Whitehead wrote again to Mr Watson advising that, from 1 April 2013, JRWT would charge a rate of $25 per hive per month for management of the 900 hives until they were picked up. He again requested an invoice for the rental due for the 900 hives until 31 March 2013, and he requested payment of the outstanding debt owing in respect of the supply of honey.

[43] On 11 April 2013, Mr Hockly wrote to Mr Bale. He recorded that Salem/WSL had failed to settle the first and fourth agreements and advised that Shiloh was cancelling the same without prejudice to any claim for interest or damages. On the following day, 12 April 2013, Mr Hockly, as a trustee of Shiloh, wrote to Mr and Mrs Whitehead, as trustees of JRWT, asking JRWT to pay rental for the remaining 1,400 hives the subject of the first and fourth agreements, at the rate of
$300 per hive (plus GST).

[44] WSL wished to inspect the 900 hives before it uplifted them. On 12 April

2013, Mr Bale wrote to Mr Hockly in that regard. On 25 May 2013, JRWT sent WSL an invoice for $32,257.50, for the management of the hives from 1 April 2013 to 9 May 2013. On the same day, Mr Whitehead wrote to Mr Watson proposing that the parties agree a time for WSL to pick up the 900 hives. He suggested that WSL’s beekeeper based in Northland might be able to take over the management of the 900 hives and sites. On 15 April 2013, Mr Watson replied. He sought to clarify arrangements for the pickup of the hives. In the event, the 900 hives were uplifted by WSL in mid-May 2013. I deal with these matters in greater detail later in this interim judgment.

[45] Against this background, I now turn to the pleadings.

The Pleadings

[46] The pleadings are prolix and difficult to follow. They nevertheless define the issues in dispute, and they help to give some focus to the shifting sands of the

plaintiffs’ case, to the overly long and unstructured evidence, particularly from Messrs Watson and Whitehead, and to the wide-ranging, and particularly for the plaintiffs’, diffuse submissions of counsel.

[47] Given the course this matter has followed, it is helpful to start with the

defendants’ counterclaim.

The defendants’ counterclaim

[48] The defendants rely upon the deed of arrangement. They assert that the plaintiffs failed to meet their obligations under that deed, and in particular, that they failed to pay the instalment of $600,000 due for the hives the subject of the first and fourth agreements on 30 July 2012. They also assert that the plaintiffs failed to pay outstanding instalments and interest, or to provide the required security agreement. They assert that $897,250 is owing pursuant to the deed. They also seek damages for breach of the first and fourth agreements, and outstanding interest. Alternatively, they seek an accounting of such amount as is due under the deed of arrangement, and under any other related agreements, under Part 16 of the High Court Rules.

[49] In addition, the defendants say that the plaintiffs breached the second agreement for the hire of hives by cancelling it, and that they were thereby deprived of their entitlement to derive honey from the hives and sites. They seek an inquiry into the amounts due as a consequence of the plaintiffs’ alleged breach.

[50] Finally, the defendants claim monies said to be due under the agreement for the sale and purchase of honey and for subsequent sales. The principal claimed under the agreement is $690,694.04, together with accrued interest at the rate of
18 percent. Additional sales of honey which remain unpaid are said to amount to

$495,912.75. They claim interest on this sum at the rate of five percent pursuant to the Judicature Act 1908. In both cases, they seek solicitor and client costs.

[51] Damages and costs are sought not only against the plaintiffs, but also against Mr Watson personally. The defendants say that Mr Watson gave a personal guarantee of WSL’s performance under the agreement for sale and purchase of honey, and further, that Mr Watson covenanted with JRWT to make all payments and

observe the terms and conditions of the second agreement for the hire of hives in the deed of assignment which was entered into.

The plaintiffs’ defence to the counterclaims

[52] The plaintiffs say that they met their obligations under the deed of arrangement. They admit that they did not pay the instalment of $600,000 due on
30 July 2012, but say that this was due to the defendants refusing to offset those monies against the rental due and owing by JRWT on the same day. They deny that they failed to pay loan instalments and say that the loan was not put in place. They deny that there are any other amounts due and owing to the defendants under the deed of arrangement or the first and fourth agreements.

[53] They deny that they breached the second agreement for the hire of hives.

[54] In relation to the agreement for the sale and purchase of honey, they admit they received honey from the defendants, but assert that the honey supplied was not of an acceptable quality for the price paid. They say that if there are any monies owing to the defendants, they are entitled to set off against those sums any monies owing to them.

[55] They deny that Mr Watson has any personal liability as a guarantor.

The plaintiffs’ second amended statement of claim

[56] The plaintiffs plead the background to the various key agreements, and then refer specifically to the first to fourth agreements. They assert that over the period from August 2010 to April 2011, JRWT produced honey from the hives owned by Salem and supplied it to WSL. They say that WSL, instead of paying JRWT for the honey supplied, made payment of equivalent sums to Salem which, in turn, paid Shiloh for the hives.

[57] They then refer to various attempts they say were made to renegotiate the agreements thereafter. The key November 2011 agreements are set out, and it is asserted that all were entered into contemporaneously. It is claimed that the deed of arrangement and the second agreement for the hire of hives are related, because it

was an express and/or implied term of the agreements that the monies received by WSL from the second agreement for the hire of hives would fund the purchase of the hives under the deed of arrangement.

[58] The agreement for sale and purchase of honey is detailed. It is asserted that the purchase price for honey detailed in the agreement was “at least $5 higher than the market rate at the time for manuka honey of that NPA rating and assuming it was of good quality”.

[59] The deed of arrangement is then referred to. It is asserted that the price of

$1,350 (plus GST) per hive was “at least $1,000 plus GST more than the value of the beehive being sold”.

[60] The plaintiffs then refer to the second agreement for the hire of hives. They summarise its terms and acknowledge that the honey produced from the hives was to be the property of JRWT as the lessee. Curiously, given the correspondence I have noted above at [37], they also assert that the second agreement for the hire of hives was renewed in or about July 2012.

[61] Various breaches of the key agreements by JRWT/Shiloh are pleaded. The plaintiffs allege that:

(a) JRWT/Shiloh did not have agreements in place with landowners for the sites on which the hives were placed;

(b)WSL paid the defendants “a sum of $2,000,000 (plus GST) more than the value of the hives, before allowing for the sums repaid by JRWT through rental or the value of honey”;

(c) JRWT failed to pay rental owing under the second agreement for the hire of hives, and that the following amounts are outstanding:

(i) $585,125 for the period 1 April 2011–31 December 2011;

(ii) $529,000 for 900 hives for the period August 2012–March

2013;

(iii) $483,000 for 1,400 hives for the period 1 July 2012–July 2013. (d) Shiloh refused to deliver up the 900 hives the subject of the third

agreement when requested to do so by WSL and JRWT wrongfully used those hives and took honey from them in December 2012 and January 2013;

(e) When the 900 hives were finally delivered to WSL, at least 20 percent were no longer able to be used, as their condition was poor and they did not have queen bees in them;

(f) JRWT failed to deliver up to WSL the manuka honey produced by the

900 hives during the 2012–2013 season;

(g)The defendants wrongfully repudiated the second agreement for the hire of hives by failing to pay rental and then by purporting to cancel the agreement and/or by refusing to renew it;

(h)Settlement of the purchase of the hives pursuant to the first to fourth agreements was contingent, expressly or impliedly, on JRWT continuing to pay rental on the 2,300 hives, or on such hives as remained in its possession, so that the $600,000 payment due in July 2012 pursuant to the deed of arrangement and the loan repayments could be offset against the hive rental;

(i)JRWT paid Shiloh the sum of approximately $900,000 when this sum was owed to WSL;

(j) JRWT sought to attach conditions to the release of hives to WSL;

(k) Shiloh repudiated the deed of arrangement and sold the hives back to

JRWT at $450 (plus GST) per hive.

[62] The causes of action relied on are as follows:

(a) Breach of the Contractual Remedies Act 1979

It is alleged that both JRWT and Shiloh have:

(i)breached the deed of arrangement and the first to fourth agreements by failing to reimburse WSL for the hive purchase payments through delivering to WSL the equivalent value in honey and/or by paying hive rental, by failing to have in place hive agreements for the sites, by failing to provide WSL with information about the sites, by failing to provide rights associated with the sites that could be assigned to WSL, by failing to deliver up the 900 hives under the third agreement on settlement, by failing to allow a set off between the honey supplied and the hive purchases, and by wrongly repudiating the deed of arrangement.

(ii)breached the second agreement for the hire of hives by failing to pay rental, by failing to deliver up the 900 hives, by failing to deliver up honey or an equivalent value of honey extracted from the hives to offset the purchase price of the hives, and by failing to deliver up the honey or an equivalent value of honey extracted from the 900 hives between November 2011 and February 2012, by seeking to charge WSL a management fee for the hives which wrongly remained in JRWT’s possession after the 2012 honey season, by seeking to reduce the hive rental payable, by wrongly repudiating the second agreement for hire, and by wrongly assigning the rights under the agreement to Shiloh and making payment of the rental owing to WSL to Shiloh.

(iii) breached the agreement for the supply of honey by supplying

an “inferior quality of honey such that WSL has paid at least

$2 million (plus GST) more than the market value of the

honey of that quality at the relevant time”;

(b) Breach of the Fair Trading Act 1986

It is alleged that the defendants’ conduct was misleading or deceptive. The allegations referred to above in [62(a)] are repeated. It is also alleged that the defendants made false or misleading representations, namely that the purchase price of all of the hives would be offset by the supply of honey or rental paid, that the honey supplied was of a quality that was fit for export, that the manuka honey was worth the price being charged, and that the sites on which the hives were situated were valuable.

(c) Misrepresentation

The same representations as are noted above in regard to the breach of the Fair Trading Act are repeated. In addition, it is alleged that the defendants represented that there was independent, reliable valuation evidence to support a value of $1,350 (plus GST) for the hives and sites being sold. It is alleged that this representation was not true.

(d) Negligent misstatement

Although initially pleaded, this cause of action was abandoned by

Mr Sullivan for the plaintiffs in his closing submissions. (e) Estoppel
It is alleged that the defendants, through their trustees, and their legal and tax advisors, created a belief or expectation that the representations they were making were true, including, inter alia, that the purchase price for all of the hives would be offset by the supply of honey or rental paid, that the honey supplied was of a quality that was fit for export, that the manuka honey was worth the price being

charged, that the sites on which the hives were situated were valuable, and that there was independent, reliable valuation evidence to support a valuation of $1,350 (plus GST) for the hives and sites being sold. Reliance is alleged as is detriment.

(f) Rectification

It is alleged that both the defendants and the plaintiffs had a common and continuing intention that the supply of honey by JRWT and/or the payment of rental for the hives would offset the purchase price of the hives payable by the plaintiffs. It is alleged that the common intention existed in November 2011 when the agreements were entered into, that it continued, and that the agreements are inconsistent with it.

[63] Total losses of $5,704,575 are claimed. They are made up as follows:

(a) $1,035,000 under the deed of arrangement. This sum is claimed, because it is asserted that the plaintiffs paid $1,350 (plus GST) for each of the 900 hives the subject of the third agreement, when each hive was worth only $350 (plus GST);

(b)$72,450 based on the allegation that 20 percent of the 900 hives delivered were not able to be used and were worthless;3

(c) $1,607,125 which it is alleged remains unpaid by JRWT for rental said to be owing under the second agreement for the hire of hives;

(d)$690,000 representing the value of the manuka honey produced from the 900 hives the subject of the third agreement over the 2012/2013 season which the plaintiffs say belonged to them but which they did
not receive; and

3 It is alleged that 20 percent of the 900 hives were worthless, that the value per hive was $350, and that the loss was therefore $63,000 + GST of $9,450 – a total of $72,450. In his brief of evidence, Mr Watson claimed $243,000 (plus GST) for this alleged breach. No amendment to the pleadings was signalled or made.

(e) $2,300,000 in respect of claimed overpayments for honey supplied by

JRWT to WSL;

The defendants’ statement of defence

[64] The defendants deny the key allegations. They assert that the plaintiffs were independent commercial parties, knowledgeable and experienced in the honey and hive industries, and that the agreements were negotiated on an arm’s-length basis. They say that the plaintiffs were in a position to make their own informed assessment of the respective values and benefits of the transactions they chose to enter into. They deny any express assurance that the purchase price for the hives was to be offset against the value of the honey extracted from the hives and supplied by JRWT. They say that the formal documentation negotiated and entered into between the parties comprised the various agreements and deeds signed by them, and that those documents set out their legal rights and obligations. They say that there were no oral assurances or implied obligations or representations that circumvented or prevailed over the express terms and conditions detailed in the formal agreements. They say that the first to fourth agreements signed in October 2010 were superseded by the deed of arrangement and the second agreement for the hire of hives. They assert that the plaintiffs failed to make payments due under the deed of arrangement, thereby breaching the deed. They allege that the plaintiffs owe substantial monies to Shiloh and also to JRWT. They say that the plaintiffs cancelled the second agreement for the hire of hives on 5 December 2012, and that they cancelled the deed of arrangement, reserving their right to claim against the plaintiffs for its breach. They also say that the plaintiffs owe substantial sums of money to them for honey supplied, and they dispute any entitlement by the plaintiffs to “intermingle or cross relate” amounts due in regard to honey sales and amounts said to be owing under the other agreements.

General

[65] I was advised by Mr Sullivan in his opening for the plaintiffs that allegations relating to the quality of the honey supplied by JRWT were no longer being pursued. However, I was also told that the plaintiffs did not resile from their assertion that they paid too much for the honey supplied by JRWT given its quality.

Analysis

[66] First, it is necessary to consider the first to fourth agreements and the key November 2011 agreements and determine what they provide for in terms of honey ownership. It is then necessary to consider if the agreements apply in their terms or whether any of the causes of action raised by the plaintiffs in their second amended statement of claim affect them. I will also consider the plaintiffs’ contention that they have paid too much for the honey and hives supplied. Finally, I consider whether the agreements have been breached and the consequences which follow.

(i) The Agreements

Are the agreements properly signed?

[67]     Although no evidence was adduced in this regard, after I enquired, I was advised by Mr Sullivan that, at all relevant times, the trustees of Salem were Mr and Mrs Watson, and their son-in-law, a Mr Jonathan Scarlett. I was also told that Mr Scarlett used to work for WSL, that he resigned and that he went to live in the United States in late March 2010. He did not, however, resign as a trustee of Salem until
15 January 2012, sometime after each of the agreements was signed. [68]     Regarding execution, I note as follows:
(a)       Salem was a party to the first, second, third and fourth agreements.

Mr Scarlett was recorded in the intitulement to those agreements as a trustee. He did not sign the documents. They were signed only by Mr and Mrs Watson.

(b) Mr Scarlett did not sign the first agreement for the hire of hives.

Further, one of the trustees of JRWT was a Mr Edward Whitehead. He was John Whitehead’s father. He did not sign this agreement either, although he did initial each page.

(c) The deed of arrangement recorded that Mr and Mrs Watson were the trustees of Salem. It would seem from the information given to me by counsel that the deed was wrong in this regard. Both Mr and Mrs

Watson signed. Mr Scarlett did not do so and there was no provision on the deed for his signature.

(d)The same applies to the deed of assignment of the deed of arrangement, the second agreement for the hire of hives and the deed of assignment of the second agreement for the hire of hives.

[69] Normally, trustees must act unanimously, unless the trust instrument provides otherwise.4 A copy of Salem’s trust deed was not produced in evidence and I do not know what it provides.

[70] The rule that normally, trustees must act unanimously does not apply to charitable trusts.5 Despite its name, Salem was not a charitable trust.

[71] If only two of three trustees have entered into a contract to purchase assets, that contract cannot be enforced against the trust estate, because two out of three trustees have no power to bind cestuis que trust.6 In such circumstances, a trustee can be personally liable on contracts into which he or she enters, unless personal liability is excluded by express stipulation.7

[72] The only agreements with potentially relevant express stipulations are the first and second agreements for the hire of hives. Both provided that the signatories had entered into the agreements as trustees of Salem and JRWT respectively, and that their liability was limited to the assets of the trusts. It was recorded that liability was not to be deemed personal. None of the other agreements had an equivalent provision. It would follow that Mr and Mrs Watson are personally liable for the obligations that they assumed in Salem’s name under those other agreements.

[73] However, neither the plaintiffs nor the defendants put these matters in issue. Both accepted in their respective pleadings that the various agreements bound them.
Indeed, both claimed to rely on the agreements in their terms. This may be because

4      Luke v South Kensington Hotel Co [1879] 11 Ch D 121 (CA).
5      Blacket v Blizard (1829) 8 B & C 851, 109 ER 317 (KB).
6      Luke, above n 4, at 125–126; Naylor v Goodall [1877] 47 LJ Ch 53 (Ch); Re Flower and Metropolitan Board of Works (1884) 27 Ch D 592 (Ch); Turner v Turner [1984] Ch 100 (Ch); Rodney Aero Club Inc v Moore [1998] 2 NZLR 192 (HC) at 195.
7      Laws of New Zealand Trusts (online ed) at [429].

the benefit of and obligations under the key November 2011 agreements were assigned to WSL.

[74] I do note that there is no difficulty with the agreement for sale and purchase of honey. The parties to that agreement were JRWT and WSL. That document was correctly executed.

Who owned the honey – what did the agreements provide?

[75] Mr Sullivan maintained that Salem owned the 2011 honey produced from the hives the subject of the first to fourth agreements. This was not clearly pleaded. It became however a major plank of the plaintiffs’ argument and a number of the propositions advanced on their behalf hinged on it.8 It was denied by Mr Black for the defendants.

[76] Clause 4.1 in each of the first to fourth agreements provided that any honey not removed from the hives prior to the date of the agreements belonged to the purchaser or the party leasing the hives. Clause 4.2 provided that the hives and sites were to be leased by Salem to JRWT, and that “any lease or honey in lieu of rental” received by Salem would be paid to Shiloh on account of the purchase price of the hives. Clause 6.3 provided that, as security for the purchase price, Salem agreed to enter into a charge over all the hives and all honey in them at any time under the Personal Property Securities Act 1999.

[77] I do not consider that cl 4.1 assists in determining who owned the honey. The clause made it clear that Shiloh had no right to any honey not removed prior to the date of the agreements. The clause left it open to Salem to reach agreement with JRWT on the ownership of the honey. This was understandable. The vendor of the hives was Shiloh. It was selling them to Salem. Once Shiloh had agreed to relinquish ownership of the honey, and once it had given possession of the hives to Salem, it was not for it to dictate who owned the honey.

[78] The use of the words “any lease or honey in lieu of rental” in cl 4.2 is curious.

It is not clear what the word “lease” means. The parties assumed that it meant rental

8 For example, the damages calculation undertaken by Mr Vance on the plaintiffs’ behalf.

received in cash. I consider that they are right in this regard. In contrast, the words “honey in lieu of rental” did not contemplate a cash payment. The words envisaged that rather than pay rental for leasing the hives and sites, JRWT could tender honey to Salem in lieu of rental. It would not have been able to tender honey in lieu of rental if it belonged to Salem. This suggests that it was intended that the honey should belong to JRWT.

[79] Mr Black for the defendants argued that cl 6.3 confirmed that Salem did not own the honey. I do not accept that argument. If Salem did not own the honey, and was not in possession of it, how could it agree to charge it?

[80] In short, there are conflicting arguments which can be advanced in regard to ownership based solely on the wording in the first to fourth agreements.

[81] It is trite law that interpretation is the ascertainment of the meaning which the document would convey to a reasonable person having all of the background knowledge which would reasonably have been available to the parties in the situation in which they were in at the time of the contract.9

[82] I start by considering the parties’ prior negotiations. Evidence of such negotiations is admissible in interpreting the agreements, but only insofar as it establishes the objective background to them.10

[83] Here, the prior negotiations took place against the background of JRWT’s and Shiloh’s difficulties with the IRD.11 There was no dispute about this. Nor was there any real dispute that Mr Watson was prepared to enter into the agreements to try and help Shiloh and JRWT out. This does not suggest, however, that the agreements were a “tax dodge”. Indeed, Mr Watson was quite clear that this was not the case and
that there was a very real commercial benefit to Salem/WSL from the agreements.12

9      Investors Compensation Scheme Ltd v West Bromwich Building Society [1998] 1 WLR 896 (HL) at 912–913; Boat Park Ltd v Hutchison [1999] 2 NZLR 74 (CA); Vector Gas Ltd v Bay of Plenty Energy Ltd [2010] NZSC 5, [2010] NZLR 444 at [11], [62] and [127].
10     Vector Gas Ltd v Bay of Plenty Energy Ltd, above n 9, at [13] per Blanchard J; [19] and [22] per
Tipping J; and see Gault J, who agreed with Blanchard J in relation to matters of principle at
[151]; cf. [57] and [78] per McGrath J and [119] per Wilson J and following.
11     See above at [18]–[20].
12 See below at [148].

[84] Mr Watson also gave evidence of his subjective understanding and intentions in relation to the content and meaning of the agreements,13 it is clear that such evidence is not admissible in interpreting the first to fourth agreements. It does not assist in establishing the objective background.

[85] The negotiations culminated in the 30 November 2009 agreement between Salem and JRWT. It expressly recorded that any honey not removed from the hives prior to the date of the agreement belonged to Salem as the purchaser. It went on to provide that any honey from the hives was only to be extracted by the vendor, JRWT, and that if it was sold, it was to be sold by JRWT as agent for Salem. The sale proceeds were to be applied towards the amount payable to purchase the hives. JRWT was to be paid a fee of $100 (plus GST) for each hive for extracting the honey.

[86] I am not persuaded that the negotiations or the prior 2009 agreement assist in interpreting the first to fourth agreements. First, the provisions contained in the 2009 agreement were not reproduced in the first to fourth agreements. Secondly, the 2009 agreement was between JRWT and Salem. The first to fourth agreements were between Shiloh and Salem. A direct setoff was not available between those entities. Necessarily, the structure of the later agreements was different.

[87] There are other aids to interpretation which do assist a little more.

[88] The first to fourth agreements were part of a number of agreements entered into between the parties. The agreements were related and, in my judgment, it is permissible to look to the other agreements and in particular the first agreement for the hire of hives, to assist in interpreting the first to fourth agreements.

[89] The first agreement for the hire of hives did not expressly state that the honey belonged to either Salem as lessor or JRWT as lessee. Rather, it recorded that Salem was leasing the hives, including the livestock and the rights to the sites for the placement of the hives. It went on to note that JRWT as beekeeper was desirous of hiring the hives for the purpose of conducting its business as a beekeeper. Clause 3.2
provided for rental to be payable either in cash, or in the equivalent value of honey.

13 See below at [113].

This clause reflected cl 4.2 in the first to fourth agreements. It compels the conclusion that the honey belonged to JRWT. Unless it owned the honey it could not tender it to Salem to satisfy its rental obligations.

[90] Similarly, the deed of arrangement and the other key agreements signed in

November 2011 assist:

(a) The second agreement for the hire of hives contained a clear direction

– it unambiguously provided that all honey produced from the 2,300 hives the subject of that agreement belonged to JRWT as the lessee. JRWT granted WSL the right of first refusal to purchase all non medical grade manuka honey from the hives.

(b)The agreement for sale and purchase of the honey proceeded on the basis that JRWT owned the honey, that it had or would supply the honey to WSL, and that WSL was obliged to pay for it.

[91] The key 2011 agreements were the subject of extensive negotiations between the parties’ respective advisors. Mr Hockly acted on behalf of JRWT and Shiloh, and Mr Bale, and another solicitor, a Ms Calvert, acted on behalf of Salem and WSL. Mr Bale and Ms Calvert in turn were assisted by Ms Mitchell. Draft agreements were exchanged and commented on. The documents which were eventually signed only came into existence after protracted negotiations. The provisions contained in the November 2011 agreements noted above are inconsistent with Mr Watson’s argument that WSL owned the honey produced from the hives in the 2011 season. Had a change to the first to fourth agreements as significant as that which would follow from accepting the plaintiffs’ arguments been intended, it would surely have been noted by someone. There is no evidence to suggest that the issue was ever raised.

[92] Furthermore, the honey ownership arrangements contended for by the plaintiffs make no commercial sense. If the 2011 honey belonged to Salem, why would JRWT have agreed to pay rental to Salem under the first agreement for the hire of the hives? In contrast to the position in 2009, there was no arrangement entered into in October 2010 whereby JRWT was to be paid a management fee for extracting the honey from the hives. To suggest that JRWT would pay the rental and

meet the costs involved in maintaining the hives and extracting the honey, but not own the honey which had to be sold to meet the overheads, is a nonsense.

[93] The objective conduct of the parties post the first to fourth agreements is also helpful. The Supreme Court has made it clear that such evidence is admissible in construing a contract; the focus must again be on objective conduct, rather than expressions of subjective intention or understanding. If the Court can be confident from their subsequent conduct what the parties intended the words they have used in their contract to mean, and the words are capable of bearing that meaning, it would
be inappropriate to presume that they meant something else.14

[94] First, the second agreement was not settled through the provision of honey. Rather, the monies Salem used to settle the purchase of the hives from Shiloh came from the rental paid to it by JRWT for the lease of the hives. Mr Watson acknowledged in evidence that Salem did not receive the honey from the hives, and there is nothing to suggest that Mr Watson, Salem or WSL made any protest at the time. Mr Watson endeavoured to explain the position as follows:

…you know, I should have been awake to it and I wasn’t, I don’t get everything right, but the reality is the honey from that 700 hives should also have been credited to us and I missed it. But the hives were paid for by the rental so I guess I was pretty relaxed at that time.

In my view, this was an unconvincing explanation.

[95] Secondly, the third agreement was not settled through the provision of honey either. Salem paid $812,500 by instalments towards the purchase price. The balance of the purchase price came from the rental payments made by JRWT. Again, there is nothing to suggest that Mr Watson, Salem or WSL protested at the time.

[96] Thirdly, in broad terms, between 18 October 2010, and the end of October

2011, approximately $2.2 million was invoiced by JRWT to WSL in respect of honey supplied. The amounts invoiced were paid without dispute. Between November
2011 and the end of October 2012, an additional $2.27 million was invoiced to WSL

by JRWT for honey supplied. Again, payments were made and there was no demure

14 Vector Gas Ltd v Bay of Plenty Energy Ltd, above n 9, at [30]–[31]; Gibbons Holdings Ltd v
Wholesale Distributors Ltd [2007] NZSC 37, [2008] 1 NZLR 277 at [52]–[53].

by WSL. Some of the honey WSL paid for was 2011 honey. It was only in the second amended statement of claim, that WSL suggested for the first time, and even then obliquely, that it had paid for honey it already owned and been denied an offset it now says should have been available to it. The assertion was only really advanced by Mr Watson in the evidence he gave at the hearing.15

[97] Fourthly, and notwithstanding that that neither Mrs Watson, who was responsible for WSL’s day to day finances, nor Ms Mitchell, as WSL’s chief financial officer, could confirm the position, I have no doubt but that WSL was claiming GST refunds from the Inland Revenue Department in respect of the honey it was purchasing from JRWT. As Mr Watson made clear, GST recoveries were an important factor for WSL if it was to meet the various obligations due and owing by it. WSL would not have been able to claim GST refunds in respect of the honey if it already owned it.

[98] Fifthly, when matters eventually came to a head, Mr Bale wrote to Mr Hockly. As I have already noted in [37], Mr Bale accepted that money was owed by WSL to JRWT for the honey JRWT had supplied to WSL. There was no assertion that Salem or WSL owned the 2011 honey.

[99] Finally, the position advanced by Mr Watson at trial on behalf of the plaintiffs was inconsistent with the stance taken earlier in the history of this proceeding, and with a number of other assertions made by the plaintiffs. For example, the injunction proceedings referred to in [3] and [4] proceeded on the implicit assumption that JRWT owned all of the honey. The assertions in the pleadings that JRWT supplied honey of inferior quality (now abandoned), or that WSL paid at least $5 more per kilogram of honey than it was worth, are inconsistent with any claim that the 2011 honey belonged to Salem throughout.

[100] In my judgment, it is clear that the honey harvested in the 2011 season did not belong to Salem, both from the various agreements which the parties signed looked

15 When he gave evidence, Mr Watson seemed rather uncertain as to the scope of the argument. At times, he appeared to suggest that all of the honey harvested from the hives the subject of the first to fourth agreements belonged to Salem, whereas Mr Sullivan, no doubt aware of the unequivocal provisions in the second agreement for the hire of hives, was careful to limit his submissions to the 2011 honey.

at in their totality, and from their subsequent conduct. I agree with the defendants that the plaintiffs’ position maintained at trial is contrary to, and inconsistent with, their trading relationship with Shiloh and JRWT, with the various agreements negotiated and signed, and with the parties’ subsequent objective conduct. I find that the 2011 honey taken from the hives the subject of the first to fourth agreements belonged to JRWT.

Was the hive purchase price payable under the first to fourth agreements to be offset by the supply of 2011 honey owned by Salem?

[101] The conclusion I have reached in relation to the ownership of the honey deals with this key assertion made by the plaintiffs as well. If the honey did not belong to Salem, Salem could not offset it against the purchase price of the hives it was purchasing. Rather, WSL was required to pay JRWT for honey supplied, and Salem was required to pay Shiloh for the hives that it had contracted to purchase. Mr Watson attempted to explain this away in his evidence. He said:

I realise that the agreements do not properly record that the 2011 honey which was produced from our hives (under JRWT’s management) was to be offset against the purchase price. This was the arrangement in place at the time and I accept it is unusual that the agreements did not spell it out…

I do not accept this evidence. In my judgment, it was not the arrangement put in place at the time.

[102] In any event, it is not clear how the offset contended for by the plaintiffs could have worked. Shiloh was the vendor of the hives. Salem had agreed to purchase the hives. Shiloh had, pursuant to the first to fourth agreements, relinquished any claim to ownership of the honey. JRWT was a separate legal entity and it agreed to hire the hives from Salem and to pay Salem the rental due in cash, or to give Salem honey extracted from the hives in lieu of a cash payment. The agreements envisaged that Salem would pay to Shiloh any rental monies it received from JRWT, or transfer to Shiloh any honey it received from JRWT in lieu of a cash payment. This was not an offset between Shiloh as vendor and Salem as purchaser. The offset argument raised by the plaintiffs ignores the fact that Shiloh and JRWT were separate trusts, each with its own rights and obligations pursuant to the agreements. It also ignores the fact that the honey was supplied by JRWT to WSL.

WSL and Salem were also separate legal entities. WSL could not claim “ownership” of the honey unless and until it paid JRWT for it. I reject the plaintiffs’ “offset” argument.

[103] I now turn to consider whether or not the agreements record the bargain between the parties.

Do the October 2010 and November 2011 agreements record the bargain made between the parties?

[104] The agreements are in writing. The first to fourth agreements were prepared by Shiloh’s and JRWT’s solicitor. Although Mr Watson was cautioned by his senior staff about the wisdom of signing the documents, he did so without taking legal advice. The deed of arrangement and the other key agreements dated 29 November
2011 were the subject of lengthy negotiations between the parties’ legal and accounting advisors. All parties entered into them with the benefit of independent professional advice. All documents appear on their face to be formal contracts. They contain all the necessary and essential terms relevant to the sale/purchase/lease of the hives and the sale and purchase of the honey. I agree with and adopt the observations of Fisher J in Newmans Tours Ltd v Ranier Investments Ltd:16

If the written document appears on its face to be a comprehensive record of an agreement, that in itself will be strong evidence that it was intended to be exhaustive. The more the suggested oral term is in disharmony with the wording of the written document, the more difficult it will be to persuade the Court that it was intended to survive the written document. But if, from whatever source, the Court is satisfied as to the parties’ real agreement, it will give effect to that agreement regardless of the form in which it may have been expressed.

16 Newmans Tours Ltd v Ranier Investments Ltd [1992] 2 NZLR 68 (HC) at 81; and see, Burrows, Finn & Todd, Law of Contracts in New Zealand, (4th ed, Lexis Nexis, Wellington, 2012), at [6.2.1] at 188.

[105] The plaintiffs seek to explain the first to fourth agreements and the key 2011 agreements through Mr Watson. Parole evidence is not normally admissible to add to, vary or contradict the terms contained in written agreements,17 and the parties’ declarations of their subjective intent, are generally irrelevant in interpreting their agreements.18 However, what is said in negotiations can be admitted for purposes other than to discover what the parties intended their words to mean. Such material can be adduced to show that the written agreement misstates the actual agreement between the parties. It can also be admitted if it shows misrepresentations by one party, or that the parties agreed to additional terms, thus showing that the written agreement is not the whole agreement. It can also be admitted to establish an estoppel.19

[106] Given the pleadings, I have considered Mr Watson’s various assertions for the purpose of considering various of the causes of action advanced in the second amended statement of claim.

The Fair Trading Act

[107] As noted above, pursuant to the Fair Trading Act, the plaintiffs allege that the defendants have engaged in misleading or deceptive conduct and made false or misleading representations. They rely on both ss 9 and 13 of the Act.

[108] Where breach of s 9 of the Fair Trading Act is alleged, there are three questions to be considered:

(a) Was the conduct capable of misleading?
(b) Was the person directed by the conduct in fact misled? (c) Was it reasonable to be misled?20

17     Tak and Co. Inc v AFL Corp (1995) 5 NZBLC 103, 887 (HC).
18     Investors Compensation Scheme Ltd v West Bromwich Building Society, above n 9; Boat Park
Ltd v Hutchinson, above n 9; Vector Gas Ltd v Bay of Plenty Energy Ltd, above n 10.
19     See, Law of Contracts in New Zealand, above n 16, at [16.2.2(g)] at 200.
20     Janus Nominees Ltd v Fairhall [2009] 3 NZLR 757 (CA).

[109] The plaintiffs did not plead which subparagraph(s) contained in s 13 they rely on. Nor, despite my invitation, was this issue clarified in the submissions advanced. If the plaintiffs are relying on an assertion that the honey was of a particular quality, I repeat that Mr Sullivan abandoned any argument in regard to the quality of the honey.

Mr Watson to make his own plans for farming them, or alternatively, arrange for their collection. This was repeated in a letter Mr Whitehead sent to Mr Watson on 4 April
2013. Further, on that day, Mr Whitehead advised Mr Watson that, as from 1 April

2013, JRWT would be charging WSL $25 per hive per month for looking after the hives until they were picked up.

[229] It seems to me that the second agreement for the hire of hives, in respect of the 900 hives, came to an end on 31 March 2013. At that date, s 8(2) of the Contractual Remedies Act had been complied with. JRWT had made its intention to cancel known, both by words and by conduct. It had evinced an unequivocal intention to cancel. JRWT is liable to pay rental to Salem/WSL for the 900 hives from 1 August 2012 to 31 March 2013. Again, rental will have to be calculated on a per hive and per diem basis by reference to the rate of $57,500 (plus GST) per month for all 2,300 hives. Again, JRWT is liable for interest at the prescribed rate of five percent from the end of each month of the renewed term until the date of judgment, for the reasons I have set out above. Interest is not to be compounded.

[230] In its second amended statement of claim, the plaintiffs claimed rental of

$483,000 for the 1,400 hives the subject of the first and fourth agreements for the period 1 July 2012 to July 2013.

[231] There was no proper basis on which they could do so. They had no entitlement to the 1,400 hives as from 11 April 2012, when the first to fourth agreements were cancelled.

[232] There is an assertion in the second amended statement of claim that the defendants repudiated the second agreement for the hire of hives by failing to pay rental, purporting to cancel the agreement, and/or by refusing to renew it.

[233] There is nothing in this pleading:

(a) It was the plaintiffs, through Mr Bale’s letter of 5 December 2012, who first repudiated the agreement for the hire of hives, by asserting that the same was at an end. While that repudiation was not accepted, JRWT did not pay rental. Shiloh later cancelled the agreement in

respect of the 1,400 hives the subject of the first and fourth agreements. The hire agreement could not continue because Salem/WSL breached the first and fourth agreements and the deed of arrangement. There can be no expectation damages in these circumstances.

(b)Similarly, there can be no expectation damages for the refusal to renew. The second agreement for the sale of hives gave JRWT the right of renewal, at a rental to be agreed. Salem/WSL cannot have had any legitimate expectation that the agreement would be renewed. They were taking their chances in that regard.

[234] It is asserted by the plaintiffs that JRWT breached the second agreement for the hire of hives by seeking to charge WSL a management fee for the hives which wrongly remained in JRWT’s possession after the 2012 honey season, and by seeking to reduce the hive rental payable.

[235] I do not consider that there is anything in either of these arguments:

(a) As at the end of March, Mr Whitehead made it clear that JRWT no longer wished to hire the 900 hives from Salem/WSL. Salem/WSL did not dispute this cancellation, and they proceeded to uplift the hives in May 2013. JRWT were entitled to seek to charge a management fee for looking after the hives, until such time as they were picked up. There was, in effect, a bailment. I have declined JRWT’s relief in this regard because it was not pleaded or argued.

(b)Nor can the plaintiffs complain because JRWT sought to reduce the rental payable when the second agreement for the hire of hives was renewed. The second agreement for the hire of hives expressly envisaged that that might occur. Salem/WSL could have no legitimate expectation that the rental would remain the same.

[236] Finally, in this regard, there is a claim by the plaintiffs for the sum of

$690,000 said to represent honey which the plaintiffs allege JRWT failed to account to them for, and that was harvested from the 900 hives during the 2012/2013 season.

[237] I simply cannot understand this claim. It is common ground that the second agreement for the hire of hives was renewed, and the plaintiffs have claimed damages by reference to the rental payable for the renewed term. Under the agreement, all honey produced from the hives, during the currency of the agreement, was the property of the lessee – JRWT. That is conceded by the plaintiffs. It must follow that JRWT was not required to deliver up to Salem/WSL the manuka honey produced by the 900 hives during the 2012/2013 season. The agreement was still on foot until it was finally cancelled on 31 March 2013. The claim for $690,000 for honey harvested from the 900 hives fails.

(vii) Salem’s/WSL’s claims pursuant to the deed of arrangement and the first,
third and fourth agreements

[238] The plaintiffs alleged that Shiloh breached the deed of arrangement and the third agreement because it did not have in place agreements with landowners for the sites on which the hives were placed. They said that they purchased those sites, that they are entitled to them, and that they have been denied the sites because Shiloh/JRWT did not have formal agreements in place which could be assigned to them.

[239] It is clear that Salem/WSL were in each agreement purchasing not only the hives, but also the sites on which the hives were situated. The 2009 agreement between JRWT and Salem had a schedule of sites attached to it. The sites were identified by a name, a map reference, and the number of hives on the site – for example, “Graeme’s – PO4 886 861 – 50”. Mr Watson accepted in evidence that he was not unduly concerned about the sites on which the 500 hives the subject of the
2009 agreement were situated. He said that the sites did not bother him, because he got the hives paid for in full.

[240] Similar schedules of sites were supposed to have been attached to each of the first to fourth agreements. A schedule was referred to in the introduction to each of

those documents. However, it seems that no schedules were attached when the agreements were signed.

[241] Mr Watson said in evidence said that there was “a lot of due diligence done” at the time the agreements were signed. When I asked him about this, he told me that while he undertook due diligence, he did not make any inquiry into the sites, notwithstanding that, on his evidence, he was paying $1,000 per site. Mr Watson stated that:

at some stage we may have had a list of sites on which JRWT placed its hives. I don’t recall when this was provided. I do know that we received a schedule from Mr Hockly to send to the IRD in December 2011.

It seems likely that Mr Watson was not concerned about the sites when the first to fourth agreements were signed. He had already entered into the 2009 agreement, and settled that agreement. He had effectively abandoned the sites the subject of that agreement by moving the hives to Masterton. On the evidence, a schedule of sites was provided sometime after the agreements were signed. There was no evidence to suggest that anything further was sought at that stage or that any protest was then made.

[242] The first to fourth agreements did not require that the sites be subject to formal written agreements with landowners. Mr Whitehead gave evidence that there were agreements in place. Some were in writing, although most were informal. The schedule attached to the 2009 agreement and the recognition in the second agreement for the hire of hives that landowners could be paid with honey or money as required, confirmed the relatively informal nature of the agreements which Shiloh/JRWT had in place with landowners.

[243] The second agreement for the hire of hives put obligations on JRWT as lessee. It was required to take responsibility for the registration of each hive site with the relevant authorities, and to maintain a register of hives and sites. It agreed to allow Salem/WSL to inspect the register and the sites from time to time upon reasonable notice. JRWT was also responsible for having in place agreements with landowners of sites, and paying the landowners with honey or money as required.

[244] There was no difficulty with registration. Ms Blake gave evidence that she attended to this. Mr Watson accepted that JRWT attended to registration of the sites with AgriQuality. A register was maintained, and Mr Whitehead gave evidence that he gave Mr Watson the opportunity to inspect the sites, and the register. JRWT complied with the relevant provisions contained in the second agreement for the hire of the hives.

[245] On the evidence, Salem/WSL and Mr Watson were not concerned about the sites at all. As I have already noted, following settlement of the 2009 agreement, WSL uplifted the 400 hives which were transferred pursuant to that agreement, and took them to Masterton. It did the same when the second agreement was settled. The 700 hives the subject of that agreement were taken to Masterton. Similarly, WSL took the 900 hives the subject of the third agreement to Masterton in May 2012. The hives were taken to Masterton notwithstanding that WSL had its own beekeeper based in Northland, who could have taken over the hives in situ, and picked up JRWT’s agreements with the landowners, such as they were, to access the hives.

[246] At the time, Mr Watson was given an express warning by Mr Whitehead that somebody else would, in all probability, move in and take over the sites. Presumably, that has occurred, but there is no evidence that Mr Whitehead or JRWT is responsible for that. Mr Whitehead said, and I accept, that he has not retained any of the sites that were sold to Salem/WSL. I am satisfied from the evidence that Shiloh, through Mr Whitehead, made every reasonable offer to assist Mr Watson to meet with the site owners, and to introduce him as the new owner of the hives. Mr Watson did not take up those offers. He was simply not concerned about or interested at all in the sites, so long as he received the honey harvested from the sites. He allowed the sites to be relinquished or surrendered, and notwithstanding express and repeated requests from Mr Whitehead and from Mr Hockly that Salem/WSL should address the sites, and deal properly with them. Mr Watson failed to respond. No issue was taken in regard to the sites until matters came to a head, and Mr Bale wrote to Mr Hockly on 5 December 2012.

[247] Not only did the various agreements, both in 2010 and 2011 not require that formal written contracts for the sites be in place, they did not require that such agreements as were in place were capable of being formally assigned to Salem/WSL. In my view, the plaintiffs have belatedly sought to read into the first to fourth agreements provisions which are not there.

[248] Accordingly, I do not consider that Shiloh breached the deed of arrangement or the first and third agreements as alleged by the plaintiffs. There were sites, and those sites were in large part secured only by relatively informal agreements. This, however, was not a breach of the deed or the agreements, and in any event, Mr Watson’s overt actions and conduct operated as a waiver of any rights or interest Salem/WSL may have had in the sites.51 The claim the plaintiffs have made for damages for failure to deliver up the sites must fail.

[249] Finally, I turn to the condition of the 900 hives, which were uplifted by

Salem/WSL from Shiloh in mid-May 2012. In their pleadings, the plaintiffs sought

$72,450 in this regard. They claimed that 20 percent of the hives delivered were not able to be used and were worthless.

[250] There was a significant amount of evidence in regard to this issue.

[251] First, and contrary to the plaintiffs’ assertions, the evidence established that it was Mr Whitehead who was pushing to get Mr Watson to uplift the 900 hives the subject of the third agreement. This was clear from an email dated 26 February
2013. The request was repeated in a letter dated 28 March 2013. Mr Whitehead also sought to head off any suggestion that the hives might be in poor condition. He expressly advised Mr Watson that he was happy for him to come and inspect the hives, and that it would assist by transporting them to a central location for trucking.

[252] By letter dated 12 April 2013, Mr Bale stated that Salem/WSL wished to uplift the 900 hives. He advised that Salem/WSL did wish to inspect the 900 hives to
assess their condition and ensure that they were being managed appropriately.

51 Neylon v Dickens [1977] 1 NZLR 595 (CA).

[253] In a letter also dated 12 April 2013, Mr Whitehead invited Mr Watson to send up a truck to collect the hives. He noted that the truck should be able to handle 300 hives per load, and he proposed that the hives should be removed at the rate of 300 per week, over the following three weeks. He finished up the letter as follows:

We urgently need to know what your plans are. It’s all over to you now
Denis…

[254] Mr Watson replied on 15 April 2013 to Ms Blake. He told her that he would like to pick up the 900 hives. On 16 April 2013, Ms Blake replied advising that JRWT could progressively bring the hives into a holding area, so that the first pick up could take place on 9 May 2013, and a second pick up on 14 May 2013. She advised Mr Watson that he would need to arrange labour for loading and strapping the hives onto the trucks. On 17 April 2013, Mr Whitehead sent an email to Mr Watson. He asked him whether or not he had managed to organise a truck to collect the hives. He asked whether 9 and 14 May 2013 would suit, and reiterated that inspection of the hives (or the sites) was welcome. He asked Mr Watson to arrange matters direct with him.

[255] On 25 April 2013, Mr Whitehead sent a further letter to Mr Watson. He told him that he was starting to bring the hives into holding sites, but he was still seeking clarification from Mr Watson as to whether or not he had arranged a truck to uplift the hives. He stated as follows:

Denis it is still an option to carry on farming the beehives on the sites you have purchased if you wish. This was your intention and reason for buying the hives and sites. As I have stated in the past, I am only too happy for you to come up and inspect the hives and sites. I suggest that you would want to do this regardless of whether you take the hives away or carry on farming them on their sites.

If you wish to utilise the sites you have purchased with these 900 beehives, we need to discuss the most practical sites for you to take from the site list you signed with the deed of arrangement with Shiloh. Shiloh I understand would [be] happy for me to help in this way if need be.

[256] In a further email sent on 1 May 2013, Mr Whitehead told Mr Watson that he would like him to personally come up and check the hives before they were loaded and noted that that would give the parties a chance to work out together which sites it was best for Mr Watson to take over.

[257] Mr Watson did not reply to any of these emails and letters. He asked Mr Bale to do so on his behalf, and Mr Bale sent a short email to Mr Whitehead on 2 May
2013, asking him to communicate through his solicitor.

[258] Also on 2 May 2013, Mr Bale sent an email to Mr Hockly. He asked whether JRWT was unconditionally offering Mr Watson the opportunity to uplift the 900 hives. He repeated his request for detail of the hive sites, including location, land value, ownership and assignments. He advised that Mr Watson did wish to see the beehives and inspect their condition prior to uplifting them, and asked what arrangements could be made for that to take place.

[259] Mr Hockly replied on 7 May 2013. He advised that the 900 hives and sites had been paid for by Salem/WSL, and that Shiloh was happy to transfer the hives and sites to WSL, without prejudice to its claim for interest pursuant to the deed of arrangement. He reiterated that JRWT had surrendered the second agreement for the hire of hives as at 31 March 2013, and requested that Salem/WSL should forward a tax invoice for rental up until that date. He also recorded that Mr Watson or his employees could inspect the hives after 2.00 pm on Wednesday, 8 May 2013, and suggested that an independent beekeeper experienced with hive condition in Northland at that time of year also be present. He also stated that Mr Whitehead considered that that would be an ideal time for him and Mr Watson to discuss details regarding the sites which had been purchased. He recorded that it would be in both Mr Watson’s and Mr Whitehead’s best interests for them to discuss which sites would become Salem’s/WSL’s property. It was expressly noted that the uplifting of the hives was not dependent on this, however.

[260] A truck was sent to the collection point by WSL on 8 May 2013. Unfortunately, and notwithstanding Mr Bale’s advice to the contrary, Mr Watson decided not to attend and he did not supervise the loading of the hives. Rather, he arranged for WSL’s Northland beekeeper, a Mr Kevin Atkins, to attend and inspect the hives for Salem/WSL. A number of hives were uplifted. The truck was supposed to return on Monday, 13 May 2013 to collect the remaining hives. WSL arranged for a contractor to come onto the site to confirm that the hives were available for uplift,

and in good condition. In the event, the final uplift was delayed. It did not take place until 16 May 2013.

[261] Mr Atkins gave evidence for the plaintiffs. He told me that he attended and inspected the hives at the loading base. He said that the bees in the hives were aggressive, and that the hives were difficult to inspect. He said that there were 400 hives available for checking, and that he checked a number of them. He said that he did not consider the hives to be in excellent condition, and that many of them were not “two brood boxes with good weights”.

[262] The plaintiffs also called evidence from Daniel Watson. He is Mr Watson’s son, and WSL’s head beekeeper. He inspected the 900 hives when they arrived at Masterton. He said that a number of the hives were in very poor condition. He produced a number of photographs that were taken of the hives when he inspected them, and also a video. He estimated that approximately 180 hives (20 percent) were unusable. He told me that Salem/WSL had to replace broken frames in the hives, and repopulate them with bees. He said that one season’s production was lost while the
180 hives in poor condition were cleaned up, repaired, and repopulated. He also said that additional labour was required to get the remaining 720 hives “up to spec”, but that this was accepted by WSL as part of its operational cost.

[263] The defendants called evidence from a Mr Mark Frear in this regard. He was an independent beekeeper based in Northland. He inspected a cross section of the
400 hives, which were initially picked up by Salem/WSL. He said that the hives were two-box hives, and that all had good, if not excellent, weights. He told me that he opened the tops of at least 50 of the hives, and found that bee numbers were healthy.

[264] The defendants also called evidence from a Mr Jaime Brown. He was a beekeeper who worked for Mr Whitehead. He was also involved in the inspection, and he said that the condition of those hives which he inspected was very good. Mr Brown was shown the photographs and video produced by Mr Daniel Watson. It was accepted by Mr Whitehead that the photographs and videos depicted some of the
900 hives which were transported to Masterton. Mr Brown was forthright in his

views. He was surprised to see hives in the condition shown in the photographs. He

said that the hives shown in the photographs “were not acceptable as such”.

[265] I was impressed by Mr Brown’s forthright answers. I preferred his answers to those of Mr David Whitehead (Mr John Whitehead’s brother), who also gave evidence in relation to the photographs. Mr David Whitehead said that the hives depicted in the photographs looked to be in good condition. I do not accept this evidence. I do not discount Mr Frear’s evidence, but I note that he only inspected a limited number of the hives.

[266] On balance, and having considered the evidence in its totality, I accept that approximately 20 percent of the hives – or 180 hives – were in poor condition, that work had to be undertaken on them to get them back into good condition, that the hives had to be repopulated with bees before they could be used, and that a year’s production from the hives was lost.

[267] Unfortunately for the plaintiffs, that is not the way that the claim was pleaded by them. They sought damages on the basis that the hives supplied were worthless, and could not be used at all. There was no direct evidence led before me as to the cost of repairing the hives, or the lost production which resulted. Estimating lost
profits is always a complex task.52 I am satisfied that there was real damage and that

the law requires that I do my best to arrive at a figure by way of damages.53

Summary

[268] For the reasons I have set out, I find as follows:

(a) Mr Watson and WSL are jointly and severally liable for the amounts
(including interest) payable to JRWT pursuant to the agreement for sale and purchase of honey dated 29 November 2011.

52 Ware v Johnson [1984] 2 NZLR 518 (HC) at 542.
53 Walsh v Kerr [1989] 1 NZLR 490 (CA) at 494; Newbrook v Marshall [2002] 2 NZLR 606 (CA)
at 614.

(b)WSL is liable for the monies owing in respect of invoices 329, 332 and 334, together with interest thereon at the rate of five percent. Interest is not to be compounded.

(c) Salem/WSL is liable for interest at the rate of four percent on each of the payments due in respect of the third agreement, from the date fixed in the deed of arrangement for payment, until the date of payment. Interest is not to be compounded.

(d)JRWT is liable to pay interest at the rate of six percent in respect of the payments of rental due under the second agreement for the hire of hives in May and June 2012, from the dates on which the rental was due to be paid, until 30 July 2012, and at the rate of five percent from that date through until the date of judgment. Interest is not to be compounded.

(e) JRWT is liable for rental due under the second agreement for the hire of hives as at 30 July 2012, in the sum of $595,125, together with interest at the rate of five percent from that date through until the date of judgment. Interest is not to be compounded.

(f) JRWT is liable for rental in respect of the 1,400 hives the subject of the first and fourth agreements, from 1 August 2012 until 11 April
2013, such rental to be calculated on a per hive and per diem basis, by reference to the rate of $57,500 (plus GST) per month, in respect of all
2,300 hives, together with interest at the rate of five percent from the end of each month of the renewed term until the date of judgment. Interest is not to be compounded.

(g)JRWT is liable for rental in respect of the 900 hives the subject of the third agreement, from 1 August 2012 to 31 March 2013, such rental to be calculated on a per hive and per diem basis, by reference to the rate of $57,500 (plus GST) per month, in respect of all 2,300 hives, together with interest at the rate of five percent from the end of each

month of the renewed term until the date of judgment. Interest is not to be compounded.

(h) Shiloh is liable for damages in a sum to be fixed for delivery to

Salem/WSL of 180 hives which were not in good condition.

[269] Although both parties called expert forensic accountants, the calculations they respectively made do not align with my findings as to liability. Therefore, I have issued this judgment as an interim judgment, so that the expert accountants can liaise and prepare a final calculation in accordance with my judgment. The hearing, however, is closed and I am not prepared to allow the parties to call further evidence.

[270] I direct the parties, within 20 working days of this interim judgment, to file a joint memorandum, or if there is disagreement, separate memoranda:

(a) calculating the sums payable pursuant to this interim judgment;

(b) advising whether the defendants are seeking judgment against Mr and

Mrs Watson personally for the interest noted in [268(c)];

(c) detailing such evidence as is available and which may assist me to fix the damages payable by Shiloh in respect of the damage noted in [268(h)].

[271] On receipt of the memorandum/memoranda, I will consider whether judgment can be entered. If there is disagreement, I will direct the Registrar to allocate further hearing time to resolve any outstanding issues.

[272] Once a final judgment has issued, I will invite the parties to file memoranda as to costs. I record that the agreement for sale and purchase of the honey did provide that WSL, and Mr Watson as guarantor, were liable for solicitor and client costs.

Wylie J

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Citations

Watson v Whitehead [2014] NZHC 2992

Most Recent Citation

Watson v Whitehead [2015] NZHC 739

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Whitehead v Watson & Son Ltd [2016] NZSC 115

He v Chen [2016] NZCA 340

Watson & Son Limited v Whitehead [2016] NZCA 241

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Gibbons Holdings Ltd v Wholesale Distributors Ltd [2007] NZSC 37

Hearing:	18-22, 25-29 August and 22 October 2014
Appearances:	K P Sullivan for the First and Second Plaintiffs M C Black for the First and Second Defendants
Judgment:	27 November 2014